Chapter 18 Consolidated Financial Statements Problems

Chapter 18
Problem I
1. Journal entry to record sale:
Cash
Accumulated Depreciation
Equipment
Gain on Sale of Equipment
Record the sale of equipment:
P84,000 = P150,000 - P80,000 + P14,000
P80,000 = (P150,000 / 15 years) x 8 years
2.
3.
Journal entry to record purchase:

Equipment
Cash
84,000
Journal entry to record depreciation expense:

Depreciation Expense
12,000
150,000
14,000
84,000
12,000
Eliminating entry at December 31, 20x4, to eliminate intercompany sale of

equipment:
E(1)
Equipment
Gain on Sale of Equipment
Eliminate unrealized profit on equipment.
Adjustment to equipment
Amount paid by WW to acquire building
Amount paid by LL on intercompany sale
Adjustment to buildings and equipment
Adjustment to depreciation expense
Depreciation expense recorded by Lance
Corporation (P84,000 / 7 years)
Depreciation expense recorded by WW
Adjustment to accumulated depreciation
Amount required (P10,000 x 9 years)
Amount reported by LL (P12,000 x 1 year)
Required adjustment
4.
84,000
80,000
66,000
14,000
2,000
78,000
P150,000
(84,000)
P 66,000
P 12,000
(10,000)
P 2,000
P 90,000
(12,000)
P 78,000
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
78,000
Eliminate unrealized profit on equipment.
Problem II
1. Eliminating entry, December 31, 20x8:
E(1)
Truck
Gain on Sale of Truck
Computation of gain on sale of truck:
Price paid by Minnow
Cost of truck to Frazer
P300,000
Accumulated depreciation
(P300,000 / 10 years) x 3 years
( 90,000)
Gain on sale of truck
55,000
35,000
P245,000
(210,000)
P 35,000
5,000
85,000
Accumulated depreciation adjustment:

Required [(P300,000 / 10 years) x 4 years]
Reported [(P245,000 / 7 years) x 1 year]
Required increase
2.
P120,000
(35,000)
P 85,000
Eliminating entry, December 31, 20x9:

E(1)
Truck
Retained Earnings
55,000
30,000

Reported [(P245,000 / 7 years) x 2 years]
Required increase
5,000
80,000
P150,000
(70,000)
P 80,000
Problem III
a. Eliminating entry, December 31, 20x8:
E(1)
Truck
Gain on Sale of Truck
Computation of gain on sale of truck:

Price paid by MM
Cost of truck to FF
(P300,000 / 10 years) x 4 years
Gain on sale of truck
b.
90,000
30,000
P300,000
(120,000)
120,000
P210,000
(180,000)
P 30,000

E(1)
Truck
Retained Earnings, January 1

Recorded [(P210,000 / 6 years) x 1 year]
Required increase
90,000
30,000
5,000
115,000
P150,000
(35,000)
P115,000
Problem IV
1
Equipment
Beginning R/E Prince (P100,000 .80)
Noncontrolling Interest (P100,000 .20)
Accumulated Depreciation (P100,000/4) 2
Beginning R/E Prince (P25,000 .80)
Noncontrolling Interest (P25,000 .20)
540,000
80,000
20,000
640,000
50,000
Controlling Interest in Consolidated Net Income:

Prince Companys income from its
independent operations
Reported net income of Serf Company
P820,000
Plus profit on intercompany sale of
equipment considered to be realized
through depreciation in 2014
25,000
Reported subsidiary income that has been
realized in transactions with third
25,000
20,000
5,000
P3,270,000
parties
845,000
.8
Prince Companys share thereof

Controlling Interest in Consolidated net income
3.
Noncontrolling Interest Calculation:

Reported income of Serf Company
Plus: Intercompany profit considered realized
in the current period
Noncontrolling interest in Serf Company
(.20 845,000)
4.
676,000
P3,946,000
P820,000
25,000
P845,000
P169,000
NCI-CNI (No. 3)
CI-CNI (No. 2)
CNI
P 169,000
3,946,000
P4,115,000
or,
Consolidated Net Income for 20x5
P Companys net income from own/separate operations.
Realized gain on sale of equipment (downstream sales) through depreciation
P Companys realized net income from separate operations...
S Companys net income from own operations.
Realized gain on sale of equipment (upstream sales) through depreciation*
Son Companys realized net income from separate operations*...
Total
Less: Amortization of allocated excess
Less: Non-controlling Interest in Net Income* *
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent 20x5..
P3,270,000
0
P3,270,000
P 820,000
25,000
P 845,000
845,000
P4,115,000
0
P4,115,000
169,000
P3,946,000
Or, alternatively
Realized gain on sale of equipment (upstream sales) through depreciation
S Companys realized net income from separate operations...
Total
Amortization of allocated excess
equity holders of parent..
Add: Non-controlling Interest in Net Income (NCINI)
**Non-controlling Interest in Net Income (NCINI) for 20x5
S Companys net income of Subsidiary Company from its own operations
(Reported net income of S Company)
S Companys realized net income from separate operations
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI) partial goodwill
1/1/20x4:
Selling price of equipment
Less: BV of equipment
Cost
Less: Accumulated depreciation:
P1,280,000 / 8 years x 4 years*
Unrealized gain on sales 1/1/20x4
P3,270,000
0
P3,270,000
P820,000
25,000
P 845,000
P 169,000
0
845,000
P4,115,000
169,000
P3,946,000
_169,000
P4,115,000
P 820,000
25,000
P 845,000
0
P845,000
20%
P 169,000
P 740,000
P1,280,000
640,000
640,000
P 100,000
Realized gain depreciation: P100,000 / 4 years

P 25,000
*the original life is 8 years as of 1/1/20x3, since the remaining life as of 1/1/20x4
in only 4 years, for purposes of computing the accumulated depreciation to
determine the gain on sale, the difference of 4 years is presumed to be expired.
Equipment
Beginning R/E Prince
540,000
100,000
640,000
Accumulated Depreciation (P100,000/4) 2

Beginning R/E Prince
6
50,000
25,000
25,000
Controlling Interest in Consolidated Net Income:

Prince Companys income from its
independent operations
Plus profit on intercompany sale of
equipment considered to be realized
through depreciation in 2014
Reported net income of S Company
P3,270,000
25,000
P3,295,000
P820,000
.8
Prince Companys share thereof

Controlling Interest in Consolidated net income
Noncontrolling Interest Calculation:
Reported income of S Company
Noncontrolling interest in S Company
(.20 820,000)
NCI-CNI
CI-CNI
CNI
656,000
P3,951,000
P820,000
P164,000
P 164,000
3,951,000
P4,115,000
or,
Realized gain on sale of equipment (upstream sales) through depreciation*
S Companys realized net income from separate operations*...
Total
P3,270,000
____25,000
P3,295,000
P 820,000
0
P 820,000
820,000
P4,115,000
0
P4,115,000
164,000
P3,951,000
Or, alternatively
S Companys realized net income from separate operations...
Total
Problem V
Requirements 1 to 4
P3,270,000
25,000
P3,295,000
P820,000
0
P 820,000
P 164,000
0
820,000
P4,115,000
164,000
P3,951,000
_169,000
P4,115,000
P 820,000
0
P 820,000
0
P820,000
20%
P 164,000
Schedule of Determination and Allocation of Excess (Partial-goodwill)

Date of Acquisition January 1, 20x4
Fair value of Subsidiary (80%)
Consideration transferred..
Less: Book value of stockholders equity of S:
Common stock (P240,000 x 80%).
Retained earnings (P120,000 x 80%)...
Allocated excess (excess of cost over book value)..
Less: Over/under valuation of assets and liabilities:
Increase in inventory (P6,000 x 80%)
Increase in land (P7,200 x 80%).
Increase in equipment (P96,000 x 80%)
Decrease in buildings (P24,000 x 80%).....
Decrease in bonds payable (P4,800 x 80%)
Positive excess: Partial-goodwill (excess of cost over
fair value)...
P 372,000
P 192,000
96,000
P
P 4,800
5,760
76,800
( 19,200)
3,840
288,000
84,000
72,000
P 12,000
The over/under valuation of assets and liabilities are summarized as follows:

Inventory...
Land
Equipment (net).........
Buildings (net)
Bonds payable
Net..
S Co.
Book value
P 24,000
48,000
84,000
168,000
(120,000)
P 204,000
S Co.
Fair value
P 30,000
55,200
180,000
144,000
( 115,200)
P 294,000
(Over) Under
Valuation
P 6,000
7,200
96,000
(24,000)
4,800
P 90,000
The buildings and equipment will be further analyzed for consolidation purposes as follows:
Equipment..................
Less: Accumulated depreciation..
Net book value...
S Co.
Book value
180,000
96,000
84,000
S Co.
Fair value
180,000
180,000
Increase
(Decrease)
0
( 96,000)
96,000
Buildings................
Net book value...
S Co.
Book value
360,000
1992,000
168,000
S Co.
Fair value
144,000
144,000
(Decrease)
( 216,000)
( 192,000)
( 24,000)
A summary or depreciation and amortization adjustments is as follows:

Account Adjustments to be amortized
Inventory
Subject to Annual Amortization
Buildings (net)
Bonds payable
Over/
Under
P 6,000
Life
1
96,000
(24,000)
4,800
8
4
4
Annual
Amount
P 6,000
Current
Year(20x4)
P 6,000
20x5
P
-
12,000
( 6,000)
1,200
P 13,200
12,000
( 6,000)
1,200
P 13,200
12,000
(6,000)
1,200
P 7,200
The goodwill impairment loss of P3,750 based on 100% fair value would be allocated to the
controlling interest and the NCI based on the percentage of total goodwill each equity interest
received. For purposes of allocating the goodwill impairment loss, the full-goodwill is computed
as follows:
Consideration transferred: Cash (80%)
Fair value of NCI (given) (20%)
Less: Book value of stockholders equity of S (P360,000 x 100%)
Add (deduct): (Over) under valuation of assets and liabilities
(P90,000 x 100%)
Positive excess: Full-goodwill (excess of cost over
fair value)...
P 372,000
93,000
P 465,000
__360,000
P 105,000
90,000
P
15,000
In this case, the goodwill was proportional to the controlling interest of 80% and non-controlling
interest of 20% computed as follows:
Goodwill applicable to parent

Goodwill applicable to NCI..
Total (full) goodwill..
The goodwill impairment loss would be allocated as follows

Goodwill impairment loss attributable to parent or controlling
Interest
Goodwill impairment loss based on 100% fair value or fullGoodwill
Value
P12,000
3,000
P15,000
% of Total
80.00%
20.00%
100.00%
Value
P 3,000
% of Total
80.00%
750
20.00%
P 3,750
100.00%
The unrealized and gain on intercompany sales for 20x4 are as follows:
Date
of Sale
4/1/20x4
1/2/20x4
Seller
P Co.
S Co.
Selling
Price
P90,000
60,000
Book
Value
P75,000
28,800
Unrealized*
Gain on sale
P15,000
31,200
Remaining
Life
5 years
8 years
Realized gain
depreciation**
P3,000/year
P3,900/year
20x4
P2,250
P3,900
* selling price less book value

** unrealized gain divided by remaining life; 20x4 P3,000 x 9/12 = P2,250
20x4: First Year after Acquisition

Parent Company Cost Model Entry
January 1, 20x4:
(1) Investment in S Company
Cash..
Acquisition of S Company.
January 1, 20x4 December 31, 20x4:
(2) Cash
Dividend income (P36,000 x 80%).
Record dividends from S Company.
372,000
372,000
28,800
28,800
No entries are made on the parents books to depreciate, amortize or write-off the portion of the
allocated excess that expires during 20x4, and unrealized profits in ending inventory.
Consolidation Workpaper Year of Acquisition
(E1) Common stock S Co
Retained earnings S Co
Investment in S Co
Non-controlling interest (P360,000 x 20%)..
240,000
120.000
288,000
72,000
To eliminate intercompany investment and equity accounts

of subsidiary on date of acquisition; and to establish non-controlling
interest (in net assets of subsidiary) on date of acquisition.
(E2) Inventory.
Accumulated depreciation equipment..
Accumulated depreciation buildings..
Land.
Discount on bonds payable.
Goodwill.
Buildings..
Investment in S Co.
6,000
96,000
192,000
7,200
4,800
12,000
216,000
18,000
84,000
To allocate excess of cost over book value of identifiable assets

acquired, with remainder to goodwill; and to establish noncontrolling interest (in net assets of subsidiary) on date of acquisition.
(E3) Cost of Goods Sold.

Depreciation expense..
Interest expense
Goodwill impairment loss.
Inventory..
Discount on bonds payable
Goodwill
To provide for 20x4 impairment loss and depreciation and
amortization on differences between acquisition date fair value and
book value of Sons identifiable assets and liabilities as follows:
6,000
6,000
6,000
1,200
3,000
6,000
12,000
1,200
3,000
Inventory sold
Equipment
Buildings
Bonds payable
Totals
Cost of
Goods
Sold
P 6,000
Depreciation/
Amortization
Expense
Amortization
-Interest
P 12,000
( 6,000)
_______
P 6,000
P 1,200
P1,200
_______
P 6,000
Total
13,200
(E4) Dividend income - P.

Dividends paid S
28,800
7,200
36,000
To eliminate intercompany dividends and non-controlling interest

share of dividends.
(E5) Gain on sale of equipment

Equipment
15,000
30,000
45,000
To eliminate the downstream intercompany gain and restore to its

original cost to the consolidate entity (along with its accumulated
depreciation at the point of the intercompany sale).

