Problem 1

On January 1, 2020, Entity A acquired 70% of outstanding ordinary shares of Entity B at a price of
P210,000. On the same date, the net assets of Entity B were reported at P260,000. On January 1,
2020 Entity A reported retained earnings of P2,000,000 while Entity B reported retained earnings of
P200,000.

All the assets and liabilities of Entity B are fairly valued except machinery which is undervalued by
P80,000 and inventory which is overvalued by P10,000. The said machinery has remaining useful life
of four years while 40% of the said inventory remained unsold at the end of 2020.

For the year ended December 31, 2020, Entity A reported net income of P1,000,000 and declared
dividends of P150,000 in the separate financial statements while Entity B reported net income of
P150,000 and declared dividends of P20,000 in the separate financial statements.

Entity A accounted the investment in Entity B using cost method in the separate financial
statements.

1. What is the non-controlling interest in net assets on December 31, 2020?

2. What is the consolidated net income attributable to parent shareholders for the year ended
December 31, 2020?
3. What is the amount of consolidated retained earnings on December 31, 2020?

FVCGU 210,000
NCI (330,000 x 30%) 99,000
Total Consideration Transferred 309,000
FVNAA 330,000
Partial Bargain Purchase Gain 21,000

Net Income of Subsidiary 150,000 NCI 99,000

2020 U/S of Dep. Machinery (80,000/4 years) (20,000) 2021 NCI NI 40,800
Co are rce y
2020 O/S of Cost of Sale (10,000 x 60%) 6,000 Dividends (30%) (6,000)
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Adj. NI of Subsidiary 136,000 NCI Net Assets 133,800
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NCI % 30%
2021 NCI NI 40,800
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2020 Net Income Parent (cost method) 1,000,000 RE Parent 2,000,000

2020 Bargain Purchase Gain 21,000 CNI to Parent 1,102,200
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Dividends Subsidiary (70%) (14,000) Dividends Subs. (150,000)

2021 Share in Adj. NI of Subsidiary (70%) 95,200 Consolidated RE 2,952,200
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CNI to Parent Shareholder 1,102,200

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PAS 27 Cost Method Equity Method

12/31/2020 Historical Cost 210,000 1/1/2020 Initial Measurement 210,000
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Investment 2020 Bargain Purchase Gain 21,000

in Subsidiary 2020 Share in NI Subsidiary (70%) 95,200
Dividends Subsidiary (70%) (14,000)
BV Investment of Subsidiary 312,200

Net Effect in Dividends from 2020 Bargain Purchase Gain 21,000

Profit Subsidiary (70%) 14,000 2020 Share in NI Subsidiary (70%) 95,200
116,200

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Problem 2
On January 2, 2020, Fever Company acquired 60% of the outstanding shares of Benz Inc. Resulting to
an income from acquisition in the amount P330,000. During 2020 and 2021, intercompany sales
amounted to P6,800,000 and P9,400,000 respectively. Fever Company consistently recognized a 30%
gross profit on sales while Benz Inc. Had a 40% gross profit on sales. The inventories of the buying
affiliate were as follows: % of the beginning inventory came from the intercompany transactions and
1/3 of the ending inventory came from outsiders. The December 31, 2020 inventory of Fever and
Benz amount to P840,000 and P350,000, respectively. The December 31, 2021 inventory of Fever
and Benz amount to P570,000 and P150,000 respectively.

On September 1, 2020, Benz Inc., purchased a piece of land costing P3,500,000 from Fever Company
for P5,250,000. On November 2, 2021, the buying affiliate sold this land to Jam Co. For P7,500,000.
On the other hand, on May 1, 2021, Benz Inc., sold a machinery with a carrying value of P430,000
and remaining life of 4 years to Fever Company for P190,000. Benz Inc. Declared dividends in 2021 in
the amount of P600,000. Separate Statement of Comprehensive Income for the two companies for
the year 2021 follow:
Fever Company Benz Inc.
Sales 21,500,000 10,000,000
Cost of Sales (13,500,000) (6,200,000)
Gross Profit 8,000,000 3,800,000
Operating Expenses (3,240,000) (1,100,000)
Operating Profit 4,760,000 2,700,000
Gain on Sale of Land 2,250,000
Loss on Sale of Machinery (240,000)
Dividend Revenue 450,000 110,000
Net Income 5,210,000 4,820,000

