Problem I
Cost Model
Chapter 4
1. January 1, 20x4
a. On date of acquisition the retained earnings of P should always be considered as the
consolidated retained earnings, thus:
Consolidated Retained Earnings, January 1, 20x4
Retained earnings - P Company, January 1, 20x4 (date of acquisition)
P360,000
b. NCI (Partial/Full)
Non-controlling interest (partial-goodwill), January 1, 20x4
Common stock – S Company, January 1, 20x4……
Retained earnings – S Company, January 1, 20x4
Stockholders’ equity – S Company, January 1, 20x4
Adjustments to reflect fair value - (over) undervaluation of assets and
liabilities, date of acquisition (January 1, 20x4)
Fair value of stockholders’ equity of subsidiary, January 1, 20x4……
Multiplied by: Non-controlling Interest percentage…………...
Non-controlling interest (partial-goodwill)…………………………………..
Add: NCI on full-goodwill (P15,000 – P12,000)
Non-controlling interest (full-goodwill/fair value basis)
…………………………………..
P 240,000
120,000
P 360,000
90,000
P450,000
20
P 90,000
___3,000
P 93,000
The over/under valuation of assets and liabilities are summarized as follows:
S Co.
S Co.
(Over) Under
Book value
Fair value
Valuation
Inventory………………….
……………..
P 24,000
P 30,000
P 6,000
Land……………………………………
…
48,000
55,200
7,200
Equipment (net).........
84,000
180,000
96,000
Buildings (net)
168,000
144,000
( 24,000)
Bonds payable…………………………
( 120,000)
( 115,200)
4,800
Net………………………………………..
P 204,000
P 294,000
P 90,000
The buildings and equipment will be further analyzed for consolidation purposes as follows:
S Co.
S Co.
Increase
Book value
Fair value
(Decrease)
Equipment ..................
180,000
180,000
0
Less: Accumulated
depreciation…..
96,000
( 96,000)
Net book
value………………………...
84,000
180,000
96,000
S Co.
S Co.
Book value
Fair value
(Decrease)
Buildings................
360,000
144,000
( 216,000)
Less: Accumulated
depreciation…..
192,000
( 192,000)
Net book
value………………………...
168,000
144,000
( 24,000)
A summary or depreciation and amortization adjustments is as follows:
Account
Adjustments
to
be
Over/
Annual
Current
amortized
Under
Life Amount
Year(20x4)
P
P
Inventory
6,000
1
6,000
P 6,000
Subject to Annual Amortization
20x5
P
-
Equipment (net).........
96,000
(24,00
0)
4,80
0
Buildings (net)
Bonds payable…
c.
8
12,000
12,000
12,000
4
( 6,000)
1,20
0
P
13,200
( 6,000)
1,200
(6,000)
1,20
0
P 13,200
P 7,200
4
Partial/Proportionate Goodwill
Consolidated SHE:
Stockholders’ Equity
Common stock, P10 par
Retained earnings
P’s Stockholders’ Equity / CI – SHE
NCI, 1/1/20x4 (b)
Consolidated SHE, 1/1/20x4
P 600,000
360,000
P 960,000
___90,000
P1,050,000
Full-Goodwill/Fair Value Basis
Consolidated SHE:
Stockholders’ Equity
Common stock, P10 par
Retained earnings
Parent’s Stockholders’ Equity / CI – SHE
NCI, 1/1/20x4 (b)
Consolidated SHE, 1/1/20x4
P 600,000
360,000
P 960,000
___93,000
P1,053,000
2, The following items for December 31, 20x4 and December 31, 20x5 in the
Consolidated Financial Statements: (refer to requirement 6 as a guide)
Consolidated Amounts
a.
Cash
b.
c.
d.
e.
f.
g.
h.
i.
j.
k.
l.
m
.
n.
o.
p.
q.
Accounts receivable
r.
s.
t.
u.
Inventory
Land
Equipment (net)
Buildings (net)
Investment in Sax
Total Assets
Accounts payable
Bonds payable
Total Liabilities
Common stock/Ordinary share
Retained earnings/Accumulated
P&L
Sales
Cost of Goods sold
Gross profit
Expenses
(including
GW
impairment)
Dividend income
Controlling Interests in Net
Income
Non-controlling Interests in Net
Income
Net Income or CNI
December 31, 20x4
Partial
FullGoodwill
Goodwill
December 31, 20x5
Partial
FullGoodwill
Goodwill
P
355,200
150,000
180,000
265,200
273,000
549,000
-01,752,600
240.000
360,000
600,000
600,000
462,840
P
322,800
150,000
180,000
265,200
273,000
549,000
-01,754,850
240.000
360,000
600,000
600,000
462,840
P
367,200
276,000
294,000
265,200
240,000
492,000
-01,945,800
240,000
360,000
600,000
600,000
647,880
P
367,200
510,000
168,000
342,000
160,200
510,000
168,000
342,000
160,950
705,000
213,000
492,000
217,200
705,000
213,000
492,000
217,200
-0174,840
-0174,840
-0257,040
-0257,040
6,960
6,210
17,760
17,760
181,800
181,050
274,800
274,800
276,000
294,000
265,200
240,000
492,000
-01,948,050
240,000
360,000
600,000
600,000
647,880
v.
Common stock/Ordinary share*
w.
Retained Earnings/Accumulated
P&L*
Controlling Interests / Equity
Holders of Parent/ Parent’s
Stockholders’ Equity
Non-Controlling Interests
Stockholders’ Equity
x.
y.
z1
.
z2
.
Liabilities
Equity
and
Stockholders’
600,000
600,000
600,000
600,000
600,000
462,840
462,840
647,880
647,880
1,062,840
89,760
1,152,600
1,062,840
92,010
1,154,850
1,247,880
97,920
1,345,800
1,247,880
100,170
1,348,050
1,752,600
1,754,850
1,945,800
1,948,050
Alternative Solution (refer also to the worksheet)
80% Owned: Partial/Proportionate-Goodwill
The over/under valuation of assets and liabilities are summarized as follows:
S Co.
Book value
Inventory………………….
……………..
Land………………………………………
Equipment (net).........
Buildings (net)
Bonds payable…………………………
Net………………………………………..
S Co.
Fair value
P 24,000
48,000
84,000
168,000
(120,000)
P 204,000
(Over) Under
Valuation
P
30,000
55,200
180,000
144,000
( 115,200)
P 294,000
P
6,000
7,200
96,000
(24,000)
4,800
P 90,000
The buildings and equipment will be further analyzed for consolidation purposes as
follows:
Equipment ..................
Less: Accumulated
depreciation…..
Net book
value………………………...
Buildings................
Less: Accumulated
depreciation…..
Net book
value………………………...
S Co.
Book value
180,000
S Co.
Fair value
180,000
Increase
(Decrease)
0
96,000
-
( 96,000)
84,000
S Co.
Book value
360,000
180,000
S Co.
Fair value
144,000
96,000
(Decrease)
( 216,000)
192,000
-
( 192,000)
168,000
144,000
(
24,000)
Amortization Table: A summary or depreciation and amortization adjustments is as
follows:
Account
amortized
Adjustments
to
Inventory
Subject to Annual Amortization
Equipment (net).........
Buildings (net)
Bonds payable…
12/31/20x4:
be
Over/
under
P
6,000
96,000
(24,00
0)
4,80
0
Current
Year(20x4)
1
Annual
Amount
P
6,000
P 6,000
P
-
8
12,000
12,000
12,000
4
( 6,000)
1,20
0
P
13,200
( 6,000)
1,200
(6,000)
1,20
0
P 13,200
P 7,200
Life
4
20x5
Note: The goodwill recognized on consolidation purely relates to the parent’s share. NCI is
measured as a proportion of identifiable assets and goodwill attributable to NCI share is
not recognized.
CI-CNI – P174,840
Consolidated Net Income for 20x4
P Company’s net income from own/separate operations………….
Unrealized profit in ending inventory of S Company (downstream sales)…
P Company’s realized net income from separate operations*…….…..
S Company’s net income from own operations………………………………….
Unrealized profit in ending inventory of S Company (upstream sales)…
S Company’s realized net income from separate operations*…….…..
Total
Less: Non-controlling Interest in Net Income* *
Amortization of allocated excess (refer to amortization above)
Goodwill impairment (impairment under partial-goodwill approach)
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent…………..
Add: Non-controlling Interest in Net Income (NCINI)
Consolidated Net Income for 20x4
*that has been realized in transactions with third parties.
P168,000
( 18,000)
P150,000
P 60,000
( 12,000)
P 48,000
P 6,960
13,200
3,000
48,000
P198,000
23,160
P174,840
_ 6,960
P181.800
NCI-CNI – P6,960
**Non-controlling Interest in Net Income (NCINI) for 20x4
S Company’s net income of Subsidiary Company from its own operations
(Reported net income of S Company)
Unrealized profit in ending inventory of P Company (upstream sales)
S Company’s realized net income from separate operations………
Less: Amortization of allocated excess
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI) – partial goodwill
*that has been realized in transactions with third parties.
P 60,000
( 12,000)
P 48,000
13,200
P 34,800
20%
P
6,960
CNI, P181,800
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent…………..
Add: Non-controlling Interest in Net Income (NCINI)
Consolidated Net Income for 20x4
P174,840
_ 6,960
P181.800
On subsequent to date of acquisition, consolidated retained earnings would be
computed as follows:
Consolidated Retained Earnings, December 31, 20x4
Retained earnings - P Company, January 1, 20x4 (date of acquisition)
Add: Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent for 20x4
Total
Less: Dividends paid – P Company for 20x4
Consolidated Retained Earnings, December 31, 20x4
P360,000
174,840
P534,840
72,000
P462,840
NCI/NCINAS. The goodwill recognized on consolidation purely relates to the parent’s
share. NCI is measured as a proportion of identifiable assets and goodwill attributable to
NCI share is not recognized. The NCI on December 31, 20x4 are computed as follows:
Non-controlling interest (partial-goodwill), December 31, 20x4
Common stock – Subsidiary Company, December 31, 20x4……
Retained earnings – Subsidiary Company, December 31, 20x4
Retained earnings – Subsidiary Company, January 1, 20x4
Add: Net income of subsidiary for 20x4
Total
Less: Dividends paid – 20x4
Stockholders’ equity – Subsidiary Company, December 31, 20x4
Adjustments to reflect fair value - (over) undervaluation of assets and
liabilities, date of acquisition (January 1, 20x4)
Amortization of allocated excess (refer to amortization above) – 20x4
Fair value of stockholders’ equity of subsidiary, December 31, 20x4……
Less: Unrealized profit in ending inventory of P Company (upstream sales)
Realized stockholders’ equity of subsidiary, December 31, 20x4……
Multiplied by: Non-controlling Interest percentage…………...
Non-controlling interest (partial-goodwill)…………………………………..
P 240,000
P120,000
6,000
P180,000
36,000
144,000
P 384,000
90,000
( 13,200)
P460,000
12,000
P448,800
20
P 89,760
Consolidated SHE:
Consolidated SHE:
Stockholders’ Equity
Common stock, P10 par
Retained earnings
Parent’s Stockholders’ Equity / CI – SHE, 12/31/20x4
NCI, 12/31/20x4
Consolidated SHE, 12/31/20x4
P 600,000
462,840
P1,062,840
___89,760
P1,152,600
12/31/20x5:
CI-CNI
Consolidated Net Income for 20x5
P Company’s net income from own/separate operations………….
Realized profit in beginning inventory of S Company (downstream sales)
Unrealized profit in ending inventory of S Company (downstream sales)…
P Company’s realized net income from separate operations*…….…..
S Company’s net income from own operations………………………………….
Realized profit in beginning inventory of P Company (upstream sales)
Unrealized profit in ending inventory of P Company (upstream sales)…
Son Company’s realized net income from separate operations*…….…..
Total
Less: Amortization of allocated excess……………………
Consolidated Net Income for 20x5
Less: Non-controlling Interest in Net Income* *
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent – 20x5…………..
*that has been realized in transactions with third parties.
P192,000
18,000
(_24,000)
P186,000
P 90,000
12,000
( 6,000)
P 96,000
96,000
P282,000
7,200
P274,800
17,760
P257,040
Or, alternatively
Consolidated Net Income for 20x5
P Company’s net income from own/separate operations………….
Realized profit in beginning inventory of S Company (downstream sales)
Unrealized profit in ending inventory of S Company (downstream sales)…
P Company’s realized net income from separate operations*…….…..
S Company’s net income from own operations………………………………….
Realized profit in beginning inventory of P Company (upstream sales)
Unrealized profit in ending inventory of P Company (upstream sales)…
S Company’s realized net income from separate operations*…….…..
Total
Less: Non-controlling Interest in Net Income* *
Amortization of allocated excess……………………
Controlling Interest in Consolidated Net Income or Profit attributable to
equity
holders of parent…………..
Add: Non-controlling Interest in Net Income (NCINI)
Consolidated Net Income for 20x5
*that has been realized in transactions with third parties.
P192,000
18,000
(_24,000)
P186,000
P 90,000
12,000
( 6,000)
P 96,000
P 17,760
7,200
96,000
P282,000
24,960
P257,040
_ 17,760
P274,800
NCI-CNI
**Non-controlling Interest in Net Income (NCINI) for 20x5
S Company’s net income of Subsidiary Company from its own operations
(Reported net income of S Company)
Realized profit in beginning inventory of P Company (upstream sales)
Unrealized profit in ending inventory of P Company (upstream sales)
S Company’s realized net income from separate operations………
Less: Amortization of allocated excess
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI) – partial goodwill
P 90,000
12,000
( 6,000)
P 96,000
7,200
P 88,800
20%
P 17,760
CNI, P274,800
Controlling Interest in Consolidated Net Income or Profit attributable to
equity
holders of parent…………..
Add: Non-controlling Interest in Net Income (NCINI)
Consolidated Net Income for 20x5
P257,040
_ 17,760
P274,800
On subsequent to date of acquisition, consolidated retained earnings would be
computed as follows:
Consolidated Retained Earnings, December 31, 20x5
Retained earnings - Parent Company, January 1, 20x5 (cost model
Less: Unrealized profit in ending inventory of S Company (downstream
sales)
– 20x4 (UPEI of S – 20x4) or Realized profit in beginning inventory of
S Company (downstream sales) –20x5 (RPBI of S - 20x5)…………….
Adjusted Retained Earnings – Parent 1/1/20x5 (cost model (S Company’s
Retained earnings that have been realized in transactions with third
parties..
Adjustment to convert from cost model to equity method for purposes of
consolidation or to establish reciprocity:/Parent’s share in adjusted
net
increased in subsidiary’s retained earnings:
Retained earnings – Subsidiary, January 1, 20x5
Less: Retained earnings – Subsidiary, January 1, 20x4
Increase in retained earnings since date of acquisition
Less: Amortization of allocated excess – 20x4
Unrealized profit in ending inventory of P Company
(upstream
sales) 20x4 (UPEI of P – 20x4) or Realized profit in beginning
inventory of P Company (upstream sales) –20x5 (RPBI of P 20x5)
Multiplied by: Controlling interests %...................
P484,800
18,000
P466,800
P 144,000
120,000
P 24,000
13,200
12,000
(P 1,200)
80%
(P
960)
3,000
Less: Goodwill impairment loss, partial goodwill
( 3,960)
Consolidated Retained earnings, January 1, 20x5
P462,840
Add: Controlling
Interest in Consolidated Net Income or Profit
attributable to
257,040
equity holders of parent for 20x5
Total
P748,680
Less: Dividends paid – Parent Company for 20x5
72,000
Consolidated Retained Earnings, December 31, 20x5
P647,880
*this procedure would be more appropriate, instead of multiplying the full-goodwill impairment loss of
P3,125 by 80%. There might be situations where the controlling interests on goodwill impairment loss would
not be proportionate to NCI acquired
Or, alternatively:
Consolidated Retained Earnings, December 31, 20x5
Retained earnings - Parent Company, December 31, 20x5 (cost model
Less: Unrealized profit in ending inventory of S Company (downstream
sales)
– 20x5 (UPEI of S – 20x5) or Realized profit in beginning inventory of
S Company (downstream sales) –20x6 (RPBI of S - 20x6)…………….
Adjusted Retained Earnings – Parent 12/31/20x5 (cost model)
S Company’s Retained earnings that have been realized in
transactions with third parties..
Adjustment to convert from cost model to equity method for purposes of
consolidation or to establish reciprocity:/Parent’s share in adjusted
net
increased in subsidiary’s retained earnings:
Retained earnings – Subsidiary, December 31, 20x5
Less: Retained earnings – Subsidiary, January 1, 20x4
Increase in retained earnings since date of acquisition
Less: Accumulated amortization of allocated excess –
20x4 and 20x5 (P11,000 + P6,000)
Unrealized profit in ending inventory of P Company
(upstream
sales) 20x5 (UPEI of P – 20x5) or Realized profit in beginning
inventory of P Company (upstream sales) –20x6 (RPBI of P 20x6)
P643,200
24,000
P619,200
P 186,000
120,000
P 66,000
20,400
6,000
P
Multiplied by: Controlling interests %...................
P
Less: Goodwill impairment loss, partial goodwill
39,600
80%
31,680
3,000
28,680
Consolidated Retained earnings, December 31, 20x5
P647,880
NCI/NCINAS. The goodwill recognized on consolidation purely relates to the parent’s
share. NCI is measured as a proportion of identifiable assets and goodwill attributable to
NCI share is not recognized. The NCI on December 31, 20x5 are computed as follows:
Non-controlling interest (partial-goodwill), December 31, 20x5
Common stock – Subsidiary Company, December 31, 20x5……
Retained earnings – Subsidiary Company, December 31, 20x5
Retained earnings – Subsidiary Company, January 1, 20x5*
Add: Net income of subsidiary for 20x5
Total
Less: Dividends paid – 20x5
Stockholders’ equity – Subsidiary Company, December 31, 20x5
Adjustments to reflect fair value - (over) undervaluation of assets and
liabilities, date of acquisition (January 1, 20x4)
Amortization of allocated excess (refer to amortization above) :
20x4
P 240,000
P144,000
90,000
P234,000
48,000
186,000
P 426,000
90,000
P
13,200
7,200
20x5
Fair value of stockholders’ equity of subsidiary, December 31, 20x5……
Less: Unrealized profit in ending inventory of P Company (upstream
sales) 20x5 (UPEI of P – 20x5) or Realized profit in beginning
inventory
of P Company (upstream sales) –20x6 (RPBI of P - 20x6
Realized stockholders’ equity of subsidiary, December 31, 20x5……….
Multiplied by: Non-controlling Interest percentage…………...
Non-controlling interest (partial goodwill)…………………………………..
* the realized profit in beginning inventory of P Company (upstream sales) –20x5 (RPBI
amounting to P10,000 is already included in the beginning retained earnings of S Company.
( 20,400)
P 495,600
6,000
P489,600
20
P 97,920
of P - 20x5
Consolidated SHE:
Consolidated SHE:
Stockholders’ Equity
Common stock, P10 par
Retained earnings
Parent’s Stockholders’ Equity / CI – SHE, 12/31/20x5
NCI, 12/31/20x4 – partial goodwill
Consolidated SHE, 12/31/20x5
P 600,000
647,880
P1,247,880
___97,920
P1,345,800
80% Owned: Full-Goodwill/Fair Value Basis
12/31/20x4:
Note: The goodwill recognized on consolidation purely relates to the parent’s share. NCI is
measured as a proportion of identifiable assets and goodwill attributable to NCI share is
not recognized.
CI-CNI – P174,840
Consolidated Net Income for 20x4
P Company’s net income from own/separate operations………….
Unrealized profit in ending inventory of S Company (downstream sales)…
Perfect Company’s realized net income from separate operations*…….
…..
S Company’s net income from own operations………………………………….
Unrealized profit in ending inventory of S Company (upstream sales)…
Son Company’s realized net income from separate operations*…….…..
Total
Less: Non-controlling Interest in Net Income
Amortization of allocated excess (refer to amortization above)
Goodwill impairment (impairment under full-goodwill approach)
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent…………..
Add: Non-controlling Interest in Net Income (NCINI)
Consolidated Net Income for 20x4
*that has been realized in transactions with third parties.
NCI-CNI – P6,210
**Non-controlling Interest in Net Income (NCINI) for 20x4
P168,000
( 18,000)
P150,000
P 60,000
( 12,000)
P 48,000
P 6,1210
13,200
3,750
48,000
P198,000
23,160
P174,840
_ 6,210
P181.050
S Company’s net income of Subsidiary Company from its own operations
(Reported net income of S Company)
Unrealized profit in ending inventory of P Company (upstream sales)
S Company’s realized net income from separate operations………
Less: Amortization of allocated excess
x
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI) – partial
Less: Non-controlling interest on impairment loss on full-goodwill (P3,750
20%) or (P3,750 impairment on full-goodwill less
impairment on
partial- goodwill)
Non-controlling Interest in Net Income (NCINI) – full goodwill
*that has been realized in transactions with third parties.
P 60,000
( 12,000)
P 48,000
13,200
P 34,800
20%
P
6,960
P3,000,
750
P
6,210
CNI – P181,050
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent…………..
Add: Non-controlling Interest in Net Income (NCINI)
Consolidated Net Income for 20x4
P174,840
_ 6,210
P181.050
On subsequent to date of acquisition, consolidated retained earnings would be
computed as follows:
Consolidated Retained Earnings, December 31, 20x4
Retained earnings - Parent Company, January 1, 20x4 (date of acquisition)
Add: Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent for 20x4
Total
Less: Dividends paid – Parent Company for 20x4
Consolidated Retained Earnings, December 31, 20x4
P360,000
174,840
P534,840
72,000
P462,840
NCI/NCINAS. The goodwill recognized on consolidation purely relates to the parent’s
share. NCI is measured as a proportion of identifiable assets and goodwill attributable to
NCI share is not recognized. The NCI on December 31, 20x4 are computed as follows:
Non-controlling interest ), December 31, 20x4
Common stock – Subsidiary Company, December 31, 20x4……
Retained earnings – Subsidiary Company, December 31, 20x4
Retained earnings – Subsidiary Company, January 1, 20x4
Add: Net income of subsidiary for 20x4
Total
Less: Dividends paid – 20x4
Stockholders’ equity – Subsidiary Company, December 31, 20x4
P
240,000
P120,000
60,000
P180,000
36,000
Adjustments to reflect fair value - (over) undervaluation of assets and
liabilities, date of acquisition (January 1, 20x4)
Amortization of allocated excess (refer to amortization above) – 20x4
90,000
( 13,200
)
P460,800
12,000
P448,800
2
0
P
89,760
Fair value of stockholders’ equity of subsidiary, December 31, 20x4……
Less: Unrealized profit in ending inventory of P Company (upstream sales)
Realized stockholders’ equity of subsidiary, December 31, 20x4……
Multiplied by: Non-controlling Interest percentage…………...
