Chapter 18 Problem I A. Downstream Sale 1. Cost Model – 20x5 20x5 (104,000/130,000 = 80% ownership) Dividends – S S Company Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dividend income (P60,000 x 80%) . . . . . . . . . . . . . . . . . . . . . . .
48,000 48,000
Net Income – S S Company No entry Amortization of Allocated Excess No entry Unrealized Gain on Sale of Equipment No entry Realized Gain on Sale – depreciation depreciation No entry
Equity Method – 20x5 20x5 Dividends – S S Company Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investment in S Co (60,000 x 80%) . . . . . . . . . . . . . . . . . . . . . . . Net Income – S S Company Investment in S Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investment income (P820,000 x 80%). . . . . . . . . . . . . . . . . . . . .
32,000 32,000
656,000 656,000
Amortization of Allocated Excess None, since there is no amount available Unrealized Gain on Sale of Equipment No entry
1/1/20x4 Selling price…………………………………… price……………………………………… … Less: Book value: Cost…………………………………………P 1,280,000 Less: Accumulated depreciation P1,280,000/8 years x 4 years……. 640,000 Unrealized gain on sales………………………. Realized gain on sale thru depreciation based on remaining life of equipment [P100,000 / (8 – 4, 4, expired years)……… Realized Gain on Sale – depreciation depreciation Investment in S Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investment income (P25,000 x 100%). . . . . . . . . . . . . . . . . . . . .
2. Working Paper Elimination Entries: Cost Model Equipment Beginning R/E – Prince Accumulated Depreciation Accumulated Depreciation (P100,000/4) × 2
P740,000
640,000 P 100,000
P 25,000 25,000 25,000
540,000 100,000 640,000 50,000
2. Working Paper Elimination Entries: Cost Model Equipment Beginning R/E – Prince Accumulated Depreciation
540,000 100,000 640,000
Accumulated Depreciation (P100,000/4) × 2 Depreciation Expense Beginning R/E – Prince Equity Method Equipment Investment in S Co. Accumulated Depreciation
50,000 25,000 25,000
540,000 100,000
Accumulated Depreciation (P100,000/4) × 2 Depreciation Expense Investment in S Co. 3
4.
50,000 25,000 25,000
Controlling Interest in Consolidated Net Income: Prince Company’s income from its independent operations Reported net income of Serf Company P820,000 Plus profit on intercompany sale of equipment considered to be realized through depreciation in 20x4 25,000 Reported subsidiary income that has been realized in transactions with third parties 845,000 × .8 Prince Company’s share thereof Controlling Interest in Consolidated net income Noncontrolling Interest Calculation: Reported income of Serf Company Plus: Intercompany profit considered realized in the current period Noncontrolling interest in Serf Company (.20 × 845,000)
5.
640,000
P3,270,000
676,000 P3,946,000
P820,000 25,000 P845,000 P169,000
NCI-CNI (No. 4) CI-CNI (No. 3) CNI
P 169,000 3,946,000 P4,115,000
or, Consolidated Net Income for 20x5 P Company’s net in come from own/separate operations…………. Realized gain on sale of equipment (downstream sales) through depreciation depreciation P Company’s realized net income from separate operations…….….. S Company’s net income from own operations…………………………………. Realized gain on sale of equipment (upstream sales) through depreciation* depreciation* 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 attributable to – 20x5………….. equity holders of parent – 20x5…………..
P3,270,000 0 P3,270,000 P 820,000 25,000 P 845,000
845,000 P4,115,000 0 P4,115,000
169,000 P3,946,000
Or, alternatively Consolidated Net Income for 20x5 P Company’s net in come from own/separate operations…………. Realized gain on sale of equipment (downstream sales) through depreciation depreciation
P3,270,000 0
2. Working Paper Elimination Entries: Cost Model Equipment Beginning R/E – Prince Accumulated Depreciation
540,000 100,000 640,000
Accumulated Depreciation (P100,000/4) × 2 Depreciation Expense Beginning R/E – Prince Equity Method Equipment Investment in S Co. Accumulated Depreciation
50,000 25,000 25,000
540,000 100,000
Accumulated Depreciation (P100,000/4) × 2 Depreciation Expense Investment in S Co. 3
4.
50,000 25,000 25,000
Controlling Interest in Consolidated Net Income: Prince Company’s income from its independent operations Reported net income of Serf Company P820,000 Plus profit on intercompany sale of equipment considered to be realized through depreciation in 20x4 25,000 Reported subsidiary income that has been realized in transactions with third parties 845,000 × .8 Prince Company’s share thereof Controlling Interest in Consolidated net income Noncontrolling Interest Calculation: Reported income of Serf Company Plus: Intercompany profit considered realized in the current period Noncontrolling interest in Serf Company (.20 × 845,000)
5.
640,000
P3,270,000
676,000 P3,946,000
P820,000 25,000 P845,000 P169,000
NCI-CNI (No. 4) CI-CNI (No. 3) CNI
P 169,000 3,946,000 P4,115,000
or, Consolidated Net Income for 20x5 P Company’s net in come from own/separate operations…………. Realized gain on sale of equipment (downstream sales) through depreciation depreciation P Company’s realized net income from separate operations…….….. S Company’s net income from own operations…………………………………. Realized gain on sale of equipment (upstream sales) through depreciation* depreciation* 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 attributable to – 20x5………….. equity holders of parent – 20x5…………..
P3,270,000 0 P3,270,000 P 820,000 25,000 P 845,000
845,000 P4,115,000 0 P4,115,000
169,000 P3,946,000
Or, alternatively Consolidated Net Income for 20x5 P Company’s net in come from own/separate operations…………. Realized gain on sale of equipment (downstream sales) through depreciation depreciation
P3,270,000 0
Less: Non-controlling Interest in Net Income* * Controlling Interest in Consolidated Net Income or Profit attributable attributable to – 20x5………….. equity holders of parent – 20x5…………..
169,000 P3,946,000
Or, alternatively Consolidated Net Income for 20x5 P Company’s net in come from own/separate operations…………. Realized gain on sale of equipment (downstream sales) through depreciation depreciation P Company’s realized net income from separate operations…….….. S Company’s net income from own operations…………………………………. Realized gain on sale of equipment (upstream sales) through depreciation depreciation 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 **Non-controlling Interest in Net Income (NCINI) for 20x5 S Company’s net income of Subsidiary Subsidiary Company from its own operations operations (Reported net income of S Company) Realized gain on sale of equipment (upstream sales) through depreciation depreciation 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 Income (NCINI) – partial goodwill
1/1/20x4: Selling price of equipment Less: BV of equipment Cost Less: Accumulated depreciation: P1,280,000 / 8 years x 4 years* Unrealized gain on sales – 1/1/20x4
P3,270,000 0 P3,270,000 P820,000 25,000 P 845,000 P 169,000 0
845,000 P4,115,000 169,000 P3,946,000 _169,000 P4,115,000
P 820,000 25,000 P 845,000 0 P845,000 20% P 169,000
P 740,000 P1,280,000 640,000
640,000 P 100,000
Realized gain – depreciation: P100,000 / 4 years P 25,000 *the original life is 8 years as of 1/1/20x3, since the remaining life as of 1/1/20x4 in only 4 years, for purposes of computing the accumulated depreciation to determine the gain on sale, the difference of 4 years is presumed to be expired.
Controlling Interest in Consolidated Net Income: Prince Company’s income from its independent operations Plus profit on intercompany sale of equipment considered to be realized through depreciation in 2014 Reported net income of S Company
P3,270,000
25,000 P3,295,000 P820,000 × .8
Prince Company’s share thereof Controlling Interest in Consolidated net income
Noncontrolling Interest Calculation: Reported income of S Company Noncontrolling interest in S Company (.20 × 820,000)
NCI-CNI CI-CNI CNI
P820,000 P164,000
P 164,000 3,951,000 P4,115,000
or, Consolidated Net Income for 20x5 P Company’s net in come from own/separate operations………….
656,000 P3,951,000
NCI-CNI CI-CNI CNI
P 164,000 3,951,000 P4,115,000
or, Consolidated Net Income for 20x5 P Company’s net in come from own/separate operations…………. Realized gain on sale of equipment (downstream sales) through depreciation P Company’s realized net income from separate operations…….….. S Company’s net income from own operations…………………………………. Realized gain on sale of equipment (upstream sales) through depreciation* 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…………..
P3,270,000 ____25,000 P3,295,000 P 820,000 0 P 820,000
820,000 P4,115,000 0 P4,115,000 164,000 P3,951,000
Or, alternatively Consolidated Net Income for 20x5 P Company’s net in come from own/separate operations…………. Realized gain on sale of equipment (downstream sales) through depreciation P Company’s realized net income from separate operations…….….. S Company’s net income from own operations…………………………………. Realized gain on sale of equipment (upstream sales) through depreciation 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 **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 gain on sale of equipment (upstream sales) through depreciation 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
P3,270,000 25,000 P3,295,000 P820,000 0 P 820,000 P 164,000 0
820,000 P4,115,000 164,000 P3,951,000 _169,000 P4,115,000
P 820,000 0 P 820,000 0 P820,000 20% P 164,000
B. Upstream Sale 1. Cost Model – 20x5 (104,000/130,000 = 80% ownership) Dividends – S Company Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dividend income (P60,000 x 80%) . . . . . . . . . . . . . . . . . . . . . . .
48,000 48,000
Net Income – S Company No entry Amortization of Allocated Excess No entry Unrealized Gain on Sale of Equipment No entry
Realized Gain on Sale – depreciation No entry
Equity Method – 20x5 Dividends – S Company Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investment in S Co (60,000 x 80%) . . . . . . . . . . . . . . . . . . . . . . .
32,000 32,000
Realized Gain on Sale – depreciation No entry
Equity Method – 20x5 Dividends – S Company Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investment in S Co (60,000 x 80%) . . . . . . . . . . . . . . . . . . . . . . . Net Income – S Company Investment in S Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investment income (P820,000 x 80%). . . . . . . . . . . . . . . . . . . . .
32,000 32,000
656,000 656,000
Amortization of Allocated Excess None, since there is no amount available Unrealized Gain on Sale of Equipment No entry
1/1/20x4 Selling price……………………………………… Less: Book value: Cost…………………………………………P 1,280,000 Less: Accumulated depreciation P1,280,000/8 years x 4 years……. 640,000 Unrealized gain on sales………………………. Realized gain on sale thru depreciation based on remaining life of equipment [P100,000 / (8 – 4, expired years)……… Realized Gain on Sale – depreciation Investment in S Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investment income (P25,000 x 100%). . . . . . . . . . . . . . . . . . . . .
2. Working Paper Elimination Entries: Cost Model Equipment Beginning R/E – Prince (P100,000 × .80) Noncontrolling Interest (P100,000 × .20) Accumulated Depreciation Accumulated Depreciation (P100,000/4) × 2 Depreciation Expense Beginning R/E – Prince (P25,000 × .80) Noncontrolling Interest (P25,000 × .20) Equity Method Equipment Investment in S Co. (P100,000 × .80) Noncontrolling Interest (P100,000 × .20) Accumulated Depreciation
Accumulated Depreciation (P100,000/4) × 2 Depreciation Expense Investment in S Co. (P25,000 × .80) Noncontrolling Interest (P25,000 × .20) 3
P740,000
640,000 P 100,000
P 25,000 25,000 25,000
540,000 80,000 20,000 640,000 50,000 25,000 20,000 5,000
540,000 80,000 20,000 640,000 50,000 25,000 20,000 5,000
Controlling Interest in Consolidated Net Income:
Prince Company’s income from its independent operations Reported net income of Serf Company P820,000 Plus profit on intercompany sale of equipment considered to be realized through depreciation in 20x4 25,000 Reported subsidiary income that has been
P3,270,000
Prince Company’s income from its independent operations Reported net income of Serf Company P820,000 Plus profit on intercompany sale of equipment considered to be realized through depreciation in 20x4 25,000 Reported subsidiary income that has been realized in transactions with third parties 845,000 × .8 Prince Company’s share thereof Controlling Interest in Consolidated net income
4.
Noncontrolling Interest Calculation: Reported income of Serf Company Plus: Intercompany profit considered realized in the current period Noncontrolling interest in Serf Company (.20 × 845,000)
5.
P3,270,000
676,000 P3,946,000
P820,000 25,000 P845,000 P169,000
NCI-CNI (No. 4) CI-CNI (No. 3) CNI
P 169,000 3,946,000 P4,115,000
or, Consolidated Net Income for 20x5 P Company’s net in come from own/separate operations…………. Realized gain on sale of equipment (downstream sales) through depreciation P Company’s realized net income from separate operations…….….. S Company’s net income from own operations…………………………………. Realized gain on sale of equipment (upstream sales) through depreciation* 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…………..
P3,270,000 0 P3,270,000 P 820,000 25,000 P 845,000
845,000 P4,115,000 0 P4,115,000 169,000 P3,946,000
Or, alternatively Consolidated Net Income for 20x5 P Company’s net in come from own/separate operations…………. Realized gain on sale of equipment (downstream sales) through depreciation P Company’s realized net income from separate operations…….….. S Company’s net income from own operations…………………………………. Realized gain on sale of equipment (upstream sales) through depreciation 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
P3,270,000 0 P3,270,000 P820,000 25,000 P 845,000 P 169,000 0
Multiplied by: Non-controlling interest %.......... Non-controlling Interest in Net Income (NCINI) – partial goodwill
169,000 P3,946,000 _169,000 P4,115,000
**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 gain on sale of equipment (upstream sales) through depreciation S Company’s realized net income from separate operations……… Less: Amortization of allocated excess
845,000 P4,115,000
P 820,000 25,000 P 845,000 0 P845,000 20% P 169,000
(Reported net income of S Company) Realized gain on sale of equipment (upstream sales) through depreciation S Company’s realized net income from separate operations……… Less: Amortization of allocated excess
P 820,000 25,000 P 845,000 0 P845,000 20% P 169,000
Multiplied by: Non-controlling interest %.......... Non-controlling Interest in Net Income (NCINI) – partial goodwill
1/1/20x4: Selling price of equipment Less: BV of equipment Cost Less: Accumulated depreciation: P1,280,000 / 8 years x 4 years* Unrealized gain on sales – 1/1/20x4
P 740,000 P1,280,000 640,000
640,000 P 100,000
Realized gain – depreciation: P100,000 / 4 years P 25,000 *the original life is 8 years as of 1/1/20x3, since the remaining life as of 1/1/20x4 in only 4 years, for purposes of computing the accumulated depreciation to determine the gain on sale, the difference of 4 years is presumed to be expired. Problem II 1. Eliminating entry, December 31, 20x8: E(1) Truck Gain on Sale of Truck Depreciation Expense Accumulated Depreciation
55,000 35,000 5,000 85,000
Computation of gain on sale of truck: Price paid by Minnow Cost of truck to Frazer P300,000 Accumulated depreciation (P300,000 / 10 years) x 3 years ( 90,000) Gain on sale of truck
Accumulated depreciation adjustment: Required [(P300,000 / 10 years) x 4 years] Reported [(P245,000 / 7 years) x 1 year] Required increase 2.
P245,000
(210,000) P 35,000
P120,000 (35,000) P 85,000
Eliminating entry, December 31, 20x9: E(1)
Truck Retained Earnings Depreciation Expense Accumulated Depreciation
55,000 30,000 5,000 80,000
Accumulated depreciation adjustment: Required [(P300,000 / 10 years) x 5 years] Reported [(P245,000 / 7 years) x 2 years] Required increase
P150,000 (70,000) P 80,000
Problem III
a.
Eliminating entry, December 31, 20x8:
E(1)
Truck Gain on Sale of Truck Accumulated Depreciation
Computation of gain on sale of truck: Price paid by MM Cost of truck to FF
90,000 30,000 120,000
P210,000 P300,000
E(1)
Truck Gain on Sale of Truck Accumulated Depreciation
Computation of gain on sale of truck: Price paid by MM Cost of truck to FF Accumulated depreciation (P300,000 / 10 years) x 4 years Gain on sale of truck b.
90,000 30,000 120,000
P210,000 P300,000 (120,000)
(180,000) P 30,000
Eliminating entry, December 31, 20x9: E(1)
Truck Retained Earnings, January 1 Depreciation Expense Accumulated Depreciation
Accumulated depreciation adjustment: Required [(P300,000 / 10 years) x 5 years] Recorded [(P210,000 / 6 years) x 1 year] Required increase
90,000 30,000 5,000 115,000
P150,000 (35,000) P115,000
Problem IV 1. Consolidated net income for 20x9:
Operating income reported by BW Net income reported by TW Amount of gain realized in 20x9 (P30,000 / 12 years) Realized net income of TW Consolidated net income 2. 3.
P100,000 P40,000 2,500 42,500 P142,500
Consolidated net income for 20x9 would be unchanged. Eliminating entry, December 31, 20x9: E(1)
Buildings and Equipment Retained Earnings, January 1 Non-controlling Interest Depreciation Expense Accumulated Depreciation Eliminate unrealized profit on building.
30,000 20,000 5,000 2,500 52,500
Adjustment to buildings and equipment Amount paid by TW to acquire building Amount paid by BW on intercompany sale Adjustment to buildings and equipment
P300,000 (270,000) P 30,000
Adjustment to retained earnings, January 1, 20x9 Unrealized gain recorded January 1, 20x4 Amount realized following intercompany sale
P 30,000
(P2,500 x 2) Unrealized gain, January 1, 20x9 Proportion of ownership held by Baywatch Required adjustment
(5,000) P 25,000 x .80 P 20,000
Adjustment to Noncontrolling interest, January 1, 20x9
(P2,500 x 2) Unrealized gain, January 1, 20x9 Proportion of ownership held by Baywatch Required adjustment
(5,000) P 25,000 x .80 P 20,000
Adjustment to Noncontrolling interest, January 1, 20x9 Unrealized gain at January 1, 20x9 Proportion of ownership held by non-controlling interest Required adjustment
P 25,000 x P
.20 5,000
Adjustment to depreciation expense Depreciation expense recorded by BW Industries (P270,000 / 12 years) Depreciation expense recorded by TW Corporation (P300,000 / 15 years) Adjustment to depreciation expense
P 22,500 (20,000) P 2,500
Adjustment to accumulated depreciation Amount required (P20,000 x 6 years) Amount reported by BW (P22,500 x 3 years) Required adjustment
P120,000 (67,500) P 52,500
Problem V
20x5
20x6
1. Noncontrolling interest in P 7,000 (1) Consolidated net income
P 46,200 (2)
Controlling interest in 290,500 (3) Consolidated net income
279,300 (4)
(1) (2) (3) (4)
.4(P70,000 – P63,000 + P10,500) = P7,000 .4(P105,000 + P10,500) = P46,200 P280,000 + .6(P70,000 – P63,000 + P10,500) = P290,500 P210,000 + .6(P105,000 + P10,500) = P279,300 20x5
20x6
2. Noncontrolling interest in P 28,000 (5) P 42,000 (6) Consolidated income Controlling interest in 269,500 (7) 283,500 (8) Consolidated net income (5) .4(P70,000) = P28,000 (6) .4(P105,000) = P42,000 (7) (P280,000 – P63,000 + P10,500) + .6(P70,000) = P269,500 (8) (P210,000 + P10,500) + .6(P105,000) = P283,500
Problem VI
Quail Corporation and Subsidiary Consolidated Income Statement for the year ended December 31, 20x5 Sales Gain on land (P20,000 + P25,000)
P
1,100,000 45,000
Problem VI
Quail Corporation and Subsidiary Consolidated Income Statement for the year ended December 31, 20x5 Sales Gain on land (P20,000 + P25,000) Cost of sales Other expenses (see below) Consolidated Net Income NCI-CNI (see below) Consolidated net income
P
1,100,000 45,000 560,000 ) 320,000 ) 265,000 20,000 ) 245,000
( ( P ( P
Other expenses: P265,000 + P60,000 - P5,000 piecemeal recognition of gain on equipment P Non-controlling Interest in CNI: Net income from Savannah x 20%: (P100,000 x 20%) =
320,000
P
20,000
Problem VII 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 S: 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
288,000 P 84,000
P 4,800 5,760 76,800 ( 19,200) 3,840
72,000 P 12,000
The over/under valuation of assets and liabilities are summarized as follows: Inventory………………….…………….. Land……………………………………… Equipment (net)......... Buildings (net) Bonds payable………………………… Net………………………………………..
