1

UNIVERSITY OF THE EAST

PAS 27- Separate Financial Statements and PFRS 10- Consolidated Financial Statements

1. Consolidated Financial Statements- financial statements of a group in which the assets, liabilities,
equity, income, expenses and cash flows of the parent and its subsidiaries are presented as those of a
single economic entity.

2. Separate Financial Statements- financial statements presented by a parent (i.e. an investor with
control of a subsidiary, an investor with joint control of, or significant influence over, on investee., in
which the investments are accounted for at cost or in accordance with PAS/PFRS 39-Financial
Instruments.

3. Control of an investee- an investor controls an investee when the investor is exposed, or has rights,
to variable returns from its investment with the investee and has the ability to affect those returns
through its power over the investee.

4. CONSOLIDATION PROCEDURES
The concept that drives all consolidation procedures is that the consolidated financial statements
should show only the results of the transactions with outsiders. The effects on the transactions
between the parent company and its subsidiaries or between subsidiaries should always be eliminated in
full.
 Intra-group balances, transactions, income and expenses should be eliminated in full.
 The portion of the acquired operation not owned by the acquirer, but claimed by outside interests is
non-controlling interest.
 PFRS 10 specifies that assets and liabilities are valued entirely at fair value, and the non-controlling
interest is correspondingly adjusted to reflect the relevant proportion of the net assets.
 The non-controlling interest shown in a consolidated statement of financial position will be the non-
controlling percentage times the net assets of the subsidiary as reported in the parent’s
consolidated statement of financial position.
 Non-Controlling Interest should be presented in the consolidated statement of financial
position within equity, but separate from the parent’s shareholders’ equity.
 Non- controlling Interest in the profit or loss of the group should also be separately presented.
This is accomplished by presenting net income before non-controlling interest, followed by the
allocation to the non-controlling, and then followed by consolidated net income.
 If the subsidiaries have different fiscal years, they may prepare updated information as of the
parent’s year-end, to be used for preparing consolidated financial statements.
 Consolidated financial statements shall be prepared using uniform accounting policies for like
transactions and other events in similar circumstances.

outsider
Problem 1: On January 1, 2024, PINKY Company purchased 80% of the outstanding shares of STYLE
--
*
Company from the market for P9,062,500. Additional direct acquisition cost of P1,000,000 was paid to a
consultant who facilitated the transaction. Exp
The statements of financial positions of the two companies as of December 31, 2023 show the following:

PINKY Company STYLE Corporation

Cash P9,000,000 P 1,250,000
Accounts Receivable 3,000,000 1,850,000
Inventories 5,500,000 2,200,000
Plant Assets, net 15,500,000 5,500,000
Patents 750,000 500,000
TOTAL ASSETS P33,750,000 P11,300,000

Current Liabilities P 5,000,000 P 1,200,000

Bonds Payable 7,500,000 1,600,000
Share Capital, no par 10,000,000 7,500,000 S
Retained Earnings 11,250,000 1,000,000
TOTAL EQUITIES P 33,750,000 P 11,300,000

For the year ending December 31, 2024, the statements of comprehensive income of the two
companies follow:

PINKY Company STYLE Corporation

Sales P 8,550,000 P 3,920,000
 2

Dividend Revenue 1,200,000 500,000

Total 9,750,000 4,420,000
Cost of Goods Sold 5,750,000 1,800,000
Operating Expenses* 1,100,000** 650,000**

Total 6,850,000 2.450,000

Net Profit P2,900,000 P 1,970,000

** Includes depreciation and amortization

Other Information: -under

 On January 1, 2024, Style Corporation had machinery with carrying value less than its fair value
-

by P450,000. (remaining life- 3 years); Patent whose carrying values was more than its fair value
by P100,000 (remaining life- 4 years) over
 Also on January 1, 2024, merchandise inventory’s fair value was more than its book value by
-

P300,000; 75% of this was sold in 2024 and the remaining amount was sold in 2025.
 During 2024, PINKY and STYLE paid dividends of P1,200,000 and P800,000, respectively.
 During 2025, PINKY earned PP2,000,000 and paid dividends of P750,000 and while STYLE earned
P1,200,000 and paid dividends of P600,000.
 Impairment loss computed on goodwill in 2024- P450,000; 2025- P600,000.
 The parent accounts for its investment in subsidiary using the cost method.