Non-controlling interest (partial-goodwill), December 31, 20x4
Add: Non-controlling interest on full goodwill , net of impairment loss,
12/31/x4:
[(P15,000 full – P12,000, partial = P3,000) – P750 impairment loss
Non-controlling interest (full-goodwill), December 31, 20x4
2,250
P 92,010
Consolidated SHE:
Consolidated SHE:
Stockholders’ Equity
Common stock, P10 par
Retained earnings
144,000
P
384,000
P
600,000
462,84
0
Parent’s Stockholders’ Equity / CI – SHE
NCI, 12/31/20x4 – full
Consolidated SHE, 12/31/20x4
P1,062,84
0
___92,010
P1,154,84
0
12/31/20x5:
CI-CNI – P257,040
Consolidated Net Income for 20x5
P Company’s net income from own/separate operations………….
Realized profit in beginning inventory of S Company (downstream sales)
Unrealized profit in ending inventory of S Company (downstream sales)…
P Company’s realized net income from separate operations*…….…..
S Company’s net income from own operations………………………………….
Realized profit in beginning inventory of P Company (upstream sales)
Unrealized profit in ending inventory of P Company (upstream sales)…
S Company’s realized net income from separate operations*…….…..
Total
Less: Amortization of allocated excess……………………
Consolidated Net Income for 20x5
Less: Non-controlling Interest in Net Income* *
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent – 20x5…………..
*that has been realized in transactions with third parties.
P192,000
18,000
(_24,000)
P186,000
P 90,000
12,000
( 6,000)
P 96,000
96,000
P282,000
7,200
P274,800
17,760
P257,040
Or, alternatively
Consolidated Net Income for 20x5
P Company’s net income from own/separate operations………….
Realized profit in beginning inventory of S Company (downstream sales)
Unrealized profit in ending inventory of S Company (downstream sales)…
P Company’s realized net income from separate operations*…….…..
S Company’s net income from own operations………………………………….
Realized profit in beginning inventory of P Company (upstream sales)
Unrealized profit in ending inventory of P Company (upstream sales)…
Son Company’s realized net income from separate operations*…….…..
Total
Less: Non-controlling Interest in Net Income* *
Amortization of allocated excess……………………
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent…………..
Add: Non-controlling Interest in Net Income (NCINI)
Consolidated Net Income for 20x5
*that has been realized in transactions with third parties.
P192,000
18,000
(_24,000)
P186,000
P 90,000
12,000
( 6,000)
P 96,000
P 17,760
7,200
96,000
P282,000
24,960
P257,040
_ 17,760
P274,800
NCI-CNI – P16,560
**Non-controlling Interest in Net Income (NCINI) for 20x5
S Company’s net income of Subsidiary Company from its own operations
(Reported net income of S Company)
Realized profit in beginning inventory of P Company (upstream sales)
Unrealized profit in ending inventory of P Company (upstream sales)
S Company’s realized net income from separate operations………
Less: Amortization of allocated excess
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI) – partial goodwill
Less: NCI on goodwill impairment loss on full goodwill
Non-controlling Interest in Net Income (NCINI) – full goodwill
P 90,000
12,000
( 6,000)
P 96,000
7,200
P 88,800
20%
P 17,760
0
P 17,760
CNI, P274,800
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent…………..
Add: Non-controlling Interest in Net Income (NCINI)
Consolidated Net Income for 20x5
P257,040
_ 17,760
P274,800
On subsequent to date of acquisition, consolidated retained earnings would be
computed as follows:
Consolidated Retained Earnings, December 31, 20x5
Retained earnings - Parent Company, January 1, 20x5 (cost model
Less: Unrealized profit in ending inventory of S Company (downstream
P484,800
sales)
– 20x4 (UPEI of S – 20x4) or Realized profit in beginning inventory of
S Company (downstream sales) –20x4 (RPBI of S - 20x5)…………….
Adjusted Retained Earnings – Parent 1/1/20x5 (cost model (S Company’s
Retained earnings that have been realized in transactions with third
parties..
Adjustment to convert from cost model to equity method for purposes of
consolidation or to establish reciprocity:/Parent’s share in adjusted
net
increased in subsidiary’s retained earnings:
Retained earnings – Subsidiary, January 1, 20x5
Less: Retained earnings – Subsidiary, January 1, 20x4
Increase in retained earnings since date of acquisition
Less: Amortization of allocated excess – 20x4
Unrealized profit in ending inventory of P Company
(upstream
sales) 20x4 (UPEI of P – 20x4) or Realized profit in beginning
inventory of P Company (upstream sales) –20x5 (RPBI of P 20x5)
Multiplied by: Controlling interests %...................
or
18,000
P466,800
P 144,000
120,000
P 24,000
13,200
12,000
(P 1,200)
80%
(P
960)
Less: Goodwill impairment loss (full-goodwill), net (P3,750 – P750)*
3,000
( 3,960)
(P3,750 x 80%)
Consolidated Retained earnings, January 1, 20x5
P462,840
Add: Controlling
Interest in Consolidated Net Income or Profit
attributable to
257,040
equity holders of parent for 20x5
Total
P719,880
Less: Dividends paid – Parent Company for 20x5
72,000
Consolidated Retained Earnings, December 31, 20x5
P647,880
*this procedure would be more appropriate, instead of multiplying the full-goodwill impairment loss of
P3,750 by 80%. There might be situations where the controlling interests on goodwill impairment loss would
not be proportionate to NCI acquired (refer to Illustration 15-6).
Or, alternatively:
Consolidated Retained Earnings, December 31, 20x5
Retained earnings - Parent Company, December 31, 20x5 (cost model
Less: Unrealized profit in ending inventory of S Company (downstream
sales)
– 20x5 (UPEI of S – 20x5) or Realized profit in beginning inventory of
S Company (downstream sales) –20x6 (RPBI of S - 20x6)…………….
Adjusted Retained Earnings – Parent 12/31/20x5 (cost model (
S Company’s Retained earnings that have been realized in
transactions with third parties..
Adjustment to convert from cost model to equity method for purposes of
consolidation or to establish reciprocity:/Parent’s share in adjusted
net
increased in subsidiary’s retained earnings:
Retained earnings – Subsidiary, December 31, 20x5
Less: Retained earnings – Subsidiary, January 1, 20x4
Increase in retained earnings since date of acquisition
Less: Accumulated amortization of allocated excess –
20x4 and 20x5 (P13,200 + P7,200)
Unrealized profit in ending inventory of P Company
(upstream
sales) 20x5 (UPEI of P – 20x5) or Realized profit in beginning
inventory of P Company (upstream sales) –20x6 (RPBI of P 20x6)
P643,200
24,000
P619,200
P 186,000
120,000
P 66,000
20,400
6,000
P
Multiplied by: Controlling interests %...................
P
or
Less: Goodwill impairment loss (full-goodwill), net (P3,750 – P750)*
(P3,750 x 80%)
Consolidated Retained earnings, December 31, 20x5
39,600
80%
31,680
3,000
28,680
P647,880
NCI/NCINAS. The goodwill recognized on consolidation purely relates to the parent’s
share. NCI is measured as a proportion of identifiable assets and goodwill attributable to
NCI share is not recognized. The NCI on December 31, 20x5 are computed as follows:
Non-controlling interest, December 31, 20x5
Common stock – Subsidiary Company, December 31, 20x5……
Retained earnings – Subsidiary Company, December 31, 20x5
Retained earnings – Subsidiary Company, January 1, 20x5*
Add: Net income of subsidiary for 20x5
Total
Less: Dividends paid – 20x5
Stockholders’ equity – Subsidiary Company, December 31, 20x5
Adjustments to reflect fair value - (over) undervaluation of assets and
liabilities, date of acquisition (January 1, 20x4)
Amortization of allocated excess (refer to amortization above) :
20x4
P 240,000
P144,000
90,000
P234,000
48,000
186,000
P 426,000
90,000
P
13,200
7,200
20x5
( 20,400)
Fair value of stockholders’ equity of subsidiary, December 31, 20x5……
P 495,600
Less: Unrealized profit in ending inventory of P Company (upstream
sales) 20x5 (UPEI of P – 20x5) or Realized profit in beginning
inventory
6,000
of P Company (upstream sales) –20x6 (RPBI of P - 20x6
Realized stockholders’ equity of subsidiary, December 31, 20x5……….
P489,600
Multiplied by: Non-controlling Interest percentage…………...
20
Non-controlling interest (partial goodwill)…………………………………..
P 97,920
Add: Non-controlling interest on full goodwill , net of impairment loss
[(P15,000 full – P12,000, partial = P3,000) – P750 impairment loss
2,250
Non-controlling interest (full-goodwill)…………………………………..
P 100,170
* the realized profit in beginning inventory of P Company (upstream sales) –20x5 (RPBI of P - 20x5
amounting to P10,000 is already included in the beginning retained earnings of S Company.
Consolidated SHE:
Consolidated SHE:
Stockholders’ Equity
Common stock, P10 par
Retained earnings
Parent’s Stockholders’ Equity / CI - SHE
NCI, 12/31/20x5 – full goodwill
Consolidated SHE, 12/31/20x5
P 600,000
647,880
P1,247,880
___100,170
P1,348,050
80% Partial Goodwill - Cost Model – First Year
3. 20x4: First Year after Acquisition
Parent Company Cost Model Entry
January 1, 20x4:
(1)
Investment
in
S
372,000
Company……………………………………………
Cash……………………………………………………………..
372,000
Acquisition of S Company.
January 1, 20x4 – December 31, 20x4:
(2) Cash………………………
28,800
Dividend income (P36,000 x 80%)…………….
28,800
Record dividends from S Company.
On the books of S Company, the P36,000 dividend paid was recorded as follows:
Dividends paid…………
36,000
Cash…….
36,000
Dividends paid by S Co..
No entries are made on the parent’s books to depreciate, amortize or write-off the portion
of the allocated excess that expires during 20x4, and unrealized profits in ending
inventory.
4. Schedule of Determination and Allocation of Excess (Partial-goodwill)
Date of Acquisition – January 1, 20x4
Fair value of Subsidiary (80%)
Consideration
transferred………………………………..
Less: Book value of stockholders’ equity of Son:
Common stock (P240,000 x 80%)
…………………….
Retained earnings (P120,000 x 80%)
………………...
Allocated excess (excess of cost over book value)
…..
Less: Over/under valuation of assets and liabilities:
Increase in inventory (P6,000 x 80%)
………………
Increase in land (P7,200 x 80%)
…………………….
Increase in equipment (P96,000 x 80%)
Decrease in buildings (P24,000 x 80%)
……….....
Decrease in bonds payable (P4,800 x 80%)
……
Positive excess: Partial-goodwill (excess of cost over
fair value)………………………………………………...
P 372,000
P 192,000
96,000
288,000
P
84,000
P 4,800
5,760
76,800
( 19,200)
3,840
72,000
P 12,000
The over/under valuation of assets and liabilities are summarized as follows:
SCo.
Book value
Inventory………………….
……………..
Land……………………………………
…
Equipment (net).........
Buildings (net)
Bonds payable…………………………
Net………………………………………..
S Co.
Fair value
P 24,000
P
48,000
84,000
168,000
(120,000)
P 204,000
55,200
180,000
144,000
( 115,200)
P 294,000
(Over) Under
Valuation
30,000
P
6,000
7,200
96,000
(24,000)
4,800
P 90,000
The buildings and equipment will be further analyzed for consolidation purposes as
follows:
Equipment ..................
Less:
Accumulated
depreciation…..
Net
book
value………………………...
Buildings................
Less:
Accumulated
depreciation…..
Net
book
value………………………...
S Co.
Book value
180,000
S Co.
Fair value
180,000
Increase
(Decrease)
0
96,000
-
( 96,000)
84,000
180,000
96,000
S Co.
Book value
360,000
SCo.
Fair value
144,000
(Decrease)
( 216,000)
192,000
-
( 192,000)
168,000
144,000
(
24,000)
A summary or depreciation and amortization adjustments is as follows:
Account
amortized
Adjustments
to
Inventory
Subject to Annual Amortization
be
Over/
Under
P
6,000
Life
1
Annual
Amount
P
6,000
Current
Year(20x4)
P 6,000
20x5
P
-
Equipment (net).........
96,000
(24,00
0)
4800
0
Buildings (net)
Bonds payable…
8
12,000
12,000
12,000
4
( 6,000)
1,20
0
P
13,200
( 6,000)
1,200
(6,000)
1,20
0
P 13,200
P 7,200
4
The goodwill impairment loss of P3,750 based on 100% fair value would be allocated to
the controlling interest and the NCI based on the percentage of total goodwill each
equity interest received. For purposes of allocating the goodwill impairment loss, the fullgoodwill is computed as follows:
Fair value of Subsidiary (100%)
Consideration transferred: Cash (80%)
P 372,000
Fair value of NCI (given) (20%)
93,000
Fair value of Subsidiary (100%)
P 465,000
Less: Book value of stockholders’ equity of Son (P360,000 x 100%)
Allocated excess (excess of cost over book value)…..
Add (deduct): (Over) under valuation of assets and liabilities
(P90,000 x 100%)
Positive excess: Full-goodwill (excess of cost over
fair value)………………………………………………...
__360,000
P
105,000
90,000
P
15,000
In this case, the goodwill was proportional to the controlling interest of 80% and noncontrolling interest of 20% computed as follows:
Goodwill applicable to parent…………………
Goodwill applicable to NCI……………………..
Total (full) goodwill………………………………..
The goodwill impairment loss would be allocated as follows
Goodwill impairment loss attributable to parent or controlling
Interest
Goodwill applicable to NCI……………………..
Goodwill impairment loss based on 100% fair value or fullGoodwill
Value
P12,000
3,000
P15,000
% of Total
80.00%
20.00%
100.00%
Value
P 3,000
% of Total
80.00%
750
20.00%
P 3,750
100.00%
The unrealized profits on January 1, and on December 31, 20x5, resulting intercompany
sales, are as summarized below:
Downstream Sales:
Year
20x
4
20x
5
Sales of Parent to
Subsidiary
P150,000
120,000
Intercompany Merchandise
in 12/31 Inventory
of S Company
P150,000 x 60% = P90,000
Unrealized Intercompany
Profit in Ending Inventory
P90,000 x 20% = P18,000
P120,000 x 80% = P96,000
P96,000 x 25% = P40,000
Intercompany Merchandise
in 12/31 Inventory
of S Company
Unrealized Intercompany
Profit in Ending Inventory
P100,000 x 50% = P25,000
P25,000 x 40% = P10,000
P 62,500 x 40% = P25,000
P25,000 x 20% = P 5,000
Upstream Sales:
Year
20x
4
20x
Sales of
Subsidiary to
Parent
P 50,000
62,500
5
5. Consolidation Workpaper – 20x4 Year of Acquisition (Partial-goodwill)
(E1) Common stock – S Co…………………………………………
Retained earnings – S Co……………………………………
Investment in S Co……………………………………………
Non-controlling interest (P360,000 x 20%)
………………………..
240,000
120.000
288,000
72,000
To eliminate intercompany investment and equity accounts
of subsidiary on date of acquisition; and to establish noncontrolling
interest (in net assets of subsidiary) on date of acquisition.
(E2)
Inventory………………………………………………………………….
Accumulated depreciation – equipment………………..
Accumulated depreciation – buildings…………………..
Land………………………………………………………………………
.
Discount
on
bonds
payable………………………………………….
Goodwill………………………………………………………………….
Buildings………………………………………..
Non-controlling interest (P90,000 x 20%)
………………………..
Investment
in
Son
Co……………………………………………….
6,000
96,000
192,000
7,200
4,800
12,000
216,000
18,000
84,000
To allocate excess of cost over book value of identifiable assets
acquired, with remainder to goodwill; and to establish noncontrolling interest (in net assets of subsidiary) on date of
acquisition.
(E3) Cost of Goods Sold…………….
Depreciation expense………………………..
Accumulated depreciation – buildings…………………..
Interest expense…………………………………
Goodwill impairment loss……………………………………….
Inventory…………………………………………………………..
Accumulated depreciation – equipment………………..
Discount on bonds payable…………………………
Goodwill……………………………………
and
6,000
6,000
6,000
1,200
3,000
6,000
12,000
1,200
3,000
To provide for 20x4 impairment loss and depreciation and
amortization on differences between acquisition date fair value
book value of S’s identifiable assets and liabilities as follows:
Cost of
Goods
Sold
Inventory sold
Equipment
Buildings
Bonds payable
Totals
Depreciation/
Amortization
Expense
Amortizatio
n
-Interest
Total
P
6,000
_______
P 6,000
P 12,000
( 6,000)
_______
P 2,000
P 1,200
P1,200
13,20
0
(E4) Dividend income - P……….
Non-controlling interest (P36,000 x 20%)………………..
Dividends paid – S……………………
To eliminate intercompany dividends and non-controlling
28,800
7,200
36,000
interest
share of dividends.
(E5) Sales……………………….
Cost of Goods Sold (or Purchases)
150,000
150,000
To eliminated intercompany downstream sales.
(E6) Sales……………………….
Cost of Goods Sold (or Purchases)
60,000
60,000
To eliminated intercompany upstream sales.
(E7) Cost of Goods Sold (Ending Inventory – Income Statement)
…
Inventory – Balance Sheet……
18,000
18,000
To defer the downstream sales - unrealized profit in ending
inventory
until it is sold to outsiders.
(E8) Cost of Goods Sold (Ending Inventory – Income Statement)
…
Inventory – Balance Sheet……
12,000
12,000
To defer the upstream sales - unrealized profit in ending
inventory
until it is sold to outsiders.
(E9)
Non-controlling
interest
in
Subsidiary…………
Non-controlling interest …………..
Net
Income
of
6,960
6,960
To establish non-controlling interest in subsidiary’s adjusted net
income for 20x4 as follows:
Net income of subsidiary……………………..
Unrealized profit in ending inventory of P
Company
(upstream
sales)
………………………..
S Company’s realized net income from
separate operations*…….…..
Less: Amortization of allocated excess [(E3)]
….
P 60,000
( 12,000)
P 48,000
13,200
P 34,800
Multiplied by:
Non-controlling interest
20%
%..........
Non-controlling
Interest in Net Income
(NCINI)
P
6,960
– partial goodwill
*that has been realized in transactions with third parties.
Since NCI share of goodwill is not recognized, no adjustment is required for the
impairment loss on goodwill and impairment losses are not shared with NCI.
6. Worksheet for Consolidated Financial Statements, December 31, 20x4.
Cost Model (Partial-goodwill)
80%-Owned Subsidiary
December 31, 20x4 (First Year after Acquisition)
Income Statement
P Co
S Co.
Sales
P480,000
P240,000
Dividend income
Total Revenue
28,800
P508,800
P240,000
Dr.
(5)
150,000
(6)
60,000
(4)
28,800
Cr.
Consolidated
P 510,000
_________
P 510,000
Cost of goods sold
P204,000
P138,000
Depreciation expense
60,000
24,000
Interest expense
Other expenses
48,000
18,000
Goodwill impairment loss
Total Cost and Expenses
Net Income
P312,000
P196,800
P180,000
P 60,000
NCI in Net Income - Subsidiary
Net Income to Retained Earnings
Statement of Retained Earnings
Retained earnings, 1/1
P196,800
P 60,000
P Company
S Company
Net income, from above
Total
Dividends paid
P Company
S Company
Retained earnings, 12/31 to Balance
Sheet
(3)
6,000
(7)
18,000
(8)
12,000
(3)
6,000
(3)
1,200
P 168,000
(5)
150,000
(6)
60,000
90,000
1,200
66,000
3,000
(3)
3,000
P328,200
P181,800
( 6,960)
(9)
6,960
P174,840
P
360,000
P360,000
196,800
P556,800
P120,000
__60,000
P180,000
(1)
120,000
174,840
P534,840
72,000
72,000
-
__36,000
P484,800
P144,000
P
232,800
90,000
P 90,000
60,000
(4)
36,000
_
________
P
462,840
Balance Sheet
Cash……………………….
Accounts receivable……..
Inventory………………….
120,000
90,000
Land…………………………….
Equipment
210,000
240,000
48,000
180,000
Buildings
720,000
540,000
Total
Accumulated depreciation
- equipment
Accumulated depreciation
- buildings
Accounts payable……………
Bonds payable…………………
Common stock, P10 par………
Common stock, P10 par………
(2)
6,000
372,000
P1,984,800
(3)
6,000
(7)
18,000
(8)
12,000
(2)
7,200
(2)
4,800
(2)
12,000
Discount on bonds payable
Goodwill……………………
Investment in S Co………
P
P 96,000
405,000
288,000
120,000
240,000
600,000
120,000
120,000
240,000
180,000
265,200
420,000
(2)
216,000
(3)
12000
(3)
3,000
(1) 288,000
(2) 84,000
P1,008,0
00
P 135,000
322,800
150,000
1,044,000
3,600
9,000
P2,394,600
(2)
(3)
96,000
12,000
(2) 192,00
0
(3)
6,00
0
(1)
240,000
P147,000
495,000
240,000
360,000
600,000
Retained earnings, from above
484,800
Non-controlling interest…………
Total
0
_________
P1,984,80
144,000
______
___
P1,008,0
00
462,840
(1
)
72,000 (2)
(4) 7,200 18,000
(9)
__________
6,960
P
P
983,160
983,160
____89,760
P2,394,600
80% Partial Goodwill - Cost Model – Second Year
3. 20x5: Second Year after Acquisition
Parent Company Cost Model Entry
Only a single entry is recorded by the P in 20x5 in relation to its subsidiary investment:
January 1, 20x5 – December 31, 20x5:
Cash………………………
Dividend income (P48,000 x 80%)…………….
Record dividends from S Company.
38,400
38,400
On the books of S Company, the P48,000 dividend paid was recorded as follows:
Dividends paid…………
Cash
Dividends paid by S Co..
48,000
48,000
20x5: Second Year after Acquisition
P Co.
P 540,000
216,000
P 324,000
60,000
72,000
P 192,000
38,400
P 230,400
P 72,000
Sales
Less: Cost of goods sold
Gross profit
Less: Depreciation expense
Other expense
Net income from its own separate operations
Add: Dividend income
Net income
Dividends paid
S Co.
P 360,000
192,000
P 168,000
24,000
54,000
P 90,000
P 90,000
P 48,000
No goodwill impairment loss for 20x5.
4. Schedule of Determination and Allocation of Excess (Partial-goodwill) – refer to
the schedule above.
5. Consolidation Workpaper – 20x5 Second Year after Acquisition
The working paper eliminations (in journal entry format) on December 31, 20x5, are as
follows:
(E1) Investment in S Company…………………………
Retained earnings – P Company………………………
the
19,200
19,200
To provide entry to convert from the cost method to the equity
method or the entry to establish reciprocity at the beginning of
year, 1/1/20x5, computed as follows:
Retained earnings – S Company, 1/1/20x5
Retained earnings – S Company, 1/1/20x4
Increase in retained earnings……..
Multiplied by: Controlling interest %
Retroactive adjustment
P144,000
120,000
P 24,000
80%
P 19,200
(E2) Common stock – S Co…………………………………………
Retained earnings – S Co., 1/1/20x5
240,000
144.000
Investment in S Co (P384,000 x 80%)
…………………………
Non-controlling interest (P384,000 x 20%)
………………………..
307,200
76,800
To eliminate intercompany investment and equity accounts
of subsidiary and to establish non-controlling interest (in net
assets of
subsidiary) on January 1, 20x5.
