solution chapter 18

Chapter 18Problem I1 Equipment 540,000

Beginning R/E – Prince (P100,000 × .80) 80,000Noncontrolling Interest (P100,000 × .20) 20,000

Accumulated Depreciation 640,000

Accumulated Depreciation (P100,000/4) × 2 50,000Depreciation Expense 25,000Beginning R/E – Prince (P25,000 × .80) 20,000Noncontrolling Interest (P25,000 × .20) 5,000

2 Controlling Interest in Consolidated Net Income:Prince Company’s income from its

independent operations P3,270,000Reported net income of Serf Company P820,000Plus profit on intercompany sale of

equipment considered to be realizedthrough depreciation in 2014 25,000

Reported subsidiary income that has beenrealized in transactions with thirdparties 845,000

× .8Prince Company’s share thereof 676,000Controlling Interest in Consolidated net income P3,946,000

3. Noncontrolling Interest Calculation:Reported income of Serf Company P820,000Plus: Intercompany profit considered realized

in the current period 25,000P845,000

Noncontrolling interest in Serf Company(.20 × 845,000) P169,000

4. NCI-CNI (No. 3) P 169,000CI-CNI (No. 2) 3,946,000CNI P4,115,000

or,Consolidated Net Income for 20x5

P Company’s net income from own/separate operations…………. P3,270,000Realized gain on sale of equipment (downstream sales) through depreciation 0

P Company’s realized net income from separate operations…….….. P3,270,000S Company’s net income from own operations…………………………………. P 820,000Realized gain on sale of equipment (upstream sales) through depreciation* 25,000

Son Company’s realized net income from separate operations*…….….. P 845,000 845,000Total P4,115,000Less: Amortization of allocated excess…………………… 0Consolidated Net Income for 20x5 P4,115,000Less: Non-controlling Interest in Net Income* * 169,000Controlling Interest in Consolidated Net Income or Profit attributable to

equity holders of parent – 20x5………….. P3,946,000

Or, alternativelyConsolidated Net Income for 20x5

P Company’s net income from own/separate operations…………. P3,270,000Realized gain on sale of equipment (downstream sales) through depreciation 0

P Company’s realized net income from separate operations…….….. P3,270,000S Company’s net income from own operations…………………………………. P820,000Realized gain on sale of equipment (upstream sales) through depreciation 25,000

S Company’s realized net income from separate operations…….….. P 845,000 845,000Total P4,115,000Less: Non-controlling Interest in Net Income* * P 169,000

Amortization of allocated excess…………………… 0 169,000Controlling Interest in Consolidated Net Income or Profit attributable to

equity holders of parent………….. P3,946,000Add: Non-controlling Interest in Net Income (NCINI) _169,000Consolidated Net Income for 20x5 P4,115,000

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

(Reported net income of S Company) P 820,000Realized gain on sale of equipment (upstream sales) through depreciation 25,000

S Company’s realized net income from separate operations……… P 845,000Less: Amortization of allocated excess 0

P845,000Multiplied by: Non-controlling interest %.......... 20%Non-controlling Interest in Net Income (NCINI) – partial goodwill P 169,000

1/1/20x4:Selling price of equipment P 740,000Less: BV of equipment

Cost P1,280,000Less: Accumulated depreciation:

P1,280,000 / 8 years x 4 years* 640,000 640,000Unrealized gain on sales – 1/1/20x4 P 100,000

Realized gain – depreciation: P100,000 / 4 years P 25,000*the original life is 8 years as of 1/1/20x3, since the remaining life as of 1/1/20x4in only 4 years, for purposes of computing the accumulated depreciation todetermine the gain on sale, the difference of 4 years is presumed to be expired.

5 Equipment 540,000Beginning R/E – Prince 100,000


Accumulated Depreciation (P100,000/4) × 2 50,000Depreciation Expense 25,000Beginning R/E – Prince 25,000

6 Controlling Interest in Consolidated Net Income:Prince Company’s income from its

independent operations P3,270,000Plus profit on intercompany sale of

equipment considered to be realizedthrough depreciation in 2014 25,000

P3,295,000Reported net income of S Company P820,000

× .8Prince Company’s share thereof 656,000Controlling Interest in Consolidated net income P3,951,000

Noncontrolling Interest Calculation:Reported income of S Company P820,000

Noncontrolling interest in S Company(.20 × 820,000) P164,000

NCI-CNI P 164,000CI-CNI 3,951,000CNI P4,115,000

or,Consolidated Net Income for 20x5

P Company’s net income from own/separate operations…………. P3,270,000Realized gain on sale of equipment (downstream sales) through depreciation ____25,000

P Company’s realized net income from separate operations…….….. P3,295,000S Company’s net income from own operations…………………………………. P 820,000Realized gain on sale of equipment (upstream sales) through depreciation* 0

S Company’s realized net income from separate operations*…….….. P 820,000 820,000Total P4,115,000Less: Amortization of allocated excess…………………… 0Consolidated Net Income for 20x5 P4,115,000Less: Non-controlling Interest in Net Income* * 164,000Controlling Interest in Consolidated Net Income or Profit attributable to

equity holders of parent – 20x5………….. P3,951,000


P Company’s net income from own/separate operations…………. P3,270,000Realized gain on sale of equipment (downstream sales) through depreciation 25,000

P Company’s realized net income from separate operations…….….. P3,295,000S Company’s net income from own operations…………………………………. P820,000Realized gain on sale of equipment (upstream sales) through depreciation 0

S Company’s realized net income from separate operations…….….. P 820,000 820,000Total P4,115,000Less: Non-controlling Interest in Net Income* * P 164,000

Amortization of allocated excess…………………… 0 164,000Controlling Interest in Consolidated Net Income or Profit attributable to

equity holders of parent………….. P3,951,000Add: Non-controlling Interest in Net Income (NCINI) _169,000Consolidated Net Income for 20x5 P4,115,000


(Reported net income of S Company) P 820,000Realized gain on sale of equipment (upstream sales) through depreciation 0


P820,000Multiplied by: Non-controlling interest %.......... 20%Non-controlling Interest in Net Income (NCINI) – partial goodwill P 164,000

Problem II1. Journal entry to record sale:

Cash 84,000Accumulated Depreciation 80,000

Equipment 150,000Gain on Sale of Equipment 14,000

Record the sale of equipment:P84,000 = P150,000 - P80,000 + P14,000P80,000 = (P150,000 / 15 years) x 8 years

2. Journal entry to record purchase:Equipment 84,000

Cash 84,000

Journal entry to record depreciation expense:Depreciation Expense 12,000


3. Eliminating entry at December 31, 20x4, to eliminate intercompany sale ofequipment:

E(1) Equipment 66,000Gain on Sale of Equipment 14,000

Depreciation Expense 2,000Accumulated Depreciation 78,000

Eliminate unrealized profit on equipment.

Adjustment to equipmentAmount paid by WW to acquire building P150,000Amount paid by LL on intercompany sale (84,000)Adjustment to buildings and equipment P 66,000

Adjustment to depreciation expenseDepreciation expense recorded by Lance

Corporation (P84,000 / 7 years) P 12,000Depreciation expense recorded by WW

Corporation (P150,000 / 15 years) (10,000)Adjustment to depreciation expense P 2,000

Adjustment to accumulated depreciationAmount required (P10,000 x 9 years) P 90,000Amount reported by LL (P12,000 x 1 year) (12,000)Required adjustment P 78,000

4. Eliminating entry at January 1, 20x4, to eliminate intercompany sale of equipmentand prepare a consolidated balance sheet only:E(1) Equipment 66,000

Retained Earnings 12,000Accumulated Depreciation 78,000

Eliminate unrealized profit on equipment.

Problem III1. Eliminating entry, December 31, 20x8:

E(1) Truck 55,000Gain on Sale of Truck 35,000


Computation of gain on sale of truck:Price paid by Minnow P245,000Cost of truck to Frazer P300,000Accumulated depreciation

(P300,000 / 10 years) x 3 years ( 90,000) (210,000)Gain on sale of truck P 35,000

Accumulated depreciation adjustment:Required [(P300,000 / 10 years) x 4 years] P120,000Reported [(P245,000 / 7 years) x 1 year] (35,000)Required increase P 85,000

2. Eliminating entry, December 31, 20x9:

E(1) Truck 55,000Retained Earnings 30,000


Accumulated depreciation adjustment:Required [(P300,000 / 10 years) x 5 years] P150,000Reported [(P245,000 / 7 years) x 2 years] (70,000)Required increase P 80,000

Problem IVa. Eliminating entry, December 31, 20x8:

E(1) Truck 90,000Gain on Sale of Truck 30,000


Computation of gain on sale of truck:Price paid by MM P210,000Cost of truck to FF P300,000Accumulated depreciation

(P300,000 / 10 years) x 4 years (120,000) (180,000)Gain on sale of truck P 30,000

b. Eliminating entry, December 31, 20x9:

E(1) Truck 90,000Retained Earnings, January 1 30,000


Accumulated depreciation adjustment:Required [(P300,000 / 10 years) x 5 years] P150,000Recorded [(P210,000 / 6 years) x 1 year] (35,000)Required increase P115,000

Problem VRequirements 1 to 4Schedule 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 S: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 72,000

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….. 1992,000 - ( 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… 4,800 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 controlling interestand the NCI based on the percentage of total goodwill each equity interest received. For purposes ofallocating 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 S (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 interest of 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 controlling P 3,000 80.00%

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

Goodwill P 3,750 100.00%

The unrealized and gain on intercompany sales for 20x4 are as follows:

Dateof Sale Seller

SellingPrice

BookValue

Unrealized*Gain on sale

RemainingLife

Realized gain –depreciation** 20x4

4/1/20x4 P Co. P90,000 P75,000 P15,000 5 years P3,000/year P2,2501/2/20x4 S Co. 60,000 28,800 31,200 8 years P3,900/year P3,900

* selling price less book value** unrealized gain divided by remaining life; 20x4 – P3,000 x 9/12 = P2,250

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 the allocatedexcess 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…………………………………………. 4,800Goodwill…………………………………………………………………. 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 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 and

amortization on differences between acquisition date fair value andbook value of Son’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 6,000 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) Gain on sale of equipment 15,000Equipment 30,000

Accumulated depreciation 45,000To eliminate the downstream intercompany gain and restore to itsoriginal cost to the consolidate entity (along with its accumulateddepreciation at the point of the intercompany sale).


Accumulated depreciation 43,200To eliminate the upstream intercompany gain and restore to itsoriginal cost to the consolidate entity (along with its accumulateddepreciation at the point of the intercompany sale).

(E7) Accumulated depreciation……….. 2,250Depreciation expense…………… 2,250

To adjust downstream depreciation expense on equipment sold tosubsidiary, thus realizing a portion of the gain through depreciation(P15,000 / 5 years x 9/12 = P2,250).


To adjust upstream depreciation expense on equipment sold toparent, thus realizing a portion of the gain through depreciation(P31,200/85 years x 1 year = P3,900).

(E9) Non-controlling interest in Net Income of Subsidiary………… 10,140Non-controlling interest ………….. 10,140

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

Net income of subsidiary…………………….. P 91,200Unrealized gain on sale of equipment

(upstream sales) ( 31,200)Realized gain on sale of equipment (upstream

sales) through depreciation 3,900S Company’s realized net income from

separate operations P 63,900Less: Amortization of allocated excess [(E3)]…. 13,200

P 50,700Multiplied by: Non-controlling interest %.......... 20%Non-controlling Interest in Net Income (NCINI) –

partial goodwill P 10,140

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

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 P 720,000Gain on sale of equipment 15,000 31,200 (5) 15,000

(6) 31,200Dividend income 28,800 - (4) 28,800 _________

Total Revenue P523,800 P271,200 P 720,000Cost of goods sold P204,000 P138,000 (3) 6,000 P 348,000Depreciation expense 60,000 24,000 (3) 6,000 (7) 2,250

(8) 3,90083,850

Interest 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 P 502,050Net Income P211,800 P 91,200 P 217,950NCI in Net Income - Subsidiary - - (9 10,140 ( 10,140)Net Income to Retained Earnings P211,800 P 91,200 P 207,810

Statement of Retained EarningsRetained earnings, 1/1

P Company P360,000 P 360,000S Company P120,000 (1) 120,000

Net income, from above 211,800 91,200 207,810Total P571,800 P211,200 P 567,810

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

Retained earnings, 12/31 to BalanceSheet P499,800 P175,200 P 495,810

Balance SheetCash………………………. P 232,800 P 90,000 P 322,800Accounts receivable…….. 90,000 60,000 150,000Inventory…………………. 120,000 90,000 (2) 6,000 3) 6,000 210,000Land……………………………. 210,000 48,000 (2) 7,200 265,200Equipment 240,000 180,000 (5) 30,000

(6) 12,000 462,000Buildings 720,000 540,000 (2) 216,000 1,044,000Discount on bonds payable (2) 4,800 (3) 1,200 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 P2,466,600

Accumulated depreciation- equipment P 135,000 P 96,000

(3) 96,000(7) 2,250(8) 3,900

(3) 12,000(5) 45,000(6) 43,200 P229,050

Accumulated depreciation- buildings

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

Accounts payable…………… 105,000 88,800 193,800Bonds payable………………… 240,000 120,000 360,000Common stock, P10 par……… 600,000 600,000Common stock, P10 par……… 240,000 (1) 240,000Retained earnings, from above 499,800 175,200 495,810Non-controlling interest…………

_________ _________

(4) 7,200

__________

(1 ) 72,000(2) 18,000(9) 10,140 ____92,940

Total P1,984,800 P1,008,000 P 834,450 P 834,450 P2,466,600

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.

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

Dividends paid by S Co..

Consolidation Workpaper – Second Year after AcquisitionThe working paper eliminations (in journal entry format) on December 31, 20x5, are as follows:

(E1) Investment in S Company………………………… 44,160Retained earnings – P Company……………………… 44,160

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, computed as follows:

Retained earnings – S Company, 1/1/20x5 P175,200Retained earnings – S Company, 1/1/20x4 120,000Increase in retained earnings…….. P 55,200Multiplied by: Controlling interest % 80%Retroactive adjustment P 44,160

Entry (1) above is needed only for firms using the cost method to account for their investments in the subsidiary.If the parent is already using the equity method, there is no need to convert to equity.

(E2) Common stock – S Co………………………………………… 240,000Retained earnings – S Co., 1/1/20x5 175,200

Investment in S Co (P415,200 x 80%)………………………… 332,160Non-controlling interest (P415,200 x 20%)……………………….. 83,040

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…………………………………………. 4,800

Goodwill…………………………………………………………………. 12,000Buildings……………………………………….. 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 ofSon’s identifiable assets and liabilities as follows:

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

Year 20x5 amounts are debited to respective nominal accounts.

(20x4)Retainedearnings,


expenseAmortization

-InterestInventory sold P 6,000Equipment 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



(E5) Retained Earnings – P Company, 1/1/20x5 15,000Equipment 30,000


(E6) Retained Earnings–P Company, 1/1/20x5 (P31,200 x 80%) 24,960Non-controlling interest (P31,200 x 20%) 6,240Equipment 12,000


(E7) Accumulated depreciation……….. 5,250Depreciation expense (current year)…………… 3,000

Retained Earnings–P Company, 1/1/20x5 (prior year) 2,250To adjust downstream depreciation expense on equipment sold tosubsidiary, thus realizing a portion of the gain through depreciation

(E8) Accumulated depreciation……….. 7,800Depreciation expense (current year) 3,900Retained Earnings–P Co. 1/1/20x5 (P3,900 x 80%) 3,120Non-controlling interest (P31,200 x 20%) 780




Net income of subsidiary…………………….. P 90,000Realized gain on sale of equipment (upstream

sales) through depreciation 3,900S Company’s Realized net income* P 93,900Less: Amortization of allocated excess ( 7,200)

P 86,700Multiplied by: Non-controlling interest %.......... 20%Non-controlling Interest in Net Income (NCINI)

– partial goodwillP 17,340

*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)

Income Statement P Co S Co. Dr. Cr. ConsolidatedSales P540,000 P360,000 P 900,000Dividend income 38,400 - (5) 38,400 ___________

Total Revenue P578,400 P360,000 P 900,000Cost of goods sold P216,000 P192,000 P 408,000

Depreciation expense 60,000 24,000 (4) 6,000

(7)3,000

(8)3,900

83,100

Interest expense - - (4) 1,200 1,200Other expenses 72,000 54,000 126,000Goodwill impairment loss - - -

Total Cost and Expenses P348,000 P270,000 P 618,300Net Income P230,400 P 90,000 P 281,700NCI in Net Income - Subsidiary - - (9) 17,340 ( 17,340)Net Income to Retained Earnings P230,400 P 90,000 P 264,360


P Company P499,800 (1) 13,560(5) 15,000(6) 24,960

(1) 44,160(7) 2,250(8) 3,120 P 495,810

S Company P 175,200 (2) 175,200Net income, from above 230,400 __90,000 264,360

Total P730,200 P265,200 P 760,170Dividends paid

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


Balance SheetCash………………………. P 265,200 P 102,000 P 367,200Accounts receivable…….. 180,000 96,000 276,000Inventory…………………. 216,000 108,000 (1) 6,000 (2) 6,000 324,000Land……………………………. 210,000 48,000 (3) 7,200 265,200Equipment 240,000 180,000 (5) 30,000

(6) 12,000 462,000Buildings 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) 44,160 (2) 332,160

(3) 84,000 -Total P2,203,200 P1,074,000 P2,749,800

Accumulated depreciation- equipment

P 150,000 P 102,000 (3) 96,000(7) 5,250(8) 7,800

(4) 24,000(5) 45,000(6) 43,200 P 255,150


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


___ _____ _________

(4) 2,640(5) 9,600(6) 6,240__________

(2 83,040(3) 18,000(8) 780(9) 17,340 ____100,680

Total P2,203,200 P1,074,000 P 979,350 P 979,350 P2,749,800

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, 20x4

Retained earnings - Parent Company, January 1, 20x4 (date of acquisition) P360,000b.

