Professional Documents
Culture Documents
Method
Investment in Son Investment Income (loss)
1/1/x4: CI
3. 600,000
NI of S 18,750 75% Div - Son NI of Son
(80,000 75% Amort& Amortization (80,000
x 75%)……. 19,500 impairment impairment 60,000 x
60,000 19,500 75%)
12/31/x4 40,500
621,750
75% NL – Sub 75% NL – Sub
26,250 (35,000 x (35,000 x 75%)
75%) 26,250
7,500 75% Div - Son
75% Amort& 75%
Impairment Amort&
10,500 10,500
impairment
12/31/x5 15,750
598,500
NI of S 30,000 75% Div – Son NI of Son
(90,000 75%Amort& Amortization (90,000
x 75%)……. 3,975 impairment impairment 67,500 x
67,500 3,975 75%)
12/31/x6 63,525
632,025
Balances on January 1, 20x6:
a. P247,500 (refer to above computation)
b. P330,000 (refer to above computation)
c. 20x4: P26,000
20x5, (P14,000); 20x6, (P14,000)
d. P180,900
Non-controlling interest (full-goodwill), January 1, 20x6
Common stock – Subsidiary Company, January 1 20x6 . . . . . . . . . . . . . . . . . P 400,000
.
Retained earnings – Subsidiary Company, December 31, 20x5
Retained earnings – Subsidiary Company, January 1, 20x6
(P100,000 + P80,000 – P25,000) P155,000
…………………………….............................
Less: Net loss of Small for 20x5……………………………………………….. 35,000
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P120,000
.........
Less: Dividends paid – 20x5…………………………………………………………. 10,000 110,000
Stockholders’ equity – Subsidiary Company, December 31, P 510,000
20x5 . . . . . . . . . . . . .
Adjustments to reflect fair value - (over) undervaluation of assets and
liabilities, date of acquisition (January 1, 20x4)- decreased in Net Assets ( 30,000)
....
Less: Amortization of allocated excess (refer to amortization above):
20x4 (P40,000 – P14,000). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P
........ 26,000
20x5 (14,000) 12,000
…………………… . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value of stockholders’ equity of subsidiary, December 31, 20x5 . . . . . . . . . P 492,000
..
Multiplied by: Non-controlling Interest percentage . . . . . . . . . . . . . . . . . . . . . . . 20
..
FV of Non-controlling interest (partial goodwill), 12/31/20x5 . . . . . . . . . . . . . P 98,400
....
Add: Non-controlling interest on full goodwill , net of impairment loss
[(P330,000 full – P247,000, partial = P 82,500
P82,500………………………………….
Less: Impairment on the NCI ……………………………………………………… ______0 ___*82,500
FV of Non-controlling interest (full-goodwill), 12/31/20x5. . . . . . . . . . . . . . . . . P 180,900
....
e. Consolidated Retained Earnings, 1/1/20x6 – P498,500 (same with the RE,
beginning of 20x6
given per problem)
Consolidated Retained Earnings, January 1, 20x6
Retained earnings - Large Company, January 1, 20x6 (cost model) P500,000
Adjustment to convert from cost model to equity method for purposes of
consolidation or to establish reciprocity:/Parent’s share in adjusted
net
increased in subsidiary’s retained earnings:
Retained earnings – Small, January 1, 20x6
(P100,000 + P80,00 – P25,000 – P35,000 – P10,000) P 110,000
Less: Retained earnings – Small, January 1, 20x4 (date of 100,000
acquisition)
Increase in retained earnings since date of acquisition P 10,000
Less: Amortization of allocated excess – 20x4 26,000
Amortization of allocated excess – 20x5 (14,000)
P ( 2,000)
Multiplied by: Controlling interests %................... _____75%
P ( 1,500)
Less: Goodwill impairment loss (full-goodwill) – 20x6 ________0 (___1,500)
Consolidated Retained earnings, January 1, 20x6 P498,500
4.
a. Goodwill, 12/31/20x6 [P247,500 – (P19,300 x 75%), partial goodwill P 233,025
Goodwill, 12/31/20x6 (P330,000 – P19,300), full goodwill P 310,700
b. FV of NCI, 12/31/20x6:
Non-controlling interest (full-goodwill), December 31, 20x6
Common stock – Subsidiary Company, December 31, P 400,000
20x6 . . . . . . . . . . . . . . . . . .
Retained earnings – Subsidiary Company, December 31, 20x6
Retained earnings – Subsidiary Company, January 1, 20x6
(P100,000 + P80,000 – P25,000 – P35,000 – P110,000
P10,000)..............................
Add: Net income of Small for 20x6……………………………………………….. 90,000
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P200,000
.........
Less: Dividends paid – 20x6…………………………………………………………. 40,000 160,000
Stockholders’ equity – Subsidiary Company, December 31, P 560,000
20x5 . . . . . . . . . . . . .
Adjustments to reflect fair value - (over) undervaluation of assets and
liabilities, date of acquisition (January 1, 20x4)- decreased in Net Assets ( 30,000)
....
Less: Amortization of allocated excess (refer to amortization above):
20x4 (P40,000 – P14,000). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P
........ 26,000
20x5 and (28,000) (2,000)
20x6. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value of stockholders’ equity of subsidiary, December 31, 20x6 . . . . . . . . . P 532,000
..
Multiplied by: Non-controlling Interest percentage . . . . . . . . . . . . . . . . . . . . . . . 20
..
FV of Non-controlling interest (partial goodwill), P 133,000
12/31/20x6 . . . . . . . . . . . . . . . . .
Add: Non-controlling interest on full goodwill , net of impairment loss
[(P330,000 full – P247,000, partial = P 82,500
P82,500………………………………….
Less: Impairment on the NCI (P19,300 x 25%) ___4,825 ___*77,675
…………………………………
FV of Non-controlling interest (full-goodwill), P 210,675
12/31/20x6. . . . . . . . . . . . . . . . . . . . .
*or P330,000 full – P247,000, partial = P82,500 – (impairment loss on full goodwill less (P19,300 x 25%)]
= P77,625
Alternatively, NCI on December 31, 20x6 may also be computed as follows (Note: This
is the American version of computing NCI, since they only allowed using Full-goodwill
Method):
Common stock, 12/31/20x6………………………………………….. P 400,000
Retained earnings, 12/31/20x6
(P100,000+P80,000 – P25,000 – P35,000 – P10,000)………….. P 110,000
Add: NI – Subsidiary (20x6) ……………………………………….. 90,000
Dividends – Subsidiary 20x6……………………………………….. ( 40,000) 160,000
Book value of SHE – S, 12/31/20x6…………………………………… P560,000
Adjustments to reflect fair value (Increase in Net Assets)………..P 300,000
Amortization of allocated excess:
Inventory – 20x4...…………………………………………………….( 40,000)
Patent (P14,000 x 3 years)………………………………………….. 42,000
Impairment of goodwill – 20x6…………………………………….. ( 19,300) 282,700
FV of SHE of Small………………………………………………………… P 842,700
Multiplied by: NCI%...............................................................................
25%
FV of NCI, 12/31/20x6…………………………………………………….. P
210,675
Or, alternatively:
Common stock – Subsidiary Company, December 31, 20x6 . . . . . . . . . . . . . . . . P 400,000
..
Retained earnings – Subsidiary Company, December 31, 20x6
Retained earnings – Subsidiary Company, January 1, 20x6
(P100,000 + P80,000 – P25,000 – P35,000 – P110,000
P10,000)..............................
Add: Net income of Small for 20x6……………………………………………….. 90,000
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P200,000
.........
Less: Dividends paid – 20x6…………………………………………………………. 40,000 160,000
Stockholders’ equity – Subsidiary Company, December 31, P 560,000
20x6 . . . . . . . . . . . . .
Unamortized acquisition differential / allocated excess / increase in net
assets:
{P300,000, allocated excess – {P40,000 - (P14,000 x 3) + P19,300, full __282,500
impairment
P 842,500
Multiplied by: Non-controlling Interest percentage . . . . . . . . . . . . . . . . . . . . . . . ______25%
..
FV of Non-controlling interest (full-goodwill), P 210,675
12/31/20x6. . . . . . . . . . . . . . . . . . . . .
d. P233.525
Consolidated Net Income for 20x6
Net income from own/separate operations
Parent Company: Large Company [P200,000 – (P40,000 x P170,000
75%)]
Small Company 90,000
Total P260,000
Less: Non-controlling Interest in Net Income* P 21,175
Amortization of allocated excess (14,000)
Goodwill impairment _19,300 __26,475
Controlling Interest in Consolidated Net Income or Profit
attributable to equity holders of parent………….. P233,525
Add: Non-controlling Interest in Net Income (NCINI) __21,175
Consolidated Net Income for 20x6 P254,700
*Net income of subsidiary – 20x6 P 90,000
Amortization of allocated excess – 20x6 ( 14,000)
P 104,000
Multiplied by: Non-controlling interest %.......... 25%
P 26,000
Less: Non-controlling interest on impairment loss on full-goodwill ( (P19,300 x ___4,825
25%)*
Non-controlling Interest in Net Income (NCINI) P 21,175
*this procedure would be not be applicable where the NCI on goodwill impairment loss would
not be proportionate to NCI acquired.
Note: Regardless of the method used (cost or equity) answers for 3 (a) to (g)
above are exactly the same.
5.
a. Reconciliation of Investment /Conversion of Investment Account from Cost to
Equity Method:
Investment balance under cost model P 600,000
Retroactive adjustments: (Small’s net income less dividends)
Small’s retained earnings, end of year P160,000
Less: Small’s retained earnings, date of acquisition _100,000
Increase in retained earnings (NI less dividend) P 60,000
Less: Cumulative amortization of allocated excess _17,300
P 42,700
X: Controlling interests ____75%
P 32,025
Less: Impairment of goodwill _______0 _32,025
Investment balance under equity method P 632,025
Problem II
A.
1.
a. P87,725
Consolidated Net Income for 20x4
Net income from own/separate operations
Pill Company P55,000
Sill Company 40,000
Total P95,000
Less: Non-controlling Interest in Net Income* P 5,775
Amortization of allocated excess 0
Goodwill impairment 1,500 __7,275
Controlling Interest in Consolidated Net Income or Profit
attributable to equity holders of parent………….. P87,725
Add: Non-controlling Interest in Net Income (NCINI) __5,775
Consolidated Net Income for 20x4 P93,500
b. P5,775
*Net income of subsidiary – 20x4 P 40,000
Amortization of allocated excess – 20x4 ( 0))
P 40,000
Multiplied by: Non-controlling interest %.......... _____15%
P 6,000
Less: Non-controlling interest on impairment loss on full-goodwill (P1,500 x _____225
15%)*
Non-controlling Interest in Net Income (NCINI) P 5,775
*this procedure would be not be applicable where the NCI on goodwill impairment loss would
not be proportionate to NCI acquired.
d.3
Retained earnings of P company (same with Consolidated RE), 1/1/20x4 P75,000
Add; Controlling Interest in CNI (refer to a above) _87,725
P 162,725
Less: Dividends of P Company ____5,000
Consolidated Retained Earnings, 12/31/20x4 P 157,725
e. P238,000
2.
a. P87,725
Consolidated Net Income for 20x4
Net income from own/separate operations
Pill Company P55,000
Sill Company 40,000
Total P95,000
Less: Non-controlling Interest in Net Income* P 5,775
Amortization of allocated excess 0
Goodwill impairment 1,500 __7,275
Controlling Interest in Consolidated Net Income or Profit
attributable to equity holders of parent………….. P87,725
Add: Non-controlling Interest in Net Income (NCINI) __5,775
Consolidated Net Income for 20x4 P93,500
b. P5,775
*Net income of subsidiary – 20x4 P 40,000
Amortization of allocated excess – 20x4 ( 0))
P 40,000
Multiplied by: Non-controlling interest %.......... _____15%
P 6,000
Less: Non-controlling interest on impairment loss on full-goodwill (P1,500 x _____225
15%)*
Non-controlling Interest in Net Income (NCINI) P 5,775
*this procedure would be not be applicable where the NCI on goodwill impairment loss would
not be proportionate to NCI acquired.
c. P93,500 – refer to computation in (a)
d.
d.1. P75,000. Retained earnings of Parent on the date of acquisition should always
be the same with the Consolidated Retained Earnings also on the date of
acquisition.
d.2
Retained earnings of P Co, 1/1/20x4 P75,000
Add; Net income under equity method {P55,000 + [(P40,000 x 85%) -
(P1,500, impairment loss x 85%) – (P0, amortization)} _87,725
P162,725
Less: Dividends of P Company ___5,000
Retained Earnings of P Co., 12/31/20x4 under equity method P157,725
d.3
Retained earnings of P Co., (same with Consolidated RE), 1/1/20x4 P75,000
Add; Controlling Interest in CNI same with Net Income in d.2 above under
equity method but not cost model _87,725
P162,725
Less: Dividends of P Company ___5,000
Consolidated Retained Earnings, 12/31/20x4 P157,725
B.