REQUIRED:
1. Working paper elimination entries in 2024 and 2025.
2. Compute the following for the year 2024 and 2025

1. Goodwill (Bargain Price) arising from the above acquisition

2. Consolidated Net Income
3. Consolidated Net Income Attributable to Controlling Interest
4. Consolidated Net Income Attributable to Non-Controlling Interest
5. Consolidated retained earnings as of December 31:
6. Non-controlling interest as of December 31:
7. Consolidated dividend revenue

Problem 2: P Company acquired 65% of S Company on January 2, 2024 for P9,360,000 cash. S’s
-
shareholders’ equity on this date is consisted of ordinary share- P10,000,000 and retained earnings-
>
P6,750,000. An analysis of S’s net assets revealed the following:

Carrying Value Fair Value

Building (10 year life) P12,500,00 P10,000,000
Patent (4 year life) 1,000,000 1,500,000
Land 5,000,000 6,500,000
Bonds Payable 2,500,000 2,800,000

1. What was the resulting goodwill (bargain price) on the above acquisition?
A. P(1,270,000) B. P(1,550,000) C. P(257,500) ⑧
D. P(1,007,500)

2. What adjustment would be necessary for S’s Building account in preparing the consolidated FS at
January 2, 2024, December 31, 2024 and December 31, 2025. Assume the Building would be sold in 2025.
A. P(2.5M); P(2.25M); P(2M) C. P(1.625M); P(1.462.5M); P(1.3M)
B. P2.5M; P2.25M; P2M D. P1.625M; P1.462.5M; P1.3M

3. What adjustment was necessary for SET’s Land account in preparing the consolidated FS at January 2,
2024, December 31, 2024 and December 31, 2025?
A. P(1.5M); P(1.5M); P0 C. P(1.5M); P(1.5M); P(1.5M)
B. P1.5M; P1.5M; P0M D. P1.5M; P1.5M; P1.5M

Problem 3: PANDA Corporation acquired 80% of the voting common stock of STAG Company at a time
when STAG Company’s book values and fair values were equal. Separate incomes of PANDA Corporation
and STAG Company for 2025 are as follows:

PANDA CORP STAG CO.

Sales P20,000,000 P12,500,000
Cost of Goods Sold 15,500,000 9,000,000
Operating Expenses 2,750,000 1,500,000
PROBLEM 1

JE: P. Co. S. Lo. WPEE NCI

↳Snare Inv. in Stocks
capital -

Jan. 1, 2024 Investment in stocks of3. Lo I SC-3 co. 7,500,000 9,062,500 6,800,000 1,700,000
9,062,500
Cash RE -
S. Lo 1,000,000 520,000 130,000

Dividends Declared Dividends Declared Investmenti n S. Co. (801) 6,800,000 1,742,000 435,625
1.200,000 800,000
Cash Cash N21(20%) 1,700,000 a,062,500 a,062,500 2. 245,625

Cash &
Machinery, net 450,000
640,008
Dividend Revenue Inventory 300,008

Patent 100,000

FU NA: Cash paid (801) 9,062,500 520,000

I
BV 8,500,000 N2I (9.062,500/80%. x20%) 2,265,425 2,265,425 130,000

+
450,000 1,830,000 1)I, 328,125 ③ Goodwill 2, 178,125

100,000 FV NA 9.150,000 Investmentin S. Co. (801) 1,742,500

300.000
+
GoodWill 2,178,125 1 N
21 (20%) 435,625

9,150,000 ④ Dividend Revenue 640,000

201
x NCI 160,000

1,830,000 Dividend Declared 800,000

⑤
Impairment Loss
450,000
Goodwill

(N1(Consolidated NI) CN1 to P. Co -

c1 (N-NCI ⑥ OPEX
150,000
↑ 2,900,000 2,900,000
I P. Lo Machinery, net
- -

NI-S. Lo 1,970,000 1,576,000 394,000 ⑦

Patent 7 Cons. Dividend Revenue:
25,000
Interco. Dividend Revenue (640,000) (640,000) - 0 PEX P.20 1,200,000

