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Problem I Cost Model
Problem I Cost Model
Problem I Cost Model
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
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)
12/31/20x4:
Note: The goodwill recognized on consolidation purely relates to the parent’s share. NCI is measured as a
proportion of identifiable assets and goodwill attributable to NCI share is not recognized.
CI-CNI – P174,840
Consolidated Net Income for 20x4
P Company’s net income from own/separate operations…………. P168,000
Unrealized profit in ending inventory of S Company (downstream sales)… ( 18,000)
P Company’s realized net income from separate operations*…….….. P150,000
S Company’s net income from own operations…………………………………. P 60,000
Unrealized profit in ending inventory of S Company (upstream sales)… ( 12,000)
S Company’s realized net income from separate operations*…….….. P 48,000 48,000
Total P198,000
Less: Non-controlling Interest in Net Income* * P 6,960
Amortization of allocated excess (refer to amortization above) 13,200
Goodwill impairment (impairment under partial-goodwill approach) 3,000 23,160
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent………….. P174,840
Add: Non-controlling Interest in Net Income (NCINI) _ 6,960
Consolidated Net Income for 20x4 P181.800
*that has been realized in transactions with third parties.
NCI-CNI – P6,960
**Non-controlling Interest in Net Income (NCINI) for 20x4
S Company’s net income of Subsidiary Company from its own operations P 60,000
(Reported net income of S Company)
Unrealized profit in ending inventory of P Company (upstream sales) ( 12,000)
S Company’s realized net income from separate operations……… P 48,000
Less: Amortization of allocated excess 13,200
P 34,800
Multiplied by: Non-controlling interest %.......... 20%
Non-controlling Interest in Net Income (NCINI) – partial goodwill P 6,960
*that has been realized in transactions with third parties.
CNI, P181,800
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent………….. P174,840
Add: Non-controlling Interest in Net Income (NCINI) _ 6,960
Consolidated Net Income for 20x4 P181.800
On subsequent to date of acquisition, consolidated retained earnings would be computed as follows:
Consolidated Retained Earnings, December 31, 20x4
Retained earnings - P Company, January 1, 20x4 (date of acquisition) P360,000
Add: Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent for 20x4 174,840
Total P534,840
Less: Dividends paid – P Company for 20x4 72,000
Consolidated Retained Earnings, December 31, 20x4 P462,840
NCI/NCINAS. The goodwill recognized on consolidation purely relates to the parent’s share. NCI is measured as
a proportion of identifiable assets and goodwill attributable to NCI share is not recognized. The NCI on December
31, 20x4 are computed as follows:
Non-controlling interest (partial-goodwill), December 31, 20x4
Common stock – Subsidiary Company, December 31, 20x4…… P 240,000
Retained earnings – Subsidiary Company, December 31, 20x4
Retained earnings – Subsidiary Company, January 1, 20x4 P120,000
Add: Net income of subsidiary for 20x4 6,000
Total P180,000
Less: Dividends paid – 20x4 36,000 144,000
Stockholders’ equity – Subsidiary Company, December 31, 20x4 P 384,000
Adjustments to reflect fair value - (over) undervaluation of assets and
liabilities, date of acquisition (January 1, 20x4) 90,000
Amortization of allocated excess (refer to amortization above) – 20x4 ( 13,200)
Fair value of stockholders’ equity of subsidiary, December 31, 20x4…… P460,000
Less: Unrealized profit in ending inventory of P Company (upstream sales) 12,000
Realized stockholders’ equity of subsidiary, December 31, 20x4…… P448,800
Multiplied by: Non-controlling Interest percentage…………... 20
Non-controlling interest (partial-goodwill)………………………………….. P 89,760
Consolidated SHE:
Consolidated SHE:
Stockholders’ Equity
Common stock, P10 par P 600,000
Retained earnings 462,840
Parent’s Stockholders’ Equity / CI – SHE, 12/31/20x4 P1,062,840
NCI, 12/31/20x4 ___89,760
Consolidated SHE, 12/31/20x4 P1,152,600
12/31/20x5:
CI-CNI
Consolidated Net Income for 20x5
P Company’s net income from own/separate operations…………. P192,000
Realized profit in beginning inventory of S Company (downstream sales) 18,000
Unrealized profit in ending inventory of S Company (downstream sales)… (_24,000)
P Company’s realized net income from separate operations*…….….. P186,000
S Company’s net income from own operations…………………………………. P 90,000
Realized profit in beginning inventory of P Company (upstream sales) 12,000
Unrealized profit in ending inventory of P Company (upstream sales)… ( 6,000)
Son Company’s realized net income from separate operations*…….….. P 96,000 96,000
Total P282,000
Less: Amortization of allocated excess…………………… 7,200
Consolidated Net Income for 20x5 P274,800
Less: Non-controlling Interest in Net Income* * 17,760
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent – 20x5………….. P257,040
*that has been realized in transactions with third parties.
Or, alternatively
Consolidated Net Income for 20x5
P Company’s net income from own/separate operations…………. P192,000
Realized profit in beginning inventory of S Company (downstream sales) 18,000
Unrealized profit in ending inventory of S Company (downstream sales)… (_24,000)
P Company’s realized net income from separate operations*…….….. P186,000
S Company’s net income from own operations…………………………………. P 90,000
Realized profit in beginning inventory of P Company (upstream sales) 12,000
Unrealized profit in ending inventory of P Company (upstream sales)… ( 6,000)
S Company’s realized net income from separate operations*…….….. P 96,000 96,000
Total P282,000
Less: Non-controlling Interest in Net Income* * P 17,760
Amortization of allocated excess…………………… 7,200 24,960
Controlling Interest in Consolidated Net Income or Profit attributable to equity
holders of parent………….. P257,040
Add: Non-controlling Interest in Net Income (NCINI) _ 17,760
Consolidated Net Income for 20x5 P274,800
*that has been realized in transactions with third parties.
NCI-CNI
**Non-controlling Interest in Net Income (NCINI) for 20x5
S Company’s net income of Subsidiary Company from its own operations P 90,000
(Reported net income of S Company)
Realized profit in beginning inventory of P Company (upstream sales) 12,000
Unrealized profit in ending inventory of P Company (upstream sales) ( 6,000)
S Company’s realized net income from separate operations……… P 96,000
Less: Amortization of allocated excess 7,200
P 88,800
Multiplied by: Non-controlling interest %.......... 20%
Non-controlling Interest in Net Income (NCINI) – partial goodwill P 17,760
CNI, P274,800
Controlling Interest in Consolidated Net Income or Profit attributable to equity
holders of parent………….. P257,040
Add: Non-controlling Interest in Net Income (NCINI) _ 17,760
Consolidated Net Income for 20x5 P274,800
On subsequent to date of acquisition, consolidated retained earnings would be computed as follows:
Consolidated Retained Earnings, December 31, 20x5
Retained earnings - Parent Company, January 1, 20x5 (cost model P484,800
Less: Unrealized profit in ending inventory of S Company (downstream sales)
– 20x4 (UPEI of S – 20x4) or Realized profit in beginning inventory of S Company
(downstream sales) –20x5 (RPBI of S - 20x5)……………. 18,000
Adjusted Retained Earnings – Parent 1/1/20x5 (cost model (S Company’s
Retained earnings that have been realized in transactions with third
parties.. P466,800
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 – Subsidiary, January 1, 20x5 P 144,000
Less: Retained earnings – Subsidiary, January 1, 20x4 120,000
Increase in retained earnings since date of acquisition P 24,000
Less: Amortization of allocated excess – 20x4 13,200
Unrealized profit in ending inventory of P Company (upstream
sales) 20x4 (UPEI of P – 20x4) or Realized profit in beginning
inventory of P Company (upstream sales) –20x5 (RPBI of P - 20x5) 12,000
(P 1,200)
Multiplied by: Controlling interests %................... 80%
(P 960)
Less: Goodwill impairment loss, partial goodwill 3,000 ( 3,960)
Consolidated Retained earnings, January 1, 20x5 P462,840
Add: Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent for 20x5 257,040
Total P748,680
Less: Dividends paid – Parent Company for 20x5 72,000
Consolidated Retained Earnings, December 31, 20x5 P647,880
*this procedure would be more appropriate, instead of multiplying the full-goodwill impairment loss of P3,125 by 80%. There might be
situations where the controlling interests on goodwill impairment loss would not be proportionate to NCI acquired
Or, alternatively:
Consolidated Retained Earnings, December 31, 20x5
Retained earnings - Parent Company, December 31, 20x5 (cost model P643,200
Less: Unrealized profit in ending inventory of S Company (downstream sales)
– 20x5 (UPEI of S – 20x5) or Realized profit in beginning inventory of S Company
(downstream sales) –20x6 (RPBI of S - 20x6)……………. 24,000
Adjusted Retained Earnings – Parent 12/31/20x5 (cost model)
S Company’s Retained earnings that have been realized in
transactions with third parties.. P619,200
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 – Subsidiary, December 31, 20x5 P 186,000
Less: Retained earnings – Subsidiary, January 1, 20x4 120,000
Increase in retained earnings since date of acquisition P 66,000
Less: Accumulated amortization of allocated excess –
20x4 and 20x5 (P11,000 + P6,000) 20,400
Unrealized profit in ending inventory of P Company (upstream
sales) 20x5 (UPEI of P – 20x5) or Realized profit in beginning
inventory of P Company (upstream sales) –20x6 (RPBI of P - 20x6) 6,000
P 39,600
Multiplied by: Controlling interests %................... 80%
P 31,680
Less: Goodwill impairment loss, partial goodwill 3,000 28,680
Consolidated Retained earnings, December 31, 20x5 P647,880
NCI/NCINAS. The goodwill recognized on consolidation purely relates to the parent’s share. NCI is measured as
a proportion of identifiable assets and goodwill attributable to NCI share is not recognized. The NCI on December
31, 20x5 are computed as follows:
Non-controlling interest (partial-goodwill), December 31, 20x5
Common stock – Subsidiary Company, December 31, 20x5…… P 240,000
Retained earnings – Subsidiary Company, December 31, 20x5
Retained earnings – Subsidiary Company, January 1, 20x5* P144,000
Add: Net income of subsidiary for 20x5 90,000
Total P234,000
Less: Dividends paid – 20x5 48,000 186,000
Stockholders’ equity – Subsidiary Company, December 31, 20x5 P 426,000
Adjustments to reflect fair value - (over) undervaluation of assets and
liabilities, date of acquisition (January 1, 20x4) 90,000
Amortization of allocated excess (refer to amortization above) :
20x4 P 13,200
20x5 7,200 ( 20,400)
Fair value of stockholders’ equity of subsidiary, December 31, 20x5…… P 495,600
Less: Unrealized profit in ending inventory of P Company (upstream
sales) 20x5 (UPEI of P – 20x5) or Realized profit in beginning inventory
of P Company (upstream sales) –20x6 (RPBI of P - 20x6 6,000
Realized stockholders’ equity of subsidiary, December 31, 20x5………. P489,600
Multiplied by: Non-controlling Interest percentage…………... 20
Non-controlling interest (partial goodwill)………………………………….. P 97,920
* the realized profit in beginning inventory of P Company (upstream sales) –20x5 (RPBI of P - 20x5 amounting to P10,000 is already
included in the beginning retained earnings of S Company.
Consolidated SHE:
Consolidated SHE:
Stockholders’ Equity
Common stock, P10 par P 600,000
Retained earnings 647,880
Parent’s Stockholders’ Equity / CI – SHE, 12/31/20x5 P1,247,880
NCI, 12/31/20x4 – partial goodwill ___97,920
Consolidated SHE, 12/31/20x5 P1,345,800
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. SCo.
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 P3,750 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 Son (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
In this case, the goodwill 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%
Upstream Sales:
Intercompany Merchandise
Year Sales of Subsidiary to in 12/31 Inventory Unrealized Intercompany Profit in
Parent of S Company Ending Inventory
20x4 P 50,000 P100,000 x 50% = P25,000 P25,000 x 40% = P10,000
20x5 62,500 P 62,500 x 40% = P25,000 P25,000 x 20% = P 5,000
Cost of Depreciation/
Goods Amortization Amortization
Sold Expense -Interest Total
Inventory sold P 6,000
Equipment P 12,000
Buildings ( 6,000)
Bonds payable _______ _______ P 1,200
Totals P 6,000 P 2,000 P1,200 13,200
Since NCI share of goodwill is not recognized, no adjustment is required for the impairment loss on goodwill
and impairment losses are not shared with NCI.
