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Problem I
1.
Consolidated Net Income for 20x5
P Companys net income from own/separate operations. P 760,000
Realized profit in beginning inventory of S Company (downstream sales) 36,000
Unrealized profit in ending inventory of S Company (downstream sales) (_50,000)
P Companys realized net income from separate operations*... P 746,000
S Companys net income from own operations. P 460,000
Realized profit in beginning inventory of P Company (upstream sales) 0
Unrealized profit in ending inventory of P Company (upstream sales) ( 0)
S Companys realized net income from separate operations*... P 460,000 460,000
Total P1,206,000
Less: Amortization of allocated excess 0
Consolidated Net Income for 20x5 P1,206,000
Less: Non-controlling Interest in Net Income* * 92,000
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent 20x5.. P 1,114,000
*that has been realized in transactions with third parties.
Or, alternatively
Consolidated Net Income for 20x5
P Companys net income from own/separate operations. P 760,000
Realized profit in beginning inventory of S Company (downstream sales) 36,000
Unrealized profit in ending inventory of S Company (downstream sales) (_50,000)
P Companys realized net income from separate operations*... P 746,000
S Companys net income from own operations. P 460,000
Realized profit in beginning inventory of P Company (upstream sales) 0
Unrealized profit in ending inventory of P Company (upstream sales) ( 0)
S Companys realized net income from separate operations*... P460,000 460,000
Total P1,206,000
Less: Non-controlling Interest in Net Income* * P 92,000
Amortization of allocated excess 0 92,000
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent.. P1,114,000
Add: Non-controlling Interest in Net Income (NCINI) _ 92,000
Consolidated Net Income for 20x5 P 1,206,000
*that has been realized in transactions with third parties.
2. 20x4
Sales 1,080,000
Purchases (Cost of Goods Sold) 1,080,000
20x5
Sales 1,200,000
Purchases (Cost of Goods Sold) 1,200,000
Problem II
1.
Consolidated Net Income for 20x5
P Companys net income from own/separate operations. P 1,720,000
Realized profit in beginning inventory of S Company (downstream sales) 0
Unrealized profit in ending inventory of S Company (downstream sales) (_ 0)
P Companys realized net income from separate operations*... P 1, 720,000
S Companys net income from own operations. P 600,000
Realized profit in beginning inventory of P Company (upstream sales) 40,000
Unrealized profit in ending inventory of P Company (upstream sales) ( 51,00 0)
Son Companys realized net income from separate operations*... P 589,000 589,000
Total P2,309,000
Less: Amortization of allocated excess 0
Consolidated Net Income for 20x5 P2,309,000
Less: Non-controlling Interest in Net Income* * 58,900
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent 20x5.. P 2,250,100
*that has been realized in transactions with third parties.
Or, alternatively
Consolidated Net Income for 20x5
P Companys net income from own/separate operations. P 1,720,000
Realized profit in beginning inventory of S Company (downstream sales) 0
Unrealized profit in ending inventory of S Company (downstream sales) (________0)
P Companys realized net income from separate operations*... P1,720,,000
S Companys net income from own operations. P 600,000
Realized profit in beginning inventory of P Company (upstream sales) 40,000
Unrealized profit in ending inventory of P Company (upstream sales) ( 51,000)
S Companys realized net income from separate operations*... P589,000 589,000
Total P2,309,000
Less: Non-controlling Interest in Net Income* * P 58,900
Amortization of allocated excess 0 __58,900
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent.. P2,250,100
Add: Non-controlling Interest in Net Income (NCINI) _ 58,900
Consolidated Net Income for 20x5 P 2,309,000
*that has been realized in transactions with third parties.
2. Sales 1,020,000
Purchases (Cost of Sales) 1,020,000
To eliminate intercompany sales.
12/31 Inventory (Income Statement) 51,000
Inventory (Balance Sheet) 51,000
To eliminate unrealized intercompany profit in ending inventory.
Problem III
Consolidated Net Income for 20x4
P Companys net income from own/separate operations. P 3,600,000
Realized profit in beginning inventory of S Company (downstream sales) 54,000
Unrealized profit in ending inventory of S Company (downstream sales) (_ 45,00 0)
P Companys realized net income from separate operations*... P 3,609,000
S Companys net income from own operations (P1,500,000 + P2,400,000) P3,900,000
Realized profit in beginning inventory of P Company (upstream sales) Salad 66,000
Realized profit in beginning inventory of P Company (upstream sales)- Tuna 63,000
Unrealized profit in ending inventory of P Company (upstream sales) Salad ( 57,000)
Unrealized profit in ending inventory of P Company (upstream sales) Tuna ( 69,000)
S Companys realized net income from separate operations*... P3,903,000 3,903,000
Total P7,512,000
Less: Amortization of allocated excess 0
Consolidated Net Income for 20x4 P7,512,000
Less: Non-controlling Interest in Net Income* *- Salad P 301,800
Non-controlling Interest in Net Income* *- Tuna ___239,400 ___541,200
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent 20x4.. P6,970,800
*that has been realized in transactions with third parties.
Or, alternatively
Consolidated Net Income for 20x4
P Companys net income from own/separate operations. P 3,600,000
Realized profit in beginning inventory of S Company (downstream sales) 54,000
Unrealized profit in ending inventory of S Company (downstream sales) (___45,000)
P Companys realized net income from separate operations*... P3,609,,000
S Companys net income from own operations (P1,500,000 + P2,400,000) P3,900,000
Realized profit in beginning inventory of P Company (upstream sales) Salad 66,000
Realized profit in beginning inventory of P Company (upstream sales)- Tuna 63,000
Unrealized profit in ending inventory of P Company (upstream sales) Salad ( 57,000)
Unrealized profit in ending inventory of P Company (upstream sales) Tuna ( 69,000)
S Companys realized net income from separate operations*... P3,903,000 3,903,000
Total P7,512,000
Less: Non-controlling Interest in Net Income* * - Salad P 301,800
Non-controlling Interest in Net Income* * - Tuna 239,400
Amortization of allocated excess 0 __541,200
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent.. P6,970,800
Add: Non-controlling Interest in Net Income (NCINI) _541,200
Consolidated Net Income for 20x4 P 7,512,000
*that has been realized in transactions with third parties.
**Salad
Non-controlling Interest in Net Income (NCINI) for 20x4
S Companys net income of Subsidiary Company from its own operations
(Reported net income of S Company) P1,500,000
Realized profit in beginning inventory of P Company (upstream sales) 66,000
Unrealized profit in ending inventory of P Company (upstream sales) ( 57,000)
Son Companys realized net income from separate operations P1,509,000
Less: Amortization of allocated excess _____0
P1,509,000
Multiplied by: Non-controlling interest %.......... __ 20%
Non-controlling Interest in Net Income (NCINI) P 301,800
**Tuna
Non-controlling Interest in Net Income (NCINI) for 20x4
S Companys net income of Subsidiary Company from its own operations
(Reported net income of S Company) P2,400,000
Realized profit in beginning inventory of P Company (upstream sales) 63,000
Unrealized profit in ending inventory of P Company (upstream sales) ( 69,000)
Son Companys realized net income from separate operations P2,394,000
Less: Amortization of allocated excess _____0
P2,394,000
Multiplied by: Non-controlling interest %.......... 10%
Non-controlling Interest in Net Income (NCINI) P 239,400
Problem IV
1.
Sales 4,000,000
Cost of Goods Sold 4,000,000
(1) .8(P105,000)
(2) .2(P105,000)
Problem V
P COMPANY AND SUBSIDIARY
Consolidated Income Statement
For the Year Ended December 31, 20x4
Problem VIII
(Determine selected consolidated balances; includes inventory transfers and an outside ownership.)
Consolidated Totals:
Inventory = P592,000 (add the two book values and subtract the ending unrealized gross
profit of P8,000)
Sales = P1,240,000 (add the two book values and subtract the P160,000 intercompany
transfer)
Cost of Goods Sold = P548,000 (add the two book values and subtract the intercompany
transfer and add [to defer] ending unrealized gross profit)
Operating Expenses = P443,000 (add the two book values and the amortization expense for
the period)
Gross profit: P1,240,000 P548,000 = P692,000
Controlling Interest in CNI:
or
Consolidated Net Income for 20x5
P Companys net income from own/separate operations (P800-P400-P180) P 220,000
Realized profit in beginning inventory of S Company (downstream sales) 0
Unrealized profit in ending inventory of S Company (downstream sales) (_ 0)
P Companys realized net income from separate operations*... P 220,000
S Companys net income from own operations (P600 P300 P250) P 50,000
Realized profit in beginning inventory of P Company (upstream sales) 0
Unrealized profit in ending inventory of P Company (upstream sales) ( 8, 000)
S Companys realized net income from separate operations*... P 42,000 42,000
Total P 262,000
Less: Amortization of allocated excess 13,000
Consolidated Net Income for 20x5 P 249,000
Less: Non-controlling Interest in Net Income* * 8,700
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent 20x5.. P 240,300
*that has been realized in transactions with third parties.
Or, alternatively
Noncontrolling Interest in Subsidiary's Net Income = P8,700 (30 percent of the reported
income after subtracting 13,000 excess fair value amortization and deferring P8,000 ending
unrealized gross profit) Gross profit is included in this computation because the transfer was
upstream from SS to PT.
Problem IX
Requirements 1 to 4:
Schedule of Determination and Allocation of Excess (Partial-goodwill)
Date of Acquisition January 1, 20x4
The buildings and equipment will be further analyzed for consolidation purposes as follows:
S Co. S Co. Increase
Book value Fair value (Decrease)
Equipment .................. 180,000 180,000 0
Less: Accumulated depreciation.. 96,000 - ( 96,000)
Net book value... 84,000 180,000 96,000
S Co. S Co.
Book value Fair value (Decrease)
Buildings................ 360,000 144,000 ( 216,000)
Less: Accumulated depreciation.. 192,000 - ( 192,000)
Net book value... 168,000 144,000 ( 24,000)
The goodwill impairment loss of P3,750 based on 100% fair value would be allocated to the controlling
interest and the NCI based on the percentage of total goodwill each equity interest received. For
purposes of allocating the goodwill impairment loss, the full-goodwill is computed as follows:
In this case, the goodwill was proportional to the controlling interest of 80% and non-controlling interest
of 20% computed as follows:
Value % of Total
Goodwill applicable to parent P12,000 80.00%
Goodwill applicable to NCI.. 3,000 20.00%
Total (full) goodwill.. P15,000 100.00%
The unrealized profits on January 1, and on December 31, 20x5, resulting intercompany sales, are as
summarized below:
Downstream Sales:
Intercompany Merchandise
Year Sales of Parent to in 12/31 Inventory Unrealized Intercompany
Subsidiary of S Company Profit in Ending Inventory
20x4 P150,000 P150,000 x 60% = P90,000 P90,000 x 20% = P18,000
20x5 120,000 P120,000 x 80% = P96,000 P96,000 x 25% = P40,000
Upstream Sales:
Intercompany Merchandise
Year Sales of Subsidiary in 12/31 Inventory Unrealized Intercompany
to Parent of S Company Profit in Ending Inventory
20x4 P 50,000 P100,000 x 50% = P25,000 P25,000 x 40% = P10,000
20x5 62,500 P 62,500 x 40% = P25,000 P25,000 x 20% = P 5,000
January 1, 20x4:
(1) Investment in S Company 372,000
Cash.. 372,000
Acquisition of S Company.
No entries are made on the parents books to depreciate, amortize or write-off the portion of the
allocated excess that expires during 20x4, and unrealized profits in ending inventory.
Cost of Depreciation/
Goods Amortization Amortization
Sold Expense -Interest Total
Inventory sold P 6,000
Equipment P 12,000
Buildings ( 6,000)
Bonds payable _______ _______ P 1,200
Totals P 6,000 P 2,000 P1,200 13,200
Balance Sheet
Cash. P 232,800 P 90,000 P 355,200
Accounts receivable.. 90,000 60,000 150,000
Inventory. 120,000 90,000 (2) 6,000 (3) 6,000
(7) 18,000
(8) 12,000 180,000
Land. 1210,000 48,000 (2) 7,200 265,200
Equipment 240,000 180,000 420,000
Buildings 720,000 540,000 (2) 216,000 1,044,000
Discount on bonds payable (2) 4,800 (3) 12000 3,600
Goodwill (2) 12,000 (3) 3,000 9,000
Investment in S Co 372,000 (1) 288,000
(2) 84,000 -
Total P1,984,800 P1,008,000 P2,394,600
Accumulated depreciation
- equipment P 135,000 P 96,000 (2) 96,000 (3) 12,000 P147,000
Accumulated depreciation 405,000 288,000 (2) 192,000
- buildings (3) 6,000 495,000
Accounts payable 120,000 120,000 240,000
Bonds payable 240,000 120,000 360,000
Common stock, P10 par 600,000 600,000
Common stock, P10 par 240,000 (1) 240,000
Retained earnings, from above 581,760 144,000 462,840
Non-controlling interest (4) 7,200 (1 ) 72,000
(2) 18,000
_________ _________ __________ (9) 6,960 ____89,760
Total P1,984,800 P1,008,000 P 983,160 P 983,160 P2,394,600
Only a single entry is recorded by the parent in 20x5 in relation to its subsidiary investment:
On the books of S Company, the P48,000 dividend paid was recorded as follows:
Dividends paid 48,000
Cash 48,000
Dividends paid by S Co..