Non-controlling interest (partial-goodwill), January 1, 20x4Common 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 goodwill),……………………………….. 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 is measured as aproportion of identifiable assets and goodwill attributable to NCI share is not recognized.12/31/20x4:a. CI-CNI - P

Consolidated Net Income for 20x4P Company’s net income from own/separate operations…………. P183,000

Unrealized gain on sale of equipment (downstream sales) (15,000)Realized gain on sale of equipment (downstream sales) through depreciation 2,250

P Company’s realized net income from separate operations*…….….. P170,250S Company’s net income from own operations…………………………………. P 91,200Unrealized gain on sale of equipment (upstream sales) ( 31,200)Realized gain on sale of equipment (upstream sales) through depreciation 3,900

S Company’s realized net income from separate operations*…….….. P 63,900 63,900Total P234,150Less: Non-controlling Interest in Net Income* * P 10,140

Amortization of allocated excess (refer to amortization above) 13,200Goodwill impairment (impairment under partial-goodwill approach) 3,000 26,340

Controlling Interest in Consolidated Net Income or Profit attributable toequity holders of parent………….. P207,810

Add: Non-controlling Interest in Net Income (NCINI) _ 10,140Consolidated Net Income for 20x4 P217,950

*that has been realized in transactions with third parties.

b. NCI-CNI – P10,140**Non-controlling Interest in Net Income (NCINI) for 20x4

S Company’s net income of Subsidiary Company from its own operations(Reported net income of S Company) P 91,200

Unrealized gain on sale of equipment (upstream sales) ( 31,200)Realized gain on sale of equipment (upstream sales) through depreciation 3,900

S Company’s realized net income from separate operations……… P 63,900Less: Amortization of allocated excess / goodwill impairment

(refer to amortization table above) 13,200P 50,700

Multiplied by: Non-controlling interest %.......... 20%Non-controlling Interest in Net Income (NCINI) – partial goodwill P 10,140


c. CNI, P217,950 – refer to (a)d. On subsequent to date of acquisition, consolidated retained earnings would be computed as follows:

Consolidated Retained Earnings, December 31, 20x4Retained earnings - Parent 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 207,810Total P567,810Less: Dividends paid – Parent Company for 20x4 72,000Consolidated Retained Earnings, December 31, 20x4 P495,810

e.The goodwill recognized on consolidation purely relates to the parent’s share. NCI is measured as aproportion of identifiable assets and goodwill attributable to NCI share is not recognized. The NCI onJanuary 1, 20x4 and December 31, 20x4 are computed as follows:

Non-controlling interest (partial-goodwill), 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 91,200Total P211,200Less: Dividends paid – 20x4 36,000 175,200

Stockholders’ equity – Subsidiary Company, December 31, 20x4 P 415,200Adjustments 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…… P492,000Unrealized gain on sale of equipment (upstream sales) ( 31,200)Realized gain on sale of equipment (upstream sales) through depreciation 3,900Realized stockholders’ equity of subsidiary, December 31, 20x4…… P464,700Multiplied by: Non-controlling Interest percentage…………... 20Non-controlling interest (partial-goodwill)………………………………….. P 92,940

f.Consolidated SHE:

Stockholders’ EquityCommon stock, P10 par P 600,000Retained earnings 495,810Parent’s Stockholders’ Equity / CI – SHE, 12/31/20x4 P1,095,810


12/31/20x5:a. CI-CNI – P264,360

Consolidated Net Income for 20x5P Company’s net income from own/separate operations…………. P192,000Realized gain on sale of equipment (downstream sales) through depreciation 3,000

P Company’s realized net income from separate operations*…….….. P195,000S Company’s net income from own operations…………………………………. P 90,000Realized gain on sale of equipment (upstream sales) through depreciation 3,90

S Company’s realized net income from separate operations*…….….. P 93,900 93,900Total P288,900Less: Amortization of allocated excess…………………… 7,200Consolidated Net Income for 20x5 P281,700Less: Non-controlling Interest in Net Income* * 17,340Controlling Interest in Consolidated Net Income or Profit attributable to

equity holders of parent – 20x5………….. P264,360*that has been realized in transactions with third parties.


P Company’s net income from own/separate operations…………. P192,000Realized gain on sale of equipment (downstream sales) through depreciation 3,000



Amortization of allocated excess…………………… 7,200 24,540Controlling Interest in Consolidated Net Income or Profit attributable to

equity holders of parent………….. P264,360Add: Non-controlling Interest in Net Income (NCINI) _ 17,340Consolidated Net Income for 20x5 P281,700



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

P 90,000

Realized gain on sale of equipment (upstream sales) through depreciation 3,900S Company’s realized net income from separate operations……… P 93,900

Less: Amortization of allocated excess 7,200P 86,700

Multiplied by: Non-controlling interest %.......... 20%Non-controlling Interest in Net Income (NCINI) – partial goodwill P 17,340


Consolidated Retained Earnings, December 31, 20x5Retained earnings - Parent Company, January 1, 20x5 (cost model) P499,800Less: Downstream - net unrealized gain on sale of equipment – prior to 20x5

(P15,000 – P2,250) 12,750Adjusted Retained Earnings – Parent 1/1/20x5 (cost model ) Son Company’s

Retained earnings that have been realized in transactions with thirdparties.. P487,050

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 175,200Less: Retained earnings – Subsidiary, January 1, 20x4 120,000Increase in retained earnings since date of acquisition P 55,200Less: Amortization of allocated excess – 20x4 13,200

Upstream - net unrealized gain on sale of equipment –prior to20x5 (P31,200 – P3,900) 27,300

P 14,700Multiplied by: Controlling interests %................... 80%

P 11,760Less: Goodwill impairment loss 3,000 __ 8,760

Consolidated Retained earnings, January 1, 20x5 P495,810Add: 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 mightbe situations where the controlling interests on goodwill impairment loss would not be proportionate to NCI acquired (refer toIllustration 15-6).

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

Retained earnings - Parent Company, December 31, 20x5 (cost model) P658,200Less: Downstream - net unrealized gain on sale of equipment – prior to

12/31/20x5 (P15,000 – P2,250 – P3,000) 9,750Adjusted Retained Earnings – Parent 12/31/20x5 (cost model )

S Company’s Retained earnings that have been realized intransactions with third parties.. P648,450


Retained earnings – Subsidiary, December 31, 20x5 P 217,200Less: Retained earnings – Subsidiary, January 1, 20x4 120,000Increase in retained earnings since date of acquisition P 97,200Less: Accumulated amortization of allocated excess –

20x4 and 20x5 (P11,000 + P6,000) 20,400Upstream - net unrealized gain on sale of equipment – prior to

12/31/20x5 (P31,200 – P3,900 – P3,900) 23,400P 53,400

Multiplied by: Controlling interests %................... 80%P 42,720

Less: Goodwill impairment loss 3,000 39,720Consolidated Retained earnings, December 31, 20x5 P688,170

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

Common stock – Subsidiary Company, December 31, 20x5…… P 240,000Retained earnings – Subsidiary Company, December 31, 20x5

Retained earnings – Subsidiary Company, January 1, 20x5 P175,200Add: Net income of subsidiary for 20x5 90,000Total P 265,200Less: Dividends paid – 20x5 48,000 217,200


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 526,800Less: Upstream - net unrealized gain on sale of equipment – prior to 12/31/20x5

(P31,200 – P3,900 – P3,900) 23,400Realized stockholders’ equity of subsidiary, December 31, 20x5………. P503,400

Multiplied by: Non-controlling Interest percentage…………... 20Non-controlling interest (partial goodwill)………………………………….. P 100,680

f.Consolidated SHE:


NCI, 12/31/20x5 __100,680Consolidated SHE, 12/31/20x5 P1,188,850

Problem VIRequirements 1 to 4Schedule 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



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


Account Adjustments to be amortizedOver/under Life

AnnualAmount




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

20x4: First Year after AcquisitionParent Company Cost Model Entry






Dividends paid………… 36,000

Cash……. 36,000Dividends paid by S Co..

No entries are made on the parent’s books to depreciate, amortize or write-off the portion of the allocatedexcess 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.


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

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 date of acquisition.

Since the set-up entry in (E2) NCI at fair value, non-controlling interests have a share of entity goodwill andhence is exposed to impairment loss on goodwill. PAS 36 requires the impairment loss to be pro-rated betweenthe parent and NCI on the same basis as that on which profit or loss is allocated. In other words, the impairmentloss is not pro-rated in accordance with the proportion of goodwill recognized by parent and NCI.



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

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


















partial goodwill P 10,140Less: 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) P 9,390

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


(6) 31,200Dividend income 28,800 - (4) 28,800 _________

Total Revenue P523,800 P271,200 P 720,000Cost of goods sold P204,000 P138,000 (3) 6,000 P 348,000Depreciation expense 60,000 24,000 (3) 6,000 (7) 2,250 83,850

(8) 3,900Interest expense - - (3) 1,200 1,200Other expenses 48,000 18,000 66,000Goodwill impairment loss - - (3) 3,750 3,750







Balance SheetCash………………………. P 232,800 P 90,000 P 322,800Accounts receivable…….. 90,000 60,000 150,000Inventory…………………. 120,000 90,000 (2) 6,000 3) 6,000 210,000Land……………………………. 210,000 48,000 (2) 7,200 265,200Equipment 240,000 180,000 (5) 30,000


(2) 84,000 -Total P1,984,800 P1,008,000 P2,468,850


(2) 80,000(7) 2,250(8) 3,900

(3) 10,000(5) 45,000(6) 43,200 P229,050


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


_________ _________

(3) 7,200

__________

(1 ) 72,000(2) 21,000(9) 9,390 ____95,190

Total P1,984,800 P1,008,000 P 843,690 P 843,690 P2,468,850


Sales P 540,000 P 360,000Less: Cost of goods sold 216000 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


Parent Company Cost Model EntryJanuary 1, 20x5 – December 31, 20x5:

Cash……………………… 38,400Dividend income (P48,000 x 80%)……………. 38,400

Record dividends from S Company.


Dividends paid………… 48,000Cash 48,000

Dividends paid by S Co..

Consolidation Workpaper – Second Year after Acquisition(E1) Investment in S Company………………………… 44,160

Retained earnings – P Company……………………… 44,160To 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 P175,200Retained earnings – S Company, 1/1/20x4 120,000Increase in retained earnings…….. P 55,200Multiplied by: Controlling interest % 80%Retroactive adjustment P 44,160

(E2) Common stock – S Co………………………………………… 240,000Retained earnings – S Co., 1/1/20x5 175,200

Investment in S Co (P415,200 x 80%)………………………… 332,160Non-controlling interest (P415,200 x 20%)……………………….. 83,040

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


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


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 (P16,950 x 20%) or (P13,200 x 20% +(P3,750 – P3,000 = P750) 3,390

Depreciation 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 earnings &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 1,200Sub-total P13,200 P 6,000 P 1,200Multiplied by: 80%To Retained earnings P 10,560Impairment loss 3,000Total P 13,560



(E6) Retained Earnings – P Company, 1/1/20x5 15,000Equipment 30,000


(E7) Retained Earnings–P Company, 1/1/20x5 (P31,200 x 80%) 24,960Non-controlling interest (P31,200 x 20%) 6,240Equipment 12,000


(E8) Accumulated depreciation……….. 5,250Depreciation expense (current year)…………… 3,000Retained Earnings–P Company, 1/1/20x5 (prior year) 2,250

To adjust downstream depreciation expense on equipment sold tosubsidiary, thus realizing a portion of the gain through depreciation

(E9) Accumulated depreciation……….. 7,800Depreciation expense (current year) 3,900Retained Earnings–P Co. 1/1/20x5 (P3,900 x 80%) 3,120Non-controlling interest (P3,900 x 20%) 780






P 86,700Multiplied by: Non-controlling interest %.......... 20%Non-controlling Interest in Net Income (NCINI P 17,340Less: NCI on goodwill impairment loss on full-

Goodwill 0Non-controlling Interest in Net Income (NCINI) P 17,340


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

Income Statement P Co S Co. Dr. Cr. ConsolidatedSales P540,000 P360,000 P 900,000Dividend income 38,400 - (5) 38,400 ___________



(8)3,000

(9)3,900

83,100




P Company P499,800 (2) 13,560(6) 15,00(7) 24,960

(1) 44,160(8) 2,250(9) 3,120 P 495,810

S Company P 175,200 (1) 175,200Net income, from above 230,400 90,000 264,360

Total P730,200 P265,200 P 760,170Dividends paid

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



(7) 12,000 462,000Buildings 720,000 540,000 (3) 216,000 1,044,000Discount on bonds payable (3) 4,800 (4) 2,400 2,400Goodwill…………………… (3) 15,000 (4) 3,750 11,250Investment in S Co……… 372,000 (1) 44,160 (2) 332,160

(3) 90,000 -Total P2,203,200 P1,074,000 P2,752,050


P 150,000 P 102,000 (3) 96,000(8) 5,250(9) 7,800

(4) 24,000(6) 45,000(7) 43,200 P 255,150


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

Accounts payable…………… 105,000 88,800 193,800Bonds payable………………… 240,000 120,000 360,000

Common stock, P10 par……… 600,000 600,000Common stock, P10 par……… 240,000 (2) 240,000Retained earnings, from above 658,200 217,200 688,170Non-controlling interest…………

___ _____ _________

(4) 3,390(5) 9,600(7) 6,240__________

(2 ) 83,040(3) 21,000(9) 780(10) 17,340 ____102,930

Total P2,203,200 P1,074,000 P 983,100 P 983,100 P2,752,050

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) P360,000b.

Non-controlling interest (partial-goodwill), January 1, 20x4Common 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 goodwill),……………………………….. 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 is measured as aproportion of identifiable assets and goodwill attributable to NCI share is not recognized.12/31/20x4:a. CI-CNI – P207,810

Consolidated Net Income for 20x4P Company’s net income from own/separate operations…………. P183,000Unrealized gain on sale of equipment (downstream sales) (15,000)Realized gain on sale of equipment (downstream sales) through depreciation 2,250

P Company’s realized net income from separate operations*…….….. P170,250S Company’s net income from own operations…………………………………. P 91,200Unrealized gain on sale of equipment (upstream sales) ( 31,200)Realized gain on sale of equipment (upstream sales) through depreciation 3,900


Amortization of allocated excess (refer to amortization above) 13,200Goodwill impairment (impairment under partial-goodwill approach) 3,000 26,340

Controlling Interest in Consolidated Net Income or Profit attributable toequity holders of parent………….. P207,810

Add: Non-controlling Interest in Net Income (NCINI) 10,140Consolidated Net Income for 20x4 P217,950



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

P 91,200

Unrealized gain on sale of equipment (upstream sales) ( 31,200)Realized gain on sale of equipment (upstream sales) through depreciation 3,900

S Company’s realized net income from separate operations……… P 63,900Less: Amortization of allocated excess / goodwill impairment

(refer to amortization table above) 13,200P 50,700

Multiplied by: Non-controlling interest %.......... 20%Non-controlling Interest in Net Income (NCINI) – partial goodwill P 10,140Less: Non-controlling interest on impairment loss on full-goodwill (P3,750 x

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

Non-controlling Interest in Net Income (NCINI) – full goodwill P 9,390*that has been realized in transactions with third parties.


