Professional Documents
Culture Documents
Problem I
1. P50,075
P17,350
40,000
P57,350
P 5,775
0
1,500
7,275
P50,075
5,775
P55,850
*this procedure would be not be applicable where the NCI on goodwill impairment loss would not
be proportionate to NCI acquired.
P 40,000
(
0))
P 40,000
15%
P 6,000
____225
P 5,775
600,000
800,000
500,000
300,000
40,000
(70,000)
(30,000)
330,000
Over/
Under
P40,000
Life
1
(70,000)
330,000
Annual
Amount
P 40,000
Current
Year(20x4)
P 40,000
(14,000)
P 26,000
_____
P 26,000
( 14,000)
P 26,000
_____
P 26,000
20x5
P
(14,000)
P(14,000)
______
P(14,000)
20x6
(14,000)
P(14,000)
__ 19,300
P 5,300
Balance
Dec. 31
Amortization
20x4 & 20x5
20x6
40,000
(28,000)
(14,000)
0
19,300
12,000
5,300
Year 1
600,000
600,000
18,750
18,750
(28,000)
310,700
282,700
Year 2
7,500
Year 3
7,500
30,000
P 310,700
P 400,000
P 110,000
90,000
( 40,000)
160,000
P 560,000
P 300,000
( 12,000)
14,000
( 19,300)___282,700
P842,700
25%
P210,675
Or, alternatively;
Smalls common/ordinary shares
Smalls retained earnings (100,000+80,000-25,000-35,000-10,000+90,000
-40,000)
Unamortized acquisition differential
30,000
400,000
160,000
560,000
282,700
842,700
210,675
P500,000
P 110,000
100,000
P 10,000
26,000
(14,000)
P ( 2,000)
75%
P ( 1,500)
_____0
1,500
P498,500
P498,500
219,050
P717,550
70,000
P647,550
d. P219,050
P170,000
90,000
P260,000
P 16,350
5,300
19,300
40,950
P219,050
16,350
P235,400
*this procedure would be not be applicable where the NCI on goodwill impairment loss would not
be proportionate to NCI acquired.
P 90,000
( 5,300)
P 84,700
25%
P 21,175
___4,825
P 16,350
Year 2
Year 3
(26,250)
67,500
(26,250)
67,500
7,500
30,000
7,500
30,000
(10,500)
3,975
(10,500)
3,975
600,000
160,000
100,000
60,000
17,300
42,700
32,025
632,025
Note: Regardless of the method used (cost or equity) answers for No. 2 (a) to (e) above are
exactly the same.
Problem III
Cost of 8% investment
Fair value of Subsidiary (Implied cost of 100% investment); P646,000/85%
Less: Carrying amount of Silks net assets =
Carrying amount of Silks shareholders equity
Common/Ordinary shares
500,000
Retained earnings
100,000
646,000
760,000
600,000
160,000
70,000
90,000
114,000
Over/
under
P70,000
90,000
P160,000
Life
1
10
Annual
Amount
P 70,000
Current
Year(20x5)
P 70,000
__9,000
P 79,000
___9,000
P 79,000
20x6
___9,000
P 9,000
Amortization
20x5
20x6
70,000
9,000
9,000
79,000
9,000
20x7
___9,000
P 9,000,
Balance
Dec. 31
20x6
72,000
72,000
1. NCI-CNI
20x5: P(7,350)
20x6: P6,450
Consolidated Net Income
Net income from own/separate operations
Large Company
20x5 [P28,000 P0)]
20x6 [(P45,000, loss + (P15,000 x 85%)]
Small Company
Total
Less: Non-controlling Interest in Net Income*
Amortization of allocated excess
Goodwill impairment
CI-CNI (loss) or Profit (loss) attributable to equity
holders of parent
Add: Non-controlling Interest in Net Income (NCINI)
Consolidated Net Income/Loss (CNI)
20x5
20x6
P 28,000
P(7,350)
79,000
_____0
30,000
P 58,000
71,650
P 6,450
9,000
_____0
P(13,650)
( 7,350)
P(21,000)
*this procedure would be not be applicable where the NCI on goodwill impairment loss would not
be proportionate to NCI acquired.
- 7,350
6,450
20x5
28,000
0
15,450
P(21,200)
6,450
P(14,750)
20x5
P 30,000
( 79,000)
P(49,000)
15%
P( 7,350)
_______P( 7,350)
P(57,750)
52,000
P( 5,750)
20x6
(45,000)
28,000
(12,750)
(57,750)
(41,650)
_
36,550_
(13,650)
(21,200)
20x6
P 52,000
( 9,000)
P 43,000
15%
P 6,450
___
_P 6,450
P 91,000
P 167,000
100,000
P 67,000
79,000
__ 9,000
P (21,000)
85%
P (17,850)
_____0
( 17,850)
P 73,150
Amortization
20x5
20x6
70,000
9,000
9,000
79,000
9,000
P 114,000
(
3,150)
P 110,850
Balance
Dec. 31
20x6
72,000
72,000
Or, alternatively:
Invest. account equity Dec. 31, 20x6
Cost of investment
Retained earnings Silk Dec. 31, 20x6
(100,000 + 30,000 + 52,000 15,000)
Retained earnings,12/31/20x4 (date of acquisition)
Increase since acquisition
Less: Accumulated amortization (79,000 + 9,000)
Invest. account equity method as at Dec. 31, 20x6
Implied value of 100% (628,150 / 85%)
Silk Common shares
Retained earnings
628,150
646,000
167,000
100,000
67,000
88,000
- 21,000
85%
500,000
167,000
- 17,850
628,150
739,000
667,000
72,000
P664,000
166,000*
P830,000
(600,000)
230,000
Annual Excess
Life
Amortizations
80,000 20 years
P4,000
P150,000 indefinite
-0P4,000
2.
3.
Full-goodwill
Common Stock - TT ..................................................................
Additional Paid-in Capital - TT ...............................................
Retained Earnings - TT ..............................................................
Investment in TT Company (80%) ...................................
Non-controlling interest (20%) .........................................
Buildings .....................................................................................
Goodwill ....................................................................................
Investment in TT Company (80%) ...................................
Non-controlling interest (P166,000 P120,000) ............
300,000
90,000
210,000
80,000
150,000
480,000
120,000
184,000
46,000
Partial-goodwill
Common Stock - TT ..................................................................
Additional Paid-in Capital - TT ...............................................
Retained Earnings - TT ..............................................................
Investment in TT Company (80%) ...................................
Non-controlling interest (20%) .........................................
Buildings .....................................................................................
Goodwill ....................................................................................
Investment in TT Company (80%) ...................................
Non-controlling interest (20% x P80,000) .......................
300,000
90,000
210,000
80,000
120,000
480,000
120,000
184,000
16,000
4.
5.
6.
Using the acquisition method, the allocation will be the total difference (P80,000) between
the buildings' book value and fair value. Based on a 20 year life, annual excess amortization
is P4,000.
MM book valuebuildings ....................................................
TT book valuebuildings ........................................................
Allocation ..................................................................................
Excess Amortizations for 20x420x5 (P4,000 2) .
Consolidated buildings account
7.
P 8,000
P664,000
800,000
300,000
80,000
(
8,000)
P 1,172,000
P
P
150,000
120,000
8. The common stock and additional paid-in capital figures to be reported are the parent
balances only.
Common stock, P500,000
Additional paid-in capital, P280,000
Problem V
1.
Partial Goodwill or Proportionate Basis
a. Investment in S
225,000
Beginning Retained Earnings-Palm Inc.
To establish reciprocity/convert to equity (0.90 x(P1,250,000 P1,000,000))
b.
c.
Common stock S
Retained earnings S
Investment in S Co
NCI (P4,250,000 x 10%)
Land
Investment in S
NCI [(P500,000 x 10%) (P100,000 x 10%)]
Retained earnings P (bargain purchase gain
3,000,000
1,250.000
400,000
225,000
3,825,000
425,000
150,000
40,000
210,000
FV of SHE of S:
Common stock, 1/1/20x5
P3,000,000
Retained earnings, 1/1/20x5
Retained earnings, 1/1/20x4
P1,000,000
NI Subsidiary (20x4)
250,000
Dividends Subsidiary 20x4
(
0) 1,250,000
Book value of SHE S, 1/1/20x5
P4,250,000
Adjustments to reflect fair value
500,000
Amortization of allocated excess (P100,000 x 1)
( 100,000)
FV of SHE of S
P4,650,000
Multiplied by: NCI%
10%
FV of NCI
P 465,000
Computation of Gain:
Partial Goodwill or Proportionate Basis
P3,750,000
_3,600,000
P 150,000
P 90,000
360,000
__450,000
(P300,000)
c.
Common stock S
Retained earnings S
Investment in S
NCI (P4,250,000 x 10%)
Land
Investment in S
NCI [(P500,000 x 10%) (P100,000 x 10%)]
Retained earnings P (bargain purchase gain
closed to retained earnings since only balance
sheets are being examined, P300,000 P90,000
depreciation, 20x4)
3,000,000
1,250.000
400,000
FV of SHE of S:
Common stock, 1/1/20x5
P3,000,000
Retained earnings, 1/1/20x5
Retained earnings, 1/1/20x4
P1,000,000
NI Subsidiary (20x4)
250,000
Dividends Subsidiary 20x4
(
0) 1,250,000
Book value of SHE S, 1/1/20x5
P4,250,000
Adjustments to reflect fair value
500,000
Amortization of allocated excess (P100,000 x 1)
( 100,000)
FV of SHE of S
P4,650,000
Multiplied by: NCI%
10%
FV of NCI
P 465,000
225,000
3,825,000
425,000
150,000
40,000
210,000
2.
P4,166,667
4,000,000
P 166,667
P 100,000
400,000
__500,000
(P333,333
Note: In case of gain, the working paper eliminating entries under partial and full-goodwill
approach are the same.
Consolidated Retained Earnings, December 31, 20x5
Retained earnings - Parent Company, December 31, 20x5 (cost model
Adjustment to convert from cost model to equity method for purposes of
consolidation or to establish reciprocity:/Parents share in adjusted net
increased in subsidiarys retained earnings:
Retained earnings Subsidiary, December 31, 20x5
(P1,000,000 + P250,000 P0 + P300,000 P0)
Less: Retained earnings Subsidiary, January 1, 20x4
Increase in retained earnings since date of acquisition
Less: Amortization of allocated excess 20x4 (inventory)
Multiplied by: Controlling interests %...................
Add: Bargain purchase gain (Controlling interest P300,000)
Less: Goodwill impairment loss
Consolidated Retained earnings, December 31, 20x5
Problem VI
Computation of Goodwill:
Partial Goodwill
Fair value of Subsidiary:
Consideration transferred
Less: BV of SHE of S (P1,000,000 + P500,000) x 80%
Allocated excess
Less: Over/under valuation of A and L: Inc. (Dec.)
Prop., plant and eqpt. (P1,500,000 P600,000) x 80%
Goodwill partial
Full-goodwill:
Fair value of Subsidiary:
Consideration transferred P2,800,000 / 80%
Less: BV of SHE of S (P1,500,000 x 100%)
Allocated excess
Less: Over/under valuation of A and L: Inc. (Dec.)
Prop., plant and eqpt. (P1,500,000 P600,000) x 80%
Goodwill full
Amortization of allocated excess:
P900,000 / 10 years = P90,000 per year
P2,000,000
P1,550,000
1,000,000
P 550,000
100,000
P 450,000
90%
P405,000
300,000
_______0
__705,,000
P 4,705,000
P2,800,000
_1,200,000
P1,600,000
__720,000
P 880,000
P3,500,000
1,500,000
P2,000,000
__900,000
P1,100,000
1.
b. Depreciation Expense
Property and Equipment (net)
20x5
a. Investment in S Company (P300,000 x 0.80)
Beginning Retained Earnings-P Co.
To establish reciprocity/convert to equity as of 1/1/20x5
b. Beginning Retained Earnings-S Company
Capital Stock-S Company
Property and Equipment (net)
Goodwill
Investment in S Company (P2,800,000 + P240,000)
Non-controlling Interest P700,000 +
[(P1,300,000 P1,000,000) x 0.20]
FV of SHE of S:
Common stock, 1/1/20x5
Retained earnings, 1/1/20x5
Retained earnings, 1/1/20x4
P1,000,000
NI Subsidiary (20x4)
300,000
Dividends Subsidiary 20x4
(
0)
Book value of SHE S, 1/1/20x5
Adjustments to reflect fair value
FV of SHE of S1/1/x5
Multiplied by: NCI%
FV of NCI (partial)
Add: NCI on full-goodwill (P1,100,000 P880,000)
FV of NCI (full)
1,000,000
500,000
900,000
1,100,000
P 500,000
1,000,000
P1,500,000
900,000
P2,400,000
20%
P 480,000
220,000
P 700,000
90,000
240,000
1,300,000
500,000
900,000
1,100,000
2,800,000
700,000
90,000
240,000
3,040,000
760,000
P 500,000
1,300,000
P1,800,000
900,000
P2,700,000
20%
P 540,000
220,000
P 760,000
72,000
18,000
90,000
180,000
1,000,000
500,000
900,000
880,000
b. Depreciation Expense
Property and Equipment (net)
90,000
20x5
a. Investment in S Company (P300,000 x 0.80)
Beginning Retained Earnings-P Co.
To establish reciprocity/convert to equity as of 1/1/20x5
240,000
P 500,000
P1,000,000
300,000
(
0) 1,300,000
P1,800,000
900,000
P2,700,000
20%
P 540,000
2,800,000
480,000
90,000
240,000
3,040,000
540,000
72,000
18,000
90,000
180,000
P 42,000
90,000
____0
P 300,000
( 90,000)
P210,000
20%
P 42,000
20x5
132,000
P568,000
42,000
P610,000
P400,000
300,000
P700,000
P 62,000
90,000
____0
P425,000
400,000
P825,000
152,000
P673,000
62,000
P735,000
P 400,000
( 90,000)
P310,000
20%
P 62,000
Problem VII
1.
Common stock of TT Company
on December 31, 20x4
Retained earnings of TT Company
January 1, 20x4
Sales for 20x4
Less: Expenses
Dividends paid
Retained earnings of TT Company
on December 31, 20x4
Net book value on December 31, 20x4
Proportion of stock acquired by QQ
Purchase price
2.