S Co. Book value P 24,000 48,000 84,000 168,000 (120,000) P 204,000
S Co. Fair value P 30,000 55,200 180,000 144,000 ( 115,200) P 294,000
(Over) Under Valuation P 6,000 7,200 96,000 (24,000) 4,800 P 90,000
The buildings and equipment will be further analyzed for consolidation purposes as follows: Equipment.................. Less: Accumulated depreciation….. Net book value………………………...
S Co. Book value 180,000 96,000 84,000
S Co. Fair value 180,000 180,000
Increase (Decrease) 0 ( 96,000) 96,000
Buildings................ Less: Accumulated depreciation….. Net book value………………………...
S Co. Book value 360,000 1992,000 168,000
S Co. Fair value 144,000 144,000
(Decrease) ( 216,000) ( 192,000) ( 24,000)
A summary or depreciation and amortization adjustments is as follows:
Buildings................ Less: Accumulated depreciation….. Net book value………………………...
S Co. Book value 360,000 1992,000 168,000
S Co. Fair value 144,000 144,000
(Decrease) ( 216,000) ( 192,000) ( 24,000)
A summary or depreciation and amortization adjustments is as follows: Account Adjustments to be amortized Inventory Subject to Annual Amortization Equipment (net)......... Buildings (net) Bonds payable…
Over/ Under P 6,000
Life 1
96,000 (24,000) 4,800
8 4 4
Annual Amount P 6,000
Current Year(20x4) P 6,000
20x5 P -
12,000 ( 6,000) 1,200 P 13,200
12,000 ( 6,000) 1,200 P 13,200
12,000 (6,000) 1,200 P 7,200
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%) Fair value of NCI (given) (20%) Fair value of Subsidiary (100%) Less: Book value of stockholders’ equity of S (P360,000 x 100%) 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)………………………………………………...
P 372,000 93,000 P 465,000 __360,000 P 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 and gain on intercompany sales for 20x4 are as follows: Date of Sale 4/1/20x4 1/2/20x4
Seller P Co. S Co.
Selling Price P90,000 60,000
Book Value P75,000 28,800
Unrealized* Gain on sale P15,000 31,200
Remaining Life 5 years 8 years
Realized gain – depreciation** P3,000/year P3,900/year
20x4 P2,250 P3,900
* selling price less book value ** unrealized gain divided by remaining life; 20x4 – P3,000 x 9/12 = P2,250
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:
372,000 372,000
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%)………………………..
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%)……………………….. 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 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 Son’s identifiable assets and liabilities as follows: Cost of Depreciation/ Goods Amortization Amortization Sold Expense -Interest Total Inventory sold P 6,000 Equipment P 12,000 Buildings ( 6,000) Bonds payable _______ _______ P 1,200 Totals P 6,000 P 6,000 P1,200 13,200
(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.
(E5) Gain on sale of equipment Equipment Accumulated depreciation To eliminate the downstream intercompany gain and restore to its original cost to the consolidate entity (along with its accumulated depreciation at the point of the intercompany sale).
15,000 30,000 45,000
(E5) Gain on sale of equipment Equipment Accumulated depreciation
15,000 30,000 45,000
To eliminate the downstream intercompany gain and restore to its original cost to the consolidate entity (along with its accumulated depreciation at the point of the intercompany sale).
(E6) Gain on sale of equipment Equipment Accumulated depreciation
31,200 12,000 43,200
To eliminate the upstream intercompany gain and restore to its original cost to the consolidate entity (along with its accumulated depreciation at the point of the intercompany sale).
(E7) Accumulated depreciation……….. Depreciation expense……………
2,250 2,250
To adjust downstream depreciation expense on equipment sold to subsidiary, thus realizing a portion of the gain through depreciation (P15,000 / 5 years x 9/12 = P2,250).
(E8) Accumulated depreciation……….. Depreciation expense……………
3,900 3,900
To adjust upstream depreciation expense on equipment sold to parent, thus realizing a portion of the gain through depreciation (P31,200/85 years x 1 year = P3,900).
(E9) Non-controlling interest in Net Income of Subsidiary………… Non- controlling interest …………..
10,140 10,140
To establish non-controlling interest in subsidiary’s adjusted net income for 20x4 as follows:
P 91,200
Net income of subsidiary…………………….. Unrealized gain on sale of equipment (upstream sales) Realized gain on sale of equipment (upstream sales) through depreciation S Company’s realized net income from separate operations Less: Amortization of allocated excess [(E3)]….
( 31,200) 3,900
Multiplied by: Non-controlling interest %.......... Non-controlling Interest in Net Income (NCINI) – partial goodwill
P 63,900 13,200 P 50,700 20% P
10,140
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. Cost Model (Partial-goodwill) 80%-Owned Subsidiary December 31, 20x4 (First Year after Acquisition) P Co P480,000 15,000
S Co. P240,000 31,200
28,800
-
Total Revenue Cost of goods sold Depreciation expense
P523,800 P204,000 60,000
P271,200 P138,000 24,000
Interest expense Other expenses Goodwill impairment loss Total Cost and Expenses
48,000 P312,000
18,000 P180,000
Income Statement Sales Gain on sale of equipment
Dividend income
Dr.
Cr.
Consolidated P 720,000
(5) 15,000 (6) 31,200 (4) 28,800
_________
(3) (3)
6,000 6,000
P 720,000 P 348,000 83,850
(3)
1,200
(3)
3,000
(7) (8)
2,250 3,900
1,200 66,000 3,000 P 502,050
Total Revenue Cost of goods sold Depreciation expense
P523,800 P204,000 60,000
P271,200 P138,000 24,000
Interest expense Other expenses Goodwill impairment loss Total Cost and Expenses Net Income NCI in Net Income - Subsidiary Net Income to Retained Earnings
48,000 P312,000 P211,800 P211,800
18,000 P180,000 P 91,200 P 91,200
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
(3) (3)
6,000 6,000
(3)
1,200
(3)
3,000
(7) (8)
P 720,000 P 348,000 83,850
2,250 3,900
P P ( P
(9 10,140
P360,000
P
Buildings Discount on bonds payable Goodwill…………………… Investment in S Co……… Total Accumulated depreciation - equipment
Total
P 360,000
211,800 P571,800
P120,000 91,200 P211,200
72,000 -
36,000
P499,800
P175,200
P 495,810
232,800 90,000 120,000 210,000 240,000
P 90,000 60,000 90,000 48,000 180,000
P 322,800 150,000 210,000 265,200
720,000
(1) 120,000 207,810 P 567,810
(4)
(2) 6,000 (2) 7,200 (5) 30,000 (6) 12,000
540,000 (2) (2)
4,800 12,000
372,000 P1,984,800
P1,008,000
P 135,000
P 96,000
405,000
288,000
105,000 240,000 600,000
88,800 120,000
Accumulated depreciation - buildings Accounts payable…………… Bonds payable………………… Common stock, P10 par……… Common stock, P10 par……… Retained earnings, from above Non-controlling interest…………
1,200 66,000 3,000 502,050 217,950 10,140) 207,810
240,000 175,200
499,800
(3) 96,000 (7) 2,250 (8) 3,900 (2) 192,000 (3) 6,000
6,000
(2) 216,000 (3) 1,200 (3) 3,000 (1) 288,000 (2) 84,000
72,000 ________
_
462,000 1,044,000 3,600 9,000 P2,466,600
(3) 12,000 (5) 45,000 (6) 43,200
P229,050 495,000 193,800 360,000 600,000
(1) 240,000 495,810 (4)
_________ P1,984,800
3)
36,000
7,200
_________ __________ P1,008,000 P 834,450
(1 ) 72,000 (2) 18,000 (9) 10,140 P 834,450
____92,940 P2,466,600
20x5: Second Year after Acquisition Sales Less: Cost of goods sold Gross profit Less: Depreciation expense Other expense Net income from its own separate operations Add: Dividend income Net income Dividends paid
P Co. P 540,000 216,000 P 324,000 60,000 72,000 P 192,000 38,400 P 230,400 P 72,000
S Co. P 360,000 192,000 P 168,000 24,000 54,000 P 90,000 P 90,000 P 48,000
No goodwill impairment loss for 20x5. Parent Company Cost Model Entry Only a single entry is recorded by the parent in 20x5 in relation to its subsidiary investment: January 1, 20x5 – December 31, 20x5: Cash………………………
38,400
No goodwill impairment loss for 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………… Cash Dividends paid by S Co..
48,000 48,000
Consolidation Workpaper – Second Year after Acquisition The working paper eliminations (in journal entry format) on December 31, 20x5, are as follows: (E1) Investment in S Company………………………… Retained earnings – P Company………………………
44,160 44,160
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
P175,200 120,000 P 55,200 80% P 44,160
Entry (1) above is needed only for firms using the cost method to account for their investments in the subsidiary. If the parent is already using the equity method, there is no need to convert to equity. (E2) Common stock – S Co………………………………………… Retained earnings – S Co., 1/1/20x5 Investment in S Co (P415,200 x 80%)………………………… Non-controlling interest (P415,200 x 20%)………………………..
240,000 175,200 332,160 83,040
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%) 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…………………………………… To provide for years 20x4 and 20x5 depreciation and amortization on
13,560 2,640 6,000
12,000 1,200 6,000 24,000 2,400 3,000
Accumulated depreciation – buildings………………….. Interest expense………………………………… Inventory………………………………………………………….. Accumulated depreciation – equipment……………….. Discount on bonds payable………………………… Goodwill……………………………………
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 Son’s identifiable assets and liabilities as follows: Year 20x4 amounts are debited to Perfect’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
Amortization -Interest
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
To eliminate intercompany dividends and non-controlling interest share of dividends.
(E5) Retained Earnings – P Company, 1/1/20x5 Equipment Accumulated depreciation
15,000 30,000 45,000
To eliminate the downstream intercompany gain and restore to its original cost to the consolidate entity (along with its accumulated depreciation at the point of the intercompany sale).
(E6) Retained Earnings – P Company, 1/1/20x5 (P31,200 x 80%) Non-controlling interest (P31,200 x 20%) Equipment Accumulated depreciation
24,960 6,240 12,000 43,200
To eliminate the upstream intercompany gain and restore to its original cost to the consolidate entity (along with its accumulated depreciation at the point of the intercompany sale).
(E7) Accumulated depreciation……….. Depreciation expense (current year)…………… Retained Earnings – P Company, 1/1/20x5 (prior year)
5,250 3,000 2,250
To adjust downstream depreciation expense on equipment sold to subsidiary, thus realizing a portion of the gain through depreciation
(E8) Accumulated depreciation……….. Depreciation expense (current year) Retained Earnings – P Co. 1/1/20x5 (P3,900 x 80%) Non-controlling interest (P31,200 x 20%)
7,800 3,900 3,120 780
To adjust upstream depreciation expense on equipment sold to parent, thus realizing a portion of the gain through depreciation (P31,200/85 years x 1 year = P3,900).
(E9) 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 gain on sale of equipment (upstream sales) through depreciation S Company’s Realized net income* Less: Amortization of allocated excess
P 90,000 3,900 P 93,900 ( 7,200) P 86,700
17,340 17,340
income for 20x5 as follows: Net income of subsidiary…………………….. Realized gain on sale of equipment (upstream sales) through depreciation S Company’s Realized net income* Less: Amortization of allocated excess
P 90,000 3,900 P 93,900 ( 7,200) P 86,700 20% P 17,340
Multiplied by: Non-controlling interest %.......... Non-controlling Interest in Net Income (NCINI) – partial goodwill *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 Dividend income Total Revenue Cost of goods sold Depreciation expense
P Co P540,000 38,400 P578,400 P216,000 60,000
S Co. P360,000 P360,000 P192,000 24,000
Interest expense Other expenses Goodwill impairment loss Total Cost and Expenses Net Income NCI in Net Income - Subsidiary Net Income to Retained Earnings
72,000 P348,000 P230,400 P230,400
54,000 P270,000 P 90,000 P 90,000
Statement of Retained Earnings Retained earnings, 1/1 P Company
P499,800
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 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
P
Dr. (5)
38,400
(4)
6,000
(4)
1,200
Cr.
(7) (8)
3,000 3,900
Consolidated P 900,000 ___________ P 900,000 P 408,000 83,100
P P ( P
(9) 17,340
(1) (5) (6) (2)
13,560 15,000 24,960 175,200
(1) 44,160 (7) 2,250 (8) 3,120
1,200 126,000 618,300 281,700 17,340) 264,360
P 495,810
230,400 P730,200
P 175,200 __90,000 P265,200
72,000 -
48,000
P658,200
P217,200
P 688,170
265,200 180,000 216,000 210,000 240,000
P 102,000 96,000 108,000 48,000 180,000
P 367,200 276,000 324,000 265,200
720,000
(5)
(1) 6,000 (3) 7,200 (5) 30,000 (6) 12,000
540,000 (3) (3) (1)
372,000 P2,203,200
P1,074,000
P 150,000
P 102,000
450,000
306,000
105,000 240,000 600,000
88,800 120,000
658,200
264,360 P 760,170
240,000 217,200
4,800 12,000 44,160
(2)
48,000
6,000
(3) 216,000 (4) 2,400 (4) 3,000 (2) 332,160 (3) 84,000
(3) 96,000 (7) 5,250
(4) (5)
24,000 45,000
(8) 7,800 (3) 192,000 (4) 12,000
(6)
43,200
_
72,000 ________
462,000 1,044,000 2,400 9,000 P2,749,800
P 255,150
552,000 193,800 360,000 600,000
(2) 240,000 688,170
Accumulated depreciation - buildings Accounts payable…………… Bonds payable………………… Common stock, P10 par……… Common stock, P10 par……… Retained earnings, from above Non-controlling interest…………
450,000
306,000
105,000 240,000 600,000
88,800 120,000
658,200
___ _____ P2,203,200
Total
240,000 217,200
(8) 7,800 (3) 192,000 (4) 12,000
(6)
43,200 552,000 193,800 360,000 600,000
(2) 240,000
(4) 2,640 (5) 9,600 (6) 6,240 _________ __________ P1,074,000 P 979,350
688,170 (2 (3) (8) (9) P
83,040 18,000 780 17,340 979,350
____100,680 P2,749,800
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 - 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 goodwill),………………………………..
P 240,000 120,000 P 360,000 90,000 P 450,000 20 P 90,000
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
c.
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 - P Consolidated Net Income for 20x4 P Company’s net income from own/separate operations…………. Unrealized gain on sale of equipment (downstream sales) Realized gain on sale of equipment (downstream sales) through depreciation P Company’s realized net income from separate operations*…….….. S Company’s net income from own operations…………………………………. Unrealized gain on sale of equipment (upstream sales) Realized gain on sale of equipment (upstream sales) through depreciation 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.
P183,000 (15,000) 2,250 P170,250 P 91,200 ( 31,200) 3,900 P 63,900 P 10,140 13,200 3,000
26,340 P207,810 _ 10,140 P217,950
b. NCI-CNI – P10,140 **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 gain on sale of equipment (upstream sales) Realized gain on sale of equipment (upstream sales) through depreciation S Company’s realized net income from separate operations……… Less: Amortization of allocated excess / goodwill impairment (refer to amortization table above)
63,900 P234,150
P 91,200 ( 31,200) 3,900 P 63,900 13,200 P 50,700
S Company’s net income of Subsidiary Company from its own operations (Reported net income of S Company) Unrealized gain on sale of equipment (upstream sales) Realized gain on sale of equipment (upstream sales) through depreciation S Company’s realized net income from separate operations……… Less: Amortization of allocated excess / goodwill impairment (refer to amortization table above) Multiplied by: Non-controlling interest %.......... Non-controlling Interest in Net Income (NCINI) – partial goodwill *that has been realized in transactions with third parties.
P 91,200 ( 31,200) 3,900 P 63,900 13,200 P 50,700 20% P 10,140
c. CNI, P217,950 – 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
P360,000 207,810 P567,810 72,000 P495,810
e. The goodwill recognized on consolidation purely relates to the parent’s share. NCI is measured as a proportion of identifiable assets and goodwill att ributable to NCI share is not recognized. The NCI on January 1, 20x4 and December 31, 20x4 are computed as follows: Non-controlling interest (partial-goodwill), December 31, 20x4 Common stock – Subsidiary Company, December 31, 20x4…… Retained earnings – Subsidiary Company, December 31, 20x4 Retained earnings – Subsidiary Company, January 1, 20x4 Add: Net income of subsidiary for 20x4 Total Less: Dividends paid – 20x4 Stockholders’ equity – Subsidiary Company, December 31, 20x4 Adjustments to reflect fair value - (over) undervaluation of assets and liabilities, date of acquisition (January 1, 20x4) Amortization of allocated excess (refer to amortization above) – 20x4 Fair value of stockholders’ equity of subsidiary, December 31, 20x4…… Unrealized gain on sale of equipment (upstream sales) Realized gain on sale of equipment (upstream sales) through depreciation Realized stockholders’ equity of subsidiary, December 31, 20x4…… Multiplied by: Non-controlling Interest percentage…………... Non-controlling interest (partial-goodwill)…………………………………..
P 240,000 P120,000 91,200 P211,200 36,000
175,200 P 415,200 90,000 ( 13,200) P492,000 ( 31,200) 3,900 P464,700 20 P 92,940
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 600,000 495,810 P1,095,810 ___92,940 P1,188,750
12/31/20x5: a. CI-CNI – P264,360 Consolidated Net Income for 20x5 P Company’s net income from own/separate operations…………. Realized gain on sale of equipment (downstream sales) through depreciation P Company’s realized net income from separate operations*…….….. S Company’s net income from own operations…………………………………. Realized gain on sale of equipment (upstream sales) through depreciation
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 3,000 P195,000 P 90,000 3,90
P 93,900
93,900 P288,900 7,200 P281,700 17,340 P264,360
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 93,900
93,900 P288,900 7,200 P281,700 17,340 P264,360
Or, alternatively Consolidated Net Income for 20x5 P Company’s net income from own/separate operations…………. Realized gain on sale of equipment (downstream sales) through depreciation P Company’s realized net income from separate operations*…….….. S Company’s net income from own operations…………………………………. Realized gain on sale of equipment (upstream sales) through depreciation 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.
P192,000 3,000 P195,000 P 90,000 3,900 P 93,900 P 17,340 7,200
93,900 P288,900 24,540 P264,360 _ 17,340 P281,700
b. NCI-CNI – P17,340 **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 gain on sale of equipment (upstream sales) through depreciation 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 3,900 P 93,900 7,200 P 86,700 20% P 17,340
c. CNI, P281,700 – 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: Downstream - net unrealized gain on sale of equipment – prior to 20x5 (P15,000 – P2,250) Adjusted Retained Earnings – Parent 1/1/20x5 (cost model ) Son 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 shar e 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 Upstream - net unrealized gain on sale of equipment – prior to 20x5 (P31,200 – P3,900) Multiplied by: Controlling interests %................... Less: Goodwill impairment loss Consolidated Retained earnings, January 1, 20x5 Add: Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent for 20x5 Total Less: Dividends paid – Parent Company for 20x5
P499,800 12,750
P487,050
P 175,200 120,000 P 55,200 13,200 27,300 P 14,700 80% P 11,760 3,000
__ 8,760 P495,810 264,360 P760,170 72,000
Consolidated Retained Earnings, December 31, 20x5 P688,170 *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)
P658,200
Consolidated Retained Earnings, December 31, 20x5 P688,170 *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: Downstream - net unrealized gain on sale of equipment – prior to 12/31/20x5 (P15,000 – P2,250 – P3,000) 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 (P11,000 + P6,000) Upstream - net unrealized gain on sale of equipment – prior to 12/31/20x5 (P31,200 – P3,900 – P3,900)
P658,200 9,750
P648,450
P 217,200 120,000 P 97,200 20,400
P Multiplied by: Controlling interests %................... P Less: Goodwill impairment loss Consolidated Retained earnings, December 31, 20x5
23,400 53,400 80% 42,720 3,000
39,720 P688,170
e. Non-controlling interest (partial-goodwill), December 31, 20x5 Common stock – Subsidiary Company, December 31, 20x5…… Retained earnings – Subsidiary Company, December 31, 20x5 Retained earnings – Subsidiary Company, January 1, 20x5 Add: Net income of subsidiary for 20x5 Total Less: Dividends paid – 20x5 Stockholders’ equity – Subsidiary Company, December 31, 20x5 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 20x5 Fair value of stockholders’ equity of subsidiary, December 31, 20x5…… Less: Upstream - net unrealized gain on sale of equipment – prior to 12/31/20x5 (P31,200 – P3,900 – P3,900) Realized stockholders’ equity of subsidiary, December 31, 20x5………. Multiplied by: Non-controlling Interest percentage…………... Non-controlling interest (partial goodwill)…………………………………..
