Chapter 18
Problem I
A. Downstream Sale
1.
Cost Model – 20x5 (104,000/130,000 = 80% ownership)
Dividends – S Company
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividend income (P60,000 x 80%) . . . . . . . . . . . . . . . . . . . . . . .
48,000
48,000
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 Co (60,000 x 80%) . . . . . . . . . . . . . . . . . . . . . . .
32,000
Net Income – S Company
Investment in S Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment income (P820,000 x 80%). . . . . . . . . . . . . . . . . . . . .
656,000
32,000
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
[P100,000 / (8 – 4, expired years)………
Realized Gain on Sale – depreciation
Investment in S Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment income (P25,000 x 100%). . . . . . . . . . . . . . . . . . . . .
P740,000
640,000
P 100,000
P 25,000
25,000
25,000
2. Working Paper Elimination Entries:
Cost Model
Equipment
Beginning R/E – Prince
Accumulated Depreciation
540,000
100,000
640,000
Accumulated Depreciation (P100,000/4) × 2
Depreciation Expense
Beginning R/E – Prince
Equity Method
Equipment
Investment in S Co.
Accumulated Depreciation
50,000
25,000
25,000
540,000
100,000
Accumulated Depreciation (P100,000/4) × 2
Depreciation Expense
Investment in S Co.
3
4.
50,000
25,000
25,000
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
Noncontrolling interest in Serf Company
(.20 × 845,000)
5.
640,000
NCI-CNI (No. 4)
CI-CNI (No. 3)
CNI
P3,270,000
676,000
P3,946,000
P820,000
25,000
P845,000
P169,000
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
P3,270,000
0
P3,270,000
P 820,000
25,000
P 845,000
845,000
P4,115,000
0
P4,115,000
Less: Non-controlling Interest in Net Income* *
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent – 20x5…………..
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
25,000
P3,295,000
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)
P820,000
P164,000
656,000
P3,951,000
NCI-CNI
CI-CNI
CNI
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 (P60,000 x 80%) . . . . . . . . . . . . . . . . . . . . . . .
Net Income – S Company
No entry
Amortization of Allocated Excess
No entry
Unrealized Gain on Sale of Equipment
No entry
48,000
48,000
Realized Gain on Sale – depreciation
No entry
Equity Method – 20x5
Dividends – S Company
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment in S Co (60,000 x 80%) . . . . . . . . . . . . . . . . . . . . . . .
32,000
Net Income – S Company
Investment in S Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment income (P820,000 x 80%). . . . . . . . . . . . . . . . . . . . .
656,000
32,000
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
[P100,000 / (8 – 4, expired years)………
Realized Gain on Sale – depreciation
Investment in S Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment income (P25,000 x 100%). . . . . . . . . . . . . . . . . . . . .
2. Working Paper Elimination Entries:
Cost Model
Equipment 540,000
Beginning R/E – Prince (P100,000 × .80)
Noncontrolling Interest (P100,000 × .20)
Accumulated Depreciation
Accumulated Depreciation (P100,000/4) × 2
Depreciation Expense
Beginning R/E – Prince (P25,000 × .80)
Noncontrolling Interest (P25,000 × .20)
Equity Method
Equipment 540,000
Investment in S Co. (P100,000 × .80)
Noncontrolling Interest (P100,000 × .20)
Accumulated Depreciation
Accumulated Depreciation (P100,000/4) × 2
Depreciation Expense
Investment in S Co. (P25,000 × .80)
Noncontrolling Interest (P25,000 × .20)
3
Controlling Interest in Consolidated Net Income:
P740,000
640,000
P 100,000
P 25,000
25,000
25,000
80,000
20,000
640,000
50,000
25,000
20,000
5,000
80,000
20,000
640,000
50,000
25,000
20,000
5,000
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
4.
Noncontrolling Interest Calculation:
Reported income of Serf Company
Plus: Intercompany profit considered realized
in the current period
Noncontrolling interest in Serf Company
(.20 × 845,000)
5.
NCI-CNI (No. 4)
CI-CNI (No. 3)
CNI
P3,270,000
676,000
P3,946,000
P820,000
25,000
P845,000
P169,000
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
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
(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
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
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
Gain on Sale of Truck
Depreciation Expense
Accumulated Depreciation
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
Accumulated depreciation adjustment:
Required [(P300,000 / 10 years) x 5 years]
Reported [(P245,000 / 7 years) x 2 years]
Required increase
Problem III
a.
55,000
35,000
Eliminating entry, December 31, 20x8:
55,000
30,000
P150,000
(70,000)
P 80,000
5,000
80,000
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
5,000
115,000
P150,000
(35,000)
P115,000
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.
Consolidated net income for 20x9 would be unchanged.
3.
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.
P40,000
2,500
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
P 30,000
P100,000
42,500
P142,500
2,500
52,500
(P2,500 x 2)
Unrealized gain, January 1, 20x9
Proportion of ownership held by Baywatch
Required adjustment
(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)
Amount reported by BW (P22,500 x 3 years)
Required adjustment
P120,000
(67,500)
P 52,500
Problem V
20x5
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
20x6
2.
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
P
1,100,000
45,000
560,000 )
320,000 )
265,000
20,000 )
245,000
(
(
P
(
P
Other expenses:
P265,000 + P60,000 - P5,000 piecemeal recognition of gain on
equipment
P
320,000
Non-controlling Interest in CNI:
Net income from Savannah x 20%: (P100,000 x 20%) =
P
20,000
Problem VII
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
P
P 4,800
5,760
76,800
( 19,200)
3,840
288,000
84,000
72,000
P 12,000
The over/under valuation of assets and liabilities are summarized as follows:
Inventory………………….……………..
Land………………………………………
Equipment (net).........
Buildings (net)
Bonds payable…………………………
Net………………………………………..
S Co.
Book value
P 24,000
48,000
84,000
168,000
(120,000)
P 204,000
S Co.
Fair value
P 30,000
55,200
180,000
144,000
( 115,200)
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………………………...
S Co.
Book value
180,000
96,000
84,000
S Co.
Fair value
180,000
180,000
Increase
(Decrease)
0
( 96,000)
96,000
Buildings................