(E3)
Inventory………………………………………………………………….
Accumulated depreciation – equipment……………….. ....
Accumulated depreciation – buildings………………….. ...
Land………………………………………………………………………
.
Discount
on
bonds
payable………………………………………….
Goodwill………………………………………………………………….
Buildings………………………………………..........................
.
Non-controlling interest (P90,000 x
20%)............................
Investment in S Co……………………………………………….
assets
20x5.
6,000
96,000
192,000
7,200
4,800
12,000
216,000
18,000
84,000
To allocate excess of cost over book value of identifiable
acquired, with remainder to goodwill; and to establish noncontrolling interest (in net assets of subsidiary) on January 1,
(E4) Retained earnings – P Company, 1/1/20x5
[(P13,200 x 80%) + P3,000, impairment loss on
partial-goodwill]
Non-controlling interests (P13,200 x 20%)…………………….
Depreciation expense………………………..
Accumulated depreciation – buildings…………………..
Interest expense…………………………………
Inventory…………………………………………………………..
Accumulated depreciation – equipment………………..
Discount on bonds payable…………………………
Goodwill……………………………………
To provide for years 20x4 and 20x5 depreciation and
amortization on
differences between acquisition date fair value and book value
of
S’s identifiable assets and liabilities as follows:
Year 20x4 amounts are debited to P’s retained earnings &
NCI;
Year 20x5 amounts are debited to respective nominal
accounts.
Inventory sold
Equipment
Buildings
Bonds payable
Sub-total
Multiplied by:
(20x4)
Retaine
d
earnings
,
P
6,000
12,000
(6,000)
1,20
0
P13,200
80%
Depreciation/
Amortization
expense
Amortizatio
n
-Interest
P 12,000
( 6,000)
________
P 1,200
P 6,000
P 1,200
13,560
2,640
6,000
12,000
1,200
6,000
24,000
2,400
3,000
To Retained earnings
Impairment loss
Total
P
10,560
3,00
0
P
13,560
(E5) Dividend income - P……….
Non-controlling interest (P48,000 x 20%)………………..
Dividends paid – S……………………
38,400
9,600
48,000
To eliminate intercompany dividends and non-controlling interest
share of dividends.
(E6) Sales……………………….
Cost of Goods Sold (or Purchases)
120,000
120,000
To eliminated intercompany downstream sales.
(E7) Sales……………………….
Cost of Goods Sold (or Purchases)
75,000
75,000
To eliminated intercompany upstream sales.
(E8) Beginning Retained Earnings – P Company……
Cost of Goods Sold (Ending Inventory – Income
Statement)
the
18,000
18,000
To realized profit in downstream beginning inventory deferred in
prior period.
(E9) Beginning Retained Earnings – P Company (P12,000 x 80%)
Noncontrolling interest (P12,000 x 20%)……
Cost of Goods Sold (Ending Inventory – Income
Statement)
period.
9,600
2,400
12,000
To realized profit in beginning inventory deferred in the prior
(E10) Cost of Goods Sold (Ending Inventory
Statement)…
Inventory – Balance Sheet……
–
Income
24,000
24,000
To defer the downstream sales - unrealized profit in ending
inventory
until it is sold to outsiders.
(E11) Cost of Goods Sold (Ending Inventory
Statement)…
Inventory – Balance Sheet……
–
Income
6,000
6,000
To defer the upstream sales - unrealized profit in ending
inventory
until it is sold to outsiders.
(E12)
Non-controlling
interest
in
Net
Subsidiary…………
Non-controlling interest …………..
net
Income
of
17,760
To establish non-controlling interest in subsidiary’s adjusted
income for 20x5 as follows:
Realized profit in beginning inventory of P
Company - 20x5 (upstream sales)
Unrealized profit in ending inventory of P
Company - 20x5 (upstream sales)
S Company’s Realized net income*
Less: Amortization of allocated excess
17,760
12,000
( 6,000)
P 96,000
7,200
P 88,800
Multiplied by:
Non-controlling interest
20
%..........
%
Non-controlling
Interest in Net Income
(NCINI )
P 17,760
– partial goodwill
*from separate transactions that has been realized in transactions
with third persons.
6. Worksheet for Consolidated Financial Statements, December 31, 20x5.
Cost Model (Partial-goodwill)
80%-Owned Subsidiary
December 31, 20x5 (Second Year after Acquisition)
Income Statement
P Co
S Co.
Sales
P540,000
P360,000
Dividend income
Total Revenue
38,400
P578,400
P360,000
Cost of goods sold
P216,000
P192,000
60,000
24,000
Interest expense
Other expenses
Goodwill impairment loss
Total Cost and Expenses
72,000
P348,000
Net Income
P230,400
54,000
P270,000
P
90,000
Depreciation expense
NCI in Net Income - Subsidiary
Net Income to Retained Earnings
P230,400
P
90,000
Dr.
Cr.
(6)
120,000
(7)
75,000
(5)
38,400
Consolidated
P 705,000
___________
P
(10) 24,000
(11) 6,000
705,000
(6)
120,000
(7)
75,000
(8)
18,000
(9)
12,000
213,000
(4)
6,000
(4)
1,200
90,000
1,200
126,000
P 430,200
P 274,800
(12)
17,760
( 17,760)
P 257,040
Statement of Retained Earnings
Retained earnings, 1/1
P Company
S Company
Net income, from above
Total
Dividends paid
P Company
S Company
Retained earnings, 12/31 to Balance
Sheet
P484,800
230,400
P715,200
P
144,000
90,000
P234,000
(2) 13,56
0
(8)
18,000
(9)
9,600
(2) 144,00
0
(1) 19,200
P 462,840
257,040
P 719,880
72,000
72,000
(5)
48,000
-
48,000
_
________
P643,200
P186,000
P 647,880
P
265,200
180,000
P
102,000
96,000
P 367,200
276,000
Balance Sheet
Cash……………………….
Accounts receivable……..
Inventory………………….
Land…………………………….
Equipment
Buildings
216,000
210,000
240,000
720,000
108,000
48,000
180,000
540,000
Total
Accumulated depreciation
- equipment
Accumulated depreciation
- buildings
Accounts payable……………
Bonds payable…………………
Common stock, P10 par………
Common stock, P10 par………
Retained earnings, from above
372,000
P2,203,200
P1,074,0
00
P 150,000
P
102,000
450,000
306,000
120,000
240,000
600,000
120,000
120,000
643,200
240,000
186,000
Non-controlling interest…………
___
_____
Total
2,203,200
7,200
______
___
P1,074,0
00
(4) 7,200
(10) 24,000
(11) 6,000
294,000
(3) 216,000
265,200
420,000
1,044,000
(3)
7,200
(3)
4,800
(3)
12,000
(1)
19,200
Discount on bonds payable
Goodwill……………………
Investment in S Co………
(3)
(4)
2,400
2,400
(4)
3,000
9,000
(2) 307,200
(3) 84,000
P2,677,800
(3)
96,000
(3)
192,000
(4)
12,000
(4)
24,000
P180,000
552,000
240,000
360,000
600,000
(2)
240,000
647,880
(4)
2,640
(5)
9,60
0
(9)
2,400
__________
P1,077,36
0
(2
)
76,800 (3)
18,000
(12) 17,760
P1,077,36
0
____97,920
P2,677,800
80% Full-Goodwill - Cost Model – First Year
3. 20x4: First Year after Acquisition
Parent Company Cost Model Entry
January 1, 20x4:
(1) Investment in S Company…………………………………………
Cash……………………………………………………………..
Acquisition of S Company.
January 1, 20x4 – December 31, 20x4:
(2) Cash………………………
Dividend income (P36,000x 80%)…………….
Record dividends from S Company.
372,000
372,000
28,800
28,800
On the books of S Company, the P36,000 dividend paid was recorded as follows:
Dividends paid…………
36,000
Cash…….
36,000
Dividends paid by S Co..
No entries are made on the P’s books to depreciate, amortize or write-off the portion of
the allocated excess that expires during 20x4.
4. Schedule of Determination and Allocation of Excess (Full-goodwill)
Date of Acquisition – January 1, 20x4
Fair value of Subsidiary (80%)
Consideration transferred (80%)……………..
Fair value of NCI (given) (20%)………………..
Fair value of Subsidiary (100%)……….
Less: Book value of stockholders’ equity of Son:
Common stock (P240,000 x 100%)
……………….
Retained earnings (P120,000 x 100%)………...
Allocated excess (excess of cost over book value)
…..
Less: Over/under valuation of assets and liabilities:
Increase in inventory (P6,000 x 100%)
………………
Increase in land (P7,200 x 100%)
…………………….
Increase in equipment (P96,000 x 100%)
Decrease in buildings (P24,000 x 100%)
……….....
Decrease in bonds payable (P4,800 x 100%)
……
Positive excess: Full-goodwill (excess of cost over
fair value)
………………………………………………...
P 372,000
93,000
P 465,000
P 240,000
120,000
360,000
P 105,000
P
6,000
7,200
96,000
( 24,000)
4,800
90,000
P 15,000
A summary or depreciation and amortization adjustments is as follows:
Account
amortized
Adjustments
to
Inventory
Subject to Annual Amortization
Equipment (net).........
Buildings (net)
Bonds payable…
be
Over/
under
P
6,000
96,000
(24,00
0)
4,80
0
Current
Year(20x4)
1
Annual
Amount
P
6,000
P 6,000
P
-
8
12,000
12,000
12,000
4
( 6,000)
1,20
0
P
13,200
( 6,000)
1,200
(6,000)
1,20
0
P 13,200
P 7,200
Life
4
20x5
The goodwill impairment loss of P3,125 based on 100% fair value would be allocated to the
controlling interest and the NCI based on the percentage of total goodwill each equity interest
received. For purposes of allocating the goodwill impairment loss, the full-goodwill is computed as
follows:
Fair value of Subsidiary (100%)
Consideration transferred: Cash (80%)
P 372,000
Fair value of NCI (given) (20%)
93,000
Fair value of Subsidiary (100%)
P 465,000
Less: Book value of stockholders’ equity of S (P360,000 x 100%)
__360,000
Allocated excess (excess of cost over book value)…..
P 105,000
Add (deduct): (Over) under valuation of assets and liabilities
(P90,000 x 100%)
90,000
Positive excess: Full-goodwill (excess of cost over
fair value)………………………………………………...
P 15,000
5. Consolidation Workpaper – 20x4 Year of Acquisition (Full-goodwill)
(E1) Common stock – S Co…………………………………………
Retained earnings – S Co……………………………………
Investment in S Co……………………………………………
Non-controlling interest (P360,000 x 20%)
………………………..
To eliminate intercompany investment and equity accounts
of subsidiary on date of acquisition; and to establish noncontrolling
240,000
120.000
288,000
72,000
interest (in net assets of subsidiary) on date of acquisition.
(E2)
Inventory………………………………………………………………….
Accumulated depreciation – equipment………………..
Accumulated depreciation – buildings…………………..
Land………………………………………………………………………
.
Discount
on
bonds
payable………………………………………….
Goodwill………………………………………………………………….
Buildings………………………………………..
Non-controlling interest (P90,000 x 20%) + [(P15,000,
full –
P12,000, partial goodwill)]…………
Investment
in
Son
Co……………………………………………….
6,000
96,000
192,000
7,200
4,800
15,000
216,000
21,000
84,000
To allocate excess of cost over book value of identifiable assets
acquired, with remainder to goodwill; and to establish noncontrolling interest (in net assets of subsidiary) on date of
acquisition.
(E3) Cost of Goods Sold…………….
Depreciation expense………………………..
Accumulated depreciation – buildings…………………..
Interest expense…………………………………
Goodwill impairment loss……………………………………….
Inventory…………………………………………………………..
Accumulated depreciation – equipment………………..
Discount on bonds payable…………………………
Goodwill……………………………………
and
6,000
6,000
6,000
1,200
3,750
6,000
12,000
1,200
3,750
To provide for 20x4 impairment loss and depreciation and
amortization on differences between acquisition date fair value
book value of S’s identifiable assets and liabilities as follows:
Cost of
Goods
Sold
Inventory sold
Equipment
Buildings
Bonds payable
Totals
Depreciation/
Amortization
Expense
Amortizatio
n
-Interest
P
6,000
_______
P 6,000
P12,000
( 6,000)
_______
P 6,000
P 1,200
P1,200
(E4) Dividend income - P……….
Non-controlling interest (P36,000 x 20%)………………..
Dividends paid – S……………………
28,800
7,200
36,000
To eliminate intercompany dividends and non-controlling interest
share of dividends.
(E5) Sales……………………….
Cost of Goods Sold (or Purchases)
150,000
150,000
To eliminated intercompany downstream sales.
(E6) Sales……………………….
Cost of Goods Sold (or Purchases)
60,000
60,000
To eliminated intercompany upstream sales.
(E7) Cost of Goods Sold (Ending Inventory – Income Statement)
18,000
…
Inventory – Balance Sheet……
18,000
To defer the downstream sales - unrealized profit in ending
inventory
until it is sold to outsiders.
(E8) Cost of Goods Sold (Ending Inventory – Income Statement)
…
Inventory – Balance Sheet……
12,000
12,000
To defer the upstream sales - unrealized profit in ending
inventory
until it is sold to outsiders.
(E9)
Non-controlling
interest
in
Subsidiary…………
Non-controlling interest …………..
Net
Income
of
6,210
6,210
To establish non-controlling interest in subsidiary’s adjusted net
income for 20x4 as follows:
Net income of subsidiary……………………..
Unrealized profit in ending inventory of P
Company
(upstream
sales)
………………………..
S Company’s realized net income from
separate operations*…….…..
Less: Amortization of allocated excess [(E3)]
….
Multiplied by:
Non-controlling interest
%..........
Non-controlling
Interest in Net Income
(NCINI)
– partial goodwill
Less: Non-controlling interest on impairment
loss on full-goodwill (P3,750 x 20%) or
(P3,750 impairment on full-goodwill
less
P3,000,
impairment on partialgoodwill)
Non-controlling
Interest in Net Income
(NCINI)
– full goodwill
P 60,000
( 12,000)
P 48,000
13,200
P 34,800
20%
P
6,960
750
P
6,210
6. Worksheet for Consolidated Financial Statements, December 31, 20x4.
Cost Model (Full-goodwill)
80%-Owned Subsidiary
December 31, 20x4 (First Year after Acquisition)
Income Statement
P Co
S Co.
Sales
P480,000
P240,000
Dividend income
Total Revenue
28,800
P451,200
P240,000
Cost of goods sold
Depreciation expense
P204,000
P138,000
60,000
24,000
Dr.
(5)
150,000
(6)
60,000
(4)
28,800
(3)
6,000
(7)
18,000
(8)
12,000
(3)
6,000
Cr.
Consolidated
P 510,000
_________
(5)
150,000
(6)
60,000
P 510,000
P 168,000
90,000
Interest expense
Other expenses
48,000
18,000
Goodwill impairment loss
Total Cost and Expenses
Net Income
P312,000
P196,800
P180,000
P 60,000
NCI in Net Income - Subsidiary
Net Income to Retained Earnings
P196,800
P 60,000
(3)
1,200
1,200
66,000
3,750
(3)
3,750
P328,950
P181,050
( 6,210)
(9)
6,210
P174,840
Statement of Retained Earnings
Retained earnings, 1/1
P Company
S Company
Net income, from above
Total
Dividends paid
P Company
S Company
Retained earnings, 12/31 to Balance
Sheet
P
360,000
P360,000
196,800
P556,800
P120,000
60,000
P180,000
(1)
120,000
174,840
P534,840
72,000
72,000
-
36,000
P484,800
P144,000
P
232,800
90,000
P 90,000
60,000
(4)
36,000
_
________
P
462,840
Balance Sheet
Cash……………………….
Accounts receivable……..
Inventory………………….
120,000
90,000
Land…………………………….
Equipment
210,000
240,000
48,000
180,000
Buildings
720,000
540,000
Total
Accumulated depreciation
- equipment
Accumulated depreciation
- buildings
Accounts payable……………
Bonds payable…………………
Common stock, P10 par………
Common stock, P10 par………
Retained earnings, from above
(2)
6,000
372,000
P1,984,800
P1,008,0
00
P 135,000
P 96,000
405,000
288,000
120,000
240,000
600,000
120,000
120,000
484,800
Non-controlling interest…………
_________
240,000
144,000
______
___
(3)
6,000
(7)
18,000
(8)
12,000
(2)
7,200
(2)
4,800
(2)
15,000
Discount on bonds payable
Goodwill……………………
Investment in S Co………
P
322,800
150,000
180,000
265,200
420,000
(2)
216,000
(3)
1,200
(3)
3,750
(3) 288,000
(4) 84,000
1,044,000
3,600
11,250
P2,396,850
(2)
(3)
96,000
12,000
(6) 192,00
0
(7)
6,00
0
P147,000
495,000
240,000
360,000
600,000
(1)
240,000
462,840
(4)
7,200
(1
)
72,000 (2)
21,000
(9)
6,210
____92,010
Total
0
P1,984,80
P1,008,0
00
P
986,160
P
986,160
P2,396,850
3. 20x5: Second Year after Acquisition
Parent Company Cost Model Entry
Only a single entry is recorded by the P in 20x5 in relation to its subsidiary investment:
January 1, 20x5 – December 31, 20x5:
Cash………………………
Dividend income (P48,000 x 80%)…………….
Record dividends from S Company.
38,400
38,400
On the books of S Company, the P48,000 dividend paid was recorded as follows:
Dividends paid…………
Cash
Dividends paid by S Co..
48,000
48,000
20x5: Second Year after Acquisition
P Co.
P 540,000
216,000
P 324,000
60,000
72,000
P 192,000
38,400
P 230,400
P 72,000
Sales
Less: Cost of goods sold
Gross profit
Less: Depreciation expense
Other expense
Net income from its own separate operations
Add: Dividend income
Net income
Dividends paid
S Co.
P 360,000
192,000
P 168,000
24,000
54,000
P 90,000
P 90,000
P 48,000
No goodwill impairment loss for 20x5.
4. Schedule of Determination and Allocation of Excess (Full-goodwill) – refer to
the schedule above.
5. Consolidation Workpaper – 20x5 Second Year after Acquisition
(E1) Investment in S Company…………………………
Retained earnings – P Company………………………
the
19,200
19,200
To provide entry to convert from the cost method to the equity
method or the entry to establish reciprocity at the beginning of
year, 1/1/20x5.
Retained earnings – S Company, 1/1/20x5
Retained earnings – S Company, 1/1/20x4
Increase in retained earnings……..
Multiplied by: Controlling interest %
Retroactive adjustment
P144,000
120,000
P 24,000
80%
P 19,200
(E2) Common stock – S Co…………………………………………
Retained earnings – S Co., 1/1/20x5
Investment in S Co (P384,000 x 80%)
…………………………
Non-controlling interest (P384,000 x 20%)
………………………..
240,000
144.000
307,200
76,800
To eliminate intercompany investment and equity accounts
of subsidiary and to establish non-controlling interest (in net
assets of
subsidiary) on January 1, 20x5.
(E3)
Inventory………………………………………………………………….
6000
Accumulated depreciation – equipment………………..
Accumulated depreciation – buildings…………………..
Land………………………………………………………………………
96,000
192,000
7,200
Discount
on
bonds
payable………………………………………….
Goodwill………………………………………………………………….
Buildings………………………………………..
Non-controlling interest (P90,000 x 20%) + [(P15,000,
full –
P12,000, partial goodwill)]…………
Investment in S Co……………………………………………….
4,800
.
assets
20x5.
15,000
216,000
21,000
84,000
To allocate excess of cost over book value of identifiable
acquired, with remainder to goodwill; and to establish noncontrolling interest (in net assets of subsidiary) on January 1,
(E4) Retained earnings – P Company, 1/1/20x5
(P16,950 x 80%)
13,560
Non-controlling interests (P16,950 x 20%)…………………….
3,390
Depreciation expense………………………..
6,000
Accumulated depreciation – buildings…………………..
12,000
Interest expense…………………………………
1,200
Inventory…………………………………………………………..
Accumulated depreciation – equipment………………..
6,000
24,000
Discount on bonds payable…………………………
Goodwill……………………………………
2,800
3,750
To provide for years 20x4 and 20x5 depreciation and amortization on
differences between acquisition date fair value and book value of
Son’s identifiable assets and liabilities as follows:
Year 20x4 amounts are debited to Perfect’s retained earnings
and NCI.
Year 20x5 amounts are debited to respective nominal accounts..
(20x4)
Retained earnings,
Depreciation/
Amortization
expense
Amortization
-Interest
Inventory sold
P 6,000
Equipment
P
Buildings
Bonds payable
12,000
12,000
(6,000)
( 6,000)
1,200
P 1,200
Impairment loss
Totals
Multiplied by: CI%....
To Retained earnings
3,750
P 16,950
P 6,000
P1,200
80%
P13,560
(E5) Dividend income - P……….
38,400
Non-controlling interest (P48,000 x 20%)………………..
9,600
Dividends paid – S……………………
48,000
To eliminate intercompany dividends and non-controlling interest
share of dividends.
(E6) Sales……………………….
Cost of Goods Sold (or Purchases)
120,000
120,000
To eliminated intercompany downstream sales.
(E7) Sales……………………….
Cost of Goods Sold (or Purchases)
75,000
75,000
To eliminated intercompany upstream sales.
(E8) Beginning Retained Earnings – P Company……
Cost of Goods Sold (Ending Inventory – Income
Statement)
the
18,000
To realized profit in downstream beginning inventory deferred in
prior period.
(E9) Beginning Retained Earnings – P Company (P12,000 x 80%)
Noncontrolling interest (P12,000 x 20%)……
Cost of Goods Sold (Ending Inventory – Income
Statement)
the
18,000
9,600
2,400
12,000
To realized profit in upstream beginning inventory deferred in
prior period.
(E10) Cost of Goods Sold (Ending
Statement)…
Inventory – Balance Sheet……
Inventory
–
Income
24,000
24,000
To defer the downstream sales - unrealized profit in ending
inventory
until it is sold to outsiders.
(E11) Cost of Goods Sold (Ending
Statement)…
Inventory – Balance Sheet……
Inventory
–
Income
6,000
6,000
To defer the upstream sales - unrealized profit in ending
inventory
until it is sold to outsiders.
(E12)
Non-controlling
interest
in
Subsidiary…………
Non-controlling interest …………..
Net
Income
of
17,760
To establish non-controlling interest in subsidiary’s adjusted net
income for 20x5 as follows:
Net income of subsidiary……………………..
Realized profit in beginning inventory of P
Company - 20x5 (upstream sales)
Unrealized profit in ending inventory of P
17,760
P 90,000
12,000
Company - 20x5 (upstream sales)
Son Company’s Realized net income*
Less: Amortization of allocated excess
( 6,000)
P 96,000
7,200
P 88,800
20
%
P 17,760
Multiplied by:
Non-controlling interest
%..........
Non-controlling
Interest in Net Income
(NCINI)
partial goodwill
Less: NCI on goodwill impairment loss on
full0
Goodwill
Non-controlling
Interest in Net Income
(NCINI)
P 17,760
– full goodwill
*from separate transactions that has been realized in transactions
with third persons.
