GV Company purchased 75% ownership of DL Company on January 1, 2011.

On that date, the inventory

of the subsidiary is overvalued by 50,000. Half of these inventories were sold in 2011, 40% during 2012
and the remaining 10% in 2013.

While each company has its own sales forces and independent product lines, there are substantial inter-
corporate sales of inventory each period. The following inter-corporate sales occurred during 2011 and
2012:

Year Seller Cost of Buyer Sales Price Unsold at Year sold to

Product Year end outsiders
Sold
2011 GV Co. 448,000 DL Co. 640,000 140,000 2012
2012 DL Co. 312,000 GV Co. 480,000 77,000 2013
2012 GV Co. 350,000 DL Co. 437,500 63,000 2013
The following data are summarized the results of their financial operations for the year ended December
31, 2012:

GV Company DL Company
Sales 3,850,000 1,680,000
Gross Profit 1,904,000 504,000
Operating Expenses 770,000 280,000
Ending Inventories 336,000 280,000
Dividend Received from Affiliate 126,000 0
Dividend Received from Non- Affiliate 0 70,000
For the year ended 2012, compute:

1. Consolidated Sales
2. Consolidated Cost of Goods Sold
3. Consolidated Net Income attributable to parent’s shareholders
4. Non-controlling interest share in net income
5. Consolidated Ending Inventory

Problem 2: On January 2, 2016, Power Company acquired 90% of the outstanding shares of Solar Inc.for
3,000,000. Such investment is accounted using the cost method in the separate book of Power Company.
At acquisition date, all assets and liabilities of Solar Inc are equal to their respective fair value except the
following:

Book Values Fair Values

Inventories 200,000 250,000

Building-net 1,500,000 1,420,000

Equipment-net 600,000 650,000

Machinery A 300,000 330,000

Land 1,000,000 1,300,000

Bonds Payable 200,000 180,000

50% of the inventories were sold in 2016, the remainder were sold on the early part of 2017. The
building has a remaining life of 10 years while the equipment has a remaining life of 5 years. The
only machinery of Solar Inc., Machinery A, has an original life of 6 years and was bought on January
 1, 2014. The bonds payable has a maturity of 4 years from the date of acquisition. The land was sold
on October 31, 2016 for P1,500,000 to Power Company. On October 31, 2017, this land was sold to
Gagabun Corp. for 1,700,000.

During 2016 and 2017, intercompany sales amounted to 2,000,000 and 4,000,000, respectively. Power
Company consistently recognized a 25% mark-up based on cost while Solar Inc. had a 25% gross profit
on sales. The ending inventories of the buying affiliate on its separate book, half of which came from
inter-company transactions show the following:

December 31, 2016 December 31, 2017

Power 240,000 160,000
Solar 200,000 40,000
Goodwill impairment loss amounted to P30,000 and P20,000 at the end of 2016 and 2017,
respectively. At the date of acquisition, the goodwill attributable to parent is 90,000 while the goodwill
attributable to NCI is 10,000.

On December 31, 2016, machinery A of Solar Inc. was sold to Power Company for 150,000 This
machinery was later sold by Power Company on July 1, 2017 to unaffiliated party for 160,000.

On October 1, 2016, Solar Inc., purchased a piece of land costing 1,000,000 from Power Companyfor
1,500,000. On December 1, 2017, Solar Inc. sold this land to unrelated party for 1,600,000. Also, on July
1, 2016, Power Inc. sold a used photo-copier with a carrying value of 60,000 on its separate book and
with remaining useful life of 3 years to Solar Company for 42,000.

The following were gathered from the financial statements of Power and Solar Inc. on their separate
book.

Dividends Operating
Declared and Expenses
Net Income Paid
Power Co. 1,500,000 300,000 900,000
2016
Solar Inc. 600,000 50,000 800,000

Power Co. 1,100,000 200,000 950,000

2017
Solar Inc. 800,000 50,000 750,000

1. Consolidated Net Income-2016

2. Consolidated Net Income Attributable to Parent -2016
3. Non-Controlling interest in net income -2016
4. Consolidated Inventory-2016
5. Consolidated Operating Expenses -2016
6. In preparing consolidated balance sheet, you add the net carrying amount of PPE in the
separate book of parent to the net carrying amount of PPE recorded in the separate book of
subsidiary, what is the total amount of adjustment to get the consolidated balance of PPE for
2016?
7. Consolidated Gain or loss on sale of land-2017

8. In the consolidated income statement, what amount should be shown as gain or loss on sale
of Machinery A in 2017?
 9. Consolidated Net Income-2017
10. Parent's Share in the 2017 Consolidated Net Income
11. Consolidated Inventory-2017
12. Non-controlling Interest's Share in 2017 Consolidated Net Income
13. In preparing consolidated balance sheet, you add the net carrying amount of PPE in the
separate book of parent to the net carrying amount of PPE recorded in the separate book of
subsidiary, what is the total amount of adjustment to get the consolidated balance of PPE for
2017?