Equipment
31,200
12,000
43,200
To eliminate the upstream intercompany gain and restore to its

(E7) Accumulated depreciation..

Depreciation expense
2,250
2,250
To adjust downstream depreciation expense on equipment sold to

subsidiary, thus realizing a portion of the gain through depreciation
(P15,000 / 5 years x 9/12 = P2,250).

3,900
3,900
To adjust upstream depreciation expense on equipment sold to

parent, thus realizing a portion of the gain through depreciation
(P31,200/85 years x 1 year = P3,900).
(E9) Non-controlling interest in Net Income of Subsidiary

Non-controlling interest ..
10,140
10,140
To establish non-controlling interest in subsidiarys adjusted net

income for 20x4 as follows:
Net income of subsidiary..
Unrealized gain on sale of equipment
(upstream sales)
Realized gain on sale of equipment (upstream
sales) through depreciation
S Companys realized net income from
separate operations
Less: Amortization of allocated excess [(E3)].
P 91,200
( 31,200)
3,900

Non-controlling Interest in Net Income (NCINI)
partial goodwill
P 63,900
13,200
P 50,700
20%
P
10,140
Subsidiary accounts are adjusted to full fair value regardless on the controlling interest
percentage or what option used to value non-controlling interest or goodwill.
Worksheet for Consolidated Financial Statements, December 31, 20x4.
Cost Model (Partial-goodwill)
80%-Owned Subsidiary
December 31, 20x4 (First Year after Acquisition)
Income Statement
Sales
Gain on sale of equipment
P Co
P480,000
15,000
S Co.
P240,000
31,200
Dividend income
Total Revenue
28,800
P523,800
P271,200
Dr.
(5) 15,000
(6) 31,200
(4) 28,800
Cr.
Consolidated
P 720,000
_________
P 720,000
Cost of goods sold

P204,000
60,000
P138,000
24,000
(3)
(3)
6,000
6,000
Interest expense
Other expenses
Goodwill impairment loss
Total Cost and Expenses
Net Income
NCI in Net Income - Subsidiary
Net Income to Retained Earnings
48,000
P312,000
P211,800
P211,800
18,000
P180,000
P 91,200
P 91,200
(3)
1,200
(3)
3,000
(1) 120,000
211,800
P571,800
P120,000
91,200
P211,200
72,000
-
36,000
P499,800
P175,200
P 495,810
232,800
90,000
120,000
210,000
240,000
P 90,000
60,000
90,000
48,000
180,000
P 322,800
150,000
210,000
265,200
720,000
540,000
Statement of Retained Earnings

Retained earnings, 1/1
P Company
S Company
Net income, from above
Total
Dividends paid
P Company
S Company
Retained earnings, 12/31 to Balance
Sheet
Balance Sheet
Cash.
Accounts receivable..
Inventory.
Land.
Equipment
P 348,000
83,850
2,250
3,900
P
P
(
P
(9 10,140
P360,000
Buildings
Goodwill
Investment in S Co
207,810
P 567,810
(4)
(2)
6,000
(2)
7,200
(5) 30,000
(6) 12,000
372,000
- equipment
P1,984,800
P1,008,000
P 135,000
P 96,000
405,000
288,000
105,000
240,000
600,000
88,800
120,000
- buildings
Accounts payable
Bonds payable
Common stock, P10 par
Retained earnings, from above
Non-controlling interest
240,000
175,200
499,800
_________
P1,008,000
20x5: Second Year after Acquisition

Sales
Less: Cost of goods sold
Gross profit
Less: Depreciation expense
Other expense
Net income from its own separate operations
Add: Dividend income
Net income
Dividends paid
3)
36,000
72,000
________
6,000
(2) 216,000
4,800 (3) 1,200
12,000 (3) 3,000
(1) 288,000
(2) 84,000
(3) 96,000
(7) 2,250
(8) 3,900
(2) 192,000
(3)
6,000
462,000
1,044,000
3,600
9,000
P2,466,600
(3) 12,000
(5) 45,000
(6) 43,200
P229,050
495,000
193,800
360,000
600,000
(1) 240,000
495,810
(4)
_________
P1,984,800
1,200
66,000
3,000
502,050
217,950
10,140)
207,810
P 360,000
(2)
(2)
Total
Total
(7)
(8)
7,200
__________
P 834,450
(1 ) 72,000
(2) 18,000
(9) 10,140
P 834,450
P Co.
P 540,000
216,000
P 324,000
60,000
72,000
P 192,000
38,400
P 230,400
P 72,000
____92,940
P2,466,600
S Co.
P 360,000
192,000
P 168,000
24,000
54,000
P 90,000
P 90,000
P 48,000
No goodwill impairment loss for 20x5.

Only a single entry is recorded by the parent in 20x5 in relation to its subsidiary investment:
Cash
38,400
On the books of S Company, the P48,000 dividend paid was recorded as follows:
38,400
Dividends paid
Cash
Dividends paid by S Co..
48,000
48,000
Consolidation Workpaper Second Year after Acquisition

The working paper eliminations (in journal entry format) on December 31, 20x5, are as follows:
(E1) Investment in S Company
Retained earnings P Company
44,160
44,160
To provide entry to convert from the cost method to the equity

method or the entry to establish reciprocity at the beginning of the
year, 1/1/20x5, computed as follows:
Retained earnings S Company, 1/1/20x5
Increase in retained earnings..
Multiplied by: Controlling interest %
Retroactive adjustment
P175,200
120,000
P 55,200
80%
P 44,160
Entry (1) above is needed only for firms using the cost method to account for their investments in
the subsidiary. If the parent is already using the equity method, there is no need to convert to
equity.
Retained earnings S Co., 1/1/20x5
Investment in S Co (P415,200 x 80%)
240,000
175,200
332,160
83,040

of subsidiary and to establish non-controlling interest (in net assets of
subsidiary) on January 1, 20x5.
(E3) Inventory.
Land.
Goodwill.
Buildings..
Non-controlling interest (P90,000 x 20%)
Investment in S Co.
6,000
96,000
192,000
7,200
4,800
12,000
216,000
18,000
84,000

acquired, with remainder to goodwill; and to establish noncontrolling interest (in net assets of subsidiary) on January 1, 20x5.
(E4) Retained earnings P Company, 1/1/20x5

[(P13,200 x 80%) + P3,000, impairment loss on
partial-goodwill]
Non-controlling interests (P13,200 x 20%).
Interest expense
Inventory..
Goodwill
To provide for years 20x4 and 20x5 depreciation and amortization on
differences between acquisition date fair value and book value of
Sons identifiable assets and liabilities as follows:
Year 20x4 amounts are debited to Perfects retained earnings &
NCI;
Year 20x5 amounts are debited to respective nominal accounts.
Inventory sold
Equipment
Buildings
Bonds payable
Sub-total
(20x4)
Retained
earnings,
P 6,000
12,000
(6,000)
1,200
P13,200
Depreciation/
Amortization
expense
Amortization
-Interest
P 12,000
( 6,000)
________
P 6,000
P 1,200
P 1,200
13,560
2,640
6,000
12,000
1,200
6,000
24,000
2,400
3,000
Multiplied by:
To Retained earnings
Impairment loss
Total
80%
P 10,560
3,000
P 13,560

Dividends paid S
38,400
9,600
48,000

share of dividends.
(E5) Retained Earnings P Company, 1/1/20x5

Equipment
15,000
30,000
45,000

(E6) Retained EarningsP Company, 1/1/20x5 (P31,200 x 80%)

Equipment
24,960
6,240
12,000
43,200


Depreciation expense (current year)
Retained EarningsP Company, 1/1/20x5 (prior year)
5,250
3,000
2,250


Retained EarningsP Co. 1/1/20x5 (P3,900 x 80%)
7,800
3,900
3,120
780

(P31,200/85 years x 1 year = P3,900).

17,340
17,340

S Companys Realized net income*
P 90,000
3,900
P 93,900
( 7,200)
P 86,700
20%
P 17,340

partial goodwill
*from separate transactions that has been realized in transactions
with third persons.

Cost Model (Partial-goodwill)
December 31, 20x5 (Second Year after Acquisition)
Income Statement
Sales
Dividend income
Total Revenue
Cost of goods sold
P Co
P540,000
38,400
P578,400
P216,000
S Co.
P360,000
P360,000
P192,000
Dr.
(5)
Cr.
38,400
60,000
24,000
(4)
6,000
Interest expense
Other expenses
72,000
54,000
(4)
1,200
(7)
3,000
(8)
3,900
Consolidated
P 900,000
___________
P 900,000
P 408,000
83,100
1,200
126,000

Net Income
P348,000
P230,400
P230,400

P Company
P499,800
S Company
Total
Dividends paid
P Company
S Company
Sheet
Balance Sheet
Cash.
Inventory.
Land.
Equipment
Buildings
Goodwill
Investment in S Co
Total
- equipment
- buildings
Accounts payable
Bonds payable
Total
P270,000
P 90,000
P 90,000
P
P
(
P
(9) 17,340
(1)
(5)
(6)
(2)
13,560
15,000
24,960
175,200
(1) 44,160
(7) 2,250
(8) 3,120
618,300
281,700
17,340)
264,360
P 495,810
230,400
P730,200
P 175,200
__90,000
P265,200
72,000
-
48,000
P658,200
P217,200
P 688,170
265,200
180,000
216,000
210,000
240,000
P 102,000
96,000
108,000
48,000
180,000
P 367,200
276,000
324,000
265,200
720,000
540,000
P2,203,200
P1,074,000
P 150,000
P 102,000
450,000
306,000
105,000
240,000
600,000
88,800
120,000
___ _____
P2,203,200
(5)
(1)
6,000
(3)
7,200
(5) 30,000
(6) 12,000
(3)
(3)
(1)
372,000
658,200
264,360
P 760,170
240,000
217,200
_________
P1,074,000
4,800
12,000
44,160
(3) 96,000
(7) 5,250
(8) 7,800
(3) 192,000
(4) 12,000
(2)
48,000
6,000
(3) 216,000
(4) 2,400
(4) 3,000
(2) 332,160
(3) 84,000
(4)
(5)
(6)
24,000
45,000
43,200
72,000
________
462,000
1,044,000
2,400
9,000
P2,749,800
P 255,150
552,000
193,800
360,000
600,000
(2) 240,000
688,170
(4) 2,640
(5) 9,600
(6) 6,240
__________
P 979,350
(2 83,040
(3) 18,000
(8)
780
(9) 17,340
P 979,350
____100,680
P2,749,800
5. 1/1/20x4
a. On date of acquisition the retained earnings of parent should always be considered as
the consolidated retained earnings, thus:
Consolidated Retained Earnings, January 1, 20x4
Retained earnings - Parent Company, January 1, 20x4 (date of acquisition)
P360,000
b.
Non-controlling interest (partial-goodwill), January 1, 20x4
Common stock Subsidiary Company
Retained earnings Subsidiary Company.
Stockholders equity Subsidiary Company...
Adjustments to reflect fair value - (over) undervaluation of assets and liabilities
Fair value of stockholders equity of subsidiary, January 1, 20x4
Multiplied by: Non-controlling Interest percentage...
Non-controlling interest (partial goodwill),..
P 240,000
120,000
P 360,000
90,000
P 450,000
20
P 90,000
c.
Consolidated SHE:
Stockholders Equity
Retained earnings
Parents Stockholders Equity / CI SHE
NCI, 1/1/20x4
Consolidated SHE, 1/1/20x4
P 600,000
360,000
P 960,000
___90,000
P1,050,000
6.
Note: The goodwill recognized on consolidation purely relates to the parents share. NCI is
measured as a proportion of identifiable assets and goodwill attributable to NCI share is not
recognized.
12/31/20x4:
a. CI-CNI - P
Unrealized gain on sale of equipment (upstream sales)
P Companys realized net income from separate operations*...
Total
Amortization of allocated excess (refer to amortization above)
Goodwill impairment (impairment under partial-goodwill approach)
*that has been realized in transactions with third parties.
P183,000
(15,000)
2,250
P170,250
P 91,200
( 31,200)
3,900
P 63,900
P 10,140
13,200
3,000
63,900
P234,150
26,340
P207,810
_ 10,140
P217,950
b. NCI-CNI P10,140
Less: Amortization of allocated excess / goodwill impairment
(refer to amortization table above)
P 91,200
( 31,200)
3,900
P 63,900
13,200
P 50,700
20%
P 10,140
c. CNI, P217,950 refer to (a)