Net book value on December 31, 20x4
Proportion of stock held by
noncontrolling interest
Balance assigned to noncontrolling interest
P 90,000
P 130,000
195,000
(160,000)
(15,000)
150,000
P240,000
x
.80
P192,000
P240,000
x
.20
P 48,000
3. Consolidated net income is P143,000. None of the 20x4 net income of TT Company was
earned after the date of purchase and, therefore, none can be included in consolidated
net income.
4. Consolidate net income would be P178,000 [P143,000 + (P195,000 - P160,000)].
Problem VIII
Requirements 1 to 4:
Date of Acquisition January 1, 20x4
P 360,000
105,000
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
S Co.
Book value
P 24,000
48,000
84,000
168,000
(120,000)
P 204,000
S Co.
Fair value
P 30,000
55,200
180,000
144,000
( 115,200)
P 294,000
(Over) Under
Valuation
P 6,000
7,200
96,000
(24,000)
4,800
P 90,000
The buildings and equipment will be further analyzed for consolidation purposes as follows:
Equipment ..................
Less: Accumulated depreciation..
Net book value...
S Co.
Book value
180,000
96,000
84,000
S Co.
Fair value
180,000
180,000
Increase
(Decrease)
0
( 96,000)
96,000
Buildings................
Less: Accumulated depreciation..
Net book value...
S Co.
Book value
360,000
192,000
168,000
S Co.
Fair value
144,000
144,000
(Decrease)
( 216,000)
( 192,000)
( 24,000)
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:
(1) Investment in S Company
Cash..
Notes payable
465,000
Acquisition of S Company.
36,000
360,000
105,000
36,000
On the books of S Company, the P36,000 dividend paid was recorded as follows:
Dividends paid
Cash.
36,000
36,000
240,000
120,000
(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
15,000
360,000
216,000
105,000
6,000
6,000
6,000
1,200
3,600
Cost of
Goods Sold
Inventory sold
Equipment
Buildings
Bonds
payable
Totals
Depreciation/
Amortization
Expense
Amortization
-Interest
_______
P12,000
( 6,000)
_______
P 1,200
P 6,000
P 6,000
P1,200
P 6,000
36,000
6,000
12,000
1,200
3,600
36,000
P Co
P480,000
36,000
P516,000
P204,000
60,000
-
S Co.
P240,000
P240,000
P138,000
24,000
-
48,000
P312,000
P204,000
18,000
P180,000
P 60,000
P360,000
204,000
P564,000
P120,000
60,000
P180,000
72,000
-
36,000
P492,000
P144,000
Dr.
(4)
36,000
(3)
(3)
(3)
(3)
6,000
6,000
1,200
3,600
Cr.
Consolidated
P 720,000
_________
P 720,000
P 348,000
90,000
1,200
3,600
66,000
P508,800
P211,200
P 360,000
(1) 120,000
211,200
P571,200
(4)
36,000
72,000
________
P 499,200
Cash.
Accounts receivable..
Inventory.
Land.
Equipment
Buildings
Discount on bonds payable
Goodwill
Investment in S Co
Total
Accumulated depreciation
- equipment
Accumulated depreciation
- buildings
Accounts payable
Bonds payable
Common stock, P10 par
Common stock, P10 par
Retained earnings, from above
Total
147,000
90,000
120,000
210,000
240,000
720,000
P 90,000
60,000
90,000
48,000
180,000
540,000
465,000
P1,992,000
P1,008,000
P 135,000
405,000
P 96,000
288,000
120,000
240,000
600,000
120,000
120,000
___590,400
P1,992,000
240,000
144,000
P1,008,000
P
(2)
(2)
6,000
7,200
(2)
(2)
4,800
15,000
(3)
6,000
(2) 216,000
(3) 1,200
(3) 3,600
(1) 360,000
(2) 105,000
12,000
(1) 240,000
P 736,200
P 736,200
237,000
150,000
210,000
265,200
420,000
1,044,000
3,600
11,400
P2,341,200
P 147,000
495,000
240,000
360,000
600,000
499,200
P2,341,200
48,000
48,000
On the books of S Company, the P40,000 dividend paid was recorded as follows:
Dividends paid
Cash
48,000
24,000
48,000
24,000
P144,000
120,000
P 24,000
100%
P 24,000
240,000
144,000
384,000
(E3) Inventory.
Accumulated depreciation equipment..
Accumulated depreciation buildings..
Land.
Discount on bonds payable.
Goodwill.
Buildings..
Investment in S Co.
6,000
96,000
192,000
7,200
4,800
15,000
16,800
6,000
12,000
1,200
Inventory sold
Equipment
Buildings
Bonds payable
Impairment loss
Totals
(20x4)
Retained
earnings,
P 6,000
12,000
(6,000)
1,200
3,600
P 16,800
Depreciation/
Amortization
expense
P
P 1,200
P 6,000
P1,200
48,000
16,560
6,000
24,000
2,400
3,600
Amortization
-Interest
12,000
( 6,000)
216,000
105,000
P 90,000
( 7,200)
P 82,000
20%
P 16,560
48,000
16,560
P Co.
P540,000
48,000
P588,000
P216,000
60,000
72,000
P348,000
P240,000
P492,000
S Company
Net income, from above
Total
Dividends paid
P Company
S Company
Retained earnings, 12/31 to Balance
Sheet
Balance Sheet
Cash.
Accounts receivable..
Inventory.
Land.
Equipment
Buildings
Discount on bonds payable
Goodwill
Investment in S Co
Total
Accumulated depreciation
- equipment
Accumulated depreciation
- buildings
Accounts payable
Bonds payable
Common stock, P10 par
Common stock, P10 par
Retained earnings, from above
Total
S Co.
P360,000
P360,000
P192,000
24,000
54,000
P270,000
P 90,000
Dr.
(5)
48,000
(4)
(4)
6,000
1,200
(4) 16,800
(2)
144,000
(1)
Cr.
24,000
Consolidated
P 900,000
___________
P 900,000
P 408,000
90,000
1,200
126,000
P 625,200
P 274,800
499,200
240,000
P732,000
P144,000
90,000
P234,000
72,000
-
48,000
P660,000
P186,000
P 702,000
189,000
180,000
216,000
252,000
240,000
720,000
P 102,000
960,000
108,000
48,000
180,000
540,000
P 291,000
276,000
324,000
265,200
420,000
1,044,000
2,400
11,400
465,000
P2,220,000
P1,074,000
P 150,000
450,000
P 102,000
306,000
120,000
240,000
600,000
120,000
120,000
660,000
P2,220,000
240,000
186,000
P1,074,000
274,800
P 774,000
(5)
(3)
(3)
6,000
7,200
(3)
(3)
(1)
4,800
15,000
24,000
(3) 96,000
(3) 192,000
(4) 12,000
(4)
48,000
6,000
(3) 216,000
(4) 2,400
(4) 3,600
(2) 384,000
(3) 105,000
(4)
24,000
72,000
________
P2,634,000
P 180,000
552,000
240,000
360,000
600,000
(2) 240,000
P 783,120
P 783,120
702,000
P2,634,000
5. 1/1/20x4
a. On date of acquisition the retained earnings of P should always be considered as the
consolidated retained earnings, thus:
Consolidated Retained Earnings, January 1, 20x4
Retained earnings - P Company, January 1, 20x4 (date of acquisition)
P360,000
c.
Stockholders Equity
Common stock, P10 par
Retained earnings
Total Stockholders Equity (Total Equity)
P 600,000
360,000
P 960,000
6. 12/31/20x4:
a. P211,200 same with CNI since there is no NCI.
Consolidated Net Income for 20x4
Net income from own/separate operations:
Pa Company
S Company
Total
Less: Amortization of allocated excess
Goodwill impairment loss
Consolidated Net Income for 20x4
P 13,200
3,600
P168,000
60,000
P228,000
16,800
P211,200
f.
P 600,000
499,200
P 1,099,200
12/31/20x5
a. P274,800 same with CNI since there is no NCI.
P 7,200
0
P192,000
90,000
P282,000
7,200
P274,800
d.
P492,000
P 144,000
120,000
P 24,000
16,800
P 7,200
100%
274,800
P774,000
72,000
P702,000
P 600,000
702,000
P1,302,000
Problem IX
Requirements 1 to 4:
Schedule of Determination and Allocation of Excess (Partial-goodwill)
Date of Acquisition January 1, 20x4
Fair value of Subsidiary (80%)
Consideration transferred..
Less: Book value of stockholders equity of S:
Common stock (P240,000 x 80%).
Retained earnings (P120,000 x 80%)...
Allocated excess (excess of cost over book value)..
Less: Over/under valuation of assets and liabilities:
Increase in inventory (P6,000 x 80%)
Increase in land (P7,200 x 80%).
Increase in equipment (P96,000 x 80%)
Decrease in buildings (P24,000 x 80%).....
Decrease in bonds payable (P4,800 x 80%)
Positive excess: Partial-goodwill (excess of cost over
fair value)...
P 372,000
P 192,000
96,000
288,000
84,000
P 4,800
5,760
76,800
( 19,200)
3,840
72,000
P 12,000
S Co.
Fair value
30,000
(Over) Under
Valuation
Inventory...
P 24,000
Land
48,000
55,200
7,200
Equipment (net).........
84,000
180,000
96,000
(24,000)
Buildings (net)
7,200
P 499,200
6,000
168,000
144,000
Bonds payable
(120,000)
( 115,200)
4,800
Net..
P 204,000
P 294,000
P 90,000
The buildings and equipment will be further analyzed for consolidation purposes as follows:
S Co.
Book value
S Co.
Fair value
Increase
(Decrease)
Equipment ..................
180,000
180,000
96,000
( 96,000)
84,000
S Co.
Book value
180,000
S Co.
Fair value
96,000
(Decrease)
Buildings................
360,000
144,000
( 216,000)
192,000
( 192,000)
168,000
144,000
Over/
Under
Life
Annual
Amount
P 6,000
P 6,000
24,000)
Current
Year(20x4)
20x5
P 6,000
96,000
12,000
12,000
12,000
(25,000)
( 6,000)
( 6,000)
(6,000)
4,800
Bonds payable
1,200
1,200
1,200
P 13,200
P 13,200
P 7,200
The goodwill impairment loss of P3,125 based on 100% fair value would be allocated to the
controlling interest and the NCI based on the percentage of total goodwill each equity interest
received. For purposes of allocating the goodwill impairment loss, the full-goodwill is computed
as follows:
Fair value of Subsidiary (100%)
Consideration transferred: Cash (80%)
P 372,000
93,000
P 465,000
__360,000
105,000
90,000
15,000
In this case, the goodwill was proportional to the controlling interest of 80% and non-controlling
interest of 20% computed as follows:
Goodwill applicable to parent
Goodwill applicable to NCI..
Total (full) goodwill..
Value
P12,000
3,000
P15,000
% of Total
80.00%
20.00%
100.00%
Value
P 3,000
% of Total
80.00%
750
20.00%
P 3,750
100.00%
When cost model is used, only two journal entries are recorded by P Company during 20x4
related to its investment in S Company.
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
28,800
372,000
28,800
On the books of S Company, the P30,000 dividend paid was recorded as follows:
Dividends paid
Cash.
Dividends paid by S Co..
36,000
240,000
120.000
(E2) Inventory.
Accumulated depreciation equipment..
Accumulated depreciation buildings..
Land.
Discount on bonds payable.
Goodwill.
Buildings..
Non-controlling interest (P90,000 x 20%)..
Investment in S Co.
6,000
96,000
192,000
7,200
4,800
12,000
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
13,200
6,000
6,000
6,000
1,200
3,000
36,000
288,000
72,000
216,000
18,000
84,000
6,000
12,000
1,200
3,000
It should be observed that the goodwill computed above was proportional to the controlling
interest of 80% and non-controlling interest of 20% computed as follows:
Value
P12,000
3,000
P15,000
% of Total
80.00%
20.00%
100.00%
Therefore, the goodwill impairment loss of P3,125 based on 100% fair value or full-goodwill would
be allocated as follows:
Value
P 3,000
% of Total
80.00%
750
20.00%
P 3,750
100.00%
28,800
7,200
9,360
36,000
9,360
P 60,000
( 13,200)
P 46,800
20%
P 9,360
P Co
P480,000
28,800
P508,800
P204,000
60,000
48,000
P310,000
P196,800
P196,800
S Co.
P240,000
P240,000
P138,000
28,000
18,000
P180,000
P 60,000
P 60,000
Dr.
(4)
28,800
(3)
(3)
(3)
6,000
6,000
1,200
(3)
3,000
(5)
9,360
Cr.
Consolidated
P 720,000
_________
P 720,000
P 348,000
90,000
1,200
66,000
3,000
P508,200
P211,800
( 9,360)
P202,440
P360,000
72,000
-
36,000
P484,800
232,800
90,000
120,000
210,000
240,000
720,000
Accumulated depreciation
- equipment
Accumulated depreciation
- buildings
Accounts payable
Bonds payable
Common stock, P10 par
Common stock, P10 par
Retained earnings, from above
Non-controlling interest
202,440
P562,440
P144,000
490,440
P 90,000
60,000
90,000
48,000
180,000
540,000
322,800
150,000
210,000
265,200
420,000
1,044,000
3,600
9,000
P1,008,000
P 135,000
405,000
P 96,000
288,000
120,000
240,000
600,000
120,000
120,000
(4)
(2)
(2)
6,000
7,200
(2)
(2)
4,800
12,000
(3)
240,000
144,000
(1) 240,000
_________
P1,984,800
_________
P1,008,000
__________
P 745,560
(4)
7,200
36,000
6,000
(2) 216,000
(3) 1,200
(3) 3,000
(4) 288,000
(5) 84,000
484,800
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
360,000
72,000
________
P1,984,800
(1) 120,000
372,000
Total
Total
196,800
P552,000
P120,000
60,000
P180,000
12,000
P147,000
495,000
240,000
360,000
600,000
(1 ) 72,000
(2) 18,000
(5) 9,360
P 745,560
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
P2,424,600
490,440
____92,160
P2,424,600
S Co.
P 360,000
192,000
P 168,000
24,000
54,000
P 90,000
P 90,000
P 48,000
38,400
38,400
On the books of S Company, the P40,000 dividend paid was recorded as follows:
Dividends paid
Cash
Dividends paid by S Co..
