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Solution Chapter 17

This document contains financial information for companies P and S (and their subsidiaries Salad and Tuna) for years 20x4 and 20x5. It provides sales, cost of goods sold, inventory balances, net income, and calculations to consolidate the financial statements and determine controlling vs non-controlling interest. The key figures are the consolidated net income for 20x5 of $1,206,000 and for 20x4 of $7,512,000. Non-controlling interest is also calculated for subsidiaries Salad and Tuna.

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Solution Chapter 17

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Chapter 17

Problem I
1. 20x4
Sales

1,080,000
Purchases (Cost of Goods Sold)

1,080,000

12/31 Inventory (Income Statement)

[216,000 (216,000/1.20)]
12/31 Inventory (Balance Sheet)

36,000
36,000

20x5
Sales

1,200,000
Purchases (Cost of Goods Sold)

12/31 Inventory (Income Statement)

[300,000 (300,000/1.20)]
12/31 Inventory (Balance Sheet)
Beginning R/E Puma
1/1 Inventory (Income Statement)

1,200,000
50,000
50,000
36,000
36,000

2.
Consolidated Net Income for 20x5
P Companys net income from own/separate operations.
Realized profit in beginning inventory of S Company (downstream sales)
Unrealized profit in ending inventory of S Company (downstream sales)
P Companys realized net income from separate operations*...
S Companys net income from own operations.
Realized profit in beginning inventory of P Company (upstream sales)
Unrealized profit in ending inventory of P Company (upstream sales)
S Companys realized net income from separate operations*...
Total
Less: Amortization of allocated excess
Consolidated Net Income for 20x5
Less: Non-controlling Interest in Net Income* *
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent 20x5..
*that has been realized in transactions with third parties.

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

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

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

P 760,000
36,000
(_50,000)
P 746,000
P 460,000
0
(
0)
P460,000
P 92,000
0

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

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

Problem II
1.
Sales

1,020,000

Purchases (Cost of Sales)

To eliminate intercompany sales.

1,020,000

12/31 Inventory (Income Statement)

51,000
Inventory (Balance Sheet)
51,000
To eliminate unrealized intercompany profit in ending inventory.
Beginning Retained Earnings Pinta
(.90 P40,000)
36,000
Noncontrolling interest
4,000
1/1 Inventory (Balance Sheet)
40,000
To recognize unrealized profit in beginning inventory realized during the year.
Consolidated Net Income for 20x5
P Companys net income from own/separate operations.
Realized profit in beginning inventory of S Company (downstream sales)
Unrealized profit in ending inventory of S Company (downstream sales)
P Companys realized net income from separate operations*...
S Companys net income from own operations.
Realized profit in beginning inventory of P Company (upstream sales)
Unrealized profit in ending inventory of P Company (upstream sales)
Son Companys realized net income from separate operations*...
Total
Less: Amortization of allocated excess
Consolidated Net Income for 20x5
Less: Non-controlling Interest in Net Income* *
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent 20x5..
*that has been realized in transactions with third parties.

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

589,000
P2,309,000
0
P2,309,000
58,900
P 2,250,100

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

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

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

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

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

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

3,903,000

Total
Less: Amortization of allocated excess
Consolidated Net Income for 20x4
Less: Non-controlling Interest in Net Income* *- Salad
Non-controlling Interest in Net Income* *- Tuna
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent 20x4..
*that has been realized in transactions with third parties.

P7,512,000
0
P7,512,000
P 301,800
___239,400

___541,200
P6,970,800

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

P 3,600,000
54,000
(___45,000)
P3,609,,000
P3,900,000
66,000
63,000
( 57,000)
( 69,000)
P3,903,000

3,903,000
P7,512,000

P 301,800
239,400
0

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

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

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

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

Realized Profit in Beginning inventory:

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

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

P54,000
66,000
63,000

P45,000
57,000
69,000

Problem IV
1.
Sales
Cost of Goods Sold
Cost of Goods Sold
Ending Inventory (Balance Sheet)
[P1,250,000 - (P1,250,000/1.25)]
1/1 Retained Earnings P Company (1)
Noncontrolling interest (2)
Cost of Goods Sold (Beginning Inventory)
[P525,000 (P525,000/1.25)] = P105,000

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

(1) .8(P105,000)
(2) .2(P105,000)
2/3.

P3,000,000 .20 = P600,000 non-controlling interest in consolidated income.

[(.20 P5,400,000) -.20(P1,250,000 P1,250,000/1.25)] = P1,030,000 non-controlling interest

in consolidated net assets on December 31, 20x4.

Problem V

P COMPANY AND SUBSIDIARY

Consolidated Income Statement
For the Year Ended December 31, 20x4

Sales (P13,800,000 P1,350,000)

Cost of Goods Sold (a)
Operating Expenses
Consolidated Income
Less Non-controlling Interest in Consolidated Income (b)
Controlling Interest in Consolidated Net Income

P12,450,000
P7,755,000
1,800,000

9,555,000
2,895,000
197,500
P2,697,500

(a)
Reported Cost of Goods Sold
Less intercompany sales in 20x4
Plus unrealized profit in ending inventory (2/5 x (P1,350,000 - P900,000))
Less realized profit in beginning inventory (1/4 x (P1,800,000 - P1,500,000))
Corrected cost of goods sold

P9,000,000
(1,350,000)
180,000
(75,000)
P7,755,000

P190,000
0.1
Plus unrealized profit on subsidiary sales in 2013 that is considered realized in 20x4
(1/4 x (P1,800,000 - P1,500,000))
Less unrealized profit on subsidiary sales in 20x4 (there were no upstream sales in 20x4)
Income realized in transactions with third parties

P1,900,000

(b)

Reported net income of subsidiary

Non-controlling interest in consolidated income

75,000
0
1,975,000
0.10
P197,500

Problem VIII
(Determine selected consolidated balances; includes inventory transfers and an outside
ownership.)
Customer list amortization = P65,000/5 years = P13,000 per year
Intercompany Gross profit (P160,000 P120,000) ...............................................
Inventory Remaining at Year's End .........................................................................
Unrealized Intercompany Gross profit, 12/31 ..............................................................

P40,000
20%
P8,000

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

Operating Expenses = P443,000 (add the two book values and the amortization
expense for the period)
Gross profit: P1,240,000 P548,000 = P692,000
Controlling Interest in CNI:
Gross profit ...................................................................................................... P692,000
Less: Operating expenses ............................................................................ 443,000
Consolidated Net Income ...........................................................................P249,000
Less: NCI-CNI ...................................................................................................
8,700
CI-CNI ...............................................................................................................P240,300
or
Consolidated Net Income for 20x5
P Companys net income from own/separate operations (P800-P400-P180)
Realized profit in beginning inventory of S Company (downstream sales)
Unrealized profit in ending inventory of S Company (downstream sales)
P Companys realized net income from separate operations*...
S Companys net income from own operations (P600 P300 P250)
Realized profit in beginning inventory of P Company (upstream sales)
Unrealized profit in ending inventory of P Company (upstream sales)
S Companys realized net income from separate operations*...
Total
Less: Amortization of allocated excess
Consolidated Net Income for 20x5
Less: Non-controlling Interest in Net Income* *
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent 20x5..
*that has been realized in transactions with third parties.

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

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

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

21,700
P240,300
_ 8,700
P249,000

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

Noncontrolling Interest in Subsidiary's Net Income = P8,700 (30 percent of the

reported income after subtracting 13,000 excess fair value amortization and
deferring P8,000 ending unrealized gross profit) Gross profit is included in this
computation because the transfer was upstream from SS to PT.

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

42,000
P 262,000

Fair value of Subsidiary (80%)

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

P 372,000
P 192,000
96,000

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:

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 of 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)
4800

8
4
4

Annual
Amount
P 6,000

Current
Year(20x4)
P 6,000

20x5
P
-

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

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

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

P 372,000

Fair value of NCI (given) (20%)

93,000

Fair value of Subsidiary (100%)

P 465,000

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

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)...

__360,000
P

105,000
90,000

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..

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

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

Sales of Parent to
Subsidiary
P150,000
120,000

Upstream Sales:
Year
20x4
20x5

Sales of Subsidiary
to Parent
P 60,000
75,000

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

Unrealized Intercompany
Profit in Ending Inventory
P90,000 x 20% = P18,000
P96,000 x 25% = P24,000

Intercompany Merchandise
in 12/31 Inventory
of S Company
P60,000 x 50% = P30,000
P 75,000 x 40% = P30,000

Unrealized Intercompany
Profit in Ending Inventory
P30,000 x 40% = P12,000
P30,000 x 20% = P 6,000

20x4: First Year after Acquisition

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

372,000
372,000

28,800
28,800

No entries are made on the parents books to depreciate, amortize or write-off the portion of
the allocated excess that expires during 20x4, and unrealized profits in ending inventory.
Consolidation Workpaper Year of Acquisition
(E1) Common stock S Co
Retained earnings S Co
Investment in S Co
Non-controlling interest (P360,000 x 20%)..

240,000
120.000
288,000
72,000

To eliminate intercompany investment and equity accounts

of subsidiary on date of acquisition; and to establish non-controlling
interest (in net assets of subsidiary) on date of acquisition.

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

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

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

To provide for 20x4 impairment loss and depreciation and

amortization on differences between acquisition date fair value and
book value of Ss identifiable assets and liabilities as follows:

Inventory sold
Equipment
Buildings
Bonds payable
Totals

Cost of
Goods
Sold
P 6,000

_______
P 6,000

Depreciation/
Amortization
Expense

Amortization
-Interest

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

P 1,200
P1,200

Total

13,200

(E4) Dividend income - P.

Non-controlling interest (P36,000 x 20%)..
Dividends paid S

28,800
7,200
36,000

To eliminate intercompany dividends and non-controlling interest

share of dividends.

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

150,000
150,000

To eliminated intercompany downstream sales.

(E6) Sales.
Cost of Goods Sold (or Purchases)

60,000
60,000

To eliminated intercompany upstream sales.

(E7) Cost of Goods Sold (Ending Inventory Income Statement)

Inventory Balance Sheet

18,000
18,000

To defer the downstream sales - unrealized profit in ending inventory

until it is sold to outsiders.

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

Inventory Balance Sheet

12,000
12,000

To defer the upstream sales - unrealized profit in ending inventory

until it is sold to outsiders.

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

Non-controlling interest ..

6,960
6,960

To establish non-controlling interest in subsidiarys adjusted net

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

6,960

Worksheet for Consolidated Financial Statements, December 31, 20x4.

Cost Model (Partial-goodwill)
80%-Owned Subsidiary
December 31, 20x4 (First Year after Acquisition)
Sales

Income Statement

P Co
P480,000

S Co.
P240,000

Dividend income
Total Revenue

28,800
P508,800

P240,000

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

Cr.

Consolidated
P 510,000
_________
P 510,000

Cost of goods sold

P204,000

P138,000

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

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

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

Statement of Retained Earnings

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

Land.
Equipment
Buildings
Discount on bonds payable
Goodwill
Investment in S Co
Total
Accumulated depreciation
- equipment
Accumulated depreciation
- buildings
Accounts payable
Bonds payable
Common stock, P10 par
Common stock, P10 par
Retained earnings, from above
Non-controlling interest

Total

(3)
(7)
(8)
(3)
(3)

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

(3)

3,000

(9)

6,960

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

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

P432,000

P 168,000

236,160
P668,160

P144,000
72,000
P216,000

86,400
-

43,200

P581,760

360,000

(1) 120,000
174,840
P538,840

72,000
________

P172,800

466,840

232,800
90,000
120,000

P 90,000
60,000
90,000

355,200
150,000

1210,000
240,000
720,000

48,000
180,000
540,000

(4)

(2)

6,000

(2)

7,200

(2)
(2)

4,800
12,000

372,000
P1,984,800

P1,008,000

P 135,000
405,000

P 96,000
288,000

120,000
240,000
600,000

120,000
120,000

581,760

240,000
144,000

_________
P1,008,000

6,000
18,000
12,000

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

(2) 96,000 (3)

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

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

12,000

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

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

_________
P1,984,800

(3)
(7)
(8)

36,000

7,200

__________
P 983,160

Consolidated Net Income for 20x4

P Companys net income from own/separate operations.
Unrealized profit in ending inventory of S Company (downstream sales)
P Companys realized net income from separate operations*...
S Companys net income from own operations.
Unrealized profit in ending inventory of S Company (upstream sales)
Son Companys realized net income from separate operations*...
Total
Less: Non-controlling Interest in Net Income* *
Amortization of allocated excess (refer to amortization above)
Goodwill impairment (impairment under partial-goodwill approach)
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent..
Add: Non-controlling Interest in Net Income (NCINI)
Consolidated Net Income for 20x4
*that has been realized in transactions with third parties.
**Non-controlling Interest in Net Income (NCINI) for 20x4
S Companys net income of Subsidiary Company from its own operations
(Reported net income of S Company)
Unrealized profit in ending inventory of P Company (upstream sales)
S Companys realized net income from separate operations
Less: Amortization of allocated excess

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

____89,760
P2,394,600

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

48,000
P198,000

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

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

P 34,800
20%
P 6,960

Multiplied by: Non-controlling interest %..........

Non-controlling Interest in Net Income (NCINI) partial goodwill
*that has been realized in transactions with third parties.

Since NCI share of goodwill is not recognized, no adjustment is required for the impairment loss
on goodwill and impairment losses are not shared with NCI.
20x5: Second Year after Acquisition

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

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

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

No goodwill impairment loss for 20x5.

