Chapter 18

Problem I
1 Equipment 540,000
Beginning R/E – Prince (P100,000 × .80) 80,000
Noncontrolling Interest (P100,000 × .20) 20,000
Accumulated Depreciation 640,000

Accumulated Depreciation (P100,000/4) × 2 50,000

Depreciation Expense 25,000
Beginning R/E – Prince (P25,000 × .80) 20,000
Noncontrolling Interest (P25,000 × .20) 5,000
2 Controlling Interest in Consolidated Net Income:
Prince Company’s income from its
independent operations P3,270,000
Reported net income of Serf Company P820,000
Plus profit on intercompany sale of
equipment considered to be realized
through depreciation in 2014 25,000
Reported subsidiary income that has been
realized in transactions with third
parties 845,000
× .8
Prince Company’s share thereof 676,000
Controlling Interest in Consolidated net income P3,946,000
3. Noncontrolling Interest Calculation:
Reported income of Serf Company P820,000
Plus: Intercompany profit considered realized
in the current period 25,000
P845,000
Noncontrolling interest in Serf Company
(.20 × 845,000) P169,000

4. NCI-CNI (No. 3) P 169,000

CI-CNI (No. 2) 3,946,000
CNI P4,115,000
or,
Consolidated Net Income for 20x5
P Company’s net income from own/separate operations…………. P3,270,000
Realized gain on sale of equipment (downstream sales) through depreciation 0
P Company’s realized net income from separate operations…….….. P3,270,000
S Company’s net income from own operations…………………………………. P 820,000
Realized gain on sale of equipment (upstream sales) through depreciation* 25,000
Son Company’s realized net income from separate operations*…….….. P 845,000 845,000
Total P4,115,000
Less: Amortization of allocated excess…………………… 0
Consolidated Net Income for 20x5 P4,115,000
Less: Non-controlling Interest in Net Income* * 169,000
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent – 20x5………….. P3,946,000

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

S Company’s net income of Subsidiary Company from its own operations
(Reported net income of S Company) P 820,000
Realized gain on sale of equipment (upstream sales) through depreciation 25,000
S Company’s realized net income from separate operations……… P 845,000
Less: Amortization of allocated excess 0
P845,000
Multiplied by: Non-controlling interest %.......... 20%
Non-controlling Interest in Net Income (NCINI) – partial goodwill P 169,000

1/1/20x4:
Selling price of equipment P 740,000
Less: BV of equipment
Cost P1,280,000
Less: Accumulated depreciation:
P1,280,000 / 8 years x 4 years* 640,000 640,000
Unrealized gain on sales – 1/1/20x4 P 100,000

Realized gain – depreciation: P100,000 / 4 years P 25,000

*the original life is 8 years as of 1/1/20x3, since the remaining life as of 1/1/20x4
in only 4 years, for purposes of computing the accumulated depreciation to
determine the gain on sale, the difference of 4 years is presumed to be expired.

5 Equipment 540,000
Beginning R/E – Prince 100,000
 Accumulated Depreciation 640,000

Accumulated Depreciation (P100,000/4) × 2 50,000

Depreciation Expense 25,000
Beginning R/E – Prince 25,000

6
Consolidated Net Income for 20x5
P Company’s net income from own/separate operations…………. P3,270,000
Realized gain on sale of equipment (downstream sales) through depreciation ____25,000
P Company’s realized net income from separate operations…….….. P3,295,000
S Company’s net income from own operations…………………………………. P 820,000
Realized gain on sale of equipment (upstream sales) through depreciation* 0
S Company’s realized net income from separate operations*…….….. P 820,000 820,000
Total P4,115,000
Less: Amortization of allocated excess…………………… 0
Consolidated Net Income for 20x5 P4,115,000
Less: Non-controlling Interest in Net Income* * 164,000
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent – 20x5………….. P3,951,000
**Non-controlling Interest in Net Income (NCINI) for 20x5
S Company’s net income of Subsidiary Company from its own operations
(Reported net income of S Company) P 820,000
Realized gain on sale of equipment (upstream sales) through depreciation 0
S Company’s realized net income from separate operations……… P 820,000
Less: Amortization of allocated excess 0
P820,000
Multiplied by: Non-controlling interest %.......... 20%
Non-controlling Interest in Net Income (NCINI) – partial goodwill P 164,000

Problem II
1. Journal entry to record sale:
Cash 84,000
Accumulated Depreciation 80,000
Equipment 150,000
Gain on Sale of Equipment 14,000
Record the sale of equipment:
P84,000 = P150,000 - P80,000 + P14,000
P80,000 = (P150,000 / 15 years) x 8 years
2. Journal entry to record purchase:
Equipment 84,000
Cash 84,000

Journal entry to record depreciation expense:

Depreciation Expense 12,000
Accumulated Depreciation 12,000

3. Eliminating entry at December 31, 20x4, to eliminate intercompany sale of equipment:

E(1) Equipment 66,000
Gain on Sale of Equipment 14,000
Depreciation Expense 2,000
Accumulated Depreciation 78,000
Eliminate unrealized profit on equipment.

Adjustment to equipment
Amount paid by WW to acquire building P150,000
Amount paid by LL on intercompany sale (84,000)
Adjustment to buildings and equipment P 66,000

Adjustment to depreciation expense

Depreciation expense recorded by Lance
Corporation (P84,000 / 7 years) P 12,000
Depreciation expense recorded by WW
Corporation (P150,000 / 15 years) (10,000)
Adjustment to depreciation expense P 2,000

Adjustment to accumulated depreciation

Amount required (P10,000 x 9 years) P 90,000
Amount reported by LL (P12,000 x 1 year) (12,000)
Required adjustment P 78,000

4. Eliminating entry at January 1, 20x4, to eliminate intercompany sale of equipment and prepare a consolidated
balance sheet only:
E(1) Equipment 66,000
Retained Earnings 12,000
 Accumulated Depreciation 78,000
Eliminate unrealized profit on equipment.

Problem III
1. Eliminating entry, December 31, 20x8:
E(1) Truck 55,000
Gain on Sale of Truck 35,000
Depreciation Expense 5,000
Accumulated Depreciation 85,000

Computation of gain on sale of truck:

Price paid by Minnow P245,000
Cost of truck to Frazer P300,000
Accumulated depreciation
(P300,000 / 10 years) x 3 years ( 90,000) (210,000)
Gain on sale of truck P 35,000

Accumulated depreciation adjustment:

Required [(P300,000 / 10 years) x 4 years] P120,000
Reported [(P245,000 / 7 years) x 1 year] (35,000)
Required increase P 85,000

2. Eliminating entry, December 31, 20x9:

E(1) Truck 55,000

Retained Earnings 30,000
Depreciation Expense 5,000
Accumulated Depreciation 80,000

Accumulated depreciation adjustment:

Required [(P300,000 / 10 years) x 5 years] P150,000
Reported [(P245,000 / 7 years) x 2 years] (70,000)
Required increase P 80,000

Problem IV
a. Eliminating entry, December 31, 20x8:

E(1) Truck 90,000

Gain on Sale of Truck 30,000
Accumulated Depreciation 120,000

Computation of gain on sale of truck:

Price paid by MM P210,000
Cost of truck to FF P300,000
Accumulated depreciation
(P300,000 / 10 years) x 4 years (120,000) (180,000)
Gain on sale of truck P 30,000

b. Eliminating entry, December 31, 20x9:

E(1) Truck 90,000

Retained Earnings, January 1 30,000
Depreciation Expense 5,000
Accumulated Depreciation 115,000

Accumulated depreciation adjustment:

Required [(P300,000 / 10 years) x 5 years] P150,000
Recorded [(P210,000 / 6 years) x 1 year] (35,000)
Required increase P115,000

Problem V (Comprehensive Problem)

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……………………………….. P 372,000
Less: Book value of stockholders’ equity of S:
Common stock (P240,000 x 80%)……………………. P 192,000
Retained earnings (P120,000 x 80%)………………... 96,000 288,000
Allocated excess (excess of cost over book value)….. P 84,000
Less: Over/under valuation of assets and liabilities:
Increase in inventory (P6,000 x 80%)……………… P 4,800
 Increase in land (P7,200 x 80%)……………………. 5,760
Increase in equipment (P96,000 x 80%) 76,800
Decrease in buildings (P24,000 x 80%)………..... ( 19,200)
Decrease in bonds payable (P4,800 x 80%)…… 3,840 72,000
Positive excess: Partial-goodwill (excess of cost over
fair value)………………………………………………... P 12,000

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

S Co. S Co. (Over) Under
Book value Fair value Valuation
Inventory………………….…………….. P 24,000 P 30,000 P 6,000
Land……………………………………… 48,000 55,200 7,200
Equipment (net)......... 84,000 180,000 96,000
Buildings (net) 168,000 144,000 (24,000)
Bonds payable………………………… (120,000) ( 115,200) 4,800
Net……………………………………….. P 204,000 P 294,000 P 90,000

The buildings and equipment will be further analyzed for consolidation purposes as follows:
S Co. S Co. Increase
Book value Fair value (Decrease)
Equipment.................. 180,000 180,000 0
Less: Accumulated depreciation….. 96,000 - ( 96,000)
Net book value………………………... 84,000 180,000 96,000

S Co. S Co.
Book value Fair value (Decrease)
Buildings................ 360,000 144,000 ( 216,000)
Less: Accumulated depreciation….. 1992,000 - ( 192,000)
Net book value………………………... 168,000 144,000 ( 24,000)

A summary or depreciation and amortization adjustments is as follows:

Over/ Annual Current
Account Adjustments to be amortized Under Life Amount Year(20x4) 20x5
Inventory P 6,000 1 P 6,000 P 6,000 P -
Subject to Annual Amortization
Equipment (net)......... 96,000 8 12,000 12,000 12,000
Buildings (net) (24,000) 4 ( 6,000) ( 6,000) (6,000)
Bonds payable… 4,800 4 1,200 1,200 1,200
P 13,200 P 13,200 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 S (P360,000 x 100%) __360,000
Allocated excess (excess of cost over book value)….. P 105,000
Add (deduct): (Over) under valuation of assets and liabilities
(P90,000 x 100%) 90,000
Positive excess: Full-goodwill (excess of cost over
fair value)………………………………………………... P 15,000

In this case, the goodwill was proportional to the controlling interest of 80% and non-controlling interest of 20% computed as follows:
Value % of Total
Goodwill applicable to parent………………… P12,000 80.00%
Goodwill applicable to NCI…………………….. 3,000 20.00%
Total (full) goodwill……………………………….. P15,000 100.00%

The goodwill impairment loss would be allocated as follows

Value % of Total
Goodwill impairment loss attributable to parent or controlling P 3,000 80.00%
Interest
Goodwill applicable to NCI…………………….. 750 20.00%
Goodwill impairment loss based on 100% fair value or full-
Goodwill P 3,750 100.00%

The unrealized and gain on intercompany sales for 20x4 are as follows:

Date Selling Book Unrealized* Remaining Realized gain –

of Sale Seller Price Value Gain on sale Life depreciation** 20x4
4/1/20x4 P Co. P90,000 P75,000 P15,000 5 years P3,000/year P2,250
1/2/20x4 S Co. 60,000 28,800 31,200 8 years P3,900/year P3,900
* selling price less book value
** unrealized gain divided by remaining life; 20x4 – P3,000 x 9/12 = P2,250
20x4: First Year after Acquisition
Parent Company Cost Model Entry
January 1, 20x4:
(1) Investment in S Company…………………………………………… 372,000
Cash…………………………………………………………………….. 372,000
Acquisition of S Company.

January 1, 20x4 – December 31, 20x4:

(2) Cash……………………… 28,800
Dividend income (P36,000 x 80%)……………. 28,800
Record dividends from S Company.
No entries are made on the parent’s books to depreciate, amortize or write-off the portion of the allocated excess that expires during
20x4, and unrealized profits in ending inventory.
Consolidation Workpaper – Year of Acquisition
(E1) Common stock – S Co………………………………………… 240,000
Retained earnings – S Co…………………………………… 120.000
Investment in S Co…………………………………………… 288,000
Non-controlling interest (P360,000 x 20%)……………………….. 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…………………………………………………………………. 6,000

Accumulated depreciation – equipment……………….. 96,000
Accumulated depreciation – buildings………………….. 192,000
Land………………………………………………………………………. 7,200
Discount on bonds payable…………………………………………. 4,800
Goodwill…………………………………………………………………. 12,000
Buildings……………………………………….. 216,000
Non-controlling interest (P90,000 x 20%)……………………….. 18,000
Investment in S Co………………………………………………. 84,000
To allocate excess of cost over book value of identifiable assets
acquired, with remainder to goodwill; and to establish non-
controlling interest (in net assets of subsidiary) on date of acquisition.

(E3) Cost of Goods Sold……………. 6,000

Depreciation expense……………………….. 6,000
Accumulated depreciation – buildings………………….. 6,000
Interest expense………………………………… 1,200
Goodwill impairment loss………………………………………. 3,000
Inventory………………………………………………………….. 6,000
Accumulated depreciation – equipment……………….. 12,000
Discount on bonds payable………………………… 1,200
Goodwill…………………………………… 3,000
To provide for 20x4 impairment loss and depreciation and
amortization on differences between acquisition date fair value and
book value of Son’s identifiable assets and liabilities as follows:
Cost of Depreciation/
Goods Sold Amortization Amortization
Expense -Interest Total
Inventory sold P 6,000
Equipment P 12,000
Buildings ( 6,000)
Bonds payable _______ _______ P 1,200
Totals P 6,000 P 6,000 P1,200 13,200

(E4) Dividend income - P………. 28,800

Non-controlling interest (P36,000 x 20%)……………….. 7,200
Dividends paid – S…………………… 36,000
To eliminate intercompany dividends and non-controlling interest
share of dividends.

(E5) Gain on sale of equipment 15,000

Equipment 30,000
Accumulated depreciation 45,000
To eliminate the downstream intercompany gain and restore to its
original cost to the consolidate entity (along with its accumulated
depreciation at the point of the intercompany sale).

(E6) Gain on sale of equipment 31,200

Equipment 12,000
Accumulated depreciation 43,200
To eliminate the upstream intercompany gain and restore to its
original cost to the consolidate entity (along with its accumulated
depreciation at the point of the intercompany sale).

(E7) Accumulated depreciation……….. 2,250

Depreciation expense…………… 2,250
To adjust downstream depreciation expense on equipment sold to subsidiary, thus realizing a portion of the
gain through depreciation
 (P15,000 / 5 years x 9/12 = P2,250).

(E8) Accumulated depreciation……….. 3,900

Depreciation expense…………… 3,900
To adjust upstream depreciation expense on equipment sold to parent, thus realizing a portion of the gain
through depreciation
(P31,200/85 years x 1 year = P3,900).

(E9) Non-controlling interest in Net Income of Subsidiary………… 10,140

Non-controlling interest ………….. 10,140
To establish non-controlling interest in subsidiary’s adjusted net
income for 20x4 as follows:

Net income of subsidiary…………………….. P 91,200

Unrealized gain on sale of equipment
(upstream sales) ( 31,200)
Realized gain on sale of equipment (upstream
sales) through depreciation 3,900
S Company’s realized net income from
separate operations P 63,900
Less: Amortization of allocated excess [(E3)]…. 13,200
P 50,700
Multiplied by: Non-controlling interest %.......... 20%
Non-controlling Interest in Net Income (NCINI) –
partial goodwill P 10,140

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

Worksheet for Consolidated Financial Statements, December 31, 20x4. Cost Model (Partial-goodwill) 80%-Owned Subsidiary
December 31, 20x4 (First Year after Acquisition)
Income Statement P Co S Co. Dr. Cr. Consolidated
Sales P480,000 P240,000 P 720,000
Gain on sale of equipment 15,000 31,200 (5) 15,000
(6) 31,200
Dividend income 28,800 - (4) 28,800 _________
Total Revenue P523,800 P271,200 P 720,000
Cost of goods sold P204,000 P138,000 (3) 6,000 P 348,000
Depreciation expense 60,000 24,000 (3) 6,000 (7) 2,250 83,850
(8) 3,900
Interest expense - - (3) 1,200 1,200
Other expenses 48,000 18,000 66,000
Goodwill impairment loss - - (3) 3,000 3,000
Total Cost and Expenses P312,000 P180,000 P 502,050
Net Income P211,800 P 91,200 P 217,950
NCI in Net Income - Subsidiary - - (9 10,140 ( 10,140)
Net Income to Retained Earnings P211,800 P 91,200 P 207,810

Statement of Retained Earnings

Retained earnings, 1/1
P Company P360,000 P 360,000
S Company P120,000 (1) 120,000
Net income, from above 211,800 91,200 207,810
Total P571,800 P211,200 P 567,810
Dividends paid
P Company 72,000 72,000
S Company - 36,000 (4) 36,000 _ ________
Retained earnings, 12/31 to Balance
Sheet P499,800 P175,200 P 495,810

Balance Sheet
Cash………………………. P 232,800 P 90,000 P 322,800
Accounts receivable…….. 90,000 60,000 150,000
Inventory…………………. 120,000 90,000 (2) 6,000 3) 6,000 210,000
Land……………………………. 210,000 48,000 (2) 7,200 265,200
Equipment 240,000 180,000 (5) 30,000
(6) 12,000 462,000
Buildings 720,000 540,000 (2) 216,000 1,044,000
Discount on bonds payable (2) 4,800 (3) 1,200 3,600
Goodwill…………………… (2) 12,000 (3) 3,000 9,000
Investment in S Co……… 372,000 (1) 288,000
(2) 84,000 -
Total P1,984,800 P1,008,000 P2,466,600

Accumulated depreciation (3) 96,000 (3) 12,000

- equipment P 135,000 P 96,000 (7) 2,250 (5) 45,000
(8) 3,900 (6) 43,200 P229,050
Accumulated depreciation 405,000 288,000 (2) 192,000
- buildings (3) 6,000 495,000
Accounts payable…………… 105,000 88,800 193,800
Bonds payable………………… 240,000 120,000 360,000
Common stock, P10 par……… 600,000 600,000
Common stock, P10 par……… 240,000 (1) 240,000
Retained earnings, from above 499,800 175,200 495,810
Non-controlling interest………… (4) 7,200 (1 ) 72,000 (2)
18,000
_________ _________ __________ (9) 10,140 ____92,940
 Total P1,984,800 P1,008,000 P 834,450 P 834,450 P2,466,600

20x5: Second Year after Acquisition

P Co. S Co.
Sales P 540,000 P 360,000
Less: Cost of goods sold 216,000 192,000
Gross profit P 324,000 P 168,000
Less: Depreciation expense 60,000 24,000
Other expense 72,000 54,000
Net income from its own separate operations P 192,000 P 90,000
Add: Dividend income 38,400 -
Net income P 230,400 P 90,000
Dividends paid P 72,000 P 48,000
No goodwill impairment loss for 20x5.

Parent Company Cost Model Entry

Only a single entry is recorded by the parent in 20x5 in relation to its subsidiary investment:
January 1, 20x5 – December 31, 20x5:
Cash……………………… 38,400
Dividend income (P48,000 x 80%)……………. 38,400
Record dividends from S Company.

On the books of S Company, the P48,000 dividend paid was recorded as follows:
Dividends paid………… 48,000
Cash 48,000
Dividends paid by S Co..

Consolidation Workpaper – Second Year after Acquisition

The working paper eliminations (in journal entry format) on December 31, 20x5, are as follows:
(E1) Investment in S Company………………………… 44,160
Retained earnings – P Company……………………… 44,160
To provide entry to convert from the cost method to the equity
method or the entry to establish reciprocity at the beginning of the
year, 1/1/20x5, computed as follows:

Retained earnings – S Company, 1/1/20x5 P175,200

Retained earnings – S Company, 1/1/20x4 120,000
Increase in retained earnings…….. P 55,200
Multiplied by: Controlling interest % 80%
Retroactive adjustment P 44,160

Entry (1) above is needed only for firms using the cost method to account for their investments in the subsidiary. If the parent is already
using the equity method, there is no need to convert to equity.
(E2) Common stock – S Co………………………………………… 240,000
Retained earnings – S Co., 1/1/20x5 175,200
Investment in S Co (P415,200 x 80%)………………………… 332,160
Non-controlling interest (P415,200 x 20%)……………………….. 83,040
To eliminate intercompany investment and equity accounts
of subsidiary and to establish non-controlling interest (in net assets of
subsidiary) on January 1, 20x5.

(E3) Inventory…………………………………………………………………. 6,000

Accumulated depreciation – equipment……………….. 96,000
Accumulated depreciation – buildings………………….. 192,000
Land………………………………………………………………………. 7,200
Discount on bonds payable…………………………………………. 4,800
Goodwill…………………………………………………………………. 12,000
Buildings……………………………………….. 216,000
Non-controlling interest (P90,000 x 20%) 18,000
Investment in S Co………………………………………………. 84,000
To allocate excess of cost over book value of identifiable assets
acquired, with remainder to goodwill; and to establish non-
controlling interest (in net assets of subsidiary) on January 1, 20x5.

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

[(P13,200 x 80%) + P3,000, impairment loss on
partial-goodwill] 13,560
Non-controlling interests (P13,200 x 20%)……………………. 2,640
Depreciation expense……………………….. 6,000
Accumulated depreciation – buildings………………….. 12,000
Interest expense………………………………… 1,200
Inventory………………………………………………………….. 6,000
Accumulated depreciation – equipment……………….. 24,000
Discount on bonds payable………………………… 2,400
Goodwill…………………………………… 3,000
To provide for years 20x4 and 20x5 depreciation and amortization on
differences between acquisition date fair value and book value of
Son’s identifiable assets and liabilities as follows:
Year 20x4 amounts are debited to Perfect’s retained earnings &
NCI;
 Year 20x5 amounts are debited to respective nominal accounts.

(20x4) Depreciation/
Retained Amortization Amortization
earnings, expense -Interest
Inventory sold P 6,000
Equipment 12,000 P 12,000
Buildings (6,000) ( 6,000)
Bonds payable 1,200 ________ P 1,200
Sub-total P13,200 P 6,000 P 1,200
Multiplied by: 80%
To Retained earnings P 10,560
Impairment loss 3,000
Total P 13,560

(E5) Dividend income - P………. 38,400

Non-controlling interest (P48,000 x 20%)……………….. 9,600
Dividends paid – S…………………… 48,000
To eliminate intercompany dividends and non-controlling interest
share of dividends.

(E5) Retained Earnings – P Company, 1/1/20x5 15,000

Equipment 30,000
Accumulated depreciation 45,000
To eliminate the downstream intercompany gain and restore to its
original cost to the consolidate entity (along with its accumulated
depreciation at the point of the intercompany sale).
(E6) Retained Earnings–P Company, 1/1/20x5 (P31,200 x 80%) 24,960
Non-controlling interest (P31,200 x 20%) 6,240
Equipment 12,000
Accumulated depreciation 43,200
To eliminate the upstream intercompany gain and restore to its
original cost to the consolidate entity (along with its accumulated
depreciation at the point of the intercompany sale).

(E7) Accumulated depreciation……….. 5,250

Depreciation expense (current year)…………… 3,000
Retained Earnings–P Company, 1/1/20x5 (prior year) 2,250
To adjust downstream depreciation expense on equipment sold to subsidiary, thus realizing a portion of the
gain through depreciation

(E8) Accumulated depreciation……….. 7,800

Depreciation expense (current year) 3,900
Retained Earnings–P Co. 1/1/20x5 (P3,900 x 80%) 3,120
Non-controlling interest (P31,200 x 20%) 780
To adjust upstream depreciation expense on equipment sold to parent, thus realizing a portion of the gain
through depreciation
(P31,200/85 years x 1 year = P3,900).

(E9) Non-controlling interest in Net Income of Subsidiary………… 17,340

Non-controlling interest ………….. 17,340
To establish non-controlling interest in subsidiary’s adjusted net
income for 20x5 as follows:

Net income of subsidiary…………………….. P 90,000

Realized gain on sale of equipment (upstream
sales) through depreciation 3,900
S Company’s Realized net income* P 93,900
Less: Amortization of allocated excess ( 7,200)
P 86,700
Multiplied by: Non-controlling interest %.......... 20%
Non-controlling Interest in Net Income (NCINI) P 17,340
– partial goodwill
*from separate transactions that has been realized in transactions with third persons.