Consolidated Retained Earnings, December 31, 20x4Retained 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 (partial-goodwill), December 31, 20x4


Retained earnings – Subsidiary Company, January 1, 20x4 P120,000Add: Net income of subsidiary for 20x4 91,200Total P211,200Less: Dividends paid – 20x4 36,000 175,200


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…… P492,000Unrealized gain on sale of equipment (upstream sales) ( 31,200)Realized gain on sale of equipment (upstream sales) through depreciation 3,900Realized stockholders’ equity of subsidiary, December 31, 20x4…… P464,700Multiplied by: Non-controlling Interest percentage…………... 20Non-controlling interest (partial-goodwill)………………………………….. P 92,940Add: 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 95,190

f.Consolidated SHE:



12/31/20x5:a. CI-CNI – P281,700

Consolidated Net Income for 20x5P Company’s net income from own/separate operations…………. P192,000Realized gain on sale of equipment (downstream sales) through depreciation 3,000

P Company’s realized net income from separate operations*…….….. P195,000

S Company’s net income from own operations…………………………………. P 90,000Realized gain on sale of equipment (upstream sales) through depreciation 3,900




P Company’s net income from own/separate operations…………. P192,000Realized gain on sale of equipment (downstream sales) through depreciation 3,000







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

P 90,000

Realized gain on sale of equipment (upstream sales) through depreciation 3,900S Company’s realized net income from separate operations……… P 93,900

Less: Amortization of allocated excess 7,200P 86,700

Multiplied by: Non-controlling interest %.......... 20%Non-controlling Interest in Net Income (NCINI) - partial goodwill P 17,340Less: NCI on goodwill impairment loss on full-goodwill . . . . . . . . . . . . . . . . . . . . . 0Non-controlling Interest in Net Income (NCINI) – full goodwill . . . . . . . . . . . . . P 17,340


Consolidated Retained Earnings, December 31, 20x5Retained earnings - Parent Company, January 1, 20x5 (cost model) P499,800Less: Downstream - net unrealized gain on sale of equipment – prior to 20x5

(P15,000 – P2,250) 12,750Adjusted Retained Earnings – Parent 1/1/20x5 (cost model ) Son Company’s

Retained earnings that have been realized in transactions with thirdparties.. P487,050


Retained earnings – Subsidiary, January 1, 20x5 P 175,200Less: Retained earnings – Subsidiary, January 1, 20x4 120,000Increase in retained earnings since date of acquisition P 55,200Less: Amortization of allocated excess – 20x4 13,200

Upstream - net unrealized gain on sale of equipment –prior to20x5 (P31,200 – P3,900) 27,300


P 11,760Less: Goodwill impairment loss 3,000 __ 8,760

Consolidated Retained earnings, January 1, 20x5 P495,810

Add: Controlling Interest in Consolidated Net Income or Profit attributable toequity holders of parent for 20x5 264,360

Total P760,170Less: Dividends paid – Parent Company for 20x5 72,000Consolidated Retained Earnings, December 31, 20x5 P688,170

*this procedure would be more appropriate, instead of multiplying the full-goodwill impairment loss of P3,750 by 80%. There mightbe situations where the controlling interests on goodwill impairment loss would not be proportionate to NCI acquired (refer toIllustration 15-6).


Retained earnings - Parent Company, December 31, 20x5 (cost model) P658,200Less: Downstream - net unrealized gain on sale of equipment – prior to

12/31/20x5 (P15,000 – P2,250– P3,000) 9,750Adjusted Retained Earnings – Parent 12/31/20x5 (cost model )

S Company’s Retained earnings that have been realized intransactions with third parties.. P648,450


Retained earnings – Subsidiary, December 31, 20x5 P 217,200Less: Retained earnings – Subsidiary, January 1, 20x4 120,000Increase in retained earnings since date of acquisition P 97,200Less: Accumulated amortization of allocated excess –

20x4 and 20x5 (P13,200 + P7,200) 20,400Upstream - net unrealized gain on sale of equipment – prior to

12/31/20x5 (P31,200 – P3,900– P3,900) 23,400P 53,400


Less: Goodwill impairment loss (full-goodwill) 3,000 39,720Consolidated Retained earnings, December 31, 20x5 P688,170

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


Retained earnings – Subsidiary Company, January 1, 20x5 P175,200Add: Net income of subsidiary for 20x5 90,000Total P 265,200Less: Dividends paid – 20x5 48,000 217,200


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 526,800Less: Upstream - net unrealized gain on sale of equipment – prior to 12/31/20x5

(P31,200 – P3,900 – P3,900) 23,400Realized stockholders’ equity of subsidiary, December 31, 20x5………. P503,400Multiplied by: Non-controlling Interest percentage…………... 20Non-controlling interest (partial goodwill)………………………………….. P 100,680Add: 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 102,930

f.Consolidated SHE:


NCI, 12/31/20x5 __102,930

Consolidated SHE, 12/31/20x5 P1,391,100

Problem VII20x4 20x5

1.Noncontrolling interest in P 7,000 (1) P 46,200 (2)

Consolidated net income

Controlling interest in 290,500 (3) 279,300 (4)Consolidated net income

(1) .4(P70,000 – P63,000 + P10,500) = P7,000(2) .4(P105,000 + P10,500) = P46,200(3) P280,000 + .6(P70,000 – P63,000 + P10,500) = P290,500(4) P210,000 + .6(P105,000 + P10,500) = P279,300

2014 20152.

Noncontrolling interest in P 28,000 (5) P 42,000 (6)Consolidated income

Controlling interest in 269,500 (7) 283,500 (8)Consolidated net income

(5) .4(P70,000) = P28,000(6) .4(P105,000) = P42,000(7) (P280,000 – P63,000 + P10,500) + .6(P70,000) = P269,500(8) (P210,000 + P10,500) + .6(P105,000) = P283,500

Problem VIII(Determine consolidated net income when an intercompany transfer of equipment occurs. Includes an outsideownership)

a. Income—ST .......................................................................................................... P220,000Income—BB.......................................................................................................... 90,000Excess amortization for unpatented technology ......................................... (8,000)Remove unrealized gain on equipment ....................................................... (50,000)(P120,000 – P70,000)Remove excess depreciation created by

inflated transfer price (P50,000 ÷ 5) ......................................................... 10,000Consolidated net income ................................................................................ P262,000

b. Income calculated in (part a.) ....................................................................... P262,000Non-controlling interest in BB's income

Income—BB .............................................................................. P90,000Excess amortization ................................................................. (8,000)Adjusted net income .............................................................. P82,000Non-controlling interest in BB’s income (10%)......................................... (8,200)

Consolidated net income to parent company............................................ P253,800

c. Income calculated in (part a.) ....................................................................... P262,000Non-controlling interest in BB's income (see Schedule 1) ........ (4,200)Consolidated net income to parent company............................................ P257,800

Schedule 1: Non-controlling Interest in Bennett's Income (includes upstream transfer)Reported net income of subsidiary ................................................................ P90,000Excess amortization............................................................................................. (8,000)Eliminate unrealized gain on equipment transfer ........................................ (50,000)Eliminate excess depreciation (P50,000 ÷ 5) ................................................. 10,000Bennett's realized net income ......................................................................... P42,000Outside ownership ............................................................................................. 10%Non-controlling interest in subsidiary's income ............................................. P 4,200

d. Net income 20x5—ST ......................................................................................... P240,000Net income 20x5—BB ........................................................................................ 100,000Excess amortization............................................................................................. (8,000)Eliminate excess depreciation stemming from transfer

(P50,000 ÷ 5) (year after transfer) ............................................................. 10,000Consolidated net income ..................................................................... P342,000

Problem IX1.

20x4 20x5 20x6Consolidated net income as reported P 750,000 P 600,000 P 910,000Less: P10,000 deferred gain -10,000Plus: NCI portion of the gain 3,000Plus: Deferred gain 7,000Corrected consolidated net income P 743,000 P 600,000 P 917,000

2.20x4 20x5 20x6

Land account as reported P 200,000 P 240,000 P 300,000Less: Intercompany profit -10,000 -10,000Restated land account P 190,000 P 230,000 P 300,000

3.Final sales price outside the entity minus the original cost to the combined entity equalsP102,000 minus P72,000 = P30,000

Problem X1. On the consolidated balance sheet, the machine must be reported at its original cost

when Tool purchased it on January 1, 20x1, which is P120,000. Since the elimination entrydebited the machine account for P22,000 which must be the amount needed to bring themachine account up to P120,000, Buzzard must have recorded the machine at P98,000.Since the remaining useful life is seven years, Buzzard will record P14,000 of depreciationexpense each year.

2. The correct balances on the consolidated balance sheet for the Machine andAccumulated Depreciation accounts are the balances that would be in the accounts ifthere had been no sale. The balance in the machine account would be the originalpurchase price to Tool or P120,000. The balance in the Accumulated Depreciation accountwill be the original amount of annual depreciation, (P12,000) times the number of years themachine has been depreciated (4), or P48,000.

3. The non-controlling interest income will be 30% of Tool’ adjusted net income. Tool’ reportednet income of P60,000 is reduced by the P14,000 unrealized gain on the sale of themachine and is increased by the piecemeal recognition of the gain, which is P2,000. Thenet result of P48,000 is then multiplied by 30% to calculate a P14,400 income for the non-controlling interest.

Problem XI1. Consolidated net income for 20x9:

Operating income reported by BW P100,000Net income reported by TW P40,000Amount of gain realized in 20x9

(P30,000 / 12 years) 2,500Realized net income of TW 42,500Consolidated net income P142,500

2. Consolidated net income for 20x9 would be unchanged.

3. Eliminating entry, December 31, 20x9:

E(1) Buildings and Equipment 30,000Retained Earnings, January 1 20,000Non-controlling Interest 5,000


Eliminate unrealized profit on building.

Adjustment to buildings and equipment

Amount paid by TW to acquire building P300,000Amount paid by BW on intercompany sale (270,000)Adjustment to buildings and equipment P 30,000

Adjustment to retained earnings, January 1, 20x9

Unrealized gain recorded January 1, 20x4 P 30,000Amount realized following intercompany sale

(P2,500 x 2) (5,000)Unrealized gain, January 1, 20x9 P 25,000Proportion of ownership held by Baywatch x .80Required adjustment P 20,000

Adjustment to Noncontrolling interest, January 1, 20x9

Unrealized gain at January 1, 20x9 P 25,000Proportion of ownership held by non-controlling

interest x .20Required adjustment P 5,000

Adjustment to depreciation expense

Depreciation expense recorded by BWIndustries (P270,000 / 12 years) P 22,500

Depreciation expense recorded by TWCorporation (P300,000 / 15 years) (20,000)

Adjustment to depreciation expense P 2,500

Adjustment to accumulated depreciation

Amount required (P20,000 x 6 years) P120,000Amount reported by BW (P22,500 x 3 years) (67,500)Required adjustment P 52,500

Problem XII1. The gain on the sale of the land in 20x5 was equal to the sales price minus the original cost of

the land when it was first acquired by the combined entity. In this case the gain was P150,000- P90,000, or P60,000.

2. The consolidated amount of depreciation expense was the combined amounts ofdepreciation expense showing on the separate income statements minus the piecemealrecognition of the gain on the sale of the equipment. Thus, the consolidated amount ofdepreciation expense was P95,000 + P32,000 – (P35,000/4 years) = P118,250.

3.Consolidated net income:Osprey separate income (not including Income

from Branch)= P153,000 - P55,000 = P 98,000Income from Branch 20,000Plus: Deferred gain on land 50,000Plus: Piecemeal recognition of gain on equipment

sale: P35,000 gain/4 years = 8,750Consolidated net income P176,750

Problem XIIIQuail Corporation and SubsidiaryConsolidated Income Statement

for the year ended December 31, 20x5

Sales P 1,100,000Gain on land (P20,000 + P25,000) 45,000Cost of sales ( 560,000 )Other expenses (see below) ( 320,000 )Consolidated Net Income P 265,000NCI-CNI (see below) ( 20,000 )Consolidated net income P 245,000

Other expenses:P265,000 + P60,000 - P5,000 piecemeal recognition of gain onequipment P 320,000

Non-controlling Interest in CNI:Net income from Savannah x 20%: (P100,000 x 20%) = P 20,000

Problem XIV – refer to Problem IX

Problem XV1. Eliminating entry, December 31, 20x7:

E(1) Gain on Sale of Land 10,000

Land 10,000

Eliminating entry, December 31, 20x8:E(1) Retained Earnings, January 1 10,000

Land 10,000

2. Eliminating entry, December 31, 20x7:E(1) Gain on Sale of Land 10,000

Land 10,000


Non-controlling Interest 4,000Land 10,000

Problem XVI1. Eliminating entry, December 31, 20x4:

E(1) Gain on Sale of Land 45,000Land 45,000


Non-controlling Interest 13,500Land 45,000

2. Eliminating entries, December 31, 20x4 and 20x5:E (1) Retained Earnings, January 1 30,000

Land 30,000

Problem XVII1. Downstream sale of land:

20x4 20x5VV’s separate operating income P 90,000 P110,000Less: Unrealized gain on sale of land (25,000)VV’s realized operating income P 65,000 P110,000Spawn’s realized net income 60,000 40,000Consolidated net income P125,000 P150,000Income to non-controlling interest:

(P60,000 x .25) (15,000)(P40,000 X .25) (10,000)

Income to controlling interest P110,000 P140,000

2. Upstream sale of land:20x4 20x5

VV’s separate operating income P 90,000 P110,000SS’s net income P60,000Less: Unrealized gain on sale of land (25,000)Spawn’s realized net income 35,000 40,000Consolidated net income P125,000 P150,000Income to non-controlling interest:

(P35,000 x .25) (8,750)

(P40,000 x .25) (10,000)Income to controlling interest P116,250 P140,000

Problem XVIII1. Consolidated net income for 20x4 will be greater than PP Company's income from operations plus SS's

reported net income. The eliminating entries at December 31, 20x4, will result in an increase of P16,000 toconsolidated net income.

2. As a result of purchasing the equipment at less than Parent's book value, depreciation expense reportedby SS will be P2,000 (P16,000 / 8 years) below the amount that would have been recorded by PP. Thus,depreciation expense must be increased by P2,000 when eliminating entries are prepared at December31, 20x5. Consolidated net income will be decreased by the full amount of the P2,000 increase indepreciation expense.

Problem XIX1. Eliminating entry, December 31, 20x9:

E(1) Buildings and Equipment 156,000Loss on Sale of Building 36,000Accumulated Depreciation 120,000

Eliminate unrealized loss on building.

2. Consolidated net income and income to controllinginterest for 20x9:

Operating income reported by BB P125,000Net income reported by TT P 15,000Add: Loss on sale of building 36,000Realized net income of TT 51,000Consolidated net income P176,000Income to non-controlling interest (P51,000 x .30) (15,300)Income to controlling interest P160,700

3. Eliminating entry, December 31, 20y0:E(1) Buildings and Equipment 156,000

Depreciation Expense 4,000Accumulated Depreciation 124,000Retained Earnings, January 1 25,200Non-controlling Interest 10,800

Eliminate unrealized loss on building.

