1.

Consideration transferred (5,000 sh. x P15) 75,000

Less: Previously held equity interest in the acquiree -
Total 75,000
Less: Parent's proportionate share in the net assets of subsidiary (P90,000 acquisition-
date fair value* x 80%) (72,000)
Goodwill attributable to owners of parent – Jan. 1, 20x1 3,000
Less: Parent’s share in goodwill impairment (P1,000 x 80%) (800)
Goodwill attributable to owners of parent – Dec. 31, 20x1 2,200

Fair value of NCI (see given) 18,750

Less: NCI's proportionate share in the net assets of subsidiary (P90,000 acquisition-
date fair value x 20%) (18,000)
Goodwill attributable to NCI – Jan. 1, 20x1 750
Less: NCI’s share in goodwill impairment (P1,000 x 20%) (200)
Goodwill attributable to NCI – Dec. 31, 20x1 550
Goodwill, net – Dec. 31, 20x1 2,750

2.
Step 1: We will identify the carrying amounts of XYZ’s assets and liabilities in the consolidated financial
statements as at the date control was lost.

Statements of financial position

As at January 1, 20x2
Carrying amount of XYZ’s
ABC Co. XYZ, Inc. Consolidated
net assets
ASSETS (a) (b) (c) = (b) – (a)
Cash 23,000 57,000 80,000 57,000
Accounts receivable 75,000 22,000 97,000 22,000
Inventory 105,000 15,000 120,000 15,000
Investment in subsidiary 75,000 - -
Equipment 200,000 50,000 260,000 60,000
Accumulated depreciation (60,000) (20,000) (84,000) (24,000)
Goodwill - - 3,000
TOTAL ASSETS 418,000 124,000 476,000 130,000

LIABILITIES AND EQUITY

Accounts payable 43,000 30,000 73,000 30,000
Bonds payable 30,000 - 30,000 -
Total liabilities 73,000 30,000 103,000 30,000
Share capital 170,000 50,000 170,000
Share premium 65,000 - 65,000 -
Retained earnings 110,000 44,000 118,000 -*
Non-controlling interest - - 20,000 -
Total equity 345,000 94,000 373,000 100,000
TOTAL LIAB. & EQTY. 418,000 124,000 476,000

*The consolidated retained earnings pertain to the parent only. Thus, no retained earnings is allocated to
XYZ.
Step 2: We will prepare the deconsolidation journal entries (DJE):

DJE #1: To recognize the gain or loss on the disposal of controlling interest.
Jan. 1, Cash – ABC Co. (Consideration received) 100,000
20x2 Investment in associate (Investment retained) 25,000
Accounts payable – XYZ, Inc. 30,000
Accumulated depreciation – XYZ, Inc. 24,000
Non-controlling interest 20,000
Cash – XYZ, Inc. 57,000
Accounts receivable – XYZ, Inc. 22,000
Inventory – XYZ, Inc. 15,000
Equipment – XYZ, Inc. 60,000
Goodwill 3,000
Gain on disposal (squeeze) 42,000

3.
Using the cost method, how much is the investment income? 10,000
Under cost method, dividends from the investment are recognized in profit or loss when the entity’s right
to receive the dividends is established.

Using the cost method, how much is the investment account balance? 500,000
Under cost method, the investment is initially measured at the transaction price plus transaction costs
directly related to the acquisition and subsequently measured at cost.

4. 320,000
Under cost method, the investment is initially measured at the transaction price plus transaction costs
directly related to the acquisition and subsequently measured at cost.

5.
120,000 x 70% = 84,000
Investment income in an investment in subsidiary is equal to the investor’s share in the changes in the
investee’s equity.

2010 210,000 + (90,000 x 70%) – (24,000 x 70%) = 256,200

2011 256,200 + (120,000 x 70%) – (36,000 x 70%) = 315,000

Under the equity method, the investment is initially recognized at cost and subsequently adjusted for the
investor’s share in the changes in the investee’s equity (profit or loss, dividends, amortization of FVA)

6. Zero
A change in the parent’s ownership interest in the subsidiary that does not result to loss of control is
accounted for as equity transaction. No gain or loss to be recognized.
7. 16,000
Owners of Parent NCI Net Assets
Before the issuance 80% 480,000 20% 120,000 600,000
After the issuance 64% 496,000 36% 279,000 775,000
Change 16,000 159,000

Fair value of consideration 175,000

Change in NCI (159,000)
Direct adjustment to equity (APIC) 16,000

8. 42,000
Consideration received 120,000
Investment retained in the former subsidiary 12,000
NCI 10,000
Less: Former subsidiary’s net identifiable assets (100,000)
Goodwill -
Gain or loss on disposal of controlling interest 42,000

9. 80,000
Consideration received 490,000
Investment retained in the former subsidiary 70,000
NCI 120,000
Less: Former subsidiary’s net identifiable assets (600,000)
Goodwill -
Gain or loss on disposal of controlling interest 80,000

No goodwill since acquisition is at book value.

10.
Analysis of net assets:
Acquisition
Consolidation
S Co. Net change
date
date
Share capital 100,000 100,000
Retained earnings (280K – 200K) 80,000 280,000
Totals at carrying amounts 180,000 380,000
Fair value adjustments at acquisition date - -
Subsequent depreciation of FVA NIL -
Unrealized profits (Upstream only) NIL -
Subsidiary's net assets at fair value 180,000 380,000 200,000
 The fair value of NCI at acquisition date is computed as follows:
(The solution below is based on a portion of Goodwill computation Formula #2.)

Fair value of NCI 55,000 (squeeze)

NCI's proportionate share in net assets of subsidiary (45,000)a
Goodwill attributable to NCI - acquisition date (given) 10,000 (start)
a (₱180,000 see above x 25%) = ₱45,000
Consideration transferred (given) 150,000
Less: Previously held equity interest in the acquiree -
Total 150,000
Less: Parent's proportionate share in the net assets of subsidiary (₱180,000 acquisition-date fair value x 75%) (135,000)
Goodwill attributable to owners of parent – acquisition date 15,000
Less: Parent’s share in goodwill impairment (₱8,000 x 75%) (6,000)
Goodwill attributable to owners of parent – current year 9,000

Fair value of NCI (see Requirement ‘a’) 55,000

Less: NCI's proportionate share in the net assets of subsidiary (₱180,000 acquisition-date fair value x 25%) (45,000)
Goodwill attributable to NCI – acquisition date 10,000
Less: NCI’s share in goodwill impairment (₱8,000 x 25%) (2,000)
Goodwill attributable to NCI – current year 8,000

Goodwill, net – current year 17,000

S's net assets at fair value – current year (see ‘Analysis’ above) 380,000
Multiply by: NCI percentage 25%
Total 95,000
Add: Goodwill attributable to NCI – current yr. (see solution above) 8,000
Non-controlling interest in net assets – current year 103,000

P's retained earnings – current year 500,000

Consolidation adjustments:
(a)
P's share in the net change in Pet's net assets 150,000
P’s share in goodwill impairment (6,000)
Net consolidation adjustments 144,000
Consolidated retained earnings – current year 644,000

Total assets of P 1,000,000

Total assets of S 500,000
Investment in subsidiary (consideration transferred) (150,000)
Fair value adjustments - net -
Goodwill – net 17,000
Effect of intercompany transactions -
Consolidated total assets 1,367,000

Share capital of P 300,000

Share premium of P -
Consolidated retained earnings 644,000
Equity attributable to owners of the parent 944,000
Non-controlling interests 103,000
Consolidated total equity 1,047,000