1. Consolidated Gross Profit as of December 31, 2021?

2. Consolidated Net Income attributable to Parent?
Co are rce y
3. Consolidated Operating Expense?
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2021 Gross Profit Parent 8,000,000
2021 Gross Profit Subsidiary 3,800,000
RGP on Beg Inv. Of Parent (US) (840,000 x 3/4 x 40%) 252,000
RGP on Beg Inv. Of Subsidiary (DS) (350,000 x 3/4 x 30%) 78,750
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UGP on End Inv. Of Parent (US) (570,000 x 2/3 x 40%) (152,000)

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UGP on End Inv. Of Subsidiary (DS) (150,000 x 2/3 x 30%) (30,000)

2021 Consolidated Gross Profit 11,948,750
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2020 NI Subsidiary 4,820,000

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RGP on Beg Inv. Of Parent (US) 252,000

UGP on End Inv. Of Parent (US) (152,000)
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UGP on Loss on Sale of Machinery (US) 240,000

RGP on Loss on Sale of Machinery (US) (U/S of Dep. Exp.) (40,000) (240,000/4 x 8/12)
2021 Adj. NI Subsidiary 5,120,000
NCI% 40%
NCI NI 2,048,000

2021 NI Parent (cost method) 5,210,000

2020 BPG 0
Dividends Subsidiary (60%) (360,000)
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Realized Gain on Sale of Land to third party (DS) 1,750,000
RGP on Beg Inv. Of Subsidiary (DS) 78,750
UGP on End Inv. Of Subsidiary (DS) (30,000)
2021 Share in NI Subsidiary (60%) 3,072,000
CNI Parent 9,720,750

2021 OPEX Parent 3,240,000 Selling price to third party 7,500,000

2021 OPEX Subsidiary 1,100,000 BV of Land (3,500,000)
Realized Loss on Dep. Exp. (U/S) 40,000 Consol. Gain on Sale of Land 4,000,000
Consolidated Operating Expenses 4,380,000
Consol. Dep. Exp. (430,000/4) 107,500
2021 Sales of Parent 21,500,000
2021 Sales of Subsidiary 10,000,000 Dividend Rev. Parent 450,000
Intercompany Sales (9,400,000) Dividend Rev. Subsidiary 110,000
Consolidated Sales 22,100,000 Dividends Subsidiary (360,000)
Consolidated Gross Profit (11,948,750) Consolidated Dividend Rev. 200,000
Consolidated Cost of Sales 10,151,250
BV Machinery 430,000
BV Inv. 12/31/2020 Parent 570,000 Dep. Exp. (107,500 x 8/12) 71,667
BV Inv. 12/31/2020 Subsidiary 150,000 Consolidated BV of Machinery 358,333
UGP on 2021 End Inv. Parent (152,000)
UGP on 2021 End Inv. Subsidiary (30,000)
Consolidated BV of Inv. 538,000

Problem 3
A summary of the separate income statement of Techno Corporation and its 75% owned subsidiary,
Duo Company, for 2021 were as follows:
Techno Duo
Sales 9,000,000 5,400,000
Co are rce y
Gain on sale of equipment 180,000 ----
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Cost of goods sold (3,600,000) (2,340,000)
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Depreciation expense (900,000) (540,000)
Other expenses (1,140,000) (720,000)
Income from operations 3,240,000 1,800,000
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There was an upstream sale of equipment with a book value of P720,000 for P1,170,000 on January
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2, 2019. At the time of the intercompany sale, the equipment had a remaining useful life of five
years. Techno uses straight-line depreciation. The buying affiliate used the equipment until
December 31, 2021, at which time it was sold to Genex for P648,000.
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1. What is the amount of net profit attributable to Non-controlling interests for 2021?
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Net Income of Subsidiary 1,540,000