(20x4) Depreciation/
Retained Amortization Amortization
earnings, expense -Interest
Inventory sold P 6,000
Equipment 12,000 P 12,000
Buildings (6,000) ( 6,000)
Bonds payable 1,200 ________ P 1,200
Sub-total P13,200 P 6,000 P 1,200
Multiplied by: 80%
To Retained earnings P 10,560
Impairment loss 3,000
Total P 13,560
Balance Sheet
Cash. P 265,200 P 102,000 P 367,200
Accounts receivable.. 180,000 96,000 276,000
Inventory. 216,000 108,000 (3) 7,200 (4) 7,200
(10) 24,000
(11) 6,000 294,000
Land. 210,000 48,000 (3) 7,200 265,200
Equipment 240,000 180,000 420,000
Buildings 720,000 540,000 (3) 216,000 1,044,000
Discount on bonds payable (3) 4,800 (4) 2,400 2,400
Goodwill (3) 12,000 (4) 3,000 9,000
Investment in S Co 372,000 (1) 19,200 (2) 307,200
(3) 84,000 -
Total P2,203,200 P1,074,000 P2,677,800
Accumulated depreciation
- equipment P 150,000 P 102,000 (3) 96,000 (4) 24,000 P180,000
Accumulated depreciation 450,000 306,000 (3) 192,000
- buildings (4) 12,000 552,000
Accounts payable 120,000 120,000 240,000
Bonds payable 240,000 120,000 360,000
Common stock, P10 par 600,000 600,000
Common stock, P10 par 240,000 (2) 240,000
Retained earnings, from above 643,200 186,000 647,880
Non-controlling interest (4) 2,640
(5) 9,600 (2 ) 76,800
(9) 2,400 (3) 18,000
___ _____ _________ __________ (12) 17,760 ____97,920
Total 2,203,200 P1,074,000 P1,077,360 P1,077,360 P2,677,800
5. 1/1/20x4
a. On date of acquisition the retained earnings of parent should always be considered as the
consolidated retained earnings, thus:
b.
Non-controlling interest (partial-goodwill), January 1, 20x4
Common stock Subsidiary Company P 240,000
Retained earnings Subsidiary Company. 120,000
Stockholders equity Subsidiary Company... P 360,000
Adjustments to reflect fair value - (over) undervaluation of assets and liabilities 90,000
Fair value of stockholders equity of subsidiary, January 1, 20x4 P 450,000
Multiplied by: Non-controlling Interest percentage... 20
Non-controlling interest (partial) P 90,000
c.
Consolidated SHE:
Stockholders Equity
Common stock, P10 par P 600,000
Retained earnings 360,000
Parents Stockholders Equity / CI - SHE P 960,000
NCI, 1/1/20x4 ___90,000
Consolidated SHE, 1/1/20x4 P1,050,000
6.
Note: The goodwill recognized on consolidation purely relates to the parents share. NCI is
measured as a proportion of identifiable assets and goodwill attributable to NCI share is not
recognized.
12/31/20x4:
a. CI-CNI P174,840
Consolidated Net Income for 20x4
P Companys net income from own/separate operations. P168,000
Unrealized profit in ending inventory of S Company (downstream sales) ( 18,000)
P Companys realized net income from separate operations*... P150,000
S Companys net income from own operations. P 60,000
Unrealized profit in ending inventory of S Company (upstream sales) ( 12,000)
S Companys realized net income from separate operations*... P 48,000 48,000
Total P198,000
Less: Non-controlling Interest in Net Income* * P 6,960
Amortization of allocated excess (refer to amortization above) 13,200
Goodwill impairment (impairment under partial-goodwill approach) 3,000 23,160
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent.. P174,840
Add: Non-controlling Interest in Net Income (NCINI) _ 6,960
Consolidated Net Income for 20x4 P181.800
*that has been realized in transactions with third parties.
b. NCI-CNI P6,960
**Non-controlling Interest in Net Income (NCINI) for 20x4
S Companys net income of Subsidiary Company from its own operations P 60,000
(Reported net income of S Company)
Unrealized profit in ending inventory of P Company (upstream sales) ( 12,000)
S Companys realized net income from separate operations P 48,000
Less: Amortization of allocated excess 13,200
P 34,800
Multiplied by: Non-controlling interest %.......... 20%
Non-controlling Interest in Net Income (NCINI) partial goodwill P 6,960
*that has been realized in transactions with third parties.
c. CNI, P181,800 refer to (a)
e. The goodwill recognized on consolidation purely relates to the parents share. NCI is measured
as a proportion of identifiable assets and goodwill attributable to NCI share is not recognized.
The NCI on December 31, 20x4 are computed as follows:
Non-controlling interest (partial-goodwill), December 31, 20x4
Common stock Subsidiary Company, December 31, 20x4 P 240,000
Retained earnings Subsidiary Company, December 31, 20x4
Retained earnings Subsidiary Company, January 1, 20x4 P120,000
Add: Net income of subsidiary for 20x4 6,000
Total P180,000
Less: Dividends paid 20x4 36,000 144,000
Stockholders equity Subsidiary Company, December 31, 20x4 P 384,000
Adjustments to reflect fair value - (over) undervaluation of assets and
liabilities, date of acquisition (January 1, 20x4) 90,000
Amortization of allocated excess (refer to amortization above) 20x4 ( 13,200)
Fair value of stockholders equity of subsidiary, December 31, 20x4 P460,000
Less: Unrealized profit in ending inventory of P Company (upstream sales) 12,000
Realized stockholders equity of subsidiary, December 31, 20x4 P448,800
Multiplied by: Non-controlling Interest percentage... 20
Non-controlling interest (partial-goodwill).. P 89,760
f.
Consolidated SHE:
Stockholders Equity
Common stock, P10 par P 600,000
Retained earnings 462,840
Parents Stockholders Equity / CI SHE, 12/31/20x4 P1,062,840
NCI, 12/31/20x4 ___89,760
Consolidated SHE, 12/31/20x4 P1,152,600
12/31/20x5:
a. CI-CNI
Consolidated Net Income for 20x5
P Companys net income from own/separate operations. P192,000
Realized profit in beginning inventory of S Company (downstream sales) 18,000
Unrealized profit in ending inventory of S Company (downstream sales) (_24,000)
P Companys realized net income from separate operations*... P186,000
S Companys net income from own operations. P 90,000
Realized profit in beginning inventory of P Company (upstream sales) 12,000
Unrealized profit in ending inventory of P Company (upstream sales) ( 6,000)
Son Companys realized net income from separate operations*... P 96,000 96,000
Total P282,000
Less: Amortization of allocated excess 7,200
Consolidated Net Income for 20x5 P274,800
Less: Non-controlling Interest in Net Income* * 17,760
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent 20x5.. P257,040
*that has been realized in transactions with third parties.
Or, alternatively
Consolidated Net Income for 20x5
P Companys net income from own/separate operations. P192,000
Realized profit in beginning inventory of S Company (downstream sales) 18,000
Unrealized profit in ending inventory of S Company (downstream sales) (_24,000)
P Companys realized net income from separate operations*... P186,000
S Companys net income from own operations. P 90,000
Realized profit in beginning inventory of P Company (upstream sales) 12,000
Unrealized profit in ending inventory of P Company (upstream sales) ( 6,000)
S Companys realized net income from separate operations*... P 96,000 96,000
Total P282,000
Less: Non-controlling Interest in Net Income* * P 17,760
Amortization of allocated excess 7,200 24,960
Controlling Interest in Consolidated Net Income or Profit attributable to equity
holders of parent.. P257,040
Add: Non-controlling Interest in Net Income (NCINI) _ 17,760
Consolidated Net Income for 20x5 P274,800
*that has been realized in transactions with third parties.
b. NCI-CNI
**Non-controlling Interest in Net Income (NCINI) for 20x5
S Companys net income of Subsidiary Company from its own operations P 90,000
(Reported net income of S Company)
Realized profit in beginning inventory of P Company (upstream sales) 12,000
Unrealized profit in ending inventory of P Company (upstream sales) ( 6,000)
S Companys realized net income from separate operations P 96,000
Less: Amortization of allocated excess 7,200
P 88,800
Multiplied by: Non-controlling interest %.......... 20%
Non-controlling Interest in Net Income (NCINI) partial goodwill P 17,760
e.
Non-controlling interest (partial-goodwill), December 31, 20x5
Common stock Subsidiary Company, December 31, 20x5 P 240,000
Retained earnings Subsidiary Company, December 31, 20x5
Retained earnings Subsidiary Company, January 1, 20x5* P144,000
Add: Net income of subsidiary for 20x5 90,000
Total P234,000
Less: Dividends paid 20x5 48,000 186,000
Stockholders equity Subsidiary Company, December 31, 20x5 P 426,000
Adjustments to reflect fair value - (over) undervaluation of assets and
liabilities, date of acquisition (January 1, 20x4) 90,000
Amortization of allocated excess (refer to amortization above) :
20x4 P 13,200
20x5 7,200 ( 20,400)
Fair value of stockholders equity of subsidiary, December 31, 20x5 P 495,600
Less: Unrealized profit in ending inventory of P Company (upstream
sales) 20x5 (UPEI of P 20x5) or Realized profit in beginning inventory
of P Company (upstream sales) 20x6 (RPBI of P - 20x6 6,000
Realized stockholders equity of subsidiary, December 31, 20x5. P489,600
Multiplied by: Non-controlling Interest percentage... 20
Non-controlling interest (partial goodwill).. P 97,920
* the realized profit in beginning inventory of P Company (upstream sales) 20x5 (RPBI of P - 20x5 amounting to P10,000 is
already included in the beginning retained earnings of S Company.
f.
Consolidated SHE:
Stockholders Equity
Common stock, P10 par P 600,000
Retained earnings 647,880
Parents Stockholders Equity / CI SHE, 12/31/20x4 P1,247,880
NCI, 12/31/20x4 ___97,920
Consolidated SHE, 12/31/20x4 P1,345,800
Problem X
Requirements 1 to 4:
Schedule of Determination and Allocation of Excess
Date of Acquisition January 1, 20x4
Fair value of Subsidiary (80%)
Consideration transferred (80%).. P 372,000
Fair value of NCI (given) (20%).. 93,000
Fair value of Subsidiary (100%). P 465,000
Less: Book value of stockholders equity of Son:
Common stock (P240,000 x 100%). P 240,000
Retained earnings (P120,000 x 100%)... 120,000 360,000
Allocated excess (excess of cost over book value).. P 105,000
Less: Over/under valuation of assets and liabilities:
Increase in inventory (P6,000 x 100%) P 6,000
Increase in land (P7,200 x 100%). 7,200
Increase in equipment (P96,000 x 100%) 96,000
Decrease in buildings (P24,000 x 100%)..... ( 24,000)
Decrease in bonds payable (P4,800 x 100%) 4,800 90,000
Positive excess: Full-goodwill (excess of cost over
fair value)... P 15,000
On the books of Son Company, the P36,000 dividend paid was recorded as follows:
No entries are made on the parents books to depreciate, amortize or write-off the portion of the
allocated excess that expires during 20x4.
Consolidation Workpaper First Year after Acquisition
(E1) Common stock S Co 240,000
Retained earnings S Co 120.000
Investment in S Co 288,000
Non-controlling interest (P360,000 x 20%).. 72,000
To eliminate intercompany investment and equity accounts
of subsidiary on date of acquisition; and to establish non-controlling
interest (in net assets of subsidiary) on date of acquisition.
