Professional Documents
Culture Documents
Problem I
1. P50,075
Consolidated Net Income for 20x4
Net income from own/separate operations
Pill Company [P25,000 (P9,000 x 85%)] P17,350
Sill Company 40,000
Total P57,350
Less: Non-controlling Interest in Net Income* P 5,775
Amortization of allocated excess 0
Goodwill impairment 1,500 7,275
Controlling Interest in Consolidated Net Income or Profit
attributable to equity holders of parent.. P50,075
Add: Non-controlling Interest in Net Income (NCINI) 5,775
Consolidated Net Income for 20x4 P55,850
*this procedure would be not be applicable where the NCI on goodwill impairment loss would
not be proportionate to NCI acquired.
1/1/x4 CI
600,000
12/31/x4 18,750
600,000
12/31/x5 18,750
600,000
12/31/x6 30,000
600,000
Equity Method
1. Year 1 Year 2 Year 3
Investment
Investment in Small 600,000
Cash 600,000
Net Income (Loss) of Subsidiary:
Investment in Small (75% x Smalls profit) 60,000 67,500
Investment income 60,000 67,500
Investment income 26,,250
Investment in Small (75% x Smalls profit) 26,250
Dividend of Subsidiary
Cash (75% x Smalls dividends) 18,750 7,500 30,000
Investment in Small 18,750 7,500 30,000
Amortization of Allocated Excess
Investment income (75% x amortization of PD*) 19,500 3,975
Investment in Small 19,500 3,975
1/1/x4: CI
600,000
12/31/x4 40,500
621,750
12/31/x5 15,7
598,500 50
12/31/x6 63,525
632,025
P 400,000
Common stock Subsidiary Company, December 31,
20x6 . . . . . . . . . . . . . . . . . .
Alternatively, NCI on December 31, 20x6 may also be computed as follows (Note: This
is the American version of computing NCI, since they only allowed using Full-goodwill
Method):
d. P233.525
Consolidated Net Income for 20x6
Net income from own/separate operations
Parent Company: Large Company [P200,000 (P40,000 x P170,000
75%)]
Small Company 90,000
Total P260,000
Less: Non-controlling Interest in Net Income* P 21,175
Amortization of allocated excess (14,000)
Goodwill impairment _19,300 __26,475
Controlling Interest in Consolidated Net Income or Profit
attributable to equity holders of parent.. P233,525
Add: Non-controlling Interest in Net Income (NCINI) __21,175
Consolidated Net Income for 20x6 P254,700
*this procedure would be not be applicable where the NCI on goodwill impairment loss would
not be proportionate to NCI acquired.
Problem III
Cost of 85% investment 646,000
Fair value of Subsidiary (Implied cost of 100% investment); P646,000/85%
760,000
Less: Carrying amount of Silks net assets =
Carrying amount of Silks shareholders equity
Common/Ordinary shares 500,000
Retained earnings 100,000
600,000
Allocated Excess: Acquisition differential December 31, 20x4 160,000
Less: Over/under valuation of A/L (Allocated to):
Increase in Inventory 70,000
Patents 90,000
Non-controlling interest (15% x 760,000, fair value of subsidiary),12/31/20x4
114,000
*this procedure would be not be applicable where the NCI on goodwill impairment loss would
not be proportionate to NCI acquired.
Problem IV
1. (Full or partial-goodwill) the same answer.
Consideration transferred by MM .................... P664,000
Noncontrolling interest fair value..................... 166,000*
Fair value of Subsidiary P830,000
Less: Book value of SHE S... (600,000)
Positive excess ............................................... 230,000 Annual Excess
Life Amortizations
Excess fair value assigned to buildings 80,000 20 years P4,000
Goodwill - full P150,000 indefinite -0-
Total........................................................... P4,000
2. P150,000 full goodwill (see No. 1 above)
P120,000 partial-goodwill:
Consideration transferred by MM .................... P 664,000
Less: Book value of SHE S (P600,000 x 80%).. 480,000
Allocated excess.. P184,000
Less: Over/under valuation of A and L:
P80,000 x 80%................................................. 64,000
Goodwill - partial.............................................. P120,000
3. Full-goodwill
Common Stock - TT .................................................... 300,000
Additional Paid-in Capital - TT ..................................... 90,000
Retained Earnings - TT................................................. 210,000
Investment in TT Company (80%) ......................... 480,000
Non-controlling interest (20%) .............................. 120,000
Partial-goodwill
Common Stock - TT .................................................... 300,000
Additional Paid-in Capital - TT ..................................... 90,000
Retained Earnings - TT................................................. 210,000
Investment in TT Company (80%) ......................... 480,000
Non-controlling interest (20%) .............................. 120,000
Problem V
1.
Partial Goodwill or Proportionate Basis
a. Investment in S 225,000
Beginning Retained Earnings-Palm Inc. 225,000
To establish reciprocity/convert to equity (0.90 x(P1,250,000 P1,000,000))
c. Land 400,000
Investment in S 150,000
NCI [(P500,000 x 10%) (P100,000 x 10%)] 40,000
Retained earnings P (bargain purchase gain
closed to retained earnings since only balance
sheets are being examined, P300,000 P90,000
depreciation, 20x4) 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
Fair value of Subsidiary:
Consideration transferred P3,750,000
Less: BV of SHE of S (P3,000,000 + P1,000,000) x 90% _3,600,000
Allocated excess P 150,000
Less: Over/under valuation of A and L: Inc. (Dec.)
Inventory (P800,000 P700,000) x 90% P 90,000
Land (P2,000,000 P1,600,000) x 90% 360,000 __450,000
Gain partial (attributable to parent) (P300,000)
Full Goodwill or Fair Value Basis
a. Investment in S 225,000
Beginning Retained Earnings-P Inc. 225,000
To establish reciprocity/convert to equity (0.90 x(P1,250,000 P1,000,000))
c. Land 400,000
Investment in S 150,000
NCI [(P500,000 x 10%) (P100,000 x 10%)] 40,000
Retained earnings P (bargain purchase gain
closed to retained earnings since only balance
sheets are being examined, P300,000 P90,000
depreciation, 20x4) 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
Full-goodwill or Fair Value Basis
Fair value of Subsidiary:
Consideration transferred P3,750,000 / 90% P4,166,66
7
Less: BV of SHE of S (P3,000,000 + P1,000,000) x 4,000,000
100%
Allocated excess P
166,667
Less: Over/under valuation of A and L: Inc. (Dec.)
Inventory (P800,000 P700,000) x 100% P 100,000
Land (P2,000,000 P1,600,000) x 100% 400,000 __500,000
Gain full (attributable to parent) (P333,333
Note: In case of gain, the working paper eliminating entries under partial and full-
goodwill approach are the same.
2.
Consolidated Retained Earnings, December 31, 20x5
Retained earnings - Parent Company, December 31, 20x5 (cost model P2,000,000
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) P1,550,000
Less: Retained earnings Subsidiary, January 1, 20x4 1,000,00
0
Increase in retained earnings since date of acquisition P 550,000
Less: Amortization of allocated excess 20x4 (inventory) 100,000
P 450,000
Multiplied by: Controlling interests %................... 90%
P405,000
Add: Bargain purchase gain (Controlling interest P300,000) 300,000
Less: Goodwill impairment loss _______0 __705,,000
Consolidated Retained earnings, December 31, 20x5 P
4,705,000
Problem VI
Computation of Goodwill:
Partial Goodwill
Fair value of Subsidiary:
Consideration transferred P2,800,00
0
Less: BV of SHE of S (P1,000,000 + P500,000) x 80% _1,200,00
0
Allocated excess P1,600,00
0
Less: Over/under valuation of A and L: Inc. (Dec.)