6. Worksheet for Consolidated Financial Statements, December 31, 20x5.
Cost Model (Full-goodwill)
80%-Owned Subsidiary
December 31, 20x5 (Second Year after Acquisition)
Income Statement
P Co
S Co.
Sales
P540,000
P360,000
Dividend income
Total Revenue
38,400
P574,800
P360,000
Cost of goods sold
P216,000
P192,000
60,000
24,000
Interest expense
Other expenses
Goodwill impairment loss
Total Cost and Expenses
72,000
P348,000
Net Income
P230,400
54,000
P270,000
P
90,000
Depreciation expense
NCI in Net Income - Subsidiary
Net Income to Retained Earnings
P230,400
P
90,000
Dr.
Cr.
(6)
120,000
(7)
75,000
(5)
38,400
(10) 24,000
(11) 6,000
Consolidated
P 705,000
___________
(6)
120,000
(7)
90,000
(8)
21,600
(9)
14,400
(4)
6,000
(4)
1,200
P
P
705,000
213,000
90,000
1,200
126,000
P 430,200
P 274,800
(12)
17,760
( 17,760)
P 257,040
Statement of Retained Earnings
Retained earnings, 1/1
P Company
S Company
Net income, from above
Total
Dividends paid
P484,800
230,400
P715,200
P
144,000
90,000
P234,000
(3) 13,56
0
(8)
18,000
(9)
96000
(5) 144,00
0
(4) 19,200
P 462,840
257,040
P 719,880
P Company
72,000
S Company
Retained earnings, 12/31 to Balance
Sheet
72,000
(5)
48,000
-
48,000
_
________
P643,200
P186,000
P 647,880
P
265,200
180,000
216,000
P
102,000
96,000
108,000
P 367,200
276,000
Balance Sheet
Cash……………………….
Accounts receivable……..
Inventory………………….
Land…………………………….
Equipment
Buildings
210,000
240,000
720,000
48,000
180,000
540,000
Total
Accumulated depreciation
- equipment
372,000
P2,203,200
P1,074,0
00
P 150,000
P
102,000
450,000
306,000
120,000
240,000
600,000
120,000
120,000
Accumulated depreciation
- buildings
Accounts payable……………
Bonds payable…………………
Common stock, P10 par………
Common stock, P10 par………
Retained earnings, from above
643,200
240,000
186,000
Non-controlling interest…………
Total
0
___
_____
P2,203,20
6,000
______
___
P1,074,0
00
(4) 6,000
(10) 24,000
(11) 6,000
294,000
(3) 216,000
265,200
420,000
1,044,000
(3)
7,200
(3)
4,800
(3)
15,000
(1)
19,200
Discount on bonds payable
Goodwill……………………
Investment in S Co………
(6)
(4)
2,400
2,400
(4)
3,750
11,250
(2) 307,200
(3) 84,000
P2,680,050
(3)
96,000
(3)
192,000
(4)
12,000
(4)
24,000
P180,000
552,000
240,000
360,000
600,000
(2)
240,000
647,880
(4)
3,390
(8)
9,60
0
(9)
2,400
__________
P1,081,11
0
(2 ) 76,800
(3) 21,000
(12) 17,760
P1,081,11
0
____100,170
P2,680,050
Problem II
Equity Method
1. January 1, 20x4
a. On date of acquisition the retained earnings of P should always be considered as the
consolidated retained earnings, thus:
Consolidated Retained Earnings, January 1, 20x4
Retained earnings - P Company, January 1, 20x4 (date of acquisition)
P360,000
b. NCI (Partial/Full)
Non-controlling interest (partial-goodwill), January 1, 20x4
Common stock – S Company, January 1, 20x4……
Retained earnings – S Company, January 1, 20x4
P 240,000
120,000
Stockholders’ equity – S Company, January 1, 20x4
Adjustments to reflect fair value - (over) undervaluation of assets and
liabilities, date of acquisition (January 1, 20x4)
Fair value of stockholders’ equity of subsidiary, January 1, 20x4……
Multiplied by: Non-controlling Interest percentage…………...
Non-controlling interest (partial-goodwill)…………………………………..
Add: NCI on full-goodwill (P15,000 – P12,000)
Non-controlling
interest
(full-goodwill/fair
value
…………………………………..
P 360,000
90,000
P450,000
20
P 90,000
___3,000
P 93,000
basis)
The over/under valuation of assets and liabilities are summarized as follows:
S Co.
S Co.
(Over) Under
Book value
Fair value
Valuation
Inventory………………….
……………..
P 24,000
P 30,000
P 6,000
Land……………………………………
…
48,000
55,200
7,200
Equipment (net).........
84,000
180,000
96,000
Buildings (net)
168,000
144,000
( 24,000)
Bonds payable…………………………
( 120,000)
( 115,200)
4,800
Net………………………………………..
P 204,000
P 294,000
P 90,000
The buildings and equipment will be further analyzed for consolidation purposes as follows:
S Co.
S Co.
Increase
Book value
Fair value
(Decrease)
Equipment ..................
180,000
180,000
0
Less: Accumulated
depreciation…..
96,000
( 96,000)
Net book
value………………………...
84,000
180,000
96,000
S Co.
S Co.
Book value
Fair value
(Decrease)
Buildings................
360,000
144,000
( 216,000)
Less: Accumulated
depreciation…..
192,000
( 192,000)
Net book
value………………………...
168,000
144,000
( 24,000)
A summary or depreciation and amortization adjustments is
Account
Adjustments
to
be
Over/
amortized
Under
Life
P
Inventory
6,000
1
Subject to Annual Amortization
Equipment (net).........
96,000
8
(24,00
Buildings (net)
0)
4
4,80
Bonds payable…
0
4
c.
Partial/Proportionate Goodwill
Consolidated SHE:
Stockholders’ Equity
Common stock, P10 par
Retained earnings
P’s Stockholders’ Equity / CI – SHE
NCI, 1/1/20x4 (b)- partial goodwill
Consolidated SHE, 1/1/20x4
as follows:
Annual
Current
Amount
Year(20x4)
P
6,000
P 6,000
20x5
P
-
12,000
12,000
12,000
( 6,000)
1,20
0
P
13,200
( 6,000)
1,200
(6,000)
1,20
0
P 13,200
P 7,200
P 600,000
360,000
P 960,000
___90,000
P1,050,000
Full-Goodwill/Fair Value Basis
Consolidated SHE:
Stockholders’ Equity
Common stock, P10 par
Retained earnings
Parent’s Stockholders’ Equity / CI – SHE
NCI, 1/1/20x4 (b) – full goodwill
Consolidated SHE, 1/1/20x4
P 600,000
360,000
P 960,000
___93,000
P1,053,000
2, The following items for December 31, 20x4 and December 31, 20x5 in the
Consolidated Financial Statements: (refer to requirement 6 as a guide)
Consolidated Amounts
a.
Cash
b.
c.
d.
e.
f.
g.
h.
i.
j.
k.
l.
m
.
n.
o.
p.
q.
Accounts receivable
r.
s.
t.
u.
v.
w.
x.
y.
z1
.
z2
.
Inventory
Land
Equipment (net)
Buildings (net)
Investment in Sax
Total Assets
Accounts payable
Bonds payable
Total Liabilities
Common stock/Ordinary share
Retained earnings/Accumulated
P&L
Sales
Cost of Goods sold
Gross profit
Expenses
(including
GW
impairment)
Investment
Income/Equity
in
Subsidiary Income
Controlling Interests in Net
Income
Non-controlling Interests in Net
Income
Net Income or CNI
Common stock/Ordinary share*
Retained Earnings/Accumulated
P&L*
Controlling Interests / Equity
Holders of Parent/ Parent’s
Stockholders’ Equity
Non-Controlling Interests
Stockholders’ Equity
Liabilities
Equity
and
Stockholders’
December 31, 20x4
Partial
FullGoodwill
Goodwill
December 31, 20x5
Partial
FullGoodwill
Goodwill
P
322,800
150,000
180,000
265,200
273,000
549,000
-01,752,600
240.000
360,000
600,000
600,000
462,840
P
322,800
150,000
180,000
265,200
273,000
549,000
-01,752,600
240.000
360,000
600,000
600,000
462,840
P
367,200
276,000
294,000
265,200
240,000
492,000
-01,945,800
240,000
360,000
600,000
600,000
647,880
510,000
168,000
342,000
160,200
510,000
168,000
342,000
160,200
705,000
213,000
492,000
217,200
705,000
213,000
492,000
217,200
-0-
-0-
-0-
-0-
174,840
174,840
257,040
257,040
6,960
6,960
17,760
17,760
181,800
600,000
181,800
274,800
600,000
274,800
600,000
600,000
600,000
P
367,200
276,000
294,000
265,200
240,000
492,000
-01,948,050
240,000
360,000
600,000
600,000
647,880
462,840
462,840
647,880
647,880
1,062,840
89,760
1,152,600
1,062,840
89,760
1,152,600
1,247,880
97,920
1,345,800
1,247,880
100,170
1,348,050
1,752,600
1,752,600
1,945,800
1,948,050
Alternative Solution (refer also to the worksheet)
80% Owned: Partial/Proportionate-Goodwill
Note: The goodwill recognized on consolidation purely relates to the parent’s share. NCI is
measured as a proportion of identifiable assets and goodwill attributable to NCI share is
not recognized.
The over/under valuation of assets and liabilities are summarized as follows:
Inventory………………….
……………..
Land………………………………………
Equipment (net).........
Buildings (net)
Bonds payable…………………………
Net………………………………………..
S Co.
Book value
S Co.
Fair value
P 24,000
48,000
84,000
168,000
(120,000)
P 204,000
(Over) Under
Valuation
P
30,000
55,200
180,000
144,000
( 115,200)
P 294,000
P
6,000
7,200
96,000
(24,000)
4,800
P 90,000
The buildings and equipment will be further analyzed for consolidation purposes as
follows:
Equipment ..................
Less: Accumulated
depreciation…..
Net book
value………………………...
Buildings................
Less: Accumulated
depreciation…..
Net book
value………………………...
S Co.
Book value
180,000
S Co.
Fair value
180,000
Increase
(Decrease)
0
96,000
-
( 96,000)
84,000
S Co.
Book value
360,000
180,000
S Co.
Fair value
144,000
96,000
(Decrease)
( 216,000)
192,000
-
( 192,000)
168,000
144,000
(
24,000)
Amortization Table: A summary or depreciation and amortization adjustments is as
follows:
Account
amortized
Adjustments
to
Inventory
Subject to Annual Amortization
Equipment (net).........
Buildings (net)
Bonds payable…
be
Over/
under
P
6,000
96,000
(24,00
0)
4,80
0
Current
Year(20x4)
1
Annual
Amount
P
6,000
P 6,000
P
-
8
12,000
12,000
12,000
4
( 6,000)
1,20
0
P
13,200
( 6,000)
1,200
(6,000)
1,20
0
P 13,200
P 7,200
Life
4
20x5
12/31/20x4:
CI-CNI – P174,840
Consolidated Net Income for 20x4
P Company’s net income from own/separate operations………….
Unrealized profit in ending inventory of S Company (downstream sales)…
Perfect Company’s realized net income from separate operations*…….
…..
S Company’s net income from own operations………………………………….
Unrealized profit in ending inventory of S Company (upstream sales)…
Son Company’s realized net income from separate operations*…….…..
Total
Less: Non-controlling Interest in Net Income
Amortization of allocated excess (refer to amortization above)
P168,000
( 18,000)
P150,000
P 60,000
( 12,000)
P 48,000
P 6,1210
13,200
48,000
P198,000
Goodwill impairment (impairment under full-goodwill approach)
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent…………..
Add: Non-controlling Interest in Net Income (NCINI)
Consolidated Net Income for 20x4
*that has been realized in transactions with third parties.
3,750
23,160
P174,840
_ 6,960
P181.050
NCI-CNI – P6,960
**Non-controlling Interest in Net Income (NCINI) for 20x4
S Company’s net income of Subsidiary Company from its own operations
(Reported net income of S Company)
Unrealized profit in ending inventory of P Company (upstream sales)
S Company’s realized net income from separate operations………
Less: Amortization of allocated excess
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI) – partial
*that has been realized in transactions with third parties.
P 60,000
( 12,000)
P 48,000
13,200
P 34,800
20%
P
6,960
CNI – P181,050
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent…………..
Add: Non-controlling Interest in Net Income (NCINI)
Consolidated Net Income for 20x4
P174,840
_ 6,210
P181.050
On subsequent to date of acquisition, consolidated retained earnings would be
computed as follows:
Consolidated Retained Earnings, December 31, 20x4
Retained earnings - Parent Company, January 1, 20x4 (date of acquisition)
Add: Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent for 20x4
Total
Less: Dividends paid – Parent Company for 20x4
Consolidated Retained Earnings, December 31, 20x4
P360,000
174,840
P534,840
72,000
P462,840
NCI/NCINAS. The goodwill recognized on consolidation purely relates to the
parent’s share. NCI is measured as a proportion of identifiable assets and
goodwill attributable to NCI share is not recognized. The NCI on December 31,
20x4 are computed as follows:
Non-controlling interest ), December 31, 20x4
Common stock – Subsidiary Company, December 31, 20x4……
Retained earnings – Subsidiary Company, December 31, 20x4
Retained earnings – Subsidiary Company, January 1, 20x4
Add: Net income of subsidiary for 20x4
Total
Less: Dividends paid – 20x4
Stockholders’ equity – Subsidiary Company, December 31, 20x4
P
240,000
P120,000
60,000
P180,000
36,000
Adjustments to reflect fair value - (over) undervaluation of assets and
liabilities, date of acquisition (January 1, 20x4)
Amortization of allocated excess (refer to amortization above) – 20x4
90,000
( 13,200
)
P460,800
12,000
P448,800
2
0
P
89,760
Fair value of stockholders’ equity of subsidiary, December 31, 20x4……
Less: Unrealized profit in ending inventory of P Company (upstream sales)
Realized stockholders’ equity of subsidiary, December 31, 20x4……
Multiplied by: Non-controlling Interest percentage…………...
Non-controlling interest (partial-goodwill)…………………………………..
Add: Non-controlling interest on full goodwill , net of impairment loss,
12/31/x4:
[(P15,000 full – P12,000, partial = P3,000) – P750 impairment loss
Non-controlling interest (full-goodwill)……………..
2,250
P 92,010
Consolidated SHE:
Consolidated SHE:
Stockholders’ Equity
Common stock, P10 par
144,000
P
384,000
P
Retained earnings
Parent’s Stockholders’ Equity / CI - SHE
NCI, 1/1/20x4 - partial
Consolidated SHE, 1/1/20x4
600,000
462,84
0
P1,062,84
0
___92,010
P1,154,84
0
12/31/20x5:
CI-CNI – P257,040
Consolidated Net Income for 20x5
P Company’s net income from own/separate operations………….
Realized profit in beginning inventory of S Company (downstream sales)
Unrealized profit in ending inventory of S Company (downstream sales)…
P Company’s realized net income from separate operations*…….…..
S Company’s net income from own operations………………………………….
Realized profit in beginning inventory of P Company (upstream sales)
Unrealized profit in ending inventory of P Company (upstream sales)…
S Company’s realized net income from separate operations*…….…..
Total
Less: Amortization of allocated excess……………………
Consolidated Net Income for 20x5
Less: Non-controlling Interest in Net Income* *
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent – 20x5…………..
*that has been realized in transactions with third parties.
P192,000
18,000
(_24,000)
P186,000
P 90,000
12,000
( 6,000)
P 96,000
96,000
P282,000
7,200
P274,800
17,760
P257,040
Or, alternatively
Consolidated Net Income for 20x5
P Company’s net income from own/separate operations………….
Realized profit in beginning inventory of S Company (downstream sales)
Unrealized profit in ending inventory of S Company (downstream sales)…
P Company’s realized net income from separate operations*…….…..
S Company’s net income from own operations………………………………….
Realized profit in beginning inventory of P Company (upstream sales)
Unrealized profit in ending inventory of P Company (upstream sales)…
Son Company’s realized net income from separate operations*…….…..
Total
Less: Non-controlling Interest in Net Income* *
Amortization of allocated excess……………………
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent…………..
Add: Non-controlling Interest in Net Income (NCINI)
Consolidated Net Income for 20x5
*that has been realized in transactions with third parties.
P192,000
18,000
(_24,000)
P186,000
P 90,000
12,000
( 6,000)
P 96,000
P 17,760
7,200
96,000
P282,000
24,960
P257,040
_ 17,760
P274,800
NCI-CNI – P16,560
**Non-controlling Interest in Net Income (NCINI) for 20x5
S Company’s net income of Subsidiary Company from its own operations
(Reported net income of S Company)
Realized profit in beginning inventory of P Company (upstream sales)
Unrealized profit in ending inventory of P Company (upstream sales)
S Company’s realized net income from separate operations………
Less: Amortization of allocated excess
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI) – partial goodwill
P 90,000
12,000
( 6,000)
P 96,000
7,200
P 88,800
20%
P 17,760
CNI, P274,800
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent…………..
Add: Non-controlling Interest in Net Income (NCINI) – partial
Consolidated Net Income for 20x5
P257,040
_ 17,760
P274,800
On subsequent to date of acquisition, consolidated retained earnings would be
computed as follows:
Consolidated Retained Earnings, December 31, 20x5
Retained earnings - Parent Company, January 1, 20x5 (cost model
P484,800
Less: Unrealized profit in ending inventory of S Company (downstream
sales)
– 20x4 (UPEI of S – 20x4) or Realized profit in beginning inventory of
S Company (downstream sales) –20x4 (RPBI of S - 20x5)…………….
Adjusted Retained Earnings – Parent 1/1/20x5 (cost model (S Company’s
Retained earnings that have been realized in transactions with third
parties..
Adjustment to convert from cost model to equity method for purposes of
consolidation or to establish reciprocity:/Parent’s share in adjusted
net
increased in subsidiary’s retained earnings:
Retained earnings – Subsidiary, January 1, 20x5
Less: Retained earnings – Subsidiary, January 1, 20x4
Increase in retained earnings since date of acquisition
Less: Amortization of allocated excess – 20x4
Unrealized profit in ending inventory of P Company
(upstream
sales) 20x4 (UPEI of P – 20x4) or Realized profit in beginning
inventory of P Company (upstream sales) –20x5 (RPBI of P 20x5)
Multiplied by: Controlling interests %...................
or
18,000
P466,800
P 144,000
120,000
P 24,000
13,200
12,000
(P 1,200)
80%
(P
960)
Less: Goodwill impairment loss (full-goodwill), net (P3,750 – P750)*
3,000
( 3,960)
(P3,750 x 80%)
Consolidated Retained earnings, January 1, 20x5
P462,840
Add: Controlling
Interest in Consolidated Net Income or Profit
attributable to
257,040
equity holders of parent for 20x5
Total
P719,880
Less: Dividends paid – Parent Company for 20x5
72,000
Consolidated Retained Earnings, December 31, 20x5
P647,880
*this procedure would be more appropriate, instead of multiplying the full-goodwill impairment loss of
P3,750 by 80%. There might be situations where the controlling interests on goodwill impairment loss would
not be proportionate to NCI acquired
Or, alternatively:
Consolidated Retained Earnings, December 31, 20x5
Retained earnings - Parent Company, December 31, 20x5 (cost model
Less: Unrealized profit in ending inventory of S Company (downstream
sales)
– 20x5 (UPEI of S – 20x5) or Realized profit in beginning inventory of
S Company (downstream sales) –20x6 (RPBI of S - 20x6)…………….
Adjusted Retained Earnings – Parent 12/31/20x5 (cost model (
S Company’s Retained earnings that have been realized in
transactions with third parties..
Adjustment to convert from cost model to equity method for purposes of
consolidation or to establish reciprocity:/Parent’s share in adjusted
net
increased in subsidiary’s retained earnings:
Retained earnings – Subsidiary, December 31, 20x5
Less: Retained earnings – Subsidiary, January 1, 20x4
Increase in retained earnings since date of acquisition
Less: Accumulated amortization of allocated excess –
20x4 and 20x5 (P13,200 + P7,200)
Unrealized profit in ending inventory of P Company
(upstream
sales) 20x5 (UPEI of P – 20x5) or Realized profit in beginning
inventory of P Company (upstream sales) –20x6 (RPBI of P 20x6)
P643,200
24,000
P619,200
P 186,000
120,000
P 66,000
20,400
6,000
P
Multiplied by: Controlling interests %...................
P
or
Less: Goodwill impairment loss (full-goodwill), net (P3,750 – P750)*
(P3,750 x 80%)
Consolidated Retained earnings, December 31, 20x5
39,600
80%
31,680
3,000
28,680
P647,880
NCI/NCINAS. The goodwill recognized on consolidation purely relates to the
parent’s share. NCI is measured as a proportion of identifiable assets and
goodwill attributable to NCI share is not recognized. The NCI on December 31,
20x5 are computed as follows:
Non-controlling interest, December 31, 20x5
Common stock – Subsidiary Company, December 31, 20x5……
Retained earnings – Subsidiary Company, December 31, 20x5
Retained earnings – Subsidiary Company, January 1, 20x5*
Add: Net income of subsidiary for 20x5
Total
Less: Dividends paid – 20x5
Stockholders’ equity – Subsidiary Company, December 31, 20x5
Adjustments to reflect fair value - (over) undervaluation of assets and
liabilities, date of acquisition (January 1, 20x4)
Amortization of allocated excess (refer to amortization above) :
20x4
P 240,000
P144,000
90,000
P234,000
48,000
186,000
P 426,000
90,000
P
13,200
7,200
20x5
Fair value of stockholders’ equity of subsidiary, December 31, 20x5……
Less: Unrealized profit in ending inventory of P Company (upstream
sales) 20x5 (UPEI of P – 20x5) or Realized profit in beginning
inventory
of P Company (upstream sales) –20x6 (RPBI of P - 20x6
Realized stockholders’ equity of subsidiary, December 31, 20x5……….
Multiplied by: Non-controlling Interest percentage…………...
Non-controlling interest (partial goodwill)…………………………………..
* the realized profit in beginning inventory of P Company (upstream sales) –20x5 (RPBI
amounting to P10,000 is already included in the beginning retained earnings of S Company.
( 20,400)
P 495,600
6,000
P489,600
20
P 97,920
of P - 20x5
Consolidated SHE:
Consolidated SHE:
Stockholders’ Equity
Common stock, P10 par
Retained earnings
Parent’s Stockholders’ Equity / CI – SHE
NCI, 12/31/20x5 – partial
Consolidated SHE, 12/31/20x5
P 600,000
647,880
P1,247,880
___97,920
P1,345,800
80% Owned: Full-Goodwill/Fair Value Basis
12/31/20x4:
Note: The goodwill recognized on consolidation purely relates to the parent’s share. NCI is
measured as a proportion of identifiable assets and goodwill attributable to NCI share is
not recognized.
CI-CNI – P174,840
Consolidated Net Income for 20x4
P Company’s net income from own/separate operations………….
Unrealized profit in ending inventory of S Company (downstream sales)…
Perfect Company’s realized net income from separate operations*…….
…..
S Company’s net income from own operations………………………………….