Less: Accumulated depreciation…..
Net book value………………………...
S Co.
Book value
360,000
1992,000
168,000
S Co.
Fair value
144,000
144,000
(Decrease)
( 216,000)
( 192,000)
( 24,000)
A summary or depreciation and amortization adjustments is as follows:
Account Adjustments to be amortized
Inventory
Subject to Annual Amortization
Equipment (net).........
Buildings (net)
Bonds payable…
Over/
Under
P 6,000
Life
1
96,000
(24,000)
4,800
8
4
4
Annual
Amount
P 6,000
Current
Year(20x4)
P 6,000
20x5
P
-
12,000
( 6,000)
1,200
P 13,200
12,000
( 6,000)
1,200
P 13,200
12,000
(6,000)
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:
Goodwill applicable to parent…………………
Goodwill applicable to NCI……………………..
Total (full) goodwill………………………………..
Value
P12,000
3,000
P15,000
% of Total
80.00%
20.00%
100.00%
Value
P 3,000
% of Total
80.00%
750
20.00%
P 3,750
100.00%
The 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
The unrealized and gain on intercompany sales for 20x4 are as follows:
Date
of Sale
4/1/20x4
1/2/20x4
Seller
P Co.
S Co.
Selling
Price
P90,000
60,000
Book
Value
P75,000
28,800
Unrealized*
Gain on sale
P15,000
31,200
Remaining
Life
5 years
8 years
* 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
Realized gain –
depreciation**
P3,000/year
P3,900/year
20x4
P2,250
P3,900
January 1, 20x4:
(1) Investment in S Company……………………………………………
Cash……………………………………………………………………..
Acquisition of S Company.
January 1, 20x4 – December 31, 20x4:
(2) Cash………………………
Dividend income (P36,000 x 80%)…………….
Record dividends from S Company.
372,000
372,000
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%)………………………..
Investment in S Co……………………………………………….
6,000
96,000
192,000
7,200
4,800
12,000
216,000
18,000
84,000
To allocate excess of cost over book value of identifiable assets
acquired, with remainder to goodwill; and to establish noncontrolling interest (in net assets of subsidiary) on date of acquisition.
(E3) Cost of Goods Sold…………….
Depreciation expense………………………..
Accumulated depreciation – buildings…………………..
Interest expense…………………………………
Goodwill impairment loss……………………………………….
Inventory…………………………………………………………..
Accumulated depreciation – equipment………………..
Discount on bonds payable…………………………
Goodwill……………………………………
6,000
6,000
6,000
1,200
3,000
6,000
12,000
1,200
3,000
To provide for 20x4 impairment loss and depreciation and
amortization on differences between acquisition date fair value and
book value of Son’s identifiable assets and liabilities as follows:
Cost of
Depreciation/
Goods
Amortization
Amortization
Sold
Expense
-Interest
Total
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 13,200
(E4) Dividend income - P……….
Non-controlling interest (P36,000 x 20%)………………..
Dividends paid – S……………………
To eliminate intercompany dividends and non-controlling interest
share of dividends.
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 …………..
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
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
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
6,000
6,000
18,000
P180,000
P 91,200
P 91,200
(3)
1,200
(3)
3,000
(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
P
P
(
P
(9 10,140
P360,000
P
Buildings
Discount on bonds payable
Goodwill……………………
Investment in S Co………
207,810
P 567,810
(4)
(2)
6,000
(2)
7,200
(5) 30,000
(6) 12,000
372,000
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…………
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
240,000
175,200
499,800
_________
P1,008,000
20x5: Second Year after Acquisition
Sales
Less: Cost of goods sold
Gross profit
Less: Depreciation expense
Other expense
Net income from its own separate operations
Add: Dividend income
Net income
Dividends paid
3)
36,000
6,000
(2) 216,000
4,800 (3) 1,200
12,000 (3) 3,000
(1) 288,000
(2) 84,000
(3) 96,000
(7) 2,250
(8) 3,900
(2) 192,000
(3)
6,000
72,000
________
_
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)
_________
P1,984,800
1,200
66,000
3,000
502,050
217,950
10,140)
207,810
P 360,000
(2)
(2)
Total
Total
P 720,000
P 348,000
83,850
(3)
(3)
7,200
__________
P 834,450
(1 ) 72,000
(2) 18,000
(9) 10,140
P 834,450
PCo.
P 540,000
216,000
P 324,000
60,000
72,000
P 192,000
38,400
P 230,400
P 72,000
____92,940
P2,466,600
SCo.
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…………………………
Retained earnings – P Company………………………
44,160
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 – S Co…………………………………………
Retained earnings – S Co., 1/1/20x5
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 intercompany investment and equity accounts
of subsidiary and to establish non-controlling interest (in net assets of
subsidiary) on January 1, 20x5.
(E3) Inventory………………………………………………………………….
Accumulated depreciation – equipment………………..
Accumulated depreciation – buildings…………………..
Land……………………………………………………………………….
Discount on bonds payable………………………………………….
Goodwill………………………………………………………………….
Buildings………………………………………..
Non-controlling interest (P90,000 x 20%)
Investment in S Co……………………………………………….
6,000
96,000
192,000
7,200
4,800
12,000
216,000
18,000
84,000
To allocate excess of cost over book value of identifiable assets
acquired, with remainder to goodwill; and to establish noncontrolling interest (in net assets of subsidiary) on 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………………………..
13,560
2,640
6,000
Accumulated depreciation – buildings…………………..
Interest expense…………………………………
Inventory…………………………………………………………..
Accumulated depreciation – equipment………………..
Discount on bonds payable…………………………
Goodwill……………………………………
12,000
1,200
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 x 20%)………………..
Dividends paid – S……………………
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 …………..
To establish non-controlling interest in subsidiary’s adjusted net
17,340
17,340
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.
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
P Co
P540,000
38,400
P578,400
P216,000
Depreciation expense
S Co.
P360,000
P360,000
P192,000
Dr.
(5)
38,400
60,000
24,000
(4)
6,000
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
(4)
1,200
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
P
Cr.