d. On subsequent to date of acquisition, consolidated retained earnings would be computed
as follows:
Consolidated Retained Earnings, December 31, 20x4
Add: Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent for 20x4
Total
Less: Dividends paid Parent Company for 20x4
P360,000
207,810
P567,810
72,000
P495,810
e.
The goodwill recognized on consolidation purely relates to the parents share. NCI is
measured as a proportion of identifiable assets and goodwill attributable to NCI share is
not recognized. The NCI on January 1, 20x4 and December 31, 20x4 are computed as
follows:
Non-controlling interest (partial-goodwill), December 31, 20x4
Common stock Subsidiary Company, December 31, 20x4
Retained earnings Subsidiary Company, December 31, 20x4
Retained earnings Subsidiary Company, January 1, 20x4
Add: Net income of subsidiary for 20x4
Total
Less: Dividends paid 20x4
Stockholders equity Subsidiary Company, December 31, 20x4
Adjustments to reflect fair value - (over) undervaluation of assets and
liabilities, date of acquisition (January 1, 20x4)
Amortization of allocated excess (refer to amortization above) 20x4
Fair value of stockholders equity of subsidiary, December 31, 20x4
Realized stockholders equity of subsidiary, December 31, 20x4
Non-controlling interest (partial-goodwill)..
P 240,000
P120,000
91,200
P211,200
36,000
175,200
P 415,200
90,000
( 13,200)
P492,000
( 31,200)
3,900
P464,700
20
P 92,940
f.
Consolidated SHE:
Stockholders Equity
Retained earnings
Parents Stockholders Equity / CI SHE, 12/31/20x4
NCI, 12/31/20x4
P 600,000
495,810
P1,095,810
___92,940
P1,188,750
12/31/20x5:
a. CI-CNI P264,360
Total
P192,000
3,000
P195,000
P 90,000
3,90
P 93,900
93,900
P288,900
7,200
P281,700
17,340
P264,360
Or, alternatively
Total
P192,000
3,000
P195,000
P 90,000
3,900
P 93,900
P 17,340
7,200
93,900
P288,900
24,540
P264,360
_ 17,340
P281,700
b. NCI-CNI P17,340
(Reported net income of Son Company)
P 90,000
3,900
P 93,900
7,200
P 86,700
20%
P 17,340

as follows:
Retained earnings - Parent Company, January 1, 20x5 (cost model)
Less: Downstream - net unrealized gain on sale of equipment prior to 20x5
(P15,000 P2,250)
Adjusted Retained Earnings Parent 1/1/20x5 (cost model ) Son Companys
Retained earnings that have been realized in transactions with third
parties..
Adjustment to convert from cost model to equity method for purposes of
consolidation or to establish reciprocity:/Parents share in adjusted net
increased in subsidiarys retained earnings:
Retained earnings Subsidiary, January 1, 20x5
Less: Retained earnings Subsidiary, January 1, 20x4
Increase in retained earnings since date of acquisition
Less: Amortization of allocated excess 20x4
Upstream - net unrealized gain on sale of equipment prior to
20x5 (P31,200 P3,900)
P499,800
12,750
P487,050
P 175,200
120,000
P 55,200
13,200
27,300
P 14,700
Multiplied by: Controlling interests %...................
80%
P 11,760
3,000
Less: Goodwill impairment loss

__ 8,760
Consolidated Retained earnings, January 1, 20x5
P495,810
264,360
Total
P760,170
72,000
P688,170
*this procedure would be more appropriate, instead of multiplying the full-goodwill impairment loss of P3,750 by
80%. There might be situations where the controlling interests on goodwill impairment loss would not be
proportionate to NCI acquired (refer to Illustration 15-6).
Or, alternatively:
Retained earnings - Parent Company, December 31, 20x5 (cost model)
Less: Downstream - net unrealized gain on sale of equipment prior to
12/31/20x5 (P15,000 P2,250 P3,000)
Adjusted Retained Earnings Parent 12/31/20x5 (cost model )
S Companys Retained earnings that have been realized in
transactions with third parties..
Retained earnings Subsidiary, December 31, 20x5
Less: Accumulated amortization of allocated excess
20x4 and 20x5 (P11,000 + P6,000)
12/31/20x5 (P31,200 P3,900 P3,900)
P658,200
9,750
P648,450
P 217,200
120,000
P 97,200
20,400
P
P
Consolidated Retained earnings, December 31, 20x5
23,400
53,400
80%
42,720
3,000
39,720
P688,170
e.
Total
Amortization of allocated excess (refer to amortization above) :
20x4
20x5
Less: Upstream - net unrealized gain on sale of equipment prior to 12/31/20x5
(P31,200 P3,900 P3,900)
Realized stockholders equity of subsidiary, December 31, 20x5.
Non-controlling interest (partial goodwill)..
P 240,000
P175,200
90,000
P 265,200
48,000
217,200
P 457,200
90,000
P 13,200
7,200
( 20,400)
P 526,800
23,400
P503,400
20
P 100,680
f.
Consolidated SHE:
Stockholders Equity
Retained earnings
NCI, 12/31/20x5
Problem VI
Requirements 1 to 4
Schedule of Determination and Allocation of Excess
P 600,000
688,170
P1,288,170
__100,680
P1,188,850

Consideration transferred (80%)..
Fair value of NCI (given) (20%)..
Fair value of Subsidiary (100%).
Less: Book value of stockholders equity of Son:
fair value)...
P 372,000
93,000
P 465,000
P 240,000
120,000
360,000
P 105,000
6,000
7,200
96,000
( 24,000)
4,800
90,000
P 15,000

Inventory
Buildings (net)
Bonds payable
Over/
under
P 6,000
Life
1
96,000
(24,000)
4,800
8
4
4
Annual
Amount
P 6,000
Current
Year(20x4)
P 6,000
20x5
P
-
12,000
( 6,000)
1,200
P 13,200
12,000
( 6,000)
1,200
P 13,200
12,000
(6,000)
1,200
P 7,200

January 1, 20x4:
Cash..
(2) Cash
372,000
372,000
28,800
28,800
Dividends paid
Cash.
36,000
36,000
No entries are made on the parents books to depreciate, amortize or write-off the portion of the
allocated excess that expires during 20x4.
Consolidation Workpaper First Year after Acquisition
Investment in S Co
240,000
120.000
288,000
72,000

of subsidiary on date of acquisition; and to establish non-controlling
interest (in net assets of subsidiary) on date of acquisition.
(E2) Inventory.
Land.
Goodwill.
Buildings..
Non-controlling interest (P90,000 x 20%) + [(P15,000, full
P12,000, partial goodwill)]
Investment in S Co.
acquired, with remainder to goodwill; and to establish noncontrolling interest (in net assets of subsidiary) on date of acquisition.
6,000
96,000
192,000
7,200
4,800
15,000
216,000
21,000
84,000
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.
Interest expense
Inventory..
Goodwill
6,000
6,000
6,000
1,200
3,750
6,000
12,000
1,200
3,750

Inventory sold
Equipment
Buildings
Bonds payable
Totals
Cost of
Goods
Sold
P 6,000
_______
P 6,000
Depreciation/
Amortization
Expense
Amortization
-Interest
P12,000
( 6,000)
_______
P 6,000
P 1,200
P1,200

Dividends paid S
28,800
7,200
36,000

share of dividends.

Equipment
15,000
30,000
45,000


Equipment
31,200
12,000
43,200


2,250
2,250

(P15,000 / 5 years x 9/12 = P2,250).

3,900
3,900

(P31,200/85 years x 1 year = P3,900).

(upstream sales)
P 91,200
( 31,200)
3,900
9,390
9,390
separate operations
partial goodwill
Less: Non-controlling interest on impairment
loss on full-goodwill (P3,750 x 20%) or
(P3,750 impairment on full-goodwill less
P3,000, impairment on partial-goodwill)
P 63,900
13,200
P 50,700
20%
P
10,140
750
9,390

Cost Model (Full-goodwill)
Income Statement
Sales
P Co
P480,000
15,000
S Co.
P240,000
31,200
Dividend income
Total Revenue
Cost of goods sold
28,800
P523,800
P204,000
60,000
P271,200
P138,000
24,000
Interest expense
Other expenses
Net Income
48,000
P312,000
P211,800
P211,800

P Company
S Company
Total
Dividends paid
P Company
S Company
Sheet
Balance Sheet
Cash.
Inventory.
Land.
Equipment
Buildings
Goodwill
Investment in S Co
Total
- equipment
- buildings
Accounts payable
Bonds payable
Total
Dr.
Cr.
Consolidated
P 720,000
(5) 15,000
(6) 31,200
(4) 28,800
_________
P 720,000
P 348,000
83,850
(3)
(3)
6,000
6,000
18,000
P180,000
P 91,200
P 91,200
(3)
1,200
(3)
3,750
(9)
9,390
(1) 120,000
211,800
P571,800
P120,000
91,200
P211,200
72,000
-
36,000
P499,800
P175,200
P 495,810
232,800
90,000
120,000
210,000
240,000
P 90,000
60,000
90,000
48,000
180,000
P 322,800
150,000
210,000
265,200
720,000
540,000
(7)
(8)
2,250
3,900
1,200
66,000
3,750
P 502,800
P 217,200
( 9,390)
P 207,810
P360,000
P 360,000
207,810
P 567,810
(4)
(2)
6,000
(2)
7,200
(5) 30,000
(6) 12,000
(2)
(2)
4,800
15,000
372,000
P1,984,800
P1,008,000
P 135,000
P 96,000
405,000
288,000
105,000
240,000
600,000
88,800
120,000
499,800
240,000
175,200
(2) 80,000
(7) 2,250
(8) 3,900
(2) 192,000
(3) 6,000
_________
P1,008,000
6,000
(2) 216,000
(3) 1,200
(3) 3,750
(1) 288,000
(2) 84,000
(3) 10,000
(5) 45,000
(6) 43,200
72,000
________
462,000
1,044,000
3,600
11,250
P2,468,850
P229,050
495,000
193,800
360,000
600,000
(1) 240,000
495,810
(3)
_________
P1,984,800
3)
36,000
7,200
__________
P 843,690
(1 ) 72,000
(2) 21,000
(9) 9,390
P 843,690
____95,190
P2,468,850
P Co.
P 540,000
216000
P 324,000
60,000
72,000
P 192,000
38,400
P 230,400
P 72,000
Sales
Gross profit
Other expense
Add: Dividend income
Net income
Dividends paid
S Co.
P 360,000
192,000
P 168,000
24,000
54,000
P 90,000
P 90,000
P 48,000

Cash
38,400
38,400
Dividends paid
Cash
48,000
48,000

Retained earnings P Company
44,160
44,160
To provide entry to convert from the cost method to the equity

method or the entry to establish reciprocity at the beginning of the
year, 1/1/20x5, computed as follows:
Increase in retained earnings..
Multiplied by: Controlling interest %
Retroactive adjustment
P175,200
120,000
P 55,200
80%
P 44,160

Retained earnings S Co., 1/1/20x5
240,000
175,200
332,160
83,040

of subsidiary and to establish non-controlling interest (in net assets of
subsidiary) on January 1, 20x5.
(E3) Inventory.
Land.
Goodwill.
Buildings..
Non-controlling interest (P90,000 x 20%) + [(P15,000, full
Investment in S Co.
6,000
96,000
192,000
7,200
4,800
15,000
216,000
21,000
84,000

acquired, with remainder to goodwill; and to establish noncontrolling interest (in net assets of subsidiary) on January 1, 20x5.
(E4) Retained earnings P Company, 1/1/20x5

[(P13,200 x 80%) + P3,000, impairment loss on
partial-goodwill]
Non-controlling interests (P16,950 x 20%) or (P13,200 x 20% +
(P3,750 P3,000 = P750)
Interest expense
Inventory..
13,560
3,390
6,000
12,000
1,200
6,000

Goodwill
24,000
2,400
3,750
To provide for years 20x4 and 20x5 depreciation and amortization on

differences between acquisition date fair value and book value of
Sons identifiable assets and liabilities as follows:
Year 20x4 amounts are debited to Perfects retained earnings &
NCI;
Year 20x5 amounts are debited to respective nominal accounts.
Inventory sold
Equipment
Buildings
Bonds payable
Sub-total
Multiplied by:
To Retained earnings
Impairment loss
Total
(20x4)
Retained
earnings,
P 6,000
12,000
(6,000)
1,200
P13,200
80%
P 10,560
3,000
P 13,560
Depreciation/
Amortization
expense
Amortization
-Interest
P 12,000
( 6,000)
________
P 6,000
P 1,200
P 1,200

Dividends paid S
38,400
9,600
48,000

share of dividends.
(E6) Retained Earnings P Company, 1/1/20x5

Equipment
15,000
30,000
45,000

(E7) Retained EarningsP Company, 1/1/20x5 (P31,200 x 80%)

Equipment
24,960
6,240
12,000
43,200


Retained EarningsP Company, 1/1/20x5 (prior year)
5,250
3,000
2,250


Retained EarningsP Co. 1/1/20x5 (P3,900 x 80%)
7,800
3,900
3,120
780

(P31,200/85 years x 1 year = P3,900).