Worksheet for Consolidated Financial Statements, December 31, 20x5. Cost Model (Partial-goodwill) 80%-Owned Subsidiary
December 31, 20x5 (Second Year after Acquisition)
Income Statement P Co S Co. Dr. Cr. Consolidated
Sales P540,000 P360,000 P 900,000
Dividend income 38,400 - (5) 38,400 ___________
Total Revenue P578,400 P360,000 P 900,000
Cost of goods sold P216,000 P192,000 P 408,000
Depreciation expense 60,000 24,000 (4) 6,000 (7) 3,000 83,100
(8) 3,900
Interest expense - - (4) 1,200 1,200
Other expenses 72,000 54,000 126,000
Goodwill impairment loss - - -
Total Cost and Expenses P348,000 P270,000 P 618,300
Net Income P230,400 P 90,000 P 281,700
NCI in Net Income - Subsidiary - - (9) 17,340 ( 17,340)
Net Income to Retained Earnings P230,400 P 90,000 P 264,360

Statement of Retained Earnings

Retained earnings, 1/1
P Company P499,800 (1) 13,560 (1) 44,160
(5) 15,000 (7) 2,250
(6) 24,960 (8) 3,120 P 495,810
 S Company P 175,200 (2) 175,200
Net income, from above 230,400 __90,000 264,360
Total P730,200 P265,200 P 760,170
Dividends paid
P Company 72,000 72,000
S Company - 48,000 (5) 48,000 _ ________
Retained earnings, 12/31 to Balance
Sheet P658,200 P217,200 P 688,170
Balance Sheet
Cash………………………. P 265,200 P 102,000 P 367,200
Accounts receivable…….. 180,000 96,000 276,000
Inventory…………………. 216,000 108,000 (1) 6,000 (2) 6,000 324,000
Land……………………………. 210,000 48,000 (3) 7,200 265,200
Equipment 240,000 180,000 (5) 30,000
(6) 12,000 462,000
Buildings 720,000 540,000 (3) 216,000 1,044,000
Discount on bonds payable (3) 4,800 (4) 2,400 2,400
Goodwill…………………… (3) 12,000 (4) 3,000 9,000
Investment in S Co……… 372,000 (1) 44,160 (2) 332,160
(3) 84,000 -
Total P2,203,200 P1,074,000 P2,749,800

Accumulated depreciation P 150,000 P 102,000 (3) 96,000 (4) 24,000

- equipment (7) 5,250 (5) 45,000
(8) 7,800 (6) 43,200 P 255,150
Accumulated depreciation 450,000 306,000 (3) 192,000 (4)
- buildings 12,000 552,000
Accounts payable…………… 105,000 88,800 193,800
Bonds payable………………… 240,000 120,000 360,000
Common stock, P10 par……… 600,000 600,000
Common stock, P10 par……… 240,000 (2) 240,000
Retained earnings, from above 658,200 217,200 688,170
Non-controlling interest………… (4) 2,640 (2 83,040 (3)
(5) 9,600 18,000
(6) 6,240 (8) 780
___ _____ _________ __________ (9) 17,340 ____100,680
Total P2,203,200 P1,074,000 P 979,350 P 979,350 P2,749,800

5. 1/1/20x4
a. On date of acquisition the retained earnings of parent should always be considered as the consolidated retained earnings, thus:
Consolidated Retained Earnings, January 1, 20x4
Retained earnings - Parent Company, January 1, 20x4 (date of acquisition) P360,000
b.
Non-controlling interest (partial-goodwill), January 1, 20x4
Common stock – Subsidiary Company…………………………………… P 240,000
Retained earnings – Subsidiary Company…………………………………. 120,000
Stockholders’ equity – Subsidiary Company.………….. P 360,000
Adjustments to reflect fair value - (over) undervaluation of assets and liabilities 90,000
Fair value of stockholders’ equity of subsidiary, January 1, 20x4………………… P 450,000
Multiplied by: Non-controlling Interest percentage…………... 20
Non-controlling interest (partial goodwill),……………………………….. P 90,000
c.
Consolidated SHE:
Stockholders’ Equity
Common stock, P10 par P 600,000
Retained earnings 360,000
Parent’s Stockholders’ Equity / CI – SHE P 960,000
NCI, 1/1/20x4 ___90,000
Consolidated SHE, 1/1/20x4 P1,050,000
6.
Note: The goodwill recognized on consolidation purely relates to the parent’s share. NCI is measured as a proportion of identifiable
assets and goodwill attributable to NCI share is not recognized.
12/31/20x4:
a. CI-CNI - P
Consolidated Net Income for 20x4
P Company’s net income from own/separate operations…………. P183,000
Unrealized gain on sale of equipment (downstream sales) (15,000)
Realized gain on sale of equipment (downstream sales) through depreciation 2,250
P Company’s realized net income from separate operations*…….….. P170,250
S Company’s net income from own operations…………………………………. P 91,200
Unrealized gain on sale of equipment (upstream sales) ( 31,200)
Realized gain on sale of equipment (upstream sales) through depreciation 3,900
S Company’s realized net income from separate operations*…….….. P 63,900 63,900
Total P234,150
Less: Non-controlling Interest in Net Income* * P 10,140
Amortization of allocated excess (refer to amortization above) 13,200
Goodwill impairment (impairment under partial-goodwill approach) 3,000 26,340
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent………….. P207,810
Add: Non-controlling Interest in Net Income (NCINI) _ 10,140
Consolidated Net Income for 20x4 P217,950
*that has been realized in transactions with third parties.

b. NCI-CNI – P10,140
**Non-controlling Interest in Net Income (NCINI) for 20x4
S Company’s net income of Subsidiary Company from its own operations
(Reported net income of S Company) P 91,200
 Unrealized gain on sale of equipment (upstream sales) ( 31,200)
Realized gain on sale of equipment (upstream sales) through depreciation 3,900
S Company’s realized net income from separate operations……… P 63,900
Less: Amortization of allocated excess / goodwill impairment
(refer to amortization table above) 13,200
P 50,700
Multiplied by: Non-controlling interest %.......... 20%
Non-controlling Interest in Net Income (NCINI) – partial goodwill P 10,140
*that has been realized in transactions with third parties.

c. CNI, P217,950 – refer to (a)

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

Consolidated Retained Earnings, December 31, 20x4

Retained earnings - Parent Company, January 1, 20x4 (date of acquisition) P360,000
Add: Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent for 20x4 207,810
Total P567,810
Less: Dividends paid – Parent Company for 20x4 72,000
Consolidated Retained Earnings, December 31, 20x4 P495,810

e.
The goodwill recognized on consolidation purely relates to the parent’s share. NCI is measured as a proportion of identifiable
assets and goodwill attributable to NCI share is not recognized. The NCI on January 1, 20x4 and December 31, 20x4 are computed
as follows:
Non-controlling interest (partial-goodwill), December 31, 20x4
Common stock – Subsidiary Company, December 31, 20x4…… P 240,000
Retained earnings – Subsidiary Company, December 31, 20x4
Retained earnings – Subsidiary Company, January 1, 20x4 P120,000
Add: Net income of subsidiary for 20x4 91,200
Total P211,200
Less: Dividends paid – 20x4 36,000 175,200
Stockholders’ equity – Subsidiary Company, December 31, 20x4 P 415,200
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 ( 13,200)
Fair value of stockholders’ equity of subsidiary, December 31, 20x4…… P492,000
Unrealized gain on sale of equipment (upstream sales) ( 31,200)
Realized gain on sale of equipment (upstream sales) through depreciation 3,900
Realized stockholders’ equity of subsidiary, December 31, 20x4…… P464,700
Multiplied by: Non-controlling Interest percentage…………... 20
Non-controlling interest (partial-goodwill)………………………………….. P 92,940
f.
Consolidated SHE:
Stockholders’ Equity
Common stock, P10 par P 600,000
Retained earnings 495,810
Parent’s Stockholders’ Equity / CI – SHE, 12/31/20x4 P1,095,810
NCI, 12/31/20x4 ___92,940
Consolidated SHE, 12/31/20x4 P1,188,750

12/31/20x5:
a. CI-CNI – P264,360
Consolidated Net Income for 20x5
P Company’s net income from own/separate operations…………. P192,000
Realized gain on sale of equipment (downstream sales) through depreciation 3,000
P Company’s realized net income from separate operations*…….….. P195,000
S Company’s net income from own operations…………………………………. P 90,000
Realized gain on sale of equipment (upstream sales) through depreciation 3,90
S Company’s realized net income from separate operations*…….….. P 93,900 93,900
Total P288,900
Less: Amortization of allocated excess…………………… 7,200
Consolidated Net Income for 20x5 P281,700
Less: Non-controlling Interest in Net Income* * 17,340
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent – 20x5………….. P264,360
*that has been realized in transactions with third parties.
b. NCI-CNI – P17,340
**Non-controlling Interest in Net Income (NCINI) for 20x5
S Company’s net income of Subsidiary Company from its own operations P 90,000
(Reported net income of Son Company)
Realized gain on sale of equipment (upstream sales) through depreciation 3,900
S Company’s realized net income from separate operations……… P 93,900
Less: Amortization of allocated excess 7,200
P 86,700
Multiplied by: Non-controlling interest %.......... 20%
Non-controlling Interest in Net Income (NCINI) – partial goodwill P 17,340

c. CNI, P281,700 – refer to (a)

d. On subsequent to date of acquisition, consolidated retained earnings would be computed as follows:
Consolidated Retained Earnings, December 31, 20x5
Retained earnings - Parent Company, January 1, 20x5 (cost model) P499,800
Less: Downstream - net unrealized gain on sale of equipment – prior to 20x5
(P15,000 – P2,250) 12,750
 Adjusted Retained Earnings – Parent 1/1/20x5 (cost model ) Son Company’s
Retained earnings that have been realized in transactions with third
parties.. P487,050
Adjustment to convert from cost model to equity method for purposes of
consolidation or to establish reciprocity:/Parent’s share in adjusted net
increased in subsidiary’s retained earnings:
Retained earnings – Subsidiary, January 1, 20x5 P 175,200
Less: Retained earnings – Subsidiary, January 1, 20x4 120,000
Increase in retained earnings since date of acquisition P 55,200
Less: Amortization of allocated excess – 20x4 13,200
Upstream - net unrealized gain on sale of equipment –prior to
20x5 (P31,200 – P3,900) 27,300
P 14,700
Multiplied by: Controlling interests %................... 80%
P 11,760
Less: Goodwill impairment loss 3,000 __ 8,760
Consolidated Retained earnings, January 1, 20x5 P495,810
Add: Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent for 20x5 264,360
Total P760,170
Less: Dividends paid – Parent Company for 20x5 72,000
Consolidated Retained Earnings, December 31, 20x5 P688,170
*this procedure would be more appropriate, instead of multiplying the full-goodwill impairment loss of P3,750 by 80%. There might be situations where the controlling
interests on goodwill impairment loss would not be proportionate to NCI acquired (refer to Illustration 15-6).
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 P175,200
Add: Net income of subsidiary for 20x5 90,000
Total P 265,200
Less: Dividends paid – 20x5 48,000 217,200
Stockholders’ equity – Subsidiary Company, December 31, 20x5 P 457,200
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 526,800
Less: Upstream - net unrealized gain on sale of equipment – prior to 12/31/20x5
(P31,200 – P3,900 – P3,900) 23,400
Realized stockholders’ equity of subsidiary, December 31, 20x5………. P503,400
Multiplied by: Non-controlling Interest percentage…………... 20
Non-controlling interest (partial goodwill)………………………………….. P 100,680

f.
Consolidated SHE:
Stockholders’ Equity
Common stock, P10 par P 600,000
Retained earnings 688,170
Parent’s Stockholders’ Equity / CI – SHE, 12/31/20x5 P1,288,170
NCI, 12/31/20x5 __100,680
Consolidated SHE, 12/31/20x5 P1,188,850

Problem VI
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%)…………….. 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:
Common stock (P240,000 x 100%)………………. P 240,000
Retained earnings (P120,000 x 100%)………... 120,000 360,000
Allocated excess (excess of cost over book value)….. P 105,000
Less: Over/under valuation of assets and liabilities:
Increase in inventory (P6,000 x 100%)……………… P 6,000
Increase in land (P7,200 x 100%)……………………. 7,200
Increase in equipment (P96,000 x 100%) 96,000
Decrease in buildings (P24,000 x 100%)………..... ( 24,000)
Decrease in bonds payable (P4,800 x 100%)…… 4,800 90,000
Positive excess: Full-goodwill (excess of cost over
fair value)………………………………………………... P 15,000

A summary or depreciation and amortization adjustments is as follows:

Over/ Annual Current
Account Adjustments to be amortized under Life Amount Year(20x4) 20x5
Inventory P 6,000 1 P 6,000 P 6,000 P -
Subject to Annual Amortization
Equipment (net)......... 96,000 8 12,000 12,000 12,000
Buildings (net) (24,000) 4 ( 6,000) ( 6,000) (6,000)
Bonds payable… 4,800 4 1,200 1,200 1,200
 P 13,200 P 13,200 P 7,200

20x4: First Year after Acquisition

Parent Company Cost Model Entry
January 1, 20x4:
(1) Investment in S Company…………………………………………… 372,000
Cash…………………………………………………………………….. 372,000
Acquisition of S Company.

January 1, 20x4 – December 31, 20x4:

(2) Cash……………………… 28,800
Dividend income (P36,000 x 80%)……………. 28,800
Record dividends from S Company.
On the books of S Company, the P36,000 dividend paid was recorded as follows:

Dividends paid………… 36,000

Cash……. 36,000
Dividends paid by S Co..
No entries are made on the parent’s books to depreciate, amortize or write-off the portion of the allocated excess that expires during
20x4.
Consolidation Workpaper – First Year after Acquisition
(E1) Common stock – S Co………………………………………… 240,000
Retained earnings – S Co…………………………………… 120.000
Investment in S Co…………………………………………… 288,000
Non-controlling interest (P360,000 x 20%)……………………….. 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…………………………………………………………………. 6,000

Accumulated depreciation – equipment……………….. 96,000
Accumulated depreciation – buildings………………….. 192,000
Land………………………………………………………………………. 7,200
Discount on bonds payable…………………………………………. 4,800
Goodwill…………………………………………………………………. 15,000
Buildings……………………………………….. 216,000
Non-controlling interest (P90,000 x 20%) + [(P15,000, full –
P12,000, partial goodwill)]………… 21,000
Investment in S Co………………………………………………. 84,000
To allocate excess of cost over book value of identifiable assets
acquired, with remainder to goodwill; and to establish non-
controlling interest (in net assets of subsidiary) on date of acquisition.

Since the set-up entry in (E2) NCI at fair value, non-controlling interests have a share of entity goodwill and hence is exposed to
impairment loss on goodwill. PAS 36 requires the impairment loss to be pro-rated between the parent and NCI on the same basis as that
on which profit or loss is allocated. In other words, the impairment loss is not pro-rated in accordance with the proportion of goodwill
recognized by parent and NCI.
(E3) Cost of Goods Sold……………. 6,000
Depreciation expense……………………….. 6,000
Accumulated depreciation – buildings………………….. 6,000
Interest expense………………………………… 1,200
Goodwill impairment loss………………………………………. 3,750
Inventory………………………………………………………….. 6,000
Accumulated depreciation – equipment……………….. 12,000
Discount on bonds payable………………………… 1,200
Goodwill…………………………………… 3,750
To provide for 20x4 impairment loss and depreciation and
amortization on differences between acquisition date fair value and
book value of Son’s identifiable assets and liabilities as follows:
Cost of Depreciation/
Goods Sold Amortization Amortization
Expense -Interest
Inventory sold P 6,000
Equipment P12,000
Buildings ( 6,000)
Bonds payable _______ _______ P 1,200
Totals P 6,000 P 6,000 P1,200

(E4) Dividend income - P………. 28,800

Non-controlling interest (P36,000 x 20%)……………….. 7,200
Dividends paid – S…………………… 36,000
To eliminate intercompany dividends and non-controlling interest
share of dividends.

(E5) Gain on sale of equipment 15,000

Equipment 30,000
Accumulated depreciation 45,000
To eliminate the downstream intercompany gain and restore to its
original cost to the consolidate entity (along with its accumulated
depreciation at the point of the intercompany sale).
 (E6) Gain on sale of equipment 31,200
Equipment 12,000
Accumulated depreciation 43,200
To eliminate the upstream intercompany gain and restore to its
original cost to the consolidate entity (along with its accumulated
depreciation at the point of the intercompany sale).

(E7) Accumulated depreciation……….. 2,250

Depreciation expense…………… 2,250
To adjust downstream depreciation expense on equipment sold to subsidiary, thus realizing a portion of the
gain through depreciation
(P15,000 / 5 years x 9/12 = P2,250).

(E8) Accumulated depreciation……….. 3,900

Depreciation expense…………… 3,900
To adjust upstream depreciation expense on equipment sold to parent, thus realizing a portion of the gain
through depreciation
(P31,200/85 years x 1 year = P3,900).

(E9) Non-controlling interest in Net Income of Subsidiary………… 9,390

Non-controlling interest ………….. 9,390
To establish non-controlling interest in subsidiary’s adjusted net
income for 20x4 as follows:

Net income of subsidiary…………………….. P 91,200

Unrealized gain on sale of equipment
(upstream sales) ( 31,200)
Realized gain on sale of equipment (upstream
sales) through depreciation 3,900
S Company’s realized net income from
separate operations P 63,900
Less: Amortization of allocated excess [(E3)]…. 13,200
P 50,700
Multiplied by: Non-controlling interest %.......... 20%
Non-controlling Interest in Net Income (NCINI) –
partial goodwill P 10,140
Less: Non-controlling interest on impairment
loss on full-goodwill (P3,750 x 20%) or
(P3,750 impairment on full-goodwill less
P3,000, impairment on partial-goodwill) 750
Non-controlling Interest in Net Income (NCINI) P 9,390

Worksheet for Consolidated Financial Statements, December 31, 20x4. Cost Model (Full-goodwill) 80%-Owned Subsidiary
December 31, 20x4 (First Year after Acquisition)
Income Statement P Co S Co. Dr. Cr. Consolidated
Sales P480,000 P240,000 P 720,000
Gain on sale of equipment 15,000 31,200 (5) 15,000
(6) 31,200
Dividend income 28,800 - (4) 28,800 _________
Total Revenue P523,800 P271,200 P 720,000
Cost of goods sold P204,000 P138,000 (3) 6,000 P 348,000
Depreciation expense 60,000 24,000 (3) 6,000 (7) 2,250 83,850
(8) 3,900
Interest expense - - (3) 1,200 1,200
Other expenses 48,000 18,000 66,000
Goodwill impairment loss - - (3) 3,750 3,750
Total Cost and Expenses P312,000 P180,000 P 502,800
Net Income P211,800 P 91,200 P 217,200
NCI in Net Income - Subsidiary - - (9) 9,390 ( 9,390)
Net Income to Retained Earnings P211,800 P 91,200 P 207,810

Statement of Retained Earnings

Retained earnings, 1/1
P Company P360,000 P 360,000
S Company P120,000 (1) 120,000
Net income, from above 211,800 91,200 207,810
Total P571,800 P211,200 P 567,810
Dividends paid
P Company 72,000 72,000
S Company - 36,000 (4) 36,000 _ ________
Retained earnings, 12/31 to Balance
Sheet P499,800 P175,200 P 495,810

Balance Sheet
Cash………………………. P 232,800 P 90,000 P 322,800
Accounts receivable…….. 90,000 60,000 150,000
Inventory…………………. 120,000 90,000 (2) 6,000 3) 6,000 210,000
Land……………………………. 210,000 48,000 (2) 7,200 265,200
Equipment 240,000 180,000 (5) 30,000
(6) 12,000 462,000
Buildings 720,000 540,000 (2) 216,000 1,044,000
Discount on bonds payable (2) 4,800 (3) 1,200 3,600
Goodwill…………………… (2) 15,000 (3) 3,750 11,250
Investment in S Co……… 372,000 (1) 288,000
(2) 84,000 -
Total P1,984,800 P1,008,000 P2,468,850
 Accumulated depreciation (2) 80,000 (3) 10,000
- equipment P 135,000 P 96,000 (7) 2,250 (5) 45,000
(8) 3,900 (6) 43,200 P229,050
Accumulated depreciation 405,000 288,000 (2) 192,000
- buildings (3) 6,000 495,000
Accounts payable…………… 105,000 88,800 193,800
Bonds payable………………… 240,000 120,000 360,000
Common stock, P10 par……… 600,000 600,000
Common stock, P10 par……… 240,000 (1) 240,000
Retained earnings, from above 499,800 175,200 495,810
Non-controlling interest………… (3) 7,200 (1 ) 72,000 (2)
21,000
_________ _________ __________ (9) 9,390 ____95,190
Total P1,984,800 P1,008,000 P 843,690 P 843,690 P2,468,850

20x5: Second Year after Acquisition

P Co. S Co.
Sales P 540,000 P 360,000
Less: Cost of goods sold 216000 192,000
Gross profit P 324,000 P 168,000
Less: Depreciation expense 60,000 24,000
Other expense 72,000 54,000
Net income from its own separate operations P 192,000 P 90,000
Add: Dividend income 38,400 -
Net income P 230,400 P 90,000
Dividends paid P 72,000 P 48,000

No goodwill impairment loss for 20x5.

Parent Company Cost Model Entry
January 1, 20x5 – December 31, 20x5:
Cash……………………… 38,400
Dividend income (P48,000 x 80%)……………. 38,400
Record dividends from S Company.

On the books of S Company, the P48,000 dividend paid was recorded as follows:
Dividends paid………… 48,000
Cash 48,000
Dividends paid by S Co..

Consolidation Workpaper – Second Year after Acquisition

(E1) Investment in S Company………………………… 44,160
Retained earnings – P Company……………………… 44,160
To provide entry to convert from the cost method to the equity
method or the entry to establish reciprocity at the beginning of the
year, 1/1/20x5, computed as follows:

Retained earnings – S Company, 1/1/20x5 P175,200

Retained earnings – S Company, 1/1/20x4 120,000
Increase in retained earnings…….. P 55,200
Multiplied by: Controlling interest % 80%
Retroactive adjustment P 44,160

(E2) Common stock – S Co………………………………………… 240,000

Retained earnings – S Co., 1/1/20x5 175,200
Investment in S Co (P415,200 x 80%)………………………… 332,160
Non-controlling interest (P415,200 x 20%)……………………….. 83,040
To eliminate intercompany investment and equity accounts
of subsidiary and to establish non-controlling interest (in net assets of
subsidiary) on January 1, 20x5.

(E3) Inventory…………………………………………………………………. 6,000

Accumulated depreciation – equipment……………….. 96,000
Accumulated depreciation – buildings………………….. 192,000
Land………………………………………………………………………. 7,200
Discount on bonds payable…………………………………………. 4,800
Goodwill…………………………………………………………………. 15,000
Buildings……………………………………….. 216,000
Non-controlling interest (P90,000 x 20%) + [(P15,000, full –
P12,000, partial goodwill)]………… 21,000
Investment in S Co………………………………………………. 84,000
To allocate excess of cost over book value of identifiable assets
acquired, with remainder to goodwill; and to establish non-
controlling interest (in net assets of subsidiary) on January 1, 20x5.

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

[(P13,200 x 80%) + P3,000, impairment loss on
partial-goodwill] 13,560
Non-controlling interests (P16,950 x 20%) or (P13,200 x 20% +
(P3,750 – P3,000 = P750) 3,390
Depreciation expense……………………….. 6,000
 Accumulated depreciation – buildings………………….. 12,000
Interest expense………………………………… 1,200
Inventory………………………………………………………….. 6,000
Accumulated depreciation – equipment……………….. 24,000
Discount on bonds payable………………………… 2,400
Goodwill…………………………………… 3,750
To provide for years 20x4 and 20x5 depreciation and amortization on
differences between acquisition date fair value and book value of
Son’s identifiable assets and liabilities as follows:
Year 20x4 amounts are debited to Perfect’s retained earnings &
NCI;
Year 20x5 amounts are debited to respective nominal accounts.
(20x4) Depreciation/
Retained Amortization Amortization
earnings, expense -Interest
Inventory sold P 6,000
Equipment 12,000 P 12,000
Buildings (6,000) ( 6,000)
Bonds payable 1,200 ________ P 1,200
Sub-total P13,200 P 6,000 P 1,200
Multiplied by: 80%
To Retained earnings P 10,560
Impairment loss 3,000
Total P 13,560

(E5) Dividend income - P………. 38,400

Non-controlling interest (P48,000 x 20%)……………….. 9,600
Dividends paid – S…………………… 48,000
To eliminate intercompany dividends and non-controlling interest
share of dividends.

(E6) Retained Earnings – P Company, 1/1/20x5 15,000

Equipment 30,000
Accumulated depreciation 45,000
To eliminate the downstream intercompany gain and restore to its
original cost to the consolidate entity (along with its accumulated
depreciation at the point of the intercompany sale).

(E7) Retained Earnings–P Company, 1/1/20x5 (P31,200 x 80%) 24,960

Non-controlling interest (P31,200 x 20%) 6,240
Equipment 12,000
Accumulated depreciation 43,200
To eliminate the upstream intercompany gain and restore to its
original cost to the consolidate entity (along with its accumulated
depreciation at the point of the intercompany sale).

(E8) Accumulated depreciation……….. 5,250

Depreciation expense (current year)…………… 3,000
Retained Earnings–P Company, 1/1/20x5 (prior year) 2,250
To adjust downstream depreciation expense on equipment sold to subsidiary, thus realizing a portion of the
gain through depreciation

(E9) Accumulated depreciation……….. 7,800

Depreciation expense (current year) 3,900
Retained Earnings–P Co. 1/1/20x5 (P3,900 x 80%) 3,120
Non-controlling interest (P3,900 x 20%) 780
To adjust upstream depreciation expense on equipment sold to parent, thus realizing a portion of the gain
through depreciation
(P31,200/85 years x 1 year = P3,900).