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

38,400
38,400

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

48,000
48,000

Consolidation Workpaper Second Year after Acquisition

(E1) Investment in S Company
Retained earnings P Company

19,200
19,200

To provide entry to convert from the cost method to the equity

method or the entry to establish reciprocity at the beginning of the
year, 1/1/20x5, computed as follows:
Retained earnings S Company, 1/1/20x5
Retained earnings S Company, 1/1/20x4
Increase in retained earnings..
Multiplied by: Controlling interest %
Retroactive adjustment

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

(E2) Common stock S Co

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

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.
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.

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

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

To provide for years 20x4 and 20x5 depreciation and amortization on

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

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

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

Depreciation/
Amortization
expense

Amortization
-Interest

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

P 1,200
P 1,200

(E5) Dividend income - P.

Non-controlling interest (P48,000 x 20%)..
Dividends paid S

38,400
9,600
48,000

To eliminate intercompany dividends and non-controlling interest

share of dividends.

(E6) Sales.
Cost of Goods Sold (or Purchases)

120,000
120,000

To eliminated intercompany downstream sales.

(E7) Sales.
Cost of Goods Sold (or Purchases)

75,000
75,000

To eliminated intercompany upstream sales.

(E8) Beginning Retained Earnings P Company

Cost of Goods Sold (Ending Inventory Income Statement)

18,000
18,000

To realized profit in downstream beginning inventory deferred in the

prior period.

(E9) Beginning Retained Earnings P Company (P12,000 x 80%)

Noncontrolling interest (P12,000 x 20%)
Cost of Goods Sold (Ending Inventory Income Statement)

9,600
2,400
12,000

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

(E10) Cost of Goods Sold (Ending Inventory Income Statement)

Inventory Balance Sheet

24,000
24,000

To defer the downstream sales - unrealized profit in ending inventory

until it is sold to outsiders.

(E11) Cost of Goods Sold (Ending Inventory Income Statement)

Inventory Balance Sheet

6,000
6,000

To defer the upstream sales - unrealized profit in ending inventory

until it is sold to outsiders.

(E12) Non-controlling interest in Net Income of Subsidiary

Non-controlling interest ..
To establish non-controlling interest in subsidiarys adjusted net
income for 20x5 as follows:

17,760
17,760

Realized profit in beginning inventory of P

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

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

Multiplied by: Non-controlling interest %..........

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

Worksheet for Consolidated Financial Statements, December 31, 20x5.

Cost Model (Partial-goodwill)
80%-Owned Subsidiary
December 31, 20x5 (Second Year after Acquisition)
Sales

Income Statement

P Co
P540,000

S Co.
P360,000

Dividend income
Total Revenue
Cost of goods sold

38,400
P501,600
P216,000

P360,000
P192,000

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

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

Statement of Retained Earnings

Retained earnings, 1/1
P Company

P484,800

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

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

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

Cr.

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

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

(4)
(4)

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

6,000
1,200

P
P
(
P

(12) 17,760

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

(1) 19,200

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

P 462,840

230,400
P715,200

P 144,000
90,000
P234,000

72,000
-

48,000

P643,200

P186,000

P 647,880

265,200
180,000
216,000

P 102,000
96,000
108,000

P 367,200
276,000

210,000
240,000
720,000

48,000
180,000
540,000

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

257,040
P 719,880

(5)

(3)

7,200

(3)

7,200

(3)
(3)
(1)

4,800
12,000
19,200

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

48,000

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

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

(4)

24,000

72,000
________

294,000
265,200
420,000
1,044,000
2,400
9,000
P2,677,800

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

(2) 240,000
(4)

2,640

(2 ) 76,800

647,880
____97,920

_________

Total

2,203,200

P1,074,000

(5)
9,600
(9)
2,400
__________
P1,077,360

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

P2,677,800

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

P360,000

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

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

Consolidated SHE:
Stockholders Equity
Common stock, P10 par
Retained earnings
Parents 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 parents share. NCI is
measured as a proportion of identifiable assets and goodwill attributable to NCI share is not
recognized.
12/31/20x4:
a. CI-CNI P174,840
Consolidated Net Income for 20x4
P Companys net income from own/separate operations.
Unrealized profit in ending inventory of S Company (downstream sales)
P Companys realized net income from separate operations*...
S Companys net income from own operations.
Unrealized profit in ending inventory of S Company (upstream sales)
S Companys realized net income from separate operations*...
Total
Less: Non-controlling Interest in Net Income* *
Amortization of allocated excess (refer to amortization above)
Goodwill impairment (impairment under partial-goodwill approach)
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent..
Add: Non-controlling Interest in Net Income (NCINI)
Consolidated Net Income for 20x4
*that has been realized in transactions with third parties.

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

48,000
P198,000

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

b. NCI-CNI P6,960
**Non-controlling Interest in Net Income (NCINI) for 20x4
S Companys net income of Subsidiary Company from its own operations
(Reported net income of S Company)
Unrealized profit in ending inventory of P Company (upstream sales)
S Companys realized net income from separate operations
Less: Amortization of allocated excess
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI) partial goodwill
*that has been realized in transactions with third parties.

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

c. CNI, P181,800 refer to (a)

d. On subsequent to date of acquisition, consolidated retained earnings would be computed
as follows:

Consolidated Retained Earnings, December 31, 20x4

Retained earnings - P Company, January 1, 20x4 (date of acquisition)
Add: Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent for 20x4
Total
Less: Dividends paid P Company for 20x4
Consolidated Retained Earnings, December 31, 20x4

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

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

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

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

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

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

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

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

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

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

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

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

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

Multiplied by: Non-controlling interest %..........

Non-controlling Interest in Net Income (NCINI) partial goodwill

c. CNI, P274,800 refer to (a)

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

P484,800

18,000

P466,800

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

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

Less: Goodwill impairment loss, partial goodwill

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

Or, alternatively:
Consolidated Retained Earnings, December 31, 20x5
Retained earnings - Parent Company, December 31, 20x5 (cost model
Less: Unrealized profit in ending inventory of S Company (downstream sales)
20x5 (UPEI of S 20x5) or Realized profit in beginning inventory of S
Company (downstream sales) 20x6 (RPBI of S - 20x6).
Adjusted Retained Earnings Parent 12/31/20x5 (cost model (
S Companys Retained earnings that have been realized in
transactions with third parties..
Adjustment to convert from cost model to equity method for purposes of
consolidation or to establish reciprocity:/Parents share in adjusted net
increased in subsidiarys retained earnings:
Retained earnings Subsidiary, December 31, 20x5
Less: Retained earnings Subsidiary, January 1, 20x4
Increase in retained earnings since date of acquisition
Less: Accumulated amortization of allocated excess
20x4 and 20x5 (P11,000 + P6,000)
Unrealized profit in ending inventory of P Company (upstream
sales) 20x5 (UPEI of P 20x5) or Realized profit in beginning
inventory of P Company (upstream sales) 20x6 (RPBI of P - 20x6)

P643,200

24,000

P619,200

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

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

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

28,680
P647,880

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

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

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

Problem 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

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

90,000
P 15,000

A summary or depreciation and amortization adjustments is as follows:

Account Adjustments to be amortized
Inventory
Subject to Annual Amortization
Equipment (net).........
Buildings (net)
Bonds payable

Over/
under
P 6,000

Life
1

96,000
(24,000)
4,800

8
4
4

Annual
Amount
P 6,000

Current
Year(20x4)
P 6,000

20x5
P
-

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

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

20x4: First Year after Acquisition

Parent Company Cost Model Entry
January 1, 20x4:
(1) Investment in S Company
Cash..

372,000
372,000

Acquisition of S Company.
January 1, 20x4 December 31, 20x4:
(2) Cash
Dividend income (P36,000 x 80%).
Record dividends from Son Company.

28,800
28,800

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

36,000
36,000

No entries are made on the parents 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.

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

To allocate excess of cost over book value of identifiable assets

acquired, with remainder to goodwill; and to establish noncontrolling interest (in net assets of subsidiary) on date of acquisition.

(E3) Cost of Goods Sold.

Depreciation expense..
Accumulated depreciation buildings..
Interest expense
Goodwill impairment loss.
Inventory..
Accumulated depreciation equipment..
Discount on bonds payable
Goodwill

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

To provide for 20x4 impairment loss and depreciation and

amortization on differences between acquisition date fair value and
book value of Ss identifiable assets and liabilities as follows:

Inventory sold
Equipment
Buildings
Bonds payable
Totals

Cost of
Goods
Sold
P 6,000

Depreciation/
Amortization
Expense

Amortization
-Interest

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

P 1,200
P1,200

_______
P 6,000

(E4) Dividend income - P.

Non-controlling interest (P36,000 x 20%)..
Dividends paid S

28,800
7,200
36,000

To eliminate intercompany dividends and non-controlling interest

share of dividends.

(E5) Sales.
Cost of Goods Sold (or Purchases)
To eliminated intercompany downstream sales.

150,000
150,000

(E6) Sales.
Cost of Goods Sold (or Purchases)

60,000
60,000

To eliminated intercompany upstream sales.

(E7) Cost of Goods Sold (Ending Inventory Income Statement)

Inventory Balance Sheet

18,000
18,000

To defer the downstream sales - unrealized profit in ending inventory

until it is sold to outsiders.

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

Inventory Balance Sheet

12,000
12,000

To defer the upstream sales - unrealized profit in ending inventory

until it is sold to outsiders.

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

Non-controlling interest ..

6,210
6,210

To establish non-controlling interest in subsidiarys adjusted net

income for 20x4 as follows:
Net income of subsidiary..
Unrealized profit in ending inventory of P
Company (upstream sales)..
S Companys realized net income from
separate operations*...
Less: Amortization of allocated excess [(E3)].
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI)
partial goodwill
Less: Non-controlling interest on impairment
loss on full-goodwill (P3,750 x 20%) or
(P3,750 impairment on full-goodwill less
P3,000, impairment on partial-goodwill)
Non-controlling Interest in Net Income (NCINI)
full goodwill

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

750
P

6,210

Worksheet for Consolidated Financial Statements, December 31, 20x4.

Cost Model (Full-goodwill)
80%-Owned Subsidiary
December 31, 20x4 (First Year after Acquisition)
Income Statement

P Co
P480,000

S Co.
P240,000

Dividend income
Total Revenue
Cost of goods sold

28,800
P451,200
P204,000

P240,000
P138,000

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

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

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

Sales

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.

Dr.
(5) 150,000
(6) 60,000
(4) 28,800
(3)
(7)
(8)
(3)
(3)

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

(3)

3,750

(9)

6,210

Cr.

_________
P 510,000
P 168,000

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

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

P360,000

Consolidated
P 510,000

196,800
P556,800

P120,000
60,000
P180,000

72,000
-

36,000

P484,800

232,800
90,000
120,000

360,000

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

72,000
________

P144,000

462,840

P 90,000
60,000
90,000

322,800
150,000

(4)

(2)

6,000

(3)
(7)

36,000

6,000
18,000

180,000

(8)
Land.
Equipment
Buildings
Discount on bonds payable
Goodwill
Investment in S Co

210,000
240,000
720,000

(2)

7,200

(2)
(2)

4,800
15,000

372,000

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

P1,984,800

P1,008,000

P 135,000
405,000

P 96,000
288,000

120,000
240,000
600,000

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

484,800

_________
P1,008,000

12,000

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

(2) 96,000 (3)

(6) 192,000
(7)
6,000

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

12,000

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

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

_________
P1,984,800

Total

48,000
180,000
540,000

7,200

P 986,160

20x5: Second Year after Acquisition

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

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

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

____92,010
P2,396,850

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

No goodwill impairment loss for 20x5.

38,400
38,400

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

48,000
48,000

Consolidation Workpaper Second Year after Acquisition

(E1) Investment in S Company
Retained earnings P Company

19,200
19,200

To provide entry to convert from the cost method to the equity

method or the entry to establish reciprocity at the beginning of the
year, 1/1/20x5.
Retained earnings S Company, 1/1/20x5
Retained earnings S Company, 1/1/20x4
Increase in retained earnings..
Multiplied by: Controlling interest %
Retroactive adjustment

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

(E2) Common stock S Co

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

240,000
144.000
307,200
76,800

subsidiary) on January 1, 20x5.

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

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

To allocate excess of cost over book value of identifiable assets

acquired, with remainder to goodwill; and to establish noncontrolling interest (in net assets of subsidiary) on January 1, 20x5.

(E4) Retained earnings P Company, 1/1/20x5

(P16,950 x 80%)
Non-controlling interests (P16,950 x 20%).
Depreciation expense..
Accumulated depreciation buildings..
Interest expense
Inventory..
Accumulated depreciation equipment..
Discount on bonds payable
Goodwill

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

To provide for years 20x4 and 20x5 depreciation and amortization on

differences between acquisition date fair value and book value of
Sons identifiable assets and liabilities as follows:
Year 20x4 amounts are debited to Perfects 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

Amortization
-Interest

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

P1,200

(E5) Dividend income - P.

Non-controlling interest (P48,000 x 20%)..
Dividends paid S

38,400
9,600
48,000

To eliminate intercompany dividends and non-controlling interest

share of dividends.

(E6) Sales.
Cost of Goods Sold (or Purchases)

120,000
120,000

To eliminated intercompany downstream sales.

(E7) Sales.
Cost of Goods Sold (or Purchases)

75,000
75,000

To eliminated intercompany upstream sales.

(E8) Beginning Retained Earnings P Company

Cost of Goods Sold (Ending Inventory Income Statement)

18,000
18,000

To realized profit in downstream beginning inventory deferred in the

prior period.

