Secret formulas 7,000

Goodwill 6,120
Current liabilities 400
Long-term liabilities 47,000
Cash 18,000
Common stock, P2 par 100
APIC (P4,000 – P100) 3,900

Consideration transferred:
Cash 18,000,000
Common stock 4,000,000
Consideration transferred 22,000,000
Less: MV of Assets and Liabilities Acquired:
Cash 90,000
Receivables 190,000
Inventories 7,000,000
Plant & equipment, net 40,000,000
Trademarks 4,000,000
Brand names 5,000,000
Secret formulas 7,000,000
Current liabilities ( 400,000)
Long-term liabilities (47,000,000) 15,880,000
Positive excess: Goodwill 6,120,000

Acquisition expenses
Acquisition/merger expenses 1,100
Cash 1,100

Costs to Issue and Register Stocks

APIC 500
Cash 500

2.(in millions)
Cash 90
Receivables 190
Inventories 7,000
Plant & equipment 40,000
Trademarks 4,000
Brand names 5,000
Secret formulas 7,000
Noncompetition agreements 10,000
Current liabilities 400
Long-term liabilities 47,000
Cash 18,000
Common stock, P2 par 100
A. Sales............................................................................................................... 42,000
Shipments to Branch................................................................ ………… 35,000
Unrealized Intercompany Inventory Profit........................................... 7,000
Cost of merchandise shipped t branch: P42,000/1.20= P35,000.
Entry Made Correct/Should be Entry
Branch Current…………… 42,000 Branch Current……….. 42,000
Sales…………………… 42,000 Shipments to Branch 35,000
Unrealized Int. Inv Pr. 7,000
B. Shipments to Branch...................................................................................... 625
Unrealized Intercompany Inventory Profit................................................... 125
Sales Returns........................................................................................... Chapter 14
Problem I
1.(in millions)
 Acquisition of assets and liabilities:
Cash 90
Receivables 190
Inventories 7,000
Plant & equipment 40,000
Trademarks 4,000
Brand names 5,000
Secret formulas 7,000
Goodwill 6,120
Current liabilities 400
Long-term liabilities 47,000
Cash 18,000
500,000
Allocated Excess: Acquisition differential – Jan. 1, 20x4 300,000
Less: Over/under valuation of A/L (Allocated to):
Increase in Inventory 40,000
Secret formulas 7,000
Goodwill 6,120
Current liabilities 400
Long-term liabilities 47,000
Cash 18,000
Common stock, P2 par 100
APIC (P4,000 – P100) 3,900

Consideration transferred:
Cash 18,000,000
Common stock 4,000,000
Consideration transferred 22,000,000
Less: MV of Assets and Liabilities Acquired:
Cash 90,000
Receivables 190,000
Inventories 7,000,000
Plant & equipment, net 40,000,000
Trademarks 4,000,000
Brand names 5,000,000
Secret formulas 7,000,000
Current liabilities ( 400,000)
Long-term liabilities (47,000,000) 15,880,000
Positive excess: Goodwill 6,120,000

Acquisition expenses
Acquisition/merger expenses 1,100
Cash 1,100

Costs to Issue and Register Stocks

APIC 500
Cash 500

2.(in millions)
Cash 90
Receivables 190
Inventories 7,000
Plant & equipment 40,000
Trademarks 4,000
Brand names 5,000
Secret formulas 7,000
Noncompetition agreements 10,000
Current liabilities 400
Long-term liabilities 47,000
Cash 18,000
Common stock, P2 par 100
 A. Sales............................................................................................................... 42,000
Shipments to Branch................................................................ ………… 35,000
Unrealized Intercompany Inventory Profit........................................... 7,000
Cost of merchandise shipped t branch: P42,000/1.20= P35,000.
Entry Made Correct/Should be Entry
Branch Current…………… 42,000 Branch Current……….. 42,000
Sales…………………… 42,000 Shipments to Branch 35,000
Unrealized Int. Inv Pr. 7,000
B. Shipments to Branch...................................................................................... 625
Unrealized Intercompany Inventory Profit................................................... 125
Sales Returns........................................................................................... Chapter 14
Problem I
1.(in millions)
Acquisition of assets and liabilities:
Cash 90
Receivables 190
Inventories 7,000
Plant & equipment 40,000
Trademarks 4,000
Brand names 5,000
Secret formulas 7,000
Goodwill 6,120
Current liabilities 400
Long-term liabilities 47,000
Cash 18,000
500,000
Allocated Excess: Acquisition differential – Jan. 1, 20x4 300,000
Less: Over/under valuation of A/L (Allocated to):
Increase in Inventory 40,000
Dividend of Subsidiary
Cash (75% x Small’s dividends) 18,750 7,500 30,000
Investment in Small 18,750 7,500 30,000
Amortization of Allocated Excess
Investment income (75% x amortization of PD*) 19,500 3,975
Investment in Small 19,500 3,975