ImpairmentLoss [450,000) (360,000) (90,000) ⑧

COS 3. Co 500,000
225,000
Amortization Over/Under: Inventory Dividend (640,000)

Under Machinery450/3 yrs [150,000) (120,000) (30,000) 1,060,000

Over Patent 10014 25,000 20.000 5,000 5 Cons -

RE: 6 NCI as ofDac. 31:

Under 75%
Inventory300,000 x (225,000) (180,000) (45,000) RE 11,250,000 Recognized NCI 2,265,425

3,430,000 2 3,196,000 3
=
t 234,0004 CN1 P. Lo 3,194,000 CN1·NCI 234,000

Dividend Declared - P. Co (1,200,000) 20%

share in Dividend Declared 800K x (160,000)

13,244,000 2,339,625
PROBLEM
2

65% 9,360,000

35%

Price Paid 9,340,000/65x.35 5,040,000

FV NA 5.582,5005.582,500

14,942,500

(15,950,000)

(1,007,500)

BU(10M 6,750,000)
+ 16,750,000

2,500,000
-

500,000
+

+
1,500,000

-
300,000

FU OFNA 15,950,000

X 35%

5,582,500
 3

Separate Income from own Operations 1,750,000 2,000,000

Inter-company sales between PANDA Corp. to STAG Co. for 2024 and 2025 are summarized as follows:

Year Seller Selling Price Unsold at Year-End

2024 PANDA Corp. P400,000 20%
2024 STAG Co. 250,000 15%
2025 PANDA Corp. 500,000 10%
2025 STAG Co. 560,000 20%

PANDA Corp. billed STAG Co. at 30% and 40% in 2024 and 2025, respectively; on the other hand, STAG
Co. charged the parent company at 25% and 40% above cost for the same years.

On the 2025 consolidated statement of profit and loss, what would be the amounts of:

3. Sales
4. Cost of Goods Sold
5. Net income

Problem 4: PIERRE Corporation owns 90% of SAM Inc. On November 30, 2024, finished goods totaling
P90,000 was disposed by PIERRE as follows:
a. It sold 60% of the above inventory to SAM for P72,000.
b. Sold P27,000 worth of the same inventories to an unaffiliated company for P36,000.

SAM resold 80% of the inventory it purchased from PIERRE to an outsider for P72,000 on December 31,
2023. The companies had no other transactions in 2024.

What amount of sales and cost of goods sold will be reported in the 2024 consolidated income
statement?
A. P180,000; P81,000 B. P108,000; P70,200 C. P90,000; P57,600 D. P72,000; P38,600

Problem 5: A summary of the separate statement of income and expenses of POPOY Inc. and SONNY Inc.,
a 80% owned subsidiary of POPOY for 2024 follows:

POPOY SONNY
Sales P 500,000 P 300,000
Gain on Sale of Equipment 15,000
Cost of Goods Sold (200,000) (130,000)
Depreciation Expense (50,000) (30,000)
Other Operating Expenses (80,000) (40,000)
Loss on Sale of Furniture and fixtures (7,500)
Separate Profit (excluding dividend) 162,500 115,000

SONNY Inc., sold equipment with a carrying value of P50,000 to POPOY Inc., for P65,000 on January 2,
2024 at which time, the asset had a remaining useful life of 5 years. POPOY used the equipment until
December 31, 2026 until it was sold to outsiders for P36,000. On the other hand, SONNY bought an old
sofa from POPEYE last July 31, 2024 ( this is the only movement of furniture for the year).

41. What is the amount of the consolidated net income attributable to non-controlling interest for the
year ended, December 31, 2024?
A. P20,600 B. P23,000 C. P20,000 D. P23,600

Problem 6: PEPE Inc. owns 90% of the outstanding shares of SUE Co. On September 30, 2024, SUE
purchased office furniture from PEPE at an intercompany gain of P50,000 (remaining life- 4 years).
Income information for 2024 taken from the separate company’s financial statements of PEPE Inc. and
SUE Co. is presented as follows:

PEPE INC. SUE CO.