P 90,000
3,900
P 93,900
( 7,200)
P 86,700
20%
P 17,340

Non-controlling Interest in Net Income (NCINI
Less: NCI on goodwill impairment loss on fullGoodwill
0
P 17,340
with third persons.
17,340
17,340

Cost Model (Full-goodwill)
Income Statement
Sales
Dividend income
Total Revenue
Cost of goods sold
P Co
P540,000
38,400
P578,400
P216,000
S Co.
P360,000
P360,000
P192,000
Dr.
(5)
38,400
60,000
24,000
(4)
6,000
Interest expense
Other expenses
Net Income
72,000
P348,000
P230,400
P230,400
54,000
P270,000
P 90,000
P 90,000
(4)
1,200

P Company
P499,800
(2) 13,560
(6) 15,00
(7) 24,960
P 175,200 (1) 175,200
90,000
P265,200
S Company
Total
Dividends paid
P Company
S Company
Sheet
Balance Sheet
Cash.
Inventory.
Land.
Equipment
Buildings
Goodwill
Investment in S Co
Total
- equipment
- buildings
Accounts payable
Bonds payable
Total
230,400
P730,200
Cr.
(8)
3,000
(9)
3,900
Consolidated
P 900,000
___________
P 900,000
P 408,000
83,100
P
P
(
P
(10) 17,340
(1) 44,160
(8) 2,250
(9) 3,120
1,200
126,000
618,300
281,700
17,340)
264,360
P 495,810
264,360
P 760,170
72,000
-
48,000
P658,200
P217,200
P 688,170
265,200
180,000
216,000
210,000
240,000
P 102,000
96,000
108,000
48,000
180,000
P 367,200
276,000
324,000
265,200
720,000
540,000
P2,203,200
P1,074,000
P 150,000
P 102,000
450,000
306,000
105,000
240,000
600,000
88,800
120,000
___ _____
P2,203,200
(3)
(3)
(6)
(7)
(3)
(3)
(1)
372,000
658,200
(5)
240,000
217,200
_________
P1,074,000
6,000
7,200
30,000
12,000
4,800
15,000
44,160
(3) 96,000
(8) 5,250
(9) 7,800
(3) 192,000
(4) 12,000
(4)
48,000
6,000
(3) 216,000
(4) 2,400
(4) 3,750
(2) 332,160
(3) 90,000
(4)
(6)
(7)
24,000
45,000
43,200
72,000
________
462,000
1,044,000
2,400
11,250
P2,752,050
P 255,150
552,000
193,800
360,000
600,000
(2) 240,000
688,170
(4) 3,390
(5) 9,600
(7) 6,240
__________
P 983,100
(2 ) 83,040
(3) 21,000
(9)
780
(10) 17,340
P 983,100
____102,930
P2,752,050
5. 1/1/20x4
a. On date of acquisition the retained earnings of parent should always be considered as
the consolidated retained earnings, thus:
Consolidated Retained Earnings, January 1, 20x4
P360,000
b.
Non-controlling interest (partial-goodwill), January 1, 20x4
Common stock Subsidiary Company
Retained earnings Subsidiary Company.
P 240,000
120,000
Stockholders equity Subsidiary Company...

Adjustments to reflect fair value - (over) undervaluation of assets and liabilities
Fair value of stockholders equity of subsidiary, January 1, 20x4
Non-controlling interest (partial goodwill),..
Add: Non-controlling interests on full goodwill, 1/1/20x4 (P12,500, full-goodwill P10,000, partial
goodwill)
Non-controlling interest (full-goodwill)
P 360,000
90,000
P 450,000
20
P 90,000
3,000
P 93,000
c.
Consolidated SHE:
Stockholders Equity
Retained earnings
Parents Stockholders Equity / CI SHE
NCI, 1/1/20x4
P 600,000
360,000
P 960,000
___93,000
P1,053,000
6.
Note: The goodwill recognized on consolidation purely relates to the parents share. NCI is
measured as a proportion of identifiable assets and goodwill attributable to NCI share is not
recognized.
12/31/20x4:
a. CI-CNI P207,810
Total
Amortization of allocated excess (refer to amortization above)
Goodwill impairment (impairment under partial-goodwill approach)
P183,000
(15,000)
2,250
P170,250
P 91,200
( 31,200)
3,900
P 63,900
P 10,140
13,200
3,000
63,900
P234,150
26,340
P207,810
10,140
P217,950
b. NCI-CNI P10,140
Less: Amortization of allocated excess / goodwill impairment
(refer to amortization table above)
Less: Non-controlling interest on impairment loss on full-goodwill (P3,750 x
20%) or (P3,750mpairment on full-goodwill less P3,000, impairment on
partial- goodwill)
Non-controlling Interest in Net Income (NCINI) full goodwill
P 91,200
( 31,200)
3,900
P 63,900
13,200
P 50,700
20%
P 10,140
750
P 9,390

as follows:
Total
P360,000
207,810
P567,810
72,000
P495,810
e.
Total
Amortization of allocated excess (refer to amortization above) 20x4
Realized stockholders equity of subsidiary, December 31, 20x4
Non-controlling interest (partial-goodwill)..
Add: Non-controlling interest on full goodwill , net of impairment loss, 12/31/x4:
[(P15,000 full P12,000, partial = P3,000) P750 impairment loss
Non-controlling interest (full-goodwill)..
P 240,000
P120,000
91,200
P211,200
36,000
175,200
P 415,200
90,000
( 13,200)
P492,000
( 31,200)
3,900
P464,700
20
P 92,940
2,250
P 95,190
f.
Consolidated SHE:
Stockholders Equity
Retained earnings
NCI, 12/31/20x4
P 600,000
495,810
P1,095,810
___95,190
P1,191,000
12/31/20x5:
a. CI-CNI P281,700
Total
P192,000
3,000
P195,000
P 90,000
3,900
P 93,900
93,900
P288,900
7,200
P281,700
17,340
P264,360
Or, alternatively
Total
P192,000
3,000
P195,000
P 90,000
3,900
P 93,900
P 17,340
7,200
24,540
P264,360
_ 17,340
P281,700
b. NCI-CNI P17,340
93,900
P288,900
P 90,000
3,900
P 93,900
7,200
P 86,700
20%
P 17,340
0
P 17,340

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

as follows:
Retained earnings - Parent Company, January 1, 20x5 (cost model)
Less: Downstream - net unrealized gain on sale of equipment prior to 20x5
(P15,000 P2,250)
Adjusted Retained Earnings Parent 1/1/20x5 (cost model ) Son Companys
Retained earnings that have been realized in transactions with third
parties..
Retained earnings Subsidiary, January 1, 20x5
Less: Amortization of allocated excess 20x4
20x5 (P31,200 P3,900)
P499,800
12,750
P487,050
P 175,200
120,000
P 55,200
13,200
27,300
P 14,700
80%
P 11,760
3,000

__ 8,760
Consolidated Retained earnings, January 1, 20x5
P495,810
264,360
Total
P760,170
72,000
P688,170
*this procedure would be more appropriate, instead of multiplying the full-goodwill impairment loss of P3,750 by
80%. There might be situations where the controlling interests on goodwill impairment loss would not be
proportionate to NCI acquired (refer to Illustration 15-6).
Or, alternatively:
Retained earnings - Parent Company, December 31, 20x5 (cost model)
Less: Downstream - net unrealized gain on sale of equipment prior to
12/31/20x5 (P15,000 P2,250 P3,000)
Adjusted Retained Earnings Parent 12/31/20x5 (cost model )
S Companys Retained earnings that have been realized in
transactions with third parties..
Retained earnings Subsidiary, December 31, 20x5
Less: Accumulated amortization of allocated excess
20x4 and 20x5 (P13,200 + P7,200)
12/31/20x5 (P31,200 P3,900 P3,900)
P658,200
9,750
P648,450
P 217,200
120,000
P 97,200
20,400
P
P
Less: Goodwill impairment loss (full-goodwill)
Consolidated Retained earnings, December 31, 20x5
23,400
53,400
80%
42,720
3,000
39,720
P688,170
e.
Non-controlling interest, December 31, 20x5
Total
P 240,000
P175,200
90,000
P 265,200
48,000
217,200
P 457,200
90,000
Amortization of allocated excess (refer to amortization above) :

20x4
20x5
Less: Upstream - net unrealized gain on sale of equipment prior to 12/31/20x5
(P31,200 P3,900 P3,900)
Realized stockholders equity of subsidiary, December 31, 20x5.
Non-controlling interest (partial goodwill)..
Add: Non-controlling interest on full goodwill , net of impairment loss
[(P15,000 full P12,000, partial = P3,000) P750 impairment loss
Non-controlling interest (full-goodwill)..
P 13,200
7,200
( 20,400)
P 526,800
23,400
P503,400
20
P 100,680
2,250
P 102,930
f.
Consolidated SHE:
Stockholders Equity
Retained earnings
NCI, 12/31/20x5
P 600,000
688,170
P1,288,170
__102,930
P1,391,100
Problem VII
20x4
20x5
1.
Noncontrolling interest in P 7,000 (1)
Consolidated net income
P 46,200 (2)
Controlling interest in
290,500 (3)
279,300 (4)
(1)
(2)
(3)
(4)
.4(P70,000 P63,000 + P10,500) = P7,000

.4(P105,000 + P10,500) = P46,200
P280,000 + .6(P70,000 P63,000 + P10,500) = P290,500
P210,000 + .6(P105,000 + P10,500) = P279,300
2014
2015
2.
Noncontrolling interest in P 28,000 (5)
P 42,000 (6)
Consolidated income
Controlling interest in
269,500 (7)
283,500 (8)
(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. IncomeST ..........................................................................................................
IncomeBB...........................................................................................................
Excess amortization for unpatented technology ..........................................
Remove unrealized gain on equipment ........................................................
(P120,000 P70,000)
Remove excess depreciation created by
inflated transfer price (P50,000 5) ..........................................................
Consolidated net income .................................................................................
P220,000
90,000
(8,000)
(50,000)
b. Income calculated in (part a.) ........................................................................

Non-controlling interest in BB's income
IncomeBB ..............................................................................
P90,000
Excess amortization ................................................................
(8,000)
P262,000
10,000
P262,000
Adjusted net income .............................................................

P82,000
Non-controlling interest in BBs income (10%) .........................................
Consolidated net income to parent company ............................................
c. Income calculated in (part a.) ........................................................................
Non-controlling interest in BB's income (see Schedule 1) ........
(4,200)
Consolidated net income to parent company ............................................
(8,200)
P253,800
P262,000
P257,800
Schedule 1: Non-controlling Interest in Bennett's Income (includes upstream transfer)

Reported net income of subsidiary .................................................................
P90,000
Excess amortization .............................................................................................
(8,000)
Eliminate unrealized gain on equipment transfer ........................................
(50,000)
Eliminate excess depreciation (P50,000 5) .................................................
10,000
Bennett's realized net income ..........................................................................
P42,000
Outside ownership ..............................................................................................
10%
Non-controlling interest in subsidiary's income .............................................
P 4,200
d. Net income 20x5ST ..........................................................................................
Net income 20x5BB .........................................................................................
Excess amortization .............................................................................................
Eliminate excess depreciation stemming from transfer
(P50,000 5) (year after transfer) ..............................................................
Consolidated net income ......................................................................
P240,000
100,000
(8,000)
10,000
P342,000
Problem IX
1.
Consolidated net income as reported
Less: P10,000 deferred gain
Plus: NCI portion of the gain
Plus: Deferred gain
Corrected consolidated net income
2.
Land account as reported
Less: Intercompany profit
Restated land account
20x4
P 750,000
-10,000
3,000
20x5
P 600,000
20x6
P 910,000
P 743,000
P 600,000
7,000
P 917,000
20x4
P 200,000
-10,000
P 190,000
20x5
P 240,000
-10,000
P 230,000
20x6
P 300,000
P 300,000
3.
Final sales price outside the entity minus the original cost to the combined entity equals
P102,000 minus P72,000 = P30,000
Problem 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 noncontrolling interest.
Problem XI
1.
Consolidated net income for 20x9:
Operating income reported by BW
Net income reported by TW
Amount of gain realized in 20x9
(P30,000 / 12 years)
Realized net income of TW
2.
Consolidated net income for 20x9 would be unchanged.
3.

E(1)
Buildings and Equipment

Non-controlling Interest
Eliminate unrealized profit on building.
P40,000
2,500
30,000
20,000
5,000
P100,000
42,500
P142,500
2,500
52,500

Amount paid by TW to acquire building
Amount paid by BW on intercompany sale
P300,000
(270,000)
P 30,000
Adjustment to retained earnings, January 1, 20x9

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

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

Depreciation expense recorded by BW
Industries (P270,000 / 12 years)
Depreciation expense recorded by TW
P 22,500
(20,000)
P 2,500

Amount reported by BW (P22,500 x 3 years)
Required adjustment
P120,000
(67,500)
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 =
Income from Branch
Plus: Deferred gain on land
Plus: Piecemeal recognition of gain on equipment
sale: P35,000 gain/4 years =
P 98,000
20,000
50,000
8,750
P176,750
Problem XIII
Quail Corporation and Subsidiary
Consolidated Income Statement
for the year ended December 31, 20x5
Sales
Gain on land (P20,000 + P25,000)
Cost of sales
Other expenses (see below)
Consolidated Net Income
NCI-CNI (see below)
1,100,000
45,000
560,000 )
320,000 )
265,000
20,000 )
245,000
(
(
P
(
P
Other expenses:
P265,000 + P60,000 - P5,000 piecemeal recognition of gain on
equipment
320,000
Non-controlling Interest in CNI:

Net income from Savannah x 20%: (P100,000 x 20%) =
20,000
Problem XIV refer to Problem IX

Problem XV refer to Problem X
Problem XVI
1.
E(1) Gain on Sale of Land
Land
2.
10,000
10,000

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

Land
10,000

E(1)
Land
6,000
4,000
10,000
10,000
10,000
Problem XVII
1.
2.

