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Chapter 17
Problem I1.
Consolidated Net Income for 20x5P Company’s net income from own/separate operations…………. P 760,000Realized profit in beginning inventory of S Company (downstream sales) 36,000Unrealized profit in ending inventory of S Company (downstream sales)… (_50,000)
P Company’s realized net income from separate operations*…….….. P 746,000S Company’s net income from own operations…………………………………. P 460,000Realized profit in beginning inventory of P Company (upstream sales) 0Unrealized profit in ending inventory of P Company (upstream sales)… ( 0)
S Company’s realized net income from separate operations*…….….. P 460,000 460,000Total P1,206,000Less: Amortization of allocated excess…………………… 0Consolidated Net Income for 20x5 P1,206,000Less: Non-controlling Interest in Net Income* * 92,000Controlling 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 760,000Realized profit in beginning inventory of S Company (downstream sales) 36,000Unrealized profit in ending inventory of S Company (downstream sales)… (_50,000)
P Company’s realized net income from separate operations*…….….. P 746,000S Company’s net income from own operations…………………………………. P 460,000Realized profit in beginning inventory of P Company (upstream sales) 0Unrealized profit in ending inventory of P Company (upstream sales)… ( 0)
S Company’s realized net income from separate operations*…….….. P460,000 460,000Total P1,206,000Less: Non-controlling Interest in Net Income* * P 92,000
Amortization of allocated excess…………………… 0 92,000Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent………….. P1,114,000Add: Non-controlling Interest in Net Income (NCINI) _ 92,000Consolidated Net Income for 20x5 P 1,206,000
*that has been realized in transactions with third parties.
**Non-controlling Interest in Net Income (NCINI) for 20x5S Company’s net income of Subsidiary Company from its own operations
(Reported net income of Son Company) P460,000Realized profit in beginning inventory of P Company (upstream sales) 0Unrealized profit in ending inventory of P Company (upstream sales) ( 0)
S Company’s realized net income from separate operations……… P460,000Less: Amortization of allocated excess _____0
P460,000Multiplied by: Non-controlling interest %.......... 20%Non-controlling Interest in Net Income (NCINI) – partial goodwill P 92,000
2. 20x4Sales 1,080,000
Purchases (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
Problem II1.
Consolidated Net Income for 20x5P Company’s net income from own/separate operations…………. P 1,720,000Realized profit in beginning inventory of S Company (downstream sales) 0Unrealized profit in ending inventory of S Company (downstream sales)… (_ 0)
P Company’s realized net income from separate operations*…….….. P 1, 720,000S Company’s net income from own operations…………………………………. P 600,000Realized profit in beginning inventory of P Company (upstream sales) 40,000Unrealized profit in ending inventory of P Company (upstream sales)… ( 51,00 0)
Son Company’s realized net income from separate operations*…….….. P 589,000 589,000Total P2,309,000Less: Amortization of allocated excess…………………… 0Consolidated Net Income for 20x5 P2,309,000Less: Non-controlling Interest in Net Income* * 58,900Controlling 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 20x5P Company’s net income from own/separate operations…………. P 1,720,000Realized profit in beginning inventory of S Company (downstream sales) 0Unrealized profit in ending inventory of S Company (downstream sales)… (________0)
P Company’s realized net income from separate operations*…….….. P1,720,,000S Company’s net income from own operations…………………………………. P 600,000Realized profit in beginning inventory of P Company (upstream sales) 40,000Unrealized profit in ending inventory of P Company (upstream sales)… ( 51,000)
S Company’s realized net income from separate operations*…….….. P589,000 589,000Total P2,309,000Less: Non-controlling Interest in Net Income* * P 58,900
Amortization of allocated excess…………………… 0 __58,900Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent………….. P2,250,100Add: Non-controlling Interest in Net Income (NCINI) _ 58,900Consolidated Net Income for 20x5 P 2,309,000
*that has been realized in transactions with third parties.
**Non-controlling Interest in Net Income (NCINI) for 20x5S Company’s net income of Subsidiary Company from its own operations
(Reported net income of Son Company) P600,000Realized profit in beginning inventory of P Company (upstream sales) 40,000Unrealized profit in ending inventory of P Company (upstream sales) ( 51,000)
Son Company’s realized net income from separate operations……… P589,000Less: Amortization of allocated excess _____0
P589,000Multiplied by: Non-controlling interest %.......... 10%Non-controlling Interest in Net Income (NCINI) P 58,900
2. Sales 1,020,000Purchases (Cost of Sales) 1,020,000
To 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.
Problem IIIConsolidated Net Income for 20x4
P Company’s net income from own/separate operations…………. P 3,600,000Realized profit in beginning inventory of S Company (downstream sales) 54,000Unrealized profit in ending inventory of S Company (downstream sales)… (_ 45,00 0)
P Company’s realized net income from separate operations*…….….. P 3,609,000S Company’s net income from own operations (P1,500,000 + P2,400,000) P3,900,000Realized profit in beginning inventory of P Company (upstream sales) – Salad 66,000Realized profit in beginning inventory of P Company (upstream sales)- Tuna 63,000Unrealized 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 3,903,000Total P7,512,000Less: Amortization of allocated excess…………………… 0Consolidated Net Income for 20x4 P7,512,000Less: Non-controlling Interest in Net Income* *- Salad P 301,800
Non-controlling Interest in Net Income* *- Tuna ___239,400 ___541,200Controlling 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 3,600,000Realized profit in beginning inventory of S Company (downstream sales) 54,000Unrealized profit in ending inventory of S Company (downstream sales)… (___45,000)
P Company’s realized net income from separate operations*…….….. P3,609,,000S Company’s net income from own operations (P1,500,000 + P2,400,000) P3,900,000Realized profit in beginning inventory of P Company (upstream sales) – Salad 66,000Realized profit in beginning inventory of P Company (upstream sales)- Tuna 63,000Unrealized 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 3,903,000Total P7,512,000Less: Non-controlling Interest in Net Income* * - Salad P 301,800
Non-controlling Interest in Net Income* * - Tuna 239,400Amortization of allocated excess…………………… 0 __541,200
Controlling Interest in Consolidated Net Income or Profit attributable toequity holders of parent………….. P6,970,800
Add: Non-controlling Interest in Net Income (NCINI) _541,200Consolidated 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 20x4S Company’s net income of Subsidiary Company from its own operations
(Reported net income of S Company) P1,500,000Realized profit in beginning inventory of P Company (upstream sales) 66,000Unrealized profit in ending inventory of P Company (upstream sales) ( 57,000)
Son Company’s realized net income from separate operations……… P1,509,000Less: Amortization of allocated excess _____0
P1,509,000Multiplied 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) 63,000Unrealized profit in ending inventory of P Company (upstream sales) ( 69,000)
Son Company’s realized net income from separate operations……… P2,394,000Less: Amortization of allocated excess _____0
P2,394,000Multiplied 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 P54,000Upstream 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 inconsolidated 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) P12,450,000
Cost 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)) 75,000
Less unrealized profit on subsidiary sales in 20x4 (there were no upstream sales in 20x4) 0Income 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
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 ........................................................................... 443,000Consolidated Net Income ...........................................................................P249,000Less: NCI-CNI ................................................................................................... 8,700CI-CNI...............................................................................................................P240,300
orConsolidated Net Income for 20x5
P Company’s net income from own/separate operations (P800-P400-P180) P 220,000Realized profit in beginning inventory of S Company (downstream sales) 0Unrealized profit in ending inventory of S Company (downstream sales)… (_ 0)
P Company’s realized net income from separate operations*…….….. P 220,000S Company’s net income from own operations (P600 – P300 – P250) P 50,000Realized profit in beginning inventory of P Company (upstream sales) 0Unrealized profit in ending inventory of P Company (upstream sales)… ( 8, 000)
P190,0000.1
S Company’s realized net income from separate operations*…….….. P 42,000 42,000Total P 262,000Less: Amortization of allocated excess…………………… 13,000Consolidated Net Income for 20x5 P 249,000Less: Non-controlling Interest in Net Income* * 8,700Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent – 20x5………….. P 240,300*that has been realized in transactions with third parties.
Or, alternatively
Consolidated Net Income for 20x5P Company’s net income from own/separate operations…………. P 220,000Realized profit in beginning inventory of S Company (downstream sales) 0Unrealized profit in ending inventory of S Company (downstream sales)… (_ 0)
P Company’s realized net income from separate operations*…….….. P 220,000S Company’s net income from own operations…………………………………. P 50,000Realized profit in beginning inventory of P Company (upstream sales) 0Unrealized profit in ending inventory of P Company (upstream sales)… ( 8,000)
S Company’s realized net income from separate operations*…….….. P 42,000 42,000Total P 262,000Less: Non-controlling Interest in Net Income* * P 8,700
Amortization of allocated excess…………………… 13,000 21,700Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent………….. P240,300Add: Non-controlling Interest in Net Income (NCINI) _ 8,700Consolidated Net Income for 20x5 P249,000
*that has been realized in transactions with third parties.
**Non-controlling Interest in Net Income (NCINI) for 20x5S Company’s net income of Subsidiary Company from its own operations
(Reported net income of Son Company) P 50,000Realized profit in beginning inventory of P Company (upstream sales) 0Unrealized profit in ending inventory of P Company (upstream sales) ( 8,00 0)
S Company’s realized net income from separate operations……… P 42,000Less: Amortization of allocated excess 13,000
P 29,000Multiplied 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 reportedincome after subtracting 13,000 excess fair value amortization and deferring P8,000 endingunrealized gross profit) Gross profit is included in this computation because the transfer wasupstream 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 372,000
Less: Book value of stockholders’ equity of Son:Common stock (P240,000 x 80%)……………………. P 192,000Retained earnings (P120,000 x 80%)………………... 96,000 288,000
Allocated 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 4,800Increase in land (P7,200 x 80%)……………………. 5,760Increase in equipment (P96,000 x 80%) 76,800Decrease 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
ValuationInventory………………….…………….. 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 valueIncrease
(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 or depreciation and amortization adjustments is as follows:
Account Adjustments to be amortizedOver/Under Life
AnnualAmount
CurrentYear(20x4) 20x5
Inventory P 6,000 1 P 6,000 P 6,000 P -Subject to Annual Amortization
Equipment (net)......... 96,000 8 12,000 12,000 12,000Buildings (net) (24,000) 4 ( 6,000) ( 6,000) (6,000)Bonds payable… 48000 4 1,200 1,200 1,200
P 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 controllinginterest and the NCI based on the percentage of total goodwill each equity interest received. Forpurposes of allocating the goodwill impairment loss, the full-goodwill is computed as follows:
Fair value of Subsidiary (100%)Consideration transferred: Cash (80%) P 372,000Fair value of NCI (given) (20%) 93,000Fair value of Subsidiary (100%) P 465,000
Less: Book value of stockholders’ equity of Son (P360,000 x 100%) __360,000Allocated 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 interestof 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 controllingInterest
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 assummarized below:
Downstream Sales:
Year Sales of Parent toSubsidiary
Intercompany Merchandisein 12/31 Inventory
of S CompanyUnrealized IntercompanyProfit in Ending Inventory
20x4 P150,000 P150,000 x 60% = P90,000 P90,000 x 20% = P18,00020x5 120,000 P120,000 x 80% = P96,000 P96,000 x 25% = P40,000
Upstream Sales:
Year Sales of Subsidiaryto Parent
Intercompany Merchandisein 12/31 Inventory
of S CompanyUnrealized IntercompanyProfit in Ending Inventory
20x4 P 50,000 P100,000 x 50% = P25,000 P25,000 x 40% = P10,00020x5 62,500 P 62,500 x 40% = P25,000 P25,000 x 20% = P 5,000
20x4: First Year after AcquisitionParent Company Cost Model Entry
January 1, 20x4:(1) Investment in S Company…………………………………………… 372,000
Cash…………………………………………………………………….. 372,000Acquisition of S Company.
January 1, 20x4 – December 31, 20x4:(2) Cash……………………… 28,800
Dividend income (P36,000 x 80%)……………. 28,800Record dividends from S Company.
No entries are made on the parent’s books to depreciate, amortize or write-off the portion of theallocated 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…………………………………… 120.000Investment in S Co…………………………………………… 288,000Non-controlling interest (P360,000 x 20%)……………………….. 72,000
To eliminate intercompany investment and equity accountsof subsidiary on date of acquisition; and to establish non-controllinginterest (in net assets of subsidiary) on date of acquisition.
(E2) Inventory…………………………………………………………………. 6,000Accumulated depreciation – equipment……………….. 96,000Accumulated depreciation – buildings………………….. 192,000Land………………………………………………………………………. 7,200Discount on bonds payable…………………………………………. 4,800
Goodwill…………………………………………………………………. 12,000Buildings……………………………………….. 216,000Non-controlling interest (P90,000 x 20%)……………………….. 18,000Investment in Son Co………………………………………………. 84,000
To allocate excess of cost over book value of identifiable assetsacquired, with remainder to goodwill; and to establish non-controlling interest (in net assets of subsidiary) on date of acquisition.
(E3) Cost of Goods Sold……………. 6,000Depreciation expense……………………….. 6,000Accumulated depreciation – buildings………………….. 6,000Interest expense………………………………… 1,200Goodwill impairment loss………………………………………. 3,000
Inventory………………………………………………………….. 6,000Accumulated depreciation – equipment……………….. 12,000Discount on bonds payable………………………… 1,200Goodwill…………………………………… 3,000
To provide for 20x4 impairment loss and depreciation andamortization on differences between acquisition date fair value andbook value of S’s identifiable assets and liabilities as follows:
Cost ofGoods
Sold
Depreciation/Amortization
ExpenseAmortization
-Interest TotalInventory sold P 6,000Equipment P 12,000Buildings ( 6,000)Bonds payable _______ _______ P 1,200Totals P 6,000 P 2,000 P1,200 13,200
(E4) Dividend income - P………. 28,800Non-controlling interest (P36,000 x 20%)……………….. 7,200
Dividends paid – S…………………… 36,000To eliminate intercompany dividends and non-controlling interestshare of dividends.
(E5) Sales………………………. 150,000Cost of Goods Sold (or Purchases) 150,000
To eliminated intercompany downstream sales.
(E6) Sales………………………. 60,000Cost of Goods Sold (or Purchases) 60,000
To eliminated intercompany upstream sales.
(E7) Cost of Goods Sold (Ending Inventory – Income Statement)… 18,000Inventory – Balance Sheet…… 18,000
To defer the downstream sales - unrealized profit in ending inventoryuntil it is sold to outsiders.
(E8) Cost of Goods Sold (Ending Inventory – Income Statement)… 12,000Inventory – Balance Sheet…… 12,000
To defer the upstream sales - unrealized profit in ending inventoryuntil it is sold to outsiders.
(E9) Non-controlling interest in Net Income of Subsidiary………… 6,960Non-controlling interest ………….. 6,960
To establish non-controlling interest in subsidiary’s adjusted netincome 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 34,800Multiplied 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 SubsidiaryDecember 31, 20x4 (First Year after Acquisition)
Income Statement P Co S Co. Dr. Cr. ConsolidatedSales P480,000 P240,000 (5) 150,000
(6) 60,000P 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 90,000Interest expense - - (3) 1,200 1,200Other expenses 48,000 18,000 66,000Goodwill impairment loss - - (3) 3,000 3,000
Total Cost and Expenses P312,000 P180,000 P328,200Net Income P196,800 P 60,000 P181,800NCI 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 P432,000 P 360,000S Company P144,000 (1) 120,000
Net income, from above 236,160 72,000 174,840Total P668,160 P216,000 P538,840
Dividends paidPerfect Company 86,400 72,000Son Company - 43,200 (4) 36,000 _ ________
Retained earnings, 12/31 to BalanceSheet P581,760 P172,800 P 466,840
Balance SheetCash………………………. P 232,800 P 90,000 P 355,200Accounts receivable…….. 90,000 60,000 150,000Inventory…………………. 120,000 90,000 (2) 6,000 (3) 6,000
(7) 18,000(8) 12,000 180,000
Land……………………………. 1210,000 48,000 (2) 7,200 265,200Equipment 240,000 180,000 420,000Buildings 720,000 540,000 (2) 216,000 1,044,000Discount on bonds payable (2) 4,800 (3) 12000 3,600Goodwill…………………… (2) 12,000 (3) 3,000 9,000Investment in S Co……… 372,000 (1) 288,000
(2) 84,000 -Total P1,984,800 P1,008,000 P2,394,600
Accumulated depreciation- equipment P 135,000 P 96,000 (2) 96,000 (3) 12,000 P147,000
Accumulated depreciation- 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 20x4P Company’s net income from own/separate operations…………. P168,000Unrealized profit in ending inventory of S Company (downstream sales)… ( 18,000)
P Company’s realized net income from separate operations*…….….. P150,000S Company’s net income from own operations…………………………………. P 60,000Unrealized profit in ending inventory of S Company (upstream sales)… ( 12,000)
Son Company’s realized net income from separate operations*…….….. P 48,000 48,000Total P198,000Less: Non-controlling Interest in Net Income* * P 6,960
Amortization of allocated excess (refer to amortization above) 13,200Goodwill impairment (impairment under partial-goodwill approach) 3,000 23,160
Controlling Interest in Consolidated Net Income or Profit attributable toequity holders of parent………….. P174,840
Add: Non-controlling Interest in Net Income (NCINI) _ 6,960Consolidated Net Income for 20x4 P181.800
*that has been realized in transactions with third parties.
**Non-controlling Interest in Net Income (NCINI) for 20x4S 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 13,200P 34,800
Multiplied by: Non-controlling interest %.......... 20%Non-controlling Interest in Net Income (NCINI) – partial goodwill P 6,960
*that has been realized in transactions with third parties.Since NCI share of goodwill is not recognized, no adjustment is required for the impairment loss ongoodwill 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 90,000Add: 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 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%)……………. 38,400Record dividends from S Company.
On the books of S Company, the P48,000 dividend paid was recorded as follows:
Dividends paid………… 48,000Cash 48,000
Dividends paid by S Co..
Consolidation Workpaper – Second Year after Acquisition(E1) Investment in S Company………………………… 19,200
Retained earnings – P Company……………………… 19,200To provide entry to convert from the cost method to the equitymethod or the entry to establish reciprocity at the beginning of theyear, 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………………………………………… 240,000Retained earnings – S Co., 1/1/20x5 144.000
Investment in S Co (P384,000 x 80%)………………………… 307,200Non-controlling interest (P384,000 x 20%)……………………….. 76,800
To eliminate intercompany investment and equity accountsof subsidiary and to establish non-controlling interest (in net assets ofsubsidiary) on January 1, 20x5.
(E3) Inventory…………………………………………………………………. 6,000Accumulated depreciation – equipment……………….. .... 96,000Accumulated depreciation – buildings………………….. ... 192,000Land………………………………………………………………………. 7,200Discount on bonds payable…………………………………………. 4,800Goodwill…………………………………………………………………. 12,000
Buildings………………………………………........................... 216,000Non-controlling interest (P90,000 x 20%)............................ 18,000Investment in S Co………………………………………………. 84,000
To allocate excess of cost over book value of identifiable assetsacquired, with remainder to goodwill; and to establish non-controlling 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 onpartial-goodwill] 13,560
Non-controlling interests (P13,200 x 20%)……………………. 2,640Depreciation expense……………………….. 6,000Accumulated depreciation – buildings………………….. 12,000Interest expense………………………………… 1,200
Inventory………………………………………………………….. 6,000Accumulated depreciation – equipment……………….. 24,000Discount on bonds payable………………………… 2,400Goodwill…………………………………… 3,000
To provide for years 20x4 and 20x5 depreciation and amortization ondifferences between acquisition date fair value and book value ofS’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)Retainedearnings,
Depreciation/Amortization
expenseAmortization
-InterestInventory sold P 6,000
Equipment 12,000 P 12,000Buildings (6,000) ( 6,000)Bonds payable 1,200 ________ P 1,200Sub-total P13,200 P 6,000 P 1,200Multiplied by: 80%To Retained earnings P 10,560Impairment loss 3,000Total P 13,560
(E5) Dividend income - P………. 38,400Non-controlling interest (P48,000 x 20%)……………….. 9,600
Dividends paid – S…………………… 48,000To eliminate intercompany dividends and non-controlling interestshare of dividends.
(E6) Sales………………………. 120,000Cost of Goods Sold (or Purchases) 120,000
To eliminated intercompany downstream sales.
(E7) Sales………………………. 75,000Cost of Goods Sold (or Purchases) 75,000
To eliminated intercompany upstream sales.
(E8) Beginning Retained Earnings – P Company…… 18,000Cost of Goods Sold (Ending Inventory – Income Statement) 18,000
To realized profit in downstream beginning inventory deferred in theprior period.
(E9) Beginning Retained Earnings – P Company (P12,000 x 80%) 9,600Noncontrolling interest (P12,000 x 20%)…… 2,400
Cost of Goods Sold (Ending Inventory – Income Statement) 12,000To realized profit in beginning inventory deferred in the prior period.
(E10) Cost of Goods Sold (Ending Inventory – Income Statement)… 24,000Inventory – Balance Sheet…… 24,000
To defer the downstream sales - unrealized profit in ending inventoryuntil it is sold to outsiders.
(E11) Cost of Goods Sold (Ending Inventory – Income Statement)… 6,000Inventory – Balance Sheet…… 6,000
To defer the upstream sales - unrealized profit in ending inventoryuntil it is sold to outsiders.
(E12) Non-controlling interest in Net Income of Subsidiary………… 17,760Non-controlling interest ………….. 17,760
To establish non-controlling interest in subsidiary’s adjusted netincome for 20x5 as follows:
Realized profit in beginning inventory of PCompany - 20x5 (upstream sales) 12,000Unrealized profit in ending inventory of PCompany - 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 transactionswith third persons.