Balance Sheet
Cash………………………. P 232,800 P 90,000 P 322,800
Accounts receivable…….. 90,000 60,000 150,000
Inventory…………………. 120,000 90,000 (2) 6,000 (3) 6,000
(7) 18,000
(8) 12,000 180,000
Land……………………………. 210,000 48,000 (2) 7,200 265,200
Equipment 240,000 180,000 420,000
Buildings 720,000 540,000 (2) 216,000 1,044,000
Discount on bonds payable (2) 4,800 (3) 12000 3,600
Goodwill…………………… (2) 12,000 (3) 3,000 9,000
Investment in S Co……… 372,000 (1) 288,000
(2) 84,000 -
Total P1,984,800 P1,008,000 P2,394,600
Accumulated depreciation
- equipment P 135,000 P 96,000 (2) 96,000 (3) 12,000 P147,000
Accumulated depreciation 405,000 288,000 (2) 192,000
- buildings (3) 6,000 495,000
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 (1) 240,000
Retained earnings, from above 484,800 144,000 462,840
Non-controlling interest………… (4) 7,200 (1 ) 72,000
_______ (2) 18,000
_________ __ __________ (9) 6,960 ____89,760
Total P1,984,800 P1,008,000 P 983,160 P 983,160 P2,394,600
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..
20x5: Second Year after Acquisition
P Co. S Co.
Sales P 540,000 P 360,000
Less: Cost of goods sold 216,000 192,000
Gross profit P 324,000 P 168,000
Less: Depreciation expense 60,000 24,000
Other expense 72,000 54,000
Net income from its own separate operations P 192,000 P 90,000
Add: Dividend income 38,400 -
Net income P 230,400 P 90,000
Dividends paid P 72,000 P 48,000
No goodwill impairment loss for 20x5.
4. Schedule of Determination and Allocation of Excess (Partial-goodwill) – refer to the schedule above.
5. Consolidation Workpaper – 20x5 Second Year after Acquisition
The working paper eliminations (in journal entry format) on December 31, 20x5, are as follows:
(E1) Investment in S Company………………………… 19,200
Retained earnings – P Company……………………… 19,200
To provide entry to convert from the cost method to the equity
method or the entry to establish reciprocity at the beginning of the
year, 1/1/20x5, computed as follows:
(20x4) Depreciation/
Retained Amortization Amortization
earnings, expense -Interest
Inventory sold P 6,000
Equipment 12,000 P 12,000
Buildings (6,000) ( 6,000)
Bonds payable 1,200 ________ P 1,200
Sub-total P13,200 P 6,000 P 1,200
Multiplied by: 80%
To Retained earnings P 10,560
Impairment loss 3,000
Total P 13,560
Balance Sheet
Cash………………………. P 265,200 P 102,000 P 367,200
Accounts receivable…….. 180,000 96,000 276,000
Inventory…………………. 216,000 108,000 (3) 7,200 (4) 7,200
(10) 24,000
(11) 6,000 294,000
Land……………………………. 210,000 48,000 (3) 7,200 265,200
Equipment 240,000 180,000 420,000
Buildings 720,000 540,000 (3) 216,000 1,044,000
Discount on bonds payable (3) 4,800 (4) 2,400 2,400
Goodwill…………………… (3) 12,000 (4) 3,000 9,000
Investment in S Co……… 372,000 (1) 19,200 (2) 307,200
(3) 84,000 -
Total P2,203,200 P1,074,000 P2,677,800
Accumulated depreciation
- equipment P 150,000 P 102,000 (3) 96,000 (4) 24,000 P180,000
Accumulated depreciation 450,000 306,000 (3) 192,000
- buildings (4) 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 643,200 186,000 647,880
Non-controlling interest………… (4) 2,640
(5) 9,600 (2 ) 76,800
_______ (9) 2,400 (3) 18,000
___ _____ __ __________ (12) 17,760 ____97,920
Total 2,203,200 P1,074,000 P1,077,360 P1,077,360 P2,677,800
Cost of Depreciation/
Goods 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
Balance Sheet
Cash………………………. P 232,800 P 90,000 P 322,800
Accounts receivable…….. 90,000 60,000 150,000
Inventory…………………. 120,000 90,000 (2) 6,000 (3) 6,000
(7) 18,000
(8) 12,000 180,000
Land……………………………. 210,000 48,000 (2) 7,200 265,200
Equipment 240,000 180,000 420,000
Buildings 720,000 540,000 (2) 216,000 1,044,000
Discount on bonds payable (2) 4,800 (3) 1,200 3,600
Goodwill…………………… (2) 15,000 (3) 3,750 11,250
Investment in S Co……… 372,000 (3) 288,000
(4) 84,000 -
Total P1,984,800 P1,008,000 P2,396,850
Accumulated depreciation
- equipment P 135,000 P 96,000 (2) 96,000 (3) 12,000 P147,000
Accumulated depreciation 405,000 288,000 (6) 192,000
- buildings (7) 6,000 495,000
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 (1) 240,000
Retained earnings, from above 484,800 144,000 462,840
Non-controlling interest………… (4) 7,200 (1 ) 72,000
_______ (2) 21,000
_________ __ (9) 6,210 ____92,010
Total P1,984,800 P1,008,000 P 986,160 P 986,160 P2,396,850
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..
(20x4) Depreciation/
Retained Amortization Amortization
earnings, expense -Interest
Inventory sold P 6,000
Equipment 12,000 P 12,000
Buildings (6,000) ( 6,000)
Bonds payable 1,200 P 1,200
Impairment loss 3,750
Totals P 16,950 P 6,000 P1,200
Multiplied by: CI%.... 80%
To Retained earnings P13,560
(E5) Dividend income - P………. 38,400
Non-controlling interest (P48,000 x 20%)……………….. 9,600
Dividends paid – S…………………… 48,000
To eliminate intercompany dividends and non-controlling interest
share of dividends.
Balance Sheet
Cash………………………. P 265,200 P 102,000 P 367,200
Accounts receivable…….. 180,000 96,000 276,000
Inventory…………………. 216,000 108,000 (6) 6,000 (4) 6,000
(10) 24,000
(11) 6,000 294,000
Land……………………………. 210,000 48,000 (3) 7,200 265,200
Equipment 240,000 180,000 420,000
Buildings 720,000 540,000 (3) 216,000 1,044,000
Discount on bonds payable (3) 4,800 (4) 2,400 2,400
Goodwill…………………… (3) 15,000 (4) 3,750 11,250
Investment in S Co……… 372,000 (1) 19,200 (2) 307,200
(3) 84,000 -
Total P2,203,200 P1,074,000 P2,680,050
Accumulated depreciation
- equipment P 150,000 P 102,000 (3) 96,000 (4) 24,000 P180,000
Accumulated depreciation 450,000 306,000 (3) 192,000
- buildings (4) 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 643,200 186,000 647,880
Non-controlling interest………… (4) 3,390
(8) 9,600 (2 ) 76,800
_______ (9) 2,400 (3) 21,000
___ _____ __ __________ (12) 17,760 ____100,170
Total P2,203,200 P1,074,000 P1,081,110 P1,081,110 P2,680,050
Problem II
Equity Method
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
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)- partial goodwill ___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)
12/31/20x4:
CI-CNI – P174,840
Consolidated Net Income for 20x4
P Company’s net income from own/separate operations…………. P168,000
Unrealized profit in ending inventory of S Company (downstream sales)… ( 18,000)
Perfect Company’s realized net income from separate operations*…….….. P150,000
S Company’s net income from own operations…………………………………. P 60,000
Unrealized profit in ending inventory of S Company (upstream sales)… ( 12,000)
Son Company’s realized net income from separate operations*…….….. P 48,000 48,000
Total P198,000
Less: Non-controlling Interest in Net Income P 6,1210
Amortization of allocated excess (refer to amortization above) 13,200
Goodwill impairment (impairment under full-goodwill approach) 3,750 23,160
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent………….. P174,840
Add: Non-controlling Interest in Net Income (NCINI) _ 6,960
Consolidated Net Income for 20x4 P181.050
*that has been realized in transactions with third parties.
NCI-CNI – P6,960
**Non-controlling Interest in Net Income (NCINI) for 20x4
S Company’s net income of Subsidiary Company from its own operations P 60,000
(Reported net income of S Company)
Unrealized profit in ending inventory of P Company (upstream sales) ( 12,000)
S Company’s realized net income from separate operations……… P 48,000
Less: Amortization of allocated excess 13,200
P 34,800
Multiplied by: Non-controlling interest %.......... 20%
Non-controlling Interest in Net Income (NCINI) – partial P 6,960
*that has been realized in transactions with third parties.
CNI – P181,050
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent………….. P174,840
Add: Non-controlling Interest in Net Income (NCINI) _ 6,210
Consolidated Net Income for 20x4 P181.050
On subsequent to date of acquisition, consolidated retained earnings would be computed as follows:
Consolidated Retained Earnings, December 31, 20x4
Retained earnings - Parent Company, January 1, 20x4 (date of acquisition) P360,000
Add: Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent for 20x4 174,840
Total P534,840
Less: Dividends paid – Parent Company for 20x4 72,000
Consolidated Retained Earnings, December 31, 20x4 P462,840
NCI/NCINAS. The goodwill recognized on consolidation purely relates to the parent’s share. NCI is
measured as a proportion of identifiable assets and goodwill attributable to NCI share is not recognized.
The NCI on December 31, 20x4 are computed as follows:
Non-controlling interest ), December 31, 20x4
Common stock – Subsidiary Company, December 31, 20x4…… P 240,000
Retained earnings – Subsidiary Company, December 31, 20x4
Retained earnings – Subsidiary Company, January 1, 20x4 P120,000
Add: Net income of subsidiary for 20x4 60,000
Total P180,000
Less: Dividends paid – 20x4 36,000 144,000
Stockholders’ equity – Subsidiary Company, December 31, 20x4 P 384,000
Adjustments to reflect fair value - (over) undervaluation of assets and
liabilities, date of acquisition (January 1, 20x4) 90,000
Amortization of allocated excess (refer to amortization above) – 20x4 ( 13,200)
Fair value of stockholders’ equity of subsidiary, December 31, 20x4…… P460,800
Less: Unrealized profit in ending inventory of P Company (upstream sales) 12,000
Realized stockholders’ equity of subsidiary, December 31, 20x4…… P448,800
Multiplied by: Non-controlling Interest percentage…………... 20
Non-controlling interest (partial-goodwill)………………………………….. P 89,760
Add: Non-controlling interest on full goodwill , net of impairment loss, 12/31/x4:
[(P15,000 full – P12,000, partial = P3,000) – P750 impairment loss 2,250
Non-controlling interest (full-goodwill)…………….. P 92,010
Consolidated SHE:
Consolidated SHE:
Stockholders’ Equity
Common stock, P10 par P 600,000
Retained earnings 462,840
Parent’s Stockholders’ Equity / CI - SHE P1,062,840
NCI, 1/1/20x4 - partial ___92,010
Consolidated SHE, 1/1/20x4 P1,154,840
12/31/20x5:
CI-CNI – P257,040
Consolidated Net Income for 20x5
P Company’s net income from own/separate operations…………. P192,000
Realized profit in beginning inventory of S Company (downstream sales) 18,000
Unrealized profit in ending inventory of S Company (downstream sales)… (_24,000)
P Company’s realized net income from separate operations*…….….. P186,000
S Company’s net income from own operations…………………………………. P 90,000
Realized profit in beginning inventory of P Company (upstream sales) 12,000
Unrealized profit in ending inventory of P Company (upstream sales)… ( 6,000)
S Company’s realized net income from separate operations*…….….. P 96,000 96,000
Total P282,000
Less: Amortization of allocated excess…………………… 7,200
Consolidated Net Income for 20x5 P274,800
Less: Non-controlling Interest in Net Income* * 17,760
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent – 20x5………….. P257,040
*that has been realized in transactions with third parties.
