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Solution Chapter 5 Rev Final
Solution Chapter 5 Rev Final
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
2, The following items for December 31, 20x4 and December 31, 20x5 in the Consolidated
Financial Statements: (refer to requirement 6 as a guide)
December 31, 20x4 December 31, 20x5
Partial Full- Partial Full-
Consolidated Amounts Goodwill Goodwill Goodwill Goodwill
a. Cash P 322,800 P 322,800 P 367,200 P 367,200
b. Accounts receivable 150,000 150,000 276,000 276,000
c. Inventory 210,000 210,000 324,000 324,000
d. Land 265,200 265,200 265,200 265,200
e. Equipment (net) 232,950 232,950 206,850 206,850
f. Buildings (net) 549,000 549,000 492,000 492,000
g. Investment in Sax -0- -0- -0- -0-
h. Total Assets 1,742,500 1,744,800 1,942,650 1,944,900
i. Accounts payable 193.800 193,800 193,800 193,800
j. Bonds payable 360,000 360,000 360,000 360,000
k. Total Liabilities 553,800 553,800 553,800 553,800
l. Common stock/Ordinary share 600,000 600,000 600,000 600,000
m. Retained earnings/Accumulated 495,810 495,810 688,170 688,170
P&L
n. Sales 720,000 720,000 900,000 900,000
o. Cost of Goods sold 348,000 348,000 408,000 408,000
p. Gross profit 372,000 372,000 492,000 492,000
q. Expenses (including GW 154,050 154,800 210,300 210,300
impairment)
r. Dividend income -0- -0- -0- -0-
s. Controlling Interests in Net Income 207,810 207,810 264,360 264,360
t. Non-controlling Interests in Net 10,140 9,390 17,340 17,340
Income
u. Net Income or CNI 217,950 217,200 281,700 281,700
v. Common stock/Ordinary share* 600,000 600,000 600,000
600,000 600,000
w. Retained Earnings/Accumulated
P&L* 495,810 495,810 688,170 688,170
x. Controlling Interests / Equity
Holders of Parent/ Parent’s
Stockholders’ Equity 1,095,810 1,095,810 1,288,170 1,288,170
y. Non-Controlling Interests 92,940 95,190 100,680 102,930
z1. Stockholders’ Equity 1,188,750 1,191,000 1,388,850 1,391,100
z2. Liabilities and Stockholders’ Equity 1,742,550 1,744,800 1,942,650 1,944,900
Alternative Solution (refer also to the worksheet)
80% Owned: Partial/Proportionate-Goodwill
Date of Acquisition – January 1, 20x4
Fair value of Subsidiary (80%)
Consideration transferred……………………………….. P 372,000
Less: Book value of stockholders’ equity of Son:
Common stock (P240,000 x 80%)……………………. P 192,000
Retained earnings (P120,000 x 80%)………………... 96,000 288,000
Allocated excess (excess of cost over book value)….. P 84,000
Less: Over/under valuation of assets and liabilities:
Increase in inventory (P6,000 x 80%)……………… P 4,800
Increase in land (P7,200 x 80%)……………………. 5,760
Increase in equipment (P96,000 x 80%) 76,800
Decrease in buildings (P24,000 x 80%)………..... ( 19,200)
Decrease in bonds payable (P4,800 x 80%)…… 3,840 72,000
Positive excess: Partial-goodwill (excess of cost over
fair value)………………………………………………... P 12,000
The over/under valuation of assets and liabilities are summarized as follows:
S Co. S Co. (Over) Under
Book value Fair value Valuation
Inventory………………….…………….. P 24,000 P 30,000 P 6,000
Land……………………………………… 48,000 55,200 7,200
Equipment (net)......... 84,000 180,000 96,000
Buildings (net) 168,000 144,000 (24,000)
Bonds payable………………………… (120,000) ( 115,200) 4,800
Net……………………………………….. P 204,000 P 294,000 P 90,000
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)
The unrealized and gain on intercompany sales for 20x4 are as follows:
Date Selling Book Unrealized* Remaining Realized gain –
of Sale Seller Price Value Gain on sale Life depreciation** 20x4
4/1/20x4 P Co. P90,000 P75,000 P15,000 5 years P3,000/year P2,250
1/2/20x4 S Co. 60,000 28,800 31,200 8 years P3,900/year P3,900
* selling price less book value
** unrealized gain divided by remaining life; 20x4 – P3,000 x 9/12 = P2,250
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 – P207,810
Consolidated Net Income for 20x4
P Company’s net income from own/separate operations…………. P183,000
Unrealized gain on sale of equipment (downstream sales) (15,000)
Realized gain on sale of equipment (downstream sales) through depreciation 2,250
P Company’s realized net income from separate operations*…….….. P170,250
S Company’s net income from own operations…………………………………. P 91,200
Unrealized gain on sale of equipment (upstream sales) ( 31,200)
Realized gain on sale of equipment (upstream sales) through depreciation 3,900
S Company’s realized net income from separate operations*…….….. P 63,900 63,900
Total P234,150
Less: Non-controlling Interest in Net Income* * P 10,140
Amortization of allocated excess (refer to amortization above) 13,200
Goodwill impairment (impairment under partial-goodwill approach) 3,000 26,340
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent………….. P207,810
Add: Non-controlling Interest in Net Income (NCINI) _ 10,140
Consolidated Net Income for 20x4 P217,950
*that has been realized in transactions with third parties.
NCI-CNI – P10,140
**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 91,200
Unrealized gain on sale of equipment (upstream sales) ( 31,200)
Realized gain on sale of equipment (upstream sales) through depreciation 3,900
S Company’s realized net income from separate operations……… P 63,900
Less: Amortization of allocated excess / goodwill impairment
(refer to amortization table above) 13,200
P 50,700
Multiplied by: Non-controlling interest %.......... 20%
Non-controlling Interest in Net Income (NCINI) – partial goodwill P 10,140
*that has been realized in transactions with third parties.
CNI, P217,950
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent………….. P207,810
Add: Non-controlling Interest in Net Income (NCINI) _ 10,140
Consolidated Net Income for 20x4 P217,950
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 207,810
Total P567,810
Less: Dividends paid – Parent Company for 20x4 72,000
Consolidated Retained Earnings, December 31, 20x4 P495,810
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 91,200
Total P211,200
Less: Dividends paid – 20x4 36,000 175,200
Stockholders’ equity – Subsidiary Company, December 31, 20x4 P 415,200
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…… P492,000
Unrealized gain on sale of equipment (upstream sales) ( 31,200)
Realized gain on sale of equipment (upstream sales) through depreciation 3,900
Realized stockholders’ equity of subsidiary, December 31, 20x4…… P464,700
Multiplied by: Non-controlling Interest percentage…………... 20
Non-controlling interest (partial-goodwill), December 31, 20x4 P 92,940
Consolidated SHE:
Consolidated SHE:
Stockholders’ Equity
Common stock, P10 par P 600,000
Retained earnings 495,810
Parent’s Stockholders’ Equity / CI – SHE, 12/31/20x4 P1,095,810
NCI, 12/31/20x4 ___92,940
Consolidated SHE, 12/31/20x4 P1,188,750
12/31/20x5:
CI-CNI – P264,360
Consolidated Net Income for 20x5
P Company’s net income from own/separate operations…………. P192,000
Realized gain on sale of equipment (downstream sales) through depreciation 3,000
P Company’s realized net income from separate operations*…….….. P195,000
S Company’s net income from own operations…………………………………. P 90,000
Realized gain on sale of equipment (upstream sales) through depreciation 3,90
S Company’s realized net income from separate operations*…….….. P 93,900 93,900
Total P288,900
Less: Amortization of allocated excess…………………… 7,200
Consolidated Net Income for 20x5 P281,700
Less: Non-controlling Interest in Net Income* * 17,340
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent – 20x5………….. P264,360
*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 gain on sale of equipment (downstream sales) through depreciation 3,000
P Company’s realized net income from separate operations*…….….. P195,000
S Company’s net income from own operations…………………………………. P 90,000
Realized gain on sale of equipment (upstream sales) through depreciation 3,900
S Company’s realized net income from separate operations*…….….. P 93,900 93,900
Total P288,900
Less: Non-controlling Interest in Net Income* * P 17,340
Amortization of allocated excess…………………… 7,200 24,540
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent………….. P264,360
Add: Non-controlling Interest in Net Income (NCINI) _ 17,340
Consolidated Net Income for 20x5 P281,700
*that has been realized in transactions with third parties.
NCI-CNI – P17,340
**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 Son Company)
Realized gain on sale of equipment (upstream sales) through depreciation 3,900
S Company’s realized net income from separate operations……… P 93,900
Less: Amortization of allocated excess 7,200
P 86,700
Multiplied by: Non-controlling interest %.......... 20%
Non-controlling Interest in Net Income (NCINI) – partial goodwill P 17,340
CNI, P281,700
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent………….. P264,360
Add: Non-controlling Interest in Net Income (NCINI) _ 17,340
Consolidated Net Income for 20x5 P281,700
Or, alternatively:
Consolidated Retained Earnings, December 31, 20x5
Retained earnings - Parent Company, December 31, 20x5 (cost model) P658,200
Less: Downstream - net unrealized gain on sale of equipment – prior to
12/31/20x5 (P15,000 – P2,250 – P3,000) 9,750
Adjusted Retained Earnings – Parent 12/31/20x5 (cost model )
S Company’s Retained earnings that have been realized in
transactions with third parties.. P648,450
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 217,200
Less: Retained earnings – Subsidiary, January 1, 20x4 120,000
Increase in retained earnings since date of acquisition P 97,200
Less: Accumulated amortization of allocated excess –
20x4 and 20x5 (P11,000 + P6,000) 20,400
Upstream - net unrealized gain on sale of equipment – prior to
12/31/20x5 (P31,200 – P3,900 – P3,900) 23,400
P 53,400
Multiplied by: Controlling interests %................... 80%
P 42,720
Less: Goodwill impairment loss 3,000 39,720
Consolidated Retained earnings, December 31, 20x5 P688,170
NCI/NCINAS.
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 P175,200
Add: Net income of subsidiary for 20x5 90,000
Total P 265,200
Less: Dividends paid – 20x5 48,000 217,200
Stockholders’ equity – Subsidiary Company, December 31, 20x5 P 457,200
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 526,800
Less: Upstream - net unrealized gain on sale of equipment – prior to 12/31/20x5
(P31,200 – P3,900 – P3,900) 23,400
Realized stockholders’ equity of subsidiary, December 31, 20x5………. P503,400
Multiplied by: Non-controlling Interest percentage…………... 20
Non-controlling interest (partial goodwill)………………………………….. P 100,680
Consolidated SHE:
Consolidated SHE:
Stockholders’ Equity
Common stock, P10 par P 600,000
Retained earnings 688,170
Parent’s Stockholders’ Equity / CI – SHE, 12/31/20x5 P1,288,170
NCI, 12/31/20x5 __100,680
Consolidated SHE, 12/31/20x5 P1,188,850
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 – P207,810
Consolidated Net Income for 20x4
P Company’s net income from own/separate operations…………. P183,000
Unrealized gain on sale of equipment (downstream sales) (15,000)
Realized gain on sale of equipment (downstream sales) through depreciation 2,250
P Company’s realized net income from separate operations*…….….. P170,250
S Company’s net income from own operations…………………………………. P 91,200
Unrealized gain on sale of equipment (upstream sales) ( 31,200)
Realized gain on sale of equipment (upstream sales) through depreciation 3,900
S Company’s realized net income from separate operations*…….….. P 63,900 63,900
Total P234,150
Less: Non-controlling Interest in Net Income* * P 10,140
Amortization of allocated excess (refer to amortization above) 13,200
Goodwill impairment (impairment under partial-goodwill approach) 3,000 26,340
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent………….. P207,810
Add: Non-controlling Interest in Net Income (NCINI) 10,140
Consolidated Net Income for 20x4 P217,950
*that has been realized in transactions with third parties.
