Chapter 16 Advanced 2

Chapter 16 Prob Proble lem mI 1. P5 P50 0,075 ,075 Consolidated Net Income for 20x4 Net income from own/separate operations Pill Company [P25,000 – (P9,000 x 85%)] Sill Company Total Less: Non-controlling Interest in Net Income * Amortization of allocated excess Goodwill impairment Controlling Interest in Consolidated Consolidated Net Income or Profit attributable to equity holders of parent………….. Add: Non-controlling Interest in Net Income (NCI NI ) Consolidated Net Income for 20x4

P17,350 40,000 P57,350 P 5,775 0 1,500

7,275 P50,075 5,775 P55,850

*Net income of subsidiary – 20x4 Amortization of allocated excess – 20x4

P 40,000 ( 0) ) P 40,000 15% P 6,000 ___ ____225 _225 P 5,775

Multiplied by: Non-controlling interest %.......... Less Less:: Non-c on-co ontro ntrollllin ing g inte intere rest st on impa impair irm ment ent loss loss on full full-g -goo ood dwill will (P1,5 P1,500 00 x 15%) 15%)** Non-controlling Interest in Net Income (NCI NI ) *this procedure would be not be applicable where the NCI on goodwill impairment loss would would not be proportionate to NCI acquired.

2. P5 P5,7 ,775 75 – refer to computation in No. 1 Problem Problem II (Assume (Assume the use of full-goodw full-goodwill ill approac approach) h) Cost of 75% investment Fair Fair valu value e of of Sub Subsi sidi diar ary y (Im (Impl plie ied d cos costt of of 100 100% % inv inves estm tmen ent) t);; P60 P600, 0,00 000/ 0/75 75% % Less: Carrying Carrying amount amount of Small’s Small’s net net assets assets = Carrying amount of Small’s shareholders’ equity Common/Ordinary shares 400,000 Retained earnings 100,000

Allocated Excess: Acquisition differential – Jan. 1, 20 2 0x4 Less: Over/under Over/under valuation valuation of A/L (Allocate (Allocated d to): Increase in Inventory Decrease in Patents Goodwill - full

600,000 800, 800,00 000 0

500,000 300,000 40,000 (70,000)

(30,000) 330,000

A summary or depreciation and amortization adjustments is as follows: Account Adjustments to be amortized Inventory Subject to Annual Amortization Patents Amortization I mpairment of goodwi ll

Over/ Under P40,000

Life 1

(70,000)

5

330,000

-

Annual Amount P 40,000

Current Year (20x4) P 40,000

20x5 P -

(14,000) P 26,000 _____ P 26 26,000

( 14,000) P 26,000 _____ P 26 26,000

(14,000) P(14,000) ______ P(14,000)

20x6 P

-

(14,000) P(14,000) __ 19,300 P 5,300

Unamortized balance of allocated excess: Balance Jan. 1 20x4 Inventory 40,000 Patents (70,000) Goodwill 330,000 300,000 Journal Entries Investment in Small Cash Cash Dividend income

Balance Dec. 31

Amortization 20x4 & 20x5 20x6 40,000 (28,000) (14,000) 0 19,300 12,000 5,300 Year 1 600,000 600,000 18,750 18,750

(28,000) 310,700 282,700

Year 2

Year 3

7,500 7,500

30,000 30,000

2. a. Goodwill, 12/31/20x6 (P330,000 – P19,300) b. FV of NC NCI, I, 12/3 12/31/ 1/20 20x6: x6: Common stock, 12/31/20x6 Retained earnings, 1/1/20x6 (P100 (P100,0 ,000 00 + P80, P80,00 000 0 – P25,0 P25,000 00 – P35, P35,00 000 0 – P10,0 P10,000 00)) Add; NI NI – Subsidiary (20x6) Dividends – Su Subsidiary 20x6 Book value of SHE – S, 12/31/20x6 Adjustments to reflect fair value Amortization of allocated excess – 20x5 - 20x6 Impairment of goodwill – 20 20x5 FV of SHE of S Multiplied by: NCI% FV of NCI

P 310,700

P 400,000 P 110,0 110,000 00 90,000 ( 40,000)

P 300,000 ( 12,000) 14,000 ( 19,300)___282,700 P842,700 25% P210,675

Or, alternatively; Small’s common/ordinary shares Small’s retained earnings (100,000+80,000-25,000-35,000-10,000+90,000 -40,000)

Unamortized acquisition differential NCI’s share (25%) c. Consol Consolida idated ted Retaine Retained d Earnings, Earnings, 1/1/2 1/1/20x6 0x6 – P498,500 Consolidated Retained Retained Earnings, December December 31, 20x6 Retained earnings - La Large Company, January 1, 20x5 (cost model Adjustment to convert from cost model to equity method for purposes of consolidation or to establish reciprocity:/Parent’s reciprocity:/Parent’s share in adjusted net increased in subsidiary’s retained earnings: Retained Retained earnings earnings – Small, Small, January January 1, 20x5 (P100,000 + P80,00 – P2 P25,000 – P3 P35,000 – P1 P10,000) Less: ess: Reta etained ined earn earnin ing gs – Small, ll, Ja Janua nuary 1, 20x4 (dat (date e of of ac acquis quisit itio ion) n) Increase in retained earnings since date of acquisition Less: Amortization of allocated excess – 20x4 Amortization of allocated excess – 20x5

160,000 P 560,000

400,000 160,000 560,000 282,700 842,700 210,675 P500,000

P 110,000 100,0 00,00 00 P 10,000 26,000 (14,000)

Unamortized balance of allocated excess: Balance Jan. 1 20x4 Inventory 40,000 Patents (70,000) Goodwill 330,000 300,000 Journal Entries Investment in Small Cash Cash Dividend income

Balance Dec. 31

Amortization 20x4 & 20x5 20x6 40,000 (28,000) (14,000) 0 19,300 12,000 5,300 Year 1 600,000 600,000 18,750 18,750

(28,000) 310,700 282,700

Year 2

Year 3

7,500 7,500

30,000 30,000

2. a. Goodwill, 12/31/20x6 (P330,000 – P19,300) b. FV of NC NCI, I, 12/3 12/31/ 1/20 20x6: x6: Common stock, 12/31/20x6 Retained earnings, 1/1/20x6 (P100 (P100,0 ,000 00 + P80, P80,00 000 0 – P25,0 P25,000 00 – P35, P35,00 000 0 – P10,0 P10,000 00)) Add; NI NI – Subsidiary (20x6) Dividends – Su Subsidiary 20x6 Book value of SHE – S, 12/31/20x6 Adjustments to reflect fair value Amortization of allocated excess – 20x5 - 20x6 Impairment of goodwill – 20 20x5 FV of SHE of S Multiplied by: NCI% FV of NCI

P 310,700

P 400,000 P 110,0 110,000 00 90,000 ( 40,000)

P 300,000 ( 12,000) 14,000 ( 19,300)___282,700 P842,700 25% P210,675

Or, alternatively; Small’s common/ordinary shares Small’s retained earnings (100,000+80,000-25,000-35,000-10,000+90,000 -40,000)

Unamortized acquisition differential NCI’s share (25%) c. Consol Consolida idated ted Retaine Retained d Earnings, Earnings, 1/1/2 1/1/20x6 0x6 – P498,500 Consolidated Retained Retained Earnings, December December 31, 20x6 Retained earnings - La Large Company, January 1, 20x5 (cost model Adjustment to convert from cost model to equity method for purposes of consolidation or to establish reciprocity:/Parent’s reciprocity:/Parent’s share in adjusted net increased in subsidiary’s retained earnings: Retained Retained earnings earnings – Small, Small, January January 1, 20x5 (P100,000 + P80,00 – P2 P25,000 – P3 P35,000 – P1 P10,000) Less: ess: Reta etained ined earn earnin ing gs – Small, ll, Ja Janua nuary 1, 20x4 (dat (date e of of ac acquis quisit itio ion) n) Increase in retained earnings since date of acquisition Less: Amortization of allocated excess – 20x4 Amortization of allocated excess – 20x5

160,000 P 560,000

400,000 160,000 560,000 282,700 842,700 210,675 P500,000

P 110,000 100,0 00,00 00 P 10,000 26,000 (14,000)

P ( 2,000) 75% P ( 1,500) _____0

Multiplied by: Controlling interests %................... Less: Goodwill impairment loss (full-goodwill ) – 20x5 Consolidated Retained earnings, January 1, 20x6

1,500 P498,500

Incidentally, the CRE, December 31, 20x6 would be as follows: Consolidated Retained earnings, January 1, 20x6 Add: Controlling Interest in Consolidated Consolidated Net Income or Profit attributable attributable to equity holders of Large for 20x6 Total Less: Dividends paid – Large Company for 20x6 Consolidated Retained Earnings, December 31, 20x6

P498,500 219,050 P717,550 70,000 P647,550

d. P219,050 Consolidated Net Income for 20x6 Net income from own/separate operations Large Company [P200,000 – (P40,000 x 75%)] Small Company Total Less: Non-controlling In Interest in Net Income * Amortization of allocated excess Goodwill impairment Controlling Interest in Consolidated Consolidated Net Income or Profit attributable to equity holders of parent………….. Add: Non-controlling Interest in Net Income (NCI NI ) Consolidated Net Income for 20x4

P170,000 90,000 P260,000 P 16 16,350 5,300 19,300

40,950 P219,050 16,350 P235,400


P 90,000 ( 5, 5,300) P 84,700 25% P 21,175 ___4 ___4,8 ,825 25 P 16,350

Multiplied by: Non-controlling interest %.......... Less Less:: NonNon-co cont ntro rollllin ing g inte intere rest st on impa impair irme ment nt loss loss on full full-g -goo oodw dwililll ( (P19 (P19,3 ,300 00 x 25% 25%)* )* Non-controlling Interest in Net Income (NCI NI ) *this procedure would be not be applicable where the NCI on goodwill impairment loss would would not be proportionate to NCI acquired.

e. P16,350 P16,350 – refer to (d) for computat computations ions Teacher’s Teacher’s Guide: For purposes purposes of comparison comparison between between Cost Model/Method and Equity Method Method

1. Year 1 Investment in Small 600,000 Cash 600,000 Investment in Small (75% x Small’s pr p rofit) 60,000 Investment income 60,000 Cash (75% x Small’s dividends) 18,750 Investment in Small 18,750 Investment income (75% x amortization of PD *) 19,500 Investment in Small 19,500 *purchase differential ( ) – indica indicates tes reduct reduction ion

Year 2

Year 3

(26,250) 67,500 (26,250) 67,500 7,500 30,000 7,500 30,000 (10,500) 3,975 (10,500) 3,975

Investment in Small under cost method Small’s retained earnings, end of year Small’s retained earnings, date of acquisition Change since acquisition Less: cumulative amortization of acquisition differential

600,000 160,000 100,000 60,000 17,300 42,700 32,025 632,025

Large’s share (75%) Investment in Small under equity method

Note: Regardless of the method used (cost or equity) answers for No. 2 (a) to (e) above are exactly the same.

Problem III Cost of 8% investment Fair value of Subsidiary (Implied cost of 100% investment); P646,000/85% Less: Carrying amount of Silk’s net assets = Carrying amount of Silk’s shareholders’ equity Common/Ordinary shares 500,000 Retained earnings 100,000

646,000 760,000

600,000 160,000

Allocated Excess: Acquisition differential – December 31, 20x4 Less: Over/under valuation of A/L (Allocated to): Increase in Inventory Patents Non-controlling interest (15% x 760,000, fair value of subsidiary),12/31/20x4

70,000 90,000 114,000

A summary or depreciation and amortization adjustments is as follows: Account Adjustments to be amortized Inventory Subject to Annual Amortization Patents

Over/ under P70,000 90,000 P160,000

Life 1 10

Unamortized balance of allocated excess: Balance Dec. 31 20x4 Inventory 70,000 Patents 90,000 160,000


Current Year(20x5) P 70,000

__9,000 P 79,000

___9,000 P 79,000

20x6 P

20x7 -

___9,000 P 9,000

Amortization 20x5 20x6 70,000 9,000 9,000 79,000 9,000

P

-

___9,000 P 9,000,

Balance Dec. 31 20x6

72,000 72,000

1. NCI-CNI 20x5: P(7,350) 20x6: P6,450 20x5

Consolidated Net Income Net income from own/separate operations Large Company Company 20x5 [P28,000 – P0)] 20x6 [(P45,000, loss + (P15,000 x 85%)] Small Company Total Less: Non-controlling In Interest in Net Income * Amortization of allocated excess Goodwill impairment CI-CNI CI-CNI (loss) (loss) or Profi Profitt (loss) (loss) attribu attributab table le tto o equity equity holders of parent Add: Non-controlling Interest in Net Income (NCI NI ) Consolidated Net Income/Loss (CNI )

20x6

P 28,000 P(57,750) 52,000 P( 5,750)

30,000 P 58,000 P(7,350) 79,000 _____0

71,650

P 6, 6,450 9,000 _____ 0

15,450

P(13,650) ( 7,350) P(21,000)

P(21,200) 6,450 P(14,750)

20x5 P 30,000 ( 79,000) P(49,000) 15% P( 7,350) _______P( 7,350)

*Net income (loss) of subsidiary Amortization of allocated excess Multiplied by: Non-controlling interest %.......... Less: Non-controlling interest on impairment loss on full -goodwill Non-controlling Interest in Net Income (NCINI)

20x6 P 52,000 ( 9, 9,000) P 43,000 15% P 6,450 _ __ _P 6,450

*this procedure would be not be applicable where the NCI on goodwill impairment loss would would not be proportionate to NCI acquired.

2. CI-C CI-CNI NI – refer – refer to computation computation in in No. 1 20x5: P(21,000) 20x6: P14,750 Or, alternatively: (1) Non-control Non-controlling ling interest interest in profit profit 20x5: 15% 20x6: 15%

(30,000 – 79 7 9,000)  (52, 000 – 9,00 0) 

- 7, 7 ,350 6,450

(2)

Profit (loss) Pen Dividends from Silk 20x5 20x6 20x6 (85% (85%  15,000) Share of Silk’s profit 85%  (30,000 – 79,000) 85%  (52,000 – 9,000) Consolidated profit (loss) attributable to Pen’s shareholders

20x5 28,000

20x6 (45,000)

0 28,000

(12,750) (57,750)

(41,650) _

36,550_

(13,650)

(21,200)

3. CRE, CRE, 12/31/ 12/31/20x6 20x6 – P73 P73,150 ,150 Consolidated Retained Retained Earnings, December December 31, 20x6 Retained earnings - Pe Pen Co Company, De December 31, 20 20x6 (c (cost model Adjustment to convert from cost model to equity method for purposes of consolidation or to establish reciprocity:/Parent’s reciprocity:/Parent’s share in adjusted net increased in subsidiary’s retained earnings: Retained Retained earnings earnings – Silk, Silk, December December 31, 20x6: (P100,000 + P30,00 – P0 + P5 P52,000 – P15,000) Less Less:: Reta Retain ined ed earn earnin ings gs – Silk, ilk, Dece Decemb mber er 31, 31, 20x4 20x4 (dat (date e of acqu acquis isit itio ion) n) Increase in retained earnings since date of acquisition Less: Amortization of allocated excess – 20x5 Amortization of allocated excess – 20x6 Multiplied by: Controlling interests %................... Less: Goodwill impairment loss (full-goodwill ) – 20 20x5 Consolidated Retained earnings, December 31, 20x6

P 91 91,000

P 167,000 100, 100,00 000 0 P 67,000 79,000 __ 9,000 P (21,000) 85% P (17,850) _____0

( 17,850) P 73,150

4. NCI, NCI, 12/31/20 12/31/20x6: x6: P110, P110,850 850 FV of SHE of Silk: Common stock, 12/31/20x6 P 500,000 Retained earnings, 12/31/20x: Retained earnings, 1/1/20x4 P 100,000 NI – Subsidiary (20x5 and 20x6): P30,000 + P52,000 82,000 Dividends – Subsi bsidiar iary (20x5 and and 20x6): P) + P15 P15,00 ,000 ( 15,00 5,000 0) 167,0 7,000 Book value of SHE – S, 12/31/20x6 P 667,000 Adjustments to reflect fair value, 12/31/20x4 160,000 Amortization of allocated excess (P 79,000 + P9,000) ( 88,000) FV of SHE of S P 739,000 Multiplied by: NCI% 15% FV of NCI (partial), 12/31/20x6 P 110,850 Add: NCI on full-goodwill 0 FV of NCI (full),12/31/20x6 P 110,850 Or, alternatively: Non-co Non-contr ntroll olling ing intere interest st – date of acquis acquisiti ition,1 on,12/3 2/31/2 1/20x4 0x4 (1) Retaine Retained d earnin earnings gs Silk Silk – Dec. Dec. 31, 20x6 20x6 (100,000 + 30,000 + 52,000 – 15 15,000) 167,000 Reta Retain ined ed earn earnin ings gs,, 12/3 12/31/ 1/20 20x4 x4 (date date of acqu acquis isit itio ion) n) 100, 100,00 000 0 Increase since acquisition 67,000 Less Less:: Am Amor orti tiza zati tion on of allo alloca cate ted d exc exces esss (79, (79,00 000 0 + 9,0 9,000 00)) 88,0 88,000 00 ( 21,0 21,000) 00) NCI’s share 15% Non-controlling interest – Dec. 31, 20x6 5. Consolidated Patents, 12/31/20x6: P72,000 Unamortized Unamortized balance balance of allocated allocated excess: Balance Dec. 31 20x4 Inventory 70,000 Patents 90,000 160,000

Amortization 20x5 20x6 70,000 9,000 9,000 79,000 9,000

P 114,00 114,000 0

( 3,150) P 110,850

Balance Dec. 31 20x6

72,000 72,000

Or, alternatively: Invest. account – equity Dec. 31, 20x6 Cost of investment Retain Retained ed earni earnings ngs Silk Silk – Dec. Dec. 31, 31, 20x6 (100,000 + 30,000 + 52,000 – 15,000) Retaine Retained d earni earnings ngs,12 ,12/31 /31/20 /20x4 x4 (date (date of of acqu acquisi isitio tion) n) Increase since acquisition Less: Accumulated amortization (79,000 + 9, 9,000)

628,150 646,000 167,000 100,00 100,000 0 67,000 88,000 - 21,0 21,000 00 85%

Invest. ac a ccount – equity method as at Dec. 31, 20x6 Implied value of 100% (628,150 / 85%) Silk –Common shares Retained earnings

739,000 500,000 167,000 667,000 72,000

Balance unamortized al allocated excess – Pa Patents Problem Proble m IV 1. (Ful (Fulll or part partia iall-go good odwi willll)) – the the same same answ answer er.. Consid Considera eration tion transfe transferre rred d by MM ...... ........ ..... ..... ..... ...... ...... ...... ..... .. Noncon Noncontro trolli lling ng inter interest est fair fair valu value.... e....... ...... ...... ..... ..... ..... ..... ...... ...... ... Fair Fair val value ue of Su Subsid bsidia iary ry…… ………… ………… ………… ………… …… Less: Bo Book va value of SH SHE – S…..……………………. Positive excess ............................................................

- 17,850 628,150

P664,0 P664,000 00 166,00 166,000* 0* P83 P830,00 0,000 0 (600,000) 230,000

Annual Excess Life Amortizations Excess fair value assigned to buildings 80,000 20 years P4,000 Goodwill - full P150,000 indefinite -0Total .. ........................................................................ P4,000

2.

P15 P150,0 0,000 – full go goodwil will (see No. 1 abo abov ve) P120,00 P120,000 0 – partialpartial-goo goodwil dwill: l: Consid Considera eration tion transfe transferre rred d by MM ...... ........ ..... ..... ..... ...... ...... ...... ..... .. P 664,00 664,000 0 Less Less:: Boo Book k val value ue of SHE SHE – S (P6 (P600 00,0 ,000 00 x 80% 80%)… )……. …... 480, 480,00 000 0 Allocated excess………………………… excess…………………………………….. ………….. P184,000 Less: Over/under valuation of A and L: P80, P80,00 000 0 x 80%.. 80%..... ..... ..... ..... ..... ...... ..... ..... ..... ..... ...... ...... ..... ..... ..... ..... ...... ..... .. 64,00 64,000 0 Goodwil Goodwilll - partia partiall ...... ......... ..... ..... ...... ...... ...... ...... ..... ..... ...... ...... ..... ..... ..... ..... ..... ..... ...... ..... P120,0 P120,000 00

3.

Full-goodwill Commo Common n Stoc Stock k - TT .... ...... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .. Addi Additi tion onal al Paid Paid-i -in n Capi Capita tall - TT .... ...... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... Retai Retaine ned d Earni Earning ngss - TT .... ...... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .. Investment in TT Company (80%) ................................... Non-controlling in interest (2 (20%) ......................................... Buildi Buildings ngs ...... ........ ..... ..... ..... ...... ...... ...... ...... ..... ..... ...... ...... ..... ..... ..... ..... ..... ..... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ..... Goodwil Goodwilll ..... ....... ..... ..... ..... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ..... ..... ...... ...... ..... ..... ..... ..... ..... .... Investment in TT Company (80%) ................................... Non-controlling interest (P ( P166,000 – P120,000) ............

300, 300,00 000 0 90,0 90,000 00 210, 210,00 000 0 480,000 120,000 80,000 80,000 150,00 150,000 0 184,000 46,000

Partial-goodwill Common Stock - TT .................................................................. Additional Paid-in Capital - TT ............................................... Retained Earnings - TT .............................................................. Investment in TT Company (80%) ................................... Non-controlling interest (20%) .........................................

300,000 90,000 210,000 480,000 120,000

Buildings ..................................................................................... Goodwill .................................................................................... Investment in TT Company (80%) ................................... Non-controlling interest (20% x P80,000) ....................... 4.

80,000 120,000 184,000 16,000

Cost Model/Initial Value Method Dividends received (80%) ............................................................. Investment in Taylor—12/31/x4 (original value paid)…………

P 8,000 P664,000

5.

Cost Model/Initial Value Method – same answer with No. 4.

6.

Using the acquisition method, the allocation will be the total difference (P80,000) between the buildings' book value and fair value. Based on a 20 year life, annual excess amortization is P4,000. MM book value—buildings .................................................... TT book value—buildings ........................................................ Allocation .................................................................................. Excess Amortizations for 20x4–20x5 (P4,000 × 2) …………. Consolidated buildings account …………………

7.

Acquisition-date fair value allocated to goodwill: Goodwill-full ( see No. 1 above) .................................................. Goodwill-partial (see No. 1 above)………………………………

P

800,000 300,000 80,000 ( 8,000) P 1,172,000

P P

150,000 120,000

8. The common stock and additional paid-in capital figures to be reported are the parent balances only. Common stock, P500,000 Additional paid-in capital, P280,000 Problem V 1. Partial Goodwill or Proportionate Basis a. Investment in S 225,000 Beginning Retained Earnings-Palm Inc. To establish reciprocity/convert to equity (0.90 x(P1,250,000 – P1,000,000))

b.

c.