Prop., plant and eqpt. (P1,500,000 P600,000) x __720,000
80%
Goodwill partial P
880,000
Full-goodwill:
Fair value of Subsidiary:
Consideration transferred P2,800,000 / 80% P3,500,0
00
Less: BV of SHE of S (P1,500,000 x 100%) 1,500,00
0
Allocated excess P2,000,0
00
Less: Over/under valuation of A and L: Inc. (Dec.)
Prop., plant and eqpt. (P1,500,000 P600,000) x __900,00
80% 0
Goodwill full P1,100,00
0
Amortization of allocated excess:
P900,000 / 10 years = P90,000 per year
1.
Cost Model-Full Goodwill (Eliminating Entries)
20x4
a. Beginning Retained Earnings-S Co. 1,000,000
Capital Stock- S Co. 500,000
Property and Equipment (net) 900,000
Goodwill 1,100,000
Investment in S Co. 2,800,000
Non-controlling Interest 700,000
Common stock, 1/1/20x4 P 500,000
Retained earnings, 1/1/20x4 1,000,000
Book value of SHE S, 1/1/20x5 P1,500,000
Adjustments to reflect fair value 900,000
FV of SHE of S1/1/x5 P2,400,000
Multiplied by: NCI% 20%
FV of NCI (partial) P 480,000
Add: NCI on full-goodwill (P1,100,000 P880,000) 220,000
FV of NCI (full) P 700,000
20x5
a. Investment in S Company (P300,000 x 0.80) 240,000
Beginning Retained Earnings-P Co. 240,000
To establish reciprocity/convert to equity as of 1/1/20x5
Problem VII
1. Common stock of TT Company
on December 31, 20x4 P 90,000
Retained earnings of TT Company
January 1, 20x4 P 130,000
Sales for 20x4 195,000
Less: Expenses (160,000)
Dividends paid (15,000)
Retained earnings of TT Company
on December 31, 20x4 150,000
Net book value on December 31, 20x4 P240,000
Proportion of stock acquired by QQ x .80
Purchase price P192,000
2. Net book value on December 31, 20x4 P240,000
Proportion of stock held by
noncontrolling interest x .20
Balance assigned to noncontrolling interest 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.
Problem VIII
Requirements 1 to 4:
Date of Acquisition January 1, 20x4
Fair value of Subsidiary (100%)
Consideration transferred:
Cash P 360,000
Notes payable 105,000 P 465,000
Less: Book value of stockholders equity of S:
Common stock (P200,000 x 100%)
. P 240,000
Retained earnings (P100,000 x 100%)... 120,000 360,000
Allocated excess (excess of cost over book value)
.. P 105,000
Less: Over/under valuation of assets and liabilities:
Increase in inventory (P5,000 x 100%)
P 6,000
Increase in land (P6,000 x 100%)
. 7,200
Increase in equipment (P80,000 x 100%) 96,000
Decrease in buildings (P20,000 x 100%)
..... ( 24,000)
Decrease in bonds payable (P4,000 x 100%)
4,800 90,000
Positive excess: Goodwill (excess of cost over
fair value)
... P 15,000
The buildings and equipment will be further analyzed for consolidation purposes as follows:
S Co. S Co.
Book value Fair value (Decrease)
Buildings................ 360,000 144,000 ( 216,000)
Less: Accumulated
depreciation.. 192,000 - ( 192,000)
Net book
value... 168,000 144,000 ( 24,000)
January 1, 20x4:
(E2) 6,000
Inventory.
Accumulated depreciation equipment.. 96,000
Accumulated depreciation buildings.. 192,000
Land 7,200
.
Discount on bonds 4,800
payable.
Goodwill. 15,000
Buildings.. 216,000
Investment in S Co. 105,000
To allocate excess of cost over book value of identifiable assets
acquired, with remainder to goodwill
(E3) Cost of Goods Sold. 6,000
Depreciation expense.. 6,000
Accumulated depreciation buildings.. 6,000
Interest expense 1,200
Goodwill impairment loss 3,600
Inventory.. 6,000
Accumulated depreciation equipment.. 12,000
Discount on bonds payable 1,200
Goodwill.. 3,600
To provide for 20x4 impairment loss and depreciation and
amortization on differences between acquisition date fair value
and
book value of Sons identifiable assets and liabilities as follows:
Cost of Depreciation/
Goods Sold Amortization Amortizatio
Expense n
-Interest
Inventory P 6,000
sold
Equipment P12,000
Buildings ( 6,000)
Bonds _______ _______ P 1,200
payable
Totals P 6,000 P 6,000 P1,200
Cost Model
100%-Owned Subsidiary
Balance Sheet
P
Cash. 147,000 P 90,000 P 237,000
Accounts receivable.. 90,000 60,000 150,000
(2) (3)
Inventory. 120,000 90,000 6,000 6,000 210,000
(2)
Land. 210,000 48,000 7,200 265,200
Equipment 240,000 180,000 420,000
Buildings 720,000 540,000 (2) 216,000 1,044,000
(2)
Discount on bonds payable 4,800 (3) 1,200 3,600
(2)
Goodwill 15,000 (3) 3,600 11,400
Investment in S Co 465,000 (1) 360,000
(2) 105,00
0 -
P1,008,0
Total P1,992,000 00 P2,341,200
Only a single entry is recorded by the parent in 20x5 in relation to its subsidiary investment:
On the books of S Company, the P40,000 dividend paid was recorded as follows:
Dividends paid 48,000
Cash 48,000
Dividends paid by S Co..
(E3) 6,000
Inventory.
Accumulated depreciation equipment.. 96,000
Accumulated depreciation buildings.. 192,000
Land 7,200
.
Discount on bonds 4,800
payable.
Goodwill. 15,000
Buildings.. 216,000
Investment in S Co. 105,000
To allocate excess of cost over book value of identifiable assets
acquired, with remainder to goodwill; and to establish non-
controlling interest (in net assets of subsidiary) on January 1,
20x5.
(20x4) Depreciation/
Retaine Amortization Amortizatio
d expense n
earnings -Interest
,
Inventory sold P
6,000
Equipment 12,000 P 12,000
Buildings (6,000) ( 6,000)
Bonds payable 1,200 P 1,200
Impairment loss 3,60
0
Totals P P 6,000 P1,200
16,800
Cost Model
100%-Owned Subsidiary
Balance Sheet
P P
Cash. 189,000 102,000 P 291,000
Accounts receivable.. 180,000 960,000 276,000
(3)
Inventory. 216,000 108,000 6,000 (4) 6,000 324,000
(3)
Land. 252,000 48,000 7,200 265,200
Equipment 240,000 180,000 420,000
(3)
Buildings 720,000 540,000 216,000 1,044,000
(3) (4)
Discount on bonds payable 4,800 2,400 2,400
(3) (4)
Goodwill 15,000 3,600 11,400
Investment in S Co 465,000 (2)
(1) 384,000
24,000 (3) 105,00
0 -
P1,074,0
Total P2,220,000 00 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:
c.