(7)
3,000
(8)
3,900
Consolidated
P 900,000
___________
P 900,000
P 408,000
83,100
P
P
(
P
(9) 17,340
(1)
(5)
(6)
(2)
13,560
15,000
24,960
175,200
(1) 44,160
(7) 2,250
(8) 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
(5)
(1)
6,000
(3)
7,200
(5) 30,000
(6) 12,000
(3)
(3)
(1)
372,000
P2,203,200
264,360
P 760,170
P1,074,000
4,800
12,000
44,160
(2)
48,000
6,000
(3) 216,000
(4) 2,400
(4) 3,000
(2) 332,160
(3) 84,000
_
72,000
________
462,000
1,044,000
2,400
9,000
P2,749,800
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 150,000
P 102,000
450,000
306,000
105,000
240,000
600,000
88,800
120,000
658,200
___ _____
P2,203,200
Total
240,000
217,200
_________
P1,074,000
(3) 96,000
(7) 5,250
(8) 7,800
(3) 192,000
(4) 12,000
(4)
(5)
(6)
24,000
45,000
43,200
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 83,040
(3) 18,000
(8)
780
(9) 17,340
P 979,350
____100,680
P2,749,800
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 - 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.
b. NCI-CNI – P10,140
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
**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
*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
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.
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*…….…..
P192,000
3,000
P195,000
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.
P 90,000
3,90
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
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 %...................
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
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
__ 8,760
P495,810
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 (P11,000 + P6,000)
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
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
Problem VIII
Requirements 1 to 4
( 20,400)
P 526,800
23,400
P503,400
20
P 100,680
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
217,200
P 457,200
P 600,000
688,170
P1,288,170
__100,680
P1,188,850
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 Annual Amortization
Equipment (net).........
Buildings (net)
Bonds payable…
Over/
under
P 6,000
Life
1
96,000
(24,000)
4,800
8
4
4
Annual
Amount
P 6,000
Current
Year(20x4)
P 6,000
20x5
P
-
12,000
( 6,000)
1,200
P 13,200
12,000
( 6,000)
1,200
P 13,200
12,000
(6,000)
1,200
P 7,200
20x4: First Year after Acquisition
Parent Company Cost Model Entry
January 1, 20x4:
(1) Investment in S Company……………………………………………
Cash……………………………………………………………………..
Acquisition of S Company.
January 1, 20x4 – December 31, 20x4:
(2) Cash………………………
Dividend income (P36,000 x 80%)…………….
Record dividends from S Company.
372,000
372,000
28,800
28,800
On the books of S Company, the P36,000 dividend paid was recorded as follows:
Dividends paid…………
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 – 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………………………………………………………………….
6,000
Accumulated depreciation – equipment………………..
Accumulated depreciation – buildings…………………..
Land……………………………………………………………………….
Discount on bonds payable………………………………………….
Goodwill………………………………………………………………….
Buildings………………………………………..
Non-controlling interest (P90,000 x 20%) + [(P15,000, full –
P12,000, partial goodwill)]…………
Investment in S Co……………………………………………….
96,000
192,000
7,200
4,800
15,000
216,000
21,000
84,000
To allocate excess of cost over book value of identifiable assets
acquired, with remainder to goodwill; and to establish noncontrolling interest (in net assets of subsidiary) on date of acquisition.
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……………………………………….
Inventory…………………………………………………………..
Accumulated depreciation – equipment………………..
Discount on bonds payable…………………………
Goodwill……………………………………
6,000
6,000
6,000
1,200
3,750
6,000
12,000
1,200
3,750
To provide for 20x4 impairment loss and depreciation and
amortization on differences between acquisition date fair value 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 x 20%)………………..
Dividends paid – S……………………
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………..
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
(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
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
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
Dr.
Cr.
Consolidated
P 720,000
(5) 15,000
(6) 31,200
(4) 28,800
(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
P499,800
36,000
P175,200
(7)
(8)
_________
P 720,000
P 348,000
83,850
2,250
3,900
1,200
66,000
3,750
P 502,800
P 217,200
( 9,390)
P 207,810
P360,000
P 360,000
207,810
P 567,810
(4)
36,000
_
72,000
________
P 495,810
Sheet
Balance Sheet
Cash……………………….
Accounts receivable……..
Inventory………………….
Land…………………………….
Equipment
P
Buildings
Discount on bonds payable
Goodwill……………………
Investment in S Co………
P 90,000
60,000
90,000
48,000
180,000
720,000
540,000
(2)
6,000
(2)
7,200
(5) 30,000
(6) 12,000
(2)
(2)
4,800
15,000
372,000
Total
Accumulated depreciation
- equipment
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
Accumulated depreciation
- buildings
Accounts payable……………
Bonds payable…………………
Common stock, P10 par………
Common stock, P10 par………
Retained earnings, from above
Non-controlling interest…………
Total
232,800
90,000
120,000
210,000
240,000
240,000
175,200
499,800
(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
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
(3)
_________
P1,984,800
3)
P 322,800
150,000
210,000
265,200
7,200
__________
P 843,690
20x5: Second Year after Acquisition
Sales
Less: Cost of goods sold
Gross profit
Less: Depreciation expense
Other expense
Net income from its own separate operations
Add: Dividend income
Net income
Dividends paid
(1 ) 72,000
(2) 21,000
(9) 9,390
P 843,690
P Co.
P 540,000
216000
P 324,000
60,000
72,000
P 192,000
38,400
P 230,400
P 72,000
____95,190
P2,468,850
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
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………………………
44,160
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 – S Co…………………………………………
Retained earnings – S Co., 1/1/20x5
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 intercompany investment and equity accounts
of subsidiary and to establish non-controlling interest (in net assets of
subsidiary) on January 1, 20x5.
(E3) Inventory………………………………………………………………….
Accumulated depreciation – equipment………………..
Accumulated depreciation – buildings…………………..
Land……………………………………………………………………….
Discount on bonds payable………………………………………….
Goodwill………………………………………………………………….
Buildings………………………………………..
Non-controlling interest (P90,000 x 20%) + [(P15,000, full –
P12,000, partial goodwill)]…………
Investment in S Co……………………………………………….