(E9) Beginning Retained Earnings P Company (P12,000 x 80%)

Noncontrolling interest (P12,000 x 20%)
Cost of Goods Sold (Ending Inventory Income Statement)

9,600
2,400
12,000

To realized profit in upstream beginning inventory deferred in the

prior period.

(E10) Cost of Goods Sold (Ending Inventory Income Statement)

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

24,000
24,000

(E11) Cost of Goods Sold (Ending Inventory Income

Statement)
Inventory Balance Sheet

6,000
6,000

To defer the upstream sales - unrealized profit in ending inventory

until it is sold to outsiders.

(E12) Non-controlling interest in Net Income of Subsidiary

Non-controlling interest ..

17,760
17,760

To establish non-controlling interest in subsidiarys adjusted net

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

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

Multiplied by: Non-controlling interest %..........

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

Worksheet for Consolidated Financial Statements, December 31, 20x5.

Cost Model (Full-goodwill)
80%-Owned Subsidiary
December 31, 20x5 (Second Year after Acquisition)
Sales

Income Statement

P Co
P540,000

S Co.
P360,000

Dividend income
Total Revenue
Cost of goods sold

38,400
P574,800
P216,000

P360,000
P192,000

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

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

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

Statement of Retained Earnings

Retained earnings, 1/1
P Company

P484,800

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

Land.
Equipment
Buildings
Discount on bonds payable

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

Cr.

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

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

(4)
(4)

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

6,000
1,200

P
P
(
P

(12) 17,760

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

(4) 19,200

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

P 462,840

230,400
P715,200

P 144,000
90,000
P234,000

72,000
-

48,000

P643,200

P186,000

P 647,880

265,200
180,000
216,000

P 102,000
96,000
108,000

P 367,200
276,000

210,000
240,000
720,000

48,000
180,000
540,000

257,040
P 719,880

(5)

(6)

6,000

(3)

7,200

(3)

4,800

48,000

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

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

72,000
________

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

Goodwill
Investment in S Co
Total
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

P2,203,200

P1,074,000

P 150,000
450,000

P 102,000
306,000

120,000
240,000
600,000

120,000
120,000

643,200

___ _____
P2,203,200

Total

(3)
(1)

372,000

240,000
186,000

_________
P1,074,000

15,000
19,200

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

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

(4)

24,000

11,250
P2,680,050

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

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

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

____100,170
P2,680,050

P360,000

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

c.
Consolidated SHE:
Stockholders Equity
Common stock, P10 par
Retained earnings
Parents 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 parents share. NCI is
measured as a proportion of identifiable assets and goodwill attributable to NCI share is not
recognized.
12/31/20x4:
a. CI-CNI P174,840
Consolidated Net Income for 20x4
P Companys net income from own/separate operations.
Unrealized profit in ending inventory of S Company (downstream sales)
Perfect Companys realized net income from separate operations*...
S Companys net income from own operations.
Unrealized profit in ending inventory of S Company (upstream sales)
Son Companys realized net income from separate operations*...
Total
Less: Non-controlling Interest in Net Income
Amortization of allocated excess (refer to amortization above)
Goodwill impairment (impairment under full-goodwill approach)
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent..
Add: Non-controlling Interest in Net Income (NCINI)
Consolidated Net Income for 20x4
*that has been realized in transactions with third parties.

b. NCI-CNI P6,210

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

48,000
P198,000

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

**Non-controlling Interest in Net Income (NCINI) for 20x4

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

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

750
6,210

c. CNI P181,050 refer to (a)

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

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

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

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

144,000
P 384,000
90,000
( 13,200)
P460,800
12,000
P448,800
20
P 89,760
2,250
P 92,010

f.
Consolidated SHE:
Stockholders Equity
Common stock, P10 par
Retained earnings
Parents Stockholders Equity / CI - SHE
NCI, 1/1/20x4
Consolidated SHE, 1/1/20x4

P 600,000
462,840
P1,062,840
___92,010
P1,154,840

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

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

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

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

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

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

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

c. CNI, P274,800 refer to (a)

P484,800

18,000

P466,800

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

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

Less: Goodwill impairment loss (full-goodwill), net (P3,750 P750)* or

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

P643,200

24,000

Adjusted Retained Earnings Parent 12/31/20x5 (cost model (

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

P619,200

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

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

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

28,680
P647,880

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

f.
Consolidated SHE:
Stockholders Equity
Common stock, P10 par
Retained earnings
Parents Stockholders Equity / CI - SHE
NCI, 1/1/20x4
Consolidated SHE, 12/31/20x5

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

Problem XI
(Compute selected balances based on three different intercompany asset transfer scenarios)
1.
Consolidated Cost of Goods Sold
PPs cost of goods sold ......................................................................................
P290,000
SWs cost of goods sold .....................................................................................
197,000
Elimination of 20x5 intercompany transfers ...................................................
(110,000)
Reduction of beginning Inventory because of
20x4unrealized gross profit (P28,000/1.4 = P20,000
cost; P28,000 transfer price less P20,000
cost = P8,000 unrealized gross profit) .......................................................
(8,000)
Reduction of ending inventory because of
20x5 unrealized gross profit (P42,000/1.4 = P30,000
cost; P42,000 transfer price less P30,000
cost = P12,000 unrealized gross profit) .....................................................
12,000
Consolidated cost of goods sold .......................................................
P381,000

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

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

Non-controlling Interest in Subsidiarys Net Income

Because all intercompany sales were downstream, the deferrals do not affect SW.
Thus, the non-controlling interest is 20% of the P58,000 (revenues minus cost of goods
sold and expenses) reported income or P11,600.
or
Consolidated Net Income for 20x5
P Companys net income from own/separate operations (P640-P290-P150)
Realized profit in beginning inventory of S Company (downstream sales)
Unrealized profit in ending inventory of S Company (downstream sales)
P Companys realized net income from separate operations*...
S Companys net income from own operations (P360 P197 P105)
Realized profit in beginning inventory of P Company (upstream sales)
Unrealized profit in ending inventory of P Company (upstream sales)
S Companys realized net income from separate operations*...
Total
Less: Amortization of allocated excess
Consolidated Net Income for 20x5
Less: Non-controlling Interest in Net Income* *
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent 20x5..

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

**Non-controlling Interest in Net Income (NCINI) for 20x5

S Companys net income of Subsidiary Company from its own operations
(Reported net income of Son Company)
Realized profit in beginning inventory of P Company (upstream sales)
Unrealized profit in ending inventory of P Company (upstream sales)
S Companys realized net income from separate operations
Less: Amortization of allocated excess
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI) partial goodwill

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

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

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

P290,000
197,000
(80,000)

(6,000)

10,000
P411,000
P346,000
110,000
(10,000)
P446,000

Non-controlling Interest in Subsidiary's Net income

Since all intercompany sales are upstream, the effect on Snow's income must be
reflected in the non-controlling interest computation:
SW reported income ..........................................................................................
20x4 unrealized gross profit realized in 20x5 (above) ..................................
20x5 unrealized gross profit to be realized in 20x6 (above) .......................
SW realized income ............................................................................................
Outside ownership percentage .......................................................................
Non-controlling interest in SWs income ..................................................

P58,000
6,000
(10,000)
P54,000
20%
P10,800

or
Consolidated Net Income for 20x5
P Companys net income from own/separate operations (P640-P290-P150)
Realized profit in beginning inventory of S Company (downstream sales)
Unrealized profit in ending inventory of S Company (downstream sales)
P Companys realized net income from separate operations*...
S Companys net income from own operations (P360 P197 P105)
Realized profit in beginning inventory of P Company (upstream sales)
Unrealized profit in ending inventory of P Company (upstream sales)
S Companys realized net income from separate operations*...
Total
Less: Amortization of allocated excess
Consolidated Net Income for 20x5
Less: Non-controlling Interest in Net Income* *
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent 20x5..

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

54,000
P 254,000
____0
P 254,000
10,800
P 243,200

**Non-controlling Interest in Net Income (NCINI) for 20x5

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

Multiplied by: Non-controlling interest %..........

Non-controlling Interest in Net Income (NCINI) partial goodwill

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

P48,000
30%
P14,400

UNREALIZED GROSS PROFIT, 12/31/x5: (downstream transfer)

Intercompany gross profit (P250,000 P200,000) ........................................................
P50,000
Inventory remaining at year's end ........................................................................................
20%
Unrealized intercompany gross profit, 12/31/x5 .................................................................
P10,000
CONSOLIDATED TOTALS

Sales = P1,150,000 (add the two book values and eliminate intercompany sales of P250,000)

Cost of goods sold:

Benson's book value ........................................................................................................
P535,000
Broadway's book value ...................................................................................................
400,000
Eliminate intercompany transfers ..................................................................................
(250,000)
Realized gross profit deferred in 20x4 ...........................................................................
(14,400)
Deferral of 20x5 unrealized gross profit .........................................................................
10,000
Cost of goods sold ....................................................................................................
P680,600

Operating expenses = P210,000 (add the two book values and include intangible
amortization for current year)

Dividend income = -0- (intercompany transfer eliminated in consolidation)

Noncontrolling interest in consolidated income: (impact of transfers is not included because

they were downstream)
Broadway reported income for 20x5 ............................................................................
P100,000
Intangible amortization ....................................................................................................
(10,000)
Broadway adjusted income ............................................................................................
90,000
Outside ownership ...........................................................................................................
30%
Noncontrolling interest in Broadways earnings ..........................................................
P 27,000
or,
Consolidated Net Income for 20x5
P Companys net income from own/separate operations (P800-P535-P100)
Realized profit in beginning inventory of S Company (downstream sales)
Unrealized profit in ending inventory of S Company (downstream sales)
P Companys realized net income from separate operations*...
S Companys net income from own operations (P600 P400 P100)
Realized profit in beginning inventory of P Company (upstream sales)
Unrealized profit in ending inventory of P Company (upstream sales)
S Companys realized net income from separate operations*...
Total
Less: Amortization of allocated excess
Consolidated Net Income for 20x5
Less: Non-controlling Interest in Net Income* *
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent 20x5..

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

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

**Non-controlling Interest in Net Income (NCINI) for 20x5

S Companys net income of Subsidiary Company from its own operations
(Reported net income of S Company)
Realized profit in beginning inventory of P Company (upstream sales)
Unrealized profit in ending inventory of P Company (upstream sales)
S Companys realized net income from separate operations
Less: Amortization of allocated excess
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI) partial goodwill

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

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

2. (Computation of selected consolidation balances as affected by upstream inventory

transfers).
UNREALIZED GROSS PROFIT, 12/31/x4: (upstream transfer)
Intercompany gross profit (P120,000 P72,000) ..........................................................
Inventory remaining at year's end ................................................................................
Unrealized intercompany gross profit, 12/31/x4 .................................................................

P48,000
30%
P14,400

UNREALIZED GROSS PROFIT, 12/31/x5: (upstream transfer)

Intercompany gross profit (P250,000 P200,000) ........................................................
Inventory remaining at year's end ................................................................................
Unrealized intercompany gross profit, 12/31/x5 .................................................................

P50,000
20%
P10,000

CONSOLIDATED TOTALS

Sales = P1,150,000 (add the two book values and eliminate the Intercompany transfer)

Cost of goods sold:

Benson's COGS book value ............................................................................................
P535,000
Broadway's COGS book value ......................................................................................
400,000
Eliminate intercompany transfers ..................................................................................
(250,000)
Realized gross profit deferred in 20x4 ...........................................................................
(14,400)
Deferral of 20x5 unrealized gross profit .........................................................................
10,000
Consolidated cost of goods sold ...........................................................................
P680,600

Operating expenses = P210,000 (add the two book values and include intangible
amortization for current year)

Dividend income = -0- (interco. transfer eliminated in consolidation)

Noncontrolling interest in consolidated income: (impact of transfers is included because they

were upstream)
Broadway reported income for 20x5 ............................................................................
P100,000
Intangible amortization ....................................................................................................
(10,000)
20x4 gross profit recognized in 20x5 ......................................................................
14,400
20x5 gross profit deferred ........................................................................................
(10,000)
Broadway realized income for 20x5 .......................................................................
P94,400
Outside ownership ...........................................................................................................
30%
Noncontrolling interest ....................................................................................................
P28,320
Consolidated Net Income for 20x5
P Companys net income from own/separate operations (P800-P535-P100)
Realized profit in beginning inventory of S Company (downstream sales)
Unrealized profit in ending inventory of S Company (downstream sales)
P Companys realized net income from separate operations*...
S Companys net income from own operations (P600 P400 P100)
Realized profit in beginning inventory of P Company (upstream sales)
Unrealized profit in ending inventory of P Company (upstream sales)
S Companys realized net income from separate operations*...
Total
Less: Amortization of allocated excess
Consolidated Net Income for 20x5
Less: Non-controlling Interest in Net Income* *
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent 20x5..
**Non-controlling Interest in Net Income (NCINI) for 20x5
S Companys net income of Subsidiary Company from its own operations
(Reported net income of S Company)
Realized profit in beginning inventory of P Company (upstream sales)

P 165,000
0
(_
0)
P 165,000
P 100,000
14,400
( 10,000)
P 104,400

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

P 100,000
14,400

Unrealized profit in ending inventory of P Company (upstream sales)

S Companys realized net income from separate operations
Less: Amortization of allocated excess

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

Multiplied by: Non-controlling interest %..........

