Advanced-Accounting-Part 2-Dayag-2015-Chapter-17.docx

Chapter 17 Problem I

1. Consolidated Net Income for 20x5 P Company’s net in come from own/separate operations…………. Realized profit in beginning inventory of S Company (downstream sales) Unrealized profit in ending inventory of S Company (downstream sales)… P Company’s realized net income from separate operations*…….….. S Company’s net income from own operations…………………………………. Realized profit in beginning inventory of P Company (upstream sales) Unrealized profit in ending inventory of P Company (upstream sales)… S Company’s realized net income from separate operations*…….….. Total Less: Amortization of allocated excess…………………… Consolidated Net Income for 20x5 Less: Non-controlling Interest in Net Income* * Controlling Interest in Consolidated Net Income or Profit attributable attributable to – 20x5………….. equity holders of parent – 20x5………….. *that has been realized in transactions with third parties.

P 760,000 36,000 (_50,000) P 746,000 P 460,000 0 ( 0) P 460,000

460,000 P1,206,000 0 P1,206,000 92,000 P 1,114,000

Beginning inventory: P1,080,000 x 1/5 = P216,000 x 20/120 = P36,000 profit Ending inventory: P1,200,000 x ¼ = P300,000 x 20/120 = P50,000 profit

Or, alternatively Consolidated Net Income for 20x5 P Company’s net in come from own/separate operations…………. Realized profit in beginning inventory of S Company (downstream sales) Unrealized profit in ending inventory of S Company (downstream sales)… P Company’s realized net income from separate operations*…….….. S Company’s net income from own operations…………………………………. Realized profit in beginning inventory of P Company (upstream sales) Unrealized profit in ending inventory of P Company (upstream sales)… S Company’s realized net income from separate operations*…….….. Total Less: Non-controlling Interest in Net Income* * Amortization of allocated excess…………………… Controlling Interest in Consolidated Net Income or Profit attributable attributable to equity holders of parent………….. Add: Non-controlling Interest in Net Income (NCINI) Consolidated Net Income for 20x5 *that has been realized in transactions with third parties. **Non-controlling Interest in Net Income (NCINI) (NCINI) for 20x5 S Company’s net income of Subsidiary Company from its own operations (Reported net income of Son Company) Realized profit in beginning inventory of P Company (upstream sales) Unrealized profit in ending inventory of P Company (upstream sales) S Company’s realized net income from separate operations……… Less: Amortization of allocated excess Multiplied by: Non-controlling interest %.......... %.......... Non-controlling Interest in Net Income (NCINI) – partial goodwill

P 760,000 36,000 (_50,000) P 746,000 P 460,000 0 ( 0) P460,000

460,000 P1,206,000

P 92,000 0

92,000 P1,114,000 _ 92,000 P 1,206,000

P460,000 0 ( 0) P460,000 _____0 P460,000 20% P 92,000

2. Books of of Puma (a) Cost Method 20x4 Dividend – Smarte Smarte Company: None, since, there is no amount given 20x5 Dividend – Smarte Smarte Company: None, since, there is no amount given

(b) Equity Method 20x4 Net income – Smarte Smarte Investment in Smarte (400,000 x 80%) Equity in Subsidiary Income Dividend – Smarte Smarte Cash/Dividends receivable

320,000 320,000

0

Investment in Smarte Amortization of Allocated excess: Equity in Subsidiary Income Investment in Smarte Realized Profit in BI : Investment in Smarte Equity in Subsidiary Income Unrealized Profit in EI: Equity in Subsidiary Income Investment in Smarte 20x5 Net income – Smarte Smarte Investment in Smarte (460,000 x 80%) Equity in Subsidiary Income

0

0 0

0 0

36,000 36,000

368,000 368,000

Dividend – Smarte Smarte Cash/Dividends receivable Investment in Smarte

0

Amortization of Allocated excess: Equity in Subsidiary Income Investment in Smarte

0

0

0

Realized Profit in BI : Investment in Smarte Equity in Subsidiary Income

36,000

Unrealized Profit in EI: Equity in Subsidiary Income Investment in Smarte

50,000

36,000

50,000

3. Downstream Sales 20x4 Sales………………………………………………………………………………… 1,080,000 Purchases (Cost of Goods Sold)……………………………………... Sold)……………………………………... 1,080,000 **100% UPEI of S: Cost of Sales (Ending Inventory in I ncome Statement) [216,000 – (216,000/1.20)]………..………………………………………….. – (216,000/1.20)]………..………………………………………….. 36,000 Inventory (Ending Inventory in Balance Sheet)…………………….. Sheet)……………………..

36,000

20x5 100% Interscompany Sales Sales………………………………………… Sales………………………………………………………………… ……………………………………….1,200,000 ……………….1,200,000 Purchases (Cost of Goods Sold) ………………………………….. 1,200,000 Downstream Sales: *100% RPBI of S: Retained Earnings – P, – P, beginning…………………… beginning………………………………………..... …………………..... 36,000 Cost of Sales (Beginning Inventory in Income Statement)….. **100% UPEI of S: Cost of Sales (Ending Inventory in Income Statement) [300,000 – (300,000/1.20)]………..………………………………………….. – (300,000/1.20)]………..………………………………………….. 15,000 Inventory (Ending Inventory in Balance Sheet)……………….. Sheet)………………..

36,000

15,000

Problem II 1. Consolidated Net Income for 20x5 P Company’s net income income from own/separate own/separate operations…………. Realized profit in beginning inventory of S Company (downstream sales) Unrealized profit in ending inventory of S Company (downstream sales)… P Company’s realized realized net income from separate operations*…….….. operations*…….….. S Company’s net income from own operations…………………………………. Realized profit in beginning inventory of P Company (upstream sales) Unrealized profit in ending inventory of P Company (upstream sales)… Son Company’s realized net income from separate operations*…….….. Total Less: Amortization of allocated excess…………………… Consolidated Net Income for 20x5

P 1,720,000 0 (_ 0) P 1, 720,000 P 600,000 40,000 ( 51,00 0) P 589,000

589,000 P2,309,000 0 P2,309,000

Investment in Smarte Amortization of Allocated excess: Equity in Subsidiary Income Investment in Smarte Realized Profit in BI : Investment in Smarte Equity in Subsidiary Income Unrealized Profit in EI: Equity in Subsidiary Income Investment in Smarte 20x5 Net income – Smarte Smarte Investment in Smarte (460,000 x 80%) Equity in Subsidiary Income

0

0 0

0 0

36,000 36,000

368,000 368,000

Dividend – Smarte Smarte Cash/Dividends receivable Investment in Smarte

0

Amortization of Allocated excess: Equity in Subsidiary Income Investment in Smarte

0

0

0

Realized Profit in BI : Investment in Smarte Equity in Subsidiary Income

36,000

Unrealized Profit in EI: Equity in Subsidiary Income Investment in Smarte

50,000

36,000

50,000

3. Downstream Sales 20x4 Sales………………………………………………………………………………… 1,080,000 Purchases (Cost of Goods Sold)……………………………………... Sold)……………………………………... 1,080,000 **100% UPEI of S: Cost of Sales (Ending Inventory in I ncome Statement) [216,000 – (216,000/1.20)]………..………………………………………….. – (216,000/1.20)]………..………………………………………….. 36,000 Inventory (Ending Inventory in Balance Sheet)…………………….. Sheet)……………………..

36,000

20x5 100% Interscompany Sales Sales………………………………………… Sales………………………………………………………………… ……………………………………….1,200,000 ……………….1,200,000 Purchases (Cost of Goods Sold) ………………………………….. 1,200,000 Downstream Sales: *100% RPBI of S: Retained Earnings – P, – P, beginning…………………… beginning………………………………………..... …………………..... 36,000 Cost of Sales (Beginning Inventory in Income Statement)….. **100% UPEI of S: Cost of Sales (Ending Inventory in Income Statement) [300,000 – (300,000/1.20)]………..………………………………………….. – (300,000/1.20)]………..………………………………………….. 15,000 Inventory (Ending Inventory in Balance Sheet)……………….. Sheet)………………..

36,000

15,000

Problem II 1. Consolidated Net Income for 20x5 P Company’s net income income from own/separate own/separate operations…………. Realized profit in beginning inventory of S Company (downstream sales) Unrealized profit in ending inventory of S Company (downstream sales)… P Company’s realized realized net income from separate operations*…….….. operations*…….….. S Company’s net income from own operations…………………………………. Realized profit in beginning inventory of P Company (upstream sales) Unrealized profit in ending inventory of P Company (upstream sales)… Son Company’s realized net income from separate operations*…….….. Total Less: Amortization of allocated excess…………………… Consolidated Net Income for 20x5

P 1,720,000 0 (_ 0) P 1, 720,000 P 600,000 40,000 ( 51,00 0) P 589,000

589,000 P2,309,000 0 P2,309,000

Less: Non-controlling Interest in Net Income* * Controlling Interest in Consolidated Net Income or Profit attributable attributable to – 20x5………….. equity holders of parent – 20x5………….. *that has been realized in transactions with third parties.

58,900 P 2,250,100

Beginning inventory: P800,000 x 1/4 = P200,000 x 25/125 = P40,000 profit Ending inventory: P1,020,000 x ¼ = P255,000 x 25/125 = P51,000 profit

Or, alternatively Consolidated Net Income for 20x5 P Company’s net in come from own/separate operations…………. Realized profit in beginning inventory of S Company (downstream sales) Unrealized profit in ending inventory of S Company (downstream sales)… P Company’s realized net income from separate operations*…….….. S Company’s net income from own operations…………………………………. Realized profit in beginning inventory of P Company (upstream sales) Unrealized profit in ending inventory of P Company (upstream sales)… S Company’s realized net income from separate operations*…….….. Total Less: Non-controlling Interest in Net Income* * Amortization of allocated excess…………………… Controlling Interest in Consolidated Net Income or Profit attributable attributable to equity holders of parent………….. Add: Non-controlling Interest in Net Income (NCINI) Consolidated Net Income for 20x5 *that has been realized in transactions with third parties. **Non-controlling Interest in Net Income (NCINI) (NCINI) for 20x5 S Company’s net income of Subsidiary Company from its own operations (Reported net income of Son Company) Realized profit in beginning inventory of P Company (upstream sales) Unrealized profit in ending inventory of P Company (upstream sales) Son Company’s realized net income from separate operations……… Less: Amortization of allocated excess Multiplied by: Non-controlling interest %.......... %.......... Non-controlling Interest in Net Income (NCINI)

P 1,720,000 0 (________0) P1,720,,000 P 600,000 40,000 ( 51,000) P589,000 P 58,900 0

589,000 P2,309,000 __58,900 P2,250,100 _ 58,900 P 2,309,000

P600,000 40,000 ( 51,000) P589,000 _____0 P589,000 10% P 58,900

2. Books of Pinta (a) Cost Method 20x4 Dividend – Simplex Simplex Company: None, since, there is no amount given 20x5 Dividend – Simplex Simplex Company: None, since, there is no amount given (b) Equity Method 20x4 Net income – Simplex Simplex Investment in Simplex (600,000 x 90%) Equity in Subsidiary Income

540,000 540,000

Dividend – Simplex Simplex Cash/Dividends receivable Investment in Simplex

0

Amortization of Allocated excess: Equity in Subsidiary Income Investment in Simplex

0

Realized Profit in BI : Investment in Simplex Equity in Subsidiary Income Unrealized Profit in EI: Investment in Simplex (40,000 x 90%)

0

0

0 0

36,000

Equity in Subsidiary Income 20x5 Net income – Simplex Investment in Simplex (600,000 x 90%) Equity in Subsidiary Income

3.

36,000

540,000 540,000

Dividend – Simplex Cash/Dividends receivable Investment in Simplex

0

Amortization of Allocated excess: Equity in Subsidiary Income Investment in Simplex

0

0

0

Realized Profit in BI : Investment in Simplex (40,000 x 90%) Equity in Subsidiary Income

36,000

Unrealized Profit in EI: Investment in Simplex (51,000 x 90%) Equity in Subsidiary Income

45,900

36,000

45,900

Upstream Sales: 100% Interscompany Sales Sales…………………………………………………………………………………1,020,000 1,020,000 Purchases (Cost of Sales)………………………………………. ……. To eliminate intercompany sales.

***100% RPBI of P: (if e quity method Investment in S instead of RE – P, beg.) Retained Earnings – P, beginning (90% x P40,000)……………...…. 36,000 NCI ……………………………………………….…………………………. 4,000 Cost of Sales (Beginning Inventory in Income Statement) 40,000 To recognize unrealized profit in beginning inventory realized during the year. ****100% UPEI of P: Cost of Sales (Ending Inventory in Income Statement)………………51,000 Inventory (Ending Inventor y in Balance Sheet)……………… To eliminate unrealized intercompany profit in ending inventory.

51,000

Problem III 1. Non-controlling Interest in Net Income (NCINI) for 20x4 S Company’s net income of Subsidiary Company from its own operations (Reported net income of Son Company) Realized profit in beginning inventory of P Company (upstream sales): P525,000 x 25/125 Unrealized profit in ending inventory of P Company (upstream sales): P1,250,000 x 25/125 Son Company’s realized net income from separate operations……… Less: Amortization of allocated excess Multiplied by: Non-controlling interest %.......... Non-controlling Interest in Net Income (NCINI)

P3,000,000 105,000 ( 250,000) P 2,855,000 _____0 P3,055,000 20% P 571,000

2 .Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent – 20x5 – cannot be solved, since there is no net income from separate operations for P Company. Incidentally, the eliminating entries are as follows: Sales Cost of Goods Sold

Cost of Goods Sold Ending Inventory (Balance Sheet) [P1,250,000 - (P1,250,000/1.25)] Retained Earnings, beginning – P Company (80%) Noncontrolling interest (20%) Cost of Goods Sold (Beginning Inventory) [P525,000 – (P525,000/1.25)] = P105,000

4,000,000 4,000,000 250,000 250,000 84,000 21,000 105,000

3. Stockholders’ equi ty – Subsidiary Company, December 31, 20x4 Adjustments to reflect fair value - (over) undervaluation of assets and

P5,400,000

liabili ties, date of acquisition (January 1, 20x4) Amortization of allocated excess (refer to amortization above) – 20x4 Fair value of stockholders’ equity of subsidiary, December 31, 20x4…… Less: Unrealized profit in ending inventory of P Company (upstream sales) Realized stockholders’ equity of subsidiary, December 31, 20x4…… Multiplied by: Non- controlling Interest percentage…………... Non-controlling interest (in net assets)……………………………..

0 ( 0) P5,400,000 250,000 P5,150,000 20 P1,030,000

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

Fair value of Subsidiary (80%) Consideration transferred……………………………….. Less: Book value of stockholders’ equity of Son: Common stock (P240,000 x 80%)……………………. Retained earnings (P120,000 x 80%)………………... Allocated excess (excess of cost over book value)….. Less: Over/under valuation of assets and liabilities: Increase in inventory (P6,000 x 80%)……………… Increase in land (P7,200 x 80%)……………………. Increase in equipment (P96,000 x 80%) Decrease in buildings (P24,000 x 80%)………..... Decrease in bonds payable (P4,800 x 80%)…… Positive excess: Partial-goodwill (excess of cost over fair value)………………………………………………...

P 372,000 P 192,000 96,000 P P 4,800 5,760 76,800 ( 19,200) 3,840

288,000 84,000

72,000 P 12,000

The over/under valuation of assets and liabilities are summarized as follows: Inventory………………….…………….. Land……………………………………… Equipment (net)......... Buildings (net) Bonds payable………………………… Net………………………………………..

SCo. Book value P 24,000 48,000 84,000 168,000 (120,000) P 204,000

S Co. Fair value P 30,000 55,200 180,000 144,000 ( 115,200) P 294,000

(Over) Under Valuation P 6,000 7,200 96,000 (24,000) 4,800 P 90,000

The buildings and equipment will be further analyzed for consolidation purposes as follows: Equipment .................. Less: Accumulated depreciation….. Net book value………………………...

S Co. Book value 180,000 96,000 84,000

S Co. Fair value 180,000 180,000

Increase (Decrease) 0 ( 96,000) 96,000

Buildings................ Less: Accumulated depreciation….. Net book value………………………...

S Co. Book value 360,000 192,000 168,000

SCo. Fair value 144,000 144,000

(Decrease) ( 216,000) ( 192,000) ( 24,000)

A summary or depreciation and amortization adjustments is as follows: Account Adjustments to be amortized Inventory Subject to Annual Amortization Equipment (net)......... Buildings (net) Bonds payable…

Over/ Under P 6,000

Life 1

96,000 (24,000) 48000

8 4 4

Annual Amount P 6,000

Current Year(20x4) P 6,000

20x5 P -

12,000 ( 6,000) 1,200 P 13,200

12,000 ( 6,000) 1,200 P 13,200

12,000 (6,000) 1,200 P 7,200

The goodwill impairment loss of P3,750 based on 100% fair value would be allocated to the controlling interest and the NCI based on the percentage of total goodwill each equity interest received. For purposes of allocating the goodwill impairment loss, the full-goodwill is computed as follows: Fair value of Subsidiary (100%) Consideration transferred: Cash (80%)

P 372,000

Fair value of NCI (given) (20%)

93,000

Fair value of Subsidiary (100%)

P 465,000

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

__360,000 P

Allocated excess (excess of cost over book value)….. Add (deduct): (Over) under valuation of assets and liabilities (P90,000 x 100%) Positive excess: Full-goodwill (excess of cost over fair value)………………………………………………...

105,000 90,000

P

15,000

In this case, the goodwill was proportional to the controlling interest of 80% and non-controlling interest of 20% computed as follows:

Goodwill applicable to parent………………… Goodwill applicable to NCI…………………….. Total (full) goodwill………………………………..

Value P12,000 3,000 P15,000

% of Total 80.00% 20.00% 100.00%

Value P 3,000

% of Total 80.00%

750

20.00%

P 3,750

100.00%

The goodwill impairment loss would be allocated as follows Goodwill impairment loss attributable to parent or controlling Interest Goodwill applicable to NCI…………………….. Goodwill impairment loss based on 100% fair value or fullGoodwill

The unrealized profits on January 1, and on December 31, 20x5, resulting intercompany sales, are as summarized below: Downstream Sales: Year 20x4 20x5

Sales of Parent to Subsidiary P150,000 120,000

Intercompany Merchandise in 12/31 Inventory of S Company P150,000 x 60% = P90,000 P120,000 x 80% = P96,000

Unrealized Intercompany Profit in Ending Inventory P90,000 x 20% = P18,000 P96,000 x 25% = P40,000

Intercompany Merchandise in 12/31 Inventory of S Company P100,000 x 50% = P25,000 P 62,500 x 40% = P25,000

Unrealized Intercompany Profit in Ending Inventory P25,000 x 40% = P10,000 P25,000 x 20% = P 5,000

Upstream Sales: Year 20x4 20x5

Sales of Subsidiary to Parent P 50,000 62,500

20x4: First Year after Acquisition Parent Company Cost Model Entry January 1, 20x4: (1) Investment in S Company…………………………………………… Cash…………………………………………………………………….. Acquisition of S Company. January 1, 20x4 – December 31, 20x4: (2) Cash……………………… Dividend income (P36,000 x 80%)……………. Record dividends from S Company.

372,000 372,000

28,800 28,800

No entries are made on the parent’s books to depreciate, amortize or write -off the portion of the allocated excess that expires during 20x4, and unrealized profits in ending inventory. Consolidation Workpaper – Year of Acquisition (E1) Common stock – S Co………………………………………… Retained earnings – S Co…………………………………… Investment in S Co…………………………………………… Non-controlling interest (P360,000 x 20%)……………………….. To eliminate intercompany investment and equity accounts of subsidiary on date of acquisition; and to establish non-controlling interest (in net assets of subsidiary) on date of acquisition.

240,000 120.000 288,000 72,000

(E2) Inventory…………………………………………………………………. Accumulated depreciation – equipment……………….. Accumulated depreciation – buildings………………….. Land………………………………………………………………………. Discount on bonds payable…………………………………………. Goodwill…………………………………………………………………. Buildings……………………………………….. Non-controlling interest (P90,000 x 20%)……………………….. Investment in Son Co……………………………………………….

6,000 96,000 192,000 7,200 4,800 12,000 216,000 18,000 84,000

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

(E3) Cost of Goods Sold……………. Depreciation expense……………………….. Accumulated depreciation – buildings………………….. Interest expense………………………………… Goodwill impairment loss………………………………………. Inventory………………………………………………………….. Accumulated depreciation – equipment……………….. Discount on bonds payable………………………… Goodwill……………………………………

6,000 6,000 6,000 1,200 3,000 6,000 12,000 1,200 3,000

To provide for 20x4 impairment loss and depreciation and amortization on differences between acquisition date fair value and book value of S’s identifiable assets and liabilities as follows:

Inventory sold Equipment Buildings Bonds payable Totals

Cost of Goods Sold P 6,000

_______ P 6,000

Depreciation/ Amortization Expense

Amortization -Interest

P 12,000 ( 6,000) _______ P 2,000

P 1,200 P1,200

Total

13,200

(E4) Dividend income - P ………. Non-controlling interest (P36,000 x 20%)……………….. Dividends paid – S……………………

28,800 7,200 36,000

To eliminate intercompany dividends and non-controlling interest share of dividends.

150,000

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

150,000

To eliminated intercompany downstream sales.

60,000


60,000

To eliminated intercompany upstream sales.

(E7) Cost of Goods Sold (Ending Inventory – Income Statement)… Inventory – Balance Sheet……

18,000 18,000

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


12,000 12,000

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

(E9) Non- controlling interest in Net Income of Subsidiary………… Non-controlling interest ………….. To establish non-controlling interest in subsidiary’s adjusted net income for 20x4 as follows: Net income of subsidiary…………………….. Unrealized profit in ending inventory of P Company (upstream sales)……………………….. S Company’s realized net income from separate operations*…….….. Less: Amortization of allocated excess [(E3)]….

P 60,000 ( 12,000) P 48,000 13,200

6,960 6,960

Multiplied by: Non-controlling interest %.......... Non-controlling Interest in Net Income (NCINI) – partial goodwill

P 34,800 20% P

6,960

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

Sales

P Co P480,000

S Co. P240,000

Dividend income Total Revenue Cost of goods sold

28,800 P508,800 P204,000

P240,000 P138,000

Depreciation expense Interest expense Other expenses Goodwill impairment loss Total Cost and Expenses Net Income NCI in Net Income - Subsidiary Net Income to Retained Earnings

60,000 48,000 P312,000 P196,800 P196,800

24,000 18,000 P180,000 P 60,000 P 60,000

Statement of Retained Earnings Retained earnings, 1/1 P Company S Company Net income, from above Total Dividends paid P Company S Company Retained earnings, 12/31 to Balance Sheet Balance Sheet Cash………………………. Accounts receivable…….. Inventory………………….

Land……………………………. Equipment Buildings Discount on bonds payable Goodwill…………………… Investment in S Co………

Total Accumulated depreciation - equipment Accumulated depreciation - buildings Accounts payable…………… Bonds payable………………… Common stock, P10 par……… Common stock, P10 par……… Retained earnings, from above Non-controlling interest…………

Total

Dr. (5) 150,000 (6) 60,000 (4) 36,000 (3) (7) (8) (3) (3)

6,000 18,000 12,000 6,000 1,200

(3)

3,000

(9)

Cr.

_________ P 510,000 P 168,000

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

90,000 1,200 66,000 3,000 P328,200 P181,800 ( 6,960) P174,840

6,960

P360,000

P

Consolidated P 510,000

P

196,800 P556,800

P120,000 __60,000 P180,000

72,000 -

__36,000

P484,800

360,000

(1) 120,000 174,840 P534,840

_

72,000 ________

P144,000

P

462,840

232,800 90,000 120,000

P 90,000 60,000 90,000

P

355,200 150,000

210,000 240,000 720,000

48,000 180,000 540,000

(4)

(2)

6,000

(2)

7,200

(2) (2)

4,800 12,000

372,000 P1,984,800

P1,008,000

P 135,000 405,000

P 96,000 288,000

120,000 240,000 600,000

120,000 120,000

484,800

240,000 144,000

_________ P1,008,000

6,000 18,000 12,000

(2) 216,000 (3) 12000 (3) 3,000 (1) 288,000 (2) 84,000

(2) 96,000 (3) (2) 192,000 (3) 6,000

12,000

180,000 265,200 420,000 1,044,000 3,600 9,000 P2,394,600

P147,000 495,000 240,000 360,000 600,000

(1) 240,000 462,840 (4)

_________ P1,984,800

(3) (7) (8)

36,000

7,200

__________ P 983,160

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

(1 ) 72,000 (2) 18,000 (9) 6,960 P 983,160

____89,760 P2,394,600

P168,000 ( 18,000) P150,000 P 60,000 ( 12,000) P 48,000

48,000

Total Less: Non-controlling Interest in Net Income* * Amortization of allocated excess (refer to amortization above) Goodwill impairment (impairment under partial-goodwill approach) Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent………….. Add: Non-controlling Interest in Net Income (NCINI) Consolidated Net Income for 20x4 *that has been realized in transactions with third parties.