P 240,000 P175,200 90,000 P 265,200 48,000
90,000 P 13,200 7,200
P 600,000 688,170 P1,288,170 __100,680 P1,188,850
Problem VIII 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%)………...
P 372,000 93,000 P 465,000 P 240,000 120,000
( 20,400) P 526,800 23,400 P503,400 20 P 100,680
f. Consolidated SHE: Stockholders’ Equity Common stock, P10 par Retained earnings Parent’s Stockholders’ Equity / CI – SHE, 12/31/20x5 NCI, 12/31/20x5 Consolidated SHE, 12/31/20x5
217,200 P 457,200
360,000
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 Inventory Subject to Annual Amortization Equipment (net)......... Buildings (net) Bonds payable…
Over/ under P 6,000
Life 1
96,000 (24,000) 4,800
8 4 4
Annual Amount P 6,000
Current Year(20x4) P 6,000
20x5 P -
12,000 ( 6,000) 1,200 P 13,200
12,000 ( 6,000) 1,200 P 13,200
12,000 (6,000) 1,200 P 7,200
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
On the books of S Company, the P36,000 dividend paid was recorded as follows: Dividends paid………… Cash……. Dividends paid by S Co..
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…………………..
6,000 96,000 192,000
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……………………………………………….
7,200 4,800 15,000 216,000 21,000 84,000
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……………………………………………….
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.
Since the set-up entry in (E2) NCI at fair value, non-controlling interests have a share of entity goodwill and hence is exposed to impairment loss on goodwill. PAS 36 requires the impairment loss to be pro-rated between the parent and NCI on the same basis as that on which profit or loss is allocated. In other words, the impairment loss is not pro -rated in accordance with the proportion of goodwill recognized by parent and NCI. (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 3,750 6,000 12,000 1,200 3,750
To provide for 20x4 impairment loss and depreciation and amortization on differences between acquisition date fair value and book value of Son’s identifiable assets and liabilities as follows: Cost of Depreciation/ Goods Amortization Amortization Sold Expense -Interest Inventory sold P 6,000 Equipment P12,000 Buildings ( 6,000) Bonds payable _______ _______ P 1,200 Totals P 6,000 P 6,000 P1,200
(E4) Dividend income - P………. 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.
(E5) Gain on sale of equipment Equipment Accumulated depreciation
15,000 30,000 45,000
To eliminate the downstream intercompany gain and restore to its original cost to the consolidate entity (along with its accumulated depreciation at the point of the intercompany sale).
(E6) Gain on sale of equipment Equipment Accumulated depreciation
31,200 12,000 43,200
To eliminate the upstream intercompany gain and restore to its original cost to the consolidate entity (along with its accumulated depreciation at the point of the intercompany sale).
(E7) Accumulated depreciation……….. Depreciation expense……………
2,250 2,250
To adjust downstream depreciation expense on equipment sold to subsidiary, thus realizing a portion of the gain through depreciation
(P15,000 / 5 years x 9/12 = P2,250).
(E8) Accumulated depreciation……….. Depreciation expense…………… To adjust upstream depreciation expense on equipment sold to parent, thus realizing a portion of the gain through depreciation (P31,200/85 years x 1 year = P3,900).
3,900 3,900
(P15,000 / 5 years x 9/12 = P2,250).
(E8) Accumulated depreciation……….. Depreciation expense……………
3,900 3,900
To adjust upstream depreciation expense on equipment sold to parent, thus realizing a portion of the gain through depreciation (P31,200/85 years x 1 year = P3,900).
(E9) Non-controlling interest in Net Income of Subsidiary………… Non- controlling interest …………..
9,390 9,390
To establish non-controlling interest in subsidiary’s adjusted net income for 20x4 as follows:
Net income of subsidiary…………………….. Unrealized gain on sale of equipment (upstream sales) Realized gain on sale of equipment (upstream sales) through depreciation S Company’s realized net income from separate operations Less: Amortization of allocated excess [(E3)]….
P 91,200 ( 31,200) 3,900
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)
P 63,900 13,200 P 50,700 20% P
10,140
P
750 9,390
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 Gain on sale of equipment
P Co P480,000 15,000
S Co. P240,000 31,200
Dividend income Total Revenue Cost of goods sold Depreciation expense
28,800 P523,800 P204,000 60,000
P271,200 P138,000 24,000
Interest expense Other expenses Goodwill impairment loss Total Cost and Expenses Net Income NCI in Net Income - Subsidiary Net Income to Retained Earnings
48,000 P312,000 P211,800 P211,800
18,000 P180,000 P 91,200 P 91,200
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
Dr.
Cr.
Consolidated P 720,000
(5) 15,000 (6) 31,200 (4) 28,800 (3) (3)
6,000 6,000
(3)
1,200
(3)
3,750
(9)
9,390
(7) (8)
_________ P 720,000 P 348,000 83,850
2,250 3,900
1,200 66,000 3,750 P 502,800 P 217,200 ( 9,390) P 207,810
P360,000
P 360,000
211,800 P571,800
P120,000 91,200 P211,200
(1) 120,000
72,000 -
36,000
P499,800
P175,200
P 495,810
232,800 90,000 120,000 210,000 240,000
P 90,000 60,000 90,000 48,000 180,000
P 322,800 150,000 210,000 265,200
207,810 P 567,810
(4)
36,000
_
72,000 ________
Balance Sheet
Cash………………………. Accounts receivable…….. Inventory…………………. Land……………………………. Equipment
Buildings Discount on bonds payable
P
720,000
(2) 6,000 (2) 7,200 (5) 30,000 (6) 12,000
540,000 (2)
4,800
3)
6,000
(2) 216,000 (3) 1,200
462,000 1,044,000 3,600
Cash………………………. Accounts receivable…….. Inventory…………………. Land……………………………. Equipment
P
Buildings Discount on bonds payable Goodwill…………………… Investment in S Co………
232,800 90,000 120,000 210,000 240,000
P 90,000 60,000 90,000 48,000 180,000
720,000
540,000 (2) (2)
4,800 15,000
372,000
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…………
P1,984,800
P1,008,000
P 135,000
P 96,000
405,000
288,000
105,000 240,000 600,000
88,800 120,000 240,000 175,200
499,800
(2) 80,000 (7) 2,250 (8) 3,900 (2) 192,000 (3) 6,000
3)
6,000
(2) 216,000 (3) 1,200 (3) 3,750 (1) 288,000 (2) 84,000
462,000 1,044,000 3,600 11,250 P2,468,850
(3) 10,000 (5) 45,000 (6) 43,200
P229,050 495,000 193,800 360,000 600,000
(1) 240,000 495,810 (3)
_________ P1,984,800
Total
(2) 6,000 (2) 7,200 (5) 30,000 (6) 12,000
P 322,800 150,000 210,000 265,200
7,200
_________ __________ P1,008,000 P 843,690
(1 ) 72,000 (2) 21,000 (9) 9,390 P 843,690
____95,190 P2,468,850
20x5: Second Year after Acquisition P Co. P 540,000 216000 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. Parent Company Cost Model Entry 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………………………
44,160 44,160
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
(E2) Common stock
P175,200 120,000 P 55,200 80% P 44,160
S Co…………………………………………
240,000
Retained earnings – S Company, 1/1/20x5 Retained earnings – S Company, 1/1/20x4 Increase in retained earnings…….. Multiplied by: Controlling interest % Retroactive adjustment
P175,200 120,000 P 55,200 80% P 44,160
(E2) Common stock – S Co………………………………………… Retained earnings – S Co., 1/1/20x5 Investment in S Co (P415,200 x 80%)………………………… Non-controlling interest (P415,200 x 20%)………………………..
240,000 175,200 332,160 83,040
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……………………………………………….
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 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 (P16,950 x 20%) or (P13,200 x 20% + (P3,750 – P3,000 = P750) 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 2,400 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 & 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
Amortization -Interest
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
To eliminate intercompany dividends and non-controlling interest share of dividends.
(E6) Retained Earnings – P Company, 1/1/20x5 Equipment
15,000 30,000
Non-controlling interest (P48,000 x 20%)……………….. Dividends paid – S……………………
9,600 48,000
To eliminate intercompany dividends and non-controlling interest share of dividends.
(E6) Retained Earnings – P Company, 1/1/20x5 Equipment Accumulated depreciation
15,000 30,000 45,000
To eliminate the downstream intercompany gain and restore to its original cost to the consolidate entity (along with its accumulated depreciation at the point of the intercompany sale).
(E7) Retained Earnings – P Company, 1/1/20x5 (P31,200 x 80%) Non-controlling interest (P31,200 x 20%) Equipment Accumulated depreciation
24,960 6,240 12,000 43,200
To eliminate the upstream intercompany gain and restore to its original cost to the consolidate entity (along with its accumulated depreciation at the point of the intercompany sale).
(E8) Accumulated depreciation……….. Depreciation expense (current year)…………… Retained Earnings – P Company, 1/1/20x5 (prior year)
5,250 3,000 2,250
To adjust downstream depreciation expense on equipment sold to subsidiary, thus realizing a portion of the gain through depreciation
(E9) Accumulated depreciation……….. Depreciation expense (current year) Retained Earnings – P Co. 1/1/20x5 (P3,900 x 80%) Non-controlling interest (P3,900 x 20%)
7,800 3,900 3,120 780
To adjust upstream depreciation expense on equipment sold to parent, thus realizing a portion of the gain through depreciation (P31,200/85 years x 1 year = P3,900).
(E10) Non-controlling interest in Net I ncome of Subsidiary………… Non- controlling interest …………..
17,340 17,340
To establish non-controlling interest in subsidiary’s adjusted net income for 20x5 as follows:
Net income of subsidiary…………………….. Realized gain on sale of equipment (upstream sales) through depreciation S Company’s Realized net income* Less: Amortization of allocated excess
P 90,000 3,900 P 93,900 ( 7,200) P 86,700 20% P 17,340
Multiplied by: Non-controlling interest %.......... Non-controlling Interest in Net Income (NCINI Less: NCI on goodwill impairment loss on fullGoodwill 0 Non-controlling Interest in Net Income (NCINI) P 17,340 *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 Dividend income Total Revenue Cost of goods sold Depreciation expense
Interest expense
P Co P540,000 38,400 P578,400 P216,000 60,000
S Co. P360,000 P360,000 P192,000 24,000
Dr. (5)
38,400
(4)
6,000
-
-
(4)
1,200
Cr.
(8) (9)
3,000 3,900
Consolidated P 900,000 ___________ P 900,000 P 408,000 83,100 1,200
Income Statement Sales Dividend income Total Revenue Cost of goods sold Depreciation expense
P Co P540,000 38,400 P578,400 P216,000 60,000
S Co. P360,000 P360,000 P192,000 24,000
Interest expense Other expenses Goodwill impairment loss Total Cost and Expenses Net Income NCI in Net Income - Subsidiary Net Income to Retained Earnings
72,000 P348,000 P230,400 P230,400
54,000 P270,000 P 90,000 P 90,000
Statement of Retained Earnings Retained earnings, 1/1 P Company
P499,800
(2) 13,560 (6) 15,00 (7) 24,960 P 175,200 (1) 175,200 90,000 P265,200
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
230,400 P730,200
P
Dr. (5)
38,400
(4)
6,000
(4)
1,200
Cr.
(8) (9)
3,000 3,900
Consolidated P 900,000 ___________ P 900,000 P 408,000 83,100
P P ( P
(10) 17,340
(1) 44,160 (8) 2,250 (9) 3,120
1,200 126,000 618,300 281,700 17,340) 264,360
P 495,810 264,360 P 760,170
72,000 -
48,000
P658,200
P217,200
P 688,170
265,200 180,000 216,000 210,000 240,000
P 102,000 96,000 108,000 48,000 180,000
P 367,200 276,000 324,000 265,200
720,000
540,000
P2,203,200
P1,074,000
P 150,000
P 102,000
450,000
306,000
105,000 240,000 600,000
88,800 120,000
___ _____ P2,203,200
(3) (3) (6) (7) (3) (3) (1)
372,000
658,200
(5)
240,000 217,200
6,000 7,200 30,000 12,000 4,800 15,000 44,160
(3) 96,000 (8) 5,250 (9) 7,800 (3) 192,000 (4) 12,000
(4)
48,000
6,000
(3) 216,000 (4) 2,400 (4) 3,750 (2) 332,160 (3) 90,000
(4) (6) (7)
24,000 45,000 43,200
_
72,000 ________
462,000 1,044,000 2,400 11,250 P2,752,050
P 255,150 552,000 193,800 360,000 600,000
(2) 240,000
(4) 3,390 (5) 9,600 (7) 6,240 _________ __________ P1,074,000 P 983,100
688,170 (2 ) 83,040 (3) 21,000 (9) 780 (10) 17,340 P 983,100
____102,930 P2,752,050
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 goodwill),………………………………..
P 240,000 120,000 P 360,000 90,000 P 450,000 20 P 90,000
Non-controlling interest (partial-goodwill), January 1, 20x4 Common stock – Subsidiary Company…………………………………… Retained earnings – Subsidiary Company…………………………………. Stockholders’ equity – Subsidiary Company.………….. Adjustments to reflect fair value - (over) undervaluation of assets and liabilities Fair value of stockholders’ equity of subsidiary, January 1, 20x4………………… Multiplied by: Non-controlling Interest percentage…………... Non-controlling interest (partial goodwill),……………………………….. 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 – P207,810 Consolidated Net Income for 20x4 P Company’s net income from own/separate operations…………. Unrealized gain on sale of equipment (downstream sales) Realized gain on sale of equipment (downstream sales) through depreciation P Company’s realized net income from separate operations*…….….. S Company’s net income from own operations…………………………………. Unrealized gain on sale of equipment (upstream sales) Realized gain on sale of equipment (upstream sales) through depreciation 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.
P183,000 (15,000) 2,250 P170,250 P 91,200 ( 31,200) 3,900 P 63,900 P 10,140 13,200 3,000
63,900 P234,150
26,340 P207,810 10,140 P217,950
b. NCI-CNI – P10,140 **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 gain on sale of equipment (upstream sales) Realized gain on sale of equipment (upstream sales) through depreciation S Company’s realized net income from separate operations……… Less: Amortization of allocated excess / goodwill impairment (refer to amortization table above) 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 (P3,750mpairment on full-goodwill less P3,000, impairment on partial- goodwill) Non-controlling Interest in Net Income (NCINI) – full goodwill *that has been realized in transactions with third parties.
P 91,200 ( 31,200) 3,900 P 63,900 13,200 P 50,700 20% P 10,140
750 P 9,390
c. CNI, P217,950 – 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
P360,000
c. CNI, P217,950 – 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
P360,000 207,810 P567,810 72,000 P495,810
e. 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…… Unrealized gain on sale of equipment (upstream sales) Realized gain on sale of equipment (upstream sales) through depreciation 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 i mpairment 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 91,200 P211,200 36,000
175,200 P 415,200 90,000 ( 13,200) P492,000 ( 31,200) 3,900 P464,700 20 P 92,940 2,250 P 95,190
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 600,000 495,810 P1,095,810 ___95,190 P1,191,000
12/31/20x5: a. CI-CNI – P281,700 Consolidated Net Income for 20x5 P Company’s net income from own/separate operations…………. Realized gain on sale of equipment (downstream sales) through depreciation P Company’s realized net income from separate operations*…….….. S Company’s net income from own operations…………………………………. Realized gain on sale of equipment (upstream sales) through depreciation 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 3,000 P195,000 P 90,000 3,900 P 93,900
93,900 P288,900 7,200 P281,700 17,340 P264,360
Or, alternatively Consolidated Net Income for 20x5
P Company’s net income from own/separate operations…………. Realized gain on sale of equipment (downstream sales) through depreciation P Company’s realized net income from separate operations*…….….. S Company’s net income from own operations…………………………………. Realized gain on sale of equipment (upstream sales) through depreciation S Company’s realized net income from separate operations*…….….. Total Less: Non-controlling Interest in Net Income* *
P192,000 3,000 P195,000 P 90,000 3,900 P 93,900 P 17,340
93,900 P288,900
P Company’s net income from own/separate operations…………. Realized gain on sale of equipment (downstream sales) through depreciation P Company’s realized net income from separate operations*…….….. Company’s net income from own operations…………………………………. S Realized gain on sale of equipment (upstream sales) through depreciation 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.
P192,000 3,000 P195,000 P 90,000 3,900 P 93,900 P 17,340 7,200
93,900 P288,900 24,540 P264,360 _ 17,340 P281,700
b. NCI-CNI – P17,340 **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 gain on sale of equipment (upstream sales) through depreciation 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 3,900 P 93,900 7,200 P 86,700 20% P 17,340 0 P 17,340
c. CNI, P281,700 – 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: Downstream - net unrealized gain on sale of equipment – prior to 20x5 (P15,000 – P2,250) Adjusted Retained Earnings – Parent 1/1/20x5 (cost model ) Son 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 Upstream - net unrealized gain on sale of equipment – prior to 20x5 (P31,200 – P3,900) Multiplied by: Controlling interests %...................
P499,800 12,750
P487,050
P 175,200 120,000 P 55,200 13,200 27,300 P 14,700 80% P 11,760 3,000
Less: Goodwill impairment loss __ 8,760 Consolidated Retained earnings, January 1, 20x5 P495,810 Add: Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent for 20x5 264,360 Total P760,170 Less: Dividends paid – Parent Company for 20x5 72,000 Consolidated Retained Earnings, December 31, 20x5 P688,170 *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: Downstream - net unrealized gain on sale of equipment – prior to 12/31/20x5 (P15,000 – P2,250 – P3,000) 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:
P658,200
9,750
P648,450
Less: Downstream - net unrealized gain on sale of equipment – prior to 12/31/20x5 (P15,000 – P2,250 – P3,000) 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) Upstream - net unrealized gain on sale of equipment – prior to 12/31/20x5 (P31,200 – P3,900 – P3,900)
9,750
P648,450
P 217,200 120,000 P 97,200 20,400
P Multiplied by: Controlling interests %................... P Less: Goodwill impairment loss (full-goodwill) Consolidated Retained earnings, December 31, 20x5
23,400 53,400 80% 42,720 3,000
39,720 P688,170
e. Non-controlling interest, December 31, 20x5 Common stock – Subsidiary Company, December 31, 20x5…… Retained earnings – Subsidiary Company, December 31, 20x5 Retained earnings – Subsidiary Company, January 1, 20x5 Add: Net income of subsidiary for 20x5 Total Less: Dividends paid – 20x5 Stockholders’ equity – Subsidiary Company, December 31, 20x5 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 20x5 Fair value of stockholders’ equity of subsidiary, December 31, 20x5…… Less: Upstream - net unrealized gain on sale of equipment – prior to 12/31/20x5 (P31,200 – P3,900 – P3,900) Realized stock holders’ equity of subsidiary, December 31, 20x5………. Multiplied by: Non-controlling Interest percentage…………... Non-controlling interest (partial goodwill)………………………………….. Add: Non-controlling interest on full goodwill , net of i mpairment loss [(P15,000 full – P12,000, partial = P3,000) – P750 impairment loss Non-controlling interest (full-goodwill)…………………………………..