NCI-CNI – P10,140
**Non-controlling Interest in Net Income (NCINI) for 20x4
S Company’s net income of Subsidiary Company from its own operations P 91,200
(Reported net income of S Company)
Unrealized gain on sale of equipment (upstream sales) ( 31,200)
Realized gain on sale of equipment (upstream sales) through depreciation 3,900
S Company’s realized net income from separate operations……… P 63,900
Less: Amortization of allocated excess / goodwill impairment
(refer to amortization table above) 13,200
P 50,700
Multiplied by: Non-controlling interest %.......... 20%
Non-controlling Interest in Net Income (NCINI) – partial goodwill P 10,140
Less: Non-controlling interest on impairment loss on full-goodwill (P3,750 x
20%) or (P3,750mpairment on full-goodwill less P3,000, impairment on
partial- goodwill) 750
Non-controlling Interest in Net Income (NCINI) – full goodwill P 9,390
*that has been realized in transactions with third parties.
CNI, P217,950
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent………….. P207,810
Add: Non-controlling Interest in Net Income (NCINI) 10,140
Consolidated Net Income for 20x4 P217,950
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 91,200
Total P211,200
Less: Dividends paid – 20x4 36,000 175,200
Stockholders’ equity – Subsidiary Company, December 31, 20x4 P 415,200
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…… P492,000
Unrealized gain on sale of equipment (upstream sales) ( 31,200)
Realized gain on sale of equipment (upstream sales) through depreciation 3,900
Realized stockholders’ equity of subsidiary, December 31, 20x4…… P464,700
Multiplied by: Non-controlling Interest percentage…………... 20
Non-controlling interest (partial-goodwill)………………………………….. P 92,940
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 95,190
Consolidated SHE:
Consolidated SHE:
Stockholders’ Equity
Common stock, P10 par P 600,000
Retained earnings 495,810
Parent’s Stockholders’ Equity / CI – SHE, 12/31/20x4 P1,095,810
NCI, 12/31/20x4 ___95,190
Consolidated SHE, 12/31/20x4 P1,191,000
12/31/20x5:
CI-CNI – P281,700
Consolidated Net Income for 20x5
P Company’s net income from own/separate operations…………. P192,000
Realized gain on sale of equipment (downstream sales) through depreciation 3,000
P Company’s realized net income from separate operations*…….….. P195,000
S Company’s net income from own operations…………………………………. P 90,000
Realized gain on sale of equipment (upstream sales) through depreciation 3,900
S Company’s realized net income from separate operations*…….….. P 93,900 93,900
Total P288,900
Less: Amortization of allocated excess…………………… 7,200
Consolidated Net Income for 20x5 P281,700
Less: Non-controlling Interest in Net Income* * 17,340
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent – 20x5………….. P264,360
*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 gain on sale of equipment (downstream sales) through depreciation 3,000
P Company’s realized net income from separate operations*…….….. P195,000
S Company’s net income from own operations…………………………………. P 90,000
Realized gain on sale of equipment (upstream sales) through depreciation 3,900
S Company’s realized net income from separate operations*…….….. P 93,900 93,900
Total P288,900
Less: Non-controlling Interest in Net Income* * P 17,340
Amortization of allocated excess…………………… 7,200 24,540
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent………….. P264,360
Add: Non-controlling Interest in Net Income (NCINI) _ 17,340
Consolidated Net Income for 20x5 P281,700
*that has been realized in transactions with third parties.
NCI-CNI – P17,340
**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 gain on sale of equipment (upstream sales) through depreciation 3,900
S Company’s realized net income from separate operations……… P 93,900
Less: Amortization of allocated excess 7,200
P 86,700
Multiplied by: Non-controlling interest %.......... 20%
Non-controlling Interest in Net Income (NCINI) - partial goodwill P 17,340
Less: NCI on goodwill impairment loss on full-goodwill . . . . . . . . . . . . . . . . . . . . . 0
Non-controlling Interest in Net Income (NCINI) – full goodwill . . . . . . . . . . . . . P 17,340
CNI, P281,700
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent………….. P264,360
Add: Non-controlling Interest in Net Income (NCINI) _ 17,340
Consolidated Net Income for 20x5 P281,700
Or, alternatively:
Consolidated Retained Earnings, December 31, 20x5
Retained earnings - Parent Company, December 31, 20x5 (cost model) P658,200
Less: Downstream - net unrealized gain on sale of equipment – prior to
12/31/20x5 (P15,000 – P2,250– P3,000) 9,750
Adjusted Retained Earnings – Parent 12/31/20x5 (cost model )
S Company’s Retained earnings that have been realized in
transactions with third parties.. P648,450
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 217,200
Less: Retained earnings – Subsidiary, January 1, 20x4 120,000
Increase in retained earnings since date of acquisition P 97,200
Less: Accumulated amortization of allocated excess –
20x4 and 20x5 (P13,200 + P7,200) 20,400
Upstream - net unrealized gain on sale of equipment – prior to
12/31/20x5 (P31,200 – P3,900– P3,900) 23,400
P 53,400
Multiplied by: Controlling interests %................... 80%
P 42,720
Less: Goodwill impairment loss (full-goodwill) 3,000 39,720
Consolidated Retained earnings, December 31, 20x5 P688,170
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 P175,200
Add: Net income of subsidiary for 20x5 90,000
Total P 265,200
Less: Dividends paid – 20x5 48,000 217,200
Stockholders’ equity – Subsidiary Company, December 31, 20x5 P 457,200
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 526,800
Less: Upstream - net unrealized gain on sale of equipment – prior to 12/31/20x5
(P31,200 – P3,900 – P3,900) 23,400
Realized stockholders’ equity of subsidiary, December 31, 20x5………. P503,400
Multiplied by: Non-controlling Interest percentage…………... 20
Non-controlling interest (partial goodwill)………………………………….. P 100,680
Add: Non-controlling interest on full goodwill , net of impairment loss
[(P15,000 full – P12,000, partial = P3,000) – P750 impairment loss 2,250
Non-controlling interest (full-goodwill)………………………………….. P 102,930
Consolidated SHE:
Consolidated SHE:
Stockholders’ Equity
Common stock, P10 par P 600,000
Retained earnings 688,170
Parent’s Stockholders’ Equity / CI – SHE, 12/31/20x5 P1,288,170
NCI, 12/31/20x5 __102,930
Consolidated SHE, 12/31/20x5 P1,391,100
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%
The unrealized and gain on intercompany sales for 20x4 are as follows:
Date Selling Book Unrealized* Remaining Realized gain –
of Sale Seller Price Value Gain on sale Life depreciation** 20x4
4/1/20x4 P Co. P90,000 P75,000 P15,000 5 years P3,000/year P2,250
1/2/20x4 S Co. 60,000 28,800 31,200 8 years P3,900/year P3,900
* selling price less book value
** unrealized gain divided by remaining life; 20x4 – P3,000 x 9/12 = P2,250
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 6,000 P1,200 13,200
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.
6. Worksheet for Consolidated Financial Statements, December 31, 20x4.
Cost Model (Partial-goodwill)
80%-Owned Subsidiary
December 31, 20x4 (First Year after Acquisition)
Income Statement P Co S Co. Dr. Cr. Consolidated
Sales P480,000 P240,000 P 720,000
Gain on sale of equipment 15,000 31,200 (5) 15,000
(6) 31,200
Dividend income 28,800 - (4) 28,800 _________
Total Revenue P523,800 P271,200 P 720,000
Cost of goods sold P204,000 P138,000 (3) 6,000 P 348,000
Depreciation expense 60,000 24,000 (3) 6,000 (7) 2,250 83,850
(8) 3,900
Interest expense - - (3) 1,200 1,200
Other expenses 48,000 18,000 66,000
Goodwill impairment loss - - (3) 3,000 3,000
Total Cost and Expenses P312,000 P180,000 P 502,050
Net Income P211,800 P 91,200 P 217,950
NCI in Net Income - Subsidiary - - (9 10,140 ( 10,140)
Net Income to Retained Earnings P211,800 P 91,200 P 207,810
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) 6,000 210,000
Land……………………………. 210,000 48,000 (2) 7,200 265,200
Equipment 240,000 180,000 (5) 30,000
(6) 12,000 462,000
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……… 372,000 (1) 288,000
(2) 84,000 -
Total P1,984,800 P1,008,000 P2,466,600
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..
Entry (1) above is needed only for firms using the cost method to account for their investments
in the subsidiary. If the parent is already using the equity method, there is no need to convert
to equity.
(E2) Common stock – S Co………………………………………… 240,000
Retained earnings – S Co., 1/1/20x5 175,200
Investment in S Co (P415,200 x 80%)………………………… 332,160
Non-controlling interest (P415,200 x 20%)……………………….. 83,040
To eliminate intercompany investment and equity accounts
of subsidiary and to establish non-controlling interest (in net assets of
subsidiary) on January 1, 20x5.
(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 (1) 6,000 (2) 6,000 324,000
Land……………………………. 210,000 48,000 (3) 7,200 265,200
Equipment 240,000 180,000 (5) 30,000
(6) 12,000 462,000
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) 44,160 (2) 332,160
(3) 84,000 -
Total P2,203,200 P1,074,000 P2,749,800
No entries are made on the P’s books to depreciate, amortize or write-off the portion of the
allocated excess that expires during 20x4.
Since the set-up entry in (E2) NCI at fair value, non-controlling interests have a share of entity
goodwill and hence is exposed to impairment loss on goodwill. PAS 36 requires the impairment
loss to be pro-rated between the parent and NCI on the same basis as that on which profit or
loss is allocated. In other words, the impairment loss is not pro-rated in accordance with the
proportion of goodwill recognized by parent and NCI.