P198,000 P 6,960 13,200 3,000

23,160 P174,840 _ 6,960 P181.800

**Non-controlling Interest in Net Income (NCINI) for 20x4 S Company’s net income of Subsidiary Company from its own operations (Reported net income of S Company) Unrealized profit in ending inventory of P Company (upstream sales) S Company’s realized net income from separate operations……… Less: Amortization of allocated excess

P 60,000 ( 12,000) P 48,000 13,200 P 34,800 20% P 6,960

Multiplied by: Non-controlling interest %.......... Non-controlling Interest in Net Income (NCINI) – partial goodwill *that has been realized in transactions with third parties.

Since NCI share of goodwill is not recognized, no adjustment is required for the impairment loss on goodwill and impairment losses are not shared with NCI. 20x5: Second Year after Acquisition P Co. P 540,000 216,000 P 324,000 60,000 72,000 P 192,000 38,400 P 230,400 P 72,000

Sales Less: Cost of goods sold Gross profit Less: Depreciation expense Other expense Net income from its own separate operations Add: Dividend income Net income Dividends paid

S Co. P 360,000 192,000 P 168,000 24,000 54,000 P 90,000 P 90,000 P 48,000

No goodwill impairment loss for 20x5. 20x5: Parent Company Cost Model Entry

Only a single entry is recorded by the parent in 20x5 in relation to it s subsidiary investment: January 1, 20x5 – December 31, 20x5: Cash……………………… Dividend income (P48,000 x 80%)……………. Record dividends from S Company.

38,400 38,400

On the books of S Company, the P48,000 dividend paid was recorded as follows: Dividends paid………… Cash Dividends paid by S Co..

48,000 48,000

Consolidation Workpaper – Second Year after Acquisition (E1) Investment in S Company………………………… Retained earnings – P Company………………………

19,200 19,200

To provide entry to convert from the cost method to the equity method or the entry to establish reciprocity at the beginning of the year, 1/1/20x5, computed as follows:

Retained earnings – S Company, 1/1/20x5 Retained earnings – S Company, 1/1/20x4 Increase in retained earnings…….. Multiplied by: Controlling interest % Retroactive adjustment

P144,000 120,000 P 24,000 80% P 19,200

(E2) Common stock – S Co………………………………………… Retained earnings – S Co., 1/1/20x5 Investment in S Co (P384,000 x 80%)………………………… Non-controlling interest (P384,000 x 20%)……………………….. To eliminate intercompany investment and equity accounts of subsidiary and to establish non-controlling interest (in net assets of subsidiary) on January 1, 20x5.

240,000 144.000 307,200 76,800

(E3) Inventory…………………………………………………………………. Accumulated depreciation – equipment……………….. .... Accumulated depreciation – buildings………………….. ... Land………………………………………………………………………. Discount on bonds payable…………………………………………. Goodwill…………………………………………………………………. Buildings……………………………………….. ......................... Non-controlling interest (P90,000 x 20%)............................ Investment in S Co……………………………………………….

6,000 96,000 192,000 7,200 4,800 12,000 216,000 18,000 84,000

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

(E4) Retained earnings – P Company, 1/1/20x5 [(P13,200 x 80%) + P3,000, impairment loss on partial-goodwill] Non-controlling interests (P13,200 x 20%)……………………. Depreciation expense……………………….. Accumulated depreciation – buildings………………….. Interest expense………………………………… Inventory………………………………………………………….. Accumulated depreciation – equipment……………….. Discount on bonds payable………………………… Goodwill……………………………………

13,560 2,640 6,000 12,000 1,200 6,000 24,000 2,400 3,000

To provide for years 20x4 and 20x5 depreciation and amortization on differences between acquisition date fair value and book value of S’s identifiable assets and liabilities as follows: Year 20x4 amounts are debited to P’s retained earnings & NCI; Year 20x5 amounts are debited to respective nominal accounts.

Inventory sold Equipment Buildings Bonds payable Sub-total Multiplied by: To Retained earnings Impairment loss Total

(20x4) Retained earnings, P 6,000 12,000 (6,000) 1,200 P13,200 80% P 10,560 3,000 P 13,560

Depreciation/ Amortization expense


P 12,000 ( 6,000) ________ P 6,000

P 1,200 P 1,200

(E5) Dividend income - P………. Non-controlling interest (P48,000 x 20%)……………….. Dividends paid – S……………………

38,400 9,600 48,000



120,000 120,000



75,000 75,000


(E8) Beginning Retained Earnings – P Company…… Cost of Goods Sold (Ending Inventory – Income Statement)

18,000 18,000

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

(E9) Beginning Retained Earnings – P Company (P12,000 x 80%) Noncontrolling interest (P12,000 x 20%)…… Cost of Goods Sold (Ending Inventory – Income Statement)

9,600 2,400 12,000

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


24,000 24,000



6,000 6,000


(E12) Non- controlling interest in Net I ncome of Subsidiary………… Non-controlling interest …………..

17,760 17,760

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

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

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

Multiplied by: Non-controlling interest %.......... Non-controlling Interest in Net Income (NCINI ) – partial goodwill P 17,760 *from separate transactions that has been realized in transactions with third persons.

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

Sales

P Co P540,000

S Co. P360,000


38,400 P578,400 P216,000

P360,000 P192,000


60,000 72,000 P348,000 P230,400 P230,400

Statement of Retained Earnings Retained earnings, 1/1 P Company

P484,800

S Company Net income, from above Total Dividends paid P Company S Company Retained earnings, 12/31 to Balance Sheet Balance Sheet Cash………………………. Accounts receivable…….. Inventory………………….

Land……………………………. Equipment Buildings Discount on bonds payable

P

24,000 54,000 P270,000 P 90,000 P 90,000

Dr. (6) 120,000 (7) 75,000 (5) 38,400

Cr.

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

(6) 120,000 (7) 75,000 (8) 18,000 (9) 12,000

(4) (4)

Consolidated P 705,000 ___________ P 705,000 213,000

6,000 1,200

P P ( P

(12) 17,760

(2) 13,560 (8) 18,000 (9) 9,600 (2) 144,000

(1) 19,200

90,000 1,200 126,000 430,200 274,800 17,760) 257,040

P 462,840

230,400 P715,200

P 144,000 90,000 P234,000

72,000 -

48,000

P643,200

P186,000

P 647,880

265,200 180,000 216,000

P 102,000 96,000 108,000

P 367,200 276,000

210,000 240,000 720,000

48,000 180,000 540,000

257,040 P 719,880

(5)

(3)

7,200

(3)

7,200

(3)

4,800

48,000

(4) 7,200 (10) 24,000 (11) 6,000

(3) 216,000 (4) 2,400

_

72,000 ________

294,000 265,200 420,000 1,044,000 2,400

Goodwill…………………… Investment in S Co………


Total

(3) (1)

372,000 P2,203,200

P1,074,000

P 150,000 450,000

P 102,000 306,000

120,000 240,000 600,000

(4) 3,000 (2) 307,200 (3) 84,000

96,000 (4) 192,000 12,000

24,000

240,000 186,000

_________ P1,074,000

9,000 P2,677,800

P180,000 552,000 240,000 360,000 600,000

120,000 120,000

643,200

___ _____ 2,203,200

(3) (3) (4)

12,000 19,200

(2) 240,000 647,880 (4) 2,640 (5) 9,600 (9) 2,400 __________ P1,077,360

(2 ) 76,800 (3) 18,000 (12) 17,760 P1,077,360

____97,920 P2,677,800

5. 1/1/20x4 a. On date of acquisition the retained earnings of parent should always be considered as the consolidated retained earnings, thus: Consolidated Retained Earnings, January 1, 20x4 Retained earnings – P Company, January 1, 20x4 (date of acquisition)

P360,000

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

P 240,000 120,000 P 360,000 90,000 P 450,000 20 P 90,000

c. Consolidated SHE: Stockholders’ Equity Common stock, P10 par Retained earnings Parent’s Stockholders’ Equity / CI - SHE NCI, 1/1/20x4 Consolidated SHE, 1/1/20x4

P 600,000 360,000 P 960,000 ___90,000 P1,050,000

6. Note: The goodwill recognized on consolidation purely relates to the parent’s share. NCI is measured as a proportion of identifiable assets and goodwill attributable to NCI share is not recognized.

12/31/20x4: a. CI-CNI – P174,840 Consolidated Net Income for 20x4 P Company’s net income from own/separate operations…………. Unrealized profit in ending inventory of S Company (downstream sales)… P Company’s realized net income from separate operations*…….….. S Company’s net income from own operations…………………………………. Unrealized profit in ending inventory of S Company (upstream sales)… S Company’s realized net income from separate operations*…….….. Total Less: Non-controlling Interest in Net Income* * Amortization of allocated excess (refer to amortization above) Goodwill impairment (impairment under partial-goodwill approach) Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent………….. Add: Non-controlling Interest in Net Income (NCINI) Consolidated Net Income for 20x4 *that has been realized in transactions with third parties.

b. NCI-CNI – P6,960 **Non-controlling Interest in Net Income (NCINI) for 20x4

P168,000 ( 18,000) P150,000 P 60,000 ( 12,000) P 48,000 P 6,960 13,200 3,000

48,000 P198,000

23,160 P174,840 _ 6,960 P181.800

S Company’s net income of Subsidiary Company from its own operations (Reported net income of S Company) Unrealized profit in ending inventory of P Company (upstream sales) S Company’s realized net income from separate operations……… Less: Amortization of allocated excess Multiplied by: Non-controlling interest %.......... Non-controlling Interest in Net Income (NCINI) – partial goodwill *that has been realized in transactions with third parties.

P 60,000 ( 12,000) P 48,000 13,200 P 34,800 20% P 6,960

c. CNI, P181,800 – refer to (a) d. On subsequent to date of acquisition, consolidated retained earnings would be computed as follows: Consolidated Retained Earnings, December 31, 20x4 Retained earnings - P Company, January 1, 20x4 (date of acquisition) Add: Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent for 20x4 Total Less: Dividends paid – P Company for 20x4 Consolidated Retained Earnings, December 31, 20x4

P360,000 174,840 P534,840 72,000 P462,840

e. The goodwill recognized on consolidation purely relates to the parent’s share. NCI is measured as a proportion of identifiable assets and goodwill attributable to NCI share is not recognized. The NCI on December 31, 20x4 are c omputed as follows: Non-controlling interest (partial-goodwill), December 31, 20x4 Common stock – Subsidiary Company, December 31, 20x4…… Retained earnings – Subsidiary Company, December 31, 20x4 Retained earnings – Subsidiary Company, January 1, 20x4 Add: Net income of subsidiary for 20x4 Total Less: Dividends paid – 20x4 Stockholders’ equity – Subsidiary Company, December 31, 20x4 Adjustments to reflect fair value - (over) undervaluation of assets and liabilities, date of acquisition (January 1, 20x4) Amortization of allocated excess (refer to amortization above) – 20x4 Fair value of stockholders’ equity of subsidiary, December 31, 20x4…… Less: Unrealized profit in ending inventory of P Company (upstream sales) Realized stockholders’ equity of subsidiary, December 31, 20x4…… Multiplied by: Non- controlling Interest percentage…………... Non-controlling interest (partial-goodwill)…………………………………..

P 240,000 P120,000 6,000 P180,000 36,000

144,000 P 384,000 90,000 ( 13,200) P460,000 12,000 P448,800 20 P 89,760

f. Consolidated SHE: Stockholders’ Equity Common stock, P10 par Retained earnings Parent’s Stockholders’ Equity / CI – SHE, 12/31/20x4 NCI, 12/31/20x4 Consolidated SHE, 12/31/20x4

P 600,000 462,840 P1,062,840 ___89,760 P1,152,600

12/31/20x5: a. CI-CNI Consolidated Net Income for 20x5 P Company’s net income from own/separate operations…………. Realized profit in beginning inventory of S Company (downstream sales) Unrealized profit in ending inventory of S Company (downstream sales)… P Company’s realized net income from separate operations*…….….. S Company’s net income from own operations…………………………………. Realized profit in beginning inventory of P Company (upstream sales) Unrealized profit in ending inventory of P Company (upstream sales)… Son Company’s realized net income from separate operations*…….….. Total Less: Amortization of allocated excess…………………… Consolidated Net Income for 20x5 Less: Non-controlling Interest in Net Income* * Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent – 20x5………….. *that has been realized in transactions with third parties.

Or, alternatively Consolidated Net Income for 20x5

P192,000 18,000 (_24,000) P186,000 P 90,000 12,000 ( 6,000) P 96,000

96,000 P282,000 7,200 P274,800 17,760 P257,040

P Company’s net income from own/separate operations…………. Realized profit in beginning inventory of S Company (downstream sales) Unrealized profit in ending inventory of S Company (downstream sales)… P Company’s realized net income from separate operations*…….….. S Company’s net income from own operations…………………………………. Realized profit in beginning inventory of P Company (upstream sales) Unrealized profit in ending inventory of P Company (upstream sales)… S Company’s realized net income from separate operations*…….….. Total Less: Non-controlling Interest in Net Income* * Amortization of allocated excess…………………… Controlling Interest in Consolidated Net Income or Profit attributable toequity holders of parent………….. Add: Non-controlling Interest in Net Income (NCINI) Consolidated Net Income for 20x5 *that has been realized in transactions with third parties.

P192,000 18,000 (_24,000) P186,000 P 90,000 12,000 ( 6,000) P 96,000 P 17,760 7,200

96,000 P282,000 24,960 P257,040 _ 17,760 P274,800

b. NCI-CNI **Non-controlling Interest in Net Income (NCINI) for 20x5 S Company’s net income of Subsidiary Company from its own operations (Reported net income of S Company) Realized profit in beginning inventory of P Company (upstream sales) Unrealized profit in ending inventory of P Company (upstream sales) S Company’s realized net income from separate operations……… Less: Amortization of allocated excess Multiplied by: Non-controlling interest %.......... Non-controlling Interest in Net Income (NCINI) – partial goodwill

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

c. CNI, P274,800 – refer to (a) d. On subsequent to date of acquisition, consolidated retained earnings would be computed as follows: Consolidated Retained Earnings, December 31, 20x5 Retained earnings - Parent Company, January 1, 20x5 (cost model Less: Unrealized profit in ending i nventory of S Company (downstream sales) – 20x4 (UPEI of S – 20x4) or Realized profit in beginning inventory of S Company (downstream sales) – 20x5 (RPBI of S - 20x5)……………. Adjusted Retained Earnings – Parent 1/1/20x5 (cost model (S Company’s Retained earnings that have been realized in transactions with third parties.. Adjustment to convert from cost model to equity method for purposes of consolidation or to establish reciprocity:/Parent’s share in adjusted net increased in subsidiary’s retained earnings: Retained earnings – Subsidiary, January 1, 20x5 Less: Retained earnings – Subsidiary, January 1, 20x4 Increase in retained earnings since date of acquisition Less: Amortization of allocated excess – 20x4 Unrealized profit in ending inventory of P Company (upstream sales) 20x4 (UPEI of P – 20x4) or Realized profit in beginning inventory of P Company (upstream sales) – 20x5 (RPBI of P - 20x5) Multiplied by: Controllin g interests %...................

P484,800

18,000

P466,800

P 144,000 120,000 P 24,000 13,200

12,000 (P 1,200) 80% (P 960) 3,000

Less: Goodwill impairment loss, partial goodwill ( 3,960) Consolidated Retained earnings, January 1, 20x5 P462,840 Add: Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent for 20x5 257,040 Total P748,680 Less: Dividends paid – Parent Company for 20x5 72,000 Consolidated Retained Earnings, December 31, 20x5 P647,880 *this procedure would be more appropriate, instead of multiplying the full-goodwill impairment loss of P3,125 by 80%. There might be situations where the controlling interests on goodwill impairment loss would not be proportionate to NCI acquired (refer to Illustration 15-6).

Or, alternatively: Consolidated Retained Earnings, December 31, 20x5 Retained earnings - Parent Company, December 31, 20x5 (cost model Less: Unrealized profit in ending i nventory of S Company (downstream sales) – 20x5 (UPEI of S – 20x5) or Realized profit in beginning inventory of S Company (downstream sales) – 20x6 (RPBI of S - 20x6)……………. Adjusted Retained Earnings – Parent 12/31/20x5 (cost model ( S Company’s Retained earnings that have been realized in transactions with third parties.. 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:

P643,200

24,000

P619,200

Retained earnings – Subsidiary, December 31, 20x5 Less: Retained earnings – Subsidiary, January 1, 20x4 Increase in retained earnings since date of acquisition Less: Accumulated amortization of allocated excess – 20x4 and 20x5 (P11,000 + P6,000) Unrealized profit in ending inventory of P Company (upstream sales) 20x5 (UPEI of P – 20x5) or Realized profit in beginning inventory of P Company (upstream sales) – 20x6 (RPBI of P - 20x6)

P 186,000 120,000 P 66,000 20,400

6,000 39,600 80% 31,680 3,000

P Multiplied by: Controllin g interests %................... P Less: Goodwill impairment loss, partial goodwill Consolidated Retained earnings, December 31, 20x5

28,680 P647,880

e. Non-controlling interest (partial-goodwill), December 31, 20x5 Common stock – Subsidiary Company, December 31, 20x5…… P 240,000 Retained earnings – Subsidiary Company, December 31, 20x5 Retained earnings – Subsidiary Company, January 1, 20x5* P144,000 Add: Net income of subsidiary for 20x5 90,000 Total P234,000 Less: Dividends paid – 20x5 48,000 186,000 Stockholders’ equity – Subsidiary Company, December 31, 20x5 P 426,000 Adjustments to reflect fair value - (over) undervaluation of assets and liabilities, date of acquisition (January 1, 20x4) 90,000 Amortization of allocated excess (refer to amortization above) : 20x4 P 13,200 20x5 7,200 ( 20,400) Fair value of stockholders’ equity of subsidiary, December 31, 20x5…… P 495,600 Less: Unrealized profit in ending i nventory of P Company (upstream sales) 20x5 (UPEI of P – 20x5) or Realized profit in beginning inventory of P Company (upstream sales) – 20x6 (RPBI of P - 20x6 6,000 Realized stockholders’ equity of subsidiary, December 31, 20x5………. P489,600 Multiplied by: Non-controlling Interest percentage…………... 20 Non-controlling interest (partial goodwill)………………………………….. P 97,920 * the realized profit in beginning inventory of P Company (upstream sales) – 20x5 (RPBI of P - 20x5 amounting to P10,000 is already included in the beginning retained earnings of S Company.

f. Consolidated SHE: Stockholders’ Equity Common stock, P10 par Retained earnings Parent’s Stockholders’ Equity / CI – SHE, 12/31/20x4 NCI, 12/31/20x4 Consolidated SHE, 12/31/20x4

P 600,000 647,880 P1,247,880 ___97,920 P1,345,800

Problem V 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%)…………….. Fair value of NCI (given) (20%)……………….. Fair value of Subsidiary (100%)………. Less: Book value of stockholders’ equity of Son: Common stock (P240,000 x 100%)………………. Retained earnings (P120,000 x 100%)………... Allocated excess (excess of cost over book value)….. Less: Over/under valuation of assets and liabilities: Increase in inventory (P6,000 x 100%)……………… Increase in land (P7,200 x 100%)……………………. Increase in equipment (P96,000 x 100%) Decrease in buildings (P24,000 x 100%)………..... Decrease in bonds payable (P4,800 x 100%)…… Positive excess: Full-goodwill (excess of cost over fair value)………………………………………………...

P 372,000 93,000 P 465,000 P 240,000 120,000

360,000 P 105,000

P

6,000 7,200 96,000 ( 24,000) 4,800

90,000 P 15,000

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

Over/ under

Life

Annual Amount

Current Year(20x4)

20x5

Inventory Subject to Annual Amortization Equipment (net)......... Buildings (net) Bonds payable…

P 6,000

1

P 6,000

P 6,000

P

-

96,000 (24,000) 4,800

8 4 4

12,000 ( 6,000) 1,200 P 13,200

12,000 ( 6,000) 1,200 P 13,200

12,000 (6,000) 1,200 P 7,200

20x4: First Year after Acquisition Parent Company Cost Model Entry January 1, 20x4: (1) Investment in S Company…………………………………………… Cash…………………………………………………………………….. Acquisition of S Company. January 1, 20x4 – December 31, 20x4: (2) Cash……………………… Dividend income (P36,000 x 80%)……………. Record dividends from Son Company.

372,000 372,000

28,800 28,800

On the books of Son Company, the P36,000 dividend paid was recorded as follows: Dividends paid………… Cash……. Dividends paid by SCo..

36,000 36,000

No entries are made on the parent’s books to depreciate, amortize or write -off the portion of the allocated excess that expires during 20x4. Consolidation Workpaper – First Year after Acquisition (E1) Common stock – S Co………………………………………… Retained earnings – S Co…………………………………… Investment in S Co…………………………………………… Non-controlling interest (P360,000 x 20%)………………………..

240,000 120.000 288,000 72,000

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

(E2) Inventory…………………………………………………………………. Accumulated depreciation – equipment……………….. Accumulated depreciation – buildings………………….. Land………………………………………………………………………. Discount on bonds payable…………………………………………. Goodwill…………………………………………………………………. Buildings……………………………………….. Non-controlling interest (P90,000 x 20%) + [(P15,000, full – P12,000, partial goodwill)]………… Investment in Son Co……………………………………………….

6,000 96,000 192,000 7,200 4,800 15,000 216,000 21,000 84,000

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

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

6,000 6,000 6,000 1,200 3,750 6,000 12,000 1,200 3,750





P12,000 ( 6,000) _______ P 6,000

P 1,200 P1,200

_______ P 6,000


28,800 7,200 36,000


150,000


150,000


60,000


60,000



18,000 18,000



12,000 12,000


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

6,210 6,210


Net income of subsidiary…………………….. Unrealized profit in ending inventory of P Company (upstream sales)……………………….. S Company’s realized net income from separate operations*…….….. Less: Amortization of allocated excess [(E3)]….

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

P 60,000 ( 12,000) P 48,000 13,200 P 34,800 20% P 6,960

750 P

6,210

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

Sales Dividend income Total Revenue Cost of goods sold

P Co P480,000

S Co. P240,000

28,800 P451,200 P204,000

P240,000 P138,000

Dr. (5) 150,000 (6) 60,000 (4) 28,800 (3) (7)

6,000 18,000

Cr.

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

Consolidated P 510,000 _________ P 510,000 P 168,000


60,000 48,000 P312,000 P196,800 P196,800




Total

24,000 18,000 P180,000 P 60,000 P 60,000

(8) (3) (3)

12,000 6,000 1,200

(3)

3,750

(9)

6,210

90,000 1,200 66,000 3,750 P328,950 P181,050 ( 6,210) P174,840

P360,000 196,800 P556,800

P

P P120,000 60,000 P180,000

72,000 -

36,000

P484,800

360,000

(1) 120,000 174,840 P534,840

_

72,000 ________

P144,000

P

462,840

232,800 90,000 120,000

P 90,000 60,000 90,000

P

322,800 150,000

210,000 240,000 720,000

48,000 180,000 540,000

(4)

(2)

(2)

(2) (2) 372,000 P1,984,800

P1,008,000

P 135,000 405,000

P 96,000 288,000

120,000 240,000 600,000

120,000 120,000

484,800

240,000 144,000

_________ P1,008,000

6,000 18,000 12,000

(2) 216,000 4,800 (3) 1,200 15,000 (3) 3,750 (3) 288,000 (4) 84,000

(2) 96,000 (3) (6) 192,000 (7) 6,000

180,000 265,200 420,000 1,044,000 3,600 11,250 P2,396,850

12,000

P147,000 495,000 240,000 360,000 600,000

(1) 240,000 462,840 (4)

_________ P1,984,800

6,000 (3) (7) (8) 7,200

36,000

7,200

P 986,160

(1 ) 72,000 (2) 21,000 (9) 6,210 P 986,160

____92,010 P2,396,850

20x5: Second Year after Acquisition Sales Less: Cost of goods sold Gross profit Less: Depreciation expense Other expense Net income from its own separate operations Add: Dividend income Net income Dividends paid

Perfect Co. P 540,000 216,000 P 324,000 60,000 72,000 P 192,000 38,400 P 230,400 P 72,000

Son Co. P 360,000 192,000 P 168,000 24,000 54,000 P 90,000 P 90,000 P 48,000

No goodwill impairment loss for 20x5. 20x5: Parent Company Cost Model Entry Only a single entry is recorded by the parent in 20x5 in relation to its subsidiary investment: January 1, 20x5 – December 31, 20x5: Cash……………………… Dividend income (P48,000 x 80%)……………. Record dividends from S Company.