Worksheet for Consolidated Financial Statements, December 31, 20x5.Cost Model (Partial-goodwill)80%-Owned SubsidiaryDecember 31, 20x5 (Second Year after Acquisition)
Income Statement P Co S Co. Dr. Cr. ConsolidatedSales P540,000 P360,000 (6) 120,000
(7) 75,000P 705,000
Dividend income 38,400 - (5) 38,400 ___________Total Revenue P501,600 P360,000 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
Depreciation expense 60,000 24,000 (4) 6,000 90,000Interest expense - - (4) 1,200 1,200Other expenses 72,000 54,000 126,000Goodwill impairment loss - - -
Total Cost and Expenses P348,000 P270,000 P 430,200Net Income P230,400 P 90,000 P 274,800NCI in Net Income - Subsidiary - - (12) 17,760 ( 17,760)Net Income to Retained Earnings P230,400 P 90,000 P 257,040
Statement of Retained EarningsRetained earnings, 1/1
P Company P484,800 (2) 13,560(8) 18,000(9) 9,600 (1) 19,200 P 462,840
S Company P 144,000 (2) 144,000Net income, from above 230,400 90,000 257,040
Total P715,200 P234,000 P 719,880Dividends paid
P Company 72,000 72,000S Company - 48,000 (5) 48,000 _ ________
Retained earnings, 12/31 to BalanceSheet P643,200 P186,000 P 647,880
Balance SheetCash………………………. P 265,200 P 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) 7,200 265,200Equipment 240,000 180,000 420,000Buildings 720,000 540,000 (3) 216,000 1,044,000Discount on bonds payable (3) 4,800 (4) 2,400 2,400Goodwill…………………… (3) 12,000 (4) 3,000 9,000Investment in S Co……… 372,000 (1) 19,200 (2) 307,200
(3) 84,000 -Total P2,203,200 P1,074,000 P2,677,800
Accumulated depreciation- equipment P 150,000 P 102,000 (3) 96,000 (4) 24,000 P180,000
Accumulated depreciation- buildings
450,000 306,000 (3) 192,000(4) 12,000 552,000
Accounts payable…………… 120,000 120,000 240,000Bonds payable………………… 240,000 120,000 360,000Common stock, P10 par……… 600,000 600,000Common stock, P10 par……… 240,000 (2) 240,000Retained earnings, from above 643,200 186,000 647,880Non-controlling interest…………
___ _____ _________
(4) 2,640(5) 9,600(9) 2,400__________
(2 ) 76,800(3) 18,000(12) 17,760 ____97,920
Total 2,203,200 P1,074,000 P1,077,360 P1,077,360 P2,677,800
5. 1/1/20x4a. On date of acquisition the retained earnings of parent should always be considered as the
consolidated retained earnings, thus:
Consolidated Retained Earnings, January 1, 20x4Retained 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 240,000Retained earnings – Subsidiary Company…………………………………. 120,000Stockholders’ equity – Subsidiary Company.………….. P 360,000Adjustments to reflect fair value - (over) undervaluation of assets and liabilities 90,000
Fair 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’ EquityCommon stock, P10 par P 600,000Retained earnings 360,000Parent’s Stockholders’ Equity / CI - SHE P 960,000
NCI, 1/1/20x4 ___90,000Consolidated SHE, 1/1/20x4 P1,050,000
6.Note: The goodwill recognized on consolidation purely relates to the parent’s share. NCI ismeasured as a proportion of identifiable assets and goodwill attributable to NCI share is notrecognized.
12/31/20x4:a. CI-CNI – P174,840
Consolidated Net Income for 20x4P Company’s net income from own/separate operations…………. P168,000Unrealized profit in ending inventory of S Company (downstream sales)… ( 18,000)
P Company’s realized net income from separate operations*…….….. P150,000S Company’s net income from own operations…………………………………. P 60,000Unrealized profit in ending inventory of S Company (upstream sales)… ( 12,000)
S Company’s realized net income from separate operations*…….….. P 48,000 48,000Total P198,000Less: Non-controlling Interest in Net Income* * P 6,960
Amortization of allocated excess (refer to amortization above) 13,200Goodwill impairment (impairment under partial-goodwill approach) 3,000 23,160
Controlling Interest in Consolidated Net Income or Profit attributable toequity holders of parent………….. P174,840
Add: Non-controlling Interest in Net Income (NCINI) _ 6,960Consolidated Net Income for 20x4 P181.800
*that has been realized in transactions with third parties.
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
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 13,200P 34,800
Multiplied by: Non-controlling interest %.......... 20%Non-controlling Interest in Net Income (NCINI) – partial goodwill P 6,960
*that has been realized in transactions with third parties.
c. CNI, P181,800 – refer to (a)
d. On subsequent to date of acquisition, consolidated retained earnings would be computed asfollows:
Consolidated Retained Earnings, December 31, 20x4Retained earnings - P Company, January 1, 20x4 (date of acquisition) P360,000Add: Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent for 20x4 174,840Total P534,840Less: Dividends paid – P Company for 20x4 72,000Consolidated Retained Earnings, December 31, 20x4 P462,840
e. The goodwill recognized on consolidation purely relates to the parent’s share. NCI is measuredas 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 240,000Retained earnings – Subsidiary Company, December 31, 20x4
Retained earnings – Subsidiary Company, January 1, 20x4 P120,000Add: Net income of subsidiary for 20x4 6,000Total P180,000Less: Dividends paid – 20x4 36,000 144,000
Stockholders’ equity – Subsidiary Company, December 31, 20x4 P 384,000Adjustments to reflect fair value - (over) undervaluation of assets and
liabilities, date of acquisition (January 1, 20x4) 90,000Amortization of allocated excess (refer to amortization above) – 20x4 ( 13,200)Fair value of stockholders’ equity of subsidiary, December 31, 20x4…… P460,000Less: Unrealized profit in ending inventory of P Company (upstream sales) 12,000Realized stockholders’ equity of subsidiary, December 31, 20x4…… P448,800Multiplied by: Non-controlling Interest percentage…………... 20Non-controlling interest (partial-goodwill)………………………………….. P 89,760
f.Consolidated SHE:
Stockholders’ EquityCommon stock, P10 par P 600,000Retained earnings 462,840Parent’s Stockholders’ Equity / CI – SHE, 12/31/20x4 P1,062,840
NCI, 12/31/20x4 ___89,760Consolidated SHE, 12/31/20x4 P1,152,600
12/31/20x5:a. CI-CNI
Consolidated Net Income for 20x5P Company’s net income from own/separate operations…………. P192,000Realized profit in beginning inventory of S Company (downstream sales) 18,000Unrealized profit in ending inventory of S Company (downstream sales)… (_24,000)
P Company’s realized net income from separate operations*…….….. P186,000S Company’s net income from own operations…………………………………. P 90,000Realized profit in beginning inventory of P Company (upstream sales) 12,000Unrealized profit in ending inventory of P Company (upstream sales)… ( 6,000)
Son Company’s realized net income from separate operations*…….….. P 96,000 96,000Total P282,000Less: Amortization of allocated excess…………………… 7,200Consolidated Net Income for 20x5 P274,800Less: Non-controlling Interest in Net Income* * 17,760Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent – 20x5………….. P257,040*that has been realized in transactions with third parties.
Or, alternativelyConsolidated Net Income for 20x5
P Company’s net income from own/separate operations…………. P192,000Realized profit in beginning inventory of S Company (downstream sales) 18,000Unrealized profit in ending inventory of S Company (downstream sales)… (_24,000)
P Company’s realized net income from separate operations*…….….. P186,000S Company’s net income from own operations…………………………………. P 90,000Realized profit in beginning inventory of P Company (upstream sales) 12,000Unrealized profit in ending inventory of P Company (upstream sales)… ( 6,000)
S Company’s realized net income from separate operations*…….….. P 96,000 96,000Total P282,000Less: Non-controlling Interest in Net Income* * P 17,760
Amortization of allocated excess…………………… 7,200 24,960Controlling Interest in Consolidated Net Income or Profit attributable to equity
holders of parent………….. P257,040Add: Non-controlling Interest in Net Income (NCINI) _ 17,760Consolidated Net Income for 20x5 P274,800
*that has been realized in transactions with third parties.b. NCI-CNI
**Non-controlling Interest in Net Income (NCINI) for 20x5S 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) 12,000Unrealized profit in ending inventory of P Company (upstream sales) ( 6,000)
S Company’s realized net income from separate operations……… 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
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 P484,800Less: Unrealized profit in ending inventory of S Company (downstream sales)
– 20x4 (UPEI of S – 20x4) or Realized profit in beginning inventory of SCompany (downstream sales) –20x5 (RPBI of S - 20x5)……………. 18,000
Adjusted Retained Earnings – Parent 1/1/20x5 (cost model (S Company’sRetained earnings that have been realized in transactions with thirdparties.. P466,800
Adjustment to convert from cost model to equity method for purposes ofconsolidation or to establish reciprocity:/Parent’s share in adjusted netincreased in subsidiary’s retained earnings:
Retained earnings – Subsidiary, January 1, 20x5 P 144,000Less: Retained earnings – Subsidiary, January 1, 20x4 120,000Increase in retained earnings since date of acquisition P 24,000Less: Amortization of allocated excess – 20x4 13,200
Unrealized profit in ending inventory of P Company (upstreamsales) 20x4 (UPEI of P – 20x4) or Realized profit in beginninginventory 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 P462,840Add: Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent for 20x5 257,040Total P748,680Less: Dividends paid – Parent Company for 20x5 72,000Consolidated 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 NCIacquired (refer to Illustration 15-6).
Or, alternatively:Consolidated Retained Earnings, December 31, 20x5
Retained earnings - Parent Company, December 31, 20x5 (cost model P643,200Less: Unrealized profit in ending inventory of S Company (downstream sales)
– 20x5 (UPEI of S – 20x5) or Realized profit in beginning inventory of SCompany (downstream sales) –20x6 (RPBI of S - 20x6)……………. 24,000
Adjusted Retained Earnings – Parent 12/31/20x5 (cost model (S Company’s Retained earnings that have been realized intransactions with third parties.. P619,200
Adjustment to convert from cost model to equity method for purposes ofconsolidation or to establish reciprocity:/Parent’s share in adjusted netincreased in subsidiary’s retained earnings:
Retained earnings – Subsidiary, December 31, 20x5 P 186,000Less: Retained earnings – Subsidiary, January 1, 20x4 120,000Increase in retained earnings since date of acquisition P 66,000Less: Accumulated amortization of allocated excess –
20x4 and 20x5 (P11,000 + P6,000) 20,400Unrealized profit in ending inventory of P Company (upstreamsales) 20x5 (UPEI of P – 20x5) or Realized profit in beginninginventory of P Company (upstream sales) –20x6 (RPBI of P - 20x6) 6,000
P 39,600Multiplied by: Controlling interests %................... 80%
P 31,680Less: 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 240,000Retained earnings – Subsidiary Company, December 31, 20x5
Retained earnings – Subsidiary Company, January 1, 20x5* P144,000Add: Net income of subsidiary for 20x5 90,000Total P234,000Less: Dividends paid – 20x5 48,000 186,000
Stockholders’ equity – Subsidiary Company, December 31, 20x5 P 426,000Adjustments to reflect fair value - (over) undervaluation of assets and
liabilities, date of acquisition (January 1, 20x4) 90,000Amortization of allocated excess (refer to amortization above) :
20x4 P 13,20020x5 7,200 ( 20,400)
Fair value of stockholders’ equity of subsidiary, December 31, 20x5…… P 495,600Less: Unrealized profit in ending inventory of P Company (upstream
sales) 20x5 (UPEI of P – 20x5) or Realized profit in beginning inventoryof P Company (upstream sales) –20x6 (RPBI of P - 20x6 6,000
Realized stockholders’ equity of subsidiary, December 31, 20x5………. P489,600Multiplied by: Non-controlling Interest percentage…………... 20Non-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 isalready included in the beginning retained earnings of S Company.
f.Consolidated SHE:
Stockholders’ EquityCommon stock, P10 par P 600,000Retained earnings 647,880Parent’s Stockholders’ Equity / CI – SHE, 12/31/20x4 P1,247,880
NCI, 12/31/20x4 ___97,920Consolidated SHE, 12/31/20x4 P1,345,800
Problem XRequirements 1 to 4:Schedule of Determination and Allocation of ExcessDate of Acquisition – January 1, 20x4
Fair value of Subsidiary (80%)Consideration transferred (80%)…………….. P 372,000Fair value of NCI (given) (20%)……………….. 93,000Fair value of Subsidiary (100%)………. P 465,000
Less: Book value of stockholders’ equity of Son:Common stock (P240,000 x 100%)………………. P 240,000Retained earnings (P120,000 x 100%)………... 120,000 360,000
Allocated 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 6,000Increase in land (P7,200 x 100%)……………………. 7,200Increase in equipment (P96,000 x 100%) 96,000Decrease in buildings (P24,000 x 100%)………..... ( 24,000)Decrease in bonds payable (P4,800 x 100%)…… 4,800 90,000
Positive excess: Full-goodwill (excess of cost overfair value)………………………………………………... P 15,000
A summary or depreciation and amortization adjustments is as follows:
Account Adjustments to be amortizedOver/under Life
AnnualAmount
CurrentYear(20x4) 20x5
Inventory P 6,000 1 P 6,000 P 6,000 P -Subject to Annual Amortization
Equipment (net)......... 96,000 8 12,000 12,000 12,000Buildings (net) (24,000) 4 ( 6,000) ( 6,000) (6,000)Bonds payable… 4,800 4 1,200 1,200 1,200
P 13,200 P 13,200 P 7,200
20x4: First Year after AcquisitionParent Company Cost Model Entry
January 1, 20x4:(1) Investment in S Company…………………………………………… 372,000
Cash…………………………………………………………………….. 372,000Acquisition of S Company.
January 1, 20x4 – December 31, 20x4:(2) Cash……………………… 28,800
Dividend income (P36,000 x 80%)……………. 28,800Record dividends from Son Company.
On the books of Son Company, the P36,000 dividend paid was recorded as follows:
Dividends paid………… 36,000Cash……. 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 theallocated excess that expires during 20x4.
Consolidation Workpaper – First Year after Acquisition(E1) Common stock – S Co………………………………………… 240,000
Retained earnings – S Co…………………………………… 120.000Investment in S Co…………………………………………… 288,000Non-controlling interest (P360,000 x 20%)……………………….. 72,000
To eliminate intercompany investment and equity accountsof subsidiary on date of acquisition; and to establish non-controllinginterest (in net assets of subsidiary) on date of acquisition.
(E2) Inventory…………………………………………………………………. 6,000
Accumulated depreciation – equipment……………….. 96,000Accumulated depreciation – buildings………………….. 192,000Land………………………………………………………………………. 7,200Discount on bonds payable…………………………………………. 4,800Goodwill…………………………………………………………………. 15,000
Buildings……………………………………….. 216,000Non-controlling interest (P90,000 x 20%) + [(P15,000, full –
P12,000, partial goodwill)]………… 21,000Investment in Son Co………………………………………………. 84,000
To allocate excess of cost over book value of identifiable assetsacquired, with remainder to goodwill; and to establish non-controlling interest (in net assets of subsidiary) on date of acquisition.
(E3) Cost of Goods Sold……………. 6,000Depreciation expense……………………….. 6,000Accumulated depreciation – buildings………………….. 6,000Interest expense………………………………… 1,200Goodwill impairment loss………………………………………. 3,750
Inventory………………………………………………………….. 6,000Accumulated depreciation – equipment……………….. 12,000Discount on bonds payable………………………… 1,200Goodwill…………………………………… 3,750
To provide for 20x4 impairment loss and depreciation andamortization on differences between acquisition date fair value andbook value of S’s identifiable assets and liabilities as follows:
Cost ofGoods
Sold
Depreciation/Amortization
ExpenseAmortization
-InterestInventory sold P 6,000Equipment P12,000Buildings ( 6,000)Bonds payable _______ _______ P 1,200Totals P 6,000 P 6,000 P1,200
(E4) Dividend income - P………. 28,800Non-controlling interest (P36,000 x 20%)……………….. 7,200
Dividends paid – S…………………… 36,000To eliminate intercompany dividends and non-controlling interestshare of dividends.
(E5) Sales………………………. 150,000Cost of Goods Sold (or Purchases) 150,000
To eliminated intercompany downstream sales.
(E6) Sales………………………. 60,000Cost of Goods Sold (or Purchases) 60,000
To eliminated intercompany upstream sales.
(E7) Cost of Goods Sold (Ending Inventory – Income Statement)… 18,000Inventory – Balance Sheet…… 18,000
To defer the downstream sales - unrealized profit in ending inventoryuntil it is sold to outsiders.
(E8) Cost of Goods Sold (Ending Inventory – Income Statement)… 12,000Inventory – Balance Sheet…… 12,000
To defer the upstream sales - unrealized profit in ending inventoryuntil it is sold to outsiders.
(E9) Non-controlling interest in Net Income of Subsidiary………… 6,210
Non-controlling interest ………….. 6,210To establish non-controlling interest in subsidiary’s adjusted netincome for 20x4 as follows:
Net income of subsidiary…………………….. P 60,000Unrealized profit in ending inventory of PCompany (upstream sales)……………………….. ( 12,000)S Company’s realized net income from
separate operations*…….….. P 48,000Less: Amortization of allocated excess [(E3)]…. 13,200
P 34,800Multiplied by: Non-controlling interest %.......... 20%Non-controlling Interest in Net Income (NCINI)
– partial goodwillP 6,960
Less: Non-controlling interest on impairmentloss on full-goodwill (P3,750 x 20%) or(P3,750 impairment on full-goodwill lessP3,000, 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 SubsidiaryDecember 31, 20x4 (First Year after Acquisition)
Income Statement P Co S Co. Dr. Cr. ConsolidatedSales P480,000 P240,000 (5) 150,000
(6) 60,000P 510,000
Dividend income 28,800 - (4) 28,800 _________Total Revenue P451,200 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 90,000Interest expense - - (3) 1,200 1,200Other expenses 48,000 18,000 66,000Goodwill impairment loss - - (3) 3,750 3,750
Total Cost and Expenses P312,000 P180,000 P328,950Net Income P196,800 P 60,000 P181,050NCI in Net Income - Subsidiary - - (9) 6,210 ( 6,210)Net Income to Retained Earnings P196,800 P 60,000 P174,840
Statement of Retained EarningsRetained earnings, 1/1
P Company P360,000 P 360,000S Company P120,000 (1) 120,000
Net income, from above 196,800 60,000 174,840Total P556,800 P180,000 P534,840
Dividends paidP Company 72,000 72,000S Company - 36,000 (4) 36,000 _ ________
Retained earnings, 12/31 to BalanceSheet P484,800 P144,000 P 462,840
Balance SheetCash………………………. P 232,800 P 90,000 P 322,800Accounts receivable…….. 90,000 60,000 150,000Inventory…………………. 120,000 90,000 (2) 6,000 (3) 6,000
(7) 18,000(8) 12,000 180,000
Land……………………………. 210,000 48,000 (2) 7,200 265,200Equipment 240,000 180,000 420,000Buildings 720,000 540,000 (2) 216,000 1,044,000Discount on bonds payable (2) 4,800 (3) 1,200 3,600Goodwill…………………… (2) 15,000 (3) 3,750 11,250
Investment in S Co……… 372,000 (3) 288,000(4) 84,000 -
Total P1,984,800 P1,008,000 P2,396,850
Accumulated depreciation- equipment P 135,000 P 96,000 (2) 96,000 (3) 12,000 P147,000
Accumulated depreciation- buildings
405,000 288,000 (6) 192,000(7) 6,000 495,000
Accounts payable…………… 120,000 120,000 240,000Bonds payable………………… 240,000 120,000 360,000Common stock, P10 par……… 600,000 600,000Common stock, P10 par……… 240,000 (1) 240,000Retained earnings, from above 484,800 144,000 462,840Non-controlling interest…………
_________ _________
(4) 7,200 (1 ) 72,000(2) 21,000(9) 6,210 ____92,010
Total P1,984,800 P1,008,000 P 986,160 P 986,160 P2,396,850
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%)……………. 38,400Record dividends from S Company.
On the books of S Company, the P48,000 dividend paid was recorded as follows:
Dividends paid………… 48,000Cash 48,000
Dividends paid by S Co..
Consolidation Workpaper – Second Year after Acquisition
(E1) Investment in S Company………………………… 19,200Retained earnings – P Company……………………… 19,200
To provide entry to convert from the cost method to the equitymethod or the entry to establish reciprocity at the beginning of theyear, 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 144.000Investment in S Co (P384,000 x 80%)………………………… 307,200Non-controlling interest (P384,000 x 20%)……………………….. 76,800
To eliminate intercompany investment and equity accountsof subsidiary and to establish non-controlling interest (in net assets ofsubsidiary) on January 1, 20x5.
(E3) Inventory…………………………………………………………………. 6000Accumulated depreciation – equipment……………….. 96,000Accumulated depreciation – buildings………………….. 192,000Land………………………………………………………………………. 7,200Discount on bonds payable…………………………………………. 4,800Goodwill…………………………………………………………………. 15,000
Buildings……………………………………….. 216,000Non-controlling interest (P90,000 x 20%) + [(P15,000, full –
P12,000, partial goodwill)]………… 21,000Investment in S Co………………………………………………. 84,000
To allocate excess of cost over book value of identifiable assetsacquired, with remainder to goodwill; and to establish non-controlling 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%)……………………. 3,390Depreciation expense……………………….. 6,000Accumulated depreciation – buildings………………….. 12,000Interest expense………………………………… 1,200
Inventory………………………………………………………….. 6,000Accumulated depreciation – equipment……………….. 24,000Discount on bonds payable………………………… 2,800Goodwill…………………………………… 3,750
To provide for years 20x4 and 20x5 depreciation and amortization ondifferences between acquisition date fair value and book value ofSon’s identifiable assets and liabilities as follows:
Year 20x4 amounts are debited to Perfect’s retained earningsand NCI.
Year 20x5 amounts are debited to respective nominal accounts..
(20x4)Retainedearnings,
Depreciation/Amortization
expenseAmortization
-InterestInventory sold P 6,000Equipment 12,000 P 12,000Buildings (6,000) ( 6,000)Bonds payable 1,200 P 1,200Impairment loss 3,750Totals P 16,950 P 6,000 P1,200Multiplied by: CI%.... 80%To Retained earnings P13,560
(E5) Dividend income - P………. 38,400Non-controlling interest (P48,000 x 20%)……………….. 9,600
Dividends paid – S…………………… 48,000To eliminate intercompany dividends and non-controlling interestshare of dividends.
(E6) Sales………………………. 120,000Cost of Goods Sold (or Purchases) 120,000
To eliminated intercompany downstream sales.
(E7) Sales………………………. 75,000Cost of Goods Sold (or Purchases) 75,000
To eliminated intercompany upstream sales.
(E8) Beginning Retained Earnings – P Company…… 18,000Cost of Goods Sold (Ending Inventory – Income Statement) 18,000
To realized profit in downstream beginning inventory deferred in theprior period.
(E9) Beginning Retained Earnings – P Company (P12,000 x 80%) 9,600Noncontrolling interest (P12,000 x 20%)…… 2,400
Cost of Goods Sold (Ending Inventory – Income Statement) 12,000To realized profit in upstream beginning inventory deferred in theprior period.
