solution chapter 17

Chapter 17

Problem I1.

Consolidated Net Income for 20x5P Company’s net income from own/separate operations…………. P 760,000Realized profit in beginning inventory of S Company (downstream sales) 36,000Unrealized profit in ending inventory of S Company (downstream sales)… (_50,000)

P Company’s realized net income from separate operations*…….….. P 746,000S Company’s net income from own operations…………………………………. P 460,000Realized profit in beginning inventory of P Company (upstream sales) 0Unrealized profit in ending inventory of P Company (upstream sales)… ( 0)

S Company’s realized net income from separate operations*…….….. P 460,000 460,000Total P1,206,000Less: Amortization of allocated excess…………………… 0Consolidated Net Income for 20x5 P1,206,000Less: Non-controlling Interest in Net Income* * 92,000Controlling Interest in Consolidated Net Income or Profit attributable to

equity holders of parent – 20x5………….. P 1,114,000*that has been realized in transactions with third parties.

Or, alternativelyConsolidated Net Income for 20x5

P Company’s net income from own/separate operations…………. P 760,000Realized profit in beginning inventory of S Company (downstream sales) 36,000Unrealized profit in ending inventory of S Company (downstream sales)… (_50,000)

P Company’s realized net income from separate operations*…….….. P 746,000S Company’s net income from own operations…………………………………. P 460,000Realized profit in beginning inventory of P Company (upstream sales) 0Unrealized profit in ending inventory of P Company (upstream sales)… ( 0)

S Company’s realized net income from separate operations*…….….. P460,000 460,000Total P1,206,000Less: Non-controlling Interest in Net Income* * P 92,000

Amortization of allocated excess…………………… 0 92,000Controlling Interest in Consolidated Net Income or Profit attributable to

equity holders of parent………….. P1,114,000Add: Non-controlling Interest in Net Income (NCINI) _ 92,000Consolidated Net Income for 20x5 P 1,206,000

*that has been realized in transactions with third parties.

**Non-controlling Interest in Net Income (NCINI) for 20x5S Company’s net income of Subsidiary Company from its own operations

(Reported net income of Son Company) P460,000Realized profit in beginning inventory of P Company (upstream sales) 0Unrealized profit in ending inventory of P Company (upstream sales) ( 0)

S Company’s realized net income from separate operations……… P460,000Less: Amortization of allocated excess _____0

P460,000Multiplied by: Non-controlling interest %.......... 20%Non-controlling Interest in Net Income (NCINI) – partial goodwill P 92,000

2. 20x4Sales 1,080,000

Purchases (Cost of Goods Sold) 1,080,000

12/31 Inventory (Income Statement)[216,000 – (216,000/1.20)] 36,000

12/31 Inventory (Balance Sheet) 36,000

20x5Sales 1,200,000

Purchases (Cost of Goods Sold) 1,200,000

12/31 Inventory (Income Statement)[300,000 – (300,000/1.20)] 50,000

12/31 Inventory (Balance Sheet) 50,000

Beginning R/E – Puma 36,0001/1 Inventory (Income Statement) 36,000

Problem II1.

Consolidated Net Income for 20x5P Company’s net income from own/separate operations…………. P 1,720,000Realized profit in beginning inventory of S Company (downstream sales) 0Unrealized profit in ending inventory of S Company (downstream sales)… (_ 0)

P Company’s realized net income from separate operations*…….….. P 1, 720,000S Company’s net income from own operations…………………………………. P 600,000Realized profit in beginning inventory of P Company (upstream sales) 40,000Unrealized profit in ending inventory of P Company (upstream sales)… ( 51,00 0)

Son Company’s realized net income from separate operations*…….….. P 589,000 589,000Total P2,309,000Less: Amortization of allocated excess…………………… 0Consolidated Net Income for 20x5 P2,309,000Less: Non-controlling Interest in Net Income* * 58,900Controlling Interest in Consolidated Net Income or Profit attributable to

equity holders of parent – 20x5………….. P 2,250,100*that has been realized in transactions with third parties.Or, alternatively

Consolidated Net Income for 20x5P Company’s net income from own/separate operations…………. P 1,720,000Realized profit in beginning inventory of S Company (downstream sales) 0Unrealized profit in ending inventory of S Company (downstream sales)… (________0)

P Company’s realized net income from separate operations*…….….. P1,720,,000S Company’s net income from own operations…………………………………. P 600,000Realized profit in beginning inventory of P Company (upstream sales) 40,000Unrealized profit in ending inventory of P Company (upstream sales)… ( 51,000)


Amortization of allocated excess…………………… 0 __58,900Controlling Interest in Consolidated Net Income or Profit attributable to

equity holders of parent………….. P2,250,100Add: Non-controlling Interest in Net Income (NCINI) _ 58,900Consolidated Net Income for 20x5 P 2,309,000



(Reported net income of Son Company) P600,000Realized profit in beginning inventory of P Company (upstream sales) 40,000Unrealized profit in ending inventory of P Company (upstream sales) ( 51,000)

Son Company’s realized net income from separate operations……… P589,000Less: Amortization of allocated excess _____0

P589,000Multiplied by: Non-controlling interest %.......... 10%Non-controlling Interest in Net Income (NCINI) P 58,900

2. Sales 1,020,000Purchases (Cost of Sales) 1,020,000

To eliminate intercompany sales.

12/31 Inventory (Income Statement) 51,000Inventory (Balance Sheet) 51,000

To eliminate unrealized intercompany profit in ending inventory.

Beginning Retained Earnings – Pinta(.90 × P40,000) 36,000

Noncontrolling interest 4,0001/1 Inventory (Balance Sheet) 40,000

To recognize unrealized profit in beginning inventory realized during the year.

Problem IIIConsolidated Net Income for 20x4

P Company’s net income from own/separate operations…………. P 3,600,000Realized profit in beginning inventory of S Company (downstream sales) 54,000Unrealized profit in ending inventory of S Company (downstream sales)… (_ 45,00 0)

P Company’s realized net income from separate operations*…….….. P 3,609,000S Company’s net income from own operations (P1,500,000 + P2,400,000) P3,900,000Realized profit in beginning inventory of P Company (upstream sales) – Salad 66,000Realized profit in beginning inventory of P Company (upstream sales)- Tuna 63,000Unrealized profit in ending inventory of P Company (upstream sales) – Salad ( 57,000)Unrealized profit in ending inventory of P Company (upstream sales) – Tuna ( 69,000)

S Company’s realized net income from separate operations*…….….. P3,903,000 3,903,000Total P7,512,000Less: Amortization of allocated excess…………………… 0Consolidated Net Income for 20x4 P7,512,000Less: Non-controlling Interest in Net Income* *- Salad P 301,800

Non-controlling Interest in Net Income* *- Tuna ___239,400 ___541,200Controlling Interest in Consolidated Net Income or Profit attributable to

equity holders of parent – 20x4………….. P6,970,800*that has been realized in transactions with third parties.


P Company’s net income from own/separate operations…………. P 3,600,000Realized profit in beginning inventory of S Company (downstream sales) 54,000Unrealized profit in ending inventory of S Company (downstream sales)… (___45,000)

P Company’s realized net income from separate operations*…….….. P3,609,,000S Company’s net income from own operations (P1,500,000 + P2,400,000) P3,900,000Realized profit in beginning inventory of P Company (upstream sales) – Salad 66,000Realized profit in beginning inventory of P Company (upstream sales)- Tuna 63,000Unrealized profit in ending inventory of P Company (upstream sales) – Salad ( 57,000)Unrealized profit in ending inventory of P Company (upstream sales) – Tuna ( 69,000)

S Company’s realized net income from separate operations*…….….. P3,903,000 3,903,000Total P7,512,000Less: Non-controlling Interest in Net Income* * - Salad P 301,800

Non-controlling Interest in Net Income* * - Tuna 239,400Amortization of allocated excess…………………… 0 __541,200

Controlling Interest in Consolidated Net Income or Profit attributable toequity holders of parent………….. P6,970,800

Add: Non-controlling Interest in Net Income (NCINI) _541,200Consolidated Net Income for 20x4 P 7,512,000

*that has been realized in transactions with third parties.**Salad

Non-controlling Interest in Net Income (NCINI) for 20x4S Company’s net income of Subsidiary Company from its own operations

(Reported net income of S Company) P1,500,000Realized profit in beginning inventory of P Company (upstream sales) 66,000Unrealized profit in ending inventory of P Company (upstream sales) ( 57,000)

Son Company’s realized net income from separate operations……… P1,509,000Less: Amortization of allocated excess _____0

P1,509,000Multiplied by: Non-controlling interest %.......... __ 20%Non-controlling Interest in Net Income (NCINI) P 301,800

**TunaNon-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) P2,400,000

Realized profit in beginning inventory of P Company (upstream sales) 63,000Unrealized profit in ending inventory of P Company (upstream sales) ( 69,000)

Son Company’s realized net income from separate operations……… P2,394,000Less: Amortization of allocated excess _____0

P2,394,000Multiplied by: Non-controlling interest %.......... 10%Non-controlling Interest in Net Income (NCINI) P 239,400

Realized Profit in Beginning inventory:Downstream Sales (Sales from Parent to Subsidiary)

P414,000 x 15/115 P54,000Upstream Sales (Sales from Subsidiary-Salad to Parent):

Salad: P396,000 x 20/120 66,000Upstream Sales (Sales from Subsidiary-Tuna to Parent):

Tuna: P315,000 x 25/125 63,000

Unrealized Profit in Ending inventory:Downstream Sales (Sales from Parent to Subsidiary)

P345,000 x 15/115 P45,000Upstream Sales (Sales from Subsidiary-Salad to Parent):

Salad: P342,000 x 20/120 57,000Upstream Sales (Sales from Subsidiary-Tuna to Parent):

Tuna: P345,000 x 25/125 69,000

Problem IV1.

Sales 4,000,000Cost of Goods Sold 4,000,000

Cost of Goods Sold 250,000Ending Inventory (Balance Sheet) 250,000

[P1,250,000 - (P1,250,000/1.25)]

1/1 Retained Earnings – P Company (1) 84,000Noncontrolling interest (2) 21,000

Cost of Goods Sold (Beginning Inventory) 105,000[P525,000 – (P525,000/1.25)] = P105,000

(1) .8(P105,000)(2) .2(P105,000)

2/3. P3,000,000 × .20 = P600,000 non-controlling interest in consolidated income.

4. [(.20 × P5,400,000) -.20(P1,250,000 – P1,250,000/1.25)] = P1,030,000 non-controlling interest inconsolidated net assets on December 31, 20x4.

Problem VP COMPANY AND SUBSIDIARY

Consolidated Income StatementFor the Year Ended December 31, 20x4

Sales (P13,800,000 – P1,350,000) P12,450,000

Cost of Goods Sold (a) P7,755,000Operating Expenses 1,800,000 9,555,000Consolidated Income 2,895,000Less Non-controlling Interest in Consolidated Income (b) 197,500Controlling Interest in Consolidated Net Income P2,697,500

(a) Reported Cost of Goods Sold P9,000,000Less intercompany sales in 20x4 (1,350,000)Plus unrealized profit in ending inventory (2/5 x (P1,350,000 - P900,000)) 180,000Less realized profit in beginning inventory (1/4 x (P1,800,000 - P1,500,000)) (75,000)Corrected cost of goods sold P7,755,000

(b) Reported net income of subsidiary P1,900,000

Plus unrealized profit on subsidiary sales in 2013 that is considered realized in 20x4(1/4 x (P1,800,000 - P1,500,000)) 75,000

Less unrealized profit on subsidiary sales in 20x4 (there were no upstream sales in 20x4) 0Income realized in transactions with third parties 1,975,000

× 0.10Non-controlling interest in consolidated income P197,500

Problem VIII(Determine selected consolidated balances; includes inventory transfers and an outside ownership.)

Customer list amortization = P65,000/5 years = P13,000 per year

Intercompany Gross profit (P160,000 – P120,000) ............................................... P40,000Inventory Remaining at Year's End ......................................................................... 20%

Unrealized Intercompany Gross profit, 12/31 ............................................................. P8,000

Consolidated Totals: Inventory = P592,000 (add the two book values and subtract the ending unrealized gross

profit of P8,000) Sales = P1,240,000 (add the two book values and subtract the P160,000 intercompany

transfer) Cost of Goods Sold = P548,000 (add the two book values and subtract the intercompany

transfer and add [to defer] ending unrealized gross profit) Operating Expenses = P443,000 (add the two book values and the amortization expense for

the period) Gross profit: P1,240,000 – P548,000 = P692,000 Controlling Interest in CNI:

Gross profit ..................................................................................................... P692,000Less: Operating expenses ........................................................................... 443,000Consolidated Net Income ...........................................................................P249,000Less: NCI-CNI ................................................................................................... 8,700CI-CNI...............................................................................................................P240,300

orConsolidated Net Income for 20x5

P Company’s net income from own/separate operations (P800-P400-P180) P 220,000Realized profit in beginning inventory of S Company (downstream sales) 0Unrealized profit in ending inventory of S Company (downstream sales)… (_ 0)

P Company’s realized net income from separate operations*…….….. P 220,000S Company’s net income from own operations (P600 – P300 – P250) P 50,000Realized profit in beginning inventory of P Company (upstream sales) 0Unrealized profit in ending inventory of P Company (upstream sales)… ( 8, 000)

P190,0000.1

S Company’s realized net income from separate operations*…….….. P 42,000 42,000Total P 262,000Less: Amortization of allocated excess…………………… 13,000Consolidated Net Income for 20x5 P 249,000Less: Non-controlling Interest in Net Income* * 8,700Controlling Interest in Consolidated Net Income or Profit attributable to

equity holders of parent – 20x5………….. P 240,300*that has been realized in transactions with third parties.

Or, alternatively

Consolidated Net Income for 20x5P Company’s net income from own/separate operations…………. P 220,000Realized profit in beginning inventory of S Company (downstream sales) 0Unrealized profit in ending inventory of S Company (downstream sales)… (_ 0)

P Company’s realized net income from separate operations*…….….. P 220,000S Company’s net income from own operations…………………………………. P 50,000Realized profit in beginning inventory of P Company (upstream sales) 0Unrealized profit in ending inventory of P Company (upstream sales)… ( 8,000)

S Company’s realized net income from separate operations*…….….. P 42,000 42,000Total P 262,000Less: Non-controlling Interest in Net Income* * P 8,700

Amortization of allocated excess…………………… 13,000 21,700Controlling Interest in Consolidated Net Income or Profit attributable to

equity holders of parent………….. P240,300Add: Non-controlling Interest in Net Income (NCINI) _ 8,700Consolidated Net Income for 20x5 P249,000



(Reported net income of Son Company) P 50,000Realized profit in beginning inventory of P Company (upstream sales) 0Unrealized profit in ending inventory of P Company (upstream sales) ( 8,00 0)

S Company’s realized net income from separate operations……… P 42,000Less: Amortization of allocated excess 13,000

P 29,000Multiplied by: Non-controlling interest %.......... 30%Non-controlling Interest in Net Income (NCINI) – partial goodwill P 8,700

Noncontrolling Interest in Subsidiary's Net Income = P8,700 (30 percent of the reportedincome after subtracting 13,000 excess fair value amortization and deferring P8,000 endingunrealized gross profit) Gross profit is included in this computation because the transfer wasupstream from SS to PT.

Problem IXRequirements 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……………………………….. P 372,000

Less: Book value of stockholders’ equity of Son:Common stock (P240,000 x 80%)……………………. P 192,000Retained earnings (P120,000 x 80%)………………... 96,000 288,000

Allocated excess (excess of cost over book value)….. P 84,000Less: Over/under valuation of assets and liabilities:

Increase in inventory (P6,000 x 80%)……………… P 4,800Increase in land (P7,200 x 80%)……………………. 5,760Increase in equipment (P96,000 x 80%) 76,800Decrease in buildings (P24,000 x 80%)………..... ( 19,200)

Decrease in bonds payable (P4,800 x 80%)…… 3,840 72,000Positive excess: Partial-goodwill (excess of cost over

fair value)………………………………………………... P 12,000

The over/under valuation of assets and liabilities are summarized as follows:S Co.

Book valueS Co.

Fair value(Over) Under

ValuationInventory………………….…………….. P 24,000 P 30,000 P 6,000Land……………………………………… 48,000 55,200 7,200Equipment (net)......... 84,000 180,000 96,000Buildings (net) 168,000 144,000 (24,000)Bonds payable………………………… (120,000) ( 115,200) 4,800Net……………………………………….. P 204,000 P 294,000 P 90,000

The buildings and equipment will be further analyzed for consolidation purposes as follows:S Co.

Book valueS Co.

Fair valueIncrease

(Decrease)Equipment .................. 180,000 180,000 0Less: Accumulated depreciation….. 96,000 - ( 96,000)Net book value………………………... 84,000 180,000 96,000

S Co.Book value

S Co.Fair value (Decrease)

Buildings................ 360,000 144,000 ( 216,000)Less: Accumulated depreciation….. 192,000 - ( 192,000)Net book value………………………... 168,000 144,000 ( 24,000)

A summary or depreciation and amortization adjustments is as follows:

Account Adjustments to be amortizedOver/Under Life

AnnualAmount

CurrentYear(20x4) 20x5

Inventory P 6,000 1 P 6,000 P 6,000 P -Subject to Annual Amortization

Equipment (net)......... 96,000 8 12,000 12,000 12,000Buildings (net) (24,000) 4 ( 6,000) ( 6,000) (6,000)Bonds payable… 48000 4 1,200 1,200 1,200

P 13,200 P 13,200 P 7,200

The goodwill impairment loss of P3,750 based on 100% fair value would be allocated to the controllinginterest and the NCI based on the percentage of total goodwill each equity interest received. Forpurposes of allocating the goodwill impairment loss, the full-goodwill is computed as follows:

Fair value of Subsidiary (100%)Consideration transferred: Cash (80%) P 372,000Fair value of NCI (given) (20%) 93,000Fair value of Subsidiary (100%) P 465,000

Less: Book value of stockholders’ equity of Son (P360,000 x 100%) __360,000Allocated excess (excess of cost over book value)….. P 105,000Add (deduct): (Over) under valuation of assets and liabilities

(P90,000 x 100%) 90,000Positive excess: Full-goodwill (excess of cost over

fair value)………………………………………………... P 15,000

In this case, the goodwill was proportional to the controlling interest of 80% and non-controlling interestof 20% computed as follows:

Value % of TotalGoodwill applicable to parent………………… P12,000 80.00%

Goodwill applicable to NCI…………………….. 3,000 20.00%Total (full) goodwill……………………………….. P15,000 100.00%

The goodwill impairment loss would be allocated as followsValue % of Total

Goodwill impairment loss attributable to parent or controllingInterest

P 3,000 80.00%

Goodwill applicable to NCI…………………….. 750 20.00%Goodwill impairment loss based on 100% fair value or full-

Goodwill P 3,750 100.00%

The unrealized profits on January 1, and on December 31, 20x5, resulting intercompany sales, are assummarized below:

Downstream Sales:

Year Sales of Parent toSubsidiary

Intercompany Merchandisein 12/31 Inventory

of S CompanyUnrealized IntercompanyProfit in Ending Inventory

20x4 P150,000 P150,000 x 60% = P90,000 P90,000 x 20% = P18,00020x5 120,000 P120,000 x 80% = P96,000 P96,000 x 25% = P40,000

Upstream Sales:

Year Sales of Subsidiaryto Parent



20x4 P 50,000 P100,000 x 50% = P25,000 P25,000 x 40% = P10,00020x5 62,500 P 62,500 x 40% = P25,000 P25,000 x 20% = P 5,000

20x4: First Year after AcquisitionParent Company Cost Model Entry

January 1, 20x4:(1) Investment in S Company…………………………………………… 372,000

Cash…………………………………………………………………….. 372,000Acquisition of S Company.

January 1, 20x4 – December 31, 20x4:(2) Cash……………………… 28,800

Dividend income (P36,000 x 80%)……………. 28,800Record dividends from S Company.

No entries are made on the parent’s books to depreciate, amortize or write-off the portion of theallocated excess that expires during 20x4, and unrealized profits in ending inventory.

Consolidation Workpaper – Year of Acquisition(E1) Common stock – S Co………………………………………… 240,000

Retained earnings – S Co…………………………………… 120.000Investment in S Co…………………………………………… 288,000Non-controlling interest (P360,000 x 20%)……………………….. 72,000

To eliminate intercompany investment and equity accountsof subsidiary on date of acquisition; and to establish non-controllinginterest (in net assets of subsidiary) on date of acquisition.

(E2) Inventory…………………………………………………………………. 6,000Accumulated depreciation – equipment……………….. 96,000Accumulated depreciation – buildings………………….. 192,000Land………………………………………………………………………. 7,200Discount on bonds payable…………………………………………. 4,800

Goodwill…………………………………………………………………. 12,000Buildings……………………………………….. 216,000Non-controlling interest (P90,000 x 20%)……………………….. 18,000Investment in Son Co………………………………………………. 84,000

To allocate excess of cost over book value of identifiable assetsacquired, with remainder to goodwill; and to establish non-controlling interest (in net assets of subsidiary) on date of acquisition.

(E3) Cost of Goods Sold……………. 6,000Depreciation expense……………………….. 6,000Accumulated depreciation – buildings………………….. 6,000Interest expense………………………………… 1,200Goodwill impairment loss………………………………………. 3,000

Inventory………………………………………………………….. 6,000Accumulated depreciation – equipment……………….. 12,000Discount on bonds payable………………………… 1,200Goodwill…………………………………… 3,000

To provide for 20x4 impairment loss and depreciation andamortization on differences between acquisition date fair value andbook value of S’s identifiable assets and liabilities as follows:

Cost ofGoods

Sold

Depreciation/Amortization

ExpenseAmortization

-Interest TotalInventory sold P 6,000Equipment P 12,000Buildings ( 6,000)Bonds payable _______ _______ P 1,200Totals P 6,000 P 2,000 P1,200 13,200

(E4) Dividend income - P………. 28,800Non-controlling interest (P36,000 x 20%)……………….. 7,200

Dividends paid – S…………………… 36,000To eliminate intercompany dividends and non-controlling interestshare of dividends.

(E5) Sales………………………. 150,000Cost of Goods Sold (or Purchases) 150,000

To eliminated intercompany downstream sales.


To eliminated intercompany upstream sales.

(E7) Cost of Goods Sold (Ending Inventory – Income Statement)… 18,000Inventory – Balance Sheet…… 18,000

To defer the downstream sales - unrealized profit in ending inventoryuntil it is sold to outsiders.


To defer the upstream sales - unrealized profit in ending inventoryuntil it is sold to outsiders.