38,400 38,400

On the books of S Company, the P48,000 dividend paid was recorded as follows: Dividends paid…………

48,000

Cash Dividends paid by SCo..

48,000

Consolidation Workpaper – Second Year after Acquisition (E1) Investment in S Company………………………… Retained earnings – P Company………………………

19,200 19,200

To provide entry to convert from the cost method to the equity method or the entry to establish reciprocity at the beginning of the year, 1/1/20x5.

Retained earnings – S Company, 1/1/20x5 Retained earnings – S Company, 1/1/20x4 Increase in retained earnings…….. Multiplied by: Controlling interest % Retroactive adjustment

P144,000 120,000 P 24,000 80% P 19,200

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

240,000 144.000 307,200 76,800

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

(E3) Inventory…………………………………………………………………. Accumulated depreciation – equipment……………….. Accumulated depreciation – buildings………………….. Land………………………………………………………………………. Discount on bonds payable…………………………………………. Goodwill…………………………………………………………………. Buildings……………………………………….. Non-controlling interest (P90,000 x 20%) + [(P15,000, full – P12,000, partial goodwill)]………… Investment in S Co……………………………………………….

6000 96,000 192,000 7,200 4,800 15,000 216,000 21,000 84,000

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

(E4) Retained earnings – P Company, 1/1/20x5 (P16,950 x 80%) Non-controlling interests (P16,950 x 20%)……………………. Depreciation expense……………………….. Accumulated depreciation – buildings………………….. Interest expense………………………………… Inventory………………………………………………………….. Accumulated depreciation – equipment……………….. Discount on bonds payable………………………… Goodwill……………………………………

13,560 3,390 6,000 12,000 1,200 6,000 24,000 2,800 3,750

To provide for years 20x4 and 20x5 depreciation and amortization on differences between acquisition date fair value and book value of Son’s identifiable assets and liabilities as follows: Year 20x4 amounts are debited to Perfect’s retained earnings and NCI. Year 20x5 amounts are debited to respective nominal accounts..

Inventory sold Equipment Buildings Bonds payable Impairment loss Totals Multiplied by: CI%.... To Retained earnings

(20x4) Retained earnings, P 6,000 12,000 (6,000) 1,200 3,750 P 16,950 80% P13,560

Depreciation/ Amortization expense P


12,000 ( 6,000) P 1,200 P 6,000

P1,200


38,400 9,600 48,000


(E6) Sales……………………….

120,000

Cost of Goods Sold (or Purchases)

120,000


75,000


75,000


(E8) Beginning Retained Earnings – P Company…… Cost of Goods Sold (Ending Inventory – Income Statement)

18,000 18,000


(E9) Beginning Retained Earnings – P Company (P12,000 x 80%) Noncontrolling interest (P12,000 x 20%)…… Cost of Goods Sold (Ending Inventory – Income Statement)

9,600 2,400 12,000

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


24,000 24,000



6,000 6,000



17,760 17,760


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

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

Multiplied by: Non-controlling interest %.......... Non-controlling Interest in Net Income (NCINI) partial goodwill Less: NCI on goodwill impairment loss on fullGoodwill 0 Non-controlling Interest in Net Income (NCINI) – full goodwill P 17,760 *from separate transactions that has been realized in transactions with third persons.

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

Sales

P Co P540,000

S Co. P360,000


38,400 P574,800 P216,000

P360,000 P192,000

Depreciation expense Interest expense Other expenses Goodwill impairment loss Total Cost and Expenses Net Income

60,000 72,000 P348,000 P230,400

24,000 54,000 P270,000 P 90,000

Dr. (6) 120,000 (7) 75,000 (5) 38,400

Cr.

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

(6) 120,000 (7) 90,000 (8) 21,600 (9) 14,400

(4) (4)

6,000 1,200

Consolidated P 705,000 ___________ P 705,000 P 213,000

90,000 1,200 126,000 P 430,200 P 274,800

NCI in Net Income - Subsidiary Net Income to Retained Earnings

P230,400

Statement of Retained Earnings Retained earnings, 1/1 P Company

P484,800

S Company Net income, from above Total Dividends paid P Company S Company Retained earnings, 12/31 to Balance Sheet Balance Sheet Cash………………………. Accounts receivable…….. Inventory………………….



Total

P

P 90,000

(12) 17,760

(3) 13,560 (8) 18,000 (9) 96000 (5) 144,000

( 17,760) P 257,040

(4) 19,200

P 462,840

230,400 P715,200

P 144,000 90,000 P234,000

72,000 -

48,000

P643,200

P186,000

P 647,880

265,200 180,000 216,000

P 102,000 96,000 108,000

P 367,200 276,000

210,000 240,000 720,000

48,000 180,000 540,000

372,000 P2,203,200

P1,074,000

P 150,000 450,000

P 102,000 306,000

120,000 240,000 600,000

120,000 120,000

643,200

___ _____ P2,203,200

240,000 186,000

_________ P1,074,000

257,040 P 719,880

(5)

(6)

6,000

(3)

7,200

(3) (3) (1)

4,800 15,000 19,200

(3) (3) (4)

48,000

_

(4) 6,000 (10) 24,000 (11) 6,000

294,000 265,200 420,000 1,044,000 2,400 11,250

(3) 216,000 (4) 2,400 (4) 3,750 (2) 307,200 (3) 84,000

96,000 (4) 192,000 12,000

72,000 ________

P2,680,050

24,000

P180,000 552,000 240,000 360,000 600,000

(2) 240,000 647,880 (4) 3,390 (8) 9,600 (9) 2,400 __________ P1,081,110

(2 ) 76,800 (3) 21,000 (12) 17,760 P1,081,110

____100,170 P2,680,050

5. 1/1/20x4 a. On date of acquisition the retained earnings of parent should always be considered as the consolidated retained earnings, thus: Consolidated Retained Earnings, January 1, 20x4 Retained earnings - Parent Company, January 1, 20x4 (date of acquisition)

P360,000

b. Non-controlling interest (partial-goodwill), January 1, 20x4 Common stock – Subsidiary Company…………………………………… Retained earnings – Subsidiary Company…………………………………. Stockholders’ equity – Subsidiary Company.………….. Adjustments to reflect fair value - (over) undervaluation of assets and liabilities Fair value of stockholders’ equity of subsidiary, January 1, 20x4………………… Multiplied by: Non- controlling Interest percentage…………... Non-controlling interest (partial)………………………………….. Add: Non-controlling interests on full goodwill, 1/1/20x4 (P12,500, full-goodwill – P10,000, partial goodwill) Non-controlling interest (full-goodwill)

P 240,000 120,000 P 360,000 90,000 P 450,000 20 P 90,000 3,000 P 93,000

c. Consolidated SHE: Stockholders’ Equity Common stock, P10 par Retained earnings Parent’s Stockholders’ Equity / CI - SHE NCI, 1/1/20x4 Consolidated SHE, 1/1/20x4

P 600,000 360,000 P 960,000 ___93,000 P1,053,000

6. Note: The goodwill recognized on consolidation purely relates to the parent’s share. NCI is measured as a proportion of identifiable assets and goodwill attributable to NCI share is not recognized. 12/31/20x4: a. CI-CNI – P174,840 Consolidated Net Income for 20x4 P Company’s net income from own/separate operations…………. Unrealized profit in ending inventory of S Company (downstream sales)… Perfect Company’s realized net income from separate operations*…….….. S Company’s net income from own operations…………………………………. Unrealized profit in ending inventory of S Company (upstream sales)… Son Company’s realized net income from separate operations*…….….. Total Less: Non-controlling Interest in Net Income Amortization of allocated excess (refer to amortization above) Goodwill impairment (impairment under full-goodwill approach) Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent………….. Add: Non-controlling Interest in Net Income (NCINI) Consolidated Net Income for 20x4 *that has been realized in transactions with third parties.

P168,000 ( 18,000) P150,000 P 60,000 ( 12,000) P 48,000 P 6,1210 13,200 3,750

48,000 P198,000

23,160 P174,840 _ 6,210 P181.050

b. NCI-CNI – P6,210 **Non-controlling Interest in Net Income (NCINI) for 20x4 S Company’s net income of Subsidiary Company from its own operations (Reported net income of S Company) Unrealized profit in ending inventory of P Company (upstream sales) S Company’s realized net income from separate operations……… Less: Amortization of allocated excess Multiplied by: Non-controlling interest %.......... Non-controlling Interest in Net Income (NCINI) – partial Less: Non-controlling interest on impairment loss on full-goodwill (P3,750 x 20%) or (P3,750 impairment on full-goodwill less P3,000, impairment on partial- goodwill) Non-controlling Interest in Net Income (NCINI) *that has been realized in transactions with third parties.

P 60,000 ( 12,000) P 48,000 13,200 P 34,800 20% P 6,960

P

750 6,210

c. CNI – P181,050 – refer to (a) d. On subsequent to date of acquisition, consolidated retained earnings would be computed as follows: Consolidated Retained Earnings, December 31, 20x4 Retained earnings - Parent Company, January 1, 20x4 (date of acquisition) Add: Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent for 20x4 Total Less: Dividends paid – Parent Company for 20x4 Consolidated Retained Earnings, December 31, 20x4

P360,000 174,840 P534,840 72,000 P462,840

e. Non-controlling interest ), December 31, 20x4 Common stock – Subsidiary Company, December 31, 20x4…… Retained earnings – Subsidiary Company, December 31, 20x4 Retained earnings – Subsidiary Company, January 1, 20x4 Add: Net income of subsidiary for 20x4 Total Less: Dividends paid – 20x4 Stockholders’ equity – Subsidiary Company, December 31, 20x4 Adjustments to reflect fair value - (over) undervaluation of assets and liabilities, date of acquisition (January 1, 20x4) Amortization of allocated excess (refer to amortization above) – 20x4 Fair value of stockholders’ equity of subsidiary, December 31, 20x4…… Less: Unrealized profit in ending inventory of P Company (upstream sales) Realized stockholders’ equity of subsidiary, December 31, 20x4…… Multiplied by: Non-controlling Interest percentage…………... Non-controlling interest (partial-goodwill)………………………………….. Add: Non-controlling interest on full goodwill , net of impairment loss, 12/31/x4: [(P15,000 full – P12,000, partial = P3,000) – P750 impairment loss Non-controlling interest (full-goodwill)……………..

P 240,000 P120,000 60,000 P180,000 36,000

90,000 ( 13,200) P460,800 12,000 P448,800 20 P 89,760 2,250 P 92,010

f. Consolidated SHE: Stockholders’ Equity Common stock, P10 par

144,000 P 384,000

P 600,000

Retained earnings Parent’s Stockholders’ Equity / CI - SHE NCI, 1/1/20x4 Consolidated SHE, 1/1/20x4

462,840 P1,062,840 ___92,010 P1,154,840

12/31/20x5: a. CI-CNI – P257,040 Consolidated Net Income for 20x5 P Company’s net income from own/separate operations…………. Realized profit in beginning inventory of S Company (downstream sales) Unrealized profit in ending inventory of S Company (downstream sales)… P Company’s realized net income from separate operations*…….….. S Company’s net income from own operations…………………………………. Realized profit in beginning inventory of P Company (upstream sales) Unrealized profit in ending inventory of P Company (upstream sales)… S Company’s realized net income from separate operations*…….….. Total Less: Amortization of allocated excess…………………… Consolidated Net Income for 20x5 Less: Non-controlling Interest in Net Income* * Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent – 20x5………….. *that has been realized in transactions with third parties.

P192,000 18,000 (_24,000) P186,000 P 90,000 12,000 ( 6,000) P 96,000

96,000 P282,000 7,200 P274,800 17,760 P257,040

Or, alternatively Consolidated Net Income for 20x5 P Company’s net income from own/separate operations…………. Realized profit in beginning inventory of S Company (downstream sales) Unrealized profit in ending inventory of S Company (downstream sales)… P Company’s realized net income from separate operations*…….….. S Company’s net income from own operations…………………………………. Realized profit in beginning inventory of P Company (upstream sales) Unrealized profit in ending inventory of P Company (upstream sales)… Son Company’s realized net income from separate operations*…….….. Total Less: Non-controlling Interest in Net Income* * Amortization of allocated excess…………………… Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent………….. Add: Non-controlling Interest in Net Income (NCINI) Consolidated Net Income for 20x5 *that has been realized in transactions with third parties.

P192,000 18,000 (_24,000) P186,000 P 90,000 12,000 ( 6,000) P 96,000 P 17,760 7,200

96,000 P282,000 24,960 P257,040 _ 17,760 P274,800

b. NCI-CNI – P16,560 **Non-controlling Interest in Net Income (NCINI) for 20x5 S Company’s net income of Subsidiary Company from its own operations (Reported net income of S Company) Realized profit in beginning inventory of P Company (upstream sales) Unrealized profit in ending inventory of P Company (upstream sales) S Company’s realized net income from separate operations……… Less: Amortization of allocated excess Multiplied by: Non-controlling interest %.......... Non-controlling Interest in Net Income (NCINI) – partial goodwill Less: NCI on goodwill impairment loss on full goodwill Non-controlling Interest in Net Income (NCINI) – full goodwill

P 90,000 12,000 ( 6,000) P 96,000 7,200 P 88,800 20% P 17,760 0 P 17,760

c. CNI, P274,800 – refer to (a) d. On subsequent to date of acquisition, consolidated retained earnings would be computed as follows: Consolidated Retained Earnings, December 31, 20x5 Retained earnings - Parent Company, January 1, 20x5 (cost model Less: Unrealized profit in ending i nventory of S Company (downstream sales) – 20x4 (UPEI of S – 20x4) or Realized profit in beginning inventory of S Company (downstream sales) – 20x4 (RPBI of S - 20x5)……………. Adjusted Retained Earnings – Parent 1/1/20x5 (cost model (S Company’s Retained earnings that have been realized in transactions with third parties.. Adjustment to convert from cost model to equity method for purposes of consolidation or to establish reciprocity:/Parent’s share in adjusted net increased in subsidiary’s retained earnings: Retained earnings – Subsidiary, January 1, 20x5 Less: Retained earnings – Subsidiary, January 1, 20x4

P484,800

18,000

P466,800

P 144,000 120,000

Increase in retained earnings since date of acquisition Less: Amortization of allocated excess – 20x4 Unrealized profit in ending inventory of P Company (upstream sales) 20x4 (UPEI of P – 20x4) or Realized profit in beginning inventory of P Company (upstream sales) – 20x5 (RPBI of P - 20x5) Multiplied by: Controllin g interests %...................

P 24,000 13,200

12,000 (P 1,200) 80% (P 960)

Less: Goodwill impairment loss (full-goodwill), net (P3,750 – P750)* or (P3,750 x 80%) 3,000 ( 3,960) Consolidated Retained earnings, January 1, 20x5 P462,840 Add: Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent for 20x5 257,040 Total P719,880 Less: Dividends paid – Parent Company for 20x5 72,000 Consolidated Retained Earnings, December 31, 20x5 P647,880 *this procedure would be more appropriate, instead of multiplying the full-goodwill impairment loss of P3,750 by 80%. There might be situations where the controlling interests on goodwill impairment loss would not be proportionate to NCI acquired (refer to Illustration 15-6).

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

P643,200

24,000

P619,200

P 186,000 120,000 P 66,000 20,400

P Multiplied by: Controllin g interests %................... P Less: Goodwill impairment loss (full-goodwill), net (P3,750 – P750)* or (P3,750 x 80%) Consolidated Retained earnings, December 31, 20x5

6,000 39,600 80% 31,680 3,000

28,680 P647,880

e. Non-controlling interest, December 31, 20x5 Common stock – Subsidiary Company, December 31, 20x5…… P 240,000 Retained earnings – Subsidiary Company, December 31, 20x5 Retained earnings – Subsidiary Company, January 1, 20x5* P144,000 Add: Net income of subsidiary for 20x5 90,000 Total P234,000 Less: Dividends paid – 20x5 48,000 186,000 Stockholders’ equity – Subsidiary Company, December 31, 20x5 P 426,000 Adjustments to reflect fair value - (over) undervaluation of assets and liabilities, date of acquisition (January 1, 20x4) 90,000 Amortization of allocated excess (refer to amortization above) : 20x4 P 13,200 20x5 7,200 ( 20,400) Fair value of stockholders’ equity of subsidiary, December 31, 20x5…… P 495,600 Less: Unrealized profit in ending i nventory of P Company (upstream sales) 20x5 (UPEI of P – 20x5) or Realized profit in beginning inventory of P Company (upstream sales) – 20x6 (RPBI of P - 20x6 6,000 Realized stockholders’ equity of subsidiary, December 31, 20x5………. P489,600 Multiplied by: Non-controlling Interest percentage…………... 20 Non-controlling interest (partial goodwill)………………………………….. P 97,920 Add: Non-controlling interest on full goodwill , net of impairment loss [(P15,000 full – P12,000, partial = P3,000) – P750 impairment loss 2,250 Non-controlling interest (full-goodwill)………………………………….. P 100,170 * the realized profit in beginning inventory of P Company (upstream sales) – 20x5 (RPBI of P - 20x5 amounting to P10,000 is already included in the beginning retained earnings of S Company.

f.

Consolidated SHE: Stockholders’ Equity Common stock, P10 par Retained earnings Parent’s Stockholders’ Equity / CI - SHE NCI, 1/1/20x4 Consolidated SHE, 12/31/20x5

P 600,000 647,880 P1,247,880 ___100,170 P1,348,050

Problem VI Requirements 1 to 4: Schedule of Determination and Allocation of Excess (Partial-goodwill) Date of Acquisition – January 1, 20x4 Fair value of Subsidiary (80%) Consideration transferred……………………………….. Less: Book value of stockholders’ equity of Son: Common stock (P240,000 x 80%)……………………. Retained earnings (P120,000 x 80%)………………... Allocated excess (excess of cost over book value)….. Less: Over/under valuation of assets and liabilities: Increase in inventory (P6,000 x 80%)……………… Increase in land (P7,200 x 80%)……………………. Increase in equipment (P96,000 x 80%) Decrease in buildings (P24,000 x 80%)………..... Decrease in bonds payable (P4,800 x 80%)…… Positive excess: Partial-goodwill (excess of cost over fair value)………………………………………………...

P 372,000 P 192,000 96,000 P P 4,800 5,760 76,800 ( 19,200) 3,840

288,000 84,000

72,000 P 12,000

The over/under valuation of assets and liabilities are summarized as follows: Inventory………………….…………….. Land……………………………………… Equipment (net)......... Buildings (net) Bonds payable………………………… Net………………………………………..

S Co. Book value P 24,000 48,000 84,000 168,000 (120,000) P 204,000

S Co. Fair value P 30,000 55,200 180,000 144,000 ( 115,200) P 294,000

(Over) Under Valuation P 6,000 7,200 96,000 (24,000) 4,800 P 90,000

The buildings and equipment will be further analyzed for consolidation purposes as follows: Equipment .................. Less: Accumulated depreciation….. Net book value………………………...

S Co. Book value 180,000 96,000 84,000

S Co. Fair value 180,000 180,000

Increase (Decrease) 0 ( 96,000) 96,000

Buildings................ Less: Accumulated depreciation….. Net book value………………………...

S Co. Book value 360,000 192,000 168,000

S Co. Fair value 144,000 144,000

(Decrease) ( 216,000) ( 192,000) ( 24,000)


Over/ Under P 6,000

Life 1

96,000 (24,000) 48000

8 4 4

AnnualA mount P 6,000

CurrentYea r(20x4) P 6,000

20x5 P -

12,000 ( 6,000) 1,200 P 13,200

12,000 ( 6,000) 1,200 P 13,200

12,000 (6,000) 1,200 P 7,200

The goodwill impairment loss of P3,750 based on 100% fair value would be allocated to the controlling interest and the NCI based on the percentage of total goodwill each equity interest received. For purposes of allocating the goodwill impairment loss, the full-goodwill is computed as follows: Fair value of Subsidiary (100%)

Consideration transferred: Cash (80%)

P 372,000

Fair value of NCI (given) (20%)

93,000

Fair value of Subsidiary (100%)

P 465,000

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

__360,000 P

Allocated excess (excess of cost over book value)….. Add (deduct): (Over) under valuation of assets and liabilities (P90,000 x 100%) Positive excess: Full-goodwill (excess of cost over fair value)………………………………………………...

105,000 90,000

P

15,000

In this case, the goodwill was proportional to the controlling interest of 80% and non-controlling interest of 20% computed as follows: Goodwill applicable to parent………………… Goodwill applicable to NCI…………………….. Total (full) goodwill………………………………..

Value P12,000 3,000 P15,000

% of Total 80.00% 20.00% 100.00%

Value P 3,000

% of Total 80.00%

750

20.00%

P 3,750

100.00%

The goodwill impairment loss would be allocated as follows Goodwill impairment loss attributable to parent or controlling Interest Goodwill applicable to NCI…………………….. Goodwill impairment loss based on 100% fair value or fullGoodwill

The unrealized profits on January 1, and on December 31, 20x5, resulting intercompany sales, are as summarized below: Downstream Sales: Year 20x4 20x5

Sales of Parent to Subsidiary P150,000 120,000

Intercompany Merchandise in 12/31 Inventory of S Company P150,000 x 60% = P90,000 P120,000 x 80% = P96,000

Unrealized Intercompany Profit in Ending Inventory P90,000 x 20% = P18,000 P96,000 x 25% = P40,000

Intercompany Merchandise in 12/31 Inventory of S Company P100,000 x 50% = P25,000 P 62,500 x 40% = P25,000

Unrealized Intercompany Profit in Ending Inventory P25,000 x 40% = P10,000 P25,000 x 20% = P 5,000

Upstream Sales: Year 20x4 20x5

Sales of Subsidiary to Parent P 50,000 62,500

20x4: First Year after Acquisition Parent Company Cost Model Entry January 1, 20x4: (1) Investment in S Company…………………………………………… Cash……………………………………………………………………..

372,000 372,000

Acquisition of S Company.

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

28,800 28,800

Record dividends from S Company.

December 31, 20x4: (3) Investment in S Company Investment income (P60,000 x 80%)

48,000 48,000

Record share in net income of subsidiary.

December 31, 20x4: (4) Investment income [(P13,200 x 80%) + P3,000, goodwill impairment loss)] Investment in S Company Record amortization of allocated excess of inventory, equipment, buildings and bonds payable and goodwill impairment loss.

13,560 13,560

December 31, 20x4: (5) Investment income (P18,000 x 100%) Investment in S Company To adjust investment income for downstream sales - unrealized profit in ending inventory of S. December 31, 20x4: (6) Investment income (P12,000 x 80%) Investment in S Company To adjust investment income for upstream sales - unrealized profit in ending inventory P .

18,000 18,000

9,600 9,600

Thus, the investment balance and investment income in the books of P Company is as follows: Investment in S 372,000 28,800

Cost, 1/1/x4 NI of S (60,000 x 80%)

48,000

Balance, 12/31/x4

Dividends – S (30,000x 80%) Amortization & impairment UPEI of Son (P15,000 x 100%) UPEI of Perfect (P10,000 x80%)

13,560 18,000 9,600

350,040 Investment Income

Amortization & impairment UPEI of S (P18,000 x 100%) UPEI of P (P12,000 x80%)

13,560 18,000 9,600

NI of S (P60,000 x 80%)

48,000

6,840

Balance, 12/31/x4

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

240,000 120.000 288,000 72,000

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

(E2) Inventory…………………………………………………………………. Accumulated depreciation – equipment……………….. Accumulated depreciation – buildings………………….. Land………………………………………………………………………. Discount on bonds payable…………………………………………. Goodwill…………………………………………………………………. Buildings……………………………………….. Non-controlling interest (P90,000 x 20%)……………………….. Investment in S Co……………………………………………….