Investment in Small 10,500

Investment income 10,500
Investment in Son Investment Income (loss)
1/1/x4: CI 600,000
NI of S 18,750 75% Div - Son NI of Son
(80,000 75% Amort& Amortization (80,000
x 75%)……. 60,000 19,500 impairment impairment 19,500 60,000 x 75%)
12/31/x4 621,750 40,500
75% NL – Sub 75% NL – Sub
26,250 (35,000 x 75%) (35,000 x 75%) 26,250
7,500 75% Div - Son
75% Amort& 75% Amort&
Impairment 10,500 10,500 impairment
12/31/x5 598,500 15,750
NI of S 30,00075% Div - Son NI of Son
(90,000 75%Amort& Amortization (90,000
x 75%)……. 67,500 3,975 impairment impairment 3,975 67,500 x 75%)
12/31/x6632,025 63,525
Reconciliation of Investment /Conversion of Investment Account from Cost to Equity Method:
Investment balance under cost model P 600,000
Retroactive adjustments: (Small’s net income less dividends)
Small’s retained earnings, end of year P160,000
Less: Small’s retained earnings, date of acquisition _100,000
Increase in retained earnings (NI less dividend) P 60,000
Less: Cumulative amortization of allocated excess _17,300
P 42,700
X: Controlling interests ____75%
P 32,025
Less: Impairment of goodwill _______0 _32,025
Investment balance under equity method P 632,025

2.
a. Goodwill, 12/31/20x6 (P330,000 – P19,300) P 310,700
b. FV of NCI, 12/31/20x6:
Non-controlling interest (full-goodwill), December 31, 20x6
Common stock – Subsidiary Company, December 31, 20x6 . . . . . . . . . . . . . . . . . . P 400,000
 Retained earnings – Subsidiary Company, December 31, 20x6
Retained earnings – Subsidiary Company, January 1, 20x6
(P100,000 + P80,000 – P25,000 – P35,000 – P10,000).............................. P110,000
Add: Net income of Small for 20x6……………………………………………….. 90,000
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P200,000
Less: Dividends paid – 20x6…………………………………………………………. 40,000 160,000
Stockholders’ equity – Subsidiary Company, December 31, 20x5 . . . . . . . . . . . . . P 560,000
Adjustments to reflect fair value - (over) undervaluation of assets and
liabilities, date of acquisition (January 1, 20x4)- decreased in Net Assets . . . . ( 30,000)
Investment income 60,000 67,500
Investment income 26,,250
Investment in Small (75% x Small’s profit) 26,250
Dividend of Subsidiary
Cash (75% x Small’s dividends) 18,750 7,500 30,000
Investment in Small 18,750 7,500 30,000
Amortization of Allocated Excess
Investment income (75% x amortization of PD*) 19,500 3,975
Investment in Small 19,500 3,975

Investment in Small 10,500

Investment income 10,500Dividend of Subsidiary
Cash (75% x Small’s dividends) 18,750 7,500 30,000
Investment in Small 18,750 7,500 30,000
Amortization of Allocated Excess
Investment income (75% x amortization of PD*) 19,500 3,975
Investment in Small 19,500 3,975

Investment in Small 10,500

Investment income 10,500
Investment in Son Investment Income (loss)
1/1/x4: CI 600,000
NI of S 18,750 75% Div - Son NI of Son
(80,000 75% Amort& Amortization (80,000
x 75%)……. 60,000 19,500 impairment impairment 19,500 60,000 x 75%)
12/31/x4 621,750 40,500
75% NL – Sub 75% NL – Sub
26,250 (35,000 x 75%) (35,000 x 75%) 26,250
7,500 75% Div - Son
75% Amort& 75% Amort&
Impairment 10,500 10,500 impairment
12/31/x5 598,500 15,750
NI of S 30,00075% Div - Son NI of Son
(90,000 75%Amort& Amortization (90,000
x 75%)……. 67,500 3,975 impairment impairment 3,975 67,500 x 75%)
12/31/x6632,025 63,525
Reconciliation of Investment /Conversion of Investment Account from Cost to Equity Method:
Investment balance under cost model P 600,000
Retroactive adjustments: (Small’s net income less dividends)
Small’s retained earnings, end of year P160,000
Less: Small’s retained earnings, date of acquisition _100,000
Increase in retained earnings (NI less dividend) P 60,000
Less: Cumulative amortization of allocated excess _17,300
P 42,700
X: Controlling interests ____75%
P 32,025
Less: Impairment of goodwill _______0 _32,025
Investment balance under equity method P 632,025

2. Increase in retained earnings since date of acquisition P 10,000

Less: Amortization of allocated excess – 20x4 26,000
Amortization of allocated excess – 20x5 (14,000)
P ( 2,000)
Multiplied by: Controlling interests %................... _____75%
P ( 1,500)
Less: Goodwill impairment loss (full-goodwill) – 20x6 ________0 (___1,500)
Consolidated Retained earnings, January 1, 20x6 P498,500

The CRE, December 31, 20x6 would be as follows:

Consolidated Retained earnings, January 1, 20x6 P498,500
Add: Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of Large for 20x6 233,525
Total P717,550
Less: Dividends paid – Large Company for 20x6 70,000
Consolidated Retained Earnings, December 31, 20x6 P662,025

Account Adjustments to be amortized Over/ Life Annual Current 20x5

 Under Amount Year(20x4)
Inventory P16,000 1 P 16,000 P 16,000 P -
Subject to Annual Amortization
Patents 20,000 10 2,000 2,000 ___2,000
Amortization P 18,000 P 18,000 P 2,000
Impairment of goodwill (full) 99,000 - ________ _____ ___9,900
P 18,000 P 18,000 P 11,900

20x5
Consolidated Net Income for 20x5
Bonds payable… 4,800 4 1,200 1,200 1,200
P 13,200 P 13,200 P 7,200
20x4: First Year after Acquisition
Parent Company Cost Model Entry
January 1, 20x4:
(1) Investment in S Company…………………………………………… 372,000
Cash…………………………………………………………………….. 372,000
Acquisition of S Company.