(E9) Non-controlling interest in Net Income of Subsidiary………… 6,960Non-controlling interest ………….. 6,960

To establish non-controlling interest in subsidiary’s adjusted netincome for 20x4 as follows:

Net income of subsidiary…………………….. P 60,000Unrealized profit in ending inventory of P

Company (upstream sales)……………………….. ( 12,000)S Company’s realized net income from

separate operations*…….….. P 48,000Less: Amortization of allocated excess [(E3)]…. 13,200

P 34,800Multiplied by: Non-controlling interest %.......... 20%Non-controlling Interest in Net Income (NCINI)

– partial goodwill P 6,960

Worksheet for Consolidated Financial Statements, December 31, 20x4.Cost Model (Partial-goodwill)80%-Owned SubsidiaryDecember 31, 20x4 (First Year after Acquisition)

Income Statement P Co S Co. Dr. Cr. ConsolidatedSales P480,000 P240,000 (5) 150,000

(6) 60,000P 510,000

Dividend income 28,800 - (4) 36,000 _________Total Revenue P508,800 P240,000 P 510,000

Cost of goods sold P204,000 P138,000 (3) 6,000(7) 18,000(8) 12,000

(5) 150,000(6) 60,000

P 168,000

Depreciation expense 60,000 24,000 (3) 6,000 90,000Interest expense - - (3) 1,200 1,200Other expenses 48,000 18,000 66,000Goodwill impairment loss - - (3) 3,000 3,000

Total Cost and Expenses P312,000 P180,000 P328,200Net Income P196,800 P 60,000 P181,800NCI in Net Income - Subsidiary - - (9) 6,960 ( 6,960)Net Income to Retained Earnings P196,800 P 60,000 P174,840

Statement of Retained EarningsRetained earnings, 1/1

P Company P432,000 P 360,000S Company P144,000 (1) 120,000

Net income, from above 236,160 72,000 174,840Total P668,160 P216,000 P538,840

Dividends paidPerfect Company 86,400 72,000Son Company - 43,200 (4) 36,000 _ ________

Retained earnings, 12/31 to BalanceSheet P581,760 P172,800 P 466,840

Balance SheetCash………………………. P 232,800 P 90,000 P 355,200Accounts receivable…….. 90,000 60,000 150,000Inventory…………………. 120,000 90,000 (2) 6,000 (3) 6,000

(7) 18,000(8) 12,000 180,000

Land……………………………. 1210,000 48,000 (2) 7,200 265,200Equipment 240,000 180,000 420,000Buildings 720,000 540,000 (2) 216,000 1,044,000Discount on bonds payable (2) 4,800 (3) 12000 3,600Goodwill…………………… (2) 12,000 (3) 3,000 9,000Investment in S Co……… 372,000 (1) 288,000

(2) 84,000 -Total P1,984,800 P1,008,000 P2,394,600

Accumulated depreciation- equipment P 135,000 P 96,000 (2) 96,000 (3) 12,000 P147,000

Accumulated depreciation- buildings

405,000 288,000 (2) 192,000(3) 6,000 495,000

Accounts payable…………… 120,000 120,000 240,000Bonds payable………………… 240,000 120,000 360,000Common stock, P10 par……… 600,000 600,000

Common stock, P10 par……… 240,000 (1) 240,000Retained earnings, from above 581,760 144,000 462,840Non-controlling interest…………

_________ _________

(4) 7,200

__________

(1 ) 72,000(2) 18,000(9) 6,960 ____89,760

Total P1,984,800 P1,008,000 P 983,160 P 983,160 P2,394,600

Consolidated Net Income for 20x4P Company’s net income from own/separate operations…………. P168,000Unrealized profit in ending inventory of S Company (downstream sales)… ( 18,000)

P Company’s realized net income from separate operations*…….….. P150,000S Company’s net income from own operations…………………………………. P 60,000Unrealized profit in ending inventory of S Company (upstream sales)… ( 12,000)

Son Company’s realized net income from separate operations*…….….. P 48,000 48,000Total P198,000Less: Non-controlling Interest in Net Income* * P 6,960

Amortization of allocated excess (refer to amortization above) 13,200Goodwill impairment (impairment under partial-goodwill approach) 3,000 23,160

Controlling Interest in Consolidated Net Income or Profit attributable toequity holders of parent………….. P174,840

Add: Non-controlling Interest in Net Income (NCINI) _ 6,960Consolidated Net Income for 20x4 P181.800



(Reported net income of S Company)P 60,000

Unrealized profit in ending inventory of P Company (upstream sales) ( 12,000)S Company’s realized net income from separate operations……… P 48,000

Less: Amortization of allocated excess 13,200P 34,800

Multiplied by: Non-controlling interest %.......... 20%Non-controlling Interest in Net Income (NCINI) – partial goodwill P 6,960

*that has been realized in transactions with third parties.Since NCI share of goodwill is not recognized, no adjustment is required for the impairment loss ongoodwill and impairment losses are not shared with NCI.

20x5: Second Year after AcquisitionP Co. S Co.

Sales P 540,000 P 360,000Less: Cost of goods sold 216,000 192,000Gross profit P 324,000 P 168,000Less: Depreciation expense 60,000 24,000

Other expense 72,000 54,000Net income from its own separate operations P 192,000 P 90,000Add: Dividend income 38,400 -Net income P 230,400 P 90,000Dividends paid P 72,000 P 48,000

No goodwill impairment loss for 20x5.

20x5: Parent Company Cost Model Entry

Only a single entry is recorded by the parent in 20x5 in relation to its subsidiary investment:

January 1, 20x5 – December 31, 20x5:Cash……………………… 38,400


On the books of S Company, the P48,000 dividend paid was recorded as follows:

Dividends paid………… 48,000Cash 48,000

Dividends paid by S Co..

Consolidation Workpaper – Second Year after Acquisition(E1) Investment in S Company………………………… 19,200

Retained earnings – P Company……………………… 19,200To provide entry to convert from the cost method to the equitymethod or the entry to establish reciprocity at the beginning of theyear, 1/1/20x5, computed as follows:

Retained earnings – S Company, 1/1/20x5 P144,000Retained earnings – S Company, 1/1/20x4 120,000Increase in retained earnings…….. P 24,000Multiplied by: Controlling interest % 80%Retroactive adjustment P 19,200

(E2) Common stock – S Co………………………………………… 240,000Retained earnings – S Co., 1/1/20x5 144.000

Investment in S Co (P384,000 x 80%)………………………… 307,200Non-controlling interest (P384,000 x 20%)……………………….. 76,800

To eliminate intercompany investment and equity accountsof subsidiary and to establish non-controlling interest (in net assets ofsubsidiary) on January 1, 20x5.

(E3) Inventory…………………………………………………………………. 6,000Accumulated depreciation – equipment……………….. .... 96,000Accumulated depreciation – buildings………………….. ... 192,000Land………………………………………………………………………. 7,200Discount on bonds payable…………………………………………. 4,800Goodwill…………………………………………………………………. 12,000

Buildings………………………………………........................... 216,000Non-controlling interest (P90,000 x 20%)............................ 18,000Investment in S Co………………………………………………. 84,000

To allocate excess of cost over book value of identifiable assetsacquired, with remainder to goodwill; and to establish non-controlling 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 onpartial-goodwill] 13,560

Non-controlling interests (P13,200 x 20%)……………………. 2,640Depreciation expense……………………….. 6,000Accumulated depreciation – buildings………………….. 12,000Interest expense………………………………… 1,200


To provide for years 20x4 and 20x5 depreciation and amortization ondifferences between acquisition date fair value and book value ofS’s identifiable assets and liabilities as follows:

Year 20x4 amounts are debited to P’s retained earnings &NCI;

Year 20x5 amounts are debited to respective nominal accounts.

(20x4)Retainedearnings,


expenseAmortization

-InterestInventory sold P 6,000

Equipment 12,000 P 12,000Buildings (6,000) ( 6,000)Bonds payable 1,200 ________ P 1,200Sub-total P13,200 P 6,000 P 1,200Multiplied by: 80%To Retained earnings P 10,560Impairment loss 3,000Total P 13,560







(E8) Beginning Retained Earnings – P Company…… 18,000Cost of Goods Sold (Ending Inventory – Income Statement) 18,000

To realized profit in downstream beginning inventory deferred in theprior period.

(E9) Beginning Retained Earnings – P Company (P12,000 x 80%) 9,600Noncontrolling interest (P12,000 x 20%)…… 2,400

Cost of Goods Sold (Ending Inventory – Income Statement) 12,000To realized profit in beginning inventory deferred in the prior period.







Realized profit in beginning inventory of PCompany - 20x5 (upstream sales) 12,000Unrealized profit in ending inventory of PCompany - 20x5 (upstream sales) ( 6,000)S Company’s Realized net income* P 96,000Less: Amortization of allocated excess 7,200

P 88,800Multiplied by: Non-controlling interest %.......... 20%Non-controlling Interest in Net Income (NCINI )

– partial goodwill P 17,760*from separate transactions that has been realized in transactionswith third persons.

Worksheet for Consolidated Financial Statements, December 31, 20x5.Cost Model (Partial-goodwill)80%-Owned SubsidiaryDecember 31, 20x5 (Second Year after Acquisition)


(7) 75,000P 705,000

Dividend income 38,400 - (5) 38,400 ___________Total Revenue P501,600 P360,000 P 705,000

Cost of goods sold P216,000 P192,000 (10) 24,000(11) 6,000

(6) 120,000(7) 75,000(8) 18,000(9) 12,000

213,000

Depreciation expense 60,000 24,000 (4) 6,000 90,000Interest expense - - (4) 1,200 1,200Other expenses 72,000 54,000 126,000Goodwill impairment loss - - -

Total Cost and Expenses P348,000 P270,000 P 430,200Net Income P230,400 P 90,000 P 274,800NCI in Net Income - Subsidiary - - (12) 17,760 ( 17,760)Net Income to Retained Earnings P230,400 P 90,000 P 257,040


P Company P484,800 (2) 13,560(8) 18,000(9) 9,600 (1) 19,200 P 462,840

S Company P 144,000 (2) 144,000Net income, from above 230,400 90,000 257,040

Total P715,200 P234,000 P 719,880Dividends paid

P Company 72,000 72,000S Company - 48,000 (5) 48,000 _ ________



(10) 24,000(11) 6,000 294,000

Land……………………………. 210,000 48,000 (3) 7,200 265,200Equipment 240,000 180,000 420,000Buildings 720,000 540,000 (3) 216,000 1,044,000Discount on bonds payable (3) 4,800 (4) 2,400 2,400Goodwill…………………… (3) 12,000 (4) 3,000 9,000Investment in S Co……… 372,000 (1) 19,200 (2) 307,200

(3) 84,000 -Total P2,203,200 P1,074,000 P2,677,800



450,000 306,000 (3) 192,000(4) 12,000 552,000

Accounts payable…………… 120,000 120,000 240,000Bonds payable………………… 240,000 120,000 360,000Common stock, P10 par……… 600,000 600,000Common stock, P10 par……… 240,000 (2) 240,000Retained earnings, from above 643,200 186,000 647,880Non-controlling interest…………

___ _____ _________

(4) 2,640(5) 9,600(9) 2,400__________

(2 ) 76,800(3) 18,000(12) 17,760 ____97,920

Total 2,203,200 P1,074,000 P1,077,360 P1,077,360 P2,677,800

5. 1/1/20x4a. On date of acquisition the retained earnings of parent should always be considered as the

consolidated retained earnings, thus:

Consolidated Retained Earnings, January 1, 20x4Retained earnings – P Company, January 1, 20x4 (date of acquisition) P360,000

b.Non-controlling interest (partial-goodwill), January 1, 20x4

Common stock – Subsidiary Company…………………………………… P 240,000Retained earnings – Subsidiary Company…………………………………. 120,000Stockholders’ equity – Subsidiary Company.………….. P 360,000Adjustments to reflect fair value - (over) undervaluation of assets and liabilities 90,000

Fair value of stockholders’ equity of subsidiary, January 1, 20x4………………… P 450,000Multiplied by: Non-controlling Interest percentage…………... 20Non-controlling interest (partial) P 90,000

c.Consolidated SHE:

Stockholders’ EquityCommon stock, P10 par P 600,000Retained earnings 360,000Parent’s Stockholders’ Equity / CI - SHE P 960,000

NCI, 1/1/20x4 ___90,000Consolidated SHE, 1/1/20x4 P1,050,000

6.Note: The goodwill recognized on consolidation purely relates to the parent’s share. NCI ismeasured as a proportion of identifiable assets and goodwill attributable to NCI share is notrecognized.

12/31/20x4:a. CI-CNI – P174,840


P Company’s realized net income from separate operations*…….….. P150,000S Company’s net income from own operations…………………………………. P 60,000Unrealized profit in ending inventory of S Company (upstream sales)… ( 12,000)

S Company’s realized net income from separate operations*…….….. P 48,000 48,000Total P198,000Less: Non-controlling Interest in Net Income* * P 6,960

Amortization of allocated excess (refer to amortization above) 13,200Goodwill impairment (impairment under partial-goodwill approach) 3,000 23,160




b. NCI-CNI – P6,960**Non-controlling Interest in Net Income (NCINI) for 20x4

S Company’s net income of Subsidiary Company from its own operations(Reported net income of S Company)

P 60,000



Multiplied by: Non-controlling interest %.......... 20%Non-controlling Interest in Net Income (NCINI) – partial goodwill P 6,960


c. CNI, P181,800 – refer to (a)

d. On subsequent to date of acquisition, consolidated retained earnings would be computed asfollows:

Consolidated Retained Earnings, December 31, 20x4Retained earnings - P Company, January 1, 20x4 (date of acquisition) P360,000Add: Controlling Interest in Consolidated Net Income or Profit attributable to

equity holders of parent for 20x4 174,840Total P534,840Less: Dividends paid – P Company for 20x4 72,000Consolidated Retained Earnings, December 31, 20x4 P462,840

e. The goodwill recognized on consolidation purely relates to the parent’s share. NCI is measuredas a proportion of identifiable assets and goodwill attributable to NCI share is not recognized.The NCI on December 31, 20x4 are computed as follows:Non-controlling interest (partial-goodwill), December 31, 20x4

Common stock – Subsidiary Company, December 31, 20x4…… P 240,000Retained earnings – Subsidiary Company, December 31, 20x4

Retained earnings – Subsidiary Company, January 1, 20x4 P120,000Add: Net income of subsidiary for 20x4 6,000Total P180,000Less: Dividends paid – 20x4 36,000 144,000

Stockholders’ equity – Subsidiary Company, December 31, 20x4 P 384,000Adjustments to reflect fair value - (over) undervaluation of assets and

liabilities, date of acquisition (January 1, 20x4) 90,000Amortization of allocated excess (refer to amortization above) – 20x4 ( 13,200)Fair value of stockholders’ equity of subsidiary, December 31, 20x4…… P460,000Less: Unrealized profit in ending inventory of P Company (upstream sales) 12,000Realized stockholders’ equity of subsidiary, December 31, 20x4…… P448,800Multiplied by: Non-controlling Interest percentage…………... 20Non-controlling interest (partial-goodwill)………………………………….. P 89,760

f.Consolidated SHE:

Stockholders’ EquityCommon stock, P10 par P 600,000Retained earnings 462,840Parent’s Stockholders’ Equity / CI – SHE, 12/31/20x4 P1,062,840


12/31/20x5:a. CI-CNI

Consolidated Net Income for 20x5P Company’s net income from own/separate operations…………. P192,000Realized profit in beginning inventory of S Company (downstream sales) 18,000Unrealized profit in ending inventory of S Company (downstream sales)… (_24,000)

P Company’s realized net income from separate operations*…….….. P186,000S Company’s net income from own operations…………………………………. P 90,000Realized profit in beginning inventory of P Company (upstream sales) 12,000Unrealized profit in ending inventory of P Company (upstream sales)… ( 6,000)

Son Company’s realized net income from separate operations*…….….. P 96,000 96,000Total P282,000Less: Amortization of allocated excess…………………… 7,200Consolidated Net Income for 20x5 P274,800Less: Non-controlling Interest in Net Income* * 17,760Controlling Interest in Consolidated Net Income or Profit attributable to

equity holders of parent – 20x5………….. P257,040*that has been realized in transactions with third parties.


P Company’s net income from own/separate operations…………. P192,000Realized profit in beginning inventory of S Company (downstream sales) 18,000Unrealized profit in ending inventory of S Company (downstream sales)… (_24,000)



Amortization of allocated excess…………………… 7,200 24,960Controlling Interest in Consolidated Net Income or Profit attributable to equity

holders of parent………….. P257,040Add: Non-controlling Interest in Net Income (NCINI) _ 17,760Consolidated Net Income for 20x5 P274,800

*that has been realized in transactions with third parties.b. NCI-CNI






c. CNI, P274,800 – refer to (a)d. On subsequent to date of acquisition, consolidated retained earnings would be computed as

follows:Consolidated Retained Earnings, December 31, 20x5

Retained earnings - Parent Company, January 1, 20x5 (cost model P484,800Less: Unrealized profit in ending inventory of S Company (downstream sales)

– 20x4 (UPEI of S – 20x4) or Realized profit in beginning inventory of SCompany (downstream sales) –20x5 (RPBI of S - 20x5)……………. 18,000

Adjusted Retained Earnings – Parent 1/1/20x5 (cost model (S Company’sRetained earnings that have been realized in transactions with thirdparties.. P466,800

Adjustment to convert from cost model to equity method for purposes ofconsolidation or to establish reciprocity:/Parent’s share in adjusted netincreased in subsidiary’s retained earnings:

Retained earnings – Subsidiary, January 1, 20x5 P 144,000Less: Retained earnings – Subsidiary, January 1, 20x4 120,000Increase in retained earnings since date of acquisition P 24,000Less: Amortization of allocated excess – 20x4 13,200

Unrealized profit in ending inventory of P Company (upstreamsales) 20x4 (UPEI of P – 20x4) or Realized profit in beginninginventory of P Company (upstream sales) –20x5 (RPBI of P - 20x5) 12,000

(P 1,200)Multiplied by: Controlling interests %................... 80%

(P 960)Less: Goodwill impairment loss, partial goodwill 3,000 ( 3,960)

Consolidated Retained earnings, January 1, 20x5 P462,840Add: Controlling Interest in Consolidated Net Income or Profit attributable to

equity holders of parent for 20x5 257,040Total P748,680Less: Dividends paid – Parent Company for 20x5 72,000Consolidated Retained Earnings, December 31, 20x5 P647,880

*this procedure would be more appropriate, instead of multiplying the full-goodwill impairment loss of P3,125 by 80%.There might be situations where the controlling interests on goodwill impairment loss would not be proportionate to NCIacquired (refer to Illustration 15-6).

Or, alternatively:Consolidated Retained Earnings, December 31, 20x5

Retained earnings - Parent Company, December 31, 20x5 (cost model P643,200Less: Unrealized profit in ending inventory of S Company (downstream sales)


Adjusted Retained Earnings – Parent 12/31/20x5 (cost model (S Company’s Retained earnings that have been realized intransactions with third parties.. P619,200


Retained earnings – Subsidiary, December 31, 20x5 P 186,000Less: Retained earnings – Subsidiary, January 1, 20x4 120,000Increase in retained earnings since date of acquisition P 66,000Less: Accumulated amortization of allocated excess –

20x4 and 20x5 (P11,000 + P6,000) 20,400Unrealized profit in ending inventory of P Company (upstreamsales) 20x5 (UPEI of P – 20x5) or Realized profit in beginninginventory of P Company (upstream sales) –20x6 (RPBI of P - 20x6) 6,000

P 39,600Multiplied by: Controlling interests %................... 80%

P 31,680Less: Goodwill impairment loss, partial goodwill 3,000 28,680

Consolidated Retained earnings, December 31, 20x5 P647,880

e.Non-controlling interest (partial-goodwill), December 31, 20x5


Retained earnings – Subsidiary Company, January 1, 20x5* P144,000Add: Net income of subsidiary for 20x5 90,000Total P234,000Less: Dividends paid – 20x5 48,000 186,000


liabilities, date of acquisition (January 1, 20x4) 90,000Amortization of allocated excess (refer to amortization above) :

20x4 P 13,20020x5 7,200 ( 20,400)

Fair value of stockholders’ equity of subsidiary, December 31, 20x5…… P 495,600Less: Unrealized profit in ending inventory of P Company (upstream

sales) 20x5 (UPEI of P – 20x5) or Realized profit in beginning inventoryof P Company (upstream sales) –20x6 (RPBI of P - 20x6 6,000

Realized stockholders’ equity of subsidiary, December 31, 20x5………. P489,600Multiplied by: Non-controlling Interest percentage…………... 20Non-controlling interest (partial goodwill)………………………………….. P 97,920

* the realized profit in beginning inventory of P Company (upstream sales) –20x5 (RPBI of P - 20x5 amounting to P10,000 isalready included in the beginning retained earnings of S Company.

f.Consolidated SHE:

Stockholders’ EquityCommon stock, P10 par P 600,000Retained earnings 647,880Parent’s Stockholders’ Equity / CI – SHE, 12/31/20x4 P1,247,880


Problem XRequirements 1 to 4:Schedule of Determination and Allocation of ExcessDate of Acquisition – January 1, 20x4

Fair value of Subsidiary (80%)Consideration transferred (80%)…………….. P 372,000Fair value of NCI (given) (20%)……………….. 93,000Fair value of Subsidiary (100%)………. P 465,000

Less: Book value of stockholders’ equity of Son:Common stock (P240,000 x 100%)………………. P 240,000Retained earnings (P120,000 x 100%)………... 120,000 360,000


Increase in inventory (P6,000 x 100%)……………… P 6,000Increase in land (P7,200 x 100%)……………………. 7,200Increase in equipment (P96,000 x 100%) 96,000Decrease in buildings (P24,000 x 100%)………..... ( 24,000)Decrease in bonds payable (P4,800 x 100%)…… 4,800 90,000

Positive excess: Full-goodwill (excess of cost overfair value)………………………………………………... P 15,000


Account Adjustments to be amortizedOver/under Life

AnnualAmount



Equipment (net)......... 96,000 8 12,000 12,000 12,000Buildings (net) (24,000) 4 ( 6,000) ( 6,000) (6,000)Bonds payable… 4,800 4 1,200 1,200 1,200

P 13,200 P 13,200 P 7,200





Dividend income (P36,000 x 80%)……………. 28,800Record dividends from Son Company.

On the books of Son Company, the P36,000 dividend paid was recorded as follows:

Dividends paid………… 36,000Cash……. 36,000


No entries are made on the parent’s books to depreciate, amortize or write-off the portion of theallocated excess that expires during 20x4.

Consolidation Workpaper – First Year after Acquisition(E1) Common stock – S Co………………………………………… 240,000


To eliminate intercompany investment and equity accountsof subsidiary on date of acquisition; and to establish non-controllinginterest (in net assets of subsidiary) on date of acquisition.

(E2) Inventory…………………………………………………………………. 6,000

Accumulated depreciation – equipment……………….. 96,000Accumulated depreciation – buildings………………….. 192,000Land………………………………………………………………………. 7,200Discount on bonds payable…………………………………………. 4,800Goodwill…………………………………………………………………. 15,000

Buildings……………………………………….. 216,000Non-controlling interest (P90,000 x 20%) + [(P15,000, full –

P12,000, partial goodwill)]………… 21,000Investment in Son Co………………………………………………. 84,000

To allocate excess of cost over book value of identifiable assetsacquired, with remainder to goodwill; and to establish non-controlling interest (in net assets of subsidiary) on date of acquisition.