Adjustment to buildings and equipmentAmount paid by TT to acquire building P300,000Amount paid by BB on intercompany sale (144,000)Adjustment to buildings and equipment P156,000

Adjustment to depreciation expenseDepreciation expense recorded by TT

Company (P300,000 / 15 years) P 20,000Depreciation expense recorded by BB

Corporation (P144,000 / 9 years) (16,000)Adjustment to depreciation expense P 4,000

Adjustment to accumulated depreciation

Amount required (P20,000 x 7 years) P140,000Amount reported by BB (P16,000 x 1 year) (16,000)Required adjustment P124,000

Adjustment to retained earnings, January 1, 20y0Unrealized loss recorded, December 31, 20x9 P36,000Proportion of ownership held by BB x .70Required adjustment P25,200

Adjustment to Noncontrolling interest, January 1, 20y0Unrealized loss recorded, December 31, 20x9 P36,000Proportion of ownership held by non-controlling

Interest x .30Required adjustment P10,800

4. Consolidated net income and income assigned tocontrolling interest in 20y0:Operating income reported by BB P150,000Net income reported by TT P40,000Adjustment for loss on sale of building (4,000)Realized net income of TT 36,000Consolidated net income P186,000Income assigned to non-controlling interest

(P36,000 x .30) (10,800)Income assigned to controlling interest P175,200

Problem XXRequirements 1 to 4Schedule 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 S:Common stock (P240,000 x 80%)……………………. P 192,000Retained earnings (P120,000 x 80%)………………... 96,000 288,000



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….. 1992,000 - ( 192,000)Net book value………………………... 168,000 144,000 ( 24,000)


Account Adjustments to be amortizedOver/Under Life

AnnualAmount




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 controlling interestand the NCI based on the percentage of total goodwill each equity interest received. For purposes ofallocating 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 S (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 interest of 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 and gain on intercompany sales for 20x4 are as follows:

Dateof Sale Seller

SellingPrice

BookValue

Unrealized*Gain on sale

RemainingLife

Realized gain –depreciation** 20x4

4/1/20x4 P P90,000 P75,000 P15,000 5 years P3,000/year P2,2501/2/20x4 S 60,000 28,800 31,200 8 years P3,900/year P3,900

* selling price less book value** unrealized gain divided by remaining life; 20x4 – P2,500 x 9/12 = P1,875

The following summary for 20x4 results of operations is as follows:P Co. S Co.


Other expenses 48,000 18,000P 168,000 P 60,000

Add: Gain on sale of equipment 15,000 31,200Net income from its own separate operations P 183,000 P 91,200Add: Investment income 24,810 -Net income P 207,810 P 91,200

20x4: First Year after AcquisitionParent Company Equity Method Entry




Investment in S Company (P36,000 x 80%)……………. 28,800Record dividends from Son Company.

December 31, 20x4:(3) Investment in S Company 72,960

Investment income (P91,200 x 80%) 72,960Record 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 (P15,000 x 100%) 15,000

Investment in S Company 15,000To adjust investment income for downstream sales - unrealized gainon sale of equipment..


Investment in S Company 24,960To adjust investment income for upstream sales - unrealized gain onsale of equipment..


Investment income (P2,250 x 100%) 2,250To adjust investment income for downstream sales - realized gain onsale of equipment..


Investment income (P3,900 x 80%) 3,120To adjust investment income for upstream sales - realized gain onsale of equipment..

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

Investment in SCost, 1/1/x4 372,000 28,800 Dividends – S (36,000x 80%)


Retained earnings – S Co…………………………………… 120,000Investment in S Co…………………………………………… 288,000Non-controlling interest (P360,000 x 20%)……………………….. 72,000

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.


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


(E4) Investment income 24,810Investment in S Company 3,990Non-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 as

NI of Son Amortization &(91,200 x 80%) 72,960 13,560 impairment

Realized gain downstream sale 2,250 15,000 Unrealized gain downstream saleRealized gain upstream sale 3,120 24,960 Unrealized gain upstream saleBalance, 12/31/x4 368,010

Investment IncomeAmortization & NI of S

impairment 13,560 72,960 (91,200 x 80%)Unrealized gain downstream sale 15,000 2,250 Realized gain downstream saleUnrealized gain upstream sale 24,960 3,120 Realized gain upstream sale

24,810 Balance, 12/31/x4

follows:

*downstream sale (should be multiplied by 100%)**upstream sale (should be multiplied by 80%)

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 28,800 Dividends - S NI of S(91,200

x 80%)……. 72,960Amortization &

13,560 impairmentAmortization

impairment 13,560(91,200

72,960 x 80%)Realized gain* 2,250 15,000 Unrealized gain * Unrealized gain * 15,000 2,250 Realized gain*Realized gain** 3,120 24,960 Unrealized gain ** Unrealized gain **24,960 3,120 Realized gain**

3,990 24,810

Investment in SCost, 1/1/x4 372,000 28,800 Dividends – S (36,000x 80%)NI of S Amortization &

(91,200 x 80%) 72,960 13,560 impairmentRealized gain downstream sale 2,250 15,000 Unrealized gain downstream saleRealized gain upstream sale 3,120 24,960 Unrealized gain upstream saleBalance, 12/31/x4 368,010 288,000 (E1) Investment, 1/1/20x4(E4) Investment Income

and dividends …………… 3,99084,000 (E2) Investment, 1/1/20x4

372,000 372,000





partial goodwill P 10,140

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


(6) 31,200Investment income 24,810 - (4) 28,800 _________

Total Revenue P519,810 P271,200 P 720,000Cost of goods sold P204,000 P138,000 (3) 6,000 P 348,000

Depreciation expense 60,000 24,000 (3) 6,000(7) 2,250

(8)3,900

83,850





Net income, from above 207,810 91,200 207,810Total P567,810 P211,200 P567,810





(2) 84,000 -Total P1,980,810 P1,008,000 P2,466,600


(2) 96,000(7) 2,250(8) 3,900

(3) 12,000(5) 45,000(6) 43,200 P229,050


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


_________ _________

(4) 7,200

__________

(1 ) 72,000(2) 18,000(9) 10,140 92,940

Total P1,980,810 P1,008,000 P 840,690 P 840,690 P2,466,600



Other expense 72,000 54,000Net income from its own separate operations P 192,000 P 90,000Add: Investment income 72,360 -Net income P 264,360 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 (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 income (P3,000 x 100%) 3,000To adjust investment income for downstream sales - realized gain onsale of equipment.



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

Cost, 1/1/x5 368,010 38,400 Dividends – S (48,000x 80%)NI of Son 5,760 Amortization (7,200 x 80%)

(90,000 x 80%) 72,000Realized gain downstream sale 3,000Realized gain upstream sale 3,120Balance, 12/31/x5 401,970

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

Retained earnings – S Co, 1/1/x5…………………………. 175,200Investment in S Co (P415,200 x 80%) 332,160Non-controlling interest (P415,200 x 20%)……………………….. 83,040

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………………………………………………………………………. 6,000Discount on bonds payable (P4,800 – P1,200)…. 3,600Goodwill (P12,000 – P3,000)…………………………….. 9,000

Buildings……………………………………….. 180,000Non-controlling interest [(P90,000 – P13,200) x 20%] 15,360Investment in Son Co………………………………………………. 70,440

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 72.360Non-controlling interest (P48,000 x 20%)……………….. 9,600

Dividends paid – S…………………… 48,000Investment in S Company 33,960

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

*downstream sale (should be multiplied by 100%)

Investment IncomeAmortization (6,000 x 805) 5,760 NI of S

72,000 (90,000 x 80%)3,000 Realized gain downstream sale3,120 Realized gain upstream sale

72,360 Balance, 12/31/x5

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%)Realized gain* 3,000 3,000 Realized gain*Realized gain** 3,120 3,120 Realized gain**

33,960 72,360

**upstream sale (should be multiplied by 80%)

(E5) Investment in S Company 15,000Equipment 30,000

Accumulated depreciation – equipment 45,000To eliminate the downstream intercompany gain and restore to itsoriginal cost to the consolidate entity (along with its accumulateddepreciation at the point of the intercompany sale).

(E6) Investment in S Company 24,960Non-controlling interest (P31,200 x 20%) 6,240Equipment 12,000

Accumulated depreciation- equipment 43,200To eliminate the upstream intercompany gain and restore to itsoriginal cost to the consolidate entity (along with its accumulateddepreciation at the point of the intercompany sale).

(E7) Accumulated depreciation – equipment ……….. 5,250Depreciation expense (current year)…………… 3,000Investment in S Company (prior year) 2,250


(E8) Accumulated depreciation- equipment…….. 7,800Depreciation expense (current year) 3,900Investment in S Company (prior year) 3,120Non-controlling interest (P31,200 x 20%) 780






P 86,700Multiplied by: Non-controlling interest %.......... 20%Non-controlling Interest in Net Income (NCINI P 17,340


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

Income Statement P Co S Co. Dr. Cr. ConsolidatedSales P540,000 P360,000 P 900,000Investment income 72,360 - (4) 72,360 ___________



(7)3,000

(8)3,900

83,100

Interest expense - - (3) 1,200 1,200Other expenses 72,000 54,000 126,000

Goodwill impairment loss - - -Total Cost and Expenses P348,000 P270,000 P 618,300

Net Income P264,360 P 90,000 P 281,700NCI in Net Income - Subsidiary - - (9) 17,340 ( 17,340)Net Income to Retained Earnings P264,360 P 90,000 P 264,360


P Company P495,810 P495,810S Company P 175,200 (1) 175,200

Net income, from above _264,360 90,000 264,360Total P760,170 P265,200 P 760,170



Balance SheetCash………………………. P 265,200 P 102,000 P 367,200Accounts receivable…….. 180,000 96,000 276,000Inventory…………………. 216,000 108,000 324,000Land……………………………. 210,000 48,000 (2) 7,200 265,200Equipment 240,000 180,000 (5) 30,000

(6) 12,000 462,000Buildings 720,000 540,000 (2) 216,000 1,044,000Discount on bonds payable (2) 3,600 (3) 1,200 2,400Goodwill…………………… (2) 9,000 9,000Investment in Son Co……… 401,970 (5) 15,000

(6) 24,960(1) 332,160(2) 70,440(4) 33,960(7) 2,250(8) 3,120 -

Total P2,233,170 P1,074,000 P2,749,800


P 150,000 P 102,000 (2) 84,000(7) 5,250(8) 7,800

(3) 12,000(5) 45,000(6) 43,200 P 255,150


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


___ _____ _________

(4) 9,600(6) 6,240

__________

(1) 69,200(2) 15,360(8) 780(9) 17,340 ____100,680

Total P2,233,170 P1,074,000 P 930,750 P 930,750 P2,749,800

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

Problem XXIRequirements 1 to 4Schedule 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%)……………….. 93,000

Fair value of Subsidiary (100%)………. P 465,000Less: 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



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


Account Adjustments to be amortizedOver/under Life

AnnualAmount




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

The following summary for 20x4 results of operations is as follows:P Co. S Co.


Other expenses 48,000 18,000P 168,000 P 60,000

Add: Gain on sale of equipment 15,000 31,200Net income from its own separate operations P 183,000 P 91,200Add: Investment income 24,810 -Net income P 207,810 P 91,200

20x4: First Year after AcquisitionParent Company Equity Method Entry




Investment in S Company (P36,000 x 80%)……………. 28,800Record dividends from Son Company.



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.


Investment in S Company 15,000To adjust investment income for downstream sales - unrealized gainon sale of equipment..


Investment in S Company 24,960To adjust investment income for upstream sales - unrealized gain onsale of equipment..





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



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.


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


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 of

Investment in SCost, 1/1/x4 372,000 28,800 Dividends – S (36,000x 80%)NI of Son Amortization &

(91,200 x 80%) 72,960 13,560 impairmentRealized gain downstream sale 2,250 15,000 Unrealized gain downstream saleRealized gain upstream sale 3,120 24,960 Unrealized gain upstream saleBalance, 12/31/x4 368,010

Investment IncomeAmortization & NI of S

impairment 13,560 72,960 (76,000 x 80%)Unrealized gain downstream sale 15,000 2,250 Realized gain downstream saleUnrealized gain upstream sale 24,960 3,120 Realized gain upstream sale

24,810 Balance, 12/31/x4

subsidiary) on date of acquisition.




Cost ofGoods

Sold


ExpenseAmortization


(E4) Investment income 24,810Investment in S Company 3,990Non-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 fromconsolidation point of view the investment account is totally eliminated. Thus,



Investment in S Investment IncomeNI of S 28,800 Dividends - S NI of S(91,200

x 80%)……. 72,960Amortization &

13,560 impairmentAmortization

impairment 13,560(91,200

72,960 x 80%)Realized gain* 2,250 15,000 Unrealized gain * Unrealized gain * 15,000 2,250 Realized gain*Realized gain** 3,120 24,960 Unrealized gain ** Unrealized gain **24,960 3,120 Realized gain**

3,990 24,810

Investment in SCost, 1/1/x4 372,000 28,800 Dividends – S (36,000x 80%)NI of S Amortization &

(91,200 x 80%) 72,960 13,560 impairmentRealized gain downstream sale 2,250 15,000 Unrealized gain downstream saleRealized gain upstream sale 3,120 24,960 Unrealized gain upstream saleBalance, 12/31/x4 368,010 288,000 (E1) Investment, 1/1/20x4(E4) Investment Income

and dividends …………… 3,99084,000 (E2) Investment, 1/1/20x4

372,000 372,000














partial goodwill P 10,140Less: 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 9,390

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


(6) 31,200Investment income 24,810 - (4) 28,800 _________

Total Revenue P519,810 P271,200 P 720,000Cost of goods sold P204,000 P138,000 (3) 6,000 P 348,000

Depreciation expense 60,000 24,000 (3) 6,000(7) 2,250

(8)3,900

83,850


Total Cost and Expenses P312,000 P180,000 P 502,800Net Income P207,810 P 91,200 P 217,200NCI in Net Income - Subsidiary - - (9) 9,390 ( 9,390)

Net Income to Retained Earnings P207,810 P 91,200 P 207,810








(2) 84,000 -Total P1,980,810 P1,008,000 P2,468,850


(2) 96,000(7) 2,250(8) 3900

(3) 12,000(5) 45,000(6) 43,200 P229,050


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


_________ _________

(4) 7,200

__________

(1 ) 72,000(2) 21,000(9) 9,390 ____95,190

Total P1,980,810 P1,008,000 P 843,690 P 843,690 P2,468,850

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 72,360 -Net income P 264,360 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 (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





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

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

Retained earnings – S Co, 1/1/x5…………………………. 175.200Investment in S Co (P415,200 x 80%) 332,160Non-controlling interest (P415,200 x 20%)……………………….. 83,040

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 – P3,900)…………………………….. 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 might besituations where the NCI on goodwill impairment loss would not be proportionate to NCI acquired (refer to Illustration 15-6).

Investment in SCost, 1/1/x5 368,010 38,400 Dividends – S (40,000x 80%)NI of S 5,760 Amortization (6,000 x 80%)

(90,000 x 80%) 72,000Realized gain downstream sale 3,000Realized gain upstream sale 3,120Balance, 12/31/x5 401,970

Investment IncomeAmortization (7,200 x 805) 5,760 NI of S

72,000 (90,000 x 80%)3,000 Realized gain downstream sale3,120 Realized gain upstream sale

72,360 Balance, 12/31/x5

(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 ( 6000)Bonds payable _______ P 1,200Totals P 6,000 P1,200 P7,,200

(E4) Investment income 72,360Non-controlling interest (P48,000 x 20%)……………….. 9,600

Dividends paid – S…………………… 48,000Investment in S Company 33,960

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


(E5) Investment in S Company 15,000Equipment 30,000

Accumulated depreciation – equipment 45,000To eliminate the downstream intercompany gain and restore to itsoriginal cost to the consolidate entity (along with its accumulateddepreciation at the point of the intercompany sale).

(E6) Investment in S Company 24,960Non-controlling interest (P31,200 x 20%) 6,240Equipment 12,000

Accumulated depreciation- equipment 43,200To eliminate the upstream intercompany gain and restore to itsoriginal cost to the consolidate entity (along with its accumulateddepreciation at the point of the intercompany sale).

