CHAPTER 3

Consolidated and Separate

Financial Statements:
Subsequent to Date of Acquisition
Araador, Christine Joy O.
Arcega, Cristina S.
Intalan, Jasmine A.
Pearanda, Rose Marie E.
Urrea, Christine Joyce A.

CBET-01-601E

Pearanda,
Pearanda, Rose
Rose Marie
Marie E.
E.

Exercise 3-2 Cost Method Entries and Book Value of

Interest Acquired

On July 1, 2015, Park Corporation acquired 1,500 shares of the

outstanding share capital of Stark Co. for P240,000. The
Statement of Financial Position of Stark Co. as of December 31,
2014 was as follows:

Assets
P370,000
Liabilities
P100,000
Ordinary Share Capital, P100 par
200,000
Additional Paid-in Capital
50,000
Retained Earnings
20,000
Total Equities
P370,000

Instructions:
1.Make the entries to record the following:
(a) The acquisition of the investment

(b) Stark Company reported a net

income of
P30,000 for 2015.

(c) At the beginning of 2016, Stark Co.

paid
dividends of P30,000.

(d) The operations of Stark Co. in 2016

resulted in
a net loss of P10,000

Exercise 3- 2
Cost Method
(A) The acquisition of the investment
Investment in Stark Co.
240,000

Cash
240,000
(B) Stark Company reported a net income of
P30,000 for 2015.
no entry
(C) At the beginning of 2016, Stark Co. paid
dividends of P30,000
Cash
22,500

Dividend Revenue
11,250
Investment in Stark Company
11,250
(D)The operations of Stark Co. in 2016 resulted in

Pp. 166; summary illustration of parent company

entries using the cost method
Transactions

Entries

1. Acquisition of share capital

Investment
Cash/Other Assets/Capital Stock

2. Net income reported by the

subsidiary

No Entry

3. Net loss reported by the subsidiary

No Entry

4. Regular dividends paid by the

subsidiary

Cash/Other Assets
Dividend Revenue

Pp. 165
Key Features of the Cost Method

Items

Cost Method

Recorded amount of investment at

date of acquisition

Original cost

Usual carrying amount of

investment subsequent to
acquisition

Original cost

Differential
Income recognition by investor

No adjustment
Dividends distributed by the
investee from earnings since
acquisition

Dividends declared on earnings Income

from date of acquisition
Dividends declared in excess of Reduction in Investment
earnings from date of
acquisition

Computation:
Outstanding shares of Stark Co.
P200,000/100par = 2,000 shares
Percentage of Interest Acquired by Park Co.
1,500 shares/2,000 shares = 75%
Dividends declared on earnings from date of
acquisition P15,000

Percentage of Interest acquired by Park Co.

x 75%
Dividend revenue of Park Co.
P11,250

Dividends declared in excess

P15,000
of earnings from date of acquisition
(P30,000 15,000)
Percentage of Interest acquired by Park Co.
X 75%
Reduction of Investment in Stark Company
P11,250

2. Compute for the book value of the

interest acquired on date of acquisition.
Computation:
Ordinary Share Capital
P200,000
Additional Paid-in Capital
50,000
Retained Earnings [P20,000 + (P30,000 x 1/2)]
35,000
Total shareholders equity on date of acquisition
P285,000
Percentage Interest acquired
x 75%
Book value of interest acquired
P213,750

Equity method
To convert cost method investment to equity method
adjusted as of December 31,2015:
Investment in Stark Company
Retained Earnings, Park Co.

P11,250
P11,250

Computation:
Income earned by Stark Company (P30,000 X )
P15,000
Percentage of interest acquired by Park Co.
X 75%
Increase of Investment in Stark Company
P11,250

Equity Method

a. Investment in Stark Co. 240,000

Cash
240,000

b. Investment in Stark Co.11,250

Equity in Subsidiary Income

11,250
(P30,000 x 1/2 x 75% = P11,250)

Equity Method
c. Cash 22,500

Investment in Stark Co. 22,500

(P30,000 x 75% = P22,500)

d. Equity in Subsidiary Income 7,500

Investment in Stark Co. 7,500
(P10,000 X 75% = P7,500)

Arcega, Cristina
S.