Land
45,000

E(1) Retained Earnings, January 1
Land
31,500
13,500
Eliminating entries, December 31, 20x4 and 20x5:

E (1) Retained Earnings, January 1
Land
30,000
Problem XVIII
1.
Downstream sale of land:
20x4
P 90,000
(25,000)
P 65,000
60,000
P125,000
VVs separate operating income

Less: Unrealized gain on sale of land
VVs realized operating income
Spawns realized net income
Income to non-controlling interest:
(P60,000 x .25)
(P40,000 X .25)
Income to controlling interest
2.
(15,000)
Upstream sale of land:

VVs separate operating income
SSs net income
Less: Unrealized gain on sale of land
Spawns realized net income
Income to non-controlling interest:
(P35,000 x .25)
(P40,000 x .25)
P60,000
(25,000)
45,000
45,000
30,000
20x5
P110,000
P110,000
40,000
P150,000
P110,000
(10,000)
P140,000
20x4
P 90,000
20x5
P110,000
35,000
P125,000
40,000
P150,000
(8,750)
P116,250
(10,000)
P140,000
Problem XIX
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 XX
1.
E(1) Buildings and Equipment
Loss on Sale of Building
Eliminate unrealized loss on building.
2.
156,000
36,000
120,000
Consolidated net income and income to controlling

interest for 20x9:
Operating income reported by BB
Net income reported by TT
P 15,000
P125,000
Add: Loss on sale of building

Realized net income of TT
Income to non-controlling interest (P51,000 x .30)
3.
Eliminating entry, December 31, 20y0:

E(1)
Buildings and Equipment
Eliminate unrealized loss on building.
Amount paid by TT to acquire building
Amount paid by BB on intercompany sale
Depreciation expense recorded by TT
Company (P300,000 / 15 years)
Depreciation expense recorded by BB
Amount reported by BB (P16,000 x 1 year)
Required adjustment
Adjustment to retained earnings, January 1, 20y0
Unrealized loss recorded, December 31, 20x9
Proportion of ownership held by BB
Required adjustment
Adjustment to Noncontrolling interest, January 1, 20y0
Unrealized loss recorded, December 31, 20x9
Proportion of ownership held by non-controlling
Interest
Required adjustment
4.
36,000
Consolidated net income and income assigned to

controlling interest in 20y0:
Operating income reported by BB
Net income reported by TT
Adjustment for loss on sale of building
Realized net income of TT
Income assigned to non-controlling interest
(P36,000 x .30)
Income assigned to controlling interest
51,000
P176,000
(15,300)
P160,700
156,000
4,000
124,000
25,200
10,800
P300,000
(144,000)
P156,000
P 20,000
P
(16,000)
4,000
P140,000
(16,000)
P124,000
P36,000
x
.70
P25,200
P36,000
x
.30
P10,800
P150,000
P40,000
(4,000)
36,000
P186,000
(10,800)
P175,200
Problem XXI
Requirements 1 to 4
Schedule of Determination and Allocation of Excess (Partial-goodwill)
Consideration transferred..
Less: Book value of stockholders equity of S:
P 372,000
P 192,000
96,000
P
P 4,800
288,000
84,000

Positive excess: Partial-goodwill (excess of cost over
fair value)...
5,760
76,800
( 19,200)
3,840
72,000
P 12,000
The over/under valuation of assets and liabilities are summarized as follows:

Inventory...
Land
Buildings (net)
Bonds payable
Net..
S Co.
Book value
P 24,000
48,000
84,000
168,000
(120,000)
P 204,000
S Co.
Fair value
P 30,000
55,200
180,000
144,000
( 115,200)
P 294,000
(Over) Under
Valuation
P 6,000
7,200
96,000
(24,000)
4,800
P 90,000
The buildings and equipment will be further analyzed for consolidation purposes as follows:
Equipment..................
Net book value...
S Co.
Book value
180,000
96,000
84,000
S Co.
Fair value
180,000
180,000
Buildings................
Net book value...
S Co.
Book value
360,000
1992,000
168,000
S Co.
Fair value
144,000
144,000
Increase
(Decrease)
0
( 96,000)
96,000
(Decrease)
( 216,000)
( 192,000)
( 24,000)

Inventory
Buildings (net)
Bonds payable
Over/
Under
P 6,000
Life
1
96,000
(24,000)
4,800
8
4
4
Annual
Amount
P 6,000
Current
Year(20x4)
P 6,000
20x5
P
-
12,000
( 6,000)
1,200
P 13,200
12,000
( 6,000)
1,200
P 13,200
12,000
(6,000)
1,200
P 7,200
The goodwill impairment loss of P3,750 based on 100% fair value would be allocated to the
controlling interest and the NCI based on the percentage of total goodwill each equity interest
received. For purposes of allocating the goodwill impairment loss, the full-goodwill is computed
as follows:
Consideration transferred: Cash (80%)
Fair value of NCI (given) (20%)
Less: Book value of stockholders equity of S (P360,000 x 100%)
Add (deduct): (Over) under valuation of assets and liabilities
(P90,000 x 100%)
fair value)...
P 372,000
93,000
P 465,000
__360,000
P 105,000
90,000
P
15,000
In this case, the goodwill was proportional to the controlling interest of 80% and non-controlling
interest of 20% computed as follows:
Goodwill applicable to parent
Total (full) goodwill..
The goodwill impairment loss would be allocated as follows

Goodwill impairment loss attributable to parent or controlling
Interest
Goodwill impairment loss based on 100% fair value or fullGoodwill
Value
P12,000
3,000
P15,000
% of Total
80.00%
20.00%
100.00%
Value
P 3,000
% of Total
80.00%
750
20.00%
P 3,750
100.00%
The unrealized and gain on intercompany sales for 20x4 are as follows:
Date
of Sale
4/1/20x4
1/2/20x4
Seller
P
S
Selling
Price
P90,000
60,000
Book
Value
P75,000
28,800
Unrealized*
Gain on sale
P15,000
31,200
Remaining
Life
5 years
8 years
Realized gain
depreciation**
P3,000/year
P3,900/year
20x4
P2,250
P3,900
* selling price less book value

** unrealized gain divided by remaining life; 20x4 P2,500 x 9/12 = P1,875
The following summary for 20x4 results of operations is as follows:

Sales
Gross profit
Other expenses
Add: Gain on sale of equipment
Add: Investment income
Net income
P Co.
P 480,000
204,000
P 276,000
60,000
48,000
P 168,000
15,000
P 183,000
24,810
P 207,810
S Co.
P 240,000
138,000
P 102,000
24,000
18,000
P 60,000
31,200
P 91,200
P 91,200

Parent Company Equity Method Entry
January 1, 20x4:
Cash..
372,000
372,000

(2) Cash
Investment in S Company (P36,000 x 80%).
28,800
28,800
Record dividends from Son Company.
December 31, 20x4:

Investment income (P91,200 x 80%)
72,960
72,960
Record share in net income of subsidiary.
December 31, 20x4:

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

buildings and bonds payable and goodwill impairment loss.
December 31, 20x4:
(5) Investment income (P15,000 x 100%)
To adjust investment income for downstream sales - unrealized gain
on sale of equipment..
December 31, 20x4:
To adjust investment income for upstream sales - unrealized gain on
sale of equipment..
December 31, 20x4:
To adjust investment income for downstream sales - realized gain on
sale of equipment..
December 31, 20x4:
To adjust investment income for upstream sales - realized gain on
sale of equipment..
15,000
15,000
24,960
24,960
2,250
2,250
3,120
3,120
Thus, the investment balance and investment income in the books of P Company is as follows:
Cost, 1/1/x4
NI of Son
(91,200 x 80%)
Realized gain downstream sale
Realized gain upstream sale
Balance, 12/31/x4
Investment in S
372,000
28,800
72,960
2,250
3,120
368,010
Dividends S (36,000x 80%)

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

Investment in S Co
240,000
120,000
288,000
72,000
To eliminate investment on January 1, 20x4 and equity accounts

of subsidiary on date of acquisition; and to establish noncontrolling interest (in net assets of subsidiary) on date of
acquisition.
(E2) Inventory.
Land.
Goodwill.
Buildings..
Investment in S Co.
6,000
96,000
192,000
7,200
4,800
12,000
216,000
18,000
84,000
To eliminate investment on January 1, 20x4 and allocate excess of

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

Interest expense
Inventory..
Goodwill
6,000
6,000
6,000
1,200
3,000
6,000
12,000
1,200
3,000

Inventory sold
Equipment
Buildings
Bonds payable
Totals
Cost of
Goods
Sold
P 6,000
_______
P 6,000
Depreciation/
Amortization
Expense
Amortization
-Interest
P 12,000
( 6,000)
_______
P 6,000
P 1,200
P1,200
Total
14,400
(E4) Investment income

Dividends paid S
To eliminate intercompany dividends and investment income under
equity method and establish share of dividends, computed as
follows:
24,810
3,990
7,200
36,000
Investment in S
NI of S
28,800 Dividends - S
(91,200
Amortization &
x 80%). 72,960 13,560
impairment
Realized gain* 2,250 15,000 Unrealized gain *
Realized gain** 3,120 24,960 Unrealized gain **
3,990
*downstream sale (should be multiplied by 100%)
**upstream sale (should be multiplied by 80%)
Investment Income
Amortization
impairment
13,560
Unrealized gain * 15,000
Unrealized gain **24,960
72,960
2,250
3,120
24,810
NI of S
(91,200
x 80%)
Realized gain*
Realized gain**
After the eliminating entries are posted in the investment account, it should be observed that
from consolidation point of view the investment account is totally eliminated. Thus,
Cost, 1/1/x4
NI of S
(91,200 x 80%)
Balance, 12/31/x4
(E4) Investment Income
and dividends
Investment in S
372,000
28,800
72,960
2,250
3,120
368,010
3,990
372,000

Amortization &
impairment
(E1) Investment, 1/1/20x4
13,560
15,000
24,960
288,000
84,000
372,000

Equipment
15,000
30,000
45,000


Equipment
31,200
12,000
43,200


2,250
2,250

(P15,000 / 5 years x 9/12 = P2,250).

3,900
3,900

(P26,000/85 years x 1 year = P3,250).

10,140

(upstream sales)
separate operations
partial goodwill
P 91,200
( 31,200)
3,900
P 63,900
13,200
P 50,700
20%
P
10,140

Equity Method (Partial-goodwill)
10,140
Income Statement
Sales
P Co
P480,000
15,000
S Co.
P240,000
31,200
Investment income
Total Revenue
Cost of goods sold
24,810
P519,810
P204,000
P271,200
P138,000
60,000
48,000
P312,000
P207,810
P207,810
Dr.
Cr.
(5) 15,000
(6) 31,200
(4) 28,800
Interest expense
Other expenses
Net Income
P Company
S Company
Total
Dividends paid
P Company
S Company
Sheet
Balance Sheet
Cash.
Inventory.
Land.
Equipment
6,000
24,000
(3)
6,000
18,000
P180,000
P 91,200
P 91,200
(3)
1,200
(3)
3,000
(1) 120,000
207,810
P567,810
P120,000
91,200
P211,200
72,000
-
36,000
P495,810
P175,200
P 495,810
232,800
90,000
120,000
210,000
240,000
P 90,000
60,000
90,000
48,000
180,000
P 322,800
150,000
210,000
265,200
720,000
540,000
(9)
2,250
(8)
3,900
P
P
(
P
10,140
P360,000
Buildings
Goodwill
Investment in S Co
207,810
P567,810
(4)
(2)
6,000
(2)
7,200
(5) 30,000
(6) 12,000
4,800
12,000
368,010
- equipment
P1,980,810
P1,008,000
P 135,000
P 96,000
405,000
288,000
105,000
240,000
600,000
88,800
120,000
- buildings
Accounts payable
Bonds payable
240,000
175,200
495,810
(2) 96,000
(7) 2,250
(8)
3,900
(2) 192,000
(3)
6,000
_________
P1,008,000

Sales
Gross profit
Other expense
Net income
Dividends paid
(3)
36,000
5,000
(2) 216,000
(3) 1,200
(3) 3,000
(1) 288,000
(2) 84,000
72,000
________
462,000
1,044,000
3,600
9,000
P2,466,600
(3) 12,000
(5) 45,000
(6) 43,200
P229,050
495,000
193,800
360,000
600,000
(1) 240,000
495,810
(4)
_________
P1,980,810
1,0200
66,000
3,000
502,050
217,950
10,140)
207,810
P 360,000
(2)
(2)
Total
Total
_________
P 720,000
P 348,000
83,850
(3)
(7)
Consolidated
P 720,000
7,200
__________
P 840,690
(1 ) 72,000
(2) 18,000
(9) 10,140
P 840,690
P Co.
P 540,000
216,000
P 324,000
60,000
72,000
P 192,000
72,360
P 264,360
P 72,000
92,940
P2,466,600
S Co.
P 360,000
192,000
P 168,000
24,000
54,000
P 90,000
P 90,000
P 48,000

(2) Cash
38,400
38,400
December 31, 20x5:

72,000
72,000
December 31, 20x5:

5,760
5,760

buildings and bonds payable
December 31, 20x4:
sale of equipment.
December 31, 20x4:
sale of equipment..
3,000
3,000
3,120
3,120
Cost, 1/1/x5
NI of Son
(90,000 x 80%)
Balance, 12/31/x5
Amortization (6,000 x 805)
Investment in S
368,010
38,400
5,760
72,000
3,000
3,120
401,970

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

Retained earnings S Co, 1/1/x5.
240,000
175,200
332,160
83,040

of subsidiary on date of acquisition; and to establish noncontrolling interest (in net assets of subsidiary) on 1/1/20x5.
(E2) Accumulated depreciation equipment (P96,000 P12,000)

Accumulated depreciation buildings (P192,000 + P6,000)
Land.
Discount on bonds payable (P4,800 P1,200).
Goodwill (P12,000 P3,000)..
Buildings..
Non-controlling interest [(P90,000 P13,200) x 20%]
Investment in Son Co.
84,000
198,000
6,000
3,600
9,000
180,000
15,360
70,440

to the original amount of goodwill; and to establish non- controlling
interest (in net assets of subsidiary) on 1/1/20x5.
(E3) Depreciation expense..

