Solution Chapter 17

Chapter 17
Problem I
1.
Consolidated Net Income for 20x5

P Companys net income from own/separate operations.
Realized profit in beginning inventory of S Company (downstream sales)
Unrealized profit in ending inventory of S Company (downstream sales)
P Companys realized net income from separate operations*...
S Companys net income from own operations.
Realized profit in beginning inventory of P Company (upstream sales)
Unrealized profit in ending inventory of P Company (upstream sales)
S Companys realized net income from separate operations*...
Total
Less: Amortization of allocated excess
Less: Non-controlling Interest in Net Income* *
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent 20x5..
*that has been realized in transactions with third parties.
P 460,000
0
(
0)
P 460,000
P 760,000
36,000
(_50,000)
P 746,000
460,000
P1,206,000
0
P1,206,000
92,000
P 1,114,000
Or, alternatively

Total
Amortization of allocated excess
equity holders of parent..
Add: Non-controlling Interest in Net Income (NCINI)
**Non-controlling Interest in Net Income (NCINI) for 20x5
S Companys net income of Subsidiary Company from its own operations
(Reported net income of Son Company)
S Companys realized net income from separate operations
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI) partial goodwill
2. 20x4
Sales
Purchases (Cost of Goods Sold)
12/31 Inventory (Income Statement)

[216,000 (216,000/1.20)]
12/31 Inventory (Balance Sheet)
20x5
Sales
1,080,000
36,000
1,200,000
P 460,000
0
(
0)
P460,000
P 92,000
0
P 760,000
36,000
(_50,000)
P 746,000
460,000
P1,206,000
92,000
P1,114,000
_ 92,000
P 1,206,000
P460,000
0
(
0)
P460,000
_____0
P460,000
20%
P 92,000
1,080,000
36,000

[300,000 (300,000/1.20)]
Beginning R/E Puma
1,200,000
50,000
36,000
50,000
36,000
Problem II
1.

Son Companys realized net income from separate operations*...
Total
P 600,000
40,000
( 51,00 0)
P 589,000
P 1,720,000
0
(_
0)
P 1, 720,000
589,000
P2,309,000
0
P2,309,000
58,900
P 2,250,100
Or, alternatively

Total
Son Companys realized net income from separate operations
Non-controlling Interest in Net Income (NCINI)
2.
Sales
Purchases (Cost of Sales)

To eliminate intercompany sales.
1,020,000
P 600,000
40,000
( 51,000)
P589,000
P 58,900
0
P 1,720,000
0
(________0)
P1,720,,000
589,000
P2,309,000
__58,900
P2,250,100
_ 58,900
P 2,309,000
P600,000
40,000
( 51,000)
P589,000
_____0
P589,000
10%
P 58,900
1,020,000

51,000
Inventory (Balance Sheet)
51,000
To eliminate unrealized intercompany profit in ending inventory.
Beginning Retained Earnings Pinta
(.90 P40,000)
36,000
Noncontrolling interest
4,000
40,000
To recognize unrealized profit in beginning inventory realized during the year.
Problem III

S Companys net income from own operations (P1,500,000 + P2,400,000)
Realized profit in beginning inventory of P Company (upstream sales) Salad
Realized profit in beginning inventory of P Company (upstream sales)- Tuna
Unrealized profit in ending inventory of P Company (upstream sales) Salad
Unrealized profit in ending inventory of P Company (upstream sales) Tuna
Total
Less: Non-controlling Interest in Net Income* *- Salad
Non-controlling Interest in Net Income* *- Tuna
P3,900,000
66,000
63,000
( 57,000)
( 69,000)
P3,903,000
P 301,800
___239,400
P 3,600,000
54,000
(_ 45,00 0)
P 3,609,000
3,903,000
P7,512,000
0
P7,512,000
___541,200
P6,970,800
Or, alternatively

S Companys net income from own operations (P1,500,000 + P2,400,000)
Realized profit in beginning inventory of P Company (upstream sales) Salad
Realized profit in beginning inventory of P Company (upstream sales)- Tuna
Unrealized profit in ending inventory of P Company (upstream sales) Salad
Unrealized profit in ending inventory of P Company (upstream sales) Tuna
Total
Less: Non-controlling Interest in Net Income* * - Salad
Non-controlling Interest in Net Income* * - Tuna
P3,900,000
66,000
63,000
( 57,000)
( 69,000)
P3,903,000
P 3,600,000
54,000
(___45,000)
P3,609,,000
3,903,000
P7,512,000
P 301,800
239,400
0
__541,200
P6,970,800
_541,200
P 7,512,000
**Salad
Non-controlling Interest in Net Income (NCINI) for 20x4

(Reported net income of S Company)
P1,500,000
66,000
( 57,000)
P1,509,000
_____0
P1,509,000
__
20%
P 301,800
**Tuna
Non-controlling Interest in Net Income (NCINI) for 20x4

Realized Profit in Beginning inventory:

Downstream Sales (Sales from Parent to Subsidiary)
P414,000 x 15/115
Upstream Sales (Sales from Subsidiary-Salad to Parent):
Salad: P396,000 x 20/120
Upstream Sales (Sales from Subsidiary-Tuna to Parent):
Tuna: P315,000 x 25/125
Unrealized Profit in Ending inventory:
Downstream Sales (Sales from Parent to Subsidiary)
P345,000 x 15/115
Upstream Sales (Sales from Subsidiary-Salad to Parent):
Salad: P342,000 x 20/120
Upstream Sales (Sales from Subsidiary-Tuna to Parent):
Tuna: P345,000 x 25/125
Problem IV
1.
Sales
Cost of Goods Sold
Cost of Goods Sold
Ending Inventory (Balance Sheet)
[P1,250,000 - (P1,250,000/1.25)]
1/1 Retained Earnings P Company (1)
Noncontrolling interest (2)
Cost of Goods Sold (Beginning Inventory)
[P525,000 (P525,000/1.25)] = P105,000
4,000,000
250,000
84,000
21,000
P2,400,000
63,000
( 69,000)
P2,394,000
_____0
P2,394,000
10%
P 239,400
P54,000
66,000
63,000
P45,000
57,000
69,000
4,000,000
250,000
105,000
(1) .8(P105,000)
(2) .2(P105,000)
2/3.
P3,000,000 .20 = P600,000 non-controlling interest in consolidated income.
4.
[(.20 P5,400,000) -.20(P1,250,000 P1,250,000/1.25)] = P1,030,000 non-controlling interest in

consolidated net assets on December 31, 20x4.
Problem V
P COMPANY AND SUBSIDIARY

Consolidated Income Statement
For the Year Ended December 31, 20x4
Sales (P13,800,000 P1,350,000)
P12,450,000
Cost of Goods Sold (a)

Operating Expenses
Consolidated Income
Less Non-controlling Interest in Consolidated Income (b)
Controlling Interest in Consolidated Net Income
P7,755,000
1,800,000
9,555,000
2,895,000
197,500
P2,697,500
(a)
Reported Cost of Goods Sold
Less intercompany sales in 20x4
Plus unrealized profit in ending inventory (2/5 x (P1,350,000 - P900,000))
Less realized profit in beginning inventory (1/4 x (P1,800,000 - P1,500,000))
Corrected cost of goods sold
P9,000,000
(1,350,000)
180,000
(75,000)
P7,755,000
P190,000
0.1
Plus unrealized profit on subsidiary sales in 2013 that is considered realized in 20x4
(1/4 x (P1,800,000 - P1,500,000))
Less unrealized profit on subsidiary sales in 20x4 (there were no upstream sales in 20x4)
Income realized in transactions with third parties
P1,900,000
(b)
Reported net income of subsidiary
75,000
0
1,975,000
0.10
P197,500
Non-controlling interest in consolidated income
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) ...............................................
Inventory Remaining at Year's End .........................................................................
Unrealized Intercompany Gross profit, 12/31 .............................................................
P40,000
20%
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 ..................................................................................................... P692,000
Less: Operating expenses ........................................................................... 443,000
Consolidated Net Income ...........................................................................P249,000
Less: NCI-CNI ...................................................................................................
8,700
CI-CNI...............................................................................................................P240,300
or

P Companys net income from own/separate operations (P800-P400-P180)
S Companys net income from own operations (P600 P300 P250)
P 50,000
0
( 8, 000)
P 220,000
0
(_
0)
P 220,000

Total
P 42,000
42,000
P 262,000
13,000
P 249,000
8,700
P 240,300
Or, alternatively
Total
P 50,000
0
( 8,000)
P 42,000
P 8,700
13,000
42,000
P 262,000
21,700
P240,300
_ 8,700
P249,000

P 50,000
0
( 8,00 0)
P 42,000
13,000
P 29,000
30%
P 8,700

P 220,000
0
(_
0)
P 220,000
Noncontrolling Interest in Subsidiary's Net Income = P8,700 (30 percent of the reported
income after subtracting 13,000 excess fair value amortization and deferring P8,000 ending
unrealized gross profit) Gross profit is included in this computation because the transfer was
upstream from SS to PT.
Problem IX
Requirements 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..
Less: Book value of stockholders equity of Son:
Common stock (P240,000 x 80%).
Retained earnings (P120,000 x 80%)...
Allocated excess (excess of cost over book value)..
Less: Over/under valuation of assets and liabilities:
Increase in inventory (P6,000 x 80%)
Increase in land (P7,200 x 80%).
Increase in equipment (P96,000 x 80%)
Decrease in buildings (P24,000 x 80%).....
P 372,000
P 192,000
96,000
P 4,800
5,760
76,800
( 19,200)
288,000
84,000
Decrease in bonds payable (P4,800 x 80%)

Positive excess: Partial-goodwill (excess of cost over
fair value)...
3,840
72,000
P 12,000
The over/under valuation of assets and liabilities are summarized as follows:

Inventory...
Land
Equipment (net).........
Buildings (net)
Bonds payable
Net..
S Co.
Book value
P 24,000
48,000
84,000
168,000
(120,000)
P 204,000
S Co.
Fair value
P 30,000
55,200
180,000
144,000
( 115,200)
P 294,000
(Over) Under
Valuation
P 6,000
7,200
96,000
(24,000)
4,800
P 90,000
The buildings and equipment will be further analyzed for consolidation purposes as follows:
Equipment ..................
Less: Accumulated depreciation..
Net book value...
S Co.
Book value
180,000
96,000
84,000
S Co.
Fair value
180,000
180,000
Increase
(Decrease)
0
( 96,000)
96,000
Buildings................
Net book value...
S Co.
Book value
360,000
192,000
168,000
S Co.
Fair value
144,000
144,000
(Decrease)
( 216,000)
( 192,000)
( 24,000)
A summary or depreciation and amortization adjustments is as follows:

Account Adjustments to be amortized
Inventory
Subject to Annual Amortization
Buildings (net)
Bonds payable
Over/
Under
P 6,000
Life
1
96,000
(24,000)
48000
8
4
4
Annual
Amount
P 6,000
Current
Year(20x4)
P 6,000
20x5
P
-
12,000
( 6,000)
1,200
P 13,200
12,000
( 6,000)
1,200
P 13,200
12,000
(6,000)
1,200
P 7,200
The goodwill impairment loss of P3,750 based on 100% fair value would be allocated to the controlling
interest and the NCI based on the percentage of total goodwill each equity interest received. For
purposes of allocating the goodwill impairment loss, the full-goodwill is computed as follows:
Consideration transferred: Cash (80%)
P 372,000
Fair value of NCI (given) (20%)
93,000
P 465,000
Less: Book value of stockholders equity of Son (P360,000 x 100%)
__360,000

Add (deduct): (Over) under valuation of assets and liabilities
(P90,000 x 100%)
Positive excess: Full-goodwill (excess of cost over
fair value)...
105,000
90,000
15,000
In this case, the goodwill was proportional to the controlling interest of 80% and non-controlling interest
of 20% computed as follows:
Goodwill applicable to parent
Value
P12,000
% of Total
80.00%
Goodwill applicable to NCI..

Total (full) goodwill..
The goodwill impairment loss would be allocated as follows

Goodwill impairment loss attributable to parent or controlling
Interest
Goodwill impairment loss based on 100% fair value or fullGoodwill
3,000
P15,000
20.00%
100.00%
Value
P 3,000
% of Total
80.00%
750
20.00%
P 3,750
100.00%
The unrealized profits on January 1, and on December 31, 20x5, resulting intercompany sales, are as
summarized below:
Downstream Sales:
Year
20x4
20x5
Sales of Parent to
Subsidiary
P150,000
120,000
Upstream Sales:
Year
20x4
20x5
Sales of Subsidiary
to Parent
P 50,000
62,500
Intercompany Merchandise
in 12/31 Inventory
of S Company
P150,000 x 60% = P90,000
P120,000 x 80% = P96,000
Unrealized Intercompany
Profit in Ending Inventory
P90,000 x 20% = P18,000
P96,000 x 25% = P40,000
in 12/31 Inventory
of S Company
P100,000 x 50% = P25,000
P 62,500 x 40% = P25,000
P25,000 x 40% = P10,000
P25,000 x 20% = P 5,000
20x4: First Year after Acquisition

Parent Company Cost Model Entry
January 1, 20x4:
(1) Investment in S Company
Cash..
Acquisition of S Company.
January 1, 20x4 December 31, 20x4:
(2) Cash
Dividend income (P36,000 x 80%).
Record dividends from S Company.
372,000
28,800
372,000
28,800
No entries are made on the parents books to depreciate, amortize or write-off the portion of the
allocated excess that expires during 20x4, and unrealized profits in ending inventory.
Consolidation Workpaper Year of Acquisition
(E1) Common stock S Co

Retained earnings S Co
Investment in S Co
Non-controlling interest (P360,000 x 20%)..
240,000
120.000
(E2) Inventory.
Accumulated depreciation equipment..
Accumulated depreciation buildings..
Land.
Discount on bonds payable.
6,000
96,000
192,000
7,200
4,800
To eliminate intercompany investment and equity accounts

of subsidiary on date of acquisition; and to establish non-controlling
interest (in net assets of subsidiary) on date of acquisition.
288,000
72,000
Goodwill.
Buildings..
Investment in Son Co.
12,000
To allocate excess of cost over book value of identifiable assets

acquired, with remainder to goodwill; and to establish noncontrolling interest (in net assets of subsidiary) on date of acquisition.
(E3) Cost of Goods Sold.

Depreciation expense..
Interest expense
Goodwill impairment loss.
Inventory..
Discount on bonds payable
Goodwill
6,000
6,000
6,000
1,200
3,000
To provide for 20x4 impairment loss and depreciation and

amortization on differences between acquisition date fair value and
book value of Ss identifiable assets and liabilities as follows:
Inventory sold
Equipment
Buildings
Bonds payable
Totals
Cost of
Goods
Sold
P 6,000
_______
P 6,000
Depreciation/
Amortization
Expense
Amortization
-Interest
P 12,000
( 6,000)
_______
P 2,000
P 1,200
P1,200
6,000
12,000
1,200
3,000
Total
13,200
(E4) Dividend income - P.

Dividends paid S
28,800
7,200
To eliminate intercompany dividends and non-controlling interest

share of dividends.
(E5) Sales.
Cost of Goods Sold (or Purchases)
150,000
(E6) Sales.
60,000
(E7) Cost of Goods Sold (Ending Inventory Income Statement)

Inventory Balance Sheet
18,000

12,000
To eliminated intercompany downstream sales.
To eliminated intercompany upstream sales.
To defer the downstream sales - unrealized profit in ending inventory

until it is sold to outsiders.
To defer the upstream sales - unrealized profit in ending inventory

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

Non-controlling interest ..
To establish non-controlling interest in subsidiarys adjusted net
income for 20x4 as follows:
Net income of subsidiary..
Unrealized profit in ending inventory of P
216,000
18,000
84,000
P 60,000
6,960
36,000
150,000
60,000
18,000
12,000
6,960
Company (upstream sales)..

S Companys realized net income from
separate operations*...
Less: Amortization of allocated excess [(E3)].
partial goodwill
( 12,000)
P 48,000
13,200
P 34,800
20%
P
6,960
Worksheet for Consolidated Financial Statements, December 31, 20x4.