P 240,000 P175,200 90,000 P 265,200 48,000
217,200 P 457,200 90,000
P 13,200 7,200
( 20,400) P 526,800 23,400 P503,400 20 P 100,680 2,250 P 102,930
f. Consolidated SHE: Stockholders’ Equity Common stock, P10 par Retained earnings Parent’s Stockholders’ Equity / CI – SHE, 12/31/20x5 NCI, 12/31/20x5 Consolidated SHE, 12/31/20x5
P 600,000 688,170 P1,288,170 __102,930 P1,391,100
Problem IX Requirements 1 to 4 Schedule of Determination and Allocation of Excess (Partial-goodwill) Date of Acquisition – January 1, 20x4 Fair value of Subsidiary (80%) Consideration transferred………………………………..
Less: Book value of stockholders’ equity of S: 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 80%)
P 372,000
P 192,000 96,000 P P 4,800 5,760 76,800
288,000 84,000
Less: Book value of stockholders’ equity of S: 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 192,000 96,000 P
288,000 84,000
P 4,800 5,760 76,800 ( 19,200) 3,840
72,000 P 12,000
The over/under valuation of assets and liabilities are summarized as follows: Inventory………………….…………….. Land……………………………………… Equipment (net)......... Buildings (net) Bonds payable………………………… Net………………………………………..
S Co. Book value P 24,000 48,000 84,000 168,000 (120,000) P 204,000
S Co. Fair value P 30,000 55,200 180,000 144,000 ( 115,200) P 294,000
(Over) Under Valuation P 6,000 7,200 96,000 (24,000) 4,800 P 90,000
The buildings and equipment will be further analyzed for consolidation purposes as follows: Equipment.................. Less: Accumulated depreciation….. Net book value………………………...
S Co. Book value 180,000 96,000 84,000
S Co. Fair value 180,000 180,000
Increase (Decrease) 0 ( 96,000) 96,000
Buildings................ Less: Accumulated depreciation….. Net book value………………………...
S Co. Book value 360,000 1992,000 168,000
S Co. Fair value 144,000 144,000
(Decrease) ( 216,000) ( 192,000) ( 24,000)
A summary or depreciation and amortization adjustments is as follows: Account Adjustments to be amortized Inventory Subject to Annual Amortization Equipment (net)......... Buildings (net) Bonds payable…
Over/ Under P 6,000
Life 1
96,000 (24,000) 4,800
8 4 4
Annual Amount P 6,000
Current Year(20x4) P 6,000
20x5 P -
12,000 ( 6,000) 1,200 P 13,200
12,000 ( 6,000) 1,200 P 13,200
12,000 (6,000) 1,200 P 7,200
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%) Fair value of NCI (given) (20%) Fair value of Subsidiary (100%) Less: Book value of stockholders’ equity of S (P360,000 x 100%) 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
P 372,000 93,000 P 465,000 __360,000 P 105,000
P
90,000 15,000
fair value)………………………………………………...
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%
fair value)………………………………………………...
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 and gain on intercompany sales for 20x4 are as follows: Date of Sale 4/1/20x4 1/2/20x4
Seller P S
Selling Price P90,000 60,000
Book Value P75,000 28,800
Unrealized* Gain on sale P15,000 31,200
Remaining Life 5 years 8 years
Realized gain – depreciation** P3,000/year P3,900/year
20x4 P2,250 P3,900
* selling price less book value ** unrealized gain divided by remaining life; 20x4 – P2,500 x 9/12 = P1,875
The following summary for 20x4 results of operations is as follows: Sales Less: Cost of goods sold Gross profit Less: Depreciation expense Other expenses Add: Gain on sale of equipment Net income from its own separate operations Add: Investment income Net income
P Co. P 480,000 204,000 P 276,000 60,000 48,000 P 168,000 15,000 P 183,000 24,810 P 207,810
20x4: First Year after Acquisition Parent Company Equity Method Entry January 1, 20x4: (1) Investment in S Company……………………………………… Cash…………………………………………………………… Acquisition of S Company.
January 1, 20x4 – December 31, 20x4: (2) Cash……………………… Investment in S Company (P36,000 x 80%)……………. Record dividends from Son Company. December 31, 20x4: (3) Investment in S Company Investment income (P91,200 x 80%) 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. December 31, 20x4: (5) Investment income (P15,000 x 100%) Investment in S Company To adjust investment income for downstream sales -
S Co. P 240,000 138,000 P 102,000 24,000 18,000 P 60,000 31,200 P 91,200 P 91,200
372,000 372,000
28,800 28,800
72,960 72,960
13,560 13,560
15,000 15,000
Record amortization of allocated excess of inventory, equipment, buildings and bonds payable and goodwill impairment loss. December 31, 20x4: (5) Investment income (P15,000 x 100%) Investment in S Company To adjust investment income for downstream sales unrealized gain on sale of equipment..
December 31, 20x4: (6) Investment income (P31,200 x 80%) Investment in S Company To adjust investment income for upstream sales unrealized gain on sale of equipment.. December 31, 20x4: (7) Investment in S Company Investment income (P2,250 x 100%) To adjust investment income for downstream sales realized gain on sale of equipment.. December 31, 20x4: (8) Investment in S Company Investment income (P3,900 x 80%) To adjust investment income for upstream sales realized gain on sale of equipment..
15,000 15,000
24,960 24,960
2,250 2,250
3,120 3,120
Thus, the investment balance and investment income in the books of P Company is as follows:
Cost, 1/1/x4 NI of Son (91,200 x 80%) Realized gain downstream sale Realized gain upstream sale Balance, 12/31/x4
Investment in S 372,000 28,800 72,960 2,250 3,120 368,010
13,560 15,000 24,960
Dividends – S (36,000x 80%) Amortization & impairment Unrealized gain downstream sale Unrealized gain upstream sale
Investment Income Amortization & impairment Unrealized gain downstream sale Unrealized gain upstream sale
13,560 15,000 24,960
72,960 2,250 3,120 24,810
NI of S (91,200 x 80%) Realized gain downstream sale Realized gain upstream sale 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…………………..
6,000 96,000 192,000
Land………………………………………………………………………. Discount on bonds payable…………………………………………. Goodwill…………………………………………………………………. Buildings……………………………………….. Non- controlling interest (P90,000 x 20%)……………………….. Investment in S Co……………………………………………….
7,200 4,800 12,000
To eliminate investment on January 1, 20x4 and allocate excess of
216,000 18,000 84,000
7,200 4,800 12,000
Land………………………………………………………………………. Discount on bonds payable…………………………………………. Goodwill…………………………………………………………………. Buildings……………………………………….. Non- controlling interest (P90,000 x 20%)……………………….. Investment in S Co……………………………………………….
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 non- controlling 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 Son’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 6,000
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……………………
24,810 3,990 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 (91,200 Amortization & x 80%)……. 72,960 13,560 impairment Realized gain* 2,250 15,000 Unrealized gain * Realized gain** 3,120 24,960 Unrealized gain ** 3,990 *downstream sale (should be multiplied by 100%) **upstream sale (should be multiplied by 80%)
Investment Income Amortization impairment 13,560 Unrealized gain * 15,000 Unrealized gain **24,960
72,960 2,250 3,120 24,810
NI of S (91,200 x 80%) Realized gain* Realized gain**
After the eliminating entries are posted in the investment account, it should be observed tha t from consolidation point of view the investment account is totally eliminated. Thus, Cost, 1/1/x4 NI of S (91,200 x 80%) Realized gain downstream sale Realized gain upstream sale Balance, 12/31/x4 (E4) Investment Income and dividends ……………
Investment in S 372,000 28,800 72,960 2,250 3,120 368,010
13,560 15,000 24,960 288,000 84,000
3,990
372,000
372,000
Dividends – S (36,000x 80%) Amortization & impairment Unrealized gain downstream sale Unrealized gain upstream sale (E1) Investment, 1/1/20x4 (E2) Investment, 1/1/20x4
372,000
372,000
(E5) Gain on sale of equipment Equipment Accumulated Accumulated depreciation
15,000 30,000 45,000
To eliminate the downstream intercompany gain and restore to its original cost to the consolidate entity (along with its accumulated depreciation at the point of the intercompany intercompany sale).
(E6) Gain on sale of equipment Equipment Accumulated Accumulated depreciation
31,200 12,000 43,200
To eliminate the upstream intercompany gain and restore to its original cost to the consolidate entity (along with its accumulated depreciation at the point of the intercompany intercompany sale).
(E7) Accumulated depreciation……….. Depreciation expense……………
2,250 2,250
To adjust downstream depreciation expense on equipment sold to subsidiary, thus realizing a portion of the gain through depreciation depreciation (P15,000 / 5 years x 9/12 = P2,250).
(E8) Accumulated depreciation……….. Depreciation expense……………
3,900 3,900
To adjust upstream depreciation expense on equipment sold to parent, thus realizing a portion of the gain through depreciation (P26,000/85 years years x 1 year = P3,250).
(E9) Non-controlling interest in Net Income of Subsidiary………… Non- controlling interest …………..
10,140 10,140
To establish non-controlling non-controlling interest in subsidiary’s adjusted net income for 20x4 as follows:
Net income of subsidiary…………………….. Unrealized gain on sale of equipment (upstream sales) Realized gain on sale of equipment (upstream sales) through depreciation S Company’s realized net income from separate operations Less: Amortization of allocated excess [(E3)]….
P 91,200 ( 31,200) 3,900
Multiplied by: Non-controlling interest %.......... Non-controlling Interest in Net Income Income (NCINI) – partial goodwill
P 63,900 13,200 P 50,700 20% P
10,140
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 Gain on sale of equipment
P Co P480,000 15,000
S Co. P240,000 31,200
Investment income Total Revenue
24,810 P519,810
P271,200
Cost of goods sold
P204,000
P138,000
Dr.
Cr.
(5) 15,000 (6) 31,200 (4) 28,800
(3)
_________ P 720,000
6,000 (7)
Depreciation expense Interest expense Other expenses Goodwill impairment loss Total Cost and Expenses
60,000
24,000
(3)
6,000
48,000 P312,000
18,000 P180,000
(3)
1,200
(3)
3,000
Consolidated P 720,000
2,250 (8) 3,900
P 348,000 83,850
1,0200 66,000 3,000 P 502,050
Cost of goods sold
P204,000
P138,000
(3)
6,000 (7)
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 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
24,000
(3)
6,000
48,000 P312,000 P207,810 P207,810
18,000 P180,000 P 91,200 P 91,200
(3)
1,200
(3)
3,000
(9)
P P ( P
10,140
P360,000
P
Buildings Discount on bonds payable Goodwill…………………… Investment in S Co………
P 360,000 (1) 120,000
207,810 P567,810 72,000 -
36,000
P495,810
P175,200
P 495,810
232,800 90,000 120,000 210,000 240,000
P 90,000 60,000 90,000 48,000 180,000
P 322,800 150,000 210,000 265,200
720,000
540,000
207,810 P567,810
(4)
(2) 6,000 (2) 7,200 (5) 30,000 (6) 12,000 4,800 12,000
368,010
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…………
1,0200 66,000 3,000 502,050 217,950 10,140) 207,810
P120,000 91,200 P211,200
(2) (2)
Total
Total
60,000
P 348,000 83,850
2,250 (8) 3,900
P1,980,810
P1,008,000
P 135,000
P 96,000
405,000
288,000
105,000 240,000 600,000
88,800 120,000 240,000 175,200
495,810
(2) 96,000 (7) 2,250 (8) 3,900 (2) 192,000 (3) 6,000
5,000
(2) 216,000 (3) 1,200 (3) 3,000 (1) 288,000 (2) 84,000
72,000 ________
_
462,000 1,044,000 3,600 9,000 P2,466,600
(3) 12,000 (5) 45,000 (6) 43,200
P229,050 495,000 193,800 360,000 600,000
(1) 240,000 495,810 (4)
_________ P1,980,810
(3)
36,000
7,200
_________ __________ P1,008,000 P 840,690
(1 ) 72,000 (2) 18,000 (9) 10,140 P 840,690
92,940 P2,466,600
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
P Co. P 540,000 216,000 P 324,000 60,000 72,000 P 192,000 72,360 P 264,360 P 72,000
S Co. P 360,000 192,000 P 168,000 24,000 54,000 P 90,000 P 90,000 P 48,000
No goodwill impairment loss for 20x5. Parent Company Equity Method Entry January 1, 20x5 – December December 31, 20x5: (2) Cash……………………… Investment in S Company (P48,000 x 80%)……………. Record dividends from S Company.
38,400 38,400
No goodwill impairment loss for 20x5. Parent Company Equity Method Entry January 1, 20x5 – December December 31, 20x5: (2) Cash……………………… Investment in S Company (P48,000 x 80%)……………. Record dividends from S Company.
December 31, 20x5: (3) Investment in S Company Investment income (P90,000 x 80%) Record share in net income of subsidiary.
38,400 38,400
72,000 72,000
December 31, 20x5: (4) Investment income (P7,200 x 80%) Investment in S Company Record amortization of allocated excess of inventory, equipment, buildings and bonds payable December 31, 20x4: (5) Investment in S Company Investment income (P3,000 x 100%) To adjust investment income for downstream sales realized gain on sale of equipment. December 31, 20x4: (6) Investment in S Company Investment income (P3,900 x 80%) To adjust investment income for upstream sales realized gain on sale of equipment..
5,760 5,760
3,000 3,000
3,120 3,120
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%) Realized gain downstream sale Realized gain upstream sale Balance, 12/31/x5
Amortization (6,000 x 805)
Investment in S 368,010 38,400 5,760 72,000 3,000 3,120 401,970
Dividends – S S (48,000x 80%) Amortization (7,200 x 80%)
Investment Income 5,760 NI of S 72,000 (90,000 x 80%) 3,000 Realized gain downstream sale 3,120 Realized gain upstream sale 72,360 Balance, 12/31/x5
Consolidation Workpaper – Second Second Year after Acquisition (E1) Common stock – S S Co………………………………………… Retained earnings – S S Co, 1/1/x5……………………… 1/1/x5…………………………. …. Investment in S Co (P415,200 x 80%) Non-controlling interest (P415,200 x 20%)………………………..
240,000 175,200 332,160 83,040
To eliminate investment on January 1, 20x5 and equity accounts of subsidiary on date date of acquisition; and to establish noncontrolling interest (in net assets of subsidiary) subsidiary) on 1/1/20x5.
(E2) Accumulated depreciation – equipment equipment (P96,000 – P12,000) Accumulated Accumulated depreciation – buildings (P192,000 + P6,000) Land………………………………………………………………………. Discount on bonds payable (P4,800 – P1,200)…. – P1,200)….
Goodwill (P12,000 – P3,000)…………………………….. Buildings……………………………………….. Non-controlling interest [(P90,000 – P13,200) x 20%] Investment in Son Co………………………………………………. 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 non- controlling interest (in net assets of subsidiary) on 1/1/20x5.
84,000 198,000 6,000 3,600
9,000 180,000 15,360 70,440
Goodwill (P12,000 – P3,000)…………………………….. Buildings……………………………………….. Non-controlling interest [(P90,000 – P13,200) x 20%] Investment in Son Co……………………………………………….
9,000 180,000 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 non- controlling 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:
Inventory sold Equipment Buildings Bonds payable Totals
Depreciation/ Amortization Expense
Amortization -Interest
P 12,000 ( 6,000) _______ P 6,000
P 1,200 P1,200
Total
P7,200
(E4) Investment income Non-controlling interest (P48,000 x 20%)……………….. Dividends paid – S…………………… Investment in S Company
72.360 9,600 48,000 33,960
To eliminate intercompany dividends and investment income under equity method and establish share of dividends, computed as follows:
Investment in S NI of S 38,400 Dividends – S (90,000 Amortization 5,760 (P7,200 x 80%) x 80%)……. 72,000 Realized gain* 3,000 Realized gain** 3,120 33,960 *downstream sale (should be multiplied by 100%) **upstream sale (should be multiplied by 80%)
Investment Income Amortization (P7,200 x 80%)
(E5) Investment in S Company Equipment Accumulated depreciation – equipment
5,760
72,000 3,000 3,120 72,360
NI of S (90,000 x 80%) Realized gain* Realized gain**
15,000 30,000 45,000
To eliminate the downstream intercompany gain and restore to its original cost to the consolidate entity (along with its accumulated depreciation at the point of the intercompany sale).
(E6) Investment in S Company Non-controlling interest (P31,200 x 20%) Equipment Accumulated depreciation- equipment
24,960 6,240 12,000 43,200
To eliminate the upstream intercompany gain and restore to its original cost to the consolidate entity (along with its accumulated depreciation at the point of the intercompany sale).
(E7) Accumulated depreciation – equipment ……….. Depreciation expense (current year)…………… Investment in S Company (prior year)
5,250 3,000 2,250
To adjust downstream depreciation expense on equipment sold to subsidiary, thus realizing a portion of the gain through depreciation
(E8) Accumulated depreciation- equipment…….. Depreciation expense (current year) Investment in S Company (prior year) Non-controlling interest (P31,200 x 20%) To adjust upstream depreciation expense on equipment sold to parent, thus realizing a portion of the gain through depreciation
7,800 3,900 3,120 780
(E8) Accumulated depreciation- equipment…….. Depreciation expense (current year) Investment in S Company (prior year) Non-controlling interest (P31,200 x 20%)
7,800 3,900 3,120 780
To adjust upstream depreciation expense on equipment sold to parent, thus realizing a portion of the gain through depreciation (P31,200/85 years x 1 year = P3,900).
(E9) Non-controlling interest in Net Income of Subsidiary………… Non- controlling interest …………..
17,340 17,340
To establish non-controlling interest in subsidiary’s adjusted net income for 20x5 as follows: Net income of subsidiary…………………….. Realized gain on sale of equipment (upstream sales) through depreciation S Company’s Realized net income* Less: Amortization of allocated excess
P 90,000
3,900 P 93,900 ( 7,200) P 86,700 Multiplied by: Non-controlling interest %.......... 20% Non-controlling Interest in Net Income (NCINI P 17,340 *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) P Co P540,000 72,360 P612,360 P216,000
Income Statement
Sales Investment income Total Revenue Cost of goods sold
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 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 Son Co………
S Co. P360,000 P360,000 P192,000
Dr. (4)
Cr.