Cost of Depreciation/
Goods Amortization Amortization
Sold Expense -Interest
Inventory sold P 6,000
Equipment P12,000
Buildings ( 6,000)
Bonds payable _______ _______ P 1,200
Totals P 6,000 P 6,000 P1,200
Balance Sheet
Cash. P 232,800 P 90,000 P 322,800
Accounts receivable.. 90,000 60,000 150,000
Inventory. 120,000 90,000 (2) 6,000 (3) 6,000
(7) 18,000
(8) 12,000 180,000
Land. 210,000 48,000 (2) 7,200 265,200
Equipment 240,000 180,000 420,000
Buildings 720,000 540,000 (2) 216,000 1,044,000
Discount on bonds payable (2) 4,800 (3) 1,200 3,600
Goodwill (2) 15,000 (3) 3,750 11,250
Investment in S Co 372,000 (3) 288,000
(4) 84,000 -
Total P1,984,800 P1,008,000 P2,396,850
Accumulated depreciation
- equipment P 135,000 P 96,000 (2) 96,000 (3) 12,000 P147,000
Accumulated depreciation 405,000 288,000 (6) 192,000
- buildings (7) 6,000 495,000
Accounts payable 120,000 120,000 240,000
Bonds payable 240,000 120,000 360,000
Common stock, P10 par 600,000 600,000
Common stock, P10 par 240,000 (1) 240,000
Retained earnings, from above 484,800 144,000 462,840
Non-controlling interest (4) 7,200 (1 ) 72,000
(2) 21,000
_________ _________ (9) 6,210 ____92,010
Total P1,984,800 P1,008,000 P 986,160 P 986,160 P2,396,850
On the books of S Company, the P48,000 dividend paid was recorded as follows:
(20x4) Depreciation/
Retained Amortization Amortization
earnings, expense -Interest
Inventory sold P 6,000
Equipment 12,000 P 12,000
Buildings (6,000) ( 6,000)
Bonds payable 1,200 P 1,200
Impairment loss 3,750
Totals P 16,950 P 6,000 P1,200
Multiplied by: CI%.... 80%
To Retained earnings P13,560
Balance Sheet
Cash. P 265,200 P 102,000 P 367,200
Accounts receivable.. 180,000 96,000 276,000
Inventory. 216,000 108,000 (6) 6,000 (4) 6,000
(10) 24,000
(11) 6,000 294,000
Land. 210,000 48,000 (3) 7,200 265,200
Equipment 240,000 180,000 420,000
Buildings 720,000 540,000 (3) 216,000 1,044,000
Discount on bonds payable (3) 4,800 (4) 2,400 2,400
Goodwill (3) 15,000 (4) 3,750 11,250
Investment in S Co 372,000 (1) 19,200 (2) 307,200
(3) 84,000 -
Total P2,203,200 P1,074,000 P2,680,050
Accumulated depreciation
- equipment P 150,000 P 102,000 (3) 96,000 (4) 24,000 P180,000
Accumulated depreciation 450,000 306,000 (3) 192,000
- buildings (4) 12,000 552,000
Accounts payable 120,000 120,000 240,000
Bonds payable 240,000 120,000 360,000
Common stock, P10 par 600,000 600,000
Common stock, P10 par 240,000 (2) 240,000
Retained earnings, from above 643,200 186,000 647,880
Non-controlling interest (4) 3,390
(8) 9,600 (2 ) 76,800
(9) 2,400 (3) 21,000
___ _____ _________ __________ (12) 17,760 ____100,170
Total P2,203,200 P1,074,000 P1,081,110 P1,081,110 P2,680,050
5. 1/1/20x4
a. On date of acquisition the retained earnings of parent should always be considered as the
consolidated retained earnings, thus:
Consolidated Retained Earnings, January 1, 20x4
Retained earnings - Parent Company, January 1, 20x4 (date of acquisition) P360,000
b.
Non-controlling interest (partial-goodwill), January 1, 20x4
Common stock Subsidiary Company P 240,000
Retained earnings Subsidiary Company. 120,000
Stockholders equity Subsidiary Company... P 360,000
Adjustments to reflect fair value - (over) undervaluation of assets and liabilities 90,000
Fair value of stockholders equity of subsidiary, January 1, 20x4 P 450,000
Multiplied by: Non-controlling Interest percentage... 20
Non-controlling interest (partial).. P 90,000
Add: Non-controlling interests on full goodwill, 1/1/20x4 (P12,500, full-goodwill P10,000, partial
goodwill) 3,000
Non-controlling interest (full-goodwill) P 93,000
c.
Consolidated SHE:
Stockholders Equity
Common stock, P10 par P 600,000
Retained earnings 360,000
Parents Stockholders Equity / CI - SHE P 960,000
NCI, 1/1/20x4 ___93,000
Consolidated SHE, 1/1/20x4 P1,053,000
6.
Note: The goodwill recognized on consolidation purely relates to the parents share. NCI is
measured as a proportion of identifiable assets and goodwill attributable to NCI share is not
recognized.
12/31/20x4:
a. CI-CNI P174,840
Consolidated Net Income for 20x4
P Companys net income from own/separate operations. P168,000
Unrealized profit in ending inventory of S Company (downstream sales) ( 18,000)
Perfect Companys realized net income from separate operations*... P150,000
S Companys net income from own operations. P 60,000
Unrealized profit in ending inventory of S Company (upstream sales) ( 12,000)
Son Companys realized net income from separate operations*... P 48,000 48,000
Total P198,000
Less: Non-controlling Interest in Net Income P 6,1210
Amortization of allocated excess (refer to amortization above) 13,200
Goodwill impairment (impairment under full-goodwill approach) 3,750 23,160
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent.. P174,840
Add: Non-controlling Interest in Net Income (NCINI) _ 6,210
Consolidated Net Income for 20x4 P181.050
*that has been realized in transactions with third parties.
b. NCI-CNI P6,210
12/31/20x5:
a. CI-CNI P257,040
Consolidated Net Income for 20x5
P Companys net income from own/separate operations. P192,000
Realized profit in beginning inventory of S Company (downstream sales) 18,000
Unrealized profit in ending inventory of S Company (downstream sales) (_24,000)
P Companys realized net income from separate operations*... P186,000
S Companys net income from own operations. P 90,000
Realized profit in beginning inventory of P Company (upstream sales) 12,000
Unrealized profit in ending inventory of P Company (upstream sales) ( 6,000)
S Companys realized net income from separate operations*... P 96,000 96,000
Total P282,000
Less: Amortization of allocated excess 7,200
Consolidated Net Income for 20x5 P274,800
Less: Non-controlling Interest in Net Income* * 17,760
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent 20x5.. P257,040
*that has been realized in transactions with third parties.
Or, alternatively
Consolidated Net Income for 20x5
P Companys net income from own/separate operations. P192,000
Realized profit in beginning inventory of S Company (downstream sales) 18,000
Unrealized profit in ending inventory of S Company (downstream sales) (_24,000)
P Companys realized net income from separate operations*... P186,000
S Companys net income from own operations. P 90,000
Realized profit in beginning inventory of P Company (upstream sales) 12,000
Unrealized profit in ending inventory of P Company (upstream sales) ( 6,000)
Son Companys realized net income from separate operations*... P 96,000 96,000
Total P282,000
Less: Non-controlling Interest in Net Income* * P 17,760
Amortization of allocated excess 7,200 24,960
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent.. P257,040
Add: Non-controlling Interest in Net Income (NCINI) _ 17,760
Consolidated Net Income for 20x5 P274,800
*that has been realized in transactions with third parties.
b. NCI-CNI P16,560
**Non-controlling Interest in Net Income (NCINI) for 20x5
S Companys net income of Subsidiary Company from its own operations P 90,000
(Reported net income of S Company)
Realized profit in beginning inventory of P Company (upstream sales) 12,000
Unrealized profit in ending inventory of P Company (upstream sales) ( 6,000)
S Companys realized net income from separate operations P 96,000
Less: Amortization of allocated excess 7,200
P 88,800
Multiplied by: Non-controlling interest %.......... 20%
Non-controlling Interest in Net Income (NCINI) partial goodwill P 17,760
Less: NCI on goodwill impairment loss on full goodwill 0
Non-controlling Interest in Net Income (NCINI) full goodwill P 17,760
Or, alternatively:
Consolidated Retained Earnings, December 31, 20x5
Retained earnings - Parent Company, December 31, 20x5 (cost model P643,200
Less: Unrealized profit in ending inventory of S Company (downstream sales)
20x5 (UPEI of S 20x5) or Realized profit in beginning inventory of S
Company (downstream sales) 20x6 (RPBI of S - 20x6). 24,000
Adjusted Retained Earnings Parent 12/31/20x5 (cost model (
S Companys Retained earnings that have been realized in
transactions with third parties.. P619,200
Adjustment to convert from cost model to equity method for purposes of
consolidation or to establish reciprocity:/Parents share in adjusted net
increased in subsidiarys retained earnings:
Retained earnings Subsidiary, December 31, 20x5 P 186,000
Less: Retained earnings Subsidiary, January 1, 20x4 120,000
Increase in retained earnings since date of acquisition P 66,000
Less: Accumulated amortization of allocated excess
20x4 and 20x5 (P13,200 + P7,200) 20,400
Unrealized profit in ending inventory of P Company (upstream
sales) 20x5 (UPEI of P 20x5) or Realized profit in beginning
inventory of P Company (upstream sales) 20x6 (RPBI of P - 20x6) 6,000
P 39,600
Multiplied by: Controlling interests %................... 80%
P 31,680
Less: Goodwill impairment loss (full-goodwill), net (P3,750 P750)* or
(P3,750 x 80%) 3,000 28,680
Consolidated Retained earnings, December 31, 20x5 P647,880
e.
Non-controlling interest, December 31, 20x5
Common stock Subsidiary Company, December 31, 20x5 P 240,000
Retained earnings Subsidiary Company, December 31, 20x5
Retained earnings Subsidiary Company, January 1, 20x5* P144,000
Add: Net income of subsidiary for 20x5 90,000
Total P234,000
Less: Dividends paid 20x5 48,000 186,000
Stockholders equity Subsidiary Company, December 31, 20x5 P 426,000
Adjustments to reflect fair value - (over) undervaluation of assets and
liabilities, date of acquisition (January 1, 20x4) 90,000
Amortization of allocated excess (refer to amortization above) :
20x4 P 13,200
20x5 7,200 ( 20,400)
Fair value of stockholders equity of subsidiary, December 31, 20x5 P 495,600
Less: Unrealized profit in ending inventory of P Company (upstream
sales) 20x5 (UPEI of P 20x5) or Realized profit in beginning inventory
of P Company (upstream sales) 20x6 (RPBI of P - 20x6 6,000
Realized stockholders equity of subsidiary, December 31, 20x5. P489,600
Multiplied by: Non-controlling Interest percentage... 20
Non-controlling interest (partial goodwill).. P 97,920
Add: Non-controlling interest on full goodwill , net of impairment loss
[(P15,000 full P12,000, partial = P3,000) P750 impairment loss 2,250
Non-controlling interest (full-goodwill).. P 100,170
* the realized profit in beginning inventory of P Company (upstream sales) 20x5 (RPBI of P - 20x5 amounting to P10,000 is
already included in the beginning retained earnings of S Company.
f.
Consolidated SHE:
Stockholders Equity
Common stock, P10 par P 600,000
Retained earnings 647,880
Parents Stockholders Equity / CI - SHE P1,247,880
NCI, 1/1/20x4 ___100,170
Consolidated SHE, 12/31/20x5 P1,348,050
Problem XI
(Compute selected balances based on three different intercompany asset transfer scenarios)
1.
Consolidated Cost of Goods Sold
PPs cost of goods sold ...................................................................................... P290,000
SWs cost of goods sold ..................................................................................... 197,000
Elimination of 20x5 intercompany transfers ................................................... (110,000)
Reduction of beginning Inventory because of
20x4unrealized gross profit (P28,000/1.4 = P20,000
cost; P28,000 transfer price less P20,000
cost = P8,000 unrealized gross profit) ....................................................... (8,000)
Reduction of ending inventory because of
20x5 unrealized gross profit (P42,000/1.4 = P30,000
cost; P42,000 transfer price less P30,000
cost = P12,000 unrealized gross profit) ..................................................... 12,000
Consolidated cost of goods sold ....................................................... P381,000
Consolidated Inventory
PP book value .............................................................................................. P346,000
SW book value ............................................................................................. 110,000
Eliminate ending unrealized gross profit (see above) .......................... (12,000)
Consolidated Inventory .............................................................................. P444,000
or
Consolidated Net Income for 20x5
P Companys net income from own/separate operations (P640-P290-P150) P 200,000
Realized profit in beginning inventory of S Company (downstream sales) 8,000
Unrealized profit in ending inventory of S Company (downstream sales) (_ 12,000)
P Companys realized net income from separate operations*... P 196,000
S Companys net income from own operations (P360 P197 P105) P 58,000
Realized profit in beginning inventory of P Company (upstream sales) 0
Unrealized profit in ending inventory of P Company (upstream sales) ( 0)
S Companys realized net income from separate operations*... P 58,000 58,000
Total P 254,000
Less: Amortization of allocated excess ____0
Consolidated Net Income for 20x5 P 254,000
Less: Non-controlling Interest in Net Income* * 11,600
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent 20x5.. P 242,200
2.