14. Consolidated Operating Expenses-2017

Problem 3:ABC Co. and XYZ Co. formed a business combination on January 1, 2016, when ABC Co. acquired 75%
interest in the common stock of XYZ Co. by paying P3,000,000 cash and contingent consideration of P1,000,000
which has a 60% chance of occurrence as of that date. Such investment was accounted using cost method in ABC
Co.'s separate book. The non-controlling interest has a fair value of P800,000 at the date of acquisition. At that date,
all assets and liabilities of XYZ Co. are equal to their respective fair values except the following:

Book Values Fair Values

Inventories 200,000 250,000

Building-net 1,500,000 1,420,000

Equipment-net 600,000 650,000

Machinery A 300,000 330,000

Land 1,000,000 1,300,000

Bonds Payable 200,000 180,000

40% of the inventories were sold in 2016, the remainder were sold on the early part of 2017. The building
has a remaining life of 10 years while the equipment has a remaining life of 5 years. The only machinery
of XYZ Co., Machinery A, has an original life of 6 years and was bought on January 1, 2014. The bonds
payable has a maturity of 4 years from the date of acquisition. The land was sold on October 31, 2017 for
P1,500,000.

Goodwill impairment loss amounted to P30,000 and P20,000 at the end of 2016 and 2017, respectively.
On July 1, 2017, machinery A of XYZ Company was sold to Kaya ko Co, an unrelated party for 140,000.
Both companies maintain a consistent gross profit rate for its sale of inventories. On December 31,2017,
the probability of occurrence for the contingent consideration increase to 70%.

Other information with regard to the two companies are as follows:

2016 2017

ABC Co. XYZ Co. ABC Co. XYZ Co.

Sales 9,000,000 3,850,000 ? ?

Cost of Goods Sold (6,750,000) (2,750,000) ? ?

Gross Profit 2,250,000 1,100,000 ? ?

Expenses (1,000,000) (437,500) (1,200,000) (475,000)

Dividend Income 150,000 - 225,000 -

Gain (Loss) on Sale - - - 452,500

NET INCOME 1,400,000 662,500 1,400,000 1,227,500

Dividends Paid 400,000 ? 500,000 ?

As of 12/31/2016 As of 12/31/2017

ABC Co. XYZ Co. ABC Co. XYZ Co.

Cash 1,050,000 1,007,500 1,725,000 3,355,000

Accounts Receivable 1,500,000 1,000,000 1,800,000 1,200,000

Inventories 550,000 300,000 650,000 320,000

Land 2,000,000 1,000,000 2,000,000 -

Building 2,000,000 1,350,000 1,800,000 1,200,000

Equipment-net 500,000 480,000 400,000 360,000

Machinery-net 200,000 225,000 600,000 -

Investment in Subsidiary 3,600,000 - 3,600,000 -

TOTAL ASSETS 11,400,000 5,362,500 12,575,000 6,435,000

Accounts Payable 1,200,000 1,150,000 1,350,000 1,270,000

Bonds Payable 500,000 200,000 500,000 200,000

Deferred Income 100,000 50,000 125,000 75,000

Contingent Consideration 600,000 - 700,000 -

TOTAL LIABILITIES 2,400,000 1,400,000 2,675,000 1,545,000

Ordinary Share Capital 4,000,000 1,500,000 4,000,000 1,500,000

Ordinary Share Premium 2,000,000 500,000 2,000,000 500,000

Retained Earnings ? 1,962,500 3,900,000 ?

TOTAL SHE ? 3,962,500 9,900,000 ?

 Determine the following for the Consolidated Financial Statements:

1. Goodwill or gain on acquisition

2. 2016 Consolidated Net Income
3. 2016 NCI's share in goodwill impairment loss
4. 2016 Share of Parent in the Consolidated Net Income
5. 2016 Share of NCI in the Consolidated Net Income
6. 2016 Cost of Goods Sold
7. 2016 Expenses
8. Inventories as of December 31, 2016
9. Carrying Amount of Equipment as of December 31, 2016
10. Carrying Amount of Machinery as of December 31, 2016
11. Carrying Amount of Building as of December 31, 2016
12. 2016 Total Assets
13. 2016 Total Liabilities
14. 2016 Retained Earnings
15. 2016 Non-controlling interest
16. 2016 Total Shareholders' Equity
17. 2017 Consolidated Net Income
18. ABC Co.'s share in 2017 Net Income of XYZ Co.
19. 2017 Share of Parent in the Consolidated Net Income
20. 2017 Share of NCI in the Consolidated Net Income
21. . 2017 Cost of Goods Sold
22. . 2017 Expenses
23. Inventories as of December 31, 2017
24. Carrying Amount of Equipment as of December 31, 2017
25. Carrying Amount of Building as of December 31, 2017
26. 2017 Total Assets
27. 2017 Total Liabilities
28. 2017 Retained Earnings
29. . 2017 Non-controlling interest
30. 2017 Total Shareholders' Equity
31. Gain on Sale of PPE