(E10) Non-controlling interest in Net Income of Subsidiary………… 17,340

Non-controlling interest ………….. 17,340
To establish non-controlling interest in subsidiary’s adjusted net
income for 20x5 as follows:
Net income of subsidiary…………………….. P 90,000
Realized gain on sale of equipment (upstream
sales) through depreciation 3,900
S Company’s Realized net income* P 93,900
Less: Amortization of allocated excess ( 7,200)
P 86,700
Multiplied by: Non-controlling interest %.......... 20%
Non-controlling Interest in Net Income (NCINI P 17,340
Less: NCI on goodwill impairment loss on full-
Goodwill 0
Non-controlling Interest in Net Income (NCINI) P 17,340
*from separate transactions that has been realized in transactions
with third persons

Worksheet for Consolidated Financial Statements, December 31, 20x5. Cost Model (Full-goodwill)
80%-Owned Subsidiary December 31, 20x5 (Second Year after Acquisition)
Income Statement P Co S Co. Dr. Cr. Consolidated
Sales P540,000 P360,000 P 900,000
Dividend income 38,400 - (5) 38,400 ___________
Total Revenue P578,400 P360,000 P 900,000
Cost of goods sold P216,000 P192,000 P 408,000
Depreciation expense 60,000 24,000 (4) 6,000 (8) 3,000 83,100
(9) 3,900
 Interest expense - - (4) 1,200 1,200
Other expenses 72,000 54,000 126,000
Goodwill impairment loss - - -
Total Cost and Expenses P348,000 P270,000 P 618,300
Net Income P230,400 P 90,000 P 281,700
NCI in Net Income - Subsidiary - - (10) 17,340 ( 17,340)
Net Income to Retained Earnings P230,400 P 90,000 P 264,360

Statement of Retained Earnings

Retained earnings, 1/1
P Company P499,800 (2) 13,560 (1) 44,160
(6) 15,00 (8) 2,250
(7) 24,960 (9) 3,120 P 495,810
S Company P 175,200 (1) 175,200
Net income, from above 230,400 90,000 264,360
Total P730,200 P265,200 P 760,170
Dividends paid
P Company 72,000 72,000
S Company - 48,000 (5) 48,000 _ ________
Retained earnings, 12/31 to Balance
Sheet P658,200 P217,200 P 688,170

Balance Sheet
Cash………………………. P 265,200 P 102,000 P 367,200
Accounts receivable…….. 180,000 96,000 276,000
Inventory…………………. 216,000 108,000 (3) 6,000 (4) 6,000 324,000
Land……………………………. 210,000 48,000 (3) 7,200 265,200
Equipment 240,000 180,000 (6) 30,000
(7) 12,000 462,000
Buildings 720,000 540,000 (3) 216,000 1,044,000
Discount on bonds payable (3) 4,800 (4) 2,400 2,400
Goodwill…………………… (3) 15,000 (4) 3,750 11,250
Investment in S Co……… 372,000 (1) 44,160 (2) 332,160
(3) 90,000 -
Total P2,203,200 P1,074,000 P2,752,050

Accumulated depreciation P 150,000 P 102,000 (3) 96,000 (4) 24,000

- equipment (8) 5,250 (6) 45,000
(9) 7,800 (7) 43,200 P 255,150
Accumulated depreciation 450,000 306,000 (3) 192,000 (4)
- buildings 12,000 552,000
Accounts payable…………… 105,000 88,800 193,800
Bonds payable………………… 240,000 120,000 360,000
Common stock, P10 par……… 600,000 600,000
Common stock, P10 par……… 240,000 (2) 240,000
Retained earnings, from above 658,200 217,200 688,170
Non-controlling interest………… (4) 3,390 (2 ) 83,040 (3)
(5) 9,600 21,000
(7) 6,240 (9) 780
___ _____ _________ __________ (10) 17,340 ____102,930
Total P2,203,200 P1,074,000 P 983,100 P 983,100 P2,752,050

5. 1/1/20x4
a. On date of acquisition the retained earnings of parent should always be considered as the consolidated retained earnings, thus:
Consolidated Retained Earnings, January 1, 20x4
Retained earnings - Parent Company, January 1, 20x4 (date of acquisition) P360,000
b.
Non-controlling interest (partial-goodwill), January 1, 20x4
Common stock – Subsidiary Company…………………………………… P 240,000
Retained earnings – Subsidiary Company…………………………………. 120,000
Stockholders’ equity – Subsidiary Company.………….. P 360,000
Adjustments to reflect fair value - (over) undervaluation of assets and liabilities 90,000
Fair value of stockholders’ equity of subsidiary, January 1, 20x4………………… P 450,000
Multiplied by: Non-controlling Interest percentage…………... 20
Non-controlling interest (partial goodwill),……………………………….. P 90,000
Add: Non-controlling interests on full goodwill, 1/1/20x4 (P12,500, full-goodwill – P10,000, partial
goodwill) 3,000
Non-controlling interest (full-goodwill) P 93,000

c.
Consolidated SHE:
Stockholders’ Equity
Common stock, P10 par P 600,000
Retained earnings 360,000
Parent’s Stockholders’ Equity / CI – SHE P 960,000
NCI, 1/1/20x4 ___93,000
Consolidated SHE, 1/1/20x4 P1,053,000

6.
Note: The goodwill recognized on consolidation purely relates to the parent’s share. NCI is measured as a proportion of identifiable
assets and goodwill attributable to NCI share is not recognized.
12/31/20x4:
a. CI-CNI – P207,810
Consolidated Net Income for 20x4
P Company’s net income from own/separate operations…………. P183,000
Unrealized gain on sale of equipment (downstream sales) (15,000)
 Realized gain on sale of equipment (downstream sales) through depreciation 2,250
P Company’s realized net income from separate operations*…….….. P170,250
S Company’s net income from own operations…………………………………. P 91,200
Unrealized gain on sale of equipment (upstream sales) ( 31,200)
Realized gain on sale of equipment (upstream sales) through depreciation 3,900
S Company’s realized net income from separate operations*…….….. P 63,900 63,900
Total P234,150
Less: Non-controlling Interest in Net Income* * P 10,140
Amortization of allocated excess (refer to amortization above) 13,200
Goodwill impairment (impairment under partial-goodwill approach) 3,000 26,340
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent………….. P207,810
Add: Non-controlling Interest in Net Income (NCINI) 10,140
Consolidated Net Income for 20x4 P217,950
*that has been realized in transactions with third parties.
b. NCI-CNI – P10,140
**Non-controlling Interest in Net Income (NCINI) for 20x4
S Company’s net income of Subsidiary Company from its own operations P 91,200
(Reported net income of S Company)
Unrealized gain on sale of equipment (upstream sales) ( 31,200)
Realized gain on sale of equipment (upstream sales) through depreciation 3,900
S Company’s realized net income from separate operations……… P 63,900
Less: Amortization of allocated excess / goodwill impairment
(refer to amortization table above) 13,200
P 50,700
Multiplied by: Non-controlling interest %.......... 20%
Non-controlling Interest in Net Income (NCINI) – partial goodwill P 10,140
Less: Non-controlling interest on impairment loss on full-goodwill (P3,750 x
20%) or (P3,750mpairment on full-goodwill less P3,000, impairment on
partial- goodwill) 750
Non-controlling Interest in Net Income (NCINI) – full goodwill P 9,390
*that has been realized in transactions with third parties
c. CNI, P217,950 – refer to (a)
d. On subsequent to date of acquisition, consolidated retained earnings would be computed as follows:
Consolidated Retained Earnings, December 31, 20x4
Retained earnings - Parent Company, January 1, 20x4 (date of acquisition) P360,000
Add: Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent for 20x4 207,810
Total P567,810
Less: Dividends paid – Parent Company for 20x4 72,000
Consolidated Retained Earnings, December 31, 20x4 P495,810

e.
Non-controlling interest (partial-goodwill), December 31, 20x4
Common stock – Subsidiary Company, December 31, 20x4…… P 240,000
Retained earnings – Subsidiary Company, December 31, 20x4
Retained earnings – Subsidiary Company, January 1, 20x4 P120,000
Add: Net income of subsidiary for 20x4 91,200
Total P211,200
Less: Dividends paid – 20x4 36,000 175,200
Stockholders’ equity – Subsidiary Company, December 31, 20x4 P 415,200
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 ( 13,200)
Fair value of stockholders’ equity of subsidiary, December 31, 20x4…… P492,000
Unrealized gain on sale of equipment (upstream sales) ( 31,200)
Realized gain on sale of equipment (upstream sales) through depreciation 3,900
Realized stockholders’ equity of subsidiary, December 31, 20x4…… P464,700
Multiplied by: Non-controlling Interest percentage…………... 20
Non-controlling interest (partial-goodwill)………………………………….. P 92,940
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 2,250
Non-controlling interest (full-goodwill)…………….. P 95,190

f.
Consolidated SHE:
Stockholders’ Equity
Common stock, P10 par P 600,000
Retained earnings 495,810
Parent’s Stockholders’ Equity / CI – SHE, 12/31/20x4 P1,095,810
NCI, 12/31/20x4 ___95,190
Consolidated SHE, 12/31/20x4 P1,191,000

12/31/20x5:
a. CI-CNI – P281,700
Consolidated Net Income for 20x5
P Company’s net income from own/separate operations…………. P192,000
Realized gain on sale of equipment (downstream sales) through depreciation 3,000
P Company’s realized net income from separate operations*…….….. P195,000
S Company’s net income from own operations…………………………………. P 90,000
Realized gain on sale of equipment (upstream sales) through depreciation 3,900
S Company’s realized net income from separate operations*…….….. P 93,900 93,900
Total P288,900
Less: Amortization of allocated excess…………………… 7,200
Consolidated Net Income for 20x5 P281,700
Less: Non-controlling Interest in Net Income* * 17,340
 Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent – 20x5………….. P264,360
*that has been realized in transactions with third parties.
b. NCI-CNI – P17,340
**Non-controlling Interest in Net Income (NCINI) for 20x5
S Company’s net income of Subsidiary Company from its own operations P 90,000
(Reported net income of S Company)
Realized gain on sale of equipment (upstream sales) through depreciation 3,900
S Company’s realized net income from separate operations……… P 93,900
Less: Amortization of allocated excess 7,200
P 86,700
Multiplied by: Non-controlling interest %.......... 20%
Non-controlling Interest in Net Income (NCINI) - partial goodwill P 17,340
Less: NCI on goodwill impairment loss on full-goodwill . . . . . . . . . . . . . . . . . . . . . 0
Non-controlling Interest in Net Income (NCINI) – full goodwill . . . . . . . . . . . . . P 17,340

c. CNI, P281,700 – refer to (a)

d. On subsequent to date of acquisition, consolidated retained earnings would be computed as follows:
Consolidated Retained Earnings, December 31, 20x5
Retained earnings - Parent Company, January 1, 20x5 (cost model) P499,800
Less: Downstream - net unrealized gain on sale of equipment – prior to 20x5
(P15,000 – P2,250) 12,750
Adjusted Retained Earnings – Parent 1/1/20x5 (cost model ) Son Company’s
Retained earnings that have been realized in transactions with third
parties.. P487,050
Adjustment to convert from cost model to equity method for purposes of
consolidation or to establish reciprocity:/Parent’s share in adjusted net
increased in subsidiary’s retained earnings:
Retained earnings – Subsidiary, January 1, 20x5 P 175,200
Less: Retained earnings – Subsidiary, January 1, 20x4 120,000
Increase in retained earnings since date of acquisition P 55,200
Less: Amortization of allocated excess – 20x4 13,200
Upstream - net unrealized gain on sale of equipment –prior to
20x5 (P31,200 – P3,900) 27,300
P 14,700
Multiplied by: Controlling interests %................... 80%
P 11,760
Less: Goodwill impairment loss 3,000 __ 8,760
Consolidated Retained earnings, January 1, 20x5 P495,810
Add: Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent for 20x5 264,360
Total P760,170
Less: Dividends paid – Parent Company for 20x5 72,000
Consolidated Retained Earnings, December 31, 20x5 P688,170
*this procedure would be more appropriate, instead of multiplying the full-goodwill impairment loss of P3,750 by 80%. There might be situations where the controlling
interests on goodwill impairment loss would not be proportionate to NCI acquired (refer to Illustration 15-6).
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 P175,200
Add: Net income of subsidiary for 20x5 90,000
Total P 265,200
Less: Dividends paid – 20x5 48,000 217,200
Stockholders’ equity – Subsidiary Company, December 31, 20x5 P 457,200
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 526,800
Less: Upstream - net unrealized gain on sale of equipment – prior to 12/31/20x5
(P31,200 – P3,900 – P3,900) 23,400
Realized stockholders’ equity of subsidiary, December 31, 20x5………. P503,400
Multiplied by: Non-controlling Interest percentage…………... 20
Non-controlling interest (partial goodwill)………………………………….. P 100,680
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 102,930

f.
Consolidated SHE:
Stockholders’ Equity
Common stock, P10 par P 600,000
Retained earnings 688,170
Parent’s Stockholders’ Equity / CI – SHE, 12/31/20x5 P1,288,170
NCI, 12/31/20x5 __102,930
Consolidated SHE, 12/31/20x5 P1,391,100

Problem VII
20x4 20x5
1.
Noncontrolling interest in P 7,000 (1) P 46,200 (2)
Consolidated net income
 Controlling interest in 290,500 (3) 279,300 (4)
Consolidated net income

(1) .4(P70,000 – P63,000 + P10,500) = P7,000

(2) .4(P105,000 + P10,500) = P46,200
(3) P280,000 + .6(P70,000 – P63,000 + P10,500) = P290,500
(4) P210,000 + .6(P105,000 + P10,500) = P279,300

20142015
2.
Noncontrolling interest in P 28,000 (5) P 42,000 (6)
Consolidated income
Controlling interest in 269,500 (7) 283,500 (8)
Consolidated net income
(5) .4(P70,000) = P28,000
(6) .4(P105,000) = P42,000
(7) (P280,000 – P63,000 + P10,500) + .6(P70,000) = P269,500
(8) (P210,000 + P10,500) + .6(P105,000) = P283,500

Problem VIII
(Determine consolidated net income when an intercompany transfer of equipment occurs. Includes an outside ownership)

a. Income—ST ................................................................................................................................................................................. P220,000

Income—BB ................................................................................................................................................................................. 90,000
Excess amortization for unpatented technology ........................................................................................................... (8,000)
Remove unrealized gain on equipment ............................................................................................................................ (50,000)
(P120,000 – P70,000)
Remove excess depreciation created by
inflated transfer price (P50,000 ÷ 5) ...................................................................................................................... 10,000
Consolidated net income ........................................................................................................................................................ P262,000

b. Income calculated in (part a.) .............................................................................................................................................. P262,000

Non-controlling interest in BB's income
Income—BB ..................................................................................................................................... P90,000
Excess amortization ...................................................................................................................... (8,000)
Adjusted net income ..................................................................................................................... P82,000
Non-controlling interest in BB’s income (10%) .................................................................................................. (8,200)
Consolidated net income to parent company ................................................................................................................. P253,800

c. Income calculated in (part a.) .............................................................................................................................................. P262,000

Non-controlling interest in BB's income (see Schedule 1) ................................................................. (4,200)
Consolidated net income to parent company ................................................................................................................. P257,800

Schedule 1: Non-controlling Interest in Bennett's Income (includes upstream transfer)

Reported net income of subsidiary .................................................................................................................................... P90,000
Excess amortization .................................................................................................................................................................. (8,000)
Eliminate unrealized gain on equipment transfer ....................................................................................................... (50,000)
Eliminate excess depreciation (P50,000 ÷ 5) ................................................................................................................ 10,000
Bennett's realized net income .............................................................................................................................................. P42,000
Outside ownership ................................................................................................................................................................... 10%
Non-controlling interest in subsidiary's income .......................................................................................................... P 4,200

d. Net income 20x5—ST ............................................................................................................................................................. P240,000

Net income 20x5—BB ............................................................................................................................................................. 100,000
Excess amortization .................................................................................................................................................................. (8,000)
Eliminate excess depreciation stemming from transfer
(P50,000 ÷ 5) (year after transfer) ......................................................................................................................... 10,000
Consolidated net income ......................................................................................................................................... P342,000

Problem IX
1.
20x4 20x5 20x6
Consolidated net income as reported P 750,000 P 600,000 P 910,000
Less: P10,000 deferred gain -10,000
Plus: NCI portion of the gain 3,000
Plus: Deferred gain 7,000
Corrected consolidated net income P 743,000 P 600,000 P 917,000

2.
20x4 20x5 20x6
Land account as reported P 200,000 P 240,000 P 300,000
 Less: Intercompany profit -10,000 -10,000
Restated land account P 190,000 P 230,000 P 300,000

3.
Final sales price outside the entity minus the original cost to the combined entity equals P102,000 minus P72,000 = P30,000

Problem X
1. On the consolidated balance sheet, the machine must be reported at its original cost when Tool purchased it on January 1, 20x1,
which is P120,000. Since the elimination entry debited the machine account for P22,000 which must be the amount needed to
bring the machine account up to P120,000, Buzzard must have recorded the machine at P98,000. Since the remaining useful life is
seven years, Buzzard will record P14,000 of depreciation expense each year.

2. The correct balances on the consolidated balance sheet for the Machine and Accumulated Depreciation accounts are the balances
that would be in the accounts if there had been no sale. The balance in the machine account would be the original purchase price
to Tool or P120,000. The balance in the Accumulated Depreciation account will be the original amount of annual depreciation,
(P12,000) times the number of years the machine has been depreciated (4), or P48,000.

3. The non-controlling interest income will be 30% of Tool’ adjusted net income. Tool’ reported net income of P60,000 is reduced by
the P14,000 unrealized gain on the sale of the machine and is increased by the piecemeal recognition of the gain, which is P2,000.
The net result of P48,000 is then multiplied by 30% to calculate a P14,400 income for the non-controlling interest.
Problem XI
1. Consolidated net income for 20x9:

Operating income reported by BW P100,000

Net income reported by TW P40,000
Amount of gain realized in 20x9
(P30,000 / 12 years) 2,500
Realized net income of TW 42,500
Consolidated net income P142,500

2. Consolidated net income for 20x9 would be unchanged.

3. Eliminating entry, December 31, 20x9:

E(1) Buildings and Equipment 30,000

Retained Earnings, January 1 20,000
Non-controlling Interest 5,000
Depreciation Expense 2,500
Accumulated Depreciation 52,500
Eliminate unrealized profit on building.

Adjustment to buildings and equipment

Amount paid by TW to acquire building P300,000
Amount paid by BW on intercompany sale (270,000)
Adjustment to buildings and equipment P 30,000

Adjustment to retained earnings, January 1, 20x9

Unrealized gain recorded January 1, 20x4 P 30,000
Amount realized following intercompany sale
(P2,500 x 2) (5,000)
Unrealized gain, January 1, 20x9 P 25,000
Proportion of ownership held by Baywatch x .80
Required adjustment P 20,000

Adjustment to Noncontrolling interest, January 1, 20x9

Unrealized gain at January 1, 20x9 P 25,000
Proportion of ownership held by non-controlling
interest x .20
Required adjustment P 5,000

Adjustment to depreciation expense

Depreciation expense recorded by BW
Industries (P270,000 / 12 years) P 22,500
Depreciation expense recorded by TW
Corporation (P300,000 / 15 years) (20,000)
Adjustment to depreciation expense P 2,500

Adjustment to accumulated depreciation

Amount required (P20,000 x 6 years) P120,000
Amount reported by BW (P22,500 x 3 years) (67,500)
 Required adjustment P 52,500

Problem XII
1. The gain on the sale of the land in 20x5 was equal to the sales price minus the original cost of the land when it was first acquired by the
combined entity. In this case the gain was P150,000 - P90,000, or P60,000.

2. The consolidated amount of depreciation expense was the combined amounts of depreciation expense showing on the separate income
statements minus the piecemeal recognition of the gain on the sale of the equipment. Thus, the consolidated amount of depreciation
expense was P95,000 + P32,000 – (P35,000/4 years) = P118,250.

3.
Consolidated net income:
Osprey separate income (not including Income
from Branch)= P153,000 - P55,000 = P 98,000
Income from Branch 20,000
Plus: Deferred gain on land 50,000
Plus: Piecemeal recognition of gain on equipment
sale: P35,000 gain/4 years = 8,750
Consolidated net income P176,750
Problem XIII
Quail Corporation and Subsidiary
Consolidated Income Statement
for the year ended December 31, 20x5

Sales P 1,100,000
Gain on land (P20,000 + P25,000) 45,000
Cost of sales ( 560,000 )
Other expenses (see below) ( 320,000 )
Consolidated Net Income P 265,000
NCI-CNI (see below) ( 20,000 )
Consolidated net income P 245,000

Other expenses:
P265,000 + P60,000 - P5,000 piecemeal recognition of gain on equipment
P 320,000

Non-controlling Interest in CNI:

Net income from Savannah x 20%: (P100,000 x 20%) = P 20,000
Problem XIV
1. Eliminating entry, December 31, 20x7:
E(1) Gain on Sale of Land 10,000
Land 10,000

Eliminating entry, December 31, 20x8:

E(1) Retained Earnings, January 1 10,000
Land 10,000

2. Eliminating entry, December 31, 20x7:

E(1) Gain on Sale of Land 10,000
Land 10,000
Eliminating entry, December 31, 20x8:
E(1) Retained Earnings, January 1 6,000
Non-controlling Interest 4,000
Land 10,000

Problem XV
1. Eliminating entry, December 31, 20x4:
E(1) Gain on Sale of Land 45,000
Land 45,000

Eliminating entry, December 31, 20x5:

E(1) Retained Earnings, January 1 31,500
Non-controlling Interest 13,500
Land 45,000
2. Eliminating entries, December 31, 20x4 and 20x5:
E (1) Retained Earnings, January 1 30,000
Land 30,000
Problem XVI
1. Downstream sale of land:
20x4 20x5
VV’s separate operating income P 90,000 P110,000
Less: Unrealized gain on sale of land (25,000)
VV’s realized operating income P 65,000 P110,000
Spawn’s realized net income 60,000 40,000
Consolidated net income P125,000 P150,000
Income to non-controlling interest:
(P60,000 x .25) (15,000)
(P40,000 X .25) (10,000)
Income to controlling interest P110,000 P140,000

2. Upstream sale of land:

20x4 20x5
VV’s separate operating income P 90,000 P110,000
SS’s net income P60,000
Less: Unrealized gain on sale of land (25,000)
Spawn’s realized net income 35,000 40,000
Consolidated net income P125,000 P150,000
Income to non-controlling interest:
(P35,000 x .25) (8,750)
(P40,000 x .25) (10,000)
Income to controlling interest P116,250 P140,000

Problem XVII
1. Consolidated net income for 20x4 will be greater than PP Company's income from operations plus SS's reported net income. The
eliminating entries at December 31, 20x4, will result in an increase of P16,000 to consolidated net income.
2. As a result of purchasing the equipment at less than Parent's book value, depreciation expense reported by SS will be P2,000
(P16,000 / 8 years) below the amount that would have been recorded by PP. Thus, depreciation expense must be increased by
P2,000 when eliminating entries are prepared at December 31, 20x5. Consolidated net income will be decreased by the full
amount of the P2,000 increase in depreciation expense.

Problem XVIII
1. Eliminating entry, December 31, 20x9:
E(1) Buildings and Equipment 156,000
Loss on Sale of Building 36,000
Accumulated Depreciation 120,000
Eliminate unrealized loss on building.

2. Consolidated net income and income to controlling interest for 20x9:

Operating income reported by BB P125,000

Net income reported by TT P 15,000
Add: Loss on sale of building 36,000
Realized net income of TT 51,000
Consolidated net income P176,000
Income to non-controlling interest (P51,000 x .30) (15,300)
Income to controlling interest P160,700

3. Eliminating entry, December 31, 20y0:

E(1) Buildings and Equipment 156,000
Depreciation Expense 4,000
Accumulated Depreciation 124,000
Retained Earnings, January 1 25,200
Non-controlling Interest 10,800
Eliminate unrealized loss on building.