January 1, 20x4 – December 31, 20x4:

(2) Cash……………………… 28,800
Dividend income (P36,000x 80%)……………. 28,800
118. c HH expense ..........................................................................................................P621,000
Or, alternatively: to compute CRE, 12/31/20x6
Consolidated Retained Earnings, December 31, 20x6
Retained earnings - Large Company, December 31, 20x6 (cost model) P630,000
d.3
Retained earnings of P company (same with Consolidated RE), 1/1/20x4 P75,000
Add; Controlling Interest in CNI (refer to a above) _87,725
P 162,725
Less: Dividends of P Company ____5,000
Consolidated Retained Earnings, 12/31/20x4 P 157,725

e. P238,000

2.
a. P87,725
Consolidated Net Income for 20x4
Net income from own/separate operations
Pill Company P55,000
Sill Company 40,000
Total P95,000
Less: Non-controlling Interest in Net Income* P 5,775
Amortization of allocated excess 0
Goodwill impairment 1,500 __7,275
Controlling Interest in Consolidated Net Income or Profit
attributable to equity holders of parent………….. P87,725
Add: Non-controlling Interest in Net Income (NCINI) __5,775
Consolidated Net Income for 20x4 P93,500

b. P5,775
*Net income of subsidiary – 20x4 P 40,000
Amortization of allocated excess – 20x4 ( 0))
P 40,000
Multiplied by: Non-controlling interest %.......... _____15%
P 6,000
Less: Non-controlling interest on impairment loss on full-goodwill (P1,500 x 15%)* _____225
Non-controlling Interest in Net Income (NCINI) P 5,775
*this procedure would be not be applicable where the NCI on goodwill impairment loss would not be proportionate to
NCI acquired.
c. P93,500 – refer to computation in (a)
d.
d.1. P75,000. Retained earnings of Parent on the date of acquisition should always be the same with the
Consolidated Retained Earnings also on the date of acquisition.
d.2
Retained earnings of P Co, 1/1/20x4 P75,000
Add; Net income under equity method {P55,000 + [(P40,000 x 85%) -
(P1,500, impairment loss x 85%) – (P0, amortization)} _87,725
P162,725
Less: Dividends of P Company ___5,000
Retained Earnings of P Co., 12/31/20x4 under equity method P157,725
d.3
Retained earnings of P Co., (same with Consolidated RE), 1/1/20x4 P75,000
Add; Controlling Interest in CNI same with Net Income in d.2 above under
equity method but not cost model _87,725
P162,725
Less: Dividends of P Company ___5,000
Consolidated Retained Earnings, 12/31/20x4 P157,725

e. P263,075 = P238,000 + (P40,000 x 85%) – (P9,000, div x 85%) – (P1,500, impair, x 85%)

3. Reconciliation of Investment balance – Cost Model to Equity Method

Investment balance under cost model P 238,000
Retroactive adjustments: (Sill’s net income less dividends)
Sill’s net income – 20x4 40,000
Less: Sill’s dividend – 20x4 _9,000
Increase in retained earnings (NI less dividend) 31,000
Less: Cumulative amortization of allocated excess _____0
31,000
X: Controlling interests __85%
26,350
Less: Impairment of goodwill (P1,500 x 85%) _1,275 __25,075
Investment balance under equity method P263,075

Reconciliation of Retained Earnings – Cost Model to Equity Method

Retained earnings, 12/31/20x4 under cost model(requirement 1 d.2) P 132,650
Retroactive adjustments: (Sill’s net income less dividends)
Sill’s net income – 20x4 40,000
Less: Sill’s dividend – 20x4 _9,000
Increase in retained earnings (NI less dividend) 31,000
Less: Cumulative amortization of allocated excess _____0
31,000
X: Controlling interests __85%
26,350
Less: Impairment of goodwill (P1,500 x 85%) _1,275 __25,075
Retained earnings, 12/31/20x4 under equity method(requirement 2 d.2) P157,725

B.
4.
a. P87,725
Consolidated Net Income for 20x4
Net income from own/separate operations
Pill Company [P62,650 – (P9,000 x 85%)] P55,000
Sill Company 40,000
Total P95,000
Less: Non-controlling Interest in Net Income* P 5,775
Amortization of allocated excess 0
Goodwill impairment 1,500 __7,275
Controlling Interest in Consolidated Net Income or Profit
attributable to equity holders of parent………….. P87,725
Add: Non-controlling Interest in Net Income (NCINI) __5,775
Consolidated Net Income for 20x4 P93,500

b. P5,775
*Net income of subsidiary – 20x4 P 40,000
Amortization of allocated excess – 20x4 ( 0))
P 40,000
Multiplied by: Non-controlling interest %.......... _____15%
P 6,000
Less: Non-controlling interest on impairment loss on full-goodwill (P1,500 x 15%)* _____225
Non-controlling Interest in Net Income (NCINI) P 5,775
*this procedure would be not be applicable where the NCI on goodwill impairment loss would not be proportionate to
NCI acquired.