48,000
48,000
19,200
19,200
P144,000
120,000
P 24,000
80%
P 19,200
240,000
144,000
(E3) Inventory.
Accumulated depreciation equipment..
Accumulated depreciation buildings..
Land.
Discount on bonds payable.
Goodwill.
Buildings..
Non-controlling interest (P90,000 x 20%)
Investment in S Co.
6,000
96,000
192,000
7,200
4,800
12,000
13,560
2,640
6,000
12,000
1,200
307,200
76,800
216,000
18,000
84,000
6,000
24,000
2,400
3,000
Inventory sold
Equipment
Buildings
Bonds payable
Sub-total
Multiplied by:
To Retained earnings
Impairment loss
Total
(20x4)
Retained
earnings,
P 6,000
12,000
(6,000)
1,200
P13,200
80%
P 10,560
3,000
P 13,560
Depreciation/
Amortization
expense
Amortization
-Interest
P 12,000
( 6,000)
________
P 6,000
P 1,200
P 1,200
38,400
9,600
16,560
48,000
16,560
P 90,000
( 7,200)
P 82,800
20%
P 16,560
P Co
P540,000
38,400
P578,400
P216,000
60,000
72,000
P348,000
P230,400
P230,400
P484,800
S Co.
P360,000
P360,000
P192,000
24,000
54,000
P270,000
P 90,000
P 90,000
230,400
P715,200
P 144,000
90,000
P234,000
72,000
-
48,000
P643,200
P186,000
Dr.
(5)
38,400
(4)
(4)
6,000
1,200
(6)
16,560
(4) 13,560
(2) 144,000
Cr.
Consolidated
P 900,000
___________
P 900,000
P 408,000
90,000
1,200
126,000
P 625,200
P 274,800
( 16,560)
P 258,240
(1) 19,200
P 490,440
258,240
P 748,680
(5)
48,000
72,000
________
P 676,680
Balance Sheet
Cash.
Accounts receivable..
Inventory.
Land.
Equipment
Buildings
Discount on bonds payable
Goodwill
Investment in S Co
Total
Accumulated depreciation
- equipment
Accumulated depreciation
- buildings
Accounts payable
Bonds payable
Common stock, P10 par
Common stock, P10 par
Retained earnings, from above
Non-controlling interest
Total
265,200
180,000
216,000
210,000
240,000
720,000
P 114,000
96,000
108,000
48,000
180,000
540,000
372,000
P2,203,200
P1,074,000
P 150,000
450,000
P 102,000
306,000
120,000
240,000
600,000
120,000
120,000
643,200
___ _____
P2,203,200
240,000
186,000
_________
P1,074,000
(3)
(3)
6,000
7,200
(3)
(3)
(1)
4,800
12,000
19,200
(3) 96,000
(3) 192,000
(4) 12,000
(4)
6,000
(3) 216,000
(4) 2,400
(4) 3,000
(2) 307,200
(3) 84,000
(4)
24,000
9,600
2,640
__________
P 821,160
P2,707,800
P180,000
552,000
240,000
360,000
600,000
(2) 240,000
(5)
(4)
P 367,200
276,000
324,000
265,200
420,000
1,044,000
2,400
9,000
676,680
(2 ) 76,800
(3) 18,000
(6) 16,560
P 821,160
____99,120
P2,707,800
5. 1/1/20x4
a. On date of acquisition the retained earnings of P should always be considered as the
consolidated retained earnings, thus:
b.
c.
6.
Consolidated SHE:
Stockholders Equity
Common stock, P10 par
Retained earnings
Ps Stockholders Equity / CI - SHE
NCI, 1/1/20x4
Consolidated SHE, 1/1/20x4
P360,000
P 240,000
120,000
P 360,000
90,000
P450,000
20
P 90,000
P 600,000
360,000
P 960,000
___90,000
P1,050,000
Note: The goodwill recognized on consolidation purely relates to the Ps 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 9,360
13,200
3,000
P168,000
60,000
P228,000
25,560
P202,440
9,360
P211.800
b. NCI-CNI
P 60,000
13,200
P 46,800
20%
P 9,360
e.
f.
Consolidated SHE:
Stockholders Equity
Common stock, P10 par
Retained earnings
Ps Stockholders Equity / CI SHE, 12/31/20x4
NCI, 12/31/20x4
Consolidated SHE, 12/31/20x4
P360,000
202,440
P562,440
72,000
P490,440
P 240,000
P120,000
60,000
P180,000
36,000
144,000
P 384,000
90,000
( 13,200)
P460,000
20
P 92,160
P 600,000
490,440
P1,090,440
___92,160
P1,182,600
12/31/20x5:
a. CI-CNI
P16,560
__7,200
P192,000
90,000
P282,000
23,760
P258,240
16,560
P274,800
b. NCI-CNI
P 90,000
80,400
P 82,800
20%
P 16,560
P484,800
P 144,000
120,000
P 24,000
13,200
P 10,800
80%
P 8,640
e.
P 240,000
P14,000
90,000
P234,000
48,000
186,000
P 426,000
90,000
20x4
20x5
Fair value of stockholders equity of S, December 31, 20x5
Multiplied by: Non-controlling Interest percentage...
Non-controlling interest (partial goodwill)..
f.
P 13,200
7,200
Consolidated SHE:
Stockholders Equity
Common stock, P10 par
Retained earnings
Parents Stockholders Equity / CI SHE, 12/31/20x5
NCI, 12/31/20x5
Consolidated SHE, 12/31/20x5
P 600,000
676,680
P1,276,680
___99,120
P1,1375,800
Problem X
Requirements 1 to 4:
Schedule of Determination and Allocation of Excess
Date of Acquisition January 1, 20x4
P 372,000
93,000
P 465,000
P 240,000
120,000
Over/
under
P 6,000
Life
1
96,000
(24,000)
4,800
8
4
4
360,000
P 105,000
6,000
7,200
96,000
( 24,000)
4,800
90,000
P 15,000
( 20,400)
P 495,600
20
P 99,120
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:
(1) Investment in S Company
Cash..
Acquisition of S Company.
January 1, 20x4 December 31, 20x4:
(2) Cash
Dividend income (P36,000x 80%).
Record dividends from S Company.
372,000
28,800
On the books of S Company, the P30,000 dividend paid was recorded as follows:
372,000
28,800
Dividends paid
Cash.
Dividends paid by S Co..
36,000
36,000
No entries are made on the Ps books to depreciate, amortize or write-off the portion of the
allocated excess that expires during 20x4.
Consolidation Workpaper First Year after Acquisition
240,000
120.000
(E2) Inventory.
Accumulated depreciation equipment..
Accumulated depreciation buildings..
Land.
Discount on bonds payable.
Goodwill.
Buildings..
Non-controlling interest (P90,000 x 20%) + [(P15,000, full
P12,000, partial goodwill)]
Investment in S Co.
6,000
96,000
192,000
7,200
4,800
13,000
6,000
6,000
6,000
1,200
3,750
Inventory sold
Equipment
Buildings
Bonds payable
Totals
Cost of Goods
Sold
P 6,000
Depreciation/ Amortization
Expense
Amortization
-Interest
P12,000
( 6,000)
_______
P 6,000
P 1,200
P1,200
_______
P 6,000
28,800
7,200
216,000
21,000
84,000
288,000
72,000
8,610
6,000
12,000
1,200
3,750
36,000
8,610
P 60,000
( 13,200)
P 46,800
20%
P 9,360
Subsidiary accounts are adjusted to full fair value regardless on the controlling interest
percentage or what option used to value non-controlling interest or goodwill.
Worksheet for Consolidated Financial Statements, December 31, 20x4.
Cost Model (Full-goodwill)
80%-Owned Subsidiary
December 31, 20x4 (First Year after Acquisition)
Income Statement
Sales
Dividend income
Total Revenue
Cost of goods sold
Depreciation expense
Interest expense
Other expenses
Goodwill impairment loss
Total Cost and Expenses
Net Income
NCI in Net Income - Subsidiary
Net Income to Retained Earnings
P Co
P480,000
28,800
P508,800
P204,000
60,000
48,000
P312,000
P196,800
P196,800
P360,000
S Co.
P240,000
P240,000
P138,000
24,000
18,000
P180,000
P 60,000
P 60,000
196,800
P556,800
P120,000
60,000
P180,000
72,000
-
36,000
P484,800
232,800
90,000
120,000
210,000
240,000
720,000
(4)
28,800
(3)
(3)
(3)
6,000
6,000
1,200
(3)
3,750
(5)
8,610
Cr.
Consolidated
P 720,000
_________
P 720,000
P 348,000
90,000
1,200
66,000
3,750
P508,950
P211,050
( 8,610)
P202,680
(1) 120,000
360,000
202,680
P562,440
86,400
________
P144,000
490,440
P 90,000
60,000
90,000
48,000
180,000
540,000
322,800
150,000
210,000
265,200
420,000
1,044,000
3,600
11,250
372,000
P1,984,800
Dr.
P1,008,000
(4)
(2)
(2)
6,000
7,200
(2)
(2)
4,800
15,000
(3)
36,000
6,000
(2) 216,000
(3) 1,200
(3) 3,750
(3) 288,000
(4) 84,000
P2,426,850
Accumulated depreciation
- equipment
Accumulated depreciation
- buildings
Accounts payable
Bonds payable
Common stock, P10 par
Common stock, P10 par
Retained earnings, from above
Non-controlling interest
Total
P 135,000
405,000
P 96,000
288,000
120,000
240,000
600,000
120,000
120,000
484,800
240,000
144,000
(1) 240,000
_________
P1,984,800
_________
P1,984,800
__________
P 748,560
(7)
7,200
P147,000
495,000
240,000
360,000
600,000
(1 ) 72,000
(2) 21,000
(5) 8,610
P 748,560
P Co.
P 540,000
216,000
P 324,000
60,000
72,000
P 192,000
38,400
P 230,400
P 72,000
Sales
Less: Cost of goods sold
Gross profit
Less: Depreciation expense
Other expense
Net income from its own separate operations
Add: Dividend income
Net income
Dividends paid
12,000
490,440
____94,410
P2,426,850
S Co.
P 360,000
192,000
P 168,000
24,000
54,000
P 90,000
P 90,000
P 48,000
38,400
38,400
On the books of S Company, the P40,000 dividend paid was recorded as follows:
Dividends paid
Cash
Dividends paid by S Co..
48,000
19,200
48,000
19,200
P144,000
120,000
P 24,000
80%
P 19,200
240,000
144,000
307,200
76,800
(E3) Inventory.
Accumulated depreciation equipment..
Accumulated depreciation buildings..
Land.
Discount on bonds payable.
Goodwill.
Buildings..
Non-controlling interest (P90,000 x 20%) + [(P15,000, full
P12,000, partial goodwill)]
Investment in S Co.
6,000
96,000
192,000
7,200
4,800
15,000
21,000
84,000
13,560
3,390
6,000
12,000
1,200
Inventory sold
Equipment
Buildings
Bonds payable
Impairment loss
Totals
Multiplied by: CI%....
To Retained earnings
(20x4)
Retained
earnings,
P 6,000
12,000
(6,000)
1,200
3,750
P 16,950
80%
P13,560
Depreciation/
Amortization
expense
P
P 1,200
P 6,000
P1,200
38,400
9,600
16,560
6,000
24,000
2,400
3,750
Amortization
-Interest
12,000
( 6,000)
216,000
P 90,000
( 7,200)
P 82,800
20%
P 16,560
0
P 16,560
48,000
16,560
P Co
P540,000
38,400
P578,400
P216,000
60,000
72,000
P348,000
P230,400
P230,400
Total
P484,800
S Co.
P360,000
P360,000
P192,000
24,000
54,000
P270,000
P 90,000
P 90,000
Dr.
(5)
38,400
(4)
(4)
6,000
1,200
(6)
16,560
(5) 13,560
(6) 144,000
Cr.
Consolidated
P 900,000
___________
P 900,000
P 408,000
90,000
1,200
126,000
P 625,200
P 274,800
( 16,560)
P 258,240
(5) 19,200
P 490,440
230,400
P715,200
P 144,000
90,000
P234,000
72,000
-
48,000
P643,200
P186,000
P 676,680
265,200
180,000
216,000
210,000
240,000
720,000
P 102,000
96,000
108,000
48,000
180,000
540,000
P 367,200
276,000
324,000
265,200
420,000
1,044,000
2,400
11,250
372,000
P2,203,200
P1,074,000
P 150,000
450,000
P 102,000
306,000
120,000
240,000
600,000
120,000
120,000
643,200
___ _____
P2,203,200
240,000
186,000
_________
P1,074,000
258,240
P 748,680
(5)
(3)
(3)
6,000
7,200
(3)
(3)
(1)
4,800
15,000
19,200
(3) 96,000
(3) 192,000
(4) 12,000
(4)
57,600
6,000
(3) 216,000
(4) 2,400
(4) 3,750
(2) 307,200
(7) 84,000
(4)
24,000
9,600
3,390
__________
P 824,910
72,000
________
P2,710,050
P180,000
552,000
240,000
360,000
600,000
(2) 240,000
(6)
(8)
676,680
(2 ) 76,800
(3) 21,000
(6) 16,560
P 824,910
____101,370
P2,710,050
5. 1/1/20x4
a. On date of acquisition the retained earnings of parent should always be considered as
the consolidated retained earnings, thus:
Consolidated Retained Earnings, January 1, 20x4
Retained earnings - P Company, January 1, 20x4 (date of acquisition)
b.
c.
6.
Consolidated SHE:
Stockholders Equity
Common stock, P10 par
Retained earnings
Parents Stockholders Equity / CI - SHE
NCI, 1/1/20x4
Consolidated SHE, 1/1/20x4
P360,000
P 240,000
120,000
P 360,000
90,000
P450,000
20
P 90,000
___3,000
P 93,000
P 600,000
360,000
P 960,000
___93,000
P1,053,000
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 P202,440
Consolidated Net Income for 20x4
Net income from own/separate operations:
P Company
S Company
Total
Less: Non-controlling Interest in Net Income*
Amortization of allocated excess (refer to amortization above)
Goodwill impairment (impairment under full-goodwill approach)
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of P..
