Chapter 12
Problem I
(a)Working Fund – Agency ……………………………… ………………………..
5,000
Cash ………………………………………………………………………….
5,000
(b)Accounts Receivable …………………………………..................................... 50,000
Sales-Agency ……………………………………………………………….
50,000
(c)Cash ………………………………………………………..................................... 35,000
Accounts Receivable ……………………………………………………..
35,000
(d)Expenses-Agency ………………………………………………………………..
Cash ………………………………………………………………………….
4,500
(e)Expenses-Agency ………………………………………………………………..
Cash ………………………………………………………………………….
2,250
4,500
2,250
(f) Cost of Goods Sold-Agency …………………………………………………… 36,000
Merchandise Inventory - Agency ……………………………………….
36,000
2.
Sales……………………………………………………………………………….P 50,000
Less: CGS………………………………………………………………………… 36,000
GP………………………………………………………………………………….P 14,000
Less: Expenses (P4,500 + P2,250)…………………………………………….. 6,750
Net income – agency………………………………………………………….P 7,250
Problem II
(a) Branch Books:
(a) Cash …………………………………………………………..
Home Office ……………………………………………
42,500
(b) Shipments from Home Office ……………………………
Home Office …………………………………………...
50,200
(c) Accounts Receivable …………………………………….
Sales ……………………………………………………..
60,000
(d) Purchases ……………………………………………………
Accounts Payable ……………………………………
22,500
(e) Home Office ………………………………………………..
Accounts Receivable …………………………..
53,400
(f) Accounts Payable ………………………………………...
Cash ……………………………………………………..
12,250
(g) Furniture & Fixtures …………………………………………
Cash ……………………………………………………..
8,000
(h) Expenses ……………………………………………………..
Cash ……………………………………………………..
18,000
42,500
50,200
60,000
22,500
53,400
12,250
8,000
18,000
(b) Home Office Books:
(a) Branch ……………………………………………………….
Cash …………………………………………………….
42,500
(b) Branch ………………………………………………………
Shipments to Branch ………………………………..
50,200
(c) Accounts Receivable …………………………………...
Sales ……………………………………………………
105,000
(d) Purchases ………………………………………………….
Accounts Payable ………………………………….
122,500
(e) Cash ………………………………………………………..
Accounts Receivable ………………………………
113,600
(f) Accounts Payable ……………………………………….
Cash ……………………………………………………
124,000
(g) Expenses ……………………………………………………
Cash ……………………………………………………
26,600
(h) Cash ………………………………………………………..
Branch ………………………………………………...
53,400
(i) Retained Earnings ……………………………………….
Cash …………………………………………………...
10,000
42,500
50,200
105,000
122,500
113,600
124,000
26,600
53,400
10,000
BARTON CO.
Balance Sheet for Branch
December 31, 20x4
Assets
Liabilities
Cash ……………………………
Accounts Receivable ………
300
Merchandise Inv……………...
37,900
Prepaid Expenses ……………
Furnitures & Fixtures ….
P 8,000
Less accum. Depr ……
650
Total Assets ……………………
P 4,250
12,600
Accounts Payable ………… P 10,250
Accrued Expenses ……………
23,500
Home Office …………………..
750
7,350
P48,450
Total Liabilities ………………….P48,450
BARTON CO.
Income Statement for Branch
For Year Ended December 31, 19X6
Sales ……………………………………………………………………………
Cost of Goods Sold:
Purchases ……………………………………………………………
Shipments for home office ……………………………………….
Merchandise available for sale …………………………………
Less merchandise inv, December 31 …………………………..
Cost of Goods Sold ………………………………………………..
P66,000
P22,500
50,200
P72,700
23,500
49,200
Gross Profit …………………………………………………………………….
Expenses ………………………………………………………………………
18,200
Net loss ………………………………………………………………………...
BARTON CO.
Income Statement for Branch
For Year Ended December 31, 20x4
Assets
Cash ……………………………..
Accounts Receivable ………..
Merchandise Inventory………
Prepaid Expenses …………….
Furniture & Fixtures …. P 20,000
Less accum. Depr…..
5,580
Branch …………………………
Total Assets …………………...
P16,800
P 1,400
Liabilities & Stockholders’ Equity
P 23,200
19,050
48,500
2,050
14,420
37,900
P145,120
Liabilities
Accounts payable ………… P 21,300
Accrued Expenses ………….
1,350
Stockholders Equity
Capital stock, P20 par……… P50,000
Retained Earnings ………….
72,740
Total liabilities and stockholders’
equity …………………
BARTON CO.
Income Statement for Home Office
For Year Ended December 31, 20x4
Sales …………………………………………………………………………….......
P105,000
Cost of goods sold:
Merchandise inventory, January 1 ………………………………….
Purchases ………………………………………………………………...
Merchandise available for sale ………………………………………
Less shipments to branch ……………………………………………...
Merchandise available for own sale ………………………………..
Less merchandise inventory, December 31 ……………………….
Cost of Goods Sold …………………………………………………….
63,920
Gross Profit …………………………………………………………………………
41,080
Expenses ……………………………………………………………………………
27,630
Net income from own operations ……………………………………………..
13,450
Deduct branch net loss ………………………………………………………….
1,400
Total Income ……………………………………………………………………….
12,050
P 40,120
122,500
P162,620
50,200
P112,420
48,500
P
P
P
BARTON CO.
Income Statement for Home Office
For Year Ended December 31, 20x4
Sales ………………………………………………………………………………….
P171,000
Cost of goods sold:
Merchandise inventory, January 1 …………………………………..
Purchases …………………………………………………………………
Merchandise available for sale ………………………………………
P 40,120
145,000
P185,120
P22,650
122,470
P145,120
Less merchandise inventory, December 31 ………………………..
Cost of goods sold ……………………………………………………….
72,000
113,120
Gross profit …………………………………………………………………………..
57,880
Expenses ……………………………………………………………………………..
45,830
Net Income ………………………………………………………………………….
12,050
(a) Branch Books:
Expenses ……………………………………………………………….
Accumulated Depreciation – F&F……………………….
Sales ……………………………………………………………………
Merchandise Inventory …………………………………………….
Income summary …………………………………………..
Income Summary ……………………………………………………
Shipments from Home Office ……………………………
Purchases ……………………………………………………
Expenses ……………………………………………………..
Home Office …………………………………………………………
Income Summary …………………………………………
P
650
66,000
23,500
90,900
1,400
(b) Home Office Books
Expenses ……………………………………………………………….
Accumulated Depreciation – F&F……………………….
40,120
P
1,180
Sales ……………………………………………………………………
Merchandise Inventory …………………………………………….
Shipments to Branch ………………………………………………..
Income summary …………………………………………..
203,700
105,000
48,500
50,200
Income Summary ……………………………………………………
Merchandise Inventory ……………………………………
190,250
122,500
650
89,500
50,200
22,500
18,200
1,400
1,180
Purchases …………………………………………………….
Expenses ……………………………………………………..
27,630
Branch Income ………………………………………………………
Branch ……………………………………………………….
1,400
Income Summary …………………………………………………..
Branch Income ……………………………………………
1,400
Income Summary …………………………………………………..
Retained Earnings ………………………………………..
12,050
Problem III
Journal and Adjusting Entries – Home Office and Branch
Home Office Books
Branch Books
1,400
1,400
12,050
INTERCOMPANY
1/1 a
Branch Current . . . . . . .
Cash . . . . . . . . . . . . . . .
1,500
b
Shipment to branch, cost
Branch Current . . . . . .
10,200
c
SFF - Branch
Store Furniture & Fixt
d.
750
SFF – Branch . . . . . . . . . .
Branch Current . . . . . .
900
Branch Current . . . . . . .
Accounts Receivable
2,600
1/1 – 1/31
1,500
1,500
10,200
10,200
Home Office Current . . . . . . . .
Shipments from Home Office
3,000
No entry – eqpt accounts
maintained in the HO books
1,500
10,200
750
No entry – eqpt accounts
maintained in the HO books
Home Office Current . . . . . . . .
Cash . . . . . . . . . . . . . . . . . . .
900
900
2,600
2,600
Accounts Receivable - HO
Home Office Current. . . . . .
900
2,600
Transaction with Outsiders
Accounts Receivable . . .
Sales.. . . . . . . . . . . . . . .
34,600
Cash. . . . . . . . . . . . . . . . . .
Accounts Receivable
40,000
Purchases . . . . . . . . . . . .
Accounts Payable . .
31,600
Accounts Payable . . . . .
Cash. . . . . . . . . . . . . . .
36,200
Accrued expenses . . . . .
Expenses. . . . . . . . . . . . . .
Cash. . . . . . . . . . . . . . .
250
8,950
1/1 – 1/31
INTER-OFFICE Transactions
Cash . . . . . . . . . . . . . . . . . . . . . .
Home Office Current. . . . . .
3,000
Acc. Depreciation – SFF
Acc. Deprec. SFF – Br.
P3,000 x 10% x 2.5 yrs
/
34,600
Accounts Receivable . . .
Sales.. . . . . . . . . . . . . . .
6,200
Cash . . . . . . . . . . . . . . . . . . . . . .
Accounts Receivable . . . . .
2,600
40,000
3,000
31,600
Purchases. . . . . . . . . . . . . . . . . .
Accounts Payable. . . . . . . .
1,450
36.200
Accounts Payable . .. . . . . . . .
Cash. . . . . . . . . . . . . . .
Expenses . .. . . . . . . . . . . . . . . .
Cash. . . . . . . . . . . . . . .. . . . .
1,250
6,200
2,600
3,000
1,450
1,250
9,200
Intercompany / INTER-OFFICE Transactions
Allowance for D/A. . . . .
Branch Current . . . . . .
150
Shipment to branch ,cost
Branch Current . . . . . .
1,250
Cash. . . . . . . . . . . . . . . . .
Branch Current . . . . . .
1,000
Cash . . . . . . . . . . . . . . . . . . . . . .
Accts. Rec. – HO…………….
1,600
150
Home Office Current . . . . . . . .
Accts. Rec. – HO…………….
150
Home Office Current . . . . . . . .
Shipments from Home Office
1,250
1,250
Home Office Current . . . . . . . .
Cash. . . . . . . . . . . . . . . . . . .
1,000
1,000
1,600
150
1,250
1,000
Adjusting Entries
a.
b.
c.
Shipment to branch, cost
Branch Current . . . . . .
600
Branch Current . . . . . . ..
Expenses. . . . . . . . . . .
475
475
Expenses. . . . . . . . . . . . . . . . . . .
Home Office Current . . . . . .
475
600
475
Branch Current.. . . . . . ..
35
Expenses. . . . . . . . . . . . . . . . . . .
35
Acc. Deprec. SFF – Br.
35
Home Office Current . . . . . .
35
P3,000/10 years x 1/12 = P25 (depreciation for one month; Asset life, 10 years); P900 / 7.5 years, remaining
life = P120 x 1/12= P10)
Expenses. . . . . . . . . . . . . .
100
Acc. Deprec. – SFF
[(P15,000 – P3,000)/10 x 1/12]
d.
e.
Home Office Current . . . . . . . .
Shipments from Home Office
600
600
Included in closing entries
Expenses. . . . . . . . . . . . . .
Accrued expenses. . .
100
750
750
Expenses. . . . . . . . . . . . . .
Accrued expenses. . .
350
350
Closing Entries
Sales. . . . . . .. . . . . . . . . . .
Merch. inventory, ending
Shipments to branch
Merch. Inv. , beg…….
34,600
44,500
12,050
46,000
Sales. . . . . . .. . . . . . . . . . .
Merch. inventory, ending
(P9,800 + P600)
Income Summary. . . . . . .
6,200
10,400
560
Purchases. . . . . . . . . .
Expenses (9,200 – 250
- 475 + 100 + 750)…..
Income Summary……
31,600
Merch. Inv. , beg…….
Purchases. . . . . . . . . .
Shipments from HO
(P10,200 + P1,250 +P600)
Expenses (1,250 + 475
+ 35 + 350)…………….
9,325
4,225
Branch Income Summary
Branch Current……….
560
Income Summary………..
Branch Income Sum
560
Income Summary………..
Retained Earnings…..
3.665
560
Home Office Current . . . . . . . .
Income Summary . . . . . . . .
0
3,000
12,050
2,110
560
560
560
3,665
EAGLE CO.
Balance Sheet for Branch
January 31, 20x4
Assets
Liabilities
Cash …………............................
1,550
Accounts Receivable …………..
350
Accts. Rec.-home office ……….
14,050
Merchandise Inventory …………
Merchandise in Transit ………….
Total assets …………………
P15,950
P 1,100
Accounts Payable ………………. P
3,600
Accrued expenses ……………….
850
Home Office ………………………
9,800
600
P15,950
Total Liabilities …………………….
EAGLE CO.
Income Statement for Branch
For Month Ended January 31, 20x4
Sales ………………………………………………………………………………………….
Cost of Goods Sold:
Merchandise inventory, beginning………………………………..P
0
Add: Purchases ………………………………………………………. 3,000
Shipments from home office (P11,450 +P600, in-transit) 12,050
Merchandise Available for Sale ………………………..
P 15,050
Less: Merchandise inv. Dec 31, 19x4 (P9,800 + P600)….
10,400
Cost of Goods Sold …………………………………………………………….
Gross Profit …………………………………………………………………………………
Expenses ……………………………………………………………………………………
Net Loss, from own operations…………………………………………………………
EAGLE CO.
Balance Sheet for Home Office
January 31, 20x4
Assets
Cash ……………………………………………………………………
Accounts Receivable ……………………………………………… P34,000
Less allowance for doubtful accounts ……………….. 1,050
Merchandise Inventory …………………………………………….
P 6,200
4,650
P 1,550
2,110
P 560
P 9,100
32,950
44,500
Store furniture and fixtures ………………………………………… P12,000
Less accumulated depreciation ………………………. 3,950
Store furniture and fixtures-branch ……………………………… P 3,900
Less accumulated depreciation ………………………
785
Branch office ………………………………………………………...
Total Assets ……………………………………………………………
8,050
3,315
14,050
P111,765
Liabilities
Accounts Payable …………………………………………….. P29,150
Accrued Expenses ……………………………………………..
750
Total Liabilities …………………………………………………..
Stockholders’ Equity
Capital Stock …………………………………………………… P50,000
Retained earnings …………………………………………….. 31,865
Total stockholder’s equity ……………………………………
Total liabilities and stockholders’ equity ……………………
P29,900
81,865
P111,765
EAGLE CO.
Income Statement for Home Office
For Month Ended January 31, 20x4
Sales ………………………………………………………………………………
P 34,600
Cost of goods sold:
Merchandise inventory, January 1 ……………………..
P46,000
Purchases ……………………………………………………
31,600
Merchandise available for sale …………………………
77,600
Less shipments to branch …………………………………
12,050
Merchandise available for own sales ………………….
P65,550
Less merchandise inventory, January 31 ………………
44,500
Cost of goods sold ……………………………………………………………
21,050
Gross Profit …………………………………………………………………………
P 13,650
Expenses ……………………………………………………………………………
9,325
Net income from own operations …………………………………………….
P 4,225
Deduct branch net loss …………………………………………………………
560
Total Income ……………………………………………………………………
P 3,665
EAGLE CO.
Income Statement for Home Office
For Month Ended January 31, 20x4
Assets
Liabilities’ and Stockholders’ Equity
Liabilities
Cash …………………………….. ………. P 10,200
Accounts Payable …… P30,700
Accounts receivable ……….. P38,450
Accrued Expenses …… 1,100
P
31,800
Less allow for doubtFul accounts ………..
1,050
37,400
Merchandise Inventory ……………….. 54,900
Stockholders Equity
Store furn. & fixtures ………… P15,900
Capital Stocks …………P50,000
Less accum depr
4,735
11,165
Retained earnings …… 31,865
81,865
Total assets ……………………………… P113,665
Total liab. And stockholders’ equity .
P113,665
EAGLE CO.
Combined Income Statement for Home Office and Branch
For Month Ended January 31, 20x4
Sales …………………………………………………………………………………..
Cost of goods sold:
Merchandise Inventory, January 1 ……………….
P46,000
Purchases ……………………………………………...
34,600
Merchandise available for sale …………………...
P80,600
Less merchandise inventory, Jan 31 ……………...
54,900
Cost of goods sold …………………………………...............................
Gross profit …………………………………………………………………………...
Expenses ………………………………………………………………………………
Net Income …………………………………………………………………………..
EAGLE CO.
Combined Balance Sheet
January 31, 20x4
Assets
Cash ……………………………………………………………………
Accounts Receivable ………………………………………………
Less: Allowance for doubtful accounts …………………………
Merchandise Inventory …………………………………………….
Store furniture and fixtures …………………………………………
Less: Accumulated depreciation ………………………………..
Total Assets ……………………………………………………………
Liabilities
Accounts Payable ……………………………………………..
Accrued Expenses ……………………………………………..
Total Liabilities …………………………………………………..
Stockholders’ Equity
P38,450
1,050
P15,900
4,735
P30,700
1,100
Capital Stock ……………………………………………………
P50,000
Retained earnings ……………………………………………..
31,865
Total stockholder’s equity ……………………………………
Total liabilities and stockholders’ equity ……………………
Problem IV
1.
Socrates Company
Home Office and Plato Branch
Reconciliation of Reciprocal Ledger Accounts
June 30, 20x4
Investment in
Plato Branch
Ledger
Balances prior to adjustment
Add: Merchandise shipped to branch
Less: Acquisition of office equipment by branch
(carried in accounting records of home office)
Collection of branch trade accounts receivable
Payment of cash by branch
Adjusted balances
Account
(Debit)
P85,000
(14,500)
(22,000)
P48,500
P 40,800
25,700
P 15,100
11,435
P 3,665
P 10,200
37,400
54,900
_ 11,165
P113,665
P 31,800
81,865
P113,665
Home Office
Ledger
Account
(Credit)
P33,500
24,000
(9,000)
_______
P48,500
2.
(a)
Accounting records of home office:
Office Equipment: Plato Branch
Investment in Plato Branch
To record acquisition of office equipment by branch.
Cash in Transit
Investment in Plato Branch
To record cash in transit from branch.
(b)
14,500
22,000
Accounting records of branch:
Home Office
9,000
Trade Accounts Receivable
To record collection by home office of branch accounts
receivable.
Inventories in Transit
Home Office
To record shipment of merchandise in transit from
home office.
Problem V
((a)
Balances before Adjustments ………………………………………..
Adjustments:
Additions:
Merchandise in transit to branch ………………….
Collection of Home office receivable by Branch
Understatement of branch net income for Nov..
Deductions:
Merchandise return to home office in transit …………….
Corrected Balances ………………………………………………
24,000
BRANCH
ACCOUNT
P 8,400
14,500
22,000
9,000
24,000
HOME OFFICE
ACCOUNT…
P 9,735
615
2,500
90
P10,990
P10,350
640
P10,350
P10,350
(b) Branch Books:
Shipments from Home Office-in Transit …………………….
Home Office …………………………………………...
615
Home Office Books:
Branch ……………………………………………………………
Accounts Receivable ………………………………..
2,500
Branch ……………………………………………………………
Retained Earnings …………………………………….
90
Merchandise Returns from Branch – in Transit …………….
Branch …………………………………………………..
640
615
2,500
90
640
Problem VI
1.
Balances before adjustments
Adjustments:
Branch
Account
P 77,150
Home office
Account
P 56,450
Additions:
Advertising charged to branch but not yet recorded
on branch books
Merchandise in transit to branch but not yet shown on
branch books
Collection of home office account by branch not yet
recorded by home office
Deductions:
Overstatement of branch profit for 20x0 on home
office books
Cash in transit to home office but not yet shown on
home office books
Overstatement of charge for merchandise from home
office on branch books (home office shipped 200 units
@ P37.85, or P7,570, and 200 units @ P44,95, or P8,990,
a total of P16,560; branch erroneously recorded
shipment at P16,650, an overstatement of P90
Corrected balances
2. Home office books:
Jan. 31 Retained Earnings
Wilshire Branch
31
31
Cash in Transit
Wilshire Branch
Wilshire Branch
Accounts Receivable
Branch Books:
Jan. 31 Advertising Expense
Home Office
31
31
Shipments from Home Office – In Transit
Home Office
Home Office
Shipments from Home Office
600
4,400
____750
P77,900
_______
P61,450
540
16,000
_______
P 61360
___90
P 61,360
540
540
16,000
16,000
750
750
600
600
4,400
4,400
90
90
Problem VII
1.
Balances before adjustments
Adjustments:
Additions:
Corrected branch income for January (P1,440 – P215)
Branch
Account
P 59,365
Home Office
Account
P 57,525
1,225
Understatement of branch paid by home office for
December
Expenses of branch paid by home office
310
_______
____215
P 60,900
Deductions:
Collection by home office of branch receivable
Correction of branch income for January
Merchandise transferred to Brentwood branch but
incorrectly charged by Beverly Hills branch
Merchandise returns to home office in transit
Uncollectible accounts of branch
Corrected Balances
P 57,740
65
215
1,400
840
__1,200
P 57,460
_______
P 57,460
2. (a) Entries to bring branch books up to date:
Correction in Income of Prior Periods
Home Office
215
Home Office
Income Summary
215
Home Office
Accounts Receivable
(b) Entries to bring home office books up to date:
Beverly Hills Branch
Beverly Hills Branch Income
Beverly Hills Branch
Retained Earnings
215
215
65
65
1,225
1,225
310
310
Shipments to Beverly Hills Branch
Beverly Hills Branch
1,400
Brentwood Branch
Shipments to Brentwood Branch
1,400
Merchandise Returns from Branch – In Transit – Beverly Hills
Branch
Beverly Hills Branch
1,400
1,400
840
Allowance for Doubtful Accounts – Beverly Hills Branch
1,200
Beverly Hills Branch
Problem VIII
1.
Home Office
(b) Mdse. allowance by home
(a) Charge for office furniture
office
350.00
by home office
(f) Truck repairs charged by home
(d) Charge for labor by home
office
293.00
office
(e) Charge for freight by home
office
(h) Proceeds from sale of truck
643.00
Net credit Total
1,556.50
1,229.50
840
1,200
780.00
866.00
78.50
475.00
2,199.50
_______
2,199.50
Branch
(a) Purchase of office furniture for
branch
(c) Branch charge for interest
(d) Branch charge for labor
(e) Branch charge for freight
870.00
325.00
433.00
_785.00
2,413.00
_______
2,413.00
(b) Mdse. allowance for
branch
(g) Proceeds from sale of
truck
300.00
475.00
______
775.00
1,638,000
_2,413.00
Net Debit Total
Balance in branch account per home office book, September 30, 20x2
Deduct net debit total per home office books for transactions that involve
discrepancies
Add net credit total per branch books for transaction that involve
discrepancies
Balance in home office account per branch books, September 30, 20x2
P 131,690.00
1,638.00
P 130,052.00
__1,556.50
P 131,608.50
2.
Balance in home office account per branch books,
September 30, 20x2
Add: (a) Failure by branch to take up full furniture charges
(b) Recognition by branch of excess merchandise
allowance
(c) Failure by branch to recognize charge by home
office for interest
(e) Failure by branch to recognize full freight
charges
(f) Truck repairs charge to home office account in
error
Deduct: (d) Recognition by branch of excess labor charges
(h) Credit entry to home office made in error on
sale of truck
Corrected interoffice balance, September 30, 20x2
P 131,608.50
P 90.00
50.00
325
706.50
293.00
___1,464.50
P 133,073.00
433.00
__475.00
___908.00
P 132,265.00
3.
Balance in branch account per home office books,
September 30, 20x2
Add credit to branch account made in error for proceeds from sale of
truck
Corrected interoffice balance, September 30, 20x2
P 131,690.00
_____475.00
P 132,265.00
4.
Office Furniture
Merchandise allowances
Home office interest charges payable
Interest expense
Freight In
Repairs on truck
Labor
Trucks
90.00
50.00
250.00
75.00
706.50
293.00
433.00
475.00
Home Office
556.50
Multiple Choice Problem
1. d
2. b
Branch A
Assets:
Inventory, January 1
Imprest branch fund
Accounts receivable, January 1
Total Assets
Less: Liabilities
Home Office Current Account
Branch B
P 21,000
2,000
55,000
P 78,000
-0P 78,000
P 19,000
1,500
43,500
P 64,000
-0P 64,000
Branch A
Assets:
Inventory, December 31
Imprest branch fund
Accounts receivable, December 31
Total Assets
Less: Liabilities
Home Office Current Account
Branch B
P 19,000
2,000
70,000
P 91,000
-0P 91,000
P 12,000
1,500
53,500
P 67,000
-0P 67,000
3. d – incidentally, the entry in the books of the branch would be as follows:
Profit and loss summary ………………………………………………………… xxx
Home Office Current……………………………………………………. Xxx
4. c
Assets:
Inventory
Petty cash fund
Accounts receivable
Total Assets
Less: Liabilities
Home Office Current Account
January 1,20x4
5. a – refer to No. 4 for computations
6. a
Sales
Less: Cost of goods sold:
SFHO……………………………………………………………
Less: Inventory, ending………………………………………
Gross profit……………………………………………………………
Less: Expenses –
Net Loss………………………………………………………………..
7. a
Assets:
Cash
Inventory
Accounts receivable
Total Assets
Less: Liabilities
January 1, 20x5
P 37,000
3,000
43,000
P 83,000
_____-0P 83,000
P 41,000
3,000
49,000
P 93,000
_____-0P 93,000
P 74,000
P67,680
9,180
58,500
P 15,500
6,820
P 8,680
January 1, 20x6
P 4,200
9,180
12,800
P 26,180
_____-0-
Home Office Current Account
P 26,180
8. a – nominal accounts have zero beginning balance.
9. d
Branch
Current
Unadjusted balance, 6/30/20x4
H. Office
Current
P 225,770
P 226,485*
Add (Deduct): Adjustments
1 Erroneous recording of branch equipment
3150
2. Insurance premium recorded twice
(
675)
3. Erroneous recording of freight
(
90)
4. Discount on merchandise
(
800)
5. Failure by the branch to record share in advertising
700
6. error by the home office to record remittance of Cebu
3,000
________
Adjusted balance, 6/30/20x4
P 228,770
P 228,770
* The P226,485 is compute simply by working back with P228,770 adjusted balance as the starting point.
10. c
Unadjusted balance
Add (deduct) adjustments:
In transit
Remittance
Returns
Cash in transit
Expenses - HO
Expenses – branch
Error
Adjusted balance
11. d
Unadjusted balance
Add (deduct) adjustments:
Excess freight
Cash in transit
Returns
Expenses – branch
Adjusted balance
Home Office Books
(Branch CurrentDr. balance)
P518,575
Branch Books
(Home Office Current –
Cr. balance)
P452,276
10,500
( 17,000)
(
775)
(
800)
25,000
________
P 500,000
12,000
_____224
P 500,000
Home Office Books
(Branch CurrentDr. balance)
P515,000
Branch Books
(Home Office Current –
Cr. balance)
P495,750
( 11,000)
( 4,000)
________
P 500,000
(
750)
5,000
P 500,000
12. c – refer to No. 11 for computations
13. a – refer to No. 11 for computations
14. d – refer to No. 11 for computations
15. d - No entry should be made in the books of the home office, since the freight should be
chargeable to the branch and the payment of the freight was made by the branch.
16. a
Home Office Books
Branch Books
(Branch Current(Home Office Current –
Dr. balance)
Cr. balance)
Unadjusted balance
P85,000
P33,500
Add (deduct) adjustments:
Collection of branch receiv
Shipments in transit
Purchase by branch of office
equipment
Remittance
Adjusted balance
17. b
Unadjusted balance
Add (deduct) adjustments:
Remittance
Returns
Error by the branch
Expenses – branch
Adjusted balance
18. c
Unadjusted balance
Add (deduct) adjustments:
In transit
HO A/R collected by br.
Supplies returned
Error in recording Br. NI
Cash sent to branch
to General Expense by HO
Adjusted balance
( 9,000)
24,000
( 14,500)
( 22,000)
P 48,500
_________
P 48,500
Home Office Books
(Branch CurrentDr. balance)
P590,000
Branch Books
(Home Office Current –
Cr. balance)
P506,700
(40,000)
(15,000)
________
300
28,000
P 535,000
P 535,000
Home Office Books
(Branch CurrentDr. balance)
P150,000
Branch Books
(Home Office Current –
Cr. balance)
P117,420
10,500
( 4,500)
( 1,080)
37,500
25,000
P 179,920
25,000
P 179,920
Home Office Books
(Branch Current- Dr.
balance)
P40,000
Branch Books
(Home Office Current –
Cr. balance)
P31,100
19. d – refer to No. 18 for computation.
20. a
Unadjusted balance
Add (deduct) adjustments:
In transit
HO A/R collected by br.
Cash in transit
Error in recording Br. NI
Adjusted balance
500
2,000
( 3,600)
P38,900
5,800
2,000
_______
P38,900
21. a – refer to No. 20 for computations
22. a
Home Office Books
(Branch Current- Dr.
balance)
Branch Books
(Home Office Current –
Cr. balance)
Unadjusted balance
Add (deduct) adjustments:
Collection of branch A/R
In transit
Purchase of furniture
Return of excess merchandise
Remittance
Adjusted balance
P49,600
P44,00
(
( 1,200)
( 1,500)
( 500)
P46,400
800)
3,200
_______
P46,400
23. b – refer to No. 22 for computations
24. (C)
Sales (P350,000 + P100,000)………………………………………………………….P 450,000
Less: Cost of goods sold:
Purchases (P400,000 + P50,000)…………………………….
P 450,000
Less: Inventory, ending………………………………………
90,000
360,000
Gross profit……………………………………………………………
P 90,000
Less: Expenses –
Salaries and commission……………………………………..
P 70,000
Rent………………………………………………………………
20,000
Advertising supplies (P10,000 – P6,000)……………………
4,000
Other expenses……………………………………………….
5,000
99,000
Net Loss………………………………………………………………..
P ( 9,000)
25. a
In adopting the imprest system for the agency working fund, the home office writes a check
to the agency for the amount of the fund. Establishment of the fund is recorded on the home
office books by a debit to the Agency working fund and credit cash. The agency will request
fund replenishment whenever the fund runs low and at the end of each fiscal period. Such a
request is normally accomplished by an itemized and authenticated statement of
disbursements and the paid vouchers. Upon sending the agency a check in replenishment of
the fund, the home office debits expense or other accounts for which disbursements from the
fund were reported and credits cash.
26. d
Normally, transactions of the agency are recorded in the books of the home office separately
identified with the appropriate agency.
Theories
1.
2.
3.
4.
5.
6.
7.
8.
9.
10,
decentralized
Home Office Current
Branch Income
Home Office
intracompany
True
True
False
False
True
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
False
False
False
True
True
False
True
False
True
True
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
False
True
True
True
False
C
A
A
D
A
31.
32.
33.
34.
35.
36.
37.
38.
39.
40.
E
B
c
d
A
C
A
B
B
B
41.
42.
43.
44.
45.
46.
47.
48.
49.
50.
51.
52.
A
C
B
D
D
C
B
B
C
C
C
D
Chapter 13
Problem I
1.
Home Office Books
Branch Current
Shipments to Branch
Unrealized Int Inv. Profit
2.
55,000
Branch Books
50,000
5,000
Shipm from Home Office
Home Office Current
Billed price
Cost
Allowance for overvaluation of branch inventory/
Unrealized Intercompany Inventory Profit/Deferred Profit
55,000
55,000
P55,000 / 110%
50,000
_______
P 5,000
Sales......................................................................................................................................
P140,000
Cost of goods sold:
Merchandise inventory, September 1................................................ P 35,200
Purchases.............................................................................................. 24,000
Shipments from home office............................................................... 55,000
Merchandise available for sale.......................................................... P 114,200
Less: Merchandise Inventory, September 30.....................................
30,000
Cost of goods sold.......................................................................................................
84,200
Gross profit............................................................................................................................P
55,800
Operating expenses:
Selling expenses……………………………………..................................P 8,000
General expenses…………………......................................................... 12,000
Total operating expenses..........................................................................................
20,000
Unadjusted branch net income...................................................................................... P
15,800
3. Results of Branch Operations:
a. Branch Net Income/Loss from its own operations:
Branch Current………………........................................................................... 15,800
Branch Income Summary...................................................................
15,800
b. Adjustment: Overvaluation of CGS/Allowance for Overvaluation of Branch
Inventory/
Unrealized Intercompany Inventory Profit:
Unrealized Intercompany Inventory Profit.................................................... 4,600
Branch Income Summary..................................................................
4,600
Inventory, 9/1
Shipments during December
Available for Sale (before adjustment)
Less: Inventory, 9/30 (after adjustment)
Reduction in unrealized profit account- adjustment
to branch profit for overstated of cost of goods sold
(adjustment)
Billing Price
*P 17,600
__55,000
P 72,600
**22,000
Cost
(Billing/1.10)
P 16,000
__50,000
P 66,000
__20,000
Unrealized Profit
(Billing Price Minus
Cost)
P 1,600
__ 5,000
P 6,600
__2,000
P 50,600
P 46,000
***P 4,600
* P35,200 x 50% = P17,600
** P30,000 – P8,000
***or, P50,600 x 10/110 = P4,125; Decrease in Unrealized Intercompany Inventory
Profit:
Therefore, the True/Real/Adjusted Branch Net Income or Branch Net Income in so far
as HO is concerned amounted to:
Unadjusted branch net income...............................................................................P15,800
Add: Allowance for Overvaluation of CGS…………………………………………….
4,600
Adjusted Branch Net
Income……………………………………………………………..P20,400
Problem II
Books of Home Office
Correcting entries:
A. Sales............................................................................................................... 42,000
Shipments to Branch................................................................ …………
35,000
Unrealized Intercompany Inventory Profit...........................................
7,000
Cost of merchandise shipped t branch: P42,000/1.20= P35,000.
Entry Made
Correct/Should be Entry
Branch Current…………… 42,000
Branch Current……….. 42,000
Sales……………………
42,000
Shipments to Branch
35,000
Unrealized Int. Inv Pr.
7,000
B. Shipments to Branch...................................................................................... 625
Unrealized Intercompany Inventory Profit................................................... 125
Sales Returns...........................................................................................
750
Cost of merchandise returned by branch: P750/1.20= P625.
Entry Made
Correct/Should be Entry
Sales Returns……………… 750
Shipments to Branch………. 625
Branch Current………
750 Unrealized Int. Inv Profit…… 125
Branch Current………….
750
Results of Branch Operations:
A. Branch Net Income/Loss from its own operations:
Branch Income Summary............................................................................... 2,600
Branch Current…................................................................................
2,600
B. Adjustment: Overvaluation of CGS/Allowance for Overvaluation of Branch
Inventory/
Unrealized Intercompany Inventory Profit:
Unrealized Intercompany Inventory Profit.................................................... 4,125
Branch Income Summary..................................................................
4,125
Inventory, December 1
Shipments during December
Less: Returns
Available for Sale (before adjustment)
Less: Inventory, Dec. 31 (after adjustment)
Billing Price
P
0
42,000
_____750
P 41,250
16,500
Cost
(Billing/1.20)
P
0
35,000
____625
P 34,375
13,750
Unrealized Profit
(Billing Price Minus
Cost)
P
0
7,000
____125
P 6,875
__2,750
Reduction in unrealized profit account- adjustment
to branch profit for overstated of cost of goods sold
(adjustment)
P 24,750
P 20,625
*P 4,125
*or, P24,750 x 20/120 = P4,125;
Decrease in Unrealized Intercompany Inventory Profit:
Balance prior to adjustment, 12/31, P7,000 – P125................... P6,875
Balance required in account, 12/31,P16,500 – (P16,500/1.20).. 2,750
Decrease in Allowance................................................................. P4,125
Branch Income Summary (P4,125 – P2,600)....................................................1,525
Income Summary....................................................................................
1,525
Therefore, the Real/True/Adjusted Branch Net Income/Branch Net Income in so far as HO is
concerned, amounted to P1,525, computed as follows:
Branch net loss as reported/unadjusted……………………………………………………(P2,600)
Add: Overvaluation of branch inventory/Realized profit from branch sales……….. 4,125
Real/True/Adjusted Branch Net Income or Branch NI in so far as HO is concerned P1,525
Problem III
a. Unrealized Intercompany Inventory Profit has a credit balance of P9,450 before adjustment on
December 31, calculated as follows:
Inventory, December 1
Shipments during December
Available for Sale (before adjustment)
Less: Inventory, Dec. 31 (after adjustment)
Reduction in unrealized profit account- adjustment
to branch profit for overstated of cost of goods sold
(adjustment)
Billing Price
P 16,200
__20,250
P 36,450
__18,900
Cost
(Billing/1.35)
P 12,000
_ 15,000
P 35,625
_14,000
Unrealized Profit
(Billing Price Minus
Cost)
P 4,200
__ 5,250
P 9,450
__4,900
P 17,550
P 21,625
*P 4,550
* or, P17,550 x 35/135 = P4,550
b. Adjustment: Overvaluation of CGS/Allowance for Overvaluation of Branch Inventory/
Unrealized Intercompany Inventory Profit (refer to “a” for computation):
Unrealized Intercompany Inventory Profit.................................................... 4,550
Branch Income Summary..................................................................
4,550
c.
Home Office Books
Shipments to Branch
Unrealized Int Inv. Pr
Branch Current
400
140
Branch Books
540
Home Office Current
Shipments to Branch
540
540
Cost of merchandise returned: P540/1.35, or P400.
Problem IV
1. The branch office inventory as of December 1 considered of:
Shipments from Home Office (see below)............................................................. P 12,000**
Purchases from outsiders (balance of inventory)..................................................
3,000
Total inventory........................................................................................................... P 15,000
Goods acquired from home office and included in branch inventory at billed price are
calculated as follows:
Unrealized Profit
Inventory, December 1
Shipments during December
Available for Sale (before adjustment)
Less: Inventory, Dec. 31 (after adjustment)
Reduction in unrealized profit account- adjustment
to branch profit for overstated of cost of goods sold
(adjustment)
Billing Price
**P 12,000
__9,600
P 21,600
__8,400
Cost
(Billing/1.20)
*P 10,000
_ 8,000
P 18,000
__7,000
(Billing Price Minus
Cost)
P 2,000
__ 1,600
P 3,600
__1,400
P 13,200
P 11,000
***P 2,200
*P2,000/20% = P10,000; ***P13,200 x 20/120 = P2,200
2. Adjustment: Overvaluation of CGS/Allowance for Overvaluation of Branch Inventory/
Unrealized Intercompany Inventory Profit (refer to “a” for computation):
Unrealized Intercompany Inventory Profit......................................... 2,200
Branch Income Summary..........................................................
2,200
Problems V
(1) Individual Statements
SPENCER CO.
Balance Sheet for Branch
December 31,20x4
Assets
Liabilities____________________
Cash..................................................... P 2,650
payable................................... P 4,200
Accounts receivable........................ 12,850
105
Merchandise inventory..................... 14,600
29,239
Store supplies......................................
300
Prepaid expenses...............................
120
Furniture and fixtures.............. P 3,600
Less: Accumulated
depreciation.............. 576 3,024
________
Total assets....................................... P 33,544
liabilities............................................ P 33,544
Accounts
Accrued expenses...................................
Home office...............................................
Total
SPENCER CO.
Income Statement for Branch
For Month Ended December 31, 20x4
Sales........................................................................................................................................... P
20,000
Cost of goods sold:
Merchandise inventory, December 1................................................ P 14,400
Purchases..............................................................................................
4,100
Shipments from home office............................................................... 10,200
Merchandise available for sale.......................................................... P 28,700
Less: Merchandise Inventory, December 31..................................... 14,600
Cost of goods sold.......................................................................................................
14,100
Gross profit................................................................................................................................. P
5,900
Operating expenses:
Advertising expense............................................................................. P 2,800
Salaries and commissions expense..................................................... 2,350
Store supplies expense.........................................................................
280
Miscellaneous selling expense............................................................
1,050
Rent expense........................................................................................
1,500
Depreciation expense – furniture and fixtures..................................
36
Miscellaneous general expense.........................................................
905
Total operating expenses..........................................................................................
8,921
Net loss...................................................................................................................................... P
3,021
SPENCER CO.
Balance Sheet for Home Office
December 31, 20x4
Liabilities and Stockholder’s
Assets
Equity_______
Cash..................................................... P10,350
Cash in transit.....................................
1,500
Accounts receivable........................ 26,200
P 35,660
Merchandise inventory..................... 24,200
Store supplies......................................
380
Prepaid expenses...............................
350
4,476
60,524
Furniture and fixtures.............. P 8,500
Less: Accumulated
depreciation.............. 2, 585 5,915
Branch..................................... P29,239
Less: Unrealized intercompany
inventory profit............ 1,950 27,289
________
Total assets........................................ P 96,184
P 96,184
Liabilities
Accounts payable................ P 35,400
Accrued expenses...............
260
Stockholders’ Equity
Capital Stock......................... P 65,000
Less deficit..............................
Total liabilities and
stockholder’s equity...............................
SPENCER CO.
Income Statement for Home Office
For Month Ended December 31, 20x4
Sales........................................................................................................................................... P
44,850
Cost of goods sold:
Merchandise inventory, December 1................................................ P 31,500
Purchases..............................................................................................
27,600
Merchandise available for sale.......................................................... P 59,100
Less: Shipments to branch...................................................................
8,500
Merchandise available for own sales................................................ P 50,600
Less: Merchandise Inventory, December 31..................................... 24,200
Cost of goods sold..........................................................................................
26,400
Gross profit................................................................................................................................. P
18,450
Operating expenses:
Advertising expense............................................................................. P 2,850
Salaries and commissions expense..................................................... 4,250
Store supplies expense.........................................................................
560
Miscellaneous selling expense............................................................
1,850
Rent expense........................................................................................
2,700
Depreciation expense – furniture and fixtures..................................
85
Miscellaneous general expense.........................................................
2,510
Total operating expenses............................................................................. 14,805
Net income from own operations......................................................................................... P
3,645
Less: Branch net loss................................................................................................................
1,271
Total income............................................................................................................................ P
2,374
2. Refer to Word Document Worksheet
3, Combined Statements
SPENCER CO.
Combined Balance Sheet for Home Office and Branch
December 31, 20x4
Assets
Liabilities and Stockholders’ Equity
Cash ……………………………….
P 14,500
Accounts Receivable …………
39,050
Merchandise Inv ……………….
36,850
39,965
Store Supplies …………………..
680
Prepaid Expenses ……………..
470
Furniture & Fixtures ………
P12,100
60,524
Less accumulated
Depreciation …...
3,161 8,939
Liabilities
Accounts Payable ………..
Accrued Expenses ……….
Total assets ………………………
Total liabilities and SHEquity
P100,489
P39,600
365 P
Stockholders’ Equity
Capital Stock ………………
P65,000
Less deficit ………………….
4,476
P100,489
SPENCER CO.
Combined Income Statement for Home Office and Branch
For Month Ended December 31, 20x4
Sales ………………………………………………………………………………………………………… P64,850
Cost of goods sold:
Merchandise Inventory, December 1 …………………………………… P43,900
Purchases ……………………………………………………………………… 31,700
Merchandise available for sale …………………………………………… P75,600
Less merchandise inventory, December 31 ……………………………. 36,850
Cost of goods sold …………………………………………………………..
38,750
Gross profit ………………………………………………………………………………
P26,100
Operating Expenses:
Advertising Expense ………………………………………………………… P 5,650
Salaries and Commissions expense ……………………………………… 6,600
Store supplies expense ……………………………………………………..
840
Miscellaneous selling expense ……………………………………………
2,900
Rent expense …………………………………………………………………
4,200
Depreciation Expense – F&F ……………………………………………….
121
Miscellaneous general expense ………………………………………….
3,415
Total operating expense ………………………………………………………………………. 23,726
Net Income ………………………………………………………………………………………………… P 2,374
4. Adjusting and Closing Entries
(a)
Branch Books
Dec
31
Income Summary ……………………………………………..
Merchandise Inventory ……………………………..
Dec.
14,400
31
Merchandise Inventory ………………………………………
Income Summary …………………………………….
14,600
31
Store Supplies Expense ……………………………………….
Store Supplies …………………………………………
Store supplies used: P580 – P300, or P280
280
31
Prepaid Expenses …………………………………………………
Miscellaneous General Expense …………………….
120
31
Miscellaneous General Expense ………………………………
Accrued Expenses ……………………………………..
105
31
Depreciation Expense – F&F …………………………………..
Accumulated Depreciation …………………………
Depreciation: 1% of P3,600
36
31
Miscellaneous General Expense ……………………………..
Home Office Current…………………………………
220
31
Sales ………………………………………………………………
Income Summary …………………………………….
31
Income Summary ………………………………………………
Purchases ………………………………………………
Shipments from Home Office ………………………
Advertising Expense ………………………………….
Salaries and Commissions Expense ……………….
Store Supplies Expense ………………………………
Miscellaneous Selling Expense ……………………..
Rent Expense ………………………………………….
Depreciation Expense – F&F ……………………….
20,000
22,221
14,400
14,600
280
120
105
36
220
20,000
4,100
10,200
2,800
2,350
280
1,050
1,500
36
Miscellaneous General Expense ………………….
31
(b)
Dec
Dec
Home Office Current………….……………………………….
Income Summary ……………………………………..
905
3,021
3,021
Home Office Books
31
Income Summary ……………………………………………….
Merchandise Inventory ……………………………….
31,500
31
Merchandise Inventory ………………………………………...
Income Summary ………………………………………
24,200
31
Store Supplies Expense ………………………………………….
Store Supplies ……………………………………………
Store supplies used: P940 – P380, or : 560
560
31
Prepaid Expense …………………………………………………
Miscellaneous General Expense ……………………
350
31
Miscellaneous General Expense ……………………………..
Accrued Expenses …………………………………….
260
31
Depreciation Expense …………………………………………..
Accumulated Depreciation – F&F ………………….
Depreciation: 1% of P8,500, or P85
85
31
Cash in Transit ………………………………………………….
Branch Current…………………………………………
31
Sales ……………………………………………………………
Shipments to branch ……………………….......................
Income Summary ………………………………….
44,850
8,500
31
Income Summary ………………………………………………
Purchases ………………………………………………
Advertising Expense ………………………………….
Salaries and Commissions Expense ……………….
Store Supplies Expense ………………………………
Miscellaneous Selling Expense ……………………..
Rent Expense ………………………………………….
Depreciation Expense – F&F ……………………….
Miscellaneous General Expense ………………….
42,405
31
Branch Income Summary……………………………………..
Branch Current…………………………………………
3,021
31
Unrealized Intercompany Inventory Profit ……………….
Branch Income Summary…………………………
Calculation of unrealized profit adjustment:
Balance of unrealized profit account,
December 31 ……………………….. P3,700
Inventory merchandise received from
Home office at billed price on
December 31, P11,700
1,750
3,021
1,500
31,500
24,200
560
350
260
85
1,500
53,350
27,600
2,850
4,250
560
1,850
2,700
85
2,510
1,750
Inventory at cost: P11,700/ 1.20, or P9,750
Balance of unrealized profit account on
December 31, P11,700 – P9,750 ....
Required decreased in unrealized profit
Adjustment to branch income for
Overstatement of cost of goods
Sold ……………………………………..
1,950
P1,750
31
Income Summary ……………………………………………
Branch Income Summary…………………….
1,271
31
Income Summary ……………………………………………
Retained Earnings ………………………………….
2,374
1,271
2,374
Problem VI
1.
Branch
Current
Unadjusted balance, 12/31/20x4
Add (Deduct): Adjustments
1 Cash in transit
2. Merchandise in transit
3. Branch expenses paid by home office
4. Cash in transit from home office
Adjusted balance, 12/31/20x4
P 44,000
H. Office
Current
P 9,000
( 10,000)
_______
P 34,000
10,000
12,000
3,000
P34,000
2. Refer to PDF Copy of the Worsheet
3. Combined Income Statement
Sales [(P350,000 – P105,000) + P150,000)……….......................................................
P395,000
Less: Cost of goods sold [(P220,000 – P84,000) +
(P93,000 + P3,600 – P21,000 – P1,200)]…………………………………….
210,400
Gross profit................................................................................................................... P184,600
Operating expenses (P70,000 + P41,000 + P12,000)................................................ 123,000
Net income................................................................................................................... P 61,600
Problem VII
(1)
PAXTON CO.
Income Statement for Dayton Branch
For Year Ended December 31, 20x5
Sales.............................................................................................................................. P315,000
Cost of goods sold:
Merchandise inventory, January 1, 20x5................................... P 44,500
Shipments from home office...................................................... 252,000
Merchandise available for sale................................................. P296,500
Less: Merchandise Inventory, December 31, 20x5..................
58,500 238,000
Gross profit................................................................................................................. P 77,000
Operating expenses................................................................................................. 101,500
Net loss....................................................................................................................... P 24,500
PAXTON CO.
Income Statement for Cincinnati Home Office
For Year Ended December 31, 20x5
Sales.............................................................................................................................. P1,060,000
Cost of goods sold:
Merchandise inventory, January 1, 20x5................................... P115,000
Shipments from home office...................................................... 820,000
Merchandise available for sale................................................. P935,000
Less: Shipments to branch.......................................................... 210,000
Merchandise available for own sales....................................... P725,000
Less: Merchandise Inventory, December 31, 20x5..................
142,500
582,500
Gross profit.................................................................................................................. P477,500
Expenses......................................................................................................................
382,000
Net income from own operations............................................................................
P 95,500
Add branch net income...........................................................................................
16,650
Total income...............................................................................................................
P112,150
(2)
PAXTON CO.
Combined Income Statement for Home Office and Branch
For Year Ended December 31, 20x5
Sales.............................................................................................................................. P1,375,000
Cost of goods sold:
Merchandise inventory, January 1, 20x5...................................P 150,600
Purchases...................................................................................... 820,000
Merchandise available for sale................................................. P970,600
Less: Merchandise Inventory, December 31, 20x5..................
191,250
779,350
Gross profit.................................................................................................................... P595,650
Operating expenses....................................................................................................
483,500
Net income................................................................................................................... P112,150
(3) Merchandise Inventory, December 31................................................................ 58,500
Sales.......................................................................................................................... 315,000
Income Summary............................................................................................
373,500
Income Summary......................................................................................................... 398,000
Merchandise Inventory, January 1................................................................
44,500
Shipments from Home Office.........................................................................
252,000
Operating expenses........................................................................................
101,500
Home Office...............................................................................................................
Income Summary..........................................................................................
24,500
24,500
(4) Branch Income Summary........................................................................................ 24,500
Branch Current.....................................................................................................
24,500
Unrealized Intercompany Inventory Profit............................................................... 41,150
Branch Income Summary....................................................................................
41,150
Calculation of unrealized profit adjustment:
Branch inventory, January 1, acquired from home office
at billed price...................................................................................... P 44,500
Less: Cost of inventory (P44,500/1.25)......................................................... 35,600
Unrealized Intercompany Inventory Profit Jan. 1....................................... P 8,900
Add: Increase in unrealized profit for shipments
made during year, billed price of goods,
P252,000, cost of goods, P210,000.................................................... 42,000
P 50,900
Deduct balance to remain in unrealized profit account:
Branch inventory, December 31,
acquired from home office....................................... P 58,500
Less: Cost of inventory to home office,
P58,500/1.20................................................................
48,750
Reduction in unrealized profit account- adjustment to
branch income for overstatement of cost of
goods sold..................................................................
9,750
41,150
Branch Income Summary........................................................................................... 16,650
Income Summary............................................................................................
16,650
Merchandise Inventory, December 31...................................................................... 142,500
Sales............................................................................................................................... 1,060,000
Shipments to Branch.................................................................................................... 210,000
Income Summary.............................................................................................
1,412,500
Income Summary......................................................................................................... 1,317,000
Merchandise Inventory, January 1................................................................
115,000
Purchases.........................................................................................................
820,000
Expenses...........................................................................................................
382,000
Income Summary.......................................................................................................... 112,150
Retained Earnings............................................................................................
112,150
Problem VIII
(1)
RUGGLES CO.
Income Statement for Branch
For Year Ended December 31, 20x4
Sales................................................................................................................................ P 78,500
Cost of goods sold:
Merchandise inventory, January 1, 20x4......................................... P 32,000
Shipments from home office........................................... P 40,000
Purchases from outsiders.................................................
20,000 60,000
Merchandise available for sale....................................................... P 92,000
Less: Merchandise Inventory, December 31, 20x4........................ 31,500
Cost of goods sold.............................................................................
60,500
Gross profit.................................................................................................................... P 18,000
Operating expenses....................................................................................................
12,500
Net income................................................................................................................... P 5,500
RUGGLES CO.
Income Statement for Home Office
For Year Ended December 31, 20x4
Sales.............................................................................................................................. P 256,000
Cost of goods sold:
Merchandise inventory, January 1, 20x4................................... P 80,000
Purchases...................................................................................... 210,000
Merchandise available for sale................................................. P 290,000
Less: Shipments to branch..........................................................
30,000
Merchandise available for own sales....................................... P 260,000
Less: Merchandise Inventory, December 31, 20x4..................
55,000
Cost of goods sold.............................................................................
205,000
Gross profit................................................................................................................... P 51,000
Operating Expenses....................................................................................................
60,000
Net loss from own operations..................................................................................... P ( 9,000)
Add: Adjusted branch net income.............................................................................
13,500
Combine net income.................................................................................................... P 4,500
(2)
RUGGLES CO.
Combined Income Statement for Home Office and Branch
For Year Ended December 31, 20x4
Sales.............................................................................................................................. P 334,500
Cost of goods sold:
Merchandise inventory, January 1, 20x4................................... P 107,500
Purchases...................................................................................... 230,000
Merchandise available for sale.................................................. P 337,500
Less: Merchandise Inventory, December 31, 20x4...................
80,000
Cost of goods sold.............................................................................
257,500
Gross profit.................................................................................................................... P 77,000
Operating expenses....................................................................................................
72,500
Net income................................................................................................................... P 4,500
(3) Merchandise Inventory......................................................................................... 31,500
Sales.......................................................................................................................... 78,500
Income Summary............................................................................................
110,000
Income Summary......................................................................................................... 104,500
Merchandise Inventory...................................................................................
32,000
Shipments from Home Office.........................................................................
40,000
Purchases.........................................................................................................
20,000
Expenses...........................................................................................................
12,500
Income Summary......................................................................................................... 5,500
Home Office.....................................................................................................
5,500
(4) Branch...................................................................................................................... 5,500
Branch Income................................................................................................
5,500
Unrealized Intercompany Inventory Profit...............................................................
Branch Income..............................................................................................
Calculation of unrealized profit adjustment:
Branch inventory, January 1, acquired from home office
at billed price.................................................................................... P 24,500
Less: Cost of inventory (P24,500/1.225)....................................................
20,000
Unrealized Intercompany Inventory Profit Jan. 1................................... P 4,500
Add: Increase in unrealized profit for shipments
made during year, billed price of goods,
P40,000, cost of goods, P30,000.................................................... 10,000
P 14,500
Deduct balance to remain in unrealized profit account:
Branch inventory, December 31,
acquired from home office....................................... P 26,000
Less: Cost of inventory to home office,
P26,000/1.1/3................................................................ 19,500
6,500
Reduction in unrealized profit account- adjustment to branch
income for overstatement of cost of goods sold...........................
8,000
8,000
8,000
Branch Income............................................................................................................. 13,500
Income Summary............................................................................................
13,500
Merchandise Inventory................................................................................................ 55,000
Sales............................................................................................................................... 256,000
Shipments to Branch.................................................................................................... 30,000
Income Summary.............................................................................................
341,000
Income Summary......................................................................................................... 350,000
Merchandise Inventory...................................................................................
80,000
Purchases.........................................................................................................
210,000
Expenses...........................................................................................................
60,000
Income Summary..........................................................................................................
Retained Earnings............................................................................................
4,500
4,500
Problem IX
1.
Branch
Current
Unadjusted balance, 12/31/20x4
Add (Deduct): Adjustments
1 Remittance
2. Cash in transit
3. Shipments in transit
Adjusted balance, 12/31/20x4
P 60,000
H. Office
Current
P 51,500
I 1,700)
P 57,300
1,800
5,800
P 57,300
2. Income Statement - Branch
Sales................................................................................................................................ P
140,000
Cost of goods sold:
Merchandise inventory, January 1, 20x4 (P11,550 – P1,000)....... P 10,550
Shipments from home office (P105,000 + P5,000 – P10,000)........ 100,000
Freight-in (P5,500 + P250)……………………………………………..
5,750
Merchandise available for sale.....................................................P116,300
Less: Merchandise Inventory, December 31, 20x4......................
14,770
Cost of goods sold.............................................................................
101,530
Gross profit.................................................................................................................... P
38,470
Operating expenses....................................................................................................
24,300
Net income................................................................................................................... P
14,170
Income Statement – Home Office
Sales.............................................................................................................................. P
155,000
Cost of goods sold:
Merchandise inventory, January 1, 20x4................................... P 23,000
Purchases...................................................................................... 190,000
Merchandise available for sale................................................. P 213,000
Less: Shipments to branch.......................................................... 100,000
Merchandise available for own sales....................................... P 113,000
Less: Merchandise Inventory, December 31, 20x4..................
30,000
Cost of goods sold........................................................................
83,000
Gross profit................................................................................................................... P
72,000
Operating Expenses....................................................................................................
42,000
Net loss from own operations..................................................................................... P
30,000
Add branch net income............................................................................................
14,170
Combined net income.............................................................................................. P
44,170
3.
Combined Income Statement for Home Office and Branch
For Year Ended December 31, 20x4
Sales.............................................................................................................................. P
295,000
Cost of goods sold:
Merchandise inventory, January 1, 20x4................................... P 33,550
Purchases...................................................................................... 190,000
Freight-in………………………………………………………………
5,750
Merchandise available for sale.................................................. P 229,300
Less: Merchandise Inventory, December 31, 20x4...................
44,770
Cost of goods sold........................................................................
184,530
Gross profit.................................................................................................................... P
110,470
Operating expenses....................................................................................................
66,300
Net income................................................................................................................... P
44,170
Problem X
a. The cost of the merchandise destroyed was P30,000.
Total merchandise acquired from home ofiice, at billed price:
Inventory, January 1...................................................................................... P26,400
Shipments from home office, Jan. 1-17....................................................... 20,000
P46,400
Cost of goods sold, January 1-17, at billed price:
Net sales, P13,000/1.25...................................................................................... 10,400
Merchandise on hand, January 17, at billed price....................................... P36,000
Merchandise on hand, January 17, at cost, P36,000/1.20............................ P30,000
b. Branch Books:
Loss from Fire (or Home Office)............................................................ 36,000
Merchandise Inventory............................................................
36,000
Home Office Books:
No entry needs to be made on the books of the home office until the end of the fiscal period,
when the branch earnings (including the loss from fire) are recognized and when the balance of
the account Unrealized Intercompany Inventory Profit is adjusted to conform to the branch
ending inventory. If it is desired to recognize the loss from fire on the home office books
immediately, the following entry may be made:
Branch Loss from Fire (or Retained Earnings)...................................... 30,000
Unrealized Intercompany Inventory Profit........................................... 6,000
Branch.........................................................................................
36,000
Problem XI
a. Books of Branch A:
Home Office........................................................................................ 1,500
Cash.........................................................................................
1,500
b. Books of branch B:
Cash...................................................................................................... 1,500
Home Office............................................................................
1,500
c. Books of Home Office:
Branch B............................................................................................... 1,500
Branch A..................................................................................
1,500
Problem XII
a. Books of Branch No. 1 :
Home Office …………………………………………………………….
Shipments from Home Office……………………………………..
Freight In………………………………………………………………
b. Books of branch No. 5:
Shipments from Home Office…………………………………………
Freight In……………………………………………………………………
Home Office………………………………………………………….
Cash……………………………………………………………………
c. Books of the Home Office
Branch No. 5……………………………………………………………..
Excess Freight on Inter branch Transfer of Merchandise………..
Branch No. 1…………………………………………………………
Shipments to Branch No. 1……………………………………………..
Shipments to Branch No. 5…………………………………………
1,950
1,600
400
1,750
200
1,600
1,600
350
1,750
250
1,950
1,600
Multiple Choice Problems
1. c - P50,400, billed price x 40/140 = P 14,400
2. b
3. a
Ending inventory in the combined income statement:
From Home Office: (P50,000-P6,600) x 100/140
From Outsiders
P 31,000
6,600
P 37,600
True Branch Net Income
Branch Net Income
Add (deduct):
Overvaluation of cost of goods sold/realized profit
from sales made by branch:
Shipments from home office.
P 280,000
Less: Ending inventory, at billed
price (P50,000 – P6,600)
43,400
Cost of goods sold from home
office at billed price
P 236,600
Multiplied by: Mark-up
40/140
Unrecorded branch expenses
True Branch Net Income
P
5,000
67,600
( 2,500)
P 70,100
4. a – P30,000 x (90,000 – 60,000)/90,000
5. a
6. d – (P50,000 – P40,000)/P40,000 = 25% markup on cost
7. c – (P480,000 – P360,000) x (P80,000/P480,000) = P20,000
8. c – P700,000, since the problem stated that the “home office adjusted the intracompany Profit
Deferred account” and the amount of P700,000 is the amount of net income in the adjusted
financial statements of the home office, and therefore it is understood to be combined net
income.
9. b
Reported (unadjusted) branch net income (per branch books) ………………..P 30,000
Branch Income in so far as home office is concerned per home office books. 50,000
Overvaluation of branch cost of goods sold…………………………………………P 20,000
Cost of sales of Home Office…………………………………………………………….P500,000
Cost of sales of Branch…………………………………………………………………… 100,000
Overvaluation of branch cost of sales…………………………………………………( 20,000)
Combined cost of sales…………………………………………………………………...P580,000
10. c – the amount of net income as reported by Home office is considered the combined net
income.
11. a
True Branch Net Income
Less: branch Net Income as reported by the branch
Overvaluation of CGS
Less: Cost of goods sold from home office at BP
Inventory, December 1
P156,000
60,000
P 96,000
P 70,000
Shipment from HO
COGAS
Less: Inventory, December 31
CGS from home office, at cost
Billing Price: P336,000 / P240,000 = 140%.
350,000
P 420,000
84,000
336,000
P 240,000
12. b – Allowance for overvaluation after adjustment / for December 31 inventory: P84,000 x
40/140 = P24,000.
13. b
Net Income as reported by the Branch
Less: Rental expense charged by the home office
(P1,000 x 6 months)
Adjusted NI as reported by the Branch
Add: Overvaluation of CGS
MI, beginning
SFHO
COGAS
Less: MI, ending
CGS, at BP
X: Mark-up ratio
True/Adjusted/Real Branch Net Income
14. d
15. d
P 20,000
6,000
P 14,000
Billed Price
0
550,000
550,000
75,000
475,000
25/125
95,000
P109,000
Sales (P537,500 + P300,000)……………………………………………….………. P 837,500
Less: Cost of goods sold
Merchandise inventory, beg. [P50,000 + (P45,000 / 1.20)]P 87,500
Add: Purchases…………………………………………………. 500,000
Cost of Goods Available for Sale…………………………... P 587,500
Less: MI, ending [P70,000 + (P60,000 / 1.20)]………………. 120,000
467,500
Gross profit……………………………………………………………….
P 370,000
Less: Expenses (P120,000 + P50,000..……………………………….
170,000
Net Income………………………………………………………………
P 200,000
Overvaluation of Cost of Goods Sold:
Unrealized Profit in branch inventory/ before adjustment……………….P 7,200
Less: Allowance of ending branch inventory (P20,000 x 84% =
P16,800 x 20/120…………………………………………………………. 2,800
Overvaluation of Cost of Goods Sold……………………………………. ….P 4,400
Adjusted branch net income:
Sales………………………………………………………………………………………P60,000
Less: Cost of goods sold:
Inventory, January 1, 2003……………………………….P 30,000
Add: Purchases…………………………………………..... 11,000
Shipments from home office…………………….. 19,200
Cost of Goods available for sale……………………… P 60,200
Less: Inventory, December 31, 2003………………….
20,000
40,200
Gross profit…………………………………………………………………………….. P19,200
Less: Expenses………………………………………………………………………….. 12,000
Unadjusted branch net income…………………………………………………...P 7,800
Add: Overvaluation of Cost of Goods Sold……………………………………. 4,400
Adjusted branch net income……………………………………………………...P 12,000
16. d
17. d
Billed Price
Cost
Allowance
Merchandise Inventory, 12/31/2005
*P 36,000
P 30,000
P 6,000
Shipments
28,800
24,000
4,800
Cost of goods sold
P10,800
From Home at billed price: *P6,000 / 20% = P30,000 + P6,000 = P36,000.
From outsiders: P45,000 – P36,000 = P9,000
Merch. Inventory, 12/31/20x4
Shipments
Cost of Goods Sold
*P2,000 / 20% = P10,000 + P2,000 = P12,000.
Billed Price
*P12,000
9,600
Cost
P10,000
8,000
Allowance
P 2,000
1,600
P 3,600
Merchandise inventory, December 1, 20x4…………………………………P 15,000
Less: Shipments from home office at billed price*………………………… 12,000
Merchandise from outsiders……………………………………………………P 3,000
18. d
Combined Cost of Goods Sold:
Merchandise Inventory, 1/1/2003:
Home Office, cost………………………………………………
P 3,500
Branch: Outsiders, ……………………………...........................P 300
From Home Office (P2,500 – P300)/110%................. 2,000
2,300 P 5,800
Add Purchases (P240,000 + P11,000)……………………………..
251,000
COGAS…………………………………………………………………
P256,800
Less: Merchandise Inventory, 12/31/2003
Home Office, cost……………………………………………….
P 3,000
Branch: Outsiders………………………………………………. P 150
From Home Office (P1,800 – P150)/110%................ 1,500 1,650
4,650
Cost of Goods Sold…………………………………………………
P252,150
19. d
100%
60%
40%
Billed Price
Cost
Allowance
Merchandise inventory, 1/1/x4
32,000
Shipments
*60,000
36,000
*24,000
Cost of goods available for sale
56,000
Less: MI, 3/31/x4 (25,000 x 40%)
10,000
Overvaluation of CGS**
46,000
*36,000 cost / 60% = 60,000 x 40% = 24,000. (Note: Markup is based on billed price)
**Realized Profit from Branch Sales
20. d
Billed
Price
Merchandise inventory, 8/1/x4
Shipments (400,000 x 25%)
Cost of goods available for sale
Less: MI, 8/31/x4 (160,000 x 25%)
Overvaluation of CGS/RPBSales
21. b
(1) Sales
Less: Cost of goods sold:
400,000
160,000
Cost
Allowance
60,000
*100,,000
160,000
40,000
120,000
P 40,000
Inventory, 1/1/2003 (P4,950 / 110%)
Add: Shipments
(P22,000 / 110%)
COGAS
Less: Inventory, 12/31/2003 (P6,050 / 110%)
Gross profit
Less: Expenses
Net income from own operations
P 4,500
20,000
P 24,500
5,500
P
_
P
(2) Combined Cost of Goods Sold:
Merchandise Inventory, 1/1/2003:
of Home Office, cost……………………………………………..P 17,000
of Branch, cost: P4,950 / 110%………………………………….
4,500
Add Purchases………………………………………………………….
COGAS…………………………………………………………………..
Less: Merchandise Inventory, 12/31/2003
of Home Office, cost……………………………………………… P 14,000
of Branch, cost: P6,050 /100%…………………………………..
5,500
Cost of Goods Sold…………………………………………………….
19,000
21,000
13,100
7,900
P 21,500
50,000
P 71,500
19,500
P 52,000
22. a - P48,000 / 120% = P40,000
23. a – P48,000 x 20/120 = P8,000 (note: adjusted allowance refers to the allowance related to the
ending inventory, so, the allowance related to the CGS, which is P10,00 in this case is
considered to be the adjustments in the books of Home Office to determine the adjusted
branch net income)
120%
100%
20%
Billed Price
Cost
Allowance
Merchandise inventory, 1/1/x4
0
Shipments
108,000
Cost of goods available for sale
108,000
Less: MI, 12/31/x4 (P60,000 x 80%)
48,000
Overvaluation of CGS (60,000 x 20/120)
60,000
10,000*
24. b
Sales (P148,000 + P44,000)
Less: Cost of Sales
Inventory, 1/1/20x4
Purchases
Shipments from home office
Cost of goods available for sale
Less: Inventory, 12/31/20x4
Gross profit
Less: Expenses (P76,000 + P24,000)
Net income, unadjusted
Add: Overvaluation of CGS
Adjusted branch net income
25. c
Merchandise inventory, 1/1/x4
Shipments
Cost of goods available for sale
Less: MI, 12/31/x4 (P60,000 x 80%)
P192,000
P
0
52,000
108,000
P 160,000
60,000
125%
100%
Billed Price
Cost
40,000
250,000
290,000
60,000
100,000
P 92,000
100,000
P( 8,000)
10,000
P 2,000
25%
Allowance
Overvaluation of CGS(230,000x 25/125)
230,000
26. b – P326,000
Sales (P600,000 + P300,000) …………………………………………………..
Less: Cost of goods sold
Merchandise inventory, beg.
[P100,000 + (P40,000/1.25)] ………………………. …
P 132,000
Add: Purchases……………………………………
350,000
Cost of goods available for sale………………… P 482,000
Less: MI, ending
[P30,000 + (P60,000/1.25)] …………………………
78,000
Gross profit………………………………………………………
Less: Expenses (P120,000 + P50,000)……………………….
Net Income ………………………………………………….
27. b
Sales (P537,500 + P300,000) …………………………………………………
Less: Cost of goods sold
Merchandise inventory, beg.
[P50,000 + (P60,000/1.20)]……………………………..
P 87,500
Add: Purchases …………………………………….
500,000
Cost of goods available for sale………………… P587,500
Less: MI, ending
[P70,000 + (P60,000/1.20)] ………………………….
120,000
Gross profit…………………………………………………….. P 370,000
Less: Expenses (P120,000 + P50,000)………………………. _ 170,000
Net Income …………………………………………………… P 200,000
46,000*
P 900,000
404,000
P 496,000
_ 170,000
P 326,000
P 837,500
467,500
28. c
Sales (P120,000 + P60,000)………………………………………
P 180,000
Less: Cost of goods sold:
Merchandise inventory, beg. [P40,000 + P6,000 +
(P24,000 / 1.2)]……………………………… P 66,000
Add: Purchases (P70,000 + P11,000)…………………
81,000
Cost of Goods Available for Sale……………………P 147,000
Less: MI, ending [P40,000 + P3,200 + (P16,800 / 1.20)] 57,200
89,800
Gross profit………………………………………………………
P 90,200
Less: Expenses (P28,000 + P12,000)…………………………
40,000
Net Income…………………………………………………….
P 50,200
29. d
Sales (P100,000 – P33,000 + P50,000)……………………………………
P 117,000
Less: Cost of goods sold:
Inventory, beg. [P15,000 + (P5,500/110%) or (P5,500 – P500)] P20,000
Add: Purchases (P50,000 + P7,000)……………………………… 57,000
COGAS……………………………………………………………….. P77,000
Less: Inventory, end [P11,000 + P1,050 +
(P6,000- P1,050)/110%]……………………………………… 16,550
60,450
Gross profit……………………………………………………………………
P 56,550
Less: Expenses (P20,000 + P6,000 + P5,000)………………………………
31,000
Combined Net income…………………………………………………….
P 25,550
30. c
Sales ……………………………………………………………………...
Less: Cost of Sales
P155,000
Inventory, 1/1/10…………………………………………….. P 23,000
Purchases …………………………………………………….. 190,000
Cost of goods available for sale ……………………….. P213,000
Less: Shipment/Sales to Branch,
at cost (P110,000/110%)…………………………………………
100,000
Cost of goods available for HO
Sale………………………………………………….. P113,000
Less: Inventory, 12/31/10 ……………………………….....
30,000
Gross profit ………………………………………………………………...
Less: Expenses …………………………………………………………….
Net income – home office …………………………………………….
31. a
P 72,000
52,000
P 20,000
Sales ……………………………………………………………………....
P140,000
Less: Cost of Sales
Inventory, 1/1/x4……………………………………………… P 11,550
Purchases …………………………………………………….
105,000
Freight-in ………………………………………………………
5,500
Shipment in transit (P5,000+P250) ……………………….
5,250
Cost of goods available for sale …………………………. P127,300
Less: Inventory, 12/31/x4
(P10,400 + P520 + P5,250) ……………………………………….
16,170
111,130
Gross profit. …………………………………………………………….
P 28,870
Less: Expenses …………………………………………………………
28,000
Net income per branch books/unadjusted ………………………
P 870
Add: Overvaluation of CGS* ………………………………………..
9,600
Net Income of Davao Branch, adjusted ………………………….
P 10,470
MI. 1/1/20x4
Shipments
Available for sale
-: MI, 12/31/x4
CGS
**110,000 x 10/110
***10,400 + 5,000, in transit
****15,400 x 10/110
32. a
83,000
BP
Cost
110,000
100,000
***15,400
Allowance
1,000
**10,000
11,000
****1,400
9,600
Inventory, 1/1 at billed price……………………………………..
P165,000
Add: Shipments at billed price…………………………………..
110,000
Cost of goods available for sale at billed price ………………
P275,000
Less: CGS at BP:
Sales……………………………………………………………… P169,000
Less: Sales returns and allowances …………………..
3,750
Sales price of merchandise
acquired from outsiders
(P7,500 / 120%)……………………………
9,000
Net Sales of merchandise acquired from
home office ……………………………………….. P156,250
x: Intercompany cost ratio ………………………………... 100/125
125,000
Inventory, 8/1/2008 at billed price………………………………
P150,000
x: Cost ratio ……………………………………………………………..
100/125
Merchandise inventory at cost destroyed by fire …………………
P120,000
33. d
Freight actually paid by:
Home Office……………………………………………………………………P 500
Branch P…………………………………………………………………………
700
Total………………………………………………………………………………P 1,200
Less: Freight that should be recorded……………………………………………..
800
Excess freight……………………………………………………………………………P 400
34. d – in arriving at the cost of merchandise inventory at the end of the period, freight charges
are properly recognized as a part of the cost. But a branch should not be charged with
excessive freight charges when, because of indirect routing, excessive costs are incurred.
Under such circumstances, the branch acquiring the goods should be charged for no more
than the normal freight from the usual shipping point. The office directing the inter-branch
transfers are responsible for the excessive cost should absorb the excess as an expense
because it represents management mistakes (or inefficiencies.)
35. c
Inventory of the Branch:
Shipments from home office at billed price.........................................P 37,700
X: Ending inventory %................................................................................
60%
Ending inventory at billed price……………………………………...……P 22,620
Add: Freight (P1,300 x 60%)………………………………………………......
780
P 23,400
Or, P39,000 x 60% = P23,400
36. b
Inventory in the published balance sheet, at cost
Shipments at cost…………………………………..........................................P 32,500
X: Ending inventory %....................................................................................
60%
Ending inventory at billed price……………………………………………….P19,500
Add: Freight (P1,300 x 60%)………………………………………….......……..
780
P 20,280
37. c
Home Office Books
Davao Branch…39,000
STB, cost…….
32,500
Unrealized profit
5,200
Cash (freight)….
1,300
BC – Baguio……19,630
Excess freight… 520
BC-Davao…….
20,150
38.
39.
40.
41.
42.
43.
44.
45.
Davao Branch
SFHO…………….37,700
Freight-in………. 1,300
HOC…………..
39,000
Baguio Branch
HOC……………….20,150
SFHO(50%)…
18,850
Freight-in (50%)
650
Cash…………......
650
SFHO………18,850
Freight-in.. 780
HOC……...
19,630
c – (P300,000 x ¼ = P75,000, ending inventory x (P300,000 – P250,000)/P300,000 = P12,500
d
d
b – refer to No. 21
b – refer to No. 21
c – refer to No. 21
c
d
Theories
1.
2.
3.
4.
5.
True
False
True
True
False
6.
7.
8.
9.
10.
False
False
False
True
True
11.
12.
13.
14.
15.
False
True
False
True
False
16.
17.
18.
19.
20.
True
True
True
False
d
21.
22.
23.
24.
25.
26.
D
A
d
d
a
c
Chapter 14
Problem I
1.(in millions)
Acquisition of assets and liabilities:
Cash
Receivables
Inventories
Plant & equipment
Trademarks
Brand names
Secret formulas
Goodwill
90
190
7,000
40,000
4,000
5,000
7,000
6,120
Current liabilities
Long-term liabilities
Cash
Common stock, P2 par
APIC (P4,000 – P100)
Consideration transferred:
Cash
Common stock
Consideration transferred
Less: MV of Assets and Liabilities Acquired:
Cash
Receivables
Inventories
Plant & equipment, net
Trademarks
Brand names
Secret formulas
Current liabilities
Long-term liabilities
Positive excess: Goodwill
Acquisition expenses
Acquisition/merger expenses
18,000,000
4,000,000
22,000,000
90,000
190,000
7,000,000
40,000,000
4,000,000
5,000,000
7,000,000
( 400,000)
(47,000,000) 15,880,000
6,120,000
1,100
Cash
Costs to Issue and Register Stocks
400
47,000
18,000
100
3,900
1,100
APIC
500
Cash
500
2.(in millions)
Cash
Receivables
Inventories
Plant & equipment
Trademarks
Brand names
Secret formulas
Noncompetition agreements
90
190
7,000
40,000
4,000
5,000
7,000
10,000
Current liabilities
Long-term liabilities
Cash
Common stock, P2 par
APIC (P4,000 – P100)
Gain on acquisition
Consideration transferred:
Cash
Common stock
Consideration transferred
Less: MV of Assets and Liabilities
Acquired:
Cash
Receivables
Inventories
Plant & equipment, net
Trademarks
Brand names
Secret formulas
Noncompetition agreement
Current liabilities
Long-term liabilities
Negative excess: Gain on Acquisition
Acquisition expenses
400
47,000
18,000
100
3,900
3,880
18,000,000
4,000,000
22,000,000
90,000
190,000
7,000,000
40,000,000
4,000,000
5,000,000
7,000,000
10,000,000
( 400,000)
(47,000,000)
25,880,000
( 3,880,000)
Acquisition/merger expenses
1,100
Cash
1,100
Costs to Issue and Register Stocks
APIC/Share Issue Costs
500
Cash
500
3.
Post-Combination Balance Sheet: (requirement 1)
Assets
Cash
Receivables
Inventories
Plant and equipment
Trademarks
Brand names
Secret formulas
Goodwill
Total
P 5,490,000
2,190,000
27,000,000
139,500,000
9,000,000
5,000,000
7,000,000
__6,120,,000
P201,300,000
Liabilities and Stockholders’ Equity
Current liabilities
P 900,000
Long-term liabilities
117,000,000
Common stock
Paid-in capital – par
Retained earnings*
Treasury stock
Total
2,100,000
58,400,000
23,900,000
( 1,000,000)
P 201,300,000
*25,000,000 – 1,100,000, merger expenses = 23,900,000.
Post-Combination Balance Sheet: (requirement 2)
Assets
Cash
P 5,490,000
Receivables
2,190,000
Inventories
27,000,000
Plant and equipment
139,500,000
Trademarks
9,000,000
Brand names
5,000,000
Secret formulas
7,000,000
Noncompetition agreement _10,000,,000
Total
P205,180,000
Liabilities and Stockholders’ Equity
Current liabilities
P 900,000
Long-term liabilities
117,000,000
Common stock
Paid-in capital – par
Retained earnings*
Treasury stock
Total
2,100,000
58,400,000
27,780,000
__( 1,000,000)
P 205,180,000
*25,000,000 – 1,100,000 + 3,880,000 = 27,780,000
Problem II
1. (in millions)
Cash and receivables
Inventories
Property, plant & equipment
200
400
5,500
Customer contracts
In-process R&D
Goodwill
25
300
2,035
Current liabilities
Long-term debt
Warranty liability
Estimated liability for Contigent Cons.
Capital stock
400
7,300
10
50
700
Note: Read the topic “Items included in Goodwill” in Chapter 14 about “Skilled
(assembled) workforce” (they are not identifiable at the date of acquisition) and “Potential
Contracts” (they are not qualified as assets at the acquisition date).
Consideration transferred:
Shares
Estimated liability for Contigent Cons.
Consideration transferred
Less: MV of Assets and Liabilities
Acquired:
Cash and receivables
Inventories
Property, plant & equipment
Customer contracts
In-process R&D
Current liabilities
Long-term debt
Warranty liability
Positive excess: Goodwill
700,000,000
_50,000,000
750,000,000
200,000,000
400,000,000
5,500,000,000
25,000,000
300,000,000
( 400,000,000)
(7,300,000,000)
( 10,000,000) (1,285,000,000)
2,035,000,000
Acquisition expenses
Acquisition/merger expenses
150
Cash
150
Costs to Issue and Register Stocks
Share Issue Costs
100
Cash
100
2. (in millions)
Goodwill
1,500
Property, plant & equipment
Problem III
1.
Current assets
Investments
Land
Buildings
1,500,000
500,000
6,000,000
16,000,000
1,500
Equipment
Identifiable intangibles
Goodwill
2,000,000
5,000,000
22,500,000
Current liabilities
Long-term liabilities
Common stock
Additional paid-in capital
Cash
Consideration transferred:
Shares (400,000 x P100)
Less: MV of Assets and Liabilities
Acquired:
Current assets
Investments
Land
Buildings
Equipment
Identifiable intangibles
Current liabilities
Long-term liabilities
Positive excess: Goodwill
1,500,000
12,000,000
4,000,000
36,000,000
1,100,000
40,000,000
1,500,000
500,000
6,000,000
16,000,000
2,000,000
5,000,000
( 1,500,000)
(12, 000,000)
Costs to Issue and Register Stocks
Share Issue
Costs/APIC
Cash
(17,500,000)
22,500,000
1,100
1,100
2.
Current assets
Investments
Land
Buildings
Equipment
Identifiable intangibles
1,500,000
500,000
6,000,000
16,000,000
2,000,000
5,000,000
Current liabilities
Long-term liabilities
Common stock
Additional paid-in capital
Gain on acquisition
Consideration transferred:
Shares (100,000 x P100)
Less: MV of Assets and Liabilities
Acquired:
Current assets
Investments
Land
1,500,000
12,000,000
1,000,000
9,000,000
7,500,000
10,000,000
1,500,000
500,000
6,000,000
Buildings
Equipment
Identifiable intangibles
Current liabilities
Long-term liabilities
Negative excess: Gain on acquisition
16,000,000
2,000,000
5,000,000
( 1,500,000)
(12, 000,000)
Costs to Issue and Register Stocks
Share Issue
Costs/APIC
Cash
(17,500,000)
( 7,500,000)
800
800
3.
Current assets
Investments
Land
Buildings
1,500,000
500,000
6,000,000
16,000,00
0
2,000,000
5,000,000
500,000
Equipment
Identifiable intangibles
Goodwill
Current liabilities
Long-term liabilities
1,500,000
12,000,00
0
8,000,000
Estimated liability for Contigent
Cons.
Common stock
Additional paid-in capital
Consideration transferred:
Shares (100,000 x P100)
Estimated liability for Contigent Cons.
Consideration transferred
Less: MV of Assets and Liabilities
Acquired:
Current assets
Investments
Land
Buildings
Equipment
Identifiable intangibles
Current liabilities
Long-term liabilities
Positive excess: Goodwill
Costs to Issue and Register Stocks
Share Issue Costs/APIC
1,000,000
9,000,000
10,000,000
_8,000,000
18,000,000
1,500,000
500,000
6,000,000
16,000,000
2,000,000
5,000,000
( 1,500,000)
(12, 000,000)
(17,500,000)
500,000
800
Cash
800
4.
(a)
Estimated liability for
Contigent
Cons.
3,000,000
Goodwill
Gain on acquisition
500,000
2,500,000
(b)
Estimated liability for
Contigent
Cons.
3,000,000
Gain on reduction in
liability
3,000,000
Problem IV
1. January 1, 20x4
Accounts Receivable (net)
Inventory
Land
Buildings
Equipment
Goodwill
Accounts Payable
Note Payable
Cash
Estimated Liability for Contingent Consideration
65,000
99,000
162,000
450,000
288,000
54,000
83,000
180,000
720,000
135,000
Consideration transferred (P720,000 + P135,000)
P855,000
Total fair value of net assets acquired (P1,064,000 - P263,000) 801,000
Goodwill
P 54,000
2. January 2, 20x6
Estimated Liability for Contingent Consideration
Cash
135,000
3. January 2, 20x6
Estimated Liability for Contingent Consideration
Gain on Contingent Consideration
135,000
135,000
135,000
Problem V
Current Assets
Long-term Assets (P1,890,000 + P20,000) + (P98,000 + P5,000)
362,000
2,013,000
Goodwill *
Liabilities
Long-term Debt
Common Stock (144,000 P5)
PIC - par (144,000 x
P15 - P5))
395,000
119,000
491,000
720,000
1,440,000
* (144,000 P15) – [P362,000 + P2,013,000 – (P119,000 + P491,000)] = P395,000
Total shares issued (P700,000 / P5) + P20,000 / P5)
Fair value of stock issued (144,000P15)
144,000
= P2,160,000
Problem VI
Case A
Consideration transferred
P130,000
Less: Fair Value of Net Assets
Goodwill
120,000
P 10,000
Case B
Consideration transferred
Less: Fair Value of Net Assets
Goodwill
P110,000
90,000
P 20,000
Case C
Consideration transferred
Less: Fair Value of Net Assets
Gain
Goodwill
Case A
Case B
Case C
P10,000
20,000
0
P15,000
20,000
(P 5,000)
Assets
Current Assets
P20,000
30,000
20,000
Liabilities
Long-Lived Assets
P130,000
80,000
40,000
Retained
Earnings
(Gain)
P30,000
0
20,000
40,000
0
5,000
Problem VII
Present value of maturity value, 20 periods @ 6%: 0.3118 x P600,000 =
Present value of interest annuity, 20 periods @ 6%: 11.46992 x 30,000 =
Total Present value
Par value
Discount on bonds payable
Cash
Accounts Receivable
P187,080
344,098
P531,178
600,000
P 68,822
114,000
135,000
Inventory
Land
Buildings
Equipment
Bond Discount (P40,000 + P68,822)
Current Liabilities
Bonds Payable (P300,000 + P600,000)
Gain on Acquisition of Stalton (ordinary)
310,000
315,000
54,900
39,450
108,822
95,300
900,000
81,872
Computation of Excess of Net Assets Received Over Cost
Consideration transferred (P531,178 plus liabilities assumed of P95,300
andP260,000)
P886,478
Less: Total fair value of assets received
Excess of fair value of net assets over cost
_968,350
(P 81,872)
Problem VIII
Acquisition Method—Entry to record acquisition of Sampras
Consideration transferred
Estimated Liability for contingent Consideration
Consideration transferred (fair value)
Fair value of net identifiable assets
Goodwill
P300,000
15,000
315,000
282,000
P33,000
Receivables
Inventory
Buildings
115,000
Equipment
Customer list
IPRD
Goodwill
Current liabilities
Long-term liabilities
Estimated liability for contingent consideration
Cash
80,000
70,000
Acquisition related-expenses
Cash
10,000
Problem IX
1.
a. The computation of goodwill is as follows:
Consideration transferred;
Common shares: 30,000 shares x P25
Notes payable
Contingent consideration (cash contingency):
P120,000 x 30% probability
Total
Less: Fair value of identifiable assets acquired and
25,000
22,000
30,000
33,000
10,000
50,000
15,000
300,000
10,000
P 750,000
180,000
36,000
P 966,000
liabilities assumed:
Cash
Receivables – net
Inventories
Land
Buildings – net
Equipment – net
In-process research and development
Accounts payable
Other liabilities
Positive Excess – Goodwill
P 24,000
48,000
72,000
240,000
360,000
300,000
60,000
( 72,000)
( 168,000)
864,000
P
102,000
b. The journal entries by Peter Corporation to record the acquisition is as follows:
Cash
Receivables – net
Inventories
Land
Buildings – net
Equipment – net
In-process research and development
Goodwill
Accounts payable
Other liabilities
Notes payable
Estimated Liability for Contingent
Consideration
Common stock (P10 par x 30,000 shares)
Paid-in capital in excess of par
[(P25 – P10) x 30,000 shares]
Acquisition of Saul Company.
24,000
48,000
72,000
240,000
360,000
300,000
60,000
102,000
62,000
168,000
180,000
36,000
300,000
450,000
Acquisition-related expenses
Cash
Acquisition related costs – direct costs.
78,000
Paid-in capital in excess of par
Cash
Acquisition related costs – costs to issue and
register stocks.
32,400
Acquisition-related expenses
Cash
Acquisition related costs – indirect costs.
27,600
78,000
32,400
27,600
c. The balance sheet of Pure Corporation immediately after the acquisition is as follows:
Pure Corporation
Balance Sheet
December 31, 20x4
Assets
Cash
Receivables – net
Inventories
Land
Buildings – net
Equipment – net
In-process research and development
Goodwill
Total Assets
2
P 162,000
144,000
360,000
348,000
840,000
732,000
60,000
102,000
P2,748,000
Liabilities and Stockholders’ Equity
Liabilities
Accounts payable
Other liabilities
Notes payable
Estimated liability for contingent consideration
Total Liabilities
Stockholders’ Equity
Common stock, P10 par
Paid-in capital in excess of par1
Retained earnings2
Total Stockholders’ Equity
Total Liabilities and Stockholders’ Equity
1
P240,000 + P446,400 – P32,400
P264,000 - P78,000 – P27,600
P 288,000
408,000
180,000
36,000
P 912,000
P 1,020,000
657,600
158,400
P1,836,000
P2,748,000
It should be noted that under PFRS 3, in-process R&D is measured and recorded at fair value as an asset on the acquisition date. This
requirement does not extend to R&D in contexts other than business combinations.
2.
a. Assets that have been provisionally recorded as of the acquisition date are retrospectively
adjusted in value during the measurement period for new information that clarifies the
acquisition-date value. The adjustments affect goodwill since the measurement period is
still within one year (i.e., eight months) from the acquisition date. Therefore, the goodwill
to be reported then on the acquisition should be P78,000 (P102,000 – P24,000).
b.
Buildings
Goodwill
Adjustment to goodwill due to measurement date.
3.
24,000
24,000
a. The goodwill to be reported then on the acquisition should be P126,000 (P102,000 +
P24,000).
b. The adjustment is still within the measurement period, the entry to adjust the liability would
be:
Goodwill
Estimated liability for contingent consideration
24,000
24,000
Adjustment to goodwill due to measurement date.
c.
c.1. The goodwill remains at P126,000, since the change of estimate should be done only once
(last August 31, 20x5).
c.2. On November 1, 20x5, the probability value of the contingent consideration amounted to
P48,000, the entry to adjust the liability would be:
Estimated liability for contingent consideration
Gain on estimated contingent consideration
Adjustment after measurement date.
12,000
12,000
In this case, the measurement period ends at the earlier of:


c.3.
one year from the acquisition date, or
the date when the acquirer receives needed information about facts and
circumstances (or learns that the information is unobtainable) to consummate the
acquisition.
c.3.1. The goodwill remains at P126,000, since the change of estimate should be done
only once (last August 31, 20x5).
c.3.2. On December 15, 20x5, the entry would be:
Loss on estimated liability contingent
consideration
Estimated liability for contingent consideration
30,000
30,000
Adjustment after measurement date.
c.3.3.
c.3.3.1. P126,000.
c.3.3.2. On January 1, 20x7, Saul’s average income in 20x5 is P270,000 and 20x6 is P260,000,
which means that the target is met, Peter Corporation will make the
following entry:
Estimated liability for contingent consideration
Loss on estimated contingent consideration
Cash
78,000
42,000
120,000
Settlement of contingent consideration.
4.
a.The amount of goodwill on acquisition will be recomputed as follows:
Consideration transferred;
Common shares: 30,000 shares x P25
Notes payable
Contingent consideration (cash contingency):
P120,000 x 35% probability x (1/[1 + .04]*)
P 750,000
180,000
40,385
Total
Less: Fair value of identifiable assets acquired and
liabilities assumed (refer to 1a above)
Goodwill
P 970,385
864,000
P 106,385
b. The journal entries by Pure Corporation to record the acquisition is as follows:
Cash
24,000
Receivables – net
48,000
Inventories
72,000
Land
240,000
Buildings – net
360,000
Equipment – net
300,000
In-process research and development
60,000
Goodwill
106,386
Accounts payable
Other liabilities
Notes payable
Estimated Liability for Contingent
Consideration
Common stock (P10 par x 30,000 shares)
Paid-in capital in excess of par
[(P25 – P10) x 30,000 shares]
62,000
168,000
180,000
40,385
300,000
450,000
c.
c.1. Goodwill remains at P106,385.
c.2. Theentry for Pure Corporation on December 31, 20x5 to record such occurrence would
be:
Estimated liability for contingent consideration
Gain on estimated contingent consideration
40,385
40,385
Adjustment after measurement date.
Since the contingent event does not happen, the position taken by PFRS 3 is that the
conditions that prevent the target from being met occurred in a subsequent period and
that Peter had the information to measure the liability at the acquisition date based on
circumstances that existed at that time. Thus the adjustment will flow through income
statement in the subsequent period.
d. The entry by Peter Corporation on January 1, 20x7 for the payment of the contingent
consideration would be:
Estimated liability for contingent consideration
Loss on estimated contingent consideration
Cash [(P78,000 + P84,000)/2 – P30,000] x 2
36,000
66,000
102,000
Settlement of contingent consideration.
5.
a. The amount of goodwill on acquisition will be recomputed as follows:
Consideration transferred;
Common shares: 30,000 shares x P25
Notes payable
Contingent consideration (cash contingency):
P120,000 x 30% probability
P 750,000
180,000
36,000
Contingent consideration (stock contingency)
Total
Less: Fair value of identifiable assets acquired and
liabilities assumed (refer to 1a above)
Positive Excess – Goodwill
18,000
P 984,000
864,000
P 120,000
b. The journal entries by Pure Corporation to record the acquisition is as follows:
Cash
24,000
Receivables – net
48,000
Inventories
72,000
Land
240,000
Buildings – net
360,000
Equipment – net
300,000
In-process research and development
60,000
Goodwill
120,000
Accounts payable
72,000
Other liabilities
168,000
Notes payable
180,000
Estimated Liability for Contingent
36,000
Consideration
Paid-in capital for Contingent Consideration
18,000
Common stock (P10 par x 30,000 shares)
300,000
Additional paid-in capital [(P25 – P10) x 30,000 shares]
450,000
Acquisition of Saul Company.
c. PureCorporation will make the following entry for the issuance of 1,200 additional shares:
Paid-in capital for Contingent Consideration
Common stock (P10 par x 1,200 shares)
Paid-in capital in excess of par
18,000
12,000
6,000
Settlement of contingent consideration.
6. On January 1, 20x7, the average income amounted to P132,000 (the contingent event
occurs). Thus, the entry record the occurrence of such event to reassign the P750,000 original
consideration to 36,000 shares (30,000 original shares issued + 6,000 additional shares due to
contingency) would be:
Paid-in capital in excess of par
Common stock (P10 par x 6,000 shares)
60,000
60,000
Settlement of contingent consideration.
7. On January 1, 20x7, the contingent event happens since the fair value per share fall below
P25. Thus, the entry record the occurrence of such event to reassign the P750,000 original
consideration to 37,500 shares (30,000 original shares issued + 7,500* additional shares due to
contingency) would be:
Paid-in capital in excess of par
Common stock (P10 par x 7,500 shares)
75,000
75,000
Settlement of contingent consideration.
* Deficiency: (P25 – P20) x 25,000 shares issued to acquire...P150,000
Divide by fair value per share on January 1, 20x7………….P
Added number of shares to issue……………………………….
7,500
20
8. The amount of goodwill on acquisition will be recomputed as follows:
Consideration transferred;
Common shares: 30,000 shares x P25
Notes payable
Contingent consideration (stock contingency):
[(P750,000 – P510,000) x 40% probability
x (1/[1 + .04]*)
Total
Less: Fair value of identifiable assets acquired and
liabilities assumed (refer to 1a above)
Positive Excess – Goodwill
* present value of P1 @ 4% for one period.
P 750,000
180,000
92,308
P1,022,308
864,000
P 158,308
The journal entries by Pure Corporation to record the acquisition is as follows:
Cash
24,000
Receivables – net
48,000
Inventories
72,000
Land
240,000
Buildings – net
360,000
Equipment – net
300,000
In-process research and development
60,000
Goodwill
158,308
Accounts payable
Other liabilities
Notes payable
Paid-in capital for Contingent Consideration
Common stock (P10 par x 25,000 shares)
Paid-in capital in excess of par[(P25 – P10) x 30,000 shares]
62,000
168,000
180,000
92,308
300,000
450,000
On December 31, 20x5, the contingent event occurs, wherein Peter’s stock price had fallen to
P20, thus requiring Peter to issue additional shares of stock to the former owners of Saul
Corporation. The entry for Peter Corporation on December 31, 20x5 to record such
occurrence such event to reassign the P750,000 original consideration to 37,500 shares
(30,000 original shares issued + 7,500* additional shares due to contingency) would be:
Paid-in capital for Contingent Consideration
Common stock, P10 par
Paid-in capital in excess of par
92,308
75,000
17,308
Settlement of contingent consideration.
* Deficiency: (P25 – P20) x 30,000 shares issued to acquire....P150,000
Divide by fair value per share on December 31, 20x5……P
Added number of shares to issue………………………………
Problem X
1.
Consideration transferred:
Shares: 2/3 x 60,000 x P3.20
Cash
Accounts payable
Mortgage and interest
7,500
20
128,000
45,100
44,000
Debentures and premium
Liquidation expenses
Cash held
Less: Fair value of assets and liabilities acquired:
Accounts receivable
Inventory
Freehold land
Buildings
Plant and equipment
Bargain Purchase Gain
52,500
2,400
144,000
(12,000)
132,000
260,000
P34,700
39,000
130,000
40,000
46,000 289,700
29,700
Homer Ltd
Accounts Receivable
Inventory
Freehold Land
Buildings
Plant and Equipment
Payable to Tan Ltd
Common stock, P1 par x 40,000 shares
Additional paid-in capital
Gain on acquisition
(Acquisition of net assets of
Tan Ltd and shares issued)
Payable to Tan Ltd
Cash
(Being payment of cash consideration)
Paid-in capital in excess of par
Cash
(Being costs of issuing shares)
34,700
39,000
130,000
40,000
46,000
132,000
40,000
88,000
29,700
132,000
132,000
1,200
1,200
2.
Tan LTD
General Ledger
Liquidation
P
34,700 Additional paid in capital
27,600 Retained earnings
100,000 Receivable from Homer Ltd
30,000
46,000
2,000
4,000
2,400
2,500
1,600
68,000
318,800
Accounts Receivable
Inventory
Freehold Land
Buildings
Plant and Equipment
Goodwill
Interest Payable
Liquidation Expenses
Premium on Debentures
Accounts Payable
Shareholders’ Distribution
Opening Balance
Receivable from Homer Ltd
Shares in Homer Ltd
Liquidator’s Cash
P
12,000 Liquidation Expenses
132,000 Mortgage and Interest
Debentures and Premium
Accounts Payable
144,000
Shareholders’ Distribution
P
128,000 Common stock
Liquidation
128,000
Problem XI
Cash
Accounts Receivable
Inventory
Land
Plant Assets
Discount on Bonds Payable
Goodwill*
Allowance for Uncollectible Accounts
Accounts Payable
Bonds Payable
Deferred Income Tax Liability
Cash
Consideration transferred
Less: Fair value of net assets acquired
P
26,800
32,000
260,000
318,800
P
2,400
44,000
52,500
45,100
144,000
P
60,000
68,0000
128,000
20,000
112,000
134,000
55,000
463,000
20,000
127,200
10,000
54,000
200,000
67,200
600,000
P600,000
(P784,000 – P10,000 – P54,000 – P180,000 - P67,200*)
Goodwill
* Increase in net assets
Increase inventory, land, and plantassets to fair value
P52,000 + P25,000 + P71,000)
Decrease bonds payable to fair value(20,000)
Increase in net assets
Establish deferred income tax liability(P168,000 x 40%)P67,200
472,800
P127,200
P148,000
P168,000
Multiple Choice Problems
1. c
Acquisition-related costs. Acquisition-related costs are costs the acquirer incurs to effect
a business combination. Those costs include finder’s fee; advisory, legal, accounting,
valuation and other professional or consulting fees; general administrative costs,
including the costs of maintaining an internal acquisitions department; and costs of
registering and issuing debt and equity securities. Under PFRS 3 (2008), the acquirer is
required to recognize acquisition-related costs as expenses in the periods in which the
costs are incurred and the services are received, with one exception, i.e. the costs to
issue debt or equity securities are recognized in accordance with PAS 32 (for equity) and
PAS 39 (for debt).
2. P2,240,000, No answer available
Consideration transferred : FMV of shares issued by Robin (80,000 sh ×P28) = P2,240,000
3. P520,000, no answer available
Considerationtrasnferred
Less: Fair value of Hope’s net assets (P2,720,000+P200,000–P1,200,000)
Goodwill
P2,240,000
1,720,000
P 520,000
4. c
Acquisition related-expenses
Accounts Receivable
Inventory
20,000
180,000
400,000
Land
Building
Equipment
Patent
CurrentLiabilities
Long-termDebt
Cash
Gain on Acquisition
50,000
60,000
70,000
20,000
70,000
160,000
520,000
50,000
Considerationtrasnsferred : Cash
P500,000
Less : Fair value of West’s net assets
(P180,000 + P400,000 + P50,000
+ P60,000 + P P70,000 + P20,000
– P70,000 - P160,000)
550,000
BargainPurchase Gain
(P50,000)
5.d
Accounts Receivable (net of P33,000 allowance)
Inventory
Land
Buildings and Equipment
Goodwill
Current Liabilities
Bonds Payable
Premium on Bonds Payable (P495,000 - P450,000)
Preferred Stock (15,000 x P100)
Common Stock (30,000 x P10)
PIC - par (P25 - P10) x 30,000
Cash
Consideration transferred: (P1,500,000 + P750,000 + P50,000)
Less: Fair value of net assets (198,000 + 330,000 + 550,000 +
1,144,000 – 275,000 – 495,000) =
Goodwill
198,000
330,000
550,000
1,144,000
848,000
275,000
450,000
45,000
1,500,000
300,000
450,000
50,000
P2,300,000
1,452,000
P 848,000
6.d
Current Assets
Plant and Equipment
Goodwill
Liabilities
Cash
960,000
1,440,000
336,000
216,000
2,160,00
0
360,000
Estimated Liability for Contingent Consideration
7.c
Cash
Receivables
Investments
Maintenance supplies
1,400
650
1,000
400
Flight equipment
International routes
Leases
Goodwill
12,000
500
800
450
Current liabilities
Long-term debt
Cash
3,200
6,000
8,000
8. c
The amount of the contingency is P500,000 (10,000 shares at P50 per share)
Goodwill
500,000
Paid-in-Capital for Contingent Consideration Issuable
500,000
9. c
Paid-in-Capital for Contingent Consideration – Issuable
500,000
Common Stock (P10 par)
Paid-In-Capital in Excess of Par
100,000
400,000
Platz Company does not adjust the original amount recorded as equity .
10.c
Accounts Receivable (net)
Inventory
Land
Buildings
Goodwill
Accounts Payable
Note Payable
Cash
Estimated Liability for Contingent Consideration
220,000
320,000
1,508,000
1,392,000
230,000
270,000
600,000
2,600,000
200,000
Consideration transferred (2,600,000 + 200,000)………………..P2,800,000
Fair value of net assets acquired(P3,440,000 – P870,000)……. 2,570,000
Goodwill………………………………………………………………...P230,000
Or, alternatively:
Accounts Receivable
Inventory
Land
Buildings
Goodwill
Allowance for Uncollectible Accounts
Accounts Payable
Note Payable
Cash
Consideration transferred
Fair value of net assets acquired
(P3,440,000 – P870,000)
240,000
320,000
1,508,000
1,392,000
30,000
P2,600,000
2,570,000
20,000
270,000
600,000
2,600,000
Goodwill
P
30,000
Goodwill
200,000
Estimated Liability for Contingent Consideration
1/1/20x6:
Estimated Liability for Contingent Consideration
Gain on Contingent Consideration
200,000
200,000
200,000
11. c
In accounting for the combination of NT and OTG, the fair value of the acquisition is allocated
to each identifiable asset and liability acquired with any remaining excess attributed to
goodwill.
Consideration transferred (shares issued)
Fair value of net assets acquired:
Cash
Receivables
Trademarks
Record music catalog
In-process R&D
Equipment
Accounts payable
Notes payable
Goodwill
Entry by NT to record combination with OTG:
Cash
Receivables
Trademarks
Record Music Catalog
Capitalized R&D
Equipment
Goodwill
Accounts Payable
Notes Payable
Common Stock (NewTune par value)
PIC - par
(To record merger with OTG at fair value)
PIC - par
Cash
(Stock issue costs incurred)
P750,000
P29,000
63,000
225,000
180,000
200,000
105,000
(34,000)
(45,000)
723,000
P27,000
29,000
63,000
225,000
180,000
200,000
105,000
27,000
25,000
34,000
45,000
60,000
690,000
25,000
Post-Combination Balance Sheet:
Assets
Cash
Receivables
Trademarks
Record music catalog
Capitalized R&D
Equipment
Goodwill
P
64,000
213,000
625,000
1,020,000
200,000
425,000
27,000
Liabilities and Owners’ Equity
Accounts payable
Notes payable
Total liabilities
Common stock
Paid-in capital - par
Retained earnings
P 144,000
___415,000
P 559,000
460,000
695,000
860,000
Total
P2,574,000
Total
P2,574,000
12. P559,000, no answer available – refer to No. 11
13. d – refer to No. 11
14.c – refer to No. 11
15.c – refer to No. 11
16. d
Correction: …completion goals by December 31, 20x5 not 20x4.
Entry to record the acquisition on Pacifica’s records:
Cash
Receivables and inventory
PPE
Trademarks
IPRD
85,000
180,000
600,000
200,000
100,000
Goodwill
Liabilities
Common Stock (50,000 xP5)
Paid-In Capital in excess of par (50,000 xP15)
Contingent performance obligation
77,500
180,000
250,000
750,000
62,500
The goodwill is computed as:
Consideration transferred: 50,000 shares x P20
Contingent consideration:
P130,000 payment x 50% probability x 0.961538
P1,000,000
62,500
Total
P1,062,500
Less: Fair value of net assets acquired
(P85,000 + P180,000 + P600,000 + P200,000
+ P100,000 - P180,000)
985,000
Goodwill
P 77,500
Acquisition related-expenses
Cash
PIC - par
Cash
15,000
15,000
9,000
9,000
Note: The following amounts will appear in the income statement and statement of retained
earnings after business combination:
PP Inc.
Revenues
(1,200,000)
Expenses (P875,000 + P15,000)
890,000
Net income
(310,000)
Retained earnings, 1/1
Net income
Dividends paid
Retained earnings, 12/31
* or, P1,185,000 – P15,000 = P1,170,000
(950,000)
(310,000)
90,000
*(1,170,000)
17. c – refer to No. 16 (P400,000 + P750,000 – P9,000 = P1,141,000)
18. d – refer to No. 16
19. b – refer to No. 16
20. b – refer to No. 16
21. d – refer to No. 16 [P77,500 + (P75,000 – P62,500)] = P90,000
22.b – refer to No. 16. It should be noted that goodwill can only be revised once, so, the goodwill
remains at P90,000, but the liability will be adjusted to P80,000, the entry would be
Loss on contingent consideration…………………………………. 5,000
Contingent performance obligation……………………….
5,000
23. a
10,000,000 x P5 x 0.20
15,000,000 x P5 x 0.10
17,500,000/(1.12)4
P 10,000,000
___7,500,000
P 17,500,000
P 11,121,566
24. a – at fair value
25. a
26.a – (P100,000 x ½ = P50,000 x 1/1.05) or P50,000 x 0.909091 = P45,454
27. c
Fair value of Subsidiary
Consideration transferred………………………………………………………P 200
million
Add: Fair value of contingent consideration………………………………
10 million
Fair value of subsidiary………………………………………………………… P 210
million
Less: Fair value of identifiable assets and liabilities of Homer...............… 116 million
Goodwill…………………………………………………………………………… P 94 million
Note: The consideration transferred should be compared with the fair value of the net
assets acquired, per PFRS3 par. 32. The contingent consideration should be measured
at its fair value at the acquisition date; any subsequent change in this cash liability
comes under PAS 39 Financial instruments: recognition and measurement and should
be recognized in profit or loss, even if it arises within the measurement period. See
PFRS3 pars. 39, 40 and 58.
28. b
29. b
30. d
P77,500,000 = P100,000,000 – (P1,500,000 + P35,000,000 + P2,000,000 + P10,000,000
+ P4,000,000 - P30,000,000).
31. b
P(12,500,000) = P10,000,000 – (P1,500,000 + P35,000,000 + P2,000,000 + P10,000,000
+ P4,000,000 - P30,000,000).
32. c
The correcting entry, within the measurement period, is:
Goodwill
Patents
2,000,000
The correcting entry, within the measurement period, is:
Gain on acquisition
Liabilities
2,000,000
2,000,000
33. a
2,000,000
34. c
Goodwill
400,000
Estimated lawsuit liability
400,000
35.b
Loss on lawsuit
400,000
Estimated lawsuit liability
400,000
36.b
Assets
570,000,000
Liabilities
100,000,00
0
400,000,00
0
50,000,000
20,000,000
Capital stock
Cash
PIC-stock contingency
37. b - P350,000,000 – (P12 x 25,000,000) = P50,000,000/P12 = 4,166,667 additional shares
38. c
The contingency was originally recorded in equity at the amount of P20,000,000. However,
changes in the value of stock price contingencies do not affect the acquisition price or
income. Any changes in value are adjustments in equity.
PIC- stock contingency
PIC-other
20,000,000
30,000,000
Common stock
50,000,000
39. b
40. c
41. c
42. b – [(P47 x 12,000 shares) – (P70,000 + P210,000 + P240,000 + P270,000 + P90,000 –
P420,000)
= P104,000
43. d
APIC: P20,000 + [(P42 – P5) x12,000 = P464,000
Retained earnings: P160,000, parent only
44. b
Inventory: PP230,000 + P210,000 = P440,000
Land: P280,000 + P240,000 = P520,000
45. b – [P480,000 – (P70,000 + P210,000 + P240,000 + P270,000 + P90,000 – P420,000)] =
P20,000
46. c
AA records new shares at fair value
Value of shares issued (51,000 × P3) ...............................................................
Par value of shares issued (51,000 × P1).........................................................
Additional paid-in capital (new shares) .......................................................
Additional paid-in capital (existing shares) ..................................................
Consolidated additional paid-in capital .......................................................
P153,000
51,000
P102,000
90,000
P192,000
At the date of acquisition, the parent makes no change to retained earnings.
47. a – at fair value
48. c
Depreciation expense:
Building, at book value (P200,000 – P100,000) / 10 years
P 10,000
Building, undervaluation (P130,000, fair value
– P100,000, book value) / 10 years3,000
Equipment, at book value (P100,000 – P50,000) / 5 years 10,000
Equipment, undervaluation (P75,000, fair value
- P50,000, book value) / 5 years 5,000
Total depreciation expense= P 28,000
49. c - [(24,000 shares x P30) – P686,400] = P33,600
50. d - [(24,000 shares x P30) – (P270,000 + P726,000 – P168,000)] = P108,000, gain
51. c
A bargain purchase is a business combination in which the net fair value of the identifiable
assets acquired and liabilities assumed exceeds the aggregate of the consideration
transferred.
It should be noted that bargain purchase gain would arise only in exceptional
circumstances. Therefore, before determining that gain has arisen, the acquirer has to:
1. Reassess whether it has correctly identified all of the assets acquired and all of the
liabilities assumed. The acquirer should recognize any additional assets or liabilities
that are identified in that review.
2. Any balance should be recognized immediately in profit or loss.
52. b – no valuation to be recorded in the books of the acquirer
Cost
P180,000
Less: Accumulated depreciation (P180,000/30 years = P6,000/year x 3 yrs 18,000
Net book value
P162,000
53. c
Net Assets [P100,000 + P50,000 + P162,000 (No. 54)]
P312,000
Less: Shares issued at par (15,000 shares x P10 par)
APIC
150,000
P162,000
Or: since, there is no excess, the P312,000 represents the amount of consideration
transferred, therefore the APIC should be P162,000 [P312,000 / 15,000 shares = P20,80 – P15
= P10.80 x 15,000 shares)
54. c
The consideration transferred should be compared with the fair value of the net assets
acquired, per PFRS3 par. 32. The gain of P8 million results from a bargain purchase and
should be recognized in profit or loss, per PFRS3 par. 34.
55. c
Consideration transferred:
Shares: 2/3 x 60,000 x P3.20
Cash
Accounts payable
Mortgage and interest
Debentures and premium
Liquidation expenses
Cash held
Less: Fair value of assets and liabilities acquired:
Accounts receivable
Inventory
Freehold land
Buildings
Plant and equipment
Bargain Purchase Gain
128,000
45,100
44,000
52,500
2,400
144,000
(12,000)
132,000
260,000
P34,700
39,000
130,000
40,000
46,000289,700
29,700
56. d
PFRS 3 (2008) par. 18 requires an identifiable assets and liabilities assumed are
measured at their acquisition-date fair values.
57.c
Selling price
Less: Book value of Comb (P50,000 + P80,000 + P40,000
- P30,000)
Loss on sale of business by the acquiree (Comb)
58. d
P215,000
59. b
P23,000
60
.
c
P1,109,00
0
P 110,000
140,000
P( 30,000)
= P130,000 + P85,000
= P198,000 – (P405,000 - P265,000 + P15,000 +
P20,000)
= Total Assets of TT Corp.
P 844,000
Less: Investment in SS Corp.
Book value of assets of TT Corp.
Book value of assets of SS Corp.
Total book value
Payment in excess of book value
(P198,000 - P140,000)
Total assets reported
(198,000)
P 646,000
405,000
P1,051,000
58,000
P1,109,000
61 c
.
P701,500
= (P61,500 + P95,000 + P280,000) + (P28,000 +
P37,000
+P200,000)
62 d
.
P257,500
= The amount reported by TT Corporation
63 a
.
P407,500
= The amount reported by TT Corporation
64. c
Par value of shares outstanding before issuance
Par value of shares outstanding after issuance
Par value of additional shares issued
Divided by: No. of shares issued*
Par value of common stock
P200,000
250,000
P 50,000
__12,500
P
4
*Paid-in capital before issuance (P200,000 + P350,000)
P 550,000
Paid-in capital after issuance (P250,000 + P550,00)800,000
Paid-in capital of share issued at the time of exchangeP250,000
Divided by: Fair value per share of stockP
20
Shares issued
12,500
65. a
Consideration transferred: Shares – 12,500 shares P250,000
Less: Goodwill
56,000
Fair value of identifiable net assets acquiredP194,000
66. a –
Blue Town:
Stockholders’ equity before issuance of shares (P700,000 + P980,000) P1,680,000
Issued shares: 34,000 shares x P35
1,190,000
Consolidated SHE/Net Assets
P2,870,000
67. d
68. c
Common stock – combined…………………………………………………………P
160,000
Common – Acquirer Zyxel………………………………….. …………………….…
100,000
Common stock issued………………………………………………………………...P
60,000
Divided by: Par value of common stock………………………………………….P
2
Number of Zyxel shares to acquire Globe Tattoo………………………….....… 30,000
69. d
Paid-in capital books of Zyxel (P100,000 + P65,000)………………………........P
165,000
Paid-in capital in the combined balance sheet
(P160,000 + P245,000)…………………………………………………….…
405,000
Paid-in capital from the shares issued to acquire Globe Tattoo…………... P 240,000
Divided by: No. of shares issued (No. 31)……………………………………..... 30,000
Fair value per share when stock was issued………………………………….... P
8
Or,
Par value of common stock of Zyxel………………………………………
P
Add: Share premium/APIC per share from the additional
issuance of shares (P245,000 – P65,000)/30,000…………............ 6
Fair value per share when stock was issued……………………………....... P
2
8
70.b
Net identifiable assets of Zyxel before acquisition:
(P65,000 + P72,000 + P33,000 + P400,000 – P50,000
- P250,000)…………………………………………………………………….
P270,000
Net identifiable assets in the combined balance sheet:
(P90,000 + P94,000 + P88,000 + P650,000 – P75,000 - P350,000)…..........
497,000
Fair value of the net identifiable assets held by Globe Tattoo
at the date of acquisition..…………………………………………………….. P227,000
71. a
Consideration transferred (30,000 shares x P8)………………………………… P240,000
Less: Fair value of net identifiable assets acquired (No. 49)………………....
227,000
Goodwill……………………………………………………………………………….. P
13,000
72. c
Retained earnings:
Acquirer – Zyxel (at book value)………………………………………....
P105,000
Acquiree– Globe Tattoo (not acquired)………………………………
__ 0
P105,000
It should be noted that, there was no bargain purchase gain and acquisition-related costs
which may affect retained earnings on the acquisition date.
73. a
II ____
P 46,080
Average annual earnings
Divided by: Capitalized at
Total stock to be issued
Less: Net Assets (for P/S)
Goodwill (for Common Stock)
Preferred stock (same with Net Assets):
864,000/P100 par
_____JJ
_
____Total____
P 69,120 P 115,200
_10%
P1,152,000
864,000
P 288,000
8,640 shares
Theories
1.
True
21.
False
41.
True
61.
c
81.
b
101.
c
121
a
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
False
True
True
False
True
False
True
True
True
True
True
False
False
False
True
False
True
True
False
22.
23.
24.
25,
26.
27.
28.
29.
30,
31.
32.
33.
34.
35.
36.
37.
38.
39.
40,
True
False
True
True
False
True
False
True
True
False
True
True
False
True
True
False
True
False
False
42.
43.
44.
45,
46.
47.
48.
49.
50,
51.
52.
53.
54.
55.
56.
57.
58.
59.
60,
False
a
c
b
b
d
c
c
b
a
b
c
a
c
b
a
c
a
c
62.
63.
64.
65,
66.
67.
68.
69.
70,
71.
72.
73.
74.
75.
76.
77.
78.
79.
80,
b
c
d
d
a
a
d
a
b
c
A
c
c
a
d
a
d
b
c
82.
83.
84.
85.
86.
87.
88.
89.
90,
91.
92.
93.
94.
95.
96.
97.
98.
99.
100,
a
d
a
c
d
c
a
c
d
b
a
C
B
D
A
A
c
d
d
102.
103.
104.
105.
106.
107.
108.
109.
110,
111.
112.
113.
114.
115.
116.
117.
118.
119.
120.
d
d
d
c
d
d
d
b
c
c
c
a
d
d
c
b
b
b
a
122.
123.
124.
125.
126.
127.
b
b
c
b
c
c
Note for the following numbers:
2.
A horizontal combination occurs when management attempts to dominate an industry.
5.
A vertical combination exists when an entity purchases another entity that could have a
buyer-seller relationship with the acquirer. The combination described here is a
horizontal combination.
7.
A conglomerate combination is one where an unrelated or tangentially related business
is acquired. A vertical combination occurs when a supplier is acquired.
13. Greenmail is the payment of a price above market value to acquire stock back from a potential acquirer.
15. The sale of the crown jewels results when a target sells assets that would be particularly valuable to the potential acquirer.
The scorched earth defense results when a target generally sells large amounts of assets without regard to the
specific desirability to the potential acquirer.
17. Golden parachutes are generally given only to top executives of the acquiree.
20. Control over the net assets of an entity can be accomplished by purchasing the net assets or by purchasing the acquiree
voting common stock that represents ownership of the assets.
21. The amount of cash will always equal the net assets recorded by the acquirer. As a result, the acquirer book value will not
change due to an acquisition.
23. There is no exchange of stock in an asset for asset acquisition so there cannot be a change in ownership structure of
either entity.
26.
28.
31.
34.
37.
39.
The acquiree corporation becomes an acquirer stockholder, not the acquiree
stockholders.
A combination that results in one of the original entities in existence after the
combination is a statutory merger.
The combination results in the stockholders of one entity controlling the other entity.
The Retained Earnings of the entity acquiring control is carried forward to the newly
formed corporation.
The stock of the acquiree company must be purchased by the acquirer, but the value
transferred to the acquiree stockholders does not have to be in stock. Payment may be
in another asset or the issuance of debt.
The consideration to be given by the acquirer is sometimes not completely known
because the consideration is based partially on acquiree future earnings or the market
value of acquirer debt or stock.
Any change in the number of shares of acquirer stock given returns the purchase price
to the agreed level. The adjustment is to stock and additional paid-in capital. The
investment account is unchanged.
40.
42.
The acquiree stockholders must continue to have an indirect ownership interest in the
acquiree net assets. Preferred stock or a nonvoting class of stock qualifies as an
indirect ownership as well as voting common stock.
A net operating loss carryforward cannot be acquired. They are only available to the
acquirer if the combination qualifies as a nontaxable exchange.
Chapter 15
Problem I
Investment in Shy Inc. [P2,500,000 + (15,000  P40)]
Cash
Common Stock
Paid in capital in excess of par (P40 - P2)  15,000
3,100,000
Paid in capital in excess of par
30,000
Acquisition Expense
Deferred Acquisition Charges
Acquisition Costs Payable
67,000
2,500,000
30,000
570,000
90,000
7,000
Problem II
Cash consideration transferred
Contingent performance obligation
Fair value of Subsidiary
Less: Book value of SS Company (P90,000 + P100,000)
Allocated excess
Less: Over/under valuation of assets and liabilities:
Increase in building: P40,000 x 100%
Increase in customer list: P22,000 x 100%
Increase in R&D: P30,000 x 100%
Goodwill
Investment in SS Company
Cash
Estimated Liability on Contingent Consideration
Acquisition Expense (or Retained earnings)
Cash
P 300,000
__15,000
P 315,000
190,000
P125,000
P 40,000
22,000
30,000
__92,000
P 33,000
315,000
10,000
300,000
15,000
10,000
Not Required: The working paper eliminating entry on the date of acquisition, 6/30/20x4
be:
Receivables
Inventory
Buildings
Equipment
Customer list
Capitalized R&D
Goodwill
Current liabilities
80,000
70,000
115,000
25,000
22,000
30,000
33,000
10,000
would
Long-term liabilities
Investment in SS Company
50,000
315,000
Problem III
Case 1:
Proportionate Basis (Partial-goodwill Approach)
 Partial-goodwill
Fair value of subsidiary (80%):
Consideration transferred: Cash……………………….......P12,000,000 (80%)
Less: Book value of stockholders’ equity (net assets)
– S Company: P7,200,000 x 80%......................................
5,760,000 (80%)
Allocated excess.……………………………………………….......P 6,240,000 (80%)
Less: Over/undervaluation of assets and liabilities:
(P9,600,000 – P7,200,000) x 80%........................................... 1,920,000 (80%)
Positive excess: Goodwill (partial)…………………………….... P 4,320,000 (80%)

Non-controlling interest
Book Value of stockholders’ equity of subsidiary………….
P 7,200,000
Adjustments to reflect fair value (over/ undervaluation
of assets and liabilities): (P9,600,000 – P7,200,000)…..
2,400,000
Fair value of stockholders’ equity of subsidiary……………
P 9,600,000
Multiplied by: Non-controlling interest percentage............
20%
Non-controlling Interest (partial)……………………………….. P1,920,000
Fair Value Basis (Full-goodwill Approach)
 Full-goodwill
Fair value of subsidiary (100%):
Consideration transferred: Cash (P12,000,000 / 80%).. P 15,000,000 (100%)
Less: Book value of stockholders’ equity (net assets)
– S Company: P7,200,000 x 100%..............................
7,200,000 (100%)
Allocated excess.………………………………………………..
P 7,800,000 (100%)
Less: Over/Undervaluation of assets and liabilities:
(P9,600,000 – P7,200,000) x 100%....................................
2,400,000 (100%)
Positive excess: Goodwill (full)………………………………........P 5,400,000 (100%)
The full – goodwill of P5,400,000 consists of two parts:
Full-goodwill……………………………………………....... P 5,400,000
Less: Controlling interest on full-goodwill
or partial-goodwill…………………………….….
4,320,000
NCI on full-goodwill…………………………………….......P 1,080,000

Non-controlling interest
Non-controlling interest (partial)……………………………….......P1,920,000
Add: Non-controlling interest on full -goodwill
(P5,400,000 – P4,320,000 partial-goodwill) or
(P5,400,000 x 20%)*…………………………………...... 1,080,000
Non-controlling interest (full)…………………………………........ P3,000,000
* applicable only when the fair value of the non-controlling interest of subsidiary is not given.
Case 2:
Proportionate Basis (Partial-goodwill Approach)
 Partial-goodwill
Fair value of subsidiary (60%):
Consideration transferred: Cash……………………….....P 7,560,000 (60%)
Less: Book value of stockholders’ equity (net assets)
– S Company: P6,000,000 x 60%................................
3,600,000 (60%)
Allocated Excess.……………………………………………….... P 3,960,000 (60%)
Less: Over/undervaluation of assets and liabilities:
(P8,400,000 – P6,000,000) x 60%......................................
1,440,000 (60%)
Positive excess: Goodwill (partial)……………………………....P 2,520,000 (60%)

Non-controlling interest
Book value of stockholders’ equity of subsidiary…………. P 6,000,000
Adjustments to reflect fair value (over/ undervaluation
of assets and liabilities): (P8,400,000 – P6,000,000)…. 2,400,000
Fair value of stockholders’ equity of subsidiary…………….P 8,400,000
Multiplied by: Non-controlling Interest percentage.............
40%
Non-controlling interest (partial)……………………………….P 3,360,000
Fair Value Basis (Full-goodwill Approach)
 Full-goodwill
Fair value of subsidiary (100%):
Consideration transferred: Cash ………………………...P 7,560,000 ( 60%)
Fair value of NCI (given)…………………………………..
4,800,000 ( 40%)
Fair value of subsidiary…………………………………………...P12,360,000 (100%)
Less: Book value of stockholders’ equity (net assets)
– S Company: P6,000,000 x 100%...........................
6,000,000 (100%)
Allocated Excess.…………………………………………………..P 6,360,000 (100%)
Less: Over/undervaluation of assets and liabilities:
(P8,400,000 – P6,000,000) x 100%..................................
2,400,000 (100%)
Positive excess: Goodwill (full)………………………………......P 3,960,000 (100%)
The full – goodwill of P3,960,000 consists of two parts:
Full-goodwill……………………………………………...P 3,960,000
Less: Controlling interest on full-goodwill
or partial-goodwill…………………………….
2,520,000
NCI on full-goodwill……………………………………..P 1,440,000

Non-controlling interest
Non-controlling interest (partial)………………………………P 3,360,000
Add: Non-controlling interest on full -goodwill
(P3,960,000 – P2,520,000 partial-goodwill)………….. 1,440,000
Non-controlling Interest (full)…………………………………..P 4,800,000
Case 3;
Proportionate Basis (Partial-goodwill Approach)
 Partial-goodwill
Fair value of subsidiary (75%):
Consideration transferred: Cash………………………..P 9,000,000 (75%)
Less: Book value of stockholders’ equity (net assets)
– S Company: P7,200,000 x 75%.............................
5,400,000 (75%)
Allocated Excess.………………………………………………...P 3,600,000 (75%)
Less: Over/undervaluation of assets and liabilities:
(P9,600,000 – P7,200,000) x 75%..................................... 1,800,000 (75%)
Positive excess: Goodwill (partial)…………………………….P 1,800,000 (75%)

Non-controlling interest
Book value of stockholders’ equity of subsidiary…………..P 7,200,000
Adjustments to reflect fair value (over/ undervaluation
of assets and liabilities): (P9,600,000 – P7,200,000)…. 2,400,000
Fair value of stockholders’ equity of subsidiary……………P 9,600,000
Multiplied by: Non-controlling Interest percentage..............
25%
Non-controlling interest (partial)……………………………….P 2,400,000
Fair Value Basis (Full-goodwill Approach)
 Full-goodwill
Fair value of subsidiary…………………………………………. P 11,640,000 (100%)
Less: Book value of stockholders’ equity (net assets)
– S Company: P7,200,000 x 100%...............................
7,200,000 (100%)
Allocated Excess.………………………………………………….P 4,440,000 (100%)
Less: Over/undervaluation of assets and liabilities:
(P9,600,000 – P7,200,000) x 100%..................................
2,400,000 (100%)
Positive excess: Goodwill (full)……………………………….....P 2,040,000 (100%)
The full – goodwill of P2,040,000 consists of two parts:
Full-goodwill……………………………………………...P 2,040,000
Less: Controlling interest on full-goodwill
or partial-goodwill…………………………….... 1,800,000
NCI on full-goodwill……………………………………. .P 240,000

Non-controlling interest
Non-controlling interest (partial)………………………………P 2,400,000
Add: Non-controlling interest on full -goodwill
(P2,040,000 – P1,800,000 partial-goodwill)…..…….... . 240,000
Non-controlling Interest (full)…………………………………..P 2,640,000
Case 4:
Proportionate Basis (Partial-goodwill Approach)
 Partial-goodwill
Fair value of subsidiary (75%):
Consideration transferred: Cash………………………..P 2,592,000 (60%)
Fair value of previously held equity interest
in acquiree P2,592,000/60% = P4,320,000 x 15%......... 648,000 . (15%)
Fair value of Subsidiary ..………………………………………. P 3,240,000 (75%)
Less: Book value of stockholders’ equity (net assets)
– S Company: (P4,680,000 – P2,280,000) x 75%.......... 1,800,000 .(75%)
Allocated Excess.………………………………………………....P 1,440,000 (75%)
Less: Over/undervaluation of assets and liabilities:
[(P6,120,000 – P2,280,000) –
(P4,680,000 – P2,280,000)] x 75%..................................... 1,080,000 (75%)
Positive excess: Goodwill (partial)……………………………...P 360,000 (75%)

Non-controlling interest
Book value of stockholders’ equity of subsidiary…………..P 2,400,000
Adjustments to reflect fair value (over/ undervaluation
of assets and liabilities): (P3,840,000 – P2,400,000)…. 1,440,000
Fair value of stockholders’ equity of subsidiary……………P 3,840,000
Multiplied by: Non-controlling Interest percentage............
25%
Non-controlling interest (partial)………………………………P 960,000
Fair Value Basis (Full-goodwill Approach)
 Full-goodwill
Fair value of subsidiary (100%):
Consideration transferred: Cash………………………..P 2,592,000 (60%)
Fair value of previously held equity interest
in acquiree P2,592,000/60% = P4,320,000 x 15%......
648,000 (15%)
Fair value of NCI (given)…………………………………. 1,080,000 (25%)
Fair value of subsidiary………………………………………….P 4,320,000 (100%)
Less: Book value of stockholders’ equity (net assets)
– S Company: P2,400,000 x 100%.................................... 2,400,000 (100%)
Allocated Excess.…………………………………………………P 1,920,000 (100%)
Less: Over/undervaluation of assets and liabilities:
(P3,840,000 – P2,400,000) x 100%................................ …..1,440,000 (100%)
Positive excess: Goodwill (full)…………………………………..P 480,000 (100%)
The full – goodwill of P480,000 consists of two parts:
Full-goodwill……………………………………………...P 480,000
Less: Controlling interest on full-goodwill
or partial-goodwill…………………………….…... 360,000
NCI on full-goodwill……………………………………..P. 120,000

Non-controlling interest
Non-controlling interest (partial)………………………………P 960,000
Add: Non-controlling interest on full -goodwill
(P480,000 – P360,000 partial-goodwill)…..…………....... 120,000
Non-controlling Interest (full)……………………………………P 1,080,000
Problem IV
 Partial-goodwill (Proportionate Basis)
Fair value of subsidiary (75%):
Consideration transferred: Cash………………………..
Less: Book value of stockholders’ equity
(net assets) – S Company:
(P480,000 – P228,000) x 75%.......................................
Allocated excess………………………………………………...
Less: Over/undervaluation of assets and liabilities:
[(P612,000 – P228,000) – (P480,000 – P228,000) x 75%
Negative excess: Bargain purchase gain (to controlling
interest or attributable to parent only)……………….

Full-goodwill (Fair Value Basis)
Fair value of subsidiary (100%):
Consideration transferred: Cash………………………..
Fair value of non-controlling interest (given)…………
Fair value of subsidiary …………………………………………
Less: Book value of stockholders’ equity
(net assets) – S Company:
(P480,000 – P228,000) x 100%.....................................
Allocated excess………………………………………………...
Less: Over/undervaluation of assets and liabilities:
[(P612,000 – P228,000) – (P480,000 – P228,000) x 100%
Negative excess: Bargain purchase gain (to controlling
interest or attributable to parent only)……………….
Problem V
1.
A.
Investment in Sewell
Cash
B.
Investment in Sewell
675,000
675,000
P270,000 (75%)
189,000 (75%)
P 81,000 (75%)
99,000 (75%)
(P18,000) (75%)
P270,000 ( 75%)
98,400 ( 25%)
P368,400 (100%)
252,000 (100%)
P116,400 (100%)
132,000 (100%)
(P15,600) (100%)
675,000
C.
2.
Cash
Investment in Sewell
Cash
318,000
675,000
318,000
A.
Fair value of Subsidiary:
Consideration transferred
Less: BV of SHE of S (P450,000 + P180,000 + P75,000)x100%
Allocated excess
Less: Over/under valuation of A and L: Inc. (Dec.)
Inventory (P30,000 – P20,000) x 100%
Land (P50,000 – P70,000) x 100%
Bargain Purchase Gain – full
B.
C.
Partial Goodwill
Fair value of Subsidiary:
Consideration transferred
Less: BV of SHE of S (P450,000 + P180,000 + P75,000) x 90%
Allocated excess
Less: Over/under valuation of A and L: Inc. (Dec.)
Inventory (P30,000 – P20,000) x 90%
Land (P50,000 – P70,000) x 90%
Goodwill – partial
Full-Goodwill
Fair value of Subsidiary:
Consideration transferred (P675,000/90%)
Less: BV of SHE of S (P450,000 + P180,000 + P75,000)x100%
Allocated excess
Less: Over/under valuation of A and L: Inc. (Dec.)
Inventory (P30,000 – P20,000) x 100%
Land (P50,000 – P70,000) x 100%
Goodwill – full
Partial Goodwill
Fair value of Subsidiary:
Consideration transferred
Less: BV of SHE of S (P620,000 + P140,000 + P20,000) x 80%
Allocated excess
Less: Over/under valuation of A and L: Inc. (Dec.)
Inventory (P30,000 – P20,000) x 80%
Land (P50,000 – P70,000) x 80%
Bargain Purchase Gain – partial (parent only)
P675,000
705,000
P( 30,000)
(P10,000)
__20,000
P675,000
634,500
P 40,500
(P9,000)
__18,000
__9,000
P 31,500
P750,000
705,000
P 45,000
(P10,000)
__20,000
__10,000
P 35,000
P318,000
624,000
(P306,000)
(P 8,000)
__16,000
Full-Goodwill
Fair value of Subsidiary:
Consideration transferred
FV of NCI*
Less: BV of SHE of S (P620,000 + P140,000 + P20,000) x 100%
Allocated excess
Less: Over/under valuation of A and L: Inc. (Dec.)
Inventory (P30,000 – P20,000) x 100%
__10,000
(P 40,000)
__8,000
(P314,000)
P 318,000
_158,000
P 476,000
780,000
(P304,000)
(P10,000)
3.
Land (P50,000 – P70,000) x 100%
Bargain Purchase Gain – full (parent only)
*BV of SHE of S
Adjustments to reflect fair value
FV of SHE of S
x: NCI%
FV of NCI
A.
B.
Common Stock – Sewell
Paid in capital in excess of par – Sewell
Retained Earnings – Sewell
Land
Inventory
Investment in Sewell
Retained earnings (gain) – Parent (since
balance sheet accounts are being
examined)
__20,000
P780,000
10,000
P790,000
20%
P158,000
450,000
180,000
75,000
20,000
Partial-Goodwill (Proportionate Basis)
Common Stock – Sewell
450,000
Paid in capital in excess of par – Sewell
180,000
Retained Earnings – Sewell
75,000
Land
20,000
Goodwill
31,500
Inventory
Investment in Sewell
Non-controlling Interest
BV – SHE of Sewell
(P450,000 + P180,000 + P75,000) P705,000
Adjustments to reflect fair value
10,000
FV of SHE of Sewell
P715,000
x: NCI%
10%
FV of NCI (partial)
P 71,500
C.
_10,000
(P314,000)
Full-Goodwill (Fair Value Basis)
Common Stock – Sewell
450,000
Paid in capital in excess of par – Sewell
180,000
Retained Earnings – Sewell
75,000
Land
20,000
Goodwill
35,000
Inventory
Investment in Sewell
Non-controlling Interest
BV – SHE of Sewell
(P450,000 + P180,000 + P75,000) P705,000
Adjustments to reflect fair value
10,000
FV of SHE of Sewell
P715,000
x: NCI%
10%
FV of NCI (partial)
P 71,500
NCI on Full-Goodwill
(P35,000 – P31,500)
3,500
FV of NCI (full)
P 75,000
10,000
675,000
40,000
10,000
675,000
71,500
10,000
675,000
75,000
Partial-Goodwill (Proportionate Basis)
Common Stock – Sewell
620,000
Paid in capital in excess of par – Sewell
140,000
Retained Earnings – Sewell
20,000
Land
20,000
Inventory
Investment in Sewell
Retained earnings (gain)–Parent (refer to 3A)
Non-controlling Interest
BV – SHE of Sewell
(P620,000 + P140,000 + P20,000) P780,000
Adjustments to reflect fair value
10,000
FV of SHE of Sewell
P790,000
x: NCI%
20%
FV of NCI (partial)
P158,000
10,000
318,000
314,000
158,000
Full-Goodwill (Fair Value Basis)
Common Stock – Sewell
620,000
Paid in capital in excess of par – Sewell
140,000
Retained Earnings – Sewell
20,000
Land
20,000
Inventory
Investment in Sewell
Retained earnings (gain)–Parent (refer to 3A)
Non-controlling Interest
10,000
318,000
314,000
158,000
BV – SHE of Sewell
(P620,000 + P140,000 + P20,000) P780,000
Adjustments to reflect fair value
10,000
FV of SHE of Sewell
P790,000
x: NCI%
20%
FV of NCI (full)
P158,000
Problem VI
1.
January 1, 20x4
Investment in S
Company……………………………………………
2.
408,00
0
408,00
0
Cash…………………………………………………………………
…..
Schedule of Determination and Allocation of Excess
Date of Acquisition – January 1, 20x4
Fair value of Subsidiary (100%)
Consideration
transferred………………………………..
Less: Book value of stockholders’ equity of S:
Common stock (P240,000 x
100%)…………………..
Paid-in capital in excess of par (P24,000 x
100%)...
P
408,000
P 240,000
24,000
Retained earnings (P96,000 x
100%)………………...
Allocated excess (excess of cost over book
value)……
Less: Over/under valuation of assets and
liabilities:
Increase in inventory (P18,000 x
100%)……………..
Increase in land (P72,000 x
100%)……………………
Decrease in buildings and equipment
(P12,000 x
100%)……………………………………...
Increase in bonds payable (P42,000 x
100%)……..
Positive excess: Goodwill (excess of cost over fair
96,000 360,000
P
48,000
P 18,000
72,000
( 12,000)
36,000
( 42,000)
P
12,000
value)……………………………………………………..
(E1) Common stock – S Co…………………………………………
Additional paid-in capital – S Co……………………………
Retained earnings – S Co……………………………………
Investment in S Co………………………………………
Eliminate investment against stockholders’ equity of S
Co.
240,000
24,000
96.000
(E2) Inventory………………………………………………………….
Land………………………………………………………………
Goodwill………………………………………………………….
Buildings and equipment………………………………
Premium on bonds payable………………………………
Investment in S Co…………………………………………
18,000
72,000
12,000
360,000
12,000
42,000
48,000
Eliminate investment against allocated excess.
4.
Eliminations
Assets
P Co.
S Co.
12,000
P 60,000
90,000
60,000
Inventory………………….
120,000
72,000
(2) 18,000
210,000
Land…………………………….
210,000
48,000
(2) 72,000
330,000
Buildings and equipment (net)
480,000
360,000
Cash*………………………….
Accounts receivable……..
Goodwill……………………
Investment in S Co………….
Total Assets
P
Dr.
Cr.
P
72,000
150,000
(2)
12,000
(2) 12,000
408,000
Consolidated
828,000
12,000
(1) 360,000
(2) 48,000
-
P1,320,000
P600,000
P1,602,000
Accounts payable……………
P 120,000
P120,000
P 240,000
Bonds payable…………………
240,000
120,000
360,000
Liabilities and Stockholders’ Equity
Premium on bonds payable
Common stock, P10 par………
(3)
600,000
240,000
(1) 240,000
60,000
Paid in capital in excess of par.
Retained earnings……………
42,000
600,000
Common stock, P10 par………
Paid in capital in excess of par.
42,000
60,000
24,000
(1) 24,000
300,000
Retained earnings……………
_________
96,000
Total Liabilities and Stockholders’
Equity
P1,320,000
P600,000
(1) Eliminate investment against stockholders’ equity of S Co.
(2) Eliminate investment against allocated excess.
* P420,000 – P408,000 = P12,000.
300,000
(1) 96,000
__________
_________
P 462,000
P 462,000
P1,602,000
5.
Assets
Cash
Accounts receivables
Inventories
Land
Buildings and equipment (net)
Goodwill
Total Assets
Liabilities and Stockholders’ Equity
Liabilities
Accounts payable
Bonds payable
Premium on bonds payable
Total Liabilities
Stockholders’ Equity
Common stock, P10 par
Paid-in capital in excess of par
Retained earnings
Total Stockholders’ Equity
Total Liabilities and Stockholders’ Equity
P
72,000
150,000
210,000
330,000
828,000
12,000
P1,602,000
P 240,000
P 360,000
42,000
402,000
P 642,000
P 600,000
60,000
300,000
P 960,000
P1,602,000
Problem VII
Partial-goodwill Approach
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
Sky:
Common stock (P240,000 x
80%)…………………….
Paid-in capital in excess of par (P96,000
x 80%)....
Retained earnings (P24,000 x
80%)………………....
Allocated excess (excess of cost over book
value)…..
Less: Over/under valuation of assets and
liabilities:
P
360,000
P 192,000
76,800
19,200 288,000
P
72,000
Increase in inventory (P18,000 x
80%)………………
Increase in land (P72,000 x
80%)…………………….
Decrease in buildings and equipment
(P12,000 x
80%)…………………………………….....
Increase in bonds payable (P42,000 x
80%)……….
Positive excess: Partial-goodwill (excess of
cost over
fair
value)………………………………………………...
P 14,400
57,600
(
9,600)
( 33,600)
28,800
P
43,200
The over/under valuation of assets and liabilities are summarized as follows:
Sky Co.
Book
value
Inventory………………….……………..
72,000
Land………………………………………
48,000
Buildings and equipment (net).........
360,000
Bonds payable………………………… (120,000)
Net………………………………………..
360,000
Sky
Over/
Co.
Under
Fair
Valuation
value
90,000
18,000
120,000
72,000
348,000
( 12,000)
(162,000)
42,000
396,000
36,000
The buildings and equipment will be further analyzed for consolidation purposes as follows:
Buildings and
equipment ..................
Less: Accumulated
depreciation…..
Net book
value………………………...
Sky Co.
Book value
Sky Co.
Fair value
720,000
348,000
( 372,000)
360,000
-
( 360,000)
360,000
348,000
(Decrease)
(
12,000)
The following entry on the date of acquisition in the books of Parent Company:
January 1, 20x4
(1) Investment in Sky
Company……………………………………………
360,00
0
360,00
0
Cash……………………………………………………………………
..
Acquisition of Sky Company.
(2) Retained earnings (acquisition-related expense - close
to
14,400
retained earnings since only balance sheets are
being
examined)……………………………………………………………
14,400
Cash……………………………………………………………………
.
Acquisition- related costs.
The schedule of determination and allocation of excess provides complete guidance for the
worksheet eliminating entries on January 1, 20x4:
(E1) Common stock – Sky
Co……………………………………………….
Additional paid-in capital – Sky
Co………………………………….
Retained earnings – Sky
Co…………………………………………...
Investment in Sky
Co…………………………………………………
Non-controlling interest (P300,000 x
20%)………………………..
240,000
24,000
96,000
288,000
72,000
Eliminate investment against stockholders’ equity of Sky Co.
(E2)
Inventory………………………………………………………………
….
Accumulated
depreciation………………………………………….
18,000
360,00
0
72,000
Land……………………………………………………………………
….
43,200
Goodwill………………………………………………………………
….
Buildings and
equipment…………………………………………..
Premium on bonds
payable………………………………………
Non-controlling interest (P30,000 x
20%)………………………..
Investment in Sky
Co………………………………………………..
372,00
0
42,000
7,200
72,000
Worksheet for Consolidated balance Sheet, January 1, 20x4. Date of Acquisition: 80%-Owned
Subsidiary (Partial-goodwill)
Eliminations
Assets
Cash*………………………….
P
Peer Co.
Sky Co.
45,600
P 60,000
Dr.
Cr.
Consolidated
P
105,600
Accounts receivable……..
90,000
60,000
150,000
Inventory………………….
120,000
72,000
(2) 18,000
210,000
Land…………………………….
210,000
48,000
(2) 72,000
330,000
Buildings and equipment
960,000
720,000
Goodwill……………………
Investment in Sky Co………….
360,000
(2) 372,000
1,308,000
(2) 43,200
Total Assets
43,200
(1) 288,000
(2) 72,000
P1,785,600
P960,000
P 2,146,800
Liabilities and Stockholders’ Equity
Accumulated depreciation
P 480,000
P360,000
Accounts payable……………
120,000
120,000
Bonds payable…………………
240,000
120,000
(2) 360,000
360,000
(3)
Paid in capital in excess of par.
(1) 240,000
60,000
60,000
24,000
(1) 24,000
285,600
Retained earnings……………
Non-controlling interest…………
285,600
96,000
_________
_______
Total Liabilities and Stockholders’
Equity
P1,785,600
P960,000
(1) Eliminate investment against stockholders’ equity of Sky Co.
(2) Eliminate investment against allocated excess.
* P420,000 – P360,000 – P14,400 = P45,600.
**P300,000 – P14,400 = P285,600.

42,000
600,000
240,000
Paid in capital in excess of par.
Retained earnings**……………
42,000
600,000
Common stock, P10 par………
480,000
240,000
Premium on bonds payable
Common stock, P10 par………
P
(1) 96,000
_________
P 853,200
(1 ) 72,000
(2) 7,200
_79,200
P 853,200
P2,146,800
Incidentally, the non-controlling interest on the date of acquisition is computed as follows:
Common stock – Sky company……………………………………
Paid-in capital in excess of par – Sky co…………………………
Retained earnings – Sky
Co..……………………………………….
Book value of stockholders’ equity – Sky
Co………..…………..
Adjustments to reflect fair value (over/
undervaluation
of assets and
liabilities)………………………………………….
Fair value of stockholders’ equity of
subsidiary…………………
Multiplied by: Non-controlling Interest
percentage…………...
Non-controlling interest
(partial)…………………………………..
The balance sheet:
Peer Company and Subsidiary
P
240,000
24,000
80,000
P
360,000
36,000
P
396,000
20
P
79,200
Consolidated Balance Sheet
January 1, 20x4
Assets
Cash
Accounts receivables
Inventories
Land
Buildings and equipment
Accumulated depreciation
Goodwill
Total Assets
Liabilities and Stockholders’ Equity
Liabilities
Accounts payable
Bonds payable
Premium on bonds payable
Total Liabilities
Stockholders’ Equity
Common stock, P10 par
Paid-in capital in excess of par
Retained earnings
Parent’s Stockholders’ Equity/Equity Attributable to the
Owners of the Parent
Non-controlling interest
Total Stockholders’ Equity (Total Equity)
Total Liabilities and Stockholders’ Equity
P
105,600
150,000
210,000
330,000
1,308,000
( 480,000)
43,200
P1,666,800
P 240,000
P 360,000
42,000
402,000
P 642,000
P 600,000
60,000
285,600
P 945,600
79,200
P 1,024,800
P1,666,800
Full-goodwill Approach
Schedule of Determination and Allocation of Excess (Full-goodwill)
Date of Acquisition – January 1, 20x4
Fair value of Subsidiary (100%)
Consideration transferred (P360,000 /
80%)…………..
Less: Book value of stockholders’ equity of
Sky:
Common stock (P240,000 x
100%)………………….
Paid-in capital in excess of par (P96,000
x 100%)..
Retained earnings (P24,000 x
100%)……………....
Allocated excess (excess of cost over book
value)…..
Less: Over/under valuation of assets and
liabilities:
Increase in inventory (P18,000 x
100%)……………
Increase in land (P72,000 x
100%)………………….
Decrease in buildings and equipment
(P12,000 x
100%)………………………………….....
P
450,000
P 240,000
96,000
24,000 360,000
P
90,000
P 18,000
72,000
( 12,000)
Increase in bonds payable (P42,000 x
100%)…….
Positive excess: Full -goodwill (excess of cost
over
fair
value)………………………………………………...
( 42,000)
36,000
P
54,000
The following entry on the date of acquisition in the books of Parent Company:
January 1, 20x4
(1) Investment in Sky
Company……………………………………………
360,00
0
Cash……………………………………………………………………
..
360,00
0
Acquisition of Sky Company.
(2) Retained earnings (acquisition-related expense - close
to
retained earnings since only balance sheets are
being
14,400
examined)……………………………………………………………
14,400
Cash……………………………………………………………………
.
Acquisition- related costs.
The schedule of determination and allocation of excess provides complete guidance for the
worksheet eliminating entries on January 1, 20x4:
240,000
(E1) Common stock – Sky
Co……………………………………………….
Additional paid-in capital – Sky
Co………………………………….
Retained earnings – Sky
Co…………………………………………...
Investment in Sky
Co…………………………………………………
Non-controlling interest (P300,000 x
20%)………………………..
24,000
96,000
288,000
72,000
Eliminate investment against stockholders’ equity of Sky Co.
(E2)
Inventory………………………………………………………………
….
Accumulated
depreciation………………………………………….
18,000
360,00
0
72,000
Land……………………………………………………………………
….
54,000
Goodwill………………………………………………………………
….
Buildings and
equipment…………………………………………..
Premium on bonds
payable………………………………………
Non-controlling interest [(P30,000 x 20%) +
(P45,000 –
P36,000)]…………………………………………….
Investment in Sky
Co………………………………………………..
372,00
0
42,000
18,000
72,000
Eliminate investment against allocated excess.
Worksheet for Consolidated balance Sheet, January 1, 20x4. Date of Acquisition: 80%-Owned
Subsidiary (Full-goodwill)
Eliminations
Assets
Cash*………………………
….
Accounts
receivable……..
Inventory………………….
Land………………………
…….
Buildings and equipment
Goodwill…………………
…
Investment in Sky
Co………….
Total Assets
P
Peer Co.
Sky Co.
Dr.
Cr.
Consolidated
45,600
P 60,000
90,000
60,000
120,000
72,000
(2) 18,000
210,000
210,000
48,000
(2) 72,000
330,000
960,000
720,000
P
105,600
150,000
(2) 372,000
1,308,000
(2) 54,000
360,000
54,000
(1) 288,000
(2) 72,000
P1,785,600
P960,000
P 480,000
P360,000
P 2,157,600
Liabilities and Stockholders’ Equity
Accumulated depreciation
Accounts payable……………
Bonds payable…………………
120,00
0
240,00
0
(2) 360,000
120,000
Common stock, P10 par………
480,000
240,000
120,000
360,000
Premium on bonds payable
Common stock, P10 par………
P
(2) 42,000
600,00
0
42,000
600,000
240,000
(1) 240,000
60,000
Paid in capital in excess of par.
Paid in capital in excess of par.
60,000
24,000
(1) 24,000
96,000
(1) 96,000
285,60
0
Retained earnings**……………
Retained earnings……………
_______
__
Non-controlling interest…………
285,600
_____
__
Total Liabilities and Stockholders’
Equity
P1,785,600
P960,000
(1) Eliminate investment against stockholders’ equity of Sky Co.
(2) Eliminate investment against allocated excess.
* P420,000 – P360,000 – P14,400 = P45,600.
**P300,000 – P14,400 = P285,600.

(1 )
72,000
_______ (2)
__ 18,000
P 864,000
_90,000
P 864,000
P2,157,600
Incidentally, the non-controlling interest on the date of acquisition is computed as follows:
P
79,200
Non-controlling interest
(partial)…………………………………..
Add: Non-controlling interest (P54,000, full –
P43,200, partial).
Non-controlling interest
(full)……………………………………….
10,800
P 90,000
The balance sheet;
Peer Company and Subsidiary
Consolidated Balance Sheet
January 1, 20x4
Assets
Cash
Accounts receivables
Inventories
Land
Buildings and equipment
Accumulated depreciation
Goodwill
Total Assets
Liabilities and Stockholders’ Equity
Liabilities
Accounts payable
Bonds payable
Premium on bonds payable
Total Liabilities
Stockholders’ Equity
Common stock, P10 par
Paid-in capital in excess of par
Retained earnings
Parent’s Stockholders’ Equity/Equity Attributable to the
Owners of the Parent
Non-controlling interest
Total Stockholders’ Equity (Total Equity)
Total Liabilities and Stockholders’ Equity
Problem VIII
Partial-goodwill Approach (Proportionate Basis)
P
105,600
150,000
210,000
330,000
1,308,000
( 480,000)
54,000
P1,677,600
P 240,000
P 360,000
42,000
402,000
P 642,000
P 600,000
60,000
285,600
P 945,600
90,000
P 1,035,600
P1,677,600
Schedule of Determination and Allocation of Excess (Proportionate Basis))
Date of Acquisition – January 1, 20x4
Fair value of Subsidiary (80%)
Consideration transferred:
Common stock: 12,000 shares x P25
per share…...
Less: Book value of stockholders’ equity
of S:
Common stock (P12,000 x
80%)…………………….
Paid-in capital in excess of par
(P108,000 x 80%)...
Retained earnings (P72,000 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 (P36,000 x
80%)…………………….
Increase in buildings and
equipment
(P150,000 x
80%)…………………………………......
Increase in copyrights (P60,000 x
80%)……………..
Increase in contingent liabilities –
estimated
liability for contingencies (P6,000
x 80%)…….....
Negative excess: Bargain purchase gain
to controlling
interest or attributable to parent
only)……………..
P 300,000
P
9,600
86,400
57,600
153,600
P 146,400
P
4,800
28,800
120,000
48,000
(
4,800)
196,800
(P 50,400)
The over/under valuation of assets and liabilities are summarized as follows:
Inventory………………….……………...
Land……………………………………….
S Co.
Book
value
P
60,000
48,000
S Co.
Fair value
P
66,000
84,000
Over/Under
Valuation
P
6,000
36,000
Buildings and equipment (net).........
222,000
372,000
150,000
-060,000
0 (
6,000)
P
Net undervaluation……………………. 330,000 P 576,000
60,000
6,000)
Copyright………………………………..
Estimated liability for contingencies..
(
P246,000
The following entry on the date of acquisition in the books of Parent Company
January 1, 20x4
(1) Investment in S
Company…...……………………………………
Common stock, P1
par………………………………………………
Paid-in capital in excess of par (P300,000 –
P12,000 par)……..
300,000
12,000
288,000
Acquisition of S Company.
The schedule of determination and allocation of excess provides complete guidance for the
worksheet eliminating entries on January 1, 20x4:
(E1) Common stock – S
Co…………………………………………….
Additional paid-in capital – S
Co……………………………….
Retained earnings – S
Co…………………………………………
Investment in S
Co………………………………………………
Non-controlling interest (P192,000 x
20%)………………………..
12,000
108,000
72,000
153,600
38,400
Eliminate investment against stockholders’ equity of S Co
(E2)
Inventory………………………………………………………………
…..
Land……………………………………………………………………
…..
Buildings and
equipment………………………………………………
Copyright………………………………………………………………
....
Estimated liability for
contingencies……………………………..
Investment in S
Co……………………………………………...
6,000
36,000
150,00
0
60,000
6,000
146,40
0
Non-controlling interest (P246,000 x
20%)……………………….
Retained earnings (bargain purchase gain - closed
to
retained earnings since only balance sheets are
being
49,200
50,400
examined).............................................................................
Eliminate investment against allocated excess.
Worksheet for Consolidated balance Sheet, January 1, 20x4. Date of Acquisition: 80%-Owned
Subsidiary (Proportionate Basis)
Eliminations
Assets
Cash…………………
P Co.
S Co.
Dr.
Cr.
Consolidated
P 334,800
P
334,800
Accounts receivable……..
86,400
P 24,000
Inventory………………….
96,000
60,000
(2)
6,000
162,000
Land…………………………
120,000
48,000
(2) 36,000
204,000
Buildings and equipment (net).
744,000
222,000
(2) 150,000
1,116,000
Copyright……………………...
Investment in S Co……..
Total Assets
110,400
(2) 60,000
60,000
300,000
__________
(1) 153,600
(2) 146,400
_________
P1,681,200
354,000
P1,987,200
42,000
P 138,000
-
Liabilities and Stockholders’ Equity
Accounts payable………
Estimated liability for
contingencies…
Bonds payable………
Common stock, P1 par*…..…
Common stock, P1 par………
Paid-in capital in excess of
par**
P
96,000
(2)
240,000
120,000
360,000
44,160
12,000
(1)
12,000
723,840
723,840
(1)
108,000
(1)
108,000
577,200
Retained earnings……………
Non-controlling interest…………
_________
72,000
(1) 72,000
_______
_________
Total Liabilities and Stockholders’
Equity
P1,681,200
P354,000
(1) Eliminate investment against stockholders’ equity of Scud Co.
(2) Eliminate investment against allocated excess.
* P32,160 + (12,000 shares xP1 par) = P44,160.
**P435,840 + [12,000 shares x (P25 – P1)] = P723,840.