Unrealized profit in ending inventory of S Company (upstream sales)…
Son Company’s realized net income from separate operations*…….…..
Total
Less: Non-controlling Interest in Net Income
Amortization of allocated excess (refer to amortization above)
Goodwill impairment (impairment under full-goodwill approach)
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent…………..
Add: Non-controlling Interest in Net Income (NCINI)
Consolidated Net Income for 20x4
*that has been realized in transactions with third parties.
NCI-CNI – P6,210
**Non-controlling Interest in Net Income (NCINI) for 20x4
P168,000
( 18,000)
P150,000
P 60,000
( 12,000)
P 48,000
P 6,1210
13,200
3,750
48,000
P198,000
23,160
P174,840
_ 6,210
P181.050
S Company’s net income of Subsidiary Company from its own operations
(Reported net income of S Company)
Unrealized profit in ending inventory of P Company (upstream sales)
S Company’s realized net income from separate operations………
Less: Amortization of allocated excess
x
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI) – partial
Less: Non-controlling interest on impairment loss on full-goodwill (P3,750
20%) or (P3,750 impairment on full-goodwill less
impairment on
partial- goodwill)
Non-controlling Interest in Net Income (NCINI) – full goodwill
*that has been realized in transactions with third parties.
P 60,000
( 12,000)
P 48,000
13,200
P 34,800
20%
P
6,960
P3,000,
750
P
6,210
CNI – P181,050
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent…………..
Add: Non-controlling Interest in Net Income (NCINI)
Consolidated Net Income for 20x4
P174,840
_ 6,210
P181.050
On subsequent to date of acquisition, consolidated retained earnings would be
computed as follows:
Consolidated Retained Earnings, December 31, 20x4
Retained earnings - Parent Company, January 1, 20x4 (date of acquisition)
Add: Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent for 20x4
Total
Less: Dividends paid – Parent Company for 20x4
Consolidated Retained Earnings, December 31, 20x4
P360,000
174,840
P534,840
72,000
P462,840
NCI/NCINAS. The goodwill recognized on consolidation purely relates to the parent’s
share. NCI is measured as a proportion of identifiable assets and goodwill attributable to
NCI share is not recognized. The NCI on December 31, 20x4 are computed as follows:
Non-controlling interest ), December 31, 20x4
Common stock – Subsidiary Company, December 31, 20x4……
Retained earnings – Subsidiary Company, December 31, 20x4
Retained earnings – Subsidiary Company, January 1, 20x4
Add: Net income of subsidiary for 20x4
Total
Less: Dividends paid – 20x4
Stockholders’ equity – Subsidiary Company, December 31, 20x4
P
240,000
P120,000
60,000
P180,000
36,000
Adjustments to reflect fair value - (over) undervaluation of assets and
liabilities, date of acquisition (January 1, 20x4)
Amortization of allocated excess (refer to amortization above) – 20x4
90,000
( 13,200
)
P460,800
12,000
P448,800
2
0
P
89,760
Fair value of stockholders’ equity of subsidiary, December 31, 20x4……
Less: Unrealized profit in ending inventory of P Company (upstream sales)
Realized stockholders’ equity of subsidiary, December 31, 20x4……
Multiplied by: Non-controlling Interest percentage…………...
Non-controlling interest (partial-goodwill), December 31, 20x4
Add: Non-controlling interest on full goodwill , net of impairment loss,
12/31/x4:
[(P15,000 full – P12,000, partial = P3,000) – P750 impairment loss
Non-controlling interest (full-goodwill), December 31, 20x4
2,250
P 92,010
Consolidated SHE:
Consolidated SHE:
Stockholders’ Equity
Common stock, P10 par
Retained earnings
144,000
P
384,000
P
600,000
462,84
0
Parent’s Stockholders’ Equity / CI – SHE
NCI, 12/31/20x4 – full
Consolidated SHE, 12/31/20x4
P1,062,84
0
___92,010
P1,154,84
0
12/31/20x5:
CI-CNI – P257,040
Consolidated Net Income for 20x5
P Company’s net income from own/separate operations………….
Realized profit in beginning inventory of S Company (downstream sales)
Unrealized profit in ending inventory of S Company (downstream sales)…
P Company’s realized net income from separate operations*…….…..
S Company’s net income from own operations………………………………….
Realized profit in beginning inventory of P Company (upstream sales)
Unrealized profit in ending inventory of P Company (upstream sales)…
S Company’s realized net income from separate operations*…….…..
Total
Less: Amortization of allocated excess……………………
Consolidated Net Income for 20x5
Less: Non-controlling Interest in Net Income* *
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent – 20x5…………..
*that has been realized in transactions with third parties.
P192,000
18,000
(_24,000)
P186,000
P 90,000
12,000
( 6,000)
P 96,000
96,000
P282,000
7,200
P274,800
17,760
P257,040
Or, alternatively
Consolidated Net Income for 20x5
P Company’s net income from own/separate operations………….
Realized profit in beginning inventory of S Company (downstream sales)
Unrealized profit in ending inventory of S Company (downstream sales)…
P Company’s realized net income from separate operations*…….…..
S Company’s net income from own operations………………………………….
Realized profit in beginning inventory of P Company (upstream sales)
Unrealized profit in ending inventory of P Company (upstream sales)…
Son Company’s realized net income from separate operations*…….…..
Total
Less: Non-controlling Interest in Net Income* *
Amortization of allocated excess……………………
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent…………..
Add: Non-controlling Interest in Net Income (NCINI)
Consolidated Net Income for 20x5
*that has been realized in transactions with third parties.
P192,000
18,000
(_24,000)
P186,000
P 90,000
12,000
( 6,000)
P 96,000
P 17,760
7,200
96,000
P282,000
24,960
P257,040
_ 17,760
P274,800
NCI-CNI – P16,560
**Non-controlling Interest in Net Income (NCINI) for 20x5
S Company’s net income of Subsidiary Company from its own operations
(Reported net income of S Company)
Realized profit in beginning inventory of P Company (upstream sales)
Unrealized profit in ending inventory of P Company (upstream sales)
S Company’s realized net income from separate operations………
Less: Amortization of allocated excess
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI) – partial goodwill
Less: NCI on goodwill impairment loss on full goodwill
Non-controlling Interest in Net Income (NCINI) – full goodwill
P 90,000
12,000
( 6,000)
P 96,000
7,200
P 88,800
20%
P 17,760
0
P 17,760
CNI, P274,800
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent…………..
Add: Non-controlling Interest in Net Income (NCINI)
Consolidated Net Income for 20x5
P257,040
_ 17,760
P274,800
On subsequent to date of acquisition, consolidated retained earnings would be
computed as follows:
Consolidated Retained Earnings, December 31, 20x5
Retained earnings - Parent Company, January 1, 20x5 (cost model
Less: Unrealized profit in ending inventory of S Company (downstream
P484,800
sales)
– 20x4 (UPEI of S – 20x4) or Realized profit in beginning inventory of
S Company (downstream sales) –20x4 (RPBI of S - 20x5)…………….
Adjusted Retained Earnings – Parent 1/1/20x5 (cost model (S Company’s
Retained earnings that have been realized in transactions with third
parties..
Adjustment to convert from cost model to equity method for purposes of
consolidation or to establish reciprocity:/Parent’s share in adjusted
net
increased in subsidiary’s retained earnings:
Retained earnings – Subsidiary, January 1, 20x5
Less: Retained earnings – Subsidiary, January 1, 20x4
Increase in retained earnings since date of acquisition
Less: Amortization of allocated excess – 20x4
Unrealized profit in ending inventory of P Company
(upstream
sales) 20x4 (UPEI of P – 20x4) or Realized profit in beginning
inventory of P Company (upstream sales) –20x5 (RPBI of P 20x5)
Multiplied by: Controlling interests %...................
or
18,000
P466,800
P 144,000
120,000
P 24,000
13,200
12,000
(P 1,200)
80%
(P
960)
Less: Goodwill impairment loss (full-goodwill), net (P3,750 – P750)*
3,000
( 3,960)
(P3,750 x 80%)
Consolidated Retained earnings, January 1, 20x5
P462,840
Add: Controlling
Interest in Consolidated Net Income or Profit
attributable to
257,040
equity holders of parent for 20x5
Total
P719,880
Less: Dividends paid – Parent Company for 20x5
72,000
Consolidated Retained Earnings, December 31, 20x5
P647,880
*this procedure would be more appropriate, instead of multiplying the full-goodwill impairment loss of
P3,750 by 80%. There might be situations where the controlling interests on goodwill impairment loss would
not be proportionate to NCI acquired (refer to Illustration 15-6).
Or, alternatively:
Consolidated Retained Earnings, December 31, 20x5
Retained earnings - Parent Company, December 31, 20x5 (cost model
Less: Unrealized profit in ending inventory of S Company (downstream
sales)
– 20x5 (UPEI of S – 20x5) or Realized profit in beginning inventory of
S Company (downstream sales) –20x6 (RPBI of S - 20x6)…………….
Adjusted Retained Earnings – Parent 12/31/20x5 (cost model (
S Company’s Retained earnings that have been realized in
transactions with third parties..
Adjustment to convert from cost model to equity method for purposes of
consolidation or to establish reciprocity:/Parent’s share in adjusted
net
increased in subsidiary’s retained earnings:
Retained earnings – Subsidiary, December 31, 20x5
Less: Retained earnings – Subsidiary, January 1, 20x4
Increase in retained earnings since date of acquisition
Less: Accumulated amortization of allocated excess –
20x4 and 20x5 (P13,200 + P7,200)
Unrealized profit in ending inventory of P Company
(upstream
sales) 20x5 (UPEI of P – 20x5) or Realized profit in beginning
inventory of P Company (upstream sales) –20x6 (RPBI of P 20x6)
P643,200
24,000
P619,200
P 186,000
120,000
P 66,000
20,400
6,000
P
Multiplied by: Controlling interests %...................
P
or
Less: Goodwill impairment loss (full-goodwill), net (P3,750 – P750)*
(P3,750 x 80%)
Consolidated Retained earnings, December 31, 20x5
39,600
80%
31,680
3,000
28,680
P647,880
NCI/NCINAS. The goodwill recognized on consolidation purely relates to the parent’s
share. NCI is measured as a proportion of identifiable assets and goodwill attributable to
NCI share is not recognized. The NCI on December 31, 20x5 are computed as follows:
Non-controlling interest, December 31, 20x5
Common stock – Subsidiary Company, December 31, 20x5……
Retained earnings – Subsidiary Company, December 31, 20x5
Retained earnings – Subsidiary Company, January 1, 20x5*
Add: Net income of subsidiary for 20x5
Total
Less: Dividends paid – 20x5
Stockholders’ equity – Subsidiary Company, December 31, 20x5
Adjustments to reflect fair value - (over) undervaluation of assets and
liabilities, date of acquisition (January 1, 20x4)
Amortization of allocated excess (refer to amortization above) :
20x4
P 240,000
P144,000
90,000
P234,000
48,000
186,000
P 426,000
90,000
P
13,200
7,200
20x5
( 20,400)
Fair value of stockholders’ equity of subsidiary, December 31, 20x5……
P 495,600
Less: Unrealized profit in ending inventory of P Company (upstream
sales) 20x5 (UPEI of P – 20x5) or Realized profit in beginning
inventory
6,000
of P Company (upstream sales) –20x6 (RPBI of P - 20x6
Realized stockholders’ equity of subsidiary, December 31, 20x5……….
P489,600
Multiplied by: Non-controlling Interest percentage…………...
20
Non-controlling interest (partial goodwill)…………………………………..
P 97,920
Add: Non-controlling interest on full goodwill , net of impairment loss
[(P15,000 full – P12,000, partial = P3,000) – P750 impairment loss
2,250
Non-controlling interest (full-goodwill)…………………………………..
P 100,170
* the realized profit in beginning inventory of P Company (upstream sales) –20x5 (RPBI of P - 20x5
amounting to P10,000 is already included in the beginning retained earnings of S Company.
Consolidated SHE:
Consolidated SHE:
Stockholders’ Equity
Common stock, P10 par
Retained earnings
Parent’s Stockholders’ Equity / CI - SHE
NCI, 12/31/20x5 – full goodwill
Consolidated SHE, 12/31/20x5
P 600,000
647,880
P1,247,880
___100,170
P1,348,050
80% Partial Goodwill – Equity Method – First Year
3. 20x4: First Year after Acquisition
Parent Company Equity Method Entry
January 1, 20x4:
(1) Investment in S Company……………………………………………
Cash…………………………………………………………………….
.
372,000
372,000
Acquisition of S Company.
January 1, 20x4 – December 31, 20x4:
(2) Cash………………………
Investment in S Company (P36,000 x 80%)…………….
28,800
28,800
Record dividends from S Company.
December 31, 20x4:
(3) Investment in S Company
Investment income (P60,000 x 80%)
48,000
48,000
Record share in net income of subsidiary.
December 31, 20x4:
(4) Investment income [(P13,200 x 80%) + P3,000, goodwill
impairment loss)]
13,560
Investment in S Company
13,560
Record amortization of allocated excess of inventory, equipment,
buildings and bonds payable and goodwill impairment loss.
December 31, 20x4:
(5) Investment income (P18,000 x 100%)
Investment in S Company
To adjust investment income for downstream sales - unrealized
profit in ending inventory of S.
18,000
18,000
December 31, 20x4:
(6) Investment income (P12,000 x 80%)
Investment in S Company
To adjust investment income for upstream sales - unrealized
profit in ending inventory P .
9,600
9,600
Thus, the investment balance and investment income in the books of P Company is as
follows:
Cost,
372,000
NI of S
48,000
4.
Investment in S
1/1/x4 28,800
80%)
(60,000
Amortization &
Balance,
13,560
350,040
UPEI
of
S
(P18,000
18,000
UPEI of P (P12,000 x80%)
x
80%)
13,560
18,000
100%)
Investment Income
9,600
x80%)
impairment
48,000
12/31/x4
x
Dividends – S (30,000x
Amortization &
impairment
UPEI of Son (P15,000 x
UPEI of Perfect (P10,000
NI of S
(P60,000 x 80%)
100%)
9,600
6,840
Balance, 12/31/x4
Schedule of Determination and Allocation of Excess (Partial-goodwill)
Date of Acquisition – January 1, 20x4
Fair value of Subsidiary (80%)
Consideration
transferred………………………………..
Less: Book value of stockholders’ equity of Son:
Common stock (P240,000 x 80%)
…………………….
Retained earnings (P120,000 x 80%)
………………...
Allocated excess (excess of cost over book value)
…..
Less: Over/under valuation of assets and liabilities:
Increase in inventory (P6,000 x 80%)
………………
Increase in land (P7,200 x 80%)
…………………….
Increase in equipment (P96,000 x 80%)
Decrease in buildings (P24,000 x 80%)
……….....
Decrease in bonds payable (P4,800 x 80%)
……
Positive excess: Partial-goodwill (excess of cost over
fair value)………………………………………………...
P 372,000
P 192,000
96,000
288,000
P
84,000
P 4,800
5,760
76,800
( 19,200)
3,840
72,000
P 12,000
The over/under valuation of assets and liabilities are summarized as follows:
SCo.
Book value
Inventory………………….
……………..
P 24,000
S Co.
Fair value
P
30,000
(Over) Under
Valuation
P
6,000
Land……………………………………
…
Equipment (net).........
Buildings (net)
Bonds payable…………………………
Net………………………………………..
48,000
84,000
168,000
(120,000)
P 204,000
55,200
180,000
144,000
( 115,200)
P 294,000
7,200
96,000
(24,000)
4,800
P 90,000
The buildings and equipment will be further analyzed for consolidation purposes as
follows:
Equipment ..................
Less:
Accumulated
depreciation…..
Net
book
value………………………...
Buildings................
Less:
Accumulated
depreciation…..
Net
book
value………………………...
S Co.
Book value
180,000
S Co.
Fair value
180,000
Increase
(Decrease)
0
96,000
-
( 96,000)
84,000
180,000
96,000
S Co.
Book value
360,000
SCo.
Fair value
144,000
(Decrease)
( 216,000)
192,000
-
( 192,000)
168,000
144,000
(
24,000)
A summary or depreciation and amortization adjustments is as follows:
Account
amortized
Adjustments
to
be
Inventory
Subject to Annual Amortization
Equipment (net).........
Buildings (net)
Bonds payable…
Over/
Under
P
6,000
96,000
(24,00
0)
4800
0
Current
Year(20x4)
1
Annual
Amount
P
6,000
P 6,000
P
-
8
12,000
12,000
12,000
4
( 6,000)
1,20
0
P
13,200
( 6,000)
1,200
(6,000)
1,20
0
P 13,200
P 7,200
Life
4
20x5
The goodwill impairment loss of P3,750 based on 100% fair value would be allocated to the
controlling interest and the NCI based on the percentage of total goodwill each equity
interest received. For purposes of allocating the goodwill impairment loss, the full-goodwill is
computed as follows:
Fair value of Subsidiary (100%)
Consideration transferred: Cash (80%)
P 372,000
Fair value of NCI (given) (20%)
93,000
Fair value of Subsidiary (100%)
P 465,000
Less: Book value of stockholders’ equity of Son (P360,000 x 100%)
__360,000
Allocated excess (excess of cost over book value)…..
Add (deduct): (Over) under valuation of assets and liabilities
(P90,000 x 100%)
Positive excess: Full-goodwill (excess of cost over
fair value)………………………………………………...
P
105,000
90,000
P
15,000
In this case, the goodwill was proportional to the controlling interest of 80% and noncontrolling interest of 20% computed as follows:
Value
% of Total
Goodwill applicable to parent…………………
Goodwill applicable to NCI……………………..
Total (full) goodwill………………………………..
The goodwill impairment loss would be allocated as follows
Goodwill impairment loss attributable to parent or controlling
Interest
Goodwill applicable to NCI……………………..
Goodwill impairment loss based on 100% fair value or fullGoodwill
P12,000
3,000
P15,000
80.00%
20.00%
100.00%
Value
P 3,000
% of Total
80.00%
750
20.00%
P 3,750
100.00%
The unrealized profits on January 1, and on December 31, 20x5, resulting intercompany
sales, are as summarized below:
Downstream Sales:
Year
20x
4
20x
5
Sales of Parent to
Subsidiary
P150,000
120,000
Intercompany Merchandise
in 12/31 Inventory
of S Company
P150,000 x 60% = P90,000
Unrealized Intercompany
Profit in Ending Inventory
P90,000 x 20% = P18,000
P120,000 x 80% = P96,000
P96,000 x 25% = P40,000
Intercompany Merchandise
in 12/31 Inventory
of S Company
Unrealized Intercompany
Profit in Ending Inventory
P100,000 x 50% = P25,000
P25,000 x 40% = P10,000
P 62,500 x 40% = P25,000
P25,000 x 20% = P 5,000
Upstream Sales:
Year
20x
4
20x
5
Sales of
Subsidiary to
Parent
P 50,000
62,500
5. Consolidation Workpaper – 20x4 Year of Acquisition (Partial-goodwill)
(E1) Common stock – S Co…………………………………………
Retained earnings – S Co……………………………………
Investment in S Co……………………………………………
Non-controlling interest (P360,000 x 20%)
………………………..
240,000
120.000
288,000
72,000
To eliminate intercompany investment and equity accounts
of subsidiary on date of acquisition; and to establish noncontrolling
interest (in net assets of subsidiary) on date of acquisition.
(E2)
Inventory………………………………………………………………….
Accumulated depreciation – equipment………………..
Accumulated depreciation – buildings…………………..
Land………………………………………………………………………
.
Discount
on
bonds
payable………………………………………….
Goodwill………………………………………………………………….
Buildings………………………………………..
Non-controlling interest (P90,000 x 20%)
………………………..
Investment
in
Son
Co……………………………………………….
To allocate excess of cost over book value of identifiable assets
acquired, with remainder to goodwill; and to establish non-
6,000
96,000
192,000
7,200
4,800
12,000
216,000
18,000
84,000
controlling interest (in net assets of subsidiary) on date of
acquisition.
(E3) Cost of Goods Sold…………….
Depreciation expense………………………..
Accumulated depreciation – buildings…………………..
Interest expense…………………………………
Goodwill impairment loss……………………………………….
Inventory…………………………………………………………..
Accumulated depreciation – equipment………………..
Discount on bonds payable…………………………
Goodwill……………………………………
and
6,000
6,000
6,000
1,200
3,000
6,000
12,000
1,200
3,000
To provide for 20x4 impairment loss and depreciation and
amortization on differences between acquisition date fair value
book value of S’s identifiable assets and liabilities as follows:
Cost of
Goods
Sold
Inventory sold
Equipment
Buildings
Bonds payable
Totals
Depreciation/
Amortization
Expense
Amortizatio
n
-Interest
Total
P
6,000
_______
P 6,000
P 12,000
( 6,000)
_______
P 2,000
P 1,200
P1,200
13,20
0
(E4) Dividend income - P……….
Non-controlling interest (P36,000 x 20%)………………..
Dividends paid – S……………………
28,800
7,200
36,000
To eliminate intercompany dividends and non-controlling
interest
share of dividends.
(E5) Sales……………………….
Cost of Goods Sold (or Purchases)
150,000
150,000
To eliminated intercompany downstream sales.
(E6) Sales……………………….
Cost of Goods Sold (or Purchases)
60,000
60,000
To eliminated intercompany upstream sales.
(E7) Cost of Goods Sold (Ending Inventory – Income Statement)
…
Inventory – Balance Sheet……
18,000
18,000
To defer the downstream sales - unrealized profit in ending
inventory
until it is sold to outsiders.
(E8) Cost of Goods Sold (Ending Inventory – Income Statement)
…
Inventory – Balance Sheet……
12,000
12,000
To defer the upstream sales - unrealized profit in ending
inventory
until it is sold to outsiders.
(E9)
Non-controlling
interest
in
Subsidiary…………
Non-controlling interest …………..
Net
Income
To establish non-controlling interest in subsidiary’s adjusted net
of
6,960
6,960
income for 20x4 as follows:
Net income of subsidiary……………………..
Unrealized profit in ending inventory of P
Company
(upstream
sales)
………………………..
S Company’s realized net income from
separate operations*…….…..
Less: Amortization of allocated excess [(E3)]
….
P 60,000
( 12,000)
P 48,000
13,200
P 34,800
Multiplied by:
Non-controlling interest
20%
%..........
Non-controlling
Interest in Net Income
(NCINI)
P
6,960
– partial goodwill
*that has been realized in transactions with third parties.
Since NCI share of goodwill is not recognized, no adjustment is required for the
impairment loss on goodwill and impairment losses are not shared with NCI.
Subsidiary accounts are adjusted to full fair value regardless on the controlling interest
percentage or what option used to value non-controlling interest or goodwill.
6. Worksheet for Consolidated Financial Statements, December 31, 20x4.
Equity Method (Partial-goodwill)
80%-Owned Subsidiary
December 31, 20x4 (First Year after Acquisition)
Income Statement
P Co
S Co.
