consolidated net income

Chapter 17

Problem I1. 20x4

Sales 1,080,000Purchases (Cost of Goods Sold) 1,080,000

12/31 Inventory (Income Statement)[216,000 – (216,000/1.20)] 36,000

12/31 Inventory (Balance Sheet) 36,000

20x5Sales 1,200,000

Purchases (Cost of Goods Sold) 1,200,000

12/31 Inventory (Income Statement)[300,000 – (300,000/1.20)] 50,000

12/31 Inventory (Balance Sheet) 50,000

Beginning R/E – Puma 36,0001/1 Inventory (Income Statement) 36,000

2.Consolidated Net Income for 20x5 P Company’s net income from own/separate operations…………. P 760,000 Realized profit in beginning inventory of S Company (downstream sales) 36,000 Unrealized profit in ending inventory of S Company (downstream sales)… (_50,000) P Company’s realized net income from separate operations*…….….. P 746,000 S Company’s net income from own operations…………………………………. P 460,000 Realized profit in beginning inventory of P Company (upstream sales) 0 Unrealized profit in ending inventory of P Company (upstream sales)… ( 0) S Company’s realized net income from separate operations*…….….. P 460,000 460,000 Total P1,206,000 Less: Amortization of allocated excess…………………… 0 Consolidated Net Income for 20x5 P1,206,000 Less: Non-controlling Interest in Net Income* * 92,000 Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent – 20x5………….. P

1,114,000 *that has been realized in transactions with third parties.

Or, alternativelyConsolidated Net Income for 20x5 P Company’s net income from own/separate operations…………. P 760,000 Realized profit in beginning inventory of S Company (downstream sales) 36,000 Unrealized profit in ending inventory of S Company (downstream sales)… (_50,000) P Company’s realized net income from separate operations*…….….. P 746,000 S Company’s net income from own operations…………………………………. P 460,000 Realized profit in beginning inventory of P Company (upstream sales) 0 Unrealized profit in ending inventory of P Company (upstream sales)… ( 0) S Company’s realized net income from separate operations*…….….. P460,000 460,000 Total P1,206,000 Less: Non-controlling Interest in Net Income* * P 92,000 Amortization of allocated excess…………………… 0 92,000 Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent………….. P1,114,000 Add: Non-controlling Interest in Net Income (NCINI) _ 92,000 Consolidated Net Income for 20x5 P


**Non-controlling Interest in Net Income (NCINI) for 20x5 S Company’s net income of Subsidiary Company from its own operations (Reported net income of Son Company) P460,000 Realized profit in beginning inventory of P Company (upstream sales) 0 Unrealized profit in ending inventory of P Company (upstream sales) ( 0) S Company’s realized net income from separate operations……… P460,000 Less: Amortization of allocated excess _____0

P460,000 Multiplied by: Non-controlling interest %.......... 20% Non-controlling Interest in Net Income (NCINI) – partial goodwill P 92,000

Problem II1. Sales 1,020,000

Purchases (Cost of Sales) 1,020,000To eliminate intercompany sales.

12/31 Inventory (Income Statement) 51,000Inventory (Balance Sheet) 51,000

To eliminate unrealized intercompany profit in ending inventory.

Beginning Retained Earnings – Pinta(.90 × P40,000) 36,000

Noncontrolling interest 4,0001/1 Inventory (Balance Sheet) 40,000

To recognize unrealized profit in beginning inventory realized during the year.

Consolidated Net Income for 20x5 P Company’s net income from own/separate operations…………. P

1,720,000 Realized profit in beginning inventory of S Company (downstream sales) 0 Unrealized profit in ending inventory of S Company (downstream sales)… (_ 0) P Company’s realized net income from separate operations*…….….. P 1,

720,000 S Company’s net income from own operations…………………………………. P 600,000 Realized profit in beginning inventory of P Company (upstream sales) 40,000 Unrealized profit in ending inventory of P Company (upstream sales)… ( 51,00 0) Son Company’s realized net income from separate operations*…….….. P 589,000 589,000 Total P2,309,000 Less: Amortization of allocated excess…………………… 0 Consolidated Net Income for 20x5 P2,309,000 Less: Non-controlling Interest in Net Income* * 58,900 Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent – 20x5………….. P

2,250,100 *that has been realized in transactions with third parties.Or, alternatively

Consolidated Net Income for 20x5 P Company’s net income from own/separate operations…………. P

1,720,000 Realized profit in beginning inventory of S Company (downstream sales) 0 Unrealized profit in ending inventory of S Company (downstream sales)… (________0) P Company’s realized net income from separate operations*…….….. P1,720,,00

0 S Company’s net income from own operations…………………………………. P 600,000 Realized profit in beginning inventory of P Company (upstream sales) 40,000 Unrealized profit in ending inventory of P Company (upstream sales)… ( 51,000) S Company’s realized net income from separate operations*…….….. P589,000 589,000 Total P2,309,000 Less: Non-controlling Interest in Net Income* * P 58,900 Amortization of allocated excess…………………… 0 __58,900 Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent………….. P2,250,100 Add: Non-controlling Interest in Net Income (NCINI) _ 58,900 Consolidated Net Income for 20x5 P


**Non-controlling Interest in Net Income (NCINI) for 20x5 S Company’s net income of Subsidiary Company from its own operations (Reported net income of Son Company) P600,000 Realized profit in beginning inventory of P Company (upstream sales) 40,000 Unrealized profit in ending inventory of P Company (upstream sales) ( 51,000) Son Company’s realized net income from separate operations……… P589,000 Less: Amortization of allocated excess _____0

P589,000 Multiplied by: Non-controlling interest %.......... 10% Non-controlling Interest in Net Income (NCINI) P 58,900

Problem IIIConsolidated Net Income for 20x4 P Company’s net income from own/separate operations…………. P

3,600,000 Realized profit in beginning inventory of S Company (downstream sales) 54,000 Unrealized profit in ending inventory of S Company (downstream sales)… (_ 45,00 0) P Company’s realized net income from separate operations*…….….. P

3,609,000 S Company’s net income from own operations (P1,500,000 + P2,400,000) P3,900,00

0 Realized profit in beginning inventory of P Company (upstream sales) – Salad

66,000

Realized profit in beginning inventory of P Company (upstream sales)- 63,000

Tuna Unrealized profit in ending inventory of P Company (upstream sales) – Salad

( 57,000)

Unrealized profit in ending inventory of P Company (upstream sales) – Tuna

( 69,000)

S Company’s realized net income from separate operations*…….….. P3,903,000

3,903,000

Total P7,512,000 Less: Amortization of allocated excess…………………… 0 Consolidated Net Income for 20x4 P7,512,000 Less: Non-controlling Interest in Net Income* *- Salad P

301,800 Non-controlling Interest in Net Income* *- Tuna ___239,40

0___541,200

Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent – 20x4………….. P6,970,800

*that has been realized in transactions with third parties.

Or, alternativelyConsolidated Net Income for 20x4 P Company’s net income from own/separate operations…………. P

3,600,000 Realized profit in beginning inventory of S Company (downstream sales) 54,000 Unrealized profit in ending inventory of S Company (downstream sales)… (___45,000) P Company’s realized net income from separate operations*…….….. P3,609,,00

0 S Company’s net income from own operations (P1,500,000 + P2,400,000) P3,900,00

0 Realized profit in beginning inventory of P Company (upstream sales) – Salad

66,000

Realized profit in beginning inventory of P Company (upstream sales)- Tuna

63,000

Unrealized profit in ending inventory of P Company (upstream sales) – Salad

( 57,000)

Unrealized profit in ending inventory of P Company (upstream sales) – Tuna

( 69,000)

S Company’s realized net income from separate operations*…….….. P3,903,000

3,903,000

Total P7,512,000 Less: Non-controlling Interest in Net Income* * - Salad P 301,800 Non-controlling Interest in Net Income* * - Tuna 239,400 Amortization of allocated excess…………………… 0 __541,20

0 Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent………….. P6,970,800 Add: Non-controlling Interest in Net Income (NCINI) _541,200 Consolidated Net Income for 20x4 P

7,512,000 *that has been realized in transactions with third parties. **Salad

Non-controlling Interest in Net Income (NCINI) for 20x4 S Company’s net income of Subsidiary Company from its own operations (Reported net income of S Company) P1,500,000 Realized profit in beginning inventory of P Company (upstream sales) 66,000 Unrealized profit in ending inventory of P Company (upstream sales) ( 57,000) Son Company’s realized net income from separate operations……… P1,509,000 Less: Amortization of allocated excess _____0

P1,509,000

Multiplied by: Non-controlling interest %.......... __ 20%

Non-controlling Interest in Net Income (NCINI) P 301,800

**TunaNon-controlling Interest in Net Income (NCINI) for 20x4 S Company’s net income of Subsidiary Company from its own operations (Reported net income of S Company) P2,400,000 Realized profit in beginning inventory of P Company (upstream sales) 63,000 Unrealized profit in ending inventory of P Company (upstream sales) ( 69,000) Son Company’s realized net income from separate operations……… P2,394,000 Less: Amortization of allocated excess _____0

P2,394,000

Multiplied by: Non-controlling interest %.......... 10% Non-controlling Interest in Net Income (NCINI) P 239,400

Realized Profit in Beginning inventory:

Downstream Sales (Sales from Parent to Subsidiary) P414,000 x 15/115 P54,000

Upstream Sales (Sales from Subsidiary-Salad to Parent): Salad: P396,000 x 20/120 66,000Upstream Sales (Sales from Subsidiary-Tuna to Parent): Tuna: P315,000 x 25/125 63,000

Unrealized Profit in Ending inventory:Downstream Sales (Sales from Parent to Subsidiary) P345,000 x 15/115 P45,000Upstream Sales (Sales from Subsidiary-Salad to Parent): Salad: P342,000 x 20/120 57,000Upstream Sales (Sales from Subsidiary-Tuna to Parent): Tuna: P345,000 x 25/125 69,000

Problem IV1.

Sales 4,000,000Cost of Goods Sold 4,000,000

Cost of Goods Sold 250,000Ending Inventory (Balance Sheet) 250,000

[P1,250,000 - (P1,250,000/1.25)]

1/1 Retained Earnings – P Company (1) 84,000Noncontrolling interest (2) 21,000

Cost of Goods Sold (Beginning Inventory) 105,000[P525,000 – (P525,000/1.25)] = P105,000

(1) .8(P105,000) (2) .2(P105,000)

2/3. P3,000,000 × .20 = P600,000 non-controlling interest in consolidated income.

4. [(.20 × P5,400,000) -.20(P1,250,000 – P1,250,000/1.25)] = P1,030,000 non-controlling interest in consolidated net assets on December 31, 20x4.

Problem VP COMPANY AND SUBSIDIARY

Consolidated Income StatementFor the Year Ended December 31, 20x4

Sales (P13,800,000 – P1,350,000) P12,450,000Cost of Goods Sold (a) P7,755,000Operating Expenses 1,800,000 9,555,000Consolidated Income 2,895,000Less Non-controlling Interest in Consolidated Income (b) 197,500Controlling Interest in Consolidated Net Income P2,697,500

(a) Reported Cost of Goods Sold P9,000,000Less intercompany sales in 20x4 (1,350,000)Plus unrealized profit in ending inventory (2/5 x (P1,350,000 - P900,000)) 180,000Less realized profit in beginning inventory (1/4 x (P1,800,000 - P1,500,000)) (75,000)Corrected cost of goods sold P7,755,000

(b) Reported net income of subsidiary P1,900,000

Plus unrealized profit on subsidiary sales in 2013 that is considered realized in 20x4 (1/4 x (P1,800,000 - P1,500,000)) 75,000Less unrealized profit on subsidiary sales in 20x4 (there were no upstream sales in 20x4) 0 Income realized in transactions with third parties 1,975,000

× 0.10Non-controlling interest in consolidated income P197,500

Problem VIII(Determine selected consolidated balances; includes inventory transfers and an outside ownership.)

Customer list amortization = P65,000/5 years = P13,000 per year

P190,0000.1

Intercompany Gross profit (P160,000 – P120,000) ................................. P40,000Inventory Remaining at Year's End.......................................................... 20%

Unrealized Intercompany Gross profit, 12/31 ............................................... P8,000

Consolidated Totals: Inventory = P592,000 (add the two book values and subtract the ending

unrealized gross profit of P8,000) Sales = P1,240,000 (add the two book values and subtract the P160,000

intercompany transfer) Cost of Goods Sold = P548,000 (add the two book values and subtract the

intercompany transfer and add [to defer] ending unrealized gross profit) Operating Expenses = P443,000 (add the two book values and the amortization

expense for the period) Gross profit: P1,240,000 – P548,000 = P692,000 Controlling Interest in CNI:

Gross profit................................................................................... P692,000Less: Operating expenses........................................................ 443,000

Consolidated Net Income ............................................................P249,000 Less: NCI-CNI................................................................................ 8,700

CI-CNI...........................................................................................P240,300

orConsolidated Net Income for 20x5 P Company’s net income from own/separate operations (P800-P400-P180) P 220,000 Realized profit in beginning inventory of S Company (downstream sales) 0 Unrealized profit in ending inventory of S Company (downstream sales)… (_

0) P Company’s realized net income from separate operations*…….….. P 220,000 S Company’s net income from own operations (P600 – P300 – P250) P 50,000 Realized profit in beginning inventory of P Company (upstream sales) 0 Unrealized profit in ending inventory of P Company (upstream sales)… ( 8, 000) S Company’s realized net income from separate operations*…….….. P 42,000 42,000 Total P 262,000 Less: Amortization of allocated excess…………………… 13,000 Consolidated Net Income for 20x5 P 249,000 Less: Non-controlling Interest in Net Income* * 8,700 Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent – 20x5………….. P 240,300


Or, alternatively

Consolidated Net Income for 20x5 P Company’s net income from own/separate operations…………. P 220,000 Realized profit in beginning inventory of S Company (downstream sales) 0 Unrealized profit in ending inventory of S Company (downstream sales)… (_ 0) P Company’s realized net income from separate operations*…….….. P 220,000 S Company’s net income from own operations…………………………………. P 50,000 Realized profit in beginning inventory of P Company (upstream sales) 0 Unrealized profit in ending inventory of P Company (upstream sales)… ( 8,000) S Company’s realized net income from separate operations*…….….. P 42,000 42,000 Total P 262,000 Less: Non-controlling Interest in Net Income* * P 8,700 Amortization of allocated excess…………………… 13,000 21,700 Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent………….. P240,300 Add: Non-controlling Interest in Net Income (NCINI) _ 8,700 Consolidated Net Income for 20x5 P249,000


**Non-controlling Interest in Net Income (NCINI) for 20x5 S Company’s net income of Subsidiary Company from its own operations (Reported net income of Son Company) P 50,000 Realized profit in beginning inventory of P Company (upstream sales) 0 Unrealized profit in ending inventory of P Company (upstream sales) ( 8,00 0) S Company’s realized net income from separate operations……… P 42,000 Less: Amortization of allocated excess 13,000

P 29,000 Multiplied by: Non-controlling interest %.......... 30% Non-controlling Interest in Net Income (NCINI) – partial goodwill P 8,700

Noncontrolling Interest in Subsidiary's Net Income = P8,700 (30 percent of the reported income after subtracting 13,000 excess fair value amortization and

deferring P8,000 ending unrealized gross profit) Gross profit is included in this computation because the transfer was upstream from SS to PT.

Problem IXRequirements 1 to 4:Schedule of Determination and Allocation of Excess (Partial-goodwill) Date of Acquisition – January 1, 20x4

Fair value of Subsidiary (80%) Consideration transferred……………………………….. P 372,000Less: Book value of stockholders’ equity of Son: Common stock (P240,000 x 80%)……………………. P 192,000 Retained earnings (P120,000 x 80%)………………... 96,000 288,000Allocated excess (excess of cost over book value)….. P 84,000Less: 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 72,000Positive 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.

Book value S Co.

Fair value (Over) Under

Valuation Inventory………………….…………….. P 24,000 P 30,000 P 6,000Land……………………………………… 48,000 55,200 7,200Equipment (net)......... 84,000 180,000 96,000Buildings (net) 168,000 144,000 (24,000)Bonds payable………………………… (120,000) ( 115,200) 4,800Net……………………………………….. P 204,000 P 294,000 P 90,000

The buildings and equipment will be further analyzed for consolidation purposes as follows: S Co.

Book value S Co.

Fair value Increase

(Decrease)Equipment .................. 180,000 180,000 0Less: Accumulated depreciation….. 96,000 - ( 96,000)Net book value………………………... 84,000 180,000 96,000

S Co. Book value

S Co.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)

A summary of depreciation and amortization adjustments is as follows:Account Adjustments to be amortized

Over/Under

Life

Annual Amount

Current Year(20x4) 20x5

InventoryP

6,000 1P

6,000 P 6,000P -

Subject to Annual Amortization Equipment (net)......... 96,000 8 12,000 12,000 12,000

Buildings (net)(24,00

0) 4 ( 6,000) ( 6,000) (6,000)

Bonds payable… 4800 4 1,20

0 1,200 1,20

0P P 13,200 P 7,200

13,200

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 105,000Add (deduct): (Over) under valuation of assets and liabilities (P90,000 x 100%) 90,000Positive 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 TotalGoodwill applicable to parent………………… P12,000 80.00%Goodwill applicable to NCI…………………….. 3,000 20.00%Total (full) goodwill……………………………….. P15,000 100.00%

The goodwill impairment loss would be allocated as followsValue % of Total

Goodwill impairment loss attributable to parent or controlling Interest

P 3,000 80.00%

Goodwill applicable to NCI…………………….. 750 20.00%Goodwill impairment loss based on 100% fair value or full- Goodwill P 3,750 100.00%

The unrealized profits on January 1, and on December 31, 20x5, resulting intercompany sales, are as summarized below:

Downstream Sales:

Year Sales of Parent to Subsidiary

Intercompany Merchandisein 12/31 Inventory

of S CompanyUnrealized Intercompany Profit in Ending Inventory

20x4

P150,000 P150,000 x 60% = P90,000 P90,000 x 20% = P18,000

20x5

120,000 P120,000 x 80% = P96,000 P96,000 x 25% = P24,000

Upstream Sales:

Year Sales of Subsidiary to

Parent



20x4

P 60,000 P60,000 x 50% = P30,000 P30,000 x 40% = P12,000

20x5

75,000 P 75,000 x 40% = P30,000 P30,000 x 20% = P 6,000

20x4: First Year after Acquisition Parent Company Cost Model Entry

January 1, 20x4:(1) Investment in S Company…………………………………………… 372,000 Cash……………………………………………………………………..

372,000

Acquisition of S Company.

January 1, 20x4 – December 31, 20x4:(2) Cash……………………… 28,800 Dividend income (P36,000 x 80%)……………. 28,800 Record dividends from S Company.

No entries are made on the parent’s books to depreciate, amortize or write-off the portion of the allocated excess that expires during 20x4, and unrealized profits in ending inventory.

Consolidation Workpaper – Year of Acquisition (E1) Common stock – S Co………………………………………… 240,000 Retained earnings – S Co…………………………………… 120.000 Investment in S Co…………………………………………… 288,000 Non-controlling interest (P360,000 x 20%)………………………..

72,000

To eliminate intercompany investment and equity accounts of subsidiary on date of acquisition; and to establish non-controlling interest (in net assets of subsidiary) on date of acquisition.

(E2) Inventory………………………………………………………………….

6,000

Accumulated depreciation – equipment……………….. 96,000 Accumulated depreciation – buildings………………….. 192,000 Land……………………………………………………………………….

7,200

Discount on bonds payable………………………………………….

4,800

Goodwill…………………………………………………………………. 12,000 Buildings……………………………………….. 216,000 Non-controlling interest (P90,000 x 20%)………………………..

18,000

Investment in Son Co……………………………………………….

84,000

To allocate excess of cost over book value of identifiable assets acquired, with remainder to goodwill; and to establish noncontrolling interest (in net assets of subsidiary) on date of acquisition.

(E3) Cost of Goods Sold……………. 6,000 Depreciation expense……………………….. 6,000 Accumulated depreciation – buildings………………….. 6,000 Interest expense………………………………… 1,200 Goodwill impairment loss………………………………………. 3,000 Inventory………………………………………………………….. 6,000 Accumulated depreciation – equipment……………….. 12,000 Discount on bonds payable………………………… 1,200 Goodwill…………………………………… 3,000 To provide for 20x4 impairment loss and depreciation and amortization on differences between acquisition date fair value and book value of S’s identifiable assets and liabilities as follows:

Cost of Goods Sold

Depreciation/Amortization

ExpenseAmortizatio

n-Interest

Total

Inventory sold P 6,000

Equipment P 12,000Buildings ( 6,000)Bonds payable _______ _______ P 1,200Totals P 6,000 P 2,000 P1,200 13,20

0

(E4) Dividend income - P………. 28,800 Non-controlling interest (P36,000 x 20%)……………….. 7,200 Dividends paid – S…………………… 36,000 To eliminate intercompany dividends and non-controlling interest share of dividends.