Consolidated Cost of Goods Sold
PP book value ..................................................................................................... P290,000
SW book value .................................................................................................... 197,000
Elimination of 20x5 intercompany transfers ................................................... (80,000)
Reduction of beginning inventory because of
20x4 unrealized gross profit (P21,000/1.4 = P15,000
cost; P21,000 transfer price less P15,000
cost = P6,000 unrealized gross profit) ....................................................... (6,000)
Reduction of ending inventory because of
20x5 unrealized gross profit (P35,000/1.4 = P25,000
cost; P35,000 transfer price less P25,000
cost = P10,000 unrealized gross profit) ..................................................... 10,000
Consolidated cost of goods sold .................................................................... P411,000
Consolidated Inventory
PP book value ..................................................................................................... P346,000
SW book value .................................................................................................... 110,000
Eliminate ending unrealized gross profit (see above) ................................. (10,000)
Consolidated inventory .............................................................................. P446,000
Non-controlling Interest in Subsidiary's Net income
Since all intercompany sales are upstream, the effect on Snow's income must be reflected
in the non-controlling interest computation:
SW reported income .......................................................................................... P58,000
20x4 unrealized gross profit realized in 20x5 (above) .................................. 6,000
20x5 unrealized gross profit to be realized in 20x6 (above) ....................... (10,000)
SW realized income ........................................................................................... P54,000
Outside ownership percentage ...................................................................... 20%
Non-controlling interest in SWs income .................................................. P10,800
or
Consolidated Net Income for 20x5
P Companys net income from own/separate operations (P640-P290-P150) P 200,000
Realized profit in beginning inventory of S Company (downstream sales)
Unrealized profit in ending inventory of S Company (downstream sales) (_ 0)
P Companys realized net income from separate operations*... P 200,000
S Companys net income from own operations (P360 P197 P105) P 58,000
Realized profit in beginning inventory of P Company (upstream sales) 6,000
Unrealized profit in ending inventory of P Company (upstream sales) ( 10,000)
S Companys realized net income from separate operations*... P 54,000 54,000
Total P 254,000
Less: Amortization of allocated excess ____0
Consolidated Net Income for 20x5 P 254,000
Less: Non-controlling Interest in Net Income* * 10,800
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent 20x5.. P 243,200
Problem XIII
1. (Computation of selected consolidation balances as affected by downstream inventory transfers)
UNREALIZED GROSS PROFIT, 12/31/x4: (downstream transfer)
Intercompany gross profit (P120,000 P72,000) .......................................................... P48,000
Inventory remaining at year's end ....................................................................................... 30%
Unrealized Intercompany Gross profit, 12/31/x4 ............................................................... P14,400
UNREALIZED GROSS PROFIT, 12/31/x5: (downstream transfer)
Intercompany gross profit (P250,000 P200,000) ....................................................... P50,000
Inventory remaining at year's end ....................................................................................... 20%
Unrealized intercompany gross profit, 12/31/x5 ................................................................ P10,000
CONSOLIDATED TOTALS
Sales = P1,150,000 (add the two book values and eliminate intercompany sales of P250,000)
Cost of goods sold:
Benson's book value ....................................................................................................... P535,000
Broadway's book value .................................................................................................. 400,000
Eliminate intercompany transfers ................................................................................. (250,000)
Realized gross profit deferred in 20x4 .......................................................................... (14,400)
Deferral of 20x5 unrealized gross profit ........................................................................ 10,000
Cost of goods sold ................................................................................................... P680,600
Operating expenses = P210,000 (add the two book values and include intangible amortization for
current year)
Dividend income = -0- (intercompany transfer eliminated in consolidation)
Noncontrolling interest in consolidated income: (impact of transfers is not included because they
were downstream)
Broadway reported income for 20x5 ........................................................................... P100,000
Intangible amortization ................................................................................................... (10,000)
Broadway adjusted income ........................................................................................... 90,000
Outside ownership ........................................................................................................... 30%
Noncontrolling interest in Broadways earnings.......................................................... P 27,000
or,
Consolidated Net Income for 20x5
P Companys net income from own/separate operations (P800-P535-P100) P 165,000
Realized profit in beginning inventory of S Company (downstream sales) 14,400
Unrealized profit in ending inventory of S Company (downstream sales) (_10,000)
P Companys realized net income from separate operations*... P 169,400
S Companys net income from own operations (P600 P400 P100) P 100,000
Realized profit in beginning inventory of P Company (upstream sales) 0
Unrealized profit in ending inventory of P Company (upstream sales) ( 0)
S Companys realized net income from separate operations*... P 100,000 100,000
Total P 269,400
Less: Amortization of allocated excess __10,000
Consolidated Net Income for 20x5 P 259,400
Less: Non-controlling Interest in Net Income* * 27,000
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent 20x5.. P 232,400
CONSOLIDATED TOTALS
Sales = P1,150,000 (add the two book values and eliminate the Intercompany transfer)
Cost of goods sold:
Benson's COGS book value ........................................................................................... P535,000
Broadway's COGS book value ...................................................................................... 400,000
Eliminate intercompany transfers ................................................................................. (250,000)
Realized gross profit deferred in 20x4 .......................................................................... (14,400)
Deferral of 20x5 unrealized gross profit ........................................................................ 10,000
Consolidated cost of goods sold .......................................................................... P680,600
Operating expenses = P210,000 (add the two book values and include intangible amortization for
current year)
Dividend income = -0- (interco. transfer eliminated in consolidation)
Noncontrolling interest in consolidated income: (impact of transfers is included because they were
upstream)
Broadway reported income for 20x5 ........................................................................... P100,000
Intangible amortization ................................................................................................... (10,000)
20x4 gross profit recognized in 20x5 ...................................................................... 14,400
20x5 gross profit deferred ....................................................................................... (10,000)
Broadway realized income for 20x5 ...................................................................... P94,400
Outside ownership ........................................................................................................... 30%
Noncontrolling interest .................................................................................................... P28,320
Consolidated Net Income for 20x5
P Companys net income from own/separate operations (P800-P535-P100) P 165,000
Realized profit in beginning inventory of S Company (downstream sales) 0
Unrealized profit in ending inventory of S Company (downstream sales) (_ 0)
P Companys realized net income from separate operations*... P 165,000
S Companys net income from own operations (P600 P400 P100) P 100,000
Realized profit in beginning inventory of P Company (upstream sales) 14,400
Unrealized profit in ending inventory of P Company (upstream sales) ( 10,000)
S Companys realized net income from separate operations*... P 104,400 104,400
Total P 269,400
Less: Amortization of allocated excess __10,000
Consolidated Net Income for 20x5 P 259,400
Less: Non-controlling Interest in Net Income* * 28,320
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent 20x5.. P 231,080
Inventory = P988,000 (add the two book values and defer the P10,000 ending unrealized gross profit)
Noncontrolling interest in subsidiary, 12/31/x5 = P382,500
30% beginning book value less P14,400
unrealized gross profit (30% P935,600)............................................................. P280,680
Excess intangible allocation (30% P295,000)..................................................... (88,500)
Noncontrolling Interest in Broadways earnings .................................................. 28,320
Dividends (30% P50,000)............................................................................................... (15,000)
Total noncontrolling interest at 12/31/x5............................................................... P382,500
Problem XIV
Amortization of equipment: P20,000 / 10 years = P2,000
RPBI of S (downstream sales):..................................................... ... P15,000
RPBI of P (upstream sales)....................................................... 10,000
UPEI of S (downstream sales)... 20,000
UPEI of P (upstream sales). 5,000
Or, alternatively
Consolidated Net Income for 2014
P Companys net income from own/separate operations P700,000
Realized profit in beginning inventory of S Company (downstream sales) 15,0000
Unrealized profit in ending inventory of S Company (downstream sales) (20,00 0)
P Companys realized net income from separate operations*... P695,000
S Companys net income from own operations. P 90,000
Realized profit in beginning inventory of P Company (upstream sales) 10,000
Unrealized profit in ending inventory of P Company (upstream sales) ( 5,000)
Son Companys realized net income from separate operations*... P 95,000 95,000
Total P790,000
Less: Non-controlling Interest in Net Income* * P 18,600
Amortization of allocated excess 2,000 20,600
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent.. P769,400
Add: Non-controlling Interest in Net Income (NCINI) _ 18,600
Consolidated Net Income for 2014 P788,000
*that has been realized in transactions with third parties.
Or, compute first the RE P on January 1, 2014 (use work back approach),
Retained earnings Parent, 1/1/2014 (cost)
(P3,500,000 plus P25,000 Div of P less P724,000 NI of P). P2,801,000
-: UPEI of S (down) 2013 or RPBI of S (down) 2014... 15,000
Adjusted Retained earnings Parent, 1/1/2014 (cost) P2,786.000
Retroactive Adjustments to convert Cost to Equity for
purposes of consolidation / Parents share of adjusted
net increase in subsidiarys retained earnings:
Retained earnings Subsidiary, 1/1/2011P 150,000
Less: Retained earnings Subsidiary, 1/1/2014 260,000
Increase in Retained earnings since acquisition
(cumulative net income cumulative dividends)P110,000
Accumulated amortization (1/1/2011 1/1/2014):
P 2,000 x 3 years. ( 6,000)
UPEI of P (up) 2013 or RPBI of P (up) 2014... ( 10,000)
P 94,000
X: Controlling Interests 80% 75,200
RE P, 1/1/2014 (equity method) = CRE, 1/1/2014..P2,861,200
+: CI CNI or Profit Attributable to Equity Holders of Parent.. 769,400
-: Dividends P.. 25,000
RE P, 12/31/2014 (equity method) = CRE, 12/31/2014..P3,605,600
CONSOLIDATED BALANCES
Sales = P1,000,000 (add the two book values and subtract P100,000 in intercompany transfers)
Cost of Goods Sold = P571,000 (add the two book values and subtract P100,000 in intercompany purchases.
Subtract P9,000 because of the previous year unrealized gross profit and add P20,000 to defer the current
year unrealized gross profit.)
Operating Expenses = P206,000 (add the two book values and include the P10,000 excess amortization
expenses but remove the P4,000 in excess depreciation expense [P10,000 P6,000] created by building
transfer)
Investment Income = P0 (the intercompany balance is removed so that the individual revenue and expense
accounts of the subsidiary can be shown)
Inventory = P280,000 (add the two book values and subtract the P20,000 ending unrealized gross profit)
Equipment (net) = P292,000 (add the two book values and include the P60,000 allocation from the acquisition-
date fair value less three years of excess amortizations)
Buildings (net) = P528,000 (add the two book values and subtract the P20,000 unrealized gain on the transfer
after two years of excess depreciation [P4,000 per year])
Problem XVI
Requirements 1 to 4:
Schedule of Determination and Allocation of Excess (Partial-goodwill)
Date of Acquisition January 1, 20x4
Fair value of Subsidiary (80%)
Consideration transferred.. P 372,000
Less: Book value of stockholders equity of Son:
Common stock (P240,000 x 80%). P 192,000
Retained earnings (P120,000 x 80%)... 96,000 288,000
Allocated excess (excess of cost over book value).. P 84,000
Less: Over/under valuation of assets and liabilities:
Increase in inventory (P6,000 x 80%) P 4,800
Increase in land (P7,200 x 80%). 5,760
Increase in equipment (P96,000 x 80%) 76,800
Decrease 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 over
fair value)... P 12,000
The buildings and equipment will be further analyzed for consolidation purposes as follows:
S Co. S Co. Increase
Book value Fair value (Decrease)
Equipment .................. 180,000 180,000 0
Less: Accumulated depreciation.. 96,000 - ( 96,000)
Net book value... 84,000 180,000 96,000
S Co. S Co.
Book value Fair value (Decrease)
Buildings................ 360,000 144,000 ( 216,000)
Less: Accumulated depreciation.. 192,000 - ( 192,000)
Net book value... 168,000 144,000 ( 24,000)
In this case, the goodwill was proportional to the controlling interest of 80% and non-controlling interest
of 20% computed as follows:
Value % of Total
Goodwill applicable to parent P12,000 80.00%
Goodwill applicable to NCI.. 3,000 20.00%
Total (full) goodwill.. P15,000 100.00%
Value % of Total
Goodwill impairment loss attributable to parent or controlling P 3,000 80.00%
Interest
Goodwill applicable to NCI.. 750 20.00%
Goodwill impairment loss based on 100% fair value or full-
Goodwill P 3,750 100.00%
The unrealized profits on January 1, and on December 31, 20x5, resulting intercompany sales, are as
summarized below:
Downstream Sales:
Intercompany Merchandise
Year Sales of Parent to in 12/31 Inventory Unrealized Intercompany
Subsidiary of S Company Profit in Ending Inventory
20x4 P150,000 P150,000 x 60% = P90,000 P90,000 x 20% = P18,000
20x5 120,000 P120,000 x 80% = P96,000 P96,000 x 25% = P40,000
Upstream Sales:
Intercompany Merchandise
Year Sales of Subsidiary in 12/31 Inventory Unrealized Intercompany
to Parent of S Company Profit in Ending Inventory
20x4 P 50,000 P100,000 x 50% = P25,000 P25,000 x 40% = P10,000
20x5 62,500 P 62,500 x 40% = P25,000 P25,000 x 20% = P 5,000
Cost of Depreciation/
Goods Amortization Amortization
Sold Expense -Interest Total
Inventory sold P 6,000
Equipment P 12,000
Buildings ( 6,000)
Bonds payable _______ _______ P 1,200
Totals P 6,000 P 7,200 P1,200 14,400
eliminating entries are posted in the investment account, it should be observed that from consolidation
point of view the investment account is totally eliminated. Thus,
Investment in S
Cost, 1/1/x4 372,000 28,800 Dividends S (30,000x 80%)
NI of S Amortization &
(60,000 x 80%) 48,000 13,560 impairment
18,000 UPEI of Son
9,600 UPEI of Perfect
Balance, 12/31/x4 350,040 288,000 (E1) Investment, 1/1/20x4
(E4) Investment Income 84,000 (E2) Investment, 1/1/20x4
and dividends 21,960
372,000 372,000
(E5) Sales. 150,000
Cost of Goods Sold (or Purchases) 150,000
To eliminated intercompany downstream sales.
Subsidiary accounts are adjusted to full fair value regardless on the controlling interest percentage or
what option used to value non-controlling interest or goodwill.