Sales
P480,000
P240,000
Investment income
Total Revenue
6,840
P486,840
P240,000
Cost of goods sold
P204,000
P138,000
Depreciation expense
60,000
24,000
Interest expense
Other expenses
48,000
18,000
Goodwill impairment loss
Total Cost and Expenses
Net Income
P312,000
P174,840
P180,000
P 60,000
NCI in Net Income - Subsidiary
Net Income to Retained Earnings
P174,840
P 60,000
Statement of Retained Earnings
Retained earnings, 1/1
P Company
P360,000
S Company
Net income, from above
Total
Dividends paid
P Company
174,840
P414,840
72,000
Dr.
(5)
150,000
(6)
60,000
(4)
6,840
(3)
6,000
(7)
18,000
(8)
12,000
(3)
6,000
(3)
1,200
Cr.
Consolidated
P 510,000
_________
P 510,000
P 168,000
(5)
150,000
(6)
60,000
90,000
1,200
66,000
3,000
(3)
3,000
P328,200
P181,800
( 6,960)
(9)
6,960
P174,840
P
P120,000
60,000
P180,000
360,000
(1)
120,000
174,840
P414,840
72,000
S Company
Retained earnings, 12/31 to Balance
Sheet
-
36,000
P462,840
P144,000
P
232,800
90,000
P 90,000
60,000
(4)
36,000
________
P
642,840
Balance Sheet
Cash……………………….
Accounts receivable……..
Inventory………………….
120,000
90,000
Land…………………………….
Equipment
210,000
240,000
48,000
180,000
Buildings
720,000
540,000
Total
Accumulated depreciation
- equipment
Accumulated depreciation
- buildings
Accounts payable……………
Bonds payable…………………
Common stock, P10 par………
Common stock, P10 par………
Retained earnings, from above
350,040
(2)
7,200
(4) 21,96
0
P1,962,840
P1,008,0
00
P 135,000
P 96,000
405,000
288,000
120,000
240,000
600,000
120,000
120,000
462,840
Non-controlling interest…………
_________
Total
(1)
(3)
6,000
(7)
6,000 18,000
(8)
12,000
(2)
4,800
(2)
12,000
Discount on bonds payable
Goodwill……………………
Investment in S Co………
P
P1,962,840
240,000
144,000
______
___
P1,008,0
00
Sales
Less: Cost of goods sold
Gross profit
Less: Depreciation expense
Other expense
Net income from its own separate operations
Add: Investment income
Net income
Dividends paid
No goodwill impairment loss for 20x5.
180,000
265,200
420,000
(2)
216,000
(3)
1,200
(3)
3,000
(2)
288,000
(2)
84,000
1,044,000
3,600
9,000
P2,394,600
(2)
96,000
(2)
192,000
(3)
6,000
(3)
12,000
P 147,000
495,000
240,000
360,000
600,000
(1)
240,000
462,840
(4)
7,200
__________
P
983,160
(1
)
72,000 (2)
18,000
(5)
6,960
P
983,160
80% Partial Goodwill – Equity Method – Second Year
3. 20x5: Second Year after Acquisition
322,800
150,000
P Co.
P 540,000
216,000
P 324,000
60,000
72,000
P 192,000
65,040
P 257,040
P 72,000
S Co.
P 360,000
192,000
P 168,000
24,000
54,000
P 90,000
P 90,000
P 48,000
____89,760
P2,394,600
20x5: Parent Company Equity Method Entry
January 1, 20x5 – December 31, 20x5:
(2) Cash………………………
Investment in S Company (P48,000 x 80%)…………….
38,400
38,400
Record dividends from S Company.
December 31, 20x5:
(3) Investment in S Company
Investment income (P90,000 x 80%)
72,000
72,000
Record share in net income of subsidiary.
December 31, 20x5:
(4) Investment income (P7,200 x 80%)
Investment in S Company
5,760
5,760
Record amortization of allocated excess of inventory, equipment,
buildings and bonds payable
December 31, 20x5:
(5) Investment income (P24,000 x 100%)
Investment in S Company
To adjust investment income for downstream sales - unrealized
profit in ending inventory of Son (UPEI of S).
24,000
24,000
December 31, 20x5:
(6) Investment in S Company……………..
Investment income (P18,000 x 100%)………..
To adjust investment income for downstream sales - realized
profit in beginning inventory of S (RPBI of S).
18,000
18,000
December 31, 20x5:
(7) Investment income (P6,000 x 80%)
Investment in S Company
To adjust investment income for upstream sales - unrealized
profit in ending inventory Perfect (UPEI of P).
4,800
4,800
December 31, 20x5:
(8) Investment in S Company……………..
Investment income (P12,000 x 80%)………..
To adjust investment income for upstream sales - realized profit
in beginning inventory of Perfect (RPBI of P)
9,600
9,600
Thus, the investment balance and investment income in the books of P Company is as
follows:
Cost,
350,040
NI of Son
(90,000
72,000
RPBI
of
S
(P18,000
18,000
RPBI of P (P12,000 x 80%)
Balance,
Amortization
(7,200
376,680
5,760
UPEI
of
S
(P24,000
24,000
UPEI of P (P6,000 x 80%)
4.
Investment in S
1/1/x5 38,400
80%)
5,760
x
80%) 24,000
100%)
x
100%)
4,800
80%)
9,600
Investment Income
12/31/x5
x
805)
x
100%)
4,800
72,000
18,000
9,600
65,040
Dividends – S (48,000x
Amortization (7,200 x 80%)
UPEI of Son (P24,000 x
UPEI of Perfect (P6,000 x
NI of S
(P90,000 x 80%)
RPBI of S (P18,000 x 100%)
RPBI of P(P12,000 x 80%)
Balance, 12/31/x5
Schedule of Determination and Allocation of Excess (Partial-goodwill) – refer to
the schedule above.
5. Consolidation Workpaper – 20x5 Second Year after Acquisition
The schedule of determination and allocation of excess presented above provides
complete guidance for the worksheet eliminating entries:
(E1) Common stock – S Co…………………………………………
Retained earnings – S Co, 1/1/x5………………………….
Investment in SCo (P384,000 x 80%)
Non-controlling interest (P384,000 x 20%)
………………………..
240,000
144.000
307,200
76,800
To eliminate investment on January 1, 20x5 and equity accounts
of subsidiary on date of acquisition; and to establish noncontrolling interest (in net assets of subsidiary) on 1/1/20x5.
(E2) Accumulated depreciation – equipment (P96,000 –
P12,000)
Accumulated depreciation – buildings (P160,000 + P6,000)
Land………………………………………………………………………
.
Discount on bonds payable (P4,800 – P1,200)….
Goodwill (P12,000 – P3,000)……………………………..
Buildings………………………………………..
Non-controlling interest [(P90,000 – P13,200) x 20%]
Investment in S Co……………………………………………….
84,000
198,000
7,200
3,600
9,000
216,000
15,360
70,440
To eliminate investment on January 1, 20x5 and allocate excess
of
remainder
cost over book value of identifiable assets acquired, with
to the original amount of goodwill; and to establish noncontrolling
interest (in net assets of subsidiary) on 1/1/20x5.
(E3) Depreciation expense………………………..
Accumulated depreciation – buildings…………………..
Interest expense…………………………………
Accumulated depreciation – equipment………………..
Discount on bonds payable…………………………
6,000
6,000
1,200
12,000
1,200
To provide for 20x5 depreciation and amortization on differences
between acquisition date fair value and book value of Son’s
identifiable assets and liabilities as follows:
Depreciation/
Amortization
Expense
Inventory
sold
Equipment
Buildings
Bonds
payable
Totals
Amortizatio
n
-Interest
P 12,000
( 6,000)
_______
P 1,200
P 6,000
P1,200
Total
P7,20
0
(E4) Investment income
Non-controlling interest (P48,000 x 20%)………………..
Dividends paid – S……………………
Investment in S Company
under
65,040
9,600
48,000
26,640
To eliminate intercompany dividends and investment income
equity method and establish
follows:
Investment in S
NI of S
38,400
(E6)
Sales……………………….
(90,000
x 80%)…….
5,760
72,000
80%)
RPBI
of
S 24,000
18,000
RPBI
of
P
4,800
9,600
26,
640
share of dividends, computed as
Investment Income
Dividends – S
Amortization
(P7,200 x
UPEI of S
UPEI of P
Amortization
(P7,200 x 80%)
5,760
UPEI of S
24,000
UPEI
4,800
of
P
72,000
NI of S
(90,000
x 80%)
18,000
RPBI of S
9,600
RPBI of P
120,000
65,040
Cost of Goods Sold (or Purchases)
120,000
To eliminated intercompany downstream sales.
(E7) Sales……………………….
Cost of Goods Sold (or Purchases)
75,000
75,000
To eliminated intercompany upstream sales.
(E8) Investment in Son Company…………………….
Cost of Goods Sold (Ending Inventory – Income
Statement)
the
18,000
To realized profit in downstream beginning inventory deferred in
prior period.
(E9) Investment in Son Company (P12,000 x 80%)
Noncontrolling interest (P12,000 x 20%)……
Cost of Goods Sold (Ending Inventory – Income
Statement)
the
18,000
9,600
2,400
12,000
To realized profit in upstream beginning inventory deferred in
prior period.
After the eliminating entries are posted in the investment account, it should be observed
that from consolidation point of view the investment account is totally eliminated. Thus,
Cost,
350,040
NI of S
Investment in S
1/1/x5
38,400
80%)
(90,000
x
80%)
Dividends – S (40,000x
Amortization
(6,000 x 80%)
5,760
72,000
RPBI of S
(P18,000 x 100%)
24,000
UPEI of S (P20,000 x
(E10) Cost
of Goods Sold (Ending Inventory
24,000
18,000
100%)– Income
RPBI of P(P12,000 x 80%)
9,600
4,800
UPEI of P (P5,000 x 80%)
Statement)…
Balance, – Balance Sheet…… 12/31/x5 307,200
(E1) Investment, 1/1/20x5 24,000
Inventory
376,680
To
defer the downstream sales - unrealized profit in ending
18,000
70,440
(E2) Investment, 1/1/20x5
inventory (E8) RPBI of S
RPBIto
ofoutsiders.
P
9,600
26,640
(E4) Investment Income
until (E9)
it is sold
and dividends
336,900 404,280
(E11) Cost of Goods Sold (Ending
Statement)…
Inventory – Balance Sheet……
Inventory
–
Income
6,000
6,000
To defer the upstream sales - unrealized profit in ending
inventory
until it is sold to outsiders.
(E12)
Non-controlling
interest
in
Subsidiary…………
Non-controlling interest …………..
Net
Income
of
17,760
To establish non-controlling interest in subsidiary’s adjusted net
income for 20x5 as follows:
Net income of subsidiary……………………..
Realized profit in beginning inventory of P
Company - 20x5 (upstream sales)
Unrealized profit in ending inventory of P
Company - 20x5 (upstream sales)
S Company’s Realized net income*
Less: Amortization of allocated excess
Multiplied by:
%..........
Non-controlling
Non-controlling
Interest in
interest
Net Income
17,760
P 90,000
12,000
(
P
(
P
6,000)
96,000
7,200)
88,800
20
%
(NCINI)
P 17,760
– partial goodwill
*from separate transactions that has been realized in transactions
with third persons.
6. Worksheet for Consolidated Financial Statements, December 31, 20x5
Equity Method (Partial-goodwill)
80%-Owned Subsidiary
December 31, 20x5 (Second Year after Acquisition)
Income Statement
Sales
Investment income
Total Revenue
Cost of goods sold
P Co
S Co.
Dr.
P540,000
P360,000
65,040
-
P605,040
P360,000
P216,000
P192,000
60,000
24,000
-
-
Other expenses
Goodwill impairment loss
Total Cost and Expenses
72,000
P348,000
Net Income
P257,040
54,000
P270,000
P
90,000
Depreciation expense
Interest expense
NCI in Net Income - Subsidiary
-
Net Income to Retained Earnings
P257,040
Statement of Retained Earnings
Retained earnings, 1/1
P Company
P462,840
S Company
Net income, from above
Total
Dividends paid
P Company
S Company
Retained earnings, 12/31 to Balance
Sheet
257,040
P719,880
P
90,000
Cr.
(6)
120,000
(7)
75,000
(4)
65,040
(10) 24,000
(11) 6,000
Consolidated
P 705,000
___________
(6)
120,000
(7)
75,000
(8)
18,000
(9)
12,000
P
P
705,000
213,000
(3)
6,000
(3)
1,200
90,000
1,200
126,000
P 430,200
P 274,800
(5)
17,760
( 17,760)
P 257,040
P 462,840
P144,000
90,000
P234,000
(1)
144,000
257,040
P 719,880
72,000
72,000
(4)
48,000
-
48,000
_
________
P777,456
P223,200
P 777,456
Cash……………………….
Accounts receivable……..
P
265,200
180,000
P
102,000
96,000
P 367,200
276,000
Inventory………………….
216,000
108,000
Balance Sheet
Land…………………………….
Equipment
Buildings
Discount on bonds payable
210,000
240,000
720,000
48,000
180,000
540,000
(10)
24,000
(11) 6,000
294,000
(3) 216,000
265,200
420,000
1,044,000
(2)
7,200
(2)
3,600
(3)
1,200
2,400
Goodwill……………………
Investment in S Co………
(2)
9,000
(8)
(1) 307,200
18,000
(2) 70,440
(9)
9,600
(4)
26,640
376,680
Total
Accumulated depreciation
- equipment
P2,207,880
P1,074,0
00
P 150,000
P
102,000
Accumulated depreciation
- buildings
Accounts payable……………
Bonds payable…………………
Common stock, P10 par………
Common stock, P10 par………
Retained earnings, from above
Non-controlling interest…………
450,000
306,000
120,000
240,000
600,000
120,000
120,000
647,880
Total
0
___
_____
P2,207,88
240,000
186,000
9,000
P2,677,800
(2)
84,000
(3)
12,000
P180,000
(2)
198,000
(3)
6,000
552,000
240,000
360,000
600,000
(1)
240,000
647,880
(4)
(9)
_________
P1,074,0
00
9,600
2,400 (2 ) 76,800
(2) 15,360
__________
(5) 17,760
P1,046,40
P1,046,40
0
0
____97,920
P2,677,800
80% Full-Goodwill – Equity Method – First Year
3. 20x4: First Year after Acquisition
Parent Company Equity Method Entry
Date of Acquisition – January 1, 20x4
Fair value of Subsidiary (80%)
Consideration transferred (80%)……………..
Fair value of NCI (given) (20%)………………..
Fair value of Subsidiary (100%)……….
Less: Book value of stockholders’ equity of Son:
Common stock (P240,000 x 100%)
……………….
Retained earnings (P120,000 x 100%)………...
Allocated excess (excess of cost over book value)
…..
Less: Over/under valuation of assets and liabilities:
Increase in inventory (P6,000 x 100%)
………………
Increase in land (P7,200 x 100%)
…………………….
Increase in equipment (P96,000 x 100%)
Decrease in buildings (P24,000 x 100%)
……….....
Decrease in bonds payable (P4,800 x 100%)
……
Positive excess: Full-goodwill (excess of cost over
fair value)………………………………………………...
P 372,000
93,000
P 465,000
P 240,000
120,000
360,000
P 105,000
P
6,000
7,200
96,000
( 24,000)
4,800
90,000
P 15,000
A summary or depreciation and amortization adjustments is as follows:
Account
amortized
Adjustments
Inventory
to
be
Over/
under
P
6,000
Life
1
Annual
Amount
P
6,000
Current
Year(20x4)
P 6,000
20x5
P
-
Subject to Annual Amortization
Equipment (net).........
96,000
(24,00
0)
4,80
0
Buildings (net)
Bonds payable…
8
12,000
12,000
12,000
4
( 6,000)
1,20
0
P
13,200
( 6,000)
1,200
(6,000)
1,20
0
P 13,200
P 7,200
4
20x4: First Year after Acquisition
Parent Company Equity Method Entry
January 1, 20x4:
(1) Investment in S Company……………………………………………
Cash……………………………………………………………………
..
372,000
372,000
Acquisition of S Company.
January 1, 20x4 – December 31, 20x4:
(2) Cash………………………
Investment in S Company (P36,000 x 80%)…………….
28,800
28,800
Record dividends from S Company.
December 31, 20x4:
(3) Investment in S Company
Investment income (P60,000 x 80%)
48,000
48,000
Record share in net income of subsidiary.
December 31, 20x4:
(4) Investment income [(P13,200 x 80%) + (P3,750 – P750)*,
goodwill impairment loss)]
Investment in S Company
13,560
13,560
Record amortization of allocated excess of inventory, equipment,
buildings and bonds payable and goodwill impairment loss.
*this procedure would be more appropriate, instead of multiplying the full-goodwill impairment loss of
P3,125 by 80%. There might be situations where the controlling interests on goodwill impairment loss
would not be proportionate to NCI acquired (refer to Illustration 15-6).
December 31, 20x4:
(5) Investment income (P18,000 x 100%)
Investment in S Company
To adjust investment income for downstream sales - unrealized
profit in ending inventory of S.
18,000
December 31, 20x4:
(6) Investment income (P12,000 x 80%)
Investment in S Company
To adjust investment income for upstream sales - unrealized
profit in ending inventory P .
18,000
9,600
9,600
Thus, the investment balance and investment income in the books of P Company is as
follows
Investment in S
1/1/x4 28,800
80%)
Cost,
372,000
NI of S
48,000
(60,000
Balance,
324,000
Amortization &
13,560
UPEI
of
S
(P18,000
18,000
UPEI of P (P12,000 x80%)
x
80%)
13,560
18,000
9,600
Dividends – S (36,000x
Amortization &
impairment
UPEI of S (P18,000 x 100%)
UPEI of P (P12,000 x80%)
12/31/x4
Investment Income
impairment
x
48,000
NI of S
(P60,000 x 80%)
100%)
9,600
6,840
Balance, 12/31/x4
4. Schedule of Determination and Allocation of Excess (Full-goodwill)
Date of Acquisition – January 1, 20x4
Fair value of Subsidiary (80%)
Consideration transferred (80%)……………..
Fair value of NCI (given) (20%)………………..
Fair value of Subsidiary (100%)……….
Less: Book value of stockholders’ equity of Son:
Common stock (P240,000 x 100%)
……………….
Retained earnings (P120,000 x 100%)………...
Allocated excess (excess of cost over book value)
…..
Less: Over/under valuation of assets and liabilities:
Increase in inventory (P6,000 x 100%)
………………
Increase in land (P7,200 x 100%)
…………………….
Increase in equipment (P96,000 x 100%)
Decrease in buildings (P24,000 x 100%)
……….....
Decrease in bonds payable (P4,800 x 100%)
……
Positive excess: Full-goodwill (excess of cost over
fair value)………………………………………………...
P 372,000
93,000
P 465,000
P 240,000
120,000
360,000
P 105,000
P
6,000
7,200
96,000
( 24,000)
4,800
90,000
P 15,000
A summary or depreciation and amortization adjustments is as follows:
Account
amortized
Adjustments
to
Inventory
Subject to Annual Amortization
Equipment (net).........
Buildings (net)
Bonds payable…
be
Over/
under
P
6,000
96,000
(24,00
0)
4,80
0
Current
Year(20x4)
1
Annual
Amount
P
6,000
P 6,000
P
-
8
12,000
12,000
12,000
4
( 6,000)
1,20
0
P
13,200
( 6,000)
1,200
(6,000)
1,20
0
P 13,200
P 7,200
Life
4
20x5
5. Consolidation Workpaper – 20x4 Year of Acquisition (Full-goodwill)
(E1) Common stock – S Co…………………………………………
Retained earnings – S Co……………………………………
Investment in S Co……………………………………………
Non-controlling interest (P360,000 x 20%)
………………………..
240,000
120.000
288,000
72,000
To eliminate investment on January 1, 20x4 and equity accounts
of subsidiary on date of acquisition; and to establish noncontrolling interest (in net assets of subsidiary) on date of
acquisition.
(E2)
Inventory………………………………………………………………….
Accumulated depreciation – equipment………………..
6,000
96,000
Accumulated depreciation – buildings…………………..
Land………………………………………………………………………
192,000
7,200
Discount
on
bonds
payable………………………………………….
Goodwill………………………………………………………………….
Buildings………………………………………..
Non-controlling interest (P90,000 x 20%) + [(P15,000,
full –
P12,000, partial goodwill)]…………
Investment
in
Son
Co……………………………………………….
4,800
.
15,000
216,000
21,000
84,000
To eliminate investment on January 1, 20x4 and allocate excess
of
cost over book value of identifiable assets acquired, with
remainder
to goodwill; and to establish non- controlling interest (in net
assets of
subsidiary) on date of acquisition.
(E3) Cost of Goods Sold…………….
Depreciation expense………………………..
Accumulated depreciation – buildings…………………..
Interest expense…………………………………
Goodwill impairment loss……………………………………….
Inventory…………………………………………………………..
Accumulated depreciation – equipment………………..
Discount on bonds payable…………………………
Goodwill……………………………………
and
6,000
6,000
6,000
1,200
3,750
6,000
12,000
1,200
3,750
To provide for 20x4 impairment loss and depreciation and
amortization on differences between acquisition date fair value
book value of S’s identifiable assets and liabilities as follows:
Cost of
Goods
Sold
Inventory sold
Equipment
Buildings
Bonds payable
Totals
Depreciation/
Amortization
Expense
Amortizatio
n
-Interest
Total
P
6,000
_______
P 6,000
P 12,000
( 6,000)
_______
P 7,200
P 1,200
P1,200
14,40
0
(E4) Investment income
Investment in S Company
Non-controlling interest (P36,000 x 20%)………………..
Dividends paid – S……………………
under
6,840
21,960
7,200
36,000
To eliminate intercompany dividends and investment income
equity method and establish share of dividends, computed as
follows:
NI of S
(60,000
x
48,000
Investment in S
28,800
80%)…….
&
13,560
18,000
9,600
21,960
Investment Income
Dividends - S
Amortization
impairment
UPEI of S
UPEI of P
Amortization
impairment
13,560
UPEI
of
S
18,000
UPEI
of
P
9,600
48,000
80%)
6,840
NI of S
(50,000
x
After the eliminating entries are posted in the investment account, it should be observed
that from consolidation point of view the investment account is totally eliminated. Thus,
Cost,
372,000
NI of S
48,000
Investment in S
1/1/x4
28,800
80%)
(60,000
x
80%)
Balance,
12/31/x4
350,040
(E4) Investment Income
and dividends ……………
(E5) Sales……………………….
21,960
Cost
of Goods Sold (or Purchases)
13,560
Dividends – S (30,000x
Amortization &
impairment
18,000
9,600
288,000
UPEI of S
UPEI of P
(E1) Investment, 1/1/20x4
84,000
(E2) Investment, 1/1/20x4
150,000
150,000
To eliminated intercompany downstream sales.
372,000 372,000
(E6) Sales……………………….
Cost of Goods Sold (or Purchases)
60,000
60,000
To eliminated intercompany upstream sales.
(E7) Cost of Goods Sold (Ending Inventory – Income Statement)
…
Inventory – Balance Sheet……
18,000
18,000
To defer the downstream sales - unrealized profit in ending
inventory
until it is sold to outsiders.
(E8) Cost of Goods Sold (Ending Inventory – Income Statement)
…
Inventory – Balance Sheet……
12,000
12,000
To defer the upstream sales - unrealized profit in ending
inventory
until it is sold to outsiders.