(E5) Sales………………………. 150,000 Cost of Goods Sold (or Purchases) 150,000 To eliminated intercompany downstream sales.

(E6) Sales………………………. 60,000 Cost of Goods Sold (or Purchases) 60,000 To eliminated intercompany upstream sales.

(E7) Cost of Goods Sold (Ending Inventory – Income Statement) 18,000

… Inventory – Balance Sheet…… 18,000 To defer the downstream sales - unrealized profit in ending inventory until it is sold to outsiders.

(E8) Cost of Goods Sold (Ending Inventory – Income Statement)… 12,000 Inventory – Balance Sheet…… 12,000 To defer the upstream sales - unrealized profit in ending inventory until it is sold to outsiders.

(E9) Non-controlling interest in Net Income of Subsidiary…………

6,960

Non-controlling interest ………….. 6,960 To establish non-controlling interest in subsidiary’s adjusted net income for 20x4 as follows:

Net income of subsidiary…………………….. P 60,000Unrealized profit in ending inventory of P Company (upstream sales)………………………..

( 12,000)

S Company’s realized net income from separate operations*…….….. P 48,000Less: Amortization of allocated excess [(E3)]….

13,200

P 34,800 Multiplied by: Non-controlling interest %..........

20%

Non-controlling Interest in Net Income (NCINI) – partial goodwill

P 6,960

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

(5) 150,000(6) 60,000

P 510,000

Dividend income 28,800 -(4) 36,000

_________

Total Revenue P508,800 P240,000 P 510,000

Cost of goods sold P204,000 P138,000

(3) 6,000(7) 18,000(8) 12,000

(5) 150,000(6) 60,000

P 168,000

Depreciation expense 60,000 24,000(3) 6,000

90,000

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 P328,200Net Income P196,800 P 60,000 P181,800

NCI in Net Income - Subsidiary - -(9) 6,960

( 6,960)

Net Income to Retained Earnings P196,800 P 60,000 P174,840

Statement of Retained EarningsRetained earnings, 1/1

P Company P432,000P

360,000

S Company P144,000(1) 120,000

Net income, from above 236,160 72,000 174,840 Total P668,160 P216,000 P538,840Dividends paid Perfect Company 86,400 72,000

Son Company - 43,200(4) 36,000 _ ________

Retained earnings, 12/31 to Balance Sheet P581,760 P172,800

P 466,840

Balance Sheet

Cash……………………….P

232,800 P 90,000 P 355,200Accounts receivable…….. 90,000 60,000 150,000

Inventory…………………. 120,000 90,000(2) 6,000

(3) 6,000(7) 18,000(8) 12,000 180,000

Land……………………………. 1210,000 48,000(2) 7,200 265,200

Equipment 240,000 180,000 420,000Buildings 720,000 540,000 (2) 216,000 1,044,000

Discount on bonds payable(2) 4,800

(3) 12000 3,600

Goodwill……………………(2) 12,000 (3) 3,000 9,000

Investment in S Co……… 372,000 (1) 288,000(2) 84,000 -

Total P1,984,800P1,008,0

00 P2,394,600

Accumulated depreciation - equipment P 135,000 P 96,000

(2) 96,000

(3) 12,000 P147,000

Accumulated depreciation - buildings

405,000 288,000

(2) 192,000

(3) 6,000 495,000

Accounts payable…………… 120,000 120,000 240,000Bonds payable………………… 240,000 120,000 360,000Common stock, P10 par……… 600,000 600,000

Common stock, P10 par……… 240,000(1)

240,000Retained earnings, from above 581,760 144,000 462,840Non-controlling interest…………

_________ ______

___

(4) 7,200

__________

(1 ) 72,000 (2) 18,000(9) 6,960 ____89,760

Total P1,984,800

P1,008,000

P 983,160

P 983,160 P2,394,600

Consolidated Net Income for 20x4 P Company’s net income from own/separate operations…………. P168,000 Unrealized profit in ending inventory of S Company (downstream sales)… ( 18,000) P Company’s realized net income from separate operations*…….….. P150,000 S Company’s net income from own operations…………………………………. P 60,000 Unrealized profit in ending inventory of S Company (upstream sales)… ( 12,000) Son Company’s realized net income from separate operations*…….….. P 48,000 48,000 Total P198,000 Less: Non-controlling Interest in Net Income* * P 6,960 Amortization of allocated excess (refer to amortization above) 13,200 Goodwill impairment (impairment under partial-goodwill approach) 3,000 23,160 Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent………….. P174,840 Add: Non-controlling Interest in Net Income (NCINI) _ 6,960 Consolidated Net Income for 20x4 P181.800


**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 60,000

Unrealized profit in ending inventory of P Company (upstream sales) ( 12,000) S Company’s realized net income from separate operations……… P 48,000 Less: Amortization of allocated excess 13,200


*that has been realized in transactions with third parties.Since NCI share of goodwill is not recognized, no adjustment is required for the impairment loss on goodwill and impairment losses are not shared with NCI.

20x5: Second Year after AcquisitionP Co. S Co.

Sales P 540,000 P 360,000Less: Cost of goods sold 216,000 192,000Gross profit P 324,000 P 168,000Less: Depreciation expense 60,000 24,000 Other expense 72,000 54,000Net income from its own separate operations P 192,000 P 90,000

Add: Dividend income 38,400 -Net income P 230,400 P 90,000Dividends paid P 72,000 P 48,000

No goodwill impairment loss for 20x5.

20x5: Parent Company Cost Model Entry

Only a single entry is recorded by the parent in 20x5 in relation to its subsidiary investment:

January 1, 20x5 – December 31, 20x5: Cash……………………… 38,400 Dividend income (P48,000 x 80%)……………. 38,400 Record dividends from S Company.

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..

Consolidation Workpaper – Second Year after Acquisition (E1) Investment in S Company………………………… 19,200 Retained earnings – P Company……………………… 19,200 To provide entry to convert from the cost method to the equity method or the entry to establish reciprocity at the beginning of the year, 1/1/20x5, computed as follows:

Retained earnings – S Company, 1/1/20x5 P144,000Retained earnings – S Company, 1/1/20x4 120,000Increase in retained earnings…….. P 24,000Multiplied by: Controlling interest % 80%Retroactive adjustment P 19,200

(E2) Common stock – S Co………………………………………… 240,000 Retained earnings – S Co., 1/1/20x5 144.000 Investment in S Co (P384,000 x 80%)…………………………

307,200

Non-controlling interest (P384,000 x 20%)………………………..

76,800

To eliminate intercompany investment and equity accounts of subsidiary and to establish non-controlling interest (in net assets of subsidiary) on January 1, 20x5.

(E3) Inventory………………………………………………………………….

6,000

Accumulated depreciation – equipment……………….. .... 96,000 Accumulated depreciation – buildings………………….. ... 192,000 Land……………………………………………………………………….

7,200


4,800

Goodwill…………………………………………………………………. 12,000 Buildings………………………………………........................... 216,000 Non-controlling interest (P90,000 x 20%)............................

18,000

Investment in S Co………………………………………………. 84,000 To allocate excess of cost over book value of identifiable assets acquired, with remainder to goodwill; and to establish noncontrolling interest (in net assets of subsidiary) on January 1, 20x5.

(E4) Retained earnings – P Company, 1/1/20x5 [(P13,200 x 80%) + P3,000, impairment loss on partial-goodwill] 13,560 Non-controlling interests (P13,200 x 20%)……………………. 2,640 Depreciation expense……………………….. 6,000 Accumulated depreciation – buildings………………….. 12,000 Interest expense………………………………… 1,200 Inventory………………………………………………………….. 6,000

Accumulated depreciation – equipment……………….. 24,000 Discount on bonds payable………………………… 2,400 Goodwill…………………………………… 3,000 To provide for years 20x4 and 20x5 depreciation and amortization on differences between acquisition date fair value and book value of S’s identifiable assets and liabilities as follows: Year 20x4 amounts are debited to P’s retained earnings & NCI; Year 20x5 amounts are debited to respective nominal accounts.

(20x4)Retaine

d earnings

,


expenseAmortizatio

n-Interest

Inventory sold P 6,000Equipment 12,000 P 12,000Buildings (6,000) ( 6,000)Bonds payable 1,20

0 ________ P 1,200

Sub-total P13,200 P 6,000 P 1,200Multiplied by: 80%To Retained earnings P

10,560Impairment loss 3,00

0Total P 13,560




(E8) Beginning Retained Earnings – P Company…… 18,000 Cost of Goods Sold (Ending Inventory – Income Statement) 18,000 To realized profit in downstream beginning inventory deferred in the prior period.

(E9) Beginning Retained Earnings – P Company (P12,000 x 80%) 9,600 Noncontrolling interest (P12,000 x 20%)…… 2,400 Cost of Goods Sold (Ending Inventory – Income Statement) 12,000 To realized profit in beginning inventory deferred in the prior period.

(E10) Cost of Goods Sold (Ending Inventory – Income Statement)… 24,000 Inventory – Balance Sheet…… 24,000 To defer the downstream sales - unrealized profit in ending inventory until it is sold to outsiders.



17,760

Non-controlling interest ………….. 17,760

To establish non-controlling interest in subsidiary’s adjusted net income for 20x5 as follows:

Realized profit in beginning inventory of P Company - 20x5 (upstream sales) 12,000Unrealized profit in ending inventory of P Company - 20x5 (upstream sales) ( 6,000)S Company’s Realized net income* P 96,000Less: Amortization of allocated excess 7,200

P 88,800Multiplied by: Non-controlling interest %..........

20%

Non-controlling Interest in Net Income (NCINI ) – partial goodwill

P 17,760

*from separate transactions that has been realized in transactions with third persons.

Worksheet for Consolidated Financial Statements, December 31, 20x5. Cost Model (Partial-goodwill)80%-Owned Subsidiary December 31, 20x5 (Second Year after Acquisition)


Sales P540,000 P360,000

(6) 120,000

(7) 75,000

P 705,000


___________


Cost of goods sold P216,000 P192,000 (10) 24,000(11) 6,000

(6) 120,000

(7) 75,000

(8) 18,000

(9) 12,000

213,000


90,000


1,200

Other expenses 72,000 54,000 126,000Goodwill impairment loss - - - Total Cost and Expenses P348,000 P270,000 P 430,200

Net Income P230,400P

90,000P 274,800


( 17,760)

Net Income to Retained Earnings P230,400P

90,000P 257,040


P Company P484,800

(2) 13,560

(8) 18,000

(9) 9,600 (1) 19,200 P 462,840

S CompanyP

144,000

(2) 144,000

Net income, from above 230,400 90,000 257,040 Total P715,200 P234,000 P 719,880Dividends paid P Company 72,000 72,000

S Company - 48,000(5) 48,000 _ ________

Retained earnings, 12/31 to Balance Sheet P643,200 P186,000 P 647,880

Balance Sheet

Cash……………………….P

265,200P

102,000 P 367,200Accounts receivable…….. 180,000 96,000 276,000Inventory…………………. 216,000 108,000 (3) 7,200 (4) 7,200

(10) 24,000(11) 6,000 294,000

Land……………………………. 210,000 48,000(3) 7,200 265,200


Discount on bonds payable(3) 4,800 (4) 2,400 2,400

Goodwill……………………(3) 12,000 (4) 3,000 9,000

Investment in S Co……… 372,000 (1) 19,200 (2) 307,200

(3) 84,000 -

Total P2,203,200P1,074,0

00 P2,677,800

Accumulated depreciation - equipment P 150,000

P 102,000

(3) 96,000

(4) 24,000 P180,000


450,000 306,000

(3) 192,000 (4) 12,000 552,000


Common stock, P10 par……… 240,000(2) 240,000

Retained earnings, from above 643,200 186,000 647,880

Non-controlling interest…………

___ _____

_________

(4) 2,640(5)

9,600(9) 2,400__________

(2 ) 76,800 (3) 18,000(12) 17,760 ____97,920

Total 2,203,200P1,074,0

00P1,077,360

P1,077,360 P2,677,800

5. 1/1/20x4 a. On date of acquisition the retained earnings of parent 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.

Non-controlling interest (partial-goodwill), January 1, 20x4 Common stock – Subsidiary Company…………………………………… P 240,000 Retained earnings – Subsidiary Company…………………………………. 120,000 Stockholders’ equity – Subsidiary Company.………….. P 360,000 Adjustments to reflect fair value - (over) undervaluation of assets and liabilities 90,000Fair value of stockholders’ equity of subsidiary, January 1, 20x4………………… P 450,000Multiplied by: Non-controlling Interest percentage…………... 20Non-controlling interest (partial) P 90,000

c.Consolidated SHE: Stockholders’ Equity Common stock, P10 par P 600,000 Retained earnings 360,000 Parent’s Stockholders’ Equity / CI - SHE P 960,000 NCI, 1/1/20x4 ___90,000 Consolidated SHE, 1/1/20x4 P1,050,000

6.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.

12/31/20x4: a. CI-CNI – P174,840

Consolidated Net Income for 20x4 P Company’s net income from own/separate operations…………. P168,000 Unrealized profit in ending inventory of S Company (downstream sales)… ( 18,000) P Company’s realized net income from separate operations*…….….. P150,000 S Company’s net income from own operations…………………………………. P 60,000 Unrealized profit in ending inventory of S Company (upstream sales)… ( 12,000) S Company’s realized net income from separate operations*…….….. P 48,000 48,000 Total P198,000 Less: Non-controlling Interest in Net Income* * P 6,960

Amortization of allocated excess (refer to amortization above) 13,200 Goodwill impairment (impairment under partial-goodwill approach) 3,000 23,160 Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent………….. P174,840 Add: Non-controlling Interest in Net Income (NCINI) _ 6,960 Consolidated Net Income for 20x4 P181.800


b. NCI-CNI – P6,960 **Non-controlling Interest in Net Income (NCINI) for 20x4 S Company’s net income of Subsidiary Company from its own operations (Reported net income of S Company)

P 60,000




c. CNI, P181,800 – refer to (a)

d. On subsequent to date of acquisition, consolidated retained earnings would be computed as follows:

Consolidated Retained Earnings, December 31, 20x4 Retained earnings - P Company, January 1, 20x4 (date of acquisition) P360,000 Add: Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent for 20x4 174,840 Total P534,840 Less: Dividends paid – P Company for 20x4 72,000 Consolidated Retained Earnings, December 31, 20x4 P462,840

e. The goodwill recognized on consolidation purely relates to the parent’s share. NCI is measured as a proportion of identifiable assets and goodwill attributable to NCI share is not recognized. The NCI on December 31, 20x4 are computed as follows:

Non-controlling interest (partial-goodwill), December 31, 20x4 Common stock – Subsidiary Company, December 31, 20x4…… P 240,000 Retained earnings – Subsidiary Company, December 31, 20x4 Retained earnings – Subsidiary Company, January 1, 20x4 P120,000 Add: Net income of subsidiary for 20x4 6,000 Total P180,000 Less: Dividends paid – 20x4 36,000 144,000 Stockholders’ equity – Subsidiary Company, December 31, 20x4 P 384,000 Adjustments to reflect fair value - (over) undervaluation of assets and liabilities, date of acquisition (January 1, 20x4) 90,000 Amortization of allocated excess (refer to amortization above) – 20x4 ( 13,200) Fair value of stockholders’ equity of subsidiary, December 31, 20x4…… P460,000 Less: Unrealized profit in ending inventory of P Company (upstream sales) 12,000 Realized stockholders’ equity of subsidiary, December 31, 20x4…… P448,800 Multiplied by: Non-controlling Interest percentage…………... 20 Non-controlling interest (partial-goodwill)………………………………….. P 89,760

f.Consolidated SHE: Stockholders’ Equity Common stock, P10 par P 600,000 Retained earnings 462,840 Parent’s Stockholders’ Equity / CI – SHE, 12/31/20x4 P1,062,840 NCI, 12/31/20x4 ___89,760 Consolidated SHE, 12/31/20x4 P1,152,600

12/31/20x5: a. CI-CNI

Consolidated Net Income for 20x5 P Company’s net income from own/separate operations…………. P192,000 Realized profit in beginning inventory of S Company (downstream sales) 18,000 Unrealized profit in ending inventory of S Company (downstream sales)… (_24,000) P Company’s realized net income from separate operations*…….….. P186,000 S Company’s net income from own operations…………………………………. P 90,000 Realized profit in beginning inventory of P Company (upstream sales) 12,000 Unrealized profit in ending inventory of P Company (upstream sales)… ( 6,000) Son Company’s realized net income from separate operations*…….….. P 96,000 96,000 Total P282,000 Less: Amortization of allocated excess…………………… 7,200 Consolidated Net Income for 20x5 P274,800 Less: Non-controlling Interest in Net Income* * 17,760

Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent – 20x5………….. P257,040


Or, alternativelyConsolidated Net Income for 20x5 P Company’s net income from own/separate operations…………. P192,000 Realized profit in beginning inventory of S Company (downstream sales) 18,000 Unrealized profit in ending inventory of S Company (downstream sales)… (_24,000) P Company’s realized net income from separate operations*…….….. P186,000 S Company’s net income from own operations…………………………………. P 90,000 Realized profit in beginning inventory of P Company (upstream sales) 12,000 Unrealized profit in ending inventory of P Company (upstream sales)… ( 6,000) S Company’s realized net income from separate operations*…….….. P 96,000 96,000 Total P282,000 Less: Non-controlling Interest in Net Income* * P 17,760 Amortization of allocated excess…………………… 7,200 24,960 Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent………….. P257,040 Add: Non-controlling Interest in Net Income (NCINI) _ 17,760 Consolidated Net Income for 20x5 P274,800

*that has been realized in transactions with third parties.b. NCI-CNI


P 90,000

Realized profit in beginning inventory of P Company (upstream sales) 12,000 Unrealized profit in ending inventory of P Company (upstream sales) ( 6,000) S Company’s realized net income from separate operations……… P 96,000 Less: Amortization of allocated excess 7,200


c. CNI, P274,800 – refer to (a) d. On subsequent to date of acquisition, consolidated retained earnings would be

computed as follows:Consolidated Retained Earnings, December 31, 20x5 Retained earnings - Parent Company, January 1, 20x5 (cost model P484,800 Less: Unrealized profit in ending inventory of S Company (downstream sales)

– 20x4 (UPEI of S – 20x4) or Realized profit in beginning inventory of S Company (downstream sales) –20x4 (RPBI of S - 20x5)…………….

18,000

Adjusted Retained Earnings – Parent 1/1/20x5 (cost model (S Company’s Retained earnings that have been realized in transactions with third parties.. P466,800 Adjustment to convert from cost model to equity method for purposes of consolidation or to establish reciprocity:/Parent’s share in adjusted net increased in subsidiary’s retained earnings: Retained earnings – Subsidiary, January 1, 20x5 P 144,000 Less: Retained earnings – Subsidiary, January 1, 20x4 120,000 Increase in retained earnings since date of acquisition P 24,000 Less: Amortization of allocated excess – 20x4 13,200 Unrealized profit in ending inventory of P Company (upstream sales) 20x4 (UPEI of P – 20x4) or Realized profit in beginning inventory of P Company (upstream sales) –20x5 (RPBI of P - 20x5)

12,000

(P 1,200) Multiplied by: Controlling interests %................... 80% (P 960) Less: Goodwill impairment loss, partial goodwill 3,000 ( 3,960) Consolidated Retained earnings, January 1, 20x5 P462,840 Add: Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent for 20x5

257,040

Total P748,680 Less: Dividends paid – Parent Company for 20x5 72,000 Consolidated Retained Earnings, December 31, 20x5 P647,880

*this procedure would be more appropriate, instead of multiplying the full-goodwill impairment loss of P3,125 by 80%. There might be situations where the controlling interests on goodwill impairment loss would not be proportionate to NCI acquired (refer to Illustration 15-6).