72,360
(7) 3,000 (8) 3,900
Consolidated P 900,000 ___________ P 900,000 P 408,000 83,100
60,000
24,000
(3)
6,000
72,000 P348,000 P264,360 P264,360
54,000 P270,000 P 90,000 P 90,000
(3)
1,200
(1) 175,200
_264,360 P760,170
P 175,200 90,000 P265,200
72,000 -
48,000
P688,170
P217,200
P 688,170
265,200 180,000 216,000 210,000 240,000
P 102,000 96,000 108,000 48,000 180,000
P 367,200 276,000 324,000 265,200
P P ( P
(9) 17,340
P495,810
P
720,000
401,970
1,200 126,000 618,300 281,700 17,340) 264,360
P495,810 264,360 P 760,170
(5)
(2) (5) (6)
7,200 30,000 12,000
(2) (2) (5) (6)
3,600 9,000 15,000 24,960
540,000
48,000
_
72,000 ________
462,000
(2) 216,000 (3) 1,200 (1) 332,160 (2) 70,440 (4) 33,960 (7) 2,250 (8) 3,120
1,044,000 2,400 9,000
-
Buildings Discount on bonds payable Goodwill…………………… Investment in Son 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
720,000
540,000 (2) (2) (5) (6)
401,970
P2,233,170
P1,074,000
P 150,000
P 102,000
450,000
306,000
105,000 240,000 600,000
88,800 120,000
688,170
(2) 84,000 (7) 5,250 (8) 7,800 (2) 198,000 (3) 6,000
240,000 217,200
(2) 216,000 (3) 1,200
1,044,000 2,400 9,000
(1) 332,160 (2) 70,440 (4) 33,960 (7) 2,250 (8) 3,120
(3) (5) (6)
12,000 45,000 43,200
P2,749,800
P 255,150 552,000 193,800 360,000 600,000
(1) 240,000 688,170 (4) (6)
___ _____ P2,233,170
3,600 9,000 15,000 24,960
9,600 6,240
_________ __________ P1,074,000 P 930,750
(1) 69,200 (2) 15,360 (8) 780 (9) 17,340 P 930,750
____100,680 P2,749,800
5 and 6. Refer to Problem V for computations Note: Using cost model or equity method, the consolidated net income, consolidated retained earnings, non-controlling interests, consolidated equity on December 31, 20x4 and 20x5 are exactly the same (refer to Problem X solution). Problem X 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 Inventory Subject to Annual Amortization Equipment (net)......... Buildings (net) Bonds payable…
Over/ under P 6,000 96,000 (24,000) 4,800
Life 1
Annual Amount P 6,000
Current Year(20x4) P 6,000
20x5 P -
8 4 4
12,000 ( 6,000) 1,200
12,000 ( 6,000) 1,200
12,000 (6,000) 1,200
P 13,200
P 13,200
P 7,200
P 13,200
P 13,200
P 7,200
The following summary for 20x4 results of operations is as follows: Sales Less: Cost of goods sold Gross profit Less: Depreciation expense Other expenses Add: Gain on sale of equipment Net income from its own separate operations Add: Investment income Net income
P Co. P 480,000 204,000 P 276,000 60,000 48,000 P 168,000 15,000 P 183,000 24,810 P 207,810
S Co. P 240,000 138,000 P 102,000 24,000 18,000 P 60,000 31,200 P 91,200 P 91,200
20x4: First Year after Acquisition Parent Company Equity Method Entry January 1, 20x4: (1) Investment in S Company…………………………………………… Cash…………………………………………………………………….. Acquisition of S Company. January 1, 20x4 – December 31, 20x4: (2) Cash……………………… Investment in S Company (P36,000 x 80%)……………. Record dividends from Son Company. December 31, 20x4: (3) Investment in S Company Investment income (P91,200 x 80%) 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. December 31, 20x4: (5) Investment income (P15,000 x 100%) Investment in S Company To adjust investment income for downstream sales unrealized gain on sale of equipment.. December 31, 20x4: (6) Investment income (P31,200 x 80%) Investment in S Company To adjust investment income for upstream sales - unrealized gain on sale of equipment.. December 31, 20x4: (7) Investment in S Company Investment income (P2,250 x 100%)
372,000 372,000
28,800 28,800
72,960 72,960
13,560 13,560
15,000 15,000
24,960 24,960
2,250 2,250
To adjust investment income for downstream sales - realized gain on sale of equipment.. December 31, 20x4: (8) Investment in S Company Investment income (P3,900 x 80%) To adjust investment income for upstream sales - realized gain on sale of equipment..
3,120 3,120
To adjust investment income for downstream sales - realized gain on sale of equipment.. December 31, 20x4: (8) Investment in S Company Investment income (P3,900 x 80%) To adjust investment income for upstream sales - realized gain on sale of equipment..
3,120 3,120
Thus, the investment balance and investment income in the books of Perfect Company is as follows: Cost, 1/1/x4 NI of Son (91,200 x 80%) Realized gain downstream sale Realized gain upstream sale Balance, 12/31/x4
Investment in S 372,000 28,800 72,960 2,250 3,120 368,010
13,560 15,000 24,960
Dividends – S (36,000x 80%) Amortization & impairment Unrealized gain downstream sale Unrealized gain upstream sale
Investment Income Amortization & impairment Unrealized gain downstream sale Unrealized gain upstream sale
13,560 15,000 24,960
72,960 2,250 3,120 24,810
NI of S (76,000 x 80%) Realized gain downstream sale Realized gain upstream sale 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 S Co……………………………………………….
6,000 96,000 192,000 7,200 4,800 15,000 216,000 21,000 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 non- controlling 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 Son’s identifiable assets and liabilities as follows:
Inventory sold Equipment Buildings Bonds payable
Cost of Goods Sold P 6,000
_______
Depreciation/ Amortization Expense
Amortization -Interest
P 12,000 ( 6,000) _______
P 1,200
Total
6,000 6,000 6,000 1,200 3,750 6,000 12,000 1,200 3,750
Inventory sold Equipment Buildings Bonds payable Totals
Cost of Goods Sold P 6,000
Depreciation/ Amortization Expense
Amortization -Interest
P 12,000 ( 6,000) _______ P 6,000
P 1,200 P1,200
_______ P 6,000
Total
14,400
(E4) Investment income Investment in S Company Non-controlling interest (P36,000 x 20%)……………….. Dividends paid – S……………………
24,810 3,990 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 (91,200 Amortization & impairment x 80%)……. 72,960 13,560 Realized gain* 2,250 15,000 Unrealized gain * Realized gain** 3,120 24,960 Unrealized gain ** 3,990 *downstream sale (should be multiplied by 100%) **upstream sale (should be multiplied by 80%)
Investment Income Amortization impairment 13,560 Unrealized gain * 15,000 Unrealized gain **24,960
72,960 2,250 3,120 24,810
NI of S (91,200 x 80%) Realized gain* Realized gain**
After the eliminating entries are posted in the investment account, it should be observed tha t from consolidation point of view the investment account is totally eliminated. Thus, Cost, 1/1/x4 NI of S (91,200 x 80%) Realized gain downstream sale Realized gain upstream sale Balance, 12/31/x4 (E4) Investment Income and dividends ……………
Investment in S 372,000 28,800 72,960 2,250 3,120 368,010
13,560 15,000 24,960 288,000 84,000
Dividends – S (36,000x 80%) Amortization & impairment Unrealized gain downstream sale Unrealized gain upstream sale (E1) Investment, 1/1/20x4 (E2) Investment, 1/1/20x4
3,990
372,000
372,000
(E5) Gain on sale of equipment Equipment Accumulated depreciation
15,000 30,000 45,000
To eliminate the downstream intercompany gain and restore to its original cost to the consolidate entity (along with its accumulated depreciation at the point of the intercompany sale).
(E6) Gain on sale of equipment Equipment Accumulated depreciation
31,200 12,000 43,200
To eliminate the upstream intercompany gain and restore to its original cost to the consolidate entity (along with its accumulated depreciation at the point of the intercompany sale).
(E7) Accumulated depreciation……….. Depreciation expense……………
2,250 2,250
To adjust downstream depreciation expense on equipment sold to subsidiary, thus realizing a portion of the gain through depreciation (P15,000 / 5 years x 9/12 = P2,250).
(E8) Accumulated depreciation……….. Depreciation expense……………
3,900 3,900
To adjust upstream depreciation expense on equipment sold to parent, thus realizing a portion of the gain through depreciation (P31,120/85 years x 1 year = P3,900).
(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:
9,390 9,390
To adjust upstream depreciation expense on equipment sold to parent, thus realizing a portion of the gain through depreciation (P31,120/85 years x 1 year = P3,900).
(E9) Non-controlling interest in Net Income of Subsidiary………… Non- controlling interest …………..
9,390 9,390
To establish non-controlling interest in subsidiary’s adjusted net income for 20x4 as follows:
Net income of subsidiary…………………….. Unrealized gain on sale of equipment (upstream sales) Realized gain on sale of equipment (upstream sales) through depreciation S Company’s realized net income from separate operations Less: Amortization of allocated excess [(E3)]….
P 91,200 ( 31,200) 3,900
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 63,900 13,200 P 50,700 20% P
10,140
750 P
9,390
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 Gain on sale of equipment
P Co P480,000 15,000
S Co. P240,000 31,200
Investment income Total Revenue Cost of goods sold
24,810 P519,810 P204,000
P271,200 P138,000
60,000 48,000 P312,000 P207,810 P207,810
Dr.
Cr.
(5) 15,000 (6) 31,200 (4) 28,800 (3)
6,000
24,000
(3)
6,000
18,000 P180,000 P 91,200 P 91,200
(3)
1,200
(3)
3,750
(9)
9,390
(7) 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 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
Consolidated P 720,000
_________ P 720,000 P 348,000 83,850
2,250 (8) 3,900
1,200 66,000 3,750 P 502,800 P 217,200 ( 9,390) P 207,810
P360,000 207,810 P567,810
P 360,000 P120,000 91,200 P211,200
(1) 120,000 207,810 P 567,810
72,000 -
36,000
P495,810
P175,200
P 495,810
232,800 90,000
P 90,000 60,000
P 322,800 150,000
Inventory…………………. Land……………………………. Equipment
120,000 210,000 240,000
90,000 48,000 180,000
Buildings Discount on bonds payable Goodwill…………………… Investment in S Co………
720,000
540,000
Balance Sheet Cash………………………. Accounts receivable……..
P
(4)
(2) 6,000 (2) 6,000 (5) 30,000 (6) 12,000 (2) (2)
368,010
4,800 15,000
(3)
36,000
6,000
(2) 216,000 (3) 1,200 (3) 3,750 (1) 288,000
_
72,000 ________
210,000 265,200 462,000 1,044,000 3,600 11,250
120,000 210,000 240,000
Inventory…………………. Land……………………………. Equipment
Buildings Discount on bonds payable Goodwill…………………… Investment in S Co………
720,000
(2) 6,000 (2) 6,000 (5) 30,000 (6) 12,000
540,000 (2) (2)
4,800 15,000
368,010
Total Accumulated depreciation - equipment
P1,980,810
P1,008,000
P 135,000
P 96,000
Accumulated depreciation - buildings Accounts payable…………… Bonds payable………………… Common stock, P10 par……… Common stock, P10 par……… Retained earnings, from above Non-controlling interest…………
Total
90,000 48,000 180,000
405,000
288,000
105,000 240,000 600,000
88,800 120,000 240,000 175,200
495,810
(2) 96,000 (7) 2,250 (8) 3900 (2) 192,000 (3) 6,000
6,000
(2) 216,000 (3) 1,200 (3) 3,750 (1) 288,000 (2) 84,000
210,000 265,200 462,000 1,044,000 3,600 11,250 P2,468,850
(3) 12,000 (5) 45,000 (6) 43,200
P229,050 495,000 193,800 360,000 600,000
(1) 240,000 495,810 (4)
_________ P1,980,810
(3)
7,200
_________ __________ P1,008,000 P 843,690
(1 ) 72,000 (2) 21,000 (9) 9,390 P 843,690
____95,190 P2,468,850
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 1216,000 P 324,000 60,000 72,000 P 192,000 72,360 P 264,360 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
Record dividends from S Company.
December 31, 20x5: (3) Investment in S Company Investment income (P90,000 x 80%)
72,000 72,000
Record share in net income of subsidiary.
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, 20x4: (5) Investment in S Company Investment income (P3,000 x 100%)
3,000 3,000
To adjust investment income for downstream sales - realized gain on sale of equipment.. December 31, 20x4: (6) Investment in S Company Investment income (P3,900 x 80%) To adjust investment income for upstream sales - realized gain on sale of equipment..
3,120 3,120
To adjust investment income for downstream sales - realized gain on sale of equipment.. December 31, 20x4: (6) Investment in S Company Investment income (P3,900 x 80%) To adjust investment income for upstream sales - realized gain on sale of equipment..
3,120 3,120
Thus, the investment balance and investment income in the books of P Company is as follows:
Cost, 1/1/x5 NI of S (90,000 x 80%) Realized gain downstream sale Realized gain upstream sale Balance, 12/31/x5
Amortization (7,200 x 805)
Investment in S 368,010 38,400 5,760 72,000 3,000 3,120 401,970
Dividends – S (40,000x 80%) Amortization (6,000 x 80%)
Investment Income 5,760 NI of S 72,000 (90,000 x 80%) 3,000 Realized gain downstream sale 3,120 Realized gain upstream sale 72,360 Balance, 12/31/x5
Consolidation Workpaper – Second Year after Acquisition (E1) Common stock – S Co………………………………………… Retained earnings – S Co, 1/1/x5…………………………. Investment in S Co (P415,200 x 80%) Non-controlling interest (P415,200 x 20%)………………………..
240,000 175.200 332,160 83,040
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 – P3,900)…………………………….. 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 non- controlling 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………………………… 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:
Depreciation/
Amortization Expense Inventory sold Equipment Buildings Bonds payable Totals
P 12,000 ( 6000) _______ P 6,000
Amortization -Interest
P 1,200 P1,200
Total
P7,,200
6,000 6,000 1,200 12,000 1,200
Amortization Expense Inventory sold Equipment Buildings Bonds payable Totals
P 12,000 ( 6000) _______ P 6,000
Amortization -Interest
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 To eliminate intercompany dividends and investment income under equity method and establish share of dividends, computed as follows: Investment in S NI of S 38,400 Dividends – S (90,000 Amortization x 80%)……. 72,000 5,760 (P72,000 x 80%) Realized gain* 3,000 Realized gain** 3,120 33,960 *downstream sale (should be multiplied by 100%) **upstream sale (should be multiplied by 80%)
72,360 9,600 48,000 33,960
Investment Income Amortization (P7,200 x 80%)
(E5) Investment in S Company Equipment Accumulated depreciation – equipment
5,760
72,000 3,000 3,120 72,360
NI of S (75,000 x 80%) Realized gain* Realized gain**
15,000 30,000 45,000
To eliminate the downstream intercompany gain and restore to its original cost to the consolidate entity (along with its accumulated depreciation at the point of the intercompany sale).
(E6) Investment in S Company Non-controlling interest (P31,200 x 20%) Equipment Accumulated depreciation- equipment
24,960 6,240 12,000 43,200
To eliminate the upstream intercompany gain and restore to its original cost to the consolidate entity (along with its accumulated depreciation at the point of the intercompany sale).
(E7) Accumulated depreciation – equipment ……….. Depreciation expense (current year)…………… Investment in S Company (prior year)
5,250 3,000 2,250
To adjust downstream depreciation expense on equipment sold to subsidiary, thus realizing a portion of the gain through depreciation
(E8) Accumulated depreciation- equipment…….. Depreciation expense (current year) Investment in S Company (prior year) Non-controlling interest (P31,200 x 20%)
7,800 3,900 3,120 780
To adjust upstream depreciation expense on equipment sold to parent, thus realizing a portion of the gain through depreciation (P31,200/85 years x 1 year = P3,900).
(E9) 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 gain on sale of equipment (upstream sales) through depreciation S Company’s Realized net income*
P 90,000
Less: Amortization of allocated excess
( 7,200) P 86,700 20%
Multiplied by: Non-controlling interest %.......... Non-controlling Interest in Net Income (NCINI) – partial goodwill Less: NCI on goodwill impairment loss on fullGoodwill Non-controlling Interest in Net Income (NCINI)
3,900 P 93,900
P 17,340 0
17,340 17,340
Less: Amortization of allocated excess
( 7,200) P 86,700 20%
Multiplied by: Non-controlling interest %.......... Non-controlling Interest in Net Income (NCINI) – partial goodwill P 17,340 Less: NCI on goodwill impairment loss on fullGoodwill 0 Non-controlling Interest in Net Income (NCINI) – full goodwill P 17,340 *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) P Co P540,000 72,360 P612,360 P216,000
Income Statement Sales Investment income Total Revenue Cost of goods sold
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 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…………
S Co. P360,000 P360,000 P192,000
Dr. (4)
Cr.
72,360
(7) 3,000 (8) 3,900
Consolidated P 900,000 ___________ P 900,000 P 408,000 83,100
60,000
24,000
(3)
6,000
72,000 P348,000 P264,360 P264,360
54,000 P270,000 P 90,000 P 90,000
(3)
1,200
(1) 175,200
_264,360 P760,170
P 175,200 90,000 P265,200
72,000 -
48,000
P688,170
P217,200
P 688,170
265,200 180,000 216,000 210,000 240,000
P 102,000 96,000 108,000 48,000 180,000
P 367,200 276,000 324,000 265,200
720,000
540,000
P P ( P
(9) 17,340
P495,810
P
P495,810 264,360 P 760,170
(5)
(2) (5) (6) (2) (2) (5) (6)
401,970
P2,233,170
P1,074,000
P 150,000
P 102,000
450,000
306,000
105,000 240,000 600,000
88,800 120,000
688,170
1,200 126,000 618,300 281,700 17,340) 264,360
240,000 217,200
48,000
7,200 30,000 12,000 (2) 216,000 (3) 1,200
3,600 11,250 15,000 (1) 332,160 24,960 (2) 70,440 (4) 33,960 (7) 2,250 (8) 3,120
(2) 84,000 (7) 5,250 (8) 7,800
(3) (5) (6)
12,000 45,000 43,200
(2) 198,000 (3) 6,000
_
72,000 ________
462,000 1,044,000 2,400 11,250
P2,752,050
P 255,150
552,000 193,800 360,000 600,000
(1) 240,000 688,170 (4)
9,600
(1) 83,040
Accumulated depreciation - buildings Accounts payable…………… Bonds payable………………… Common stock, P10 par……… Common stock, P10 par……… Retained earnings, from above Non-controlling interest…………
Total
450,000
306,000
105,000 240,000 600,000
88,800 120,000
688,170
240,000 217,200
(2) 198,000 (3) 6,000
(1) 240,000 688,170 (4) (6)
___ _____ P2,233,170
552,000 193,800 360,000 600,000
9,600 6,240
_________ __________ P1,074,000 P 933,000
(1) 83,040 (2) 17,610 (8) 780 (9) 17,340 P 933,000
____102,930 P2,752,050
5 and 6. Refer to Problem VI for computations Note: Using cost model or equity method, the consolidated net income, consolidated retained earnings, non-controlling interests, consolidated equity on December 31, 20x4 and 20x5 are exactly the same (refer to Problem X solution). Problem XI (Determine consolidated net income when an intercompany transfer of equipment occurs. Includes an outside ownership)
1. Income — ST ........................................................................................................... Income — BB ........................................................................................................... Excess amortization for unpatented technology .......................................... Remove unrealized gain on equipment ........................................................ (P120,000 – P70,000) Remove excess depreciation created by inflated transfer price (P50,000 ÷ 5) .......................................................... Consolidated net income ................................................................................. 2. Income calculated in (part a.) ........................................................................ Non-controlling interest in BB's income Income — BB .............................................................................. P90,000 Excess amortization ................................................................. (8,000) Adjusted net income .............................................................. P82,000 Non-controlling interest in BB’s income (10%).......................................... Consolidated net income to parent company ............................................. 3. Income calculated in (part a.) ........................................................................ Non-controlling interest in BB's income (see Schedule 1) ........ (4,200) Consolidated net income to parent company .............................................
P220,000 90,000 (8,000) (50,000)
10,000 P262,000 P262,000
(8,200) P253,800 P262,000 P257,800
Schedule 1: Non-controlling Interest in Bennett's Income (includes upstream transfer) Reported net income of subsidiary ................................................................. P90,000 Excess amortization ............................................................................................. (8,000) Eliminate unrealized gain on equipment transfer ........................................ (50,000) Eliminate excess depreciation (P50,000 ÷ 5) .................................................. 10,000 Bennett's realized net income .......................................................................... P42,000 Outside ownership .............................................................................................. 10% Non-controlling interest in subsidiary's income .............................................. P 4,200 4. Net income 20x5 — ST .......................................................................................... Net income 20x5 — BB ......................................................................................... Excess amortization ............................................................................................. Eliminate excess depreciation stemming from transfer (P50,000 ÷ 5) (year after transfer) .............................................................. Consolidated net income ......................................................................
P240,000 100,000 (8,000) 10,000 P342,000
Problem XII 1. On the consolidated balance sheet, the machine must be reported at its original cost when Tool purchased it on January 1, 20x1, which is P120,000. Since the elimination entry debited the machine account for P22,000 which must be the amount needed to bring the machine account up to P120,000, Buzzard must have recorded the machine at P98,000. Since the remaining useful life is seven years, Buzzard will record P14,000 of depreciation expense each
Problem XII 1. On the consolidated balance sheet, the machine must be reported at its original cost when Tool purchased it on January 1, 20x1, which is P120,000. Since the elimination entry debited the machine account for P22,000 which must be the amount needed to bring the machine account up to P120,000, Buzzard must have recorded the machine at P98,000. Since the remaining useful life is seven years, Buzzard will record P14,000 of depreciation expense each year.