Balance Sheet
Cash. P 232,800 P 90,000 P 387,360
Accounts receivable.. 90,000 60,000 150,000
Inventory. 120,000 90,000 (1) 5,000 (3) 6,000
(7) 18,000
(8) 12,000 180,000
Land. 210,000 48,000 (2) 7,200 265,200
Equipment 220,000 180,000 380,000
Buildings 720,000 540,000 (2) 216,000 1,044,000
Discount on bonds payable (2) 4,800 (3) 1,200 3,600
Goodwill (2) 12,000 (3) 3,000 9,000
Investment in S Co 350,040 (4) 21,960 (2) 288,000
(2) 84,000
-
Total P1,635,700 P1,006,000 P2,394,600
Accumulated depreciation
- equipment P 135,000 P 96,000 (2) 96,000 (3) 12,000 P 147,000
Accumulated depreciation 405,000 288,000 (2) 192,000
- buildings (3) 6,000 495,000
Accounts payable 120,000 120,000 240,000
Bonds payable 240,000 120,000 360,000
Common stock, P10 par 600,000 600,000
Common stock, P10 par 240,000 (1) 240,000
Retained earnings, from above 462,840 144,000 462,840
Non-controlling interest (4) 7,200 (1 ) 72,000
(2) 18,000
_________ _________ __________ (5) 6,960 ____89,760
Total P1,962,840 P1,008,000 P 983,160 P 983,160 P2,394,600
Thus, the investment balance and investment income in the books of P Company is as follows:
Investment in S
Cost, 1/1/x5 350,040 38,400 Dividends S (48,000x 80%)
NI of Son 5,760 Amortization (7,200 x 80%)
(90,000 x 80%) 72,000 24,000 UPEI of Son (P24,000 x 100%)
RPBI of S (P18,000 x 100%) 18,000 4,800 UPEI of Perfect (P6,000 x 80%)
RPBI of P (P12,000 x 80%) 9,600
Balance, 12/31/x5 376,680
Investment Income
Amortization (7,200 x 805) 5,760 NI of S
UPEI of S (P24,000 x 100%) 24,000 72,000 (P90,000 x 80%)
UPEI of P (P6,000 x 80%) 4,800 18,000 RPBI of S (P18,000 x 100%)
9,600 RPBI of P(P12,000 x 80%)
65,040 Balance, 12/31/x5
Depreciation/
Amortization Amortization
Expense -Interest Total
Inventory sold
Equipment P 12,000
Buildings ( 6,000)
Bonds payable _______ P 1,200
Totals P 6,000 P1,200 P7,200
After the eliminating entries are posted in the investment account, it should be observed that from
consolidation point of view the investment account is totally eliminated. Thus,
Investment in S
Cost, 1/1/x5 350,040 38,400 Dividends S (40,000x 80%)
NI of S Amortization
(90,000 x 80%) 72,000 5,760 (6,000 x 80%)
RPBI of S (P18,000 x 100%) 18,000 24,000 UPEI of S (P20,000 x 100%)
RPBI of P (P12,000 x 80%) 9,600 4,800 UPEI of P (P5,000 x 80%)
Balance, 12/31/x5 376,680 307,200 (E1) Investment, 1/1/20x5
(E8) RPBI of S 18,000 70,440 (E2) Investment, 1/1/20x5
(E9) RPBI of P 9,600 26,640 (E4) Investment Income
and dividends
336,900 404,280
(E10) Cost of Goods Sold (Ending Inventory Income Statement) 24,000
Inventory Balance Sheet 24,000
To defer the downstream sales - unrealized profit in ending inventory
until it is sold to outsiders.
Balance Sheet
Cash. P 265,200 P 102,000 P 367,200
Accounts receivable.. 180,000 96,000 276,000
Inventory. 216,000 108,000 (10) 24,000
(11) 6,000 294,000
Land. 210,000 48,000 (2) 7,200 265,200
Equipment 240,000 180,000 420,000
Buildings 720,000 540,000 (3) 216,000 1,044,000
Discount on bonds payable (2) 3,600 (3) 1,200 2,400
Goodwill (2) 9,000 9,000
Investment in S Co 376,680 (8) 18,000 (1) 307,200
(9) 9,600 (2) 70,440
(4) 26,640 -
Total P2,207,880 P1,074,000 P2,677,800
Problem XVII
Requirements 1 to 4:
Schedule of Determination and Allocation of Excess
Date of Acquisition January 1, 20x4
*this procedure would be more appropriate, instead of multiplying the full-goodwill impairment loss of P3,125 by 80%. There might
be situations where the controlling interests on goodwill impairment loss would not be proportionate to NCI acquired (refer to
Illustration 15-6).
Thus, the investment balance and investment income in the books of P Company is as follows
Investment in S
Cost, 1/1/x4 372,000 28,800 Dividends S (36,000x 80%)
NI of S Amortization &
(60,000 x 80%) 48,000 13,560 impairment
18,000 UPEI of S (P18,000 x 100%)
9,600 UPEI of P (P12,000 x80%)
Balance, 12/31/x4 324,000
Investment Income
Amortization & NI of S
impairment 13,560 48,000 (P60,000 x 80%)
UPEI of S (P18,000 x 100%) 18,000
UPEI of P (P12,000 x80%) 9,600
6,840 Balance, 12/31/x4
Cost of Depreciation/
Goods Amortization Amortization
Sold Expense -Interest Total
Inventory sold P 6,000
Equipment P 12,000
Buildings ( 6,000)
Bonds payable _______ _______ P 1,200
Totals P 6,000 P 7,200 P1,200 14,400
(E4) Investment income 6,840
Investment in S Company 21,960
Non-controlling interest (P36,000 x 20%).. 7,200
Dividends paid S 36,000
To eliminate intercompany dividends and investment income under
equity method and establish share of dividends, computed as
follows:
Investment Income
After Investment in S the
NI of S 28,800 Dividends - S NI of S
(60,000 Amortization & Amortization (50,000
x 80%). 48,000 13,560 impairment impairment 13,560 48,000 x 80%)
18,000 UPEI of S UPEI of S 18,000
9,600 UPEI of P UPEI of P 9,600
21,960 6,840
eliminating entries are posted in the investment account, it should be observed that from consolidation
point of view the investment account is totally eliminated. Thus,
Investment in S
Cost, 1/1/x4 372,000 28,800 Dividends S (30,000x 80%)
NI of S Amortization &
(60,000 x 80%) 48,000 13,560 impairment
18,000 UPEI of S
9,600 UPEI of P
Balance, 12/31/x4 350,040 288,000 (E1) Investment, 1/1/20x4
(E4) Investment Income 84,000 (E2) Investment, 1/1/20x4
and dividends 21,960
372,000 372,000
Balance Sheet
Cash. P 232,800 P 90,000 P 322,800
Accounts receivable.. 90,000 60,000 150,000
Inventory. 120,000 90,000 (2) 6,000 (3) 6,000
(7) 18,000
(8) 12,000 180,000
Land. 210,000 48,000 (2) 7,200 265,200
Equipment 240,000 180,000 420,000
Buildings 720,000 540,000 (2) 216,000 1,044,000
Discount on bonds payable (2) 4,800 (3) 1,200 3,600
Goodwill (2) 15,000 (3) 3,750 11,250
Investment in S Co 350,040 (4) 21,960 (2) 288,000
(2) 84,000
-
Total P1,635,700 P1,008,000 P2,396,850
Accumulated depreciation
- equipment P 135,000 P 96,000 (2) 96,000 (3) 12,000 P 147,000
Accumulated depreciation 405,000 288,000 (2) 192,000
- buildings (3) 6,000 495,000
Accounts payable 120,000 120,000 240,000
Bonds payable 240,000 120,000 360,000
Common stock, P10 par 600,000 600,000
Common stock, P10 par 240,000 (1) 240,000
Retained earnings, from above 462,840 144,000 462,840
Non-controlling interest (4) 7,200 (1 ) 72,000
(2) 21,000
_________ _________ __________ (9) 6,210 ____92,010
Total P1,962,840 P1,008,000 P 986,160 P 986,160 P2,396,850
Thus, the investment balance and investment income in the books of Perfect Company is as follows:
Investment in S
Cost, 1/1/x5 350,040 38,400 Dividends S (48,000x 80%)
NI of Son 5,760 Amortization (7,200 x 80%)
(90,000 x 80%) 72,000 24,000 UPEI of S (P24,000 x 100%)
RPBI of (P18,000 x 100%) 18,000 4,800 UPEI of P (P6,000 x 80%)
RPBI of P (P12,000 x 80%) 9,600
Balance, 12/31/x5 376,680
Investment Income
Amortization (7,200 x 805) 5,760 NI of S
UPEI of S (P24,000 x 100%) 24,000 72,000 (P90,000 x 80%)
UPEI of P (P6,000 x 80%) 4,800 18,000 RPBI of S (P18,000 x 100%)
9,600 RPBI of P (P12,000 x 80%)
65,040 Balance, 12/31/x5
Depreciation/
Amortization Amortization
Expense -Interest Total
Inventory sold
Equipment P 12,000
Buildings ( 6,000)
Bonds payable _______ P 1,200
Totals P 6,000 P1,200 P7,200
After the eliminating entries are posted in the investment account, it should be observed that from
consolidation point of view the investment account is totally eliminated. Thus,
Investment in S
Cost, 1/1/x5 350,040 38,400 Dividends S (48,000x 80%)
NI of Son Amortization
(90,000 x 80%) 72,000 5,600 (7,000 x 80%)
RPBI of S (P18,000 x 100%) 18,000 24,000 UPEI of S (P24,000 x 100%)
RPBI of P (P18,000 x 80%) 9,600 4,800 UPEI of P (P6,000 x 80%)
Balance, 12/31/x5 376,680 307,200 (E1) Investment, 1/1/20x5
(E8) RPBI of S 18,000 70,440 (E2) Investment, 1/1/20x5
(E9) RPBI of P 9,600 26,640 (E4) Investment Income
and dividends
404,280 404,280
Balance Sheet
Cash. P 265,200 P 114,000 P 367,200
Accounts receivable.. 180,000 96,000 276,000
Inventory. 216,000 108,000 (10) 24,000
(11) 6,000 294,000
Land. 210,000 48,000 (2) 7,200 265,200
Equipment 240,000 180,000 420,000
Buildings 720,000 540,000 (3) 216,000 1,044,000
Discount on bonds payable (2) 3,600 (3) 1,200 2,400
Goodwill (2) 11,250 11,250
Investment in S Co 376,680 (8) 18,000 (1) 307,200
(9) 9,600 (3) 70,440
(4) 26,640 -
Total P2,207,880 P1,074,000 P2,680,050
8. a
Consolidated Net Income for 20x4
P Companys net income from own/separate operations
[P100,000 (P90,000 x 70%)] P 37,000
Realized profit in beginning inventory of S Company (downstream sales) 0
Unrealized profit in ending inventory of S Company (downstream sales) (_ 0)
P Companys realized net income from separate operations*... P 37,000
S Companys net income from own operations (P90,000 P67,000) P23,000
Realized profit in beginning inventory of P Company (upstream sales) 0
Unrealized profit in ending inventory of P Company (upstream sales)
[P90,000 x 30% = P27,000 x (90-67/90)] ( 6,900 )
S Companys realized net income from separate operations*... P16,100 16,100
Total P 53,100
Less: Amortization of allocated excess 0
Consolidated Net Income for 20x4 P 53,100
Less: Non-controlling Interest in Net Income* * 1,610
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent 20x4.. P 51,490
*that has been realized in transactions with third parties.
Or, alternatively
Consolidated Net Income for 20x4
P Companys net income from own/separate operations
[P100,000 (P90,000 x 70%)] P 37,000
Realized profit in beginning inventory of S Company (downstream sales) 0
Unrealized profit in ending inventory of S Company (downstream sales) (_ 0)
P Companys realized net income from separate operations*... P 37,000
S Companys net income from own operations (P90,000 P67,000) P23,000
Realized profit in beginning inventory of P Company (upstream sales) 0
Unrealized profit in ending inventory of P Company (upstream sales)
[P90,000 x 30% = P27,000 x (90-67/90)] ( 6,900 )
S Companys realized net income from separate operations*... P16,100 16,100
Total P 53,100
Less: Non-controlling Interest in Net Income* * P 1,610
Amortization of allocated excess 0 1,610
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent.. P 51,490
Add: Non-controlling Interest in Net Income (NCINI) _ 1,610
Consolidated Net Income for 20x4 P 53,100
*that has been realized in transactions with third parties.
12. c
Consolidated Net Income for 20x4
P Companys net income from own/separate operations (P90,000 P62,000) P 28,000
Realized profit in beginning inventory of S Company (downstream sales) 0
Unrealized profit in ending inventory of S Company (downstream sales) (_ 0)
P Companys realized net income from separate operations*... P 28,000
S Companys net income from own operations (P120,000 P90,000) P3 0,000
Realized profit in beginning inventory of P Company (upstream sales) 0
Unrealized profit in ending inventory of P Company (upstream sales) ( )
S Companys realized net income from separate operations*... P30,000 30,000
Total P 58,000
Less: Amortization of allocated excess 0
Consolidated Net Income for 20x4 P 58,000
Less: Non-controlling Interest in Net Income* * 3,000
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent 20x4.. P 55,000
*that has been realized in transactions with third parties.
Or, alternatively
Consolidated Net Income for 20x4
P Companys net income from own/separate operations (P90,000 P62,000) P 28,000
Realized profit in beginning inventory of S Company (downstream sales) 0
Unrealized profit in ending inventory of S Company (downstream sales) (_ 0)
P Companys realized net income from separate operations*... P 28,000
S Companys net income from own operations (P120,000 P90,000) P3 0,000
Realized profit in beginning inventory of P Company (upstream sales) 0
Unrealized profit in ending inventory of P Company (upstream sales ( )
S Companys realized net income from separate operations*... P30,000 30,000
Total P 58,000
Less: Non-controlling Interest in Net Income* * P 3,000
Amortization of allocated excess 0 3,000
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent.. P 55,000
Add: Non-controlling Interest in Net Income (NCINI) _ 3,000
Consolidated Net Income for 20x4 P 58,000
*that has been realized in transactions with third parties.