(E3) Cost of Goods Sold……………. 6,000
Depreciation expense……………………….. 6,000
Accumulated depreciation – buildings………………….. 6,000
Interest expense………………………………… 1,200
Goodwill impairment loss………………………………………. 3,750
Inventory………………………………………………………….. 6,000
Accumulated depreciation – equipment……………….. 12,000
Discount on bonds payable………………………… 1,200
Goodwill…………………………………… 3,750
To provide for 20x4 impairment loss and depreciation and
amortization on differences between acquisition date fair value and
book value of Son’s identifiable assets and liabilities as follows:
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) 6,000 210,000
Land……………………………. 210,000 48,000 (2) 7,200 265,200
Equipment 240,000 180,000 (5) 30,000
(6) 12,000 462,000
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 (1) 288,000
(2) 84,000 -
Total P1,984,800 P1,008,000 P2,468,850
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
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) 6,000 (4) 6,000 324,000
Land……………………………. 210,000 48,000 (3) 7,200 265,200
Equipment 240,000 180,000 (6) 30,000
(7) 12,000 462,000
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) 44,160 (2) 332,160
(3) 90,000 -
Total P2,203,200 P1,074,000 P2,752,050
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) ___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)
December 31, 20x4 December 31, 20x5
Partial Full- Partial Full-
Consolidated Amounts Goodwill Goodwill Goodwill Goodwill
a. Cash P 322,800 P 322,800 P 367,200 P 367,200
b. Accounts receivable 150,000 150,000 276,000 276,000
c. Inventory 210,000 210,000 324,000 324,000
d. Land 265,200 265,200 265,200 265,200
e. Equipment (net) 232,950 232,950 206,850 206,850
f. Buildings (net) 549,000 549,000 492,000 492,000
g. Investment in Sax -0- -0- -0- -0-
h. Total Assets 1,742,500 1,744,800 1,942,650 1,944,900
i. Accounts payable 193.800 193,800 193,800 193,800
j. Bonds payable 360,000 360,000 360,000 360,000
k. Total Liabilities 553,800 553,800 553,800 553,800
l. Common stock/Ordinary share 600,000 600,000 600,000 600,000
m. Retained earnings/Accumulated 495,810 495,810 688,170 688,170
P&L
n. Sales 720,000 720,000 900,000 900,000
o. Cost of Goods sold 348,000 348,000 408,000 408,000
p. Gross profit 372,000 372,000 492,000 492,000
q. Expenses (including GW 154,050 154,800 210,300 210,300
impairment)
r. Investment income -0- -0- -0- -0-
s. Controlling Interests in Net Income 207,810 207,810 264,360 264,360
t. Non-controlling Interests in Net 10,140 9,390 17,340 17,340
Income
u. Net Income or CNI 217,950 217,200 281,700 281,700
v. Common stock/Ordinary share* 600,000 600,000 600,000
600,000 600,000
w. Retained Earnings/Accumulated
P&L* 495,810 495,810 688,170 688,170
x. Controlling Interests / Equity
Holders of Parent/ Parent’s
Stockholders’ Equity 1,095,810 1,095,810 1,288,170 1,288,170
y. Non-Controlling Interests 92,940 95,190 100,680 102,930
z1. Stockholders’ Equity 1,188,750 1,191,000 1,388,850 1,391,100
z2. Liabilities and Stockholders’ Equity 1,742,550 1,744,800 1,942,650 1,944,900
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)
The unrealized and gain on intercompany sales for 20x4 are as follows:
Date Selling Book Unrealized* Remaining Realized gain –
of Sale Seller Price Value Gain on sale Life depreciation** 20x4
4/1/20x4 P Co. P90,000 P75,000 P15,000 5 years P3,000/year P2,250
1/2/20x4 S Co. 60,000 28,800 31,200 8 years P3,900/year P3,900
* selling price less book value
** unrealized gain divided by remaining life; 20x4 – P3,000 x 9/12 = P2,250
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 – P207,810
Consolidated Net Income for 20x4
P Company’s net income from own/separate operations…………. P183,000
Unrealized gain on sale of equipment (downstream sales) (15,000)
Realized gain on sale of equipment (downstream sales) through depreciation 2,250
P Company’s realized net income from separate operations*…….….. P170,250
S Company’s net income from own operations…………………………………. P 91,200
Unrealized gain on sale of equipment (upstream sales) ( 31,200)
Realized gain on sale of equipment (upstream sales) through depreciation 3,900
S Company’s realized net income from separate operations*…….….. P 63,900 63,900
Total P234,150
Less: Non-controlling Interest in Net Income* * P 10,140
Amortization of allocated excess (refer to amortization above) 13,200
Goodwill impairment (impairment under partial-goodwill approach) 3,000 26,340
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent………….. P207,810
Add: Non-controlling Interest in Net Income (NCINI) _ 10,140
Consolidated Net Income for 20x4 P217,950
*that has been realized in transactions with third parties.
NCI-CNI – P10,140
**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 91,200
Unrealized gain on sale of equipment (upstream sales) ( 31,200)
Realized gain on sale of equipment (upstream sales) through depreciation 3,900
S Company’s realized net income from separate operations……… P 63,900
Less: Amortization of allocated excess / goodwill impairment
(refer to amortization table above) 13,200
P 50,700
Multiplied by: Non-controlling interest %.......... 20%
Non-controlling Interest in Net Income (NCINI) – partial goodwill P 10,140
*that has been realized in transactions with third parties.
CNI, P217,950
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent………….. P207,810
Add: Non-controlling Interest in Net Income (NCINI) _ 10,140
Consolidated Net Income for 20x4 P217,950
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 207,810
Total P567,810
Less: Dividends paid – Parent Company for 20x4 72,000
Consolidated Retained Earnings, December 31, 20x4 P495,810
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 91,200
Total P211,200
Less: Dividends paid – 20x4 36,000 175,200
Stockholders’ equity – Subsidiary Company, December 31, 20x4 P 415,200
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…… P492,000
Unrealized gain on sale of equipment (upstream sales) ( 31,200)
Realized gain on sale of equipment (upstream sales) through depreciation 3,900
Realized stockholders’ equity of subsidiary, December 31, 20x4…… P464,700
Multiplied by: Non-controlling Interest percentage…………... 20
Non-controlling interest (partial-goodwill), December 31, 20x4 P 92,940
Consolidated SHE:
Consolidated SHE:
Stockholders’ Equity
Common stock, P10 par P 600,000
Retained earnings 495,810
Parent’s Stockholders’ Equity / CI – SHE, 12/31/20x4 P1,095,810
NCI, 12/31/20x4 ___92,940
Consolidated SHE, 12/31/20x4 P1,188,750
12/31/20x5:
CI-CNI – P264,360
Consolidated Net Income for 20x5
P Company’s net income from own/separate operations…………. P192,000
Realized gain on sale of equipment (downstream sales) through depreciation 3,000
P Company’s realized net income from separate operations*…….….. P195,000
S Company’s net income from own operations…………………………………. P 90,000
Realized gain on sale of equipment (upstream sales) through depreciation 3,90
S Company’s realized net income from separate operations*…….….. P 93,900 93,900
Total P288,900
Less: Amortization of allocated excess…………………… 7,200
Consolidated Net Income for 20x5 P281,700
Less: Non-controlling Interest in Net Income* * 17,340
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent – 20x5………….. P264,360
*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 gain on sale of equipment (downstream sales) through depreciation 3,000
P Company’s realized net income from separate operations*…….….. P195,000
S Company’s net income from own operations…………………………………. P 90,000
Realized gain on sale of equipment (upstream sales) through depreciation 3,900
S Company’s realized net income from separate operations*…….….. P 93,900 93,900
Total P288,900
Less: Non-controlling Interest in Net Income* * P 17,340
Amortization of allocated excess…………………… 7,200 24,540
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent………….. P264,360
Add: Non-controlling Interest in Net Income (NCINI) _ 17,340
Consolidated Net Income for 20x5 P281,700
*that has been realized in transactions with third parties.
NCI-CNI – P17,340
**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 Son Company)
Realized gain on sale of equipment (upstream sales) through depreciation 3,900
S Company’s realized net income from separate operations……… P 93,900
Less: Amortization of allocated excess 7,200
P 86,700
Multiplied by: Non-controlling interest %.......... 20%
Non-controlling Interest in Net Income (NCINI) – partial goodwill P 17,340
CNI, P281,700
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent………….. P264,360
Add: Non-controlling Interest in Net Income (NCINI) _ 17,340
Consolidated Net Income for 20x5 P281,700
Or, alternatively:
Consolidated Retained Earnings, December 31, 20x5
Retained earnings - Parent Company, December 31, 20x5 (cost model) P658,200
Less: Downstream - net unrealized gain on sale of equipment – prior to
12/31/20x5 (P15,000 – P2,250 – P3,000) 9,750
Adjusted Retained Earnings – Parent 12/31/20x5 (cost model )
S Company’s Retained earnings that have been realized in
transactions with third parties.. P648,450
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 217,200
Less: Retained earnings – Subsidiary, January 1, 20x4 120,000
Increase in retained earnings since date of acquisition P 97,200
Less: Accumulated amortization of allocated excess –
20x4 and 20x5 (P11,000 + P6,000) 20,400
Upstream - net unrealized gain on sale of equipment – prior to
12/31/20x5 (P31,200 – P3,900 – P3,900) 23,400
P 53,400
Multiplied by: Controlling interests %................... 80%
P 42,720
Less: Goodwill impairment loss 3,000 39,720
Consolidated Retained earnings, December 31, 20x5 P688,170
NCI/NCINAS.
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 P175,200
Add: Net income of subsidiary for 20x5 90,000
Total P 265,200
Less: Dividends paid – 20x5 48,000 217,200
Stockholders’ equity – Subsidiary Company, December 31, 20x5 P 457,200
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 526,800
Less: Upstream - net unrealized gain on sale of equipment – prior to 12/31/20x5
(P31,200 – P3,900 – P3,900) 23,400
Realized stockholders’ equity of subsidiary, December 31, 20x5………. P503,400
Multiplied by: Non-controlling Interest percentage…………... 20
Non-controlling interest (partial goodwill)………………………………….. P 100,680
Add: Non-controlling interest on full goodwill , net of impairment loss
[(P15,000 full – P12,000, partial = P3,000) – P750 impairment loss 2,250
Non-controlling interest (full-goodwill)………………………………….. P 102,930
Consolidated SHE:
Consolidated SHE:
Stockholders’ Equity
Common stock, P10 par P 600,000
Retained earnings 688,170
Parent’s Stockholders’ Equity / CI – SHE, 12/31/20x5 P1,288,170
NCI, 12/31/20x5 __102,930
Consolidated SHE, 12/31/20x5 P1,391,100
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 – P207,810
Consolidated Net Income for 20x4
P Company’s net income from own/separate operations…………. P183,000
Unrealized gain on sale of equipment (downstream sales) (15,000)
Realized gain on sale of equipment (downstream sales) through depreciation 2,250
P Company’s realized net income from separate operations*…….….. P170,250
S Company’s net income from own operations…………………………………. P 91,200
Unrealized gain on sale of equipment (upstream sales) ( 31,200)
Realized gain on sale of equipment (upstream sales) through depreciation 3,900
S Company’s realized net income from separate operations*…….….. P 63,900 63,900
Total P234,150
Less: Non-controlling Interest in Net Income* * P 10,140
Amortization of allocated excess (refer to amortization above) 13,200
Goodwill impairment (impairment under partial-goodwill approach) 3,000 26,340
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent………….. P207,810
Add: Non-controlling Interest in Net Income (NCINI) 9,390
Consolidated Net Income for 20x4 P217,200
*that has been realized in transactions with third parties.