(E10) Cost of Goods Sold (Ending Inventory – Income Statement)… 24,000Inventory – Balance Sheet…… 24,000
To defer the downstream sales - unrealized profit in ending inventoryuntil it is sold to outsiders.
(E11) Cost of Goods Sold (Ending Inventory – IncomeStatement)… 6,000
Inventory – Balance Sheet…… 6,000To defer the upstream sales - unrealized profit in ending inventoryuntil it is sold to outsiders.
(E12) Non-controlling interest in Net Income of Subsidiary………… 17,760Non-controlling interest ………….. 17,760
To establish non-controlling interest in subsidiary’s adjusted netincome for 20x5 as follows:
Net income of subsidiary…………………….. P 90,000Realized profit in beginning inventory of PCompany - 20x5 (upstream sales) 12,000Unrealized profit in ending inventory of PCompany - 20x5 (upstream sales) ( 6,000)Son 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 goodwillP 17,760
Less: NCI on goodwill impairment loss on full-Goodwill 0
Non-controlling Interest in Net Income (NCINI)– full goodwill P 17,760
*from separate transactions that has been realized in transactionswith third persons.
Worksheet for Consolidated Financial Statements, December 31, 20x5.Cost Model (Full-goodwill)80%-Owned SubsidiaryDecember 31, 20x5 (Second Year after Acquisition)
Income Statement P Co S Co. Dr. Cr. ConsolidatedSales P540,000 P360,000 (6) 120,000
(7) 75,000P 705,000
Dividend income 38,400 - (5) 38,400 ___________Total Revenue P574,800 P360,000 P 705,000
Cost of goods sold P216,000 P192,000 (10) 24,000(11) 6,000
(6) 120,000(7) 90,000(8) 21,600(9) 14,400
P 213,000
Depreciation expense 60,000 24,000 (4) 6,000 90,000Interest expense - - (4) 1,200 1,200Other expenses 72,000 54,000 126,000Goodwill impairment loss - - -
Total Cost and Expenses P348,000 P270,000 P 430,200Net Income P230,400 P 90,000 P 274,800
NCI in Net Income - Subsidiary - - (12) 17,760 ( 17,760)Net Income to Retained Earnings P230,400 P 90,000 P 257,040
Statement of Retained EarningsRetained earnings, 1/1
P Company P484,800 (3) 13,560(8) 18,000(9) 96000 (4) 19,200 P 462,840
S Company P 144,000 (5) 144,000Net income, from above 230,400 90,000 257,040
Total P715,200 P234,000 P 719,880Dividends paid
P Company 72,000 72,000S Company - 48,000 (5) 48,000 _ ________
Retained earnings, 12/31 to BalanceSheet P643,200 P186,000 P 647,880
Balance SheetCash………………………. P 265,200 P 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) 7,200 265,200Equipment 240,000 180,000 420,000Buildings 720,000 540,000 (3) 216,000 1,044,000Discount on bonds payable (3) 4,800 (4) 2,400 2,400Goodwill…………………… (3) 15,000 (4) 3,750 11,250Investment in S Co……… 372,000 (1) 19,200 (2) 307,200
(3) 84,000 -Total P2,203,200 P1,074,000 P2,680,050
Accumulated depreciation- equipment P 150,000 P 102,000 (3) 96,000 (4) 24,000 P180,000
Accumulated depreciation- buildings
450,000 306,000 (3) 192,000(4) 12,000 552,000
Accounts payable…………… 120,000 120,000 240,000Bonds payable………………… 240,000 120,000 360,000Common stock, P10 par……… 600,000 600,000Common stock, P10 par……… 240,000 (2) 240,000Retained earnings, from above 643,200 186,000 647,880Non-controlling interest…………
___ _____ _________
(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. 1/1/20x4a. 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 240,000Retained earnings – Subsidiary Company…………………………………. 120,000Stockholders’ equity – Subsidiary Company.………….. P 360,000Adjustments to reflect fair value - (over) undervaluation of assets and liabilities 90,000
Fair value of stockholders’ equity of subsidiary, January 1, 20x4………………… P 450,000Multiplied 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) 3,000Non-controlling interest (full-goodwill) P 93,000
c.Consolidated SHE:
Stockholders’ EquityCommon stock, P10 par P 600,000Retained earnings 360,000Parent’s Stockholders’ Equity / CI - SHE P 960,000
NCI, 1/1/20x4 ___93,000Consolidated SHE, 1/1/20x4 P1,053,000
6.Note: The goodwill recognized on consolidation purely relates to the parent’s share. NCI ismeasured as a proportion of identifiable assets and goodwill attributable to NCI share is notrecognized.12/31/20x4:a. CI-CNI – P174,840
Consolidated Net Income for 20x4P Company’s net income from own/separate operations…………. P168,000Unrealized profit in ending inventory of S Company (downstream sales)… ( 18,000)
Perfect Company’s realized net income from separate operations*…….….. P150,000S Company’s net income from own operations…………………………………. P 60,000Unrealized profit in ending inventory of S Company (upstream sales)… ( 12,000)
Son Company’s realized net income from separate operations*…….….. P 48,000 48,000Total P198,000Less: Non-controlling Interest in Net Income P 6,1210
Amortization of allocated excess (refer to amortization above) 13,200Goodwill impairment (impairment under full-goodwill approach) 3,750 23,160
Controlling Interest in Consolidated Net Income or Profit attributable toequity holders of parent………….. P174,840
Add: Non-controlling Interest in Net Income (NCINI) _ 6,210Consolidated Net Income for 20x4 P181.050
*that has been realized in transactions with third parties.
b. NCI-CNI – P6,210
**Non-controlling Interest in Net Income (NCINI) for 20x4S 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 13,200P 34,800
Multiplied by: Non-controlling interest %.......... 20%Non-controlling Interest in Net Income (NCINI) – partial P 6,960Less: Non-controlling interest on impairment loss on full-goodwill (P3,750 x
20%) or (P3,750 impairment on full-goodwill less P3,000, impairment onpartial- 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) P360,000Add: Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent for 20x4 174,840Total P534,840Less: Dividends paid – Parent Company for 20x4 72,000Consolidated Retained Earnings, December 31, 20x4 P462,840
e.
Non-controlling interest ), December 31, 20x4Common stock – Subsidiary Company, December 31, 20x4…… P 240,000Retained earnings – Subsidiary Company, December 31, 20x4
Retained earnings – Subsidiary Company, January 1, 20x4 P120,000Add: Net income of subsidiary for 20x4 60,000Total P180,000Less: Dividends paid – 20x4 36,000 144,000
Stockholders’ equity – Subsidiary Company, December 31, 20x4 P 384,000Adjustments to reflect fair value - (over) undervaluation of assets and
liabilities, date of acquisition (January 1, 20x4) 90,000Amortization of allocated excess (refer to amortization above) – 20x4 ( 13,200)Fair value of stockholders’ equity of subsidiary, December 31, 20x4…… P460,800Less: Unrealized profit in ending inventory of P Company (upstream sales) 12,000Realized stockholders’ equity of subsidiary, December 31, 20x4…… P448,800Multiplied by: Non-controlling Interest percentage…………... 20Non-controlling interest (partial-goodwill)………………………………….. P 89,760Add: Non-controlling interest on full goodwill , net of impairment loss, 12/31/x4:
[(P15,000 full – P12,000, partial = P3,000) – P750 impairment loss 2,250Non-controlling interest (full-goodwill)…………….. P 92,010
f.Consolidated SHE:
Stockholders’ EquityCommon stock, P10 par P 600,000Retained earnings 462,840Parent’s Stockholders’ Equity / CI - SHE P1,062,840
NCI, 1/1/20x4 ___92,010Consolidated SHE, 1/1/20x4 P1,154,840
12/31/20x5:a. CI-CNI – P257,040
Consolidated Net Income for 20x5P Company’s net income from own/separate operations…………. P192,000Realized profit in beginning inventory of S Company (downstream sales) 18,000Unrealized profit in ending inventory of S Company (downstream sales)… (_24,000)
P Company’s realized net income from separate operations*…….….. P186,000S Company’s net income from own operations…………………………………. P 90,000Realized profit in beginning inventory of P Company (upstream sales) 12,000Unrealized profit in ending inventory of P Company (upstream sales)… ( 6,000)
S Company’s realized net income from separate operations*…….….. P 96,000 96,000Total P282,000Less: Amortization of allocated excess…………………… 7,200Consolidated Net Income for 20x5 P274,800Less: Non-controlling Interest in Net Income* * 17,760Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent – 20x5………….. P257,040*that has been realized in transactions with third parties.
Or, alternativelyConsolidated Net Income for 20x5
P Company’s net income from own/separate operations…………. P192,000Realized profit in beginning inventory of S Company (downstream sales) 18,000Unrealized profit in ending inventory of S Company (downstream sales)… (_24,000)
P Company’s realized net income from separate operations*…….….. P186,000S Company’s net income from own operations…………………………………. P 90,000Realized profit in beginning inventory of P Company (upstream sales) 12,000Unrealized profit in ending inventory of P Company (upstream sales)… ( 6,000)
Son Company’s realized net income from separate operations*…….….. P 96,000 96,000Total P282,000Less: Non-controlling Interest in Net Income* * P 17,760
Amortization of allocated excess…………………… 7,200 24,960Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent………….. P257,040
Add: Non-controlling Interest in Net Income (NCINI) _ 17,760Consolidated Net Income for 20x5 P274,800
*that has been realized in transactions with third parties.
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) 12,000Unrealized profit in ending inventory of P Company (upstream sales) ( 6,000)
S Company’s realized net income from separate operations……… 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 17,760Less: NCI on goodwill impairment loss on full goodwill 0Non-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 P484,800Less: Unrealized profit in ending inventory of S Company (downstream sales)
– 20x4 (UPEI of S – 20x4) or Realized profit in beginning inventory of SCompany (downstream sales) –20x4 (RPBI of S - 20x5)……………. 18,000
Adjusted Retained Earnings – Parent 1/1/20x5 (cost model (S Company’sRetained earnings that have been realized in transactions with thirdparties.. P466,800
Adjustment to convert from cost model to equity method for purposes ofconsolidation or to establish reciprocity:/Parent’s share in adjusted netincreased in subsidiary’s retained earnings:
Retained earnings – Subsidiary, January 1, 20x5 P 144,000Less: Retained earnings – Subsidiary, January 1, 20x4 120,000Increase in retained earnings since date of acquisition P 24,000Less: Amortization of allocated excess – 20x4 13,200
Unrealized profit in ending inventory of P Company (upstreamsales) 20x4 (UPEI of P – 20x4) or Realized profit in beginninginventory 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 P462,840Add: Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent for 20x5 257,040Total P719,880Less: Dividends paid – Parent Company for 20x5 72,000Consolidated Retained Earnings, December 31, 20x5 P647,880
*this procedure would be more appropriate, instead of multiplying the full-goodwill impairment loss of P3,750 by 80%.There might be situations where the controlling interests on goodwill impairment loss would not be proportionate to NCIacquired (refer to Illustration 15-6).
Or, alternatively:Consolidated Retained Earnings, December 31, 20x5
Retained earnings - Parent Company, December 31, 20x5 (cost model P643,200Less: Unrealized profit in ending inventory of S Company (downstream sales)
– 20x5 (UPEI of S – 20x5) or Realized profit in beginning inventory of SCompany (downstream sales) –20x6 (RPBI of S - 20x6)……………. 24,000
Adjusted Retained Earnings – Parent 12/31/20x5 (cost model (S Company’s Retained earnings that have been realized intransactions with third parties.. P619,200
Adjustment to convert from cost model to equity method for purposes ofconsolidation or to establish reciprocity:/Parent’s share in adjusted net
increased in subsidiary’s retained earnings:Retained earnings – Subsidiary, December 31, 20x5 P 186,000Less: Retained earnings – Subsidiary, January 1, 20x4 120,000Increase in retained earnings since date of acquisition P 66,000Less: Accumulated amortization of allocated excess –
20x4 and 20x5 (P13,200 + P7,200) 20,400Unrealized profit in ending inventory of P Company (upstreamsales) 20x5 (UPEI of P – 20x5) or Realized profit in beginninginventory of P Company (upstream sales) –20x6 (RPBI of P - 20x6) 6,000
P 39,600Multiplied by: Controlling interests %................... 80%
P 31,680Less: Goodwill impairment loss (full-goodwill), net (P3,750 – P750)* or
(P3,750 x 80%) 3,000 28,680Consolidated Retained earnings, December 31, 20x5 P647,880
e.Non-controlling interest, December 31, 20x5
Common stock – Subsidiary Company, December 31, 20x5…… P 240,000Retained earnings – Subsidiary Company, December 31, 20x5
Retained earnings – Subsidiary Company, January 1, 20x5* P144,000Add: Net income of subsidiary for 20x5 90,000Total P234,000Less: Dividends paid – 20x5 48,000 186,000
Stockholders’ equity – Subsidiary Company, December 31, 20x5 P 426,000Adjustments to reflect fair value - (over) undervaluation of assets and
liabilities, date of acquisition (January 1, 20x4) 90,000Amortization of allocated excess (refer to amortization above) :
20x4 P 13,20020x5 7,200 ( 20,400)
Fair value of stockholders’ equity of subsidiary, December 31, 20x5…… P 495,600Less: Unrealized profit in ending inventory of P Company (upstream
sales) 20x5 (UPEI of P – 20x5) or Realized profit in beginning inventoryof P Company (upstream sales) –20x6 (RPBI of P - 20x6 6,000
Realized stockholders’ equity of subsidiary, December 31, 20x5………. P489,600Multiplied by: Non-controlling Interest percentage…………... 20Non-controlling interest (partial goodwill)………………………………….. P 97,920Add: Non-controlling interest on full goodwill , net of impairment loss
[(P15,000 full – P12,000, partial = P3,000) – P750 impairment loss 2,250Non-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 isalready included in the beginning retained earnings of S Company.
f.Consolidated SHE:
Stockholders’ EquityCommon stock, P10 par P 600,000Retained earnings 647,880Parent’s Stockholders’ Equity / CI - SHE P1,247,880
NCI, 1/1/20x4 ___100,170Consolidated 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 ....................................................... P381,000Consolidated 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, thenon-controlling interest is 20% of the P58,000 (revenues minus cost of goods sold andexpenses) reported income or P11,600.
orConsolidated Net Income for 20x5
P Company’s net income from own/separate operations (P640-P290-P150) P 200,000Realized profit in beginning inventory of S Company (downstream sales) 8,000Unrealized profit in ending inventory of S Company (downstream sales)… (_ 12,000)
P Company’s realized net income from separate operations*…….….. P 196,000S Company’s net income from own operations (P360 – P197 – P105) P 58,000Realized profit in beginning inventory of P Company (upstream sales) 0Unrealized profit in ending inventory of P Company (upstream sales)… ( 0)
S Company’s realized net income from separate operations*…….….. P 58,000 58,000Total P 254,000Less: Amortization of allocated excess…………………… ____0Consolidated Net Income for 20x5 P 254,000Less: Non-controlling Interest in Net Income* * 11,600Controlling 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 20x5S Company’s net income of Subsidiary Company from its own operations
(Reported net income of Son Company) P 58,000Realized profit in beginning inventory of P Company (upstream sales) 0Unrealized profit in ending inventory of P Company (upstream sales) ( 0)
S Company’s realized net income from separate operations……… P 58,000Less: Amortization of allocated excess ____0
P 58,000Multiplied by: Non-controlling interest %.......... 20%Non-controlling Interest in Net Income (NCINI) – partial goodwill P 11,600
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 Inventory
PP 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 reflectedin 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 .................................................. P10,800or
Consolidated Net Income for 20x5P Company’s net income from own/separate operations (P640-P290-P150) P 200,000Realized 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 200,000S Company’s net income from own operations (P360 – P197 – P105) P 58,000Realized profit in beginning inventory of P Company (upstream sales) 6,000Unrealized profit in ending inventory of P Company (upstream sales)… ( 10,000)
S Company’s realized net income from separate operations*…….….. P 54,000 54,000Total P 254,000Less: Amortization of allocated excess…………………… ____0Consolidated Net Income for 20x5 P 254,000Less: Non-controlling Interest in Net Income* * 10,800Controlling 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 20x5S Company’s net income of Subsidiary Company from its own operations
(Reported net income of Son Company) P 58,000Realized profit in beginning inventory of P Company (upstream sales) 6,000Unrealized profit in ending inventory of P Company (upstream sales) ( 10,000)
S Company’s realized net income from separate operations……… P 54,000Less: Amortization of allocated excess ____0
P 54,000Multiplied by: Non-controlling interest %.......... 20%Non-controlling Interest in Net Income (NCINI) – partial goodwill P 10,800
Problem XIII1. (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........................................................................................... 90,000Outside 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 165,000Realized profit in beginning inventory of S Company (downstream sales) 14,400Unrealized profit in ending inventory of S Company (downstream sales)… (_10,000)
P Company’s realized net income from separate operations*…….….. P 169,400S Company’s net income from own operations (P600 – P400 – P100) P 100,000Realized profit in beginning inventory of P Company (upstream sales) 0Unrealized profit in ending inventory of P Company (upstream sales)… ( 0)
S Company’s realized net income from separate operations*…….….. P 100,000 100,000Total P 269,400Less: Amortization of allocated excess…………………… __10,000Consolidated Net Income for 20x5 P 259,400Less: Non-controlling Interest in Net Income* * 27,000Controlling 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 20x5S Company’s net income of Subsidiary Company from its own operations
(Reported net income of S Company) P 100,000Realized profit in beginning inventory of P Company (upstream sales) 0Unrealized profit in ending inventory of P Company (upstream sales) ( 0)
S Company’s realized net income from separate operations……… P 100,000Less: Amortization of allocated excess __10,000
P 90,000Multiplied by: Non-controlling interest %.......... 30%Non-controlling Interest in Net Income (NCINI) – partial goodwill P 27,000
Inventory = P988,000 (add the two book values less the P10,000 ending unrealized gross profit) Noncontrolling interest in subsidiary, 12/31/x5 = P385,500
30% 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 ...................................................................................... 400,000
Eliminate 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 20x5P Company’s net income from own/separate operations (P800-P535-P100) P 165,000Realized profit in beginning inventory of S Company (downstream sales) 0Unrealized profit in ending inventory of S Company (downstream sales)… (_ 0)
P Company’s realized net income from separate operations*…….….. P 165,000S Company’s net income from own operations (P600 – P400 – P100) P 100,000Realized profit in beginning inventory of P Company (upstream sales) 14,400Unrealized profit in ending inventory of P Company (upstream sales)… ( 10,000)
S Company’s realized net income from separate operations*…….….. P 104,400 104,400Total P 269,400Less: Amortization of allocated excess…………………… __10,000Consolidated Net Income for 20x5 P 259,400Less: Non-controlling Interest in Net Income* * 28,320Controlling 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 20x5S Company’s net income of Subsidiary Company from its own operations
(Reported net income of S Company) P 100,000Realized profit in beginning inventory of P Company (upstream sales) 14,400Unrealized profit in ending inventory of P Company (upstream sales) ( 10,000)
S Company’s realized net income from separate operations……… P 104,400Less: Amortization of allocated excess __10,000
P 94,400Multiplied by: Non-controlling interest %.......... 30%Non-controlling Interest in Net Income (NCINI) – partial goodwill P 28,320
Inventory = P988,000 (add the two book values and defer the P10,000 ending unrealized gross profit) Noncontrolling interest in subsidiary, 12/31/x5 = P382,500
30% beginning book value less P14,400unrealized gross profit (30% × P935,600)............................................................. P280,680
Excess 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 XIVAmortization of equipment: P20,000 / 10 years = P2,000RPBI of S (downstream sales):…………………..................................................... ... P15,000RPBI of P (upstream sales)………………………....................................................... 10,000UPEI of S (downstream sales)……………………………………………………..……. 20,000UPEI of P (upstream sales)………………………………………………….…………… 5,000
Consolidated Net Income for 2014P Company’s net income from own/separate operations (P724,000 – P24,000 P700,000Realized profit in beginning inventory of S Company (downstream sales) 15,0000
Unrealized profit in ending inventory of S Company (downstream sales)… (20,00 0)P Company’s realized net income from separate operations*…….….. P695,000
S Company’s net income from own operations…………………………………. P 90,000Realized profit in beginning inventory of P Company (upstream sales) 10,000Unrealized profit in ending inventory of P Company (upstream sales) ( 5,000)
S Company’s realized net income from separate operations*…….….. P 95,000 95,000Total P790,000Less: Amortization of allocated excess…………………… 2,000Consolidated Net Income for 2014 P788,000Less: Non-controlling Interest in Net Income* * 18,600Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent – 2014………….. P769,400*that has been realized in transactions with third parties.
Or, alternativelyConsolidated Net Income for 2014
P Company’s net income from own/separate operations P700,000Realized profit in beginning inventory of S Company (downstream sales) 15,0000Unrealized profit in ending inventory of S Company (downstream sales)… (20,00 0)
P Company’s realized net income from separate operations*…….….. P695,000S Company’s net income from own operations…………………………………. P 90,000Realized profit in beginning inventory of P Company (upstream sales) 10,000Unrealized profit in ending inventory of P Company (upstream sales)… ( 5,000)
Son Company’s realized net income from separate operations*…….….. P 95,000 95,000Total P790,000Less: Non-controlling Interest in Net Income* * P 18,600
Amortization of allocated excess…………………… 2,000 20,600Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent………….. P769,400Add: Non-controlling Interest in Net Income (NCINI) _ 18,600Consolidated Net Income for 2014 P788,000
*that has been realized in transactions with third parties.