Stockholders Equity
Common stock, P10 par P 600,000
Retained earnings 360,000
Total Stockholders Equity (Total Equity) P 960,000
6. 12/31/20x4:
d.
*since it is a 100%-owned subsidiary, Controlling Interest in Net Income is the same with Consolidated Net
Income.
e. NCI not applicable, since it is 100% owned subsidiary
f.
Stockholders Equity
Common stock, P10 par P 600,000
Retained earnings 499,200
Total Stockholders Equity (Total Equity) P
1,099,200
12/31/20x5
d.
f.
Stockholders Equity
Common stock, P10 par P 600,000
Retained earnings 702,000
Total Stockholders Equity (Total Equity) P1,302,000
The buildings and equipment will be further analyzed for consolidation purposes as follows:
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:
January 1, 20x4:
(E2) 6,000
Inventory.
Accumulated depreciation equipment.. 96,000
Accumulated depreciation buildings.. 192,000
Land 7,200
.
Discount on bonds 4,800
payable.
Goodwill 12,000
.
Buildings.. 216,000
Non-controlling interest (P90,000 x 20%) 18,000
..
Investment in S Co. 84,000
To allocate excess of cost over book value of identifiable assets
acquired, with remainder to goodwill; and to establish non-
controlling interest (in net assets of subsidiary) on date of
acquisition.
(E3) Cost of Goods Sold. 6,000
Depreciation expense.. 6,000
Accumulated depreciation buildings.. 6,000
Interest expense 1,200
Goodwill impairment 3,000
loss.
Inventory.. 6,000
Accumulated depreciation equipment.. 12,000
Discount on bonds payable 1,200
Goodwill 3,000
To provide for 20x4 impairment loss and depreciation and
amortization on differences between acquisition date fair value
and
book value of Sons identifiable assets and liabilities as follows:
Cost of Depreciation/
Goods Amortization Amortizatio
Sold expense n Total
-Interest
Inventory sold P
6,000
Equipment P 12,000
Buildings ( 6,000)
Bonds payable _______ _______ P 1,200
Totals P 6,000 P 6,000 P1,200 13,20
0
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 % of Total
Goodwill applicable to parent P12,000 80.00%
Goodwill applicable to NCI.. 3,000 20.00%
Total (full) goodwill.. P15,000 100.00%
Therefore, the goodwill impairment loss of P3,125 based on 100% fair value or full-goodwill
would be allocated as follows:
Value % of Total
Goodwill impairment loss attributable to P or controlling P 3,000 80.00%
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%
80%-Owned Subsidiary
Balance Sheet
P
Cash. 232,800 P 90,000 P 322,800
Accounts receivable.. 90,000 60,000 150,000
(2) (3)
Inventory. 120,000 90,000 6,000 6,000 210,000
(2)
Land. 210,000 48,000 7,200 265,200
Equipment 240,000 180,000 420,000
(2)
Buildings 720,000 540,000 216,000 1,044,000
(2) (3)
Discount on bonds payable 4,800 1,200 3,600
(2) (3)
Goodwill 12,000 3,000 9,000
Investment in S Co 372,000 (4) 288,000
(5) 84,000 -
P1,008,0
Total P1,984,800 00 P2,424,600
P Co. S Co.
Sales P 540,000 P 360,000
Less: Cost of goods sold 216,000 192,000
Gross profit P 324,000 P 168,000
Less: Depreciation expense 60,000 24,000
Other expense 72,000 54,000
Net income from its own separate operations P 192,000 P 90,000
Add: Dividend income 38,400 -
Net income P 230,400 P 90,000
Dividends paid P 72,000 P 48,000
Only a single entry is recorded by the P in 20x5 in relation to its subsidiary investment:
January 1, 20x5 December 31, 20x5:
Cash 38,400
Dividend income (P48,000 x 80%). 38,400
Record dividends from S Company.
The working paper eliminations (in journal entry format) on December 31, 20x5, are as
follows:
(E3) 6,000
Inventory.
Accumulated depreciation equipment.. 96,000
Accumulated depreciation buildings.. 192,000
Land 7,200
.
Discount on bonds 4,800
payable.
Goodwill 12,000
.
Buildings.. 216,000
Non-controlling interest (P90,000 x 20%) 18,000
Investment in S Co. 84,000
To allocate excess of cost over book value of identifiable assets
acquired, with remainder to goodwill; and to establish non-
controlling interest (in net assets of subsidiary) on January 1,
20x5.
(E4) Retained earnings P Company, 1/1/20x5
[(P13,200 x 80%) + P3,000, impairment loss on
partial-goodwill] 13,560
Non-controlling interests (P13,200 x 20%) 2,640
.
Depreciation expense.. 6,000
Accumulated depreciation buildings.. 12,000
Interest expense 1,200
Inventory.. 6,000
Accumulated depreciation equipment.. 24,000
Discount on bonds payable 2,400
Goodwill 3,000
To provide for years 20x4 and 20x5 depreciation and
amortization on
differences between acquisition date fair value and book value
of
Ss identifiable assets and liabilities as follows:
Year 20x4 amounts are debited to Ps retained earnings &
NCI;
Year 20x5 amounts are debited to respective nominal
accounts.
(20x4) Depreciation/
Retaine Amortization Amortizatio
d expense n
earnings -Interest
,
Inventory sold P
6,000
Equipment 12,000 P 12,000
Buildings (6,000) ( 6,000)
Bonds payable 1,20 ________ P 1,200
0
Sub-total P13,200 P 6,000 P 1,200
Multiplied by: 80%
To Retained earnings P
10,560
Impairment loss 3,00
0
Total P
13,560
80%-Owned Subsidiary
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.
P 240,000
Common stock S Company, January 1, 20x4
c.
Consolidated SHE:
Stockholders Equity
Common stock, P10 par P 600,000
Retained earnings 360,000
Ps Stockholders Equity / CI - SHE P 960,000
NCI, 1/1/20x4 ___90,000
Consolidated SHE, 1/1/20x4 P1,050,000
6.
Note: The goodwill recognized on consolidation purely relates to the 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
b. NCI-CNI
e.
P 240,000
Common stock S Company, December 31, 20x4
f.
Consolidated SHE:
Stockholders Equity
Common stock, P10 par P 600,000
Retained earnings 490,440
Ps Stockholders Equity / CI SHE, 12/31/20x4 P1,090,440
NCI, 12/31/20x4 ___92,160
Consolidated SHE, 12/31/20x4 P1,182,600
12/31/20x5:
a. CI-CNI
b. NCI-CNI
*this procedure would be more appropriate, instead of multiplying the full-goodwill impairment loss of
P3,750 by 80%. There might be situations where the controlling interests on goodwill impairment loss would
not be proportionate to NCI acquired.
e.
P 240,000
Common stock S Company, December 31, 20x5
f.
Consolidated SHE:
Stockholders Equity
Common stock, P10 par P 600,000
Retained earnings 676,680
Parents Stockholders Equity / CI SHE, 12/31/20x5 P1,276,680
NCI, 12/31/20x5 ___99,120
Consolidated SHE, 12/31/20x5 P1,375,800
No entries are made on the Ps books to depreciate, amortize or write-off the portion of the
allocated excess that expires during 20x4.