NCI-CNI – P9.390
**Non-controlling Interest in Net Income (NCINI) for 20x4
S Company’s net income of Subsidiary Company from its own operations P 91,200
(Reported net income of S Company)
Unrealized gain on sale of equipment (upstream sales) ( 31,200)
Realized gain on sale of equipment (upstream sales) through depreciation 3,900
S Company’s realized net income from separate operations……… P 63,900
Less: Amortization of allocated excess / goodwill impairment
(refer to amortization table above) 13,200
P 50,700
Multiplied by: Non-controlling interest %.......... 20%
Non-controlling Interest in Net Income (NCINI) – partial goodwill P 10,140
Less: Non-controlling interest on impairment loss on full-goodwill (P3,750 x
20%) or (P3,750mpairment on full-goodwill less P3,000, impairment on
partial- goodwill) 750
Non-controlling Interest in Net Income (NCINI) – full goodwill P 9,390
*that has been realized in transactions with third parties.
CNI, P217,200
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent………….. P207,810
Add: Non-controlling Interest in Net Income (NCINI) 9,390
Consolidated Net Income for 20x4 P217,200
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 91,200
Total P211,200
Less: Dividends paid – 20x4 36,000 175,200
Stockholders’ equity – Subsidiary Company, December 31, 20x4 P 415,200
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…… P492,000
Unrealized gain on sale of equipment (upstream sales) ( 31,200)
Realized gain on sale of equipment (upstream sales) through depreciation 3,900
Realized stockholders’ equity of subsidiary, December 31, 20x4…… P464,700
Multiplied by: Non-controlling Interest percentage…………... 20
Non-controlling interest (partial-goodwill)………………………………….. P 92,940
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 95,190
Consolidated SHE:
Consolidated SHE:
Stockholders’ Equity
Common stock, P10 par P 600,000
Retained earnings 495,810
Parent’s Stockholders’ Equity / CI – SHE, 12/31/20x4 P1,095,810
NCI, 12/31/20x4 ___95,190
Consolidated SHE, 12/31/20x4 P1,191,000
12/31/20x5:
CI-CNI – P281,700
Consolidated Net Income for 20x5
P Company’s net income from own/separate operations…………. P192,000
Realized gain on sale of equipment (downstream sales) through depreciation 3,000
P Company’s realized net income from separate operations*…….….. P195,000
S Company’s net income from own operations…………………………………. P 90,000
Realized gain on sale of equipment (upstream sales) through depreciation 3,900
S Company’s realized net income from separate operations*…….….. P 93,900 93,900
Total P288,900
Less: Amortization of allocated excess…………………… 7,200
Consolidated Net Income for 20x5 P281,700
Less: Non-controlling Interest in Net Income* * 17,340
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent – 20x5………….. P264,360
*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 gain on sale of equipment (downstream sales) through depreciation 3,000
P Company’s realized net income from separate operations*…….….. P195,000
S Company’s net income from own operations…………………………………. P 90,000
Realized gain on sale of equipment (upstream sales) through depreciation 3,900
S Company’s realized net income from separate operations*…….….. P 93,900 93,900
Total P288,900
Less: Non-controlling Interest in Net Income* * P 17,340
Amortization of allocated excess…………………… 7,200 24,540
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent………….. P264,360
Add: Non-controlling Interest in Net Income (NCINI) _ 17,340
Consolidated Net Income for 20x5 P281,700
*that has been realized in transactions with third parties.
NCI-CNI – P17,340
**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 gain on sale of equipment (upstream sales) through depreciation 3,900
S Company’s realized net income from separate operations……… P 93,900
Less: Amortization of allocated excess 7,200
P 86,700
Multiplied by: Non-controlling interest %.......... 20%
Non-controlling Interest in Net Income (NCINI) - partial goodwill P 17,340
Less: NCI on goodwill impairment loss on full-goodwill . . . . . . . . . . . . . . . . . . . . . 0
Non-controlling Interest in Net Income (NCINI) – full goodwill . . . . . . . . . . . . . P 17,340
CNI, P281,700
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent………….. P264,360
Add: Non-controlling Interest in Net Income (NCINI) _ 17,340
Consolidated Net Income for 20x5 P281,700
Or, alternatively:
Consolidated Retained Earnings, December 31, 20x5
Retained earnings - Parent Company, December 31, 20x5 (cost model) P658,200
Less: Downstream - net unrealized gain on sale of equipment – prior to
12/31/20x5 (P15,000 – P2,250– P3,000) 9,750
Adjusted Retained Earnings – Parent 12/31/20x5 (cost model )
S Company’s Retained earnings that have been realized in
transactions with third parties.. P648,450
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 217,200
Less: Retained earnings – Subsidiary, January 1, 20x4 120,000
Increase in retained earnings since date of acquisition P 97,200
Less: Accumulated amortization of allocated excess –
20x4 and 20x5 (P13,200 + P7,200) 20,400
Upstream - net unrealized gain on sale of equipment – prior to
12/31/20x5 (P31,200 – P3,900– P3,900) 23,400
P 53,400
Multiplied by: Controlling interests %................... 80%
P 42,720
Less: Goodwill impairment loss (full-goodwill) 3,000 39,720
Consolidated Retained earnings, December 31, 20x5 P688,170
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 P175,200
Add: Net income of subsidiary for 20x5 90,000
Total P 265,200
Less: Dividends paid – 20x5 48,000 217,200
Stockholders’ equity – Subsidiary Company, December 31, 20x5 P 457,200
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 526,800
Less: Upstream - net unrealized gain on sale of equipment – prior to 12/31/20x5
(P31,200 – P3,900 – P3,900) 23,400
Realized stockholders’ equity of subsidiary, December 31, 20x5………. P503,400
Multiplied by: Non-controlling Interest percentage…………... 20
Non-controlling interest (partial goodwill)………………………………….. P 100,680
Add: Non-controlling interest on full goodwill , net of impairment loss
[(P15,000 full – P12,000, partial = P3,000) – P750 impairment loss 2,250
Non-controlling interest (full-goodwill)………………………………….. P 102,930
Consolidated SHE:
Consolidated SHE:
Stockholders’ Equity
Common stock, P10 par P 600,000
Retained earnings 688,170
Parent’s Stockholders’ Equity / CI – SHE, 12/31/20x5 P1,288,170
NCI, 12/31/20x5 __102,930
Consolidated SHE, 12/31/20x5 P1,391,100
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 Son Amortization &
(91,200 x 80%) 72,960 13,560 impairment
Realized gain downstream sale 2,250 15,000 Unrealized gain downstream sale
Realized gain upstream sale 3,120 24,960 Unrealized gain upstream sale
Balance, 12/31/x4 368,010
Investment Income
Amortization & NI of S
impairment 13,560 72,960 (91,200 x 80%)
Unrealized gain downstream sale 15,000 2,250 Realized gain downstream sale
Unrealized gain upstream sale 24,960 3,120 Realized gain upstream sale
24,810 Balance, 12/31/x4
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%
The unrealized and gain on intercompany sales for 20x4 are as follows:
Date Selling Book Unrealized* Remaining Realized gain –
of Sale Seller Price Value Gain on sale Life depreciation** 20x4
4/1/20x4 P Co. P90,000 P75,000 P15,000 5 years P3,000/year P2,250
1/2/20x4 S Co. 60,000 28,800 31,200 8 years P3,900/year P3,900
* selling price less book value
** unrealized gain divided by remaining life; 20x4 – P3,000 x 9/12 = P2,250
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 6,000 P1,200 14,400
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/x4 372,000 28,800 Dividends – S (36,000x 80%)
NI of S Amortization &
(91,200 x 80%) 72,960 13,560 impairment
Realized gain downstream sale 2,250 15,000 Unrealized gain downstream sale
Realized gain upstream sale 3,120 24,960 Unrealized gain upstream sale
Balance, 12/31/x4 368,010 288,000 (E1) Investment, 1/1/20x4
(E4) Investment Income 84,000 (E2) Investment, 1/1/20x4
and dividends …………… 3,990
372,000 372,000
(E5) Gain on sale of equipment 15,000
Equipment 30,000
Accumulated depreciation 45,000
To eliminate the downstream intercompany gain and restore to its
original cost to the consolidate entity (along with its accumulated
depreciation at the point of the intercompany sale).
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) 5,000 210,000
Land……………………………. 210,000 48,000 (2) 7,200 265,200
Equipment 240,000 180,000 (5) 30,000
(6) 12,000 462,000
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……… 368,010 (4) 3,990 (1) 288,000
(2) 84,000 -
Total P1,980,810 P1,008,000 P2,466,600
Investment Income
Amortization (6,000 x 805) 5,760 NI of S
72,000 (90,000 x 80%)
3,000 Realized gain downstream sale
3,120 Realized gain upstream sale
72,360 Balance, 12/31/x5
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
Balance Sheet
Cash………………………. P 265,200 P 102,000 P 367,200
Accounts receivable…….. 180,000 96,000 276,000
Inventory…………………. 216,000 108,000 324,000
Land……………………………. 210,000 48,000 (2) 7,200 265,200
Equipment 240,000 180,000 (5) 30,000
(6) 12,000 462,000
Buildings 720,000 540,000 (2) 216,000 1,044,000
Discount on bonds payable (2) 3,600 (3) 1,200 2,400
Goodwill…………………… (2) 9,000 9,000
Investment in Son Co……… 401,970 (5) 15,000 (1) 332,160
(6) 24,960 (2) 70,440
(4) 33,960
(7) 2,250
(8) 3,120 -
Total P2,233,170 P1,074,000 P2,749,800
Investment Income
Amortization & NI of S
impairment 13,560 72,960 (76,000 x 80%)
Unrealized gain downstream sale 15,000 2,250 Realized gain downstream sale
Unrealized gain upstream sale 24,960 3,120 Realized gain upstream sale
24,810 Balance, 12/31/x4
4. Schedule
of Determination and Allocation of Excess (Full-goodwill)
Date of Acquisition – January 1, 20x4
Fair value of Subsidiary (80%)
Consideration transferred (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:
Common stock (P240,000 x 100%)………………. P 240,000
Retained earnings (P120,000 x 100%)………... 120,000 360,000
Allocated excess (excess of cost over book value)….. P 105,000
Less: Over/under valuation of assets and liabilities:
Increase in inventory (P6,000 x 100%)……………… P 6,000
Increase in land (P7,200 x 100%)……………………. 7,200
Increase in equipment (P96,000 x 100%) 96,000
Decrease in buildings (P24,000 x 100%)………..... ( 24,000)
Decrease in bonds payable (P4,800 x 100%)…… 4,800 90,000
Positive excess: Full-goodwill (excess of cost over
fair value)………………………………………………... P 15,000
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 6,000 P1,200 14,400
372,000 372,000
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) 6,000 210,000
Land……………………………. 210,000 48,000 (2) 6,000 265,200
Equipment 240,000 180,000 (5) 30,000
(6) 12,000 462,000
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……… 368,010 (1) 288,000
(2) 84,000 -
Total P1,980,810 P1,008,000 P2,468,850
Thus, the investment balance and investment income in the books of P Company is as follows:
Investment in S
Cost, 1/1/x5 368,010 38,400 Dividends – S (40,000x 80%)
NI of S 5,760 Amortization (6,000 x 80%)
(90,000 x 80%) 72,000
Realized gain downstream sale 3,000
Realized gain upstream sale 3,120
Balance, 12/31/x5 401,970
Investment Income
Amortization (7,200 x 805) 5,760 NI of S
72,000 (90,000 x 80%)
3,000 Realized gain downstream sale
3,120 Realized gain upstream sale
72,360 Balance, 12/31/x5
5. Consolidation Workpaper – Second Year after Acquisition (Full-goodwill)
(E1) Common stock – S Co………………………………………… 240,000
Retained earnings – S Co, 1/1/x5…………………………. 175.200
Investment in S Co (P415,200 x 80%) 332,160
Non-controlling interest (P415,200 x 20%)……………………….. 83,040
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.