(E7) Accumulated depreciation – equipment ……….. 5,250Depreciation expense (current year)…………… 3,000Investment in S Company (prior year) 2,250


(E8) Accumulated depreciation- equipment…….. 7,800

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

x 80%)……. 72,000Amortization

5,760 (P72,000 x 80%)Amortization

(P7,200 x 80%) 5,760(75,000

72,000 x 80%)Realized gain* 3,000 3,000 Realized gain*Realized gain** 3,120 3,120 Realized gain**

33,960 72,360

Depreciation expense (current year) 3,900Investment in S Company (prior year) 3,120Non-controlling interest (P31,200 x 20%) 780






P 86,700Multiplied by: Non-controlling interest %.......... 20%Non-controlling Interest in Net Income (NCINI)

– partial goodwill P 17,340Less: NCI on goodwill impairment loss on full-

Goodwill 0Non-controlling Interest in Net Income (NCINI)

– full goodwill P 17,340*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)

Income Statement P Co S Co. Dr. Cr. ConsolidatedSales P540,000 P360,000 P 900,000Investment income 72,360 - (4) 72,360 ___________



(7)3,000

(8)3,900

83,100




P Company P495,810 P495,810S Company P 175,200 (1) 175,200

Net income, from above _264,360 90,000 264,360Total P760,170 P265,200 P 760,170



Balance SheetCash………………………. P 265,200 P 102,000 P 367,200Accounts receivable…….. 180,000 96,000 276,000

Inventory…………………. 216,000 108,000 324,000Land……………………………. 210,000 48,000 (2) 7,200 265,200Equipment 240,000 180,000 (5) 30,000

(6) 12,000 462,000Buildings 720,000 540,000 (2) 216,000 1,044,000Discount on bonds payable (2) 3,600 (3) 1,200 2,400Goodwill…………………… (2) 11,250 11,250Investment in S Co……… 401,970 (5) 15,000

(6) 24,960(1) 332,160(2) 70,440(4) 33,960(7) 2,250(8) 3,120 -

Total P2,233,170 P1,074,000 P2,752,050


P 150,000 P 102,000 (2) 84,000(7) 5,250(8) 7,800

(3) 12,000(5) 45,000(6) 43,200 P 255,150


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


___ _____ _________

(4) 9,600(6) 6,240

__________

(1) 83,040(2) 17,610(8) 780(9) 17,340 ____102,930

Total P2,233,170 P1,074,000 P 933,000 P 933,000 P2,752,050

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

Multiple Choice Problems1. a

Combined equipment amounts P1,050,000Less: gain on sale 25,000Consolidated equipment balance P1,025,000

Combined Accumulated Depreciation P 250,000Less: Depreciation on gain 5,000Consolidated Accumulated Depreciation P 245,000

2. aOriginal cost of P1,100,000

Accumulated depreciation, 1/1/20x4 P 250,000Add: Additional depreciation (P1,100,000 – P100,000) / 20 years ____50,000Accumulated depreciation, 12/31/20x4 P 300,000

3. aCombined building amounts P650,000Less: Intercompany gain __30,000Consolidated buildings P620,000

Combined Accumulated Depreciation P195,000Less: Piecemeal recognition of gain ___3,000Consolidated accumulated depreciation P192,000

4. a – the amount of land that will be presented in the presented in the CFS is the original cost of P416,000 +P256,000 = P672,000.

5. a The costs incurred by BB to develop the equipment are research and developmentcosts and must be expensed as they are incurred. Transfer to another legal entity doesnot cause a change in accounting treatment within the economic entity.

6. eOriginal cost of P 100,000

Accumulated depreciation, 1/1/20x6 (P100,000 x 50%) P 50,000Add: Additional depreciation (P100,000 – P50,000) / 5 years ___10,000Accumulated depreciation, 12/31/20x6 P 60,000

7. dSales price P 80,000Less: Book value

Cost P100,000Less: Accumulated depreciation (50% x P100,000) __50,000 __50,000

Unrealized gain on sale P 30,000Less: Realized gain - depreciation (P30,000 / 5 years) ___6,000Net unrealized gain, 12/31/20x6 P 24,000

8. eEliminating entries:12/31/20x6: subsequent to date of acquisitionRealized Gain – depreciation

Accumulated depreciation 6,000Depreciation expense 6,000

[P80,000 - (P100,000 - {P100,000 x 50%])] = P30,000 / 5 years orP15,000 – P8,000 = P7,000

“Should be in CFS” Parent – Pylux “Recorded as” Subsidiary - SyluxDepreciation expense

(P50,000 /5 years) 10,000Depreciation expense

(P80,000 / 5 years) 16,000Acc. Depreciation 8,000 Acc. depreciation 16,000

9. d20x4 20x5

Unrealized gain on sales of equipment (downstream sales) ( 90,000) -0-Realized gain on sale of equipment (downstream sales) through depreciation

P90,000 / 10 years ___9,000 9,000Net ( 81,000) 9,000

10. d20x4 20x5

Unrealized gain on sale of equipment (downstream sales) ( 150,000) -0-Realized gain on sale of equipment (downstream sales) through depreciation

P150,000 / 10 years ___15,000 15,000Net ( 135,000) 15,000

11. a20x4 20x5

Unrealized gain on sale of equipment (upstream sales) : 50,000 – 30,000 ( 20,000) -0-Realized gain on sale of equipment (upstream sales) through depreciation

P20,000 / 5 years ___4,000 __4,000

Net ( 16,000) __4,000

12. eOriginal cost of P 100,000

Accumulated depreciation, 1/1/20x6 P 40,000Add: Additional depreciation (P100,000 – P40,000) / 6 years x 2 years ___20,000Accumulated depreciation, 12/31/20x4 P 70,000

13. cSales price P 48,000Less: Book value

Cost P100,000Less: Accumulated depreciation __40,000 __60,000

Unrealized loss on sale P(12,000)Add: Realized loss - depreciation (P12,000 / 6 years) x 2 years ___4,000Net unrealized loss, 12/31/20x7 P( 8,000)

14. aEliminating entries:12/31/20x7: subsequent to date of acquisitionRealized Gain – depreciation

Depreciation expense 2,000Accumulated depreciation 2,000[P48,000 - (P100,000 - P40,000) = P(12,000) / 6 years or P10,000 –

P8,000 = P2,000

“Should be in CFS” Parent – Poxey “Recorded as” Subsidiary - SoxeyDepreciation expense



15. cOriginal cost of P 100,000

Accumulated depreciation, 1/1/20x6 (P100,000 - P20,000) P 80,000Add: Additional depreciation (P100,000 – P80,000) / 5 years x 2 years ____8,000Accumulated depreciation, 12/31/20x7 P 88,000

16. cSales price P 45,000Less: Book value

Cost P100,000Less: Accumulated depreciation __80,000 __20,000

Unrealized gain on sale P 25,000Less: Realized gain - depreciation (P25,000 / 5 years) x 2 years __10,000Net unrealized gain, 12/31/20x7 P 15,000

17. bEliminating entries:12/31/20x7: subsequent to date of acquisitionRealized Gain – depreciation


[P45,000 - (P100,000 - P80,000) = P25,000 / 5 years or P4,000 –P9,000 = P5,000

“Should be in CFS” Parent – Sayex “Recorded as” Subsidiary - PayexDepreciation expense



18. c19. b20. c – (P20,000/20 years = P1,000), the eliminating entry to recognize the gain – depreciation would be as

follows:Accumulated depreciation……………………………………………… 1,000

Depreciation expenses………………………………………….. 1,000

21. aThe truck account will be debited for P3,000 in the eliminating entry:

Truck 3,000Gain 15,000

Accumulated depreciation 18,000

Seller BuyerCash 50,000 Truck 50,000Accumulated 18,000 Cash 50,000

Truck 53,000Gain 15,000

22. bCorrection: On January 1, 20x3 instead of 20x4

Consolidated Net Income for 20x5P Company’s net income from own/separate operations…………. P 98,000Realized gain on sale of equipment (downstream sales) through depreciation ___0

P Company’s realized net income from separate operations*…….….. P 98,000S Company’s net income from own operations…………………………………. P 55,000Unrealized gain on sales of equipment (upstream sales) (15,000)Realized gain on sale of equipment (upstream sales) through depreciation

(P15,000 / 3 years) 5,000S Company’s realized net income from separate operations*…….….. P 45,000 45,000

Total P143,000Less: Amortization of allocated excess…………………… 0Consolidated Net Income for 20x5 P143,000Less: Non-controlling Interest in Net Income* * 18,000Controlling Interest in Consolidated Net Income or Profit attributable to



P Company’s net income from own/separate operations…………. P 98,000Realized gain on sale of equipment (downstream sales) through depreciation ___0

P Company’s realized net income from separate operations*…….….. P 98,000S Company’s net income from own operations…………………………………. P 55,000Unrealized gain on sales of equipment (upstream sales) (15,000)Realized gain on sale of equipment (upstream sales) through depreciation

(P15,000 / 3 years) 5,000S Company’s realized net income from separate operations*…….….. P 45,000 45,000

Total P143,000Less: Non-controlling Interest in Net Income* * P 18,000

Amortization of allocated excess…………………… ____0 18,000Controlling Interest in Consolidated Net Income or Profit attributable to




(Reported net income of S Company)P 55,000

Unrealized gain on sales of equipment (upstream sales) ( 15,000)Realized gain on sale of equipment (upstream sales) through depreciation 5,000


P 45,000Multiplied by: Non-controlling interest %.......... 40%Non-controlling Interest in Net Income (NCINI) - partial goodwill P 18,000Less: NCI on goodwill impairment loss on full-goodwill . . . . . . . . . . . . . . . . . . . . . 0Non-controlling Interest in Net Income (NCINI) – full goodwill . . . . . . . . . . . . . P 18,000

23. a - refer to No. 22 computation24. a25. a26. b27. d – the entry under the cost model would be as follows ;

Accumulated depreciation……………………………………………. 4,000Depreciation expenses (current year) – P6,000/3 years…. 2,000Retained earnings (prior year – 20x4)……………………….. 2,000

28. d – the entry under the cost model would be as follows ;Accumulated depreciation……………………………………………. 10,000

Depreciation expenses (current year) – P15,000/3 years.. 5,000Retained earnings (prior year – 20x5)……………………….. 5,000

29. a30. b31. c – P50,000/5 years = P10,000 per year starting January 1, 20x6.32. b

Depreciation expense recorded by PirnP40,000

Depreciation expense recorded by Scroll 10,000Total depreciation reported P50,000Adjustment for excess depreciation charged

by Scroll as a result of increase incarrying value of equipment due to gainon intercompany sale (P12,000 / 4 years) (3,000)

Depreciation for consolidated statements P47,000

33. eDepreciation expense:

Parent P 84,000Subsidiary 60,000

Total P144,000Less: Over-depreciation due to realized gain:

[P115,000 – (P125,000 – P45,000)] = P35,000/8 years __ 4,375Consolidated net income P139,625

34. c20x6

Unrealized gain on sale of equipment ( 56,000)Realized gain on sale of equipment (upstream sales) through depreciation ___7,000

Net ( 49,000)

Selling price P 392,000Less: Book value, 1/1/20x6

Cost, 1/1/20x2 P420,000Less: Accumulated depreciation: P420,000/10 years x 2 years 84,000 336,000

Unrealized gain on sale of equipment P 56,000Realized gain – depreciation: P56,000/8 years P 7,000

35. c – (P22,500 x 4/15 = P6,000)36. a – [P50,000 – (P50,000 x 4/10) = P30,000]37. b The P39,000 paid to GG Company will be charged to depreciation expense by TLK

Corporation over the remaining 3 years of ownership. As a result, TLK Corporation willdebit depreciation expense for P13,000 each year. GG Company had chargedP16,000 to accumulated depreciation in 2 years, for an annual rate of P8,000.Depreciation expense therefore must be reduced by P5,000 (P13,000 - P8,000) inpreparing the consolidated statements.

38. a TLK Corporation will record the purchase at P39,000, the amount it paid. GGCompany had the equipment recorded at P40,000; thus, a debit of P1,000 will raisethe equipment balance back to its original cost from the viewpoint of theconsolidated entity.

39. b Reported net income of GG Company P 45,000Reported gain on sale of equipment P15,000Intercompany profit realized in 20x6 (5,000) (10,000)Realized net income of GG Company P 35,000Proportion of stock held by

non-controlling interest x .40Income assigned to non-controlling interests P 14,000

40. c Operating income reported by TLK Corporation P 85,000Net income reported by GG Company 45,000

P130,000Less: Unrealized gain on sale of equipment

(P15,000 - P5,000) (10,000)Consolidated net income P120,000

41. bEliminating entries:12/31/20x5: date of acquisitionRestoration of BV and eliminate unrealized gain

Equipment 10,000Gain 150,000


Parent Books – Mortar Subsidiary Books – GraniteCash 390,000 Equipment 390,000Accumulated depreciation 160,000 Cash 390,000


MortarSelling price P390,000Less: Book value, 12/31/20x5

Cost, 1/1/20x2 P400,000Less: Accumulated depreciation : P400,000/10 years x 4 years 160,000 240,000

Unrealized gain on sale of equipment P 150,000

Realized gain – depreciation: P150,000/6 years P 25,000

42. a – refer to No. 41 for computation43. b - refer to No. 41 for computation44. d

Eliminating entries:12/31/20x6: subsequent to date of acquisitionRealized Gain – depreciation


P150,000 / 6 years or P65,000 – P40,000

“Should be in CFS” Parent Books – Mortar “Recorded as” Subsidiary Books - GraniteDepreciation expense

(P400,000 / 10 years) 40,000Depreciation expense


45. cEliminating entries:12/31/20x6: subsequent to date of acquisition

Equipment 10,000Retained earnings (150,000 – 25,000) 100,000

Accumulated depreciation (P160,000 – P25,000) 135,000

46. aEliminating entries:1/1/20x5: date of acquisitionRestoration of BV and eliminate unrealized gain



Parent Books – Mortar Subsidiary Books - GraniteCash 350,000 Equipment 350,000Accumulated depreciation 120,000 Cash 350,000


MortarSelling price P350,000Less: Book value, 12/31/20x5


Unrealized gain on sale of equipment P 70,000Realized gain – depreciation: P70,000/7 years P 10,000

47. a - refer to No. 46 for computation48. b



P700,000 / 7 years or P50,000 – P40,000“Should be in CFS” Parent Books – Mortar “Recorded as” Subsidiary Books - GraniteDepreciation expense

(P400,000 / 10 years) 40,000Depreciation expense

(P350,000 / 7 years) 50,000

Acc. Depreciation 40,000 Acc. depreciation 50,000

Eliminating entries:12/31/20x6: subsequent to date of acquisition

Equipment 50,000Retained earnings (70,000 – 10,000) 60,000

Accumulated depreciation (P120,000 – P10,000) 110,000

49. b - refer to No. 48 for computation50. c - refer to No. 48 for computation51. a


P Company’s realized net income from separate operations*…….….. P 140,000S Company’s net income from own operations…………………………………. P 30,000Unrealized loss on sale of equipment (upstream sales) 20,000Realized loss on sale of equipment (upstream sales) through depreciation –

none, since the date of sale is end of the year ( 0)S Company’s realized net income from separate operations*…….….. P 50,000 50,000

Total P190,000Less: Amortization of allocated excess…………………… 0Consolidated Net Income for 20x9 P190,000Less: Non-controlling Interest in Net Income* * 15,000Controlling Interest in Consolidated Net Income or Profit attributable to


Selling price P180,000Less: Book value, 12/31/20x9


Unrealized loss on sale of equipment P( 20,000)Realized loss – depreciation: P20,000/4 years P( 5,000)



P Company’s realized net income from separate operations*…….….. P 140,000S Company’s net income from own operations…………………………………. P 30,000Unrealized loss on sale of equipment (upstream sales) 20,000Realized loss on sale of equipment (upstream sales) through depreciation ( 0)







Unrealized loss on sale of equipment (upstream sales) 20,000Realized loss on sale of equipment (upstream sales) through depreciation ( 0)


P 50,000Multiplied by: Non-controlling interest %.......... 30%Non-controlling Interest in Net Income (NCINI) - partial goodwill P 15,000Less: NCI on goodwill impairment loss on full-goodwill . . . . . . . . . . . . . . . . . . . . . 0

Non-controlling Interest in Net Income (NCINI) – full goodwill . . . . . . . . . . . . . P 15,000

52. bConsolidated Net Income for 20y0


P Company’s realized net income from separate operations*…….….. P 162,000S Company’s net income from own operations…………………………………. P 45,000Unrealized loss on sale of equipment (upstream sales)Realized loss on sale of equipment (upstream sales) through depreciation ( 5,000)

S Company’s realized net income from separate operations*…….….. P 40,000 40,000Total P202,000Less: Amortization of allocated excess…………………… 0Consolidated Net Income for 20y0 P202,000Less: Non-controlling Interest in Net Income* * 7,500Controlling Interest in Consolidated Net Income or Profit attributable to

equity holders of parent – 20y0………….. P194,500*that has been realized in transactions with third parties.