Add: Non-controlling Interest in Net Income (NCINI)
Consolidated Net Income for 20x4
P 8,610
13,200
3,750
25,560
P202,440
8,610
P211.050
b. NCI-CNI P8,610
P168,000
60,000
P228,000
P 60,000
13,200
P 46,800
20%
P 9,360
750
P 8,610
*this procedure would be more appropriate, instead of multiplying the full-goodwill impairment loss
of P3,750 by 20%. There might be situations where the NCI on goodwill impairment loss would not
be proportionate to NCI acquired.
e.
f.
Consolidated SHE:
Stockholders Equity
Common stock, P10 par
Retained earnings
Ps Stockholders Equity / CI SHE, 12/31/20x4
NCI, 12/31/20x4
Consolidated SHE, 12/31/20x4
P360,000
202,440
P562,440
72,000
P490,440
P 240,000
P120,000
60,000
P180,000
36,000
144,000
P 384,000
90,000
( 13,200)
P460,800
20
P 92,160
2,250
P 94,410
P 600,000
490,440
P1,090,440
___94,410
P1,184,850
12/31/20x5:
a. CI-CNI P258,240
P16,560
7,200
0
P192,000
90,000
P282,000
23,760
P258,240
16,560
P274,800
b. NCI-CNI P16,560
P 90,000
80,400
P 82,800
20%
P 16,560
P484,800
P 144,000
120,000
P 24,000
13,200
P 10,800
80%
P 8,640
e.
P 240,000
P144,000
90,000
P234,000
48,000
186,000
P 426,000
90,000
P 13,200
7,200
( 20,400)
P 495,600
20
P 99,120
2,250
P 101,370
f.
Consolidated SHE:
Stockholders Equity
Common stock, P10 par
Retained earnings
Ps Stockholders Equity / CI SHE, 12/31/20x4
NCI, 12/31/20x4
Consolidated SHE, 12/31/20x4
P 600,000
676,680
P1,276,680
__101,370
P1,378,050
Problem XI
Under the acquisition method, the shares issued by WW are recorded at fair value:
Investment in BB (value of debt and shares issued) ............................
Common Stock (par value) ...............................................................
Additional Paid-in Capital (excess over par value) ......................
Liabilities .................................................................................................
900,000
150,000
450,000
300,000
The payment to the broker is accounted for as an expense. The stock issue cost is a
reduction in additional paid-in capital.
Acquisition expense ...................................................................................
Additional Paid-in Capital.........................................................................
Cash ...................................................................................................
30,000
40,000
70,000
=
=
=
BB P70,000
P900,000
770,000
P130,000
100,000
(20,000)
P 50,000
P210,000
800,000
1,180,000
50,000
1,210,000
510,000
680,000
4.
Fair value of SS as a
whole:
P200,000
10,000
40,000
9,000
P259,000
5.
6.
65 percent
Capital Stock
Retained Earnings
Problem XIII
1.
Investment in WP, Inc.
Contingent performance obligation
Cash
2.
500,000
5,000
10,000
50,000
30,000
200,000
180,000
Royalty agreements
Goodwill
Investment in WP
90,000
60,000
Dividend income
Dividends paid
35,000
Amortization expense
Royalty agreements
10,000
35,000
465,000
5,000
10,000
50,000
30,000
380,000
150,000
35,000
10,000
P900,000
400,000
120,000
(20,000)
P1,400,000
P1,100,000
P700,000
20,000
720,000
P380,000
P80,000
Problem XV
Consolidated balances three years after the date of acquisition. Includes questions about
parent's method of recording investment for internal reporting purposes.)
1. Acquisition-Date Fair Value Allocation and Amortization:
Consideration transferred 1/1/09 ........................... P600,000
Book value (given) ....................................................
(470,000)
Annual
Fair value in excess of book value ...................
130,000
Excess
Allocation to equipment based on
Life Amortizations
difference in fair value and
book value ...........................................................
90,000
10 yrs.
P9,000
Goodwill ......................................................................
P40,000 indefinite
-0Total .......................................................................
P9,000
Consolidated Balances
Depreciation expense = P659,000 (book values plus P9,000 excess depreciation)
Dividends Paid = P120,000 (parent balance only. Subsidiary's dividends are
eliminated as intercompany transfer)
Revenues = P1,400,000 (add book values)
Equipment = P1,563,000 (add book values plus P90,000 allocation less three years
of excess depreciation [P27,000])
Buildings = P1,200,000 (add book values)
Goodwill = P40,000 (original residual allocation)
Common Stock = P900,000 (parent balance only)
2. The parent's choice of an investment method has no impact on the consolidated
totals. The choice of an investment method only affects the internal reporting of the
parent. Under PAS 27, it requires a choice between cost model or under PFRS 9
(known as fair value model)
3. The cost model or initial value method is used. The parent's Investment in Subsidiary
account still retains the original consideration transferred of P600,000. In addition, the
Investment Income account equals the amount of dividends paid by the subsidiary.
4. If the equity method had been applied which is not allowed under PAS 27 for a
parent to consolidate, the Investment Income account would have included both
the equity accrual of P100,000 and excess amortizations of P9,000 for a balance of
P91,000.
Problem XVI
1.
Net income for 20x4:
Operating income
Income from subsidiary
Net income
2. Consolidated net income is P125,000 (P90,000 + P35,000).
3. Retained earnings reported at December 31, 20x4:
Retained earnings, January 1, 20x4
Net income for 20x4
Dividends paid in 20x4
Retained earnings, December 31, 20x4
QQ
P 90,000
24,500
P114,500
NN
P35,000
QQ
P290,000
114,500
(30,000)
P374,500
NN
P40,000
35,000
(10,000)
P65,000
P35,000
4. Consolidated retained earnings at December 31, 20x4, is equal to the P374,500 retained
earnings balance reported by QQ.
5. When the cost method is used, the parent's proportionate share of the increase in retained
earnings of the subsidiary subsequent to acquisition is not included in the parent's retained
earnings. Thus, this amount must be added to the total retained earnings reported by the
parent in arriving at consolidated retained earnings.
Problem XVII
(Several valuation and income determination questions for a business combination involving a
non-controlling interest.)
Business combinations are recorded generally at the fair value of the consideration transferred by
the acquiring firm plus the acquisition-date fair value of the non-controlling interest.
PSs consideration transferred (P31.25 80,000 shares).............................................
Non-controlling interest fair value (P30.00 20,000 shares) ......................................
SRs total fair value 1/1/09 ...............................................................................................
P2,500,000
P600,000
P3,100,000
1.
Each identifiable asset acquired and liability assumed in a business combination should
initially be reported at its acquisition-date fair value.
2.
In periods subsequent to acquisition, the subsidiarys assets and liabilities are reported at their
acquisition-date fair values adjusted for amortization and depreciation. Except for certain
financial items, they are not continually adjusted for changing fair values.
P3,100,000
1,290,000
P1,810,000
P4,400,000
(2,350,000)
50,000
(20,000)
(265,000)
(200,000)
P1,615,000
To non-controlling interest:
SRs revenues ...............................................................................................................
SRs expenses...............................................................................................................
Total excess amortization expenses (above)........................................................
SRs adjusted net income .........................................................................................
Non-controlling interest percentage ownership ..................................................
Non-controlling interest share of consolidated net income ..............................
P1,400,000
(600,000)
(435,000)
P365,000
20%
P73,000
To controlling interest:
Consolidated net income.........................................................................................
Non-controlling interest share of consolidated net income ..............................
Controlling interest share of consolidated net income ......................................
P1,615,000
(73,000)
P1,542,000
1,610,000
P 200,000
P3,000,000
1,750,000
P1,250,000
292,000
P1,542,000
P1,360,000
___320,000
P1,680,000
(1,450,000)
P 230,000
Annual Excess
Life
Amortizations
150,000 5 years
P30,000
P 80,000 indefinite
-0P30,000
It should be carefully noted, that NCI can never be less than its share of fair value of net
identifiable assets (which is P320,000). Thus, the NCI share of company value is raised to
P320,000 (replacing the P300,000 NCI computed as residual amount refer to
computation above). The rationale behind such rule is to avoid having a lower amount
of goodwill under the full-goodwill approach as compared to goodwill computed under
the partial-goodwill approach.
(Partial-Goodwill)
Consideration transferred by KL ..................................... P 1,360,000
Less: Book value of SHE RR (P1,450,000 x 80%)..
1,160,000
Allocated excess. P 200,000
Less: Over/under valuation of A and L:
P150,000 x 80%..............................................
120,000
Goodwill - partial ............................................................... P 80,000
Note that the goodwill under the full-goodwill and partial-goodwill approach are the
same because the FV of the NCI based on the FV of SHE of subsidiary (P320,000) is higher
compared to the imputed or the computed residual amount of NCI (P300,000).
Consolidation Totals:
Expenses, P265,000 = P200,000 KK operating expenses plus P50,000 (post-acquisition
subsidiary operating expenses) plus year excess amortization of P15,000.
Dividends paid = P80,000
Sales, P1,050,000 = P800,000 KK revenues plus P250,000 (post-acquisition subsidiary
revenue, P500,000 x 1/2)
Equipment, none
Depreciation expense, none
Subsidiarys net income, P60,000 = [(P500,000 P280,000 P100,000) x 1/2]
Buildings, none
Goodwill (full), P80,000; Goodwill (partial), P80,000
Consolidated Net Income, P245,000
Sales (1)
P1,050,000
Cost of goods sold (2)
540,000
Operating expenses (3)
__265,000
Net Income
P 245,000
Non-controlling Interest in Sub. Income (4)
P
9,000
Controlling Interest in CNI
P 236,000
(1) P800,000 KK revenues plus P250,000 (post-acquisition subsidiary revenue)
(2) P400,000 KK COGS plus P140,000 (post-acquisition subsidiary COGS)
(3) P200,000 KK operating expenses plus P50,000 (post-acquisition subsidiary
operating expenses) plus year excess amortization of P15,000
(4) 20% of post-acquisition subsidiary income less excess fair value amortization
[20% (120,000 30,000) year] = P9,000
Retained Earnings, 1/1 = P1,400,000 (the parents balance because the subsidiary
was acquired during the current year)
Trademark = P935,000 (add the two book values and the excess fair value allocation
after taking one-half year excess amortization)
Goodwill (full)= P80,000 (the original allocation)
Goodwill (partial) = P80,000 (the original allocation)
P526,000
300,000
P826,000
(765,000)
P 61,000
Annual Excess
Life
Amortizations
(30,000) 5 years
P(6,000)
P 91,000 indefinite
-0P(6,000)
P(4,500)
P740,000
P100,000
25,000
P765,000
* The fair value of NCI amounting to P300,000 is higher compared to the FV of the NCI
based on FV of SHE of Subsidiary (RR), computed as follows:
BV of SHE of Subsidiary (DD) ..
Adjustments to reflect fair value (undervaluation)
FV of SHE of Subsidiary (DD) ................................
Multiplied by: NCI% ...............................................
FV of NCI.
(Partial-Goodwill)
Consideration transferred .................................
Less: Book value of SHE DD (P765,000 x 60%)
Allocated excess
Less: Over/under valuation of A and L:
(P30,000 x 60%)...........................................
Goodwill - partial..................................................
P765,000
( 30,000)
P735,000
40%
P294,000
P 526,000
459,000
P 67,000
( 18,000)
P 85,000
2.
Problem XX
(Determine consolidated balances for a step acquisition).
1. AD fair value implied by price paid by MM
P560,000 70% =
P800,000
2. Revaluation gain
1/1 equity investment in AD (book value)
25% income for 1st 6 months
Investment book value at 6/30
Fair value of investment
Gain on revaluation to fair value
P178,000
8,750
186,750
200,000
P13,250
3. Goodwill at 12/31
Fair value of AD at 6/30
Book value at 6/30 (700,000 + [70,000 2])
Excess fair value
Allocation to goodwill (no impairment)
P800,000
735,000
P65,000
P65,000
4. Non-controlling interest
5% fair value balance at 6/30
5% Income from 6/30 to 12/31
5% dividends
Non-controlling interest 12/31
P40,000
1,750
(1,000)
P40,750
Problem XXI
Ps gain on sale of subsidiary stock is computed as follows:
Cash proceeds
Fair value of retained non-controlling interest equity investment (35%)
Carrying value of the non-controlling interest before deconsolidation
(15% or prior outside non-controlling interest in Subsidiary)
Less: Carrying value of Subsidiarys net assets
Gain on disposal or deconsolidation
720,000
420,000
120,000
P1,260,000
1,200,000
P 60,000
P 84,000
1,200,000
P 60,000
*the P720,000 is already the gross-up amount since it is the amount presented in the consolidated balance sheet.
Because P Company continues to have the ability to control S Company, the sale of Ss shares
is treated as an equity transaction. Therefore, no gain or loss is recognized. Instead, Palmer
Companys additional paid-in capital increases by P60,000.
Problem XXIII
P Companys additional paid-in capital arising sale of subsidiary shares is computed as follows:
Cash proceeds from issuance of additional shares ..
P 210,000
Less: Carrying Value of non-controlling from issuance
of additional shares:
Non-controlling interest prior to issuance
of additional shares:
Book value of SHE before issuanceP720,000
x: Non-controlling interest.
20%* P 144,000
Non-controlling interest after issuance of
additional shares:
Book value of SHE before
issuance.P720,000
Additional issuance.. 210,000
BV of SHE after issuance.P930,000
x: Non-controlling interest...
36%** 334,800 190,800
Gain transfer within equity in
Additional paid-in capital account...............
P 19,200
* (120,000 96,000) / 120,000 = 20% ownership before additional issuance of shares.
** [(24,000 + 30,000) / (120.000 + 30,000)] = 36% ownership after additional issuance of shares
P Company recognizes an increases in its Investment in S from P576,000 (P720,000x 80%) to
P595,200 [P930,000 x (96,000/150,000) and in additional paid-in capital of P19,200.
Problem XXIV
1. Equity Method
Income accrual (80%) ...................................................................
Excess amortization expense .......................................................
Investment income ..................................................................
P56,000
(3,200)
P52,800
P664,000
208,000
(36,000)
(9,600)
P826,400
2.
3.
Using the acquisition method, the allocation will be the total difference (P80,000) between
the buildings' book value and fair value. Based on a 20 year life, annual excess amortization
is P4,000.
MM book valuebuildings ....................................................