Exercise 3-4 (COST METHOD

ENTRIES)
Prepare the entries for Platoon Corp.
using the cost method:
a. Platoon Corp. acquired 750 of the
1,000 outstanding share of Saloon
Corp. at P90 per share at the beginning
of 2014.
b. The subsidiary reported a net income
of P15,000 for 2014.
c. Saloon Corp. issued a 10% share
capital dividends on June 1, 2015.
d. Cash dividend of P5 per share was
paid by Saloon Corp. on Dec. 1, 2015
e. A net loss of P6,000 was incurred by
the subsidiary in 2015.

Exercise 3-4 (ANSWER)

a. Investment in Saloon Corp.
67,500
Cash.
67,500
750 shares @ P90 = P67,500
b. No Entry
c. Received 75 shares from Saloon Corp. as
stock dividend. Shares now owned and held are
825 shares.
d. Cash.

Investment in Saloon Corp..

4,125

Pearanda, Rose
Marie E.

Multiple Choice 3-C

Parker Company owns 85% interest in Starter Company.

During the calendar year 2014, Parker Co. had net income
of P100,000 and Starter Co. of P40,000. Intragroup
interest on bonds was P700. Starter Co. declared and
paid a P10,000 dividend during the year.

1. The consolidated net income for the year 2014 amounts

to

a. P131,500 c.P140,700

b. P140,000 d. P150,000

Answer:

a. P131,500

Computation:
Parker Co. net income
Less Dividends from Starter Co.(10,000 x 85%)

Parker Co. net income from own operation

Add: Starter Co. net income

Consolidated net income for 2014
P131,500

P100,000
8,500
P91,500
40,000

Pp. 173
Dividends revenue from subsidiary is eliminated
to avoid double recognition of income.

Pp. 130
Intragroup balances resulting from
transactions among entities in the group have
to be eliminated in full upon the preparation of
consolidated statements.

Interest Income P700

Interest Expense P700
Eliminate intercompany interest income statement
Note that these entries have no effect on
consolidated net income because they reduce
interest income and interest expense by the
same amount.

Urrea, Christine Joyce

A.

Multiple Choice 3 (PAREN

(SUBSIDIAR
D
Pentium
Corp. acquired an 80% interest in
T)

Y)

Systems Co. when the shareholders equity of the

latter, three years ago, consisted of P400,000 of
P100 par value capital share and P100,000 of retained
earnings. On December 31, 2014, their trial balances
were as follows: Pentium Corp. Systems Co.
Cash and Other Assets
P 904, 000 P 880,000
Investment in Systems Co. Stock
416,000
--Liabilities
( 300, 000) ( 240, 000)
Ordinary Share Capital, P100 par
( 600, 000) ( 400, 000)
Retained Earnings
( 200, 000) ( 140,000)
Sales
(1,000,000) ( 600, 000)
Cost of Sales
600, 000
400, 000
Operating Expenses
180, 000
100, 000
Totals
P - 0 P - 0 -

The difference of cost and book value is allocated

to an asset of Systems Co. and is being
depreciated over a period of ten years. Pentium
measures non-controlling interest at its
proportionate share of the identifiable net assets.
The consolidated net income of Pentium Corp.
and Systems Co. for the year ended December
31, 2014 is

a. P257, 400
b. P276,400

c.
d.P298,400
P318,000

CONSOLIDATED NET INCOME

Is the combined net income of
the parent and all the
subsidiaries after taking into
consideration the various
adjustments for intragroup
balances and transactions,
intragroup profit and the
impairment/ amortization/
depreciation of the differential.

Page 175
A pro-forma schedule
showing the
computation of
consolidated net income

Net income from own operations of

Pentium
SalesCorp.
P1,000,000
Cost of Sales
( 600,000)
Gross Profit
P 400,000
Operating Expenses
( 180,000)
Add: Adjusted subsidiary net income:
Less Dividends from
Subsidiary
Net Income of System
Sales
P600,000
Cost of Sales
( 400,000)
Gross Profit
P200,000
Operating Expenses
( 100,000) P100,
000
Less Differential depreciation
2,000*

CONSOLIDATED NET
INCOME

P220,000
(

98,000

0)

P318,00
0

Computation for differential depreciation of

P2,000

Investment in System Co. Stock

P416,000
Book value of acquired interest
400,000
Excess of cost over book value P 16,000
Divided by controlling interest
80%
Asset of Systems Co. to be depreciated P
20,000
Divided by depreciation period
10y
Differential depreciation
P 2,000

Lets get the NET

INCOME
ATTRIBUTABLE TO
Basis: Page
176,
PARENT
Illustration 5

Net income from own operations of Pentium Corp.