Common stock – S Retained earnings – S Investment in S Co NCI (P4,250,000 x 10%) Land Investment in S NCI [(P500,000 x 10%)– (P100,000 x 10%)] Retained earnings – P (bargain purchase gain –

225,000

3,000,000 1,250.000 3,825,000 425,000 400,000 150,000 40,000

closed to retained earnings since only balance sheets are being examined, P300,000 – P90,000 depreciation, 20x4)

210,000

FV of SHE of S: Common stock, 1/1/20x5 P3,000,000 Retained earnings, 1/1/20x5 Retained earnings, 1/1/20x4 P1,000,000 NI – Subsidiary (20x4) 250,000 Dividends – Subsidiary 20x4 ( 0) 1,250,000 Book value of SHE – S, 1/1/20x5 P4,250,000 Adjustments to reflect fair value 500,000 Amortization of allocated excess (P100,000 x 1) ( 100,000) FV of SHE of S P4,650,000 Multiplied by: NCI% 10% FV of NCI P 465,000

Computation of Gain: Partial Goodwill or Proportionate Basis Fair value of Subsidiary: Consideration transferred Less: BV of SHE of S (P3,000,000 + P1,000,000) x 90% Allocated excess Less: Over/under valuation of A and L: Inc. (Dec.) Inventory (P800,000 – P700,000) x 90% Land (P2,000,000 – P1,600,000) x 90% Gain – partial (attributable to parent)

P3,750,000 _3,600,000 P 150,000 P 90,000 360,000

__450,000 (P300,000)

Full Goodwill or Fair Value Basis a. Investment in S 225,000 Beginning Retained Earnings-P Inc. To establish reciprocity/convert to equity (0.90 x(P1,250,000 – P1,000,000))

b.

c.

Common stock – S Retained earnings – S Investment in S NCI (P4,250,000 x 10%) Land Investment in S NCI [(P500,000 x 10%)– (P100,000 x 10%)] Retained earnings – P (bargain purchase gain – closed to retained earnings since only balance sheets are being examined, P300,000 – P90,000 depreciation, 20x4)

225,000

3,000,000 1,250.000 3,825,000 425,000 400,000

FV of SHE of S: Common stock, 1/1/20x5 P3,000,000 Retained earnings, 1/1/20x5 Retained earnings, 1/1/20x4 P1,000,000 NI – Subsidiary (20x4) 250,000 Dividends – Subsidiary 20x4 ( 0) 1,250,000 Book value of SHE – S, 1/1/20x5 P4,250,000 Adjustments to reflect fair value 500,000 Amortization of allocated excess (P100,000 x 1) ( 100,000) FV of SHE of S P4,650,000 Multiplied by: NCI% 10% FV of NCI P 465,000

150,000 40,000

210,000

Full-goodwill or Fair Value Basis Fair value of Subsidiary: Consideration transferred P3,750,000 / 90% Less: BV of SHE of S (P3,000,000 + P1,000,000) x 100% Allocated excess Less: Over/under valuation of A and L: Inc. (Dec.) Inventory (P800,000 – P700,000) x 100% Land (P2,000,000 – P1,600,000) x 100% Gain – full (attributable to parent)

P4,166,667 4,000,000 P 166,667 P 100,000 400,000

__500,000 (P333,333

Note: In case of gain, the working paper eliminating entries under partial and full-goodwill approach are the same. 2. Consolidated Retained Earnings, December 31, 20x5 Retained earnings - Parent Company, December 31, 20x5 (cost model 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 (P1,000,000 + P250,000 – P0 + P300,000 – P0) Less: Retained earnings – Subsidiary, January 1, 20x4 Increase in retained earnings since date of acquisition Less: Amortization of allocated excess – 20x4 (inventory) Multiplied by: Controlling interests %................... Add: Bargain purchase gain (Controlling interest – P300,000) Less: Goodwill impairment loss Consolidated Retained earnings, December 31, 20x5

Problem VI Computation of Goodwill: Partial Goodwill Fair value of Subsidiary: Consideration transferred Less: BV of SHE of S (P1,000,000 + P500,000) x 80% Allocated excess Less: Over/under valuation of A and L: Inc. (Dec.) Prop., plant and eqpt. (P1,500,000 – P600,000) x 80% Goodwill – partial Full-goodwill: Fair value of Subsidiary: Consideration transferred P2,800,000 / 80% Less: BV of SHE of S (P1,500,000 x 100%) Allocated excess Less: Over/under valuation of A and L: Inc. (Dec.) Prop., plant and eqpt. (P1,500,000 – P600,000) x 80% Goodwill – full Amortization of allocated excess: P900,000 / 10 years = P90,000 per year

P2,000,000

P1,550,000 1,000,000 P 550,000 100,000 P 450,000 90% P405,000 300,000 _______0

__705,,000 P 4,705,000

P2,800,000 _1,200,000 P1,600,000 __720,000 P 880,000

P3,500,000 1,500,000 P2,000,000 __900,000 P1,100,000

1. Cost Model-Full Goodwill (Eliminating Entries) 20x4 a. Beginning Retained Earnings-S Co. Capital Stock- S Co. Property and Equipment (net) Goodwill Investment in S Co. Non-controlling Interest Common stock, 1/1/20x4 Retained earnings, 1/1/20x4 Book value of SHE – S, 1/1/20x5 Adjustments to reflect fair value FV of SHE of S1/1/x5 Multiplied by: NCI% FV of NCI (partial) Add: NCI on full-goodwill (P1,100,000 – P880,000) FV of NCI (full)

b. Depreciation Expense Property and Equipment (net) 20x5 a. Investment in S Company (P300,000 x 0.80) Beginning Retained Earnings-P Co. To establish reciprocity/convert to equity as of 1/1/20x5 b. Beginning Retained Earnings-S Company Capital Stock-S Company Property and Equipment (net) Goodwill Investment in S Company (P2,800,000 + P240,000) Non-controlling Interest P700,000 + [(P1,300,000 – P1,000,000) x 0.20] FV of SHE of S: Common stock, 1/1/20x5 Retained earnings, 1/1/20x5 Retained earnings, 1/1/20x4 P1,000,000 NI – Subsidiary (20x4) 300,000 Dividends – Subsidiary 20x4 ( 0) Book value of SHE – S, 1/1/20x5 Adjustments to reflect fair value FV of SHE of S1/1/x5 Multiplied by: NCI% FV of NCI (partial) Add: NCI on full-goodwill (P1,100,000 – P880,000) FV of NCI (full)

c. Beginning Retained Earnings-P Co. (P90,000 x 80%) Non-controlling Interest (P90,000, depreciation x 20%) Depreciation Expense Property and Equipment (net)

1,000,000 500,000 900,000 1,100,000 2,800,000 700,000 P 500,000 1,000,000 P1,500,000 900,000 P2,400,000 20% P 480,000 220,000 P 700,000

90,000 90,000

240,000 240,000

1,300,000 500,000 900,000 1,100,000 3,040,000 760,000 P 500,000

1,300,000 P1,800,000 900,000 P2,700,000 20% P 540,000 220,000 P 760,000

72,000 18,000 90,000 180,000

NCI (partial), 12/31/20x5: [(a) P760,000 – (b) P18,000 = P522,000] FV of SHE of S: Common stock, 1/1/20x5 P 500,000 Retained earnings, 1/1/20x5 Retained earnings, 1/1/20x4 P1,000,000 NI – Subsidiary (20x4) 300,000 Dividends – Subsidiary 20x4 ( 0) 1,300,000 Book value of SHE – S, 1/1/20x5 P1,800,000 Adjustments to reflect fair value 900,000 Amortization of allocated excess (P90,000 x 1) ( 90,000) FV of SHE of S P2,610,000 Multiplied by: NCI% 20% FV of NCI (partial) P 522,000 Add: NCI on full-goodwill (P1,100,000 – P880,000) 220,000 FV of NCI (full) P 742,000

Cost Model-Partial Goodwill (Eliminating Entries) 20x4 a. Beginning Retained Earnings-S Co. Capital Stock- S Co. Property and Equipment (net) Goodwill Investment in S Co. Non-controlling Interest

1,000,000 500,000 900,000 880,000 2,800,000 480,000

b. Depreciation Expense Property and Equipment (net)

90,000 90,000

20x5 a. Investment in S Company (P300,000 x 0.80) Beginning Retained Earnings-P Co. To establish reciprocity/convert to equity as of 1/1/20x5

240,000 240,000

b. Beginning Retained Earnings-S Company 1,300,000 Capital Stock-S Company 500,000 Property and Equipment (net) 900,000 Goodwill 880,000 Investment in S Company (P2,800,000 + P240,000) Non-controlling Interest P700,000 + [(P1,300,000 – P1,000,000) x 0.20] – (P1,100,000 – P880,000) NCI: FV of SHE of S: Common stock, 1/1/20x5 Retained earnings, 1/1/20x5 Retained earnings, 1/1/20x4 NI – Subsidiary (20x4) Dividends – Subsidiary 20x4 Book value of SHE – S, 1/1/20x5 Adjustments to reflect fair value FV of SHE of S1/1/x5 Multiplied by: NCI% FV of NCI (partial)

P 500,000 P1,000,000 300,000 ( 0) 1,300,000 P1,800,000 900,000 P2,700,000 20% P 540,000

3,040,000 540,000

c. Beginning Retained Earnings-P Co. (P90,000 x 80%) Non-controlling Interest (P90,000 depreciation x 20%) Depreciation Expense Property and Equipment (net)

72,000 18,000 90,000 180,000

NCI (partial), 12/31/20x5: [(a) P540,000 – (b) P18,000 = P522,000] FV of SHE of S: Common stock, 1/1/20x5 P 500,000 Retained earnings, 1/1/20x5 Retained earnings, 1/1/20x4 P1,000,000 NI – Subsidiary (20x4) 300,000 Dividends – Subsidiary 20x4 ( 0) 1,300,000 Book value of SHE – S, 1/1/20x5 P1,800,000 Adjustments to reflect fair value 900,000 Amortization of allocated excess (P90,000 x 1) ( 90,000) FV of SHE of S P2,610,000 Multiplied by: NCI% 20% FV of NCI (partial) P 522,000

2. Consolidated Net Income (CNI) = Controlling Interest in CNI + NCI in CNI 20x4 Consolidated Net Income for 20x4 Net income from own/separate operations P Company S Company Total Less: Non-controlling Interest in Net Income* Amortization of allocated excess Goodwill impairment Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of P………….. Add: Non-controlling Interest in Net Income (NCINI) Consolidated Net Income for 20x4

P400,000 300,000 P700,000 P 42,000 90,000 ____0

132,000 P568,000 42,000 P610,000

Net income of subsidiary…………………….. Amortization of allocated excess …...

P 300,000 ( 90,000) P210,000 20% P 42,000

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

20x5 Consolidated Net Income for 20x5 Net income from own/separate operations P Company S Company Total Less: Non-controlling Interest in Net Income* Amortization of allocated excess Goodwill impairment 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 Net income of subsidiary…………………….. Amortization of allocated excess …... Multiplied by: Non-controlling interest %.......... Non-controlling Interest in Net Income (NCINI)

P425,000 400,000 P825,000 P 62,000 90,000 ____0

152,000 P673,000 62,000 P735,000 P 400,000 ( 90,000) P310,000 20% P 62,000

Problem VII 1. Common stock of TT Company on December 31, 20x4 Retained earnings of TT Company January 1, 20x4 Sales for 20x4 Less: Expenses Dividends paid Retained earnings of TT Company on December 31, 20x4 Net book value on December 31, 20x4 Proportion of stock acquired by QQ Purchase price 2. Net book value on December 31, 20x4 Proportion of stock held by noncontrolling interest Balance assigned to noncontrolling interest

P 90,000 P 130,000 195,000 (160,000) (15,000) 150,000 P240,000 x .80 P192,000 P240,000 x .20 P 48,000

3. Consolidated net income is P143,000. None of the 20x4 net income of TT Company was earned after the date of purchase and, therefore, none can be included in consolidated net income. 4. Consolidate net income would be P178,000 [P143,000 + (P195,000 - P160,000)]. Problem VIII Requirements 1 to 4: Date of Acquisition – January 1, 20x4 Fair value of Subsidiary (100%) Consideration transferred: Cash Notes payable Less: Book value of stockholders’ equity of S: Common stock (P200,000 x 100%)………………. Retained earnings (P100,000 x 100%)………... Allocated excess (excess of cost over book value)….. Less: Over/under valuation of assets and liabilities: Increase in inventory (P5,000 x 100%)……………… Increase in land (P6,000 x 100%)……………………. Increase in equipment (P80,000 x 100%) Decrease in buildings (P20,000 x 100%)………..... Decrease in bonds payable (P4,000 x 100%)…… Positive excess: Goodwill (excess of cost over fair value)………………………………………………...

P 360,000 105,000

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

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

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

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

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

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

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

S Co. Fair value 180,000 180,000

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

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

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

S Co. Fair value 144,000 144,000

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

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



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…………………………………………………………………….. Notes payable……………………………………

465,000 360,000 105,000

Acquisition of S Company.

January 1, 20x4 – December 31, 20x4: (2) Cash……………………… Dividend income (P36,000 x 100%)…………….

36,000 36,000

Record dividends from S Company.

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

36,000 36,000

Dividends paid by S Co..

Consolidation Workpaper – First Year after Acquisition (E1) Common stock – S Co………………………………………… Retained earnings – S Co…………………………………… Investment in S Co……………………………………………

240,000 120,000 360,000

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……………………………………….. Investment in S Co………………………………………………. To allocate excess of cost over book value of identifiable assets acquired, with remainder to goodwill

6,000 96,000 192,000 7,200 4,800 15,000 216,000 105,000

(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 3,600 6,000 12,000 1,200 3,600

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

Cost of Goods Sold Inventory sold Equipment Buildings Bonds payable Totals

Depreciation/ Amortization Expense

Amortization -Interest

_______

P12,000 ( 6,000) _______

P 1,200

P 6,000

P 6,000

P1,200

P 6,000

(E4) Dividend income - P………. Dividends paid – S……………………

36,000 36,000

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

Worksheet for Consolidated Financial Statements, December 31, 20x4. Cost Model 100%-Owned Subsidiary December 31, 20x4 (First Year after Acquisition) Income Statement Sales Dividend income Total Revenue Cost of goods sold Depreciation expense Interest expense Goodwill impairment loss Other expenses Total Cost and Expenses 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

P Co P480,000 36,000 P516,000 P204,000 60,000 -

S Co. P240,000 P240,000 P138,000 24,000 -

48,000 P312,000 P204,000

18,000 P180,000 P 60,000

Dr. (4)

36,000

(3) (3) (3) (3)

6,000 6,000 1,200 3,600

Cr.

P360,000

Consolidated P 720,000 _________ P 720,000 P 348,000 90,000 1,200 3,600 66,000 P508,800 P211,200

P 360,000

204,000 P564,000

P120,000 60,000 P180,000

72,000 -

36,000

P492,000

P144,000

(1) 120,000 211,200 P571,200

(4)

36,000

72,000 ________ P 499,200

Cash………………………. Accounts receivable…….. Inventory…………………. Land……………………………. Equipment Buildings Discount on bonds payable Goodwill…………………… Investment in S Co………

P

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

147,000 90,000 120,000 210,000 240,000 720,000

P 90,000 60,000 90,000 48,000 180,000 540,000

P (2) (2)

(2) (2) 465,000 P1,992,000

P1,008,000

P 135,000 405,000

P 96,000 288,000

120,000 240,000 600,000

120,000 120,000

___590,400 P1,992,000

240,000 144,000 P1,008,000

6,000 (3) 7,200

6,000

(2) 216,000 4,800 (3) 1,200 15,000 (3) 3,600 (1) 360,000 (2) 105,000

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

12,000

237,000 150,000 210,000 265,200 420,000 1,044,000 3,600 11,400

P2,341,200

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

(1) 240,000 P 736,200

P 736,200

499,200 P2,341,200

20x5: Second Year after Acquisition 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 100%)…………….

48,000 48,000


On the books of S Company, the P40,000 dividend paid was recorded as follows: Dividends paid………… Cash

48,000 48,000

Dividends paid by S Co..

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

24,000 24,000

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

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

P144,000 120,000 P 24,000 100% P 24,000

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

240,000 144,000 384,000

(E3) Inventory…………………………………………………………………. Accumulated depreciation – equipment……………….. Accumulated depreciation – buildings………………….. Land………………………………………………………………………. Discount on bonds payable…………………………………………. Goodwill…………………………………………………………………. Buildings……………………………………….. Investment in S Co……………………………………………….

6,000 96,000 192,000 7,200 4,800 15,000 216,000 105,000

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

(E4) Retained earnings – P Company, 1/1/20x5 (P16,800 x 100%) Depreciation expense……………………….. Accumulated depreciation – buildings………………….. Interest expense………………………………… Inventory………………………………………………………….. Accumulated depreciation – equipment……………….. Discount on bonds payable………………………… Goodwill……………………………………

16,800 6,000 12,000 1,200 6,000 24,000 2,400 3,600

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

Inventory sold Equipment Buildings Bonds payable Impairment loss Totals

(20x4) Retained earnings, P 6,000 12,000 (6,000) 1,200 3,600 P 16,800

Depreciation/ Amortization expense P


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

P1,200

(E5) Dividend income - P………. Dividends paid – S……………………

48,000 48,000


(E6) 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…………………….. Amorti zati on of allocated excess [(E4)] …... Multiplied by: Non-controlling interest %.......... Non-controlling Interest in Net Income (NCINI)

P 90,000 ( 7,200) P 82,000 20% P 16,560

16,560 16,560

Worksheet for Consolidated Financial Statements, December 31, 20x5. Cost Model 100%-Owned Subsidiary Income Statement Sales Dividend income Total Revenue Cost of goods sold Depreciation expense Interest expense Other expenses Goodwill impairment loss Total Cost and Expenses Net Income to Retained Earnings

P Co. P540,000 48,000 P588,000 P216,000 60,000 72,000 P348,000 P240,000

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

P492,000

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 Total

P

S Co. P360,000 P360,000 P192,000 24,000 54,000 P270,000 P 90,000

Dr. (5)

48,000

(4) (4)

6,000 1,200

(4) 16,800 (2) 144,000

Cr.

(1)

24,000

Consolidated P 900,000 ___________ P 900,000 P 408,000 90,000 1,200 126,000 P 625,200 P 274,800

P

499,200

240,000 P732,000

P144,000 90,000 P234,000

72,000 -

48,000

P660,000

P186,000

P 702,000

189,000 180,000 216,000 252,000 240,000 720,000

P 102,000 960,000 108,000 48,000 180,000 540,000

P 291,000 276,000 324,000 265,200 420,000 1,044,000 2,400 11,400

(5)

(3) (3)

(3) (3) (1)

465,000 P2,220,000

P1,074,000

P 150,000 450,000

P 102,000 306,000

120,000 240,000 600,000

120,000 120,000

660,000 P2,220,000

274,800 P 774,000

240,000 186,000 P1,074,000

6,000 7,200

(4)

48,000

6,000

(3) 216,000 4,800 (4) 2,400 15,000 (4) 3,600 24,000 (2) 384,000 (3) 105,000

(3) 96,000 (3) 192,000 (4) 12,000

(4)

24,000

_

72,000 ________

P2,634,000

P 180,000 552,000 240,000 360,000 600,000

(2) 240,000 P 783,120

P 783,120

702,000 P2,634,000

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

b. NCI – not applicable, since it is 100% owned subsidiary

P360,000

c. Stockholders’ Equity Common stock, P10 par Retained earnings Total Stockholders’ Equity (Total Equity)

P 600,000 360,000 P 960,000

6. 12/31/20x4: a. P211,200 – same with CNI since there is no NCI. Consolidated Net Income for 20x4 Net income from own/separate operations: Pa Company S Company Total Less: Amortization of allocated excess Goodwill impairment loss Consolidated Net Income for 20x4

P168,000 60,000 P228,000 P 13,200 3,600

16,800 P211,200

b. NCINI – not applicable, since it is 100% owned subsidiary c. P211,200 – same with NCI-CNI since there is no NCI. d. Consolidated Retained Earnings, December 31, 20x4 Retained earnings - P Company, January 1, 20x4 (date of acquisition) P360,000 Add: Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of P for 20x4 or Consolidated Net Income (CNI)* 211,200 Total P571,200 Less: Dividends paid – P Company for 20x4 72,000 Consolidated Retained Earnings, December 31, 20x4 P499,200 *since it is a 100%-owned subsidiary, Controlling Interest in Net Income is the same with Consolidated Net Income.

e. NCI – not applicable, since it is 100% owned subsidiary f. Stockholders’ Equity Common stock, P10 par Retained earnings Total Stockholders’ Equity (Total Equity)

P 600,000 499,200 P 1,099,200

12/31/20x5 a. P274,800 – same with CNI since there is no NCI. Consolidated Net Income for 20x5 Net income from own/separate operations P Company S Company Total Less: Amortization of allocated excess Goodwill impairment loss Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent or CNI

b. NCINI – not applicable, since it is 100% owned subsidiary c. P274,800 – same with NCI-CNI since there is no NCI.

P192,000 90,000 P282,000 P 7,200 0

7,200 P274,800

d. Consolidated Retained Earnings, December 31, 20x5 Retained earnings - P Company, January 1, 20x5 (cost model Adjustment to convert from cost model to equity method for purposes of consolidation or to establish reciprocity:/P’s share in adjusted net increased in subsidiary’s retained earnings: Retained earnings – S, January 1, 20x5 Less: Retained earnings – S, January 1, 20x4 Increase in retained earnings since date of acquisition Less: Amortization of allocated excess – 20x4

P492,000

P 144,000 120,000 P 24,000 16,800 P 7,200 100%

Multiplied by: Controlling interests %................... Consolidated Retained earnings, January 1, 20x5 Add: Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of P for 20x5 or CNI Total Less: Dividends paid – P Company for 20x5 Consolidated Retained Earnings, December 31, 20x5

274,800 P774,000 72,000 P702,000

e. NCI – not applicable, since it is 100% owned subsidiary f. Stockholders’ Equity Common stock, P10 par Retained earnings Total Stockholders’ Equity (Total Equity)

P 600,000 702,000 P1,302,000

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 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 84,000

P 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: S Co. Book value

S Co. Fair value 30,000

(Over) Under Valuation

Inventory………………….……………..

P 24,000

Land………………………………………

48,000

55,200

7,200

Equipment (net).........

84,000

180,000

96,000

168,000

144,000

(24,000)

Bonds payable…………………………

(120,000)

( 115,200)

4,800

Net………………………………………..

P 204,000

P 294,000

P 90,000

Buildings (net)

P

7,200 P 499,200

P

6,000

The buildings and equipment will be further analyzed for consolidation purposes as follows: S Co. Book value

S Co. Fair value

Increase (Decrease)

Equipment ..................

180,000

180,000

0

Less: Accumulated depreciation…..