Cost ofGoods

Sold


ExpenseAmortization

-InterestInventory sold P 6,000Equipment P12,000Buildings ( 6,000)Bonds payable _______ _______ P 1,200Totals P 6,000 P 6,000 P1,200











(E9) Non-controlling interest in Net Income of Subsidiary………… 6,210

Non-controlling interest ………….. 6,210To establish non-controlling interest in subsidiary’s adjusted netincome for 20x4 as follows:

Net income of subsidiary…………………….. P 60,000Unrealized profit in ending inventory of PCompany (upstream sales)……………………….. ( 12,000)S Company’s realized net income from

separate operations*…….….. P 48,000Less: Amortization of allocated excess [(E3)]…. 13,200


– partial goodwillP 6,960

Less: Non-controlling interest on impairmentloss on full-goodwill (P3,750 x 20%) or(P3,750 impairment on full-goodwill lessP3,000, impairment on partial-goodwill) 750

Non-controlling Interest in Net Income (NCINI)– full goodwill P 6,210

Worksheet for Consolidated Financial Statements, December 31, 20x4.Cost Model (Full-goodwill)80%-Owned SubsidiaryDecember 31, 20x4 (First Year after Acquisition)


(6) 60,000P 510,000

Dividend income 28,800 - (4) 28,800 _________Total Revenue P451,200 P240,000 P 510,000


(5) 150,000(6) 60,000

P 168,000






Dividends paidP Company 72,000 72,000S Company - 36,000 (4) 36,000 _ ________



(7) 18,000(8) 12,000 180,000

Land……………………………. 210,000 48,000 (2) 7,200 265,200Equipment 240,000 180,000 420,000Buildings 720,000 540,000 (2) 216,000 1,044,000Discount on bonds payable (2) 4,800 (3) 1,200 3,600Goodwill…………………… (2) 15,000 (3) 3,750 11,250

Investment in S Co……… 372,000 (3) 288,000(4) 84,000 -

Total P1,984,800 P1,008,000 P2,396,850



405,000 288,000 (6) 192,000(7) 6,000 495,000


_________ _________

(4) 7,200 (1 ) 72,000(2) 21,000(9) 6,210 ____92,010

Total P1,984,800 P1,008,000 P 986,160 P 986,160 P2,396,850

20x5: Second Year after AcquisitionPerfect Co. Son Co.


Other expense 72,000 54,000Net income from its own separate operations P 192,000 P 90,000Add: Dividend income 38,400 -Net income P 230,400 P 90,000Dividends paid P 72,000 P 48,000

No goodwill impairment loss for 20x5.20x5: Parent Company Cost Model EntryOnly a single entry is recorded by the parent in 20x5 in relation to its subsidiary investment:

January 1, 20x5 – December 31, 20x5:Cash……………………… 38,400


On the books of S Company, the P48,000 dividend paid was recorded as follows:

Dividends paid………… 48,000Cash 48,000


Consolidation Workpaper – Second Year after Acquisition

(E1) Investment in S Company………………………… 19,200Retained earnings – P Company……………………… 19,200

To provide entry to convert from the cost method to the equitymethod or the entry to establish reciprocity at the beginning of theyear, 1/1/20x5.

Retained earnings – S Company, 1/1/20x5 P144,000Retained earnings – S Company, 1/1/20x4 120,000Increase in retained earnings…….. P 24,000Multiplied by: Controlling interest % 80%Retroactive adjustment P 19,200

(E2) Common stock – S Co………………………………………… 240,000

Retained earnings – S Co., 1/1/20x5 144.000Investment in S Co (P384,000 x 80%)………………………… 307,200Non-controlling interest (P384,000 x 20%)……………………….. 76,800

To eliminate intercompany investment and equity accountsof subsidiary and to establish non-controlling interest (in net assets ofsubsidiary) on January 1, 20x5.

(E3) Inventory…………………………………………………………………. 6000Accumulated depreciation – equipment……………….. 96,000Accumulated depreciation – buildings………………….. 192,000Land………………………………………………………………………. 7,200Discount on bonds payable…………………………………………. 4,800Goodwill…………………………………………………………………. 15,000


P12,000, partial goodwill)]………… 21,000Investment in S Co………………………………………………. 84,000

To allocate excess of cost over book value of identifiable assetsacquired, with remainder to goodwill; and to establish non-controlling interest (in net assets of subsidiary) on January 1, 20x5.

(E4) Retained earnings – P Company, 1/1/20x5(P16,950 x 80%) 13,560

Non-controlling interests (P16,950 x 20%)……………………. 3,390Depreciation expense……………………….. 6,000Accumulated depreciation – buildings………………….. 12,000Interest expense………………………………… 1,200


To provide for years 20x4 and 20x5 depreciation and amortization ondifferences between acquisition date fair value and book value ofSon’s identifiable assets and liabilities as follows:

Year 20x4 amounts are debited to Perfect’s retained earningsand NCI.

Year 20x5 amounts are debited to respective nominal accounts..

(20x4)Retainedearnings,


expenseAmortization

-InterestInventory sold P 6,000Equipment 12,000 P 12,000Buildings (6,000) ( 6,000)Bonds payable 1,200 P 1,200Impairment loss 3,750Totals P 16,950 P 6,000 P1,200Multiplied by: CI%.... 80%To Retained earnings P13,560







(E8) Beginning Retained Earnings – P Company…… 18,000Cost of Goods Sold (Ending Inventory – Income Statement) 18,000


(E9) Beginning Retained Earnings – P Company (P12,000 x 80%) 9,600Noncontrolling interest (P12,000 x 20%)…… 2,400

Cost of Goods Sold (Ending Inventory – Income Statement) 12,000To realized profit in upstream beginning inventory deferred in theprior period.



(E11) Cost of Goods Sold (Ending Inventory – IncomeStatement)… 6,000

Inventory – Balance Sheet…… 6,000To defer the upstream sales - unrealized profit in ending inventoryuntil it is sold to outsiders.



Net income of subsidiary…………………….. P 90,000Realized profit in beginning inventory of PCompany - 20x5 (upstream sales) 12,000Unrealized profit in ending inventory of PCompany - 20x5 (upstream sales) ( 6,000)Son Company’s Realized net income* P 96,000Less: Amortization of allocated excess 7,200


- partial goodwillP 17,760

Less: NCI on goodwill impairment loss on full-Goodwill 0


*from separate transactions that has been realized in transactionswith third persons.

Worksheet for Consolidated Financial Statements, December 31, 20x5.Cost Model (Full-goodwill)80%-Owned SubsidiaryDecember 31, 20x5 (Second Year after Acquisition)


(7) 75,000P 705,000

Dividend income 38,400 - (5) 38,400 ___________Total Revenue P574,800 P360,000 P 705,000


(6) 120,000(7) 90,000(8) 21,600(9) 14,400

P 213,000


Total Cost and Expenses P348,000 P270,000 P 430,200Net Income P230,400 P 90,000 P 274,800

NCI in Net Income - Subsidiary - - (12) 17,760 ( 17,760)Net Income to Retained Earnings P230,400 P 90,000 P 257,040


P Company P484,800 (3) 13,560(8) 18,000(9) 96000 (4) 19,200 P 462,840

S Company P 144,000 (5) 144,000Net income, from above 230,400 90,000 257,040





(10) 24,000(11) 6,000 294,000


(3) 84,000 -Total P2,203,200 P1,074,000 P2,680,050



450,000 306,000 (3) 192,000(4) 12,000 552,000


___ _____ _________

(4) 3,390(8) 9,600(9) 2,400__________

(2 ) 76,800(3) 21,000(12) 17,760 ____100,170

Total P2,203,200 P1,074,000 P1,081,110 P1,081,110 P2,680,050

5. 1/1/20x4a. 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…………………………………… P 240,000Retained earnings – Subsidiary Company…………………………………. 120,000Stockholders’ equity – Subsidiary Company.………….. P 360,000Adjustments to reflect fair value - (over) undervaluation of assets and liabilities 90,000

Fair value of stockholders’ equity of subsidiary, January 1, 20x4………………… P 450,000Multiplied by: Non-controlling Interest percentage…………... 20Non-controlling interest (partial)………………………………….. P 90,000Add: Non-controlling interests on full goodwill, 1/1/20x4 (P12,500, full-goodwill – P10,000, partial

goodwill) 3,000Non-controlling interest (full-goodwill) P 93,000

c.Consolidated SHE:

Stockholders’ EquityCommon stock, P10 par P 600,000Retained earnings 360,000Parent’s Stockholders’ Equity / CI - SHE P 960,000


6.Note: The goodwill recognized on consolidation purely relates to the parent’s share. NCI ismeasured as a proportion of identifiable assets and goodwill attributable to NCI share is notrecognized.12/31/20x4:a. CI-CNI – P174,840


Perfect Company’s realized net income from separate operations*…….….. P150,000S Company’s net income from own operations…………………………………. P 60,000Unrealized profit in ending inventory of S Company (upstream sales)… ( 12,000)

Son Company’s realized net income from separate operations*…….….. P 48,000 48,000Total P198,000Less: Non-controlling Interest in Net Income P 6,1210

Amortization of allocated excess (refer to amortization above) 13,200Goodwill impairment (impairment under full-goodwill approach) 3,750 23,160




b. NCI-CNI – P6,210





Multiplied by: Non-controlling interest %.......... 20%Non-controlling Interest in Net Income (NCINI) – partial P 6,960Less: Non-controlling interest on impairment loss on full-goodwill (P3,750 x

20%) or (P3,750 impairment on full-goodwill less P3,000, impairment onpartial- goodwill) 750

Non-controlling Interest in Net Income (NCINI) P 6,210*that has been realized in transactions with third parties.

c. CNI – P181,050 – refer to (a)d. On subsequent to date of acquisition, consolidated retained earnings would be computed as


Retained earnings - Parent Company, January 1, 20x4 (date of acquisition) P360,000Add: Controlling Interest in Consolidated Net Income or Profit attributable to


e.

Non-controlling interest ), December 31, 20x4Common stock – Subsidiary Company, December 31, 20x4…… P 240,000Retained earnings – Subsidiary Company, December 31, 20x4

Retained earnings – Subsidiary Company, January 1, 20x4 P120,000Add: Net income of subsidiary for 20x4 60,000Total P180,000Less: Dividends paid – 20x4 36,000 144,000


liabilities, date of acquisition (January 1, 20x4) 90,000Amortization of allocated excess (refer to amortization above) – 20x4 ( 13,200)Fair value of stockholders’ equity of subsidiary, December 31, 20x4…… P460,800Less: Unrealized profit in ending inventory of P Company (upstream sales) 12,000Realized stockholders’ equity of subsidiary, December 31, 20x4…… P448,800Multiplied by: Non-controlling Interest percentage…………... 20Non-controlling interest (partial-goodwill)………………………………….. P 89,760Add: Non-controlling interest on full goodwill , net of impairment loss, 12/31/x4:

[(P15,000 full – P12,000, partial = P3,000) – P750 impairment loss 2,250Non-controlling interest (full-goodwill)…………….. P 92,010

f.Consolidated SHE:

Stockholders’ EquityCommon stock, P10 par P 600,000Retained earnings 462,840Parent’s Stockholders’ Equity / CI - SHE P1,062,840


12/31/20x5:a. CI-CNI – P257,040

Consolidated Net Income for 20x5P Company’s net income from own/separate operations…………. P192,000Realized profit in beginning inventory of S Company (downstream sales) 18,000Unrealized profit in ending inventory of S Company (downstream sales)… (_24,000)


S Company’s realized net income from separate operations*…….….. P 96,000 96,000Total P282,000Less: Amortization of allocated excess…………………… 7,200Consolidated Net Income for 20x5 P274,800Less: Non-controlling Interest in Net Income* * 17,760Controlling Interest in Consolidated Net Income or Profit attributable to



P Company’s net income from own/separate operations…………. P192,000Realized profit in beginning inventory of S Company (downstream sales) 18,000Unrealized profit in ending inventory of S Company (downstream sales)… (_24,000)




equity holders of parent………….. P257,040

Add: Non-controlling Interest in Net Income (NCINI) _ 17,760Consolidated Net Income for 20x5 P274,800


b. NCI-CNI – P16,560**Non-controlling Interest in Net Income (NCINI) for 20x5

S Company’s net income of Subsidiary Company from its own operations(Reported net income of S Company)

P 90,000



P 88,800Multiplied by: Non-controlling interest %.......... 20%Non-controlling Interest in Net Income (NCINI) – partial goodwill P 17,760Less: NCI on goodwill impairment loss on full goodwill 0Non-controlling Interest in Net Income (NCINI) – full goodwill P 17,760

c. CNI, P274,800 – refer to (a)d. On subsequent to date of acquisition, consolidated retained earnings would be computed as


Retained earnings - Parent Company, January 1, 20x5 (cost model P484,800Less: Unrealized profit in ending inventory of S Company (downstream sales)


Adjusted Retained Earnings – Parent 1/1/20x5 (cost model (S Company’sRetained earnings that have been realized in transactions with thirdparties.. P466,800


Retained earnings – Subsidiary, January 1, 20x5 P 144,000Less: Retained earnings – Subsidiary, January 1, 20x4 120,000Increase in retained earnings since date of acquisition P 24,000Less: Amortization of allocated excess – 20x4 13,200

Unrealized profit in ending inventory of P Company (upstreamsales) 20x4 (UPEI of P – 20x4) or Realized profit in beginninginventory of P Company (upstream sales) –20x5 (RPBI of P - 20x5) 12,000

(P 1,200)Multiplied by: Controlling interests %................... 80%

(P 960)Less: Goodwill impairment loss (full-goodwill), net (P3,750 – P750)* or

(P3,750 x 80%) 3,000 ( 3,960)Consolidated Retained earnings, January 1, 20x5 P462,840Add: Controlling Interest in Consolidated Net Income or Profit attributable to


*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 NCIacquired (refer to Illustration 15-6).

Or, alternatively:Consolidated Retained Earnings, December 31, 20x5

Retained earnings - Parent Company, December 31, 20x5 (cost model P643,200Less: Unrealized profit in ending inventory of S Company (downstream sales)


Adjusted Retained Earnings – Parent 12/31/20x5 (cost model (S Company’s Retained earnings that have been realized intransactions with third parties.. P619,200

Adjustment to convert from cost model to equity method for purposes ofconsolidation or to establish reciprocity:/Parent’s share in adjusted net

increased in subsidiary’s retained earnings:Retained earnings – Subsidiary, December 31, 20x5 P 186,000Less: Retained earnings – Subsidiary, January 1, 20x4 120,000Increase in retained earnings since date of acquisition P 66,000Less: Accumulated amortization of allocated excess –

20x4 and 20x5 (P13,200 + P7,200) 20,400Unrealized profit in ending inventory of P Company (upstreamsales) 20x5 (UPEI of P – 20x5) or Realized profit in beginninginventory of P Company (upstream sales) –20x6 (RPBI of P - 20x6) 6,000

P 39,600Multiplied by: Controlling interests %................... 80%

P 31,680Less: Goodwill impairment loss (full-goodwill), net (P3,750 – P750)* or

(P3,750 x 80%) 3,000 28,680Consolidated Retained earnings, December 31, 20x5 P647,880

e.Non-controlling interest, December 31, 20x5


Retained earnings – Subsidiary Company, January 1, 20x5* P144,000Add: Net income of subsidiary for 20x5 90,000Total P234,000Less: Dividends paid – 20x5 48,000 186,000



20x4 P 13,20020x5 7,200 ( 20,400)

Fair value of stockholders’ equity of subsidiary, December 31, 20x5…… P 495,600Less: Unrealized profit in ending inventory of P Company (upstream

sales) 20x5 (UPEI of P – 20x5) or Realized profit in beginning inventoryof P Company (upstream sales) –20x6 (RPBI of P - 20x6 6,000

Realized stockholders’ equity of subsidiary, December 31, 20x5………. P489,600Multiplied by: Non-controlling Interest percentage…………... 20Non-controlling interest (partial goodwill)………………………………….. P 97,920Add: Non-controlling interest on full goodwill , net of impairment loss

[(P15,000 full – P12,000, partial = P3,000) – P750 impairment loss 2,250Non-controlling interest (full-goodwill)………………………………….. P 100,170

* the realized profit in beginning inventory of P Company (upstream sales) –20x5 (RPBI of P - 20x5 amounting to P10,000 isalready included in the beginning retained earnings of S Company.

f.Consolidated SHE:

Stockholders’ EquityCommon stock, P10 par P 600,000Retained earnings 647,880Parent’s Stockholders’ Equity / CI - SHE P1,247,880


Problem XI(Compute selected balances based on three different intercompany asset transfer scenarios)1.

Consolidated Cost of Goods SoldPP’s cost of goods sold ...................................................................................... P290,000SW’s cost of goods sold ..................................................................................... 197,000Elimination of 20x5 intercompany transfers ................................................... (110,000)Reduction of beginning Inventory because of

20x4unrealized gross profit (P28,000/1.4 = P20,000cost; P28,000 transfer price less P20,000cost = P8,000 unrealized gross profit) ....................................................... (8,000)

Reduction of ending inventory because of20x5 unrealized gross profit (P42,000/1.4 = P30,000cost; P42,000 transfer price less P30,000cost = P12,000 unrealized gross profit) ..................................................... 12,000

Consolidated cost of goods sold ....................................................... P381,000Consolidated Inventory

PP book value .............................................................................................. P346,000SW book value ............................................................................................. 110,000Eliminate ending unrealized gross profit (see above) .......................... (12,000)Consolidated Inventory .............................................................................. P444,000

Non-controlling Interest in Subsidiary’s Net IncomeBecause all intercompany sales were downstream, the deferrals do not affect SW. Thus, thenon-controlling interest is 20% of the P58,000 (revenues minus cost of goods sold andexpenses) reported income or P11,600.

orConsolidated Net Income for 20x5

P Company’s net income from own/separate operations (P640-P290-P150) P 200,000Realized profit in beginning inventory of S Company (downstream sales) 8,000Unrealized profit in ending inventory of S Company (downstream sales)… (_ 12,000)

P Company’s realized net income from separate operations*…….….. P 196,000S Company’s net income from own operations (P360 – P197 – P105) P 58,000Realized profit in beginning inventory of P Company (upstream sales) 0Unrealized profit in ending inventory of P Company (upstream sales)… ( 0)

S Company’s realized net income from separate operations*…….….. P 58,000 58,000Total P 254,000Less: Amortization of allocated excess…………………… ____0Consolidated Net Income for 20x5 P 254,000Less: Non-controlling Interest in Net Income* * 11,600Controlling Interest in Consolidated Net Income or Profit attributable to

equity holders of parent – 20x5………….. P 242,200


(Reported net income of Son Company) P 58,000Realized profit in beginning inventory of P Company (upstream sales) 0Unrealized profit in ending inventory of P Company (upstream sales) ( 0)

S Company’s realized net income from separate operations……… P 58,000Less: Amortization of allocated excess ____0


2.Consolidated Cost of Goods SoldPP book value ..................................................................................................... P290,000SW book value .................................................................................................... 197,000Elimination of 20x5 intercompany transfers ................................................... (80,000)Reduction of beginning inventory because of

20x4 unrealized gross profit (P21,000/1.4 = P15,000cost; P21,000 transfer price less P15,000cost = P6,000 unrealized gross profit) ....................................................... (6,000)

Reduction of ending inventory because of20x5 unrealized gross profit (P35,000/1.4 = P25,000cost; P35,000 transfer price less P25,000cost = P10,000 unrealized gross profit) ..................................................... 10,000

Consolidated cost of goods sold .................................................................... P411,000Consolidated Inventory

PP book value ..................................................................................................... P346,000SW book value .................................................................................................... 110,000Eliminate ending unrealized gross profit (see above) ................................. (10,000)

Consolidated inventory .............................................................................. P446,000

Non-controlling Interest in Subsidiary's Net income

Since all intercompany sales are upstream, the effect on Snow's income must be reflectedin the non-controlling interest computation:

SW reported income .......................................................................................... P58,00020x4 unrealized gross profit realized in 20x5 (above) .................................. 6,00020x5 unrealized gross profit to be realized in 20x6 (above) ....................... (10,000)SW realized income ........................................................................................... P54,000Outside ownership percentage ...................................................................... 20%

Non-controlling interest in SW’s income .................................................. P10,800or

Consolidated Net Income for 20x5P Company’s net income from own/separate operations (P640-P290-P150) P 200,000Realized profit in beginning inventory of S Company (downstream sales)Unrealized profit in ending inventory of S Company (downstream sales)… (_ 0)

P Company’s realized net income from separate operations*…….….. P 200,000S Company’s net income from own operations (P360 – P197 – P105) P 58,000Realized profit in beginning inventory of P Company (upstream sales) 6,000Unrealized profit in ending inventory of P Company (upstream sales)… ( 10,000)

S Company’s realized net income from separate operations*…….….. P 54,000 54,000Total P 254,000Less: Amortization of allocated excess…………………… ____0Consolidated Net Income for 20x5 P 254,000Less: Non-controlling Interest in Net Income* * 10,800Controlling Interest in Consolidated Net Income or Profit attributable to



(Reported net income of Son Company) P 58,000Realized profit in beginning inventory of P Company (upstream sales) 6,000Unrealized profit in ending inventory of P Company (upstream sales) ( 10,000)

S Company’s realized net income from separate operations……… P 54,000Less: Amortization of allocated excess ____0


Problem XIII1. (Computation of selected consolidation balances as affected by downstream inventory transfers)

UNREALIZED GROSS PROFIT, 12/31/x4: (downstream transfer)Intercompany gross profit (P120,000 – P72,000) .......................................................... P48,000

Inventory remaining at year's end ....................................................................................... 30%Unrealized Intercompany Gross profit, 12/31/x4 ............................................................... P14,400

UNREALIZED GROSS PROFIT, 12/31/x5: (downstream transfer)Intercompany gross profit (P250,000 – P200,000) ....................................................... P50,000

Inventory remaining at year's end ....................................................................................... 20%Unrealized intercompany gross profit, 12/31/x5 ................................................................ P10,000CONSOLIDATED TOTALS Sales = P1,150,000 (add the two book values and eliminate intercompany sales of P250,000) Cost of goods sold:

Benson's book value ....................................................................................................... P535,000Broadway's book value .................................................................................................. 400,000Eliminate intercompany transfers ................................................................................. (250,000)Realized gross profit deferred in 20x4 .......................................................................... (14,400)Deferral of 20x5 unrealized gross profit ........................................................................ 10,000

Cost of goods sold ................................................................................................... P680,600 Operating expenses = P210,000 (add the two book values and include intangible amortization for

current year) Dividend income = -0- (intercompany transfer eliminated in consolidation) Noncontrolling interest in consolidated income: (impact of transfers is not included because they

were downstream)Broadway reported income for 20x5 ........................................................................... P100,000Intangible amortization ................................................................................................... (10,000)Broadway adjusted income........................................................................................... 90,000Outside ownership ........................................................................................................... 30%Noncontrolling interest in Broadway’s earnings.......................................................... P 27,000

or,Consolidated Net Income for 20x5

P Company’s net income from own/separate operations (P800-P535-P100) P 165,000Realized profit in beginning inventory of S Company (downstream sales) 14,400Unrealized profit in ending inventory of S Company (downstream sales)… (_10,000)

P Company’s realized net income from separate operations*…….….. P 169,400S Company’s net income from own operations (P600 – P400 – P100) P 100,000Realized profit in beginning inventory of P Company (upstream sales) 0Unrealized profit in ending inventory of P Company (upstream sales)… ( 0)

S Company’s realized net income from separate operations*…….….. P 100,000 100,000Total P 269,400Less: Amortization of allocated excess…………………… __10,000Consolidated Net Income for 20x5 P 259,400Less: Non-controlling Interest in Net Income* * 27,000Controlling Interest in Consolidated Net Income or Profit attributable to



(Reported net income of S Company) P 100,000Realized profit in beginning inventory of P Company (upstream sales) 0Unrealized profit in ending inventory of P Company (upstream sales) ( 0)

S Company’s realized net income from separate operations……… P 100,000Less: Amortization of allocated excess __10,000