Or, alternatively
Consolidated Net Income for 20x5
P Company’s net income from own/separate operations…………. P192,000
Realized profit in beginning inventory of S Company (downstream sales) 18,000
Unrealized profit in ending inventory of S Company (downstream sales)… (_24,000)
P Company’s realized net income from separate operations*…….….. P186,000
S Company’s net income from own operations…………………………………. P 90,000
Realized profit in beginning inventory of P Company (upstream sales) 12,000
Unrealized profit in ending inventory of P Company (upstream sales)… ( 6,000)
Son Company’s realized net income from separate operations*…….….. P 96,000 96,000
Total P282,000
Less: Non-controlling Interest in Net Income* * P 17,760
Amortization of allocated excess…………………… 7,200 24,960
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent………….. P257,040
Add: Non-controlling Interest in Net Income (NCINI) _ 17,760
Consolidated Net Income for 20x5 P274,800
*that has been realized in transactions with third parties.
NCI-CNI – P16,560
**Non-controlling Interest in Net Income (NCINI) for 20x5
S Company’s net income of Subsidiary Company from its own operations P 90,000
(Reported net income of S Company)
Realized profit in beginning inventory of P Company (upstream sales) 12,000
Unrealized profit in ending inventory of P Company (upstream sales) ( 6,000)
S Company’s realized net income from separate operations……… P 96,000
Less: Amortization of allocated excess 7,200
P 88,800
Multiplied by: Non-controlling interest %.......... 20%
Non-controlling Interest in Net Income (NCINI) – partial goodwill P 17,760
CNI, P274,800
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent………….. P257,040
Add: Non-controlling Interest in Net Income (NCINI) – partial _ 17,760
Consolidated Net Income for 20x5 P274,800
On subsequent to date of acquisition, consolidated retained earnings would be computed as follows:
Consolidated Retained Earnings, December 31, 20x5
Retained earnings - Parent Company, January 1, 20x5 (cost model P484,800
Less: Unrealized profit in ending inventory of S Company (downstream sales)
– 20x4 (UPEI of S – 20x4) or Realized profit in beginning inventory of S Company
(downstream sales) –20x4 (RPBI of S - 20x5)……………. 18,000
Adjusted Retained Earnings – Parent 1/1/20x5 (cost model (S Company’s
Retained earnings that have been realized in transactions with third
parties.. P466,800
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 – Subsidiary, January 1, 20x5 P 144,000
Less: Retained earnings – Subsidiary, January 1, 20x4 120,000
Increase in retained earnings since date of acquisition P 24,000
Less: Amortization of allocated excess – 20x4 13,200
Unrealized profit in ending inventory of P Company (upstream
sales) 20x4 (UPEI of P – 20x4) or Realized profit in beginning
inventory of P Company (upstream sales) –20x5 (RPBI of P - 20x5) 12,000
(P 1,200)
Multiplied by: Controlling interests %................... 80%
(P 960)
Less: Goodwill impairment loss (full-goodwill), net (P3,750 – P750)* or
(P3,750 x 80%) 3,000 ( 3,960)
Consolidated Retained earnings, January 1, 20x5 P462,840
Add: Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent for 20x5 257,040
Total P719,880
Less: Dividends paid – Parent Company for 20x5 72,000
Consolidated Retained Earnings, December 31, 20x5 P647,880
*this procedure would be more appropriate, instead of multiplying the full-goodwill impairment loss of P3,750 by 80%. There might be
situations where the controlling interests on goodwill impairment loss would not be proportionate to NCI acquired
Or, alternatively:
Consolidated Retained Earnings, December 31, 20x5
Retained earnings - Parent Company, December 31, 20x5 (cost model P643,200
Less: Unrealized profit in ending inventory of S Company (downstream sales)
– 20x5 (UPEI of S – 20x5) or Realized profit in beginning inventory of S Company
(downstream sales) –20x6 (RPBI of S - 20x6)……………. 24,000
Adjusted Retained Earnings – Parent 12/31/20x5 (cost model (
S Company’s Retained earnings that have been realized in
transactions with third parties.. P619,200
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 – Subsidiary, December 31, 20x5 P 186,000
Less: Retained earnings – Subsidiary, January 1, 20x4 120,000
Increase in retained earnings since date of acquisition P 66,000
Less: Accumulated amortization of allocated excess –
20x4 and 20x5 (P13,200 + P7,200) 20,400
Unrealized profit in ending inventory of P Company (upstream
sales) 20x5 (UPEI of P – 20x5) or Realized profit in beginning
inventory of P Company (upstream sales) –20x6 (RPBI of P - 20x6) 6,000
P 39,600
Multiplied by: Controlling interests %................... 80%
P 31,680
Less: Goodwill impairment loss (full-goodwill), net (P3,750 – P750)* or
(P3,750 x 80%) 3,000 28,680
Consolidated Retained earnings, December 31, 20x5 P647,880
NCI/NCINAS. The goodwill recognized on consolidation purely relates to the parent’s share. NCI is
measured as a proportion of identifiable assets and goodwill attributable to NCI share is not recognized.
The NCI on December 31, 20x5 are computed as follows:
Non-controlling interest, December 31, 20x5
Common stock – Subsidiary Company, December 31, 20x5…… P 240,000
Retained earnings – Subsidiary Company, December 31, 20x5
Retained earnings – Subsidiary Company, January 1, 20x5* P144,000
Add: Net income of subsidiary for 20x5 90,000
Total P234,000
Less: Dividends paid – 20x5 48,000 186,000
Stockholders’ equity – Subsidiary Company, December 31, 20x5 P 426,000
Adjustments to reflect fair value - (over) undervaluation of assets and
liabilities, date of acquisition (January 1, 20x4) 90,000
Amortization of allocated excess (refer to amortization above) :
20x4 P 13,200
20x5 7,200 ( 20,400)
Fair value of stockholders’ equity of subsidiary, December 31, 20x5…… P 495,600
Less: Unrealized profit in ending inventory of P Company (upstream
sales) 20x5 (UPEI of P – 20x5) or Realized profit in beginning inventory
of P Company (upstream sales) –20x6 (RPBI of P - 20x6 6,000
Realized stockholders’ equity of subsidiary, December 31, 20x5………. P489,600
Multiplied by: Non-controlling Interest percentage…………... 20
Non-controlling interest (partial goodwill)………………………………….. P 97,920
* the realized profit in beginning inventory of P Company (upstream sales) –20x5 (RPBI of P - 20x5 amounting to P10,000 is already
included in the beginning retained earnings of S Company.
Consolidated SHE:
Consolidated SHE:
Stockholders’ Equity
Common stock, P10 par P 600,000
Retained earnings 647,880
Parent’s Stockholders’ Equity / CI – SHE P1,247,880
NCI, 12/31/20x5 – partial ___97,920
Consolidated SHE, 12/31/20x5 P1,345,800
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. SCo.
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 P3,750 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 Son (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
In this case, the goodwill 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%
Upstream Sales:
Intercompany Merchandise
Year Sales of Subsidiary to in 12/31 Inventory Unrealized Intercompany Profit in
Parent of S Company Ending Inventory
20x4 P 50,000 P100,000 x 50% = P25,000 P25,000 x 40% = P10,000
20x5 62,500 P 62,500 x 40% = P25,000 P25,000 x 20% = P 5,000
Cost of Depreciation/
Goods Amortization Amortization
Sold Expense -Interest Total
Inventory sold P 6,000
Equipment P 12,000
Buildings ( 6,000)
Bonds payable _______ _______ P 1,200
Totals P 6,000 P 2,000 P1,200 13,200
Since NCI share of goodwill is not recognized, no adjustment is required for the impairment loss on goodwill
and impairment losses are not shared with NCI.
Subsidiary accounts are adjusted to full fair value regardless on the controlling interest percentage or what option
used to value non-controlling interest or goodwill.
Balance Sheet
Cash………………………. P 232,800 P 90,000 P 322,800
Accounts receivable…….. 90,000 60,000 150,000
Inventory…………………. 120,000 90,000 (1) 6,000 (3) 6,000
(7) 18,000
(8) 12,000 180,000
Land……………………………. 210,000 48,000 (2) 7,200 265,200
Equipment 240,000 180,000 420,000
Buildings 720,000 540,000 (2) 216,000 1,044,000
Discount on bonds payable (2) 4,800 (3) 1,200 3,600
Goodwill…………………… (2) 12,000 (3) 3,000 9,000
Investment in S Co……… 350,040 (4) 21,960 (2) 288,000 -
(2) 84,000
Thus, the investment balance and investment income in the books of P Company is as follows:
Investment in S
Cost, 1/1/x5 350,040 38,400 Dividends – S (48,000x 80%)
NI of Son 5,760 Amortization (7,200 x 80%)
(90,000 x 80%) 72,000 24,000 UPEI of Son (P24,000 x 100%)
RPBI of S (P18,000 x 100%) 18,000 4,800 UPEI of Perfect (P6,000 x 80%)
RPBI of P (P12,000 x 80%) 9,600
Balance, 12/31/x5 376,680
Investment Income
Amortization (7,200 x 805) 5,760 NI of S
UPEI of S (P24,000 x 100%) 24,000 72,000 (P90,000 x 80%)
UPEI of P (P6,000 x 80%) 4,800 18,000 RPBI of S (P18,000 x 100%)
9,600 RPBI of P(P12,000 x 80%)
65,040 Balance, 12/31/x5
4. Schedule of Determination and Allocation of Excess (Partial-goodwill) – refer to the schedule above.
5. Consolidation Workpaper – 20x5 Second Year after Acquisition
The schedule of determination and allocation of excess presented above provides complete guidance for the
worksheet eliminating entries:
(E1) Common stock – S Co………………………………………… 240,000
Retained earnings – S Co, 1/1/x5…………………………. 144.000
Investment in SCo (P384,000 x 80%) 307,200
Non-controlling interest (P384,000 x 20%)……………………….. 76,800
To eliminate investment on January 1, 20x5 and equity accounts
of subsidiary on date of acquisition; and to establish non-
controlling interest (in net assets of subsidiary) on 1/1/20x5.
Depreciation/
Amortization Amortization
Expense -Interest Total
Inventory sold
Equipment P 12,000
Buildings ( 6,000)
Bonds payable _______ P 1,200
Totals P 6,000 P1,200 P7,200
After the eliminating entries are posted in the investment account, it should be observed that from consolidation
point of view the investment account is totally eliminated. Thus,
Investment in S
Cost, 1/1/x5 350,040 38,400 Dividends – S (40,000x 80%)
NI of S Amortization
(90,000 x 80%) 72,000 5,760 (6,000 x 80%)
RPBI of S (P18,000 x 100%) 18,000 24,000 UPEI of S (P20,000 x 100%)
RPBI of P(P12,000 x 80%) 9,600 4,800 UPEI of P (P5,000 x 80%)
Balance, 12/31/x5 376,680 307,200 (E1) Investment, 1/1/20x5
(E10) Cost of Goods
(E8) RPBISold
of S (Ending Inventory – Income Statement)…
18,000 70,440 24,000
(E2) Investment, 1/1/20x5
(E9) RPBI
Inventory of P Sheet…… 9,600
– Balance 26,640 (E4) Investment Income 24,000
To defer the downstream sales - unrealized profit in ending inventory and dividends
until it is sold to outsiders. 336,900 404,280
Thus, the investment balance and investment income in the books of P Company is as follows
Investment in S
Cost, 1/1/x4 372,000 28,800 Dividends – S (36,000x 80%)
NI of S Amortization &
(60,000 x 80%) 48,000 13,560 impairment
18,000 UPEI of S (P18,000 x 100%)
9,600 UPEI of P (P12,000 x80%)
Balance, 12/31/x4 324,000
Investment Income
Amortization & NI of S
impairment 13,560 48,000 (P60,000 x 80%)
UPEI of S (P18,000 x 100%) 18,000
UPEI of P (P12,000 x80%) 9,600
6,840 Balance, 12/31/x4
Cost of Depreciation/
Goods Amortization Amortization
Sold Expense -Interest Total
Inventory sold P 6,000
Equipment P 12,000
Buildings ( 6,000)
Bonds payable _______ _______ P 1,200
Totals P 6,000 P 7,200 P1,200 14,400
372,000 372,000
(E5) Sales………………………. 150,000
Cost of Goods Sold (or Purchases) 150,000
To eliminated intercompany downstream sales.