**Non-controlling Interest in Net Income (NCINI) for 2014S 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) 10,000Unrealized profit in ending inventory of P Company (upstream sales) ( 5,000)
S Company’s realized net income from separate operations……… P 95,000Less: Amortization of allocated excess 2,000
P 93,000Multiplied by: Non-controlling interest %.......... 20%Non-controlling Interest in Net Income (NCINI) – partial goodwill P 18,600Less: NCI on goodwill impairment loss on full goodwill 0Non-controlling Interest in Net Income (NCINI) – full goodwill P 18,600
Note: Preferred Solution - since what is given is the RE – P, 12/31/2014 (endingbalance 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..…………. 20,000Adjusted Retained earnings – Parent, 12/31/2014 (cost)………….. P 3,480,000Retroactive Adjustments to convert Cost to “Equity” for
purposes of consolidation / Parent’s share of adjustednet increase in subsidiary’s retained earnings:
Retained earnings – Subsidiary, 1/1/2011……………………….P 150,000Less: Retained earnings – Subsidiary, 12/31/2014…………... 320,000Increase in Retained earnings since acquisition
(cumulative net income – cumulative dividends)………… P 170,000Accumulated 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)
P157,000
x: Controlling Interests………………………………………… 80% 125,600RE – 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..…………. 15,000Adjusted Retained earnings – Parent, 1/1/2014 (cost)……………… P2,786.000Retroactive Adjustments to convert Cost to “Equity” for
purposes of consolidation / Parent’s share of adjustednet increase in subsidiary’s retained earnings:
Retained earnings – Subsidiary, 1/1/2011………………………P 150,000Less: Retained earnings – Subsidiary, 1/1/2014……………… 260,000Increase in Retained earnings since acquisition
(cumulative net income – cumulative dividends)…………P110,000Accumulated 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 94,000X: 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………………………..……………………… 25,000RE – P, 12/31/2014 (equity method) = CRE, 12/31/2014…………..P3,605,600
Sales Cost of SalesP P2,500,000 P1,250,000S 1,200,000 875,000Intercompany 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)** 20,000UPEI of P (upstream sales)**** _________ 5,000Consolidated P3,090,000 P1,515,000
Working Paper Eliminating Entries:1. Intercompany Sales and Purchases:
Downstream Sales:Sales………………………………………………………………………….. 320,000
Cost of Sales (or Purchases)…………………………………….... 320,000Upstream Sales:
Sales………………………………………………………………………….. 290,000Cost of Sales (or Purchases)……………………………………… 290,000
2. 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)……………… 20,000
Inventory (Ending Inventory in Balance Sheet)……………….. 20,000Upstream 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) ..................................... 6,000Accumulated depreciation (P40,000 + P6,000) ................................................. 46,000
12/31/x6—Historical cost figuresDepreciation 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 currentyear unrealized gross profit.)
Operating Expenses = P206,000 (add the two book values and include the P10,000 excess amortizationexpenses but remove the P4,000 in excess depreciation expense [P10,000 – P6,000] created by buildingtransfer)
Investment Income = P0 (the intercompany balance is removed so that the individual revenue and expenseaccounts 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 transferafter 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 372,000
Less: Book value of stockholders’ equity of Son:Common stock (P240,000 x 80%)……………………. P 192,000Retained earnings (P120,000 x 80%)………………... 96,000 288,000
Allocated 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 4,800Increase in land (P7,200 x 80%)……………………. 5,760Increase in equipment (P96,000 x 80%) 76,800Decrease in buildings (P24,000 x 80%)………..... ( 19,200)Decrease in bonds payable (P4,800 x 80%)…… 3,840 72,000
Positive excess: Partial-goodwill (excess of cost overfair 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
ValuationInventory………………….…………….. 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 valueIncrease
(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 or depreciation and amortization adjustments is as follows:
Account Adjustments to be amortizedOver/Under Life
AnnualAmount
CurrentYear(20x4) 20x5
Inventory P 6,000 1 P 6,000 P 6,000 P -Subject to Annual Amortization
Equipment (net)......... 96,000 8 12,000 12,000 12,000Buildings (net) (24,000) 4 ( 6,000) ( 6,000) (6,000)Bonds payable… 48000 4 1,200 1,200 1,200
P 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 controllinginterest and the NCI based on the percentage of total goodwill each equity interest received. Forpurposes of allocating the goodwill impairment loss, the full-goodwill is computed as follows:
Fair value of Subsidiary (100%)Consideration transferred: Cash (80%) P 372,000Fair value of NCI (given) (20%) 93,000Fair value of Subsidiary (100%) P 465,000
Less: Book value of stockholders’ equity of Son (P360,000 x 100%) __360,000Allocated 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 interestof 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
InterestP 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 assummarized below:
Downstream Sales:
Year Sales of Parent toSubsidiary
Intercompany Merchandisein 12/31 Inventory
of S CompanyUnrealized IntercompanyProfit in Ending Inventory
20x4 P150,000 P150,000 x 60% = P90,000 P90,000 x 20% = P18,00020x5 120,000 P120,000 x 80% = P96,000 P96,000 x 25% = P40,000
Upstream Sales:
Year Sales of Subsidiaryto Parent
Intercompany Merchandisein 12/31 Inventory
of S CompanyUnrealized IntercompanyProfit in Ending Inventory
20x4 P 50,000 P100,000 x 50% = P25,000 P25,000 x 40% = P10,00020x5 62,500 P 62,500 x 40% = P25,000 P25,000 x 20% = P 5,000
20x4: First Year after AcquisitionParent Company Cost Model Entry
January 1, 20x4:(1) Investment in S Company…………………………………………… 372,000
Cash…………………………………………………………………….. 372,000Acquisition of S Company.
January 1, 20x4 – December 31, 20x4:
(2) Cash……………………… 28,800Investment 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%) 48,000Record 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 13,560Record 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 18,000To adjust investment income for downstream sales - unrealized profitin ending inventory of S.
December 31, 20x4:(6) Investment income (P12,000 x 80%) 9,600
Investment in S Company 9,600To adjust investment income for upstream sales - unrealized profit inending 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………………………………………… 240,000Retained earnings – S Co…………………………………… 120.000
Investment in S Co…………………………………………… 288,000Non-controlling interest (P360,000 x 20%)……………………….. 72,000
To eliminate investment on January 1, 20x4 and equity accounts ofsubsidiary on date of acquisition; and to establish non-controlling interest(in net assets of subsidiary) on date of acquisition.
(E2) Inventory…………………………………………………………………. 6,000Accumulated depreciation – equipment……………….. 96,000Accumulated depreciation – buildings………………….. 192,000Land………………………………………………………………………. 7,200Discount on bonds payable…………………………………………. 4,800Goodwill…………………………………………………………………. 12,000
Buildings……………………………………….. 216,000Non-controlling interest (P90,000 x 20%)……………………….. 18,000Investment in S Co………………………………………………. 84,000
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 impairment18,000 UPEI of Son (P15,000 x 100%)
9,600 UPEI of Perfect (P10,000 x80%)Balance, 12/31/x4 350,040
Investment IncomeAmortization & 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
To eliminate investment on January 1, 20x4 and allocate excess ofcost over book value of identifiable assets acquired, with remainderto goodwill; and to establish non- controlling interest (in net assets ofsubsidiary) on date of acquisition.
(E3) Cost of Goods Sold……………. 6,000Depreciation expense……………………….. 6,000Accumulated depreciation – buildings………………….. 6,000Interest expense………………………………… 1,200Goodwill impairment loss………………………………………. 3,000
Inventory………………………………………………………….. 6,000Accumulated depreciation – equipment……………….. 12,000Discount on bonds payable………………………… 1,200Goodwill…………………………………… 3,000
To provide for 20x4 impairment loss and depreciation andamortization on differences between acquisition date fair value andbook value of S’s identifiable assets and liabilities as follows:
Cost ofGoods
Sold
Depreciation/Amortization
ExpenseAmortization
-Interest TotalInventory sold P 6,000Equipment P 12,000Buildings ( 6,000)Bonds payable _______ _______ P 1,200Totals P 6,000 P 7,200 P1,200 14,400
(E4) Investment income 6,840Investment in S Company 21,960Non-controlling interest (P36,000 x 20%)……………….. 7,200
Dividends paid – S…………………… 36,000To eliminate intercompany dividends and investment income underequity method and establish share of dividends, computed asfollows:
After the
eliminating entries are posted in the investment account, it should be observed that from consolidationpoint of view the investment account is totally eliminated. Thus,
(E5) Sales………………………. 150,000Cost of Goods Sold (or Purchases) 150,000
To eliminated intercompany downstream sales.
(E6) Sales………………………. 60,000
Investment in S Investment IncomeNI of S 28,800 Dividends - S NI of S(60,000
x 80%)……. 48,000Amortization &
13,560 impairmentAmortization
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
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 impairment18,000 UPEI of Son
9,600 UPEI of PerfectBalance, 12/31/x4 350,040 288,000 (E1) Investment, 1/1/20x4(E4) Investment Income
and dividends …………… 21,96084,000 (E2) Investment, 1/1/20x4
372,000 372,000
Cost of Goods Sold (or Purchases) 60,000To eliminated intercompany upstream sales.
(E7) Cost of Goods Sold (Ending Inventory – Income Statement)… 18,000Inventory – Balance Sheet…… 18,000
To defer the downstream sales - unrealized profit in ending inventoryuntil it is sold to outsiders.
(E8) Cost of Goods Sold (Ending Inventory – Income Statement)… 12,000Inventory – Balance Sheet…… 12,000
To defer the upstream sales - unrealized profit in ending inventoryuntil it is sold to outsiders.
(E9) Non-controlling interest in Net Income of Subsidiary………… 6,960Non-controlling interest ………….. 6,960
To establish non-controlling interest in subsidiary’s adjusted netincome for 20x4 as follows:
Net income of subsidiary…………………….. P 60,000Unrealized profit in ending inventory of PCompany (upstream sales)……………………….. ( 12,000)Son Company’s realized net income from
separate operations*…….….. P 48,000Less: Amortization of allocated excess [(E3)]…. ( 13,200)
P 34,800Multiplied by: Non-controlling interest %.......... 20%Non-controlling Interest in Net Income (NCINI)
– partial goodwill P 6,960
Subsidiary accounts are adjusted to full fair value regardless on the controlling interest percentage orwhat option used to value non-controlling interest or goodwill.
Worksheet for Consolidated Financial Statements, December 31, 20x4.Equity Method (Partial-goodwill)80%-Owned SubsidiaryDecember 31, 20x4 (First Year after Acquisition)
Income Statement P Co S Co. Dr. Cr. ConsolidatedSales P480,000 P240,000 (5) 150,000
(6) 60,000P 510,000
Investment income 6,840 - (4) 6,840 _________Total Revenue P486,840 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 90,000Interest expense - - (3) 1,200 1,200Other expenses 48,000 18,000 66,000Goodwill impairment loss - - (3) 3,000 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 360,000S Company P120,000 (1) 120,000
Net income, from above 174,840 60,000 174,840Total P414,840 P180,000 P414,840
Dividends paidP Company 72,000 72,000
S Company - 36,000 (4) 36,000 _ ________Retained earnings, 12/31 to Balance
Sheet P462,840 P144,000 P 642,840
Balance SheetCash………………………. P 232,800 P 90,000 P 387,360Accounts receivable…….. 90,000 60,000 150,000Inventory…………………. 120,000 90,000 (1) 5,000 (3) 6,000
(7) 18,000(8) 12,000 180,000
Land……………………………. 210,000 48,000 (2) 7,200 265,200Equipment 220,000 180,000 380,000Buildings 720,000 540,000 (2) 216,000 1,044,000Discount on bonds payable (2) 4,800 (3) 1,200 3,600Goodwill…………………… (2) 12,000 (3) 3,000 9,000Investment in S Co……… 350,040 (4) 21,960 (2) 288,000
(2) 84,000-
Total P1,635,700 P1,006,000 P2,394,600
Accumulated depreciation- equipment P 135,000 P 96,000 (2) 96,000 (3) 12,000 P 147,000
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……… 600,000 600,000Common stock, P10 par……… 240,000 (1) 240,000Retained earnings, from above 462,840 144,000 462,840Non-controlling interest…………
_________ _________
(4) 7,200
__________
(1 ) 72,000(2) 18,000(5) 6,960 ____89,760
Total P1,962,840 P1,008,000 P 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
No goodwill impairment loss for 20x5.
20x5: Parent Company Equity Method EntryJanuary 1, 20x5 – December 31, 20x5:(2) Cash……………………… 38,400
Investment in S Company (P48,000 x 80%)……………. 38,400Record dividends from S Company.
December 31, 20x5:(3) Investment in S Company 72,000
Investment income (P90,000 x 80%) 72,000Record share in net income of subsidiary.
December 31, 20x5:(4) Investment income (P7,200 x 80%) 5,760
Investment in S Company 5,760Record amortization of allocated excess of inventory, equipment,
buildings and bonds payable
December 31, 20x5:(5) Investment income (P24,000 x 100%) 24,000
Investment in S Company 24,000To adjust investment income for downstream sales - unrealized profitin ending inventory of Son (UPEI of S).
December 31, 20x5:(6) Investment in S Company…………….. 18,000
Investment income (P18,000 x 100%)……….. 18,000To adjust investment income for downstream sales - realized profit inbeginning inventory of S (RPBI of S).
December 31, 20x5:(7) Investment income (P6,000 x 80%) 4,800
Investment in S Company 4,800To adjust investment income for upstream sales - unrealized profit inending inventory Perfect (UPEI of P).
December 31, 20x5:(8) Investment in S Company…………….. 9,600
Investment income (P12,000 x 80%)……….. 9,600To adjust investment income for upstream sales - realized profit inbeginning 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 completeguidance for the worksheet eliminating entries:
(E1) Common stock – S Co………………………………………… 240,000Retained earnings – S Co, 1/1/x5…………………………. 144.000
Investment in S Co (P384,000 x 80%) 307,200Non-controlling interest (P384,000 x 20%)……………………….. 76,800
To eliminate investment on January 1, 20x5 and equity accountsof subsidiary on date of acquisition; and to establish non-controlling interest (in net assets of subsidiary) on 1/1/20x5.
(E2) Accumulated depreciation – equipment (P96,000 – P12,000) 84,000Accumulated depreciation – buildings (P160,000 + P6,000) 198,000Land………………………………………………………………………. 7,200Discount on bonds payable (P4,800 – P1,200)…. 3,600Goodwill (P12,000 – P3,000)…………………………….. 9,000
Buildings……………………………………….. 216,000Non-controlling interest [(P90,000 – P13,200) x 20%] 15,360Investment in S Co………………………………………………. 70,440
Investment in SCost, 1/1/x5 350,040 38,400 Dividends – S (48,000x 80%)NI of Son 5,760 Amortization (7,200 x 80%)
(90,000 x 80%) 72,000 24,000 UPEI of Son (P24,000 x 100%)RPBI of S (P18,000 x 100%) 18,000 4,800 UPEI of Perfect (P6,000 x 80%)RPBI of P (P12,000 x 80%) 9,600Balance, 12/31/x5 376,680
Investment IncomeAmortization (7,200 x 805) 5,760 NI of SUPEI 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
To eliminate investment on January 1, 20x5 and allocate excess ofcost over book value of identifiable assets acquired, with remainderto the original amount of goodwill; and to establish non- controllinginterest (in net assets of subsidiary) on 1/1/20x5.
(E3) Depreciation expense……………………….. 6,000Accumulated depreciation – buildings………………….. 6,000Interest expense………………………………… 1,200
Accumulated depreciation – equipment……………….. 12,000Discount on bonds payable………………………… 1,200
To provide for 20x5 depreciation and amortization on differencesbetween acquisition date fair value and book value of Son’sidentifiable assets and liabilities as follows:
Depreciation/Amortization
ExpenseAmortization
-Interest TotalInventory soldEquipment P 12,000Buildings ( 6,000)Bonds payable _______ P 1,200Totals P 6,000 P1,200 P7,200
(E4) Investment income 65,040Non-controlling interest (P48,000 x 20%)……………….. 9,600
Dividends paid – S…………………… 48,000Investment in S Company 26,640
To eliminate intercompany dividends and investment income underequity method and establish share of dividends, computed asfollows:
(E6) Sales………………………. 120,000Cost of Goods Sold (or Purchases) 120,000
To eliminated intercompany downstream sales.
(E7) Sales………………………. 75,000Cost of Goods Sold (or Purchases) 75,000
To eliminated intercompany upstream sales.
(E8) Investment in Son Company……………………. 18,000Cost of Goods Sold (Ending Inventory – Income Statement) 18,000
To realized profit in downstream beginning inventory deferred in theprior period.
(E9) Investment in Son Company (P12,000 x 80%) 9,600Noncontrolling interest (P12,000 x 20%)…… 2,400
Cost of Goods Sold (Ending Inventory – Income Statement) 12,000To realized profit in upstream beginning inventory deferred in theprior period.
After the eliminating entries are posted in the investment account, it should be observed that fromconsolidation point of view the investment account is totally eliminated. Thus,
Investment in S Investment IncomeNI of S 38,400 Dividends – S NI of S(90,000
x 80%)……. 72,000Amortization
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 SRPBI of P 9,600 4,800 UPEI of P UPEI of P 4,800 9,600 RPBI of P
26,640 65,040
Investment in SCost, 1/1/x5 350,040 38,400 Dividends – S (40,000x 80%)NI of S Amortization
(90,000 x 80%) 72,000 5,760 (6,000 x 80%)
(E10) Cost of Goods Sold (Ending Inventory – Income Statement)… 24,000Inventory – Balance Sheet…… 24,000
To defer the downstream sales - unrealized profit in ending inventoryuntil it is sold to outsiders.
(E11) Cost of Goods Sold (Ending Inventory – Income Statement)… 6,000Inventory – Balance Sheet…… 6,000
To defer the upstream sales - unrealized profit in ending inventoryuntil it is sold to outsiders.
(E12) Non-controlling interest in Net Income of Subsidiary………… 17,760Non-controlling interest ………….. 17,760
To establish non-controlling interest in subsidiary’s adjusted netincome for 20x5 as follows:
Net income of subsidiary…………………….. P 90,000Realized profit in beginning inventory of PCompany - 20x5 (upstream sales) 12,000Unrealized profit in ending inventory of PCompany - 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 transactionswith third persons.
Worksheet for Consolidated Financial Statements, December 31, 20x5.Equity Method (Partial-goodwill)80%-Owned SubsidiaryDecember 31, 20x5 (Second Year after Acquisition)
Income Statement P Co S Co. Dr. Cr. ConsolidatedSales P540,000 P360,000 (6) 120,000
(7) 75,000P 705,000
Investment income 65,040 - (4) 65,040 ___________Total Revenue P605,040 P360,000 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
P 213,000
Depreciation expense 60,000 24,000 (3) 6,000 90,000Interest expense - - (3) 1,200 1,200Other expenses 72,000 54,000 126,000Goodwill impairment loss - - -
Total Cost and Expenses P348,000 P270,000 P 430,200Net Income P257,040 P 90,000 P 274,800NCI in Net Income - Subsidiary - - (5) 17,760 ( 17,760)Net Income to Retained Earnings P257,040 P 90,000 P 257,040
Statement of Retained EarningsRetained earnings, 1/1
P Company P462,840 P 462,840
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 dividends336,900 404,280
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 72,000S Company - 48,000 (4) 48,000 _ ________
Retained earnings, 12/31 to BalanceSheet P777,456 P223,200 P 777,456
Balance SheetCash………………………. P 265,200 P 102,000 P 367,200Accounts receivable…….. 180,000 96,000 276,000Inventory…………………. 216,000 108,000 (10) 24,000
(11) 6,000 294,000Land……………………………. 210,000 48,000 (2) 7,200 265,200Equipment 240,000 180,000 420,000Buildings 720,000 540,000 (3) 216,000 1,044,000Discount on bonds payable (2) 3,600 (3) 1,200 2,400Goodwill…………………… (2) 9,000 9,000Investment in S Co……… 376,680 (8) 18,000
(9) 9,600(1) 307,200(2) 70,440(4) 26,640 -
Total P2,207,880 P1,074,000 P2,677,800
Accumulated depreciation- equipment P 150,000 P 102,000
(2) 84,000(3) 12,000 P180,000
Accumulated depreciation- buildings
450,000 306,000 (2) 198,000(3) 6,000 552,000
Accounts payable…………… 120,000 120,000 240,000Bonds payable………………… 240,000 120,000 360,000Common stock, P10 par……… 600,000 600,000Common stock, P10 par……… 240,000 (1) 240,000Retained 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 retainedearnings, non-controlling interests, consolidated equity on December 31, 20x4 and 20x5 areexactly the same (refer to Problem IX solution).
Problem XVIIRequirements 1 to 4:Schedule of Determination and Allocation of ExcessDate of Acquisition – January 1, 20x4
Fair value of Subsidiary (80%)Consideration transferred (80%)…………….. P 372,000Fair value of NCI (given) (20%)……………….. 93,000Fair value of Subsidiary (100%)………. P 465,000
Less: Book value of stockholders’ equity of Son:Common stock (P240,000 x 100%)………………. P 240,000Retained earnings (P120,000 x 100%)………... 120,000 360,000
Allocated 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 6,000Increase in land (P7,200 x 100%)……………………. 7,200Increase in equipment (P96,000 x 100%) 96,000Decrease 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 amortizedOver/under Life
AnnualAmount
CurrentYear(20x4) 20x5
Inventory P 6,000 1 P 6,000 P 6,000 P -Subject to Annual Amortization
Equipment (net)......... 96,000 8 12,000 12,000 12,000Buildings (net) (24,000) 4 ( 6,000) ( 6,000) (6,000)Bonds payable… 4,800 4 1,200 1,200 1,200
P 13,200 P 13,200 P 7,200
20x4: First Year after AcquisitionParent Company Equity Method Entry
January 1, 20x4:(1) Investment in S Company…………………………………………… 372,000
Cash…………………………………………………………………….. 372,000Acquisition of S Company.
January 1, 20x4 – December 31, 20x4:(2) Cash……………………… 28,800
Investment in S Company (P36,000 x 80%)……………. 28,800Record dividends from S Company.
December 31, 20x4:(3) Investment in S Company 48,000
Investment income (P60,000 x 80%) 48,000Record share in net income of subsidiary.
December 31, 20x4:(4) Investment income [(P13,200 x 80%) + (P3,750 – P750)*,
goodwill impairment loss)]13,560
Investment in S Company 13,560Record amortization of allocated excess of inventory, equipment,buildings and bonds payable and goodwill impairment loss.
*this procedure would be more appropriate, instead of multiplying the full-goodwill impairment loss of P3,125 by 80%. There mightbe situations where the controlling interests on goodwill impairment loss would not be proportionate to NCI acquired (refer toIllustration 15-6).
December 31, 20x4:(5) Investment income (P18,000 x 100%) 18,000
Investment in S Company 18,000To adjust investment income for downstream sales - unrealized profitin ending inventory of S.
December 31, 20x4:(6) Investment income (P12,000 x 80%) 9,600
Investment in S Company 9,600To adjust investment income for upstream sales - unrealized profit inending inventory P .
Thus, the investment balance and investment income in the books of P Company is as follows
Investment in SCost, 1/1/x4 372,000 28,800 Dividends – S (36,000x 80%)NI of S Amortization &
(60,000 x 80%) 48,000 13,560 impairment18,000 UPEI of S (P18,000 x 100%)
Consolidation Workpaper – First Year after Acquisition(E1) Common stock – S Co………………………………………… 240,000
Retained earnings – S Co…………………………………… 120.000Investment in S Co…………………………………………… 288,000Non-controlling interest (P360,000 x 20%)……………………….. 72,000
To eliminate investment on January 1, 20x4 and equity accountsof subsidiary on date of acquisition; and to establish non-controlling interest (in net assets of subsidiary) on date ofacquisition.