6,000 96,000 192,000 7,200 4,800 12,000 216,000 18,000 84,000

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


6,000 6,000 6,000 1,200 3,000 6,000 12,000 1,200 3,000




(E4) Investment income

_______ P 6,000



P 12,000 ( 6,000) _______ P 7,200

P 1,200 P1,200

Total

14,400

6,840

Investment in S Company Non-controlling interest (P36,000 x 20%)……………….. Dividends paid – S……………………

21,960 7,200 36,000

To eliminate intercompany dividends and investment income under equity method and establish share of dividends, computed as follows:

Investment in S NI of S 28,800 Dividends - S (60,000 Amortization & x 80%)……. 48,000 13,560 impairment 18,000 UPEI of S 9,600 UPEI of P 21,960

Investment Income Amortization impairment UPEI of S UPEI of P

13,560 18,000 9,600

48,000

NI of S (50,000 x 80%)

6,840

After the eliminating entries are posted in the investment account, it should be observed that from consolidation point of view the investment account is totally eliminated. Thus, Cost, 1/1/x4 NI of S (60,000 x 80%)

Balance, 12/31/x4 (E4) Investment Income and dividends ……………

Investment in S 372,000 28,800 48,000

350,040

13,560 18,000 9,600 288,000 84,000

Dividends – S (30,000x 80%) Amortization & impairment UPEI of Son UPEI of Perfect (E1) Investment, 1/1/20x4 (E2) Investment, 1/1/20x4

21,960

372,000

372,000

150,000


150,000


60,000


60,000



18,000 18,000



12,000 12,000



6,960 6,960

To establish non-controlling interest in subsidiary’s adjusted net income for 20x4 as follows: Net income of subsidiary…………………….. Unrealized profit in ending inventory of P Company (upstream sales)……………………….. Son Company’s realized net income from separate operations*…….….. Less: Amortization of allocated excess [(E3)]….

Multiplied by: Non-controlling interest %.......... Non-controlling Interest in Net Income (NCINI) – partial goodwill

P 60,000 ( 12,000) P 48,000 ( 13,200) P 34,800 20% P

6,960

Subsidiary accounts are adjusted to full fair value regardless on the controlling interest percentage or what option used to value non-controlling interest or goodwill.

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

Sales

P Co P480,000

S Co. P240,000

Investment income Total Revenue Cost of goods sold

6,840 P486,840 P204,000

P240,000 P138,000


60,000 48,000 P312,000 P174,840 P174,840

24,000 18,000 P180,000 P 60,000 P 60,000

Statement of Retained Earnings Retained earnings, 1/1 PCompany S Company Net income, from above Total Dividends paid P Company S Company Retained earnings, 12/31 to Balance Sheet Balance Sheet Cash………………………. Accounts receivable…….. Inventory………………….



Total

Dr. (5) 150,000 (6) 60,000 (4) 6,840 (3) (7) (8) (3) (3)

6,000 18,000 12,000 6,000 1,200

(3)

3,000

(9)

Cr.

90,000 1,200 66,000 3,000 P328,200 P181,800 ( 6,960) P174,840

6,960

P P120,000 60,000 P180,000

174,840 P414,840 72,000 -

36,000

P462,840

232,800 90,000 120,000

210,000 220,000 720,000

174,840 P414,840

_

P144,000

P

642,840

P 90,000 60,000 90,000

P

387,360 150,000

48,000 180,000 540,000

(4)

(1)

(2)

5,000

P1,635,700

P1,006,000

P 135,000 405,000

P 96,000 288,000

120,000 240,000 600,000

120,000 120,000 240,000 144,000

6,000 18,000 12,000

180,000 265,200 380,000 1,044,000 3,600 9,000

(2) 216,000 (3) 1,200 (3) 3,000 (2) 288,000 (2) 84,000

P2,394,600

(2) 96,000 (2) 192,000 (3) 6,000

(3)

12,000

P 147,000 495,000 240,000 360,000 600,000

(1) 240,000 462,840 (4)

_________ P1,008,000

(3) (7) (8)

36,000

7,200

(2) 4,800 (2) 12,000 (4) 21,960

462,840

360,000

(1) 120,000

72,000 ________

350,040

_________ P1,962,840

_________ P 510,000 P 168,000

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

P360,000

P


7,200

__________ P 983,160

(1 ) 72,000 (2) 18,000 (5) 6,960 P 983,160

____89,760 P2,394,600

Second Year after Acquisition Sales Less: Cost of goods sold Gross profit Less: Depreciation expense Other expense Net income from its own separate operations Add: Investment income

P Co. P 540,000 216,000 P 324,000 60,000 72,000 P 192,000 65,040

S Co. P 360,000 192,000 P 168,000 24,000 54,000 P 90,000 -

Net income Dividends paid

P 257,040 P 72,000

P 90,000 P 48,000

No goodwill impairment loss for 20x5. 20x5: Parent Company Equity Method Entry January 1, 20x5 – December 31, 20x5: (2) Cash……………………… Investment in S Company (P48,000 x 80%)…………….

38,400 38,400



72,000 72,000


December 31, 20x5: (4) Investment income (P7,200 x 80%) Investment in S Company

5,760 5,760

Record amortization of allocated excess of inventory, equipment, buildings and bonds payable

December 31, 20x5: (5) Investment income (P24,000 x 100%) Investment in S Company To adjust investment income for downstream sales - unrealized profit in ending inventory of Son (UPEI of S). December 31, 20x5: (6) Investment in S Company…………….. Investment income (P18,000 x 100%)……….. To adjust investment income for downstream sales - realized profit in beginning inventory of S (RPBI of S). December 31, 20x5: (7) Investment income (P6,000 x 80%) Investment in S Company To adjust investment income for upstream sales - unrealized profit in ending inventory Perfect (UPEI of P). December 31, 20x5: (8) Investment in S Company…………….. Investment income (P12,000 x 80%)……….. To adjust investment income for upstream sales - realized profit in beginning inventory of Perfect (RPBI of P)

24,000 24,000

18,000 18,000

4,800 4,800

9,600 9,600

Thus, the investment balance and investment income in the books of P Company is as follows: Cost, 1/1/x5 NI of Son (90,000 x 80%) RPBI of S (P18,000 x 100%) RPBI of P (P12,000 x 80%) Balance, 12/31/x5

Amortization (7,200 x 805) UPEI of S (P24,000 x 100%) UPEI of P (P6,000 x 80%)

Investment in S 350,040 38,400 5,760 72,000 24,000 18,000 4,800 9,600 376,680 Investment Income 5,760 24,000 72,000 4,800 18,000 9,600 65,040

Dividends – S (48,000x 80%) Amortization (7,200 x 80%) UPEI of Son (P24,000 x 100%) UPEI of Perfect (P6,000 x 80%)

NI of S (P90,000 x 80%) RPBI of S (P18,000 x 100%) RPBI of P(P12,000 x 80%) Balance, 12/31/x5

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………………………………………… Retained earnings – S Co, 1/1/x5…………………………. Investment in SCo (P384,000 x 80%) Non-controlling interest (P384,000 x 20%)……………………….. To eliminate investment on January 1, 20x5 and equity accounts of subsidiary on date of acquisition; and to establish non-

240,000 144.000 307,200 76,800

controlling interest (in net assets of subsidiary) on 1/1/20x5.

(E2) Accumulated depreciation – equipment (P96,000 – P12,000) Accumulated depreciation – buildings (P160,000 + P6,000) Land………………………………………………………………………. Discount on bonds payable (P4,800 – P1,200)…. Goodwill (P12,000 – P3,000)…………………………….. Buildings……………………………………….. Non-controlling interest [(P90,000 – P13,200) x 20%] Investment in S Co……………………………………………….

84,000 198,000 7,200 3,600 9,000 216,000 15,360 70,440

To eliminate investment on January 1, 20x5 and allocate excess of cost over book value of identifiable assets acquired, with remainder to the original amount of goodwill; and to establish noncontrolling interest (in net assets of subsidiary) on 1/1/20x5.

(E3) Depreciation expense……………………….. Accumulated depreciation – buildings………………….. Interest expense………………………………… Accumulated depreciation – equipment……………….. Discount on bonds payable…………………………

6,000 6,000 1,200 12,000 1,200

To provide for 20x5 depreciation and amortization on differences between acquisition date fair value and book value of Son’s identifiable assets and liabilities as follows:



P 12,000 ( 6,000) _______ P 6,000

P 1,200 P1,200


Total

P7,200

(E4) Investment income Non-controlling interest (P48,000 x 20%)……………….. Dividends paid – S…………………… Investment in S Company

65,040 9,600 48,000 26,640


NI of S (90,000 x 80%)……. RPBI of S RPBI of P 26,640

Investment in S 38,400 Dividends – S Amortization 72,000 5,760 (P7,200 x 80%) 18,000 24,000 UPEI of S 9,600 4,800 UPEI of P

Investment Income Amortization (P7,200 x 80%) 5,760 UPEI of S 24,000 UPEI of P 4,800

72,000 18,000 9,600 65,040

NI of S (90,000 x 80%) RPBI of S RPBI of P

120,000


120,000


75,000


75,000


(E8) Investment in Son Company……………………. Cost of Goods Sold (Ending Inventory – Income Statement)

18,000 18,000


(E9) Investment in Son Company (P12,000 x 80%) Noncontrolling interest (P12,000 x 20%)…… Cost of Goods Sold (Ending Inventory – Income Statement)

9,600 2,400 12,000


After the eliminating entries are posted in the investment account, it should be observed that from consolidation point of view the investment account is totally eliminated. Thus, Cost, 1/1/x5 NI of S

Investment in S 350,040 38,400

Dividends – S (40,000x 80%) Amortization

(90,000 x 80%) 72,000 RPBI of S (P18,000 x 100%) 18,000 RPBI of P(P12,000 x 80%) 9,600 Balance, 12/31/x5 376,680 (E8) RPBI of S 18,000 (E9) RPBI of P 9,600

5,760 24,000 4,800 307,200 70,440 26,640

336,900

(6,000 x 80%) UPEI of S (P20,000 x 100%) UPEI of P (P5,000 x 80%) (E1) Investment, 1/1/20x5 (E2) Investment, 1/1/20x5 (E4) Investment Income and dividends

404,280


24,000 24,000



6,000 6,000



17,760 17,760

To establish non-controlling interest in subsidiary’s adjusted net income for 20x5 as follows: Net income of subsidiary…………………….. Realized profit in beginning inventory of P Company - 20x5 (upstream sales) Unrealized profit in ending inventory of P Company - 20x5 (upstream sales) S Company’s Realized net income* Less: Amortization of allocated excess

P 90,000 12,000 ( P ( P

6,000) 96,000 7,200) 88,800 20%

Multiplied by: Non-controlling interest %.......... Non-controlling Interest in Net Income (NCINI) – partial goodwill P 17,760 *from separate transactions that has been realized in transactions with third persons.

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

Sales

P Co P540,000

S Co. P360,000


65,040 P605,040 P216,000

P360,000 P192,000


60,000 72,000 P348,000 P257,040 P257,040

24,000 54,000 P270,000 P 90,000 P 90,000


Dr. (6) 120,000 (7) 75,000 (4) 65,040

Cr.

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

(6) 120,000 (7) 75,000 (8) 18,000 (9) 12,000

(3) (3)

(5)


6,000 1,200

P P ( P

17,760

P462,840

P

90,000 1,200 126,000 430,200 274,800 17,760) 257,040

P 462,840

257,040 P719,880

P144,000 90,000 P234,000

(1) 144,000

72,000 -

48,000

P777,456

P223,200

P 777,456

265,200 180,000 216,000

P 102,000 96,000 108,000

P 367,200 276,000 294,000

257,040 P 719,880

(4)

48,000

(10) 24,000

_

72,000 ________

(11) 6,000 Land……………………………. Equipment Buildings Discount on bonds payable Goodwill…………………… Investment in S Co………


Total

210,000 240,000 720,000

48,000 180,000 540,000

376,680

P2,207,880

P1,074,000

P 150,000 450,000

P 102,000 306,000

120,000 240,000 600,000

120,000 120,000 240,000 186,000

647,880

(2)

7,200

(2) (2) (8) (9)

3,600 9,000 18,000 9,600

(2)

84,000

(2) (3)

198,000 6,000

_________ P1,074,000

(3) 216,000 (3) 1,200 (1) 307,200 (2) 70,440 (4) 26,640

(3)

P2,677,800

12,000

P180,000 552,000 240,000 360,000 600,000

(1) 240,000 647,880 (4) (9)

___ _____ P2,207,880

265,200 420,000 1,044,000 2,400 9,000

9,600 2,400

__________ P1,046,400

(2 ) 76,800 (2) 15,360 (5) 17,760 P1,046,400

____97,920 P2,677,800

5 and 6. Refer to Problem IX for computations Note: Using cost model or equity method, the consolidated net income, consolidated retained earnings, non-controlling interests, consolidated equity on December 31, 20x4 and 20x5 are exactly the same (refer to Problem IX solution). Problem VII 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%)…………….. Fair value of NCI (given) (20%)……………….. Fair value of Subsidiary (100%)………. Less: Book value of stockholders’ equity of Son: Common stock (P240,000 x 100%)………………. Retained earnings (P120,000 x 100%)………... Allocated excess (excess of cost over book value)….. Less: Over/under valuation of assets and liabilities: Increase in inventory (P6,000 x 100%)……………… Increase in land (P7,200 x 100%)……………………. Increase in equipment (P96,000 x 100%) Decrease in buildings (P24,000 x 100%)………..... Decrease in bonds payable (P4,800 x 100%)…… Positive excess: Full-goodwill (excess of cost over fair value)………………………………………………...

P 372,000 93,000 P 465,000 P 240,000 120,000

360,000 P 105,000

P

6,000 7,200 96,000 ( 24,000) 4,800

90,000 P 15,000


Over/ under P 6,000

Life 1

96,000 (24,000) 4,800

8 4 4

Annual Amount P 6,000

Current Year(20x4) P 6,000

20x5 P -

12,000 ( 6,000) 1,200 P 13,200

12,000 ( 6,000) 1,200 P 13,200

12,000 (6,000) 1,200 P 7,200

20x4: First Year after Acquisition Parent Company Equity Method Entry January 1, 20x4: (1) Investment in S Company…………………………………………… Cash……………………………………………………………………..

372,000 372,000

Acquisition of S Company.

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

28,800 28,800



48,000 48,000


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

13,560 13,560

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

December 31, 20x4: (5) Investment income (P18,000 x 100%) Investment in S Company To adjust investment income for downstream sales - unrealized profit in ending inventory of S. December 31, 20x4: (6) Investment income (P12,000 x 80%) Investment in S Company To adjust investment income for upstream sales - unrealized profit in ending inventory P .

18,000 18,000

9,600 9,600

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

Cost, 1/1/x4 NI of S (60,000 x 80%)

Balance, 12/31/x4

Investment in S 372,000 28,800 48,000

13,560 18,000 9,600

Dividends – S (36,000x 80%) Amortization & impairment UPEI of S (P18,000 x 100%) UPEI of P (P12,000 x80%)

324,000

Investment Income Amortization & impairment UPEI of S (P18,000 x 100%) UPEI of P (P12,000 x80%)

13,560 18,000 9,600

48,000

6,840

NI of S (P60,000 x 80%)

Balance, 12/31/x4

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

240,000 120.000 288,000 72,000

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

(E2) Inventory…………………………………………………………………. Accumulated depreciation – equipment……………….. Accumulated depreciation – buildings………………….. Land………………………………………………………………………. Discount on bonds payable…………………………………………. Goodwill…………………………………………………………………. Buildings……………………………………….. Non-controlling interest (P90,000 x 20%) + [(P15,000, full – P12,000, partial goodwill)]………… Investment in Son Co………………………………………………. To eliminate investment on January 1, 20x4 and allocate excess of cost over book value of identifiable assets acquired, with remainder to goodwill; and to establish noncontrolling interest (in net assets of subsidiary) on date of acquisition.

6,000 96,000 192,000 7,200 4,800 15,000 216,000 21,000 84,000


6,000 6,000 6,000 1,200 3,750 6,000 12,000 1,200 3,750




_______ P 6,000



P 12,000 ( 6,000) _______ P 7,200

P 1,200 P1,200

Total

14,400

(E4) Investment income Investment in S Company Non-controlling interest (P36,000 x 20%)……………….. Dividends paid – S……………………

6,840 21,960 7,200 36,000


Investment Income Investment in S NI of S 28,800 Dividends - S (60,000 Amortization & x 80%)……. 48,000 13,560 impairment 18,000 UPEI of S 9,600 UPEI of P 21,960

Amortization impairment UPEI of S UPEI of P

13,560 18,000 9,600

48,000

NI of S (50,000 x 80%)

6,840

After the eliminating entries are posted in the investment account, it should be observed that from consolidation point of view the investment account is totally eliminated. Thus, Cost, 1/1/x4 NI of S (60,000 x 80%)

Balance, 12/31/x4 (E4) Investment Income and dividends ……………

Investment in S 372,000 28,800 48,000

350,040

13,560 18,000 9,600 288,000 84,000

Dividends – S (30,000x 80%) Amortization & impairment UPEI of S UPEI of P (E1) Investment, 1/1/20x4 (E2) Investment, 1/1/20x4

21,960

372,000

372,000


150,000 150,000



60,000 60,000



18,000 18,000


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

12,000

Inventory – Balance Sheet……

12,000



6,210 6,210

To establish non-controlling interest in subsidiary’s adjusted net income for 20x4 as follows: Net income of subsidiary…………………….. Unrealized profit in ending inventory of P Company (upstream sales)……………………….. S Company’s realized net income from separate operations*…….….. Less: Amortization of allocated excess [(E3)]….

P 60,000 ( 12,000) P 48,000 ( 13,200) P 34,800 20% P 6,960

Multiplied by: Non-controlling interest %.......... Non-controlling Interest in Net Income (NCINI) – partial goodwill Less: Non-controlling interest on impairment loss on full-goodwill (P3,750 x 20%) or (P3,750 impairment on full-goodwill less P3,000, impairment on partial-goodwill)* 750 Non-controlling Interest in Net Income (NCINI) – full goodwill P 6210 *this procedure would be more appropriate, instead of multiplying the fullgoodwill impairment loss of P3,750 by 20%. There might be situations where the NCI on goodwill impairment loss would not be proportionate to NCI acquired (refer to Illustration 15 -6).

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

Sales

P Co P480,000

S Co. P240,000


6,840 P486,840 P204,000

P240,000 P138,000


60,000 48,000 P312,000 P174,840 P174,840

24,000 18,000 P150,000 P 50,000 P 50,000



Dr. (5) 150,000 (6) 60,000 (4) 6,840 (3) (7) (8) (3) (3)

6,000 18,000 12,000 6,000 1,200

(3)

3,750

(9)

Cr.

_________ P 510,000 P 168,000

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

90,000 1,200 66,000 3,750 P274,125 P150,875 ( 5,175) P145,700

5,175

P360,000

P


P

174,840 P414,840

P120,000 60,000 P180,000

72,000 -

36,000

P462,840

360,000

(1) 120,000 P

174,840 414,840

_

72,000 ________

P144,000

P

462,840

232,800 90,000 120,000

P 90,000 60,000 90,000

P

322,800 150,000

210,000 240,000 720,000

48,000 180,000 540,000

350,040

(4)

(2)

6,000

(2)

7,200

(2) 4,800 (2) 15,000 (4) 21,960

(3) (7) (8)

36,000

6,000 18,000 12,000

(2) 216,000 (3) 1,200 (3) 3,750 (2) 288,000 (2) 84,000

180,000 265,200 420,000 1,044,000 3,600 11,250

-


Total

P1,635,700

P1,008,000

P 135,000 405,000

P 96,000 288,000

120,000 240,000 600,000

120,000 120,000 240,000 144,000

462,840

P2,396,850

(2) 96,000 (2) 192,000 (3) 6,000

_________ P1,008,000

12,000

P 147,000 495,000 240,000 360,000 600,000

(1) 240,000 462,840 (4)

_________ P1,962,840

(3)

7,200

__________ P 986,160

(1 ) 72,000 (2) 21,000 (9) 6,210 P 986,160

____92,010 P2,396,850

20x5: Second Year after Acquisition Sales Less: Cost of goods sold Gross profit Less: Depreciation expense Other expense Net income from its own separate operations Add: Investment income Net income Dividends paid

Perfect Co. P 540,000 216,000 P 324,000 60,000 72,000 P 192,000 65,040 P 257,040 P 72,000

Son Co. P 360,000 192,000 P 168,000 24,000 54,000 P 90,000 P 90,000 P 48,000

No goodwill impairment loss for 20x5.

Parent Company Equity Method Entry January 1, 20x5 – December 31, 20x5: (2) Cash……………………… Investment in S Company (P48,000 x 80%)…………….

38,400 38,400



72,000 72,000


December 31, 20x5: (4) Investment income (P7,200 x 80%) Investment in S Company

5,760 5,760

Record amortization of allocated excess of inventory, equipment, buildings and bonds payable

December 31, 20x5: (5) Investment income (P24,000 x 100%) Investment in S Company To adjust investment income for downstream sales - unrealized profit in ending inventory of S (UPEI of S). December 31, 20x5: (6) Investment in S Company…………….. Investment income (P18,000 x 100%)……….. To adjust investment income for downstream sales - realized profit in beginning inventory of S (RPBI of S). December 31, 20x5: (7) Investment income (P6,000 x 80%) Investment in S Company To adjust investment income for upstream sales - unrealized profit in ending inventory P (UPEI of P). December 31, 20x5: (8) Investment in S Company…………….. Investment income (P12,000 x 80%)……….. To adjust investment income for upstream sales - realized profit inbeginning inventory of P (RPBI of P)

24,000 24,000

18,000 18,000

4,800 4,800

9,600 9,600

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

Cost, 1/1/x5 NI of Son (90,000 x 80%) RPBI of (P18,000 x 100%) RPBI of P (P12,000 x 80%) Balance, 12/31/x5 Amortization (7,200 x 805) UPEI of S (P24,000 x 100%) UPEI of P (P6,000 x 80%)

Investment in S 350,040 38,400 5,760 72,000 24,000 18,000 4,800 9,600 376,680 Investment Income 5,760 24,000 72,000 4,800 18,000 9,600 65,040

Dividends – S (48,000x 80%) Amortization (7,200 x 80%) UPEI of S (P24,000 x 100%) UPEI of P (P6,000 x 80%)

NI of S (P90,000 x 80%) RPBI of S (P18,000 x 100%) RPBI of P (P12,000 x 80%) Balance, 12/31/x5

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………………………………………… Retained earnings – S Co, 1/1/x5…………………………. Investment in SCo (P384,000 x 80%) Non-controlling interest (P384,000 x 20%)………………………..

240,000 144.000 307,200 76,800

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

(E2) Accumulated depreciation – equipment (P96,000 – P12,000) Accumulated depreciation – buildings (P192,000 + P6,000) Land………………………………………………………………………. Discount on bonds payable (P4,800 – P1,200)…. Goodwill (P15,000 – P3,750)…………………………….. Buildings……………………………………….. Non-controlling interest [(P90,000 – P13,200) x 20%] + [P3,000, full goodwill - [(P3,750, full-goodwill impairment – P3,000, partial- goodwill i mpairment)* or (P3,750 x 20%)] Investment in S Co……………………………………………….

84,000 198,000 7,200 3,600 11,250 216,000

17,610 70,440

To eliminate investment on January 1, 20x5 and allocate excess of cost over book value of identifiable assets acquired, with remainder to the original amount of goodwill; and to establish noncontrolling interest (in net assets of subsidiary) on 1/1/20x5. *this procedure would be more appropriate, instead of multiplying the full-goodwill impairment loss of P3,750 by 20%. There might be situations where the NCI on goodwill impairment loss would not be proportionate to NCI acquired (refer to Illustration 15-6).