(E6) Sales………………………. 60,000
Cost of Goods Sold (or Purchases) 60,000
To eliminated intercompany upstream sales.
Balance Sheet
Cash………………………. P 232,800 P 90,000 P 322,800
Accounts receivable…….. 90,000 60,000 150,000
Inventory…………………. 120,000 90,000 (2) 6,000 (3) 6,000
(7) 18,000
(8) 12,000 180,000
Land……………………………. 210,000 48,000 (2) 7,200 265,200
Equipment 240,000 180,000 420,000
Buildings 720,000 540,000 (2) 216,000 1,044,000
Discount on bonds payable (2) 4,800 (3) 1,200 3,600
Goodwill…………………… (2) 15,000 (3) 3,750 11,250
Investment in S Co……… 350,040 (4) 21,960 (2) 288,000
(2) 84,000
-
Total P1,635,700 P1,008,000 P2,396,850
Accumulated depreciation
- equipment P 135,000 P 96,000 (2) 96,000 (3) 12,000 P 147,000
Accumulated depreciation 405,000 288,000 (2) 192,000
- buildings (3) 6,000 495,000
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 (1) 240,000
Retained earnings, from above 462,840 144,000 462,840
Non-controlling interest………… (4) 7,200 (1 ) 72,000
_______ (2) 21,000
_________ __ __________ (9) 6,210 ____92,010
Total P1,962,840 P1,008,000 P 986,160 P 986,160 P2,396,850
Depreciation/
Amortization Amortization
Expense -Interest Total
Inventory sold
Equipment P 12,000
Buildings ( 6,000)
Bonds payable _______ P 1,200
Totals P 6,000 P1,200 P7,200
After the eliminating entries are posted in the investment account, it should be observed that from consolidation
point of view the investment account is totally eliminated. Thus,
Investment in S
Cost, 1/1/x5 350,040 38,400 Dividends – S (48,000x 80%)
NI of Son Amortization
(90,000 x 80%) 72,000 5,600 (7,000 x 80%)
RPBI of S (P18,000 x 100%) 18,000 24,000 UPEI of S (P24,000 x 100%)
RPBI of P (P18,000 x 80%) 9,600 4,800 UPEI of P (P6,000 x 80%)
Balance, 12/31/x5 376,680 307,200 (E1) Investment, 1/1/20x5
(E8) RPBI of S 18,000 70,440 (E2) Investment, 1/1/20x5
(E9) RPBI of P 9,600 26,640 (E4) Investment Income
and dividends
404,280 404,280
Balance Sheet
Cash………………………. P 265,200 P 114,000 P 367,200
Accounts receivable…….. 180,000 96,000 276,000
Inventory…………………. 216,000 108,000 (10) 24,000
(11) 6,000 294,000
Land……………………………. 210,000 48,000 (2) 7,200 265,200
Equipment 240,000 180,000 420,000
Buildings 720,000 540,000 (3) 216,000 1,044,000
Discount on bonds payable (2) 3,600 (3) 1,200 2,400
Goodwill…………………… (2) 11,250 11,250
Investment in S Co……… 376,680 (8) 18,000 (1) 307,200
(9) 9,600 (3) 70,440
(4) 26,640 -
Total P2,207,880 P1,074,000 P2,680,050
Problem III
1.
Consolidated Net Income for 20x5
P Company’s net income from own/separate operations…………. P 760,000
Realized profit in beginning inventory of S Company (downstream sales) 36,000
Unrealized profit in ending inventory of S Company (downstream sales)… (_50,000)
P Company’s realized net income from separate operations*…….….. P 746,000
S Company’s net income from own operations…………………………………. P 460,000
Realized profit in beginning inventory of P Company (upstream sales) 0
Unrealized profit in ending inventory of P Company (upstream sales)… ( 0)
S Company’s realized net income from separate operations*…….….. P 460,000 460,000
Total P1,206,000
Less: Amortization of allocated excess…………………… 0
Consolidated Net Income for 20x5 P1,206,000
Less: Non-controlling Interest in Net Income* * 92,000
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent – 20x5………….. P 1,114,000
*that has been realized in transactions with third parties.
Beginning inventory: P1,080,000 x 1/5 = P216,000 x 20/120 = P36,000 profit
Ending inventory: P1,200,000 x ¼ = P300,000 x 20/120 = P50,000 profit
Or, alternatively
Consolidated Net Income for 20x5
P Company’s net income from own/separate operations…………. P 760,000
Realized profit in beginning inventory of S Company (downstream sales) 36,000
Unrealized profit in ending inventory of S Company (downstream sales)… (_50,000)
P Company’s realized net income from separate operations*…….….. P 746,000
S Company’s net income from own operations…………………………………. P 460,000
Realized profit in beginning inventory of P Company (upstream sales) 0
Unrealized profit in ending inventory of P Company (upstream sales)… ( 0)
S Company’s realized net income from separate operations*…….….. P460,000 460,000
Total P1,206,000
Less: Non-controlling Interest in Net Income* * P 92,000
Amortization of allocated excess…………………… 0 92,000
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent………….. P1,114,000
Add: Non-controlling Interest in Net Income (NCINI) _ 92,000
Consolidated Net Income for 20x5 P 1,206,000
*that has been realized in transactions with third parties.
2. Books of Puma
(a) Cost Model
20x4
Dividend – Smarte Company:
None, since, there is no amount given
20x5
Dividend – Smarte Company:
None, since, there is no amount given
(b) Equity Method
20x4
Net income – Smarte
Investment in Smarte (400,000 x 80%) 320,000
Equity in Subsidiary Income 320,000
Dividend – Smarte
Cash/Dividends receivable 0
Investment in Smarte 0
Amortization of Allocated excess:
Equity in Subsidiary Income 0
Investment in Smarte 0
Realized Profit in BI:
Investment in Smarte 0
Equity in Subsidiary Income 0
Unrealized Profit in EI:
Equity in Subsidiary Income 36,000
Investment in Smarte 36,000
20x5
Net income – Smarte
Investment in Smarte (460,000 x 80%) 368,000
Equity in Subsidiary Income 368,000
Dividend – Smarte
Cash/Dividends receivable 0
Investment in Smarte 0
Amortization of Allocated excess:
Equity in Subsidiary Income 0
Investment in Smarte 0
Realized Profit in BI:
Investment in Smarte 36,000
Equity in Subsidiary Income 36,000
Unrealized Profit in EI:
Equity in Subsidiary Income 50,000
Investment in Smarte 50,000
3. Downstream Sales
20x4
100% Interscompany Sales
Sales……………………………………………………………………… 1,080,000
Purchases (Cost of Goods Sold)…………………………… 1,080,000
**100% UPEI of S:
Cost of Sales (Ending Inventory in Income Statement)
[216,000 – (216,000/1.20)]………..………………………………….. 36,000
Inventory (Ending Inventory in Balance Sheet)…………….. 36,000
20x5
100% Interscompany Sales
Sales…………………………………………………………………………1,200,000
Purchases (Cost of Goods Sold) ……………………………. 1,200,000
Downstream Sales:
*100% RPBI of S:
Retained Earnings – P, beginning……………………………….. 36,000
Cost of Sales (Beginning Inventory in Income Statement)….. 36,000
**100% UPEI of S:
Cost of Sales (Ending Inventory in Income Statement)
[300,000 – (300,000/1.20)]………..………………………………………….. 15,000
Inventory (Ending Inventory in Balance Sheet)……………….. 15,000
Problem IV
1.
Consolidated Net Income for 20x5
P Company’s net income from own/separate operations…………. P 1,720,000
Realized profit in beginning inventory of S Company (downstream sales) 0
Unrealized profit in ending inventory of S Company (downstream sales)… (_ 0)
P Company’s realized net income from separate operations*…….….. P 1, 720,000
S Company’s net income from own operations…………………………………. P 600,000
Realized profit in beginning inventory of P Company (upstream sales) 40,000
Unrealized profit in ending inventory of P Company (upstream sales)… ( 51,00 0)
Son Company’s realized net income from separate operations*…….….. P 589,000 589,000
Total P2,309,000
Less: Amortization of allocated excess…………………… 0
Consolidated Net Income for 20x5 P2,309,000
Less: Non-controlling Interest in Net Income* * 58,900
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent – 20x5………….. P 2,250,100
*that has been realized in transactions with third parties.
Beginning inventory: P800,000 x 1/4 = P200,000 x 25/125 = P40,000 profit
Ending inventory: P1,020,000 x ¼ = P255,000 x 25/125 = P51,000 profit
Or, alternatively
Consolidated Net Income for 20x5
P Company’s net income from own/separate operations…………. P 1,720,000
Realized profit in beginning inventory of S Company (downstream sales) 0
Unrealized profit in ending inventory of S Company (downstream sales)… (________0)
P Company’s realized net income from separate operations*…….….. P1,720,,000
S Company’s net income from own operations…………………………………. P 600,000
Realized profit in beginning inventory of P Company (upstream sales) 40,000
Unrealized profit in ending inventory of P Company (upstream sales)… ( 51,000)
S Company’s realized net income from separate operations*…….….. P589,000 589,000
Total P2,309,000
Less: Non-controlling Interest in Net Income* * P 58,900
Amortization of allocated excess…………………… 0 __58,900
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent………….. P2,250,100
Add: Non-controlling Interest in Net Income (NCINI) _ 58,900
Consolidated Net Income for 20x5 P 2,309,000
*that has been realized in transactions with third parties.
**Non-controlling Interest in Net Income (NCINI) for 20x5
S Company’s net income of Subsidiary Company from its own operations
(Reported net income of Son Company) P600,000
Realized profit in beginning inventory of P Company (upstream sales) 40,000
Unrealized profit in ending inventory of P Company (upstream sales) ( 51,000)
Son Company’s realized net income from separate operations……… P589,000
Less: Amortization of allocated excess _____0
P589,000
Multiplied by: Non-controlling interest %.......... 10%
Non-controlling Interest in Net Income (NCINI) P 58,900
2. Books of Pinta
(a) Cost Method
20x4
Dividend – Simplex Company:
None, since, there is no amount given
20x5
Dividend – Simplex Company:
None, since, there is no amount given
Dividend – Simplex
Cash/Dividends receivable 0
Investment in Simplex 0
Problem VI
1.
Non-controlling Interest in Net Income (NCINI) for 20x4
S Company’s net income of Subsidiary Company from its own operations
(Reported net income of Son Company) P3,000,000
Realized profit in beginning inventory of P Company (upstream sales): P525,000 x 25/125 105,000
Unrealized profit in ending inventory of P Company (upstream sales): P1,250,000 x 25/125 ( 250,000)
Son Company’s realized net income from separate operations……… P 2,855,000
Less: Amortization of allocated excess _____0
P3,055,000
Multiplied by: Non-controlling interest %.......... 20%
Non-controlling Interest in Net Income (NCINI) P 571,000
2 .Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent – 20x5 – cannot
be solved, since there is no net income from separate operations for P Company.
or,
Consolidated Net Income for 20x5
P Company’s net income from own/separate operations (P800-P535-P100) P 165,000
Realized profit in beginning inventory of S Company (downstream sales) 14,400
Unrealized profit in ending inventory of S Company (downstream sales)… (_10,000)
P Company’s realized net income from separate operations*…….….. P 169,400
S Company’s net income from own operations (P600 – P400 – P100) P 100,000
Realized profit in beginning inventory of P Company (upstream sales) 0
Unrealized profit in ending inventory of P Company (upstream sales)… ( 0)
S Company’s realized net income from separate operations*…….….. P 100,000 100,000
Total P 269,400
Less: Amortization of allocated excess…………………… __10,000
Consolidated Net Income for 20x5 P 259,400
Less: Non-controlling Interest in Net Income* * 27,000
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent – 20x5………….. P 232,400
Problem VIII
(Compute selected balances based on three different intercompany asset transfer scenarios)
1.