Adjustment to buildings and equipment

Amount paid by TT to acquire building P300,000
Amount paid by BB on intercompany sale (144,000)
Adjustment to buildings and equipment P156,000

Adjustment to depreciation expense

Depreciation expense recorded by TT
Company (P300,000 / 15 years) P 20,000
Depreciation expense recorded by BB
Corporation (P144,000 / 9 years) (16,000)
Adjustment to depreciation expense P 4,000
 Adjustment to accumulated depreciation
Amount required (P20,000 x 7 years) P140,000
Amount reported by BB (P16,000 x 1 year) (16,000)
Required adjustment P124,000

Adjustment to retained earnings, January 1, 20y0

Unrealized loss recorded, December 31, 20x9 P36,000
Proportion of ownership held by BB x .70
Required adjustment P25,200

Adjustment to Noncontrolling interest, January 1, 20y0

Unrealized loss recorded, December 31, 20x9 P36,000
Proportion of ownership held by non-controlling
Interest x .30
Required adjustment P10,800

4. Consolidated net income and income assigned to controlling interest in 20y0:

Operating income reported by BB P150,000
Net income reported by TT P40,000
Adjustment for loss on sale of building (4,000)
Realized net income of TT 36,000
Consolidated net income P186,000
Income assigned to non-controlling interest
(P36,000 x .30) (10,800)
Income assigned to controlling interest P175,200

Problem XIX
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……………………………….. P 372,000
Less: Book value of stockholders’ equity of S:
Common stock (P240,000 x 80%)……………………. P 192,000
Retained earnings (P120,000 x 80%)………………... 96,000 288,000
Allocated excess (excess of cost over book value)….. P 84,000
Less: Over/under valuation of assets and liabilities:
Increase in inventory (P6,000 x 80%)……………… P 4,800
Increase in land (P7,200 x 80%)……………………. 5,760
Increase in equipment (P96,000 x 80%) 76,800
Decrease in buildings (P24,000 x 80%)………..... ( 19,200)
Decrease in bonds payable (P4,800 x 80%)…… 3,840 72,000
Positive excess: Partial-goodwill (excess of cost over
fair value)………………………………………………... P 12,000

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

S Co. S Co. (Over) Under
Book value Fair value Valuation
Inventory………………….…………….. P 24,000 P 30,000 P 6,000
Land……………………………………… 48,000 55,200 7,200
Equipment (net)......... 84,000 180,000 96,000
Buildings (net) 168,000 144,000 (24,000)
Bonds payable………………………… (120,000) ( 115,200) 4,800
Net……………………………………….. P 204,000 P 294,000 P 90,000

The buildings and equipment will be further analyzed for consolidation purposes as follows:
S Co. S Co. Increase
Book value Fair value (Decrease)
Equipment.................. 180,000 180,000 0
Less: Accumulated depreciation….. 96,000 - ( 96,000)
Net book value………………………... 84,000 180,000 96,000

S Co. S Co.
Book value Fair value (Decrease)
Buildings................ 360,000 144,000 ( 216,000)
Less: Accumulated depreciation….. 1992,000 - ( 192,000)
Net book value………………………... 168,000 144,000 ( 24,000)

A summary or depreciation and amortization adjustments is as follows:

Over/ Annual Current
Account Adjustments to be amortized Under Life Amount Year(20x4) 20x5
Inventory P 6,000 1 P 6,000 P 6,000 P -
Subject to Annual Amortization
Equipment (net)......... 96,000 8 12,000 12,000 12,000
Buildings (net) (24,000) 4 ( 6,000) ( 6,000) (6,000)
Bonds payable… 4,800 4 1,200 1,200 1,200
 P 13,200 P 13,200 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 S (P360,000 x 100%) __360,000
Allocated excess (excess of cost over book value)….. P 105,000
Add (deduct): (Over) under valuation of assets and liabilities
(P90,000 x 100%) 90,000
Positive excess: Full-goodwill (excess of cost over
fair value)………………………………………………... P 15,000
In this case, the goodwill was proportional to the controlling interest of 80% and non-controlling interest of 20% computed as follows:
Value % of Total
Goodwill applicable to parent………………… P12,000 80.00%
Goodwill applicable to NCI…………………….. 3,000 20.00%
Total (full) goodwill……………………………….. P15,000 100.00%
The goodwill impairment loss would be allocated as follows
Value % of Total
Goodwill impairment loss attributable to parent or controlling P 3,000 80.00%
Interest
Goodwill applicable to NCI…………………….. 750 20.00%
Goodwill impairment loss based on 100% fair value or full-
Goodwill P 3,750 100.00%
The unrealized and gain on intercompany sales for 20x4 are as follows:

Date Selling Book Unrealized* Remaining Realized gain –

of Sale Seller Price Value Gain on sale Life depreciation** 20x4
4/1/20x4 P P90,000 P75,000 P15,000 5 years P3,000/year P2,250
1/2/20x4 S 60,000 28,800 31,200 8 years P3,900/year P3,900
* selling price less book value
** unrealized gain divided by remaining life; 20x4 – P2,500 x 9/12 = P1,875

The following summary for 20x4 results of operations is as follows:

P Co. S Co.
Sales P 480,000 P 240,000
Less: Cost of goods sold 204,000 138,000
Gross profit P 276,000 P 102,000
Less: Depreciation expense 60,000 24,000
Other expenses 48,000 18,000
P 168,000 P 60,000
Add: Gain on sale of equipment 15,000 31,200
Net income from its own separate operations P 183,000 P 91,200
Add: Investment income 24,810 -
Net income P 207,810 P 91,200
20x4: First Year after Acquisition
Parent Company Equity Method Entry
January 1, 20x4:
(1) Investment in S Company……………………………………… 372,000
Cash…………………………………………………………… 372,000
Acquisition of S Company.

January 1, 20x4 – December 31, 20x4:

(2) Cash……………………… 28,800
Investment in S Company (P36,000 x 80%)……………. 28,800
Record dividends from Son Company.
December 31, 20x4:
(3) Investment in S Company 72,960
Investment income (P91,200 x 80%) 72,960
Record share in net income of subsidiary.

December 31, 20x4:

(4) Investment income [(P13,200 x 80%) + P3,000, goodwill 13,560
impairment loss)]
Investment in S Company 13,560
Record amortization of allocated excess of inventory, equipment, buildings and
bonds payable and goodwill impairment loss.
December 31, 20x4:
(5) Investment income (P15,000 x 100%) 15,000
Investment in S Company 15,000
To adjust investment income for downstream sales - unrealized gain on sale of
equipment..
 December 31, 20x4:
(6) Investment income (P31,200 x 80%) 24,960
Investment in S Company 24,960
To adjust investment income for upstream sales - unrealized gain on sale of
equipment..

December 31, 20x4:

(7) Investment in S Company 2,250
Investment income (P2,250 x 100%) 2,250
To adjust investment income for downstream sales - realized gain on sale of
equipment..

December 31, 20x4:

(8) Investment in S Company 3,120
Investment income (P3,900 x 80%) 3,120
To adjust investment income for upstream sales - realized gain on sale of
equipment..

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

Investment in S
Cost, 1/1/x4 372,000 28,800 Dividends – S (36,000x 80%)
NI of Son Amortization &
(91,200 x 80%) 72,960 13,560 impairment
Realized gain downstream sale 2,250 15,000 Unrealized gain downstream sale
Realized gain upstream sale 3,120 24,960 Unrealized gain upstream sale
Balance, 12/31/x4 368,010

Investment Income
Amortization & NI of S
impairment 13,560 72,960 (91,200 x 80%)
Unrealized gain downstream sale 15,000 2,250 Realized gain downstream sale
Unrealized gain upstream sale 24,960 3,120 Realized gain upstream sale
24,810 Balance, 12/31/x4

Consolidation Workpaper – First Year after Acquisition

(E1) Common stock – S Co………………………………………… 240,000
Retained earnings – S Co…………………………………… 120,000
Investment in S Co…………………………………………… 288,000
Non-controlling interest (P360,000 x 20%)……………………….. 72,000
To eliminate investment on January 1, 20x4 and equity accounts
of subsidiary on date of acquisition; and to establish non-
controlling interest (in net assets of subsidiary) on date of
acquisition.

(E2) Inventory…………………………………………………………………. 6,000

Accumulated depreciation – equipment……………….. 96,000
Accumulated depreciation – buildings………………….. 192,000
Land………………………………………………………………………. 7,200
Discount on bonds payable…………………………………………. 4,800
Goodwill…………………………………………………………………. 12,000
Buildings……………………………………….. 216,000
Non-controlling interest (P90,000 x 20%)……………………….. 18,000
Investment in S Co………………………………………………. 84,000
To eliminate investment on January 1, 20x4 and allocate excess of
cost over book value of identifiable assets acquired, with remainder
to goodwill; and to establish non- controlling interest (in net assets of
subsidiary) on date of acquisition.

(E3) Cost of Goods Sold……………. 6,000

Depreciation expense……………………….. 6,000
Accumulated depreciation – buildings………………….. 6,000
Interest expense………………………………… 1,200
Goodwill impairment loss………………………………………. 3,000
Inventory………………………………………………………….. 6,000
Accumulated depreciation – equipment……………….. 12,000
Discount on bonds payable………………………… 1,200
Goodwill…………………………………… 3,000
To provide for 20x4 impairment loss and depreciation and
amortization on differences between acquisition date fair value and
book value of Son’s identifiable assets and liabilities as follows:

Cost of Depreciation/
Goods Sold Amortization Amortization
Expense -Interest Total
Inventory sold P 6,000
Equipment P 12,000
 Buildings ( 6,000)
Bonds payable _______ _______ P 1,200
Totals P 6,000 P 6,000 P1,200 14,400

(E4) Investment income 24,810

Investment in S Company 3,990
Non-controlling interest (P36,000 x 20%)……………….. 7,200
Dividends paid – S…………………… 36,000
To eliminate intercompany dividends and investment income under
equity method and establish share of dividends, computed as
follows:

Investment in S Investment Income

NI of S 28,800 Dividends - S NI of S
(91,200 Amortization & Amortization (91,200
x 80%)……. 72,960 13,560 impairment impairment 13,560 72,960 x 80%)
Realized gain* 2,250 15,000 Unrealized gain * Unrealized gain * 15,000 2,250 Realized gain*
Realized gain** 3,120 24,960 Unrealized gain ** Unrealized gain **24,960 3,120 Realized gain**
3,990 24,810
*downstream sale (should be multiplied by 100%)
**upstream sale (should be multiplied by 80%)

After the eliminating entries are posted in the investment account, it should be observed that from consolidation point of view the
investment account is totally eliminated. Thus,
Investment in S
Cost, 1/1/x4 372,000 28,800 Dividends – S (36,000x 80%)
NI of S Amortization &
(91,200 x 80%) 72,960 13,560 impairment
Realized gain downstream sale 2,250 15,000 Unrealized gain downstream sale
Realized gain upstream sale 3,120 24,960 Unrealized gain upstream sale
Balance, 12/31/x4 368,010 288,000 (E1) Investment, 1/1/20x4
(E4) Investment Income 84,000 (E2) Investment, 1/1/20x4
and dividends …………… 3,990

372,000 372,000

(E5) Gain on sale of equipment 15,000

Equipment 30,000
Accumulated depreciation 45,000
To eliminate the downstream intercompany gain and restore to its
original cost to the consolidate entity (along with its accumulated
depreciation at the point of the intercompany sale).

(E6) Gain on sale of equipment 31,200

Equipment 12,000
Accumulated depreciation 43,200
To eliminate the upstream intercompany gain and restore to its
original cost to the consolidate entity (along with its accumulated
depreciation at the point of the intercompany sale).

(E7) Accumulated depreciation……….. 2,250

Depreciation expense…………… 2,250
To adjust downstream depreciation expense on equipment sold to subsidiary, thus realizing a portion of the
gain through depreciation
(P15,000 / 5 years x 9/12 = P2,250).

(E8) Accumulated depreciation……….. 3,900

Depreciation expense…………… 3,900
To adjust upstream depreciation expense on equipment sold to parent, thus realizing a portion of the gain
through depreciation
(P26,000/85 years x 1 year = P3,250).

(E9) Non-controlling interest in Net Income of Subsidiary………… 10,140

Non-controlling interest ………….. 10,140
To establish non-controlling interest in subsidiary’s adjusted net
income for 20x4 as follows:

Net income of subsidiary…………………….. P 91,200

Unrealized gain on sale of equipment
(upstream sales) ( 31,200)
Realized gain on sale of equipment (upstream
sales) through depreciation 3,900
S Company’s realized net income from
separate operations P 63,900
Less: Amortization of allocated excess [(E3)]…. 13,200
P 50,700
Multiplied by: Non-controlling interest %.......... 20%
Non-controlling Interest in Net Income (NCINI) –
partial goodwill P 10,140

Worksheet for Consolidated Financial Statements, December 31, 20x4. Equity Method (Partial-goodwill) 80%-Owned
Subsidiary December 31, 20x4 (First Year after Acquisition)
Income Statement P Co S Co. Dr. Cr. Consolidated
Sales P480,000 P240,000 P 720,000
 Gain on sale of equipment 15,000 31,200 (5) 15,000
(6) 31,200
Investment income 24,810 - (4) 28,800 _________
Total Revenue P519,810 P271,200 P 720,000
Cost of goods sold P204,000 P138,000 (3) 6,000 P 348,000
Depreciation expense 60,000 24,000 (3) 6,000 (7) 2,250 83,850
(8) 3,900
Interest expense - - (3) 1,200 1,0200
Other expenses 48,000 18,000 66,000
Goodwill impairment loss - - (3) 3,000 3,000
Total Cost and Expenses P312,000 P180,000 P 502,050
Net Income P207,810 P 91,200 P 217,950
NCI in Net Income - Subsidiary - - (9) 10,140 ( 10,140)
Net Income to Retained Earnings P207,810 P 91,200 P 207,810

Statement of Retained Earnings

Retained earnings, 1/1
P Company P360,000 P 360,000
S Company P120,000 (1) 120,000
Net income, from above 207,810 91,200 207,810
Total P567,810 P211,200 P567,810
Dividends paid
P Company 72,000 72,000
S Company - 36,000 (4) 36,000 _ ________
Retained earnings, 12/31 to Balance
Sheet P495,810 P175,200 P 495,810

Balance Sheet
Cash………………………. P 232,800 P 90,000 P 322,800
Accounts receivable…….. 90,000 60,000 150,000
Inventory…………………. 120,000 90,000 (2) 6,000 (3) 5,000 210,000
Land……………………………. 210,000 48,000 (2) 7,200 265,200
Equipment 240,000 180,000 (5) 30,000
(6) 12,000 462,000
Buildings 720,000 540,000 (2) 216,000 1,044,000
Discount on bonds payable (2) 4,800 (3) 1,200 3,600
Goodwill…………………… (2) 12,000 (3) 3,000 9,000
Investment in S Co……… 368,010 (1) 288,000
(2) 84,000 -
Total P1,980,810 P1,008,000 P2,466,600

Accumulated depreciation (2) 96,000 (3) 12,000

- equipment P 135,000 P 96,000 (7) 2,250 (5) 45,000
(8) 3,900 (6) 43,200 P229,050
Accumulated depreciation 405,000 288,000 (2) 192,000 (3)
- buildings 6,000 495,000
Accounts payable…………… 105,000 88,800 193,800
Bonds payable………………… 240,000 120,000 360,000
Common stock, P10 par……… 600,000 600,000
Common stock, P10 par……… 240,000 (1) 240,000
Retained earnings, from above 495,810 175,200 495,810
Non-controlling interest………… (4) 7,200 (1 ) 72,000 (2)
18,000
_________ _________ __________ (9) 10,140 92,940
Total P1,980,810 P1,008,000 P 840,690 P 840,690 P2,466,600

20x5: Second Year after Acquisition

P Co. S Co.
Sales P 540,000 P 360,000
Less: Cost of goods sold 216,000 192,000
Gross profit P 324,000 P 168,000
Less: Depreciation expense 60,000 24,000
Other expense 72,000 54,000
Net income from its own separate operations P 192,000 P 90,000
Add: Investment income 72,360 -
Net income P 264,360 P 90,000
Dividends paid P 72,000 P 48,000
No goodwill impairment loss for 20x5.

Parent Company Equity Method Entry

January 1, 20x5 – December 31, 20x5:
(2) Cash……………………… 38,400
Investment in S Company (P48,000 x 80%)……………. 38,400
Record dividends from S Company.

December 31, 20x5:

(3) Investment in S Company 72,000
Investment income (P90,000 x 80%) 72,000
Record share in net income of subsidiary.

December 31, 20x5:

(4) Investment income (P7,200 x 80%) 5,760
Investment in S Company 5,760
Record amortization of allocated excess of inventory, equipment, buildings and
 bonds payable
December 31, 20x4:
(5) Investment in S Company 3,000
Investment income (P3,000 x 100%) 3,000
To adjust investment income for downstream sales - realized gain on sale of
equipment.
December 31, 20x4:
(6) Investment in S Company 3,120
Investment income (P3,900 x 80%) 3,120
To adjust investment income for upstream sales - realized gain on sale of
equipment..
Thus, the investment balance and investment income in the books of P Company is as follows:
Investment in S
Cost, 1/1/x5 368,010 38,400 Dividends – S (48,000x 80%)
NI of Son 5,760 Amortization (7,200 x 80%)
(90,000 x 80%) 72,000
Realized gain downstream sale 3,000
Realized gain upstream sale 3,120
Balance, 12/31/x5 401,970

Investment Income
Amortization (6,000 x 805) 5,760 NI of S
72,000 (90,000 x 80%)
3,000 Realized gain downstream sale
3,120 Realized gain upstream sale
72,360 Balance, 12/31/x5

Consolidation Workpaper – Second Year after Acquisition

(E1) Common stock – S Co………………………………………… 240,000
Retained earnings – S Co, 1/1/x5…………………………. 175,200
Investment in S Co (P415,200 x 80%) 332,160
Non-controlling interest (P415,200 x 20%)……………………….. 83,040
To eliminate investment on January 1, 20x5 and equity accounts
of subsidiary on date of acquisition; and to establish non-
controlling interest (in net assets of subsidiary) on 1/1/20x5.

(E2) Accumulated depreciation – equipment (P96,000 – P12,000) 84,000

Accumulated depreciation – buildings (P192,000 + P6,000) 198,000
Land………………………………………………………………………. 6,000
Discount on bonds payable (P4,800 – P1,200)…. 3,600
Goodwill (P12,000 – P3,000)…………………………….. 9,000
Buildings……………………………………….. 180,000
Non-controlling interest [(P90,000 – P13,200) x 20%] 15,360
Investment in Son Co………………………………………………. 70,440
To eliminate investment on January 1, 20x5 and allocate excess of
cost over book value of identifiable assets acquired, with remainder
to the original amount of goodwill; and to establish non- controlling
interest (in net assets of subsidiary) on 1/1/20x5.
(E3) Depreciation expense……………………….. 6,000
Accumulated depreciation – buildings………………….. 6,000
Interest expense………………………………… 1,200
Accumulated depreciation – equipment……………….. 12,000
Discount on bonds payable………………………… 1,200
To provide for 20x5 depreciation and amortization on differences
between acquisition date fair value and book value of Son’s
identifiable assets and liabilities as follows:

Depreciation/
Amortization Amortization
Expense -Interest Total
Inventory sold
Equipment P 12,000
Buildings ( 6,000)
Bonds payable _______ P 1,200
Totals P 6,000 P1,200 P7,200

(E4) Investment income 72.360

Non-controlling interest (P48,000 x 20%)……………….. 9,600
Dividends paid – S…………………… 48,000
Investment in S Company 33,960
To eliminate intercompany dividends and investment income under
equity method and establish share of dividends, computed as
follows:

Investment in S Investment Income

NI of S 38,400 Dividends – S NI of S
(90,000 Amortization Amortization (90,000
x 80%)……. 72,000 5,760 (P7,200 x 80%) (P7,200 x 80%) 5,760 72,000 x 80%)
Realized gain* 3,000 3,000 Realized gain*
Realized gain** 3,120 3,120 Realized gain**
33,960 72,360
*downstream sale (should be multiplied by 100%)
**upstream sale (should be multiplied by 80%)
 (E5) Investment in S Company 15,000
Equipment 30,000
Accumulated depreciation – equipment 45,000
To eliminate the downstream intercompany gain and restore to its
original cost to the consolidate entity (along with its accumulated
depreciation at the point of the intercompany sale).

(E6) Investment in S Company 24,960

Non-controlling interest (P31,200 x 20%) 6,240
Equipment 12,000
Accumulated depreciation- equipment 43,200
To eliminate the upstream intercompany gain and restore to its
original cost to the consolidate entity (along with its accumulated
depreciation at the point of the intercompany sale).

(E7) Accumulated depreciation – equipment ……….. 5,250

Depreciation expense (current year)…………… 3,000
Investment in S Company (prior year) 2,250
To adjust downstream depreciation expense on equipment sold to subsidiary, thus realizing a portion of the
gain through depreciation

(E8) Accumulated depreciation- equipment…….. 7,800

Depreciation expense (current year) 3,900
Investment in S Company (prior year) 3,120
Non-controlling interest (P31,200 x 20%) 780
To adjust upstream depreciation expense on equipment sold to parent, thus realizing a portion of the gain
through depreciation
(P31,200/85 years x 1 year = P3,900).
(E9) Non-controlling interest in Net Income of Subsidiary………… 17,340
Non-controlling interest ………….. 17,340
To establish non-controlling interest in subsidiary’s adjusted net
income for 20x5 as follows:
Net income of subsidiary…………………….. P 90,000
Realized gain on sale of equipment (upstream
sales) through depreciation 3,900
S Company’s Realized net income* P 93,900
Less: Amortization of allocated excess ( 7,200)
P 86,700
Multiplied by: Non-controlling interest %.......... 20%
Non-controlling Interest in Net Income (NCINI P 17,340
*from separate transactions that has been realized in transactions
with third persons.

Worksheet for Consolidated Financial Statements, December 31, 20x5. Equity Method (Partial-goodwill) 80%-Owned
Subsidiary December 31, 20x5 (Second Year after Acquisition)
Income Statement P Co S Co. Dr. Cr. Consolidated
Sales P540,000 P360,000 P 900,000
Investment income 72,360 - (4) 72,360 ___________
Total Revenue P612,360 P360,000 P 900,000
Cost of goods sold P216,000 P192,000 P 408,000
Depreciation expense 60,000 24,000 (3) 6,000 (7) 3,000 83,100
(8) 3,900
Interest expense - - (3) 1,200 1,200
Other expenses 72,000 54,000 126,000
Goodwill impairment loss - - -
Total Cost and Expenses P348,000 P270,000 P 618,300
Net Income P264,360 P 90,000 P 281,700
NCI in Net Income - Subsidiary - - (9) 17,340 ( 17,340)
Net Income to Retained Earnings P264,360 P 90,000 P 264,360

Statement of Retained Earnings

Retained earnings, 1/1
P Company P495,810 P495,810
S Company P 175,200 (1) 175,200
Net income, from above _264,360 90,000 264,360
Total P760,170 P265,200 P 760,170
Dividends paid
P Company 72,000 72,000
S Company - 48,000 (5) 48,000 _ ________
Retained earnings, 12/31 to Balance
Sheet P688,170 P217,200 P 688,170

Balance Sheet
Cash………………………. P 265,200 P 102,000 P 367,200
Accounts receivable…….. 180,000 96,000 276,000
Inventory…………………. 216,000 108,000 324,000
Land……………………………. 210,000 48,000 (2) 7,200 265,200
Equipment 240,000 180,000 (5) 30,000
(6) 12,000 462,000
Buildings 720,000 540,000 (2) 216,000 1,044,000
Discount on bonds payable (2) 3,600 (3) 1,200 2,400
Goodwill…………………… (2) 9,000 9,000
Investment in Son Co……… 401,970 (5) 15,000 (1) 332,160
(6) 24,960 (2) 70,440 -
 (4) 33,960
(7) 2,250
(8) 3,120
Total P2,233,170 P1,074,000 P2,749,800

Accumulated depreciation P 150,000 P 102,000 (2) 84,000 (3) 12,000

- equipment (7) 5,250 (5) 45,000
(8) 7,800 (6) 43,200 P 255,150
Accumulated depreciation 450,000 306,000 (2) 198,000 (3)
- buildings 6,000 552,000
Accounts payable…………… 105,000 88,800 193,800
Bonds payable………………… 240,000 120,000 360,000
Common stock, P10 par……… 600,000 600,000
Common stock, P10 par……… 240,000 (1) 240,000
Retained earnings, from above 688,170 217,200 688,170
Non-controlling interest………… (4) 9,600 (1) 69,200 (2)
(6) 6,240 15,360
(8) 780
___ _____ _________ __________ (9) 17,340 ____100,680
Total P2,233,170 P1,074,000 P 930,750 P 930,750 P2,749,800

5 and 6. Refer to Problem V for computations

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

Problem XX
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%)…………….. 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:
Common stock (P240,000 x 100%)………………. P 240,000
Retained earnings (P120,000 x 100%)………... 120,000 360,000
Allocated excess (excess of cost over book value)….. P 105,000
Less: Over/under valuation of assets and liabilities:
Increase in inventory (P6,000 x 100%)……………… P 6,000
Increase in land (P7,200 x 100%)……………………. 7,200
Increase in equipment (P96,000 x 100%) 96,000
Decrease in buildings (P24,000 x 100%)………..... ( 24,000)
Decrease in bonds payable (P4,800 x 100%)…… 4,800 90,000
Positive excess: Full-goodwill (excess of cost over
fair value)………………………………………………... P 15,000

A summary or depreciation and amortization adjustments is as follows:

Over/ Annual Current
Account Adjustments to be amortized under Life Amount Year(20x4) 20x5
Inventory P 6,000 1 P 6,000 P 6,000 P -
Subject to Annual Amortization
Equipment (net)......... 96,000 8 12,000 12,000 12,000
Buildings (net) (24,000) 4 ( 6,000) ( 6,000) (6,000)
Bonds payable… 4,800 4 1,200 1,200 1,200
P 13,200 P 13,200 P 7,200

The following summary for 20x4 results of operations is as follows:

P Co. S Co.
Sales P 480,000 P 240,000
Less: Cost of goods sold 204,000 138,000
Gross profit P 276,000 P 102,000
Less: Depreciation expense 60,000 24,000
Other expenses 48,000 18,000
P 168,000 P 60,000
Add: Gain on sale of equipment 15,000 31,200
Net income from its own separate operations P 183,000 P 91,200
Add: Investment income 24,810 -
Net income P 207,810 P 91,200
20x4: First Year after Acquisition Parent Company Equity Method Entry
January 1, 20x4:
(1) Investment in S Company…………………………………………… 372,000
Cash…………………………………………………………………….. 372,000
Acquisition of S Company.