4.
a. P87,725
Consolidated Net Income for 20x4
Net income from own/separate operations
Pill Company [P62,650 – (P9,000 x 85%)] P55,000
Sill Company 40,000
Total P95,000
Less: Non-controlling Interest in Net Income* P 5,775
Amortization of allocated excess 0
Goodwill impairment 1,500 __7,275
Controlling Interest in Consolidated Net Income or Profit
attributable to equity holders of parent………….. P87,725
Add: Non-controlling Interest in Net Income (NCINI) __5,775
Consolidated Net Income for 20x4 P93,500
b. P5,775
*Net income of subsidiary – 20x4 P 40,000
Amortization of allocated excess – 20x4 ( 0))
P 40,000
Multiplied by: Non-controlling interest %.......... _____15%
P 6,000
Less: Non-controlling interest on impairment loss on full-goodwill (P1,500 x _____225
15%)*
Non-controlling Interest in Net Income (NCINI) P 5,775
*this procedure would be not be applicable where the NCI on goodwill impairment loss would
not be proportionate to NCI acquired.
d.3
Retained earnings of P company (same with Consolidated RE), 1/1/20x4 P75,000
Add; Controlling Interest in CNI (refer to a above) _87,725
P 162,725
Less: Dividends of P Company ____5,000
Consolidated Retained Earnings, 12/31/20x4 P 157,725
e. P238,000
5.
a. P87,725
Consolidated Net Income for 20x4
Net income from own/separate operations
Pill Company [P87,725 – (P40,000 x 85%) + (P1,500 x 85%)] P55,000
Sill Company 40,000
Total P95,000
Less: Non-controlling Interest in Net Income* P 5,775
Amortization of allocated excess 0
Goodwill impairment 1,500 __7,275
Controlling Interest in Consolidated Net Income or Profit
attributable to equity holders of parent………….. P87,725
Add: Non-controlling Interest in Net Income (NCINI) __5,775
Consolidated Net Income for 20x4 P93,500
b. P5,775
*Net income of subsidiary – 20x4 P 40,000
Amortization of allocated excess – 20x4 ( 0))
P 40,000
Multiplied by: Non-controlling interest %.......... _____15%
P 6,000
Less: Non-controlling interest on impairment loss on full-goodwill (P1,500 x _____225
15%)*
Non-controlling Interest in Net Income (NCINI) P 5,775
*this procedure would be not be applicable where the NCI on goodwill impairment loss would
not be proportionate to NCI acquired.
d.3
Retained earnings of P Co., (same with Consolidated RE), 1/1/20x4 P75,000
Add; Controlling Interest in CNI same with Net Income in d.2 above under
equity method but not cost model _87,725
P162,725
Less: Dividends of P Company ___5,000
Consolidated Retained Earnings, 12/31/20x4 P157,725
Problem III
Cost of 85% investment 646,000
Fair value of Subsidiary (Implied cost of 100% investment); P646,000/85%
760,000
Less: Carrying amount of Silk’s net assets =
Carrying amount of Silk’s shareholders’ equity
Common/Ordinary shares 500,000
Retained earnings 100,000
600,000
Allocated Excess: Acquisition differential – December 31, 20x4 160,000
Less: Over/under valuation of A/L (Allocated to):
Increase in Inventory 70,000
Patents 90,000
Non-controlling interest (15% x 760,000, fair value of subsidiary),12/31/20x4
114,000
A summary or depreciation and amortization adjustments is as follows:
Account Adjustments to be Over/ Lif Annual Current
amortized under e Amount Year(20x5) 20x6 20x7
P
Inventory P70,000 1 70,000 P 70,000 P - P -
Subject to Annual Amortization
Patents 90,000 10 __9,000 ___9,000 ___9,000 ___9,000
P P P
P160,000 79,000 P 79,000 9,000 9,000,
Unamortized balance of allocated excess:
Balance Balance
Dec. 31 Amortization Dec. 31
20x4 20x5 20x6 20x6
Inventory 70,000 70,000
Patents 90,000 9,000 9,000 72,000
160,000 79,000 9,000 72,000
1. NCI-CNI
20x5: P(7,350)
20x6: P6,450
20x5 20x6
Consolidated Net Income
Net income from own/separate operations
Large Company
20x5 [P28,000 – P0)] P
28,000
20x6 [(P45,000, loss + (P15,000 x 85%)] P(57,75
0)
Small Company 30,000 52,000
Total P P( 5,75
58,000 0)
Less: Non-controlling Interest in Net Income* P(7,350) P 6,450
Amortization of allocated excess 79,000 9,000
Goodwill impairment _____0 71,650 _____0 15,450
CI-CNI (loss) or Profit (loss) attributable to
equity P(13,6 P(21,2
holders of parent 50) 00)
Add: Non-controlling Interest in Net Income (NCINI) ( 7,350) 6,450
Consolidated Net Income/Loss(CNI) P(21,00 P(14,75
0) 0)
20x5 20x6
*Net income (loss) of subsidiary P 30,000 P 52,000
Amortization of allocated excess ( 79,000) ( 9,000)
P(49,000) P43,000
Multiplied by: Non-controlling interest %.......... 15% 15%
P(7,350) P 6,450
Less: Non-controlling interest on impairment loss on full-goodwill _______- ___ _-
Non-controlling Interest in Net Income (NCINI) P( 7,350) P6,450
*this procedure would be not be applicable where the NCI on goodwill impairment loss would
not be proportionate to NCI acquired.
2. CI-CNI – refer to computation in No. 1
20x5: P(21,000)
20x6: P14,750
Or, alternatively:
(1) Non-controlling interest in profit
20x5: 15% (30,000 – 79,000).............................................................7,350
20x6: 15% (52,000 – 9,000)............................................................... 6,450
(2)
20x5 20x6
NI (loss) Pen 28,000 (45,000)
Less: Dividends from Silk
20x5 0
20x6 (85% 15,000)
(12,750)
28,000 (57,750)
Share of Silk’s profit
85% (30,000 – 79,000) (41,650)
85% (52,000 – 9,000) ________ 36,550_
Consolidated profit (loss) attributable to
Pen’s shareholders (13,650) (21,200)
Problem IV
1. NCNCI for 20x4, P8,400; NCNCI for 20x5, P12,020
20x4
Consolidated Net Income for 20x4
Net income from own/separate operations
Parent – Davis Company P100,000
Subsidiary - Martin Company 60,000
Total P160,000
Less: Non-controlling Interest in Net Income* P 8,400
Amortization of allocated excess** 18,000
Goodwill impairment _______0 __26,400
Controlling Interest in Consolidated Net Income or Profit
attributable to equity holders of parent………….. P133,600
Add: Non-controlling Interest in Net Income (NCINI) ___8,400
Consolidated Net Income for 20x4 P142,000
*Net income of subsidiary – 20x4 P 60,000
Amortization of allocated excess – 20x4 (P2,000 + P16,000) ( 18,000)
P 42,000
Multiplied by: Non-controlling interest %.......... 20%
P 8,400
Less: Non-controlling interest on impairment loss on full-goodwill _______0
Non-controlling Interest in Net Income (NCINI) P 8,400
*this procedure would be not be applicable where the NCI on goodwill impairment loss would
not be proportionate to NCI acquired.
20x5
Consolidated Net Income for 20x5
Net income from own/separate operations
Parent – Davis Company P120,000
Subsidiary - Martin Company 72,000
Total P192,000
Less: Non-controlling Interest in Net Income* P 12,020
Amortization of allocated excess** 2,000
Goodwill impairment ___9,900 __23,920
Controlling Interest in Consolidated Net Income or Profit
attributable to equity holders of parent………….. P168,080
Add: Non-controlling Interest in Net Income (NCINI) __12,020
Consolidated Net Income for 20x5 P180,100
*Net income of subsidiary – 20x5 P 72,000
Amortization of allocated excess – 20x5 ( 2,000)
P70,000
Multiplied by: Non-controlling interest %.......... 20%
P 14,000
Less: Non-controlling interest on impairment loss on full-goodwill (P99,000 x 10%
= ___1,980
P9,900 x 20%)
Non-controlling Interest in Net Income (NCINI) P 12,020
*this procedure would be not be applicable where the NCI on goodwill impairment loss would
not be proportionate to NCI acquired.
4. NCI, 12/31/20x5
5.
Partial Full (100%)
(80%)
Goodwill balance, 1/1/20x4 79,200 99,000
Less Impairment – 20x4 ____-0- ____-0-
Goodwill balance, 1/1/20x5 79,200 99,000
Less Impairment – 20x5 (99,000 x 10% = 9,900) _7,920 __9,900
Goodwill balance, 12/31/20x5 71,280 89,100
6.
Problem V
1. (Full or partial-goodwill) – the same answer.
Consideration transferred by MM..................... P664,000
3. Full-goodwill
Common Stock - TT..................................................... 300,000
Additional Paid-in Capital - TT...................................... 90,000
Retained Earnings - TT................................................. 210,000
Investment in TT Company (80%) ......................... 480,000
Non-controlling interest (20%) .............................. 120,000
Equity Method
Income accrual (80%) ...................................................... P56,000
Excess amortization expense ........................................... (3,200)
Investment income ..................................................... P52,800
6. Using the acquisition method, the allocation will be the total difference (P80,000)
between the buildings' book value and fair value. Based on a 20 year life, annual excess
amortization is P4,000.
MM book value—buildings .......................................... P 800,000
TT book value—buildings ............................................ 300,000
Allocation ................................................................... 80,000
Excess Amortizations for 20x4–20x5 (P4,000 × 2) …………. (8,000)
Consolidated buildings account ………………… P1,172,000
8. The common stock and additional paid-in capital figures to be reported are the parent
balances only.
Common stock, P500,000
Additional paid-in capital, P280,000
Problem VI
1. Common stock of TT Company on December 31, 20x4 P 90,000
Retained earnings of TT Company
January 1, 20x4 P 130,000
Sales for 20x4 195,000
Less: Expenses (160,000)
Dividends paid (15,000)
Retained earnings of TT Company
on December 31, 20x4 150,000
Net book value on December 31, 20x4 P240,000
Proportion of stock acquired by QQ x .80
Purchase price P192,000
2. Net book value on December 31, 20x4 P240,000
Proportion of stock held by
noncontrolling interest x .20
Balance assigned to noncontrolling interest P 48,000
3. Consolidated net income is P143,000. None of the 20x4 net income of TT Company was
earned after the date of purchase and, therefore, none can be included in consolidated
net income.