2. The correct balances on the consolidated balance sheet for the Machine and Accumulated Depreciation accounts are the balances that would be in the accounts if there had been no sale. The balance in the machine account would be the original purchase price to Tool or P120,000. The balance in the Accumulated Depreciation account will be the original amount of annual depreciation, (P12,000) times the number of years the machine has been depreciated (4), or P48,000. 3.
The non-controlling interest income will be 30% of Tool’ adjusted net income. Tool’ reported net income of P60,000 is reduced by the P14,000 unrealized gain on the sale of the machine and is increased by the piecemeal recognition of the gain, which is P2,000. The net result of P48,000 is then multiplied by 30% to calculate a P14,400 income for the non-controlling interest.
Problem XIII 1. Downstream sale of land:
20x4 P 90,000 (25,000) P 65,000 60,000 P125,000
VV’s separate operating income Less: Unrealized gain on sale of land VV’s realized operating income Spawn’s realized net income Consolidated net income Income to non-controlling interest: (P60,000 x .25) (P40,000 X .25) Income to controlling interest
2.
20x5 P110,000 P110,000 40,000 P150,000
(15,000) P110,000
(10,000) P140,000
20x4 P 90,000
20x5 P110,000
35,000 P125,000
40,000 P150,000
Upstream sale of land: VV’s separate operating income SS’s net income Less: Unrealized gain on sale of land Spawn’s realized net income Consolidated net income Income to non-controlling interest: (P35,000 x .25) (P40,000 x .25) Income to controlling interest
P60,000 (25,000)
(8,750) P116,250
(10,000) P140,000
Problem XIV 1. Consolidated net income for 20x4 will be greater than PP Company's income from operations plus SS's reported net income. The eliminating entries at December 31, 20x4, will result in an increase of P16,000 to consolidated net income.
2.
As a result of purchasing the equipment at less than Parent's book value, depreciation expense reported by SS will be P2,000 (P16,000 / 8 years) below the amount that would have
been recorded by PP. Thus, depreciation expense must be increased by P2,000 when eliminating entries are prepared at December 31, 20x5. Consolidated net income will be decreased by the full amount of the P2,000 increase in depreciation expense. Problem XV 1. Eliminating entry, December 31, 20x9: E(1) Buildings and Equipment
156,000
been recorded by PP. Thus, depreciation expense must be increased by P2,000 when eliminating entries are prepared at December 31, 20x5. Consolidated net income will be decreased by the full amount of the P2,000 increase in depreciation expense. Problem XV 1. Eliminating entry, December 31, 20x9: E(1) Buildings and Equipment Loss on Sale of Building Accumulated Depreciation Eliminate unrealized loss on building.
2.
Eliminating entry, December 31, 20y0: E(1) Buildings and Equipment Depreciation Expense Accumulated Depreciation Retained Earnings, January 1 Non-controlling Interest Eliminate unrealized loss on building. Adjustment to buildings and equipment Amount paid by TT to acquire building Amount paid by BB on intercompany sale Adjustment to buildings and equipment
P125,000 P 15,000 36,000 51,000 P176,000 (15,300) P160,700
156,000 4,000 124,000 25,200 10,800
P300,000 (144,000) P156,000
Adjustment to depreciation expense Depreciation expense recorded by TT Company (P300,000 / 15 years) Depreciation expense recorded by BB Corporation (P144,000 / 9 years) Adjustment to depreciation expense
(16,000) P 4,000
Adjustment to accumulated depreciation Amount required (P20,000 x 7 years) Amount reported by BB (P16,000 x 1 year) Required adjustment
P140,000 (16,000) P124,000
Adjustment to retained earnings, January 1, 20y0 Unrealized loss recorded, December 31, 20x9 Proportion of ownership held by BB Required adjustment
4.
36,000 120,000
Consolidated net income and income to controlling interest for 20x9: Operating income reported by BB Net income reported by TT Add: Loss on sale of building Realized net income of TT Consolidated net income Income to non-controlling interest (P51,000 x .30) Income to controlling interest
3.
156,000
P 20,000
P36,000 x .70 P25,200
Adjustment to Noncontrolling interest, January 1, 20y0 Unrealized loss recorded, December 31, 20x9 Proportion of ownership held by non-controlling
P36,000
Interest Required adjustment
x .30 P10,800
Consolidated net income and income assigned to controlling interest in 20y0: Operating income reported by BB Net income reported by TT
P150,000 P40,000
Interest Required adjustment 4.
x .30 P10,800
Consolidated net income and income assigned to controlling interest in 20y0: Operating income reported by BB Net income reported by TT Adjustment for loss on sale of building Realized net income of TT Consolidated net income Income assigned to non-controlling interest (P36,000 x .30) Income assigned to controlling interest
P150,000 P40,000 (4,000) 36,000 P186,000 (10,800) P175,200
Problem XVI
1. Consolidated net income as reported Less: P10,000 deferred gain Plus: NCI portion of the gain Plus: Deferred gain Corrected consolidated net income
20x4 P 750,000 -10,000 3,000
20x5 P 600,000
20x6 P 910,000
P 743,000
P 600,000
7,000 P 917,000
20x4 P 200,000 -10,000 P 190,000
20x5 P 240,000 -10,000 P 230,000
2. Land account as reported Less: Intercompany profit Restated land account
20x6 P 300,000 P 300,000
3.
Final sales price outside the entity minus the original cost to the combined entity equals P102,000 minus P72,000 = P30,000 Problem XVII 1. The gain on the sale of the land in 20x5 was equal to the sales price minus the original cost of the land when it was first acquired by the combined entity. In this case the gain was P150,000 - P90,000, or P60,000.
2. The consolidated amount of depreciation expense was the combined amounts of depreciation expense showing on the separate income statements minus the piecemeal recognition of the gain on the sale of the equipment. Thus, the consolidated amount of depreciation expense was P95,000 + P32,000 – (P35,000/4 years) = P118,250. 3. Consolidated net income: Osprey separate income (not including Income from Branch)= P153,000 - P55,000 = Income from Branch Plus: Deferred gain on land Plus: Piecemeal recognition of gain on equipment sale: P35,000 gain/4 years = Consolidated net income
Problem XVIII 1. Eliminating entry, December 31, 20x7: E(1) Gain on Sale of Land Land
Eliminating entry, December 31, 20x8:
P 98,000 20,000 50,000 8,750 P176,750
10,000 10,000
Problem XVIII 1. Eliminating entry, December 31, 20x7: E(1) Gain on Sale of Land Land
2.
10,000 10,000
Eliminating entry, December 31, 20x8: E(1) Retained Earnings, January 1 Land
10,000
Eliminating entry, December 31, 20x7: E(1) Gain on Sale of Land Land
10,000
Eliminating entry, December 31, 20x8: E(1) Retained Earnings, January 1 Non-controlling Interest Land
6,000 4,000
10,000
10,000
10,000
Problem XIX
1.
2.
Eliminating entry, December 31, 20x4: E(1) Gain on Sale of Land Land
45,000
Eliminating entry, December 31, 20x5: E(1) Retained Earnings, January 1 Non-controlling Interest Land
31,500 13,500
Eliminating entries, December 31, 20x4 and 20x5: E (1) Retained Earnings, January 1 Land
30,000
Multiple Choice Problems 1. a Combined equipment amounts Less: gain on sale Consolidated equipment balance
Combined Accumulated Depreciation Less: Depreciation on gain Consolidated Accumulated Depreciation
45,000
45,000
30,000
P1,050,000 25,000 P1,025,000 P 250,000 5,000 P 245,000
2. a Original cost of
P1,100,000
Accumulated depreciation, 1/1/20x4 Add: Additional depreciation (P1,100,000 – P100,000) / 20 years Accumulated depreciation, 12/31/20x4
P 250,000 ____50,000 P 300,000
3. a Combined building amounts
P650,000
Less: Intercompany gain Consolidated buildings
__30,000 P620,000
Combined Accumulated Depreciation Less: Piecemeal recognition of gain Consolidated accumulated depreciation
P195,000 ___3,000 P192,000
Less: Intercompany gain Consolidated buildings
__30,000 P620,000
Combined Accumulated Depreciation Less: Piecemeal recognition of gain Consolidated accumulated depreciation
P195,000 ___3,000 P192,000
4. a – the amount of land that will be presented in the presented in the CFS is the original cost of P416,000 + P256,000 = P672,000. 5.
a
The costs incurred by BB to develop the equipment are research and development costs and must be expensed as they are incurred. Transfer to another legal entity does not cause a change in accounting treatment within the economic entity.
6. e Original cost of
P
100,000
Accumulated depreciation, 1/1/20x6 (P100,000 x 50%) Add: Additional depreciation (P100,000 – P50,000) / 5 years Accumulated depreciation, 12/31/20x6
P 50,000 ___10,000 P 60,000
7. d Sales price Less: Book value Cost Less: Accumulated depreciation (50% x P100,000) Unrealized gain on sale Less: Realized gain - depreciation (P30,000 / 5 years) Net unrealized gain, 12/31/20x6 8. e Eliminating entries: 12/31/20x6: subsequent to date of acquisition Realized Gain – depreciation Accumulated depreciation Depreciation expense [P80,000 - (P100,000 - {P100,000 x 50%])] = P30,000 / 5 years or P15,000 – P8,000 = P7,000 “Should be in CFS” Parent – Pylux Depreciation expense (P50,000 /5 years) Acc. Depreciation
P 80,000 P100,000 __50,000
__50,000 P 30,000 ___6,000 P 24,000
6,000 6,000
“Recorded as” Subsidiary - Sylux
10,000 8,000
Depreciation expense (P80,000 / 5 years) Acc. depreciation
16,000 16,000
9. d Unrealized gain on sales of equipment (downstream sales) Realized gain on sale of equipment (downstream sales) through depreciation P90,000 / 10 years Net
20x4 ( 90,000) ___9,000 ( 81,000)
20x5 -09,000 9,000
10. d Unrealized gain on sale of equipment (downstream sales) Realized gain on sale of equipment (downstream sales) through depreciation P150,000 / 10 years
Net
20x4 ( 150,000)
20x5 -0-
___15,000
15,000
( 135,000)
15,000
11. a Unrealized gain on sale of equipment (upstream sales) : 50,000 – 30,000 Realized gain on sale of equipment (upstream sales) through depreciation P20,000 / 5 years Net
20x4 ( 20,000) ___4,000 ( 16,000)
20x5 -0__4,000 __4,000
Net
( 135,000)
15,000
11. a 20x4 ( 20,000)
Unrealized gain on sale of equipment (upstream sales) : 50,000 – 30,000 Realized gain on sale of equipment (upstream sales) through depreciation P20,000 / 5 years Net
20x5 -0-
___4,000 ( 16,000)
__4,000 __4,000
12. e Original cost of
P 100,000
Accumulated depreciation, 1/1/20x6
P 40,000 ___20,000 P 70,000
Add: Additional depreciation (P100,000 – P40,000) / 6 years x 2 years Accumulated depreciation, 12/31/20x4
13. c Sales price Less: Book value Cost Less: Accumulated depreciation Unrealized loss on sale Add: Realized loss - depreciation (P12,000 / 6 years) x 2 years Net unrealized loss, 12/31/20x7
P 48,000 P100,000 __40,000
14. a Eliminating entries: 12/31/20x7: subsequent to date of acquisition Realized Gain – depreciation Depreciation expense Accumulated depreciation [P48,000 - (P100,000 - P40,000) = P(12,000) / 6 years or P10,000 – P8,000 = P2,000 “Should be in CFS” Parent – Poxey Depreciation expense (P60,000 /6 years) Acc. Depreciation
__60,000 P(12,000) ___4,000 P( 8,000)
2,000 2,000
“Recorded as” Subsidiary - Soxey
10,000 10,000
Depreciation expense (P48,000 / 6 years) Acc. depreciation
8,000 8,000
15. c Original cost of
P 100,000
Accumulated depreciation, 1/1/20x6 (P100,000 - P20,000) Add: Additional depreciation (P100,000 – P80,000) / 5 years x 2 years Accumulated depreciation, 12/31/20x7
P 80,000 ____8,000 P 88,000
16. c Sales price
Less: Book value Cost Less: Accumulated depreciation Unrealized gain on sale Less: Realized gain - depreciation (P25,000 / 5 years) x 2 years Net unrealized gain, 12/31/20x7
P 45,000
P100,000 __80,000
__20,000 P 25,000 __10,000 P 15,000
Less: Book value Cost Less: Accumulated depreciation Unrealized gain on sale Less: Realized gain - depreciation (P25,000 / 5 years) x 2 years Net unrealized gain, 12/31/20x7
P100,000 __80,000
17. b Eliminating entries: 12/31/20x7: subsequent to date of acquisition Realized Gain – depreciation Accumulated depreciation Depreciation expense [P45,000 - (P100,000 - P80,000) = P25,000 / 5 years or P4,000 – P9,000 = P5,000 “Should be in CFS” Parent – Sayex Depreciation expense (P20,000 /5 years) Acc. Depreciation
__20,000 P 25,000 __10,000 P 15,000
5,000 5,000
“Recorded as” Subsidiary - Payex
4,000 4,000
Depreciation expense (P45,000 / 5 years) Acc. depreciation
9,000 9,000
18. c 19. b 20. c – (P20,000/20 years = P1,000), the eliminating entry to recognize the gain – depreciation would be as follows: Accumulated depreciation……………………………………………… 1,000 Depreciation expenses………………………………………….. 1,000
21. a The truck account will be debited for P3,000 in the eliminating entry: Truck 3,000 Gain 15,000 Accumulated depreciation 18,000 Seller
Cash Accumulated Truck Gain
Buyer
50,000 18,000
Truck Cash
50,000 50,000
53,000 15,000
22. b Consolidated Net Income for 20x5 P Company’s net in come from own/separate operations…………. Realized gain on sale of equipment (downstream sales) through depreciation P Company’s realized net income from separate operations*…….….. S Company’s net income from own operations…………………………………. Unrealized gain on sales of equipment (upstream sales) Realized gain on sale of equipment (upstream sales) through depreciation (P15,000 / 3 years) 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 98,000 ___0 P 98,000 P 55,000 (15,000) 5,000 P 45,000
45,000 P143,000 0 P143,000
18,000 P125,000
Or, alternatively Consolidated Net Income for 20x5 P Company’s net in come from own/separate operations………….
P 98,000
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.
18,000 P125,000
Or, alternatively Consolidated Net Income for 20x5 P Company’s net in come from own/separate operations…………. Realized gain on sale of equipment (downstream sales) through depreciation P Company’s realized net income from separate operations*…….….. S Company’s net income from own operations…………………………………. Unrealized gain on sales of equipment (upstream sales) Realized gain on sale of equipment (upstream sales) through depreciation (P15,000 / 3 years) 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.
P 98,000 ___0 P 98,000 P 55,000 (15,000) 5,000 P 45,000 P 18,000 ____0
18,000 P125,000 _ 18,000 P143,000
**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) Unrealized gain on sales of equipment (upstream sales) Realized gain on sale of equipment (upstream sales) through depreciation S Company’s realized net income from separate operations……… Less: Amortization of allocated excess
P 55,000 ( 15,000) 5,000 P 45,000 0 P 45,000 40% P 18,000 0 P 18,000
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 . . . . . . . . . . . . .
23. 24. 25. 26. 27.
45,000 P143,000
a - refer to No. 22 computation a a b d – the entry under the cost model would be as follows ; Accumulated depreciation……………………………………………. 4,000 Depreciation expenses (current year) – P6,000/3 years…. 2,000 Retained earnings (prior year – 20x4)……………………….. 2,000
28. d – the entry under the cost model would be as follows ; Accumulated depreciation……………………………………………. 10,000 Depreciation expenses (current year) – P15,000/3 years.. 5,000 Retained earnings (prior year – 20x5)……………………….. 5,000 29. a 30. b 31. c – P50,000/5 years = P10,000 per year starting January 1, 20x6. 32. b Depreciation expense recorded by Pirn Depreciation expense recorded by Scroll Total depreciation reported Adjustment for excess depreciation charged by Scroll as a result of increase in
carrying value of equipment due to gain on intercompany sale (P12,000 / 4 years) Depreciation for consolidated statements
P40,000 10,000 P50,000
(3,000) P47,000
33. e Depreciation expense: Parent
P 84,000
carrying value of equipment due to gain on intercompany sale (P12,000 / 4 years) Depreciation for consolidated statements
(3,000) P47,000
33. e Depreciation expense: Parent Subsidiary Total Less: Over-depreciation due to realized gain: [P115,000 – (P125,000 – P45,000)] = P35,000/8 years Consolidated income statement
P 84,000 60,000 P144,000 __ 4,375 P139,625
34. c 20x6 ( 56,000) ___7,000 ( 49,000)
Unrealized gain on sale of equipment Realized gain on sale of equipment (upstream sales) through depreciation Net Selling price Less: Book value, 1/1/20x6 Cost, 1/1/20x2 Less: Accumulated depreciation: P420,000/10 years x 2 years Unrealized gain on sale of equipment Realized gain – depreciation: P56,000/8 years
P 392,000 P420,000 84,000
336,000 P 56,000 P 7,000
35. c – (P22,500 x 4/15 = P6,000) 36. a – [P50,000 – (P50,000 x 4/10) = P30,000] 37. b The P39,000 paid to GG Company will be charged to depreciation expense by TLK Corporation over the remaining 3 years of ownership. As a result, TLK Corporation will debit depreciation expense for P13,000 each year. GG Company had charged P16,000 to accumulated depreciation in 2 years, for an annual rate of P8,000. Depreciation expense therefore must be reduced by P5,000 (P13,000 - P8,000) in preparing the consolidated statements. 38.
a
TLK Corporation will record the purchase at P39,000, the amount it paid. GG Company had the equipment recorded at P40,000; thus, a debit of P1,000 will raise the equipment balance back to its original cost from the viewpoint of the consolidated entity.
39.
b
Reported net income of GG Company Reported gain on sale of equipment Intercompany profit realized in 20x6 Realized net income of GG Company Proportion of stock held by non-controlling interest Income assigned to non-controlling interests
40.
c
P 45,000 P15,000 (5,000)
(10,000) P 35,000 x .40 P 14,000
Operating income reported by TLK Corporation Net income reported by GG Company
P 85,000 45,000 P130,000
Less: Unrealized gain on sale of equipment (P15,000 - P5,000) Consolidated net income
(10,000) P120,000
41. b Eliminating entries: 12/31/20x5: date of acquisition
Restoration of BV and eliminate unrealized gain Equipment Gain Accumulated depreciation Parent Books – Mortar Cash
390,000
10,000 150,000 160,000 Subsidiary Books – Granite Equipment
390,000
Restoration of BV and eliminate unrealized gain Equipment Gain Accumulated depreciation
10,000 150,000 160,000
Parent Books – Mortar Cash Accumulated depreciation Equipment Gain
Subsidiary Books – Granite
390,000 160,000
Equipment Cash
390,000 390,000
400,000 150,000
Mortar Selling price Less: Book value, 12/31/20x5 Cost, 1/1/20x2 Less: Accumulated depreciation : P400,000/10 years x 4 years Unrealized gain on sale of equipment Realized gain – depreciation: P150,000/6 years
P390,000 P400,000 160,000
42. a – refer to No. 41 for computation 43. b - refer to No. 41 for computation 44. d Eliminating entries: 12/31/20x6: subsequent to date of acquisition Realized Gain – depreciation Accumulated depreciation Depreciation expense P150,000 / 6 years or P65,000 – P40,000 “Should be in CFS” Parent Books – Mortar Depreciation expense (P400,000 / 10 years) Acc. Depreciation
240,000 P 150,000 P 25,000
25,000 25,000
“Recorded as” Subsidiary Books - Granite
40,000 40,000
Depreciation expense (P390,000 / 6 years) Acc. depreciation
65,000 65,000
45. c Eliminating entries: 12/31/20x6: subsequent to date of acquisition Equipment Retained earnings (150,000 – 25,000) Accumulated depreciation (P160,000 – P25,000)
10,000 100,000 135,000
46. a Total gain on the sale = P1,000,000 – (P500,000 - P150,000) = P650,000 Unconfirmed gain after three years = 2/5 x P650,000 = P260,000 47. d Depreciation to 1/1/x3 is P25,000 Depreciation expense for 20x3 and 20x4 is (P85,000 - P25,000)/6 = P10,000 per year Therefore accumulated depreciation at 12/31/x4 is P45,000. Net equipment balance is P85,000 - P45,000 = P40,000. 48. b At the end of two years, the subsidiary reports the equipment at original cost of P2,500,000 and accumulated depreciation of (P2,500,000/10) x 2 = P500,000. Depreciation expense is P250,000. The consolidated balance sheet reports the equipment at original cost of P1,000,000 and accumulated depreciation of P200,000 + ([(P1,000,000 - P200,000)/10] x 2) = P360,000. Depreciation expense is P80,000.