January 1, 20x4 – December 31, 20x4:

(2) Cash……………………… 28,800
Investment in S Company (P36,000 x 80%)……………. 28,800
Record dividends from Son Company.

December 31, 20x4:

 (3) Investment in S Company 72,960
Investment income (P91,200 x 80%) 72,960
Record share in net income of subsidiary.

December 31, 20x4:

(4) Investment income [(P13,200 x 80%) + P3,000, goodwill 13,560
impairment loss)]
Investment in S Company 13,560
Record amortization of allocated excess of inventory, equipment, buildings and bonds payable
and goodwill impairment loss.

December 31, 20x4:

(5) Investment income (P15,000 x 100%) 15,000
Investment in S Company 15,000
To adjust investment income for downstream sales - unrealized gain on sale of equipment..

December 31, 20x4:

(6) Investment income (P31,200 x 80%) 24,960
Investment in S Company 24,960
To adjust investment income for upstream sales - unrealized gain on sale of equipment..

December 31, 20x4:

(7) Investment in S Company 2,250
Investment income (P2,250 x 100%) 2,250
To adjust investment income for downstream sales - realized gain on sale of equipment..

December 31, 20x4:

(8) Investment in S Company 3,120
Investment income (P3,900 x 80%) 3,120
To adjust investment income for upstream sales - realized gain on sale of equipment..
Thus, the investment balance and investment income in the books of Perfect Company is as follows:
Investment in S
Cost, 1/1/x4 372,000 28,800 Dividends – S (36,000x 80%)
NI of Son Amortization &
(91,200 x 80%) 72,960 13,560 impairment
Realized gain downstream sale 2,250 15,000 Unrealized gain downstream sale
Realized gain upstream sale 3,120 24,960 Unrealized gain upstream sale
Balance, 12/31/x4 368,010

Investment Income
Amortization & NI of S
impairment 13,560 72,960 (76,000 x 80%)
Unrealized gain downstream sale 15,000 2,250 Realized gain downstream sale
Unrealized gain upstream sale 24,960 3,120 Realized gain upstream sale
24,810 Balance, 12/31/x4

Consolidation Workpaper – First Year after Acquisition

(E1) Common stock – S Co………………………………………… 240,000
Retained earnings – S Co…………………………………… 120.000
Investment in S Co…………………………………………… 288,000
Non-controlling interest (P360,000 x 20%)……………………….. 72,000
To eliminate investment on January 1, 20x4 and equity accounts
of subsidiary on date of acquisition; and to establish non-
controlling interest (in net assets of subsidiary) on date of
acquisition.

(E2) Inventory…………………………………………………………………. 6,000

Accumulated depreciation – equipment……………….. 96,000
Accumulated depreciation – buildings………………….. 192,000
Land………………………………………………………………………. 7,200
Discount on bonds payable…………………………………………. 4,800
Goodwill…………………………………………………………………. 15,000
Buildings……………………………………….. 216,000
Non-controlling interest (P90,000 x 20%) + [(P15,000 full –
P12,000, partial goodwill)]………… 21,000
Investment in S Co………………………………………………. 84,000
To eliminate investment on January 1, 20x4 and allocate excess of
cost over book value of identifiable assets acquired, with remainder
to goodwill; and to establish non- controlling interest (in net assets of
subsidiary) on date of acquisition.

(E3) Cost of Goods Sold……………. 6,000

Depreciation expense……………………….. 6,000
Accumulated depreciation – buildings………………….. 6,000
Interest expense………………………………… 1,200
Goodwill impairment loss………………………………………. 3,750
Inventory………………………………………………………….. 6,000
Accumulated depreciation – equipment……………….. 12,000
Discount on bonds payable………………………… 1,200
Goodwill…………………………………… 3,750
To provide for 20x4 impairment loss and depreciation and
amortization on differences between acquisition date fair value and
book value of Son’s identifiable assets and liabilities as follows:
 Cost of Depreciation/
Goods Sold Amortization Amortization
Expense -Interest Total
Inventory sold P 6,000
Equipment P 12,000
Buildings ( 6,000)
Bonds payable _______ _______ P 1,200
Totals P 6,000 P 6,000 P1,200 14,400
(E4) Investment income 24,810
Investment in S Company 3,990
Non-controlling interest (P36,000 x 20%)……………….. 7,200
Dividends paid – S…………………… 36,000
To eliminate intercompany dividends and investment income under
equity method and establish share of dividends, computed as
follows:

Investment in S Investment Income

NI of S 28,800 Dividends - S NI of S
(91,200 Amortization & Amortization (91,200
x 80%)……. 72,960 13,560 impairment impairment 13,560 72,960 x 80%)
Realized gain* 2,250 15,000 Unrealized gain * Unrealized gain * 15,000 2,250 Realized gain*
Realized gain** 3,120 24,960 Unrealized gain ** Unrealized gain **24,960 3,120 Realized gain**
3,990 24,810
*downstream sale (should be multiplied by 100%)
**upstream sale (should be multiplied by 80%)

After the eliminating entries are posted in the investment account, it should be observed that from consolidation point of view the
investment account is totally eliminated. Thus,
Investment in S
Cost, 1/1/x4 372,000 28,800 Dividends – S (36,000x 80%)
NI of S Amortization &
(91,200 x 80%) 72,960 13,560 impairment
Realized gain downstream sale 2,250 15,000 Unrealized gain downstream sale
Realized gain upstream sale 3,120 24,960 Unrealized gain upstream sale
Balance, 12/31/x4 368,010 288,000 (E1) Investment, 1/1/20x4
(E4) Investment Income 84,000 (E2) Investment, 1/1/20x4
and dividends …………… 3,990

372,000 372,000

(E5) Gain on sale of equipment 15,000

Equipment 30,000
Accumulated depreciation 45,000
To eliminate the downstream intercompany gain and restore to its
original cost to the consolidate entity (along with its accumulated
depreciation at the point of the intercompany sale).

(E6) Gain on sale of equipment 31,200

Equipment 12,000
Accumulated depreciation 43,200
To eliminate the upstream intercompany gain and restore to its
original cost to the consolidate entity (along with its accumulated
depreciation at the point of the intercompany sale).

(E7) Accumulated depreciation……….. 2,250

Depreciation expense…………… 2,250
To adjust downstream depreciation expense on equipment sold to subsidiary, thus realizing a portion of the
gain through depreciation
(P15,000 / 5 years x 9/12 = P2,250).

(E8) Accumulated depreciation……….. 3,900

Depreciation expense…………… 3,900
To adjust upstream depreciation expense on equipment sold to parent, thus realizing a portion of the gain
through depreciation
(P31,120/85 years x 1 year = P3,900).

(E9) Non-controlling interest in Net Income of Subsidiary………… 9,390

Non-controlling interest ………….. 9,390
To establish non-controlling interest in subsidiary’s adjusted net
income for 20x4 as follows:

Net income of subsidiary…………………….. P 91,200

Unrealized gain on sale of equipment
(upstream sales) ( 31,200)
Realized gain on sale of equipment (upstream
sales) through depreciation 3,900
S Company’s realized net income from
separate operations P 63,900
Less: Amortization of allocated excess [(E3)]…. 13,200
P 50,700
Multiplied by: Non-controlling interest %.......... 20%
Non-controlling Interest in Net Income (NCINI) –
partial goodwill P 10,140
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 9,390

Worksheet for Consolidated Financial Statements, December 31, 20x4. Equity Method (Full-goodwill)
80%-Owned Subsidiary December 31, 20x4 (First Year after Acquisition)
Income Statement P Co S Co. Dr. Cr. Consolidated
Sales P480,000 P240,000 P 720,000
Gain on sale of equipment 15,000 31,200 (5) 15,000
(6) 31,200
Investment income 24,810 - (4) 28,800 _________
Total Revenue P519,810 P271,200 P 720,000
Cost of goods sold P204,000 P138,000 (3) 6,000 P 348,000
Depreciation expense 60,000 24,000 (3) 6,000 (7) 2,250 83,850
(8) 3,900
Interest expense - - (3) 1,200 1,200
Other expenses 48,000 18,000 66,000
Goodwill impairment loss - - (3) 3,750 3,750
Total Cost and Expenses P312,000 P180,000 P 502,800
Net Income P207,810 P 91,200 P 217,200
NCI in Net Income - Subsidiary - - (9) 9,390 ( 9,390)
Net Income to Retained Earnings P207,810 P 91,200 P 207,810

Statement of Retained Earnings

Retained earnings, 1/1
P Company P360,000 P 360,000
S Company P120,000 (1) 120,000
Net income, from above 207,810 91,200 207,810
Total P567,810 P211,200 P 567,810
Dividends paid
P Company 72,000 72,000
S Company - 36,000 (4) 36,000 _ ________
Retained earnings, 12/31 to Balance
Sheet P495,810 P175,200 P 495,810

Balance Sheet
Cash………………………. P 232,800 P 90,000 P 322,800
Accounts receivable…….. 90,000 60,000 150,000
Inventory…………………. 120,000 90,000 (2) 6,000 (3) 6,000 210,000
Land……………………………. 210,000 48,000 (2) 6,000 265,200
Equipment 240,000 180,000 (5) 30,000
(6) 12,000 462,000
Buildings 720,000 540,000 (2) 216,000 1,044,000
Discount on bonds payable (2) 4,800 (3) 1,200 3,600
Goodwill…………………… (2) 15,000 (3) 3,750 11,250
Investment in S Co……… 368,010 (1) 288,000
(2) 84,000 -
Total P1,980,810 P1,008,000 P2,468,850

Accumulated depreciation (2) 96,000 (3) 12,000

- equipment P 135,000 P 96,000 (7) 2,250 (5) 45,000
(8) 3900 (6) 43,200 P229,050
Accumulated depreciation 405,000 288,000 (2) 192,000
- buildings (3) 6,000 495,000
Accounts payable…………… 105,000 88,800 193,800
Bonds payable………………… 240,000 120,000 360,000
Common stock, P10 par……… 600,000 600,000
Common stock, P10 par……… 240,000 (1) 240,000
Retained earnings, from above 495,810 175,200 495,810
Non-controlling interest………… (4) 7,200 (1 ) 72,000 (2)
21,000
_________ _________ __________ (9) 9,390 ____95,190
Total P1,980,810 P1,008,000 P 843,690 P 843,690 P2,468,850

Second Year after Acquisition

Perfect Co. Son Co.
Sales P 540,000 P 360,000
Less: Cost of goods sold 1216,000 192,000
Gross profit P 324,000 P 168,000
Less: Depreciation expense 60,000 24,000
Other expense 72,000 54,000
Net income from its own separate operations P 192,000 P 90,000
Add: Investment income 72,360 -
Net income P 264,360 P 90,000
Dividends paid P 72,000 P 48,000

No goodwill impairment loss for 20x5.

Parent Company Equity Method Entry

January 1, 20x5 – December 31, 20x5:
(2) Cash……………………… 38,400
Investment in S Company (P48,000 x 80%)……………. 38,400
Record dividends from S Company.
December 31, 20x5:
(3) Investment in S Company 72,000
Investment income (P90,000 x 80%) 72,000
 Record share in net income of subsidiary.
December 31, 20x5:
(4) Investment income (P7,200 x 80%) 5,760
Investment in S Company 5,760
Record amortization of allocated excess of inventory, equipment, buildings and bonds payable
December 31, 20x4:
(5) Investment in S Company 3,000
Investment income (P3,000 x 100%) 3,000
To adjust investment income for downstream sales - realized gain on sale of equipment..
December 31, 20x4:
(6) Investment in S Company 3,120
Investment income (P3,900 x 80%) 3,120
To adjust investment income for upstream sales - realized gain on sale of equipment..

Thus, the investment balance and investment income in the books of P Company is as follows:
Investment in S
Cost, 1/1/x5 368,010 38,400 Dividends – S (40,000x 80%)
NI of S 5,760 Amortization (6,000 x 80%)
(90,000 x 80%) 72,000
Realized gain downstream sale 3,000
Realized gain upstream sale 3,120
Balance, 12/31/x5 401,970

Investment Income
Amortization (7,200 x 805) 5,760 NI of S
72,000 (90,000 x 80%)
3,000 Realized gain downstream sale
3,120 Realized gain upstream sale
72,360 Balance, 12/31/x5

Consolidation Workpaper – Second Year after Acquisition

(E1) Common stock – S Co………………………………………… 240,000
Retained earnings – S Co, 1/1/x5…………………………. 175.200
Investment in S Co (P415,200 x 80%) 332,160
Non-controlling interest (P415,200 x 20%)……………………….. 83,040
To eliminate investment on January 1, 20x5 and equity accounts
of subsidiary on date of acquisition; and to establish non-
controlling interest (in net assets of subsidiary) on 1/1/20x5.
(E2) Accumulated depreciation – equipment (P96,000 – P12,000) 84,000
Accumulated depreciation – buildings (P192,000 + P6,000) 198,000
Land………………………………………………………………………. 7,200
Discount on bonds payable (P4,800 – P1,200)…. 3,600
Goodwill (P15,000 – P3,900)…………………………….. 11,250
Buildings……………………………………….. 216,000
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%)] 17,610
Investment in S Co………………………………………………. 70,440
To eliminate investment on January 1, 20x5 and allocate excess of
cost over book value of identifiable assets acquired, with remainder
to the original amount of goodwill; and to establish non- controlling
interest (in net assets of subsidiary) on 1/1/20x5.
*this procedure would be more appropriate, instead of multiplying the full-goodwill impairment loss of P3,750 by 20%. There might be situations where the NCI on goodwill impairment
loss would not be proportionate to NCI acquired (refer to Illustration 15-6).

(E3) Depreciation expense……………………….. 6,000

Accumulated depreciation – buildings………………….. 6,000
Interest expense………………………………… 1,200
Accumulated depreciation – equipment……………….. 12,000
Discount on bonds payable………………………… 1,200
To provide for 20x5 depreciation and amortization on differences
between acquisition date fair value and book value of Son’s
identifiable assets and liabilities as follows:

Depreciation/
Amortization Amortization
Expense -Interest Total
Inventory sold
Equipment P 12,000
Buildings ( 6000)
Bonds payable _______ P 1,200
Totals P 6,000 P1,200 P7,,200

(E4) Investment income 72,360

Non-controlling interest (P48,000 x 20%)……………….. 9,600
Dividends paid – S…………………… 48,000
Investment in S Company 33,960
To eliminate intercompany dividends and investment income under
equity method and establish share of dividends, computed as
follows:

Investment in S Investment Income

NI of S 38,400 Dividends – S NI of S
(90,000 Amortization Amortization (75,000
x 80%)……. 72,000 5,760 (P72,000 x 80%) (P7,200 x 80%) 5,760 72,000 x 80%)
Realized gain* 3,000 3,000 Realized gain*
 Realized gain** 3,120 3,120 Realized gain**
33,960 72,360
*downstream sale (should be multiplied by 100%)
**upstream sale (should be multiplied by 80%)
(E5) Investment in S Company 15,000
Equipment 30,000
Accumulated depreciation – equipment 45,000
To eliminate the downstream intercompany gain and restore to its
original cost to the consolidate entity (along with its accumulated
depreciation at the point of the intercompany sale).

(E6) Investment in S Company 24,960

Non-controlling interest (P31,200 x 20%) 6,240
Equipment 12,000
Accumulated depreciation- equipment 43,200
To eliminate the upstream intercompany gain and restore to its
original cost to the consolidate entity (along with its accumulated
depreciation at the point of the intercompany sale).

(E7) Accumulated depreciation – equipment ……….. 5,250

Depreciation expense (current year)…………… 3,000
Investment in S Company (prior year) 2,250
To adjust downstream depreciation expense on equipment sold to subsidiary, thus realizing a portion of the
gain through depreciation

(E8) Accumulated depreciation- equipment…….. 7,800

Depreciation expense (current year) 3,900
Investment in S Company (prior year) 3,120
Non-controlling interest (P31,200 x 20%) 780
To adjust upstream depreciation expense on equipment sold to parent, thus realizing a portion of the gain
through depreciation
(P31,200/85 years x 1 year = P3,900).

(E9) Non-controlling interest in Net Income of Subsidiary………… 17,340

Non-controlling interest ………….. 17,340
To establish non-controlling interest in subsidiary’s adjusted net
income for 20x5 as follows:
Net income of subsidiary…………………….. P 90,000
Realized gain on sale of equipment (upstream
sales) through depreciation 3,900
S Company’s Realized net income* P 93,900
Less: Amortization of allocated excess ( 7,200)
P 86,700
Multiplied by: Non-controlling interest %.......... 20%
Non-controlling Interest in Net Income (NCINI)
– partial goodwill P 17,340
Less: NCI on goodwill impairment loss on full-
Goodwill 0
Non-controlling Interest in Net Income (NCINI)
– full goodwill P 17,340
*from separate transactions that has been realized in transactions
with third persons.

Worksheet for Consolidated Financial Statements, December 31, 20x5. Equity Method (Full-goodwill) 80%-Owned Subsidiary
December 31, 20x5 (Second Year after Acquisition)
Income Statement P Co S Co. Dr. Cr. Consolidated
Sales P540,000 P360,000 P 900,000
Investment income 72,360 - (4) 72,360 ___________
Total Revenue P612,360 P360,000 P 900,000
Cost of goods sold P216,000 P192,000 P 408,000
Depreciation expense 60,000 24,000 (3) 6,000 (7) 3,000 83,100
(8) 3,900
Interest expense - - (3) 1,200 1,200
Other expenses 72,000 54,000 126,000
Goodwill impairment loss - - -
Total Cost and Expenses P348,000 P270,000 P 618,300
Net Income P264,360 P 90,000 P 281,700
NCI in Net Income - Subsidiary - - (9) 17,340 ( 17,340)
Net Income to Retained Earnings P264,360 P 90,000 P 264,360

Statement of Retained Earnings

Retained earnings, 1/1
P Company P495,810 P495,810
S Company P 175,200 (1) 175,200
Net income, from above _264,360 90,000 264,360
Total P760,170 P265,200 P 760,170
Dividends paid
P Company 72,000 72,000
S Company - 48,000 (5) 48,000 _ ________
Retained earnings, 12/31 to Balance
Sheet P688,170 P217,200 P 688,170

Balance Sheet
Cash………………………. P 265,200 P 102,000 P 367,200
Accounts receivable…….. 180,000 96,000 276,000
Inventory…………………. 216,000 108,000 324,000
Land……………………………. 210,000 48,000 (2) 7,200 265,200
Equipment 240,000 180,000 (5) 30,000 462,000
 (6) 12,000
Buildings 720,000 540,000 (2) 216,000 1,044,000
Discount on bonds payable (2) 3,600 (3) 1,200 2,400
Goodwill…………………… (2) 11,250 11,250
Investment in S Co……… 401,970 (5) 15,000 (1) 332,160
(6) 24,960 (2) 70,440
(4) 33,960
(7) 2,250
(8) 3,120 -
Total P2,233,170 P1,074,000 P2,752,050

Accumulated depreciation P 150,000 P 102,000 (2) 84,000 (3) 12,000

- equipment (7) 5,250 (5) 45,000
(8) 7,800 (6) 43,200 P 255,150
Accumulated depreciation 450,000 306,000 (2) 198,000 (3)
- buildings 6,000 552,000
Accounts payable…………… 105,000 88,800 193,800
Bonds payable………………… 240,000 120,000 360,000
Common stock, P10 par……… 600,000 600,000
Common stock, P10 par……… 240,000 (1) 240,000
Retained earnings, from above 688,170 217,200 688,170
Non-controlling interest………… (4) 9,600 (1) 83,040 (2)
(6) 6,240 17,610
(8) 780
___ _____ _________ __________ (9) 17,340 ____102,930
Total P2,233,170 P1,074,000 P 933,000 P 933,000 P2,752,050

5 and 6. Refer to Problem VI for computations

Note: Using cost model or equity method, the consolidated net income, consolidated retained earnings, non-controlling interests,
consolidated equity on December 31, 20x4 and 20x5 are exactly the same (refer to Problem X solution).
Multiple Choice Problems
1. a
Combined equipment amounts P1,050,000
Less: gain on sale 25,000
Consolidated equipment balance P1,025,000

Combined Accumulated Depreciation P 250,000

Less: Depreciation on gain 5,000
Consolidated Accumulated Depreciation P 245,000

2. a
Original cost of P1,100,000

Accumulated depreciation, 1/1/20x4 P 250,000

Add: Additional depreciation (P1,100,000 – P100,000) / 20 years ____50,000
Accumulated depreciation, 12/31/20x4 P 300,000

3. a
Combined building amounts P650,000
Less: Intercompany gain __30,000
Consolidated buildings P620,000

Combined Accumulated Depreciation P195,000

Less: Piecemeal recognition of gain ___3,000
Consolidated accumulated depreciation P192,000

4. a – the amount of land that will be presented in the presented in the CFS is the original cost of P416,000 + P256,000 = P672,000.

5. a The costs incurred by BB to develop the equipment are research and development costs and must be expensed as they are
incurred. Transfer to another legal entity does not cause a change in accounting treatment within the economic entity.

6. e
Original cost of P 100,000

Accumulated depreciation, 1/1/20x6 (P100,000 x 50%) P 50,000

Add: Additional depreciation (P100,000 – P50,000) / 5 years ___10,000
Accumulated depreciation, 12/31/20x6 P 60,000

7. d
Sales price P 80,000
Less: Book value
Cost P100,000
Less: Accumulated depreciation (50% x P100,000) __50,000 __50,000
Unrealized gain on sale P 30,000
Less: Realized gain - depreciation (P30,000 / 5 years) ___6,000
Net unrealized gain, 12/31/20x6 P 24,000

8. e
Eliminating entries:
12/31/20x6: subsequent to date of acquisition
Realized Gain – depreciation
Accumulated depreciation 6,000
Depreciation expense 6,000
[P80,000 - (P100,000 - {P100,000 x 50%])] = P30,000 / 5 years or P15,000 – P8,000 =
P7,000

“Should be in CFS” Parent – Pylux “Recorded as” Subsidiary - Sylux

Depreciation expense Depreciation expense
(P50,000 /5 years) 10,000 (P80,000 / 5 years) 16,000
Acc. Depreciation 8,000 Acc. depreciation 16,000

9. d
20x4 20x5
Unrealized gain on sales of equipment (downstream sales) ( 90,000) -0-
Realized gain on sale of equipment (downstream sales) through depreciation
P90,000 / 10 years ___9,000 9,000
Net ( 81,000) 9,000

10. d
20x4 20x5
Unrealized gain on sale of equipment (downstream sales) ( 150,000) -0-
Realized gain on sale of equipment (downstream sales) through depreciation
P150,000 / 10 years ___15,000 15,000
Net ( 135,000) 15,000
11. a
20x4 20x5
Unrealized gain on sale of equipment (upstream sales) : 50,000 – 30,000 ( 20,000) -0-
Realized gain on sale of equipment (upstream sales) through depreciation
P20,000 / 5 years ___4,000 __4,000
Net ( 16,000) __4,000

12. e
Original cost of P 100,000

Accumulated depreciation, 1/1/20x6 P 40,000

Add: Additional depreciation (P100,000 – P40,000) / 6 years x 2 years ___20,000
Accumulated depreciation, 12/31/20x4 P 70,000

13. c
Sales price P 48,000
Less: Book value
Cost P100,000
Less: Accumulated depreciation __40,000 __60,000
Unrealized loss on sale P(12,000)
Add: Realized loss - depreciation (P12,000 / 6 years) x 2 years ___4,000
Net unrealized loss, 12/31/20x7 P( 8,000)

14. a
Eliminating entries:
12/31/20x7: subsequent to date of acquisition
Realized Gain – depreciation
Depreciation expense 2,000
Accumulated depreciation 2,000
[P48,000 - (P100,000 - P40,000) = P(12,000) / 6 years or P10,000 – P8,000 = P2,000

“Should be in CFS” Parent – Poxey “Recorded as” Subsidiary - Soxey

Depreciation expense Depreciation expense
(P60,000 /6 years) 10,000 (P48,000 / 6 years) 8,000
Acc. Depreciation 10,000 Acc. depreciation 8,000

15. c
Original cost of P 100,000

Accumulated depreciation, 1/1/20x6 (P100,000 - P20,000) P 80,000

Add: Additional depreciation (P100,000 – P80,000) / 5 years x 2 years ____8,000
Accumulated depreciation, 12/31/20x7 P 88,000

16. c
Sales price P 45,000
Less: Book value
Cost P100,000
Less: Accumulated depreciation __80,000 __20,000
Unrealized gain on sale P 25,000
Less: Realized gain - depreciation (P25,000 / 5 years) x 2 years __10,000
Net unrealized gain, 12/31/20x7 P 15,000

17. b
Eliminating entries:
12/31/20x7: subsequent to date of acquisition
Realized Gain – depreciation
Accumulated depreciation 5,000
Depreciation expense 5,000
[P45,000 - (P100,000 - P80,000) = P25,000 / 5 years or P4,000 – P9,000 = P5,000

“Should be in CFS” Parent – Sayex “Recorded as” Subsidiary - Payex

Depreciation expense Depreciation expense
(P20,000 /5 years) 4,000 (P45,000 / 5 years) 9,000
Acc. Depreciation 4,000 Acc. depreciation 9,000

18. c
19. b

20. c – (P20,000/20 years = P1,000), the eliminating entry to recognize the gain – depreciation would be as follows:
Accumulated depreciation……………………………………………… 1,000
Depreciation expenses………………………………………….. 1,000

21. a
The truck account will be debited for P3,000 in the eliminating entry:
Truck 3,000
Gain 15,000
Accumulated depreciation 18,000

Seller Buyer
Cash 50,000 Truck 50,000
Accumulated 18,000 Cash 50,000
Truck 53,000
Gain 15,000

22. b
Consolidated Net Income for 20x5
P Company’s net income from own/separate operations…………. P 98,000
Realized gain on sale of equipment (downstream sales) through depreciation ___0
P Company’s realized net income from separate operations*…….….. P 98,000
S Company’s net income from own operations…………………………………. P 55,000
Unrealized gain on sales of equipment (upstream sales) (15,000)
Realized gain on sale of equipment (upstream sales) through depreciation
(P15,000 / 3 years) 5,000
S Company’s realized net income from separate operations*…….….. P 45,000 45,000
Total P143,000
Less: Amortization of allocated excess…………………… 0
Consolidated Net Income for 20x5 P143,000
Less: Non-controlling Interest in Net Income* * 18,000
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent – 20x5………….. P125,000
*that has been realized in transactions with third parties.