Problem VII
(Several valuation and income determination questions for a business combination involving
a non-controlling interest.)
Business combinations are recorded generally at the fair value of the consideration
transferred by the acquiring firm plus the acquisition-date fair value of the non-controlling
interest.
1. Each identifiable asset acquired and liability assumed in a business combination should
initially be reported at its acquisition-date fair value.
2. In periods subsequent to acquisition, the subsidiary’s assets and liabilities are reported at
their acquisition-date fair values adjusted for amortization and depreciation. Except for
certain financial items, they are not continually adjusted for changing fair values.
To controlling interest:
Consolidated net income......................................................................... P1,615,000
Non-controlling interest share of consolidated net income...................... (73,000)
Controlling interest share of consolidated net income............................. P1,542,000
-OR-
PS’s
revenues.......................................................................................... P3,000,000
PS’s
expenses.......................................................................................... 1,750,000
PS’s
separate net income........................................................................ P1,250,000
PS’s
share of SR’s adjusted net income
(80% × P365,000)........................................................................ 292,000
Controlling interest share of consolidated net income............................. P1,542,000
5. Fair value of non-controlling interest January 1, 20x4................................... P600,000
20x4 income ............................................................................................... ……..73,000
Dividends (20% × P30,000).......................................................................... (6,000)
Non-controlling interest December 31, 20x4................................................. P 667,000
6. If SR’s acquisition-date total fair value was P2,250,000, then a bargain purchase has
occurred.
SR’s total fair value 1/1/09............................................................................ P2,250,000
Collective fair values of SR’s net assets........................................................ P2,300,000
Bargain purchase.......................................................................................... P50,000
The acquisition method requires that the subsidiary assets acquired and liabilities
assumed be recognized at their acquisition date fair values regardless of the assessed fair
value. Therefore, none of SR’s identifiable assets and liabilities would change as a result
of the assessed fair value. When a bargain purchase occurs, however, no goodwill is
recognized.
(Partial-Goodwill)
Consideration transferred by KL............................. P1,360,000
Less: Book value of SHE – RR (P1,450,000 x 80%)…….. 1,160,000
Allocated excess………………………………………….P 200,000
Less: Over/under valuation of A and L:
P150,000 x 80%.............................................. 120,000
Goodwill - partial P80,000
Note that the goodwill under the full-goodwill and partial-goodwill approach are the
same because the FV of the NCI based on the FV of SHE of subsidiary (P320,000) is
higher compared to the imputed or the computed residual amount of NCI (P300,000).
Consolidation Totals:
Expenses, P265,000 = P200,000 KK operating expenses plus P50,000 (post-
acquisition subsidiary operating expenses) plus ½ year excess amortization of
P15,000.
Dividends paid = P80,000
Sales, P1,050,000 = P800,000 KK revenues plus P250,000 (post-acquisition
subsidiary revenue, P500,000 x 1/2)
Equipment, none
Depreciation expense, none
Subsidiary’s net income, P60,000 = [(P500,000 – P280,000 – P100,000) x 1/2]
Buildings, none
Goodwill (full), P80,000; Goodwill (partial), P80,000
Consolidated Net Income, P245,000
Sales (1) P1,050,000
Cost of goods sold (2) 540,000
Operating expenses (3) __265,000
Net Income P 245,000
Non-controlling Interest in Sub. Income (4) P 9,000
Controlling Interest in CNI P 236,000
(1) P800,000 KK revenues plus P250,000 (post-acquisition subsidiary
revenue)
(2) P400,000 KK COGS plus P140,000 (post-acquisition subsidiary COGS)
(3) P200,000 KK operating expenses plus P50,000 (post-acquisition
subsidiary operating expenses) plus ½ year excess amortization of
P15,000
(4) 20% of post-acquisition subsidiary income less excess fair value
amortization [20% × (120,000 – 30,000) × ½ year] = P9,000
Retained Earnings, 1/1 = P1,400,000 (the parent’s balance because the
subsidiary was acquired during the current year)
Trademark = P935,000 (add the two book values and the excess fair value
allocation after taking one-half year excess amortization)
Goodwill (full)= P80,000 (the original allocation)
Goodwill (partial) = P80,000 (the original allocation)
(Partial-Goodwill)
Consideration transferred .......................... P 526,000
Less: Book value of SHE – DD (P765,000 x 60%) 459,000
Allocated excess………………………………… P 67,000
Less: Over/under valuation of A and L:
(P30,000 x 60%)........................................... .................. ( 18,000)
Goodwill - partial........................................ P 85,000
Problem X
1. AA should report income from its subsidiary of P15,000 (P20,000 x .75) rather than
dividend income of P9,000.
2. A total of P5,000 (P20,000 x .25) should be assigned to the non-controlling interest in the
20x4 consolidated income statement.
3. Consolidated net income of P70,0000 should be reported for 20X4, computed as follows:
Reported net income of AA P59,000
Less: Dividend income from KR (9,000)
Operating income of AA P50,000
Net income of KR 20,000
Consolidated net income P70,000
4. Income of P79,000 would be attained by adding the income reported by AA (P59,000) to
the income reported by KR (P20,000). However, the dividend income from KR recorded
by AA must be excluded from consolidated net income.
Problem XI
1. Net income for 20x4:
QQ NN
Operating income P 90,000 P35,000
Income from subsidiary 24,500
Net income P114,500 P35,000
2. Consolidated net income is P125,000 (P90,000 + P35,000).
3. Retained earnings reported at December 31, 20x4:
QQ NN
Retained earnings, January 1, 20x4 P290,000 P40,000
Net income for 20x4 114,500 35,000
Dividends paid in 20x4 (30,000) (10,000)
Retained earnings, December 31, 20x4 P374,500 P65,000
4. Consolidated retained earnings at December 31, 20x4, is equal to the P374,500 retained
earnings balance reported by QQ.
5. When the cost method is used, the parent's proportionate share of the increase in
retained earnings of the subsidiary subsequent to acquisition is not included in the
parent's retained earnings. Thus, this amount must be added to the total retained
earnings reported by the parent in arriving at consolidated retained earnings.
Problem XII
(Consolidated balances three years after purchase. Parent has applied the equity method.)
1. Schedule 1—Acquisition-Date Fair Value Allocation and Amortization
JJ’s acquisition-date fair value P206,000
Book value of JJ..................................... (140,000)
Fair value in excess of book value ........ 66,000
Excess fair value assigned to specific
accounts based on individual fair values Annual Excess
Life Amortization
Equipment ...................................... 54,400 8 yrs. P6,800
Buildings (overvalued) .................... (10,000) 20 yrs. (500)
Goodwill ......................................... P21,600indefinite -0-
Total ............................................... P6,300
Investment in JJ Company—12/31/x6
JJ’s acquisition-date fair value................................................. P206,000
20x4 Increase in book value of subsidiary 40,000
20x4 Excess amortizations (Schedule 1) ............................... (6,300)
20x5 Increase in book value of subsidiary ............................. 20,000
20x5 Excess amortizations (Schedule 1) ............................... (6,300)
20x6 Increase in book value of subsidiary ............................. 10,000
20x6 Excess amortizations (Schedule 1) ............................... (6,300)
Investment in J Company ................................................. P257,100
2. Equity in Subsidiary Earnings
Income accrual................................................................................. P30,000
Excess amortizations (Schedule 1) ................................................... (6,300)
Equity in subsidiary earnings ..................................................... P23,700
3.Consolidated Net Income
Consolidated revenues (add book values) ............................. P414,000
Consolidated expenses (add book values) ............................. (272,000)
Excess amortization expenses (Schedule 1) .......................... (6,300)
Consolidated net income ....................................................... P135,700
4. Consolidated Equipment
Book values added together .................................................. P370,000
Allocation of purchase price ................................................... 54,400
Excess depreciation (P6,800 × 3) .......................................... (20,400)
Consolidated equipment .................................................. P404,000
5.Consolidated Buildings.........................................................................
Book values added together .................................................. P288,000
Allocation of purchase price ................................................... (10,000)
Excess depreciation (P500 × 3) ............................................. 1,500
Consolidated buildings...................................................... P279,500
6. Consolidated goodwill
Allocation of excess fair value to goodwill.............................. P21,600
7. Consolidated Common Stock.............................................................. P290,000
As a purchase, the parent's balance of P290,000 is used (the acquired company's
common stock will be eliminated each year on the consolidation worksheet).
8. Consolidated Retained Earnings......................................................... P410,000
Tyler's balance of P410,000 is equal to the consolidated total because the equity
method has been applied.
The buildings and equipment will be further analyzed for consolidation purposes as follows:
S Co. S Co. Increase
Book value Fair value (Decrease)
Equipment .................. 180,000 180,000 0
Less: Accumulated
depreciation….. 96,000 - ( 96,000)
Net book
value………………………... 84,000 180,000 96,000
S Co. S Co.
Book value Fair value (Decrease)
Buildings................ 360,000 144,000 ( 216,000)
Less: Accumulated
depreciation….. 192,000 - ( 192,000)
Net book
value………………………... 168,000 144,000 ( 24,000)
The goodwill impairment loss of P3,125 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:
(E2) 6,000
Inventory………………………………………………………………….
Accumulated depreciation – equipment……………….. 96,000
Accumulated depreciation – buildings………………….. 192,000
Land……………………………………………………………………… 7,200
.
Discount on bonds 4,800
payable………………………………………….
Goodwill……………………………………………………………… 12,000
….
Buildings……………………………………….. 216,000
Non-controlling interest (P90,000 x 20%) 18,000
………………………..
Investment in S Co………………………………………………. 84,000
To allocate excess of cost over book value of identifiable assets
acquired, with remainder to goodwill; and to establish non-
controlling interest (in net assets of subsidiary) on date of
acquisition.
(E3) Cost of Goods Sold……………. 6,000
Depreciation expense……………………….. 6,000
Accumulated depreciation – buildings………………….. 6,000
Interest expense………………………………… 1,200
Goodwill impairment 3,000
loss……………………………………….
Inventory………………………………………………………….. 6,000
Accumulated depreciation – equipment……………….. 12,000
Discount on bonds payable………………………… 1,200
Goodwill…………………………………… 3,000
To provide for 20x4 impairment loss and depreciation and
amortization on differences between acquisition date fair value
and
book value of Son’s identifiable assets and liabilities as follows:
Cost of Depreciation/
Goods Amortization Amortizatio
Sold expense n Total
-Interest
Inventory sold P
6,000
Equipment P 12,000
Buildings ( 6,000)
Bonds payable _______ _______ P 1,200
Totals P 6,000 P 6,000 P1,200 13,20
0
It should be observed that the goodwill computed above was proportional to the controlling
interest of 80% and non-controlling interest of 20% computed as follows:
Value % of Total
Goodwill applicable to parent………………… P12,000 80.00%
Goodwill applicable to NCI…………………….. 3,000 20.00%
Total (full) goodwill……………………………….. P15,000 100.00%
Therefore, the goodwill impairment loss of P3,125 based on 100% fair value or full-goodwill
would be allocated as follows:
Value % of Total
Goodwill impairment loss attributable to P or controlling P 3,000 80.00%
Interest
Goodwill impairment loss applicable to NCI…………………….. 750 20.00%
Goodwill impairment loss based on 100% fair value or full-
Goodwill P 3,750 100.00%
(E4) Dividend income - P………. 28,800
Non-controlling interest (P36,000 x 20%)……………….. 7,200
Dividends paid – S…………………… 36,000
To eliminate intercompany dividends and non-controlling interest
share of dividends.