(E3) Depreciation expense……………………….. Accumulated depreciation – buildings………………….. Interest expense………………………………… Accumulated depreciation – equipment……………….. Discount on bonds payable…………………………

6,000 6,000 1,200 12,000 1,200

To provide for 20x5 depreciation and amortization on differences between acquisition date fair value and book value of Son’s identifiable assets and liabilities as follows:




P 12,000 ( 6,000) _______ P 6,000

P 1,200 P1,200

Total

P7,200

(E4) Investment income Non-controlling interest (P48,000 x 20%)……………….. Dividends paid – S…………………… Investment in S Company

65,040 9,600 48,000 26,640


NI of Son (90,000

Investment in S 38,400 Dividends – S Amortization

Investment Income Amortization

NI of S (90,000

x 80%)……. RPBI of S RPBI of P 26,640

72,000 18,000 9,600

5,760 24,000 4,800

(P7,200 x 80%) UPEI of S UPEI of P

(P7,200 x 80%) UPEI of S UPEI of P

5,760 24,000 4,800

72,000 18,000 9,600 65,040

x 80%) RPBI of S RPBI of P

120,000


120,000


75,000


75,000


(E8) Investment in Son Company……………………. Cost of Goods Sold (Ending Inventory – Income Statement)

18,000 18,000


(E9) Investment in Son Company (P12,000 x 80%) Noncontrolling interest (P12,000 x 20%)…… Cost of Goods Sold (Ending Inventory – Income Statement)

9,600 2,400 12,000


After the eliminating entries are posted in the investment account, it should be observed that from consolidation point of view the investment account is totally eliminated. Thus,

Cost, 1/1/x5 NI of Son (90,000 x 80%) RPBI of S (P18,000 x 100%) RPBI of P (P18,000 x 80%) Balance, 12/31/x5 (E8) RPBI of S (E9) RPBI of P

Investment in S 350,040 38,400 72,000 18,000 9,600 376,680 18,000 9,600

5,600 24,000 4,800 307,200 70,440 26,640

404,280

404,280

Dividends – S (48,000x 80%) Amortization (7,000 x 80%) UPEI of S (P24,000 x 100%) UPEI of P (P6,000 x 80%) (E1) Investment, 1/1/20x5 (E2) Investment, 1/1/20x5 (E4) Investment Income and dividends


24,000 24,000



6,000 6,000


(E12) Non-controlling interest in Net Income of Subsidiary………… Non-controlling interest ………….. To establish non-controlling interest in subsidiary’s adjusted net income for 20x5 as follows:

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

P 90,000 12,000 ( 6,000) P 96,000 ( 7,200)

17,760 17,760

P 88,000 Multiplied by: Non-controlling interest %.......... 20% Non-controlling Interest in Net Income (NCINI) P 17,760 – partial goodwill Less: NCI on goodwill impairment loss on fullGoodwill 0 Non-controlling Interest in Net Income (NCINI) – full goodwill P 17,760 *from separate transactions that has been realized in transactions with third persons.

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

Sales

P Co P540,000

S Co. P360,000


65,040 P605,040 P216,000

P360,000 P192,000


60,000 72,000 P348,000 P257,040 P257,040

24,000 54,000 P270,000 P 90,000 P 90,000


Cr.

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

(6) 120,000 (7) 75,000 (8) 18,000 (9) 12,000

(3) (3)

(5)


6,000 1,200

P P ( P

17,760

P462,840

P


Accumulated depreciation - equipment Accumulated depreciation - buildings Accounts payable…………… Bonds payable………………… Common stock, P10 par……… Common stock, P10 par……… Retained earnings, from above Non-controlling interest…………

P 462,840 (1) 144,000

257,040 P719,880 72,000 -

48,000

P647,880

P186,000

P 647,880

265,200 180,000 216,000

P 114,000 96,000 108,000

P 367,200 276,000

210,000 240,000 720,000

48,000 180,000 540,000

257,040 P 719,880

(4)

(2)

(2) (2) (8) (9)

P2,207,880

P1,074,000

P 150,000 450,000

P 102,000 306,000

120,000 240,000 600,000

120,000 120,000

647,880

240,000 186,000

_________ P1,074,000

7,200 (3) 216,000 (3) 1,200

3,600 11,250 18,000 (1) 307,200 9,600 (3) 70,440 (4) 26,640

(2) (3)

_

72,000 ________

294,000 265,200 420,000 1,044,000 2,400 11,250

P2,680,050

84,000 (3)

12,000

198,000 6,000

P180,000 552,000 240,000 360,000 600,000

(1) 240,000 647,880 (4) (9)

___ _____ P2,207,880

48,000

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

(2)

5 and 6. Refer to Problem V for computations

90,000 1,200 126,000 430,200 274,800 17,760) 308,448

P144,000 90,000 P234,000

376,680

Total

Total

Dr. (6) 120,000 (7) 75,000 (4) 65,040

9,600 2,400

__________ P1,048,650

(1 ) 76,800 (2) 17,610 (14)17,760 P1,048,650

____100,170 P2,680,050

Note: Using cost model or equity method, the consolidated net income, consolidated retained earnings, non-controlling interests, consolidated equity on December 31, 20x4 and 20x5 are exactly the same (refer to Problem V solution). Problem VIII 1. (Computation of selected consolidation balances as affected by downstream inventory transfers) UNREALIZED GROSS PROFIT, 12/31/x4: (downstream transfer) Intercompany gross profit (P120,000 – P72,000) ........................................................... Inventory remaining at year's end ........................................................................................ Unrealized Intercompany Gross profit, 12/31/x4 ................................................................

P48,000 30% P14,400

UNREALIZED GROSS PROFIT, 12/31/x5: (downstream transfer) Intercompany gross profit (P250,000 – P200,000) ........................................................ P50,000 Inventory remaining at year's end ........................................................................................ 20% Unrealized intercompany gross profit, 12/31/x5 ................................................................. P10,000 CONSOLIDATED TOTALS Sales = P1,150,000 (add the two book values and eliminate i ntercompany sales of P250,000) Cost of goods sold: Benson's book value ........................................................................................................ P535,000 Broadway's book value ................................................................................................... 400,000 Eliminate intercompany transfers .................................................................................. (250,000) Realized gross profit deferred in 20x4 ........................................................................... (14,400) Deferral of 20x5 unrealized gross profit ......................................................................... 10,000 Cost of goods sold .................................................................................................... P680,600 Operating expenses = P210,000 (add the two book values and include intangible amortization for current year) Dividend income = -0- (intercompany transfer eliminated in consolidation) Noncontrolling interest in consolidated income: (impact of transfers is not included because they were downstream) Broadway reported income for 20x5 ............................................................................ P100,000 Intangible amortization .................................................................................................... (10,000) Broadway adjusted income ............................................................................................ 90,000 Outside ownership ........................................................................................................... 30% P 27,000 Noncontrolling interest in Broadway’s earnings ..........................................................  



 

or, Consolidated Net Income for 20x5 P Company’s net income from own/separate operations (P800-P535-P100) Realized profit in beginning inventory of S Company (downstream sales) Unrealized profit in ending inventory of S Company (downstream sales)… P Company’s realized net income from separate operations*…….….. S Company’s net income from own operations (P600 – P400 – P100) Realized profit in beginning inventory of P Company (upstream sales) Unrealized profit in ending inventory of P Company (upstream sales)… S Company’s realized net income from separate operations*…….….. Total Less: Amortization of allocated excess…………………… Consolidated Net Income for 20x5 Less: Non-controlling Interest in Net Income* * Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent – 20x5………….. **Non-controlling Interest in Net Income (NCINI) for 20x5 S Company’s net income of Subsidiary Company from its own operations (Reported net income of S Company) Realized profit in beginning inventory of P Company (upstream sales) Unrealized profit in ending inventory of P Company (upstream sales) S Company’s realized net income from separate operations……… Less: Amortization of allocated excess Multiplied by: Non-controlling interest %.......... Non-controlling Interest in Net Income (NCINI) – partial goodwill  

P 165,000 14,400 (_10,000) P 169,400 P 100,000 0 ( 0) P 100,000

100,000 P 269,400 __10,000 P 259,400 27,000 P 232,400

P 100,000 0 ( 0) P 100,000 __10,000 P 90,000 30% P 27,000

Inventory = P988,000 (add the two book values less the P10,000 ending unrealized gross profit) Noncontrolling interest in subsidiary, 12/31/x5 = P385,500 30% beginning P950,000 book value ......................................................................... P285,000 Excess January 1 intangible allocation (30% × P295,000)...................................... 88,500 27,000 Noncontrolling Interest in Broadway’s earnings ............................................................. Dividends (30% × P50,000) .................................................................................................. (15,000) Total noncontrolling interest at 12/31/x5 .................................................................. P385,500

2. (Computation of selected consolidation balances as affected by upstream inventory transfers). UNREALIZED GROSS PROFIT, 12/31/x4: (upstream transfer) Intercompany gross profit (P120,000 – P72,000) .......................................................... Inventory remaining at year's end ................................................................................ Unrealized intercompany gross profit, 12/31/x4 .................................................................

P48,000 30% P14,400

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

P50,000 20% P10,000

CONSOLIDATED TOTALS Sales = P1,150,000 (add the two book values and eliminate the Intercompany transfer) Cost of goods sold: Benson's COGS book value ............................................................................................ P535,000 Broadway's COGS book value ...................................................................................... 400,000 Eliminate intercompany transfers .................................................................................. (250,000) Realized gross profit deferred in 20x4 ........................................................................... (14,400) Deferral of 20x5 unrealized gross profit ......................................................................... 10,000 Consolidated cost of goods sold ........................................................................... P680,600 Operating expenses = P210,000 (add the two book values and include intangible amortization for current year) Dividend income = -0- (interco. transfer eliminated in consolidation) Noncontrolling interest in consolidated income: (impact of transfers is included because they were upstream)  



 

Broadway reported income for 20x5 ............................................................................................ Intangible amortizati on .................................................................................................................... 20x4 gross profit recognized in 20x5 ..................................................................................... 20x5 gross profit deferred ....................................................................................................... Broadway realized income for 20x5 ...................................................................................... Outside ownership ........................................................................................................................... Noncontrolling interest .................................................................................................................... Consolidated Net Income for 20x5 P Company’s net income from own/separate operations (P800-P535-P100) Realized profit in beginning inventory of S Company (downstream sales) Unrealized profit in ending inventory of S Company (downstream sales)… P Company’s realized net income from separate operations*…….….. S Company’s net income from own operations (P600 – P400 – P100) Realized profit in beginning inventory of P Company (upstream sales) Unrealized profit in ending inventory of P Company (upstream sales)… S Company’s realized net income from separate operations*…….….. Total Less: Amortization of allocated excess…………………… Consolidated Net Income for 20x5 Less: Non-controlling Interest in Net Income* * Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent – 20x5………….. **Non-controlling Interest in Net Income (NCINI) for 20x5 S Company’s net income of Subsidiary Company from its own operations (Reported net income of S Company) Realized profit in beginning inventory of P Company (upstream sales) Unrealized profit in ending inventory of P Company (upstream sales) S Company’s realized net income from separate operations……… Less: Amortization of allocated excess Multiplied by: Non-controlling interest %.......... Non-controlling Interest in Net Income (NCINI) – partial goodwill 



P100,000 (10,000) 14,400 (10,000) P94,400 30% P28,320 P 165,000 0 (_ 0) P 165,000 P 100,000 14,400 ( 10,000) P 104,400

104,400 P 269,400 __10,000 P 259,400 28,320 P 231,080

P 100,000 14,400 ( 10,000) P 104,400 __10,000 P 94,400 30% P 28,320

Inventory = P988,000 (add the two book values and defer the P10,000 ending unrealized gross profit) Noncontrolling interest in subsidiary, 12/31/x5 = P382,500 30% beginning book value less P14,400 unrealized gross profit (30% × P935,600) ................................................................ P280,680 Excess intangible allocation (30% × P295,000) ..................................................... (88,500) 28,320 Noncontrolling Interest in Broadway’s earnings ................................................... Dividends (30% × P50,000) ............................................................................................... (15,000) Total noncontrolling interest at 12/31/x5 ............................................................... P382,500

Problem IX (Compute selected balances based on three different intercompany asset transfer scenarios) 1.

Consolidated Cost of Goods Sold PP’s cost of goods sold ...................................................................................... SW’s cost of goods sold ..................................................................................... Elimination of 20x5 intercompany transfers ................................................... Reduction of beginning Inventory because of 20x4unrealized gross profit (P28,000/1.4 = P20,000 cost; P28,000 transfer price less P20,000 cost = P8,000 unrealized gross profit) ....................................................... Reduction of ending inventory because of 20x5 unrealized gross profit (P42,000/1.4 = P30,000 cost; P42,000 transfer price less P30,000 cost = P12,000 unrealized gross profit) ..................................................... Consolidated cost of goods sold ....................................................... Consolidated Inventory PP book value ............................................................................................... SW book value .............................................................................................. Eliminate ending unrealized gross profit (see above) .......................... Consolidated Inventory ..............................................................................

P290,000 197,000 (110,000)

(8,000)

12,000 P381,000

P346,000 110,000 (12,000) P444,000

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

or Consolidated Net Income for 20x5 P Company’s net income from own/separate operations (P640-P290-P150) Realized profit in beginning inventory of S Company (downstream sales) Unrealized profit in ending inventory of S Company (downstream sales)… P Company’s realized net income from separate operations*…….….. S Company’s net income from own operations (P360 – P197 – P105) Realized profit in beginning inventory of P Company (upstream sales) Unrealized profit in ending inventory of P Company (upstream sales)… S Company’s realized net income from separate operations*…….….. Total Less: Amortization of allocated excess…………………… Consolidated Net Income for 20x5 Less: Non-controlling Interest in Net Income* * Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent – 20x5………….. **Non-controlling Interest in Net Income (NCINI) for 20x5 S Company’s net income of Subsidiary Company from its own operations (Reported net income of Son Company) Realized profit in beginning inventory of P Company (upstream sales) Unrealized profit in ending inventory of P Company (upstream sales) S Company’s realized net income from separate operations……… Less: Amortization of allocated excess Multiplied by: Non-controlling interest %.......... Non-controlling Interest in Net Income (NCINI) – partial goodwill

P 200,000 8,000 (_ 12,000) P 196,000 P 58,000 0 ( 0) P 58,000

58,000 P 254,000 ____0 P 254,000 11,600 P 242,200

P 58,000 0 ( 0) P 58,000 ____0 P 58,000 20% P 11,600

2. Consolidated Cost of Goods Sold PP book value ...................................................................................................... SW book value .................................................................................................... Elimination of 20x5 intercompany transfers ................................................... Reduction of beginning inventory because of 20x4 unrealized gross profit (P21,000/1.4 = P15,000 cost; P21,000 transfer price less P15,000 cost = P6,000 unrealized gross profit) ....................................................... Reduction of ending inventory because of 20x5 unrealized gross profit (P35,000/1.4 = P25,000 cost; P35,000 transfer price less P25,000 cost = P10,000 unrealized gross profit) ..................................................... Consolidated cost of goods sold ....................................................................

P290,000 197,000 (80,000)

(6,000)

10,000 P411,000

Consolidated Inventory PP book value ...................................................................................................... SW book value .................................................................................................... Eliminate ending unrealized gross profit (see above) ................................. Consolidated inventory ..............................................................................

P346,000 110,000 (10,000) P446,000

Non-controlling Interest in Subsidiary's Net income Since all intercompany sales are upstream, the effect on Snow's income must be reflected in the non-controlling interest computation: SW reported income .......................................................................................... P58,000 20x4 unrealized gross profit realized in 20x5 (above) .................................. 6,000 20x5 unrealized gross profit to be realized in 20x6 (above) ....................... (10,000) SW realized income ............................................................................................ P54,000 Outside ownership percentage ....................................................................... 20% Non-controlling interest in SW’s income .................................................. P10,800 or Consolidated Net Income for 20x5 P Company’s net income from own/separate operations (P640-P290-P150) Realized profit in beginning inventory of S Company (downstream sales) Unrealized profit in ending inventory of S Company (downstream sales)… P Company’s realized net income from separate operations*…….….. S Company’s net income from own operations (P360 – P197 – P105) Realized profit in beginning inventory of P Company (upstream sales) Unrealized profit in ending inventory of P Company (upstream sales)… S Company’s realized net income from separate operations*…….….. Total Less: Amortization of allocated excess…………………… Consolidated Net Income for 20x5 Less: Non-controlling Interest in Net Income* * Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent – 20x5………….. **Non-controlling Interest in Net Income (NCINI) for 20x5 S Company’s net income of Subsidiary Company from its own operations (Reported net income of Son Company) Realized profit in beginning inventory of P Company (upstream sales) Unrealized profit in ending inventory of P Company (upstream sales) S Company’s realized net income from separate operations……… Less: Amortization of allocated excess Multiplied by: Non-controlling interest %.......... Non-controlling Interest in Net Income (NCINI) – partial goodwill

P 200,000 (_ 0) P 200,000 P 58,000 6,000 ( 10,000) P 54,000

P 243,200

P 58,000 6,000 ( 10,000) P 54,000 ____0 P 54,000 20% P 10,800

Problem X Consolidated Net Income for 20x4 P Company’s net income from own/separate operations…………. Realized profit in beginning inventory of S Company (downstream sales) Unrealized profit in ending inventory of S Company (downstream sales)… P Company’s realized net income from separate operations*…….….. S Company’s net income from own operations (P1,500,000 + P2,400,000) Realized profit in beginning inventory of P Company (upstream sales) – Salad Realized profit in beginning inventory of P Company (upstream sales)- Tuna Unrealized profit in ending inventory of P Company (upstream sales) – Salad Unrealized profit in ending inventory of P Company (upstream sales) – Tuna S Company’s realized net income from separate operations*…….….. Total Less: Amortization of allocated excess…………………… Consolidated Net Income for 20x4 Less: Non-controlling Interest in Net Income* *- Salad Non-controlling Interest in Net Income* *- Tuna Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent – 20x4………….. *that has been realized in transactions with third parties.

P 3,600,000 54,000 (_ 45,00 0) P 3,609,000 P3,900,000 66,000 63,000 ( 57,000) ( 69,000) P3,903,000

P 301,800 ___239,400

3,903,000 P7,512,000 0 P7,512,000 ___541,200 P6,970,800

Or, alternatively Consolidated Net Income for 20x4 P Company’s net in come from own/separate operations…………. Realized profit in beginning inventory of S Company (downstream sales) Unrealized profit in ending inventory of S Company (downstream sales)… P Company’s realized net income from separate operations*…….….. S Company’s net income from own operations (P1,500,000 + P2,400,000) Realized profit in beginning inventory of P Company (upstream sales) – Salad Realized profit in beginning inventory of P Company (upstream sales)- Tuna

P 3,600,000 54,000 (___45,000) P3,609,,000 P3,900,000 66,000 63,000

54,000 P 254,000 ____0 P 254,000 10,800

Unrealized profit in ending inventory of P Company (upstream sales) – Salad Unrealized profit in ending inventory of P Company (upstream sales) – Tuna S Company’s realized net income from separate operations*…….….. Total Less: Non-controlling Interest in Net Income* * - Salad Non-controlling Interest in Net Income* * - Tuna Amortization of allocated excess…………………… Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent………….. Add: Non-controlling Interest in Net Income (NCINI) Consolidated Net Income for 20x4 *that has been realized in transactions with third parties.

( 57,000) ( 69,000) P3,903,000

3,903,000 P7,512,000

P 301,800 239,400 0

__541,200 P6,970,800 _541,200 P 7,512,000

**Salad Non-controlling Interest in Net Income (NCINI) for 20x4 S Company’s net income of Subsidiary Company from its own operations (Reported net income of S Company) Realized profit in beginning inventory of P Company (upstream sales) Unrealized profit in ending inventory of P Company (upstream sales) Son Company’s realized net income from separate operations……… Less: Amortizati on of allocated excess Multiplied by: Non-controlling interest %.......... Non-controlling Interest in Net Income (NCINI)

P1,500,000 66,000 ( 57,000) P1,509,000 _____0 P1,509,000 __ 20% P 301,800

**Tuna Non-controlling Interest in Net Income (NCINI) for 20x4 S Company’s net income of Subsidiary Company from its own operations (Reported net income of S Company) Realized profit in beginning inventory of P Company (upstream sales) Unrealized profit in ending inventory of P Company (upstream sales) Son Company’s realized net income from separate operations……… Less: Amortizati on of allocated excess Multiplied by: Non-controlling interest %.......... Non-controlling Interest in Net Income (NCINI)

Realized Profit in Beginning inventory: Downstream Sales (Sales from Parent to Subsidiary) P414,000 x 15/115 Upstream Sales (Sales from Subsidiary-Salad to Parent): Salad: P396,000 x 20/120 Upstream Sales (Sales from Subsidiary-Tuna to Parent): Tuna: P315,000 x 25/125 Unrealized Profit in Ending inventory: Downstream Sales (Sales from Parent to Subsidiary) P345,000 x 15/115 Upstream Sales (Sales from Subsidiary-Salad to Parent): Salad: P342,000 x 20/120 Upstream Sales (Sales from Subsidiary-Tuna to Parent): Tuna: P345,000 x 25/125

P2,400,000 63,000 ( 69,000) P2,394,000 _____0 P2,394,000 10% P 239,400

P54,000 66,000 63,000

P45,000 57,000 69,000

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

Customer list amortization = P65,000/5 years = P13,000 per year Intercompany Gross profit (P160,000 – P120,000) ............................................... Inventory Remaining at Year's End ......................................................................... Unrealized Intercompany Gross profit, 12/31 ..............................................................

P40,000 20% P8,000

Consolidated Totals: Inventory = P592,000 (add the two book values and subtract the ending unrealized gross profit of P8,000) Sales = P1,240,000 (add the two book values and subtract the P160,000 intercompany transfer) Cost of Goods Sold = P548,000 (add the two book values and subtract the intercompany transfer and add [to defer] ending unrealized gross profit) 







 

Operating Expenses = P443,000 (add the t wo book values and the amortization expense for the period) Gross profit: P1,240,000 – P548,000 = P692,000 Controlling Interest in CNI: Gross profit ...................................................................................................... P692,000 Less: Operating expenses ............................................................................ 443,000 Consolidated Net Income ...........................................................................P249,000 Less: NCI-CNI ................................................................................................... 8,700 CI-CNI ...............................................................................................................P240,300 or Consolidated Net Income for 20x5 P Company’s net income from own/separate operations (P800-P400-P180) Realized profit in beginning inventory of S Company (downstream sales) Unrealized profit in ending inventory of S Company (downstream sales)… P Company’s realized net income from separate operations*…….….. S Company’s net income from own operations (P600 – P300 – P250) Realized profit in beginning inventory of P Company (upstream sales) Unrealized profit in ending inventory of P Company (upstream sales)… S Company’s realized net income from separate operations*…….….. Total Less: Amortization of allocated excess…………………… Consolidated Net Income for 20x5 Less: Non-controlling Interest in Net Income* * Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent – 20x5………….. *that has been realized in transactions with third parties.

P 220,000 0 (_ 0) P 220,000 P 50,000 0 ( 8, 000) P 42,000

42,000 P 262,000 13,000 P 249,000 8,700 P 240,300

Or, alternatively Consolidated Net Income for 20x5 P Company’s net income from own/separate operations…………. Realized profit in beginning inventory of S Company (downstream sales) Unrealized profit in ending inventory of S Company (downstream sales)… P Company’s realized net income from separate operations*…….….. S Company’s net income from own operations…………………………………. Realized profit in beginning inventory of P Company (upstream sales) Unrealized profit in ending inventory of P Company (upstream sales)… S Company’s realized net income from separate operations*…….….. Total Less: Non-controlling Interest in Net Income* * Amortization of allocated excess…………………… Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent………….. Add: Non-controlling Interest in Net Income (NCINI) Consolidated Net Income for 20x5 *that has been realized in transactions with third parties. **Non-controlling Interest in Net Income (NCINI) for 20x5 S Company’s net income of Subsidiary Company from its own operations (Reported net income of Son Company) Realized profit in beginning inventory of P Company (upstream sales) Unrealized profit in ending inventory of P Company (upstream sales) S Company’s realized net income from separate operations……… Less: Amortization of allocated excess Multiplied by: Non-controlling interest %.......... Non-controlling Interest in Net Income (NCINI) – partial goodwill 

P 220,000 0 (_ 0) P 220,000 P 50,000 0 ( 8,000) P 42,000 P 8,700 13,000

42,000 P 262,000 21,700 P240,300 _ 8,700 P249,000

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

Noncontrolling Interest in Subsidiary's Net Income = P8,700 (30 percent of the reported income after subtracting 13,000 excess fair value amortization and deferring P8,000 ending unrealized gross profit) Gross profit is included in this computation because the transfer was upstream from SS to PT.

Problem XII Amortization of equipment: P20,000 / 10 years = P2,000 RPBI of S (downstream sales):…………………........................................................ P15,000 RPBI of P (upstream sales)………………………............................ ........................... 10,000 UPEI of S (downstream sal es)……………………………………………………..……. 20,000 UPEI of P (upstream sales)………………………………………………….…………… 5,000 Consolidated Net Income for 2014

P Company’s net income from own/separate operations (P724,000 – P24,000 Realized profit in beginning inventory of S Company (downstream sales) Unrealized profit in ending inventory of S Company (downstream sales)… P Company’s realized net income from separate operations*…….….. S Company’s net income from own operations…………………………………. Realized profit in beginning inventory of P Company (upstream sales) Unrealized profit in ending inventory of P Company (upstream sales) S Company’s realized net income from separate operations*…….….. Total Less: Amortization of allocated excess…………………… Consolidated Net Income for 2014 Less: Non-controlling Interest in Net Income* * Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent – 2014………….. *that has been realized in transactions with third parties.

