Professional Documents
Culture Documents
Chapter 3 - Problem I
Chapter 3 - Problem I
Problem I
Cost Model
1. January 1, 20x4
a. On date of acquisition the retained earnings of P should always be considered as the consolidated
retained earnings, thus:
Consolidated Retained Earnings, January 1, 20x4
Retained earnings - P Company, January 1, 20x4 (date of acquisition) P360,000
b. NCI (Partial/Full)
Non-controlling interest (partial-goodwill), January 1, 20x4
Common stock – S Company, January 1, 20x4…… P 240,000
Retained earnings – S Company, January 1, 20x4 120,000
Stockholders’ equity – S Company, January 1, 20x4 P 360,000
Adjustments to reflect fair value - (over) undervaluation of assets and
liabilities, date of acquisition (January 1, 20x4) 90,000
Fair value of stockholders’ equity of subsidiary, January 1, 20x4…… P450,000
Multiplied by: Non-controlling Interest percentage…………...
20
Non-controlling interest (partial-goodwill)………………………………….. P 90,000
Add: NCI on full-goodwill (P15,000 – P12,000) ___3,000
Non-controlling interest (full-goodwill/fair value basis)………………………………….. P 93,000
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)
c. Partial/Proportionate Goodwill
Consolidated SHE:
Stockholders’ Equity
Common stock, P10 par P 600,000
Retained earnings 360,000
P’s Stockholders’ Equity / CI – SHE P 960,000
NCI, 1/1/20x4 (b) ___90,000
Consolidated SHE, 1/1/20x4 P1,050,000
2, The following items for December 31, 20x4 and December 31, 20x5 in the Consolidated
Financial Statements: (refer to requirement 6 as a guide)
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 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 P3,125 based on 100% fair value would be allocated to the controlling
interest and the NCI based on the percentage of total goodwill each equity interest received. For
purposes of allocating the goodwill impairment loss, the full-goodwill is computed as follows:
Fair value of Subsidiary (100%)
Consideration transferred: Cash (80%) P 372,000
Fair value of NCI (given) (20%) 93,000
Fair value of Subsidiary (100%) P 465,000
Less: Book value of stockholders’ equity of S (P360,000 x 100%) __360,000
Allocated excess (excess of cost over book value)….. P 105,000
Add (deduct): (Over) under valuation of assets and liabilities
(P90,000 x 100%) 90,000
Positive excess: Full-goodwill (excess of cost over
fair value)………………………………………………... P 15,000
It should be observed that the goodwill computed above was proportional to the controlling
interest of 80% and non-controlling interest of 20% computed as follows:
Value % 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%
Therefore, the goodwill impairment loss of P3,125 based on 100% fair value or full-goodwill
would be allocated as follows:
Value % of Total
Goodwill impairment loss attributable to P or controlling P 80.00%
Interest 3,000
Goodwill impairment loss applicable to NCI…………………….. 750 20.00%
Goodwill impairment loss based on 100% fair value or full-
Goodwill P 3,750 100.00%
(E4) Dividend income - P………. 28,800
Non-controlling interest (P36,000 x 20%)……………….. 7,200
Dividends paid – S…………………… 36,000
To eliminate intercompany dividends and non-controlling interest
share of dividends.
Balance Sheet
P P
Cash………………………. 232,800 P 90,000 322,800
Accounts receivable…….. 90,000 60,000 150,000
(2) (3)
Inventory…………………. 120,000 90,000 6,000 6,000 210,000
(2)
Land……………………………. 210,000 48,000 7,200 265,200
Equipment 240,000 180,000 420,000
Buildings 720,000 540,000 (2) 216,000 1,044,000
(2) (3)
Discount on bonds payable 4,800 1,200 3,600
(2) (3)
Goodwill…………………… 12,000 3,000 9,000
Investment in S Co……… 372,000 (1) 288,000
(2) 84,000 -
Total P1,984,800 P1,008,000 P2,424,600
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..
__________
P P
Total P2,203,200 P1,074,000 821,160 821,160 P2,707,800
No entries are made on the P’s books to depreciate, amortize or write-off the portion of the
allocated excess that expires during 20x4.
(E2) 6,000
Inventory………………………………………………………………….
Accumulated depreciation – equipment……………….. 96,000
Accumulated depreciation – buildings………………….. 192,000
7,200
Land……………………………………………………………………….
Discount on bonds 4,800
payable………………………………………….
15,000
Goodwill………………………………………………………………….
Buildings……………………………………….. 216,000
Non-controlling interest (P90,000 x 20%) + [(P15,000,
full – 21,000
P12,000, partial goodwill)]…………
Investment in S 84,000
Co……………………………………………….
(E3) Cost of Goods Sold……………. 6,000
Depreciation expense……………………….. 6,000
Accumulated depreciation – buildings………………….. 6,000
Interest expense………………………………… 1,200
Goodwill impairment loss………………………………………. 3,750
6,000
Inventory…………………………………………………………..
Accumulated depreciation – 12,000
equipment………………..
Discount on bonds payable………………………… 1,200
Goodwill…………………………………… 3,750
Cost of Goods Depreciation/ Amortization Amortization
Sold Expense -Interest
Inventory sold P 6,000
Equipment P12,000
Buildings ( 6,000)
Bonds payable _______ _______ P 1,200
Totals P 6,000 P 6,000 P1,200
(E4) Dividend income - P………. 28,800
Non-controlling interest (P36,000 x 20%)……………….. 7,200
Dividends paid – S…………………… 36,000
(E5) Non-controlling interest in Net Income of Subsidiary………… 8,610
Non-controlling interest ………….. 8,610
Net income of subsidiary…………………….. P 60,000
Amortization of allocated excess [(E3)]…... ( 13,200)
P 46,800
Multiplied by: Non-controlling interest %..........
20%
P 9,360
Less: Non-controlling interest on impairment
loss on full-goodwill (P3,125 x 20%) or
(P3,125 impairment on full-goodwill
less
P2,500, impairment on 750
partial-goodwill)*
Non-controlling Interest in Net Income P 8,610
(NCINI)
*this procedure would be more appropriate, instead of multiplying the full-goodwill impairment loss of
P3,125 by 20%. There might be situations where the NCI on goodwill impairment loss would not be
proportionate to NCI acquired (refer to Illustration 15-6).
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..
Balance Sheet
P
Cash………………………. 265,200 P 102,000 P 367,200
Accounts receivable…….. 180,000 96,000 276,000
(3)
Inventory…………………. 216,000 108,000 6,000 (4) 6,000 324,000
(3)
Land……………………………. 210,000 48,000 7,200 265,200
Equipment 240,000 180,000 420,000
Buildings 720,000 540,000 (3) 216,000 1,044,000
(3) (4)
Discount on bonds payable 4,800 2,400 2,400
(3) (4)
Goodwill…………………… 15,000 3,750 11,250
Investment in S Co……… 372,000 (1)
19,200 (2) 307,200
(7) 84,000 -
Total P2,203,200 P1,074,000 P2,710,050
Accumulated depreciation P (3) (4)
- equipment P 150,000 102,000 96,000 24,000 P180,000
(3) 192,000
Accumulated depreciation 450,000 306,000 (4)
- buildings 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 643,200 186,000 676,680
(6)
9,600 (2 ) 76,800
Non-controlling interest………… (8) (3)
3,390 21,000
___ (6)
_____ _________ __________ 16,560 ___101,370
P P
Total P2,203,200 P1,074,000 824,910 824,910 P2,710,050