‘On January 1, 20x1, Bright Co. acquired 75% interest in Dull Co. for P180,000.

On this date, the carrying

amount of Dull’s net identifiable assets was P160,000, equal to fair value. Non-controlling interest was
measured using the proportionate share method. The financial statements of the entities on December 31,
20x1 show the following information:
Bright Co. Dull Co.
ASSETS
Investment in subsidiary (at cost) P180,000 P-0-
Equipment – net 400,000 190,000
Other assets 200,000 45,000
TOTAL ASSETS P780,000 235,000

LIABILITIES AND EQUITY

Liabilities P 70,000 25,000
Share capital 600,000 100,000
Retained earnings 110,000 110,000
TOTAL LIABILITIES AND EQUITY P780,000 235,000

Bright Co. Dull Co.

Revenue P300,000 P80,000
Depreciation expense (40,000) (12,000)
Other expenses (20,000) (30,000)
Gain on sale of equipment - 12,000____
Profit for the year P240,000 P50,000

Additional information:
 No dividends were declared by either entity during 20x1. There is also no impairment of goodwill.
 However on January 1, 20x1 right after the business combination, Dull Co. sold equipment of
P48,000 to Bright Co. for P60,000. Dull Co. has been depreciating this equipment over a useful life of
10 years using the straight-line method. Bright Co decided to continue this accounting policy and
depreciate the equipment over its remaining useful life of 4 years.

Because of the sale Had there been no sale Effect on FS

1. Dull will recognized a gain of
P12,000.
2. The equipment’s new cost
P60,000
3. Accumulated dep. Is zero on
1/1/20x1
4. Bright will recognized
depreciation of P15,000 in
20x1.
5. Accumulated depreciation
as of 12/31/20x1 is P15,000.
No gain.
The historical cost is P120,000
Accumulated is P72,000.
Dull will recognized
depreciation of P12,000 in
20x1.
Accumulated depreciation as
of 12/31/20x1 is P84,000.
Profit is overstated by P12,000
The equipment’s cost is
understated by P60,000
Accumulated depreciation is
understated by P72,000.
Depreciation overstated by
P3,000.
Accumulated depreciation is
understated by P69,000.
Requirement:
1. What is the carrying amount of the equipment sold by Dull Co. to Bright Co. in the consolidated
financial statements?
Historical cost (12,000 x 10) P120,000
Less: Accumulated depreciation – 1/1/20x1 (72,000)
Depreciation for 20x1 (12,000)
Carrying Amount P 36,000

Carrying amount 1/1/20x1 P48,000

Less: Actual depreciation (12,000)
Carrying Amount P36,000

2. How much is the consolidated Equipment-net?

Equipment – Bright P400,000
Equipment – Dull 190,000
Less: Unamortized deferred gain (12,000-3000) (9,000)
Consolidated Equipment P581,000

Equipment – Bright P400,000

Equipment – Dull 190,000
Add: (Deduct)CV of Equipment after the sale(60,000-15,000) (45,000)
CV of Equipment before the sale (48,000-12,000) 36,000
Consolidated Equipment P581,000

3. How much is the consolidated Depreciation expense?

Dep – Bright P40,000
Dep – Dull 12,000
Less: Amortization of deferred gain (3,000)
Consolidated Depreciation expense P49,000

Dull Bright
1/1/20x1 Cash 60,000 1/1/20x1 Equipment 60,000
Accumulated depreciation 72,000 Cash 60,000
Equipment 120,000
Gain on sale 12,000
12/31/20x1 Depreciation expense 15,000
12/31/20x1 No entry Accu. Depreciation 15,000
 ELIMINATION ENTRY
1/1/20X 12/31/20X1
Gain on sale 12,000 Gain on sale 12,000
Equipment 60,000 Equipment 60,000
Accumulated Depreciation 72,000 Accumulated Depreciation 72,000

Accumulated depreciation 3,000

Depreciation 3,000

4. Prepare a draft of the December 31, 20x1 consolidated statements of financial position and
consolidated statement of profit or loss.

Consolidated Income Statement

Revenue P380,000
Depreciation Expense (49,000)
Other Expenses (50,000)
Consolidated Net Profit P281,000

Consolidated Statement of Financial Position

ASSETS
Equipment – net 581,000
Other assets 245,000
Goodwill 60,000
TOTAL ASSETS P886,000

LIABILITIES AND EQUITY

Liabilities P 95,000
Share capital 600,000
Retained earnings 140,750
NCI 50,250
TOTAL LIABILITIES AND EQUITY P886,000

CG 180,000 RE-BRIGHT P110,000

NCI (160,000 X 25%) 40,000 Share on Dull’s adjusted NI:
TOTAL 220,000 NI P50,000
FV-NA 160,000 Less: Deferred gain 9,000
GOODWILL 60,000 Adjusted NI P41,000
Multiply by 75% 30,750
CRE P140,750
Beg. NCI P40,000
Add: Share on NI (41,000 x 25%) 10,250
Ending NCI P50,250