(E2) Inventory…………………………………………………………………. 6,000Accumulated depreciation – equipment……………….. 96,000Accumulated depreciation – buildings………………….. 192,000Land………………………………………………………………………. 7,200Discount on bonds payable…………………………………………. 4,800Goodwill…………………………………………………………………. 15,000
Buildings……………………………………….. 216,000Non-controlling interest (P90,000 x 20%) + [(P15,000, full –
P12,000, partial goodwill)]………… 21,000Investment in Son Co………………………………………………. 84,000
To eliminate investment on January 1, 20x4 and allocate excess ofcost over book value of identifiable assets acquired, with remainderto goodwill; and to establish non- controlling interest (in net assets ofsubsidiary) on date of acquisition.
(E3) Cost of Goods Sold……………. 6,000Depreciation expense……………………….. 6,000Accumulated depreciation – buildings………………….. 6,000Interest expense………………………………… 1,200Goodwill impairment loss………………………………………. 3,750
Inventory………………………………………………………….. 6,000Accumulated depreciation – equipment……………….. 12,000Discount on bonds payable………………………… 1,200Goodwill…………………………………… 3,750
To provide for 20x4 impairment loss and depreciation andamortization on differences between acquisition date fair value andbook value of S’s identifiable assets and liabilities as follows:
Cost ofGoods
Sold
Depreciation/Amortization
ExpenseAmortization
-Interest TotalInventory sold P 6,000Equipment P 12,000Buildings ( 6,000)Bonds payable _______ _______ P 1,200Totals P 6,000 P 7,200 P1,200 14,400
9,600 UPEI of P (P12,000 x80%)Balance, 12/31/x4 324,000
Investment IncomeAmortization & 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
(E4) Investment income 6,840Investment in S Company 21,960Non-controlling interest (P36,000 x 20%)……………….. 7,200
Dividends paid – S…………………… 36,000To eliminate intercompany dividends and investment income underequity method and establish share of dividends, computed asfollows:
After the
eliminating entries are posted in the investment account, it should be observed that from consolidationpoint of view the investment account is totally eliminated. Thus,
(E5) Sales………………………. 150,000Cost of Goods Sold (or Purchases) 150,000
To eliminated intercompany downstream sales.
(E6) Sales………………………. 60,000Cost of Goods Sold (or Purchases) 60,000
To eliminated intercompany upstream sales.
(E7) Cost of Goods Sold (Ending Inventory – Income Statement)… 18,000Inventory – Balance Sheet…… 18,000
To defer the downstream sales - unrealized profit in ending inventoryuntil it is sold to outsiders.
(E8) Cost of Goods Sold (Ending Inventory – Income Statement)… 12,000Inventory – Balance Sheet…… 12,000
To defer the upstream sales - unrealized profit in ending inventoryuntil it is sold to outsiders.
(E9) Non-controlling interest in Net Income of Subsidiary………… 6,210Non-controlling interest ………….. 6,210
To establish non-controlling interest in subsidiary’s adjusted netincome for 20x4 as follows:
Net income of subsidiary…………………….. P 60,000Unrealized profit in ending inventory of PCompany (upstream sales)……………………….. ( 12,000)S Company’s realized net income from
separate operations*…….….. P 48,000Less: Amortization of allocated excess [(E3)]…. ( 13,200)
P 34,800Multiplied by: Non-controlling interest %.......... 20%Non-controlling Interest in Net Income (NCINI) P 6,960
Investment in SInvestment Income
NI of S 28,800 Dividends - S NI of S(60,000
x 80%)……. 48,000Amortization &
13,560 impairmentAmortization
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
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 impairment18,000 UPEI of S
9,600 UPEI of PBalance, 12/31/x4 350,040 288,000 (E1) Investment, 1/1/20x4(E4) Investment Income
and dividends …………… 21,96084,000 (E2) Investment, 1/1/20x4
372,000 372,000
– partial goodwillLess: Non-controlling interest on impairment
loss on full-goodwill (P3,750 x 20%) or(P3,750 impairment on full-goodwill lessP3,000, impairment on partial-goodwill)* 750
Non-controlling Interest in Net Income (NCINI)– full goodwill 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 theNCI 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 SubsidiaryDecember 31, 20x4 (First Year after Acquisition)
Income Statement P Co S Co. Dr. Cr. ConsolidatedSales P480,000 P240,000 (5) 150,000
(6) 60,000P 510,000
Investment income 6,840 - (4) 6,840 _________Total Revenue P486,840 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 90,000Interest expense - - (3) 1,200 1,200Other expenses 48,000 18,000 66,000Goodwill impairment loss - - (3) 3,750 3,750
Total Cost and Expenses P312,000 P150,000 P274,125Net Income P174,840 P 50,000 P150,875NCI in Net Income - Subsidiary - - (9) 5,175 ( 5,175)Net Income to Retained Earnings P174,840 P 50,000 P145,700
Statement of Retained EarningsRetained earnings, 1/1
P Company P360,000 P 360,000S Company P120,000 (1) 120,000
Net income, from above 174,840 60,000 174,840Total P414,840 P180,000 P 414,840
Dividends paidP Company 72,000 72,000S Company - 36,000 (4) 36,000 _ ________
Retained earnings, 12/31 to BalanceSheet P462,840 P144,000 P 462,840
Balance SheetCash………………………. P 232,800 P 90,000 P 322,800Accounts receivable…….. 90,000 60,000 150,000Inventory…………………. 120,000 90,000 (2) 6,000 (3) 6,000
(7) 18,000(8) 12,000 180,000
Land……………………………. 210,000 48,000 (2) 7,200 265,200Equipment 240,000 180,000 420,000Buildings 720,000 540,000 (2) 216,000 1,044,000Discount on bonds payable (2) 4,800 (3) 1,200 3,600Goodwill…………………… (2) 15,000 (3) 3,750 11,250Investment in S Co……… 350,040 (4) 21,960 (2) 288,000
(2) 84,000-
Total P1,635,700 P1,008,000 P2,396,850
Accumulated depreciation- equipment P 135,000 P 96,000 (2) 96,000 (3) 12,000 P 147,000
Accumulated depreciation- 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……… 600,000 600,000Common stock, P10 par……… 240,000 (1) 240,000Retained earnings, from above 462,840 144,000 462,840Non-controlling interest…………
_________ _________
(4) 7,200
__________
(1 ) 72,000(2) 21,000(9) 6,210 ____92,010
Total P1,962,840 P1,008,000 P 986,160 P 986,160 P2,396,850
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
No goodwill impairment loss for 20x5.
Parent Company Equity Method EntryJanuary 1, 20x5 – December 31, 20x5:(2) Cash……………………… 38,400
Investment in S Company (P48,000 x 80%)……………. 38,400Record dividends from S Company.
December 31, 20x5:(3) Investment in S Company 72,000
Investment income (P90,000 x 80%) 72,000Record share in net income of subsidiary.
December 31, 20x5:(4) Investment income (P7,200 x 80%) 5,760
Investment in S Company 5,760Record amortization of allocated excess of inventory, equipment,buildings and bonds payable
December 31, 20x5:(5) Investment income (P24,000 x 100%) 24,000
Investment in S Company 24,000To adjust investment income for downstream sales - unrealized profitin ending inventory of S (UPEI of S).
December 31, 20x5:(6) Investment in S Company…………….. 18,000
Investment income (P18,000 x 100%)……….. 18,000To adjust investment income for downstream sales - realized profit inbeginning inventory of S (RPBI of S).
December 31, 20x5:(7) Investment income (P6,000 x 80%) 4,800
Investment in S Company 4,800To adjust investment income for upstream sales - unrealized profit inending inventory P (UPEI of P).
December 31, 20x5:
(8) Investment in S Company…………….. 9,600Investment income (P12,000 x 80%)……….. 9,600
To adjust investment income for upstream sales - realized profit inbeginning inventory of P (RPBI of P)
Thus, the investment balance and investment income in the books of Perfect Company is as follows:
Consolidation Workpaper – Second Year after AcquisitionThe schedule of determination and allocation of excess presented above provides completeguidance for the worksheet eliminating entries.
(E1) Common stock – S Co………………………………………… 240,000Retained earnings – S Co, 1/1/x5…………………………. 144.000
Investment in S Co (P384,000 x 80%) 307,200Non-controlling interest (P384,000 x 20%)……………………….. 76,800
To eliminate investment on January 1, 20x5 and equity accountsof subsidiary on date of acquisition; and to establish non-controlling interest (in net assets of subsidiary) on 1/1/20x5.
(E2) Accumulated depreciation – equipment (P96,000 – P12,000) 84,000Accumulated depreciation – buildings (P192,000 + P6,000) 198,000Land………………………………………………………………………. 7,200Discount on bonds payable (P4,800 – P1,200)…. 3,600Goodwill (P15,000 – P3,750)…………………………….. 11,250
Buildings……………………………………….. 216,000Non-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………………………………………………. 70,440To eliminate investment on January 1, 20x5 and allocate excess ofcost over book value of identifiable assets acquired, with remainderto the original amount of goodwill; and to establish non- controllinginterest (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 mightbe situations where the NCI on goodwill impairment loss would not be proportionate to NCI acquired (refer to Illustration 15-6).
(E3) Depreciation expense……………………….. 6,000Accumulated depreciation – buildings………………….. 6,000Interest expense………………………………… 1,200
Accumulated depreciation – equipment……………….. 12,000Discount on bonds payable………………………… 1,200
To provide for 20x5 depreciation and amortization on differencesbetween acquisition date fair value and book value of Son’sidentifiable assets and liabilities as follows:
Depreciation/Amortization Amortization
Investment in SCost, 1/1/x5 350,040 38,400 Dividends – S (48,000x 80%)NI of Son 5,760 Amortization (7,200 x 80%)
(90,000 x 80%) 72,000 24,000 UPEI of 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 IncomeAmortization (7,200 x 805) 5,760 NI of SUPEI 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
Expense -Interest TotalInventory soldEquipment P 12,000Buildings ( 6,000)Bonds payable _______ P 1,200Totals P 6,000 P1,200 P7,200
(E4) Investment income 65,040Non-controlling interest (P48,000 x 20%)……………….. 9,600
Dividends paid – S…………………… 48,000Investment in S Company 26,640
To eliminate intercompany dividends and investment income underequity method and establish share of dividends, computed asfollows:
(E6) Sales………………………. 120,000Cost of Goods Sold (or Purchases) 120,000
To eliminated intercompany downstream sales.
(E7) Sales………………………. 75,000Cost of Goods Sold (or Purchases) 75,000
To eliminated intercompany upstream sales.
(E8) Investment in Son Company……………………. 18,000Cost of Goods Sold (Ending Inventory – Income Statement) 18,000
To realized profit in downstream beginning inventory deferred in theprior period.
(E9) Investment in Son Company (P12,000 x 80%) 9,600Noncontrolling interest (P12,000 x 20%)…… 2,400
Cost of Goods Sold (Ending Inventory – Income Statement) 12,000To realized profit in upstream beginning inventory deferred in theprior period.
After the eliminating entries are posted in the investment account, it should be observed that fromconsolidation point of view the investment account is totally eliminated. Thus,
(E10) Cost of Goods Sold (Ending Inventory – Income Statement)… 24,000Inventory – Balance Sheet…… 24,000
To defer the downstream sales - unrealized profit in ending inventory
Investment in S Investment IncomeNI of Son 38,400 Dividends – S NI of S(90,000
x 80%)……. 72,000Amortization
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 SRPBI of P 9,600 4,800 UPEI of P UPEI of P 4,800 9,600 RPBI of P
26,640 65,040
Investment in SCost, 1/1/x5 350,040 38,400 Dividends – S (48,000x 80%)NI of Son Amortization
(90,000 x 80%) 72,000 5,600 (7,000 x 80%)RPBI of S (P18,000 x 100%) 18,000 24,000 UPEI of S (P24,000 x 100%)RPBI of P (P18,000 x 80%) 9,600 4,800 UPEI of P (P6,000 x 80%)Balance, 12/31/x5 376,680 307,200 (E1) Investment, 1/1/20x5(E8) RPBI of S 18,000 70,440 (E2) Investment, 1/1/20x5(E9) RPBI of P 9,600 26,640 (E4) Investment Income
and dividends404,280 404,280
until it is sold to outsiders.
(E11) Cost of Goods Sold (Ending Inventory – Income Statement)… 6,000Inventory – Balance Sheet…… 6,000
To defer the upstream sales - unrealized profit in ending inventoryuntil it is sold to outsiders.
(E12) Non-controlling interest in Net Income of Subsidiary………… 17,760Non-controlling interest ………….. 17,760
To establish non-controlling interest in subsidiary’s adjusted netincome for 20x5 as follows:
Net income of subsidiary…………………….. P 90,000Realized profit in beginning inventory of PCompany - 20x5 (upstream sales) 12,000Unrealized profit in ending inventory of PCompany - 20x5 (upstream sales) ( 6,000)Son Company’s Realized net income* P 96,000Less: Amortization of allocated excess ( 7,200)
P 88,000Multiplied by: Non-controlling interest %.......... 20%Non-controlling Interest in Net Income (NCINI)
– partial goodwillP 17,760
Less: NCI on goodwill impairment loss on full-Goodwill 0
Non-controlling Interest in Net Income (NCINI)– full goodwill P 17,760
*from separate transactions that has been realized in transactionswith third persons.
Worksheet for Consolidated Financial Statements, December 31, 20x5.Equity Method (Full-goodwill)80%-Owned SubsidiaryDecember 31, 20x5 (Second Year after Acquisition)
Income Statement P Co S Co. Dr. Cr. ConsolidatedSales P540,000 P360,000 (6) 120,000
(7) 75,000P 705,000
Investment income 65,040 - (4) 65,040 ___________Total Revenue P605,040 P360,000 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
P 213,000
Depreciation expense 60,000 24,000 (3) 6,000 90,000Interest expense - - (3) 1,200 1,200Other expenses 72,000 54,000 126,000Goodwill impairment loss - - -
Total Cost and Expenses P348,000 P270,000 P 430,200Net Income P257,040 P 90,000 P 274,800NCI in Net Income - Subsidiary - - (5) 17,760 ( 17,760)Net Income to Retained Earnings P257,040 P 90,000 P 308,448
Statement of Retained EarningsRetained earnings, 1/1
P Company P462,840 P 462,840S Company P144,000 (1) 144,000
Net income, from above 257,040 90,000 257,040Total P719,880 P234,000 P 719,880
Dividends paidP Company 72,000 72,000S Company - 48,000 (4) 48,000 _ ________
Retained earnings, 12/31 to BalanceSheet P647,880 P186,000 P 647,880
Balance SheetCash………………………. P 265,200 P 114,000 P 367,200Accounts receivable…….. 180,000 96,000 276,000Inventory…………………. 216,000 108,000 (10) 24,000
(11) 6,000 294,000Land……………………………. 210,000 48,000 (2) 7,200 265,200Equipment 240,000 180,000 420,000Buildings 720,000 540,000 (3) 216,000 1,044,000Discount on bonds payable (2) 3,600 (3) 1,200 2,400Goodwill…………………… (2) 11,250 11,250Investment in S Co……… 376,680 (8) 18,000
(9) 9,600(1) 307,200(3) 70,440(4) 26,640 -
Total P2,207,880 P1,074,000 P2,680,050
Accumulated depreciation- equipment P 150,000 P 102,000
(2) 84,000(3) 12,000 P180,000
Accumulated depreciation- buildings
450,000 306,000 (2) 198,000(3) 6,000 552,000
Accounts payable…………… 120,000 120,000 240,000Bonds payable………………… 240,000 120,000 360,000Common stock, P10 par……… 600,000 600,000Common stock, P10 par……… 240,000 (1) 240,000Retained 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 retainedearnings, non-controlling interests, consolidated equity on December 31, 20x4 and 20x5 areexactly the same (refer to Problem X solution).
Multiple Choice Problems1. b2. a3. c – P400,000 x 1/4 = P100,000 x 30% = P30,0004. c
Ending inventory at selling price: P300,000 x 1/3 = P100,000 x (300,000 – 240,000)/300,000 P20,000Less: Inventory write-down (P100,000 – P92,000) __8,000Intercompany profit to be eliminated P12,000
5. b – [P300,000 x 1/2 = P150,000 x 40% = P60,000]6. c – P100,00 sales to unrelated/unaffiliated company.7. c
Cost of SalesP 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
8. 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) 0Unrealized profit in ending inventory of S Company (downstream sales)… (_ 0)
P Company’s realized net income from separate operations*…….….. P 37,000S Company’s net income from own operations (P90,000 – P67,000) P23,000Realized profit in beginning inventory of P Company (upstream sales) 0Unrealized 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 53,100Less: Amortization of allocated excess…………………… 0Consolidated Net Income for 20x4 P 53,100Less: Non-controlling Interest in Net Income* * 1,610Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent – 20x4………….. P 51,490*that has been realized in transactions with third parties.
Or, alternativelyConsolidated 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) 0Unrealized profit in ending inventory of S Company (downstream sales)… (_ 0)
P Company’s realized net income from separate operations*…….….. P 37,000S Company’s net income from own operations (P90,000 – P67,000) P23,000Realized profit in beginning inventory of P Company (upstream sales) 0Unrealized 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 53,100Less: Non-controlling Interest in Net Income* * P 1,610
Amortization of allocated excess…………………… 0 1,610Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent………….. P 51,490Add: Non-controlling Interest in Net Income (NCINI) _ 1,610Consolidated Net Income for 20x4 P 53,100
*that has been realized in transactions with third parties.
**Non-controlling Interest in Net Income (NCINI) for 20x4S Company’s net income of Subsidiary Company from its own operations
(Reported net income of S Company) P 23,000Realized profit in beginning inventory of P Company (upstream sales) 0Unrealized profit in ending inventory of P Company (upstream sales) ( 6,900)
S Company’s realized net income from separate operations……… P 16,100Less: Amortization of allocated excess 0
P 16,100Multiplied by: Non-controlling interest %.......... 10%Non-controlling Interest in Net Income (NCINI) – partial goodwill P 1,610Less: NCI on goodwill impairment loss on full goodwill 0Non-controlling Interest in Net Income (NCINI) – full goodwill P 1,610
9. d – P27,000 x 67/90 = P20,100
10. b – P120,000, the amount of sales to outsiders is the amount of sales presented in the consolidatedincome statement.
11. a – the cost of inventory produced by the parent (downstream sales)
12. cConsolidated Net Income for 20x4
P Company’s net income from own/separate operations (P90,000 – P62,000) P 28,000Realized profit in beginning inventory of S Company (downstream sales) 0Unrealized profit in ending inventory of S Company (downstream sales)… (_ 0)
P Company’s realized net income from separate operations*…….….. P 28,000S Company’s net income from own operations (P120,000 – P90,000) P3 0,000Realized profit in beginning inventory of P Company (upstream sales) 0Unrealized profit in ending inventory of P Company (upstream sales) ( )
S Company’s realized net income from separate operations*…….….. P30,000 30,000Total P 58,000Less: Amortization of allocated excess…………………… 0Consolidated Net Income for 20x4 P 58,000Less: Non-controlling Interest in Net Income* * 3,000Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent – 20x4………….. P 55,000*that has been realized in transactions with third parties.
Or, alternativelyConsolidated Net Income for 20x4
P Company’s net income from own/separate operations (P90,000 – P62,000) P 28,000Realized profit in beginning inventory of S Company (downstream sales) 0Unrealized profit in ending inventory of S Company (downstream sales)… (_ 0)
P Company’s realized net income from separate operations*…….….. P 28,000S Company’s net income from own operations (P120,000 – P90,000) P3 0,000Realized profit in beginning inventory of P Company (upstream sales) 0Unrealized profit in ending inventory of P Company (upstream sales ( )
S Company’s realized net income from separate operations*…….….. P30,000 30,000Total P 58,000Less: Non-controlling Interest in Net Income* * P 3,000
Amortization of allocated excess…………………… 0 3,000Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent………….. P 55,000Add: Non-controlling Interest in Net Income (NCINI) _ 3,000Consolidated Net Income for 20x4 P 58,000
*that has been realized in transactions with third parties.
**Non-controlling Interest in Net Income (NCINI) for 20x4S 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) 0Unrealized profit in ending inventory of P Company (upstream sales) ( 0)
S Company’s realized net income from separate operations……… P 30,000Less: Amortization of allocated excess 0
P 30,000Multiplied by: Non-controlling interest %.......... 10%Non-controlling Interest in Net Income (NCINI) – partial goodwill P 3,000Less: NCI on goodwill impairment loss on full goodwill 0Non-controlling Interest in Net Income (NCINI) – full goodwill P 3,000
13. cSales Cost of Sales
P Company 10,000,000 7,520,000S Company __200,000 _160,000Total 10,200,000 7,680,000Less: 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 10,140,000 7,604,500
14. No requirement15. d – refer to No. 13 for computation16. 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
17. a – (P40,000 x 140% = P56,000)18. a – (P56,000 – P40,000 = P16,000)19. a
20x5 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] 24,000
Add: Unrealized profit in EI of S Co.[P375,000 x 40% = P150,000 x (375-300)/375] ________ __30,000
Consolidated 2.325,000 1,821,000
20. c - refer to No. 19 for computations21. b
Consolidated Net Income for 20x4P Company’s net income from own/separate operations P 225,000Realized profit in beginning inventory of S Company (downstream sales) 0Unrealized profit in ending inventory of S Company (downstream sales)… (_ 0)
P Company’s realized net income from separate operations*…….….. P225,000S Company’s net income from own operations P 90,000Realized 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 300,000Less: Amortization of allocated excess…………………… _ 0Consolidated Net Income for 20x4 P 300,000Less: Non-controlling Interest in Net Income* * 15,000Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent – 20x4………….. P 285,000*that has been realized in transactions with third parties.