Inventory = P988,000 (add the two book values less the P10,000 ending unrealized gross profit) Noncontrolling interest in subsidiary, 12/31/x5 = P385,500

30% beginning P950,000 book value ......................................................................... P285,000Excess January 1 intangible allocation (30% × P295,000)...................................... 88,500

Noncontrolling Interest in Broadway’s earnings.............................................................. 27,000Dividends (30% × P50,000)................................................................................................... (15,000)

Total noncontrolling interest at 12/31/x5................................................................... P385,500

2. (Computation of selected consolidation balances as affected by upstream inventory transfers).UNREALIZED GROSS PROFIT, 12/31/x4: (upstream transfer)

Intercompany gross profit (P120,000 – P72,000) ......................................................... P48,000Inventory remaining at year's end ................................................................................ 30%

Unrealized intercompany gross profit, 12/31/x4 ................................................................ P14,400

UNREALIZED GROSS PROFIT, 12/31/x5: (upstream transfer)Intercompany gross profit (P250,000 – P200,000) ....................................................... P50,000Inventory remaining at year's end ................................................................................ 20%

Unrealized intercompany gross profit, 12/31/x5 ................................................................ P10,000

CONSOLIDATED TOTALS Sales = P1,150,000 (add the two book values and eliminate the Intercompany transfer) Cost of goods sold:

Benson's COGS book value ........................................................................................... P535,000Broadway's COGS book value ...................................................................................... 400,000

Eliminate intercompany transfers ................................................................................. (250,000)Realized gross profit deferred in 20x4 .......................................................................... (14,400)Deferral of 20x5 unrealized gross profit ........................................................................ 10,000

Consolidated cost of goods sold .......................................................................... P680,600 Operating expenses = P210,000 (add the two book values and include intangible amortization for

current year) Dividend income = -0- (interco. transfer eliminated in consolidation) Noncontrolling interest in consolidated income: (impact of transfers is included because they were

upstream)Broadway reported income for 20x5 ........................................................................... P100,000Intangible amortization ................................................................................................... (10,000)

20x4 gross profit recognized in 20x5 ...................................................................... 14,40020x5 gross profit deferred ....................................................................................... (10,000)Broadway realized income for 20x5 ...................................................................... P94,400

Outside ownership ........................................................................................................... 30%Noncontrolling interest .................................................................................................... P28,320

Consolidated Net Income for 20x5P Company’s net income from own/separate operations (P800-P535-P100) P 165,000Realized profit in beginning inventory of S Company (downstream sales) 0Unrealized profit in ending inventory of S Company (downstream sales)… (_ 0)

P Company’s realized net income from separate operations*…….….. P 165,000S Company’s net income from own operations (P600 – P400 – P100) P 100,000Realized profit in beginning inventory of P Company (upstream sales) 14,400Unrealized profit in ending inventory of P Company (upstream sales)… ( 10,000)

S Company’s realized net income from separate operations*…….….. P 104,400 104,400Total P 269,400Less: Amortization of allocated excess…………………… __10,000Consolidated Net Income for 20x5 P 259,400Less: Non-controlling Interest in Net Income* * 28,320Controlling Interest in Consolidated Net Income or Profit attributable to



(Reported net income of S Company) P 100,000Realized profit in beginning inventory of P Company (upstream sales) 14,400Unrealized profit in ending inventory of P Company (upstream sales) ( 10,000)

S Company’s realized net income from separate operations……… P 104,400Less: Amortization of allocated excess __10,000


Inventory = P988,000 (add the two book values and defer the P10,000 ending unrealized gross profit) Noncontrolling interest in subsidiary, 12/31/x5 = P382,500

30% beginning book value less P14,400unrealized gross profit (30% × P935,600)............................................................. P280,680

Excess intangible allocation (30% × P295,000)..................................................... (88,500)Noncontrolling Interest in Broadway’s earnings .................................................. 28,320

Dividends (30% × P50,000)............................................................................................... (15,000)Total noncontrolling interest at 12/31/x5............................................................... P382,500

Problem XIVAmortization of equipment: P20,000 / 10 years = P2,000RPBI of S (downstream sales):…………………..................................................... ... P15,000RPBI of P (upstream sales)………………………....................................................... 10,000UPEI of S (downstream sales)……………………………………………………..……. 20,000UPEI of P (upstream sales)………………………………………………….…………… 5,000

Consolidated Net Income for 2014P Company’s net income from own/separate operations (P724,000 – P24,000 P700,000Realized profit in beginning inventory of S Company (downstream sales) 15,0000

Unrealized profit in ending inventory of S Company (downstream sales)… (20,00 0)P Company’s realized net income from separate operations*…….….. P695,000

S Company’s net income from own operations…………………………………. P 90,000Realized profit in beginning inventory of P Company (upstream sales) 10,000Unrealized profit in ending inventory of P Company (upstream sales) ( 5,000)

S Company’s realized net income from separate operations*…….….. P 95,000 95,000Total P790,000Less: Amortization of allocated excess…………………… 2,000Consolidated Net Income for 2014 P788,000Less: Non-controlling Interest in Net Income* * 18,600Controlling Interest in Consolidated Net Income or Profit attributable to

equity holders of parent – 2014………….. P769,400*that has been realized in transactions with third parties.

Or, alternativelyConsolidated Net Income for 2014

P Company’s net income from own/separate operations P700,000Realized profit in beginning inventory of S Company (downstream sales) 15,0000Unrealized profit in ending inventory of S Company (downstream sales)… (20,00 0)




equity holders of parent………….. P769,400Add: Non-controlling Interest in Net Income (NCINI) _ 18,600Consolidated Net Income for 2014 P788,000


**Non-controlling Interest in Net Income (NCINI) for 2014S Company’s net income of Subsidiary Company from its own operations





Note: Preferred Solution - since what is given is the RE – P, 12/31/2014 (endingbalance of the current year) -

Retained earnings – Parent, 12/31/2014 (cost)……………………….. P 3,500,000-: UPEI of S (down) – 2014 or RPBI of S (down) – 2015..…………. 20,000Adjusted Retained earnings – Parent, 12/31/2014 (cost)………….. P 3,480,000Retroactive Adjustments to convert Cost to “Equity” for

purposes of consolidation / Parent’s share of adjustednet increase in subsidiary’s retained earnings:

Retained earnings – Subsidiary, 1/1/2011……………………….P 150,000Less: Retained earnings – Subsidiary, 12/31/2014…………... 320,000Increase in Retained earnings since acquisition

(cumulative net income – cumulative dividends)………… P 170,000Accumulated amortization (1/1/2011 – 12/31/2014):

P 2,000 x 4 years………………………………………………..( 8,000)UPEI of P (up) – 2014 or RPBI of P (up) – 2015………………........( 5,000)

P157,000

x: Controlling Interests………………………………………… 80% 125,600RE – P, 12/31/2014 (equity method) = CRE, 12/31/2014…………. P 3,605,600

Or, compute first the RE – P on January 1, 2014 (use work back approach),Retained earnings – Parent, 1/1/2014 (cost)

(P3,500,000 plus P25,000 Div of P less P724,000 NI of P)…. P2,801,000-: UPEI of S (down) – 2013 or RPBI of S (down) – 2014..…………. 15,000Adjusted Retained earnings – Parent, 1/1/2014 (cost)……………… P2,786.000Retroactive Adjustments to convert Cost to “Equity” for


Retained earnings – Subsidiary, 1/1/2011………………………P 150,000Less: Retained earnings – Subsidiary, 1/1/2014……………… 260,000Increase in Retained earnings since acquisition

(cumulative net income – cumulative dividends)…………P110,000Accumulated amortization (1/1/2011 – 1/1/2014):

P 2,000 x 3 years………………………………………………. ( 6,000)UPEI of P (up) – 2013 or RPBI of P (up) – 2014………………... ( 10,000)

P 94,000X: Controlling Interests………………………………………… 80% 75,200

RE – P, 1/1/2014 (equity method) = CRE, 1/1/2014………………..P2,861,200+: CI – CNI or Profit Attributable to Equity Holders of Parent…….. 769,400-: Dividends – P………………………..……………………… 25,000RE – P, 12/31/2014 (equity method) = CRE, 12/31/2014…………..P3,605,600

Sales Cost of SalesP P2,500,000 P1,250,000S 1,200,000 875,000Intercompany sales - downstream ( 320,000) ( 320,000)Intercompany sales - upstream ( 290,000) ( 290,000)RPBI of S (downstream sales)* ( 15,000)RPBI of P (upstream sales)*** ( 10,000)UPEI of S (downstream sales)** 20,000UPEI of P (upstream sales)**** _________ 5,000Consolidated P3,090,000 P1,515,000

Working Paper Eliminating Entries:1. Intercompany Sales and Purchases:

Downstream Sales:Sales………………………………………………………………………….. 320,000

Cost of Sales (or Purchases)…………………………………….... 320,000Upstream Sales:

Sales………………………………………………………………………….. 290,000Cost of Sales (or Purchases)……………………………………… 290,000

2. Intercompany Profit:(COST Model)

Downstream Sales:*100% RPBI of S:

Retained Earnings – P, beginning………………………………………..... 15,000Cost of Sales (Beginning Inventory in Income Statement)…............ 15,000

**100% UPEI of S:Cost of Sales (Ending Inventory in Income Statement)……………… 20,000

Inventory (Ending Inventory in Balance Sheet)……………….. 20,000Upstream Sales:

***100% RPBI of P: (if equity method Investment in S instead of RE – P, beg.)Retained Earnings – P, beginning…………………………………...…….. 16,000NCI ……………………………………………….……………………………... 4,000

Cost of Sales (Beginning Inventory in Income Statement)…........ 20,000****100% UPEI of P:

Cost of Sales (Ending Inventory in Income Statement)………………… 5,000Inventory (Ending Inventory in Balance Sheet)……………….. 5,000

Problem XV (Change 2009 – 20x4; 2010 – 20x5; 2011 – 20x6)(Compute consolidated totals with transfers of both inventory and a building.)

Excess Amortization ExpensesEquipment P60,000 ÷ 10 years = P6,000 per yearFranchises P80,000 ÷ 20 years = P4,000 per yearAnnual excess amortizations P10,000

Unrealized Gross profit—Inventory, 1/1/x6Markup (P70,000 – P49,000) ........................................................................................... P21,000Markup percentage (P21,000 ÷ P70,000) .................................................................... 30%

Remaining inventory ...................................................................................................................... P30,000Markup percentage ...................................................................................................................... 30%

Unrealized gross profit, 1/1/x6......................................................................................... P9,000

Unrealized Gross profit—Inventory, 12/31/x6Markup (P100,000 – P50,000) ......................................................................................... P50,000

Markup percentage (P50,000 ÷ P100,000) ................................................................................. 50%

Remaining inventory ....................................................................................................... P40,000Markup percentage ...................................................................................................................... 50%

Unrealized gross profit, 12/31/x6 ................................................................................... P20,000

Impact of intercompany Building Transfer

12/31/x5—Transfer price figuresTransfer price ............................................................................................................. P50,000Gain on transfer (P50,000 – P30,000) ..................................................................... 20,000Depreciation expense (P50,000 ÷ 5) ..................................................................... 10,000Accumulated depreciation ................................................................................... 10,000

12/31/x6—Transfer price figuresDepreciation expense ............................................................................................ 10,000Accumulated depreciation ................................................................................... 20,000

12/31/x5—Historical cost figuresHistorical cost ............................................................................................................ P70,000Depreciation expense (P30,000 book value ÷ 5 years) ..................................... 6,000Accumulated depreciation (P40,000 + P6,000) ................................................. 46,000

12/31/x6—Historical cost figuresDepreciation expense ............................................................................................ 6,000Accumulated depreciation ................................................................................... 52,000

CONSOLIDATED BALANCES Sales = P1,000,000 (add the two book values and subtract P100,000 in intercompany transfers) Cost of Goods Sold = P571,000 (add the two book values and subtract P100,000 in intercompany purchases.

Subtract P9,000 because of the previous year unrealized gross profit and add P20,000 to defer the currentyear unrealized gross profit.)

Operating Expenses = P206,000 (add the two book values and include the P10,000 excess amortizationexpenses but remove the P4,000 in excess depreciation expense [P10,000 – P6,000] created by buildingtransfer)

Investment Income = P0 (the intercompany balance is removed so that the individual revenue and expenseaccounts of the subsidiary can be shown)

Inventory = P280,000 (add the two book values and subtract the P20,000 ending unrealized gross profit)

Equipment (net) = P292,000 (add the two book values and include the P60,000 allocation from the acquisition-date fair value less three years of excess amortizations)

Buildings (net) = P528,000 (add the two book values and subtract the P20,000 unrealized gain on the transferafter two years of excess depreciation [P4,000 per year])

Problem XVIRequirements 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……………………………….. P 372,000

Less: Book value of stockholders’ equity of Son:Common stock (P240,000 x 80%)……………………. P 192,000Retained earnings (P120,000 x 80%)………………... 96,000 288,000


Increase in inventory (P6,000 x 80%)……………… P 4,800Increase in land (P7,200 x 80%)……………………. 5,760Increase in equipment (P96,000 x 80%) 76,800Decrease in buildings (P24,000 x 80%)………..... ( 19,200)Decrease in bonds payable (P4,800 x 80%)…… 3,840 72,000

Positive excess: Partial-goodwill (excess of cost overfair value)………………………………………………... P 12,000

The over/under valuation of assets and liabilities are summarized as follows:S Co.

Book valueS Co.

Fair value(Over) Under

ValuationInventory………………….…………….. P 24,000 P 30,000 P 6,000Land……………………………………… 48,000 55,200 7,200Equipment (net)......... 84,000 180,000 96,000Buildings (net) 168,000 144,000 (24,000)Bonds payable………………………… (120,000) ( 115,200) 4,800Net……………………………………….. P 204,000 P 294,000 P 90,000

The buildings and equipment will be further analyzed for consolidation purposes as follows:S Co.

Book valueS Co.

Fair valueIncrease

(Decrease)Equipment .................. 180,000 180,000 0Less: Accumulated depreciation….. 96,000 - ( 96,000)Net book value………………………... 84,000 180,000 96,000

S Co.Book value

S Co.Fair value (Decrease)

Buildings................ 360,000 144,000 ( 216,000)Less: Accumulated depreciation….. 192,000 - ( 192,000)Net book value………………………... 168,000 144,000 ( 24,000)


Account Adjustments to be amortizedOver/Under Life

AnnualAmount



Equipment (net)......... 96,000 8 12,000 12,000 12,000Buildings (net) (24,000) 4 ( 6,000) ( 6,000) (6,000)Bonds payable… 48000 4 1,200 1,200 1,200

P 13,200 P 13,200 P 7,200

The goodwill impairment loss of P3,750 based on 100% fair value would be allocated to the controllinginterest and the NCI based on the percentage of total goodwill each equity interest received. Forpurposes of allocating the goodwill impairment loss, the full-goodwill is computed as follows:

Fair value of Subsidiary (100%)Consideration transferred: Cash (80%) P 372,000Fair value of NCI (given) (20%) 93,000Fair value of Subsidiary (100%) P 465,000

Less: Book value of stockholders’ equity of Son (P360,000 x 100%) __360,000Allocated excess (excess of cost over book value)….. P 105,000Add (deduct): (Over) under valuation of assets and liabilities

(P90,000 x 100%) 90,000Positive excess: Full-goodwill (excess of cost over

fair value)………………………………………………... P 15,000

In this case, the goodwill was proportional to the controlling interest of 80% and non-controlling interestof 20% computed as follows:

Value % of TotalGoodwill applicable to parent………………… P12,000 80.00%Goodwill applicable to NCI…………………….. 3,000 20.00%Total (full) goodwill……………………………….. P15,000 100.00%

The goodwill impairment loss would be allocated as follows

Value % of TotalGoodwill impairment loss attributable to parent or controlling

InterestP 3,000 80.00%

Goodwill applicable to NCI…………………….. 750 20.00%Goodwill impairment loss based on 100% fair value or full-

Goodwill P 3,750 100.00%

The unrealized profits on January 1, and on December 31, 20x5, resulting intercompany sales, are assummarized below:

Downstream Sales:

Year Sales of Parent toSubsidiary



20x4 P150,000 P150,000 x 60% = P90,000 P90,000 x 20% = P18,00020x5 120,000 P120,000 x 80% = P96,000 P96,000 x 25% = P40,000

Upstream Sales:

Year Sales of Subsidiaryto Parent



20x4 P 50,000 P100,000 x 50% = P25,000 P25,000 x 40% = P10,00020x5 62,500 P 62,500 x 40% = P25,000 P25,000 x 20% = P 5,000




January 1, 20x4 – December 31, 20x4:

(2) Cash……………………… 28,800Investment in S Company (P36,000 x 80%)……………. 28,800

Record dividends from S Company.

December 31, 20x4:(3) Investment in S Company 48,000

Investment income (P60,000 x 80%) 48,000Record share in net income of subsidiary.

December 31, 20x4:(4) Investment income [(P13,200 x 80%) + P3,000, goodwill

impairment loss)]13,560

Investment in S Company 13,560Record amortization of allocated excess of inventory, equipment,buildings and bonds payable and goodwill impairment loss.

December 31, 20x4:(5) Investment income (P18,000 x 100%) 18,000

Investment in S Company 18,000To adjust investment income for downstream sales - unrealized profitin ending inventory of S.


Investment in S Company 9,600To adjust investment income for upstream sales - unrealized profit inending inventory P .

Thus, the investment balance and investment income in the books of P Company is as follows:

Consolidation Workpaper – First Year after Acquisition

(E1) Common stock – S Co………………………………………… 240,000Retained earnings – S Co…………………………………… 120.000

Investment in S Co…………………………………………… 288,000Non-controlling interest (P360,000 x 20%)……………………….. 72,000

To eliminate investment on January 1, 20x4 and equity accounts ofsubsidiary on date of acquisition; and to establish non-controlling interest(in net assets of subsidiary) on date of acquisition.

(E2) Inventory…………………………………………………………………. 6,000Accumulated depreciation – equipment……………….. 96,000Accumulated depreciation – buildings………………….. 192,000Land………………………………………………………………………. 7,200Discount on bonds payable…………………………………………. 4,800Goodwill…………………………………………………………………. 12,000

Buildings……………………………………….. 216,000Non-controlling interest (P90,000 x 20%)……………………….. 18,000Investment in S Co………………………………………………. 84,000

Investment in SCost, 1/1/x4 372,000 28,800 Dividends – S (30,000x 80%)NI of S Amortization &

(60,000 x 80%) 48,000 13,560 impairment18,000 UPEI of Son (P15,000 x 100%)

9,600 UPEI of Perfect (P10,000 x80%)Balance, 12/31/x4 350,040

Investment IncomeAmortization & NI of S

impairment 13,560 48,000 (P60,000 x 80%)UPEI of S (P18,000 x 100%) 18,000UPEI of P (P12,000 x80%) 9,600

6,840 Balance, 12/31/x4

To eliminate investment on January 1, 20x4 and allocate excess ofcost over book value of identifiable assets acquired, with remainderto goodwill; and to establish non- controlling interest (in net assets ofsubsidiary) on date of acquisition.




Cost ofGoods

Sold


ExpenseAmortization


(E4) Investment income 6,840Investment in S Company 21,960Non-controlling interest (P36,000 x 20%)……………….. 7,200

Dividends paid – S…………………… 36,000To eliminate intercompany dividends and investment income underequity method and establish share of dividends, computed asfollows:

After the

eliminating entries are posted in the investment account, it should be observed that from consolidationpoint of view the investment account is totally eliminated. Thus,



(E6) Sales………………………. 60,000

Investment in S Investment IncomeNI of S 28,800 Dividends - S NI of S(60,000

x 80%)……. 48,000Amortization &

13,560 impairmentAmortization

impairment 13,560(50,000

48,000 x 80%)18,000 UPEI of S UPEI of S 18,000

9,600 UPEI of P UPEI of P 9,60021,960 6,840


(60,000 x 80%) 48,000 13,560 impairment18,000 UPEI of Son

9,600 UPEI of PerfectBalance, 12/31/x4 350,040 288,000 (E1) Investment, 1/1/20x4(E4) Investment Income

and dividends …………… 21,96084,000 (E2) Investment, 1/1/20x4

372,000 372,000

Cost of Goods Sold (or Purchases) 60,000To eliminated intercompany upstream sales.







Net income of subsidiary…………………….. P 60,000Unrealized profit in ending inventory of PCompany (upstream sales)……………………….. ( 12,000)Son Company’s realized net income from

separate operations*…….….. P 48,000Less: Amortization of allocated excess [(E3)]…. ( 13,200)


– partial goodwill P 6,960

Subsidiary accounts are adjusted to full fair value regardless on the controlling interest percentage orwhat option used to value non-controlling interest or goodwill.

Worksheet for Consolidated Financial Statements, December 31, 20x4.Equity Method (Partial-goodwill)80%-Owned SubsidiaryDecember 31, 20x4 (First Year after Acquisition)


(6) 60,000P 510,000

Investment income 6,840 - (4) 6,840 _________Total Revenue P486,840 P240,000 P 510,000


(5)150,000(6)60,000

P 168,000






Dividends paidP Company 72,000 72,000

S Company - 36,000 (4) 36,000 _ ________Retained earnings, 12/31 to Balance

Sheet P462,840 P144,000 P 642,840


(7) 18,000(8) 12,000 180,000


(2) 84,000-

Total P1,635,700 P1,006,000 P2,394,600

Accumulated depreciation- equipment P 135,000 P 96,000 (2) 96,000 (3) 12,000 P 147,000


405,000 288,000 (2) 192,000(3) 6,000 495,000


_________ _________

(4) 7,200

__________

(1 ) 72,000(2) 18,000(5) 6,960 ____89,760

Total P1,962,840 P1,008,000 P 983,160 P 983,160 P2,394,600

Second Year after AcquisitionP Co. S Co.


Other expense 72,000 54,000Net income from its own separate operations P 192,000 P 90,000Add: Investment income 65,040 -Net income P 257,040 P 90,000Dividends paid P 72,000 P 48,000


20x5: Parent Company Equity Method EntryJanuary 1, 20x5 – December 31, 20x5:(2) Cash……………………… 38,400

Investment in S Company (P48,000 x 80%)……………. 38,400Record dividends from S Company.




Investment in S Company 5,760Record amortization of allocated excess of inventory, equipment,

buildings and bonds payable


Investment in S Company 24,000To adjust investment income for downstream sales - unrealized profitin ending inventory of Son (UPEI of S).

December 31, 20x5:(6) Investment in S Company…………….. 18,000

Investment income (P18,000 x 100%)……….. 18,000To adjust investment income for downstream sales - realized profit inbeginning inventory of S (RPBI of S).


Investment in S Company 4,800To adjust investment income for upstream sales - unrealized profit inending inventory Perfect (UPEI of P).


Investment income (P12,000 x 80%)……….. 9,600To adjust investment income for upstream sales - realized profit inbeginning inventory of Perfect (RPBI of P)

Thus, the investment balance and investment income in the books of P Company is as follows:

Consolidation Workpaper – Second Year after AcquisitionThe schedule of determination and allocation of excess presented above provides completeguidance for the worksheet eliminating entries:

(E1) Common stock – S Co………………………………………… 240,000Retained earnings – S Co, 1/1/x5…………………………. 144.000

Investment in S Co (P384,000 x 80%) 307,200Non-controlling interest (P384,000 x 20%)……………………….. 76,800

To eliminate investment on January 1, 20x5 and equity accountsof subsidiary on date of acquisition; and to establish non-controlling interest (in net assets of subsidiary) on 1/1/20x5.