27. c
Sales
P Company 500,000
S Company _350,000
Total 850,000
Less: Intercompany sales to Dundee 100,000
Intercompany sales to Perth 150,000
Consolidated 600,000
28. a
Ending inventory of Perth from Dundee (P36,000 / 110%) 32,727
Ending inventory of Dundee from Perth (P31,000 / 130%) _23,846
Total 56,573
30. a
Consolidated Net Income for 20x4
P Companys net income from own/separate operations P180,000
Unrealized profit in ending inventory of S Company (downstream sales) ( 3,000)
P Companys realized net income from separate operations*... P 177,000
S Companys net income from own operations. 76,000
Total P253,000
Less: Amortization of allocated excess 0
Consolidated Net Income for 20x5 P253,000
31. a
Combined 20x5 sales (P580,000 + P445,000) P 1,025,000
Less: 20x5 intercompany sales 0
Consolidated sales P 1,025,000
32. d
Combined cost of sales P 480,000
Less: 20x5 intercompany sales 0
Less: Unrealized profit in the 20x5 beginning inventory
from 20x4 ( 3,000)
Add: Unrealized profit in 20x5 ending inventory ________0
Consolidated cost of sales P 477,000
33. d
Cost of Sales
P Company 5,400,000
S Company _1,200,000
Total 6,600,000
Less: Intercompany sales 1,000,000
Realized profit in BI of S Co.
[P625,000 x 12% = P75,000 x (625 - 425)/625] 24,000
Add: Unrealized profit in EI of S Co.
[P1,000,000 x 10% = P100,000 x (1,000 - 800)/1,000] __20,000
Consolidated 5,596,000
34. b
Cost of Sales
Bates Company 690,000
Sam Company 195,000
Total 885,000
Less: Intercompany sales 200,000
Realized profit in BI of Bates Co.
[P40,000 x 20%] 8,000
Add: Unrealized profit in EI of Bates Co.
[P15,000 x 20%] __3,000
Consolidated 680,000
35. b
Parent Subsidiary
Net Income from own operations:
X-Beams (parent) Kent (subsidiary), 70%:30% 210,000 90,000
Unrealized Profit in EI of Parent (X-Beams):
P180,000x 20% = P36,000 x (180-100/180) = P16,000,
70%:30% ( 11,200) ( 4,800)
Non-controlling Interest in Kents Net Income 85,200
36. d
Non-controlling Interest in Net Income (NCINI) for 20x5 20x6
S Companys net income of Subsidiary Company from its own operations
(Reported net income of S Company) P 400,000 P 480,000
Realized profit in beginning inventory of P Company (upstream sales) 20,000
Unrealized profit in ending inventory of P Company (upstream sales) ( 20,000) 0
S Companys realized net income from separate operations P 380,000 P 500,000
Less: Amortization of allocated excess 0 0
P380,000 P500,000
Multiplied by: Non-controlling interest %.......... 20% 20%
Non-controlling Interest in Net Income (NCINI) partial goodwill P 76,000 P100,000
Less: NCI on goodwill impairment loss on full goodwill 0 0
Non-controlling Interest in Net Income (NCINI) full goodwill P 76,000 P100,000
37. a
**Non-controlling Interest in Net Income (NCINI) for 20x6
S Companys net income of Subsidiary Company from its own operations
(Reported net income of S Company) P 0
Realized profit in beginning inventory of P Company (upstream sales) 0
Unrealized profit in ending inventory of P Company (upstream sales)
(P100,000 x 10% = P10,000 x 30%) ( 3,000)
S Companys realized net income from separate operations P( 3,000)
Less: Amortization of allocated excess 0
P( 3,000)
Multiplied by: Non-controlling interest %.......... 10%
Non-controlling Interest in GP P( 300)
Less: NCI on goodwill impairment loss on full goodwill 0
Non-controlling Interest in GP P( 300)
38. a
39. a Selling price P 60,000
Less: Cost of sales ( 48,000 )
Unrealized profit 12,000
Unsold fraction 1/3
Credit to Inventory P 4,000
46. c
Consolidated Net Income for 20x4
P Companys net income from own/separate operations P360,000
Realized profit in beginning inventory of S Company (downstream sales) 0
Unrealized profit in ending inventory of S Company (downstream sales) (_ 0)
P Companys realized net income from separate operations*... P360,000
S Companys net income from own operations P135,000
Realized profit in beginning inventory of P Company (upstream sales)
[P105,000 x 20/120) 17,500
Unrealized profit in ending inventory of P Company (upstream sales)
[P157,500 x 20/120) ( 26,250 )
S Companys realized net income from separate operations*... P126,250 126,250
Total P 486,250
Less: Amortization of allocated excess _ 0
Consolidated Net Income for 20x4 P486,250
Less: Non-controlling Interest in Net Income* * 1,610
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent 20x4.. P 51,490
*that has been realized in transactions with third parties.
Or, alternatively
Consolidated Net Income for 20x4
P Companys net income from own/separate operations P360,000
Realized profit in beginning inventory of S Company (downstream sales) 0
Unrealized profit in ending inventory of S Company (downstream sales) (_ 0)
P Companys realized net income from separate operations*... P360,000
S Companys net income from own operations ( P135,000
Realized profit in beginning inventory of P Company (upstream sales)
[P105,000 x 20/120) 17,500
Unrealized profit in ending inventory of P Company (upstream sales)
[P157,500 x 20/120) ( 26,250 )
S Companys realized net income from separate operations*... P126,250 126,250
Total P 486,250
Less: Non-controlling Interest in Net Income* * P 37,875
Amortization of allocated excess 0 37,875
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent.. P 448,375
Add: Non-controlling Interest in Net Income (NCINI) _37,875
Consolidated Net Income for 20x4 P 486,250
*that has been realized in transactions with third parties.
51. b
Operating
Expenses
P Company 28,000
S Company 14,000
Total 42,000
Add: Undervalued equipment (P35,000/7 years) _5,000
Consolidated 49,000
52. c
Cost of Sales
P Company 196,000
S Company _112,000
Total 308,000
Less: Intercompany sales 140,000
Add: Unrealized profit in EI of S Co.
[P140,000 x 60% = P84,000 x (140 - 112)/140] _16,800
Consolidated 184,900
53. a
Non-controlling interest (partial-goodwill), December 31, 20x4
Common stock S Company, December 31, 20x4 P 140,000
Retained earnings S Company, December 31, 20x4
Retained earnings S Company, January 1, 20x4 P210,000
Add: Net income of S for 20x4 154,000
Total P364,000
Less: Dividends paid 20x4 0 364,000
Stockholders equity S Company, December 31, 20x4 P 504,000
Adjustments to reflect fair value - (over) undervaluation of assets and
liabilities, date of acquisition (January 1, 20x4) 35,000
Amortization of allocated excess (refer to amortization above) :
20x5 (P35,000/7 years) ( 5,000)
Fair value of stockholders equity of S, December 31, 20x5 P 534,000
Multiplied by: Non-controlling Interest percentage... 20
Non-controlling interest (partial goodwill).. P 106,800
Add: NCI on full-goodwill (P70,000 P56,000) 14,000
Non-controlling interest (full- goodwill).. P 120,800
Partial-goodwill
Fair value of Subsidiary (80%)
Consideration transferred.. P 364,000
Less: Book value of stockholders equity of S:
Common stock (P140,000 x 80%). P 112,000
Retained earnings (P210,000 x 80%)... 168,000 280,000
Allocated excess (excess of cost over book value).. P 84,000
Less: Over/under valuation of assets and liabilities:
Increase in equipment (P35,000 x 80%) ___28,000
Positive excess: Partial-goodwill (excess of cost over
fair value)... P 56,000
Full-goodwill
Fair value of Subsidiary (100%)
Consideration transferred: Cash (P364,000/80%) P 455,000
Less: Book value of stockholders equity of S (P350,000 x 100%) __350,000
Allocated excess (excess of cost over book value).. P 105,000
Add (deduct): (Over) under valuation of assets and liabilities
Increase in equipment P35,000 x 100% 35,000
Positive excess: Full-goodwill (excess of cost over
fair value)... P 70,000
54. d
Equipment
P Company 616,000
S Company 420,000
Total 1,036,000
Add: Undervalued equipment 35,000
Less: Depreciation on undervalued equipment (P35,000/7 years) 7,000
Consolidated 1,064,000
55. d
Inventory
P Company 210,000
S Company 154,000
Total 364,000
Less: Unrealized profit in EI: [P140,000 x 60% = P84,000 x (140 - 112)/140] 16,800
Consolidated 347,200
56. d Add the two book values and remove P100,000 intercompany transfers.
Consolidated Expenses = P37,500 (add the two book values and include current year
amortization expense)
59. a
Non-controlling interest (partial-goodwill), December 31, 20x4
Common stock S Company, December 31, 20x4 P 100,000
Retained earnings S Company, December 31, 20x4
Retained earnings S Company, January 1, 20x4 P150,000
Add: Net income of S for 20x4 110,000
Total P260,000
Less: Dividends paid 20x4 0 260,000
Stockholders equity S Company, December 31, 20x4 P 360,000
Adjustments to reflect fair value - (over) undervaluation of assets and
liabilities, date of acquisition (January 1, 20x4) 75,000
Amortization of allocated excess (refer to amortization above) : ( 7,500)
Fair value of stockholders equity of S, December 31, 20x5 P 427,500
Multiplied by: Non-controlling Interest percentage... 20
Non-controlling interest (partial goodwill).. P 85,500
Add: NCI on full-goodwill ( ________0
Non-controlling interest (full- goodwill).. P 85,500
Partial-goodwill
Fair value of Subsidiary (80%)
Consideration transferred.. P 260,000
Less: Book value of stockholders equity of S:
Common stock (P100,000 x 80%). P 80,000
Retained earnings (P150,000 x 80%)... 120,000 200,000
Allocated excess (excess of cost over book value).. P 60,000
Less: Over/under valuation of assets and liabilities:
Increase in equipment (P25,000 x 80%) 20,000
Increase in secret formulas: P50,000 x 80% 40,000
Full-goodwill
Fair value of Subsidiary (100%)
Consideration transferred: Cash (80%) P 260,000
FV of NCI (20%) ___65,000
Fair value of Subsidiary (100%) P 325,000
Less: BV of stockholders equity of S (P100,000 + P150,000) x 100% __250,000
Allocated excess (excess of cost over book value).. P 75,000
Add (deduct): (Over) under valuation of assets and liabilities
Increase in equipment P25,000 x 100% 25,000
Increase in secret formulas: P50,000 x 100% P 50,000
Amortization:
Equipment: P25,000 / 5 years = P 5,000
Secret formulas: P50,000 / 20 years = 2,500
Total amortization of allocated P 7,500
60. c Add the two book values plus the original allocation (P25,000) less one year of excess
amortization expense (P5,000).
61. b Add the two book values less the ending unrealized gross profit of P12,000.
Intercompany Gross profit (P100,000 P80,000) ................................................. P20,000
Inventory Remaining at Year's End ........................................................................ 60%
Unrealized Intercompany Gross profit, 12/31 ...................................................... P12,000
62. b
20x3 20x4 20x5
Share in net income
20x3: P70,000 x 90% P 63,000
20x4: P85,000 x 90% P 76,500
20x5: P94,000 x 90% P 84,600
Less: Unrealized profit in ending inventory of P
20x3: P1,200 x 25% = P300 x 90% ( 270) 270
20x4: P4,000 x 25% = P1,000 x 90% ( 900) 900
20x5: P3,000 x 25% = P750 x 90% ________ ________ __( 675)
Income from S P 62,730 P 75,870 P 84,825
It should be noted that PAS 27 allow the use of cost model in accounting for investment in
subsidiary in the books of parent company but not the equity method.
Or, alternatively
Consolidated Net Income for 20x5
P Companys net income from own/separate operations P 100,000
Realized profit in beginning inventory of S Company (downstream sales) 1,050
Unrealized profit in ending inventory of S Company (downstream sales) (_ 3,600)
P Companys realized net income from separate operations*... P 97,450
S Companys net income from own operations P 30,000
Realized profit in beginning inventory of P Company (upstream sales) 1,000
Unrealized profit in ending inventory of P Company (upstream sales) ( 2,400 )
S Companys realized net income from separate operations*... P 28,600 28,600
Total P 126,050
Less: Non-controlling Interest in Net Income* * P 5,320
Amortization of allocated excess 2,000 7,320
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent.. P118,730
Add: Non-controlling Interest in Net Income (NCINI) __ 5,320
Consolidated Net Income for 2012 P124,050
*that has been realized in transactions with third parties.