Sales
P1,000,000
Cost of Sales
( 600,000)
Gross Profit
P 400,000
Operating Expenses
( 180,000)
Add:Share in System Co. net
Net Income of System
income
Sales
P600,000
Cost of Sales
( 400,000)
Gross Profit
P200,000
Operating Expenses
( 100,000)
Net Income
P100,000
Multiply by Controlling80%
InterestP 80,000
Less Differential depreciation
(P2,000 * 80%)
1,600

Net Income Attributable to Parent

P298,400

P220,000

78,400

Consolidated
Net Income
Non-controlling
Net Income Attributable Interest
To Parent

Net Income

Net income reported by

Pentium
P220,000
P220,000
System
100,000
80,000
P 20,000
Depreciation excess of cost over
Book value of acquired investment
( 2, 000)
( 1,600)
400)
Total
P318,000 P298, 400 P 19,600

ELIMINATION ENTRIES:
Page 168, under PREPARATION OF
WORKING PAPER FOR
CONSOLIDATED FINANCIAL
STATEMENTS

Note that the adjusting and

elimination entries are made in the
working paper only.
(1)To record net increase in Retained Earnings
Investment in Systems Co. Stock
32, 000
Retained Earnings, Pentium Co.
32, 000
(P40,000 * 80%)

(2)To eliminate Systems Co. shareholders equity,

increase in assets and establishing of noncontrolling interest
Ordinary Share Capital, Systems Co.
400,000
Retained Earnings, System Co.
140,000
Other Assets
20,000
Investment in System Co., Stock
448,000
(P416,000 + P32,000)

Non-controlling interest

112,000

(3) To record depreciation

Retained Earnings, Pentium Corp.
Expenses
2,000
Other Assets
6,000
[2,000 * 3years]

4,000

Intalan, Jasmine A.

MULTIPLE CHOICE
3-E

Problem/ Transaction
On April 1, 2014, Panel Company paid
P756, 000 for 16, 000 shares of Standel
Company' s 20, 000 outstanding ordinary
shares. Standel reported net income of P60,
000 for 2014, and declared dividends of P50,
000. In 2015, Standel Company reported net
income of P36, 000, and declared and paid
dividends of P50, 000.

Question

1. How much is the Dividend

Revenue at December 31, 2015?

Question
1. How much is the Dividend
Revenue at December 31, 2015?
Choices
a. P11, 200
b. P28, 800

c. P36, 800
d. P40,
000

Answer

P 36,
800

Computation
To compute for the interest acquired:
Shares that the Panel
Company paid
divided by
Standel Company' s
outstanding ordinary shares

16, 000

20, 000

Percentage of interest acquired

80%

Net Income (2014)

P60, 000
Dividends declared
(P50, 000)
Retained Earnings (12/31/14)
P10, 000
Net Income (2015)
P36, 000
Retained Earnings
10, 000
TOTAL
P46, 000

Figure 12.2 (Page 165)

ITEM
Dividends declared
on earnings from
date of acquisition.

COST METHOD
Income

Dividends declared in Reduction in

excess of earnings
Investment
from date of
acquisition.

Regular dividends
Percentage of interest
acquired
Dividend Revenue

P46, 000

Return ON
Investment

80%
P36, 800

Page 165,third bullet:

The parent merely recognizes dividends
from the subsidiary through the DIVIDEND
REVENUE.

Liquidating dividends
P4, 000
Percentage of interest
acquired
80%
Reduction in investment
P3, 200

Return OF
Investment

Page 167 under key points, third bullet:

Only a liquidating dividends can reduce the
investment balance account.

Journal Entry:
Cash
P40, 000
Dividend Income
P36, 800
Investment in Standel Co.
3, 200
Page 167 under key points, second
bullet:
The dividends received from subsidiary is
treated as an INCOME.

Question

2. What should be the balance of its

Investment in Standel Company
account at December 31, 2015?