Or, alternatively:Consolidated Retained Earnings, December 31, 20x5 Retained earnings - Parent Company, December 31, 20x5 (cost model P643,200 Less: Unrealized profit in ending inventory of S Company (downstream sales)

– 20x5 (UPEI of S – 20x5) or Realized profit in beginning inventory of 24,000

S Company (downstream sales) –20x6 (RPBI of S - 20x6)……………. Adjusted Retained Earnings – Parent 12/31/20x5 (cost model ( S Company’s Retained earnings that have been realized in transactions with third parties.. P619,200 Adjustment to convert from cost model to equity method for purposes of consolidation or to establish reciprocity:/Parent’s share in adjusted net increased in subsidiary’s retained earnings: Retained earnings – Subsidiary, December 31, 20x5 P 186,000 Less: Retained earnings – Subsidiary, January 1, 20x4 120,000 Increase in retained earnings since date of acquisition P 66,000 Less: Accumulated amortization of allocated excess – 20x4 and 20x5 (P11,000 + P6,000) 20,400 Unrealized profit in ending inventory of P Company (upstream sales) 20x5 (UPEI of P – 20x5) or Realized profit in beginning inventory of P Company (upstream sales) –20x6 (RPBI of P - 20x6)

6,000

P 39,600 Multiplied by: Controlling interests %................... 80% P 31,680 Less: Goodwill impairment loss, partial goodwill 3,000 28,680 Consolidated Retained earnings, December 31, 20x5 P647,880

e.Non-controlling interest (partial-goodwill), December 31, 20x5 Common stock – Subsidiary Company, December 31, 20x5…… P 240,000 Retained earnings – Subsidiary Company, December 31, 20x5 Retained earnings – Subsidiary Company, January 1, 20x5* P144,000 Add: Net income of subsidiary for 20x5 90,000 Total P234,000 Less: Dividends paid – 20x5 48,000 186,000 Stockholders’ equity – Subsidiary Company, December 31, 20x5 P 426,000 Adjustments to reflect fair value - (over) undervaluation of assets and liabilities, date of acquisition (January 1, 20x4) 90,000 Amortization of allocated excess (refer to amortization above) : 20x4 P

13,200 20x5 7,200 ( 20,400) Fair value of stockholders’ equity of subsidiary, December 31, 20x5…… P 495,600 Less: Unrealized profit in ending inventory of P Company (upstream sales) 20x5 (UPEI of P – 20x5) or Realized profit in beginning inventory of P Company (upstream sales) –20x6 (RPBI of P - 20x6

6,000

Realized stockholders’ equity of subsidiary, December 31, 20x5………. P489,600 Multiplied by: Non-controlling Interest percentage…………... 20 Non-controlling interest (partial goodwill)………………………………….. P 97,920

* the realized profit in beginning inventory of P Company (upstream sales) –20x5 (RPBI of P - 20x5 amounting to P10,000 is already included in the beginning retained earnings of S Company.

f. Consolidated SHE: Stockholders’ Equity Common stock, P10 par P 600,000 Retained earnings 647,880 Parent’s Stockholders’ Equity / CI – SHE, 12/31/20x4 P1,247,880 NCI, 12/31/20x4 ___97,920 Consolidated SHE, 12/31/20x4 P1,345,800

Problem XRequirements 1 to 4:Schedule of Determination and Allocation of Excess 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 465,000Less: Book value of stockholders’ equity of Son: Common stock (P240,000 x 100%)………………. P 240,000 Retained earnings (P120,000 x 100%)………... 120,000 360,000Allocated excess (excess of cost over book value)….. P 105,000Less: 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 90,000Positive excess: Full-goodwill (excess of cost over fair value)………………………………………………... P 15,000

A summary or depreciation and amortization adjustments is as follows:Account Adjustments to be amortized

Over/under

Life

Annual Amount


InventoryP

6,000 1P

6,000 P 6,000P -



0) 4 ( 6,000) ( 6,000) (6,000)

Bonds payable… 4,80

0 4 1,20

0 1,200 1,20

0P

13,200 P 13,200 P 7,200



372,000


January 1, 20x4 – December 31, 20x4:(2) Cash……………………… 28,800 Dividend income (P36,000 x 80%)……………. 28,800 Record dividends from Son Company.

On the books of Son Company, the P36,000 dividend paid was recorded as follows:

Dividends paid………… 36,000 Cash……. 36,000 Dividends paid by S Co..

No entries are made on the parent’s books to depreciate, amortize or write-off the portion of the allocated excess that expires during 20x4.

Consolidation Workpaper – First Year after Acquisition (E1) Common stock – S Co………………………………………… 240,000 Retained earnings – S Co…………………………………… 120.000 Investment in S Co…………………………………………… 288,000 Non-controlling interest (P360,000 x 20%)………………………..

72,000

To eliminate intercompany investment and equity accounts of subsidiary on date of acquisition; and to establish non-controlling interest (in net assets of subsidiary) on date of acquisition.

(E2) Inventory………………………………………………………………….

6,000


7,200


4,800

Goodwill…………………………………………………………………. 15,000 Buildings……………………………………….. 216,000 Non-controlling interest (P90,000 x 20%) + [(P15,000, full – 21,000

P12,000, partial goodwill)]………… Investment in Son Co……………………………………………….

84,000

To allocate excess of cost over book value of identifiable assets acquired, with remainder to goodwill; and to establish noncontrolling interest (in net assets of subsidiary) on date of acquisition.


Cost of Goods Sold


ExpenseAmortizatio

n-Interest


Equipment P12,000Buildings ( 6,000)Bonds payable _______ _______ P 1,200Totals P 6,000 P 6,000 P1,200







6,210



( 12,000)


13,200

P 34,800

Multiplied by: Non-controlling interest %..........

20%


P 6,960

Less: Non-controlling interest on impairment loss on full-goodwill (P3,750 x 20%) or (P3,750 impairment on full-goodwill less P3,000, impairment on partial-goodwill)

750

Non-controlling Interest in Net Income (NCINI) – full goodwill

P 6,210

Worksheet for Consolidated Financial Statements, December 31, 20x4. Cost Model (Full-goodwill)80%-Owned Subsidiary December 31, 20x4 (First Year after Acquisition)


Sales P480,000 P240,000

(5) 150,000(6) 60,000

P 510,000


_________



(3) 6,000(7) 18,000(8) 12,000

(5) 150,000(6) 60,000

P 168,000


90,000


1,200

Other expenses 48,000 18,000 66,000


3,750



( 6,210)



P Company P360,000P

360,000

S Company P120,000(1) 120,000

Net income, from above 196,800 60,000 174,840 Total P556,800 P180,000 P534,840Dividends paid P Company 72,000 72,000

S Company - 36,000(4) 36,000 _ ________


P 462,840

Balance Sheet

Cash……………………….P


Inventory…………………. 120,000 90,000(2) 6,000

(3) 6,000(7) 18,000(8) 12,000 180,000

Land……………………………. 210,000 48,000(2) 7,200 265,200



Goodwill……………………(2) 15,000 (3) 3,750 11,250

Investment in S Co……… 372,000 (3) 288,000(4) 84,000 -

Total P1,984,800P1,008,0

00 P2,396,850


(2) 96,000

(3) 12,000 P147,000


405,000 288,000

(6) 192,000

(7) 6,000 495,000



240,000Retained earnings, from above 484,800 144,000 462,840


_________ ______

___

(4) 7,200 (1 ) 72,000

(2) 21,000(9) 6,210 ____92,010

Total P1,984,800

P1,008,000

P 986,160

P 986,160 P2,396,850

20x5: Second Year after AcquisitionPerfect Co. Son Co.

Sales P 540,000 P 360,000Less: Cost of goods sold 216,000 192,000Gross profit P 324,000 P 168,000Less: Depreciation expense 60,000 24,000 Other expense 72,000 54,000Net income from its own separate operations P 192,000 P 90,000Add: Dividend income 38,400 -Net income P 230,400 P 90,000Dividends paid P 72,000 P 48,000

No goodwill impairment loss for 20x5.20x5: Parent Company Cost Model EntryOnly a single entry is recorded by the parent in 20x5 in relation to its subsidiary investment:

January 1, 20x5 – December 31, 20x5: Cash……………………… 38,400 Dividend income (P48,000 x 80%)……………. 38,400 Record dividends from S Company.

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..

Consolidation Workpaper – Second Year after Acquisition

(E1) Investment in S Company………………………… 19,200 Retained earnings – P Company……………………… 19,200 To provide entry to convert from the cost method to the equity method or the entry to establish reciprocity at the beginning of the year, 1/1/20x5.

Retained earnings – S Company, 1/1/20x5 P144,000Retained earnings – S Company, 1/1/20x4 120,000Increase in retained earnings…….. P 24,000Multiplied by: Controlling interest % 80%Retroactive adjustment P 19,200

(E2) Common stock – S Co………………………………………… 240,000 Retained earnings – S Co., 1/1/20x5 144.000 Investment in S Co (P384,000 x 80%)…………………………

307,200

Non-controlling interest (P384,000 x 20%)………………………..

76,800

To eliminate intercompany investment and equity accounts of subsidiary and to establish non-controlling interest (in net assets of subsidiary) on January 1, 20x5.

(E3) Inventory………………………………………………………………….

6000


7,200


4,800

Goodwill…………………………………………………………………. 15,000 Buildings……………………………………….. 216,000 Non-controlling interest (P90,000 x 20%) + [(P15,000, full – P12,000, partial goodwill)]…………

21,000

Investment in S Co………………………………………………. 84,000 To allocate excess of cost over book value of identifiable assets acquired, with remainder to goodwill; and to establish noncontrolling interest (in net assets of subsidiary) on January 1, 20x5.

(E4) Retained earnings – P Company, 1/1/20x5 (P16,950 x 80%) 13,560 Non-controlling interests (P16,950 x 20%)……………………. 3,390 Depreciation expense……………………….. 6,000 Accumulated depreciation – buildings………………….. 12,000 Interest expense………………………………… 1,200 Inventory………………………………………………………….. 6,000 Accumulated depreciation – equipment……………….. 24,000 Discount on bonds payable………………………… 2,800 Goodwill…………………………………… 3,750 To provide for years 20x4 and 20x5 depreciation and amortization on differences between acquisition date fair value and book value of Son’s identifiable assets and liabilities as follows: Year 20x4 amounts are debited to Perfect’s retained earnings and NCI. Year 20x5 amounts are debited to respective nominal accounts..

(20x4)Retaine

d earnings

,


expenseAmortizatio

n-Interest

Inventory sold P 6,000Equipment 12,000 P 12,000Buildings (6,000) ( 6,000)Bonds payable 1,200 P 1,200Impairment loss 3,75

0Totals P 16,950 P 6,000 P1,200Multiplied by: CI%.... 80

%To Retained earnings P13,560




(E8) Beginning Retained Earnings – P Company…… 18,000 Cost of Goods Sold (Ending Inventory – Income Statement) 18,000 To realized profit in downstream beginning inventory deferred in the prior period.

(E9) Beginning Retained Earnings – P Company (P12,000 x 80%) 9,600 Noncontrolling interest (P12,000 x 20%)…… 2,400 Cost of Goods Sold (Ending Inventory – Income Statement) 12,000 To realized profit in upstream beginning inventory deferred in the prior period.

(E10) Cost of Goods Sold (Ending Inventory – Income Statement)… 24,000 Inventory – Balance Sheet…… 24,000 To defer the downstream sales - unrealized profit in ending inventory until it is sold to outsiders. (E11) Cost of Goods Sold (Ending Inventory – Income Statement)… 6,000 Inventory – Balance Sheet…… 6,000 To defer the upstream sales - unrealized profit in ending inventory until it is sold to outsiders.


17,760


Net income of subsidiary…………………….. P 90,000Realized profit in beginning inventory of P Company - 20x5 (upstream sales) 12,000Unrealized profit in ending inventory of P Company - 20x5 (upstream sales) ( 6,000)Son Company’s Realized net income* P 96,000Less: Amortization of allocated excess 7,200


20%

Non-controlling Interest in Net Income (NCINI)

- partial goodwill

P 17,760

Less: NCI on goodwill impairment loss on full- Goodwill

0


P 17,760


Worksheet for Consolidated Financial Statements, December 31, 20x5. Cost Model (Full-goodwill)80%-Owned Subsidiary December 31, 20x5 (Second Year after Acquisition)


Sales P540,000 P360,000

(6) 120,000

(7) 75,000

P 705,000


___________



(6) 120,000

(7) 90,000

(8) 21,600

(9) 14,400

P 213,000


90,000


1,200



90,000P 274,800


( 17,760)


90,000P 257,040


P Company P484,800

(3) 13,560

(8) 18,000

(9) 96000 (4) 19,200 P 462,840

S CompanyP

144,000

(5) 144,000

Net income, from above 230,400 90,000 257,040 Total P715,200 P234,000 P 719,880Dividends paid P Company 72,000 72,000

S Company - 48,000(5) 48,000 _ ________


Balance Sheet

Cash……………………….P

265,200P

102,000 P 367,200Accounts receivable…….. 180,000 96,000 276,000Inventory…………………. 216,000 108,000 (6) 6,000 (4) 6,000

(10) 24,000(11) 6,000 294,000

Land……………………………. 210,000 48,000(3) 7,200 265,200



Goodwill……………………(3) 15,000 (4) 3,750 11,250

Investment in S Co……… 372,000 (1) 19,200 (2) 307,200

(3) 84,000 -

Total P2,203,200P1,074,0

00 P2,680,050


P 102,000

(3) 96,000

(4) 24,000 P180,000


450,000 306,000

(3) 192,000 (4) 12,000 552,000



Retained earnings, from above 643,200 186,000 647,880


___ _____

_________

(4) 3,390(8)

9,600(9) 2,400__________

(2 ) 76,800 (3) 21,000(12) 17,760 ____100,170

Total P2,203,200

P1,074,000

P1,081,110

P1,081,110 P2,680,050

5. 1/1/20x4 a. On date of acquisition the retained earnings of parent should always be considered

as the consolidated retained earnings, thus:Consolidated Retained Earnings, January 1, 20x4 Retained earnings - Parent Company, January 1, 20x4 (date of acquisition) P360,000

b.Non-controlling interest (partial-goodwill), January 1, 20x4 Common stock – Subsidiary Company…………………………………… P 240,000 Retained earnings – Subsidiary Company…………………………………. 120,000 Stockholders’ equity – Subsidiary Company.………….. P 360,000 Adjustments to reflect fair value - (over) undervaluation of assets and liabilities 90,000Fair value of stockholders’ equity of subsidiary, January 1, 20x4………………… P 450,000

Multiplied by: Non-controlling Interest percentage…………... 20Non-controlling interest (partial)………………………………….. P 90,000Add: Non-controlling interests on full goodwill, 1/1/20x4 (P12,500, full-goodwill – P10,000, partial goodwill)

3,000

Non-controlling interest (full-goodwill) P 93,000

c. Consolidated SHE: Stockholders’ Equity Common stock, P10 par P 600,000 Retained earnings 360,000 Parent’s Stockholders’ Equity / CI - SHE P 960,000 NCI, 1/1/20x4 ___93,000 Consolidated SHE, 1/1/20x4 P1,053,000

6.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.

12/31/20x4: a. CI-CNI – P174,840

Consolidated Net Income for 20x4 P Company’s net income from own/separate operations…………. P168,000 Unrealized profit in ending inventory of S Company (downstream sales)… ( 18,000) Perfect Company’s realized net income from separate operations*…….…..

P150,000

S Company’s net income from own operations…………………………………. P 60,000 Unrealized profit in ending inventory of S Company (upstream sales)… ( 12,000) Son Company’s realized net income from separate operations*…….….. P 48,000 48,000 Total P198,000 Less: Non-controlling Interest in Net Income P 6,1210 Amortization of allocated excess (refer to amortization above) 13,200 Goodwill impairment (impairment under full-goodwill approach) 3,750 23,160 Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent………….. P174,840 Add: Non-controlling Interest in Net Income (NCINI) _ 6,210 Consolidated Net Income for 20x4 P181.050


b. NCI-CNI – P6,210


P 60,000


P 34,800 Multiplied by: Non-controlling interest %.......... 20% Non-controlling Interest in Net Income (NCINI) – partial P 6,960 Less: Non-controlling interest on impairment loss on full-goodwill (P3,750 x 20%) or (P3,750 impairment on full-goodwill less P3,000, impairment on partial- goodwill)

750

Non-controlling Interest in Net Income (NCINI) P 6,210 *that has been realized in transactions with third parties.

c. CNI – P181,050 – refer to (a)d. On subsequent to date of acquisition, consolidated retained earnings would be

computed as follows:Consolidated Retained Earnings, December 31, 20x4 Retained earnings - Parent Company, January 1, 20x4 (date of acquisition) P360,000 Add: Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent for 20x4 174,840 Total P534,840 Less: Dividends paid – Parent Company for 20x4 72,000 Consolidated Retained Earnings, December 31, 20x4 P462,840

e.Non-controlling interest ), December 31, 20x4 Common stock – Subsidiary Company, December 31, 20x4…… P 240,000 Retained earnings – Subsidiary Company, December 31, 20x4 Retained earnings – Subsidiary Company, January 1, 20x4 P120,000 Add: Net income of subsidiary for 20x4 60,000 Total P180,000 Less: Dividends paid – 20x4 36,000 144,000

Stockholders’ equity – Subsidiary Company, December 31, 20x4 P 384,000 Adjustments to reflect fair value - (over) undervaluation of assets and liabilities, date of acquisition (January 1, 20x4) 90,000 Amortization of allocated excess (refer to amortization above) – 20x4 ( 13,200) Fair value of stockholders’ equity of subsidiary, December 31, 20x4…… P460,800 Less: Unrealized profit in ending inventory of P Company (upstream sales) 12,000 Realized stockholders’ equity of subsidiary, December 31, 20x4…… P448,800 Multiplied by: Non-controlling Interest percentage…………... 20 Non-controlling interest (partial-goodwill)………………………………….. P 89,760 Add: Non-controlling interest on full goodwill , net of impairment loss, 12/31/x4: [(P15,000 full – P12,000, partial = P3,000) – P750 impairment loss

2,250

Non-controlling interest (full-goodwill)…………….. P 92,010

f.Consolidated SHE: Stockholders’ Equity Common stock, P10 par P 600,000 Retained earnings 462,840 Parent’s Stockholders’ Equity / CI - SHE P1,062,840 NCI, 1/1/20x4 ___92,010 Consolidated SHE, 1/1/20x4 P1,154,840

12/31/20x5: a. CI-CNI – P257,040

Consolidated Net Income for 20x5 P Company’s net income from own/separate operations…………. P192,000 Realized profit in beginning inventory of S Company (downstream sales) 18,000 Unrealized profit in ending inventory of S Company (downstream sales)… (_24,000) P Company’s realized net income from separate operations*…….….. P186,000 S Company’s net income from own operations…………………………………. P 90,000 Realized profit in beginning inventory of P Company (upstream sales) 12,000 Unrealized profit in ending inventory of P Company (upstream sales)… ( 6,000) S Company’s realized net income from separate operations*…….….. P 96,000 96,000 Total P282,000 Less: Amortization of allocated excess…………………… 7,200 Consolidated Net Income for 20x5 P274,800 Less: Non-controlling Interest in Net Income* * 17,760 Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent – 20x5………….. P257,040


Or, alternativelyConsolidated Net Income for 20x5 P Company’s net income from own/separate operations…………. P192,000 Realized profit in beginning inventory of S Company (downstream sales) 18,000 Unrealized profit in ending inventory of S Company (downstream sales)… (_24,000) P Company’s realized net income from separate operations*…….….. P186,000 S Company’s net income from own operations…………………………………. P 90,000 Realized profit in beginning inventory of P Company (upstream sales) 12,000 Unrealized profit in ending inventory of P Company (upstream sales)… ( 6,000) Son Company’s realized net income from separate operations*…….….. P 96,000 96,000 Total P282,000 Less: Non-controlling Interest in Net Income* * P 17,760 Amortization of allocated excess…………………… 7,200 24,960 Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent………….. P257,040 Add: Non-controlling Interest in Net Income (NCINI) _ 17,760 Consolidated Net Income for 20x5 P274,800


b. NCI-CNI – P16,560**Non-controlling Interest in Net Income (NCINI) for 20x5 S Company’s net income of Subsidiary Company from its own operations (Reported net income of S Company)

P 90,000

Realized profit in beginning inventory of P Company (upstream sales) 12,000 Unrealized profit in ending inventory of P Company (upstream sales) ( 6,000) S Company’s realized net income from separate operations……… P 96,000 Less: Amortization of allocated excess 7,200

P 88,800 Multiplied by: Non-controlling interest %.......... 20% Non-controlling Interest in Net Income (NCINI) – partial goodwill P 17,760 Less: NCI on goodwill impairment loss on full goodwill 0 Non-controlling Interest in Net Income (NCINI) – full goodwill P 17,760

c. CNI, P274,800 – refer to (a)

d. On subsequent to date of acquisition, consolidated retained earnings would be computed as follows:

Consolidated Retained Earnings, December 31, 20x5 Retained earnings - Parent Company, January 1, 20x5 (cost model P484,800 Less: Unrealized profit in ending inventory of S Company (downstream sales)


18,000

Adjusted Retained Earnings – Parent 1/1/20x5 (cost model (S Company’s Retained earnings that have been realized in transactions with third parties.. P466,800 Adjustment to convert from cost model to equity method for purposes of consolidation or to establish reciprocity:/Parent’s share in adjusted net increased in subsidiary’s retained earnings: Retained earnings – Subsidiary, January 1, 20x5 P 144,000 Less: Retained earnings – Subsidiary, January 1, 20x4 120,000 Increase in retained earnings since date of acquisition P 24,000 Less: Amortization of allocated excess – 20x4 13,200 Unrealized profit in ending inventory of P Company (upstream sales) 20x4 (UPEI of P – 20x4) or Realized profit in beginning inventory of P Company (upstream sales) –20x5 (RPBI of P - 20x5)

12,000

(P 1,200) Multiplied by: Controlling interests %................... 80% (P 960) Less: Goodwill impairment loss (full-goodwill), net (P3,750 – P750)* or (P3,750 x 80%)

3,000 ( 3,960)

Consolidated Retained earnings, January 1, 20x5 P462,840 Add: Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent for 20x5