**Non-controlling Interest in Net Income (NCINI) for 20x4S Company’s net income of Subsidiary Company from its own operations
(Reported net income of S Company) P 90,000Realized profit in beginning inventory of P Company (upstream sales) 0Unrealized profit in ending inventory of P Company (upstream sales) ( 15,000)
S Company’s realized net income from separate operations……… P 75,000Less: Amortization of allocated excess 0
P 75,000Multiplied by: Non-controlling interest %.......... 20%Non-controlling Interest in Net Income (NCINI) – partial goodwill P 15,000Less: NCI on goodwill impairment loss on full goodwill 0Non-controlling Interest in Net Income (NCINI) – full goodwill P 15,000
22. c – refer to No. 21 for computations23. c24 a Amount paid by Lorn Corporation P120,000
Unrealized profit (45,000)Actual cost P 75,000Portion sold x .80Cost of goods sold P 60,000
25. e Consolidated sales P140,000Cost of goods sold (60,000)Consolidated net income P 80,000Income to Dresser’s noncontrolling
interest:Sales P120,000Reported cost of sales (75,000)Report income P 45,000Portion realized x .80Realized net income P 36,000Portion to Noncontrolling
Interest x .30Income to noncontrolling
Interest (10,800)Income to controlling interest P 69,200
26. A Inventory reported by Lorn P 24,000Unrealized profit (P45,000 x .20) (9,000)Ending inventory reported P 15,000
27. cSales
P Company 500,000S Company _350,000Total 850,000Less: Intercompany sales to Dundee 100,000
Intercompany sales to Perth 150,000Consolidated 600,000
28. aEnding inventory of Perth from Dundee (P36,000 / 110%) 32,727Ending inventory of Dundee from Perth (P31,000 / 130%) _23,846Total 56,573
29. a Selling price P 50,000Less: Cost of sales _40,000Original unrealized profit 10,000Unsold percentage __30%Unrealized profit P _3,000
30. aConsolidated Net Income for 20x4
P Company’s net income from own/separate operations P180,000Unrealized profit in ending inventory of S Company (downstream sales)… ( 3,000)
P Company’s realized net income from separate operations*…….….. P 177,000S Company’s net income from own operations…………………………………. 76,000Total P253,000
Less: Amortization of allocated excess…………………… 0Consolidated Net Income for 20x5 P253,000
31. aCombined 20x5 sales (P580,000 + P445,000) P 1,025,000Less: 20x5 intercompany sales 0Consolidated sales P 1,025,000
32. dCombined cost of sales P 480,000Less: 20x5 intercompany sales 0Less: Unrealized profit in the 20x5 beginning inventory
from 20x4 ( 3,000)Add: Unrealized profit in 20x5 ending inventory ________0Consolidated cost of sales P 477,000
33. dCost of Sales
P 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] 24,000
Add: Unrealized profit in EI of S Co.[P1,000,000 x 10% = P100,000 x (1,000 - 800)/1,000] __20,000
Consolidated 5,596,000
34. bCost of Sales
Bates Company 690,000Sam Company 195,000Total 885,000Less: Intercompany sales 200,000
Realized profit in BI of Bates Co.[P40,000 x 20%] 8,000
Add: Unrealized profit in EI of Bates Co.[P15,000 x 20%] __3,000
Consolidated 680,000
35. bParent Subsidiary
Net Income from own operations:X-Beams (parent) Kent (subsidiary), 70%:30% 210,000 90,000
Unrealized Profit in EI of Parent (X-Beams):P180,000x 20% = P36,000 x (180-100/180) = P16,000,
70%:30% ( 11,200) ( 4,800)Non-controlling Interest in Kent’s Net Income 85,200
36. dNon-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) 20,000Unrealized 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 0P380,000 P500,000
Multiplied by: Non-controlling interest %.......... 20% 20%Non-controlling Interest in Net Income (NCINI) – partial goodwill P 76,000 P100,000Less: NCI on goodwill impairment loss on full goodwill 0 0Non-controlling Interest in Net Income (NCINI) – full goodwill P 76,000 P100,000
37. a**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) 0Unrealized 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 0P( 3,000)
Multiplied by: Non-controlling interest %.......... 10%Non-controlling Interest in GP P( 300)Less: NCI on goodwill impairment loss on full goodwill 0Non-controlling Interest in GP P( 300)
38. a39. a Selling price P 60,000
Less: Cost of sales ( 48,000 )Unrealized profit 12,000Unsold fraction 1/3Credit to Inventory P 4,000
40. a – the cost from parent of P48,000 x 45/60 = P36,000Parent 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) ______ ______ 45,000Gross profit 12,000 0 22,000Ending inventory (60,000 x 15/60) 15,000
41. b – the cost from parent of P48,000 x 15/60 = P12,00042. a
Sales Cost of SalesIntercompany
Parent 60,000 60,000Subsidiary 1 60,000 45,000
Add: Cost of EI in S2 Co.[P15,000 x (48/60] ________ __12,000
Amount to be eliminated 120,000 *117,000*or, P60,000 + P60,000 – [P15,000 x (60-48/60]
43. b – refer to No. 42 for computation44. d – P15,000 x [(60-48)/60] = P3,00045. a
Consolidated Net Income for 20x3P Company’s net income from own/separate operations P 225,000Realized profit in beginning inventory of S Company (downstream sales) 0Unrealized profit in ending inventory of S Company (downstream sales)… (_ 0)
P Company’s realized net income from separate operations*…….….. P225,000S Company’s net income from own operations P150,000
Realized profit in beginning inventory of P Company (upstream sales) 0Unrealized 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 357,500Less: Amortization of allocated excess…………………… _ 0Consolidated Net Income for 20x3 P357,500
46. cConsolidated Net Income for 20x4
P Company’s net income from own/separate operations P360,000Realized profit in beginning inventory of S Company (downstream sales) 0Unrealized profit in ending inventory of S Company (downstream sales)… (_ 0)
P Company’s realized net income from separate operations*…….….. P360,000S Company’s net income from own operations P135,000Realized profit in beginning inventory of P Company (upstream sales)
[P105,000 x 20/120) 17,500Unrealized 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 486,250Less: Amortization of allocated excess…………………… _ 0Consolidated Net Income for 20x4 P486,250Less: Non-controlling Interest in Net Income* * 1,610Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent – 20x4………….. P 51,490*that has been realized in transactions with third parties.
Or, alternativelyConsolidated Net Income for 20x4
P Company’s net income from own/separate operations P360,000Realized profit in beginning inventory of S Company (downstream sales) 0Unrealized profit in ending inventory of S Company (downstream sales)… (_ 0)
P Company’s realized net income from separate operations*…….….. P360,000S Company’s net income from own operations ( P135,000Realized profit in beginning inventory of P Company (upstream sales)
[P105,000 x 20/120) 17,500Unrealized 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 486,250Less: Non-controlling Interest in Net Income* * P 37,875
Amortization of allocated excess…………………… 0 37,875Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent………….. P 448,375Add: Non-controlling Interest in Net Income (NCINI) _37,875Consolidated Net Income for 20x4 P 486,250
*that has been realized in transactions with third parties.
**Non-controlling Interest in Net Income (NCINI) for 20x4S Company’s net income of Subsidiary Company from its own operations
(Reported net income of S Company) P 135,000Realized profit in beginning inventory of P Company (upstream sales) 17,500Unrealized profit in ending inventory of P Company (upstream sales) ( 26,250)
S Company’s realized net income from separate operations……… P 126,250Less: Amortization of allocated excess 0
P126,250Multiplied by: Non-controlling interest %.......... 30%Non-controlling Interest in Net Income (NCINI) – partial goodwill P 37,875Less: NCI on goodwill impairment loss on full goodwill 0Non-controlling Interest in Net Income (NCINI) – full goodwill P 37,875
47. a – refer to No. 46 for computation.48. d
Consolidated Net Income for 20x5P Company’s net income from own/separate operations P 450,000
Realized profit in beginning inventory of S Company (downstream sales) 0Unrealized profit in ending inventory of S Company (downstream sales)… (_ 0)
P Company’s realized net income from separate operations*…….….. P450,000S Company’s net income from own operations P240,000Realized profit in beginning inventory of P Company (upstream sales)
[P157,500 x 20/120) 26,250Unrealized 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 686,250Less: Amortization of allocated excess…………………… _ 0Consolidated Net Income for 20x4 P686,750Less: Non-controlling Interest in Net Income* * 70,875Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent – 20x5………….. P 615,375*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 450,000Realized profit in beginning inventory of S Company (downstream sales) 0Unrealized profit in ending inventory of S Company (downstream sales)… (_ 0)
P Company’s realized net income from separate operations*…….….. P450,000S Company’s net income from own operations P240,000Realized profit in beginning inventory of P Company (upstream sales)
[P157,500 x 20/120) 26,250Unrealized 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 686,250Less: Non-controlling Interest in Net Income* * P 70,875
Amortization of allocated excess…………………… 0 70,875Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent………….. P 615,375Add: Non-controlling Interest in Net Income (NCINI) __70,875Consolidated Net Income for 20x5 P 686,250
*that has been realized in transactions with third parties.
**Non-controlling Interest in Net Income (NCINI) for 20x4S Company’s net income of Subsidiary Company from its own operations
(Reported net income of S Company) P 240,000Realized profit in beginning inventory of P Company (upstream sales) 26,250Unrealized profit in ending inventory of P Company (upstream sales) ( 30,000)
S Company’s realized net income from separate operations……… P 236,250Less: Amortization of allocated excess 0
P 236,250Multiplied by: Non-controlling interest %.......... 30%Non-controlling Interest in Net Income (NCINI) – partial goodwill P 70.875Less: NCI on goodwill impairment loss on full goodwill 0Non-controlling Interest in Net Income (NCINI) – full goodwill P 70,875
49. a – refer to No. 48 for computation.50. d
SalesP Company 420,000S Company 280,000Total 700,000Less: Intercompany sales 140,000Consolidated 560,000
51. bOperatingExpenses
P Company 28,000S Company 14,000Total 42,000Add: Undervalued equipment (P35,000/7 years) _5,000Consolidated 49,000
52. 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
53. aNon-controlling interest (partial-goodwill), December 31, 20x4
Common stock – S Company, December 31, 20x4…… P 140,000Retained earnings – S Company, December 31, 20x4
Retained earnings – S Company, January 1, 20x4 P210,000Add: Net income of S for 20x4 154,000Total P364,000Less: Dividends paid – 20x4 0 364,000
Stockholders’ equity – S Company, December 31, 20x4 P 504,000Adjustments to reflect fair value - (over) undervaluation of assets and
liabilities, date of acquisition (January 1, 20x4) 35,000Amortization 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 534,000Multiplied by: Non-controlling Interest percentage…………... 20Non-controlling interest (partial goodwill)………………………………….. P 106,800Add: NCI on full-goodwill (P70,000 – P56,000) 14,000Non-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 112,000Retained earnings (P210,000 x 80%)………………... 168,000 280,000
Allocated 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
54. dEquipment
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
55. dInventory
P Company 210,000S Company 154,000Total 364,000Less: Unrealized profit in EI: [P140,000 x 60% = P84,000 x (140 - 112)/140] 16,800Consolidated 347,200
56. d Add the two book values and remove P100,000 intercompany transfers.
57. 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
58. 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 .......................................................... 50,000 20 years 2,500
Total ................................................................................. P -0- P7,500
Consolidated Expenses = P37,500 (add the two book values and include current yearamortization expense)
59. aNon-controlling interest (partial-goodwill), December 31, 20x4
Common stock – S Company, December 31, 20x4…… P 100,000Retained earnings – S Company, December 31, 20x4
Retained earnings – S Company, January 1, 20x4 P150,000Add: Net income of S for 20x4 110,000Total P260,000Less: Dividends paid – 20x4 0 260,000
Stockholders’ equity – S Company, December 31, 20x4 P 360,000Adjustments 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 427,500Multiplied by: Non-controlling Interest percentage…………... 20Non-controlling interest (partial goodwill)………………………………….. P 85,500Add: NCI on full-goodwill ( ________0Non-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 80,000Retained earnings (P150,000 x 80%)………………... 120,000 200,000
Allocated excess (excess of cost over book value)….. P 60,000Less: Over/under valuation of assets and liabilities:
Increase in equipment (P25,000 x 80%) 20,000Increase in secret formulas: P50,000 x 80% 40,000
Full-goodwillFair value of Subsidiary (100%)
Consideration transferred: Cash (80%) P 260,000FV of NCI (20%) ___65,000Fair value of Subsidiary (100%) P 325,000
Less: 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% 25,000Increase in secret formulas: P50,000 x 100% P 50,000
Amortization:Equipment: P25,000 / 5 years = P 5,000Secret formulas: P50,000 / 20 years = 2,500Total amortization of allocated P 7,500
60. c Add the two book values plus the original allocation (P25,000) less one year of excessamortization expense (P5,000).
61. b Add the two book values less the ending unrealized gross profit of P12,000.Intercompany Gross profit (P100,000 – P80,000) ................................................. P20,000Inventory Remaining at Year's End ........................................................................ 60%Unrealized Intercompany Gross profit, 12/31 ...................................................... P12,000
62. b20x3 20x4 20x5
Share in net income20x3: P70,000 x 90% P 63,00020x4: P85,000 x 90% P 76,50020x5: P94,000 x 90% P 84,600
Less: Unrealized profit in ending inventory of P20x3: P1,200 x 25% = P300 x 90% ( 270) 27020x4: P4,000 x 25% = P1,000 x 90% ( 900) 90020x5: P3,000 x 25% = P750 x 90% ________ ________ __( 675)
Income from S P 62,730 P 75,870 P 84,825
It should be noted that PAS 27 allow the use of cost model in accounting for investment insubsidiary in the books of parent company but not the equity method.
63. c – refer to No. 62 for computation.
64. d – refer to No. 62 for computation.65. a
**Non-controlling Interest in Net Income (NCINI) for 20x3 20x4 20x5S Company’s net income of Subsidiary Company from its
own operations (Reported net income of S Company) P 70,000 P 85,000 P 94,000RPBI of P Company (upstream sales) 0 300 1,000UPEI 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 94,250Less: Amortization of allocated excess 0 0 0
P 69,700 P 84,300 P 94,250Multiplied by: Non-controlling interest %.......... 10% 10% 10%Non-controlling Interest in Net Income (NCINI) – partial goodwill P 6,970 P 8,430 P 9,425Less: NCI on goodwill impairment loss on full goodwill 0 0 0Non-controlling Interest in Net Income (NCINI) – full goodwill P 6,970 P 8,430 P 9,425
66. c – refer to No. 65 for computation.67. c – refer to No. 65 for computation.68. a – refer to No. 65 for computation.69. a – refer to No. 65 for computation.70. b – refer to No. 65 for computation.71. a – none, since intercompany profit starts only at the end of 20x3.72. b – the amount of unrealized profit at the end of 20x3.73. c – the amount of unrealized profit at the end of 20x4.74. d P32,000 = (P200,000 + P140,000) – P308,00075. b P6,000 = (P26,000 + P19,000) – P39,00076. 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 forPower P 9,000
77. b .20 = P14,000 / [(Stockholders’ Equity P50,000)+(Patent P20,000)]
78 b 14 years = (P28,000 / [(28,000 - P20,000) / 4 years]79. c (P10,000 x 80%)80. c – the original cost81. d
Date of Acquisition (1/1/2010) Partial FullFair value of consideration given…………………P 340,000Less: Book value of SHE - Subsidiary):
(P150,000 + P230,000) x 80%..................... 304,000Allocated Excess.…………………………………….P 36,000Less: Over/Undervaluation of Assets & Liabilities
(P20,000 x 80%)…………………………….. 16,000Goodwill ………….…………………………………...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%............................................... ....... P1,050RPBI of P (upstream sales): P2,500 (given)….................................................... 1,000UPEI of S (downstream sales):
Sales of Parent EI % EI of S GP% of ParentP60,000 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 20x5P Company’s net income from own/separate operations P 100,000Realized profit in beginning inventory of S Company (downstream sales) 1,050Unrealized profit in ending inventory of S Company (downstream sales)… (_ 3,600)
P Company’s realized net income from separate operations*…….….. P 97,450S Company’s net income from own operations P 30,000Realized profit in beginning inventory of P Company (upstream sales) 1,000Unrealized profit in ending inventory of P Company (upstream sales) ( ,2,400 )
S Company’s realized net income from separate operations*…….….. P28,600 28,600Total P 126,050Less: Amortization of allocated excess…………………… 2,000Consolidated Net Income for 20x4 P124,050Less: Non-controlling Interest in Net Income* * 5,320Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent – 20x5………….. P 118,730*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 100,000Realized profit in beginning inventory of S Company (downstream sales) 1,050Unrealized profit in ending inventory of S Company (downstream sales)… (_ 3,600)
P Company’s realized net income from separate operations*…….….. P 97,450S Company’s net income from own operations P 30,000Realized profit in beginning inventory of P Company (upstream sales) 1,000Unrealized profit in ending inventory of P Company (upstream sales) ( 2,400 )
S Company’s realized net income from separate operations*…….….. P 28,600 28,600Total P 126,050Less: Non-controlling Interest in Net Income* * P 5,320
Amortization of allocated excess…………………… 2,000 7,320Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent………….. P118,730Add: Non-controlling Interest in Net Income (NCINI) __ 5,320Consolidated Net Income for 2012 P124,050
*that has been realized in transactions with third parties.
**Non-controlling Interest in Net Income (NCINI) for 2012S Company’s net income of Subsidiary Company from its own operations
(Reported net income of S Company) P 30,000Realized profit in beginning inventory of P Company (upstream sales) 1,000Unrealized profit in ending inventory of P Company (upstream sales) ( 2,400)
S Company’s realized net income from separate operations……… P 28,600Less: Amortization of allocated excess 2,000
P 26,600Multiplied by: Non-controlling interest %.......... 20%Non-controlling Interest in Net Income (NCINI) – partial goodwill P 5,320Less: NCI on goodwill impairment loss on full goodwill 0Non-controlling Interest in Net Income (NCINI) – full goodwill P 5,320
82. b – refer to No. 8183. a – P124,050 – refer to No. 8184. b – refer to No. 8685. c – refer to No. 8686. a
Non-controlling Interests (in net assets):Common stock - S, 12/31/20x2.…………..….…………………………….. P 150,000
Retained earnings - S, 12/31/20x2:RE- S, 1/1/20x2…………….……………………………………………….P300,000+: NI-S…………………………………………………………………………. 30,000-: Div – S……………………………………………………………………… 10,000 320,000
Book value of Stockholders’ equity, 12/31/20x2……..………………..... P 470,000Adjustments to reflect fair value of net assets
Increase in equipment, 1/1/20x0 .………………………….. 20,000Accumulated amortization (P2,000 x 3 years)………………………….... ( 6,000)Fair Value of Net Assets/SHE, 12/31/20x2…………………………………. P 484,000UPEI of P (up)…………………………………………………………………… ( 2,400)Realized SHE – S,12/31/20x2…………………………………………………. P 481,600x: NCI %.................................................................................... ...................... _ 20%Non-controlling Interest (in net assets) - partial………………………….. P 96,320+: NCI on full goodwill (25,000 – 20,000)………………………….. 5,000Non-controlling Interest (in net assets) – full…………………………….... P 101,320
87. d – refer to No. 8888. d
Note: Preferred solution - since what is given is the RE – P, 1/1/20x2 (beginningbalance of the current year) -
Retained earnings – Parent, 1/1/20x2 (cost)…………………………… P 700,000-: UPEI of S (down) – 20x1 or RPBI of S (down) – 20x2..…………. 1,050Adjusted Retained earnings – Parent, 1/1/20x2 (cost)……………… P 698,950Retroactive Adjustments to convert Cost to “Equity” for
purposes of consolidation / Parent’s share of adjustednet increase in subsidiary’s retained earnings:
Retained earnings – Subsidiary, 1/1/20x0……………………….P 230,000Less: Retained earnings – Subsidiary, 1/1/20x2……………… 300,000Increase in Retained earnings since acquisition
(cumulative net income – cumulative dividends)…………P 70,000Accumulated amortization (1/1/20x0 – 1/1/20x2):
P 2,000 x 2 years…………………………………………………( 4,000)UPEI of P (up) – 20x1 or RPBI of P (up) – 20x2………………......( 1,000)
P 65,000X: Controlling Interests………………………………………….........____80% 52,000
RE – P, 1/1/2012 (equity method) = CRE, 1/1/20x2…………………..... P750,950
+: CI – CNI or Profit Attributable to Equity Holders of Parent…….. 118,730-: Dividends – P……………………………………………………………… 60,000RE – P, 12/31/20x2 (equity method) = CRE, 12/31/20x2…………...... P809,680
Or, if RE – P is not given on January 1, 20x2, then RE – P on December 31, 2012 should be use:Retained earnings – Parent, 12/31/20x2 (cost):
(P700,000 + P108,000 – P60,000)………..…………………………… P 748,000-: UPEI of S (down) – 20x2 or RPBI of S (down) – 20x3..…………. 3,600Adjusted Retained earnings – Parent, 1/1/20x2 (cost)……………… P 744,400Retroactive Adjustments to convert Cost to “Equity” for
purposes of consolidation / Parent’s share of adjustednet increase in subsidiary’s retained earnings:
Retained earnings – Subsidiary, 1/1/20x0……………………….P 230,000Less: Retained earnings – Subsidiary, 12/31/20x2
(P300,000 + P20,000 – P10,000)………………………..... 320,000Increase in Retained earnings since acquisition
(cumulative net income – cumulative dividends)…………P 90,000Accumulated amortization (1/1/20x0 – 12/31/20x2):
P 2,000 x 3 years……………………………………………… ( 6,000)UPEI of P (up) – 20x2 or RPBI of P (up) – 20x3……………….. ( 2,400)
P 81,600X: Controlling Interests……………………………………………… . 80% 65,280
RE – P, 12/31/20x2 (equity method) = CRE, 12/31/20x2…………. P809,680
89. bConsolidated Stockholders’ Equity, 12/31/20x2:
Controlling Interest / Parent’s Interest / Parent’s Portion /Equity Holders of Parent – SHE, 12/31/20x2:
Common stock – P (P only)…………………………………………….. P1,000,000Retained Earnings – P (equity method), 12/31/20x2………….. 809,680Controlling Interest / Parent’s Stockholders’ Equity……………. P1,809,680
Non-controlling interest, 12/31/20x2 (partial)…………………………. 96,320Consolidated Stockholders’ Equity, 12/31/20x2………………………… P1,906,000
90. aConsolidated Stockholders’ Equity, 12/31/20x2:
Controlling Interest / Parent’s Interest / Parent’s Portion /Equity Holders of Parent – SHE, 12/31/20x2:
Common stock – P (P only)…………………………………………….. P1,000,000Retained Earnings – P (equity method), 12/31/20x2………….. 809,680Controlling Interest / Parent’s Stockholders’ Equity……………. P1,809,680
Non-controlling interest, 12/31/20x2 (full)……..………………………. 101,320Consolidated Stockholders’ Equity, 12/31/20x2………………………… P1,911,000
91. cNon-controlling interest , December 31, 20x1
Common stock – Subsidiary Company, December 31, 20x1…… P 10,000Retained earnings – Subsidiary Company, December 31, 20x1 8,600Stockholders’ equity – Subsidiary Company, December 31, 20x4 P 18,600Adjustments to reflect fair value - (over) undervaluation of assets and
liabilities, date of acquisition (January 1, 20x4) 0Amortization of allocated excess (refer to amortization above) – 20x4 ( 0)Fair value of stockholders’ equity of subsidiary, December 31, 20x4…… P 18,600Less: Unrealized profit in ending inventory of P Company (upstream sales)
P3,000 x 40% 1,200Realized stockholders’ equity of subsidiary, December 31, 20x4…… P 17,400Multiplied by: Non-controlling Interest percentage…………... 20Non-controlling interest. December 31, 20x1 ………………………………….. P 3,480
92. aRealized profit in BI of Bates Co. [P40,000 x 20%] P 8,000Unrealized profit in EI of Bates Co. [P15,000 x 20%] __3,000Net realized profit in intercompany sales of inventory P 5,000Multiplied by: NCI% ___40%NCI share in net realized profit P 2,000
93. cRPBI of P (upstream sales)……..………………………..………………………… 45,000UPEI of P (upstream sales):
EI of Paque GP% of SubsidiaryP75,000 x 20%...................................………………………..…. 15,000
Consolidated Net Income for 20x5P Company’s net income from own/separate operations (P103,500 – P54,000) P 49,500Realized profit in beginning inventory of S Company (downstream sales) 0Unrealized profit in ending inventory of S Company (downstream sales)… (_ 0)
P Company’s realized net income from separate operations*…….….. P 49,500S Company’s net income from own operations P 71,250Realized profit in beginning inventory of P Company (upstream sales) 45,000Unrealized profit in ending inventory of P Company (upstream sales) ( 15,000 )
S Company’s realized net income from separate operations*…….….. P 101,250 101,250Total P 150,750Less: Amortization of allocated excess…………………… ____0
Consolidated Net Income for 20x4 P150,750Less: Non-controlling Interest in Net Income* * 10,125Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent – 20x5………….. P 140,625*that has been realized in transactions with third parties.