Or, alternatively
Consolidated Net Income for 20x5
P Company’s net income from own/separate operations…………. P 98,000
Realized gain on sale of equipment (downstream sales) through depreciation ___0
P Company’s realized net income from separate operations*…….….. P 98,000
S Company’s net income from own operations…………………………………. P 55,000
Unrealized gain on sales of equipment (upstream sales) (15,000)
Realized gain on sale of equipment (upstream sales) through depreciation
(P15,000 / 3 years) 5,000
S Company’s realized net income from separate operations*…….….. P 45,000 45,000
Total P143,000
Less: Non-controlling Interest in Net Income* * P 18,000
Amortization of allocated excess…………………… ____0 18,000
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent………….. P125,000
Add: Non-controlling Interest in Net Income (NCINI) _ 18,000
Consolidated Net Income for 20x5 P143,000
*that has been realized in transactions with third parties.

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

S Company’s net income of Subsidiary Company from its own operations P 55,000
(Reported net income of S Company)
Unrealized gain on sales of equipment (upstream sales) ( 15,000)
Realized gain on sale of equipment (upstream sales) through depreciation 5,000
S Company’s realized net income from separate operations……… P 45,000
Less: Amortization of allocated excess 0
P 45,000
Multiplied by: Non-controlling interest %.......... 40%
Non-controlling Interest in Net Income (NCINI) - partial goodwill P 18,000
Less: NCI on goodwill impairment loss on full-goodwill . . . . . . . . . . . . . . . . . . . . . 0
Non-controlling Interest in Net Income (NCINI) – full goodwill . . . . . . . . . . . . . P 18,000

23. a - refer to No. 22 computation

24. a
25. a
26. b
27. d – the entry under the cost model would be as follows ;
Accumulated depreciation……………………………………………. 4,000
Depreciation expenses (current year) – P6,000/3 years…. 2,000
Retained earnings (prior year – 20x4)……………………….. 2,000

28. d – the entry under the cost model would be as follows ;

Accumulated depreciation……………………………………………. 10,000
 Depreciation expenses (current year) – P15,000/3 years.. 5,000
Retained earnings (prior year – 20x5)……………………….. 5,000

29. a
30. b
31. c – P50,000/5 years = P10,000 per year starting January 1, 20x6.
32. b P40,000
Depreciation expense recorded by Pirn
Depreciation expense recorded by Scroll 10,000
Total depreciation reported P50,000
Adjustment for excess depreciation charged
by Scroll as a result of increase in
carrying value of equipment due to gain
on intercompany sale (P12,000 / 4 years) (3,000)
Depreciation for consolidated statements P47,000

33. e
Depreciation expense:
Parent P 84,000
Subsidiary 60,000
Total P144,000
Less: Over-depreciation due to realized gain:
[P115,000 – (P125,000 – P45,000)] = P35,000/8 years __ 4,375
Consolidated net income P139,625

34. c
20x6
Unrealized gain on sale of equipment ( 56,000)
Realized gain on sale of equipment (upstream sales) through depreciation ___7,000
Net ( 49,000)

Selling price P 392,000

Less: Book value, 1/1/20x6
Cost, 1/1/20x2 P420,000
Less: Accumulated depreciation: P420,000/10 years x 2 years 84,000 336,000
Unrealized gain on sale of equipment P 56,000
Realized gain – depreciation: P56,000/8 years P 7,000

35. c – (P22,500 x 4/15 = P6,000)

36. a – [P50,000 – (P50,000 x 4/10) = P30,000]
37. b The P39,000 paid to GG Company will be charged to depreciation expense by TLK Corporation over the remaining 3 years
of ownership. As a result, TLK Corporation will debit depreciation expense for P13,000 each year. GG Company had
charged P16,000 to accumulated depreciation in 2 years, for an annual rate of P8,000. Depreciation expense therefore
must be reduced by P5,000 (P13,000 - P8,000) in preparing the consolidated statements.

38. a TLK Corporation will record the purchase at P39,000, the amount it paid. GG Company had the equipment recorded at
P40,000; thus, a debit of P1,000 will raise the equipment balance back to its original cost from the viewpoint of the
consolidated entity.

39. b Reported net income of GG Company P 45,000

Reported gain on sale of equipment P15,000
Intercompany profit realized in 20x6 (5,000) (10,000)
Realized net income of GG Company P 35,000
Proportion of stock held by
non-controlling interest x .40
Income assigned to non-controlling interests P 14,000

40. c Operating income reported by TLK Corporation P 85,000

Net income reported by GG Company 45,000
P130,000
Less: Unrealized gain on sale of equipment
(P15,000 - P5,000) (10,000)
Consolidated net income P120,000

41. b
Eliminating entries:
12/31/20x5: date of acquisition
Restoration of BV and eliminate unrealized gain
Equipment 10,000
Gain 150,000
Accumulated depreciation 160,000

Parent Books – Mortar Subsidiary Books – Granite

Cash 390,000 Equipment 390,000
 Accumulated depreciation 160,000 Cash 390,000
Equipment 400,000
Gain 150,000

Mortar
Selling price P390,000
Less: Book value, 12/31/20x5
Cost, 1/1/20x2 P400,000
Less: Accumulated depreciation : P400,000/10 years x 4 years 160,000 240,000
Unrealized gain on sale of equipment P 150,000
Realized gain – depreciation: P150,000/6 years P 25,000

42. a – refer to No. 41 for computation

43. b - refer to No. 41 for computation
44. d
Eliminating entries:
12/31/20x6: subsequent to date of acquisition
Realized Gain – depreciation
Accumulated depreciation 25,000
Depreciation expense 25,000
P150,000 / 6 years or P65,000 – P40,000

“Should be in CFS” Parent Books – Mortar “Recorded as” Subsidiary Books - Granite
Depreciation expense Depreciation expense
(P400,000 / 10 years) 40,000 (P390,000 / 6 years) 65,000
Acc. Depreciation 40,000 Acc. depreciation 65,000
45. c
Eliminating entries:
12/31/20x6: subsequent to date of acquisition
Equipment 10,000
Retained earnings (150,000 – 25,000) 100,000
Accumulated depreciation (P160,000 – P25,000) 135,000
46. a
Total gain on the sale = P1,000,000 – (P500,000 - P150,000) = P650,000
Unconfirmed gain after three years = 2/5 x P650,000 = P260,000

47. d
Depreciation to 1/1/x3 is P25,000
Depreciation expense for 20x3 and 20x4 is (P85,000 - P25,000)/6 = P10,000 per year
Therefore accumulated depreciation at 12/31/x4 is P45,000.
Net equipment balance is P85,000 - P45,000 = P40,000.
48. b
At the end of two years, the subsidiary reports the equipment at original cost of P2,500,000 and accumulated depreciation of
(P2,500,000/10) x 2 = P500,000. Depreciation expense is P250,000.

The consolidated balance sheet reports the equipment at original cost of P1,000,000 and accumulated depreciation of
P200,000 + ([(P1,000,000 - P200,000)/10] x 2) = P360,000.
Depreciation expense is P80,000.

Eliminating entries at the end of the second year are:

Accumulated depreciation 170,000

Investment in subsidiary 1,530,000
Equipment 1,700,000

Equipment 200,000
Accumulated depreciation 200,000

Accumulated depreciation 170,000

Depreciation expense 170,000
49. d
50. d
The subsidiary reports depreciation expense for the year at P500,000 (P2,500,000/5) and a gain on the sale at P1,750,000
[P2,750,000 - ((P2,500,000 - (3)(P500,000))]. The consolidated statements show depreciation expense for the year at
P600,000 (P3,000,000/5) and a gain on the sale at P1,550,000 [P2,750,000 - ((P3,000,000 - (3)(P600,000))]. Therefore the
eliminating entries increase depreciation expense by P100,000 and reduce the gain by P200,000, for a net effect on
consolidated income of: P300,000 decrease.
51. a
Consolidated Net Income for 20x9
P Company’s net income from own/separate operations…………. P 140,000
Realized gain on sale of equipment (downstream sales) through depreciation ___0
P Company’s realized net income from separate operations*…….….. P 140,000
S Company’s net income from own operations…………………………………. P 30,000
Unrealized loss on sale of equipment (upstream sales) 20,000
 Realized loss on sale of equipment (upstream sales) through depreciation –
none, since the date of sale is end of the year ( 0)
S Company’s realized net income from separate operations*…….….. P 50,000 50,000
Total P190,000
Less: Amortization of allocated excess…………………… 0
Consolidated Net Income for 20x9 P190,000
Less: Non-controlling Interest in Net Income* * 15,000
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent – 20x9………….. P175,000
*that has been realized in transactions with third parties.

Selling price P180,000

Less: Book value, 12/31/20x9
Cost, 1/1/20x4 P500,000
Less: Accumulated depreciation : P500,000/10 years x 6 years 300,000 200,000
Unrealized loss on sale of equipment P( 20,000)
Realized loss – depreciation: P20,000/4 years P( 5,000)

Or, alternatively
Consolidated Net Income for 20x9
P Company’s net income from own/separate operations…………. P 140,000
Realized gain on sale of equipment (downstream sales) through depreciation ___0
P Company’s realized net income from separate operations*…….….. P 140,000
S Company’s net income from own operations…………………………………. P 30,000
Unrealized loss on sale of equipment (upstream sales) 20,000
Realized loss on sale of equipment (upstream sales) through depreciation ( 0)
S Company’s realized net income from separate operations*…….….. P 50,000 50,000
Total P190,000
Less: Non-controlling Interest in Net Income* * P 15,000
Amortization of allocated excess…………………… ____0 15,000
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent………….. P175,000
Add: Non-controlling Interest in Net Income (NCINI) _ 15,000
Consolidated Net Income for 20x9 P190,000
*that has been realized in transactions with third parties.

**Non-controlling Interest in Net Income (NCINI) for 20x9

S Company’s net income of Subsidiary Company from its own operations P 30,000
(Reported net income of S Company)
Unrealized loss on sale of equipment (upstream sales) 20,000
Realized loss on sale of equipment (upstream sales) through depreciation ( 0)
S Company’s realized net income from separate operations……… P 50,000
Less: Amortization of allocated excess 0
P 50,000
Multiplied by: Non-controlling interest %.......... 30%
Non-controlling Interest in Net Income (NCINI) - partial goodwill P 15,000
Less: NCI on goodwill impairment loss on full-goodwill . . . . . . . . . . . . . . . . . . . . . 0
Non-controlling Interest in Net Income (NCINI) – full goodwill . . . . . . . . . . . . . P 15,000

52. b
Consolidated Net Income for 20y0
P Company’s net income from own/separate operations…………. P 162,000
Realized gain on sale of equipment (downstream sales) through depreciation ___0
P Company’s realized net income from separate operations*…….….. P 162,000
S Company’s net income from own operations…………………………………. P 45,000
Unrealized loss on sale of equipment (upstream sales)
Realized loss on sale of equipment (upstream sales) through depreciation ( 5,000)
S Company’s realized net income from separate operations*…….….. P 40,000 40,000
Total P202,000
Less: Amortization of allocated excess…………………… 0
Consolidated Net Income for 20y0 P202,000
Less: Non-controlling Interest in Net Income* * 7,500
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent – 20y0………….. P194,500
*that has been realized in transactions with third parties.

Or, alternatively
Consolidated Net Income for 20y0
P Company’s net income from own/separate operations…………. P 162,000
Realized gain on sale of equipment (downstream sales) through depreciation ___0
P Company’s realized net income from separate operations*…….….. P 162,000
S Company’s net income from own operations…………………………………. P 45,000
Unrealized loss on sale of equipment (upstream sales)
Realized loss on sale of equipment (upstream sales) through depreciation ( 5,000)
S Company’s realized net income from separate operations*…….….. P 40,000 40,000
Total P202,000
Less: Non-controlling Interest in Net Income* * P 7,500
Amortization of allocated excess…………………… ____0 7,500
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent………….. P194,500
Add: Non-controlling Interest in Net Income (NCINI) _ _ 7,500
Consolidated Net Income for 20y0 P202,000
*that has been realized in transactions with third parties.

**Non-controlling Interest in Net Income (NCINI) for 20y0

S Company’s net income of Subsidiary Company from its own operations P 30,000
(Reported net income of S Company)
 Unrealized loss on sale of equipment (upstream sales)
Realized loss on sale of equipment (upstream sales) through depreciation ( 5,000)
S Company’s realized net income from separate operations……… P 25,000
Less: Amortization of allocated excess 0
P 25,000
Multiplied by: Non-controlling interest %.......... 30%
Non-controlling Interest in Net Income (NCINI) - partial goodwill P 7,500
Less: NCI on goodwill impairment loss on full-goodwill . . . . . . . . . . . . . . . . . . . . . 0
Non-controlling Interest in Net Income (NCINI) – full goodwill . . . . . . . . . . . . . P 7,500

53. d
Eliminating entries:
1/1/20x5: date of acquisition
Restoration of BV and eliminate unrealized gain
Building 3,000
Gain 8,250
Accumulated depreciation 11,250

Parent Books – Sky Subsidiary Books - Earth

Cash 33,000 Building 33,000
Accumulated depreciation 11,250 Cash 33,000
Building 36,000
Gain 8,250

Sky, 7/1/20x4
Selling price P33,000
Less: Book value, 7/11/20x4
Cost, 1/1/20x2 P36,000
Less: Accumulated depreciation : P36,000/8years x 2.5 years 11,250 24,750
Unrealized gain on sale of equipment P 8,250
Realized gain – depreciation: P8,250/5.5 years P 1,500

54. a - refer to No. 53 for computation

55. b
Eliminating entries:
12/31/20x4: subsequent to date of acquisition
Realized Gain – depreciation (July 1, 20x4 – December 31, 20x4)
Accumulated depreciation 750
Depreciation expense 750
P8,250 / 5.5 x ½ years or P3,000 – P2,250
“Should be in CFS” Parent Books – Sky “Recorded as” Subsidiary Books - Earth
Depreciation expense Depreciation expense
(P24,750 / 5.5 x ½ years) 2,250 (P33,000 / 5.5 years x ½ yrs) 3,000
Acc. Depreciation 2,250 Acc. depreciation 3,000

56. c
Eliminating entries:
12/31/20x5: subsequent to date of acquisition
Realized Gain – depreciation
Accumulated depreciation 1,500
Depreciation expense 1,500
P8,250 / 5.5 x years or P6,000 – P4,500

“Should be in CFS” Parent Books – Sky “Recorded as” Subsidiary Books - Earth
Depreciation expense Depreciation expense
(P24,750 / 5.5 years) 4,500 (P33,000 / 5.5 years) 6,000
Acc. Depreciation 4,500 Acc. depreciation 6,000

57. d
Eliminating entries:
1/1/20x5: subsequent to date of acquisition
Building 3,000
Retained earnings (8,250 – 750) 7,500
Accumulated depreciation (P11,250 – P750) 10,500

58. d - P60,000 - P36,000 = P24,000 debit

59. b - P36,000 - (P60,000 - P31,200) = P7,200 gain (debit)
60. c - (P36,000/6)(8/12) - [(P60,000 - P31,200)/6](8/12) = P800 credit
61. a - P31,200 - {(P36,000/6)(8/12) - [(P60,000 - P31,200)/6](8/12)} = P30,400 credit
62. c - P36,000 - (P60,000 - P31,200) = P7,200 gain (debit)
(P36,000/6)(8/12) - [(P60,000 - P31,200)/6](8/12) = P800 credit
63. b
P72,000 - (P96,000 - P36,600) = P12,600 gain (debit)
(P72,000/5)(4/12) - [(P96,000 - P36,600)/5](4/12) = P840 (credit)
(P12,600 - P840) .1 = P1,176 debit

64. d When only retained earnings is debited, and not the non-controlling interest, a gain has been recorded in a prior period
 on the parent's books.
65. d
66. a
67. b
68. b – at its original cost or book value.

69. b
20x4: Any intercompany gain should be eliminated in the CFS.
20x5
Selling price – unrelated party P 100,000
Less: Original Book value, 9/26/20x5 __60,000
Accumulated depreciation, 9/26/20x5 P 40,000

70. d – P30,000 + P40,000 = P70,000

S P Consolidated
Selling price
Less: Book value
Gain P 30,000 P 40,000 P 70,000

71. d – P110,000 – P30,000 = P80,000

S (Nectar) P (Lorikeet) Consolidated
Selling price P 50,000 P 110,000 P 110,000
Less: Book value _30,000 __50,000 _30,000
Gain P 20,000 P 60,000 P 80,000

72. d
S P Consolidated
Selling price P1,980,000 P1,440,000 P1,440,000
Less: Book value: Cost P2,000,000 P1,980,000 P 1,800,000
Accumulated ___200,000 1,800,00 *1,320,000 660,000 **1,200,000 __600,000
Unrealized gain on sale of
equipment P 180,000
Realized Gain – depreciation
(P180,000/9 x 6 yrs) 120,000
Net unrealized gain, 1/1/20x9 P 60,000
Gain on sale P 60,000 P 780,000 P 840,000
*P1,980,000/ 9 x 6 years = P1,320,000
**P1,800,000/9 x 6 years = P1,200,000

73. d –(P100,000 + P50,000 = P150,000)

S P Consolidated
Selling price
Less: Book value
Gain P 100,000 P 50,000 P 150,000

74. c
S P Consolidated
Selling price P 990,000 P720,000 P 720,000
Less: Book value : Cost P1,000,000 P990,000 P 900,000
Accumulated 100,000 __900,000 *440,000 550,000 **400,000 __500,000
Unrealized gain on sale of
Equipment,1/1/20x4 P 90,000
Realized Gain – depreciation
(P90,000/9 x 4 yrs) 40,000
Net unrealized gain, 1/1/20x8 P 50,000 __________ ___________
Gain on sale P 50,000 P 170,000 P 220,000
*P990,000/ 9 x 4 years = P440,000
**P900,000/9 x 4 years = P400,000
75. d – (P30,000 + P15,000)
76. c
Selling price – unrelated party P 14,000
Less: Original Book value, 12/31/20x5
Book value, 1/1/20x4 P20,000
Less: Depreciation for 20x4 and 20x5: P20,000/4 years x 2 years 10,000 10,000
Accumulated depreciation, 12/31/20x4 P 4,000

77. b
Sort Fort Consolidated
Selling price P 100,000 P 65,000 P 65,000
Less: Book value : Cost P 120,000 P100,000 P 90,000
Accumulated __30,000 __90,000 **50,000 50,000 **45,000 __45,000
Unrealized gain on sale of
Equipment, 12/30/20x3 P 10,000
Realized Gain – depreciation
(P10,000/6 x 3 yrs) __ 5,000
Net unrealized gain, 12/31/20x6 P 5,000 __________ _________
Gain on sale P 5,000 P 15,000 P 20,000
*P100,000/6 x 3 years = P48,000
***P90,000/6 x 3 years = P45,000

78. b
Depreciation expense: (P50,000 - P40,000) / 10 years = P1,000 over depreciation
79. b
**Non-controlling Interest in Net Income (NCINI) for 20x4
S Company’s net income of Subsidiary Company from its own operations
(Reported net income of S Company) P2,000,000
Unrealized gain on sales of equipment (upstream sales) (P700,000 – P600,000) ( 100,000)
Realized gain on sale of equipment (upstream sales) through depreciation (P100,000/10) 10,000
S Company’s realized net income from separate operations……… P1,910,000
Less: Amortization of allocated excess _ 0
P1,910,000
Multiplied by: Non-controlling interest %.......... __40%
Non-controlling Interest in Net Income (NCINI) - partial goodwill P 764,000
Less: NCI on goodwill impairment loss on full-goodwill . . . . . . . . . . . . . . . . . . . . . __ 0
Non-controlling Interest in Net Income (NCINI) – full goodwill . . . . . . . . . . . . . P 764,000

80. a
**Non-controlling Interest in Net Income (NCINI) for 20y2
S Company’s net income of Subsidiary Company from its own operations
(Reported net income of S Company) P 135,000
Unrealized gain on sale of equipment (downstream sales)
Realized gain on sale of equipment (downstream sales) through depreciation ( 0)
S Company’s realized net income from separate operations……… P 135,000
Less: Amortization of allocated excess 0
P 135,000
Multiplied by: Non-controlling interest %.......... 20%
Non-controlling Interest in Net Income (NCINI) - partial goodwill P 27,000
Less: NCI on goodwill impairment loss on full-goodwill . . . . . . . . . . . . . . . . . . . . . 0
Non-controlling Interest in Net Income (NCINI) – full goodwill . . . . . . . . . . . . . P 27,000

81. a
Consolidated Net Income for 20y2
P Company’s net income from own/separate operations…………. P 200,800
Realized gain on sale of equipment (downstream sales) through depreciation _ 8,000
P Company’s realized net income from separate operations*…….….. P 208,800
S Company’s net income from own operations…………………………………. P 135,000
Unrealized gain on sale of equipment (upstream sales)
Realized gain on sale of equipment (upstream sales) through depreciation ( 0)
S Company’s realized net income from separate operations*…….….. P 135,000 135,000
Total P343,800
Less: Amortization of allocated excess…………………… 0
Consolidated Net Income for 20y2 P343,800
Less: Non-controlling Interest in Net Income* *(refer to No. 80) 27,000
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent – 20y2………….. P316,800
*that has been realized in transactions with third parties.
Net income from own operations:
Prout Sexton
Sales P1,475,000 P1,110,000
Less: Cost of goods sold 942,000 795,000
Other expenses (including depreciation) 145,000 90,000
Income tax expense __187,200 ____90,000
Net income from own operations P 200,800 P 135,000
Add: Dividend income ____80,000
Net income P 280,800 P 135,000

Sexton, 1/1/20y1
Selling price P360,000
Less: Book value, 1/1/20y1
Cost, 1/1/20x1 P400,000
Less: Accumulated depreciation : P400,000/25 years x 10 years 160,000 240,000
Unrealized gain on sale of equipment P120,000
Realized gain – depreciation: P120,000/15 years P 8,000

Or, alternatively
Consolidated Net Income for 20y2
P Company’s net income from own/separate operations…………. P 200,800
Realized gain on sale of equipment (downstream sales) through depreciation _ 8,000
P Company’s realized net income from separate operations*…….….. P 208,800
S Company’s net income from own operations…………………………………. P 135,000
Unrealized gain on sale of equipment (upstream sales)
Realized gain on sale of equipment (upstream sales) through depreciation ( 0)
S Company’s realized net income from separate operations*…….….. P 135,000 135,000
Total P343,800
Less: Non-controlling Interest in Net Income* * (refer to No. 80) P 27,000
Amortization of allocated excess…………………… ____0 27,000
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent………….. P316,800
Add: Non-controlling Interest in Net Income (NCINI) _ _27,000
Consolidated Net Income for 20y2 P343,800
*that has been realized in transactions with third parties.