(E2) 6,000
Inventory.
Accumulated depreciation equipment.. 96,000
Accumulated depreciation buildings.. 192,000
Land 7,200
.
Discount on bonds 4,800
payable.
Goodwill 15,000
.
Buildings.. 216,000
Non-controlling interest (P90,000 x 20%) +
[(P15,000, full 21,000
P12,000, partial goodwill)]
Investment in S Co. 84,000
*this procedure would be more appropriate, instead of multiplying the full-goodwill impairment loss of
P3,125 by 20%. There might be situations where the NCI on goodwill impairment loss would not be
proportionate to NCI acquired (refer to Illustration 15-6).
80%-Owned Subsidiary
P Co. S Co.
Sales P 540,000 P 360,000
Less: Cost of goods sold 216,000 192,000
Gross profit P 324,000 P 168,000
Less: Depreciation expense 60,000 24,000
Other expense 72,000 54,000
Net income from its own separate operations P 192,000 P 90,000
Add: Dividend income 38,400 -
Net income P 230,400 P 90,000
Dividends paid P 72,000 P 48,000
Only a single entry is recorded by the parent in 20x5 in relation to its subsidiary investment:
(20x4) Depreciation/
Retaine Amortization Amortizatio
d expense n
earnings -Interest
,
Inventory sold P
6,000
Equipment 12,000 P 12,000
Buildings (6,000) ( 6,000)
Bonds payable 1,200 P 1,200
Impairment loss 3,75
0
Totals P P 6,000 P1,200
16,950
Multiplied by: CI%.... 80
%
To Retained earnings P13,560
80%-Owned Subsidiary
Balance Sheet
P P
Cash. 265,200 102,000 P 367,200
Accounts receivable.. 180,000 96,000 276,000
Inventory. 216,000 108,000 (3) (4) 6,000 324,000
6,000
(3)
Land. 210,000 48,000 7,200 265,200
Equipment 240,000 180,000 420,000
(3)
Buildings 720,000 540,000 216,000 1,044,000
(3) (4)
Discount on bonds payable 4,800 2,400 2,400
(3) (4)
Goodwill 15,000 3,750 11,250
Investment in S Co 372,000 (1) (2)
19,200 307,200
(7) 84,000 -
P1,074,0
Total P2,203,200 00 P2,710,050
Accumulated depreciation P (3) (4)
- equipment P 150,000 102,000 96,000 24,000 P180,000
(3)
192,000
Accumulated depreciation 450,000 306,000 (4)
- buildings 12,000 552,000
Accounts payable 120,000 120,000 240,000
Bonds payable 240,000 120,000 360,000
Common stock, P10 par 600,000 600,000
(2)
Common stock, P10 par 240,000 240,000
Retained earnings, from above 643,200 186,000 676,680
(6) (2 )
9,600 76,800
Non-controlling interest (8) (3)
3,390 21,000
___ ______ (6) ____101,37
_____ ___ __________ 16,560 0
P1,074,0 P P
Total P2,203,200 00 824,910 824,910 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:
b.
P 240,000
Common stock S Company, January 1, 20x4
Consolidated SHE:
Stockholders Equity
Common stock, P10 par P 600,000
Retained earnings 360,000
Parents Stockholders Equity / CI - SHE P 960,000
NCI, 1/1/20x4 ___93,000
Consolidated SHE, 1/1/20x4 P1,053,000
6.
Note: The goodwill recognized on consolidation purely relates to the 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
b. NCI-CNI P8,610
*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.
P 240,000
Common stock S Company, December 31, 20x4
f.
Consolidated SHE:
Stockholders Equity
Common stock, P10 par P 600,000
Retained earnings 490,440
Ps Stockholders Equity / CI SHE, 12/31/20x4 P1,090,440
NCI, 12/31/20x4 ___94,410
Consolidated SHE, 12/31/20x4 P1,184,85
0
12/31/20x5:
a. CI-CNI P258,240
b. NCI-CNI P16,560
*this procedure would be more appropriate, instead of multiplying the full-goodwill impairment loss of
P3,750 by 80%. There might be situations where the controlling interests on goodwill impairment loss would
not be proportionate to NCI acquired.
e.
P 240,000
Common stock S Company, December 31, 20x5
f.
Consolidated SHE:
Stockholders Equity
Common stock, P10 par P 600,000
Retained earnings 676,680
Ps Stockholders Equity / CI SHE, 12/31/20x4 P1,276,680
NCI, 12/31/20x4 __101,370
Consolidated SHE, 12/31/20x4 P1,378,05
0
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)................... 900,000
Common Stock (par value).................................................... 150,000
Additional Paid-in Capital (excess over par value)................. 450,000
Liabilities............................................................................... 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.................................................................... 30,000
Additional Paid-in Capital............................................................ 40,000
Cash .................................................................................. 70,000
Allocation of Acquisition-Date Excess Fair Value:
Consideration transferred (fair value) for BB Stock ................... P900,000
Book Value of BB, 6/30................................................................ 770,000
Fair Value in Excess of Book Value......................................... P130,000
Excess fair value (undervalued equipment)................................ 100,000
Excess fair value (overvalued patented technology)................... (20,000)
Goodwill................................................................................ P 50,000
Consolidated Balances:
1. Net income (adjusted for combination expenses. The
figures earned by the subsidiary prior to the takeover
are not included).............................................................................. P210,000
2. Retained Earnings, 1/1 (the figures earned by the subsidiary
prior to the takeover are not included)............................................. 800,000
3. Patented Technology (the parent's book value plus the fair
value of the subsidiary).................................................................... 1,180,000
4. Goodwill (computed above)............................................................... 50,000
5. Liabilities (the parent's book value plus the fair value
of the subsidiary's debt plus the debt issued by the parent
in acquiring the subsidiary).............................................................. 1,210,000
6. Common Stock (the parent's book value after recording
the newly-issued shares).................................................................. 510,000
7. Additional Paid-in Capital (the parent's book value
after recording the two entries above)............................................. 680,000
Problem XII
1. Investment in WP, Inc. 500,000
Contingent performance obligation 35,000
Cash 465,000
2.
12/31/x4 Loss from increase in contingent performance
obligation 5,000
Contingent performance obligation 5,000
1. Consolidated copyrights
PP (book value) ..................................................... P900,000
SS (book value) ..................................................... 400,000
Allocation (above) ................................................. 120,000
Excess amortizations, 20x4 .................................. (20,000)
Total ................................................................ P1,400,000
Problem XIV
Consolidated balances three years after the date of acquisition. Includes questions about
parent's method of recording investment for internal reporting purposes.)
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)
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 XV
1. Net income for 20x4:
QQ NN
Operating income P 90,000 P35,000
Income from subsidiary 24,500
Net income P114,500 P35,000
2. Consolidated net income is P125,000 (P90,000 + P35,000).
3. Retained earnings reported at December 31, 20x4:
QQ NN
Retained earnings, January 1, 20x4 P290,000 P40,000
Net income for 20x4 114,500 35,000
Dividends paid in 20x4 (30,000) (10,000)
Retained earnings, December 31, 20x4 P374,500 P65,000
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 XVI
(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)............................. P2,500,000
Non-controlling interest fair value (P30.00 20,000 shares)........................ P600,000
SRs total fair value 1/1/09............................................................................ 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.