(E9)
Non-controlling
interest
in
Subsidiary…………
Non-controlling interest …………..
Net
Income
of
6,210
To establish non-controlling interest in subsidiary’s adjusted net
income for 20x4 as follows:
Net income of subsidiary……………………..
Unrealized profit in ending inventory of P
Company
(upstream
sales)
………………………..
S Company’s realized net income from
separate operations*…….…..
Less: Amortization of allocated excess [(E3)]
….
6,210
P 60,000
( 12,000)
P 48,000
( 13,200)
P 34,800
Multiplied by:
Non-controlling interest
20%
%..........
Non-controlling
Interest in Net Income
P
6,960
(NCINI)
– partial goodwill
Less: Non-controlling interest on impairment
loss on full-goodwill (P3,750 x 20%) or
(P3,750 impairment on full-goodwill
less
750
P3,000,
impairment on partialgoodwill)*
Non-controlling
Interest in Net Income
(NCINI)
P 6210
– full goodwill
*this procedure would be more appropriate, instead of multiplying the
full-goodwill impairment loss of P3,750 by 20%. There might be
situations where the NCI on goodwill impairment loss would not be
proportionate to NCI acquired (refer to Illustration 15-6).
6. Worksheet for Consolidated Financial Statements, December 31, 20x4
Equity Method (Full-goodwill)
80%-Owned Subsidiary
December 31, 20x4 (First Year after Acquisition)
Income Statement
P Co
S Co.
Sales
P480,000
P240,000
Investment income
Total Revenue
6,840
P486,840
P240,000
Cost of goods sold
P204,000
P138,000
Depreciation expense
60,000
24,000
Interest expense
Other expenses
48,000
18,000
Goodwill impairment loss
Total Cost and Expenses
Net Income
P312,000
P174,840
P150,000
P 50,000
NCI in Net Income - Subsidiary
Net Income to Retained Earnings
P174,840
P 50,000
Dr.
(5)
150,000
(6)
60,000
(4)
6,840
(3)
6,000
(7)
18,000
(8)
12,000
(3)
6,000
(3)
1,200
Cr.
Consolidated
P 510,000
_________
P 510,000
P 168,000
(5)
150,000
(6)
60,000
90,000
1,200
66,000
3,750
(3)
3,750
P274,125
P150,875
( 5,175)
(9)
5,175
P145,700
Statement of Retained Earnings
Retained earnings, 1/1
P Company
S Company
Net income, from above
Total
Dividends paid
P Company
S Company
Retained earnings, 12/31 to Balance
Sheet
P
360,000
P360,000
174,840
P120,000
60,000
P414,840
P180,000
(1)
120,000
174,840
P
414,840
72,000
72,000
-
36,000
P462,840
P144,000
P
232,800
90,000
P 90,000
60,000
(4)
36,000
_
________
P
462,840
Balance Sheet
Cash……………………….
Accounts receivable……..
Inventory………………….
120,000
90,000
Land…………………………….
Equipment
210,000
240,000
48,000
180,000
Buildings
720,000
540,000
P
(2)
(3)
6,000
(7)
6,000 18,000
(8)
12,000
(2)
7,200
322,800
150,000
180,000
265,200
420,000
(2)
216,000
1,044,000
(2)
4,800
(2)
15,000
Discount on bonds payable
Goodwill……………………
Investment in S Co………
Total
Accumulated depreciation
- equipment
Accumulated depreciation
- buildings
Accounts payable……………
Bonds payable…………………
Common stock, P10 par………
Common stock, P10 par………
Retained earnings, from above
350,040
P1,635,700
P1,008,0
00
P 135,000
P 96,000
405,000
288,000
120,000
240,000
600,000
120,000
120,000
462,840
Non-controlling interest…………
_________
Total
(4)
21,960
P1,962,840
3,600
11,250
P2,396,850
(2)
96,000
(2)
192,000
(3)
6,000
(3)
12,000
P 147,000
495,000
240,000
360,000
600,000
(1)
240,000
240,000
144,000
______
___
P1,008,0
00
(3)
1,200
(3)
3,750
(2)
288,000
(2)
84,000
462,840
(4)
7,200
__________
P
986,160
(1
)
72,000 (2)
21,000
(9)
6,210
P
986,160
____92,010
P2,396,850
80% Full-Goodwill - Equity Method – Second Year
3. 20x5: Second Year after Acquisition
Sales
Less: Cost of goods sold
Gross profit
Less: Depreciation expense
Other expense
Net income from its own separate operations
Add: Investment income
Net income
Dividends paid
Perfect Co.
P 540,000
216,000
P 324,000
60,000
72,000
P 192,000
65,040
P 257,040
P 72,000
Son Co.
P 360,000
192,000
P 168,000
24,000
54,000
P 90,000
P 90,000
P 48,000
No goodwill impairment loss for 20x5.
Parent Company Equity Method Entry
January 1, 20x5 – December 31, 20x5:
(2) Cash………………………
Investment in S Company (P48,000 x 80%)…………….
38,400
38,400
Record dividends from S Company.
December 31, 20x5:
(3) Investment in S Company
Investment income (P90,000 x 80%)
72,000
72,000
Record share in net income of subsidiary.
December 31, 20x5:
(4) Investment income (P7,200 x 80%)
Investment in S Company
Record amortization of allocated excess of inventory, equipment,
buildings and bonds payable
5,760
5,760
December 31, 20x5:
(5) Investment income (P24,000 x 100%)
Investment in S Company
To adjust investment income for downstream sales - unrealized
profit in ending inventory of S (UPEI of S).
24,000
24,000
December 31, 20x5:
(6) Investment in S Company……………..
Investment income (P18,000 x 100%)………..
To adjust investment income for downstream sales - realized
profit in beginning inventory of S (RPBI of S).
18,000
18,000
December 31, 20x5:
(7) Investment income (P6,000 x 80%)
Investment in S Company
To adjust investment income for upstream sales - unrealized
profit in ending inventory P (UPEI of P).
4,800
4,800
December 31, 20x5:
(8) Investment in S Company……………..
Investment income (P12,000 x 80%)………..
To adjust investment income for upstream sales - realized profit
in beginning inventory of P (RPBI of P)
9,600
9,600
Thus, the investment balance and investment income in the books of Perfect Company is
as follows:
Cost,
350,040
NI of Son
Investment in S
1/1/x5 38,400
80%)
5,760
x
80%) 24,000
(90,000
72,000
RPBI
of
(P18,000
18,000
RPBI of P (P12,000 x 80%)
Amortization
(7,200
Balance,
5,760
376,680
UPEI
of
S
(P24,000
24,000
UPEI of P (P6,000 x 80%)
x
x
x
100%)
4,800
Investment Income
9,600
805)
12/31/x5
100%)
4,800
Dividends – S (48,000x
Amortization (7,200 x 80%)
UPEI of S (P24,000 x 100%)
UPEI of P (P6,000 x 80%)
NI of S
72,000
18,000
9,600
65,040
(P90,000 x 80%)
RPBI of S (P18,000 x 100%)
RPBI of P (P12,000 x 80%)
Balance, 12/31/x5
5. Consolidation Workpaper – Second Year after Acquisition (Full-goodwill)
(E1) Common stock – S Co…………………………………………
Retained earnings – S Co, 1/1/x5………………………….
Investment in SCo (P384,000 x 80%)
Non-controlling interest (P384,000 x 20%)
………………………..
240,000
144.000
307,200
76,800
To eliminate investment on January 1, 20x5 and equity accounts
of subsidiary on date of acquisition; and to establish noncontrolling interest (in net assets of subsidiary) on 1/1/20x5.
(E2) Accumulated depreciation – equipment (P96,000 –
P12,000)
Accumulated depreciation – buildings (P192,000 + P6,000)
Land………………………………………………………………………
.
Discount on bonds payable (P4,800 – P1,200)….
84,000
198,000
7,200
3,600
Goodwill (P15,000 – P3,750)……………………………..
Buildings………………………………………..
Non-controlling interest [(P90,000 – P13,200) x 20%] +
[P3,000, full goodwill - [(P3,750, full-goodwill
impairment
– P3,000, partial- goodwill impairment)*
or (P3,750 x 20%)]
Investment in S Co……………………………………………….
excess of
remainder
11,250
216,000
17,610
70,440
To eliminate investment on January 1, 20x5 and allocate
cost over book value of identifiable assets acquired, with
to the original amount of goodwill; and to establish noncontrolling
interest (in net assets of subsidiary) on 1/1/20x5.
*this procedure would be more appropriate, instead of multiplying the full-goodwill impairment loss of P3,750 by
20%. There might be situations where the NCI on goodwill impairment loss would not be proportionate to NCI
acquired (refer to Illustration 15-6).
(E3) Depreciation expense………………………..
Accumulated depreciation – buildings…………………..
Interest expense…………………………………
Accumulated depreciation – equipment………………..
Discount on bonds payable…………………………
6,000
6,000
1,200
12,000
1,200
To provide for 20x5 depreciation and amortization on differences
between acquisition date fair value and book value of Son’s
identifiable assets and liabilities as follows:
Depreciation/
Amortization
Expense
Inventory
sold
Equipment
Buildings
Bonds
payable
Totals
Amortizatio
n
-Interest
P 12,000
( 6,000)
_______
P 1,200
P 6,000
P1,200
Total
P7,20
0
(E4) Investment income
Non-controlling interest (P48,000 x 20%)………………..
Dividends paid – S……………………
Investment in S Company
under
65,040
9,600
48,000
26,640
To eliminate intercompany dividends and investment income
equity method and establish share of dividends, computed as
follows:
Investment in S
(E6)
NI ofSales……………………….
Son
38,400
Dividends – S
(90,000Cost of Goods Sold (or Purchases)
Amortization
To x
eliminated
intercompany
80%)…….
5,760 downstream
(P7,200sales.
x
72,000
80%)
RPBISales……………………….
of
S 24,000
UPEI of S
(E7)
18,000
Cost
(or Purchases)
RPBI
of of Goods
P Sold
4,800
UPEI of P
9,600To eliminated intercompany upstream sales.
26,640
Investment Income
120,000
Amortization
(P7,200 x
5,760
UPEI
of
24,000
UPEI
of
4,800
(E8) Investment in Son Company…………………….
Cost of Goods Sold (Ending Inventory – Income
Statement)
the
To realized profit in downstream beginning inventory deferred in
80%)
72,000
NI of S
120,000
(90,000
x 80%)
S 75,000
18,000
RPBI of S
P
RPBI75,000
of P
9,600
65,040
18,000
18,000
prior period.
(E9) Investment in Son Company (P12,000 x 80%)
Non-controlling interest (P12,000 x 20%)……
Cost of Goods Sold (Ending Inventory – Income
Statement)
the
9,600
2,400
12,000
To realized profit in upstream beginning inventory deferred in
prior period.
After the eliminating entries are posted in the investment account, it should be observed
that from consolidation point of view the investment account is totally eliminated. Thus,
Cost,
350,040
NI of Son
Investment in S
1/1/x5 38,400
80%)
(90,000
x
80%)
Dividends – S (48,000x
Amortization
(7,000 x 80%)
5,600
72,000
RPBI
of
S
(P18,000
x
100%)
24,000
UPEI of S (P24,000 x
18,000
100%)
RPBI of P (P18,000 x 80%)
9,600
4,800
UPEI of P (P6,000 x 80%)
Balance,
12/31/x5 307,200
(E1) Investment, 1/1/20x5
376,680
(E8)
RPBI
of
S
70,440
(E2) Investment, 1/1/20x5
(E10) Cost
of Goods Sold (Ending Inventory – Income
24,000
18,000
(E9)
RPBI
of
P
26,640
(E4) Investment Income
Statement)…
9,600
and dividends
Inventory
– Balance Sheet……
24,000
To defer the downstream sales -404,280
unrealized404,280
profit in ending
inventory
until it is sold to outsiders.
(E11) Cost of Goods Sold (Ending
Statement)…
Inventory – Balance Sheet……
Inventory
–
Income
6,000
6,000
To defer the upstream sales - unrealized profit in ending
inventory
until it is sold to outsiders.
(E12)
Non-controlling
interest
in
Subsidiary…………
Non-controlling interest …………..
Net
Income
of
17,760
To establish non-controlling interest in subsidiary’s adjusted net
income for 20x5 as follows:
Net income of subsidiary……………………..
Realized profit in beginning inventory of P
Company - 20x5 (upstream sales)
Unrealized profit in ending inventory of P
Company - 20x5 (upstream sales)
Son Company’s Realized net income*
Less: Amortization of allocated excess
17,760
P 90,000
12,000
(
P
(
P
6,000)
96,000
7,200)
88,000
20
%
P 17,760
Multiplied by:
Non-controlling interest
%..........
Non-controlling
Interest in Net Income
(NCINI)
– partial goodwill
Less: NCI on goodwill impairment loss on
full0
Goodwill
Non-controlling
Interest in Net Income
(NCINI)
P 17,760
– full goodwill
*from separate transactions that has been realized in transactions
with third persons.
6. Worksheet for Consolidated Financial Statements, December 31, 20x5
Equity Method (Full-goodwill)
80%-Owned Subsidiary
December 31, 20x5 (Second Year after Acquisition)
Income Statement
P Co
S Co.
Sales
P540,000
P360,000
Investment income
Total Revenue
65,040
P605,040
P360,000
Cost of goods sold
P216,000
P192,000
60,000
24,000
Interest expense
Other expenses
Goodwill impairment loss
Total Cost and Expenses
72,000
P348,000
Net Income
P257,040
54,000
P270,000
P
90,000
Depreciation expense
NCI in Net Income - Subsidiary
-
Net Income to Retained Earnings
P257,040
Statement of Retained Earnings
Retained earnings, 1/1
P Company
P462,840
S Company
Net income, from above
Total
Dividends paid
P Company
S Company
Retained earnings, 12/31 to Balance
Sheet
257,040
P719,880
P
90,000
Dr.
Cr.
(6)
120,000
(7)
75,000
(4)
65,040
(10) 24,000
(11) 6,000
Consolidated
P 705,000
___________
(6)
120,000
(7)
75,000
(8)
18,000
(9)
12,000
P
P
705,000
213,000
(3)
6,000
(3)
1,200
90,000
1,200
126,000
P 430,200
P 274,800
(5)
17,760
( 17,760)
P 257,040
P 462,840
P144,000
90,000
P234,000
(1)
144,000
257,040
P 719,880
72,000
72,000
(4)
48,000
-
48,000
_
________
P647,880
P186,000
P 647,880
Cash……………………….
Accounts receivable……..
P
265,200
180,000
P
114,000
96,000
P 367,200
276,000
Inventory………………….
216,000
108,000
Balance Sheet
Land…………………………….
Equipment
210,000
240,000
48,000
180,000
Buildings
720,000
540,000
Discount on bonds payable
Goodwill……………………
(10)
24,000
(11) 6,000
(2)
7,200
265,200
420,000
(3)
216,000
(2)
3,600
(2)
11,250
294,000
(3)
1,200
1,044,000
2,400
11,250
Investment in S Co………
Total
Accumulated depreciation
- equipment
376,680
P2,207,880
P1,074,0
00
P 150,000
P
102,000
Accumulated depreciation
- buildings
Accounts payable……………
Bonds payable…………………
Common stock, P10 par………
Common stock, P10 par………
Retained earnings, from above
Non-controlling interest…………
Total
(8)
18,000
(9)
9,600
450,000
306,000
120,000
240,000
600,000
120,000
120,000
647,880
0
___
_____
P2,207,88
240,000
186,000
______
___
P1,074,0
00
(1) 307,200
(3) 70,440
(4)
26,640
P2,680,050
(2)
84,000
(3)
12,000
P180,000
(2)
198,000
(3)
6,000
552,000
240,000
360,000
600,000
(1)
240,000
647,880
(4)
(9)
9,600
2,400 (1 ) 76,800
(2) 17,610
__________
(14)17,760
P1,048,65
P1,048,65
0
0
____100,170
P2,680,050
Problem III
1.
Consolidated Net Income for 20x5
P Company’s net income from own/separate operations………….
Realized profit in beginning inventory of S Company (downstream sales)
Unrealized profit in ending inventory of S Company (downstream sales)…
P Company’s realized net income from separate operations*…….…..
S Company’s net income from own operations………………………………….
Realized profit in beginning inventory of P Company (upstream sales)
Unrealized profit in ending inventory of P Company (upstream sales)…
S Company’s realized net income from separate operations*…….…..
Total
Less: Amortization of allocated excess……………………
Consolidated Net Income for 20x5
Less: Non-controlling Interest in Net Income* *
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent – 20x5…………..
P 760,000
36,000
(_50,000)
P 746,000
P 460,000
0
(
0)
P 460,000
460,000
P1,206,000
0
P1,206,000
92,000
P
1,114,000
*that has been realized in transactions with third parties.
Beginning inventory: P1,080,000 x 1/5 = P216,000 x 20/120 = P36,000 profit
Ending inventory: P1,200,000 x ¼ = P300,000 x 20/120 = P50,000 profit
Or, alternatively
Consolidated Net Income for 20x5
P Company’s net income from own/separate operations………….
Realized profit in beginning inventory of S Company (downstream sales)
Unrealized profit in ending inventory of S Company (downstream sales)…
P 760,000
36,000
(_50,000)
P Company’s realized net income from separate operations*…….…..
S Company’s net income from own operations………………………………….
Realized profit in beginning inventory of P Company (upstream sales)
Unrealized profit in ending inventory of P Company (upstream sales)…
S Company’s realized net income from separate operations*…….…..
Total
Less: Non-controlling Interest in Net Income* *
Amortization of allocated excess……………………
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent…………..
Add: Non-controlling Interest in Net Income (NCINI)
Consolidated Net Income for 20x5
P 746,000
P 460,000
0
(
0)
P460,000
460,000
P1,206,000
P 92,000
0
92,000
P1,114,000
_ 92,000
P
1,206,000
*that has been realized in transactions with third parties.
**Non-controlling Interest in Net Income (NCINI) for 20x5
S Company’s net income of Subsidiary Company from its own operations
(Reported net income of Son Company)
Realized profit in beginning inventory of P Company (upstream sales)
Unrealized profit in ending inventory of P Company (upstream sales)
S Company’s realized net income from separate operations………
Less: Amortization of allocated excess
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI) – partial goodwill
P460,000
0
(
0)
P460,000
_____0
P460,000
20%
P 92,000
2. Books of Puma
(a) Cost Model
20x4
Dividend – Smarte Company:
None, since, there is no amount given
20x5
Dividend – Smarte Company:
None, since, there is no amount given
(b) Equity Method
20x4
Net income – Smarte
Investment in Smarte (400,000 x 80%)
Equity in Subsidiary Income
Dividend – Smarte
Cash/Dividends receivable
Investment in Smarte
Amortization of Allocated excess:
Equity in Subsidiary Income
Investment in Smarte
Realized Profit in BI:
Investment in Smarte
Equity in Subsidiary Income
Unrealized Profit in EI:
Equity in Subsidiary Income
Investment in Smarte
20x5
Net income – Smarte
Investment in Smarte (460,000 x 80%)
Equity in Subsidiary Income
Dividend – Smarte
Cash/Dividends receivable
Investment in Smarte
Amortization of Allocated excess:
Equity in Subsidiary Income
Investment in Smarte
320,000
320,000
0
0
0
0
0
0
36,000
368,000
36,000
368,000
0
0
0
0
Realized Profit in BI:
Investment in Smarte
Equity in Subsidiary Income
Unrealized Profit in EI:
Equity in Subsidiary Income
Investment in Smarte
36,000
36,000
50,000
50,000
3. Downstream Sales
20x4
100% Interscompany Sales
Sales………………………………………………………………………
1,080,000
Purchases (Cost of Goods Sold)……………………………
1,080,000
**100% UPEI of S:
Cost of Sales (Ending Inventory in Income Statement)
[216,000 – (216,000/1.20)]………..…………………………………..
Inventory (Ending Inventory in Balance Sheet)……………..
36,000
36,000
20x5
100% Interscompany Sales
Sales…………………………………………………………………………1,200,000
Purchases (Cost of Goods Sold)…………………………….
Downstream Sales:
*100% RPBI of S:
Retained Earnings – P, beginning……………………………….. 36,000
Cost of Sales (Beginning Inventory in Income Statement)…..
**100% UPEI of S:
Cost of Sales (Ending Inventory in Income Statement)
[300,000 – (300,000/1.20)]………..…………………………………………..
Inventory (Ending Inventory in Balance Sheet)………………..
1,200,000
36,000
15,000
15,000
Problem IV
1.
Consolidated Net Income for 20x5
P Company’s net income from own/separate operations………….
P
1,720,000
0
(_
0)
P 1,
720,000
Realized profit in beginning inventory of S Company (downstream sales)
Unrealized profit in ending inventory of S Company (downstream sales)…
P Company’s realized net income from separate operations*…….…..
S Company’s net income from own operations………………………………….
Realized profit in beginning inventory of P Company (upstream sales)
Unrealized profit in ending inventory of P Company (upstream sales)…
Son Company’s realized net income from separate operations*…….…..
Total
Less: Amortization of allocated excess……………………
Consolidated Net Income for 20x5
Less: Non-controlling Interest in Net Income* *
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent – 20x5…………..
P 600,000
40,000
( 51,00 0)
P 589,000
589,000
P2,309,000
0
P2,309,000
58,900
P
2,250,100
*that has been realized in transactions with third parties.
Beginning inventory: P800,000 x 1/4 = P200,000 x 25/125 = P40,000 profit
Ending inventory: P1,020,000 x ¼ = P255,000 x 25/125 = P51,000 profit
Or, alternatively
Consolidated Net Income for 20x5
P Company’s net income from own/separate operations………….
P
1,720,000
0
(________0)
P1,720,,00
0
Realized profit in beginning inventory of S Company (downstream sales)
Unrealized profit in ending inventory of S Company (downstream sales)…
P Company’s realized net income from separate operations*…….…..
S Company’s net income from own operations………………………………….
P 600,000
Realized profit in beginning inventory of P Company (upstream sales)
Unrealized profit in ending inventory of P Company (upstream sales)…
S Company’s realized net income from separate operations*…….…..
Total
Less: Non-controlling Interest in Net Income* *
Amortization of allocated excess……………………
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent…………..
Add: Non-controlling Interest in Net Income (NCINI)
Consolidated Net Income for 20x5
40,000
( 51,000)
P589,000
589,000
P2,309,000
P 58,900
0
__58,900
P2,250,100
_ 58,900
P
2,309,000
*that has been realized in transactions with third parties.
