Intercompany Dividends
Requirement 1: Working Paper Elimination Entries on December 31, 2021
CJE #1: To eliminate the investment in subsidiary.
Inventory
4,000
Equipment, net
12,000
Share Capital
40,000
Share Premium
10,000
Retained Earnings (74K– 10K – 40K)
24,000
Goodwill
3,000
Investment in Subsidiary
Non-controlling interest (90K X 20%)
75,000
18,000
CJE #2: To recognize the depreciation after FVA.
Cost of Goods Sold
Depreciation Expense
Inventory
Accumulated Depreciation
4,000
2,000
4,000
2,000
CJE #3: To adjust parent’s and subsidiary’s retained earnings for the depreciation of FVA.
Retained Earnings – ABC (6,000 X 80%)
Retained Earnings – XYZ (6,000 X 20%)
Income Summary – Working paper
4,800
1,200
6,000
CJE #4: To recognize the non-controlling interest in post-acquisition.
Retained Earnings – XYZ
17,600
Retained Earnings – ABC
NCI – post-acquisition (19,600 – 18,000)
16,000
1,600
CJE #5: To eliminate the dividend income.
Dividend Income
4,800
Income Summary – Working paper
4,800
Requirement 2: Consolidation Worksheet
ASSETS
Cash
Accounts
receivable
Inventory
Investment in
subsidiary
Equipment, net
Goodwill
Total assets
LIABILITIES
AND EQUITY
Accounts
payable
Total liability
Share capital
Share premium
Retained
earnings
NCI
Total equity
Total liabilities
and equity
Sales
Cost of Sales
Gross profit
Depreciation
expense
Distribution
cost
Dividend
income
Profit for the
year
CJE#
CONSOLIDATION
ADJUSTMENTS
DR
CR
ABC
XYZ
27,800
51,000
78,800
75,000
22,000
97,000
105,000
15,000
75,000
-
140,000
422,800
30,000
118,000
73,000
30,000
73,000
170,000
65,000
30,000
40,000
10,000
1
1
40,000
10,000
114,800
38,000
1,3+4
47,600
349,800
88,000
422,800
118,000
300,000
(165,000)
135,000
120,000
(72,000)
48,000
2
4,000
420,000
(241,000)
179,000
(40,000)
(10,000)
2
2,000
(52,000)
(35,000)
(18,000)
4,800
0
64,800
20,000
1
1
1
4,000
12,000
3,000
CJE#
CONSOLIDATED
4,000
2
120,000
75,000
1
-
2,000
2
180,000
3,000
478,800
103,000
116,600
103,000
170,000
65,000
16,000
4
121,200
19,600
1+4
19,600
375,800
116,600
478,800
(53,000)
5
4,800
74,000
Requirement 3. Consolidated Financial Statements
Step 1: Analysis of effects of intercompany transaction
The dividends declared by XYZ are allocated as follows:
6,000 X 80% = 4,800 share of ABC
6,000 X 20% = 1,200 share of NCI
The investment in subsidiary is measured at cost. Therefore, ABC recognized the P 4,800
dividends in profit or loss as dividend income.
Step 2: Analysis of subsidiary’s net assets
XYZ, Inc.
Net assets at carrying amount
Fair value adjustments
Net assets at fair value
Inventory
Equipment, net
Totals
1/1/2021
74,000
16,000(a)
90,000
FVA, 1/1/21(a)
4,000
12,000
16,000
12/31/21
88,000
10,000(b)
98,000
Useful life
N/A
6 yrs.
Net Change
8,000
Depreciation
4,000
2,000
6,000
FVA, 12/31/21(b)
10,000
10,000
Step 3: Goodwill
P 3,000 is the goodwill as stated in the problem. This will be the amount reported in the
consolidated financial statements since there is no impairment.
Step 4: Non-controlling interest in net assets
Subsidiary’s net assets at fair value – 12/31/21
Multiply by: NCI %
Non-controlling interest in net assets – 12/31/21
98,000
20%
19,600
Step 5: Consolidated retained earnings
Parent’s retained earnings – 12/31/21
Parent’s share in the net change in subsidiary’s net assets
114,800
6,400(c)
Consolidate Retained Earnings – 12/31/21
(c)
121,200
Net change in XYZ’s net assets
Multiply by: ABC’s interest in XYZ
ABC’s share in the net change in XYZ’s net assets
8,000
80%
6,400
Step 6: Consolidated profit or loss
Parent
Profits before adjustments
64,800
Effects of intercompany transactions:
Dividend Income
(4,800)
Profits before FVA
60,000
Depreciation of FVA(d)
(4,800)
Consolidated profit
(d)
Consolidated
84,800
20,000
(1,200)
(4,800)
80,000
(6,000)
74,000
6,000 X 80% = 4,800 share of parent
6,000 X 20% = 1,200 share of subsidiary
Parent’s profit before FVA
Share in XYZ’s profit before FVA(e)
Depreciation of FVA
Totals
(e)
Subsidiary
20,000
Owners of parent
60,000
16,000
(4,800)
71,200
20,000 X 80% = 16,000 share of parent
20,000 X 20% = 4,000 share of subsidiary
NCI
N/A
4,000
(1,200)
2,800
Consolidated
60,000
20,000
(6,000)
74,000
_
ABC GROUP
Consolidated Statement of Financial Position
As of December 31, 2021
ASSETS
Cash (27,800 + 51,000)
Accounts Receivable (75,000 + 22,000)
Inventory (105,000 + 15,000 + 0)
Equipment, net (140,000 + 30,000 + 10,000)
Goodwill
TOTAL ASSETS
LIABILITIES AND EQUITY
Accounts Payable (73,000 + 30,000)
Total Liabilities
Share Capital (Parent only)
Share Premium (Parent only)
Retained Earnings (Parent only)
Owners of parent
Non-controlling interest
Total Equity
TOTAL LIABILITIES AND EQUITY
78,800
97,00
120,000
180,000
3,000
P 478,800
103,000
103,000
170,000
65,000
121,200
356,200
19,600
375,800
P 478,800
ABC GROUP
Consolidated Statement of Profit or Loss
For the Year Ended December 31, 2021
Sales (300,000 + 120,000)
Cost of Goods Sold (165,000 + 72,000 + 4,000)
Gross Profit
Depreciation Expense (40,000 + 10,000 + 2,000)
Distribution Costs (35,000 + 18,000)
420,000
(241,000)
179,000
(52,000)
(53,000)
Profit for the year
Profit attributable to:
Owners of parent
Non-controlling interests
P 74,000
71,200
2,800
74,000