c. P93,500 – refer to computation in (a)

d.
d.1. P75,000. Retained earnings of Parent on the date of acquisition should always be the same with the
Consolidated Retained Earnings also on the date of acquisition.
d.2
Retained earnings of P Co, 1/1/20x4 P75,000
Add; Net income under cost method (given) _62,650
P 137,650
 Less: Dividends of P Company ___5,000
P 132,650
Retained Earnings of P Co, 12/31/20x4 under cost model

d.3
Retained earnings of P company (same with Consolidated RE), 1/1/20x4 P75,000
Add; Controlling Interest in CNI (refer to a above) _87,725
P 162,725
Less: Dividends of P Company ____5,000
Consolidated Retained Earnings, 12/31/20x4 P 157,725

e. P238,000

5. Correction: Pill’s net income should be P87,725 instead of P86,725

a. P87,725
Consolidated Net Income for 20x4
Net income from own/separate operations
Pill Company [P87,725 – (P40,000 x 85%) + (P1,500 x 85%)] P55,000
Sill Company 40,000
Total P95,000
Less: Non-controlling Interest in Net Income* P 5,775
Amortization of allocated excess 0
Goodwill impairment 1,500 __7,275
Controlling Interest in Consolidated Net Income or Profit
attributable to equity holders of parent………….. P87,725
Add: Non-controlling Interest in Net Income (NCINI) __5,775
Consolidated Net Income for 20x4 P93,500

b. P5,775
*Net income of subsidiary – 20x4 P 40,000
Amortization of allocated excess – 20x4 ( 0))
P 40,000
Multiplied by: Non-controlling interest %.......... _____15%
P 6,000
Less: Non-controlling interest on impairment loss on full-goodwill (P1,500 x 15%)* _____225

Non-controlling Interest in Net Income (NCINI) P 5,775

*this Retained earnings – Silk, December 31, 20x6:
(P100,000 + P30,00 – P0 + P52,000 – P15,000) P 167,000
Less: Retained earnings – Silk, December 31, 20x4 (date of acquisition) 100,000
Increase in retained earnings since date of acquisition P 67,000
Less: Amortization of allocated excess – 20x5 79,000
Amortization of allocated excess – 20x6 __9,000
P (21,000)
Multiplied by: Controlling interests %................... 85%
P (17,850)
Less: Goodwill impairment loss (full-goodwill) – 20x5 _____0 ( 17,850)
Consolidated Retained earnings, December 31, 20x6 P 73,150

4. NCI, 12/31/20x6: P110,850

FV of SHE of Silk:
Common stock, 12/31/20x6 P 500,000
Retained earnings, 12/31/20x6:
Retained earnings, 1/1/20x4 P 100,000
NI – Subsidiary (20x5 and 20x6): P30,000 + P52,000 82,000
Dividends – Subsidiary (20x5 and 20x6): P0 + P15,000( 15,000) 167,000
Book value of SHE – S, 12/31/20x6 P 667,000
Adjustments to reflect fair value, 12/31/20x4 160,000
Amortization of allocated excess (P79,000 + P9,000) ( 88,000)
FV of SHE of S P 739,000
Multiplied by: NCI% _____15%
FV of NCI (partial), 12/31/20x6 P 110,850
Add: NCI on full-goodwill ______ _0
FV of NCI (full),12/31/20x6 P 110,850
 Or, alternatively:
Non-controlling interest – date of acquisition,12/31/20x4 (1) P114,000
Retained earnings Silk – Dec. 31, 20x6
(100,000 + 30,000 + 52,000 – 15,000) P167,000
Less: Retained earnings, 12/31/20x4 (date of acquisition)100,000
Increase since acquisition P 67,000
Less: Amortization of allocated excess (79,000 + 9,000)88,000
P( 21,000)
Multiplied by: NCI’s share ____ 15% ( 3,150)
Non-controlling interest (full) 12/31/20x6 P 110,850
5. Consolidated Patents, 12/31/20x6: P72,000
Unamortized balance of allocated excess:
Balance Balance
Dec. 31 Amortization Dec. 31
20x4 20x5 20x6 20x6
Inventory 70,000 70,000
Patents 90,000 9,000 9,000 72,000
160,000 79,000 9,000 72,000
Or, alternatively:
Invest. account – equity Dec. 31, 20x6 628,150
Cost of investment, cost model 646,000
Retained earnings Silk – Dec. 31, 20x6
(100,000 + 30,000 + 52,000 – 15,000) 167,000
Retained earnings,12/31/20x4 (date of acquisition) 100,000
Increase since acquisition 67,000
Less: Accumulated amortization (79,000 + 9,000) 88,000
( 21,000)
Multiplied by: CI share 85% (17,850)
Invest. account – equity method as at Dec. 31, 20x6 628,150

Implied value of 100% (628,150 / 85%) 739,000

Silk –Common shares 500,000
Retained earnings – Silk, 12/31/20x6 167,000
667,000
Balance unamortized allocated excess – Patents 72,000

Problem IV
Additional information:
Parent’s net income from own operations - 20x4, P100,000; 20x5, P120,000
Parent’s dividend declared – 20x4, P30,000; 20x5, P40,000

1. NCNCI for 20x4, P8,400; NCNCI for 20x5, P12,020

20x4
Consolidated Net Income for 20x4
Net income from own/separate operations
Parent – Davis Company P100,000
Subsidiary - Martin Company 60,000
Total P160,000
Less: Non-controlling Interest in Net Income* P 8,400
Amortization of allocated excess** 18,000
Goodwill impairment _______0 __26,400
Controlling Interest in Consolidated Net Income or Profit
attributable to equity holders of parent………….. P133,600
Add: Non-controlling Interest in Net Income (NCINI) ___8,400
Consolidated Net Income for 20x4 P142,000
*Net income of subsidiary – 20x4 P 60,000
Amortization of allocated excess – 20x4 (P2,000 + P16,000) ( 18,000)
P 42,000
Multiplied by: Non-controlling interest %.......... 20%
P 8,400
Less: Non-controlling interest on impairment loss on full-goodwill _______0
Non-controlling Interest in Net Income (NCINI) P 8,400
*this procedure would be not be applicable where the NCI on goodwill impairment loss would not be proportionate to
NCI acquired.