96,000

-

( 96,000)

Net book value………………………...

84,000 S Co. Book value

180,000 S Co. Fair value

96,000 (Decrease)

Buildings................

360,000

144,000

( 216,000)


192,000

-

( 192,000)


168,000

144,000

(

24,000)

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

Over/ Under

Life

Annual Amount

Current Year(20x4)

P 6,000

1

P 6,000

P 6,000

96,000

8

12,000

12,000

12,000

(25,000)

4

( 6,000)

( 6,000)

(6,000)

4,800

4

1,200

1,200

1,200

P 13,200

P 13,200

P 7,200

20x5 P

-

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

The goodwill impairment loss of P3,125 based on 100% fair value would be allocated to the controlling interest and the NCI based on the percentage of total goodwill each equity interest received. For purposes of allocating the goodwill impairment loss, the full-goodwill is computed as follows: Fair value of Subsidiary (100%) Consideration transferred: Cash (80%)

P 372,000

Fair value of NCI (given) (20%)

93,000

Fair value of Subsidiary (100%)

P 465,000

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

__360,000

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

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

When cost model is used, only two journal entries are recorded by P Company during 20x4 related to its investment in S Company.

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 P30,000 dividend paid was recorded as follows: Dividends paid………… Cash……. Dividends paid by S Co..

36,000 36,000

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…………………………………… To provide for 20x4 impairment loss a nd 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


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

P 1,200 P1,200

Total

13,200

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

It should be observed that the goodwill computed above was proportional to the controlling interest of 80% and non-controlling interest of 20% computed as follows: Value P12,000 3,000 P15,000

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

% of Total 80.00% 20.00% 100.00%

Therefore, the goodwill impairment loss of P3,125 based on 100% fair value or full-goodwill would be allocated as follows:

Goodwill impairment loss attributable to P or controlling Interest Goodwill impairment loss applicable to NCI…………………….. Goodwill impairment loss based on 100% fair value or fullGoodwill (E4) Dividend income - P………. Non-controlling interest (P36,000 x 20%)……………….. Dividends paid – S……………………

Value P 3,000

% of Total 80.00%

750

20.00%

P 3,750

100.00%

28,800 7,200 36,000


(E5) Non-controlling interest in Net Income of Subsidiary………… Non-controlling interest …………..

9,360 9,360

To establish non-controlling interest in subsidiary’s adjusted net income for 20x4 as follows:

Net income of subsidiary…………………….. Amorti zati on of allocated excess [(E3)] …... Multiplied by: Non-controlling interest %.......... Non-controlling Interest in Net Income (NCINI)

P 60,000 ( 13,200) P 46,800 20% P 9,360

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

P Co P480,000 28,800 P508,800 P204,000 60,000 48,000 P310,000 P196,800 P196,800

S Co. P240,000 P240,000 P138,000 28,000 18,000 P180,000 P 60,000 P 60,000

Dr. (4)

28,800

(3) (3) (3)

6,000 6,000 1,200

(3)

3,000

(5)

9,360

Cr.

Consolidated P 720,000 _________ P 720,000 P 348,000 90,000 1,200 66,000 3,000 P508,200 P211,800 ( 9,360) P202,440

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………

P360,000

P

196,800 P552,000 72,000 -

36,000

P484,800

P144,000

232,800 90,000 120,000 210,000 240,000 720,000

P 90,000 60,000 90,000 48,000 180,000 540,000

202,440 P562,440

(4)

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…………

P1,008,000

P 135,000 405,000

P 96,000 288,000

120,000 240,000 600,000

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

484,800

72,000 ________

_

490,440

P (2) (2)

6,000 7,200

(3)

6,000

(2) 216,000 4,800 (3) 1,200 12,000 (3) 3,000 (4) 288,000 (5) 84,000

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

322,800 150,000 210,000 265,200 420,000 1,044,000 3,600 9,000

P2,424,600

12,000

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

(1) 240,000 490,440 (4)

_________ P1,984,800

36,000

P

372,000 P1,984,800

360,000

(1) 120,000

(2) (2)

Total

Total

P P120,000 60,000 P180,000

7,200

_________ __________ P1,008,000 P 745,560

(1 ) 72,000 (2) 18,000 (5) 9,360 P 745,560

____92,160 P2,424,600

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 P 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 P40,000 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………………………

19,200 19,200

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


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

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

240,000 144,000 307,200 76,800

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

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

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


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

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

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

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

Depreciation/ Amortization expense


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

P 1,200 P 1,200

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

38,400 9,600 48,000



16,560 16,560


Net income of subsidiary…………………….. Amorti zati on of allocated excess [(E4)] …... Multiplied by: Non-controlling interest %.......... Non-controlling Interest in Net Income (NCINI

P 90,000 ( 7,200) P 82,800 20% P 16,560

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 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

P Co P540,000 38,400 P578,400 P216,000 60,000 72,000 P348,000 P230,400 P230,400

S Co. P360,000 P360,000 P192,000 24,000 54,000 P270,000 P 90,000 P 90,000

P484,800 230,400 P715,200

P 144,000 90,000 P234,000

72,000 -

48,000

P643,200

P186,000

Dr. (5)

38,400

(4) (4)

6,000 1,200

(6)

16,560

(4) 13,560 (2) 144,000

Cr.

Consolidated P 900,000 ___________ P 900,000 P 408,000 90,000 1,200 126,000 P 625,200 P 274,800 ( 16,560) P 258,240

(1) 19,200

P 490,440 258,240 P 748,680

(5)

48,000

_

72,000 ________ P 676,680

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

P

265,200 180,000 216,000 210,000 240,000 720,000

P 114,000 96,000 108,000 48,000 180,000 540,000

372,000 P2,203,200

P1,074,000

P 150,000 450,000

P 102,000 306,000

120,000 240,000 600,000

120,000 120,000

643,200

240,000 186,000

(3) (3)

6,000 7,200

(3) (3) (1)

4,800 12,000 19,200

(3) 96,000 (3) 192,000 (4) 12,000

6,000

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

(4)

24,000

P2,707,800

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

(2) 240,000 676,680 (5) (4)

___ _____ P2,203,200

(4)

P 367,200 276,000 324,000 265,200 420,000 1,044,000 2,400 9,000

9,600 2,640

_________ __________ P1,074,000 P 821,160

(2 ) 76,800 (3) 18,000 (6) 16,560 P 821,160

____99,120 P2,707,800

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

P360,000

b. Non-controlling interest (partial-goodwill), January 1, 20x4 Common stock – S Company, January 1, 20x4…… Retained earnings – S Company, January 1, 20x4 Stockholders’ equity – S Company, January 1, 20x4 Adjustments to reflect fair value - (over) undervaluation of assets and liabilities, date of acquisition (January 1, 20x4) 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 P450,000 20 P 90,000

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

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

6. Note: The goodwill recognized on consolidation purely relates to the P’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 Consolidated Net Income for 20x4 Net income from own/separate operations P Company S Company 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

P168,000 60,000 P228,000 P 9,360 13,200 3,000

25,560 P202,440 9,360 P211.800

b. NCI-CNI *Non-controlling Interest in Net Income (NCINI) for 20x4 Net income of S Company Less: Amortization of allocated excess / goodwill impairment (refer to amortization table above) Multiplied by: Non-controlling interest %.......... Non-controlling Interest in Net Income (NCINI)

P 60,000 13,200 P 46,800 20% P 9,360

c. CNI, P211,800 – refer to (a) d. On subsequent to date of acquisition, consolidated retained earnings would be computed as follows: Consolidated Retained Earnings, December 31, 20x4 Retained earnings - P Company, January 1, 20x4 (date of acquisition) Add: Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent for 20x4 Total Less: Dividends paid – P Company for 20x4 Consolidated Retained Earnings, December 31, 20x4

P360,000 202,440 P562,440 72,000 P490,440

e. Non-controlling interest (partial-goodwill), December 31, 20x4 Common stock – S Company, December 31, 20x4…… Retained earnings – S Company, December 31, 20x4 Retained earnings – S Company, January 1, 20x4 Add: Net income of S for 20x4 Total Less: Dividends paid – 20x4 Stockholders’ equity – S Company, December 31, 20x4 Adjustments to reflect fair value - (over) undervaluation of assets and liabilities, date of acquisition (January 1, 20x4) Amortization of allocated excess (refer to amortization above) – 20x4 Fair value of stockholders’ equity of subsidiary, December 31, 20x4…… Multiplied by: Non-controlling Interest percentage…………... Non-controlling interest (partial-goodwill)…………………………………..

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

144,000 P 384,000 90,000 ( 13,200) P460,000 20 P 92,160

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

P 600,000 490,440 P1,090,440 ___92,160 P1,182,600

12/31/20x5: a. CI-CNI Consolidated Net Income for 20x5 Net income from own/separate operations: P Company S Company Total Less: Non-controlling Interest in Net Income* Amortization of allocated excess (refer to amortization above) 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

P192,000 90,000 P282,000 P16,560 __7,200

23,760 P258,240 16,560 P274,800

b. NCI-CNI *Non-controlling Interest in Net Income (NCINI) for 20x5 Net income of S Company Less: Amortization of allocated excess / goodwill impairment for 20x5 (refer to amortization table above) Multiplied by: Non-controlling interest %.......... Non-controlling Interest in Net Income (NCINI) for 20x5

P 90,000 80,400 P 82,800 20% P 16,560

c. CNI, P274,800 – refer to (a) d. On subsequent to date of acquisition, consolidated retained earnings would be computed as follows: Consolidated Retained Earnings, December 31, 20x5 Retained earnings - P Company, January 1, 20x5 (cost model Adjustment to convert from cost model to equity method for purposes of consolidation or to establish reciprocity:/Parent’s share in adjusted net increased in subsidiary’s retained earnings: Retained earnings – S, January 1, 20x5 Less: Retained earnings – S, January 1, 20x4 Increase in retained earnings since date of acquisition Less: Amortization of allocated excess – 20x4 Multiplied by: Controlling interests %...................

P484,800

P 144,000 120,000 P 24,000 13,200 P 10,800 80% P 8,640

Less: Goodwill impairment loss (full-goodwill), net (P3,750– P750)* or (P3, 750 x 80%) 3,000 5,640 Consolidated Retained earnings, January 1, 20x5 P 490,440 Add: Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of P for 20x5 258,240 Total P748,680 Less: Dividends paid – P Company for 20x5 72,000 Consolidated Retained Earnings, December 31, 20x5 P676,680 *this procedure would be more appropriate, instead of multiplying the full-goodwill impairment loss of P3, 750 by 80%. There might be situations where the controlling interests on goodwill impairment loss would not be proportionate to NCI acquired.

e. Non-controlling interest (partial-goodwill), December 31, 20x5 Common stock – S Company, December 31, 20x5…… Retained earnings – S Company, December 31, 20x5 Retained earnings – S Company, January 1, 20x5 Add: Net income of S for 20x5 Total Less: Dividends paid – 20x5 Stockholders’ equity – S 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) :

P 240,000 P14,000 90,000 P234,000 48,000

186,000 P 426,000 90,000

20x4 20x5 Fair value of stockholders’ equity of S, December 31, 20x5…… Multiplied by: Non-controlling Interest percentage…………... Non-controlling interest (partial goodwill)…………………………………..

P 13,200 7,200

( 20,400) P 495,600 20 P 99,120

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 600,000 676,680 P1,276,680 ___99,120 P1,1375,800

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


Over/ under P 6,000

Life 1

96,000 (24,000) 4,800

8 4 4



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 (P36,000x 80%)……………. Record dividends from S Company.

372,000 372,000

28,800

On the books of S Company, the P30,000 dividend paid was recorded as follows:

28,800

Dividends paid………… Cash……. Dividends paid by S Co..

36,000 36,000

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

240,000 120.000 288,000 72,000

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

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

6,000 96,000 192,000 7,200 4,800 13,000 216,000 21,000 84,000

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

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

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

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



_______ P 6,000



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

P 1,200 P1,200


28,800 7,200 36,000


(E5) Non-controlling interest in Net Income of Subsidiary………… Non-controlling interest ………….. To establish non-controlling interest in subsidiary’s adjusted net Income less NCI on goodwill impairment loss on full-goodwill for 20x4 as follows:

8,610 8,610

Net income of subsidiary…………………….. Amorti zati on of allocated excess [(E3)] …... Multiplied by: Non-controlling interest %..........

P 60,000 ( 13,200) P 46,800 20% P 9,360

Less: Non-controlling interest on impairment loss on full-goodwill (P3,125 x 20%) or (P3,125 impairment on full-goodwill less P2,500, impairment on partial-goodwill)* 750 Non-controlling Interest in Net Income (NCINI) P 8,610 *this procedure would be more appropriate, instead of multiplying the full-goodwill impairment loss of P3,125 by 20%. There might be situations where the NCI on goodwill impairment loss would not be proportionate to NCI acquired (refer to Illustration 15-6).

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 (Full-goodwill) 80%-Owned Subsidiary December 31, 20x4 (First Year after Acquisition) P Co P480,000 28,800 P508,800 P204,000 60,000 48,000 P312,000 P196,800 P196,800

Income Statement Sales Dividend 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

S Co. P240,000 P240,000 P138,000 24,000 18,000 P180,000 P 60,000 P 60,000

Dr. (4)

28,800

(3) (3) (3)

6,000 6,000 1,200

(3)

3,750

(5)

8,610

Cr.

P360,000 196,800 P556,800

P

P P120,000 60,000 P180,000

72,000 -

36,000

P484,800

P144,000

232,800 90,000 120,000 210,000 240,000 720,000

P 90,000 60,000 90,000 48,000 180,000 540,000

372,000 P1,984,800


P1,008,000

360,000

(1) 120,000 202,680 P562,440

(4)

36,000

86,400 ________

_ P

490,440

P (2) (2)

6,000 7,200

(2) (2)

4,800 15,000

(3)

6,000

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

322,800 150,000 210,000 265,200 420,000 1,044,000 3,600 11,250

P2,426,850


P 135,000 405,000

P 96,000 288,000

120,000 240,000 600,000

120,000 120,000

484,800

12,000

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

(1) 240,000 490,440 (7)

_________ P1,984,800

Total

240,000 144,000

(2) 96,000 (3) (5) 192,000 (6) 6,000

7,200

_________ __________ P1,984,800 P 748,560

(1 ) 72,000 (2) 21,000 (5) 8,610 P 748,560

____94,410 P2,426,850

20x5: Second Year after Acquisition P Co. P 540,000 216,000 P 324,000 60,000 72,000 P 192,000 38,400 P 230,400 P 72,000

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

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

No goodwill impairment loss for 20x5. 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 (P48,000x 80%)……………. Record dividends from S Company.

38,400 38,400

On the books of S Company, the P40,000 dividend paid was recorded as follows: Dividends paid………… Cash Dividends paid by S Co..

48,000 48,000

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

19,200 19,200

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


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

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

240,000 144,000 307,200 76,800

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


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

13,560 3,390 6,000 12,000 1,200 6,000 24,000 2,400 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 and NCI. Year 20x5 amounts are debited to respective nominal accounts..

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

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

Depreciation/ Amortization expense P


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

P1,200


38,400 9,600 48,000


(E6) 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…………………….. Amorti zati on of allocated excess [(E4)] …... Multiplied by: Non-controlling interest %.......... Less: NCI on goodwill impairment loss on fullGoodwill Non-controlling Interest in Net Income (NCINI)

P 90,000 ( 7,200) P 82,800 20% P 16,560 0 P 16,560

16,560 16,560

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

P Co P540,000 38,400 P578,400 P216,000 60,000 72,000 P348,000 P230,400 P230,400



Total

S Co. P360,000 P360,000 P192,000 24,000 54,000 P270,000 P 90,000 P 90,000

P484,800

P

Dr. (5)

38,400

(4) (4)

6,000 1,200

(6)

16,560

(5) 13,560 (6) 144,000

Cr.


(5) 19,200

P 490,440

230,400 P715,200

P 144,000 90,000 P234,000

72,000 -

48,000

P643,200

P186,000

P 676,680

265,200 180,000 216,000 210,000 240,000 720,000

P 102,000 96,000 108,000 48,000 180,000 540,000

P 367,200 276,000 324,000 265,200 420,000 1,044,000 2,400 11,250

P2,203,200

P1,074,000

P 150,000 450,000

P 102,000 306,000

643,200

(5)

(3) (3)

(3) (3) (1)

372,000

120,000 240,000 600,000

258,240 P 748,680

(4)

6,000

(3) 216,000 4,800 (4) 2,400 15,000 (4) 3,750 19,200 (2) 307,200 (7) 84,000

(3) 96,000 (3) 192,000 (4) 12,000

(4)

24,000

240,000 186,000

_

72,000 ________

P2,710,050

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

120,000 120,000 (2) 240,000

676,680 (6) (8)

___ _____ P2,203,200

6,000 7,200

57,600

9,600 3,390

_________ __________ P1,074,000 P 824,910

(2 ) 76,800 (3) 21,000 (6) 16,560 P 824,910

____101,370 P2,710,050

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

P360,000

b. Non-controlling interest (full-goodwill), January 1, 20x4 Common stock – S Company, January 1, 20x4…… Retained earnings – S Company, January 1, 20x4 Stockholders’ equity – S Company, January 1, 20x4 Adjustments to reflect fair value - (over) undervaluation of assets and liabilities, date of acquisition (January 1, 20x4) Fair value of stockholders’ equity of S, January 1, 20x4…… Multiplied by: Non-controlling Interest percentage…………... Non-controlling i nterest (partial-goodwill)………………………………….. Add: NCI on full-goodwill (P15,000 – P12,000) Non-controlling interest (partial-goodwill)…………………………………..

P 240,000 120,000 P 360,000 90,000 P450,000 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 – P202,440 Consolidated Net Income for 20x4 Net income from own/separate operations: P Company S Company Total Less: Non-controlling Interest in Net Income* Amortization of allocated excess (refer to amortization above) Goodwill impairment (impairment under full-goodwill approach) Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of P………….. Add: Non-controlling Interest in Net Income (NCINI) Consolidated Net Income for 20x4

P168,000 60,000 P228,000 P 8,610 13,200 3,750

P202,440 8,610 P211.050

b. NCI-CNI – P8,610 *Non-controlling Interest in Net Income (NCINI) for 20x4 Net income of S Company Less: Amortization of allocated excess (refer to amortization table above) Multiplied by: Non-controlling interest %.......... Non-controlling Interest in Net Income (NCINI) 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)

25,560

P 60,000 13,200 P 46,800 20% P 9,360

750 P 8,610

*this procedure would be more appropriate, instead of multiplying the full -goodwill impairment loss of P3,750 by 20%. There might be situations where the NCI on goodwill impairment loss would not be proportionate to NCI acquired.


P360,000 202,440 P562,440 72,000 P490,440

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

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

144,000 P 384,000 90,000 ( 13,200) P460,800 20 P 92,160 2,250 P 94,410


P 600,000 490,440 P1,090,440 ___94,410 P1,184,850

12/31/20x5: a. CI-CNI – P258,240 Consolidated Net Income for 20x5 Net income from own/separate operations P Company S Company Total Less: Non-controlling Interest in Net Income* Amortization of allocated excess (refer to amortization above) Goodwill impairment (impairment under full-goodwill approach) Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent………….. Add: Non-controlling Interest in Net Income (NCINI) Consolidated Net Income for 20x5

P192,000 90,000 P282,000 P16,560 7,200 0

23,760 P258,240 16,560 P274,800

b. NCI-C NCI-CNI NI – P16, P16,56 560 0 *Non-controlling Interest in Net Income (NCINI) (NCINI) for 20x5 20x5 Net income of S Company Less: Amortization of allocated allocated excess / goodwill impairment for 20x5 (refer to amortization table above) Multiplied by: Non-controlling interest %.......... Non-controlling Interest in Net Income (NCINI ) for 20x5

P 90,000 80,400 P 82,800 20% P 16 16,560

c. CNI, CNI, P274,8 P274,800 00 – refer refer to (a) (a) d. On subsequent subsequent to date of acquisi acquisition, tion, consolidat consolidated ed retained retained earnings earnings would would be computed computed as follows: Consolidated Retained Retained Earnings, December December 31, 20x5 Retained earnings - P Co Company, January 1, 20x5 (cost model Adjustment to convert from cost model to equity method for purposes of consolidation or or to establish reciprocity:/P’s share share in adjusted adjusted net increased in subsidiary’s retained earnings: Retained earnings – Su Subsidiary, January 1, 20x5 Less: Retained earnings – Su S ubsidiary, January 1, 20x4 Increase in retained earnings since date of acquisition Less: Amortization of allocated excess – 20x4 Multiplied by: Controlling interests %...................

P484,800

P 144,000 120,000 P 24,000 13,200 P 10,800 80% P 8,640

Less: Goodwill impairment impairment loss (full-goodwill), (full-goodwill), net (P3,750– P750)* or (P3, 750 x 80%) 3,000 5,640 Consolidated Retained earnings, January 1, 20x5 P 490,440 Add: Controlling Interest in Consolidated Consolidated Net Income or Profit attributable attributable to equity holders of parent for 20x5 258,240 Total P748,680 Less: Dividends paid – P Company for 20x5 72,000 Consolidated Retained Earnings, December 31, 20x5 P676,680 *this procedure would be more appropriate, instead of multiplying the full-goodwill impairment loss of P3, 750 by 80%. There might be situations where the controlling interests on goodwill impairment loss would not be proportionate to NCI acquired.

e. Non-controlling interest (partial-goodwill), December 31, 20x5 Common stock – S Company, December 31, 20x5…… Retained Retained earning earningss – S Company, Company, Decembe Decemberr 31, 20x5 Retained earnings – S Co Company, January 1, 20x5 Add: Net income of S for 20x5 Total Less: Dividends paid – 20x5 Stockholders’ equity – S Company, December 31, 20x5 Adjustments to reflect 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 S, S, December 31, 20x5…… Mul tiplied by: Non-controlling Interest percentage…………... Non-controlling interest (partial goodwill)………………………………….. Add: Non-controlling interest on full goodwill , net of impairment loss [(P15,000 full – P1 P12,000, partial = P3,000) – P7 P750 impairment loss Non-controlling interest (full-goodwill)…………………………………..

P 240,000 P144,000 90,000 P234,000 48,000

186,000 P 426,000 90,000

P 13,200 7,200

( 20,400) P 495,600 20 P 99,120 2,250 P 101,370


P 600,000 676,680 P1,276,680 __101,370 P1,378,050

Prob Proble lem m XI Under the acquisition method, the shares issued by WW are recorded at fair value:

Investm Investment ent in in BB (valu (value e of debt debt and shares shares issued issued)) ...... ......... ...... ...... ...... ...... ...... ..... .... .. Commo mmon Sto Stock (pa (parr va value)... )............................................................... Additional Pa Paid-in Capital (e (excess over par value) .. ...................... Liab Liabililit itie ies.. s.... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... ....