Cost Model (Partial-goodwill)
80%-Owned Subsidiary
December 31, 20x4 (First Year after Acquisition)
Income Statement
P Co
P480,000
S Co.
P240,000
Dividend income
Total Revenue
Cost of goods sold
28,800
P508,800
P204,000
P240,000
P138,000
Depreciation expense
Interest expense
Other expenses
Goodwill impairment loss
Total Cost and Expenses
Net Income
NCI in Net Income - Subsidiary
Net Income to Retained Earnings
60,000
48,000
P312,000
P196,800
P196,800
24,000
18,000
P180,000
P 60,000
P 60,000
Sales
Statement of Retained Earnings

Retained earnings, 1/1
P Company
S Company
Net income, from above
Total
Dividends paid
Perfect Company
Son Company
Retained earnings, 12/31 to Balance
Sheet
Balance Sheet
Cash.
Accounts receivable..
Inventory.
Land.
Equipment
Buildings
Goodwill
Investment in S Co
Total
Accumulated depreciation
- equipment
- buildings
Accounts payable
Bonds payable
Common stock, P10 par
P432,000
236,160
P668,160
P144,000
72,000
P216,000
86,400
-
43,200
P581,760
Dr.
(5) 150,000
(6) 60,000
(4) 36,000
(3)
(7)
(8)
(3)
(3)
6,000
18,000
12,000
6,000
1,200
(3)
3,000
(9)
6,960
Cr.
Consolidated
P 510,000
_________
P 510,000
P 168,000
(5) 150,000
(6) 60,000
90,000
1,200
66,000
3,000
P328,200
P181,800
( 6,960)
P174,840
(1) 120,000
360,000
174,840
P538,840
72,000
________
P172,800
466,840
232,800
90,000
120,000
P 90,000
60,000
90,000
355,200
150,000
1210,000
240,000
720,000
48,000
180,000
540,000
372,000
P1,984,800
P1,008,000
P 135,000
405,000
P 96,000
288,000
120,000
240,000
600,000
120,000
120,000
(4)
(2)
6,000
(2)
7,200
(2)
(2)
4,800
12,000
(3)
(7)
(8)
36,000
6,000
18,000
12,000
(2) 216,000
(3) 12000
(3) 3,000
(1) 288,000
(2) 84,000
(2) 96,000 (3)

(2) 192,000
(3)
6,000
12,000
180,000
265,200
420,000
1,044,000
3,600
9,000
P2,394,600
P147,000
495,000
240,000
360,000
600,000

Retained earnings, from above
Non-controlling interest
Total
581,760
240,000
144,000
_________
P1,984,800
_________
P1,008,000
(1) 240,000
(4)
7,200
__________
P 983,160
(1 ) 72,000
(2) 18,000
(9) 6,960
P 983,160

Unrealized profit in ending inventory of S Company (upstream sales)
Total
Amortization of allocated excess (refer to amortization above)
Goodwill impairment (impairment under partial-goodwill approach)
P 60,000
( 12,000)
P 48,000
462,840
____89,760
P2,394,600
P168,000
( 18,000)
P150,000
P 6,960
13,200
3,000
48,000
P198,000
23,160
P174,840
_ 6,960
P181.800
P 60,000
( 12,000)
P 48,000
13,200
P 34,800
20%
P 6,960
Since NCI share of goodwill is not recognized, no adjustment is required for the impairment loss on
goodwill and impairment losses are not shared with NCI.
20x5: Second Year after Acquisition
Sales
Less: Cost of goods sold
Gross profit
Less: Depreciation expense
Other expense
Net income from its own separate operations
Add: Dividend income
Net income
Dividends paid
P Co.
P 540,000
216,000
P 324,000
60,000
72,000
P 192,000
38,400
P 230,400
P 72,000
S Co.
P 360,000
192,000
P 168,000
24,000
54,000
P 90,000
P 90,000
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:
Cash
38,400
On the books of S Company, the P48,000 dividend paid was recorded as follows:
38,400
Dividends paid
Cash
Dividends paid by S Co..
48,000
Consolidation Workpaper Second Year after Acquisition

(E1) Investment in S Company
Retained earnings P Company
19,200
To provide entry to convert from the cost method to the equity

method or the entry to establish reciprocity at the beginning of the
year, 1/1/20x5, computed as follows:
Retained earnings S Company, 1/1/20x5
Increase in retained earnings..
Multiplied by: Controlling interest %
Retroactive adjustment
240,000
144.000
(E3) Inventory.
Accumulated depreciation equipment.. ....
Accumulated depreciation buildings.. ...
Land.
Goodwill.
Buildings...........................
Non-controlling interest (P90,000 x 20%)............................
Investment in S Co.
6,000
96,000
192,000
7,200
4,800
12,000

of subsidiary and to establish non-controlling interest (in net assets of
subsidiary) on January 1, 20x5.

acquired, with remainder to goodwill; and to establish noncontrolling interest (in net assets of subsidiary) on January 1, 20x5.
(E4) Retained earnings P Company, 1/1/20x5

[(P13,200 x 80%) + P3,000, impairment loss on
partial-goodwill]
Non-controlling interests (P13,200 x 20%).
Interest expense
Inventory..
Goodwill
To provide for years 20x4 and 20x5 depreciation and amortization on

differences between acquisition date fair value and book value of
Ss identifiable assets and liabilities as follows:
Year 20x4 amounts are debited to Ps retained earnings &
NCI;
Year 20x5 amounts are debited to respective nominal accounts.
Inventory sold
Depreciation/
Amortization
expense
19,200
P144,000
120,000
P 24,000
80%
P 19,200

Retained earnings S Co., 1/1/20x5
Investment in S Co (P384,000 x 80%)
(20x4)
Retained
earnings,
P 6,000
48,000
Amortization
-Interest
13,560
2,640
6,000
12,000
1,200
307,200
76,800
216,000
18,000
84,000
6,000
24,000
2,400
3,000
Equipment
Buildings
Bonds payable
Sub-total
Multiplied by:
To Retained earnings
Impairment loss
Total
12,000
(6,000)
1,200
P13,200
80%
P 10,560
3,000
P 13,560
P 12,000
( 6,000)
________
P 6,000
P 1,200
P 1,200

Dividends paid S
38,400
9,600

share of dividends.
(E6) Sales.
120,000
(E7) Sales.
75,000
(E8) Beginning Retained Earnings P Company

Cost of Goods Sold (Ending Inventory Income Statement)
18,000
(E9) Beginning Retained Earnings P Company (P12,000 x 80%)

Noncontrolling interest (P12,000 x 20%)
9,600
2,400

24,000

6,000
To realized profit in downstream beginning inventory deferred in the

prior period.
To realized profit in beginning inventory deferred in the prior period.



Realized profit in beginning inventory of P
Company - 20x5 (upstream sales)
S Companys Realized net income*
12,000
( 6,000)
P 96,000
7,200
P 88,800
20%

Non-controlling Interest in Net Income (NCINI )
partial goodwill
P 17,760
*from separate transactions that has been realized in transactions
with third persons.
17,760
48,000
120,000
75,000
18,000
12,000
24,000
6,000
17,760

Cost Model (Partial-goodwill)
December 31, 20x5 (Second Year after Acquisition)
Income Statement
P Co
P540,000
S Co.
P360,000
Dividend income
Total Revenue
Cost of goods sold
38,400
P501,600
P216,000
P360,000
P192,000
Interest expense
Other expenses
Net Income
60,000
72,000
P348,000
P230,400
P230,400
24,000
54,000
P270,000
P 90,000
P 90,000

P Company
P484,800
Sales
S Company
Total
Dividends paid
P Company
S Company
Sheet
Balance Sheet
Cash.
Inventory.
Land.
Equipment
Buildings
Goodwill
Investment in S Co
Total
- equipment
- buildings
Accounts payable
Bonds payable
Total
Dr.
(6) 120,000
(7) 75,000
(5) 38,400
Cr.
(10) 24,000
(11) 6,000
(6) 120,000
(7) 75,000
(8) 18,000
(9) 12,000
(4)
(4)
6,000
1,200
Consolidated
P 705,000
___________
P 705,000
213,000
P
P
(
P
(12) 17,760
(2) 13,560
(8) 18,000
(9) 9,600
(2) 144,000
(1) 19,200
90,000
1,200
126,000
430,200
274,800
17,760)
257,040
P 462,840
230,400
P715,200
P 144,000
90,000
P234,000
72,000
-
48,000
P643,200
P186,000
P 647,880
265,200
180,000
216,000
P 102,000
96,000
108,000
P 367,200
276,000
210,000
240,000
720,000
48,000
180,000
540,000
372,000
P2,203,200
P1,074,000
P 150,000
450,000
P 102,000
306,000
120,000
240,000
600,000
120,000
120,000
643,200
___ _____
2,203,200
240,000
186,000
_________
P1,074,000
257,040
P 719,880
(5)
(3)
7,200
(3)
7,200
(3)
(3)
(1)
4,800
12,000
19,200
(3) 96,000
(3) 192,000
(4) 12,000
48,000
(4) 7,200
(10) 24,000
(11) 6,000
(3) 216,000
(4) 2,400
(4) 3,000
(2) 307,200
(3) 84,000
(4)
24,000
72,000
________
294,000
265,200
420,000
1,044,000
2,400
9,000
P2,677,800
P180,000
552,000
240,000
360,000
600,000
(2) 240,000
(4)
2,640
(5)
9,600
(9)
2,400
__________
P1,077,360
647,880
(2 ) 76,800
(3) 18,000
(12) 17,760
P1,077,360
____97,920
P2,677,800
5. 1/1/20x4
a. On date of acquisition the retained earnings of parent should always be considered as the
consolidated retained earnings, thus:
Consolidated Retained Earnings, January 1, 20x4
Retained earnings P Company, January 1, 20x4 (date of acquisition)
b.
c.
6.
P360,000
Non-controlling interest (partial-goodwill), January 1, 20x4

Common stock Subsidiary Company
Retained earnings Subsidiary Company.
Stockholders equity Subsidiary Company...
Adjustments to reflect fair value - (over) undervaluation of assets and liabilities
Fair value of stockholders equity of subsidiary, January 1, 20x4
Multiplied by: Non-controlling Interest percentage...
Non-controlling interest (partial)
P 240,000
120,000
P 360,000
90,000
P 450,000
20
P 90,000
Consolidated SHE:
Stockholders Equity
Retained earnings
Parents Stockholders Equity / CI - SHE
NCI, 1/1/20x4
Consolidated SHE, 1/1/20x4
P 600,000
360,000
P 960,000
___90,000
P1,050,000
Note: The goodwill recognized on consolidation purely relates to the parents share. NCI is
measured as a proportion of identifiable assets and goodwill attributable to NCI share is not
recognized.
12/31/20x4:
a. CI-CNI P174,840

Total
Goodwill impairment (impairment under partial-goodwill approach)
P 60,000
( 12,000)
P 48,000
P 6,960
13,200
3,000

48,000
P198,000
23,160
P174,840
_ 6,960
P181.800
b. NCI-CNI P6,960

P168,000
( 18,000)
P150,000
P 60,000
( 12,000)
P 48,000
13,200
P 34,800
20%
P 6,960
c. CNI, P181,800 refer to (a)

d. On subsequent to date of acquisition, consolidated retained earnings would be computed as
follows:
Consolidated Retained Earnings, December 31, 20x4
Retained earnings - P Company, January 1, 20x4 (date of acquisition)
Add: Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent for 20x4
Total
Less: Dividends paid P Company for 20x4
P360,000
174,840
P534,840
72,000
P462,840
e. The goodwill recognized on consolidation purely relates to the parents share. NCI is measured
as a proportion of identifiable assets and goodwill attributable to NCI share is not recognized.
The NCI on December 31, 20x4 are computed as follows:
Non-controlling interest (partial-goodwill), December 31, 20x4
Common stock Subsidiary Company, December 31, 20x4
Retained earnings Subsidiary Company, December 31, 20x4
Retained earnings Subsidiary Company, January 1, 20x4
Add: Net income of subsidiary for 20x4
Total
Less: Dividends paid 20x4
Stockholders equity Subsidiary Company, December 31, 20x4
Adjustments to reflect fair value - (over) undervaluation of assets and
liabilities, date of acquisition (January 1, 20x4)
Amortization of allocated excess (refer to amortization above) 20x4
Fair value of stockholders equity of subsidiary, December 31, 20x4
Less: Unrealized profit in ending inventory of P Company (upstream sales)
Realized stockholders equity of subsidiary, December 31, 20x4
Non-controlling interest (partial-goodwill)..
f.
Consolidated SHE:
Stockholders Equity
Retained earnings
Parents Stockholders Equity / CI SHE, 12/31/20x4
NCI, 12/31/20x4
12/31/20x5:
a. CI-CNI

Total
P 240,000
P120,000
6,000
P180,000
36,000
144,000
P 384,000
90,000
( 13,200)
P460,000
12,000
P448,800
20
P 89,760
P 600,000
462,840
P1,062,840
___89,760
P1,152,600
P 90,000
12,000
( 6,000)
P 96,000
P192,000
18,000
(_24,000)
P186,000
96,000
P282,000
7,200
P274,800
17,760
P257,040
Or, alternatively

Total
Controlling Interest in Consolidated Net Income or Profit attributable to equity
holders of parent..
P 90,000
12,000
( 6,000)
P 96,000
P 17,760
7,200
P192,000
18,000
(_24,000)
P186,000
96,000
P282,000
24,960
P257,040
_ 17,760
P274,800
b. NCI-CNI

P 90,000
12,000
( 6,000)
P 96,000
7,200
P 88,800
20%
P 17,760

follows:
Retained earnings - Parent Company, January 1, 20x5 (cost model
Less: Unrealized profit in ending inventory of S Company (downstream sales)
20x4 (UPEI of S 20x4) or Realized profit in beginning inventory of S
Company (downstream sales) 20x5 (RPBI of S - 20x5).
Adjusted Retained Earnings Parent 1/1/20x5 (cost model (S Companys
Retained earnings that have been realized in transactions with third
parties..
Adjustment to convert from cost model to equity method for purposes of
consolidation or to establish reciprocity:/Parents share in adjusted net
increased in subsidiarys retained earnings:
Retained earnings Subsidiary, January 1, 20x5
Less: Retained earnings Subsidiary, January 1, 20x4
Increase in retained earnings since date of acquisition
Less: Amortization of allocated excess 20x4
Unrealized profit in ending inventory of P Company (upstream
sales) 20x4 (UPEI of P 20x4) or Realized profit in beginning
inventory of P Company (upstream sales) 20x5 (RPBI of P - 20x5)
Multiplied by: Controlling interests %...................
P484,800
18,000
P466,800
P 144,000
120,000
P 24,000
13,200
12,000
(P 1,200)
80%
(P 960)
3,000
Less: Goodwill impairment loss, partial goodwill

( 3,960)
Consolidated Retained earnings, January 1, 20x5
P462,840
257,040
Total
P748,680
Less: Dividends paid Parent Company for 20x5
72,000
P647,880
*this procedure would be more appropriate, instead of multiplying the full-goodwill impairment loss of P3,125 by 80%.
There might be situations where the controlling interests on goodwill impairment loss would not be proportionate to NCI
acquired (refer to Illustration 15-6).
Or, alternatively:

Retained earnings - Parent Company, December 31, 20x5 (cost model
Adjusted Retained Earnings Parent 12/31/20x5 (cost model (
S Companys Retained earnings that have been realized in
transactions with third parties..
Retained earnings Subsidiary, December 31, 20x5
Less: Accumulated amortization of allocated excess
20x4 and 20x5 (P11,000 + P6,000)
Less: Goodwill impairment loss, partial goodwill
Consolidated Retained earnings, December 31, 20x5
e.
f.

Retained earnings Subsidiary Company, January 1, 20x5*
Total
Amortization of allocated excess (refer to amortization above) :
20x4
20x5
Less: Unrealized profit in ending inventory of P Company (upstream
sales) 20x5 (UPEI of P 20x5) or Realized profit in beginning inventory
of P Company (upstream sales) 20x6 (RPBI of P - 20x6
Realized stockholders equity of subsidiary, December 31, 20x5.
Non-controlling interest (partial goodwill)..
* the realized profit in beginning inventory of P Company (upstream sales) 20x5 (RPBI
already included in the beginning retained earnings of S Company.
Consolidated SHE:
Stockholders Equity
Retained earnings
Parents Stockholders Equity / CI SHE, 12/31/20x4
NCI, 12/31/20x4
Problem X
Schedule of Determination and Allocation of Excess
P643,200
24,000
P619,200
P 186,000
120,000
P 66,000
20,400
P
P
6,000
39,600
80%
31,680
3,000
28,680
P647,880
P 240,000
P144,000
90,000
P234,000
48,000
186,000
P 426,000
90,000
P 13,200
7,200
( 20,400)
P 495,600
6,000
P489,600
20
P 97,920
of P - 20x5 amounting to P10,000 is
P 600,000
647,880
P1,247,880
___97,920
P1,345,800

Consideration transferred (80%)..
Fair value of NCI (given) (20%)..
Fair value of Subsidiary (100%).
fair value)...
P 372,000
93,000
P 465,000
P 240,000
120,000
360,000
P 105,000
6,000
7,200
96,000
( 24,000)
4,800
90,000
P 15,000

Inventory
Buildings (net)
Bonds payable
Over/
under
P 6,000
Life
1
96,000
(24,000)
4,800
8
4
4
Annual
Amount
P 6,000
Current
Year(20x4)
P 6,000
20x5
P
-
12,000
( 6,000)
1,200
P 13,200
12,000
( 6,000)
1,200
P 13,200
12,000
(6,000)
1,200
P 7,200

January 1, 20x4:
Cash..
(2) Cash
Record dividends from Son Company.
372,000
28,800
372,000
28,800
On the books of Son Company, the P36,000 dividend paid was recorded as follows:
Dividends paid
Cash.
36,000
36,000
No entries are made on the parents books to depreciate, amortize or write-off the portion of the
allocated excess that expires during 20x4.
Consolidation Workpaper First Year after Acquisition

Investment in S Co
240,000
120.000

of subsidiary on date of acquisition; and to establish non-controlling
interest (in net assets of subsidiary) on date of acquisition.
(E2) Inventory.
6,000
288,000
72,000

Land.
Goodwill.
Buildings..
Non-controlling interest (P90,000 x 20%) + [(P15,000, full
P12,000, partial goodwill)]
96,000
192,000
7,200
4,800
15,000
21,000
84,000

acquired, with remainder to goodwill; and to establish noncontrolling interest (in net assets of subsidiary) on date of acquisition.