Or, alternativelyConsolidated Net Income for 20x5
P Company’s net income from own/separate operations (P103,500 – P54,000) P 49,500Realized profit in beginning inventory of S Company (downstream sales) 0Unrealized profit in ending inventory of S Company (downstream sales)… (_ 0)
P Company’s realized net income from separate operations*…….….. P 49,500S Company’s net income from own operations P 71,250Realized profit in beginning inventory of P Company (upstream sales) 45,000Unrealized profit in ending inventory of P Company (upstream sales) ( 15,000 )
S Company’s realized net income from separate operations*…….….. P 101,250 101,250Total P 150,750Less: Non-controlling Interest in Net Income* * P 10,125
Amortization of allocated excess…………………… ___0 10,125Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent………….. P140,625Add: Non-controlling Interest in Net Income (NCINI) __ 10,125Consolidated Net Income for 2012 P150,750
*that has been realized in transactions with third parties.
**Non-controlling Interest in Net Income (NCINI) for 20x4S Company’s net income of Subsidiary Company from its own operations
(Reported net income of S Company) P 71,250Realized profit in beginning inventory of P Company (upstream sales) 45,000Unrealized profit in ending inventory of P Company (upstream sales) ( 15,000)
S Company’s realized net income from separate operations……… P 101,250Less: Amortization of allocated excess _0
P101,250Multiplied by: Non-controlling interest %.......... 10%Non-controlling Interest in Net Income (NCINI) – partial goodwill P 10,125Less: NCI on goodwill impairment loss on full goodwill 0Non-controlling Interest in Net Income (NCINI) – full goodwill P 10,125
(Not required)Analysis of workpaper entries(1) Investment in Segal (0.90 (P180,000 – P150,000)) 27,000
Beginning Retained Earnings-Paque Co. 27,000To establish reciprocity as of 1/1/20x8
(2) Sales 300,000Purchases (Cost of Goods Sold) 300,000
To eliminate intercompany sales
(3) Ending Inventory - Income Statement (CGS) 15,000Ending Inventory (Balance Sheet) 15,000
To eliminate unrealized intercompany profit in ending inventory (P75,000 0.20)
(4) Beginning Retained Earnings - Paque Co. (P45,000 0.90) 40,500Non-controlling Interest P45,000 0.10) 4,500
Beginning Inventory (Income statement) 45,000To recognize intercompany profit realized during the year and to reducecontrolling and non-controlling interests for their share of unrealized profitat beginning of year
(5) Dividend Income (P60,000 0.90) 54,000Dividends Declared 54,000
To eliminate intercompany dividends
(6) Beginning Retained Earnings- Segal Co. 180,000Common Stock - Segal Company 750,000
Investment in Segal Company (P810,000 + P27,000) 837,000Non-controlling Interest (P750,000 + P180,000) x .10 93,000
To eliminate investment account and create non-controlling interest account
94. cPreferred Solution - since what is given is the RE – P, 1/1/20x8 -
Retained earnings – Parent, 1/1/20x8 (cost)…………………….. P 598,400-: UPEI of S (down) – 20x7 or RPBI of S (down) – 20x8..…………. 25,000Adjusted Retained earnings – Parent, 1/1/20x8 (cost)……………… P 573.400Retroactive Adjustments to convert Cost to “Equity” for
purposes of consolidation / Parent’s share of adjustednet increase in subsidiary’s retained earnings:
Retained earnings – Subsidiary, 1/1/20x4……………………P 95,000Less: Retained earnings – Subsidiary, 1/1/20x8…………….. 144,000Increase in Retained earnings since acquisition
(cumulative net income – cumulative dividends)………P 49,000Accumulated amortization (1/1/20x4 – 1/1/20x8)…………. 0UPEI of P (up) – 20x7 or RPBI of P (up) – 20x8………………... ( 0)
P 49,000X: Controlling Interests…………………………………………… 90% 44,100
RE – P, 1/1/20x8 (equity method) = CRE, 1/1/20x8……………….. P 617,500+: CI – CNI or Profit Attributable to Equity Holders of Parent…… 203,700-: Dividends – P………………………..………………………………… 110,000RE – P, 12/31/2014 (equity method) = CRE, 12/31/2014………….. P 711,200
Consolidated Net Income for 20x8P Company’s net income from own/separate operations P132,000Realized profit in beginning inventory of S Company (downstream sales) 25,000Unrealized profit in ending inventory of S Company (downstream sales)… (10,000)
P Company’s realized net income from separate operations*…….….. P147,000S Company’s net income from own operations…………………………………. P 63,000Realized profit in beginning inventory of P Company (upstream sales) 0Unrealized profit in ending inventory of P Company (upstream sales) ( 0)
S Company’s realized net income from separate operations*…….….. P 63,000 63,000Total P210,000Less: Amortization of allocated excess…………………… 0Consolidated Net Income for 20x8 P210,000Less: Non-controlling Interest in Net Income* * 6,300Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent – 20x8………….. P203,700*that has been realized in transactions with third parties.
Or, alternativelyConsolidated Net Income for 20x8
P Company’s net income from own/separate operations P132,000Realized profit in beginning inventory of S Company (downstream sales) 25,000Unrealized profit in ending inventory of S Company (downstream sales)… (10,000)
P Company’s realized net income from separate operations*…….….. P147,000S Company’s net income from own operations…………………………………. P 63,000Realized profit in beginning inventory of P Company (upstream sales) 0Unrealized profit in ending inventory of P Company (upstream sales) ( 0)
S Company’s realized net income from separate operations*…….….. P 63,000 63,000Total P210,000Less: Non-controlling Interest in Net Income* * P 6,300
Amortization of allocated excess…………………… _____0 6,300Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent………….. P203,700Add: Non-controlling Interest in Net Income (NCINI) _ 6,300Consolidated Net Income for 20x8 P210,000
*that has been realized in transactions with third parties.
**Non-controlling Interest in Net Income (NCINI) for 20x8S Company’s net income of Subsidiary Company from its own operations
(Reported net income of S Company)P 63,000
Realized profit in beginning inventory of P Company (upstream sales) 0Unrealized profit in ending inventory of P Company (upstream sales) ( 0)
S Company’s realized net income from separate operations……… P 63,000Less: Amortization of allocated excess 0
P 63,000Multiplied by: Non-controlling interest %.......... 10%Non-controlling Interest in Net Income (NCINI) – partial goodwill P 6,300Less: NCI on goodwill impairment loss on full goodwill 0Non-controlling Interest in Net Income (NCINI) – full goodwill P 6,300
Amortization of equipment: P20,000 / 10 years = P2,000RPBI of Sedbrock (downstream sales) – 20x8......................................................... P25,000UPEI of Sedbrock (downstream sales) – 20x8: P60,000 x 20%/120%……..……… 10,000
Net income:Pruitt Co. Sedbrook
Sales P1,210,000 P 636,000Less: Cost of goods sold
Inventory, 1/1 165,000 132,000Purchases 935,000 420,000Inventory, 12/31 (220,000) __880,000 (144,000) __408,000
Gross profit P 330,000 P 228,000Less: Other expense 198,000 165,000Net income from its own
separate operations P 132,000 P 63,000Add: Dividend income 31,500 -Net income P 163,500 P 63,000Dividends declared P 110,000 P 35,000
Or, alternatively(compute the RE-P end of the year under the cost model)Retained earnings – Parent, 1/1/20x8 (cost)………………………….. P 598,400Add: NI of Parent as reported – 20x8 under cost model…………… 163,500Less: Dividend of Parent – 20x8………………………………………….. 110,000Retained earnings – Parent, 12/31/20x8 (cost)……………………….. P 651,900-: UPEI of S (down) – 20x8 or RPBI of S (down) – 20x9..……………….. 10,000Adjusted Retained earnings – Parent, 12/31/20x8 (cost model)….. P 641,900Retroactive Adjustments to convert Cost to “Equity” for
purposes of consolidation / Parent’s share of adjustednet increase in subsidiary’s retained earnings:
Retained earnings – Subsidiary, 1/1/20x4………… P 95,000Less: Retained earnings – Subsidiary, 12/31/20x8
Retained earnings – Subsidiary , 1/1/20x8..… P144,000Add: NI of Subsidiary – 20x8…………………… 63,000Less: Dividend of Subsidiary – 20x8…………... 35,000 172,000
Increase in Retained earnings since acquisition(cumulative net income – cumulative dividends)………… P 97,000
Accumulated amortization (1/1/20x4 – 12/31/20x8)…………..( 0)UPEI of P (up) – 20x8 or RPBI of P (up) – 20x9………………........ ( 0)
P 97,000x: Controlling Interests………………………………………… 90% 69,300
RE – P, 12/31/20x8 (equity method) = CRE, 12/31/20x8……… P 711,200
(Not required)
Analysis of workpaper entries(1) Investment in Sedbrook Company (0.90(P144,000 – P95,000)) 44,100
Beginning Retained Earnings - Pruitt Co. 44,100To establish reciprocity/convert to equity as of 1/1/x8
(2) Sales 250,000Purchases (Cost of Goods Sold) 250,000
To eliminate intercompany sales
(3) Ending Inventory - Income Statement (CGS) 10,000Ending Inventory (Balance Sheet) 10,000
To eliminate unrealized intercompany profit in endinginventory (P60,000 – (P60,000/1.2)
(4) Beginning Retained Earnings - Pruitt Co. 25,000Beginning Inventory (Income Statement) 25,000
To recognize intercompany profit in beginning inventoryrealized during the year
(5) Dividend Income (P35,000.90) 31,500Dividends Declared 31,500
To eliminate intercompany dividends
(6) Beginning Retained Earnings - Sedbrook Co. 144,000Common Stock - Sedbrook Co. 600,000
Investment in Sedbrook Co.(P625,500 + P44,100) 669,600Non-controlling Interest (P744,000 x .10) 74,400
To eliminate investment account and create non-controlling interest account
95. P941,000.Additional information and correction:
In 20x4, Simon Company reported net income of P270,000 and declared dividends of P90,000.Paul Company reported net income from independent operations in 20x4 in the amount ofP700,000 and retained earnings on December 31, 20x4, of P1,500,000.
Fair value of consideration given…………………P1,360,000Less: Book value of SHE - Subsidiary):
(P1,000,000 + P450,000) x 80%................... 1,160,000Allocated Excess.…………………………………….P 200,000Less: Over/Undervaluation of Assets & Liabilities
Increase in franchise (P250,000 x 80%)…….. 200,000 / 80% = P250,000P 0
Amortization of equipment: P250,000 / 25 years = P10,000
RPBI of S (downstream sales):…………………........................................................ P30,000RPBI of P (upstream sales)………………………....................................................... 20,000UPEI of S (downstream sales)……………………………………………………..……. 5,000UPEI of P (upstream sales)………………………………………………….…………… 10,000
Consolidated Net Income for 20x4P Company’s net income from own/separate operations P700,000Realized profit in beginning inventory of S Company (downstream sales) 30,000Unrealized profit in ending inventory of S Company (downstream sales)… ( 5,000)
P Company’s realized net income from separate operations*…….….. P725,000S Company’s net income from own operations…………………………………. P270,000Realized profit in beginning inventory of P Company (upstream sales) 20,000Unrealized profit in ending inventory of P Company (upstream sales) ( 10,000)
S Company’s realized net income from separate operations*…….….. P280,000 280,000Total P1,005,000
Less: Amortization of allocated excess…………………… 10,000Consolidated Net Income for 20x4 P 995,000Less: Non-controlling Interest in Net Income* * 54,000Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent – 20x4………….. P 941,000*that has been realized in transactions with third parties.
Or, alternativelyConsolidated Net Income for 2014
P Company’s net income from own/separate operations P700,000Realized profit in beginning inventory of S Company (downstream sales) 30,000Unrealized profit in ending inventory of S Company (downstream sales)… ( 5,000)
P Company’s realized net income from separate operations*…….….. P725,000S Company’s net income from own operations…………………………………. P270,000Realized profit in beginning inventory of P Company (upstream sales) 20,000Unrealized profit in ending inventory of P Company (upstream sales) ( 10,000)
S Company’s realized net income from separate operations*…….….. P280,000 280,000Total P1,005,000Less: Non-controlling Interest in Net Income* * P 54,000
Amortization of allocated excess…………………… 10,000 64,000Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent………….. P 941,000Add: Non-controlling Interest in Net Income (NCINI) __ _ 54,000Consolidated Net Income for 2014 P 995,000
*that has been realized in transactions with third parties.
**Non-controlling Interest in Net Income (NCINI) for 2014S Company’s net income of Subsidiary Company from its own operations
(Reported net income of S Company)P270,000
Realized profit in beginning inventory of P Company (upstream sales) 20,000Unrealized profit in ending inventory of P Company (upstream sales) ( 10,000)
S Company’s realized net income from separate operations……… P280,000Less: Amortization of allocated excess 10,000
P270,000Multiplied by: Non-controlling interest %.......... 20%Non-controlling Interest in Net Income (NCINI) – partial goodwill P 54,000Less: NCI on goodwill impairment loss on full goodwill 0Non-controlling Interest in Net Income (NCINI) – full goodwill P 54,000
(Not required)Analysis of workpaper entries
(1) Sales 120,000Purchases (Cost of Goods Sold) 120,000
To eliminate intercompany sales (P50,000 + P70,000)
(2) Ending Inventory – Income Statement (CGS) 15,000Inventory (Balance Sheet) 15,000
To eliminate unrealized profit in ending inventories(P10,000 + P5,000)
(3) Beginning Retained Earnings – Paul Company (P20,000 0.8) 16,000Non-controlling Interest 4,000
Beginning Inventory – Income Statement (CGS) 20,000To recognize profit in beginning inventory (upstream sales)realized during year and to reduce the controlling and
noncontrolling interests for their shares of the amount ofunrealized upstream intercompany profit at beginning of year
(4) Beginning Retained Earnings – Paul Company. 30,000Beginning Inventory – Income Statement (CoGS) 30,000
To recognize profit in beginning inventory (downstream sales)realized during the year and to reduce consolidated retained
earnings at beginning of the year for the amount of unrealizeddownstream intercompany profit at the beginning of the year
96. P1,863,000
Retained earnings – Parent, 12/31/20x4 (cost)……………………….. P 1,500,000-: UPEI of S (down) – 20x4 or RPBI of S (down) – 20x5..……………….. 5,000Adjusted Retained earnings – Parent, 12/31/20x4 (cost model)….. P 1,495,000Retroactive Adjustments to convert Cost to “Equity” for
purposes of consolidation / Parent’s share of adjustednet increase in subsidiary’s retained earnings:
Retained earnings – Subsidiary, 1/1/20x1……………………….P 450,000Less: Retained earnings – Subsidiary, 12/31/20x4……………… 960,000Increase in Retained earnings since acquisition
(cumulative net income – cumulative dividends)………… P 510,000Accumulated amortization (1/1/20x1 – 12/31/20x4)…………..( 40,000)UPEI of P (up) – 20x4 or RPBI of P (up) – 20x5………………........ ( 10,000)
P 460,000x: Controlling Interests………………………………………… 80% 368,000
RE – P, 12/31/20x4 (equity method) = CRE, 12/31/20x4……… P1,863,000
97. P54,000 – refer to No. 95 for computation98. a
Full-goodwillFair value of Subsidiary (100%)
Consideration transferred: Cash (P7,500,000/80%) P9,375,000Less: Book value of stockholders’ equity of S (P6,000,000 x 100%) _6,000,000Allocated excess (excess of cost over book value)….. P3,375,000Add (deduct): (Over) under valuation of assets and liabilities
Decrease in inventory: P(150,000 x 100%)Increase in building: P450,000 x 100%
P( 150,000)___450,000 ___300,000
Positive excess: Full-goodwill (excess of cost overfair value)………………………………………………... P3,075,000
Partial-goodwillFair value of Subsidiary (80%)
Consideration transferred……………………………….. P7,500,000Less: Book value of stockholders’ equity of S:
Common stock (P1,000,000 x 80%)……………………. P 800,000Retained earnings (P5,000,000 x 80%)………………... 4,000,000 4,800,000
Allocated excess (excess of cost over book value)….. P2,700,000Less: Over/under valuation of assets and liabilities:Add (deduct): (Over) under valuation of assets and liabilities
Decrease in inventory: P(150,000 x 80%)Increase in building: P450,000 x 80%
P( 120,000)___360,000 240,000
Positive excess: Partial-goodwill (excess of cost overfair value)………………………………………………... P2,460,000
Amortization schedule
Balance at Remainingacquisition Amortization Amortization atDec. 31/X2 20X3 20X4 Dec.31/X4
Inventory P(150,000) P(150,000) 0 P 0Building (15 years) 450,000 30,000 P30,000 390,000Goodwill 3,075,000 _________0 ______0 3,075,000Total P3,375,000 P(120,000) P30,000 P3,465,000
99. aNon-controlling interest is 20% × 9,375,000 (fair value of subsidiary, 12/31/20x2) = P1,875,000
Or, alternatively:
Non-controlling interest, December 31, 20x2Common stock – S Company, December 31, 20x2…… P1,000,000Retained earnings – S Company, December 31, 20x2 5,000,000Stockholders’ equity – S Company, December 31, 20x2 P6,000,000Adjustments to reflect fair value - (over) undervaluation of assets and
liabilities, date of acquisition (December 31, 20x2) ___300,000Fair value of stockholders’ equity of S, December 31, 20x2…… P6,300,000Multiplied by: Non-controlling Interest percentage…………... 20Non-controlling interest (partial goodwill)………………………………….. P 1,260,000Add: NCI on full-goodwill (P3,075,000 – P2,460,000) ___615,000Non-controlling interest (full- goodwill)………………………………….. P1,875,000
100. d – P2,393,800Non-controlling interest , December 31, 20x4
Common stock – S Company, December 31, 20x4 P1,000,000Retained earnings – S Company, December 31, 20x4 7,524,000Stockholders’ equity – S Company, December 31, 20x4 P8,524,000Adjustments to reflect fair value - (over) undervaluation of assets and
liabilities, date of acquisition (December 31, 20x2) 300,000Amortization of allocated excess (refer to amortization above- 20x3 and 20x4: __90,000Fair value of stockholders’ equity of S, December 31, 20x4…… P8,914,000Less: UPEI of P (up) – 20x3 or RPBI of P (up) – 20x4 ____20,000
P8,894,000Multiplied by: Non-controlling Interest percentage…………... _ 20Non-controlling interest (partial goodwill)………………………………….. P1,778,800Add: NCI on full-goodwill ___615,000Non-controlling interest (full- goodwill)………………………………….. P2,393,800
RPBI of P (upstream sales):Sales of Subsidiary EI % EI of P GP% of Subsidiary
P100,000 x 60% = P60,000 x 50,000/100,000………………………..…. 30,000
UPEI of P (upstream sales): (given)………………………………………………………. 20,000
Or, alternatively:Balance of NCI on acquisition — December 31, 20x2 P1,875,000Add: NCI's share of the adjusted change in retained earnings to 12/ 31/20x4
Jane's retained earnings, December 31, 20x4 P7,524,000Jane's retained earnings at December 31, 20x2 ( 5,000,000)Change in carrying value P2,524,000Adjustments:
Amortization of fair value increments to date 90,000Unrealized upstream profit — 20x4 ( 20,000)
djusted change in retained earnings of Jane since acquisition P2,594,000Multiplied by: NCI's share at 20% 518,800
Ending balance of NCI on December 31, 20x4 P2,393,800101. b
Retained earnings – Parent, 12/31/20x4 (cost)……………………….. P11,900,000-: UPEI of S (down) – 20x4 or RPBI of S (down) – 20x5..……………….. 0Adjusted Retained earnings – Parent, 12/31/20x4 (cost model)….. P11,900,000Retroactive Adjustments to convert Cost to “Equity” for
purposes of consolidation / Parent’s share of adjustednet increase in subsidiary’s retained earnings:
Retained earnings – Subsidiary, 12/31/20x2…………………..P5,000,000Less: Retained earnings – Subsidiary, 12/31/20x4…………… 7,524,000Increase in Retained earnings since acquisition
(cumulative net income – cumulative dividends)……….P2,524,000Accumulated amortization (1/1/20x1 – 12/31/20x4)……….. 90,000UPEI of P (up) – 20x4 or RPBI of P (up) – 20x5……………….....( 20,000)
P2,594,000x: Controlling Interests………………………………………… 80% 2,075,200
RE – P, 12/31/20x4 (equity method) = CRE, 12/31/20x4……… P13,975,200102. b - (P125,000 - P93,000) .8 = P25,600103. c - (P125,000 - P93,000) .2 = P6,400104. d105. a - (P125,000 - P93,000) .7106. c - (P125,000 - P93,000) .3107. a - [P293,000 + (P125,000 - P93,000) .7] .2 = P63,080108. d
Non-controlling Interest in Net Income (NCINI) for 20x4:S Company’s net income of Subsidiary Company from its own operations
(Reported net income of S Company) P 137,000Realized profit in beginning inventory of P Company (upstream sales) 40,000Unrealized profit in ending inventory of P Company (upstream sales) ( 25,000)
S Company’s realized net income from separate operations……… P 152,000Less: Amortization of allocated excess _ 0
P 152,000Multiplied by: Non-controlling interest %.......... 30%Non-controlling Interest in Net Income (NCINI) – partial goodwill P 45,600Less: NCI on goodwill impairment loss on full goodwill 0Non-controlling Interest in Net Income (NCINI) – full goodwill P 45,600
109. b Combined cost of sales P 160,000Less: Intercompany sales revenue 110,000Add: Unrealized profit taken out of inventory
(75%)x(35,000) = 26,250Consolidated cost of sales P 76,250
110. a(P115,000 x 70%) - P26,250 = P 54,250
The requirement “P’s income from S” is a term normally used under the equity method, but, insome cases it may also refer to the term “dividend income” under the cost model depending onhow the problem was described and presented.