Question
2. What should be the balance of its
Investment in Standel Company account
at December 31, 2015?

Choices
a. P752, 000
b. P752, 800

c. P756,
000
d. P768,
800

Answer

P 752,800

Computation
Consideration transferred
P756, 000
Dividends declared in excess of earnings
Net income, Standel (2014) P60, 000
Net income, Standel (2015)
36, 000
Declared dividends (2014)
(50, 000)
Declared and paid
dividends (2015)
(50, 000) (4, 000)
Multiply by interest acquired
80%(3,
200)
Investment balance, December 31, 2015
P752, 800

Figure 12.2 (Page

165)
ITEM
Dividends declared
on earnings from
date of acquisition.

COST METHOD
Income

Dividends declared in Reduction in

excess of earnings
Investment
from date of
acquisition.

Journal entries:
To record acquisition in 2014:
Investment in Standel company P756, 000
Cash
P756, 000
To record liquidating dividends:
Cash
P3, 200
Investment in Standel company P3, 200

Araador, Christine Joy

O.

MC 3-F:
Parson Company acquired 90%
interest in Stockton Company on
Dec.31,2014 for 540,000. During
2015, Stockton Company had a
net income of P60,000 and paid
a cash dividend of P30,000.
The non-controlling interest net
income in 2015 is
a. P3,000 c. P9,000

Answer:

B. P6,000

Net Income reported by Stockton Co.

P60,000
Multiply by % of interest
10%
NON-CONTROLLING INTEREST IN
2015 P6,000

To record the acquisition of

Investment:
Investment in Stockton Co.
540,000
Cash
540,000
To record the receipt of Dividends:
Cash 27,000
Dividends Income
27,000
(30,000 x 90%)

Urrea, Christine
Joyce A.

Multiple Choice 3 (Subsidia

S(Parent)

Port Corp. ry)

and Sort Co. are sister
companies. Port Corp. owns 140,000 shares of
Sort Co.s outstanding share capital of 200,000
shares; on the other hand, Sort Co. owns
120,000 of Port Corp.s outstanding share
capital of 600,000 shares.
Port Corp. announced a net income of P84,080
for the year 2014 while Sort Co. sustained a net
loss of P12,000 for the same year. The
operating results were arrived without
considering the earnings of the entities in the
group.

Port Corp.
Net Income

P84, 080

Sort Co.
Net Loss

(P12, 000)

The net income (loss) attributable to

Port Corp. for 2014 was:

a.(P 45,600)
P83,600
b. P63,200

c.
d. P88,000

For reference
please look for

page 176

Net income from own operations

of Port Corp.
P84, 080
Add Share in Sort Co. net income
Net loss of Sort
(P 12,000)
Add Share in net income
attributable to Port (20%)
???
Total Net Income
???
Multiply by controlling interest
70%

Net income attributable to Port.

???

???

Lets
do
the
Lets find
horizontal
X
equation

Net income attributable to Port

Corp. = Net income from own operations
+ Share in Sort net income

X P84,080
+ 70%* [(P12,000) + .
+
+.14X
=
20X]
X=
P8,40
P84,080
X - .14X= P84,080 P8,400
0
.
= 1P75,680
86X .
86

X
Net income
attributable
to Port Corp.

= P88,00

SUBSTITUTI
Net income from own operations
ON
of Port Corp.
P84, 080
Add Share in Sort Co. net income
Net loss of Sort
(P 12,000)
Add Share in net income
attributable to Port (20%)
???
Total Net Income
???
Multiply by controlling interest
70%

Net income attributable to Port.

???

???

Computation for the Share in net income

attributable to Port

Net income attributable to Port

P 88,00
Multiply by interest acquired by Sort

20%
Share of Sort in net income of Port

17,600

SUBSTITUTI
Net income from own operations
ON
of Port Corp.
P84, 080
Add Share in Sort Co. net income
Net loss of Sort
(P 12,000)
Add Share in net income
17,600
???
attributable to Port (20%)
P ???
5,600
Total Net Income
Multiply by controlling interest
70%

Net income attributable to Port.

???
3,920

???
P88,000

Arcega, Cristina
S.