Interest expense
Inventory..
Goodwill
6,000
6,000
6,000
1,200
3,750

Inventory sold
Equipment
Buildings
Bonds payable
Totals
Cost of
Goods
Sold
P 6,000
Depreciation/
Amortization
Expense
Amortization
-Interest
P12,000
( 6,000)
_______
P 6,000
P 1,200
P1,200
_______
P 6,000

Dividends paid S
28,800
7,200

share of dividends.
(E5) Sales.
150,000
(E6) Sales.
60,000

18,000

12,000


216,000
6,210
6,000
12,000
1,200
3,750
36,000
150,000
60,000
18,000
12,000
6,210

partial goodwill
Less: Non-controlling interest on impairment
loss on full-goodwill (P3,750 x 20%) or
(P3,750 impairment on full-goodwill less
P3,000, impairment on partial-goodwill)
full goodwill
P 60,000
( 12,000)
P 48,000
13,200
P 34,800
20%
P 6,960
750
P
6,210

Cost Model (Full-goodwill)
Income Statement
P Co
P480,000
S Co.
P240,000
Dividend income
Total Revenue
Cost of goods sold
28,800
P451,200
P204,000
P240,000
P138,000
Interest expense
Other expenses
Net Income
60,000
48,000
P312,000
P196,800
P196,800
24,000
18,000
P180,000
P 60,000
P 60,000
Sales

P Company
S Company
Total
Dividends paid
P Company
S Company
Sheet
Balance Sheet
Cash.
Inventory.
Land.
Equipment
Buildings
Goodwill
P360,000
196,800
P556,800
P120,000
60,000
P180,000
72,000
-
36,000
P484,800
Dr.
(5) 150,000
(6) 60,000
(4) 28,800
(3)
(7)
(8)
(3)
(3)
6,000
18,000
12,000
6,000
1,200
(3)
3,750
(9)
6,210
Cr.
Consolidated
P 510,000
_________
P 510,000
P 168,000
(5) 150,000
(6) 60,000
90,000
1,200
66,000
3,750
P328,950
P181,050
( 6,210)
P174,840
(1) 120,000
360,000
174,840
P534,840
72,000
________
P144,000
462,840
232,800
90,000
120,000
P 90,000
60,000
90,000
322,800
150,000
210,000
240,000
720,000
48,000
180,000
540,000
(4)
(2)
6,000
(2)
7,200
(2)
(2)
4,800
15,000
(3)
(7)
(8)
36,000
6,000
18,000
12,000
(2) 216,000
(3) 1,200
(3) 3,750
180,000
265,200
420,000
1,044,000
3,600
11,250
Investment in S Co
372,000
Total
- equipment
- buildings
Accounts payable
Bonds payable
Total
P1,984,800
P1,008,000
P 135,000
405,000
P 96,000
288,000
120,000
240,000
600,000
120,000
120,000
484,800
240,000
144,000
_________
P1,984,800
_________
P1,008,000
(3) 288,000
(4) 84,000
(2) 96,000 (3)

(6) 192,000
(7)
6,000
P2,396,850
12,000
P147,000
495,000
240,000
360,000
600,000
(1) 240,000
(4)
7,200
P 986,160
(1 ) 72,000
(2) 21,000
(9) 6,210
P 986,160
Perfect Co.
P 540,000
216,000
P 324,000
60,000
72,000
P 192,000
38,400
P 230,400
P 72,000
Sales
Gross profit
Other expense
Net income
Dividends paid
462,840
____92,010
P2,396,850
Son Co.
P 360,000
192,000
P 168,000
24,000
54,000
P 90,000
P 90,000
P 48,000

20x5: Parent Company Cost Model Entry
Only a single entry is recorded by the parent in 20x5 in relation to its subsidiary investment:
Cash
38,400
38,400
On the books of S Company, the P48,000 dividend paid was recorded as follows:
Dividends paid
Cash
48,000
48,000

(E1) Investment in S Company
Retained earnings P Company
19,200
To provide entry to convert from the cost method to the equity

method or the entry to establish reciprocity at the beginning of the
year, 1/1/20x5.
Increase in retained earnings..
Multiplied by: Controlling interest %
Retroactive adjustment
P144,000
120,000
P 24,000
80%
P 19,200
240,000
19,200
Retained earnings S Co., 1/1/20x5

144.000
(E3) Inventory.
Land.
Goodwill.
Buildings..
Investment in S Co.
6000
96,000
192,000
7,200
4,800
15,000

of subsidiary and to establish non-controlling interest (in net assets of
subsidiary) on January 1, 20x5.
13,560
3,390
6,000
12,000
1,200
To provide for years 20x4 and 20x5 depreciation and amortization on

differences between acquisition date fair value and book value of
Sons identifiable assets and liabilities as follows:
Year 20x4 amounts are debited to Perfects retained earnings
and NCI.
Year 20x5 amounts are debited to respective nominal accounts..
Inventory sold
Equipment
Buildings
Bonds payable
Impairment loss
Totals
Multiplied by: CI%....
To Retained earnings
(20x4)
Retained
earnings,
P 6,000
12,000
(6,000)
1,200
3,750
P 16,950
80%
P13,560
Depreciation/
Amortization
expense
P
6,000
24,000
2,800
3,750
Amortization
-Interest
12,000
( 6,000)
P 6,000

Dividends paid S
P 1,200
P1,200
38,400
9,600

share of dividends.
(E6) Sales.
120,000
(E7) Sales.
75,000
216,000
21,000
84,000

acquired, with remainder to goodwill; and to establish noncontrolling interest (in net assets of subsidiary) on January 1, 20x5.
(E4) Retained earnings P Company, 1/1/20x5

(P16,950 x 80%)
Non-controlling interests (P16,950 x 20%).
Interest expense
Inventory..
Goodwill
307,200
76,800
48,000
120,000
75,000
(E8) Beginning Retained Earnings P Company

18,000
(E9) Beginning Retained Earnings P Company (P12,000 x 80%)

9,600
2,400

24,000

prior period.
To realized profit in upstream beginning inventory deferred in the

prior period.

(E11) Cost of Goods Sold (Ending Inventory Income

Statement)
6,000


17,760

Son Companys Realized net income*
18,000
12,000
24,000
6,000
17,760
P 90,000
12,000
( 6,000)
P 96,000
7,200
P 88,800
20%
P 17,760

partial goodwill
Less: NCI on goodwill impairment loss on fullGoodwill
0
full goodwill
P 17,760
with third persons.

Cost Model (Full-goodwill)
Income Statement
P Co
P540,000
S Co.
P360,000
Dividend income
Total Revenue
Cost of goods sold
38,400
P574,800
P216,000
P360,000
P192,000
Interest expense
Other expenses
Net Income
60,000
72,000
P348,000
P230,400
24,000
54,000
P270,000
P 90,000
Sales
Dr.
(6) 120,000
(7) 75,000
(5) 38,400
Cr.
(10) 24,000
(11) 6,000
(6) 120,000
(7) 90,000
(8) 21,600
(9) 14,400
(4)
(4)
6,000
1,200
Consolidated
P 705,000
___________
P 705,000
P 213,000
90,000
1,200
126,000
P 430,200
P 274,800

P230,400

P Company
P484,800
S Company
Total
Dividends paid
P Company
S Company
Sheet
Balance Sheet
Cash.
Inventory.
Land.
Equipment
Buildings
Goodwill
Investment in S Co
Total
- equipment
- buildings
Accounts payable
Bonds payable
Total
P 90,000
(12) 17,760
(3) 13,560
(8) 18,000
(9) 96000
(5) 144,000
( 17,760)
P 257,040
(4) 19,200
P 462,840
230,400
P715,200
P 144,000
90,000
P234,000
72,000
-
48,000
P643,200
P186,000
P 647,880
265,200
180,000
216,000
P 102,000
96,000
108,000
P 367,200
276,000
210,000
240,000
720,000
48,000
180,000
540,000
372,000
P2,203,200
P1,074,000
P 150,000
450,000
P 102,000
306,000
120,000
240,000
600,000
120,000
120,000
643,200
___ _____
P2,203,200
240,000
186,000
_________
P1,074,000
257,040
P 719,880
(5)
(6)
6,000
(3)
7,200
(3)
(3)
(1)
4,800
15,000
19,200
(3) 96,000
(3) 192,000
(4) 12,000
48,000
(4) 6,000
(10) 24,000
(11) 6,000
(3) 216,000
(4) 2,400
(4) 3,750
(2) 307,200
(3) 84,000
(4)
24,000
72,000
________
294,000
265,200
420,000
1,044,000
2,400
11,250
P2,680,050
P180,000
552,000
240,000
360,000
600,000
(2) 240,000
(4)
3,390
(8)
9,600
(9)
2,400
__________
P1,081,110
647,880
(2 ) 76,800
(3) 21,000
(12) 17,760
P1,081,110
____100,170
P2,680,050
5. 1/1/20x4
a. On date of acquisition the retained earnings of parent should always be considered as the
consolidated retained earnings, thus:
Consolidated Retained Earnings, January 1, 20x4
Retained earnings - Parent Company, January 1, 20x4 (date of acquisition)
b.
Non-controlling interest (partial-goodwill), January 1, 20x4

Common stock Subsidiary Company
Retained earnings Subsidiary Company.
Stockholders equity Subsidiary Company...
Adjustments to reflect fair value - (over) undervaluation of assets and liabilities
Fair value of stockholders equity of subsidiary, January 1, 20x4
Non-controlling interest (partial)..
Add: Non-controlling interests on full goodwill, 1/1/20x4 (P12,500, full-goodwill P10,000, partial
goodwill)
Non-controlling interest (full-goodwill)
P360,000
P 240,000
120,000
P 360,000
90,000
P 450,000
20
P 90,000
3,000
P 93,000
c.
6.
Consolidated SHE:
Stockholders Equity
Retained earnings
NCI, 1/1/20x4
P 600,000
360,000
P 960,000
___93,000
P1,053,000
Note: The goodwill recognized on consolidation purely relates to the parents share. NCI is
measured as a proportion of identifiable assets and goodwill attributable to NCI share is not
recognized.
12/31/20x4:
a. CI-CNI P174,840
Perfect Companys realized net income from separate operations*...
Total
Less: Non-controlling Interest in Net Income
Goodwill impairment (impairment under full-goodwill approach)
P 60,000
( 12,000)
P 48,000
P 6,1210
13,200
3,750
P168,000
( 18,000)
P150,000
48,000
P198,000
23,160
P174,840
_ 6,210
P181.050
b. NCI-CNI P6,210
Non-controlling Interest in Net Income (NCINI) partial
Less: Non-controlling interest on impairment loss on full-goodwill (P3,750 x
20%) or (P3,750 impairment on full-goodwill less P3,000, impairment on
partial- goodwill)
P 60,000
( 12,000)
P 48,000
13,200
P 34,800
20%
P 6,960
750
6,210
c. CNI P181,050 refer to (a)

follows:
e.

Retained earnings - Parent Company, January 1, 20x4 (date of acquisition)
Total
P360,000
174,840
P534,840
72,000
P462,840
f.
Non-controlling interest ), December 31, 20x4

Retained earnings Subsidiary Company, January 1, 20x4
Total
Non-controlling interest (partial-goodwill)..
Add: Non-controlling interest on full goodwill , net of impairment loss, 12/31/x4:
[(P15,000 full P12,000, partial = P3,000) P750 impairment loss
Non-controlling interest (full-goodwill)..
Consolidated SHE:
Stockholders Equity
Retained earnings
NCI, 1/1/20x4
P 240,000
P120,000
60,000
P180,000
36,000
144,000
P 384,000
90,000
( 13,200)
P460,800
12,000
P448,800
20
P 89,760
2,250
P 92,010
P 600,000
462,840
P1,062,840
___92,010
P1,154,840
12/31/20x5:
a. CI-CNI P257,040

Total
P 90,000
12,000
( 6,000)
P 96,000
P192,000
18,000
(_24,000)
P186,000
96,000
P282,000
7,200
P274,800
17,760
P257,040
Or, alternatively

Total
P 90,000
12,000
( 6,000)
P 96,000
P 17,760
7,200
P192,000
18,000
(_24,000)
P186,000
96,000
P282,000
24,960
P257,040

_ 17,760
P274,800
b. NCI-CNI P16,560

Less: NCI on goodwill impairment loss on full goodwill
Non-controlling Interest in Net Income (NCINI) full goodwill
P 90,000
12,000
( 6,000)
P 96,000
7,200
P 88,800
20%
P 17,760
0
P 17,760

follows:
Retained earnings - Parent Company, January 1, 20x5 (cost model
Adjusted Retained Earnings Parent 1/1/20x5 (cost model (S Companys
Retained earnings that have been realized in transactions with third
parties..
Retained earnings Subsidiary, January 1, 20x5
Less: Amortization of allocated excess 20x4
P484,800
18,000
P466,800
P 144,000
120,000
P 24,000
13,200
12,000
(P 1,200)
80%
(P 960)
Less: Goodwill impairment loss (full-goodwill), net (P3,750 P750)* or

(P3,750 x 80%)
3,000
( 3,960)
Consolidated Retained earnings, January 1, 20x5
P462,840
257,040
Total
P719,880
72,000
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 NCI
acquired (refer to Illustration 15-6).
Or, alternatively:

Retained earnings - Parent Company, December 31, 20x5 (cost model
Adjusted Retained Earnings Parent 12/31/20x5 (cost model (
S Companys Retained earnings that have been realized in
transactions with third parties..
P643,200
24,000
P619,200

Retained earnings Subsidiary, December 31, 20x5
Less: Accumulated amortization of allocated excess
20x4 and 20x5 (P13,200 + P7,200)
Less: Goodwill impairment loss (full-goodwill), net (P3,750 P750)* or
(P3,750 x 80%)
Consolidated Retained earnings, December 31, 20x5
e.
f.
Non-controlling interest, December 31, 20x5

Retained earnings Subsidiary Company, January 1, 20x5*
Total
20x4
20x5
Less: Unrealized profit in ending inventory of P Company (upstream
sales) 20x5 (UPEI of P 20x5) or Realized profit in beginning inventory
of P Company (upstream sales) 20x6 (RPBI of P - 20x6
Realized stockholders equity of subsidiary, December 31, 20x5.
Add: Non-controlling interest on full goodwill , net of impairment loss
[(P15,000 full P12,000, partial = P3,000) P750 impairment loss
Non-controlling interest (full-goodwill)..
* the realized profit in beginning inventory of P Company (upstream sales) 20x5 (RPBI
already included in the beginning retained earnings of S Company.
Consolidated SHE:
Stockholders Equity
Retained earnings
NCI, 1/1/20x4
P 186,000
120,000
P 66,000
20,400
P
P
6,000
39,600
80%
31,680
3,000
28,680
P647,880
P 240,000
P144,000
90,000
P234,000
48,000
186,000
P 426,000
90,000
P 13,200
7,200
( 20,400)
P 495,600
6,000
P489,600
20
P 97,920
2,250
P 100,170
of P - 20x5 amounting to P10,000 is
P 600,000
647,880
P1,247,880
___100,170
P1,348,050
Problem XI
(Compute selected balances based on three different intercompany asset transfer scenarios)
1.
Consolidated Cost of Goods Sold
PPs cost of goods sold ......................................................................................
P290,000
SWs cost of goods sold .....................................................................................
197,000
Elimination of 20x5 intercompany transfers ...................................................
(110,000)
Reduction of beginning Inventory because of
20x4unrealized gross profit (P28,000/1.4 = P20,000
cost; P28,000 transfer price less P20,000
cost = P8,000 unrealized gross profit) .......................................................
(8,000)
Reduction of ending inventory because of

20x5 unrealized gross profit (P42,000/1.4 = P30,000
cost = P12,000 unrealized gross profit) .....................................................
Consolidated cost of goods sold .......................................................
Consolidated Inventory
PP book value ..............................................................................................
SW book value .............................................................................................
Eliminate ending unrealized gross profit (see above) ..........................
Consolidated Inventory ..............................................................................
12,000
P381,000
P346,000
110,000
(12,000)
P444,000
Non-controlling Interest in Subsidiarys Net Income

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

Total
P 58,000
0
(
0)
P 58,000

2.
Consolidated Cost of Goods Sold

PP book value .....................................................................................................
SW book value ....................................................................................................
Elimination of 20x5 intercompany transfers ...................................................
Reduction of beginning inventory because of
cost = P6,000 unrealized gross profit) .......................................................
Reduction of ending inventory because of
cost = P10,000 unrealized gross profit) .....................................................
Consolidated cost of goods sold ....................................................................
Consolidated Inventory
P 200,000
8,000
(_ 12,000)
P 196,000
58,000
P 254,000
____0
P 254,000
11,600
P 242,200
P 58,000
0
(
0)
P 58,000
____0
P 58,000
20%
P 11,600
P290,000
197,000
(80,000)
(6,000)
10,000
P411,000
PP book value .....................................................................................................

SW book value ....................................................................................................
Eliminate ending unrealized gross profit (see above) .................................
Consolidated inventory ..............................................................................
P346,000
110,000
(10,000)
P446,000
Non-controlling Interest in Subsidiary's Net income

Since all intercompany sales are upstream, the effect on Snow's income must be reflected
in the non-controlling interest computation:
SW reported income ..........................................................................................
20x4 unrealized gross profit realized in 20x5 (above) ..................................
20x5 unrealized gross profit to be realized in 20x6 (above) .......................
SW realized income ...........................................................................................
Outside ownership percentage ......................................................................
Non-controlling interest in SWs income ..................................................
or
Total
P58,000
6,000
(10,000)
P54,000
20%
P10,800
P 200,000
(_
0)
P 200,000
P 58,000
6,000
( 10,000)
P 54,000

54,000
P 254,000
____0
P 254,000
10,800
P 243,200
P 58,000
6,000
( 10,000)
P 54,000
____0
P 54,000
20%
P 10,800
Problem XIII
1. (Computation of selected consolidation balances as affected by downstream inventory transfers)
UNREALIZED GROSS PROFIT, 12/31/x4: (downstream transfer)
Intercompany gross profit (P120,000 P72,000) ..........................................................
Inventory remaining at year's end .......................................................................................
Unrealized Intercompany Gross profit, 12/31/x4 ...............................................................
P48,000
30%
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 ................................................................
P10,000
CONSOLIDATED 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 .......................................................................................................
P535,000
Broadway's 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
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 ...........................................................................
P100,000
Intangible amortization ...................................................................................................
(10,000)
Broadway adjusted income ...........................................................................................
90,000
Outside ownership ...........................................................................................................
30%
Noncontrolling interest in Broadways earnings..........................................................
P 27,000
or,

Total
P 100,000
0
(
0)
P 100,000

P 165,000
14,400
(_10,000)
P 169,400
100,000
P 269,400
__10,000
P 259,400
27,000
P 232,400
P 100,000
0
(
0)
P 100,000
__10,000
P 90,000
30%
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 .........................................................................
P285,000
Excess January 1 intangible allocation (30% P295,000) ......................................
88,500
Noncontrolling Interest in Broadways earnings..............................................................
27,000
Dividends (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) .........................................................
Inventory remaining at year's end ................................................................................
P48,000
30%
P14,400
UNREALIZED GROSS PROFIT, 12/31/x5: (upstream transfer)