P700,000 15,000 (20,00 0) P695,000 P 90,000 10,000 ( 5,000) P 95,000

95,000 P790,000 2,000 P788,000 18,600 P769,400

Or, alternatively Consolidated Net Income for 2014 P Company’s net income from own/separate operations Realized profit in beginning inventory of S Company (downstream sales) Unrealized profit in ending inventory of S Company (downstream sales)… P Company’s realized net income from separate operations*…….….. S Company’s net income from own operations…………………………………. Realized profit in beginning inventory of P Company (upstream sales) Unrealized profit in ending inventory of P Company (upstream sales)… Son Company’s realized net income from separate operations*…….….. Total Less: Non-controlling Interest in Net Income* * Amortization of allocated excess…………………… Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent………….. Add: Non-controlling Interest in Net Income (NCINI) Consolidated Net Income for 2014 *that has been realized in transactions with third parties. **Non-controlling Interest in Net Income (NCINI) for 2014 S Company’s net income of Subsidiary Company from its own operations (Reported net income of S Company) Realized profit in beginning inventory of P Company (upstream sales) Unrealized profit in ending inventory of P Company (upstream sales) S Company’s realized net income from separate operations……… Less: Amortization of allocated excess Multiplied by: Non-controlling interest %.......... Non-controlling Interest in Net Income (NCINI) – partial goodwill Less: NCI on goodwill impairment loss on full goodwill Non-controlling Interest in Net Income (NCINI) – full goodwill

P700,000 15,0000 (20,00 0) P695,000 P 90,000 10,000 ( 5,000) P 95,000 P 18,600 2,000

95,000 P790,000 20,600 P769,400 _ 18,600 P788,000

P 90,000 10,000 ( 5,000) P 95,000 2,000 P 93,000 20% P 18,600 0 P 18,600

Note: Preferred Solution - since what is given is the RE – P, 12/31/2014 (ending balance of the current year) Retained earnings – Parent, 12/31/2014 (cost)……………………….. P 3,500,000 -: UPEI of S (down) – 2014 or RPBI of S (down) – 2015..…………. 20,000 Adjusted Retained earnings – Parent, 12/31/2014 (cost)………….. P 3,480,000 Retroactive Adjustmen ts to convert Cost to “Equity” for purposes of consolidation / Parent’s share of adjusted net increase in subsidiary’s retained earnings: Retained earnings – Subsidiary, 1/1/2011……………………….P 150,000 Less: Retained earnings – Subsidiary, 12/31/2014…………... 320,000 Increase in Retained earnings since acquisition (cumulative net income – cumulative dividends)………… P 170,000 Accumulated amortization (1/1/2011 – 12/31/2014): P 2,000 x 4 years………………………………………………..( 8,000) UPEI of P (up) – 2014 or RPBI of P (up) – 2015………………........( 5,000) P157,000 80% 125,600 x: Controlling Interests………………………………………… RE – P, 12/31/2014 (equity method) = CRE, 12/31/2014…………. P 3,605,600 Or, compute first the RE – P on January 1, 2014 (use work back approach), Retained earnings – Parent, 1/1/2014 (cost) (P3,500,000 plus P25,000 Div of P less P724,000 NI of P)…. P2,801,000 -: UPEI of S (down) – 2013 or RPBI of S (down) – 2014..…………. 15,000 Adjusted Retained earnings – Parent, 1/1/2014 (cost)……………… P2,786.000

Retroactive Adjustments to convert Cost to “Equity” for purposes of consolidatio n / Parent’s share of adjusted net increase in subsidiary’s retained earnings: Retained earnings – Subsidiary, 1/1/2011………………………P 150,000 Less: Retained earnings – Subsidiary, 1/1/2014……………… 260,000 Increase in Retained earnings since acquisition (cumulative net income – cumulative dividends)…………P 110,000 Accumulated amortization (1/1/2011 – 1/1/2014): P 2,000 x 3 years………………………………………………. ( 6,000) UPEI of P (up) – 2013 or RPBI of P (up) – 2014………………... ( 10,000) P 94,000 X: Controlling Interests………………………………………… 80% 75,200 RE – P, 1/1/2014 (equity method) = CRE, 1/1/2014………………..P2,861,200 +: CI – CNI or Profit Attributable to Equity Holders of Parent…….. 769,400 -: Dividends – P………………………..……………………… 25,000 RE – P, 12/31/2014 (equity method) = CRE, 12/31/2014………….P3,605,600

P S Intercompany sales - downstream Intercompany sales - upstream RPBI of S (downstream sales)* RPBI of P (upstream sales)*** UPEI of S (downstream sales)** UPEI of P (upstream sales)**** Consolidated

Sales Cost of Sales P2,500,000 P1,250,000 1,200,000 875,000 ( 320,000) ( 320,000) ( 290,000) ( 290,000) ( 15,000) ( 10,000) 20,000 _________ 5,000 P3,090,000 P1,515,000

Working Paper Eliminating Entries: 1. Intercompany Sales and Purchases: Downstream Sales: Sales………………………………………………………………………….. 320,000 Cost of Sales (or Purchases)…………………………………….... 320,000 Upstream Sales: Sales………………………………………………………………………….. 290,000 Cost of Sales (or Purchases)……………………………………… 290,000 2. Intercompany Profit: (COST Model) Downstream Sales: *100% RPBI of S: Retained Earnings – P, beginning………………………………………..... 15,000 Cost of Sales (Beginning Inventory in Income Statement)…............ 15,000 **100% UPEI of S: Cost of Sales (Ending Inventory in Income Statement)……………… 20,000 20,000 Inventory (Ending Inventory in Balance Sheet)……………….. Upstream Sales: ***100% RPBI of P: (if equity method Investment in S instead of RE – P, beg.) Retained Earnings – P, beginning…………………………………...…….. 16,000 NCI ……………………………………………….……………………………... 4,000 Cost of Sales (Beginning Inventory in Income Statement)…........ 20,000 ****100% UPEI of P: Cost of Sales (Ending Inventory in Income Statement)………………… 5,000 Inventory (Ending Inventory in Balance Sheet)……………….. 5,000

Multiple Choice Problems 1. a

20x4 and 20x5:: P12,000 x 80% = P9,600 20x6: P18,000 x 80% = P14,400 2. c 20x4: (P84,000 x 80%) = P67,200 – (P1,440 (P1,440 x 30% x 80%) = P66,854.40 20x5: (P102,000 x 80%) + (P1,440 x 30% x 80%) - (P4,800 x 30% x 80%) = P80,793.60 20x6: (P112,800 x 80%) + (P4,800 x 30% x 80%) – (P3,600 (P3,600 x 30% x 80%) = P90,258.00 3. No requirement. 4. b – (P14,400 (P14,400 + P432 – P1,440 P1,440 = P13,392) Analysis: Eliminating entries Upstream Sales: Sales………………………………………………………………………….. 14,400 14,400 Cost of Sales (or Purchases)…………………………………… 100% RPBI of P: (if equity method Investment in S instead of RE – P, P, beg.): (P1,440 x 30% = P432) Retained Earnings – P, – P, beginning………………………… beginning…………………………………...….. ………...….. 345.60 NCI ……………………………………………….… ……………………………………………….…………………………… ………………………… 86.40 Cost of Sales (Beginning Inventory in Income Statement).. 432.00 100% UPEI of P: (P4,800 x 30% = P1,440) Cost of Sales (Ending Inventory in Income Statement)…………….. 1,440 Inventory (Ending Inventory in Balance Sheet)…………… ...

1,440

5. a – there there are no intercompany profit in 20x3 (prior year), so need to adjust retained earnings. 6. a - Investment income, income, P5,000 x 80% = P4,000; P4,000; Investment Investment in Leisure, P100,000. 7.c Cost, 1/1/x3 NI of Leisure (13,000 x 80%) RPBI of LP (350 x 80%)

Investment in Leisure 109,070 4,000 4,800 10,400 850 280 336

Balance, 12/31/x3

109,764

Amortization Impairment* UPEI of LP (420 x 80%))

Investment Income 4,800 850 10,400 336 280

4,694

Dividends – Lei Lei (5,000x 80%) Amortization (6,000 x 80%) Impairment (1,000 x 85%)* UPEI of LP (420 x 80%)

NI of Leisure (13,000 x 80%) RPBI of LP (350 x 80%) Balance, 12/31/x4

RPBI of LP: P1,350 x 35/135 = P350 UPEI of LP: P1,620 x 35/135 = P420 Partial Fair value of Subsidiary (80%) Consideration Consider ation transferred transferr ed . . . . . . . . . . . . . . . . . . . . . . Less: Book value of stockholders’ equity of LP (P10,000 x 80%)………………………………………... 80%)………………………………………... Allocated excess (excess of cost over book value) . . . Less: Over/under valuation of assets and liabilities: Increase in favorable leases (P30,000 x 80%) . . . . . Positive excess: Partial-goodwill (excess of cost over fair value) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

P 100,000 ____8,000 P 92,000 ___24,000 P 68,000

Full Fair value of Subsidiary (100%) Consideration Consider ation transferred transferr ed (80%). . . . . . . . . . . . . . . . . . Fair value of NCI (given) (20%)…………………………….. (20%)…………………………….. Fair value of Subsidiary (100%) ……………………………. Less: Book value of stockholders’ equity of LP (P10,000 x 100%)……………………………………….

Allocated excess (excess of cost over book value) . . . Less: Over/under valuation of assets and liabilities:

P 100,000 ___20,000 P 120,000 ___10,000 P 110,000

Increase in favorable leases (P30,000 x 100%) . . . . Positive excess: Partial-goodwill (excess of cost over fair value) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

___30,000 P 80,000

Note: The controlling interests of parent to subsidiary of 80% is not an outright application to impairment of goodwill, it still depends on the resulting goodwill of partial and full goodwill, for instance in Questions 6 to 10, the CI is 85% and NCI is 15% for impairment computed as follows: Partial goodwill NCI on Full Goodwill Full-goodwill

68,000 12,000 80,000

85% _15% 100%

8. a Consolidated Net Income for 20x3 operations Parent Company’s net income from own/separate operations (P400,000 – P250,000 P250,000 – P130,000) Subsidiary Company’s net income from own operations (P200,000 – P120,000 P120,000 – P67,000) Realized profit in beginning inventory of P Company (upstream sales) . . . . . . . Unrealized profit in ending inventory of P Company (upstream sales) . . . . . . . . Son Company’s realized net income from separate operations* . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less: Amortizati on of allocated excess . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Impairment Impairmen t of goodwill. . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . Consolidated Consolidate d Net Income for 20x3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less: Non-controlling Non-cont rolling Interest Intere st in Net Income* * . . . . . . . . . . . . . . . . . . . . . . . . . . . . Controlling Interest in Consolidated Net Income or Profit attributable attributable to equity holders of parent – 20x3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . *that has been realized in transactions with third parties.

P 20,000 P 13,000 350 ( 420) P12,930

12,930 P 32,930 6,000 ___1,000 P 25,930 1,236 P24,694

Or, alternatively Consolidated Net Income for 20x3 Parent Company’s net income from own/separate operations (P400,000 – P250,000 P250,000 – P130,000) Subsidiary Company’s net income from own operations (P200,000 – P120,000 P120,000 – P67,000) Realized profit in beginning inventory of P Company (upstream sales) . . . . . . . Unrealized profit in ending inventory of P Company (upstream sales) . . . . . . . . Son Company’s realized net income from separate operations* . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less: Non-controlling Interest in Net Income* * . . . . . . . . . . . . . . . . . . . . . . . . . . . Impairment Impairme nt of goodwill. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amortization Amortizati on of allocated excess . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Controlling Interest in Consolidated Net Income or Profit Profit attributable to equity holders of parent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Add: Non-controlling Non-cont rolling Interest Interes t in Net Income (NCINI) (NCINI ) . . . . . . . . . . . . . . . . . . . . . . Consolidated Consolida ted Net Income for 20x3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

P 20,000 P 13,000 350 ( 420) P12,930

12,930 P 32,930

P 1,236 1,000 6,000

8,236 P 24,694 _ _ 1,236 P25,930

*that has been realized in transactions with third parties.

**Non-controlling Interest in Net Income (NCINI) for 20x3 Subsidiary Company from its own operations S Company’s net income of Subsidiary (Reported net income of S Company) Realized profit in beginning inventory of P Company (upstream sales) . . . . . . . Unrealized profit in ending inventory of P Company (upstream sales) . . . . . . . . S Company’s realized net income from separate operations . . . . . . . . . . Less: Amortization Amortizati on of allocated excess . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Multiplied by: Non -controlling -controll ing interest interes t % . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-controlling Interest in Net Income Income (NCINI) – partial goodwill . . . . . . . . . . . Less: NCI on goodwill impairment loss on full goodwill (P1,000 x 15%). . . . . . . . . Non-controlling Interest in Net Income Income (NCINI) – full goodwill . . . . . . . . . . . . . .

P 13,000 350 ( 420) P 12,930 6,000 P 6,930 20% P 1,386 150 P 1,236

Or, alternatively

Parent’s net income own operations Subsidiary’s reported net income Favora Fav orable ble lease le asess amort amo rtiz izati ation on Goodwill impairment loss Upstream beg. inv. profit confirmed Upstream end. inv. profit unconfirmed

CI-CNI 20,000 1 0 ,4 (4 ,80 ) 80 2 ,4 6 9

NCINI

CNI

9. b Retained earnings of Parent Company (under equity equity method) / Consolidated Consolidate d Retained earnings , January 1, 20x3. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Add: Controlling Interest in Consolidated Net Income or Profit attributable attributable to equity holders of parent for 20x5. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less: Dividends paid – Parent Company for 20x4. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Retained earnings of Parent Company (under equity equity method) / Consolidated Consolidat ed Retained Earnings, December 31, 20x4. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

P 40,000 24,694 P 64,694 10,000 P 54,694

Therefore, regardless of the method used in the separate financial statement of parent, the consolidated balance (which is under equity method) is always the same.

10. Ignore, there are some missing figures particularly the details of subsidiary’s subsidiary’s stockholders equity since the date of acquisition. 11. d Non-controlling Interest in Net Income (NCINI) (NCINI) for 20x4: S Company’s net income of Subsidiary Subsidiary Company from its own operations operations (Reported net income of S Company) Realized profit in beginning inventory of P Company (upstream sales) Unrealized profit in ending inventory of P Company (upstream sales) S Company’s realized net income from separate operations……… Less: Amortizati on of allocated excess

P 137,000 40,000 ( 25,000) P 152,000 _ 0 P 152,000 30% P 45,600 0 P 45,600

Multiplied by: Non-controlling interest %.......... %.......... Non-controlling Interest in Net Income Income (NCINI) – partial goodwill Less: NCI on goodwill impairment loss on full goodwill Non-controlling Interest in Net Income Income (NCINI) – full goodwill

12. b Combined cost of sales Less: Intercompany sales revenue Add: Unrealized profit taken out of inventory (75%)x(35,000) = Consolidated cost of sales

P 160,000 110,000 26,250 P 76,250

13. d Cost method: P40,000 x 70% = P28,000, dividend income Equity Method: (P115,000 (P115,000 x 70%) - P26,250 = P54,250, equity in subsidiary subsidiary income 14. a - P720,000 = P500,000 + P400,000 - P200,000 +P 20,000

15. b Cost method: P60,000 x 80% = P48,000 Equity Method: (P120,000 x 80%) – (P200,000 (P200,000 x 50% = P100,000 x 20% = P20,000)=P76,000 16. d Downstream situation S Company’s net net income from own/separate own/separate operations x: NCI %

P120,000 20% P 24,000

17. c Share in net income (P120,000 x 60%) Less: Unrealized profit in ending inventory of S {P189,000 x 1/3 = P63,000 x (P189-135)/P189] Intercompany profit to be eliminated

P72,000 __18,000 P54,000

Share in net income (P200,000 x 60%) Less: Unrealized profit in ending inventory of S {P315,000 x 1/3 = P105,000 x (P315-P225)/P315] Intercompany profit to be eliminated

P120,000 __30,000 P 90,000

18. b

19. b - P45,000 + P110,000 - P50,000 - P80,000 = P25,000 P25,000 increase 20. a Beginning inventory profit = P825,000 - P825,000/1.25 = P165,000 Ending inventory profit = P750,000 - P750,000/1.25 = P150,000 Downstream sales only affect equity in net income. income. P165,000 - P150,000 = P15,000 increase. increase.

21. c - There is no unconfirmed profit in beginning or ending inventory, so the only eliminating entry is to debit sales revenue and credit cost of goods sold for P1,000,000. 22. b 23. a 24. c – P400,000 x 1/4 = P100,000 x 30% = P30,000 25. c Ending inventory at selling price: P300,000 x 1/3 = P100,000 x (300,000 – 240,000)/300,000 Less: Inventory write-down (P100,000 – P92,000) Intercompany profit to be eliminated

P20,000 __8,000 P12,000

26. b – [P300,000 x 1/2 = P150,000 x 40% = P60,000] 27. c – P100,00 sales to unrelated/unaffiliated company. 28. c Cost of Sales 67,000 _63,000 130,000 90,000

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

Sales Less: Cost of goods sold – Parent Subsidiary (90,000 x 70%) Gross profit Ending inventory (90,000 x 30%)

__6,900 46,900 Parent 90,000 67,000 ______ 23,000

Subsidiary 100,000 63,000 37,000 27,000

29. a Consolidated Net Income for 20x4 P Company’s net income from own/separate operations [P100,000 – (P90,000 x 70%)] Realized profit in beginning inventory of S Company (downstream sales) Unrealized profit in ending inventory of S Company (downstream sales)… P Company’s realized net income from separate operations*…….….. S Company’s net income from own operati ons (P90,000 – P67,000) Realized profit in beginning inventory of P Company (upstream sales) Unrealized profit in ending inventory of P Company (upstream sales) [P90,000 x 30% = P27,000 x (90-67/90)] S Company’s realized net income from separate operations*…….….. Total Less: Amortization of allocated excess…………………… Consolidated Net Income for 20x4 Less: Non-controlling Interest in Net Income* * Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent – 20x4………….. *that has been realized in transactions with third parties.

P 37,000 0 (_0) P 37,000 P23,000 0 (

6,900 ) P16,100

16,100 P 53,100 0 P 53,100 1,610 P 51,490

Or, alternatively Consolidated Net Income for 20x4 P Company’s net income from own/separate operations [P100,000 – (P90,000 x 70%)] Realized profit in beginning inventory of S Company (downstream sales) Unrealized profit in ending inventory of S Company (downstream sales)… P Company’s realized net income from separate operations*…….….. S Company’s net income from own operati ons (P90,000 – P67,000) Realized profit in beginning inventory of P Company (upstream sales) Unrealized profit in ending inventory of P Company (upstream sales) [P90,000 x 30% = P27,000 x (90-67/90)] S Company’s realized net income from separate operations*…….….. Total Less: Non-controlling Interest in Net Income* * Amortization of allocated excess…………………… Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent………….. Add: Non-controlling Interest in Net Income (NCINI) Consolidated Net Income for 20x4 *that has been realized in transactions with third parties.

P 37,000 0 (_0) P 37,000 P23,000 0 (

6,900 ) P16,100 P 1,610 0

16,100 P 53,100 1,610 P 51,490 _ 1,610 P 53,100

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

P 23,000 0 ( 6,900) P 16,100 0 P 16,100 10% P 1,610 0 P 1,610

Multiplied by: Non-controlling interest %.......... Non-controlling Interest in Net Income (NCINI) – partial goodwill Less: NCI on goodwill impairment loss on full goodwill Non-controlling Interest in Net Income (NCINI) – full goodwill

30. d – P27,000 x 67/90 = P20,100 31. b – P120,000, the amount of sales to outsiders is the amount of sales presented in the consolidated income statement. 32. a – the cost of inventory produced by the parent (downstream sales) 33. c Consolidated Net Income for 20x4 P Company’s net income from own/separate operations (P90,000 – P62,000) Realized profit in beginning inventory of S Company (downstream sales) Unrealized profit in ending inventory of S Company (downstream sales)… P Company’s realized net income from separate operations*…….….. S Company’s net income from own operati ons (P120,000 – P90,000) Realized profit in beginning inventory of P Company (upstream sales) Unrealized profit in ending inventory of P Company (upstream sales) S Company’s realized net income from separate operations*…….….. Total Less: Amortization of allocated excess…………………… Consolidated Net Income for 20x4 Less: Non-controlling Interest in Net Income* * Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent – 20x4………….. *that has been realized in transactions with third parties.

P 28,000 0 (_0) P 28,000 P3 0,000 0 () P30,000

30,000 P 58,000 0 P 58,000 3,000 P 55,000

Or, alternatively Consolidated Net Income for 20x4 P Company’s net income from own/separate operations (P90,000 – P62,000) Realized profit in beginning inventory of S Company (downstream sales) Unrealized profit in ending inventory of S Company (downstream sales)… P Company’s realized net income from separate operations*…….….. S Company’s net income from own operations (P120,000 – P90,000) Realized profit in beginning inventory of P Company (upstream sales) Unrealized profit in ending inventory of P Company (upstream sales S Company’s realized net income from separate operations*…….….. Total Less: Non-controlling Interest in Net Income* * Amortization of allocated excess…………………… Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent………….. Add: Non-controlling Interest in Net Income (NCINI) Consolidated Net Income for 20x4 *that has been realized in transactions with third parties.

P 28,000 0 (_0) P 28,000 P3 0,000 0 () P30,000 P 3,000 0

**Non-controlling Interest in Net Income (NCINI) for 20x4 S Company’s net income of Subsidiary Company from its own operations (Reported net income of S Company) Realized profit in beginning inventory of P Company (upstream sales) Unrealized profit in ending inventory of P Company (upstream sales) S Company’s realized net income from separate operations……… Less: Amortization of allocated excess Multiplied by: Non-controlling interest %.......... Non-controlling Interest in Net Income (NCINI) – partial goodwill Less: NCI on goodwill impairment loss on full goodwill Non-controlling Interest in Net Income (NCINI) – full goodwill

30,000 P 58,000 3,000 P 55,000 _ 3,000 P 58,000

P 30,000 0 ( 0) P 30,000 0 P 30,000 10% P 3,000 0 P 3,000

34. c P Company S Company Total Less: Intercompany sales – upstream sales

Sales 10,000,000 __200,000 10,200,000 60,000

Cost of Sales 7,520,000 _160,000 7,680,000 60,000

Add: Unrealized profit in EI of S Co. [P60,000 x 30% = P18,000 x (10 – 7.5)/10] Consolidated

________ 10,140,000

__ 4,500 7,604,500

35. d – refer to No. 34 for computation 36. c – (P10,140,000 – P7,604,500) = P2,535,500 37. c Sales 10,000,000 __200,000 10,200,000 60,000

P Company S Company Total Less: Intercompany sales – downstream sales Add: Unrealized profit in EI of S Co. [P60,000 x 30% = P18,000 x (10 – 7.5)/10] Consolidated 38. a – (P40,000 x 140% = P56,000) 39. a – (P56,000 – P40,000 = P16,000) 40. a 20x5 P Company S Company Total Less: Intercompany sales Realized profit in BI of S Co. [P240,000 x 1/2 = P120,000 x (240-192)/240] Add: Unrealized profit in EI of S Co. [P375,000 x 40% = P150,000 x (375-300)/375] Consolidated

________ 10,140,000

Sales 1,800,000 __900,000 2,700,000 375,000

Cost of Sales 1,440,000 _750,000 2,190,000 375,000 24,000

________ 2.325,000

__30,000 1,821,000

41. c - refer to No. 40 for computations 42. b Consolidated Net Income for 20x4 P Company’s net income from own/separate operations Realized profit in beginning inventory of S Company (downstream sales) Unrealized profit in ending inventory of S Company (downstream sales)… P Company’s realized net income from separate operations*…….….. S Company’s net income from own operati ons Realized profit in beginning inventory of P Company (upstream sales) Unrealized profit in ending inventory of P Company (upstream sales) [P150,000 x 50% = P75,000 x (P30,000/P150,000)] S Company’s realized net income from separate operations*…….….. Total Less: Amortization of allocated excess…………………… Consolidated Net Income for 20x4 Less: Non-controlling Interest in Net Income* * Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent – 20x4………….. *that has been realized in transactions with third parties. **Non-controlling Interest in Net Income (NCINI) for 20x4 S Company’s net income of Subsidiary Company from its own operations (Reported net income of S Company) Realized profit in beginning inventory of P Company (upstream sales) Unrealized profit in ending inventory of P Company (upstream sales) S Company’s realized net income from separate operations……… Less: Amortization of allocated excess Multiplied by: Non-controlling interest %.......... Non-controlling Interest in Net Income (NCINI) – partial goodwill Less: NCI on goodwill impairment loss on full goodwill Non-controlling Interest in Net Income (NCINI) – full goodwill

43. c – refer to No. 42 for computations 44. c 45 a Amount paid by Lorn Corporation Unrealized profit Actual cost

P 225,000 0 (_0) P225,000 P 90,000

(

15,000 ) P 75,000

75,000 P 300,000 _0 P 300,000 15,000 P 285,000

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

P120,000 (45,000) P 75,000

46.

e

Portion sold Cost of goods sold

x .80 P 60,000

Consolidated sales Cost of goods sold Consolidated net income Income to Dresser’s noncontrolling interest:

P140,000 (60,000) P 80,000

Sales Reported cost of sales Report income Portion realized Realized net income Portion to Noncontrolling Interest Income to noncontrolling Interest Income to controlling interest 47.