6,000
96,000
192,000
7,200
4,800
15,000
216,000
21,000
84,000
To allocate excess of cost over book value of identifiable assets
acquired, with remainder to goodwill; and to establish noncontrolling interest (in net assets of subsidiary) on 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…………………………………
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 &
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
(20x4)
Retained
earnings,
P 6,000
12,000
(6,000)
1,200
P13,200
80%
P 10,560
3,000
Depreciation/
Amortization
expense
Amortization
-Interest
P 12,000
( 6,000)
________
P 6,000
P 1,200
P 1,200
13,560
3,390
6,000
12,000
1,200
6,000
24,000
2,400
3,750
Total
P 13,560
(E5) Dividend income - P……….
Non-controlling interest (P48,000 x 20%)………………..
Dividends paid – S……………………
38,400
9,600
48,000
To eliminate intercompany dividends and non-controlling interest
share of dividends.
(E6) 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%)
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).
(E10) 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
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
17,340
December 31, 20x5 (Second Year after Acquisition)
Income Statement
Sales
Dividend income
Total Revenue
Cost of goods sold
P Co
P540,000
38,400
P578,400
P216,000
Depreciation expense
S Co.
P360,000
P360,000
P192,000
Dr.
(5)
38,400
60,000
24,000
(4)
6,000
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
(4)
1,200
Statement of Retained Earnings
Retained earnings, 1/1
P Company
P499,800
(2) 13,560
(6) 15,00
(7) 24,960
P 175,200 (1) 175,200
90,000
P265,200
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
230,400
P730,200
P
Cr.
(8)
3,000
(9)
3,900
Consolidated
P 900,000
___________
P 900,000
P 408,000
83,100
P
P
(
P
(10) 17,340
(1) 44,160
(8) 2,250
(9) 3,120
1,200
126,000
618,300
281,700
17,340)
264,360
P 495,810
264,360
P 760,170
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
(3)
(3)
(6)
(7)
(3)
(3)
(1)
372,000
658,200
(5)
240,000
217,200
_________
P1,074,000
6,000
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
(4)
48,000
6,000
(3) 216,000
(4) 2,400
(4) 3,750
(2) 332,160
(3) 90,000
(4)
(6)
(7)
24,000
45,000
43,200
_
72,000
________
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
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
P 600,000
360,000
P 960,000
___93,000
P1,053,000
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 – 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
Multiplied by: Non-controlling interest %..........
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%
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
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…………...
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 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
2,250
P 95,190
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
___95,190
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* *
P192,000
3,000
P195,000
P 90,000
3,900
P 93,900
93,900
P288,900
7,200
P281,700
17,340
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent – 20x5…………..
*that has been realized in transactions with third parties.
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
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 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
Less: NCI on goodwill impairment loss on full-goodwill . . . . . . . . . . . . . . . . . . . . .
Non-controlling Interest in Net Income (NCINI) – full goodwill . . . . . . . . . . . . .
P 90,000
3,900
P 93,900
7,200
P 86,700
20%
P 17,340
0
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 %...................
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 paid – Parent Company for 20x5
Consolidated Retained Earnings, December 31, 20x5
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
__ 8,760
P495,810
264,360
P760,170
72,000
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
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)…………………………………..
P 240,000
P175,200
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%)
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
P
P 4,800
5,760
76,800
( 19,200)
3,840
288,000
84,000
72,000
P 12,000
The over/under valuation of assets and liabilities are summarized as follows:
Inventory………………….……………..
Land………………………………………
Equipment (net).........
Buildings (net)
Bonds payable…………………………
Net………………………………………..
S Co.
Book value
P 24,000
48,000
84,000
168,000
(120,000)
P 204,000
S Co.
Fair value
P 30,000
55,200
180,000
144,000
( 115,200)
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………………………...
S Co.
Book value
180,000
96,000
84,000
S Co.
Fair value
180,000
180,000
Increase
(Decrease)
0
( 96,000)
96,000
Buildings................
Less: Accumulated depreciation…..
Net book value………………………...
S Co.
Book value
360,000
1992,000
168,000
S Co.
Fair value
144,000
144,000
(Decrease)
( 216,000)
( 192,000)
( 24,000)
A summary or depreciation and amortization adjustments is as follows:
Account Adjustments to be amortized
Inventory
Subject to Annual Amortization
Equipment (net).........
Buildings (net)
Bonds payable…
Over/
Under
P 6,000
Life
1
96,000
(24,000)
4,800
8
4
4
Annual
Amount
P 6,000
Current
Year(20x4)
P 6,000
20x5
P
-
12,000
( 6,000)
1,200
P 13,200
12,000
( 6,000)
1,200
P 13,200
12,000
(6,000)
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%)
P 372,000
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)………………………………………………...
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:
Goodwill applicable to parent…………………
Goodwill applicable to NCI……………………..
Total (full) goodwill………………………………..
The goodwill impairment loss would be allocated as follows
Goodwill impairment loss attributable to parent or controlling
Interest
Goodwill applicable to NCI……………………..
Goodwill impairment loss based on 100% fair value or fullGoodwill
Value
P12,000
3,000
P15,000
% of Total
80.00%
20.00%
100.00%
Value
P 3,000
% of Total
80.00%
750
20.00%
P 3,750
100.00%
The unrealized and gain on intercompany sales for 20x4 are as follows:
Date
of Sale
4/1/20x4
1/2/20x4
Seller
P
S
Selling
Price
P90,000
60,000
Book
Value
P75,000
28,800
Unrealized*
Gain on sale
P15,000
31,200
Remaining
Life
5 years
8 years
Realized gain –
depreciation**
P3,000/year
P3,900/year
20x4
P2,250
P3,900
* 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
Less: Depreciation expense
Other expenses
Add: Gain on sale of equipment
Net income from its own separate operations
Add: Investment income
Net income
P Co.
P 480,000
204,000
P 276,000
60,000
48,000
P 168,000
15,000
P 183,000
24,810
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.
S Co.
P 240,000
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
15,000
24,960
24,960
2,250
2,250
3,120
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 – 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
240,000
120,000
288,000
72,000
acquisition.
(E2) Inventory………………………………………………………………….
Accumulated depreciation – equipment………………..
Accumulated depreciation – buildings…………………..
Land……………………………………………………………………….
Discount on bonds payable………………………………………….