Intercompany gross profit (P250,000 P200,000) .......................................................
Inventory remaining at year's end ................................................................................
P50,000
20%
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 ...........................................................................................
P535,000
Broadway'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 ...........................................................................
P100,000
Intangible amortization ...................................................................................................
(10,000)
20x4 gross profit recognized in 20x5 ......................................................................
14,400
20x5 gross profit deferred .......................................................................................
(10,000)
Broadway realized income for 20x5 ......................................................................
P94,400
Outside ownership ...........................................................................................................
30%
Noncontrolling interest ....................................................................................................
P28,320
Total
P 100,000
14,400
( 10,000)
P 104,400
P 165,000
0
(_
0)
P 165,000
104,400
P 269,400
__10,000
P 259,400
28,320
P 231,080
P 100,000
14,400
( 10,000)
P 104,400
__10,000
P 94,400
30%
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 P14,400
unrealized gross profit (30% P935,600).............................................................
P280,680
Excess intangible allocation (30% P295,000).....................................................
(88,500)
Noncontrolling Interest in Broadways earnings ..................................................
28,320
Dividends (30% P50,000)...............................................................................................
(15,000)
Total noncontrolling interest at 12/31/x5...............................................................
P382,500
Problem XIV
Amortization of equipment: P20,000 / 10 years = P2,000
RPBI of S (downstream sales):..................................................... ... P15,000
RPBI of P (upstream sales)....................................................... 10,000
UPEI of S (downstream sales)... 20,000
UPEI of P (upstream sales). 5,000
Consolidated Net Income for 2014
P Companys net income from own/separate operations (P724,000 P24,000
P700,000
15,0000

Total
equity holders of parent 2014..
P 90,000
10,000
( 5,000)
P 95,000
(20,00 0)
P695,000
95,000
P790,000
2,000
P788,000
18,600
P769,400
Or, alternatively

P Companys net income from own/separate operations
Total
**Non-controlling Interest in Net Income (NCINI) for 2014
P 90,000
10,000
( 5,000)
P 95,000
P 18,600
2,000
P700,000
15,0000
(20,00 0)
P695,000
95,000
P790,000
20,600
P769,400
_ 18,600
P788,000
P 90,000
10,000
( 5,000)
P 95,000
2,000
P 93,000
20%
P 18,600
0
P 18,600
Note: Preferred Solution - since what is given is the RE P, 12/31/2014 (ending

balance of the current year) Retained earnings Parent, 12/31/2014 (cost)..
P 3,500,000
-: UPEI of S (down) 2014 or RPBI of S (down) 2015...
20,000
Adjusted Retained earnings Parent, 12/31/2014 (cost)..
P 3,480,000
Retroactive Adjustments to convert Cost to Equity for
purposes of consolidation / Parents share of adjusted
net increase in subsidiarys retained earnings:
Retained earnings Subsidiary, 1/1/2011.P 150,000
Less: Retained earnings Subsidiary, 12/31/2014...
320,000
Increase in Retained earnings since acquisition
(cumulative net income cumulative dividends) P 170,000
Accumulated amortization (1/1/2011 12/31/2014):
P 2,000 x 4 years..( 8,000)
UPEI of P (up) 2014 or RPBI of P (up) 2015........( 5,000)
P157,000
x: Controlling Interests
RE P, 12/31/2014 (equity method) = CRE, 12/31/2014.
80%
125,600
P 3,605,600
Or, compute first the RE P on January 1, 2014 (use work back approach),
Retained earnings Parent, 1/1/2014 (cost)
(P3,500,000 plus P25,000 Div of P less P724,000 NI of P).
P2,801,000
-: UPEI of S (down) 2013 or RPBI of S (down) 2014...
15,000
Adjusted Retained earnings Parent, 1/1/2014 (cost)
P2,786.000
Retained earnings Subsidiary, 1/1/2011P 150,000
Less: Retained earnings Subsidiary, 1/1/2014 260,000
(cumulative net income cumulative dividends)P110,000
Accumulated amortization (1/1/2011 1/1/2014):
P 2,000 x 3 years. ( 6,000)
UPEI of P (up) 2013 or RPBI of P (up) 2014... ( 10,000)
P 94,000
X: Controlling Interests 80% 75,200
RE P, 1/1/2014 (equity method) = CRE, 1/1/2014..P2,861,200
+: CI CNI or Profit Attributable to Equity Holders of Parent.. 769,400
-: Dividends P..
25,000
RE P, 12/31/2014 (equity method) = CRE, 12/31/2014..P3,605,600
P
S
Intercompany sales - downstream
Intercompany sales - upstream
RPBI of S (downstream sales)*
RPBI of P (upstream sales)***
UPEI of S (downstream sales)**
UPEI of P (upstream sales)****
Consolidated
Sales
Cost of Sales
P2,500,000
P1,250,000
1,200,000
875,000
( 320,000)
( 320,000)
( 290,000)
( 290,000)
( 15,000)
( 10,000)
20,000
_________
5,000
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)....
320,000
Upstream Sales:
Sales.. 290,000
Cost of Sales (or Purchases)
290,000
2. Intercompany Profit:
(COST Model)
Downstream Sales:
*100% RPBI of S:
Retained Earnings P, beginning..... 15,000
Cost 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)..
20,000
Upstream Sales:
***100% RPBI of P: (if equity method Investment in S instead of RE P, beg.)

Retained Earnings P, beginning..... 16,000
NCI .... 4,000
Cost of Sales (Beginning Inventory in Income Statement)........
20,000
****100% UPEI of P:
Cost of Sales (Ending Inventory in Income Statement) 5,000
Inventory (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 Expenses
Equipment P60,000 10 years =
P6,000 per year
Franchises P80,000 20 years =
P4,000 per year
Annual excess amortizations
P10,000
Unrealized Gross profitInventory, 1/1/x6
Markup (P70,000 P49,000) ...........................................................................................
Markup percentage (P21,000 P70,000) ....................................................................
P21,000
30%
Remaining inventory ......................................................................................................................

Markup percentage ......................................................................................................................
Unrealized gross profit, 1/1/x6.........................................................................................
P30,000
30%
P9,000
Unrealized Gross profitInventory, 12/31/x6

Markup (P100,000 P50,000) .........................................................................................
Markup percentage (P50,000 P100,000) .................................................................................
P50,000
50%
Remaining inventory .......................................................................................................

Markup percentage ......................................................................................................................
Unrealized gross profit, 12/31/x6 ...................................................................................
P40,000
50%
P20,000
Impact of intercompany Building Transfer

12/31/x5Transfer price figures
Transfer price .............................................................................................................
Gain on transfer (P50,000 P30,000) .....................................................................
Depreciation expense (P50,000 5) .....................................................................
Accumulated depreciation ...................................................................................
12/31/x6Transfer price figures
Depreciation expense ............................................................................................
12/31/x5Historical cost figures
Historical cost ............................................................................................................
Depreciation expense (P30,000 book value 5 years) .....................................
Accumulated depreciation (P40,000 + P6,000) .................................................
12/31/x6Historical cost figures
Depreciation expense ............................................................................................
P50,000
20,000
10,000
10,000
10,000
20,000
P70,000
6,000
46,000
6,000
52,000
CONSOLIDATED BALANCES
Sales = P1,000,000 (add the two book values and subtract P100,000 in intercompany transfers)
Cost of Goods Sold = P571,000 (add the two book values and subtract P100,000 in intercompany purchases.
Subtract P9,000 because of the previous year unrealized gross profit and add P20,000 to defer the current
year unrealized gross profit.)
Operating Expenses = P206,000 (add the two book values and include the P10,000 excess amortization
expenses but remove the P4,000 in excess depreciation expense [P10,000 P6,000] created by building
transfer)
Investment Income = P0 (the intercompany balance is removed so that the individual revenue and expense
accounts of the subsidiary can be shown)
Inventory = P280,000 (add the two book values and subtract the P20,000 ending unrealized gross profit)
Equipment (net) = P292,000 (add the two book values and include the P60,000 allocation from the acquisitiondate fair value less three years of excess amortizations)
Buildings (net) = P528,000 (add the two book values and subtract the P20,000 unrealized gain on the transfer
after two years of excess depreciation [P4,000 per year])
Problem XVI
Schedule of Determination and Allocation of Excess (Partial-goodwill)
fair value)...
P 372,000
P 192,000
96,000
P 4,800
5,760
76,800
( 19,200)
3,840
288,000
84,000
72,000
P 12,000
The over/under valuation of assets and liabilities are summarized as follows:

Inventory...
Land
Buildings (net)
Bonds payable
Net..
S Co.
Book value
P 24,000
48,000
84,000
168,000
(120,000)
P 204,000
S Co.
Fair value
P 30,000
55,200
180,000
144,000
( 115,200)
P 294,000
(Over) Under
Valuation
P 6,000
7,200
96,000
(24,000)
4,800
P 90,000
The buildings and equipment will be further analyzed for consolidation purposes as follows:
Equipment ..................
Net book value...
S Co.
Book value
180,000
96,000
84,000
S Co.
Fair value
180,000
180,000
Buildings................
Net book value...
S Co.
Book value
360,000
192,000
168,000
S Co.
Fair value
144,000
144,000
Increase
(Decrease)
0
( 96,000)
96,000
(Decrease)
( 216,000)
( 192,000)
( 24,000)

Inventory
Buildings (net)
Bonds payable
Over/
Under
P 6,000
Life
1
96,000
(24,000)
48000
8
4
4
Annual
Amount
P 6,000
Current
Year(20x4)
P 6,000
20x5
P
-
12,000
( 6,000)
1,200
P 13,200
12,000
( 6,000)
1,200
P 13,200
12,000
(6,000)
1,200
P 7,200
The goodwill impairment loss of P3,750 based on 100% fair value would be allocated to the controlling
interest and the NCI based on the percentage of total goodwill each equity interest received. For
purposes of allocating the goodwill impairment loss, the full-goodwill is computed as follows:
P 372,000
Fair value of NCI (given) (20%)
93,000
P 465,000
Less: Book value of stockholders equity of Son (P360,000 x 100%)
__360,000

(P90,000 x 100%)
fair value)...
105,000
90,000
15,000
In this case, the goodwill was proportional to the controlling interest of 80% and non-controlling interest
of 20% computed as follows:
Goodwill applicable to parent
Total (full) goodwill..
Value
P12,000
3,000
P15,000
% of Total
80.00%
20.00%
100.00%
Value
P 3,000
% of Total
80.00%
750
20.00%
P 3,750
100.00%
The goodwill impairment loss would be allocated as follows

Goodwill impairment loss attributable to parent or controlling
Interest
Goodwill impairment loss based on 100% fair value or fullGoodwill
The unrealized profits on January 1, and on December 31, 20x5, resulting intercompany sales, are as
summarized below:
Downstream Sales:
Year
20x4
20x5
Sales of Parent to
Subsidiary
P150,000
120,000
Upstream Sales:
Year
20x4
20x5
Sales of Subsidiary
to Parent
P 50,000
62,500
in 12/31 Inventory
of S Company
P150,000 x 60% = P90,000
P120,000 x 80% = P96,000
P90,000 x 20% = P18,000
P96,000 x 25% = P40,000
in 12/31 Inventory
of S Company
P100,000 x 50% = P25,000
P 62,500 x 40% = P25,000
P25,000 x 40% = P10,000
P25,000 x 20% = P 5,000

January 1, 20x4:
Cash..
372,000
372,000
(2) Cash
Investment in S Company (P36,000 x 80%).
28,800
December 31, 20x4:

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

(4) Investment income [(P13,200 x 80%) + P3,000, goodwill
impairment loss)]
Investment in S Company
28,800
48,000
13,560
13,560
Record amortization of allocated excess of inventory, equipment,

buildings and bonds payable and goodwill impairment loss.
December 31, 20x4:

(5) Investment income (P18,000 x 100%)
To adjust investment income for downstream sales - unrealized profit
in ending inventory of S.
December 31, 20x4:
To adjust investment income for upstream sales - unrealized profit in
ending inventory P .
18,000
9,600
18,000
9,600
Thus, the investment balance and investment income in the books of P Company is as follows:
Cost, 1/1/x4
NI of S
(60,000 x 80%)
Balance, 12/31/x4
Amortization &
impairment
UPEI of S (P18,000 x 100%)
UPEI of P (P12,000 x80%)
Investment in S
372,000
28,800
48,000
13,560
18,000
9,600
Dividends S (30,000x 80%)

Amortization &
impairment
UPEI of Son (P15,000 x 100%)
UPEI of Perfect (P10,000 x80%)
48,000
NI of S
(P60,000 x 80%)
6,840
Balance, 12/31/x4
350,040
Investment Income
13,560
18,000
9,600

Investment in S Co
240,000
120.000
(E2) Inventory.
Land.
Goodwill.
Buildings..
Investment in S Co.
6,000
96,000
192,000
7,200
4,800
12,000
To eliminate investment on January 1, 20x4 and equity accounts of

subsidiary on date of acquisition; and to establish non-controlling interest
(in net assets of subsidiary) on date of acquisition.
288,000
72,000
216,000
18,000
84,000
To eliminate investment on January 1, 20x4 and allocate excess of

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

Interest expense
Inventory..
Goodwill
6,000
6,000
6,000
1,200
3,000
6,000
12,000
1,200
3,000

Inventory sold
Equipment
Buildings
Bonds payable
Totals
Cost of
Goods
Sold
P 6,000
_______
P 6,000
Depreciation/
Amortization
Expense
Amortization
-Interest
P 12,000
( 6,000)
_______
P 7,200
P 1,200
P1,200
Total
14,400
(E4) Investment income

Dividends paid S
6,840
21,960
7,200
36,000
To eliminate intercompany dividends and investment income under

equity method and establish share of dividends, computed as
follows:
After
Investment in S
NI of S
28,800
(60,000
x 80%). 48,000
13,560
18,000
9,600
21,960
Dividends - S
Amortization &
impairment
UPEI of S
UPEI of P
Investment Income
Amortization
impairment
UPEI of S
UPEI of P
13,560
18,000
9,600
48,000
NI of S
(50,000
x 80%)
the
6,840
eliminating entries are posted in the investment account, it should be observed that from consolidation
point of view the investment account is totally eliminated. Thus,
Investment in S
372,000
28,800
Cost, 1/1/x4
NI of S
(60,000 x 80%)
Balance, 12/31/x4
(E4) Investment Income
and dividends
(E5) Sales.
48,000
350,040
21,960
372,000
13,560
18,000
9,600
288,000
84,000
372,000

Amortization &
impairment
UPEI of Son
UPEI of Perfect
(E1) Investment, 1/1/20x4
150,000
(E6) Sales.
60,000
150,000
60,000

18,000

12,000
18,000

12,000


6,960
6,960

Son Companys realized net income from
partial goodwill
P 60,000
( 12,000)
P 48,000
( 13,200)
P 34,800
20%
P
6,960
Subsidiary accounts are adjusted to full fair value regardless on the controlling interest percentage or
what option used to value non-controlling interest or goodwill.
Equity Method (Partial-goodwill)
Income Statement
P Co
P480,000
S Co.
P240,000
Investment income
Total Revenue
6,840
P486,840
P240,000
Cost of goods sold
P204,000
P138,000
Interest expense
Other expenses
Net Income
60,000
48,000
P312,000
P174,840
P174,840
24,000
18,000
P180,000
P 60,000
P 60,000
Sales

P Company
S Company
Total
Dividends paid
P Company
P360,000
174,840
P414,840
72,000
P120,000
60,000
P180,000
Dr.
(5) 150,000
(6) 60,000
(4) 6,840
(3)
(7)
(8)
(3)
(3)
6,000
18,000
12,000
6,000
1,200
(3)
3,000
(9)
6,960
(1) 120,000
Cr.
Consolidated
P 510,000
_________
P 510,000
P 168,000
(5)
150,000
(6)
60,000
90,000
1,200
66,000
3,000
P328,200
P181,800
( 6,960)
P174,840
360,000
174,840
P414,840
72,000
S Company
Sheet
Balance Sheet
Cash.
Inventory.
Land.
Equipment
Buildings
Goodwill
Investment in S Co
Total
- equipment
- buildings
Accounts payable
Bonds payable
Total
36,000
P462,840
________
P144,000
642,840
232,800
90,000
120,000
P 90,000
60,000
90,000
387,360
150,000
210,000
220,000
720,000
48,000
180,000
540,000
350,040
P1,635,700
P1,006,000
P 135,000
405,000
P 96,000
288,000
120,000
240,000
600,000
120,000
120,000
462,840
240,000
144,000
_________
P1,962,840
_________
P1,008,000
Second Year after Acquisition

Sales
Gross profit
Other expense
Add: Investment income
Net income
Dividends paid
(4)
(1)
5,000
(2)
7,200
(2)
4,800
(2) 12,000
(4) 21,960
(2) 96,000
(2) 192,000
(3)
6,000
(3)
(7)
(8)
36,000
6,000
18,000
12,000
(2) 216,000
(3) 1,200
(3) 3,000
(2) 288,000
(2) 84,000
(3)
12,000
180,000
265,200
380,000
1,044,000
3,600
9,000
P2,394,600
P 147,000
495,000
240,000
360,000
600,000
(1) 240,000
(4)
7,200
__________
P 983,160
(1 ) 72,000
(2) 18,000
(5) 6,960
P 983,160
P Co.
P 540,000
216,000
P 324,000
60,000
72,000
P 192,000
65,040
P 257,040
P 72,000
462,840
____89,760
P2,394,600
S Co.
P 360,000
192,000
P 168,000
24,000
54,000
P 90,000
P 90,000
P 48,000

20x5: Parent Company Equity Method Entry

(2) Cash
38,400
December 31, 20x5:

72,000
December 31, 20x5:

5,760
38,400
72,000
5,760
buildings and bonds payable

December 31, 20x5:
in ending inventory of Son (UPEI of S).
December 31, 20x5:
(6) Investment in S Company..
Investment income (P18,000 x 100%)..
To adjust investment income for downstream sales - realized profit in
beginning inventory of S (RPBI of S).
December 31, 20x5:
ending inventory Perfect (UPEI of P).
December 31, 20x5:
To adjust investment income for upstream sales - realized profit in
beginning inventory of Perfect (RPBI of P)
24,000
24,000
18,000
18,000
4,800
4,800
9,600
9,600
Thus, the investment balance and investment income in the books of P Company is as follows:
Cost, 1/1/x5
NI of Son
(90,000 x 80%)
RPBI of S (P18,000 x 100%)
RPBI of P (P12,000 x 80%)
Balance, 12/31/x5
Amortization (7,200 x 805)

UPEI of S (P24,000 x 100%)
UPEI of P (P6,000 x 80%)
Investment in S
350,040
38,400
5,760
72,000
24,000
18,000
4,800
9,600
376,680
Investment Income
5,760
24,000
72,000
4,800 18,000
9,600
65,040

Amortization (7,200 x 80%)
UPEI of Son (P24,000 x 100%)
UPEI of Perfect (P6,000 x 80%)
NI of S
(P90,000 x 80%)
RPBI of S (P18,000 x 100%)
RPBI of P(P12,000 x 80%)
Balance, 12/31/x5

The schedule of determination and allocation of excess presented above provides complete
guidance for the worksheet eliminating entries:
Retained earnings S Co, 1/1/x5.
240,000
144.000
(E2) Accumulated depreciation equipment (P96,000 P12,000)

Accumulated depreciation buildings (P160,000 + P6,000)
Land.
Discount on bonds payable (P4,800 P1,200).
Goodwill (P12,000 P3,000)..
Buildings..
Non-controlling interest [(P90,000 P13,200) x 20%]
Investment in S Co.
84,000
198,000
7,200
3,600
9,000
To eliminate investment on January 1, 20x5 and equity accounts

of subsidiary on date of acquisition; and to establish noncontrolling interest (in net assets of subsidiary) on 1/1/20x5.
307,200
76,800
216,000
15,360
70,440

to the original amount of goodwill; and to establish noncontrolling
interest (in net assets of subsidiary) on 1/1/20x5.
(E3) Depreciation expense..