TT book valuebuildings ........................................................
Allocation ..................................................................................
Excess Amortizations for 20x420x5 (P4,000 2)
Consolidated buildings account ............................
P 800,000
300,000
80,000
(8,000)
P1,172,000
4.
5.
If the parent has been applying the equity method, the stockholders' equity accounts on its
books will already represent consolidated totals. The common stock and additional paid-in
capital figures to be reported are the parent balances only.
Common stock, P500,000
Additional paid-in capital, P280,000
Problem XXV
(Consolidated balances three years after purchase. Parent has applied the equity method.)
1. Schedule 1Acquisition-Date Fair Value Allocation and Amortization
JJs acquisition-date fair value . P206,000
Book value of JJ ...........................................
(140,000)
Fair value in excess of book value ...........
66,000
Excess fair value assigned to specific
accounts based on individual fair values
Equipment ..............................................
Buildings (overvalued) .........................
Goodwill ..................................................
Total .........................................................
54,400
(10,000)
P21,600
Annual Excess
Life
Amortization
8 yrs.
P6,800
20 yrs.
(500)
indefinite
-0P6,300
Investment in JJ Company12/31/x6
JJs acquisition-date fair value ...........................................................
20x4 Increase in book value of subsidiary
20x4 Excess amortizations (Schedule 1) ...........................................
20x5 Increase in book value of subsidiary ........................................
20x5 Excess amortizations (Schedule 1) ...........................................
20x6 Increase in book value of subsidiary ........................................
20x6 Excess amortizations (Schedule 1) ...........................................
Investment in J Company ............................................................
P206,000
40,000
(6,300)
20,000
(6,300)
10,000
(6,300)
P257,100
P30,000
(6,300)
P23,700
P414,000
(272,000)
(6,300)
P135,700
4. Consolidated Equipment
Book values added together .............................................................
Allocation of purchase price ..............................................................
Excess depreciation (P6,800 3) .......................................................
Consolidated equipment .............................................................
P370,000
54,400
(20,400)
P404,000
P288,000
(10,000)
1,500
P279,500
6. Consolidated goodwill
Allocation of excess fair value to goodwill .......................................
P21,600
20x4
Investment in S Company
Cash
P1,970,000
_1,440,000
P 530,000
P 100,000
140,000
__240,000
P 290,000
P2,467,500
1,800,000
P 662,500
P125,000
175,000
20x4
P 75,000
25,000
P 100,000
1,970,000
120,000
Investment in S Company
Equity in Subsidiary Income (.80)(P750,000)
600,000
__300,000
P362,500
20x5
P 50,000
25,000
P 75,000
1,970,000
120,000
600,000
20x5
80,000
180,000
Investment in S Company
Equity in Subsidiary Income (.80)(P900,000)
720,000
20x4
20x5
60,000
520,000
600,000
1,200,000
50,000
75,000
175,000
362,500
25,000
660,000
80,000
180,000
720,000
60,000
120,000
400,000
1,307,500
492,500
662,500
25,000
180,000
480,000
1,200,000
1,200,000
612,500
60,000
15,000
50,000
175,000
362,500
662,500
20,000
5,000
25,000
50,000
P130,000
100,000
____0
P 880,000
__ 750,000
P1,630,000
230,000
P1,400,000
130,000
P1,530,000
P 750,000
( 100,000)
P650,000
20%
P 130,000
Note: Regardless on the method used in recording investments (cost model or equity
method) the manner of computing CI-CNI, NCI-CNI and CNI are exactly the same.
Problem XXVII
Requirements 1 to 4:
Schedule of Determination and Allocation of Excess (Partial-goodwill)
Date of Acquisition January 1, 20x4
Fair value of Subsidiary (80%)
Consideration transferred..
Less: Book value of stockholders equity of S:
Common stock (P240,000 x 80%).
Retained earnings (P120,000 x 80%)...
Allocated excess (excess of cost over book value)..
Less: Over/under valuation of assets and liabilities:
Increase in inventory (P6,000 x 80%)
Increase in land (P7,200 x 80%).
Increase in equipment (P96,000 x 80%)
Decrease in buildings (P24,000 x 80%).....
Decrease in bonds payable (P4,800 x 80%)
Positive excess: Partial-goodwill (excess of cost over
fair value)...
P 372,000
P 192,000
96,000
P 4,800
5,760
76,800
( 19,200)
3,840
72,000
288,000
84,000
S Co.
Fair value
30,000
(Over) Under
Valuation
Inventory...
P 24,000
Land
48,000
55,200
7,200
Equipment (net).........
84,000
180,000
96,000
(24,000)
Buildings (net)
P 12,000
6,000
168,000
144,000
Bonds payable
(120,000)
( 115,200)
4,800
Net..
P 204,000
P 294,000
P 90,000
The buildings and equipment will be further analyzed for consolidation purposes as follows:
S Co.
Book value
S Co.
Fair value
Increase
(Decrease)
Equipment ..................
180,000
180,000
96,000
( 96,000)
84,000
S Co.
Book value
180,000
S Co.
Fair value
96,000
(Decrease)
Buildings................
360,000
144,000
( 216,000)
192,000
( 192,000)
168,000
144,000
24,000)
Over/
Under
Life
Annual
Amount
P 6,000
P 6,000
Current
Year(20x4)
20x5
P 6,000
96,000
12,000
12,000
12,000
(25,000)
( 6,000)
( 6,000)
(6,000)
4,800
Bonds payable
1,200
1,200
1,200
P 13,200
P 13,200
P 7,200
The goodwill impairment loss of P3,125 based on 100% fair value would be allocated to the
controlling interest and the NCI based on the percentage of total goodwill each equity interest
received. For purposes of allocating the goodwill impairment loss, the full-goodwill is computed
as follows:
Fair value of Subsidiary (100%)
Consideration transferred: Cash (80%)
P 372,000
93,000
P 465,000
__360,000
105,000
90,000
15,000
In this case, the goodwill was proportional to the controlling interest of 80% and non-controlling
interest of 20% computed as follows:
Goodwill applicable to P
Goodwill applicable to NCI..
Total (full) goodwill..
Value
P12,000
3,000
P15,000
% of Total
80.00%
20.00%
100.00%
Value
P 3,000
% of Total
80.00%
750
20.00%
P 3,750
100.00%
372,000
Acquisition of S Company.
28,800
48,000
372,000
28,800
48,000
13,560
13,560
Thus, the investment balance and investment income in the books of P Company is as follows:
Cost, 1/1/x4
NI of S
(60,000 x 80%)
Balance, 12/31/x4
Amortization &
impairment
Investment in S
372,000
28,800
48,000
377,640
13,560
Investment Income
13,560
48,000
34,440
NI of S
(P60,000 x 80%)
Balance, 12/31/x4
240,000
120.000
(E2) Inventory.
Accumulated depreciation equipment..
Accumulated depreciation buildings..
Land.
Discount on bonds payable.
Goodwill.
Buildings..
Non-controlling interest (P96,000 x 20%)..
Investment in S Co.
6,000
96,000
192,000
7,200
4,800
12,000
288,000
72,000
216,000
18,000
84,000
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
13,200
It should be observed that the goodwill computed above was proportional to the controlling
interest of 80% and non-controlling interest of 20% computed as follows:
Value
P12,000
3,000
P15,000
% of Total
80.00%
20.00%
100.00%
Therefore, the goodwill impairment loss of P3,750 based on 100% fair value or full-goodwill would
be allocated as follows:
Goodwill impairment loss attributable to parent or controlling
Interest
Goodwill impairment loss applicable to NCI..
Goodwill impairment loss based on 100% fair value or fullGoodwill
(E4) Investment income
Non-controlling interest (P36,000 x 20%)..
Dividends paid S
Investment in S Company
Value
P 3,000
% of Total
80.00%
625
20.00%
P 3,750
34,440
7,200
100.00%
Investment in S
NI of S
28,800
Dividends - S
(60,000
Amortization &
x 80%). 48,000
13,560
impairment
5,640
Investment Income
Amortization
impairment
13,560
48,000
34,440
36,000
5,640
NI of S
(60,000
x 80%)
After the eliminating entries are posted in the investment account, it should be observed that
from consolidation point of view the investment account is totally eliminated. Thus,
Investment in S
372,000
28,800
Cost, 1/1/x4
NI of Son
(60,000 x 80%)
Balance, 12/31/x4
48,000
377,640
377,640
Percentage of goodwill for amortization purposes:
Goodwill applicable to parent
Goodwill applicable to NCI
Total (full) goodwill
13,560
288,000
84,000
5,640
377,640
Value
P12,000
3,000
P15,000
% of Total
80.00%
20.00%
100.00%
The goodwill impairment loss of P3,750 based on 100% fair value or full-goodwill
would be allocated as follows:
Value
% of Total
Goodwill impairment loss attributable
P 3,000
80.00%
to parent or controlling Interest
Goodwill impairment loss applicable to
NCI..
750
_20.00%
Goodwill impairment loss based on
100% fair value or full-goodwill
P 3,750
100.00%
9,360
9,360
P 60,000
( 13,200)
P 46,800
20%
P 9,360
Subsidiary accounts are adjusted to full fair value regardless on the controlling interest
percentage or what option used to value non-controlling interest or goodwill.
Worksheet for Consolidated Financial Statements, December 31, 20x4.
Equity Method (Partial-goodwill)
80%-Owned Subsidiary
December 31, 20x4 (First Year after Acquisition)
Income Statement
Sales
Investment income
Total Revenue
Cost of goods sold
Depreciation expense
Interest expense
Other expenses
Goodwill impairment loss
Total Cost and Expenses
Net Income
NCI in Net Income - Subsidiary
Net Income to Retained Earnings
P Co
P480,000
34,440
P513,600
P204,000
60,000
48,000
P312,000
P202,440
P202,440
S Co.
P240,000
P240,000
P138,000
24,000
18,000
P180,000
P 60,000
P 60,000
Dr.
(4)
34,440
(3)
(3)
(3)
6,000
6,000
1,200
(3)
3,000
(5)
9,360
Cr.
Consolidated
P 720,000
_________
P 720,000
P 348,000
90,000
1,200
66,000
3,000
P508,200
P211,800
( 9,360)
P202,440
P360,000
Total
Accumulated depreciation
- equipment
Accumulated depreciation
- buildings
Accounts payable
Bonds payable
Common stock, P10 par
Common stock, P10 par
Retained earnings, from above
Non-controlling interest
Total
202,440
P562,440
P120,000
60,000
P180,000
72,000
-
36,000
P490,440
P144,000
232,800
90,000
120,000
210,000
240,000
720,000
P 90,000
60,000
90,000
48,000
180,000
540,000
377,640
P1,990,440
P1,008,000
P 135,000
405,000
P 96,000
288,000
120,000
240,000
600,000
120,000
120,000
72,000
-
36,000
P490,440
P
(2)
(2)
6,000
7,200
(2)
(2)
4,800
12,000
(3)
(1) 240,000
_________
P1,990,440
_________
P1,008,000
__________
P 751,200
(10) 7,200
6,000
(2) 216,000
(3) 1,200
(3) 3,000
(2) 288,000
(2) 84,000
(4) 5,640
240,000
144,000
Sales
Less: Cost of goods sold
Gross profit
Less: Depreciation expense
Other expense
Net income from its own separate operations
Add: Investment income
Net income
Dividends paid
202,440
P562,440
(4)
490,440
P360,000
(1) 120,000
P2,424,600
12,000
P147,000
495,000
240,000
360,000
600,000
(1 ) 72,000
(2) 18,000
(5) 9,360
P 751,200
P Co.
P 540,000
216,000
P 324,000
60,000
72,000
P 192,000
66,240
P 258,240
P 72,000
322,800
150,000
210,000
265,200
420,000
1,044,000
3,600
9,000
490,440
____92,160
P2,424,600
S Co.
P 360,000
192,000
P 168,000
24,000
54,000
P 90,000
P 90,000
P 48,000
38,400
72,000
38,400
72,000
5,760
5,760
Thus, the investment balance and investment income in the books of P Company is as follows:
Cost, 1/1/x5
NI of S
(90,000 x 80%)
Balance, 12/31/x5
Investment in S
377,640
38,400
72,000
405,480
5,760
Investment Income
Amortization
(7,200 x 80%)
5,760
72,000
66,240
NI of S
(90,000 x 80%)
Balance, 12/31/x4
240,000
144.000
84,000
198,000
7,200
3,600
9,000
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
6,000
6,000
1,200
307,200
76,800
216,000
15,360
70,440
12,000
1,200
66,240
9,600
48,000
27,840
Investment in S
NI of S
38,400
Dividends S
(90,000
Amortization
x 80%). 72,000
5,760
(P7,200 x 80%)
27,840
Investment Income
Amortization
(P7,200 x 80%)
5,760
72,000
66,240
NI of S
(90,000
x 80%)
After the eliminating entries are posted in the investment account, it should be observed that
from consolidation point of view the investment account is totally eliminated. Thus,
Cost, 1/1/x5
NI of S
(90,000 x 80%)
Balance, 12/31/x5
Investment in S
377,640
38,400
72,000
405,480
405,480
5,760
307,200
70,440
27,840
405,480
16,560
16,560
P 90,000
( 7,200)
P 82,800
20%
P 16,560
P Co
P540,000
66,240
P606,000
P216,000
60,000
72,000
P348,000
P258,240
P258,240
S Co.
P360,000
P360,000
P192,000
24,000
54,000
P270,000
P 90,000
P 90,000
Dr.
(4)
66,240
(3)
(3)
6,000
1,200
(5)
16,560
Cr.