Goodwill………………………………………………………………….
Buildings………………………………………..
Non-controlling interest (P90,000 x 20%)………………………..
Investment in S Co……………………………………………….
6,000
96,000
192,000
7,200
4,800
12,000
216,000
18,000
84,000
To eliminate investment on January 1, 20x4 and allocate excess of
cost over book value of identifiable assets acquired, with remainder
to goodwill; and to establish non- controlling interest (in net assets of
subsidiary) on date of acquisition.
(E3) Cost of Goods Sold…………….
Depreciation expense………………………..
Accumulated depreciation – buildings…………………..
Interest expense…………………………………
Goodwill impairment loss……………………………………….
Inventory…………………………………………………………..
Accumulated depreciation – equipment………………..
Discount on bonds payable…………………………
Goodwill……………………………………
6,000
6,000
6,000
1,200
3,000
6,000
12,000
1,200
3,000
To provide for 20x4 impairment loss and depreciation and
amortization on differences between acquisition date fair value 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 x 20%)………………..
Dividends paid – S……………………
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
Investment in S
372,000
28,800
Dividends – S (36,000x 80%)
Amortization &
(91,200 x 80%)
Realized gain downstream sale
Realized gain upstream sale
Balance, 12/31/x4
(E4) Investment Income
and dividends ……………
72,960
2,250
3,120
368,010
13,560
15,000
24,960
288,000
84,000
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………..
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
(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
24,810
P519,810
P271,200
Dr.
(5) 15,000
(6) 31,200
(4) 28,800
Cr.
Consolidated
P 720,000
_________
P 720,000
Cost of goods sold
P204,000
P138,000
(3)
6,000
(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
Retained earnings, 12/31 to Balance
Sheet
Balance Sheet
Cash……………………….
Accounts receivable……..
Inventory………………….
Land…………………………….
Equipment
60,000
24,000
(3)
6,000
48,000
P312,000
P207,810
P207,810
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
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
(9)
P
P
(
P
10,140
P360,000
P
Buildings
Discount on bonds payable
Goodwill……………………
Investment in S Co………
207,810
P567,810
(4)
(2)
6,000
(2)
7,200
(5) 30,000
(6) 12,000
4,800
12,000
368,010
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…………
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
240,000
175,200
495,810
(2) 96,000
(7) 2,250
(8)
3,900
(2) 192,000
(3)
6,000
_________
P1,008,000
20x5: Second Year after Acquisition
Sales
Less: Cost of goods sold
Gross profit
Less: Depreciation expense
Other expense
Net income from its own separate operations
Add: Investment income
Net income
Dividends paid
(3)
36,000
5,000
(2) 216,000
(3) 1,200
(3) 3,000
(1) 288,000
(2) 84,000
72,000
________
_
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
1,0200
66,000
3,000
502,050
217,950
10,140)
207,810
P 360,000
(2)
(2)
Total
Total
P 348,000
83,850
2,250
(8)
3,900
7,200
__________
P 840,690
(1 ) 72,000
(2) 18,000
(9) 10,140
P 840,690
P Co.
P 540,000
216,000
P 324,000
60,000
72,000
P 192,000
72,360
P 264,360
P 72,000
92,940
P2,466,600
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 Equity Method Entry
January 1, 20x5 – December 31, 20x5:
(2) Cash………………………
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
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)
Accumulated depreciation – buildings (P192,000 + P6,000)
Land……………………………………………………………………….
Discount on bonds payable (P4,800 – P1,200)….
84,000
198,000
6,000
3,600
Goodwill (P12,000 – P3,000)……………………………..
Buildings………………………………………..
Non-controlling interest [(P90,000 – P13,200) x 20%]
Investment in Son Co……………………………………………….
9,000
180,000
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……………………
Investment in S Company
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%)
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
(90,000
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)
To adjust downstream depreciation expense on equipment sold to
subsidiary, thus realizing a portion of the gain through depreciation
5,250
3,000
2,250
(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
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……..
Inventory………………….
Land…………………………….
Equipment
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
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
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)
(2)
(5)
(6)
7,200
30,000
12,000
48,000
_
72,000
________
462,000
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
720,000
540,000
(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) 84,000
(7) 5,250
(8) 7,800
(2) 198,000
(3)
6,000
240,000
217,200
(2) 216,000
(3) 1,200
1,044,000
2,400
9,000
(1) 332,160
(2) 70,440
(4) 33,960
(7) 2,250
(8) 3,120
(3)
(5)
(6)
P2,749,800
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
3,600
9,000
15,000
24,960
_________
P1,074,000
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%)………………..
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 Annual Amortization
Equipment (net).........
Buildings (net)
Bonds payable…
Over/
under
P 6,000
Life
1
Annual
Amount
P 6,000
Current
Year(20x4)
P 6,000
20x5
P
-
96,000
(24,000)
4,800
8
4
4
12,000
( 6,000)
1,200
12,000
( 6,000)
1,200
12,000
(6,000)
1,200
P 13,200
P 13,200
P 7,200
The following summary for 20x4 results of operations is as follows:
Sales
Less: Cost of goods sold
Gross profit
Less: Depreciation expense
Other expenses
Add: Gain on sale of equipment
Net income from its own separate operations
Add: Investment income
Net income
P Co.
P 480,000
204,000
P 276,000
60,000
48,000
P 168,000
15,000
P 183,000
24,810
P 207,810
S Co.
P 240,000
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 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.
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%)
372,000
372,000
28,800
28,800
72,960
72,960
13,560
13,560
15,000
15,000
24,960
24,960
2,250
2,250
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..
3,120
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
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
(76,000 x 80%)
Realized gain downstream sale
Realized gain upstream sale
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%)………………………..
240,000
120.000
288,000
72,000
To eliminate investment on January 1, 20x4 and equity accounts
of subsidiary on date of acquisition; and to establish noncontrolling interest (in net assets of subsidiary) on date of
acquisition.
(E2) Inventory………………………………………………………………….
Accumulated depreciation – equipment………………..
Accumulated depreciation – buildings…………………..
Land……………………………………………………………………….
Discount on bonds payable………………………………………….
Goodwill………………………………………………………………….
Buildings………………………………………..