Interest expense
6,000
6,000
1,200
12,000
1,200
To provide for 20x5 depreciation and amortization on differences

between acquisition date fair value and book value of Sons
identifiable assets and liabilities as follows:
Inventory sold
Equipment
Buildings
Bonds payable
Totals
Depreciation/
Amortization
Expense
Amortization
-Interest
P 12,000
( 6,000)
_______
P 6,000
P 1,200
P1,200
Total
P7,200

Dividends paid S
65,040
9,600
48,000
26,640

follows:
NI of S
(90,000
x 80%).
RPBI of S
RPBI of P
Investment in S
38,400
Dividends S
Amortization
72,000
5,760
(P7,200 x 80%)
18,000
24,000
UPEI of S
9,600
4,800
UPEI of P
26,640
Investment Income
Amortization
(P7,200 x 80%)
UPEI of S
UPEI of P
5,760
24,000
4,800
(E6) Sales.
120,000
(E7) Sales.
75,000
(E8) Investment in Son Company.

18,000
(E9) Investment in Son Company (P12,000 x 80%)

9,600
2,400

prior period.

prior period.
72,000
18,000
9,600
65,040
NI of S
(90,000
x 80%)
RPBI of S
RPBI of P
120,000
75,000
18,000
12,000
After the eliminating entries are posted in the investment account, it should be observed that from
consolidation point of view the investment account is totally eliminated. Thus,
Cost, 1/1/x5
NI of S
(90,000 x 80%)
Investment in S
350,040
38,400
72,000
5,760

Amortization
(6,000 x 80%)
RPBI of S (P18,000 x 100%)

RPBI of P (P12,000 x 80%)
Balance, 12/31/x5
(E8) RPBI of S
(E9) RPBI of P
18,000
9,600
376,680
18,000
9,600
24,000
4,800
307,200
70,440
26,640
336,900
404,280
UPEI of S (P20,000 x 100%)

UPEI of P (P5,000 x 80%)
and dividends

24,000

6,000
24,000

6,000


17,760
17,760

S Companys Realized net income*
P 90,000
12,000
(
P
(
P
6,000)
96,000
7,200)
88,800
20%

partial goodwill
P 17,760
with third persons.

Equity Method (Partial-goodwill)
Income Statement
P Co
P540,000
S Co.
P360,000
Investment income
Total Revenue
Cost of goods sold
65,040
P605,040
P216,000
P360,000
P192,000
Interest expense
Other expenses
Net Income
60,000
72,000
P348,000
P257,040
P257,040
24,000
54,000
P270,000
P 90,000
P 90,000

P Company
P462,840
Sales
Dr.
(6) 120,000
(7) 75,000
(4) 65,040
Cr.
(10) 24,000
(11) 6,000
(6) 120,000
(7) 75,000
(8) 18,000
(9) 12,000
(3)
(3)
(5)
6,000
1,200
17,760
Consolidated
P 705,000
___________
P 705,000
P 213,000
P
P
(
P
90,000
1,200
126,000
430,200
274,800
17,760)
257,040
P 462,840
S Company
Total
Dividends paid
P Company
S Company
Sheet
Balance Sheet
Cash.
Inventory.
Land.
Equipment
Buildings
Goodwill
Investment in S Co
Total
- equipment
- buildings
Accounts payable
Bonds payable
Total
257,040
P719,880
P144,000
90,000
P234,000
72,000
-
48,000
P777,456
P223,200
P 777,456
265,200
180,000
216,000
P 102,000
96,000
108,000
P 367,200
276,000
210,000
240,000
720,000
48,000
180,000
540,000
376,680
P2,207,880
P1,074,000
P 150,000
450,000
P 102,000
306,000
120,000
240,000
600,000
120,000
120,000
647,880
___ _____
P2,207,880
240,000
186,000
_________
P1,074,000
(1) 144,000
257,040
P 719,880
(4)
(2)
7,200
(2)
(2)
(8)
(9)
3,600
9,000
18,000
9,600
(2)
84,000
(2) 198,000
(3) 6,000
48,000
(10) 24,000
(11) 6,000
(3) 216,000
(3) 1,200
(1) 307,200
(2) 70,440
(4) 26,640
(3)
9,600
2,400
__________
P1,046,400
72,000
________
294,000
265,200
420,000
1,044,000
2,400
9,000
P2,677,800
12,000
P180,000
552,000
240,000
360,000
600,000
(1) 240,000
(4)
(9)
647,880
(2 ) 76,800
(2) 15,360
(5) 17,760
P1,046,400
____97,920
P2,677,800
5 and 6. Refer to Problem IX for computations

Note: Using cost model or equity method, the consolidated net income, consolidated retained
earnings, non-controlling interests, consolidated equity on December 31, 20x4 and 20x5 are
exactly the same (refer to Problem IX solution).
Problem XVII
Schedule of Determination and Allocation of Excess
Consideration transferred (80%)..
Fair value of NCI (given) (20%)..
Fair value of Subsidiary (100%).
P 372,000
93,000
P 465,000
P 240,000
120,000
P
6,000
7,200
96,000
( 24,000)
360,000
P 105,000

fair value)...
4,800
90,000
P 15,000

Inventory
Buildings (net)
Bonds payable
Over/
under
P 6,000
Life
1
96,000
(24,000)
4,800
8
4
4
Annual
Amount
P 6,000
Current
Year(20x4)
P 6,000
20x5
P
-
12,000
( 6,000)
1,200
P 13,200
12,000
( 6,000)
1,200
P 13,200
12,000
(6,000)
1,200
P 7,200

Parent Company Equity Method Entry
January 1, 20x4:
Cash..
372,000

(2) Cash
28,800
December 31, 20x4:

48,000
December 31, 20x4:

(4) Investment income [(P13,200 x 80%) + (P3,750 P750)*,
goodwill impairment loss)]
372,000
28,800
48,000
13,560
13,560

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 might
be situations where the controlling interests on goodwill impairment loss would not be proportionate to NCI acquired (refer to
Illustration 15-6).
December 31, 20x4:

in ending inventory of S.
December 31, 20x4:
ending inventory P .
18,000
9,600
18,000
9,600
Thus, the investment balance and investment income in the books of P Company is as follows
Cost, 1/1/x4
NI of S
(60,000 x 80%)
Investment in S
372,000
28,800
48,000
13,560
18,000

Amortization &
impairment
UPEI of S (P18,000 x 100%)
9,600
Balance, 12/31/x4
UPEI of P (P12,000 x80%)
324,000
Amortization &
impairment
UPEI of S (P18,000 x 100%)
UPEI of P (P12,000 x80%)
Investment Income
13,560
18,000
9,600
48,000
NI of S
(P60,000 x 80%)
6,840
Balance, 12/31/x4

Investment in S Co
240,000
120.000
(E2) Inventory.
Land.
Goodwill.
Buildings..
6,000
96,000
192,000
7,200
4,800
15,000

of subsidiary on date of acquisition; and to establish noncontrolling interest (in net assets of subsidiary) on date of
acquisition.

Inventory sold
Equipment
Buildings
Bonds payable
Totals
Cost of
Goods
Sold
P 6,000
_______
P 6,000
Depreciation/
Amortization
Expense
Amortization
-Interest
P 12,000
( 6,000)
_______
P 7,200
P 1,200
P1,200
Total
14,400
216,000
21,000
84,000

to goodwill; and to establish noncontrolling interest (in net assets of
subsidiary) on date of acquisition.

Interest expense
Inventory..
Goodwill
288,000
72,000
6,000
6,000
6,000
1,200
3,750
6,000
12,000
1,200
3,750

Dividends paid S
6,840
21,960
7,200
36,000

follows:
After
Investment in S
NI of S
28,800
Dividends - S
(60,000
Amortization &
x 80%). 48,000
13,560
impairment
18,000
UPEI of S
9,600
UPEI of P
21,960
Investment Income
Amortization
impairment
UPEI of S
UPEI of P
13,560
18,000
9,600
NI of S
(50,000
x 80%)
48,000
6,840
the
eliminating entries are posted in the investment account, it should be observed that from consolidation
point of view the investment account is totally eliminated. Thus,
Investment in S
372,000
28,800
Cost, 1/1/x4
NI of S
(60,000 x 80%)
Balance, 12/31/x4
and dividends
48,000
350,040
21,960
372,000
13,560
18,000
9,600
288,000
84,000

Amortization &
impairment
UPEI of S
UPEI of P
372,000
(E5) Sales.
150,000
(E6) Sales.
60,000

18,000

12,000

6,210



P 60,000
( 12,000)
P 48,000
( 13,200)
P 34,800
20%
P 6,960
150,000
60,000
18,000
12,000
6,210
partial goodwill
Less: Non-controlling interest on impairment
loss on full-goodwill (P3,750 x 20%) or
(P3,750 impairment on full-goodwill less
P3,000, impairment on partial-goodwill)*
750
full goodwill
P 6210
*this procedure would be more appropriate, instead of multiplying the fullgoodwill impairment loss of P3,750 by 20%. There might be situations where the
NCI on goodwill impairment loss would not be proportionate to NCI acquired
(refer to Illustration 15-6).

Equity Method (Full-goodwill)
Income Statement
P Co
P480,000
S Co.
P240,000
Investment income
Total Revenue
6,840
P486,840
P240,000
Cost of goods sold
P204,000
P138,000
Interest expense
Other expenses
Net Income
60,000
48,000
P312,000
P174,840
P174,840
24,000
18,000
P150,000
P 50,000
P 50,000
Sales

P Company
S Company
Total
Dividends paid
P Company
S Company
Sheet
Balance Sheet
Cash.
Inventory.
Land.
Equipment
Buildings
Goodwill
Investment in S Co
Total
- equipment
P360,000
Dr.
(5) 150,000
(6) 60,000
(4)
6,840
(3)
(7)
(8)
(3)
(3)
6,000
18,000
12,000
6,000
1,200
(3)
3,750
(9)
5,175
Cr.
Consolidated
P 510,000
_________
P 510,000
P 168,000
(5)
150,000
(6)
60,000
360,000
174,840
414,840
72,000
________
174,840
P414,840
P120,000
60,000
P180,000
72,000
-
36,000
P462,840
P144,000
462,840
232,800
90,000
120,000
P 90,000
60,000
90,000
322,800
150,000
210,000
240,000
720,000
48,000
180,000
540,000
350,040
P1,635,700
P1,008,000
P 135,000
P 96,000
(1) 120,000
90,000
1,200
66,000
3,750
P274,125
P150,875
( 5,175)
P145,700
(4)
(2)
6,000
(2)
7,200
(2)
4,800
(2) 15,000
(4) 21,960
(2)
96,000
(3)
(7)
(8)
36,000
6,000
18,000
12,000
(2) 216,000
(3) 1,200
(3) 3,750
(2) 288,000
(2) 84,000
(3)
12,000
180,000
265,200
420,000
1,044,000
3,600
11,250
P2,396,850
P 147,000
- buildings
Accounts payable
Bonds payable
Total
405,000
288,000
120,000
240,000
600,000
120,000
120,000
(2) 192,000
(3)
6,000
462,840
240,000
144,000
(1) 240,000
_________
P1,962,840
_________
P1,008,000
__________
P 986,160

Sales
Gross profit
Other expense
Add: Investment income
Net income
Dividends paid
(4)
7,200
495,000
240,000
360,000
600,000
(1 ) 72,000
(2) 21,000
(9) 6,210
P 986,160
Perfect Co.
P 540,000
216,000
P 324,000
60,000
72,000
P 192,000
65,040
P 257,040
P 72,000
462,840
____92,010
P2,396,850
Son Co.
P 360,000
192,000
P 168,000
24,000
54,000
P 90,000
P 90,000
P 48,000

Parent Company Equity Method Entry

(2) Cash
38,400
December 31, 20x5:

72,000
December 31, 20x5:

5,760

buildings and bonds payable
December 31, 20x5:

in ending inventory of S (UPEI of S).
December 31, 20x5:
To adjust investment income for downstream sales - realized profit in
beginning inventory of S (RPBI of S).
December 31, 20x5:
ending inventory P (UPEI of P).
December 31, 20x5:
24,000
18,000
4,800
38,400
72,000
5,760
24,000
18,000
4,800

To adjust investment income for upstream sales - realized profit in
beginning inventory of P (RPBI of P)
9,600
9,600
Thus, the investment balance and investment income in the books of Perfect Company is as follows:
Cost, 1/1/x5
NI of Son
(90,000 x 80%)
RPBI of (P18,000 x 100%)
RPBI of P (P12,000 x 80%)
Balance, 12/31/x5
Amortization (7,200 x 805)

UPEI of S (P24,000 x 100%)
UPEI of P (P6,000 x 80%)
Investment in S
350,040
38,400
5,760
72,000
24,000
18,000
4,800
9,600
376,680
Investment Income
5,760
24,000
72,000
4,800 18,000
9,600
65,040

Amortization (7,200 x 80%)
UPEI of S (P24,000 x 100%)
UPEI of P (P6,000 x 80%)
NI of S
(P90,000 x 80%)
RPBI of S (P18,000 x 100%)
RPBI of P (P12,000 x 80%)
Balance, 12/31/x5

The schedule of determination and allocation of excess presented above provides complete
guidance for the worksheet eliminating entries.
Retained earnings S Co, 1/1/x5.
240,000
144.000
(E2) Accumulated depreciation equipment (P96,000 P12,000)

Accumulated depreciation buildings (P192,000 + P6,000)
Land.
Discount on bonds payable (P4,800 P1,200).
Goodwill (P15,000 P3,750)..
Buildings..
Non-controlling interest [(P90,000 P13,200) x 20%] +
[P3,000, full goodwill - [(P3,750, full-goodwill impairment
P3,000, partial- goodwill impairment)*
or (P3,750 x 20%)]
Investment in S Co.
84,000
198,000
7,200
3,600
11,250

of subsidiary on date of acquisition; and to establish noncontrolling interest (in net assets of subsidiary) on 1/1/20x5.
307,200
76,800
216,000
17,610
70,440

to the original amount of goodwill; and to establish noncontrolling
interest (in net assets of subsidiary) on 1/1/20x5.
*this procedure would be more appropriate, instead of multiplying the full-goodwill impairment loss of P3,750 by 20%. There might
be situations where the NCI on goodwill impairment loss would not be proportionate to NCI acquired (refer to Illustration 15-6).
(E3) Depreciation expense..

Interest expense
To provide for 20x5 depreciation and amortization on differences

between acquisition date fair value and book value of Sons
identifiable assets and liabilities as follows:
Depreciation/
Amortization
Amortization
6,000
6,000
1,200
12,000
1,200
Inventory sold
Equipment
Buildings
Bonds payable
Totals
Expense
-Interest
P 12,000
( 6,000)
_______
P 6,000
Total
P 1,200
P1,200
P7,200

Dividends paid S
65,040
9,600
48,000
26,640

follows:
NI of Son
(90,000
x 80%).
RPBI of S
RPBI of P
Investment in S
38,400
Dividends S
Amortization
72,000
5,760
(P7,200 x 80%)
18,000
24,000
UPEI of S
9,600
4,800
UPEI of P
26,640
Investment Income
Amortization
(P7,200 x 80%)
UPEI of S
UPEI of P
5,760
24,000
4,800
(E6) Sales.
120,000
(E7) Sales.
75,000
(E8) Investment in Son Company.

18,000
(E9) Investment in Son Company (P12,000 x 80%)

9,600
2,400

prior period.

prior period.
72,000
18,000
9,600
65,040
NI of S
(90,000
x 80%)
RPBI of S
RPBI of P
120,000
75,000
18,000
12,000
After the eliminating entries are posted in the investment account, it should be observed that from
consolidation point of view the investment account is totally eliminated. Thus,
Cost, 1/1/x5
NI of Son
(90,000 x 80%)
RPBI of S (P18,000 x 100%)
RPBI of P (P18,000 x 80%)
Balance, 12/31/x5
(E8) RPBI of S
(E9) RPBI of P
Investment in S
350,040
38,400
72,000
18,000
9,600
376,680
18,000
9,600
5,600
24,000
4,800
307,200
70,440
26,640
404,280
404,280


Amortization
(7,000 x 80%)
UPEI of S (P24,000 x 100%)
UPEI of P (P6,000 x 80%)
and dividends
24,000
24,000

6,000
6,000


17,760
17,760


Son Companys Realized net income*
P 90,000
12,000
(
P
(
P
6,000)
96,000
7,200)
88,000
20%
P 17,760

partial goodwill
Less: NCI on goodwill impairment loss on fullGoodwill
0
full goodwill
P 17,760
with third persons.