**Non-controlling Interest in Net Income (NCINI) for 20x5
S Company’s net income of Subsidiary Company from its own operations
(Reported net income of Son Company)
Realized profit in beginning inventory of P Company (upstream sales)
Unrealized profit in ending inventory of P Company (upstream sales)
Son Company’s realized net income from separate operations………
Less: Amortization of allocated excess
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI)
P600,000
40,000
( 51,000)
P589,000
_____0
P589,000
10%
P 58,900
2. Books of Pinta
(a) Cost Method
20x4
Dividend – Simplex Company:
None, since, there is no amount given
20x5
Dividend – Simplex Company:
None, since, there is no amount given
(b) Equity Method
20x4
Net income – Simplex
Investment in Simplex (600,000 x 90%)
Equity in Subsidiary Income
540,000
540,000
Dividend – Simplex
Cash/Dividends receivable
Investment in Simplex
0
Amortization of Allocated excess:
Equity in Subsidiary Income
Investment in Simplex
0
Realized Profit in BI:
Investment in Simplex
Equity in Subsidiary Income
Unrealized Profit in EI:
Investment in Simplex (40,000 x 90%)
Equity in Subsidiary Income
20x5
Net income – Simplex
Investment in Simplex (600,000 x 90%)
Equity in Subsidiary Income
Dividend – Simplex
Cash/Dividends receivable
Investment in Simplex
0
0
0
0
36,000
36,000
540,000
540,000
0
0
Amortization of Allocated excess:
Equity in Subsidiary Income
Investment in Simplex
3.
0
0
Realized Profit in BI:
Investment in Simplex (40,000 x 90%)
Equity in Subsidiary Income
36,000
Unrealized Profit in EI:
Investment in Simplex (51,000 x 90%)
Equity in Subsidiary Income
45,900
36,000
45,900
Upstream Sales:
100% Interscompany Sales
Sales…………………………………………………………………………1,020,000
Purchases (Cost of Sales)…………………………………….
1,020,000
To eliminate intercompany sales.
***100% RPBI of P: (if equity method Investment in S instead of RE – P, beg.)
Retained Earnings – P, beginning (90% x P40,000)…………
36,000
NCI ……………………………………………….………………… .
4,000
Cost of Sales (Beginning Inventory in Income Statement)
40,000
To recognize unrealized profit in beginning inventory realized during the year.
****100% UPEI of P:
Cost of Sales (Ending Inventory in Income Statement)………51,000
Inventory (Ending Inventory in Balance Sheet)………
To eliminate unrealized intercompany profit in ending inventory.
51,000
Problem V
Amortization of equipment: P20,000 / 10 years = P2,000
RPBI of S (downstream sales):…………………........................................................
P15,000
RPBI of P (upstream sales)……………………….......................................................
10,000
UPEI of S (downstream sales)……………………………………………………..……. 20,000
UPEI of P (upstream sales)………………………………………………….……………
5,000
Consolidated Net Income for 20x4
P Company’s net income from own/separate operations (P724,000 –
P24,000
Realized profit in beginning inventory of S Company (downstream sales)
Unrealized profit in ending inventory of S Company (downstream sales)…
P Company’s realized net income from separate operations*…….…..
S Company’s net income from own operations………………………………….
Realized profit in beginning inventory of P Company (upstream sales)
Unrealized profit in ending inventory of P Company (upstream sales)
S Company’s realized net income from separate operations*…….…..
Total
Less: Amortization of allocated excess……………………
Consolidated Net Income for 20x4
Less: Non-controlling Interest in Net Income* *
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent – 20x4…………..
*that has been realized in transactions with third parties.
P700,000
15,000
(20,00 0)
P695,000
P 90,000
10,000
( 5,000)
P 95,000
95,000
P790,000
2,000
P788,000
18,600
P769,400
Or, alternatively
Consolidated Net Income for 20x4
P Company’s net income from own/separate operations
Realized profit in beginning inventory of S Company (downstream sales)
Unrealized profit in ending inventory of S Company (downstream sales)…
P Company’s realized net income from separate operations*…….…..
S Company’s net income from own operations………………………………….
Realized profit in beginning inventory of P Company (upstream sales)
Unrealized profit in ending inventory of P Company (upstream sales)…
Son Company’s realized net income from separate operations*…….…..
P700,000
15,0000
(20,00 0)
P695,000
P 90,000
10,000
( 5,000)
P 95,000
95,000
Total
Less: Non-controlling Interest in Net Income* *
Amortization of allocated excess……………………
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent…………..
Add: Non-controlling Interest in Net Income (NCINI)
Consolidated Net Income for 20x4
*that has been realized in transactions with third parties.
**Non-controlling Interest in Net Income (NCINI) for 20x4
S Company’s net income of Subsidiary Company from its own operations
(Reported net income of S Company)
Realized profit in beginning inventory of P Company (upstream sales)
Unrealized profit in ending inventory of P Company (upstream sales)
S Company’s realized net income from separate operations………
Less: Amortization of allocated excess
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI) – partial goodwill
Less: NCI on goodwill impairment loss on full goodwill
Non-controlling Interest in Net Income (NCINI) – full goodwill
P790,000
P 18,600
2,000
20,600
P769,400
_ 18,600
P788,000
P 90,000
10,000
( 5,000)
P 95,000
2,000
P 93,000
20%
P 18,600
0
P 18,600
Note: Preferred Solution - since what is given is the RE – P, 12/31/20x4 (ending
balance of the current year) Retained earnings – Parent, 12/31/20x4 (cost)……………………
P
3,500,000
-: UPEI of S (down) – 20x4 or RPBI of S (down) – 20x5…….
20,000
Adjusted Retained earnings – Parent, 12/31/20x4 (cost)……..
P 3,480,000
Retroactive Adjustments to convert Cost to “Equity” for
purposes of consolidation / Parent’s share of adjusted
net increase in subsidiary’s retained earnings:
Retained earnings – Subsidiary, 1/1/20x1………………….P 150,000
Less: Retained earnings – Subsidiary, 12/31/20x4………
320,000
Increase in Retained earnings since acquisition
(cumulative net income – cumulative dividends)….. P 170,000
Accumulated amortization (1/1/20x1 – 12/31/20x4):
P 2,000 x 4 years………………………………………….(
8,000)
UPEI of P (up) – 20x4 or RPBI of P (up) – 20x5……………..(
5,000)
P 157,000
x: Controlling Interests………………………………………
80%
125,600
RE – P, 12/31/20x4 (equity method) = CRE, 12/31/20x4…….
P
3,605,600
15,000
Or, compute first the RE – P on January 1, 20x4 (use work-back approach),
Retained earnings – Parent, 1/1/2014 (cost)
(P3,500,000 plus P25,000 Div of P less P724,000 NI of P)….
P2,801,000
-: UPEI of S (down) – 2013 or RPBI of S (down) – 20x4..………….
Adjusted Retained earnings – Parent, 1/1/20x4 (cost)………………
P2,786.000
Retroactive Adjustments to convert Cost to “Equity” for
purposes of consolidation / Parent’s share of adjusted
net increase in subsidiary’s retained earnings:
Retained earnings – Subsidiary, 1/1/20x1……………………P 150,000
Less: Retained earnings – Subsidiary, 1/1/20x4……………
260,000
Increase in Retained earnings since acquisition
(cumulative net income – cumulative dividends)…… P 110,000
Accumulated amortization (1/1/20x1 – 1/1/20x4):
P 2,000 x 3 years…………………………………………… ( 6,000)
UPEI of P (up) – 20x3 or RPBI of P (up) – 20x4……………… ( 10,000)
P 94,000
X: Controlling Interests…………………………………………
75,200
80%
RE – P, 1/1/20x4 (equity method) = CRE, 1/1/20x4……………
+: CI – CNI or Profit Attributable to Equity Holders of Parent……..
P2,861,200
769,400
-: Dividends – P………………………..………………………
25,000
RE – P, 12/31/20x4 (equity method) = CRE, 12/31/20x4………….
P3,605,600
P
S
Intercompany sales - downstream
Intercompany sales - upstream
RPBI of S (downstream sales)*
RPBI of P (upstream sales)***
UPEI of S (downstream sales)**
UPEI of P (upstream sales)****
Consolidated
Consolidated GP (P3,090,000 – P1,515,000)
Sales
Cost of Sales
P2,500,000 P1,250,000
1,200,000
875,000
( 320,000) ( 320,000)
( 290,00 ( 290,000)
0)
( 15,000)
( 10,000)
20,000
_________
5,000
P3,090,00 P1,515,000
0
P1,575,000
Working Paper Eliminating Entries:
1. Intercompany Sales and Purchases:
Downstream Sales:
Sales……………………………………………………………………. 320,000
Cost of Sales (or Purchases)………………………………....
320,000
Upstream Sales:
Sales…………………………………………………………………….. 290,000
Cost of Sales (or Purchases)…………………………………
290,000
2. Intercompany Profit:
(COST Model)
Downstream Sales:
*100% RPBI of S:
Retained Earnings – P, beginning……………………………..... 15,000
Cost of Sales (Beginning Inventory in Income Statement)…... 15,000
**100% UPEI of S:
Cost of Sales (Ending Inventory in Income Statement)……… 20,000
Inventory (Ending Inventory in Balance Sheet)………..
20,000
Upstream Sales:
***100% RPBI of P: (if equity method Investment in S instead of RE – P, beg.)
Retained Earnings – P, beginning……………………………….. 16,000
NCI ……………………………………………….…………………... 4,000
Cost of Sales (Beginning Inventory in Income Statement)…
20,000
****100% UPEI of P:
Cost of Sales (Ending Inventory in Income Statement)……… 5,000
Inventory (Ending Inventory in Balance Sheet) ……..
5,000
Problem VI
1.
Non-controlling Interest in Net Income (NCINI) for 20x4
S Company’s net income of Subsidiary Company from its own operations
(Reported net income of Son Company)
Realized profit in beginning inventory of P Company (upstream sales): P525,000 x
25/125
Unrealized profit in ending inventory of P Company (upstream sales): P1,250,000 x
25/125
Son Company’s realized net income from separate operations………
Less: Amortization of allocated excess
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI)
P3,000,000
105,000
( 250,000)
P
2,855,000
_____0
P3,055,00
0
20%
P 571,000
2 .Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of
parent – 20x5 – cannot be solved, since there is no net income from separate operations
for P Company.
Incidentally, the eliminating entries are as follows:
Sales
4,000,000
Cost of Goods Sold
Cost of Goods Sold
Ending Inventory (Balance Sheet)
[P1,250,000 - (P1,250,000/1.25)]
4,000,000
250,000
Retained Earnings, beginning – P Company (80%) 84,000
Noncontrolling interest (20%)
21,000
Cost of Goods Sold (Beginning Inventory)
[P525,000 – (P525,000/1.25)] = P105,000
250,000
105,000
3.
Stockholders’ equity – Subsidiary Company, December 31, 20x4
Adjustments to reflect fair value - (over) undervaluation of assets and
liabilities, date of acquisition (January 1, 20x4)
Amortization of allocated excess (refer to amortization above) – 20x4
Fair value of stockholders’ equity of subsidiary, December 31, 20x4……
Less: Unrealized profit in ending inventory of P Company (upstream sales)
Realized stockholders’ equity of subsidiary, December 31, 20x4……
Multiplied by: Non-controlling Interest percentage…………...
Non-controlling interest (in net assets)……………………………..
P5,400,000
0
( 0)
P5,400,000
250,000
P5,150,000
20
P1,030,000
Problem VII
1. (Computation of selected consolidation balances as affected by downstream inventory
transfers)
UNREALIZED GROSS PROFIT, 12/31/x4: (downstream transfer)
Intercompany gross profit (P120,000 – P72,000)...........................................
Inventory remaining at year's end .....................................................................
Unrealized Intercompany Gross profit, 12/31/x4 .................................................
P48,000
30%
P14,400
UNREALIZED GROSS PROFIT, 12/31/x5: (downstream transfer)
Intercompany gross profit (P250,000 – P200,000) ........................................
P50,000
Inventory remaining at year's end .....................................................................
20%
Unrealized intercompany gross profit, 12/31/x5 .................................................
P10,000
CONSOLIDATED TOTALS

Sales = P1,150,000 (add the two book values and eliminate intercompany sales of
P250,000)

Cost of goods sold:
Benson's book value ....................................................................................
P535,000
Broadway's book value .................................................................................
400,000
Eliminate intercompany transfers .................................................................
(250,000)
Realized gross profit deferred in 20x4 ..........................................................
(14,400)



Deferral of 20x5 unrealized gross profit .......................................................
10,000
Cost of goods sold ..................................................................................
P680,600
Operating expenses = P210,000 (add the two book values and include intangible
amortization for current year)
Dividend income = -0- (intercompany transfer eliminated in consolidation)
Noncontrolling interest in consolidated income: (impact of transfers is not included
because they were downstream)
Broadway reported income for 20x5 ............................................................
P100,000
Intangible amortization.................................................................................
(10,000)
Broadway adjusted income...........................................................................
90,000
Outside ownership .......................................................................................
30%
Noncontrolling interest in Broadway’s earnings.............................................
P 27,000
or,
Consolidated Net Income for 20x5
P Company’s net income from own/separate operations (P800-P535-P100)
Realized profit in beginning inventory of S Company (downstream sales)
Unrealized profit in ending inventory of S Company (downstream sales)…
P Company’s realized net income from separate operations*…….…..
S Company’s net income from own operations (P600 – P400 – P100)
Realized profit in beginning inventory of P Company (upstream sales)
Unrealized profit in ending inventory of P Company (upstream sales)…
S Company’s realized net income from separate operations*…….…..
P 165,000
14,400
(_10,000)
P 169,400
P
100,000
0
(
0)
P
100,000
Total
Less: Amortization of allocated excess……………………
Consolidated Net Income for 20x5
Less: Non-controlling Interest in Net Income* *
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent – 20x5…………..
**Non-controlling Interest in Net Income (NCINI) for 20x5
S Company’s net income of Subsidiary Company from its own operations
(Reported net income of S Company)
Realized profit in beginning inventory of P Company (upstream sales)
Unrealized profit in ending inventory of P Company (upstream sales)
S Company’s realized net income from separate operations………
Less: Amortization of allocated excess
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI) – partial goodwill


100,000
P 269,400
__10,000
P 259,400
27,000
P 232,400
P 100,000
0
(
0)
P 100,000
__10,000
P 90,000
30%
P 27,000
Inventory = P988,000 (add the two book values less the P10,000 ending unrealized gross
profit)
Noncontrolling interest in subsidiary, 12/31/x5 = P385,500
30% beginning P950,000 book value.........................................................
P285,000
Excess January 1 intangible allocation (30% × P295,000)..........................
88,500
Noncontrolling Interest in Broadway’s earnings................................................
27,000
Dividends (30% × P50,000)..............................................................................
(15,000)
Total noncontrolling interest at 12/31/x5....................................................
P385,500
2. (Computation of selected consolidation balances as affected by upstream inventory
transfers).
UNREALIZED GROSS PROFIT, 12/31/x4: (upstream transfer)
Intercompany gross profit (P120,000 – P72,000) ..........................................
Inventory remaining at year's end ................................................................
Unrealized intercompany gross profit, 12/31/x4 .................................................
P48,000
30%
P14,400
UNREALIZED GROSS PROFIT, 12/31/x5: (upstream transfer)
Intercompany gross profit (P250,000 – P200,000) ........................................
Inventory remaining at year's end ................................................................
Unrealized intercompany gross profit, 12/31/x5 .................................................
P50,000
20%
P10,000
CONSOLIDATED TOTALS

Sales = P1,150,000 (add the two book values and eliminate the Intercompany transfer)

Cost of goods sold:
Benson's COGS book value ...........................................................................
P535,000
Broadway's COGS book value .......................................................................
400,000
Eliminate intercompany transfers .................................................................
(250,000)
Realized gross profit deferred in 20x4 ..........................................................
(14,400)
Deferral of 20x5 unrealized gross profit .......................................................
10,000
Consolidated cost of goods sold .............................................................
P680,600

Operating expenses = P210,000 (add the two book values and include intangible
amortization for current year)

Dividend income = -0- (interco. transfer eliminated in consolidation)

Noncontrolling interest in consolidated income: (impact of transfers is included because they
were upstream)
Broadway reported income for 20x5 .............................................................................
Intangible amortization...................................................................................................
20x4 gross profit recognized in 20x5 .....................................................................
20x5 gross profit deferred ......................................................................................
Broadway realized income for 20x5........................................................................
Outside ownership .........................................................................................................
Noncontrolling interest ...................................................................................................
Consolidated Net Income for 20x5
P Company’s net income from own/separate operations (P800-P535-P100)
Realized profit in beginning inventory of S Company (downstream sales)
Unrealized profit in ending inventory of S Company (downstream sales)…
P Company’s realized net income from separate operations*…….…..
S Company’s net income from own operations (P600 – P400 – P100)
Realized profit in beginning inventory of P Company (upstream sales)
Unrealized profit in ending inventory of P Company (upstream sales)…
S Company’s realized net income from separate operations*…….…..
P 165,000
0
(_
0)
P 165,000
P
100,000
14,400
( 10,000)
P
104,400
Total
Less: Amortization of allocated excess……………………
Consolidated Net Income for 20x5
Less: Non-controlling Interest in Net Income* *
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent – 20x5…………..
**Non-controlling Interest in Net Income (NCINI) for 20x5
S Company’s net income of Subsidiary Company from its own operations
(Reported net income of S Company)
Realized profit in beginning inventory of P Company (upstream sales)
Unrealized profit in ending inventory of P Company (upstream sales)
S Company’s realized net income from separate operations………
Less: Amortization of allocated excess
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI) – partial goodwill


P100,000
(10,000)
14,400
(10,000)
P94,400
30%
P28,320
104,400
P 269,400
__10,000
P 259,400
28,320
P 231,080
P 100,000
14,400
( 10,000)
P 104,400
__10,000
P 94,400
30%
P 28,320
Inventory = P988,000 (add the two book values and defer the P10,000 ending unrealized
gross profit)
Noncontrolling interest in subsidiary, 12/31/x5 = P382,500
30% beginning book value less P14,400
unrealized gross profit (30% × P935,600)...............................................
P280,680
Excess intangible allocation (30% × P295,000).......................................
(88,500)
Noncontrolling Interest in Broadway’s earnings.......................................
28,320
Dividends (30% × P50,000)..........................................................................
(15,000)
Total noncontrolling interest at 12/31/x5.................................................
P382,500
Problem VIII
(Compute selected balances based on three different intercompany asset transfer scenarios)
1.
Consolidated Cost of Goods Sold
PP’s cost of goods sold ......................................................................
P290,000
SW’s cost of goods sold ....................................................................
197,000
Elimination of 20x5 intercompany transfers ......................................
(110,000)
Reduction of beginning Inventory because of
20x4unrealized gross profit (P28,000/1.4 = P20,000
cost; P28,000 transfer price less P20,000
cost = P8,000 unrealized gross profit) .........................................
(8,000)
Reduction of ending inventory because of
20x5 unrealized gross profit (P42,000/1.4 = P30,000
cost; P42,000 transfer price less P30,000
cost = P12,000 unrealized gross profit) .......................................
12,000
Consolidated cost of goods sold ............................................
P381,000
Consolidated Inventory
PP book value ..............................................................................
P346,000
SW book value .............................................................................
110,000
Eliminate ending unrealized gross profit (see above) ..................
(12,000)
Consolidated Inventory ...............................................................
P444,000
Non-controlling Interest in Subsidiary’s Net Income
Because all intercompany sales were downstream, the deferrals do not affect SW.
Thus, the non-controlling interest is 20% of the P58,000 (revenues minus cost of
goods sold and expenses) reported income or P11,600.
or
Consolidated Net Income for 20x5
P Company’s net income from own/separate operations (P640-P290-P150)
Realized profit in beginning inventory of S Company (downstream sales)
Unrealized profit in ending inventory of S Company (downstream sales)…
P Company’s realized net income from separate operations*…….…..
S Company’s net income from own operations (P360 – P197 – P105)
Realized profit in beginning inventory of P Company (upstream sales)
Unrealized profit in ending inventory of P Company (upstream sales)…
S Company’s realized net income from separate operations*…….…..
Total
Less: Amortization of allocated excess……………………
Consolidated Net Income for 20x5
Less: Non-controlling Interest in Net Income* *
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent – 20x5…………..
**Non-controlling Interest in Net Income (NCINI) for 20x5
S Company’s net income of Subsidiary Company from its own operations
(Reported net income of Son Company)
Realized profit in beginning inventory of P Company (upstream sales)
Unrealized profit in ending inventory of P Company (upstream sales)
S Company’s realized net income from separate operations………
Less: Amortization of allocated excess
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI) – partial goodwill
P 200,000
8,000
(_ 12,000)
P 196,000
P 58,000
0
(
0)
P 58,000
58,000
P 254,000
____0
P 254,000
11,600
P 242,200
P 58,000
0
(
0)
P 58,000
____0
P 58,000
20%
P 11,600
2.
Consolidated Cost of Goods Sold
PP book value ...................................................................................
SW book value ..................................................................................
Elimination of 20x5 intercompany transfers ......................................
Reduction of beginning inventory because of
P290,000
197,000
(80,000)
20x4 unrealized gross profit (P21,000/1.4 = P15,000
cost; P21,000 transfer price less P15,000
cost = P6,000 unrealized gross profit) .........................................
Reduction of ending inventory because of
20x5 unrealized gross profit (P35,000/1.4 = P25,000
cost; P35,000 transfer price less P25,000
cost = P10,000 unrealized gross profit) .......................................
Consolidated cost of goods sold ........................................................
Consolidated Inventory
PP book value ...................................................................................
SW book value ..................................................................................
Eliminate ending unrealized gross profit (see above) ........................
Consolidated inventory ................................................................
(6,000)
10,000
P411,000
P346,000
110,000
(10,000)
P446,000
Non-controlling Interest in Subsidiary's Net income
or
Since all intercompany sales are upstream, the effect on Snow's income must be
reflected in the non-controlling interest computation:
SW reported income .........................................................................
P58,000
20x4 unrealized gross profit realized in 20x5 (above) .......................
6,000
20x5 unrealized gross profit to be realized in 20x6 (above) ..............
(10,000)
SW realized income ...........................................................................
P54,000
Outside ownership percentage .........................................................
20%
Non-controlling interest in SW’s income ......................................
P10,800
Consolidated Net Income for 20x5
P Company’s net income from own/separate operations (P640-P290-P150)
Realized profit in beginning inventory of S Company (downstream sales)
Unrealized profit in ending inventory of S Company (downstream sales)…
P Company’s realized net income from separate operations*…….…..
S Company’s net income from own operations (P360 – P197 – P105)
Realized profit in beginning inventory of P Company (upstream sales)
Unrealized profit in ending inventory of P Company (upstream sales)…
S Company’s realized net income from separate operations*…….…..
Total
Less: Amortization of allocated excess……………………
Consolidated Net Income for 20x5
Less: Non-controlling Interest in Net Income* *
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent – 20x5…………..
**Non-controlling Interest in Net Income (NCINI) for 20x5
S Company’s net income of Subsidiary Company from its own operations
(Reported net income of Son Company)
Realized profit in beginning inventory of P Company (upstream sales)
Unrealized profit in ending inventory of P Company (upstream sales)
S Company’s realized net income from separate operations………
Less: Amortization of allocated excess
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI) – partial goodwill
P 200,000
(_
0)
P 200,000
P 58,000
6,000
( 10,000)
P 54,000
54,000
P 254,000
____0
P 254,000
10,800
P 243,200
P 58,000
6,000
( 10,000)
P 54,000
____0
P 54,000
20%
P 10,800