Interest expense
To provide for 20x5 depreciation and amortization on differences
between acquisition date fair value and book value of Sons
identifiable assets and liabilities as follows:
6,000
6,000
1,200
12,000
1,200
Inventory sold
Equipment
Buildings
Bonds payable
Totals
Depreciation/
Amortization
Expense
Amortization
-Interest
P 12,000
( 6,000)
_______
P 6,000
P 1,200
P1,200
Total
P7,200

Dividends paid S
72.360
9,600
48,000
33,960

follows:
Investment in S
NI of S
38,400
Dividends S
(90,000
Amortization
x 80%). 72,000
5,760
(P7,200 x 80%)
Realized gain* 3,000
Realized gain** 3,120
33,960
Investment Income
Amortization
(P7,200 x 80%)

Equipment
Accumulated depreciation equipment
5,760
72,000
3,000
3,120
72,360
NI of S
(90,000
x 80%)
Realized gain*
Realized gain**
15,000
30,000
45,000


Equipment
Accumulated depreciation- equipment
24,960
6,240
12,000
43,200

(E7) Accumulated depreciation equipment ..

Investment in S Company (prior year)
5,250
3,000
2,250

(E8) Accumulated depreciation- equipment..

7,800
3,900
3,120
780

(P31,200/85 years x 1 year = P3,900).

P 90,000
3,900
P 93,900
( 7,200)
P 86,700
20%
Non-controlling Interest in Net Income (NCINI
P 17,340
with third persons.
17,340
17,340

Equity Method (Partial-goodwill)
Income Statement
Sales
Investment income
Total Revenue
Cost of goods sold
P Co
P540,000
72,360
P612,360
P216,000
Interest expense
Other expenses
Net Income
P Company
S Company
Total
Dividends paid
P Company
S Company
Sheet
Balance Sheet
Cash.
Inventory.
Land.
Equipment
Buildings
Goodwill
Investment in Son Co
Total
- equipment
- buildings
Accounts payable
Bonds payable
Total
S Co.
P360,000
P360,000
P192,000
Dr.
(4)
Cr.
72,360
(7)
3,000
(8)
3,900
Consolidated
P 900,000
___________
P 900,000
P 408,000
83,100
60,000
24,000
(3)
6,000
72,000
P348,000
P264,360
P264,360
54,000
P270,000
P 90,000
P 90,000
(3)
1,200
(1) 175,200
_264,360
P760,170
P 175,200
90,000
P265,200
72,000
-
48,000
P688,170
P217,200
P 688,170
265,200
180,000
216,000
210,000
240,000
P 102,000
96,000
108,000
48,000
180,000
P 367,200
276,000
324,000
265,200
720,000
540,000
P
P
(
P
(9) 17,340
P495,810
P495,810
264,360
P 760,170
(5)
(2)
(5)
(6)
(2)
(2)
(5)
(6)
401,970
P2,233,170
P1,074,000
P 150,000
P 102,000
450,000
306,000
105,000
240,000
600,000
88,800
120,000
688,170
240,000
217,200
_________
P1,074,000
48,000
7,200
30,000
12,000
3,600
9,000
15,000
24,960
(2) 84,000
(7) 5,250
(8) 7,800
(2) 198,000
(3)
6,000
(2) 216,000
(3) 1,200
(1) 332,160
(2) 70,440
(4) 33,960
(7) 2,250
(8) 3,120
(3)
(5)
(6)
12,000
45,000
43,200
72,000
________
462,000
1,044,000
2,400
9,000
P2,749,800
P 255,150
552,000
193,800
360,000
600,000
(1) 240,000
688,170
(4)
(6)
___ _____
P2,233,170
1,200
126,000
618,300
281,700
17,340)
264,360
9,600
6,240
__________
P 930,750
(1) 69,200
(2) 15,360
(8)
780
(9) 17,340
P 930,750
____100,680
P2,749,800
5 and 6. Refer to Problem V for computations

Note: Using cost model or equity method, the consolidated net income, consolidated
retained earnings, non-controlling interests, consolidated equity on December 31, 20x4 and
20x5 are exactly the same (refer to Problem X solution).
Problem XXII
Requirements 1 to 4
Schedule of Determination and Allocation of Excess

Consideration transferred (80%)..
Fair value of NCI (given) (20%)..
Fair value of Subsidiary (100%).
Less: Book value of stockholders equity of Son:
fair value)...
P 372,000
93,000
P 465,000
P 240,000
120,000
360,000
P 105,000
6,000
7,200
96,000
( 24,000)
4,800
90,000
P 15,000

Inventory
Buildings (net)
Bonds payable
Over/
under
P 6,000
Life
1
96,000
(24,000)
4,800
8
4
4
Annual
Amount
P 6,000
Current
Year(20x4)
P 6,000
20x5
P
-
12,000
( 6,000)
1,200
P 13,200
12,000
( 6,000)
1,200
P 13,200
12,000
(6,000)
1,200
P 7,200
The following summary for 20x4 results of operations is as follows:

Sales
Gross profit
Other expenses
Add: Gain on sale of equipment
Net income
P Co.
P 480,000
204,000
P 276,000
60,000
48,000
P 168,000
15,000
P 183,000
24,810
P 207,810
S Co.
P 240,000
138,000
P 102,000
24,000
18,000
P 60,000
31,200
P 91,200
P 91,200

January 1, 20x4:
Cash..
372,000
372,000

(2) Cash
28,800
28,800
Record dividends from Son Company.
December 31, 20x4:

72,960
72,960
December 31, 20x4:

(4) Investment income [(P13,200 x 80%) + P3,000, goodwill
impairment loss)]
13,560
13,560

buildings and bonds payable and goodwill impairment loss.
December 31, 20x4:
To adjust investment income for downstream sales - unrealized gain
on sale of equipment..
15,000
15,000
December 31, 20x4:

To adjust investment income for upstream sales - unrealized gain on
sale of equipment..
December 31, 20x4:
sale of equipment..
December 31, 20x4:
sale of equipment..
24,960
24,960
2,250
2,250
3,120
3,120
Thus, the investment balance and investment income in the books of Perfect Company is as
follows:
Cost, 1/1/x4
NI of Son
(91,200 x 80%)
Balance, 12/31/x4
Investment in S
372,000
28,800
72,960
2,250
3,120
368,010
13,560
15,000
24,960

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

Investment in S Co
240,000
120.000
288,000
72,000

of subsidiary on date of acquisition; and to establish noncontrolling interest (in net assets of subsidiary) on date of
acquisition.
(E2) Inventory.
Land.
Goodwill.
Buildings..
Non-controlling interest (P90,000 x 20%) + [(P15,000 full
Investment in S Co.
6,000
96,000
192,000
7,200
4,800
15,000
216,000
21,000
84,000

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

Interest expense
Inventory..
Goodwill
6,000
6,000
6,000
1,200
3,750
6,000
12,000
1,200
3,750
Inventory sold
Equipment
Buildings
Bonds payable
Totals
Cost of
Goods
Sold
P 6,000
Depreciation/
Amortization
Expense
Amortization
-Interest
P 12,000
( 6,000)
_______
P 6,000
P 1,200
P1,200
_______
P 6,000
Total
14,400

Dividends paid S
24,810
3,990
7,200
36,000

follows:
Investment in S
NI of S
28,800 Dividends - S
(91,200
Amortization &
x 80%). 72,960 13,560
impairment
Realized gain* 2,250 15,000 Unrealized gain *
Realized gain** 3,120 24,960 Unrealized gain **
3,990
Investment Income
Amortization
impairment
13,560
Unrealized gain * 15,000
Unrealized gain **24,960
72,960
2,250
3,120
24,810
NI of S
(91,200
x 80%)
Realized gain*
Realized gain**
After the eliminating entries are posted in the investment account, it should be observed that
from consolidation point of view the investment account is totally eliminated. Thus,
Cost, 1/1/x4
NI of S
(91,200 x 80%)
Balance, 12/31/x4
(E4) Investment Income
and dividends
Investment in S
372,000
28,800
72,960
2,250
3,120
368,010
13,560
15,000
24,960
288,000
84,000

Amortization &
impairment
3,990
372,000
372,000

Equipment
15,000
30,000
45,000


Equipment
31,200
12,000
43,200


2,250
2,250

(P15,000 / 5 years x 9/12 = P2,250).

3,900
3,900

(P31,120/85 years x 1 year = P3,900).

9,390
9,390

(upstream sales)
separate operations
P 91,200
( 31,200)
3,900

partial goodwill
Less: Non-controlling interest on impairment
loss on full-goodwill (P3,750 x 20%) or
(P3,750 impairment on full-goodwill less
P3,000, impairment on partial-goodwill)*
full goodwill
P 63,900
13,200
P 50,700
20%
P
10,140
750
P
9,390

Equity Method (Full-goodwill)
Income Statement
Sales
P Co
P480,000
15,000
S Co.
P240,000
31,200
Investment income
Total Revenue
Cost of goods sold
24,810
P519,810
P204,000
P271,200
P138,000
60,000
48,000
P312,000
P207,810
P207,810
Dr.
Cr.
(5) 15,000
(6) 31,200
(4) 28,800
Interest expense
Other expenses
Net Income
P Company
S Company
Total
Dividends paid
P Company
S Company
Sheet
Balance Sheet
Cash.
Inventory.
Land.
Equipment
Buildings
Goodwill
Investment in S Co
Total
- equipment
- buildings
Accounts payable
Bonds payable
_________
P 720,000
P 348,000
83,850
(3)
6,000
24,000
(3)
6,000
18,000
P180,000
P 91,200
P 91,200
(3)
1,200
(3)
3,750
(9)
9,390
(1) 120,000
207,810
P567,810
P120,000
91,200
P211,200
72,000
-
36,000
P495,810
P175,200
P 495,810
232,800
90,000
120,000
210,000
240,000
P 90,000
60,000
90,000
48,000
180,000
P 322,800
150,000
210,000
265,200
720,000
540,000
(7)
Consolidated
P 720,000
2,250
(8)
3,900
1,200
66,000
3,750
P 502,800
P 217,200
( 9,390)
P 207,810
P360,000
P 360,000
207,810
P 567,810
(4)
(2)
6,000
(2)
6,000
(5) 30,000
(6) 12,000
(2)
(2)
4,800
15,000
368,010
P1,980,810
P1,008,000
P 135,000
P 96,000
405,000
288,000
105,000
240,000
600,000
88,800
120,000
(2) 96,000
(7) 2,250
(8) 3900
(2) 192,000
(3) 6,000
(3)
36,000
6,000
(2) 216,000
(3) 1,200
(3) 3,750
(1) 288,000
(2) 84,000
(3) 12,000
(5) 45,000
(6) 43,200
72,000
________
462,000
1,044,000
3,600
11,250
P2,468,850
P229,050
495,000
193,800
360,000
600,000

(1) 240,000
495,810
(4)
_________
P1,980,810
Total
240,000
175,200
495,810
_________
P1,008,000
7,200
__________
P 843,690
(1 ) 72,000
(2) 21,000
(9) 9,390
P 843,690
____95,190
P2,468,850
Second Year after Acquisition

Sales
Gross profit
Other expense
Net income
Dividends paid
Perfect Co.
P 540,000
1216,000
P 324,000
60,000
72,000
P 192,000
72,360
P 264,360
P 72,000
Son Co.
P 360,000
192,000
P 168,000
24,000
54,000
P 90,000
P 90,000
P 48,000


(2) Cash
38,400
38,400
December 31, 20x5:

72,000
72,000
December 31, 20x5:

5,760
5,760

buildings and bonds payable
December 31, 20x4:
sale of equipment..
December 31, 20x4:
sale of equipment..
3,000
3,000
3,120
3,120
Cost, 1/1/x5
NI of S
(90,000 x 80%)
Balance, 12/31/x5
Amortization (7,200 x 805)
Investment in S
368,010
38,400
5,760
72,000
3,000
3,120
401,970

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

Retained earnings S Co, 1/1/x5.
of subsidiary on date of acquisition; and to establish noncontrolling interest (in net assets of subsidiary) on 1/1/20x5.
240,000
175.200
332,160
83,040
(E2) Accumulated depreciation equipment (P96,000 P12,000)

Accumulated depreciation buildings (P192,000 + P6,000)
Land.
Discount on bonds payable (P4,800 P1,200).
Goodwill (P15,000 P3,900)..
Buildings..
Non-controlling interest [(P90,000 P13,200) x 20%] +
[P3,000, full goodwill - [(P3,750, full-goodwill impairment
P3,000, partial- goodwill impairment)*
or (P3,750 x 20%)]
Investment in S Co.
84,000
198,000
7,200
3,600
11,250
216,000
17,610
70,440

to 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..

Interest expense
6,000
6,000
1,200
12,000
1,200
To provide for 20x5 depreciation and amortization on differences

between acquisition date fair value and book value of Sons
identifiable assets and liabilities as follows:
Inventory sold
Equipment
Buildings
Bonds payable
Totals
Depreciation/
Amortization
Expense
Amortization
-Interest
P 12,000
( 6000)
_______
P 6,000
P 1,200
P1,200
Total
P7,,200

Dividends paid S
72,360
9,600
48,000
33,960

follows:
Investment in S
NI of S
38,400
Dividends S
(90,000
Amortization
x 80%). 72,000
5,760
(P72,000 x 80%)
Realized gain* 3,000
Realized gain** 3,120
33,960
Investment Income
Amortization
(P7,200 x 80%)

Equipment
Accumulated depreciation equipment
5,760
72,000
3,000
3,120
72,360
NI of S
(75,000
x 80%)
Realized gain*
Realized gain**
15,000
30,000
45,000


Equipment
Accumulated depreciation- equipment
24,960
6,240
12,000
43,200
(E7) Accumulated depreciation equipment ..

5,250
3,000
2,250

(E8) Accumulated depreciation- equipment..