Non-controlling Interest in Net Income (NCINI) partial goodwill

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

Problem XIV
Amortization of equipment: P20,000 / 10 years = P2,000
RPBI of S (downstream sales):........................................................ P15,000
RPBI of P (upstream sales)....................................................... 10,000
UPEI of S (downstream sales)... 20,000
UPEI of P (upstream sales). 5,000
Pepper
(CI-CNI)
Net Income from own operations:
Pepper [P724,000 (PP30,000 x 80%)]
Salt
RPBI of S (down)
RPBI of P (up)
UPEI of S (down)
UPEI of P (up)
Amortization
Impairment of goodwill

P700,000
72,000
15,000
8,000
( 20,000)
( 4,000)
( 1,600)
(
0)
P769,400

Salt
(NCI-CNI)

CNI

P 18,000
2,000
(1,000)
( 400)
____( 0)__
P18,600

P788,000

Profit Attributable to Equity NC Interest

CNI
Holders of Parent
in Net Income
Note: Preferred Solution - since what is given is the RE P, 12/31/2014 (ending
balance of the current year) Retained earnings Parent, 12/31/2014 (cost)..
P 3,500,000
-: UPEI of S (down) 2014 or RPBI of S (down) 2015...
20,000
Adjusted Retained earnings Parent, 12/31/2014 (cost)..
P 3,480,000
Retroactive Adjustments to convert Cost to Equity for
purposes of consolidation / Parents share of adjusted
net increase in subsidiarys retained earnings:
Retained earnings Subsidiary, 1/1/2011.P 150,000
Less: Retained earnings Subsidiary, 12/31/2014...
320,000
Increase in Retained earnings since acquisition
(cumulative net income cumulative dividends)P 170,000
Accumulated amortization (1/1/2011 12/31/2014):
P 2,000 x 4 years..( 8,000)
UPEI of P (up) 2014 or RPBI of P (up) 2015.....( 5,000)
P 157,000
X: Controlling Interests 80% 125,600
RE P, 12/31/2014 (equity method) = CRE, 12/31/2014. P 3,605,600
Or, compute first the RE P on January 1, 2014 (use work back approach),
Retained earnings Parent, 1/1/2014 (cost)
(P3,500,000 plus P25,000 Div of P less P724,000 NI of P).
P2,801,000
-: UPEI of S (down) 2013 or RPBI of S (down) 2014...
15,000
Adjusted Retained earnings Parent, 1/1/2014 (cost)
P2,786.000
Retroactive Adjustments to convert Cost to Equity for

purposes of consolidation / Parents share of adjusted

net increase in subsidiarys retained earnings:
Retained earnings Subsidiary, 1/1/2011P 150,000
Less: Retained earnings Subsidiary, 1/1/2014 260,000
Increase in Retained earnings since acquisition
(cumulative net income cumulative dividends)P110,000
Accumulated amortization (1/1/2011 1/1/2014):
P 2,000 x 3 years. ( 6,000)
UPEI of P (up) 2013 or RPBI of P (up) 2014... ( 10,000)
P 94,000
X: Controlling Interests 80% 75,200
RE P, 1/1/2014 (equity method) = CRE, 1/1/2014..P2,861,200
+: CI CNI or Profit Attributable to Equity Holders of Parent.. 769,400
-: Dividends P..
25,000
RE P, 12/31/2014 (equity method) = CRE, 12/31/2014..P3,605,600
Sales
Cost of Sales
P
P2,500,000
P1,250,000
S
1,200,000
875,000
Intercompany sales - downstream
( 320,000)
( 320,000)
Intercompany sales - upstream
( 290,000)
( 290,000)
RPBI of S (downstream sales)*
( 15,000)
RPBI of P (upstream sales)***
( 10,000)
UPEI of S (downstream sales)**
20,000
UPEI of P (upstream sales)****
_________
5,000
Consolidated
P3,090,000
P1,515,000
Working Paper Eliminating Entries:
1. Intercompany Sales and Purchases:
Downstream Sales:
Sales.. 320,000
Cost of Sales (or Purchases)....
320,000
Upstream Sales:
Sales.. 290,000
Cost of Sales (or Purchases)
290,000
2. Intercompany Profit:
(COST Model)
Downstream Sales:
*100% RPBI of S:
Retained Earnings P, beginning..... 15,000
Cost of Sales (Beginning Inventory in Income Statement)............ 15,000
**100% UPEI of S:
Cost of Sales (Ending Inventory in Income Statement) 20,000
Inventory (Ending Inventory in Balance Sheet)..
20,000
Upstream Sales:
***100% RPBI of P: (if equity method Investment in S instead of RE P, beg.)
Retained Earnings P, beginning..... 16,000
NCI .... 4,000
Cost of Sales (Beginning Inventory in Income Statement)........
20,000
****100% UPEI of P:
Cost of Sales (Ending Inventory in Income Statement) 5,000
Inventory (Ending Inventory in Balance Sheet)..
5,000
Problem XV (Change 2009 20x4; 2010 20x5; 2011 20x6)

(Compute consolidated totals with transfers of both inventory and a building.)

Excess Amortization Expenses
Equipment P60,000 10 years =
P6,000 per year
Franchises P80,000 20 years =
P4,000 per year
Annual excess amortizations
P10,000
Unrealized Gross profitInventory, 1/1/x6
Markup (P70,000 P49,000) ............................................................................................
Markup percentage (P21,000 P70,000) .....................................................................

P21,000
30%

Remaining inventory .......................................................................................................................

Markup percentage .......................................................................................................................
Unrealized gross profit, 1/1/x6 .........................................................................................

P30,000
30%
P9,000

Unrealized Gross profitInventory, 12/31/x6

Markup (P100,000 P50,000) ..........................................................................................
Markup percentage (P50,000 P100,000) ..................................................................................

P50,000
50%

Remaining inventory ........................................................................................................

Markup percentage .......................................................................................................................
Unrealized gross profit, 12/31/x6 ....................................................................................

P40,000
50%
P20,000

Impact of intercompany Building Transfer

12/31/x5Transfer price figures
Transfer price .............................................................................................................
Gain on transfer (P50,000 P30,000) .....................................................................
Depreciation expense (P50,000 5) ......................................................................
Accumulated depreciation ....................................................................................
12/31/x6Transfer price figures
Depreciation expense .............................................................................................
Accumulated depreciation ....................................................................................
12/31/x5Historical cost figures
Historical cost .............................................................................................................
Depreciation expense (P30,000 book value 5 years) .....................................
Accumulated depreciation (P40,000 + P6,000) ..................................................
12/31/x6Historical cost figures
Depreciation expense .............................................................................................
Accumulated depreciation ....................................................................................

P50,000
20,000
10,000
10,000
10,000
20,000
P70,000
6,000
46,000
6,000
52,000

CONSOLIDATED BALANCES

Sales = P1,000,000 (add the two book values and subtract P100,000 in intercompany transfers)

Cost of Goods Sold = P571,000 (add the two book values and subtract P100,000 in intercompany
purchases. Subtract P9,000 because of the previous year unrealized gross profit and add P20,000 to
defer the current year unrealized gross profit.)

Operating Expenses = P206,000 (add the two book values and include the P10,000 excess
amortization expenses but remove the P4,000 in excess depreciation expense [P10,000 P6,000]
created by building transfer)

Investment Income = P0 (the intercompany balance is removed so that the individual revenue and
expense accounts of the subsidiary can be shown)

Inventory = P280,000 (add the two book values and subtract the P20,000 ending unrealized gross
profit)

Equipment (net) = P292,000 (add the two book values and include the P60,000 allocation from the
acquisition-date fair value less three years of excess amortizations)

Buildings (net) = P528,000 (add the two book values and subtract the P20,000 unrealized gain on the
transfer after two years of excess depreciation [P4,000 per year])

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

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

72,000
P 12,000

The over/under valuation of assets and liabilities are summarized as follows:

Inventory...
Land
Equipment (net).........
Buildings (net)

S Co.
Book value
P 24,000
48,000
84,000
168,000

288,000
84,000

S Co.
Fair value
P 30,000
55,200
180,000
144,000

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

Bonds payable
Net..

(120,000)
P 204,000

( 115,200)
P 294,000

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

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

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

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

A summary or depreciation and amortization adjustments is as follows:

Account Adjustments to be amortized
Inventory
Subject to Annual Amortization
Equipment (net).........
Buildings (net)
Bonds payable

Over/
Under
P 6,000

Life
1

96,000
(24,000)
48000

8
4
4

Annual
Amount
P 6,000

Current
Year(20x4)
P 6,000

20x5
P
-

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

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

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)...

105,000
90,000

15,000

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

Value
P12,000
3,000
P15,000

% of Total
80.00%
20.00%
100.00%

Value
P 3,000

% of Total
80.00%

750

20.00%

P 3,750

100.00%

The goodwill impairment loss would be allocated as follows

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

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

Sales of Parent to
Subsidiary

Intercompany Merchandise
in 12/31 Inventory
of S Company

Unrealized Intercompany
Profit in Ending Inventory

20x4
20x5

P150,000
120,000

P150,000 x 60% = P90,000

P120,000 x 80% = P96,000

P90,000 x 20% = P18,000

P96,000 x 25% = P40,000

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

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

Upstream Sales:
Year
20x4
20x5

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

20x4: First Year after Acquisition

Parent Company Cost Model Entry

January 1, 20x4:
(1) Investment in S Company
Cash..

372,000
372,000

Acquisition of S Company.

January 1, 20x4 December 31, 20x4:

(2) Cash
Investment in S Company (P36,000 x 80%).

28,800
28,800

Record dividends from S Company.

December 31, 20x4:

(3) Investment in S Company
Investment income (P60,000 x 80%)

48,000
48,000

Record share in net income of subsidiary.

December 31, 20x4:

(4) Investment income [(P13,200 x 80%) + P3,000, goodwill
impairment loss)]
Investment in S Company

13,560
13,560

Record amortization of allocated excess of inventory, equipment,

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

18,000
18,000

9,600

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

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

13,560
18,000
9,600

Dividends S (30,000x 80%)

Amortization &
impairment
UPEI of Son (P15,000 x 100%)
UPEI of Perfect (P10,000 x80%)

350,040
Investment Income
13,560
18,000
9,600

48,000

NI of S
(P60,000 x 80%)

6,840

Balance, 12/31/x4

Consolidation Workpaper First Year after Acquisition

(E1) Common stock S Co
Retained earnings S Co
Investment in S Co
Non-controlling interest (P360,000 x 20%)..
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.

240,000
120.000
288,000
72,000

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

To eliminate investment on January 1, 20x4 and allocate excess of

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

(E3) Cost of Goods Sold.

Depreciation expense..
Accumulated depreciation buildings..
Interest expense
Goodwill impairment loss.
Inventory..
Accumulated depreciation equipment..
Discount on bonds payable
Goodwill

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

To provide for 20x4 impairment loss and depreciation and

amortization on differences between acquisition date fair value and
book value of Ss identifiable assets and liabilities as follows:

Inventory sold
Equipment
Buildings
Bonds payable
Totals

Cost of
Goods
Sold
P 6,000

Depreciation/
Amortization
Expense

Amortization
-Interest

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

P 1,200
P1,200

_______
P 6,000

Total

14,400

(E4) Investment income

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

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

To eliminate intercompany dividends and investment income under

equity method and establish share of dividends, computed as
follows:
Investment in S
NI of S
28,800
(60,000
x 80%). 48,000
13,560
18,000
9,600
21,960

Investment Income
Dividends - S
Amortization &
impairment
UPEI of S
UPEI of P

Amortization
impairment
UPEI of S
UPEI of P

13,560
18,000
9,600

48,000

NI of S
(50,000
x 80%)

6,840

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

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

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

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

350,040

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

Dividends S (30,000x 80%)

Amortization &
impairment
UPEI of Son
UPEI of Perfect
(E1) Investment, 1/1/20x4
(E2) Investment, 1/1/20x4

21,960
372,000

(E5) Sales.
Cost of Goods Sold (or Purchases)
To eliminated intercompany downstream sales.

372,000

150,000
150,000

(E6) Sales.
Cost of Goods Sold (or Purchases)

60,000
60,000

To eliminated intercompany upstream sales.

(E7) Cost of Goods Sold (Ending Inventory Income Statement)

Inventory Balance Sheet

18,000
18,000

To defer the downstream sales - unrealized profit in ending inventory

until it is sold to outsiders.

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

Inventory Balance Sheet

12,000
12,000

To defer the upstream sales - unrealized profit in ending inventory

until it is sold to outsiders.

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

Non-controlling interest ..

6,960
6,960

To establish non-controlling interest in subsidiarys adjusted net

income for 20x4 as follows:
Net income of subsidiary..
Unrealized profit in ending inventory of P
Company (upstream sales)..
Son Companys realized net income from
separate operations*...
Less: Amortization of allocated excess [(E3)].
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI)
partial goodwill

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

6,960

Subsidiary accounts are adjusted to full fair value regardless on the controlling interest
percentage or what option used to value non-controlling interest or goodwill.
Worksheet for Consolidated Financial Statements, December 31, 20x4.
Equity Method (Partial-goodwill)
80%-Owned Subsidiary
December 31, 20x4 (First Year after Acquisition)
Sales

Income Statement

P Co
P480,000

S Co.
P240,000

Investment income
Total Revenue

6,840
P486,840

P240,000

Cost of goods sold

P204,000

P138,000

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

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

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

Statement of Retained Earnings

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

(3)
(7)
(8)
(3)
(3)

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

(3)

3,000

(9)

6,960

Cr.