Consolidated
P 900,000
___________
P 900,000
P 408,000
90,000
1,200
126,000
P 625,200
P 274,800
( 16,560)
P258,240
Total
P490,440
P490,440
258,240
P748,680
P144,000
90,000
P234,000
72,000
-
48,000
P676,680
P186,000
P676,680
265,200
180,000
216,000
210,000
240,000
720,000
P 102,000
96,000
108,000
48,000
180,000
540,000
P 367,200
276,000
324,000
265,200
420,000
1,044,000
2,400
9,000
405,480
P2,236,680
P1,074,000
P 150,000
450,000
P 102,000
306,000
120,000
240,000
600,000
120,000
120,000
676,680
___ _____
P2,236,680
240,000
186,000
_________
P1,074,000
(1) 144,000
258,240
P748,680
(4)
(2)
7,200
(2)
(2)
3,600
9,000
(2)
48,000
(3) 216,000
(3) 1,200
(1) 307,200
(2) 70,440
(4) 27,840
84,000
(2) 198,000
(3) 6,000
(3)
12,000
9,600
__________
P 794,400
P2,707,800
P180,000
552,000
240,000
360,000
600,000
(1) 240,000
(7)
72,000
-
676,680
(2 ) 76,800
(2) 15,360
(5) 16,560
P 794,400
____99,120
P2,707,800
Note: Using cost model or equity method, the consolidated net income, consolidated retained
earnings, non-controlling interests, consolidated equity on December 31, 20x4 and 20x5 are
exactly the same (refer to Problem VI solution).
5. 1/1/20x4
a. On date of acquisition the retained earnings of parent should always be considered as
the consolidated retained earnings, thus:
b.
P360,000
P 240,000
120,000
P 360,000
90,000
P450,000
20
P 90,000
c.
6.
Consolidated SHE:
Stockholders Equity
Common stock, P10 par
Retained earnings
Parents Stockholders Equity / CI - SHE
NCI, 1/1/20x4
Consolidated SHE, 1/1/20x4
P 600,000
360,000
P 960,000
___90,000
P1,050,000
12/31/20x4:
a. CI-CNI
P 9,360
13,200
3,000
25,560
P202,440
9,360
P211.800
b. NCI-CNI
P168,000
60,000
P228,000
P 60,000
13,200
P 46,800
20%
P 9,360
e.
P360,000
202,440
P562,440
72,000
P490,440
P 240,000
P120,000
60,000
P180,000
36,000
144,000
P 384,000
90,000
( 13,200)
P460,000
20
P 92,160
f.
Consolidated SHE:
Stockholders Equity
Common stock, P10 par
Retained earnings
Ps Stockholders Equity / CI SHE, 12/31/20x4
NCI, 12/31/20x4
Consolidated SHE, 12/31/20x4
P 600,000
490,440
P1,090,440
___92,160
P1,182,600
12/31/20x5:
a. CI-CNI
P16,560
__7,200
P192,000
90,000
P282,000
23,760
P258,240
16,560
P274,800
b. NCI-CNI
P 90,000
80,400
P 82,800
20%
P 16,560
P484,800
P 144,000
120,000
P 24,000
13,200
P 10,800
80%
P 8,640
e.
f.
P 240,000
P14,000
90,000
P234,000
48,000
186,000
P 426,000
90,000
P 13,200
7,200
Consolidated SHE:
Stockholders Equity
Common stock, P10 par
Retained earnings
Ps Stockholders Equity / CI SHE, 12/31/20x4
NCI, 12/31/20x4
Consolidated SHE, 12/31/20x4
( 20,400)
P 495,600
20
P 99,120
P 600,000
676,680
P1,276,680
___99,120
P1,1375,800
Problem XXVIII
Requirements 1 to 4:
Schedule of Determination and Allocation of Excess
Date of Acquisition January 1, 20x4
P 372,000
93,000
P 465,000
P 240,000
120,000
P
6,000
7,200
96,000
( 24,000)
4,800
90,000
P 15,000
360,000
P 105,000
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
372,000
Acquisition of S Company.
28,800
48,000
372,000
28,800
48,000
13,560
13,560
Thus, the investment balance and investment income in the books of P Company is as follows:
Cost, 1/1/x4
NI of S
(60,000 x 80%)
Balance, 12/31/x4
Amortization &
Impairment
Investment in S
372,000
28,800
48,000
377,640
13,560
Investment Income
13,560
48,000
34,440
NI of S
(P60,000 x 80%)
Balance, 12/31/x4
240,000
120.000
(E2) Inventory.
Accumulated depreciation equipment..
Accumulated depreciation buildings..
Land.
Discount on bonds payable.
Goodwill.
6,000
96,000
192,000
7,200
4,800
15,000
288,000
72,000
Buildings..
Non-controlling interest (P90,000 x 20%) + [(P15,000, full
P12,000, partial goodwill)]
Investment in S Co.
216,000
21,000
84,000
6,000
6,000
6,000
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
P 12,000
( 6,000)
_______
P 6,000
P 1,200
P1,200
6,000
12,000
1,200
3,750
Total
13,200
It should be observed that the goodwill computed above was proportional to the controlling
interest of 80% and non-controlling interest of 20% computed as follows:
Goodwill applicable to parent
Goodwill applicable to NCI..
Total (full) goodwill..
Value
P12,000
3,000
P15,000
% of Total
80.00%
20.00%
100.00%
Therefore, the goodwill impairment loss of P3,125 based on 100% fair value or full-goodwill would
be allocated as follows:
Goodwill impairment loss attributable to parent or controlling
Interest
Goodwill impairment loss applicable to NCI..
Goodwill impairment loss based on 100% fair value or fullGoodwill
(E4) Investment income
Non-controlling interest (P36,000 x 20%)..
Dividends paid S
Investment in S Company
Value
P 3,000
% of Total
80.00%
750
20.00%
P 3,750
100.00%
37,440
7,200
36,000
8,640
Investment in S
NI of S
28,800
Dividends S
(60,000
Amortization &
x 80%). 48,000
13,560
Impairment
5,640
Investment Income
Amortization &
Impairment
13,560
48,000
34,440
NI of Son
(60,000
x 80%)
After the eliminating entries are posted in the investment account, it should be observed that
from consolidation point of view the investment account is totally eliminated. Thus,
Cost, 1/1/x4
NI of S
(60,000 x 80%)
Balance, 12/31/x4
Investment in S
372,000
28,800
40,000
377,640
377,640
Percentage of goodwill for amortization purposes:
Goodwill applicable to parent
Goodwill applicable to NCI
Total (full) goodwill
13,560
288,000
84,000
5,640
377,640
Value
P12,000
3,000
P15,000
% of Total
80.00%
20.00%
100.00%
The goodwill impairment loss of P3,750 based on 100% fair value or full-goodwill
would be allocated as follows:
Value
% of Total
Goodwill impairment loss attributable
P 3,000
80.00%
to parent or controlling Interest
Goodwill impairment loss applicable to
NCI..
750
_20.00%
Goodwill impairment loss based on
100% fair value or full-goodwill
P 3,750
100.00%
8,610
8,610
P 60,000
( 13,200)
P 46,800
20%
P 9,360
Subsidiary accounts are adjusted to full fair value regardless on the controlling interest
percentage or what option used to value non-controlling interest or goodwill.
P Co
P480,000
34,440
P514,440
P204,000
60,000
48,000
P312,000
P202,440
P202,440
P360,000
S Co.
P240,000
P240,000
P138,000
24,000
18,000
P180,000
P 60,000
P 60,000
202,440
P562,440
P120,000
60,000
P180,000
72,000
-
36,000
P490,440
P144,000
232,800
90,000
120,000
210,000
240,000
720,000
P 90,000
60,000
90,000
48,000
180,000
540,000
377,640
P1,990,440
P1,008,000
P 135,000
405,000
P 96,000
288,000
120,000
240,000
600,000
120,000
120,000
Dr.
(4)
34,440
(3)
(3)
(3)
6,000
6,000
1,200
(3)
3,750
(5)
8,610
Cr.
Consolidated
P 720,000
_________
P 720,000
P 348,000
90,000
1,200
66,000
3,750
P508,950
P211,050
( 8,610)
P202,440
P360,000
(1) 120,000
202,440
P562,440
(4)
72,000
-
36,000
P490,440
P
(2)
(2)
6,000
7,200
(2)
(2)
4,800
15,000
(2) 96,000
(2) 192,000
(3)
6,000
490,440
240,000
144,000
(1) 240,000
_________
P1,990,440
_________
P1,008,000
__________
P 754,200
(4)
7,200
(3)
6,000
(2) 216,000
(3) 1,200
(3) 3,750
(2) 288,000
(2) 84,000
(4) 5,640
(3)
12,000
322,800
150,000
210,000
265,200
420,000
1,044,000
3,600
11,250
P2,426,850
P147,000
495,000
240,000
360,000
600,000
(1 ) 72,000
(2) 21,000
(5) 8,610
P 754,200
490,440
____94,410
P2,426,850
P Co.
P 540,000
216,000
P 324,000
60,000
72,000
P 192,000
66,240
P 258,240
P 72,000
Sales
Less: Cost of goods sold
Gross profit
Less: Depreciation expense
Other expense
Net income from its own separate operations
Add: Investment income
Net income
Dividends paid
S Co.
P 380,000
192,000
P 168,000
24,000
54,000
P 90,000
P 90,000
P 48,000
38,400
72,000
38,400
72,000
5,760
5,760
P Companys P12,000 portion of the differential related to goodwill related to goodwill is not
adjusted on the parents books following Option 2 as referred to above for goodwill impairment
loss. Even though the goodwill of the consolidated entity is impaired,
Thus, the investment balance and investment income in the books of P Company is as follows:
Cost, 1/1/x5
NI of S
(90,000 x 80%)
Balance, 12/31/x5
Amortization
(7,200 x 80%)
Investment in S
377,640
38,400
72,000
405,480
5,760
Investment Income
5,760
72,000
66,240
NI of S
(90,000 x 80%)
Balance, 12/31/x4
240,000
144.000
307,200
76,800
84,000
198,000
7,200
3,600
11,250
216,000
17,610
70,440
6,000
6,000
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
66,240
9,600
Investment in S
NI of S
38,400
Dividends - S
(90,000
Amortization
x 80%). 72,000
5,760
(P7,200 x 80%)
27,840
12,000
1,200
Investment Income
Amortization
(P7,200 x 80%)
5,760
72,000
66,240
48,000
27,840
NI of S
(90,000
x 80%)
After the eliminating entries are posted in the investment account, it should be observed that
from consolidation point of view the investment account is totally eliminated. Thus,
Cost, 1/1/x5
NI of S
(90,000 x 80%)
Balance, 12/31/x5
Investment in S
377,640
38,400
72,000
405,480
405,480
5,760
307,200
70,440
27,840
405,480
16,560
16,560
P 90,000
( 7,200)
P 82,800
20%
P 16,560
0
P 16,560
P Co
P540,000
66,240
P606,000
P216,000
60,000
72,000
P348,000
P258,240
P258,240
P490,440
S Co.
P360,000
P360,000
P192,000
24,000
54,000
P270,000
P 90,000
P 90,000
Dr.
(4)
66,240
(3)
(3)
6,000
1,200
(5)
16,560
Cr.
Consolidated
P 900,000
___________
P 900,000
P 408,000
90,000
1,200
126,000
P 625,200
P 274,800
( 16,560)
P 258,240
P490,440
258,240
P748,680
P144,000
90,000
P234,000
72,000
-
48,000
P676,680
P186,000
P676,680
265,200
180,000
216,000
210,000
240,000
720,000
P 102,000
960,000
108,000
48,000
180,000
540,000
P 367,200
276,000
324,000
265,200
420,000
1,044,000
2,400
11,250
405,9480
P2,236,680
P1,074,000
(1) 144,000
258,240
P748,680
(4)
(2)
7,200
(2)
(2)
3,600
11,250
48,000
(3) 216,000
(3) 1,200
(1) 307,200
(5) 70,440
(4) 27,840
72,000
-
P2,634,000
Accumulated depreciation
- equipment
Accumulated depreciation
- buildings
Accounts payable
Bonds payable
Common stock, P10 par
Common stock, P10 par
Retained earnings, from above
Non-controlling interest
P 150,000
450,000
P 102,000
306,000
120,000
240,000
600,000
120,000
120,000
676,680
__________
P1,074,000
84,000
(2) 198,000
(3)
6,000
(3)
12,000
P 180,000
552,000
240,000
360,000
600,000
(1) 240,000
(3)
___ _____
P2,236,680
Total
240,000
186,000
(2)
9,600
__________
P 796,650
676,680
(2 ) 76,800
(2) 17,610
(5) 16,560
P 796,650
__________
P2,634,000
Note: Using cost model or equity method, the consolidated net income, consolidated retained
earnings, non-controlling interests, consolidated equity on December 31, 20x4 and 20x5 are
exactly the same (refer to Problem VII solution).
5. 1/1/20x4
a. On date of acquisition the retained earnings of parent should always be considered as
the consolidated retained earnings, thus:
b.
c.
6.
Consolidated SHE:
Stockholders Equity
Common stock, P10 par
Retained earnings
Parents Stockholders Equity / CI - SHE
NCI, 1/1/20x4
Consolidated SHE, 1/1/20x4
P360,000
P 240,000
120,000
P 360,000
90,000
P450,000
20
P 90,000
___3,000
P 93,000
P 600,000
360,000
P 960,000
___93,000
P1,053,000
a. CI-CNI P202,440
P 8,610
13,200
3,750
P168,000
60,000
P228,000
25,560
P202,440
8,610
P211.050
b. NCI-CNI P8,610
P 60,000
13,200
P 46,800
20%
P 9,360
e.
f.
Consolidated SHE:
Stockholders Equity
Common stock, P10 par
Retained earnings
Ps Stockholders Equity / CI SHE, 12/31/20x4
NCI, 12/31/20x4
Consolidated SHE, 12/31/20x4
P360,000
202,440
P562,440
72,000
P490,440
P 240,000
P120,000
60,000
P180,000
36,000
144,000
P 384,000
90,000
( 13,200)
P460,800
20
P 92,160
2,250
P 94,410
P 600,000
490,440
P1,090,440
___94,410
P1,184,850
12/31/20x5:
a. CI-CNI P258,240
P16,560
7,200
0
P192,000
90,000
P282,000
23,760
P258,240
16,560
P274,800
b. NCI-CNI P16,560
P 90,000
80,400
P 82,800
20%
P 16,560
P484,800
P 144,000
120,000
P 24,000
13,200
P 10,800
80%
P 8,640
e.
P 240,000
P144,000
90,000
P234,000
48,000
186,000
P 426,000
90,000
f.
Consolidated SHE:
Stockholders Equity
Common stock, P10 par
Retained earnings
Ps Stockholders Equity / CI SHE, 12/31/20x4
NCI, 12/31/20x4
Consolidated SHE, 12/31/20x4
P 13,200
7,200
( 20,400)
P 495,600
20
P 99,120
2,250
P 101,370
P 600,000
676,680
P1,276,680
__101,370
P1,378,050
Problem XXVIII
1. Ambrose should report income from its subsidiary of P15,000 (P20,000 x .75) rather than
dividend income of P9,000.