900,00 900,000 0 150,0 0,000 450,000 300, 300,00 000 0

The payment to the broker is accounted for as an expense. The stock issue cost is a reduction in additional paid-in capital. Acquisition Acquisition expense expense ........ ............ ........ ........ ........ ........ ......... ......... ........ ........ ........ ........ ........ ........ ......... ......... ........ ........ ........ ...... Additional Additional Paid-in Capital... Capital....... ........ ........ ........ ........ ........ ........ ......... ......... ........ ........ ........ ........ ........ ......... ......... ........ .... Cash ash .................................. ................................... ................................... ....

30,000 30,000 40,000 40,000 70,000

Allocation of Acquisition-Date Excess Fair Value:

Consideration tr transferred (f (fair va value) fo for BB BB St Stock ............................ Boo Book Val Valu ue of of BB, BB, 6/30. 6/30....... .......... .......... ...... ........ .......... ...... ........ ...... .... ........ .......... ...... ........ .......... ......... ........ ...... ........ ....... Fair air Va Value in in Exc Exce ess of of Boo Book k Va Value .................................. .................... Exc Excess fair air value (under derval valued equi quipment) ......................................... Excess fair value (overvalued patented technology) ........................ Good Goodwi willll.. .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... Consolidated Consolidated Balances: Balances: 1. Net inco income me (adju (adjuste sted d for combin combinatio ation n expen expenses ses.. The figures earned by the subsidiary prior to the takeover are not includ included).... ed)....... ..... ..... ..... ..... ..... ..... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ..... ..... ..... .. 2. Retain Retained ed Earnings Earnings,, 1/1 (the (the figur figures es earned earned by by the subsi subsidiar diary y prio priorr to the the takeo takeove verr are not not incl includ uded ed)) .... ...... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .. 3. Patented Patented Technolog Technology y (the parent's parent's book book value value plus plus the fair value of the subsidiary).... subsidiary)........ ........ ........ ........ ........ ........ ......... ......... ........ ........ ........ ........ ........ ........ ......... ......... ........ ........ ........ ....... ... 4. Goodwi Goodwillll (com (compu pute ted d above above)) .... ...... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... 5. Liabilities Liabilities (the parent's parent's book book value value plus plus the the fair fair value value of the subsidiary's debt plus the debt issued by the parent in acquir acquiring ing the subsi subsidiar diary) y) ..... ........ ..... ..... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ..... ..... ...... ...... ..... ..... ..... .... .. 6. Common Common Stock Stock (the (the parent' parent'ss book book valu value e after after record recording ing the newly-i newly-issu ssued ed shares shares)) ...... ........ ..... ..... ..... ...... ...... ...... ...... ..... ..... ...... ...... ..... ..... ..... ..... ..... ..... ...... ...... ...... ...... ...... ...... ...... ...... ...... ..... .. 7. Additi Additiona onall Paid-i Paid-in n Capi Capital tal (the (the pare parent' nt'ss book book value value afte afterr reco record rdin ing g the the two entrie entriess above).. above).... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... Problem XII 1. P15,000 2. P65,000 3. SS: P2 P24,000

= = =

BB P70,000

=

(P115,000 + P4 P46,000) - P146,000 (P148,000 - P98,000) + P1 P15,000 P380,000 - (P (P46,000 + P1 P110,000 + P75,00 P75,000 0 + P125,0 P125,000) 00) P94,000 - P24,000

P900,000 770, 770,00 000 0 P130,0 0,000 100,0 0,000 (20,000) P 50,0 50,000 00

P210,0 P210,000 00 800, 800,00 000 0 1,180,000 1,180,000 50,0 50,000 00

1,210, 1,210,000 000 510,00 510,000 0 680, 680,00 000 0

4.

Fair value of SS as a whole: P200,000 10,000

Book value of SS shares Differentia tial as assigne gned to to in inventor tory (P19 (P195, 5,00 000 0 - P105 P105,0 ,000 00 - P80, P80,00 000) 0) Diff Differ ere entia ntiall ass assigne igned d to buildi ilding ngss and and equip quipme ment nt (P78 (P780, 0,00 000 0 - P400 P400,0 ,000 00 - P340 P340,0 ,000 00)) Differentia tial ass assigne gned to goodwil will Fair value of SS

40,00 0,000 0 9,00 9,000 0 P259,000 5. 6.

65 perc perce ent Capital Stock Retai Retaine ned d Earni Earnings ngs

= 1.00 1.00 – (P90 (P90,6 ,650 50 / P259 P259,0 ,000 00)) = P120,000 = P115 P115,0 ,000 00

Problem XIII 1. Investment in WP, Inc. Contingent performance obligation Cash

2. 12/31/x4 Loss from increase in contingent performance obligation Contingent performance obligation 12/31/x5 Loss from increase in contingent performance obligation Contingent performance obligation 12/31/x5 Contingent performance obligation Cash 3. Cost Model/Initial Value Method Method Investment in WP Retained earnings-BS Common stock Retained earnings-WP Investment in WP

500,000 35,000 465,000

5,000 5,000

10,000 10,000 50,000 50,000

30,000 30,000 200,000 180,000 380,000

Royalty agreements Goodwill Investment in WP

90,000 60,000

Dividend income Dividends paid

35,000

Amortization expense Royalty agreements

10,000

150,000

35,000

10,000

Problem XIV (Consolidated accounts one year after acquisition) SS acquisition fair value ($10,000 in stock issue costs reduce additional paid-in capital) ................................ P680,000 Book value of subsidiary (1/1/x4stockholders' equity balances) ............... (480,000) Fair value in excess of book value ......................... P200,000 Excess fair value allocated to copyrights based on fair value ............................................ 120,000 Goodwill ...................................................................... P 80,000 Total .......................................................................

1. Consolidated copyrights PP (book value) ................................................................. SS (book value) .................................................................. Allocation (above) ........................................................... Excess amortizations, 20x4 ............................................... Total .............................................................................. 2. Consolidated net income, 20X4 Revenues (add book values) ......................................... Expenses: Add book values ........................................................ Excess amortizations .................................................. Consolidated net income ................................................

Life Amortizations 6 yrs. P20,000 indefinite _____-0P20,000

P900,000 400,000 120,000 (20,000) P1,400,000

P1,100,000 P700,000 20,000

720,000 P380,000

3. Consolidated retained earnings, 12/31/x4 Retained earnings 1/1/x4 (PP) ........................................ P600,000 Net income 20x4 (above) ............................................... 380,000 Dividends paid 20x4 (PP) ................................................. (80,000) Total .............................................................................. P900,000 SS’s retained earnings balance as of January 1, 20x4, is not included because these operations occurred prior to the purchase. SS's dividends were paid to PP and therefore are excluded because they are intercompany in nature. 4. Consolidated goodwill, 12/31/x4 Allocation (above) ...........................................................

P80,000

Problem XV Consolidated balances three years after the date of acquisition. Includes questions about parent's method of recording investment for internal reporting purposes.)

1. Acquisition-Date Fair Value Allocation and Amortization: Consideration transferred 1/1/09 ........................... P600,000 Book value (given) .................................................... (470,000) Annual Fair value in excess of book value ................... 130,000 Excess Allocation to equipment based on Life Amortizations difference in fair value and book value ........................................................... 90,000 10 yrs. P9,000 Goodwill ...................................................................... P40,000 indefinite -0Total ....................................................................... P9,000

Consolidated Balances Depreciation expense = P659,000 (book values plus P9,000 excess depreciation) Dividends Paid = P120,000 (parent balance only. Subsidiary's dividends are eliminated as intercompany transfer) Revenues = P1,400,000 (add book values) Equipment = P1,563,000 (add book values plus P90,000 allocation less three years of excess depreciation [P27,000]) Buildings = P1,200,000 (add book values) Goodwill = P40,000 (original residual allocation) Common Stock = P900,000 (parent balance only)  

 

  

2. The parent's choice of an investment method has no impact on the consolidated totals. The choice of an investment method only affects the internal reporting of the parent. Under PAS 27, it requires a choice between cost model or under PFRS 9 (known as fair value model) 3. The cost model or initial value method is used. The parent's Investment in Subsidiary account still retains the original consideration transferred of P600,000. In addition, the Investment Income account equals the amount of dividends p aid by the subsidiary. 4. If the equity method had been applied which is not allowed under PAS 27 for a parent to consolidate, the Investment Income account would have included both the equity accrual of P100,000 and excess amortizations of P9,000 for a balance of P91,000.

Problem XVI 1. Net income for 20x4:

Operating income Income from subsidiary Net income 2. Consolidated net income is P125,000 (P90,000 + P35,000). 3. Retained earnings reported at December 31, 20x4: Retained earnings, January 1, 20x4 Net income for 20x4 Dividends paid in 20x4 Retained earnings, December 31, 20x4

QQ P 90,000 24,500 P114,500

NN P35,000 P35,000

QQ P290,000 114,500 (30,000) P374,500

NN P40,000 35,000 (10,000) P65,000

4. Consolidated retained earnings at December 31, 20x4, is equal to the P374,500 retained earnings balance reported by QQ. 5. When the cost method is used, the parent's proportionate share of the increase in retained earnings of the subsidiary subsequent to acquisition is not included in the parent's retained earnings. Thus, this amount must be added to the total retained earnings reported by the parent in arriving at consolidated retained earnings. Problem XVII (Several valuation and income determination questions for a business combination involving a non-controlling interest.)

Business combinations are recorded generally at the fair value of the consideration transferred by the acquiring firm plus the acquisition-date fair value of the non-controlling interest. PS’s consideration transferred (P31.25 × 80,000 shares)............................................. Non-controlling interest fair value (P30.00 × 20,000 shares) ...................................... SR’s total fair value 1/1/09 ...............................................................................................

P2,500,000 P600,000 P3,100,000

1.

Each identifiable asset acquired and liability assumed in a business combination should initially be reported at its acquisition-date fair value.

2.

In periods subsequent to acquisition, the subsidiary’s assets and liabilities are reported at their acquisition-date fair values adjusted for amortization and depreciation. Except for certain financial items, they are not continually adjusted for changing fair values.

3. SR’s total fair value 1/1/09 ............................................................................................... SR’s net assets book value ............................................................................................... Excess acquisition-date fair value over book value ................................................... Adjustments from book to fair values ............................................................................ Buildings and equipment........................................................ (250,000) Trademarks ................................................................................ 200,000 Patented technology.............................................................. 1,060,000 Unpatented technology......................................................... 600,000 Goodwill ...................................................................................................................

P3,100,000 1,290,000 P1,810,000

4. Combined revenues......................................................................................................... Combined expenses......................................................................................................... Building and equipment excess depreciation ............................................................ Trademark excess amortization...................................................................................... Patented technology amortization ............................................................................... Unpatented technology amortization .......................................................................... Consolidated net income ...............................................................................................

P4,400,000 (2,350,000) 50,000 (20,000) (265,000) (200,000) P1,615,000

To non-controlling interest: SR’s revenues............................................................................................................... SR’s expenses............................................................................................................... Total excess amortization expenses (above)........................................................ SR’s adjusted net income ......................................................................................... Non-controlling interest percentage ownership .................................................. Non-controlling interest share of consolidated net income ..............................

P1,400,000 (600,000) (435,000) P365,000 20% P73,000

To controlling interest: Consolidated net income......................................................................................... Non-controlling interest share of consolidated net income .............................. Controlling interest share of consolidated net income ......................................

1,610,000 P 200,000

P1,615,000 (73,000) P1,542,000

-ORPS’s revenues ............................................................................................................... P3,000,000 PS’s expenses............................................................................................................... 1,750,000 PS’s separate net income ......................................................................................... P1,250,000 PS’s share of SR’s adjusted net income (80% × P365,000)............................................................................................ 292,000 Controlling interest share of consolidated net income ...................................... P1,542,000

5. Fair value of non-controlling interest January 1, 20x4 ................................................ P600,000 20x4 income ..................................................................................................................... ……..73,000 Dividends (20% × P30,000) ............................................................................................... (6,000) Non-controlling interest December 31, 20x4................................................................ P 667,000 6. If SR’s acquisition-date total fair value was P2,250,000, then a bargain purchase has occurred. SR’s total fair value 1/1/09 ............................................................................................... P2,250,000 Collective fair values of SR’s net assets......................................................................... P2,300,000 Bargain purchase .............................................................................................................. P50,000 The acquisition method requires that the subsidiary assets acquired and liabilities assumed be recognized at their acquisition date fair values regardless of the assessed fair value. Therefore, none of SR’s identifiable assets and liabilities would change as a result of the assessed fair value. When a bargain purchase occurs, however, no goodwill is recognized. Problem XVIII (Full-Goodwill) A variety of consolidated balances-midyear acquisition) Book value of RR, 1/1 (stockholders' equity accounts) (P100,000 + P600,000 + P700,000) ...................... Increase in book value: Net Income (revenues less cost of goods sold and expenses) ................................ Dividends .............................................................. Change during year ................................................. Change during first six months of year .......... Book value of RR, 7/1 (acquisition date) . (Full-Goodwill) Consideration transferred by K L (P1,330,000 + P30,000)................................................................... Non-controlling interest fair value ................................. RRs’ fair value (given) .......................................................

P1,400,000

P120,000 (20,000) P100,000 50,000 P1,450,000

P1,360,000 300,000 P1,630,000

Note: The fair value of subsidiary amounting P1,630,000, indicates a fair value of NCI amounting to P300,000 (refer to above computation), which is lower compared to the FV of the NCI based on FV of SHE of Subsidiary (RR), computed as follows: BV of SHE of Subsidiary (RR) ...................................... Adjustments to reflect fair value (undervaluation) FV of SHE of Subsidiary (RR)....................................... Multiplied by: NCI%..................................................... FV of NCI………………………………………………. Consideration transferred by K L (P1,330,000 + P30,000)................................................................... Non-controlling interest fair value ................................. RRs’ fair value (given) ....................................................... Book value of RR, 7/1 ........................................................ Fair value in excess of book value ................................. Excess fair value assigned Trademarks ..................................................................... Goodwill (full-goodwill) ................................................ Total ..........................................................................

P1,450,000 150,000 P 1,600,000 20% P 320,000

P1,360,000 ___320,000 P1,680,000 (1,450,000) P 230,000

Annual Excess Life Amortizations 150,000 5 years P30,000 P 80,000 indefinite -0P30,000

It should be carefully noted, that NCI can never be less than its share of fair value of net identifiable assets (which is P320,000). Thus, the NCI share of company value is raised to P320,000 (replacing the P300,000 NCI computed as residual amount – refer to computation above). The rationale behind such rule is to avoid having a lower amount of goodwill under the full-goodwill approach as compared to goodwill computed under the partial-goodwill approach. (Partial-Goodwill) Consideration transferred by KL ..................................... P 1,360,000 Less: Book value of SHE – RR (P1,450,000 x 80%)…….. 1,160,000 Allocated excess…………………………………………. P 200,000 Less: Over/under valuation of A and L: P150,000 x 80%.............................................. 120,000 Goodwill - partial ............................................................... P 80,000

Note that the goodwill under the full-goodwill and partial-goodwill approach are the same because the FV of the NCI based on the FV of SHE of subsidiary (P320,000) is higher compared to the imputed or the computed residual amount of NCI (P300,000). Consolidation Totals: Expenses, P265,000 = P200,000 KK operating expenses plus P50,000 (post-acquisition subsidiary operating expenses) plus ½ year excess amortization of P15,000. Dividends paid = P80,000 Sales, P1,050,000 = P800,000 KK revenues plus P250,000 (post-acquisition subsidiary revenue, P500,000 x 1/2) Equipment, none Depreciation expense, none Subsidiary’s net income, P60,000 = [(P500,000 – P280,000 – P100,000) x 1/2] Buildings, none Goodwill (full), P80,000; Goodwill (partial), P80,000 Consolidated Net Income, P245,000 Sales (1) P1,050,000 Cost of goods sold (2) 540,000 Operating expenses (3) __265,000 Net Income P 245,000 Non-controlling Interest in Sub. Income (4) P 9,000 Controlling Interest in CNI P 236,000 (1) P800,000 KK revenues plus P250,000 (post-acquisition subsidiary revenue) (2) P400,000 KK COGS plus P140,000 (post-acquisition subsidiary COGS) (3) P200,000 KK operating expenses plus P50,000 (post-acquisition subsidiary operating expenses) plus ½ year excess amortization of P15,000 (4) 20% of post-acquisition subsidiary income less excess fair value amortization [20% × (120,000 – 30,000) × ½ year] = P9,000 Retained Earnings, 1/1 = P1,400,000 (the parent’s balance because the subsidiary was acquired during the current year) Trademark = P935,000 (add the two book values and the excess fair value allocation after taking one-half year excess amortization) Goodwill (full)= P80,000 (the original allocation) Goodwill (partial) = P80,000 (the original allocation) 

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Problem XIX ( Consolidated balances after a mid-year acquisition) Note: Investment account balance indicates the initial value method.

Consideration transferred ........................................ P526,000 Non-controlling interest fair value .......................... 300,000 FV of SHE - subsiary .................................................... P826,000 Less: Book value of DD (below)................................ (765,000) Fair value in excess of book value (positive) ........ P 61,000 Excess assigned Annual Excess based on fair value: Life Amortizations Equipment ...................................................... (30,000) 5 years P(6,000) Goodwill (full)................................................. P 91,000 indefinite -0Total ....................................................................... P(6,000) Amortization for 9 months ................................. P(4,500) Acquisition-Date Subsidiary Book Value Book value of Duncan, 1/1/x4 (CS + 1/1 RE) ............................ Increase in book value-net income (dividends were paid after acquisition) ................................................. Time prior to purchase (3 months) .............................................. Book value of DD, 4/1/x4 (acquisition date) ............................

P740,000 P100,000 ×¼

25,000 P765,000

* The fair value of NCI amounting to P300,000 is higher compared to the FV of the NCI based on FV of SHE of Subsidiary (RR), computed as follows: BV of SHE of Subsidiary (DD)..…………………… Adjustments to reflect fair value (undervaluation) FV of SHE of Subsidiary (DD) ................................ Multiplied by: NCI% ............................................... FV of NCI……………………………………………. (Partial-Goodwill) Consideration transferred ................................. Less: Book value of SHE – DD (P765,000 x 60%) Allocated excess………………………………… Less: Over/under valuation of A and L: (P30,000 x 60%)........................................... Goodwill - partial..................................................

P765,000 ( 30,000) P735,000 40% P294,000

P 526,000 459,000 P 67,000 ( 18,000) P 85,000

1. Consolidated Income Statement: Revenues (1) P825,000 Cost of goods sold (2) P405,000 Operating expenses (3) 214,500 619,500 Consolidated net income P 205,500 Noncontrolling interest in CNI (4) 28,200 Controlling interest in CNI P 177,300 (1) P900,000 combined revenues less P75,000 (preacquisition subsidiary revenue) (2) P440,000 combined COGS less P35,000 (preacquisition subsidiary COGS) (3) P234,000 combined operating expenses less P15,000 (preacquisition subsidiary operating expenses) less nine month excess overvalued equipment depreciation reduction of P4,500 (4) 40% of post-acquisition subsidiary income less excess amortization

2. Goodwill, full = P91,000 (original allocation); Goodwill , partial = P85,000 Equipment = P774,500 (add the two book values less P30,000 reduction to fair value plus P4,500 nine months excess amortization) Common Stock = P630,000 (P company balance only) Buildings = P1,124,000 (add the two book values) Dividends Paid = P80,000 (P company balance only) Problem XX (Determine consolidated balances for a step acquisition). 1. AD fair value implied by price paid by MM P560,000 ÷ 70% =

P800,000

2. Revaluation gain 1/1 equity investment in AD (book value) 25% income for 1st 6 months Investment book value at 6/30 Fair value of investment Gain on revaluation to fair value

P178,000 8,750 186,750 200,000 P13,250

3. Goodwill at 12/31 Fair value of AD at 6/30 Book value at 6/30 (700,000 + [70,000 ÷ 2]) Excess fair value Allocation to goodwill (no impairment)

P800,000 735,000 P65,000 P65,000

4. Non-controlling interest 5% fair value balance at 6/30 5% Income from 6/30 to 12/31 5% dividends Non-controlling interest 12/31

P40,000 1,750 (1,000) P40,750

Problem XXI P’s gain on sale of subsidiary stock is computed as follows: Cash proceeds……………………………………… Fair value of retained non-controlling interest equity investment (35%) Carrying value of the non-controlling interest before deconsolidation (15% or prior outside non-controlling interest in Subsidiary) Less: Carrying value of Subsidiary’s net assets Gain on disposal or deconsolidation

P

720,000 420,000

120,000 P1,260,000 1,200,000 P 60,000

Read discussion on step-acquisition regarding the initial treatment of investment as FVTOCI or FVTPL and its disposition. It is assumed that the investment above is FVTPL. Problem XXII P Company’s additional paid-in capital arising sale of subsidiary shares is computed as follows: Cash proceeds……………………………………… Less: Carrying value of non-controlling interest (P720,000* x 10%) “Gain” – transfer within equity in “Additional paid-in capital” account

P 84,000 1,200,000 P 60,000

*the P720,000 is already the gross-up amount since it is the amount presented in the consolidated balance sheet.

Because P Company continues to have the ability to control S Company, the sale of S’s shares is treated as an equity transaction. Therefore, no gain or loss is recognized. Instead, Palmer Company’s additional paid-in capital increases by P60,000. Problem XXIII P Company’s additional paid-in capital arising sale of subsidiary shares is computed as follows:

Cash proceeds from issuance of additional shares ….. P 210,000 Less: Carrying Value of non-controlling from issuance of additional shares: Non-controlling interest prior to issuance of additional shares: Book value of SHE before issuance…P720,000 x: Non-controlling interest……………. 20%* P 144,000 Non-controlling interest after issuance of additional shares: Book value of SHE before issuance……………………………….P720,000 Additional issuance…………………..… 210,000 BV of SHE after issuance……………….P930,000 x: Non-controlling interest……………... 36%** 334,800 190,800 “Gain” – transfer within equity in “Additional paid-in capital” account.…….............. P 19,200 * (120,000 – 96,000) / 120,000 = 20% ownership before additional issuance of shares. ** [(24,000 + 30,000) / (120.000 + 30,000)] = 36% ownership after additional issuance of shares

P Company recognizes an increases in its Investment in S from P576,000 (P720,000x 80%) to P595,200 [P930,000 x (96,000/150,000) and in additional paid-in capital of P19,200. Problem XXIV 1. Equity Method Income accrual (80%) ................................................................... Excess amortization expense ....................................................... Investment income ..................................................................

P56,000 (3,200) P52,800

Initial fair value paid........................................................................ Income accrual 20x4–20x6 (P260,000 × 80%) ............................ Dividends 20x4–20x6 (P45,000 × 80%) ......................................... Excess Amortizations 20x4–20x6 (P3,200 × 3) ............................. Investment in TT—12/31/x6 .....................................................

P664,000 208,000 (36,000) (9,600) P826,400

2.

Equity Method – same with No. 1

3.