(E2) Accumulated depreciation – equipment (P96,000 – P12,000) 84,000Accumulated depreciation – buildings (P160,000 + P6,000) 198,000Land………………………………………………………………………. 7,200Discount on bonds payable (P4,800 – P1,200)…. 3,600Goodwill (P12,000 – P3,000)…………………………….. 9,000

Buildings……………………………………….. 216,000Non-controlling interest [(P90,000 – P13,200) x 20%] 15,360Investment in S Co………………………………………………. 70,440

Investment in SCost, 1/1/x5 350,040 38,400 Dividends – S (48,000x 80%)NI of Son 5,760 Amortization (7,200 x 80%)

(90,000 x 80%) 72,000 24,000 UPEI of Son (P24,000 x 100%)RPBI of S (P18,000 x 100%) 18,000 4,800 UPEI of Perfect (P6,000 x 80%)RPBI of P (P12,000 x 80%) 9,600Balance, 12/31/x5 376,680

Investment IncomeAmortization (7,200 x 805) 5,760 NI of SUPEI of S (P24,000 x 100%) 24,000 72,000 (P90,000 x 80%)UPEI of P (P6,000 x 80%) 4,800 18,000 RPBI of S (P18,000 x 100%)

9,600 RPBI of P(P12,000 x 80%)65,040 Balance, 12/31/x5

To eliminate investment on January 1, 20x5 and allocate excess ofcost over book value of identifiable assets acquired, with remainderto the original amount of goodwill; and to establish non- controllinginterest (in net assets of subsidiary) on 1/1/20x5.

(E3) Depreciation expense……………………….. 6,000Accumulated depreciation – buildings………………….. 6,000Interest expense………………………………… 1,200

Accumulated depreciation – equipment……………….. 12,000Discount on bonds payable………………………… 1,200

To provide for 20x5 depreciation and amortization on differencesbetween acquisition date fair value and book value of Son’sidentifiable assets and liabilities as follows:


ExpenseAmortization

-Interest TotalInventory soldEquipment P 12,000Buildings ( 6,000)Bonds payable _______ P 1,200Totals P 6,000 P1,200 P7,200

(E4) Investment income 65,040Non-controlling interest (P48,000 x 20%)……………….. 9,600

Dividends paid – S…………………… 48,000Investment in S Company 26,640

To eliminate intercompany dividends and investment income underequity method and establish share of dividends, computed asfollows:





(E8) Investment in Son Company……………………. 18,000Cost of Goods Sold (Ending Inventory – Income Statement) 18,000


(E9) Investment in Son Company (P12,000 x 80%) 9,600Noncontrolling interest (P12,000 x 20%)…… 2,400


After the eliminating entries are posted in the investment account, it should be observed that fromconsolidation point of view the investment account is totally eliminated. Thus,

Investment in S Investment IncomeNI of S 38,400 Dividends – S NI of S(90,000

x 80%)……. 72,000Amortization

5,760 (P7,200 x 80%)Amortization

(P7,200 x 80%) 5,760(90,000

72,000 x 80%)RPBI of S 18,000 24,000 UPEI of S UPEI of S 24,000 18,000 RPBI of SRPBI of P 9,600 4,800 UPEI of P UPEI of P 4,800 9,600 RPBI of P

26,640 65,040

Investment in SCost, 1/1/x5 350,040 38,400 Dividends – S (40,000x 80%)NI of S Amortization

(90,000 x 80%) 72,000 5,760 (6,000 x 80%)







Net income of subsidiary…………………….. P 90,000Realized profit in beginning inventory of PCompany - 20x5 (upstream sales) 12,000Unrealized profit in ending inventory of PCompany - 20x5 (upstream sales) ( 6,000)S Company’s Realized net income* P 96,000Less: Amortization of allocated excess ( 7,200)


– partial goodwill P 17,760*from separate transactions that has been realized in transactionswith third persons.

Worksheet for Consolidated Financial Statements, December 31, 20x5.Equity Method (Partial-goodwill)80%-Owned SubsidiaryDecember 31, 20x5 (Second Year after Acquisition)


(7) 75,000P 705,000

Investment income 65,040 - (4) 65,040 ___________Total Revenue P605,040 P360,000 P 705,000


(6) 120,000(7) 75,000(8) 18,000(9) 12,000

P 213,000




P Company P462,840 P 462,840

RPBI of S (P18,000 x 100%) 18,000 24,000 UPEI of S (P20,000 x 100%)RPBI of P (P12,000 x 80%) 9,600 4,800 UPEI of P (P5,000 x 80%)Balance, 12/31/x5 376,680 307,200 (E1) Investment, 1/1/20x5(E8) RPBI of S 18,000 70,440 (E2) Investment, 1/1/20x5(E9) RPBI of P 9,600 26,640 (E4) Investment Income

and dividends336,900 404,280

S Company P144,000 (1) 144,000Net income, from above 257,040 90,000 257,040




Balance SheetCash………………………. P 265,200 P 102,000 P 367,200Accounts receivable…….. 180,000 96,000 276,000Inventory…………………. 216,000 108,000 (10) 24,000

(11) 6,000 294,000Land……………………………. 210,000 48,000 (2) 7,200 265,200Equipment 240,000 180,000 420,000Buildings 720,000 540,000 (3) 216,000 1,044,000Discount on bonds payable (2) 3,600 (3) 1,200 2,400Goodwill…………………… (2) 9,000 9,000Investment in S Co……… 376,680 (8) 18,000

(9) 9,600(1) 307,200(2) 70,440(4) 26,640 -

Total P2,207,880 P1,074,000 P2,677,800

Accumulated depreciation- equipment P 150,000 P 102,000

(2) 84,000(3) 12,000 P180,000


450,000 306,000 (2) 198,000(3) 6,000 552,000


___ _____ _________

(4) 9,600(9) 2,400

__________

(2 ) 76,800(2) 15,360(5) 17,760 ____97,920

Total P2,207,880 P1,074,000 P1,046,400 P1,046,400 P2,677,800

5 and 6. Refer to Problem IX for computationsNote: Using cost model or equity method, the consolidated net income, consolidated retainedearnings, non-controlling interests, consolidated equity on December 31, 20x4 and 20x5 areexactly the same (refer to Problem IX solution).

Problem XVIIRequirements 1 to 4:Schedule of Determination and Allocation of ExcessDate of Acquisition – January 1, 20x4

Fair value of Subsidiary (80%)Consideration transferred (80%)…………….. P 372,000Fair value of NCI (given) (20%)……………….. 93,000Fair value of Subsidiary (100%)………. P 465,000

Less: Book value of stockholders’ equity of Son:Common stock (P240,000 x 100%)………………. P 240,000Retained earnings (P120,000 x 100%)………... 120,000 360,000


Increase in inventory (P6,000 x 100%)……………… P 6,000Increase in land (P7,200 x 100%)……………………. 7,200Increase in equipment (P96,000 x 100%) 96,000Decrease in buildings (P24,000 x 100%)………..... ( 24,000)

Decrease in bonds payable (P4,800 x 100%)…… 4,800 90,000Positive excess: Full-goodwill (excess of cost over

fair value)………………………………………………... P 15,000


Account Adjustments to be amortizedOver/under Life

AnnualAmount



Equipment (net)......... 96,000 8 12,000 12,000 12,000Buildings (net) (24,000) 4 ( 6,000) ( 6,000) (6,000)Bonds payable… 4,800 4 1,200 1,200 1,200

P 13,200 P 13,200 P 7,200

20x4: First Year after AcquisitionParent Company Equity Method Entry







December 31, 20x4:(4) Investment income [(P13,200 x 80%) + (P3,750 – P750)*,

goodwill impairment loss)]13,560

Investment in S Company 13,560Record amortization of allocated excess of inventory, equipment,buildings and bonds payable and goodwill impairment loss.

*this procedure would be more appropriate, instead of multiplying the full-goodwill impairment loss of P3,125 by 80%. There mightbe situations where the controlling interests on goodwill impairment loss would not be proportionate to NCI acquired (refer toIllustration 15-6).


Investment in S Company 18,000To adjust investment income for downstream sales - unrealized profitin ending inventory of S.


Investment in S Company 9,600To adjust investment income for upstream sales - unrealized profit inending inventory P .

Thus, the investment balance and investment income in the books of P Company is as follows


(60,000 x 80%) 48,000 13,560 impairment18,000 UPEI of S (P18,000 x 100%)

Consolidation Workpaper – First Year after Acquisition(E1) Common stock – S Co………………………………………… 240,000


To eliminate investment on January 1, 20x4 and equity accountsof subsidiary on date of acquisition; and to establish non-controlling interest (in net assets of subsidiary) on date ofacquisition.

(E2) Inventory…………………………………………………………………. 6,000Accumulated depreciation – equipment……………….. 96,000Accumulated depreciation – buildings………………….. 192,000Land………………………………………………………………………. 7,200Discount on bonds payable…………………………………………. 4,800Goodwill…………………………………………………………………. 15,000


P12,000, partial goodwill)]………… 21,000Investment in Son Co………………………………………………. 84,000

To eliminate investment on January 1, 20x4 and allocate excess ofcost over book value of identifiable assets acquired, with remainderto goodwill; and to establish non- controlling interest (in net assets ofsubsidiary) on date of acquisition.




Cost ofGoods

Sold


ExpenseAmortization


9,600 UPEI of P (P12,000 x80%)Balance, 12/31/x4 324,000

Investment IncomeAmortization & NI of S

impairment 13,560 48,000 (P60,000 x 80%)UPEI of S (P18,000 x 100%) 18,000UPEI of P (P12,000 x80%) 9,600

6,840 Balance, 12/31/x4

(E4) Investment income 6,840Investment in S Company 21,960Non-controlling interest (P36,000 x 20%)……………….. 7,200

Dividends paid – S…………………… 36,000To eliminate intercompany dividends and investment income underequity method and establish share of dividends, computed asfollows:

After the

eliminating entries are posted in the investment account, it should be observed that from consolidationpoint of view the investment account is totally eliminated. Thus,











Net income of subsidiary…………………….. P 60,000Unrealized profit in ending inventory of PCompany (upstream sales)……………………….. ( 12,000)S Company’s realized net income from

separate operations*…….….. P 48,000Less: Amortization of allocated excess [(E3)]…. ( 13,200)

P 34,800Multiplied by: Non-controlling interest %.......... 20%Non-controlling Interest in Net Income (NCINI) P 6,960

Investment in SInvestment Income

NI of S 28,800 Dividends - S NI of S(60,000

x 80%)……. 48,000Amortization &

13,560 impairmentAmortization

impairment 13,560(50,000

48,000 x 80%)18,000 UPEI of S UPEI of S 18,000

9,600 UPEI of P UPEI of P 9,60021,960 6,840


(60,000 x 80%) 48,000 13,560 impairment18,000 UPEI of S

9,600 UPEI of PBalance, 12/31/x4 350,040 288,000 (E1) Investment, 1/1/20x4(E4) Investment Income

and dividends …………… 21,96084,000 (E2) Investment, 1/1/20x4

372,000 372,000

– partial goodwillLess: Non-controlling interest on impairment

loss on full-goodwill (P3,750 x 20%) or(P3,750 impairment on full-goodwill lessP3,000, impairment on partial-goodwill)* 750

Non-controlling Interest in Net Income (NCINI)– full goodwill P 6210

*this procedure would be more appropriate, instead of multiplying the full-goodwill impairment loss of P3,750 by 20%. There might be situations where theNCI on goodwill impairment loss would not be proportionate to NCI acquired(refer to Illustration 15-6).

Worksheet for Consolidated Financial Statements, December 31, 20x4.Equity Method (Full-goodwill)80%-Owned SubsidiaryDecember 31, 20x4 (First Year after Acquisition)


(6) 60,000P 510,000

Investment income 6,840 - (4) 6,840 _________Total Revenue P486,840 P240,000 P 510,000


(5)150,000(6)60,000

P 168,000





Net income, from above 174,840 60,000 174,840Total P414,840 P180,000 P 414,840




(7) 18,000(8) 12,000 180,000


(2) 84,000-

Total P1,635,700 P1,008,000 P2,396,850

Accumulated depreciation- equipment P 135,000 P 96,000 (2) 96,000 (3) 12,000 P 147,000


405,000 288,000 (2) 192,000(3) 6,000 495,000


_________ _________

(4) 7,200

__________

(1 ) 72,000(2) 21,000(9) 6,210 ____92,010

Total P1,962,840 P1,008,000 P 986,160 P 986,160 P2,396,850

20x5: Second Year after AcquisitionPerfect Co. Son Co.


Other expense 72,000 54,000Net income from its own separate operations P 192,000 P 90,000Add: Investment income 65,040 -Net income P 257,040 P 90,000Dividends paid P 72,000 P 48,000


Parent Company Equity Method EntryJanuary 1, 20x5 – December 31, 20x5:(2) Cash……………………… 38,400





Investment in S Company 5,760Record amortization of allocated excess of inventory, equipment,buildings and bonds payable


Investment in S Company 24,000To adjust investment income for downstream sales - unrealized profitin ending inventory of S (UPEI of S).


Investment income (P18,000 x 100%)……….. 18,000To adjust investment income for downstream sales - realized profit inbeginning inventory of S (RPBI of S).


Investment in S Company 4,800To adjust investment income for upstream sales - unrealized profit inending inventory P (UPEI of P).

December 31, 20x5:

(8) Investment in S Company…………….. 9,600Investment income (P12,000 x 80%)……….. 9,600

To adjust investment income for upstream sales - realized profit inbeginning inventory of P (RPBI of P)

Thus, the investment balance and investment income in the books of Perfect Company is as follows:

Consolidation Workpaper – Second Year after AcquisitionThe schedule of determination and allocation of excess presented above provides completeguidance for the worksheet eliminating entries.

(E1) Common stock – S Co………………………………………… 240,000Retained earnings – S Co, 1/1/x5…………………………. 144.000

Investment in S Co (P384,000 x 80%) 307,200Non-controlling interest (P384,000 x 20%)……………………….. 76,800

To eliminate investment on January 1, 20x5 and equity accountsof subsidiary on date of acquisition; and to establish non-controlling interest (in net assets of subsidiary) on 1/1/20x5.

(E2) Accumulated depreciation – equipment (P96,000 – P12,000) 84,000Accumulated depreciation – buildings (P192,000 + P6,000) 198,000Land………………………………………………………………………. 7,200Discount on bonds payable (P4,800 – P1,200)…. 3,600Goodwill (P15,000 – P3,750)…………………………….. 11,250

Buildings……………………………………….. 216,000Non-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%)] 17,610

Investment in S Co………………………………………………. 70,440To eliminate investment on January 1, 20x5 and allocate excess ofcost over book value of identifiable assets acquired, with remainderto the original amount of goodwill; and to establish non- controllinginterest (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 mightbe situations where the NCI on goodwill impairment loss would not be proportionate to NCI acquired (refer to Illustration 15-6).

(E3) Depreciation expense……………………….. 6,000Accumulated depreciation – buildings………………….. 6,000Interest expense………………………………… 1,200

Accumulated depreciation – equipment……………….. 12,000Discount on bonds payable………………………… 1,200

To provide for 20x5 depreciation and amortization on differencesbetween acquisition date fair value and book value of Son’sidentifiable assets and liabilities as follows:

Depreciation/Amortization Amortization

Investment in SCost, 1/1/x5 350,040 38,400 Dividends – S (48,000x 80%)NI of Son 5,760 Amortization (7,200 x 80%)

(90,000 x 80%) 72,000 24,000 UPEI of S (P24,000 x 100%)RPBI of (P18,000 x 100%) 18,000 4,800 UPEI of P (P6,000 x 80%)RPBI of P (P12,000 x 80%) 9,600Balance, 12/31/x5 376,680

Investment IncomeAmortization (7,200 x 805) 5,760 NI of SUPEI of S (P24,000 x 100%) 24,000 72,000 (P90,000 x 80%)UPEI of P (P6,000 x 80%) 4,800 18,000 RPBI of S (P18,000 x 100%)

9,600 RPBI of P (P12,000 x 80%)65,040 Balance, 12/31/x5

Expense -Interest TotalInventory soldEquipment P 12,000Buildings ( 6,000)Bonds payable _______ P 1,200Totals P 6,000 P1,200 P7,200

(E4) Investment income 65,040Non-controlling interest (P48,000 x 20%)……………….. 9,600

Dividends paid – S…………………… 48,000Investment in S Company 26,640

To eliminate intercompany dividends and investment income underequity method and establish share of dividends, computed asfollows:





(E8) Investment in Son Company……………………. 18,000Cost of Goods Sold (Ending Inventory – Income Statement) 18,000


(E9) Investment in Son Company (P12,000 x 80%) 9,600Noncontrolling interest (P12,000 x 20%)…… 2,400


After the eliminating entries are posted in the investment account, it should be observed that fromconsolidation point of view the investment account is totally eliminated. Thus,


To defer the downstream sales - unrealized profit in ending inventory

Investment in S Investment IncomeNI of Son 38,400 Dividends – S NI of S(90,000

x 80%)……. 72,000Amortization

5,760 (P7,200 x 80%)Amortization

(P7,200 x 80%) 5,760(90,000

72,000 x 80%)RPBI of S 18,000 24,000 UPEI of S UPEI of S 24,000 18,000 RPBI of SRPBI of P 9,600 4,800 UPEI of P UPEI of P 4,800 9,600 RPBI of P

26,640 65,040

Investment in SCost, 1/1/x5 350,040 38,400 Dividends – S (48,000x 80%)NI of Son Amortization

(90,000 x 80%) 72,000 5,600 (7,000 x 80%)RPBI of S (P18,000 x 100%) 18,000 24,000 UPEI of S (P24,000 x 100%)RPBI of P (P18,000 x 80%) 9,600 4,800 UPEI of P (P6,000 x 80%)Balance, 12/31/x5 376,680 307,200 (E1) Investment, 1/1/20x5(E8) RPBI of S 18,000 70,440 (E2) Investment, 1/1/20x5(E9) RPBI of P 9,600 26,640 (E4) Investment Income

and dividends404,280 404,280

until it is sold to outsiders.





Net income of subsidiary…………………….. P 90,000Realized profit in beginning inventory of PCompany - 20x5 (upstream sales) 12,000Unrealized profit in ending inventory of PCompany - 20x5 (upstream sales) ( 6,000)Son Company’s Realized net income* P 96,000Less: Amortization of allocated excess ( 7,200)


– partial goodwillP 17,760

Less: NCI on goodwill impairment loss on full-Goodwill 0


*from separate transactions that has been realized in transactionswith third persons.

Worksheet for Consolidated Financial Statements, December 31, 20x5.Equity Method (Full-goodwill)80%-Owned SubsidiaryDecember 31, 20x5 (Second Year after Acquisition)


(7) 75,000P 705,000

Investment income 65,040 - (4) 65,040 ___________Total Revenue P605,040 P360,000 P 705,000


(6) 120,000(7) 75,000(8) 18,000(9) 12,000

P 213,000





Net income, from above 257,040 90,000 257,040Total P719,880 P234,000 P 719,880



Balance SheetCash………………………. P 265,200 P 114,000 P 367,200Accounts receivable…….. 180,000 96,000 276,000Inventory…………………. 216,000 108,000 (10) 24,000

(11) 6,000 294,000Land……………………………. 210,000 48,000 (2) 7,200 265,200Equipment 240,000 180,000 420,000Buildings 720,000 540,000 (3) 216,000 1,044,000Discount on bonds payable (2) 3,600 (3) 1,200 2,400Goodwill…………………… (2) 11,250 11,250Investment in S Co……… 376,680 (8) 18,000

(9) 9,600(1) 307,200(3) 70,440(4) 26,640 -

Total P2,207,880 P1,074,000 P2,680,050

Accumulated depreciation- equipment P 150,000 P 102,000

(2) 84,000(3) 12,000 P180,000


450,000 306,000 (2) 198,000(3) 6,000 552,000


___ _____ _________

(4) 9,600(9) 2,400

__________

(1 ) 76,800(2) 17,610(14)17,760 ____100,170

Total P2,207,880 P1,074,000 P1,048,650 P1,048,650 P2,680,050

5 and 6. Refer to Problem X for computationsNote: Using cost model or equity method, the consolidated net income, consolidated retainedearnings, non-controlling interests, consolidated equity on December 31, 20x4 and 20x5 areexactly the same (refer to Problem X solution).

Multiple Choice Problems1. b2. a3. c – P400,000 x 1/4 = P100,000 x 30% = P30,0004. c

Ending inventory at selling price: P300,000 x 1/3 = P100,000 x (300,000 – 240,000)/300,000 P20,000Less: Inventory write-down (P100,000 – P92,000) __8,000Intercompany profit to be eliminated P12,000

5. b – [P300,000 x 1/2 = P150,000 x 40% = P60,000]6. c – P100,00 sales to unrelated/unaffiliated company.7. c

Cost of SalesP Company 67,000S Company _63,000Total 130,000Less: Intercompany sales 90,000Add: Unrealized profit in EI of S Co.

[P90,000 x 30% = P27,000 x (90 - 67)/90] __6,900Consolidated 46,900

Parent SubsidiarySales 90,000 100,000Less: Cost of goods sold – Parent 67,000

Subsidiary (90,000 x 70%) ______ 63,000Gross profit 23,000 37,000Ending inventory (90,000 x 30%) 27,000

8. aConsolidated Net Income for 20x4

P Company’s net income from own/separate operations[P100,000 – (P90,000 x 70%)] P 37,000

Realized profit in beginning inventory of S Company (downstream sales) 0Unrealized profit in ending inventory of S Company (downstream sales)… (_ 0)

P Company’s realized net income from separate operations*…….….. P 37,000S Company’s net income from own operations (P90,000 – P67,000) P23,000Realized profit in beginning inventory of P Company (upstream sales) 0Unrealized profit in ending inventory of P Company (upstream sales)

[P90,000 x 30% = P27,000 x (90-67/90)] ( 6,900 )S Company’s realized net income from separate operations*…….….. P16,100 16,100

Total P 53,100Less: Amortization of allocated excess…………………… 0Consolidated Net Income for 20x4 P 53,100Less: Non-controlling Interest in Net Income* * 1,610Controlling Interest in Consolidated Net Income or Profit attributable to



P Company’s net income from own/separate operations[P100,000 – (P90,000 x 70%)] P 37,000


P Company’s realized net income from separate operations*…….….. P 37,000S Company’s net income from own operations (P90,000 – P67,000) P23,000Realized profit in beginning inventory of P Company (upstream sales) 0Unrealized profit in ending inventory of P Company (upstream sales)

[P90,000 x 30% = P27,000 x (90-67/90)] ( 6,900 )S Company’s realized net income from separate operations*…….….. P16,100 16,100

Total P 53,100Less: Non-controlling Interest in Net Income* * P 1,610


equity holders of parent………….. P 51,490Add: Non-controlling Interest in Net Income (NCINI) _ 1,610Consolidated Net Income for 20x4 P 53,100



(Reported net income of S Company) P 23,000Realized profit in beginning inventory of P Company (upstream sales) 0Unrealized profit in ending inventory of P Company (upstream sales) ( 6,900)

S Company’s realized net income from separate operations……… P 16,100Less: Amortization of allocated excess 0


9. d – P27,000 x 67/90 = P20,100

10. b – P120,000, the amount of sales to outsiders is the amount of sales presented in the consolidatedincome statement.