_________
P 510,000
P 168,000

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

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

P360,000

Consolidated
P 510,000

174,840
P414,840

P120,000
60,000
P180,000

72,000
-

36,000

P462,840

232,800
90,000
120,000

360,000

(1) 120,000
174,840
P414,840

72,000
________

P144,000

642,840

P 90,000
60,000
90,000

387,360
150,000

(4)

(1)

5,000

(3)
(7)
(8)

36,000

6,000
18,000
12,000

180,000

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

Total

210,000
220,000
720,000

48,000
180,000
540,000

(2)

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

350,040

P1,635,700

P1,006,000

P 135,000
405,000

P 96,000
288,000

120,000
240,000
600,000

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

462,840

_________
P1,008,000

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

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

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

P2,394,600

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

(3)

12,000

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

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

_________
P1,962,840

7,200

__________
P 983,160

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

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

____89,760
P2,394,600

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

No goodwill impairment loss for 20x5.

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

38,400

Record dividends from S Company.

December 31, 20x5:

(3) Investment in S Company
Investment income (P90,000 x 80%)

72,000
72,000

Record share in net income of subsidiary.

December 31, 20x5:

(4) Investment income (P7,200 x 80%)
Investment in S Company

5,760
5,760

Record amortization of allocated excess of inventory, equipment,

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

24,000
24,000

18,000
18,000

4,800
4,800

December 31, 20x5:

(8) Investment in S Company..
Investment income (P12,000 x 80%)..
To adjust investment income for upstream sales - realized profit in
beginning inventory of Perfect (RPBI of P)

9,600

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

Cost, 1/1/x5
NI of Son
(90,000 x 80%)
RPBI of S (P18,000 x 100%)
RPBI of P (P12,000 x 80%)
Balance, 12/31/x5

Amortization (7,200 x 805)

UPEI of S (P24,000 x 100%)
UPEI of P (P6,000 x 80%)

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

Dividends S (48,000x 80%)

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

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

Consolidation Workpaper Second Year after Acquisition

The schedule of determination and allocation of excess presented above provides complete
guidance for the worksheet eliminating entries:
(E1) Common stock S Co
Retained earnings S Co, 1/1/x5.
Investment in 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 (P160,000 + P6,000)
Land.
Discount on bonds payable (P4,800 P1,200).
Goodwill (P12,000 P3,000)..
Buildings..
Non-controlling interest [(P90,000 P13,200) x 20%]
Investment in S Co.

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

To eliminate investment on January 1, 20x5 and allocate excess of

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

(E3) Depreciation expense..

Accumulated depreciation buildings..
Interest expense
Accumulated depreciation equipment..
Discount on bonds payable

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

To provide for 20x5 depreciation and amortization on differences

between acquisition date fair value and book value of Sons
identifiable assets and liabilities as follows:

Inventory sold
Equipment
Buildings
Bonds payable
Totals

Depreciation/
Amortization
Expense

Amortization
-Interest

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

P 1,200
P1,200

Total

P7,200

(E4) Investment income

Non-controlling interest (P48,000 x 20%)..
Dividends paid S
Investment in S Company
To eliminate intercompany dividends and investment income under
equity method and establish share of dividends, computed as
follows:

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

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

Investment in S
38,400
Dividends S
Amortization
72,000
5,760
(P7,200 x 80%)
18,000
24,000
UPEI of S
9,600
4,800
UPEI of P
26,640

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

(E6) Sales.
Cost of Goods Sold (or Purchases)

5,760
24,000
4,800

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

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

120,000
120,000

To eliminated intercompany downstream sales.

(E7) Sales.
Cost of Goods Sold (or Purchases)

75,000
75,000

To eliminated intercompany upstream sales.

(E8) Investment in Son Company.

Cost of Goods Sold (Ending Inventory Income Statement)

18,000
18,000

To realized profit in downstream beginning inventory deferred in the

prior period.

(E9) Investment in Son Company (P12,000 x 80%)

Noncontrolling interest (P12,000 x 20%)
Cost of Goods Sold (Ending Inventory Income Statement)

9,600
2,400
12,000

To realized profit in upstream beginning inventory deferred in the

prior period.

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%)
RPBI of S (P18,000 x 100%)
RPBI of P (P12,000 x 80%)
Balance, 12/31/x5
(E8) RPBI of S
(E9) RPBI of P

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

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

336,900

404,280

Dividends S (40,000x 80%)

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

(E10) Cost of Goods Sold (Ending Inventory Income Statement)

Inventory Balance Sheet

24,000
24,000

To defer the downstream sales - unrealized profit in ending inventory

until it is sold to outsiders.

(E11) Cost of Goods Sold (Ending Inventory Income Statement)

Inventory Balance Sheet

6,000
6,000

To defer the upstream sales - unrealized profit in ending inventory

until it is sold to outsiders.

(E12) Non-controlling interest in Net Income of Subsidiary

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

P 90,000
12,000
(
P
(
P

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

Multiplied by: Non-controlling interest %..........

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

17,760
17,760

Worksheet for Consolidated Financial Statements, December 31, 20x5.

Equity Method (Partial-goodwill)
80%-Owned Subsidiary
December 31, 20x5 (Second Year after Acquisition)
Sales

Income Statement

P Co
P540,000

S Co.
P360,000

Investment income
Total Revenue
Cost of goods sold

65,040
P605,040
P216,000

P360,000
P192,000

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

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

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

(3)
(3)

(1) 144,000

257,040
P719,880

P144,000
90,000
P234,000

72,000
-

48,000

P777,456

P223,200

P 777,456

265,200
180,000
216,000

P 102,000
96,000
108,000

P 367,200
276,000

210,000
240,000
720,000

48,000
180,000
540,000

Statement of Retained Earnings

Total

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

Cr.

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

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

(5)

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

6,000
1,200

P
P
(
P

17,760

P462,840

P 462,840

376,680

P2,207,880

P1,074,000

P 150,000
450,000

P 102,000
306,000

120,000
240,000
600,000

120,000
120,000

257,040
P 719,880

(4)

240,000
186,000

(2)

7,200

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

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

_________
P1,074,000

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

72,000
________

294,000
265,200
420,000
1,044,000
2,400
9,000

P2,677,800

84,000
(3)

12,000

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

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

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

___ _____
P2,207,880

48,000

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

(2)

647,880

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

9,600
2,400

__________
P1,046,400

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

____97,920
P2,677,800

5 and 6. Refer to Problem IX for computations

Note: Using cost model or equity method, the consolidated net income, consolidated
retained earnings, non-controlling interests, consolidated equity on December 31, 20x4
and 20x5 are exactly the same (refer to Problem IX solution).
Problem XVII
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

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

90,000
P 15,000

A summary or depreciation and amortization adjustments is as follows:

Account Adjustments to be amortized
Inventory
Subject to Annual Amortization
Equipment (net).........
Buildings (net)
Bonds payable

Over/
under
P 6,000

Life
1

96,000
(24,000)
4,800

8
4
4

Annual
Amount
P 6,000

Current
Year(20x4)
P 6,000

20x5
P
-

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

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

20x4: First Year after Acquisition

Parent Company Equity Method Entry

January 1, 20x4:
(1) Investment in S Company
Cash..

372,000
372,000

Acquisition of S Company.

January 1, 20x4 December 31, 20x4:

(2) Cash
Investment in S Company (P36,000 x 80%).

28,800
28,800

Record dividends from S Company.

December 31, 20x4:

(3) Investment in S Company
Investment income (P60,000 x 80%)

48,000
48,000

Record share in net income of subsidiary.

December 31, 20x4:

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

13,560
13,560

Record amortization of allocated excess of inventory, equipment,

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

December 31, 20x4:

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

18,000
18,000

9,600
9,600

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

Investment in S
372,000
28,800

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

48,000

Balance, 12/31/x4

Dividends S (36,000x 80%)

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

13,560
18,000
9,600

324,000
Investment Income

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

13,560
18,000
9,600

48,000

NI of S
(P60,000 x 80%)

6,840

Balance, 12/31/x4

Consolidation Workpaper First Year after Acquisition

(E1) Common stock S Co
Retained earnings S Co
Investment in S Co
Non-controlling interest (P360,000 x 20%)..

240,000
120.000
288,000
72,000

To eliminate investment on January 1, 20x4 and equity accounts

of subsidiary on date of acquisition; and to establish noncontrolling interest (in net assets of subsidiary) on date of
acquisition.

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

To eliminate investment on January 1, 20x4 and allocate excess of

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

(E3) Cost of Goods Sold.

Depreciation expense..
Accumulated depreciation buildings..
Interest expense
Goodwill impairment loss.
Inventory..
Accumulated depreciation equipment..
Discount on bonds payable
Goodwill

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

To provide for 20x4 impairment loss and depreciation and

amortization on differences between acquisition date fair value and
book value of Ss identifiable assets and liabilities as follows:

Inventory sold
Equipment
Buildings
Bonds payable
Totals

Cost of
Goods
Sold
P 6,000

_______
P 6,000

Depreciation/
Amortization
Expense

Amortization
-Interest

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

P 1,200
P1,200

Total

14,400

(E4) Investment income

Investment in S Company
Non-controlling interest (P36,000 x 20%)..
Dividends paid S
To eliminate intercompany dividends and investment income under
equity method and establish share of dividends, computed as
follows:

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

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

Amortization
impairment
UPEI of S
UPEI of P

13,560
18,000
9,600

48,000

NI of S
(50,000
x 80%)

6,840

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

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

350,040
21,960
372,000

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

Dividends S (30,000x 80%)

Amortization &
impairment
UPEI of S
UPEI of P
(E1) Investment, 1/1/20x4
(E2) Investment, 1/1/20x4

372,000

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

150,000
150,000

To eliminated intercompany downstream sales.

(E6) Sales.
Cost of Goods Sold (or Purchases)

60,000
60,000

To eliminated intercompany upstream sales.

(E7) Cost of Goods Sold (Ending Inventory Income Statement)

Inventory Balance Sheet

18,000
18,000

To defer the downstream sales - unrealized profit in ending inventory

until it is sold to outsiders.

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

Inventory Balance Sheet

12,000
12,000

To defer the upstream sales - unrealized profit in ending inventory

until it is sold to outsiders.

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

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

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

Multiplied by: Non-controlling interest %..........

Non-controlling Interest in Net Income (NCINI)
partial goodwill
Less: Non-controlling interest on impairment
loss on full-goodwill (P3,750 x 20%) or
(P3,750 impairment on full-goodwill less
P3,000, impairment on partial-goodwill)*
750
Non-controlling Interest in Net Income (NCINI)
full goodwill
P 6210
*this procedure would be more appropriate, instead of multiplying the
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).

Worksheet for Consolidated Financial Statements, December 31, 20x4.

Equity Method (Full-goodwill)
80%-Owned Subsidiary
December 31, 20x4 (First Year after Acquisition)

6,210
6,210

Sales

Income Statement

P Co
P480,000

S Co.
P240,000

Investment income
Total Revenue

6,840
P486,840

P240,000

Cost of goods sold

P204,000

P138,000

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

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

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

Statement of Retained Earnings

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

(3)
(7)
(8)
(3)
(3)

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

(3)

3,750

(9)

5,175

Cr.

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

Total

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

360,000

174,840
414,840

72,000
________

174,840
P414,840

P120,000
60,000
P180,000

72,000
-

36,000

P462,840

P144,000

462,840

232,800
90,000
120,000

P 90,000
60,000
90,000

322,800
150,000

210,000
240,000
720,000

48,000
180,000
540,000

(1) 120,000

(4)

(2)

6,000

(2)

7,200

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

350,040

P1,635,700

P1,008,000

P 135,000
405,000

P 96,000
288,000

120,000
240,000
600,000

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

462,840

_________
P1,962,840

_________
P1,008,000

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

(3)
(7)
(8)

36,000

6,000
18,000
12,000

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

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

P2,396,850

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

(3)

12,000

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

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

No goodwill impairment loss for 20x5.

_________
P 510,000
P 168,000

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

P360,000

Consolidated
P 510,000

7,200

__________
P 986,160

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

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

____92,010
P2,396,850

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

Parent Company Equity Method Entry

January 1, 20x5 December 31, 20x5:

(2) Cash
Investment in S Company (P48,000 x 80%).

38,400
38,400

Record dividends from S Company.

December 31, 20x5:

(3) Investment in S Company
Investment income (P90,000 x 80%)

72,000
72,000

Record share in net income of subsidiary.

December 31, 20x5:

(4) Investment income (P7,200 x 80%)
Investment in S Company

5,760
5,760

Record amortization of allocated excess of inventory, equipment,

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

24,000

18,000
18,000

4,800
4,800

9,600
9,600

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

Amortization (7,200 x 805)

UPEI of S (P24,000 x 100%)
UPEI of P (P6,000 x 80%)

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

Dividends S (48,000x 80%)

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

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

Consolidation Workpaper Second Year after Acquisition

The schedule of determination and allocation of excess presented above provides complete
guidance for the worksheet eliminating entries.
(E1) Common stock S Co
Retained earnings S Co, 1/1/x5.
Investment in 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 + P6,000)
Land.
Discount on bonds payable (P4,800 P1,200).

84,000
198,000
7,200
3,600

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.

11,250
216,000

17,610
70,440

To eliminate investment on January 1, 20x5 and allocate excess of

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

(E3) Depreciation expense..

Accumulated depreciation buildings..
Interest expense
Accumulated depreciation equipment..
Discount on bonds payable

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

To provide for 20x5 depreciation and amortization on differences

between acquisition date fair value and book value of Sons
identifiable assets and liabilities as follows:

Inventory sold
Equipment
Buildings
Bonds payable
Totals

Depreciation/
Amortization
Expense

Amortization
-Interest

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

P 1,200
P1,200

Total

P7,200

(E4) Investment income

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

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

To eliminate intercompany dividends and investment income under

equity method and establish share of dividends, computed as
follows:
NI of Son
(90,000
x 80%).
RPBI of S
RPBI of P

Investment in S
38,400
Dividends S
Amortization
72,000
5,760
(P7,200 x 80%)
18,000
24,000
UPEI of S
9,600
4,800
UPEI of P
26,640

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

(E6) Sales.
Cost of Goods Sold (or Purchases)

5,760
24,000
4,800

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

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

120,000
120,000

To eliminated intercompany downstream sales.