A

P120,000 (75,000) P 45,000 x .80 P 36,000 x

.30 (10,800) P 69,200

Inventory reported by Lorn Unrealized profit (P45,000 x .20) Ending inventory reported

P 24,000 (9,000) P 15,000

48. c Sales 500,000 _350,000 850,000 100,000 150,000 600,000

P Company S Company Total Less: Intercompany sales to Dundee Intercompany sales to Perth Consolidated 49. a Ending inventory of Perth from Dundee (P36,000 / 110%) Ending inventory of Dundee from Perth (P31,000 / 130%) Total 50.

a

32,727 _23,846 56,573

Selling price Less: Cost of sales Original unrealized profit Unsold percentage Unrealized profit

P

50,000 _40,000 10,000 __30% P _3,000

51. a Consolidated Net Income for 20x4 P Company’s net income from own/separate operations Unrealized profit in ending inventory of S Company (downstream sales)… P Company’s realized net income from separate operations*…….….. S Company’s net income from own operations…………………………………. Total Less: Amortization of allocated excess…………………… Consolidated Net Income for 20x5

52.

a Combined 20x5 sales (P580,000 + P445,000) Less: 20x5 intercompany sales Consolidated sales

53.

P180,000 ( 3,000) P 177,000 76,000 P253,000 0 P253,000

P P

1,025,000 0 1,025,000

d Combined cost of sales Less: 20x5 intercompany sales Less: Unrealized profit in the 20x5 beginning inventory from 20x4 Add: Unrealized profit in 20x5 ending inventory Consolidated cost of sales

P 480,000 0 ( 3,000) ________0 P 477,000

54. d Cost of Sales 5,400,000 _1,200,000 6,600,000 1,000,000

P Company S Company Total Less: Intercompany sales Realized profit in BI of S Co. [P625,000 x 12% = P75,000 x (625 - 425)/625] Add: Unrealized profit in EI of S Co. [P1,000,000 x 10% = P100,000 x (1,000 - 800)/1,000] Consolidated

24,000 __20,000 5,596,000

55. b Cost of Sales 690,000 195,000 885,000 200,000

Bates Company Sam Company Total Less: Intercompany sales Realized profit in BI of Bates Co. [P40,000 x 20%] Add: Unrealized profit in EI of Bates Co. [P15,000 x 20%] Consolidated

8,000 __3,000 680,000

56. b Net Income from own operations: X-Beams (parent)Kent (subsidiary), 70%:30% Unrealized Profit in EI of Parent (X-Beams): P180,000x 20% = P36,000 x (180-100/180)= P16,000, 70%:30%

Parent

Subsidiary

210,000

90,000

( 11,200)

( 4,800) 85,200

20x5

20x6

Non-controlling Interest in Kent’s Net Income 57. d Non-controlling Interest in Net Income (NCINI) for S Company’s net income of Subsidiary Company from its own operations (Reported net income of S Company) Realized profit in beginning inventory of P Company (upstream sales) Unrealized profit in ending inventory of P Company (upstream sales) S Company’s realized net income from separate operations……… Less: Amortization of allocated excess Multiplied by: Non-controlling interest %.......... Non-controlling Interest in Net Income (NCINI) – partial goodwill Less: NCI on goodwill impairment loss on full goodwill Non-controlling Interest in Net Income (NCINI) – full goodwill

P 400,000 (

20,000) P 380,000 0 P380,000 20% P 76,000 0 P 76,000

P 480,000 20,000 0 P 500,000 0 P500,000 20% P100,000 0 P100,000

58. a **Non-controlling Interest in Net Income (NCINI) for 20x6 S Company’s net income of Subsidiary Company from its own operations (Reported net income of S Company) Realized profit in beginning inventory of P Company (upstream sales) Unrealized profit in ending inventory of P Company (upstream sales) (P100,000 x 10% = P10,000 x 30%) S Company’s realized net income from separate operations……… Less: Amortization of allocated excess

P

( 3,000) P( 3,000) 0 P( 3,000) 10% P(300) 0 P( 300)

Multiplied by: Non-controlling interest %.......... Non-controlling Interest in GP Less: NCI on goodwill impairment loss on full goodwill Non-controlling Interest in GP

59. a 60. a

Selling price Less: Cost of sales Unrealized profit Unsold fraction Credit to Inventory

P (

P

60,000 48,000 ) 12,000 1/3 4,000

61. a – the cost from parent of P48,000 x 45/60 = P36,000 Sales

Parent 60,000

0 0

Subsidiary 1 60,000

Subsidiary 2 67,000

Less: Cost of goods sold – P and S1 Subsidiary (60,000 x 45/60) Gross profit Ending inventory (60,000 x 15/60)

48,000 ______ 12,000

60,000 ______ 0

45,000 22,000 15,000

62. b – the cost from parent of P48,000 x 15/60 = P12,000 63. a Sales Intercompany Parent Subsidiary 1 Add: Cost of EI in S2 Co. [P15,000 x (48/60] Amount to be eliminated

Cost of Sales

60,000 60,000

60,000 45,000

________ 120,000

__12,000 *117,000

*or, P60,000 + P60,000 – [P15,000 x (60-48/60] 64. b – refer to No. 63 for computation 65. d – P15,000 x [(60-48)/60] = P3,000 66. a Consolidated Net Income for 20x3 P Company’s net income from own/separate operations Realized profit in beginning inventory of S Company (downstream sales) Unrealized profit in ending inventory of S Company (downstream sales)… P Company’s realized net income from separate operations*…….….. S Company’s net income from own operati ons Realized profit in beginning inventory of P Company (upstream sales) Unrealized profit in ending inventory of P Company (upstream sales) [P105,000 x 20/120) S Company’s realized net income from separate operations*…….….. Total Less: Amortization of allocated excess…………………… Consolidated Net Income for 20x3

P 225,000 0 (_0) P225,000 P150,000 0 (

17,500 ) P132,500

132,500 P 357,500 _0 P357,500

67. c Consolidated Net Income for 20x4 P Company’s net income from own/separate operations Realized profit in beginning inventory of S Company (downstream sales) Unrealized profit in ending inventory of S Company (downstream sales)… P Company’s realized net income from separate operations*…….….. S Company’s net income from own operati ons Realized profit in beginning inventory of P Company (upstream sales) [P105,000 x 20/120) Unrealized profit in ending inventory of P Company (upstream sales) [P157,500 x 20/120) S Company’s realized net income from separate operations*…….….. Total Less: Amortization of allocated excess…………………… Consolidated Net Income for 20x4 Less: Non-controlling Interest in Net Income* * Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent – 20x4………….. *that has been realized in transactions with third parties.

P360,000 0 (_0) P360,000 P135,000 17,500 ( 26,250 ) P126,250

126,250 P 486,250 _0 P486,250 1,610 P 51,490

Or, alternatively Consolidated Net Income for 20x4 P Company’s net income from own/separate operations Realized profit in beginning inventory of S Company (downstream sales) Unrealized profit in ending inventory of S Company (downstream sales)… P Company’s realized net income from separate operations*…….….. S Company’s net income from own operati ons ( Realized profit in beginning inventory of P Company (upstream sales) [P105,000 x 20/120) Unrealized profit in ending inventory of P Company (upstream sales) [P157,500 x 20/120) S Company’s realized net income from separate operations*…….….. Total Less: Non-controlling Interest in Net Income* * Amortization of allocated excess…………………… Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent………….. Add: Non-controlling Interest in Net Income (NCINI) Consolidated Net Income for 20x4 *that has been realized in transactions with third parties. **Non-controlling Interest in Net Income (NCINI) for 20x4

P360,000 0 (_0) P360,000 P135,000 17,500 ( 26,250 ) P126,250 P 37,875 0

126,250 P 486,250 37,875 P 448,375 _37,875 P 486,250

S Company’s net income of Subsidiary Company from its own operations (Reported net income of S Company) Realized profit in beginning inventory of P Company (upstream sales) Unrealized profit in ending inventory of P Company (upstream sales) S Company’s realized net income from separate operations……… Less: Amortization of allocated excess

P 135,000 17,500 ( 26,250) P 126,250 0 P126,250 30% P 37,875 0 P 37,875


68. a – refer to No. 67 for computation. 69. d Consolidated Net Income for 20x5 P Company’s net income from own/separate operations Realized profit in beginning inventory of S Company (downstream sales) Unrealized profit in ending inventory of S Company (downstream sales)… P Company’s realized net income from separate operations*…….….. S Company’s net income from own operati ons Realized profit in beginning inventory of P Company (upstream sales) [P157,500 x 20/120) Unrealized profit in ending inventory of P Company (upstream sales) [P180,000 x 20/120) S Company’s realized net income from separate operations*…….….. Total Less: Amortization of allocated excess…………………… Consolidated Net Income for 20x4 Less: Non-controlling Interest in Net Income* * Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent – 20x5………….. *that has been realized in transactions with third parties.

P 450,000 0 (_0) P450,000 P240,000 26,250 (

30,000 ) P236,250

236,250 P 686,250 _0 P686,750 70,875 P 615,375

Or, alternatively Consolidated Net Income for 20x5 P Company’s net income from own/separate operations Realized profit in beginning inventory of S Company (downstream sales) Unrealized profit in ending inventory of S Company (downstream sales)… P Company’s realized net income from separate operations*…….….. S Company’s net income from own operati ons Realized profit in beginning inventory of P Company (upstream sales) [P157,500 x 20/120) Unrealized profit in ending inventory of P Company (upstream sales) [P180,000 x 20/120) S Company’s realized net income from separate operations*…….….. Total Less: Non-controlling Interest in Net Income* * Amortization of allocated excess…………………… Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent………….. Add: Non-controlling Interest in Net Income (NCINI) Consolidated Net Income for 20x5 *that has been realized in transactions with third parties. **Non-controlling Interest in Net Income (NCINI) for 20x4 S Company’s net income of Subsidiary Company from its own operations (Reported net income of S Company) Realized profit in beginning inventory of P Company (upstream sales) Unrealized profit in ending inventory of P Company (upstream sales) S Company’s realized net income from separate operations……… Less: Amortization of allocated excess Multiplied by: Non-controlling interest %.......... Non-controlling Interest in Net Income (NCINI) – partial goodwill Less: NCI on goodwill impairment loss on full goodwill Non-controlling Interest in Net Income (NCINI) – full goodwill

P 450,000 0 (_0) P450,000 P240,000 26,250 (

30,000 ) P236,250 P 70,875 0

236,250 P 686,250 70,875 P 615,375 __70,875 P 686,250

P 240,000 26,250 ( 30,000) P 236,250 0 P 236,250 30% P 70.875 0 P 70,875

70. a – refer to No. 69 for computation. 71. d P Company S Company Total Less: Intercompany sales Consolidated

Sales 420,000 280,000 700,000 140,000 560,000

72. b Operating Expenses 28,000 14,000 42,000 _5,000 47,000

P Company S Company Total Add: Undervalued equipment (P35,000/7 years) Consolidated 73. c P Company S Company Total Less: Intercompany sales Add: Unrealized profit in EI of S Co. [P140,000 x 60% = P84,000 x (140 - 112)/140] Consolidated

Cost of Sales 196,000 _112,000 308,000 140,000 _16,800 184,800

74. a or e - if full goodwill method. Non-controlling interest (partial-goodwill), December 31, 20x4 Common stock – S Company, December 31, 20x4 …… Retained earnings – S Company, December 31, 20x4 Retained earnings – S Company, January 1, 20x4 Add: Net income of S for 20x4 Total Less: Dividends paid – 20x4 Stockholders’ equity – S Company, December 31, 20x4 Adjustments to reflect fair value - (over) undervaluation of assets and liabilities, date of acquisition (January 1, 20x4) Amortization of allocated excess (refer to amortization above) : 20x5 (P35,000/7 years) Fair value of st ockholders’ equity of S, December 31, 20x5…… Multiplied by: Non-controlling Interest percentage…………... Non-controlling interest (partial goodwill)………………………………….. Add: NCI on full-goodwill (P70,000 – P56,000) Non-controlling interest (full- goodwill)…………………………………..

P 140,000 P210,000 154,000 P364,000 0

364,000 P 504,000 35,000 ( 5,000) P 534,000 20 P 106,800 14,000 P 120,800

Partial-goodwill Fair value of Subsidiary (80%) Consideration transferred……………………………….. Less: Book value of stockholders’ equity of S: Common stock (P140,000 x 80%)……………………. Retained earnings (P210,000 x 8 0%)………………... Allocated excess (excess of cost over book value)….. Less: Over/under valuation of assets and liabilities: Increase in equipment (P35,000 x 80%) Positive excess: Partial-goodwill (excess of cost over fair value)………………………………………………...

P 364,000 P112,000 168,000

280,000 P 84,000 ___28,000 P 56,000

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

P 455,000 __350,000 P 105,000 35,000 P

70,000

75. d P Company S Company Total Add: Undervalued equipment Less: Depreciation on undervalued equipment (P35,000/7 years)

Equipment 616,000 420,000 1,036,000 35,000 7,000

Consolidated

1,064,000

76. d Inventory 210,000 154,000 364,000 16,800 347,200

P Company S Company Total Less: Unrealized profit in EI: [P140,000 x 60% = P84,000 x (140 - 112)/140] Consolidated 77. d 78. c

79. c

Add the two book values and remove P100,000 intercompany transfers. Intercompany gross profit (P100,000 - P80,000) ................................................... Inventory remaining at year's end ......................................................................... Unrealized intercompany gross profit ....................................................................

P20,000 60% P12,000

CONSOLIDATED COST OF GOODS SOLD Parent balance ................................................................................................... Subsidiary balance ............................................................................................. Remove intercompany transfer ....................................................................... Defer unrealized gross profit (above) ............................................................. Cost of goods sold .....................................................................................................

P140,000 80,000 (100,000) 12,000 P132,000

Consideration transferred .............................................. Non-controlling interest fair value .................................. SZ total fair value ............................................................... Book value of net assets ................................................... Excess fair over book value

P260,000 65,000 P325,000 (250,000) P75,000 Annual Excess Amortizations

Life

Excess fair value assigned to undervalued assets: Equipment .................................................................... Secret Formulas .......................................................... Total .................................................................................

25,000 5 years 50,000 20 years P -0-

P5,000 2,500 P7,500

Consolidated Expenses = P37,500 (add the two book values and include current year amortization expense) 80. a Non-controlling interest (partial-goodwill), December 31, 20x4 Common stock – S Company, December 31, 20x4…… Retained earnings – S Company, December 31, 20x4 Retained earnings – S Company, January 1, 20x4 Add: Net income of S for 20x4 Total Less: Dividends paid – 20x4 Stockholders’ equity – S Company, December 31, 20x4 Adjustments to reflect fair value - (over) undervaluation of assets and liabilities, date of acquisition (January 1, 20x4) Amortization of allocated excess (refer to amortization above) : Fair value of stockholders’ equity of S, December 31, 20x5…… Multiplied by: Non-controlling Interest percentage…………... Non-controlling interest (partial goodwill)………………………………….. Add: NCI on full-goodwill ( Non-controlling interest (full- goodwill)…………………………………..

P 100,000 P150,000 110,000 P260,000 0

260,000 P 360,000 75,000 ( 7,500) P 427,500 20 P 85,500 ________0 P 85,500

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

P 260,000 P 80,000 120,000 P

200,000 60,000 20,000 40,000

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

P 260,000 ___65,000 P 325,000 __250,000 P 75,000 25,000 50,000

P

Amortization: Equipment: P25,000 / 5 years = P 5,000 Secret formulas: P50,000 / 20 years = 2,500 Total amortization of allocated P 7,500 81. c Add the two book values plus the original allocation (P25,000) less one year of excess amortization expense (P5,000). 82. b Add the two book values less the ending unrealized gross profit of P12,000. Intercompany Gross profit (P100,000 – P80,000) .................................................. Inventory Remaining at Year's End ........................................................................ Unrealized Intercompany Gross profit, 12/31 .......................................................

P20,000 60% P12,000

83. b 20x3 Share in net income 20x3: P70,000 x 90% 20x4: P85,000 x 90% 20x5: P94,000 x 90% Less: Unrealized profit in ending inventory of P 20x3: P1,200 x 25% = P300 x 90% 20x4: P4,000 x 25% = P1,000 x 90% 20x5: P3,000 x 25% = P750 x 90% Income from S

20x4

20x5

P 63,000 P 76,500 P 84,600 (

270)

________ P 62,730

270 ( 900) ________ P 75,870

900 __( 675) P 84,825

It should be noted that PAS 27 allow the use of cost model in accounting for investment in subsidiary in the books of parent company but not the equity method. 84. c – refer to No. 83 for computation. 85. d – refer to No. 83 for computation. 86. a **Non-controlling Interest in Net Income (NCINI) for S Company’s net income of Subsidiary Company from its own operations (Reported net income of S Company) RPBI of P Company (upstream sales) UPEI of P Company (upstream sales) S Company’s realized net income from separate operations Less: Amortization of allocated excess Multiplied by: Non-controlling interest %.......... Non-controlling Interest in Net Income (NCINI) – partial goodwill Less: NCI on goodwill impairment loss on full goodwill Non-controlling Interest in Net Income (NCINI) – full goodwill

20x3 P 70,000 0 ( 300) P 69,700 0 P 69,700 10% P 6,970 0 P 6,970

87. c – refer to No. 86 for computation. 88. c – refer to No. 86 for computation. 89. a – refer to No. 86 for computation. 90. a – refer to No. 86 for computation. 91. b – refer to No. 86 for computation. 92. a – none, since intercompany profit starts only at the end of 20x3. 93. b – the amount of unrealized profit at the end of 20x3. 94. c – the amount of unrealized profit at the end of 20x4. 95. d P32,000 = (P200,000 + P140,000) – P308,000 96. b P6,000 = (P26,000 + P19,000) – P39,000 97. c P9,000 = Inventory held by Spin (P32,000 x .375)

20x4 P 85,000 300 ( 1,000) P 84,300 0 P 84,300 10% P 8,430 0 P 8,430

P12,000

20x5 P 94,000 1,000 ( 750) P 94,250 0 P 94,250 10% P 9,425 0 P 9,425

Unrealized profit on sale [(P30,000 + P25,000) – P52,000] Carrying cost of inventory for Power 98.

(3,000) P 9,000

B

.20 = P14,000 / [(Stockholders’ Equity P50,000) +(Patent P20,000)] 99 B 14 years = (P28,000 / [(28,000 - P20,000) / 4 years] 100. c (P10,000 x 80%) 101. d – the original cost 102. d Date of Acquisition (1/1/2010) Partial Fair value of consideration given…………………P 340,000 Less: Book value of SHE - Subsidiary): (P150,000 + P230,000) x 80%..................... 304,000 Allocated Excess.…………………………………….P 36,000 Less: Over/Undervaluation of Assets & Liabilities 16,000 (P20,000 x 80%)…………………………….. Goodwill ………….…………………………………...P 20,000 / 80%

Full

P 25,000

Amortization of equipment: P20,000 / 10 years = P2 ,000 RPBI of S (downstream sales): P3,000 x 35%...................................................... P1,050 RPBI of P (upstream sales): P2,500 (given)….................................................... 1,000 UPEI of S (downstream sales): Sales of Parent EI % EI of S GP% of Parent P60,000 x 30% = P18,000 x 25/125………………………………. 3,600 UPEI of P (upstream sales): Sales of Subsidiary EI % EI of P GP% of Subsidiary P60,000 x 30% = P18,000 x 20%…………………………..…. 2,400 Consolidated Net Income for 20x5 P Company’s net income from own/separate operations Realized profit in beginning inventory of S Company (downstream sales) Unrealized profit in ending inventory of S Company (downstream sales)… P Company’s realized net income from separate operations*…….….. S Company’s net income from own operations Realized profit in beginning inventory of P Company (upstream sales) Unrealized profit in ending inventory of P Company (upstream sales) S Company’s realized net income from separate operations*…….….. Total Less: Amortization of allocated excess…………………… Consolidated Net Income for 20x4 Less: Non-controlling Interest in Net Income* * Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent – 20x5………….. *that has been realized in transactions with third parties.

P 100,000 1,050 (_ 3,600) P 97,450 P 30,000 1,000 ( ,2,400 ) P28,600

28,600 P 126,050 2,000 P124,050 5,320 P 118,730

Or, alternatively Consolidated Net Income for 20x5 P Company’s net income from own/separate operations Realized profit in beginning inventory of S Company (downstream sales) Unrealized profit in ending inventory of S Company (downstream sales)… P Company’s realized net income from separate operations*…….….. S Company’s net income from own operations Realized profit in beginning inventory of P Company (upstream sales) Unrealized profit in ending inventory of P Company (upstream sales) S Company’s realized net income from separate operations*…….….. Total Less: Non-controlling Interest in Net Income* * Amortization of allocated excess…………………… Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent………….. Add: Non-controlling Interest in Net Income (NCINI) Consolidated Net Income for 2012 *that has been realized in transactions with third parties. **Non-controlling Interest in Net Income (NCINI) for 2012 S Company’s net income of Subsidiary Company from its own operations (Reported net income of S Company) Realized profit in beginning inventory of P Company (upstream sales)

P 100,000 1,050 (_ 3,600) P 97,450 P 30,000 1,000 ( 2,400 ) P 28,600 P

5,320 2,000

28,600 P 126,050 7,320 P118,730 __ 5,320 P124,050

P 30,000 1,000

Unrealized profit in ending inventory of P Company (upstream sales) S Company’s realized net income from separate operations……… Less: Amortization of allocated excess Multiplied by: Non-controlling interest %.......... Non-controlling Interest in Net Income (NCINI) – partial goodwill Less: NCI on goodwill impairment loss on full goodwill Non-controlling Interest in Net Income (NCINI) – full goodwill

103. 104. 105. 106. 107.

b – refer to No. 102 a – P124,050 – refer to No. 102 b – refer to No. 107 c – refer to No. 107 a Non-controlling Interests (in net assets): Common stock - S, 12/31/20x2.…………..….……………………………..