Balance Sheet
P
Cash………………………. 232,800 P 90,000 P 322,800
Accounts receivable…….. 90,000 60,000 150,000
(2) (3)
Inventory…………………. 120,000 90,000 6,000 6,000 210,000
(2)
Land……………………………. 210,000 48,000 7,200 265,200
Equipment 240,000 180,000 420,000
(2)
Buildings 720,000 540,000 216,000 1,044,000
(2) (3)
Discount on bonds payable 4,800 1,200 3,600
(2) (3)
Goodwill…………………… 12,000 3,000 9,000
Investment in S Co……… 372,000 (1) 288,000
(2) 84,000 -
P1,008,0
Total P1,984,800 00 P2,424,600
(20x4) Depreciation/
Retaine Amortization Amortizatio
d expense n
earnings -Interest
,
Inventory sold P
6,000
Equipment 12,000 P 12,000
Buildings (6,000) ( 6,000)
Bonds payable 1,20 ________ P 1,200
0
Sub-total P13,200 P 6,000 P 1,200
Multiplied by: 80%
To Retained earnings P
10,560
Impairment loss 3,00
0
Total P
13,560
(E5) Dividend income - P………. 38,400
Non-controlling interest (P48,000 x 20%)……………….. 9,600
Dividends paid – S…………………… 48,000
To eliminate intercompany dividends and non-controlling interest
share of dividends.
(E6) Non-controlling interest in Net Income of 16,560
Subsidiary…………
Non-controlling interest ………….. 16,560
To establish non-controlling interest in subsidiary’s adjusted net
income for 20x5 as follows:
Net income of subsidiary…………………….. P 90,000
Amortization of allocated excess [(E4)]…... ( 7,200)
P 82,800
Multiplied by: Non-controlling interest 20
%.......... %
Non-controlling Interest in Net Income P 16,560
(NCINI
5. 1/1/20x4
a. On date of acquisition the retained earnings of P should always be considered as the consolidated
retained earnings, thus:
Consolidated Retained Earnings, January 1, 20x4
Retained earnings - P Company, January 1, 20x4 (date of acquisition) P360,000
b.
12/31/20x5:
a. CI-CNI
Consolidated Net Income for 20x5
Net income from own/separate operations:
P Company P192,000
S Company 90,000
Total P282,000
Less: Non-controlling Interest in Net Income* P16,560
Amortization of allocated excess (refer to amortization above) __7,200 23,760
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent………….. P258,240
Add: Non-controlling Interest in Net Income (NCINI) 16,560
Consolidated Net Income for 20x5 P274,800
b. NCI-CNI
*Non-controlling Interest in Net Income (NCINI) for 20x5
Net income of S Company P 90,000
Less: Amortization of allocated excess / goodwill impairment for 20x5
(refer to amortization table above) 80,400
P 82,800
Multiplied by: Non-controlling interest %.......... 20%
Non-controlling Interest in Net Income (NCINI) for 20x5 P 16,560
c. CNI, P274,800 – refer to (a)
d. On subsequent to date of acquisition, consolidated retained earnings would be computed as follows:
Consolidated Retained Earnings, December 31, 20x5
Retained earnings - P Company, January 1, 20x5 (cost model P484,800
Adjustment to convert from cost model to equity method for purposes of
consolidation or to establish reciprocity:/Parent’s share in adjusted
net
increased in subsidiary’s retained earnings:
Retained earnings – S, January 1, 20x5 P 144,000
Less: Retained earnings – S, January 1, 20x4 120,000
Increase in retained earnings since date of acquisition P 24,000
Less: Amortization of allocated excess – 20x4 13,200
P 10,800
Multiplied by: Controlling interests %................... 80%
P 8,640
Less: Goodwill impairment loss (full-goodwill), net (P3,750– P750)*
or 3,000 5,640
(P3, 750 x 80%)
Consolidated Retained earnings, January 1, 20x5 P 490,440
Add: Controlling Interest in Consolidated Net Income or Profit
attributable to 258,240
equity holders of P for 20x5
Total P748,680
Less: Dividends paid – P Company for 20x5 72,000
Consolidated Retained Earnings, December 31, 20x5 P676,680
*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.
e.
Requirements 1 to 4:
Schedule of Determination and Allocation of Excess
Date of Acquisition – January 1, 20x4
Fair value of Subsidiary (80%)
Consideration transferred (80%)…………….. P 372,000
Fair value of NCI (given) (20%)……………….. 93,000
Fair value of Subsidiary (100%)………. P 465,000
Less: Book value of stockholders’ equity of Son:
Common stock (P240,000 x 100%)
………………. P 240,000
Retained earnings (P120,000 x 100%)………... 120,000 360,000
Allocated excess (excess of cost over book value)
….. P 105,000
Less: Over/under valuation of assets and liabilities:
Increase in inventory (P6,000 x 100%)
……………… P 6,000
Increase in land (P7,200 x 100%)
……………………. 7,200
Increase in equipment (P96,000 x 100%) 96,000
Decrease in buildings (P24,000 x 100%)
………..... ( 24,000)
Decrease in bonds payable (P4,800 x 100%)
…… 4,800 90,000
Positive excess: Full-goodwill (excess of cost over
fair value)
………………………………………………... P 15,000
(E2) 6,000
Inventory………………………………………………………………….
Accumulated depreciation – equipment……………….. 96,000
Accumulated depreciation – buildings………………….. 192,000
Land……………………………………………………………………… 7,200
.
Discount on bonds 4,800
payable………………………………………….
Goodwill……………………………………………………………… 15,000
….
Buildings……………………………………….. 216,000
Non-controlling interest (P90,000 x 20%) +
[(P15,000, full – 21,000
P12,000, partial goodwill)]…………
Investment in S Co………………………………………………. 84,000
(E3) Cost of Goods Sold……………. 6,000
Depreciation expense……………………….. 6,000
Accumulated depreciation – buildings………………….. 6,000
Interest expense………………………………… 1,200
Goodwill impairment 3,750
loss……………………………………….
Inventory………………………………………………………….. 6,000
Accumulated depreciation – equipment……………….. 12,000
Discount on bonds payable………………………… 1,200
Goodwill…………………………………… 3,750
Cost of Goods Depreciation/ Amortization Amortizatio
Sold Expense n
-Interest
Inventory sold P 6,000
Equipment P12,000
Buildings ( 6,000)
Bonds payable _______ _______ P 1,200
Totals P 6,000 P 6,000 P1,200
(E4) Dividend income - P………. 28,800
Non-controlling interest (P36,000 x 20%)……………….. 7,200
Dividends paid – S…………………… 36,000
(E5) Non-controlling interest in Net Income of 8,610
Subsidiary…………
Non-controlling interest ………….. 8,610
Net income of subsidiary…………………….. P 60,000
Amortization of allocated excess [(E3)]…... ( 13,200)
P 46,800
Multiplied by: Non-controlling interest 20%
%..........
P 9,360
Less: Non-controlling interest on impairment
loss on full-goodwill (P3,125 x 20%) or
(P3,125 impairment on full-goodwill
less 750
P2,500, impairment on partial-
goodwill)*
Non-controlling Interest in Net Income P 8,610
(NCINI)
*this procedure would be more appropriate, instead of multiplying the full-goodwill impairment loss of
P3,125 by 20%. There might be situations where the NCI on goodwill impairment loss would not be
proportionate to NCI acquired (refer to Illustration 15-6).
Worksheet for Consolidated Financial Statements, December 31, 20x4.
Cost Model (Full-goodwill)
80%-Owned Subsidiary
December 31, 20x4 (First Year after Acquisition)
Income Statement P Co S Co. Dr. Cr. Consolidated
Sales P480,000 P240,000 P 720,000
(4) _________
Dividend income 28,800 - 28,800
Total Revenue P508,800 P240,000 P 720,000
(3) P 348,000
Cost of goods sold P204,000 P138,000 6,000
(3) 90,000
Depreciation expense 60,000 24,000 6,000
(3) 1,200
Interest expense - - 1,200
Other expenses 48,000 18,000 66,000
(3) 3,750
Goodwill impairment loss - - 3,750
Total Cost and Expenses P312,000 P180,000 P508,950
Net Income P196,800 P 60,000 P211,050
(5) ( 8,610)
NCI in Net Income - Subsidiary - - 8,610
Net Income to Retained Earnings P196,800 P 60,000 P202,680
Statement of Retained Earnings
Retained earnings, 1/1
P
P Company P360,000 360,000
(1)
S Company P120,000 120,000
Net income, from above 196,800 60,000 202,680
Total P556,800 P180,000 P562,440
Dividends paid
P Company 72,000 86,400
(4)
S Company - 36,000 36,000 _ ________
Retained earnings, 12/31 to Balance P
Sheet P484,800 P144,000 490,440
Balance Sheet
P
Cash………………………. 232,800 P 90,000 P 322,800
Accounts receivable…….. 90,000 60,000 150,000
(2) (3)
Inventory…………………. 120,000 90,000 6,000 6,000 210,000
(2)
Land……………………………. 210,000 48,000 7,200 265,200
Equipment 240,000 180,000 420,000
(2)
Buildings 720,000 540,000 216,000 1,044,000
(2) (3)
Discount on bonds payable 4,800 1,200 3,600
(2) (3)
Goodwill…………………… 15,000 3,750 11,250
Investment in S Co……… 372,000 (3) 288,000
(4) 84,000 -
P1,008,0
Total P1,984,800 00 P2,426,850
Accumulated depreciation (2) (3)
- equipment P 135,000 P 96,000 96,000 12,000 P147,000
(5)
192,000
Accumulated depreciation 405,000 288,000 (6)
- buildings 6,000 495,000
Accounts payable…………… 120,000 120,000 240,000
Bonds payable………………… 240,000 120,000 360,000
Common stock, P10 par……… 600,000 600,000
(1)
Common stock, P10 par……… 240,000 240,000
144,00
Retained earnings, from above 484,800 0 490,440
(1 )
72,000
(7) (2)
Non-controlling interest………… 7,200 21,000
______ (5)
_________ ___ __________ 8,610 ____94,410
P1,984,8 P P
Total P1,984,800 00 748,560 748,560 P2,426,850
20x5: Second Year after Acquisition
P Co. S Co.
Sales P 540,000 P 360,000
Less: Cost of goods sold 216,000 192,000
Gross profit P 324,000 P 168,000
Less: Depreciation expense 60,000 24,000
Other expense 72,000 54,000
Net income from its own separate operations P 192,000 P 90,000
Add: Dividend income 38,400 -
Net income P 230,400 P 90,000
Dividends paid P 72,000 P 48,000
No goodwill impairment loss for 20x5.
Balance Sheet
P P
Cash………………………. 265,200 102,000 P 367,200
Accounts receivable…….. 180,000 96,000 276,000
(3)
Inventory…………………. 216,000 108,000 6,000 (4) 6,000 324,000
(3)
Land……………………………. 210,000 48,000 7,200 265,200
Equipment 240,000 180,000 420,000
(3)
Buildings 720,000 540,000 216,000 1,044,000
(3) (4)
Discount on bonds payable 4,800 2,400 2,400
(3) (4)
Goodwill…………………… 15,000 3,750 11,250
Investment in S Co……… 372,000 (1) (2)
19,200 307,200
(7) 84,000 -
P1,074,0
Total P2,203,200 00 P2,710,050
Accumulated depreciation P (3) (4)
- equipment P 150,000 102,000 96,000 24,000 P180,000
(3)
192,000
Accumulated depreciation 450,000 306,000 (4)
- buildings 12,000 552,000
Accounts payable…………… 120,000 120,000 240,000
Bonds payable………………… 240,000 120,000 360,000
Common stock, P10 par……… 600,000 600,000
(2)
Common stock, P10 par……… 240,000 240,000
Retained earnings, from above 643,200 186,000 676,680
(6) (2 )
9,600 76,800
Non-controlling interest………… (8) (3)
3,390 21,000
___ ______ (6) ____101,37
_____ ___ __________ 16,560 0
P1,074,0 P P
Total P2,203,200 00 824,910 824,910 P2,710,050
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 - P Company, January 1, 20x4 (date of acquisition) P360,000
b.
b. NCI-CNI – P8,610
*Non-controlling Interest in Net Income (NCINI) for 20x4
Net income of S Company P 60,000
Less: Amortization of allocated excess (refer to amortization table above) 13,200
P 46,800
Multiplied by: Non-controlling interest %.......... 20%
Non-controlling Interest in Net Income (NCINI) P 9,360
Less: Non-controlling int. on impairment loss on full-goodwill
(P3,750 x 20%)
or (P3,750 impairment on full-goodwill less P3,000, 750
impairment on
partial-goodwill)*
Non-controlling Interest in Net Income (NCINI) P 8,610
*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.