** Amortization of allocated excess

Partial-Goodwill Approach:
Fair value of Subsidiary
Consideration transferred:.................................................................. 300,000
Less: Carrying amount of Martins net assets =
Carrying amount of Martin’s shareholders’ equity
Common/Ordinary shares – Martin (180,000 x 80%)............ 144,000
Retained earnings – Martin (60,000 x 80%)......................... 48,000192,000
Allocated Excess: Acquisition differential – Jan. 1, 20x4 108,000
 Less: Over/under valuation of A/L (Allocated to):
Increase in Inventory (16,000 x 80%)........................................ 12,800
Increase in Patents (20,000 x 80%).......................................... 16,000 28,800
Positive Excess: Goodwill - partial 79,200
Full-Goodwill Approach:
Fair value of Subsidiary P300,000/80%..................................................
Consideration transferred:.................................................................. 375,000
Less: Carrying amount of Martins net assets =
Carrying amount of Martin’s shareholders’ equity
Common/Ordinary shares – Martin (180,000 x 100%)............ 180,000
Retained earnings – Martin (60,000 x 100%)......................... 60,000 240,000
Allocated Excess: Acquisition differential – Jan. 1, 20x4 135,000
Less: Over/under valuation of A/L (Allocated to):
Increase in Inventory (16,000 x 100%)........................................ 16,000
Increase in Patents (20,000 x 100%).......................................... 20,000 36,000
Positive Excess: Goodwill - partial 99,000

A summary or depreciation and amortization adjustments is as follows: Or, alternatively: to compute CRE, 12/31/20x6
Consolidated Retained Earnings, December 31, 20x6
Retained earnings - Large Company, December 31, 20x6 (cost model) P630,000
Adjustment to convert from cost model to equity method for purposes of
consolidation or to establish reciprocity:/Parent’s share in adjusted net
increased in subsidiary’s retained earnings:
Retained earnings – Small, December 31, 20x6
(P100,000 + P80,00 – P25,000 – P35,000 – P10,000 + P90,000 – P40,000) P 160,000
Less: Retained earnings – Small, January 1, 20x4 (date of acquisition) 100,000
Increase in retained earnings since date of acquisition P 60,000
Less: Amortization of allocated excess – 20x4 26,000
Amortization of allocated excess – 20x5 and 20x6: P14,000 x 2 (28,000)
P 62,000
Multiplied by: Controlling interests %................... _____75%
P 46,500
Less: Goodwill impairment loss on full-goodwill) – 20x6 (P19,300 x 75%) __14,475 __32,025
Consolidated Retained earnings, December 31, 20x6 P 662,025

d. P233.525
Consolidated Net Income for 20x6
Net income from own/separate operations
Parent Company: Large Company [P200,000 – (P40,000 x 75%)] P170,000
Small Company 90,000
Total P260,000
Less: Non-controlling Interest in Net Income* P 21,175
Amortization of allocated excess (14,000)
Goodwill impairment _19,300 __26,475
Controlling Interest in Consolidated Net Income or Profit
attributable to equity holders of parent………….. P233,525
Add: Non-controlling Interest in Net Income (NCINI) __21,175
Consolidated Net Income for 20x6 P254,700
*Net income of subsidiary – 20x6 P 90,000
Amortization of allocated excess – 20x6 ( 14,000)
P 104,000
Multiplied by: Non-controlling interest %.......... 25%
P 26,000
Less: Non-controlling interest on impairment loss on full-goodwill ( (P19,300 x 25%)* ___4,825
Non-controlling Interest in Net Income (NCINI) P 21,175
*this procedure would be not be applicable where the NCI on goodwill impairment loss would not be proportionate to
NCI acquired.

e. P21,175 – refer to (d) for computations

Note: Regardless of the method used (cost or equity) answers for No. 2 (a) to (e) above are exactly the same.

Problem II
A.
1.
a. P87,725
Consolidated Net Income for 20x4
Net income from own/separate operations
Pill Company P55,000
 Sill Company 40,000
Total P95,000
Less: Non-controlling Interest in Net Income* P 5,775
Amortization of allocated excess 0
Goodwill impairment 1,500 __7,275
Controlling Interest in Consolidated Net Income or Profit
attributable to equity holders of parent………….. P87,725
Add: Non-controlling Interest in Net Income (NCINI) __5,775
Consolidated Net Income for 20x4 P93,500

b. P5,775
*Net income of subsidiary – 20x4 P 40,000
Amortization of allocated excess – 20x4 ( 0))
P 40,000
Multiplied by: Non-controlling interest %.......... _____15%
P 6,000
Less: Non-controlling interest on impairment loss on full-goodwill (P1,500 x 15%)* _____225
Non-controlling Interest in Net Income (NCINI) P 5,775
*this procedure would be not be applicable where the NCI on goodwill impairment loss would not be proportionate to
NCI acquired.