6,000
44,160
Paid-in capital in excess of par
Retained earnings
6,000
P 444,000
(2) 50,400
627,600
(1 ) 38,400
(2) 49,200
_87,600
P 444,000
P1,987,200
Incidentally, the non-controlling interest on the date of acquisition is computed as follows:
Common stock – S Co……….…………………………………
Paid-in capital in excess of par – S Co……………………..
Retained earnings – S
Co………………………………………
Book value of stockholders’ equity – S
Co………………….
P 12,000
108,000
72,000
P
192,000
Adjustments to reflect fair value (over/
undervaluation
of assets and
liabilities)………………………………………….
Fair value of stockholders’ equity of
subsidiary…………………
Multiplied by: Non-controlling Interest
percentage…………...
Non-controlling interest
(partial)…………………………………..
246,000
P
438,000
20
P
87,600
The balance sheet:
Assets
Cash
Accounts receivables
Inventories
Land
Buildings and equipment (net)
Copyright
Total Assets
Liabilities and Stockholders’ Equity
Liabilities
Accounts payable
Estimated liability for contingencies
Bonds payable
Total Liabilities
Stockholders’ Equity
Common stock, P1 par
Paid-in capital in excess of par
Retained earnings
Parent’s Stockholders’ Equity/Equity Attributable to the
Owners of the Parent
Non-controlling interest
Total Stockholders’ Equity (Total Equity)
Total Liabilities and Stockholders’ Equity
P
334,800
110,400
162,000
204,000
1,116,000
60,000
P1,987,200
P 138,000
6,000
360,000
P 504,000
P
44,160
723,840
627,600
P1,395,600
87,600
P1,483,200
P1,987,200
Full-goodwill Approach (Fair Value Basis)
Schedule of Determination and Allocation of Excess (Full-goodwill or Fair Value Basis)
Date of Acquisition – January 1, 20x4
Fair value of Subsidiary (100%)
Consideration transferred:
Common stock: 12,000 x P25
(80%)………………
Fair value of NCI (given)
(20%)……………………….
Fair value of subsidiary
(100%)……………………….
Less: Book value of stockholders’ equity
of S:
Common stock (P12,000 x
100%)…………………….
Paid-in capital in excess of par
(P108,000 x 100%).
P
300,000
90,000
P
P 12,000
108,000
390,000
Retained earnings (P72,000 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 (P36,000 x
100%)……………………
Increase in buildings and
equipment
(P150,000 x
100%)…………………………………....
Increase in copyrights (P60,000 x
100%)……………
Increase in contingent liabilities –
estimated
liability for contingencies (P6,000
x 100%)……..
Negative excess: Bargain purchase gain
to controlling
interest or attributable to parent
only)……………..
72,000
192,000
P 198,000
P
6,000
36,000
150,000
6,000
(
6,000)
246,000
(P 48,000)
The following entry on the date of acquisition in the books of Parent Company:
January 1, 20x4
(1) Investment in S
Company…...……………………………………
Common stock, P1
par………………………………………………
Paid-in capital in excess of par (P300,000 –
P12,000 par)……..
Acquisition of S Company.
300,000
12,000
288,000
The schedule of determination and allocation of excess provides complete guidance for the
worksheet eliminating entries on January 1, 20x4:
(E1) Common stock – S
Co…………………………………………….
Additional paid-in capital – S
Co……………………………….
Retained earnings – S
Co…………………………………………
Investment in S
Co………………………………………………
12,000
108,000
72,000
153,600
Non-controlling interest (P192,000 x
20%)………………………..
Eliminate investment against stockholders’
equity of S Co
38,400
(E2)
Inventory………………………………………………………………
…..
6,000
36,000
Land……………………………………………………………………
…..
Buildings and
equipment………………………………………………
150,00
0
60,000
Copyright………………………………………………………………
....
Estimated liability for
contingencies……………………………..
Investment in S
Co……………………………………………...
Non-controlling interest (P90,000 given –
P38,400)……………
Retained earnings (bargain purchase gain - closed
to
retained earnings since only balance sheets are
being
6,000
146,40
0
51,600
48,000
examined).............................................................................
Eliminate investment against allocated excess.
Worksheet for Consolidated balance Sheet, January 1, 20x4. Date of Acquisition: 80%-Owned
Subsidiary (Fair Value Basis)
Eliminations
Assets
Cash…………………
P Co.
S Co.
Dr.
Cr.
P 334,800
Consolidated
P
334,800
Accounts receivable……..
86,400
P 24,000
Inventory………………….
96,000
60,000
(2)
6,000
162,000
Land…………………………
120,000
48,000
(2) 36,000
204,000
Buildings and equipment (net).
744,000
222,000
(2) 150,000
1,116,000
Copyright……………………...
Investment in S Co……..
Total Assets
110,400
(2) 60,000
60,000
300,000
__________
(1) 153,600
(2) 146,400
_________
P1,681,200
P354,000
P1,987,200
42,000
P 138,000
-
Liabilities and Stockholders’ Equity
Accounts payable………
P
96,000
Estimated liability for
contingencies…
Bonds payable………
Common stock, P1 par*…..…
(2)
240,000
44,160
12,000
(2)
12,000
723,840
723,840
(2)
108,000
Paid-in capital in excess of par
Retained earnings
6,000
360,000
44,160
Common stock, P1 par………
Paid-in capital in excess of par**
6,000
120,000
(1)
108,000
577,200
Retained earnings……………
Non-controlling interest…………
_________
72,000
(1) 72,000
_______
_________
Total Liabilities and Stockholders’
Equity
P1,681,200
P354,000
(1) Eliminate investment against stockholders’ equity of Scud Co.
(2) Eliminate investment against allocated excess.
* P32,160 + (12,000 shares xP1 par) = P44,160.
**P435,840 + [12,000 shares x (P25 – P1)] = P723,840.
P 444,000
(2) 48,000
625,200
(1 ) 38,400
(2) 51,600
_90,000
P 444,000
P1,987,200
The balance sheet:
Assets
Cash
Accounts receivables
Inventories
Land
Buildings and equipment (net)
Copyright
Total Assets
Liabilities and Stockholders’ Equity
Liabilities
Accounts payable
Estimated liability for contingencies
Bonds payable
Total Liabilities
Stockholders’ Equity
Common stock, P1 par
Paid-in capital in excess of par
Retained earnings
Parent’s Stockholders’ Equity/Equity Attributable to the
Owners of the Parent
Non-controlling interest
Total Stockholders’ Equity (Total Equity)
Total Liabilities and Stockholders’ Equity
P
334,800
110,400
162,000
204,000
1,116,000
60,000
P1,987,200
P 138,000
6,000
360,000
P 504,000
P
44,160
723,840
652,200
P1,393,200
90,000
P1,483,200
P1,987,200
Problem IX
1.
Schedule of Determination and Allocation of Excess
Date of Acquisition – January 1, 20x4
Fair value of Subsidiary (100%)
Consideration transferred:
Common stock: 24,000 shares x P14
per share
Less: Book value of stockholders’ equity
of Sky:
P 336,000
Common stock (P240,000 x
100%)…………………..
Paid-in capital in excess of par
(P96,000 x 100%)...
Retained earnings (P24,000 x
100%)………………...
Allocated excess (excess of book value
over cost)……
Less: Over/under valuation of assets and
liabilities:
Increase in inventory (P18,000 x
100%)……………..
Increase in land (P72,000 x
100%)……………………
Decrease in buildings and
equipment
(P12,000 x
100%)……………………………………...
Increase in patent (P24,000 x
100%)………………...
Increase in contingent liability
(P18,000 x 100%)….
Increase in bonds payable (P42,000
x 100%)……..
Negative excess: Bargain Purchase Gain
(excess of
fair value over
cost)……………………………………
P 240,000
96,000
24,000
360,000
(P 24,000)
P 18,000
72,000
( 12,000)
24,000
( 18,000)
( 42,000)
42,000
(P 66,000)
2. Gain on acquisition, P66,000
Problem X
1.
January 1, 20x4
(1) Investment in S
Company……………………………………………
Cash…………………………………………………………………
…..
Common stock, P10
par……………………………………………..
Paid-in capital in excess of
par…………………………………….
(2) Retained earnings (acquisition-related expense close to
432,00
0
288,00
0
120,00
0
24,000
retained earnings since only balance sheets are
12,000
being
examined)…………………………………………………………
…
12,000
Cash…………………………………………………………………
….
Acquisition- related costs.
(3) Paid-in capital in excess of
par………………………………………..
8,400
8,400
Cash…………………………………………………………………
….
Costs to issue and register stocks.
2.
Schedule of Determination and Allocation of Excess
Date of Acquisition – January 1, 20x4
Fair value of Subsidiary (100%)
Consideration transferred
Cash……………………………………………………….
Common stock: 12,000 shares x P12 per
share…..
Less: Book value of stockholders’ equity of S:
Common stock (P240,000 x
100%)…………………..
Paid-in capital in excess of par (P96,000 x
100%)..
Retained earnings (P24,000 x
100%)………………...
Allocated excess (excess of cost over book
value)……
Add: Existing Goodwill of Sky Co. (P6,000 x
100%)………
Adjusted allocated
excess………………………………….
Less: Over/under valuation of assets and
liabilities:
Increase in inventory (P18,000 x
100%)……………..
Increase in land (P72,000 x
100%)……………………
Decrease in buildings and equipment
P 288,000
P
144,000 432,000
P 240,000
96,000
24,000 360,000
P
72,000
6,000
P
78,000
P 18,000
72,000
( 12,000)
(P12,000 x
100%)……………………………………...
Increase in bonds payable (P42,000 x
100%)……..
Positive excess: Goodwill (excess of cost over fair
( 42,000)
36,000
P
42,000
value)……………………………………………………..
Alternatively, the unrecorded goodwill may also be computed by ignoring the existing
goodwill in the books of the subsidiary, thus:
Date of Acquisition – January 1, 20x4 (refer to previous table for details of computation)
Fair value of Subsidiary (100%)
P
432,00
0
Consideration
transferred………………………………………………………
Less: Book value of stockholders’ equity of
S………………………………..
Allocated excess (excess of cost over book
value)………………………….
Less: Over/under valuation of assets and
liabilities……………………………
Positive excess: Goodwill (excess of cost over fair
value)…………………...
Add: Existing
Goodwill………………………………………………………………
Positive excess: Goodwill (excess of cost over fair
360,00
0
P
72,000
value)………………………………………………………………………
……
P
42,000
36,000
P
36,000
6,000
3.
Eliminations
Assets
P Co.
S Co.
111,600
P 54,000
P 165,600
90,000
60,000
150,000
Inventory………………….
120,000
72,000
(2) 18,000
Land…………………………….
210,000
48,000
(2) 72,000
Buildings and equipment (net)
480,000
360,000
Goodwill……………………
Investment in S Co………….
432,000
Cash*…………………………..
Accounts receivable……..
Total Assets
P
6,000
Dr.
Cr.
Consolidated
210,000
330,000
(2)
12,000
(2) 36,000
828,000
42,000
(4) 360,000
(5) 72,000
-
P1,443,600
P600,000
P1,725,600
Accounts payable……………
P 120,000
P120,000
P 240,000
Bonds payable…………………
240,000
120,000
Liabilities and Stockholders’ Equity
Premium on bonds payable
360,000
(6)
42,000
42,000
Common stock, P10 par**…..…
720,000
Common stock, P10 par………
Additional paid in capital***
720,000
240,000
(1) 240,000
75,600
Additional paid in capital……
75,600
24,000
(1) 24,000
Retained earnings……………
_________
96,000
Total Liabilities and Stockholders’
Equity
P1,443,600
P600,000
(1) Eliminate investment against stockholders’ equity of Sky Co.
(2) Eliminate investment against allocated excess.
* P420,000 – P288,000 – P12,000 – P8,400 = P111,600.
* *P600,000 + P120,000 (12,000 shares x p10 par) = P720,000.
*** P50,000 + P20,000 – P7,000 = P63,000.
****P300,000 – P12,000 = P288,000.
(1) 96,000
__________
_________
P 486,000
P 486,000
P1,725,600
Retained earnings****
288,000
288,000
4.
Assets
Cash
Accounts receivables
Inventories
Land
Buildings and equipment (net)
Goodwill
Total Assets
Liabilities and Stockholders’ Equity
Liabilities
Accounts payable
Bonds payable
Premium on bonds payable
Total Liabilities
Stockholders’ Equity
Common stock, P10 par
Additional paid-in capital in excess of par
Retained earnings
Total Stockholders’ Equity
Total Liabilities and Stockholders’ Equity
P
165,600
150,000
210,000
330,000
828,000
42,000
P1,725,600
P 240,000
P 360,000
42,000
402,000
P 642,000
P 720,000
75,600
288,000
P 1083,600
P1,725,600
Problem XI
1.
Schedule of Determination and Allocation of Excess
Date of Acquisition – January 1, 20x4
Fair value of Subsidiary (100%)
Consideration transferred (P408,000 –
P6,000)……..
Less: Book value of stockholders’ equity of S:
Common stock (P240,000 x
100%)…………………..
Paid-in capital in excess of par (P96,000 x
100%)...
Retained earnings (P24,000 x
100%)………………...
Allocated excess (excess of cost over book
value)……
P
402,000
P 240,000
96,000
24,000 360,000
P
42,000
Less: Over/under valuation of assets and
liabilities:
Increase in inventory (P18,000 x
100%)……………..
Increase in land (P72,000 x
100%)……………………
Decrease in buildings and equipment
(P12,000 x
100%)……………………………………...
Increase in bonds payable (P42,000 x
100%)……..
Positive excess: Goodwill (excess of cost over fair
P 18,000
72,000
( 12,000)
( 42,000)
36,000
P
6,000
value)……………………………………………………..
2. Goodwill, P6,000
Problem XII
1. Inventory
2. Land
3. Buildings and Equipment
4.
Goodwill
Fair value of consideration given
Less; Book value of SHE
Allocated excess:
Increase / decrease in fair value (Fair value
increment) for:
Inventory
Land
Buildings and equipment
Goodwill
5.
P 140,000
P 60,000
P 550,000
P 576,000
450,000
P126,000
P 20,000
(10,000)
70,000
80,000
P 46,000
Investment in AA Corporation: Nothing would be reported; the balance in the
investment account is eliminated.
Problem XIII
1. Inventory (P120,000 + P20,000)
2. Land (P70,000 – P10,000)
3. Buildings and Equipment (P480,000 + P70,000)
4. Full-Goodwill, P57,500
Fair value of Subsidiary:
Consideration transferred
Add: FV of NCI
Less: BV of SHE of Slim (P250,000 + P200,000)
Allocated excess
Less: Over/under valuation of A and L: Inc.
(Dec.)
P140,000
P 60,000
550,000
P470,000
117,500
P587,500
450,000
P137,500
Inventory
Land
Buildings and equipment (net)
Goodwill – full
or,
Fair value of consideration given by Ford
Fair value of noncontrolling interest
Total fair value
Book value of Slim’s net assets
Fair value increment for:
Inventory
Land
Buildings and equipment (net)
Fair value of identifiable net assets
Goodwill – full
Partial Goodwill, P46,000
Fair value of Subsidiary:
Consideration transferred
Less: BV of SHE of Slim (P250,000 + P200,000) x 80%
Allocated excess
Less: Over/under valuation of A and L: Inc. (Dec.)
Inventory (P20,000 x 80%)
Land (P10,000 x 80%)
Buildings and equipment (net) (P70,000 x 80%)
Goodwill – partial
5.
6.
P
20,000
(10,000)
70,000
P450,000
20,000
(10,000)
70,000
P470,000
117,500
P587,500
(530,000)
P 57,500
P470,000
360,000
P110,000
P 16,000
( 8,000)
56,000
Investment in Slim Corporation: None would be reported;
the balance in the investment account is eliminated.
Noncontrolling Interest (P587,500 x .20)
or,
80,000
P 57,500
64,000
P 46,000
P117,500
BV – SHE of SS
P450,000
Adjustments to reflect fair value (P20,000 – P10,000 +P 70,000)
80,000
FV of SHE of SS
P530,000
Multiplied by: NCI %
20%
NCI – partial goodwill
P106,000
Add: NCI on full-goodwill (P57,500 – P46,000)
11,500
NCI – full goodwill
P117,500
Problem XIV
1. P470,000 = P470,000 - P55,000 + P55,000
2. P605,000 = (P470,000 - P55,000) + P190,000
3. P405,000 = P270,000 + P135,000
4. P200,000 (as reported by GG Corporation)
Problem XV
1. P57,000 = (P120,000 - P25,000) x .60
2. P81,000 = (P120,000 - P25,000) + P40,000 - P54,000
3. P48,800 = (P120,000 - P25,000) + P27,000 - P73,200
Problem XVI (assuming that acquisition-related costs is treated as expenses)
In acquisitions, the fair values of the subsidiary's assets and liabilities are consolidated (there are a
limited number of exceptions). Goodwill is reported as P80,000, the amount that the P760,000
consideration transferred exceeds the P680,000 fair value of SS’s net assets acquired.
1.
2.
3.
4.
5.
6.
Inventory = P670,000 (P's book value plus Sun's fair value)
Land = P710,000 (P's book value plus Sun's fair value)
Buildings and equipment = P930,000 (P's book value plus S's fair value)
Franchise agreements = P440,000 P's book value plus S's fair value)
Goodwill = P80,000 (calculated above)
Revenues = P960,000 (only parent company operational figures are reported at date of
acquisition)
7. Additional Paid-in Capital = P65,000 (P's book value less stock issue costs)
8. Expenses = P940,000 (only parent company operational figures plus acquisition-related costs
are reported at date of acquisition)
9. Retained Earnings, 1/1 = P390,000 (P's book value)
Problem XVII
1. Investment in Craig Company ..........................................................
Cash ..................................................................................................
950,000
950,000
2.
Fair value of Subsidiary:
Consideration transferred
Less: BV of SHE of Craig (P300,000 + P420,000)
Allocated excess
Less: Over/under valuation of A and L: Inc (Decrease)
Land (P250,000 fair – P200,000 book value
Building (P700,000 fair – P600,000 book value)
Discount on bonds payable P280,000 fair – P300,000
book value)
Deferred tax liability (P40,000 fair – P50,000 book value)
Buildings and equipment (net)
Goodwill
3. Adjustments on Craig books:
Land ........................................................................................................
Building ...................................................................................................
Discount on Bonds Payable ...............................................................
Goodwill .................................................................................................
Deferred Tax Liability ...........................................................................
Retained Earnings ................................................................................
Paid-In Capital in Excess of Par ....................................................
4.
Elimination entries:
Common Stock.....................................................................................
Paid-In Capital in Excess of Par .........................................................
Investment in Craig Company .....................................................
P950,000
720,000
P 230,000
P 50,000
100,000
20,000
10,000
180,000
P 50,000
50,000
100,000
20,000
50,000
10,000
420,000
650,000
300,000
650,000
Problem XXI
1.
*
Man
Mask
(Public Co.)
(Private Co.)
Currently issued…………………… 10 M 40%
4 M 40%
Additional shares issued……….. 15 M 60% **
6 M / 60%
950,000
Total shares…………………………
**15M/25M
FV of net assets………………………P 18 M
BV of net assets (same with FV)…. 18 M
Fv per share of stock……………….P 8
2.
25 M
10 M
P30 M
?
P 6
Consideration transferred (4,000,000 shares* x P6)…………………………..P24,000,000
Less: Book value of SHE – Man: P18,000,000 x 100%.................................... 18,000,000
Allocated excess …………………………………………………………………..P 6,000,000
Less: Over/Under valuation of assets and liabilities
(book value same fair value)………………………………………………
0
Goodwill………………………………………………………………………………P 6,000,000
Problem XXII (Assume the use of Full-Goodwill Method)
Note: This solution assumes a difference between the basis of acquired assets for accounting and
tax purposes for this stock acquisition.
1. Investment in Seely Company
Common Stock***
Additional Paid-in-Capital
570,000
95,000
475,000
***Note: Depending on the wording of this exercise, the credit may be cash instead of common
stock and additional paid-in-capital. If cash is paid, the credit to cash is P570,000.
2. Common Stock - Seely
Other Contributed Capital – Seely
Retained Earnings - Seely
Inventory
Land
Plant Assets
Discount on Bonds Payable
Goodwill**
Deferred Income Tax Liability*
Investment in Seely Company
Non-controlling Interest [(P570,000/.95) x .05]
*(.40 x (P52,000 + P25,000 + P71,000 + P20,000))
80,000
132,000
160,000
52,000
25,000
71,000
20,000
127,200
67,200
570,000
30,000
Problem XXIII
 HB Country and HCO Media
Consolidation of a variable interest entity is required if a parent has a variable interest that
will
 Absorb a majority of the entity's expected losses if they occur
 Receive a majority of the entity's expected residual returns if they occur
Because (1) HCO Media’s losses are limited by contract, and (2) Hillsborough has the right
to receive the residual benefits of the sales generated on the HCO Media internet site
above P500,000, Hillsborough should consolidate HCO Media.
 TPC (Nos. 1, 2 and 3 of the requirement are part of the information)
a. The purpose of consolidated financial statements is to present the financial position and
results of operations of a group of businesses as if they were a single entity. They are
designed to provide information useful for making business and economic decisions—
especially assessing amounts, timing, and uncertainty of prospective cash flows.
Consolidated statements also provide more complete information about the resources,
obligations, risks, and opportunities of an enterprise than separate statements.
b. An entity qualifies as a VIE and is subject to consolidation if either of the following
conditions exist.
 The total equity at risk is not sufficient to permit the entity to finance its activities
without additional subordinated financial support from other parties. In most cases, if
equity at risk is less than 10% of total assets, the risk is deemed insufficient.
 The equity investors in the VIE lack any one of the following three characteristics of a
controlling financial interest.
1. The direct or indirect ability to make decisions about an entity's activities through
voting rights or similar rights.
2. The obligation to absorb the expected losses of the entity if they occur (e.g., another
firm may guarantee a return to the equity investors)
3. The right to receive the expected residual returns of the entity (e.g., the investors'
return may be capped by the entity's governing documents or other arrangements
with variable interest holders).
Consolidation is required if a parent has a variable interest that will
 Absorb a majority of the entity's expected losses if they occur
 Receive a majority of the entity's expected residual returns if they occur
Also, a direct or indirect ability to make decisions that significantly affect the results of
the activities of a variable interest entity is a strong indication that an enterprise has one
or both of the characteristics that would require consolidation of the variable interest
entity.
c. Risks of the construction project that has TPC has effectively shifted to the owners of the
VIE
 At the end of the 1st five-year lease term, if the parent opts to sell the facility, and
the proceeds are insufficient to repay the VIE investors, TPC may be required to pay up
to 85% of the project's cost. Thus, a potential 15% risk.
 During construction 11.1% of project cost potential termination loss.
Risks that remain with TPC
 Guarantees of return to VIE investors at market rate, if facility does not perform as
expected TPC is still obligated to pay market rates.
 If lease is not renewed, TPC must either purchase the facility or sell it on behalf of the
VIE with a guarantee of Investors' (debt and equity) balances representing a risk of
decline in market value of asset
 Debt guarantees
d. TPC possesses the following characteristics of a primary beneficiary Direct decisionmaking ability (end of five-year lease term)
 Absorb a majority of the entity's expected losses if they occur (via debt guarantees
and guaranteed lease payments and residual value)
 Receive a majority of the entity's expected residual returns if they occur (via use of
the facility and potential increase in its market value).
Problem XXIV
1. Implied valuation and excess allocation for SP.
FV of VIE:
Consideration transferred by P.
Non-controlling interest fair value
P 20,000
__ 60,000
FV/Total business fair value of VIE
Less: Fair value of VIE net assets [P20,000 + (P140,000 + P20,000)
+ P40,000 – P120,000)
Excess net asset value fair value/Bargain purchase gain
P
80,000
__100,000
P( 20,000)
The P20,000 excess net asset fair value is recognized by PT as a bargain purchase. All SP’
assets and liabilities are recognized at their individual fair values.
Cash
Marketing software
Computer equipment
Long-term debt
Noncontrolling interest
Pantech equity interest
Gain on bargain purchase
2.
Implied valuation and excess valuation for SP.
FV of VIE:
Consideration transferred by P.
Non-controlling interest fair value
FV/Total business fair value of VIE
Less: Fair value of VIE net assets [P20,000 + (P140,000 - P20,000)
+ P40,000 – P120,000)
Excess fair value over net assets/ Goodwill
Noncontrolling interest fair value
Consideration transferred by Pantech
Total business fair value
Fair value of VIE net identifiable assets
Goodwill
P20,000
160,000
40,000
(120,000)
(60,000)
(20,000)
(20,000)
- 0-
P 20,000
__ 60,000
P 80,000
P
__60,000
20,000
60,000
20,000
80,000
60,000
P20,000
When the business fair value of a VIE (that is a business) is greater than assessed asset
values, all identifiable assets and liabilities are reported at fair values (unless a previously
held interest) and the difference is treated as a goodwill.
Cash
P20,000
Marketing software
120,000
Computer equipment
40,000
Goodwill (excess business fair value)
20,000
Long-term debt
(120,000)
Noncontrolling interest
(60,000)
PT equity interest
(20,000)
-0Multiple Choice Problems
1. c – at fair value
2. c [P300,000 – (P35,000 + P60,000 + 125,000 + P250,000 – P65,000 – P150,000)]
3. d
Consideration transferred
P300,000
Less: Book value of SHE of S (P100,000 + P115,000)
215,000
Allocated excess (excess of fair value or cost over book value)
- sometimes termed as “Differential”
P 85,000
4. a – Investment in subsidiary in the consolidated statements is eliminated in its entirety.
5. d
Consideration transferred
P150,000
Less: Book value of SHE of S (P40,000 + P52,000)
92,000
Allocated excess (excess of fair value or cost over book value)
- sometimes termed as “Differential”
P 58,000
6. b – [P150,000 – (P173,000 – P40,000 – P5,000)]
7. d - P600,000 - P15,000 - P255,000 = P330,000
8. c - P475,000 - P300,000 = P175,000 debit
9. b – fair value
10. d – fair value
11. d – fair value
12. c Full-goodwill:
Fair value of Subsidiary:
Consideration transferred
P300,000
Add: FV of NCI
100,000
P400,000
Less: BV of SHE of Silver (P100,000 + P180,000) x 100%
280,000
Allocated excess
P120,000
Less: Over/under valuation of A and L: Inc. (Dec.)
Inventory (P65,000 – P70,000) x 100%
P( 5,000)
Land (P100,000 – P90,000) x 100%
10,000
Buildings and equipment (P300,000 – P250,00) x 100%
50,000
__55,000
Goodwill – full
P 65,000
If partial-goodwill, no answer available, computed as follows:
Fair value of Subsidiary:
Consideration transferred
Less: BV of SHE of Silver (P100,000 + P180,000) x 75%
Allocated excess
Less: Over/under valuation of A and L: Inc. (Dec.)
Inventory (P65,000 – P70,000) x 75%
P( 3,750)
Land (P100,000 – P90,000) x 75%
7,500
Buildings and equipment (P300,000 – P250,00) x 75%
37,500
Goodwill – full
13. a – Investment in Silver will be eliminated in the consolidated balance sheet
14. d
FV of SHE of S:
Book value of SHE of S (P100,000 + P180,000)………………..P 280,000
Adjustments to reflect fair value ………………………………
55,000
FV of SHE of S……………………………………………………… P 335,000
Multiplied by: NCI%....................................................................
25%
FV of NCI (partial)………………………………………………….P 83,750
Add: NCI on full goodwill (P65,000 – P48,750)……………….. 16,250
FV of NCI (full-goodwill)*…………………………………………P100,000
P300,000
_210,000
P 90,000
__41,250
P 48,750
* same with the NCI given per problem
15. b – P135,000 = P90,000 + P45,000
16. d
Full-goodwill:
Fair value of Subsidiary:
Consideration transferred
Add: FV of NCI
Less: BV of SHE of Silver (P40,000 + P120,000) x 100%
Allocated excess
Less: Over/under valuation of A and L: Inc. (Dec.)
P160,000
_40,000
P200,000
_160,000
P 40,000
Inventory (P45,000 – P40,000) x 100%
Land (P60,000 – P40,000) x 100%
Goodwill – full
17. a
P 5,000
20,000
Total Assets of Gulliver (Jonathan)
Less: Investment in Sea-Gull Corp.
25,000
P 15,000
P610,000
(160,000)
P 450,000
230,000
P 680,000
5,000
20,000
15,000
P 720,000
Book value of assets of Sea Corp.
Book value reported by Gulliver/Jonathan and Sea
Increase in inventory (P45,000 – P40,000)
Increase in land (P60,000 – P40,000)
Goodwill (full)*
Total assets reported
18. c – P100,000 + P95,000 + P30,000 + P40,000 = P265,000
19. c
FV of SHE of S:
Book value of SHE of S (P40,000 + P120,000)………………….P 160,000
Adjustments to reflect fair value [(P45,000 + P60,000) (P40,000 + P40,000)………….………………………………
25,000
FV of SHE of S……………………………………………………… P 185,000
Multiplied by: NCI%....................................................................
20%
FV of NCI (partial)………………………………………………….P 37,000
Add: NCI on full goodwill (P15,000 – P12,000)………………..
3,000
FV of NCI (full-goodwill)*………………………………………… P 40,000
* same with the NCI given per problem
Partial Goodwill
Fair value of Subsidiary:
Consideration transferred
Less: BV of SHE of S (P40,000 +
P120,000) x 80%
Allocated excess
Less: Over/under valuation of A and L:
Inc. (Dec.)
Inventory (P5,000 x 80%)
Land (P20,000 x 80%)
Goodwill – partial
P160,000
_128,000
P 32,000
P
4,000
16,000
__20,000
P 12,000
20. a - The amount reported by Jonathan Corporation
21. a
Jonathan stockholders' equity(P200,000 + P205,000)……………….. P405,000
NCI (full-goodwill) – refer to No. 19……………………………………..
40,000
Consolidated stockholders’ equity……………………………………. P445,000
22. d – [P132,000 + (P38,000 + {P60,000 – P38,000}] or P132,000 + P60,000
23. b
Total Assets of P.
P1,278,000
Less: Investment in Swimmer Corp.
(440,000)
P 838,000
Book value of assets of S Corp.
Book value reported by P and S
Increase in inventory (P60,000 – P38,000)
Increase in land (P60,000 – P32,000)
Increase in plant assets [P350,000 – (P300,000 – P60,000)]
Goodwill (full)*
Total assets reported
*(P440,000/75%) – (P702,000 – P142,000) = P26,667
If partial-goodwill:
Total Assets of P.
Less: Investment in S Corp.
Book value of assets of S Corp.
Book value reported by P and S
Increase in inventory (P60,000 – P38,000)
Increase in land (P60,000 – P32,000)
Increase in plant assets [P350,000 – (P300,000 – P60,000)]
Goodwill (partial)*
Total assets reported
*[P440,000 – (P702,000 – P142,000) x 75%]
24.
25.
26.
542,000
P1,380,000
22,000
28,000
110,000
26,667
P1,566,667
P1,278,000
(440,000)
P 838,000
542,000
P1,380,000
22,000
28,000
110,000
20,000
P1,540,000
d
P215,000
= P130,000 + P70,000 + (P85,000 - P70,000)
a
Partial Goodwill
Fair value of Subsidiary:
Consideration transferred
Less: BV of SHE of SSD (P50,000 + P90,000) x 70%
Allocated excess
Less: Over/under valuation of A and L: Inc. (Dec.)
Inventory (P15,000 x 70%)
P 10,500
Land (P20,000 x 70%)
14,000
Goodwill – partial
P150,500
__98,000
P 52,500
c
Full-goodwill:
Fair value of Subsidiary:
Consideration transferred
Add: FV of NCI
Less: BV of SHE of SS (P50,000 + P90,000) x 100%
Allocated excess
Less: Over/under valuation of A and L: Inc. (Dec.)
Inventory (P70,000 – P85,000) x 100%
Land (P25,000 – P45,000) x 100%
Goodwill – full
P215,000
140,000
P 75,000
P150,500
**64,500
P 15,000
20,000
24,500
P 28,000
35,000
P 40,000
**given amount, but it should not be lower than the fair value of SHE –
subsidiary amounting to
P52,500 computed as follows :
FV of SHE of SS:
Book value of SHE of SS (P50,000 + P90,000)…………….P 140,000
Adjustments to reflect fair value (P15,000 + P20,000)…
35,000
FV of SHE of SS……………………………………………… P 175,000
Multiplied by: NCI%..........................................................
30%
FV of NCI (partial)……………………………………………..P 52,500
27. b
Total Assets of Power Corp.
Less: Investment in Silk Corp.
Book value of assets of Silk Corp.
Book value reported by Power and
Silk
Increase in inventory (P85,000 - P70,000)
Increase in land (P45,000 - P25,000)
Goodwill (full)
Total assets reported
If partial-goodwill:
Total Assets of Power Corp.
Less: Investment in Silk Corp.
Book value of assets of Silk Corp.
Book value reported by Power and
Silk
Increase in inventory (P85,000 - P70,000)
Increase in land (P45,000 - P25,000)
Goodwill (partial)
Total assets reported
28.
29.
d
a
P701,500
=
P 791,500
(150,500)
P 641,000
405,000
P1,046,000
15,000
20,000
40,000
P1,121,000
P 791,500
(150,500)
P 641,000
405,000
P1,046,000
15,000
20,000
28,000
P1,109,000
(P61,500 + P95,000 + P280,000) + (P28,000 + P37,000
+ P200,000)
Non-controlling interest (partial-goodwill): P52,500
NCI
FV of SHE of SSD:
Book value of SHE of SS (P50,000 + P90,000)…………….P 140,000
Adjustments to reflect fair value (P15,000 + P20,000)…
35,000
FV of SHE of SSD
P 175,000
Multiplied by: NCI%..........................................................
30%
FV of NCI (partial)……………………………………………..P 52,500
30.
d
Non-controlling interest (fulll-goodwill): P64,500
NCI
FV of SHE of SSD:
Book value of SHE of SS (P50,000 + P90,000)…………….P 140,000
Adjustments to reflect fair value (P15,000 + P20,000)…
35,000
FV of SHE of SSD
P 175,000
Multiplied by: NCI%..........................................................
30%
FV of NCI (partial)……………………………………………..P 52,500
Add: NCI on full-goodwill (P40,000 – P12,000)…………...
12,000
FV of NCI (full)…………………………………………………..P 64,500
31.
32.
d
P205,000
=
The amount reported by Power Corporation
c
P419,500
= (P150,000 + P205,000) + P64,500
If partial-goodwill:
Stockholders’ equity: P419,500
Consolidated SHE:
Common stock
Retained Earnings
Parent’s SHE or Equity Attributable to Parent
NCI (partial-goodwill)
Consolidated SHE
33. b
34. c
35. a
36. c
P150,000
205,000
P355,000
52,500
P404,500
Consideration transferred ........................................................................................
Less: Strand's book value (P50,000 x 80%) ..............................................................
Fair value in excess of book value ..........................................................................
Excess assigned to inventory (60%) .......................................................... P12,000
Excess assigned to goodwill (40%) ............................................................ P 8,000
P60,000
(40,000)
P20,000
Consideration transferred (P60,000 ÷ 80%) ............................................................
Less: Strand's book value ..........................................................................................
Fair value in excess of book value ..........................................................................
Excess assigned to inventory (60%) .......................................................... P15,000
Excess assigned to goodwill (40%) ............................................................ P10,000
P75,000
(50,000)
P25,000
Park current assets .......................................................................................................
Strand current assets ...................................................................................................
Excess inventory fair value .........................................................................................
Consolidated current assets ......................................................................................
P 70,000
20,000
15,000
P105,000
Park noncurrent assets ...............................................................................................
Strand noncurrent assets ...........................................................................................
Excess fair value to goodwill (partial) .....................................................................
Consolidated noncurrent assets ..............................................................................
P 90,000
40,000
___8,000
P140,000
Park noncurrent assets ................................................................................................
Strand noncurrent assets ............................................................................................
Excess fair value to goodwill (full) .............................................................................
Consolidated noncurrent assets ...............................................................................
P 90,000
40,000
__10,000
P140,000
37. d
38. b Add the two book values and include 10% (the P6,000 current portion) of the loan taken
out by Park to acquire Strand.
39. b
Add the two book values and include 90% (the P54,000 noncurrent portion) of the loan
taken out by Polk to acquire Strand.
40. b
41. c
Park stockholders' equity ...........................................................................................
NCI (partial):
BV of SHE – S ……………………………………………………………..P50,000
Adjustments to reflect fair value (inventory)………………………. 15,000
FV of SHE – S………………………………………………………………P65,000
x: Multiplied by: NCI%........................................................................
20%
Total stockholders' equity .........................................................................................
P80,000
13,000
P93,000
Park stockholders' equity ......................................................................... …………. P80,000
NCI (full):
BV of SHE – S ……………………………………………………………..P50,000
Adjustments to reflect fair value (inventory)………………………. 15,000
FV of SHE – S………………………………………………………………P65,000
x: Multiplied by: NCI%.........................................................................
20%
NCI (partial)………………………………………………………………P13,000
Add: NCI on full-goodwill (P10,,000 – P8,000)……………………… 2,000
Non-controlling interest at fair value (20% × P75,000)…………
15,000
Total stockholders' equity
P95,000
42. b
P’s acquisition entry is:
Investment in Silicon
Merger expenses
2,500,000
250,000
C/S (100,000@P1)
APIC [(100,000@P24) – P400,000]
Cash (P400,000 + P250,000)
Eliminating entries are:
Capital stock
Retained earnings
AOCI
100,000
2,000,000
650,000
560,000
280,000
195,000
Treasury stock
Investment in Silicon
Customer lists
Goodwill
35,000
1,000,000
700,000
800,000
Investment in Silicon
43. b – refer to No. 42
44. a – refer to No. 42
45. a – refer to No. 42
46. b – refer to No. 42
47. b
48. a – P150,000 + P500,000
49. a – at fair value
50. b
FV, stocks issued…………………………………………………
Less: Par value of stocks issued (500,000 shares x P5)……..
APIC
Add: APIC of P
Less: Stock issuance cost
1,500,000
P 4,200,000
__2,500,000
P 1,700,000
7,500,000
___100,000
P 9,100,000
51. a ( P10 x 100,000 = P1,000,000 – P1,400,000) = P400,000
52. a – at fair value
53. c
54. a
[P15 x 100,000 = P1,500,000 – (P1,900,000 – P100,000 – 600,000 )+ P100,000 increase +
P100,000 in increase in PPE] = P100,000
55. b
P1,500,000 – (1,700,000 – 50,000 decrease in inventories) + (P100,000 increase in PPE –
P300,000 – P500,000) = P550,000
56. a
57. d (P1,000,000 + P250,000) = P1,250,000 P only.
58. d [P99,000 + (P45,000 – P26,000)] or (P99,000 + P45,000) = P144,000
59. b [(P330,000/75%) – (P565,000 – P105,000)] = (P20,000) – full-goodwill approach
61. a - P only
62. d
Book value of Assets (P80,000 + P50,000 + P200,000)
P330,000
Fair value of Assets (P85,000 + P60,000 + P250,000)
395,000
P 65,000
63. a – zero, since the revaluation of P65,000 is already recorded in the books of subsidiary (not in
the worksheet or eliminating entries.
64. b – (P250,000 – P200,000)/10 years = P5,000 depreciation to reduce net income of Sirius.
65. a - P15,000
= (P115,000 + P46,000) - P146,000
66. b - P65,000
= (P148,000 - P98,000) + P15,000
67. BB, P70,000; SS, P24,000, no answer available
SS: P24,000
= P380,000 - (P46,000 + P110,000
+ P75,000 + P125,000)
BB P70,000
= P94,000 - P24,000
68. P259,000, no answer available
Fair value of SS as a
whole:
P200,000
Book value of SS shares
10,000
Differential assigned to inventory
(P195,000 - P105,000 - P80,000)
40,000
Differential assigned to buildings and equipment
(P780,000 - P400,000 - P340,000)
9,000
Differential assigned to goodwill
P259,000
Fair value of SS
69. c - 65 percent
= 1.00 – (P90,650 / P259,000)
70. a
Capital Stock
= P120,000
Retained Earnings
= P115,000
71. d - A total of P210,000 (P120,000 + P90,000) should be reported.
72. a - As shown in the investment account balance, Beryl paid P110,000 for the ownership of SS.
The amount paid was P30,000 greater than the book value of the net assets of SS and is
reported as goodwill in the consolidated balance sheet at January 1, 20X5.
73. c - In determining the amount to be reported for land in the consolidated balance sheet,
P15,000 (P70,000 + P50,000 - P105,000) was eliminated. BB apparently sold the land to SS for
P25,000 (P10,000 + P15,000).
74. d - Accounts payable of P120,000 (P75,000 + P55,000 - P10,000) will be reported in the
consolidated balance sheet. A total of P10,000 was deducted in determining the balance
reported for accounts receivable (P90,000 + P50,000 - P130,000). The elimination of an
intercompany receivable must be offset by the elimination of an intercompany payable.
75. P100,000, the par value of B's stock outstanding is P100,000, no answer available
76. c**/d*
Note: The following discussion regarding the treatment of direct acquisition-related costs in the books of parent entity,
does not affect the computation of goodwill wherein under PFRS 3, acquisition-related costs direct or indirect are
considered as expensed.
The following discussions focus on the books of parent entity regarding direct acquisition-related costs.
Currently, the Interpretation Committee (IFRIC) of IASB is discussing the topic of Contingent Pricing of Property, Plant
and Equipment and Intangible Assets. The scope of those deliberations does not include the cost of investment in
associate, joint venture or subsidiary but it is possible that the scope of the project might be expanded in future.
(IGAAP 2013 under IFRS by Ernst and Young, page 530,)
This raises the question of the treatment of the transaction costs as, under PFRS 3 these costs are usually recognized as
expenses in the consolidated accounts.
Revised PAS 27 does not define what is meant by “cost”, but in the glossary to PFRS provides an over-riding definition
of “cost” as “the amount of cash or cash equivalents paid or the fair value of the other consideration given to
acquire an asset at the time of its acquisition or construction”
As a general rule under PFRS, “cost” includes the purchase price and other costs directly attributable to the
acquisition or issuance of the asset such as professional fees for legal services, transfer taxes and other transaction
costs”
* Answer d – P1,600,000 (P1,500,000 + P100,000) – Position of Ernst and Young (EY). Given that Revised PAS 27 does not
separately define “cost”, it is appropriate to apply the general meaning of “cost” to separate financial statements.
Therefore, in the opinion of EY, the cost of investment in subsidiary in the separate financial statements includes any
costs incurred even if such costs are expensed in the consolidated financial statements.
The view of EY, maybe based on the assumption that under the revised PAS 27 since it applies only to “Separate
Financial Statements” not consolidated statements; therefore PFRS 3 which is a standard for business
combination/consolidation will not be the basis for the definition of “cost”). Unlike before the revision of PAS 27 and
implementation of PFRS 10, the basis of the old PAS 27, which is “Consolidated and Separate Statements”, is PFRS 3,
wherein the definition of “cost” was clearly defined. That is why the general rule in the definition of “cost” was
applied. This view is also as suggest by the IASB since they introduced the requirement to expense acquisition costs
within PFRS 3, it only applies to financial statements in which a business combination is accounted for under PFRS 3. It
follows that this requirement does not extend to the individual (or separate) financial statements of the investing or
parent entity.
So, it seems that the basis of the general rule applies to PAS 16 (Property, Plant and Equipment) and PAS 38
(Intangible Assets) wherein the direct costs is capitalized in the books of parent entity and eventually become
expense through eliminating entry to prepare consolidated statements.
** Answer c – P1,500,000; In Revised PAS 27 “Separate Financial Statements” in relation to PFRS 3 par. 33, which refers to
any acquisition-related costs incurred by the acquirer in relation to the business combination (for example legal
costs, due diligence costs – such as finder’s fee are expensed off and not included in the consideration transferred.
The key reasons given for this approach are provided in paragraph BC366:
 Acquisition-related costs are not part of the fair value exchange between the buyer and seller.
 They are separate transactions for which the buyer pays the fair value for the services received.
 These amounts do not generally represent assets of the acquirer at acquisition date because the benefits
obtained are consumed as the services are received.
The PFRS 3 accounting for these outlays is a result of the decision to record the identifiable assets acquired and
liabilities assumed at fair value. In contrast, under PAS 16 and PAS 38, the assets acquired are initially recorded at
cost. The following items are worth noting to justify the use of this approach:
1.
2.
3.
This view is supported by Hilton and Herauf in their book Modern Advanced Accounting in Canada, 7th Edition
(2013) which is an IFRS based discussion, in the solution they presented in one of their end-of-chapter
problems, they expensed the direct costs in recording the investment in subsidiary in the book of parent
company
Similar with No. 1 above, in the book Applying IFRS, 3rd edition (2013), by Picker, et al (which is also Ernst and
Young book, which seems to contradict their position in the discussion above) in chapter 24 end-of-the
chapter problems, the direct costs (or “costs incurred in undertaking taking the acquisition” as the term used
in the book) were not part of the investment in subsidiary as evidenced by the amount in the eliminating
entry.
One respected author in accounting even commented that, despite the above analysis capitalizing the
direct costs seems to be correct and have basis since the segregation of old PAS 27 to Revised PAS 27 and
PFRS 10, the problem is, if the parent records the direct costs as part of Investment in subsidiary, it may be a
problem when there will be an impairment test which will reveal the costs are in fact unrecoverable and thus
that there must be an impairment charge at the parent level (in which the direct costs is included as part the
investment), which would have the effect of bringing the parent’s accounting (with the impairment investment
including the direct costs) in line with what would later appear on the consolidated financial statements.
The author believes that the there is logic on the basis of applying the general rule in interpreting the definition of
“costs” in PAS 27 wherein the basis are PAS 16 and PAS 38, giving rise to an effect wherein the direct costs will be
part of the investment in the books of parent entity. But because of the three reasons mentioned above, the author
believes that the direct costs still be considered as expenses applying PFRS 3, aside from the fact that in substance
the ultimate objective is to consolidate, eventhough there was a separation of standard between Revised PAS 27
and PFRS 10.
77. a
78. d – Since, CC Corp. is not a subsidiary, no elimination of intercompany accounts will be made.
Therefore, the P200,000 remains to be a receivable. On the other hand, WW Corp. is a
consolidated subsidiary, so the P300,000 intercompany account will be eliminated.
79. d
80. a
81. c – In the combined financial statements (which normally used to described financial
statements in a “common control” situation), intercompany accounts are eliminated in full.
82. d – In consolidating the subsidiary's figures, all intercompany balances must be eliminated in
their entirety for external reporting purposes. Even though the subsidiary is less than fully
owned, the parent nonetheless controls it.
83. d
The acquisition method consolidates assets at fair value at acquisition date regardless of the
parent’s percentage ownership.
84. c
85. c
An asset acquired in a business combination is initially valued at 100% acquisition-date
fair value and subsequently amortized its useful life.
Patent fair value at January 1, 2009 .......................................................................
Amortization for 2 years (10 year life)......................................................................
Patent reported amount December 31, 2010 ......................................................
86 a
87. b
PP - building...................................................................................................................
TT building acquisition-date fair value
P300,000
Amortization for 3 years (10-year life)
(90,000)
Consolidated buildings ...............................................................................................
-ORPP - building ...................................................................................................................
TT building 12/31/x4
P182,000
Excess acquisition-date fair value allocation
40,000
Excess amortization for (P40,000/ 10 x 3 years)
(12,000)
Consolidated buildings ...............................................................................................
88.
c
89.
c
P45,000
(9,000)
P36,000
P510,000
210,000
P720,000
510,000
210,000
P720,000
Target not met: 100,000 shares x .75 share x P10 = P750,000
Target met: 100,000 shares x .8 x P10 = P800,000
Target not met: 250,000 shares x 1.50 share x P30 = P11,250,000
Target met: 250,000 shares x 1.8 x P30 = P13,500,000
500,000 shares x 1.7 exchange ratio x P25 = P21,250,000
The investment value does not change as a result of a change in the share prices.
90. d
Cost of Investment (40 shares* x P40)………………………………………………………P 1,600
Less: Book value of SHE – Pedro Ltd (P300 + P800) x 100%............................................ 1,100
Allocated excess……………………………………………………………………………… P 500
Less: Over/Under valuation of Assets and Liabilities:
Increase in Non-current assets: [(P1,500 – P1,300) x 100% x 70%.........................
Goodwill………………………………………………………………………………………….P
*
Currently issued……………………
Additional shares issued………..
Total shares…………………………
100%
Pedro Ltd
100 40%
150 60%**
250
**150/250
FV of net assets [P.5M + P1.5M – P.7M)] P1.3M
BV of net assets (same with FV)……….. 1.1 M
Fv per share of stock……………………… P 16
140
360
Santi Ltd
40 40%
60 / 60%
100
P ?
?
P 40
Pedro ltd issues 2 ½ shares in exchange for each ordinary share of Santi Ltd. All of Santi Ltd’s
shareholders exchange their shares for Pedro Ltd. Pedro Ltd therefore issues 150 shares (60 x 2
½) for the 60 shares in Santi Ltd.
Pedro Ltd is now the legal parent of the subsidiary Santi Ltd. However, analyzing the
shareholding in Pedro Ltd shows that it consists of the 100 shares existing prior to the merger
and 150 new shares held by former shareholders in Santi Ltd. In essence, the former
shareholders of Santi Ltd now control both entities Pedro Ltd and Santi Ltd. The former Santi Ltd
shareholders have a 60% interest in Pedro Ltd [150/(100+150]. The IASB argues that there has
been a reverse acquisition, and that Santi Ltd is effectively the acquirer of Pedro Ltd.
Reverse acquisition occurs when the legal subsidiary has this form of control over the legal
parent. The usual circumstance creating a reverse acquisition is where an entity (the legal
parent) obtains ownership of the equity of another entity (the legal subsidiary) but, as part of
the exchange transaction, it issues enough voting equity as consideration for control of the
combined entity to pass to the owners of the legal subsidiary.
The key accounting effect of deciding that Santi Ltd is the acquirer is that the assets and
liabilities of Pedro ltd are to be valued at fair value. This is contrary to normal acquisition
accounting, based on Pedro Ltd being the legal parent of Santi Ltd, which would require the
assets and liabilities of Santi Ltd to be valued at fair value.
91. b – building account in the books of subsidiary at fair value
92. e – building account in the books of subsidiary at book value
93. d – push-down accounting: equipment account in the books of subsidiary is at fair value
94. c
P60,000 allocation to equipment is "pushed-down" to subsidiary and increases balance from
P330,000 to P390,000. Consolidated balance is P420,000 plus P390,000.
Theories
1.
2.
3.
4.
5.
41.
42.
43.
44.
c
a
e
e
b
c
c
c
c
6.
7.
8.
9.
10,
46.
47.
48.
49.
B
b
A
D
a
b
a
c
d
11.
12.
13.
14.
15,
51.
52.
53.
54.
c
c
d
d
b
c
b
a
a
16.
17.
18.
19.
20.
56.
57.
d
c
b
c
c
c
d
21.
22.
23.
24.
25.
b
a
a
b
c
26.
27.
28.
29.
30.
d
c
c
d
b
31
32.
33.
34.
35.
c
d
b
d
d
36.
37.
38.
39.
40.
d
d
c
b
c
45.
c
50,
b
55,
b
Chapter 16
Problem I - Cost Model/Method versus Equity Method
Partial-Goodwill Approach:
Fair value of Subsidiary
Consideration transferred: P600,000..............................................
Less: Carrying amount of Small’s net assets =
Carrying amount of Small’s shareholders’ equity
Common/Ordinary shares – Small (400,000 x 75%)............
Retained earnings – Small (100,000 x 75%).........................
Allocated Excess: Acquisition differential – Jan. 1, 20x4
Less: Over/under valuation of A/L (Allocated to):
Increase in Inventory (40,000 x 75%)........................................
Decrease in Patents (70,000 x 75%)..........................................
Positive Excess: Goodwill - partial
Full-Goodwill Approach:
Fair value of Subsidiary (Implied cost of 100% investment); P600,000/75%
Less: Carrying amount of Small’s net assets =
Carrying amount of Small’s shareholders’ equity
Common/Ordinary shares
Retained earnings
Allocated Excess: Acquisition differential – Jan. 1, 20x4
Less: Over/under valuation of A/L (Allocated to):
Increase in Inventory
Decrease in Patents
Positive Excess: Goodwill - full
A summary or depreciation and amortization adjustments is as follows:
Account
Adjustments
to
be
Over/
Annual
amortized
Under
Life
Amount
Inventory
P40,000
1
P 40,000
Subject to Annual Amortization
Patents
(70,000)
5
(14,000)
Amortization
P 26,000
Impairment of goodwill (full)
330,000
_____
P 26,000
For purposes of comparison between Cost Model/Method and Equity Method
Cost Method
Journal Entries
Year 1
Investment
Investment in Small
600,000
Cash
600,000
Dividend of Subsidiary
Cash
Dividend income
18,750
18,750
Investment in Son
1/1/x4 CI…… 600,000
12/31/x4
600,000
12/31/x5
600,000
12/31/x6
600,000
Equity Method
1.
Investment
600,000
300,000
75,000 375,000
225,000
30,000
(52,500)
( 22,500)
247,500
800,000
400,000
100,000
500,000
300,000
40,000
(70,000)
Current
Year(20x4)
P 40,000
(30,000)
330,000
20x5
P
( 14,000)
P 26,000
_____
P 26,000
20x6
-
P
(14,000)
P(14,000)
______
P(14,000)
Year 2
7,500
(14,000)
P(14,000)
__ 19,300
P 5,300
Year 3
30,000
7,500
30,000
Dividend Income
18,750 - Div–S (75 x80%)
18,750
7,500 - Div–S (10 x80%)
18,750
30,000 - Div–S (40 x80%)
30,000
Year 1
Year 2
-
Year 3
Investment in Small
Cash
600,000
600,000
Net Income (Loss) of Subsidiary:
Investment in Small (75% x Small’s profit)
Investment income
60,000
60,000
Investment income
Investment in Small (75% x Small’s profit)
26,,250
26,250
Dividend of Subsidiary
Cash (75% x Small’s dividends)
Investment in Small
18,750
18,750
Amortization of Allocated Excess
Investment income (75% x amortization of PD*)
Investment in Small
19,500
19,500
67,500
67,500
7,500
30,000
3,975
3,975
Investment in Small
Investment income
Investment in Son
1/1/x4: CI
600,000
NI of S
18,750 75% Div - Son
(80,000
75% Amort&
x 75%)……. 60,000
19,500
impairment
12/31/x4
621,750
75% NL – Sub
26,250
(35,000 x 75%)
7,500
75% Div - Son
75% Amort&
Impairment
10,500
12/31/x5
598,500
NI of S
30,00075% Div - Son
(90,000
75%Amort&
x 75%)……. 67,500
3,975 impairment
12/31/x6632,025
30,000
7,500
10,500
10,500
Investment Income (loss)
Amortization
impairment
19,500
75% NL – Sub
(35,000 x 75%)
26,250
NI of Son
(80,000
x 75%)
60,000
40,500
10,500
75% Amort&
impairment
15,750
Amortization
impairment
3,975
NI of Son
(90,000
x 75%)
67,500
63,525
Reconciliation of Investment /Conversion of Investment Account from Cost to Equity Method:
Investment balance under cost model
P
600,000
Retroactive adjustments: (Small’s net income less
dividends)
Small’s retained earnings, end of year
P160,000
Less: Small’s retained earnings, date of acquisition _100,000
Increase in retained earnings (NI less dividend)
P 60,000
Less: Cumulative amortization of allocated excess
_17,300
P 42,700
X: Controlling interests
____75%
P 32,025
Less: Impairment of goodwill
_______0
Investment balance under equity method
2.
a. Goodwill, 12/31/20x6 (P330,000 – P19,300)
b. FV of NCI, 12/31/20x6:
Non-controlling interest (full-goodwill), December 31, 20x6
Common stock – Subsidiary Company, December 31, 20x6 . . . . . . . . . . . . . . . . . .
Retained earnings – Subsidiary Company, December 31, 20x6
Retained earnings – Subsidiary Company, January 1, 20x6
(P100,000 + P80,000 – P25,000 – P35,000 – P10,000)..............................
_32,025
P
632,025
P 310,700
P 400,000
P110,000
Add: Net income of Small for 20x6………………………………………………..
90,000
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
P200,000
Less: Dividends paid – 20x6………………………………………………………….
40,000
Stockholders’ equity – Subsidiary Company, December 31, 20x5 . . . . . . . . . . . . .
Adjustments to reflect fair value - (over) undervaluation of assets and
liabilities, date of acquisition (January 1, 20x4)- decreased in Net Assets . . . .
Less: Amortization of allocated excess (refer to amortization above):
20x4 (P40,000 – P14,000). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
P 26,000
20x5 and 20x6. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(28,000)
Fair value of stockholders’ equity of subsidiary, December 31, 20x6 . . . . . . . . . . .
Multiplied by: Non-controlling Interest percentage . . . . . . . . . . . . . . . . . . . . . . . . .
FV of Non-controlling interest (partial goodwill), 12/31/20x6 . . . . . . . . . . . . . . . . .
Add: Non-controlling interest on full goodwill , net of impairment loss
[(P330,000 full – P247,000, partial = P82,500………………………………….
P 82,500
Less: Impairment on the NCI (P19,300 x 25%)…………………………………
___4,825
FV of Non-controlling interest (full-goodwill), 12/31/20x6. . . . . . . . . . . . . . . . . . . . .
*or P330,000 full – P247,000, partial = P82,500 – (impairment loss on full goodwill less (P19,300 x 25%)]
= P77,625
160,000
P 560,000
(
30,000)
(2,000)
P 532,000
20
P 133,000
___*77,675
P 210,675
Alternatively, NCI on December 31, 20x6may also be computed as follows (Note: This is the
American version of computing NCI, since they only allowed using Full-goodwill Method):
Common stock, 12/31/20x6…………………………………………………
P 400,000
Retained earnings, 12/31/20x6
(P100,000+P80,000 – P25,000 – P35,000 – P10,000)………….. P 110,000
Add: NI – Subsidiary (20x6) ………………………………………………….
90,000
Dividends – Subsidiary 20x6………………………………………………….( 40,000) 160,000
Book value of SHE – S, 12/31/20x6………………………………………….
P560,000
Adjustments to reflect fair value (Increase in Net Assets)………………P 300,000
Amortization of allocated excess:
Inventory – 20x4...…………………………………………………….( 40,000)
Patent (P14,000 x 3 years)…………………………………………..
42,000
Impairment of goodwill – 20x6……………………………………..( 19,300) 282,700
FV of SHE of Small………………………………………………………………
P 842,700
Multiplied by: NCI%..................................................................................... 25%
FV of NCI, 12/31/20x6…………………………………………………………..
P 210,675
Or, alternatively:
Common stock – Subsidiary Company, December 31, 20x6 . . . . . . . . . . . . . . . . . .
Retained earnings – Subsidiary Company, December 31, 20x6
Retained earnings – Subsidiary Company, January 1, 20x6
(P100,000 + P80,000 – P25,000 – P35,000 – P10,000)..............................
Add: Net income of Small for 20x6………………………………………………..
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Dividends paid – 20x6………………………………………………………….
Stockholders’ equity – Subsidiary Company, December 31, 20x6 . . . . . . . . . . . . .
Unamortized acquisition differential / allocated excess / increase in net assets:
{P300,000, allocated excess – {P40,000 - (P14,000 x 3) + P19,300, full impairment
P 400,000
P110,000
90,000
P200,000
40,000
160,000
P 560,000
__282,500
P 842,500
______25%
P 210,675
Multiplied by: Non-controlling Interest percentage . . . . . . . . . . . . . . . . . . . . . . . . .
FV of Non-controlling interest (full-goodwill), 12/31/20x6. . . . . . . . . . . . . . . . . . . . .
c. Consolidated Retained Earnings, 1/1/20x6 – P498,500
Consolidated Retained Earnings, January 1, 20x6
Retained earnings - Large Company, January 1, 20x6 (cost model)
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 – Small, January 1, 20x6
(P100,000 + P80,00 – P25,000 – P35,000 – P10,000)
Less: Retained earnings – Small, January 1, 20x4 (date of acquisition)
Increase in retained earnings since date of acquisition
Less: Amortization of allocated excess – 20x4
Amortization of allocated excess – 20x5
P500,000
P 110,000
100,000
P 10,000
26,000
(14,000)
P ( 2,000)
Multiplied by: Controlling interests %...................
Less: Goodwill impairment loss (full-goodwill) – 20x6
Consolidated Retained earnings, January 1, 20x6
_____75%
P ( 1,500)
________0
(___1,500)
P498,500
The CRE, December 31, 20x6 would be as follows:
Consolidated Retained earnings, January 1, 20x6
Add: Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of Large for 20x6
Total
Less: Dividends paid – Large Company for 20x6
Consolidated Retained Earnings, December 31, 20x6
P498,500
233,525
P717,550
70,000
P662,025
Or, alternatively: to compute CRE, 12/31/20x6
Consolidated Retained Earnings, December 31, 20x6
Retained earnings - Large Company, December 31, 20x6 (cost model)
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 – Small, December 31, 20x6
(P100,000 + P80,00 – P25,000 – P35,000 – P10,000 + P90,000 – P40,000)
Less: Retained earnings – Small, January 1, 20x4 (date of acquisition)
Increase in retained earnings since date of acquisition
Less: Amortization of allocated excess – 20x4
Amortization of allocated excess – 20x5 and 20x6: P14,000 x 2
Multiplied by: Controlling interests %...................
Less: Goodwill impairment loss on full-goodwill) – 20x6 (P19,300 x 75%)
Consolidated Retained earnings, December 31, 20x6
P630,000
P 160,000
100,000
P 60,000
26,000
(28,000)
P 62,000
_____75%
P 46,500
__14,475
__32,025
P 662,025
d. P233.525
Consolidated Net Income for 20x6
Net income from own/separate operations
Parent Company: Large Company [P200,000 –
(P40,000 x 75%)]
Small Company
Total
Less: Non-controlling Interest in Net Income*
P 21,175
Amortization of allocated excess
(14,000)
Goodwill impairment
_19,300
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 20x6
*Net income of subsidiary – 20x6
Amortization of allocated excess – 20x6
P170,000
90,000
P260,000
__26,475
P233,525
__21,175
P254,700
P 90,000
( 14,000)
P
104,000
Multiplied by: Non-controlling interest %..........
25%
P 26,000
Less: Non-controlling interest on impairment loss on full-goodwill
( (P19,300 x 25%)*
Non-controlling Interest in Net Income (NCINI)
___4,825
P
21,175
*this procedure would be not be applicable where the NCI on goodwill impairment loss would not
be proportionate to NCI acquired.
e. P21,175 – refer to (d) for computations
Note: Regardless of the method used (cost or equity) answers for No. 2 (a) to (e) above are exactly
the same.
Problem II
A.
1.
a. P87,725
Consolidated Net Income for 20x4
Net income from own/separate operations
Pill Company
Sill Company
Total
Less: Non-controlling Interest in Net Income*
Amortization of allocated excess
Goodwill impairment
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
P55,000
40,000
P95,000
P 5,775
0
1,500
__7,275
P87,725
__5,775
P93,500
b. P5,775
*Net income of subsidiary – 20x4
Amortization of allocated excess – 20x4
P 40,000
(
0))
P 40,000
Multiplied by: Non-controlling interest %..........
_____15%
P 6,000
Less: Non-controlling interest on impairment loss on full-goodwill _____225
(P1,500 x 15%)*
Non-controlling Interest in Net Income (NCINI)
P 5,775
*this procedure would be not be applicable where the NCI on goodwill impairment loss would not
be proportionate to NCI acquired.
d.
d.2
c. P93,500 – refer to computation in (a)
d.1. P75,000. Retained earnings of Parent on the date of acquisition should always be the
same with the Consolidated Retained Earnings also on the date of acquisition.
Retained earnings of P Co, 1/1/20x4
Add; Net income under cost method [P55,000 + (P9,000 x
85%)]
Less: Dividends of P Company
Retained Earnings of P Co, 12/31/20x4 under cost model
P75,000
_62,650
P
137,650
___5,000
P
132,650
d.3
Retained earnings of P company (same with
Consolidated RE), 1/1/20x4
Add; Controlling Interest in CNI (refer to a above)
P75,000
_87,725
P 162,725
____5,000
P 157,725
Less: Dividends of P Company
Consolidated Retained Earnings, 12/31/20x4
e. P238,000
2.
a. P87,725
Consolidated Net Income for 20x4
Net income from own/separate operations
Pill Company
Sill Company
Total
Less: Non-controlling Interest in Net Income*
Amortization of allocated excess
Goodwill impairment
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
P55,000
40,000
P95,000
P 5,775
0
1,500
b. P5,775
*Net income of subsidiary – 20x4
Amortization of allocated excess – 20x4
__7,275
P87,725
__5,775
P93,500
P 40,000
(
0))
P 40,000
Multiplied by: Non-controlling interest %..........
_____15%
P 6,000
Less: Non-controlling interest on impairment loss on full-goodwill _____225
(P1,500 x 15%)*
Non-controlling Interest in Net Income (NCINI)
P 5,775
*this procedure would be not be applicable where the NCI on goodwill impairment loss would not
be proportionate to NCI acquired.
c. P93,500 – refer to computation in (a)
d.
d.2
d.1. P75,000. Retained earnings of Parent on the date of acquisition should always be the
same with the Consolidated Retained Earnings also on the date of acquisition.
Retained earnings of P Co, 1/1/20x4
Add; Net income under equity method {P55,000 +
[(P40,000 x 85%) (P1,500, impairment loss x 85%) – (P0, amortization)}
P75,000
Retained earnings of P Co., (same with Consolidated RE),
1/1/20x4
Add; Controlling Interest in CNI same with Net Income in
d.2 above under
equity method but not cost model
P75,000
_87,725
P162,725
Less: Dividends of P Company
___5,000
Retained Earnings of P Co., 12/31/20x4 under equity P157,725
method
d.3
_87,725
P162,725
___5,000
P157,725
Less: Dividends of P Company
Consolidated Retained Earnings, 12/31/20x4
e. P263,075 = P238,000 + (P40,000 x 85%) – (P9,000, div x 85%) – (P1,500, impair, x 85%)
3. Reconciliation of Investment balance – Cost Model to Equity Method
Investment balance under cost model
Retroactive adjustments: (Sill’s net income less
dividends)
Sill’s net income – 20x4
Less: Sill’s dividend – 20x4
Increase in retained earnings (NI less dividend)
Less: Cumulative amortization of allocated excess
X: Controlling interests
Less: Impairment of goodwill (P1,500 x 85%)
Investment balance under equity method
P
238,000
40,000
_9,000
31,000
_____0
31,000
__85%
26,350
_1,275
__25,075
P263,075
Reconciliation of Retained Earnings – Cost Model to Equity Method
Retained
earnings,
12/31/20x4
under
cost
model(requirement 1 d.2)
Retroactive adjustments: (Sill’s net income less
dividends)
P
132,650
Sill’s net income – 20x4
Less: Sill’s dividend – 20x4
Increase in retained earnings (NI less dividend)
Less: Cumulative amortization of allocated excess
X: Controlling interests
Less: Impairment of goodwill (P1,500 x 85%)
Retained
earnings, 12/31/20x4
under
equity
method(requirement 2 d.2)
B.
40,000
_9,000
31,000
_____0
31,000
__85%
26,350
_1,275
__25,075
P157,725
4.
a. P87,725
Consolidated Net Income for 20x4
Net income from own/separate operations
Pill Company [P62,650 – (P9,000 x 85%)]
Sill Company
Total
Less: Non-controlling Interest in Net Income*
Amortization of allocated excess
Goodwill impairment
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
P55,000
40,000
P95,000
P 5,775
0
1,500
__7,275
P87,725
__5,775
P93,500
b. P5,775
*Net income of subsidiary – 20x4
Amortization of allocated excess – 20x4
P 40,000
(
0))
P 40,000
Multiplied by: Non-controlling interest %..........
_____15%
P 6,000
Less: Non-controlling interest on impairment loss on full-goodwill _____225
(P1,500 x 15%)*
Non-controlling Interest in Net Income (NCINI)
P 5,775
*this procedure would be not be applicable where the NCI on goodwill impairment loss would not
be proportionate to NCI acquired.
c. P93,500 – refer to computation in (a)
d.
d.1. P75,000. Retained earnings of Parent on the date of acquisition should always be the same
with the Consolidated Retained Earnings also on the date of acquisition.
d.2
Retained earnings of P Co, 1/1/20x4
Add; Net income under cost method (given)
P75,000
_62,650
Less: Dividends of P Company
Retained Earnings of P Co, 12/31/20x4 under cost model
P
137,650
___5,000
P
132,650
d.3
Retained earnings of P company (same with
Consolidated RE), 1/1/20x4
Add; Controlling Interest in CNI (refer to a above)
P75,000
_87,725
P 162,725
____5,000
P 157,725
Less: Dividends of P Company
Consolidated Retained Earnings, 12/31/20x4
e. P238,000
5. Correction: Pill’s net income should be P87,725 instead of P86,725
a. P87,725
Consolidated Net Income for 20x4
Net income from own/separate operations
Pill Company [P87,725 – (P40,000 x 85%) +
(P1,500 x 85%)]
Sill Company
Total
Less: Non-controlling Interest in Net Income*
Amortization of allocated excess
Goodwill impairment
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
P55,000
40,000
P95,000
P 5,775
0
1,500
b. P5,775
*Net income of subsidiary – 20x4
Amortization of allocated excess – 20x4
__7,275
P87,725
__5,775
P93,500
P 40,000
(
0))
P 40,000
Multiplied by: Non-controlling interest %..........
_____15%
P 6,000
Less: Non-controlling interest on impairment loss on full-goodwill _____225
(P1,500 x 15%)*
Non-controlling Interest in Net Income (NCINI)
P 5,775
*this procedure would be not be applicable where the NCI on goodwill impairment loss would not
be proportionate to NCI acquired.
d.
c. P93,500 – refer to computation in (a)
d.2
d.1. P75,000. Retained earnings of Parent on the date of acquisition should always be the
same with the Consolidated Retained Earnings also on the date of acquisition.
Retained earnings of P Co, 1/1/20x4
Add; Net income under equity method (given)
P75,000
Retained earnings of P Co., (same with Consolidated RE),
1/1/20x4
Add; Controlling Interest in CNI same with Net Income in
d.2 above under
equity method but not cost model
P75,000
_87,725
P162,725
Less: Dividends of P Company
___5,000
Retained Earnings of P Co., 12/31/20x4 under equity P157,725
method
d.3
Less: Dividends of P Company
Consolidated Retained Earnings, 12/31/20x4
_87,725
P162,725
___5,000
P157,725
e. P263,075 = P238,000 + (P40,000 x 85%) – (P9,000, div x 85%) – (P1,500, impair, x 85%)
5. Reconciliation of Investment balance – Cost Model to Equity Method
Investment balance under cost model
P
238,000
Retroactive adjustments: (Sill’s net income less
dividends)
Sill’s net income – 20x4
P
40,000
Less: Sill’s dividend – 20x4
___9,000
Increase in retained earnings (NI less dividend)
P
31,000
Less: Cumulative amortization of allocated excess _______0
P
31,000
X: Controlling interests
____85%
P
26,350
Less: Impairment of goodwill (P1,500 x 85%)
___1,275 __25,075
Investment balance under equity method
P263,075
Reconciliation of Retained Earnings – Cost Model to Equity Method
Retained
earnings,
12/31/20x4
model(requirement 1 d.2)
under
cost
P
132,650
Retroactive adjustments: (Sill’s net income less
dividends)
Sill’s net income – 20x4
P 40,000
Less: Sill’s dividend – 20x4
___9,000
Increase in retained earnings (NI less dividend)
P 31,000
Less: Cumulative amortization of allocated excess _______0
P 31,000
X: Controlling interests
____85%
P 26,350
Less: Impairment of goodwill (P1,500 x 85%)
___1,275 __25,075
Retained earnings, 12/31/20x4
under equity
P157,725
method(requirement 2 d.2)
Problem III
Cost of 85% investment
Fair value of Subsidiary (Implied cost of 100% investment); P646,000/85%
Less: Carrying amount of Silk’s net assets =
Carrying amount of Silk’s shareholders’ equity
Common/Ordinary shares
500,000
Retained earnings
100,000
646,000
760,000
600,000
160,000
Allocated Excess: Acquisition differential – December 31, 20x4
Less: Over/under valuation of A/L (Allocated to):
Increase in Inventory
Patents
Non-controlling interest (15% x 760,000, fair value of subsidiary),12/31/20x4
70,000
90,000
114,000
A summary or depreciation and amortization adjustments is as follows:
Account Adjustments to
be amortized
Inventory
Subject
to
Amortization
Patents
Over/
under
P70,00
0
Lif
e
90,000
P160,0
00
10
1
Annu
Current
al
Amou Year(20x
nt
5)
P
70,000 P 70,000
P
__9,00
0
P
79,000
___9,00
0
P
9,000
20x6
20x7
-
P
-
Annual
Unamortized balance of allocated excess:
Balance
Dec. 31
31
20x4
Inventory
70,000
Patents
90,000
160,000
___9,000
P 79,000
Amortization
20x5
70,000
9,000
79,000
___9,00
0
P
9,000,
Balance
Dec.
20x6
20x6
9,000
9,000
72,000
72,000
1. NCI-CNI
20x5: P(7,350)
20x6: P6,450
20x5
Consolidated Net Income
Net income from own/separate
operations
Large Company
20x5 [P28,000 – P0)]
P 28,000
20x6 [(P45,000, loss +
(P15,000 x 85%)]
Small Company
30,000
Total
P 58,000
Less: Non-controlling Interest in P(7,350)
Net Income*
Amortization of allocated
79,000
excess
Goodwill impairment
_____0
71,650
CI-CNI (loss)
or Profit (loss)
attributable to equity
P(13,650)
holders of parent
Add: Non-controlling Interest in Net
( 7,350)
Income (NCINI)
Consolidated
Net
P(21,000)
Income/Loss(CNI)
20x6
P(57,750)
52,000
P( 5,750)
P
6,450
9,000
_____0
15,450
P(21,200)
6,450
P(14,750)
20x5
20x6
*Net income (loss) of subsidiary
P 30,000 P 52,000
Amortization of allocated excess
( 79,000) ( 9,000)
P(49,000) P43,000
Multiplied by: Non-controlling interest %..........
15%
15%
P(7,350)
P
6,450
Less: Non-controlling interest on impairment loss on full- __________
goodwill
_Non-controlling Interest in Net Income (NCINI)
P( 7,350)
P6,450
*this procedure would be not be applicable where the NCI on goodwill impairment loss would not
be proportionate to NCI acquired.
2. CI-CNI – refer to computation in No. 1
20x5: P(21,000)
20x6: P14,750
Or, alternatively:
(1) Non-controlling interest in profit
20x5: 15%  (30,000 – 79,000).............................................................7,350
20x6: 15%  (52,000 – 9,000)............................................................... 6,450
(2)
20x5
20x6
NI (loss) Pen
Less: Dividends from Silk
20x5
20x6 (85%  15,000)
Share of Silk’s profit
85%  (30,000 – 79,000)
85%  (52,000 – 9,000)
Consolidated profit (loss) attributable to
Pen’s shareholders
28,000
0
(45,000)
28,000
(12,750)
(57,750)
(41,650)
________
36,550_
(13,650)
(21,200)
3. CRE, 12/31/20x6 – P73,150
Consolidated Retained Earnings, December 31, 20x6
Retained earnings - Pen Company, December 31, 20x6 (cost model
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 – Silk, December 31, 20x6:
(P100,000 + P30,00 – P0 + P52,000 – P15,000)
Less: Retained earnings – Silk, December 31, 20x4 (date of acquisition)
Increase in retained earnings since date of acquisition
Less: Amortization of allocated excess – 20x5
Amortization of allocated excess – 20x6
Multiplied by: Controlling interests %...................
Less: Goodwill impairment loss (full-goodwill) – 20x5
Consolidated Retained earnings, December 31, 20x6
P 91,000
P 167,000
100,000
P 67,000
79,000
__9,000
P (21,000)
85%
P (17,850)
_____0
( 17,850)
P 73,150
4. NCI, 12/31/20x6: P110,850
FV of SHE of Silk:
Common stock, 12/31/20x6
P 500,000
Retained earnings, 12/31/20x6:
Retained earnings, 1/1/20x4
P 100,000
NI – Subsidiary (20x5 and 20x6): P30,000 + P52,000
82,000
Dividends – Subsidiary (20x5 and 20x6): P0 + P15,000( 15,000)
167,000
Book value of SHE – S, 12/31/20x6
P 667,000
Adjustments to reflect fair value, 12/31/20x4
160,000
Amortization of allocated excess (P79,000 + P9,000)
( 88,000)
FV of SHE of S
P 739,000
Multiplied by: NCI%
_____15%
FV of NCI (partial), 12/31/20x6
P 110,850
Add: NCI on full-goodwill
______ _0
FV of NCI (full),12/31/20x6
P 110,850
Or, alternatively:
Non-controlling interest – date of acquisition,12/31/20x4
P114,000
Retained earnings Silk – Dec. 31, 20x6
(100,000 + 30,000 + 52,000 – 15,000)
P167,000
Less: Retained earnings, 12/31/20x4 (date of acquisition)100,000
Increase since acquisition
P 67,000
Less: Amortization of allocated excess (79,000 + 9,000)88,000
(1)
P( 21,000)
Multiplied by: NCI’s share
( 3,150)
Non-controlling interest (full) 12/31/20x6
____
15%
P 110,850
5. Consolidated Patents, 12/31/20x6: P72,000
Unamortized balance of allocated excess:
Balance
Dec. 31
Amortization
Balance
Dec.
31
Inventory
Patents
Or, alternatively:
20x4
70,000
90,000
160,000
20x5
70,000
9,000
79,000
20x6
20x6
9,000
9,000
72,000
72,000
Invest. account – equity Dec. 31, 20x6
628,150
Cost of investment, cost model
646,000
Retained earnings Silk – Dec. 31, 20x6
(100,000 + 30,000 + 52,000 – 15,000)
167,000
Retained earnings,12/31/20x4 (date of acquisition)
100,000
Increase since acquisition
67,000
Less: Accumulated amortization (79,000 + 9,000)88,000
( 21,000)
Multiplied by: CI share
85%
(17,850)
Invest. account – equity method as at Dec. 31, 20x6
628,150
Implied value of 100% (628,150 / 85%)
Silk –Common shares
Retained earnings – Silk, 12/31/20x6
500,000
167,000
739,000
667,000
72,000
Balance unamortized allocated excess – Patents
Problem IV
Additional information:
Parent’s net income from own operations - 20x4, P100,000; 20x5, P120,000
Parent’s dividend declared – 20x4, P30,000; 20x5, P40,000
1. NCNCI for 20x4, P8,400; NCNCI for 20x5, P12,020
20x4
Consolidated Net Income for 20x4
Net income from own/separate operations
Parent – Davis Company
Subsidiary - Martin Company
Total
Less: Non-controlling Interest in Net Income*
Amortization of allocated excess**
Goodwill impairment
P100,000
60,000
P160,000
P 8,400
18,000
_______0
__26,400
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
P133,600
___8,400
P142,000
*Net income of subsidiary – 20x4
Amortization of allocated excess – 20x4 (P2,000 + P16,000)
P 60,000
( 18,000)
P 42,000
Multiplied by: Non-controlling interest %..........
20%
P 8,400
_______0
P 8,400
Less: Non-controlling interest on impairment loss on full-goodwill
Non-controlling Interest in Net Income (NCINI)
*this procedure would be not be applicable where the NCI on goodwill impairment loss would not
be proportionate to NCI acquired.
** Amortization of allocated excess
Partial-Goodwill Approach:
Fair value of Subsidiary
Consideration transferred:..................................................................
Less: Carrying amount of Martins net assets =
Carrying amount of Martin’s shareholders’ equity
Common/Ordinary shares – Martin (180,000 x 80%)............
Retained earnings – Martin (60,000 x 80%).........................
Allocated Excess: Acquisition differential – Jan. 1, 20x4
Less: Over/under valuation of A/L (Allocated to):
Increase in Inventory (16,000 x 80%)........................................
Increase in Patents (20,000 x 80%)..........................................
Positive Excess: Goodwill - partial
Full-Goodwill Approach:
Fair value of Subsidiary P300,000/80%..................................................
Consideration transferred:..................................................................
Less: Carrying amount of Martins net assets =
Carrying amount of Martin’s shareholders’ equity
Common/Ordinary shares – Martin (180,000 x 100%)............
Retained earnings – Martin (60,000 x 100%).........................
Allocated Excess: Acquisition differential – Jan. 1, 20x4
Less: Over/under valuation of A/L (Allocated to):
Increase in Inventory (16,000 x 100%)........................................
Increase in Patents (20,000 x 100%)..........................................
Positive Excess: Goodwill - partial
300,000
144,000
48,000192,000
108,000
12,800
16,000
375,000
180,000
60,000 240,000
A summary or depreciation and amortization adjustments is as follows:
Account
Adjustments
to
be
Over/
Annual
amortized
Under
Life
Amount
Inventory
P16,000
1
P 16,000
Subject to Annual Amortization
Patents
20,000
10
2,000
Amortization
P 18,000
Impairment of goodwill (full)
99,000
________
P 18,000
20x5
Consolidated Net Income for 20x5
28,800
79,200
135,000
16,000
20,000
Current
Year(20x4)
P 16,000
2,000
P 18,000
_____
P 18,000
36,000
99,000
20x5
P
-
___2,000
P
2,000
___9,900
P 11,900
Net income from own/separate operations
Parent – Davis Company
P120,000
Subsidiary - Martin Company
72,000
Total
P192,000
Less: Non-controlling Interest in Net Income*
P 12,020
Amortization of allocated excess**
2,000
Goodwill impairment
___9,900 __23,920
Controlling Interest in Consolidated Net Income or
Profit
P168,080
attributable to equity holders of parent…………..
Add: Non-controlling Interest in Net Income (NCINI)
__12,020
Consolidated Net Income for 20x5
P180,100
*Net income of subsidiary – 20x5
Amortization of allocated excess – 20x5
P 72,000
( 2,000)
P70,000
Multiplied by: Non-controlling interest %..........
20%
P 14,000
Less: Non-controlling interest on impairment loss on full-goodwill
(P99,000 x 10% =
P9,900 x 20%)
Non-controlling Interest in Net Income (NCINI)
___1,980
P 12,020
*this procedure would be not be applicable where the NCI on goodwill impairment loss would not
be proportionate to NCI acquired.
2. CI – CNI for 20x4, P133,600; CI – CNI for 20x5, P168,080
3. CRE, 12/31/20x5, P208,080
Correction: RE on January 1, 20x5 instead of December 31, 20x5.
Retained earnings of P Co, 1/1/20x5, equity method (same
with CRE)
Add; CI – CNI
Less: Dividends of P Company
Retained Earnings of P Co., 12/31/20x4 under equity method
4.
NCI, 12/31/20x5
Non-controlling interest, December 31, 20x5
Common stock – Martin Company, December 31, 20x5……
Retained earnings – Martin Company, December 31, 20x4
Retained earnings – Martin Company, January 1, 20x4
Add: NI of Martin for 20x4 and 20x5 (60,000 + 72,000)
Total
Less: Dividends paid – 20x4 and 20x5 (12,000 + 15,000)
Stockholders’ equity – S Company, December 31, 20x4
Adjustments to reflect fair value - (over) undervaluation of
assets and liabilities, date of acquisition (January 1, 20x4)
(20,000 + 16,000)
Amortization of allocated excess (refer to amortization
P 80,000
168,080
P248,080
__40,000
P208,080
P 180,000
P 60,000
132,000
P192,000
27,000
165,000
P 345,000
36,000
above – 20x4 and 20x5 (P2,000 + 16,000 + 2,000)
Fair value of stockholders’ equity of S, December 31, 20x5……
Multiplied by: Non-controlling Interest percentage…………...
Non-controlling interest (partial-goodwill), 12/31/20x5………..
Add: Non-controlling interest on full goodwill , net of
impairment loss, 12/31/x5:[(P99,000 full – P79,200, partial
= P19,800) – (P99,000 x 10%, impairment loss x 20%)
Non-controlling interest (full-goodwill), 12/31/20x5……………..
( 20,000)
P 361,000
20
P 72,200
17,820
P 90,020
5.
Partial (80%)
79,200
____-079,200
_7,920
71,280
Goodwill balance, 1/1/20x4
Less Impairment – 20x4
Goodwill balance, 1/1/20x5
Less Impairment – 20x5 (99,000 x 10% = 9,900)
Goodwill balance, 12/31/20x5
Full (100%)
99,000
____-099,000
__9,900
89,100
6.
Patents, 1/1/20x4
Less: Amortization (20,000/10 years = 2,000 x 2)
Consolidated Patents, 12/31/20x5
Problem V
1. (Full or partial-goodwill) – the same answer.
Consideration transferred by MM ............................
Noncontrolling interest fair value ....................................
air value of Subsidiary………………………………….
Less: Book value of SHE – S…..…………………….
Positive excess ............................................................
Excess fair value assigned to buildings
Goodwill - full P150,000
Total.........................................................................
2.
3.
P150,000 – full goodwill (see No. 1 above)
P120,000 – partial-goodwill:
Consideration transferred by MM ...........................
Less: Book value of SHE – S (P600,000 x 80%)……..
Allocated excess……………………………………..
Less: Over/under valuation of A and L:
P80,000 x 80%.................................................
Goodwill - partial.........................................................
20,000
_4,000
16,000
P664,000
166,000*
P830,000
(600,000)
230,000
Life
80,000 20 years
indefinite
-0-
Annual Excess
Amortizations
P4,000
P4,000
P664,000
480,000
P184,000
64,000
P120,000
Full-goodwill
Common Stock - TT ..................................................................
Additional Paid-in Capital - TT ...............................................
Retained Earnings - TT..............................................................
Investment in TT Company (80%) ..................................
Non-controlling interest (20%) ........................................
Buildings ....................................................................................
Goodwill ....................................................................................
300,000
90,000
210,000
80,000
150,000
480,000
120,000
Investment in TT Company (80%) ..................................
Non-controlling interest (P166,000 – P120,000) ...........
Partial-goodwill
Common Stock - TT ..................................................................
Additional Paid-in Capital - TT ...............................................
Retained Earnings - TT..............................................................
Investment in TT Company (80%) ..................................
Non-controlling interest (20%) ........................................
184,000
46,000
300,000
90,000
210,000
Buildings ....................................................................................
Goodwill ....................................................................................
Investment in TT Company (80%) ..................................
Non-controlling interest (20% x P80,000) .......................
4. Cost Model/Initial Value Method
Dividends received (80%) .............................................................
Investment in Taylor—12/31/x4 (original value paid)…………
480,000
120,000
80,000
120,000
P
184,000
16,000
8,000
Equity Method
Income accrual (80%) ..................................................................
Excess amortization expense .......................................................
Investment income .................................................................
P56,000
(3,200)
P52,800
Initial fair value paid .....................................................................................
Income accrual 20x4–20x6 (P260,000 × 80%) ...........................
Dividends 20x4–20x6 (P45,000 × 80%) .........................................
Excess Amortizations 20x4–20x6 (P3,200 × 3) ............................
Investment in TT—12/31/x6 .....................................................
P664,000
208,000
(36,000)
(9,600)
P826,400
P664,000
5. Same answer with No. 4.
6.
Using the acquisition method, the allocation will be the total difference (P80,000) between
the buildings' book value and fair value. Based on a 20 year life, annual excess amortization
is P4,000.
MM book value—buildings ...................................................
TT book value—buildings .......................................................
Allocation .................................................................................
Excess Amortizations for 20x4–20x5 (P4,000 × 2) ………….
Consolidated buildings account …………………
7.
Acquisition-date fair value allocated to goodwill:
Goodwill-full ( see No. 1 above) .................................................
Goodwill-partial (see No. 1 above)………………………………
P 800,000
300,000
80,000
(8,000)
P1,172,000
P 150,000
P 120,000
8. The common stock and additional paid-in capital figures to be reported are the parent
balances only.
Common stock, P500,000
Additional paid-in capital, P280,000
Problem VI
1. Common stock of TT Company on December 31, 20x4
Retained earnings of TT Company
January 1, 20x4
Sales for 20x4
P 90,000
P 130,000
195,000
2.
Less: Expenses
Dividends paid
Retained earnings of TT Company
on December 31, 20x4
Net book value on December 31, 20x4
Proportion of stock acquired by QQ
Purchase price
Net book value on December 31, 20x4
Proportion of stock held by
noncontrolling interest
Balance assigned to noncontrolling interest
(160,000)
(15,000)
150,000
P240,000
x
.80
P192,000
P240,000
x
.20
P 48,000
3. Consolidated net income is P143,000. None of the 20x4 net income of TT Company was earned
after the date of purchase and, therefore, none can be included in consolidated net income.
4. Consolidated net income would be P178,000 [P143,000 + (P195,000 - P160,000)].
Problem VII
(Several valuation and income determination questions for a business combination involving a
non-controlling interest.)
Business combinations are recorded generally at the fair value of the consideration transferred by
the acquiring firm plus the acquisition-date fair value of the non-controlling interest.
PS’s consideration transferred (P31.25 × 80,000 shares) .............................................
Non-controlling interest fair value (P30.00 × 20,000 shares) ......................................
SR’s total fair value 1/1/09................................................................................................
P2,500,000
P600,000
P3,100,000
1. Each identifiable asset acquired and liability assumed in a business combination should
initially be reported at its acquisition-date fair value.
2. In periods subsequent to acquisition, the subsidiary’s assets and liabilities are reported at their
acquisition-date fair values adjusted for amortization and depreciation. Except for certain
financial items, they are not continually adjusted for changing fair values.
3. SR’s total fair value 1/1/09................................................................................................
SR’s net assets book value ...............................................................................................
Excess acquisition-date fair value over book value ...................................................
Adjustments from book to fair values ............................................................................
Buildings and equipment ........................................................
(250,000)
Trademarks ................................................................................
200,000
Patented technology ..............................................................
1,060,000
Unpatented technology .........................................................
600,000
Goodwill
...................................................................................................................
P3,100,000
1,290,000
P1,810,000
4. Combined revenues .........................................................................................................
Combined expenses .........................................................................................................
Building and equipment excess depreciation.............................................................
Trademark excess amortization ......................................................................................
Patented technology amortization ...............................................................................
Unpatented technology amortization ..........................................................................
Consolidated net income ................................................................................................
P4,400,000
(2,350,000)
50,000
(20,000)
(265,000)
(200,000)
P1,615,000
To non-controlling interest:
SR’s revenues ...............................................................................................................
1,610,000
P200,000
P1,400,000
SR’s expenses ...............................................................................................................
Total excess amortization expenses (above) ........................................................
SR’s adjusted net income..........................................................................................
Non-controlling interest percentage ownership...................................................
Non-controlling interest share of consolidated net income ..............................
(600,000)
(435,000)
P365,000
20%
P73,000
To controlling interest:
Consolidated net income .........................................................................................
Non-controlling interest share of consolidated net income ..............................
Controlling interest share of consolidated net income.......................................
P1,615,000
(73,000)
P1,542,000
-ORPS’s revenues ............................................................................................................... P3,000,000
PS’s expenses ...............................................................................................................
1,750,000
PS’s separate net income ......................................................................................... P1,250,000
PS’s share of SR’s adjusted net income
(80% × P365,000) ............................................................................................
292,000
Controlling interest share of consolidated net income....................................... P1,542,000
5. Fair value of non-controlling interest January 1, 20x4 ................................................
P600,000
20x4 income ..................................................................................................................... ……..73,000
Dividends (20% × P30,000)................................................................................................
(6,000)
Non-controlling interest December 31, 20x4 ................................................................ P 667,000
6. If SR’s acquisition-date total fair value was P2,250,000, then a bargain purchase has occurred.
SR’s total fair value 1/1/09................................................................................................ P2,250,000
Collective fair values of SR’s net assets ......................................................................... P2,300,000
Bargain purchase ..............................................................................................................
P50,000
The acquisition method requires that the subsidiary assets acquired and liabilities assumed be
recognized at their acquisition date fair values regardless of the assessed fair value. Therefore,
none of SR’s identifiable assets and liabilities would change as a result of the assessed fair value.
When a bargain purchase occurs, however, no goodwill is recognized.
Problem VIII (Full-Goodwill)
A variety of consolidated balances-midyear acquisition)
Book value of RR, 1/1(stockholders' equity accounts)
(P100,000 + P600,000 + P700,000).......................
Increase in book value:
Net Income (revenues less cost of
goods sold and expenses) ................................
Dividends ..............................................................
Change during year ..................................................
Change during first six months of year ...........
Book value of RR, 7/1 (acquisition date) .
(Full-Goodwill)
Consideration transferred by KL(P1,330,000 +
P30,000) ...................................................................
Non-controlling interest fair value ..................................
RRs’ fair value (given)........................................................
P1,400,000
P120,000
(20,000)
P100,000
50,000
P1,450,000
P1,360,000
300,000
P1,630,000
Note: The fair value of subsidiary amounting P1,630,000, indicates a fair value of NCI
amounting to P300,000 (refer to above computation), which is lower compared to the FV
of the NCI based on FV of SHE of Subsidiary (RR), computed as follows:
BV of SHE of Subsidiary (RR) ....................................... P1,450,000
Adjustments to reflect fair value (undervaluation)
150,000
FV of SHE of Subsidiary (RR) ....................................... P 1,600,000
Multiplied by: NCI% .....................................................
20%
FV of NCI……………………………………………….
P 320,000
Consideration transferred by KL(P1,330,000 +
P30,000) ................................................................... P1,360,000
Non-controlling interest fair value .................................. ___320,000
RRs’ fair value (given)........................................................ P1,680,000
Book value of RR, 7/1 ........................................................ (1,450,000)
Fair value in excess of book value.................................. P 230,000
Annual Excess
Excess fair value assigned
Life
Amortizations
Trademarks ......................................................................
150,000 5 years
P30,000
Goodwill (full-goodwill) .................................................. P 80,000 indefinite
-0Total
..........................................................................
P30,000
It should be carefully noted, that NCI can never be less than its share of fair value of net
identifiable assets (which is P320,000). Thus, the NCI share of company value is raised to
P320,000 (replacing the P300,000 NCI computed as residual amount – refer to computation
above). The rationale behind such rule is to avoid having a lower amount of goodwill
under the full-goodwill approach as compared to goodwill computed under the partialgoodwill approach.
(Partial-Goodwill)
Consideration transferred by KL...................................... P1,360,000
Less: Book value of SHE – RR (P1,450,000 x 80%)…….. 1,160,000
Allocated excess………………………………………….P 200,000
Less: Over/under valuation of A and L:
P150,000 x 80%.............................................. 120,000
Goodwill - partial
P80,000
Note that the goodwill under the full-goodwill and partial-goodwill approach are the same
because the FV of the NCI based on the FV of SHE of subsidiary (P320,000) is higher
compared to the imputed or the computed residual amount of NCI (P300,000).
Consolidation Totals:
 Expenses, P265,000 = P200,000 KK operating expenses plus P50,000 (post-acquisition
subsidiary operating expenses) plus ½ year excess amortization of P15,000.
 Dividends paid = P80,000
 Sales, P1,050,000 = P800,000 KK revenues plus P250,000 (post-acquisition subsidiary
revenue, P500,000 x 1/2)
 Equipment, none
 Depreciation expense, none
 Subsidiary’s net income, P60,000 = [(P500,000 – P280,000 – P100,000) x 1/2]
 Buildings, none
 Goodwill (full), P80,000; Goodwill (partial), P80,000
 Consolidated Net Income, P245,000
 Sales (1)
P1,050,000
 Cost of goods sold (2)
540,000
 Operating expenses (3)
__265,000
 Net Income
P 245,000
 Non-controlling Interest in Sub. Income (4)
P
9,000
 Controlling Interest in CNI
P 236,000
(1) P800,000 KK revenues plus P250,000 (post-acquisition subsidiary revenue)
(2) P400,000 KK COGS plus P140,000 (post-acquisition subsidiary COGS)