The following are entries recorded by the P in 20x4 in relation to its subsidiary investment:
January 1, 20x4:
(1) Investment in S Company…………………………………………… 372,000
Cash……………………………………………………………………. 372,000
.
Acquisition of S Company.
Thus, the investment balance and investment income in the books of P Company is as
follows:
Investment in S
Cost, 1/1/x4 28,800 Dividends – S (36,000x
372,000 80%)
NI of S Amortization &
(60,000 x 80%) 13,560 impairment
48,000
Balance, 12/31/x4
Investment Income
377,640
Amortization & NI of S
impairment 48,000 (P60,000 x 80%)
13,560
34,440 Balance, 12/31/x4
Consolidation Workpaper – First Year after Acquisition
The schedule of determination and allocation of excess presented above provides complete
guidance for the worksheet eliminating entries on January 1, 20x4:
(E1) Common stock – S Co………………………………………… 240,000
Retained earnings – S Co…………………………………… 120.000
Investment in Son Co…………………………………………… 288,000
Non-controlling interest (P360,000 x 20%) 72,000
………………………..
(E2) 6,000
Inventory………………………………………………………………….
Accumulated depreciation – equipment……………….. 96,000
Accumulated depreciation – buildings………………….. 192,000
Land……………………………………………………………………… 7,200
.
Discount on bonds 4,800
payable………………………………………….
Goodwill…………………………………………………………………. 12,000
Buildings……………………………………….. 216,000
Non-controlling interest (P96,000 x 20%) 18,000
………………………..
Investment in S Co………………………………………………. 84,000
(E3) Cost of Goods Sold……………. 6,000
Depreciation expense……………………….. 6,000
Accumulated depreciation – buildings………………….. 6,000
Interest expense………………………………… 1,200
Goodwill impairment loss………………………………………. 3,000
Inventory………………………………………………………….. 6,000
Accumulated depreciation – equipment……………….. 12,000
Discount on bonds payable………………………… 1,200
Goodwill…………………………………… 3,000
Cost of Depreciation/
Goods Amortization Amortizatio
Sold Expense n Total
-Interest
Inventory sold P
6,000
Equipment P 12,000
Buildings ( 6,000)
Bonds payable _______ _______ P 1,200
Totals P 6,000 P 6,000 P1,200 13,20
0
It should be observed that the goodwill computed above was proportional to the controlling
interest of 80% and non-controlling interest of 20% computed as follows:
Value % of Total
Goodwill applicable to parent………………… P12,000 80.00%
Goodwill applicable to NCI…………………….. 3,000 20.00%
Total (full) goodwill……………………………….. P15,000 100.00%
Therefore, the goodwill impairment loss of P3,750 based on 100% fair value or full-goodwill
would be allocated as follows:
Value % of Total
Goodwill impairment loss attributable to parent or controlling P 3,000 80.00%
Interest
Goodwill impairment loss applicable to NCI…………………….. 625 20.00%
Goodwill impairment loss based on 100% fair value or full-
Goodwill P 3,750 100.00%
Investment in S
Cost, 1/1/x4 28,800 Dividends – S (36,000x
372,000 80%)
NI of Son Amortization &
(60,000 x 80%) 13,560 impairment
48,000
Balance, 12/31/x4 288,000 (E1) Investment, 1/1/20x4
377,640
84,000 (E2) Investment, 1/1/20x4
5,640 (E4) Investment Income
and dividends
377,640 377,640
(E5) Non-controlling interest in Net Income of 9,360
Subsidiary…………
Non-controlling interest ………….. 9,360
To establish non-controlling interest in subsidiary’s adjusted net
income for 20x4 as follows:
Thus, the investment balance and investment income in the books of P Company is as
follows:
Investment in S
Cost, 1/1/x5 38,400 Dividends – S (48,000x
377,640 80%)
NI of S Amortization
(90,000 x 80%) 5,760 (P7,200 x 80%)
72,000
Balance, 12/31/x5
405,480
Investment Income
Amortization NI of S
(7,200 x 80%) 72,000 (90,000 x 80%)
5,760
66,240 Balance, 12/31/x4
Consolidation Workpaper – Second Year after Acquisition
The schedule of determination and allocation of excess presented above provides complete guidance
for the worksheet eliminating entries:
(E1) Common stock – S Co………………………………………… 240,000
Retained earnings – S Co, 1/1/x5…………………………. 144.000
Investment in S Co (P384,000 x 80%) 307,200
Non-controlling interest (P384,000 x 20%) 76,800
………………………..
(E2) Accumulated depreciation – equipment (P96,000 – 84,000
P12,000)
Accumulated depreciation – buildings (P192,000 + 6,000) 198,000
Land……………………………………………………………………… 7,200
.
Discount on bonds payable (P4,800 – P1,200)…. 3,600
Goodwill (P12,000 – P3,000)…………………………….. 9,000
Buildings……………………………………….. 216,000
Non-controlling interest [(P90,000 – P13,200) x 20%] 15,360
Investment in S Co………………………………………………. 70,440
(E3) Depreciation expense……………………….. 6,000
Accumulated depreciation – buildings………………….. 6,000
Interest expense………………………………… 1,200
Accumulated depreciation – equipment……………….. 12,000
Discount on bonds payable………………………… 1,200
Depreciation/
Amortization Amortizatio
Expense n Total
-Interest
Inventory
sold
Equipment P 12,000
Buildings ( 6,000)
Bonds _______ P 1,200
payable
Totals P 6,000 P1,200 P7,,20
0
Balance Sheet
P P
Cash………………………. 265,200 102,000 P 367,200
Accounts receivable…….. 180,000 96,000 276,000
Inventory…………………. 216,000 108,000 324,000
Land……………………………. 210,000 48,000 (2) 265,200
7,200
Equipment 240,000 180,000 420,000
(3)
Buildings 720,000 540,000 216,000 1,044,000
(2) (3)
Discount on bonds payable 3,600 1,200 2,400
(2)
Goodwill…………………… 9,000 9,000
Investment in S Co……… 405,480 (1)
307,200
(2) 70,440
(4)
27,840 -
P1,074,0
Total P2,236,680 00 P2,707,800
5. 1/1/20x4
a. On date of acquisition the retained earnings of parent should always be considered as
the consolidated retained earnings, thus:
Consolidated Retained Earnings, January 1, 20x4
Retained earnings - P Company, January 1, 20x4 (date of acquisition) P360,000
b.
e.
12/31/20x5:
a. CI-CNI
Consolidated Net Income for 20x5
Net income from own/separate operations:
P Company P192,000
S Company 90,000
Total P282,000
Less: Non-controlling Interest in Net Income* P16,560
Amortization of allocated excess (refer to amortization above) __7,200 23,760
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent………….. P258,240
Add: Non-controlling Interest in Net Income (NCINI) 16,560
Consolidated Net Income for 20x5 P274,800
b. NCI-CNI
*Non-controlling Interest in Net Income (NCINI) for 20x5
Net income of S Company P 90,000
Less: Amortization of allocated excess / goodwill impairment for 20x5
(refer to amortization table above) 80,400
P 82,800
Multiplied by: Non-controlling interest %.......... 20%
Non-controlling Interest in Net Income (NCINI) for 20x5 P 16,560
f.
Consolidated SHE:
Stockholders’ Equity
Common stock, P10 par P 600,000
Retained earnings 676,680
P’s Stockholders’ Equity / CI – SHE, 12/31/20x4 P1,276,680
NCI, 12/31/20x4 ___99,120
Consolidated SHE, 12/31/20x4 P1,1375,80
0
Requirements 1 to 4:
Schedule of Determination and Allocation of Excess
Date of Acquisition – January 1, 20x4
Fair value of Subsidiary (80%)
Consideration transferred (80%)…………….. P 372,000
Fair value of NCI (given) (20%)……………….. 93,000
Fair value of Subsidiary (100%)………. P 465,000
Less: Book value of stockholders’ equity of Son:
Common stock (P240,000 x 100%)
………………. P 240,000
Retained earnings (P120,000 x 100%)………... 120,000 360,000
Allocated excess (excess of cost over book value)
….. P 105,000
Less: Over/under valuation of assets and liabilities:
Increase in inventory (P6,000 x 100%)
……………… P 6,000
Increase in land (P7,200 x 100%)
……………………. 7,200
Increase in equipment (P96,000 x 100%) 96,000
Decrease in buildings (P24,000 x 100%)
………..... ( 24,000)
Decrease in bonds payable (P4,800 x 100%)
…… 4,800 90,000
Positive excess: Full-goodwill (excess of cost over
fair value)
………………………………………………... P 15,000
Thus, the investment balance and investment income in the books of P Company is as
follows:
Investment in S
Cost, 1/1/x4 28,800 Dividends – S (36,000x
372,000 80%)
NI of S Amortization &
(60,000 x 80%) 13,560 Impairment
48,000
Balance, 12/31/x4
Investment Income
377,640
Amortization & NI of S
Impairment 48,000 (P60,000 x 80%)
13,560
34,440 Balance, 12/31/x4
Consolidation Workpaper – First Year after Acquisition
The schedule of determination and allocation of excess presented above provides complete
guidance for the worksheet eliminating entries on January 1, 20x4:
(E1) Common stock – S Co………………………………………… 240,000
Retained earnings – S Co…………………………………… 120.000
Investment in S Co…………………………………………… 288,000
Non-controlling interest (P360,000 x 20%) 72,000
………………………..
(E2) 6,000
Inventory………………………………………………………………….
Accumulated depreciation – equipment……………….. 96,000
Accumulated depreciation – buildings………………….. 192,000
Land……………………………………………………………………… 7,200
.
Discount on bonds 4,800
payable………………………………………….
Goodwill…………………………………………………………………. 15,000
Buildings……………………………………….. 216,000
Non-controlling interest (P90,000 x 20%) + [(P15,000,
full – 21,000
P12,000, partial goodwill)]…………
Investment in S Co………………………………………………. 84,000
(E3) Cost of Goods Sold……………. 6,000
Depreciation expense……………………….. 6,000
Accumulated depreciation – buildings………………….. 6,000
Interest expense………………………………… 1,200
Goodwill impairment loss………………………………………. 3,750
Inventory………………………………………………………….. 6,000
Accumulated depreciation – equipment……………….. 12,000
Discount on bonds payable………………………… 1,200
Goodwill…………………………………… 3,750
Cost of Depreciation/
Goods Amortization Amortizatio
Sold Expense n Total
-Interest
Inventory sold P
6,000
Equipment P 12,000
Buildings ( 6,000)
Bonds payable _______ _______ P 1,200
Totals P 6,000 P 6,000 P1,200 13,20
0
(E4) Investment income 37,440
Non-controlling interest (P36,000 x 20%) 7,200
………………..