To non-controlling interest:
SRs revenues.......................................................................................... P1,400,000
SRs expenses......................................................................................... (600,000)
Total excess amortization expenses (above)............................................ (435,000)
SRs adjusted net income........................................................................ P365,000
Non-controlling interest percentage ownership....................................... 20%
Non-controlling interest share of consolidated net income...................... P73,000
To controlling interest:
Consolidated net income......................................................................... P1,615,000
Non-controlling interest share of consolidated net income...................... (73,000)
Controlling interest share of consolidated net income............................. P1,542,000
-OR-
PSs
revenues.......................................................................................... P3,000,000
PSs
expenses.......................................................................................... 1,750,000
PSs
separate net income........................................................................ P1,250,000
PSs
share of SRs adjusted net income
(80% P365,000)........................................................................ 292,000
Controlling interest share of consolidated net income............................. P1,542,000
5. Fair value of non-controlling interest January 1, 20x4................................... P600,000
20x4 income ............................................................................................... ..73,000
Dividends (20% P30,000).......................................................................... (6,000)
Non-controlling interest December 31, 20x4................................................. P 667,000
6. If SRs acquisition-date total fair value was P2,250,000, then a bargain purchase has
occurred.
SRs total fair value 1/1/09............................................................................ P2,250,000
Collective fair values of SRs net assets........................................................ P2,300,000
Bargain purchase.......................................................................................... P50,000
The acquisition method requires that the subsidiary assets acquired and liabilities
assumed be recognized at their acquisition date fair values regardless of the assessed fair
value. Therefore, none of SRs identifiable assets and liabilities would change as a result
of the assessed fair value. When a bargain purchase occurs, however, no goodwill is
recognized.
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)
(Partial-Goodwill)
Consideration transferred .......................... P 526,000
Less: Book value of SHE DD (P765,000 x 60%) 459,000
Allocated excess P 67,000
Less: Over/under valuation of A and L:
(P30,000 x 60%)........................................... ( 18,000)
Goodwill - partial................................... P 85,000
Problem XIX
(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) P178,000
25% income for 1st 6 months 8,750
Investment book value at 6/30 186,750
Fair value of investment 200,000
Gain on revaluation to fair value P13,250
3. Goodwill at 12/31
Fair value of AD at 6/30 P800,000
Book value at 6/30 (700,000 + [70,000 2]) 735,000
Excess fair value P65,000
Allocation to goodwill (no impairment) P65,000
4. Non-controlling interest
5% fair value balance at 6/30 P40,000
5% Income from 6/30 to 12/31 1,750
5% dividends (1,000)
Non-controlling interest 12/31 P40,750
Problem XX
Ps gain on sale of subsidiary stock is computed as follows:
Cash proceeds P
720,000
Fair value of retained non-controlling interest equity investment (35%) 420,000
Carrying value of the non-controlling interest before deconsolidation
(15% or prior outside non-controlling interest in Subsidiary) 120,000
P1,260,000
Less: Carrying value of Subsidiarys net assets 1,200,000
Gain on disposal or deconsolidation P 60,000
Problem XXI
P Companys additional paid-in capital arising sale of subsidiary shares is computed as
follows:
Problem XXII
P Companys additional paid-in capital arising sale of subsidiary shares is computed as
follows:
Problem XXIII
1. Equity Method
Income accrual (80%) ...................................................... P56,000
Excess amortization expense ........................................... (3,200)
Investment income ..................................................... P52,800
Problem XXV
Computation of Goodwill:
Partial Goodwill or Proportionate Basis
Fair value of Subsidiary:
Consideration transferred P1,970,00
0
Less: BV of SHE of S (P1,200,000 + P600,000) x 80% _1,440,00
0
Allocated excess P
530,000
Less: Over/under valuation of A and L: Inc. (Dec.)
Inventory (P725,000 P600,000) x 80% P 100,000
Equipment (P1,075,000 P900,000) x 80% 140,000 __240,000
Goodwill partial P 290,000
Amortization
20x4 20x5
Inventory: P125,000 x 60% P 75,000
P125,000 x 40% P 50,000
Equipment: P175,000 / 7 years 25,000 25,000
P P 75,000
100,000
1.
20x4
Investment in S Company 1,970,000
Cash 1,970,000
20x5
Cash (0.8 x P225,000) 180,000
Investment in S Company 180,000
2.
20x4
(1) Equity in Subsidiary Income ((.80)(P750,000) -P80,000) 520,000
Dividends Declared (0.80 x P150,000) 120,000
Investment in S Company
400,000
20x5
(1) Equity in Subsidiary Income ((.80)(P900,000) - P60,000) 660,000
Dividends Declared (0.80 x P225,000) 180,000
Investment in Superstition Company 480,000
3.
Consolidated Net Income for 20x5
Net income from own/separate operations
P Company (P1,000,000 P120,000) P
880,000
S Company __
750,000
Total P1,630,00
0
Less: Non-controlling Interest in Net Income* P130,000
Amortization of allocated excess 100,000
Goodwill impairment ____0 230,00
0
Controlling Interest in Consolidated Net Income or Profit
attributable to equity holders of parent.. P1,400,00
0
Add: Non-controlling Interest in Net Income (NCINI) 130,000
Consolidated Net Income for 20x4 P1,530,00
0
The buildings and equipment will be further analyzed for consolidation purposes as follows:
The following are entries recorded by the P in 20x4 in relation to its subsidiary investment:
January 1, 20x4:
Thus, the investment balance and investment income in the books of P Company is as
follows:
Investment in S
NI of S Amortization &
Balance, 12/31/x4
377,640
Amortization & NI of S
The schedule of determination and allocation of excess presented above provides complete
guidance for the worksheet eliminating entries on January 1, 20x4:
(E2) 6,000
Inventory.
Accumulated depreciation equipment.. 96,000
Accumulated depreciation buildings.. 192,000
Land 7,200
.
Discount on bonds 4,800
payable.
Goodwill. 12,000
Buildings.. 216,000
Non-controlling interest (P96,000 x 20%) 18,000
..
Investment in S Co. 84,000
Cost of Depreciation/
Goods Amortization Amortizatio
Sold Expense n Total
-Interest
Inventory sold P
6,000
Equipment P 12,000
Buildings ( 6,000)
Bonds payable _______ _______ P 1,200
Totals P 6,000 P 6,000 P1,200 13,20
0
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 % of Total
Goodwill applicable to parent P12,000 80.00%
Goodwill applicable to NCI.. 3,000 20.00%
Total (full) goodwill.. P15,000 100.00%
Therefore, 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 to parent or controlling P 3,000 80.00%
Interest
Goodwill impairment loss applicable to NCI.. 625 20.00%
Goodwill impairment loss based on 100% fair value or full-
Goodwill P 3,750 100.00%
NI of S 28,800 Dividends - S NI of S
5,6 34,440
40
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
(E5) Non-controlling
Balance, interest in 12/31/x4
Net Income
288,000 of (E1) Investment,
9,360 1/1/20x4
Subsidiary
377,640
Non-controlling interest .. 9,360
To establish non-controlling interest in subsidiarys adjusted net
income for 20x4 as follows:
84,000 (E2) Investment, 1/1/20x4
80%-Owned Subsidiary
P Co. S Co.