Sales P 1,000,000 P 460,000
Gain on Sale of Furniture 50,000
 4

Dividend Revenue 45,000

Total 1,095,000

Cost of Goods Sold P 500,000 260,000

Operating Expenses 200,000 40,000
Depreciation Expense 100,000, 60,000
Total 800,000 360,000
Net Profit P 295,000 P 100,000

At what amount will the (1) gain on sale of furniture, (2) consolidated depreciation and (3) consolidated
net income appear on the consolidated statement of comprehensive income of PEPE and SUE for the year
2024:
A. (1) Zero; (2) P156,875; (3) P303,125 C. (1) P0 ; (2) P160,000; (3) P303,125
B. (1) P 12,500; (2) P158,000; (3) P295,000 D.(1) P12,500; (2)P160,000; (3)P280,000

Problem 7: On January 1, 2024, P Company purchased 75 percent of the outstanding shares of SALLY
Company at a cost of P3,200,000. On that date, SALLY Company had P 2,500 of ordinary shares and P
450,000 of retained earnings. P Company had P3,000,000 ordinary shares and retained earnings of
P1,000,000. P Co. normally sells merchandise to SALLY Co. at 120% of cost while SALLY Co., regularly
sells merchandise to P Co. at 30% mark-up. P Co’s December 31,2024 and 2025 inventories include goods
purchased intercompany of P52,000 and P40,300, respectively; SALLY’s December 31, 2024 and 2025
inventories include inter-company purchases of P72,000 and P54,000, respectively.

On July 1,2024, SALLY Co., purchased a machine for P1,000,000 (with carrying value of P850,000) to P
Corp. This machine still had remaining useful life of 5 years.

For 2024, P Company had net income of P 1,200,000 and paid dividends of P 420,000. On the other hand,
SALLY Company reported a net income of P750,000 and paid dividends of P 350,000. Annual impairment
loss on goodwill of P250,000 had been computed.

On the 2024 consolidated financial statement what is the (1) attributable to parent and (2) to non-
controlling interest?

Problem 8: PITT Corporation owns 90% of the outstanding common shares of SAP Company. On March 31,
2024, office equipment that had a carrying value to SAPP Company P 3,200,000 and has a remaining life
of 6 years was sold to PITT Corporation for P3,500,000. On the other hand, last August 31, 2024, PITT
Corporation sold a second hand delivery van to SAPP Company at a loss of P50,000 (remaining life- 4
years).

Included in the January 1, 2024 inventory of PITT Company was merchandise inventory worth P65,000
while SAPP Company had P80,000 on its December 31, 2024. These inventories came from inter-company
sales and purchases. PITT Corporation included a mark-up of 25% on cost while SAPP Company charged a
30% mark-upon sales.

Each of the two companies has net incomes in 2024 and 2025 as follows:
2022 2023
PITT Corporation P 1,200,000 P 1,500,000
SAPP Company 900,000 1,000,000

What is the amount of the consolidated net income attributable to parent’s equity in (1) 2022 and (2)
2023?

Problem 9: PANTER Corp. owns 80% of SOS Corp.’s ordinary shares. On June 1, 2024, PANTER sold to SOS
for P 450,000 machinery with a carrying amount of P 300,000. SOS is to depreciate the acquired
machinery over a five- year life by the straight-line method. On the other hand, last September 30,
2025, PANTER purchased slightly used computers from SOS for P85,000 (with carrying value of P100,000;
remaining life 3 years). On December 31, 2026, SOS was able to sell the machinery to a non-affiliated
company for P350,000,
 5

The net adjustments to compute 2024, 2025 and 2026 consolidated income before income tax would be
an increase (decrease) of:
2024 2025 2026
A. P(118,750) P43,750 P30,000
B. P(132,500) 43,750 97,500
C. P118,750 25,000 30,000
D. P(132,500) 43,750 30,000

END OF HANDOUT