257,040

Total P719,880 Less: Dividends paid – Parent Company for 20x5 72,000 Consolidated Retained Earnings, December 31, 20x5 P647,880


Or, alternatively:Consolidated Retained Earnings, December 31, 20x5 Retained earnings - Parent Company, December 31, 20x5 (cost model P643,200 Less: Unrealized profit in ending inventory of S Company (downstream sales)


24,000

Adjusted Retained Earnings – Parent 12/31/20x5 (cost model ( S Company’s Retained earnings that have been realized in transactions with third parties.. P619,200 Adjustment to convert from cost model to equity method for purposes of consolidation or to establish reciprocity:/Parent’s share in adjusted net increased in subsidiary’s retained earnings: Retained earnings – Subsidiary, December 31, 20x5 P 186,000 Less: Retained earnings – Subsidiary, January 1, 20x4 120,000 Increase in retained earnings since date of acquisition P 66,000 Less: Accumulated amortization of allocated excess – 20x4 and 20x5 (P13,200 + P7,200) 20,400 Unrealized profit in ending inventory of P Company (upstream sales) 20x5 (UPEI of P – 20x5) or Realized profit in beginning inventory of P Company (upstream sales) –20x6 (RPBI of P - 20x6)

6,000

P 39,600 Multiplied by: Controlling interests %................... 80% P 31,680 Less: Goodwill impairment loss (full-goodwill), net (P3,750 – P750)* or (P3,750 x 80%)

3,000 28,680

Consolidated Retained earnings, December 31, 20x5 P647,880

e.Non-controlling interest, December 31, 20x5 Common stock – Subsidiary Company, December 31, 20x5…… P 240,000 Retained earnings – Subsidiary Company, December 31, 20x5 Retained earnings – Subsidiary Company, January 1, 20x5* P144,000 Add: Net income of subsidiary for 20x5 90,000 Total P234,000 Less: Dividends paid – 20x5 48,000 186,000

Stockholders’ equity – Subsidiary Company, December 31, 20x5 P 426,000 Adjustments to reflect fair value - (over) undervaluation of assets and liabilities, date of acquisition (January 1, 20x4) 90,000 Amortization of allocated excess (refer to amortization above) : 20x4 P

13,200 20x5 7,200 ( 20,400) Fair value of stockholders’ equity of subsidiary, December 31, 20x5…… P 495,600 Less: Unrealized profit in ending inventory of P Company (upstream sales) 20x5 (UPEI of P – 20x5) or Realized profit in beginning inventory of P Company (upstream sales) –20x6 (RPBI of P - 20x6

6,000

Realized stockholders’ equity of subsidiary, December 31, 20x5………. P489,600 Multiplied by: Non-controlling Interest percentage…………... 20 Non-controlling interest (partial goodwill)………………………………….. P 97,920 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 100,170

* the realized profit in beginning inventory of P Company (upstream sales) –20x5 (RPBI of P - 20x5 amounting to P10,000 is already included in the beginning retained earnings of S Company.

f.Consolidated SHE: Stockholders’ Equity Common stock, P10 par P 600,000 Retained earnings 647,880 Parent’s Stockholders’ Equity / CI - SHE P1,247,880 NCI, 1/1/20x4 ___100,170 Consolidated SHE, 12/31/20x5 P1,348,050

Problem XI(Compute selected balances based on three different intercompany asset transfer scenarios)

1.Consolidated Cost of Goods SoldPP’s cost of goods sold ...................................................................... P290,000SW’s cost of goods sold .................................................................... 197,000Elimination of 20x5 intercompany transfers ..................................... (110,000)Reduction of beginning Inventory because of

20x4unrealized gross profit (P28,000/1.4 = P20,000cost; P28,000 transfer price less P20,000cost = P8,000 unrealized gross profit) ........................................ (8,000)

Reduction of ending inventory because of20x5 unrealized gross profit (P42,000/1.4 = P30,000cost; P42,000 transfer price less P30,000cost = P12,000 unrealized gross profit) ...................................... 12,000

Consolidated cost of goods sold ............................................ P381,000 Consolidated Inventory

PP book value .............................................................................. P346,000SW book value ............................................................................. 110,000Eliminate ending unrealized gross profit (see above) ................. (12,000)Consolidated Inventory ............................................................... P444,000

Non-controlling Interest in Subsidiary’s Net IncomeBecause all intercompany sales were downstream, the deferrals do not affect SW. Thus, the non-controlling interest is 20% of the P58,000 (revenues minus cost of goods sold and expenses) reported income or P11,600.

orConsolidated Net Income for 20x5 P Company’s net income from own/separate operations (P640-P290-P150) P 200,000 Realized profit in beginning inventory of S Company (downstream sales) 8,000 Unrealized profit in ending inventory of S Company (downstream sales)… (_ 12,000) P Company’s realized net income from separate operations*…….….. P 196,000 S Company’s net income from own operations (P360 – P197 – P105) P 58,000 Realized profit in beginning inventory of P Company (upstream sales) 0 Unrealized profit in ending inventory of P Company (upstream sales)… ( 0) S Company’s realized net income from separate operations*…….….. P 58,000 58,000 Total P 254,000 Less: Amortization of allocated excess…………………… ____0 Consolidated Net Income for 20x5 P 254,000 Less: Non-controlling Interest in Net Income* * 11,600 Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent – 20x5………….. P 242,200

**Non-controlling Interest in Net Income (NCINI) for 20x5 S Company’s net income of Subsidiary Company from its own operations (Reported net income of Son Company) P 58,000 Realized profit in beginning inventory of P Company (upstream sales) 0 Unrealized profit in ending inventory of P Company (upstream sales) ( 0) S Company’s realized net income from separate operations……… P 58,000 Less: Amortization of allocated excess ____0


2.Consolidated Cost of Goods SoldPP book value ................................................................................... P290,000SW book value .................................................................................. 197,000Elimination of 20x5 intercompany transfers ..................................... (80,000)Reduction of beginning inventory because of

20x4 unrealized gross profit (P21,000/1.4 = P15,000cost; P21,000 transfer price less P15,000cost = P6,000 unrealized gross profit) ........................................ (6,000)

Reduction of ending inventory because of20x5 unrealized gross profit (P35,000/1.4 = P25,000cost; P35,000 transfer price less P25,000cost = P10,000 unrealized gross profit) ...................................... 10,000

Consolidated cost of goods sold ........................................................ P411,000Consolidated InventoryPP book value ................................................................................... P346,000SW book value .................................................................................. 110,000Eliminate ending unrealized gross profit (see above) ....................... (10,000)

Consolidated inventory ................................................................ P446,000

Non-controlling Interest in Subsidiary's Net income

Since all intercompany sales are upstream, the effect on Snow's income must be reflected in the non-controlling interest computation:

SW reported income ......................................................................... P58,00020x4 unrealized gross profit realized in 20x5 (above) ...................... 6,00020x5 unrealized gross profit to be realized in 20x6 (above) ............. (10,000)SW realized income .......................................................................... P54,000Outside ownership percentage ......................................................... 20%

Non-controlling interest in SW’s income ...................................... P10,800 or

Consolidated Net Income for 20x5 P Company’s net income from own/separate operations (P640-P290-P150) P 200,000 Realized profit in beginning inventory of S Company (downstream sales) Unrealized profit in ending inventory of S Company (downstream sales)… (_ 0) P Company’s realized net income from separate operations*…….….. P 200,000 S Company’s net income from own operations (P360 – P197 – P105) P 58,000 Realized profit in beginning inventory of P Company (upstream sales) 6,000 Unrealized profit in ending inventory of P Company (upstream sales)… ( 10,000) S Company’s realized net income from separate operations*…….….. P 54,000 54,000 Total P 254,000 Less: Amortization of allocated excess…………………… ____0 Consolidated Net Income for 20x5 P 254,000 Less: Non-controlling Interest in Net Income* * 10,800 Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent – 20x5………….. P 243,200

**Non-controlling Interest in Net Income (NCINI) for 20x5 S Company’s net income of Subsidiary Company from its own operations (Reported net income of Son Company) P 58,000 Realized profit in beginning inventory of P Company (upstream sales) 6,000 Unrealized profit in ending inventory of P Company (upstream sales) ( 10,000) S Company’s realized net income from separate operations……… P 54,000 Less: Amortization of allocated excess ____0


Problem XIII 1. (Computation of selected consolidation balances as affected by downstream inventory

transfers)UNREALIZED GROSS PROFIT, 12/31/x4: (downstream transfer)

Intercompany gross profit (P120,000 – P72,000)............................................ P48,000

Inventory remaining at year's end ...................................................................... 30%Unrealized Intercompany Gross profit, 12/31/x4 .................................................. P14,400

UNREALIZED GROSS PROFIT, 12/31/x5: (downstream transfer)Intercompany gross profit (P250,000 – P200,000) ......................................... P50,000

Inventory remaining at year's end ...................................................................... 20%Unrealized intercompany gross profit, 12/31/x5 .................................................. P10,000CONSOLIDATED TOTALS Sales = P1,150,000 (add the two book values and eliminate intercompany sales of

P250,000) Cost of goods sold:

Benson's book value ...................................................................................... P535,000Broadway's book value .................................................................................. 400,000Eliminate intercompany transfers .................................................................. (250,000)Realized gross profit deferred in 20x4 ........................................................... (14,400)Deferral of 20x5 unrealized gross profit ........................................................ 10,000

Cost of goods sold ................................................................................... P680,600 Operating expenses = P210,000 (add the two book values and include intangible

amortization for current year) Dividend income = -0- (intercompany transfer eliminated in consolidation) Noncontrolling interest in consolidated income: (impact of transfers is not included

because they were downstream)Broadway reported income for 20x5 ............................................................. P100,000Intangible amortization................................................................................... (10,000 ) Broadway adjusted income............................................................................. 90,000 Outside ownership ......................................................................................... 30 % Noncontrolling interest in Broadway’s earnings............................................. P 27,000

or,Consolidated Net Income for 20x5 P Company’s net income from own/separate operations (P800-P535-P100) P 165,000 Realized profit in beginning inventory of S Company (downstream sales) 14,400 Unrealized profit in ending inventory of S Company (downstream sales)… (_10,000) P Company’s realized net income from separate operations*…….….. P 169,400 S Company’s net income from own operations (P600 – P400 – P100) P 100,000 Realized profit in beginning inventory of P Company (upstream sales) 0 Unrealized profit in ending inventory of P Company (upstream sales)… ( 0) S Company’s realized net income from separate operations*…….….. P

100,000 100,000

Total P 269,400 Less: Amortization of allocated excess…………………… __10,000 Consolidated Net Income for 20x5 P 259,400 Less: Non-controlling Interest in Net Income* * 27,000 Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent – 20x5………….. P 232,400

**Non-controlling Interest in Net Income (NCINI) for 20x5 S Company’s net income of Subsidiary Company from its own operations (Reported net income of S Company) P 100,000 Realized profit in beginning inventory of P Company (upstream sales) 0 Unrealized profit in ending inventory of P Company (upstream sales) ( 0) S Company’s realized net income from separate operations……… P 100,000 Less: Amortization of allocated excess __10,000


Inventory = P988,000 (add the two book values less the P10,000 ending unrealized gross profit)

Noncontrolling interest in subsidiary, 12/31/x5 = P385,50030% beginning P950,000 book value.......................................................... P285,000Excess January 1 intangible allocation (30% × P295,000).......................... 88,500

Noncontrolling Interest in Broadway’s earnings................................................ 27,000Dividends (30% × P50,000)............................................................................... (15,000 )

Total noncontrolling interest at 12/31/x5.................................................... P385,500

2. (Computation of selected consolidation balances as affected by upstream inventory transfers).

UNREALIZED GROSS PROFIT, 12/31/x4: (upstream transfer)Intercompany gross profit (P120,000 – P72,000) ........................................... P48,000Inventory remaining at year's end ................................................................. 30%

Unrealized intercompany gross profit, 12/31/x4 .................................................. P14,400

UNREALIZED GROSS PROFIT, 12/31/x5: (upstream transfer)Intercompany gross profit (P250,000 – P200,000) ......................................... P50,000Inventory remaining at year's end ................................................................. 20%

Unrealized intercompany gross profit, 12/31/x5 .................................................. P10,000

CONSOLIDATED TOTALS

Sales = P1,150,000 (add the two book values and eliminate the Intercompany transfer) Cost of goods sold:

Benson's COGS book value ............................................................................ P535,000Broadway's COGS book value ........................................................................ 400,000Eliminate intercompany transfers .................................................................. (250,000)Realized gross profit deferred in 20x4 ........................................................... (14,400)Deferral of 20x5 unrealized gross profit ........................................................ 10,000

Consolidated cost of goods sold .............................................................. P680,600 Operating expenses = P210,000 (add the two book values and include intangible

amortization for current year) Dividend income = -0- (interco. transfer eliminated in consolidation) Noncontrolling interest in consolidated income: (impact of transfers is included because

they were upstream)Broadway reported income for 20x5 ............................................................. P100,000Intangible amortization................................................................................... (10,000)

20x4 gross profit recognized in 20x5 ...................................................... 14,40020x5 gross profit deferred ....................................................................... (10,000)Broadway realized income for 20x5......................................................... P94,400

Outside ownership ......................................................................................... 30%Noncontrolling interest .................................................................................. P28,320

Consolidated Net Income for 20x5 P Company’s net income from own/separate operations (P800-P535-P100) P 165,000 Realized profit in beginning inventory of S Company (downstream sales) 0 Unrealized profit in ending inventory of S Company (downstream sales)… (_ 0) P Company’s realized net income from separate operations*…….….. P 165,000 S Company’s net income from own operations (P600 – P400 – P100) P 100,000 Realized profit in beginning inventory of P Company (upstream sales) 14,400 Unrealized profit in ending inventory of P Company (upstream sales)… ( 10,000) S Company’s realized net income from separate operations*…….….. P

104,400 104,400

Total P 269,400 Less: Amortization of allocated excess…………………… __10,000 Consolidated Net Income for 20x5 P 259,400 Less: Non-controlling Interest in Net Income* * 28,320 Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent – 20x5………….. P 231,080

**Non-controlling Interest in Net Income (NCINI) for 20x5 S Company’s net income of Subsidiary Company from its own operations (Reported net income of S Company) P 100,000 Realized profit in beginning inventory of P Company (upstream sales) 14,400 Unrealized profit in ending inventory of P Company (upstream sales) ( 10,000) S Company’s realized net income from separate operations……… P 104,400 Less: Amortization of allocated excess __10,000


Inventory = P988,000 (add the two book values and defer the P10,000 ending unrealized gross profit)

Noncontrolling interest in subsidiary, 12/31/x5 = P382,50030% beginning book value less P14,400 unrealized gross profit (30% × P935,600)............................................. P280,680Excess intangible allocation (30% × P295,000)....................................... (88,500)Noncontrolling Interest in Broadway’s earnings....................................... 28,320

Dividends (30% × P50,000)............................................................................ (15,000 ) Total noncontrolling interest at 12/31/x5................................................. P382,500

Problem XIV Amortization of equipment: P20,000 / 10 years = P2,000 RPBI of S (downstream sales):…………………........................................................ P15,000 RPBI of P (upstream sales)………………………....................................................... 10,000 UPEI of S (downstream sales)……………………………………………………..……. 20,000 UPEI of P (upstream sales)………………………………………………….…………… 5,000

Pepper(CI-CNI)

Salt(NCI-CNI) CNI

Net Income from own operations: Pepper [P724,000 – (PP30,000 x 80%)]

P700,000

Salt 72,000 P 18,000

RPBI of S (down) 15,000RPBI of P (up) 8,000 2,000UPEI of S (down) ( 20,000)UPEI of P (up) ( 4,000) (1,000)Amortization ( 1,600) ( 400) Impairment of goodwill ( 0) ____( 0)__

P769,400 P18,600 P788,000

Profit Attributable to Equity NC Interest CNI Holders of Parent in Net Income Note: Preferred Solution - since what is given is the RE – P, 12/31/2014 (ending balance of the current year) - Retained earnings – Parent, 12/31/2014 (cost)……………………….. P 3,500,000 -: UPEI of S (down) – 2014 or RPBI of S (down) – 2015..…………. 20,000 Adjusted Retained earnings – Parent, 12/31/2014 (cost)………….. P 3,480,000 Retroactive Adjustments to convert Cost to “Equity” for purposes of consolidation / Parent’s share of adjusted net increase in subsidiary’s retained earnings:

Retained earnings – Subsidiary, 1/1/2011……………………….P 150,000 Less: Retained earnings – Subsidiary, 12/31/2014…………... 320,000 Increase in Retained earnings since acquisition

(cumulative net income – cumulative dividends)…………P 170,000 Accumulated amortization (1/1/2011 – 12/31/2014): P 2,000 x 4 years………………………………………………..( 8,000) UPEI of P (up) – 2014 or RPBI of P (up) – 2015……………….....( 5,000)

P 157,000 X: Controlling Interests………………………………………… 80% 125,600 RE – P, 12/31/2014 (equity method) = CRE, 12/31/2014…………. P 3,605,600

Or, compute first the RE – P on January 1, 2014 (use work back approach), Retained earnings – Parent, 1/1/2014 (cost)

(P3,500,000 plus P25,000 Div of P less P724,000 NI of P)…. P2,801,000

-: UPEI of S (down) – 2013 or RPBI of S (down) – 2014..…………. 15,000 Adjusted Retained earnings – Parent, 1/1/2014 (cost)……………… P2,786.000 Retroactive Adjustments to convert Cost to “Equity” for purposes of consolidation / Parent’s share of adjusted net increase in subsidiary’s retained earnings:

Retained earnings – Subsidiary, 1/1/2011………………………P 150,000 Less: Retained earnings – Subsidiary, 1/1/2014……………… 260,000 Increase in Retained earnings since acquisition

(cumulative net income – cumulative dividends)…………P110,000 Accumulated amortization (1/1/2011 – 1/1/2014): P 2,000 x 3 years………………………………………………. ( 6,000) UPEI of P (up) – 2013 or RPBI of P (up) – 2014………………... ( 10,000)

P 94,000 X: Controlling Interests………………………………………… 80% 75,200 RE – P, 1/1/2014 (equity method) = CRE, 1/1/2014………………..P2,861,200 +: CI – CNI or Profit Attributable to Equity Holders of Parent…….. 769,400 -: Dividends – P………………………..……………………… 25,000 RE – P, 12/31/2014 (equity method) = CRE, 12/31/2014…………..P3,605,600

Sales Cost of Sales P P2,500,000 P1,250,000 S 1,200,000 875,000 Intercompany sales - downstream ( 320,000) ( 320,000) Intercompany sales - upstream

( 290,000) ( 290,000)

RPBI of S (downstream sales)* ( 15,000) RPBI of P (upstream sales)*** ( 10,000)

UPEI of S (downstream sales)** 20,000 UPEI of P (upstream sales)**** _________ 5,000 Consolidated

P3,090,000P1,515,000

Working Paper Eliminating Entries:1. Intercompany Sales and Purchases:

Downstream Sales:Sales………………………………………………………………………….. 320,000

Cost of Sales (or Purchases)…………………………………….... 320,000 Upstream Sales:

Sales………………………………………………………………………….. 290,000Cost of Sales (or Purchases)………………………………………

290,0002. Intercompany Profit:

(COST Model) Downstream Sales: *100% RPBI of S:

Retained Earnings – P, beginning………………………………………..... 15,000Cost of Sales (Beginning Inventory in Income Statement)…............

15,000 **100% UPEI of S:

Cost of Sales (Ending Inventory in Income Statement)……………… 20,000Inventory (Ending Inventory in Balance Sheet)………………..

20,000 Upstream Sales: ***100% RPBI of P: (if equity method Investment in S instead of RE – P, beg.)

Retained Earnings – P, beginning…………………………………...…….. 16,000NCI ……………………………………………….……………………………... 4,000

Cost of Sales (Beginning Inventory in Income Statement)…........ 20,000 ****100% UPEI of P:

Cost of Sales (Ending Inventory in Income Statement)………………… 5,000Inventory (Ending Inventory in Balance Sheet)………………..

5,000

Problem XV (Change 2009 – 20x4; 2010 – 20x5; 2011 – 20x6)(Compute consolidated totals with transfers of both inventory and a building.)