Non-controlling interest (P90,000 x 20%) + [(P15,000 full –
P12,000, partial goodwill)]…………
Investment in S Co……………………………………………….
6,000
96,000
192,000
7,200
4,800
15,000
216,000
21,000
84,000
To eliminate investment on January 1, 20x4 and allocate excess of
cost over book value of identifiable assets acquired, with remainder
to goodwill; and to establish non- controlling interest (in net assets of
subsidiary) on date of acquisition.
(E3) Cost of Goods Sold…………….
Depreciation expense………………………..
Accumulated depreciation – buildings…………………..
Interest expense…………………………………
Goodwill impairment loss……………………………………….
Inventory…………………………………………………………..
Accumulated depreciation – equipment………………..
Discount on bonds payable…………………………
Goodwill……………………………………
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:
6,000
6,000
6,000
1,200
3,750
6,000
12,000
1,200
3,750
Inventory sold
Equipment
Buildings
Bonds payable
Totals
Cost of
Goods
Sold
P 6,000
Depreciation/
Amortization
Expense
Amortization
-Interest
P 12,000
( 6,000)
_______
P 6,000
P 1,200
P1,200
_______
P 6,000
Total
14,400
(E4) Investment income
Investment in S Company
Non-controlling interest (P36,000 x 20%)………………..
Dividends paid – S……………………
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
3,990
372,000
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
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………..
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
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
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……..
_________
P 720,000
P 348,000
83,850
(3)
6,000
24,000
(3)
6,000
18,000
P180,000
P 91,200
P 91,200
(3)
1,200
(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
P 90,000
60,000
P 322,800
150,000
(7)
Depreciation expense
Consolidated
P 720,000
2,250
(8)
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)
36,000
_
72,000
________
Inventory………………….
Land…………………………….
Equipment
120,000
210,000
240,000
90,000
48,000
180,000
Buildings
Discount on bonds payable
Goodwill……………………
Investment in S Co………
720,000
540,000
Total
Accumulated depreciation
- equipment
(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
Accumulated depreciation
- buildings
Accounts payable……………
Bonds payable…………………
Common stock, P10 par………
Common stock, P10 par………
Retained earnings, from above
Non-controlling interest…………
Total
(2)
6,000
(2)
6,000
(5) 30,000
(6) 12,000
240,000
175,200
495,810
(2) 96,000
(7) 2,250
(8) 3900
(2) 192,000
(3) 6,000
_________
P1,008,000
Second Year after Acquisition
Sales
Less: Cost of goods sold
Gross profit
Less: Depreciation expense
Other expense
Net income from its own separate operations
Add: Investment income
Net income
Dividends paid
6,000
(2) 216,000
(3) 1,200
(3) 3,750
(1) 288,000
(2) 84,000
210,000
265,200
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)
7,200
__________
P 843,690
(1 ) 72,000
(2) 21,000
(9) 9,390
P 843,690
Perfect Co.
P 540,000
1216,000
P 324,000
60,000
72,000
P 192,000
72,360
P 264,360
P 72,000
____95,190
P2,468,850
Son Co.
P 360,000
192,000
P 168,000
24,000
54,000
P 90,000
P 90,000
P 48,000
No goodwill impairment loss for 20x5.
Parent Company Equity Method Entry
January 1, 20x5 – December 31, 20x5:
(2) Cash………………………
Investment in S Company (P48,000 x 80%)…………….
38,400
38,400
Record dividends from S Company.
December 31, 20x5:
(3) Investment in S Company
Investment income (P90,000 x 80%)
72,000
72,000
Record share in net income of subsidiary.
December 31, 20x5:
(4) Investment income (P7,200 x 80%)
Investment in S Company
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
3,000
3,000
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..
3,120
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
Amortization (7,200 x 805)
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%)
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)
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
198,000
7,200
3,600
11,250
216,000
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/
Amortization
Amortization
6,000
6,000
1,200
12,000
1,200
Expense
Inventory sold
Equipment
Buildings
Bonds payable
Totals
P 12,000
( 6000)
_______
P 6,000
-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
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)
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 …………..
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)
17,340
17,340
P 86,700
Multiplied by: Non-controlling interest %..........
20%
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……..
Inventory………………….
Land…………………………….
Equipment
Buildings
Discount on bonds payable
Goodwill……………………
Investment in S Co………
Total
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
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
1,200
126,000
618,300
281,700
17,340)
264,360
P495,810
264,360
P 760,170
(5)
(2)
(5)
(6)
(2)
(2)
(5)
(6)
401,970
P2,233,170
P1,074,000
Accumulated depreciation
- equipment
P 150,000
P 102,000
Accumulated depreciation
- buildings
450,000
306,000
48,000
7,200
30,000
12,000
(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)
12,000
45,000
43,200
_
72,000
________
462,000
1,044,000
2,400
11,250
P2,752,050
P 255,150
552,000
Accounts payable……………
Bonds payable…………………
Common stock, P10 par………
Common stock, P10 par………
Retained earnings, from above
Non-controlling interest…………
Total
105,000
240,000
600,000
688,170
88,800
120,000
240,000
217,200
193,800
360,000
600,000
(1) 240,000
688,170
(4)
(6)
___ _____
P2,233,170
_________
P1,074,000
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 .................................................................
P90,000
Excess amortization .............................................................................................
(8,000)
Eliminate unrealized gain on equipment transfer ........................................
(50,000)
Eliminate excess depreciation (P50,000 ÷ 5) ..................................................
10,000
Bennett's realized net income ..........................................................................
P42,000
Outside ownership ..............................................................................................
10%
Non-controlling interest in subsidiary's income ..............................................
P4,200
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 noncontrolling 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
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
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
35,000
P125,000
40,000
P150,000
(8,750)
P116,250
(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
P 15,000
36,000
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
Adjustment to accumulated depreciation
Amount required (P20,000 x 7 years)
Amount reported by BB (P16,000 x 1 year)
Required adjustment
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
156,000
4,000
P300,000
(144,000)
P156,000
P 20,000
P
(16,000)
4,000
P140,000
(16,000)
P124,000
P36,000
x
.70
P25,200
P36,000
x
.30
P125,000
51,000
P176,000
(15,300)
P160,700
124,000
25,200
10,800
Required adjustment
4.