82. a – refer to No. 81

83. c
Consolidated Retained Earnings, December 31, 20y2
Retained earnings - Parent Company, January 1, 20y1 (cost model) P1,300,000
Less: Downstream - net unrealized gain on sale of equipment – prior to 20y1
[P120,000 – (P8,000 x 1 year)] 112,000
 Adjusted Retained Earnings – Parent 1/1/20y1 (cost model ) Son Company’s
Retained earnings that have been realized in transactions with third
parties.. P1,188,000
Adjustment to convert from cost model to equity method for purposes of
consolidation or to establish reciprocity:/Parent’s share in adjusted net
increased in subsidiary’s retained earnings:
Retained earnings – Subsidiary, January 1, 20x9 P 800,000
Less: Retained earnings – Subsidiary, January 1, 20y1 1,040,000
Increase in retained earnings since date of acquisition P 240,000
Less: Amortization of allocated excess – 20x9 to – 20y0 0
Upstream - net unrealized gain on sale of equipment –prior to
20y1 0
P 240,000
Multiplied by: Controlling interests %................... 80%
P192,000
Less: Goodwill impairment loss 0 _192,000
Consolidated Retained earnings, January 1, 20x5 P1,380,000
Add: Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent for 20x5 316,800
Total P1,696,800
Less: Dividends declared – Parent Company for 20y1 120,000
Consolidated Retained Earnings, December 31, 20y1 P1,576,8000

Or, alternatively:
Consolidated Retained Earnings, December 31, 20y2
Retained earnings - Parent Company, December 31, 20y1 (cost model)
(P1,300,000 + P280,800 – P120,000) P1,460,800
Less: Downstream - net unrealized gain on sale of equipment – prior to
12/31/20y1 [P120,000 – (P8,000 x 2 years)] 104,000
Adjusted Retained Earnings – Parent 12/31/20x5 (cost model )
S Company’s Retained earnings that have been realized in
transactions with third parties.. P1,356,800
Adjustment to convert from cost model to equity method for purposes of
consolidation or to establish reciprocity:/Parent’s share in adjusted net
increased in subsidiary’s retained earnings:
Retained earnings – Subsidiary, December 31, 20y2
(P1,040,000 + P135,000 – P100,000) P 1,075,000
Less: Retained earnings – Subsidiary, January 1, 20x9 800,000
Increase in retained earnings since date of acquisition P 275,000
Less: Accumulated amortization of allocated excess 0
Upstream - net unrealized gain on sale of equipment – prior to
12/31/20y2 _______0
P 275,000
Multiplied by: Controlling interests %................... 80%
P 220,000
Less: Goodwill impairment loss _____0 220,000
Consolidated Retained earnings, December 31, 20y2 P1,576,800

84. c
Non-controlling interest (fulll-goodwill), December 31, 20y2
Common stock – Subsidiary Company, December 31, 20y2…… P 1,200,000
Retained earnings – Subsidiary Company, December 31, 20y2
Retained earnings – Subsidiary Company, January 1, 20y2 P1,040,000
Add: Net income of subsidiary for 20y2 135,000
Total P1,175,000
Less: Dividends paid – 20y2 100,000 1,075,000
Stockholders’ equity – Subsidiary Company, December 31, 20x5 P 2,275,200
Adjustments to reflect fair value - (over) undervaluation of assets and
liabilities, date of acquisition (January 1, 20x4) 0
Amortization of allocated excess (refer to amortization above) : 0
Fair value of stockholders’ equity of subsidiary, December 31, 20x5…… P2,275,200
Less: Upstream - net unrealized gain on sale of equipment – prior to
12/31/20y2 _____)0
Realized stockholders’ equity of subsidiary, December 31, 20x5………. P 2,275,00
Multiplied by: Non-controlling Interest percentage…………... _ 20
Non-controlling interest (partial goodwill)………………………………….. P 455,000

85. c
Prout Sexton Consolidated
Selling price P 360,000 P300,000 P 300,000
Less: Book value : Cost P 400,000 P360,000 P 240,000
Accumulated *160,000 __240,000 **48,000 312,000 ***32,000 _208,000
Unrealized gain on sale of
Equipment, 1/1/20y1 P 120,000
Realized Gain – depreciation
(P120,000/15 x 2 yrs) __16,000
Net unrealized gain, 1/1/20y3 P 104,000 __________ _________
Gain on sale P 104,000 P( 12,000) P 92,000
*P400,000/25 x 10 years = P160,000
**P360,000/15 x 2 years = P48,000
***P240,000/15 x 2years = P400,000

86. b – refer to No. 85

87. a – refer to No. 85

Analysis:
Workpaper entries (not required)
Intercompany Sale of Equipment
 Accumulated Remaining
Cost Depreciation Carrying Value Life Depreciation
Original Cost P400,000 P160,000 P240,000 15 yr P 16,000
Intercompany Selling Price 360,000 _______ 360,000 15 yr 24,000
Difference P 40,000 P160,000 P120,000 P 8,000

(1) Investment in Sexton Company 192,000

Retained Earnings - Prout 192,000
To establish reciprocity/convert to equity (.80 x (P1,040,000 - P800,000))

(2) Equipment 40,000

Beginning Retained Earnings - Prout 120,000
Accumulated Depreciation 160,000
To reduce beginning consolidated retained earnings by amount of unrealized profit at the beginning of the year, to restate property and equipment to its book value
to Prout Company on the date of the intercompany sale.

(3) Accumulated Depreciation 16,000

Depreciation Expense 8,000
Beginning Retained Earnings - Prout 8,000
To reverse amount of excess depreciation recorded during current year and recognize an equivalent amount of intercompany profit as realized

(4) Dividend Income 80,000

Dividends Declared 80,000
To eliminate intercompany dividends

(5) Beginning Retained Earnings – Sexton 1,040,000

Common Stock – Sexton 1,200,000
Investment in Sexton Company (P1,600,000 + P192,000) 1,792,000
Noncontrolling Interest [P400,000 + (P1,040,000 - P800,000) x .20] 448,000
To eliminate investment account and create noncontrolling interest account

Entry analysis:
Journal Entry on the books of Sexton to record the sale
Cash 300,000
Accumulated Depreciation - Fixed Assets (P360,000/15) x 2 years) 48,000
Loss on Sale of Equipment 12,000
Plant and Equipment 360,000
Workpaper eliminating entry on December 31, 20y3 consolidated statement necessary to prepare consolidated statements:
Beginning Retained Earnings – Prout(P120,000 - P16,000) 104,000
Loss on Sale of Equipment 12,000
Gain on Sale of Equipment 92,000

Cost to the Affiliated Companies P400,000

Accumulated Depreciation Based on Original Cost ((12/25)x P400,000) 192,000
Book Value, 1/1/y3 P 208,000
Proceeds from Sale to Non-affiliate (300,000)
Gain from consolidated point of view P 92,000
Note: As of Dec. 31, 20y3, the amount of profit recorded by the affiliates on their books (P120,000 - P12,000 = P108,000) is equal to the
amount of profit considered realized in the consolidated financial statements (P8,000 + P8,000 + P92,000) = P108,000.

88. d - Investment in subsidiary, 12/31/20x5 (cost model) P700,000).

Date of Acquisition (1/1/20x4) Partial Full
Fair value of consideration given…………………….P 700,000
Less: Book value of SHE - Subsidiary):
(P300,000 + P500,000) x 80%........................... 640,000
Allocated Excess.………………………………………….P 60,000
Less: Over/Undervaluation of Assets & Liabilities
Increase in Bldg. (P75,000 x 80%)……………… 60,000
Goodwill ………….………………………………………….P 0 P 0
Amortization of allocated excess: building - P75,000 / 25 years = P3,000
Upstream Sale of Equipment (date of sale – 4/1/20x5):
Sales.......................................................................................................P 60,000
Less: Book value of equipment………………………………………………………………. 30,000
Unrealized Gain (on sale of equipment)……………………………………………………P 30,000

Realized gain on sale of equipment:

20x5: P30,000/5 years = P6,000 x 9/12 (4/1/20x5-12/31/20x5)…………………………. .P 4,500
20x6 ………………..……………………………………………………………………………P 6,000
Downstream Sale of Machinery (date of sale – 9/30/20x5):
Sales.................................................................................................................................... P75,000
Less: Book value of machinery………………………………………………………………. 40,000
Unrealized Gain (on sale of machinery)…………………………………………………… P35,000

Realized gain on sale of machinery:

20x5: P35,000/10 years = P3,500 x 3/12 (9/30/20x5-12/31/20x5)………. ……………… .P 875
20x6………….. ………………………………………………………………………………...P 3,500
89. d
Dividend paid or declared – S…………………………………………………P 50,000
x: Controlling Interest %…………………………………………………………. 80%
Dividend income of Parent……………………………………………………..P 40,000

90. d
Consolidated Net Income for 20x5
P Company’s net income from own/separate operations…………. P 300,000
Net unrealized gain on sale of equipment (downstream sales) through
depreciation P35,000 – P875) 34,125
P Company’s realized net income from separate operations*…….….. P 265,875
S Company’s net income from own operations…………………………………. P 150,000
Unrealized gain on sales of equipment (upstream sales) (30,000)
Realized gain on sale of equipment (upstream sales) through depreciation 4,500
S Company’s realized net income from separate operations*…….….. P 124,500 124,500
Total P390,375
Less: Amortization of allocated excess…………………… 3,000
Consolidated Net Income for 20x5 P387,375
Less: Non-controlling Interest in Net Income* * 24,300
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent – 20x5………….. P363,075
*that has been realized in transactions with third parties.

Or, alternatively
Consolidated Net Income for 20x5
P Company’s net income from own/separate operations…………. P 300,000
Net unrealized gain on sale of equipment (downstream sales) through
depreciation P35,000 – P875) 34,125
P Company’s realized net income from separate operations*…….….. P 265,875
S Company’s net income from own operations…………………………………. P 150,000
Unrealized gain on sales of equipment (upstream sales) (30,000)
Realized gain on sale of equipment (upstream sales) through depreciation 4,500
S Company’s realized net income from separate operations*…….….. P 124,500 124,500
Total P390,375
Less: Non-controlling Interest in Net Income* * P 24,300
Amortization of allocated excess…………………… 3,000 27,300
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent………….. P363,075
Add: Non-controlling Interest in Net Income (NCINI) _ 24,300
Consolidated Net Income for 20x5 P387,375
*that has been realized in transactions with third parties.

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

S Company’s net income of Subsidiary Company from its own operations P 150,000
(Reported net income of S Company)
Unrealized gain on sales of equipment (upstream sales) ( 30,000)
Realized gain on sale of equipment (upstream sales) through depreciation 4,500
S Company’s realized net income from separate operations……… P 124,500
Less: Amortization of allocated excess 3,000
P 121,500
Multiplied by: Non-controlling interest %.......... 20%
Non-controlling Interest in Net Income (NCINI) - partial goodwill P 24,300
Less: NCI on goodwill impairment loss on full-goodwill . . . . . . . . . . . . . . . . . . . . . 0
Non-controlling Interest in Net Income (NCINI) – full goodwill . . . . . . . . . . . . . P 24,300

91. c – refer to No. 90 for computations

92. d – refer to No. 90 for computations
93. a
Non-controlling Interests (in net assets): 20x5 20x6
Common stock - S, 12/31..….………………………… P 300,000 P 300,000
Retained earnings - S, 12/31:
RE- S, 1/1.…………………………………………….P600,000 P 700,000
+: NI-S………………………………………………… 150,000 200,000
-: Div – S…………………………………………….. 50,000 700,000 70,000 830,000
Book value of Stockholders’ equity, 12/31…….... P1,000,000 P1,130,000
Adjustments to reflect fair value of net assets
Increase in equipment, 1/1/2010..……..… 75,000 75,000
Accumulated amortization (P3,000 per year)*.…… ( 6,000) ( 9,000)
Fair Value of Net Assets/SHE, 12/31..……………… P1,069,000 P1,196,000
Unrealized gain on sale of equipment (upstream) ( 30,000) **( 25,500)
Realized gain thru depreciation (upstream)……… 4,500 6,000
Realized SHE – S,12/31………………………………….. P1,043,500 P1,176,500
x: NCI %........................................................... ………… ___ 20% 20%
Non-controlling Interest (in net assets) – partial... P 208,700 P 235,300
+: NCI on full goodwill……..…………………………….. 0 0
Non-controlling Interest (in net assets) – full…….. P 208,700 P 235,300
* 20x5: P3,000 x 2 years; 2012: P3,000 x 3 years;
** P30,000 – P4,500 realized gain in 20x5 = P25,500.
Note: Preferred solution - since what is given is the RE – P, 1/1/20x5(beginning balance of the current year) -
Retained earnings – Parent, 1/1/20x5 (cost)…………………………… P 800,000
-: Downstream sale – 20x4 or prior to 20x5, Net unrealized gain 0
Adjusted Retained earnings – Parent, 1/1/20x5 (cost)……………… P 800,000
Retroactive Adjustments to convert Cost to “Equity”:
Retained earnings – Subsidiary, 1/1/20x4……………………….P 500,000
Less: Retained earnings – Subsidiary, 1/1/20x5……………….. 600,000
Increase in Retained earnings since acquisition
(cumulative net income – cumulative dividends)…………P 100,000
Accum. amortization (1/1/x4– 1/1/x5): P2,000 x 1 year…….. ( 3,000)
Upstream Sale – 2010 or prior to 20x5,
Net unrealized gain……………………………..……………….( 0)
P 97,000
X: Controlling Interests %..…………………………………………… 80% 77,600
RE – P, 1/1/20x5 (equity method) = CRE, 1/1/20x5………………… P 877,600
+: CI – CNI or Profit Attributable to Equity Holders of Parent……. 363,075
-: Dividends – P………………………………………………………………….. 100,000
RE – P, 12/31/20x5 (equity method) = CRE, 12/31/20x5………….. P 1,140,675
Or, if RE – P is not given on January 1, 20x5, then RE – P on December 31, 20x5 should be use.
 Retained earnings – Parent, 12/31/20x5 (cost model):
(P800,000 + P340,000, P’s reported NI – P100,000)……………… P1,040,000
-: Downstream sale – 20x5 or prior to 12/31/20x5,
Net unrealized gain - (P35,000 – P875)……………………………. 34,125
Adjusted Retained earnings – Parent, 1/1/20x5 (cost model)..…… P1,005,875
Retroactive Adjustments to convert Cost to “Equity”:
Retained earnings – Subsidiary, 1/1/20x4……………………….P 500,000
Less: Retained earnings – Subsidiary, 12/31/20x5
(P600,000 + P150,000 – P50,000)..…………..……………. 700,000
Increase in Retained earnings since acquisition
(cumulative net income – cumulative dividends)……. ….P 200,000
Accumulated amortization (1/1/20x4 – 12/31/20x5):
P 3,000 x 2 years……………………………………………. .( 6,000)
Upstream Sale – 20x5 or prior to 12/31/20x5,
Net unrealized gain – (P30,000 – P4,500)……………. ( 25,500)
P 168,500
x: Controlling Interests %..………………………………………… 80% 134,800
RE – P, 12/31/20x5 (equity method) = CRE, 12/31/20x5…………. P1,140,675
94. c – refer to No, 93 computations.
95. b – refer to No. 93 for computations
96. d – refer to No. 93 for computations
97. b
Consolidated Stockholders’ Equity, 12/31/20x5:
Controlling Interest / Parent’s Interest / Parent’s Portion /
Equity Holders of Parent – SHE, 12/31/20x5:
Common stock – P (P only)……………………………………….. .P 1,000,000
Retained Earnings – P (equity method), 12/31/20x5…………. 1,140,675
Controlling Interest / Parent’s Stockholders’ Equity……………P2,140,675
Non-controlling interest, 12/31/20x5 (partial/full)…………………… 208,700
Consolidated Stockholders’ Equity, 12/31/20x5……………………….P2,349,375
98. d – the original cost of land
99. b – no intercompany gain or loss be presented in the CFS.
100. a
Consolidated Net Income for 20x4
P Company’s net income from own/separate operations…………. P 200,000
Realized gain on sale of equipment (downstream sales) through depreciation ___0
P Company’s realized net income from separate operations*…….….. P 200,000
S3 Company’s net income from own operations…………………………………. P100,000
S2 Company’s net income from own operations…………………………………. 70,000
S1 Company’s net income from own operations…………………………………. 95,000
Unrealized loss on sale of equipment (upstream sales) – S3 15,000
Unrealized gain on sale of equipment (upstream sales) – S2 ( 52,000)
Unrealized gain on sale of equipment (upstream sales) - S1 ( 23,000)
S Company’s realized net income from separate operations*…….….. P205,000 205,000
Total P405,000
Less: Amortization of allocated excess…………………… 0
Consolidated Net Income for 20x4 P405,000
Less: Non-controlling Interest in Net Income* * (P23,000 + P5,400 + P7,200) 35,600
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent – 20x4………….. P369,400
*that has been realized in transactions with third parties.
S3 S2 S1
Sales price 145,000 197,000 220,000
Less: Cost 160,000 145,000 197,000
Unrealized (loss) gain ( 15,000) 52,000 23,000

Or, alternatively
Consolidated Net Income for 20x4
P Company’s net income from own/separate operations…………. P 200,000
Realized gain on sale of equipment (downstream sales) through depreciation ___0
P Company’s realized net income from separate operations*…….….. P 200,000
S3 Company’s net income from own operations…………………………………. P100,000
S2 Company’s net income from own operations…………………………………. 70,000
S1 Company’s net income from own operations…………………………………. 95,000
Unrealized loss on sale of equipment (upstream sales) – S3 15,000
Unrealized gain on sale of equipment (upstream sales) – S2 ( 52,000)
Unrealized gain on sale of equipment (upstream sales) - S1 ( 23,000)
S Company’s realized net income from separate operations* P205,000 205,000
Total P405,000
Less: Non-controlling Interest in Net Income* * (P23,000 + P5,400 + P7,200) P 35,600
Amortization of allocated excess…………………… ____0 _ 35,600
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent………….. P369,400
Add: Non-controlling Interest in Net Income (NCINI) _ _35,600
Consolidated Net Income for 20y0 P405,000
*that has been realized in transactions with third parties.
**Non-controlling Interest in Net Income (NCINI) S3 S2 S1
S Company’s net income of Subsidiary Company from its own
operations (Reported net income of S Company) P 100,000 P 70,000 P 95,000
Unrealized (gain) loss on sale of land (upstream sales) 15,000 ( 52,000) ( 23,000)
S Company’s realized net income from separate operations P 115,000 P 18,000 P 72,000
Less: Amortization of allocated excess 0 0 0
P 115000 P 18,000 P 72,000
Multiplied by: Non-controlling interest %.......... 20% 30% 10%
Non-controlling Interest in Net Income (NCINI) - partial goodwill P 23,000 P 5,400 P 7,200
Less: NCI on goodwill impairment loss on full-goodwill 0 0 0
Non-controlling Interest in Net Income (NCINI) – full goodwill P 23,000 P 5,400 P 7,200

101. b
Non-controlling Interest in Net Income (NCINI) for 20y2
S Company’s net income of Subsidiary Company from its own operations
(Reported net income of S Company) P 40,000
Unrealized gain on sales of equipment (upstream sales) – year of sale -
Realized gain on sale of equipment (upstream sales) through depreciation
(P14,500 – P9,000) / 5 years 1,100
S Company’s realized net income from separate operations……… P 41,100
Less: Amortization of allocated excess 0
P 41,100
Multiplied by: Non-controlling interest %.......... 20%
Non-controlling Interest in Net Income (NCINI) - partial goodwill P 8,220
 Less: NCI on goodwill impairment loss on full-goodwill . . . . . . . . . . . . . . . . . . . . . 0
Non-controlling Interest in Net Income (NCINI) – full goodwill . . . . . . . . . . . . . P 8,220

102. d – the unrealized gain amounted to P15,000 (P60,000 – P45,000).

It should be noted that PAS 27 allow the use of cost model in accounting for investment in subsidiary in the books of parent
company but not the equity method. Since, the cost model is presumed to be the method used, the unrealized gain of P15,000
(P60,000 – P45,000) will not be recorded in the books of parent company, which give rise to no equity-adjustments at year-end.
103. c
Cliff reported income P225,000
Less: Intercompany gain on truck 45,000
Plus: Piecemeal recognition of gain = P45,000/10
years ___4,500
Cliff’s adjusted income P184,500
Majority percentage 90%
Income from Cliff P166,050
104. c

Pied Imperial-Pigeon’s share of Roger’s income = (P320,000 x 90%) = P288,000

Less: Profit on intercompany sale (P130,000 - P80,000) x 90% = 45,000
Add: Piecemeal recognition of deferred profit ($50,000/4 years)90% = 11,250
Income from Offshore P254,250

105 c
P30,000 - (1/4 x P30,000) = P 22,500

106. d - P60,000 – P48,000)/4 years = P3,000

107. a
Simon, 4/1/20x4
Selling price P68,250
Less: Book value, 4/1/20x4
Cost, 1/1/20x4 P50,000
Less: Accumulated depreciation : P50,000/10 years x 3/12 __1,250 48,750
Unrealized gain on sale of equipment P19,500
Realized gain – depreciation: P19,500/9.75 years P 2,000

108. c – P2,000 x 9/12 (April 1, 20x4 – December 31, 20x4) = P1,500

109. c – P19,500 / 9.75 years = P2,000
110. c – P19,500 / 9.75 years = P2,000
111. d
20x4
Share in subsidiary net income (100,000 x 90%) 90,000
Unrealized gain on sale of equipment (downstream sales) ( 19,500)
Realized gain on sale of equipment (downstream sales) through depreciation
P2,000 x 9/12 (April 1, 20x4 – December 31, 20x4) = P1,500 _ 1,500
Net 72,000

112. b
20x5
Share in subsidiary net income (120,000 x 90%) 108,000
Realized gain on sale of equipment (downstream sales) through depreciation _ 2,000
Net 110,000

113. d
20x6
Share in subsidiary net income (130,000 x 90%) 117,000
Realized gain on sale of equipment (downstream sales) through depreciation _ 2,000
Net 119,000

114. c
Smeder, 1/1/20x4
Selling price P84,000
Less: Book value, 1/1/20x4
Cost, 1/1/20x4 P120,000
Less: Accumulated depreciation __48,000 72,000
Unrealized gain on sale of equipment P12,000
Realized gain – depreciation: P12,000/6 years P 2,000

115. b
20x4
Share in subsidiary net income (28,000 x 80%) 22,400
Unrealized gain on sale of equipment (upstream sales); 12,000 x 80% ( 9,600)
Realized gain on sale of equipment (upstream sales) through depreciation
P2,000 x 80% _ 1,600
Net 14,400

116. c
20x5
Share in subsidiary net income (32,000 x 80%) 25,600
Realized gain on sale of equipment (upstream sales) through depreciation
P2,000 x 80% _ 1,600
Net 27,200

117. d
Eliminating entries:
1/1/20x4: date of acquisition
Restoration of BV and eliminate unrealized gain
Equipment 36,000
Gain 12,000
 Accumulated depreciation 48,000

Parent – Smeder Subsidiary - Collins

Cash 84,000 Equipment 84,000
Accumulated depreciation 48,000 Cash 84,000
Equipment 120,000
Gain 12,000

Smeder, 1/1/20x4
Selling price P84,000
Less: Book value, 1/1/20x4
Cost, 1/1/20x4 P120,000
Less: Accumulated depreciation __48,000 72,000
Unrealized gain on sale of equipment P12,000
Realized gain – depreciation: P12,000/6 years P 2,000

Eliminating entries:
12/31/20x4: subsequent to date of acquisition
Realized Gain – depreciation
Accumulated depreciation 2,000
Depreciation expense 2,000
P12,000 / 6 years or P14,000 – P12,000

“Should be in CFS” Parent – Smeder “Recorded as” Subsidiary - Collins

Depreciation expense Depreciation expense
(P72,000 /6 years) 12,000 (P84,000 / 6 years) 14,000
Acc. Depreciation 12,000 Acc. depreciation 14,000

Combining the eliminating entries for 1/1/20x4 and 12/31/200x4, the net effect of accumulated depreciation would be a
net credit of P46,000 (P48,000 – P2,000).