Excess Amortization ExpensesEquipment P60,000 ÷ 10 years = P6,000 per yearFranchises P80,000 ÷ 20 years = P4,000 per yearAnnual excess amortizations P10,000

Unrealized Gross profit—Inventory, 1/1/x6Markup (P70,000 – P49,000) .......................................................................... P21,000Markup percentage (P21,000 ÷ P70,000) ...................................................... 30%

Remaining inventory .................................................................................................. P30,000Markup percentage .................................................................................................... 30%

Unrealized gross profit, 1/1/x6........................................................................ P9,000

Unrealized Gross profit—Inventory, 12/31/x6Markup (P100,000 – P50,000) ........................................................................ P50,000

Markup percentage (P50,000 ÷ P100,000) ................................................................ 50%

Remaining inventory ...................................................................................... P40,000Markup percentage .................................................................................................... 50%

Unrealized gross profit, 12/31/x6 ................................................................... P20,000

Impact of intercompany Building Transfer

12/31/x5—Transfer price figuresTransfer price .......................................................................................... P50,000Gain on transfer (P50,000 – P30,000) ...................................................... 20,000Depreciation expense (P50,000 ÷ 5) ....................................................... 10,000Accumulated depreciation ....................................................................... 10,000

12/31/x6—Transfer price figuresDepreciation expense .............................................................................. 10,000Accumulated depreciation ....................................................................... 20,000

12/31/x5—Historical cost figuresHistorical cost .......................................................................................... P70,000Depreciation expense (P30,000 book value ÷ 5 years) ........................... 6,000

Accumulated depreciation (P40,000 + P6,000) ....................................... 46,00012/31/x6—Historical cost figures

Depreciation expense .............................................................................. 6,000Accumulated depreciation ....................................................................... 52,000

CONSOLIDATED BALANCES Sales = P1,000,000 (add the two book values and subtract P100,000 in intercompany transfers) Cost of Goods Sold = P571,000 (add the two book values and subtract P100,000 in intercompany

purchases. Subtract P9,000 because of the previous year unrealized gross profit and add P20,000 to defer the current year unrealized gross profit.)

Operating Expenses = P206,000 (add the two book values and include the P10,000 excess amortization expenses but remove the P4,000 in excess depreciation expense [P10,000 – P6,000] created by building transfer)

Investment Income = P0 (the intercompany balance is removed so that the individual revenue and expense accounts of the subsidiary can be shown)

Inventory = P280,000 (add the two book values and subtract the P20,000 ending unrealized gross profit)

Equipment (net) = P292,000 (add the two book values and include the P60,000 allocation from the acquisition-date fair value less three years of excess amortizations)

Buildings (net) = P528,000 (add the two book values and subtract the P20,000 unrealized gain on the transfer after two years of excess depreciation [P4,000 per year])

Problem XVIRequirements 1 to 4:Schedule of Determination and Allocation of Excess (Partial-goodwill) Date of Acquisition – January 1, 20x4

Fair value of Subsidiary (80%) Consideration transferred……………………………….. P 372,000Less: Book value of stockholders’ equity of Son: Common stock (P240,000 x 80%)……………………. P 192,000 Retained earnings (P120,000 x 80%)………………... 96,000 288,000Allocated excess (excess of cost over book value)….. P 84,000Less: 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 72,000Positive 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.

Book valueS Co.

Fair value (Over) Under

Valuation Inventory………………….…………….. P 24,000 P 30,000 P 6,000Land……………………………………… 48,000 55,200 7,200Equipment (net)......... 84,000 180,000 96,000Buildings (net) 168,000 144,000 (24,000)Bonds payable………………………… (120,000) ( 115,200) 4,800Net……………………………………….. P 204,000 P 294,000 P 90,000

The buildings and equipment will be further analyzed for consolidation purposes as follows:S Co.

Book valueS Co.

Fair value Increase

(Decrease)Equipment .................. 180,000 180,000 0Less: Accumulated depreciation….. 96,000 - ( 96,000)Net book value………………………... 84,000 180,000 96,000

S Co. Book value

S Co.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)


Over/Under

Life

Annual Amount


InventoryP

6,000 1P

6,000 P 6,000P -



0) 4 ( 6,000) ( 6,000) (6,000)

Bonds payable… 4800

0 4 1,20

0 1,200 1,20

0P

13,200 P 13,200 P 7,200

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 105,000Add (deduct): (Over) under valuation of assets and liabilities (P90,000 x 100%) 90,000Positive 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 TotalGoodwill applicable to parent………………… P12,000 80.00%Goodwill applicable to NCI…………………….. 3,000 20.00%Total (full) goodwill……………………………….. P15,000 100.00%

The goodwill impairment loss would be allocated as follows

Value % of TotalGoodwill impairment loss attributable to parent or controlling Interest

P 3,000 80.00%

Goodwill applicable to NCI…………………….. 750 20.00%Goodwill impairment loss based on 100% fair value or full- Goodwill P 3,750 100.00%

The unrealized profits on January 1, and on December 31, 20x5, resulting intercompany sales, are as summarized below:

Downstream Sales:

Year Sales of Parent to Subsidiary



20x4

P150,000 P150,000 x 60% = P90,000 P90,000 x 20% = P18,000

20x5

120,000 P120,000 x 80% = P96,000 P96,000 x 25% = P40,000

Upstream Sales:

Year Sales of Subsidiary to



Parent20x4

P 50,000 P100,000 x 50% = P25,000 P25,000 x 40% = P10,000

20x5

62,500 P 62,500 x 40% = P25,000 P25,000 x 20% = P 5,000



372,000


January 1, 20x4 – December 31, 20x4:(2) Cash……………………… 28,800 Investment in S Company (P36,000 x 80%)……………. 28,800 Record dividends from S Company.

December 31, 20x4:(3) Investment in S Company 48,000 Investment income (P60,000 x 80%) 48,000 Record share in net income of subsidiary.

December 31, 20x4:(4) Investment income [(P13,200 x 80%) + P3,000, goodwill impairment loss)]

13,560

Investment in S Company 13,560 Record amortization of allocated excess of inventory, equipment,

buildings and bonds payable and goodwill impairment loss.

December 31, 20x4:(5) Investment income (P18,000 x 100%) 18,000 Investment in S Company 18,000 To adjust investment income for downstream sales - unrealized

profit in ending inventory of S.

December 31, 20x4:(6) Investment income (P12,000 x 80%) 9,600 Investment in S Company 9,600 To adjust investment income for upstream sales - unrealized

profit in ending inventory P .Thus, the investment balance and investment income in the books of P Company is as follows:

Consolidation Workpaper – First Year after Acquisition

(E1) Common stock – S Co………………………………………… 240,000 Retained earnings – S Co…………………………………… 120.000 Investment in S Co…………………………………………… 288,000 Non-controlling interest (P360,000 x 20%)………………………..

72,000

To eliminate investment on January 1, 20x4 and equity accounts of subsidiary on date of acquisition; and to establish non-controlling interest (in net assets of subsidiary) on date of acquisition.

(E2) Inventory………………………………………………………………….

6,000

Accumulated depreciation – equipment……………….. 96,000 Accumulated depreciation – buildings………………….. 192,000 Land……………………………………………………………………… 7,200

Investment in SCost, 1/1/x4 372,000

28,800 Dividends – S (30,000x 80%)

NI of S Amortization & (60,000 x 80%) 48,000

13,560 impairment

18,000 UPEI of Son (P15,000 x 100%) 9,600 UPEI of Perfect (P10,000 x80%)

Balance, 12/31/x4 350,040

Investment Income Amortization & NI of S impairment 13,560

48,000 (P60,000 x 80%)

UPEI of S (P18,000 x 100%) 18,000UPEI of P (P12,000 x80%) 9,600

6,840 Balance, 12/31/x4

. Discount on bonds payable………………………………………….

4,800

Goodwill…………………………………………………………………. 12,000 Buildings……………………………………….. 216,000 Non-controlling interest (P90,000 x 20%)………………………..

18,000

Investment in S Co………………………………………………. 84,000 To eliminate investment on January 1, 20x4 and allocate excess of cost over book value of identifiable assets acquired, with remainder to goodwill; and to establish noncontrolling interest (in net assets of subsidiary) on date of acquisition.


Cost of Goods Sold


ExpenseAmortizatio

n-Interest

Total



0

(E4) Investment income 6,840 Investment in S Company 21,960 Non-controlling interest (P36,000 x 20%)……………….. 7,200 Dividends paid – S…………………… 36,000 To eliminate intercompany dividends and investment income under equity method and establish share of dividends, computed as follows:

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,

(E5) Sales………………………. 150,000 Cost of Goods Sold (or Purchases) 150,000

Investment in S Investment IncomeNI of S 28,800 Dividends - S NI of S(60,000 x 80%)……. 48,000

Amortization &13,560 impairment

Amortization impairment 13,560

(50,000 48,000 x

80%)18,000 UPEI of S UPEI of S

18,000 9,600 UPEI of P UPEI of P

9,60021,960 6,840


28,800 Dividends – S (30,000x 80%)


13,560 impairment

18,000 UPEI of Son 9,600 UPEI of Perfect

Balance, 12/31/x4 350,040

288,000 (E1) Investment, 1/1/20x4

(E4) Investment Income and dividends …………… 21,960

84,000 (E2) Investment, 1/1/20x4

372,000 372,000

To eliminated intercompany downstream sales.





6,960



( 12,000)

Son Company’s realized net income from separate operations*…….….. P 48,000Less: Amortization of allocated excess [(E3)]….

( 13,200)


20%


P 6,960

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.

Worksheet for Consolidated Financial Statements, December 31, 20x4. Equity Method (Partial-goodwill)80%-Owned Subsidiary December 31, 20x4 (First Year after Acquisition)


Sales P480,000 P240,000

(5) 150,000(6) 60,000

P 510,000

Investment income 6,840 - (4) 6,840 _________ Total Revenue P486,840 P240,000 P 510,000


(3) 6,000(7) 18,000(8) 12,000

(5) 150,000(6) 60,000

P 168,000


90,000


1,200

Other expenses 48,000 18,000 66,000


3,000

Total Cost and Expenses P312,000 P180,000 P328,200Net Income P174,840 P 60,000 P181,800NCI in Net Income - Subsidiary - - (9) 6,960 ( 6,960)Net Income to Retained Earnings P174,840 P 60,000 P174,840

Statement of Retained EarningsRetained earnings, 1/1 P Company P360,000 P

360,000

S Company P120,000(1) 120,000

Net income, from above 174,840 60,000 174,840 Total P414,840 P180,000 P414,840Dividends paid P Company 72,000 72,000

S Company - 36,000(4) 36,000 _ ________


P 642,840

Balance Sheet

Cash……………………….P


Inventory…………………. 120,000 90,000 (1) 5,000

(3) 6,000(7) 18,000(8) 12,000 180,000

Land……………………………. 210,000 48,000(2) 7,200 265,200

Equipment 220,000 180,000 380,000

Buildings 720,000 540,000(2) 216,000 1,044,000


(3) 1,200 3,600

Goodwill……………………(2) 12,000

(3) 3,000 9,000

Investment in S Co……… 350,040(4) 21,96

0

(2) 288,000(2) 84,000

-

Total P1,635,700P1,006,0

00 P2,394,600


(2) 96,000

(3) 12,000 P 147,000


405,000 288,000

(2) 192,000(3) 6,000 495,000



240,000Retained earnings, from above 462,840 144,000 462,840


_________ ______

___

(4) 7,200

__________

(1 ) 72,000 (2) 18,000(5) 6,960 ____89,760

Total P1,962,840P1,008,0

00P 983,160

P 983,160 P2,394,600

Second Year after AcquisitionP Co. S Co.

Sales P 540,000 P 360,000Less: Cost of goods sold 216,000 192,000Gross profit P 324,000 P 168,000Less: Depreciation expense 60,000 24,000 Other expense 72,000 54,000Net income from its own separate operations P 192,000 P 90,000Add: Investment income 65,040 -Net income P 257,040 P 90,000Dividends paid P 72,000 P 48,000


20x5: Parent Company Equity Method EntryJanuary 1, 20x5 – December 31, 20x5:(2) Cash……………………… 38,400 Investment in S Company (P48,000 x 80%)……………. 38,400 Record dividends from S Company.

December 31, 20x5:

(3) Investment in S Company 72,000 Investment income (P90,000 x 80%) 72,000 Record share in net income of subsidiary.

December 31, 20x5:(4) Investment income (P7,200 x 80%) 5,760 Investment in S Company 5,760 Record amortization of allocated excess of inventory, equipment,

buildings and bonds payable


profit in ending inventory of Son (UPEI of S).

December 31, 20x5:(6) Investment in S Company…………….. 18,000 Investment income (P18,000 x 100%)……….. 18,000 To adjust investment income for downstream sales - realized

profit in beginning inventory of S (RPBI of S).


profit in ending inventory Perfect (UPEI of P).

December 31, 20x5:(8) Investment in S Company…………….. 9,600 Investment income (P12,000 x 80%)……….. 9,600 To adjust investment income for upstream sales - realized profit

in beginning inventory of Perfect (RPBI of P)

Thus, the investment balance and investment income in the books of P Company is as follows:

Consolidation Workpaper – Second Year after AcquisitionThe schedule of determination and allocation of excess presented above provides complete guidance for the worksheet eliminating entries:

(E1) Common stock – S Co………………………………………… 240,000 Retained earnings – S Co, 1/1/x5…………………………. 144.000 Investment in S Co (P384,000 x 80%) 307,200 Non-controlling interest (P384,000 x 20%)………………………..

76,800

To eliminate investment on January 1, 20x5 and equity accounts of subsidiary on date of acquisition; and to establish noncontrolling interest (in net assets of subsidiary) on 1/1/20x5.

(E2) Accumulated depreciation – equipment (P96,000 – P12,000)

84,000

Accumulated depreciation – buildings (P160,000 + P6,000) 198,000 Land……………………………………………………………………….

7,200

Discount on bonds payable (P4,800 – P1,200)…. 3,600 Goodwill (P12,000 – P3,000)…………………………….. 9,000 Buildings……………………………………….. 216,000


38,400 Dividends – S (48,000x 80%)

NI of Son 5,760 Amortization (7,200 x 80%) (90,000 x 80%) 72,000

24,000 UPEI of Son (P24,000 x 100%)

RPBI of S (P18,000 x 100%) 18,000

4,800 UPEI of Perfect (P6,000 x 80%)

RPBI of P (P12,000 x 80%) 9,600Balance, 12/31/x5 376,680

Investment Income Amortization (7,200 x 805) 5,760

NI of S

UPEI of S (P24,000 x 100%) 24,000

72,000 (P90,000 x 80%)

UPEI of P (P6,000 x 80%) 4,800

18,000 RPBI of S (P18,000 x 100%)

9,600 RPBI of P(P12,000 x 80%)65,040 Balance, 12/31/x5

Non-controlling interest [(P90,000 – P13,200) x 20%] 15,360 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 noncontrolling interest (in net assets of subsidiary) on 1/1/20x5.

(E3) Depreciation expense……………………….. 6,000 Accumulated depreciation – buildings………………….. 6,000 Interest expense………………………………… 1,200 Accumulated depreciation – equipment……………….. 12,000 Discount on bonds payable………………………… 1,200 To provide for 20x5 depreciation and amortization on differences between acquisition date fair value and book value of Son’s identifiable assets and liabilities as follows:


ExpenseAmortizatio

n-Interest

Total

Inventory soldEquipment P 12,000Buildings ( 6,000)Bonds payable

_______ P 1,200

Totals P 6,000 P1,200 P7,200

(E4) Investment income 65,040 Non-controlling interest (P48,000 x 20%)……………….. 9,600 Dividends paid – S…………………… 48,000 Investment in S Company 26,640 To eliminate intercompany dividends and investment income under equity method and establish share of dividends, computed as follows:



(E8) Investment in Son Company……………………. 18,000 Cost of Goods Sold (Ending Inventory – Income Statement) 18,000 To realized profit in downstream beginning inventory deferred in the prior period.

(E9) Investment in Son Company (P12,000 x 80%) 9,600 Noncontrolling interest (P12,000 x 20%)…… 2,400 Cost of Goods Sold (Ending Inventory – Income Statement) 12,000 To realized profit in upstream beginning inventory deferred in the prior period.


(E10) Cost of Goods Sold (Ending Inventory – Income Statement)… 24,000 Inventory – Balance Sheet…… 24,000 To defer the downstream sales - unrealized profit in ending

Investment in S Investment IncomeNI of S 38,400 Dividends – S NI of S(90,000 x 80%)……. 72,000

Amortization 5,760 (P7,200 x 80%)

Amortization (P7,200 x 80%) 5,760

(90,000 72,000 x 80%)

RPBI of S 18,000

24,000 UPEI of S UPEI of S 24,000

18,000 RPBI of S

RPBI of P 9,600

4,800 UPEI of P UPEI of P 4,800

9,600 RPBI of P

26,640

65,040


38,400 Dividends – S (40,000x 80%)

NI of S Amortization (90,000 x 80%) 72,000

5,760 (6,000 x 80%)

RPBI of S (P18,000 x 100%) 18,000

24,000 UPEI of S (P20,000 x 100%)

RPBI of P (P12,000 x 80%) 9,600

4,800 UPEI of P (P5,000 x 80%)

Balance, 12/31/x5 376,680

307,200 (E1) Investment, 1/1/20x5

(E8) RPBI of S 18,000

70,440 (E2) Investment, 1/1/20x5

(E9) RPBI of P 9,600

26,640 (E4) Investment Income and dividends

336,900 404,280

inventory until it is sold to outsiders.



17,760


Net income of subsidiary…………………….. P 90,000Realized profit in beginning inventory of P Company - 20x5 (upstream sales) 12,000Unrealized profit in ending inventory of P Company - 20x5 (upstream sales) ( 6,000)S Company’s Realized net income* P 96,000Less: Amortization of allocated excess ( 7,200)


20%


P 17,760


Worksheet for Consolidated Financial Statements, December 31, 20x5. Equity Method (Partial-goodwill)80%-Owned Subsidiary December 31, 20x5 (Second Year after Acquisition)


Sales P540,000 P360,000

(6) 120,000

(7) 75,000

P 705,000

Investment income 65,040 -(4) 65,040

___________



(6) 120,000

(7) 75,000

(8) 18,000

(9) 12,000

P 213,000


90,000


1,200



90,000P 274,800


( 17,760)


90,000P 257,040

Statement of Retained EarningsRetained earnings, 1/1 P Company P462,840 P 462,840

S Company P144,000(1)

144,000 Net income, from above 257,040 90,000 257,040 Total P719,880 P234,000 P 719,880Dividends paid P Company 72,000 72,000

S Company - 48,000(4) 48,000 _ ________


Balance Sheet

Cash……………………….P

265,200P

102,000 P 367,200Accounts receivable…….. 180,000 96,000 276,000

Inventory…………………. 216,000 108,000(10) 24,000(11) 6,000 294,000

Land……………………………. 210,000 48,000(2) 7,200 265,200



Goodwill……………………(2) 9,000 9,000

Investment in S Co……… 376,680 (8) 18,000(9) 9,600

(1) 307,200(2) 70,440

(4) 26,640 -

Total P2,207,880P1,074,0

00 P2,677,800


P 102,000

(2) 84,000

(3) 12,000 P180,000


450,000 306,000(2) 198,000 (3) 6,000 552,000



Retained earnings, from above 647,880 186,000 647,880Non-controlling interest…………

___ _____ _________

(4) 9,600(9) 2,400

__________

(2 ) 76,800 (2) 15,360(5) 17,760 ____97,920

Total P2,207,880

P1,074,000

P1,046,400

P1,046,400 P2,677,800

5 and 6. Refer to Problem IX for computationsNote: Using cost model or equity method, the consolidated net income, consolidated retained earnings, non-controlling interests, consolidated equity on December 31, 20x4 and 20x5 are exactly the same (refer to Problem IX solution).

Problem XVIIRequirements 1 to 4:Schedule of Determination and Allocation of Excess 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 465,000Less: Book value of stockholders’ equity of Son: Common stock (P240,000 x 100%)………………. P 240,000 Retained earnings (P120,000 x 100%)………... 120,000 360,000Allocated excess (excess of cost over book value)….. P 105,000Less: 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 90,000Positive excess: Full-goodwill (excess of cost over fair value)………………………………………………... P 15,000


Over/under

Life

Annual Amount


InventoryP

6,000 1P

6,000 P 6,000P -



0) 4 ( 6,000) ( 6,000) (6,000)

Bonds payable… 4,80

0 4 1,20

0 1,200 1,20

0P

13,200 P 13,200 P 7,200

20x4: First Year after Acquisition Parent Company Equity Method Entry


372,000


January 1, 20x4 – December 31, 20x4:(2) Cash……………………… 28,800 Investment in S Company (P36,000 x 80%)……………. 28,800 Record dividends from S Company.


December 31, 20x4:(4) Investment income [(P13,200 x 80%) + (P3,750 – P750)*, goodwill impairment loss)]

13,560

Investment in S Company 13,560 Record amortization of allocated excess of inventory, equipment,

buildings and bonds payable and goodwill impairment loss.



profit in ending inventory of S.


profit in ending inventory P .

Thus, the investment balance and investment income in the books of P Company is as follows


28,800 Dividends – S (36,000x 80%)


13,560 impairment

18,000 UPEI of S (P18,000 x 100%) 9,600 UPEI of P (P12,000 x80%)

Balance, 12/31/x4 324,000

Investment Income Amortization & NI of S impairment 13,560

48,000 (P60,000 x 80%)

UPEI of S (P18,000 x 100%) 18,000UPEI of P (P12,000 x80%) 9,600

6,840 Balance, 12/31/x4

Consolidation Workpaper – First Year after Acquisition (E1) Common stock – S Co………………………………………… 240,000 Retained earnings – S Co…………………………………… 120.000 Investment in S Co…………………………………………… 288,000 Non-controlling interest (P360,000 x 20%)………………………..