P10,800
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
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
2.
Land account as reported
Less: Intercompany profit
Restated land account
20x4
P 750,000
-10,000
3,000
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
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
P 98,000
20,000
50,000
8,750
P176,750
Problem XVIII
1.
Eliminating entry, December 31, 20x7:
E(1) Gain on Sale of Land
Land
10,000
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
2.
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
Land
30,000
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
45,000
45,000
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
Add: Additional depreciation (P1,100,000 – P100,000) / 20 years
Accumulated depreciation, 12/31/20x4
P 250,000
____50,000
P 300,000
3. a
Combined building amounts
Less: Intercompany gain
P650,000
__30,000
Consolidated buildings
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
P100,000
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)
Net unrealized gain, 12/31/20x6
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
P 80,000
P100,000
__50,000
__50,000
P 30,000
___6,000
P 24,000
6,000
6,000
“Should be in CFS” Parent – Pylux“Recorded as” Subsidiary - Sylux
Depreciation expense
(P50,000 /5 years)
Acc. Depreciation
10,000
8,000
Depreciation expense
(P80,000 / 5 years)
Acc. depreciation
16,000
16,000
9. d
Unrealized gain on sales of equipment (downstream sales)
Realized gain on sale of equipment (downstream sales) through depreciation
P90,000 / 10 years
Net
20x4
( 90,000)
___9,000
( 81,000)
20x5
-09,000
9,000
10. d
Unrealized gain on sale of equipment (downstream sales)
Realized gain on sale of equipment (downstream sales) through depreciation
P150,000 / 10 years
Net
20x4
( 150,000)
___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
20x5
-0-
___4,000
( 16,000)
__4,000
__4,000
12. e
Original cost of
P
100,000
Accumulated depreciation, 1/1/20x6
P
40,000
___20,000
P70,000
Add: Additional depreciation (P100,000 – P40,000) / 6 years x 2 years
Accumulated depreciation, 12/31/20x4
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
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
__60,000
P(12,000)
___4,000
P( 8,000)
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
16. c
Sales price
Less: Book value
Cost
P 80,000
____8,000
P 88,000
P 45,000
P100,000
Less: Accumulated depreciation
Unrealized gain on sale
Less: Realized gain - depreciation (P25,000 / 5 years) x 2 years
Net unrealized gain, 12/31/20x7
__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
Buyer
50,000
18,000
Truck
Cash
50,000
50,000
53,000
15,000
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
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
equity holders of parent – 20x5…………..
*that has been realized in transactions with third parties.
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.
P 98,000
___0
P 98,000
P 55,000
(15,000)
5,000
P 45,000
P 18,000
____0
18,000
P125,000
_ 18,000
P143,000
**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 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
P 55,000
( 15,000)
5,000
P 45,000
0
P 45,000
40%
P 18,000
0
P 18,000
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 . . . . . . . . . . . . .
23. a - refer to No. 22 computation
24. a
25. a
26. b
27. 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)
45,000
P143,000
P40,000
10,000
P50,000
(3,000)
Depreciation for consolidated statements
P47,000
33. e
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
Operating income reported by TLK Corporation
Net income reported by GG Company
Less: Unrealized gain on sale of equipment
(P15,000 - P5,000)
Consolidated net income
41. b
Eliminating entries:
12/31/20x5: date of acquisition
Restoration of BV and eliminate unrealized gain
P15,000
(5,000)
P 45,000
(10,000)
P 35,000
x
.40
P 14,000
P 85,000
45,000
P130,000
(10,000)
P120,000
Equipment
Gain
Accumulated depreciation
10,000
150,000
160,000
Parent Books – Mortar
Cash
Accumulated depreciation
Equipment
Gain
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
P390,000
P400,000
160,000
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
Depreciation expense
(P400,000 / 10 years)
Acc. Depreciation
40,000
40,000
240,000
P 150,000
P 25,000
25,000
25,000
“Recorded as” Subsidiary Books - Granite
Depreciation expense
(P390,000 / 6 years)
Acc. depreciation
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)
65,000
65,000
10,000
100,000
135,000
46. a
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
47. d
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.
48. b
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
1,700,000
Equipment
200,000
Accumulated
depreciation
200,000
Accumulated depreciation
170,000
Depreciation expense
170,000
49.d
50. d
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.
51. a
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 –
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
P 140,000
___0
P 140,000
P 30,000
20,000
(
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…………..
P 140,000
___0
P 140,000
P 30,000
20,000
( 0)
P 50,000
P 15,000
____0
50,000
P190,000
15,000
P175,000
Add: Non-controlling Interest in Net Income (NCINI)
Consolidated Net Income for 20x9
*that has been realized in transactions with third parties.
_ 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.
**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
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI) - partial goodwill
Less: NCI on goodwill impairment loss on full-goodwill . . . . . . . . . . . . . . . . . . . . .
P 162,000
___0
P 162,000
P 45,000
( 5,000)
P 40,000
P 7,500
____0
40,000
P202,000
7,500
P194,500
_ _ 7,500
P202,000
P 30,000
( 5,000)
P 25,000
0
P 25,000
30%
P 7,500
0
Non-controlling Interest in Net Income (NCINI) – full goodwill . . . . . . . . . . . . .