c. P93,500 – refer to computation in (a)

d.
d.1. P75,000. Retained earnings of Parent on the date of acquisition should always be the same with the
Consolidated Retained Earnings also on the date of acquisition.
d.2
Retained earnings of P Co, 1/1/20x4 P75,000
Add; Net income under cost method [P55,000 + (P9,000 x 85%)] _62,650
P 137,650
Less: Dividends of P Company ___5,000
Retained Earnings of P Co, 12/31/20x4 under cost model P 132,650

d.3
Retained earnings of P company (same with Consolidated RE), 1/1/20x4 P75,000
Add; Controlling Interest in CNI (refer to a above) _87,725
P 162,725
Less: Dividends of P Company ____5,000
Consolidated Retained Earnings, 12/31/20x4 P 157,725

e. P238,000

2.
a. P87,725
Consolidated Net Income for 20x4
Net income from own/separate operations
Pill Company P55,000
Sill Company 40,000
Total P95,000
Less: Non-controlling Interest in Net Income* P 5,775
Amortization of allocated excess 0
Goodwill impairment 1,500 __7,275
Controlling Interest in Consolidated Net Income or Profit
attributable to equity holders of parent………….. P87,725
Add: Non-controlling Interest in Net Income (NCINI) __5,775
Consolidated Net Income for 20x4 P93,500

b. P5,775
*Net income of subsidiary – 20x4 P 40,000
Amortization of allocated excess – 20x4 ( 0))
P 40,000
Multiplied by: Non-controlling interest %.......... _____15%
P 6,000
Less: Non-controlling interest on impairment loss on full-goodwill (P1,500 x 15%)* _____225
Non-controlling Interest in Net Income (NCINI) P 5,775
*this procedure would be not be applicable where the NCI on goodwill impairment loss would not be proportionate to
NCI acquired.
c. P93,500 – refer to computation in (a)
d.
d.1. P75,000. Retained earnings of Parent on the date of acquisition should always be the same with the
Consolidated Retained Earnings also on the date of acquisition.
d.2
Retained earnings of P Co, 1/1/20x4 P75,000
 Add; Net income under equity method {P55,000 + [(P40,000 x 85%) -
(P1,500, impairment loss x 85%) – (P0, amortization)} _87,725
P162,725
Less: Dividends of P Company ___5,000
Retained Earnings of P Co., 12/31/20x4 under equity method P157,725

d.3
Retained earnings of P Co., (same with Consolidated RE), 1/1/20x4 P75,000
Add; Controlling Interest in CNI same with Net Income in d.2 above under
equity method but not cost model _87,725
P162,725
Less: Dividends of P Company ___5,000
Consolidated Retained Earnings, 12/31/20x4 P157,725

e. P263,075 = P238,000 + (P40,000 x 85%) – (P9,000, div x 85%) – (P1,500, impair, x 85%)

3. Reconciliation of Investment balance – Cost Model to Equity Method

Investment balance under cost model P 238,000
Retroactive adjustments: (Sill’s net income less dividends)
Sill’s net income – 20x4 40,000
Less: Sill’s dividend – 20x4 _9,000
Increase in retained earnings (NI less dividend) 31,000
Less: Cumulative amortization of allocated excess _____0
31,000
X: Controlling interests __85%
26,350
Less: Impairment of goodwill (P1,500 x 85%) _1,275 __25,075
Investment balance under equity method P263,075

Reconciliation of Retained Earnings – Cost Model to Equity Method

Retained earnings, 12/31/20x4 under cost model(requirement 1 d.2) P 132,650
Retroactive adjustments: (Sill’s net income less dividends)
Sill’s net income – 20x4 40,000
Less: Sill’s dividend – 20x4 _9,000
Increase in retained earnings (NI less dividend) 31,000
Less: Cumulative amortization of allocated excess _____0
31,000
X: Controlling interests __85%
26,350
Less: Impairment of goodwill (P1,500 x 85%) _1,275 __25,075
Retained earnings, 12/31/20x4 under equity method(requirement 2 d.2) P157,725

B.
4.
a. P87,725
Consolidated Net Income for 20x4
Net income from own/separate operations
Pill Company [P62,650 – (P9,000 x 85%)] P55,000
Sill Company 40,000
Total P95,000
Less: Non-controlling Interest in Net Income* P 5,775
Amortization of allocated excess 0
Goodwill impairment 1,500 __7,275
Controlling Interest in Consolidated Net Income or Profit
attributable to equity holders of parent………….. P87,725
Add: Non-controlling Interest in Net Income (NCINI) __5,775
Consolidated Net Income for 20x4 P93,500

b. P5,775
*Net income of subsidiary – 20x4 P 40,000
Amortization of allocated excess – 20x4 ( 0))
P 40,000
Multiplied by: Non-controlling interest %.......... _____15%
P 6,000
Less: Non-controlling interest on impairment loss on full-goodwill (P1,500 x 15%)* _____225
Non-controlling Interest in Net Income (NCINI) P 5,775
*this procedure would be not be applicable where the NCI on goodwill impairment loss would not be proportionate to
NCI acquired.

c. P93,500 – refer to computation in (a)

d.
 d.1. P75,000. Retained earnings of Parent on the date of acquisition should always be the same with the
Consolidated Retained Earnings also on the date of acquisition.
d.2
Retained earnings of P Co, 1/1/20x4 P75,000
Add; Net income under cost method (given) _62,650
P 137,650
Less: Dividends of P Company ___5,000
P 132,650
Retained Earnings of P Co, 12/31/20x4 under cost model

d.3
Retained earnings of P company (same with Consolidated RE), 1/1/20x4 P75,000
Add; Controlling Interest in CNI (refer to a above) _87,725
P 162,725
Less: Dividends of P Company ____5,000
Consolidated Retained Earnings, 12/31/20x4 P 157,725

e. P238,000

5. Correction: Pill’s net income should be P87,725 instead of P86,725

a. P87,725
Consolidated Net Income for 20x4
Net income from own/separate operations
Pill Company [P87,725 – (P40,000 x 85%) + (P1,500 x 85%)] P55,000
Sill Company 40,000
Total P95,000
Less: Non-controlling Interest in Net Income* P 5,775
Amortization of allocated excess 0
Goodwill impairment 1,500 __7,275
Controlling Interest in Consolidated Net Income or Profit
attributable to equity holders of parent………….. P87,725
Add: Non-controlling Interest in Net Income (NCINI) __5,775
Consolidated Net Income for 20x4 P93,500

b. P5,775
*Net income of subsidiary – 20x4 P 40,000
Amortization of allocated excess – 20x4 ( 0))
P 40,000
Multiplied by: Non-controlling interest %.......... _____15%
P 6,000
Less: Non-controlling interest on impairment loss on full-goodwill (P1,500 x 15%)* _____225
Non-controlling Interest in Net Income (NCINI) P 5,775
*this procedure would be not be applicable where the NCI on goodwill impairment loss would not be proportionate to
NCI acquired.