Eliminating entries at the end of the second year are: Accumulated depreciation Investment in subsidiary
170,000 1,530,000 Equipment
1,700,000
Eliminating entries at the end of the second year are: Accumulated depreciation Investment in subsidiary
170,000 1,530,000 Equipment
1,700,000
Equipment
200,000 Accumulated depreciation
200,000
Accumulated depreciation
170,000 Depreciation expense
170,000
49. d 50. d The subsidiary reports depreciation expense for the year at P500,000 (P2,500,000/5) and a gain on the sale at P1,750,000 [P2,750,000 - ((P2,500,000 - (3)(P500,000))]. The consolidated statements show depreciation expense for the year at P600,000 (P3,000,000/5) and a gain on the sale at P1,550,000 [P2,750,000 - ((P3,000,000 - (3)(P600,000))]. Therefore the eliminating entries increase depreciation expense by P100,000 and reduce the gain by P200,000, for a net effect on consolidated income of: P300,000 decrease. 51. a Consolidated Net Income for 20x9 P Company’s net income from own/separate operations…………. Realized gain on sale of equipment (downstream sales) through depreciation P Company’s realized net income from separate operations*…….….. S Company’s net income from own operations…………………………………. Unrealized loss on sale of equipment (upstream sales) Realized loss on sale of equipment (upstream sales) through depreciation – none, since the date of sale is end of the year S Company’s realized net income from separate operations*…….….. Total Less: Amortization of allocated excess…………………… Consolidated Net Income for 20x9 Less: Non-controlling Interest in Net Income* * Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent – 20x9………….. *that has been realized in transactions with third parties. Selling price Less: Book value, 12/31/20x9 Cost, 1/1/20x4 Less: Accumulated depreciation : P500,000/10 years x 6 years Unrealized loss on sale of equipment Realized loss – depreciation: P20,000/4 years
P 140,000 ___0 P 140,000 P 30,000 20,000 ( 0) P 50,000
50,000 P190,000 0 P190,000 15,000 P175,000
P180,000 P500,000 300,000
200,000 P( 20,000) P( 5,000)
Or, alternatively Consolidated Net Income for 20x9 P Company’s net in come from own/separate operations…………. Realized gain on sale of equipment (downstream sales) through depreciation P Company’s realized net income from separate operations*…….….. S Company’s net income from own operations…………………………………. Unrealized loss on sale of equipment (upstream sales) Realized loss on sale of equipment (upstream sales) through depreciation 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 20x9 *that has been realized in transactions with third parties. **Non-controlling Interest in Net Income (NCINI) for 20x9 S Company’s net income of Subsidiary Company from its own operations (Reported net income of S Company) Unrealized loss on sale of equipment (upstream sales)
P 140,000 ___0 P 140,000 P 30,000 20,000 ( 0) P 50,000 P 15,000 ____0
50,000 P190,000 15,000 P175,000
_ 15,000 P190,000
P 30,000 20,000
Add: Non-controlling Interest in Net Income (NCINI) Consolidated Net Income for 20x9 *that has been realized in transactions with third parties.
_ 15,000 P190,000
**Non-controlling Interest in Net Income (NCINI) for 20x9 S Company’s net income of Subsidiary Company from its own operations (Reported net income of S Company) Unrealized loss on sale of equipment (upstream sales) Realized loss on sale of equipment (upstream sales) through depreciation S Company’s realized net income from separate operations……… Less: Amortization of allocated excess
P 30,000 20,000 ( 0) P 50,000 0 P 50,000 30% P 15,000 0 P 15,000
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 . . . . . . . . . . . . .
52. b Consolidated Net Income for 20y0 P Company’s net in come from own/separate operations…………. Realized gain on sale of equipment (downstream sales) through depreciation P Company’s realized net income from separate operations*…….….. S Company’s net income from own operations…………………………………. Unrealized loss on sale of equipment (upstream sales) Realized loss on sale of equipment (upstream sales) through depreciation S Company’s realized net income from separate operations*…….….. Total Less: Amortization of allocated excess…………………… Consolidated Net Income for 20y0 Less: Non-controlling Interest in Net Income* * Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent – 20y0………….. *that has been realized in transactions with third parties.
P 162,000 ___0 P 162,000 P 45,000 ( 5,000) P 40,000
40,000 P202,000 0 P202,000 7,500 P194,500
Or, alternatively Consolidated Net Income for 20y0 P Company’s net in come from own/separate operations…………. Realized gain on sale of equipment (downstream sales) through depreciation P Company’s realized net income from separate operations*…….….. S Company’s net income from own operations…………………………………. Unrealized loss on sale of equipment (upstream sales) Realized loss on sale of equipment (upstream sales) through depreciation 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 20y0 *that has been realized in transactions with third parties.
P 162,000 ___0 P 162,000 P 45,000 ( 5,000) P 40,000 P 7,500 ____0
7,500 P194,500 _ _ 7,500 P202,000
**Non-controlling Interest in Net Income (NCINI) for 20y0 S Company’s net income of Subsidiary Company from its own operations (Reported net income of S Company) Unrealized loss on sale of equipment (upstream sales) Realized loss on sale of equipment (upstream sales) through depreciation S Company’s realized net income from separate operations……… Less: Amortization of allocated excess
P 30,000
( 5,000) P 25,000 0 P 25,000 30% P 7,500 0
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 . . . . . . . . . . . . .
53. d Eliminating entries: 1/1/20x5: date of acquisition Restoration of BV and eliminate unrealized gain Building
40,000 P202,000
P
3,000
7,500
Non-controlling Interest in Net Income (NCINI) – full goodwill . . . . . . . . . . . . .
53. d Eliminating entries: 1/1/20x5: date of acquisition Restoration of BV and eliminate unrealized gain Building Gain Accumulated depreciation
7,500
3,000 8,250 11,250
Parent Books – Sky Cash Accumulated depreciation Building Gain
P
Subsidiary Books - Earth 33,000 11,250
Building Cash
33,000 33,000
36,000 8,250
Sky, 7/1/20x4 Selling price Less: Book value, 7/11/20x4 Cost, 1/1/20x2 Less: Accumulated depreciation : P36,000/8years x 2.5 years Unrealized gain on sale of equipment Realized gain – depreciation: P8,250/5.5 years
P33,000 P36,000 11,250
24,750 P 8,250 P 1,500
54. a - refer to No. 53 for computation 55. b Eliminating entries: 12/31/20x4: subsequent to date of acquisition Realized Gain – depreciation (July 1, 20x4 – December 31, 20x4) Accumulated depreciation 750 Depreciation expense P8,250 / 5.5 x ½ years or P3,000 – P2,250 “Should be in CFS” Parent Books – Sky “Recorded as” Subsidiary Books - Earth Depreciation expense (P24,750 / 5.5 x ½ years) Acc. Depreciation
Depreciation expense (P33,000 / 5.5 years x ½ yrs) Acc. depreciation
2,250 2,250
56. c Eliminating entries: 12/31/20x5: subsequent to date of acquisition Realized Gain – depreciation Accumulated depreciation Depreciation expense P8,250 / 5.5 x years or P6,000 – P4,500 “Should be in CFS” Parent Books – Sky Depreciation expense (P24,750 / 5.5 years) Acc. Depreciation
3,000 3,000
1,500 1,500
“Recorded as” Subsidiary Books - Earth
4,500 4,500
57. d Eliminating entries: 1/1/20x5: subsequent to date of acquisition Building Retained earnings (8,250 – 750) Accumulated depreciation (P11,250 – P750)
58. 59. 60. 61. 62.
750
Depreciation expense (P33,000 / 5.5 years) Acc. depreciation
6,000 6,000
3,000 7,500
d - P60,000 - P36,000 = P24,000 debit b - P36,000 - (P60,000 - P31,200) = P7,200 gain (debit) c - (P36,000/6)(8/12) - [(P60,000 - P31,200)/6](8/12) = P800 credit a - P31,200 - {(P36,000/6)(8/12) - [(P60,000 - P31,200)/6](8/12)} = P30,400 credit c - P36,000 - (P60,000 - P31,200) = P7,200 gain (debit) (P36,000/6)(8/12) - [(P60,000 - P31,200)/6](8/12) = P800 credit 63. b
10,500
58. 59. 60. 61. 62.
d - P60,000 - P36,000 = P24,000 debit b - P36,000 - (P60,000 - P31,200) = P7,200 gain (debit) c - (P36,000/6)(8/12) - [(P60,000 - P31,200)/6](8/12) = P800 credit a - P31,200 - {(P36,000/6)(8/12) - [(P60,000 - P31,200)/6](8/12)} = P30,400 credit c - P36,000 - (P60,000 - P31,200) = P7,200 gain (debit) (P36,000/6)(8/12) - [(P60,000 - P31,200)/6](8/12) = P800 credit 63. b P72,000 - (P96,000 - P36,600) = P12,600 gain (debit) (P72,000/5)(4/12) - [(P96,000 - P36,600)/5](4/12) = P840 (credit) (P12,600 - P840) .1 = P1,176 debit 64. 65. 66. 67. 68.
d
When only retained earnings is debited, and not the non-controlling interest, a gain has been recorded in a prior period on the parent's books.
d a b b – at its original cost or book value.
69. b 20x4: Any intercompany gain should be eliminated in the CFS. 20x5 Selling price – unrelated party Less: Original Book value, 9/26/20x5 Accumulated depreciation, 9/26/20x5
P 100,000 __60,000 P 40,000
70. d – P30,000 + P40,000 = P70,000 S Selling price Less: Book value Gain
P
P 30,000
P
Consolidated
40,000
P 70,000
P (Lorikeet) P 110,000 __50,000 P 60,000
Consolidated P 110,000 _30,000 P 80,000
71. d – P110,000 – P30,000 = P80,000 S (Nectar) P 50,000 _30,000 P 20,000
Selling price Less: Book value Gain
72. d Selling price Less: Book value: Cost P2,000,000 Accumulated ___200,000 Unrealized gain on sale of equipment Realized Gain – depreciation (P180,000/9 x 6 yrs) Net unrealized gain, 1/1/20x9 Gain on sale *P1,980,000/ 9 x 6 years = P1,320,000 **P1,800,000/9 x 6 years = P1,200,000
S P1,980,000 1,800,00
P P1,440,000 P1,980,000 *1,320,000
Consolidated P1,440,000 P 1,800,000 **1,200,000
660,000
__600,000
P 180,000 120,000 P 60,000 P 60,000
P 780,000
P 840,000
73. d – (P100,000 + P50,000 = P150,000) S Selling price Less: Book value Gain
P
P 100,000
P
Consolidated
50,000
P 150,000
74. c
Selling price Less: Book value : Cost Accumulated Unrealized gain on sale of Equipment,1/1/20x4 Realized Gain – depreciation (P90,000/9 x 4 yrs)
S P 990,000 P1,000,000 100,000
__900,000 P 90,000 40,000
P P720,000 P990,000 *440,000
550,000
Consolidated P 720,000 P 900,000 **400,000
__500,000
Selling price Less: Book value : Cost Accumulated Unrealized gain on sale of Equipment,1/1/20x4 Realized Gain – depreciation (P90,000/9 x 4 yrs) Net unrealized gain, 1/1/20x8 Gain on sale *P990,000/ 9 x 4 years = P440,000 **P900,000/9 x 4 years = P400,000
S P 990,000 P1,000,000 100,000
__900,000
P P720,000 P990,000 *440,000
550,000
Consolidated P 720,000 P 900,000 **400,000
__500,000
P 90,000 40,000 P 50,000 P 50,000
__________ P 170,000
___________ P 220,000
75. d – (P30,000 + P15,000) 76. c Selling price – unrelated party Less: Original Book value, 12/31/20x5 Book value, 1/1/20x4 Less: Depreciation for 20x4 and 20x5: P20,000/4 years x 2 years Accumulated depreciation, 12/31/20x4
P 14,000 P20,000 10,000
10,000 P 4,000
77. b Selling price Less: Book value : Cost Accumulated Unrealized gain on sale of Equipment, 12/30/20x3 Realized Gain – depreciation (P10,000/6 x 3 yrs) Net unrealized gain, 12/31/20x6 Gain on sale *P100,000/6 x 3 years = P 48,000 ***P90,000/6 x 3 years = P45,000
Sort P 100,000 P 120,000 __30,000
__90,000
Fort P 65,000 P100,000 **50,000
50,000
Consolidated P 65,000 P 90,000 **45,000
__45,000
P 10,000 __ 5,000 P 5,000 P 5,000
__________ P 15,000
_________ P 20,000
78. b Depreciation expense: (P50,000 - P40,000) / 10 years = P1,000 over depreciation 79. b **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 gain on sales of equipment (upstream sales) (P700,000 – P600,000) Realized gain on sale of equipment (upstream sales) through depreciation (P100,000/10) 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 . . . . . . . . . . . . .
P2,000,000 ( 100,000) 10,000 P1,910,000 _ 0 P1,910,000 __40% P 764,000 __ 0 P 764,000
80. a **Non-controlling Interest in Net Income (NCINI) for 20y2 S Company’s net income of Subsidiary Company from its own operations (Reported net income of S Company) Unrealized gain on sale of equipment (downstream sales) Realized gain on sale of equipment (downstream sales) through depreciation S Company’s realized net income from separate operations……… Less: Amortization of allocated excess
P 135,000 ( 0) P 135,000 0 P 135,000 20% P 27,000 0 P 27,000
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 . . . . . . . . . . . . .
81. a Consolidated Net Income for 20y2 P Company’s net in come from own/separate operations…………. Realized gain on sale of equipment (downstream sales) through depreciation P Company’s realized net income from separate operations*…….….. S Company’s net income from own operations…………………………………. Unrealized gain on sale of equipment (upstream sales)
P 200,800 _ 8,000 P 208,800 P 135,000
81. a Consolidated Net Income for 20y2 P Company’s net in come from own/separate operations…………. Realized gain on sale of equipment (downstream sales) through depreciation P Company’s realized net income from separate operations*…….….. S Company’s net income from own operations…………………………………. Unrealized gain on sale of equipment (upstream sales) Realized gain on sale of equipment (upstream sales) through depreciation S Company’s realized net income from separate operations*…….….. Total Less: Amortization of allocated excess…………………… Consolidated Net Income for 20y2 Less: Non-controlling Interest in Net Income* *(refer to No. 80) Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent – 20y2………….. *that has been realized in transactions with third parties. Net income from own operations: Sales Less: Cost of goods sold Other expenses (including depreciation) Income tax expense Net income from own operations Add: Dividend income Net income Sexton, 1/1/20y1 Selling price Less: Book value, 1/1/20y1 Cost, 1/1/20x1 Less: Accumulated depreciation : P400,000/25 years x 10 years Unrealized gain on sale of equipment Realized gain – depreciation: P120,000/15 years
P 200,800 _ 8,000 P 208,800 P 135,000 ( 0) P 135,000
135,000 P343,800 0 P343,800 27,000 P316,800
Prout P1,475,000 942,000 145,000 __187,200 P 200,800 ____80,000 P 280,800
Sexton P1,110,000 795,000 90,000 ____90,000 P 135,000 P 135,000
P360,000 P400,000 160,000
240,000 P120,000 P 8,000
Or, alternatively Consolidated Net Income for 20y2 P Company’s net in come from own/separate operations…………. Realized gain on sale of equipment (downstream sales) through depreciation P Company’s realized net income from separate operations*…….….. S Company’s net income from own operations…………………………………. Unrealized gain on sale of equipment (upstream sales) Realized gain on sale of equipment (upstream sales) through depreciation S Company’s realized net income from separate operations*…….….. Total Less: Non-controlling Interest in Net Income* * (refer to No. 80) 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 20y2 *that has been realized in transactions with third parties.
P 200,800 _ 8,000 P 208,800 P 135,000 ( 0) P 135,000 P 27,000 ____0
135,000 P343,800 27,000 P316,800 _ _27,000 P343,800
82. a – refer to No. 81 83. c Consolidated Retained Earnings, December 31, 20y2 Retained earnings - Parent Company, January 1, 20y1 (cost model) Less: Downstream - net unrealized gain on sale of equipment – prior to 20y1 [P120,000 – (P8,000 x 1 year)] Adjusted Retained Earnings – Parent 1/1/20y1 (cost model ) Son 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, 20x9 Less: Retained earnings – Subsidiary, January 1, 20y1 Increase in retained earnings since date of acquisition Less: Amortization of allocated excess – 20x9 to – 20y0 Upstream - net unrealized gain on sale of equipment – prior to 20y1
P1,300,000 112,000
P1,188,000
P 800,000 1,040,000 P 240,000 0 0
consolidation or to establish reciprocity:/Parent’s share in adjusted net increased in subsidiary’s retained earnings: Retained earnings – Subsidiary, January 1, 20x9 Less: Retained earnings – Subsidiary, January 1, 20y1 Increase in retained earnings since date of acquisition Less: Amortization of allocated excess – 20x9 to – 20y0 Upstream - net unrealized gain on sale of equipment – prior to 20y1
Multiplied by: Controlling interests %................... Less: Goodwill impairment loss Consolidated Retained earnings, January 1, 20x5 Add: Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent for 20x5 Total Less: Dividends declared – Parent Company for 20y1 Consolidated Retained Earnings, December 31, 20y1
P 800,000 1,040,000 P 240,000 0 0 P 240,000 80% P192,000 0
_192,000 P1,380,000 316,800 P1,696,800 120,000 P1,576,8000
Or, alternatively: Consolidated Retained Earnings, December 31, 20y2 Retained earnings - Parent Company, December 31, 20y1 (cost model) (P1,300,000 + P280,800 – P120,000) Less: Downstream - net unrealized gain on sale of equipment – prior to 12/31/20y1 [P120,000 – (P8,000 x 2 years)] 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, 20y2 (P1,040,000 + P135,000 – P100,000) Less: Retained earnings – Subsidiary, January 1, 20x9 Increase in retained earnings since date of acquisition Less: Accumulated amortization of allocated excess Upstream - net unrealized gain on sale of equipment – prior to 12/31/20y2 Multiplied by: Controlling interests %................... Less: Goodwill impairment loss Consolidated Retained earnings, December 31, 20y2
P1,460,800 104,000
P1,356,800
P 1,075,000 800,000 P 275,000 0 _______0 P 275,000 80% P 220,000 _____0
220,000 P1,576,800
84. c Non-controlling interest (fulll-goodwill), December 31, 20y2 Common stock – Subsidiary Company, December 31, 20y2 …… Retained earnings – Subsidiary Company, December 31, 20y2 Retained earnings – Subsidiary Company, January 1, 20y2 Add: Net income of subsidiary for 20y2 Total Less: Dividends paid – 20y2 Stockholders’ equity – Subsidiary Company, December 31, 20x5 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 subsidiary, December 31, 20x5…… Less: Upstream - net unrealized gain on sale of equipment – prior to 12/31/20y2 Realized stockholders’ equity of subsidiary, December 31, 20x5………. Multiplied by: Non-controlling Interest percentage…………... Non-controlling interest (partial goodwill)…………………………………..