7,800
3,900
3,120
780

(P31,200/85 years x 1 year = P3,900).

17,340
17,340

P 90,000
3,900
P 93,900
( 7,200)
P 86,700
20%

partial goodwill
P 17,340
Less: NCI on goodwill impairment loss on fullGoodwill
0
full goodwill
P 17,340
with third persons.

Equity Method (Full-goodwill)
Income Statement
Sales
Investment income
Total Revenue
Cost of goods sold
P Co
P540,000
72,360
P612,360
P216,000
Interest expense
Other expenses
Net Income
P Company
S Company
Total
Dividends paid
P Company
S Company
Sheet
Balance Sheet
Cash.
Inventory.
Land.
Equipment
S Co.
P360,000
P360,000
P192,000
Dr.
(4)
Cr.
72,360
(7)
3,000
(8)
3,900
Consolidated
P 900,000
___________
P 900,000
P 408,000
83,100
60,000
24,000
(3)
6,000
72,000
P348,000
P264,360
P264,360
54,000
P270,000
P 90,000
P 90,000
(3)
1,200
(1) 175,200
_264,360
P760,170
P 175,200
90,000
P265,200
72,000
-
48,000
P688,170
P217,200
P 688,170
265,200
180,000
216,000
210,000
240,000
P 102,000
96,000
108,000
48,000
180,000
P 367,200
276,000
324,000
265,200
462,000
P
P
(
P
(9) 17,340
P495,810
1,200
126,000
618,300
281,700
17,340)
264,360
P495,810
264,360
P 760,170
(5)
(2)
(5)
7,200
30,000
48,000
72,000
________
(6)
Buildings
Goodwill
Investment in S Co
Total
- equipment
720,000
(2)
(2)
(5)
(6)
401,970
P2,233,170
P1,074,000
P 150,000
P 102,000
450,000
306,000
105,000
240,000
600,000
88,800
120,000
- buildings
Accounts payable
Bonds payable
Total
540,000
688,170
240,000
217,200
_________
P1,074,000
(2) 216,000
3,600 (3) 1,200
11,250
15,000 (1) 332,160
24,960 (2) 70,440
(4) 33,960
(7) 2,250
(8) 3,120
(2) 84,000
(7) 5,250
(8) 7,800
(2) 198,000
(3)
6,000
(3)
(5)
(6)
12,000
45,000
43,200
1,044,000
2,400
11,250
P2,752,050
P 255,150
552,000
193,800
360,000
600,000
(1) 240,000
688,170
(4)
(6)
___ _____
P2,233,170
12,000
9,600
6,240
__________
P 933,000
(1) 83,040
(2) 17,610
(8)
780
(9) 17,340
P 933,000
____102,930
P2,752,050
5 and 6. Refer to Problem VI for computations

Note: Using cost model or equity method, the consolidated net income, consolidated
retained earnings, non-controlling interests, consolidated equity on December 31, 20x4 and
20x5 are exactly the same (refer to Problem X solution).
Multiple Choice Problems
1. c
2. b
3. 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
4. a no effect, since intercompany sales of equipment will be reverted back to its original
cost/book value.
5. a
6. No answer available - 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.
The available choices in the problem are on the assumption of the use of equity method.
So, the answer then would be (d) the unrealized gain of P15,000 (P60,000 P45,000).
7. No answer available the truck account will be debited for P3,000 in the eliminating entry:
Truck
3,000
Gain
15,000
18,000
Seller
Cash
Accumulated
Truck
Gain
Buyer
50,000
18,000
Truck
Cash
53,000
15,000
50,000
50,000
8. b
Unrealized gain on sales of equipment (upstream sales)
(P15,000 / 5 years)
Total
P 98,000
___0
P 98,000
P 55,000
(15,000)
3,000
P 45,000
45,000
P143,000
0
P143,000
18,000
P125,000
Or, alternatively
(P15,000 / 3 years)
Total
P 98,000
___0
P 98,000
P 55,000
(15,000)
5,000
P 45,000
45,000
P143,000
P 18,000
____0
18,000
P125,000
_ 18,000
P143,000
P 55,000
( 15,000)
5,000
P 45,000
0
P 45,000
40%
P 18,000
0
P 18,000
10. a
11. a
Combined equipment amounts
Less: gain on sale
Consolidated equipment balance
P1,050,000
25,000
P1,025,000
Combined Accumulated Depreciation

Less: Depreciation on gain
Consolidated Accumulated Depreciation
P 250,000
5,000
P 245,000
12. Incomplete data - 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 and there is no available data for
dividends paid/declared by Cliff therefore, the requirement cannot be properly
addressed.
The requirement 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:
Cliff reported income
P225,000
Less: Intercompany gain on truck

Plus: Piecemeal recognition of gain = P45,000/10
years
Cliffs adjusted income
Majority percentage
Income from Cliff
45,000
___4,500
P184,500
90%
P166,050
Combined building amounts

Less: Intercompany gain
Consolidated buildings
P650,000
__30,000
P620,000
Combined Accumulated Depreciation

Less: Piecemeal recognition of gain
Consolidated accumulated depreciation
P195,000
___3,000
P192,000
13. a
14. d P30,000 + P40,000 = P70,000

S
Selling price
Less: Book value
Gain
P 30,000
Consolidated
40,000
P 70,000
15. Incomplete data - 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 and there is no available data for
dividends paid/declared by Cliff therefore, the requirement cannot be properly
addressed.
Pied Imperial-Pigeons share of Rogers income = (P320,000 x 90%) =
Less: Profit on intercompany sale (P130,000 - P80,000) x 90% =
Add: Piecemeal recognition of deferred profit ($50,000/4 years)90% =
Income from Offshore
P288,000
45,000
11,250
P254,250
16. d P110,000 P30,000 = P80,000

Selling price
Less: Book value
Gain
S (Nectar)
P 50,000
_30,000
P 20,000
P (Lorikeet)
P 110,000
__50,000
P 60,000
Consolidated
P 110,000
_30,000
P 80,000
17. No answer available No effect. 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.
P30,000 - (1/4 x P30,000) =
P 22,500
18. b
Unrealized gain on sales of equipment (upstream sales) (P700,000 P600,000)
Realized gain on sale of equipment (upstream sales) through depreciation (P100,000/10)
P2,000,000
( 100,000)
10,000
P1,910,000
_
0
P1,910,000
__40%
P 764,000
__
0
P 764,000
19. d
Unrealized gain on sales of equipment (downstream sales)
20x4
( 90,000)
20x5
-0-
P90,000 / 10 years
Net
___9,000
( 81,000)
9,000
9,000
20. No answer available P780,000

Selling price
Less: Book value: Cost
P2,000,000
Accumulated
___200,000
Unrealized gain on sale of
equipment
Realized Gain depreciation
(P180,000/9 x 6 yrs)
Net unrealized gain, 1/1/20x9
Gain on sale
*P1,980,000/ 9 x 6 years = P1,320,000
**P1,800,000/9 x 6 years = P1,200,000
S
P1,980,000
1,800,00
P
P1,440,000
P1,980,000
*1,320,000
Consolidated
P1,440,000
P 1,800,000
**1,200,000
660,000
__600,000
P 180,000
120,000
P 60,000
P 60,000
P 780,000
P 840,000
21. a
22. b
Eliminating entries:
Restoration of BV and eliminate unrealized gain
Gain
Land
50,000
50,000
Subsidiary
Parent
Cash
Land
Gain
xxx
xxx
50,000
Land
Cash
xxx
xxx
23. 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.
equity method. So, the answer then would be (d) (P60,000 P48,000)/4 years = P3,000
24. d (P100,000 + P50,000 = P150,000)
S
Selling price
Less: Book value
Gain
P 100,000
Consolidated
50,000
P 150,000
25. 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
26. d
Unrealized gain on sale of equipment (downstream sales)
P150,000 / 10 years
Net
20x4
( 150,000)
___15,000
( 135,000)
20x5
-015,000
15,000
27. No answer available P780,000

Selling price
Less: Book value : Cost
Accumulated
Unrealized gain on sale of
equipment
(P90,000/9 x 4 yrs)
Net unrealized gain, 1/1/20x8
Gain on sale
*P990,000/ 9 x 4 years = P440,000
**P900,000/9 x 4 years = P400,000
S
P 990,000
P1,000,000
100,000
__900,00
P
P720,000
P990,000
*440,000
550,000
Consolidated
P 720,000
P 900,000
**400,000
__500,000
P 90,000
40,000
P 50,000
P 50,000
__________
P 170,000
___________
P 220,000
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
720,000
( 144,000)
Share in subsidiary net income (900,000 x 80%)

Unrealized gain on sale of equipment (upstream sales): 180,000 x 80%
P180,000 / 5 years = P36,000 x 80%
Net
___28,800
604,800
29 d (P30,000 + P15,000)
30. 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
31. a
32. b
33. a
Unrealized gain on sale of equipment (upstream sales) : 50,000 30,000
P20,000 / 5 years
Net
20x4
( 20,000)
___4,000
( 16,000)
20x5
-0__4,000
__4,000
34. a
Original cost of
P1,100,000
Accumulated depreciation, 1/1/20x4

Add: Additional depreciation (P1,100,000 P100,000) / 20 years
P 250,000
____50,000
P 300,000
35. c
Selling price unrelated party
Less: Original Book value, 12/31/20x5
Book value, 1/1/20x4
Less: Depreciation for 20x4 and 20x5: P20,000/4 years x 2 years
P 14,000
P20,000
10,000
10,000
P 4,000
36. b at its original cost or book value.

37. b
20x4: Any intercompany gain should be eliminated in the CFS.
20x5
Selling price unrelated party
Less: Original Book value, 9/26/20x5
P 100,000
__60,000
P 40,000
38. c P50,000/5 years = P10,000 per year starting January 1, 20x6.

The requirement equity from subsidiary income and available choices in the problem are
Unrealized gain on sale of equipment (upstream sales): 120,000 x 80%
P120,000 / 5 years = P24,000 x 80%
Net
40.
Depreciation expense recorded by Pirn
20x4
480,000
( 96,000)
___19,200
403,200
P40,000
Depreciation expense recorded by Scroll

Total depreciation reported
Adjustment for excess depreciation charged
by Scroll as a result of increase in
carrying value of equipment due to gain
on intercompany sale (P12,000 / 4 years)
Depreciation for consolidated statements
10,000
P50,000
(3,000)
P47,000
41.
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.
42.
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.
43.
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.
44.
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.
45.
Reported net income of GG Company

Reported gain on sale of equipment
Intercompany profit realized in 20x6
Realized net income of GG Company
Proportion of stock held by
non-controlling interest
Income assigned to non-controlling interests
46.
Operating income reported by TLK Corporation

Net income reported by GG Company
Less: Unrealized gain on sale of equipment
(P15,000 - P5,000)
P15,000
(5,000)
P 45,000
(10,000)
P 35,000
x
.40
P 14,000
P 85,000
45,000
P130,000
(10,000)
P120,000
47. d
48. a
49. b
50. 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.
51. e
Depreciation expense:
Parent
P 84,000
Subsidiary
60,000
Total
P144,000
Less: Over-depreciaton due to realized gain:
[P115,000 (P125,000 P45,000)] = P35,000/8 years
__ 4,375
P139,625
52. c
Net
Selling price
Less: Book value, 1/1/20x6
20x6
( 56,000)
___7,000
( 49,000)
P 392,000
Cost, 1/1/20x2
Less: Accumulated depreciation: P420,000/10 years x 2 years
Realized gain depreciation: P56,000/8 years
P420,000
84,000
53. b
12/31/20x5: date of acquisition
Equipment
Gain
10,000
150,000
160,000
Parent Books Mortar

Cash
Equipment
Gain
336,000
P 56,000
P 7,000
Subsidiary Books Granite
390,000
160,000
Equipment
Cash
390,000
390,000
400,000
150,000
Mortar
Selling price
Cost, 1/1/20x2
Less: Accumulated depreciation : P400,000/10 years x 4 years
P390,000
P400,000
160,000
54. a refer to No. 53 for computation

55. b - refer to No. 53 for computation
56. d
12/31/20x6: subsequent to date of acquisition
P150,000 / 6 years or P65,000 P40,000
240,000
P 150,000
P 25,000
25,000
25,000
Should be in CFS Parent Books Mortar
Recorded as Subsidiary Books - Granite
(P400,000 / 10 years)
Acc. Depreciation
(P390,000 / 6 years)
Acc. depreciation
40,000
40,000
57. c
Equipment
Retained earnings (150,000 25,000)
Accumulated depreciation (P160,000 P25,000)
58. a
Equipment
Gain
65,000
65,000
10,000
100,000
135,000
50,000
70,000
120,000
Parent Books Mortar

Cash
Equipment
Gain
Subsidiary Books - Granite
350,000
120,000
Equipment
Cash
350,000
350,000
400,000
70,000
Mortar
Selling price
Cost, 1/1/20x2
P350,000
P400,000
120,000
59. a - refer to No. 58 for computation

60. b
P700,000 / 7 years or P50,000 P40,000
280,000
P 70,000
P 10,000
10,000
10,000
Should be in CFS Parent Books Mortar
Recorded as Subsidiary Books - Granite
(P400,000 / 10 years)
Acc. Depreciation
(P350,000 / 7 years)
Acc. depreciation
40,000
40,000
Equipment
Retained earnings (70,000 10,000)
Accumulated depreciation (P120,000 P10,000)
50,000
50,000
50,000
60,000
110,000
61. b - refer to No. 60 for computation

