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 225
15%)*
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 225
15%)*
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 P 132,650
d.2)
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 P157,725
method(requirement 2 d.2)

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 225
15%)*
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 P 132,650
d.2)
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 P157,725
method(requirement 2 d.2)