Consolidated Cost of Goods Sold
PP’s cost of goods sold .................................................................................................. P290,000
SW’s cost of goods sold ................................................................................................ 197,000
Elimination of 20x5 intercompany transfers ................................................................. (110,000)
Reduction of beginning Inventory because of
20x4unrealized gross profit (P28,000/1.4 = P20,000
cost; P28,000 transfer price less P20,000
cost = P8,000 unrealized gross profit) .................................................................... (8,000)
Reduction of ending inventory because of
20x5 unrealized gross profit (P42,000/1.4 = P30,000
cost; P42,000 transfer price less P30,000
cost = P12,000 unrealized gross profit) .................................................................. 12,000
Consolidated cost of goods sold ...................................................................... P381,000
Consolidated Inventory
PP book value ......................................................................................................... P346,000
SW book value ....................................................................................................... 110,000
Eliminate ending unrealized gross profit (see above) ............................................ (12,000
Consolidated Inventory .......................................................................................... P444,000
Non-controlling Interest in Subsidiary’s Net Income
Because all intercompany sales were downstream, the deferrals do not affect SW. Thus, the non-
controlling interest is 20% of the P58,000 (revenues minus cost of goods sold and expenses) reported
income or P11,600.
or
Consolidated Net Income for 20x5
P Company’s net income from own/separate operations (P640-P290-P150) P 200,000
Realized profit in beginning inventory of S Company (downstream sales) 8,000
Unrealized profit in ending inventory of S Company (downstream sales)… (_ 12,000)
P Company’s realized net income from separate operations*…….….. P 196,000
S Company’s net income from own operations (P360 – P197 – P105) P 58,000
Realized profit in beginning inventory of P Company (upstream sales) 0
Unrealized profit in ending inventory of P Company (upstream sales)… ( 0)
S Company’s realized net income from separate operations*…….….. P 58,000 58,000
Total P 254,000
Less: Amortization of allocated excess…………………… ____0
Consolidated Net Income for 20x5 P 254,000
Less: Non-controlling Interest in Net Income* * 11,600
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent – 20x5………….. P 242,200
2.
Consolidated Cost of Goods Sold
PP book value ................................................................................................................ P290,000
SW book value ............................................................................................................... 197,000
Elimination of 20x5 intercompany transfers ................................................................. (80,000)
Reduction of beginning inventory because of
20x4 unrealized gross profit (P21,000/1.4 = P15,000
cost; P21,000 transfer price less P15,000
cost = P6,000 unrealized gross profit) .................................................................... (6,000)
Reduction of ending inventory because of
20x5 unrealized gross profit (P35,000/1.4 = P25,000
cost; P35,000 transfer price less P25,000
cost = P10,000 unrealized gross profit) .................................................................. 10,000
Consolidated cost of goods sold .................................................................................... P411,000
Consolidated Inventory
PP book value ................................................................................................................ P346,000
SW book value ............................................................................................................... 110,000
Eliminate ending unrealized gross profit (see above) .................................................... (10,000
Consolidated inventory ........................................................................................... P446,000
Non-controlling Interest in Subsidiary's Net income
Since all intercompany sales are upstream, the effect on Snow's income must be reflected in the non-
controlling interest computation:
SW reported income ...................................................................................................... P58,000
20x4 unrealized gross profit realized in 20x5 (above) .................................................. 6,000
20x5 unrealized gross profit to be realized in 20x6 (above) ......................................... (10,000
SW realized income ....................................................................................................... P54,000
Outside ownership percentage ....................................................................................... 20%
Non-controlling interest in SW’s income ............................................................... P10,800
or
Consolidated Net Income for 20x5
P Company’s net income from own/separate operations (P640-P290-P150) P 200,000
Realized profit in beginning inventory of S Company (downstream sales)
Unrealized profit in ending inventory of S Company (downstream sales)… (_ 0)
P Company’s realized net income from separate operations*…….….. P 200,000
S Company’s net income from own operations (P360 – P197 – P105) P 58,000
Realized profit in beginning inventory of P Company (upstream sales) 6,000
Unrealized profit in ending inventory of P Company (upstream sales)… ( 10,000)
S Company’s realized net income from separate operations*…….….. P 54,000 54,000
Total P 254,000
Less: Amortization of allocated excess…………………… ____0
Consolidated Net Income for 20x5 P 254,000
Less: Non-controlling Interest in Net Income* * 10,800
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent – 20x5………….. P 243,200
Or, alternatively
Noncontrolling Interest in Subsidiary's Net Income = P8,700 (30 percent of the reported income after
subtracting 13,000 excess fair value amortization and deferring P8,000 ending unrealized gross profit)
Gross profit is included in this computation because the transfer was upstream from SS to PT.
2. c - Sales = P1,240,000 (add the two book values and subtract the P160,000 intercompany transfer)
3. c - Cost of Goods Sold = P548,000 (add the two book values and subtract the intercompany transfer and add [to
defer] ending unrealized gross profit)
4. c - Gross profit: P1,240,000 (No. 2 above) – P548,000 (No. 3 above) = P692,000
5. d - Operating Expenses = P443,000 (add the two book values and the amortization expense for the period)
6. c – refer to No. 1
7. b – refer to No. 1
8. c – refer to No. 1
9. C
Consolidated Net Income for 20x4
P Company’s net income from own/separate operations…………. P 3,600,000
Realized profit in beginning inventory of S Company (downstream sales to Salad and Tuna) 54,000
(414,000/1.15)-414,000
Unrealized profit in ending inventory of S Company (downstream sales)… (_ 45,00 0)
(345,000/1.15)-345,000
Or, alternatively
Consolidated Net Income for 20x4
P Company’s net income from own/separate operations…………. P 3,600,000
Realized profit in beginning inventory of S Company (downstream sales) 54,000
Unrealized profit in ending inventory of S Company (downstream sales)… (___45,000)
P Company’s realized net income from separate operations*…….….. P3,609,,000
S Company’s net income from own operations (P1,500,000 + P2,400,000) P3,900,000
Realized profit in beginning inventory of P Company (upstream sales) – Salad 66,000
Realized profit in beginning inventory of P Company (upstream sales)- Tuna 63,000
Unrealized profit in ending inventory of P Company (upstream sales) – Salad ( 57,000)
Unrealized profit in ending inventory of P Company (upstream sales) – Tuna ( 69,000)
S Company’s realized net income from separate operations*…….….. P3,903,000 3,903,000
Total P7,512,000
Less: Non-controlling Interest in Net Income* * - Salad P 301,800
Non-controlling Interest in Net Income* * - Tuna 239,400
Amortization of allocated excess…………………… 0 __541,200
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent………….. P6,970,800
Add: Non-controlling Interest in Net Income (NCINI) _541,200
Consolidated Net Income for 20x4 P 7,512,000
*that has been realized in transactions with third parties.
**Salad
Non-controlling Interest in Net Income (NCINI) for 20x4
S Company’s net income of Subsidiary Company from its own operations
(Reported net income of S Company) P1,500,000
Realized profit in beginning inventory of P Company (upstream sales) 66,000
Unrealized profit in ending inventory of P Company (upstream sales) ( 57,000)
Son Company’s realized net income from separate operations……… P1,509,000
Less: Amortization of allocated excess _____0
P1,509,000
Multiplied by: Non-controlling interest %.......... __ 20%
Non-controlling Interest in Net Income (NCINI) P 301,800
**Tuna
Non-controlling Interest in Net Income (NCINI) for 20x4
S Company’s net income of Subsidiary Company from its own operations
(Reported net income of S Company) P2,400,000
Realized profit in beginning inventory of P Company (upstream sales) 63,000
Unrealized profit in ending inventory of P Company (upstream sales) ( 69,000)
Son Company’s realized net income from separate operations……… P2,394,000
Less: Amortization of allocated excess _____0
P2,394,000
Multiplied by: Non-controlling interest %.......... 10%
Non-controlling Interest in Net Income (NCINI) P 239,400
Realized Profit in Beginning inventory:
Downstream Sales (Sales from Parent to Subsidiary)
P414,000 x 15/115 P54,000
Upstream Sales (Sales from Subsidiary-Salad to Parent):
Salad: P396,000 x 20/120 66,000
Upstream Sales (Sales from Subsidiary-Tuna to Parent):
Tuna: P315,000 x 25/125 63,000
Equity Method:
Share in NI(P115,000 x 70%) - URGP P26,250 = P54,250, equity in subsidiary income
14. a - P720,000 = P500,000 + P400,000 - P200,000 +P 20,000
15. d
Cost method: P60,000 x 80% = P48,000
Equity Method:
Equity In Subsidiary Income/Investment Income
76,000
17. c - There is no unconfirmed profit in beginning or ending inventory, so the only eliminating entry is to debit
sales revenue and credit cost of goods sold for P1,000,000.
Sales 1M
Cost of Goods Sold 1M
Parent Subsidiary
Sales 90,000 100,000
Less: Cost of goods sold – Parent 67,000
Subsidiary (90,000 x 70%) ______ 63,000
Gross profit 23,000 37,000
Ending inventory (90,000 x 30%) 27,000
20. a
Consolidated Net Income for 20x4
P Company’s net income from own/separate operations
[P100,000 – (P90,000 x 70%)] to unrelated party P 37,000
Realized profit in beginning inventory of S Company (downstream sales) 0
Unrealized profit in ending inventory of S Company (downstream sales)… (_0)
P Company’s realized net income from separate operations*…….….. P 37,000
S Company’s net income from own operations (P90,000 – P67,000) P23,000
Realized profit in beginning inventory of P Company (upstream sales) 0
Unrealized profit in ending inventory of P Company (upstream sales)
[P90,000 x 30% = P27,000 x (90-67/90)] ( 6,900 )
S Company’s realized net income from separate operations*…….….. P16,100 16,100
Total P 53,100
Less: Amortization of allocated excess…………………… 0
Consolidated Net Income for 20x4 P 53,100
Less: Non-controlling Interest in Net Income* * 1,610
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent – 20x4………….. P 51,490
*that has been realized in transactions with third parties.
Or, alternatively
Consolidated Net Income for 20x4
P Company’s net income from own/separate operations
[P100,000 – (P90,000 x 70%)] P 37,000
Realized profit in beginning inventory of S Company (downstream sales) 0
Unrealized profit in ending inventory of S Company (downstream sales)… (_0)
P Company’s realized net income from separate operations*…….….. P 37,000
S Company’s net income from own operations (P90,000 – P67,000) P23,000
Realized profit in beginning inventory of P Company (upstream sales) 0
Unrealized profit in ending inventory of P Company (upstream sales)
[P90,000 x 30% = P27,000 x (90-67/90)] ( 6,900 )
S Company’s realized net income from separate operations*…….….. P16,100 16,100
Total P 53,100
Less: Non-controlling Interest in Net Income* * P 1,610
Amortization of allocated excess…………………… 0 1,610
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent………….. P 51,490
Add: Non-controlling Interest in Net Income (NCINI) _ 1,610
Consolidated Net Income for 20x4 P 53,100
*that has been realized in transactions with third parties.
Or, alternatively
Consolidated Net Income for 20x4
P Company’s net income from own/separate operations (P90,000 – P62,000) P 28,000
Realized profit in beginning inventory of S Company (downstream sales) 0
Unrealized profit in ending inventory of S Company (downstream sales)… (_0)
P Company’s realized net income from separate operations*…….….. P 28,000
S Company’s net income from own operations (P120,000 – P90,000) P3 0,000
Realized profit in beginning inventory of P Company (upstream sales) 0
Unrealized profit in ending inventory of P Company (upstream sales ()
S Company’s realized net income from separate operations*…….….. P30,000 30,000
Total P 58,000
Less: Non-controlling Interest in Net Income* * P 3,000
Amortization of allocated excess…………………… 0 3,000
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent………….. P 55,000
Add: Non-controlling Interest in Net Income (NCINI) _ 3,000
Consolidated Net Income for 20x4 P 58,000
*that has been realized in transactions with third parties.