Using the acquisition method, the allocation will be the total difference (P80,000) between the buildings' book value and fair value. Based on a 20 year life, annual excess amortization is P4,000. MM book value—buildings .................................................... P 800,000 TT book value—buildings ........................................................ 300,000 Allocation .................................................................................. 80,000 Excess Amortizations for 20x4–20x5 (P4,000 × 2) (8,000) Consolidated buildings account ............................ P1,172,000

4.

Acquisition-date fair value allocated to goodwill Goodwill-full ( see Problem I above) ..................................................... P 150,000 Goodwill-partial (see Problem I above)………………………… P 120,000

5.

If the parent has been applying the equity method, the stockholders' equity accounts on its books will already represent consolidated totals. The common stock and additional paid-in capital figures to be reported are the parent balances only. Common stock, P500,000 Additional paid-in capital, P280,000

Problem XXV (Consolidated balances three years after purchase. Parent has applied the equity method.)

1. Schedule 1—Acquisition-Date Fair Value Allocation and Amortization JJ’s acquisition-date fair value . P206,000 Book value of JJ ........................................... (140,000) Fair value in excess of book value ........... 66,000 Excess fair value assigned to specific accounts based on individual fair values Equipment .............................................. Buildings (overvalued) ......................... Goodwill .................................................. Total .........................................................

54,400 (10,000) P21,600

Annual Excess Life Amortization 8 yrs. P6,800 20 yrs. (500) indefinite -0P6,300

Investment in JJ Company—12/31/x6 JJ’s acquisition-date fair value ........................................................... 20x4 Increase in book value of subsidiary 20x4 Excess amortizations (Schedule 1) ........................................... 20x5 Increase in book value of subsidiary ........................................ 20x5 Excess amortizations (Schedule 1) ........................................... 20x6 Increase in book value of subsidiary ........................................ 20x6 Excess amortizations (Schedule 1) ........................................... Investment in J Company ............................................................ 2. Equity in Subsidiary Earnings Income accrual.................................................................................................. Excess amortizations (Schedule 1) ................................................................. Equity in subsidiary earnings .....................................................................

P206,000 40,000 (6,300) 20,000 (6,300) 10,000 (6,300) P257,100 P30,000 (6,300) P23,700

3. Consolidated Net Income Consolidated revenues (add book values) .................................... Consolidated expenses (add book values) .................................... Excess amortization expenses (Schedule 1) .................................... Consolidated net income ...................................................................

P414,000 (272,000) (6,300) P135,700

4. Consolidated Equipment Book values added together ............................................................. Allocation of purchase price .............................................................. Excess depreciation (P6,800 × 3) ....................................................... Consolidated equipment .............................................................

P370,000 54,400 (20,400) P404,000

5. Consolidated Buildings ........................................................................................ Book values added together ............................................................. Allocation of purchase price .............................................................. Excess depreciation (P500 × 3) .......................................................... Consolidated buildings..................................................................

P288,000 (10,000) 1,500 P279,500

6. Consolidated goodwill Allocation of excess fair value to goodwill.......................................

P21,600

7. Consolidated Common Stock............................................................................ P290,000 As a purchase, the parent's balance of P290,000 is used (the acquired company's common stock will be eliminated each year on the consolidation worksheet). 8. Consolidated Retained Earnings ....................................................................... P410,000 Tyler's balance of P410,000 is equal to the consolidated total because the equity method has been applied. Problem XXVI Computation of Goodwill: Partial Goodwill or Proportionate Basis Fair value of Subsidiary: Consideration transferred Less: BV of SHE of S (P1,200,000 + P600,000) x 80% Allocated excess Less: Over/under valuation of A and L: Inc. (Dec.) Inventory (P725,000 – P600,000) x 80% Equipment (P1,075,000 – P900,000) x 80% Goodwill – partial

Full-goodwill or Fair Value Basis Fair value of Subsidiary: Consideration transferred P1,970,000 / 80% Less: BV of SHE of S (P1,200,000 + P600,000) x 100% Allocated excess Less: Over/under valuation of A and L: Inc. (Dec.) Inventory (P725,000 – P600,000) x 100% Equipment (P1,075,000 – P900,000) x 100% Goodwill – full

P1,970,000 _1,440,000 P 530,000 P 100,000 140,000

__240,000 P 290,000

P2,467,500 1,800,000 P 662,500 P125,000 175,000

__300,000 P362,500

Amortization

Inventory: P125,000 x 60% P125,000 x 40% Equipment: P175,000 / 7 years

20x4 P 75,000

25,000 P 100,000

20x5

P 50,000 25,000 P 75,000

1. 20x4 Investment in S Company Cash

1,970,000 1,970,000

Cash (0.8 x P150,000) Investment in S Company

120,000

Investment in S Company Equity in Subsidiary Income (.80)(P750,000)

600,000

120,000

600,000

Equity in Subsidiary Income Investment in S Company

80,000

Cash (0.8 x P225,000) Investment in S Company

180,000

Investment in S Company Equity in Subsidiary Income (.80)(P900,000)

720,000

80,000

20x5

Equity in Subsidiary Income Investment in S Company

180,000

720,000 60,000 60,000

2. 20x4 (1) Equity in Subsidiary Income ((.80)(P750,000) -P80,000) Dividends Declared (0.80 x P150,000) Investment in S Company (2) Beginning Retained Earnings - S Company Common Stock- S Company Investment in S Company Noncontrolling Interest (3) Inventory (P125,000 – P75,000) Cost of Goods Sold Equipment (net) Goodwill Investment in S Company (4) Depreciation Expense Equipment (net)

520,000 120,000 400,000 600,000 1,200,000 1,307,500 492,500 50,000 75,000 175,000 362,500 662,500 25,000 25,000

20x5 (1) Equity in Subsidiary Income ((.80)(P900,000) - P60,000) Dividends Declared (0.80 x P225,000) Investment in Superstition Company (2) Beginning Retained Earnings-Superstition Company Common Stock - Superstition Company. Investment in Superstition Company Non-controlling Interest (P492,500 + (P1,200,000 – P600,000) x .20) (3) Investment in S Company Non-controlling Interest Cost of Goods Sold Equipment (net) Goodwill Investment in S Company

660,000 180,000 480,000 1,200,000 1,200,000

612,500 60,000 15,000 50,000 175,000 362,500 662,500

(4) Investment in S Company Non-controlling Interest Depreciation Expense Equipment (net)

20,000 5,000 25,000 50,000

3. Consolidated Net Income for 20x5 Net income from own/separate operations P Company (P1,000,000 – P120,000) S Company Total Less: Non-controlling Interest in Net Income* Amortization of allocated excess Goodwill impairment 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

P 880,000 __ 750,000 P1,630,000 P130,000 100,000 ____0

230,000 P1,400,000 130,000 P1,530,000

Net income of subsidiary…………………….. Amortization of allocated excess (P25,000 + P75,000)

P 750,000 ( 100,000) P650,000 20% P 130,000

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

Note: Regardless on the method used in recording investments (cost model or equity method) the manner of computing CI-CNI, NCI-CNI and CNI are exactly the same. Problem XXVII 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 84,000

P 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: S Co. Book value

S Co. Fair value

Inventory………………….……………..

P 24,000

Land………………………………………

48,000

55,200

7,200

Equipment (net).........

84,000

180,000

96,000

168,000

144,000

(24,000)

Bonds payable…………………………

(120,000)

( 115,200)

4,800

Net………………………………………..

P 204,000

P 294,000

P 90,000

Buildings (net)

P

30,000

(Over) Under Valuation P

6,000

The buildings and equipment will be further analyzed for consolidation purposes as follows: S Co. Book value

S Co. Fair value

Increase (Decrease)

Equipment ..................

180,000

180,000

0


96,000

-

( 96,000)


84,000 S Co. Book value

180,000 S Co. Fair value

96,000 (Decrease)

Buildings................

360,000

144,000

( 216,000)


192,000

-

( 192,000)


168,000

144,000

(

24,000)

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

Over/ Under

Life

Annual Amount

Current Year(20x4)

P 6,000

1

P 6,000

P 6,000

96,000

8

12,000

12,000

12,000

(25,000)

4

( 6,000)

( 6,000)

(6,000)

4,800

4

1,200

1,200

1,200

P 13,200

P 13,200

P 7,200

20x5 P

-

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

The goodwill impairment loss of P3,125 based on 100% fair value would be allocated to the controlling interest and the NCI based on the percentage of total goodwill each equity interest received. For purposes of allocating the goodwill impairment loss, the full-goodwill is computed as follows: Fair value of Subsidiary (100%) Consideration transferred: Cash (80%)

P 372,000

Fair value of NCI (given) (20%)

93,000

Fair value of Subsidiary (100%)

P 465,000

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

__360,000

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

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 P………………… 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 P or controlling Interest Goodwill applicable to NCI…………………….. Goodwill impairment loss based on 100% fair value or fullGoodwill

20x4: First Year after Acquisition Parent Company Equity Method Entry The following are entries recorded by the P in 20x4 in relation to its subsidiary investment: January 1, 20x4: (1) Investment in S Company…………………………………………… Cash……………………………………………………………………..

372,000 372,000


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

28,800 28,800


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

48,000 48,000

Record share in net i ncome of subsidiary.

December 31, 20x4: (4) Investment income [(P13,200 x 80%) + P3,000*, goodwill impairment loss)] Investment in S Company

13,560 13,560

Record amortization of allocated excess of inventory, equipment, buildings and bonds payable and goodwill impairment loss.

Thus, the investment balance and investment income in the books of P Company is as follows: Cost, 1/1/x4 NI of S (60,000 x 80%) Balance, 12/31/x4

Investment in S 372,000 28,800 48,000 377,640

13,560

Dividends – S (36,000x 80%) Amortization & impairment

Investment Income Amortization & impairment

13,560

48,000 34,440

NI of S (P60,000 x 80%) Balance, 12/31/x4

Consolidation Workpaper – First Year after Acquisition The schedule of determination and allocation of excess presented above provides complete guidance for the worksheet eliminating entries on January 1, 20x4: (E1) Common stock – S Co………………………………………… Retained earnings – S Co…………………………………… Investment in Son Co…………………………………………… Non-controlling interest (P360,000 x 20%)………………………..

240,000 120.000 288,000 72,000

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

(E2) Inventory…………………………………………………………………. Accumulated depreciation – equipment……………….. Accumulated depreciation – buildings………………….. Land………………………………………………………………………. Discount on bonds payable…………………………………………. Goodwill…………………………………………………………………. Buildings……………………………………….. Non-controlling interest (P96,000 x 20%)……………………….. Investment in S Co……………………………………………….

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

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


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

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



_______ P 6,000



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

P 1,200 P1,200

Total

13,200

It should be observed that the goodwill computed above was proportional to the controlling interest of 80% and non-controlling interest of 20% computed as follows: Value P12,000 3,000 P15,000

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

% of Total 80.00% 20.00% 100.00%

Therefore, the goodwill impairment loss of P3,750 based on 100% fair value or full-goodwill would be allocated as follows: Goodwill impairment loss attributable to parent or controlling Interest Goodwill impairment loss applicable to NCI…………………….. Goodwill impairment loss based on 100% fair value or fullGoodwill (E4) Investment income Non-controlling interest (P36,000 x 20%)……………….. Dividends paid – S…………………… Investment in S Company

Value P 3,000

% of Total 80.00%

625

20.00%

P 3,750 34,440 7,200

100.00%

36,000 5,640

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

Investment in S NI of S 28,800 Dividends - S (60,000 Amortization & x 80%)……. 48,000 13,560 impairment 5,640

Investment Income Amortization impairment

13,560

48,000 34,440

NI of S (60,000 x 80%)

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

Investment in S 372,000 28,800

Cost, 1/1/x4 NI of Son (60,000 x 80%) Balance, 12/31/x4

48,000 377,640

377,640

Dividends – S (36,000x 80%) Amortization & impairment (E1) Investment, 1/1/20x4 (E2) Investment, 1/1/20x4 (E4) Investment Income and dividends

13,560 288,000 84,000 5,640 377,640

Percentage of goodwill for amortization purposes: 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%

The goodwill impairment loss of P3,750 based on 100% fair value or full-goodwill would be allocated as follows: Value % of Total Goodwill impairment loss attributable P 3,000 80.00% to parent or controlling Interest Goodwill impairment loss applicable to NCI…………………….. 750 _20.00% Goodwill impairment loss based on 100% fair value or full-goodwill P 3,750 100.00%


9,360 9,360


Net income of subsidiary…………………….. Amortization of allocated excess [(E3)]…... Multiplied by: Non-controlling interest %.......... Non-controlling Interest in Net Income (NCINI)

P 60,000 ( 13,200) P 46,800 20% P 9,360

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

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

Sales 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

P Co P480,000 34,440 P513,600 P204,000 60,000 48,000 P312,000 P202,440 P202,440

S Co. P240,000 P240,000 P138,000 24,000 18,000 P180,000 P 60,000 P 60,000

Dr. (4)

34,440

(3) (3) (3)

6,000 6,000 1,200

(3)

3,000

(5)

9,360

Cr.



P360,000

P


Total

P360,000

202,440 P562,440

P120,000 60,000 P180,000

72,000 -

36,000

P490,440

P144,000

232,800 90,000 120,000 210,000 240,000 720,000

P 90,000 60,000 90,000 48,000 180,000 540,000

(1) 120,000 202,440 P562,440

(4)

P490,440 P (2) (2)

(2) (2) 377,640

P1,990,440

P1,008,000

P 135,000 405,000

P 96,000 288,000

120,000 240,000 600,000

6,000 7,200

(3)

6,000

(2) 216,000 4,800 (3) 1,200 12,000 (3) 3,000 (2) 288,000 (2) 84,000 (4) 5,640

(2) 96,000 (3) (8) 192,000 (9) 6,000

322,800 150,000 210,000 265,200 420,000 1,044,000 3,600 9,000

P2,424,600

12,000

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

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

490,440

(1) 240,000 490,440 (10) 7,200

_________ P1,990,440

72,000 -

36,000

_________ __________ P1,008,000 P 751,200

(1 ) 72,000 (2) 18,000 (5) 9,360 P 751,200

____92,160 P2,424,600

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 66,240 P 258,240 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 The following are entries recorded by the parent in 20x5 in relation to its subsidiary investment: January 1, 20x5 – December 31, 20x5: (2) Cash……………………… Investment in S Company (P48,000 x 80%)…………….

38,400 38,400


December 31, 20x5: (3) Investment in S Company Investment income (P90,000 x 80%) Record share in net i ncome of subsidiary.

72,000 72,000

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

5,760 5,760

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


Investment in S 377,640 38,400 72,000 405,480

5,760

Dividends – S (48,000x 80%) Amortization (P7,200 x 80%)

Investment Income Amortization (7,200 x 80%)

5,760

72,000 66,240

NI of S (90,000 x 80%) Balance, 12/31/x4

Consolidation Workpaper – Second Year after Acquisition The schedule of determination and allocation of excess presented above provides complete guidance for the worksheet eliminating entries: (E1) Common stock – S Co………………………………………… Retained earnings – S Co, 1/1/x5…………………………. Investment in S Co (P384,000 x 80%) Non-controlling interest (P384,000 x 20%)………………………..

240,000 144.000 307,200 76,800

To eliminate 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 + 6,000) Land………………………………………………………………………. Discount on bonds payable (P4,800 – P1,200)…. Goodwill (P12,000 – P3,000)…………………………….. Buildings……………………………………….. Non-controlling interest [(P90,000 – P13,200) x 20%] Investment in S Co……………………………………………….

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

To eliminate investment on January 1, 20x5 and allocate excess of cost over book value of identifiable assets acquired, with remainder to the original amount of goodwill; and to establish 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………………………… To provide for 20x5 depreciation and a mortization on differences between acquisition date fair value and book value of Son’s identifiable assets and liabilities as follows:




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

P 1,200 P1,200

Total

P7,,200

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

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

66,240 9,600 48,000 27,840


Investment in S NI of S 38,400 Dividends – S (90,000 Amortization x 80%)……. 72,000 5,760 (P7,200 x 80%) 27,840

Investment Income Amortization (P7,200 x 80%)

5,760

72,000 66,240

NI of S (90,000 x 80%)

After the eliminating entries are posted in the investment account, it should be observed that from consolidation point of view the investment account is totally eliminated. Thus, Cost, 1/1/x5 NI of S (90,000 x 80%) Balance, 12/31/x5

Investment in S 377,640 38,400 72,000 405,480

Dividends – S (48,000x 80%) Amortization (7,200 x 80%) (E1) Investment, 1/1/20x5 (E2) Investment, 1/1/20x5 (E4) Investment Income and dividends

5,760 307,200 70,440 27,840

405,480

405,480


16,560 16,560


Net income of subsidiary…………………….. Amortization of allocated excess [(E3)]…... Multiplied by: Non-controlling interest %.......... Non-controlling Interest in Net Income (NCINI)

P 90,000 ( 7 ,200) P 82,800 20% P 16,560

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

P Co P540,000 66,240 P606,000 P216,000 60,000 72,000 P348,000 P258,240 P258,240

S Co. P360,000 P360,000 P192,000 24,000 54,000 P270,000 P 90,000 P 90,000

Dr. (4)

66,240

(3) (3)

6,000 1,200

(5)

16,560

Cr.

Consolidated P 900,000 ___________ P 900,000 P 408,000 90,000 1,200 126,000 P 625,200 P 274,800 ( 16,560) P258,240



Total

P490,440

P

P490,440

258,240 P748,680

P144,000 90,000 P234,000

(1) 144,000

72,000 -

48,000

P676,680

P186,000

P676,680

265,200 180,000 216,000 210,000 240,000 720,000

P 102,000 96,000 108,000 48,000 180,000 540,000

P 367,200 276,000 324,000 265,200 420,000 1,044,000 2,400 9,000

258,240 P748,680

(4)

(2)

(2) (2)

7,200

3,600 9,000

405,480

P1,074,000

P 150,000 450,000

P 102,000 306,000

120,000 240,000 600,000

120,000 120,000

(2)

240,000 186,000

72,000 -

P2,707,800

84,000 (3)

12,000

(2) 198,000 (3) 6,000

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

(1) 240,000 676,680 (7)

___ _____ P2,236,680

(3) 216,000 (3) 1,200 (1) 307,200 (2) 70,440 (4) 27,840

P2,236,680

676,680

48,000

9,600

_________ __________ P1,074,000 P 794,400

(2 ) 76,800 (2) 15,360 (5) 16,560 P 794,400

____99,120 P2,707,800

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

P360,000

b. Non-controlling interest (partial-goodwill), January 1, 20x4 Common stock – S Company, January 1, 20x4…… Retained earnings – S Company, January 1, 20x4 Stockholders’ equity – S Company, January 1, 20x4 Adjustments to reflect fair value - (over) undervaluation of assets and liabilities, date of acquisition (January 1, 20x4) 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 P450,000 20 P 90,000


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

6. 12/31/20x4: a. CI-CNI Consolidated Net Income for 20x4 Net income from own/separate operations P Company S Company 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 P………….. Add: Non-controlling Interest in Net Income (NCINI) Consolidated Net Income for 20x4

P168,000 60,000 P228,000 P 9,360 13,200 3,000

25,560 P202,440 9,360 P211.800

b. NCI-CNI *Non-controlling Interest in Net Income (NCINI) for 20x4 Net income of S Company Less: Amortization of allocated excess / goodwill impairment (refer to amortization table above) Multiplied by: Non-controlling interest %.......... Non-controlling Interest in Net Income (NCINI)

P 60,000 13,200 P 46,800 20% P 9,360


P360,000 202,440 P562,440 72,000 P490,440

e. Non-controlling interest (partial-goodwill), December 31, 20x4 Common stock – S Company, December 31, 20x4…… Retained earnings – S Company, December 31, 20x4 Retained earnings – S Company, January 1, 20x4 Add: Net income of S for 20x4 Total Less: Dividends paid – 20x4 Stockholders’ equity – S Company, December 31, 20x4 Adjustments to reflect fair value - (over) undervaluation of assets and liabilities, date of acquisition (January 1, 20x4) Amortization of allocated excess (refer to amortization above) – 20x4 Fair value of stockholders’ equity of subsidiary, December 31, 20x4…… Multiplied by: Non-controlling Interest percentage…………... Non-controlling interest (partial-goodwill)…………………………………..

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

144,000 P 384,000 90,000 ( 13,200) P460,000 20 P 92,160


P 600,000 490,440 P1,090,440 ___92,160 P1,182,600

12/31/20x5: a. CI-CNI Consolidated Net Income for 20x5 Net income from own/separate operations: P Company S Company Total Less: Non-controlling Interest in Net Income* Amortization of allocated excess (refer to amortization above) 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

P192,000 90,000 P282,000 P16,560 __7,200

23,760 P258,240 16,560 P274,800

b. NCI-CNI *Non-controlling Interest in Net Income (NCINI) for 20x5 Net income of S Company Less: Amortization of allocated excess / goodwill impairment for 20x5 (refer to amortization table above) Multiplied by: Non-controlling interest %.......... Non-controlling Interest in Net Income (NCINI) for 20x5

P 90,000 80,400 P 82,800 20% P 16,560

c. CNI, P274,800 – refer to (a) d. On subsequent to date of acquisition, consolidated retained earnings would be computed as follows: Consolidated Retained Earnings, December 31, 20x5 Retained earnings - P Company, January 1, 20x5 (cost model Adjustment to convert from cost model to equity method for purposes of consolidation or to establish reciprocity:/Parent’s share in adjusted net increased in subsidiary’s retained earnings: Retained earnings – S, January 1, 20x5 Less: Retained earnings – S, January 1, 20x4 Increase in retained earnings since date of acquisition Less: Amortization of allocated excess – 20x4 Multiplied by: Controlling interests %...................

P484,800

P 144,000 120,000 P 24,000 13,200 P 10,800 80% P 8,640

Less: Goodwill impairment loss (full-goodwill), net (P3,750– P750)* or (P3, 750 x 80%) 3,000 5,640 Consolidated Retained earnings, January 1, 20x5 P 490,440 Add: Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent for 20x5 258,240 Total P748,680 Less: Dividends paid – P Company for 20x5 72,000 Consolidated Retained Earnings, December 31, 20x5 P676,680 *this procedure would be more appropriate, instead of multiplying the full-goodwill impairment loss of P3, 750 by 80%. There might be situations where the controlling interests on goodwill impairment loss would not be proportionate to NCI acquired.

e. Non-controlling interest (partial-goodwill), December 31, 20x5 Common stock – S Company, December 31, 20x5…… Retained earnings – S Company, December 31, 20x5 Retained earnings – S Company, January 1, 20x5 Add: Net income of S for 20x5 Total Less: Dividends paid – 20x5 Stockholders’ equity – S 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…… Multiplied by: Non-controlling Interest percentage…………... Non-controlling interest (partial goodwill)…………………………………..