Equity Method (Full-goodwill)
Income Statement
P Co
P540,000
S Co.
P360,000
Investment income
Total Revenue
Cost of goods sold
65,040
P605,040
P216,000
P360,000
P192,000
Interest expense
Other expenses
Net Income
60,000
72,000
P348,000
P257,040
P257,040
24,000
54,000
P270,000
P 90,000
P 90,000
(3)
(3)
P144,000
90,000
P234,000
(1) 144,000
Sales

P Company
S Company
Total
P462,840
257,040
P719,880
Dr.
(6) 120,000
(7) 75,000
(4) 65,040
Cr.
(10) 24,000
(11) 6,000
(6) 120,000
(7) 75,000
(8) 18,000
(9) 12,000
(5)
6,000
1,200
17,760
Consolidated
P 705,000
___________
P 705,000
P 213,000
P
P
(
P
90,000
1,200
126,000
430,200
274,800
17,760)
308,448
P 462,840
257,040
P 719,880
Dividends paid
P Company
S Company
Sheet
Balance Sheet
Cash.
Inventory.
Land.
Equipment
Buildings
Goodwill
Investment in S Co
Total
- equipment
- buildings
Accounts payable
Bonds payable
Total
72,000
-
48,000
P647,880
P186,000
P 647,880
265,200
180,000
216,000
P 114,000
96,000
108,000
P 367,200
276,000
210,000
240,000
720,000
48,000
180,000
540,000
376,680
P2,207,880
P1,074,000
P 150,000
450,000
P 102,000
306,000
120,000
240,000
600,000
120,000
120,000
240,000
186,000
647,880
___ _____
P2,207,880
_________
P1,074,000
(4)
(2)
7,200
48,000
(10) 24,000
(11) 6,000
(2)
(2)
(8)
(9)
(3) 216,000
3,600 (3) 1,200
11,250
18,000 (1) 307,200
9,600 (3) 70,440
(4) 26,640
(2)
84,000
(2) 198,000
(3) 6,000
(3)
12,000
9,600
2,400
__________
P1,048,650
72,000
________
294,000
265,200
420,000
1,044,000
2,400
11,250
P2,680,050
P180,000
552,000
240,000
360,000
600,000
(1) 240,000
(4)
(9)
647,880
(1 ) 76,800
(2) 17,610
(14)17,760
P1,048,650
____100,170
P2,680,050
5 and 6. Refer to Problem X for computations

Note: Using cost model or equity method, the consolidated net income, consolidated retained
earnings, non-controlling interests, consolidated equity on December 31, 20x4 and 20x5 are
exactly the same (refer to Problem X solution).
Multiple Choice Problems
1. b
2. a
3. c P400,000 x 1/4 = P100,000 x 30% = P30,000
4. c
Ending inventory at selling price: P300,000 x 1/3 = P100,000 x (300,000 240,000)/300,000

Less: Inventory write-down (P100,000 P92,000)
Intercompany profit to be eliminated
5. b [P300,000 x 1/2 = P150,000 x 40% = P60,000]

6. c P100,00 sales to unrelated/unaffiliated company.
7. c
P Company
S Company
Total
Less: Intercompany sales
Add: Unrealized profit in EI of S Co.
[P90,000 x 30% = P27,000 x (90 - 67)/90]
Consolidated
P20,000
__8,000
P12,000
Cost of Sales
67,000
_63,000
130,000
90,000
__6,900
46,900
Sales
Less: Cost of goods sold Parent
Subsidiary (90,000 x 70%)
Gross profit
Ending inventory (90,000 x 30%)
8. a

[P100,000 (P90,000 x 70%)]
S Companys net income from own operations (P90,000 P67,000)
[P90,000 x 30% = P27,000 x (90-67/90)]
Total
Parent
90,000
67,000
______
23,000
P23,000
0
(
6,900 )
P16,100
Subsidiary
100,000
63,000
37,000
27,000
P 37,000
0
(_
0)
P 37,000
16,100
P 53,100
0
P 53,100
1,610
P 51,490
Or, alternatively

[P100,000 (P90,000 x 70%)]
[P90,000 x 30% = P27,000 x (90-67/90)]
Total
9. d P27,000 x 67/90 = P20,100
P23,000
0
(
6,900 )
P16,100
P 1,610
0
P 37,000
0
(_
0)
P 37,000
16,100
P 53,100
1,610
P 51,490
_ 1,610
P 53,100
P 23,000
0
( 6,900)
P 16,100
0
P 16,100
10%
P 1,610
0
P 1,610
10. b P120,000, the amount of sales to outsiders is the amount of sales presented in the consolidated
income statement.
11. a the cost of inventory produced by the parent (downstream sales)
12. c

P Companys net income from own/separate operations (P90,000 P62,000)
Total
P3 0,000
0
(
)
P30,000
P 28,000
0
(_
0)
P 28,000
30,000
P 58,000
0
P 58,000
3,000
P 55,000
Or, alternatively

Unrealized profit in ending inventory of P Company (upstream sales
Total
13. c

P Company
S Company
Total
Less: Intercompany sales upstream sales
[P60,000 x 30% = P18,000 x (10 7.5)/10]
Consolidated
P3 0,000
0
(
)
P30,000
P 28,000
0
(_
0)
P 28,000
30,000
P 58,000
P 3,000
0
3,000
P 55,000
_ 3,000
P 58,000
P 30,000
(
0
0)
P 30,000
0
P 30,000
10%
P 3,000
0
P 3,000
Sales
10,000,000
__200,000
10,200,000
60,000
Cost of Sales
7,520,000
_160,000
7,680,000
60,000
________
10,140,000
__ 4,500
7,604,500
14. No requirement
15. d refer to No. 13 for computation
16. c
Sales
10,000,000
__200,000
10,200,000
60,000
P Company
S Company
Total
Less: Intercompany sales downstream sales
[P60,000 x 30% = P18,000 x (10 7.5)/10]
Consolidated
17. a (P40,000 x 140% = P56,000)
18. a (P56,000 P40,000 = P16,000)
19. a
20x5
P Company
S Company
Total
Realized profit in BI of S Co.
[P240,000 x 1/2 = P120,000 x (240-192)/240]
[P375,000 x 40% = P150,000 x (375-300)/375]
Consolidated
________
10,140,000
Sales
1,800,000
__900,000
2,700,000
375,000
Cost of Sales
1,440,000
_750,000
2,190,000
375,000
24,000
________
2.325,000
__30,000
1,821,000
20. c - refer to No. 19 for computations

21. b

S Companys net income from own operations
[P150,000 x 50% = P75,000 x (P30,000/P150,000)]
Total
P 90,000
(
15,000 )
P 75,000
P 225,000
0
(_
0)
P225,000
75,000
P 300,000
_
0
P 300,000
15,000
P 285,000
P 90,000
0
( 15,000)
P 75,000
0
P 75,000
20%
P 15,000
0
P 15,000
22. c refer to No. 21 for computations

23. c
24
a Amount paid by Lorn Corporation
Unrealized profit
Actual cost
Portion sold
Cost of goods sold
25.
26.
Consolidated sales
Cost of goods sold
Consolidated net income
Income to Dressers noncontrolling
interest:
Sales
Reported cost of sales
Report income
Portion realized
Realized net income
Portion to Noncontrolling
Interest
Income to noncontrolling
Interest
Income to controlling interest
P120,000
(45,000)
P 75,000
x
.80
P 60,000
P140,000
(60,000)
P 80,000
P120,000
(75,000)
P 45,000
x
.80
P 36,000
x
.30
Inventory reported by Lorn

Unrealized profit (P45,000 x .20)
Ending inventory reported
(10,800)
P 69,200
P 24,000
(9,000)
P 15,000
27. c
Sales
500,000
_350,000
850,000
100,000
150,000
600,000
P Company
S Company
Total
Less: Intercompany sales to Dundee
Intercompany sales to Perth
Consolidated
28. a
29.
Ending inventory of Perth from Dundee (P36,000 / 110%)

Ending inventory of Dundee from Perth (P31,000 / 130%)
Total
a
30. a
Selling price
Less: Cost of sales
Original unrealized profit
Unsold percentage
Unrealized profit
Total
32,727
_23,846
56,573
P
50,000
_40,000
10,000
__30%
P
_3,000
P180,000
( 3,000)
P 177,000
76,000
P253,000

31.
32.
0
P253,000
Combined 20x5 sales (P580,000 + P445,000)

Less: 20x5 intercompany sales
Consolidated sales
1,025,000
0
1,025,000
Combined cost of sales

Less: 20x5 intercompany sales
Less: Unrealized profit in the 20x5 beginning inventory
from 20x4
Add: Unrealized profit in 20x5 ending inventory
Consolidated cost of sales
P 480,000
0
(
3,000)
________0
P 477,000
33. d
Cost of Sales
5,400,000
_1,200,000
6,600,000
1,000,000
P Company
S Company
Total
[P625,000 x 12% = P75,000 x (625 - 425)/625]
[P1,000,000 x 10% = P100,000 x (1,000 - 800)/1,000]
Consolidated
24,000
__20,000
5,596,000
34. b
Cost of Sales
690,000
195,000
885,000
200,000
Bates Company
Sam Company
Total
Realized profit in BI of Bates Co.
[P40,000 x 20%]
Add: Unrealized profit in EI of Bates Co.
[P15,000 x 20%]
Consolidated
35. b
Net Income from own operations:
X-Beams (parent) Kent (subsidiary), 70%:30%
Unrealized Profit in EI of Parent (X-Beams):
P180,000x 20% = P36,000 x (180-100/180) = P16,000,
70%:30%
Non-controlling Interest in Kents Net Income
36. d
8,000
__3,000
680,000
Parent
Subsidiary
210,000
90,000
( 11,200)
( 4,800)
85,200
Non-controlling Interest in Net Income (NCINI) for

20x5
P 400,000
(
20,000)
P 380,000
20x6
P 480,000
20,000
0
P 500,000
0
P380,000
20%
P 76,000
0
P 76,000

37. a

(P100,000 x 10% = P10,000 x 30%)
a
a Selling price
Less: Cost of sales
Unrealized profit
Unsold fraction
Credit to Inventory
40. a the cost from parent of P48,000 x 45/60 = P36,000

Sales
Less: Cost of goods sold P and S1
Subsidiary (60,000 x 45/60)
Gross profit
Ending inventory (60,000 x 15/60)
3,000)
3,000)
0
P( 3,000)
10%
P( 300)
0
P( 300)
P
(
Subsidiary 1
60,000
60,000
______
0
41. b the cost from parent of P48,000 x 15/60 = P12,000

42. a
Sales
Intercompany
Parent
Subsidiary 1
Add: Cost of EI in S2 Co.
[P15,000 x (48/60]
Amount to be eliminated
*or, P60,000 + P60,000 [P15,000 x (60-48/60]
60,000
48,000 )
12,000
1/3
4,000
Parent
60,000
48,000
______
12,000
0
0
(
P(

Non-controlling Interest in GP
Non-controlling Interest in GP
38.
39.
0
P500,000
20%
P100,000
0
P100,000
Subsidiary 2
67,000
45,000
22,000
15,000
Cost of Sales
60,000
60,000
60,000
45,000
________
120,000
__12,000
*117,000
43. b refer to No. 42 for computation

44. d P15,000 x [(60-48)/60] = P3,000
45. a

P150,000
P 225,000
0
(_
0)
P225,000

[P105,000 x 20/120)
Total
46. c

[P105,000 x 20/120)
[P157,500 x 20/120)
Total
0
(
17,500 )
P132,500
P135,000
132,500
P 357,500
_
0
P357,500
P360,000
0
(_
0)
P360,000
17,500
( 26,250 )
P126,250
126,250
P 486,250
_
0
P486,250
1,610
P 51,490
Or, alternatively

S Companys net income from own operations (
[P105,000 x 20/120)
[P157,500 x 20/120)
Total
47. a refer to No. 46 for computation.

48. d

P135,000
P360,000
0
(_
0)
P360,000
17,500
( 26,250 )
P126,250
P 37,875
0
126,250
P 486,250
37,875
P 448,375
_37,875
P 486,250
P 135,000
17,500
( 26,250)
P 126,250
0
P126,250
30%
P 37,875
0
P 37,875
P 450,000

[P157,500 x 20/120)
[P180,000 x 20/120)
Total
P240,000
0
(_
0)
P450,000
26,250
(
30,000 )
P236,250
236,250
P 686,250
_
0
P686,750
70,875
P 615,375
Or, alternatively

[P157,500 x 20/120)
[P180,000 x 20/120)
Total

50. d
P Company
S Company
Total
Consolidated
51. b
P240,000
P 450,000
0
(_
0)
P450,000
26,250
(
30,000 )
P236,250
P 70,875
0
236,250
P 686,250
70,875
P 615,375
__70,875
P 686,250
P 240,000
26,250
( 30,000)
P 236,250
0
P 236,250
30%
P 70.875
0
P 70,875
Sales
420,000
280,000
700,000
140,000
560,000
Operating
Expenses
P Company
S Company
Total
Add: Undervalued equipment (P35,000/7 years)
Consolidated
28,000
14,000
42,000
_5,000
49,000
52. c
Cost of Sales
196,000
_112,000
308,000
140,000
P Company
S Company
Total
[P140,000 x 60% = P84,000 x (140 - 112)/140]
Consolidated
53. a
_16,800
184,900

Common stock S Company, December 31, 20x4
Retained earnings S Company, December 31, 20x4
Retained earnings S Company, January 1, 20x4
Add: Net income of S for 20x4
Total
Stockholders equity S Company, December 31, 20x4
20x5 (P35,000/7 years)
Fair value of stockholders equity of S, December 31, 20x5
Add: NCI on full-goodwill (P70,000 P56,000)
Non-controlling interest (full- goodwill)..
P 140,000
P210,000
154,000
P364,000
0
364,000
P 504,000
35,000
( 5,000)
P 534,000
20
P 106,800
14,000
P 120,800
Partial-goodwill

Less: Book value of stockholders equity of S:
fair value)...
P 364,000
P 112,000
168,000
280,000
84,000
___28,000
P 56,000
Full-goodwill

Consideration transferred: Cash (P364,000/80%)
Less: Book value of stockholders equity of S (P350,000 x 100%)
Increase in equipment P35,000 x 100%
fair value)...
P 455,000
__350,000
P 105,000
35,000
P
70,000
54. d
Equipment
616,000
420,000
1,036,000
35,000
7,000
1,064,000
P Company
S Company
Total
Add: Undervalued equipment
Less: Depreciation on undervalued equipment (P35,000/7 years)
Consolidated
55. d
P Company
S Company
Total
Less: Unrealized profit in EI: [P140,000 x 60% = P84,000 x (140 - 112)/140]
Consolidated
Inventory
210,000
154,000
364,000
16,800
347,200
56. d
Add the two book values and remove P100,000 intercompany transfers.
57. c
Intercompany gross profit (P100,000 - P80,000) ...................................................

Inventory remaining at year's end .........................................................................
Unrealized intercompany gross profit ...................................................................
P20,000
60%
P12,000
CONSOLIDATED COST OF GOODS SOLD

Parent balance ...................................................................................................
Subsidiary balance .............................................................................................
Remove intercompany transfer ......................................................................
Defer unrealized gross profit (above) .............................................................
Cost of goods sold ....................................................................................................
P140,000
80,000
(100,000)
12,000
P132,000
58. c
Consideration transferred ..............................................

Non-controlling interest fair value ..................................
SZ total fair value ...............................................................
Book value of net assets ..................................................
Excess fair over book value
P260,000
65,000
P325,000
(250,000)
P75,000
Excess fair value assigned to undervalued assets:

Equipment....................................................................
Secret Formulas ..........................................................
Total .................................................................................
Life
25,000 5 years
50,000 20 years
P
-0-
Annual Excess
Amortizations
P5,000
2,500
P7,500
Consolidated Expenses = P37,500 (add the two book values and include current year
amortization expense)
59. a

Retained earnings S Company, January 1, 20x4
Add: Net income of S for 20x4
Total
P 100,000
P150,000
110,000
P260,000
0
260,000
P 360,000
75,000

Add: NCI on full-goodwill (
( 7,500)
P 427,500
20
P 85,500
________0
P 85,500
Partial-goodwill

Increase in secret formulas: P50,000 x 80%
P 260,000
P 80,000
120,000
200,000
60,000
20,000
40,000
Full-goodwill

FV of NCI (20%)
Less: BV of stockholders equity of S (P100,000 + P150,000) x 100%
Increase in equipment P25,000 x 100%
Increase in secret formulas: P50,000 x 100%
P 260,000
___65,000
P 325,000
__250,000
P 75,000
P
25,000
50,000
Amortization:
Equipment: P25,000 / 5 years
= P 5,000
Secret formulas: P50,000 / 20 years = 2,500
Total amortization of allocated
P 7,500
60. c Add the two book values plus the original allocation (P25,000) less one year of excess
amortization 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) .................................................
Inventory Remaining at Year's End ........................................................................
Unrealized Intercompany Gross profit, 12/31 ......................................................
62. b
Share in net income
20x3: P70,000 x 90%
20x4: P85,000 x 90%
20x5: P94,000 x 90%
Less: Unrealized profit in ending inventory of P
20x3: P1,200 x 25% = P300 x 90%
20x4: P4,000 x 25% = P1,000 x 90%
20x5: P3,000 x 25% = P750 x 90%
Income from S
20x3
P 63,000
270)
________
P 62,730
20x4
P 76,500
270
(
900)
________
P 75,870
P20,000
60%
P12,000
20x5
P 84,600
900
__( 675)
P 84,825
It should be noted that PAS 27 allow the use of cost model in accounting for investment in
subsidiary in the books of parent company but not the equity method.
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

S Companys net income of Subsidiary Company from its
own operations (Reported net income of S Company)
RPBI of P Company (upstream sales)
UPEI of P Company (upstream sales)
20x3
20x4
P 70,000
0
(
300)
P 69,700
0
P 69,700
10%
P 6,970
0
P 6,970
P 85,000
300
( 1,000)
P 84,300
0
P 84,300
10%
P 8,430
0
P 8,430

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) P308,000
75.
b
P6,000
=
(P26,000 + P19,000) P39,000
76.
c
P9,000
=
Inventory held by Spin
P12,000
(P32,000 x .375)
Unrealized profit on sale
[(P30,000 + P25,000) P52,000]
(3,000)
Carrying cost of inventory for
Power
P 9,000
77.
.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 cost
81. d
Date of Acquisition (1/1/2010)
Partial
Fair value of consideration givenP 340,000
Less: Book value of SHE - Subsidiary):
(P150,000 + P230,000) x 80%..................... 304,000
Allocated Excess..P 36,000
Less: Over/Undervaluation of Assets & Liabilities
(P20,000 x 80%)..
16,000
Goodwill ....P 20,000 / 80%
Full
P 25,000

RPBI of S (downstream sales): P3,000 x 35%............................................... ....... P1,050
RPBI of P (upstream sales): P2,500 (given).................................................... 1,000
UPEI of S (downstream sales):
Sales of Parent EI %
EI of S
GP% of Parent
P60,000
x 30% = P18,000 x
25/125. 3,600
UPEI of P (upstream sales):
Sales of Subsidiary EI %
EI of P GP% of Subsidiary
P60,000
x 30% = P18,000 x
20%... 2,400
20x5
P 94,000
1,000
(
750)
P 94,250
0
P 94,250
10%
P 9,425
0
P 9,425

Total
P 30,000
1,000
( ,2,400 )
P28,600
P 100,000
1,050
(_ 3,600)
P 97,450
28,600
P 126,050
2,000
P124,050
5,320
P 118,730
Or, alternatively

Total
P 30,000
1,000
( 2,400 )
P 28,600
P
5,320
2,000

82. b refer to No. 81

83. a P124,050 refer to No. 81
84. b refer to No. 86
85. c refer to No. 86
86. a
Non-controlling Interests (in net assets):
Common stock - S, 12/31/20x2......
Retained earnings - S, 12/31/20x2:
RE- S, 1/1/20x2..P300,000
+: NI-S. 30,000
-: Div S 10,000
P 100,000
1,050
(_ 3,600)
P 97,450
28,600
P 126,050
7,320
P118,730
__ 5,320
P124,050
P 30,000
1,000
( 2,400)
P 28,600
2,000
P 26,600
20%
P 5,320
0
P 5,320
P 150,000
320,000
Book value of Stockholders equity, 12/31/20x2.......