Or, alternativelyConsolidated Net Income for 20y0


P Company’s realized net income from separate operations*…….….. P 162,000S Company’s net income from own operations…………………………………. P 45,000Unrealized loss on sale of equipment (upstream sales)Realized loss on sale of equipment (upstream sales) through depreciation ( 5,000)



equity holders of parent………….. P194,500Add: Non-controlling Interest in Net Income (NCINI) _ _ 7,500Consolidated Net Income for 20y0 P202,000


**Non-controlling Interest in Net Income (NCINI) for 20y0S Company’s net income of Subsidiary Company from its own operations


Unrealized loss on sale of equipment (upstream sales)Realized loss on sale of equipment (upstream sales) through depreciation ( 5,000)



53. dEliminating entries:1/1/20x5: date of acquisitionRestoration of BV and eliminate unrealized gain

Building 3,000Gain 8,250


Parent Books – Sky Subsidiary Books - EarthCash 33,000 Building 33,000Accumulated depreciation 11,250 Cash 33,000

Building 36,000

Gain 8,250

Sky, 7/1/20x4Selling price P33,000Less: Book value, 7/11/20x4

Cost, 1/1/20x2 P36,000Less: Accumulated depreciation : P36,000/8years x 2.5 years 11,250 24,750

Unrealized gain on sale of equipment P 8,250Realized gain – depreciation: P8,250/5.5 years P 1,500

54. a - refer to No. 53 for computation55. b

Eliminating entries:12/31/20x4: subsequent to date of acquisitionRealized Gain – depreciation (July 1, 20x4 – December 31, 20x4)

Accumulated depreciation 750Depreciation expense 750

P8,250 / 5.5 x ½ years or P3,000 – P2,250

“Should be in CFS” Parent Books – Sky “Recorded as” Subsidiary Books - EarthDepreciation expense

(P24,750 / 5.5 x ½ years) 2,250Depreciation expense

(P33,000 / 5.5 years x ½ yrs) 3,000Acc. Depreciation 2,250 Acc. depreciation 3,000

56. cEliminating entries:12/31/20x5: subsequent to date of acquisitionRealized Gain – depreciation


P8,250 / 5.5 x years or P6,000 – P4,500

“Should be in CFS” Parent Books – Sky “Recorded as” Subsidiary Books - EarthDepreciation expense

(P24,750 / 5.5 years) 4,500Depreciation expense

(P33,000 / 5.5 years) 6,000Acc. Depreciation 4,500 Acc. depreciation 6,000

57. dEliminating entries:1/1/20x5: subsequent to date of acquisition

Building 3,000Retained earnings (8,250 – 750) 7,500

Accumulated depreciation (P11,250 – P750) 10,500

58. d - P60,000 - P36,000 = P24,000 debit59. b - P36,000 - (P60,000 - P31,200) = P7,200 gain (debit)60. c - (P36,000/6)(8/12) - [(P60,000 - P31,200)/6](8/12) = P800 credit61. a - P31,200 - {(P36,000/6)(8/12) - [(P60,000 - P31,200)/6](8/12)} = P30,400 credit62. c - P36,000 - (P60,000 - P31,200) = P7,200 gain (debit)

(P36,000/6)(8/12) - [(P60,000 - P31,200)/6](8/12) = P800 credit63. b

P72,000 - (P96,000 - P36,600) = P12,600 gain (debit)(P72,000/5)(4/12) - [(P96,000 - P36,600)/5](4/12) = P840 (credit)(P12,600 - P840) .1 = P1,176 debit

64. d When only retained earnings is debited, and not the non-controlling interest, a gainhas been recorded in a prior period on the parent's books.

65. d66. a67. b68. b – at its original cost or book value.69. b

20x4: Any intercompany gain should be eliminated in the CFS.20x5

Selling price – unrelated party P 100,000Less: Original Book value, 9/26/20x5 __60,000Accumulated depreciation, 9/26/20x5 P 40,000

70. d – P30,000 + P40,000 = P70,000S P Consolidated

Selling priceLess: Book valueGain P 30,000 P 40,000 P 70,000

71. d – P110,000 – P30,000 = P80,000S (Nectar) P (Lorikeet) Consolidated

Selling price P 50,000 P 110,000 P 110,000Less: Book value _30,000 __50,000 _30,000Gain P 20,000 P 60,000 P 80,000

72. dS P Consolidated

Selling price P1,980,000 P1,440,000 P1,440,000Less: Book value: Cost P2,000,000 P1,980,000 P 1,800,000

Accumulated ___200,000 1,800,00 *1,320,000 660,000 **1,200,000 __600,000Unrealized gain on sale of

equipment P 180,000Realized Gain – depreciation

(P180,000/9 x 6 yrs) 120,000Net unrealized gain, 1/1/20x9 P 60,000Gain on sale P 60,000 P 780,000 P 840,000

*P1,980,000/ 9 x 6 years = P1,320,000**P1,800,000/9 x 6 years = P1,200,000

73. d –(P100,000 + P50,000 = P150,000)S P Consolidated

Selling priceLess: Book valueGain P 100,000 P 50,000 P 150,000

74. cS P Consolidated

Selling price P 990,000 P720,000 P 720,000Less: Book value : Cost P1,000,000 P990,000 P 900,000

Accumulated 100,000 __900,000 *440,000 550,000 **400,000 __500,000Unrealized gain on sale of

Equipment,1/1/20x4 P 90,000Realized Gain – depreciation

(P90,000/9 x 4 yrs) 40,000Net unrealized gain, 1/1/20x8 P 50,000 __________ ___________Gain on sale P 50,000 P 170,000 P 220,000

*P990,000/ 9 x 4 years = P440,000**P900,000/9 x 4 years = P400,000

75. d – (P30,000 + P15,000)76. c

Selling price – unrelated party P 14,000Less: Original Book value, 12/31/20x5

Book value, 1/1/20x4 P20,000Less: Depreciation for 20x4 and 20x5: P20,000/4 years x 2 years 10,000 10,000

Accumulated depreciation, 12/31/20x4 P 4,000

77. bSort Fort Consolidated

Selling price P 100,000 P 65,000 P 65,000Less: Book value : Cost P 120,000 P100,000 P 90,000

Accumulated __30,000 __90,000 **50,000 50,000 **45,000 __45,000Unrealized gain on sale of

Equipment, 12/30/20x3 P 10,000Realized Gain – depreciation

(P10,000/6 x 3 yrs) __ 5,000Net unrealized gain, 12/31/20x6 P 5,000 __________ _________Gain on sale P 5,000 P 15,000 P 20,000

*P100,000/6 x 3 years = P48,000***P90,000/6 x 3 years = P45,000

78. bDepreciation expense: (P50,000 - P40,000) / 10 years = P1,000 over depreciation

79. b**Non-controlling Interest in Net Income (NCINI) for 20x4

S Company’s net income of Subsidiary Company from its own operations(Reported net income of S Company) P2,000,000

Unrealized gain on sales of equipment (upstream sales) (P700,000 – P600,000) ( 100,000)Realized gain on sale of equipment (upstream sales) through depreciation (P100,000/10) 10,000

S Company’s realized net income from separate operations……… P1,910,000Less: Amortization of allocated excess _ 0

P1,910,000Multiplied by: Non-controlling interest %.......... __40%Non-controlling Interest in Net Income (NCINI) - partial goodwill P 764,000Less: NCI on goodwill impairment loss on full-goodwill . . . . . . . . . . . . . . . . . . . . . __ 0Non-controlling Interest in Net Income (NCINI) – full goodwill . . . . . . . . . . . . . P 764,000

80. a**Non-controlling Interest in Net Income (NCINI) for 20y2


Unrealized gain on sale of equipment (downstream sales)Realized gain on sale of equipment (downstream sales) through depreciation ( 0)



81. aConsolidated Net Income for 20y2

P Company’s net income from own/separate operations…………. P 200,800Realized gain on sale of equipment (downstream sales) through depreciation _ 8,000

P Company’s realized net income from separate operations*…….….. P 208,800S Company’s net income from own operations…………………………………. P 135,000Unrealized gain on sale of equipment (upstream sales)Realized gain on sale of equipment (upstream sales) through depreciation ( 0)

S Company’s realized net income from separate operations*…….….. P 135,000 135,000Total P343,800Less: Amortization of allocated excess…………………… 0Consolidated Net Income for 20y2 P343,800Less: Non-controlling Interest in Net Income* *(refer to No. 80) 27,000Controlling Interest in Consolidated Net Income or Profit attributable to

equity holders of parent – 20y2………….. P316,800*that has been realized in transactions with third parties.

Net income from own operations:Prout Sexton

Sales P1,475,000 P1,110,000Less: Cost of goods sold 942,000 795,000

Other expenses (including depreciation) 145,000 90,000Income tax expense __187,200 ____90,000

Net income from own operations P 200,800 P 135,000Add: Dividend income ____80,000Net income P 280,800 P 135,000

Sexton, 1/1/20y1Selling price P360,000Less: Book value, 1/1/20y1


Unrealized gain on sale of equipment P120,000Realized gain – depreciation: P120,000/15 years P 8,000

Or, alternativelyConsolidated Net Income for 20y2

P Company’s net income from own/separate operations…………. P 200,800Realized gain on sale of equipment (downstream sales) through depreciation _ 8,000

P Company’s realized net income from separate operations*…….….. P 208,800S Company’s net income from own operations…………………………………. P 135,000Unrealized gain on sale of equipment (upstream sales)Realized gain on sale of equipment (upstream sales) through depreciation ( 0)

S Company’s realized net income from separate operations*…….….. P 135,000 135,000Total P343,800Less: Non-controlling Interest in Net Income* * (refer to No. 80) P 27,000


equity holders of parent………….. P316,800Add: Non-controlling Interest in Net Income (NCINI) _ _27,000Consolidated Net Income for 20y2 P343,800


82. a – refer to No. 8183. c

Consolidated Retained Earnings, December 31, 20y2Retained earnings - Parent Company, January 1, 20y1 (cost model) P1,300,000Less: Downstream - net unrealized gain on sale of equipment – prior to 20y1

[P120,000 – (P8,000 x 1 year)] 112,000Adjusted Retained Earnings – Parent 1/1/20y1 (cost model ) Son Company’s

Retained earnings that have been realized in transactions with thirdparties.. P1,188,000


Retained earnings – Subsidiary, January 1, 20x9 P 800,000Less: Retained earnings – Subsidiary, January 1, 20y1 1,040,000Increase in retained earnings since date of acquisition P 240,000Less: Amortization of allocated excess – 20x9 to – 20y0 0

Upstream - net unrealized gain on sale of equipment –prior to20y1 0


P192,000Less: Goodwill impairment loss 0 _192,000

Consolidated Retained earnings, January 1, 20x5 P1,380,000Add: Controlling Interest in Consolidated Net Income or Profit attributable to

equity holders of parent for 20x5 316,800Total P1,696,800Less: Dividends declared – Parent Company for 20y1 120,000Consolidated Retained Earnings, December 31, 20y1 P1,576,8000

Or, alternatively:Consolidated Retained Earnings, December 31, 20y2

Retained earnings - Parent Company, December 31, 20y1 (cost model)(P1,300,000 + P280,800 – P120,000) P1,460,800

Less: Downstream - net unrealized gain on sale of equipment – prior to12/31/20y1 [P120,000 – (P8,000 x 2 years)] 104,000

Adjusted Retained Earnings – Parent 12/31/20x5 (cost model )S Company’s Retained earnings that have been realized intransactions with third parties.. P1,356,800


Retained earnings – Subsidiary, December 31, 20y2(P1,040,000 + P135,000 – P100,000) P 1,075,000

Less: Retained earnings – Subsidiary, January 1, 20x9 800,000Increase in retained earnings since date of acquisition P 275,000Less: Accumulated amortization of allocated excess 0

Upstream - net unrealized gain on sale of equipment – prior to12/31/20y2 _______0


P 220,000Less: Goodwill impairment loss _____0 220,000

Consolidated Retained earnings, December 31, 20y2 P1,576,800

84. cNon-controlling interest (fulll-goodwill), December 31, 20y2

Common stock – Subsidiary Company, December 31, 20y2…… P 1,200,000Retained earnings – Subsidiary Company, December 31, 20y2

Retained earnings – Subsidiary Company, January 1, 20y2 P1,040,000Add: Net income of subsidiary for 20y2 135,000Total P1,175,000Less: Dividends paid – 20y2 100,000 1,075,000

Stockholders’ equity – Subsidiary Company, December 31, 20x5 P 2,275,200Adjustments to reflect fair value - (over) undervaluation of assets and

liabilities, date of acquisition (January 1, 20x4) 0Amortization of allocated excess (refer to amortization above) : 0Fair value of stockholders’ equity of subsidiary, December 31, 20x5…… P2,275,200Less: Upstream - net unrealized gain on sale of equipment – prior to

12/31/20y2 _____)0Realized stockholders’ equity of subsidiary, December 31, 20x5………. P 2,275,00Multiplied by: Non-controlling Interest percentage…………... _ 20Non-controlling interest (partial goodwill)………………………………….. P 455,000

85. cAdditional information: Gain or loss to outsiders on 1/1/20y3 in the books of Sexton.

Prout Sexton ConsolidatedSelling price P 360,000 P300,000 P 300,000Less: Book value : Cost P 400,000 P360,000 P 240,000

Accumulated *160,000 __240,000 **48,000 312,000 ***32,000 _208,000Unrealized gain on sale of

Equipment, 1/1/20y1 P 120,000Realized Gain – depreciation

(P120,000/15 x 2 yrs) __16,000Net unrealized gain, 1/1/20y3 P 104,000 __________ _________Gain on sale P 104,000 P( 12,000) P 92,000

*P400,000/25 x 10 years = P160,000**P360,000/15 x 2 years = P48,000***P240,000/15 x 2years = P400,000

86. b – refer to No. 85Requirement should be: Calculate the book value on January 1, 20y3 from the consolidated point ofview:

87. a – refer to No. 85Requirement should be: Calculate the gain or loss on fixed assets on January 1, 20y3 from theconsolidated point of view:

Analysis:Workpaper entries (not required)Intercompany Sale of Equipment

Accumulated RemainingCost Depreciation Carrying Value Life Depreciation

Original Cost P400,000 P160,000 P240,000 15 yr P 16,000Intercompany Selling Price 360,000 _______ 360,000 15 yr 24,000Difference P 40,000 P160,000 P120,000 P 8,000

(1) Investment in Sexton Company 192,000Retained Earnings - Prout 192,000

To establish reciprocity/convert to equity (.80 x (P1,040,000 - P800,000))

(2) Equipment 40,000Beginning Retained Earnings - Prout 120,000

Accumulated Depreciation 160,000To reduce beginning consolidated retained earnings by amount of unrealized profit at the beginning of the year, to restateproperty and equipment to its book value to Prout Company on the date of the intercompany sale.

(3) Accumulated Depreciation 16,000Depreciation Expense 8,000Beginning Retained Earnings - Prout 8,000

To reverse amount of excess depreciation recorded during current year and recognize an equivalent amount ofintercompany profit as realized

(4) Dividend Income 80,000Dividends Declared 80,000

To eliminate intercompany dividends

(5) Beginning Retained Earnings – Sexton 1,040,000Common Stock – Sexton 1,200,000

Investment in Sexton Company (P1,600,000 + P192,000) 1,792,000Noncontrolling Interest [P400,000 + (P1,040,000 - P800,000) x .20] 448,000

To eliminate investment account and create noncontrolling interest account

Entry analysis:Journal Entry on the books of Sexton to record the sale

Cash 300,000Accumulated Depreciation - Fixed Assets (P360,000/15) x 2 years) 48,000Loss on Sale of Equipment 12,000

Plant and Equipment 360,000

Workpaper eliminating entry on December 31, 20y3 consolidated statement necessary to prepare consolidatedstatements:

Beginning Retained Earnings – Prout(P120,000 - P16,000) 104,000Loss on Sale of Equipment 12,000Gain on Sale of Equipment 92,000

Cost to the Affiliated Companies P400,000Accumulated Depreciation Based on Original Cost ((12/25)x P400,000) 192,000Book Value, 1/1/y3 P 208,000Proceeds from Sale to Non-affiliate (300,000)Gain from consolidated point of view P 92,000

Note: As of Dec. 31, 20y3, the amount of profit recorded by the affiliates on their books (P120,000 - P12,000 =P108,000) is equal to the amount of profit considered realized in the consolidated financial statements(P8,000 + P8,000 + P92,000) = P108,000.