P 240,000 P14,000 90,000 P234,000 48,000

186,000 P 426,000 90,000

P 13,200 7,200

( 20,400) P 495,600 20 P 99,120


P 600,000 676,680 P1,276,680 ___99,120 P1,1375,800

Problem XXVIII Requirements 1 to 4: Schedule of Determination and Allocation of Excess Date of Acquisition – January 1, 20x4 Fair value of Subsidiary (80%) Consideration transferred (80%)…………….. Fair value of NCI (given) (20%)……………….. Fair value of Subsidiary (100%)………. Less: Book value of stockholders’ equity of Son: Common stock (P240,000 x 100%)………………. Retained earnings (P120,000 x 100%)………... Allocated excess (excess of cost over book value)….. Less: Over/under valuation of assets and liabilities: Increase in inventory (P6,000 x 100%)……………… Increase in land (P7,200 x 100%)……………………. Increase in equipment (P96,000 x 100%) Decrease in buildings (P24,000 x 100%)………..... Decrease in bonds payable (P4,800 x 100%)…… Positive excess: Full-goodwill (excess of cost over fair value)………………………………………………...

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

360,000 P 105,000

P

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

90,000 P 15,000


Over/ under P 6,000

Life 1

96,000 (24,000) 4,800

8 4 4



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

2x4: First Year after Acquisition Parent Company Equity Method Entry The following are entries recorded by the parent in 20x4 in relation to its subsidiary investment: January 1, 20x4: (1) Investment in S Company…………………………………………… Cash……………………………………………………………………..

372,000 372,000


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

28,800 28,800



48,000 48,000


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

13,560 13,560

Record amortization of allocated excess of inventory, equipment, buildings and bonds payable and goodwill impairment loss. *this procedure would be more appropriate, instead of multiplying the full-goodwill impairment loss of P3,750 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).


Investment in S 372,000 28,800 48,000 377,640

13,560

Dividends – S (36,000x 80%) Amortization & Impairment

Investment Income Amortization & Impairment

13,560

48,000 34,440

NI of S (P60,000 x 80%) Balance, 12/31/x4

Consolidation Workpaper – First Year after Acquisition The schedule of determination and allocation of excess presented above provides complete guidance for the worksheet eliminating entries on January 1, 20x4: (E1) Common stock – S Co………………………………………… Retained earnings – S Co…………………………………… Investment in S Co…………………………………………… Non-controlling interest (P360,000 x 20%)………………………..

240,000 120.000 288,000 72,000

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

(E2) Inventory…………………………………………………………………. Accumulated depreciation – equipment……………….. Accumulated depreciation – buildings………………….. Land………………………………………………………………………. Discount on bonds payable…………………………………………. Goodwill………………………………………………………………….

6,000 96,000 192,000 7,200 4,800 15,000

Buildings……………………………………….. Non-controlling interest (P90,000 x 20%) + [(P15,000, full – P12,000, partial goodwill)]………… Investment in S Co……………………………………………….

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.


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

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



_______ P 6,000



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

P 1,200 P1,200

Total

13,200

It should be observed that the goodwill computed above was proportional to the controlling interest of 80% and non-controlling interest of 20% computed as follows: 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%

Therefore, the goodwill impairment loss of P3,125 based on 100% fair value or full-goodwill would be allocated as follows: Goodwill impairment loss attributable to parent or controlling Interest Goodwill impairment loss applicable to NCI…………………….. Goodwill impairment loss based on 100% fair value or fullGoodwill (E4) Investment income Non-controlling interest (P36,000 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:

Value P 3,000

% of Total 80.00%

750

20.00%

P 3,750

100.00%

37,440 7,200 36,000 8,640

Investment in S NI of S 28,800 Dividends – S (60,000 Amortization & x 80%)……. 48,000 13,560 Impairment 5,640

Investment Income Amortization & Impairment

13,560

48,000 34,440

NI of Son (60,000 x 80%)

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

Cost, 1/1/x4 NI of S (60,000 x 80%) Balance, 12/31/x4

Investment in S 372,000 28,800 40,000 377,640

377,640

13,560 288,000 84,000 5,640

Dividends – S (36,000x 80%) Amortization & Impairment (E1) Investment, 1/1/20x4 (E2) Investment, 1/1/20x4 (E4) Investment Income and dividends

377,640

Percentage of goodwill for amortization purposes: 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%

The goodwill impairment loss of P3,750 based on 100% fair value or full-goodwill would be allocated as follows: Value % of Total Goodwill impairment loss attributable P 3,000 80.00% to parent or controlling Interest Goodwill impairment loss applicable to NCI…………………….. 750 _20.00% Goodwill impairment loss based on 100% fair value or full-goodwill P 3,750 100.00%


8,610 8,610


Net income of subsidiary…………………….. Amortization of allocated excess [(E3)]…...

P 60,000 ( 13,200) P 46,800 20% P 9,360

Multiplied by: Non-controlling interest %.......... Non-controlling Interest in Net Income (NCINI) Less: Non-controlling interest on impairment loss on full-goodwill (P3,750 x 20%) or (P3,750 impairment on full-goodwill less P3,000, impairment on partial-goodwill)* 750 Non-controlling Interest in Net Income (NCINI) P 8,610 *this procedure would be more appropriate, instead of multiplying the full-goodwill impairment loss of P3,750 by 20%. There might be situations where the NCI on goodwill impairment loss would not be proportionate to NCI acquired (refer to Illustration 15-6).

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

Worksheet for Consolidated Financial Statements, December 31, 20x4. Equity Method (Full-goodwill) 80%-Owned Subsidiary December 31, 20x4 (First Year after Acquisition) P Co P480,000 34,440 P514,440 P204,000 60,000 48,000 P312,000 P202,440 P202,440

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

S Co. P240,000 P240,000 P138,000 24,000 18,000 P180,000 P 60,000 P 60,000

Dr. (4)

34,440

(3) (3) (3)

6,000 6,000 1,200

(3)

3,750

(5)

8,610

Cr.


P360,000

P

P360,000

202,440 P562,440

P120,000 60,000 P180,000

72,000 -

36,000

P490,440

P144,000

232,800 90,000 120,000 210,000 240,000 720,000

P 90,000 60,000 90,000 48,000 180,000 540,000

(1) 120,000 202,440 P562,440

(4)

P490,440

P (2) (2)

(2) (2) 377,640

P1,990,440

P1,008,000

P 135,000 405,000

P 96,000 288,000

120,000 240,000 600,000

120,000 120,000

490,440

240,000 144,000

6,000 7,200

(3)

6,000

(2) 216,000 4,800 (3) 1,200 15,000 (3) 3,750 (2) 288,000 (2) 84,000 (4) 5,640

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

(3)

12,000

322,800 150,000 210,000 265,200 420,000 1,044,000 3,600 11,250

P2,426,850

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

(1) 240,000 490,440 (4)

_________ P1,990,440

72,000 -

36,000

7,200

_________ __________ P1,008,000 P 754,200

(1 ) 72,000 (2) 21,000 (5) 8,610 P 754,200

____94,410 P2,426,850

20x5: Second Year after Acquisition P Co. P 540,000 216,000 P 324,000 60,000 72,000 P 192,000 66,240 P 258,240 P 72,000

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

S Co. P 380,000 192,000 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 The following are entries recorded by the parent in 20x5 in relation to its subsidiary investment: January 1, 20x5 – December 31, 20x5: (2) Cash……………………… Investment in S Company (P48,000 x 80%)…………….

38,400 38,400



72,000 72,000


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

5,760 5,760

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

P Company’s P12,000 portion of the differential related to goodwill related to goodwill is not adjusted on the parent’s books following Option 2 as referred to above for goodwill impairment loss. Even though the goodwill of the consolidated entity is impaired, Thus, the investment balance and investment income in the books of P Company is as follows: Cost, 1/1/x5 NI of S (90,000 x 80%) Balance, 12/31/x5

Investment in S 377,640 38,400 72,000 405,480

5,760

Dividends – S (48,000x 80%) Amortization (P7,200 x 80%)

Investment Income Amortization (7,200 x 80%)

5,760

72,000 66,240

NI of S (90,000 x 80%) Balance, 12/31/x4

Consolidation Workpaper – Second Year after Acquisition The schedule of determination and allocation of excess presented above provides complete guidance for the worksheet eliminating entries. (E1) Common stock – S Co………………………………………… Retained earnings – S Co, 1/1/x5…………………………. Investment in S Co (P384,000 x 80%) Non-controlling interest (P384,000 x 20%)……………………….. To eliminate investment on January 1, 20x5 and equity accounts of subsidiary on date of acquisition; and to establish noncontrolling interest (in net assets of subsidiary) on 1/1/20x5.

240,000 144.000 307,200 76,800

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

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

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…………………………

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

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




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

P 1,200 P1,200

Total

P7,200

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

66,240 9,600 48,000 27,840


Investment in S NI of S 38,400 Dividends - S (90,000 Amortization x 80%)……. 72,000 5,760 (P7,200 x 80%) 27,840

Investment Income Amortization (P7,200 x 80%)

5,760

72,000 66,240

NI of S (90,000 x 80%)

After the eliminating entries are posted in the investment account, it should be observed that from consolidation point of view the investment account is totally eliminated. Thus, Cost, 1/1/x5 NI of S (90,000 x 80%) Balance, 12/31/x5

Investment in S 377,640 38,400 72,000 405,480

405,480

5,760 307,200 70,440 27,840 405,480

Dividends – S (48,000x 80%) Amortization (7,200 x 80%) (E1) Investment, 1/1/20x5 (E2) Investment, 1/1/20x5 (E4) Investment Income and dividends


16,560 16,560


Net income of subsidiary…………………….. Amortization of allocated excess [(E3)]…... Multiplied by: Non-controlling interest %.......... Non-controlling Interest in Net Income (NCINI) Less: NCI on goodwill impairment loss on fullGoodwill Non-controlling Interest in Net Income (NCINI)

P 90,000 ( 7,200) P 82,800 20% P 16,560 0 P 16,560

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 66,240 P606,000 P216,000 60,000 72,000 P348,000 P258,240 P258,240

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

S Co. P360,000 P360,000 P192,000 24,000 54,000 P270,000 P 90,000 P 90,000

Dr. (4)

66,240

(3) (3)

6,000 1,200

(5)

16,560

Cr.

P490,440 258,240 P748,680

P


P490,440 P144,000 90,000 P234,000

(1) 144,000 258,240 P748,680

72,000 -

48,000

P676,680

P186,000

P676,680

265,200 180,000 216,000 210,000 240,000 720,000

P 102,000 960,000 108,000 48,000 180,000 540,000

P 367,200 276,000 324,000 265,200 420,000 1,044,000 2,400 11,250

405,9480

P2,236,680

(4)

(2)

7,200

(2) (2)

3,600 11,250

48,000

(3) 216,000 (3) 1,200 (1) 307,200 (5) 70,440 (4) 27,840

P1,074,000

72,000 -

P2,634,000


(2) P 150,000 450,000

P 102,000 306,000

120,000 240,000 600,000

120,000 120,000

676,680

240,000 186,000

(3)

___ _____ P2,236,680

12,000

P 180,000

(2) 198,000 (3) 6,000

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

(1) 240,000 676,680 (3)

Total

84,000

9,600

__________ __________ P1,074,000 P 796,650

(2 ) 76,800 (2) 17,610 (5) 16,560 P 796,650

__________ P2,634,000

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

P360,000

b. Non-controlling interest (full-goodwill), January 1, 20x4 Common stock – S Company, January 1, 20x4…… Retained earnings – S Company, January 1, 20x4 Stockholders’ equity – S Company, January 1, 20x4 Adjustments to reflect fair value - (over) undervaluation of assets and liabilities, date of acquisition (January 1, 20x4) Fair value of stockholders’ equity of subsidiary, January 1, 20x4…… Multiplied by: Non-controlling Interest percentage…………... Non-controlling interest (partial-goodwill)………………………………….. Add: NCI on full-goodwill (P15,000 – P12,000) Non-controlling interest (partial-goodwill)…………………………………..

P 240,000 120,000 P 360,000 90,000 P450,000 20 P 90,000 ___3,000 P 93,000


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

6. a. CI-CNI – P202,440 Consolidated Net Income for 20x4 Net income from own/separate operations: P Company S Company Total Less: Non-controlling Interest in Net Income* Amortization of allocated excess (refer to amortization above) Goodwill impairment (impairment under full-goodwill approach) Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent………….. Add: Non-controlling Interest in Net Income (NCINI) Consolidated Net Income for 20x4

P168,000 60,000 P228,000 P 8,610 13,200 3,750

25,560 P202,440 8,610 P211.050

b. NCI-CNI – P8,610 *Non-controlling Interest in Net Income (NCINI) for 20x4 Net income of S Company Less: Amortization of allocated excess (refer to amortization table above)

P 60,000 13,200 P 46,800 20% P 9,360

Multiplied by: Non-controlling interest %.......... Non-controlling Interest in Net Income (NCINI) Less: Non-controlling interest on impairment loss on full-goodwill (P3,750 x 20%) or (P3,750 impairment on full-goodwill less P3,000, impairment on partial-goodwill)* 750 Non-controlling Interest in Net Income (NCINI) P 8,610 *this procedure would be more appropriate, instead of multiplying the full -goodwill impairment loss of P3,750 by 20%. There might be situations where the NCI on goodwill impairment loss would not be proportionate to NCI acquired.


P360,000 202,440 P562,440 72,000 P490,440

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

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

144,000 P 384,000 90,000 ( 13,200) P460,800 20 P 92,160 2,250 P 94,410


P 600,000 490,440 P1,090,440 ___94,410 P1,184,850

12/31/20x5: a. CI-CNI – P258,240 Consolidated Net Income for 20x5 Net income from own/separate operations P Company S Company Total Less: Non-controlling Interest in Net Income* Amortization of allocated excess (refer to amortization above) Goodwill impairment (impairment under full-goodwill approach) Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent………….. Add: Non-controlling Interest in Net Income (NCINI) Consolidated Net Income for 20x5

P192,000 90,000 P282,000 P16,560 7,200 0

23,760 P258,240 16,560 P274,800

b. NCI-CNI – P16,560 *Non-controlling Interest in Net Income (NCINI) for 20x5 Net income of S Company Less: Amortization of allocated excess / goodwill impairment for 20x5 (refer to amortization table above) Multiplied by: Non-controlling interest %.......... Non-controlling Interest in Net Income (NCINI) for 20x5

P 90,000 80,400 P 82,800 20% P 16,560

c. CNI, P274,800 – refer to (a) d. On subsequent to date of acquisition, consolidated retained earnings would be computed as follows: Consolidated Retained Earnings, December 31, 20x5 Retained earnings - P Company, January 1, 20x5 (cost model Adjustment to convert from cost model to equity method for purposes of consolidation or to establish reciprocity:/P’s share in adjusted net increased in subsidiary’s retained earnings: Retained earnings – S, January 1, 20x5 Less: Retained earnings – S, January 1, 20x4 Increase in retained earnings since date of acquisition Less: Amortization of allocated excess – 20x4 Multiplied by: Controlling interests %...................

P484,800

P 144,000 120,000 P 24,000 13,200 P 10,800 80% P 8,640

Less: Goodwill impairment loss (full-goodwill), net (P3,750– P750)* or (P3, 750 x 80%) 3,000 5,640 Consolidated Retained earnings, January 1, 20x5 P 490,440 Add: Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent for 20x5 258,240 Total P748,680 Less: Dividends paid – P Company for 20x5 72,000 Consolidated Retained Earnings, December 31, 20x5 P676,680 *this procedure would be more appropriate, instead of multiplying the full-goodwill impairment loss of P3, 750 by 80%. There might be situations where the controlling interests on goodwill impairment loss would not be proportionate to NCI acquired.

e. Non-controlling interest (full-goodwill), December 31, 20x5 Common stock – S Company, December 31, 20x5…… Retained earnings – S Company, December 31, 20x5 Retained earnings – S Company, January 1, 20x5 Add: Net income of S for 20x5 Total Less: Dividends paid – 20x5 Stockholders’ equity – S Company, December 31, 20x5 Adjustments to reflect fair value - (over) undervaluation of assets and liabilities, date of acquisition (January 1, 20x4)

P 240,000 P144,000 90,000 P234,000 48,000

186,000 P 426,000 90,000

Amortization of allocated excess (refer to amortization above) : 20x4 20x5 Fair value of stockholders’ 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 impairment loss [(P15,000 full – P12,000, partial = P3,000) – P750 impairment loss Non-controlling interest (full-goodwill)…………………………………..

P 13,200 7,200

( 20,400) P 495,600 20 P 99,120 2,250 P 101,370


P 600,000 676,680 P1,276,680 __101,370 P1,378,050

Problem XXVIII 1. Ambrose should report income from its subsidiary of P15,000 (P20,000 x .75) rather than dividend income of P9,000. 2. A total of P5,000 (P20,000 x .25) should be assigned to the noncontrolling interest in the 20x4 consolidated income statement. 3. Consolidated net income of P70,0000 should be reported for 20X4, computed as follows: Reported net income of AA P59,000 Less: Dividend income from KR (9,000) Operating income of AA P50,000 Net income of KR 20,000 Consolidated net income P70,000 4. Income of P79,000 would be attained by adding the income reported by AA (P59,000) to the income reported by KR (P20,000). However, the dividend income from KR recorded by AA must be excluded from consolidated net income. Multiple Choice Problems 1. b Full-Goodwill: (P600,000/70%) – P640,000 = P217,143 – P40,000 = P177,143 If partial goodwill: P600,000 – (P640,000 x 70%) = P152,000 – (P40,000 x 70%) = P124,000 2. b – P500,000 + P3,461 3. b 4. d – equivalent to consideration transferred, P320,000 5. d – equivalent to consideration transferred, P380,000 6. a 20x4 Investment income: Dividend of P10,000 x 100% 20x4 Investment balance: P500,000 7. d – P45,000/15% = P300,000 8. c Pigeon’s separate income P150,000 Less: 60% of Home’s P10,000 loss = 6,000 Less: Equipment depreciation P10,000/ 10 years = __1,000 Consolidated net income P143,000

9. a Non-controlling Interest in Net Income (NCINI) for Year 3 Net income of S Company Less: Amortization of allocated excess Multiplied by: Non-controlling interest %.......... Non-controlling Interest in Net Income (NCINI) for Year 3

P240,000 45,000 P195,000 30% P 58,500

10. c Net income from own/separate operations P Company S Company Total Less: Non-controlling Interest in Net Income* Amortization of allocated excess (refer to amortization above) Goodwill impairment (impairment under full-goodwill approach) Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent………….. *Non-controlling Interest in Net Income (NCINI) for 20x4 Net income of S Company Less: Amortization of allocated excess**

P 375,000 30,000 P405,000 P5,250 3,750 0

9,000 P396,000

P30,000 3,750 P26,250 20% P 5,250

Multiplied by: Non-controlling interest %.......... Non-controlling Interest in Net Income (NCINI) for 20x4 **P270,000/80% = P337,500 – (P150,000 + P150,000) = P37,500 / 10 years = P3,750 Note: Whether the partial or full-goodwill approach are used the amortization of excess are always the same.

11. a *Non-controlling Interest in Net Income (NCINI) for Year 3 Net income of S Company Less: Amortization of allocated excess Multiplied by: Non-controlling interest %.......... Non-controlling Interest in Net Income (NCINI) for Year 3

P600,000 112,500 P487,500 30% P146,250

12. c Net income from own/separate operations P Company S Company Total Less: Non-controlling Interest in Net Income* Amortization of allocated excess (refer to amortization above) Goodwill impairment (impairment under full-goodwill approach) Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent………….. *Non-controlling Interest in Net Income (NCINI) for 20x4 Net income of S Company Less: Amortization of allocated excess**

P 625,000 50,000 P675,000 P 8,750 6,250 0

15,000 P660,000

P50,000 6,250 P43,750 20% P 8,750

Multiplied by: Non-controlling interest %.......... Non-controlling Interest in Net Income (NCINI) for 20x4 **P450,000/80% = P562,500 – (P250,000 + P250,000) = P62,500 / 10 years = P6,250 Note: Whether the partial or full-goodwill approach are used the amortization of excess are always the same.

13. b As a general rule, if problem is silent It is assumed that expenses are generated evenly throughout the year, thus: Expenses (9/1/20x4-12/31/20x4): P620,000 x 4/12 P206,667 Amortization of allocated excess: P15,000 x 4/12 5,000 P211,667 14. c Net income of S Company (P800,000 – P620,000) Less: Amortization of allocated excess Multiplied by: No of mos. (9/1-12/31)

P180,000 15,000 P165,000 4/12 P 55,000

15. a Net income of S Company (P800,000 – P620,000) Less: Amortization of allocated excess Multiplied by: No of mos. (9/1-12/31) Multiplied by: Non-controlling interest %.......... Non-controlling Interest in Net Income (NCINI) for 20x4

P180,000 15,000 P165,000 4/12 P 55,000 ____20% P 22,000

16. b

Combined revenues .................................................................................................. Combined expenses.................................................................................................. Excess acquisition-date fair value amortization ................................................... Consolidated net income......................................................................................... Less: noncontrolling interest (P85,000 × 40%)......................................................... Consolidated net income to controlling interest .................................................

P1,100,000 (700,000) (15,000) P385,000 (34,000) P351,000

17. c

HH expense.................................................................................................................. NN expenses ................................................................................................................ Excess fair value amortization (70,000 ÷ 10 yrs)..................................................... Consolidated expenses.............................................................................................

P621,000 714,000 7,000 P1,342,000

18. b Step-acquisition, either full-goodwill or partial goodwill approach, the answer remains the same. Full-Goodwill Presentation: Net income from own operations; Parent - Keefe…………………………………… P 300,000 Subsidiary - George (P500,000 – P400,000)…….. 100,000 P 400,000 Less: Amortization of allocated excess…………………… 6,000 Impairment of goodwill (if any)……………………. 0 Consolidated/Group Net Income…………………………. P 394,000 Less: Non-controlling interest in Net Income Subsidiary net income from own operations: 1/1/20y0 - 4/1/20y0 (3 months): P100,000 x 3/12 = P25,000 x 30%................ P 7,500 4/1/20y0 – 12/31/20y0 (9 months): P100,000 x 9/12 = P75,000 x 20%................ 15,000 Total…………………………………………….. P 22,500 Less: Amortization of allocated excess:

1/1/20y0 – 4/1/20y0 (3 months) P6,000 x 3/12 = P1,500 x 30%.......... 4/1/20y0 – 12/31/20y0 (9 months) P6,000 x 9/12 = P4,500 x 20%........... Impairment of goodwill (if any): First 3 months: P 0 x 30%.......………… Remaining 9 months: P 0 x 20%............... CNI attributable to the controlling interest (CI-CNI)/ Profit attributable to equity holders of parent………………….

450 900 0 0

21,150 P372,850

* It should be noted that the phrase without regard for this investment means that excluding any income arising from investment in subsidiary (i.e., div idend income).