Dividends paid – S…………………… 36,000
Investment in S Company 8,640
Investment in S Investment Income
NI of S 28,800 Dividends – S NI of Son
(60,000 Amortization Amortization & (60,000
x 80%)……. & Impairment 48,000 x
48,000 13,560 Impairment 13,560 80%)
5,640 34,440
After the eliminating entries are posted in the investment account, it should be observed that from
consolidation point of view the investment account is totally eliminated. Thus,
Investment in S
Cost, 1/1/x4 28,800 Dividends – S (36,000x
372,000 80%)
NI of S Amortization &
(60,000 x 80%) 13,560 Impairment
40,000
(E5) Non-controlling
Balance, interest in 12/31/x4
Net Income
288,000 of (E1) Investment,
8,610 1/1/20x4
377,640
Subsidiary…………
Non-controlling interest ………….. 84,000 (E2) Investment, 1/1/20x48,610
5,640 (E4) Investment Income
Net income of subsidiary…………………….. P 60,000 and dividends
377,640
Amortization of allocated excess [(E3)]…... 377,640
( 13,200)
P 46,800
Multiplied by: Non-controlling interest 20%
%..........
Non-controlling Interest in Net Income P 9,360
(NCINI)
Less: Non-controlling interest on impairment
loss on full-goodwill (P3,750 x 20%) or
(P3,750 impairment on full-goodwill
less 750
P3,000, impairment on partial-
goodwill)*
Non-controlling Interest in Net Income P 8,610
(NCINI)
*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).
Balance Sheet
P
Cash………………………. 232,800 P 90,000 P 322,800
Accounts receivable…….. 90,000 60,000 150,000
(2) (3)
Inventory…………………. 120,000 90,000 6,000 6,000 210,000
(2)
Land……………………………. 210,000 48,000 7,200 265,200
Equipment 240,000 180,000 420,000
(2)
Buildings 720,000 540,000 216,000 1,044,000
(2) (3)
Discount on bonds payable 4,800 1,200 3,600
(2) (3)
Goodwill…………………… 15,000 3,750 11,250
Investment in S Co……… 377,640 (2) -
288,000
(2)
84,000
(4)
5,640
P1,008,0
Total P1,990,440 00 P2,426,850
P Company’s P12,000 portion of the differential related to goodwill related to goodwill is not
adjusted on the parent’s books following Option 2 as referred to above for goodwill
impairment loss. Even though the goodwill of the consolidated entity is impaired,
Thus, the investment balance and investment income in the books of P Company is as
follows:
Investment in S
Cost, 1/1/x5 38,400 Dividends – S (48,000x
377,640 80%)
NI of S Amortization
(90,000 x 80%) 5,760 (P7,200 x 80%)
72,000
Balance, 12/31/x5
Investment Income
405,480
Amortization NI of S
(7,200 x 80%) 72,000 (90,000 x 80%)
5,760
66,240 Balance, 12/31/x4
e.
f.
Consolidated SHE:
Stockholders’ Equity
Common stock, P10 par P 600,000
Retained earnings 676,680
P’s Stockholders’ Equity / CI – SHE, 12/31/20x4 P1,276,680
NCI, 12/31/20x4 __101,370
Consolidated SHE, 12/31/20x4 P1,378,050
Problem XVII
P’s gain on sale of subsidiary stock is computed as follows:
Cash proceeds……………………………………… P
720,000
Fair value of retained non-controlling interest equity investment (35%) 420,000
Carrying value of the non-controlling interest before deconsolidation
(15% or prior outside non-controlling interest in Subsidiary) 120,000
P1,260,000
Less: Carrying value of Subsidiary’s net assets 1,200,000
Gain on disposal or deconsolidation P 60,000
Problem XVIII
P Company’s additional paid-in capital arising sale of subsidiary shares is computed as
follows:
Problem XIX
P Company’s additional paid-in capital arising sale of subsidiary shares is computed as
follows:
8. P2,260,000
Podex’s separate earnings for 20X6 P2,000,000
Podex’s equity in net income of Sodex..................................... 300,000
Less: Amortization of cost in excess of book value................... (40,000)
Podex’s 20x6 net income......................................................... P2,260,000
9. b
10. c
Retained earnings of Parent, 12/31/20x6, Cost Method 310,000
Add: Increased in Retained earnings of Subsidiary _80,000
RE of Parent, 12/31/20x6, Equity Method (same with Consolidated RE) 390,000
11. c
Investment balance 12/31/x6, Cost Method 200,000
Add: Increased in Retained earnings of Subsidiary 80,000
Investment balance 12/31/x6, Equity Method 280,000
12. d
Retained earnings of Parent, 12/31/20x6, Cost Method 210,000
Add: Increased in Retained earnings of Subsidiary _240,000
RE of Parent, 12/31/20x6, Equity Method (same with 450,000
Consolidated RE)
14. b
Retained earnings of Parent, 12/31/20x6, Cost Method 360,000
Less: Decreased in Retained earnings of Subsidiary _40,000
RE of Parent, 12/31/20x6, Equity Method (same with 320,000
Consolidated RE)
22. b
Plimsol: P100,000 +
P200,000,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,P300,000
Shipping: P75,000 + P150,000……………………………………………………………….
225,000
P525,000
23.
Retained Earnings - Plimsol, 1/1/20x4 (cost method, same with equity method and
consoilidated retained earnings since it is the date of acquisition)P 150,000
Add: CI – CNI (refer to No. 21) 110,000
Less: CI – Dividends (Dividend of parent only)25,000
Retained earnings, 12/31/20x4 (equity method same with CRE) P 235,000
24. d
Liabilities:
Plimsol (P40,000 + P75,000) P115,000
Shipping (P25,000 + P50,000) 75,000
P 190,000
25. d
Total assets (No. 22) P525,000
Les: Liabilities (No. 24) 190,000
Stockholders’ equity P335,000
28. a
Investment. 4/1/20x6 P500,000
Add: Share in net income – 20x6
(3 quarters x P30,000 x 90%) 81,000
Less: Dividends declared of Satz (3 quarters x P10,000 x 90%) 27,000
Amortization (the recorded amount which means it represents
only 9 months, no need to pro-rate)
10,000
Investment, 12/31/20x6 P544,000
29. c
Patz’s equity in net income of Sats (90% x P30,000 x 3 qtrs) P81,000
Less: Amortization (the recorded amount which means it represents
only 9 months, no need to pro-rate)
10,000
Investment income – 20x4 (equity method)P 71,000
30. d
Investment balance, 1/1/20x4……………………………………………….. P150,000
Add: Puma’s equity in net income of Slume (30% x P25,000)..………… 7,500
Less: Dividends (P30% x P10,000)……………………………………………. 3,000
Amortization of cost in excess of book value
(P50,000/10 years) x 30%.............................................................. 1,500
Puma’s 20x6 net income (equity method).................................... P153,000
31. b
Puma’s equity in net income of Slume (30% x P25,000)..……………….. P 7,500
Less: Amortization of cost in excess of book value
(P50,000/10 years) x 30%.............................................................. 1,500
Investment income – 20x4 (equity method)………………………………. P 6,000
32. a – under equity method, the Parent’s retained earnings is the same with Consolidated
RE.
33. b
{(P260,000 - P230,000) + [(P650,000 - P590,000)/120] 8}.8
34. d
{(P190,000 - P160,000) 4/6 - [(P241,000 - P220,000)/60] 5}.7
35. b
Consideration transferred: 10,500 shares x P95 P997,500
Less: BV of SHE – S (?) 857,500
Allocated excess; P140,000
Less: O/U valuation of A and L:
Undervaluation of land P40,000
Overvaluation of buildings ( 30,000)
Undervaluation of equipment 80,000
Undervaluation/unrecorded trademark 50,000 140,000
P 0
36. a – P900,000 + P500,000 = P1,400,000
37. d – assumed that total expenses includes cost of goods sold which is different when the
question is “total operating expenses”
Cost of goods sold (P360,000 + P200,000) P 560,000
Depreciation expense (P140,000 + P40,000)
180,000
Other expenses (P100,000 + P60,000) 160,000
Amortization of allocated excess:
Buildings: (P30,000) / 20 (P1,500)
Equipment; P80,000 / 10 8,000
Trademark: P50,000 / 16 3,125 9,625
Total expenses P909,625
38. b – (P750,000 + P280,000) – P30,000 + (P1,500 x 5 years) = P1,007,500
39. c – (P300,000 + P500,000) + P80,000 – (P8,000 x 5 years) = P840,000
40. c – P450,000 + P180,000 + P40,000 = P670,000
41. d – P50,000 – P3,125 x 5 years) = P34,375
42. a – P only (the stock issued In 20x0 includes already in the December 31, 20x4 balance.
43. a – P only
44. a
Consolidated Retained Earnings, December 31, 20x4
Consolidated Retained earnings, January 1, 20x4 (equity method) P
1,350,000
Add: Controlling Interest in Consolidated Net Income or Profit
attributable to 490,375
equity holders of parent for 20x4
Total P1,840,375
Less: Dividends paid – P Company for 20x4 195,000
Consolidated Retained Earnings, December 31, 20x4 (under equity P1,645,375
method)
45. c
Note: Normally, the term used in the requirement “equity in subsidiary income”, is a
term used under equity method, but it should be noted that under PAS 27, it prohibits the
use of equity method for a parent to consolidate a subsidiary. But, assuming the use of
equity method, the answer would be, P190,375.
Share in net income: P200,000 x 100% P200,000
Less: Amortization of allocated excess 9,625
P190,375
46. a
Punn’s equity in net income of Sunn (3 months ended,12/31/x6)…… P 200,000
Amortization of cost in excess of book value................................ ( 60,000)
Increase in Parent’s retained earnings……………………………………. P 140,000
47. a
Punn’s net income from own operations, 12 months ended, 12/31/x6 P6,000,000
Add: Increase in RE of Sunn:
Punn’s equity in net income of Sunn (3 months ended,12/31/x6)P200,000
Amortization of cost in excess of book value.................................... ( 60,000)
Increase in Parent’s retained earnings……………………………………. P 140,000
Punn’s net income for 20x6 under the equity method……………………… P6,140,000
48. b
Full—goodwill Aproach
Fair value of Subsidiary (100%)
Consideration transferred (80%)…………….. P 180,000
Fair value of NCI (given) (20%)……………….. 20,000
Fair value of Subsidiary (100%)………. P 200,000
Less: Book value of stockholders’ equity of Son:
Common stock (P100,000 x 100%)
………………. P 100,000
Retained earnings (P60,000 x 100%)………... 60,000 160,000
Allocated excess (excess of cost over book value)
….. P 40,000
Less: Over/under valuation of assets and liabilities:
Increase in land (P5,000 x 100%)
……………………. P 5,000
Increase in equipment (P10,000 x 100%) ___10,000 15,000
Positive excess: Increase in Patent (excess of cost
over
fair value)
………………………………………………... P 25,000
49. d
Investment in Wisden
1/1/x4. 18,000 Dividends –
180,000 S
(20,000 x
90%)
NI of S
(60,000 Amortization
x 90%)……. 12,600 (P14,000 x
54,000 90%)
1/1/x6203,400
50. c
Investment in Wisden
1/1/x6. 9,000 Dividends – S
230,400
(10,000 x
90%)
NI of S
(30,000 Amortization
51. a x 90%)……. 6,300 (7,000 x 90%)
20x4 Investment 27,000 income: Dividend of
1/1/x6215,100
P10,000 x 100% = P10,000
20x4 Investment balance: P500,000
52. b
Pedro’s equity in net income of Sanburn – x4 (100% x P80,000)..………. P 80,000
Less: Amortization of cost in excess of book value
Inventory: P20,000 x 100%……………………………………………….. 20,000
Patent [P500,000 – P380,000 = P120,000 – P20,000 = P100,000)
(P100,000/20 years) x 100%.......................................................... 5,000
Investment income – 20x4 (equity method)………………………………. P 55,000
53. d
Under the cost method, an investor recognizes its investment in the investee at cost.