72,000

To eliminate investment on January 1, 20x4 and equity accounts of subsidiary on date of acquisition; and to establish noncontrolling interest (in net assets of subsidiary) on date of acquisition.

(E2) Inventory………………………………………………………………….

6,000


7,200


4,800

Goodwill…………………………………………………………………. 15,000 Buildings……………………………………….. 216,000 Non-controlling interest (P90,000 x 20%) + [(P15,000, full – P12,000, partial goodwill)]…………

21,000

Investment in Son Co……………………………………………….

84,000

To eliminate investment on January 1, 20x4 and allocate excess of cost over book value of identifiable assets acquired, with remainder to goodwill; and to establish noncontrolling interest (in net assets of subsidiary) on date of acquisition.


Cost of Goods Sold


ExpenseAmortizatio

n-Interest

Total



0

(E4) Investment income 6,840 Investment in S Company 21,960 Non-controlling interest (P36,000 x 20%)……………….. 7,200 Dividends paid – S…………………… 36,000 To eliminate intercompany dividends and investment income under equity method and establish share of dividends, computed as follows:

Investment in SInvestment Income

NI of S 28,800 Dividends - S NI of S(60,000 x 80%)……. 48,000

Amortization &13,560 impairment

Amortization impairment 13,560

(50,000 48,000 x

80%)18,000 UPEI of S UPEI of S

18,000 9,600 UPEI of P UPEI of P

9,60021,960 6,840







6,210



( 12,000)


( 13,200)


20%


P 6,960

Less: Non-controlling interest on impairment loss on full-goodwill (P3,750 x 20%) or (P3,750 impairment on full-goodwill less P3,000, impairment on partial-goodwill)*

750


P 6210

*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 (refer to Illustration 15-6).

Worksheet for Consolidated Financial Statements, December 31, 20x4. Equity Method (Full-goodwill)80%-Owned Subsidiary December 31, 20x4 (First Year after Acquisition)

Income Statement P Co S Co. Dr. Cr. ConsolidatedSales P480,000 P240,000 (5) P 510,000


28,800 Dividends – S (30,000x 80%)


13,560 impairment

18,000 UPEI of S 9,600 UPEI of P

Balance, 12/31/x4 350,040

288,000 (E1) Investment, 1/1/20x4

(E4) Investment Income and dividends …………… 21,960

84,000 (E2) Investment, 1/1/20x4

372,000 372,000

150,000(6) 60,000


_________



(3) 6,000(7) 18,000(8) 12,000

(5) 150,000(6) 60,000

P 168,000


90,000


1,200

Other expenses 48,000 18,000 66,000


3,750



( 5,175)



P Company P360,000P

360,000

S Company P120,000(1) 120,000

Net income, from above 174,840 60,000 174,840

Total P414,840 P180,000P

414,840Dividends paid P Company 72,000 72,000

S Company - 36,000(4) 36,000 _ ________


P 462,840

Balance Sheet

Cash……………………….P


Inventory…………………. 120,000 90,000 (2) 6,000

(3) 6,000(7) 18,000(8) 12,000 180,000

Land……………………………. 210,000 48,000(2) 7,200 265,200

Equipment 240,000 180,000 420,000

Buildings 720,000 540,000(2) 216,000 1,044,000


(3) 1,200 3,600

Goodwill……………………(2) 15,000

(3) 3,750 11,250

Investment in S Co……… 350,040 (4)

21,960

(2) 288,000(2) 84,000

-

Total P1,635,700P1,008,0

00 P2,396,850


(2) 96,000

(3) 12,000 P 147,000


405,000 288,000 (2) 192,000(3) 6,000 495,000



240,000Retained earnings, from above 462,840 144,000 462,840Non-controlling interest………… _________ ______

___(4) 7,200

(1 ) 72,000 (2)

____92,010

__________

21,000(9) 6,210

Total P1,962,840P1,008,0

00P 986,160

P 986,160 P2,396,850

20x5: Second Year after AcquisitionPerfect Co. Son Co.

Sales P 540,000 P 360,000Less: Cost of goods sold 216,000 192,000Gross profit P 324,000 P 168,000Less: Depreciation expense 60,000 24,000 Other expense 72,000 54,000Net income from its own separate operations P 192,000 P 90,000Add: Investment income 65,040 -Net income P 257,040 P 90,000Dividends paid P 72,000 P 48,000


Parent Company Equity Method EntryJanuary 1, 20x5 – December 31, 20x5:(2) Cash……………………… 38,400 Investment in S Company (P48,000 x 80%)……………. 38,400 Record dividends from S Company.


December 31, 20x5:(4) Investment income (P7,200 x 80%) 5,760 Investment in S Company 5,760 Record amortization of allocated excess of inventory, equipment,

buildings and bonds payable


profit in ending inventory of S (UPEI of S).

December 31, 20x5:(6) Investment in S Company…………….. 18,000 Investment income (P18,000 x 100%)……….. 18,000 To adjust investment income for downstream sales - realized

profit in beginning inventory of S (RPBI of S).


profit in ending inventory P (UPEI of P).December 31, 20x5:(8) Investment in S Company…………….. 9,600 Investment income (P12,000 x 80%)……….. 9,600 To adjust investment income for upstream sales - realized profit

in beginning inventory of P (RPBI of P)

Thus, the investment balance and investment income in the books of Perfect Company is as follows:


38,400 Dividends – S (48,000x 80%)

NI of Son 5,760 Amortization (7,200 x 80%) (90,000 x 80%) 72,000

24,000 UPEI of S (P24,000 x 100%)

RPBI of (P18,000 x 100%) 18,000

4,800 UPEI of P (P6,000 x 80%)

RPBI of P (P12,000 x 80%) 9,600Balance, 12/31/x5 376,680

Investment Income Amortization (7,200 x 805) 5,760

NI of S

UPEI of S (P24,000 x 100%) 24,000

72,000 (P90,000 x 80%)

UPEI of P (P6,000 x 80%) 4,800

18,000 RPBI of S (P18,000 x 100%)

9,600 RPBI of P (P12,000 x 80%)65,040 Balance, 12/31/x5

Consolidation Workpaper – Second Year after AcquisitionThe schedule of determination and allocation of excess presented above provides complete guidance for the worksheet eliminating entries.

(E1) Common stock – S Co………………………………………… 240,000 Retained earnings – S Co, 1/1/x5…………………………. 144.000 Investment in S Co (P384,000 x 80%) 307,200 Non-controlling interest (P384,000 x 20%)………………………..

76,800

To eliminate investment on January 1, 20x5 and equity accounts of subsidiary on date of acquisition; and to establish noncontrolling 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 – P3,750)…………………………….. 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 noncontrolling 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 (refer to Illustration 15-6).

(E3) Depreciation expense……………………….. 6,000 Accumulated depreciation – buildings………………….. 6,000 Interest expense………………………………… 1,200 Accumulated depreciation – equipment……………….. 12,000 Discount on bonds payable………………………… 1,200 To provide for 20x5 depreciation and amortization on differences between acquisition date fair value and book value of Son’s identifiable assets and liabilities as follows:


ExpenseAmortizatio

n-Interest

Total

Inventory soldEquipment P 12,000Buildings ( 6,000)Bonds payable

_______ P 1,200

Totals P 6,000 P1,200 P7,200

(E4) Investment income 65,040 Non-controlling interest (P48,000 x 20%)……………….. 9,600 Dividends paid – S…………………… 48,000 Investment in S Company 26,640 To eliminate intercompany dividends and investment income under equity method and establish share of dividends, computed as follows:


(E7) Sales………………………. 75,000 Cost of Goods Sold (or Purchases) 75,000

Investment in S Investment IncomeNI of Son 38,400 Dividends – S NI of S(90,000 x 80%)……. 72,000

Amortization 5,760 (P7,200 x 80%)

Amortization (P7,200 x 80%) 5,760

(90,000 72,000 x 80%)

RPBI of S 18,000

24,000 UPEI of S UPEI of S 24,000

18,000 RPBI of S

RPBI of P 9,600

4,800 UPEI of P UPEI of P 4,800

9,600 RPBI of P

26,640

65,040

To eliminated intercompany upstream sales.

(E8) Investment in Son Company……………………. 18,000 Cost of Goods Sold (Ending Inventory – Income Statement) 18,000 To realized profit in downstream beginning inventory deferred in the prior period.

(E9) Investment in Son Company (P12,000 x 80%) 9,600 Noncontrolling interest (P12,000 x 20%)…… 2,400 Cost of Goods Sold (Ending Inventory – Income Statement) 12,000 To realized profit in upstream beginning inventory deferred in the prior period.





17,760


Net income of subsidiary…………………….. P 90,000Realized profit in beginning inventory of P Company - 20x5 (upstream sales) 12,000Unrealized profit in ending inventory of P Company - 20x5 (upstream sales) ( 6,000)Son Company’s Realized net income* P 96,000Less: Amortization of allocated excess ( 7,200)


20%


P 17,760

Less: NCI on goodwill impairment loss on full- Goodwill

0

Non-controlling Interest in Net Income (NCINI) P 17,760


38,400 Dividends – S (48,000x 80%)

NI of Son Amortization (90,000 x 80%) 72,000

5,600 (7,000 x 80%)

RPBI of S (P18,000 x 100%) 18,000

24,000 UPEI of S (P24,000 x 100%)

RPBI of P (P18,000 x 80%) 9,600

4,800 UPEI of P (P6,000 x 80%)

Balance, 12/31/x5 376,680

307,200 (E1) Investment, 1/1/20x5

(E8) RPBI of S 18,000

70,440 (E2) Investment, 1/1/20x5

(E9) RPBI of P 9,600

26,640 (E4) Investment Income and dividends

404,280 404,280

– full goodwill *from separate transactions that has been realized in transactions with third persons.

Worksheet for Consolidated Financial Statements, December 31, 20x5. Equity Method (Full-goodwill)80%-Owned Subsidiary December 31, 20x5 (Second Year after Acquisition)


Sales P540,000 P360,000

(6) 120,000

(7) 75,000

P 705,000


___________



(6) 120,000

(7) 75,000

(8) 18,000

(9) 12,000

P 213,000


90,000


1,200



90,000P 274,800


( 17,760)


90,000P 308,448

Statement of Retained EarningsRetained earnings, 1/1 P Company P462,840 P 462,840

S Company P144,000(1)

144,000Net income, from above 257,040 90,000 257,040 Total P719,880 P234,000 P 719,880Dividends paid P Company 72,000 72,000

S Company - 48,000(4) 48,000 _ ________


Balance Sheet

Cash……………………….P

265,200P

114,000 P 367,200Accounts receivable…….. 180,000 96,000 276,000

Inventory…………………. 216,000 108,000(10) 24,000(11) 6,000 294,000

Land……………………………. 210,000 48,000(2) 7,200 265,200

Equipment 240,000 180,000 420,000

Buildings 720,000 540,000(3)

216,000 1,044,000


Goodwill……………………(2) 11,250 11,250

Investment in S Co……… 376,680 (8) 18,000(9) 9,600

(1) 307,200(3) 70,440

(4) 26,640 -

Total P2,207,880P1,074,0

00 P2,680,050


P 102,000

(2) 84,000

(3) 12,000 P180,000


450,000 306,000(2) 198,000 (3) 6,000 552,000



Retained earnings, from above 647,880 186,000 647,880Non-controlling interest…………

___ _____

_________

(4) 9,600(9) 2,400

__________

(1 ) 76,800(2) 17,610 (14)17,760 ____100,170

Total P2,207,880

P1,074,000

P1,048,650

P1,048,650 P2,680,050

5 and 6. Refer to Problem X for computationsNote: Using cost model or equity method, the consolidated net income, consolidated retained earnings, non-controlling interests, consolidated equity on December 31, 20x4 and 20x5 are exactly the same (refer to Problem X solution).

Multiple Choice Problems 1. a

Sales Cost of SalesP Company 2,250,000 1,800,000S Company 1,125,000 _937,500Total 3,375,000 2,737,500Less: Intercompany sales 468,000 468,000 Realized profit in BI of S Co. [P300,000 x 1/2 = P150,000 x (300-240)/300] 30,000Add: Unrealized profit in EI of S Co. [P468,000 x 40% = P187,200 x (468-375)/468] ________ __37,200Consolidated 2.907,000 2,276,700

2. c – refer to No. 1 for computations

3. b Consolidated Net Income for 20x4 P Company’s net income from own/separate operations…………. P225,000 Realized profit in beginning inventory of S Company (downstream sales) 0 Unrealized profit in ending inventory of S Company (downstream sales)… (_ 0) P Company’s realized net income from separate operations*…….….. P225,000 S Company’s net income from own operations…………………………………. P 90,000 Realized profit in beginning inventory of P Company (upstream sales) 0 Unrealized profit in ending inventory of P Company (upstream sales) [P150,000 x 50% = P75,000 x (30/150)] ( 15,000) S Company’s realized net income from separate operations*…….….. P 75,000 75,000 Total P300,000 Less: Amortization of allocated excess…………………… 0 Consolidated Net Income for 20x4 P300,000 Less: Non-controlling Interest in Net Income* * 15,000 Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent – 20x4………….. P285,000


Or, alternativelyConsolidated Net Income for 20x4 P Company’s net income from own/separate operations…………. P225,000 Realized profit in beginning inventory of S Company (downstream sales) 0 Unrealized profit in ending inventory of S Company (downstream sales)… (_ 0) P Company’s realized net income from separate operations*…….….. P225,000 S Company’s net income from own operations…………………………………. P 90,000 Realized profit in beginning inventory of P Company (upstream sales) 0 Unrealized profit in ending inventory of P Company (upstream sales)… ( 15,000) Son Company’s realized net income from separate operations*…….….. P 75,000 75,000 Total P300,000

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………….. P285,000 Add: Non-controlling Interest in Net Income (NCINI) _ 15,000 Consolidated Net Income for 20x4 P290,000



P 90,000

Realized profit in beginning inventory of P Company (upstream sales) 0 Unrealized profit in ending inventory of P Company (upstream sales) ( 15,000) S Company’s realized net income from separate operations……… P 75,000 Less: Amortization of allocated excess 0


4. c – refer to No. 3 for computation 5. a – P25,000 x 125% = P31,250 intercompany sales and purchases (cost of sales) 6. c – P25,000 x 125% = P31,250 intercompany sales and purchases (cost of sales) 7. d

Cost of SalesP Company 5,400,000S Company _1,200,000Total 6,600,000Less: Intercompany sales 1,000,000 Realized profit in BI of S Co. [P625,000 x 12% = P75,000 x (625 - 425)/625] 24,000Add: Unrealized profit in EI of S Co. [P1,000,000 x 10% = P100,000 x (1,000 - 800)/1,000] __20,000Consolidated 5,596,000

8. bParent Subsidiary

Net Income from own operations: X-Beams (parent) Kent (subsidiary), 70%:30% 210,000 90,000Unrealized Profit in EI of Parent (X-Beams): P180,000x 20% = P36,000 x (180-100/180) = P16,000, 70%:30% ( 11,200) ( 4,800)Non-controlling Interest in Kent’s Net Income 85,200

9. dNon-controlling Interest in Net Income (NCINI) for 20x4: S Company’s net income of Subsidiary Company from its own operations (Reported net income of S Company) P 137,000 Realized profit in beginning inventory of P Company (upstream sales) 40,000 Unrealized profit in ending inventory of P Company (upstream sales) ( 25,000) S Company’s realized net income from separate operations……… P 152,000 Less: Amortization of allocated excess _ 0


10. c –Parent Subsidiar

yNet Income from own operations: Gibson (Parent): Sparis(subsidiary), 90%:10% 820,800 91,200RPBI of Parent (upstream: 420,000 x 30% = 126,000; 126,000 x 25/125 = 25,200; 90%:10% 22,680 2,520

UPEI of Parent (upstream): 500,000 x 30% = 150,000; 150,000 x 25/125 = 30,000; 90%:10% (27,000) ( 3,000)Non-controlling Interest in Kent’s Net Income 90,720

11. b12. a13. b (downstream sales)

Sales – Pot (parent) 1,120,000 - Skillet (subsidiary) 420,000Total 1,540,000Add(Deduct): Intercompany sales - down ( 140,000)Consolidated Sales 1,400,000

CGS – Pot (parent) 840,000 - Skillet (subsidiary) 252,000Total 1,092,000Add(Deduct): Intercompany sales - down ( 140,000)

Unrealized Profit in Ending Inventory of Skillet (subsidiary)-down EI of Skillet :

Sales of Pot 140,000x: EI of Skillet 40%EI of Skillet 56,000X: GP of Pot (1,120 – 840) 1,120 25% 14,000

Consolidated CGS 966,000

14. c – upstream sales Note: The only change here from Problem 13 is the markup percentage which

would now be 40 percent*CGS – Pot (parent) 840,000 - Skillet (subsidiary) 252,000Total 1,092,000Add(Deduct): Intercompany sales - upstream ( 140,000)

Unrealized Profit in Ending Inventory of Pot (subsidiary)-upstream EI of Pot:

Sales of Skillet 140,000x: EI of Pot 40%EI of Pot 56,000X: GP of Skillet (420 – 252) 420 40%* 22,400

Consolidated CGS 974,400

The problem is quite intriguing because of the statement “Pot had established the transfer price base on its normal markup”. It should be noted that Parent Company established the transfer price based on its normal price (in this case it is assumed that the mark-up of the parent which is 25% is also the normal transfer price). So, the solution should be as follows:

Sales – Pot (parent) 1,120,000 - Skillet (subsidiary) 420,000Total 1,540,000Add(Deduct): Intercompany sales - down ( 140,000)Consolidated Sales 1,400,000

CGS – Pot (parent) 840,000 - Skillet (subsidiary) 252,000Total 1,092,000Add(Deduct): Intercompany sales - down ( 140,000)

Unrealized Profit in Ending Inventory of Skillet (subsidiary)-down EI of Skillet :

Sales of Pot 140,000x: EI of Skillet 40%EI of Skillet 56,000X: GP of Pot (1,120 – 840)

1,120 25% 14,000Consolidated CGS 966,000

15. No answer available – P140,000, intercompany sales16. a – P20 x 28,000 picture tubes, intercompany sales17. b – P120,000, the amount of sales to outsiders is the amount of sales presented in the

consolidated income statement.18. a – the cost of inventory produced by the parent (downstream sales)

19. cConsolidated Net Income for 20x4 P Company’s net income from own/separate operations (P90,000 – P62,000)

P 28,000

Realized profit in beginning inventory of S Company (downstream sales) 0 Unrealized profit in ending inventory of S Company (downstream sales)… (_ 0) P Company’s realized net income from separate operations*…….….. P 28,000 S Company’s net income from own operations (P120,000 – P90,000) P3 0,000 Realized profit in beginning inventory of P Company (upstream sales) 0 Unrealized profit in ending inventory of P Company (upstream sales) ( ) S Company’s realized net income from separate operations*…….….. P30,000 30,000 Total P 58,000 Less: Amortization of allocated excess…………………… 0 Consolidated Net Income for 20x4 P 58,000 Less: Non-controlling Interest in Net Income* * 3,000 Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent – 20x4………….. P 55,000


Or, alternativelyConsolidated Net Income for 20x4 P Company’s net income from own/separate operations (P90,000 – P62,000)

P 28,000

Realized profit in beginning inventory of S Company (downstream sales) 0 Unrealized profit in ending inventory of S Company (downstream sales)… (_ 0) P Company’s realized net income from separate operations*…….….. P 28,000 S Company’s net income from own operations (P120,000 – P90,000) P3 0,000 Realized profit in beginning inventory of P Company (upstream sales) 0 Unrealized profit in ending inventory of P Company (upstream sales ( ) S Company’s realized net income from separate operations*…….….. P30,000 30,000 Total P 58,000 Less: Non-controlling Interest in Net Income* * P 3,000 Amortization of allocated excess…………………… 0 3,000 Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent………….. P 55,000 Add: Non-controlling Interest in Net Income (NCINI) _ 3,000 Consolidated Net Income for 20x4 P 58,000



P 30,000

Realized profit in beginning inventory of P Company (upstream sales) 0 Unrealized profit in ending inventory of P Company (upstream sales) ( 0) S Company’s realized net income from separate operations……… P 30,000 Less: Amortization of allocated excess 0


20. c – P100,00 sales to unrelated/unaffiliated company.