19. c - 20x4 = P86,400 Consolidated Net Income 20x4 20x5 Peters Company's reported net income 64,000 37,500 Less: dividend income from Smith (1,600) 0 Peters' income from independent operations 62,400 37,500 Add: Peter's share of Smith's net income in 20x4 since acquisition (.80)(8/12)(P45,000) 24,000 Less: Peter's share of Smith's net loss in 20x4 (.80  P5,000 (4,000) Controlling Interest in Consolidated net income 86,400 33,500 20. c - 20x5 = P33,500 – refer to No. 19 21. b - 20x4 = P151,400 Consolidated Retained Earnings 20x4 20x5 Peter's 12/31 retained earnings (P80,000 + P64,000 - P15,000) P129,000 P161,500 Add: Peter's share of the increase in Smith's retained earnings from the date of acquisition to the current date: (.80  (P53,000 – P25,000)) 22,400 (.80  (P48,000 – P25,000) 18,400 P151,400 P179,900 22. c - 20x5 = P179,900 – refer to No. 21 23. d Under the cost method , an investor recognizes its investment in the investee at cost. Income is recognized only to the extent that the investor receives distributions from the accumulated net profits (or dividend declared/paid by the investee) of the investee arising after the date of acquisition by the investor. Distributions (dividends) received in excess of such profits are regarded as a recovery of investment and are accounted for as a reduction of the cost of the investment (i.e., as a return of capital or liquidating dividend). Therefore, the investment balance of P500,000 on the acquisition date remains to be the same.

24. 25. 26. 27. 28.

d – refer to No. 23 for further discussion. b – refer to No. 23 for further discussion. a – P40,000 x 80% b – P50,000 x 80% a – P60,000 x 80%

29. c Full/Gross-up Goodwill Presentation: Non-controlling interest in Net Income: Subsidiary net income from own operations……….P100,000 Less: Amortization of allocated excess*…………… 7,000 Impairment of full-goodwill (if any)**………… 0 P 93,000 x: Non-controlling interests…………………… …. 20% Non-controlling interest in Net Income…………………… P 18,600 *Amortization of allocated excess: Increase in equipment: P30,000 / 10 years = P 3,000 Increase in buildings: P40,000 / 10 years = 4,000 Total amortization……………………………… P 7,000 ** In case, there is an impairment of goodwill then the amount impaired under the fullgoodwill method should also be allocated between controlling and non-controlling interests Partial Goodwill Presentation: Non-controlling interest in Net Income: Subsidiary net income from own operations……….P100,000 Less: Amortization of allocated excess*……………. 7,000 P 93,000 x: Non-controlling interests…………………… …. 20% Non-controlling interest in Net Income…………………. P 18,600 30. c Full/Gross-up Goodwill Presentation: Non-controlling interest in Net Income: Subsidiary net income from own operations……….P120,000 Less: Amortization of allocated excess*…………… 7,000 Impairment of full-goodwill (if any)**……… 0 P113,000 x: Non-controlling interests…………………… …. 20% Non-controlling interest in Net Income…………………… P 22,600 *Amortization of allocated excess: Increase in equipment: P30,000 / 10 years = P 3,000 Increase in buildings: P40,000 / 10 years = 4,000 Total amortization………………………. P 7,000 ** In case, there is an impairment of goodwill then the amount impaired under the fullgoodwill method should also be allocated between controlling and non-controlling interests Partial Goodwill Presentation: Non-controlling interest in Net Income: Subsidiary net income from own operations……….P120,000 Less: Amortization of allocated excess*…………… 7,000 P113,000 x: Non-controlling interests…………………… …. 20% Non-controlling interest in Net Income…………………… P 22,600

31. a Full/Gross-up Goodwill Presentation: Non-controlling interest in Net Income: Subsidiary net income from own operations……….P130,000 Less: Amortization of allocated excess*…………… 7,000 Impairment of full-goodwill (if any)**……… 0 P123,000 x: Non-controlling interests…………………… …. 20% Non-controlling interest in Net Income…………………… P 24,600 *Amortization of allocated excess: Increase in equipment: P30,000 / 10 years = P 3,000 Increase in buildings: P40,000 / 10 years = 4,000 Total amortization………………………. P 7,000 ** In case, there is an impairment of goodwill then the amount impaired under the fullgoodwill method should also be allocated between controlling and non-controlling interests Partial Goodwill Presentation: Non-controlling interest in Net Income: Subsidiary net income from own operations……….P130,000 Less: Amortization of allocated excess*…………… 7,000 P123,000 x: Non-controlling interests…………………… …. 20% Non-controlling interest in Net Income…………………… P 24,600

32. a Book value of Stockholders’ Equity of Subsidiary Common stock, 12/31/20x4……………………………… P 300,000 Retained earnings, 12/31/20x4: Retained earnings, 1/1/20x4………………………….P200,000 Add: Net income – 20x4…………………………….. 100,000 Less: Dividends paid, 20x4…………..……………… 40,000 260,000 Book value of Stockholders’ Equity of Subsidiary, 12/31/x4 P 560,000 Add: Adjustments to reflect fair value (P30,000 + P40,000).. 70,000 Less: Accumulated amortization of allocated excess P7,000 x 1 year…………………………………….…. 7,000 Fair value of Stockholders’ Equity of Subsidiary. 12/31/x4… P 623,000 Multiplied by: Non-controlling Interest %........................... 20% Non-controlling Interest (partial goodwill)………………….. P 124,600 Add: Non-controlling interest in Full Goodwill (P55,000, full – P44,000 partial l) or (P55,00,000 x 20%)*……………………………… 11,000 Non-controlling Interest (full)……………………………… P 135,600 * this computation (i.e., P55,000 x 20%) should only be use when the fair value of the noncontrolling interest of acquiree (subsidiary) is not given.

Partial Goodwill: Fair value of Subsidiary: Fair value of consideration transferred: Cash………… P 500,000 Less: Book value of Net Assets (Stockholders’ Equity - Subsidiary): (P300,000 + P200,000) x 80%.. 400,000 Allocated Excess.…………………………………………. P 100,000 Less: Over/Undervaluation of Assets and Liabilities: Increase in equipment: P30,000 x 80%................... P 24,000 Increase in building: P40,000 x 80%......................... 32,000 56,000 Goodwill (Partial)………………………………………….. P 44,000 Full-goodwill: (100%) Fair value of Subsidiary: (100%) Fair value of consideration transferred: P500,000 / 80%........………………………….. Less: Book value of Net Assets (Stockholders’ Equity - Subsidiary)…………................................... Allocated Excess.…………………………………………. Less: Over/Undervaluation of Assets and Liabilities (P40,000 + P30,000)……………………. Goodwill (Full/Gross-up)..………………………………..

P 625,000 500,000 P 125,000

P

70,000 55,000

33. e Book value of Stockholders’ Equity of Subsidiary Common stock, 12/31/20x5……………………………… P 300,000 Retained earnings, 12/31/20x5: Retained earnings, 1/1/20x5 (refer to No. 32)…… P260,000 Add: Net income, 20x5………………………………. 120,000 Less: Dividends paid, 20x5…………………………… 50,000 330,000 Book value of Stockholders’ Equity of Subsidiary, 12/31/x5 P 630,000 Add: Adjustments to reflect fair value (P30,000 + P40,000).. 70,000 Less: Accumulated amortization of allocated excess – 2 yrs 14,000 Fair value of Stockholders’ Equity of Subsidiary. 12/31/x5… P 686,000 Multiplied by: Non-controlling Interest %.............................. 20% Non-controlling Interest (partial goodwill)………………….. P 137,200 Add: Non-controlling interest in Full Goodwill (P55,000, full – P44,000 partial l) or (P55,00,000 x 20%)*……………………………… 11,000 Non-controlling Interest (full)……………………………… P 148,200

34. e Book value of Stockholders’ Equity of Subsidiary Common stock, 12/31/20x6……………………………… P 300,000 Retained earnings, 12/31/20x6: Retained earnings, 1/1/20x6………………………….P330,000 Add: Net income, 20x6……………………………… 130,000 Less: Dividends paid, 20x6………………………….. 60,000 400,000 Book value of Stockholders’ Equity of Subsidiary, 12/31/x6 P 700,000 Add: Adjustments to reflect fair value (P30,000 + P40,000).. 70,000 Less: Accumulated amortization of allocated excess (1/1/20x4 – 12/31/20x6): P7,000 x 3 years…………… 21,000

Fair value of Stockholders’ Equity of Subsidiary. 12/31/x6… Multiplied by: Non-controlling Interest %............................ Non-controlling Interest (partial goodwill)………………….. Add: Non-controlling interest in Full Goodwill (P55,000, full – P44,000 partial l) or (P55,00,000 x 20%)*……………………………… Non-controlling Interest (full)………………………………

P 749,000 20% P 149,800

11,000 P 160,800

* this computation (i.e., P55,000 x 20%) should only be use when the fair value of the noncontrolling interest of acquiree (subsidiary) is not given.

35. d – Economic Unit or Entity Concept (as required by PFRS 10) Net income from own/separate operations P Company S Company Total Less: Non-controlling Interest in Net Income* Amortization of allocated excess Goodwill impairment (impairment under full-goodwill approach) Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent………….. Add: NCINI CNI - entity concept

*Non-controlling Interest in Net Income (NCINI) for 20x4 Net income of S Company Less: Amortization of allocated excess Multiplied by: Non-controlling interest %.......... Non-controlling Interest in Net Income (NCINI) for 20x4

P 500,000 100,000 P600,000 P 20,000 0 _ 0

20,000 P580,000 __20,000 P600,000

P100,000 _______0 P100,000 20% P 20,000

36. c – Parent Company Concept – Parent’s Net Income only (not required by PFRS 10) Net income from own/separate operations P Company S Company Total Less: Non-controlling Interest in Net Income* Amortization of allocated excess Goodwill impairment (impairment under full-goodwill approach) CNI - entity concept

*Non-controlling Interest in Net Income (NCINI) for 20x4 Net income of S Company Less: Amortization of allocated excess Multiplied by: Non-controlling interest %.......... Non-controlling Interest in Net Income (NCINI) for 20x4

P 500,000 100,000 P600,000 P 20,000 0 _ 0

P100,000 _______0 P100,000 20% P 20,000

37. Podex’s separate earnings for 20x6 ............................................................ P2,000,000 Dividend income from Sodex................................................................ __120,000 Podex’s 20x6 net income ................................................................... P2,120,000 38.

P2,260,000 Podex’s separate earnings for 20X6 P2,000,000 Podex’s equity in net income of Sodex............................................... 300,000 Less: Amortization of cost in excess of book value ........................... (40,000) Podex’s 20x6 net income ................................................................... P2,260,000

20,000 P580,000

39. b 40. b Net Income from own operations: 20x4 20x5 Parent …………………………………………………P 100,000 P100,000 Subsidiary……………………………………………... 25,000 35,000 P125,000 P135,000 Subsidiary’s other comprehensive income………….. 5,000 10,000 Total Comprehensive Income………………………..... P130,000 P145,000 Less: Amortization of allocated excess…………… .… 6,250 6,250 Impairment of full- goodwill (if any)……………. 0 0 Consolidated /Group Comprehensive Income…… P123,750 P138,750 Less: Non-controlling interest in Comprehensive Income *…………………………………………… 4,750 7,750 Controlling Interest in Consolidated __________________ Comprehensive Income …. …………………………P119,000 P131,000 *Non-controlling interest in Comprehensive Income: 20x4 20x5 Subsidiary’s: Net income from own operations………….......P 25,000 P 35,000 Other Comprehensive Income (P30,000 – P25,000)…………………………….…………... 5,000 10,000 Subsidiary’s Comprehensive Income…………........P 30,000 P45,000 Less: Amortization of allocated excess*………….. 6,250 6,250 Impairment of full-goodwill (if any)....………. 0 0 P 23,750 P 38,750 x: Non-controlling interests…………………… ……. 20% 20% Non-controlling interest in Comprehensive Income...P 4,750 P 7,750 *Amortization of allocated excess: Increase in other intangibles: P50,000 / 8 years = P 6,250 41. 42. 43. 44.

c – refer to No. 40 c – refer to No. 40 b- refer to No. 40 d Inventory – not yet sold in 20x4 Building: (P390,000 – P200,000)/ 10 years Equipment (P280,000 – P350,000)/ 5 years

P

0 19,000 ( 14,000) P 5,000

45. c Plochman’s acquisition entry is: Investment in Shure……………………………………………………………40,000,000 Retained earnings (acquisition-related expense – close to retained since only balance sheet accounts are being examined)…………………………………………………………………… 1,000,000 Common stock, 1,000,000 x P1 par……………………………… 1,000,000 PIC in excess of par [(1, 000,000 x P39) – P800,000)…………… 32,000,000 Cash (P800,000 + P1,000,000)…………………………………….. 1,800,000 Eliminating entries are: Book value of stockholders’ equity: Stockholders’ equity-Shure………………………………………… ……… 6,000,000 Investment in Shure…………………………………………………

6,000,000

Allocated excess (acquisition/purchase differential): Identifiable assets……………………………………………………………. 7,000,000 Long-term debt………………………………………………… ……………. 500,000 Goodwill………………………………………………………………………..28,500,000 Lawsuit liability……………………………………… ………………. 2,000,000 Investment in Shure………………………………………………… 34,000,000

46. d –refer to No. 45 47. a 48. a Cost of Goods Sold P80,000 debit Depreciation Expense (P192,000/120) 7 = P11,200 debit 49. c Cost of Goods Sold (P60,000 x 4/6) = P40,000 debit Interest Expense: (P15,000/5) = P3,000 debit 50. a [(P250,000 - P180,000)/10]7 51. c [(P380,000 - P260,000)/120]88 52. a 53. c P170,000 - {[P320,000 - (P300,000 - P170,000)]/10}2 54. b [P320,000 - (P300,000 - P170,000)]/10 55. d 56. d P105,000 - {[P405,000 - (P450,000 - P105,000)]/20}2 57. a [P405,000 - (P450,000 - P105,000)]/20 58. d - The acquisition method consolidates assets at fair value at acquisition date regardless of the parent’s percentage ownership. 59. d P: BV,12/31/20x6 S: BV of building, 12/31/20x4 Add: Adjustments to reflect fair value, 1/1/20x4 (P350,000 – P240,000) Less: Amortization of excess (P110,000/10) x 3 years

P250,000 P170,000 110,000 33,000

247,000 P497,000

60. b P: BV,12/31/20x5 S: BV of building, 12/31/20x5 Add: Adjustments to reflect fair value, 1/4/20x4 (P120,000 – P90,000) Less: Amortization of excess (P30,000/10) x 2 years

P 975,000 P105,000 30,000 6,000

129,000 P1,104,000 61. c - An asset acquired in a business combination is initially valued at 100% acquisition-date fair value and subsequently amortized its useful life. Patent fair value at January 1, 20x4 ....................................................................... Amortization for 2 years (10 year life) ..................................................................... Patent reported amount December 31, 20x5 ......................................................

P45,000 (9,000) P36,000

62. b BV of building, 1/1/20x4 Adjustments to reflect fair value, 1/1/20x4 (P300,000 – P200,000) Depreciation 1/1/20x4 – 12/31/20x6 (P100,000/20 x 3 years) 63. d – same with No. 62 64. d BV of equipment, 1/1/20x4 Adjustments to reflect fair value, 1/1/20x4 (P80,000 – P75,000) Depreciation 1/1/20x4 – 12/31/20x6 (P5,000/10 x 3 years)

P200,000 100,000 ( 15,000) P285,000

P 80,000 ( 5,000) 1,500 P 76,500

65. a Adjustments to reflect fair value, 1/1/20x4 (P80,000 – P75,000) Depreciation 1/1/20x4 – 12/31/20x6 (P5,000/10 x 3 years) 66. d – 1/2/20x4: BV of equipment, 1/1/20x4 Adjustments to reflect fair value, 1/1/20x4 (P300,000 – P200,000)

(P 5,000) 1,500 (P 3,500) P200,000 100,000 P300,000

67. c Consolidated Net Income for 20x4 Net income from own/separate operations P Company P30,200 – (P150,0000 – P20,000 – P60,000) S Company (P100,000 – P15,000 – P45,000) Total Less: Non-controlling Interest in Net Income Amortization of allocated excess Goodwill impairment 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

P 70,000 40,000 P110,000 P

0 0 ____0

____0 P110,000 _____0 P110,000

68. b Plimsol: P100,000 + P200,000,,,,,,,,,,,,,,,,,,,,,,,,,, ,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,P 300, 000 Shipping: P75,000 + P150,000………………………………………………………………. 225,000 P 525,000 69. Retained Earnings - Plimsol, 1/1/20x4 (cost method, same with equity method and consoiidated retained earnings since it is the date of acdquisition) P 150,000 Add: CI – CNI (refer to No. 71) 110,000 Less: CI – Dividends (Dividend of parent only) 25,000 Retained earnings, 12/31/20x4 (equity method same with CRE) P 235,000 70. d Liabilities: Plimsol (P40,000 + P75,000) Shipping (P25,000 + P50,000)

P115,000 75,000 P 190,000

71. d Total assets (No. 72) Les: Liabilities (No. 74) Stockholders’ equity

P525,000 190,000 P335,000

72. b Decrease in Buildings account: Fair value…………………………………………… Book value………………………………………….. Decrease…………………………………………….

P 8,000 __10,000 P 2,000

Decrease in buildings account (refer to No. 73)………… Less: Increase due to depreciation (P2,000/10)………… Decrease in buildings accounts……………………………..

P 2,000 200 P 1,800

Decrease in buildings account (refer to No. 74)………… Less: Increase due to depreciation (P2,000/10)………… Decrease in buildings accounts……………………………..

P 1,800 200 P 1,600

Increase in Equipment account: Fair value…………………………………………… Book value………………………………………….. Increase…………………………………………….

P 14,000 __18,000 P 4,000

73. d

74. d

75. a

76. a Increase in equipment account (refer to No. 76)………… Less: Decrease due to depreciation (P4,000/4)…………… Increase in equipment accounts……………………………..

P

4,000 1,000 P 3,000

Increase in equipment account (refer to No. 77)………… Less: Decrease due to depreciation (P4,000/4…………… Increase in equipment accounts……………………………..

P 3,000 1,000 P 2,000

77. a

78. a Increase in Land account: Fair value……………………………………………P 12,000 Book value………………………………………….. 5,000 Increase…………………………………………….. P 7,000 79. b – refer to No. 78, no depreciation/amortization 80. b – refer to No. 78, no depreciation/amortization 81. e Increase in Patent account: Fair value…………………………………………… Book value………………………………………….. Increase…………………………………………….

P 11,000 _ 0 P 11,000

(P234,000/90%) – (P160,000 + P80,000) = P20,000 – (P4,000 – P2,000 + P7,000) = P11,000. Partial or full-goodwill approach, the amortization remains the same. 82. e Increase in patent account (refer to No. 85)……………… Less: Decrease due to depreciation (P11,000/5).………… Increase in patent accounts………………………………….

P 11,000 2,200 P 8,800

Increase in patent account (refer to No. 86)……………… Less: Decrease due to depreciation (P11,000/5).………… Increase in patent accounts………………………………….

P

83. d 8,800 2,200 P 6,600

84. c Fair Value of Subsidiary: Consideration Transferred (5,400 shares) Less: Book value of SHE-S, 1/1: Common stock – S: P50,000 x 90% APIC – S: P15,000 x 90% RE – S: P41,000 x 90% Allocated Excess Less: Over/undervaluation of A & L: Increase in Inv. (P17,100–P16,100) x 90% Increase in Eqpt. (P48,000–P40,000) x 90% Increase in Patents (P13,000–P10,000) x 90% Positive Excess: Goodwill Amortization of allocated excess - Starting January 1: Inventory: P1,000 / 1 year Equipment: P8,000 / 4 years Patents: P3,000 / 10 years

P120,600 P 45,000 13,500 36,900 95,400 P 25,200 P

900 7,200 2,700

10,800 P 14,400

P 1,000 2,000 300 P 3,300

85. c Common stock – S APIC – S RE – S Stockholders’ equity – Subsidiary, 1/1 Add: Adjustments to reflect fair value Fair value of Stockholders’ Equity – S, 1/1 x: Non-controlling) interests Non-controlling Interests (in net assets)

P 50,000 15,000 41,000 P106,000 12,000 P118,000 10% P 11,800

86. a – P48,000, parent only. 87. a – P48,000. On the date of acquisition, the parent’s retained earnings is also the consolidated retained earnings. 88. No requirement. 89. b – P120,600, the initial value 90. b – P4,000 x 90% = P3,600 91. c Consolidated Net Income for 20x4 Net income from own/separate operations P Company P30,200 – (P4,000 x 90%) S Company Total Less: Non-controlling Interest in Net Income* Amortization of allocated excess Goodwill impairment 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

P26,600 9,400 P36,000 P

610 3,300 ____0

3,910 P32,090 610 P32,700


P 9,400 3,300) P 6,100 10% P 610 ____0 P 610

(

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

92. c Noncontrolling Interests (in net assets): Common stock - S, 12/31 P 50,000 Additional paid-in capital - S, 12/31 15,000 Retained earnings - S, 12/31: RE-S, 1/1/2011 P 41,000 Add: NI-S, 2011 9,400 Less: Dividends – S 4,000 46,400 Book value of SHE - S, 12/31 P 111,400 Add: Adjustments to reflect fair value, 1/1 12,000 Less: Amortization of allocated excess (1 yr.) 3,300 Fair Value of Net Assets/SHE - S, 12/31 P 120,100 x: Noncontrolling Interest % 10% Noncontrolling Interest (in net assets), 12/31 P 12,010 93. b – refer to 91 for computation 94. c – refer to 91 for computation 95. b Controlling RE / RE Attributable to EH of Parent, 1/1 (refer to No. 102 P 48,000 Add: CI – CNI (refer to 106 and 109) 32,090 Less: CI – Dividends (Dividend of parent only) 15,000 Controlling RE / RE Attributable to EH of Parent, 12/31 P 65,090 96. b – same with No. 95 97. c Consolidated Equity: Controlling Interest / Equity Holders Attributable to Parent: Common stock – P: [P100,000 + P120,600 – (5,400 shares x P10 par)] P154,000 APIC – P: [15,000 + [P120,600 – (5,400 x P10)] 81,600 RE – P (refer to No. 105) 65,090 Parent’s Stockholders Equity or Controlling Interest – Equity P300,690 Noncontrolling Interest 12,010 Consolidated Equity P312,700 98. c

P95,000 = (P956,000 / .80) - P1,000,000 - P100,000

99. c

P251,000 = .20[(P956,000 + P239,000) + (P190,000 - P5,000 - P125,000)]

100. b Combined revenues .................................................................................................. Combined expenses.................................................................................................. Trademark amortization ............................................................................................ Patented technology amortization ........................................................................ Consolidated net income.........................................................................................

P1,300,000 (800,000) (6,000) (8,000) P486,000

101. c NCI-CNI - P34,400; NCI – P260,800 Subsidiary income (P100,000 – P14,000 excess amortizations) .......................... Non-controlling interest percentage...................................................................... Non-controlling interest in subsidiary income .......................................................