88. d - Investment in subsidiary, 12/31/20x5 (cost model) P700,000).Date of Acquisition (1/1/20x4) Partial Full

Fair value of consideration given…………………………P 700,000Less: Book value of SHE - Subsidiary):

(P300,000 + P500,000) x 80%................. 640,000Allocated Excess.……………………………………………….P 60,000Less: Over/Undervaluation of Assets & Liabilities

Increase in Bldg. (P75,000 x 80%)…………… 60,000Goodwill ………….……………………………………………….P 0 P 0Amortization of allocated excess: building - P75,000 / 25 years = P3,000Upstream Sale of Equipment (date of sale – 4/1/20x5):

Sales.......................................................................................................P 60,000Less: Book value of equipment…………………………………………………………….. 30,000Unrealized Gain (on sale of equipment)…………………………………………………..P 30,000

Realized gain on sale of equipment:20x5: P30,000/5 years = P6,000 x 9/12 (4/1/20x5-12/31/20x5)………….P 4,50020x6 ………………..……………………………………………………………………………..P 6,000

Downstream Sale of Machinery (date of sale – 9/30/20x5):Sales........................................................................................................P75,000Less: Book value of machinery………………………………………………………………. 40,000Unrealized Gain (on sale of machinery)……………………………………………………P35,000

Realized gain on sale of machinery:20x5: P35,000/10 years = P3,500 x 3/12 (9/30/20x5-12/31/20x5)………..P 87520x6………….. …………………………………………………………………………………..P 3,500

89. dDividend paid or declared – S…………………………………………………P 50,000x: Controlling Interest %…………………………………………………………. 80%Dividend income of Parent……………………………………………………..P 40,000

90. dConsolidated Net Income for 20x5

P Company’s net income from own/separate operations…………. P 300,000Net unrealized gain on sale of equipment (downstream sales) through

depreciation P35,000 – P875) 34,125P Company’s realized net income from separate operations*…….….. P 265,875

S Company’s net income from own operations…………………………………. P 150,000Unrealized gain on sales of equipment (upstream sales) (30,000)Realized gain on sale of equipment (upstream sales) through depreciation 4,500





depreciation P35,000 – P875) 34,125P Company’s realized net income from separate operations*…….….. P 265,875

S Company’s net income from own operations…………………………………. P 150,000Unrealized gain on sales of equipment (upstream sales) (30,000)Realized gain on sale of equipment (upstream sales) through depreciation 4,500







Unrealized gain on sales of equipment (upstream sales) ( 30,000)Realized gain on sale of equipment (upstream sales) through depreciation 4,500

S Company’s realized net income from separate operations……… P 124,500Less: Amortization of allocated excess 3,000


91. c – refer to No. 90 for computations92. d – refer to No. 90 for computations93. a

Non-controlling Interests (in net assets): 20x5 20x6Common stock - S, 12/31..….………………………… P 300,000 P 300,000Retained earnings - S, 12/31:

RE- S, 1/1.…………………………………………….P600,000 P 700,000+: NI-S………………………………………………… 150,000 200,000-: Div – S…………………………………………….. 50,000 700,000 70,000 830,000

Book value of Stockholders’ equity, 12/31…….... P1,000,000 P1,130,000Adjustments to reflect fair value of net assets

Increase in equipment, 1/1/2010..……..… 75,000 75,000Accumulated amortization (P3,000 per year)*.…… ( 6,000) ( 9,000)Fair Value of Net Assets/SHE, 12/31..……………… P1,069,000 P1,196,000Unrealized gain on sale of equipment (upstream) ( 30,000) **( 25,500)Realized gain thru depreciation (upstream)……… 4,500 6,000Realized SHE – S,12/31………………………………….. P1,043,500 P1,176,500x: NCI %........................................................... ___ 20% 20%Non-controlling Interest (in net assets) – partial... P 208,700 P 235,300+: NCI on full goodwill……..…………………………….. 0 0Non-controlling Interest (in net assets) – full…….. P 208,700 P 235,300

* 20x5: P3,000 x 2 years; 2012: P3,000 x 3 years;** P30,000 – P4,500 realized gain in 20x5 = P25,500.

Note: Preferred solution - since what is given is the RE – P, 1/1/20x5(beginningbalance of the current year) -

Retained earnings – Parent, 1/1/20x5 (cost)…………………………… P 800,000-: Downstream sale – 20x4 or prior to 20x5, Net unrealized gain 0Adjusted Retained earnings – Parent, 1/1/20x5 (cost)……………… P 800,000Retroactive Adjustments to convert Cost to “Equity”:

Retained earnings – Subsidiary, 1/1/20x4……………………….P 500,000Less: Retained earnings – Subsidiary, 1/1/20x5……………… 600,000Increase in Retained earnings since acquisition

(cumulative net income – cumulative dividends)…………P 100,000Accum. amortization (1/1/x4– 1/1/x5): P2,000 x 1 year……( 3,000)Upstream Sale – 2010 or prior to 20x5,

Net unrealized gain……………………………..………………..( 0)P 97,000

X: Controlling Interests %..…………………………………………… 80% 77,600RE – P, 1/1/20x5 (equity method) = CRE, 1/1/20x5………………… P 877,600+: CI – CNI or Profit Attributable to Equity Holders of Parent……. 363,075-: Dividends – P………………………………………………………………….. 100,000

RE – P, 12/31/20x5 (equity method) = CRE, 12/31/20x5………….. P 1,140,675

Or, if RE – P is not given on January 1, 20x5, then RE – P on December 31, 20x5 shouldbe use.

Retained earnings – Parent, 12/31/20x5 (cost model):(P800,000 + P340,000, P’s reported NI – P100,000)……………… P1,040,000

-: Downstream sale – 20x5 or prior to 12/31/20x5,Net unrealized gain - (P35,000 – P875)……………………………. 34,125

Adjusted Retained earnings – Parent, 1/1/20x5 (cost model)..…… P1,005,875Retroactive Adjustments to convert Cost to “Equity”:

Retained earnings – Subsidiary, 1/1/20x4……………………….P 500,000

Less: Retained earnings – Subsidiary, 12/31/20x5(P600,000 + P150,000 – P50,000)..…………..…….. 700,000

Increase in Retained earnings since acquisition(cumulative net income – cumulative dividends)……….P 200,000

Accumulated amortization (1/1/20x4 – 12/31/20x5):P 3,000 x 2 years……………………………………………..( 6,000)

Upstream Sale – 20x5 or prior to 12/31/20x5,Net unrealized gain – (P30,000 – P4,500)…………….( 25,500)

P 168,500x: Controlling Interests %..………………………………………… 80% 134,800

RE – P, 12/31/20x5 (equity method) = CRE, 12/31/20x5…………. P1,140,675

94. c – refer to No, 93 computations.95. b – refer to No. 93 for computations96. d – refer to No. 93 for computations97. b

Consolidated Stockholders’ Equity, 12/31/20x5:Controlling Interest / Parent’s Interest / Parent’s Portion /Equity Holders of Parent – SHE, 12/31/20x5:

Common stock – P (P only)……………………………………………..P1,000,000Retained Earnings – P (equity method), 12/31/20x5…………. 1,140,675Controlling Interest / Parent’s Stockholders’ Equity…………… P2,140,675

Non-controlling interest, 12/31/20x5 (partial/full)…………………… 208,700Consolidated Stockholders’ Equity, 12/31/20x5……………………….P2,349,375

98. d – the original cost of land99. b – no intercompany gain or loss be presented in the CFS.100. a


P Company’s realized net income from separate operations*…….….. P 200,000S3 Company’s net income from own operations…………………………………. P100,000S2 Company’s net income from own operations…………………………………. 70,000S1 Company’s net income from own operations…………………………………. 95,000Unrealized loss on sale of equipment (upstream sales) – S3 15,000Unrealized gain on sale of equipment (upstream sales) – S2 ( 52,000)Unrealized gain on sale of equipment (upstream sales) - S1 ( 23,000)

S Company’s realized net income from separate operations*…….….. P205,000 205,000Total P405,000Less: Amortization of allocated excess…………………… 0Consolidated Net Income for 20x4 P405,000Less: Non-controlling Interest in Net Income* * (P23,000 + P5,400 + P7,200) 35,600Controlling Interest in Consolidated Net Income or Profit attributable to


S3 S2 S1Sales price 145,000 197,000 220,000Less: Cost 160,000 145,000 197,000Unrealized (loss) gain ( 15,000) 52,000 23,000



P Company’s realized net income from separate operations*…….….. P 200,000S3 Company’s net income from own operations…………………………………. P100,000S2 Company’s net income from own operations…………………………………. 70,000S1 Company’s net income from own operations…………………………………. 95,000Unrealized loss on sale of equipment (upstream sales) – S3 15,000Unrealized gain on sale of equipment (upstream sales) – S2 ( 52,000)Unrealized gain on sale of equipment (upstream sales) - S1 ( 23,000)

S Company’s realized net income from separate operations* P205,000 205,000Total P405,000Less: Non-controlling Interest in Net Income* * (P23,000 + P5,400 + P7,200) P 35,600

Amortization of allocated excess…………………… ____0 _ 35,600Controlling Interest in Consolidated Net Income or Profit attributable to

equity holders of parent………….. P369,400Add: Non-controlling Interest in Net Income (NCINI) _ _35,600Consolidated Net Income for 20y0 P405,000


**Non-controlling Interest in Net Income (NCINI) S3 S2 S1S Company’s net income of Subsidiary Company from its own

operations (Reported net income of S Company) P 100,000 P 70,000 P 95,000Unrealized (gain) loss on sale of land (upstream sales) 15,000 ( 52,000) ( 23,000)

S Company’s realized net income from separate operations P 115,000 P 18,000 P 72,000Less: Amortization of allocated excess 0 0 0

P 115000 P 18,000 P 72,000Multiplied by: Non-controlling interest %.......... 20% 30% 10%Non-controlling Interest in Net Income (NCINI) - partial goodwill P 23,000 P 5,400 P 7,200Less: NCI on goodwill impairment loss on full-goodwill 0 0 0Non-controlling Interest in Net Income (NCINI) – full goodwill P 23,000 P 5,400 P 7,200

101. bNon-controlling Interest in Net Income (NCINI) for 20y2


Unrealized gain on sales of equipment (upstream sales) – year of sale -Realized gain on sale of equipment (upstream sales) through depreciation

(P14,500 – P9,000) / 5 years 1,100S Company’s realized net income from separate operations……… P 41,100

Less: Amortization of allocated excess 0P 41,100


102. d – the unrealized gain amounted to P15,000 (P60,000 – P45,000).It should be noted that PAS 27 allow the use of cost model in accounting for investment insubsidiary in the books of parent company but not the equity method. Since, the costmodel is presumed to be the method used, the unrealized gain of P15,000 (P60,000 –P45,000) will not be recorded in the books of parent company, which give rise to no equity-adjustments at year-end.

103. cCliff reported income P225,000Less: Intercompany gain on truck 45,000Plus: Piecemeal recognition of gain = P45,000/10

years ___4,500Cliff’s adjusted income P184,500Majority percentage 90%Income from Cliff P166,050

104. c

Pied Imperial-Pigeon’s share of Roger’s income = (P320,000 x 90%) = P288,000Less: Profit on intercompany sale (P130,000 - P80,000) x 90% = 45,000Add: Piecemeal recognition of deferred profit ($50,000/4 years)90% = 11,250Income from Offshore P254,250

105 cP30,000 - (1/4 x P30,000) = P 22,500

106. d - P60,000 – P48,000)/4 years = P3,000107. a

Simon, 4/1/20x4Selling price P68,250Less: Book value, 4/1/20x4

Cost, 1/1/20x4 P50,000Less: Accumulated depreciation : P50,000/10 years x 3/12 __1,250 48,750

Unrealized gain on sale of equipment P19,500Realized gain – depreciation: P19,500/9.75 years P 2,000

108. c – P2,000 x 9/12 (April 1, 20x4 – December 31, 20x4) = P1,500109. c – P19,500 / 9.75 years = P2,000110. c – P19,500 / 9.75 years = P2,000111. d

20x4Share in subsidiary net income (100,000 x 90%) 90,000Unrealized gain on sale of equipment (downstream sales) ( 19,500)Realized gain on sale of equipment (downstream sales) through depreciation

P2,000 x 9/12 (April 1, 20x4 – December 31, 20x4) = P1,500 _ 1,500Net 72,000

112. b20x5

Share in subsidiary net income (120,000 x 90%) 108,000Realized gain on sale of equipment (downstream sales) through depreciation _ 2,000Net 110,000

113. d20x6

Share in subsidiary net income (130,000 x 90%) 117,000Realized gain on sale of equipment (downstream sales) through depreciation _ 2,000Net 119,000

114. cSmeder, 1/1/20x4

Selling price P84,000Less: Book value, 1/1/20x4

Cost, 1/1/20x4 P120,000Less: Accumulated depreciation __48,000 72,000


115. b20x4

Share in subsidiary net income (28,000 x 80%) 22,400Unrealized gain on sale of equipment (upstream sales); 12,000 x 80% ( 9,600)Realized gain on sale of equipment (upstream sales) through depreciation

P2,000 x 80% _ 1,600Net 14,400

116. c20x5

Share in subsidiary net income (32,000 x 80%) 25,600Realized gain on sale of equipment (upstream sales) through depreciation

P2,000 x 80% _ 1,600Net 27,200




Parent – Smeder Subsidiary - CollinsCash 84,000 Equipment 84,000Accumulated depreciation 48,000 Cash 84,000


Smeder, 1/1/20x4Selling price P84,000Less: Book value, 1/1/20x4

Cost, 1/1/20x4 P120,000Less: Accumulated depreciation __48,000 72,000




Depreciation expense 2,000P12,000 / 6 years or P14,000 – P12,000

“Should be in CFS” Parent – Smeder “Recorded as” Subsidiary - CollinsDepreciation expense



Combining the eliminating entries for 1/1/20x4 and 12/31/200x4, the net effect ofaccumulated depreciation would be a net credit of P46,000 (P48,000 – P2,000).

118. c20x4

Unrealized gain on sale of equipment ( 12,000)Realized gain on sale of equipment through depreciation ___2,000Net ( 10,000)


Cash 5,000Loss 5,000

Parent – Stark Subsidiary - ParkerCash 80,000 Land 85,000Loss 5,000 Cash 85,000

Land 85,000

Stark Parker ConsolidatedSelling price P 80,000 P 92,000 P 92,000Less: Book value, 5/1/20x4 _85,000 __80,000 _85,000Unrealized gain on sale of equipment P ( 5,000) P 12,000 P 7,000

120. b – refer to No. 119 for eliminating entry121. b

Cash 5,000Retained earnings 5,000

122. e20x4

Share in subsidiary net income (200,000 x 90%) 180,000Unrealized loss on sale of land (upstream sales): P5,000 x 90% _ 4,500Net 184,500

123. d20x4

Share in subsidiary net income (200,000 x 90%) 180,000Unrealized loss on sale of land (upstream sales): P5,000 x 90% _ 4,500Net 184,500

124. bStark Parker Consolidated

Selling price P 80,000 P 92,000 P 92,000Less: Book value, 5/1/20x4 _85,000 __80,000 _85,000Unrealized gain on sale of equipment P ( 5,000) P 12,000 P 7,000

125. a – refer to No. 124 for computation126. e – None, the loss was already recognized in the books of Stark in the year of sale - 20x4 but

not in the subsequent years.127. c

20x6Share in subsidiary net income (220,000 x 90%) 198,000Intercompany realized loss on sale of land (upstream sales): P5,000 x 90% _ ( 4,500)Net 193,500

Quiz XVIII1. a

Individual Records after Transfer12/31/x4

Machinery—P40,000Gain—P10,000Depreciation expense P8,000 (P40,000/5 years)Income effect net—P2,000 (P10,000 – P8,000)

12/31/x5Depreciation expense—P8,000

Consolidated Figures—Historical Cost12/31/x4

Machinery—P30,000Depreciation expense—P6,000 (P30,000/5 years)

12/31/x5Depreciation expense--P6,000

Adjustments for Consolidation Purposes:20x4: P2,000 income is reduced to a P6,000 expense (income is reduced by P8,000)20x5: P8,000 expense is reduced to a P6,000 expense (income is increased by P2,000)

2. bUNREALIZED GAIN

Transfer Price ........................................................................................................ P280,000Book Value (cost after two years of depreciation) ..................................... 240,000Unrealized Gain ................................................................................................... P40,000