(3) P200,000 KK operating expenses plus P50,000 (post-acquisition subsidiary
operating expenses) plus ½ year excess amortization of P15,000
(4) 20% of post-acquisition subsidiary income less excess fair value amortization
[20% × (120,000 – 30,000) × ½ year] = P9,000
Retained Earnings, 1/1 = P1,400,000 (the parent’s balance because the subsidiary
was acquired during the current year)
Trademark = P935,000 (add the two book values and the excess fair value allocation
after taking one-half year excess amortization)
Goodwill (full)= P80,000 (the original allocation)
Goodwill (partial) = P80,000 (the original allocation)
Problem IX: Consolidated balances after a mid-year acquisition)
Note: Investment account balance indicates the initial value method.
Consideration transferred .........................................
Non-controlling interest fair value ...........................
FV of SHE - subsiary......................................................
Less: Book value of DD (below) ................................
Fair value in excess of book value (positive) ........
Excess assigned
based on fair value:
Equipment.......................................................
Goodwill (full) .................................................
Total ........................................................................
Amortization for 9 months ..................................
P526,000
300,000
P826,000
(765,000)
P 61,000
Annual Excess
Life
Amortizations
(30,000) 5 years
P(6,000)
P 91,000 indefinite
-0P(6,000)
P(4,500)
Acquisition-Date Subsidiary Book Value
Book value of Duncan, 1/1/x4 (CS + 1/1 RE) ............................
Increase in book value-net income (dividends
were paid after acquisition) ..................................................
Time prior to purchase (3 months) ..............................................
Book value of DD, 4/1/x4 (acquisition date) ............................
P740,000
P100,000
×¼
25,000
P765,000
* The fair value of NCI amounting to P300,000 is higher compared to the FV of the NCI
based on FV of SHE of Subsidiary (RR), computed as follows:
BV of SHE of Subsidiary (DD) . ……………………
P765,000
Adjustments to reflect fair value (undervaluation) ( 30,000)
FV of SHE of Subsidiary (DD)................................. P735,000
Multiplied by: NCI%................................................
_______40%
FV of NCI…………………………………………….
P294,000
(Partial-Goodwill)
Consideration transferred ..................................
Less: Book value of SHE – DD (P765,000 x 60%)
Allocated excess………………………………… .
Less: Over/under valuation of A and L:
(P30,000 x 60%)........................................... .................................
Goodwill - partial ..................................................
1. Consolidated Income Statement:
Revenues (1)
Cost of goods sold (2)
Operating expenses (3)
Consolidated net income
P 526,000
459,000
P 67,000
( 18,000)
P 85,000
P825,000
P405,000
214,500
619,500
P 205,500
2.
Noncontrolling interest in CNI (4)
28,200
Controlling interest in CNI
P 177,300
(1) P900,000 combined revenues less P75,000 (preacquisition subsidiary revenue)
(2) P440,000 combined COGS less P35,000 (preacquisition subsidiary COGS)
(3) P234,000 combined operating expenses less P15,000 (preacquisition subsidiary
operating expenses) less nine month excess overvalued equipment depreciation
reduction of P4,500
(4) 40% of post-acquisition subsidiary income less excess amortization
Goodwill, full = P91,000 (original allocation); Goodwill , partial = P85,000
Equipment = P774,500 (add the two book values less P30,000 reduction to fair value plus
P4,500 nine months excess amortization)
Common Stock = P630,000 (P company balance only)
Buildings = P1,124,000 (add the two book values)
Dividends Paid = P80,000 (P company balance only)
Problem X
1. AA should report income from its subsidiary of P15,000 (P20,000 x .75) rather than dividend
income of P9,000.
2. A total of P5,000 (P20,000 x .25) should be assigned to the non-controlling interest in the 20x4
consolidated income statement.
3. Consolidated net income of P70,0000 should be reported for 20X4, computed as follows:
Reported net income of AA
P59,000
Less: Dividend income from KR
(9,000)
Operating income of AA
P50,000
Net income of KR
20,000
Consolidated net income
P70,000
4. Income of P79,000 would be attained by adding the income reported by AA (P59,000) to the
income reported by KR (P20,000). However, the dividend income from KR recorded by AA
must be excluded from consolidated net income.
Problem XI
1. Net income for 20x4:
Operating income
Income from subsidiary
Net income
2. Consolidated net income is P125,000 (P90,000 + P35,000).
3. Retained earnings reported at December 31, 20x4:
Retained earnings, January 1, 20x4
Net income for 20x4
Dividends paid in 20x4
Retained earnings, December 31, 20x4
QQ
P 90,000
24,500
P114,500
NN
P35,000
QQ
P290,000
114,500
(30,000)
P374,500
NN
P40,000
35,000
(10,000)
P65,000
P35,000
4. Consolidated retained earnings at December 31, 20x4, is equal to the P374,500 retained
earnings balance reported by QQ.
5. When the cost method is used, the parent's proportionate share of the increase in retained
earnings of the subsidiary subsequent to acquisition is not included in the parent's retained
earnings. Thus, this amount must be added to the total retained earnings reported by the
parent in arriving at consolidated retained earnings.
Problem XII
(Consolidated balances three years after purchase. Parent has applied the equity method.)
1. Schedule 1—Acquisition-Date Fair Value Allocation and Amortization
JJ’s acquisition-date fair value .. P206,000
Book value of JJ ............................................
(140,000)
Fair value in excess of book value ............
66,000
Excess fair value assigned to specific
accounts based on individual fair values
Equipment ..............................................
Buildings (overvalued) ..........................
Goodwill ..................................................
Total ..........................................................
54,400
(10,000)
P21,600
Life
8 yrs.
20 yrs.
indefinite
Annual Excess
Amortization
P6,800
(500)
-0P6,300
Investment in JJ Company—12/31/x6
JJ’s acquisition-date fair value ............................................................
20x4 Increase in book value of subsidiary
20x4 Excess amortizations (Schedule 1) ............................................
20x5 Increase in book value of subsidiary ........................................
20x5 Excess amortizations (Schedule 1) ............................................
20x6 Increase in book value of subsidiary ........................................
20x6 Excess amortizations (Schedule 1) ............................................
Investment in J Company ............................................................
P206,000
40,000
(6,300)
20,000
(6,300)
10,000
(6,300)
P257,100
2. Equity in Subsidiary Earnings
Income accrual ...................................................................
Excess amortizations (Schedule 1) .................................
Equity in subsidiary earnings .......................................
P30,000
(6,300)
P23,700
3.Consolidated Net Income
Consolidated revenues (add book values) .....................................
Consolidated expenses (add book values) ....................................
Excess amortization expenses (Schedule 1) ....................................
Consolidated net income ...................................................................
P414,000
(272,000)
(6,300)
P135,700
4. Consolidated Equipment
Book values added together .............................................................
Allocation of purchase price ..............................................................
Excess depreciation (P6,800 × 3) .......................................................
Consolidated equipment .............................................................
P370,000
54,400
(20,400)
P404,000
5.Consolidated Buildings ...........................................................................................
Book values added together .............................................................
Allocation of purchase price ..............................................................
Excess depreciation (P500 × 3) ...........................................................
Consolidated buildings ..................................................................
6. Consolidated goodwill
Allocation of excess fair value to goodwill .......................................
P288,000
(10,000)
1,500
P279,500
P21,600
7. Consolidated Common Stock ............................................................................
P290,000
As a purchase, the parent's balance of P290,000 is used (the acquired company's
common stock will be eliminated each year on the consolidation worksheet).
8. Consolidated Retained Earnings .......................................................................
P410,000
Tyler's balance of P410,000 is equal to the consolidated total because the equity
method has been applied.
Problem XIII – 80% Partial Goodwill - Cost Model
Correction: The dividend income in the trial balance should be P38,400 instead P48,000
Requirements 1 to 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 S:
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
P192,000
96,000 288,000
P
84,000
P 4,800
5,760
76,800
( 19,200)
3,840
P
12,000
The over/under valuation of assets and liabilities are summarized as follows:
S Co.
Book
value
72,000
S Co.
Fair value
P
Inventory………………….……………..
24,000 P 30,000
Land………………………………………
48,000
55,200
Equipment (net).........
84,000
180,000
Buildings (net)
168,000
144,000
Bonds payable………………………… (120,000) ( 115,200)
P
Net………………………………………..
204,000 P 294,000
(Over)
Under
Valuation
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 ..................
S Co.
Book value
180,000
S Co.
Fair value
180,000
Increase
(Decrease)
0
Less: Accumulated
depreciation…..
Net book
value………………………...
Buildings................
Less: Accumulated
depreciation…..
Net book
value………………………...
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)
A summary or depreciation and amortization adjustments is as follows:
Over/
Account Adjustments to be Unde
r
amortized
P
Inventory
6,000
Subject
to
Annual
Amortization
96,00
Equipment (net).........
0
(24,0
Buildings (net)
00)
Bonds payable…
4,800
Lif
e
1
8
4
4
Annu
al
Amou
nt
P
6,000
12,000
( 6,000
)
1,200
P
13,200
Current
Year(20x
4)
P 6,000
12,000
( 6,000)
1,200
P 13,200
20x5
P
-
12,00
0
(6,00
0)
1,200
P
7,200
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%)
Fair value of NCI (given) (20%)
Fair value of Subsidiary (100%)
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
P 372,000
93,000
P 465,000
__360,000
P 105,000
P
90,000
15,000
fair value)………………………………………………...
20x4: First Year after Acquisition
Parent Company Cost Model Entry
January 1, 20x4:
(1)
Investment
in
Company……………………………………………
S
372,00
0
372,00
Cash……………………………………………………………………
0
..
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 P30,000 dividend paid was recorded as follows:
Dividends paid…………
36,000
Cash…….
36,000
Dividends paid by S Co..
Consolidation Workpaper – Year of Acquisition
(E1)
Common
stock
–
Co…………………………………………
Retained
earnings
–
Co……………………………………
Investment
in
Co……………………………………………
Non-controlling
interest
(P360,000
20%)………………………..
S
240,000
S
120.000
S
288,000
x
72,000
To eliminate intercompany investment and equity accounts
of subsidiary on date of acquisition; and to establish non-controlling
interest (in net assets of subsidiary) on date of acquisition.
(E2)
Inventory………………………………………………………………
….
Accumulated depreciation – equipment………………..
Accumulated depreciation – buildings…………………..
Land……………………………………………………………………
….
Discount
on
bonds
payable………………………………………….
6,000
96,000
192,00
0
7,200
4,800
12,000
Goodwill………………………………………………………………
….
Buildings………………………………………..
Non-controlling
interest
20%)………………………..
Investment
in
Co……………………………………………….
(P90,000
x
216,00
0
18,000
S
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……………………………………….
6,000
6,000
6,000
1,200
3,000
Inventory…………………………………………………………..
Accumulated
depreciation
–
equipment………………..
Discount on bonds payable…………………………
Goodwill……………………………………
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 and
book value of Son’s identifiable assets and liabilities as follows:
Inventory sold
Equipment
Buildings
Bonds payable
Totals
Cost of
Goods
Sold
P 6,000
_______
P 6,000
Depreciation/
Amortization
expense
Amortization
-Interest
P 12,000
( 6,000)
_______
P 6,000
P 1,200
P1,200
Total
13,200
It should be observed that the goodwill computed above was proportional to the controlling
interest of 80% and non-controlling interest of 20% computed as follows:
Value
Goodwill applicable to parent…………………
Goodwill applicable to NCI……………………..
Total (full) goodwill………………………………..
P12,000
3,000
P15,000
% of
Total
80.00%
20.00%
100.00%
Therefore, the goodwill impairment loss of P3,125 based on 100% fair value or full-goodwill would
be allocated as follows:
Value
Goodwill impairment loss attributable to P or
P
controlling
3,000
Interest
Goodwill impairment loss applicable to
750
NCI……………………..
% of
Total
80.00%
20.00%
Goodwill impairment loss based on 100% fair
value or fullGoodwill
(E4) Dividend income - P……….
Non-controlling
interest
(P36,000
20%)………………..
Dividends paid – S……………………
P 3,750
100.00%
28,800
7,200
x
36,000
To eliminate intercompany dividends and non-controlling interest
share of dividends.
(E5) Non-controlling interest in Net Income of
Subsidiary…………
Non-controlling interest …………..
9,360
9,360
To establish non-controlling interest in subsidiary’s adjusted net
income for 20x4 as follows:
Net income of subsidiary……………………..
Amortization of allocated excess [(E3)]…...
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI)
P 60,000
( 13,200)
P 46,800
20%
P 9,360
Worksheet for Consolidated Financial Statements, December 31, 20x4.
Cost Model (Partial-goodwill)
80%-Owned Subsidiary
December 31, 20x4 (First Year after Acquisition)
Income Statement
Sales
Dividend income
Total Revenue
Cost of goods sold
Depreciation expense
Interest expense
Other expenses
Goodwill impairment loss
Total Cost and Expenses
Net Income
NCI in Net Income - Subsidiary
Net Income to Retained Earnings
P Co
P480,000
28,800
P508,800
P204,000
60,000
48,000
P310,000
P196,800
P196,800
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
Balance Sheet
Cash……………………….
Accounts receivable……..
Inventory………………….
Land…………………………….
Equipment
Buildings
S Co.
P240,000
P240,000
P138,000
28,000
18,000
P180,000
P 60,000
P 60,000
Dr.
(4)
28,800
(3)
(3)
(3)
6,000
6,000
1,200
(3)
3,000
(5)
9,360
Cr.
P360,000
P
Consolidated
P 720,000
_________
P 720,000
P 348,000
90,000
1,200
66,000
3,000
P508,200
P211,800
( 9,360)
P202,440
P
196,800
P552,000
P120,000
60,000
P180,000
72,000
-
36,000
P484,800
232,800
90,000
120,000
210,000
240,000
720,000
360,000
(1) 120,000
202,440
P562,440
_
72,000
________
P144,000
P
490,440
P 90,000
60,000
90,000
48,000
180,000
540,000
P
322,800
150,000
210,000
265,200
420,000
1,044,000
(4)
(2)
(2)
6,000
7,200
(3)
36,000
6,000
(2) 216,000
Discount on bonds payable
Goodwill……………………
Investment in S Co………
(2)
(2)
372,000
Total
Accumulated depreciation
- equipment
Accumulated depreciation
- buildings
Accounts payable……………
Bonds payable…………………
Common stock, P10 par………
Common stock, P10 par………
Retained earnings, from above
Non-controlling interest…………
Total
4,800
12,000
P1,984,800
P1,008,000
P 135,000
405,000
P 96,000
288,000
120,000
240,000
600,000
120,000
120,000
484,800
240,000
144,000
(2) 96,000
(2) 192,000
(3)
6,000
_________
P1,008,000
20x5: Second Year after Acquisition
Sales
Less: Cost of goods sold
Gross profit
(3)
P2,424,600
12,000
P147,000
495,000
240,000
360,000
600,000
490,440
7,200
__________
P 745,560
(1 ) 72,000
(2) 18,000
(5) 9,360
P 745,560
P Co.
P
540,000
216,000
Less: Depreciation expense
Other expense
P
324,000
60,000
72,000
Net income from its own separate
operations
Add: Dividend income
P
192,000
38,400
Net income
P
230,400
P
72,000
Dividends paid
3,600
9,000
(1) 240,000
(4)
_________
P1,984,800
(3) 1,200
(3) 3,000
(4) 288,000
(5) 84,000
____92,160
P2,424,600
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.
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
Consolidation Workpaper – Second Year after Acquisition
The working paper eliminations (in journal entry format) on December 31, 20x5, are as follows:
(E1) Investment in S Company…………………………
19,200
Retained
earnings
Company………………………
–
P
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 the
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
–
Co…………………………………………
Retained earnings – S Co., 1/1/20x5
Investment
in
S
Co
(P384,000
80%)…………………………
Non-controlling
interest
(P384,000
20%)………………………..
S
240,000
144,000
x
307,200
x
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………………………………………….
96,000
192,00
0
7,200
4,800
12,000
Goodwill………………………………………………………………
….
Buildings………………………………………..
Non-controlling interest (P90,000 x 20%)
Investment
in
Co……………………………………………….
6,000
216,00
0
18,000
84,000
S
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 January 1, 20x5.
(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…………………..
13,560
2,640
6,000
12,000
Interest expense…………………………………
1,200
Inventory…………………………………………………………..
Accumulated
depreciation
equipment………………..
Discount on bonds payable…………………………
Goodwill……………………………………
6,000
–
24,000
2,400
3,000
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:
To Retained earnings
Impairment loss
Total
(20x4)
Retained
earnings,
P 6,000
12,000
(6,000)
1,200
P13,200
80%
P 10,560
3,000
P 13,560
Depreciation/
Amortization
expense
Amortization
-Interest
P 12,000
( 6,000)
________
P 6,000
P 1,200
P 1,200
(E5) Dividend income - P……….
Non-controlling
interest
(P48,000
20%)………………..
Dividends paid – S……………………
38,400
9,600
x
48,000
To eliminate intercompany dividends and non-controlling interest
share of dividends.
(E6) Non-controlling interest in Net Income of
Subsidiary…………
Non-controlling interest …………..
16,560
16,560
To establish non-controlling interest in subsidiary’s adjusted net
income for 20x5 as follows:
Net income of subsidiary……………………..
Amortization of allocated excess [(E4)]…...
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI
P 90,000
( 7,200)
P 82,800
20%
P 16,560
Worksheet for Consolidated Financial Statements, December 31, 20x5.
Cost Model (Partial-goodwill)
80%-Owned Subsidiary
December 31, 20x5 (Second Year after Acquisition)
Income Statement
Sales
Dividend income
Total Revenue
Cost of goods sold
Depreciation expense
Interest expense
Other expenses
Goodwill impairment loss
Total Cost and Expenses
P Co
P540,000
38,400
P578,400
P216,000
60,000
72,000
P348,000
S Co.
P360,000
P360,000
P192,000
24,000
54,000
P270,000
Dr.
(5)
38,400
(4)
(4)
6,000
1,200
Cr.
Consolidated
P 900,000
___________
P 900,000
P 408,000
90,000
1,200
126,000
P 625,200
Net Income
NCI in Net Income - Subsidiary
Net Income to Retained Earnings
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
Balance Sheet
Cash……………………….
Accounts receivable……..
Inventory………………….
Land…………………………….
Equipment
Buildings
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
Non-controlling interest…………
Total
P230,400
P230,400
P 90,000
P 90,000
P484,800
P
(6)
P 274,800
( 16,560)
P 258,240
16,560
(2) 13,560
(2) 144,000
(1)
19,200
P 490,440
230,400
P715,200
P 144,000
90,000
P234,000
72,000
-
48,000
P643,200
P186,000
P 676,680
265,200
180,000
216,000
210,000
240,000
720,000
P 114,000
96,000
108,000
48,000
180,000
540,000
P 367,200
276,000
324,000
265,200
420,000
1,044,000
2,400
9,000
372,000
P2,203,200
P1,074,000
P 150,000
450,000
P 102,000
306,000
120,000
240,000
600,000
120,000
120,000
643,200
240,000
186,000
258,240
P 748,680
(5)
(3)
(3)
6,000
7,200
(3)
(3)
(1)
4,800
12,000
19,200
(3) 96,000
(3) 192,000
(4) 12,000
_________
P1,074,000
6,000
(3) 216,000
(4) 2,400
(4) 3,000
(2) 307,200
(3) 84,000
(4)
24,000
_
72,000
________
P2,707,800
P180,000
552,000
240,000
360,000
600,000
(2) 240,000
676,680
(5)
(4)
___ _____
P2,203,200
(4)
48,000
9,600
2,640
__________
P 821,160
(2 ) 76,800
(3) 18,000
(6) 16,560
P 821,160
____99,120
P2,707,800
5. 1/1/20x4
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 P360,000
of acquisition)
b.
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)…………………………………..
P 240,000
120,000
P 360,000
90,000
P450,000
20
P 90,000
c.
Consolidated SHE:
Stockholders’ Equity
Common stock, P10 par
P 600,000
Retained earnings
P’s Stockholders’ Equity / CI - SHE
NCI, 1/1/20x4
Consolidated SHE, 1/1/20x4
6.
360,000
P 960,000
___90,000
P1,050,000
Note: The goodwill recognized on consolidation purely relates to the P’s share. NCI is measured
as a proportion of identifiable assets and goodwill attributable to NCI share is not recognized.
12/31/20x4:
a. CI-CNI
Consolidated Net Income for 20x4
Net income from own/separate operations
P Company
S Company
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
P168,000
60,000
P228,000
P 9,360
13,200
3,000
25,560
P202,440
9,360
P211.800
b. NCI-CNI
*Non-controlling Interest in Net Income (NCINI) for 20x4
Net income of S Company
Less: Amortization of allocated excess / goodwill impairment
(refer to amortization table above)
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI)
P 60,000
13,200
P 46,800
20%
P 9,360
c. CNI, P211,800 – refer to (a)
d. 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
202,440
P562,440
72,000
P490,440
e.
Non-controlling interest (partial-goodwill), December 31, 20x4
Common stock – S Company, December 31, 20x4……
Retained earnings – S Company, December 31, 20x4
Retained earnings – S Company, January 1, 20x4
Add: Net income of S for 20x4
Total
Less: Dividends paid – 20x4
Stockholders’ equity – S 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……
Multiplied by: Non-controlling Interest percentage…………...
Non-controlling interest (partial-goodwill)…………………………………..
P 240,000
P120,000
60,000
P180,000
36,000
144,000
P 384,000
90,000
( 13,200)
P460,000
20
P 92,160
f.
Consolidated SHE:
Stockholders’ Equity
Common stock, P10 par
Retained earnings
P 600,000
490,440
P’s Stockholders’ Equity / CI – SHE, 12/31/20x4
NCI, 12/31/20x4
Consolidated SHE, 12/31/20x4
P1,090,440
___92,160
P1,182,600
12/31/20x5:
a. CI-CNI
Consolidated Net Income for 20x5
Net income from own/separate operations:
P Company
S Company
Total
Less: Non-controlling Interest in Net Income*
Amortization of allocated excess (refer to amortization above)
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
b. NCI-CNI
*Non-controlling Interest in Net Income (NCINI) for 20x5
Net income of S Company
Less: Amortization of allocated excess / goodwill impairment for 20x5
(refer to amortization table above)
P192,000
90,000
P282,000
P16,560
__7,200
23,760
P258,240
16,560
P274,800
P 90,000
80,400
P 82,800
20%
P 16,560
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI) for 20x5
c. CNI, P274,800 – refer to (a)
d. On subsequent to date of acquisition, consolidated retained earnings would be computed as follows:
Consolidated Retained Earnings, December 31, 20x5
Retained earnings - P Company, January 1, 20x5 (cost model
P484,800
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 – S, January 1, 20x5
P 144,000
Less: Retained earnings – S, January 1, 20x4
120,000
Increase in retained earnings since date of acquisition
P 24,000
Less: Amortization of allocated excess – 20x4
13,200
P 10,800
Multiplied by: Controlling interests %...................
80%
P 8,640
Less: Goodwill impairment loss (full-goodwill), net (P3,750– P750)* or
(P3, 750 x 80%)
3,000
5,640
Consolidated Retained earnings, January 1, 20x5
P 490,440
Add: Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of P for 20x5
258,240
Total
P748,680
Less: Dividends paid – P Company for 20x5
72,000
Consolidated Retained Earnings, December 31, 20x5
P676,680
*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.
e.
Non-controlling interest (partial-goodwill), December 31, 20x5
Common stock – S Company, December 31, 20x5……
Retained earnings – S Company, December 31, 20x5
Retained earnings – S Company, January 1, 20x5
Add: Net income of S for 20x5
Total
Less: Dividends paid – 20x5
Stockholders’ equity – S 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
20x5
P 240,000
P14,000
90,000
P234,000
48,000
186,000
P 426,000
90,000
P 13,200
7,200
( 20,400)
Fair value of stockholders’ equity of S, December 31, 20x5……
Multiplied by: Non-controlling Interest percentage…………...
Non-controlling interest (partial goodwill)…………………………………..
P 495,600
20
P 99,120
f.
Consolidated SHE:
Stockholders’ Equity
Common stock, P10 par
Retained earnings
Parent’s Stockholders’ Equity / CI – SHE, 12/31/20x5
NCI, 12/31/20x5
Consolidated SHE, 12/31/20x5
P 600,000
676,680
P1,276,680
___99,120
P1,375,800
Problem XIV – 80% Full Goodwill – Cost Model
Requirements 1 to 4:
Schedule of Determination and Allocation of Excess
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 Adjustments to be
amortized
Inventory
Subject
to
Amortization
Over/
unde
r
P
6,000
Lif
e
1
Annu
al
Current
Amou Year(20x
nt
4)
P
6,000 P 6,000
20x5
P
-
12,000
( 6,000
)
12,00
0
(6,00
0)
Annual
Buildings (net)
96,00
0
(24,0
00)
Bonds payable…
4,800
Equipment (net).........
8
4
4
1,200
P
13,200
12,000
( 6,000)
1,200
P 13,200
1,200
P
7,200
20x4: First Year after Acquisition
Parent Company Cost Model Entry
January 1, 20x4:
(1)
Investment
in
Company……………………………………………
S
372,00
0
372,00
0
Cash……………………………………………………………………
..
Acquisition of S Company.
January 1, 20x4 – December 31, 20x4:
(2) Cash………………………
Dividend income (P36,000x 80%)…………….
Record dividends from S Company.
28,800
28,800
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.
Consolidation Workpaper – First Year after Acquisition
(E1)
Common
stock
–
Co…………………………………………
Retained
earnings
–
Co……………………………………
Investment
in
Co……………………………………………
Non-controlling
interest
(P360,000
20%)………………………..
S
240,000
S
120.000
S
288,000
x
72,000
(E2)
Inventory………………………………………………………………
….
Accumulated depreciation – equipment………………..
Accumulated depreciation – buildings…………………..
Land……………………………………………………………………
….
Discount
on
bonds
payable………………………………………….
6,000
96,000
192,00
0
7,200
4,800
15,000
Goodwill………………………………………………………………
….
Buildings………………………………………..
216,00
0
Non-controlling interest (P90,000 x 20%) + [(P15,000,
full –
21,000
P12,000, partial goodwill)]…………
Investment
in
Co……………………………………………….
S
(E3) Cost of Goods Sold…………….
Depreciation expense………………………..
Accumulated
depreciation
–
buildings…………………..
Interest expense…………………………………
Goodwill
impairment
loss……………………………………….
6,000
6,000
6,000
1,200
3,750
6,000
Inventory…………………………………………………………..
Accumulated
depreciation
–
equipment………………..
Discount on bonds payable…………………………
Goodwill……………………………………
Inventory sold
Equipment
Buildings
Bonds payable
Totals
Cost of Goods
Sold
P 6,000
_______
P 6,000
12,000
1,200
3,750
Depreciation/ Amortization
Expense
Amortization
-Interest
P12,000
( 6,000)
_______
P 6,000
P 1,200
P1,200
(E4) Dividend income - P……….
Non-controlling
interest
(P36,000
20%)………………..
Dividends paid – S……………………
x
84,000
28,800
7,200
36,000
(E5) Non-controlling interest in Net Income of
Subsidiary…………
Non-controlling interest …………..
Net income of subsidiary……………………..
Amortization of allocated excess [(E3)]…...
Multiplied by: Non-controlling interest %..........
8,610
8,610
P 60,000
( 13,200)
P 46,800
20%
P 9,360
Less: Non-controlling interest on impairment
loss on full-goodwill (P3,125 x 20%) or
(P3,125 impairment on full-goodwill less
P2,500, impairment on partial-goodwill)*
750
Non-controlling Interest in Net Income (NCINI)
P 8,610
*this procedure would be more appropriate, instead of multiplying the full-goodwill impairment loss of P3,125 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).
Worksheet for Consolidated Financial Statements, December 31, 20x4.
Cost Model (Full-goodwill)
80%-Owned Subsidiary
December 31, 20x4 (First Year after Acquisition)
Income Statement
Sales
Dividend income
Total Revenue
Cost of goods sold
Depreciation expense
Interest expense
Other expenses
Goodwill impairment loss
Total Cost and Expenses
Net Income
NCI in Net Income - Subsidiary
Net Income to Retained Earnings
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
Balance Sheet
Cash……………………….
Accounts receivable……..
Inventory………………….
Land…………………………….
Equipment
Buildings
Discount on bonds payable
Goodwill……………………
Investment in S Co………
Total
Accumulated depreciation
- equipment
Accumulated depreciation
- buildings
Accounts payable……………
Bonds payable…………………
Common stock, P10 par………
P Co
P480,000
28,800
P508,800
P204,000
60,000
48,000
P312,000
P196,800
P196,800
S Co.
P240,000
P240,000
P138,000
24,000
18,000
P180,000
P 60,000
P 60,000
Dr.
(4)
28,800
(3)
(3)
(3)
6,000
6,000
1,200
(3)
3,750
(5)
8,610
Cr.
P360,000
P
Consolidated
P 720,000
_________
P 720,000
P 348,000
90,000
1,200
66,000
3,750
P508,950
P211,050
( 8,610)
P202,680
P
196,800
P556,800
P120,000
60,000
P180,000
72,000
-
36,000
P484,800
P144,000
232,800
90,000
120,000
210,000
240,000
720,000
P 90,000
60,000
90,000
48,000
180,000
540,000
202,680
P562,440
(4)
P1,008,000
P 135,000
405,000
P 96,000
288,000
120,000
240,000
600,000
120,000
120,000
36,000
_
86,400
________
P
490,440
P
(2)
(2)
6,000
7,200
(2)
(2)
4,800
15,000
372,000
P1,984,800
360,000
(1) 120,000
(2) 96,000
(5) 192,000
(6)
6,000
(3)
6,000
(2) 216,000
(3) 1,200
(3) 3,750
(3) 288,000
(4) 84,000
(3)
12,000
322,800
150,000
210,000
265,200
420,000
1,044,000
3,600
11,250
P2,426,850
P147,000
495,000
240,000
360,000
600,000
Common stock, P10 par………
Retained earnings, from above
Non-controlling interest…………
484,800
(1) 240,000
490,440
(7)
_________
P1,984,800
Total
240,000
144,000
_________
P1,984,800
7,200
__________
P 748,560
(1 ) 72,000
(2) 21,000
(5) 8,610
P 748,560
____94,410
P2,426,850
20x5: Second Year after Acquisition
P Co.
Sales
P
540,000
216,000
Less: Cost of goods sold
Gross profit
P
324,000
60,000
72,000
Less: Depreciation expense
Other expense
Net income from its own separate
operations
Add: Dividend income
Net income
P
192,000
38,400
P
230,400
P
72,000
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.
Parent Company Cost Model Entry
Only a single entry is recorded by the parent in 20x5 in relation to its subsidiary investment:
January 1, 20x5 – December 31, 20x5:
Cash………………………
Dividend income (P48,000x 80%)…………….
Record dividends from S Company.
38,400
38,400
Consolidation Workpaper – Second Year after Acquisition
(E1) Investment in S Company…………………………
Retained
earnings
–
P
Company………………………
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 the
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
–
Co…………………………………………
Retained earnings – S Co., 1/1/20x5
Investment
in
S
Co
(P384,000
80%)…………………………
S
240,000
144,000
x
307,200
Non-controlling
interest
20%)………………………..
(P384,000
x
76,800
6,000
(E3)
Inventory………………………………………………………………
….
Accumulated depreciation – equipment………………..
Accumulated depreciation – buildings…………………..
Land……………………………………………………………………
….
Discount
on
bonds
payable………………………………………….
96,000
192,00
0
7,200
4,800
15,000
Goodwill………………………………………………………………
….
Buildings………………………………………..
216,00
0
Non-controlling interest (P90,000 x 20%) + [(P15,000,
full –
21,000
P12,000, partial goodwill)]…………
Investment
in
Co……………………………………………….
S
(E4) Retained earnings – P Company, 1/1/20x5
(P16,950 x 80%)
Non-controlling
interests
(P16,950
20%)…………………….
Depreciation expense………………………..
Accumulated
depreciation
buildings…………………..
Interest expense…………………………………
x
13,560
3,390
–
6,000
12,000
Inventory…………………………………………………………..
Accumulated
depreciation
–
equipment………………..
Discount on bonds payable…………………………
Goodwill……………………………………
Inventory sold
Equipment
Buildings
Bonds payable
Impairment loss
Totals
Multiplied by: CI%....
(20x4)
Retained
earnings,
P 6,000
12,000
(6,000)
1,200
3,750
P 16,950
80%
Depreciation/
Amortization
expense
P
Amortization
-Interest
12,000
( 6,000)
P 1,200
P 6,000
P1,200
84,000
1,200
6,000
24,000
2,400
3,750
To Retained earnings
P13,560
(E5) Dividend income - P……….
Non-controlling
interest
(P48,000
20%)………………..
Dividends paid – S……………………
38,400
9,600
x
48,000
To eliminate intercompany dividends and non-controlling interest
share of dividends.
(E6) Non-controlling interest in Net Income of
Subsidiary…………
Non-controlling interest …………..
Net income of subsidiary……………………..
Amortization of allocated excess [(E4)]…...
Multiplied by: Non-controlling interest %..........
Less: NCI on goodwill impairment loss on fullGoodwill
Non-controlling Interest in Net Income (NCINI)
16,560
16,560
P 90,000
( 7,200)
P 82,800
20%
P 16,560
0
P 16,560
Worksheet for Consolidated Financial Statements, December 31, 20x5.
Cost Model (Full-goodwill)
80%-Owned Subsidiary
December 31, 20x5 (Second Year after Acquisition)
Income Statement
Sales
Dividend income
Total Revenue
Cost of goods sold
Depreciation expense
Interest expense
Other expenses
Goodwill impairment loss
Total Cost and Expenses
Net Income
NCI in Net Income - Subsidiary
Net Income to Retained Earnings
P Co
P540,000
38,400
P578,400
P216,000
60,000
72,000
P348,000
P230,400
P230,400
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
Balance Sheet
Cash……………………….
Accounts receivable……..
Inventory………………….
Land…………………………….
Equipment
Buildings
Discount on bonds payable
Goodwill……………………
S Co.
P360,000
P360,000
P192,000
24,000
54,000
P270,000
P 90,000
P 90,000
P484,800
P
Dr.
(5)
38,400
(4)
(4)
6,000
1,200
(6)
16,560
(3) 13,560
(6) 144,000
Cr.
(5)
Consolidated
P 900,000
___________
P 900,000
P 408,000
90,000
1,200
126,000
P 625,200
P 274,800
( 16,560)
P 258,240
19,200
P 490,440
230,400
P715,200
P 144,000
90,000
P234,000
72,000
-
48,000
P643,200
P186,000
P 676,680
265,200
180,000
216,000
210,000
240,000
720,000
P 102,000
96,000
108,000
48,000
180,000
540,000
P 367,200
276,000
324,000
265,200
420,000
1,044,000
2,400
11,250
258,240
P 748,680
(5)
(3)
(3)
6,000
7,200
(3)
(3)
4,800
15,000
(4)
57,600
6,000
(3) 216,000
(4) 2,400
(4) 3,750
_
72,000
________
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
Non-controlling interest…………
Total
372,000
(1)
P2,203,200
P1,074,000
P 150,000
450,000
P 102,000
306,000
120,000
240,000
600,000
120,000
120,000
643,200
240,000
186,000
_________
P1,074,000
(2) 307,200
(7) 84,000
(3) 96,000
(3) 192,000
(4) 12,000
(4)
24,000
P2,710,050
P180,000
552,000
240,000
360,000
600,000
(2) 240,000
676,680
(6)
(8)
___ _____
P2,203,200
19,200
9,600
3,390
__________
P 824,910
(2 ) 76,800
(3) 21,000
(6) 16,560
P 824,910
____101,370
P2,710,050
5. 1/1/20x4
a. On date of acquisition the retained earnings of parent 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.
Non-controlling interest (full-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 S, 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 (partial-goodwill)…………………………………..
P 240,000
120,000
P 360,000
90,000
P450,000
20
P 90,000
___3,000
P 93,000
c.
Consolidated SHE:
Stockholders’ Equity
Common stock, P10 par
Retained earnings
Parent’s Stockholders’ Equity / CI - SHE
NCI, 1/1/20x4
Consolidated SHE, 1/1/20x4
6.
P 600,000
360,000
P 960,000
___93,000
P1,053,000
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.
12/31/20x4:
a. CI-CNI – P202,440
Consolidated Net Income for 20x4
Net income from own/separate operations:
P Company
S Company
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 P…………..
Add: Non-controlling Interest in Net Income (NCINI)
Consolidated Net Income for 20x4
P168,000
60,000
P228,000
P 8,610
13,200
3,750
25,560
P202,440
8,610
P211.050
b. NCI-CNI – P8,610
*Non-controlling Interest in Net Income (NCINI) for 20x4
Net income of S Company
Less: Amortization of allocated excess (refer to amortization table above)
P 60,000
13,200
P 46,800
20%
P 9,360
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI)
Less: Non-controlling int. on impairment loss on full-goodwill (P3,750 x 20%)
or (P3,750 impairment on full-goodwill less P3,000, impairment on
partial-goodwill)*
750
Non-controlling Interest in Net Income (NCINI)
P 8,610
*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.
c. CNI, P211,050 – refer to (a)
d. 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
202,440
P562,440
72,000
P490,440
e.
Non-controlling interest (full-goodwill), December 31, 20x4
Common stock – S Company, December 31, 20x4……
Retained earnings – S Company, December 31, 20x4
Retained earnings – S Company, January 1, 20x4
Add: Net income of S for 20x4
Total
Less: Dividends paid – 20x4
Stockholders’ equity – S 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 S, December 31, 20x4……
Multiplied by: Non-controlling Interest percentage…………...
Non-controlling interest (partial-goodwill, 12/31/20x4…………………………..
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), 12/31/20x4……………..
P 240,000
P120,000
60,000
P180,000
36,000
144,000
P 384,000
90,000
( 13,200)
P460,800
20
P 92,160
2,250
P 94,410
f.
Consolidated SHE:
Stockholders’ Equity
Common stock, P10 par
Retained earnings
P’s Stockholders’ Equity / CI – SHE, 12/31/20x4
NCI, 12/31/20x4
Consolidated SHE, 12/31/20x4
P 600,000
490,440
P1,090,440
___94,410
P1,184,850
12/31/20x5:
a. CI-CNI – P258,240
Consolidated Net Income for 20x5
Net income from own/separate operations
P Company
S Company
P192,000
90,000
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 20x5
P282,000
P16,560
7,200
0
23,760
P258,240
16,560
P274,800
b. NCI-CNI – P16,560
*Non-controlling Interest in Net Income (NCINI) for 20x5
Net income of S Company
Less: Amortization of allocated excess / goodwill impairment for 20x5
(refer to amortization table above)
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI) for 20x5
P 90,000
80,400
P 82,800
20%
P 16,560
c. CNI, P274,800 – refer to (a)
d. On subsequent to date of acquisition, consolidated retained earnings would be computed as follows:
Consolidated Retained Earnings, December 31, 20x5
Retained earnings - P Company, January 1, 20x5 (cost model
Adjustment to convert from cost model to equity method for purposes of
consolidation or to establish reciprocity:/P’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
Multiplied by: Controlling interests %...................
e.
P484,800
P 144,000
120,000
P 24,000
13,200
P 10,800
80%
P 8,640
Less: Goodwill impairment loss (full-goodwill), net (P3,750– P750)* or
(P3, 750 x 80%)
3,000
5,640
Consolidated Retained earnings, January 1, 20x5
P 490,440
Add: Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent for 20x5
258,240
Total
P748,680
Less: Dividends paid – P Company for 20x5
72,000
Consolidated Retained Earnings, December 31, 20x5
P676,680
*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.
Non-controlling interest (partial-goodwill), December 31, 20x5
Common stock – S Company, December 31, 20x5……
Retained earnings – S Company, December 31, 20x5
Retained earnings – S Company, January 1, 20x5
Add: Net income of S for 20x5
Total
Less: Dividends paid – 20x5
Stockholders’ equity – S 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
20x5
Fair value of stockholders’ equity of S, December 31, 20x5……
Multiplied by: Non-controlling Interest percentage…………...
Non-controlling interest (partial goodwill)…………………………………..
Add: Non-controlling interest on full goodwill , net of impairment loss
[(P15,000 full – P12,000, partial = P3,000) – P750 impairment loss
Non-controlling interest (full-goodwill)…………………………………..
f.
Consolidated SHE:
P 240,000
P144,000
90,000
P234,000
48,000
186,000
P 426,000
90,000
P 13,200
7,200
( 20,400)
P 495,600
20
P 99,120
2,250
P 101,370
Stockholders’ Equity
Common stock, P10 par
Retained earnings
P’s Stockholders’ Equity / CI – SHE, 12/31/20x4
NCI, 12/31/20x4
Consolidated SHE, 12/31/20x4
P 600,000
676,680
P1,276,680
__101,370
P1,378,050
Problem XV – 80% Partial Goodwill – Equity Method
Requirements 1 to 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 S:
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
P192,000
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:
S Co.
Book
value
S Co.
Fair value
P
Inventory………………….……………..
24,000 P 30,000
Land………………………………………
48,000
55,200
Equipment (net).........
84,000
180,000
Buildings (net)
168,000
144,000
Bonds payable………………………… (120,000) ( 115,200)
(Over)
Under
Valuation
P
6,000
7,200
96,000
(24,000)
4,800
P
204,000
Net………………………………………..
P 294,000
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)
A summary or depreciation and amortization adjustments is as follows:
Over/
Account Adjustments to be Unde
amortized
r
P
Inventory
6,000
Subject
to
Annual
Amortization
96,00
Equipment (net).........
0
(24,0
Buildings (net)
00)
Bonds payable…
4,800
Lif
e
1
8
Annu
al
Amou
nt
P
6,000
12,000
( 6,000
4
)
4
Current
Year(20x
4)
P 6,000
12,000
( 6,000)
20x5
P
-
12,00
0
(6,00
0)
1,200
1,200 1,200
P
P
13,200 P 13,200 7,200
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%)
Positive excess: Full-goodwill (excess of cost over
fair value)………………………………………………...
90,000
P
15,000
20x4: First Year after Acquisition
Parent Company Equity Method Entry
The following are entries recorded by the P in 20x4 in relation to its subsidiary investment:
January 1, 20x4:
(1)
Investment
in
Company……………………………………………
S
372,00
0
Cash……………………………………………………………………
..
372,00
0
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)]
Investment in S Company
13,560
13,560
Record amortization of allocated excess of inventory, equipment, buildings and
bonds payable and goodwill impairment loss.
Thus, the investment balance and investment income in the books of P Company is as follows:
Cost, 1/1/x4
NI of S
(60,000 x 80%)
Balance, 12/31/x4
Investment in S
372,000
28,800
48,000
377,640
13,560
Dividends – S (36,000x 80%)
Amortization &
impairment
Investment Income
Amortization &
impairment
13,560
48,000
34,440
NI of S
(P60,000 x 80%)
Balance, 12/31/x4
Consolidation Workpaper – First Year after Acquisition
The schedule of determination and allocation of excess presented above provides complete
guidance for the worksheet eliminating entries on January 1, 20x4:
(E1)
Common
stock
Co…………………………………………
–
S
240,000
Retained
earnings
–
S
Co……………………………………
Investment
in
Son
Co……………………………………………
Non-controlling
interest
(P360,000
x
20%)………………………..
120.000
288,000
72,000
(E2)
Inventory………………………………………………………………
….
Accumulated depreciation – equipment………………..
Accumulated depreciation – buildings…………………..
Land……………………………………………………………………
….
Discount
on
bonds
payable………………………………………….
6,000
96,000
192,00
0
7,200
4,800
12,000
Goodwill………………………………………………………………
….
Buildings………………………………………..
Non-controlling
interest
20%)………………………..
Investment
in
Co……………………………………………….
(P96,000
(E3) Cost of Goods Sold…………….
Depreciation expense………………………..
Accumulated
depreciation
–
buildings…………………..
Interest expense…………………………………
Goodwill
impairment
loss……………………………………….
x
216,00
0
18,000
S
84,000
6,000
6,000
6,000
1,200
3,000
6,000
Inventory…………………………………………………………..
Accumulated
depreciation
–
equipment………………..
Discount on bonds payable…………………………
Goodwill……………………………………
Inventory sold
Equipment
Buildings
Bonds payable
Cost of
Goods
Sold
P 6,000
_______
Depreciation/
Amortization
Expense
Amortization
-Interest
P 12,000
( 6,000)
_______
P 1,200
Total
12,000
1,200
3,000
Totals
P 6,000
P 6,000
P1,200
13,200
It should be observed that the goodwill computed above was proportional to the controlling
interest of 80% and non-controlling interest of 20% computed as follows:
Value
Goodwill applicable to parent…………………
Goodwill applicable to NCI……………………..
Total (full) goodwill………………………………..
P12,000
3,000
P15,000
% of
Total
80.00%
20.00%
100.00%
Therefore, the goodwill impairment loss of P3,750 based on 100% fair value or full-goodwill would
be allocated as follows:
Value
Goodwill impairment loss attributable to parent
P
or controlling
3,000
Interest
Goodwill impairment loss applicable to
625
NCI……………………..
Goodwill impairment loss based on 100% fair
value or fullP 3,750
Goodwill
(E4) Investment income
Non-controlling
interest
(P36,000
20%)………………..
Dividends paid – S……………………
Investment in S Company
x
% of
Total
80.00%
20.00%
100.00%
34,440
7,200
36,000
5,640
To eliminate intercompany dividends and investment income under
equity method and establish share of dividends, computed as
follows:
Investment in S
NI of S
28,800
Dividends - S
(60,000
Amortization &
x 80%)……. 48,000
13,560
impairment
5,640
Investment Income
Amortization
impairment
13,560
NI of S
(60,000
48,000
x 80%)
34,440
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, 1/1/x4
NI of Son
(60,000 x 80%)
Balance, 12/31/x4
Investment in S
372,000
28,800
48,000
377,640
377,640
13,560
288,000
84,000
5,640
Dividends – S (36,000x 80%)
Amortization &
impairment
(E1) Investment, 1/1/20x4
(E2) Investment, 1/1/20x4
(E4) Investment Income
and dividends
377,640
(E5) Non-controlling interest in Net Income of
Subsidiary…………
Non-controlling interest …………..
To establish non-controlling interest in subsidiary’s adjusted net
9,360
9,360
income for 20x4 as follows:
Net income of subsidiary……………………..
Amortization of allocated excess [(E3)]…...
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI)
P 60,000
( 13,200)
P 46,800
20%
P 9,360
Worksheet for Consolidated Financial Statements, December 31, 20x4.
Equity Method (Partial-goodwill)
80%-Owned Subsidiary
December 31, 20x4 (First Year after Acquisition)
Income Statement
Sales
Investment income
Total Revenue
Cost of goods sold
Depreciation expense
Interest expense
Other expenses
Goodwill impairment loss
Total Cost and Expenses
Net Income
NCI in Net Income - Subsidiary
Net Income to Retained Earnings
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
Balance Sheet
Cash……………………….
Accounts receivable……..
Inventory………………….
Land…………………………….
Equipment
Buildings
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
Non-controlling interest…………
Total
20x5: Second Year after Acquisition
P Co
P480,000
34,440
P513,600
P204,000
60,000
48,000
P312,000
P202,440
P202,440
S Co.
P240,000
P240,000
P138,000
24,000
18,000
P180,000
P 60,000
P 60,000
Dr.
(4)
34,440
(3)
(3)
(3)
6,000
6,000
1,200
(3)
3,000
(5)
9,360
Cr.
Consolidated
P 720,000
_________
P 720,000
P 348,000
90,000
1,200
66,000
3,000
P508,200
P211,800
( 9,360)
P202,440
P360,000
P
P360,000
202,440
P562,440
P120,000
60,000
P180,000
72,000
-
36,000
P490,440
P144,000
232,800
90,000
120,000
210,000
240,000
720,000
P 90,000
60,000
90,000
48,000
180,000
540,000
(1) 120,000
202,440
P562,440
(4)
P490,440
P
(2)
(2)
6,000
7,200
(2)
(2)
4,800
12,000
377,640
P1,990,440
P1,008,000
P 135,000
405,000
P 96,000
288,000
120,000
240,000
600,000
120,000
120,000
490,440
240,000
144,000
(2) 96,000
(8) 192,000
(9)
6,000
_________
P1,008,000
(3)
6,000
(2) 216,000
(3) 1,200
(3) 3,000
(2) 288,000
(2) 84,000
(4) 5,640
(3)
12,000
322,800
150,000
210,000
265,200
420,000
1,044,000
3,600
9,000
P2,424,600
P147,000
495,000
240,000
360,000
600,000
(1) 240,000
490,440
(10) 7,200
_________
P1,990,440
72,000
-
36,000
__________
P 751,200
(1 ) 72,000
(2) 18,000
(5) 9,360
P 751,200
____92,160
P2,424,600
Sales
Less: Cost of goods sold
Gross profit
P Co.
S Co.
P
540,000
216,000
P
360,000
P
324,000
60,000
72,000
Less: Depreciation expense
Other expense
Net income from its own separate
operations
Add: Investment income
P
192,000
66,240
Net income
P
258,240
P
72,000
Dividends paid
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
The following are entries recorded by the parent in 20x5 in relation to its subsidiary investment:
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
Thus, the investment balance and investment income in the books of P Company is as follows:
Cost, 1/1/x5
NI of S
(90,000 x 80%)
Balance, 12/31/x5
Investment in S
377,640
38,400
72,000
405,480
5,760
Dividends – S (48,000x 80%)
Amortization
(P7,200 x 80%)
Investment Income
Amortization
(7,200 x 80%)
5,760
72,000
66,240
NI of S
(90,000 x 80%)
Balance, 12/31/x4
Consolidation Workpaper – 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 S Co (P384,000 x 80%)
Non-controlling
interest
(P384,000
x
20%)………………………..
240,000
144.000
307,200
76,800
(E2) Accumulated depreciation – equipment (P96,000 –
P12,000)
Accumulated depreciation – buildings (P192,000 +
6,000)
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……………………………………………….
(E3) Depreciation expense………………………..
Accumulated
depreciation
–
buildings…………………..
Interest expense…………………………………
Accumulated
depreciation
–
equipment………………..
Discount
on
bonds
payable…………………………
Inventory sold
Equipment
Buildings
Bonds payable
Totals
Depreciation/
Amortization
Expense
Amortization
-Interest
P 12,000
( 6,000)
_______
P 6,000
P 1,200
P1,200
84,000
198,00
0
7,200
3,600
9,000
216,00
0
15,360
70,440
6,000
6,000
1,200
12,000
1,200
Total
P7,,200
(E4) Investment income
Non-controlling
interest
(P48,000
20%)………………..
Dividends paid – S……………………
Investment in S Company
x
To eliminate intercompany dividends and investment income under
equity method and establish share of dividends, computed as
follows:
66,240
9,600
48,000
27,840
Investment in S
NI of S
38,400
Dividends – S
(90,000
Amortization
x 80%)……. 72,000
5,760
(P7,200 x 80%)
27,840
Investment Income
Amortization
(P7,200 x 80%)
5,760
NI of S
(90,000
x 80%)
72,000
66,240
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, 1/1/x5
NI of S
(90,000 x 80%)
Balance, 12/31/x5
Investment in S
377,640
38,400
72,000
405,480
405,480
Dividends – S (48,000x 80%)
Amortization
(7,200 x 80%)
(E1) Investment, 1/1/20x5
(E2) Investment, 1/1/20x5
(E4) Investment Income
and dividends
5,760
307,200
70,440
27,840
405,480
(E5) Non-controlling interest in Net Income of
Subsidiary…………
Non-controlling interest …………..
16,560
16,560
To establish non-controlling interest in subsidiary’s adjusted net
income for 20x4 as follows:
Net income of subsidiary……………………..
Amortization of allocated excess [(E3)]…...
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI)
P 90,000
( 7,200)
P 82,800
20%
P 16,560
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
Depreciation expense
Interest expense
Other expenses
Goodwill impairment loss
Total Cost and Expenses
Net Income
NCI in Net Income - Subsidiary
Net Income to Retained Earnings
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
Balance Sheet
P Co
P540,000
66,240
P606,000
P216,000
60,000
72,000
P348,000
P258,240
P258,240
S Co.
P360,000
P360,000
P192,000
24,000
54,000
P270,000
P 90,000
P 90,000
Dr.
(4)
66,240
(3)
(3)
6,000
1,200
(5)
16,560
Cr.
P490,440
Consolidated
P 900,000
___________
P 900,000
P 408,000
90,000
1,200
126,000
P 625,200
P 274,800
( 16,560)
P258,240
P490,440
258,240
P748,680
P144,000
90,000
P234,000
72,000
-
48,000
P676,680
P186,000
(1) 144,000
258,240
P748,680
(4)
48,000
72,000
P676,680
Cash……………………….
Accounts receivable……..
Inventory………………….
Land…………………………….
Equipment
Buildings
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
Non-controlling interest…………
P
265,200
180,000
216,000
210,000
240,000
720,000
(2)
7,200
(2)
(2)
3,600
9,000
405,480
P1,074,000
P 150,000
450,000
P 102,000
306,000
120,000
240,000
600,000
120,000
120,000
(2)
676,680
(3) 216,000
(3) 1,200
(1) 307,200
(2) 70,440
(4) 27,840
P2,236,680
240,000
186,000
_________
P1,074,000
P 367,200
276,000
324,000
265,200
420,000
1,044,000
2,400
9,000
P2,707,800
84,000
(3)
12,000
(2) 198,000
(3) 6,000
P180,000
552,000
240,000
360,000
600,000
(1) 240,000
676,680
(7)
___ _____
P2,236,680
Total
P 102,000
96,000
108,000
48,000
180,000
540,000
9,600
__________
P 794,400
(2 ) 76,800
(2) 15,360
(5) 16,560
P 794,400
____99,120
P2,707,800
Note: Using cost model or equity method, the consolidated net income, consolidated retained earnings,
non-controlling interests, consolidated equity on December 31, 20x4 and 20x5 are exactly the same (refer
to Problem VI solution).
5. 1/1/20x4
a. On date of acquisition the retained earnings of parent 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.
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)…………………………………..
P 240,000
120,000
P 360,000
90,000
P450,000
20
P 90,000
c.
Consolidated SHE:
Stockholders’ Equity
Common stock, P10 par
Retained earnings
Parent’s Stockholders’ Equity / CI - SHE
NCI, 1/1/20x4
Consolidated SHE, 1/1/20x4
6.
P 600,000
360,000
P 960,000
___90,000
P1,050,000
12/31/20x4:
a. CI-CNI
Consolidated Net Income for 20x4
Net income from own/separate operations
P Company
P168,000
S Company
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 P…………..
Add: Non-controlling Interest in Net Income (NCINI)
Consolidated Net Income for 20x4
60,000
P228,000
P 9,360
13,200
3,000
25,560
P202,440
9,360
P211.800
b. NCI-CNI
*Non-controlling Interest in Net Income (NCINI) for 20x4
Net income of S Company
Less: Amortization of allocated excess / goodwill impairment
(refer to amortization table above)
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI)
P 60,000
13,200
P 46,800
20%
P 9,360
c. CNI, P211,800 – refer to (a)
d. 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
202,440
P562,440
72,000
P490,440
e.
Non-controlling interest (partial-goodwill), December 31, 20x4
Common stock – S Company, December 31, 20x4……
Retained earnings – S Company, December 31, 20x4
Retained earnings – S Company, January 1, 20x4
Add: Net income of S for 20x4
Total
Less: Dividends paid – 20x4
Stockholders’ equity – S 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……
Multiplied by: Non-controlling Interest percentage…………...
Non-controlling interest (partial-goodwill)…………………………………..
P 240,000
P120,000
60,000
P180,000
36,000
144,000
P 384,000
90,000
( 13,200)
P460,000
20
P 92,160
f.
Consolidated SHE:
Stockholders’ Equity
Common stock, P10 par
Retained earnings
P’s Stockholders’ Equity / CI – SHE, 12/31/20x4
NCI, 12/31/20x4
Consolidated SHE, 12/31/20x4
P 600,000
490,440
P1,090,440
___92,160
P1,182,600
12/31/20x5:
a. CI-CNI
Consolidated Net Income for 20x5
Net income from own/separate operations:
P Company
S Company
P192,000
90,000
Total
Less: Non-controlling Interest in Net Income*
Amortization of allocated excess (refer to amortization above)
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
P282,000
P16,560
__7,200
23,760
P258,240
16,560
P274,800
b. NCI-CNI
*Non-controlling Interest in Net Income (NCINI) for 20x5
Net income of S Company
Less: Amortization of allocated excess / goodwill impairment for 20x5
(refer to amortization table above)
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI) for 20x5
P 90,000
80,400
P 82,800
20%
P 16,560
c. CNI, P274,800 – refer to (a)
d. On subsequent to date of acquisition, consolidated retained earnings would be computed as follows:
Consolidated Retained Earnings, December 31, 20x5
Retained earnings - P Company, January 1, 20x5 (cost model
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 – S, January 1, 20x5
Less: Retained earnings – S, January 1, 20x4
Increase in retained earnings since date of acquisition
Less: Amortization of allocated excess – 20x4
Multiplied by: Controlling interests %...................
e.
P484,800
P 144,000
120,000
P 24,000
13,200
P 10,800
80%
P 8,640
Less: Goodwill impairment loss (full-goodwill), net (P3,750– P750)* or
(P3, 750 x 80%)
3,000
5,640
Consolidated Retained earnings, January 1, 20x5
P 490,440
Add: Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent for 20x5
258,240
Total
P748,680
Less: Dividends paid – P Company for 20x5
72,000
Consolidated Retained Earnings, December 31, 20x5
P676,680
*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.
Non-controlling interest (partial-goodwill), December 31, 20x5
Common stock – S Company, December 31, 20x5……
Retained earnings – S Company, December 31, 20x5
Retained earnings – S Company, January 1, 20x5
Add: Net income of S for 20x5
Total
Less: Dividends paid – 20x5
Stockholders’ equity – S 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
20x5
Fair value of stockholders’ equity of subsidiary, December 31, 20x5……
Multiplied by: Non-controlling Interest percentage…………...
Non-controlling interest (partial goodwill)…………………………………..
P 240,000
P14,000
90,000
P234,000
48,000
186,000
P 426,000
90,000
P 13,200
7,200
( 20,400)
P 495,600
20
P 99,120
f.
Consolidated SHE:
Stockholders’ Equity
Common stock, P10 par
Retained earnings
P’s Stockholders’ Equity / CI – SHE, 12/31/20x4
NCI, 12/31/20x4
Consolidated SHE, 12/31/20x4
P 600,000
676,680
P1,276,680
___99,120
P1,1375,800
Problem XVI - 80% Full Goodwill – Equity Method
Requirements 1 to 4:
Schedule of Determination and Allocation of Excess
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)
A summary or depreciation and amortization adjustments is as follows:
4,800
90,000
P
15,000
Over/
Account Adjustments to be unde
amortized
r
P
Inventory
6,000
Subject
to
Annual
Amortization
96,00
Equipment (net).........
0
(24,0
Buildings (net)
00)
Bonds payable…
Lif
e
4,800
1
Annu
al
Current
Amou Year(20x
nt
4)
P
6,000 P 6,000
8
12,000
( 6,000
4
)
4
1,200
P
13,200
12,000
( 6,000)
1,200
P 13,200
20x5
P
-
12,00
0
(6,00
0)
1,200
P
7,200
2x4: First Year after Acquisition
Parent Company Equity Method Entry
The following are entries recorded by the parent in 20x4 in relation to its subsidiary investment:
January 1, 20x4:
(1)
Investment
in
Company……………………………………………
S
372,00
0
372,00
0
Cash……………………………………………………………………
..
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.
Thus, the investment balance and investment income in the books of P Company is as follows:
Cost, 1/1/x4
NI of S
(60,000 x 80%)
Balance, 12/31/x4
Investment in S
372,000
28,800
48,000
377,640
13,560
Investment Income
Dividends – S (36,000x 80%)
Amortization &
Impairment
Amortization &
Impairment
13,560
48,000
34,440
NI of S
(P60,000 x 80%)
Balance, 12/31/x4
Consolidation Workpaper – First Year after Acquisition
The schedule of determination and allocation of excess presented above provides complete
guidance for the worksheet eliminating entries on January 1, 20x4:
(E1) Common stock – S Co…………………………………………
Retained earnings – S Co……………………………………
Investment
in
S
Co……………………………………………
Non-controlling
interest
(P360,000
x
20%)………………………..
(E2)
Inventory………………………………………………………………
….
Accumulated depreciation – equipment………………..
Accumulated depreciation – buildings…………………..
Land……………………………………………………………………
….
Discount
on
bonds
payable………………………………………….
240,00
0
120.00
0
288,00
0
72,000
6,000
96,000
192,00
0
7,200
4,800
15,000
Goodwill………………………………………………………………
….
Buildings………………………………………..
full –
216,00
0
Non-controlling interest (P90,000 x 20%) + [(P15,000,
P12,000, partial goodwill)]…………
Investment
in
Co……………………………………………….
(E3) Cost of Goods Sold…………….
Depreciation expense………………………..
Accumulated
depreciation
–
buildings…………………..
Interest expense…………………………………
Goodwill
impairment
loss……………………………………….
Inventory…………………………………………………………..
S
21,000
84,000
6,000
6,000
6,000
1,200
3,750
6,000
Accumulated
depreciation
–
equipment………………..
Discount on bonds payable…………………………
Goodwill……………………………………
Inventory sold
Equipment
Buildings
Bonds payable
Totals
Cost of
Goods
Sold
P 6,000
_______
P 6,000
Depreciation/
Amortization
Expense
Amortization
-Interest
P 12,000
( 6,000)
_______
P 6,000
P 1,200
P1,200
1,200
3,750
Total
13,200
(E4) Investment income
Non-controlling
interest
(P36,000
20%)………………..
Dividends paid – S……………………
Investment in S Company
Investment in S
NI of S
28,800
Dividends – S
(60,000
Amortization &
x 80%)……. 48,000
13,560
Impairment
5,640
12,000
x
37,440
7,200
36,000
8,640
Investment Income
Amortization &
Impairment
13,560
48,000
34,440
NI of Son
(60,000
x 80%)
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, 1/1/x4
NI of S
(60,000 x 80%)
Balance, 12/31/x4
Investment in S
372,000
28,800
40,000
377,640
377,640
Dividends – S (36,000x 80%)
Amortization &
Impairment
(E1) Investment, 1/1/20x4
(E2) Investment, 1/1/20x4
(E4) Investment Income
and dividends
13,560
288,000
84,000
5,640
377,640
(E5) Non-controlling interest in Net Income of
Subsidiary…………
Non-controlling interest …………..
Net income of subsidiary……………………..
Amortization of allocated excess [(E3)]…...
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI)
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 partial-goodwill)*
Non-controlling Interest in Net Income (NCINI)
P 60,000
( 13,200)
P 46,800
20%
P 9,360
P
750
8,610
8,610
8,610
*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).
Worksheet for Consolidated Financial Statements, December 31, 20x4.
Equity Method (Full-goodwill)
80%-Owned Subsidiary
December 31, 20x4 (First Year after Acquisition)
Income Statement
Sales
Investment income
Total Revenue
Cost of goods sold
Depreciation expense
Interest expense
Other expenses
Goodwill impairment loss
Total Cost and Expenses
Net Income
NCI in Net Income - Subsidiary
Net Income to Retained Earnings
P Co
P480,000
34,440
P514,440
P204,000
60,000
48,000
P312,000
P202,440
P202,440
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
Balance Sheet
Cash……………………….
Accounts receivable……..
Inventory………………….
Land…………………………….
Equipment
Buildings
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
Non-controlling interest…………
Total
S Co.
P240,000
P240,000
P138,000
24,000
18,000
P180,000
P 60,000
P 60,000
Dr.
(4)
34,440
(3)
(3)
(3)
6,000
6,000
1,200
(3)
3,750
(5)
8,610
Cr.
Consolidated
P 720,000
_________
P 720,000
P 348,000
90,000
1,200
66,000
3,750
P508,950
P211,050
( 8,610)
P202,440
P360,000
P
P360,000
202,440
P562,440
P120,000
60,000
P180,000
72,000
-
36,000
P490,440
P144,000
232,800
90,000
120,000
210,000
240,000
720,000
P 90,000
60,000
90,000
48,000
180,000
540,000
(1) 120,000
202,440
P562,440
(4)
P490,440
P
(2)
(2)
6,000
7,200
(2)
(2)
4,800
15,000
377,640
P1,990,440
P1,008,000
P 135,000
405,000
P 96,000
288,000
120,000
240,000
600,000
120,000
120,000
490,440
240,000
144,000
(2) 96,000
(2) 192,000
(3)
6,000
_________
P1,008,000
(3)
6,000
(2) 216,000
(3) 1,200
(3) 3,750
(2) 288,000
(2) 84,000
(4) 5,640
(3)
12,000
322,800
150,000
210,000
265,200
420,000
1,044,000
3,600
11,250
P2,426,850
P147,000
495,000
240,000
360,000
600,000
(1) 240,000
490,440
(4)
_________
P1,990,440
72,000
-
36,000
7,200
__________
P 754,200
(1 ) 72,000
(2) 21,000
(5) 8,610
P 754,200
20x5: Second Year after Acquisition
P Co.
S Co.
____94,410
P2,426,850
Sales
P
540,000
216,000
Less: Cost of goods sold
Gross profit
Less: Depreciation expense
Other expense
P
324,000
60,000
72,000
Net income from its own separate
operations
Add: Investment income
P
192,000
66,240
Net income
P
258,240
P
72,000
Dividends paid
P
380,000
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
The following are entries recorded by the parent in 20x5 in relation to its subsidiary investment:
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
P Company’s P12,000 portion of the differential related to goodwill related to goodwill is not
adjusted on the parent’s books following Option 2 as referred to above for goodwill impairment
loss. Even though the goodwill of the consolidated entity is impaired,
Thus, the investment balance and investment income in the books of P Company is as follows:
Cost, 1/1/x5
NI of S
(90,000 x 80%)
Balance, 12/31/x5
Investment in S
377,640
38,400
72,000
405,480
5,760
Dividends – S (48,000x 80%)
Amortization
(P7,200 x 80%)
Investment Income
Amortization
(7,200 x 80%)
5,760
72,000
66,240
NI of S
(90,000 x 80%)
Balance, 12/31/x4
Consolidation Workpaper – 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 S Co (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)….
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……………………………………………….
(E3) Depreciation expense………………………..
Accumulated
depreciation
–
buildings…………………..
Interest expense…………………………………
Accumulated
depreciation
–
equipment………………..
Discount
on
bonds
payable…………………………
Depreciation/
Amortization
Expense
Amortization
-Interest
Total
84,000
198,00
0
7,200
3,600
11,250
216,00
0
17,610
70,440
6,000
6,000
1,200
12,000
1,200
Inventory sold
Equipment
Buildings
Bonds payable
Totals
P 12,000
( 6,000)
_______
P 6,000
P 1,200
P1,200
P7,200
(E4) Investment income
Non-controlling
interest
(P48,000
20%)………………..
Dividends paid – S……………………
Investment in S Company
Investment in S
NI of S
38,400
Dividends - S
(90,000
Amortization
x 80%)……. 72,000
5,760
(P7,200 x 80%)
27,840
66,240
9,600
x
48,000
27,840
Investment Income
Amortization
(P7,200 x 80%)
5,760
NI of S
(90,000
x 80%)
72,000
66,240
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, 1/1/x5
NI of S
(90,000 x 80%)
Balance, 12/31/x5
Investment in S
377,640
38,400
72,000
405,480
405,480
Dividends – S (48,000x 80%)
Amortization
(7,200 x 80%)
(E1) Investment, 1/1/20x5
(E2) Investment, 1/1/20x5
(E4) Investment Income
and dividends
5,760
307,200
70,440
27,840
405,480
(E5) Non-controlling interest in Net Income of
Subsidiary…………
Non-controlling interest …………..
16,560
16,560
To establish non-controlling interest in subsidiary’s adjusted net
income for 20x5 as follows:
Net income of subsidiary……………………..
Amortization of allocated excess [(E3)]…...
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI)
Less: NCI on goodwill impairment loss on fullGoodwill
Non-controlling Interest in Net Income (NCINI)
P 90,000
( 7,200)
P 82,800
20%
P 16,560
0
P 16,560
Worksheet for Consolidated Financial Statements, December 31, 20x5.
Equity Method (Full-goodwill)
80%-Owned Subsidiary
December 31, 20x5 (Second Year after Acquisition)
Income Statement
Sales
Investment income
Total Revenue
Cost of goods sold
Depreciation expense
Interest expense
Other expenses
Goodwill impairment loss
Total Cost and Expenses
Net Income
NCI in Net Income - Subsidiary
Net Income to Retained Earnings
P Co
P540,000
66,240
P606,000
P216,000
60,000
72,000
P348,000
P258,240
P258,240
S Co.
P360,000
P360,000
P192,000
24,000
54,000
P270,000
P 90,000
P 90,000
Dr.
(4)
66,240
(3)
(3)
6,000
1,200
(5)
16,560
Cr.
Consolidated
P 900,000
___________
P 900,000
P 408,000
90,000
1,200
126,000
P 625,200
P 274,800
( 16,560)
P 258,240
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
Balance Sheet
Cash……………………….
Accounts receivable……..
Inventory………………….
Land…………………………….
Equipment
Buildings
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
Non-controlling interest…………
P490,440
P
P490,440
258,240
P748,680
P144,000
90,000
P234,000
(1) 144,000
72,000
-
48,000
P676,680
P186,000
P676,680
265,200
180,000
216,000
210,000
240,000
720,000
P 102,000
960,000
108,000
48,000
180,000
540,000
P 367,200
276,000
324,000
265,200
420,000
1,044,000
2,400
11,250
258,240
P748,680
(4)
(2)
7,200
(2)
(2)
3,600
11,250
405,9480
(3) 216,000
(3) 1,200
(1) 307,200
(5) 70,440
(4) 27,840
P2,236,680
P1,074,000
P 150,000
450,000
P 102,000
306,000
120,000
240,000
600,000
120,000
120,000
676,680
48,000
240,000
186,000
(2)
84,000
(2) 198,000
(3)
6,000
(3)
12,000
72,000
-
P2,634,000
P 180,000
552,000
240,000
360,000
600,000
(1) 240,000
676,680
(3)
9,600
(2 ) 76,800
(2) 17,610
(5) 16,560
__________
___ _____ __________ __________
Total
P2,236,680
P1,074,000 P 796,650
P 796,650
P2,634,000
Note: Using cost model or equity method, the consolidated net income, consolidated retained earnings, non-controlling
interests, consolidated equity on December 31, 20x4 and 20x5 are exactly the same (refer to Problem VII solution).
5. 1/1/20x4
a. On date of acquisition the retained earnings of parent 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.
Non-controlling interest (full-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 (partial-goodwill)…………………………………..
P 240,000
120,000
P 360,000
90,000
P450,000
20
P 90,000
___3,000
P 93,000
c.
Consolidated SHE:
Stockholders’ Equity
Common stock, P10 par
Retained earnings
P 600,000
360,000
Parent’s Stockholders’ Equity / CI - SHE
NCI, 1/1/20x4
Consolidated SHE, 1/1/20x4
6.
P 960,000
___93,000
P1,053,000
a. CI-CNI – P202,440
Consolidated Net Income for 20x4
Net income from own/separate operations:
P Company
S Company
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
P168,000
60,000
P228,000
P 8,610
13,200
3,750
25,560
P202,440
8,610
P211.050
b. NCI-CNI – P8,610
*Non-controlling Interest in Net Income (NCINI) for 20x4
Net income of S Company
Less: Amortization of allocated excess (refer to amortization table above)
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI)
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
partial-goodwill)*
Non-controlling Interest in Net Income (NCINI)
P 60,000
13,200
P 46,800
20%
P 9,360
750
P 8,610
c. CNI, P211,050 – refer to (a)
d. 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
202,440
P562,440
72,000
P490,440
e.
Non-controlling interest (full-goodwill), December 31, 20x4
Common stock – S Company, December 31, 20x4……
Retained earnings – S Company, December 31, 20x4
Retained earnings – SCompany, January 1, 20x4
Add: Net income of S for 20x4
Total
Less: Dividends paid – 20x4
Stockholders’ equity – S 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……
Multiplied by: Non-controlling Interest percentage…………...
Non-controlling interest (partial-goodwill, 12/31/20x4…………………………..
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), 12/31/20x4……………..
P 240,000
P120,000
60,000
P180,000
36,000
144,000
P 384,000
90,000
( 13,200)
P460,800
20
P 92,160
2,250
P 94,410
f.
Consolidated SHE:
Stockholders’ Equity
Common stock, P10 par
P 600,000
Retained earnings
P’s Stockholders’ Equity / CI – SHE, 12/31/20x4
NCI, 12/31/20x4
Consolidated SHE, 12/31/20x4
490,440
P1,090,440
___94,410
P1,184,850
12/31/20x5:
a. CI-CNI – P258,240
Consolidated Net Income for 20x5
Net income from own/separate operations
P Company
S Company
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 20x5
P192,000
90,000
P282,000
P16,560
7,200
0
23,760
P258,240
16,560
P274,800
b. NCI-CNI – P16,560
*Non-controlling Interest in Net Income (NCINI) for 20x5
Net income of S Company
Less: Amortization of allocated excess / goodwill impairment for 20x5
(refer to amortization table above)
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI) for 20x5
P 90,000
80,400
P 82,800
20%
P 16,560
c. CNI, P274,800 – refer to (a)
d. On subsequent to date of acquisition, consolidated retained earnings would be computed
as follows:
Consolidated Retained Earnings, December 31, 20x5
Retained earnings - P Company, January 1, 20x5 (cost model
Adjustment to convert from cost model to equity method for purposes of
consolidation or to establish reciprocity:/P’s share in adjusted net
increased in subsidiary’s retained earnings:
Retained earnings – S, January 1, 20x5
Less: Retained earnings – S, January 1, 20x4
Increase in retained earnings since date of acquisition
Less: Amortization of allocated excess – 20x4
Multiplied by: Controlling interests %...................
Less: Goodwill impairment loss (full-goodwill), net (P3,750– P750)* or
(P3, 750 x 80%)
Consolidated Retained earnings, January 1, 20x5
Add: Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent for 20x5
Total
Less: Dividends paid – P Company for 20x5
Consolidated Retained Earnings, December 31, 20x5
P484,800
P 144,000
120,000
P 24,000
13,200
P 10,800
80%
P 8,640
3,000
5,640
P 490,440
258,240
P748,680
72,000
P676,680
e.
Non-controlling interest (full-goodwill), December 31, 20x5
Common stock – S Company, December 31, 20x5……
Retained earnings – S Company, December 31, 20x5
Retained earnings – S Company, January 1, 20x5
Add: Net income of S for 20x5
Total
Less: Dividends paid – 20x5
Stockholders’ equity – S 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
20x5
Fair value of stockholders’ equity of subsidiary, December 31, 20x5……
Multiplied by: Non-controlling Interest percentage…………...
Non-controlling interest (partial goodwill)…………………………………..
Add: Non-controlling interest on full goodwill , net of impairment loss
[(P15,000 full – P12,000, partial = P3,000) – P750 impairment loss
Non-controlling interest (full-goodwill)…………………………………..
7,200
( 20,400)
P 495,600
20
P 99,120
2,250
P 101,370
f.
Consolidated SHE:
Stockholders’ Equity
Common stock, P10 par
Retained earnings
P’s Stockholders’ Equity / CI – SHE, 12/31/20x4
NCI, 12/31/20x4
Consolidated SHE, 12/31/20x4
P 600,000
676,680
P1,276,680
__101,370
P1,378,050
Problem XVII
P’s gain on sale of subsidiary stock is computed as follows:
Cash proceeds………………………………………
Fair value of retained non-controlling interest equity
investment (35%)
Carrying value of the non-controlling interest before
deconsolidation
(15% or prior outside non-controlling interest in
Subsidiary)
Less: Carrying value of Subsidiary’s net assets
Gain on disposal or deconsolidation
P
720,000
420,000
120,000
P1,260,000
1,200,000
P 60,000
Read discussion on step-acquisition regarding the initial treatment of investment as FVTOCI
or FVTPL and its disposition. It is assumed that the investment above is FVTPL.
Problem XVIII
P Company’s additional paid-in capital arising sale of subsidiary shares is computed as follows:
Cash proceeds………………………………………
Less: Carrying value of non-controlling interest
(P720,000* x 10%)
“Gain” – transfer within equity in “Additional paid-in
capital” account
P
84,000
72,000
P
12,000
*the P720,000 is already the gross-up amount since it is the amount presented in the consolidated balance sheet.
Because P Company continues to have the ability to control S Company, the sale of S’s shares is
treated as an equity transaction. Therefore, no gain or loss is recognized. Instead, Palmer
Company’s additional paid-in capital increases by P60,000.
Problem XIX
P Company’s additional paid-in capital arising sale of subsidiary shares is computed as follows:
Cash proceeds from issuance of additional shares …..P210,000
Less: Carrying Value of non-controlling from issuance
of additional shares:
Non-controlling interest prior to issuance
of additional shares:
Book value of SHE before issuance…P720,000
x: Non-controlling interest…………….
20%* P 144,000
Non-controlling interest after issuance of
additional shares:
Book value of SHE before
issuance…………………….P720,000
Additional issuance…………………..…210,000
BV of SHE after issuance……………….P930,000
x: Non-controlling interest……………...
36%** 334,800 190,800
“Gain” – transfer within equity in
“Additional paid-in capital” account...P 19,200
* (120,000 – 96,000) / 120,000 = 20% ownership before additional issuance of shares.
** [(24,000 + 30,000) / (120.000 + 30,000)] = 36% ownership after additional issuance of shares
PCompany recognizes an increases in its Investment in S from P576,000 (P720,000x 80%) to P595,200
[P930,000 x (96,000/150,000) and in additional paid-in capital of P19,200.
Multiple Choice Problems
1. b
Full-Goodwill: (P600,000/70%) – P640,000 = P217,143 – P40,000 = P177,143
If partial goodwill: P600,000 – (P640,000 x 70%) = P152,000 – (P40,000 x 70%) = P124,000
2. b – P500,000 + P3,461
3. b
4. d – equivalent to consideration transferred, P320,000
5. d – equivalent to consideration transferred, P380,000
6. a
7. P2,120,000
Podex’s separate earnings for 20x6...................................................... P2,000,000
Dividend income from Sodex ................................................................ __120,000
Podex’s 20x6 net income ....................................................................... P2,120,000
8.
P2,260,000
Podex’s separate earnings for 20X6
Podex’s equity in net income of Sodex ...............................................
Less: Amortization of cost in excess of book value ............................
Podex’s 20x6 net income .......................................................................
9. b
10. c
P2,000,000
300,000
(40,000)
P2,260,000
Retained earnings of Parent, 12/31/20x6, Cost Method
Add: Increased in Retained earnings of Subsidiary
RE of Parent, 12/31/20x6, Equity Method (same with
Consolidated RE)
310,000
_80,000
390,000
Investment balance 12/31/x6, Cost Method
Add: Increased in Retained earnings of Subsidiary
200,000
80,000
11. c
Investment balance 12/31/x6, Equity Method
280,000
12. d
Retained earnings of Parent, 12/31/20x6, Cost Method
Add: Increased in Retained earnings of Subsidiary
RE of Parent, 12/31/20x6, Equity Method (same with
Consolidated RE)
210,000
_240,000
450,000
13. b – dividends of subsidiary considered as dividend income in the parent’s separate income
statement.
14. b
Retained earnings of Parent, 12/31/20x6, Cost Method
Less: Decreased in Retained earnings of Subsidiary
RE of Parent, 12/31/20x6, Equity Method (same with
Consolidated RE)
360,000
_40,000
320,000
15. d – 20x3: P30,000 x 75% = P22,500
20x4: P40,000 x 75% = P30,000
16. a – no changes in investment unless there are dispositions of investment and permanent
impairment.
17. c - 20x4 = P86,400
Consolidated Net Income
20x4
20x5
Peters Company's reported net income64,000
37,500
Less: dividend income from Smith (1,600)
_____0
Peters' income from independent operations62,400
37,500
Add: Peter's share of Smith's net income in 20x4 since acquisition
(.80)(8/12)(P45,000)24,000
Less: Peter's share of Smith's net loss in 20x4 (.80  P5,000
______
(4,000)
Controlling Interest in Consolidated net income86,400
33,500
18. c - 20x5 = P33,500 – refer to No. 17
19. b - 20x4 = P151,400
Consolidated Retained Earnings
Peter's 12/31 retained earnings (P80,000 + P64,000 - P15,000)
Add: Peter's share of the increase in Smith's retained earnings
from the date of acquisition to the current date:
(.80  (P53,000 – P25,000))
(.80  (P48,000 – P25,000)
P151,400
20. c - 20x5 = P179,900 – refer to No. 19
21. c
Consolidated Net Income for 20x4
Net income from own/separate operations
P Company P30,200 – (P150,0000 – P20,000 –
P60,000)
S Company (P100,000 – P15,000 – P45,000)
Total
Less: Non-controlling Interest in Net Income
Amortization of allocated excess
20x4
P129,000
20x5
P161,500
22,400
________18,400
P179,900
P70,000
40,000
P110,000
P
0
0
Goodwill impairment
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
____0
____0
P110,000
_____0
P110,000
22. b
Plimsol: P100,000 + P200,000,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,P300,000
Shipping: P75,000 + P150,000………………………………………………………………. 225,000
P525,000
23.
Retained Earnings - Plimsol, 1/1/20x4 (cost method, same with equity method and
consoilidated retained earnings since it is the date of acquisition)P 150,000
Add: CI – CNI (refer to No. 21)
110,000
Less: CI – Dividends (Dividend of parent only)25,000
Retained earnings, 12/31/20x4 (equity method same with CRE)
P 235,000
24. d
Liabilities:
Plimsol (P40,000 + P75,000)
Shipping (P25,000 + P50,000)
P115,000
75,000
P
190,000
25. d
Total assets (No. 22)
Les: Liabilities (No. 24)
Stockholders’ equity
26. c – P60,000 x 80% = P48,000
27. c
Investment.1/1/20x4
Add: Share in net income – 20x4 (P45,000 x 80%)
Less: Dividends received
Investment, 12/31/20x4
Add: Share in net income – 20x5 (P60,000 x 80%)
Less: Dividends received
Investment, 12/31/20x5
28. a
P525,000
190,000
P335,000
P105,000
36,000
12,000
P129,000
48,000
18,000
P159,000
Investment. 4/1/20x6
P500,000
Add: Share in net income – 20x6
(3 quarters x P30,000 x 90%)
81,000
Less: Dividends declared of Satz (3 quarters x P10,000 x 90%)
27,000
Amortization (the recorded amount which means it represents
only 9 months, no need to pro-rate)
10,000
Investment, 12/31/20x6
P544,000
29. c
Patz’s equity in net income of Sats (90% x P30,000 x 3 qtrs)
Less: Amortization (the recorded amount which means it represents
only 9 months, no need to pro-rate)
P81,000
10,000
Investment income – 20x4 (equity method)P 71,000
30. d
Investment balance, 1/1/20x4……………………………………………….. P150,000
Add: Puma’s equity in net income of Slume (30% x P25,000)..…………
7,500
Less: Dividends (P30% x P10,000)…………………………………………….
3,000
Amortization of cost in excess of book value
(P50,000/10 years) x 30%..............................................................
1,500
Puma’s 20x6 net income (equity method) ............................................... P153,000
31. b
Puma’s equity in net income of Slume (30% x P25,000)..……………….. P 7,500
Less: Amortization of cost in excess of book value
(P50,000/10 years) x 30%..............................................................
1,500
Investment income – 20x4 (equity method)………………………………. P 6,000
32. a – under equity method, the Parent’s retained earnings is the same with Consolidated RE.
33. b
34. d
35. b
{(P260,000 - P230,000) + [(P650,000 - P590,000)/120] 8}.8
{(P190,000 - P160,000) 4/6 - [(P241,000 - P220,000)/60] 5}.7
Consideration transferred: 10,500 shares x P95
Less: BV of SHE – S (?)
Allocated excess;
Less: O/U valuation of A and L:
Undervaluation of land
Overvaluation of buildings
Undervaluation of equipment
Undervaluation/unrecorded trademark
P997,500
857,500
P140,000
P40,000
( 30,000)
80,000
50,000 140,000
P
0
36. a – P900,000 + P500,000 = P1,400,000
37. d – assumed that total expenses includes cost of goods sold which is different when the
question is “total operating expenses”
Cost of goods sold (P360,000 + P200,000)
P 560,000
Depreciation expense (P140,000 + P40,000)
180,000
Other expenses (P100,000 + P60,000)
160,000
Amortization of allocated excess:
Buildings: (P30,000) / 20
(P1,500)
Equipment; P80,000 / 10
8,000
Trademark: P50,000 / 16
3,125
9,625
Total expenses
P909,625
38. b – (P750,000 + P280,000) – P30,000 + (P1,500 x 5 years) = P1,007,500
39. c – (P300,000 + P500,000) + P80,000 – (P8,000 x 5 years) = P840,000
40. c – P450,000 + P180,000 + P40,000 = P670,000
41. d – P50,000 – P3,125 x 5 years) = P34,375
42. a – P only (the stock issued In 20x0 includes already in the December 31, 20x4 balance.
43. a – P only
44. a
Consolidated Retained Earnings, December 31, 20x4
Consolidated Retained earnings, January 1, 20x4 (equity method)
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 (under equity method)
P 1,350,000
490,375
P1,840,375
195,000
P1,645,375
Net Income from own operations:
Sales
Less: cost of goods sold
Gross profit
Less: Depreciation expense
Other expenses
Net income
Non-controlling interest (full-goodwill), December 31, 20x4
P Company
S Company
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…………..
S Co
P500,000
200,000
P300,000
40,000
60,000
P200,000
P Co
P900,000
360,000
P540,000
140,000
100,000
P300,000
P300,000
200,000
P500,000
P 0
9,625
_
0
9,625
P490,375
45. c
Note: Normally, the term used in the requirement “equity in subsidiary income”, is a term used
under equity method, but it should be noted that under PAS 27, it prohibits the use of equity
method for a parent to consolidate a subsidiary. But, assuming the use of equity method, the
answer would be, P190,375.
Share in net income: P200,000 x 100%
P200,000
Less: Amortization of allocated excess
9,625
P190,375
46. a
Punn’s equity in net income of Sunn (3 months ended,12/31/x6)……
200,000
P
Amortization of cost in excess of book value ........................................... ( 60,000)
Increase in Parent’s retained earnings…………………………………….
P 140,000
47. a
Punn’s net income from own operations, 12 months ended, 12/31/x6
P6,000,000
Add: Increase in RE of Sunn:
Punn’s equity in net income of Sunn (3 months ended,12/31/x6)P200,000
Amortization of cost in excess of book value ............................................... ( 60,000)
Increase in Parent’s retained earnings……………………………………. P 140,000
Punn’s net income for 20x6 under the equity method……………………… P6,140,000
48. b
Full—goodwill Aproach
Fair value of Subsidiary (100%)
Consideration transferred
(80%)……………..
Fair value of NCI (given)
(20%)………………..
Fair value of Subsidiary (100%)……….
Less: Book value of stockholders’ equity of
Son:
P
180,000
20,000
P
200,000
Common stock (P100,000 x
100%)……………….
Retained earnings (P60,000 x
100%)………...
Allocated excess (excess of cost over book
value)…..
Less: Over/under valuation of assets and
liabilities:
Increase in land (P5,000 x
100%)…………………….
Increase in equipment (P10,000 x 100%)
Positive excess: Increase in Patent (excess of
cost over
fair
value)………………………………………………...
P 100,000
60,000 160,000
P
40,000
P
5,000
___10,000
15,000
P
25,000
A summary or depreciation and amortization adjustments is as follows:
Account Adjustments to be
amortized
Subject
to
Annual
Amortization
Over/
under
Lif
e
Equipment (net).........
Patent
10,000
25,000
5
5
Annu
al
Amou
nt
P
2,000
5,000
P
7,000
49. d
1/1/x4.
Investment in Wisden
180,000
18,000
Dividends – S
(20,000 x 90%)
NI of S
(60,000
x 90%)……. 54,000
1/1/x6203,400
12,600
Amortization
(P14,000 x 90%)
50. c
1/1/x6.
51. a
52. b
Investment in Wisden
230,400
9,000
Dividends – S
(10,000 x 90%)
NI of S
(30,000
x 90%)……. 27,000
1/1/x6215,100
6,300
Amortization
(7,000 x 90%)
20x4 Investment income: Dividend of P10,000 x 100% = P10,000
20x4 Investment balance: P500,000
Current
Year(20x
4)
P 2,000
5,000
P 7,000
Pedro’s equity in net income of Sanburn – x4 (100% x P80,000)..………. P 80,000
Less: Amortization of cost in excess of book value
Inventory: P20,000 x 100%………………………………………………..
20,000
Patent [P500,000 – P380,000 = P120,000 – P20,000 = P100,000)
(P100,000/20 years) x 100%.......................................................... 5,000
Investment income – 20x4 (equity method)………………………………. P 55,000
Investment balance, 1/1/20x4……………………………………………….. P500,000
Add: Pedro’s equity in net income of Sanburn – x4 (100% x P80,000)..…80,000
Less: Dividends (100% x P10,000)…………………………………………….
10,000
Amortization of cost in excess of book value:
Inventory: P20,000 x 100%……………………………………………… 20,000
Patent [P500,000 – P380,000 = P120,000 – P20,000 = P100,000)
(P100,000/20 years) x 100%.......................................................... ___5,000
Investment balance, equity method, 12/31/20x4…………………………. P545,000
53. d
Under the cost method, an investor recognizes its investment in the investee at cost. Income is
recognized only to the extent that the investor receives distributions from the accumulated
net profits (or dividend declared/paid by the investee) of the investee arising after the date
of acquisition by the investor. Distributions (dividends) received in excess of such profits are
regarded as a recovery of investment and are accounted for as a reduction of the cost of the
investment (i.e., as a return of capital or liquidating dividend).
Therefore, the investment balance of P500,000 on the acquisition date remains to be the same.
54. d – refer to No. 53 for further discussion.
55. b – refer to No. 53 for further discussion.
56. a – P40,000 x 80%
57. b – P50,000 x 80%
58. a – P60,000 x 80%
59. c
Full/Gross-up Goodwill Presentation:
Non-controlling interest in Net Income:
Subsidiary net income from own operations……….P100,000
Less: Amortization of allocated excess*……………
7,000
Impairment of full-goodwill (if any)**………… 0
P 93,000
x: Non-controlling interests……………………………. 20%
Non-controlling interest in Net Income………………………..P 18,600
*Amortization of allocated excess:
Increase in equipment: P30,000 / 10 years = P 3,000
Increase in buildings: P40,000 / 10 years = 4,000
Total amortization……………………………… P 7,000
** In case, there is an impairment of goodwill then the amount impaired under the fullgoodwill method should also be allocated between controlling and non-controlling
interests
Partial Goodwill Presentation:
Non-controlling interest in Net Income:
Subsidiary net income from own operations……….P100,000
Less: Amortization of allocated excess*………………7,000
P 93,000
x: Non-controlling interests…………………………….
20%
Non-controlling interest in Net Income………………….
P 18,600
60. c
Full/Gross-up Goodwill Presentation:
Non-controlling interest in Net Income:
Subsidiary net income from own operations……….P120,000
Less: Amortization of allocated excess*…………….. 7,000
Impairment of full-goodwill (if any)**…………
0
P113,000
x: Non-controlling interests…………………………….
20%
Non-controlling interest in Net Income………………………..P 22,600
*Amortization of allocated excess:
Increase in equipment: P30,000 / 10 years = P 3,000
Increase in buildings: P40,000 / 10 years = 4,000
Total amortization………………………. P 7,000
** In case, there is an impairment of goodwill then the amount impaired under the fullgoodwill method should also be allocated between controlling and non-controlling
interests
Partial Goodwill Presentation:
Non-controlling interest in Net Income:
Subsidiary net income from own operations……….P120,000
Less: Amortization of allocated excess*……………..
7,000
P113,000
x: Non-controlling interests…………………………….
20%
Non-controlling interest in Net Income…………………………P 22,600
61. a
Full/Gross-up Goodwill Presentation:
Non-controlling interest in Net Income:
Subsidiary net income from own operations……….P130,000
Less: Amortization of allocated excess*…………… 7,000
Impairment of full-goodwill (if any)**………
0
P123,000
x: Non-controlling interests…………………………..
20%
Non-controlling interest in Net Income……………………… P 24,600
*Amortization of allocated excess:
Increase in equipment: P30,000 / 10 years = P 3,000
Increase in buildings: P40,000 / 10 years = 4,000
Total amortization………………………. P 7,000
** In case, there is an impairment of goodwill then the amount impaired under the fullgoodwill method should also be allocated between controlling and non-controlling
interests
Partial Goodwill Presentation:
Non-controlling interest in Net Income:
Subsidiary net income from own operations……….P130,000
Less: Amortization of allocated excess*……………… 7,000
P123,000
x: Non-controlling interests………………………………
20%
Non-controlling interest in Net Income………………..P 24,600
62. a
Book value of Stockholders’ Equity of Subsidiary
Common stock, 12/31/20x4………………………………
Retained earnings, 12/31/20x4:
P 300,000
Retained earnings, 1/1/20x4………………………….P200,000
Add: Net income – 20x4…………………………….. 100,000
Less: Dividends paid, 20x4…………..………………40,000 260,000
Book value of Stockholders’ Equity of Subsidiary, 12/31/x4
P 560,000
Add: Adjustments to reflect fair value (P30,000 + P40,000)..
70,000
Less: Accumulated amortization of allocated excess
P7,000 x 1 year…………………………………….….
7,000
Fair value of Stockholders’ Equity of Subsidiary. 12/31/x4…
P623,000
Multiplied by: Non-controlling Interest %...........................
____ 20%
Non-controlling Interest (partial goodwill)…………………..
P124,600
Add: Non-controlling interest in Full Goodwill
(P55,000, full – P44,000 partial l) or
(P55,00,000 x 20%)*………………………………
11,000
Non-controlling Interest (full)………………………………
P135,600
* this computation (i.e., P55,000 x 20%) should only be use when the fair value of the noncontrolling interest of acquiree (subsidiary) is not given.
Partial Goodwill:
Fair value of Subsidiary:
Fair value of consideration transferred: Cash…………
P 500,000
Less: Book value of Net Assets (Stockholders’
Equity - Subsidiary): (P300,000 + P200,000) x 80%..
400,000
Allocated Excess.………………………………………….
P 100,000
Less: Over/Undervaluation of Assets and Liabilities:
Increase in equipment: P30,000 x 80%................... P 24,000
Increase in building: P40,000 x 80%......................... 32,000 56,000
Goodwill (Partial)…………………………………………..
P 44,000
Full-goodwill:
(100%) Fair value of Subsidiary:
(100%) Fair value of consideration transferred:
P500,000 / 80%........…………………………..
Less: Book value of Net Assets (Stockholders’
Equity - Subsidiary)…………...................................
Allocated Excess.………………………………………….
Less: Over/Undervaluation of Assets and
Liabilities (P40,000 + P30,000)…………………….
Goodwill (Full/Gross-up)..………………………………..
P 625,000
500,000
P 125,000
P
70,000
55,000
63. e
Book value of Stockholders’ Equity of Subsidiary
Common stock, 12/31/20x5………………………………
P 300,000
Retained earnings, 12/31/20x5:
Retained earnings, 1/1/20x5 …………………..……P260,000
Add: Net income, 20x5………………………………. 120,000
Less: Dividends paid, 20x5…………………………… 50,000 330,000
Book value of Stockholders’ Equity of Subsidiary, 12/31/x5
P 630,000
Add: Adjustments to reflect fair value (P30,000 + P40,000)..
70,000
Less: Accumulated amortization of allocated excess – 2 yrs 14,000
Fair value of Stockholders’ Equity of Subsidiary. 12/31/x5…
P 686,000
Multiplied by: Non-controlling Interest %..............................
20%
Non-controlling Interest (partial goodwill)…………………..
P 137,200
Add: Non-controlling interest in Full Goodwill
(P55,000, full – P44,000 partial l) or
(P55,00,000 x 20%)*………………………………
Non-controlling Interest (full)………………………………
64. e
11,000
P 148,200
Book value of Stockholders’ Equity of Subsidiary
Common stock, 12/31/20x6………………………………
P 300,000
Retained earnings, 12/31/20x6:
Retained earnings, 1/1/20x6………………………….P330,000
Add: Net income, 20x6……………………………… 130,000
Less: Dividends paid, 20x6…………………………..60,000 400,000
Book value of Stockholders’ Equity of Subsidiary, 12/31/x6
P 700,000
Add: Adjustments to reflect fair value (P30,000 + P40,000)..
70,000
Less: Accumulated amortization of allocated excess
(1/1/20x4 – 12/31/20x6): P7,000 x 3 years……………
21,000
Fair value of Stockholders’ Equity of Subsidiary. 12/31/x6…
P 749,000
Multiplied by: Non-controlling Interest %............................
20%
Non-controlling Interest (partial goodwill)…………………..
P 149,800
Add: Non-controlling interest in Full Goodwill
(P55,000, full – P44,000 partial l) or
(P55,00,000 x 20%)*………………………………
11,000
Non-controlling Interest (full)………………………………
P 160,800
* this computation (i.e., P55,000 x 20%) should only be use when the fair value of the noncontrolling interest of acquiree (subsidiary) is not given.
65. P542,400
Investment balance, 1/1/20x4……………………………………………….. P500,000
Add: Bell’s equity in net income of Demers – x4 (80% x P100,000)..……80,000
Less: Dividends (80% x P40,000)……………………………………………….32,000
Amortization of cost in excess of book value:
Equipment: P30,000/10 years x 80%………………………………… 2,400
Building: P40,000/10 years x 80%................................................. 3,200
Investment balance, equity method, 12/31/20x4…………………………. P542,400
66. c
Investment balance, 12/3/20x4……………………………………………….. P542,400
Add: Bell’s equity in net income of Demers – x4 (80% x P120,000)..……
96,000
Less: Dividends (80% x P50,000)……………………………………………….
40,000
Amortization of cost in excess of book value:
Equipment: P30,000/10 years x 80%…………………………………
2,400
Building: P40,000/10 years x 80%.................................................
3,200
Investment balance, equity method, 12/31/20x5…………………………. P592,800
67. b
Investment balance, 12/3/20x5……………………………………………….. P592,800
Add: Bell’s equity in net income of Demers – x4 (80% x P130,000)..…… 104,000
Less: Dividends (80% x P60,000)……………………………………………….
48,000
Amortization of cost in excess of book value:
Equipment: P30,000/10 years x 80%…………………………………
2,400
Building: P40,000/10 years x 80%.................................................
3,200
Investment balance, equity method, 12/31/20x6…………………………. P643,200
68. a
Bell’s equity in net income of Demers (80% x P100,000)………………. P 80,000
Less: Amortization of cost in excess of book value (refer to No. 65):
(P2,400 + P3,200)
5,600
Investment income – 20x4 (equity method)……………………………….
P 74,400
69. a
Bell’s equity in net income of Demers (80% x P120,000)………………. P 96,000
Less: Amortization of cost in excess of book value (refer to No. 65):
(P2,400 + P3,200)
5,600
Investment income – 20x5 (equity method)………………………………. P 90,400
70. c
Bell’s equity in net income of Demers (80% x P130,000)………………. P 104,000
Less: Amortization of cost in excess of book value (refer to No. 65):
(P2,400 + P3,200)
5,600
Investment income – 20x6 (equity method)………………………………. P 98,400
71. c
Non-controlling interest in Net Income:
Subsidiary net income from own operations…………………………… P100,000
Less: Amortization of allocated excess (refer to No. 65)
(P3,000 + P4,000)………………………………………..……………. 7,000
P 93,000
x: Non-controlling interests………………………………………………..
20%
Non-controlling interest in Net Income…………………………………P 18,600
72. c
Non-controlling interest in Net Income:
Subsidiary net income from own operations…………………………… P120,000
Less: Amortization of allocated excess (refer to No. 65)
(P3,000 + P4,000)………………………………………..……………. 7,000
P 113,000
x: Non-controlling interests………………………………………………..
20%
Non-controlling interest in Net Income………………………………… P 22,600
72. c
Non-controlling interest in Net Income:
Subsidiary net income from own operations…………………………… P130,000
Less: Amortization of allocated excess (refer to No. 65)
(P3,000 + P4,000)………………………………………..……………. 7,000
P 123,000
x: Non-controlling interests………………………………………………..
20%
Non-controlling interest in Net Income………………………………… P 24,600
73. a – same with No. 62 (cost method)
74. e – same with No. 63 (cost method)
75. d – same with No. 64 (cost method)
76. b
77. b – Dividend paid – S, P70,000 x 60% = P42,000
78. d – CNI amounted to P265,000 [CI-CNI, P235,000 and NCI-CNI, P30,000
Consolidated Net Income for 20x5
Net income from own/separate operations
P Company
SCompany
Total
P190,000
90,000
P280,000
Less: Non-controlling Interest in Net Income*
P 30,000
Amortization of allocated excess
15,000
Goodwill impairment
____0
45,000
Controlling Interest in Consolidated Net Income or
Profit
P235,000
attributable to equity holders of parent…………..
Add: Non-controlling Interest in Net Income (NCINI)
30,000
Consolidated Net Income for 20x4
P265,000
*Net income of subsidiary – 20x4
Amortization of allocated excess – 20x4
P 90,000
( 15,000_
P75,000
Multiplied by: Non-controlling interest %..........
40%
P 30,000
Less: Non-controlling interest on impairment loss on full-goodwill
______0
(P1,500 x 15%)*
P 30,000
20x5 results of operations are as follows:
Sales
Less: Cost of goods sold Operating expenses
Net income from its own separate operations
Add: Investment income
Net income
Peer
P 600,000
410,000
P 190,000
45,000
P 235,000
Computation of Goodwill:
Fair value of Subsidiary (100%)
Consideration transferred: Cash (60%)
Fair value of NCI (given) (40%)
Fair value of Subsidiary (100%)
Less: Book value of stockholders’ equity of Sea (P550,000 x 100%)
Allocated excess (excess of cost over book value)…..
Add (deduct): (Over) under valuation of assets and liabilities
(P140,000 x 100%)
Positive excess: Full-goodwill (excess of cost over fair value)
Amortization of Allocated Excess
Book Value
Buildings (net)- 6
300,000
Equipment (net)– 4
300,000
Patent -10
-0Net
Fair Value
360,000
280,000
100,000
Over/under
P 60,000
(20,000)
100,000
P 140,000
79. c – refer to No. 78 for computations
80. b – refer to No. 78 for computations
81. c - P811,000.
Consolidated Retained Earnings, December 31, 20x5
Sea-Breeze
P 300,000
210,000
P 90,000
P 90,000
P 414,000
276,000
P 690,000
__550,000
P 140,000
P
140,000
0
Amort.
P 10,000
(5,000)
10,000
P 15,000
Retained earnings - Parent Company, January 1,
20x5 (cost model)
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, 20x2
Increase in retained earnings since date of
acquisition
Less: Amortization of allocated excess – 20x2
– 20x4
(P15,000 x 3 years)
Multiplied
interests %...................
by:
Controlling
Less: Goodwill impairment loss (full-goodwill),
P700,000
P
300,000
70,000
P
230,000
45,000
P
185,000
60%
P
111,000
0
Consolidated Retained earnings, January 1, 20x5
111,000
P
811,000
Note:
a. Date of acquisition: RE of Parent = Consolidated RE
Regardless of the method used in the books of the subsidiary,
following rule should always be applied –
b. Subsequent to date of acquisition:
Retained earnings of Parent under equity method = CRE
the
Since, the P811,000 is the retained earnings of parent under the equity
method, it should also be considered as the parent’s portion or interest in
consolidated retained earnings or simply the consolidated retained
earnings.
82. c - P811,000 – refer to note (b) of No. 81
83. b – P111,000 – refer to No. 81
84. d
Consolidated Retained earnings, January 1, 20x5 (refer to
Nos. 81 and 82)
Add: Controlling Interest in Consolidated Net Income or
Profit attributable to equity holders of parent for 20x5
P
811,000
235,000
P1,046,0
00
Total
Less: Dividends paid – Parent Company for 20x5
Consolidated Retained Earnings, December 31, 20x5
92,000
P
954,000
85. d – refer to No. 84
86. c
Non-controlling interest (partial-goodwill), December 31, 2015
Common stock – Subsidiary Company, December 31,
2015……
P
480,000
Retained earnings – Subsidiary Company,
December 31, 2015
Retained earnings – Subsidiary Company, P300,000
January 1, 2015
Add: Net income of subsidiary for 2015
90,000
Less: Dividends paid – Subsidiary - 2015
70,000
320,000
Stockholders’ equity – Subsidiary Company,
P
December 31, 2015
800,000
Adjustments to reflect fair value - (over)
undervaluation
140,000
of assets and liabilities, date of acquisition
(January 1, 2012)
Amortization of allocated excess (refer to
amortization above) –
(P15,000 x 4)
( 60,000)
Fair value of stockholders’ equity of subsidiary,
P
12/31/ 2015
880,000
Multiplied
by:
Non-controlling
Interest
percentage.
40
Non-controlling interest (partial)
P
352,000
Add: NCI on full-goodwill…………………….
____0
Non-controlling interest (full)
P
352,000
87. c
Stockholders’ Equity
Common stock - Peer
Retained earnings
Parent’s
Stockholders’
Attributable to the
P
724,000
954,000
Equity/Equity
Owners of the Parent
P
1,678,000
352,000
P 985,500
P2,030,000
Non-controlling interest**
Total Stockholders’ Equity (Total Equity)
Total Liabilities and Stockholders’ Equity
88. c
Investment in Sea-Breeze
1/1/x2.
414,000
42,000
Dividends – S
Retro
111,000
(70,000 x 60%
NI of S
(90,000
Amortization
x 60%)……. 54,000
9,000
(P15,000 x 60%)
12/31/x5528,000
Investment Income
NI of S
Amortization
(P15,000 x 60%) 9,000
89. c
90. d – refer to No. 78
91. c – refer to No. 78
92. b – refer to No. 78
93. c – refer to No. 81
94. c – refer to No. 81
95. a – not applicable under equity method.
96. d – refer to No. 84
97. d – refer to No. 84
98. d – refer to No. 86
99. c – refer to No. 87
100. a
Net income of S (5/1/x5 – 12/31/x5): P840,000 x 8/12
Less: Dividend – S (11/1/20x5 – no need to pro-rate)
Cumulative net income less dividends since
date of acquisition, 1/1/20x6 (date to establish reciprocity –
not 12/31/x6)
x: Controlling interests
101. b
Retained earnings – S Company, 1/1/20x4
Less: Retained earnings – S Company, 12/31/20x6
Cumulative net income less dividends since
date of acquisition, 1/1/20x6 (date to establish reciprocity –
should always be beginning of the year, not 12/31/x6)
x: Controlling interests
102. (b)
54,000
45,000
(90,000
x 60%)
P560,000
300,000
P260,000
80%
P208,000
P 60,000
190,000
P130,000
90%
P117,000
Net income of Subsidiary – 2015 and 2016 (P15,000 + P22,000)…………………………………….P 37,000
Less: Dividends of Subsidiary – 2015 and 2016 (P6,000 + P9,000)……………………………………... 15,000
Cumulative net income less dividends since date of acquisition, 1/1/2017 (date to establish
reciprocity –should always be beginning of the year, not 12/31/17) / Increase in
Retained earnings………………………………………………………………………………………... P 22,000
x: Controlling interests……………………………………………………………………………………..70%
P 15,400
It should be noted that the amortization/depreciation and any unrealized/realized profits (in case of
intercompany sales of inventory/fixed assets) should not be included (refer to next number) as part of the entry to
established reciprocity since there will be separate eliminating entry to be made at the end of the year (2017) for
amortization and depreciation.
Further, the eliminating entry to establish reciprocity for the year 20x7 should be made on January 1, 20 17 not
December 31, 2017
Incidentally, the entry to convert from cost method to equity method or the entry to establish reciprocity at the
beginning of the year, 1/1/2017 would be as follows:
Investment in Subsidiary………………………………………………………………… 15,400
Retained earning – Parent Company, 1/1/2017………………………………. 15,400
103. (a)
Net income of Subsidiary – 2015 and 2016 (P15,000 + P22,000)……………………………………. P 37,000
Less: Dividends of Subsidiary – 2015 and 2016 (P6,000 + P9,000)…………………………………… 15,000
Increase in Retained earnings for 2 years……………………………………………………………… P 22,000
Less: Amortization of allocated excess [(P80,000 – P60,000)/10 years x 2 years]…………………
4,000
P 18,000
x: Controlling interests………………………………………………………………………………………. 70%
Retroactive amount, December 31, 20x6 or January 1, 2017……………………………………… P 12,600
104. b
[{(P84,000 + P105,000) - [(P310,000 - P220,000)/20]2} - (P30,000 + P50,000)].8
105. a - under the cost model share in net income or earnings of subsidiary does not affect
investment.
106. d
Investment account, December 31, 20x7:
Original investment …………………………………………..P 550,000
Tiny’s earnings, 20x4-20x77: 100% x P166,000……………166,000
Less: Dividends received: 100% x P114,000………………114,000
Balance, December 31, 20x7……………………………..P602,000
107. a
The adjusting entry required in 20x7 to convert from the cost to the equity methodis:
Investment in Tiny………………………………….52,000
Retained earnings beg………………………….. 4,000
Dividend revenue………………………………… 54,000
Equity in subsidiary income of Tiny…….
110,000
108. d – P45,000/15% = P300,000
109. d
Pigeon’s separate income
P150,000
Less: 60% of Home’s P10,000 loss =
6,000
Less: Equipment depreciation
P10,000/ 10 years =
__1,000
Controlling Interest in Consolidated Net Income
P143,000
Add: NCI in CNI
NL of S Company
P( 10,000)
Less: Amortization of allocated excess (P1,000/60%)
1,667
P (11,667)
Multiplied by: NCI%
40% ( 4,667)
Consolidated Net Income
P138,333
110. a
Non-controlling Interest in Net Income (NCINI) for Year 3
Net income of S Company
Less: Amortization of allocated excess
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI) for Year 3
111. c
Net income from own/separate operations
P240,000
45,000
P195,000
30%
P 58,500
P Company
S Company
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…………..
*Non-controlling Interest in Net Income (NCINI) for 20x4
Net income of S Company
Less: Amortization of allocated excess**
112. a
P 375,000
30,000
P405,000
P5,250
3,750
0
9,000
P396,000
P30,000
3,750
P26,250
20%
P 5,250
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI) for 20x4
**P270,000/80% = P337,500 – (P150,000 + P150,000) = P37,500 / 10 years = P3,750
Note: Whether the partial or full-goodwill approach are used the amortization of excess are always
the same.
*Non-controlling Interest in Net Income (NCINI) for Year 3
Net income of S Company
Less: Amortization of allocated excess
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI) for Year 3
P600,000
112,500
P487,500
30%
P146,250
113. c
Net income from own/separate operations
P Company
S Company
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…………..
*Non-controlling Interest in Net Income (NCINI) for 20x4
Net income of S Company
Less: Amortization of allocated excess**
P 625,000
50,000
P675,000
P 8,750
6,250
0
15,000
P660,000
P50,000
6,250
P43,750
20%
P 8,750
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI) for 20x4
**P450,000/80% = P562,500 – (P250,000 + P250,000) = P62,500 / 10 years = P6,250
Note: Whether the partial or full-goodwill approach are used the amortization of excess are always
the same.
114. b
As a general rule, if problem is silent It is assumed that expenses are generated evenly
throughout the year, thus:
Expenses (9/1/20x4-12/31/20x4): P620,000 x 4/12
P206,667
Amortization of allocated excess: P15,000 x 4/12
5,000
P211,667
115. c
Net income of S Company (P800,000 – P620,000)
Less: Amortization of allocated excess
Multiplied by: No of mos. (9/1-12/31)
P180,000
15,000
P165,000
4/12
P 55,000
116. a
Net income of S Company (P800,000 – P620,000)
Less: Amortization of allocated excess
Multiplied by: No of mos. (9/1-12/31)
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI) for 20x4
P180,000
15,000
P165,000
4/12
P 55,000
____20%
P 22,000
117.b Combined revenues ..................................................................................................
Combined expenses ..................................................................................................
Excess acquisition-date fair value amortization ...................................................
Consolidated net income .........................................................................................
Less: Noncontrolling interest (P85,000 × 40%) ........................................................
Consolidated net income to controlling interest..................................................
P1,100,000
(700,000)
(15,000)
P385,000
(34,000)
P351,000
118. c HH expense ..................................................................................................................
NN expenses ................................................................................................................
Excess fair value amortization (70,000 ÷ 10 yrs) .....................................................
Consolidated expenses .............................................................................................
P621,000
714,000
7,000
P1,342,000
119. b
Step-acquisition, either full-goodwill or partial goodwill approach, the answer remains the
same.
Full-Goodwill Presentation:
Net income from own operations;
Parent - Keefe……………………………………
P 300,000
Subsidiary - George (P500,000 – P400,000)……..
100,000
P 400,000
Less: Amortization of allocated excess……………………
6,000
Impairment of goodwill (if any)…………………….
0
Consolidated/Group Net Income………………………….
P 394,000
Less: Non-controlling interest in Net Income
Subsidiary net income from own operations:
1/1/20y0 - 4/1/20y0 (3 months):
P100,000 x 3/12 = P25,000 x 30%................
P 7,500
4/1/20y0 – 12/31/20y0 (9 months):
P100,000 x 9/12 = P75,000 x 20%................
15,000
Total……………………………………………..
P 22,500
Less: Amortization of allocated excess:
1/1/20y0 – 4/1/20y0 (3 months)
P6,000 x 3/12 = P1,500 x 30%..........
450
4/1/20y0 – 12/31/20y0 (9 months)
P6,000 x 9/12 = P4,500 x 20%...........
900
Impairment of goodwill (if any):
First 3 months: P 0 x 30%.......…………
0
Remaining 9 months: P 0 x 20%...............
0
21,150
CNI attributable to the controlling interest (CI-CNI)/ Profit
attributable to equity holders of parent………………….
P372,850
* It should be noted that the phrase without regard for this investment means that
excluding any income arising from investment in subsidiary (i.e., dividend income).
120. d – Economic Unit or Entity Concept (as required by PFRS 10)
Net income from own/separate operations
P Company
S Company
Total
Less: Non-controlling Interest in Net Income*
Amortization of allocated excess
Goodwill impairment (impairment under full-goodwill approach)
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent…………..
Add: NCINI
CNI - entity concept
P 500,000
100,000
P600,000
P20,000
0
_
0
20,000
P580,000
__20,000
P600,000
*Non-controlling Interest in Net Income (NCINI) for 20x4
Net income of S Company
Less: Amortization of allocated excess
P100,000
_______0
P100,000
20%
P 20,000
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI) for 20x4
121. c – Parent Company Concept – Parent’s Net Income only (not required by PFRS 10)
Net income from own/separate operations
P Company
S Company
Total
Less: Non-controlling Interest in Net Income*
Amortization of allocated excess
Goodwill impairment (impairment under full-goodwill approach)
CNI - entity concept
P 500,000
100,000
P600,000
P 20,000
0
_
0
*Non-controlling Interest in Net Income (NCINI) for 20x4
Net income of S Company
Less: Amortization of allocated excess
P100,000
_______0
P100,000
20%
P 20,000
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI) for 20x4
122. b
Net Income from own operations:
20x420x5
Parent …………………………………………………P 100,000 P100,000
Subsidiary……………………………………………... 25,000 35,000
P125,000 P135,000
Subsidiary’s other comprehensive income…………..5,000 10,000
Total Comprehensive Income……………………….....P130,000 P145,000
Less: Amortization of allocated excess…………….…
6,250
6,250
Impairment of full- goodwill (if any)………….
0
0
Consolidated /Group Comprehensive Income…… P123,750
P138,750
Less: Non-controlling interest in Comprehensive
Income *……………………………………………
4,750
7,750
Controlling Interest in Consolidated
__________________
Comprehensive Income …. …………………………P119,000 P131,000
*Non-controlling interest in Comprehensive Income: 20x420x5
Subsidiary’s:
Net income from own operations………….......P 25,000
P 35,000
20,000
P580,000
Other Comprehensive Income (P30,000 –
P25,000)…………………………….…………... 5,000 10,000
Subsidiary’s Comprehensive Income…………........P 30,000
P45,000
Less: Amortization of allocated excess*………….. 6,250
6,250
Impairment of full-goodwill (if any)....……….
0
0
P 23,750
P 38,750
x: Non-controlling interests…………………………….
20%
20%
Non-controlling interest in Comprehensive IncomeP 4,750P 7,750
*Amortization of allocated excess:
Increase in other intangibles: P50,000 / 8 years = P 6,250
123. c – refer to No. 122
124. c – refer to No. 122
125. b- refer to No. 122
126. d
Inventory – not yet sold in 20x4
Building: (P390,000 – P200,000)/ 10 years
Equipment (P280,000 – P350,000)/ 5 years
127. c
P
0
19,000
( 14,000)
P 5,000
Plochman’s acquisition entry is:
Investment in Shure……………………………………………………………40,000,000
Retained earnings (acquisition-related expense – close to
retained since only balance sheet accounts are being
examined)…………………………………………………………………… 1,000,000
Common stock, 1,000,000 x P1 par………………………………
1,000,000
PIC in excess of par [(1,000,000 x P39) – P800,000)……………
32,000,000
Cash (P800,000 + P1,000,000)……………………………………..
1,800,000
Eliminating entries are:
Book value of stockholders’ equity:
Stockholders’ equity-Shure………………………………………………… 6,000,000
Investment in Shure…………………………………………………
6,000,000
Allocated excess (acquisition/purchase differential):
Identifiable assets……………………………………………………………. 7,000,000
Long-term debt………………………………………………………………. 500,000
Goodwill………………………………………………………………………..28,500,000
Lawsuit liability……………………………………………………….
2,000,000
Investment in Shure…………………………………………………
34,000,000
128. d –refer to No. 127
129. a
130. a
Cost of Goods Sold P80,000 debit
Depreciation Expense (P192,000/120) 7 = P11,200 debit
131. c
Cost of Goods Sold (P60,000 x 4/6) = P40,000 debit
Interest Expense: (P15,000/5) = P3,000 debit
132. a [(P250,000 - P180,000)/10]7
133. c
[(P380,000 - P260,000)/120]88
134. No question available
135. a
136.c
P170,000 - {[P320,000 - (P300,000 - P170,000)]/10}2
137.b
138.d
139.d
140. a
[P320,000 - (P300,000 - P170,000)]/10
P105,000 - {[P405,000 - (P450,000 - P105,000)]/20}2
[P405,000 - (P450,000 - P105,000)]/20
141. d - The acquisition method consolidates assets at fair value at acquisition date regardless
of the parent’s percentage ownership.
142. d
P: BV,12/31/20x6
S:
BV of building, 12/31/20x4
Add: Adjustments to reflect fair value, 1/1/20x4
(P350,000 – P240,000)
Less: Amortization of excess (P110,000/10) x 3 years
143. b
P: BV,12/31/20x5
S:
BV of building, 12/31/20x5
Add: Adjustments to reflect fair value, 1/4/20x4
(P120,000 – P90,000)
Less: Amortization of excess (P30,000/10) x 2 years
P250,000
P170,000
110,000
33,000
247,000
P497,000
P 975,000
P105,000
30,000
6,000
129,000
P1,104,000
144. c - An asset acquired in a business combination is initially valued at 100% acquisition-date
fair value and subsequently amortized its useful life.
Patent fair value at January 1, 20x4 ........................................................................
Amortization for 2 years (10 year life)......................................................................
Patent reported amount December 31, 20x5.......................................................
145. b
BV of building, 1/1/20x4
Adjustments to reflect fair value, 1/1/20x4 (P300,000 – P200,000)
Depreciation 1/1/20x4 – 12/31/20x6 (P100,000/20 x 3 years)
146. d – same with No. 145
147. d
BV of equipment, 1/1/20x4
Adjustments to reflect fair value, 1/1/20x4 (P80,000 – P75,000)
Depreciation 1/1/20x4 – 12/31/20x6 (P5,000/10 x 3 years)
148. a
Adjustments to reflect fair value, 1/1/20x4 (P80,000 – P75,000)
Depreciation 1/1/20x4 – 12/31/20x6 (P5,000/10 x 3 years)
149. d – 1/2/20x4:
BV of equipment, 1/1/20x4
Adjustments to reflect fair value, 1/1/20x4 (P300,000 – P200,000)
150. b
P200,000
100,000
( 15,000)
P285,000
P 80,000
( 5,000)
1,500
P 76,500
(P 5,000)
1,500
(P 3,500)
P200,000
100,000
P300,000
Decrease in Buildings account:
Fair value……………………………………………P 8,000
Book value…………………………………………..
__10,000
Decrease…………………………………………….P 2,000
P45,000
(9,000)
P36,000
151. d
152. d
153. a
154. a
155. a
156. a
Decrease in buildings account (refer to No. 73)…………
P 2,000
Less: Increase due to depreciation (P2,000/10)………… 200
Decrease in buildings accounts……………………………..P 1,800
Decrease in buildings account (refer to No. 74)…………
P 1,800
Less: Increase due to depreciation (P2,000/10)………… 200
Decrease in buildings accounts……………………………..P 1,600
Increase in Equipment account:
Fair value……………………………………………P 14,000
Book value…………………………………………..
__18,000
Increase…………………………………………….P 4,000
Increase in equipment account (refer to No. 76)…………
P 4,000
Less: Decrease due to depreciation (P4,000/4)……………
1,000
Increase in equipment accounts……………………………..P 3,000
Increase in equipment account (refer to No. 77)…………
P 3,000
Less: Decrease due to depreciation (P4,000/4…………… 1,000
Increase in equipment accounts……………………………..P 2,000
Increase in Land account:
Fair value……………………………………………P 12,000
Book value………………………………………….. 5,000
Increase…………………………………………….. P 7,000
157. b – refer to No. 156, no depreciation/amortization
158. b – refer to No. 156, no depreciation/amortization
159. e
Increase in Patent account:
Fair value……………………………………………P 11,000
Book value………………………………………….. _
0
Increase…………………………………………….P 11,000
(P234,000/90%) – (P160,000 + P80,000) = P20,000 – (P4,000 – P2,000 + P7,000) = P11,000.
Partial or full-goodwill approach, the amortization remains the same.
160. e
161. d
Increase in patent account (refer to No. 159)………………
Less: Decrease due to depreciation (P11,000/5).…………
Increase in patent accounts………………………………….
P 11,000
2,200
P 8,800
Increase in patent account (refer to No. 160)………………
Less: Decrease due to depreciation (P11,000/5).…………
Increase in patent accounts………………………………….
P 8,800
2,200
P 6,600
162. c
Fair Value of Subsidiary:
Consideration Transferred (5,400 shares)
Less: Book value of SHE-S, 1/1:
Common stock – S: P50,000 x 90%
APIC – S: P15,000 x 90%
RE – S: P41,000 x 90%
P120,600
P 45,000
13,500
36,900 95,400
Allocated Excess
Less: Over/undervaluation of A & L:
Increase in Inv. (P17,100–P16,100) x 90%
Increase in Eqpt. (P48,000–P40,000) x 90%
Increase in Patents (P13,000–P10,000) x 90%
Positive Excess: Goodwill
Amortization of allocated excess - Starting January 1:
Inventory: P1,000 / 1 year
Equipment: P8,000 / 4 years
Patents: P3,000 / 10 years
163. c
Common stock – S
APIC – S
RE – S
Stockholders’ equity – Subsidiary, 1/1
Add: Adjustments to reflect fair value
Fair value of Stockholders’ Equity – S, 1/1
x: Non-controlling) interests
Non-controlling Interests (in net assets)
P 25,200
P 900
7,200
2,700 10,800
P 14,400
P 1,000
2,000
300
P 3,300
12,000
P118,000
10%
P 11,800
P 50,000
15,000
41,000
P106,000
164. a – P48,000, parent only.
165. a – P48,000. On the date of acquisition, the parent’s retained earnings is also the consolidated
retained earnings.
166. b – P120,600, the initial value
167. b – P4,000 x 90% = P3,600
168. c
Consolidated Net Income for 20x4
Net income from own/separate operations
P CompanyP30,200 – (P4,000 x 90%)
S Company
Total
Less: Non-controlling Interest in Net Income*
Amortization of allocated excess
Goodwill impairment
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
*Net income of subsidiary – 20x4
Amortization of allocated excess – 20x4
Multiplied by: Non-controlling interest %..........
P26,600
9,400
P36,000
P
610
3,300
____0
3,910
P32,090
610
P32,700
(
P 9,400
3,300)
P 6,100
10%
P 610
Less: Non-controlling interest on impairment loss on full-goodwill
Non-controlling Interest in Net Income (NCINI)
P
____0
610
169. c
Noncontrolling Interests (in net assets):
Common stock - S, 12/31
P 50,000
Additional paid-in capital - S, 12/31
15,000
Retained earnings - S, 12/31:
RE-S, 1/1/2011
P 41,000
Add: NI-S, 2011
9,400
Less: Dividends – S
4,000 46,400
Book value of SHE - S, 12/31
P 111,400
Add: Adjustments to reflect fair value, 1/1
12,000
Less: Amortization of allocated excess (1 yr.)
3,300
Fair Value of Net Assets/SHE - S, 12/31
P 120,100
x: Noncontrolling Interest %
10%
Noncontrolling Interest (in net assets), 12/31
P 12,010
170. b – refer to 168 for computation
171. c – refer to 168 for computation
172. b
Controlling RE / RE Attributable to EH of Parent, 1/1 (refer to No. 102
P 48,000
Add: CI – CNI (refer to 168)
32,090
Less: CI – Dividends (Dividend of parent only)
15,000
Controlling RE / RE Attributable to EH of Parent, 12/31
P 65,090
173. b – same with No. 172
174. c
Consolidated Equity:
Controlling Interest / Equity Holders
Attributable to Parent:
Common stock – P: [P100,000 + P120,600 – (5,400 shares x P10 par)] P154,000
APIC – P: [15,000 + [P120,600 – (5,400 x P10)] 81,600
RE – P (refer to No. 172)
65,090
Parent’s Stockholders Equity or Controlling Interest – Equity
P300,690
Noncontrolling Interest
12,010
Consolidated Equity
P312,700
175. c
P95,000 = (P956,000 / .80) - P1,000,000 - P100,000
176. c
P251,000 = .20[(P956,000 + P239,000) + (P190,000 - P5,000 - P125,000)]
177. b Combined revenues ..................................................................................................
Combined expenses ..................................................................................................
Trademark amortization ............................................................................................
Patented technology amortization.........................................................................
Consolidated net income .........................................................................................
P1,300,000
(800,000)
(6,000)
(8,000)
P486,000
178. c
Subsidiary income (P100,000 – P14,000 excess amortizations)...........................
Non-controlling interest percentage ......................................................................
Non-controlling interest in subsidiary income ........................................................
P86,000
__40%
P34,400
Fair value of non-controlling interest at acquisition date ...................................
40% change in Scott book value since acquisition .............................................
Excess fair value amortization (P14,000 × 40%) .....................................................
P200,000
52,000
(5,600)
40% current year income ..........................................................................................
Non-controlling interest at end of year ..................................................................
__34,400
P280,800
179. a MM trademark balance ............................................................................................
SS trademark balance ..............................................................................................
Excess fair value ..........................................................................................................
Two years amortization (10-year life) ......................................................................
Consolidated trademarks .........................................................................................
P260,000
200,000
60,000
(12,000)
P508,000
180 a Fair value of non-controlling interest on April 1.....................................................
30% of net income for 9 months (¾ year×P240,000 × 30%) ................................
Non-controlling interest December 31 ...................................................................
P165,000
54,000
P219,000
181. c
Non-controlling interest (full-goodwill), December 31, 20x4
Book value of SHE – S, 12/31/20x4
Add: Net income of S – 20x4
Total
Less: Dividends paid – 20x4
Stockholders’ equity – S Company, December 31, Year 2
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: P200,000/10
Fair value of stockholders’ equity of subsidiary, December 31, 20x5……
Multiplied by: Non-controlling Interest percentage…………...
Non-controlling interest (partial)
Add: NCI on full-goodwill P85,714 – P60,000)
Non-controlling interest (full)
P1,000,000
___150,000
P1,150,000
____90,000
P1,060,000
200,000
_( 20,000)
P1,240,000
30%
P372,000
___25,714
P397,714
*P900,000/70% = P1,285,714 – P1,000,000 = P285,714 – P200,000 =
P85,714, full goodwill
*P900,000 – (P1,000,000 x 70%) = P200,000 – (P200,000 x 70%) = P60,000,
partial goodwill
It is assumed that full-goodwill is used. But, it should be noted that PFRS 3
either partial or full-goodwill approach are considered acceptable.
182. b – (P50,000 + P70,000) x 25% = P30,000
183. b – P only.
184. b
{(P250,000/.8) + [P75,000 + P90,000 - P25,000 - P50,000 - P30,000 - (P80,000/8)2]}.2
185. d
{(P420,000/.7) + [P160,000 + P210,000 - P60,000 - P80,000 - P50,000 - (P90,000/5)2]}.3
186. a - P650,000 =P500,000 + P200,000 - P50,000
187. b
188. a – P540,000 = (P500,000 + P150,000 – P90,000 – P20,000)
189. c – equivalent to the original cost
190. d - In consolidating the subsidiary's figures, all intercompany balances must be eliminated
in their entirety for external reporting purposes. Even though the subsidiary is less than fully
owned, the parent nonetheless controls it.
191. b - Intercompany receivables and payables from unconsolidated subsidiaries would not be
eliminated.
Theories
1.
2.
3.
4.
c
d
d
d*
6.
7.
8.
9.
b
c
d
d
11.
12.
13.
14.
C**
b
d
c
16.
17.
18.
19.
c
c
d
d
21.
22.
23.
24.
d
a
b
c
26.
27.
28.
29.
c
d
c
c
31
32.
33.
34.
c
b
c
c
36.
37.
38.
39.
d
b
b
c
41.
42.
43.
44.
a
c
a
5.
d
10,
a
15,
c
20.
b
25.
c
30.
b
35.
d
40.
d
45.
*under PAS 27, cost model recognizes any dividend declared/paid by the subsidiary is classified as income regardless
of retained earnings balance, which means there is no such thing as liquidating dividend under the cost model. On the
other hand, under FASB ruling, a liquidating dividend still exists under the cost method.
**partial equity is the same with equity method except that amortization of allocated excess is not recognized in the
investment and income account.
Chapter 17
Problem I
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…………..
*that has been realized in transactions with third parties.
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
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 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.
**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
2. Books of Puma
P 760,000
36,000
(_50,000)
P 746,000
P 460,000
0
(
0)
P460,000
P 92,000
0
460,000
P1,206,000
92,000
P1,114,000
_ 92,000
P 1,206,000
P460,000
0
(
0)
P460,000
_____0
P460,000
20%
P 92,000
(a) Cost Method
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
320,000
Dividend – Smarte
Cash/Dividends receivable
Investment in Smarte
0
Amortization of Allocated excess:
Equity in Subsidiary Income
Investment in Smarte
0
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
0
0
0
0
36,000
36,000
368,000
368,000
Dividend – Smarte
Cash/Dividends receivable
Investment in Smarte
0
Amortization of Allocated excess:
Equity in Subsidiary Income
Investment in Smarte
0
Realized Profit in BI:
320,000
0
0
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
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)]………..………………………………………….. 36,000
Inventory (Ending Inventory in Balance Sheet)……………………..
36,000
20x5
100% Interscompany Sales
Sales………………………………………………………………………………….1,200,000
Purchases (Cost of Goods Sold)…………………………………..
1,200,000
Downstream Sales:
*100% RPBI of S:
Retained Earnings – P, beginning……………………………………….....
36,000
Cost of Sales (Beginning Inventory in Income Statement)…..
36,000
**100% UPEI of S:
Cost of Sales (Ending Inventory in Income Statement)
[300,000 –
(300,000/1.20)]………..………………………………………….. 15,000
Inventory (Ending Inventory in Balance Sheet)………………..
15,000
Problem II
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)…
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 1,720,000
0
(_
0)
P 1, 720,000
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………….
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.
P 1,720,000
0
(________0)
P1,720,,000
P 600,000
40,000
( 51,000)
P589,000
P 58,900
0
589,000
P2,309,000
__58,900
P2,250,100
_ 58,900
P 2,309,000
**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
Dividend – Simplex
540,000
540,000
Cash/Dividends receivable
Investment in Simplex
Amortization of Allocated excess:
Equity in Subsidiary Income
Investment in Simplex
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
3.
0
0
0
0
0
0
36,000
36,000
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
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.
beg.)
***100% RPBI of P: (if equity method Investment in S instead of RE – P,
Retained Earnings – P, beginning (90% x P40,000)……………...….
36,000
4,000
NCI ……………………………………………….………………………….
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)………………
51,000
To eliminate unrealized intercompany profit in ending inventory.
Problem III
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
P3,055,000
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
Cost of Goods Sold
Cost of Goods Sold
Ending Inventory (Balance Sheet)
[P1,250,000 - (P1,250,000/1.25)]
Retained Earnings, beginning – P Company (80%)
Noncontrolling interest (20%)
Cost of Goods Sold (Beginning Inventory)
[P525,000 – (P525,000/1.25)] = P105,000
4,000,000
250,000
84,000
21,000
4,000,000
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)……………………………..
Problem IV
Requirements 1 to 4:
Schedule of Determination and Allocation of Excess (Partial-goodwill)
Date of Acquisition – January 1, 20x4
P5,400,000
0
( 0)
P5,400,000
250,000
P5,150,000
20
P1,030,000
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.
(Over)
Book
S Co.
Under
value Fair value Valuation
P
Inventory………………….……………..
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
P
Net………………………………………..
204,000 P 294,000 P 90,000
The buildings and equipment will be further analyzed for consolidation purposes as follows:
Equipment ..................
Less: Accumulated
depreciation…..
S Co.
Book value
180,000
S Co.
Fair value
180,000
Increase
(Decrease)
0
96,000
-
( 96,000)
Net book
value………………………...
Buildings................
Less: Accumulated
depreciation…..
Net book
value………………………...
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 Adjustments to be
amortized
Inventory
Subject to Annual
Amortization
Over/
Unde
r
P
6,000
Buildings (net)
96,00
0
(24,0
00)
Bonds payable…
48000
Equipment (net).........
Lif
e
1
8
4
4
Annu
al
Current
Amou Year(20x
nt
4)
P
6,000 P 6,000
20x5
P
-
12,000
( 6,000
)
12,00
0
(6,00
0)
1,200
P
13,200
12,000
( 6,000)
1,200
P 13,200
1,200
P
7,200
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%)
Fair value of NCI (given) (20%)
Fair value of Subsidiary (100%)
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)………………………………………………...
P 372,000
93,000
P 465,000
__360,000
P 105,000
90,000
P
15,000
In this case, the goodwill was proportional to the controlling interest of 80% and non-controlling
interest of 20% computed as follows:
Value
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
Value
P
3,000
% of
Total
80.00%
20.00%
100.00%
% 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:
20x4
Sales of
Parent to
Subsidiary
P150,000
Intercompany
Merchandise
in 12/31 Inventory
of S Company
P150,000 x 60% = P90,000
20x5
120,000
P120,000 x 80% = P96,000
Year
Unrealized
Intercompany Profit in
Ending Inventory
P90,000 x 20% =
P18,000
P96,000 x 25% =
P40,000
Upstream Sales:
Year
20x4
20x5
Sales of
Subsidiary to
Parent
P 50,000
62,500
Intercompany
Merchandise
in 12/31 Inventory
of S Company
P100,000 x 50% = P25,000
P 62,500 x 40% = P25,000
20x4: First Year after Acquisition
Parent Company Cost Model Entry
January 1, 20x4:
Unrealized
Intercompany Profit in
Ending Inventory
P25,000 x 40% =
P10,000
P25,000 x 20% = P
5,000
(1) Investment in S
Company……………………………………………
372,00
0
372,00
0
Cash……………………………………………………………………
..
Acquisition of S Company.
January 1, 20x4 – December 31, 20x4:
(2) Cash………………………
Dividend income (P36,000 x 80%)…………….
Record dividends from S Company.
28,800
28,800
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.
Consolidation Workpaper – Year of Acquisition
(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 non-controlling
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%)………………………..
6,000
96,000
192,00
0
7,200
4,800
12,000
216,00
0
18,000
Investment in Son
Co……………………………………………….
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……………………………………….
6,000
6,000
6,000
1,200
3,000
6,000
Inventory…………………………………………………………..
Accumulated depreciation –
equipment………………..
Discount on bonds payable…………………………
Goodwill……………………………………
12,000
1,200
3,000
To provide for 20x4 impairment loss and depreciation and
amortization on differences between acquisition date fair value and
book value of S’s identifiable assets and liabilities as follows:
Inventory sold
Equipment
Buildings
Bonds payable
Totals
Cost of
Goods
Sold
P 6,000
_______
P 6,000
Depreciation/
Amortization
Expense
Amortization
-Interest
P 12,000
( 6,000)
_______
P 2,000
P 1,200
P1,200
Total
13,200
(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)…
Inventory – Balance Sheet……
To defer the downstream sales - unrealized profit in ending inventory
until it is sold to outsiders.
18,000
18,000
(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 Net Income of
Subsidiary…………
Non-controlling interest …………..
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)]….
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI)
– partial goodwill
P 60,000
( 12,000)
P 48,000
13,200
P 34,800
20%
P
6,960
Worksheet for Consolidated Financial Statements, December 31, 20x4.
Cost Model (Partial-goodwill)
80%-Owned Subsidiary
December 31, 20x4 (First Year after Acquisition)
Sales
Income Statement
P Co
P480,000
S Co.
P240,000
Dividend income
Total Revenue
Cost of goods sold
28,800
P508,800
P204,000
P240,000
P138,000
Depreciation expense
Interest expense
Other expenses
Goodwill impairment loss
Total Cost and Expenses
Net Income
NCI in Net Income - Subsidiary
Net Income to Retained Earnings
60,000
48,000
P312,000
P196,800
P196,800
24,000
18,000
P180,000
P 60,000
P 60,000
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
Balance Sheet
Dr.
(5) 150,000
(6) 60,000
(4) 36,000
(3)
(7)
(8)
(3)
(3)
6,000
18,000
12,000
6,000
1,200
(3)
3,000
(9)
6,960
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
P328,200
P181,800
( 6,960)
P174,840
P360,000
P
196,800
P556,800
P120,000
__60,000
P180,000
72,000
-
__36,000
P484,800
P144,000
360,000
(1) 120,000
174,840
P534,840
(4)
36,000
_
72,000
________
P
462,840
Cash……………………….
Accounts receivable……..
Inventory………………….
Land…………………………….
Equipment
Buildings
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
Non-controlling interest…………
Total
P
232,800
90,000
120,000
P 90,000
60,000
90,000
210,000
240,000
720,000
48,000
180,000
540,000
P
(2)
6,000
(2)
7,200
(2)
(2)
4,800
12,000
372,000
P1,984,800
P1,008,000
P 135,000
P 96,000
405,000
288,000
120,000
240,000
600,000
120,000
120,000
484,800
240,000
144,000
(2) 96,000
(11)
192,000
(12) 6,000
_________
P1,008,000
6,000
18,000
12,000
(2) 216,000
(3) 12000
(3) 3,000
(6) 288,000
(7) 84,000
(3)
12,000
180,000
265,200
420,000
1,044,000
3,600
9,000
P2,394,600
P147,000
495,000
240,000
360,000
600,000
(1) 240,000
462,840
(13) 7,200
_________
P1,984,800
(3)
(7)
(8)
355,200
150,000
__________
P 983,160
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)…
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 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.
**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.
(1 ) 72,000
(2) 18,000
(9) 6,960
P 983,160
____89,760
P2,394,600
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
P 60,000
( 12,000)
P 48,000
13,200
P 34,800
20%
P 6,960
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.
20x5: Second Year after Acquisition
P Co.
S Co.
Sales
P
540,000
216,000
Less: Cost of goods sold
Gross profit
Less: Depreciation expense
Other expense
P
324,000
60,000
72,000
Net income from its own separate
operations
Add: Dividend income
P
192,000
38,400
Net income
P
230,400
P
72,000
Dividends paid
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.
20x5: Parent Company Cost Model Entry
Only a single entry is recorded by the parent 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
Consolidation Workpaper – Second Year after Acquisition
(E1) Investment in S
Company…………………………
Retained earnings – P
Company………………………
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 the
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
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………………………………………………………………
….
Accumulated depreciation –
equipment……………….. ....
Accumulated depreciation –
buildings………………….. ...
Land……………………………………………………………………
….
Discount on bonds
payable………………………………………….
Goodwill………………………………………………………………
….
6,000
96,000
192,00
0
7,200
4,800
12,000
216,00
0
18,000
Buildings………………………………………...........................
Non-controlling interest (P90,000 x
20%)............................
Investment in S
Co……………………………………………….
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 January 1, 20x5.
(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…………………………………
13,560
2,640
6,000
12,000
1,200
6,000
Inventory…………………………………………………………..
Accumulated depreciation –
equipment………………..
Discount on bonds payable…………………………
Goodwill……………………………………
24,000
2,400
3,000
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:
To Retained earnings
Impairment loss
Total
(20x4)
Retained
earnings,
P 6,000
12,000
(6,000)
1,200
P13,200
80%
P 10,560
3,000
P 13,560
Depreciation/
Amortization
expense
Amortization
-Interest
P 12,000
( 6,000)
________
P 6,000
P 1,200
P 1,200
(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)
18,000
18,000
To realized profit in downstream beginning inventory deferred in the
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)
To realized profit in beginning inventory deferred in the prior period.
9,600
2,400
12,000
(E10) Cost of Goods Sold (Ending Inventory –
Income Statement)…
Inventory – Balance Sheet……
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 –
Income Statement)…
Inventory – Balance Sheet……
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 Income of
Subsidiary…………
Non-controlling interest …………..
17,760
17,760
To establish non-controlling interest in subsidiary’s adjusted net
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
12,000
( 6,000)
P 96,000
7,200
P 88,800
20%
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI )
– partial goodwill
P 17,760
*from separate transactions that has been realized in transactions
with third persons.
Worksheet for Consolidated Financial Statements, December 31, 20x5.
Cost Model (Partial-goodwill)
80%-Owned Subsidiary
December 31, 20x5 (Second Year after Acquisition)
Sales
Income Statement
P Co
P540,000
S Co.
P360,000
Dividend income
Total Revenue
Cost of goods sold
38,400
P578,400
P216,000
P360,000
P192,000
Depreciation expense
Interest expense
Other expenses
Goodwill impairment loss
Total Cost and Expenses
Net Income
NCI in Net Income - Subsidiary
Net Income to Retained Earnings
60,000
72,000
P348,000
P230,400
P230,400
Statement of Retained Earnings
Retained earnings, 1/1
P Company
P484,800
24,000
54,000
P270,000
P 90,000
P 90,000
Dr.
(6) 120,000
(7) 75,000
(5) 38,400
(10) 24,000
(11) 6,000
(4)
(4)
Cr.
Consolidated
P 705,000
___________
P 705,000
(6)
(7)
(8)
(9)
120,000
75,000
18,000
12,000
213,000
6,000
1,200
P
P
(
P
(12) 17,760
(4) 13,560
(8) 18,000
(9) 19,200
90,000
1,200
126,000
430,200
274,800
17,760)
257,040
P 462,840
S Company
Net income, from above
Total
Dividends paid
P Company
S Company
Retained earnings, 12/31 to Balance
Sheet
Balance Sheet
Cash……………………….
Accounts receivable……..
Inventory………………….
Land…………………………….
Equipment
Buildings
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
Non-controlling interest…………
Total
P
(9) 9,600
(10)
144,000
230,400
P715,200
P 144,000
90,000
P234,000
72,000
-
48,000
P643,200
P186,000
P 647,880
265,200
180,000
216,000
P 102,000
96,000
108,000
P 367,200
276,000
210,000
240,000
720,000
48,000
180,000
540,000
372,000
P2,203,200
P1,074,000
P 150,000
450,000
P 102,000
306,000
120,000
240,000
600,000
120,000
120,000
643,200
___ _____
2,203,200
240,000
186,000
_________
P1,074,000
257,040
P 719,880
(5)
(11) 7,200
(3)
7,200
(3)
(3)
(1)
4,800
12,000
19,200
(3) 96,000
(3) 192,000
(4) 12,000
48,000
(4) 7,200
(10) 24,000
(11) 6,000
(3) 216,000
(4) 2,400
(4) 3,000
(2) 307,200
(3) 84,000
(4)
24,000
_
72,000
________
294,000
265,200
420,000
1,044,000
2,400
9,000
P2,677,800
P180,000
552,000
240,000
360,000
600,000
(2) 240,000
647,880
(4)
2,640
(14) 9,600
(9)
2,400
__________
P1,077,360
(2 ) 76,800
(3) 18,000
(12) 17,760
P1,077,360
____97,920
P2,677,800
5. 1/1/20x4
a. On date of acquisition the retained earnings of parent 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.
Non-controlling interest (partial-goodwill), January 1, 20x4
Common stock – Subsidiary Company……………………………………
Retained earnings – Subsidiary Company………………………………….
Stockholders’ equity – Subsidiary Company.…………..
Adjustments to reflect fair value - (over) undervaluation of assets and liabilities
Fair value of stockholders’ equity of subsidiary, January 1, 20x4…………………
Multiplied by: Non-controlling Interest percentage…………...
Non-controlling interest (partial)
P 240,000
120,000
P 360,000
90,000
P 450,000
20
P 90,000
Consolidated SHE:
Stockholders’ Equity
Common stock, P10 par
Retained earnings
Parent’s Stockholders’ Equity / CI - SHE
P 600,000
360,000
P 960,000
c.
NCI, 1/1/20x4
Consolidated SHE, 1/1/20x4
6.
___90,000
P1,050,000
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.
12/31/20x4:
a. 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
b. 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
c. CNI, P181,800 – refer to (a)
d. 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
e. 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
P 240,000
P120,000
6,000
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)…………………………………..
P180,000
36,000
144,000
P 384,000
90,000
( 13,200)
P460,000
12,000
P448,800
20
P 89,760
f.
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:
a. 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 toequity
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.
b. NCI-CNI
**Non-controlling Interest in Net Income (NCINI) for 20x5
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
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
c. CNI, P274,800 – refer to (a)
d. 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
equity holders of parent for 20x5
257,040
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 (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 (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
Consolidated Retained earnings, December 31, 20x5
39,600
80%
31,680
3,000
28,680
P647,880
e.
Non-controlling interest (partial-goodwill), December 31, 20x5
Common stock – Subsidiary Company, December 31, 20x5……
P 240,000
Retained earnings – Subsidiary Company, December 31, 20x5
Retained earnings – Subsidiary Company, January 1, 20x5*
P144,000
Add: Net income of subsidiary for 20x5
90,000
Total
P234,000
Less: Dividends paid – 20x5
48,000
186,000
Stockholders’ equity – Subsidiary Company, December 31, 20x5
P 426,000
Adjustments to reflect fair value - (over) undervaluation of assets and
liabilities, date of acquisition (January 1, 20x4)
90,000
Amortization of allocated excess (refer to amortization above) :
20x4
P 13,200
20x5
7,200
( 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
of P Company (upstream sales) –20x6 (RPBI of P - 20x6
6,000
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
* 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.
f.
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
647,880
P1,247,880
___97,920
P1,345,800
Problem V
Requirements 1 to 4:
Schedule of Determination and Allocation of Excess
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%)……………….
P
372,000
93,000
P
465,000
P 240,000
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)………………………………………………...
120,000 360,000
P
105,000
P
6,000
7,200
96,000
( 24,000)
90,000
4,800
P
15,000
A summary or depreciation and amortization adjustments is as follows:
Account Adjustments to be
amortized
Inventory
Subject to Annual
Amortization
Over/
unde
r
P
6,000
Buildings (net)
96,00
0
(24,0
00)
Bonds payable…
4,800
Equipment (net).........
1
Annu
Current
al
Amou Year(20x
nt
4)
P
6,000 P 6,000
8
12,000
Lif
e
12,000
( 6,000
4
)
4
1,200
P
13,200
( 6,000)
1,200
P 13,200
20x5
P
-
12,00
0
(6,00
0)
1,200
P
7,200
20x4: First Year after Acquisition
Parent Company Cost Model Entry
January 1, 20x4:
(1) Investment in S
Company……………………………………………
372,00
0
372,00
0
Cash……………………………………………………………………
..
Acquisition of S Company.
January 1, 20x4 – December 31, 20x4:
(2) Cash………………………
Dividend income (P36,000 x 80%)…………….
Record dividends from Son Company.
28,800
28,800
On the books of Son Company, the P36,000 dividend paid was recorded as follows:
Dividends paid…………
Cash…….
Dividends paid by SCo..
36,000
36,000
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.
Consolidation Workpaper – First Year after Acquisition
(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 non-controlling
interest (in net assets of subsidiary) on date of acquisition.
(E2)
Inventory………………………………………………………………
….
Accumulated depreciation – equipment………………..
Accumulated depreciation – buildings…………………..
Land……………………………………………………………………
….
Discount on bonds
payable………………………………………….
6,000
96,000
192,00
0
7,200
4,800
15,000
Goodwill………………………………………………………………
….
Buildings………………………………………..
full –
216,00
0
Non-controlling interest (P90,000 x 20%) + [(P15,000,
21,000
P12,000, partial goodwill)]…………
Investment in Son
Co……………………………………………….
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……………………………………….
6,000
6,000
6,000
1,200
3,750
6,000
Inventory…………………………………………………………..
Accumulated depreciation –
equipment………………..
Discount on bonds payable…………………………
Goodwill……………………………………
12,000
1,200
3,750
To provide for 20x4 impairment loss and depreciation and
amortization on differences between acquisition date fair value and
book value of S’s identifiable assets and liabilities as follows:
Inventory sold
Equipment
Buildings
Bonds payable
Totals
Cost of
Goods
Sold
P 6,000
_______
P 6,000
Depreciation/
Amortization
Expense
Amortization
-Interest
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)
To eliminated intercompany downstream sales.
150,000
150,000
(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 Net Income of
Subsidiary…………
Non-controlling interest …………..
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 partial-goodwill)
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
Worksheet for Consolidated Financial Statements, December 31, 20x4.
Cost Model (Full-goodwill)
80%-Owned Subsidiary
December 31, 20x4 (First Year after Acquisition)
Income Statement
Sales
Dividend income
Total Revenue
Cost of goods sold
Depreciation expense
Interest expense
Other expenses
Goodwill impairment loss
P Co
P480,000
S Co.
P240,000
28,800
P451,200
P204,000
P240,000
P138,000
60,000
48,000
-
24,000
18,000
-
Dr.
(5) 150,000
(6) 60,000
(4) 28,800
(3)
(7)
(8)
(3)
(3)
6,000
18,000
12,000
6,000
1,200
(3)
3,750
Cr.
(5) 150,000
(6) 60,000
Consolidated
P 510,000
_________
P 510,000
P 168,000
90,000
1,200
66,000
3,750
Total Cost and Expenses
Net Income
NCI in Net Income - Subsidiary
Net Income to Retained Earnings
P312,000
P196,800
P196,800
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
Balance Sheet
Cash……………………….
Accounts receivable……..
Inventory………………….
Land…………………………….
Equipment
Buildings
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
Non-controlling interest…………
Total
20x5: Second Year after Acquisition
Sales
Less: Cost of goods sold
Gross profit
Less: Depreciation expense
Other expense
P180,000
P 60,000
P 60,000
(9)
P328,950
P181,050
( 6,210)
P174,840
6,210
P360,000
P
P
196,800
P556,800
P120,000
60,000
P180,000
72,000
-
36,000
P484,800
360,000
(1) 120,000
174,840
P534,840
_
72,000
________
P144,000
P
462,840
232,800
90,000
120,000
P 90,000
60,000
90,000
P
322,800
150,000
210,000
240,000
720,000
48,000
180,000
540,000
(4)
(2)
6,000
(2)
7,200
(2)
(2)
4,800
15,000
372,000
P1,984,800
P1,008,000
P 135,000
P 96,000
405,000
288,000
120,000
240,000
600,000
120,000
120,000
484,800
240,000
144,000
(2) 96,000
(15)
192,000
(16) 6,000
_________
P1,008,000
6,000
18,000
12,000
(2) 216,000
(3) 1,200
(3) 3,750
(8) 288,000
(9) 84,000
(3)
12,000
180,000
265,200
420,000
1,044,000
3,600
11,250
P2,396,850
P147,000
495,000
240,000
360,000
600,000
(1) 240,000
462,840
(4)
_________
P1,984,800
(3)
(7)
(8)
36,000
7,200
P 986,160
Perfect
Co.
P
540,000
216,000
P
324,000
60,000
72,000
(1 ) 72,000
(2) 21,000
(9) 6,210
P 986,160
Son Co.
P
360,000
192,000
P
168,000
24,000
54,000
____92,010
P2,396,850
Net income from its own separate
operations
Add: Dividend income
P
192,000
38,400
Net income
P
230,400
P
72,000
Dividends paid
P
90,000
P
90,000
P
48,000
No goodwill impairment loss for 20x5.
20x5: Parent Company Cost Model Entry
Only a single entry is recorded by the parent 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 SCo..
48,000
48,000
Consolidation Workpaper – Second Year after Acquisition
(E1) Investment in S
Company…………………………
Retained earnings – P
Company………………………
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 the
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%)………………………..
To eliminate intercompany investment and equity accounts
of subsidiary and to establish non-controlling interest (in net assets of
subsidiary) on January 1, 20x5.
240,00
0
144.00
0
307,20
0
76,800
(E3)
Inventory………………………………………………………………
….
Accumulated depreciation – equipment………………..
Accumulated depreciation – buildings…………………..
Land……………………………………………………………………
….
Discount on bonds
payable………………………………………….
Goodwill………………………………………………………………
….
Buildings………………………………………..
full –
6000
96,000
192,00
0
7,200
4,800
15,000
216,00
0
Non-controlling interest (P90,000 x 20%) + [(P15,000,
21,000
P12,000, partial goodwill)]…………
Investment in S
Co……………………………………………….
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 January 1, 20x5.
(E4) Retained earnings – P Company, 1/1/20x5
(P16,950 x 80%)
Non-controlling interests (P16,950 x
20%)…………………….
Depreciation expense………………………..
Accumulated depreciation – buildings…………………..
Interest expense…………………………………
13,560
3,390
6,000
12,000
1,200
6,000
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
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..
Inventory sold
Equipment
Buildings
(20x4)
Retained
earnings,
P 6,000
12,000
(6,000)
Depreciation/
Amortization
expense
P
12,000
( 6,000)
Amortization
-Interest
24,000
2,800
3,750
Bonds payable
Impairment loss
Totals
Multiplied by: CI%....
To Retained earnings
1,200
3,750
P 16,950
80%
P13,560
P 1,200
P 6,000
P1,200
(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)
18,000
18,000
To realized profit in downstream beginning inventory deferred in the
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)
9,600
2,400
12,000
To realized profit in upstream beginning inventory deferred in the
prior period.
(E10) Cost of Goods Sold (Ending Inventory –
Income Statement)…
Inventory – Balance Sheet……
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 –
Income Statement)…
Inventory – Balance Sheet……
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 Income of
Subsidiary…………
Non-controlling interest …………..
To establish non-controlling interest in subsidiary’s adjusted net
income for 20x5 as follows:
17,760
17,760
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
P 90,000
12,000
( 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 fullGoodwill
0
Non-controlling Interest in Net Income (NCINI)
– full goodwill
P 17,760
*from separate transactions that has been realized in transactions
with third persons.
Worksheet for Consolidated Financial Statements, December 31, 20x5.
Cost Model (Full-goodwill)
80%-Owned Subsidiary
December 31, 20x5 (Second Year after Acquisition)
Sales
P Co
P540,000
S Co.
P360,000
Dividend income
Total Revenue
Cost of goods sold
38,400
P574,800
P216,000
P360,000
P192,000
Depreciation expense
Interest expense
Other expenses
Goodwill impairment loss
Total Cost and Expenses
Net Income
NCI in Net Income - Subsidiary
Net Income to Retained Earnings
60,000
72,000
P348,000
P230,400
P230,400
24,000
54,000
P270,000
P 90,000
P 90,000
Statement of Retained Earnings
Retained earnings, 1/1
P Company
P484,800
Income Statement
S Company
Net income, from above
Total
Dividends paid
P Company
S Company
Retained earnings, 12/31 to Balance
Sheet
Balance Sheet
Cash……………………….
Accounts receivable……..
Inventory………………….
P
Dr.
(6) 120,000
(7) 75,000
(5) 38,400
(10) 24,000
(11) 6,000
(4)
(4)
Cr.
(6)
(7)
(8)
(9)
120,000
90,000
21,600
14,400
Consolidated
P 705,000
___________
P 705,000
P 213,000
6,000
1,200
P
P
(
P
(12) 17,760
(5) 13,560
(8) 18,000
(9) 96000
(13)
144,000
(12) 19,200
90,000
1,200
126,000
430,200
274,800
17,760)
257,040
P 462,840
230,400
P715,200
P 144,000
90,000
P234,000
72,000
-
48,000
P643,200
P186,000
P 647,880
265,200
180,000
216,000
P 102,000
96,000
108,000
P 367,200
276,000
257,040
P 719,880
(5)
(14) 6,000
48,000
(4) 6,000
(10) 24,000
_
72,000
________
294,000
(11) 6,000
Land…………………………….
Equipment
Buildings
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
Non-controlling interest…………
Total
210,000
240,000
720,000
48,000
180,000
540,000
372,000
P2,203,200
P1,074,000
P 150,000
450,000
P 102,000
306,000
120,000
240,000
600,000
120,000
120,000
643,200
___ _____
P2,203,200
240,000
186,000
_________
P1,074,000
(3)
7,200
(3)
(3)
(1)
4,800
15,000
19,200
(3) 96,000
(3) 192,000
(4) 12,000
(3) 216,000
(4) 2,400
(4) 3,750
(2) 307,200
(3) 84,000
(4)
24,000
265,200
420,000
1,044,000
2,400
11,250
P2,680,050
P180,000
552,000
240,000
360,000
600,000
(2) 240,000
647,880
(4)
3,390
(17) 9,600
(9)
2,400
__________
P1,081,110
(2 ) 76,800
(3) 21,000
(12) 17,760
P1,081,110
____100,170
P2,680,050
5. 1/1/20x4
a. On date of acquisition the retained earnings of parent should always be considered as
the consolidated retained earnings, thus:
Consolidated Retained Earnings, January 1, 20x4
Retained earnings - Parent Company, January 1, 20x4 (date of acquisition)
P360,000
b.
Non-controlling interest (partial-goodwill), January 1, 20x4
Common stock – Subsidiary Company……………………………………
Retained earnings – Subsidiary Company………………………………….
Stockholders’ equity – Subsidiary Company.…………..
Adjustments to reflect fair value - (over) undervaluation of assets and liabilities
Fair value of stockholders’ equity of subsidiary, January 1, 20x4…………………
Multiplied by: Non-controlling Interest percentage…………...
Non-controlling interest (partial)…………………………………..
Add: Non-controlling interests on full goodwill, 1/1/20x4 (P12,500, full-goodwill – P10,000, partial
goodwill)
Non-controlling interest (full-goodwill)
P 240,000
120,000
P 360,000
90,000
P 450,000
20
P 90,000
3,000
P 93,000
c.
Consolidated SHE:
Stockholders’ Equity
Common stock, P10 par
Retained earnings
Parent’s Stockholders’ Equity / CI - SHE
NCI, 1/1/20x4
Consolidated SHE, 1/1/20x4
6.
P 600,000
360,000
P 960,000
___93,000
P1,053,000
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.
12/31/20x4:
a. 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.
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
b. NCI-CNI – P6,210
**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
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
partial- goodwill)
Non-controlling Interest in Net Income (NCINI)
*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
P
750
6,210
c. CNI – P181,050 – refer to (a)
d. 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
e.
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
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)…………………………………..
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)……………..
f.
P 240,000
P120,000
60,000
P180,000
36,000
144,000
P 384,000
90,000
( 13,200)
P460,800
12,000
P448,800
20
P 89,760
2,250
P 92,010
Consolidated SHE:
Stockholders’ Equity
Common stock, P10 par
Retained earnings
Parent’s Stockholders’ Equity / CI - SHE
NCI, 1/1/20x4
Consolidated SHE, 1/1/20x4
P
600,000
462,840
P1,062,8
40
___92,0
10
P1,154,8
40
12/31/20x5:
a. 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
24,960
P257,040
_ 17,760
P274,800
b. 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
96,000
P282,000
P 90,000
12,000
( 6,000)
P 96,000
7,200
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 88,800
20%
P 17,760
0
P 17,760
c. CNI, P274,800 – refer to (a)
d. 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) –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 %...................
P484,800
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)* or
(P3,750 x 80%)
3,000
( 3,960)
Consolidated Retained earnings, January 1, 20x5
P462,840
Add: Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent for 20x5
257,040
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
P
Multiplied by: Controlling interests %...................
6,000
39,600
80%
P
Less: Goodwill impairment loss (full-goodwill), net (P3,750 – P750)* or
(P3,750 x 80%)
Consolidated Retained earnings, December 31, 20x5
31,680
3,000
28,680
P647,880
e.
f.
Non-controlling interest, December 31, 20x5
Common stock – Subsidiary Company, December 31, 20x5……
P 240,000
Retained earnings – Subsidiary Company, December 31, 20x5
Retained earnings – Subsidiary Company, January 1, 20x5*
P144,000
Add: Net income of subsidiary for 20x5
90,000
Total
P234,000
Less: Dividends paid – 20x5
48,000
186,000
Stockholders’ equity – Subsidiary Company, December 31, 20x5
P 426,000
Adjustments to reflect fair value - (over) undervaluation of assets and
liabilities, date of acquisition (January 1, 20x4)
90,000
Amortization of allocated excess (refer to amortization above) :
20x4
P 13,200
20x5
7,200
( 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
of P Company (upstream sales) –20x6 (RPBI of P - 20x6
6,000
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:
Stockholders’ Equity
Common stock, P10 par
Retained earnings
Parent’s Stockholders’ Equity / CI - SHE
NCI, 1/1/20x4
Consolidated SHE, 12/31/20x5
P 600,000
647,880
P1,247,880
___100,170
P1,348,050
Problem VI
Requirements 1 to 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%)………………...
P
372,000
P 192,000
96,000 288,000
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
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:
S Co.
Book
value
S Co.
Fair value
P
Inventory………………….……………..
24,000 P 30,000
Land………………………………………
48,000
55,200
Equipment (net).........
84,000
180,000
Buildings (net)
168,000
144,000
Bonds payable………………………… (120,000) ( 115,200)
P
Net………………………………………..
204,000 P 294,000
(Over)
Under
Valuation
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................
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
S Co.
Fair
value
144,000
(Decrease)
( 216,000)
Less: Accumulated
depreciation…..
Net book
value………………………...
192,000
-
168,000
144,000
( 192,000)
(
24,000)
A summary or depreciation and amortization adjustments is as follows:
Account Adjustments to be
amortized
Inventory
Subject to Annual
Amortization
Over/
Unde
r
P
6,000
Buildings (net)
96,00
0
(24,0
00)
Bonds payable…
48000
Equipment (net).........
Annu CurrentY
alAmo ear(20x4
unt
)
P
1
6,000 P 6,000
Lif
e
8
4
4
12,000
( 6,000
)
12,000
( 6,000)
1,200
P
13,200
1,200
P 13,200
20x5
P
-
12,00
0
(6,00
0)
1,200
P
7,200
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%)
Fair value of NCI (given) (20%)
Fair value of Subsidiary (100%)
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)………………………………………………...
P 372,000
93,000
P 465,000
__360,000
P 105,000
90,000
P
15,000
In this case, the goodwill was proportional to the controlling interest of 80% and non-controlling
interest of 20% computed as follows:
Value
Goodwill applicable to parent…………………
Goodwill applicable to NCI……………………..
P12,000
3,000
% of
Total
80.00%
20.00%
Total (full) goodwill………………………………..
P15,000
100.00%
Value
% of
Total
80.00%
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
P
3,000
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:
20x4
Sales of
Parent to
Subsidiary
P150,000
Intercompany
Merchandise
in 12/31 Inventory
of S Company
P150,000 x 60% = P90,000
20x5
120,000
P120,000 x 80% = P96,000
Year
Unrealized
Intercompany Profit in
Ending Inventory
P90,000 x 20% =
P18,000
P96,000 x 25% =
P40,000
Upstream Sales:
Year
20x4
20x5
Sales of
Subsidiary to
Parent
P 50,000
62,500
Intercompany
Merchandise
in 12/31 Inventory
of S Company
P100,000 x 50% = P25,000
P 62,500 x 40% = P25,000
Unrealized
Intercompany Profit in
Ending Inventory
P25,000 x 40% =
P10,000
P25,000 x 20% = P
5,000
20x4: First Year after Acquisition
Parent Company Cost Model Entry
January 1, 20x4:
(1) Investment in S
Company……………………………………………
Cash……………………………………………………………………
..
Acquisition of S Company.
372,00
0
372,00
0
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)]
Investment in S Company
13,560
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.
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
18,000
9,600
9,600
Thus, the investment balance and investment income in the books of P Company is as follows:
Cost, 1/1/x4
NI of S
(60,000 x 80%)
Balance, 12/31/x4
Amortization &
impairment
UPEI of S (P18,000 x 100%)
UPEI of P (P12,000 x80%)
Investment in S
372,000
28,800
48,000
13,560
18,000
9,600
Dividends – S (30,000x 80%)
Amortization &
impairment
UPEI of Son (P15,000 x 100%)
UPEI of Perfect (P10,000 x80%)
350,040
Investment Income
13,560
18,000
9,600
48,000
NI of S
(P60,000 x 80%)
6,840
Balance, 12/31/x4
Consolidation Workpaper – First Year after Acquisition
(E1) Common stock – S
Co…………………………………………
Retained earnings – S
Co……………………………………
Investment in S
Co……………………………………………
Non-controlling interest (P360,000 x
20%)………………………..
To eliminate investment on January 1, 20x4 and equity accounts of
subsidiary on date of acquisition; and to establish non-controlling interest
(in net assets of subsidiary) on date of acquisition.
240,000
120.000
288,000
72,000
(E2)
Inventory………………………………………………………………
….
Accumulated depreciation – equipment………………..
Accumulated depreciation – buildings…………………..
Land……………………………………………………………………
….
Discount on bonds
payable………………………………………….
Goodwill………………………………………………………………
….
Buildings………………………………………..
6,000
96,000
192,00
0
7,200
4,800
12,000
216,00
0
18,000
Non-controlling interest (P90,000 x
20%)………………………..
Investment in S
Co……………………………………………….
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……………………………………….
6,000
6,000
6,000
1,200
3,000
6,000
Inventory…………………………………………………………..
Accumulated depreciation –
equipment………………..
Discount on bonds payable…………………………
Goodwill……………………………………
To provide for 20x4 impairment loss and depreciation and
amortization on differences between acquisition date fair value and
book value of S’s identifiable assets and liabilities as follows:
Inventory sold
Equipment
Buildings
Bonds payable
Cost of
Goods
Sold
P 6,000
_______
Depreciation/
Amortization
Expense
Amortization
-Interest
P 12,000
( 6,000)
_______
P 1,200
Total
12,000
1,200
3,000
Totals
P 6,000
P 7,200
P1,200
14,400
(E4) Investment income
Investment in S Company
Non-controlling interest (P36,000 x
20%)………………..
Dividends paid – S……………………
6,840
21,960
7,200
36,000
To eliminate intercompany dividends and investment income under
equity method and establish share of dividends, computed as
follows:
Investment in S
NI of S
28,800
(60,000
x 80%)……. 48,000
13,560
18,000
9,600
21,960
Investment Income
Dividends - S
Amortization &
impairment
UPEI of S
UPEI of P
Amortization
impairment
UPEI of S
UPEI of P
13,560
18,000
9,600
NI of S
(50,000
x 80%)
48,000
6,840
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, 1/1/x4
NI of S
(60,000 x 80%)
Balance, 12/31/x4
(E4) Investment Income
and dividends ……………
Investment in S
372,000
28,800
48,000
350,040
13,560
18,000
9,600
288,000
84,000
Dividends – S (30,000x 80%)
Amortization &
impairment
UPEI of Son
UPEI of Perfect
(E1) Investment, 1/1/20x4
(E2) Investment, 1/1/20x4
21,960
372,000
372,000
(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……
To defer the upstream sales - unrealized profit in ending inventory
until it is sold to outsiders.
12,000
12,000
(E9) Non-controlling interest in Net Income of
Subsidiary…………
Non-controlling interest …………..
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)………………………..
Son 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
P 60,000
( 12,000)
P 48,000
( 13,200)
P 34,800
20%
P
6,960
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.
Worksheet for Consolidated Financial Statements, December 31, 20x4.
Equity Method (Partial-goodwill)
80%-Owned Subsidiary
December 31, 20x4 (First Year after Acquisition)
Sales
Income Statement
P Co
P480,000
S Co.
P240,000
Investment income
Total Revenue
6,840
P486,840
P240,000
Cost of goods sold
P204,000
P138,000
Depreciation expense
Interest expense
Other expenses
Goodwill impairment loss
Total Cost and Expenses
Net Income
NCI in Net Income - Subsidiary
Net Income to Retained Earnings
60,000
48,000
P312,000
P174,840
P174,840
24,000
18,000
P180,000
P 60,000
P 60,000
Statement of Retained Earnings
Retained earnings, 1/1
PCompany
S Company
Net income, from above
Total
Dividends paid
P Company
S Company
Retained earnings, 12/31 to Balance
Sheet
Balance Sheet
Cash……………………….
Accounts receivable……..
Dr.
(5) 150,000
(6) 60,000
(4) 6,840
(3)
(7)
(8)
(3)
(3)
6,000
18,000
12,000
6,000
1,200
(3)
3,000
(9)
6,960
Cr.
_________
P 510,000
P 168,000
(5)
150,000
(6)
60,000
90,000
1,200
66,000
3,000
P328,200
P181,800
( 6,960)
P174,840
P360,000
P
Consolidated
P 510,000
P
174,840
P414,840
P120,000
60,000
P180,000
72,000
-
36,000
P462,840
232,800
90,000
360,000
(1) 120,000
174,840
P414,840
_
72,000
________
P144,000
P
642,840
P 90,000
60,000
P
387,360
150,000
(4)
36,000
Inventory………………….
120,000
90,000
(1)
5,000
Land…………………………….
Equipment
Buildings
Discount on bonds payable
Goodwill……………………
Investment in S Co………
210,000
220,000
720,000
48,000
180,000
540,000
(2)
7,200
Total
Accumulated depreciation
- equipment
Accumulated depreciation
- buildings
Accounts payable……………
Bonds payable…………………
Common stock, P10 par………
Common stock, P10 par………
Retained earnings, from above
Non-controlling interest…………
Total
(2)
4,800
(2) 12,000
(6) 21,960
350,040
P1,635,700
P1,006,000
P 135,000
405,000
P 96,000
288,000
120,000
240,000
600,000
120,000
120,000
240,000
144,000
462,840
_________
P1,008,000
Second Year after Acquisition
Sales
Less: Cost of goods sold
Gross profit
180,000
265,200
380,000
1,044,000
3,600
9,000
(2) 216,000
(3) 1,200
(3) 3,000
(2) 288,000
(2) 84,000
(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
7,200
__________
P 983,160
(1 ) 72,000
(2) 18,000
(5) 6,960
P 983,160
____89,760
P2,394,600
P Co.
S Co.
P
540,000
216,000
P
360,000
Less: Depreciation expense
Other expense
P
324,000
60,000
72,000
Net income from its own separate
operations
Add: Investment income
P
192,000
65,040
Net income
P
257,040
P
72,000
Dividends paid
6,000
18,000
12,000
P2,394,600
(4)
_________
P1,962,840
(3)
(7)
(8)
192,000
P
168,000
24,000
54,000
P
90,000
P
90,000
P
48,000
No goodwill impairment loss for 20x5.
20x5: Parent Company Equity Method Entry
January 1, 20x5 – December 31, 20x5:
(2) Cash………………………
Investment in S Company (P48,000 x
80%)…………….
Record dividends from S Company.
38,400
38,400
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).
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).
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).
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)
24,000
24,000
18,000
18,000
4,800
4,800
9,600
9,600
Thus, the investment balance and investment income in the books of P Company is as follows:
Cost, 1/1/x5
NI of Son
(90,000 x 80%)
RPBI of S (P18,000 x 100%)
RPBI of P (P12,000 x 80%)
Balance, 12/31/x5
Amortization (7,200 x 805)
UPEI of S (P24,000 x 100%)
UPEI of P (P6,000 x 80%)
Investment in S
350,040
38,400
5,760
72,000
24,000
18,000
4,800
9,600
376,680
Investment Income
5,760
24,000
72,000
4,800
18,000
9,600
65,040
Dividends – S (48,000x 80%)
Amortization (7,200 x 80%)
UPEI of Son (P24,000 x 100%)
UPEI of Perfect (P6,000 x 80%)
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
Consolidation Workpaper – 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…………………………………………
240,000
Retained earnings – S Co,
1/1/x5………………………….
Investment in SCo (P384,000 x 80%)
Non-controlling interest (P384,000 x
20%)………………………..
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)
84,000
198,00
0
7,200
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……………………………………………….
3,600
9,000
216,00
0
15,360
70,440
To eliminate investment on January 1, 20x5 and allocate excess of
cost over book value of identifiable assets acquired, with remainder
to the original amount of goodwill; and to establish non- controlling
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:
Inventory sold
Equipment
Buildings
Bonds payable
Totals
Depreciation/
Amortization
Expense
Amortization
-Interest
P 12,000
( 6,000)
_______
P 6,000
P 1,200
P1,200
Total
P7,200
(E4) Investment income
Non-controlling interest (P48,000 x
20%)………………..
Dividends paid – S……………………
65,040
9,600
48,000
Investment in S Company
26,640
To eliminate intercompany dividends and investment income under
equity method and establish share of dividends, computed as
follows:
NI of S
(90,000
x 80%)…….
RPBI of S
RPBI of P
26,640
Investment in S
38,400
Dividends – S
Amortization
72,000
5,760
(P7,200 x 80%)
18,000
24,000
UPEI of S
9,600
4,800
UPEI of P
Investment Income
Amortization
(P7,200 x 80%)
5,760
UPEI of S
24,000
UPEI of P
4,800
(E6) Sales……………………….
Cost of Goods Sold (or Purchases)
72,000
18,000
9,600
65,040
NI of S
(90,000
x 80%)
RPBI of S
RPBI of P
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) Investment in Son Company…………………….
Cost of Goods Sold (Ending Inventory –
Income Statement)
18,000
18,000
To realized profit in downstream beginning inventory deferred in the
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)
9,600
2,400
12,000
To realized profit in upstream beginning inventory deferred in the
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,
Investment in S
Cost, 1/1/x5
350,040
38,400
NI of S
(90,000 x 80%)
72,000
5,760
RPBI of S (P18,000 x 100%)
18,000
24,000
RPBI of P(P12,000 x 80%)
9,600
4,800
Balance, 12/31/x5
376,680
307,200
(E8) RPBI of S
18,000
70,440
(E9) RPBI of P
9,600
26,640
336,900
Dividends – S (40,000x 80%)
Amortization
(6,000 x 80%)
UPEI of S (P20,000 x 100%)
UPEI of P (P5,000 x 80%)
(E1) Investment, 1/1/20x5
(E2) Investment, 1/1/20x5
(E4) Investment Income
and dividends
404,280
(E10) Cost of Goods Sold (Ending Inventory –
Income Statement)…
Inventory – Balance Sheet……
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 –
Income Statement)…
Inventory – Balance Sheet……
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 Income of
Subsidiary…………
Non-controlling interest …………..
17,760
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
P 90,000
12,000
(
P
(
P
6,000)
96,000
7,200)
88,800
20%
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI)
– partial goodwill
P 17,760
*from separate transactions that has been realized in transactions
with third persons.
Worksheet for Consolidated Financial Statements, December 31, 20x5.
Equity Method (Partial-goodwill)
80%-Owned Subsidiary
December 31, 20x5 (Second Year after Acquisition)
Sales
Income Statement
P Co
P540,000
S Co.
P360,000
Investment income
Total Revenue
Cost of goods sold
65,040
P605,040
P216,000
P360,000
P192,000
Depreciation expense
Interest expense
Other expenses
Goodwill impairment loss
Total Cost and Expenses
Net Income
NCI in Net Income - Subsidiary
Net Income to Retained Earnings
60,000
72,000
P348,000
P257,040
P257,040
24,000
54,000
P270,000
P 90,000
P 90,000
(3)
(3)
(1) 144,000
257,040
P719,880
P144,000
90,000
P234,000
72,000
-
48,000
P777,456
P223,200
P 777,456
265,200
180,000
216,000
P 102,000
96,000
108,000
P 367,200
276,000
210,000
48,000
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
Balance Sheet
Cash……………………….
Accounts receivable……..
Inventory………………….
Land…………………………….
Dr.
(6) 120,000
(7) 75,000
(4) 65,040
Cr.
(10) 24,000
(11) 6,000
(6) 120,000
(7) 75,000
(8) 18,000
(9) 12,000
(5)
Consolidated
P 705,000
___________
P 705,000
P 213,000
6,000
1,200
P
P
(
P
17,760
P462,840
P
90,000
1,200
126,000
430,200
274,800
17,760)
257,040
P 462,840
257,040
P 719,880
(4)
48,000
(10) 24,000
(11) 6,000
(2)
7,200
_
72,000
________
294,000
265,200
Equipment
Buildings
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
Non-controlling interest…………
Total
240,000
720,000
180,000
540,000
(2)
(2)
(8)
(9)
376,680
P2,207,880
P1,074,000
P 150,000
450,000
P 102,000
306,000
120,000
240,000
600,000
120,000
120,000
647,880
240,000
186,000
(2)
_________
P1,074,000
84,000
(1) 307,200
(6) 70,440
(4) 26,640
(3)
12,000
(2) 198,000
(3) 6,000
420,000
1,044,000
2,400
9,000
P2,677,800
P180,000
552,000
240,000
360,000
600,000
(1) 240,000
647,880
(4)
(9)
___ _____
P2,207,880
3,600
9,000
18,000
9,600
(3) 216,000
(3) 1,200
9,600
2,400
__________
P1,046,400
(2 ) 76,800
(2) 15,360
(5) 17,760
P1,046,400
____97,920
P2,677,800
5 and 6. Refer to Problem IX for computations
Note: Using cost model or equity method, the consolidated net income, consolidated
retained earnings, non-controlling interests, consolidated equity on December 31, 20x4 and
20x5 are exactly the same (refer to Problem IX solution).
Problem VII
Requirements 1 to 4:
Schedule of Determination and Allocation of Excess
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%)…………………….
P
372,000
93,000
P
465,000
P 240,000
120,000 360,000
P
105,000
P
6,000
7,200
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)………………………………………………...
96,000
( 24,000)
4,800
90,000
P
15,000
A summary or depreciation and amortization adjustments is as follows:
Account Adjustments to be
amortized
Inventory
Subject to Annual
Amortization
Over/
unde
r
P
6,000
Buildings (net)
96,00
0
(24,0
00)
Bonds payable…
4,800
Equipment (net).........
Lif
e
1
Annu
al
Current
Amou Year(20x
nt
4)
P
6,000 P 6,000
8
12,000
( 6,000
4
)
4
1,200
P
13,200
12,000
( 6,000)
1,200
P 13,200
20x5
P
-
12,00
0
(6,00
0)
1,200
P
7,200
20x4: First Year after Acquisition
Parent Company Equity Method Entry
January 1, 20x4:
(1) Investment in S
Company……………………………………………
372,00
0
Cash……………………………………………………………………
..
372,00
0
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%)
Record share in net income of subsidiary.
48,000
48,000
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.
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
18,000
9,600
9,600
Thus, the investment balance and investment income in the books of P Company is as follows
Cost, 1/1/x4
NI of S
(60,000 x 80%)
Balance, 12/31/x4
Investment in S
372,000
28,800
48,000
13,560
18,000
9,600
Dividends – S (36,000x 80%)
Amortization &
impairment
UPEI of S (P18,000 x 100%)
UPEI of P (P12,000 x80%)
324,000
Investment Income
Amortization &
impairment
UPEI of S (P18,000 x 100%)
UPEI of P (P12,000 x80%)
13,560
18,000
9,600
48,000
6,840
Consolidation Workpaper – First Year after Acquisition
(E1) Common stock – S
Co…………………………………………
Retained earnings – S
Co……………………………………
Investment in S
Co……………………………………………
Non-controlling interest (P360,000 x
20%)………………………..
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.
NI of S
(P60,000 x 80%)
Balance, 12/31/x4
240,000
120.000
288,000
72,000
(E2)
Inventory………………………………………………………………
….
Accumulated depreciation – equipment………………..
Accumulated depreciation – buildings…………………..
Land……………………………………………………………………
….
Discount on bonds
payable………………………………………….
Goodwill………………………………………………………………
….
Buildings………………………………………..
full –
6,000
96,000
192,00
0
7,200
4,800
15,000
216,00
0
Non-controlling interest (P90,000 x 20%) + [(P15,000,
21,000
P12,000, partial goodwill)]…………
Investment in Son
Co……………………………………………….
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……………………………………
To provide for 20x4 impairment loss and depreciation and
amortization on differences between acquisition date fair value and
book value of S’s identifiable assets and liabilities as follows:
Inventory sold
Equipment
Buildings
Bonds payable
Cost of
Goods
Sold
P 6,000
_______
Depreciation/
Amortization
Expense
Amortization
-Interest
P 12,000
( 6,000)
_______
P 1,200
Total
6,000
6,000
6,000
1,200
3,750
6,000
12,000
1,200
3,750
Totals
P 6,000
P 7,200
P1,200
14,400
(E4) Investment income
Investment in S Company
Non-controlling interest (P36,000 x
20%)………………..
Dividends paid – S……………………
6,840
21,960
7,200
36,000
To eliminate intercompany dividends and investment income under
equity method and establish share of dividends, computed as
follows:
Investment Income
Investment in S
NI of S
28,800
Dividends - S
(60,000
Amortization &
x 80%)……. 48,000
13,560
impairment
18,000
UPEI of S
9,600
UPEI of P
21,960
Amortization
impairment
UPEI of S
UPEI of P
13,560
18,000
9,600
NI of S
(50,000
x 80%)
48,000
6,840
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, 1/1/x4
NI of S
(60,000 x 80%)
Balance, 12/31/x4
(E4) Investment Income
and dividends ……………
Investment in S
372,000
28,800
48,000
350,040
21,960
372,000
13,560
18,000
9,600
288,000
84,000
Dividends – S (30,000x 80%)
Amortization &
impairment
UPEI of S
UPEI of P
(E1) Investment, 1/1/20x4
(E2) Investment, 1/1/20x4
372,000
(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……
To defer the upstream sales - unrealized profit in ending inventory
12,000
12,000
until it is sold to outsiders.
(E9) Non-controlling interest in Net Income of
Subsidiary…………
Non-controlling interest …………..
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)]….
P 60,000
( 12,000)
P 48,000
( 13,200)
P 34,800
20%
P 6,960
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 partial-goodwill)*
750
Non-controlling Interest in Net Income (NCINI)
– full goodwill
P 6210
*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).
Worksheet for Consolidated Financial Statements, December 31, 20x4.
Equity Method (Full-goodwill)
80%-Owned Subsidiary
December 31, 20x4 (First Year after Acquisition)
Sales
P Co
P480,000
S Co.
P240,000
Investment income
Total Revenue
6,840
P486,840
P240,000
Cost of goods sold
P204,000
P138,000
Depreciation expense
Interest expense
Other expenses
Goodwill impairment loss
Total Cost and Expenses
Net Income
NCI in Net Income - Subsidiary
Net Income to Retained Earnings
60,000
48,000
P312,000
P174,840
P174,840
24,000
18,000
P150,000
P 50,000
P 50,000
Income Statement
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
Balance Sheet
Cash……………………….
Dr.
(5) 150,000
(6) 60,000
(4)
6,840
(3)
(7)
(8)
(3)
(3)
6,000
18,000
12,000
6,000
1,200
(3)
3,750
(9)
5,175
Cr.
_________
P 510,000
P 168,000
(5)
150,000
(6)
60,000
90,000
1,200
66,000
3,750
P274,125
P150,875
( 5,175)
P145,700
P360,000
P
Consolidated
P 510,000
P
360,000
P
174,840
414,840
_
72,000
________
174,840
P414,840
P120,000
60,000
P180,000
(1) 120,000
72,000
-
36,000
P462,840
P144,000
P
462,840
232,800
P 90,000
P
322,800
(4)
36,000
Accounts receivable……..
Inventory………………….
90,000
120,000
60,000
90,000
Land…………………………….
Equipment
Buildings
Discount on bonds payable
Goodwill……………………
Investment in S Co………
210,000
240,000
720,000
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
Non-controlling interest…………
Total
150,000
(2)
6,000
(2)
7,200
(2)
4,800
(2) 15,000
(4) 21,960
350,040
P1,635,700
P1,008,000
P 135,000
405,000
P 96,000
288,000
120,000
240,000
600,000
120,000
120,000
240,000
144,000
462,840
_________
P1,008,000
6,000
18,000
12,000
180,000
265,200
420,000
1,044,000
3,600
11,250
(2) 216,000
(3) 1,200
(3) 3,750
(2) 288,000
(2) 84,000
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
462,840
(4)
_________
P1,962,840
(3)
(7)
(8)
7,200
__________
P 986,160
(1 ) 72,000
(2) 21,000
(9) 6,210
P 986,160
____92,010
P2,396,850
20x5: Second Year after Acquisition
Sales
Less: Cost of goods sold
Gross profit
Perfect
Co.
P
540,000
216,000
Less: Depreciation expense
Other expense
P
324,000
60,000
72,000
Net income from its own separate
operations
Add: Investment income
P
192,000
65,040
Net income
Dividends paid
No goodwill impairment loss for 20x5.
Parent Company Equity Method Entry
January 1, 20x5 – December 31, 20x5:
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
(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 S (UPEI of S).
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).
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).
December 31, 20x5:
(8) Investment in S Company……………..
Investment income (P12,000 x 80%)………..
To adjust investment income for upstream sales - realized profit
inbeginning inventory of P (RPBI of P)
24,000
24,000
18,000
18,000
4,800
4,800
9,600
9,600
Thus, the investment balance and investment income in the books of Perfect Company is as
follows:
Cost, 1/1/x5
NI of Son
(90,000 x 80%)
RPBI of (P18,000 x 100%)
RPBI of P (P12,000 x 80%)
Balance, 12/31/x5
Amortization (7,200 x 805)
UPEI of S (P24,000 x 100%)
UPEI of P (P6,000 x 80%)
Investment in S
350,040
38,400
5,760
72,000
24,000
18,000
4,800
9,600
376,680
Investment Income
5,760
24,000
72,000
4,800
18,000
9,600
65,040
Dividends – S (48,000x 80%)
Amortization (7,200 x 80%)
UPEI of S (P24,000 x 100%)
UPEI of P (P6,000 x 80%)
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
Consolidation Workpaper – 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 (P192,000 +
P6,000)
84,000
198,00
0
7,200
Land……………………………………………………………………
….
Discount on bonds payable (P4,800 – P1,200)….
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……………………………………………….
3,600
11,250
216,00
0
17,610
70,440
To eliminate investment on January 1, 20x5 and allocate excess of
cost over book value of identifiable assets acquired, with remainder
to the original amount of goodwill; and to establish non- controlling
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…………………………
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/
6,000
6,000
1,200
12,000
1,200
Amortization
Expense
Inventory sold
Equipment
Buildings
Bonds payable
Totals
P 12,000
( 6,000)
_______
P 6,000
Amortization
-Interest
P 1,200
P1,200
Total
P7,200
(E4) Investment income
Non-controlling interest (P48,000 x
20%)………………..
Dividends paid – S……………………
Investment in S Company
65,040
9,600
48,000
26,640
To eliminate intercompany dividends and investment income under
equity method and establish share of dividends, computed as
follows:
NI of Son
(90,000
x 80%)…….
RPBI of S
RPBI of P
26,640
Investment in S
38,400
Dividends – S
Amortization
72,000
5,760
(P7,200 x 80%)
18,000
24,000
UPEI of S
9,600
4,800
UPEI of P
Investment Income
Amortization
(P7,200 x 80%)
UPEI of S
UPEI of P
(E6) Sales……………………….
Cost of Goods Sold (or Purchases)
5,760
24,000
4,800
72,000
18,000
9,600
65,040
NI of S
(90,000
x 80%)
RPBI of S
RPBI of P
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) Investment in Son Company…………………….
Cost of Goods Sold (Ending Inventory –
Income Statement)
18,000
18,000
To realized profit in downstream beginning inventory deferred in the
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)
9,600
2,400
12,000
To realized profit in upstream beginning inventory deferred in the
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, 1/1/x5
NI of Son
(90,000 x 80%)
RPBI of S (P18,000 x 100%)
RPBI of P (P18,000 x 80%)
Balance, 12/31/x5
(E8) RPBI of S
(E9) RPBI of P
Investment in S
350,040
38,400
72,000
18,000
9,600
376,680
18,000
9,600
5,600
24,000
4,800
307,200
70,440
26,640
404,280
404,280
Dividends – S (48,000x 80%)
Amortization
(7,000 x 80%)
UPEI of S (P24,000 x 100%)
UPEI of P (P6,000 x 80%)
(E1) Investment, 1/1/20x5
(E2) Investment, 1/1/20x5
(E4) Investment Income
and dividends
(E10) Cost of Goods Sold (Ending Inventory –
Income Statement)…
Inventory – Balance Sheet……
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 –
Income Statement)…
Inventory – Balance Sheet……
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 Income of
Subsidiary…………
Non-controlling interest …………..
17,760
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
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 fullGoodwill
0
Non-controlling Interest in Net Income (NCINI)
– full goodwill
P 17,760
*from separate transactions that has been realized in transactions
with third persons.
Worksheet for Consolidated Financial Statements, December 31, 20x5.
Equity Method (Full-goodwill)
80%-Owned Subsidiary
December 31, 20x5 (Second Year after Acquisition)
Income Statement
Sales
Investment income
P Co
P540,000
S Co.
P360,000
65,040
-
Dr.
(6) 120,000
(7) 75,000
(4) 65,040
Cr.
Consolidated
P 705,000
___________
Total Revenue
Cost of goods sold
P605,040
P216,000
P360,000
P192,000
Depreciation expense
Interest expense
Other expenses
Goodwill impairment loss
Total Cost and Expenses
Net Income
NCI in Net Income - Subsidiary
Net Income to Retained Earnings
60,000
72,000
P348,000
P257,040
P257,040
24,000
54,000
P270,000
P 90,000
P 90,000
(3)
(3)
(1) 144,000
257,040
P719,880
P144,000
90,000
P234,000
72,000
-
48,000
P647,880
P186,000
P 647,880
265,200
180,000
216,000
P 114,000
96,000
108,000
P 367,200
276,000
210,000
240,000
720,000
48,000
180,000
540,000
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
Balance Sheet
Cash……………………….
Accounts receivable……..
Inventory………………….
Land…………………………….
Equipment
Buildings
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
Non-controlling interest…………
Total
(10) 24,000
(11) 6,000
(5)
(6)
(7)
(8)
(9)
120,000
75,000
18,000
12,000
P
P
6,000
1,200
P
P
(
P
17,760
P462,840
P
257,040
P 719,880
(4)
P1,074,000
P 150,000
450,000
P 102,000
306,000
120,000
240,000
600,000
120,000
120,000
240,000
186,000
(2)
(2)
72,000
________
_
294,000
265,200
420,000
1,044,000
2,400
11,250
7,200
(3) 216,000
3,600 (3) 1,200
11,250
18,000 (1) 307,200
9,600 (7) 70,440
(4) 26,640
84,000
(3)
P2,680,050
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)
_________
P1,074,000
48,000
(10) 24,000
(11) 6,000
(2)
(2)
(8)
(9)
P2,207,880
___ _____
P2,207,880
90,000
1,200
126,000
430,200
274,800
17,760)
308,448
P 462,840
376,680
647,880
705,000
213,000
9,600
2,400
__________
P1,048,650
(1 ) 76,800
(2) 17,610
(14)17,760
P1,048,650
____100,170
P2,680,050
5 and 6. Refer to Problem V for computations
Note: Using cost model or equity method, the consolidated net income, consolidated
retained earnings, non-controlling interests, consolidated equity on December 31, 20x4 and
20x5 are exactly the same (refer to Problem V solution).
Problem VIII
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 .......................................................................................
P48,000
30%
Unrealized Intercompany Gross profit, 12/31/x4 ...........................
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 ...........................................................................
Intangible amortization ...................................................................................................
Broadway adjusted income ...........................................................................................
Outside ownership ...........................................................................................................
Noncontrolling interest in Broadway’s earnings..........................................................
P100,000
(10,000)
90,000
30%
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*…….…..
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)
P 165,000
14,400
(_10,000)
P 169,400
P 100,000
0
(
0)
P 100,000
100,000
P 269,400
__10,000
P 259,400
27,000
P 232,400
P 100,000
0
(
0)
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 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 .............................................................
Dividends (30% × P50,000)...................................................................................................
Total noncontrolling interest at 12/31/x5 .................................
27,000
(15,000)
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 ....................................................................................................................
P100,000
(10,000)
14,400
(10,000)
P94,400
30%
P28,320
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*…….…..
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 165,000
0
(_
0)
P 165,000
P 100,000
14,400
( 10,000)
P 104,400
**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