Sales P 540,000 P 360,000
Less: Cost of goods sold 216,000 192,000
Gross profit P 324,000 P 168,000
Less: Depreciation expense 60,000 24,000
Other expense 72,000 54,000
Net income from its own separate operations P 192,000 P 90,000
Add: Investment income 66,240 -
Net income P 258,240 P 90,000
Dividends paid P 72,000 P 48,000
The following are entries recorded by the parent in 20x5 in relation to its subsidiary
investment:
Thus, the investment balance and investment income in the books of P Company is as
follows:
Investment in S
NI of S Amortization
Balance, 12/31/x5
405,480
Amortization NI of S
The schedule of determination and allocation of excess presented above provides complete guidance
for the worksheet eliminating entries:
Depreciation/
Amortization Amortizatio
Expense n Total
-Interest
Inventory
sold
Equipment P 12,000
Buildings ( 6,000)
Bonds _______ P 1,200
payable
Totals P 6,000 P1,200 P7,,20
0
NI of S 38,400 Dividends S NI of S
27,8 66,240
40
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
(E5) NI of S
Non-controlling interest in Net Income of Amortization
16,560
Subsidiary
Non-controlling interest .. 16,560
To establish non-controlling interest in subsidiarys
(90,000 x 80%) adjusted
5,760 net (7,200 x 80%)
income 72,000
for 20x4 as follows:
and dividends
405,480 405,480
Worksheet for Consolidated Financial Statements, December 31, 20x5.
80%-Owned Subsidiary
Balance Sheet
P P
Cash. 265,200 102,000 P 367,200
Accounts receivable.. 180,000 96,000 276,000
Inventory. 216,000 108,000 324,000
(2)
Land. 210,000 48,000 7,200 265,200
Equipment 240,000 180,000 420,000
(3)
Buildings 720,000 540,000 216,000 1,044,000
(2) (3)
Discount on bonds payable 3,600 1,200 2,400
(2)
Goodwill 9,000 9,000
Investment in S Co 405,480 (1)
307,200
(2) 70,440
(4)
27,840 -
P1,074,0
Total P2,236,680 00 P2,707,800
(2)
Accumulated depreciation P 84,000 (3)
- equipment P 150,000 102,000 12,000 P180,000
(2)
Accumulated depreciation 450,000 306,000 198,000
- buildings (3) 6,000 552,000
Accounts payable 120,000 120,000 240,000
Bonds payable 240,000 120,000 360,000
Common stock, P10 par 600,000 600,000
(1)
Common stock, P10 par 240,000 240,000
Retained earnings, from above 676,680 186,000 676,680
(7) (2 )
Non-controlling interest 9,600 76,800 (2)
15,360
___ ______ (5)
_____ ___ __________ 16,560 ____99,120
P1,074,0 P P
Total P2,236,680 00 794,400 794,400 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
b.
P 240,000
Common stock S Company, January 1, 20x4
c.
Consolidated SHE:
Stockholders Equity
Common stock, P10 par P 600,000
Retained earnings 360,000
Parents Stockholders Equity / CI - SHE P 960,000
NCI, 1/1/20x4 ___90,000
Consolidated SHE, 1/1/20x4 P1,050,000
6.
12/31/20x4:
a. CI-CNI
b. NCI-CNI
e.
P 240,000
Common stock S Company, December 31, 20x4
f.
Consolidated SHE:
Stockholders Equity
Common stock, P10 par P 600,000
Retained earnings 490,440
Ps Stockholders Equity / CI SHE, 12/31/20x4 P1,090,440
NCI, 12/31/20x4 ___92,160
Consolidated SHE, 12/31/20x4 P1,182,600
12/31/20x5:
a. CI-CNI
b. NCI-CNI
*this procedure would be more appropriate, instead of multiplying the full-goodwill impairment loss of
P3,750 by 80%. There might be situations where the controlling interests on goodwill impairment loss would
not be proportionate to NCI acquired.
e.
P 240,000
Common stock S Company, December 31, 20x5
Consolidated SHE:
Stockholders Equity
Common stock, P10 par P 600,000
Retained earnings 676,680
Ps Stockholders Equity / CI SHE, 12/31/20x4 P1,276,680
NCI, 12/31/20x4 ___99,120
Consolidated SHE, 12/31/20x4 P1,1375,80
0
The following are entries recorded by the parent in 20x4 in relation to its subsidiary
investment:
January 1, 20x4:
Thus, the investment balance and investment income in the books of P Company is as
follows:
Investment in S
NI of S Amortization &
Balance, 12/31/x4
377,640
Amortization & NI of S
The schedule of determination and allocation of excess presented above provides complete
guidance for the worksheet eliminating entries on January 1, 20x4:
Cost of Depreciation/
Goods Amortization Amortizatio
Sold Expense n Total
-Interest
Inventory sold P
6,000
Equipment P 12,000
Buildings ( 6,000)
Bonds payable _______ _______ P 1,200
Totals P 6,000 P 6,000 P1,200 13,20
0
5,6 34,440
40
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
NI of S Amortization &
80%-Owned Subsidiary
Balance Sheet
P
Cash. 232,800 P 90,000 P 322,800
Accounts receivable.. 90,000 60,000 150,000
(2) (3)
Inventory. 120,000 90,000 6,000 6,000 210,000
(2)
Land. 210,000 48,000 7,200 265,200
Equipment 240,000 180,000 420,000
(2)
Buildings 720,000 540,000 216,000 1,044,000
(2) (3)
Discount on bonds payable 4,800 1,200 3,600
(2) (3)
Goodwill 15,000 3,750 11,250
Investment in S Co 377,640 (2)
288,000
(2)
84,000
(4)
5,640 -
P1,008,0
Total P1,990,440 00 P2,426,850
P Co. S Co.
Sales P 540,000 P 380,000
Less: Cost of goods sold 216,000 192,000
Gross profit P 324,000 P 168,000
Less: Depreciation expense 60,000 24,000
Other expense 72,000 54,000
Net income from its own separate operations P 192,000 P 90,000
Add: Investment income 66,240 -
Net income P 258,240 P 90,000
Dividends paid P 72,000 P 48,000
The following are entries recorded by the parent in 20x5 in relation to its subsidiary
investment:
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:
Investment in S
NI of S Amortization
Balance, 12/31/x5
405,480
Amortization NI of S
The schedule of determination and allocation of excess presented above provides complete
guidance for the worksheet eliminating entries.
Depreciation/
Amortization Amortizatio
Expense n Total
-Interest
Inventory
sold
Equipment P 12,000
Buildings ( 6,000)
Bonds _______ P 1,200
payable
Totals P 6,000 P1,200 P7,20
0
NI of S 38,400 Dividends - S NI of S
27,8 66,240
40
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
NI of S Amortization
80%-Owned Subsidiary
5. 1/1/20x4
b.
P 240,000
Common stock S Company, January 1, 20x4
c.