38. a – there are no intercompany profit in 20x3 (prior year), so need to adjust retained earnings.
39. c
40 a Amount paid by Lorn Corporation P120,000
Unrealized profit (45,000)
Actual cost P 75,000
Portion sold x .80
Cost of goods sold P 60,000
41. e Consolidated sales P140,000
Cost of goods sold (60,000)
Consolidated net income P 80,000
Income to Dresser’s noncontrolling
interest:
Sales P120,000
Reported cost of sales (75,000)
Report income P 45,000
Portion realized x .80
Realized net income P 36,000
Portion to Noncontrolling
Interest x .30
Income to noncontrolling
Interest (10,800)
Income to controlling interest P 69,200
42. A Inventory reported by Lorn P 24,000
Unrealized profit (P45,000 x .20) (9,000)
Ending inventory reported P 15,000
43. a
Consolidated Net Income for 20x3
P Company’s net income from own/separate operations P 225,000
Realized profit in beginning inventory of S Company (downstream sales) 0
Unrealized profit in ending inventory of S Company (downstream sales)… (_0)
P Company’s realized net income from separate operations*…….….. P225,000
S Company’s net income from own operations P150,000
Realized profit in beginning inventory of P Company (upstream sales) 0
Unrealized profit in ending inventory of P Company (upstream sales)
[P105,000 x 20/120) ( 17,500 )
S Company’s realized net income from separate operations*…….….. P132,500 132,500
Total P 357,500
Less: Amortization of allocated excess…………………… _0
Consolidated Net Income for 20x3 P357,500
44. c
Consolidated Net Income for 20x4
P Company’s net income from own/separate operations P360,000
Realized profit in beginning inventory of S Company (downstream sales) 0
Unrealized profit in ending inventory of S Company (downstream sales)… (_0)
P Company’s realized net income from separate operations*…….….. P360,000
S Company’s net income from own operations P135,000
Realized profit in beginning inventory of P Company (upstream sales)
[P105,000 x 20/120) 17,500
Unrealized profit in ending inventory of P Company (upstream sales)
[P157,500 x 20/120) ( 26,250 )
S Company’s realized net income from separate operations*…….….. P126,250 126,250
Total P 486,250
Less: Amortization of allocated excess…………………… _0
Consolidated Net Income for 20x4 P486,250
Less: Non-controlling Interest in Net Income* * 1,610
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent – 20x4………….. P 51,490
*that has been realized in transactions with third parties.
Or, alternatively
Consolidated Net Income for 20x4
P Company’s net income from own/separate operations P360,000
Realized profit in beginning inventory of S Company (downstream sales) 0
Unrealized profit in ending inventory of S Company (downstream sales)… (_0)
P Company’s realized net income from separate operations*…….….. P360,000
S Company’s net income from own operations ( P135,000
Realized profit in beginning inventory of P Company (upstream sales)
[P105,000 x 20/120) 17,500
Unrealized profit in ending inventory of P Company (upstream sales)
[P157,500 x 20/120) ( 26,250 )
S Company’s realized net income from separate operations*…….….. P126,250 126,250
Total P 486,250
Less: Non-controlling Interest in Net Income* * P 37,875
Amortization of allocated excess…………………… 0 37,875
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent………….. P 448,375
Add: Non-controlling Interest in Net Income (NCINI) _37,875
Consolidated Net Income for 20x4 P 486,250
*that has been realized in transactions with third parties.
48. c
Sales
P Company 500,000
S Company _350,000
Total 850,000
Less: Intercompany sales to Dundee 100,000
Intercompany sales to Perth 150,000
Consolidated 600,000
49. a
Ending inventory of Perth from Dundee (P36,000 / 110%) 32,727
Ending inventory of Dundee from Perth (P31,000 / 130%) _23,846
Total 56,573
51. a
Consolidated Net Income for 20x4
P Company’s net income from own/separate operations P180,000
Unrealized profit in ending inventory of S Company (downstream sales)… ( 3,000)
P Company’s realized net income from separate operations*…….….. P 177,000
S Company’s net income from own operations…………………………………. 76,000
Total P253,000
Less: Amortization of allocated excess…………………… 0
Consolidated Net Income for 20x5 P253,000
52. a
Combined 20x5 sales (P580,000 + P445,000) P 1,025,000
Less: 20x5 intercompany sales 0
Consolidated sales P 1,025,000
53. d
Combined cost of sales P 480,000
Less: 20x5 intercompany sales 0
Less: Unrealized profit in the 20x5 beginning inventory
from 20x4 ( 3,000)
Add: Unrealized profit in 20x5 ending inventory ________0
Consolidated cost of sales P 477,000
54. d
Cost of Sales
P Company 5,400,000
S Company _1,200,000
Total 6,600,000
Less: Intercompany sales 1,000,000
Realized profit in BI of S Co.
[P625,000 x 12% = P75,000 x (625 - 425)/625] 24,000
Add: Unrealized profit in EI of S Co.
[P1,000,000 x 10% = P100,000 x (1,000 - 800)/1,000] __20,000
Consolidated 5,596,000
55. b
Cost of Sales
Bates Company 690,000
Sam Company 195,000
Total 885,000
Less: Intercompany sales 200,000
Realized profit in BI of Bates Co.
[P40,000 x 20%] 8,000
Add: Unrealized profit in EI of Bates Co.
[P15,000 x 20%] __3,000
Consolidated 680,000
56. a
Realized profit in BI of Bates Co. [P40,000 x 20%] P 8,000
Unrealized profit in EI of Bates Co. [P15,000 x 20%] __3,000
Net realized profit in intercompany sales of inventory P 5,000
Multiplied by: NCI% ___40%
NCI share in net realized profit P 2,000
57. b
Parent Subsidiary
Net Income from own operations:
X-Beams (parent)Kent (subsidiary), 70%:30% 210,000 90,000
Unrealized Profit in EI of Parent (X-Beams):
P180,000x 20% = P36,000 x (180-100/180)= P16,000, 70%:30%
( 11,200) ( 4,800)
Non-controlling Interest in Kent’s Net Income 85,200
58. d
Non-controlling Interest in Net Income (NCINI) for 20x5 20x6
S Company’s net income of Subsidiary Company from its own operations
(Reported net income of S Company) P 400,000 P 480,000
Realized profit in beginning inventory of P Company (upstream sales) 20,000
Unrealized profit in ending inventory of P Company (upstream sales) ( 20,000) 0
S Company’s realized net income from separate operations……… P 380,000 P 500,000
Less: Amortization of allocated excess 0 0
P380,000 P500,000
Multiplied by: Non-controlling interest %.......... 20% 20%
Non-controlling Interest in Net Income (NCINI) – partial goodwill P 76,000 P100,000
Less: NCI on goodwill impairment loss on full goodwill 0 0
Non-controlling Interest in Net Income (NCINI) – full goodwill P 76,000 P100,000
59. b
**Non-controlling Interest in Net Income (NCINI) for 20x6
S Company’s net income of Subsidiary Company from its own operations
(Reported net income of S Company) P 30.000
Realized profit in beginning inventory of P Company (upstream sales) 0
Unrealized profit in ending inventory of P Company (upstream sales)
(P100,000 x 10% = P10,000 x 30%) ( 3,000)
S Company’s realized net income from separate operations……… P( 27,000)
Less: Amortization of allocated excess ________0
P( 27,000)
Multiplied by: Non-controlling interest %.......... ____10%
Non-controlling Interest in GP P( 2,700)
Less: NCI on goodwill impairment loss on full goodwill 0
Non-controlling Interest in GP P ( 2.700)
60. d
Non-controlling Interest in Net Income (NCINI) for 20x4:
S Company’s net income of Subsidiary Company from its own operations
(Reported net income of S Company) P 137,000
Realized profit in beginning inventory of P Company (upstream sales) 40,000
Unrealized profit in ending inventory of P Company (upstream sales) ( 25,000)
S Company’s realized net income from separate operations……… P 152,000
Less: Amortization of allocated excess _ 0
P 152,000
Multiplied by: Non-controlling interest %.......... 30%
Non-controlling Interest in Net Income (NCINI) – partial goodwill P 45,600
Less: NCI on goodwill impairment loss on full goodwill 0
Non-controlling Interest in Net Income (NCINI) – full goodwill P 45,600
RPBI of LP: P1,350 x 35/135 = P350 Sales 135% Cost 100% =GP 35%
UPEI of LP: P1,620 x 35/135 = P420
Partial
Fair value of Subsidiary (80%)
Consideration transferred . . . . . . . . . . . . . . . . . . . . . . P 100,000
Less: Book value of stockholders’ equity of LP
(P10,000 x 80%)………………………………………... ____8,000
Allocated excess (excess of cost over book value) . . . P 92,000
Less: Over/under valuation of assets and liabilities:
Increase in favorable leases (P30,000 x 80%) . . . . . ___24,000
Positive excess: Partial-goodwill (excess of cost over
fair value) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 68,000
Full
Fair value of Subsidiary (100%)
Consideration transferred (80%). . . . . . . . . . . . . . . . . . P 100,000
Fair value of NCI (given) (20%)…………………………….. ___20,000
Fair value of Subsidiary (100%) ……………………………. P 120,000
Less: Book value of stockholders’ equity of LP
(P10,000 x 100%)………………………………………. ___10,000
Allocated excess (excess of cost over book value) . . . P 110,000
Less: Over/under valuation of assets and liabilities:
Increase in favorable leases (P30,000 x 100%) . . . . ___30,000
Positive excess: Partial-goodwill (excess of cost over
fair value) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 80,000
Note: The controlling interests of parent to subsidiary of 80% is not an outright application
to impairment of goodwill, it still depends on the resulting goodwill of partial and full
goodwill, for instance in Questions 6 to 10, the CI is 85% and NCI is 15% for impairment
computed as follows:
63. a
Consolidated Net Income for 20x3
Parent Company’s net income from own/separate operations
(P400,000 – P250,000 – P130,000) P 20,000
Subsidiary Company’s net income from own operations
(P200,000 – P120,000 – P67,000) P 13,000
Realized profit in beginning inventory of P Company (upstream sales) . . . . . . . 350
Unrealized profit in ending inventory of P Company (upstream sales) . . . . . . . . ( 420)
Son Company’s realized net income from separate operations* . . . . . . . . . . P12,930 12,930
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 32,930
Less: Amortization of allocated excess . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000
Impairment of goodwill. . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . ___1,000
Consolidated Net Income for 20x3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 25,930
Less: Non-controlling Interest in Net Income* * . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,236
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent – 20x3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P24,694
*that has been realized in transactions with third parties.
Or, alternatively
Consolidated Net Income for 20x3
Parent Company’s net income from own/separate operations
(P400,000 – P250,000 – P130,000) P 20,000
Subsidiary Company’s net income from own operations
(P200,000 – P120,000 – P67,000) P 13,000
Realized profit in beginning inventory of P Company (upstream sales) . . . . . . . 350
Unrealized profit in ending inventory of P Company (upstream sales) . . . . . . . . ( 420)
Son Company’s realized net income from separate operations* . . . . . . . . . . P12,930 12,930
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 32,930
Less: Non-controlling Interest in Net Income* * . . . . . . . . . . . . . . . . . . . . . . . . . . . P 1,236
Impairment of goodwill. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000
Amortization of allocated excess . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000 8,236
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 24,694
Add: Non-controlling Interest in Net Income (NCINI) . . . . . . . . . . . . . . . . . . . . . . _ _ 1,236
Consolidated Net Income for 20x3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P25,930
*that has been realized in transactions with third parties.
Or, alternatively
CI-CNI NCINI CNI
Parent’s net income own operations 20,000
Subsidiary’s reported net income
Favorable leases amortization
Goodwill impairment loss
Upstream beg. inv. profit confirmed 80
Upstream end. inv. profit unconfirmed
64. b
Retained earnings of Parent Company (under equity method) /
Consolidated Retained earnings , January 1, 20x3. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 40,000
Add: Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent for 20x5. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,694
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 64,694
Less: Dividends paid – Parent Company for 20x4. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000
Retained earnings of Parent Company (under equity method) /
Consolidated Retained Earnings, December 31, 20x4. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 54,694
Therefore, regardless of the method used in the separate financial statement of parent, the consolidated balance (which is under equity method)
is always the same.