(E7) Sales.
Cost of Goods Sold (or Purchases)

75,000
75,000

To eliminated intercompany upstream sales.

(E8) Investment in Son Company.

Cost of Goods Sold (Ending Inventory Income Statement)

18,000
18,000

To realized profit in downstream beginning inventory deferred in the

prior period.

(E9) Investment in Son Company (P12,000 x 80%)

Noncontrolling interest (P12,000 x 20%)
Cost of Goods Sold (Ending Inventory Income Statement)

9,600
2,400
12,000

To realized profit in upstream beginning inventory deferred in the

prior period.

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

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

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

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

404,280

Dividends S (48,000x 80%)

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

(E10) Cost of Goods Sold (Ending Inventory Income Statement)

Inventory Balance Sheet

24,000
24,000

To defer the downstream sales - unrealized profit in ending inventory

until it is sold to outsiders.

(E11) Cost of Goods Sold (Ending Inventory Income Statement)

Inventory Balance Sheet

6,000
6,000

To defer the upstream sales - unrealized profit in ending inventory

until it is sold to outsiders.

(E12) Non-controlling interest in Net Income of Subsidiary

Non-controlling interest ..

17,760
17,760

To establish non-controlling interest in subsidiarys adjusted net

income for 20x5 as follows:

Net income of subsidiary..

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

P 90,000
12,000
(
P
(
P

6,000)
96,000
7,200)
88,000
20%
P 17,760

Multiplied by: Non-controlling interest %..........

Worksheet for Consolidated Financial Statements, December 31, 20x5.

Equity Method (Full-goodwill)
80%-Owned Subsidiary
December 31, 20x5 (Second Year after Acquisition)
Sales

Income Statement

P Co
P540,000

S Co.
P360,000

Investment income
Total Revenue
Cost of goods sold

65,040
P605,040
P216,000

P360,000
P192,000

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

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

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

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

Cr.

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

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

(3)
(3)

(5)

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

6,000
1,200

17,760

P
P
(
P

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

Statement of Retained Earnings

P462,840
257,040
P719,880
72,000
-

48,000

P647,880

P186,000

P 647,880

265,200
180,000
216,000

P 114,000
96,000
108,000

P 367,200
276,000

210,000
240,000
720,000

48,000
180,000
540,000

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

Total

P 462,840
P144,000
90,000
P234,000

(1) 144,000
257,040
P 719,880

(4)

(10) 24,000
(11) 6,000
(2)

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

376,680

P2,207,880

P1,074,000

P 150,000
450,000

P 102,000
306,000

120,000
240,000
600,000

120,000
120,000

(2)

647,880

240,000
186,000

_________
P1,074,000

7,200
(3) 216,000
3,600 (3) 1,200
11,250
18,000 (1) 307,200
9,600 (3) 70,440
(4) 26,640

72,000
________

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

P2,680,050

84,000
(3)

12,000

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

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

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

___ _____
P2,207,880

48,000

9,600
2,400

__________
P1,048,650

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

____100,170
P2,680,050

5 and 6. Refer to Problem X for computations

Note: Using cost model or equity method, the consolidated net income, consolidated
retained earnings, non-controlling interests, consolidated equity on December 31, 20x4
and 20x5 are exactly the same (refer to Problem X solution).
Multiple Choice Problems
1. a
P Company
S Company
Total
Less: Intercompany sales
Realized profit in BI of S Co.
[P300,000 x 1/2 = P150,000 x (300-240)/300]
Add: Unrealized profit in EI of S Co.
[P468,000 x 40% = P187,200 x (468-375)/468]
Consolidated
2. c refer to No. 1 for computations

Sales
2,250,000
1,125,000
3,375,000
468,000

Cost of Sales
1,800,000
_937,500
2,737,500
468,000
30,000

________
2.907,000

__37,200
2,276,700

3. b
Consolidated Net Income for 20x4
P Companys net income from own/separate operations.
Realized profit in beginning inventory of S Company (downstream sales)
Unrealized profit in ending inventory of S Company (downstream sales)
P Companys realized net income from separate operations*...
S Companys net income from own operations.
Realized profit in beginning inventory of P Company (upstream sales)
Unrealized profit in ending inventory of P Company (upstream sales)
[P150,000 x 50% = P75,000 x (30/150)]
S Companys realized net income from separate operations*...
Total
Less: Amortization of allocated excess
Consolidated Net Income for 20x4
Less: Non-controlling Interest in Net Income* *
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent 20x4..
*that has been realized in transactions with third parties.

P225,000
0
(_
0)
P225,000
P 90,000
0
( 15,000)
P 75,000

75,000
P300,000
0
P300,000
15,000
P285,000

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

P225,000
0
(_
0)
P225,000
P 90,000
0
( 15,000)
P 75,000

75,000
P300,000

P 15,000
0

15,000
P285,000
_ 15,000
P290,000

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

4. c refer to No. 3 for computation

5. a P25,000 x 125% = P31,250 intercompany sales and purchases (cost of sales)
6. c P25,000 x 125% = P31,250 intercompany sales and purchases (cost of sales)
7. d
Cost of Sales
P Company
5,400,000
S Company
_1,200,000
Total
6,600,000
Less: Intercompany sales
1,000,000
Realized profit in BI of S Co.
[P625,000 x 12% = P75,000 x (625 - 425)/625]
24,000
Add: Unrealized profit in EI of S Co.
[P1,000,000 x 10% = P100,000 x (1,000 - 800)/1,000]
__20,000
Consolidated
5,596,000

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

Parent

Subsidiary

210,000

90,000

( 11,200)

( 4,800)
85,200

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

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

Multiplied by: Non-controlling interest %..........

Non-controlling Interest in Net Income (NCINI) partial goodwill
Less: NCI on goodwill impairment loss on full goodwill
Non-controlling Interest in Net Income (NCINI) full goodwill

10. c
Parent
Net Income from own operations:
Gibson (Parent): Sparis(subsidiary), 90%:10%
RPBI of Parent (upstream: 420,000 x 30% = 126,000;
126,000 x 25/125 = 25,200; 90%:10%
UPEI of Parent (upstream): 500,000 x 30% = 150,000;
150,000 x 25/125 = 30,000; 90%:10%
Non-controlling Interest in Kents Net Income

Subsidiary

820,800

91,200

22,680

2,520

(27,000)

( 3,000)
90,720

11. b
12. a
13. b (downstream sales)

Sales Pot (parent)

- Skillet (subsidiary)
Total
Add(Deduct): Intercompany sales - down
Consolidated Sales

1,120,000
420,000
1,540,000
( 140,000)
1,400,000

CGS Pot (parent)

- Skillet (subsidiary)
Total
Add(Deduct): Intercompany sales - down
Unrealized Profit in
Ending Inventory of
Skillet (subsidiary)-down
EI of Skillet :
Sales of Pot
140,000
x: EI of Skillet
40%
EI of Skillet
56,000
X: GP of Pot
(1,120 840)
1,120
25%
Consolidated CGS

840,000
252,000
1,092,000
( 140,000)

14,000
966,000

14. c upstream sales

Note: The only change here from Problem 13 is the markup percentage which
now be 40 percent*

CGS Pot (parent)

- Skillet (subsidiary)

840,000
252,000

would

Total
1,092,000
Add(Deduct): Intercompany sales - upstream ( 140,000)
Unrealized Profit in
Ending Inventory of
Pot (subsidiary)-upstream
EI of Pot:
Sales of Skillet 140,000
x: EI of Pot
40%
EI of Pot
56,000
X: GP of Skillet
(420 252)
420
40%*
22,400
Consolidated CGS
974,400
The problem is quite intriguing because of the statement Pot had established the
transfer price base on its normal markup. It should be noted that Parent Company
established the transfer price based on its normal price (in this case it is assumed that
the mark-up of the parent which is 25% is also the normal transfer price). So, the solution
should be as follows:
Sales Pot (parent)
- Skillet (subsidiary)
Total
Add(Deduct): Intercompany sales - down
Consolidated Sales

1,120,000
420,000
1,540,000
( 140,000)
1,400,000

CGS Pot (parent)

840,000
252,000
1,092,000
( 140,000)

14,000
966,000

15. No answer available P140,000, intercompany sales

16. a P20 x 28,000 picture tubes, intercompany sales
17. b P120,000, the amount of sales to outsiders is the amount of sales presented in the
consolidated income statement.
18. a the cost of inventory produced by the parent (downstream sales)

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

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

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

Or, alternatively
Consolidated Net Income for 20x4
P Companys net income from own/separate operations (P90,000 P62,000)
Realized profit in beginning inventory of S Company (downstream sales)
Unrealized profit in ending inventory of S Company (downstream sales)
P Companys realized net income from separate operations*...
S Companys net income from own operations (P120,000 P90,000)
Realized profit in beginning inventory of P Company (upstream sales)
Unrealized profit in ending inventory of P Company (upstream sales
S Companys realized net income from separate operations*...
Total
Less: Non-controlling Interest in Net Income* *
Amortization of allocated excess
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent..
Add: Non-controlling Interest in Net Income (NCINI)
Consolidated Net Income for 20x4
*that has been realized in transactions with third parties.
**Non-controlling Interest in Net Income (NCINI) for 20x4
S Companys net income of Subsidiary Company from its own operations
(Reported net income of S Company)
Realized profit in beginning inventory of P Company (upstream sales)
Unrealized profit in ending inventory of P Company (upstream sales)
S Companys realized net income from separate operations
Less: Amortization of allocated excess
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI) partial goodwill
Less: NCI on goodwill impairment loss on full goodwill
Non-controlling Interest in Net Income (NCINI) full goodwill

20. c P100,00 sales to unrelated/unaffiliated company.

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

30,000
P 58,000

P 3,000
0

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

P 30,000

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

21. c
Cost of Sales
67,000
_63,000
130,000
90,000

P Company
S Company
Total
Less: Intercompany sales
Add: Unrealized profit in EI of S Co.
[P90,000 x 30% = P27,000 x (90 - 67)/90]
Consolidated
Sales
Less: Cost of goods sold Parent
Subsidiary (90,000 x 70%)
Gross profit
Ending inventory (90,000 x 30%)

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

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

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

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

6,900 )
P16,100

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

Or, alternatively
Consolidated Net Income for 20x4
P Companys net income from own/separate operations
[P100,000 (P90,000 x 70%)]
Realized profit in beginning inventory of S Company (downstream sales)
Unrealized profit in ending inventory of S Company (downstream sales)
P Companys realized net income from separate operations*...
S Companys net income from own operations (P90,000 P67,000)
Realized profit in beginning inventory of P Company (upstream sales)
Unrealized profit in ending inventory of P Company (upstream sales)
[P90,000 x 30% = P27,000 x (90-67/90)]
S Companys realized net income from separate operations*...
Total
Less: Non-controlling Interest in Net Income* *
Amortization of allocated excess
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent..
Add: Non-controlling Interest in Net Income (NCINI)
Consolidated Net Income for 20x4
*that has been realized in transactions with third parties.
**Non-controlling Interest in Net Income (NCINI) for 20x4
S Companys net income of Subsidiary Company from its own operations
(Reported net income of S Company)
Realized profit in beginning inventory of P Company (upstream sales)
Unrealized profit in ending inventory of P Company (upstream sales)
S Companys realized net income from separate operations
Less: Amortization of allocated excess
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI) partial goodwill
Less: NCI on goodwill impairment loss on full goodwill
Non-controlling Interest in Net Income (NCINI) full goodwill

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

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

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

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

23. d P27,000 x 67/90 = P20,100

24. a the cost from parent of P48,000 x 45/60 = P36,000
Sales
Less: Cost of goods sold P and S1
Subsidiary (60,000 x 45/60)
Gross profit
Ending inventory (60,000 x 15/60)

Parent
60,000
48,000
______
12,000

Subsidiary 1
60,000
60,000
______
0

Subsidiary 2
67,000
45,000
22,000
15,000

25. b the cost from parent of P48,000 x 15/60 = P12,000

26. a
Sales
Intercompany
Parent
Subsidiary 1
Add: Cost of EI in S2 Co.
[P15,000 x (48/60]
Amount to be eliminated
*or, P60,000 + P60,000 [P15,000 x (60-48/60]

Cost of Sales

60,000
60,000

60,000
45,000

________
120,000

__12,000
*117,000

27. b refer to No. 26 for computation

28. d P15,000 x [(60-48)/60] = P3,000
29. a
Consolidated Net Income for 20x3
P Companys net income from own/separate operations
Realized profit in beginning inventory of S Company (downstream sales)
Unrealized profit in ending inventory of S Company (downstream sales)
P Companys realized net income from separate operations*...
S Companys net income from own operations
Realized profit in beginning inventory of P Company (upstream sales)
Unrealized profit in ending inventory of P Company (upstream sales)
[P105,000 x 20/120)
S Companys realized net income from separate operations*...
Total
Less: Amortization of allocated excess
Consolidated Net Income for 20x3

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

17,500 )
P132,500

132,500
P 357,500
_
0
P357,500

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

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

126,250
P 486,250
_
0
P486,250
1,610
P 51,490

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

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

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

**Non-controlling Interest in Net Income (NCINI) for 20x4

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

Multiplied by: Non-controlling interest %..........