11. a – the cost of inventory produced by the parent (downstream sales)

12. cConsolidated Net Income for 20x4

P Company’s net income from own/separate operations (P90,000 – P62,000) P 28,000Realized profit in beginning inventory of S Company (downstream sales) 0Unrealized profit in ending inventory of S Company (downstream sales)… (_ 0)

P Company’s realized net income from separate operations*…….….. P 28,000S Company’s net income from own operations (P120,000 – P90,000) P3 0,000Realized profit in beginning inventory of P Company (upstream sales) 0Unrealized profit in ending inventory of P Company (upstream sales) ( )

S Company’s realized net income from separate operations*…….….. P30,000 30,000Total P 58,000Less: Amortization of allocated excess…………………… 0Consolidated Net Income for 20x4 P 58,000Less: Non-controlling Interest in Net Income* * 3,000Controlling Interest in Consolidated Net Income or Profit attributable to




P Company’s realized net income from separate operations*…….….. P 28,000S Company’s net income from own operations (P120,000 – P90,000) P3 0,000Realized profit in beginning inventory of P Company (upstream sales) 0Unrealized profit in ending inventory of P Company (upstream sales ( )

S Company’s realized net income from separate operations*…….….. P30,000 30,000Total P 58,000Less: Non-controlling Interest in Net Income* * P 3,000


equity holders of parent………….. P 55,000Add: Non-controlling Interest in Net Income (NCINI) _ 3,000Consolidated Net Income for 20x4 P 58,000




Realized profit in beginning inventory of P Company (upstream sales) 0Unrealized profit in ending inventory of P Company (upstream sales) ( 0)



13. cSales Cost of Sales

P Company 10,000,000 7,520,000S Company __200,000 _160,000Total 10,200,000 7,680,000Less: Intercompany sales – upstream sales 60,000 60,000Add: Unrealized profit in EI of S Co.

[P60,000 x 30% = P18,000 x (10 – 7.5)/10] ________ __ 4,500Consolidated 10,140,000 7,604,500

14. No requirement15. d – refer to No. 13 for computation16. c

SalesP Company 10,000,000S Company __200,000Total 10,200,000Less: Intercompany sales – downstream sales 60,000Add: Unrealized profit in EI of S Co.

[P60,000 x 30% = P18,000 x (10 – 7.5)/10] ________Consolidated 10,140,000

17. a – (P40,000 x 140% = P56,000)18. a – (P56,000 – P40,000 = P16,000)19. a

20x5 Sales Cost of SalesP Company 1,800,000 1,440,000S Company __900,000 _750,000Total 2,700,000 2,190,000Less: Intercompany sales 375,000 375,000

Realized profit in BI of S Co.[P240,000 x 1/2 = P120,000 x (240-192)/240] 24,000

Add: Unrealized profit in EI of S Co.[P375,000 x 40% = P150,000 x (375-300)/375] ________ __30,000

Consolidated 2.325,000 1,821,000

20. c - refer to No. 19 for computations21. b

Consolidated Net Income for 20x4P Company’s net income from own/separate operations P 225,000Realized profit in beginning inventory of S Company (downstream sales) 0Unrealized profit in ending inventory of S Company (downstream sales)… (_ 0)

P Company’s realized net income from separate operations*…….….. P225,000S Company’s net income from own operations P 90,000Realized profit in beginning inventory of P Company (upstream sales)Unrealized profit in ending inventory of P Company (upstream sales)

[P150,000 x 50% = P75,000 x (P30,000/P150,000)] ( 15,000 )S Company’s realized net income from separate operations*…….….. P 75,000 75,000

Total P 300,000Less: Amortization of allocated excess…………………… _ 0Consolidated Net Income for 20x4 P 300,000Less: Non-controlling Interest in Net Income* * 15,000Controlling Interest in Consolidated Net Income or Profit attributable to






22. c – refer to No. 21 for computations23. c24 a Amount paid by Lorn Corporation P120,000

Unrealized profit (45,000)Actual cost P 75,000Portion sold x .80Cost of goods sold P 60,000

25. e Consolidated sales P140,000Cost of goods sold (60,000)Consolidated net income P 80,000Income to Dresser’s noncontrolling

interest:Sales P120,000Reported cost of sales (75,000)Report income P 45,000Portion realized x .80Realized net income P 36,000Portion to Noncontrolling

Interest x .30Income to noncontrolling

Interest (10,800)Income to controlling interest P 69,200

26. A Inventory reported by Lorn P 24,000Unrealized profit (P45,000 x .20) (9,000)Ending inventory reported P 15,000

27. cSales

P Company 500,000S Company _350,000Total 850,000Less: Intercompany sales to Dundee 100,000

Intercompany sales to Perth 150,000Consolidated 600,000

28. aEnding inventory of Perth from Dundee (P36,000 / 110%) 32,727Ending inventory of Dundee from Perth (P31,000 / 130%) _23,846Total 56,573

29. a Selling price P 50,000Less: Cost of sales _40,000Original unrealized profit 10,000Unsold percentage __30%Unrealized profit P _3,000

30. aConsolidated Net Income for 20x4

P Company’s net income from own/separate operations P180,000Unrealized profit in ending inventory of S Company (downstream sales)… ( 3,000)

P Company’s realized net income from separate operations*…….….. P 177,000S Company’s net income from own operations…………………………………. 76,000Total P253,000

Less: Amortization of allocated excess…………………… 0Consolidated Net Income for 20x5 P253,000

31. aCombined 20x5 sales (P580,000 + P445,000) P 1,025,000Less: 20x5 intercompany sales 0Consolidated sales P 1,025,000

32. dCombined cost of sales P 480,000Less: 20x5 intercompany sales 0Less: Unrealized profit in the 20x5 beginning inventory

from 20x4 ( 3,000)Add: Unrealized profit in 20x5 ending inventory ________0Consolidated cost of sales P 477,000

33. dCost of Sales

P Company 5,400,000S Company _1,200,000Total 6,600,000Less: Intercompany sales 1,000,000

Realized profit in BI of S Co.[P625,000 x 12% = P75,000 x (625 - 425)/625] 24,000

Add: Unrealized profit in EI of S Co.[P1,000,000 x 10% = P100,000 x (1,000 - 800)/1,000] __20,000

Consolidated 5,596,000

34. bCost of Sales

Bates Company 690,000Sam Company 195,000Total 885,000Less: Intercompany sales 200,000

Realized profit in BI of Bates Co.[P40,000 x 20%] 8,000

Add: Unrealized profit in EI of Bates Co.[P15,000 x 20%] __3,000

Consolidated 680,000

35. bParent Subsidiary

Net Income from own operations:X-Beams (parent) Kent (subsidiary), 70%:30% 210,000 90,000

Unrealized Profit in EI of Parent (X-Beams):P180,000x 20% = P36,000 x (180-100/180) = P16,000,

70%:30% ( 11,200) ( 4,800)Non-controlling Interest in Kent’s Net Income 85,200

36. dNon-controlling Interest in Net Income (NCINI) for 20x5 20x6

S Company’s net income of Subsidiary Company from its own operations(Reported net income of S Company) P 400,000 P 480,000

Realized profit in beginning inventory of P Company (upstream sales) 20,000Unrealized profit in ending inventory of P Company (upstream sales) ( 20,000) 0

S Company’s realized net income from separate operations……… P 380,000 P 500,000

Less: Amortization of allocated excess 0 0P380,000 P500,000

Multiplied by: Non-controlling interest %.......... 20% 20%Non-controlling Interest in Net Income (NCINI) – partial goodwill P 76,000 P100,000Less: NCI on goodwill impairment loss on full goodwill 0 0Non-controlling Interest in Net Income (NCINI) – full goodwill P 76,000 P100,000

37. a**Non-controlling Interest in Net Income (NCINI) for 20x6

S Company’s net income of Subsidiary Company from its own operations(Reported net income of S Company) P 0

Realized profit in beginning inventory of P Company (upstream sales) 0Unrealized profit in ending inventory of P Company (upstream sales)

(P100,000 x 10% = P10,000 x 30%) ( 3,000)S Company’s realized net income from separate operations……… P( 3,000)

Less: Amortization of allocated excess 0P( 3,000)

Multiplied by: Non-controlling interest %.......... 10%Non-controlling Interest in GP P( 300)Less: NCI on goodwill impairment loss on full goodwill 0Non-controlling Interest in GP P( 300)

38. a39. a Selling price P 60,000

Less: Cost of sales ( 48,000 )Unrealized profit 12,000Unsold fraction 1/3Credit to Inventory P 4,000

40. a – the cost from parent of P48,000 x 45/60 = P36,000Parent Subsidiary 1 Subsidiary 2

Sales 60,000 60,000 67,000Less: Cost of goods sold – P and S1 48,000 60,000

Subsidiary (60,000 x 45/60) ______ ______ 45,000Gross profit 12,000 0 22,000Ending inventory (60,000 x 15/60) 15,000

41. b – the cost from parent of P48,000 x 15/60 = P12,00042. a

Sales Cost of SalesIntercompany

Parent 60,000 60,000Subsidiary 1 60,000 45,000

Add: Cost of EI in S2 Co.[P15,000 x (48/60] ________ __12,000

Amount to be eliminated 120,000 *117,000*or, P60,000 + P60,000 – [P15,000 x (60-48/60]

43. b – refer to No. 42 for computation44. d – P15,000 x [(60-48)/60] = P3,00045. a


P Company’s realized net income from separate operations*…….….. P225,000S Company’s net income from own operations P150,000

Realized profit in beginning inventory of P Company (upstream sales) 0Unrealized profit in ending inventory of P Company (upstream sales)

[P105,000 x 20/120) ( 17,500 )S Company’s realized net income from separate operations*…….….. P132,500 132,500

Total P 357,500Less: Amortization of allocated excess…………………… _ 0Consolidated Net Income for 20x3 P357,500

46. cConsolidated Net Income for 20x4

P Company’s net income from own/separate operations P360,000Realized profit in beginning inventory of S Company (downstream sales) 0Unrealized profit in ending inventory of S Company (downstream sales)… (_ 0)

P Company’s realized net income from separate operations*…….….. P360,000S Company’s net income from own operations P135,000Realized profit in beginning inventory of P Company (upstream sales)

[P105,000 x 20/120) 17,500Unrealized profit in ending inventory of P Company (upstream sales)


Total P 486,250Less: Amortization of allocated excess…………………… _ 0Consolidated Net Income for 20x4 P486,250Less: Non-controlling Interest in Net Income* * 1,610Controlling Interest in Consolidated Net Income or Profit attributable to



P Company’s net income from own/separate operations P360,000Realized profit in beginning inventory of S Company (downstream sales) 0Unrealized profit in ending inventory of S Company (downstream sales)… (_ 0)

P Company’s realized net income from separate operations*…….….. P360,000S Company’s net income from own operations ( P135,000Realized profit in beginning inventory of P Company (upstream sales)





equity holders of parent………….. P 448,375Add: Non-controlling Interest in Net Income (NCINI) _37,875Consolidated Net Income for 20x4 P 486,250





P126,250Multiplied by: Non-controlling interest %.......... 30%Non-controlling Interest in Net Income (NCINI) – partial goodwill P 37,875Less: NCI on goodwill impairment loss on full goodwill 0Non-controlling Interest in Net Income (NCINI) – full goodwill P 37,875

47. a – refer to No. 46 for computation.48. d

Consolidated Net Income for 20x5P Company’s net income from own/separate operations P 450,000





Total P 686,250Less: Amortization of allocated excess…………………… _ 0Consolidated Net Income for 20x4 P686,750Less: Non-controlling Interest in Net Income* * 70,875Controlling Interest in Consolidated Net Income or Profit attributable to



P Company’s net income from own/separate operations P 450,000Realized profit in beginning inventory of S Company (downstream sales) 0Unrealized profit in ending inventory of S Company (downstream sales)… (_ 0)






equity holders of parent………….. P 615,375Add: Non-controlling Interest in Net Income (NCINI) __70,875Consolidated Net Income for 20x5 P 686,250





P 236,250Multiplied by: Non-controlling interest %.......... 30%Non-controlling Interest in Net Income (NCINI) – partial goodwill P 70.875Less: NCI on goodwill impairment loss on full goodwill 0Non-controlling Interest in Net Income (NCINI) – full goodwill P 70,875

49. a – refer to No. 48 for computation.50. d

SalesP Company 420,000S Company 280,000Total 700,000Less: Intercompany sales 140,000Consolidated 560,000

51. bOperatingExpenses

P Company 28,000S Company 14,000Total 42,000Add: Undervalued equipment (P35,000/7 years) _5,000Consolidated 49,000

52. cCost of Sales

P Company 196,000S Company _112,000Total 308,000Less: Intercompany sales 140,000Add: Unrealized profit in EI of S Co.

[P140,000 x 60% = P84,000 x (140 - 112)/140] _16,800Consolidated 184,900

53. aNon-controlling interest (partial-goodwill), December 31, 20x4

Common stock – S Company, December 31, 20x4…… P 140,000Retained earnings – S Company, December 31, 20x4

Retained earnings – S Company, January 1, 20x4 P210,000Add: Net income of S for 20x4 154,000Total P364,000Less: Dividends paid – 20x4 0 364,000

Stockholders’ equity – S Company, December 31, 20x4 P 504,000Adjustments to reflect fair value - (over) undervaluation of assets and


20x5 (P35,000/7 years) ( 5,000)Fair value of stockholders’ equity of S, December 31, 20x5…… P 534,000Multiplied by: Non-controlling Interest percentage…………... 20Non-controlling interest (partial goodwill)………………………………….. P 106,800Add: NCI on full-goodwill (P70,000 – P56,000) 14,000Non-controlling interest (full- goodwill)………………………………….. P 120,800

Partial-goodwillFair value of Subsidiary (80%)

Consideration transferred……………………………….. P 364,000Less: Book value of stockholders’ equity of S:

Common stock (P140,000 x 80%)……………………. P 112,000Retained earnings (P210,000 x 80%)………………... 168,000 280,000


Increase in equipment (P35,000 x 80%) ___28,000Positive excess: Partial-goodwill (excess of cost over

fair value)………………………………………………... P 56,000

Full-goodwillFair value of Subsidiary (100%)

Consideration transferred: Cash (P364,000/80%) P 455,000Less: Book value of stockholders’ equity of S (P350,000 x 100%) __350,000Allocated excess (excess of cost over book value)….. P 105,000Add (deduct): (Over) under valuation of assets and liabilities

Increase in equipment P35,000 x 100% 35,000Positive excess: Full-goodwill (excess of cost over

fair value)………………………………………………... P 70,000

54. dEquipment

P Company 616,000S Company 420,000Total 1,036,000Add: Undervalued equipment 35,000Less: Depreciation on undervalued equipment (P35,000/7 years) 7,000Consolidated 1,064,000

55. dInventory

P Company 210,000S Company 154,000Total 364,000Less: Unrealized profit in EI: [P140,000 x 60% = P84,000 x (140 - 112)/140] 16,800Consolidated 347,200

56. d Add the two book values and remove P100,000 intercompany transfers.

57. c Intercompany gross profit (P100,000 - P80,000) ................................................... P20,000Inventory remaining at year's end ......................................................................... 60%Unrealized intercompany gross profit ................................................................... P12,000

CONSOLIDATED COST OF GOODS SOLDParent balance ................................................................................................... P140,000Subsidiary balance ............................................................................................. 80,000Remove intercompany transfer ...................................................................... (100,000)Defer unrealized gross profit (above) ............................................................. 12,000

Cost of goods sold .................................................................................................... P132,000

58. c Consideration transferred .............................................. P260,000Non-controlling interest fair value .................................. 65,000SZ total fair value ............................................................... P325,000Book value of net assets .................................................. (250,000)Excess fair over book value P75,000

Annual ExcessLife Amortizations

Excess fair value assigned to undervalued assets:Equipment.................................................................... 25,000 5 years P5,000Secret Formulas .......................................................... 50,000 20 years 2,500

Total ................................................................................. P -0- P7,500

Consolidated Expenses = P37,500 (add the two book values and include current yearamortization expense)

59. aNon-controlling interest (partial-goodwill), December 31, 20x4

Common stock – S Company, December 31, 20x4…… P 100,000Retained earnings – S Company, December 31, 20x4

Retained earnings – S Company, January 1, 20x4 P150,000Add: Net income of S for 20x4 110,000Total P260,000Less: Dividends paid – 20x4 0 260,000

Stockholders’ equity – S Company, December 31, 20x4 P 360,000Adjustments to reflect fair value - (over) undervaluation of assets and

liabilities, date of acquisition (January 1, 20x4) 75,000

Amortization of allocated excess (refer to amortization above) : ( 7,500)Fair value of stockholders’ equity of S, December 31, 20x5…… P 427,500Multiplied by: Non-controlling Interest percentage…………... 20Non-controlling interest (partial goodwill)………………………………….. P 85,500Add: NCI on full-goodwill ( ________0Non-controlling interest (full- goodwill)………………………………….. P 85,500


Consideration transferred……………………………….. P 260,000Less: Book value of stockholders’ equity of S:

Common stock (P100,000 x 80%)……………………. P 80,000Retained earnings (P150,000 x 80%)………………... 120,000 200,000


Increase in equipment (P25,000 x 80%) 20,000Increase in secret formulas: P50,000 x 80% 40,000


Consideration transferred: Cash (80%) P 260,000FV of NCI (20%) ___65,000Fair value of Subsidiary (100%) P 325,000

Less: BV of stockholders’ equity of S (P100,000 + P150,000) x 100% __250,000Allocated excess (excess of cost over book value)….. P 75,000Add (deduct): (Over) under valuation of assets and liabilities

Increase in equipment P25,000 x 100% 25,000Increase in secret formulas: P50,000 x 100% P 50,000

Amortization:Equipment: P25,000 / 5 years = P 5,000Secret formulas: P50,000 / 20 years = 2,500Total amortization of allocated P 7,500

60. c Add the two book values plus the original allocation (P25,000) less one year of excessamortization expense (P5,000).

61. b Add the two book values less the ending unrealized gross profit of P12,000.Intercompany Gross profit (P100,000 – P80,000) ................................................. P20,000Inventory Remaining at Year's End ........................................................................ 60%Unrealized Intercompany Gross profit, 12/31 ...................................................... P12,000

62. b20x3 20x4 20x5

Share in net income20x3: P70,000 x 90% P 63,00020x4: P85,000 x 90% P 76,50020x5: P94,000 x 90% P 84,600

Less: Unrealized profit in ending inventory of P20x3: P1,200 x 25% = P300 x 90% ( 270) 27020x4: P4,000 x 25% = P1,000 x 90% ( 900) 90020x5: P3,000 x 25% = P750 x 90% ________ ________ __( 675)

Income from S P 62,730 P 75,870 P 84,825

It should be noted that PAS 27 allow the use of cost model in accounting for investment insubsidiary in the books of parent company but not the equity method.

63. c – refer to No. 62 for computation.

64. d – refer to No. 62 for computation.65. a

**Non-controlling Interest in Net Income (NCINI) for 20x3 20x4 20x5S Company’s net income of Subsidiary Company from its

own operations (Reported net income of S Company) P 70,000 P 85,000 P 94,000RPBI of P Company (upstream sales) 0 300 1,000UPEI of P Company (upstream sales) ( 300) ( 1,000) ( 750)

S Company’s realized net income from separate operations P 69,700 P 84,300 P 94,250Less: Amortization of allocated excess 0 0 0

P 69,700 P 84,300 P 94,250Multiplied by: Non-controlling interest %.......... 10% 10% 10%Non-controlling Interest in Net Income (NCINI) – partial goodwill P 6,970 P 8,430 P 9,425Less: NCI on goodwill impairment loss on full goodwill 0 0 0Non-controlling Interest in Net Income (NCINI) – full goodwill P 6,970 P 8,430 P 9,425

66. c – refer to No. 65 for computation.67. c – refer to No. 65 for computation.68. a – refer to No. 65 for computation.69. a – refer to No. 65 for computation.70. b – refer to No. 65 for computation.71. a – none, since intercompany profit starts only at the end of 20x3.72. b – the amount of unrealized profit at the end of 20x3.73. c – the amount of unrealized profit at the end of 20x4.74. d P32,000 = (P200,000 + P140,000) – P308,00075. b P6,000 = (P26,000 + P19,000) – P39,00076. c P9,000 = Inventory held by Spin

(P32,000 x .375)P12,000

Unrealized profit on sale[(P30,000 + P25,000) – P52,000] (3,000)

Carrying cost of inventory forPower P 9,000

77. b .20 = P14,000 / [(Stockholders’ Equity P50,000)+(Patent P20,000)]

78 b 14 years = (P28,000 / [(28,000 - P20,000) / 4 years]79. c (P10,000 x 80%)80. c – the original cost81. d

Date of Acquisition (1/1/2010) Partial FullFair value of consideration given…………………P 340,000Less: Book value of SHE - Subsidiary):

(P150,000 + P230,000) x 80%..................... 304,000Allocated Excess.…………………………………….P 36,000Less: Over/Undervaluation of Assets & Liabilities

(P20,000 x 80%)…………………………….. 16,000Goodwill ………….…………………………………...P 20,000 / 80% P 25,000

Amortization of equipment: P20,000 / 10 years = P2,000

RPBI of S (downstream sales): P3,000 x 35%............................................... ....... P1,050RPBI of P (upstream sales): P2,500 (given)….................................................... 1,000UPEI of S (downstream sales):

Sales of Parent EI % EI of S GP% of ParentP60,000 x 30% = P18,000 x 25/125………………………………. 3,600

UPEI of P (upstream sales):Sales of Subsidiary EI % EI of P GP% of Subsidiary

P60,000 x 30% = P18,000 x 20%…………………………..…. 2,400

Consolidated Net Income for 20x5P Company’s net income from own/separate operations P 100,000Realized profit in beginning inventory of S Company (downstream sales) 1,050Unrealized profit in ending inventory of S Company (downstream sales)… (_ 3,600)

P Company’s realized net income from separate operations*…….….. P 97,450S Company’s net income from own operations P 30,000Realized profit in beginning inventory of P Company (upstream sales) 1,000Unrealized profit in ending inventory of P Company (upstream sales) ( ,2,400 )

S Company’s realized net income from separate operations*…….….. P28,600 28,600Total P 126,050Less: Amortization of allocated excess…………………… 2,000Consolidated Net Income for 20x4 P124,050Less: Non-controlling Interest in Net Income* * 5,320Controlling Interest in Consolidated Net Income or Profit attributable to



P Company’s net income from own/separate operations P 100,000Realized profit in beginning inventory of S Company (downstream sales) 1,050Unrealized profit in ending inventory of S Company (downstream sales)… (_ 3,600)

P Company’s realized net income from separate operations*…….….. P 97,450S Company’s net income from own operations P 30,000Realized profit in beginning inventory of P Company (upstream sales) 1,000Unrealized profit in ending inventory of P Company (upstream sales) ( 2,400 )



equity holders of parent………….. P118,730Add: Non-controlling Interest in Net Income (NCINI) __ 5,320Consolidated Net Income for 2012 P124,050






82. b – refer to No. 8183. a – P124,050 – refer to No. 8184. b – refer to No. 8685. c – refer to No. 8686. a

Non-controlling Interests (in net assets):Common stock - S, 12/31/20x2.…………..….…………………………….. P 150,000