EXCESS DEPRECIATIONAnnual Depreciation Based on Cost (P300,000/10 years)........................... P30,000Annual Depreciation Based on Transfer Price

(P280,000/8 years) ........................................................................................ 35,000Excess Depreciation ........................................................................................... P5,000

ADJUSTMENTS TO CONSOLIDATED NET INCOMEDefer Unrealized Gain ....................................................................................... P(40,000)Remove Excess Depreciation ........................................................................... 5,000Decrease to Consolidated Net Income ........................................................ P(35,000)

3. Cost, P100,000; Accumulated depreciation, P68,000Original cost of P 100,000

Accumulated depreciation, 1/1/20x6 (P100,000 x 60%) P 60,000Add: Additional depreciation (P100,000 – P60,000) / 5 years ____8,000Accumulated depreciation, 12/31/20x6 P 68,000

4. P28,000Sales price P 75,000Less: Book value

Cost P100,000Less: Accumulated depreciation (60% x P100,000) __60,000 __40,000

Unrealized gain on sale P 35,000Less: Realized gain - depreciation (P35,000 / 5 years) ___7,000Net unrealized gain, 12/31/20x6 P 28,000

5. credit to depreciation expenses of P7,000Eliminating entries:12/31/20x6: subsequent to date of acquisitionRealized Gain – depreciation


[P75,000 - (P100,000 - {P100,000 x 40%])] = P35,000 / 5 years orP15,000 – P8,000 = P7,000

“Should be in CFS” Parent – Palex “Recorded as” Subsidiary - SalexDepreciation expense



6. P40,000 - P25,000 = P15,000 debit7. P25,000 - (P40,000 - P10,000) = P5,000 loss (credit)8. P10,000 credit, entire accumulated depreciation is reestablished9. P25,000 - (P40,000 - P10,000) = P5,000 loss (credit)

10. P160,000 - P130,000 = P30,000 credit11. P160,000 - (P130,000 - P60,000) = P90,000 gain (debit)12. P60,000 credit, entire accumulated depreciation is reestablished13. P160,000 - (P130,000 - P60,000) = P90,000 gain (debit)14. P80,000 - P60,000 = P20,000 debit15. P30,000 credit, entire accumulated depreciation is reestablished16. P60,000 - (P80,000 - P30,000) = P10,000 gain (debit)17. P640,000 - P500,000 = P140,000 credit18. P640,000 - (P500,000 - P350,000) = P490,000 gain (debit)19. (P640,000/10)(3/12) - [(P500,000 - P350,000)/10](3/12) = P12,250 credit20. P350,000 - {(P640,000/10)(3/12) - [(P500,000 - P350,000)/10](3/12)} = P337,750 credit21. P640,000 - (P500,000 - P350,000) = P490,000 gain (debit)

(P640,000/10)(3/12) - [(P500,000 - P350,000)/10](3/12) = P12,250 credit22. P10,500

Correction: equipment selling price is P120,000.**Non-controlling Interest in Net Income (NCINI) for 20x2


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

[P225,000 x 1/3 = P75,000 x 25/125] ( 15,000)S Company’s realized net income from separate operations……… P 105,000

Less: Amortization of allocated excess 0P 105,000


23. P364,500Consolidated Net Income for 20x2


depreciation [(P120,000 – P80,000 = P40,000 – (P40,000/4 years)] ( 30,000)P Company’s realized net income from separate operations*…….….. P 270,000

S Company’s net income from own operations…………………………………. P 120,000Realized profit in beginning inventory of P Company (upstream sales)Unrealized profit in ending inventory of P Company (upstream sales)

[P225,000 x 1/3 = P75,000 x 25/125] ( 15,000)S Company’s realized net income from separate operations*…….….. P 105,000 105,000

Total P375,000Less: Amortization of allocated excess…………………… 0Consolidated Net Income for 20x2 P375,000Less: Non-controlling Interest in Net Income* * (refer to No. 22) 10,500Controlling Interest in Consolidated Net Income or Profit attributable to

equity holders of parent – 20x2………….. P364,500



depreciation [(P120,000 – P80,000 = P40,000 – (P40,000/4 years)] ( 30,000)P Company’s realized net income from separate operations*…….….. P 270,000

S Company’s net income from own operations…………………………………. P 120,000Realized profit in beginning inventory of P Company (upstream sales)Unrealized profit in ending inventory of P Company (upstream sales)

[P225,000 x 1/3 = P75,000 x 25/125] ( 15,000)S Company’s realized net income from separate operations*…….….. P 105,000 105,000

Total P375,000Less: Non-controlling Interest in Net Income* * (refer to No. 22) P 10,500


equity holders of parent………….. P364,500

Add: Non-controlling Interest in Net Income (NCINI) _ 10,500Consolidated Net Income for 20x2 P375,000


24. P375,000 – refer to No. 2325. P46,000



Unrealized gain on sales of equipment (upstream sales) ( 0)Realized gain on sale of equipment (upstream sales) through depreciation 50,000



26. P434,000Consolidated Net Income for 20x2


depreciation [P180,000 – (P180,000/6) ( 150,000)P Company’s realized net income from separate operations*…….….. P 250,000

S Company’s net income from own operations…………………………………. P 180,000Unrealized gain on sales of equipment (upstream sales) ( 0)Realized gain on sale of equipment (upstream sales) through depreciation

(P250,000/5 years) 50,000S Company’s realized net income from separate operations*…….….. P 230,000 230,000

Total P480,000Less: Amortization of allocated excess…………………… ____0Consolidated Net Income for 20x5 P480,000Less: Non-controlling Interest in Net Income* * 46,000Controlling Interest in Consolidated Net Income or Profit attributable to




depreciation [P180,000 – (P180,000/6) ( 150,000)P Company’s realized net income from separate operations*…….….. P 250,000

S Company’s net income from own operations…………………………………. P 180,000Unrealized gain on sales of equipment (upstream sales) ( 0)Realized gain on sale of equipment (upstream sales) through depreciation

(P250,000/5 years) 50,000S Company’s realized net income from separate operations*…….….. P 230,000 230,000

Total P480,000Less: Non-controlling Interest in Net Income* * P 46,000




27. P480,000 – refer to No. 26.28. P1,802,000

Consolidated Retained Earnings, December 31, 20x2Retained earnings - Parent Company, December 31, 20x2 (cost model) P1,80 0,000Less: Downstream - net unrealized gain on sale of equipment – prior to

12/31/20x2 [P180,000 – (P30,000 x 1 year)] 150,000Adjusted Retained Earnings – Parent 12/31/20x2 (cost model )

S Company’s Retained earnings that have been realized intransactions with third parties.. P1,650,000


Retained earnings – Subsidiary, December 31, 20x2 P 640,000Less: Retained earnings – Subsidiary, date of acquisition 300,000Increase in retained earnings since date of acquisition P 340,000Less: Accumulated amortization of allocated excess 0

Upstream - net unrealized gain on sale of equipment – prior to

12/31/20x2 [P250,000 – (P50,000 x 2 years)] 150,000P 190,000


Less: Goodwill impairment loss _____0 152,000Consolidated Retained earnings, December 31, 20x2 P1,802,000

Parent SubsidiaryUnrealized gain on sale of equipment P180,000 P250,000Realized gain through depreciation

P180,000/6 years = P30,000 per yearP250,000/ 5 years = P25,000

P 30,000P 25,000

29. P165,000For 20x6: Not determinable since data are incomplete.For 20x7: P110,000 + P55,000 = P165,000

**NCI-CNI - SlochNon-controlling Interest in Net Income (NCINI) for 20x7

Sloch Company’s net income from own operations………………………………. P 360,000Realized profit in beginning inventory of P Company (upstream sales) 25,000Unrealized profit in ending inventory of P Company (upstream sales)… ( 40,000)Unrealized gain on sale of building (upstream sales) – Sloch ( 75,000)Realized gain on sale of building (upstream sales) - Sloch ___5,000

P 275,000Less: Amortization of allocated excess 0


**NCI-CNI - ZeekNon-controlling Interest in Net Income (NCINI) for 20x7

Zeek Company’s net income from own operations…………………………………. P 275,000Less: Amortization of allocated excess 0


Fixed Assets:Bowen to Zeek(downstream)

Sloch to Bowen(upstream)

Unrealized (loss) gain:20x520x7

300,00075,000

Realized gainP300,000/25 yearsP75,000/15 years

12,000/year5,000/year

InventoryRealized profits in inventory from downstream sales (Bowen to Zeek) P31,000Realized profits in inventory from upstream sales (Sloch to Bowen) P25,000Unrealized profits in inventory from downstream sales (Bowen to Zeek) P35,000Unrealized profits in inventory from upstream sales (Sloch to Bowen) P40,000

30. P943,000For 20x6: Not determinable since data are incomplete.For 20x7: P943,000

Consolidated Net Income for 20x7P Company’s net income from own/separate operations

[P750,000 – (P200,000 x 60%) – (P100,000 x 80%)] P 550,000Realized gain on sale of equipment (downstream sales) through depreciation 12,000Realized profit in beginning inventory of S Company (downstream sales) 31,000Unrealized profit in ending inventory of S Company (downstream sales)… (_ _35,000)

P Company’s realized net income from separate operations*…….….. P 558,000Sloch Company’s net income from own operations………………………………. P360,000Zeek Company’s net income from own operations…………………………………. 275,000Realized profit in beginning inventory of P Company (upstream sales) 25,000Unrealized profit in ending inventory of P Company (upstream sales)… ( 40,000)Unrealized gain on sale of building (upstream sales) – Sloch ( 75,000)Realized gain on sale of building (upstream sales) - Sloch ___5,000

S Company’s realized net income from separate operations*…….….. P550,000 550,000Total P1,108,000

Less: Amortization of allocated excess…………………… __ 0Consolidated Net Income for 20x7 P1,108,000Less: Non-controlling Interest in Net Income – Sloch* * 110,000

Non-controlling Interest in Net Income - Bowen* * ___55,000Controlling Interest in Consolidated Net Income or Profit attributable to

equity holders of parent – 20x7………….. P 943,000*that has been realized in transactions with third parties.


P Company’s net income from own/separate operations[P750,000 – (P200,000 x 60%) – (P100,000 x 80%)] P 550,000

Realized gain on sale of equipment (downstream sales) through depreciation 12,000Realized profit in beginning inventory of S Company (downstream sales) 31,000Unrealized profit in ending inventory of S Company (downstream sales)… (_ _35,000)

P Company’s realized net income from separate operations*…….….. P 558,000Sloch Company’s net income from own operations………………………………. P 360,000Zeek Company’s net income from own operations…………………………………. 275,000Realized profit in beginning inventory of P Company (upstream sales) 25,000Unrealized profit in ending inventory of P Company (upstream sales)… ( 40,000)Unrealized gain on sale of building (upstream sales) – Sloch ( 75,000)Realized gain on sale of building (upstream sales) - Sloch ___5,000

S Company’s realized net income from separate operations*…….….. P 550,000 _ 550,000Total P1,108,000Less: Non-controlling Interest in Net Income* * refer to No. 29 P165,000

Amortization of allocated excess…………………… ____0 _ _165,000Controlling Interest in Consolidated Net Income or Profit attributable to

equity holders of parent………….. P 943,000Add: Non-controlling Interest in Net Income (NCINI) _ _165,000Consolidated Net Income for 20x7 P1,108,000


31. P1,108,000 – refer to No. 30For 20x6: Not determinable since data are incomplete.For 20x7: P1,108,000

32. P1,498,000Correction: the requirement should be Consolidated retained earnings on December 31,20x7not 20y2.

Consolidated Retained Earnings, December 31, 20x7Retained earnings - Parent Company, January 1, 20x7 (cost model P1,020,000Less: Unrealized profit in ending inventory of S Company (downstream sales)

- 20x6 (UPEI of S – 20x6) or Realized profit in beginning inventory of SCompany (downstream sales) –20x7 (RPBI of S - 20x7)……………. 31,000

Downstream - net unrealized gain on sale of equipment – prior to12/31/20x6 or 1/1/20x7 [P300,000 – (P12,000 x 2 years)] __276,000

Adjusted Retained Earnings – Parent 1/1/20x5 (cost model (S Company’sRetained earnings that have been realized in transactions with thirdparties.. P 713,000


Retained earnings – Subsidiary Sloch, date of acquisition P330,000Less: Retained earnings – Subsidiary Sloch, January 1, 20x7 525,000Increase in retained earnings since date of acquisition P195,000Less: Amortization of allocated excess 0

Unrealized profit in ending inventory of P Company (upstreamsales) 20x6 (UPEI of P – 20x6) or Realized profit in beginninginventory of P Company (upstream sales) –20x7 (RPBI of P - 20x7) 25,000

Upstream - net unrealized gain on sale of equipment – prior to12/31/20x6 or 1/1/20x7 ________0

P170,000Multiplied by: Controlling interests %................... 60%

P102,000Less: Goodwill impairment loss 0 102,000

Retained earnings – Subsidiary Zeek, date of acquisition P575,000Less: Retained earnings – Subsidiary Zeek, January 1, 20x7 875,000Increase in retained earnings since date of acquisition P300,000Less: Amortization of allocated excess _____ 0

P300,000Multiplied by: Controlling interests %................... 80%

P240,000Less: Goodwill impairment loss 0 240,000

Consolidated Retained earnings, January 1, 20x7 P1.055,000

Add: Controlling Interest in Consolidated Net Income or Profit attributable toequity holders of parent for 20x7 (refer to No. 30) 943,000

Total P1,998,000Less: Dividends paid – Parent Company for 20x7 500,000Consolidated Retained Earnings, December 31, 20x7 P1,498,000


Retained earnings - Parent Company, December 31, 20x7 (cost model P1,270,000Less: Unrealized profit in ending inventory of S Company (downstream sales)

- 20x7 (UPEI of S – 20x7) or Realized profit in beginning inventory of SCompany (downstream sales) –20x8 (RPBI of S - 20x8)……………. 35,000

Downstream - net unrealized gain on sale of equipment – prior to12/31/20x6 or 1/1/20x7 [P300,000 – (P12,000 x 3 years)] __264,000

Adjusted Retained Earnings – Parent 12/31/20x7 (cost model (S Company’s Retained earnings that have been realized intransactions with third parties.. P 971,000


Retained earnings – Subsidiary Sloch, December 31, 20x7 P 330,000Less: Retained earnings – Subsidiary Sloch, date of acquisition 685,000Increase in retained earnings since date of acquisition P 355,000Less: Accumulated amortization of allocated excess 0

Unrealized profit in ending inventory of P Company (upstreamsales) 20x7 (UPEI of P – 20x7) or Realized profit in beginninginventory of P Company (upstream sales) –20x8 (RPBI of P - 20x8) 40,000

Upstream - net unrealized gain on sale of equipment – prior to12/31/20x7 or 1/1/20x8 (P75,000 – P5,000) __70,000


P 147,000Less: Goodwill impairment loss, partial goodwill ____0 147,000

Retained earnings – Subsidiary Zeek, date of acquisition P 575,000Less: Retained earnings – Subsidiary Zeek, January 1, 20x7 1,050,000Increase in retained earnings since date of acquisition P 475,000Less: Amortization of allocated excess ______ 0

P 475,000Multiplied by: Controlling interests %................... _ 80%

P 380,000Less: Goodwill impairment loss __ 0 380,000

Consolidated Retained earnings, December 31, 20x7 P1,498,000

33. Increase of P3,000The requirement and available choices in the problem are on the assumption of the use of“equity method”. So, the answer then would be (d) – (P60,000 – P48,000)/4 years = P3,000

34. P403,200The requirement “equity from subsidiary income” and available choices in the problem areon the assumption of the use of “equity method”. So, the answer then would be (c)computed as follows:

20x4Share in subsidiary net income (600,000 x 80%) 480,000Unrealized gain on sale of equipment (upstream sales): 120,000 x 80% ( 96,000)Realized gain on sale of equipment (upstream sales) through depreciation

P120,000 / 5 years = P24,000 x 80% ___19,200Net 403,200

Theories1. d 6. c 11. c 16. b 21. b 26. b 31 d2. c 7. c 12. c 17. a 22. d 27. c3. d 8. a 13. d 18. a 23. c 28. b4. d 9. a 14. b 19. c 24. c 29. c5. b 10, c 15, d 20. a 25. b 30. c

solution chapter 18

Documents

consolidated net income

20x5p companys net income

subsidiary income

prince companys income

separate operations

son companys

price of equipment p

itsindependent operations