(E2) Accumulated depreciation – equipment (P96,000 – P12,000) 84,000
Accumulated depreciation – buildings (P192,000 + P6,000) 198,000
Land………………………………………………………………………. 7,200
Discount on bonds payable (P4,800 – P1,200)…. 3,600
Goodwill (P15,000 – P3,900)…………………………….. 11,250
Buildings……………………………………….. 216,000
Non-controlling interest [(P90,000 – P13,200) x 20%] +
[P3,000, full goodwill - [(P3,750, full-goodwill impairment
– P3,000, partial- goodwill impairment)*
or (P3,750 x 20%)] 17,610
Investment in S Co………………………………………………. 70,440
To eliminate investment on January 1, 20x5 and allocate excess of
cost over book value of identifiable assets acquired, with remainder
to the original amount of goodwill; and to establish non- controlling
interest (in net assets of subsidiary) on 1/1/20x5.
*this procedure would be more appropriate, instead of multiplying the full-goodwill impairment loss of P3,750 by 20%.
There might be situations where the NCI on goodwill impairment loss would not be proportionate to NCI acquired
Depreciation/
Amortization Amortization
Expense -Interest Total
Inventory sold
Equipment P 12,000
Buildings ( 6000)
Bonds payable _______ P 1,200
Totals P 6,000 P1,200 P7,,200
Balance Sheet
Cash………………………. P 265,200 P 102,000 P 367,200
Accounts receivable…….. 180,000 96,000 276,000
Inventory…………………. 216,000 108,000 324,000
Land……………………………. 210,000 48,000 (2) 7,200 265,200
Equipment 240,000 180,000 (5) 30,000
(6) 12,000 462,000
Buildings 720,000 540,000 (2) 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……… 401,970 (5) 15,000 (1) 332,160
(6) 24,960 (2) 70,440
(4) 33,960
(7) 2,250
(8) 3,120 -
Total P2,233,170 P1,074,000 P2,752,050
Problem II
A. Downstream Sale
1. a. Controlling Interest in Consolidated Net Income:
Prince Company’s income from its
independent operations P3,270,000
Reported net income of Serf Company P820,000
Plus profit on intercompany sale of
equipment considered to be realized
through depreciation in 20x4 25,000
Reported subsidiary income that has been
realized in transactions with third
parties 845,000
× .8
Prince Company’s share thereof 676,000
Controlling Interest in Consolidated net income P3,946,000
or,
Consolidated Net Income for 20x5
P Company’s net income from own/separate operations…………. P3,270,000
Realized gain on sale of equipment (downstream sales) through depreciation 0
P Company’s realized net income from separate operations…….….. P3,270,000
S Company’s net income from own operations…………………………………. P 820,000
Realized gain on sale of equipment (upstream sales) through depreciation* 25,000
Son Company’s realized net income from separate operations*…….….. P 845,000 845,000
Total P4,115,000
Less: Amortization of allocated excess…………………… 0
Consolidated Net Income for 20x5 P4,115,000
Less: Non-controlling Interest in Net Income* * 169,000
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent – 20x5………….. P3,946,000
Or, alternatively
Consolidated Net Income for 20x5
P Company’s net income from own/separate operations…………. P3,270,000
Realized gain on sale of equipment (downstream sales) through depreciation 0
P Company’s realized net income from separate operations…….….. P3,270,000
S Company’s net income from own operations…………………………………. P820,000
Realized gain on sale of equipment (upstream sales) through depreciation 25,000
S Company’s realized net income from separate operations…….….. P 845,000 845,000
Total P4,115,000
Less: Non-controlling Interest in Net Income* * P 169,000
Amortization of allocated excess…………………… 0 169,000
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent………….. P3,946,000
Add: Non-controlling Interest in Net Income (NCINI) _169,000
Consolidated Net Income for 20x5 P4,115,000
1/1/20x4:
Selling price of equipment P 740,000
Less: BV of equipment
Cost P1,280,000
Less: Accumulated depreciation:
P1,280,000 / 8 years x 4 years* 640,000 640,000
Unrealized gain on sales – 1/1/20x4 P 100,000
Realized gain – depreciation: P100,000 / 4 years P 25,000
*the original life is 8 years as of 1/1/20x3, since the remaining life as of 1/1/20x4
in only 4 years, for purposes of computing the accumulated depreciation to
determine the gain on sale, the difference of 4 years is presumed to be expired.
NCI-CNI P 164,000
CI-CNI 3,951,000
CNI P4,115,000
or,
Consolidated Net Income for 20x5
P Company’s net income from own/separate operations…………. P3,270,000
Realized gain on sale of equipment (downstream sales) through depreciation ____25,000
P Company’s realized net income from separate operations…….….. P3,295,000
S Company’s net income from own operations…………………………………. P 820,000
Realized gain on sale of equipment (upstream sales) through depreciation* 0
S Company’s realized net income from separate operations*…….….. P 820,000 820,000
Total P4,115,000
Less: Amortization of allocated excess…………………… 0
Consolidated Net Income for 20x5 P4,115,000
Less: Non-controlling Interest in Net Income* * 164,000
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent – 20x5………….. P3,951,000
Or, alternatively
Consolidated Net Income for 20x5
P Company’s net income from own/separate operations…………. P3,270,000
Realized gain on sale of equipment (downstream sales) through depreciation 25,000
P Company’s realized net income from separate operations…….….. P3,295,000
S Company’s net income from own operations…………………………………. P820,000
Realized gain on sale of equipment (upstream sales) through depreciation 0
S Company’s realized net income from separate operations…….….. P 820,000 820,000
Total P4,115,000
Less: Non-controlling Interest in Net Income* * P 164,000
Amortization of allocated excess…………………… 0 164,000
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent………….. P3,951,000
Add: Non-controlling Interest in Net Income (NCINI) _169,000
Consolidated Net Income for 20x5 P4,115,000
3.
a. Cost Model – 20x5 (104,000/130,000 = 80% ownership)
Dividends – S Company
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48,000
Dividend income (P60,000 x 80%) . . . . . . . . . . . . . . . . . . . . . . . 48,000
Equity Method
Equipment 540,000
Investment in S Co. 100,000
Accumulated Depreciation 640,000
B. Upstream Sale
4. a. Controlling Interest in Consolidated Net Income:
Prince Company’s income from its
independent operations P3,270,000
Reported net income of Serf Company P820,000
Plus profit on intercompany sale of
equipment considered to be realized
through depreciation in 20x4 25,000
Reported subsidiary income that has been
realized in transactions with third
parties 845,000
× .8
Prince Company’s share thereof 676,000
Controlling Interest in Consolidated net income P3,946,000
or,
Consolidated Net Income for 20x5
P Company’s net income from own/separate operations…………. P3,270,000
Realized gain on sale of equipment (downstream sales) through depreciation 0
P Company’s realized net income from separate operations…….….. P3,270,000
S Company’s net income from own operations…………………………………. P 820,000
Realized gain on sale of equipment (upstream sales) through depreciation* 25,000
Son Company’s realized net income from separate operations*…….….. P 845,000 845,000
Total P4,115,000
Less: Amortization of allocated excess…………………… 0
Consolidated Net Income for 20x5 P4,115,000
Less: Non-controlling Interest in Net Income* * 169,000
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent – 20x5………….. P3,946,000
Or, alternatively
Consolidated Net Income for 20x5
P Company’s net income from own/separate operations…………. P3,270,000
Realized gain on sale of equipment (downstream sales) through depreciation 0
P Company’s realized net income from separate operations…….….. P3,270,000
S Company’s net income from own operations…………………………………. P820,000
Realized gain on sale of equipment (upstream sales) through depreciation 25,000
S Company’s realized net income from separate operations…….….. P 845,000 845,000
Total P4,115,000
Less: Non-controlling Interest in Net Income* * P 169,000
Amortization of allocated excess…………………… 0 169,000
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent………….. P3,946,000
Add: Non-controlling Interest in Net Income (NCINI) _169,000
Consolidated Net Income for 20x5 P4,115,000
1/1/20x4:
Selling price of equipment P 740,000
Less: BV of equipment
Cost P1,280,000
Less: Accumulated depreciation:
P1,280,000 / 8 years x 4 years* 640,000 640,000
Unrealized gain on sales – 1/1/20x4 P 100,000
5.
Cost Model – 20x5 (104,000/130,000 = 80% ownership)
Dividends – S Company
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48,000
Dividend income (P60,000 x 80%) . . . . . . . . . . . . . . . . . . . . . . . 48,000
Equity Method
Equipment 540,000
Investment in S Co. (P100,000 × .80) 80,000
Noncontrolling Interest (P100,000 × .20) 20,000
Accumulated Depreciation 640,000
Problem IV
Eliminating entry, December 31, 20x8:
1.
E(1) Truck 55,000
Gain on Sale of Truck 35,000
Depreciation Expense 5,000
Accumulated Depreciation 85,000
Problem V
1. Eliminating entry, December 31, 20x8:
E(1) Truck 90,000
Gain on Sale of Truck 30,000
Accumulated Depreciation 120,000
Problem VI
1. Downstream sale of land:
20x4 20x5
VV’s separate operating income P 90,000 P110,000
Less: Unrealized gain on sale of land (25,000)
VV’s realized operating income P 65,000 P110,000
Spawn’s realized net income 60,000 40,000
Consolidated net income P125,000 P150,000
Income to non-controlling interest:
(P60,000 x .25) (15,000)
(P40,000 X .25) (10,000)
Income to controlling interest P110,000 P140,000
Problem VII
(Determine consolidated net income when an intercompany transfer of equipment occurs.
Includes an outside ownership)
Problem VIII
1. On the consolidated balance sheet, the machine must be reported at its original cost
when Tool purchased it on January 1, 20x1, which is P120,000. Since the elimination entry
debited the machine account for P22,000 which must be the amount needed to bring the
machine account up to P120,000, Buzzard must have recorded the machine at P98,000.