Retained earnings - S, 12/31/20x2:RE- S, 1/1/20x2…………….……………………………………………….P300,000+: NI-S…………………………………………………………………………. 30,000-: Div – S……………………………………………………………………… 10,000 320,000

Book value of Stockholders’ equity, 12/31/20x2……..………………..... P 470,000Adjustments to reflect fair value of net assets

Increase in equipment, 1/1/20x0 .………………………….. 20,000Accumulated amortization (P2,000 x 3 years)………………………….... ( 6,000)Fair Value of Net Assets/SHE, 12/31/20x2…………………………………. P 484,000UPEI of P (up)…………………………………………………………………… ( 2,400)Realized SHE – S,12/31/20x2…………………………………………………. P 481,600x: NCI %.................................................................................... ...................... _ 20%Non-controlling Interest (in net assets) - partial………………………….. P 96,320+: NCI on full goodwill (25,000 – 20,000)………………………….. 5,000Non-controlling Interest (in net assets) – full…………………………….... P 101,320

87. d – refer to No. 8888. d

Note: Preferred solution - since what is given is the RE – P, 1/1/20x2 (beginningbalance of the current year) -

Retained earnings – Parent, 1/1/20x2 (cost)…………………………… P 700,000-: UPEI of S (down) – 20x1 or RPBI of S (down) – 20x2..…………. 1,050Adjusted Retained earnings – Parent, 1/1/20x2 (cost)……………… P 698,950Retroactive Adjustments to convert Cost to “Equity” for


Retained earnings – Subsidiary, 1/1/20x0……………………….P 230,000Less: Retained earnings – Subsidiary, 1/1/20x2……………… 300,000Increase in Retained earnings since acquisition

(cumulative net income – cumulative dividends)…………P 70,000Accumulated amortization (1/1/20x0 – 1/1/20x2):

P 2,000 x 2 years…………………………………………………( 4,000)UPEI of P (up) – 20x1 or RPBI of P (up) – 20x2………………......( 1,000)

P 65,000X: Controlling Interests………………………………………….........____80% 52,000

RE – P, 1/1/2012 (equity method) = CRE, 1/1/20x2…………………..... P750,950

+: CI – CNI or Profit Attributable to Equity Holders of Parent…….. 118,730-: Dividends – P……………………………………………………………… 60,000RE – P, 12/31/20x2 (equity method) = CRE, 12/31/20x2…………...... P809,680

Or, if RE – P is not given on January 1, 20x2, then RE – P on December 31, 2012 should be use:Retained earnings – Parent, 12/31/20x2 (cost):

(P700,000 + P108,000 – P60,000)………..…………………………… P 748,000-: UPEI of S (down) – 20x2 or RPBI of S (down) – 20x3..…………. 3,600Adjusted Retained earnings – Parent, 1/1/20x2 (cost)……………… P 744,400Retroactive Adjustments to convert Cost to “Equity” for


Retained earnings – Subsidiary, 1/1/20x0……………………….P 230,000Less: Retained earnings – Subsidiary, 12/31/20x2

(P300,000 + P20,000 – P10,000)………………………..... 320,000Increase in Retained earnings since acquisition

(cumulative net income – cumulative dividends)…………P 90,000Accumulated amortization (1/1/20x0 – 12/31/20x2):

P 2,000 x 3 years……………………………………………… ( 6,000)UPEI of P (up) – 20x2 or RPBI of P (up) – 20x3……………….. ( 2,400)

P 81,600X: Controlling Interests……………………………………………… . 80% 65,280

RE – P, 12/31/20x2 (equity method) = CRE, 12/31/20x2…………. P809,680

89. bConsolidated Stockholders’ Equity, 12/31/20x2:

Controlling Interest / Parent’s Interest / Parent’s Portion /Equity Holders of Parent – SHE, 12/31/20x2:

Common stock – P (P only)…………………………………………….. P1,000,000Retained Earnings – P (equity method), 12/31/20x2………….. 809,680Controlling Interest / Parent’s Stockholders’ Equity……………. P1,809,680

Non-controlling interest, 12/31/20x2 (partial)…………………………. 96,320Consolidated Stockholders’ Equity, 12/31/20x2………………………… P1,906,000

90. aConsolidated Stockholders’ Equity, 12/31/20x2:

Controlling Interest / Parent’s Interest / Parent’s Portion /Equity Holders of Parent – SHE, 12/31/20x2:

Common stock – P (P only)…………………………………………….. P1,000,000Retained Earnings – P (equity method), 12/31/20x2………….. 809,680Controlling Interest / Parent’s Stockholders’ Equity……………. P1,809,680

Non-controlling interest, 12/31/20x2 (full)……..………………………. 101,320Consolidated Stockholders’ Equity, 12/31/20x2………………………… P1,911,000

91. cNon-controlling interest , December 31, 20x1

Common stock – Subsidiary Company, December 31, 20x1…… P 10,000Retained earnings – Subsidiary Company, December 31, 20x1 8,600Stockholders’ equity – Subsidiary Company, December 31, 20x4 P 18,600Adjustments to reflect fair value - (over) undervaluation of assets and

liabilities, date of acquisition (January 1, 20x4) 0Amortization of allocated excess (refer to amortization above) – 20x4 ( 0)Fair value of stockholders’ equity of subsidiary, December 31, 20x4…… P 18,600Less: Unrealized profit in ending inventory of P Company (upstream sales)

P3,000 x 40% 1,200Realized stockholders’ equity of subsidiary, December 31, 20x4…… P 17,400Multiplied by: Non-controlling Interest percentage…………... 20Non-controlling interest. December 31, 20x1 ………………………………….. P 3,480

92. aRealized profit in BI of Bates Co. [P40,000 x 20%] P 8,000Unrealized profit in EI of Bates Co. [P15,000 x 20%] __3,000Net realized profit in intercompany sales of inventory P 5,000Multiplied by: NCI% ___40%NCI share in net realized profit P 2,000

93. cRPBI of P (upstream sales)……..………………………..………………………… 45,000UPEI of P (upstream sales):

EI of Paque GP% of SubsidiaryP75,000 x 20%...................................………………………..…. 15,000

Consolidated Net Income for 20x5P Company’s net income from own/separate operations (P103,500 – P54,000) P 49,500Realized profit in beginning inventory of S Company (downstream sales) 0Unrealized profit in ending inventory of S Company (downstream sales)… (_ 0)


S Company’s realized net income from separate operations*…….….. P 101,250 101,250Total P 150,750Less: Amortization of allocated excess…………………… ____0

Consolidated Net Income for 20x4 P150,750Less: Non-controlling Interest in Net Income* * 10,125Controlling Interest in Consolidated Net Income or Profit attributable to






Amortization of allocated excess…………………… ___0 10,125Controlling Interest in Consolidated Net Income or Profit attributable to

equity holders of parent………….. P140,625Add: Non-controlling Interest in Net Income (NCINI) __ 10,125Consolidated Net Income for 2012 P150,750




S Company’s realized net income from separate operations……… P 101,250Less: Amortization of allocated excess _0


(Not required)Analysis of workpaper entries(1) Investment in Segal (0.90 (P180,000 – P150,000)) 27,000

Beginning Retained Earnings-Paque Co. 27,000To establish reciprocity as of 1/1/20x8

(2) Sales 300,000Purchases (Cost of Goods Sold) 300,000

To eliminate intercompany sales

(3) Ending Inventory - Income Statement (CGS) 15,000Ending Inventory (Balance Sheet) 15,000

To eliminate unrealized intercompany profit in ending inventory (P75,000 0.20)

(4) Beginning Retained Earnings - Paque Co. (P45,000 0.90) 40,500Non-controlling Interest P45,000 0.10) 4,500

Beginning Inventory (Income statement) 45,000To recognize intercompany profit realized during the year and to reducecontrolling and non-controlling interests for their share of unrealized profitat beginning of year

(5) Dividend Income (P60,000 0.90) 54,000Dividends Declared 54,000

To eliminate intercompany dividends

(6) Beginning Retained Earnings- Segal Co. 180,000Common Stock - Segal Company 750,000

Investment in Segal Company (P810,000 + P27,000) 837,000Non-controlling Interest (P750,000 + P180,000) x .10 93,000

To eliminate investment account and create non-controlling interest account

94. cPreferred Solution - since what is given is the RE – P, 1/1/20x8 -

Retained earnings – Parent, 1/1/20x8 (cost)…………………….. P 598,400-: UPEI of S (down) – 20x7 or RPBI of S (down) – 20x8..…………. 25,000Adjusted Retained earnings – Parent, 1/1/20x8 (cost)……………… P 573.400Retroactive Adjustments to convert Cost to “Equity” for


Retained earnings – Subsidiary, 1/1/20x4……………………P 95,000Less: Retained earnings – Subsidiary, 1/1/20x8…………….. 144,000Increase in Retained earnings since acquisition

(cumulative net income – cumulative dividends)………P 49,000Accumulated amortization (1/1/20x4 – 1/1/20x8)…………. 0UPEI of P (up) – 20x7 or RPBI of P (up) – 20x8………………... ( 0)

P 49,000X: Controlling Interests…………………………………………… 90% 44,100

RE – P, 1/1/20x8 (equity method) = CRE, 1/1/20x8……………….. P 617,500+: CI – CNI or Profit Attributable to Equity Holders of Parent…… 203,700-: Dividends – P………………………..………………………………… 110,000RE – P, 12/31/2014 (equity method) = CRE, 12/31/2014………….. P 711,200

Consolidated Net Income for 20x8P Company’s net income from own/separate operations P132,000Realized profit in beginning inventory of S Company (downstream sales) 25,000Unrealized profit in ending inventory of S Company (downstream sales)… (10,000)

P Company’s realized net income from separate operations*…….….. P147,000S Company’s net income from own operations…………………………………. P 63,000Realized profit in beginning inventory of P Company (upstream sales) 0Unrealized profit in ending inventory of P Company (upstream sales) ( 0)

S Company’s realized net income from separate operations*…….….. P 63,000 63,000Total P210,000Less: Amortization of allocated excess…………………… 0Consolidated Net Income for 20x8 P210,000Less: Non-controlling Interest in Net Income* * 6,300Controlling Interest in Consolidated Net Income or Profit attributable to



P Company’s net income from own/separate operations P132,000Realized profit in beginning inventory of S Company (downstream sales) 25,000Unrealized profit in ending inventory of S Company (downstream sales)… (10,000)

P Company’s realized net income from separate operations*…….….. P147,000S Company’s net income from own operations…………………………………. P 63,000Realized profit in beginning inventory of P Company (upstream sales) 0Unrealized profit in ending inventory of P Company (upstream sales) ( 0)


Amortization of allocated excess…………………… _____0 6,300Controlling Interest in Consolidated Net Income or Profit attributable to





Realized profit in beginning inventory of P Company (upstream sales) 0Unrealized profit in ending inventory of P Company (upstream sales) ( 0)



Amortization of equipment: P20,000 / 10 years = P2,000RPBI of Sedbrock (downstream sales) – 20x8......................................................... P25,000UPEI of Sedbrock (downstream sales) – 20x8: P60,000 x 20%/120%……..……… 10,000

Net income:Pruitt Co. Sedbrook

Sales P1,210,000 P 636,000Less: Cost of goods sold

Inventory, 1/1 165,000 132,000Purchases 935,000 420,000Inventory, 12/31 (220,000) __880,000 (144,000) __408,000

Gross profit P 330,000 P 228,000Less: Other expense 198,000 165,000Net income from its own

separate operations P 132,000 P 63,000Add: Dividend income 31,500 -Net income P 163,500 P 63,000Dividends declared P 110,000 P 35,000

Or, alternatively(compute the RE-P end of the year under the cost model)Retained earnings – Parent, 1/1/20x8 (cost)………………………….. P 598,400Add: NI of Parent as reported – 20x8 under cost model…………… 163,500Less: Dividend of Parent – 20x8………………………………………….. 110,000Retained earnings – Parent, 12/31/20x8 (cost)……………………….. P 651,900-: UPEI of S (down) – 20x8 or RPBI of S (down) – 20x9..……………….. 10,000Adjusted Retained earnings – Parent, 12/31/20x8 (cost model)….. P 641,900Retroactive Adjustments to convert Cost to “Equity” for


Retained earnings – Subsidiary, 1/1/20x4………… P 95,000Less: Retained earnings – Subsidiary, 12/31/20x8

Retained earnings – Subsidiary , 1/1/20x8..… P144,000Add: NI of Subsidiary – 20x8…………………… 63,000Less: Dividend of Subsidiary – 20x8…………... 35,000 172,000

Increase in Retained earnings since acquisition(cumulative net income – cumulative dividends)………… P 97,000

Accumulated amortization (1/1/20x4 – 12/31/20x8)…………..( 0)UPEI of P (up) – 20x8 or RPBI of P (up) – 20x9………………........ ( 0)

P 97,000x: Controlling Interests………………………………………… 90% 69,300

RE – P, 12/31/20x8 (equity method) = CRE, 12/31/20x8……… P 711,200

(Not required)

Analysis of workpaper entries(1) Investment in Sedbrook Company (0.90(P144,000 – P95,000)) 44,100

Beginning Retained Earnings - Pruitt Co. 44,100To establish reciprocity/convert to equity as of 1/1/x8


To eliminate intercompany sales

(3) Ending Inventory - Income Statement (CGS) 10,000Ending Inventory (Balance Sheet) 10,000

To eliminate unrealized intercompany profit in endinginventory (P60,000 – (P60,000/1.2)

(4) Beginning Retained Earnings - Pruitt Co. 25,000Beginning Inventory (Income Statement) 25,000

To recognize intercompany profit in beginning inventoryrealized during the year

(5) Dividend Income (P35,000.90) 31,500Dividends Declared 31,500

To eliminate intercompany dividends

(6) Beginning Retained Earnings - Sedbrook Co. 144,000Common Stock - Sedbrook Co. 600,000

Investment in Sedbrook Co.(P625,500 + P44,100) 669,600Non-controlling Interest (P744,000 x .10) 74,400

To eliminate investment account and create non-controlling interest account

95. P941,000.Additional information and correction:

In 20x4, Simon Company reported net income of P270,000 and declared dividends of P90,000.Paul Company reported net income from independent operations in 20x4 in the amount ofP700,000 and retained earnings on December 31, 20x4, of P1,500,000.

Fair value of consideration given…………………P1,360,000Less: Book value of SHE - Subsidiary):

(P1,000,000 + P450,000) x 80%................... 1,160,000Allocated Excess.…………………………………….P 200,000Less: Over/Undervaluation of Assets & Liabilities

Increase in franchise (P250,000 x 80%)…….. 200,000 / 80% = P250,000P 0

Amortization of equipment: P250,000 / 25 years = P10,000

RPBI of S (downstream sales):…………………........................................................ P30,000RPBI of P (upstream sales)………………………....................................................... 20,000UPEI of S (downstream sales)……………………………………………………..……. 5,000UPEI of P (upstream sales)………………………………………………….…………… 10,000

Consolidated Net Income for 20x4P Company’s net income from own/separate operations P700,000Realized profit in beginning inventory of S Company (downstream sales) 30,000Unrealized profit in ending inventory of S Company (downstream sales)… ( 5,000)

P Company’s realized net income from separate operations*…….….. P725,000S Company’s net income from own operations…………………………………. P270,000Realized profit in beginning inventory of P Company (upstream sales) 20,000Unrealized profit in ending inventory of P Company (upstream sales) ( 10,000)

S Company’s realized net income from separate operations*…….….. P280,000 280,000Total P1,005,000

Less: Amortization of allocated excess…………………… 10,000Consolidated Net Income for 20x4 P 995,000Less: Non-controlling Interest in Net Income* * 54,000Controlling Interest in Consolidated Net Income or Profit attributable to


Or, alternativelyConsolidated Net Income for 2014

P Company’s net income from own/separate operations P700,000Realized profit in beginning inventory of S Company (downstream sales) 30,000Unrealized profit in ending inventory of S Company (downstream sales)… ( 5,000)

P Company’s realized net income from separate operations*…….….. P725,000S Company’s net income from own operations…………………………………. P270,000Realized profit in beginning inventory of P Company (upstream sales) 20,000Unrealized profit in ending inventory of P Company (upstream sales) ( 10,000)



equity holders of parent………….. P 941,000Add: Non-controlling Interest in Net Income (NCINI) __ _ 54,000Consolidated Net Income for 2014 P 995,000



(Reported net income of S Company)P270,000


S Company’s realized net income from separate operations……… P280,000Less: Amortization of allocated excess 10,000


(Not required)Analysis of workpaper entries


To eliminate intercompany sales (P50,000 + P70,000)

(2) Ending Inventory – Income Statement (CGS) 15,000Inventory (Balance Sheet) 15,000

To eliminate unrealized profit in ending inventories(P10,000 + P5,000)

(3) Beginning Retained Earnings – Paul Company (P20,000 0.8) 16,000Non-controlling Interest 4,000

Beginning Inventory – Income Statement (CGS) 20,000To recognize profit in beginning inventory (upstream sales)realized during year and to reduce the controlling and

noncontrolling interests for their shares of the amount ofunrealized upstream intercompany profit at beginning of year

(4) Beginning Retained Earnings – Paul Company. 30,000Beginning Inventory – Income Statement (CoGS) 30,000

To recognize profit in beginning inventory (downstream sales)realized during the year and to reduce consolidated retained

earnings at beginning of the year for the amount of unrealizeddownstream intercompany profit at the beginning of the year

96. P1,863,000

Retained earnings – Parent, 12/31/20x4 (cost)……………………….. P 1,500,000-: UPEI of S (down) – 20x4 or RPBI of S (down) – 20x5..……………….. 5,000Adjusted Retained earnings – Parent, 12/31/20x4 (cost model)….. P 1,495,000Retroactive Adjustments to convert Cost to “Equity” for


Retained earnings – Subsidiary, 1/1/20x1……………………….P 450,000Less: Retained earnings – Subsidiary, 12/31/20x4……………… 960,000Increase in Retained earnings since acquisition

(cumulative net income – cumulative dividends)………… P 510,000Accumulated amortization (1/1/20x1 – 12/31/20x4)…………..( 40,000)UPEI of P (up) – 20x4 or RPBI of P (up) – 20x5………………........ ( 10,000)


RE – P, 12/31/20x4 (equity method) = CRE, 12/31/20x4……… P1,863,000

97. P54,000 – refer to No. 95 for computation98. a


Consideration transferred: Cash (P7,500,000/80%) P9,375,000Less: Book value of stockholders’ equity of S (P6,000,000 x 100%) _6,000,000Allocated excess (excess of cost over book value)….. P3,375,000Add (deduct): (Over) under valuation of assets and liabilities

Decrease in inventory: P(150,000 x 100%)Increase in building: P450,000 x 100%

P( 150,000)___450,000 ___300,000

Positive excess: Full-goodwill (excess of cost overfair value)………………………………………………... P3,075,000


Consideration transferred……………………………….. P7,500,000Less: Book value of stockholders’ equity of S:

Common stock (P1,000,000 x 80%)……………………. P 800,000Retained earnings (P5,000,000 x 80%)………………... 4,000,000 4,800,000

Allocated excess (excess of cost over book value)….. P2,700,000Less: Over/under valuation of assets and liabilities:Add (deduct): (Over) under valuation of assets and liabilities


P( 120,000)___360,000 240,000

Positive excess: Partial-goodwill (excess of cost overfair value)………………………………………………... P2,460,000

Amortization schedule

Balance at Remainingacquisition Amortization Amortization atDec. 31/X2 20X3 20X4 Dec.31/X4

Inventory P(150,000) P(150,000) 0 P 0Building (15 years) 450,000 30,000 P30,000 390,000Goodwill 3,075,000 _________0 ______0 3,075,000Total P3,375,000 P(120,000) P30,000 P3,465,000

99. aNon-controlling interest is 20% × 9,375,000 (fair value of subsidiary, 12/31/20x2) = P1,875,000

Or, alternatively:

Non-controlling interest, December 31, 20x2Common stock – S Company, December 31, 20x2…… P1,000,000Retained earnings – S Company, December 31, 20x2 5,000,000Stockholders’ equity – S Company, December 31, 20x2 P6,000,000Adjustments to reflect fair value - (over) undervaluation of assets and

liabilities, date of acquisition (December 31, 20x2) ___300,000Fair value of stockholders’ equity of S, December 31, 20x2…… P6,300,000Multiplied by: Non-controlling Interest percentage…………... 20Non-controlling interest (partial goodwill)………………………………….. P 1,260,000Add: NCI on full-goodwill (P3,075,000 – P2,460,000) ___615,000Non-controlling interest (full- goodwill)………………………………….. P1,875,000

100. d – P2,393,800Non-controlling interest , December 31, 20x4

Common stock – S Company, December 31, 20x4 P1,000,000Retained earnings – S Company, December 31, 20x4 7,524,000Stockholders’ equity – S Company, December 31, 20x4 P8,524,000Adjustments to reflect fair value - (over) undervaluation of assets and

liabilities, date of acquisition (December 31, 20x2) 300,000Amortization of allocated excess (refer to amortization above- 20x3 and 20x4: __90,000Fair value of stockholders’ equity of S, December 31, 20x4…… P8,914,000Less: UPEI of P (up) – 20x3 or RPBI of P (up) – 20x4 ____20,000

P8,894,000Multiplied by: Non-controlling Interest percentage…………... _ 20Non-controlling interest (partial goodwill)………………………………….. P1,778,800Add: NCI on full-goodwill ___615,000Non-controlling interest (full- goodwill)………………………………….. P2,393,800

RPBI of P (upstream sales):Sales of Subsidiary EI % EI of P GP% of Subsidiary

P100,000 x 60% = P60,000 x 50,000/100,000………………………..…. 30,000

UPEI of P (upstream sales): (given)………………………………………………………. 20,000

Or, alternatively:Balance of NCI on acquisition — December 31, 20x2 P1,875,000Add: NCI's share of the adjusted change in retained earnings to 12/ 31/20x4

Jane's retained earnings, December 31, 20x4 P7,524,000Jane's retained earnings at December 31, 20x2 ( 5,000,000)Change in carrying value P2,524,000Adjustments:

Amortization of fair value increments to date 90,000Unrealized upstream profit — 20x4 ( 20,000)

djusted change in retained earnings of Jane since acquisition P2,594,000Multiplied by: NCI's share at 20% 518,800

Ending balance of NCI on December 31, 20x4 P2,393,800101. b

Retained earnings – Parent, 12/31/20x4 (cost)……………………….. P11,900,000-: UPEI of S (down) – 20x4 or RPBI of S (down) – 20x5..……………….. 0Adjusted Retained earnings – Parent, 12/31/20x4 (cost model)….. P11,900,000Retroactive Adjustments to convert Cost to “Equity” for


Retained earnings – Subsidiary, 12/31/20x2…………………..P5,000,000Less: Retained earnings – Subsidiary, 12/31/20x4…………… 7,524,000Increase in Retained earnings since acquisition

(cumulative net income – cumulative dividends)……….P2,524,000Accumulated amortization (1/1/20x1 – 12/31/20x4)……….. 90,000UPEI of P (up) – 20x4 or RPBI of P (up) – 20x5……………….....( 20,000)

P2,594,000x: Controlling Interests………………………………………… 80% 2,075,200

RE – P, 12/31/20x4 (equity method) = CRE, 12/31/20x4……… P13,975,200102. b - (P125,000 - P93,000) .8 = P25,600103. c - (P125,000 - P93,000) .2 = P6,400104. d105. a - (P125,000 - P93,000) .7106. c - (P125,000 - P93,000) .3107. a - [P293,000 + (P125,000 - P93,000) .7] .2 = P63,080108. d

Non-controlling Interest in Net Income (NCINI) for 20x4:S Company’s net income of Subsidiary Company from its own operations


S Company’s realized net income from separate operations……… P 152,000Less: Amortization of allocated excess _ 0


109. b Combined cost of sales P 160,000Less: Intercompany sales revenue 110,000Add: Unrealized profit taken out of inventory

(75%)x(35,000) = 26,250Consolidated cost of sales P 76,250

110. a(P115,000 x 70%) - P26,250 = P 54,250

The requirement “P’s income from S” is a term normally used under the equity method, but, insome cases it may also refer to the term “dividend income” under the cost model depending onhow the problem was described and presented.