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2020 UGP on Gain on Sale of Equipment (US) (140,000)

2021 RGP (US) (160,000)
2021 Realized Gain on Sale of Equipment to third party (US) 1,240,000
NCI % 20%
2021 NCI NI 248,000

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Problem 4
On July 1, 2020, Density Company purchased 80% of the outstanding shares of Evolve Company at a
cost of P4,000,000. On that date, Evolve had P2,500,000 of ordinary shares and P3,500,000 of
retained earnings. For 2020, Evolve reported income of P325,000 and paid dividends of P150,000. All
the assets and liabilities of Evolve have book values equal to their respective fair market values. On
October 1, 2020, there was an upstream sale of machinery for P500,000. The book value of
machinery on that date was P600,000. The machinery is expected to have a useful life of 5 years
from the date of sale.

1. In the December 31, 2020 consolidated income statement, how much is the consolidated net
income attributable to the controlling interest?

FVCGU 4,000,000 a) PS of FVNAA

NCI 1,200,000 (6,000,00 x 20%) 1,200,000
Total Consideration Transferred 5,200,000 b) Implied FV
FVNAA 6,000,000 (4,000,000 x 20%) 1,000,000
Partial Bargain Purchase Gain 800,000 80%

2020 NI Subsidiary (cost method) 325,000

2020 Unrealized loss on Sale of Machinery (US) 100,000
Adj. NI Subsidiary before Realized Loss 425,000
6/12
Adj. NI Subs. from July-Dec 2020 before Loss Real. 212,500
2020 Loss Realization on Sale (US) Dep. Exp. 5,000 (100,000/5 x 3/12)
Adj. NI Subs. From July-Dec 2020 after Loss Real. 207,500
NCI% 20%
NCI NI 41,500

2020 NI Parent (cost method) 1,520,000

Dividends Subsidiary (80%) 120,000
Co are rce y
2020 Inc. From Separate Operations of Parent 1,400,000
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Bargain Purchase Gain 800,000
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2020 Share in NI Subsidiary (80%) 166,000 (207,500 x 80%)
CNI Parent 2,366,000

Problem 5
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Superior Company owns 60 % of Uptown Corporation, which in turn owns 80% of Newton Company.
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Uptown exercises control over Newton and Superior exercises control over Uptown. The following
information is available.
Superior Co. Uptown Co. Newton Co.
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Income from Continuing Operations 3,900,000 2,690,000 1,540,000

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Cash dividends declared by: 250,000 180,000 110,000
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Cash dividends from:

Associates 75,000 50,000 ----
Other investments at fair value ---- 90,000 40,000

Net unrealized inter-company gains/(loss) 360,000 (220,000) 160,000

within current year income downstream downstream upstream

Amortization relating to excess of fair value (190,000) 140,000 ----

over book value/(book value over fair value of
investment)
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 1. What is the consolidated net income attributable to Superior Company stockholders?
Consolidated IS of Parent Uptown (Uptown+Newton)
Net Income of Sub. Newton 1,540,000 NI of Parent Uptown (cost method) 2,690,000
U/S of Depreciation (140,000) Div. From Sub. Newton (80%) (88,000)
Net Unrealized Gain on Sale (US) (160,000) Net Unrealized Loss on Sale (DS) 220,000
Adj. NI of Sub. Newton 1,240,000 Share in Adj. NI of Sub. Newton (80%) 992,000
NCI % 20% NI Parent Uptown 3,814,000
NCI NI Sub. Newton 248,000

Consolidated IS of Parent Superior (Superior+Uptown)

Net Income of Sub. Uptown 3,814,000 NI of Parent Superior (cost method) 3,900,000
O/S of Depreciation 190,000 Div. From Sub. Uptown (60%) (108,000)
Adj. NI of Sub. Uptown 4,004,000 Net Unrealized Gain on Sale (DS) (360,000)
NCI % 40% Share in Adj. NI of Sub. Newton (60%) 2,402,400
NCI NI Sub. Uptown 1,601,600 CNI Parent Superior 5,834,400

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