62. c - refer to No. 60 for computation
63. a
Unrealized loss on sale of equipment (upstream sales)
Realized loss on sale of equipment (upstream sales) through depreciation
P 140,000
___0
P 140,000
P 30,000
20,000
none, since the date of sale is end of the year

Total
Selling price
Cost, 1/1/20x4
Unrealized loss on sale of equipment
Realized loss depreciation: P20,000/4 years
0)
P 50,000
50,000
P190,000
0
P190,000
15,000
P175,000
P180,000
P500,000
300,000
200,000
P( 20,000)
P( 5,000)
Or, alternatively
Total
P 140,000
___0
P 140,000
P 30,000
20,000
(
0)
P 50,000
50,000
P190,000
P 15,000
____0
15,000
P175,000
_ 15,000
P190,000

P 30,000
(
P
P

P
P
20,000
0)
50,000
0
50,000
30%
15,000
0
15,000
64. b
Consolidated Net Income for 20y0
Total
equity holders of parent 20y0..
P 162,000
___0
P 162,000
P 45,000
( 5,000)
P 40,000
40,000
P202,000
0
P202,000
7,500
P194,500
Or, alternatively
P 162,000
___0
P 162,000
P 45,000

Total
( 5,000)
P 40,000
40,000
P202,000
P 7,500
____0
7,500
P194,500
_ _ 7,500
P202,000
**Non-controlling Interest in Net Income (NCINI) for 20y0

P 30,000
( 5,000)
P 25,000
0
P 25,000
30%
P 7,500
0
P 7,500

65. d the original cost of land

66. b no intercompany gain or loss be presented in the CFS.
67. a
S3 Companys net income from own operations.
Unrealized loss on sale of equipment (upstream sales) S3
Unrealized gain on sale of equipment (upstream sales) S2
Unrealized gain on sale of equipment (upstream sales) - S1
Total
Less: Non-controlling Interest in Net Income* * (P23,000 + P5,400 + P7,200)
Sales price
Less: Cost
Unrealized (loss) gain
S3
145,000
160,000
( 15,000)
P 200,000
___0
P 200,000
P100,000
70,000
95,000
15,000
( 52,000)
( 23,000)
P205,000
205,000
P405,000
0
P405,000
35,600
P369,400
S2
197,000
145,000
52,000
S1
220,000
197,000
23,000
Or, alternatively
Unrealized loss on sale of equipment (upstream sales) S3
Unrealized gain on sale of equipment (upstream sales) S2
Unrealized gain on sale of equipment (upstream sales) - S1
S Companys realized net income from separate operations*
Total
Less: Non-controlling Interest in Net Income* * (P23,000 + P5,400 + P7,200)
**Non-controlling Interest in Net Income (NCINI)
S Companys net income of Subsidiary Company from its own
operations (Reported net income of S Company)
P 200,000
___0
P 200,000
P100,000
70,000
95,000
15,000
( 52,000)
( 23,000)
P205,000
P 35,600
____0
_ 35,600
P369,400
_ _35,600
P405,000
S3
P 100,000
205,000
P405,000
S2
P
70,000
S1
P 95,000
Unrealized (gain) loss on sale of land (upstream sales)

Less: NCI on goodwill impairment loss on full-goodwill
Non-controlling Interest in Net Income (NCINI) full goodwill
15,000
P 115,000
0
P 115000
20%
P 23,000
0
P 23,000
68. d
Building
Gain
Parent Books Sky
Cash
Building
Gain
( 52,000)
18,000
0
P 18,000
30%
P
5,400
0
P 5,400
P
( 23,000)
P 72,000
0
P 72,000
10%
P 7,200
0
P 7,200
3,000
8,250
11,250
Subsidiary Books - Earth
33,000
11,250
Building
Cash
33,000
33,000
36,000
8,250
Sky, 7/1/20x4
Selling price
Cost, 1/1/20x2
Less: Accumulated depreciation : P36,000/8years x 2.5 years
Realized gain depreciation: P8,250/5.5 years
P33,000
P36,000
11,250
69. a - refer to No. 60 for computation

70. b
Realized Gain depreciation (July 1, 20x4 December 31, 20x4)
P8,250 / 5.5 x years or P3,000 P2,250
Should be in CFS Parent Books Sky
(P24,750 / 5.5 x years)
Acc. Depreciation
24,750
P 8,250
P 1,500
750
750
Recorded as Subsidiary Books - Earth
2,250
2,250
71. c
P8,250 / 5.5 x years or P6,000 P4,500
(P33,000 / 5.5 years x yrs)
Acc. depreciation
3,000
3,000
1,500
1,500
Should be in CFS Parent Books Sky

(P24,750 / 5.5 years)
Acc. Depreciation
Recorded as Subsidiary Books - Earth
4,500
4,500
(P33,000 / 5.5 years)
Acc. depreciation
72. d
Building
Retained earnings (8,250 750)
Accumulated depreciation (P11,250 P750)
6,000
6,000
3,000
7,500
10,500
73. c (P22,500 x 4/15 = P6,000)

74. a [P50,000 (P50,000 x 4/10) = P30,000]
75. a
Simon, 4/1/20x4
Selling price
Cost, 1/1/20x4
Less: Accumulated depreciation : P50,000/10 years x 3/12
Realized gain depreciation: P19,500/9.75 years
P68,250
P50,000
__1,250
48,750
P19,500
P 2,000
76. c P2,000 x 9/12 (April 1, 20x4 December 31, 20x4) = P1,500

77. c P19,500 / 9.75 years = P2,000
78. c P19,500 / 9.75 years = P2,000
The requirement share of income from Wilson and available choices in the problem are
on the assumption of the use of equity method. So, the answer then would be (a)
Unrealized gain on sale of equipment (downstream sales)
P2,000 x 9/12 (April 1, 20x4 December 31, 20x4) = P1,500
Net
20x4
90,000
( 19,500)
_ 1,500
72,000
on the assumption of the use of equity method. So, the answer then would be (b)
Net
20x5
108,000
_ 2,000
110,000
on the assumption of the use of equity method. So, the answer then would be (d)
Net
20x6
117,000
_ 2,000
119,000
82. c
Smeder, 1/1/20x4
Selling price
P84,000
Cost, 1/1/20x4
Less: Accumulated depreciation
83.
P120,000
__48,000
72,000
P12,000
P 2,000
It should be noted that PAS 27 allow the use of cost model in accounting for investment in
on the assumption of the use of equity method. So, the answer then would be (b)
20x4
22,400
( 9,600)

Unrealized gain on sale of equipment (upstream sales); 12,000 x 80%
P2,000 x 80%
Net
84.
_ 1,600
14,400
It should be noted that PAS 27 allow the use of cost model in accounting for investment in
20x5
25,600

P2,000 x 80%
Net
_ 1,600
27,200
85. d
Equipment
Gain
36,000
12,000
48,000
Parent Smeder
Cash
Equipment
Gain
Subsidiary - Collins
84,000
48,000
Equipment
Cash
84,000
84,000
120,000
12,000
Smeder, 1/1/20x4
Selling price
Cost, 1/1/20x4
Less: Accumulated depreciation
P84,000
P120,000
__48,000
P12,000 / 6 years or P14,000 P12,000
Should be in CFS Parent Smeder
(P72,000 /6 years)
12,000
72,000
P12,000
P 2,000
2,000
2,000
Recorded as Subsidiary - Collins
(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).
86. c
20x4
( 12,000)
___2,000
( 10,000)

Realized gain on sale of equipment through depreciation
Net
87. d
Cash
Loss
5,000
5,000
Parent Stark
Cash
Loss
Land
Subsidiary - Parker
80,000
5,000
Land
Cash
85,000
85,000
85,000
Selling price
Stark
P 80,000
_85,000
P ( 5,000)
Parker
P 92,000
__80,000
P 12,000
88. b refer to No. 87 for eliminating entry

89. b
Cash
Retained earnings
Consolidated
P 92,000
_85,000
P 7,000
5,000
5,000
The requirement income from Stark and available choices in the problem are on the
assumption of the use of equity method. So, the answer then would be (e) computed as
follows:
Unrealized loss on sale of land (upstream sales): P5,000 x 90%
Net
20x4
180,000
_ 4,500
184,500
assumption of the use of equity method. So, the answer then would be (d) computed as
follows:
20x4
180,000
Unrealized loss on sale of land (upstream sales): P5,000 x 90%

Net
_ 4,500
184,500
92. b
Selling price
Stark
P 80,000
_85,000
P ( 5,000)
Parker
P 92,000
__80,000
P 12,000
Consolidated
P 92,000
_85,000
P 7,000
93. a refer to No. 92 for computation

94. e None, the loss was already recognized in the books of Stark in the year of sale - 20x4 but
not in the subsequent years.
assumption of the use of equity method. So, the answer then would be (c) computed as
follows:
20x6
198,000
_ ( 4,500)
193,500

Intercompany realized loss on sale of land (upstream sales): P5,000 x 90%
Net
96. d - Investment in subsidiary, 12/31/20x5 (cost model) P700,000).

Date of Acquisition (1/1/20x4)
Partial
Full
Fair value of consideration givenP 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
97. d refer to No. 1 for cost model:
Dividend paid or declared SP 50,000
x: Controlling Interest %.
80%
Dividend income of Parent..P 40,000
98. d
(P35,000 P875)
Total
P 300,000
34,125
P 265,875
P 150,000
(30,000)
4,500
P 124,500
124,500
P390,375
3,000
P387,375

24,300
P363,075
Or, alternatively
(P35,000 P875)
Total

P 300,000
34,125
P 265,875
P 150,000
(30,000)
4,500
P 124,500
P 24,300
3,000
124,500
P390,375
27,300
P363,075
_ 24,300
P387,375
P 150,000
( 30,000)
4,500
P 124,500
3,000
P 121,500
20%
P 24,300
0
P 24,300
99. c refer to No. 98 for computations

100. d refer to No. 98 for computations
101. 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, Ps 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
102. c refer to No, 101 computations.
103. b refer to No. 101 for computations
104. d refer to No. 101 for computations
105. b
Consolidated Stockholders Equity, 12/31/20x5:
Controlling Interest / Parents Interest / Parents Portion /
Equity Holders of Parent SHE, 12/31/20x5:
Common stock P (P only)..P1,000,000
Retained Earnings P (equity method), 12/31/20x5. 1,140,675
Controlling Interest / Parents Stockholders Equity P2,140,675
Non-controlling interest, 12/31/20x5 (partial/full)
208,700
Consolidated Stockholders Equity, 12/31/20x5.P2,349,375
Theories
1.
2.
3.
4.
5.
d
c
d
d
b
6.
7.
8.
9.
10,
N/A
c
a
a
c
11.
12.
13.
14.
15,
b
c
d
b
c
16.
17.
18.
19.
20.
c
b
a
a
c
21.
22.
23.
24.
25.
a
b
d
c
c
26.
27.
28.
29.
30.
b
b
c
b
c
31
32.
33.
34.
35.
c
b
c
d

Chapter 18 Consolidated Financial Statements Problems

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Chapter 18 Consolidated Financial Statements Problems

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Chapter 18

Journal entry to record purchase:

Journal entry to record depreciation expense:

Eliminating entry at December 31, 20x4, to eliminate intercompany sale of

Eliminating entry at January 1, 20x4, to eliminate intercompany sale of equipment

Accumulated depreciation adjustment:

Eliminating entry, December 31, 20x9:

Accumulated depreciation adjustment:

Computation of gain on sale of truck:

Eliminating entry, December 31, 20x9:

Accumulated depreciation adjustment:

Controlling Interest in Consolidated Net Income:

Prince Companys share thereof

Noncontrolling Interest Calculation:

Realized gain depreciation: P100,000 / 4 years

Accumulated Depreciation (P100,000/4) 2

Controlling Interest in Consolidated Net Income:

Prince Companys share thereof

Schedule of Determination and Allocation of Excess (Partial-goodwill)

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

A summary or depreciation and amortization adjustments is as follows:

Goodwill applicable to parent

The goodwill impairment loss would be allocated as follows

* selling price less book value

20x4: First Year after Acquisition

To eliminate intercompany investment and equity accounts

To allocate excess of cost over book value of identifiable assets

(E3) Cost of Goods Sold.

(E4) Dividend income - P.

To eliminate intercompany dividends and non-controlling interest

(E5) Gain on sale of equipment

To eliminate the downstream intercompany gain and restore to its

(E6) Gain on sale of equipment

To eliminate the upstream intercompany gain and restore to its

(E7) Accumulated depreciation..

To adjust downstream depreciation expense on equipment sold to

(E8) Accumulated depreciation..

To adjust upstream depreciation expense on equipment sold to

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

To establish non-controlling interest in subsidiarys adjusted net

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

Cost of goods sold

Statement of Retained Earnings

20x5: Second Year after Acquisition

No goodwill impairment loss for 20x5.

Consolidation Workpaper Second Year after Acquisition

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

To eliminate intercompany investment and equity accounts

To allocate excess of cost over book value of identifiable assets

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

(E5) Dividend income - P.

To eliminate intercompany dividends and non-controlling interest

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

To eliminate the downstream intercompany gain and restore to its

(E6) Retained EarningsP Company, 1/1/20x5 (P31,200 x 80%)

To eliminate the upstream intercompany gain and restore to its

(E7) Accumulated depreciation..

To adjust downstream depreciation expense on equipment sold to

(E8) Accumulated depreciation..

To adjust upstream depreciation expense on equipment sold to

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

To establish non-controlling interest in subsidiarys adjusted net