P 1,200,000 P1,040,000 135,000 P1,175,000 100,000
1,075,000 P 2,275,200 0 0 P2,275,200 _____)0 P 2,275,00 _ 20 P 455,000
85. c Prout
Selling price Less: Book value : Cost Accumulated Unrealized gain on sale of Equipment, 1/1/20y1 Realized Gain – depreciation (P120,000/15 x 2 yrs) Net unrealized gain, 1/1/20y3
Sexton
P 360,000 P 400,000 *160,000
__240,000
P300,000 P360,000 **48,000
312,000
P 120,000 __16,000 P 104,000
Consolidated
__________
P 300,000 P 240,000 ***32,000
_208,000
Selling price Less: Book value : Cost Accumulated Unrealized gain on sale of Equipment, 1/1/20y1 Realized Gain – depreciation (P120,000/15 x 2 yrs) Net unrealized gain, 1/1/20y3 Gain on sale *P400,000/25 x 10 years = P160,000 **P360,000/15 x 2 years = P 48,000 ***P240,000/15 x 2years = P400,000
P 360,000 P 400,000 *160,000
__240,000
P300,000 P360,000 **48,000
312,000
P 300,000 P 240,000 ***32,000
_208,000
P 120,000 __16,000 P 104,000 P 104,000
__________ P( 12,000)
_________ P 92,000
86. b – refer to No. 85 87. a – refer to No. 85 Analysis: Workpaper entries (not required) Intercompany Sale of Equipment
Original Cost Intercompany Selling Price Difference
Cost P400,000 360,000 P 40,000
Accumulated Depreciation P160,000 _______ P160,000
Carrying Value P240,000 360,000 P120,000
(1) Investment in Sexton Company Retained Earnings - Prout
Remaining Life Depreciation 15 yr P 16,000 15 yr 24,000 P 8,000 192,000 192,000
To establish reciprocity/convert to equity (.80 x (P1,040,000 - P800,000))
(2) Equipment Beginning Retained Earnings - Prout Accumulated Depreciation
40,000 120,000 160,000
To reduce beginning consolidated retained earnings by amount of unrealized profit at the beginning of the year, to restate property and equipment to its book value to Prout Company on the date of the intercompany sale.
(3) Accumulated Depreciation Depreciation Expense Beginning Retained Earnings - Prout
16,000 8,000 8,000
To reverse amount of excess depreciation recorded during current year and recognize an equivalent amount of intercompany profit as realized
(4) Dividend Income Dividends Declared
80,000 80,000
To eliminate intercompany dividends
(5) Beginning Retained Earnings – Sexton Common Stock – Sexton Investment in Sexton Company (P1,600,000 + P192,000) Noncontrolling Interest [P400,000 + (P1,040,000 - P800,000) x .20]
1,040,000 1,200,000 1,792,000 448,000
To eliminate investment account and create noncontrolling interest account
Entry analysis: Journal Entry on the books of Sexton to record the sale Cash Accumulated Depreciation - Fixed Assets (P360,000/15) x 2 years) Loss on Sale of Equipment Plant and Equipment
300,000 48,000 12,000 360,000
Workpaper eliminating entry on December 31, 2 0y3 consolidated statement necessary to prepare consolidated statements: Beginning Retained Earnings – Prout(P120,000 - P16,000) 104,000 Loss on Sale of Equipment 12,000 Gain on Sale of Equipment 92,000
Cost to the Affiliated Companies Accumulated Depreciation Based on Original Cost ((12/25)x P400,000) Book Value, 1/1/y3 Proceeds from Sale to Non-affiliate Gain from consolidated point of view
P400,000 192,000 P 208,000 (300,000) P 92,000
Note: As of Dec. 31, 20y3, the amount of profit recorded by the affiliates on their books (P120,000 - P12,000 = P108,000) is equal to the amount of profit considered realized in the consolidated financial statements (P8,000 + P8,000 + P92,000) = P108,000.
Cost to the Affiliated Companies Accumulated Depreciation Based on Original Cost ((12/25)x P400,000) Book Value, 1/1/y3 Proceeds from Sale to Non-affiliate Gain from consolidated point of view
P400,000 192,000 P 208,000 (300,000) P 92,000
Note: As of Dec. 31, 20y3, the amount of profit recorded by the affiliates on their books (P120,000 - P12,000 = P108,000) is equal to the amount of profit considered realized in the consolidated financial statements (P8,000 + P8,000 + P92,000) = P108,000.
88. d - Investment in subsidiary, 12/31/20x5 (cost model) P700,000). Date of Acquisition (1/1/20x4) Partial Fair value of consideration given……………………. P 700,000 Less: Book value of SHE - Subsidiary): (P300,000 + P500,000) x 80%................. .......... 640,000 Allocated Excess.………………………………………….P 60,000 Less: Over/Undervaluation of Assets & Liabilities Increase in Bldg. (P75,000 x 80%)……………… 60,000 0 Goodwill ………….………………………………………… .P
Full
P
0
Amortization of allocated excess: building - P75,000 / 25 years = P3,000 Upstream Sale of Equipment (date of sale – 4/1/20x5): Sales.......................................................................................................P 60,000 Less: Book value of equipment……………………………………………………………… . 30,000 Unrealized Gain (on sale of equipment)……………………………………………………P 30,000 Realized gain on sale of equipment: 20x5: P30,000/5 years = P6,000 x 9/12 (4/1/20x5-12/31/20x5)…………………………. .P 4,500 20x6 ………………..…………………………………………………………………………… P 6,000 Downstream Sale of Machinery (date of sale – 9/30/20x5): Sales.................................................................................................................................... P75,000 Less: Book value of machinery………………………………………………………………. 40,000 Unrealized Gain (on sale of machinery)…………………………………………………… P35,000 Realized gain on sale of machinery: 20x5: P35,000/10 years = P3,500 x 3/12 (9/30/20x5-12/31/20x5)………. ……………… .P 875 20x6………….. ……………………………………………………………………………….. .P 3,500
89. d Dividend paid or declared – S…………………………………………………P 50,000 80% x: Controlling Interest %…………………………………………………………. Dividend income of Parent……………………………………………………..P 40,000 90. d
89. d Dividend paid or declared – S…………………………………………………P 50,000 80% x: Controlling Interest %…………………………………………………………. Dividend income of Parent……………………………………………………..P 40,000 90. d Consolidated Net Income for 20x5 P Company’s net in come from own/separate operations…………. Net unrealized gain on sale of equipment (downstream sales) through depreciation P35,000 – P875) P Company’s realized net income from separate operations*…….….. S Company’s net income from own operations…………………………………. Unrealized gain on sales of equipment (upstream sales) Realized gain on sale of equipment (upstream sales) through depreciation 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 300,000 34,125 P 265,875 P 150,000 (30,000) 4,500 P 124,500
124,500 P390,375 3,000 P387,375 24,300 P363,075
Or, alternatively Consolidated Net Income for 20x5 P Company’s net in come from own/separate operations…………. Net unrealized gain on sale of equipment (downstream sales) through depreciation P35,000 – P875) P Company’s realized net income from separate operations*…….….. S Company’s net income from own operations…………………………………. Unrealized gain on sales of equipment (upstream sales) Realized gain on sale of equipment (upstream sales) through depreciation 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.
P 300,000 34,125 P 265,875 P 150,000 (30,000) 4,500 P 124,500 P 24,300 3,000
**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) Unrealized gain on sales of equipment (upstream sales) Realized gain on sale of equipment (upstream sales) through depreciation 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 . . . . . . . . . . . . .
91. c – refer to No. 90 for computations 92. d – refer to No. 90 for computations 93. a Non-controlling Interests (in net assets): 20x5 20x6 Common stock - S, 12/31..….………………………… P 300,000 P 300,000 Retained earnings - S, 12/31: RE- S, 1/1.…………………………………………….P600,000 P 700,000 +: NI-S………………………………………………… 150,000 200,000 -: Div – S…………………………………………….. 50,000 700,000 70,000 830,000 Book value of Stockholders’ equity, 12/31…….... P1,000,000 P1,130,000 Adjustments to reflect fair value of net assets Increase in equipment, 1/1/2010..……..… 75,000 75,000 Accumulated amortization (P3,000 per year)*.…… ( 6,000) ( 9,000) Fair Value of Net Assets/SHE, 12/31..……………… P1,069,000 P1,196,000 Unrealized gain on sale of equipment (upstream) ( 30,000) **( 25,500) Realized gain thru de preciation (upstream)……… 4,500 6,000 Realized SHE – S,12/31………………………………….. P1,043,500 P1,176,500 x: NCI %................. ................. .........................………… ___ 20% 20%
124,500 P390,375 27,300 P363,075 _ 24,300 P387,375
P 150,000 ( 30,000) 4,500 P 124,500 3,000 P 121,500 20% P 24,300 0 P 24,300
Non-controlling Interest (in net assets) – partial... +: NCI on full goodwill……..…………………………….. Non-controlling Interest (in net assets) – full…….. * 20x5: P3,000 x 2 years; 2012: P3,000 x 3 years; ** P30,000 – P4,500 realized gain in 20x5 = P25,500.
P 208,700 0 P 208,700
P 235,300 0 P 235,300
Note: Preferred solution - since what is given is the RE – P, 1/1/20x5(beginning balance of the current year) Retained earnings – Parent, 1/1/20x5 (cost)…………………………… P 800,000 -: Downstream sale – 20x4 or prior to 20x5, Net unrealized gain 0 Adjusted Retained earnings – Parent, 1/1/20x5 (cost)……………… P 800,000 Retroactive Adjustments to convert Cost to “Equity”: Retained earnings – Subsidiary, 1/1/20x4……………………….P 500,000 Less: Retained earnings – Subsidiary, 1/1/20x5……………….. 600,000 Increase in Retained earnings since acquisition (cumulative net income – cumulative dividends)…………P 100,000 Accum. amortization (1/1/x4 – 1/1/x5): P2,000 x 1 year…….. ( 3,000) Upstream Sale – 2010 or prior to 20x5, Net unrealized gain……………………………..………………. ( 0) P 97,000 X: Controlling Interests %..…………………………………………… 80% 77,600 RE – P, 1/1/20x5 (equity method) = CRE, 1/1/20x5………………… P 877,600 +: CI – CNI or Profit Attributable to Equity Holders of Parent……. 363,075 -: Dividends – P………………………………………………………………….. 100,000 RE – P, 12/31/20x5 (equity method) = CRE, 12/31/20x5………….. P 1,140,675 Or, if RE – P is not given on January 1, 20x5, then RE – P on December 31, 20x5 should be use. Retained earnings – Parent, 12/31/20x5 (cost model): (P800,000 + P340,000, P’s reported NI – P100,000)……………… P1,040,000 -: Downstream sale – 20x5 or prior to 12/31/20x5, Net unrealized gain - (P35,000 – P875)……………………………. 34,125 Adjusted Retained earnings – Parent, 1/1/20x5 (cost model)..…… P1,005,875 Retroactive Adjustments to conver t Cost to “Equity”: Retained earnings – Subsidiary, 1/1/20x4……………………….P 500,000 Less: Retained earnings – Subsidiary, 12/31/20x5 (P600,000 + P150,000 – P50,000)..…………..……………. 700,000 Increase in Retained earnings since acquisition (cumulative net income – cumulative dividends)……. ….P 200,000 Accumulated amortization (1/1/20x4 – 12/31/20x5): P 3,000 x 2 years……………………………………………. .( 6,000) Upstream Sale – 20x5 or prior to 12/31/20x5, Net unrealized gain – (P30,000 – P4,500)……………. ( 25,500) P 168,500 x: Controlling Interests %..………………………………………… 80% 134,800 RE – P, 12/31/20x5 (equity method) = CRE, 12/31/20x5…………. P1,140,675
94. c – refer to No, 93 computations. 95. b – refer to No. 93 for computations 96. d – refer to No. 93 for computations
97. b Consolidated Stockholders’ Equity, 12/31/20x5: Controlling Interest / Parent’s Interest / Parent’s Portion / Equity Holders of Parent – SHE, 12/31/20x5: Common stock – P (P only)……………………………………….. .P 1,000,000 Retained Earnings – P (equity method), 12/31/20x5…………. 1,140,675 Controlling Interest / Parent’s Stockholders’ Equity……………P2,140,675 Non-controlling interest, 12/31/20x5 (partial/full)…………………… 208,700 Consolidated Stockholders’ Equity, 12/31/20x5………………………. P2,349,375
98. d – the original cost of land 99. b – no intercompany gain or loss be presented in the CFS. 100. a Consolidated Net Income for 20x4 P Company’s net in come from own/separate operations…………. Realized gain on sale of equipment (downstream sales) through depreciation P Company’s realized net income from separate operations*…….….. S3 Company’s net income from own operations…………………………………. S2 Company’s net income from own operations…………………………………. S1 Company’s net income from own operations…………………………………. Unrealized loss on sale of equipment (upstream sales) – S3 Unrealized gain on sale of equipment (upstream sales) – S2 Unrealized gain on sale of equipment (upstream sales) - S1 S Company’s realized net income from separate operations*…….…..
P 200,000 ___0 P 200,000 P100,000 70,000 95,000 15,000 ( 52,000) ( 23,000) P205,000
205,000
Total Less: Amortization of allocated excess…………………… Consolidated Net Income for 20x4 Less: Non-controlling Interest in Net Income* * (P23,000 + P5,400 + P7,200) Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent – 20x4………….. *that has been realized in transactions with third parties. Sales price Less: Cost Unrealized (loss) gain
P405,000 0 P405,000 35,600 P369,400
S3 145,000 160,000 ( 15,000)
S2 197,000 145,000 52,000
S1 220,000 197,000 23,000
Or, alternatively Consolidated Net Income for 20x4 P Company’s net in come from own/separate operations…………. Realized gain on sale of equipment (downstream sales) through depreciation P Company’s realized net income from separate operations*…….….. S3 Company’s net income from own operations…………………………………. S2 Company’s net income from own operations…………………………………. S1 Company’s net income from own operations…………………………………. Unrealized loss on sale of equipment (upstream sales) – S3 Unrealized gain on sale of equipment (upstream sales) – S2 Unrealized gain on sale of equipment (upstream sales) - S1 S Company’s realized net income from separate operations* Total Less: Non-controlling Interest in Net Income* * (P23,000 + P5,400 + P7,200) 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 20y0 *that has been realized in transactions with third parties. **Non-controlling Interest in Net Income (NCINI) S Company’s net income of Subsidiary Company from its own operations (Reported net income of S Company) Unrealized (gain) loss on sale of land (upstream sales) S 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) - partial goodwill Less: NCI on goodwill impairment loss on full-goodwill Non-controlling Interest in Net Income (NCINI) – full goodwill
P 200,000 ___0 P 200,000 P100,000 70,000 95,000 15,000 ( 52,000) ( 23,000) P205,000 P 35,600 ____0
_ 35,600 P369,400 _ _35,600 P405,000
S3 P 100,000 15,000 P 115,000 0 P 115000 20% P 23,000 0 P 23,000
205,000 P405,000
S2 P
70,000 ( 52,000) P 18,000 0 P 18,000 30% P 5,400 0 P 5,400
S1 P 95,000 ( 23,000) P 72,000 0 P 72,000 10% P 7,200 0 P 7,200
101. b Non-controlling Interest in Net Income (NCINI) for 20y2 S Company’s net income of Subsidiary Company from its own operations (Reported net income of S Company) Unrealized gain on sales of equipment (upstream sales) – year of sale Realized gain on sale of equipment (upstream sales) through depreciation (P14,500 – P9,000) / 5 years 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 40,000 1,100 P 41,100 0 P 41,100 20% P 8,220 0 P 8,220
102. d – the unrealized gain amounted to P15,000 (P60,000 – P45,000). 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. Since, the cost model is presumed to be the method used, the unrealized gain of P15,000 (P60,000 – P45,000) will not be recorded in the books of parent company, which give rise to no equity adjustments at year-end. 103. c Cliff reported income Less: Intercompany gain on truck Plus: Piecemeal recognition of gain = P45,000/10 years Cliff’s adjusted income Majority percentage Income from Cliff
P225,000 45,000 ___4,500 P184,500 90% P166,050
104. c Pied Imperial-Pigeon’s share of Roger’s income = (P320,000 x 90%) = Less: Profit on intercompany sale (P130,000 - P80,000) x 90% = Add: Piecemeal recognition of deferred profit ($50,000/4 years)90% = Income from Offshore
P288,000 45,000 11,250 P254,250
P30,000 - (1/4 x P30,000) =
P 22,500
105 c
106. d - P60,000 – P48,000)/4 years = P3,000 107. a Simon, 4/1/20x4 Selling price Less: Book value, 4/1/20x4 Cost, 1/1/20x4 Less: Accumulated depreciation : P50,000/10 years x 3/12 Unrealized gain on sale of equipment Realized gain – depreciation: P19,500/9.75 years
P68,250 P50,000 __1,250
48,750 P19,500 P 2,000
108. c – P2,000 x 9/12 (April 1, 20x4 – December 31, 20x4) = P1,500 109. c – P19,500 / 9.75 years = P2,000 110. c – P19,500 / 9.75 years = P2,000 111. d 20x4 90,000 ( 19,500)
Share in subsidiary net income (100,000 x 90%) Unrealized gain on sale of equipment (downstream sales) Realized gain on sale of equipment (downstream sales) through depreciation P2,000 x 9/12 (April 1, 20x4 – December 31, 20x4) = P1,500 Net
_ 1,500 72,000
112. b Share in subsidiary net income (120,000 x 90%) Realized gain on sale of equipment (downstream sales) through depreciation Net
20x5 108,000 _ 2,000 110,000
Share in subsidiary net income (130,000 x 90%) Realized gain on sale of equipment (downstream sales) through depreciation Net
20x6 117,000 _ 2,000 119,000
113. d
114. c Smeder, 1/1/20x4 Selling price Less: Book value, 1/1/20x4 Cost, 1/1/20x4 Less: Accumulated depreciation Unrealized gain on sale of equipment Realized gain – depreciation: P12,000/6 years
P84,000 P120,000 __48,000
72,000 P12,000 P 2,000
115. b Share in subsidiary net income (28,000 x 80%) Unrealized gain on sale of equipment (upstream sales); 12,000 x 80% Realized gain on sale of equipment (upstream sales) through depreciation P2,000 x 80% Net
20x4 22,400 ( 9,600) _ 1,600 14,400
116. c Share in subsidiary net income (32,000 x 80%) Realized gain on sale of equipment (upstream sales) through depreciation P2,000 x 80% Net
20x5 25,600 _ 1,600 27,200
117. d Eliminating entries: 1/1/20x4: date of acquisition Restoration of BV and eliminate unrealized gain Equipment Gain Accumulated depreciation
36,000 12,000 48,000
Parent – Smeder Cash Accumulated depreciation Equipment Gain
Subsidiary - Collins 84,000 48,000
Equipment Cash
84,000 84,000
120,000 12,000
Smeder, 1/1/20x4 Selling price Less: Book value, 1/1/20x4 Cost, 1/1/20x4 Less: Accumulated depreciation Unrealized gain on sale of equipment Realized gain – depreciation: P12,000/6 years
P84,000 P120,000 __48,000
Eliminating entries: 12/31/20x4: subsequent to date of acquisition Realized Gain – depreciation Accumulated depreciation Depreciation expense P12,000 / 6 years or P14,000 – P12,000 “Should be in CFS” Parent – Smeder Depreciation expense (P72,000 /6 years) Acc. Depreciation
72,000 P12,000 P 2,000
2,000 2,000
“Recorded as” Subsidiary - Collins
12,000 12,000
Depreciation expense (P84,000 / 6 years) Acc. depreciation
14,000 14,000
Combining the eliminating entries for 1/1/20x4 and 12/31/200x4, the net effect of accumulated depreciation would be a net credit of P46,000 (P48,000 – P2,000).
118. c 20x4 ( 12,000) ___2,000 ( 10,000)
Unrealized gain on sale of equipment Realized gain on sale of equipment through depreciation Net
119. d Eliminating entries: 5/1/20x4: date of acquisition Restoration of BV and eliminate unrealized gain Cash Loss
5,000 5,000
Parent – Stark Cash Loss Land
Subsidiary - Parker 80,000 5,000
Land Cash
85,000 85,000
85,000
Selling price Less: Book value, 5/1/20x4 Unrealized gain on sale of equipment
Stark P 80,000 _85,000 P ( 5,000)
Parker P 92,000 __80,000 P 12,000
Consolidated P 92,000 _85,000 P 7,000
120. b – refer to No. 119 for eliminating entry 121. b Cash Retained earnings
5,000 5,000