Since the remaining useful life is seven years, Buzzard will record P14,000 of depreciation
expense each year.
2. The correct balances on the consolidated balance sheet for the Machine and
Accumulated Depreciation accounts are the balances that would be in the accounts if
there had been no sale. The balance in the machine account would be the original
purchase price to Tool or P120,000. The balance in the Accumulated Depreciation account
will be the original amount of annual depreciation, (P12,000) times the number of years the
machine has been depreciated (4), or P48,000.
3. The non-controlling interest income will be 30% of Tool’ adjusted net income. Tool’ reported
net income of P60,000 is reduced by the P14,000 unrealized gain on the sale of the
machine and is increased by the piecemeal recognition of the gain, which is P2,000. The
net result of P48,000 is then multiplied by 30% to calculate a P14,400 income for the non-
controlling interest.
Problem IX
1. Consolidated net income for 20x9:
Operating income reported by BW P100,000
Net income reported by TW P40,000
Amount of gain realized in 20x9
(P30,000 / 12 years) 2,500
Realized net income of TW 42,500
Consolidated net income P142,500
Problem X
20x5 20x6
1.
Noncontrolling interest inP 7,000 (1) P 46,200 (2)
Consolidated net income
Problem XI
1. Consolidated net income for 20x4 will be greater than PP Company's income from
operations plus SS's reported net income. The eliminating entries at December 31, 20x4, will
result in an increase of P16,000 to consolidated net income.
2. As a result of purchasing the equipment at less than Parent's book value, depreciation
expense reported by SS will be P2,000 (P16,000 / 8 years) below the amount that would
have been recorded by PP. Thus, depreciation expense must be increased by P2,000 when
eliminating entries are prepared at December 31, 20x5. Consolidated net income will be
decreased by the full amount of the P2,000 increase in depreciation expense.
Problem XII
1. Eliminating entry, December 31, 20x9:
E(1) Buildings and Equipment 156,000
Loss on Sale of Building 36,000
Accumulated Depreciation 120,000
Eliminate unrealized loss on building.
Problem XIII
1. Eliminating entry, December 31, 20x4:
E(1) Gain on Sale of Land 45,000
Land 45,000
Problem XIV
1.
20x4 20x5 20x6
Consolidated net income as reported P 750,000 P 600,000 P 910,000
Less: P10,000 deferred gain -10,000
Plus: NCI portion of the gain 3,000
Plus: Deferred gain 7,000
Corrected consolidated net income P 743,000 P 600,000 P 917,000
2.
20x4 20x5 20x6
Land account as reported P 200,000 P 240,000 P 300,000
Less: Intercompany profit -10,000 -10,000
Restated land account P 190,000 P 230,000 P 300,000
3.
Final sales price outside the entity minus the original cost to the combined entity equals
P102,000 minus P72,000 = P30,000
Problem XV
1. The gain on the sale of the land in 20x5 was equal to the sales price minus the original cost of
the land when it was first acquired by the combined entity. In this case the gain was P150,000
- P90,000, or P60,000.
3.
Consolidated net income:
Osprey separate income (not including Income
from Branch)= P153,000 - P55,000 = P 98,000
Income from Branch 20,000
Plus: Deferred gain on land 50,000
Plus: Piecemeal recognition of gain on equipment
sale: P35,000 gain/4 years = 8,750
Consolidated net income P176,750
Problem XVI
Quail Corporation and Subsidiary
Consolidated Income Statement
for the year ended December 31, 20x5
Sales P 1,100,000
Gain on land (P20,000 + P25,000) 45,000
Cost of sales ( 560,000 )
Other expenses (see below) ( 320,000 )
Consolidated Net Income P 265,000
NCI-CNI (see below) ( 20,000 )
Consolidated net income P 245,000
Other expenses:
P265,000 + P60,000 - P5,000 piecemeal recognition of gain on
equipment P 320,000
2. a
Original cost of P1,100,000
3. a
Combined building amounts P650,000
Less: Intercompany gain __30,000
Consolidated buildings P620,000
4. a – the amount of land that will be presented in the presented in the CFS is the original cost
of P416,000 + P256,000 = P672,000.
5. a The costs incurred by BB to develop the equipment are research and development
costs and must be expensed as they are incurred. Transfer to another legal entity does
not cause a change in accounting treatment within the economic entity.
6. e
Original cost of P 100,000
7. d
Sales price P 80,000
Less: Book value
Cost P100,000
Less: Accumulated depreciation (50% x P100,000) __50,000 __50,000
Unrealized gain on sale P 30,000
Less: Realized gain - depreciation (P30,000 / 5 years) ___6,000
Net unrealized gain, 12/31/20x6 P 24,000
8. e
Eliminating entries:
12/31/20x6: subsequent to date of acquisition
Realized Gain – depreciation
Accumulated depreciation 6,000
Depreciation expense 6,000
[P80,000 - (P100,000 - {P100,000 x 50%])] = P30,000 / 5 years or
P15,000 – P8,000 = P7,000
9. d
20x4 20x5
Unrealized gain on sales of equipment (downstream sales) ( 90,000) -0-
Realized gain on sale of equipment (downstream sales) through depreciation
P90,000 / 10 years ___9,000 9,000
Net ( 81,000) 9,000
10. d
20x4 20x5
Unrealized gain on sale of equipment (downstream sales) ( 150,000) -0-
Realized gain on sale of equipment (downstream sales) through depreciation
P150,000 / 10 years ___15,000 15,000
Net ( 135,000) 15,000
11. a
20x4 20x5
Unrealized gain on sale of equipment (upstream sales) : 50,000 – 30,000 ( 20,000) -0-
Realized gain on sale of equipment (upstream sales) through depreciation
P20,000 / 5 years ___4,000 __4,000
Net ( 16,000) __4,000
12. e
Original cost of P
100,000
13. c
Sales price P 48,000
Less: Book value
Cost P100,000
Less: Accumulated depreciation __40,000 __60,000
Unrealized loss on sale P(12,000)
Add: Realized loss - depreciation (P12,000 / 6 years) x 2 years ___4,000
Net unrealized loss, 12/31/20x7 P( 8,000)
14. a
Eliminating entries:
12/31/20x7: subsequent to date of acquisition
Realized Gain – depreciation
Depreciation expense 2,000
Accumulated depreciation 2,000
[P48,000 - (P100,000 - P40,000) = P(12,000) / 6 years or P10,000 –
P8,000 = P2,000
15. c
Original cost of P 100,000
Accumulated depreciation, 1/1/20x6 (P100,000 - P20,000) P 80,000
Add: Additional depreciation (P100,000 – P80,000) / 5 years x 2 years ____8,000
Accumulated depreciation, 12/31/20x7 P 88,000
16. c
Sales price P 45,000
Less: Book value
Cost P100,000
Less: Accumulated depreciation __80,000 __20,000
Unrealized gain on sale P 25,000
Less: Realized gain - depreciation (P25,000 / 5 years) x 2 years __10,000
Net unrealized gain, 12/31/20x7 P 15,000
17. b
Eliminating entries:
12/31/20x7: subsequent to date of acquisition
Realized Gain – depreciation
Accumulated depreciation 5,000
Depreciation expense 5,000
[P45,000 - (P100,000 - P80,000) = P25,000 / 5 years or P4,000 – P9,000
= P5,000
18. c
19. b
20. c – (P20,000/20 years = P1,000), the eliminating entry to recognize the gain – depreciation
would be as follows:
Accumulated depreciation……………………………………………… 1,000
Depreciation expenses………………………………………….. 1,000
21. a
The truck account will be debited for P3,000 in the eliminating entry:
Truck 3,000
Gain 15,000
Accumulated depreciation 18,000
Seller Buyer
Cash 50,000 Truck 50,000
Accumulated 18,000 Cash 50,000
Truck 53,000
Gain 15,000
22. b
Consolidated Net Income for 20x5
P Company’s net income from own/separate operations…………. P 98,000
Realized gain on sale of equipment (downstream sales) through depreciation ___0
P Company’s realized net income from separate operations*…….….. P 98,000
S Company’s net income from own operations…………………………………. P 55,000
Unrealized gain on sales of equipment (upstream sales) (15,000)
Realized gain on sale of equipment (upstream sales) through depreciation
(P15,000 / 3 years) 5,000
S Company’s realized net income from separate operations*…….….. P 45,000 45,000
Total P143,000
Less: Amortization of allocated excess…………………… 0
Consolidated Net Income for 20x5 P143,000
Less: Non-controlling Interest in Net Income* * 18,000
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent – 20x5………….. P125,000
*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…………. P 98,000
Realized gain on sale of equipment (downstream sales) through depreciation ___0
P Company’s realized net income from separate operations*…….….. P 98,000
S Company’s net income from own operations…………………………………. P 55,000
Unrealized gain on sales of equipment (upstream sales) (15,000)
Realized gain on sale of equipment (upstream sales) through depreciation
(P15,000 / 3 years) 5,000
S Company’s realized net income from separate operations*…….….. P 45,000 45,000
Total P143,000
Less: Non-controlling Interest in Net Income* * P 18,000
Amortization of allocated excess…………………… ____0 18,000
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent………….. P125,000
Add: Non-controlling Interest in Net Income (NCINI) _ 18,000
Consolidated Net Income for 20x5 P143,000
*that has been realized in transactions with third parties.
29. a
30. b
31. c – P50,000/5 years = P10,000 per year starting January 1, 20x6.
32. b P40,000
Depreciation expense recorded by Pirn
Depreciation expense recorded by Scroll 10,000
Total depreciation reported P50,000
Adjustment for excess depreciation charged
by Scroll as a result of increase in
carrying value of equipment due to gain
on intercompany sale (P12,000 / 4 years) (3,000)
Depreciation for consolidated statements P47,000
33. e
Depreciation expense:
Parent P 84,000
Subsidiary 60,000
Total P144,000
Less: Over-depreciation due to realized gain:
[P115,000 – (P125,000 – P45,000)] = P35,000/8 years __ 4,375
Consolidated income statement P139,625
34. c
20x6
Unrealized gain on sale of equipment ( 56,000)
Realized gain on sale of equipment (upstream sales) through depreciation ___7,000
Net ( 49,000)
38. a TLK Corporation will record the purchase at P39,000, the amount it paid. GG
Company had the equipment recorded at P40,000; thus, a debit of P1,000 will raise
the equipment balance back to its original cost from the viewpoint of the
consolidated entity.