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)...............................................................................................
Total noncontrolling interest at 12/31/x5 ..............................
(15,000)
P382,500
Problem IX
(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 ...............................................................................................
SW book value ..............................................................................................
Eliminate ending unrealized gross profit (see above) ...........................
Consolidated Inventory ..............................................................................
P346,000
110,000
(12,000)
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
2.
Consolidated Cost of Goods Sold
PP book value ......................................................................................................
SW book value .....................................................................................................
Elimination of 20x5 intercompany transfers ...................................................
Reduction of beginning inventory because of
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 ..............................................................................
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
P290,000
197,000
(80,000)
(6,000)
10,000
P411,000
P346,000
110,000
(10,000)
P446,000
Non-controlling Interest in Subsidiary's Net income
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) ...................................
20x5 unrealized gross profit to be realized in 20x6 (above) ........................
SW realized income ............................................................................................
Outside ownership percentage .......................................................................
Non-controlling interest in SW’s income ..................................................
6,000
(10,000)
P54,000
20%
P10,800
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
(_
0)
P 200,000
P 58,000
6,000
( 10,000)
P 54,000
P 243,200
P 58,000
6,000
( 10,000)
P 54,000
____0
P 54,000
20%
P 10,800
Problem X
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 (P1,500,000 + P2,400,000)
Realized profit in beginning inventory of P Company (upstream sales) – Salad
Realized profit in beginning inventory of P Company (upstream sales)- Tuna
Unrealized profit in ending inventory of P Company (upstream sales) – Salad
Unrealized profit in ending inventory of P Company (upstream sales) – Tuna
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* *- Salad
Non-controlling Interest in Net Income* *- Tuna
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent – 20x4…………..
*that has been realized in transactions with third parties.
P 3,600,000
54,000
(_ 45,00 0)
P 3,609,000
P3,900,000
66,000
63,000
( 57,000)
( 69,000)
P3,903,000
P 301,800
___239,400
3,903,000
P7,512,000
0
P7,512,000
___541,200
P6,970,800
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 (P1,500,000 + P2,400,000)
Realized profit in beginning inventory of P Company (upstream sales) – Salad
Realized profit in beginning inventory of P Company (upstream sales)- Tuna
Unrealized profit in ending inventory of P Company (upstream sales) – Salad
P 3,600,000
54,000
(___45,000)
P3,609,,000
P3,900,000
66,000
63,000
( 57,000)
54,000
P 254,000
____0
P 254,000
10,800
Unrealized profit in ending inventory of P Company (upstream sales) – Tuna
S Company’s realized net income from separate operations*…….…..
Total
Less: Non-controlling Interest in Net Income* * - Salad
Non-controlling Interest in Net Income* * - Tuna
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.
( 69,000)
P3,903,000
3,903,000
P7,512,000
P 301,800
239,400
0
__541,200
P6,970,800
_541,200
P 7,512,000
**Salad
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)
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)
P1,500,000
66,000
( 57,000)
P1,509,000
_____0
P1,509,000
__
20%
P 301,800
**Tuna
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)
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)
Realized Profit in Beginning inventory:
Downstream Sales (Sales from Parent to Subsidiary)
P414,000 x 15/115
Upstream Sales (Sales from Subsidiary-Salad to Parent):
Salad: P396,000 x 20/120
Upstream Sales (Sales from Subsidiary-Tuna to Parent):
Tuna: P315,000 x 25/125
Unrealized Profit in Ending inventory:
Downstream Sales (Sales from Parent to Subsidiary)
P345,000 x 15/115
Upstream Sales (Sales from Subsidiary-Salad to Parent):
Salad: P342,000 x 20/120
Upstream Sales (Sales from Subsidiary-Tuna to Parent):
Tuna: P345,000 x 25/125
P2,400,000
63,000
( 69,000)
P2,394,000
_____0
P2,394,000
10%
P 239,400
P54,000
66,000
63,000
P45,000
57,000
69,000
Problem XI
(Determine selected consolidated balances; includes inventory transfers and an outside
ownership.)
Customer list amortization = P65,000/5 years = P13,000 per year
Intercompany Gross profit (P160,000 – P120,000) ................................................
Inventory Remaining at Year's End ..........................................................................
P40,000
20%
Unrealized Intercompany Gross profit, 12/31 ..............................................................
P8,000
Consolidated Totals:
 Inventory = P592,000 (add the two book values and subtract the ending unrealized
gross profit of P8,000)
 Sales = P1,240,000 (add the two book values and subtract the P160,000 intercompany
transfer)
 Cost of Goods Sold = P548,000 (add the two book values and subtract the
intercompany transfer and add [to defer] ending unrealized gross profit)
 Operating Expenses = P443,000 (add the two book values and the amortization
expense for the period)
 Gross profit: P1,240,000 – P548,000 = P692,000
 Controlling Interest in CNI:
or
Gross profit ...................................................................................................... P692,000
Less: Operating expenses ............................................................................ 443,000
Consolidated Net Income .......................................................................... P249,000
Less: NCI-CNI ...................................................................................................
8,700
CI-CNI .............................................................................................................. P240,300
Consolidated Net Income for 20x5
P Company’s net income from own/separate operations (P800-P400-P180)
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 – P300 – P250)
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.
P 220,000
0
(_
0)
P 220,000
P 50,000
0
( 8, 000)
P 42,000
42,000
P 262,000
13,000
P 249,000
8,700
P 240,300
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.
**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)
P 220,000
0
(_
0)
P 220,000
P 50,000
0
( 8,000)
P 42,000
P 8,700
13,000
42,000
P 262,000
21,700
P240,300
_ 8,700
P249,000
P 50,000
0
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