90. a
Consolidated Stockholders Equity, 12/31/20x2:
Controlling Interest / Parents Interest / Parents Portion /
Equity Holders of Parent SHE, 12/31/20x2:
Common stock P (P only).. P1,000,000
Retained Earnings P (equity method), 12/31/20x2.. 809,680
Controlling Interest / Parents Stockholders Equity. P1,809,680
Non-controlling interest, 12/31/20x2 (full)... 101,320
Consolidated Stockholders Equity, 12/31/20x2 P1,911,000
91. c
Non-controlling interest , December 31, 20x1
Common stock Subsidiary Company, December 31, 20x1 P 10,000
Retained earnings Subsidiary Company, December 31, 20x1 8,600
Stockholders equity Subsidiary Company, December 31, 20x4 P 18,600
Adjustments to reflect fair value - (over) undervaluation of assets and
liabilities, date of acquisition (January 1, 20x4) 0
Amortization of allocated excess (refer to amortization above) 20x4 ( 0)
Fair value of stockholders equity of subsidiary, December 31, 20x4 P 18,600
Less: Unrealized profit in ending inventory of P Company (upstream sales)
P3,000 x 40% 1,200
Realized stockholders equity of subsidiary, December 31, 20x4 P 17,400
Multiplied by: Non-controlling Interest percentage... 20
Non-controlling interest. December 31, 20x1 .. P 3,480
92. a
Realized profit in BI of Bates Co. [P40,000 x 20%] P 8,000
Unrealized profit in EI of Bates Co. [P15,000 x 20%] __3,000
Net realized profit in intercompany sales of inventory P 5,000
Multiplied by: NCI% ___40%
NCI share in net realized profit P 2,000
93. c
RPBI of P (upstream sales).... 45,000
UPEI of P (upstream sales):
EI of Paque GP% of Subsidiary
P75,000 x 20%...................................... 15,000
Or, alternatively
Consolidated Net Income for 20x5
P Companys net income from own/separate operations (P103,500 P54,000) P 49,500
Realized profit in beginning inventory of S Company (downstream sales) 0
Unrealized profit in ending inventory of S Company (downstream sales) (_ 0)
P Companys realized net income from separate operations*... P 49,500
S Companys net income from own operations P 71,250
Realized profit in beginning inventory of P Company (upstream sales) 45,000
Unrealized profit in ending inventory of P Company (upstream sales) ( 15,000 )
S Companys realized net income from separate operations*... P 101,250 101,250
Total P 150,750
Less: Non-controlling Interest in Net Income* * P 10,125
Amortization of allocated excess ___0 10,125
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent.. P140,625
Add: Non-controlling Interest in Net Income (NCINI) __ 10,125
Consolidated Net Income for 2012 P150,750
*that has been realized in transactions with third parties.
(Not required)
Analysis of workpaper entries
(1) Investment in Segal (0.90 (P180,000 P150,000)) 27,000
Beginning Retained Earnings-Paque Co. 27,000
To establish reciprocity as of 1/1/20x8
94. c
Preferred Solution - since what is given is the RE P, 1/1/20x8 -
Retained earnings Parent, 1/1/20x8 (cost).. P 598,400
-: UPEI of S (down) 20x7 or RPBI of S (down) 20x8... 25,000
Adjusted Retained earnings Parent, 1/1/20x8 (cost) P 573.400
Retroactive Adjustments to convert Cost to Equity for
purposes of consolidation / Parents share of adjusted
net increase in subsidiarys retained earnings:
Retained earnings Subsidiary, 1/1/20x4P 95,000
Less: Retained earnings Subsidiary, 1/1/20x8.. 144,000
Increase in Retained earnings since acquisition
(cumulative net income cumulative dividends)P 49,000
Accumulated amortization (1/1/20x4 1/1/20x8). 0
UPEI of P (up) 20x7 or RPBI of P (up) 20x8... ( 0)
P 49,000
X: Controlling Interests 90% 44,100
RE P, 1/1/20x8 (equity method) = CRE, 1/1/20x8.. P 617,500
+: CI CNI or Profit Attributable to Equity Holders of Parent 203,700
-: Dividends P.. 110,000
RE P, 12/31/2014 (equity method) = CRE, 12/31/2014.. P 711,200
Or, alternatively(compute the RE-P end of the year under the cost model)
Retained earnings Parent, 1/1/20x8 (cost).. P 598,400
Add: NI of Parent as reported 20x8 under cost model 163,500
Less: Dividend of Parent 20x8.. 110,000
Retained earnings Parent, 12/31/20x8 (cost).. P 651,900
-: UPEI of S (down) 20x8 or RPBI of S (down) 20x9.... 10,000
Adjusted Retained earnings Parent, 12/31/20x8 (cost model).. P 641,900
Retroactive Adjustments to convert Cost to Equity for
purposes of consolidation / Parents share of adjusted
net increase in subsidiarys retained earnings:
Retained earnings Subsidiary, 1/1/20x4 P 95,000
Less: Retained earnings Subsidiary, 12/31/20x8
Retained earnings Subsidiary , 1/1/20x8.. P144,000
Add: NI of Subsidiary 20x8 63,000
Less: Dividend of Subsidiary 20x8... 35,000 172,000
Increase in Retained earnings since acquisition
(cumulative net income cumulative dividends) P 97,000
Accumulated amortization (1/1/20x4 12/31/20x8)..( 0)
UPEI of P (up) 20x8 or RPBI of P (up) 20x9........ ( 0)
P 97,000
x: Controlling Interests 90% 69,300
RE P, 12/31/20x8 (equity method) = CRE, 12/31/20x8 P 711,200
(Not required)
Analysis of workpaper entries
(1) Investment in Sedbrook Company (0.90( P144,000 P95,000)) 44,100
Beginning Retained Earnings - Pruitt Co. 44,100
To establish reciprocity/convert to equity as of 1/1/x8
95. P941,000.
Additional information and correction:
In 20x4, Simon Company reported net income of P270,000 and declared dividends of P90,000.
Paul Company reported net income from independent operations in 20x4 in the amount of
P700,000 and retained earnings on December 31, 20x4, of P1,500,000.
Or, alternatively
Consolidated Net Income for 2014
P Companys net income from own/separate operations P700,000
Realized profit in beginning inventory of S Company (downstream sales) 30,000
Unrealized profit in ending inventory of S Company (downstream sales) ( 5,000)
P Companys realized net income from separate operations*... P725,000
S Companys net income from own operations. P270,000
Realized profit in beginning inventory of P Company (upstream sales) 20,000
Unrealized profit in ending inventory of P Company (upstream sales) ( 10,000)
S Companys realized net income from separate operations*... P280,000 280,000
Total P1,005,000
Less: Non-controlling Interest in Net Income* * P 54,000
Amortization of allocated excess 10,000 64,000
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent.. P 941,000
Add: Non-controlling Interest in Net Income (NCINI) __ _ 54,000
Consolidated Net Income for 2014 P 995,000
*that has been realized in transactions with third parties.
(Not required)
Analysis of workpaper entries
(1) Sales 120,000
Purchases (Cost of Goods Sold) 120,000
To eliminate intercompany sales (P50,000 + P70,000)
96. P1,863,000
Retained earnings Parent, 12/31/20x4 (cost).. P 1,500,000
-: UPEI of S (down) 20x4 or RPBI of S (down) 20x5.... 5,000
Adjusted Retained earnings Parent, 12/31/20x4 (cost model).. P 1,495,000
Retroactive Adjustments to convert Cost to Equity for
purposes of consolidation / Parents share of adjusted
net increase in subsidiarys retained earnings:
Retained earnings Subsidiary, 1/1/20x1.P 450,000
Less: Retained earnings Subsidiary, 12/31/20x4 960,000
Increase in Retained earnings since acquisition
(cumulative net income cumulative dividends) P 510,000
Accumulated amortization (1/1/20x1 12/31/20x4)..( 40,000)
UPEI of P (up) 20x4 or RPBI of P (up) 20x5........ ( 10,000)
P 460,000
x: Controlling Interests 80% 368,000
RE P, 12/31/20x4 (equity method) = CRE, 12/31/20x4 P1,863,000
Partial-goodwill
Fair value of Subsidiary (80%)
Consideration transferred.. P7,500,000
Less: Book value of stockholders equity of S:
Common stock (P1,000,000 x 80%). P 800,000
Retained earnings (P5,000,000 x 80%)... 4,000,000 4,800,000
Allocated excess (excess of cost over book value).. P2,700,000
Less: Over/under valuation of assets and liabilities:
Add (deduct): (Over) under valuation of assets and liabilities
Decrease in inventory: P(150,000 x 80%) P( 120,000)
Increase in building: P450,000 x 80% ___360,000 240,000
Positive excess: Partial-goodwill (excess of cost over
fair value)... P2,460,000
Amortization schedule
Balance at Remaining
acquisition Amortization Amortization at
Dec. 31/X2 20X3 20X4 Dec.31/X4
Inventory P(150,000) P(150,000) 0 P 0
Building (15 years) 450,000 30,000 P30,000 390,000
Goodwill 3,075,000 _________0 ______0 3,075,000
Total P3,375,000 P(120,000) P30,000 P3,465,000
99. a
Non-controlling interest is 20% 9,375,000 (fair value of subsidiary, 12/31/20x2) = P1,875,000
Or, alternatively:
Non-controlling interest, December 31, 20x2
Common stock S Company, December 31, 20x2 P1,000,000
Retained earnings S Company, December 31, 20x2 5,000,000
Stockholders equity S Company, December 31, 20x2 P6,000,000
Adjustments to reflect fair value - (over) undervaluation of assets and
liabilities, date of acquisition (December 31, 20x2) ___300,000
Fair value of stockholders equity of S, December 31, 20x2 P6,300,000
Multiplied by: Non-controlling Interest percentage... 20
Non-controlling interest (partial goodwill).. P 1,260,000
Add: NCI on full-goodwill (P3,075,000 P2,460,000) ___615,000
Non-controlling interest (full- goodwill).. P1,875,000
100. d P2,393,800
Non-controlling interest , December 31, 20x4
Common stock S Company, December 31, 20x4 P1,000,000
Retained earnings S Company, December 31, 20x4 7,524,000
Stockholders equity S Company, December 31, 20x4 P8,524,000
Adjustments to reflect fair value - (over) undervaluation of assets and
liabilities, date of acquisition (December 31, 20x2) 300,000
Amortization of allocated excess (refer to amortization above- 20x3 and 20x4: __90,000
Fair value of stockholders equity of S, December 31, 20x4 P8,914,000
Less: UPEI of P (up) 20x3 or RPBI of P (up) 20x4 ____20,000
P8,894,000
Multiplied by: Non-controlling Interest percentage... _ 20
Non-controlling interest (partial goodwill).. P1,778,800
Add: NCI on full-goodwill ___615,000
Non-controlling interest (full- goodwill).. P2,393,800
Or, alternatively:
Balance of NCI on acquisition December 31, 20x2 P1,875,000
Add: NCI's share of the adjusted change in retained earnings to 12/ 31/20x4
Jane's retained earnings, December 31, 20x4 P7,524,000
Jane's retained earnings at December 31, 20x2 ( 5,000,000)
Change in carrying value P2,524,000
Adjustments:
Amortization of fair value increments to date 90,000
Unrealized upstream profit 20x4 ( 20,000)
djusted change in retained earnings of Jane since acquisition P2,594,000
Multiplied by: NCI's share at 20% 518,800
Ending balance of NCI on December 31, 20x4 P2,393,800
101. b
Retained earnings Parent, 12/31/20x4 (cost).. P11,900,000
-: UPEI of S (down) 20x4 or RPBI of S (down) 20x5.... 0
Adjusted Retained earnings Parent, 12/31/20x4 (cost model).. P11,900,000
Retroactive Adjustments to convert Cost to Equity for
purposes of consolidation / Parents share of adjusted
net increase in subsidiarys retained earnings:
Retained earnings Subsidiary, 12/31/20x2..P5,000,000
Less: Retained earnings Subsidiary, 12/31/20x4 7,524,000
Increase in Retained earnings since acquisition
(cumulative net income cumulative dividends).P2,524,000
Accumulated amortization (1/1/20x1 12/31/20x4).. 90,000
UPEI of P (up) 20x4 or RPBI of P (up) 20x5.....( 20,000)
P2,594,000
x: Controlling Interests 80% 2,075,200
RE P, 12/31/20x4 (equity method) = CRE, 12/31/20x4 P13,975,200
102. b - (P125,000 - P93,000) .8 = P25,600
103. c - (P125,000 - P93,000) .2 = P6,400
104. d
105. a - (P125,000 - P93,000) .7
106. c - (P125,000 - P93,000) .3
107. a - [P293,000 + (P125,000 - P93,000) .7] .2 = P63,080
108. d
Non-controlling Interest in Net Income (NCINI) for 20x4:
S Companys net income of Subsidiary Company from its own operations
(Reported net income of S Company) P 137,000
Realized profit in beginning inventory of P Company (upstream sales) 40,000
Unrealized profit in ending inventory of P Company (upstream sales) ( 25,000)
S Companys realized net income from separate operations P 152,000
Less: Amortization of allocated excess _ 0
P 152,000
Multiplied by: Non-controlling interest %.......... 30%
Non-controlling Interest in Net Income (NCINI) partial goodwill P 45,600
Less: NCI on goodwill impairment loss on full goodwill 0
Non-controlling Interest in Net Income (NCINI) full goodwill P 45,600
109. b Combined cost of sales P 160,000
Less: Intercompany sales revenue 110,000
Add: Unrealized profit taken out of inventory
(75%)x(35,000) = 26,250
Consolidated cost of sales P 76,250
110. a
(P115,000 x 70%) - P26,250 = P 54,250
The requirement Ps income from S is a term normally used under the equity method, but, in
some cases it may also refer to the term dividend income under the cost model depending on
how the problem was described and presented.