2. A total of P5,000 (P20,000 x .25) should be assigned to the noncontrolling interest in the 20x4
consolidated income statement.
3. Consolidated net income of P70,0000 should be reported for 20X4, computed as follows:
Reported net income of AA
P59,000
Less: Dividend income from KR
(9,000)
Operating income of AA
P50,000
Net income of KR
20,000
Consolidated net income
P70,000
4. Income of P79,000 would be attained by adding the income reported by AA (P59,000) to the
income reported by KR (P20,000). However, the dividend income from KR recorded by AA
must be excluded from consolidated net income.
Multiple Choice Problems
1. b
Full-Goodwill: (P600,000/70%) P640,000 = P217,143 P40,000 = P177,143
If partial goodwill: P600,000 (P640,000 x 70%) = P152,000 (P40,000 x 70%) = P124,000
2. b P500,000 + P3,461
3. b
4. d equivalent to consideration transferred, P320,000
5. d equivalent to consideration transferred, P380,000
6. a
20x4 Investment income: Dividend of P10,000 x 100%
20x4 Investment balance: P500,000
7. d P45,000/15% = P300,000
8. c
Pigeons separate income
P150,000
Less: 60% of Homes P10,000 loss =
6,000
Less: Equipment depreciation
P10,000/ 10 years =
__1,000
Consolidated net income
P143,000
9. a
10. c
11. a
P5,250
3,750
0
P 375,000
30,000
P405,000
9,000
P396,000
P30,000
3,750
P26,250
20%
P 5,250
12. c
P240,000
45,000
P195,000
30%
P 58,500
P600,000
112,500
P487,500
30%
P146,250
P 8,750
6,250
0
P 625,000
50,000
P675,000
15,000
P660,000
P50,000
6,250
P43,750
20%
P 8,750
13. b
As a general rule, if problem is silent It is assumed that expenses are generated evenly
throughout the year, thus:
Expenses (9/1/20x4-12/31/20x4): P620,000 x 4/12
P206,667
Amortization of allocated excess: P15,000 x 4/12
5,000
P211,667
14. c
15. a
P180,000
15,000
P165,000
4/12
P 55,000
P180,000
15,000
P165,000
4/12
P 55,000
____20%
P 22,000
16. b
P1,100,000
(700,000)
(15,000)
P385,000
(34,000)
P351,000
17. c
HH expense..................................................................................................................
NN expenses ................................................................................................................
Excess fair value amortization (70,000 10 yrs).....................................................
Consolidated expenses.............................................................................................
P621,000
714,000
7,000
P1,342,000
18. b
Step-acquisition, either full-goodwill or partial goodwill approach, the answer remains the
same.
Full-Goodwill Presentation:
Net income from own operations;
Parent - Keefe
P 300,000
Subsidiary - George (P500,000 P400,000)..
100,000
P 400,000
Less: Amortization of allocated excess
6,000
Impairment of goodwill (if any).
0
Consolidated/Group Net Income.
P 394,000
Less: Non-controlling interest in Net Income
Subsidiary net income from own operations:
1/1/20y0 - 4/1/20y0 (3 months):
P100,000 x 3/12 = P25,000 x 30%................
P 7,500
4/1/20y0 12/31/20y0 (9 months):
P100,000 x 9/12 = P75,000 x 20%................
15,000
Total..
P 22,500
Less: Amortization of allocated excess:
450
900
0
0
21,150
P372,850
* It should be noted that the phrase without regard for this investment means that
excluding any income arising from investment in subsidiary (i.e., dividend income).
19. c - 20x4 = P86,400
Consolidated Net Income
20x4
Peters Company's reported net income
64,000
Less: dividend income from Smith
(1,600)
Peters' income from independent operations
62,400
Add: Peter's share of Smith's net income in 20x4 since acquisition
(.80)(8/12)(P45,000)
24,000
Less: Peter's share of Smith's net loss in 20x4 (.80 P5,000
Controlling Interest in Consolidated net income
86,400
20. c - 20x5 = P33,500 refer to No. 19
21. b - 20x4 = P151,400
Consolidated Retained Earnings
20x4
Peter's 12/31 retained earnings (P80,000 + P64,000 - P15,000)
P129,000
Add: Peter's share of the increase in Smith's retained earnings
from the date of acquisition to the current date:
(.80 (P53,000 P25,000))
22,400
(.80 (P48,000 P25,000)
P151,400
22. c - 20x5 = P179,900 refer to No. 21
23. d
20x5
37,500
0
37,500
(4,000)
33,500
20x5
P161,500
18,400
P179,900
Under the cost method, an investor recognizes its investment in the investee at cost.
Income is recognized only to the extent that the investor receives distributions from the
accumulated net profits (or dividend declared/paid by the investee) of the investee
arising after the date of acquisition by the investor. Distributions (dividends) received in
excess of such profits are regarded as a recovery of investment and are accounted for
as a reduction of the cost of the investment (i.e., as a return of capital or liquidating
dividend).
Therefore, the investment balance of P500,000 on the acquisition date remains to be the
same.
24.
25.
26.
27.
28.
29. c
Full/Gross-up Goodwill Presentation:
Non-controlling interest in Net Income:
Subsidiary net income from own operations.P100,000
Less: Amortization of allocated excess*
7,000
Impairment of full-goodwill (if any)**
0
P 93,000
x: Non-controlling interests.
20%
Non-controlling interest in Net Income P 18,600
*Amortization of allocated excess:
Increase in equipment: P30,000 / 10 years = P 3,000
Increase in buildings: P40,000 / 10 years =
4,000
Total amortization P 7,000
** In case, there is an impairment of goodwill then the amount impaired under the fullgoodwill method should also be allocated between controlling and non-controlling
interests
Partial Goodwill Presentation:
Non-controlling interest in Net Income:
Subsidiary net income from own operations.P100,000
Less: Amortization of allocated excess*.
7,000
P 93,000
x: Non-controlling interests.
20%
Non-controlling interest in Net Income.
P 18,600
30. c
Full/Gross-up Goodwill Presentation:
Non-controlling interest in Net Income:
Subsidiary net income from own operations.P120,000
Less: Amortization of allocated excess*
7,000
Impairment of full-goodwill (if any)**
0
P113,000
x: Non-controlling interests.
20%
Non-controlling interest in Net Income P 22,600
*Amortization of allocated excess:
Increase in equipment: P30,000 / 10 years = P 3,000
Increase in buildings: P40,000 / 10 years =
4,000
Total amortization.
P 7,000
** In case, there is an impairment of goodwill then the amount impaired under the fullgoodwill method should also be allocated between controlling and non-controlling
interests
Partial Goodwill Presentation:
Non-controlling interest in Net Income:
Subsidiary net income from own operations.P120,000
Less: Amortization of allocated excess*
7,000
P113,000
x: Non-controlling interests.
20%
Non-controlling interest in Net Income
P 22,600
31. a
Full/Gross-up Goodwill Presentation:
Non-controlling interest in Net Income:
Subsidiary net income from own operations.P130,000
Less: Amortization of allocated excess*
7,000
Impairment of full-goodwill (if any)**
0
P123,000
x: Non-controlling interests.
20%
Non-controlling interest in Net Income P 24,600
*Amortization of allocated excess:
Increase in equipment: P30,000 / 10 years = P 3,000
Increase in buildings: P40,000 / 10 years =
4,000
Total amortization.
P 7,000
** In case, there is an impairment of goodwill then the amount impaired under the fullgoodwill method should also be allocated between controlling and non-controlling
interests
Partial Goodwill Presentation:
Non-controlling interest in Net Income:
Subsidiary net income from own operations.P130,000
Less: Amortization of allocated excess*
7,000
P123,000
x: Non-controlling interests.
20%
Non-controlling interest in Net Income
P 24,600
32. a
Partial Goodwill:
Fair value of Subsidiary:
Fair value of consideration transferred: Cash
P 500,000
Less: Book value of Net Assets (Stockholders
Equity - Subsidiary): (P300,000 + P200,000) x 80%..
400,000
Allocated Excess..
P 100,000
Less: Over/Undervaluation of Assets and Liabilities:
Increase in equipment: P30,000 x 80%................... P 24,000
Increase in building: P40,000 x 80%.........................
32,000
56,000
Goodwill (Partial)..
P 44,000
Full-goodwill:
(100%) Fair value of Subsidiary:
(100%) Fair value of consideration transferred:
P500,000 / 80%..........
Less: Book value of Net Assets (Stockholders
Equity - Subsidiary)...................................
Allocated Excess..
Less: Over/Undervaluation of Assets and
Liabilities (P40,000 + P30,000).
Goodwill (Full/Gross-up)....
33. e
34. e
P 625,000
500,000
P 125,000
P
70,000
55,000
P 749,000
20%
P 149,800
11,000
P 160,800
* this computation (i.e., P55,000 x 20%) should only be use when the fair value of the noncontrolling interest of acquiree (subsidiary) is not given.
35. d Economic Unit or Entity Concept (as required by PFRS 10)
P 20,000
0
_
0
P 500,000
100,000
P600,000
20,000
P580,000
__20,000
P600,000
P100,000
_______0
P100,000
20%
P 20,000
36. c Parent Company Concept Parents Net Income only (not required by PFRS 10)
Net income from own/separate operations
P Company
S Company
Total
Less: Non-controlling Interest in Net Income*
Amortization of allocated excess
Goodwill impairment (impairment under full-goodwill approach)
CNI - entity concept
*Non-controlling Interest in Net Income (NCINI) for 20x4
Net income of S Company
Less: Amortization of allocated excess
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI) for 20x4
P 20,000
0
_
0
P100,000
_______0
P100,000
20%
P 20,000
P2,260,000
P 500,000
100,000
P600,000
20,000
P580,000
39. b
40. b
Net Income from own operations:
20x4
20x5
Parent P 100,000 P100,000
Subsidiary... 25,000
35,000
P125,000 P135,000
Subsidiarys other comprehensive income..
5,000
10,000
Total Comprehensive Income..... P130,000 P145,000
Less: Amortization of allocated excess.
6,250
6,250
Impairment of full- goodwill (if any).
0
0
Consolidated /Group Comprehensive Income P123,750
P138,750
Less: Non-controlling interest in Comprehensive
Income *
4,750
7,750
Controlling Interest in Consolidated
__________________
Comprehensive Income . P119,000 P131,000
*Non-controlling interest in Comprehensive Income: 20x4
20x5
Subsidiarys:
Net income from own operations.......P 25,000
P 35,000
Other Comprehensive Income (P30,000
P25,000).... 5,000
10,000
Subsidiarys Comprehensive Income........P 30,000
P45,000
Less: Amortization of allocated excess*..
6,250
6,250
Impairment of full-goodwill (if any).....
0
0
P 23,750
P 38,750
x: Non-controlling interests.
20%
20%
Non-controlling interest in Comprehensive Income...P 4,750
P 7,750
*Amortization of allocated excess:
Increase in other intangibles: P50,000 / 8 years = P 6,250
41.
42.
43.
44.
c refer to No. 40
c refer to No. 40
b- refer to No. 40
d
Inventory not yet sold in 20x4
Building: (P390,000 P200,000)/ 10 years
Equipment (P280,000 P350,000)/ 5 years
45. c
0
19,000
( 14,000)
P 5,000
60. b
P: BV,12/31/20x6
S:
BV of building, 12/31/20x4
Add: Adjustments to reflect fair value, 1/1/20x4
(P350,000 P240,000)
Less: Amortization of excess (P110,000/10) x 3 years
P: BV,12/31/20x5
S:
BV of building, 12/31/20x5
Add: Adjustments to reflect fair value, 1/4/20x4
(P120,000 P90,000)
Less: Amortization of excess (P30,000/10) x 2 years
P250,000
P170,000
110,000
33,000
247,000
P497,000
P 975,000
P105,000
30,000
6,000
129,000
P1,104,000
61. c - An asset acquired in a business combination is initially valued at 100% acquisition-date
fair value and subsequently amortized its useful life.
Patent fair value at January 1, 20x4 .......................................................................
Amortization for 2 years (10 year life) .....................................................................
Patent reported amount December 31, 20x5 ......................................................
P45,000
(9,000)
P36,000
62. b
BV of building, 1/1/20x4
Adjustments to reflect fair value, 1/1/20x4 (P300,000 P200,000)
Depreciation 1/1/20x4 12/31/20x6 (P100,000/20 x 3 years)
66. d 1/2/20x4:
BV of equipment, 1/1/20x4
Adjustments to reflect fair value, 1/1/20x4 (P300,000 P200,000)
67. c
P200,000
100,000
( 15,000)
P285,000
P 80,000
( 5,000)
1,500
P 76,500
(P 5,000)
1,500
(P 3,500)
P200,000
100,000
P300,000
0
0
____0
P 70,000
40,000
P110,000
____0
P110,000
_____0
P110,000
68. b
Plimsol: P100,000 + P200,000,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,P 300, 000
Shipping: P75,000 + P150,000. 225,000
P 525,000
69.