P 7,500
53. d
Eliminating entries:
1/1/20x5: date of acquisition
Restoration of BV and eliminate unrealized gain
Building
Gain
Accumulated depreciation
Parent Books –Sky
Cash
Accumulated depreciation
Building
Gain
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
P33,000
P36,000
11,250
24,750
P 8,250
P 1,500
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
750
Depreciation expense
750
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
3,000
3,000
1,500
1,500
“Recorded as” Subsidiary Books - Earth
4,500
4,500
57. d
Eliminating entries:
1/1/20x5: subsequent to date of acquisition
Building
Retained earnings (8,250 – 750)
Accumulated depreciation (P11,250 – P750)
Depreciation expense
(P33,000 / 5.5 years)
Acc. depreciation
6,000
6,000
3,000
7,500
10,500
58. d - P60,000 - P36,000 = P24,000 debit
59. b - P36,000 - (P60,000 - P31,200) = P7,200 gain (debit)
60. c - (P36,000/6)(8/12) - [(P60,000 - P31,200)/6](8/12) = P800 credit
61.a - P31,200 - {(P36,000/6)(8/12) - [(P60,000 - P31,200)/6](8/12)} = P30,400 credit
62.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
Gain
P
P 30,000
P
Consolidated
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)
S
Selling price
Less: Book value
Gain
74. c
P 100,000
P
P
50,000
Consolidated
P 150,000
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 x3 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
__________
P15,000
_________
P 20,000
78. b
Depreciation expense: (P50,000 - P40,000) / 10 years = P1,000 overdepreciation
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
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 135,000
( 0)
P 135,000
0
P 135,000
20%
P 27,000
0
P 27,000
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 incomefrom 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
P200,800
_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
P1,300,000
112,000
P1,188,000
20y1
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
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
P800,000
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
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
P1,460,800
104,000
P1,356,800
P 1,075,000
800,000
P 275,000
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
P455,000
85. c
Prout
Sexton
Consolidated
Selling price
Less: Book value : Cost
Accumulated
Unrealized gain on sale of
Equipment, 1/1/20y1
Realized Gain – depreciation
(P120,000/15 x 2yrs)
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
P 360,000
P 400,000
*160,000
__240,000
P300,000
P360,000
**48,000
312,000
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
Original Cost
Intercompany Selling Price
Difference
Cost
P400,000
360,000
P 40,000
Accumulated
Depreciation
P160,000
_______
P160,000
Carrying Value
P240,000
360,000
P120,000
Remaining
Life
Depreciation
15 yr
P 16,000
15 yr
24,000
P 8,000
(1) Investment in Sexton Company
Retained Earnings - Prout
192,000
(2) Equipment
Beginning Retained Earnings - Prout
Accumulated Depreciation
40,000
120,000
To establish reciprocity/convert to equity (.80 x (P1,040,000 - P800,000))
192,000
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
(5) Beginning Retained Earnings – Sexton
Common Stock – Sexton
Investment in Sexton Company (P1,600,000 + P192,000)
Noncontrolling Interest [P400,000 + (P1,040,000 - P800,000) x .20]
1,040,000
1,200,000
To eliminate investment account and create noncontrolling interest account
Entry analysis:
Journal Entry on the books of Sexton to record the sale
Cash
Accumulated Depreciation - Fixed Assets (P360,000/15) x 2 years)
Loss on Sale of Equipment
Plant and Equipment
300,000
48,000
12,000
80,000
1,792,000
448,000
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
Accumulated Depreciation Based on Original Cost ((12/25)x P400,000)
Book Value, 1/1/y3
Proceeds from Sale to Non-affiliate
Gain from consolidated point of view
P400,000
192,000
P 208,000
(300,000)
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 Full
Fair value of consideration given…………………….P 700,000
Less: Book value of SHE - Subsidiary):
(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
0P 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 (4/1/20x5-12/31/20x5)…………………………. .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 (9/30/20x5-12/31/20x5)………. ……………… .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
depreciationP35,000 – 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
depreciationP35,000 – 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.
P 300,000
34,125
P 265,875
P 150,000
(30,000)
4,500
P 124,500
P 24,300
3,000
**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 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
Non-controlling Interests (in net assets):
20x520x6
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%
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
Non-controlling Interest (in net assets) – partial...
+: NCI on full goodwill……..……………………………..
Non-controlling Interest (in net assets) – full……..
* 20x5: P3,000 x 2 years; 2012: P3,000 x 3 years;
** P30,000 – P4,500 realized gain in 20x5 = P25,500.
P 208,700
0
P 208,700
P 235,300
0
P 235,300
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)……………………………………….. .P1,000,000
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*…….…..
P 200,000
___0
P 200,000
P100,000
70,000
95,000
15,000
( 52,000)
( 23,000)
P205,000
205,000
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
P405,000
0
P405,000
35,600
P369,400
S3
145,000
160,000
( 15,000)
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………………………………….
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
S3
P 100,000
15,000
P 115,000
0
P 115000
20%
P 23,000
0
P 23,000
P 200,000
___0
P 200,000
P100,000
70,000
95,000
15,000
( 52,000)
( 23,000)
P205,000
P 35,600
____0
205,000
P405,000
_35,600
P369,400
_ _35,600
P405,000
S2
P70,000
( 52,000)
P 18,000
0
P 18,000
30%
P 5,400
0
P 5,400
S1
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
P41,100
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
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
P225,000
45,000
___4,500
P184,500
90%
P166,050
104. c
Pied Imperial-Pigeon’s share of Roger’s income = (P320,000 x 90%) =
Less: Profit on intercompany sale (P130,000 - P80,000) x 90% =
Add: Piecemeal recognition of deferred profit ($50,000/4 years)90% =
Income from Offshore
P288,000
45,000
11,250
P254,250
P30,000 - (1/4 x P30,000) =
P 22,500
105c
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
P2,000 x 80%
Net
20x4
22,400
( 9,600)
_ 1,600
14,400
116. c
Share in subsidiary net income (32,000 x 80%)
Realized gain on sale of equipment (upstream sales) through depreciation
P2,000 x 80%
Net
20x5
25,600
_ 1,600
27,200
117. d
Eliminating entries:
1/1/20x4: date of acquisition
Restoration of BV and eliminate unrealized gain
Equipment
Gain
Accumulated depreciation
36,000
12,000
48,000
Parent –Smeder
Cash
Accumulated depreciation
Equipment
Gain
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
( 12,000)
___2,000
( 10,000)
Unrealized gain on sale of equipment
Realized gain on sale of equipment through depreciation
Net
119. d
Eliminating entries:
5/1/20x4: date of acquisition
Restoration of BV and eliminate unrealized gain
Cash
Loss
Parent – Stark
Cash
Loss
Land
5,000
5,000
Subsidiary - Parker
80,000
5,000
Land
Cash
85,000
85,000
85,000
Selling price
Less: Book value, 5/1/20x4
Unrealized gain on sale of equipment
Stark
P 80,000
_85,000
P ( 5,000)
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
_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
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
20x6
198,000
_ ( 4,500)
193,500
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