Consolidated SHE:
Stockholders Equity
Common stock, P10 par P 600,000
Retained earnings 360,000
Parents Stockholders Equity / CI - SHE P 960,000
NCI, 1/1/20x4 ___93,000
Consolidated SHE, 1/1/20x4 P1,053,000
6.
a. CI-CNI P202,440
b. NCI-CNI P8,610
*Non-controlling Interest in Net Income (NCINI) for 20x4
Net income of S Company P 60,000
Less: Amortization of allocated excess (refer to amortization table above) 13,200
P 46,800
Multiplied by: Non-controlling interest %.......... 20%
Non-controlling Interest in Net Income (NCINI) P 9,360
Less: Non-controlling interest on impairment loss on full-goodwill (P3,750
x 20%)
or (P3,750 impairment on full-goodwill less P3,000, impairment on 750
partial-goodwill)*
Non-controlling Interest in Net Income (NCINI) P 8,610
e.
P 240,000
Common stock S Company, December 31, 20x4
f.
Consolidated SHE:
Stockholders Equity
Common stock, P10 par P 600,000
Retained earnings 490,440
Ps Stockholders Equity / CI SHE, 12/31/20x4 P1,090,440
NCI, 12/31/20x4 ___94,410
Consolidated SHE, 12/31/20x4 P1,184,850
12/31/20x5:
a. CI-CNI P258,240
b. NCI-CNI P16,560
e.
P 240,000
Common stock S Company, December 31, 20x5
f.
Consolidated SHE:
Stockholders Equity
Common stock, P10 par P 600,000
Retained earnings 676,680
Ps Stockholders Equity / CI SHE, 12/31/20x4 P1,276,680
NCI, 12/31/20x4 __101,370
Consolidated SHE, 12/31/20x4 P1,378,050
Problem XXVIII
1. AA 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 non-controlling 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. No answer available
Pigeons separate income P150,00
0
Less: 60% of Homes P10,000 loss = 6,000
Less: Equipment depreciation
P10,000/ 10 years = __1,000
Controlling Interest in Consolidated Net Income P143,00
0
Add: NCI in CNI
NL of S Company P( 10,000)
Less: Amortization of allocated excess (P1,000/60%) 1,667
P (11,667)
Multiplied by: NCI% 40% ( 4,667)
Consolidated Net Income
P138,333
9. a
Non-controlling Interest in Net Income (NCINI) for Year 3
Net income of S Company P240,000
Less: Amortization of allocated excess 45,000
P195,000
Multiplied by: Non-controlling interest %.......... 30%
Non-controlling Interest in Net Income (NCINI) for Year 3 P 58,500
10. c
Net income from own/separate operations
P Company P 375,000
S Company 30,000
Total P405,000
Less: Non-controlling Interest in Net Income* P5,250
Amortization of allocated excess (refer to amortization above) 3,750
Goodwill impairment (impairment under full-goodwill approach) 0 9,000
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent.. P396,000
12. c
Net income from own/separate operations
P Company P 625,000
S Company 50,000
Total P675,000
Less: Non-controlling Interest in Net Income* P 8,750
Amortization of allocated excess (refer to amortization above) 6,250
Goodwill impairment (impairment under full-goodwill approach) 0 15,000
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent.. P660,000
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
Net income of S Company (P800,000 P620,000) P180,000
Less: Amortization of allocated excess 15,000
P165,000
Multiplied by: No of mos. (9/1-12/31) 4/12
P 55,000
15. a
Net income of S Company (P800,000 P620,000) P180,000
Less: Amortization of allocated excess 15,000
P165,000
Multiplied by: No of mos. (9/1-12/31) 4/12
P 55,000
Multiplied by: Non-controlling interest %.......... ____20%
Non-controlling Interest in Net Income (NCINI) for 20x4 P 22,000
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:
1/1/20y0 4/1/20y0 (3 months)
P6,000 x 3/12 = P1,500 x 30%.......... 450
4/1/20y0 12/31/20y0 (9 months)
P6,000 x 9/12 = P4,500 x 20%........... 900
Impairment of goodwill (if any):
First 3 months: P 0 x 30%....... 0
Remaining 9 months: P 0 x 20%............... 0 21,150
CNI attributable to the controlling interest (CI-CNI)/ Profit
attributable to equity holders of parent. 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).
23. d
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).
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 full-
goodwill 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
** In case, there is an impairment of goodwill then the amount impaired under the full-
goodwill method should also be allocated between controlling and non-controlling
interests
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
** In case, there is an impairment of goodwill then the amount impaired under the full-
goodwill method should also be allocated between controlling and non-controlling
interests
32. a
Book value of Stockholders Equity of Subsidiary
Common stock, 12/31/20x4 P 300,000
Retained earnings, 12/31/20x4:
Retained earnings, 1/1/20x4.P200,000
Add: Net income 20x4.. 100,000
Less: Dividends paid, 20x4.. 40,000 260,000
Book value of Stockholders Equity of Subsidiary, 12/31/x4 P 560,000
Add: Adjustments to reflect fair value (P30,000 + P40,000).. 70,000
Less: Accumulated amortization of allocated excess
P7,000 x 1 year.. 7,000
Fair value of Stockholders Equity of Subsidiary. 12/31/x4 P 623,000
Multiplied by: Non-controlling Interest %........................... 20%
Non-controlling Interest (partial goodwill).. P 124,600
Add: Non-controlling interest in Full Goodwill
(P55,000, full P44,000 partial l) or
(P55,00,000 x 20%)* 11,000
Non-controlling Interest (full) P 135,600
* this computation (i.e., P55,000 x 20%) should only be use when the fair
value of the non-controlling interest of acquiree (subsidiary) is not given.
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%.......... P 625,000
Less: Book value of Net Assets (Stockholders
Equity - Subsidiary)................................... 500,000
Allocated Excess.. P 125,000
Less: Over/Undervaluation of Assets and
Liabilities (P40,000 + P30,000). 70,000
Goodwill (Full/Gross-up).... P 55,000
33. e
Book value of Stockholders Equity of Subsidiary
Common stock, 12/31/20x5 P 300,000
Retained earnings, 12/31/20x5:
Retained earnings, 1/1/20x5 (refer to No. 32) P260,000
Add: Net income, 20x5. 120,000
Less: Dividends paid, 20x5 50,000 330,000
Book value of Stockholders Equity of Subsidiary, 12/31/x5 P 630,000
Add: Adjustments to reflect fair value (P30,000 + P40,000).. 70,000
Less: Accumulated amortization of allocated excess 2 yrs 14,000
Fair value of Stockholders Equity of Subsidiary. 12/31/x5 P 686,000
Multiplied by: Non-controlling Interest %.............................. 20%
Non-controlling Interest (partial goodwill).. P 137,200
Add: Non-controlling interest in Full Goodwill
(P55,000, full P44,000 partial l) or
(P55,00,000 x 20%)* 11,000
Non-controlling Interest (full) P 148,200
34. e
Book value of Stockholders Equity of Subsidiary
Common stock, 12/31/20x6 P 300,000
Retained earnings, 12/31/20x6:
Retained earnings, 1/1/20x6.P330,000
Add: Net income, 20x6 130,000
Less: Dividends paid, 20x6.. 60,000 400,000
Book value of Stockholders Equity of Subsidiary, 12/31/x6 P 700,000
Add: Adjustments to reflect fair value (P30,000 + P40,000).. 70,000
Less: Accumulated amortization of allocated excess
(1/1/20x4 12/31/20x6): P7,000 x 3 years 21,000
Fair value of Stockholders Equity of Subsidiary. 12/31/x6 P 749,000
Multiplied by: Non-controlling Interest %............................ 20%
Non-controlling Interest (partial goodwill).. P 149,800
Add: Non-controlling interest in Full Goodwill
(P55,000, full P44,000 partial l) or
(P55,00,000 x 20%)* 11,000
Non-controlling Interest (full) P 160,800
* this computation (i.e., P55,000 x 20%) should only be use when the fair
value of the non-controlling interest of acquiree (subsidiary) is not given.