118. c
20x4
Unrealized gain on sale of equipment ( 12,000)
Realized gain on sale of equipment through depreciation ___2,000
Net ( 10,000)

119. d
Eliminating entries:
5/1/20x4: date of acquisition
Restoration of BV and eliminate unrealized gain
Cash 5,000
Loss 5,000

Parent – Stark Subsidiary - Parker

Cash 80,000 Land 85,000
Loss 5,000 Cash 85,000
Land 85,000

Stark Parker Consolidated

Selling price P 80,000 P 92,000 P 92,000
Less: Book value, 5/1/20x4 _85,000 __80,000 _85,000
Unrealized gain on sale of equipment P ( 5,000) P 12,000 P 7,000

120. b – refer to No. 119 for eliminating entry

121. b
Cash 5,000
Retained earnings 5,000

122. e
20x4
Share in subsidiary net income (200,000 x 90%) 180,000
Unrealized loss on sale of land (upstream sales): P5,000 x 90% _ 4,500
Net 184,500

123. d
20x4
Share in subsidiary net income (200,000 x 90%) 180,000
Unrealized loss on sale of land (upstream sales): P5,000 x 90% _ 4,500
Net 184,500

124. b
Stark Parker Consolidated
Selling price P 80,000 P 92,000 P 92,000
Less: Book value, 5/1/20x4 _85,000 __80,000 _85,000
Unrealized gain on sale of equipment P ( 5,000) P 12,000 P 7,000

125. a – refer to No. 124 for computation

126. e – None, the loss was already recognized in the books of Stark in the year of sale - 20x4 but not in the subsequent years.
127. c
20x6
Share in subsidiary net income (220,000 x 90%) 198,000
Intercompany realized loss on sale of land (upstream sales): P5,000 x 90% _ ( 4,500)
Net 193,500

Quiz XVIII
 1. a
Individual Records after Transfer
12/31/x4
Machinery—P40,000
Gain—P10,000
Depreciation expense P8,000 (P40,000/5 years)
Income effect net—P2,000 (P10,000 – P8,000)
12/31/x5
Depreciation expense—P8,000

Consolidated Figures—Historical Cost

12/31/x4
Machinery—P30,000
Depreciation expense—P6,000 (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)
2. b
UNREALIZED GAIN
Transfer Price ............................................................................................................................................................................. P280,000
Book Value (cost after two years of depreciation) ...................................................................................................... 240,000
Unrealized Gain ......................................................................................................................................................................... P40,000

EXCESS DEPRECIATION
Annual Depreciation Based on Cost (P300,000/10 years)........................................................................................ P30,000
Annual Depreciation Based on Transfer Price
(P280,000/8 years) ....................................................................................................................................................... 35,000
Excess Depreciation ................................................................................................................................................................. P5,000

ADJUSTMENTS TO CONSOLIDATED NET INCOME

Defer Unrealized Gain ............................................................................................................................................................. P(40,000)
Remove Excess Depreciation ............................................................................................................................................... 5,000
Decrease to Consolidated Net Income .............................................................................................................................. P(35,000)
3. Cost, P100,000; Accumulated depreciation, P68,000
Original cost of P 100,000

Accumulated depreciation, 1/1/20x6 (P100,000 x 60%) P 60,000

Add: Additional depreciation (P100,000 – P60,000) / 5 years ____8,000
Accumulated depreciation, 12/31/20x6 P 68,000

4. P28,000
Sales price P 75,000
Less: Book value
Cost P100,000
Less: Accumulated depreciation (60% x P100,000) __60,000 __40,000
Unrealized gain on sale P 35,000
Less: Realized gain - depreciation (P35,000 / 5 years) ___7,000
Net unrealized gain, 12/31/20x6 P 28,000

5. credit to depreciation expenses of P7,000

Eliminating entries:
12/31/20x6: subsequent to date of acquisition
Realized Gain – depreciation
Accumulated depreciation 7,000
Depreciation expense 7,000
[P75,000 - (P100,000 - {P100,000 x 40%])] = P35,000 / 5 years or P15,000 – P8,000 = P7,000

“Should be in CFS” Parent – Palex “Recorded as” Subsidiary - Salex

Depreciation expense Depreciation expense
(P40,000 /5 years) 8,000 (P75,000 / 5 years) 15,000
Acc. Depreciation 8,000 Acc. depreciation 15,000
6. P40,000 - P25,000 = P15,000 debit
7. P25,000 - (P40,000 - P10,000) = P5,000 loss (credit)
8. P10,000 credit, entire accumulated depreciation is reestablished
9. P25,000 - (P40,000 - P10,000) = P5,000 loss (credit)
10. P160,000 - P130,000 = P30,000 credit
11. P160,000 - (P130,000 - P60,000) = P90,000 gain (debit)
12. P60,000 credit, entire accumulated depreciation is reestablished
13. P160,000 - (P130,000 - P60,000) = P90,000 gain (debit)
14. P80,000 - P60,000 = P20,000 debit
15. P30,000 credit, entire accumulated depreciation is reestablished
16. P60,000 - (P80,000 - P30,000) = P10,000 gain (debit)
17. P640,000 - P500,000 = P140,000 credit
18. P640,000 - (P500,000 - P350,000) = P490,000 gain (debit)
19. (P640,000/10)(3/12) - [(P500,000 - P350,000)/10](3/12) = P12,250 credit
20. P350,000 - {(P640,000/10)(3/12) - [(P500,000 - P350,000)/10](3/12)} = P337,750 credit
21. P640,000 - (P500,000 - P350,000) = P490,000 gain (debit)
(P640,000/10)(3/12) - [(P500,000 - P350,000)/10](3/12) = P12,250 credit
22. P10,500
**Non-controlling Interest in Net Income (NCINI) for 20x2
S Company’s net income of Subsidiary Company from its own operations
 (Reported net income of S Company) P 120,000
Realized profit in beginning inventory of P Company (upstream sales) 0
Unrealized profit in ending inventory of P Company (upstream sales)
[P225,000 x 1/3 = P75,000 x 25/125] ( 15,000)
S Company’s realized net income from separate operations……… P 105,000
Less: Amortization of allocated excess 0
P 105,000
Multiplied by: Non-controlling interest %.......... 10%
Non-controlling Interest in Net Income (NCINI) - partial goodwill P 10,500
Less: NCI on goodwill impairment loss on full-goodwill . . . . . . . . . . . . . . . . . . . . . 0
Non-controlling Interest in Net Income (NCINI) – full goodwill . . . . . . . . . . . . . P 10,500

23. P364,500
Consolidated Net Income for 20x2
P Company’s net income from own/separate operations…………. P 300,000
Net unrealized gain on sale of equipment (downstream sales) through
depreciation [(P120,000 – P80,000 = P40,000 – (P40,000/4 years)] ( 30,000)
P Company’s realized net income from separate operations*…….….. P 270,000
S Company’s net income from own operations…………………………………. P 120,000
Realized profit in beginning inventory of P Company (upstream sales)
Unrealized profit in ending inventory of P Company (upstream sales)
[P225,000 x 1/3 = P75,000 x 25/125] ( 15,000)
S Company’s realized net income from separate operations*…….….. P 105,000 105,000
Total P375,000
Less: Amortization of allocated excess…………………… 0
Consolidated Net Income for 20x2 P375,000
Less: Non-controlling Interest in Net Income* * (refer to No. 22) 10,500
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent – 20x2………….. P364,500

Or, alternatively
Consolidated Net Income for 20x2
P Company’s net income from own/separate operations…………. P 300,000
Net unrealized gain on sale of equipment (downstream sales) through
depreciation [(P120,000 – P80,000 = P40,000 – (P40,000/4 years)] ( 30,000)
P Company’s realized net income from separate operations*…….….. P 270,000
S Company’s net income from own operations…………………………………. P 120,000
Realized profit in beginning inventory of P Company (upstream sales)
Unrealized profit in ending inventory of P Company (upstream sales)
[P225,000 x 1/3 = P75,000 x 25/125] ( 15,000)
S Company’s realized net income from separate operations*…….….. P 105,000 105,000
Total P375,000
Less: Non-controlling Interest in Net Income* * (refer to No. 22) P 10,500
Amortization of allocated excess…………………… ____0 10,500
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent………….. P364,500
Add: Non-controlling Interest in Net Income (NCINI) _ 10,500
Consolidated Net Income for 20x2 P375,000
*that has been realized in transactions with third parties.

24. P375,000 – refer to No. 23

25. P46,000
**Non-controlling Interest in Net Income (NCINI) for 20x5
S Company’s net income of Subsidiary Company from its own operations P 180,000
(Reported net income of S Company)
Unrealized gain on sales of equipment (upstream sales) ( 0)
Realized gain on sale of equipment (upstream sales) through depreciation 50,000
S Company’s realized net income from separate operations……… P 230,000
Less: Amortization of allocated excess 0
P 230,000
Multiplied by: Non-controlling interest %.......... 20%
Non-controlling Interest in Net Income (NCINI) - partial goodwill P 46,000
Less: NCI on goodwill impairment loss on full-goodwill . . . . . . . . . . . . . . . . . . . . . 0
Non-controlling Interest in Net Income (NCINI) – full goodwill . . . . . . . . . . . . . P 46,000

26. P434,000
Consolidated Net Income for 20x2
P Company’s net income from own/separate operations…………. P 400,000
Net unrealized gain on sale of equipment (downstream sales) through
depreciation [P180,000 – (P180,000/6) ( 150,000)
P Company’s realized net income from separate operations*…….….. P 250,000
S Company’s net income from own operations…………………………………. P 180,000
Unrealized gain on sales of equipment (upstream sales) ( 0)
Realized gain on sale of equipment (upstream sales) through depreciation
(P250,000/5 years) 50,000
S Company’s realized net income from separate operations*…….….. P 230,000 230,000
Total P480,000
Less: Amortization of allocated excess…………………… ____0
Consolidated Net Income for 20x5 P480,000
Less: Non-controlling Interest in Net Income* * 46,000
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent – 20x5………….. P334,000
*that has been realized in transactions with third parties.

Or, alternatively
Consolidated Net Income for 20x5
P Company’s net income from own/separate operations…………. P 400,000
Net unrealized gain on sale of equipment (downstream sales) through
depreciation [P180,000 – (P180,000/6) ( 150,000)
P Company’s realized net income from separate operations*…….….. P 250,000
S Company’s net income from own operations…………………………………. P 180,000
Unrealized gain on sales of equipment (upstream sales) ( 0)
Realized gain on sale of equipment (upstream sales) through depreciation
(P250,000/5 years) 50,000
S Company’s realized net income from separate operations*…….….. P 230,000 230,000
Total P480,000
Less: Non-controlling Interest in Net Income* * P 46,000
Amortization of allocated excess…………………… ____0 46,000
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent………….. P434,000
Add: Non-controlling Interest in Net Income (NCINI) _ 46,000
Consolidated Net Income for 20x5 P480,000
*that has been realized in transactions with third parties.

27. P480,000 – refer to No. 26.

28. P1,802,000
Consolidated Retained Earnings, December 31, 20x2
Retained earnings - Parent Company, December 31, 20x2 (cost model) P1,80 0,000
Less: Downstream - net unrealized gain on sale of equipment – prior to
12/31/20x2 [P180,000 – (P30,000 x 1 year)] 150,000
Adjusted Retained Earnings – Parent 12/31/20x2 (cost model )
S Company’s Retained earnings that have been realized in
transactions with third parties.. P1,650,000
Adjustment to convert from cost model to equity method for purposes of
consolidation or to establish reciprocity:/Parent’s share in adjusted net
increased in subsidiary’s retained earnings:
Retained earnings – Subsidiary, December 31, 20x2 P 640,000
Less: Retained earnings – Subsidiary, date of acquisition 300,000
Increase in retained earnings since date of acquisition P 340,000
Less: Accumulated amortization of allocated excess 0
Upstream - net unrealized gain on sale of equipment – prior to
12/31/20x2 [P250,000 – (P50,000 x 2 years)] 150,000
P 190,000
Multiplied by: Controlling interests %................... 80%
P 152,000
Less: Goodwill impairment loss _____0 152,000
Consolidated Retained earnings, December 31, 20x2 P1,802,000

Parent Subsidiary
Unrealized gain on sale of equipment P180,000 P250,000
Realized gain through depreciation
P180,000/6 years = P30,000 per year P 30,000
P250,000/ 5 years = P25,000 P 25,000

29. P165,000
For 20x7: P110,000 + P55,000 = P165,000
**NCI-CNI - Sloch
Non-controlling Interest in Net Income (NCINI) for 20x7
Sloch Company’s net income from own operations………………………………. P 360,000
Realized profit in beginning inventory of P Company (upstream sales) 25,000
Unrealized profit in ending inventory of P Company (upstream sales)… ( 40,000)
Unrealized gain on sale of building (upstream sales) – Sloch ( 75,000)
Realized gain on sale of building (upstream sales) - Sloch ___5,000
P 275,000
Less: Amortization of allocated excess 0
P 275,000
Multiplied by: Non-controlling interest %.......... 40%
Non-controlling Interest in Net Income (NCINI) - partial goodwill P 110,000
Less: NCI on goodwill impairment loss on full-goodwill . . . . . . . . . . . . . . . . . . . . . 0
Non-controlling Interest in Net Income (NCINI) – full goodwill . . . . . . . . . . . . . P 110,000
**NCI-CNI - Zeek
Non-controlling Interest in Net Income (NCINI) for 20x7
Zeek Company’s net income from own operations…………………………………. P 275,000
Less: Amortization of allocated excess 0
P 275,000
Multiplied by: Non-controlling interest %.......... 20%
Non-controlling Interest in Net Income (NCINI) - partial goodwill P 55,000
Less: NCI on goodwill impairment loss on full-goodwill . . . . . . . . . . . . . . . . . . . . . 0
Non-controlling Interest in Net Income (NCINI) – full goodwill . . . . . . . . . . . . . P 55,000

Fixed Assets:
Bowen to Zeek Sloch to Bowen
(downstream) (upstream)
Unrealized (loss) gain:
20x5 300,000
20x7 75,000
Realized gain
P300,000/25 years 12,000/year
P75,000/15 years 5,000/year
Inventory
Realized profits in inventory from downstream sales (Bowen to Zeek) P31,000
Realized profits in inventory from upstream sales (Sloch to Bowen) P25,000
Unrealized profits in inventory from downstream sales (Bowen to Zeek) P35,000
Unrealized profits in inventory from upstream sales (Sloch to Bowen) P40,000

30. P943,000
For 20x7: P943,000
Consolidated Net Income for 20x7
P Company’s net income from own/separate operations
[P750,000 – (P200,000 x 60%) – (P100,000 x 80%)] P 550,000
Realized gain on sale of equipment (downstream sales) through depreciation 12,000
Realized profit in beginning inventory of S Company (downstream sales) 31,000
Unrealized profit in ending inventory of S Company (downstream sales)… (_ _35,000)
P Company’s realized net income from separate operations*…….….. P 558,000
Sloch Company’s net income from own operations………………………………. P360,000
Zeek Company’s net income from own operations…………………………………. 275,000
Realized profit in beginning inventory of P Company (upstream sales) 25,000
Unrealized profit in ending inventory of P Company (upstream sales)… ( 40,000)
Unrealized gain on sale of building (upstream sales) – Sloch ( 75,000)
Realized gain on sale of building (upstream sales) - Sloch ___5,000
S Company’s realized net income from separate operations*…….….. P550,000 550,000
Total P1,108,000
Less: Amortization of allocated excess…………………… __ 0
Consolidated Net Income for 20x7 P1,108,000
Less: Non-controlling Interest in Net Income – Sloch* * 110,000
Non-controlling Interest in Net Income - Bowen* * ___55,000
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent – 20x7………….. P 943,000
*that has been realized in transactions with third parties.

Or, alternatively
Consolidated Net Income for 20x7
P Company’s net income from own/separate operations
[P750,000 – (P200,000 x 60%) – (P100,000 x 80%)] P 550,000
Realized gain on sale of equipment (downstream sales) through depreciation 12,000
 Realized profit in beginning inventory of S Company (downstream sales) 31,000
Unrealized profit in ending inventory of S Company (downstream sales)… (_ _35,000)
P Company’s realized net income from separate operations*…….….. P 558,000
Sloch Company’s net income from own operations………………………………. P 360,000
Zeek Company’s net income from own operations…………………………………. 275,000
Realized profit in beginning inventory of P Company (upstream sales) 25,000
Unrealized profit in ending inventory of P Company (upstream sales)… ( 40,000)
Unrealized gain on sale of building (upstream sales) – Sloch ( 75,000)
Realized gain on sale of building (upstream sales) - Sloch ___5,000
S Company’s realized net income from separate operations*…….….. P 550,000 _ 550,000
Total P1,108,000
Less: Non-controlling Interest in Net Income* * refer to No. 29 P165,000
Amortization of allocated excess…………………… ____0 _ _165,000
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent………….. P 943,000
Add: Non-controlling Interest in Net Income (NCINI) _ _165,000
Consolidated Net Income for 20x7 P1,108,000
*that has been realized in transactions with third parties.

31. P1,108,000 – refer to No. 30

For 20x7: P1,108,000

32. P1,498,000
Consolidated Retained Earnings, December 31, 20x7
Retained earnings - Parent Company, January 1, 20x7 (cost model P1,020,000
Less: Unrealized profit in ending inventory of S Company (downstream sales)
- 20x6 (UPEI of S – 20x6) or Realized profit in beginning inventory of S
Company (downstream sales) –20x7 (RPBI of S - 20x7)……………. 31,000
Downstream - net unrealized gain on sale of equipment – prior to
12/31/20x6 or 1/1/20x7 [P300,000 – (P12,000 x 2 years)] __276,000
Adjusted Retained Earnings – Parent 1/1/20x5 (cost model (S Company’s
Retained earnings that have been realized in transactions with third
parties.. P 713,000
Adjustment to convert from cost model to equity method for purposes of
consolidation or to establish reciprocity:/Parent’s share in adjusted net
increased in subsidiary’s retained earnings:
Retained earnings – Subsidiary Sloch, date of acquisition P330,000
Less: Retained earnings – Subsidiary Sloch, January 1, 20x7 525,000
Increase in retained earnings since date of acquisition P195,000
Less: Amortization of allocated excess 0
Unrealized profit in ending inventory of P Company (upstream
sales) 20x6 (UPEI of P – 20x6) or Realized profit in beginning
inventory of P Company (upstream sales) –20x7 (RPBI of P - 20x7) 25,000
Upstream - net unrealized gain on sale of equipment – prior to
12/31/20x6 or 1/1/20x7 ________0
P170,000
Multiplied by: Controlling interests %................... 60%
P102,000
Less: Goodwill impairment loss 0 102,000

Retained earnings – Subsidiary Zeek, date of acquisition P575,000

Less: Retained earnings – Subsidiary Zeek, January 1, 20x7 875,000
Increase in retained earnings since date of acquisition P300,000
Less: Amortization of allocated excess _____ 0
P300,000
Multiplied by: Controlling interests %................... 80%
P240,000
Less: Goodwill impairment loss 0 240,000
Consolidated Retained earnings, January 1, 20x7 P1.055,000
Add: Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent for 20x7 (refer to No. 30) 943,000
Total P1,998,000
Less: Dividends paid – Parent Company for 20x7 500,000
Consolidated Retained Earnings, December 31, 20x7 P1,498,000

Or, alternatively:
Consolidated Retained Earnings, December 31, 20x7
Retained earnings - Parent Company, December 31, 20x7 (cost model P1,270,000
Less: Unrealized profit in ending inventory of S Company (downstream sales)
- 20x7 (UPEI of S – 20x7) or Realized profit in beginning inventory of S
Company (downstream sales) –20x8 (RPBI of S - 20x8)……………. 35,000
Downstream - net unrealized gain on sale of equipment – prior to
12/31/20x6 or 1/1/20x7 [P300,000 – (P12,000 x 3 years)] __264,000
Adjusted Retained Earnings – Parent 12/31/20x7 (cost model (
S Company’s Retained earnings that have been realized in
transactions with third parties.. P 971,000
Adjustment to convert from cost model to equity method for purposes of
consolidation or to establish reciprocity:/Parent’s share in adjusted net
increased in subsidiary’s retained earnings:
Retained earnings – Subsidiary Sloch, December 31, 20x7 P 330,000
Less: Retained earnings – Subsidiary Sloch, date of acquisition 685,000
Increase in retained earnings since date of acquisition P 355,000
Less: Accumulated amortization of allocated excess 0
Unrealized profit in ending inventory of P Company (upstream
sales) 20x7 (UPEI of P – 20x7) or Realized profit in beginning
inventory of P Company (upstream sales) –20x8 (RPBI of P - 20x8) 40,000
Upstream - net unrealized gain on sale of equipment – prior to
12/31/20x7 or 1/1/20x8 (P75,000 – P5,000) __70,000
P 245,000
Multiplied by: Controlling interests %................... 60%
P 147,000
Less: Goodwill impairment loss, partial goodwill ____0 147,000

Retained earnings – Subsidiary Zeek, date of acquisition P 575,000

Less: Retained earnings – Subsidiary Zeek, January 1, 20x7 1,050,000
Increase in retained earnings since date of acquisition P 475,000
Less: Amortization of allocated excess ______ 0
P 475,000
Multiplied by: Controlling interests %................... _ 80%
P 380,000
Less: Goodwill impairment loss __ 0 380,000
Consolidated Retained earnings, December 31, 20x7 P1,498,000

33. Increase of P3,000

 The requirement and available choices in the problem are on the assumption of the use of “equity method”. So, the answer then
would be (d) – (P60,000 – P48,000)/4 years = P3,000

34. P403,200
The requirement “equity from subsidiary income” and available choices in the problem are on the assumption of the use of “equity
method”. So, the answer then would be (c) computed as follows:

20x4
Share in subsidiary net income (600,000 x 80%) 480,000
Unrealized gain on sale of equipment (upstream sales): 120,000 x 80% ( 96,000)
Realized gain on sale of equipment (upstream sales) through depreciation
P120,000 / 5 years = P24,000 x 80% ___19,200
Net 403,200

28. Topic: Intercompany land sales

LO 3
A parent sold land costing P1 million to its subsidiary for P1.2 million in 2012. The subsidiary still holds the land at the end of
2014. On a working paper prepared to consolidate the financial statements of the parent and subsidiary in 2014, the eliminating
entry connected with this land includes a credit to

a. Investment in subsidiary, because the gain reduced the Investment account in 2012.
b. Beginning retained earnings of the subsidiary, because prior year gains are included in retained earnings.
c. Gain on sale of land, to eliminate the gain recorded on the parent’s books.
d. Land, to restore the land to its original cost.

ANS: d

29. Topic: Intercompany land sales

LO 3
A subsidiary sold its parent some land at a profit in 2012. The parent still holds the land. On a working paper prepared to
consolidate the financial statements of the parent and its subsidiary in 2014, the eliminating entry connected with this land affects
which account?

a. Investment in subsidiary
b. Beginning retained earnings
c. Gains on sales of land
d. No effect – elimination entry is not required

ANS: b

30. Topic: Intercompany land sales

LO 3
A parent owns 80% of its subsidiary. In 2010, the subsidiary sold land costing P1,000,000 to its parent for P1,500,000. In 2014,
the parent sold the land to an outside company for P1,800,000. How do these events affect consolidated net income for 2014?

a. increase of P300,000
b. increase of P500,000
c. increase of P640,000
d. increase of P800,000

ANS: d P500,000 + P300,000 =P800,000

31. Topic: Intercompany land sales

LO 3
A parent sold land costing P1,000,000 to its subsidiary in 2012 for P,800,000. The land is still held by the subsidiary. The parent
owns 80% of its subsidiary. The eliminating entry necessary for this intercompany transaction on the 2014 consolidation working
paper includes:

a. a debit to the Investment account for P640,000.

b. a debit to the Investment account for P800,000.
c. a debit to retained earnings for P640,000.
d. a debit to retained earnings for P800,000.

ANS: b

32. Topic: Intercompany services

LO 1
A parent provides administrative services to its subsidiary during 2014, which the subsidiary records as an expense. The services
cost the parent P100,000 and the parent charged the subsidiary P125,000. On the consolidation working paper, what elimination
entry is necessary?

a. none, since there is no ending inventory of services.

b. debit service revenue P125,000, credit service expense P125,000.
c. debit service revenue P125,000, credit service expense P100,000, credit Investment in Subsidiary P25,000.
d. debit service revenue P100,000, credit service expense P100,000.

ANS: b

33. Topic: Intercompany land sales

LO 3
A parent company sells land to its subsidiary in 2011 at an amount above its original cost. In 2014, three years later, the
subsidiary sells the land to an outside developer. In the 2014 consolidation working paper, the elimination of this transaction will
result in a(n)
 a. decrease in land.
b. increase in retained earnings.
c. increase in gain on sale of land.
d. decrease in gain on sale of land.

ANS: c

34. Topic: Intercompany land sales

LO 3
On a worksheet prepared to consolidate the financial statements of a parent and subsidiary, eliminating entries made to remove
intercompany gains on upstream sales of land sold in prior years will affect which account?

a. Investment in subsidiary
b. Beginning retained earnings
c. Equity in net income of the subsidiary
d. Gain on sales of land

ANS: b

Theories
1. d 6. c 11. c 16. b 21. b 26. b 31 d
2. c 7. c 12. c 17. a 22. d 27. c
3. d 8. a 13. d 18. a 23. c 28. b
4. d 9. a 14. b 19. c 24. c 29. c
5. b 10, c 15, d 20. a 25. b 30. c