65. Ignore, there are some missing figures particularly the details of subsidiary’s stockholders equity since the date
of acquisition.
66. c
Share in net income (P120,000 x 60%) P72,000
Less: Unrealized profit in ending inventory of S {P189,000 x 1/3 = P63,000 x (P189-135)/P189] __18,000
Intercompany profit to be eliminated P54,000
67. b
Share in net income (P200,000 x 60%) P120,000
Less: Unrealized profit in ending inventory of S {P315,000 x 1/3 = P105,000 x (P315-P225)/P315] __30,000
Intercompany profit to be eliminated P 90,000
69. a
Beginning inventory profit = P825,000 - P825,000/1.25 = P165,000
Ending inventory profit = P750,000 - P750,000/1.25 = P150,000
Downstream sales only affect equity in net income. P165,000 - P150,000 = P15,000 increase.
70. b
71. a
72. c – P400,000 x 1/4 = P100,000 x 30% = P30,000
73. c
Ending inventory at selling price: P300,000 x 1/3 = P100,000 x (300,000 – 240,000)/300,000 P20,000
Less: Inventory write-down (P100,000 – P92,000) __8,000
Intercompany profit to be eliminated P12,000
Sales P120,000
Reported cost of sales (75,000)
Report income P 45,000
Portion realized x .80
Realized net income P 36,000
Portion to Noncontrolling
Interest x .30
Income to noncontrolling
Interest (10,800)
Income to controlling interest P 69,200
80. a
Ending inventory of Perth from Dundee (P36,000 / 110%) 32,727
Ending inventory of Dundee from Perth (P31,000 / 130%) _23,846
Total 56,573
82. a
Consolidated Net Income for 20x4
P Company’s net income from own/separate operations P180,000
Unrealized profit in ending inventory of S Company (downstream sales)… ( 3,000)
P Company’s realized net income from separate operations*…….….. P 177,000
S Company’s net income from own operations…………………………………. 76,000
Total P253,000
Less: Amortization of allocated excess…………………… 0
Consolidated Net Income for 20x5 P253,000
83. a
Combined 20x5 sales (P580,000 + P445,000) P 1,025,000
Less: 20x5 intercompany sales 0
Consolidated sales P 1,025,000
84. d
Combined cost of sales P 480,000
Less: 20x5 intercompany sales 0
Less: Unrealized profit in the 20x5 beginning inventory
from 20x4 ( 3,000)
Add: Unrealized profit in 20x5 ending inventory ________0
Consolidated cost of sales P 477,000
85. a
86. a – the cost from parent of P48,000 x 45/60 = P36,000
Parent Subsidiary 1 Subsidiary 2
Sales 60,000 60,000 67,000
Less: Cost of goods sold – P and S1 48,000 60,000
Subsidiary (60,000 x 45/60) ______ ______ 45,000
Gross profit 12,000 0 22,000
Ending inventory (60,000 x 15/60) 15,000
92. d
Sales
P Company 420,000
S Company 280,000
Total 700,000
Less: Intercompany sales 140,000
Consolidated 560,000
93. b
Operating
Expenses
P Company 28,000
S Company 14,000
Total 42,000
Add: Undervalued equipment (P35,000/7 years) _5,000
Consolidated 47,000
94. c
Cost of Sales
P Company 196,000
S Company _112,000
Total 308,000
Less: Intercompany sales 140,000
Add: Unrealized profit in EI of S Co.
[P140,000 x 60% = P84,000 x (140 - 112)/140] _16,800
Consolidated 184,800
Partial-goodwill
Fair value of Subsidiary (80%)
Consideration transferred……………………………….. P 364,000
Less: Book value of stockholders’ equity of S:
Common stock (P140,000 x 80%)……………………. P112,000
Retained earnings (P210,000 x 80%)………………... 168,000 280,000
Allocated excess (excess of cost over book value)….. P 84,000
Less: Over/under valuation of assets and liabilities:
Increase in equipment (P35,000 x 80%) ___28,000
Positive excess: Partial-goodwill (excess of cost over
fair value)………………………………………………... P 56,000
Full-goodwill
Fair value of Subsidiary (100%)
Consideration transferred: Cash (P364,000/80%) P 455,000
Less: Book value of stockholders’ equity of S (P350,000 x 100%) __350,000
Allocated excess (excess of cost over book value)….. P 105,000
Add (deduct): (Over) under valuation of assets and liabilities
Increase in equipment P35,000 x 100% 35,000
Positive excess: Full-goodwill (excess of cost over
fair value)………………………………………………... P 70,000
96. d
Equipment
P Company 616,000
S Company 420,000
Total 1,036,000
Add: Undervalued equipment 35,000
Less: Depreciation on undervalued equipment (P35,000/7 years) 7,000
Consolidated 1,064,000
97. d
Inventory
P Company 210,000
S Company 154,000
Total 364,000
Less: Unrealized profit in EI: [P140,000 x 60% = P84,000 x (140 - 112)/140] 16,800
Consolidated 347,200
98. d Add the two book values and remove P100,000 intercompany transfers.
99. c Intercompany gross profit (P100,000 - P80,000) .................................................................. P20,000
Inventory remaining at year's end ......................................................................................... 60%
Unrealized intercompany gross profit ................................................................................... P12,000
CONSOLIDATED COST OF GOODS SOLD
Parent balance ................................................................................................................ P140,000
Subsidiary balance ......................................................................................................... 80,000
Remove intercompany transfer ...................................................................................... (100,000)
Defer unrealized gross profit (above) ............................................................................ 12,000
Cost of goods sold ................................................................................................................. P132,000
101. a
Non-controlling interest (partial-goodwill), December 31, 20x4
Common stock – S Company, December 31, 20x4…… P 100,000
Retained earnings – S Company, December 31, 20x4
Retained earnings – S Company, January 1, 20x4 P150,000
Add: Net income of S for 20x4 110,000
Total P260,000
Less: Dividends paid – 20x4 0 260,000
Stockholders’ equity – S Company, December 31, 20x4 P 360,000
Adjustments to reflect fair value - (over) undervaluation of assets and
liabilities, date of acquisition (January 1, 20x4) 75,000
Amortization of allocated excess (refer to amortization above) : ( 7,500)
Fair value of stockholders’ equity of S, December 31, 20x5…… P 427,500
Multiplied by: Non-controlling Interest percentage…………... 20
Non-controlling interest (partial goodwill)………………………………….. P 85,500
Add: NCI on full-goodwill ( ________0
Non-controlling interest (full- goodwill)………………………………….. P 85,500
Partial-goodwill
Fair value of Subsidiary (80%)
Consideration transferred……………………………….. P 260,000
Less: Book value of stockholders’ equity of S:
Common stock (P100,000 x 80%)……………………. P 80,000
Retained earnings (P150,000 x 80%)………………... 120,000 200,000
Allocated excess (excess of cost over book value)….. P 60,000
Less: Over/under valuation of assets and liabilities:
Increase in equipment (P25,000 x 80%) 20,000
Increase in secret formulas: P50,000 x 80% 40,000
Full-goodwill
Fair value of Subsidiary (100%)
Consideration transferred: Cash (80%) P 260,000
FV of NCI (20%) ___65,000
Fair value of Subsidiary (100%) P 325,000
Less: BV of stockholders’ equity of S (P100,000 + P150,000) x 100% __250,000
Allocated excess (excess of cost over book value)….. P 75,000
Add (deduct): (Over) under valuation of assets and liabilities
Increase in equipment P25,000 x 100% 25,000
Increase in secret formulas: P50,000 x 100% P 50,000
Amortization:
Equipment: P25,000 / 5 years = P 5,000
Secret formulas: P50,000 / 20 years = 2,500
Total amortization of allocated P 7,500
102. c Add the two book values plus the original allocation (P25,000) less one year of excess amortization
expense (P5,000).
103. b Add the two book values less the ending unrealized gross profit of P12,000.
Intercompany Gross profit (P100,000 – P80,000) ................................................................ P20,000
Inventory Remaining at Year's End ...................................................................................... 60%
Unrealized Intercompany Gross profit, 12/31 ...................................................................... P12,000
104. b
20x3 20x4 20x5
Share in net income
20x3: P70,000 x 90% P 63,000
20x4: P85,000 x 90% P 76,500
20x5: P94,000 x 90% P 84,600
Less: Unrealized profit in ending inventory of P
20x3: P1,200 x 25% = P300 x 90% ( 270) 270
20x4: P4,000 x 25% = P1,000 x 90% ( 900) 900
20x5: P3,000 x 25% = P750 x 90% ________ ________ __( 675)
Income from S P 62,730 P 75,870 P 84,825
It should be noted that PAS 27 allow the use of cost model in accounting for investment in subsidiary in the
books of parent company but not the equity method.
Or, alternatively
Consolidated Net Income for 20x2
P Company’s net income from own/separate operations P 100,000
Realized profit in beginning inventory of S Company (downstream sales) 1,050
Unrealized profit in ending inventory of S Company (downstream sales)… (_ 3,600)
P Company’s realized net income from separate operations*…….….. P 97,450
S Company’s net income from own operations P 30,000
Realized profit in beginning inventory of P Company (upstream sales) 1,000
Unrealized profit in ending inventory of P Company (upstream sales) ( 2,400 )
S Company’s realized net income from separate operations*…….….. P 28,600 28,600
Total P 126,050
Less: Non-controlling Interest in Net Income* * P 5,320
Amortization of allocated excess…………………… 2,000 7,320
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent………….. P118,730
Add: Non-controlling Interest in Net Income (NCINI) __ 5,320
Consolidated Net Income for 20x2 P124,050
*that has been realized in transactions with third parties.
131. b
Consolidated Stockholders’ Equity, 12/31/20x2:
Controlling Interest / Parent’s Interest / Parent’s Portion /
Equity Holders of Parent – SHE, 12/31/20x2:
Common stock – P (P only)…………………………………………….. P1,000,000
Retained Earnings – P (equity method), 12/31/20x2………….. 809,680
Controlling Interest / Parent’s Stockholders’ Equity……………. P1,809,680
Non-controlling interest, 12/31/20x2 (partial)…………………………. 96,320
Consolidated Stockholders’ Equity, 12/31/20x2………………………… P1,906,000
132. a
Consolidated Stockholders’ Equity, 12/31/20x2:
Controlling Interest / Parent’s Interest / Parent’s Portion /
Equity Holders of Parent – SHE, 12/31/20x2:
Common stock – P (P only)…………………………………………….. P1,000,000
Retained Earnings – P (equity method), 12/31/20x2………….. 809,680
Controlling Interest / Parent’s Stockholders’ Equity……………. P1,809,680
Non-controlling interest, 12/31/20x2 (full)……..………………………. 101,320
Consolidated Stockholders’ Equity, 12/31/20x2………………………… P1,911,000
123. c
RPBI of P (upstream sales)……..………………………..………………………… 45,000
UPEI of P (upstream sales):
EI of Paque GP% of Subsidiary
P75,000 x 20%...................................………………………..…. 15,000
Or, alternatively
Consolidated Net Income for 20x8
P Company’s net income from own/separate operations (P103,500 – P54,000) P 49,500
Realized profit in beginning inventory of S Company (downstream sales) 0
Unrealized profit in ending inventory of S Company (downstream sales)… (_ 0)
P Company’s realized net income from separate operations*…….….. P 49,500
S Company’s net income from own operations P 71,250
Realized profit in beginning inventory of P Company (upstream sales) 45,000
Unrealized profit in ending inventory of P Company (upstream sales) ( 15,000 )
S Company’s realized net income from separate operations*…….….. P 101,250 101,250
Total P 150,750
Less: Non-controlling Interest in Net Income* * P 10,125
Amortization of allocated excess…………………… ___0 10,125
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent………….. P140,625
Add: Non-controlling Interest in Net Income (NCINI) __ 10,125
Consolidated Net Income for 20x8 P150,750
*that has been realized in transactions with third parties.