( 2,400) P 28,600 2,000 P 26,600 20% P 5,320 0 P 5,320

P 150,000

Retained earnings - S, 12/31/20x2: RE- S, 1/1/20x2…………….……………………………………………….P300,000 +: NI-S…………………………………………………………………………. 30,000 -: Div – S……………………………………………………………………… 10,000 320,000 Book value of Stockholders’ equity, 12/31/20x2……..………………..... P 470,000 Adjustments to reflect fair value of net assets 20,000 Increase in equipment, 1/1/20x0 .………………………….. ( 6,000) Accumulated amortization (P2,000 x 3 years)………………………….... Fair Value of Net Assets/SHE, 12/31/20x2…………………………………. P 484,000 UPEI of P (up)…………………………………………………………………… ( 2,400) Realized SHE – S,12/31/20x2…………………………………………………. P 481,600 x: NCI %.......................................................................................................... _ 20% Non-controlling Interest (in net assets) - partial………………………….. P 96,320 +: NCI on full goodwill (25,000 – 20,000)………………………….. 5,000 Non-controlling Interest (in net assets) – full…………………………….... P 101,320 108. d – refer to No. 109 109. d Note: Preferred solution - since what is given is the RE – P, 1/1/20x2 (beginning balance of the current year) Retained earnings – Parent, 1/1/20x2 (cost)…………………………… P 700,000 -: UPEI of S (down) – 20x1 or RPBI of S (down) – 20x2..…………. 1,050 Adjusted Retained earnings – Parent, 1/1/20x2 (cost)……………… P698,950 Retroactive Adjustments to convert Cost to “Equity” for purposes of consolidation / Parent’s share of adjusted net increase in subsidiary’s retained earnings: Retained earnings – Subsidiary, 1/1/20x0……………………….P 230,000 Less: Retained earnings – Subsidiary, 1/1/20x2……………… 300,000 Increase in Retained earnings since acquisition (cumulative net income – cumulative dividends)…………P 70,000 Accumulated amortization (1/1/20x0 – 1/1/20x2): P 2,000 x 2 years…………………………………………………( 4,000) UPEI of P (up) – 20x1 or RPBI of P (up) – 20x2………………...... ( 1,000) P 65,000 52,000 X: Controlling Interests………………………………………….........____ 80% RE – P, 1/1/2012 (equity method) = CRE, 1/1/20x2…………………..... P750,950 +: CI – CNI or Profit Attributable to Equity Holders of Parent…….. 118,730 -: Dividends – P……………………………………………………………… 60,000 RE – P, 12/31/20x2 (equity method) = CRE, 12/31/20x2…………...... P809,680 Or, if RE – P is not given on January 1, 20x2, then RE – P on December 31, 2012 should be use: Retained earnings – Parent, 12/31/20x2 (cost): (P700,000 + P108,000 – P60,000)………..…………………………… P 748,000 -: UPEI of S (down) – 20x2 or RPBI of S (down) – 20x3..…………. 3,600 Adjusted Retained earnings – Parent, 1/1/20x2 (cost)……………… P 744,400 Retroactive Adjustments to convert Cost to “Equity” for purposes of consolidation / Parent’s share of adjusted net increase in subsidiary’s retained earnings: Retained earnings – Subsidiary, 1/1/20x0……………………….P 230,000

Less: Retained earnings – Subsidiary, 12/31/20x2 (P300,000 + P20,000 – P10,000)………………………........ 320,000 Increase in Retained earnings since acquisition (cumulative net income – cumulative dividends)…………P 90,000 Accumulated amortization (1/1/20x0 – 12/31/20x2): P 2,000 x 3 years……………………………………………….. ( 6,000) UPEI of P (up) – 20x2 or RPBI of P (up) – 20x3……………….. .. ( 2,400) P 81,600 80% 65,280 X: Controlling Interests………………………………………………. RE – P, 12/31/20x2 (equity method) = CRE, 12/31/20x2…………. P809,680 110. b Consolidated Stockholders’ Equity, 12/31/20x2: Controlling Interest / Parent’s Interest / Parent’s Portion / Equity Holders of Parent – SHE, 12/31/20x2: Common stock – P (P only)…………………………………………….. Retained Earnings – P (equit y method), 12/31/20x2………….. Controlling Interest / Parent’s Stockholders’ Equity……………. Non-controlling interest, 12/31/20x2 (partial)…………………………. Consolidated Stockholders’ Equity, 12/31/20x2…………………………

P1,000,000 809,680 P1,809,680 96,320 P1,906,000

111. a Consolidated Stockholders’ Equity, 12/31/20x2: Controlling Interest / Parent’s Interest / Parent’s Portion / Equity Holders of Parent – SHE, 12/31/20x2: Common stock – P (P only)…………………………………………….. Retained Earnings – P (equity method), 12/31/20x2………….. Controlling Interest / Parent’s Stockholders’ Equity……………. Non-controlling interest, 12/31/20x2 (full)……..………………………. Consolidated Stockholders’ Equity, 12/31/20x2…………………………

P1,000,000 809,680 P1,809,680 101,320 P1,911,000

112. c Non-controlling interest , December 31, 20x1 Common stock – Subsidiary Company, December 31, 20x1…… Retained earnings – Subsidiary Company, December 31, 20x1 Stockholders’ equity – Subsidiary Company, December 31, 20x4 Adjustments to reflect fair value - (over) undervaluation of assets and liabilities, date of acquisition (January 1, 20x4) Amortization of allocated excess (refer to amortization above) – 20x4 Fair value of stockholders’ equity of subsidiary, December 31, 20x4…… Less: Unrealized profit in ending inventory of P Company (upstream sales) P3,000 x 40% Realized stockholders’ equity of subsidiary, December 31, 20x4…… Multiplied by: Non- controlling Interest percentage…………... Non-controlling interest. December 31, 20x1 …………………………………..

P 10,000 8,600 P 18,600

(

0 0) P 18,600 1,200 P 17,400 20 P 3,480

113. a Realized profit in BI of Bates Co. [P40,000 x 20%] Unrealized profit in EI of Bates Co. [P15,000 x 20%] Net realized profit in intercompany sales of inventory Multiplied by: NCI% NCI share in net realized profit

P 8,000 __3,000 P 5,000 ___40% P 2,000

114. c RPBI of P (upstream sales)……..………………………..………………………… UPEI of P (upstream sales): EI of Paque GP% of Subsidiary P75,000 x 20%...................................………………………..…. Consolidated Net Income for 20x5 P Company’s net income from own/separate operations (P103,500 – P54,000) Realized profit in beginning inventory of S Company (downstream sales) Unrealized profit in ending inventory of S Company (downstream sales)… P Company’s realized net income from separate operations*…….….. S Company’s net income from own operations Realized profit in beginning inventory of P Company (upstream sales) Unrealized profit in ending inventory of P Company (upstream sales) S Company’s realized net income from separate operations*…….…..

45,000

15,000

P 49,500 0 (_ 0) P 49,500 P 71,250 45,000 ( 15,000 ) P 101,250

101,250

Total Less: Amortization of allocated excess…………………… Consolidated Net Income for 20x4 Less: Non-controlling Interest in Net Income* * Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent – 20x5………….. *that has been realized in transactions with third parties.

P 150,750 ____0 P150,750 10,125 P 140,625

Or, alternatively Consolidated Net Income for 20x5 P Company’s net income from own/separate operations (P103,500 – P54,000) Realized profit in beginning inventory of S Company (downstream sales) Unrealized profit in ending inventory of S Company (downstream sales)… P Company’s realized net income from separate operations*…….….. S Company’s net income from own operations Realized profit in beginning inventory of P Company (upstream sales) Unrealized profit in ending inventory of P Company (upstream sales) S Company’s realized net income from separate operations*…….….. Total Less: Non-controlling Interest in Net Income* * Amortization of allocated excess…………………… Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent………….. Add: Non-controlling Interest in Net Income (NCINI) Consolidated Net Income for 2012 *that has been realized in transactions with third parties.

P 49,500 0 (_ 0) P 49,500 P 71,250 45,000 ( 15,000 ) P 101,250

101,250 P 150,750

P 10,125 ___0

10,125 P140,625 __ 10,125 P150,750

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

P 71,250 45,000 ( 15,000) P 101,250 _0 P101,250 10% P 10,125 0 P 10,125


(Not required) Analysis of workpaper entries (1) Investment in Segal (0.90  (P180,000 – P150,000)) Beginning Retained Earnings-Paque Co. 27,000 To establish reciprocity as of 1/1/20x8

(2) Sales

27,000

300,000

Purchases (Cost of Goods Sold) 300,000 To eliminate intercompany sales (3) Ending Inventory - Income Statement (CGS) Ending Inventory (Balance Sheet) 15,000 To eliminate unrealized i ntercompany profit in ending inventory (P75,000  0.20)

15,000

(4) Beginning Retained Earnings - Paque Co. (P45,000  0.90) Non-controlling Interest P45,000  0.10) Beginning Inventory (Income statement) 45,000 To recognize intercompany profit realized during the year and to reduce controlling and non-controlling interests for their share of unrealized profit at beginning of year

40,500 4,500

(5) Dividend Income (P60,000  0.90) Dividends Declared To eliminate intercompany dividends

54,000

(6) Beginning Retained Earnings- Segal Co.

54,000

180,000

Common Stock - Segal Company Investment in Segal Company (P810,000 + P27,000) Non-controlling Interest (P750,000 + P180,000) x .10 To eliminate investment account and create non-controlling interest account

750,000 837,000 93,000

115. c Preferred Solution - since what is given is the RE – P, 1/1/20x8 Retained earnings – Parent, 1/1/20x8 (cost)…………………….. P 598,400 -: UPEI of S (down) – 20x7 or RPBI of S (down) – 20x8..…………. 25,000 Adjusted Retained earnings – Parent, 1/1/20x8 (cost)……………… P 573.400 Retroactive Adjustments to convert C ost to “Equity” for purposes of consolidation / Parent’s share of adjusted net increase in subsidiary’s retained earnings: Retained earnings – Subsidiary, 1/1/20x4……………………P 95,000 Less: Retained earnings – Subsidiary, 1/1/20x8…………….. 144,000 Increase in Retained earnings since acquisition (cumulative net income – cumulative dividends)………P 49,000 Accumulated amortization (1/1/20x4 – 1/1/20x8)…………. 0 UPEI of P (up) – 20x7 or RPBI of P (up) – 20x8………………... ( 0) P 49,000 90% 44,100 X: Controlling Interests…………………………………………… RE – P, 1/1/20x8 (equity method) = CRE, 1/1/20x8……………….. P 617,500 +: CI – CNI or Profit Attributable to Equity Holders of Parent…… 203,700 -: Dividends – P………………………..………………………………… 110,000 RE – P, 12/31/2014 (equity method) = CRE, 12/31/2014………….. P 711,200 Consolidated Net Income for 20x8 P Company’s net income from own/separate ope rations Realized profit in beginning inventory of S Company (downstream sales) Unrealized profit in ending inventory of S Company (downstream sales)… P Company’s realized net income from separate operations*…….….. S Company’s net income from own operations…………………………………. Realized profit in beginning inventory of P Company (upstream sales) Unrealized profit in ending inventory of P Company (upstream sales) S Company’s realized net income from separate operations*…….….. Total Less: Amortization of allocated excess…………………… Consolidated Net Income for 20x8 Less: Non-controlling Interest in Net Income* * Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent – 20x8………….. *that has been realized in transactions with third parties.

P132,000 25,000 (10,000) P147,000 P 63,000 0 ( 0) P 63,000

63,000 P210,000 0 P210,000 6,300 P203,700

Or, alternatively Consolidated Net Income for 20x8 P Company’s net income from own/separate operations Realized profit in beginning inventory of S Company (downstream sales) Unrealized profit in ending inventory of S Company (downstream sales)… P Company’s realized net income from separate operations*…….….. S Company’s net income from own operations…………………………………. Realized profit in beginning inventory of P Company (upstream sales) Unrealized profit in ending inventory of P Company (upstream sales) S Company’s realized net income from separate operations*…….….. Total Less: Non-controlling Interest in Net Income* * Amortization of allocated excess…………………… Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of paren t………….. Add: Non-controlling Interest in Net Income (NCINI) Consolidated Net Income for 20x8 *that has been realized in transactions with third parties. **Non-controlling Interest in Net Income (NCINI) for 20x8 S Company’s net income of Subsidiary Company from its own operations (Reported net income of S Company) Realized profit in beginning inventory of P Company (upstream sales) Unrealized profit in ending inventory of P Company (upstream sales) S Company’s realized net income from separate operations……… Less: Amortization of allocated excess Multiplied by: Non-controlling interest %.......... Non-controlling Interest in Net Income (NCINI) – partial goodwill

P132,000 25,000 (10,000) P147,000 P 63,000 0 ( 0) P 63,000

63,000 P210,000

P 6,300 _____0

6,300 P203,700 _ 6,300 P210,000

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

(

Less: NCI on goodwill impairment loss on full goodwill Non-controlling Interest in Net Income (NCINI) – full goodwill

0 P 6,300

Amortization of equipment: P20,000 / 10 years = P2,000 RPBI of Sedbrock (downstream sales) – 20x8......................................................... P25,000 UPEI of Sedbrock (downstream sales) – 20x8: P60,000 x 20%/120%……..……… 10,000

Net income: Sales Less: Cost of goods sold Inventory, 1/1 Purchases Inventory, 12/31 Gross profit Less: Other expense Net income from its own separate operations Add: Dividend income Net income Dividends declared

Pruitt Co. P1,210,000 165,000 935,000 (220,000)

__880,000 P 330,000 198,000

Sedbrook P 636,000 132,000 420,000 (144,000)

__408,000 P 228,000 165,000

P 132,000 31,500 P 163,500 P 110,000

P 63,000 P 63,000 P 35,000

Or, alternatively(compute the RE-P end of the year under the cost model) Retained earnings – Parent, 1/1/20x8 (cost)………………………….. P Add: NI of Parent as reported – 20x8 under cost model…………… Less: Dividend of Parent – 20x8………………………………………….. Retained earnings – Parent, 12/31/20x8 (cost)……………………….. P -: UPEI of S (down) – 20x8 or RPBI of S (down) – 20x9..……………….. Adjusted Retained earnings – Parent, 12/31/20x8 (cost model)….. P Retroactive Adjustments to convert Cost to “Equity” for purposes of consolidation / Parent’s share of adjusted net increase in subsidiary’s retained earnings: Retained earnings – Subsidiar y, 1/1/20x4………… P 95,000 Less: Retained earnings – Subsidiary, 12/31/20x8 Retained earnings – Subsidiary , 1/1/20x8..… P144,000 Add: NI of Subsidiary – 20x8…………………… 63,000 Less: Dividend of Subsidiary – 20x8…………... 35,000 172,000 Increase in Retained earnings since acquisition (cumulative net income – cumulative dividends)………… P 97,000 Accumulated amortization (1/1/20x4 – 12/31/20x8)…………..( 0) UPEI of P (up) – 20x8 or RPBI of P (up) – 20x9………………........( 0) P 97,000 90% x: Controlling Interests………………………………………… RE – P, 12/31/20x8 (equity method) = CRE, 12/31/20x8……… P

598,400 163,500 110,000 651,900 10,000 641,900

69,300 711,200

(Not required) Analysis of workpaper entries (1) Investment in Sedbrook Company (0.90 (P144,000 – P95,000)) Beginning Retained Earnings - Pruitt Co. To establish reciprocity/convert to equity as of 1/1/x8

(2) Sales

44,100 44,100

250,000

Purchases (Cost of Goods Sold) To eliminate intercompany sales

250,000

(3) Ending Inventory - Income Statement (CGS) Ending Inventory (Balance Sheet) To eliminate unrealized intercompany profit in ending inventory (P60,000 – (P60,000/1.2)

10,000

(4) Beginning Retained Earnings - Pruitt Co. Beginning Inventory (Income Statement) To recognize intercompany profit in beginning inventory

25,000

10,000

25,000

realized during the year (5) Dividend Income (P35,000 .90) Dividends Declared To eliminate intercompany dividends

31,500 31,500

(6) Beginning Retained Earnings - Sedbrook Co. 144,000 Common Stock - Sedbrook Co. 600,000 Investment in Sedbrook Co.(P625,500 + P44,100) Non-controlling Interest (P744,000 x .10) To eliminate investment account and create non-controlling interest account

669,600 74,400

116. P941,000. Fair value of consideration given…………………P1,360,000 Less: Book value of SHE - Subsidiary): (P1,000,000 + P450,000) x 80%................... 1,160,000 Allocated Excess.…………………………………….P 200,000 Less: Over/Undervaluation of Assets & Liabilities Increase in franchise (P250,000 x 80%)…….. 200,000 / 80% = P250,000 P 0 Amortization of equipment: P250,000 / 25 years = P10,000 RPBI of S (downstream sales):…………………........................................................ P30,000 RPBI of P (upstream sales)………………………....................................................... 20,000 UPEI of S (downstream sales)……………………………………………………..……. 5,000 UPEI of P (upstream sales)………………………………………………….…………… 10,000 Consolidated Net Income for 20x4 P Company’s net income from own/separate operations Realized profit in beginning inventory of S Company (downstream sales) Unrealized profit in ending inventory of S Company (downstream sales)… P Company’s realized net income from separate operations*…….….. S Company’s net income from own operations…………………………………. Realized profit in beginning inventory of P Company (upstream sales) Unrealized profit in ending inventory of P Company (upstream sales) S Company’s realized net income from separate operations*…….….. Total Less: Amortization of allocated excess…………………… Consolidated Net Income for 20x4 Less: Non-controlling Interest in Net Income* * Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent – 20x4………….. *that has been realized in transactions with third parties.

P700,000 30,000 ( 5,000) P725,000 P270,000 20,000 ( 10,000) P280,000

280,000 P1,005,000 10,000 P 995,000 54,000 P 941,000

Or, alternatively Consolidated Net Income for 2014 P Company’s net income from own/separate operations Realized profit in beginning inventory of S Company (downstream sales) Unrealized profit in ending inventory of S Company (downstream sales)… P Company’s realized net income from separate operations*…….….. S Company’s net income from own operations…………………………………. Realized profit in beginning inventory of P Company (upstream sales) Unrealized profit in ending inventory of P Company (upstream sales) S Company’s realized net income from separate operations*…….….. Total Less: Non-controlling Interest in Net Income* * Amortization of allocated excess…………………… Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent………….. Add: Non-controlling Interest in Net Income (NCINI) Consolidated Net Income for 2014 *that has been realized in transactions with third parties. **Non-controlling Interest in Net Income (NCINI) for 2014 S Company’s net income of Subsidiary Company from its own operations (Reported net income of S Company) Realized profit in beginning inventory of P Company (upstream sales) Unrealized profit in ending inventory of P Company (upstream sales) S Company’s realized net income from separate operations……… Less: Amortization of allocated excess

P700,000 30,000 ( 5,000) P725,000 P270,000 20,000 ( 10,000) P280,000 P 54,000 10,000

280,000 P1,005,000 64,000 P 941,000 __ _ 54,000 P 995,000

P270,000 20,000 ( 10,000) P280,000 10,000 P270,000


20% P 54,000 0 P 54,000

(Not required) Analysis of workpaper entries (1) Sales Purchases (Cost of Goods Sold) To eliminate intercompany sales (P50,000 + P70,000)

120,000 120,000

(2) Ending Inventory – Income Statement (CGS) Inventory (Balance Sheet) To eliminate unrealized profit in ending inventories (P10,000 + P5,000)

15,000

(3) Beginning Retained Earnings – Paul Company (P20,000  0.8) Non-controlling Interest Beginning Inventory – Income Statement (CGS) To recognize profit in beginning inventory (upstream sales) realized during year and to reduce the controlling and noncontrolling interests for their shares of the amount of unrealized upstream intercompany profit at beginning of year

16,000 4,000

(4) Beginning Retained Earnings – Paul Company. Beginning Inventory – Income Statement (CoGS) To recognize profit in beginning inventory (downstream sales) realized during the year and to r educe consolidated retained earnings at beginning of the year f or the amount of unrealized downstream intercompany profit at the beginning of the year

30,000

15,000

20,000

30,000

117. P1,863,000 Retained earnings – Parent, 12/31/20x4 (cost)……………………….. P 1,500,000 -: UPEI of S (down) – 20x4 or RPBI of S (down) – 20x5..……………….. 5,000 Adjusted Retained earnings – Parent, 12/31/20x4 (cost model)….. P 1,495,000 Retroactive Adjustments to convert Cost to “Equity” for purposes of consolidation / Parent’s share of adjusted net increase in subsidiary’s retained earnings: Retained earnings – Subsidiary, 1/1/20x1……………………….P 450,000 Less: Retained earnings – Subsidiary, 12/31/20x4……………… 960,000 Increase in Retained earnings since acquisition (cumulative net income – cumulative dividends)………… P 510,000 Accumulated amortization (1/1/20x1 – 12/31/20x4)…………..( 40,000) UPEI of P (up) – 20x4 or RPBI of P (up) – 20x5………………........ ( 10,000) P 460,000 80% 368,000 x: Controlling Interests………………………………………… RE – P, 12/31/20x4 (equity method) = CRE, 12/31/20x4……… P1,863,000 118. P54,000 – refer to No. 116 for computation 119. a Full-goodwill Fair value of Subsidiary (100%) Consideration transferred: Cash (P7,500,000/80%) Less: Book value of stockholders’ equity of S (P6,000,000 x 100%) Allocated excess (excess of cost over book value)….. Add (deduct): (Over) under valuation of assets and liabilities Decrease in inventory: P(150,000 x 100%) Increase in building: P450,000 x 100% Positive excess: Full-goodwill (excess of cost over fair value)………………………………………………...

P9,375,000 _6,000,000 P3,375,000 P( 150,000) ___450,000

___300,000 P3,075,000

Partial-goodwill Fair value of Subsidiary (80%) Consideration transferred……………………………….. Less: Book value of stockholders’ equity of S: Common stock (P1,000,000 x 80%)……………………. Retained earnings (P5,000,000 x 80%)………………... Allocated excess (excess of cost over book value)….. Less: Over/under valuation of assets and liabilities: Add (deduct): (Over) under valuation of assets and liabilities Decrease in inventory: P(150,000 x 80%)

P7,500,000 P 800,000 4,000,000

P( 120,000) ___360,000

4,800,000 P2,700,000

240,000

Increase in building: P450,000 x 80% Positive excess: Partial-goodwill (excess of cost over fair value)………………………………………………...

P2,460,000

Amortization schedule

Inventory Building (15 years) Goodwill Total

Balance at acquisition Dec. 31/X2 P(150,000) 450,000 3,075,000 P3,375,000

Amortization 20X3 P(150,000) 30,000 _________0 P(120,000)

Amortization 20X4 0 P30,000 ______0 P30,000

Remaining at Dec.31/X4 P 0 390,000 3,075,000 P3,465,000

120. a Non-controlling interest is 20% × 9,375,000 (fair value of subsidiary, 12/31/20x2) = P1,875,000 Or, alternatively: Non-controlling interest, December 31, 20x2 Common stock – S Company, December 31, 20x2…… Retained earnings – S Company, December 31, 20x2 Stockholders’ equity – S Company, December 31, 20x2 Adjustments to reflect fair value - (over) undervaluation of assets and liabilities, date of acquisition (December 31, 20x2) Fair value of stockholders’ equity of S, December 31, 20x2…… Multiplied by: Non-controlling Interest percentage…………... Non-controlling interest (partial goodwill)………………………………….. Add: NCI on full-goodwill (P3,075,000 – P2,460,000) Non-controlling interest (full- goodwill)…………………………………..

P1,000,000 5,000,000 P6,000,000 ___300,000 P6,300,000 20 P 1,260,000 ___615,000 P1,875,000

121. d – P2,393,800 Non-controlling interest , December 31, 20x4 Common stock – S Company, December 31, 20x4 Retained earnings – S Company, December 31, 20x4 Stockholders’ equity – S Company, December 31, 20x4 Adjustments to reflect fair value - (over) undervaluation of assets and liabilities, date of acquisition (December 31, 20x2) Amortization of allocated excess (refer to amortization above- 20x3 and 20x4: Fair value of stockholders’ equity of S, December 31, 20x4…… Less: UPEI of P (up) – 20x3 or RPBI of P (up) – 20x4

P1,000,000 7,524,000 P8,524,000 300,000 __90,000 P8,914,000 ____20,000 P8,894,000 _ 20 P1,778,800 ___615,000 P2,393,800

Multiplied by: Non-controlling Interest percentage…………... Non-controlling interest (partial goodwill)………………………………….. Add: NCI on full-goodwill Non-controlling interest (full- goodwill)…………………………………..

RPBI of P (upstream sales): Sales of Subsidiary EI % EI of P GP% of Subsidiary P100,000 x 60% = P60,000 x 50,000/100,000………………………..….

30,000

UPEI of P (upstream sales): (given)……………………………………………………….

20,000

Or, alternatively: Balance of NCI on acquisition — December 31, 20x2 P1,875,000 Add: NCI's share of the adjusted change in retained earnings to 12/ 31/20x4 Jane's retained earnings, December 31, 20x4 P7,524,000 Jane's retained earnings at December 31, 20x2 ( 5,000,000) Change in carrying value P2,524,000 Adjustments: Amortization of fair value increments to date 90,000 Unrealized upstream profit — 20x4 ( 20,000) Adjusted change in retained earnings of Jane since acquisition P2,594,000 Multiplied by: NCI's share at 20% 518,800 Ending balance of NCI on December 31, 20x4 P2,393,800

122. b Retained earnings – Parent, 12/31/20x4 (cost)………………………..

P11,900,000

Advanced-Accounting-Part 2-Dayag-2015-Chapter-17.docx

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