Retained Earnings - Plimsol, 1/1/20x4 (cost method, same with equity method and
consoiidated retained earnings since it is the date of acdquisition)
P 150,000
Add: CI CNI (refer to No. 71)
110,000
Less: CI Dividends (Dividend of parent only)
25,000
Retained earnings, 12/31/20x4 (equity method same with CRE)
P 235,000
70. d
71. d
Liabilities:
Plimsol (P40,000 + P75,000)
Shipping (P25,000 + P50,000)
P115,000
75,000
P 190,000
P525,000
190,000
P335,000
72. b
73. d
74. d
75. a
76. a
77. a
78. a
P 8,000
__10,000
P 2,000
P 2,000
200
P 1,800
P 1,800
200
P 1,600
P 14,000
__18,000
P 4,000
P 3,000
1,000
P 2,000
4,000
1,000
3,000
P 11,000
_
0
P 11,000
83. d
P 11,000
2,200
P 8,800
P
P
8,800
2,200
6,600
84. c
Fair Value of Subsidiary:
Consideration Transferred (5,400 shares)
Less: Book value of SHE-S, 1/1:
Common stock S: P50,000 x 90%
APIC S: P15,000 x 90%
RE S: P41,000 x 90%
Allocated Excess
Less: Over/undervaluation of A & L:
Increase in Inv. (P17,100P16,100) x 90%
Increase in Eqpt. (P48,000P40,000) x 90%
Increase in Patents (P13,000P10,000) x 90%
Positive Excess: Goodwill
Amortization of allocated excess - Starting January 1:
Inventory: P1,000 / 1 year
Equipment: P8,000 / 4 years
Patents: P3,000 / 10 years
85. c
Common stock S
APIC S
RE S
Stockholders equity Subsidiary, 1/1
Add: Adjustments to reflect fair value
Fair value of Stockholders Equity S, 1/1
x: Non-controlling) interests
Non-controlling Interests (in net assets)
P120,600
P 45,000
13,500
36,900 95,400
P 25,200
P
900
7,200
2,700
10,800
P 14,400
P 1,000
2,000
300
P 3,300
P 50,000
15,000
41,000
P106,000
12,000
P118,000
10%
P 11,800
610
3,300
____0
P26,600
9,400
P36,000
3,910
P32,090
610
P32,700
P 9,400
3,300)
P 6,100
10%
P 610
____0
P
610
92. c
99. c
P1,300,000
(800,000)
(6,000)
(8,000)
P486,000
101. c
P86,000
40%
P34,400
P180,000
52,000
(5,600)
34,400
P260,800
P260,000
200,000
60,000
(12,000)
P508,000
P165,000
54,000
P219,000
104. c
P1,000,000
___150,000
P1,150,000
____90,000
P1,060,000
200,000
_( 20,000)
P1,240,000
30%
P 372,000
___25,714
P397,714
P 180,000
20,000
P 200,000
P 100,000
60,000
160,000
P 40,000
P
5,000
___10,000
15,000
P 25,000
Partial-Goodwill Approach
P 180,000
P 90,000
54,000
P
4,500
___9,000
144,000
36,000
13,500
P 22,500
Over/
under
10,000
25,000
Life
5
5
Annual
Amount
P 2,000
5,000
P 7,000
Current
Year(20x4)
P 2,000
5,000
P 7,000
116. d
1/1/x4.
Investment in Wisden
180,000
18,000
Dividends S
(20,000 x 90%)
NI of S
(60,000
x 90%). 54,000
1/1/x6
203,400
12,600
Amortization
(P14,000 x 90%)
117. c
1/1/x6.
Investment in Wisden
230,400
9,000
Dividends S
(10,000 x 90%)
NI of S
(30,000
x 90%). 27,000
1/1/x6
215,100
6,300
Amortization
(7,000 x 90%)
P 30,000
15,000
____0
P 90,000
( 15,000_
P 75,000
40%
P 30,000
______0
P 30,000
Sales
Less: Cost of goods sold Operating expenses
Net income from its own separate operations
Add: Investment income
Net income
Peer
P 600,000
410,000
P 190,000
45,000
P 235,000
Computation of Goodwill:
Fair value of Subsidiary (100%)
Consideration transferred: Cash (60%)
Fair value of NCI (given) (40%)
Fair value of Subsidiary (100%)
Less: Book value of stockholders equity of Sea (P550,000 x 100%)
Allocated excess (excess of cost over book value)..
Add (deduct): (Over) under valuation of assets and liabilities
(P140,000 x 100%)
Positive excess: Full-goodwill (excess of cost over fair value)
Amortization of Allocated Excess
Book Value
Buildings (net)- 6
300,000
Equipment (net) 4
300,000
Patent -10
-0Net
126. c refer to No. 125 for computations
127. b refer to No. 125 for computations
Fair Value
360,000
280,000
100,000
45,000
P235,000
30,000
P265,000
P190,000
90,000
P280,000
Over/under
P 60,000
(20,000)
100,000
P 140,000
Sea-Breeze
P 300,000
210,000
P 90,000
P 90,000
P 414,000
276,000
P 690,000
__550,000
P 140,000
140,000
0
Amort.
P 10,000
(5,000)
10,000
P 15,000
128. c - P811,000.
P700,000
P 300,000
70,000
P 230,000
45,000
P 185,000
60%
P 111,000
0
111,000
P 811,000
Since, the P811,000 is the retained earnings of parent under the equity method, it should also be
considered as the parents portion or interest in consolidated retained earnings or simply the
consolidated retained earnings.
Consolidated Retained earnings, January 1, 20x5 (refer to Nos. 118 and 119)
Add: Controlling Interest in Consolidated Net Income or
Profit attributable to equity holders of parent for 20x5
Total
Less: Dividends paid Parent Company for 20x5
Consolidated Retained Earnings, December 31, 20x5
P 811,000
235,000
P1,046,000
92,000
P 954,000
P 480,000
P300,000
90,000
70,000
320,000
P 800,000
140,000
( 60,000)
P 880,000
40
P 352,000
____0
P 352,000
134. c
Stockholders Equity
Common stock - Peer
Retained earnings
Parents Stockholders Equity/Equity Attributable to the
Owners of the Parent
Non-controlling interest**
Total Stockholders Equity (Total Equity)
Total Liabilities and Stockholders Equity
P 1,678,000
352,000
P 985,500
P2,030,000
135. c
Investment in Sea-Breeze
1/1/x2.
414,000
42,000
Dividends S
Retro
111,000
(70,000 x 60%
NI of S
(90,000
Amortization
x 60%). 54,000
9,000
(P15,000 x 60%)
12/31/x5
528,000
724,000
954,000
Investment Income
Amortization
(P15,000 x 60%) 9,000
136. c
137. d refer to No. 125
138. c refer to No. 125
139. b refer to No. 125
140. c refer to No. 128
141. c refer to No. 128
142. a not applicable under equity method.
143. d refer to No. 131
144. d refer to No. 131
145. d refer to No. 133
146. c refer to No. 134
147. b
Consideration transferred: 10,500 shares x P95
Less: BV of SHE S (?)
Allocated excess;
Less: O/U valuation of A and L:
Undervaluation of land
Overvaluation of buildings
Undervaluation of equipment
Undervaluation/unrecorded trademark
54,000
45,000
NI of S
(90,000
x 60%)
P997,500
857,500
P140,000
P40,000
( 30,000)
80,000
50,000 140,000
P
0
154. a P only (the stock issued In 20x0 includes already in the December 31, 20x4 balance.
155. a P only
156. a
Consolidated Retained Earnings, December 31, 20x4
Consolidated Retained earnings, January 1, 20x4 (equity method)
Add: Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent for 20x4
Total
Less: Dividends paid P Company for 20x4
Consolidated Retained Earnings, December 31, 20x4 (under equity method)
Net Income from own operations:
Sales
Less: cost of goods sold
Gross profit
Less: Depreciation expense
Other expenses
Net income
Non-controlling interest (full-goodwill), December 31, 20x4
P Company
S Company
Total
Less: Non-controlling Interest in Net Income
Amortization of allocated excess (refer to amortization above)
Goodwill impairment (impairment under full-goodwill approach)
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent..
P 1,350,000
490,375
P1,840,375
195,000
P1,645,375
P Co
P900,000
360,000
P540,000
140,000
100,000
P300,000
0
9,625
_
0
S Co
P500,000
200,000
P300,000
40,000
60,000
P200,000
P300,000
200,000
P500,000
9,625
P490,375
157. c
Note: Normally, the term used in the requirement equity in subsidiary income, is a term
used under equity method, but it should be noted that under PAS 27, it prohibits the use of
equity method for a parent to consolidate a subsidiary. But, assuming the use of equity
method, the answer would be, P190,375.
Share in net income: P200,000 x 100%
P200,000
Less: Amortization of allocated excess
9,625
P190,375
158. c P3,1250 / .20 = P15,750
159. a
Punns separate earnings for 20x6..............................................................
P 6,000,000
Add: Punns equity in net income of Sunn (3 months ended,12/31/x6)
200,000
Less: Amortization of cost in excess of book value .................................
( 60,000)
Punns 20x6 net income (equity method).................................................
P 6,140,000
160. a assume the use of equity method
Punns equity in net income of Sunn (3 months ended,12/31/x6)
P 200,000
Amortization of cost in excess of book value...........................................
( 60,000)
Increase in Parents retained earnings.
P 140,000
E - If cost model/cost method, the answer would be P100,000.
Dividend income.
161. a
Net income of S (5/1/x5 12/31/x5): P840,000 x 8/12
Less: Dividend S (11/1/20x5 no need to pro-rate)
Cumulative net income less dividends since
date of acquisition, 1/1/20x6 (date to establish reciprocity
P 100,000
P560,000
300,000
not 12/31/x6)
x: Controlling interests
162. b
Retained earnings S Company, 1/1/20x4
Less: Retained earnings S Company, 12/31/20x6
Cumulative net income less dividends since
date of acquisition, 1/1/20x6 (date to establish reciprocity
should always be beginning of the year, not 12/31/x6)
x: Controlling interests
P260,000
80%
P208,000
P 60,000
190,000
P130,000
90%
P117,000
163. (b)
15,400
164. (a)
165. b
166. d
167. b
174. d - In consolidating the subsidiary's figures, all intercompany balances must be eliminated
in their entirety for external reporting purposes. Even though the subsidiary is less than fully
owned, the parent nonetheless controls it.
175. b - Intercompany receivables and payables from unconsolidated subsidiaries would not be
eliminated.
Quiz - XVI
1.
b
{P150,000 - [(P550,000 - P450,000)/10] - [(P300,000 - P280,000)/5]}.8
2.
P36,925
{P110,000 - (P250,000 - P160,000 - P50,000) - [(P130,000 - P100,000) 3/5] + [(P215,000 P200,000)/5] (3/12)}.7
3.
P545,500
P500,000 + [P110,000 + P130,000 - P30,000 - P40,000 - P55,000 - (P200,000/8)2].7
4.
P388,000
P320,000 + [P100,000 + P140,000 - P40,000 - P50,000 - P35,000 - (P75,000/5)2].8
5.
P15,400
{P80,000 - [(P290,000 - P250,000)/8] + [(P160,000 - P150,000)/5]}.2
6.
P13,200
{P150,000 - (P470,000 - P300,000 - P90,000) - [(P190,000 - P160,000) 4/5] - [(P520,000 P400,000)/10] (4/12) + [(P380,000 - P350,000)/5] (4/12)}.3
7.
P70,500
{(P250,000/.8) + [P75,000 + P90,000 - P25,000 - P50,000 - P30,000 - (P80,000/8)2]}.2
8. 20x5: P56,000
20x6: P14,000
Purchase differential amortization to investment income
20x5
20x6
Inventory (P300,000 - P240,000).7
P42,000
P
0
Plant Assets [(P700,000 - P560,000)/7].7
14,000
14,000
P56,000
P14,000
9.
Consolidation worksheet:
Cost of Goods Sold
P60,000
Depreciation Expense
20,000
10. P2,900
Sandpipers share of Shore net income (P18,000 x 30%)
Add: Overvalued accounts receivable collected in 20x5
Undervalued accounts payable paid in 20x5
Less: Undervalued inventories sold in 20x5
Depreciation on building undervaluation P3,600/6
Amortization on patent P3,200/8 years
Income from Shore/Income from subsidiary
11. P1,050,000
Parrcos income from its own separate operations for 20x6
Subbcos net income for the nine months ended 12/31/x6
Less: Amortization of cost in excess of book value (P30,000 60%)
Consolidated net income for 20x6 (economic unit concept)
Division of consolidated net income:
To controlling interest (Parrcos stockholders)
To non-controlling interest (stockholders of Subbco)
P
(
(
(
P 900,000
200,000
___50,000)
P1,050,000
P 990,000
___60,000
P1,050,000
5,400
600
300
2,400)
600)
400)
2,900
12. P990,000
Parrcos income from its own separate operations for 20x6
Parrcos equity in net income of Subbco Company for
nine months ended 12/31/x6 (P200,000 60%)
Less: Parrcos amortization of cost in excess of book value
Consolidated net income for 20x6 (parent company concept)
P 900,000
120,000
( 30,000)
P 990,000
P3,600,000
Plycos separate earnings for 20x6
P 3,500,000
Add:Dividend income from Slyco ..............................................................
100,000
Plycos 20x6 net income
P 3,600,000
15.
P3,867,000
Plycos separate earnings for 20x6............................................................
Add:Plycos equity in net income of Slyco ...............................................
Less: Amortization of cost in excess of book value .................................
Plycos 20x6 net income ...............................................................................
16.
17. P52,000
Net income of S (5/1/x5 12/31/x5): P210,000 x 8/12
Less: Dividend S (11/1/20x5 no need to pro-rate)
Cumulative net income less dividends since
date of acquisition, 12/31/20x5 (date to establish reciprocity
not or 1/1/20x6)
x: Controlling interests
P3,500,000
400,000
( 33,000)
P3,867,000
P140,000
75,000
P 65,000
80%
P 52,000
18. P12,600
[{(P15,000 + P22,000) - [(P80,000 - P60,000)/10]2} - (P6,000 + P9,000)].7 = P12,600
20x5
37,500
0
37,500
(4,000)
33,500
20x5
P161,500
P151,400
18,400
P179,900
P 12,000
( 2,800)
-0P 9,200
P150,000
(128,000)
P
(14,000)
8,000
20.
3,600
21.
P150,000
P150,000
9,200
(3,600)
P155,600
Theories
1.
2.
3.
4.
5.
c
d
d
d*
d
6.
7.
8.
9.
10,
b
c
d
d
a
11.
12.
13.
14.
15,
C**
b
d
c
c
16.
17.
18.
19.
20.
c
c
d
d
b
21.
22.
23.
24.
25.
d
a
b
c
c
26.
27.
28.
29.
30.
c
d
c
c
b
31
32.
33.
34.
35.
c
b
c
c
d
36.
37.
38.
39.
40.
d
b
b
c
d
41.
42.
43.
44.
45.
a
c
a
*under PAS 27, cost model recognizes any dividend declared/paid by the subsidiary is classified as income regardless
of retained earnings balance, which means there is no such thing as liquidating dividend under the cost model. On the
other hand, under FASB ruling, a liquidating dividend still exists under the cost method.
**partial equity is the same with equity method except that amortization of allocated excess is not recognized in the
investment and income account.