Adjustments to reflect fair value of net assets
Increase in equipment, 1/1/20x0 ...
Accumulated amortization (P2,000 x 3 years)....
Fair Value of Net Assets/SHE, 12/31/20x2.
UPEI of P (up)
Realized SHE S,12/31/20x2.
x: NCI %.................................................................................... ......................
Non-controlling Interest (in net assets) - partial..
+: NCI on full goodwill (25,000 20,000)..
Non-controlling Interest (in net assets) full....
P 470,000
20,000
( 6,000)
P 484,000
( 2,400)
P 481,600
_ 20%
P 96,320
5,000
P 101,320
87. d refer to No. 88

88. d
Note: Preferred solution - since what is given is the RE P, 1/1/20x2 (beginning
balance 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...
1,050
Adjusted Retained earnings Parent, 1/1/20x2 (cost)
P 698,950
Retained earnings Subsidiary, 1/1/20x0.P 230,000
Less: Retained earnings Subsidiary, 1/1/20x2
300,000
(cumulative net income cumulative dividends)P 70,000
Accumulated 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 65,000
X: 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
60,000
RE 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
3,600
P 744,400
(P300,000 + P20,000 P10,000).....
320,000
Accumulated 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 81,600
X: Controlling Interests .
80% 65,280
RE P, 12/31/20x2 (equity method) = CRE, 12/31/20x2.
P809,680
89. b
90. a
91. c
92. a
93. c
Consolidated Stockholders Equity, 12/31/20x2:

Controlling Interest / Parents Interest / Parents Portion /
Equity Holders of Parent SHE, 12/31/20x2:
Common stock P (P only)..
Retained Earnings P (equity method), 12/31/20x2..
Controlling Interest / Parents Stockholders Equity.
Non-controlling interest, 12/31/20x2 (partial).
Consolidated Stockholders Equity, 12/31/20x2
P1,000,000
809,680
P1,809,680
96,320
P1,906,000
Consolidated Stockholders Equity, 12/31/20x2:

Controlling Interest / Parents Interest / Parents Portion /
Equity Holders of Parent SHE, 12/31/20x2:
Common stock P (P only)..
Retained Earnings P (equity method), 12/31/20x2..
Controlling Interest / Parents Stockholders Equity.
Non-controlling interest, 12/31/20x2 (full)...
Consolidated Stockholders Equity, 12/31/20x2
P1,000,000
809,680
P1,809,680
101,320
P1,911,000
Non-controlling interest , December 31, 20x1

P3,000 x 40%
Non-controlling interest. December 31, 20x1 ..
P 10,000
8,600
P 18,600
(
1,200
P 17,400
20
P 3,480
Realized profit in BI of Bates Co. [P40,000 x 20%]

Unrealized profit in EI of Bates Co. [P15,000 x 20%]
Net realized profit in intercompany sales of inventory
Multiplied by: NCI%
NCI share in net realized profit
P 8,000
__3,000
P 5,000
___40%
P 2,000
RPBI of P (upstream sales)....

UPEI of P (upstream sales):
EI of Paque GP% of Subsidiary
P75,000
x
20%......................................
Total
0
0)
P 18,600
45,000
15,000
P 71,250
45,000
( 15,000 )
P 101,250
P 49,500
0
(_
0)
P 49,500
101,250
P 150,750
____0

P150,750
10,125
P 140,625
Or, alternatively

Total
P 71,250
45,000
( 15,000 )
P 101,250

P 10,125
___0
P 49,500
0
(_
0)
P 49,500
101,250
P 150,750
10,125
P140,625
__ 10,125
P150,750
P 71,250
45,000
( 15,000)
P 101,250
_0
P101,250
10%
P 10,125
0
P 10,125
(Not required)
Analysis of workpaper entries

(1) Investment in Segal (0.90 (P180,000 P150,000))
Beginning Retained Earnings-Paque Co.
To establish reciprocity as of 1/1/20x8
(2) Sales

To eliminate intercompany sales
27,000
300,000
(3) Ending Inventory - Income Statement (CGS)

To eliminate unrealized intercompany profit in ending inventory (P75,000 0.20)
15,000
(4) Beginning Retained Earnings - Paque Co. (P45,000 0.90)

Non-controlling Interest P45,000 0.10)
Beginning Inventory (Income statement)
To recognize intercompany profit realized during the year and to reduce
controlling and non-controlling interests for their share of unrealized profit
at beginning of year
40,500
4,500
(5) Dividend Income (P60,000 0.90)

Dividends Declared
To eliminate intercompany dividends
54,000
27,000
300,000
15,000
45,000
54,000
(6) Beginning Retained Earnings- Segal Co.

Common Stock - Segal Company
Investment in Segal Company (P810,000 + P27,000)
Non-controlling Interest (P750,000 + P180,000) x .10
To eliminate investment account and create non-controlling interest account
180,000
750,000
94. c
Preferred Solution - since what is given is the RE P, 1/1/20x8 Retained earnings Parent, 1/1/20x8 (cost)..
P 598,400
25,000
P 573.400
Retained earnings Subsidiary, 1/1/20x4P 95,000
Less: Retained earnings Subsidiary, 1/1/20x8.. 144,000
Accumulated amortization (1/1/20x4 1/1/20x8).
0
UPEI of P (up) 20x7 or RPBI of P (up) 20x8... (
0)
P 49,000
X: 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..
110,000
RE P, 12/31/2014 (equity method) = CRE, 12/31/2014..
P 711,200
Total
P 63,000
0
(
0)
P 63,000
P132,000
25,000
(10,000)
P147,000
63,000
P210,000
0
P210,000
6,300
P203,700
Or, alternatively

Total
P 63,000
0
(
0)
P 63,000
P 6,300
_____0
P132,000
25,000
(10,000)
P147,000
63,000
P210,000
6,300
P203,700
_ 6,300
P210,000
837,000
93,000

P 63,000
0
0)
P 63,000
0
P 63,000
10%
P 6,300
0
P 6,300


RPBI of Sedbrock (downstream sales) 20x8......................................................... P25,000
UPEI of Sedbrock (downstream sales) 20x8: P60,000 x 20%/120%.. 10,000
Net income:
Sales
Inventory, 1/1
Purchases
Inventory, 12/31
Gross profit
Less: Other expense
Net income from its own
separate operations
Net income
Dividends declared
Pruitt Co.
P1,210,000
165,000
935,000
(220,000)
__880,000
P 330,000
198,000
Sedbrook
P 636,000
132,000
420,000
(144,000)
P 132,000
31,500
P 163,500
P 110,000
Or, alternatively(compute the RE-P end of the year under the cost model)
Retained earnings Parent, 1/1/20x8 (cost)..
P
Add: NI of Parent as reported 20x8 under cost model
Less: Dividend of Parent 20x8..
P
-: UPEI of S (down) 20x8 or RPBI of S (down) 20x9....
Adjusted Retained earnings Parent, 12/31/20x8 (cost model)..
P
Retained earnings Subsidiary, 1/1/20x4
P 95,000
Retained earnings Subsidiary , 1/1/20x8.. P144,000
Add: NI of Subsidiary 20x8
63,000
Less: Dividend of Subsidiary 20x8...
35,000 172,000
Accumulated amortization (1/1/20x4 12/31/20x8)..(
0)
UPEI of P (up) 20x8 or RPBI of P (up) 20x9........ (
0)
P 97,000
90%
RE P, 12/31/20x8 (equity method) = CRE, 12/31/20x8
P
(Not required)
__408,000
P 228,000
165,000
P 63,000
P 63,000
P 35,000
598,400
163,500
110,000
651,900
10,000
641,900
69,300
711,200

(1) Investment in Sedbrook Company (0.90(
P144,000 P95,000))
Beginning Retained Earnings - Pruitt Co.
To establish reciprocity/convert to equity as of 1/1/x8
44,100
(2) Sales
44,100
250,000

To eliminate intercompany sales
(3) Ending Inventory - Income Statement (CGS)

To eliminate unrealized intercompany profit in ending
inventory (P60,000 (P60,000/1.2)
10,000
(4) Beginning Retained Earnings - Pruitt Co.

Beginning Inventory (Income Statement)
To recognize intercompany profit in beginning inventory
realized during the year
25,000
(5) Dividend Income (P35,000.90)

Dividends Declared
To eliminate intercompany dividends
31,500
250,000
10,000
25,000
31,500
(6) Beginning Retained Earnings - Sedbrook Co.

144,000
Common Stock - Sedbrook Co.
600,000
Investment in Sedbrook Co.(P625,500 + P44,100)
Non-controlling Interest (P744,000 x .10)
To eliminate investment account and create non-controlling interest account
669,600
74,400
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 of
P700,000 and retained earnings on December 31, 20x4, of P1,500,000.
Fair value of consideration givenP1,360,000
Less: Book value of SHE - Subsidiary):
(P1,000,000 + P450,000) x 80%................... 1,160,000
Allocated Excess..P 200,000
Less: Over/Undervaluation of Assets & Liabilities
Increase in franchise (P250,000 x 80%).. 200,000 / 80% = P250,000
P
0
RPBI of S (downstream sales):........................................................ P 30,000
RPBI of P (upstream sales)....................................................... 20,000
UPEI of S (downstream sales)... 5,000
UPEI of P (upstream sales). 10,000
Total
P270,000
20,000
( 10,000)
P280,000
P700,000
30,000
( 5,000)
P725,000
280,000
P1,005,000

10,000
P 995,000
54,000
P 941,000
Or, alternatively

Total
P270,000
20,000
( 10,000)
P280,000
P 54,000
10,000
P700,000
30,000
( 5,000)
P725,000
280,000
P1,005,000
64,000
P 941,000
__ _ 54,000
P 995,000
P270,000
20,000
( 10,000)
P280,000
10,000
P270,000
20%
P 54,000
0
P 54,000
(Not required)

(1) Sales
To eliminate intercompany sales (P50,000 + P70,000)
120,000
(2) Ending Inventory Income Statement (CGS)

Inventory (Balance Sheet)
To eliminate unrealized profit in ending inventories
(P10,000 + P5,000)
15,000
(3) Beginning Retained Earnings Paul Company (P20,000 0.8)

Non-controlling Interest
Beginning Inventory Income Statement (CGS)
To recognize profit in beginning inventory (upstream sales)
realized during year and to reduce the controlling and
noncontrolling interests for their shares of the amount of
unrealized upstream intercompany profit at beginning of year
16,000
4,000
(4) Beginning Retained Earnings Paul Company.

Beginning Inventory Income Statement (CoGS)
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 unrealized
downstream intercompany profit at the beginning of the year
30,000
96. P1,863,000
120,000
15,000
20,000
30,000

P 1,500,000
5,000
P 1,495,000
Less: Retained earnings Subsidiary, 12/31/20x4 960,000
Accumulated amortization (1/1/20x1 12/31/20x4)..( 40,000)
UPEI of P (up) 20x4 or RPBI of P (up) 20x5........ ( 10,000)
P 460,000
80% 368,000
P1,863,000
97. P54,000 refer to No. 95 for computation
98. a
Full-goodwill

Consideration transferred: Cash (P7,500,000/80%)
Less: Book value of stockholders equity of S (P6,000,000 x 100%)
Decrease in inventory: P(150,000 x 100%)
Increase in building: P450,000 x 100%
fair value)...
P9,375,000
_6,000,000
P3,375,000
P( 150,000)
___450,000
___300,000
P3,075,000
Partial-goodwill

Common stock (P1,000,000 x 80%).
Retained earnings (P5,000,000 x 80%)...
fair value)...
P7,500,000
P 800,000
4,000,000
P( 120,000)
___360,000
4,800,000
P2,700,000
240,000
P2,460,000
Amortization schedule
Inventory
Building (15 years)
Goodwill
Total
Balance at
acquisition
Dec. 31/X2
P(150,000)
450,000
3,075,000
P3,375,000
Amortization
20X3
P(150,000)
30,000
_________0
P(120,000)
Amortization
20X4
0
P30,000
______0
P30,000
Remaining
at
Dec.31/X4
P
0
390,000
3,075,000
P3,465,000
99. a
Non-controlling interest is 20% 9,375,000 (fair value of subsidiary, 12/31/20x2) = P1,875,000
Or, alternatively:

liabilities, date of acquisition (December 31, 20x2)
Add: NCI on full-goodwill (P3,075,000 P2,460,000)
P1,000,000
5,000,000
P6,000,000
___300,000
P6,300,000
20
P 1,260,000
___615,000
P1,875,000
100. d P2,393,800

Amortization of allocated excess (refer to amortization above- 20x3 and 20x4:
Less: UPEI of P (up) 20x3 or RPBI of P (up) 20x4
Add: NCI on full-goodwill
P1,000,000
7,524,000
P8,524,000
300,000
__90,000
P8,914,000
____20,000
P8,894,000
_ 20
P1,778,800
___615,000
P2,393,800
RPBI of P (upstream sales):

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
P1,875,000
Add: NCI's share of the adjusted change in retained earnings to 12/ 31/20x4
Jane's retained earnings, December 31, 20x4
P7,524,000
Jane's retained earnings at December 31, 20x2
( 5,000,000)
Change in carrying value
P2,524,000
Adjustments:
Amortization of fair value increments to date
90,000
Unrealized upstream profit 20x4
( 20,000)
djusted change in retained earnings of Jane since acquisition P2,594,000
Multiplied by: NCI's share at
20%
518,800
Ending balance of NCI on December 31, 20x4
P2,393,800
101. b
P11,900,000
0
P11,900,000
Retained earnings Subsidiary, 12/31/20x2..P5,000,000
Less: Retained earnings Subsidiary, 12/31/20x4 7,524,000
(cumulative net income cumulative dividends).P2,524,000
Accumulated amortization (1/1/20x1 12/31/20x4)..
90,000
UPEI of P (up) 20x4 or RPBI of P (up) 20x5.....( 20,000)
102.
103.
104.
105.
106.
107.
108. d
b - (P125,000 - P93,000) .8 = P25,600
c - (P125,000 - P93,000) .2 = P6,400
d
a - (P125,000 - P93,000) .7
c - (P125,000 - P93,000) .3
a - [P293,000 + (P125,000 - P93,000) .7] .2 = P63,080
P2,594,000
80% 2,075,200
P13,975,200
Non-controlling Interest in Net Income (NCINI) for 20x4:

109.