21. cCost of Sales

P Company 67,000S Company _63,000Total 130,000Less: Intercompany sales 90,000Add: Unrealized profit in EI of S Co. [P90,000 x 30% = P27,000 x (90 - 67)/90] __6,900Consolidated 46,900

Parent SubsidiarySales 90,000 100,000Less: Cost of goods sold – Parent 67,000 Subsidiary (90,000 x 70%) ______ 63,000Gross profit 23,000 37,000Ending inventory (90,000 x 30%) 27,000

22. aConsolidated Net Income for 20x4 P Company’s net income from own/separate operations [P100,000 – (P90,000 x 70%)] P 37,000 Realized profit in beginning inventory of S Company (downstream sales) 0 Unrealized profit in ending inventory of S Company (downstream sales)… (_ 0) P Company’s realized net income from separate operations*…….….. P 37,000 S Company’s net income from own operations (P90,000 – P67,000) P23,000 Realized profit in beginning inventory of P Company (upstream sales) 0 Unrealized profit in ending inventory of P Company (upstream sales) [P90,000 x 30% = P27,000 x (90-67/90)] ( 6,900 ) S Company’s realized net income from separate operations*…….….. P16,100 16,100 Total P 53,100 Less: Amortization of allocated excess…………………… 0 Consolidated Net Income for 20x4 P 53,100 Less: Non-controlling Interest in Net Income* * 1,610 Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent – 20x4………….. P 51,490


Or, alternatively

Consolidated Net Income for 20x4 P Company’s net income from own/separate operations [P100,000 – (P90,000 x 70%)] P 37,000 Realized profit in beginning inventory of S Company (downstream sales) 0 Unrealized profit in ending inventory of S Company (downstream sales)… (_ 0) P Company’s realized net income from separate operations*…….….. P 37,000 S Company’s net income from own operations (P90,000 – P67,000) P23,000 Realized profit in beginning inventory of P Company (upstream sales) 0 Unrealized profit in ending inventory of P Company (upstream sales) [P90,000 x 30% = P27,000 x (90-67/90)] ( 6,900 ) S Company’s realized net income from separate operations*…….….. P16,100 16,100 Total P 53,100 Less: Non-controlling Interest in Net Income* * P 1,610 Amortization of allocated excess…………………… 0 1,610 Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent………….. P 51,490 Add: Non-controlling Interest in Net Income (NCINI) _ 1,610 Consolidated Net Income for 20x4 P 53,100


**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 23,000 Realized profit in beginning inventory of P Company (upstream sales) 0 Unrealized profit in ending inventory of P Company (upstream sales) ( 6,900) S Company’s realized net income from separate operations……… P 16,100 Less: Amortization of allocated excess 0


23. d – P27,000 x 67/90 = P20,10024. a – the cost from parent of P48,000 x 45/60 = P36,000

Parent Subsidiary 1

Subsidiary 2

Sales 60,000 60,000 67,000Less: Cost of goods sold – P and S1 48,000 60,000 Subsidiary (60,000 x 45/60)

______ ______ 45,000

Gross profit 12,000 0 22,000Ending inventory (60,000 x 15/60) 15,000

25. b – the cost from parent of P48,000 x 15/60 = P12,000 26. a

Sales Cost of SalesIntercompany Parent 60,000 60,000 Subsidiary 1 60,000 45,000

Add: Cost of EI in S2 Co. [P15,000 x (48/60] ________ __12,000Amount to be eliminated 120,000 *117,000

*or, P60,000 + P60,000 – [P15,000 x (60-48/60] 27. b – refer to No. 26 for computation28. d – P15,000 x [(60-48)/60] = P3,00029. a

Consolidated Net Income for 20x3 P Company’s net income from own/separate operations P 225,000 Realized profit in beginning inventory of S Company (downstream sales) 0 Unrealized profit in ending inventory of S Company (downstream sales)… (_ 0) P Company’s realized net income from separate operations*…….….. P225,000 S Company’s net income from own operations P150,000 Realized profit in beginning inventory of P Company (upstream sales) 0 Unrealized profit in ending inventory of P Company (upstream sales) [P105,000 x 20/120) ( 17,500

) S Company’s realized net income from separate operations*…….….. P132,500 132,500 Total P 357,500 Less: Amortization of allocated excess…………………… _ 0 Consolidated Net Income for 20x3 P357,500

30. c

Consolidated Net Income for 20x4 P Company’s net income from own/separate operations P360,000 Realized profit in beginning inventory of S Company (downstream sales) 0 Unrealized profit in ending inventory of S Company (downstream sales)… (_ 0) P Company’s realized net income from separate operations*…….….. P360,000 S Company’s net income from own operations P135,000 Realized profit in beginning inventory of P Company (upstream sales) [P105,000 x 20/120) 17,500 Unrealized profit in ending inventory of P Company (upstream sales) [P157,500 x 20/120) ( 26,250

) S Company’s realized net income from separate operations*…….….. P126,250 126,250 Total P 486,250 Less: Amortization of allocated excess…………………… _ 0 Consolidated Net Income for 20x4 P486,250 Less: Non-controlling Interest in Net Income* * 1,610 Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent – 20x4………….. P 51,490


Or, alternativelyConsolidated Net Income for 20x4 P Company’s net income from own/separate operations P360,000 Realized profit in beginning inventory of S Company (downstream sales) 0 Unrealized profit in ending inventory of S Company (downstream sales)… (_ 0) P Company’s realized net income from separate operations*…….….. P360,000 S Company’s net income from own operations ( P135,000 Realized profit in beginning inventory of P Company (upstream sales) [P105,000 x 20/120) 17,500 Unrealized profit in ending inventory of P Company (upstream sales) [P157,500 x 20/120) ( 26,250

) S Company’s realized net income from separate operations*…….….. P126,250 126,250 Total P 486,250 Less: Non-controlling Interest in Net Income* * P 37,875 Amortization of allocated excess…………………… 0 37,875 Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent………….. P 448,375 Add: Non-controlling Interest in Net Income (NCINI) _37,875 Consolidated Net Income for 20x4 P 486,250


**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 135,000 Realized profit in beginning inventory of P Company (upstream sales) 17,500 Unrealized profit in ending inventory of P Company (upstream sales) ( 26,250) S Company’s realized net income from separate operations……… P 126,250 Less: Amortization of allocated excess 0

P126,250 Multiplied by: Non-controlling interest %.......... 30% Non-controlling Interest in Net Income (NCINI) – partial goodwill P 37,875 Less: NCI on goodwill impairment loss on full goodwill 0 Non-controlling Interest in Net Income (NCINI) – full goodwill P 37,875

31. a – refer to No. 30 for computation.32. d

Consolidated Net Income for 20x5 P Company’s net income from own/separate operations P 450,000 Realized profit in beginning inventory of S Company (downstream sales) 0 Unrealized profit in ending inventory of S Company (downstream sales)… (_ 0) P Company’s realized net income from separate operations*…….….. P450,000 S Company’s net income from own operations P240,000 Realized profit in beginning inventory of P Company (upstream sales) [P157,500 x 20/120) 26,250 Unrealized profit in ending inventory of P Company (upstream sales) [P180,000 x 20/120) ( 30,000

) S Company’s realized net income from separate operations*…….….. P236,250 236,250 Total P 686,250 Less: Amortization of allocated excess…………………… _ 0 Consolidated Net Income for 20x4 P686,750 Less: Non-controlling Interest in Net Income* * 70,875 Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent – 20x5………….. P 615,375


Or, alternativelyConsolidated Net Income for 20x5 P Company’s net income from own/separate operations P 450,000 Realized profit in beginning inventory of S Company (downstream sales) 0 Unrealized profit in ending inventory of S Company (downstream sales)… (_ 0) P Company’s realized net income from separate operations*…….….. P450,000 S Company’s net income from own operations P240,000 Realized profit in beginning inventory of P Company (upstream sales) [P157,500 x 20/120) 26,250 Unrealized profit in ending inventory of P Company (upstream sales) [P180,000 x 20/120) ( 30,000

) S Company’s realized net income from separate operations*…….….. P236,250 236,250 Total P 686,250 Less: Non-controlling Interest in Net Income* * P 70,875 Amortization of allocated excess…………………… 0 70,875 Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent………….. P 615,375 Add: Non-controlling Interest in Net Income (NCINI) __70,875 Consolidated Net Income for 20x5 P 686,250


**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 240,000 Realized profit in beginning inventory of P Company (upstream sales) 26,250 Unrealized profit in ending inventory of P Company (upstream sales) ( 30,000) S Company’s realized net income from separate operations……… P 236,250 Less: Amortization of allocated excess 0

P 236,250 Multiplied by: Non-controlling interest %.......... 30% Non-controlling Interest in Net Income (NCINI) – partial goodwill P 70.875 Less: NCI on goodwill impairment loss on full goodwill 0 Non-controlling Interest in Net Income (NCINI) – full goodwill P 70,875

33. a - refer to No. 32 for computation.34. c

SalesP Company 500,000S Company _350,000Total 850,000Less: Intercompany sales to Dundee 100,000 Intercompany sales to Perth 150,000Consolidated 600,000

35. aEnding inventory of Perth from Dundee (P36,000 / 110%) 32,727Ending inventory of Dundee from Perth (P31,000 / 130%) _23,846Total 56,573

36. d Sales

P Company 420,000S Company 280,000Total 700,000Less: Intercompany sales 140,000Consolidated 560,000

37. No answer available – P47,000 Operating Expenses

P Company 28,000S Company 14,000

Total 42,000Add: Undervalued equipment (P35,000/7 years) _5,000Consolidated 47,000

38. cCost of Sales

P Company 196,000S Company _112,000Total 308,000Less: Intercompany sales 140,000Add: Unrealized profit in EI of S Co. [P140,000 x 60% = P84,000 x (140 - 112)/140] _16,800Consolidated 184,900

39. No answer available – P120,800Non-controlling interest (partial-goodwill), December 31, 20x4 Common stock – S Company, December 31, 20x4…… P 140,000 Retained earnings – S Company, December 31, 20x4 Retained earnings – S Company, January 1, 20x4 P210,000 Add: Net income of S for 20x4 154,00

0 Total P364,000 Less: Dividends paid – 20x4

0 364,000

Stockholders’ equity – S Company, December 31, 20x4 P 504,000 Adjustments to reflect fair value - (over) undervaluation of assets and liabilities, date of acquisition (January 1, 20x4) 35,000 Amortization of allocated excess (refer to amortization above) : 20x5 (P35,000/7 years) ( 5,000) Fair value of stockholders’ equity of S, December 31, 20x5…… P 534,000 Multiplied by: Non-controlling Interest percentage…………... 20 Non-controlling interest (partial goodwill)………………………………….. P 106,800 Add: NCI on full-goodwill (P70,000 – P56,000) 14,000 Non-controlling interest (full- goodwill)………………………………….. P 120,800

Partial-goodwillFair value of Subsidiary (80%) Consideration transferred……………………………….. P 364,000Less: Book value of stockholders’ equity of S: Common stock (P140,000 x 80%)……………………. P 112,000 Retained earnings (P210,000 x 80%)………………... 168,000 280,000Allocated excess (excess of cost over book value)….. P 84,000Less: Over/under valuation of assets and liabilities: Increase in equipment (P35,000 x 80%) ___28,000Positive excess: Partial-goodwill (excess of cost over fair value)………………………………………………... P 56,000

Full-goodwillFair value of Subsidiary (100%) Consideration transferred: Cash (P364,000/80%) P 455,000Less: Book value of stockholders’ equity of S (P350,000 x 100%) __350,000Allocated excess (excess of cost over book value)….. P 105,000Add (deduct): (Over) under valuation of assets and liabilities Increase in equipment P35,000 x 100% 35,000Positive excess: Full-goodwill (excess of cost over fair value)………………………………………………... P 70,000

40. d Equipment

P Company 616,000S Company 420,000Total 1,036,000Add: Undervalued equipment 35,000Less: Depreciation on undervalued equipment (P35,000/7 years) 7,000Consolidated 1,064,000

41. d Inventory

P Company 210,000S Company 154,000Total 364,000Less: Unrealized profit in EI: [P140,000 x 60% = P84,000 x (140 - 112)/140]

16,800

Consolidated 347,200

42. a Selling price P 50,000Less: Cost of sales _40,00

0Original unrealized profit 10,000Unsold percentage __30%Unrealized profit P _3,000

43. No answer available – P253,000Consolidated Net Income for 20x4 P Company’s net income from own/separate operations P180,000 Unrealized profit in ending inventory of S Company (downstream sales)…

( 3,000)

P Company’s realized net income from separate operations*…….…..

P 177,000

S Company’s net income from own operations………………………………….

76,000

Total P253,000 Less: Amortization of allocated excess…………………… 0 Consolidated Net Income for 20x5 P253,000

44. aCombined 20x5 sales (P580,000 + P445,000) P 1,025,000Less: 20x5 intercompany sales 0Consolidated sales P 1,025,000

45. dCombined cost of sales P

480,000Less: 20x5 intercompany sales 0Less: Unrealized profit in the 20x5 beginning inventory from 20x4 ( 3,00

0)Add: Unrealized profit in 20x5 ending inventory ________0Consolidated cost of sales P

477,000

46. b Combined cost of sales P 160,000

Less: Intercompany sales revenue 110,000

Add: Unrealized profit taken out of inventory (75%)x(35,000) =

26,250

Consolidated cost of sales P 76,250

47. Incomplete data – PAS 27 allows the use of cost model in accounting for investment in subsidiary in the books of parent company. Income recognized under this model is the dividends declared or paid by the subsidiary multiplied by controlling interest. Since, there is no data as to dividends of subsidiary, the amount of dividend income from the point of parent cannot be determined.

If Equity Method is used, then the answer would be:(P115,000 x 70%) - P26,250 = P 54,250

But equity method is not allowed in the books of parent for purposes of CFS.

48. a Selling price P 60,000Less: Cost of sales ( 48,000 )Unrealized profit 12,000Unsold fraction 1/3Credit to Inventory P 4,000

49. a - P720,000 = P500,000 + P400,000 - P200,000 +P 20,000

50. b – using equity method.(P120,000 x 80%) – (P200,000 x 50% = P100,000 x 20% = P20,000) = P76,000

PAS 27 allows the use of cost model in accounting for investment in subsidiary in the books of parent company

The use of equity method is not allowed in the books of parent (unless it is a stand-

alone entity).

51. d Downstream situation

S Company’s net income from own/separate operations P120,000 x: NCI % 20%

P 24,000

52. a - It will be overstated by the amount of the NC interests’ share of the P1,600 of profit margin in the P9,600 of materials carried over to 20x5 (20% x P1,600 = P320

53. cGrebe plus Swamp’s separate cost of goods sold = P400,000 + P320,000 =

P 720,000

Less: Intercompany sales = 200,000Add: Profit +12,500 - 10,000 = ____2,500Consolidated COGS = P 522,500

54. a Ending inventory of Grebe (1/2 x P100,000) P 50,000

x: GP% of Parent (P100,000 – P80,00)/P100,000 20% Unrealized profit in ending inventory P 10,000

55. a

Squid’s reported income P 100,000

Less: Unrealized profits in the ending inventory _____16,000Squid’s adjusted income P

84,000NCI percentage _______10%NCI-CNI P

8,400

56. b Inventory remaining P100,000 × 50% = P50,000 Unrealized gross profit (based on LL's markup as the seller) P50,000 × 40% = P20,000. The ownership percentage has no impact on this computation.

57. c Unrealized Profit, 12/31/x4

Intercompany Gross profit (P100,000 – P75,000) ................................. P25,000Inventory Remaining at Year's End ......................................................... 16%Unrealized Intercompany Gross profit, 12/31/x4 ..................................... P4,000

UNREALIZED GROSS PROFIT, 12/31/x5Intercompany Gross profit (P120,000 – P96,000) ................................... P24,000Inventory Remaining at Year's End ......................................................... 35%Unrealized Intercompany Gross profit, 12/31/x5 ..................................... P8,400

CONSOLIDATED COST OF GOODS SOLD

Parent balance .................................................................................. P380,000Subsidiary Balance ............................................................................ 210,000Remove Intercompany Transfer ........................................................ (120,000)Recognize 20x4 Deferred Gross profit .............................................. (4,000)Defer 20x5 Unrealized Gross profit ................................................... 8,400

Cost of Goods Sold ................................................................................. P474,400

58. a - Intercompany sales and purchases of P100,000 must be eliminated. Additionally, an unrealized gross profit of P10,000 must be removed from ending inventory based on a markup of 25 percent (P200,000 gross profit/P800,000 sales) which is multiplied by the P40,000 ending balance. This deferral increases cost of goods sold because ending inventory is a negative component of that computation. Thus, cost of goods sold for consolidation purposes is P690,000 (P600,000 + P180,000 – P100,000 + P10,000).

59. c - The only change here from No. 58 is the markup percentage which would now be 40 percent (P120,000 gross profit P300,000 sales). Thus, the unrealized gross profit to be deferred is P16,000 (P40,000 × 40%). Consequently, consolidated cost of goods sold is P696,000 (P600,000 + P180,000 – P100,000 + P16,000).

60. b UNREALIZED GROSS PROFIT, 12/31/x4

Ending inventory ............................................................................... P 40,000Markup (P33,000/P110,000) .............................................................. __ 30%Unrealized intercompany gross profit, 12/31/x4 ............................... P 12,000

UNREALIZED GROSS PROFIT, 12/31/x5Ending inventory ............................................................................... P 50,000Markup (P48,000/P120,000) .............................................................. 40 % Unrealized intercompany gross profit, 12/31/x5 ............................... P 20,000

Non-controlling Interest in Net Income (NCINI) for 20x5 S Company’s net income of Subsidiary Company from its own operations (Reported net income of S Company) P 90,000 Realized profit in beginning inventory of P Company (upstream sales) 12,000 Unrealized profit in ending inventory of P Company (upstream sales) ( 20,000) S Company’s realized net income from separate operations……… P 82,000 Less: Amortization of allocated excess 0


61. a – this topic is for Chapter 18 Individual Records after Transfer

12/31/x4Machinery—P40,000Gain—P10,000Depreciation expense P8,000 (P40,000/5 years)Income effect net—P2,000 (P10,000 – P8,000)

12/31/x5Depreciation expense—P8,000

Consolidated Figures—Historical Cost12/31/x4

Machinery—P30,000Depreciation expense—P6,000 (P30,000/5 years)

12/31/x5Depreciation expense--P6,000

Adjustments for Consolidation Purposes:20x4: P2,000 income is reduced to a P6,000 expense (income is reduced by P8,000)

20x5: P8,000 expense is reduced to a P6,000 expense (income is increased by P2,000)

62. b - this topic is for Chapter 18 UNREALIZED GAIN

Transfer Price .................................................................................... P280,000Book Value (cost after two years of depreciation) ............................. 240,000Unrealized Gain ................................................................................. P40,000

EXCESS DEPRECIATIONAnnual Depreciation Based on Cost (P300,000/10 years)................. P30,000Annual Depreciation Based on Transfer Price

(P280,000/8 years) ...................................................................... 35,000Excess Depreciation .......................................................................... P5,000

ADJUSTMENTS TO CONSOLIDATED NET INCOMEDefer Unrealized Gain ....................................................................... P(40,000)Remove Excess Depreciation ............................................................ 5,000Decrease to Consolidated Net Income .............................................. P(35,000)

63. cSales Cost of Sales

P Company 10,000,000

7,520,000

S Company __200,000 _160,000Total 10,200,00

07,680,000

Less: Intercompany sales – upstream sales 60,000 60,000Add: Unrealized profit in EI of S Co. [P60,000 x 30% = P18,000 x (10 – 7.5)/10] ________ __ 4,500Consolidated 10,140,00

07,604,500

64. d – refer to No. 63 for computation65. c

SalesP Company 10,000,000S Company __200,000Total 10,200,000Less: Intercompany sales – downstream sales 60,000Add: Unrealized profit in EI of S Co. [P60,000 x 30% = P18,000 x (10 – 7.5)/10] ________Consolidated 10,140,000

66. d Add the two book values and remove P100,000 intercompany transfers.

67. c Intercompany gross profit (P100,000 - P80,000) .................................... P20,000Inventory remaining at year's end .......................................................... 60%Unrealized intercompany gross profit ..................................................... P12,000

CONSOLIDATED COST OF GOODS SOLDParent balance .................................................................................. P140,000Subsidiary balance ............................................................................ 80,000Remove intercompany transfer ......................................................... (100,000)Defer unrealized gross profit (above) ................................................ 12,000

Cost of goods sold .................................................................................. P132,000

68. c Consideration transferred .................................... P260,000Non-controlling interest fair value.......................... 65,000SZ total fair value.................................................. P325,000Book value of net assets........................................ (250,000)Excess fair over book value P75,000

Annual ExcessLife Amortizations

Excess fair value assigned to undervalued assets:Equipment........................................................ 25,000 5 years P5,000Secret Formulas .............................................. P50,000 20 years 2,500

Total ................................................................... -0- P7,500

Consolidated Expenses = P37,500 (add the two book values and include current year amortization expense)

69. aNon-controlling interest (partial-goodwill), December 31, 20x4 Common stock – S Company, December 31, 20x4…… P 100,000 Retained earnings – S Company, December 31, 20x4 Retained earnings – S Company, January 1, 20x4 P150,000 Add: Net income of S for 20x4 110,00

0 Total P260,000 Less: Dividends paid – 20x4

0 260,000

Stockholders’ equity – S Company, December 31, 20x4 P 360,000 Adjustments to reflect fair value - (over) undervaluation of assets and liabilities, date of acquisition (January 1, 20x4) 75,000 Amortization of allocated excess (refer to amortization above) : ( 7,500) Fair value of stockholders’ equity of S, December 31, 20x5…… P 427,500 Multiplied by: Non-controlling Interest percentage…………... 20 Non-controlling interest (partial goodwill)………………………………….. P 85,500 Add: NCI on full-goodwill ( ________0 Non-controlling interest (full- goodwill)………………………………….. P 85,500

Partial-goodwillFair value of Subsidiary (80%) Consideration transferred……………………………….. P 260,000Less: Book value of stockholders’ equity of S: Common stock (P100,000 x 80%)……………………. P 80,000 Retained earnings (P150,000 x 80%)………………... 120,000 200,000Allocated excess (excess of cost over book value)….. P 60,000Less: Over/under valuation of assets and liabilities: Increase in equipment (P25,000 x 80%) 20,000 Increase in secret formulas: P50,000 x 80% 40,000

Full-goodwillFair value of Subsidiary (100%) Consideration transferred: Cash (80%) P 260,000 FV of NCI (20%) ___65,000 Fair value of Subsidiary (100%) P 325,000Less: BV of stockholders’ equity of S (P100,000 + P150,000) x 100% __250,000Allocated excess (excess of cost over book value)….. P 75,000Add (deduct): (Over) under valuation of assets and liabilities Increase in equipment P25,000 x 100% 25,000 Increase in secret formulas: P50,000 x 100% P 50,000

Amortization: Equipment: P25,000 / 5 years = P 5,000

Secret formulas: P50,000 / 20 years = 2,500Total amortization of allocated P 7,500

70. c Add the two book values plus the original allocation (P25,000) less one year of excess amortization expense (P5,000).