41. b
Eliminating entries:
12/31/20x5: date of acquisition
Restoration of BV and eliminate unrealized gain
Equipment 10,000
Gain 150,000
Accumulated depreciation 160,000
Mortar
Selling price P390,000
Less: Book value, 12/31/20x5
Cost, 1/1/20x2 P400,000
Less: Accumulated depreciation : P400,000/10 years x 4 years 160,000 240,000
Unrealized gain on sale of equipment P 150,000
Realized gain – depreciation: P150,000/6 years P 25,000
“Should be in CFS” Parent Books – Mortar “Recorded as” Subsidiary Books - Granite
Depreciation expense Depreciation expense
(P400,000 / 10 years) 40,000 (P390,000 / 6 years) 65,000
Acc. Depreciation 40,000 Acc. depreciation 65,000
45. c
Eliminating entries:
12/31/20x6: subsequent to date of acquisition
Equipment 10,000
Retained earnings (150,000 – 25,000) 100,000
Accumulated depreciation (P160,000 – P25,000) 135,000
46. a
Total gain on the sale = P1,000,000 – (P500,000 - P150,000) = P650,000
Unconfirmed gain after three years = 2/5 x P650,000 = P260,000
47. d
Depreciation to 1/1/x3 is P25,000
Depreciation expense for 20x3 and 20x4 is (P85,000 - P25,000)/6 = P10,000 per year
Therefore accumulated depreciation at 12/31/x4 is P45,000.
Net equipment balance is P85,000 - P45,000 = P40,000.
48. b
At the end of two years, the subsidiary reports the equipment at original cost of
P2,500,000 and accumulated depreciation of (P2,500,000/10) x 2 = P500,000.
Depreciation expense is P250,000.
The consolidated balance sheet reports the equipment at original cost of P1,000,000 and
accumulated depreciation of P200,000 + ([(P1,000,000 - P200,000)/10] x 2) = P360,000.
Depreciation expense is P80,000.
Equipment 200,000
Accumulated 200,000
depreciation
Or, alternatively
Consolidated Net Income for 20x9
P Company’s net income from own/separate operations…………. P 140,000
Realized gain on sale of equipment (downstream sales) through depreciation ___0
P Company’s realized net income from separate operations*…….….. P 140,000
S Company’s net income from own operations…………………………………. P 30,000
Unrealized loss on sale of equipment (upstream sales) 20,000
Realized loss on sale of equipment (upstream sales) through depreciation ( 0)
S Company’s realized net income from separate operations*…….….. P 50,000 50,000
Total P190,000
Less: Non-controlling Interest in Net Income* * P 15,000
Amortization of allocated excess…………………… ____0 15,000
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent………….. P175,000
Add: Non-controlling Interest in Net Income (NCINI) _ 15,000
Consolidated Net Income for 20x9 P190,000
*that has been realized in transactions with third parties.
52. b
Consolidated Net Income for 20y0
P Company’s net income from own/separate operations…………. P 162,000
Realized gain on sale of equipment (downstream sales) through depreciation ___0
P Company’s realized net income from separate operations*…….….. P 162,000
S Company’s net income from own operations…………………………………. P 45,000
Unrealized loss on sale of equipment (upstream sales)
Realized loss on sale of equipment (upstream sales) through depreciation ( 5,000)
S Company’s realized net income from separate operations*…….….. P 40,000 40,000
Total P202,000
Less: Amortization of allocated excess…………………… 0
Consolidated Net Income for 20y0 P202,000
Less: Non-controlling Interest in Net Income* * 7,500
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent – 20y0………….. P194,500
*that has been realized in transactions with third parties.
Or, alternatively
Consolidated Net Income for 20y0
P Company’s net income from own/separate operations…………. P 162,000
Realized gain on sale of equipment (downstream sales) through depreciation ___0
P Company’s realized net income from separate operations*…….….. P 162,000
S Company’s net income from own operations…………………………………. P 45,000
Unrealized loss on sale of equipment (upstream sales)
Realized loss on sale of equipment (upstream sales) through depreciation ( 5,000)
S Company’s realized net income from separate operations*…….….. P 40,000 40,000
Total P202,000
Less: Non-controlling Interest in Net Income* * P 7,500
Amortization of allocated excess…………………… ____0 7,500
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent………….. P194,500
Add: Non-controlling Interest in Net Income (NCINI) _ _ 7,500
Consolidated Net Income for 20y0 P202,000
*that has been realized in transactions with third parties.
53. d
Eliminating entries:
1/1/20x5: date of acquisition
Restoration of BV and eliminate unrealized gain
Building 3,000
Gain 8,250
Accumulated depreciation 11,250
Sky, 7/1/20x4
Selling price P33,000
Less: Book value, 7/11/20x4
Cost, 1/1/20x2 P36,000
Less: Accumulated depreciation : P36,000/8years x 2.5 years 11,250 24,750
Unrealized gain on sale of equipment P 8,250
Realized gain – depreciation: P8,250/5.5 years P 1,500
56. c
Eliminating entries:
12/31/20x5: subsequent to date of acquisition
Realized Gain – depreciation
Accumulated depreciation 1,500
Depreciation expense 1,500
P8,250 / 5.5 x years or P6,000 – P4,500
“Should be in CFS” Parent Books – Sky “Recorded as” Subsidiary Books - Earth
Depreciation expense Depreciation expense
(P24,750 / 5.5 years) 4,500 (P33,000 / 5.5 years) 6,000
Acc. Depreciation 4,500 Acc. depreciation 6,000
57. d
Eliminating entries:
1/1/20x5: subsequent to date of acquisition
Building 3,000
Retained earnings (8,250 – 750) 7,500
Accumulated depreciation (P11,250 – P750) 10,500
64. d When only retained earnings is debited, and not the non-controlling interest, a gain
has been recorded in a prior period on the parent's books.
65. d
66. a
67. b
68. b – at its original cost or book value.
69. b
20x4: Any intercompany gain should be eliminated in the CFS.
20x5
Selling price – unrelated party P 100,000
Less: Original Book value, 9/26/20x5 __60,000
Accumulated depreciation, 9/26/20x5 P 40,000
72. d
S P Consolidated
Selling price P1,980,000 P1,440,000 P1,440,000
Less: Book value: Cost P2,000,000 P1,980,000 P 1,800,000
Accumulated ___200,000 1,800,00 *1,320,000 660,000 **1,200,000 __600,000
Unrealized gain on sale of
equipment P 180,000
Realized Gain – depreciation
(P180,000/9 x 6 yrs) 120,000
Net unrealized gain, 1/1/20x9 P 60,000
Gain on sale P 60,000 P 780,000 P 840,000
*P1,980,000/ 9 x 6 years = P1,320,000
**P1,800,000/9 x 6 years = P1,200,000
74. c
S P Consolidated
Selling price P 990,000 P720,000 P 720,000
Less: Book value : Cost P1,000,000 P990,000 P 900,000
Accumulated 100,000 __900,000 *440,000 550,000 **400,000 __500,000
Unrealized gain on sale of
Equipment,1/1/20x4 P 90,000
Realized Gain – depreciation
(P90,000/9 x 4 yrs) 40,000
Net unrealized gain, 1/1/20x8 P 50,000 __________ ___________
Gain on sale P 50,000 P 170,000 P 220,000
*P990,000/ 9 x 4 years = P440,000
**P900,000/9 x 4 years = P400,000
75. d – (P30,000 + P15,000)
76. c
Selling price – unrelated party P 14,000
Less: Original Book value, 12/31/20x5
Book value, 1/1/20x4 P20,000
Less: Depreciation for 20x4 and 20x5: P20,000/4 years x 2 years 10,000 10,000
Accumulated depreciation, 12/31/20x4 P 4,000
77. b
Sort Fort Consolidated
Selling price P 100,000 P 65,000 P 65,000
Less: Book value : Cost P 120,000 P100,000 P 90,000
Accumulated __30,000 __90,000 **50,000 50,000 **45,000 __45,000
Unrealized gain on sale of
Equipment, 12/30/20x3 P 10,000
Realized Gain – depreciation
(P10,000/6 x 3 yrs) __ 5,000
Net unrealized gain, 12/31/20x6 P 5,000 __________ _________
Gain on sale P 5,000 P 15,000 P 20,000
*P100,000/6 x 3 years = P48,000
***P90,000/6 x 3 years = P45,000
78. b
Depreciation expense: (P50,000 - P40,000) / 10 years = P1,000 over depreciation
79. b
**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) P2,000,000
Unrealized gain on sales of equipment (upstream sales) (P700,000 – P600,000) ( 100,000)
Realized gain on sale of equipment (upstream sales) through depreciation (P100,000/10) 10,000
S Company’s realized net income from separate operations……… P1,910,000
Less: Amortization of allocated excess _ 0
P1,910,000
Multiplied by: Non-controlling interest %.......... __40%
Non-controlling Interest in Net Income (NCINI) - partial goodwill P 764,000
Less: NCI on goodwill impairment loss on full-goodwill . . . . . . . . . . . . . . . . . . . . . __ 0
Non-controlling Interest in Net Income (NCINI) – full goodwill . . . . . . . . . . . . . P 764,000
S3 S2 S1
Sales price 145,000 197,000 220,000
Less: Cost 160,000 145,000 197,000
Unrealized (loss) gain ( 15,000) 52,000 23,000
Or, alternatively
Consolidated Net Income for 20x4
P Company’s net income from own/separate operations…………. P 200,000
Realized gain on sale of equipment (downstream sales) through depreciation ___0
P Company’s realized net income from separate operations*…….….. P 200,000
S3 Company’s net income from own operations…………………………………. P100,000
S2 Company’s net income from own operations…………………………………. 70,000
S1 Company’s net income from own operations…………………………………. 95,000
Unrealized loss on sale of equipment (upstream sales) – S3 15,000
Unrealized gain on sale of equipment (upstream sales) – S2 ( 52,000)
Unrealized gain on sale of equipment (upstream sales) - S1 ( 23,000)
S Company’s realized net income from separate operations* P205,000 205,000
Total P405,000
Less: Non-controlling Interest in Net Income* * (P23,000 + P5,400 + P7,200) P 35,600
Amortization of allocated excess…………………… ____0 _ 35,600
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent………….. P369,400
Add: Non-controlling Interest in Net Income (NCINI) _ _35,600
Consolidated Net Income for 20y0 P405,000
*that has been realized in transactions with third parties.
83. b
Non-controlling Interest in Net Income (NCINI) for 20y2
S Company’s net income of Subsidiary Company from its own operations
(Reported net income of S Company) P 40,000
Unrealized gain on sales of equipment (upstream sales) – year of sale -
Realized gain on sale of equipment (upstream sales) through depreciation
(P14,500 – P9,000) / 5 years 1,100
S Company’s realized net income from separate operations……… P 41,100
Less: Amortization of allocated excess 0
P 41,100
Multiplied by: Non-controlling interest %.......... 20%
Non-controlling Interest in Net Income (NCINI) - partial goodwill P 8,220
Less: NCI on goodwill impairment loss on full-goodwill . . . . . . . . . . . . . . . . . . . . . 0
Non-controlling Interest in Net Income (NCINI) – full goodwill . . . . . . . . . . . . . P 8,220
84. a
**Non-controlling Interest in Net Income (NCINI) for 20y2
S Company’s net income of Subsidiary Company from its own operations
(Reported net income of S Company) P 135,000
Unrealized gain on sale of equipment (downstream sales)
Realized gain on sale of equipment (downstream sales) through depreciation ( 0)
S Company’s realized net income from separate operations……… P 135,000
Less: Amortization of allocated excess 0
P 135,000
Multiplied by: Non-controlling interest %.......... 20%
Non-controlling Interest in Net Income (NCINI) - partial goodwill P 27,000
Less: NCI on goodwill impairment loss on full-goodwill . . . . . . . . . . . . . . . . . . . . . 0
Non-controlling Interest in Net Income (NCINI) – full goodwill . . . . . . . . . . . . . P 27,000
85. a
Consolidated Net Income for 20y2
P Company’s net income from own/separate operations…………. P 200,800
Realized gain on sale of equipment (downstream sales) through depreciation _ 8,000
P Company’s realized net income from separate operations*…….….. P 208,800
S Company’s net income from own operations…………………………………. P 135,000
Unrealized gain on sale of equipment (upstream sales)
Realized gain on sale of equipment (upstream sales) through depreciation ( 0)
S Company’s realized net income from separate operations*…….….. P 135,000 135,000
Total P343,800
Less: Amortization of allocated excess…………………… 0
Consolidated Net Income for 20y2 P343,800
Less: Non-controlling Interest in Net Income* *(refer to No. 80) 27,000
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent – 20y2………….. P316,800
*that has been realized in transactions with third parties.