( 8,00 0)
P 42,000
13,000
P 29,000
30%
P 8,700
Noncontrolling Interest in Subsidiary's Net Income = P8,700 (30 percent of the reported
income after subtracting 13,000 excess fair value amortization and deferring P8,000
ending unrealized gross profit) Gross profit is included in this computation because the
transfer was upstream from SS to PT.
Problem XII
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 2014
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 2014
Less: Non-controlling Interest in Net Income* *
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent – 2014…………..
*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 2014
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 2014
*that has been realized in transactions with third parties.
**Non-controlling Interest in Net Income (NCINI) for 2014
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
P700,000
15,0000
(20,00 0)
P695,000
P 90,000
10,000
( 5,000)
P 95,000
P 18,600
2,000
95,000
P790,000
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
Less: NCI on goodwill impairment loss on full goodwill
Non-controlling Interest in Net Income (NCINI) – full goodwill
0
P 18,600
Note: Preferred Solution - since what is given is the RE – P, 12/31/2014 (ending
balance of the current year) Retained earnings – Parent, 12/31/2014 (cost)………………………..
P 3,500,000
-: UPEI of S (down) – 2014 or RPBI of S (down) – 2015..………….
20,000
Adjusted Retained earnings – Parent, 12/31/2014 (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, 1/1/2011……………………….P 150,000
Less: Retained earnings – Subsidiary, 12/31/2014…………...
320,000
Increase in Retained earnings since acquisition
(cumulative net income – cumulative dividends)………… P 170,000
Accumulated amortization (1/1/2011 – 12/31/2014):
P 2,000 x 4 years………………………………………………..( 8,000)
UPEI of P (up) – 2014 or RPBI of P (up) – 2015………………........( 5,000)
P157,000
x: Controlling Interests…………………………………………
80%
125,600
RE – P, 12/31/2014 (equity method) = CRE, 12/31/2014………….
P 3,605,600
Or, compute first the RE – P on January 1, 2014 (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) – 2014..………….
15,000
Adjusted Retained earnings – Parent, 1/1/2014 (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, 1/1/2011………………………P 150,000
Less: Retained earnings – Subsidiary, 1/1/2014………………
260,000
Increase in Retained earnings since acquisition
(cumulative net income – cumulative dividends)…………P 110,000
Accumulated amortization (1/1/2011 – 1/1/2014):
P 2,000 x 3 years………………………………………………. ( 6,000)
UPEI of P (up) – 2013 or RPBI of P (up) – 2014………………... ( 10,000)
P 94,000
X: Controlling Interests………………………………………… 80% 75,200
RE – P, 1/1/2014 (equity method) = CRE, 1/1/2014………………..P2,861,200
+: CI – CNI or Profit Attributable to Equity Holders of Parent…….. 769,400
-: Dividends – P………………………..………………………
25,000
RE – P, 12/31/2014 (equity method) = CRE, 12/31/2014………….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
Sales
Cost of Sales
P2,500,000
P1,250,000
1,200,000
875,000
( 320,000)
( 320,000)
( 290,000)
( 290,000)
( 15,000)
( 10,000)
20,000
_________
5,000
P3,090,000 P1,515,000
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
Multiple Choice Problems
1. a
20x4 and 20x5:: P12,000 x 80% = P9,600
20x6: P18,000 x 80% = P14,400
2. c
20x4: (P84,000 x 80%) = P67,200 – (P1,440 x 30% x 80%) = P66,854.40
20x5: (P102,000 x 80%) + (P1,440 x 30% x 80%) - (P4,800 x 30% x 80%) = P80,793.60
20x6: (P112,800 x 80%) + (P4,800 x 30% x 80%) – (P3,600 x 30% x 80%) = P90,258.00
3. No requirement.
4. b – (P14,400 + P432 – P1,440 = P13,392)
Analysis: Eliminating entries
Upstream Sales:
Sales………………………………………………………………………….. 14,400
Cost of Sales (or Purchases)……………………………………
14,400
100% RPBI of P: (if equity method Investment in S instead of RE – P, beg.):
(P1,440 x 30% = P432)
Retained Earnings – P, beginning…………………………………...….. 345.60
NCI ……………………………………………….……………………………
Cost of Sales (Beginning Inventory in Income Statement)..
86.40
100% UPEI of P: (P4,800 x 30% = P1,440)
Cost of Sales (Ending Inventory in Income Statement)…………….. 1,440
Inventory (Ending Inventory in Balance Sheet)……………...
432.00
1,440
5. a – there are no intercompany profit in 20x3 (prior year), so need to adjust retained earnings.
6. a - Investment income, P5,000 x 80% = P4,000; Investment in Leisure, P100,000.
7.c
Cost, 1/1/x3
NI of Leisure
(13,000 x 80%)
RPBI of LP (350 x 80%)
Investment in Leisure
109,070
4,000
4,800
10,400
850
280
336
Balance, 12/31/x3
109,764
Amortization
Impairment*
UPEI of LP (420 x 80%))
Investment Income
4,800
850
10,400
336
280
4,694
Dividends – Lei (5,000x 80%)
Amortization (6,000 x 80%)
Impairment (1,000 x 85%)*
UPEI of LP (420 x 80%)
NI of Leisure
(13,000 x 80%)
RPBI of LP (350 x 80%)
Balance, 12/31/x4
RPBI of LP: P1,350 x 35/135 = P350
UPEI of LP: P1,620 x 35/135 = P420
Partial
Fair value of Subsidiary (80%)
Consideration
transferred . . . . . . . . . . . . . . . . . . . . . .
Less: Book value of stockholders’ equity of LP
(P10,000 x
80%)………………………………………...
Allocated excess (excess of cost over book
value) . . .
Less: Over/under valuation of assets and
liabilities:
Increase in favorable leases (P30,000 x
80%) . . . . .
Positive excess: Partial-goodwill (excess of
cost over
fair
value) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
P
100,000
____8,000
P
92,000
___24,000
P 68,000
Full
Fair value of Subsidiary (100%)
Consideration transferred
(80%). . . . . . . . . . . . . . . . . .
Fair value of NCI (given) (20%)……………………………..
P
100,000
___20,000
P
120,000
Fair value of Subsidiary (100%) …………………………….
Less: Book value of stockholders’ equity of LP
(P10,000 x
100%)……………………………………….
Allocated excess (excess of cost over book
value) . . .
Less: Over/under valuation of assets and
liabilities:
Increase in favorable leases (P30,000 x
100%) . . . .
Positive excess: Partial-goodwill (excess of
cost over
fair
value) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
___10,000
P
110,000
___30,000
P 80,000
Note: The controlling interests of parent to subsidiary of 80% is not an outright
application to impairment of goodwill, it still depends on the resulting goodwill of
partial and full goodwill, for instance in Questions 6 to 10, the CI is 85% and NCI is
15% for impairment computed as follows:
Partial goodwill
NCI on Full Goodwill
Full-goodwill
68,000 85%
12,000 _15%
80,000 100%
8. a
Consolidated Net Income for 20x3
Parent Company’s net income from own/separate operations
(P400,000 – P250,000 – P130,000)
Subsidiary Company’s net income from own operations
(P200,000 – P120,000 – P67,000)
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment of goodwill. . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Net Income for 20x3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Non-controlling Interest in Net Income* * . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent – 20x3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
*that has been realized in transactions with third parties.
P 20,000
P 13,000
350
( 420)
P12,930
12,930
P 32,930
6,000
___1,000
P 25,930
1,236
P24,694
Or, alternatively
Consolidated Net Income for 20x3
Parent Company’s net income from own/separate operations
(P400,000 – P250,000 – P130,000)
Subsidiary Company’s net income from own operations
(P200,000 – P120,000 – P67,000)
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* * . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment of goodwill. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of allocated excess . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
P 20,000
P 13,000
350
( 420)
P12,930
P 1,236
1,000
6,000
12,930
P 32,930
8,236
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 20x3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
P 24,694
_ _ 1,236
P25,930
*that has been realized in transactions with third parties.
**Non-controlling Interest in Net Income (NCINI) for 20x3
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 (P1,000 x 15%). . . . . . . . .
Non-controlling Interest in Net Income (NCINI) – full goodwill . . . . . . . . . . . . . .
P 13,000
350
(
420)
P 12,930
6,000
P 6,930
20%
P 1,386
150
P 1,236
Or, alternatively
Parent’s net income own operations
Subsidiary’s reported net income
Favorable leases amortization
Goodwill impairment loss
Upstream beg. inv. profit confirmed
Upstream end. inv. profit unconfirmed
CI-CNI
20,000
10,400
(4,800)
(850)
80
(336)
24,694
NCINI
2,600
(1,200)
(150)
70
(84)
1,236
CNI
25,930
9. b
Retained earnings of Parent Company (under equity method) /
Consolidated Retained earnings , January 1, 20x3. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Add: Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent for 20x5. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Dividends paid – Parent Company for 20x4. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings of Parent Company (under equity method) /
Consolidated Retained Earnings, December 31, 20x4. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
P 40,000
24,694
P 64,694
10,000
P 54,694
Therefore, regardless of the method used in the separate financial statement of parent, the consolidated balance
(which is under equity method) is always the same.
10. Ignore, there are some missing figures particularly the details of subsidiary’s stockholders
equity since the date of acquisition.
11. d
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
P 137,000
40,000
( 25,000)
P 152,000
_ 0
P 152,000
30%
P 45,600
0
P 45,600
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
12. b Combined cost of sales
P 160,000
Less: Intercompany sales revenue
Add: Unrealized profit taken out of inventory
(75%)x(35,000) =
Consolidated cost of sales
110,000
26,250
P 76,250
13. d
Cost method: P40,000 x 70% = P28,000, dividend income
Equity Method: (P115,000 x 70%) - P26,250 = P54,250, equity in subsidiary income
14. a - P720,000 = P500,000 + P400,000 - P200,000 +P 20,000
15. b
Cost method: P60,000 x 80% = P48,000
Equity Method: (P120,000 x 80%) –(P200,000 x 50% = P100,000 x 20% = P20,000)=P76,000
16. d Downstream situation
S Company’s net income from own/separate operations
x: NCI %
P120,000
20%
P 24,000
17. c
Share in net income (P120,000 x 60%)
Less: Unrealized profit in ending inventory of S {P189,000 x 1/3 = P63,000 x (P189-135)/P189]
Intercompany profit to be eliminated
P72,000
__18,000
P54,000
Share in net income (P200,000 x 60%)
Less: Unrealized profit in ending inventory of S {P315,000 x 1/3 = P105,000 x (P315-P225)/P315]
Intercompany profit to be eliminated
P120,000
__30,000
P 90,000
18. b
19. b - P45,000 + P110,000 - P50,000 - P80,000 = P25,000 increase
20. a
Beginning inventory profit = P825,000 - P825,000/1.25 = P165,000
Ending inventory profit = P750,000 - P750,000/1.25 = P150,000
Downstream sales only affect equity in net income. P165,000 - P150,000 = P15,000 increase.
21. c - There is no unconfirmed profit in beginning or ending inventory, so the only eliminating
entry is to debit sales revenue and credit cost of goods sold for P1,000,000.
22. b
23. a
24. c – P400,000 x 1/4 = P100,000 x 30% = P30,000
25. c
Ending inventory at selling price: P300,000 x 1/3 = P100,000 x (300,000 – 240,000)/300,000
Less: Inventory write-down (P100,000 – P92,000)
Intercompany profit to be eliminated
P20,000
__8,000
P12,000
26. b – [P300,000 x 1/2 = P150,000 x 40% = P60,000]
27. c – P100,00 sales to unrelated/unaffiliated company.
28. c
P Company
S Company
Cost of Sales
67,000
_63,000
Total
Less: Intercompany sales
Add: Unrealized profit in EI of S Co.
[P90,000 x 30% = P27,000 x (90 - 67)/90]
Consolidated
Sales
Less: Cost of goods sold – Parent
Subsidiary (90,000 x 70%)
Gross profit
Ending inventory (90,000 x 30%)
130,000
90,000
__6,900
46,900
Parent Subsidiary
90,000
100,000
67,000
______
63,000
23,000
37,000
27,000
29. a
Consolidated Net Income for 20x4
P Company’s net income from own/separate operations
[P100,000 – (P90,000 x 70%)]
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 (P90,000 – P67,000)
Realized profit in beginning inventory of P Company (upstream sales)
Unrealized profit in ending inventory of P Company (upstream sales)
[P90,000 x 30% = P27,000 x (90-67/90)]
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.
P 37,000
0
(_0)
P 37,000
P23,000
0
(
6,900 )
P16,100
16,100
P 53,100
0
P 53,100
1,610
P 51,490
Or, alternatively
Consolidated Net Income for 20x4
P Company’s net income from own/separate operations
[P100,000 – (P90,000 x 70%)]
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 (P90,000 – P67,000)
Realized profit in beginning inventory of P Company (upstream sales)
Unrealized profit in ending inventory of P Company (upstream sales)
[P90,000 x 30% = P27,000 x (90-67/90)]
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 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
P 37,000
0
(_0)
P 37,000
P23,000
0
(
6,900 )
P16,100
P 1,610
0
16,100
P 53,100
1,610
P 51,490
_ 1,610
P 53,100
P 23,000
0
( 6,900)
P 16,100
0
P 16,100
10%
P 1,610
0
P 1,610
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
30. d – P27,000 x 67/90 = P20,100
31. b – P120,000, the amount of sales to outsiders is the amount of sales presented in the
consolidated income statement.
32. a – the cost of inventory produced by the parent (downstream sales)
33. c
Consolidated Net Income for 20x4
P Company’s net income from own/separate operations (P90,000 – P62,000)
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 (P120,000 – P90,000)
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: 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.
P 28,000
0
(_0)
P 28,000
P3 0,000
0
()
P30,000
30,000
P 58,000
0
P 58,000
3,000
P 55,000
Or, alternatively
Consolidated Net Income for 20x4
P Company’s net income from own/separate operations (P90,000 – P62,000)
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 (P120,000 – P90,000)
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 20x4
*that has been realized in transactions with third parties.
P 28,000
0
(_0)
P 28,000
P3 0,000
0
()
P30,000
30,000
P 58,000
P 3,000
0
**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
3,000
P 55,000
_ 3,000
P 58,000
P 30,000
P
P
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
P
0
( 0)
30,000
0
30,000
10%
3,000
0
3,000
34. c
P Company
S Company
Sales
10,000,000
__200,000
Cost of Sales
7,520,000
_160,000
Total
Less: Intercompany sales – upstream sales
Add: Unrealized profit in EI of S Co.
[P60,000 x 30% = P18,000 x (10 – 7.5)/10]
Consolidated
10,200,000
60,000
7,680,000
60,000
________
10,140,000
__ 4,500
7,604,500
35. d – refer to No. 34 for computation
36. c – (P10,140,000 – P7,604,500) = P2,535,500
37. c
Sales
10,000,000
__200,000
10,200,000
60,000
P Company
S Company
Total
Less: Intercompany sales – downstream sales
Add: Unrealized profit in EI of S Co.
[P60,000 x 30% = P18,000 x (10 – 7.5)/10]
Consolidated
38. a – (P40,000 x 140% = P56,000)
39. a – (P56,000 – P40,000 = P16,000)
40. a
20x5
P Company
S Company
Total
Less: Intercompany sales
Realized profit in BI of S Co.
[P240,000 x 1/2 = P120,000 x (240-192)/240]
Add: Unrealized profit in EI of S Co.
[P375,000 x 40% = P150,000 x (375-300)/375]
Consolidated
________
10,140,000
Sales
1,800,000
__900,000
2,700,000
375,000
Cost of Sales
1,440,000
_750,000
2,190,000
375,000
24,000
________
2.325,000
__30,000
1,821,000
41. c - refer to No. 40 for computations
42. b
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)
[P150,000 x 50% = P75,000 x (P30,000/P150,000)]
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.
**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………
P 225,000
0
(_0)
P225,000
P 90,000
(
15,000 )
P 75,000
75,000
P 300,000
_0
P 300,000
15,000
P 285,000
P 90,000
0
( 15,000)
P 75,000
Less: Amortization of allocated excess
0
P 75,000
20%
P 15,000
0
P 15,000
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
43. c – refer to No. 42 for computations
44. c
45 a Amount paid by Lorn Corporation
Unrealized profit
Actual cost
Portion sold
Cost of goods sold
46.
e
Consolidated sales
Cost of goods sold
Consolidated net income
Income to Dresser’s noncontrolling
interest:
Sales
Reported cost of sales
Report income
Portion realized
Realized net income
Portion to Noncontrolling
Interest
Income to noncontrolling
Interest
Income to controlling interest
47.
A
P120,000
(45,000)
P 75,000
x
.80
P 60,000
Inventory reported by Lorn
Unrealized profit (P45,000 x .20)
Ending inventory reported
P140,000
(60,000)
P 80,000
P120,000
(75,000)
P 45,000
x
.80
P 36,000
x
.30
(10,800)
P 69,200
P 24,000
(9,000)
P 15,000
48. c
Sales
500,000
_350,000
850,000
100,000
150,000
600,000
P Company
S Company
Total
Less: Intercompany sales to Dundee
Intercompany sales to Perth
Consolidated
49. a
Ending inventory of Perth from Dundee (P36,000 / 110%)
Ending inventory of Dundee from Perth (P31,000 / 130%)
Total
50.
a
Selling price
Less: Cost of sales
Original unrealized profit
Unsold percentage
Unrealized profit
32,727
_23,846
56,573
P
50,000
_40,000
10,000
__30%
P
_3,000
51. a
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………………………………….
Total
Less: Amortization of allocated excess……………………
Consolidated Net Income for 20x5
52.
a
53.
d
54. d
Combined 20x5 sales (P580,000 + P445,000)
Less: 20x5 intercompany sales
Consolidated sales
P
P
Combined cost of sales
Less: 20x5 intercompany sales
Less: Unrealized profit in the 20x5 beginning inventory
from 20x4
Add: Unrealized profit in 20x5 ending inventory
Consolidated cost of sales
P Company
S Company
Total
Less: Intercompany sales
Realized profit in BI of S Co.
[P625,000 x 12% = P75,000 x (625 - 425)/625]
Add: Unrealized profit in EI of S Co.
[P1,000,000 x 10% = P100,000 x (1,000 - 800)/1,000]
Consolidated
P180,000
( 3,000)
P 177,000
76,000
P253,000
0
P253,000
1,025,000
0
1,025,000
P 480,000
0
(
3,000)
________0
P 477,000
Cost of
Sales
5,400,000
_1,200,000
6,600,000
1,000,000
24,000
__20,000
5,596,000
55. b
Bates Company
Sam Company
Total
Less: Intercompany sales
Realized profit in BI of Bates Co.
[P40,000 x 20%]
Add: Unrealized profit in EI of Bates Co.
[P15,000 x 20%]
Consolidated
Cost of
Sales
690,000
195,000
885,000
200,000
8,000
__3,000
680,000
56. b
Parent
Net Income from own operations:
Subsidiary
X-Beams (parent)Kent (subsidiary), 70%:30%
Unrealized Profit in EI of Parent (X-Beams):
P180,000x 20% = P36,000 x (180-100/180)= P16,000, 70%:30%
210,000
90,000
( 11,200)
( 4,800)
85,200
20x5
20x6
Non-controlling Interest in Kent’s Net Income
57. d
Non-controlling Interest in Net Income (NCINI) for
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
P 400,000
(
20,000)
P 380,000
0
P380,000
20%
P 76,000
0
P 76,000
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 480,000
20,000
0
P 500,000
0
P500,000
20%
P100,000
0
P100,000
58. a
**Non-controlling Interest in Net Income (NCINI) for 20x6
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)
(P100,000 x 10% = P10,000 x 30%)
S Company’s realized net income from separate operations………
Less: Amortization of allocated excess
P
( 3,000)
P( 3,000)
0
P( 3,000)
10%
P(300)
0
P( 300)
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in GP
Less: NCI on goodwill impairment loss on full goodwill
Non-controlling Interest in GP
59. a
60. a
Selling price
Less: Cost of sales
Unrealized profit
Unsold fraction
Credit to Inventory
P
(
P
60,000
48,000 )
12,000
1/3
4,000
61. a – the cost from parent of P48,000 x 45/60 = P36,000
Sales
Less: Cost of goods sold – P and S1
Subsidiary (60,000 x 45/60)
Gross profit
Ending inventory (60,000 x 15/60)
Parent
60,000
48,000
______
12,000
Subsidiary 1
60,000
60,000
______
0
Subsidiary 2
67,000
Sales
Cost of Sales
45,000
22,000
15,000
62. b – the cost from parent of P48,000 x 15/60 = P12,000
63. a
Intercompany
Parent
Subsidiary 1
Add: Cost of EI in S2 Co.
[P15,000 x (48/60]
Amount to be eliminated
*or, P60,000 + P60,000 – [P15,000 x (60-48/60]
64. b – refer to No. 63 for computation
65. d – P15,000 x [(60-48)/60] = P3,000
0
0
60,000
60,000
60,000
45,000
________
120,000
__12,000
*117,000
66. a
Consolidated Net Income for 20x3
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)
[P105,000 x 20/120)
S Company’s realized net income from separate operations*…….…..
Total
Less: Amortization of allocated excess……………………
Consolidated Net Income for 20x3
P 225,000
0
(_0)
P225,000
P150,000
0
(
17,500 )
P132,500
132,500
P 357,500
_0
P357,500
67. c
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)
[P105,000 x 20/120)
Unrealized profit in ending inventory of P Company (upstream sales)
[P157,500 x 20/120)
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.
P360,000
0
(_0)
P360,000
P135,000
17,500
( 26,250 )
P126,250
126,250
P 486,250
_0
P486,250
1,610
P 51,490
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)
[P105,000 x 20/120)
Unrealized profit in ending inventory of P Company (upstream sales)
[P157,500 x 20/120)
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 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
P360,000
0
(_0)
P360,000
P135,000
17,500
( 26,250 )
P126,250
P 37,875
0
126,250
P 486,250
37,875
P 448,375
_37,875
P 486,250
P 135,000
17,500
( 26,250)
P 126,250
0
P126,250
30%
P 37,875
Less: NCI on goodwill impairment loss on full goodwill
Non-controlling Interest in Net Income (NCINI) – full goodwill
0
P 37,875
68. a – refer to No. 67 for computation.
69. d
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)
[P157,500 x 20/120)
Unrealized profit in ending inventory of P Company (upstream sales)
[P180,000 x 20/120)
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 – 20x5…………..
*that has been realized in transactions with third parties.
P 450,000
0
(_0)
P450,000
P240,000
26,250
(
30,000 )
P236,250
236,250
P 686,250
_0
P686,750
70,875
P 615,375
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)
[P157,500 x 20/120)
Unrealized profit in ending inventory of P Company (upstream sales)
[P180,000 x 20/120)
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.
**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
P 450,000
0
(_0)
P450,000
P240,000
26,250
(
30,000 )
P236,250
P 70,875
0
236,250
P 686,250
70,875
P 615,375
__70,875
P 686,250
P 240,000
26,250
( 30,000)
P 236,250
0
P 236,250
30%
P 70.875
0
P 70,875
70. a – refer to No. 69 for computation.
71. d
P Company
S Company
Total
Less: Intercompany sales
Sales
420,000
280,000
700,000
140,000
Consolidated
560,000
72. b
Operating
Expenses
28,000
14,000
42,000
_5,000
47,000
P Company
S Company
Total
Add: Undervalued equipment (P35,000/7 years)
Consolidated
73. c
P Company
S Company
Total
Less: Intercompany sales
Add: Unrealized profit in EI of S Co.
[P140,000 x 60% = P84,000 x (140 - 112)/140]
Consolidated
Cost of Sales
196,000
_112,000
308,000
140,000
_16,800
184,800
74. a or e - if full goodwill method.
Non-controlling interest (partial-goodwill), December 31, 20x4
Common stock – S Company, December 31, 20x4……
Retained earnings – S Company, December 31, 20x4
Retained earnings – S Company, January 1, 20x4
Add: Net income of S for 20x4
Total
Less: Dividends paid – 20x4
Stockholders’ equity – S 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) :
20x5 (P35,000/7 years)
Fair value of stockholders’ equity of S, December 31, 20x5……
Multiplied by: Non-controlling Interest percentage…………...
Non-controlling interest (partial goodwill)…………………………………..
Add: NCI on full-goodwill (P70,000 – P56,000)
Non-controlling interest (full- goodwill)…………………………………..
P 140,000
P210,000
154,000
P364,000
0
364,000
P 504,000
35,000
( 5,000)
P 534,000
20
P 106,800
14,000
P 120,800
Partial-goodwill
Fair value of Subsidiary (80%)
Consideration
P
transferred………………………………..
364,000
Less: Book value of stockholders’ equity of S:
Common stock (P140,000 x
80%)…………………….
P112,000
Retained earnings (P210,000 x
80%)………………...
168,000
280,000
Allocated excess (excess of cost over book
P
value)…..
84,000
Less: Over/under valuation of assets and liabilities:
Increase in equipment (P35,000 x 80%)
___28,000
Positive excess: Partial-goodwill (excess of cost over
P 56,000
fair value)………………………………………………...
Full-goodwill
Fair value of Subsidiary (100%)
Consideration transferred: Cash (P364,000/80%)
Less: Book value of stockholders’ equity of S (P350,000 x
100%)
Allocated excess (excess of cost over book value)…..
Add (deduct): (Over) under valuation of assets and liabilities
Increase in equipment P35,000 x 100%
Positive excess: Full-goodwill (excess of cost over
fair value)………………………………………………...
P
455,000
__350,000
P
105,000
35,000
P
70,000
75. d
Equipment
616,000
420,000
1,036,000
35,000
7,000
1,064,000
P Company
S Company
Total
Add: Undervalued equipment
Less: Depreciation on undervalued equipment (P35,000/7 years)
Consolidated
76. d
P Company
S Company
Total
Less: Unrealized profit in EI: [P140,000 x 60% = P84,000 x (140 - 112)/140]
Consolidated
77. d
78. c
79. c
Inventory
210,000
154,000
364,000
16,800
347,200
Add the two book values and remove P100,000 intercompany transfers.
Intercompany gross profit (P100,000 - P80,000) ...................................................
Inventory remaining at year's end ..........................................................................
Unrealized intercompany gross profit ....................................................................
P20,000
60%
P12,000
CONSOLIDATED COST OF GOODS SOLD
Parent balance ...................................................................................................
Subsidiary balance .............................................................................................
Remove intercompany transfer .......................................................................
Defer unrealized gross profit (above) .............................................................
Cost of goods sold .....................................................................................................
P140,000
80,000
(100,000)
12,000
P132,000
Consideration transferred ..............................................
Non-controlling interest fair value...................................
SZ total fair value ................................................................
Book value of net assets ...................................................
Excess fair over book value
P260,000
65,000
P325,000
(250,000)
P75,000
Life
Annual Excess
Amortizations
Excess fair value assigned to undervalued assets:
Equipment ....................................................................
Secret Formulas ..........................................................
Total .................................................................................
25,000 5 years
50,000 20 years
P
-0-
P5,000
2,500
P7,500
Consolidated Expenses = P37,500 (add the two book values and include current year
amortization expense)
80. a
Non-controlling interest (partial-goodwill), December 31, 20x4
Common stock – S Company, December 31, 20x4……
Retained earnings – S Company, December 31, 20x4
Retained earnings – S Company, January 1, 20x4
Add: Net income of S for 20x4
Total
Less: Dividends paid – 20x4
Stockholders’ equity – S 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) :
Fair value of stockholders’ equity of S, December 31, 20x5……
Multiplied by: Non-controlling Interest percentage…………...
Non-controlling interest (partial goodwill)…………………………………..
Add: NCI on full-goodwill (
Non-controlling interest (full- goodwill)…………………………………..
P 100,000
P150,000
110,000
P260,000
0
260,000
P 360,000
75,000
( 7,500)
P 427,500
20
P 85,500
________0
P 85,500
Partial-goodwill
Fair value of Subsidiary (80%)
Consideration
transferred………………………………..
Less: Book value of stockholders’ equity of S:
Common stock (P100,000 x
80%)…………………….
Retained earnings (P150,000 x
80%)………………...
Allocated excess (excess of cost over book
value)…..
Less: Over/under valuation of assets and liabilities:
Increase in equipment (P25,000 x 80%)
P
260,000
P
80,000
120,000 200,000
P
60,000
20,000
Increase in secret formulas: P50,000 x 80%
40,000
Full-goodwill
Fair value of Subsidiary (100%)
Consideration transferred: Cash (80%)
FV of NCI (20%)
Fair value of Subsidiary (100%)
Less: BV of stockholders’ equity of S (P100,000 +
P150,000) x 100%
P
260,000
___65,000
P
325,000
__250,000
Allocated excess (excess of cost over book
value)…..
Add (deduct): (Over) under valuation of assets and
liabilities
Increase in equipment P25,000 x 100%
P
75,000
25,000
P
50,000
Increase in secret formulas: P50,000 x 100%
Amortization:
Equipment: P25,000 / 5 years
= P 5,000
Secret formulas: P50,000 / 20 years = 2,500
Total amortization of allocated
P 7,500
81. c Add the two book values plus the original allocation (P25,000) less one year of excess
amortization expense (P5,000).
82. b Add the two book values less the ending unrealized gross profit of P12,000.
Intercompany Gross profit (P100,000 – P80,000) ..................................................
Inventory Remaining at Year's End ........................................................................
Unrealized Intercompany Gross profit, 12/31 .......................................................
P20,000
60%
P12,000
83. b
20x3
Share in net income
20x3: P70,000 x 90%
20x4: P85,000 x 90%
20x5: P94,000 x 90%
Less: Unrealized profit in ending inventory of P
20x3: P1,200 x 25% = P300 x 90%
20x4: P4,000 x 25% = P1,000 x 90%
20x5: P3,000 x 25% = P750 x 90%
Income from S
20x4
20x5
P 63,000
P 76,500
P 84,600
(
270)
270
900)
________
P 75,870
(
________
P 62,730
900
__( 675)
P 84,825
It should be noted that PAS 27 allow the use of cost model in accounting for investment in
subsidiary in the books of parent company but not the equity method.
84. c – refer to No. 83 for computation.
85. d – refer to No. 83 for computation.
86. a
**Non-controlling Interest in Net Income (NCINI) for
S Company’s net income of Subsidiary Company from its
own operations (Reported net income of S Company)
RPBI of P Company (upstream sales)
UPEI 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
87. c – refer to No. 86 for computation.
88. c – refer to No. 86 for computation.
89. a – refer to No. 86 for computation.
90. a – refer to No. 86 for computation.
91. b – refer to No. 86 for computation.
20x3
P 70,000
0
(
300)
P 69,700
0
P 69,700
10%
P 6,970
0
P 6,970
20x4
P 85,000
300
( 1,000)
P 84,300
0
P 84,300
10%
P 8,430
0
P 8,430
20x5
P 94,000
1,000
(
750)
P 94,250
0
P 94,250
10%
P 9,425
0
P 9,425
92. a – none, since intercompany profit starts only at the end of 20x3.
93. b – the amount of unrealized profit at the end of 20x3.
94. c – the amount of unrealized profit at the end of 20x4.
95.
d
P32,000
=
(P200,000 + P140,000) – P308,000
96.
b
P6,000
=
(P26,000 + P19,000) – P39,000
97.
c
P9,000
=
Inventory held by Spin
P12,000
(P32,000 x .375)
Unrealized profit on sale
[(P30,000 + P25,000) – P52,000]
(3,000)
Carrying cost of inventory for
Power
P 9,000
98.
B
.20 = P14,000 / [(Stockholders’ Equity P50,000)
+(Patent P20,000)]
99
B
14 years = (P28,000 / [(28,000 - P20,000) / 4 years]
100. c (P10,000 x 80%)
101. d – the original cost
102. d
Date of Acquisition (1/1/2010)
Partial
Fair value of consideration given…………………P 340,000
Less: Book value of SHE - Subsidiary):
(P150,000 + P230,000) x 80%..................... 304,000
Allocated Excess.…………………………………….P 36,000
Less: Over/Undervaluation of Assets & Liabilities
(P20,000 x 80%)……………………………..
16,000
Goodwill ………….…………………………………...P 20,000 / 80%
Full
P 25,000
Amortization of equipment: P20,000 / 10 years = P2,000
RPBI of S (downstream sales): P3,000 x 35%...................................................... P1,050
RPBI of P (upstream sales): P2,500 (given)….................................................... 1,000
UPEI of S (downstream sales):
Sales of Parent EI %
EI of S
GP% of Parent
P60,000
x 30% = P18,000 x
25/125………………………………. 3,600
UPEI of P (upstream sales):
Sales of Subsidiary EI %
EI of P GP% of Subsidiary
P60,000
x 30% = P18,000 x
20%…………………………..…. 2,400
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 20x4
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.
P 100,000
1,050
(_ 3,600)
P 97,450
P 30,000
1,000
( ,2,400 )
P28,600
28,600
P 126,050
2,000
P124,050
5,320
P 118,730
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)
P 100,000
1,050
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 2012
*that has been realized in transactions with third parties.
(_ 3,600)
P 97,450
P 30,000
1,000
( 2,400 )
P 28,600
**Non-controlling Interest in Net Income (NCINI) for 2012
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
103.
104.
105.
106.
107.
b – refer to No. 102
a – P124,050 – refer to No. 102
b – refer to No. 107
c – refer to No. 107
a
Non-controlling Interests (in net assets):
Common stock - S, 12/31/20x2.…………..….……………………………..
P
5,320
2,000
28,600
P 126,050
7,320
P118,730
__ 5,320
P124,050
P 30,000
1,000
( 2,400)
P 28,600
2,000
P 26,600
20%
P 5,320
0
P 5,320
P 150,000
Retained earnings - S, 12/31/20x2:
RE- S, 1/1/20x2…………….……………………………………………….P300,000
+: NI-S…………………………………………………………………………. 30,000
-: Div – S……………………………………………………………………… 10,000 320,000
Book value of Stockholders’ equity, 12/31/20x2……..……………….....
P 470,000
Adjustments to reflect fair value of net assets
Increase in equipment, 1/1/20x0 .…………………………..
20,000
Accumulated amortization (P2,000 x 3 years)…………………………....
( 6,000)
Fair Value of Net Assets/SHE, 12/31/20x2………………………………….
P 484,000
UPEI of P (up)……………………………………………………………………
( 2,400)
Realized SHE – S,12/31/20x2………………………………………………….
P 481,600
x: NCI %..........................................................................................................
_ 20%
Non-controlling Interest (in net assets) - partial…………………………..
P 96,320
+: NCI on full goodwill (25,000 – 20,000)…………………………..
5,000
Non-controlling Interest (in net assets) – full……………………………....
P 101,320
108. d – refer to No. 109
109. d
Note: Preferred solution - since what is given is the RE – P, 1/1/20x2 (beginning
balance of the current year) Retained earnings – Parent, 1/1/20x2 (cost)……………………………
P 700,000
-: UPEI of S (down) – 20x1 or RPBI of S (down) – 20x2..………….
1,050
Adjusted Retained earnings – Parent, 1/1/20x2 (cost)………………
P698,950
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, 1/1/20x0……………………….P 230,000
Less: Retained earnings – Subsidiary, 1/1/20x2………………
300,000
Increase in Retained earnings since acquisition
(cumulative net income – cumulative dividends)…………P 70,000
Accumulated amortization (1/1/20x0 – 1/1/20x2):
P 2,000 x 2 years…………………………………………………( 4,000)
UPEI of P (up) – 20x1 or RPBI of P (up) – 20x2………………...... ( 1,000)
P 65,000
X: Controlling Interests………………………………………….........____80%
RE – P, 1/1/2012 (equity method) = CRE, 1/1/20x2………………….....
52,000
P750,950
+: CI – CNI or Profit Attributable to Equity Holders of Parent……..
118,730
-: Dividends – P………………………………………………………………
60,000
RE – P, 12/31/20x2 (equity method) = CRE, 12/31/20x2…………......
P809,680
Or, if RE – P is not given on January 1, 20x2, then RE – P on December 31, 2012 should be use:
Retained earnings – Parent, 12/31/20x2 (cost):
(P700,000 + P108,000 – P60,000)………..……………………………
P 748,000
-: UPEI of S (down) – 20x2 or RPBI of S (down) – 20x3..………….
3,600
Adjusted Retained earnings – Parent, 1/1/20x2 (cost)………………
P 744,400
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, 1/1/20x0……………………….P 230,000
Less: Retained earnings – Subsidiary, 12/31/20x2
(P300,000 + P20,000 – P10,000)………………………........
320,000
Increase in Retained earnings since acquisition
(cumulative net income – cumulative dividends)…………P 90,000
Accumulated amortization (1/1/20x0 – 12/31/20x2):
P 2,000 x 3 years……………………………………………….. ( 6,000)
UPEI of P (up) – 20x2 or RPBI of P (up) – 20x3……………….. .. ( 2,400)
P 81,600
X: Controlling Interests……………………………………………….
80% 65,280
RE – P, 12/31/20x2 (equity method) = CRE, 12/31/20x2………….
P809,680
110. b
Consolidated Stockholders’ Equity, 12/31/20x2:
Controlling Interest / Parent’s Interest / Parent’s Portion /
Equity Holders of Parent – SHE, 12/31/20x2:
Common stock – P (P only)……………………………………………..
Retained Earnings – P (equity method), 12/31/20x2…………..
Controlling Interest / Parent’s Stockholders’ Equity…………….
Non-controlling interest, 12/31/20x2 (partial)………………………….
Consolidated Stockholders’ Equity, 12/31/20x2…………………………
P1,000,000
809,680
P1,809,680
96,320
P1,906,000
111. a
Consolidated Stockholders’ Equity, 12/31/20x2:
Controlling Interest / Parent’s Interest / Parent’s Portion /
Equity Holders of Parent – SHE, 12/31/20x2:
Common stock – P (P only)……………………………………………..
Retained Earnings – P (equity method), 12/31/20x2…………..
Controlling Interest / Parent’s Stockholders’ Equity…………….
Non-controlling interest, 12/31/20x2 (full)……..……………………….
P1,000,000
809,680
P1,809,680
101,320
Consolidated Stockholders’ Equity, 12/31/20x2…………………………
P1,911,000
112. c
Non-controlling interest , December 31, 20x1
Common stock – Subsidiary Company, December 31, 20x1……
Retained earnings – Subsidiary Company, December 31, 20x1
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)
P3,000 x 40%
Realized stockholders’ equity of subsidiary, December 31, 20x4……
Multiplied by: Non-controlling Interest percentage…………...
Non-controlling interest. December 31, 20x1 …………………………………..
113. a
P 10,000
8,600
P 18,600
(
1,200
P 17,400
20
P 3,480
Realized profit in BI of Bates Co. [P40,000 x 20%]
Unrealized profit in EI of Bates Co. [P15,000 x 20%]
Net realized profit in intercompany sales of inventory
Multiplied by: NCI%
NCI share in net realized profit
P 8,000
__3,000
P 5,000
___40%
P 2,000
114. c
RPBI of P (upstream sales)……..………………………..…………………………
UPEI of P (upstream sales):
EI of Paque GP% of Subsidiary
P75,000
x
20%...................................………………………..….
Consolidated Net Income for 20x5
P Company’s net income from own/separate operations (P103,500 – P54,000)
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 – 20x5…………..
*that has been realized in transactions with third parties.
0
0)
P 18,600
45,000
15,000
P 49,500
0
(_
0)
P 49,500
P 71,250
45,000
( 15,000 )
P 101,250
101,250
P 150,750
____0
P150,750
10,125
P 140,625
Or, alternatively
Consolidated Net Income for 20x5
P Company’s net income from own/separate operations (P103,500 – P54,000)
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: Non-controlling Interest in Net Income* *
Amortization of allocated excess……………………
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent…………..
P 49,500
0
(_
0)
P 49,500
P 71,250
45,000
( 15,000 )
P 101,250
P 10,125
___0
101,250
P 150,750
10,125
P140,625
Add: Non-controlling Interest in Net Income (NCINI)
Consolidated Net Income for 2012
*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
__ 10,125
P150,750
P 71,250
45,000
( 15,000)
P 101,250
_0
P101,250
10%
P 10,125
0
P 10,125
(Not required)
Analysis of workpaper entries
(1) Investment in Segal (0.90  (P180,000 – P150,000))
Beginning Retained Earnings-Paque Co.
27,000
To establish reciprocity as of 1/1/20x8
27,000
(2) Sales
300,000
Purchases (Cost of Goods Sold)
300,000
To eliminate intercompany sales
(3) Ending Inventory - Income Statement (CGS)
15,000
Ending Inventory (Balance Sheet)
15,000
To eliminate unrealized intercompany profit in ending inventory (P75,000 
0.20)
(4) Beginning Retained Earnings - Paque Co. (P45,000  0.90)
40,500
Non-controlling Interest P45,000  0.10)
4,500
Beginning Inventory (Income statement)
45,000
To recognize intercompany profit realized during the year and to reduce
controlling and non-controlling interests for their share of unrealized profit
at beginning of year
(5) Dividend Income (P60,000  0.90)
Dividends Declared
54,000
To eliminate intercompany dividends
54,000
(6) Beginning Retained Earnings- Segal Co.
180,000
Common Stock - Segal Company
750,000
Investment in Segal Company (P810,000 + P27,000)
837,000
Non-controlling Interest (P750,000 + P180,000) x .10
To eliminate investment account and create non-controlling interest
account
93,000
115. c
Preferred Solution - since what is given is the RE – P, 1/1/20x8 Retained earnings – Parent, 1/1/20x8 (cost)……………………..
P 598,400
-: UPEI of S (down) – 20x7 or RPBI of S (down) – 20x8..………….
25,000
Adjusted Retained earnings – Parent, 1/1/20x8 (cost)………………
P 573.400
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, 1/1/20x4……………………P 95,000
Less: Retained earnings – Subsidiary, 1/1/20x8…………….. 144,000
Increase in Retained earnings since acquisition
(cumulative net income – cumulative dividends)………P 49,000
Accumulated amortization (1/1/20x4 – 1/1/20x8)………….
0
UPEI of P (up) – 20x7 or RPBI of P (up) – 20x8………………... (
0)
P 49,000
X: Controlling Interests……………………………………………
90% 44,100
RE – P, 1/1/20x8 (equity method) = CRE, 1/1/20x8………………..
P 617,500
+: CI – CNI or Profit Attributable to Equity Holders of Parent……
203,700
-: Dividends – P………………………..…………………………………
110,000
RE – P, 12/31/2014 (equity method) = CRE, 12/31/2014…………..
P 711,200
Consolidated Net Income for 20x8
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 20x8
Less: Non-controlling Interest in Net Income* *
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent – 20x8…………..
*that has been realized in transactions with third parties.
P132,000
25,000
(10,000)
P147,000
P 63,000
0
(
0)
P 63,000
63,000
P210,000
0
P210,000
6,300
P203,700
Or, alternatively
Consolidated Net Income for 20x8
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* *
P132,000
25,000
(10,000)
P147,000
P 63,000
0
(
0)
P 63,000
P 6,300
63,000
P210,000
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 20x8
*that has been realized in transactions with third parties.
_____0
6,300
P203,700
_ 6,300
P210,000
**Non-controlling Interest in Net Income (NCINI) for 20x8
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
P 63,000
(
P
P
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
P
0
0)
63,000
0
63,000
10%
6,300
0
6,300
Amortization of equipment: P20,000 / 10 years = P2,000
RPBI of Sedbrock (downstream sales) – 20x8......................................................... P25,000
UPEI of Sedbrock (downstream sales) – 20x8: P60,000 x 20%/120%……..……… 10,000
Net income:
Sales
Less: Cost of goods sold
Inventory, 1/1
Purchases
Inventory, 12/31
Gross profit
Less: Other expense
Net income from its own
separate operations
Add: Dividend income
Net income
Dividends declared
Pruitt Co.
P1,210,000
165,000
935,000
(220,000)
__880,000
P 330,000
198,000
P 132,000
31,500
P 163,500
P 110,000
Sedbrook
P 636,000
132,000
420,000
(144,000)
__408,000
P 228,000
165,000
P 63,000
P 63,000
P 35,000
Or, alternatively(compute the RE-P end of the year under the cost model)
Retained earnings – Parent, 1/1/20x8 (cost)…………………………..
P 598,400
Add: NI of Parent as reported – 20x8 under cost model……………
163,500
Less: Dividend of Parent – 20x8…………………………………………..
110,000
Retained earnings – Parent, 12/31/20x8 (cost)………………………..
P 651,900
-: UPEI of S (down) – 20x8 or RPBI of S (down) – 20x9..………………..
10,000
Adjusted Retained earnings – Parent, 12/31/20x8 (cost model)…..
P 641,900
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, 1/1/20x4…………
P 95,000
Less: Retained earnings – Subsidiary, 12/31/20x8
Retained earnings – Subsidiary , 1/1/20x8..… P144,000
Add: NI of Subsidiary – 20x8……………………
63,000
Less: Dividend of Subsidiary – 20x8…………...
35,000 172,000
Increase in Retained earnings since acquisition
(cumulative net income – cumulative dividends)………… P 97,000
Accumulated amortization (1/1/20x4 – 12/31/20x8)…………..(
0)
UPEI of P (up) – 20x8 or RPBI of P (up) – 20x9………………........(
0)
P 97,000
x: Controlling Interests…………………………………………
90%
69,300
RE – P, 12/31/20x8 (equity method) = CRE, 12/31/20x8………
P 711,200
(Not required)
Analysis of workpaper entries
(1) Investment in Sedbrook Company (0.90
(P144,000 – P95,000))
44,100
Beginning Retained Earnings - Pruitt Co.
44,100
To establish reciprocity/convert to equity as of 1/1/x8
(2) Sales
Purchases (Cost of Goods Sold)
250,000
To eliminate intercompany sales
(3) Ending Inventory - Income Statement (CGS)
Ending Inventory (Balance Sheet)
To eliminate unrealized intercompany profit in ending
inventory (P60,000 – (P60,000/1.2)
250,000
10,000
10,000
(4) Beginning Retained Earnings - Pruitt Co.
25,000
Beginning Inventory (Income Statement)
25,000
To recognize intercompany profit in beginning inventory
realized during the year
(5) Dividend Income (P35,000
.90)
Dividends Declared
To eliminate intercompany dividends
31,500
31,500
(6) Beginning Retained Earnings - Sedbrook Co.
144,000
Common Stock - Sedbrook Co.
600,000
Investment in Sedbrook Co.(P625,500 + P44,100)
669,600
Non-controlling Interest (P744,000 x .10)
74,400
To eliminate investment account and create non-controlling interest
account
116. P941,000.
Fair value of consideration given…………………P1,360,000
Less: Book value of SHE - Subsidiary):
(P1,000,000 + P450,000) x 80%................... 1,160,000
Allocated Excess.…………………………………….P 200,000
Less: Over/Undervaluation of Assets & Liabilities
Increase in franchise (P250,000 x 80%)…….. 200,000 / 80% = P250,000
P
0
Amortization of equipment: P250,000 / 25 years = P10,000
RPBI of S (downstream sales):…………………........................................................ P30,000
RPBI of P (upstream sales)………………………....................................................... 20,000
UPEI of S (downstream sales)……………………………………………………..……. 5,000
UPEI of P (upstream sales)………………………………………………….…………… 10,000
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)
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
30,000
( 5,000)
P725,000
P270,000
20,000
( 10,000)
P280,000
280,000
P1,005,000
10,000
P 995,000
54,000
P 941,000
Or, alternatively
Consolidated Net Income for 2014
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 2014
*that has been realized in transactions with third parties.
**Non-controlling Interest in Net Income (NCINI) for 2014
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
(Not required)
Analysis of workpaper entries
(1) Sales
120,000
P700,000
30,000
( 5,000)
P725,000
P270,000
20,000
( 10,000)
P280,000
P 54,000
10,000
280,000
P1,005,000
64,000
P 941,000
__ _ 54,000
P 995,000
P270,000
20,000
( 10,000)
P280,000
10,000
P270,000
20%
P 54,000
0
P 54,000
Purchases (Cost of Goods Sold)
120,000
To eliminate intercompany sales (P50,000 + P70,000)
(2) Ending Inventory – Income Statement (CGS)
Inventory (Balance Sheet)
15,000
To eliminate unrealized profit in ending inventories
(P10,000 + P5,000)
16,000
15,000
(3) Beginning Retained Earnings – Paul Company (P20,000  0.8)
Non-controlling Interest
4,000
Beginning Inventory – Income Statement (CGS)
20,000
To recognize profit in beginning inventory (upstream sales)
realized during year and to reduce the controlling and
noncontrolling interests for their shares of the amount of
unrealized upstream intercompany profit at beginning of year
(4) Beginning Retained Earnings – Paul Company.
30,000
Beginning Inventory – Income Statement (CoGS)
30,000
To recognize profit in beginning inventory (downstream sales)
realized during the year and to reduce consolidated retained
earnings at beginning of the year for the amount of unrealized
downstream intercompany profit at the beginning of the year
117. P1,863,000
Retained earnings – Parent, 12/31/20x4 (cost)………………………..
P 1,500,000
-: UPEI of S (down) – 20x4 or RPBI of S (down) – 20x5..………………..
5,000
Adjusted Retained earnings – Parent, 12/31/20x4 (cost model)…..
P 1,495,000
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 450,000
Less: Retained earnings – Subsidiary, 12/31/20x4……………… 960,000
Increase in Retained earnings since acquisition
(cumulative net income – cumulative dividends)………… P 510,000
Accumulated amortization (1/1/20x1 – 12/31/20x4)…………..( 40,000)
UPEI of P (up) – 20x4 or RPBI of P (up) – 20x5………………........ ( 10,000)
P 460,000
x: Controlling Interests…………………………………………
80% 368,000
RE – P, 12/31/20x4 (equity method) = CRE, 12/31/20x4………
P1,863,000
118. P54,000 – refer to No. 116 for computation
119. a
Full-goodwill
Fair value of Subsidiary (100%)
Consideration transferred: Cash
(P7,500,000/80%)
P9,375,00
0
Less: Book value of stockholders’ equity of S
(P6,000,000 x 100%)
Allocated excess (excess of cost over book
value)…..
Add (deduct): (Over) under valuation of
assets and liabilities
Decrease in inventory: P(150,000 x 100%)
Increase in building: P450,000 x 100%
Positive excess: Full-goodwill (excess of cost
over
fair
value)………………………………………………...
_6,000,00
0
P3,375,00
0
P( 150,000
)
___450,000
___300,00
0
P3,075,00
0
Partial-goodwill
Fair value of Subsidiary (80%)
Consideration
transferred………………………………..
Less: Book value of stockholders’ equity of S:
Common stock (P1,000,000 x
80%)…………………….
Retained earnings (P5,000,000 x
80%)………………...
Allocated excess (excess of cost over book
value)…..
Less: Over/under valuation of assets and
liabilities:
Add (deduct): (Over) under valuation of
assets and liabilities
Decrease in inventory: P(150,000 x 80%)
Increase in building: P450,000 x 80%
Positive excess: Partial-goodwill (excess of cost
over
fair
value)………………………………………………...
P7,500,00
0
P 800,000
4,000,000
P( 120,000
)
___360,00
0
4,800,000
P2,700,00
0
240,000
P2,460,00
0
Amortization schedule
Inventory
Building (15 years)
Goodwill
Total
Balance at
acquisition
Dec. 31/X2
P(150,000)
450,000
3,075,000
P3,375,000
Amortization Amortization
20X3
20X4
P(150,000)
0
30,000
P30,000
_________0
______0
P(120,000)
P30,000
Remaining
at
Dec.31/X4
P
0
390,000
3,075,000
P3,465,000
120. a
Non-controlling interest is 20% × 9,375,000 (fair value of subsidiary, 12/31/20x2) = P1,875,000
Or, alternatively:
Non-controlling interest, December 31, 20x2
Common stock – S Company, December 31, 20x2……
Retained earnings – S Company, December 31, 20x2
Stockholders’ equity – S Company, December 31, 20x2
Adjustments to reflect fair value - (over) undervaluation of assets and
liabilities, date of acquisition (December 31, 20x2)
Fair value of stockholders’ equity of S, December 31, 20x2……
Multiplied by: Non-controlling Interest percentage…………...
Non-controlling interest (partial goodwill)…………………………………..
Add: NCI on full-goodwill (P3,075,000 – P2,460,000)
Non-controlling interest (full- goodwill)…………………………………..
P1,000,000
5,000,000
P6,000,000
___300,000
P6,300,000
20
P 1,260,000
___615,000
P1,875,000
121. d – P2,393,800
Non-controlling interest , December 31, 20x4
Common stock – S Company, December 31, 20x4
Retained earnings – S Company, December 31, 20x4
Stockholders’ equity – S Company, December 31, 20x4
Adjustments to reflect fair value - (over) undervaluation of assets and
liabilities, date of acquisition (December 31, 20x2)
Amortization of allocated excess (refer to amortization above- 20x3 and 20x4:
Fair value of stockholders’ equity of S, December 31, 20x4……
Less: UPEI of P (up) – 20x3 or RPBI of P (up) – 20x4
Multiplied by: Non-controlling Interest percentage…………...
Non-controlling interest (partial goodwill)…………………………………..
Add: NCI on full-goodwill
Non-controlling interest (full- goodwill)…………………………………..
P1,000,000
7,524,000
P8,524,000
300,000
__90,000
P8,914,000
____20,000
P8,894,000
_ 20
P1,778,800
___615,000
P2,393,800
RPBI of P (upstream sales):
Sales of Subsidiary EI %
EI of P GP% of Subsidiary
P100,000
x 60% = P60,000 x 50,000/100,000………………………..….
30,000
UPEI of P (upstream sales): (given)……………………………………………………….
20,000
Or, alternatively:
Balance of NCI on acquisition — December 31, 20x2
P1,875,000
Add: NCI's share of the adjusted change in retained earnings to 12/ 31/20x4
Jane's retained earnings, December 31, 20x4
P7,524,000
Jane's retained earnings at December 31, 20x2
( 5,000,000)
Change in carrying value
P2,524,000
Adjustments:
Amortization of fair value increments to date
90,000
Unrealized upstream profit — 20x4
( 20,000)
Adjusted change in retained earnings of Jane since
acquisition
P2,594,000
Multiplied by: NCI's share at
20% 518,800
Ending balance of NCI on December 31, 20x4
P2,393,800
122. b
Retained earnings – Parent, 12/31/20x4 (cost)………………………..
P11,900,000
-: UPEI of S (down) – 20x4 or RPBI of S (down) – 20x5..………………..
0
Adjusted Retained earnings – Parent, 12/31/20x4 (cost model)…..
P11,900,000
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, 12/31/20x2…………………..P5,000,000
Less: Retained earnings – Subsidiary, 12/31/20x4…………… 7,524,000
Increase in Retained earnings since acquisition
(cumulative net income – cumulative dividends)……….P2,524,000
Accumulated amortization (1/1/20x1 – 12/31/20x4)………..
90,000
UPEI of P (up) – 20x4 or RPBI of P (up) – 20x5……………….....( 20,000)
P2,594,000
x: Controlling Interests…………………………………………
80%
2,075,200
RE – P, 12/31/20x4 (equity method) = CRE, 12/31/20x4
P13,975,200
122.
123.
124.
125.
126.
127.
b - (P125,000 - P93,000) .8 = P25,600
c - (P125,000 - P93,000) .2 = P6,400
d
a - (P125,000 - P93,000) .7
c - (P125,000 - P93,000) .3
a - [P293,000 + (P125,000 - P93,000) .7] .2 = P63,080
Theories
1.
2.
3.
4.
5.
True
False
False
True
False
41.
42.
43.
44.
45.
b
c
a
c
d
6.
7.
8.
9.
10,
46.
47.
48.
49.
50,
True
False
False
True
False
c
b
c
a
d
51.
52.
53.
54.
55,
11.
12.
13.
14.
15,
a
c
c
d
c
True
False
False
True
True
16.
17.
18.
19.
20.
56.
57.
58.
59.
60.
c
b
c
b
c
False
False
True
True
False
61.
62.
63.
64.
65.
21.
22.
23.
24.
25.
a
a
b
c
a
True
False
b
e
a
66.
67.
68.
69.
70.
b
b
c
d
b
26.
27.
28.
29.
30.
71
72.
73.
74.
75.
e
e
c
d
a
b
a
a
a
c
31
32.
33.
34.
35.
76.
77.
78.
79.
80.
b
e
b
d
a
c
c
a
c
e
36.
37.
38.
39.
40.
a
b
e
d
d
Chapter 18
Problem I
A. Downstream Sale
1.
Cost Model – 20x5 (104,000/130,000 = 80% ownership)
Dividends – S Company
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividend
income
80%) . . . . . . . . . . . . . . . . . . . . . . .
(P60,000
x
48,00
0
48,00
0
Net Income – S Company
No entry
Amortization of Allocated Excess
No entry
Unrealized Gain on Sale of Equipment
No entry
Realized Gain on Sale – depreciation
No entry
Equity Method – 20x5
Dividends – S Company
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment
in
S
80%) . . . . . . . . . . . . . . . . . . . . . . .
Co
(60,000
Net Income – S Company
Investment
in
S
Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment
income
(P820,000
x
80%). . . . . . . . . . . . . . . . . . . . .
x
32,00
0
656,000
656,000
Amortization of Allocated Excess
None, since there is no amount available
Unrealized Gain on Sale of Equipment
No entry
1/1/20x4
Selling price………………………………………
Less: Book value:
Cost…………………………………………P 1,280,000
Less: Accumulated depreciation
P1,280,000/8 years x 4 years…….
640,000
32,00
0
P740,000
640,000
Unrealized gain on sales……………………….
Realized gain on sale thru depreciation
based on remaining life of equipment
[P100,000 / (8 – 4, expired years)………
P 100,000
P 25,000
Realized Gain on Sale – depreciation
Investment
in
S
Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment
income
(P25,000
x
100%). . . . . . . . . . . . . . . . . . . . .
2. Working Paper Elimination Entries:
Cost Model
Equipment
Beginning R/E – Prince
Accumulated Depreciation
4.
640,000
50,000
25,000
25,000
540,000
100,000
Accumulated Depreciation (P100,000/4) × 2
Depreciation Expense
Investment in S Co.
3
25,000
540,000
100,000
Accumulated Depreciation (P100,000/4) × 2
Depreciation Expense
Beginning R/E – Prince
Equity Method
Equipment
Investment in S Co.
Accumulated Depreciation
25,000
50,000
Controlling Interest in Consolidated Net Income:
Prince Company’s income from its
independent operations
Reported net income of Serf Company
P820,000
Plus profit on intercompany sale of
equipment considered to be realized
through depreciation in 20x4
25,000
Reported subsidiary income that has been
realized in transactions with third
parties
845,000
× .8
Prince Company’s share thereof
Controlling Interest in Consolidated net income
Noncontrolling Interest Calculation:
Reported income of Serf Company
Plus: Intercompany profit considered realized
in the current period
640,000
25,000
25,000
P3,270,000
676,000
P3,946,000
P820,000
25,000
P845,000
Noncontrolling interest in Serf Company
(.20 × 845,000)
5.
P169,000
NCI-CNI (No. 4)
CI-CNI (No. 3)
CNI
P 169,000
3,946,000
P4,115,000
or,
Consolidated Net Income for 20x5
P Company’s net income from own/separate operations………….
Realized gain on sale of equipment (downstream sales) through depreciation
P Company’s realized net income from separate operations…….…..
S Company’s net income from own operations………………………………….
Realized gain on sale of equipment (upstream sales) through depreciation*
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…………..
P3,270,000
0
P3,270,000
P 820,000
25,000
P 845,000
845,000
P4,115,000
0
P4,115,000
169,000
P3,946,000
Or, alternatively
Consolidated Net Income for 20x5
P Company’s net income from own/separate operations………….
Realized gain on sale of equipment (downstream sales) through depreciation
P Company’s realized net income from separate operations…….…..
S Company’s net income from own operations………………………………….
Realized gain on sale of equipment (upstream sales) through depreciation
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
**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 gain on sale of equipment (upstream sales) through depreciation
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
1/1/20x4:
Selling price of equipment
Less: BV of equipment
Cost
Less: Accumulated depreciation:
P1,280,000 / 8 years x 4 years*
Unrealized gain on sales – 1/1/20x4
P3,270,000
0
P3,270,000
P820,000
25,000
P 845,000
P 169,000
0
845,000
P4,115,000
169,000
P3,946,000
_169,000
P4,115,000
P 820,000
25,000
P 845,000
0
P845,000
20%
P 169,000
P 740,000
P1,280,000
640,000
640,000
P 100,000
Realized gain – depreciation: P100,000 / 4 years
P 25,000
*the original life is 8 years as of 1/1/20x3, since the remaining life as of 1/1/20x4
in only 4 years, for purposes of computing the accumulated depreciation to
determine the gain on sale, the difference of 4 years is presumed to be expired.
Controlling Interest in Consolidated Net Income:
Prince Company’s income from its
independent operations
Plus profit on intercompany sale of
equipment considered to be realized
through depreciation in 2014
Reported net income of S Company
P3,270,000
P820,000
× .8
Prince Company’s share thereof
Controlling Interest in Consolidated net income
Noncontrolling Interest Calculation:
Reported income of S Company
Noncontrolling interest in S Company
(.20 × 820,000)
NCI-CNI
CI-CNI
CNI
25,000
P3,295,000
656,000
P3,951,000
P820,000
P164,000
P 164,000
3,951,000
P4,115,000
or,
Consolidated Net Income for 20x5
P Company’s net income from own/separate operations………….
Realized gain on sale of equipment (downstream sales) through depreciation
P Company’s realized net income from separate operations…….…..
S Company’s net income from own operations………………………………….
Realized gain on sale of equipment (upstream sales) through depreciation*
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…………..
P3,270,000
____25,000
P3,295,000
P 820,000
0
P 820,000
820,000
P4,115,000
0
P4,115,000
164,000
P3,951,000
Or, alternatively
Consolidated Net Income for 20x5
P Company’s net income from own/separate operations………….
Realized gain on sale of equipment (downstream sales) through depreciation
P Company’s realized net income from separate operations…….…..
S Company’s net income from own operations………………………………….
Realized gain on sale of equipment (upstream sales) through depreciation
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
**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 gain on sale of equipment (upstream sales) through depreciation
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
P3,270,000
25,000
P3,295,000
P820,000
0
P 820,000
P 164,000
0
820,000
P4,115,000
164,000
P3,951,000
_169,000
P4,115,000
P 820,000
0
P 820,000
0
P820,000
20%
P 164,000
B. Upstream Sale
1.
Cost Model – 20x5 (104,000/130,000 = 80% ownership)
Dividends – S Company
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividend
income
80%) . . . . . . . . . . . . . . . . . . . . . . .
(P60,000
x
48,00
0
48,00
0
Net Income – S Company
No entry
Amortization of Allocated Excess
No entry
Unrealized Gain on Sale of Equipment
No entry
Realized Gain on Sale – depreciation
No entry
Equity Method – 20x5
Dividends – S Company
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment
in
S
80%) . . . . . . . . . . . . . . . . . . . . . . .
Co
(60,000
Net Income – S Company
Investment
in
S
Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment
income
(P820,000
x
80%). . . . . . . . . . . . . . . . . . . . .
x
32,00
0
656,000
656,000
Amortization of Allocated Excess
None, since there is no amount available
Unrealized Gain on Sale of Equipment
No entry
1/1/20x4
Selling price………………………………………
Less: Book value:
Cost…………………………………………P 1,280,000
Less: Accumulated depreciation
P1,280,000/8 years x 4 years…….
640,000
Unrealized gain on sales……………………….
Realized gain on sale thru depreciation
based on remaining life of equipment
32,00
0
P740,000
640,000
P 100,000
[P100,000 / (8 – 4, expired years)………
P 25,000
Realized Gain on Sale – depreciation
Investment
in
S
Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment
income
(P25,000
x
100%). . . . . . . . . . . . . . . . . . . . .
2. Working Paper Elimination Entries:
Cost Model
Equipment
Beginning R/E – Prince (P100,000 × .80)
Noncontrolling Interest (P100,000 × .20)
Accumulated Depreciation
4.
25,000
20,000
5,000
540,000
80,000
20,000
Noncontrolling Interest Calculation:
Reported income of Serf Company
Plus: Intercompany profit considered realized
in the current period
640,000
50,000
Controlling Interest in Consolidated Net Income:
Prince Company’s income from its
independent operations
Reported net income of Serf Company
P820,000
Plus profit on intercompany sale of
equipment considered to be realized
through depreciation in 20x4
25,000
Reported subsidiary income that has been
realized in transactions with third
parties
845,000
× .8
Prince Company’s share thereof
Controlling Interest in Consolidated net income
Noncontrolling interest in Serf Company
(.20 × 845,000)
640,000
50,000
Accumulated Depreciation (P100,000/4) × 2
Depreciation Expense
Investment in S Co. (P25,000 × .80)
Noncontrolling Interest (P25,000 × .20)
3
25,000
540,000
80,000
20,000
Accumulated Depreciation (P100,000/4) × 2
Depreciation Expense
Beginning R/E – Prince (P25,000 × .80)
Noncontrolling Interest (P25,000 × .20)
Equity Method
Equipment
Investment in S Co. (P100,000 × .80)
Noncontrolling Interest (P100,000 × .20)
Accumulated Depreciation
25,000
25,000
20,000
5,000
P3,270,000
676,000
P3,946,000
P820,000
25,000
P845,000
P169,000
5.
NCI-CNI (No. 4)
CI-CNI (No. 3)
CNI
P 169,000
3,946,000
P4,115,000
or,
Consolidated Net Income for 20x5
P Company’s net income from own/separate operations………….
Realized gain on sale of equipment (downstream sales) through depreciation
P Company’s realized net income from separate operations…….…..
S Company’s net income from own operations………………………………….
Realized gain on sale of equipment (upstream sales) through depreciation*
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…………..
P3,270,000
0
P3,270,000
P 820,000
25,000
P 845,000
845,000
P4,115,000
0
P4,115,000
169,000
P3,946,000
Or, alternatively
Consolidated Net Income for 20x5
P Company’s net income from own/separate operations………….
Realized gain on sale of equipment (downstream sales) through depreciation
P Company’s realized net income from separate operations…….…..
S Company’s net income from own operations………………………………….
Realized gain on sale of equipment (upstream sales) through depreciation
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
**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 gain on sale of equipment (upstream sales) through depreciation
S Company’s realized net income from separate operations………
Less: Amortization of allocated excess
P820,000
25,000
P 845,000
P 169,000
0
845,000
P4,115,000
169,000
P3,946,000
_169,000
P4,115,000
P 820,000
25,000
P 845,000
0
P845,000
20%
P 169,000
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI) – partial goodwill
1/1/20x4:
Selling price of equipment
Less: BV of equipment
Cost
Less: Accumulated depreciation:
P1,280,000 / 8 years x 4 years*
Unrealized gain on sales – 1/1/20x4
P3,270,000
0
P3,270,000
P 740,000
P1,280,000
640,000
640,000
P 100,000
Realized gain – depreciation: P100,000 / 4 years
P 25,000
*the original life is 8 years as of 1/1/20x3, since the remaining life as of 1/1/20x4
in only 4 years, for purposes of computing the accumulated depreciation to
determine the gain on sale, the difference of 4 years is presumed to be expired.
Problem II
1. Eliminating entry, December 31, 20x8:
E(1)
Truck
55,000
Gain on Sale of Truck
Depreciation Expense
Accumulated Depreciation
35,000
Computation of gain on sale of truck:
Price paid by Minnow
Cost of truck to Frazer
P300,000
Accumulated depreciation
(P300,000 / 10 years) x 3 years
( 90,000)
Gain on sale of truck
Accumulated depreciation adjustment:
Required [(P300,000 / 10 years) x 4 years]
Reported [(P245,000 / 7 years) x 1 year]
Required increase
2.
5,000
85,000
P245,000
(210,000)
P 35,000
P120,000
(35,000)
P 85,000
Eliminating entry, December 31, 20x9:
E(1)
Truck
Retained Earnings
Depreciation Expense
Accumulated Depreciation
55,000
30,000
Accumulated depreciation adjustment:
Required [(P300,000 / 10 years) x 5 years]
Reported [(P245,000 / 7 years) x 2 years]
Required increase
5,000
80,000
P150,000
(70,000)
P 80,000
Problem III
a.
Eliminating entry, December 31, 20x8:
E(1)
Truck
Gain on Sale of Truck
Accumulated Depreciation
Computation of gain on sale of truck:
Price paid by MM
Cost of truck to FF
Accumulated depreciation
(P300,000 / 10 years) x 4 years
Gain on sale of truck
b.
90,000
30,000
P300,000
(120,000)
120,000
P210,000
(180,000)
P 30,000
Eliminating entry, December 31, 20x9:
E(1)
Truck
Retained Earnings, January 1
Depreciation Expense
Accumulated Depreciation
Accumulated depreciation adjustment:
Required [(P300,000 / 10 years) x 5 years]
Recorded [(P210,000 / 6 years) x 1 year]
Required increase
90,000
30,000
P150,000
(35,000)
P115,000
5,000
115,000
Problem IV
1. Consolidated net income for 20x9:
Operating income reported by BW
Net income reported by TW
Amount of gain realized in 20x9
(P30,000 / 12 years)
Realized net income of TW
Consolidated net income
2.
3.
P40,000
2,500
P100,000
42,500
P142,500
Consolidated net income for 20x9 would be unchanged.
Eliminating entry, December 31, 20x9:
E(1)
Buildings and Equipment
Retained Earnings, January 1
Non-controlling Interest
Depreciation Expense
Accumulated Depreciation
Eliminate unrealized profit on building.
30,000
20,000
5,000
Adjustment to buildings and equipment
Amount paid by TW to acquire building
Amount paid by BW on intercompany sale
Adjustment to buildings and equipment
P300,000
(270,000)
P 30,000
Adjustment to retained earnings, January 1, 20x9
Unrealized gain recorded January 1, 20x4
Amount realized following intercompany sale
(P2,500 x 2)
Unrealized gain, January 1, 20x9
Proportion of ownership held by Baywatch
Required adjustment
P 30,000
(5,000)
P 25,000
x
.80
P 20,000
Adjustment to Noncontrolling interest, January 1, 20x9
Unrealized gain at January 1, 20x9
Proportion of ownership held by non-controlling
interest
Required adjustment
P 25,000
x
P
.20
5,000
Adjustment to depreciation expense
Depreciation expense recorded by BW
Industries (P270,000 / 12 years)
Depreciation expense recorded by TW
Corporation (P300,000 / 15 years)
Adjustment to depreciation expense
P 22,500
(20,000)
P 2,500
Adjustment to accumulated depreciation
Amount required (P20,000 x 6 years)
P120,000
2,500
52,500
Amount reported by BW (P22,500 x 3 years)
Required adjustment
Problem V
20x5
(67,500)
P 52,500
20x6
1.
Noncontrolling interest in P 7,000 (1)
Consolidated net income
P 46,200 (2)
Controlling interest in
290,500 (3)
Consolidated net income
279,300 (4)
(1)
(2)
(3)
(4)
.4(P70,000 – P63,000 + P10,500) = P7,000
.4(P105,000 + P10,500) = P46,200
P280,000 + .6(P70,000 – P63,000 + P10,500) = P290,500
P210,000 + .6(P105,000 + P10,500) = P279,300
20x5
2.
20x6
Noncontrolling interest in
P 28,000 (5)
P 42,000 (6)
Consolidated income
Controlling interest in
269,500 (7)
283,500 (8)
Consolidated net income
(5) .4(P70,000) = P28,000
(6) .4(P105,000) = P42,000
(7) (P280,000 – P63,000 + P10,500) + .6(P70,000) = P269,500
(8) (P210,000 + P10,500) + .6(P105,000) = P283,500
Problem VI
Quail Corporation and Subsidiary
Consolidated Income Statement
for the year ended December 31, 20x5
Sales
Gain on land (P20,000 + P25,000)
Cost of sales
Other expenses (see below)
Consolidated Net Income
NCI-CNI (see below)
Consolidated net income
Other expenses:
P265,000 + P60,000 - P5,000 piecemeal recognition of gain on equipment
Non-controlling Interest in CNI:
Net income from Savannah x 20%: (P100,000 x 20%) =
Problem VII
P
1,100,000
45,000
560,000 )
320,000 )
265,000
20,000 )
245,000
(
(
P
(
P
P
320,000
P
20,000
Requirements 1 to 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 S:
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:
S Co.
Book
value
S Co.
Fair value
P
Inventory………………….……………..
24,000 P 30,000
Land………………………………………
48,000
55,200
Equipment (net).........
84,000
180,000
Buildings (net)
168,000
144,000
Bonds payable………………………… (120,000) ( 115,200)
P
Net………………………………………..
204,000 P 294,000
(Over)
Under
Valuation
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..................
S Co.
Book value
180,000
S Co.
Fair value
180,000
Increase
(Decrease)
0
Less: Accumulated
depreciation…..
Net book
value………………………...
Buildings................
Less: Accumulated
depreciation…..
Net book
value………………………...
96,000
-
( 96,000)
84,000
180,000
96,000
S Co.
Book value
360,000
S Co.
Fair value
144,000
(Decrease)
( 216,000)
1992,000
-
( 192,000)
168,000
144,000
(
24,000)
A summary or depreciation and amortization adjustments is as follows:
Over/
Account Adjustments to be Unde
r
amortized
P
Inventory
6,000
Subject
to
Annual
Amortization
96,00
Equipment (net).........
0
(24,0
Buildings (net)
00)
Bonds payable…
4,800
Lif
e
1
8
4
4
Annu
al
Current
Amou Year(20x
nt
4)
P
6,000 P 6,000
20x5
P
-
12,000
( 6,000
)
12,00
0
(6,00
0)
1,200
P
13,200
12,000
( 6,000)
1,200
P 13,200
1,200
P
7,200
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%)
Fair value of NCI (given) (20%)
Fair value of Subsidiary (100%)
Less: Book value of stockholders’ equity of S (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
P 372,000
93,000
P 465,000
P
__360,000
105,000
P
90,000
15,000
fair value)………………………………………………...
In this case, the goodwill was proportional to the controlling interest of 80% and non-controlling
interest of 20% computed as follows:
Value
Goodwill applicable to parent…………………
Goodwill applicable to NCI……………………..
Total (full) goodwill………………………………..
P12,000
3,000
P15,000
% of
Total
80.00%
20.00%
100.00%
The goodwill impairment loss would be allocated as follows
Value
Goodwill impairment loss attributable to parent
P
or controlling
3,000
Interest
Goodwill applicable to NCI……………………..
750
Goodwill impairment loss based on 100% fair
value or fullP 3,750
Goodwill
% of
Total
80.00%
20.00%
100.00%
The unrealized and gain on intercompany sales for 20x4 are as follows:
Date
of
Sale
Seller
4/1/20 P Co.
x4
1/2/20 S Co.
x4
Selling Book
Price Value
P90,0
00
P75,0
00
60,00
0
28,80
0
Unrealize
d*
Gain on
sale
P15,000
31,200
Remaini
Realized
ng
gain –
Life
depreciatio
n**
5 years P3,000/year
8 years
P3,900/year
20x4
P2,2
50
P3,9
00
* selling price less book value
** unrealized gain divided by remaining life; 20x4 – P3,000 x 9/12 = P2,250
20x4: First Year after Acquisition
Parent Company Cost Model Entry
January 1, 20x4:
(1)
Investment
in
Company……………………………………………
S
Cash……………………………………………………………………
..
Acquisition of S Company.
January 1, 20x4 – December 31, 20x4:
372,00
0
372,00
0
(2) Cash………………………
Dividend income (P36,000 x 80%)…………….
Record dividends from S Company.
28,800
28,800
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.
Consolidation Workpaper – Year of Acquisition
(E1)
Common
stock
–
Co…………………………………………
Retained
earnings
–
Co……………………………………
Investment
in
Co……………………………………………
Non-controlling
interest
(P360,000
20%)………………………..
S
240,000
S
120.000
S
288,000
x
72,000
To eliminate intercompany investment and equity accounts
of subsidiary on date of acquisition; and to establish non-controlling
interest (in net assets of subsidiary) on date of acquisition.
(E2)
Inventory………………………………………………………………
….
Accumulated depreciation – equipment………………..
Accumulated depreciation – buildings…………………..
Land……………………………………………………………………
….
Discount
on
bonds
payable………………………………………….
(P90,000
96,000
192,00
0
7,200
4,800
12,000
Goodwill………………………………………………………………
….
Buildings………………………………………..
Non-controlling
interest
20%)………………………..
Investment
in
Co……………………………………………….
6,000
x
216,00
0
18,000
S
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…………………………………
–
6,000
6,000
6,000
1,200
Goodwill
loss……………………………………….
impairment
3,000
6,000
Inventory…………………………………………………………..
Accumulated
depreciation
–
equipment………………..
Discount on bonds payable…………………………
Goodwill……………………………………
To provide for 20x4 impairment loss and depreciation and
amortization on differences between acquisition date fair value and
book value of Son’s identifiable assets and liabilities as follows:
Cost of
Depreciation/
Goods
Amortization
Amortization
Sold
Expense
-Interest
Inventory sold
P 6,000
Equipment
P 12,000
Buildings
( 6,000)
Bonds payable
_______
_______
P 1,200
Totals
P 6,000
P 6,000
P1,200
(E4) Dividend income - P……….
Non-controlling
interest
(P36,000
20%)………………..
Dividends paid – S……………………
x
12,000
1,200
3,000
Total
13,200
28,800
7,200
36,000
To eliminate intercompany dividends and non-controlling interest
share of dividends.
(E5) Gain on sale of equipment
Equipment
Accumulated depreciation
15,000
30,000
45,000
To eliminate the downstream intercompany gain and restore to its
original cost to the consolidate entity (along with its accumulated
depreciation at the point of the intercompany sale).
(E6) Gain on sale of equipment
Equipment
Accumulated depreciation
31,200
12,000
43,200
To eliminate the upstream intercompany gain and restore to its
original cost to the consolidate entity (along with its accumulated
depreciation at the point of the intercompany sale).
(E7) Accumulated depreciation………..
Depreciation expense……………
2,250
2,250
To adjust downstream depreciation expense on equipment sold to
subsidiary, thus realizing a portion of the gain through depreciation
(P15,000 / 5 years x 9/12 = P2,250).
(E8) Accumulated depreciation………..
Depreciation expense……………
To adjust upstream depreciation expense on equipment sold to
parent, thus realizing a portion of the gain through depreciation
(P31,200/85 years x 1 year = P3,900).
3,900
3,900
(E9) Non-controlling interest in Net Income of
Subsidiary…………
Non-controlling interest …………..
10,140
10,140
To establish non-controlling interest in subsidiary’s adjusted net
income for 20x4 as follows:
Net income of subsidiary……………………..
Unrealized gain on sale of equipment
(upstream sales)
Realized gain on sale of equipment (upstream
sales) through depreciation
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
P 91,200
( 31,200)
3,900
P 63,900
13,200
P 50,700
20%
P
10,140
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.
Worksheet for Consolidated Financial Statements, December 31, 20x4.
Cost Model (Partial-goodwill)
80%-Owned Subsidiary
December 31, 20x4 (First Year after Acquisition)
Income Statement
Sales
Gain on sale of equipment
P Co
P480,000
15,000
S Co.
P240,000
31,200
Dividend income
Total Revenue
Cost of goods sold
Depreciation expense
28,800
P523,800
P204,000
60,000
P271,200
P138,000
24,000
Interest expense
Other expenses
Goodwill impairment loss
Total Cost and Expenses
Net Income
NCI in Net Income - Subsidiary
Net Income
to Retained
Earnings
48,000
P312,000
P211,800
-
18,000
P180,000
P 91,200
-
P211,800
P 91,200
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
Balance Sheet
Dr.
Cr.
Consolidated
P 720,000
(5) 15,000
(6) 31,200
(4) 28,800
(3)
(3)
6,000
6,000
(3)
1,200
(3)
3,000
(7)
_________
P 720,000
P 348,000
83,850
2,250
(8) 3,900
P
P
(
P
(9 10,140
P360,000
1,200
66,000
3,000
502,050
217,950
10,140)
207,810
P 360,000
211,800
P571,800
P120,000
91,200
P211,200
72,000
-
36,000
P499,800
P175,200
(1) 120,000
207,810
P 567,810
(4)
36,000
_
72,000
________
P 495,810
Cash……………………….
Accounts receivable……..
Inventory………………….
Land…………………………….
Equipment
Buildings
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
Non-controlling interest…………
P
232,800
90,000
120,000
210,000
240,000
P 90,000
60,000
90,000
48,000
180,000
720,000
540,000
(2)
(2)
372,000
P1,984,800
P1,008,000
P 135,000
P 96,000
405,000
288,000
105,000
240,000
600,000
88,800
120,000
499,800
240,000
175,200
P1,984,800
3)
6,000
(2) 216,000
4,800 (3) 1,200
12,000 (3) 3,000
(10)
288,000
(11) 84,000
(12) 96,000
(7) 2,250
(8) 3,900
(18)
192,000
(19) 6,000
462,000
1,044,000
3,600
9,000
P2,466,600
(3) 12,000
(5) 45,000
(6) 43,200
P229,050
495,000
193,800
360,000
600,000
(1) 240,000
495,810
(20) 7,200
_________
Total
(2)
6,000
(2)
7,200
(5) 30,000
(6) 12,000
P 322,800
150,000
210,000
265,200
_________
__________
P1,008,000
P 834,450
(1 ) 72,000 (2)
18,000
(9) 10,140
____92,940
P 834,450
P2,466,600
20x5: Second Year after Acquisition
Sales
Less: Cost of goods sold
Gross profit
P Co.
P
540,000
216,000
Less: Depreciation expense
Other expense
P
324,000
60,000
72,000
Net income from its own separate
operations
Add: Dividend income
P
192,000
38,400
Net income
P
230,400
P
72,000
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.
Parent Company Cost Model Entry
Only a single entry is recorded by the parent 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
Consolidation Workpaper – Second Year after Acquisition
The working paper eliminations (in journal entry format) on December 31, 20x5, are as follows:
(E1) Investment in S Company…………………………
44,160
Retained
earnings
Company………………………
–
P
44,160
To provide entry to convert from the cost method to the equity
method or the entry to establish reciprocity at the beginning of the
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
P175,200
120,000
P 55,200
80%
P 44,160
Entry (1) above is needed only for firms using the cost method to account for their investments in
the subsidiary. If the parent is already using the equity method, there is no need to convert to
equity.
(E2)
Common
stock
–
Co…………………………………………
Retained earnings – S Co., 1/1/20x5
Investment
in
S
Co
(P415,200
80%)…………………………
Non-controlling
interest
(P415,200
20%)………………………..
S
240,000
175,200
x
332,160
x
83,040
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……………………………………………………………………
….
6,000
96,000
192,00
0
7,200
Discount
on
payable………………………………………….
bonds
12,000
Goodwill………………………………………………………………
….
Buildings………………………………………..
Non-controlling interest (P90,000 x 20%)
Investment
in
Co……………………………………………….
4,800
S
216,00
0
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 January 1, 20x5.
(E4) Retained earnings – P Company, 1/1/20x5
[(P13,200 x 80%) + P3,000, impairment loss on
partial-goodwill]
Non-controlling
interests
(P13,200
20%)…………………….
Depreciation expense………………………..
Accumulated
depreciation
buildings…………………..
Interest expense…………………………………
x
13,560
2,640
–
6,000
12,000
1,200
Inventory…………………………………………………………..
Accumulated
depreciation
–
equipment………………..
Discount on bonds payable…………………………
Goodwill……………………………………
6,000
24,000
2,400
3,000
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 &
NCI;
Year 20x5 amounts are debited to respective nominal accounts.
Inventory sold
Equipment
Buildings
Bonds payable
Sub-total
Multiplied by:
To Retained earnings
Impairment loss
Total
(20x4)
Retained
earnings,
P 6,000
12,000
(6,000)
1,200
P13,200
80%
P 10,560
3,000
P 13,560
Depreciation/
Amortization
expense
Amortization
-Interest
P 12,000
( 6,000)
________
P 6,000
P 1,200
P 1,200
(E5) Dividend income - P……….
Non-controlling
interest
(P48,000
20%)………………..
Dividends paid – S……………………
x
38,400
9,600
48,000
To eliminate intercompany dividends and non-controlling interest
share of dividends.
(E5) Retained Earnings – P Company, 1/1/20x5
Equipment
Accumulated depreciation
15,000
30,000
45,000
To eliminate the downstream intercompany gain and restore to its
original cost to the consolidate entity (along with its accumulated
depreciation at the point of the intercompany sale).
(E6) Retained Earnings–P Company, 1/1/20x5
(P31,200 x 80%)
Non-controlling interest (P31,200 x 20%)
Equipment
Accumulated depreciation
24,960
6,240
12,000
43,200
To eliminate the upstream intercompany gain and restore to its
original cost to the consolidate entity (along with its accumulated
depreciation at the point of the intercompany sale).
(E7) Accumulated depreciation………..
Depreciation expense (current
year)……………
Retained Earnings–P Company, 1/1/20x5
(prior year)
5,250
3,000
2,250
To adjust downstream depreciation expense on equipment sold to
subsidiary, thus realizing a portion of the gain through depreciation
(E8) Accumulated depreciation………..
Depreciation expense (current year)
Retained Earnings–P Co. 1/1/20x5 (P3,900 x
80%)
Non-controlling interest (P31,200 x 20%)
7,800
3,900
3,120
780
To adjust upstream depreciation expense on equipment sold to
parent, thus realizing a portion of the gain through depreciation
(P31,200/85 years x 1 year = P3,900).
(E9) Non-controlling interest in Net Income of
Subsidiary…………
Non-controlling interest …………..
17,340
To establish non-controlling interest in subsidiary’s adjusted net
income for 20x5 as follows:
Net income of subsidiary……………………..
Realized gain on sale of equipment (upstream
sales) through depreciation
S Company’s Realized net income*
Less: Amortization of allocated excess
P 90,000
3,900
P 93,900
( 7,200)
P 86,700
20%
P 17,340
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI)
– partial goodwill
*from separate transactions that has been realized in transactions
with third persons.
Worksheet for Consolidated Financial Statements, December 31, 20x5.
17,340
Cost Model (Partial-goodwill)
80%-Owned Subsidiary
December 31, 20x5 (Second Year after Acquisition)
Income Statement
Sales
Dividend income
Total Revenue
Cost of goods sold
Depreciation expense
P Co
P540,000
38,400
P578,400
P216,000
60,000
S Co.
P360,000
P360,000
P192,000
24,000
Interest expense
Other expenses
Goodwill impairment loss
Total Cost and Expenses
Net Income
NCI in Net Income - Subsidiary
Net Income to Retained Earnings
72,000
P348,000
P230,400
P230,400
54,000
P270,000
P 90,000
P 90,000
Statement of Retained Earnings
Retained earnings, 1/1
P Company
P499,800
S Company
Net income, from above
Total
Dividends paid
P Company
S Company
Retained earnings, 12/31 to Balance
Sheet
Balance Sheet
Cash……………………….
Accounts receivable……..
Inventory………………….
Land…………………………….
Equipment
Buildings
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
Non-controlling interest…………
Total
5. 1/1/20x4
P
Dr.
(5)
38,400
(4)
6,000
(4)
1,200
Cr.
(7)
(8)
3,000
3,900
Consolidated
P 900,000
___________
P 900,000
P 408,000
83,100
P
P
(
P
(9) 17,340
(1) 13,560
(21) 15,000
(22) 24,960
(2) 175,200
(1) 44,160
(23) 2,250
(24) 3,120
1,200
126,000
618,300
281,700
17,340)
264,360
P 495,810
230,400
P730,200
P 175,200
__90,000
P265,200
72,000
-
48,000
P658,200
P217,200
P 688,170
265,200
180,000
216,000
210,000
240,000
P 102,000
96,000
108,000
48,000
180,000
P 367,200
276,000
324,000
265,200
720,000
540,000
P2,203,200
P1,074,000
P 150,000
P 102,000
450,000
306,000
105,000
240,000
600,000
88,800
120,000
___ _____
P2,203,200
(5)
(15)
(3)
(5)
(6)
(3)
(3)
(1)
372,000
658,200
264,360
P 760,170
240,000
217,200
_________
P1,074,000
6,000
7,200
30,000
12,000
4,800
12,000
44,160
(3) 96,000
(7) 5,250
(8) 7,800
(3) 192,000
(4) 12,000
48,000
(16) 6,000
(3) 216,000
(4) 2,400
(4) 3,000
(2) 332,160
(3) 84,000
(4)
(5)
(6)
24,000
45,000
43,200
_
72,000
________
462,000
1,044,000
2,400
9,000
P2,749,800
P 255,150
552,000
193,800
360,000
600,000
(2) 240,000
688,170
(4) 2,640
(5) 9,600
(6) 6,240
__________
P 979,350
(2
(3)
(8)
(9)
P
83,040
18,000
780
17,340
979,350
____100,680
P2,749,800
a.
On date of acquisition the retained earnings of parent should always be considered as the consolidated retained
earnings, thus:
Consolidated Retained Earnings, January 1, 20x4
Retained earnings - Parent Company, January 1, 20x4 (date of acquisition)
P360,000
b.
Non-controlling interest (partial-goodwill), January 1, 20x4
Common stock – Subsidiary Company……………………………………
Retained earnings – Subsidiary Company………………………………….
Stockholders’ equity – Subsidiary Company.…………..
Adjustments to reflect fair value - (over) undervaluation of assets and liabilities
Fair value of stockholders’ equity of subsidiary, January 1, 20x4…………………
Multiplied by: Non-controlling Interest percentage…………...
Non-controlling interest (partial goodwill),………………………………..
P 240,000
120,000
P 360,000
90,000
P 450,000
20
P 90,000
Consolidated SHE:
Stockholders’ Equity
Common stock, P10 par
Retained earnings
Parent’s Stockholders’ Equity / CI – SHE
NCI, 1/1/20x4
Consolidated SHE, 1/1/20x4
P 600,000
360,000
P 960,000
___90,000
P1,050,000
c.
6.
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.
12/31/20x4:
a. CI-CNI - P
Consolidated Net Income for 20x4
P Company’s net income from own/separate operations………….
Unrealized gain on sale of equipment (downstream sales)
Realized gain on sale of equipment (downstream sales) through depreciation
P Company’s realized net income from separate operations*…….…..
S Company’s net income from own operations………………………………….
Unrealized gain on sale of equipment (upstream sales)
Realized gain on sale of equipment (upstream sales) through depreciation
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.
P183,000
(15,000)
2,250
P170,250
P 91,200
( 31,200)
3,900
P 63,900
P 10,140
13,200
3,000
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI) – partial goodwill
*that has been realized in transactions with third parties.
c. CNI, P217,950 – refer to (a)
26,340
P207,810
_ 10,140
P217,950
b. NCI-CNI – P10,140
**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 gain on sale of equipment (upstream sales)
Realized gain on sale of equipment (upstream sales) through depreciation
S Company’s realized net income from separate operations………
Less: Amortization of allocated excess / goodwill impairment
(refer to amortization table above)
63,900
P234,150
P 91,200
( 31,200)
3,900
P 63,900
13,200
P 50,700
20%
P 10,140
d. 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
e.
P360,000
207,810
P567,810
72,000
P495,810
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 January 1, 20x4 and 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……
Unrealized gain on sale of equipment (upstream sales)
Realized gain on sale of equipment (upstream sales) through depreciation
Realized stockholders’ equity of subsidiary, December 31, 20x4……
Multiplied by: Non-controlling Interest percentage…………...
Non-controlling interest (partial-goodwill)…………………………………..
P 240,000
P120,000
91,200
P211,200
36,000
175,200
P 415,200
90,000
( 13,200)
P492,000
( 31,200)
3,900
P464,700
20
P 92,940
f.
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
495,810
P1,095,810
___92,940
P1,188,750
12/31/20x5:
a. CI-CNI – P264,360
Consolidated Net Income for 20x5
P Company’s net income from own/separate operations………….
Realized gain on sale of equipment (downstream sales) through depreciation
P Company’s realized net income from separate operations*…….…..
S Company’s net income from own operations………………………………….
Realized gain on sale of equipment (upstream sales) through depreciation
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.
Or, alternatively
Consolidated Net Income for 20x5
P192,000
3,000
P195,000
P 90,000
3,90
P 93,900
93,900
P288,900
7,200
P281,700
17,340
P264,360
P Company’s net income from own/separate operations………….
Realized gain on sale of equipment (downstream sales) through depreciation
P Company’s realized net income from separate operations*…….…..
S Company’s net income from own operations………………………………….
Realized gain on sale of equipment (upstream sales) through depreciation
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
3,000
P195,000
P 90,000
3,900
P 93,900
P 17,340
7,200
93,900
P288,900
24,540
P264,360
_ 17,340
P281,700
b. NCI-CNI – P17,340
**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 gain on sale of equipment (upstream sales) through depreciation
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
3,900
P 93,900
7,200
P 86,700
20%
P 17,340
c. CNI, P281,700 – refer to (a)
d. 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: Downstream - net unrealized gain on sale of equipment – prior to 20x5
(P15,000 – P2,250)
Adjusted Retained Earnings – Parent 1/1/20x5 (cost model ) Son 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
Upstream - net unrealized gain on sale of equipment –prior to
20x5 (P31,200 – P3,900)
Multiplied by: Controlling interests %...................
P499,800
12,750
P487,050
P 175,200
120,000
P 55,200
13,200
27,300
P 14,700
80%
P 11,760
3,000
Less: Goodwill impairment loss
__ 8,760
Consolidated Retained earnings, January 1, 20x5
P495,810
Add: Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent for 20x5
264,360
Total
P760,170
Less: Dividends paid – Parent Company for 20x5
72,000
Consolidated Retained Earnings, December 31, 20x5
P688,170
*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: Downstream - net unrealized gain on sale of equipment – prior to
12/31/20x5 (P15,000 – P2,250 – P3,000)
P658,200
9,750
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)
Upstream - net unrealized gain on sale of equipment – prior to
12/31/20x5 (P31,200 – P3,900 – P3,900)
P648,450
P 217,200
120,000
P 97,200
20,400
P
Multiplied by: Controlling interests %...................
P
Less: Goodwill impairment loss
Consolidated Retained earnings, December 31, 20x5
23,400
53,400
80%
42,720
3,000
39,720
P688,170
e.
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
20x5
Fair value of stockholders’ equity of subsidiary, December 31, 20x5……
Less: Upstream - net unrealized gain on sale of equipment – prior to 12/31/20x5
(P31,200 – P3,900 – P3,900)
Realized stockholders’ equity of subsidiary, December 31, 20x5……….
Multiplied by: Non-controlling Interest percentage…………...
Non-controlling interest (partial goodwill)…………………………………..
P 240,000
P175,200
90,000
P 265,200
48,000
90,000
P 13,200
7,200
( 20,400)
P 526,800
23,400
P503,400
20
P 100,680
f.
Consolidated SHE:
Stockholders’ Equity
Common stock, P10 par
P 600,000
Retained earnings
688,170
Parent’s
Stockholders’ Equity / CI – SHE, P1,288,170
12/31/20x5
NCI, 12/31/20x5
__100,680
Consolidated SHE, 12/31/20x5
P1,188,850
Problem VIII
Requirements 1 to 4
Schedule of Determination and Allocation of Excess
Date of Acquisition – January 1, 20x4
Fair value of Subsidiary (80%)
Consideration transferred
(80%)……………..
217,200
P 457,200
P
372,000
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)………………………………………………...
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:
Over/
Account Adjustments to be unde
r
amortized
P
Inventory
6,000
Subject
to
Annual
Amortization
96,00
Equipment (net).........
0
(24,0
Buildings (net)
00)
Bonds payable…
4,800
Lif
e
1
8
4
4
Annu
al
Current
Amou Year(20x
nt
4)
P
6,000 P 6,000
20x5
P
-
12,000
( 6,000
)
12,00
0
(6,00
0)
1,200
P
13,200
12,000
( 6,000)
1,200
P 13,200
1,200
P
7,200
20x4: First Year after Acquisition
Parent Company Cost Model Entry
January 1, 20x4:
(1)
Investment
in
Company……………………………………………
S
372,00
0
Cash……………………………………………………………………
..
Acquisition of S Company.
January 1, 20x4 – December 31, 20x4:
(2) Cash………………………
Dividend income (P36,000 x 80%)…………….
Record dividends from S Company.
28,800
372,00
0
28,800
On the books of S Company, the P36,000 dividend paid was recorded as follows:
Dividends paid…………
Cash…….
Dividends paid by S Co..
36,000
36,000
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.
Consolidation Workpaper – First Year after Acquisition
(E1)
Common
stock
–
Co…………………………………………
Retained
earnings
–
Co……………………………………
Investment
in
Co……………………………………………
Non-controlling
interest
(P360,000
20%)………………………..
S
240,000
S
120.000
S
288,000
x
72,000
To eliminate intercompany investment and equity accounts
of subsidiary on date of acquisition; and to establish non-controlling
interest (in net assets of subsidiary) on date of acquisition.
(E2)
Inventory………………………………………………………………
….
Accumulated depreciation – equipment………………..
Accumulated depreciation – buildings…………………..
Land……………………………………………………………………
….
Discount
on
bonds
payable………………………………………….
6,000
96,000
192,00
0
7,200
4,800
15,000
Goodwill………………………………………………………………
….
Buildings………………………………………..
full –
216,00
0
Non-controlling interest (P90,000 x 20%) + [(P15,000,
P12,000, partial goodwill)]…………
Investment
in
Co……………………………………………….
S
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.
Since the set-up entry in (E2) NCI at fair value, non-controlling interests have a share of entity
goodwill and hence is exposed to impairment loss on goodwill. PAS 36 requires the impairment
loss to be pro-rated between the parent and NCI on the same basis as that on which profit or loss
is allocated. In other words, the impairment loss is not pro-rated in accordance with the proportion
of goodwill recognized by parent and NCI.
(E3) Cost of Goods Sold…………….
Depreciation expense………………………..
Accumulated
depreciation
–
buildings…………………..
Interest expense…………………………………
Goodwill
impairment
loss……………………………………….
6,000
6,000
6,000
1,200
3,750
6,000
Inventory…………………………………………………………..
Accumulated
depreciation
–
equipment………………..
Discount on bonds payable…………………………
Goodwill……………………………………
12,000
1,200
3,750
To provide for 20x4 impairment loss and depreciation and
amortization on differences between acquisition date fair value and
book value of Son’s identifiable assets and liabilities as follows:
Cost of
Depreciation/
Goods
Amortization
Amortization
Sold
Expense
-Interest
Inventory sold
P 6,000
Equipment
P12,000
Buildings
( 6,000)
Bonds payable
_______
_______
P 1,200
Totals
P 6,000
P 6,000
P1,200
(E4) Dividend income - P……….
Non-controlling
interest
(P36,000
20%)………………..
Dividends paid – S……………………
To eliminate intercompany dividends and non-controlling interest
share of dividends.
x
28,800
7,200
36,000
(E5) Gain on sale of equipment
Equipment
Accumulated depreciation
15,000
30,000
45,000
To eliminate the downstream intercompany gain and restore to its
original cost to the consolidate entity (along with its accumulated
depreciation at the point of the intercompany sale).
(E6) Gain on sale of equipment
Equipment
Accumulated depreciation
31,200
12,000
43,200
To eliminate the upstream intercompany gain and restore to its
original cost to the consolidate entity (along with its accumulated
depreciation at the point of the intercompany sale).
(E7) Accumulated depreciation………..
Depreciation expense……………
2,250
2,250
To adjust downstream depreciation expense on equipment sold to
subsidiary, thus realizing a portion of the gain through depreciation
(P15,000 / 5 years x 9/12 = P2,250).
(E8) Accumulated depreciation………..
Depreciation expense……………
3,900
3,900
To adjust upstream depreciation expense on equipment sold to
parent, thus realizing a portion of the gain through depreciation
(P31,200/85 years x 1 year = P3,900).
(E9) Non-controlling interest in Net Income of
Subsidiary…………
Non-controlling interest …………..
9,390
9,390
To establish non-controlling interest in subsidiary’s adjusted net
income for 20x4 as follows:
Net income of subsidiary……………………..
Unrealized gain on sale of equipment
(upstream sales)
Realized gain on sale of equipment (upstream
sales) through depreciation
S Company’s realized net income from
separate operations
Less: Amortization of allocated excess [(E3)]….
P 91,200
( 31,200)
3,900
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 partial-goodwill)
Non-controlling Interest in Net Income (NCINI)
P 63,900
13,200
P 50,700
20%
P
10,140
P
750
9,390
Worksheet for Consolidated Financial Statements, December 31, 20x4.
Cost Model (Full-goodwill)
80%-Owned Subsidiary
December 31, 20x4 (First Year after Acquisition)
Income Statement
Sales
Gain on sale of equipment
Dividend income
P Co
P480,000
15,000
S Co.
P240,000
31,200
28,800
-
Dr.
(5) 15,000
(6) 31,200
(4) 28,800
Cr.
Consolidated
P 720,000
_________
Total Revenue
Cost of goods sold
Depreciation expense
P523,800
P204,000
60,000
P271,200
P138,000
24,000
Interest expense
Other expenses
Goodwill impairment loss
Total Cost and Expenses
Net Income
NCI in Net Income - Subsidiary
Net Income to Retained Earnings
48,000
P312,000
P211,800
P211,800
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
Balance Sheet
Cash……………………….
Accounts receivable……..
Inventory………………….
Land…………………………….
Equipment
Buildings
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
Non-controlling interest…………
Total
P 720,000
P 348,000
83,850
(3)
(3)
6,000
6,000
18,000
P180,000
P 91,200
P 91,200
(3)
1,200
(3)
3,750
(9)
9,390
(1) 120,000
211,800
P571,800
P120,000
91,200
P211,200
72,000
-
36,000
P499,800
P175,200
P 495,810
232,800
90,000
120,000
210,000
240,000
P 90,000
60,000
90,000
48,000
180,000
P 322,800
150,000
210,000
265,200
720,000
540,000
(7)
(8)
2,250
3,900
1,200
66,000
3,750
P 502,800
P 217,200
( 9,390)
P 207,810
P360,000
P
P 360,000
207,810
P 567,810
(4)
(2)
6,000
(2)
7,200
(5) 30,000
(6) 12,000
(2)
(2)
4,800
15,000
372,000
P1,984,800
P1,008,000
P 135,000
P 96,000
405,000
288,000
105,000
240,000
600,000
88,800
120,000
499,800
240,000
175,200
(2) 80,000
(7) 2,250
(8) 3,900
(2) 192,000
(3) 6,000
_________
P1,008,000
6,000
(2) 216,000
(3) 1,200
(3) 3,750
(1) 288,000
(2) 84,000
72,000
________
_
462,000
1,044,000
3,600
11,250
P2,468,850
(3) 10,000
(5) 45,000
(6) 43,200
P229,050
495,000
193,800
360,000
600,000
(1) 240,000
495,810
(17) 7,200
_________
P1,984,800
3)
36,000
__________
P 843,690
(1 ) 72,000
(2) 21,000
(9) 9,390
P 843,690
____95,190
P2,468,850
20x5: Second Year after Acquisition
Sales
Less: Cost of goods sold
P Co.
P
540,000
216000
S Co.
P
360,000
192,000
Gross profit
Less: Depreciation expense
Other expense
P
324,000
60,000
72,000
Net income from its own separate
operations
Add: Dividend income
P
192,000
38,400
Net income
P
230,400
P
72,000
Dividends paid
P
168,000
24,000
54,000
P
90,000
P
90,000
P
48,000
No goodwill impairment loss for 20x5.
Parent Company Cost Model Entry
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
Consolidation Workpaper – Second Year after Acquisition
(E1)
Investment
Company…………………………
Retained
earnings
Company………………………
in
S
–
44,160
P
44,160
To provide entry to convert from the cost method to the equity
method or the entry to establish reciprocity at the beginning of the
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
P175,200
120,000
P 55,200
80%
P 44,160
(E2)
Common
stock
–
Co…………………………………………
Retained earnings – S Co., 1/1/20x5
Investment
in
S
Co
(P415,200
80%)…………………………
Non-controlling
interest
(P415,200
20%)………………………..
S
240,000
175,200
x
332,160
x
83,040
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…………………..
6,000
Land……………………………………………………………………
….
Discount
on
bonds
payable………………………………………….
96,000
192,00
0
7,200
4,800
15,000
Goodwill………………………………………………………………
….
Buildings………………………………………..
216,00
0
Non-controlling interest (P90,000 x 20%) + [(P15,000,
full –
P12,000, partial goodwill)]…………
Investment
in
Co……………………………………………….
21,000
S
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 January 1, 20x5.
(E4) Retained earnings – P Company, 1/1/20x5
[(P13,200 x 80%) + P3,000, impairment loss on
partial-goodwill]
Non-controlling interests (P16,950 x 20%) or (P13,200
x 20% +
(P3,750 – P3,000 = P750)
Depreciation expense………………………..
Accumulated
depreciation
–
buildings…………………..
Interest expense…………………………………
13,560
3,390
6,000
12,000
1,200
6,000
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
Son’s identifiable assets and liabilities as follows:
24,000
2,400
3,750
Year 20x4 amounts are debited to Perfect’s retained earnings &
NCI;
Year 20x5 amounts are debited to respective nominal accounts.
Inventory sold
Equipment
Buildings
Bonds payable
Sub-total
Multiplied by:
To Retained earnings
Impairment loss
Total
(20x4)
Retained
earnings,
P 6,000
12,000
(6,000)
1,200
P13,200
80%
P 10,560
3,000
P 13,560
Depreciation/
Amortization
expense
Amortization
-Interest
P 12,000
( 6,000)
________
P 6,000
P 1,200
P 1,200
(E5) Dividend income - P……….
Non-controlling
interest
(P48,000
20%)………………..
Dividends paid – S……………………
x
38,400
9,600
48,000
To eliminate intercompany dividends and non-controlling interest
share of dividends.
(E6) Retained Earnings – P Company, 1/1/20x5
Equipment
Accumulated depreciation
15,000
30,000
45,000
To eliminate the downstream intercompany gain and restore to its
original cost to the consolidate entity (along with its accumulated
depreciation at the point of the intercompany sale).
(E7) Retained Earnings–P Company, 1/1/20x5
(P31,200 x 80%)
Non-controlling interest (P31,200 x 20%)
Equipment
Accumulated depreciation
24,960
6,240
12,000
43,200
To eliminate the upstream intercompany gain and restore to its
original cost to the consolidate entity (along with its accumulated
depreciation at the point of the intercompany sale).
(E8) Accumulated depreciation………..
Depreciation expense (current
year)……………
Retained Earnings–P Company, 1/1/20x5
(prior year)
5,250
3,000
2,250
To adjust downstream depreciation expense on equipment sold to
subsidiary, thus realizing a portion of the gain through depreciation
(E9) Accumulated depreciation………..
Depreciation expense (current year)
Retained Earnings–P Co. 1/1/20x5 (P3,900 x
80%)
Non-controlling interest (P3,900 x 20%)
To adjust upstream depreciation expense on equipment sold to
parent, thus realizing a portion of the gain through depreciation
(P31,200/85 years x 1 year = P3,900).
7,800
3,900
3,120
780
(E10) Non-controlling interest in Net Income of
Subsidiary…………
Non-controlling interest …………..
17,340
17,340
To establish non-controlling interest in subsidiary’s adjusted net
income for 20x5 as follows:
Net income of subsidiary……………………..
Realized gain on sale of equipment (upstream
sales) through depreciation
S Company’s Realized net income*
Less: Amortization of allocated excess
P 90,000
3,900
P 93,900
( 7,200)
P 86,700
20%
P 17,340
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI
Less: NCI on goodwill impairment loss on fullGoodwill
0
Non-controlling Interest in Net Income (NCINI)
P 17,340
*from separate transactions that has been realized in transactions
with third persons.
Worksheet for Consolidated Financial Statements, December 31, 20x5.
Cost Model (Full-goodwill)
80%-Owned Subsidiary
December 31, 20x5 (Second Year after Acquisition)
Income Statement
Sales
Dividend income
Total Revenue
Cost of goods sold
Depreciation expense
P Co
P540,000
38,400
P578,400
P216,000
60,000
S Co.
P360,000
P360,000
P192,000
24,000
Interest expense
Other expenses
Goodwill impairment loss
Total Cost and Expenses
Net Income
NCI in Net Income - Subsidiary
Net Income to Retained Earnings
72,000
P348,000
P230,400
P230,400
54,000
P270,000
P 90,000
P 90,000
Statement of Retained Earnings
Retained earnings, 1/1
P Company
P499,800
S Company
Net income, from above
Total
Dividends paid
P Company
S Company
Retained earnings, 12/31 to Balance
Sheet
Balance Sheet
Cash……………………….
Accounts receivable……..
Inventory………………….
P
Dr.
(5)
38,400
(4)
6,000
(4)
1,200
Cr.
(8)
(9)
3,000
3,900
Consolidated
P 900,000
___________
P 900,000
P 408,000
83,100
P
P
(
P
(10) 17,340
(2) 13,560
(6) 15,00
(7) 24,960
(1) 175,200
(1) 44,160
(8) 2,250
(9) 3,120
1,200
126,000
618,300
281,700
17,340)
264,360
P 495,810
230,400
P730,200
P 175,200
90,000
P265,200
72,000
-
48,000
P658,200
P217,200
P 688,170
265,200
180,000
216,000
P 102,000
96,000
108,000
P 367,200
276,000
324,000
264,360
P 760,170
(5)
(3)
6,000
(4)
48,000
6,000
_
72,000
________
Land…………………………….
Equipment
210,000
240,000
48,000
180,000
Buildings
Discount on bonds payable
Goodwill……………………
Investment in S Co………
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
Non-controlling interest…………
P2,203,200
P1,074,000
P 150,000
P 102,000
450,000
306,000
105,000
240,000
600,000
88,800
120,000
___ _____
P2,203,200
Total
(3)
(3)
(1)
372,000
658,200
(3)
(6)
(7)
240,000
217,200
_________
P1,074,000
7,200
30,000
12,000
4,800
15,000
44,160
(3) 96,000
(8) 5,250
(9) 7,800
(3) 192,000
(4) 12,000
265,200
(3) 216,000
(4) 2,400
(4) 3,750
(2) 332,160
(3) 90,000
(4)
(6)
(7)
24,000
45,000
43,200
462,000
1,044,000
2,400
11,250
P2,752,050
P 255,150
552,000
193,800
360,000
600,000
(2) 240,000
688,170
(4) 3,390
(5) 9,600
(7) 6,240
__________
P 983,100
(2 ) 83,040
(3) 21,000
(9)
780
(10) 17,340
P 983,100
____102,930
P2,752,050
5. 1/1/20x4
a. On date of acquisition the retained earnings of parent should always be considered as the
consolidated retained earnings, thus:
Consolidated Retained Earnings, January 1, 20x4
Retained earnings - Parent Company, January 1, 20x4 (date of acquisition)
P360,000
b.
Non-controlling interest (partial-goodwill), January 1, 20x4
Common stock – Subsidiary Company……………………………………
Retained earnings – Subsidiary Company………………………………….
Stockholders’ equity – Subsidiary Company.…………..
Adjustments to reflect fair value - (over) undervaluation of assets and liabilities
Fair value of stockholders’ equity of subsidiary, January 1, 20x4…………………
Multiplied by: Non-controlling Interest percentage…………...
Non-controlling interest (partial goodwill),………………………………..
Add: Non-controlling interests on full goodwill, 1/1/20x4 (P12,500, full-goodwill – P10,000, partial
goodwill)
Non-controlling interest (full-goodwill)
P 240,000
120,000
P 360,000
90,000
P 450,000
20
P 90,000
3,000
P 93,000
c.
Consolidated SHE:
Stockholders’ Equity
Common stock, P10 par
Retained earnings
Parent’s Stockholders’ Equity / CI – SHE
NCI, 1/1/20x4
Consolidated SHE, 1/1/20x4
6.
P 600,000
360,000
P 960,000
___93,000
P1,053,000
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.
12/31/20x4:
a. CI-CNI – P207,810
Consolidated Net Income for 20x4
P Company’s net income from own/separate operations………….
Unrealized gain on sale of equipment (downstream sales)
Realized gain on sale of equipment (downstream sales) through depreciation
P Company’s realized net income from separate operations*…….…..
S Company’s net income from own operations………………………………….
Unrealized gain on sale of equipment (upstream sales)
Realized gain on sale of equipment (upstream sales) through depreciation
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.
P183,000
(15,000)
2,250
P170,250
P 91,200
( 31,200)
3,900
P 63,900
P 10,140
13,200
3,000
63,900
P234,150
26,340
P207,810
10,140
P217,950
b. NCI-CNI – P10,140
**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 gain on sale of equipment (upstream sales)
Realized gain on sale of equipment (upstream sales) through depreciation
S Company’s realized net income from separate operations………
Less: Amortization of allocated excess / goodwill impairment
(refer to amortization table above)
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 (P3,750mpairment on full-goodwill less P3,000, impairment on
partial- goodwill)
Non-controlling Interest in Net Income (NCINI) – full goodwill
*that has been realized in transactions with third parties.
P 91,200
( 31,200)
3,900
P 63,900
13,200
P 50,700
20%
P 10,140
750
P 9,390
c. CNI, P217,950 – refer to (a)
d. 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
207,810
P567,810
72,000
P495,810
e.
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……
Unrealized gain on sale of equipment (upstream sales)
Realized gain on sale of equipment (upstream sales) through depreciation
Realized stockholders’ equity of subsidiary, December 31, 20x4……
Multiplied by: Non-controlling Interest percentage…………...
P 240,000
P120,000
91,200
P211,200
36,000
175,200
P 415,200
90,000
( 13,200)
P492,000
( 31,200)
3,900
P464,700
20
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)……………..
P
92,940
2,250
P 95,190
f.
Consolidated SHE:
Stockholders’ Equity
Common stock, P10 par
P 600,000
Retained earnings
495,810
Parent’s
Stockholders’ Equity / CI – SHE, P1,095,810
12/31/20x4
NCI, 12/31/20x4
___95,190
Consolidated SHE, 12/31/20x4
P1,191,000
12/31/20x5:
a. CI-CNI – P281,700
Consolidated Net Income for 20x5
P Company’s net income from own/separate operations………….
Realized gain on sale of equipment (downstream sales) through depreciation
P Company’s realized net income from separate operations*…….…..
S Company’s net income from own operations………………………………….
Realized gain on sale of equipment (upstream sales) through depreciation
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
3,000
P195,000
P 90,000
3,900
P 93,900
93,900
P288,900
7,200
P281,700
17,340
P264,360
Or, alternatively
Consolidated Net Income for 20x5
P Company’s net income from own/separate operations………….
Realized gain on sale of equipment (downstream sales) through depreciation
P Company’s realized net income from separate operations*…….…..
S Company’s net income from own operations………………………………….
Realized gain on sale of equipment (upstream sales) through depreciation
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
3,000
P195,000
P 90,000
3,900
P 93,900
P 17,340
7,200
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI) - partial goodwill
Less: NCI on goodwill impairment loss on full-goodwill . . . . . . . . . . . . . . . . . . . . .
24,540
P264,360
_ 17,340
P281,700
b. NCI-CNI – P17,340
**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 gain on sale of equipment (upstream sales) through depreciation
S Company’s realized net income from separate operations………
Less: Amortization of allocated excess
93,900
P288,900
P 90,000
3,900
P 93,900
7,200
P 86,700
20%
P 17,340
0
Non-controlling Interest in Net Income (NCINI) – full goodwill . . . . . . . . . . . . .
P 17,340
c. CNI, P281,700 – refer to (a)
d. 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: Downstream - net unrealized gain on sale of equipment – prior to 20x5
(P15,000 – P2,250)
Adjusted Retained Earnings – Parent 1/1/20x5 (cost model ) Son 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
Upstream - net unrealized gain on sale of equipment –prior to
20x5 (P31,200 – P3,900)
Multiplied by: Controlling interests %...................
P499,800
12,750
P487,050
P 175,200
120,000
P 55,200
13,200
27,300
P 14,700
80%
P 11,760
3,000
Less: Goodwill impairment loss
__ 8,760
Consolidated Retained earnings, January 1, 20x5
P495,810
Add: Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent for 20x5
264,360
Total
P760,170
Less: Dividends paid – Parent Company for 20x5
72,000
Consolidated Retained Earnings, December 31, 20x5
P688,170
*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: Downstream - net unrealized gain on sale of equipment – prior to
12/31/20x5 (P15,000 – P2,250– P3,000)
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)
Upstream - net unrealized gain on sale of equipment – prior to
12/31/20x5 (P31,200 – P3,900– P3,900)
P658,200
9,750
P648,450
P 217,200
120,000
P 97,200
20,400
P
Multiplied by: Controlling interests %...................
P
Less: Goodwill impairment loss (full-goodwill)
Consolidated Retained earnings, December 31, 20x5
23,400
53,400
80%
42,720
3,000
39,720
P688,170
e.
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
P 240,000
P175,200
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
20x5
Fair value of stockholders’ equity of subsidiary, December 31, 20x5……
Less: Upstream - net unrealized gain on sale of equipment – prior to 12/31/20x5
(P31,200 – P3,900 – P3,900)
Realized stockholders’ equity of subsidiary, December 31, 20x5……….
Multiplied by: Non-controlling Interest percentage…………...
Non-controlling interest (partial goodwill)…………………………………..
Add: Non-controlling interest on full goodwill , net of impairment loss
[(P15,000 full – P12,000, partial = P3,000) – P750 impairment loss
Non-controlling interest (full-goodwill)…………………………………..
90,000
P 265,200
48,000
217,200
P 457,200
90,000
P 13,200
7,200
( 20,400)
P 526,800
23,400
P503,400
20
P 100,680
2,250
P 102,930
f.
Consolidated SHE:
Stockholders’ Equity
Common stock, P10 par
Retained earnings
Parent’s Stockholders’ Equity / CI – SHE, 12/31/20x5
NCI, 12/31/20x5
Consolidated SHE, 12/31/20x5
P 600,000
688,170
P1,288,170
__102,930
P1,391,100
Problem IX
Requirements 1 to 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 S:
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%)
P
372,000
P 192,000
96,000 288,000
P
84,000
P 4,800
5,760
76,800
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)………………………………………………...
( 19,200)
3,840
72,000
P
12,000
The over/under valuation of assets and liabilities are summarized as follows:
S Co.
S Co.
Book
Fair
value
value
P
Inventory………………….……………..
24,000 P 30,000
Land………………………………………
48,000
55,200
Equipment (net).........
84,000
180,000
Buildings (net)
168,000
144,000
Bonds payable………………………… (120,000) ( 115,200)
P
Net………………………………………..
204,000 P 294,000
(Over)
Under
Valuation
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
S Co.
Fair value (Decrease)
144,000
( 216,000)
1992,000
-
168,000
144,000
( 192,000)
(
24,000)
A summary or depreciation and amortization adjustments is as follows:
Over/
Account Adjustments to be Unde
amortized
r
P
Inventory
6,000
Lif
e
1
Annu
al
Current
Amou Year(20x
nt
4)
P
6,000 P 6,000
20x5
P
-
Subject
to
Amortization
Annual
Buildings (net)
96,00
0
(24,0
00)
Bonds payable…
4,800
Equipment (net).........
8
4
4
12,000
( 6,000
)
1,200
P
13,200
12,000
( 6,000)
1,200
P 13,200
12,00
0
(6,00
0)
1,200
P
7,200
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%)
Fair value of NCI (given) (20%)
Fair value of Subsidiary (100%)
Less: Book value of stockholders’ equity of S (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)………………………………………………...