Non-controlling Interest in Net Income (NCINI) partial goodwill
Less: NCI on goodwill impairment loss on full goodwill
Non-controlling Interest in Net Income (NCINI) full goodwill

31. a refer to No. 30 for computation.

32. d
Consolidated Net Income for 20x5
P Companys net income from own/separate operations
Realized profit in beginning inventory of S Company (downstream sales)
Unrealized profit in ending inventory of S Company (downstream sales)
P Companys realized net income from separate operations*...
S Companys net income from own operations
Realized profit in beginning inventory of P Company (upstream sales)
[P157,500 x 20/120)
Unrealized profit in ending inventory of P Company (upstream sales)
[P180,000 x 20/120)
S Companys realized net income from separate operations*...
Total
Less: Amortization of allocated excess
Consolidated Net Income for 20x4
Less: Non-controlling Interest in Net Income* *
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent 20x5..
*that has been realized in transactions with third parties.

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

30,000 )
P236,250

236,250
P 686,250
_
0
P686,750
70,875
P 615,375

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

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

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

**Non-controlling Interest in Net Income (NCINI) for 20x4

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

Multiplied by: Non-controlling interest %..........

Non-controlling Interest in Net Income (NCINI) partial goodwill
Less: NCI on goodwill impairment loss on full goodwill
Non-controlling Interest in Net Income (NCINI) full goodwill

33. a - refer to No. 32 for computation.

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

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

32,727
_23,846
56,573

36. d
Sales
420,000
280,000
700,000
140,000
560,000

P Company
S Company
Total
Less: Intercompany sales
Consolidated
37. No answer available P47,000

Operating
Expenses
28,000
14,000
42,000
_5,000
47,000

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

Cost of Sales
196,000
_112,000
308,000
140,000
_16,800
184,900

39. No answer available P120,800

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

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

364,000
P 504,000

liabilities, date of acquisition (January 1, 20x4)

Amortization of allocated excess (refer to amortization above) :
20x5 (P35,000/7 years)
Fair value of stockholders equity of S, December 31, 20x5
Multiplied by: Non-controlling Interest percentage...
Non-controlling interest (partial goodwill)..
Add: NCI on full-goodwill (P70,000 P56,000)
Non-controlling interest (full- goodwill)..

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

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

P 364,000
P 112,000
168,000
P

280,000
84,000

___28,000
P 56,000

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

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

70,000

40. d
Equipment
616,000
420,000
1,036,000
35,000
7,000
1,064,000

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

Inventory
210,000
154,000
364,000
16,800
347,200

P Company
S Company
Total
Less: Unrealized profit in EI: [P140,000 x 60% = P84,000 x (140 - 112)/140]
Consolidated
42.

43.

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

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

No answer available P253,000

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

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

44.

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

45.

P
P

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

46.

47.

1,025,000
0
1,025,000

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

Combined cost of sales

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

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

Incomplete data PAS 27 allows the use of cost model in accounting for investment in
subsidiary in the books of parent company. Income recognized under this model is the
dividends declared or paid by the subsidiary multiplied by controlling interest. Since, there
is no data as to dividends of subsidiary, the amount of dividend income from the point of
parent cannot be determined.
If Equity Method is used, then the answer would be:
(P115,000 x 70%) - P26,250
= P 54,250
But equity method is not allowed in the books of parent for purposes of CFS.

48.

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

P
(

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

49. a - P720,000 = P500,000 + P400,000 - P200,000 +P 20,000

50. b using equity method.
(P120,000 x 80%) (P200,000 x 50% = P100,000 x 20% = P20,000) = P76,000
PAS 27 allows the use of cost model in accounting for investment in subsidiary in the books
of parent company
The use of equity method is not allowed in the books of parent (unless it is a stand-alone
entity).
51. d Downstream situation
S Companys net income from own/separate operations
x: NCI %

P120,000
20%
P 24,000

52. a - It will be overstated by the amount of the NC interests share of the P1,600 of profit
margin in the P9,600 of materials carried over to 20x5 (20% x P1,600 = P320
53. c
Grebe plus Swamps separate cost of goods sold =
P400,000 + P320,000 =
Less: Intercompany sales
=
Add: Profit +12,500 - 10,000 =
Consolidated COGS
=

P 720,000
200,000
____2,500
P 522,500

54. a
Ending inventory of Grebe (1/2 x P100,000)
x: GP% of Parent (P100,000 P80,00)/P100,000
Unrealized profit in ending inventory

50,000
20%
10,000

Squids reported income

Less: Unrealized profits in the ending inventory
Squids adjusted income
NCI percentage
NCI-CNI

P 100,000
_____16,000
P
84,000
_______10%
P
8,400

55. a

56. b

Inventory remaining P100,000 50% = P50,000 Unrealized gross profit (based on LL's
markup as the seller) P50,000 40% = P20,000. The ownership percentage has no
impact on this computation.

57. c
Unrealized Profit, 12/31/x4
Intercompany Gross profit (P100,000 P75,000) .................................................
Inventory Remaining at Year's End ........................................................................
Unrealized Intercompany Gross profit, 12/31/x4 .................................................

P25,000
16%
P4,000

UNREALIZED GROSS PROFIT, 12/31/x5

Intercompany Gross profit (P120,000 P96,000) ..................................................
Inventory Remaining at Year's End ........................................................................
Unrealized Intercompany Gross profit, 12/31/x5 .................................................

P24,000
35%
P8,400

CONSOLIDATED COST OF GOODS SOLD

Parent balance ...................................................................................................
Subsidiary Balance .............................................................................................
Remove Intercompany Transfer ......................................................................
Recognize 20x4 Deferred Gross profit ............................................................
Defer 20x5 Unrealized Gross profit ...................................................................
Cost of Goods Sold ...................................................................................................

P380,000
210,000
(120,000)
(4,000)
8,400
P474,400

58. a - Intercompany sales and purchases of P100,000 must be eliminated. Additionally, an

unrealized gross profit of P10,000 must be removed from ending inventory based on a
markup of 25 percent (P200,000 gross profit/P800,000 sales) which is multiplied by the
P40,000 ending balance. This deferral increases cost of goods sold because ending
inventory is a negative component of that computation. Thus, cost of goods sold for
consolidation purposes is P690,000 (P600,000 + P180,000 P100,000 + P10,000).
59. c - The only change here from No. 58 is the markup percentage which would now be 40
percent (P120,000 gross profit P300,000 sales). Thus, the unrealized gross profit to be
deferred is P16,000 (P40,000 40%). Consequently, consolidated cost of goods sold is
P696,000 (P600,000 + P180,000 P100,000 + P16,000).
60. b
UNREALIZED GROSS PROFIT, 12/31/x4
Ending inventory .................................................................................................
Markup (P33,000/P110,000) ...............................................................................
Unrealized intercompany gross profit, 12/31/x4 ...........................................

P 40,000
__ 30%
P 12,000

UNREALIZED GROSS PROFIT, 12/31/x5

Ending inventory .................................................................................................
Markup (P48,000/P120,000) ...............................................................................
Unrealized intercompany gross profit, 12/31/x5 ...........................................

P 50,000
40%
P 20,000

Non-controlling Interest in Net Income (NCINI) for 20x5

P 90,000
12,000
( 20,000)
P 82,000
0
P 82,000
10%
P 8,200
0
P 8,200

Multiplied by: Non-controlling interest %..........

Non-controlling Interest in Net Income (NCINI) partial goodwill
Less: NCI on goodwill impairment loss on full goodwill
Non-controlling Interest in Net Income (NCINI) full goodwill

61. a this topic is for Chapter 18

Individual Records after Transfer
12/31/x4
MachineryP40,000
GainP10,000
Depreciation expense P8,000 (P40,000/5 years)
Income effect netP2,000 (P10,000 P8,000)
12/31/x5
Depreciation expenseP8,000
Consolidated FiguresHistorical Cost
12/31/x4
MachineryP30,000
Depreciation expenseP6,000 (P30,000/5 years)
12/31/x5
Depreciation expense--P6,000
Adjustments for Consolidation Purposes:
20x4: P2,000 income is reduced to a P6,000 expense (income is reduced by P8,000)
20x5: P8,000 expense is reduced to a P6,000 expense (income is increased by P2,000)
62. b

- this topic is for Chapter 18

UNREALIZED GAIN
Transfer Price ........................................................................................................
Book Value (cost after two years of depreciation) .....................................
Unrealized Gain ...................................................................................................
EXCESS DEPRECIATION
Annual Depreciation Based on Cost (P300,000/10 years) ...........................
Annual Depreciation Based on Transfer Price
(P280,000/8 years) ........................................................................................
Excess Depreciation ...........................................................................................
ADJUSTMENTS TO CONSOLIDATED NET INCOME
Defer Unrealized Gain .......................................................................................
Remove Excess Depreciation ...........................................................................
Decrease to Consolidated Net Income ........................................................

P280,000
240,000
P40,000
P30,000
35,000
P5,000
P(40,000)
5,000
P(35,000)

63. c
P Company
S Company
Total
Less: Intercompany sales upstream sales
Add: Unrealized profit in EI of S Co.
[P60,000 x 30% = P18,000 x (10 7.5)/10]
Consolidated

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

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

________
10,140,000

__ 4,500
7,604,500

64. d refer to No. 63 for computation

65. c
P Company
S Company

Sales
10,000,000
__200,000

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

10,200,000
60,000
________
10,140,000

66. d

Add the two book values and remove P100,000 intercompany transfers.

67. c

Intercompany gross profit (P100,000 - P80,000) ...................................................

Inventory remaining at year's end .........................................................................
Unrealized intercompany gross profit ....................................................................

P20,000
60%
P12,000

CONSOLIDATED COST OF GOODS SOLD

Parent balance ...................................................................................................
Subsidiary balance .............................................................................................
Remove intercompany transfer .......................................................................
Defer unrealized gross profit (above) .............................................................
Cost of goods sold .....................................................................................................

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

68. c

Consideration transferred ..............................................

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

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

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

25,000 5 years
P50,000 20 years
-0-

P5,000
2,500
P7,500

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

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

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

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

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

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

Full-goodwill
Fair value of Subsidiary (100%)
Consideration transferred: Cash (80%)
FV of NCI (20%)

P 260,000
___65,000

Fair value of Subsidiary (100%)

Less: BV of stockholders equity of S (P100,000 + P150,000) x 100%
Allocated excess (excess of cost over book value)..
Add (deduct): (Over) under valuation of assets and liabilities
Increase in equipment P25,000 x 100%
Increase in secret formulas: P50,000 x 100%

P 325,000
__250,000
P 75,000

25,000
50,000

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

P20,000
60%
P12,000

72. c P400,000 x 1/4 = P100,000 x 30% = P30,000

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

20x5
P 400,000
(

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

20x6
P 480,000
20,000
0
P 500,000
0
P500,000
20%
P100,000
0
P100,000

74. c
Ending inventory at selling price: P300,000 x 1/3 = P100,000 x (300,000 240,000)/300,000
Less: Inventory write-down (P100,000 P92,000)
Intercompany profit to be eliminated

P20,000
__8,000
P12,000

75. The requirement Ps income from S is a term normally used under the equity method, but,
in some cases it may also refer to the term dividend income under the cost model
depending on how the problem was described and presented.
Since there are no data available to arrive at the dividend income under the cost model
for reason that dividend declared or paid by subsidiary is not given, so the term Ps income
from S may mean Income from subsidiary which is computed under the equity method,
thus:
Share in net income (P120,000 x 60%)
Less: Unrealized profit in ending inventory of S {P189,000 x 1/3 = P63,000 x (P189-135)/P189]
Intercompany profit to be eliminated

P72,000
__18,000
P54,000

Answer: Equity method (c)

It should be noted that PAS 27 allow the use of cost model in accounting for investment in
subsidiary in the books of parent company but not the equity method.
76. a refer to No. 1
77. c refer to No. 1

78. b
Consolidated Net Income for 20x4
P Companys net income from own/separate operations
Realized profit in beginning inventory of S Company (downstream sales)
Unrealized profit in ending inventory of S Company (downstream sales)
P Companys realized net income from separate operations*...
S Companys net income from own operations
Realized profit in beginning inventory of P Company (upstream sales)
Unrealized profit in ending inventory of P Company (upstream sales)
[P200,000 x 50% = P100,000 x (P40,000/P200,000)]
S Companys realized net income from separate operations*...
Total
Less: Amortization of allocated excess
Consolidated Net Income for 20x4
Less: Non-controlling Interest in Net Income* *
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent 20x4..
*that has been realized in transactions with third parties.

P 300,000
0
(_
0)
P300,000
P120,000

20,000 )
P100,000

100,000
P 400,000
_
0
P 400,000
20,000
P 380,000

**Non-controlling Interest in Net Income (NCINI) for 20x4

P 120,000
0
( 20,000)
P 100,000
0
P 100,000
20%
P 20,000
0
P 20,000

Multiplied by: Non-controlling interest %..........

Non-controlling Interest in Net Income (NCINI) partial goodwill
Less: NCI on goodwill impairment loss on full goodwill
Non-controlling Interest in Net Income (NCINI) full goodwill

79. c refer to No, 78 for computations.