c. P93,500 – refer to computation in (a)

d.
d.1. P75,000. Retained earnings of Parent on the date of acquisition should always be the same with the
Consolidated Retained Earnings also on the date of acquisition.
d.2
Retained earnings of P Co, 1/1/20x4 P75,000
Add; Net income under equity method (given) _87,725
P162,725
Less: Dividends of P Company ___5,000
Retained Earnings of P Co., 12/31/20x4 under equity method P157,725

d.3
Retained earnings of P Co., (same with Consolidated RE), 1/1/20x4 P75,000
Add; Controlling Interest in CNI same with Net Income in d.2 above under
equity method but not cost model _87,725
P162,725
Less: Dividends of P Company ___5,000
Consolidated Retained Earnings, 12/31/20x4 P157,725

e. P263,075 = P238,000 + (P40,000 x 85%) – (P9,000, div x 85%) – (P1,500, impair, x 85%)

5. Reconciliation of Investment balance – Cost Model to Equity Method

Investment balance under cost model P 238,000
Retroactive adjustments: (Sill’s net income less dividends)
Sill’s net income – 20x4 P 40,000
Less: Sill’s dividend – 20x4 ___9,000
 Increase in retained earnings (NI less dividend) P 31,000
Less: Cumulative amortization of allocated excess _______0
P 31,000
X: Controlling interests ____85%
P 26,350
Less: Impairment of goodwill (P1,500 x 85%) ___1,275 __25,075
Investment balance under equity method P263,075

Reconciliation of Retained Earnings – Cost Model to Equity Method

Retained earnings, 12/31/20x4 under cost model(requirement 1 d.2) P 132,650
Retroactive adjustments: (Sill’s net income less dividends)
Sill’s net income – 20x4 P 40,000
Less: Sill’s dividend – 20x4 ___9,000
Increase in retained earnings (NI less dividend) P 31,000
Less: Cumulative amortization of allocated excess _______0
P 31,000
X: Controlling interests ____85%
P 26,350
Less: Impairment of goodwill (P1,500 x 85%) ___1,275 __25,075
Retained earnings, 12/31/20x4 under equity method(requirement 2 d.2) P157,725

Problem III
Cost of 85% investment 646,000
Fair value of Subsidiary (Implied cost of 100% investment); P646,000/85% 760,000
Less: Carrying amount of Silk’s net assets =
Carrying amount of Silk’s shareholders’ equity
Common/Ordinary shares 500,000
Retained earnings 100,000
600,000
Allocated Excess: Acquisition differential – December 31, 20x4 160,000
Less: Over/under valuation of A/L (Allocated to):
Increase in Inventory 70,000
Patents 90,000
Non-controlling interest (15% x 760,000, fair value of subsidiary),12/31/20x4 114,000
A summary or depreciation and amortization adjustments is as follows:
Over/ Annual Current
Account Adjustments to be amortized under Life Amount Year(20x5) 20x6 20x7
Inventory P70,000 1 P 70,000 P 70,000 P - P -
Subject to Annual Amortization
Patents 90,000 10 __9,000 ___9,000 ___9,000 ___9,000
P160,000 P 79,000 P 79,000 P 9,000 P 9,000,
Unamortized balance of allocated excess:
Balance Balance
Dec. 31 Amortization Dec. 31
20x4 20x5 20x6 20x6
Inventory 70,000 70,000
Patents 90,000 9,000 9,000 72,000
160,000 79,000 9,000 72,000
1. NCI-CNI
20x5: P(7,350)
20x6: P6,450
20x5 20x6
Consolidated Net Income
Net income from own/separate operations
Large Company
20x5 [P28,000 – P0)] P 28,000
20x6 [(P45,000, loss + (P15,000 x 85%)] P(57,750)
Small Company 30,000 52,000
Total P 58,000 P( 5,750)
Less: Non-controlling Interest in Net Income* P(7,350) P 6,450
Amortization of allocated excess 79,000 9,000
Goodwill impairment _____0 71,650 _____0 15,450
CI-CNI (loss) or Profit (loss) attributable to equity
holders of parent P(13,650) P(21,200)
Add: Non-controlling Interest in Net Income (NCINI) ( 7,350) 6,450
Consolidated Net Income/Loss(CNI) P(21,000) P(14,750)
20x5 20x6
*Net income (loss) of subsidiary P 30,000 P 52,000
Amortization of allocated excess ( 79,000) ( 9,000)
 P(49,000) P43,000
Multiplied by: Non-controlling interest %.......... 15% 15%
P(7,350) P 6,450
Less: Non-controlling interest on impairment loss on full-goodwill _______- ___ _-
Non-controlling Interest in Net Income (NCINI) P( 7,350) P6,450
*this procedure would be not be applicable where the NCI on goodwill impairment loss would not be proportionate to
NCI acquired.
2. CI-CNI – refer to computation in No. 1
20x5: P(21,000)
20x6: P14,750
Or, alternatively:
(1) Non-controlling interest in profit
20x5: 15%  (30,000 – 79,000).............................................................7,350
20x6: 15%  (52,000 – 9,000)............................................................... 6,450
(2)
20x5 20x6
NI (loss) Pen 28,000 (45,000)
Less: Dividends from Silk
20x5 0
20x6 (85%  15,000) (12,750)
28,000 (57,750)
Share of Silk’s profit
85%  (30,000 – 79,000) (41,650)
85%  (52,000 – 9,000) ________ 36,550_
Consolidated profit (loss) attributable to
Pen’s shareholders (13,650) (21,200)