P 372,000
93,000
P 465,000
__360,000
P 105,000
90,000
P
15,000
In this case, the goodwill was proportional to the controlling interest of 80% and non-controlling
interest of 20% computed as follows:
Value
Goodwill applicable to parent…………………
Goodwill applicable to NCI……………………..
Total (full) goodwill………………………………..
The goodwill impairment loss would be allocated as follows
P12,000
3,000
P15,000
Value
Goodwill impairment loss attributable to parent
P
or controlling
3,000
Interest
Goodwill applicable to NCI……………………..
750
Goodwill impairment loss based on 100% fair
value or fullP 3,750
Goodwill
The unrealized and gain on intercompany sales for 20x4 are as follows:
% of
Total
80.00%
20.00%
100.00%
% of
Total
80.00%
20.00%
100.00%
Date
of
Sale
Selling Book
Seller Price Value
4/1/20 P
x4
1/2/20 S
x4
P90,0
00
P75,0
00
60,00
0
28,80
0
Unrealize
d*
Gain on
sale
P15,000
31,200
Remaini
Realized
ng
gain –
Life
depreciatio
n**
5 years P3,000/year
8 years
20x4
P2,2
50
P3,9
00
P3,900/year
* selling price less book value
** unrealized gain divided by remaining life; 20x4 – P2,500 x 9/12 = P1,875
The following summary for 20x4 results of operations is as follows:
Sales
Less: Cost of goods sold
Gross profit
P Co.
S Co.
P
480,000
204,000
P
240,000
Less: Depreciation expense
Other expenses
P
276,000
60,000
48,000
Add: Gain on sale of equipment
P
168,000
15,000
Net income from its own separate
operations
Add: Investment income
P
183,000
24,810
Net income
P
207,810
20x4: First Year after Acquisition
Parent Company Equity Method Entry
January 1, 20x4:
(1) Investment in S Company………………………………………
Cash……………………………………………………………
Acquisition of S Company.
January 1, 20x4 – December 31, 20x4:
(2) Cash………………………
Investment in S Company (P36,000 x 80%)…………….
Record dividends from Son Company.
December 31, 20x4:
(3) Investment in S Company
Investment income (P91,200 x 80%)
Record share in net income of subsidiary.
138,000
P
102,000
24,000
18,000
P
60,000
31,200
P
91,200
P 91,200
372,000
372,000
28,800
28,800
72,960
72,960
December 31, 20x4:
(4) Investment income [(P13,200 x 80%) + P3,000, goodwill
impairment loss)]
Investment in S Company
Record amortization of allocated excess of inventory,
equipment, buildings and bonds payable and goodwill
impairment loss.
December 31, 20x4:
(5) Investment income (P15,000 x 100%)
Investment in S Company
To adjust investment income for downstream sales unrealized gain on sale of equipment..
December 31, 20x4:
(6) Investment income (P31,200 x 80%)
Investment in S Company
To adjust investment income for upstream sales unrealized gain on sale of equipment..
December 31, 20x4:
(7) Investment in S Company
Investment income (P2,250 x 100%)
To adjust investment income for downstream sales realized gain on sale of equipment..
December 31, 20x4:
(8) Investment in S Company
Investment income (P3,900 x 80%)
To adjust investment income for upstream sales realized gain on sale of equipment..
13,560
13,560
15,000
24,960
15,000
24,960
2,250
3,120
2,250
3,120
Thus, the investment balance and investment income in the books of P Company is as follows:
Cost, 1/1/x4
NI of Son
(91,200 x 80%)
Realized gain downstream sale
Realized gain upstream sale
Balance, 12/31/x4
Investment in S
372,000
28,800
72,960
2,250
3,120
368,010
13,560
15,000
24,960
Dividends – S (36,000x 80%)
Amortization &
impairment
Unrealized gain downstream sale
Unrealized gain upstream sale
Investment Income
Amortization &
impairment
Unrealized gain downstream sale
Unrealized gain upstream sale
13,560
15,000
24,960
72,960
2,250
3,120
24,810
NI of S
(91,200 x 80%)
Realized gain downstream sale
Realized gain upstream sale
Balance, 12/31/x4
Consolidation Workpaper – First Year after Acquisition
(E1)
Common
stock
Co…………………………………………
Retained
earnings
Co……………………………………
–
–
S
240,000
S
120,000
Investment
in
Co……………………………………………
Non-controlling
interest
(P360,000
20%)………………………..
S
288,000
x
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………………..
Accumulated depreciation – buildings…………………..
Land……………………………………………………………………
….
Discount
on
bonds
payable………………………………………….
(P90,000
96,000
192,00
0
7,200
4,800
12,000
Goodwill………………………………………………………………
….
Buildings………………………………………..
Non-controlling
interest
20%)………………………..
Investment
in
Co……………………………………………….
6,000
x
216,00
0
18,000
S
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……………………………………….
6,000
6,000
6,000
1,200
3,000
6,000
Inventory…………………………………………………………..
Accumulated
depreciation
–
equipment………………..
Discount on bonds payable…………………………
Goodwill……………………………………
To provide for 20x4 impairment loss and depreciation and
12,000
1,200
3,000
amortization on differences between acquisition date fair value and
book value of Son’s identifiable assets and liabilities as follows:
Inventory sold
Equipment
Buildings
Bonds payable
Totals
Cost of
Goods
Sold
P 6,000
_______
P 6,000
Depreciation/
Amortization
Expense
Amortization
-Interest
P 12,000
( 6,000)
_______
P 6,000
P 1,200
P1,200
Total
14,400
(E4) Investment income
Investment in S Company
Non-controlling
interest
(P36,000
20%)………………..
Dividends paid – S……………………
x
24,810
3,990
7,200
36,000
To eliminate intercompany dividends and investment income under
equity method and establish share of dividends, computed as
follows:
Investment in S
NI of S
28,800 Dividends - S
(91,200
Amortization &
x 80%)……. 72,960 13,560
impairment
Realized gain* 2,250 15,000 Unrealized gain *
Realized gain** 3,120
24,960 Unrealized gain **
3,990
*downstream sale (should be multiplied by 100%)
**upstream sale (should be multiplied by 80%)
Investment Income
Amortization
impairment
13,560
Unrealized gain * 15,000
Unrealized gain **24,960
72,960
2,250
3,120
24,810
NI of S
(91,200
x 80%)
Realized gain*
Realized gain**
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, 1/1/x4
NI of S
(91,200 x 80%)
Realized gain downstream sale
Realized gain upstream sale
Balance, 12/31/x4
(E4) Investment Income
and dividends ……………
Investment in S
372,000
28,800
72,960
2,250
3,120
368,010
13,560
15,000
24,960
288,000
84,000
Dividends – S (36,000x 80%)
Amortization &
impairment
Unrealized gain downstream sale
Unrealized gain upstream sale
(E1) Investment, 1/1/20x4
(E2) Investment, 1/1/20x4
3,990
372,000
372,000
(E5) Gain on sale of equipment
Equipment
Accumulated depreciation
15,000
30,000
45,000
To eliminate the downstream intercompany gain and restore to its
original cost to the consolidate entity (along with its accumulated
depreciation at the point of the intercompany sale).
(E6) Gain on sale of equipment
Equipment
Accumulated depreciation
31,200
12,000
43,200
To eliminate the upstream intercompany gain and restore to its
original cost to the consolidate entity (along with its accumulated
depreciation at the point of the intercompany sale).
(E7) Accumulated depreciation………..
2,250
Depreciation expense……………
2,250
To adjust downstream depreciation expense on equipment sold to
subsidiary, thus realizing a portion of the gain through depreciation
(P15,000 / 5 years x 9/12 = P2,250).
(E8) Accumulated depreciation………..
Depreciation expense……………
3,900
3,900
To adjust upstream depreciation expense on equipment sold to
parent, thus realizing a portion of the gain through depreciation
(P26,000/85 years x 1 year = P3,250).
(E9) Non-controlling interest in Net Income of
Subsidiary…………
Non-controlling interest …………..
10,140
10,140
To establish non-controlling interest in subsidiary’s adjusted net
income for 20x4 as follows:
Net income of subsidiary……………………..
Unrealized gain on sale of equipment
(upstream sales)
Realized gain on sale of equipment (upstream
sales) through depreciation
S Company’s realized net income from
separate operations
Less: Amortization of allocated excess [(E3)]….
P 91,200
( 31,200)
3,900
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI) –
partial goodwill
P 63,900
13,200
P 50,700
20%
P
10,140
Worksheet for Consolidated Financial Statements, December 31, 20x4.
Equity Method (Partial-goodwill)
80%-Owned Subsidiary
December 31, 20x4 (First Year after Acquisition)
Income Statement
Sales
Gain on sale of equipment
P Co
P480,000
15,000
S Co.
P240,000
31,200
Investment income
Total Revenue
Cost of goods sold
24,810
P519,810
P204,000
P271,200
P138,000
60,000
48,000
P312,000
P207,810
P207,810
Dr.
Cr.
(5) 15,000
(6) 31,200
(4) 28,800
(3)
6,000
24,000
(3)
6,000
18,000
P180,000
P 91,200
P 91,200
(3)
1,200
(3)
3,000
(1) 120,000
207,810
P567,810
P120,000
91,200
P211,200
72,000
-
36,000
(7)
Depreciation expense
Interest expense
Other expenses
Goodwill impairment loss
Total Cost and Expenses
Net Income
NCI in Net Income - Subsidiary
Net Income to Retained Earnings
Statement of Retained Earnings
Retained earnings, 1/1
P Company
S Company
Net income, from above
Total
Dividends paid
P Company
S Company
Consolidated
P 720,000
(9)
_________
P 720,000
P 348,000
83,850
2,250
(8)
3,900
P
P
(
P
10,140
P360,000
1,0200
66,000
3,000
502,050
217,950
10,140)
207,810
P 360,000
207,810
P567,810
(4)
36,000
_
72,000
________
Retained earnings, 12/31 to Balance
Sheet
Balance Sheet
Cash……………………….
Accounts receivable……..
Inventory………………….
Land…………………………….
Equipment
P
Buildings
Discount on bonds payable
Goodwill……………………
Investment in S Co………
P175,200
P 495,810
232,800
90,000
120,000
210,000
240,000
P 90,000
60,000
90,000
48,000
180,000
P 322,800
150,000
210,000
265,200
720,000
540,000
(2)
6,000
(2)
7,200
(5) 30,000
(6) 12,000
(2)
(2)
4,800
12,000
368,010
Total
Accumulated depreciation
- equipment
Accumulated depreciation
- buildings
Accounts payable……………
Bonds payable…………………
Common stock, P10 par………
Common stock, P10 par………
Retained earnings, from above
Non-controlling interest…………
Total
P495,810
P1,980,810
P1,008,000
P 135,000
P 96,000
405,000
288,000
105,000
240,000
600,000
88,800
120,000
495,810
240,000
175,200
(2) 96,000
(7) 2,250
(8)
3,900
(2) 192,000
(3)
6,000
_________
P1,008,000
5,000
(2) 216,000
(3) 1,200
(3) 3,000
(1) 288,000
(2) 84,000
462,000
1,044,000
3,600
9,000
P2,466,600
(3) 12,000
(5) 45,000
(6) 43,200
P229,050
495,000
193,800
360,000
600,000
(1) 240,000
495,810
(4)
_________
P1,980,810
(3)
7,200
__________
P 840,690
(1 ) 72,000
(2) 18,000
(9) 10,140
P 840,690
92,940
P2,466,600
20x5: Second Year after Acquisition
Sales
Less: Cost of goods sold
Gross profit
Less: Depreciation expense
Other expense
P Co.
S Co.
P
540,000
216,000
P
360,000
P
324,000
60,000
72,000
Net income from its own separate
operations
Add: Investment income
P
192,000
72,360
Net income
P
264,360
P
72,000
Dividends paid
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………………………
38,400
Investment in S Company (P48,000 x 80%)…………….
Record dividends from S Company.
December 31, 20x5:
(3) Investment in S Company
Investment income (P90,000 x 80%)
Record share in net income of subsidiary.
38,400
72,000
72,000
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
December 31, 20x4:
(5) Investment in S Company
Investment income (P3,000 x 100%)
To adjust investment income for downstream sales realized gain on sale of equipment.
December 31, 20x4:
(6) Investment in S Company
Investment income (P3,900 x 80%)
To adjust investment income for upstream sales realized gain on sale of equipment..
5,760
5,760
3,000
3,000
3,120
3,120
Thus, the investment balance and investment income in the books of P Company is as follows:
Cost, 1/1/x5
NI of Son
(90,000 x 80%)
Realized gain downstream sale
Realized gain upstream sale
Balance, 12/31/x5
Amortization (6,000 x 805)
Investment in S
368,010
38,400
5,760
72,000
3,000
3,120
401,970
Dividends – S (48,000x 80%)
Amortization (7,200 x 80%)
Investment Income
5,760
NI of S
72,000
(90,000 x 80%)
3,000
Realized gain downstream sale
3,120
Realized gain upstream sale
72,360
Balance, 12/31/x5
Consolidation Workpaper – Second Year after Acquisition
(E1)
Common
stock
–
S
Co…………………………………………
Retained
earnings
–
S
Co,
1/1/x5………………………….
Investment in S Co (P415,200 x 80%)
Non-controlling
interest
(P415,200
x
20%)………………………..
240,000
175,200
332,160
83,040
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)
84,000
Accumulated depreciation – buildings (P192,000 +
P6,000)
Land……………………………………………………………………
….
Discount on bonds payable (P4,800 – P1,200)….
Goodwill (P12,000 – P3,000)……………………………..
Buildings………………………………………..
198,00
0
6,000
3,600
9,000
180,00
0
15,360
70,440
Non-controlling interest [(P90,000 – P13,200) x 20%]
Investment
in
Son
Co……………………………………………….
To eliminate investment on January 1, 20x5 and allocate excess of
cost over book value of identifiable assets acquired, with remainder
to the original amount of goodwill; and to establish non- controlling
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:
Inventory sold
Equipment
Buildings
Bonds payable
Totals
Depreciation/
Amortization
Expense
Amortization
-Interest
P 12,000
( 6,000)
_______
P 6,000
P 1,200
P1,200
Total
P7,200
(E4) Investment income
Non-controlling
interest
(P48,000
20%)………………..
Dividends paid – S……………………
Investment in S Company
x
72.360
9,600
48,000
33,960
To eliminate intercompany dividends and investment income under
equity method and establish share of dividends, computed as
follows:
Investment in S
NI of S
38,400
Dividends – S
(90,000
Amortization
x 80%)……. 72,000
5,760
(P7,200 x 80%)
Realized gain* 3,000
Realized gain** 3,120
33,960
*downstream sale (should be multiplied by 100%)
**upstream sale (should be multiplied by 80%)
(E5) Investment in S Company
Equipment
Investment Income
Amortization
(P7,200 x 80%)
5,760
72,000
3,000
3,120
72,360
15,000
30,000
NI of S
(90,000
x 80%)
Realized gain*
Realized gain**
Accumulated depreciation – equipment
45,000
To eliminate the downstream intercompany gain and restore to its
original cost to the consolidate entity (along with its accumulated
depreciation at the point of the intercompany sale).
(E6) Investment in S Company
Non-controlling interest (P31,200 x 20%)
Equipment
Accumulated depreciation- equipment
24,960
6,240
12,000
43,200
To eliminate the upstream intercompany gain and restore to its
original cost to the consolidate entity (along with its accumulated
depreciation at the point of the intercompany sale).
(E7) Accumulated depreciation –
equipment ………..
Depreciation expense (current
year)……………
Investment in S Company (prior year)
5,250
3,000
2,250
To adjust downstream depreciation expense on equipment sold to
subsidiary, thus realizing a portion of the gain through depreciation
(E8) Accumulated depreciation- equipment……..
Depreciation expense (current year)
Investment in S Company (prior year)
Non-controlling interest (P31,200 x 20%)
7,800
3,900
3,120
780
To adjust upstream depreciation expense on equipment sold to
parent, thus realizing a portion of the gain through depreciation
(P31,200/85 years x 1 year = P3,900).
(E9) Non-controlling interest in Net Income of
Subsidiary…………
Non-controlling interest …………..
17,340
17,340
To establish non-controlling interest in subsidiary’s adjusted net
income for 20x5 as follows:
Net income of subsidiary……………………..
Realized gain on sale of equipment (upstream
sales) through depreciation
S Company’s Realized net income*
Less: Amortization of allocated excess
P 90,000
3,900
P 93,900
( 7,200)
P 86,700
Multiplied by: Non-controlling interest %..........
20%
Non-controlling Interest in Net Income (NCINI
P 17,340
*from separate transactions that has been realized in transactions
with third persons.
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
Depreciation expense
P Co
P540,000
72,360
P612,360
P216,000
60,000
S Co.
P360,000
P360,000
P192,000
24,000
Dr.
(4)
72,360
(3)
6,000
Cr.
(7)
3,000
Consolidated
P 900,000
___________
P 900,000
P 408,000
83,100
(8)
3,900
Interest expense
Other expenses
Goodwill impairment loss
Total Cost and Expenses
Net Income
NCI in Net Income - Subsidiary
Net Income to Retained Earnings
72,000
P348,000
P264,360
P264,360
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
Balance Sheet
Cash……………………….
Accounts receivable……..
Inventory………………….
Land…………………………….
Equipment
Buildings
Discount on bonds payable
Goodwill……………………
Investment in Son Co………
Total
Accumulated depreciation
- equipment
Accumulated depreciation
- buildings
Accounts payable……………
Bonds payable…………………
Common stock, P10 par………
Common stock, P10 par………
Retained earnings, from above
Non-controlling interest…………
Total
54,000
P270,000
P 90,000
P 90,000
(3)
1,200
(1) 175,200
_264,360
P760,170
P 175,200
90,000
P265,200
72,000
-
48,000
P688,170
P217,200
P 688,170
265,200
180,000
216,000
210,000
240,000
P 102,000
96,000
108,000
48,000
180,000
P 367,200
276,000
324,000
265,200
720,000
540,000
P
P
(
P
(9) 17,340
P495,810
P
P495,810
264,360
P 760,170
(5)
(2)
(5)
(6)
(2)
(2)
(5)
(6)
401,970
P2,233,170
P1,074,000
P 150,000
P 102,000
450,000
306,000
105,000
240,000
600,000
88,800
120,000
688,170
240,000
217,200
_________
P1,074,000
48,000
7,200
30,000
12,000
3,600
9,000
15,000
24,960
(2) 84,000
(7) 5,250
(8) 7,800
(2) 198,000
(3)
6,000
(2) 216,000
(3) 1,200
(1) 332,160
(2) 70,440
(4) 33,960
(7) 2,250
(8) 3,120
(3)
(5)
(6)
12,000
45,000
43,200
_
72,000
________
462,000
1,044,000
2,400
9,000
P2,749,800
P 255,150
552,000
193,800
360,000
600,000
(1) 240,000
688,170
(4)
(6)
___ _____
P2,233,170
1,200
126,000
618,300
281,700
17,340)
264,360
9,600
6,240
__________
P 930,750
(1) 69,200
(2) 15,360
(8)
780
(9) 17,340
P 930,750
____100,680
P2,749,800
5 and 6. Refer to Problem V for computations
Note: Using cost model or equity method, the consolidated net income, consolidated
retained earnings, non-controlling interests, consolidated equity on December 31, 20x4 and
20x5 are exactly the same (refer to Problem X solution).
Problem X
Requirements 1 to 4
Schedule of Determination and Allocation of Excess
Date of Acquisition – January 1, 20x4
Fair value of Subsidiary (80%)
Consideration transferred
(80%)……………..
Fair value of NCI (given)
(20%)………………..
P
372,000
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)………………………………………………...
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:
Over/
Account Adjustments to be unde
amortized
r
P
Inventory
6,000
Subject
to
Annual
Amortization
96,00
Equipment (net).........
0
(24,0
Buildings (net)
00)
Lif
e
1
8
4
Annu
al
Current
Amou Year(20x
nt
4)
P
6,000 P 6,000
20x5
P
-
12,000
( 6,000
)
12,00
0
(6,00
0)
12,000
( 6,000)
Bonds payable…
4,800
4
1,200
P
13,200
1,200
P 13,200
The following summary for 20x4 results of operations is as follows:
Sales
Less: Cost of goods sold
Gross profit
P Co.
S Co.
P
480,000
204,000
P
240,000
Less: Depreciation expense
Other expenses
P
276,000
60,000
48,000
Add: Gain on sale of equipment
P
168,000
15,000
Net income from its own separate
operations
Add: Investment income
P
183,000
24,810
Net income
P
207,810
1,200
P
7,200
138,000
P
102,000
24,000
18,000
P
60,000
31,200
P
91,200
P 91,200
20x4: First Year after Acquisition
Parent Company Equity Method Entry
January 1, 20x4:
(1)
Investment
in
Company……………………………………………
S
372,00
0
Cash……………………………………………………………………
..
Acquisition of S Company.
January 1, 20x4 – December 31, 20x4:
(2) Cash………………………
Investment in S Company (P36,000 x 80%)…………….
Record dividends from Son Company.
December 31, 20x4:
372,00
0
28,800
28,800
(3) Investment in S Company
Investment income (P91,200 x 80%)
Record share in net income of subsidiary.
December 31, 20x4:
(4) Investment income [(P13,200 x 80%) + P3,000,
goodwill
impairment loss)]
Investment in S Company
Record amortization of allocated excess of
inventory, equipment, buildings and bonds
payable and goodwill impairment loss.
December 31, 20x4:
(5) Investment income (P15,000 x 100%)
Investment in S Company
To adjust investment income for downstream
sales - unrealized gain on sale of equipment..
December 31, 20x4:
(6) Investment income (P31,200 x 80%)
Investment in S Company
To adjust investment income for upstream
sales - unrealized gain on sale of equipment..
December 31, 20x4:
(7) Investment in S Company
Investment income (P2,250 x 100%)
To adjust investment income for downstream
sales - realized gain on sale of equipment..
December 31, 20x4:
(8) Investment in S Company
Investment income (P3,900 x 80%)
To adjust investment income for upstream
sales - realized gain on sale of equipment..
72,960
72,960
13,560
13,560
15,000
15,000
24,960
2,250
3,120
24,960
2,250
3,120
Thus, the investment balance and investment income in the books of Perfect Company is as
follows:
Cost, 1/1/x4
NI of Son
(91,200 x 80%)
Realized gain downstream sale
Realized gain upstream sale
Balance, 12/31/x4
Investment in S
372,000
28,800
72,960
2,250
3,120
368,010
13,560
15,000
24,960
Dividends – S (36,000x 80%)
Amortization &
impairment
Unrealized gain downstream sale
Unrealized gain upstream sale
Investment Income
Amortization &
impairment
13,560
72,960
NI of S
(76,000 x 80%)
Unrealized gain downstream sale
Unrealized gain upstream sale
15,000
24,960
2,250
3,120
24,810
Realized gain downstream sale
Realized gain upstream sale
Balance, 12/31/x4
Consolidation Workpaper – First Year after Acquisition
(E1)
Common
stock
–
Co…………………………………………
Retained
earnings
–
Co……………………………………
Investment
in
Co……………………………………………
Non-controlling
interest
(P360,000
20%)………………………..
S
240,000
S
120.000
S
288,000
x
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………………..
Accumulated depreciation – buildings…………………..
Land……………………………………………………………………
….
Discount
on
bonds
payable………………………………………….
6,000
96,000
192,00
0
7,200
4,800
15,000
Goodwill………………………………………………………………
….
Buildings………………………………………..
full –
216,00
0
Non-controlling interest (P90,000 x 20%) + [(P15,000
P12,000, partial goodwill)]…………
Investment
in
Co……………………………………………….
S
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…………………..
–
6,000
6,000
6,000
21,000
84,000
Interest expense…………………………………
Goodwill
impairment
loss……………………………………….
1,200
3,750
6,000
Inventory…………………………………………………………..
Accumulated
depreciation
–
equipment………………..
Discount on bonds payable…………………………
Goodwill……………………………………
12,000
1,200
3,750
To provide for 20x4 impairment loss and depreciation and
amortization on differences between acquisition date fair value and
book value of Son’s identifiable assets and liabilities as follows:
Inventory sold
Equipment
Buildings
Bonds payable
Totals
Cost of
Goods
Sold
P 6,000
_______
P 6,000
Depreciation/
Amortization
Expense
Amortization
-Interest
P 12,000
( 6,000)
_______
P 6,000
P 1,200
P1,200
Total
14,400
(E4) Investment income
Investment in S Company
Non-controlling
interest
(P36,000
20%)………………..
Dividends paid – S……………………
x
24,810
3,990
7,200
36,000
To eliminate intercompany dividends and investment income under
equity method and establish share of dividends, computed as
follows:
Investment in S
NI of S
28,800 Dividends - S
(91,200
Amortization &
x 80%)……. 72,960 13,560
impairment
Realized gain* 2,250 15,000 Unrealized gain *
Realized gain** 3,120
24,960 Unrealized gain **
3,990
*downstream sale (should be multiplied by 100%)
**upstream sale (should be multiplied by 80%)
Investment Income
Amortization
impairment
13,560
Unrealized gain * 15,000
Unrealized gain **24,960
72,960
2,250
3,120
24,810
NI of S
(91,200
x 80%)
Realized gain*
Realized gain**
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, 1/1/x4
NI of S
(91,200 x 80%)
Realized gain downstream sale
Realized gain upstream sale
Balance, 12/31/x4
(E4) Investment Income
and dividends ……………
Investment in S
372,000
28,800
72,960
2,250
3,120
368,010
13,560
15,000
24,960
288,000
84,000
Dividends – S (36,000x 80%)
Amortization &
impairment
Unrealized gain downstream sale
Unrealized gain upstream sale
(E1) Investment, 1/1/20x4
(E2) Investment, 1/1/20x4
3,990
372,000
372,000
(E5) Gain on sale of equipment
Equipment
Accumulated depreciation
To eliminate the downstream intercompany gain and restore to its
15,000
30,000
45,000
original cost to the consolidate entity (along with its accumulated
depreciation at the point of the intercompany sale).
(E6) Gain on sale of equipment
Equipment
Accumulated depreciation
31,200
12,000
43,200
To eliminate the upstream intercompany gain and restore to its
original cost to the consolidate entity (along with its accumulated
depreciation at the point of the intercompany sale).
(E7) Accumulated depreciation………..
Depreciation expense……………
2,250
2,250
To adjust downstream depreciation expense on equipment sold to
subsidiary, thus realizing a portion of the gain through depreciation
(P15,000 / 5 years x 9/12 = P2,250).
(E8) Accumulated depreciation………..
Depreciation expense……………
3,900
3,900
To adjust upstream depreciation expense on equipment sold to
parent, thus realizing a portion of the gain through depreciation
(P31,120/85 years x 1 year = P3,900).
(E9) Non-controlling interest in Net Income of
Subsidiary…………
Non-controlling interest …………..
9,390
9,390
To establish non-controlling interest in subsidiary’s adjusted net
income for 20x4 as follows:
Net income of subsidiary……………………..
Unrealized gain on sale of equipment
(upstream sales)
Realized gain on sale of equipment (upstream
sales) through depreciation
S Company’s realized net income from
separate operations
Less: Amortization of allocated excess [(E3)]….
P 91,200
( 31,200)
3,900
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 partial-goodwill)*
Non-controlling Interest in Net Income (NCINI)
– full goodwill
P 63,900
13,200
P 50,700
20%
P
10,140
750
P
9,390
Worksheet for Consolidated Financial Statements, December 31, 20x4.
Equity Method (Full-goodwill)
80%-Owned Subsidiary
December 31, 20x4 (First Year after Acquisition)
Income Statement
Sales
Gain on sale of equipment
P Co
P480,000
15,000
S Co.
P240,000
31,200
Investment income
Total Revenue
Cost of goods sold
Depreciation expense
24,810
P519,810
P204,000
60,000
P271,200
P138,000
24,000
Dr.
Cr.
(5) 15,000
(6) 31,200
(4) 28,800
(3)
(3)
6,000
6,000
(7)
2,250
Consolidated
P 720,000
_________
P 720,000
P 348,000
83,850
(8)
3,900
Interest expense
Other expenses
Goodwill impairment loss
Total Cost and Expenses
Net Income
NCI in Net Income - Subsidiary
Net Income to Retained Earnings
48,000
P312,000
P207,810
P207,810
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
Balance Sheet
Cash……………………….
Accounts receivable……..
Inventory………………….
Land…………………………….
Equipment
Buildings
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
Non-controlling interest…………
Total
18,000
P180,000
P 91,200
P 91,200
(3)
1,200
1,200
66,000
3,750
P 502,800
P 217,200
( 9,390)
P 207,810
(3)
3,750
(9)
9,390
(1) 120,000
207,810
P567,810
P120,000
91,200
P211,200
72,000
-
36,000
P495,810
P175,200
P 495,810
232,800
90,000
120,000
210,000
240,000
P 90,000
60,000
90,000
48,000
180,000
P 322,800
150,000
210,000
265,200
720,000
540,000
P360,000
P
P 360,000
207,810
P 567,810
(4)
(2)
6,000
(2)
6,000
(5) 30,000
(6) 12,000
(2)
(2)
4,800
15,000
368,010
P1,980,810
P1,008,000
P 135,000
P 96,000
405,000
288,000
105,000
240,000
600,000
88,800
120,000
495,810
240,000
175,200
(2) 96,000
(7) 2,250
(8) 3900
(2) 192,000
(3) 6,000
_________
P1,008,000
6,000
(2) 216,000
(3) 1,200
(3) 3,750
(1) 288,000
(2) 84,000
72,000
________
_
462,000
1,044,000
3,600
11,250
P2,468,850
(3) 12,000
(5) 45,000
(6) 43,200
P229,050
495,000
193,800
360,000
600,000
(1) 240,000
495,810
(4)
_________
P1,980,810
(3)
36,000
7,200
__________
P 843,690
(1 ) 72,000
(2) 21,000
(9) 9,390
P 843,690
____95,190
P2,468,850
Second Year after Acquisition
Sales
Less: Cost of goods sold
Gross profit
Less: Depreciation expense
Perfect
Co.
P
540,000
Son Co.
1216,000
P
324,000
60,000
192,000
P
168,000
24,000
P
360,000
Other expense
72,000
Net income from its own separate
operations
Add: Investment income
Net income
P
192,000
72,360
P
264,360
P
72,000
Dividends paid
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
5,760
5,760
Record amortization of allocated excess of inventory, equipment,
buildings and bonds payable
December 31, 20x4:
(5) Investment in S Company
Investment income (P3,000 x 100%)
To adjust investment income for downstream sales - realized gain on
sale of equipment..
December 31, 20x4:
(6) Investment in S Company
Investment income (P3,900 x 80%)
To adjust investment income for upstream sales - realized gain on sale
of equipment..
3,000
3,000
3,120
3,120
Thus, the investment balance and investment income in the books of P Company is as follows:
Cost, 1/1/x5
NI of S
(90,000 x 80%)
Realized gain downstream sale
Realized gain upstream sale
Balance, 12/31/x5
Investment in S
368,010
38,400
5,760
72,000
3,000
3,120
401,970
Dividends – S (40,000x 80%)
Amortization (6,000 x 80%)
Amortization (7,200 x 805)
Investment Income
5,760
NI of S
72,000
(90,000 x 80%)
3,000
Realized gain downstream sale
3,120
Realized gain upstream sale
72,360
Balance, 12/31/x5
Consolidation Workpaper – Second Year after Acquisition
(E1) Common stock – S Co…………………………………………
Retained earnings – S Co, 1/1/x5………………………….
240,00
0
175.20
0
Investment in S Co (P415,200 x 80%)
Non-controlling
20%)………………………..
interest
(P415,200
332,16
0
83,040
x
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)….
Goodwill (P15,000 – P3,900)……………………………..
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……………………………………………….
84,000
198,00
0
7,200
3,600
11,250
216,00
0
17,610
70,440
To eliminate investment on January 1, 20x5 and allocate excess of
cost over book value of identifiable assets acquired, with remainder
to the original amount of goodwill; and to establish non- controlling
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………………..
6,000
6,000
1,200
12,000
Discount
on
payable…………………………
bonds
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:
Inventory sold
Equipment
Buildings
Bonds payable
Totals
Depreciation/
Amortization
Expense
Amortization
-Interest
P 12,000
( 6000)
_______
P 6,000
P 1,200
P1,200
Total
P7,,200
(E4) Investment income
Non-controlling interest (P48,000 x 20%)………………..
Dividends paid – S……………………
Investment in S Company
To eliminate intercompany dividends and investment income under
equity method and establish share of dividends, computed as
follows:
Investment in S
NI of S
38,400
Dividends – S
(90,000
Amortization
x 80%)……. 72,000
5,760
(P72,000 x 80%)
Realized gain* 3,000
Realized gain** 3,120
33,960
*downstream sale (should be multiplied by 100%)
**upstream sale (should be multiplied by 80%)
72,360
9,600
48,000
33,960
Investment Income
Amortization
(P7,200 x 80%)
(E5) Investment in S Company
Equipment
Accumulated depreciation – equipment
5,760
72,000
3,000
3,120
72,360
NI of S
(75,000
x 80%)
Realized gain*
Realized gain**
15,000
30,000
45,000
To eliminate the downstream intercompany gain and restore to its
original cost to the consolidate entity (along with its accumulated
depreciation at the point of the intercompany sale).
(E6) Investment in S Company
Non-controlling interest (P31,200 x 20%)
Equipment
Accumulated depreciation- equipment
24,960
6,240
12,000
43,200
To eliminate the upstream intercompany gain and restore to its
original cost to the consolidate entity (along with its accumulated
depreciation at the point of the intercompany sale).
(E7) Accumulated depreciation –
equipment ………..
Depreciation expense (current
year)……………
Investment in S Company (prior year)
5,250
3,000
2,250
To adjust downstream depreciation expense on equipment sold to
subsidiary, thus realizing a portion of the gain through depreciation
(E8) Accumulated depreciation- equipment……..
Depreciation expense (current year)
7,800
3,900
Investment in S Company (prior year)
Non-controlling interest (P31,200 x 20%)
3,120
780
To adjust upstream depreciation expense on equipment sold to
parent, thus realizing a portion of the gain through depreciation
(P31,200/85 years x 1 year = P3,900).
(E9) Non-controlling interest in Net Income of
Subsidiary…………
Non-controlling interest …………..
17,340
17,340
To establish non-controlling interest in subsidiary’s adjusted net
income for 20x5 as follows:
Net income of subsidiary……………………..
Realized gain on sale of equipment (upstream
sales) through depreciation
S Company’s Realized net income*
Less: Amortization of allocated excess
P 90,000
3,900
P 93,900
( 7,200)
P 86,700
20%
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI)
– partial goodwill
P 17,340
Less: NCI on goodwill impairment loss on fullGoodwill
0
Non-controlling Interest in Net Income (NCINI)
– full goodwill
P 17,340
*from separate transactions that has been realized in transactions
with third persons.
Worksheet for Consolidated Financial Statements, December 31, 20x5.
Equity Method (Full-goodwill)
80%-Owned Subsidiary
December 31, 20x5 (Second Year after Acquisition)
Income Statement
Sales
Investment income
Total Revenue
Cost of goods sold
P Co
P540,000
72,360
P612,360
P216,000
Depreciation expense
Interest expense
Other expenses
Goodwill impairment loss
Total Cost and Expenses
Net Income
NCI in Net Income - Subsidiary
Net Income to Retained Earnings
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
Balance Sheet
Cash……………………….
Accounts receivable……..
S Co.
P360,000
P360,000
P192,000
Dr.
(4)
Cr.
72,360
(7)
3,000
(8)
3,900
Consolidated
P 900,000
___________
P 900,000
P 408,000
83,100
60,000
24,000
(3)
6,000
72,000
P348,000
P264,360
P264,360
54,000
P270,000
P 90,000
P 90,000
(3)
1,200
(1) 175,200
_264,360
P760,170
P 175,200
90,000
P265,200
72,000
-
48,000
P688,170
P217,200
P 688,170
265,200
180,000
P 102,000
96,000
P 367,200
276,000
P
P
(
P
(9) 17,340
P495,810
P
1,200
126,000
618,300
281,700
17,340)
264,360
P495,810
264,360
P 760,170
(5)
48,000
_
72,000
________
Inventory………………….
Land…………………………….
Equipment
216,000
210,000
240,000
108,000
48,000
180,000
Buildings
Discount on bonds payable
Goodwill……………………
Investment in S Co………
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
Non-controlling interest…………
Total
(2)
(2)
(5)
(6)
401,970
P2,233,170
P1,074,000
P 150,000
P 102,000
450,000
306,000
105,000
240,000
600,000
88,800
120,000
688,170
(2)
(5)
(6)
240,000
217,200
_________
P1,074,000
462,000
1,044,000
2,400
11,250
(2) 216,000
(3) 1,200
3,600
11,250
15,000 (1) 332,160
24,960 (2) 70,440
(4) 33,960
(7) 2,250
(8) 3,120
(2) 84,000
(7) 5,250
(8) 7,800
(2) 198,000
(3)
6,000
(3)
(5)
(6)
P2,752,050
12,000
45,000
43,200
P 255,150
552,000
193,800
360,000
600,000
(1) 240,000
688,170
(4)
(6)
___ _____
P2,233,170
324,000
265,200
7,200
30,000
12,000
9,600
6,240
__________
P 933,000
(1) 83,040
(2) 17,610
(8)
780
(9) 17,340
P 933,000
____102,930
P2,752,050
5 and 6. Refer to Problem VI for computations
Note: Using cost model or equity method, the consolidated net income, consolidated
retained earnings, non-controlling interests, consolidated equity on December 31, 20x4 and
20x5 are exactly the same (refer to Problem X solution).
Problem XI
(Determine consolidated net income when an intercompany transfer of equipment occurs.
Includes an outside ownership)
1. Income—ST ...........................................................................................................
Income—BB ...........................................................................................................
Excess amortization for unpatented technology ..........................................
Remove unrealized gain on equipment ........................................................
(P120,000 – P70,000)
Remove excess depreciation created by
inflated transfer price (P50,000 ÷ 5) ..........................................................
Consolidated net income .................................................................................
P220,000
90,000
(8,000)
(50,000)
2. Income calculated in (part a.) ........................................................................
Non-controlling interest in BB's income
Income—BB ..............................................................................
P90,000
Excess amortization .................................................................
(8,000)
Adjusted net income ..............................................................
P82,000
Non-controlling interest in BB’s income (10%)..........................................
Consolidated net income to parent company .............................................
P262,000
3. Income calculated in (part a.) ........................................................................
Non-controlling interest in BB's income (see Schedule 1) ........
(4,200)
Consolidated net income to parent company .............................................
P262,000
10,000
P262,000
(8,200)
P253,800
P257,800
Schedule 1: Non-controlling Interest in Bennett's Income (includes upstream transfer)
Reported net income of subsidiary .................................................................
Excess amortization..............................................................................................
Eliminate unrealized gain on equipment transfer ........................................
Eliminate excess depreciation (P50,000 ÷ 5) ..................................................
Bennett's realized net income ..........................................................................
Outside ownership ..............................................................................................
Non-controlling interest in subsidiary's income ..............................................
P90,000
(8,000)
(50,000)
10,000
P42,000
10%
P 4,200
4. Net income 20x5—ST ..........................................................................................
Net income 20x5—BB .........................................................................................
Excess amortization..............................................................................................
Eliminate excess depreciation stemming from transfer
(P50,000 ÷ 5) (year after transfer) ..............................................................
Consolidated net income ......................................................................
P240,000
100,000
(8,000)
10,000
P342,000
Problem XII
1. On the consolidated balance sheet, the machine must be reported at its original cost when
Tool purchased it on January 1, 20x1, which is P120,000. Since the elimination entry debited
the machine account for P22,000 which must be the amount needed to bring the machine
account up to P120,000, Buzzard must have recorded the machine at P98,000. Since the
remaining useful life is seven years, Buzzard will record P14,000 of depreciation expense each
year.
2. The correct balances on the consolidated balance sheet for the Machine and Accumulated
Depreciation accounts are the balances that would be in the accounts if there had been
no sale. The balance in the machine account would be the original purchase price to Tool
or P120,000. The balance in the Accumulated Depreciation account will be the original
amount of annual depreciation, (P12,000) times the number of years the machine has been
depreciated (4), or P48,000.
3.
The non-controlling interest income will be 30% of Tool’ adjusted net income. Tool’ reported
net income of P60,000 is reduced by the P14,000 unrealized gain on the sale of the machine
and is increased by the piecemeal recognition of the gain, which is P2,000. The net result of
P48,000 is then multiplied by 30% to calculate a P14,400 income for the non-controlling
interest.
Problem XIII
1. Downstream sale of land:
20x4
P 90,000
(25,000)
P 65,000
60,000
P125,000
VV’s separate operating income
Less: Unrealized gain on sale of land
VV’s realized operating income
Spawn’s realized net income
Consolidated net income
Income to non-controlling interest:
(P60,000 x .25)
(P40,000 X .25)
Income to controlling interest
2.
(15,000)
Upstream sale of land:
VV’s separate operating income
SS’s net income
Less: Unrealized gain on sale of land
P60,000
(25,000)
20x5
P110,000
P110,000
40,000
P150,000
P110,000
(10,000)
P140,000
20x4
P 90,000
20x5
P110,000
Spawn’s realized net income
Consolidated net income
Income to non-controlling interest:
(P35,000 x .25)
(P40,000 x .25)
Income to controlling interest
35,000
P125,000
(8,750)
P116,250
40,000
P150,000
(10,000)
P140,000
Problem XIV
1.
Consolidated net income for 20x4 will be greater than PP Company's income from operations
plus SS's reported net income. The eliminating entries at December 31, 20x4, will result in an
increase of P16,000 to consolidated net income.
2.
As a result of purchasing the equipment at less than Parent's book value, depreciation
expense reported by SS will be P2,000 (P16,000 / 8 years) below the amount that would have
been recorded by PP. Thus, depreciation expense must be increased by P2,000 when
eliminating entries are prepared at December 31, 20x5. Consolidated net income will be
decreased by the full amount of the P2,000 increase in depreciation expense.
Problem XV
1. Eliminating entry, December 31, 20x9:
E(1) Buildings and Equipment
Loss on Sale of Building
Accumulated Depreciation
Eliminate unrealized loss on building.
2.
36,000
120,000
Consolidated net income and income to controlling
interest for 20x9:
Operating income reported by BB
Net income reported by TT
Add: Loss on sale of building
Realized net income of TT
Consolidated net income
Income to non-controlling interest (P51,000 x .30)
Income to controlling interest
3.
156,000
Eliminating entry, December 31, 20y0:
E(1)
Buildings and Equipment
Depreciation Expense
Accumulated Depreciation
Retained Earnings, January 1
Non-controlling Interest
Eliminate unrealized loss on building.
Adjustment to buildings and equipment
Amount paid by TT to acquire building
Amount paid by BB on intercompany sale
Adjustment to buildings and equipment
Adjustment to depreciation expense
Depreciation expense recorded by TT
Company (P300,000 / 15 years)
Depreciation expense recorded by BB
Corporation (P144,000 / 9 years)
Adjustment to depreciation expense
P 15,000
36,000
156,000
4,000
P300,000
(144,000)
P156,000
P 20,000
P
(16,000)
4,000
P125,000
51,000
P176,000
(15,300)
P160,700
124,000
25,200
10,800
Adjustment to accumulated depreciation
Amount required (P20,000 x 7 years)
Amount reported by BB (P16,000 x 1 year)
Required adjustment
P140,000
(16,000)
P124,000
Adjustment to retained earnings, January 1, 20y0
Unrealized loss recorded, December 31, 20x9
Proportion of ownership held by BB
Required adjustment
Adjustment to Noncontrolling interest, January 1, 20y0
Unrealized loss recorded, December 31, 20x9
Proportion of ownership held by non-controlling
Interest
Required adjustment
4.
Consolidated net income and income assigned to
controlling interest in 20y0:
Operating income reported by BB
Net income reported by TT
Adjustment for loss on sale of building
Realized net income of TT
Consolidated net income
Income assigned to non-controlling interest
(P36,000 x .30)
Income assigned to controlling interest
P36,000
x
.70
P25,200
P36,000
x
.30
P10,800
P40,000
(4,000)
P150,000
36,000
P186,000
(10,800)
P175,200
Problem XVI
1.
Consolidated net income as
reported
Less: P10,000 deferred gain
Plus: NCI portion of the gain
Plus: Deferred gain
Corrected consolidated net
income
20x4
P 750,000
20x5
P 600,000
20x6
P 910,000
P 743,000
P 600,000
7,000
P 917,000
20x4
P 200,000
-10,000
P 190,000
20x5
P 240,000
-10,000
P 230,000
-10,000
3,000
2.
Land account as reported
Less: Intercompany profit
Restated land account
20x6
P 300,000
P 300,000
3.
Final sales price outside the entity minus the original cost to the combined entity equals
P102,000 minus P72,000 = P30,000
Problem XVII
1.
The gain on the sale of the land in 20x5 was equal to the sales price minus the original cost of
the land when it was first acquired by the combined entity. In this case the gain was P150,000
- P90,000, or P60,000.
2. The consolidated amount of depreciation expense was the combined amounts of depreciation
expense showing on the separate income statements minus the piecemeal recognition of the
gain on the sale of the equipment. Thus, the consolidated amount of depreciation expense
was P95,000 + P32,000 – (P35,000/4 years) = P118,250.
3.
Consolidated net income:
Osprey separate income (not including Income
from Branch)= P153,000 - P55,000 =
Income from Branch
Plus: Deferred gain on land
Plus: Piecemeal recognition of gain on equipment
sale: P35,000 gain/4 years =
Consolidated net income
Problem XVIII
1. Eliminating entry, December 31, 20x7:
E(1) Gain on Sale of Land
Land
2.
P 98,000
20,000
50,000
8,750
P176,750
10,000
Eliminating entry, December 31, 20x8:
E(1) Retained Earnings, January 1
Land
10,000
Eliminating entry, December 31, 20x7:
E(1) Gain on Sale of Land
Land
10,000
Eliminating entry, December 31, 20x8:
E(1)
Retained Earnings, January 1
Non-controlling Interest
Land
6,000
4,000
10,000
10,000
10,000
10,000
Problem XIX
1.
2.
Eliminating entry, December 31, 20x4:
E(1) Gain on Sale of Land
Land
45,000
Eliminating entry, December 31, 20x5:
E(1) Retained Earnings, January 1
Non-controlling Interest
Land
31,500
13,500
Eliminating entries, December 31, 20x4 and 20x5:
E (1) Retained Earnings, January 1
30,000
45,000
45,000
Land
Multiple Choice Problems
1. a
Combined equipment amounts
Less: gain on sale
Consolidated equipment balance
Combined Accumulated Depreciation
Less: Depreciation on gain
Consolidated Accumulated Depreciation
30,000
P1,050,000
25,000
P1,025,000
P 250,000
5,000
P 245,000
2. a
Original cost of
P1,100,000
Accumulated depreciation, 1/1/20x4
P
250,000
Add: Additional depreciation (P1,100,000 – P100,000) / 20 ____50,000
years
Accumulated depreciation, 12/31/20x4
P
300,000
3. a
Combined building amounts
Less: Intercompany gain
Consolidated buildings
P650,000
__30,000
P620,000
Combined Accumulated Depreciation
Less: Piecemeal recognition of gain
Consolidated accumulated depreciation
P195,000
___3,000
P192,000
4. a – the amount of land that will be presented in the presented in the CFS is the original cost
of P416,000 + P256,000 = P672,000.
5.
a
The costs incurred by BB to develop the equipment are research and development
costs and must be expensed as they are incurred. Transfer to another legal entity does
not cause a change in accounting treatment within the economic entity.
6. e
Original cost of
P
100,000
Accumulated depreciation, 1/1/20x6 (P100,000 x 50%)
Add: Additional depreciation (P100,000 – P50,000) / 5 years
Accumulated depreciation, 12/31/20x6
P 50,000
___10,000
P 60,000
7. d
Sales price
Less: Book value
Cost
Less: Accumulated depreciation (50% x P100,000)
Unrealized gain on sale
Less: Realized gain - depreciation (P30,000 / 5 years)
P 80,000
P100,000
__50,000
__50,000
P 30,000
___6,000
Net unrealized gain, 12/31/20x6
P 24,000
8. e
Eliminating entries:
12/31/20x6: subsequent to date of acquisition
Realized Gain – depreciation
Accumulated depreciation
Depreciation expense
[P80,000 - (P100,000 - {P100,000 x 50%])] = P30,000 / 5 years or
P15,000 – P8,000 = P7,000
“Should be in CFS” Parent – Pylux
Depreciation expense
(P50,000 /5 years)
Acc. Depreciation
6,000
6,000
“Recorded as” Subsidiary - Sylux
10,000
8,000
Depreciation expense
(P80,000 / 5 years)
Acc. depreciation
16,000
16,000
9. d
20x4
( 90,000)
Unrealized gain on sales of equipment (downstream sales)
Realized gain on sale of equipment (downstream sales) through depreciation
P90,000 / 10 years
Net
___9,000
( 81,000)
20x5
-09,000
9,000
10. d
20x4
( 150,000)
Unrealized gain on sale of equipment (downstream sales)
Realized gain on sale of equipment (downstream sales) through depreciation
P150,000 / 10 years
Net
___15,000
( 135,000)
20x5
-015,000
15,000
11. a
20x4
( 20,000)
Unrealized gain on sale of equipment (upstream sales) : 50,000 – 30,000
Realized gain on sale of equipment (upstream sales) through depreciation
P20,000 / 5 years
Net
___4,000
( 16,000)
20x5
-0__4,000
__4,000
12. e
Original cost of
P
100,000
Accumulated depreciation, 1/1/20x6
Add: Additional depreciation (P100,000 – P40,000) / 6 years x 2 years
Accumulated depreciation, 12/31/20x4
P
40,000
___20,000
P
70,000
13. c
Sales price
Less: Book value
Cost
Less: Accumulated depreciation
Unrealized loss on sale
Add: Realized loss - depreciation (P12,000 / 6 years) x 2 years
Net unrealized loss, 12/31/20x7
P 48,000
P100,000
__40,000
__60,000
P(12,000)
___4,000
P( 8,000)
14. a
Eliminating entries:
12/31/20x7: subsequent to date of acquisition
Realized Gain – depreciation
Depreciation expense
Accumulated depreciation
[P48,000 - (P100,000 - P40,000) = P(12,000) / 6 years or P10,000 –
P8,000 = P2,000
“Should be in CFS” Parent – Poxey
Depreciation expense
(P60,000 /6 years)
Acc. Depreciation
2,000
2,000
“Recorded as” Subsidiary - Soxey
10,000
10,000
Depreciation expense
(P48,000 / 6 years)
Acc. depreciation
8,000
8,000
15. c
Original cost of
P 100,000
Accumulated depreciation, 1/1/20x6 (P100,000 - P20,000)
Add: Additional depreciation (P100,000 – P80,000) / 5 years x 2 years
Accumulated depreciation, 12/31/20x7
P 80,000
____8,000
P 88,000
16. c
Sales price
Less: Book value
Cost
Less: Accumulated depreciation
Unrealized gain on sale
Less: Realized gain - depreciation (P25,000 / 5 years) x 2 years
Net unrealized gain, 12/31/20x7
P 45,000
P100,000
__80,000
17. b
Eliminating entries:
12/31/20x7: subsequent to date of acquisition
Realized Gain – depreciation
Accumulated depreciation
Depreciation expense
[P45,000 - (P100,000 - P80,000) = P25,000 / 5 years or P4,000 – P9,000
= P5,000
“Should be in CFS” Parent – Sayex
Depreciation expense
(P20,000 /5 years)
Acc. Depreciation
__20,000
P 25,000
__10,000
P 15,000
5,000
5,000
“Recorded as” Subsidiary - Payex
4,000
4,000
Depreciation expense
(P45,000 / 5 years)
Acc. depreciation
9,000
9,000
18. c
19. b
20. c – (P20,000/20 years = P1,000), the eliminating entry to recognize the gain – depreciation
would be as follows:
Accumulated depreciation……………………………………………… 1,000
Depreciation expenses…………………………………………..
1,000
21. a
The truck account will be debited for P3,000 in the eliminating entry:
Truck
3,000
Gain
15,000
Accumulated depreciation
18,000
Seller
Cash
Accumulated
Truck
Gain
50,000
18,000
53,000
15,000
Buyer
Truck
Cash
50,000
50,000
22. b
Consolidated Net Income for 20x5
P Company’s net income from own/separate operations………….
Realized gain on sale of equipment (downstream sales) through depreciation
P Company’s realized net income from separate operations*…….…..
S Company’s net income from own operations………………………………….
Unrealized gain on sales of equipment (upstream sales)
Realized gain on sale of equipment (upstream sales) through depreciation
(P15,000 / 3 years)
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.
P 98,000
___0
P 98,000
P 55,000
(15,000)
5,000
P 45,000
45,000
P143,000
0
P143,000
18,000
P125,000
Or, alternatively
Consolidated Net Income for 20x5
P Company’s net income from own/separate operations………….
Realized gain on sale of equipment (downstream sales) through depreciation
P Company’s realized net income from separate operations*…….…..
S Company’s net income from own operations………………………………….
Unrealized gain on sales of equipment (upstream sales)
Realized gain on sale of equipment (upstream sales) through depreciation
(P15,000 / 3 years)
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.
**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)
Unrealized gain on sales of equipment (upstream sales)
Realized gain on sale of equipment (upstream sales) through depreciation
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 98,000
___0
P 98,000
P 55,000
(15,000)
5,000
P 45,000
P 18,000
____0
45,000
P143,000
18,000
P125,000
_ 18,000
P143,000
P 55,000
( 15,000)
5,000
P 45,000
0
P 45,000
40%
P 18,000
Less: NCI on goodwill impairment loss on full-goodwill . . . . . . . . . . . . . . . . . . . . .
Non-controlling Interest in Net Income (NCINI) – full goodwill . . . . . . . . . . . . .
23.
24.
25.
26.
27.
0
P 18,000
a - refer to No. 22 computation
a
a
b
d – the entry under the cost model would be as follows ;
Accumulated depreciation……………………………………………. 4,000
Depreciation expenses (current year) – P6,000/3 years….
2,000
Retained earnings (prior year – 20x4)………………………..
2,000
28. d – the entry under the cost model would be as follows ;
Accumulated depreciation……………………………………………. 10,000
Depreciation expenses (current year) – P15,000/3 years..
5,000
Retained earnings (prior year – 20x5)………………………..
5,000
29. a
30. b
31. c – P50,000/5 years = P10,000 per year starting January 1, 20x6.
32. b
Depreciation expense recorded by Pirn
Depreciation expense recorded by Scroll
Total depreciation reported
Adjustment for excess depreciation charged
by Scroll as a result of increase in
carrying value of equipment due to gain
on intercompany sale (P12,000 / 4 years)
Depreciation for consolidated statements
33. e
P40,000
10,000
P50,000
(3,000)
P47,000
Depreciation expense:
Parent
Subsidiary
Total
Less: Over-depreciation due to realized gain:
[P115,000 – (P125,000 – P45,000)] = P35,000/8 years
Consolidated income statement
P 84,000
60,000
P144,000
__ 4,375
P139,625
34. c
20x6
( 56,000)
___7,000
( 49,000)
Unrealized gain on sale of equipment
Realized gain on sale of equipment (upstream sales) through depreciation
Net
Selling price
Less: Book value, 1/1/20x6
Cost, 1/1/20x2
Less: Accumulated depreciation: P420,000/10 years x 2 years
Unrealized gain on sale of equipment
Realized gain – depreciation: P56,000/8 years
P 392,000
P420,000
84,000
336,000
P 56,000
P 7,000
35. c – (P22,500 x 4/15 = P6,000)
36. a – [P50,000 – (P50,000 x 4/10) = P30,000]
37. b
The P39,000 paid to GG Company will be charged to depreciation expense by TLK
Corporation over the remaining 3 years of ownership. As a result, TLK Corporation will
debit depreciation expense for P13,000 each year. GG Company had charged
P16,000 to accumulated depreciation in 2 years, for an annual rate of P8,000.
Depreciation expense therefore must be reduced by P5,000 (P13,000 - P8,000) in
preparing the consolidated statements.
38.
a
TLK Corporation will record the purchase at P39,000, the amount it paid. GG Company
had the equipment recorded at P40,000; thus, a debit of P1,000 will raise the equipment
balance back to its original cost from the viewpoint of the consolidated entity.
39.
b
Reported net income of GG Company
Reported gain on sale of equipment
Intercompany profit realized in 20x6
Realized net income of GG Company
Proportion of stock held by
non-controlling interest
Income assigned to non-controlling interests
40.
c
P15,000
(5,000)
P 85,000
45,000
P130,000
Less: Unrealized gain on sale of equipment
(P15,000 - P5,000)
Consolidated net income
(10,000)
P120,000
41. b
Eliminating entries:
12/31/20x5: date of acquisition
Restoration of BV and eliminate unrealized gain
Equipment
Gain
Accumulated depreciation
Parent Books – Mortar
(10,000)
P 35,000
x
.40
P 14,000
Operating income reported by TLK Corporation
Net income reported by GG Company
Cash
Accumulated depreciation
Equipment
Gain
P 45,000
10,000
150,000
160,000
Subsidiary Books – Granite
390,000
160,000
Equipment
Cash
390,000
390,000
400,000
150,000
Mortar
Selling price
Less: Book value, 12/31/20x5
Cost, 1/1/20x2
Less: Accumulated depreciation : P400,000/10 years x 4 years
Unrealized gain on sale of equipment
Realized gain – depreciation: P150,000/6 years
42. a – refer to No. 41 for computation
43. b - refer to No. 41 for computation
44. d
Eliminating entries:
12/31/20x6: subsequent to date of acquisition
Realized Gain – depreciation
Accumulated depreciation
Depreciation expense
P150,000 / 6 years or P65,000 – P40,000
“Should be in CFS” Parent Books – Mortar
P390,000
P400,000
160,000
240,000
P 150,000
P 25,000
25,000
25,000
“Recorded as” Subsidiary Books - Granite
Depreciation expense
(P400,000 / 10 years)
Acc. Depreciation
40,000
40,000
Depreciation expense
(P390,000 / 6 years)
Acc. depreciation
65,000
65,000
45. c
Eliminating entries:
12/31/20x6: subsequent to date of acquisition
Equipment
Retained earnings (150,000 – 25,000)
Accumulated depreciation (P160,000 – P25,000)
46. a
47. d
48. b
10,000
100,000
135,000
Total gain on the sale = P1,000,000 – (P500,000 - P150,000) = P650,000
Unconfirmed gain after three years = 2/5 x P650,000 = P260,000
Depreciation to 1/1/x3 is P25,000
Depreciation expense for 20x3 and 20x4 is (P85,000 - P25,000)/6 = P10,000 per year
Therefore accumulated depreciation at 12/31/x4 is P45,000.
Net equipment balance is P85,000 - P45,000 = P40,000.
At the end of two years, the subsidiary reports the equipment at original cost of P2,500,000
and accumulated depreciation of (P2,500,000/10) x 2 = P500,000. Depreciation expense
is P250,000.
The consolidated balance sheet reports the equipment at original cost of P1,000,000 and
accumulated depreciation of P200,000 + ([(P1,000,000 - P200,000)/10] x 2) = P360,000.
Depreciation expense is P80,000.
Eliminating entries at the end of the second year are:
Accumulated depreciation
Investment in subsidiary
170,000
1,530,000
Equipment
Equipment
1,700,000
200,000
Accumulated
depreciation
Accumulated depreciation
200,000
170,000
Depreciation expense
49. d
50. d
51. a
170,000
The subsidiary reports depreciation expense for the year at P500,000 (P2,500,000/5) and a
gain on the sale at P1,750,000 [P2,750,000 - ((P2,500,000 - (3)(P500,000))]. The consolidated
statements show depreciation expense for the year at P600,000 (P3,000,000/5) and a gain
on the sale at P1,550,000 [P2,750,000 - ((P3,000,000 - (3)(P600,000))]. Therefore the
eliminating entries increase depreciation expense by P100,000 and reduce the gain by
P200,000, for a net effect on consolidated income of: P300,000 decrease.
Consolidated Net Income for 20x9
P Company’s net income from own/separate operations………….
Realized gain on sale of equipment (downstream sales) through depreciation
P Company’s realized net income from separate operations*…….…..
S Company’s net income from own operations………………………………….
Unrealized loss on sale of equipment (upstream sales)
Realized loss on sale of equipment (upstream sales) through depreciation –
P 140,000
___0
P 140,000
P 30,000
20,000
none, since the date of sale is end of the year
S Company’s realized net income from separate operations*…….…..
Total
Less: Amortization of allocated excess……………………
Consolidated Net Income for 20x9
Less: Non-controlling Interest in Net Income* *
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent – 20x9…………..
*that has been realized in transactions with third parties.
Selling price
Less: Book value, 12/31/20x9
Cost, 1/1/20x4
Less: Accumulated depreciation : P500,000/10 years x 6 years
Unrealized loss on sale of equipment
Realized loss – depreciation: P20,000/4 years
(
0)
P 50,000
50,000
P190,000
0
P190,000
15,000
P175,000
P180,000
P500,000
300,000
200,000
P( 20,000)
P( 5,000)
Or, alternatively
Consolidated Net Income for 20x9
P Company’s net income from own/separate operations………….
Realized gain on sale of equipment (downstream sales) through depreciation
P Company’s realized net income from separate operations*…….…..
S Company’s net income from own operations………………………………….
Unrealized loss on sale of equipment (upstream sales)
Realized loss on sale of equipment (upstream sales) through depreciation
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 20x9
*that has been realized in transactions with third parties.
P 140,000
___0
P 140,000
P 30,000
20,000
(
0)
P 50,000
50,000
P190,000
P 15,000
____0
15,000
P175,000
_ 15,000
P190,000
**Non-controlling Interest in Net Income (NCINI) for 20x9
S Company’s net income of Subsidiary Company from its own operations
(Reported net income of S Company)
Unrealized loss on sale of equipment (upstream sales)
Realized loss on sale of equipment (upstream sales) through depreciation
S Company’s realized net income from separate operations………
Less: Amortization of allocated excess
P 30,000
(
P
P
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
P
20,000
0)
50,000
0
50,000
30%
15,000
0
15,000
52. b
Consolidated Net Income for 20y0
P Company’s net income from own/separate operations………….
Realized gain on sale of equipment (downstream sales) through depreciation
P Company’s realized net income from separate operations*…….…..
S Company’s net income from own operations………………………………….
Unrealized loss on sale of equipment (upstream sales)
Realized loss on sale of equipment (upstream sales) through depreciation
S Company’s realized net income from separate operations*…….…..
Total
Less: Amortization of allocated excess……………………
Consolidated Net Income for 20y0
Less: Non-controlling Interest in Net Income* *
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent – 20y0…………..
*that has been realized in transactions with third parties.
P 162,000
___0
P 162,000
P 45,000
( 5,000)
P 40,000
40,000
P202,000
0
P202,000
7,500
P194,500
Or, alternatively
Consolidated Net Income for 20y0
P Company’s net income from own/separate operations………….
Realized gain on sale of equipment (downstream sales) through depreciation
P Company’s realized net income from separate operations*…….…..
S Company’s net income from own operations………………………………….
Unrealized loss on sale of equipment (upstream sales)
Realized loss on sale of equipment (upstream sales) through depreciation
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 20y0
*that has been realized in transactions with third parties.
P 162,000
___0
P 162,000
P 45,000
( 5,000)
P 40,000
P 7,500
____0
P 30,000
( 5,000)
P 25,000
0
P 25,000
30%
P 7,500
0
P 7,500
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 . . . . . . . . . . . . .
53. d
Eliminating entries:
1/1/20x5: date of acquisition
Restoration of BV and eliminate unrealized gain
Building
Gain
Accumulated depreciation
Parent Books – Sky
7,500
P194,500
_ _ 7,500
P202,000
**Non-controlling Interest in Net Income (NCINI) for 20y0
S Company’s net income of Subsidiary Company from its own operations
(Reported net income of S Company)
Unrealized loss on sale of equipment (upstream sales)
Realized loss on sale of equipment (upstream sales) through depreciation
S Company’s realized net income from separate operations………
Less: Amortization of allocated excess
Cash
Accumulated depreciation
Building
Gain
40,000
P202,000
3,000
8,250
11,250
Subsidiary Books - Earth
33,000
11,250
Building
Cash
33,000
33,000
36,000
8,250
Sky, 7/1/20x4
Selling price
Less: Book value, 7/11/20x4
Cost, 1/1/20x2
Less: Accumulated depreciation : P36,000/8years x 2.5 years
Unrealized gain on sale of equipment
Realized gain – depreciation: P8,250/5.5 years
54. a - refer to No. 53 for computation
55. b
Eliminating entries:
12/31/20x4: subsequent to date of acquisition
Realized Gain – depreciation (July 1, 20x4 – December 31, 20x4)
Accumulated depreciation
P33,000
P36,000
11,250
24,750
P 8,250
P 1,500
750
Depreciation expense
P8,250 / 5.5 x ½ years or P3,000 – P2,250
“Should be in CFS” Parent Books – Sky
“Recorded as” Subsidiary Books - Earth
Depreciation expense
(P24,750 / 5.5 x ½ years)
Acc. Depreciation
Depreciation expense
(P33,000 / 5.5 years x ½ yrs)
Acc. depreciation
2,250
2,250
56. c
Eliminating entries:
12/31/20x5: subsequent to date of acquisition
Realized Gain – depreciation
Accumulated depreciation
Depreciation expense
P8,250 / 5.5 x years or P6,000 – P4,500
“Should be in CFS” Parent Books – Sky
Depreciation expense
(P24,750 / 5.5 years)
Acc. Depreciation
750
3,000
3,000
1,500
1,500
“Recorded as” Subsidiary Books - Earth
4,500
4,500
Depreciation expense
(P33,000 / 5.5 years)
Acc. depreciation
6,000
6,000
57. d
Eliminating entries:
1/1/20x5: subsequent to date of acquisition
Building
Retained earnings (8,250 – 750)
Accumulated depreciation (P11,250 – P750)
3,000
7,500
10,500
58.
59.
60.
61.
62.
d - P60,000 - P36,000 = P24,000 debit
b - P36,000 - (P60,000 - P31,200) = P7,200 gain (debit)
c - (P36,000/6)(8/12) - [(P60,000 - P31,200)/6](8/12) = P800 credit
a - P31,200 - {(P36,000/6)(8/12) - [(P60,000 - P31,200)/6](8/12)} = P30,400 credit
c - P36,000 - (P60,000 - P31,200) = P7,200 gain (debit)
(P36,000/6)(8/12) - [(P60,000 - P31,200)/6](8/12) = P800 credit
63. b
P72,000 - (P96,000 - P36,600) = P12,600 gain (debit)
(P72,000/5)(4/12) - [(P96,000 - P36,600)/5](4/12) = P840 (credit)
(P12,600 - P840) .1 = P1,176 debit
64.
65.
66.
67.
68.
d
When only retained earnings is debited, and not the non-controlling interest, a gain has
been recorded in a prior period on the parent's books.
d
a
b
b – at its original cost or book value.
69. b
20x4: Any intercompany gain should be eliminated in the CFS.
20x5
Selling price – unrelated party
Less: Original Book value, 9/26/20x5
Accumulated depreciation, 9/26/20x5
P 100,000
__60,000
P 40,000
70. d – P30,000 + P40,000 = P70,000
S
Selling price
Less: Book value
P
Consolidated
Gain
P 30,000
P
40,000
P 70,000
P (Lorikeet)
P 110,000
__50,000
P 60,000
Consolidated
P 110,000
_30,000
P 80,000
71. d – P110,000 – P30,000 = P80,000
S (Nectar)
P 50,000
_30,000
P 20,000
Selling price
Less: Book value
Gain
72. d
Selling price
Less: Book value: Cost
P2,000,000
Accumulated
___200,000
Unrealized gain on sale of
equipment
Realized Gain – depreciation
(P180,000/9 x 6 yrs)
Net unrealized gain, 1/1/20x9
Gain on sale
*P1,980,000/ 9 x 6 years = P1,320,000
**P1,800,000/9 x 6 years = P1,200,000
S
P1,980,000
1,800,00
P
P1,440,000
P1,980,000
*1,320,000
Consolidated
P1,440,000
P 1,800,000
**1,200,000
660,000
__600,000
P 180,000
120,000
P 60,000
P 60,000
P 780,000
P 840,000
73. d –(P100,000 + P50,000 = P150,000)
P
S
Selling price
Less: Book value
Gain
P 100,000
P
Consolidated
50,000
P 150,000
74. c
Selling price
Less: Book value : Cost
Accumulated
Unrealized gain on sale of
Equipment,1/1/20x4
Realized Gain – depreciation
(P90,000/9 x 4 yrs)
Net unrealized gain, 1/1/20x8
Gain on sale
*P990,000/ 9 x 4 years = P440,000
**P900,000/9 x 4 years = P400,000
S
P 990,000
P1,000,000
100,000
__900,000
P
P720,000
P990,000
*440,000
550,000
Consolidated
P 720,000
P 900,000
**400,000
__500,000
P 90,000
40,000
P 50,000
P 50,000
__________
P 170,000
___________
P 220,000
75. d – (P30,000 + P15,000)
76. c
Selling price – unrelated party
Less: Original Book value, 12/31/20x5
Book value, 1/1/20x4
Less: Depreciation for 20x4 and 20x5: P20,000/4 years x 2 years
Accumulated depreciation, 12/31/20x4
P 14,000
P20,000
10,000
10,000
P 4,000
77. b
Selling price
Less: Book value : Cost
Accumulated
Unrealized gain on sale of
Equipment, 12/30/20x3
Realized Gain – depreciation
(P10,000/6 x 3 yrs)
Net unrealized gain, 12/31/20x6
Gain on sale
*P100,000/6 x 3 years = P48,000
***P90,000/6 x 3 years = P45,000
Sort
P 100,000
P 120,000
__30,000
__90,000
Fort
P 65,000
P100,000
**50,000
50,000
Consolidated
P 65,000
P 90,000
**45,000
__45,000
P 10,000
__ 5,000
P 5,000
P 5,000
__________
P 15,000
_________
P 20,000
78. b
Depreciation expense: (P50,000 - P40,000) / 10 years = P1,000 over depreciation
79. b
**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 gain on sales of equipment (upstream sales) (P700,000 – P600,000)
Realized gain on sale of equipment (upstream sales) through depreciation (P100,000/10)
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 . . . . . . . . . . . . .
P2,000,000
( 100,000)
10,000
P1,910,000
_
0
P1,910,000
__40%
P 764,000
__
0
P 764,000
80. a
**Non-controlling Interest in Net Income (NCINI) for 20y2
S Company’s net income of Subsidiary Company from its own operations
(Reported net income of S Company)
Unrealized gain on sale of equipment (downstream sales)
Realized gain on sale of equipment (downstream sales) through depreciation
S Company’s realized net income from separate operations………
Less: Amortization of allocated excess
P 135,000
(
0)
P 135,000
0
P 135,000
20%
P 27,000
0
P 27,000
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 . . . . . . . . . . . . .
81. a
Consolidated Net Income for 20y2
P Company’s net income from own/separate operations………….
Realized gain on sale of equipment (downstream sales) through depreciation
P Company’s realized net income from separate operations*…….…..
S Company’s net income from own operations………………………………….
Unrealized gain on sale of equipment (upstream sales)
Realized gain on sale of equipment (upstream sales) through depreciation
S Company’s realized net income from separate operations*…….…..
Total
Less: Amortization of allocated excess……………………
Consolidated Net Income for 20y2
Less: Non-controlling Interest in Net Income* *(refer to No. 80)
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent – 20y2…………..
*that has been realized in transactions with third parties.
Net income from own operations:
Sales
Less: Cost of goods sold
Other expenses (including depreciation)
Income tax expense
Net income from own operations
Add: Dividend income
Net income
Sexton, 1/1/20y1
Selling price
Less: Book value, 1/1/20y1
Cost, 1/1/20x1
Less: Accumulated depreciation : P400,000/25 years x 10 years
Unrealized gain on sale of equipment
Realized gain – depreciation: P120,000/15 years
P 200,800
_ 8,000
P 208,800
P 135,000
(
0)
P 135,000
135,000
P343,800
0
P343,800
27,000
P316,800
Prout
P1,475,000
942,000
145,000
__187,200
P 200,800
____80,000
P 280,800
Sexton
P1,110,000
795,000
90,000
____90,000
P 135,000
P 135,000
P360,000
P400,000
160,000
240,000
P120,000
P 8,000
Or, alternatively
Consolidated Net Income for 20y2
P Company’s net income from own/separate operations………….
Realized gain on sale of equipment (downstream sales) through depreciation
P Company’s realized net income from separate operations*…….…..
S Company’s net income from own operations………………………………….
Unrealized gain on sale of equipment (upstream sales)
Realized gain on sale of equipment (upstream sales) through depreciation
S Company’s realized net income from separate operations*…….…..
Total
Less: Non-controlling Interest in Net Income* * (refer to No. 80)
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 20y2
*that has been realized in transactions with third parties.
P 200,800
_ 8,000
P 208,800
P 135,000
(
0)
P 135,000
P 27,000
____0
135,000
P343,800
27,000
P316,800
_ _27,000
P343,800
82. a – refer to No. 81
83. c
Consolidated Retained Earnings, December 31, 20y2
Retained earnings - Parent Company, January 1, 20y1 (cost model)
Less: Downstream - net unrealized gain on sale of equipment – prior to 20y1
[P120,000 – (P8,000 x 1 year)]
Adjusted Retained Earnings – Parent 1/1/20y1 (cost model ) Son 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, 20x9
Less: Retained earnings – Subsidiary, January 1, 20y1
Increase in retained earnings since date of acquisition
Less: Amortization of allocated excess – 20x9 to – 20y0
Upstream - net unrealized gain on sale of equipment –prior to
20y1
Multiplied by: Controlling interests %...................
Less: Goodwill impairment loss
Consolidated Retained earnings, January 1, 20x5
Add: Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent for 20x5
Total
Less: Dividends declared – Parent Company for 20y1
Consolidated Retained Earnings, December 31, 20y1
P1,300,000
112,000
P1,188,000
P 800,000
1,040,000
P 240,000
0
0
P 240,000
80%
P192,000
0
_192,000
P1,380,000
316,800
P1,696,800
120,000
P1,576,8000
Or, alternatively:
Consolidated Retained Earnings, December 31, 20y2
Retained earnings - Parent Company, December 31, 20y1 (cost model)
(P1,300,000 + P280,800 – P120,000)
Less: Downstream - net unrealized gain on sale of equipment – prior to
12/31/20y1 [P120,000 – (P8,000 x 2 years)]
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, 20y2
(P1,040,000 + P135,000 – P100,000)
Less: Retained earnings – Subsidiary, January 1, 20x9
Increase in retained earnings since date of acquisition
P1,460,800
104,000
P1,356,800
P 1,075,000
800,000
P 275,000
Less: Accumulated amortization of allocated excess
Upstream - net unrealized gain on sale of equipment – prior to
12/31/20y2
Multiplied by: Controlling interests %...................
Less: Goodwill impairment loss
Consolidated Retained earnings, December 31, 20y2
0
_______0
P 275,000
80%
P 220,000
_____0
220,000
P1,576,800
84. c
Non-controlling interest (fulll-goodwill), December 31, 20y2
Common stock – Subsidiary Company, December 31, 20y2……
Retained earnings – Subsidiary Company, December 31, 20y2
Retained earnings – Subsidiary Company, January 1, 20y2
Add: Net income of subsidiary for 20y2
Total
Less: Dividends paid – 20y2
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) :
Fair value of stockholders’ equity of subsidiary, December 31, 20x5……
Less: Upstream - net unrealized gain on sale of equipment – prior to
12/31/20y2
Realized stockholders’ equity of subsidiary, December 31, 20x5……….
Multiplied by: Non-controlling Interest percentage…………...
Non-controlling interest (partial goodwill)…………………………………..
P 1,200,000
P1,040,000
135,000
P1,175,000
100,000
1,075,000
P 2,275,200
0
0
P2,275,200
_____)0
P 2,275,00
_
20
P 455,000
85. c
Selling price
Less: Book value : Cost
Accumulated
Unrealized gain on sale of
Equipment, 1/1/20y1
Realized Gain – depreciation
(P120,000/15 x 2 yrs)
Net unrealized gain, 1/1/20y3
Gain on sale
*P400,000/25 x 10 years = P160,000
**P360,000/15 x 2 years = P48,000
***P240,000/15 x 2years = P400,000
Prout
P 360,000
P 400,000
*160,000
__240,000
Sexton
P300,000
P360,000
**48,000
312,000
Consolidated
P 300,000
P 240,000
***32,000
_208,000
P 120,000
__16,000
P 104,000
P 104,000
__________
P( 12,000)
_________
P 92,000
86. b – refer to No. 85
87. a – refer to No. 85
Analysis:
Workpaper entries (not required)
Intercompany Sale of Equipment
Accumulated
Remaining
Cost Depreciation Carrying Value
Life
Depreciation
Original Cost
P400,000 P160,000
P240,000
15 yr P 16,000
Intercompany Selling Price 360,000_______
360,000
15 yr
24,000
Difference
P 40,000 P160,000
P120,000
P 8,000
(1) Investment in Sexton Company
Retained Earnings - Prout
To establish reciprocity/convert to equity (.80 x (P1,040,000 - P800,000))
192,000
192,000
(2) Equipment
Beginning Retained Earnings - Prout
Accumulated Depreciation
40,000
120,000
160,000
To reduce beginning consolidated retained earnings by amount of unrealized profit at
the beginning of the year, to restate property and equipment to its book value to Prout
Company on the date of the intercompany sale.
(3) Accumulated Depreciation
Depreciation Expense
Beginning Retained Earnings - Prout
16,000
(4) Dividend Income
Dividends Declared
80,000
8,000
8,000
To reverse amount of excess depreciation recorded during current year and recognize an equivalent amount
of intercompany profit as realized
To eliminate intercompany dividends
80,000
(5) Beginning Retained Earnings – Sexton
1,040,000
Common Stock – Sexton
1,200,000
Investment in Sexton Company (P1,600,000 + P192,000)
1,792,000
Noncontrolling Interest [P400,000 + (P1,040,000 - P800,000) x .20] 448,000
To eliminate investment account and create noncontrolling interest account
Entry analysis:
Journal Entry on the books of Sexton to record the sale
Cash
300,000
Accumulated Depreciation - Fixed Assets (P360,000/15) x 2 years)48,000
Loss on Sale of Equipment
12,000
Plant and Equipment
360,000
Workpaper eliminating entry on December 31, 20y3 consolidated statement
necessary to prepare consolidated statements:
Beginning Retained Earnings – Prout(P120,000 - P16,000) 104,000
Loss on Sale of Equipment
12,000
Gain on Sale of Equipment
92,000
Cost to the Affiliated Companies
P400,000
Accumulated Depreciation Based on Original Cost ((12/25)x P400,000)
192,000
Book Value, 1/1/y3
P 208,000
Proceeds from Sale to Non-affiliate
(300,000)
Gain from consolidated point of view
P 92,000
Note: As of Dec. 31, 20y3, the amount of profit recorded by the
affiliates on their books (P120,000 - P12,000 = P108,000) is equal to
the amount of profit considered realized in the consolidated
financial statements (P8,000 + P8,000 + P92,000) = P108,000.
88. d - Investment in subsidiary, 12/31/20x5 (cost model) P700,000).
Date of Acquisition (1/1/20x4)
Partial
Fair value of consideration given…………………….P 700,000
Less: Book value of SHE - Subsidiary):
Full
(P300,000 + P500,000) x 80%........................... 640,000
Allocated Excess.………………………………………….P 60,000
Less: Over/Undervaluation of Assets & Liabilities
Increase in Bldg. (P75,000 x 80%)……………… 60,000
Goodwill ………….………………………………………….P
0
P
0
Amortization of allocated excess: building - P75,000 / 25 years = P3,000
Upstream Sale of Equipment (date of sale – 4/1/20x5):
Sales.......................................................................................................P
60,000
Less: Book value of
equipment………………………………………………………………. 30,000
Unrealized Gain (on sale of
equipment)……………………………………………………P 30,000
Realized gain on sale of equipment:
20x5: P30,000/5 years = P6,000 x 9/12 (4/1/20x512/31/20x5)…………………………. .P 4,500
20x6 ………………..……………………………………………………………………………P
6,000
Downstream Sale of Machinery (date of sale – 9/30/20x5):
Sales.........................................................................................................................
........... P75,000
Less: Book value of
machinery………………………………………………………………. 40,000
Unrealized Gain (on sale of
machinery)…………………………………………………… P35,000
Realized gain on sale of machinery:
20x5: P35,000/10 years = P3,500 x 3/12 (9/30/20x512/31/20x5)………. ……………… .P 875
20x6………….. ………………………………………………………………………………...P
3,500
89. d
Dividend paid or declared – S…………………………………………………P 50,000
x: Controlling Interest %………………………………………………………….
80%
Dividend income of Parent……………………………………………………..P 40,000
90. d
Consolidated Net Income for 20x5
P Company’s net income from own/separate operations………….
Net unrealized gain on sale of equipment (downstream sales) through
depreciation P35,000 – P875)
P Company’s realized net income from separate operations*…….…..
S Company’s net income from own operations………………………………….
Unrealized gain on sales of equipment (upstream sales)
Realized gain on sale of equipment (upstream sales) through depreciation
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.
P 300,000
34,125
P 265,875
P 150,000
(30,000)
4,500
P 124,500
124,500
P390,375
3,000
P387,375
24,300
P363,075
Or, alternatively
Consolidated Net Income for 20x5
P Company’s net income from own/separate operations………….
Net unrealized gain on sale of equipment (downstream sales) through
depreciation P35,000 – P875)
P Company’s realized net income from separate operations*…….…..
S Company’s net income from own operations………………………………….
Unrealized gain on sales of equipment (upstream sales)
Realized gain on sale of equipment (upstream sales) through depreciation
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.
**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)
Unrealized gain on sales of equipment (upstream sales)
Realized gain on sale of equipment (upstream sales) through depreciation
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 . . . . . . . . . . . . .
91. c – refer to No. 90 for computations
92. d – refer to No. 90 for computations
93. a
P 300,000
34,125
P 265,875
P 150,000
(30,000)
4,500
P 124,500
P 24,300
3,000
124,500
P390,375
27,300
P363,075
_ 24,300
P387,375
P 150,000
( 30,000)
4,500
P 124,500
3,000
P 121,500
20%
P 24,300
0
P 24,300
20x6
Non-controlling Interests (in net assets):
20x5
Common stock - S, 12/31..….…………………………
P 300,000
P 300,000
Retained earnings - S, 12/31:
RE- S, 1/1.…………………………………………….P600,000
P
700,000
+: NI-S………………………………………………… 150,000
200,000
-: Div – S…………………………………………….. 50,000 700,000
70,000 830,000
Book value of Stockholders’ equity, 12/31……....
P1,000,000
P1,130,000
Adjustments to reflect fair value of net assets
Increase in equipment, 1/1/2010..……..…
75,000
75,000
Accumulated amortization (P3,000 per year)*.……
(
6,000)
(
9,000)
Fair Value of Net Assets/SHE, 12/31..………………
P1,069,000
P1,196,000
Unrealized gain on sale of equipment (upstream)
( 30,000)
**( 25,500)
Realized gain thru depreciation (upstream)………
4,500
6,000
Realized SHE – S,12/31…………………………………..
P1,043,500
P1,176,500
x: NCI %........................................................... …………
___
20%
20%
Non-controlling Interest (in net assets) – partial...
P 208,700
P 235,300
+: NCI on full goodwill……..……………………………..
0
0
Non-controlling Interest (in net assets) – full……..
P 208,700
P
235,300
* 20x5: P3,000 x 2 years; 2012: P3,000 x 3 years;
** P30,000 – P4,500 realized gain in 20x5 = P25,500.
Note: Preferred solution - since what is given is the RE – P, 1/1/20x5(beginning
balance of the current year) Retained earnings – Parent, 1/1/20x5 (cost)……………………………
P 800,000
-: Downstream sale – 20x4 or prior to 20x5, Net unrealized gain
0
Adjusted Retained earnings – Parent, 1/1/20x5 (cost)………………
P 800,000
Retroactive Adjustments to convert Cost to “Equity”:
Retained earnings – Subsidiary, 1/1/20x4……………………….P
500,000
Less: Retained earnings – Subsidiary, 1/1/20x5……………….. 600,000
Increase in Retained earnings since acquisition
(cumulative net income – cumulative dividends)…………P
100,000
Accum. amortization (1/1/x4– 1/1/x5): P2,000 x 1 year…….. ( 3,000)
Upstream Sale – 2010 or prior to 20x5,
Net
unrealized
gain……………………………..……………….(
0)
P 97,000
X: Controlling Interests %..……………………………………………
80%
77,600
RE – P, 1/1/20x5 (equity method) = CRE, 1/1/20x5…………………
P 877,600
+: CI – CNI or Profit Attributable to Equity Holders of Parent…….
363,075
-: Dividends – P…………………………………………………………………..
100,000
RE – P, 12/31/20x5 (equity method) = CRE, 12/31/20x5…………..
P
1,140,675
Or, if RE – P is not given on January 1, 20x5, then RE – P on December 31, 20x5
should be use.
Retained earnings – Parent, 12/31/20x5 (cost model):
(P800,000 + P340,000, P’s reported NI – P100,000)………………
P1,040,000
-: Downstream sale – 20x5 or prior to 12/31/20x5,
Net unrealized gain - (P35,000 – P875)…………………………….
34,125
Adjusted Retained earnings – Parent, 1/1/20x5 (cost model)..……
P1,005,875
Retroactive Adjustments to convert Cost to “Equity”:
Retained earnings – Subsidiary, 1/1/20x4……………………….P
500,000
Less: Retained earnings – Subsidiary, 12/31/20x5
(P600,000 + P150,000 – P50,000)..…………..…………….
700,000
Increase in Retained earnings since acquisition
(cumulative net income – cumulative dividends)……. ….P
200,000
Accumulated amortization (1/1/20x4 – 12/31/20x5):
P
3,000
x
2
years……………………………………………. .( 6,000)
Upstream Sale – 20x5 or prior to 12/31/20x5,
Net unrealized gain – (P30,000 – P4,500)……………. ( 25,500)
P 168,500
x: Controlling Interests %..…………………………………………
80%
134,800
RE – P, 12/31/20x5 (equity method) = CRE, 12/31/20x5………….
P1,140,675
94. c – refer to No, 93 computations.
95. b – refer to No. 93 for computations
96. d – refer to No. 93 for computations
97. b
Consolidated Stockholders’ Equity, 12/31/20x5:
Controlling Interest / Parent’s Interest / Parent’s Portion /
Equity Holders of Parent – SHE, 12/31/20x5:
Common stock – P (P only)……………………………………….. .P 1,000,000
Retained Earnings – P (equity method), 12/31/20x5…………. 1,140,675
Controlling Interest / Parent’s Stockholders’ Equity……………P2,140,675
Non-controlling interest, 12/31/20x5 (partial/full)……………………
208,700
Consolidated Stockholders’ Equity, 12/31/20x5……………………….P2,349,375
98. d – the original cost of land
99. b – no intercompany gain or loss be presented in the CFS.
100. a
Consolidated Net Income for 20x4
P Company’s net income from own/separate operations………….
Realized gain on sale of equipment (downstream sales) through depreciation
P Company’s realized net income from separate operations*…….…..
S3 Company’s net income from own operations………………………………….
S2 Company’s net income from own operations………………………………….
S1 Company’s net income from own operations………………………………….
Unrealized loss on sale of equipment (upstream sales) – S3
Unrealized gain on sale of equipment (upstream sales) – S2
Unrealized gain on sale of equipment (upstream sales) - S1
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* * (P23,000 + P5,400 + P7,200)
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent – 20x4…………..
*that has been realized in transactions with third parties.
Sales price
Less: Cost
Unrealized (loss) gain
S3
145,000
160,000
( 15,000)
P 200,000
___0
P 200,000
P100,000
70,000
95,000
15,000
( 52,000)
( 23,000)
P205,000
205,000
P405,000
0
P405,000
35,600
P369,400
S2
197,000
145,000
52,000
S1
220,000
197,000
23,000
Or, alternatively
Consolidated Net Income for 20x4
P Company’s net income from own/separate operations………….
Realized gain on sale of equipment (downstream sales) through depreciation
P Company’s realized net income from separate operations*…….…..
S3 Company’s net income from own operations………………………………….
S2 Company’s net income from own operations………………………………….
P 200,000
___0
P 200,000
P100,000
70,000
S1 Company’s net income from own operations………………………………….
Unrealized loss on sale of equipment (upstream sales) – S3
Unrealized gain on sale of equipment (upstream sales) – S2
Unrealized gain on sale of equipment (upstream sales) - S1
S Company’s realized net income from separate operations*
Total
Less: Non-controlling Interest in Net Income* * (P23,000 + P5,400 + P7,200)
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 20y0
*that has been realized in transactions with third parties.
**Non-controlling Interest in Net Income (NCINI)
S Company’s net income of Subsidiary Company from its own
operations (Reported net income of S Company)
Unrealized (gain) loss on sale of land (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
95,000
15,000
( 52,000)
( 23,000)
P205,000
P 35,600
____0
_ 35,600
P369,400
_ _35,600
P405,000
S2
S3
P 100,000
15,000
P 115,000
0
P 115000
20%
P 23,000
0
P 23,000
205,000
P405,000
P
S1
70,000
( 52,000)
P 18,000
0
P 18,000
30%
P
5,400
0
P 5,400
P 95,000
( 23,000)
P 72,000
0
P 72,000
10%
P 7,200
0
P 7,200
101. b
Non-controlling Interest in Net Income (NCINI) for 20y2
S Company’s net income of Subsidiary Company from its own operations
(Reported net income of S Company)
Unrealized gain on sales of equipment (upstream sales) – year of sale
Realized gain on sale of equipment (upstream sales) through depreciation
(P14,500 – P9,000) / 5 years
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 40,000
1,100
P 41,100
0
P 41,100
20%
P 8,220
0
P 8,220
102. d – the unrealized gain amounted to P15,000 (P60,000 – P45,000).
It should be noted that PAS 27 allow the use of cost model in accounting for investment in
subsidiary in the books of parent company but not the equity method. Since, the cost model
is presumed to be the method used, the unrealized gain of P15,000 (P60,000 – P45,000) will
not be recorded in the books of parent company, which give rise to no equity-adjustments
at year-end.
103. c
104. c
Cliff reported income
Less: Intercompany gain on truck
Plus: Piecemeal recognition of gain = P45,000/10
years
Cliff’s adjusted income
Majority percentage
Income from Cliff
Pied Imperial-Pigeon’s share of Roger’s income = (P320,000 x 90%) =
Less: Profit on intercompany sale (P130,000 - P80,000) x 90% =
P225,000
45,000
___4,500
P184,500
90%
P166,050
P288,000
45,000
105 c
Add: Piecemeal recognition of deferred profit ($50,000/4 years)90% =
Income from Offshore
11,250
P254,250
P30,000 - (1/4 x P30,000) =
P 22,500
106. d - P60,000 – P48,000)/4 years = P3,000
107. a
Simon, 4/1/20x4
Selling price
Less: Book value, 4/1/20x4
Cost, 1/1/20x4
Less: Accumulated depreciation : P50,000/10 years x 3/12
Unrealized gain on sale of equipment
Realized gain – depreciation: P19,500/9.75 years
P68,250
P50,000
__1,250
48,750
P19,500
P 2,000
108. c – P2,000 x 9/12 (April 1, 20x4 – December 31, 20x4) = P1,500
109. c – P19,500 / 9.75 years = P2,000
110. c – P19,500 / 9.75 years = P2,000
111. d
20x4
90,000
( 19,500)
Share in subsidiary net income (100,000 x 90%)
Unrealized gain on sale of equipment (downstream sales)
Realized gain on sale of equipment (downstream sales) through depreciation
P2,000 x 9/12 (April 1, 20x4 – December 31, 20x4) = P1,500
Net
_ 1,500
72,000
112. b
Share in subsidiary net income (120,000 x 90%)
Realized gain on sale of equipment (downstream sales) through depreciation
Net
20x5
108,000
_ 2,000
110,000
Share in subsidiary net income (130,000 x 90%)
Realized gain on sale of equipment (downstream sales) through depreciation
Net
20x6
117,000
_ 2,000
119,000
113. d
114. c
Smeder, 1/1/20x4
Selling price
Less: Book value, 1/1/20x4
Cost, 1/1/20x4
Less: Accumulated depreciation
Unrealized gain on sale of equipment
Realized gain – depreciation: P12,000/6 years
P84,000
P120,000
__48,000
72,000
P12,000
P 2,000
115. b
Share in subsidiary net income (28,000 x 80%)
Unrealized gain on sale of equipment (upstream sales);
12,000 x 80%
Realized gain on sale of equipment (upstream sales)
through depreciation
20x4
22,400
( 9,600)
_ 1,600
P2,000 x 80%
Net
14,400
116. c
20x5
25,600
Share in subsidiary net income (32,000 x 80%)
Realized gain on sale of equipment (upstream sales)
through depreciation
P2,000 x 80%
Net
117. d
Eliminating entries:
1/1/20x4: date of acquisition
Restoration of BV and eliminate unrealized gain
Equipment
Gain
Accumulated depreciation
27,200
36,000
12,000
48,000
Parent – Smeder
Cash
Accumulated depreciation
Equipment
Gain
_ 1,600
Subsidiary - Collins
84,000
48,000
Equipment
Cash
84,000
84,000
120,000
12,000
Smeder, 1/1/20x4
Selling price
Less: Book value, 1/1/20x4
Cost, 1/1/20x4
Less: Accumulated depreciation
Unrealized gain on sale of equipment
Realized gain – depreciation: P12,000/6 years
P84,000
P120,000
__48,000
Eliminating entries:
12/31/20x4: subsequent to date of acquisition
Realized Gain – depreciation
Accumulated depreciation
Depreciation expense
P12,000 / 6 years or P14,000 – P12,000
“Should be in CFS” Parent – Smeder
Depreciation expense
(P72,000 /6 years)
Acc. Depreciation
72,000
P12,000
P 2,000
2,000
2,000
“Recorded as” Subsidiary - Collins
12,000
12,000
Depreciation expense
(P84,000 / 6 years)
Acc. depreciation
14,000
14,000
Combining the eliminating entries for 1/1/20x4 and 12/31/200x4, the net effect of accumulated
depreciation would be a net credit of P46,000 (P48,000 – P2,000).
118. c
20x4
Unrealized gain on sale of equipment
Realized gain on sale of equipment through depreciation
Net
( 12,000)
___2,000
( 10,000)
119. d
Eliminating entries:
5/1/20x4: date of acquisition
Restoration of BV and eliminate unrealized gain
Cash
Loss
5,000
5,000
Parent – Stark
Cash
Loss
Land
Subsidiary - Parker
80,000
5,000
Land
Cash
85,000
85,000
85,000
Stark
P 80,000
_85,000
P ( 5,000)
Selling price
Less: Book value, 5/1/20x4
Unrealized gain on sale of equipment
Parker
P 92,000
__80,000
P 12,000
Consolidated
P 92,000
_85,000
P 7,000
120. b – refer to No. 119 for eliminating entry
121. b
Cash
Retained earnings
5,000
5,000
122. e
Share in subsidiary net income (200,000 x 90%)
Unrealized loss on sale of land (upstream sales): P5,000 x 90%
Net
20x4
180,000
_ 4,500
184,500
Share in subsidiary net income (200,000 x 90%)
Unrealized loss on sale of land (upstream sales): P5,000 x 90%
Net
20x4
180,000
_ 4,500
184,500
123. d
124. b
Stark
P 80,000
Selling price
Less: Book value, 5/1/20x4
Unrealized
gain
on sale
equipment
of
Parker Consolidated
P
P 92,000
92,000
_85,000 __80,000
_85,000
P ( 5,000)
P
P 7,000
12,000
125. a – refer to No. 124 for computation
126. e – None, the loss was already recognized in the books of Stark in the year of sale - 20x4 but
not in the subsequent years.
127. c
Share in subsidiary net income (220,000 x 90%)
Intercompany realized loss on sale of land (upstream sales):
P5,000 x 90%
Net
Theories
1.
2.
3.
4.
5.
d
c
d
d
b
6.
7.
8.
9.
10,
c
c
a
a
c
11.
12.
13.
14.
15,
c
c
d
b
d
16.
17.
18.
19.
20.
b
a
a
c
a
21.
22.
23.
24.
25.
b
d
c
c
b
26.
27.
28.
29.
30.
b
c
b
c
c
31
d
20x6
198,000
_
( 4,500)
193,500
Chapter 19
Problem I
1.
Indirect Exchange Rates
Philippine Viewpoint:
1 $ = P40; 1 Peso = $0.025 ($1/P40)
1 Singapore dollar = P32.00; 1 Peso = 0.03125 Singapore (1 Singapore Dollar/P32)
2.
FCU
=
Peso
Direct Exchange Rate
=
P8,000
P40.00
=
$200; or
= P8,000 x $1/P40 = $200
3.
4,000 Singapore dollars x P32 = P128,000
Problem II
a. Exchange rates:
Direct
Exchange Rate
Indirect
Exchange Rate
Arrival Date
Departure Date
1 Singapore dollar = P33.00
1 Singapore Dollar = P32.50
(P33,000 / 1,000 Singapore
dollars)
(P3,250 / 100 Singapore
dollars)
P1.00 = .03 Singapore dollars
P1.00 = .03 Singapore dollars
(1,000 Singapore dollars /
P33,000)
(100 Singapore dollars /
P3,250))
2.
The direct exchange rate has decreased. This means that the peso has strengthened
during Mr. Alt's visit. For example, upon arrival, Mr. Alt had to pay P33 per each dollar.
Upon departure, however, each dollar is worth just P32.50. This means that the relative
value of the peso has increased or, alternatively, the value of the dollar has
decreased.
3.
The Philippine peso equivalent values for the 100 Singapore dollars are:
Arrival date
100 dollars x P33.00 =
Departure date
100 dollars x P32.50 =
Foreign Currency Transaction Loss
P3,300
3,250
P 50
Mr. Alt held dollars for a time in which the dollars was weakening against the peso.
Thus, Mr. Alt experienced a loss by holding the weaker currency.
Problem III
1. If the direct exchange rate increases, the peso weakens relative to the foreign currency
unit. If the indirect exchange rate increases, the peso strengthens relative to the foreign
currency unit.
2.
Transaction
Importing
Importing
Settlement
Currency
Direct Exchange Rate
Increases
Decreases
NA
L
NA
G
NA
G
NA
L
NA
G
NA
L
NA
L
NA
G
Purchases……………………..
Accounts payable ($24,000 x P40.55)………………………………
973,200
Exporting
Exporting
Peso
Indirect Exchange Rate
Increases
Decreases
LCU
Peso
LCU
Problem IV
1.
December 1, 20x4 (Transaction date):
973,200
December 31, 20x4 (Balance sheet date):
Foreign currency transaction loss….…………………..
Accounts payable [$24,000 x (P40.80 – P40.55)]………
Accounts payable valued at 12/31 Balance Sheet
($24,000 x P40.80)………
Accounts payable valued at 12/1 Date of Transaction
($24,000 x P40.55)………
Adjustment to accounts payable needed………..
6,000
6,000
P979,200
P
973,200
6,000
March 1, 20x5 (Settlement date):
Accounts payable…………………
Foreign currency transaction gain [$24,000 x (P40.80 – P40.65)]
Cash ($24,000 x P40.65)…………….
2.
979,200
3,600
975,600
a.
a.1. None – transaction date (December 1, 20x4)
a.2. P6,000 loss
a.3. P3,600 gain (March 1, 20x5)
b.
b.1. P979,200 – spot rate on the balance sheet date or current rate on the balance sheet
b.2. P973,200 – spot rate on the transaction date or historical rate on the balance sheet
date.
Problem V
1. December 1, 20x4 (Transaction date):
Accounts receivable ($60,000 x P40.00)………………………………
Sales
2,400,000
2,400,000
December 31, 20x4 (Balance sheet date):
Accounts receivable………..
Foreign currency transaction gain [$60,000 x (P40.70 – P40.00)]
Accounts receivable valued at 12/31 Balance Sheet
($60,000 x P40.70)………
Accounts receivable valued at 12/1 Date of Transaction
($60,000 x P40.00)………
Adjustment to accounts receivable needed………..
42,000
42,000
P2,442,000
2,400,000
P 42,000
March 1, 20x5 (Settlement date):
Cash ($60,000 x P40,60)………………..
Foreign currency transaction loss………
Accounts receivable ($60,000 x P40.70)……….
2.
2,436,000
6,000
2,442,000
a.
a.1. None – transaction date
a.2. P42,000 gain
a.3. P6,000 loss (March 1, 20x5)
b.
b.1. P2,442,000 – spot rate on the balance sheet date or current rate on the balance sheet
b.2. P973,200 – spot rate on the transaction date or historical rate on the balance sheet date.
Problem VI
The entries to record these transactions and the effects of changes in exchange rates are as
follows:
November 1, 20x4 (Transaction date):
Equity investment (FVTPL)/Financial Asset ……………
Cash
3,840,000
3,840,000
To record the purchase of shares in Pineapple Computers at a cost of
$96,000 at the exchange rate of P40.
December 10, 20x4 (Transaction date):
Equipment …………………………
Cash
636,000
636,000
To record the purchase of equipment costing 12,000 euros at the
exchange rate of P53.
December 31, 20x4 (Balance sheet date):
Equity investment (FVTPL)/Financial Asset ……………
Unrealized gain in fair value of equity investment (financial asset)
To record gain in fair value of Pineapple Computer’s share.
12/31/x4: Revalued Investment and translated at the rate on
the date of revaluation (closing/current rate):
(1,200 units x $100 x P40.50)…………….
11/1/x4: Investment, cost (1,200 units x $80 x P40.00)
Unrealized gain on equity investment
Less: Foreign currency transaction gain – equity investment
11/1/20x4: Date of transaction (1,200 units x $80 x P40)..
1,020,000
1,020,000
P4,860,000
3,840,000
P1,020,000
P3,840,000
Less: 12/31/20x4: B/S Date (1,200 units x $80 x P40.50)….
Other unrealized gain in the fair value of equity investment...
Foreign currency transaction loss….…………………..
Accounts payable [$96,000 x (P53.20 – P53)]………
3,888,000
48,000
P 972,000
19,200
19,200
To record exchange loss on accounts payable in euros.
Accounts payable valued at 12/31 Balance Sheet
(1,200 x $80 x P53.20)………
Accounts payable valued at 12/1 Date of Transaction
(1,200 x $80 x P53.00)………
Adjustment to accounts payable needed………..
5,107,200
5,088,000
P 19,200
February 3, 20x5 (Settlement date):
Accounts payable…………………
Foreign currency transaction loss [$96,000 x (P53.80 – P53.20)]
Cash ($96,000 x P53.80)…………….
5,107,200
57,600
5,164,800
To record exchange loss on accounts payable in euros and settlement of
accounts payable in euros at the spot rate of P53.80.
Note the following:
 The investment in Pineapple Computers, Inc shares is a non-monetary item that is
carried at fair value as it is classified as equity investment through profit or loss (or
a financial asset – FVTPL refer PF RS 9). The investment is revalued and translated at
the rate on the date of revaluation, that is, December 31, 20x4.
 The equipment is translated at the spot rate at the date of purchase and, being a
non-monetary item, is carried at cost. It is not adjusted for the change in the exchange
rate at balance sheet date. The accounts payable in euros is a monetary item and is
remeasured using the c u rre nt/ closing rate at balance sheet date. The exchange loss is
expensed off to the income statement
Problem VII
1.
May 1
2.
Inventory (or Purchases)
Accounts Payable
Foreign purchase denominated in pesos
8,400
June 20
Accounts Payable
Cash
Settle payable.
8,400
July 1
Accounts Receivable
Sales
Foreign sale denominated in pesos
10,000
August 10
Cash
Accounts Receivable
Collect receivable.
10,000
May 1
Inventory (or Purchases)
Accounts Payable (FC1)
Foreign purchase denominated in yen:
P8,400 / P.0070 = FC1 1,200,000
June 20
Foreign Currency Transaction Loss
8,400
600
8,400
8,400
10,000
10,000
8,400
Accounts Payable (FC1)
Revalue foreign currency payable to
peso equivalent value:
P9,000 = FC1 1,200,000 x P.0075 June 20 spot rate
- 8,400 = FC1 1,200,000 x P.0070 May 1 spot rate
P 600 = FC1 1,200,000 x (P.0075 - P.0070)
Accounts Payable (FC1)
Foreign Currency Units (FC1)
Settle payable denominated in FC1.
July 1
Accounts Receivable (FC2)
Sales
Foreign sale denominated in foreign currency 2
(FC 2)
FC3: P10,000 / P.20 = FC2 50,000
August 10
Accounts Receivable (FC2)
Foreign Currency Transaction Gain
Revalue foreign currency receivable
to U.S. dollar equivalent value:
P 11,000 = FC2 50,000 x P.22 Aug. 10 spot rate
- 10,000 = FC2 50,000 x P.20 July 1 spot rate
P 1,000 = FC2 50,000 x (P.22 - P.20)
Foreign Currency Units (FC2)
Accounts Receivable (FC2
Receive FC 2 in settlement of receivable
600
9,000
9,000
10,000
10,000
1,000
1,000
11,000
11,000
Problem VIII
1. Denominated in FC
RR Imports reports in Philippine pesos:
Direct
Exchange
Rate
2.
12/1/x4
12/31/x4
1/15/x5
Transaction
Date
Balance Sheet
Date
Settlement
Date
P.70
P.66
P.68
December 1, 20x4
Inventory (or Purchases)
Accounts Payable (FC)
P10,500 = FC 15,000 x P.70
December 31, 20x4
Accounts Payable (FC)
Foreign Currency Transaction Gain
Revalue foreign currency payable to
equivalent peso value:
P 9,900 = FC 15,000 x P.66 Dec. 31 spot rate
10,500
600
10,500
600
-10,500 = FC 15,000 x P.70 Dec. 1 spot rate
P 600 = FC 15,000 x (P.66 - P.70)
January 15, 20x5
Foreign Currency Transaction Loss
Accounts Payable (FC)
Revalue payable to current peso equivalent
P10,200 = FC 15,000 x P.68 Jan. 15, 20x5, value
- 9,900 = FC 15,000 x P.66 Dec. 31, 20x4, value
P 300 = FC 15,000 x (P.68 - P.66)
300
Accounts Payable (FC)
Foreign Currency Units (FC)
P10,200 = FC 15,000 x P.68
Accounts Payable (FC)
(FC 15,000 x P.70)
600
(FC 15,000 x P.66)
AJE 12/31/x4
1/15/x5 Settlement
10,200
(FC 15,000 x P.68)
10,200
10,500
Bal 12/31/x4
AJE 1/15/x5
Bal 1/15/ x5
9,900
300
10,200
Bal 1/16/x5
-0-
10,000
Accounts Payable (FC2)
Foreign Currency Transaction Gain
Adjust payable denominated in foreign
currency to current peso equivalent
and recognize exchange gain:
P175,300 = Preadjusted Dec. 31, 20x6, value
- 170,100 = FC2 21,000,000 x P.0081, Dec. 31 spot rate
P 5,200
5,200
Accounts Receivable (FC1)
Foreign Currency Transaction Gain
Adjust receivable denominated in FC1
to equivalent peso value on
settlement date:
P85,500 = FC1 475,000 x P.180 20x7 collection date value
- 83,600 = FC1 475,000 x P.176 Dec. 31, 20x6, spot rate
P 1,900 = FC1 475,000 x (P.180 - P.176)
1,900
Cash
10,200
12/1/x4
Problem IX
1. December 31, 20x6
Accounts Receivable (FC1)
Foreign Currency Transaction Gain
Adjust receivable denominated in FC1
to current peso equivalent
and recognize exchange gain:
P83,600 = FC475,000 x P.176 Dec. 31 spot rate
- 73,600 = Preadjusted Dec. 31, 20x6, value
P10,000
2.
300
164,000
10,000
5,200
1,900
Foreign Currency Units (FC1)
Accounts Receivable (FC1)
Accounts Receivable (P)
Collect all accounts receivable.
3.
85,500
Accounts Payable (FC2)
Foreign Currency Transaction Gain
Adjust payable to equivalent peso
value on settlement date:
P163,800 = FC2 21,000,000 x P.0078 20x7 payment date value
- 170,100 = FC2 21,000,000 x P.0081 Dec. 31, 20x6, spot rate
P 6,300 = FC2 21,000,000 x (P.0078 - P.0081)
Accounts Payable (P)
Accounts Payable (FC2)
Foreign Currency Units (FC2)
Cash
Payment of all accounts payable.
85,500
164,000
6,300
86,000
163,800
4.
Transaction gain on FC:
December 31, 20x6
December 31, 20x7
Overall
P10,000
1,900
P11,900
gain
gain
gain
5.
Transaction gain on FC2:
December 31, 20x6
December 31, 20x7
Overall
P 5,200
6,300
P11,500
gain
gain
gain
6.
Overall foreign currency transactions gain:
Gain on FC1 transaction
Gain on FC2 transaction
6,300
163,800
86,000
P11,900
11,500
P23,400
CDL could have hedged its exposed position. The exposed positions are only those
denominated in foreign currency units. The accounts receivable denominated in
FC1 could be hedged by selling FC1 in the forward market, thereby locking in the
value of the FC1. The accounts payable denominated in FC2 could be hedged by
buying FC2 in the forward market, thereby locking in the value of the FC2.
Problem X
Accounts
Receivable
Accounts
Payable
Foreign Currency
Transaction Exchange
Loss
Foreign
Currency
Transaction
Exchange Gain
Case 1
NA
P16,000(a)
NA
P2,000(b)
Case 2
P38,000(c)
NA
NA
P2,000(d)
Case 3
NA
P27,000(e)
P3,000(f)
NA
Case 4
P6,250(g)
NA
P1,250(h)
NA
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
LCU 40,000 x P.40
LCU 40,000 x (P.40 - P.45)
LCU 20,000 x P1.90
LCU 20,000 x (P1.90 - P1.80)
LCU 30,000 x P.90
LCU 30,000 x (P.90 - P.80)
LCU 2,500,000 x P.0025
LCU 2,500,000 x (P.0025 - P.003)
Multiple Choice Problems
1. c C$1 / P.90 (C$1.11 = P1.00)
2.
3.
d – (correction: the question should be April 20, 20x5 not 20x4)
20x4
P.4895 x FC30,000
P14,685
P.4845 x FC30,000
P.4845 x FC30,000
14,535
P.4945 x FC30,000
Gain
P 150
Loss
b
20x4
Date of transaction (12/1/20x4)
Balance sheet date (12/31/20x4)
Foreign exchange currency loss per FC
Multiplied by: No. of FC
Foreign exchange currency loss
20x5
P14,535
14,835
P (300)
P
.0095
.0096
P
.0001
1,000,000
P
100
20x5
Balance sheet date (12/31/20x4)
Date of settlement (1/10/20x5)
Foreign exchange currency gain per FC
Multiplied by: No. of FC
Foreign exchange currency gain
4.
P
.0096
.0094
P .0002
1,000,000
P
200
c
Balance sheet date (12/31/20x4)
Date of settlement (7/1/20x5)
Foreign exchange currency loss
5.
b
January 15
Foreign Currency Units (LCU)
Exchange Loss
Accounts Receivable (LCU)
Collect foreign currency receivable and
recognize foreign currency transaction
loss for changes in exchange rates:
P300,000 = (LCU 900,000 / LCU 3) Jan. 15 value
- 315,000 = Dec. 31 Peso equivalent
P 15,000 Foreign currency transaction loss
6. c – spot rate on the date of transaction
7. a - spot rate on the date of transaction
8. d
P120,000 = July 1, 20x4, Peso equivalent value
P140,000 = December 31, 20x4, Peso equivalent value
(LCU 840,000 / P140,000) = LCU 6 / P1
-105,000
= July 1, 20x5, Peso equivalent value
P125,000
140,000
P 15,000
300,000
15,000
315,000
(LCU 840,000 / 8) = P105,000
P(35,000)
Foreign currency transaction loss
9. d P27,000 = P6,000 + P20,000 + P1,000
Accounts Payable (FCU)
1/20/x4
AJE
3/20/x4
Foreign Exchange Loss
Accounts Payable (FCU)
6,000
Notes Payable (FCU)
Foreign Exchange Loss
Notes Payable (FCU)
Interest expense
Interest Payable (FCU)
7/01/x4
AJE
12/31/x4
20,000
10/15/x4
AJE
11/16/x4
6,000
500,000
20,000
520,000
20,000
Interest Payable (FCU)
(FCU500,000 x .10 x 1/2 year)
AJE
12/3/x4
25,000
Foreign Exchange Loss
Interest Payable (FCU)
10. c P5,000
90,000
6,000
96,000
25,000
1,000
26,000
25,000
1,000
1,000
Accounts Receivable (FCU)
100,000
5,000
105,000
Settlement
Accounts Receivable (FCU)
Foreign Exchange Gain
11/16/x4
5,000
105,000
5,000
Note: The receivable is recorded on October 15, 20x4, when the goods were shipped,
not on September 1, 20x4, when the order was received.
11. b P1,000
Accounts Payable (FCU)
x4 AJE
500
X5 AJE
1,000
Settlement
4,500
(10,000 x P.60)
4/08/x4
6,000
(10,000 x P.55)
12/31/x4
5,500
(10,000 x P.45)
3/01/x5
4,500
Bal.
-0-
12.
X5 AJE Accounts Payable (FCU)
1,000
Foreign Exchange Gain
1,000
P9,000 = 300,000 FCUs x (P1.65 - P1.62). The foreign currency transaction gain is
computed using spot rates on the transaction date (November 30, 20x4) and the
balance sheet date (December 31, 20x4). The forward exchange rates are not
used because the transaction was not hedged.
b
13. c –
Date of transaction (7/7)
Balance sheet date (8/31)
Foreign exchange currency gain per FCU
Multiplied by: No. of FCU
Foreign exchange currency gain
P
2.08
2.05
P
.03
350,000
P 10,500
14. b – The value of the asset acquired should be the spot rate on the date of transaction, i.e.
P-80. Therefore, the final recorded value of the electric generator should be P40,000 (P.80 x
50,000 FCs)
15. a
Date of transaction
Date of settlement
Foreign exchange currency gain per FCU
Multiplied by: No. of FCU
Foreign exchange currency gain
P
.75
.80
P
.05
200,000
P 10,000
16. d
Date of transaction (12/15)
Balance sheet date (12/31)
Foreign exchange currency gain per FCU
Multiplied by: No. of FCU
Foreign exchange currency gain
P
.60
.65
P
.05
80,000
P 4,000
Date of transaction (11/30)
Balance sheet date (12/31)
Foreign exchange currency gain per FCU
Multiplied by: No. of FCU
Foreign exchange currency gain
P
Date of transaction (11/30)
Balance sheet date (12/31)
Foreign exchange currency gain per FCU
Multiplied by: No. of FCU
Foreign exchange currency gain
P
1.49
1.45
P
.04
500,000
P 20,000
Date of arrival (P1,000 / 480,000 FC)
Date of departure (P100/50,000 FC)
Foreign exchange currency loss per FCU
Multiplied by: No. of FCU
Foreign exchange currency loss
P .00208
.00200
P .00008
50,000
P
4
Date of transaction (10/1)
Balance sheet date (12/31)
Foreign exchange currency gain per LCU
P
17. b
1 .65
1.62
P
.03
300,000
P 9,000
18. b
19. a
20. b
P
1.20
1.10
.10
Multiplied by: No. of LCU
Foreign exchange currency gain
P
5,000
500
21. d
Date of transaction (11/2)
Balance sheet date (12/31)
Foreign exchange currency gain per LCU
Multiplied by: No. of LCU
Foreign exchange currency gain
P
1. 08
1.10
P
.02
23,000
P
460
Date of transaction (9/3) : P17,000 / P.85 = 20,000 FC
Date of settlement (10/10)
Foreign exchange currency loss per FC
Multiplied by: No. of FC
Foreign exchange currency loss
P
Date of transaction (12/5)
Balance sheet date (12/31)
Foreign exchange currency gain per FC
Multiplied by: No. of FC
Foreign exchange currency gain
P
Balance sheet date (12/31)
Date of settlement (1/10)
Foreign exchange currency loss per FC
Multiplied by: No. of FC
Foreign exchange currency loss
P
.262
.264
P .002
100,000
P
200
Foreign exchange currency gain (No. 25)
Foreign exchange currency loss (No. 26)
Overall gain , net
P
_
P
22. a
. 85
.90
P
.05
20,000
P 1,000
23. a
.265
.262
P .003
100,000
P
300
24. d
25. c
300
200
100
or,
Date of transaction (12/5)
Date of settlement (1/10)
Foreign exchange currency gain per FC
Multiplied by: No. of FC
Foreign exchange currency gain
P
.265
.264
P .001
100,000
P
100
26. b – any gain or loss on foreign currency should be considered ordinary.
27. d
Date of transaction (4/8) : P1 / .65 FC (direct quote)
Date of settlement (5/8): P1/ .70 FC (direct quote)
Foreign exchange currency loss per FC
Multiplied by: No. of FC
Foreign exchange currency loss
P
1.54
1.43
P
.11
35,000
P 3,850
28. d – the amount of sales should be the spot rate on the date of transaction (or the balance
sheet date - historical rate). I.e., P1.7241 x 10,000 FCs = P17,241.
29. e
1/1: Date of transaction – spot rate
12/31: Balance sheet date
Foreign exchange currency gain per FC
P 1.7241
1.8182
P .0941
Multiplied by: No. of FC
Foreign exchange currency gain
P
10,000
941
30. b
Balance sheet date (12/31/20x4)
Date of settlement (1/30/20x5)
Foreign exchange currency loss per FC
Multiplied by: No. of FC
Foreign exchange currency loss
P
P
P
1.8182
1.6666
.1516
10,000
1,516
31. a – since accounts payable is an exposed account meaning their value will fluctuate based
on the spot exchange rates, the value of the accounts payable should be the value on May
8, i.e., the spot rate of P1.25 (P.15 x 2,000,000 FCs = P2,500,000).
32. c
5/8: Date of transaction – spot rate
5/31: Balance sheet date
Foreign exchange currency loss per FC
Multiplied by: No. of FC
Foreign exchange currency loss
P
1.25
1.26
P
0.01
2,000,000
P
20,000
33. e – in a two-transaction approach, the recognition of foreign exchange gain or loss is separate
from the settlement, therefore, the amount of accounts payable to be settled should be the
spot rate on the settlement date, i.e., P1.20 (P1.20 x 2,000,000 FCs = P2,400,000)
34. a
Balance sheet date (12/31/20x4)
Date of settlement (3/2/20x5)
Foreign exchange currency loss
P8,000
6,900
P 1,100
35. d
4/8/20x3: Date of transaction
12/31/20x3: Balance sheet date
Foreign exchange currency loss
P 97,000
103,000
P 6,000
Balance sheet date (12/31/20x3)
Date of settlement (4/2/20x4)
Foreign exchange currency loss
P103,000
105,000
P 2,000
36. d
37. d
11/4/x6: Date of transaction – spot rate
12//31/x6: Balance sheet date
Foreign exchange currency loss per FC
Multiplied by: No. of FC
Foreign exchange currency loss
P
.70
.67
P
0.03
100,000
P
3,000
10/5/x6: Date of transaction – spot rate
12//31/x6: Balance sheet date
Foreign exchange currency loss per FC
Multiplied by: No. of FC
Foreign exchange currency loss
P
38. d
.80
.84
P
0.04
100,000
P
4,000
39. b
Income statement:
12/20/x6: Date of transaction – spot rate
12//31/x6: Balance sheet date
P
.798
.795
Foreign exchange currency gain per FC
Multiplied by: No. of FC
Foreign exchange currency gain
P
0.003
1,000,000
P
3,000
Balance sheet: Inventory should be spot rate on the transaction date:
P.798 x 1,000,000 = P798,000.
40. a
Income statement:
12/15/x6: Date of transaction – spot rate
12//31/x6: Balance sheet date
Foreign exchange currency loss per FC
Multiplied by: No. of FC
Foreign exchange currency loss
P
.181
.180
P
0.001
1,000,000
P
1,000
Sales should be spot rate on the transaction date:
P.181 x 1,000,000 = P181,000
41. b - 70,000 x P.65
42. b - 70,000 x P.65
43. a - 70,000 x P.72
44. c - 70,000 x (P.72 - P.65)
45. b - 70,000 x (P.69 - P.72)
46. d - 25,000 x P1.14
47. b - 25,000 x P1.06
48. a - 25,000 (P1.14 - P1.06)
49. d - 25,000 (P1.06 - P1.09)
50. d – spot rate on the date of settlement
51. b – spot rate on the date of purchase/transaction
52. b - spot rate on the date of transaction
53. a – refer to page 646 of the book for the discussion of “one-transaction theory”
54. c – (P.82 – P.82) x 1,000 FCUs
55. a - P5 exchange gain = (P.81 – P.8050) x 1,000 FCUs
56. b – spot rate on the date of transaction(loan date) – 5,000,000 x P1.150
57. d – spot rate on the balance sheet date – (5,000,000 x 5%) x P1.1490
58. a – (P1.15 – P1.149) x 5,000,000 = P5,000 gain
59. d – spot rate on the date of transaction(loan date) – (5,000,000 x 5%) x P1.1485
60. d
P78,000/P.80 per FCU =
P 97,500
P78,000/P.78 per FCU =
_100,000
Difference in FCU =
P (2,500)
Difference in pesos (2,500) x .78 =
61. b - P97,500 francs (from 60 above) x P.78 = P76,050
62. d
Indirect exchange rate:
for the Singapore dollars: 1/07025 = 1.4235
for the HK dollars: 1/2.5132 = .3979
63. a - HK$10,000 x P2.5132/HK$ = P25,132
64. b - P10,000/P.7025 = 14,235 Singapore dollars
65. b – FC 1,000,000 x (P0.77 - P0.80) = P30,000 loss
66. d – FC 5,000 x P0.77 = P3,850
P (1,950)
Theories
Completion Statements
1. International Accounting Standards Board
2. International Accounting Standards
3. commodities
4. conversion
5. translation
6. indirect
7. direct
8. floating, free
9. spot
10. differential rates of inflation
11. purchasing power parity theory
12. denominated
13. measures
14. exposed asset position
15. exposed liability position
16. transaction date
17. bank wire transfers
True or False/Multiple Choice
1.
False
6. False 11.
2.
True
7. True
12.
3.
False
8. False 13.
4.
True
9. True
14.
5.
False 10. False 15.
True
False
True
False
True
41.
42.
43.
44.
45.
False
True
False
True
True
46.
47.
48.
49.
50.
b
b
d
b
d
51.
52.
53.
54.
55.
c
a
a
b
d
81.
82.
83.
84.
85.
b
d
d
c
d
86.
87.
88.
89.
90.
d
b
b
b
d
91.
92.
93.
94.
95.
c
a
a
d
c/d
16.
17.
18.
19.
20.
False
True
False
False
False
21.
22.
23.
24.
25.
False
True
True
False
True
26.
27.
28.
29.
30.
True
False
False
True
False
d
c
d
a
c
61.
62.
63.
64.
65.
c
b
a
c
c
66.
67.
68.
69.
70.
d
c
c
b
d
56.
57.
58.
59.
60.
96.
97.
98.
99.
100.
b
a
d
c
d
31.
32.
33.
34.
35.
71.
72.
73.
74.
75.
True
False
False
True
False
36.
37.
38.
39.
40.
False
True
False
True
True
d
c
b
a
c
76.
77.
78.
79.
80.
b
a
d
b
d