Net income from own operations:
Prout Sexton
Sales P1,475,000 P1,110,000
Less: Cost of goods sold 942,000 795,000
Other expenses (including depreciation) 145,000 90,000
Income tax expense __187,200 ____90,000
Net income from own operations P 200,800 P 135,000
Add: Dividend income ____80,000
Net income P 280,800 P 135,000
Sexton, 1/1/20y1
Selling price P360,000
Less: Book value, 1/1/20y1
Cost, 1/1/20x1 P400,000
Less: Accumulated depreciation : P400,000/25 years x 10 years 160,000 240,000
Unrealized gain on sale of equipment P120,000
Realized gain – depreciation: P120,000/15 years P 8,000
Or, alternatively
Consolidated Net Income for 20y2
P Company’s net income from own/separate operations…………. P 200,800
Realized gain on sale of equipment (downstream sales) through depreciation _ 8,000
P Company’s realized net income from separate operations*…….….. P 208,800
S Company’s net income from own operations…………………………………. P 135,000
Unrealized gain on sale of equipment (upstream sales)
Realized gain on sale of equipment (upstream sales) through depreciation ( 0)
S Company’s realized net income from separate operations*…….….. P 135,000 135,000
Total P343,800
Less: Non-controlling Interest in Net Income* * (refer to No. 80) P 27,000
Amortization of allocated excess…………………… ____0 27,000
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent………….. P316,800
Add: Non-controlling Interest in Net Income (NCINI) _ _27,000
Consolidated Net Income for 20y2 P343,800
*that has been realized in transactions with third parties.
Or, alternatively:
Consolidated Retained Earnings, December 31, 20y2
Retained earnings - Parent Company, December 31, 20y1 (cost model)
(P1,300,000 + P280,800 – P120,000) P1,460,800
Less: Downstream - net unrealized gain on sale of equipment – prior to
12/31/20y1 [P120,000 – (P8,000 x 2 years)] 104,000
Adjusted Retained Earnings – Parent 12/31/20x5 (cost model )
S Company’s Retained earnings that have been realized in
transactions with third parties.. P1,356,800
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, December 31, 20y2
(P1,040,000 + P135,000 – P100,000) P 1,075,000
Less: Retained earnings – Subsidiary, January 1, 20x9 800,000
Increase in retained earnings since date of acquisition P 275,000
Less: Accumulated amortization of allocated excess 0
Upstream - net unrealized gain on sale of equipment – prior to
12/31/20y2 _______0
P 275,000
Multiplied by: Controlling interests %................... 80%
P 220,000
Less: Goodwill impairment loss _____0 220,000
Consolidated Retained earnings, December 31, 20y2 P1,576,800
88. c
Non-controlling interest (fulll-goodwill), December 31, 20y2
Common stock – Subsidiary Company, December 31, 20y2…… P 1,200,000
Retained earnings – Subsidiary Company, December 31, 20y2
Retained earnings – Subsidiary Company, January 1, 20y2 P1,040,000
Add: Net income of subsidiary for 20y2 135,000
Total P1,175,000
Less: Dividends paid – 20y2 100,000 1,075,000
Stockholders’ equity – Subsidiary Company, December 31, 20x5 P 2,275,200
Adjustments to reflect fair value - (over) undervaluation of assets and
liabilities, date of acquisition (January 1, 20x4) 0
Amortization of allocated excess (refer to amortization above) : 0
Fair value of stockholders’ equity of subsidiary, December 31, 20x5…… P2,275,200
Less: Upstream - net unrealized gain on sale of equipment – prior to
12/31/20y2 _____)0
Realized stockholders’ equity of subsidiary, December 31, 20x5………. P 2,275,00
Multiplied by: Non-controlling Interest percentage…………... _ 20
Non-controlling interest (partial goodwill)………………………………….. P 455,000
89. c
Prout Sexton Consolidated
Selling price P 360,000 P300,000 P 300,000
Less: Book value : Cost P 400,000 P360,000 P 240,000
Accumulated *160,000 __240,000 **48,000 312,000 ***32,000 _208,000
Unrealized gain on sale of
Equipment, 1/1/20y1 P 120,000
Realized Gain – depreciation
(P120,000/15 x 2 yrs) __16,000
Net unrealized gain, 1/1/20y3 P 104,000 __________ _________
Gain on sale P 104,000 P( 12,000) P 92,000
*P400,000/25 x 10 years = P160,000
**P360,000/15 x 2 years = P48,000
***P240,000/15 x 2years = P400,000
Entry analysis:
Journal Entry on the books of Sexton to record the sale
Cash 300,000
Accumulated Depreciation - Fixed Assets (P360,000/15) x 2 years) 48,000
Loss on Sale of Equipment 12,000
Plant and Equipment 360,000
Workpaper eliminating entry on December 31, 20y3 consolidated statement necessary to prepare
consolidated statements:
Beginning Retained Earnings – Prout(P120,000 - P16,000) 104,000
Loss on Sale of Equipment 12,000
Gain on Sale of Equipment 92,000
95. d
Consolidated Net Income for 20x5
P Company’s net income from own/separate operations…………. P 300,000
Net unrealized gain on sale of equipment (downstream sales) through
depreciation P35,000 – P875) 34,125
P Company’s realized net income from separate operations*…….….. P 265,875
S Company’s net income from own operations…………………………………. P 150,000
Unrealized gain on sales of equipment (upstream sales) (30,000)
Realized gain on sale of equipment (upstream sales) through depreciation 4,500
S Company’s realized net income from separate operations*…….….. P 124,500 124,500
Total P390,375
Less: Amortization of allocated excess…………………… 3,000
Consolidated Net Income for 20x5 P387,375
Less: Non-controlling Interest in Net Income* * 24,300
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent – 20x5………….. P363,075
*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…………. P 300,000
Net unrealized gain on sale of equipment (downstream sales) through
depreciation P35,000 – P875) 34,125
P Company’s realized net income from separate operations*…….….. P 265,875
S Company’s net income from own operations…………………………………. P 150,000
Unrealized gain on sales of equipment (upstream sales) (30,000)
Realized gain on sale of equipment (upstream sales) through depreciation 4,500
S Company’s realized net income from separate operations*…….….. P 124,500 124,500
Total P390,375
Less: Non-controlling Interest in Net Income* * P 24,300
Amortization of allocated excess…………………… 3,000 27,300
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent………….. P363,075
Add: Non-controlling Interest in Net Income (NCINI) _ 24,300
Consolidated Net Income for 20x5 P387,375
*that has been realized in transactions with third parties.
105 c
P30,000 - (1/4 x P30,000) = P 22,500
112. b
20x5
Share in subsidiary net income (120,000 x 90%) 108,000
Realized gain on sale of equipment (downstream sales) through depreciation _ 2,000
Net 110,000
113. d
20x6
Share in subsidiary net income (130,000 x 90%) 117,000
Realized gain on sale of equipment (downstream sales) through depreciation _ 2,000
Net 119,000
114. c
Smeder, 1/1/20x4
Selling price P84,000
Less: Book value, 1/1/20x4
Cost, 1/1/20x4 P120,000
Less: Accumulated depreciation __48,000 72,000
Unrealized gain on sale of equipment P12,000
Realized gain – depreciation: P12,000/6 years P 2,000
115. b
20x4
Share in subsidiary net income (28,000 x 80%) 22,400
Unrealized gain on sale of equipment (upstream sales); 12,000 x 80% ( 9,600)
Realized gain on sale of equipment (upstream sales) through depreciation
P2,000 x 80% _ 1,600
Net 14,400
116. c
20x5
Share in subsidiary net income (32,000 x 80%) 25,600
Realized gain on sale of equipment (upstream sales) through depreciation
P2,000 x 80% _ 1,600
Net 27,200
117. d
Eliminating entries:
1/1/20x4: date of acquisition
Restoration of BV and eliminate unrealized gain
Equipment 36,000
Gain 12,000
Accumulated depreciation 48,000
Smeder, 1/1/20x4
Selling price P84,000
Less: Book value, 1/1/20x4
Cost, 1/1/20x4 P120,000
Less: Accumulated depreciation __48,000 72,000
Unrealized gain on sale of equipment P12,000
Realized gain – depreciation: P12,000/6 years P 2,000
Eliminating entries:
12/31/20x4: subsequent to date of acquisition
Realized Gain – depreciation
Accumulated depreciation 2,000
Depreciation expense 2,000
P12,000 / 6 years or P14,000 – P12,000
Combining the eliminating entries for 1/1/20x4 and 12/31/200x4, the net effect of
accumulated depreciation would be a net credit of P46,000 (P48,000 – P2,000).
118. c
20x4
Unrealized gain on sale of equipment ( 12,000)
Realized gain on sale of equipment through depreciation ___2,000
Net ( 10,000)
119. d
Eliminating entries:
5/1/20x4: date of acquisition
Restoration of BV and eliminate unrealized gain
Cash 5,000
Loss 5,000
121. b
Cash 5,000
Retained earnings 5,000
122. e
20x4
Share in subsidiary net income (200,000 x 90%) 180,000
Unrealized loss on sale of land (upstream sales): P5,000 x 90% _ 4,500
Net 184,500
123. d
20x4
Share in subsidiary net income (200,000 x 90%) 180,000
Unrealized loss on sale of land (upstream sales): P5,000 x 90% _ 4,500
Net 184,500
124. b
Stark Parker Consolidated
Selling price P 80,000 P 92,000 P 92,000
Less: Book value, 5/1/20x4 _85,000 __80,000 _85,000
Unrealized gain on sale of equipment P ( 5,000) P 12,000 P 7,000
Theories
1. d 6. c 11. c 16. b 21. b 26. b 31 d
2. c 7. c 12. d 17. a 22. d 27. c
3. d 8. a 13. b 18. a 23. c 28. b
4. d 9. c 14. c 19. c 24. c 29. b
5. b 10, b 15, d 20. a 25. b 30. c