Since there are no data available to arrive at the dividend income under the cost model for
reason that dividend declared or paid by subsidiary is not given, so the term Ps income from S
may mean Income from subsidiary which is computed under the equity method,
It should be noted that PAS 27 allow the use of cost model in accounting for investment in
subsidiary in the books of parent company but not the equity method.
2. P20,000 - Inventory remaining P100,000 50% = P50,000 Unrealized gross profit (based on LL's
markup as the seller) P50,000 40% = P20,000. The ownership percentage has no impact on
this computation
Note: The problem is quite intriguing because of the statement Pot had established the
transfer price base on its normal markup. It should be noted that Parent Company
established the transfer price based on its normal price (in this case it is assumed that th e
mark-up of the parent which is 25% is also the normal transfer price). So, if is assumed to be
of the same markup with parent company, then the answer would be as follows:
5. P522,500
Grebe plus Swamps separate cost of goods sold =
P400,000 + P320,000 = P 720,000
Less: Intercompany sales = 200,000
Add: Profit +12,500 - 10,000 = ____2,500
Consolidated COGS = P 522,500
6. P10,000
Ending inventory of Grebe (1/2 x P100,000) P 50,000
x: GP% of Parent (P100,000 P80,00)/P100,000 20%
Unrealized profit in ending inventory P 10,000
8. Sales, P1,000,000; Cost of Sales, P696,000 (refer to No. 4 above for further discussions)
The only change here from No. 7 is the markup percentage which would now be 40 percent
(P120,000 gross profit P300,000 sales). Thus, the unrealized gross profit to be deferred is
P16,000 (P40,000 40%). Consequently, consolidated cost of goods sold is P696,000 (P600,000
+ P180,000 P100,000 + P16,000).
9. Sales, P2,907,000
Sales Cost of Sales
P Company 2,250,000 1,800,000
S Company 1,125,000 _937,500
Total 3,375,000 2,737,500
Less: Intercompany sales 468,000 468,000
Realized profit in BI of S Co.
[P300,000 x 1/2 = P150,000 x (300-240)/300] 30,000
Add: Unrealized profit in EI of S Co.
[P468,000 x 40% = P187,200 x (468-375)/468] ________ __37,200
Consolidated 2.907,000 2,276,700
Or, alternatively
Consolidated Net Income for 20x4
P Companys net income from own/separate operations. P225,000
Realized profit in beginning inventory of S Company (downstream sales) 0
Unrealized profit in ending inventory of S Company (downstream sales) (_ 0)
P Companys realized net income from separate operations*... P225,000
S Companys net income from own operations. P 90,000
Realized profit in beginning inventory of P Company (upstream sales) 0
Unrealized profit in ending inventory of P Company (upstream sales) ( 15,000)
Son Companys realized net income from separate operations*... P 75,000 75,000
Total P300,000
Less: Non-controlling Interest in Net Income* * P 15,000
Amortization of allocated excess 0 15,000
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent.. P285,000
Add: Non-controlling Interest in Net Income (NCINI) _ 15,000
Consolidated Net Income for 20x4 P290,000
*that has been realized in transactions with third parties.
29. P8,200
UNREALIZED GROSS PROFIT, 12/31/x4
Ending inventory ................................................................................................. P 40,000
Markup (P33,000/P110,000) ............................................................................... __ 30%
Unrealized intercompany gross profit, 12/31/x4 ........................................... P 12,000
33. P1,060,000
Cost of goods sold reported by Park P 800,000
Cost of goods sold reported by Small 700,000
Total cost of goods sold reported P1,500,000
Cost of goods sold reported by Park on sale to
Small (P500,000 x .40) (200,000)
Reduction of cost of goods sold reported by
Small for profit on intercompany sale
[(P500,000 x 4 / 5) x .60] (240,000)
Cost of goods sold for consolidated entity P1,060,000
34. P115,000
35. P102,400 = P94,000 + (P115,000 - P94,000).4
36. P12,600 = (P115,000 - P94,000) .6
37. P6,300 = (P37,000 - P28,000) .7
38. P2,700 = (P37,000 - P28,000) .3
39. Zero
40. P5,400 = (P37,000 - P28,000) .6
41. P3,600 = (P37,000 - P28,000) .4
42. P56,820 = [P184,000 + (P37,000 - P28,000) .6] .3
43. P9,360 = [(P65,000 - P52,000) - (P65,000 - P52,000) .2] .9
44. P1,040 = [(P65,000 - P52,000) - (P65,000 - P52,000) .2] .1
45. Zero
46. P9,100 =(P65,000 - P52,000) .7
47. P32,110 = [P312,000 + (P65,000 - P52,000) .7] .1
48. P280,000
Full-goodwill
Fair value of Subsidiary (100%)
Consideration transferred: Cash (P960,000/60%) P1,600,000
Less: Book value of stockholders equity of S (P600,000 + P540,000)
x 100%) _1,140,000
Allocated excess (excess of cost over book value).. P 460,000
Add (deduct): (Over) under valuation of assets and liabilities
Decrease in inventory: P(40,000) x 100% P( 40,000)
Increase in capital assets P220,000 x 100% __220,000 __180,000
Positive excess: Full-goodwill (excess of cost over
fair value)... P 280,000
Partial-goodwill
Fair value of Subsidiary (60%)
Consideration transferred..................... P 960,000
Less: Book value of stockholders equity of S:
Common stock (P600,000 x 60%)................... P 360,000
Retained earnings (P540,000 x 60%)................... _ 324,000 _ 684,000
Allocated excess (excess of cost over book value).. P 276,000
Less: Over/under valuation of assets and liabilities:
Add (deduct): (Over) under valuation of assets and liabilities
Decrease in inventory: P(40,000 x 60%) P( 24,000)
Increase in building: P220,000 x 60% ___132,000 _108,000
Positive excess: Partial-goodwill (excess of cost over
fair value)... P 168,000
49. P640,000
Non-controlling interest , 12/31/20x5 40% P1,600,000, fair value of subsidiary = P640,000
Or, alternatively:
Non-controlling interest, December 31, 20x5
Common stock S Company, December 31, 20x5 P 600,000
Retained earnings S Company, December 31, 20x5 540,000
Stockholders equity S Company, December 31, 20x5 P1,140,000
Adjustments to reflect fair value - (over) undervaluation of assets and
liabilities, date of acquisition (December 31, 20x5) ___180,000
Fair value of stockholders equity of S, December 31, 20x2 P1,320,000
Multiplied by: Non-controlling Interest percentage... 40
Non-controlling interest (partial goodwill).. P 528,000
Add: NCI on full-goodwill (P280,000 P168,000) ___112,000
Non-controlling interest (full- goodwill).. P 640,000
50. Since there was no impairment in goodwill reported in 20x6 and 20x7, the balance showing
for goodwill is P280,000.
51. P779,200
Non-controlling interest , December 31, 20x7
Common stock S Company, December 31, 20x7 P 600,000
Retained earnings S Company, December 31, 20x7 __935,000
Stockholders equity S Company, December 31, 20x7 P1,535,000
Adjustments to reflect fair value - (over) undervaluation of assets and
liabilities, date of acquisition (December 31, 20x5) 180,000
Amortization of allocated excess (refer to amortization above- 20x6 and
20x7 (P40,000 - P11,000) = P(29,000) + P11,000 __18,000
Fair value of stockholders equity of S, December 31, 20x7 P1,733,000
Less: UPEI of P (up) 20x7 or RPBI of P (up) 20x8 ____65,000
P1,668,000
Multiplied by: Non-controlling Interest percentage... _ 40
Non-controlling interest (partial goodwill).. P 667,200
Add: NCI on full-goodwill ___112,000
Non-controlling interest (full- goodwill).. P 779,200
Or, alternatively: Calculation of Non-controlling interest at December 31, 20X7:
Balance of NCI at time of acquisition P640,000
Add: NCI's share of adjusted change in retained earnings in prior years:
Retained earnings balance of Book at end of 20X7 P935,000
Retained earnings balance of Book at date of acquisition (540,000)
Change in carrying value of Book since acquisition P395,000
Adjustments:
Amortization of fair value increments 18,000
Unrealized profit on upstream sale of inventory in 20X7 ( 65,000)
Adjusted change in retained earnings since acquisition P348,000
NCI's share 40% 139,200
Ending balance of NCI on December 31, 20X7 P779,200
52. P1,780,400
Retained earnings Parent, 12/31/20x6 (cost).. P 1,775,000
-: UPEI of S (down) 20x6 or RPBI of S (down) 20x7.... 60,000
Adjusted Retained earnings Parent, 12/31/20x6 (cost model).. P 1,715,000
Retroactive Adjustments to convert Cost to Equity for
purposes of consolidation / Parents share of adjusted
net increase in subsidiarys retained earnings:
Retained earnings Subsidiary, 12/31/20x5..P540,000
Less: Retained earnings Subsidiary, 12/31/20x6 695,000
Increase in Retained earnings since acquisition
(cumulative net income cumulative dividends).P155,000
Accumulated amortization - 20x6.. 29,000
UPEI of P (up) 20x6 or RPBI of P (up) 20x7....( 75,000)
P 109,000
x: Controlling Interests 60% 65,400
RE P, 12/31/20x4 (equity method) = CRE, 12/31/20x4 P1,780,400
Or, alternatively:
Note 1:
Retained earnings balance of Book at end of 20x6 P695,000
Retained earnings balance of Book at date of acquisition (540,000)
Change in carrying value of Book since acquisition P155,000
Adjustments:
Amortization of fair value increments 29,000
Unrealized profit on upstream sale of inventory in 20x6 (75,000)
Adjusted change in retained earnings since acquisition P109,000
Paper's s share 60% 109,000 P 65,400
53. P2,428,800
Retained earnings Parent, 12/31/20x7 (cost).. P 2,265,000
-: UPEI of S (down) 20x7 or RPBI of S (down) 20x8.... 45,000
Adjusted Retained earnings Parent, 12/31/20x6 (cost model).. P 2,220,000
Retroactive Adjustments to convert Cost to Equity for
purposes of consolidation / Parents share of adjusted
net increase in subsidiarys retained earnings:
Retained earnings Subsidiary, 12/31/20x5..P540,000
Less: Retained earnings Subsidiary, 12/31/20x7 935,000
Increase in Retained earnings since acquisition
(cumulative net income cumulative dividends).P395,000
Accumulated amortization - 20x6 and 20x7
(P29,000 P11,000).. 18,000
UPEI of P (up) 20x7 or RPBI of P (up) 20x8....( 65,000)
P 348,000
x: Controlling Interests 60% 208,800
RE P, 12/31/20x4 (equity method) = CRE, 12/31/20x4 P2,428,800
Or, alternatively:
Ending balance - Retained earnings separate entity - Paper P2,265,000
Less unrealized profit on downstream sale of inventory 20x7 (__45,000)
Subtotal P2,220,000
Paper's share of adjusted retained earnings - see Note 1 below:
60% 348,000 208,800
Ending consolidated retained earnings balance of Paper, 12/31/20x7 P2,428,800
Note 1:
Retained earnings balance of Book at end of 20x7 P935,000
Retained earnings balance of Book at date of acquisition (540,000)
Change in carrying value of Book since acquisition P395,000
Adjustments:
Amortization of fair value increments 18,000
Unrealized profit on upstream sale of inventory in 20x7 (65,000)
Adjusted change in retained earnings since acquisition P348,000
Paper's s share 60% 348,000 P208,800
or alternatively:
Consolidated retained earnings, December 31, 20x6 (No. 52) P1,780,400
Controlling Interests in Consolidated Net income (refer to statement
of comprehensive income below) 1,148,400
Dividends declared paper ( 500,000)
Retained earnings, December 31, 20x7 P2,428,800
Incidentally, the
Eliminate intercompany transactions for 20X7
Intercompany transactions and balances
Accounts receivable/accounts payable still outstanding P 150,000
Downstream sales by Paper P1,000,000
Upstream sales by Book P 650,000
Dividends declared by Book P 250,000
Paper's portion of dividends P250,000 X 60% = P150,000
Paper Co.
Consolidated Statement of Comprehensive Income
For the year ended December 31,20s7
Allocated as follows:
Non-controlling interests in CNI see below 195,600
Controlling Interest in CNI Owners of the parent 1,148,400
Consolidated Net Income 1,344,000
Non-controlling interest's portion of adjusted net earnings:
Net income of Book for 20X7 as per separate-entity statement P490,000
Adjustments for 20X7
Realized profits on upstream sale of inventory 20x6 75,000
Unrealized profits on upstream sale of inventory 20x7 ( 65,000)
Amortization of fair value increments for 20x7 ( 11,000)
Adjusted net income of Book for 20x7 P489,000
NCI's share 40% P489,000 P195,600
Theories
1. True 6. True 11. True 16. False 21. True 26. e 31 b 36. a
2. False 7. False 12. False 17. False 22. False 27. e 32. e 37. b
3. False 8. False 13. False 18. True 23. b 28. c 33. b 38. e
4. True 9. True 14. True 19. True 24. e 29. d 34. d 39. d
5. False 10, False 15, True 20. False 25. a 30. a 35. a 40. d