Income is recognized only to the extent that the investor receives distributions from the
accumulated net profits (or dividend declared/paid by the investee) of the investee
arising after the date of acquisition by the investor. Distributions (dividends)
received in excess of such profits are regarded as a recovery of investment
and are accounted for as a reduction of the cost of the investment (i.e., as a
return of capital or liquidating dividend).
Therefore, the investment balance of P500,000 on the acquisition date remains to be the
same.
** In case, there is an impairment of goodwill then the amount impaired under the full-
goodwill method should also be allocated between controlling and non-controlling
interests
62. a
Book value of Stockholders’ Equity of Subsidiary
Common stock, 12/31/20x4……………………………… P 300,000
Retained earnings, 12/31/20x4:
Retained earnings, 1/1/20x4………………………….P200,000
Add: Net income – 20x4…………………………….. 100,000
Less: Dividends paid, 20x4…………..………………40,000 260,000
Book value of Stockholders’ Equity of Subsidiary, 12/31/x4 P 560,000
Add: Adjustments to reflect fair value (P30,000 + P40,000).. 70,000
Less: Accumulated amortization of allocated excess
P7,000 x 1 year…………………………………….…. 7,000
Fair value of Stockholders’ Equity of Subsidiary. 12/31/x4… P623,000
Multiplied by: Non-controlling Interest %........................... ____ 20%
Non-controlling Interest (partial goodwill)………………….. P124,600
Add: Non-controlling interest in Full Goodwill
(P55,000, full – P44,000 partial l) or
(P55,00,000 x 20%)*……………………………… 11,000
Non-controlling Interest (full)……………………………… P135,600
* this computation (i.e., P55,000 x 20%) should only be use when the fair
value of the non-controlling interest of acquiree (subsidiary) is not given.
Partial Goodwill:
Fair value of Subsidiary:
Fair value of consideration transferred: Cash………… P 500,000
Less: Book value of Net Assets (Stockholders’
Equity - Subsidiary): (P300,000 + P200,000) x 80%.. 400,000
Allocated Excess.…………………………………………. P 100,000
Less: Over/Undervaluation of Assets and Liabilities:
Increase in equipment: P30,000 x 80%................... P 24,000
Increase in building: P40,000 x 80%......................... 32,000 56,000
Goodwill (Partial)………………………………………….. P 44,000
Full-goodwill:
(100%) Fair value of Subsidiary:
(100%) Fair value of consideration transferred:
P500,000 / 80%........………………………….. P 625,000
Less: Book value of Net Assets (Stockholders’
Equity - Subsidiary)…………................................... 500,000
Allocated Excess.…………………………………………. P 125,000
Less: Over/Undervaluation of Assets and
Liabilities (P40,000 + P30,000)……………………. 70,000
Goodwill (Full/Gross-up)..……………………………….. P 55,000
63. e
Book value of Stockholders’ Equity of Subsidiary
Common stock, 12/31/20x5……………………………… P 300,000
Retained earnings, 12/31/20x5:
Retained earnings, 1/1/20x5 …………………..……P260,000
Add: Net income, 20x5………………………………. 120,000
Less: Dividends paid, 20x5…………………………… 50,000 330,000
Book value of Stockholders’ Equity of Subsidiary, 12/31/x5 P 630,000
Add: Adjustments to reflect fair value (P30,000 + P40,000).. 70,000
Less: Accumulated amortization of allocated excess – 2 yrs 14,000
Fair value of Stockholders’ Equity of Subsidiary. 12/31/x5… P 686,000
Multiplied by: Non-controlling Interest %.............................. 20%
Non-controlling Interest (partial goodwill)………………….. P 137,200
Add: Non-controlling interest in Full Goodwill
(P55,000, full – P44,000 partial l) or
(P55,00,000 x 20%)*……………………………… 11,000
Non-controlling Interest (full)……………………………… P 148,200
64. e
Book value of Stockholders’ Equity of Subsidiary
Common stock, 12/31/20x6……………………………… P 300,000
Retained earnings, 12/31/20x6:
Retained earnings, 1/1/20x6………………………….P330,000
Add: Net income, 20x6……………………………… 130,000
Less: Dividends paid, 20x6…………………………..60,000 400,000
Book value of Stockholders’ Equity of Subsidiary, 12/31/x6 P 700,000
Add: Adjustments to reflect fair value (P30,000 + P40,000).. 70,000
Less: Accumulated amortization of allocated excess
(1/1/20x4 – 12/31/20x6): P7,000 x 3 years…………… 21,000
Fair value of Stockholders’ Equity of Subsidiary. 12/31/x6… P 749,000
Multiplied by: Non-controlling Interest %............................ 20%
Non-controlling Interest (partial goodwill)………………….. P 149,800
Add: Non-controlling interest in Full Goodwill
(P55,000, full – P44,000 partial l) or
(P55,00,000 x 20%)*……………………………… 11,000
Non-controlling Interest (full)……………………………… P 160,800
* this computation (i.e., P55,000 x 20%) should only be use when the fair
value of the non-controlling interest of acquiree (subsidiary) is not given.
65. P542,400
Investment balance, 1/1/20x4……………………………………………….. P500,000
Add: Bell’s equity in net income of Demers – x4 (80% x P100,000)..……80,000
Less: Dividends (80% x P40,000)……………………………………………….32,000
Amortization of cost in excess of book value:
Equipment: P30,000/10 years x 80%………………………………… 2,400
Building: P40,000/10 years x 80%................................................. 3,200
Investment balance, equity method, 12/31/20x4…………………………. P542,400
66. c
Investment balance, 12/3/20x4……………………………………………….. P542,400
Add: Bell’s equity in net income of Demers – x4 (80% x P120,000)..…… 96,000
Less: Dividends (80% x P50,000)………………………………………………. 40,000
Amortization of cost in excess of book value:
Equipment: P30,000/10 years x 80%………………………………… 2,400
Building: P40,000/10 years x 80%................................................. 3,200
Investment balance, equity method, 12/31/20x5…………………………. P592,800
67. b
Investment balance, 12/3/20x5……………………………………………….. P592,800
Add: Bell’s equity in net income of Demers – x4 (80% x P130,000)..…… 104,000
Less: Dividends (80% x P60,000)………………………………………………. 48,000
Amortization of cost in excess of book value:
Equipment: P30,000/10 years x 80%………………………………… 2,400
Building: P40,000/10 years x 80%................................................. 3,200
Investment balance, equity method, 12/31/20x6…………………………. P643,200
68. a
Bell’s equity in net income of Demers (80% x P100,000)………………. P 80,000
Less: Amortization of cost in excess of book value (refer to No. 65):
(P2,400 + P3,200) 5,600
Investment income – 20x4 (equity method)………………………………. P 74,400
69. a
Bell’s equity in net income of Demers (80% x P120,000)………………. P 96,000
Less: Amortization of cost in excess of book value (refer to No. 65):
(P2,400 + P3,200) 5,600
Investment income – 20x5 (equity method)………………………………. P 90,400
70. c
Bell’s equity in net income of Demers (80% x P130,000)………………. P 104,000
Less: Amortization of cost in excess of book value (refer to No. 65):
(P2,400 + P3,200) 5,600
Investment income – 20x6 (equity method)………………………………. P 98,400
71. c
Non-controlling interest in Net Income:
Subsidiary net income from own operations…………………………… P100,000
Less: Amortization of allocated excess (refer to No. 65)
(P3,000 + P4,000)………………………………………..……………. 7,000
P 93,000
x: Non-controlling interests……………………………………………….. 20%
Non-controlling interest in Net Income…………………………………P 18,600
72. c
Non-controlling interest in Net Income:
Subsidiary net income from own operations…………………………… P120,000
Less: Amortization of allocated excess (refer to No. 65)
(P3,000 + P4,000)………………………………………..……………. 7,000
P 113,000
x: Non-controlling interests……………………………………………….. 20%
Non-controlling interest in Net Income………………………………… P 22,600
72. c
Non-controlling interest in Net Income:
Subsidiary net income from own operations…………………………… P130,000
Less: Amortization of allocated excess (refer to No. 65)
(P3,000 + P4,000)………………………………………..……………. 7,000
P 123,000
x: Non-controlling interests……………………………………………….. 20%
Non-controlling interest in Net Income………………………………… P 24,600
Computation of Goodwill:
Fair value of Subsidiary (100%)
Consideration transferred: Cash (60%) P 414,000
Fair value of NCI (given) (40%) 276,000
Fair value of Subsidiary (100%) P 690,000
Less: Book value of stockholders’ equity of Sea (P550,000 x
100%) __550,000
Allocated excess (excess of cost over book value)….. P 140,000
Add (deduct): (Over) under valuation of assets and liabilities
(P140,000 x 100%) 140,000
Positive excess: Full-goodwill (excess of cost over fair value) P 0
87. c
Stockholders’ Equity
Common stock - Peer P
724,000
Retained earnings 954,000
Parent’s Stockholders’ Equity/Equity Attributable to the
Owners of the Parent P
1,678,000
Non-controlling interest** 352,000
Total Stockholders’ Equity (Total Equity) P 985,500
Total Liabilities and Stockholders’ Equity P2,030,000
88. c
Investment in Sea-Breeze Investment Income
1/1/x2. 42,000 Dividends – S NI of S
414,000
Retro (70,000 x
111,000 60%
NI of S
(90,000 Amortization Amortization (90,000
x 60%)……. 9,000 (P15,000 x (P15,000 x 60%) 54,000 x
54,000 60%) 9,000 60%)
12/31/x5528,000 45,000
89. c
90. d – refer to No. 78
91. c – refer to No. 78
92. b – refer to No. 78
93. c – refer to No. 81
94. c – refer to No. 81
95. a – not applicable under equity method.
96. d – refer to No. 84
97. d – refer to No. 84
98. d – refer to No. 86
99. c – refer to No. 87
100. a
Net income of S (5/1/x5 – 12/31/x5): P840,000 x 8/12 P560,000
Less: Dividend – S (11/1/20x5 – no need to pro-rate) 300,000
Cumulative net income less dividends since
date of acquisition, 1/1/20x6 (date to establish reciprocity –
not 12/31/x6) P260,000
x: Controlling interests 80%
P208,000
101. b
Retained earnings – S Company, 1/1/20x4 P 60,000
Less: Retained earnings – S Company, 12/31/20x6 190,000
Cumulative net income less dividends since
date of acquisition, 1/1/20x6 (date to establish reciprocity –
should always be beginning of the year, not 12/31/x6) P130,000
x: Controlling interests 90%
P117,000
102. (b)
Net income of Subsidiary – 2015 and 2016 (P15,000 + P22,000)…………………………………….P 37,000
Less: Dividends of Subsidiary – 2015 and 2016 (P6,000 + P9,000)……………………………………... 15,000
Cumulative net income less dividends since date of acquisition, 1/1/2017 (date to establish
reciprocity –should always be beginning of the year, not 12/31/17) / Increase in
Retained earnings………………………………………………………………………………………... P 22,000
x: Controlling interests……………………………………………………………………………………..70%
P 15,400
It should be noted that the amortization/depreciation and any unrealized/realized profits (in case of
intercompany sales of inventory/fixed assets) should not be included (refer to next number) as part of the
entry to established reciprocity since there will be separate eliminating entry to be made at the end of the
year (2017) for amortization and depreciation.