80. refer to No. 75
The requirement Ps income from S is a term normally used under the equity method, but,
in some cases it may also refer to the term dividend income under the cost model
depending on how the problem was described and presented.
Since there are no data available to arrive at the dividend income under the cost model
for reason that dividend declared or paid by subsidiary is not given, so the term Ps income
from S may mean Income from subsidiary which is computed under the equity method,
thus:
Share in net income (P200,000 x 60%)
Less: Unrealized profit in ending inventory of S {P315,000 x 1/3 = P105,000 x (P315-P225)/P315]
Intercompany profit to be eliminated

P120,000
__30,000
P 90,000

Answer: Equity method (b)

It should be noted that PAS 27 allow the use of cost model in accounting for investment in
subsidiary in the books of parent company but not the equity method.
81. a
20x5
P Company
S Company
Total
Less: Intercompany sales
Realized profit in BI of S Co.
[P240,000 x 1/2 = P120,000 x (240-192)/240]
Add: Unrealized profit in EI of S Co.
[P375,000 x 40% = P150,000 x (375-300)/375]
Consolidated
82. c - refer to No. 81 for computations

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

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

________
2.325,000

__30,000
1,821,000

83. b
Consolidated Net Income for 20x4
P Companys net income from own/separate operations
Realized profit in beginning inventory of S Company (downstream sales)
Unrealized profit in ending inventory of S Company (downstream sales)
P Companys realized net income from separate operations*...
S Companys net income from own operations
Realized profit in beginning inventory of P Company (upstream sales)
Unrealized profit in ending inventory of P Company (upstream sales)
[P150,000 x 50% = P75,000 x (P30,000/P150,000)]
S Companys realized net income from separate operations*...
Total
Less: Amortization of allocated excess
Consolidated Net Income for 20x4
Less: Non-controlling Interest in Net Income* *
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent 20x4..
*that has been realized in transactions with third parties.

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

15,000 )
P 75,000

75,000
P 300,000
_
0
P 300,000
15,000
P 285,000

**Non-controlling Interest in Net Income (NCINI) for 20x4

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

Multiplied by: Non-controlling interest %..........

Non-controlling Interest in Net Income (NCINI) partial goodwill
Less: NCI on goodwill impairment loss on full goodwill
Non-controlling Interest in Net Income (NCINI) full goodwill

84. c refer to No. 83 for computations

85. a [P100,000 x (25/100) = P25,000 x 40/100 = P10,000
86. b [P300,000 x 1/2 = P150,000 x 40% = P60,000]
87. No answer available P300
**Non-controlling Interest in Net Income (NCINI) for 20x6
S Companys net income of Subsidiary Company from its own operations
(Reported net income of S Company)
Realized profit in beginning inventory of P Company (upstream sales)
Unrealized profit in ending inventory of P Company (upstream sales)
(P100,000 x 10% = P10,000 x 30%)
S Companys realized net income from separate operations
Less: Amortization of allocated excess

0
0

(
P(

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

Multiplied by: Non-controlling interest %..........

Non-controlling Interest in GP
Less: NCI on goodwill impairment loss on full goodwill
Non-controlling Interest in GP

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

20x4

20x5

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

270)

________
P 62,730

270
(
900)
________
P 75,870

900
__( 675)
P 84,825

It should be noted that PAS 27 allow the use of cost model in accounting for investment in
subsidiary in the books of parent company but not the equity method.
89. c refer to No. 88 for computation.
90. d refer to No. 88 for computation.

91. a
**Non-controlling Interest in Net Income (NCINI) for
S Companys net income of Subsidiary Company from its
own operations (Reported net income of S Company)
RPBI of P Company (upstream sales)
UPEI of P Company (upstream sales)
S Companys realized net income from separate operations
Less: Amortization of allocated excess
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI) partial goodwill
Less: NCI on goodwill impairment loss on full goodwill
Non-controlling Interest in Net Income (NCINI) full goodwill

20x3

20x4

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

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

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

92. c refer to No. 91 for computation.

93. c refer to No. 91 for computation.
94. a refer to No. 88 for computation.
95. a refer to No. 88 for computation.
96. b refer to No. 88 for computation.
97. a none, since intercompany profit starts only at the end of 20x3.
98. b the amount of unrealized profit at the end of 20x3.
99. c the amount of unrealized profit at the end of 20x4.
100. a
101. c
Cost of Sales
400,000
_350,000
750,000
250,000
500,000

P Company
S Company
Total
Less: Intercompany sales
Consolidated
102. a (P40,000 x 140% = P56,000)
103. a (P56,000 P40,000 = P16,000)
104. Not given
105.

105.

106.

Clark
Net assets reported
Profit on intercompany sale
Proportion of inventory unsold at year end
($60,000 / $240,000)
Unrealized profit at year end
Amount reported in consolidated statements
Dunn
Inventory reported by Banks (P175,000 + P60,000)
Inventory reported by Lamm
Total inventory reported
Unrealized profit at year end
[P50,000 x (P60,000 / P200,000)]
Amount reported in consolidated statements

P320,000
P48,000
x

.25
(12,000)
P308,000
P235,000
250,000
P485,000
(15,000)
P470,000

b
Cost of goods sold reported by Park
Cost of goods sold reported by Small
Total cost of goods sold reported
Cost of goods sold reported by Park on sale to
Small (P500,000 x .40)
Reduction of cost of goods sold reported by
Small for profit on intercompany sale
[(P500,000 x 4 / 5) x .60]
Cost of goods sold for consolidated entity
Note:

P 800,000
700,000
P1,500,000
(200,000)
(240,000)
P1,060,000

Answer b in the actual AICPA examination question was P1,100,000,

requiring candidates to select the closest answer.

107.
108.
109.

d
b
c

110.

111.

P32,000
P6,000
P9,000

=
=
=

(P200,000 + P140,000) P308,000

(P26,000 + P19,000) P39,000
Inventory held by Spin
(P32,000 x .375)
Unrealized profit on sale
[(P30,000 + P25,000) P52,000]
Carrying cost of inventory for
Power

P12,000
(3,000)
P 9,000

.20 = P14,000 / [(Stockholders Equity P50,000)

+(Patent P20,000)]
14 years = (P28,000 / [(28,000 - P20,000) / 4 years]

112. c the amount of sales to outsiders or unaffiliated company

113. b the original cost (I,e., the cost to produced on the part of the seller Blue Company)
114.

Total income (P86,000 - P47,000)

Income assigned to noncontrolling
interest [.40(P86,000 - P60,000)]
Consolidated net income assigned
to controlling interest

P39,000
(10,400)
P28,600

115.

116.

Amount paid by Lorn Corporation

Unrealized profit
Actual cost
Portion sold
Cost of goods sold

P120,000
(45,000)
P 75,000
x
.80
P 60,000

117.

Consolidated sales
Cost of goods sold
Consolidated net income
Income to Dressers noncontrolling
interest:
Sales
Reported cost of sales
Report income
Portion realized
Realized net income
Portion to Noncontrolling
Interest
Income to noncontrolling
Interest
Income to controlling interest

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

118.

Inventory reported by Lorn

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

119.

P20,000 = P30,000 x [(P48,000 - P16,000) / P48,000]

120.

Sales reported by Movie Productions Inc.

Cost of goods sold (P30,000 x 2/3)
Consolidated net income

121.

P7,000 = [(P67,000 - $32,000) x .20]

122. c (P10,000 x 80%)

123. c the original cost
124. d

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

.30
(10,800)
P 69,200
P 24,000
(9,000)
P 15,000

P67,000
(20,000)
P47,000

Date of Acquisition (1/1/2010)

Partial
Fair value of consideration givenP 340,000
Less: Book value of SHE - Subsidiary):
(P150,000 + P230,000) x 80%..................... 304,000
Allocated Excess..P 36,000
Less: Over/Undervaluation of Assets & Liabilities
(P20,000 x 80%)..
16,000
Goodwill ....P 20,000 / 80%

Full

P 25,000

Amortization of equipment: P20,000 / 10 years = P2,000

RPBI of S (downstream sales): P3,000 x 35%...................................................... P1,050
RPBI of P (upstream sales): P2,500 (given).................................................... 1,000
UPEI of S (downstream sales):
Sales of Parent EI %
EI of S
GP% of Parent
P60,000
x 30% = P18,000 x
25/125. 3,600
UPEI of P (upstream sales):
Sales of Subsidiary EI %
EI of P
P60,000
x 30% = P18,000 x

GP% of Subsidiary
20%...

Consolidated Net Income for 20x5

P Companys net income from own/separate operations
Realized profit in beginning inventory of S Company (downstream sales)
Unrealized profit in ending inventory of S Company (downstream sales)
P Companys realized net income from separate operations*...
S Companys net income from own operations
Realized profit in beginning inventory of P Company (upstream sales)
Unrealized profit in ending inventory of P Company (upstream sales)
S Companys realized net income from separate operations*...
Total
Less: Amortization of allocated excess
Consolidated Net Income for 20x4
Less: Non-controlling Interest in Net Income* *
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent 20x5..
*that has been realized in transactions with third parties.

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

P 30,000
1,000
( ,2,400 )
P28,600

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

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

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

5,320
2,000

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

P 30,000
1,000
( 2,400)
P 28,600
2,000
P 26,600
20%
P 5,320
0
P 5,320

125. b refer to No. 124

126. a P124,050 refer to No. 124
127. b refer to No. 129
128. c refer to No. 129
129. a
Non-controlling Interests (in net assets):
Common stock - S, 12/31/2012......

P 150,000

Retained earnings - S, 12/31/2012:

RE- S, 1/1/2012..P300,000
+: NI-S. 30,000
-: Div S 10,000
320,000
Book value of Stockholders equity, 12/31/2012.......
P 470,000
Adjustments to reflect fair value of net assets
Increase in equipment, 1/1/2010......
20,000
Accumulated amortization (P2,000 x 3 years)....
( 6,000)
Fair Value of Net Assets/SHE, 12/31/2012.
P 484,000
UPEI of P (up)
( 2,400)
Realized SHE S,12/31/2012.
P 481,600
x: NCI %..........................................................................................................
_ 20%
Non-controlling Interest (in net assets) - partial..
P 96,320
+: NCI on full goodwill (25,000 20,000)..
5,000
Non-controlling Interest (in net assets) full....
P 101,320
130. d refer to No. 131
131. d
Note: Preferred solution - since what is given is the RE P, 1/1/2012 (beginning
balance of the current year) Retained earnings Parent, 1/1/2012 (cost)
P 700,000
-: UPEI of S (down) 2011 or RPBI of S (down) 2012...
1,050
Adjusted Retained earnings Parent, 1/1/2012 (cost)
P 698,950
Retroactive Adjustments to convert Cost to Equity for
purposes of consolidation / Parents share of adjusted
net increase in subsidiarys retained earnings:
Retained earnings Subsidiary, 1/1/2010.P 230,000
Less: Retained earnings Subsidiary, 1/1/2012
300,000
Increase in Retained earnings since acquisition
(cumulative net income cumulative dividends)P 70,000
Accumulated amortization (1/1/2010 1/1/2012):
P 2,000 x 2 years( 4,000)
UPEI of P (up) 2011 or RPBI of P (up) 2012......( 1,000)
P 65,000
X: Controlling Interests.........____80%
52,000
RE P, 1/1/2012 (equity method) = CRE, 1/1/2012.....
P750,950
+: CI CNI or Profit Attributable to Equity Holders of Parent..
-: Dividends P
RE P, 12/31/2012 (equity method) = CRE, 12/31/2012......

118,730
60,000
P809,680

Or, if RE P is not given on January 1, 2012, then RE P on December 31, 2012 should be
use:
Retained earnings Parent, 12/31/2012 (cost):
(P700,000 + P108,000 P60,000)..
P 748,000
-: UPEI of S (down) 2012 or RPBI of S (down) 2013...
3,600
Adjusted Retained earnings Parent, 1/1/2012 (cost)
P 744,400
Retroactive Adjustments to convert Cost to Equity for
purposes of consolidation / Parents share of adjusted
net increase in subsidiarys retained earnings:
Retained earnings Subsidiary, 1/1/2010.P 230,000
Less: Retained earnings Subsidiary, 12/31/2012
(P300,000 + P20,000 P10,000).....
320,000
Increase in Retained earnings since acquisition
(cumulative net income cumulative dividends)P 90,000
Accumulated amortization (1/1/2010 12/31/2012):
P 2,000 x 3 years ( 6,000)
UPEI of P (up) 2012 or RPBI of P (up) 2013.. ( 2,400)

P 81,600
X: Controlling Interests .
80% 65,280
RE P, 12/31/2012 (equity method) = CRE, 12/31/2012.
P809,680
132. b
Consolidated Stockholders Equity, 12/31/2012:
Controlling Interest / Parents Interest / Parents Portion /
Equity Holders of Parent SHE, 12/31/2012:
Common stock P (P only)..
Retained Earnings P (equity method), 12/31/2012..
Controlling Interest / Parents Stockholders Equity.
Non-controlling interest, 12/31/2012 (partial).
Consolidated Stockholders Equity, 12/31/2012

P1,000,000
809,680
P1,809,680
96,320
P1,906,000

133. a
Consolidated Stockholders Equity, 12/31/2012:
Controlling Interest / Parents Interest / Parents Portion /
Equity Holders of Parent SHE, 12/31/2012:
Common stock P (P only)..
Retained Earnings P (equity method), 12/31/2012..
Controlling Interest / Parents Stockholders Equity.
Non-controlling interest, 12/31/2012 (full)...
Consolidated Stockholders Equity, 12/31/2012

P1,000,000
809,680
P1,809,680
101,320
P1,911,000

Theories
1.
2.
3.
4.
5.

d
b
c
a
c

6.
7.
8.
9.
10,

d
c
b
c
a

11.
12.
13.
14.
15,

d
a
c
c
d

16.
17.
18.
19.
20.

c
c
b
c
b

21.
22.
23.
24.
25.

c
a
a
b
c

26.
27.
28.
29.
30.

a
b
b
c
d

31
32.
33.
34.
35.

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