P86,000 40% P34,400

Fair value of non-controlling interest at acquisition date................................... 40% change in Scott book value since acquisition ............................................. Excess fair value amortization (P14,000 × 40%)..................................................... 40% current year income .......................................................................................... Non-controlling interest at end of year ..................................................................

P180,000 52,000 (5,600) 34,400 P260,800

102. a MM trademark balance............................................................................................ SS trademark balance.............................................................................................. Excess fair value.......................................................................................................... Two years amortization (10-year life)...................................................................... Consolidated trademarks .........................................................................................

P260,000 200,000 60,000 (12,000) P508,000

103. a Fair value of non-controlling interest on April 1 .................................................... 30% of net income for 9 months (¾ year × P240,000 × 30%).............................. Non-controlling interest December 31 ...................................................................

P165,000 54,000 P219,000

104. c Non-controlling interest (full-goodwill), December 31, 20x4 Book value of SHE – S, 12/31/20x4 Add: Net income of S – 20x4 Total Less: Dividends paid – 20x4 Stockholders’ equity – S Company, December 31, Year 2 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: P200,000/10 Fair value of stockholders’ equity of subsidiary, December 31, 20x5…… Multiplied by: Non-controlling Interest percentage…………... Non-controlling interest (partial) Add: NCI on full-goodwill P85,714 – P60,000) Non-controlling interest (full)

P1,000,000 ___150,000 P1,150,000 ____90,000 P1,060,000 200,000 _( 20,000) P1,240,000 30% P 372,000 ___25,714 P397,714

*P900,000/70% = P1,285,714 – P1,000,000 = P285,714 – P200,000 = P85,714, full goodwill *P900,000 – (P1,000,000 x 70%) = P200,000 – (P200,000 x 70%) = P60,000, partial goodwill It is assumed that full-goodwill is used. But, it should be noted that PFRS 3 either partial or fullgoodwill approach are considered acceptable.

105. b – (P50,000 + P70,000) x 25% = P30,000 106. b – P only. 107. b {(P250,000/.8) + [P75,000 + P90,000 - P25,000 - P50,000 - P30,000 - (P80,000/8)2]}.2 108. d {(P420,000/.7) + [P160,000 + P210,000 - P60,000 - P80,000 - P50,000 - (P90,000/5)2]}.3 109. a - P650,000 =P500,000 + P200,000 - P50,000 110. a – assume the use of equity method Punn’s equity in net income of Sunn (3 months ended,12/31/x6)…… P 200,000 Amortization of cost in excess of book value........................................... ( 60,000) Increase in Parent’s retained earnings……………………………………. P 140,000 e - If cost model/cost method, the answer would be P100,000. Dividend income……………………………………………………………. P 100,000

111. c – P60,000 x 80% = P48,000 112. c Investment.1/1/20x4 P105,000 Add: Share in net income – 20x4 (P45,000 x 80%) 36,000 Less: Dividends received 12,000 Investment, 12/31/20x4 P129,000 Add: Share in net income – 20x5 (P60,000 x 80%) 48,000 Less: Dividends received 18,000 Investment, 12/31/20x5 P159,000 113. d Investment balance, 1/1/20x4……………………………………………….. P 150,000 Add: Puma’s equity in net income of Slume (30% x P25,000)..………… 7,500 Less: Dividends (P30% x P10,000)……………………………………………. 3,000 Amortization of cost in excess of book value (P50,000/10 years) x 30%.............................................................. 1,500 Puma’s 20x6 net income (equity method) ............................................... P 153,000 114. b Puma’s equity in net income of Slume (30% x P25,000)..……………….. P 7,500 Less: Amortization of cost in excess of book value (P50,000/10 years) x 30%.............................................................. 1,500 Investment income – 20x4 (equity method)………………………………. P 6,000 115. b Full—goodwill Aproach Fair value of Subsidiary (100%) Consideration transferred (80%)…………….. Fair value of NCI (given) (20%)……………….. Fair value of Subsidiary (100%)………. Less: Book value of stockholders’ equity of Son: Common stock (P100,000 x 100%)………………. Retained earnings (P60,000 x 100%)………... Allocated excess (excess of cost over book value)….. Less: Over/under valuation of assets and liabilities: Increase in land (P5,000 x 100%)……………………. Increase in equipment (P10,000 x 100%) Positive excess: Full-goodwill (excess of cost over fair value)………………………………………………...

P 180,000 20,000 P 200,000 P 100,000 60,000

160,000 P 40,000

P 5,000 ___10,000

15,000 P 25,000

Partial-Goodwill Approach Fair value of Subsidiary (90%) Consideration transferred……………………………….. Less: Book value of stockholders’ equity of S: Common stock (P100,000 x 90%)……………………. Retained earnings (P60,000 x 90%)………………... Allocated excess (excess of cost over book value)….. Less: Over/under valuation of assets and liabilities: Increase in land (P5,000 x 90%)……………………. Increase in equipment (P10,000 x 90%) Positive excess: partial-goodwill (excess of cost over fair value)………………………………………………...

P 180,000 P 90,000 54,000 P P

4,500 ___9,000

144,000 36,000

13,500 P 22,500

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

Over/ under 10,000 25,000

Life 5 5

Annual Amount P 2,000 5,000 P 7,000

Current Year(20x4) P 2,000 5,000 P 7,000

116. d 1/1/x4.

Investment in Wisden 180,000 18,000 Dividends – S (20,000 x 90%)

NI of S (60,000 x 90%)……. 54,000 1/1/x6 203,400

12,600

Amortization (P14,000 x 90%)

117. c 1/1/x6.

Investment in Wisden 230,400 9,000 Dividends – S (10,000 x 90%)

NI of S (30,000 x 90%)……. 27,000 1/1/x6 215,100

6,300

Amortization (7,000 x 90%)

118. d – 20x3: P30,000 x 75% = P22,500 20x4: P40,000 x 75% = P30,000 119. a – no changes in investment unless there are dispositions of investment and permanent impairment. 120. None – no answer available. Under the cost model share in net income or earnings of subsidiary does not affect investment. 121. d Investment account, December 31, 20x7: Original investment …………………………………………P 550,000 Tiny’s earnings, 20x4-20x77: 100% x P166,000…………… 166,000 Less: Dividends received: 100% x P114,000……………… 114,000 Balance, December 31, 20x7…………………………….. P602,000 122. a The adjusting entry required in 20x7 to convert from the cost to the equity method is: Investment in Tiny………………………………….52,000 Retained earnings beg………………………….. 4,000 Dividend revenue………………………………… 54,000 Equity in subsidiary income of Tiny……. 110,000 123. b 124. b – Dividend paid – S, P70,000 x 60% = P42,000

125. d – CNI amounted to P265,000 [CI-CNI, P235,000 and NCI-CNI, P30,000 Consolidated Net Income for 20x5 Net income from own/separate operations P Company S Company Total Less: Non-controlling Interest in Net Income* Amortization of allocated excess Goodwill impairment 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

P190,000 90,000 P280,000 P 30,000 15,000 ____0

45,000 P235,000 30,000 P265,000


P 90,000 ( 15,000_ P 75,000 40% P 30,000 ______0 P 30,000

Multiplied by: Non-controlling interest %.......... Less: Non-controlling interest on impairment loss on full-goodwill (P1,500 x 15%)*

20x5 results of operations are as follows: Sales Less: Cost of goods sold Operating expenses Net income from its own separate operations Add: Investment income Net income

Peer P 600,000 410,000 P 190,000 45,000 P 235,000

Computation of Goodwill: Fair value of Subsidiary (100%) Consideration transferred: Cash (60%) Fair value of NCI (given) (40%) Fair value of Subsidiary (100%) Less: Book value of stockholders’ equity of Sea (P550,000 x 100%) Allocated excess (excess of cost over book value)….. Add (deduct): (Over) under valuation of assets and liabilities (P140,000 x 100%) Positive excess: Full-goodwill (excess of cost over fair value) Amortization of Allocated Excess Book Value Buildings (net)- 6 300,000 Equipment (net)– 4 300,000 Patent -10 -0Net 126. c – refer to No. 125 for computations 127. b – refer to No. 125 for computations

Fair Value 360,000 280,000 100,000

Over/under P 60,000 (20,000) 100,000 P 140,000

Sea-Breeze P 300,000 210,000 P 90,000 P 90,000

P 414,000 276,000 P 690,000 __550,000 P 140,000

P

140,000 0

Amort. P 10,000 (5,000) 10,000 P 15,000

128. c - P811,000. Consolidated Retained Earnings, December 31, 20x5 Retained earnings - Parent Company, January 1, 20x5 (cost model) 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, 20x2 Increase in retained earnings since date of acquisition Less: Amortization of allocated excess – 20x2 – 20x4 (P15,000 x 3 years) Multiplied by: Controlling interests %................... Less: Goodwill impairment loss (full-goodwill), Consolidated Retained earnings, January 1, 20x5 Note: a. Date of acquisition: RE of Parent = Consolidated RE Regardless of the method used in the books of the subsidiary, applied – b. Subsequent to date of acquisition: Retained earnings of Parent under equity method = CRE

P700,000

P 300,000 70,000 P 230,000 45,000 P 185,000 60% P 111,000 0

111,000 P 811,000

the following rule should always be

Since, the P811,000 is the retained earnings of parent under the equity method, it should also be considered as the parent’s portion or interest in consolidated retained earnings or simply the consolidated retained earnings.

129. c - P811,000 – refer to note (b) of No. 128 130. b – P111,000 – refer to No. 128 131. d Consolidated Retained earnings, January 1, 20x5 (refer to Nos. 118 and 119) 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 Consolidated Retained Earnings, December 31, 20x5

P 811,000 235,000 P1,046,000 92,000 P 954,000

132. d – refer to No.131 133. c Non-controlling interest (partial-goodwill), December 31, 2015 Common stock – Subsidiary Company, December 31, 2015…… Retained earnings – Subsidiary Company, December 31, 2015 Retained earnings – Subsidiary Company, January 1, 2015 Add: Net income of subsidiary for 2015 Less: Dividends paid – Subsidiary - 2015 Stockholders’ equity – Subsidiary Company, December 31, 2015 Adjustments to reflect fair value - (over) undervaluation of assets and liabilities, date of acquisition (January 1, 2012) Amortization of allocated excess (refer to amortization above) – (P15,000 x 4) Fair value of stockholders’ equity of subsidiary, 12/31/ 2015 Multiplied by: Non-controlling Interest percentage. Non-controlling interest (partial) Add: NCI on full-goodwill……………………. Non-controlling interest (full)

P 480,000 P300,000 90,000 70,000

320,000 P 800,000 140,000 ( 60,000) P 880,000 40 P 352,000 ____0 P 352,000

134. c Stockholders’ Equity Common stock - Peer Retained earnings Parent’s Stockholders’ Equity/Equity Attributable to the Owners of the Parent Non-controlling interest** Total Stockholders’ Equity (Total Equity) Total Liabilities and Stockholders’ Equity

P

724,000 954,000

P 1,678,000 352,000 P 985,500 P2,030,000

135. c Investment in Sea-Breeze 1/1/x2. 414,000 42,000 Dividends – S Retro 111,000 (70,000 x 60% NI of S (90,000 Amortization x 60%)……. 54,000 9,000 (P15,000 x 60%) 12/31/x5 528,000

Investment Income NI of S

Amortization (P15,000 x 60%) 9,000

136. c 137. d – refer to No. 125 138. c – refer to No. 125 139. b – refer to No. 125 140. c – refer to No. 128 141. c – refer to No. 128 142. a – not applicable under equity method. 143. d – refer to No. 131 144. d – refer to No. 131 145. d – refer to No. 133 146. c – refer to No. 134 147. b Consideration transferred: 10,500 shares x P95 Less: BV of SHE – S (?) Allocated excess; Less: O/U valuation of A and L: Undervaluation of land Overvaluation of buildings Undervaluation of equipment Undervaluation/unrecorded trademark

54,000 45,000

(90,000 x 60%)

P997,500 857,500 P140,000 P40,000 ( 30,000) 80,000 50,000 140,000 P 0

148. a – P900,000 + P500,000 = P1,400,000 149. d – assumed that total expenses includes cost of goods sold which is different when the question is “total operating expenses” Cost of goods sold (P360,000 + P200,000) P 560,000 Depreciation expense (P140,000 + P40,000) 180,000 Other expenses (P100,000 + P60,000) 160,000 Amortization of allocated excess: Buildings: (P30,000) / 20 (P1,500) Equipment; P80,000 / 10 8,000 Trademark: P50,000 / 16 3,125 9,625 Total expenses P909,625 150. b – (P750,000 + P280,000) – P30,000 + (P1,500 x 5 years) = P1,007,500 151. c – (P300,000 + P500,000) + P80,000 – (P8,000 x 5 years) = P840,000 152. c – P450,000 + P180,000 + P40,000 = P670,000 153. d – P50,000 – P3,125 x 5 years) = P34,375

154. a – P only (the stock issued In 20x0 includes already in the December 31, 20x4 balance. 155. a – P only 156. a Consolidated Retained Earnings, December 31, 20x4 Consolidated Retained earnings, January 1, 20x4 (equity method) Add: Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent for 20x4 Total Less: Dividends paid – P Company for 20x4 Consolidated Retained Earnings, December 31, 20x4 (under equity method) Net Income from own operations: Sales Less: cost of goods sold Gross profit Less: Depreciation expense Other expenses Net income Non-controlling interest (full-goodwill), December 31, 20x4 P Company S Company Total Less: Non-controlling Interest in Net Income Amortization of allocated excess (refer to amortization above) Goodwill impairment (impairment under full-goodwill approach) Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent…………..

P 1,350,000 490,375 P1,840,375 195,000 P1,645,375 P Co P900,000 360,000 P540,000 140,000 100,000 P300,000

S Co P500,000 200,000 P300,000 40,000 60,000 P200,000

P300,000 200,000 P500,000 P

0 9,625 _ 0

9,625 P490,375

157. c Note: Normally, the term used in the requirement “equity in subsidiary income”, is a term used under equity method, but it should be noted that under PAS 27, it prohibits the use of equity method for a parent to consolidate a subsidiary. But, assuming the use of equity method, the answer would be, P190,375. Share in net income: P200,000 x 100% P200,000 Less: Amortization of allocated excess 9,625 P190,375 158. c – P3,1250 / .20 = P15,750 159. a Punn’s separate earnings for 20x6.............................................................. P 6,000,000 Add: Punn’s equity in net income of Sunn (3 months ended,12/31/x6) 200,000 Less: Amortization of cost in excess of book value ................................. ( 60,000) Punn’s 20x6 net income (equity method)................................................. P 6,140,000 160. a – assume the use of equity method Punn’s equity in net income of Sunn (3 months ended,12/31/x6)…… P 200,000 Amortization of cost in excess of book value........................................... ( 60,000) Increase in Parent’s retained earnings……………………………………. P 140,000 E - If cost model/cost method, the answer would be P100,000. Dividend income…………………………………………………………….

161. a Net income of S (5/1/x5 – 12/31/x5): P840,000 x 8/12 Less: Dividend – S (11/1/20x5 – no need to pro-rate) Cumulative net income less dividends since date of acquisition, 1/1/20x6 (date to establish reciprocity –

P 100,000

P560,000 300,000

not 12/31/x6) x: Controlling interests 162. b Retained earnings – S Company, 1/1/20x4 Less: Retained earnings – S Company, 12/31/20x6 Cumulative net income less dividends since date of acquisition, 1/1/20x6 (date to establish reciprocity – should always be beginning of the year, not 12/31/x6) x: Controlling interests

P260,000 80% P208,000 P 60,000 190,000

P130,000 90% P117,000

163. (b) Net income of Subsidiary – 2015 and 2016 (P15,000 + P22,000)…………………………………….P 37,000 Less: Dividends of Subsidiary – 2015 and 2016 (P6,000 + P9,000)…………………………………….. . 15,000 Cumulative net income less dividends since date of acquisition, 1/1/2017 (date to establish reciprocity – should always be beginning of the year, not 12/31/17) / Increase in Retained earnings………………………………………………………………………………………...P 22,000 x: Controlling interests………………………………………………………………………………………… 70% P 15,400 It should be noted that the amortization/depreciation and any unrealized/realized profits (in case of intercompany sales of inventory/fixed assets) should not be included (refer to next number) as part of the entry to established reciprocity since there will be separate eliminating entry to be made at the end of the year (2017) for amortization and depreciation. Further, the eliminating entry to establish reciprocity for the year 20x7 should be made on January 1, 20 17 not December 31, 2017 Incidentally, the entry to convert from cost method to equity method or the entry to establish reciprocity at the beginning of the year, 1/1/2017 would be as follows: Investment in Subsidiary………………………………………………………………… 15,400 Retained ea rnin g – Pa rent Comp any, 1/1/2017……………………………….

15, 400

164. (a) Net income of Subsidiary – 2015 and 2016 (P15,000 + P22,000)……………………………………. P 37,000 Less: Dividends of Subsidiary – 2015 and 2016 (P6,000 + P9,000)…………………………………… 15,000 Increase in Retained earnings for 2 years……………………………………………………………… P 22,000 Less: Amortization of allocated excess [(P80,000 – P60,000)/10 years x 2 years]……………… 4,000 P 18,000 x: Controlling interests………………………………………………………………………………………. 70% Retroactive amount, December 31, 20x6 or January 1, 2017……………………………………… P 12,600

165. b {(P260,000 - P230,000) + [(P650,000 - P590,000)/120] 8}.8 166. d {(P190,000 - P160,000) 4/6 - [(P241,000 - P220,000)/60] 5}.7 167. b [{(P84,000 + P105,000) - [(P310,000 - P220,000)/20]2} - (P30,000 + P50,000)].8 168. b – building account in the books of subsidiary at fair value 169. e – building account in the books of subsidiary at book value 170. d – push-down accounting: equipment account in the books of subsidiary is at fair value 171. b 172. a – P540,000 = (P500,000 + P150,000 – P90,000 – P20,000) 173. c – equivalent to the original cost

174. d - In consolidating the subsidiary's figures, all intercompany balances must be eliminated in their entirety for external reporting purposes. Even though the subsidiary is less than fully owned, the parent nonetheless controls it. 175. b - Intercompany receivables and payables from unconsolidated subsidiaries would not be eliminated.

Quiz - XVI 1.

b {P150,000 - [(P550,000 - P450,000)/10] - [(P300,000 - P280,000)/5]}.8 2. P36,925 {P110,000 - (P250,000 - P160,000 - P50,000) - [(P130,000 - P100,000) 3/5] + [(P215,000 P200,000)/5] (3/12)}.7 3. P545,500 P500,000 + [P110,000 + P130,000 - P30,000 - P40,000 - P55,000 - (P200,000/8)2].7 4. P388,000 P320,000 + [P100,000 + P140,000 - P40,000 - P50,000 - P35,000 - (P75,000/5)2].8 5. P15,400 {P80,000 - [(P290,000 - P250,000)/8] + [(P160,000 - P150,000)/5]}.2 6. P13,200 {P150,000 - (P470,000 - P300,000 - P90,000) - [(P190,000 - P160,000) 4/5] - [(P520,000 P400,000)/10] (4/12) + [(P380,000 - P350,000)/5] (4/12)}.3 7. P70,500 {(P250,000/.8) + [P75,000 + P90,000 - P25,000 - P50,000 - P30,000 - (P80,000/8)2]}.2 8. 20x5: P56,000 20x6: P14,000 Purchase differential amortization to investment income 20x5 20x6 Inventory (P300,000 - P240,000).7 P42,000 P 0 Plant Assets [(P700,000 - P560,000)/7].7 14,000 14,000 P56,000 P14,000 9. Consolidation worksheet: Cost of Goods Sold P60,000 Depreciation Expense 20,000 10. P2,900 Sandpiper’s share of Shore net income (P18,000 x 30%) Add: Overvalued accounts receivable collected in 20x5 Undervalued accounts payable paid in 20x5 Less: Undervalued inventories sold in 20x5 Depreciation on building undervaluation P3,600/6 Amortization on patent P3,200/8 years Income from Shore/Income from subsidiary 11. P1,050,000 Parrco’s income from its own separate operations for 20 x6 Subbco’s net income for the nine months ended 12/31/x6 Less: Amortization of cost in excess of book value (P30,000 ÷ 60%) Consolidated net income for 20x6 (economic unit concept) Division of consolidated net income: To controlling interest (Parrco’s stockholders) To non-controlling interest (stockholders of Subbco)

P

( ( (

P 900,000 200,000 ___50,000) P1,050,000 P 990,000 ___60,000 P1,050,000

5,400 600 300 2,400) 600) 400) 2,900

12. P990,000 Parrco’s income from its own separate operations for 20 x6 Parrco’s equity in net income of Subbco Company for nine months ended 12/31/x6 (P200,000  60%) Less: Parrco’s amortization of cost in excess of book value Consolidated net income for 20x6 (parent company concept)

P 900,000 120,000 ( 30,000) P 990,000

13. P400,000 (P100,000 + P300,000) 14.

P3,600,000 Plyco’s separate earnings for 20x6 P 3,500,000 Add:Dividend income from Slyco .............................................................. 100,000 Plyco’s 20x6 net income P 3,600,000

15.

P3,867,000 Plyco’s separate earnings for 20x6............................................................ Add:Plyco’s equity in net income of Slyco ............................................... Less: Amortization of cost in excess of book value ................................. Plyco’s 20x6 net income...............................................................................

16.

P3,500,000 400,000 ( 33,000) P3,867,000

P3,867,000 (same amount as calculated in Requirement 16).

17. P52,000 Net income of S (5/1/x5 – 12/31/x5): P210,000 x 8/12 Less: Dividend – S (11/1/20x5 – no need to pro-rate) Cumulative net income less dividends since date of acquisition, 12/31/20x5 (date to establish reciprocity – not or 1/1/20x6) x: Controlling interests

P140,000 75,000

P 65,000 80% P 52,000

18. P12,600 [{(P15,000 + P22,000) - [(P80,000 - P60,000)/10]2} - (P6,000 + P9,000)].7 = P12,600

19. 20x4 = P86,400 Consolidated Net Income 20x4 Peters Company's reported net income 64,000 Less: dividend income from Smith (1,600) Peters' income from independent operations 62,400 Add: Peter's share of Smith's net income in 20x4 since acquisition (.80)(8/12)(P45,000) 24,000 Less: Peter's share of Smith's net loss in 20x4 (.80  P5,000 Controlling Interest in Consolidated net income 86,400 20. 20x5 = P33,500 – refer to No. 19 21. 20x4 = P151,400 Consolidated Retained Earnings 20x4 Peter's 12/31 retained earnings (P80,000 + P64,000 - P15,000) P129,000 Add: Peter's share of the increase in Smith's retained earnings from the date of acquisition to the current date: (.80  (P53,000 – P25,000)) 22,400

20x5 37,500 0 37,500

(4,000) 33,500 20x5 P161,500

Chapter 16 Advanced 2

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