Further, the eliminating entry to establish reciprocity for the year 20x7 should be made on January 1, 2017
not December 31, 2017
Incidentally, the entry to convert from cost method to equity method or the entry to establish reciprocity at
the beginning of the year, 1/1/2017 would be as follows:
Investment in Subsidiary………………………………………………………………… 15,400
Retained earning – Parent Company, 1/1/2017………………………………. 15,400
103. (a)
Net income of Subsidiary – 2015 and 2016 (P15,000 + P22,000)……………………………………. P 37,000
Less: Dividends of Subsidiary – 2015 and 2016 (P6,000 + P9,000)…………………………………… 15,000
Increase in Retained earnings for 2 years……………………………………………………………… P 22,000
Less: Amortization of allocated excess [(P80,000 – P60,000)/10 years x 2 years]………………… 4,000
P 18,000
x: Controlling interests………………………………………………………………………………………. 70%
Retroactive amount, December 31, 20x6 or January 1, 2017……………………………………… P 12,600
104. b
[{(P84,000 + P105,000) - [(P310,000 - P220,000)/20]2} - (P30,000 + P50,000)].8
105. a - under the cost model share in net income or earnings of subsidiary does not affect
investment.
106. d
Investment account, December 31, 20x7:
Original investment …………………………………………..P 550,000
Tiny’s earnings, 20x4-20x77: 100% x P166,000……………166,000
Less: Dividends received: 100% x P114,000………………114,000
Balance, December 31, 20x7……………………………..P602,000
107. a
The adjusting entry required in 20x7 to convert from the cost to the equity methodis:
Investment in Tiny………………………………….52,000
Retained earnings beg………………………….. 4,000
Dividend revenue………………………………… 54,000
Equity in subsidiary income of Tiny……. 110,000
110. a
Non-controlling Interest in Net Income (NCINI) for Year 3
Net income of S Company P240,000
Less: Amortization of allocated excess 45,000
P195,000
Multiplied by: Non-controlling interest %.......... 30%
Non-controlling Interest in Net Income (NCINI) for Year 3 P 58,500
111. c
Net income from own/separate operations
P Company P 375,000
S Company 30,000
Total P405,000
Less: Non-controlling Interest in Net Income* P5,250
Amortization of allocated excess (refer to amortization above) 3,750
Goodwill impairment (impairment under full-goodwill approach) 0 9,000
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent………….. P396,000
113. c
Net income from own/separate operations
P Company P 625,000
S Company 50,000
Total P675,000
Less: Non-controlling Interest in Net Income* P 8,750
Amortization of allocated excess (refer to amortization above) 6,250
Goodwill impairment (impairment under full-goodwill approach) 0 15,000
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent………….. P660,000
114. b
As a general rule, if problem is silent It is assumed that expenses are generated evenly
throughout the year, thus:
Expenses (9/1/20x4-12/31/20x4): P620,000 x 4/12 P206,667
Amortization of allocated excess: P15,000 x 4/12 5,000
P211,667
115. c
Net income of S Company (P800,000 – P620,000) P180,000
Less: Amortization of allocated excess 15,000
P165,000
Multiplied by: No of mos. (9/1-12/31) 4/12
P 55,000
116. a
Net income of S Company (P800,000 – P620,000) P180,000
Less: Amortization of allocated excess 15,000
P165,000
Multiplied by: No of mos. (9/1-12/31) 4/12
P 55,000
Multiplied by: Non-controlling interest %.......... ____20%
Non-controlling Interest in Net Income (NCINI) for 20x4 P 22,000
119. b
Step-acquisition, either full-goodwill or partial goodwill approach, the answer remains
the same.
Full-Goodwill Presentation:
Net income from own operations;
Parent - Keefe…………………………………… P 300,000
Subsidiary - George (P500,000 – P400,000)…….. 100,000
P 400,000
Less: Amortization of allocated excess…………………… 6,000
Impairment of goodwill (if any)……………………. 0
Consolidated/Group Net Income…………………………. P 394,000
Less: Non-controlling interest in Net Income
Subsidiary net income from own operations:
1/1/20y0 - 4/1/20y0 (3 months):
P100,000 x 3/12 = P25,000 x 30%................ P 7,500
4/1/20y0 – 12/31/20y0 (9 months):
P100,000 x 9/12 = P75,000 x 20%................ 15,000
Total…………………………………………….. P 22,500
Less: Amortization of allocated excess:
1/1/20y0 – 4/1/20y0 (3 months)
P6,000 x 3/12 = P1,500 x 30%.......... 450
4/1/20y0 – 12/31/20y0 (9 months)
P6,000 x 9/12 = P4,500 x 20%........... 900
Impairment of goodwill (if any):
First 3 months: P 0 x 30%.......………… 0
Remaining 9 months: P 0 x 20%............... 0 21,150
CNI attributable to the controlling interest (CI-CNI)/ Profit
attributable to equity holders of parent…………………. P372,850
* It should be noted that the phrase without regard for this investment means that
excluding any income arising from investment in subsidiary (i.e., dividend income).
120. d – Economic Unit or Entity Concept (as required by PFRS 10)
Net income from own/separate operations
P Company P 500,000
S Company 100,000
Total P600,000
Less: Non-controlling Interest in Net Income* P20,000
Amortization of allocated excess 0
Goodwill impairment (impairment under full-goodwill approach) _ 0 20,000
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent………….. P580,000
Add: NCINI __20,000
CNI - entity concept P600,000
121. c – Parent Company Concept – Parent’s Net Income only (not required by
PFRS 10)
Net income from own/separate operations
P Company P 500,000
S Company 100,000
Total P600,000
Less: Non-controlling Interest in Net Income* P 20,000
Amortization of allocated excess 0
Goodwill impairment (impairment under full-goodwill approach) _ 0 20,000
CNI - entity concept P580,000
122. b
Net Income from own operations: 20x420x5
Parent …………………………………………………P 100,000 P100,000
Subsidiary……………………………………………... 25,000 35,000
P125,000 P135,000
Subsidiary’s other comprehensive income…………..5,000 10,000
Total Comprehensive Income……………………….....P130,000 P145,000
Less: Amortization of allocated excess…………….… 6,250 6,250
Impairment of full- goodwill (if any)…………. 0 0
Consolidated /Group Comprehensive Income…… P123,750 P138,750
Less: Non-controlling interest in Comprehensive
Income *…………………………………………… 4,750 7,750
Controlling Interest in Consolidated __________________
Comprehensive Income …. …………………………P119,000 P131,000
141. d - The acquisition method consolidates assets at fair value at acquisition date
regardless of the parent’s percentage ownership.
142. d
P: BV,12/31/20x6 P250,000
S:
BV of building, 12/31/20x4 P170,000
Add: Adjustments to reflect fair value, 1/1/20x4
(P350,000 – P240,000) 110,000
Less: Amortization of excess (P110,000/10) x 3 years 33,000 247,000
P497,000
143. b
P: BV,12/31/20x5 P 975,000
S:
BV of building, 12/31/20x5 P105,000
Add: Adjustments to reflect fair value, 1/4/20x4
(P120,000 – P90,000) 30,000
Less: Amortization of excess (P30,000/10) x 2 years 6,000 129,000
P1,104,000
144. c - An asset acquired in a business combination is initially valued at 100% acquisition-
date fair value and subsequently amortized its useful life.
Patent fair value at January 1, 20x4......................................................... P45,000
Amortization for 2 years (10 year life)..................................................... (9,000)
Patent reported amount December 31, 20x5........................................... P36,000
145. b
BV of building, 1/1/20x4 P200,000
Adjustments to reflect fair value, 1/1/20x4 (P300,000 – P200,000) 100,000
Depreciation 1/1/20x4 – 12/31/20x6 (P100,000/20 x 3 years) ( 15,000)
P285,000
146. d – same with No. 145
147. d
BV of equipment, 1/1/20x4 P 80,000
Adjustments to reflect fair value, 1/1/20x4 (P80,000 – P75,000) ( 5,000)
Depreciation 1/1/20x4 – 12/31/20x6 (P5,000/10 x 3 years) 1,500
P 76,500
148. a
Adjustments to reflect fair value, 1/1/20x4 (P80,000 – P75,000) (P 5,000)
Depreciation 1/1/20x4 – 12/31/20x6 (P5,000/10 x 3 years) 1,500
(P 3,500)
149. d – 1/2/20x4:
BV of equipment, 1/1/20x4 P200,000
Adjustments to reflect fair value, 1/1/20x4 (P300,000 – P200,000) 100,000
P300,000
150. b
Decrease in Buildings account:
Fair value……………………………………………P 8,000
Book value………………………………………….. __10,000
Decrease…………………………………………….P 2,000
151. d
Decrease in buildings account (refer to No. 73)………… P 2,000
Less: Increase due to depreciation (P2,000/10)………… 200
Decrease in buildings accounts……………………………..P 1,800
152. d
Decrease in buildings account (refer to No. 74)………… P 1,800
Less: Increase due to depreciation (P2,000/10)………… 200
Decrease in buildings accounts……………………………..P 1,600
153. a
Increase in Equipment account:
Fair value……………………………………………P 14,000
Book value………………………………………….. __18,000
Increase…………………………………………….P 4,000
154. a
Increase in equipment account (refer to No. 76)………… P 4,000
Less: Decrease due to depreciation (P4,000/4)…………… 1,000
Increase in equipment accounts……………………………..P 3,000
155. a
Increase in equipment account (refer to No. 77)………… P 3,000
Less: Decrease due to depreciation (P4,000/4…………… 1,000
Increase in equipment accounts……………………………..P 2,000
156. a
Increase in Land account:
Fair value……………………………………………P 12,000
Book value………………………………………….. 5,000
Increase…………………………………………….. P 7,000
165. a – P48,000. On the date of acquisition, the parent’s retained earnings is also the
consolidated retained earnings.
168. c
Consolidated Net Income for 20x4
Net income from own/separate operations
P CompanyP30,200 – (P4,000 x 90%) P26,600
S Company 9,400
Total P36,000
Less: Non-controlling Interest in Net Income* P 610
Amortization of allocated excess 3,300
Goodwill impairment ____0 3,910
Controlling Interest in Consolidated Net Income or Profit
attributable to equity holders of parent………….. P32,090
Add: Non-controlling Interest in Net Income (NCINI) 610
Consolidated Net Income for 20x4 P32,700
169. c
Noncontrolling Interests (in net assets):
Common stock - S, 12/31 P 50,000
Additional paid-in capital - S, 12/31 15,000
178. c
Subsidiary income (P100,000 – P14,000 excess amortizations)............. P86,000
Non-controlling interest percentage........................................................ __40%
Non-controlling interest in subsidiary income.......................................... P34,400
181. c
P1,000,000
Book value of SHE – S, 12/31/20x4
Theories
1 c 6. b 11 C* 16 c 21 d 26 c 31 c 36 d 41 a
. . * . . . . .
2 d 7. c 12 b 17 c 22 a 27 d 32 b 37 b 42 c
. . . . . . . .
3 d 8. d 13 d 18 d 23 b 28 c 33 c 38 b 43 a
. . . . . . . .
4 d* 9. d 14 c 19 d 24 c 29 c 34 c 39 c 44
. . . . . . . .
5 d 10 a 15 c 20 b 25 c 30 b 35 d 40 d 45
. , , . . . . . .
*under PAS 27, cost model recognizes any dividend declared/paid by the subsidiary is classified as
income regardless of retained earnings balance, which means there is no such thing as liquidating
dividend under the cost model. On the other hand, under FASB ruling, a liquidating dividend still exists
under the cost method.
**partial equity is the same with equity method except that amortization of allocated excess is not
recognized in the investment and income account.