71. b Add the two book values less the ending unrealized gross profit of P12,000.Intercompany Gross profit (P100,000 – P80,000) ................................... P20,000

Inventory Remaining at Year's End ....................................................... 60%Unrealized Intercompany Gross profit, 12/31 ......................................... P12,000

72. c – P400,000 x 1/4 = P100,000 x 30% = P30,00073. d

Non-controlling Interest in Net Income (NCINI) for 20x5 20x6 S Company’s net income of Subsidiary Company from its own operations (Reported net income of S Company)

P 400,000 P 480,000

Realized profit in beginning inventory of P Company (upstream sales) 20,000 Unrealized profit in ending inventory of P Company (upstream sales) ( 20,000) 0 S Company’s realized net income from separate operations……… P 380,000 P 500,000 Less: Amortization of allocated excess 0 0

P380,000 P500,000 Multiplied by: Non-controlling interest %.......... 20% 20% Non-controlling Interest in Net Income (NCINI) – partial goodwill P

76,000P100,000

Less: NCI on goodwill impairment loss on full goodwill 0 0 Non-controlling Interest in Net Income (NCINI) – full goodwill P 76,000 P100,000

74. cEnding inventory at selling price: P300,000 x 1/3 = P100,000 x (300,000 – 240,000)/300,000

P20,000

Less: Inventory write-down (P100,000 – P92,000) __8,000Intercompany profit to be eliminated P12,000

75. The requirement “P’s income from S” is a term normally used under the equity method, but, in some cases it may also refer to the term “dividend income” under the cost model depending on how the problem was described and presented.

Since there are no data available to arrive at the dividend income under the cost model for reason that dividend declared or paid by subsidiary is not given, so the term “P’s income from S” may mean “Income from subsidiary” which is computed under the equity method, thus:

Share in net income (P120,000 x 60%) P72,000Less: Unrealized profit in ending inventory of S {P189,000 x 1/3 = P63,000 x (P189-135)/P189]

__18,000

Intercompany profit to be eliminated P54,000

Answer: Equity method (c)

It should be noted that PAS 27 allow the use of cost model in accounting for investment in subsidiary in the books of parent company but not the equity method.

76. a – refer to No. 177. c – refer to No. 1

78. bConsolidated Net Income for 20x4 P Company’s net income from own/separate operations P 300,000 Realized profit in beginning inventory of S Company (downstream sales) 0 Unrealized profit in ending inventory of S Company (downstream sales)… (_ 0) P Company’s realized net income from separate operations*…….….. P300,000 S Company’s net income from own operations P120,000 Realized profit in beginning inventory of P Company (upstream sales) Unrealized profit in ending inventory of P Company (upstream sales) [P200,000 x 50% = P100,000 x (P40,000/P200,000)] ( 20,000

) S Company’s realized net income from separate operations*…….….. P100,000 100,000 Total P 400,000 Less: Amortization of allocated excess…………………… _ 0 Consolidated Net Income for 20x4 P 400,000 Less: Non-controlling Interest in Net Income* * 20,000 Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent – 20x4………….. P 380,000




79. c – refer to No, 78 for computations.80. – refer to No. 75 The requirement “P’s income from S” is a term normally used under the equity

method, but, in some cases it may also refer to the term “dividend income” under the cost model depending on how the problem was described and presented.

Since there are no data available to arrive at the dividend income under the cost model for reason that dividend declared or paid by subsidiary is not given, so the term “P’s income from S” may mean “Income from subsidiary” which is computed under the equity method, thus:

Share in net income (P200,000 x 60%) P120,000Less: Unrealized profit in ending inventory of S {P315,000 x 1/3 = P105,000 x (P315-P225)/P315]

__30,000

Intercompany profit to be eliminated P 90,000

Answer: Equity method (b)


81. a20x5 Sales Cost of SalesP Company 1,800,000 1,440,000S Company __900,000 _750,000Total 2,700,000 2,190,000Less: Intercompany sales 375,000 375,000 Realized profit in BI of S Co. [P240,000 x 1/2 = P120,000 x (240-192)/240] 24,000Add: Unrealized profit in EI of S Co. [P375,000 x 40% = P150,000 x (375-300)/375] ________ __30,000Consolidated 2.325,000 1,821,000

82. c - refer to No. 81 for computations

83. bConsolidated Net Income for 20x4 P Company’s net income from own/separate operations P 225,000 Realized profit in beginning inventory of S Company (downstream sales) 0 Unrealized profit in ending inventory of S Company (downstream sales)… (_ 0) P Company’s realized net income from separate operations*…….….. P225,000 S Company’s net income from own operations P 90,000 Realized profit in beginning inventory of P Company (upstream sales) Unrealized profit in ending inventory of P Company (upstream sales) [P150,000 x 50% = P75,000 x (P30,000/P150,000)] ( 15,000

) S Company’s realized net income from separate operations*…….….. P 75,000 75,000 Total P 300,000 Less: Amortization of allocated excess…………………… _ 0 Consolidated Net Income for 20x4 P 300,000 Less: Non-controlling Interest in Net Income* * 15,000 Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent – 20x4………….. P 285,000




84. c – refer to No. 83 for computations85. a – [P100,000 x (25/100) = P25,000 x 40/100 = P10,000

86. b – [P300,000 x 1/2 = P150,000 x 40% = P60,000]87. No answer available – P300

**Non-controlling Interest in Net Income (NCINI) for 20x6 S Company’s net income of Subsidiary Company from its own operations (Reported net income of S Company) P 0 Realized profit in beginning inventory of P Company (upstream sales) 0 Unrealized profit in ending inventory of P Company (upstream sales) (P100,000 x 10% = P10,000 x 30%) ( 3,000) S Company’s realized net income from separate operations……… P( 3,000) Less: Amortization of allocated excess 0

P( 3,000) Multiplied by: Non-controlling interest %.......... 10% Non-controlling Interest in GP P( 300) Less: NCI on goodwill impairment loss on full goodwill 0 Non-controlling Interest in GP P( 300)

88. b20x3 20x4 20x5

Share in net income 20x3: P70,000 x 90% P 63,000 20x4: P85,000 x 90% P 76,500 20x5: P94,000 x 90% P 84,600Less: Unrealized profit in ending inventory of P 20x3: P1,200 x 25% = P300 x 90% ( 270) 270 20x4: P4,000 x 25% = P1,000 x 90% ( 900) 900 20x5: P3,000 x 25% = P750 x 90% ________ ________ __( 675)Income from S P 62,730 P 75,870 P 84,825


89. c – refer to No. 88 for computation.90. d – refer to No. 88 for computation.

91. a**Non-controlling Interest in Net Income (NCINI) for 20x3 20x4 20x5 S Company’s net income of Subsidiary Company from its own operations (Reported net income of S Company) P 70,000 P 85,000 P 94,000 RPBI of P Company (upstream sales) 0 300 1,000 UPEI of P Company (upstream sales) ( 300) ( 1,000) ( 750) S Company’s realized net income from separate operations P 69,700 P 84,300 P 94,250 Less: Amortization of allocated excess 0 0 0

P 69,700

P 84,300

P 94,250

Multiplied by: Non-controlling interest %.......... 10% 10% 10% Non-controlling Interest in Net Income (NCINI) – partial goodwill

P 6,970 P 8,430 P 9,425

Less: NCI on goodwill impairment loss on full goodwill 0

0

0

Non-controlling Interest in Net Income (NCINI) – full goodwill P 6,970 P 8,430 P 9,425

92. c – refer to No. 91 for computation.93. c – refer to No. 91 for computation.94. a – refer to No. 88 for computation.95. a – refer to No. 88 for computation.96. b – refer to No. 88 for computation.97. a – none, since intercompany profit starts only at the end of 20x3. 98. b – the amount of unrealized profit at the end of 20x3.99. c – the amount of unrealized profit at the end of 20x4.100. a101. c

Cost of SalesP Company 400,000S Company _350,000Total 750,000Less: Intercompany sales 250,000Consolidated 500,000

102. a – (P40,000 x 140% = P56,000)

103. a – (P56,000 – P40,000 = P16,000)104. Not given

105.

c ClarkNet assets reported P320,000 Profit on intercompany sale P48,000Proportion of inventory unsold at year end ($60,000 / $240,000) x .25 Unrealized profit at year end (12,00

0)Amount reported in consolidated statements P308,000

105.

c DunnInventory reported by Banks (P175,000 + P60,000) P235,000 Inventory reported by Lamm 250,000 Total inventory reported P485,000 Unrealized profit at year end [P50,000 x (P60,000 / P200,000)] (15,00

0)Amount reported in consolidated statements P470,000

106.

b Cost of goods sold reported by Park

P 800,000

Cost of goods sold reported by Small 700,000 Total cost of goods sold reported P1,500,000 Cost of goods sold reported by Park on sale to Small (P500,000 x .40) (200,000)Reduction of cost of goods sold reported by Small for profit on intercompany sale [(P500,000 x 4 / 5) x .60] (240,000 )Cost of goods sold for consolidated entity P1,060,00

0

Note: Answer b in the actual AICPA examination question was P1,100,000, requiring candidates to select the closest answer.

107.

d P32,000 = (P200,000 + P140,000) – P308,000

108.

b P6,000 = (P26,000 + P19,000) – P39,000

109.

c P9,000 = Inventory held by Spin (P32,000 x .375)

P12,000

Unrealized profit on sale [(P30,000 + P25,000) – P52,000]

(3,000 )

Carrying cost of inventory for Power P 9,000

110.

b .20 = P14,000 / [(Stockholders’ Equity P50,000) +(Patent P20,000)]

111.

b 14 years = (P28,000 / [(28,000 - P20,000) / 4 years]

112. c – the amount of sales to outsiders or unaffiliated company

113. b – the original cost (I,e., the cost to produced on the part of the seller – Blue Company)

114.

c Total income (P86,000 - P47,000) P39,000

Income assigned to noncontrolling interest [.40(P86,000 - P60,000)] (10,400)Consolidated net income assigned to controlling interest P28,600

115.

c

116.

a Amount paid by Lorn Corporation P120,000

Unrealized profit (45,000 )Actual cost P 75,000 Portion sold x .80 Cost of goods sold P 60,000

117.

e Consolidated sales P140,000

Cost of goods sold (60,000 )Consolidated net income P 80,000 Income to Dresser’s noncontrolling interest: Sales P120,000 Reported cost of sales (75,000 ) Report income P 45,000 Portion realized x .80 Realized net income P 36,000 Portion to Noncontrolling Interest x .30 Income to noncontrolling Interest (10,800 )Income to controlling interest P 69,200

118.

a Inventory reported by Lorn P 24,000

Unrealized profit (P45,000 x .20) (9,000 )Ending inventory reported P 15,000

119.

a P20,000 = P30,000 x [(P48,000 - P16,000) / P48,000]

120.

d Sales reported by Movie Productions Inc. P67,000

Cost of goods sold (P30,000 x 2/3) (20,000 )Consolidated net income P47,000

121.

a P7,000 = [(P67,000 - $32,000) x .20]

122. c (P10,000 x 80%)123. c – the original cost124. d Date of Acquisition (1/1/2010) Partial Full Fair value of consideration given…………………P 340,000 Less: Book value of SHE - Subsidiary): (P150,000 + P230,000) x 80%..................... 304,000 Allocated Excess.…………………………………….P 36,000 Less: Over/Undervaluation of Assets & Liabilities (P20,000 x 80%)…………………………….. 16,000 Goodwill ………….…………………………………...P 20,000 / 80% P 25,000

Amortization of equipment: P20,000 / 10 years = P2,000

RPBI of S (downstream sales): P3,000 x 35%...................................................... P1,050 RPBI of P (upstream sales): P2,500 (given)….................................................... 1,000 UPEI of S (downstream sales): Sales of Parent EI % EI of S GP% of Parent P60,000 x 30% = P18,000 x 25/125………………………………. 3,600

UPEI of P (upstream sales): Sales of Subsidiary EI % EI of P GP% of Subsidiary P60,000 x 30% = P18,000 x 20%…………………………..…. 2,400

Consolidated Net Income for 20x5 P Company’s net income from own/separate operations P 100,000 Realized profit in beginning inventory of S Company (downstream sales) 1,050 Unrealized profit in ending inventory of S Company (downstream sales)… (_ 3,600) P Company’s realized net income from separate operations*…….….. P 97,450 S Company’s net income from own operations P 30,000 Realized profit in beginning inventory of P Company (upstream sales) 1,000 Unrealized profit in ending inventory of P Company (upstream sales) ( ,2,400 ) S Company’s realized net income from separate operations*…….….. P28,600 28,600 Total P 126,050 Less: Amortization of allocated excess…………………… 2,000 Consolidated Net Income for 20x4 P124,050 Less: Non-controlling Interest in Net Income* * 5,320 Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent – 20x5………….. P 118,730


Or, alternativelyConsolidated Net Income for 20x5 P Company’s net income from own/separate operations P 100,000 Realized profit in beginning inventory of S Company (downstream sales) 1,050 Unrealized profit in ending inventory of S Company (downstream sales)… (_ 3,600) P Company’s realized net income from separate operations*…….….. P 97,450 S Company’s net income from own operations P 30,000 Realized profit in beginning inventory of P Company (upstream sales) 1,000 Unrealized profit in ending inventory of P Company (upstream sales) ( 2,400 ) S Company’s realized net income from separate operations*…….….. P 28,600 28,600 Total P 126,050 Less: Non-controlling Interest in Net Income* * P 5,320 Amortization of allocated excess…………………… 2,000 7,320 Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent………….. P118,730 Add: Non-controlling Interest in Net Income (NCINI) __ 5,320 Consolidated Net Income for 2012 P124,050


**Non-controlling Interest in Net Income (NCINI) for 2012 S Company’s net income of Subsidiary Company from its own operations (Reported net income of S Company) P 30,000 Realized profit in beginning inventory of P Company (upstream sales) 1,000 Unrealized profit in ending inventory of P Company (upstream sales) ( 2,400) S Company’s realized net income from separate operations……… P 28,600 Less: Amortization of allocated excess 2,000


125. b – refer to No. 124126. a – P124,050 – refer to No. 124127. b – refer to No. 129128. c – refer to No. 129129. a

Non-controlling Interests (in net assets): Common stock - S, 12/31/2012.…………..….…………………………….. P 150,000 Retained earnings - S, 12/31/2012: RE- S, 1/1/2012…………….……………………………………………….P300,000 +: NI-S…………………………………………………………………………. 30,000 -: Div – S……………………………………………………………………… 10,000 320,000 Book value of Stockholders’ equity, 12/31/2012……..………………..... P 470,000 Adjustments to reflect fair value of net assets Increase in equipment, 1/1/2010..……..………………………….. 20,000 Accumulated amortization (P2,000 x 3 years)………………………….... ( 6,000) Fair Value of Net Assets/SHE, 12/31/2012…………………………………. P 484,000 UPEI of P (up)…………………………………………………………………… ( 2,400)

Realized SHE – S,12/31/2012…………………………………………………. P 481,600 x: NCI %.......................................................................................................... _ 20% Non-controlling Interest (in net assets) - partial………………………….. P 96,320 +: NCI on full goodwill (25,000 – 20,000)………………………….. 5,000

Non-controlling Interest (in net assets) – full…………………………….... P 101,320

130. d – refer to No. 131131. d Note: Preferred solution - since what is given is the RE – P, 1/1/2012 (beginning balance of the current year) - Retained earnings – Parent, 1/1/2012 (cost)…………………………… P 700,000 -: UPEI of S (down) – 2011 or RPBI of S (down) – 2012..…………. 1,050 Adjusted Retained earnings – Parent, 1/1/2012 (cost)……………… P 698,950 Retroactive Adjustments to convert Cost to “Equity” for purposes of consolidation / Parent’s share of adjusted net increase in subsidiary’s retained earnings:

Retained earnings – Subsidiary, 1/1/2010……………………….P 230,000 Less: Retained earnings – Subsidiary, 1/1/2012……………… 300,000 Increase in Retained earnings since acquisition

(cumulative net income – cumulative dividends)…………P 70,000 Accumulated amortization (1/1/2010 – 1/1/2012): P 2,000 x 2 years…………………………………………………( 4,000) UPEI of P (up) – 2011 or RPBI of P (up) – 2012………………......( 1,000)

P 65,000 X: Controlling Interests………………………………………….........____80% 52,000 RE – P, 1/1/2012 (equity method) = CRE, 1/1/2012…………………..... P750,950 +: CI – CNI or Profit Attributable to Equity Holders of Parent…….. 118,730 -: Dividends – P……………………………………………………………… 60,000 RE – P, 12/31/2012 (equity method) = CRE, 12/31/2012…………...... P809,680 Or, if RE – P is not given on January 1, 2012, then RE – P on December 31,

2012 should be use: Retained earnings – Parent, 12/31/2012 (cost): (P700,000 + P108,000 – P60,000)………..…………………………… P 748,000 -: UPEI of S (down) – 2012 or RPBI of S (down) – 2013..…………. 3,600 Adjusted Retained earnings – Parent, 1/1/2012 (cost)……………… P 744,400 Retroactive Adjustments to convert Cost to “Equity” for purposes of consolidation / Parent’s share of adjusted net increase in subsidiary’s retained earnings:

Retained earnings – Subsidiary, 1/1/2010……………………….P 230,000 Less: Retained earnings – Subsidiary, 12/31/2012

(P300,000 + P20,000 – P10,000)………………………..... 320,000 Increase in Retained earnings since acquisition

(cumulative net income – cumulative dividends)…………P 90,000 Accumulated amortization (1/1/2010 – 12/31/2012): P 2,000 x 3 years……………………………………………… ( 6,000) UPEI of P (up) – 2012 or RPBI of P (up) – 2013……………….. ( 2,400)

P 81,600 X: Controlling Interests……………………………………………… . 80% 65,280 RE – P, 12/31/2012 (equity method) = CRE, 12/31/2012…………. P809,680132. b Consolidated Stockholders’ Equity, 12/31/2012:

Controlling Interest / Parent’s Interest / Parent’s Portion / Equity Holders of Parent – SHE, 12/31/2012:

Common stock – P (P only)…………………………………………….. P1,000,000

Retained Earnings – P (equity method), 12/31/2012………….. 809,680

Controlling Interest / Parent’s Stockholders’ Equity……………. P1,809,680

Non-controlling interest, 12/31/2012 (partial)…………………………. 96,320 Consolidated Stockholders’ Equity, 12/31/2012………………………… P1,906,000

133. a Consolidated Stockholders’ Equity, 12/31/2012: Controlling Interest / Parent’s Interest / Parent’s Portion / Equity Holders of Parent – SHE, 12/31/2012:

Common stock – P (P only)…………………………………………….. P1,000,000

Retained Earnings – P (equity method), 12/31/2012………….. 809,680

Controlling Interest / Parent’s Stockholders’ Equity……………. P1,809,680

Non-controlling interest, 12/31/2012 (full)……..………………………. 101,320 Consolidated Stockholders’ Equity, 12/31/2012………………………… P1,911,000

Theories 1.

d 6. d 11. d 16. c 21. c 26. a 31 b

2.

b 7. c 12. a 17. c 22. a 27. b 32.

3.

c 8. b 13. c 18. b 23. a 28. b 33.

4.

a 9. c 14. c 19. c 24. b 29. c 34.

5.

c 10, a 15, d 20. b 25. c 30. d 35.

consolidated net income

Documents

20x5 p companys net

inventory income statement216

inventory income statement300

inventory income statement51

inventory income statement36

net income of son companyp460

profit attributable

inventory balance sheet51