3. CRE, 12/31/20x6 – P73,150

Consolidated Retained Earnings, December 31, 20x6
Retained earnings - Pen Company, December 31, 20x6 (cost model P 91,000
Adjustment to convert from cost model to equity method for purposes of
consolidation or to establish reciprocity:/Parent’s share in adjusted net
increased in subsidiary’s retained earnings:
Retained earnings – Silk, December 31, 20x6:
(P100,000 + P30,00 – P0 + P52,000 – P15,000) P 167,000
Less: Retained earnings – Silk, December 31, 20x4 (date of acquisition) 100,000
Increase in retained earnings since date of acquisition P 67,000
Less: Amortization of allocated excess – 20x5 79,000
Amortization of allocated excess – 20x6 __9,000
P (21,000)
Multiplied by: Controlling interests %................... 85%
P (17,850)
Less: Goodwill impairment loss (full-goodwill) – 20x5 _____0 ( 17,850)
Consolidated Retained earnings, December 31, 20x6 P 73,150

4. NCI, 12/31/20x6: P110,850

FV of SHE of Silk:
Common stock, 12/31/20x6 P 500,000
Retained earnings, 12/31/20x6:
Retained earnings, 1/1/20x4 P 100,000
NI – Subsidiary (20x5 and 20x6): P30,000 + P52,000 82,000
Dividends – Subsidiary (20x5 and 20x6): P0 + P15,000( 15,000) 167,000
Book value of SHE – S, 12/31/20x6 P 667,000
Adjustments to reflect fair value, 12/31/20x4 160,000
Amortization of allocated excess (P79,000 + P9,000) ( 88,000)
FV of SHE of S P 739,000
Multiplied by: NCI% _____15%
FV of NCI (partial), 12/31/20x6 P 110,850
Add: NCI on full-goodwill ______ _0
FV of NCI (full),12/31/20x6 P 110,850
Or, alternatively:
Non-controlling interest – date of acquisition,12/31/20x4 (1) P114,000
Retained earnings Silk – Dec. 31, 20x6
(100,000 + 30,000 + 52,000 – 15,000) P167,000
Less: Retained earnings, 12/31/20x4 (date of acquisition)100,000
Increase since acquisition P 67,000
Less: Amortization of allocated excess (79,000 + 9,000)88,000
P( 21,000)
Multiplied by: NCI’s share ____ 15% ( 3,150)
Non-controlling interest (full) 12/31/20x6 P 110,850
5. Consolidated Patents, 12/31/20x6: P72,000
Unamortized balance of allocated excess:
Balance Balance
 Dec. 31 Amortization Dec. 31
20x4 20x5 20x6 20x6
Inventory 70,000 70,000
Patents 90,000 9,000 9,000 72,000
160,000 79,000 9,000 72,000
Or, alternatively:
Invest. account – equity Dec. 31, 20x6 628,150
Cost of investment, cost model 646,000
Retained earnings Silk – Dec. 31, 20x6
(100,000 + 30,000 + 52,000 – 15,000) 167,000
Retained earnings,12/31/20x4 (date of acquisition) 100,000
Increase since acquisition 67,000
Less: Accumulated amortization (79,000 + 9,000) 88,000
( 21,000)
Multiplied by: CI share 85% (17,850)
Invest. account – equity method as at Dec. 31, 20x6 628,150

Implied value of 100% (628,150 / 85%) 739,000

Silk –Common shares 500,000
Retained earnings – Silk, 12/31/20x6 167,000
667,000
Balance unamortized allocated excess – Patents 72,000

Problem IV
Additional information:
Parent’s net income from own operations - 20x4, P100,000; 20x5, P120,000
Parent’s dividend declared – 20x4, P30,000; 20x5, P40,000

2. NCNCI for 20x4, P8,400; NCNCI for 20x5, P12,020

20x4
Consolidated Net Income for 20x4
Net income from own/separate operations
Parent – Davis Company P100,000
Subsidiary - Martin Company 60,000
Total P160,000
Less: Non-controlling Interest in Net Income* P 8,400
Amortization of allocated excess** 18,000
Goodwill impairment _______0 __26,400
Controlling Interest in Consolidated Net Income or Profit
attributable to equity holders of parent………….. P133,600
Add: Non-controlling Interest in Net Income (NCINI) ___8,400
Consolidated Net Income for 20x4 P142,000
*Net income of subsidiary – 20x4 P 60,000
Amortization of allocated excess – 20x4 (P2,000 + P16,000) ( 18,000)
P 42,000
Multiplied by: Non-controlling interest %.......... 20%
P 8,400
Less: Non-controlling interest on impairment loss on full-goodwill _______0
Non-controlling Interest in Net Income (NCINI) P 8,400
*this procedure would be not be applicable where the NCI on goodwill impairment loss would not be proportionate to
NCI acquired.