Combined cost of sales

Less: Intercompany sales revenue
Add: Unrealized profit taken out of inventory
(75%)x(35,000) =
Consolidated cost of sales
P 160,000
110,000
P 137,000
40,000
( 25,000)
P 152,000
_ 0
P 152,000
30%
P 45,600
0
P 45,600
26,250
P 76,250
110. a
(P115,000 x 70%) - P26,250
= P 54,250
The requirement Ps income from S is a term normally used under the equity method, but, in
some cases it may also refer to the term dividend income under the cost model depending on
how the problem was described and presented.
Since there are no data available to arrive at the dividend income under the cost model for
reason that dividend declared or paid by subsidiary is not given, so the term Ps 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 in
subsidiary in the books of parent company but not the equity method.
111. a - P720,000 = P500,000 + P400,000 - P200,000 +P 20,000
112. b
(P120,000 x 80%) (P200,000 x 50% = P100,000 x 20% = P20,000) = P76,000
113. d Downstream situation
S Companys net income from own/separate operations
P120,000
x: NCI %
20%
P 24,000
114. c
115. b
Share in net income (P120,000 x 60%)

Less: Unrealized profit in ending inventory of S {P189,000 x 1/3 = P63,000 x (P189-135)/P189]
P72,000
__18,000
P54,000
Share in net income (P200,000 x 60%)

Less: Unrealized profit in ending inventory of S {P315,000 x 1/3 = P105,000 x (P315-P225)/P315]
P120,000
__30,000
P 90,000
Quiz - XVII
1. Overstated by P320
It will be overstated by the amount of the NC interests share of the P1,600 of profit margin in
the P9,600 of materials carried over to 20x5 (20% x P1,600 = P320
2. P20,000 - Inventory remaining P100,000 50% = P50,000 Unrealized gross profit (based on LL's
markup as the seller) P50,000 40% = P20,000. The ownership percentage has no impact on
this computation
3. (downstream sales) Sales, P1,400,000; Cost of Sales, P966,00
Sales Pot (parent)

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

Total
Unrealized Profit in
Ending Inventory of
Skillet (subsidiary)-down
EI of Skillet :
Sales of Pot
140,000
x: EI of Skillet
40%
EI of Skillet
56,000
X: GP of Pot
(1,120 840)
1,120
25%
Consolidated CGS
840,000
252,000
1,092,000
( 140,000)
14,000
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 40
percent*
CGS Pot (parent)

840,000
252,000
Total
1,092,000
Add(Deduct): Intercompany sales - upstream ( 140,000)
Ending Inventory of
Pot (subsidiary)-upstream
EI of Pot:
Sales of Skillet 140,000
x: EI of Pot
40%
EI of Pot
56,000
X: 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 the
transfer price base on its normal markup. It should be noted that Parent Company
established the transfer price based on its normal price (in this case it is assumed that th e
mark-up of the parent which is 25% is also the normal transfer price). So, if is assumed to be
of the same markup with parent company, then the answer would be as follows:
Sales Pot (parent)
Total
1,120,000
420,000
1,540,000

Consolidated Sales
CGS Pot (parent)
Total
Ending Inventory of
Skillet (subsidiary)-down
EI of Skillet :
Sales of Pot
140,000
x: EI of Skillet
40%
EI of Skillet
56,000
X: GP of Pot
(1,120 840)
1,120
25%
Consolidated CGS
( 140,000)
1,400,000
840,000
252,000
1,092,000
( 140,000)
14,000
966,000
5. P522,500
Grebe plus Swamps separate cost of goods sold =
P400,000 + P320,000 =
=
Add: Profit +12,500 - 10,000 =
Consolidated COGS
=
P 720,000
200,000
____2,500
P 522,500
6. P10,000
Ending inventory of Grebe (1/2 x P100,000)
x: GP% of Parent (P100,000 P80,00)/P100,000
Unrealized profit in ending inventory
P
P
50,000
20%
10,000
7. Sales, P1,000,000; Cost of Sales, P690,000

Intercompany sales and purchases of P100,000 must be eliminated. Additionally, an
unrealized gross profit of P10,000 must be removed from ending inventory based on a markup
of 25 percent (P200,000 gross profit/P800,000 sales) which is multiplied by the P40,000 ending
balance. This deferral increases cost of goods sold because ending inventory is a negative
component of that computation. Thus, cost of goods sold for consolidation purposes is
P690,000 (P600,000 + P180,000 P100,000 + P10,000).
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 is
P16,000 (P40,000 40%). Consequently, consolidated cost of goods sold is P696,000 (P600,000
+ P180,000 P100,000 + P16,000).
9. Sales, P2,907,000
P Company
S Company
Total
[P300,000 x 1/2 = P150,000 x (300-240)/300]
[P468,000 x 40% = P187,200 x (468-375)/468]
Consolidated
Sales
2,250,000
1,125,000
3,375,000
468,000
Cost of Sales
1,800,000
_937,500
2,737,500
468,000
30,000
________
2.907,000
__37,200
2,276,700
10. Cost of sales, P2,276,700 - refer to No. 9

11. P380,000

P120,000
P 300,000
0
(_
0)
P300,000

[P200,000 x 50% = P100,000 x (P40,000/P200,000)]
Total
20,000 )
P100,000
P 380,000

P 120,000
0
( 20,000)
P 100,000
0
P 100,000
20%
P 20,000
0
P 20,000

12. P20,000 refer to No, 11 for computations.

13. Sales, P2,907,000
P Company
S Company
Total
[P300,000 x 1/2 = P150,000 x (300-240)/300]
[P468,000 x 40% = P187,200 x (468-375)/468]
Consolidated
Sales
2,250,000
1,200,000
3,450,000
468,000
100,000
P 400,000
_
0
P 400,000
20,000
Cost of Sales
1,800,000
_1,000,000
2,800,000
468,000
30,000
________
2.982,000
__37,200
2,339,200
14. Cost of sales, P2,339,200 - refer to No. 13

15. P285,000

[P150,000 x 50% = P75,000 x (30/150)]
Total
P 90,000
0
( 15,000)
P 75,000
P225,000
0
(_
0)
P225,000
75,000
P300,000
0
P300,000
15,000
P285,000
Or, alternatively

Total
P 90,000
0
( 15,000)
P 75,000
P 15,000
0
P225,000
0
(_
0)
P225,000
75,000
P300,000
15,000

P285,000
_ 15,000
P290,000

P 90,000
0
( 15,000)
P 75,000
0
P 75,000
20%
P 15,000
0
P 15,000

16. P15,000 - refer to No. 15 for computation

17. 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 company
20. 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)
P39,000
Income 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.
Cost of goods sold (P30,000 x 2/3)
Consolidated net income
24. P7,000 = [(P67,000 - $32,000) x .20]
25. P90,720
Net Income from own operations:
Gibson (Parent): Sparis(subsidiary), 90%:10%
RPBI 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%
Non-controlling Interest in Kents Net Income
P67,000
(20,000)
P47,000
Parent
Subsidiary
820,800
91,200
22,680
2,520
(27,000)
( 3,000)
90,720
26. P28,000 P140,000 x 50% = P70,000 x 40% = P28,000

27. P474,400
Unrealized Profit, 12/31/x4
Intercompany Gross profit (P100,000 P75,000) .................................................
Unrealized Intercompany Gross profit, 12/31/x4 .................................................
P25,000
16%
P4,000
UNREALIZED GROSS PROFIT, 12/31/x5

Intercompany Gross profit (P120,000 P96,000) ..................................................
Unrealized Intercompany Gross profit, 12/31/x5 .................................................
P24,000
35%
P8,400
CONSOLIDATED COST OF GOODS SOLD

Parent balance ...................................................................................................
P380,000
Subsidiary Balance .............................................................................................
210,000
Remove Intercompany Transfer ......................................................................
(120,000)
Recognize 20x4 Deferred Gross profit ............................................................
(4,000)
Defer 20x5 Unrealized Gross profit ...................................................................
8,400
Cost of Goods Sold ...................................................................................................
P474,400
28. P8,400
Squids reported income
P 100,000
Less: Unrealized profits in the ending inventory

Squids adjusted income
NCI percentage
NCI-CNI
_____16,000
P
84,000
_______10%
P
8,400
29. P8,200
Ending inventory .................................................................................................
Markup (P33,000/P110,000) ...............................................................................
Unrealized intercompany gross profit, 12/31/x4 ...........................................
P 40,000
__ 30%
P 12,000

Ending inventory .................................................................................................
Markup (P48,000/P120,000) ...............................................................................
Unrealized intercompany gross profit, 12/31/x5 ...........................................
P 50,000
40%
P 20,000
30. P10,000 = [P100,000 x (25/100) = P25,000 x 40/100

31. Sales and cost of goods sold should be reduced by the intercompany sales.
32. P500,000
P Company
S Company
Total
Consolidated
33. P1,060,000
Cost of goods sold reported by Park
Cost of goods sold reported by Small
Total cost of goods sold reported
Cost of goods sold reported by Park on sale to
Small (P500,000 x .40)
Reduction of cost of goods sold reported by
Small for profit on intercompany sale
[(P500,000 x 4 / 5) x .60]
Cost of goods sold for consolidated entity
Cost of Sales
400,000
_350,000
750,000
250,000
500,000
P 800,000
700,000
P1,500,000
(200,000)
(240,000)
P1,060,000
34. P115,000
35. P102,400 = P94,000 + (P115,000 - P94,000).4
36. P12,600 = (P115,000 - P94,000) .6
37. P6,300 = (P37,000 - P28,000) .7
38. P2,700 = (P37,000 - P28,000) .3
39. Zero
40. P5,400 = (P37,000 - P28,000) .6
41. P3,600 = (P37,000 - P28,000) .4
42. P56,820 = [P184,000 + (P37,000 - P28,000) .6] .3
43. P9,360 = [(P65,000 - P52,000) - (P65,000 - P52,000) .2] .9
44. P1,040 = [(P65,000 - P52,000) - (P65,000 - P52,000) .2] .1
45. Zero
46. P9,100 =(P65,000 - P52,000) .7
47. P32,110 = [P312,000 + (P65,000 - P52,000) .7] .1
48. P280,000
Full-goodwill

Consideration transferred: Cash (P960,000/60%)
Less: Book value of stockholders equity of S (P600,000 + P540,000)
x 100%)
Decrease in inventory: P(40,000) x 100%
Increase in capital assets P220,000 x 100%
fair value)...
P1,600,000
_1,140,000
P 460,000
P( 40,000)
__220,000
__180,000
P 280,000
Partial-goodwill

Consideration transferred.....................
Common stock (P600,000 x 60%)...................
Retained earnings (P540,000 x 60%)...................
fair value)...
P 960,000
P 360,000
_ 324,000
P( 24,000)
___132,000
_ 684,000
P 276,000
_108,000
P 168,000
Amortization Table: (in thousands of P's)
Amortization/ Amortization/
Balance of
Amortization/ Impairment Impairment Allocated Excess
Allocated Amortizati Impairment
20x6
loss during remaining at end of
Asset
Excess on period per year
1 year
20x7
20x7
Inventory
(40)
1
(40)
0
Building
220
20
11
11
11
198
Goodwill
280
280
Total
460
(29)
11
478
49. P640,000
Non-controlling interest , 12/31/20x5 40% P1,600,000, fair value of subsidiary = P640,000
Or, alternatively:
Add: NCI on full-goodwill (P280,000 P168,000)
P 600,000
540,000
P1,140,000
___180,000
P1,320,000
40
P 528,000
___112,000
P 640,000
50. Since there was no impairment in goodwill reported in 20x6 and 20x7, the balance showing
for goodwill is P280,000.
51. P779,200
Amortization of allocated excess (refer to amortization above- 20x6 and
20x7 (P40,000 - P11,000) = P(29,000) + P11,000
Less: UPEI of P (up) 20x7 or RPBI of P (up) 20x8
600,000
__935,000
P1,535,000
180,000
__18,000
P1,733,000
____65,000
P1,668,000
_ 40
P 667,200
___112,000
P 779,200

Add: NCI on full-goodwill
Or, alternatively: Calculation of Non-controlling interest at December 31, 20X7:
Balance of NCI at time of acquisition
P640,000
Add: NCI's share of adjusted change in retained earnings in prior years:
Retained earnings balance of Book at end of 20X7
P935,000
Retained earnings balance of Book at date of acquisition
(540,000)
Change in carrying value of Book since acquisition
P395,000
Adjustments:
Amortization of fair value increments

Unrealized profit on upstream sale of inventory in 20X7
Adjusted change in retained earnings since acquisition
NCI's share
Ending balance of NCI on December 31, 20X7
18,000
( 65,000)
P348,000
40% 139,200
P779,200
RPBI of S (downstream sales)- 20x7:

EI of S
GP% of Parent
P800,000
x 25% = P200,000 x
30%.
RPBI of P (upstream sales - 20x7
P500,000
x 60% = P300,000 x 25%........
UPEI of S (downstream sales) - 20x7
EI of S
GP% of Parent
P1,000,000
x 15% = P150,000 x
30%.
UPEI of P (upstream sales) - 20x7
P650,000
x 40% = P260,000 x
25%.....
60,000
75,000
45,000
65,000
52. P1,780,400
P 1,775,000
60,000
P 1,715,000
Retained earnings Subsidiary, 12/31/20x5..P540,000
(cumulative net income cumulative dividends).P155,000
Accumulated amortization - 20x6..
29,000
UPEI of P (up) 20x6 or RPBI of P (up) 20x7....( 75,000)
P 109,000
60%
65,400
P1,780,400
Or, alternatively:
Ending balance - Retained earnings separate entity - Paper
Less unrealized profit on downstream sale of inventory 20x6
Subtotal
Papers share of adjusted retained earnings - see Note 1 below:
60% P109,000
Ending consolidated retained earnings balance of Paper, 12/ 31/ 20x6
Note 1:
Retained earnings balance of Book at end of 20x6
Adjustments:
Unrealized profit on upstream sale of inventory in 20x6
Paper's s share 60% 109,000
P1,775,000
(60,000)
P1,715,000
65,400
P1,780,400
P695,000
(540,000)
P155,000
29,000
(75,000)
P109,000
P 65,400
53. P2,428,800
Retained earnings Subsidiary, 12/31/20x5..P540,000
P 2,265,000
45,000
P 2,220,000

(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
60%
208,800
P2,428,800
Or, alternatively:
Ending balance - Retained earnings separate entity - Paper
Less unrealized profit on downstream sale of inventory 20x7
Subtotal
Paper's share of adjusted retained earnings - see Note 1 below:
60% 348,000
Ending consolidated retained earnings balance of Paper, 12/31/20x7
Note 1:
Retained earnings balance of Book at end of 20x7
Adjustments:
Unrealized profit on upstream sale of inventory in 20x7
Paper's s share 60% 348,000
P2,265,000
(__45,000)
P2,220,000
208,800
P2,428,800
P935,000
(540,000)
P395,000
18,000
(65,000)
P348,000
P208,800
or alternatively:
Consolidated retained earnings, December 31, 20x6 (No. 52)
Controlling Interests in Consolidated Net income (refer to statement
of comprehensive income below)
Dividends declared paper
Retained earnings, December 31, 20x7
Incidentally, the
Eliminate intercompany transactions for 20X7
Intercompany transactions and balances
Accounts receivable/accounts payable still outstanding
Downstream sales by Paper
Upstream sales by Book
Dividends declared by Book
Paper's portion of dividends P250,000 X 60% = P150,000
P1,780,400
1,148,400
( 500,000)
P2,428,800
P 150,000
P1,000,000
P 650,000
P 250,000
Paper Co.
Consolidated Statement of Comprehensive Income
For the year ended December 31,20s7
Sales (2,520 + 2,400 - 1,000 - 650)
Management fees (250 - 250)
Dividend income (150 - 150)
Consolidated Net income
3,270,000
0
0
3,270,000
325,000
1,006,000
0
595,000
1,926,000
1,344,000
Allocated as follows:
Non-controlling interests in CNI see below
Controlling Interest in CNI Owners of the parent
Consolidated Net Income
195,600
1,148,400
1,344,000
Cost of sales (800 + 1,200 - 1,000 - 650 - 60 - 75 + 45 + 65)

Depreciation and amortization expenses (670 + 325 + 11)
Management fees expense (250 - 250)
Other expenses (460 + 135)
Non-controlling interest's portion of adjusted net earnings:

Net income of Book for 20X7 as per separate-entity statement
Adjustments for 20X7
Realized profits on upstream sale of inventory 20x6
Unrealized profits on upstream sale of inventory 20x7
Amortization of fair value increments for 20x7
Adjusted net income of Book for 20x7
NCI's share 40% P489,000
P490,000
75,000
( 65,000)
( 11,000)
P489,000
P195,600
Theories
1.
2.
3.
4.
5.
True
False
False
True
False
41.
42.
43.
44.
45.
b
c
a
c
d
6.
7.
8.
9.
10,
46.
47.
48.
49.
50,
True
False
False
True
False
c
b
c
a
d
51.
52.
53.
54.
55,
11.
12.
13.
14.
15,
a
c
c
d
c
True
False
False
True
True
16.
17.
18.
19.
20.
56.
57.
58.
59.
60.
c
b
c
b
c
False
False
True
True
False
61.
62.
63.
64.
65.
21.
22.
23.
24.
25.
a
a
b
c
a
True
False
b
e
a
66.
67.
68.
69.
70.
b
b
c
d
b
26.
27.
28.
29.
30.
71
72.
73.
74.
75.
e
e
c
d
a
b
a
a
a
c
31
32.
33.
34.
35.
76.
77.
78.
79.
80.
b
e
b
d
a
c
c
a
c
e
36.
37.
38.
39.
40.
a
b
e
d
d

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Chapter 17

Consolidated Net Income for 20x5

Consolidated Net Income for 20x5

Purchases (Cost of Goods Sold)

12/31 Inventory (Income Statement)

Purchases (Cost of Goods Sold)

Consolidated Net Income for 20x5

Consolidated Net Income for 20x5

Purchases (Cost of Sales)

12/31 Inventory (Income Statement)

Consolidated Net Income for 20x4

Consolidated Net Income for 20x4

Non-controlling Interest in Net Income (NCINI) for 20x4

Non-controlling Interest in Net Income (NCINI) for 20x4

Realized Profit in Beginning inventory:

P3,000,000 .20 = P600,000 non-controlling interest in consolidated income.

[(.20 P5,400,000) -.20(P1,250,000 P1,250,000/1.25)] = P1,030,000 non-controlling interest in

P COMPANY AND SUBSIDIARY

Sales (P13,800,000 P1,350,000)

Cost of Goods Sold (a)

Reported net income of subsidiary

Non-controlling interest in consolidated income

Consolidated Net Income for 20x5

S Companys realized net income from separate operations*...

**Non-controlling Interest in Net Income (NCINI) for 20x5

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

Decrease in bonds payable (P4,800 x 80%)

The over/under valuation of assets and liabilities are summarized as follows:

A summary or depreciation and amortization adjustments is as follows:

Fair value of NCI (given) (20%)

Fair value of Subsidiary (100%)

Less: Book value of stockholders equity of Son (P360,000 x 100%)

Allocated excess (excess of cost over book value)..

Goodwill applicable to parent

Goodwill applicable to NCI..

The goodwill impairment loss would be allocated as follows

20x4: First Year after Acquisition

(E1) Common stock S Co

To eliminate intercompany investment and equity accounts

To allocate excess of cost over book value of identifiable assets

(E3) Cost of Goods Sold.

To provide for 20x4 impairment loss and depreciation and

(E4) Dividend income - P.

To eliminate intercompany dividends and non-controlling interest

(E7) Cost of Goods Sold (Ending Inventory Income Statement)

(E8) Cost of Goods Sold (Ending Inventory Income Statement)

To eliminated intercompany downstream sales.

To eliminated intercompany upstream sales.

To defer the downstream sales - unrealized profit in ending inventory

To defer the upstream sales - unrealized profit in ending inventory

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

Company (upstream sales)..

Worksheet for Consolidated Financial Statements, December 31, 20x4.

Statement of Retained Earnings

(2) 96,000 (3)

Common stock, P10 par

Consolidated Net Income for 20x4

No goodwill impairment loss for 20x5.

Consolidation Workpaper Second Year after Acquisition

To provide entry to convert from the cost method to the equity

To eliminate intercompany investment and equity accounts

To allocate excess of cost over book value of identifiable assets

(E4) Retained earnings P Company, 1/1/20x5

To provide for years 20x4 and 20x5 depreciation and amortization on