(Not required)
Analysis of workpaper entries
(1) Investment in Segal (0.90 ´ (P180,000 – P150,000)) 27,000
Beginning Retained Earnings-Paque Co. 27,000
To establish reciprocity as of 1/1/20x8
124. c
Preferred Solution - since what is given is the RE – P, 1/1/20x8 -
Retained earnings – Parent, 1/1/20x8 (cost)…………………….. P 598,400
-: UPEI of S (down) – 20x7 or RPBI of S (down) – 20x8..…………. 25,000
Adjusted Retained earnings – Parent, 1/1/20x8 (cost)……………… P 573.400
Retroactive Adjustments to convert Cost to “Equity” for
purposes of consolidation / Parent’s share of adjusted
net increase in subsidiary’s retained earnings:
Retained earnings – Subsidiary, 1/1/20x4……………………P 95,000
Less: Retained earnings – Subsidiary, 1/1/20x8…………….. 144,000
Increase in Retained earnings since acquisition
(cumulative net income – cumulative dividends)………P 49,000
Accumulated amortization (1/1/20x4 – 1/1/20x8)…………. 0
UPEI of P (up) – 20x7 or RPBI of P (up) – 20x8………………... ( 0)
P 49,000
X: Controlling Interests…………………………………………… 90% 44,100
RE – P, 1/1/20x8 (equity method) = CRE, 1/1/20x8……………….. P 617,500
+: CI – CNI or Profit Attributable to Equity Holders of Parent…… 203,700
-: Dividends – P………………………..………………………………… 110,000
RE – P, 12/31/20x8 (equity method) = CRE, 12/31/20x8………….. P 711,200
Or, alternatively
Consolidated Net Income for 20x8
P Company’s net income from own/separate operations P132,000
Realized profit in beginning inventory of S Company (downstream sales) 25,000
Unrealized profit in ending inventory of S Company (downstream sales)… (10,000)
P Company’s realized net income from separate operations*…….….. P147,000
S Company’s net income from own operations…………………………………. P 63,000
Realized profit in beginning inventory of P Company (upstream sales) 0
Unrealized profit in ending inventory of P Company (upstream sales) ( 0)
S Company’s realized net income from separate operations*…….….. P 63,000 63,000
Total P210,000
Less: Non-controlling Interest in Net Income* * P 6,300
Amortization of allocated excess…………………… _____0 6,300
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent………….. P203,700
Add: Non-controlling Interest in Net Income (NCINI) _ 6,300
Consolidated Net Income for 20x8 P210,000
*that has been realized in transactions with third parties.
Or, alternatively(compute the RE-P end of the year under the cost model)
Retained earnings – Parent, 1/1/20x8 (cost)………………………….. P 598,400
Add: NI of Parent as reported – 20x8 under cost model…………… 163,500
Less: Dividend of Parent – 20x8………………………………………….. 110,000
Retained earnings – Parent, 12/31/20x8 (cost)……………………….. P 651,900
-: UPEI of S (down) – 20x8 or RPBI of S (down) – 20x9..……………….. 10,000
Adjusted Retained earnings – Parent, 12/31/20x8 (cost model)….. P 641,900
Retroactive Adjustments to convert Cost to “Equity” for
purposes of consolidation / Parent’s share of adjusted
net increase in subsidiary’s retained earnings:
Retained earnings – Subsidiary, 1/1/20x4………… P 95,000
Less: Retained earnings – Subsidiary, 12/31/20x8
Retained earnings – Subsidiary , 1/1/20x8..… P144,000
Add: NI of Subsidiary – 20x8…………………… 63,000
Less: Dividend of Subsidiary – 20x8…………... 35,000 172,000
Increase in Retained earnings since acquisition
(cumulative net income – cumulative dividends)………… P 97,000
Accumulated amortization (1/1/20x4 – 12/31/20x8)…………..( 0)
UPEI of P (up) – 20x8 or RPBI of P (up) – 20x9………………........( 0)
P 97,000
x: Controlling Interests………………………………………… 90% 69,300
RE – P, 12/31/20x8 (equity method) = CRE, 12/31/20x8……… P 711,200
(Not required)
Analysis of workpaper entries
(1) Investment in Sedbrook Company (0.90(P144,000 – P95,000)) 44,100
Beginning Retained Earnings - Pruitt Co. 44,100
To establish reciprocity/convert to equity as of 1/1/x8
125. P941,000.
Fair value of consideration given…………………P1,360,000
Less: Book value of SHE - Subsidiary):
(P1,000,000 + P450,000) x 80%................... 1,160,000
Allocated Excess.…………………………………….P 200,000
Less: Over/Undervaluation of Assets & Liabilities
Increase in franchise (P250,000 x 80%)…….. 200,000 / 80% = P250,000
P 0
Or, alternatively
Consolidated Net Income for 2014
P Company’s net income from own/separate operations P700,000
Realized profit in beginning inventory of S Company (downstream sales) 30,000
Unrealized profit in ending inventory of S Company (downstream sales)… ( 5,000)
P Company’s realized net income from separate operations*…….….. P725,000
S Company’s net income from own operations…………………………………. P270,000
Realized profit in beginning inventory of P Company (upstream sales) 20,000
Unrealized profit in ending inventory of P Company (upstream sales) ( 10,000)
S Company’s realized net income from separate operations*…….….. P280,000 280,000
Total P1,005,000
Less: Non-controlling Interest in Net Income* * P 54,000
Amortization of allocated excess…………………… 10,000 64,000
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent………….. P 941,000
Add: Non-controlling Interest in Net Income (NCINI) __ _ 54,000
Consolidated Net Income for 2014 P 995,000
*that has been realized in transactions with third parties.
(Not required)
Analysis of workpaper entries
(1) Sales 120,000
Purchases (Cost of Goods Sold) 120,000
To eliminate intercompany sales (P50,000 + P70,000)
(2) Ending Inventory – Income Statement (CGS) 15,000
Inventory (Balance Sheet) 15,000
To eliminate unrealized profit in ending inventories
(P10,000 + P5,000)
126. P1,863,000
Retained earnings – Parent, 12/31/20x4 (cost)……………………….. P 1,500,000
-: UPEI of S (down) – 20x4 or RPBI of S (down) – 20x5..……………….. 5,000
Adjusted Retained earnings – Parent, 12/31/20x4 (cost model)….. P 1,495,000
Retroactive Adjustments to convert Cost to “Equity” for
purposes of consolidation / Parent’s share of adjusted
net increase in subsidiary’s retained earnings:
Retained earnings – Subsidiary, 1/1/20x1……………………….P 450,000
Less: Retained earnings – Subsidiary, 12/31/20x4……………… 960,000
Increase in Retained earnings since acquisition
(cumulative net income – cumulative dividends)………… P 510,000
Accumulated amortization (1/1/20x1 – 12/31/20x4)…………..( 40,000)
UPEI of P (up) – 20x4 or RPBI of P (up) – 20x5………………........ ( 10,000)
P 460,000
x: Controlling Interests………………………………………… 80% 368,000
RE – P, 12/31/20x4 (equity method) = CRE, 12/31/20x4……… P1,863,000
Partial-goodwill
Fair value of Subsidiary (80%)
Consideration transferred……………………………….. P7,500,000
Less: Book value of stockholders’ equity of S:
Common stock (P1,000,000 x 80%)……………………. P 800,000
Retained earnings (P5,000,000 x 80%)………………... 4,000,000 4,800,000
Allocated excess (excess of cost over book value)….. P2,700,000
Less: Over/under valuation of assets and liabilities:
Add (deduct): (Over) under valuation of assets and liabilities
Decrease in inventory: P(150,000 x 80%) P( 120,000)
Increase in building: P450,000 x 80% ___360,000 240,000
Positive excess: Partial-goodwill (excess of cost over
fair value)………………………………………………... P2,460,000
Amortization schedule
Balance at Remaining
acquisition Amortization Amortization at
Dec. 31/X2 20X3 20X4 Dec.31/X4
Inventory P(150,000) P(150,000) 0 P 0
Building (15 years) 450,000 30,000 P30,000 390,000
Goodwill 3,075,000 _________0 ______0 3,075,000
Total P3,375,000 P(120,000) P30,000 P3,465,000
129. a
Non-controlling interest is 20% × 9,375,000 (fair value of subsidiary, 12/31/20x2) = P1,875,000
Or, alternatively:
Non-controlling interest, December 31, 20x2
Common stock – S Company, December 31, 20x2…… P1,000,000
Retained earnings – S Company, December 31, 20x2 5,000,000
Stockholders’ equity – S Company, December 31, 20x2 P6,000,000
Adjustments to reflect fair value - (over) undervaluation of assets and
liabilities, date of acquisition (December 31, 20x2) ___300,000
Fair value of stockholders’ equity of S, December 31, 20x2…… P6,300,000
Multiplied by: Non-controlling Interest percentage…………... 20
Non-controlling interest (partial goodwill)………………………………….. P 1,260,000
Add: NCI on full-goodwill (P3,075,000 – P2,460,000) ___615,000
Non-controlling interest (full- goodwill)………………………………….. P1,875,000
130. d – P2,393,800
Non-controlling interest , December 31, 20x4
Common stock – S Company, December 31, 20x4 P1,000,000
Retained earnings – S Company, December 31, 20x4 7,524,000
Stockholders’ equity – S Company, December 31, 20x4 P8,524,000
Adjustments to reflect fair value - (over) undervaluation of assets and
liabilities, date of acquisition (December 31, 20x2) 300,000
Amortization of allocated excess (refer to amortization above- 20x3 and 20x4: __90,000
Fair value of stockholders’ equity of S, December 31, 20x4…… P8,914,000
Less: UPEI of P (up) – 20x3 or RPBI of P (up) – 20x4 ____20,000
P8,894,000
Multiplied by: Non-controlling Interest percentage…………... _ 20
Non-controlling interest (partial goodwill)………………………………….. P1,778,800
Add: NCI on full-goodwill ___615,000
Non-controlling interest (full- goodwill)………………………………….. P2,393,800
Or, alternatively:
Balance of NCI on acquisition — December 31, 20x2 P1,875,000
Add: NCI's share of the adjusted change in retained earnings to 12/ 31/20x4
Jane's retained earnings, December 31, 20x4 P7,524,000
Jane's retained earnings at December 31, 20x2 ( 5,000,000)
Change in carrying value P2,524,000
Adjustments:
Amortization of fair value increments to date 90,000
Unrealized upstream profit — 20x4 ( 20,000)
Adjusted change in retained earnings of Jane since
acquisition P2,594,000
Multiplied by: NCI's share at 20% 518,800
Ending balance of NCI on December 31, 20x4 P2,393,800
131. b
Retained earnings – Parent, 12/31/20x4 (cost)……………………….. P11,900,000
-: UPEI of S (down) – 20x4 or RPBI of S (down) – 20x5..……………….. 0
Adjusted Retained earnings – Parent, 12/31/20x4 (cost model)….. P11,900,000
Retroactive Adjustments to convert Cost to “Equity” for
purposes of consolidation / Parent’s share of adjusted
net increase in subsidiary’s retained earnings:
Retained earnings – Subsidiary, 12/31/20x2…………………..P5,000,000
Less: Retained earnings – Subsidiary, 12/31/20x4…………… 7,524,000
Increase in Retained earnings since acquisition
(cumulative net income – cumulative dividends)……….P2,524,000
Accumulated amortization (1/1/20x1 – 12/31/20x4)……….. 90,000
UPEI of P (up) – 20x4 or RPBI of P (up) – 20x5……………….....( 20,000)
P2,594,000
x: Controlling Interests………………………………………… 80% 2,075,200
RE – P, 12/31/20x4 (equity method) = CRE, 12/31/20x4 P13,975,200
Theories
1. True 6. True 11. True 16. False 21. True 26. e 31 b 36. a
2. False 7. False 12. False 17. False 22. False 27. e 32. e 37. b
3. False 8. False 13. False 18. True 23. b 28. c 33. b 38. e
4. True 9. True 14. True 19. True 24. e 29. d 34. d 39. d
5. False 10, False 15, True 20. False 25. a 30. a 35. a 40. d