Since there are no data available to arrive at the dividend income under the cost model forreason that dividend declared or paid by subsidiary is not given, so the term “P’s income from S”may mean “Income from subsidiary” which is computed under the equity method,

It should be noted that PAS 27 allow the use of cost model in accounting for investment insubsidiary in the books of parent company but not the equity method.

111. a - P720,000 = P500,000 + P400,000 - P200,000 +P 20,000112. b

(P120,000 x 80%) – (P200,000 x 50% = P100,000 x 20% = P20,000) = P76,000113. d Downstream situation

S Company’s net income from own/separate operations P120,000x: NCI % 20%

P 24,000114. c

Share in net income (P120,000 x 60%) P72,000Less: Unrealized profit in ending inventory of S {P189,000 x 1/3 = P63,000 x (P189-135)/P189] __18,000Intercompany profit to be eliminated P54,000

115. bShare in net income (P200,000 x 60%) P120,000Less: Unrealized profit in ending inventory of S {P315,000 x 1/3 = P105,000 x (P315-P225)/P315] __30,000Intercompany profit to be eliminated P 90,000

Quiz - XVII1. Overstated by P320

It will be overstated by the amount of the NC interests’ share of the P1,600 of profit margin inthe P9,600 of materials carried over to 20x5 (20% x P1,600 = P320

2. P20,000 - Inventory remaining P100,000 × 50% = P50,000 Unrealized gross profit (based on LL'smarkup as the seller) P50,000 × 40% = P20,000. The ownership percentage has no impact onthis computation

3. (downstream sales) Sales, P1,400,000; Cost of Sales, P966,00Sales – Pot (parent) 1,120,000

- Skillet (subsidiary) 420,000Total 1,540,000Add(Deduct): Intercompany sales - down ( 140,000)Consolidated Sales 1,400,000

CGS – Pot (parent) 840,000- Skillet (subsidiary) 252,000

Total 1,092,000Add(Deduct): Intercompany sales - down ( 140,000)

Unrealized Profit inEnding Inventory ofSkillet (subsidiary)-downEI of Skillet :

Sales of Pot 140,000x: EI of Skillet 40%EI of Skillet 56,000X: GP of Pot

(1,120 – 840)1,120 25% 14,000

Consolidated CGS 966,000

4. (upstream sales) - P1,400,000; Cost of Sales, P974,400 (or – refer to Note)Note: The only change here from No. 3 is the markup percentage which would now be 40percent*


Total 1,092,000Add(Deduct): Intercompany sales - upstream ( 140,000)

Unrealized Profit inEnding Inventory ofPot (subsidiary)-upstreamEI of Pot:

Sales of Skillet 140,000x: EI of Pot 40%EI of Pot 56,000X: GP of Skillet

(420 – 252)420 40%* 22,400

Consolidated CGS (preferred answer) 974,400

Note: The problem is quite intriguing because of the statement “Pot had established thetransfer price base on its normal markup”. It should be noted that Parent Companyestablished the transfer price based on its normal price (in this case it is assumed that themark-up of the parent which is 25% is also the normal transfer price). So, if is assumed to beof the same markup with parent company, then the answer would be as follows:

Sales – Pot (parent) 1,120,000- Skillet (subsidiary) 420,000

Total 1,540,000

Add(Deduct): Intercompany sales - down ( 140,000)Consolidated Sales 1,400,000


Total 1,092,000Add(Deduct): Intercompany sales - down ( 140,000)

Unrealized Profit inEnding Inventory ofSkillet (subsidiary)-downEI of Skillet :

Sales of Pot 140,000x: EI of Skillet 40%EI of Skillet 56,000X: GP of Pot

(1,120 – 840)1,120 25% 14,000

Consolidated CGS 966,000

5. P522,500Grebe plus Swamp’s separate cost of goods sold =

P400,000 + P320,000 = P 720,000Less: Intercompany sales = 200,000Add: Profit +12,500 - 10,000 = ____2,500Consolidated COGS = P 522,500

6. P10,000Ending inventory of Grebe (1/2 x P100,000) P 50,000x: GP% of Parent (P100,000 – P80,00)/P100,000 20%Unrealized profit in ending inventory P 10,000

7. Sales, P1,000,000; Cost of Sales, P690,000Intercompany sales and purchases of P100,000 must be eliminated. Additionally, anunrealized gross profit of P10,000 must be removed from ending inventory based on a markupof 25 percent (P200,000 gross profit/P800,000 sales) which is multiplied by the P40,000 endingbalance. This deferral increases cost of goods sold because ending inventory is a negativecomponent of that computation. Thus, cost of goods sold for consolidation purposes isP690,000 (P600,000 + P180,000 – P100,000 + P10,000).

8. Sales, P1,000,000; Cost of Sales, P696,000 (refer to No. 4 above for further discussions)The only change here from No. 7 is the markup percentage which would now be 40 percent(P120,000 gross profit P300,000 sales). Thus, the unrealized gross profit to be deferred isP16,000 (P40,000 × 40%). Consequently, consolidated cost of goods sold is P696,000 (P600,000+ P180,000 – P100,000 + P16,000).

9. Sales, P2,907,000Sales Cost of Sales

P Company 2,250,000 1,800,000S Company 1,125,000 _937,500Total 3,375,000 2,737,500Less: Intercompany sales 468,000 468,000



Consolidated 2.907,000 2,276,700

10. Cost of sales, P2,276,700 - refer to No. 911. P380,000


P Company’s realized net income from separate operations*…….….. P300,000S Company’s net income from own operations P120,000

Realized profit in beginning inventory of P Company (upstream sales)Unrealized profit in ending inventory of P Company (upstream sales)

[P200,000 x 50% = P100,000 x (P40,000/P200,000)] ( 20,000 )S Company’s realized net income from separate operations*…….….. P100,000 100,000

Total P 400,000Less: Amortization of allocated excess…………………… _ 0Consolidated Net Income for 20x4 P 400,000Less: Non-controlling Interest in Net Income* * 20,000Controlling Interest in Consolidated Net Income or Profit attributable to






12. P20,000 – refer to No, 11 for computations.13. Sales, P2,907,000

Sales Cost of SalesP Company 2,250,000 1,800,000S Company 1,200,000 _1,000,000Total 3,450,000 2,800,000Less: Intercompany sales 468,000 468,000



Consolidated 2.982,000 2,339,200

14. Cost of sales, P2,339,200 - refer to No. 1315. P285,000

Consolidated Net Income for 20x4P Company’s net income from own/separate operations…………. P225,000Realized profit in beginning inventory of S Company (downstream sales) 0Unrealized profit in ending inventory of S Company (downstream sales)… (_ 0)

P Company’s realized net income from separate operations*…….….. P225,000S Company’s net income from own operations…………………………………. P 90,000Realized profit in beginning inventory of P Company (upstream sales) 0Unrealized profit in ending inventory of P Company (upstream sales)

[P150,000 x 50% = P75,000 x (30/150)] ( 15,000)S Company’s realized net income from separate operations*…….….. P 75,000 75,000

Total P300,000Less: Amortization of allocated excess…………………… 0Consolidated Net Income for 20x4 P300,000Less: Non-controlling Interest in Net Income* * 15,000Controlling Interest in Consolidated Net Income or Profit attributable to



P Company’s net income from own/separate operations…………. P225,000Realized profit in beginning inventory of S Company (downstream sales) 0Unrealized profit in ending inventory of S Company (downstream sales)… (_ 0)

P Company’s realized net income from separate operations*…….….. P225,000S Company’s net income from own operations…………………………………. P 90,000Realized profit in beginning inventory of P Company (upstream sales) 0Unrealized profit in ending inventory of P Company (upstream sales)… ( 15,000)







Realized profit in beginning inventory of P Company (upstream sales) 0Unrealized profit in ending inventory of P Company (upstream sales) ( 15,000)



16. P15,000 - refer to No. 15 for computation17. P25,000 x 125% = P31,250 intercompany sales and purchases (cost of sales)18. P25,000 x 125% = P31,250 intercompany sales and purchases (cost of sales)19. P86,000 - the amount of sales to outsiders or unaffiliated company20. P47,000 – the original cost (I,e., the cost to produced on the part of the seller – Blue

Company)21. P28,600

Total income (P86,000 - P47,000) P39,000Income assigned to noncontrolling

interest [.40(P86,000 - P60,000)] (10,400)Consolidated net income assigned

to controlling interest P28,600

22. P20,000 = P30,000 x [(P48,000 - P16,000) / P48,000]23. P47,000

Sales reported by Movie Productions Inc. P67,000Cost of goods sold (P30,000 x 2/3) (20,000)Consolidated net income P47,000

24. P7,000 = [(P67,000 - $32,000) x .20]25. P90,720

Parent SubsidiaryNet Income from own operations:

Gibson (Parent): Sparis(subsidiary), 90%:10% 820,800 91,200RPBI of Parent (upstream: 420,000 x 30% = 126,000;

126,000 x 25/125 = 25,200; 90%:10%UPEI of Parent (upstream): 500,000 x 30% = 150,000;

150,000 x 25/125 = 30,000; 90%:10%

22,680

(27,000)

2,520

( 3,000)Non-controlling Interest in Kent’s Net Income 90,720

26. P28,000 – P140,000 x 50% = P70,000 x 40% = P28,00027. P474,400

Unrealized Profit, 12/31/x4Intercompany Gross profit (P100,000 – P75,000) ................................................. P25,000Inventory Remaining at Year's End ........................................................................ 16%Unrealized Intercompany Gross profit, 12/31/x4 ................................................. P4,000

UNREALIZED GROSS PROFIT, 12/31/x5Intercompany Gross profit (P120,000 – P96,000) .................................................. P24,000Inventory Remaining at Year's End ........................................................................ 35%Unrealized Intercompany Gross profit, 12/31/x5 ................................................. P8,400

CONSOLIDATED COST OF GOODS SOLDParent balance ................................................................................................... P380,000Subsidiary Balance ............................................................................................. 210,000Remove Intercompany Transfer ...................................................................... (120,000)Recognize 20x4 Deferred Gross profit ............................................................ (4,000)Defer 20x5 Unrealized Gross profit ................................................................... 8,400

Cost of Goods Sold ................................................................................................... P474,40028. P8,400

Squid’s reported income P 100,000

Less: Unrealized profits in the ending inventory _____16,000Squid’s adjusted income P 84,000NCI percentage _______10%NCI-CNI P 8,400

29. P8,200UNREALIZED GROSS PROFIT, 12/31/x4

Ending inventory ................................................................................................. P 40,000Markup (P33,000/P110,000) ............................................................................... __ 30%Unrealized intercompany gross profit, 12/31/x4 ........................................... P 12,000

UNREALIZED GROSS PROFIT, 12/31/x5Ending inventory ................................................................................................. P 50,000Markup (P48,000/P120,000) ............................................................................... 40%Unrealized intercompany gross profit, 12/31/x5 ........................................... P 20,000

30. P10,000 = [P100,000 x (25/100) = P25,000 x 40/10031. Sales and cost of goods sold should be reduced by the intercompany sales.32. P500,000

Cost of SalesP Company 400,000S Company _350,000Total 750,000Less: Intercompany sales 250,000Consolidated 500,000

33. P1,060,000Cost of goods sold reported by Park P 800,000Cost of goods sold reported by Small 700,000Total cost of goods sold reported P1,500,000Cost of goods sold reported by Park on sale to

Small (P500,000 x .40) (200,000)Reduction of cost of goods sold reported by

Small for profit on intercompany sale[(P500,000 x 4 / 5) x .60] (240,000)

Cost of goods sold for consolidated entity P1,060,000

34. P115,00035. P102,400 = P94,000 + (P115,000 - P94,000).436. P12,600 = (P115,000 - P94,000) .637. P6,300 = (P37,000 - P28,000) .738. P2,700 = (P37,000 - P28,000) .339. Zero40. P5,400 = (P37,000 - P28,000) .641. P3,600 = (P37,000 - P28,000) .442. P56,820 = [P184,000 + (P37,000 - P28,000) .6] .343. P9,360 = [(P65,000 - P52,000) - (P65,000 - P52,000) .2] .944. P1,040 = [(P65,000 - P52,000) - (P65,000 - P52,000) .2] .145. Zero46. P9,100 =(P65,000 - P52,000) .747. P32,110 = [P312,000 + (P65,000 - P52,000) .7] .148. P280,000


Consideration transferred: Cash (P960,000/60%) P1,600,000Less: Book value of stockholders’ equity of S (P600,000 + P540,000)x 100%) _1,140,000Allocated excess (excess of cost over book value)….. P 460,000Add (deduct): (Over) under valuation of assets and liabilities

Decrease in inventory: P(40,000) x 100%Increase in capital assets P220,000 x 100%

P( 40,000)__220,000 __180,000

Positive excess: Full-goodwill (excess of cost overfair value)………………………………………………... P 280,000


Consideration transferred………………………………..................... P 960,000Less: Book value of stockholders’ equity of S:

Common stock (P600,000 x 60%)……………………................... P 360,000Retained earnings (P540,000 x 60%)………………................... _ 324,000 _ 684,000

Allocated excess (excess of cost over book value)….. P 276,000Less: Over/under valuation of assets and liabilities:Add (deduct): (Over) under valuation of assets and liabilities


P( 24,000)___132,000 _108,000

Positive excess: Partial-goodwill (excess of cost overfair value)………………………………………………... P 168,000

Amortization Table: (in thousands of P's)

AssetAllocated

ExcessAmortization period

Amortization/Impairment

per year

Amortization/Impairment

20x61 year

Amortization/Impairmentloss during

20x7

Balance ofAllocated Excess

remaining at end of20x7

Inventory (40) 1 (40) - 0Building 220 20 11 11 11 198Goodwill 280 - 280Total 460 (29) 11 478

49. P640,000Non-controlling interest , 12/31/20x5 — 40% × P1,600,000, fair value of subsidiary = P640,000Or, alternatively:

Non-controlling interest, December 31, 20x5Common stock – S Company, December 31, 20x5…… P 600,000Retained earnings – S Company, December 31, 20x5 540,000Stockholders’ equity – S Company, December 31, 20x5 P1,140,000Adjustments to reflect fair value - (over) undervaluation of assets and

liabilities, date of acquisition (December 31, 20x5) ___180,000Fair value of stockholders’ equity of S, December 31, 20x2…… P1,320,000Multiplied by: Non-controlling Interest percentage…………... 40Non-controlling interest (partial goodwill)………………………………….. P 528,000Add: NCI on full-goodwill (P280,000 – P168,000) ___112,000Non-controlling interest (full- goodwill)………………………………….. P 640,000

50. Since there was no impairment in goodwill reported in 20x6 and 20x7, the balance showingfor goodwill is P280,000.

51. P779,200Non-controlling interest , December 31, 20x7

Common stock – S Company, December 31, 20x7 P 600,000Retained earnings – S Company, December 31, 20x7 __935,000Stockholders’ equity – S Company, December 31, 20x7 P1,535,000Adjustments to reflect fair value - (over) undervaluation of assets and

liabilities, date of acquisition (December 31, 20x5) 180,000Amortization of allocated excess (refer to amortization above- 20x6 and

20x7 (P40,000 - P11,000) = P(29,000) + P11,000 __18,000Fair value of stockholders’ equity of S, December 31, 20x7…… P1,733,000Less: UPEI of P (up) – 20x7 or RPBI of P (up) – 20x8 ____65,000

P1,668,000Multiplied by: Non-controlling Interest percentage…………... _ 40Non-controlling interest (partial goodwill)………………………………….. P 667,200Add: NCI on full-goodwill ___112,000Non-controlling interest (full- goodwill)………………………………….. P 779,200

Or, alternatively: Calculation of Non-controlling interest at December 31, 20X7:Balance of NCI at time of acquisition P640,000Add: NCI's share of adjusted change in retained earnings in prior years:

Retained earnings balance of Book at end of 20X7 P935,000Retained earnings balance of Book at date of acquisition (540,000)Change in carrying value of Book since acquisition P395,000Adjustments:

Amortization of fair value increments 18,000Unrealized profit on upstream sale of inventory in 20X7 ( 65,000)

Adjusted change in retained earnings since acquisition P348,000NCI's share 40% 139,200

Ending balance of NCI on December 31, 20X7 P779,200

RPBI of S (downstream sales)- 20x7:Sales of Parent EI % EI of S GP% of Parent

P800,000 x 25% = P200,000 x 30%………………………………. 60,000RPBI of P (upstream sales - 20x7

Sales of Subsidiary EI % EI of P GP% of SubsidiaryP500,000 x 60% = P300,000 x 25%......………………………….. 75,000

UPEI of S (downstream sales) - 20x7Sales of Parent EI % EI of S GP% of ParentP1,000,000 x 15% = P150,000 x 30%………………………………. 45,000

UPEI of P (upstream sales) - 20x7Sales of Subsidiary EI % EI of P GP% of Subsidiary

P650,000 x 40% = P260,000 x 25%…………………………..... 65,000

52. P1,780,400Retained earnings – Parent, 12/31/20x6 (cost)……………………….. P 1,775,000-: UPEI of S (down) – 20x6 or RPBI of S (down) – 20x7..……………….. 60,000Adjusted Retained earnings – Parent, 12/31/20x6 (cost model)….. P 1,715,000Retroactive Adjustments to convert Cost to “Equity” for


Retained earnings – Subsidiary, 12/31/20x5…………………..P540,000Less: Retained earnings – Subsidiary, 12/31/20x6…………… 695,000Increase in Retained earnings since acquisition

(cumulative net income – cumulative dividends)……….P155,000Accumulated amortization - 20x6…………………………….. 29,000UPEI of P (up) – 20x6 or RPBI of P (up) – 20x7………………....( 75,000)


RE – P, 12/31/20x4 (equity method) = CRE, 12/31/20x4……… P1,780,400

Or, alternatively:

Ending balance - Retained earnings separate entity - Paper P1,775,000Less unrealized profit on downstream sale of inventory 20x6 (60,000)

Subtotal P1,715,000Paper’s share of adjusted retained earnings - see Note 1 below:

60% × P109,000 65,400Ending consolidated retained earnings balance of Paper, 12/ 31/ 20x6 P1,780,400

Note 1:Retained earnings balance of Book at end of 20x6 P695,000Retained earnings balance of Book at date of acquisition (540,000)Change in carrying value of Book since acquisition P155,000Adjustments:

Amortization of fair value increments 29,000Unrealized profit on upstream sale of inventory in 20x6 (75,000)Adjusted change in retained earnings since acquisition P109,000

Paper's s share 60% × 109,000 P 65,400

53. P2,428,800Retained earnings – Parent, 12/31/20x7 (cost)……………………….. P 2,265,000-: UPEI of S (down) – 20x7 or RPBI of S (down) – 20x8..……………….. 45,000Adjusted Retained earnings – Parent, 12/31/20x6 (cost model)….. P 2,220,000Retroactive Adjustments to convert Cost to “Equity” for


Retained earnings – Subsidiary, 12/31/20x5…………………..P540,000Less: Retained earnings – Subsidiary, 12/31/20x7…………… 935,000

Increase in Retained earnings since acquisition(cumulative net income – cumulative dividends)……….P395,000

Accumulated amortization - 20x6 and 20x7(P29,000 – P11,000)…………………………………………….. 18,000

UPEI of P (up) – 20x7 or RPBI of P (up) – 20x8………………....( 65,000)P 348,000

x: Controlling Interests………………………………………… 60% 208,800RE – P, 12/31/20x4 (equity method) = CRE, 12/31/20x4……… P2,428,800

Or, alternatively:Ending balance - Retained earnings separate entity - Paper P2,265,000Less unrealized profit on downstream sale of inventory 20x7 (__45,000)

Subtotal P2,220,000Paper's share of adjusted retained earnings - see Note 1 below:

60% × 348,000 208,800Ending consolidated retained earnings balance of Paper, 12/31/20x7 P2,428,800

Note 1:Retained earnings balance of Book at end of 20x7 P935,000Retained earnings balance of Book at date of acquisition (540,000)Change in carrying value of Book since acquisition P395,000Adjustments:

Amortization of fair value increments 18,000Unrealized profit on upstream sale of inventory in 20x7 (65,000)Adjusted change in retained earnings since acquisition P348,000

Paper's s share 60% × 348,000 P208,800

or alternatively:Consolidated retained earnings, December 31, 20x6 (No. 52) P1,780,400Controlling Interests in Consolidated Net income (refer to statement

of comprehensive income below) 1,148,400Dividends declared – paper ( 500,000)Retained earnings, December 31, 20x7 P2,428,800

Incidentally, theEliminate intercompany transactions for 20X7

Intercompany transactions and balancesAccounts receivable/accounts payable still outstanding P 150,000Downstream sales by Paper P1,000,000Upstream sales by Book P 650,000Dividends declared by Book P 250,000Paper's portion of dividends P250,000 X 60% = P150,000

Paper Co.Consolidated Statement of Comprehensive Income

For the year ended December 31,20s7

Sales (2,520 + 2,400 - 1,000 - 650) 3,270,000Management fees (250 - 250) 0Dividend income (150 - 150) 0

3,270,000Cost of sales (800 + 1,200 - 1,000 - 650 - 60 - 75 + 45 + 65) 325,000Depreciation and amortization expenses (670 + 325 + 11) 1,006,000Management fees expense (250 - 250) 0Other expenses (460 + 135) 595,000

1,926,000Consolidated Net income 1,344,000

Allocated as follows:Non-controlling interests in CNI — see below 195,600Controlling Interest in CNI Owners of the parent 1,148,400Consolidated Net Income 1,344,000

Non-controlling interest's portion of adjusted net earnings:Net income of Book for 20X7 as per separate-entity statement P490,000Adjustments for 20X7

Realized profits on upstream sale of inventory 20x6 75,000Unrealized profits on upstream sale of inventory — 20x7 ( 65,000)Amortization of fair value increments for 20x7 ( 11,000)Adjusted net income of Book for 20x7 P489,000

NCI's share 40% × P489,000 P195,600

Theories1. True 6. True 11. True 16. False 21. True 26. e 31 b 36. a2. False 7. False 12. False 17. False 22. False 27. e 32. e 37. b3. False 8. False 13. False 18. True 23. b 28. c 33. b 38. e4. True 9. True 14. True 19. True 24. e 29. d 34. d 39. d5. False 10, False 15, True 20. False 25. a 30. a 35. a 40. d

41. b 46. c 51. a 56. c 61. a 66. b 71 b 76. c42. c 47. b 52. c 57. b 62. a 67. b 72. a 77. c43. a 48. c 53. c 58. c 63. b 68. c 73. a 78. a44. c 49. a 54. d 59. b 64. c 69. d 74. a 79. c45. d 50, d 55, c 60. c 65. a 70. b 75. c 80. e

solution chapter 17

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