Arcega MULTIPLE CHOICE 3-T

80% of the outstanding shares of Brix
Co. were acquired by Chady Corp. when
the equity of Brix Co. comprised of
share capital of P500,000 and retained
earnings of P800,000.
The current statement of financial
position of Brix Co. shows share capital
of P500,000, a revaluation reserve of
P900,000 and retained earnings of
P2,000,000.

What amount in respect of Brix

Co. retained earnings should
be included in the consolidated
statement of financial position
under PFRS 10 Consolidated
financial statements?
A. P500,000
B. P960,000
C. P1,400,000

ANSWER: D

Retained Earnings, current

P2,000,000
Retained Earnings, acquisition date
(800,000)
Increased in Retained Earnings
P1,200,000
Multiply by Controlling Interest
80%
Consolidated Retained Earnings
ividends
Received from subsidiary
P960,000
hare in the adjusted subsidiary incomeP1,200,000

7/1/16

Intalan, Jasmine A.

MULTIPLE CHOICE
3-U

Problem/ Transaction
Duhat Corp. purchased 75% equity
interest in Manga Co. when Manga' s equity
composed of share capital of P800, 000 and
retained earnings of P1, 150, 000.
Manga's current statement of financial
position shows share capital of P800, 000,
revaluation reserve of P200, 000 and
retained earnings of P2, 600, 000.

Question
What amount in respect of noncontrolling interest should be
included in Duhat's consolidated
statement of financial position under
PFRS 10 Consolidated financial
statements?

Question
What amount in respect of non- controlling
interest should be included in Duhat's
consolidated statement of financial position under
PFRS 10 Consolidated financial statements?

Choices
a. P900, 000

c. P2, 700, 000

b. P2, 600,
000

d. P3, 600,
000

Answer

P
900,000

Computation
Share capital
Revaluation reserve
Retained earnings
Net Assets

800, 000

200, 000
2, 600, 000
P 3, 600, 000

Page 12:
PFRS 3 defines non- controlling interest as
the equity in a subsidiary NOT attributable,
directly or indirectly, to a parent.

Share capital
P800, 000
Revaluation reserve
200, 000
Retained earnings
2, 600, 000
Net Assets
P3, 600, 000
Non- controlling interest rate
25%
Non- controlling interest
900, 000

Arador, Christine Joy

O.

MC 3-V:
Peter Corp. purchased 70% equity interest
in Seller Co. on September 1, 2014 when
Seller Co. share capital is P400,000. An
additional 10% interest was on April 1,2015.
Total annual amortization relating to the
70% interest is P12,000. For the year 2015,
Seller Co. reports the following: Revenues,
P1,000,000; Expenses, P800,000; Retained
Earnings as of Jan.1,2015, P600,000;
dividends paid, P100,000. Peter Corp. earns
P600,000 net income in 2015 without
regard to the investment in Seller Co.

1. The controlling interest in the

consolidated net for 2015 assuming the
net income is evenly earned throughout
the year
a. P743,000 c. P746,600
b. P745,700 d. P788,000
2. The 2015 consolidated net income and
the non-controlling interest in net income
a. P745,700 and P42,300
b. P746,600 and P37,600
c. P788,000 and P37,600
d. P788,000 and P42,300

1. Answer: B P745,700
Peter Corp. Net income
P600,000
Add: Share in Seller Co. Net income:
Revenues
1,000,000
less: Expenses
800,000
Amortization
12,000
Net Income
P 188,000
Multiply by % interest:
Jan.1-March31 (3/12)
70%
32,900
Apr.1-Dec.31
(9/12)
80%
112,800
CONTROLLING INTEREST in
P745,700
Consolidated net income

2. Answer: D
P788,000 and P42,300
Peter Corp. Net income
P600,000
Add: Seller Co. Net income
188,000
CONSOLIDATED NET INCOME
P
788,000
Jan.1-March31:
Net Income 188,000
Multiply by
30%
Total
56,400
Jan.-Mar.31
(3/12)
Allocated NCI P14,100

April 1- Dec.31:
Net Income
P188,000
Multiply by
20%
Total
P37,600
Apr.1-Dec.31
(9/12)
Allocated NCI
P 28,200
To get the NCI:
Allocated NCI Jan.1-Mar.31
Add: Allocated NCI Apr.1-Dec.31
NON-CONTROLLING INTEREST
42,300

P14,100
28,200
P