Since there are no data available to arrive at the dividend income under the cost model forreason 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,
It should be noted that PAS 27 allow the use of cost model in accounting for investment insubsidiary in the books of parent company but not the equity method.
111. a - P720,000 = P500,000 + P400,000 - P200,000 +P 20,000112. b
(P120,000 x 80%) – (P200,000 x 50% = P100,000 x 20% = P20,000) = P76,000113. d Downstream situation
S Company’s net income from own/separate operations P120,000x: NCI % 20%
P 24,000114. c
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] __18,000Intercompany profit to be eliminated P54,000
115. bShare 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] __30,000Intercompany profit to be eliminated P 90,000
Quiz - XVII1. Overstated by P320
It will be overstated by the amount of the NC interests’ share of the P1,600 of profit margin inthe P9,600 of materials carried over to 20x5 (20% x P1,600 = P320
2. P20,000 - Inventory remaining P100,000 × 50% = P50,000 Unrealized gross profit (based on LL'smarkup as the seller) P50,000 × 40% = P20,000. The ownership percentage has no impact onthis computation
3. (downstream sales) Sales, P1,400,000; Cost of Sales, P966,00Sales – 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) 252,000
Total 1,092,000Add(Deduct): Intercompany sales - down ( 140,000)
Unrealized Profit inEnding Inventory ofSkillet (subsidiary)-downEI 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
4. (upstream sales) - P1,400,000; Cost of Sales, P974,400 (or – refer to Note)Note: The only change here from No. 3 is the markup percentage which would now be 40percent*
CGS – Pot (parent) 840,000- Skillet (subsidiary) 252,000
Total 1,092,000Add(Deduct): Intercompany sales - upstream ( 140,000)
Unrealized Profit inEnding Inventory ofPot (subsidiary)-upstreamEI 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 (preferred answer) 974,400
Note: The problem is quite intriguing because of the statement “Pot had established thetransfer price base on its normal markup”. It should be noted that Parent Companyestablished the transfer price based on its normal price (in this case it is assumed that themark-up of the parent which is 25% is also the normal transfer price). So, if is assumed to beof the same markup with parent company, then the answer would be as follows:
Sales – Pot (parent) 1,120,000- Skillet (subsidiary) 420,000
Total 1,540,000
Add(Deduct): Intercompany sales - down ( 140,000)Consolidated Sales 1,400,000
CGS – Pot (parent) 840,000- Skillet (subsidiary) 252,000
Total 1,092,000Add(Deduct): Intercompany sales - down ( 140,000)
Unrealized Profit inEnding Inventory ofSkillet (subsidiary)-downEI 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
5. P522,500Grebe plus Swamp’s separate cost of goods sold =
P400,000 + P320,000 = P 720,000Less: Intercompany sales = 200,000Add: Profit +12,500 - 10,000 = ____2,500Consolidated COGS = P 522,500
6. P10,000Ending inventory of Grebe (1/2 x P100,000) P 50,000x: GP% of Parent (P100,000 – P80,00)/P100,000 20%Unrealized profit in ending inventory P 10,000
7. Sales, P1,000,000; Cost of Sales, P690,000Intercompany sales and purchases of P100,000 must be eliminated. Additionally, anunrealized gross profit of P10,000 must be removed from ending inventory based on a markupof 25 percent (P200,000 gross profit/P800,000 sales) which is multiplied by the P40,000 endingbalance. This deferral increases cost of goods sold because ending inventory is a negativecomponent of that computation. Thus, cost of goods sold for consolidation purposes isP690,000 (P600,000 + P180,000 – P100,000 + P10,000).
8. Sales, P1,000,000; Cost of Sales, P696,000 (refer to No. 4 above for further discussions)The only change here from No. 7 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 isP16,000 (P40,000 × 40%). Consequently, consolidated cost of goods sold is P696,000 (P600,000+ P180,000 – P100,000 + P16,000).
9. Sales, P2,907,000Sales Cost of Sales
P 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] 30,000
Add: Unrealized profit in EI of S Co.[P468,000 x 40% = P187,200 x (468-375)/468] ________ __37,200
Consolidated 2.907,000 2,276,700
10. Cost of sales, P2,276,700 - refer to No. 911. P380,000
Consolidated Net Income for 20x4P Company’s net income from own/separate operations P 300,000Realized profit in beginning inventory of S Company (downstream sales) 0Unrealized profit in ending inventory of S Company (downstream sales)… (_ 0)
P Company’s realized net income from separate operations*…….….. P300,000S 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 400,000Less: Amortization of allocated excess…………………… _ 0Consolidated Net Income for 20x4 P 400,000Less: Non-controlling Interest in Net Income* * 20,000Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent – 20x4………….. P 380,000*that has been realized in transactions with third parties.
**Non-controlling Interest in Net Income (NCINI) for 20x4S Company’s net income of Subsidiary Company from its own operations
(Reported net income of S Company) P 120,000Realized profit in beginning inventory of P Company (upstream sales) 0Unrealized profit in ending inventory of P Company (upstream sales) ( 20,000)
S Company’s realized net income from separate operations……… P 100,000Less: Amortization of allocated excess 0
P 100,000Multiplied by: Non-controlling interest %.......... 20%Non-controlling Interest in Net Income (NCINI) – partial goodwill P 20,000Less: NCI on goodwill impairment loss on full goodwill 0Non-controlling Interest in Net Income (NCINI) – full goodwill P 20,000
12. P20,000 – refer to No, 11 for computations.13. Sales, P2,907,000
Sales Cost of SalesP Company 2,250,000 1,800,000S Company 1,200,000 _1,000,000Total 3,450,000 2,800,000Less: Intercompany sales 468,000 468,000
Realized profit in BI of S Co.[P300,000 x 1/2 = P150,000 x (300-240)/300] 30,000
Add: Unrealized profit in EI of S Co.[P468,000 x 40% = P187,200 x (468-375)/468] ________ __37,200
Consolidated 2.982,000 2,339,200
14. Cost of sales, P2,339,200 - refer to No. 1315. P285,000
Consolidated Net Income for 20x4P Company’s net income from own/separate operations…………. P225,000Realized profit in beginning inventory of S Company (downstream sales) 0Unrealized profit in ending inventory of S Company (downstream sales)… (_ 0)
P Company’s realized net income from separate operations*…….….. P225,000S Company’s net income from own operations…………………………………. P 90,000Realized profit in beginning inventory of P Company (upstream sales) 0Unrealized 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 P300,000Less: Amortization of allocated excess…………………… 0Consolidated Net Income for 20x4 P300,000Less: Non-controlling Interest in Net Income* * 15,000Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent – 20x4………….. P285,000*that has been realized in transactions with third parties.
Or, alternativelyConsolidated Net Income for 20x4
P Company’s net income from own/separate operations…………. P225,000Realized profit in beginning inventory of S Company (downstream sales) 0Unrealized profit in ending inventory of S Company (downstream sales)… (_ 0)
P Company’s realized net income from separate operations*…….….. P225,000S Company’s net income from own operations…………………………………. P 90,000Realized profit in beginning inventory of P Company (upstream sales) 0Unrealized profit in ending inventory of P Company (upstream sales)… ( 15,000)
Son Company’s realized net income from separate operations*…….….. P 75,000 75,000Total P300,000Less: Non-controlling Interest in Net Income* * P 15,000
Amortization of allocated excess…………………… 0 15,000Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent………….. P285,000Add: Non-controlling Interest in Net Income (NCINI) _ 15,000Consolidated Net Income for 20x4 P290,000
*that has been realized in transactions with third parties.
**Non-controlling Interest in Net Income (NCINI) for 20x4S 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) 0Unrealized profit in ending inventory of P Company (upstream sales) ( 15,000)
S Company’s realized net income from separate operations……… P 75,000Less: Amortization of allocated excess 0
P 75,000Multiplied by: Non-controlling interest %.......... 20%Non-controlling Interest in Net Income (NCINI) – partial goodwill P 15,000Less: NCI on goodwill impairment loss on full goodwill 0Non-controlling Interest in Net Income (NCINI) – full goodwill P 15,000
16. P15,000 - refer to No. 15 for computation17. P25,000 x 125% = P31,250 intercompany sales and purchases (cost of sales)18. P25,000 x 125% = P31,250 intercompany sales and purchases (cost of sales)19. P86,000 - the amount of sales to outsiders or unaffiliated company20. P47,000 – the original cost (I,e., the cost to produced on the part of the seller – Blue
Company)21. P28,600
Total income (P86,000 - P47,000) P39,000Income assigned to noncontrolling
interest [.40(P86,000 - P60,000)] (10,400)Consolidated net income assigned
to controlling interest P28,600
22. P20,000 = P30,000 x [(P48,000 - P16,000) / P48,000]23. P47,000
Sales reported by Movie Productions Inc. P67,000Cost of goods sold (P30,000 x 2/3) (20,000)Consolidated net income P47,000
24. P7,000 = [(P67,000 - $32,000) x .20]25. P90,720
Parent SubsidiaryNet 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%UPEI of Parent (upstream): 500,000 x 30% = 150,000;
150,000 x 25/125 = 30,000; 90%:10%
22,680
(27,000)
2,520
( 3,000)Non-controlling Interest in Kent’s Net Income 90,720
26. P28,000 – P140,000 x 50% = P70,000 x 40% = P28,00027. P474,400
Unrealized Profit, 12/31/x4Intercompany 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 SOLDParent 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 ................................................................................................... P474,40028. P8,400
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
29. P8,200UNREALIZED 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
30. P10,000 = [P100,000 x (25/100) = P25,000 x 40/10031. Sales and cost of goods sold should be reduced by the intercompany sales.32. P500,000
Cost of SalesP Company 400,000S Company _350,000Total 750,000Less: Intercompany sales 250,000Consolidated 500,000
33. P1,060,000Cost of goods sold reported by Park P 800,000Cost of goods sold reported by Small 700,000Total cost of goods sold reported P1,500,000Cost 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 P1,060,000
34. P115,00035. P102,400 = P94,000 + (P115,000 - P94,000).436. P12,600 = (P115,000 - P94,000) .637. P6,300 = (P37,000 - P28,000) .738. P2,700 = (P37,000 - P28,000) .339. Zero40. P5,400 = (P37,000 - P28,000) .641. P3,600 = (P37,000 - P28,000) .442. P56,820 = [P184,000 + (P37,000 - P28,000) .6] .343. P9,360 = [(P65,000 - P52,000) - (P65,000 - P52,000) .2] .944. P1,040 = [(P65,000 - P52,000) - (P65,000 - P52,000) .2] .145. Zero46. P9,100 =(P65,000 - P52,000) .747. P32,110 = [P312,000 + (P65,000 - P52,000) .7] .148. P280,000
Full-goodwillFair value of Subsidiary (100%)
Consideration transferred: Cash (P960,000/60%) P1,600,000Less: Book value of stockholders’ equity of S (P600,000 + P540,000)x 100%) _1,140,000Allocated excess (excess of cost over book value)….. P 460,000Add (deduct): (Over) under valuation of assets and liabilities
Decrease in inventory: P(40,000) x 100%Increase in capital assets P220,000 x 100%
P( 40,000)__220,000 __180,000
Positive excess: Full-goodwill (excess of cost overfair value)………………………………………………... P 280,000
Partial-goodwillFair value of Subsidiary (60%)
Consideration transferred………………………………..................... P 960,000Less: Book value of stockholders’ equity of S:
Common stock (P600,000 x 60%)……………………................... P 360,000Retained earnings (P540,000 x 60%)………………................... _ 324,000 _ 684,000
Allocated excess (excess of cost over book value)….. P 276,000Less: Over/under valuation of assets and liabilities:Add (deduct): (Over) under valuation of assets and liabilities
Decrease in inventory: P(40,000 x 60%)Increase in building: P220,000 x 60%
P( 24,000)___132,000 _108,000
Positive excess: Partial-goodwill (excess of cost overfair value)………………………………………………... P 168,000
Amortization Table: (in thousands of P's)
AssetAllocated
ExcessAmortization period
Amortization/Impairment
per year
Amortization/Impairment
20x61 year
Amortization/Impairmentloss during
20x7
Balance ofAllocated Excess
remaining at end of20x7
Inventory (40) 1 (40) - 0Building 220 20 11 11 11 198Goodwill 280 - 280Total 460 (29) 11 478
49. P640,000Non-controlling interest , 12/31/20x5 — 40% × P1,600,000, fair value of subsidiary = P640,000Or, alternatively:
Non-controlling interest, December 31, 20x5Common stock – S Company, December 31, 20x5…… P 600,000Retained earnings – S Company, December 31, 20x5 540,000Stockholders’ equity – S Company, December 31, 20x5 P1,140,000Adjustments to reflect fair value - (over) undervaluation of assets and
liabilities, date of acquisition (December 31, 20x5) ___180,000Fair value of stockholders’ equity of S, December 31, 20x2…… P1,320,000Multiplied by: Non-controlling Interest percentage…………... 40Non-controlling interest (partial goodwill)………………………………….. P 528,000Add: NCI on full-goodwill (P280,000 – P168,000) ___112,000Non-controlling interest (full- goodwill)………………………………….. P 640,000
50. Since there was no impairment in goodwill reported in 20x6 and 20x7, the balance showingfor goodwill is P280,000.
51. P779,200Non-controlling interest , December 31, 20x7
Common stock – S Company, December 31, 20x7 P 600,000Retained earnings – S Company, December 31, 20x7 __935,000Stockholders’ equity – S Company, December 31, 20x7 P1,535,000Adjustments to reflect fair value - (over) undervaluation of assets and
liabilities, date of acquisition (December 31, 20x5) 180,000Amortization of allocated excess (refer to amortization above- 20x6 and
20x7 (P40,000 - P11,000) = P(29,000) + P11,000 __18,000Fair value of stockholders’ equity of S, December 31, 20x7…… P1,733,000Less: UPEI of P (up) – 20x7 or RPBI of P (up) – 20x8 ____65,000
P1,668,000Multiplied by: Non-controlling Interest percentage…………... _ 40Non-controlling interest (partial goodwill)………………………………….. P 667,200Add: NCI on full-goodwill ___112,000Non-controlling interest (full- goodwill)………………………………….. P 779,200
Or, alternatively: Calculation of Non-controlling interest at December 31, 20X7:Balance of NCI at time of acquisition P640,000Add: NCI's share of adjusted change in retained earnings in prior years:
Retained earnings balance of Book at end of 20X7 P935,000Retained earnings balance of Book at date of acquisition (540,000)Change in carrying value of Book since acquisition P395,000Adjustments:
Amortization of fair value increments 18,000Unrealized profit on upstream sale of inventory in 20X7 ( 65,000)
Adjusted change in retained earnings since acquisition P348,000NCI's share 40% 139,200
Ending balance of NCI on December 31, 20X7 P779,200
RPBI of S (downstream sales)- 20x7:Sales of Parent EI % EI of S GP% of Parent
P800,000 x 25% = P200,000 x 30%………………………………. 60,000RPBI of P (upstream sales - 20x7
Sales of Subsidiary EI % EI of P GP% of SubsidiaryP500,000 x 60% = P300,000 x 25%......………………………….. 75,000
UPEI of S (downstream sales) - 20x7Sales of Parent EI % EI of S GP% of ParentP1,000,000 x 15% = P150,000 x 30%………………………………. 45,000
UPEI of P (upstream sales) - 20x7Sales of Subsidiary EI % EI of P GP% of Subsidiary
P650,000 x 40% = P260,000 x 25%…………………………..... 65,000
52. P1,780,400Retained earnings – Parent, 12/31/20x6 (cost)……………………….. P 1,775,000-: UPEI of S (down) – 20x6 or RPBI of S (down) – 20x7..……………….. 60,000Adjusted Retained earnings – Parent, 12/31/20x6 (cost model)….. P 1,715,000Retroactive Adjustments to convert Cost to “Equity” for
purposes of consolidation / Parent’s share of adjustednet increase in subsidiary’s retained earnings:
Retained earnings – Subsidiary, 12/31/20x5…………………..P540,000Less: Retained earnings – Subsidiary, 12/31/20x6…………… 695,000Increase in Retained earnings since acquisition
(cumulative net income – cumulative dividends)……….P155,000Accumulated amortization - 20x6…………………………….. 29,000UPEI of P (up) – 20x6 or RPBI of P (up) – 20x7………………....( 75,000)
P 109,000x: Controlling Interests………………………………………… 60% 65,400
RE – P, 12/31/20x4 (equity method) = CRE, 12/31/20x4……… P1,780,400
Or, alternatively:
Ending balance - Retained earnings separate entity - Paper P1,775,000Less unrealized profit on downstream sale of inventory 20x6 (60,000)
Subtotal P1,715,000Paper’s share of adjusted retained earnings - see Note 1 below:
60% × P109,000 65,400Ending consolidated retained earnings balance of Paper, 12/ 31/ 20x6 P1,780,400
Note 1:Retained earnings balance of Book at end of 20x6 P695,000Retained earnings balance of Book at date of acquisition (540,000)Change in carrying value of Book since acquisition P155,000Adjustments:
Amortization of fair value increments 29,000Unrealized profit on upstream sale of inventory in 20x6 (75,000)Adjusted change in retained earnings since acquisition P109,000
Paper's s share 60% × 109,000 P 65,400
53. P2,428,800Retained earnings – Parent, 12/31/20x7 (cost)……………………….. P 2,265,000-: UPEI of S (down) – 20x7 or RPBI of S (down) – 20x8..……………….. 45,000Adjusted Retained earnings – Parent, 12/31/20x6 (cost model)….. P 2,220,000Retroactive Adjustments to convert Cost to “Equity” for
purposes of consolidation / Parent’s share of adjustednet increase in subsidiary’s retained earnings:
Retained earnings – Subsidiary, 12/31/20x5…………………..P540,000Less: Retained earnings – Subsidiary, 12/31/20x7…………… 935,000
Increase in Retained earnings since acquisition(cumulative net income – cumulative dividends)……….P395,000
Accumulated amortization - 20x6 and 20x7(P29,000 – P11,000)…………………………………………….. 18,000
UPEI of P (up) – 20x7 or RPBI of P (up) – 20x8………………....( 65,000)P 348,000
x: Controlling Interests………………………………………… 60% 208,800RE – P, 12/31/20x4 (equity method) = CRE, 12/31/20x4……… P2,428,800
Or, alternatively:Ending balance - Retained earnings separate entity - Paper P2,265,000Less unrealized profit on downstream sale of inventory 20x7 (__45,000)
Subtotal P2,220,000Paper's share of adjusted retained earnings - see Note 1 below:
60% × 348,000 208,800Ending consolidated retained earnings balance of Paper, 12/31/20x7 P2,428,800
Note 1:Retained earnings balance of Book at end of 20x7 P935,000Retained earnings balance of Book at date of acquisition (540,000)Change in carrying value of Book since acquisition P395,000Adjustments:
Amortization of fair value increments 18,000Unrealized profit on upstream sale of inventory in 20x7 (65,000)Adjusted change in retained earnings since acquisition P348,000
Paper's s share 60% × 348,000 P208,800
or alternatively:Consolidated retained earnings, December 31, 20x6 (No. 52) P1,780,400Controlling Interests in Consolidated Net income (refer to statement
of comprehensive income below) 1,148,400Dividends declared – paper ( 500,000)Retained earnings, December 31, 20x7 P2,428,800
Incidentally, theEliminate intercompany transactions for 20X7
Intercompany transactions and balancesAccounts receivable/accounts payable still outstanding P 150,000Downstream sales by Paper P1,000,000Upstream sales by Book P 650,000Dividends declared by Book P 250,000Paper's portion of dividends P250,000 X 60% = P150,000
Paper Co.Consolidated Statement of Comprehensive Income
For the year ended December 31,20s7
Sales (2,520 + 2,400 - 1,000 - 650) 3,270,000Management fees (250 - 250) 0Dividend income (150 - 150) 0
3,270,000Cost of sales (800 + 1,200 - 1,000 - 650 - 60 - 75 + 45 + 65) 325,000Depreciation and amortization expenses (670 + 325 + 11) 1,006,000Management fees expense (250 - 250) 0Other expenses (460 + 135) 595,000
1,926,000Consolidated Net income 1,344,000
Allocated as follows:Non-controlling interests in CNI — see below 195,600Controlling Interest in CNI Owners of the parent 1,148,400Consolidated Net Income 1,344,000
Non-controlling interest's portion of adjusted net earnings:Net income of Book for 20X7 as per separate-entity statement P490,000Adjustments for 20X7
Realized profits on upstream sale of inventory 20x6 75,000Unrealized profits on upstream sale of inventory — 20x7 ( 65,000)Amortization of fair value increments for 20x7 ( 11,000)Adjusted net income of Book for 20x7 P489,000
NCI's share 40% × P489,000 P195,600
Theories1. True 6. True 11. True 16. False 21. True 26. e 31 b 36. a2. False 7. False 12. False 17. False 22. False 27. e 32. e 37. b3. False 8. False 13. False 18. True 23. b 28. c 33. b 38. e4. True 9. True 14. True 19. True 24. e 29. d 34. d 39. d5. False 10, False 15, True 20. False 25. a 30. a 35. a 40. d
41. b 46. c 51. a 56. c 61. a 66. b 71 b 76. c42. c 47. b 52. c 57. b 62. a 67. b 72. a 77. c43. a 48. c 53. c 58. c 63. b 68. c 73. a 78. a44. c 49. a 54. d 59. b 64. c 69. d 74. a 79. c45. d 50, d 55, c 60. c 65. a 70. b 75. c 80. e