36. c Parent Company Concept Parents Net Income only (not required by PFRS
10)
Net income from own/separate operations
P Company P 500,000
S Company 100,000
Total P600,000
Less: Non-controlling Interest in Net Income* P 20,000
Amortization of allocated excess 0
Goodwill impairment (impairment under full-goodwill approach) _ 0 20,000
CNI - entity concept P580,000
38. P2,260,000
Podexs separate earnings for 20X6 P2,000,000
Podexs equity in net income of Sodex..................................... 300,000
Less: Amortization of cost in excess of book value................... (40,000)
Podexs 20x6 net income..................................................... P2,260,000
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
58. d - The acquisition method consolidates assets at fair value at acquisition date
regardless of the parents percentage ownership.
59. d
P: BV,12/31/20x6 P250,000
S:
BV of building, 12/31/20x4 P170,000
Add: Adjustments to reflect fair value, 1/1/20x4
(P350,000 P240,000) 110,000
Less: Amortization of excess (P110,000/10) x 3 years 33,000 247,000
P497,000
60. b
P: BV,12/31/20x5 P 975,000
S:
BV of building, 12/31/20x5 P105,000
Add: Adjustments to reflect fair value, 1/4/20x4
(P120,000 P90,000) 30,000
Less: Amortization of excess (P30,000/10) x 2 years 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......................................................... P45,000
Amortization for 2 years (10 year life)..................................................... (9,000)
Patent reported amount December 31, 20x5........................................... P36,000
62. b
BV of building, 1/1/20x4 P200,000
Adjustments to reflect fair value, 1/1/20x4 (P300,000 P200,000) 100,000
Depreciation 1/1/20x4 12/31/20x6 (P100,000/20 x 3 years) ( 15,000)
P285,000
63. d same with No. 62
64. d
BV of equipment, 1/1/20x4 P 80,000
Adjustments to reflect fair value, 1/1/20x4 (P80,000 P75,000) ( 5,000)
Depreciation 1/1/20x4 12/31/20x6 (P5,000/10 x 3 years) 1,500
P 76,500
65. a
Adjustments to reflect fair value, 1/1/20x4 (P80,000 P75,000) (P 5,000)
Depreciation 1/1/20x4 12/31/20x6 (P5,000/10 x 3 years) 1,500
(P 3,500)
66. d 1/2/20x4:
BV of equipment, 1/1/20x4 P200,000
Adjustments to reflect fair value, 1/1/20x4 (P300,000 P200,000) 100,000
P300,000
67. c
Consolidated Net Income for 20x4
Net income from own/separate operations
P Company P30,200 (P150,0000 P20,000 P60,000) P 70,000
S Company (P100,000 P15,000 P45,000) 40,000
Total P110,000
Less: Non-controlling Interest in Net Income P 0
Amortization of allocated excess 0
Goodwill impairment ____0 ____0
Controlling Interest in Consolidated Net Income or Profit
attributable to equity holders of parent.. P110,000
Add: Non-controlling Interest in Net Income (NCINI) _____0
Consolidated Net Income for 20x4 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
Liabilities:
Plimsol (P40,000 + P75,000) P115,000
Shipping (P25,000 + P50,000) 75,000
P 190,000
71. d
Total assets (No. 72) P525,000
Les: Liabilities (No. 74) 190,000
Stockholders equity P335,000
72. b
Decrease in Buildings account:
Fair value P 8,000
Book value.. __10,000
Decrease. P 2,000
73. d
Decrease in buildings account (refer to No. 73) P 2,000
Less: Increase due to depreciation (P2,000/10) 200
Decrease in buildings accounts.. P 1,800
74. d
Decrease in buildings account (refer to No. 74) P 1,800
Less: Increase due to depreciation (P2,000/10) 200
Decrease in buildings accounts.. P 1,600
75. a
Increase in Equipment account:
Fair value P 14,000
Book value.. __18,000
Increase. P 4,000
76. a
Increase in equipment account (refer to No. 76) P 4,000
Less: Decrease due to depreciation (P4,000/4) 1,000
Increase in equipment accounts.. P 3,000
77. a
Increase in equipment account (refer to No. 77) P 3,000
Less: Decrease due to depreciation (P4,000/4 1,000
Increase in equipment accounts.. P 2,000
78. a
Increase in Land account:
Fair valueP 12,000
Book value.. 5,000
Increase.. P 7,000
82. e
Increase in patent account (refer to No. 85) P 11,000
Less: Decrease due to depreciation (P11,000/5). 2,200
Increase in patent accounts. P 8,800
83. d
Increase in patent account (refer to No. 86) P 8,800
Less: Decrease due to depreciation (P11,000/5). 2,200
Increase in patent accounts. P 6,600
84. c
Fair Value of Subsidiary:
Consideration Transferred (5,400 shares) P120,600
Less: Book value of SHE-S, 1/1:
Common stock S: P50,000 x 90% P 45,000
APIC S: P15,000 x 90% 13,500
RE S: P41,000 x 90% 36,900 95,400
Allocated Excess P 25,200
Less: Over/undervaluation of A & L:
Increase in Inv. (P17,100P16,100) x 90% P 900
Increase in Eqpt. (P48,000P40,000) x 90% 7,200
Increase in Patents (P13,000P10,000) x 90% 2,700 10,800
Positive Excess: Goodwill P 14,400
Amortization of allocated excess - Starting January 1:
Inventory: P1,000 / 1 year P 1,000
Equipment: P8,000 / 4 years 2,000
Patents: P3,000 / 10 years 300
P 3,300
85. c
Common stock S P 50,000
APIC S 15,000
RE S 41,000
Stockholders equity Subsidiary, 1/1 P106,000
Add: Adjustments to reflect fair value 12,000
Fair value of Stockholders Equity S, 1/1 P118,000
x: Non-controlling) interests 10%
Non-controlling Interests (in net assets) P 11,800
87. a P48,000. On the date of acquisition, the parents retained earnings is also the
consolidated retained earnings.
88. No requirement.
91. c
Consolidated Net Income for 20x4
Net income from own/separate operations
P Company P30,200 (P4,000 x 90%) P26,600
S Company 9,400
Total P36,000
Less: Non-controlling Interest in Net Income* P 610
Amortization of allocated excess 3,300
Goodwill impairment ____0 3,910
Controlling Interest in Consolidated Net Income or Profit
attributable to equity holders of parent.. P32,090
Add: Non-controlling Interest in Net Income (NCINI) 610
Consolidated Net Income for 20x4 P32,700
92. c
Noncontrolling Interests (in net assets):
Common stock - S, 12/31 P 50,000
Additional paid-in capital - S, 12/31
15,000
Retained earnings - S, 12/31:
RE-S, 1/1/2011 P 41,000
104. c
Non-controlling interest (full-goodwill), December 31, 20x4
115. b
Fullgoodwill Aproach
Fair value of Subsidiary (100%)
Consideration transferred (80%).. P 180,000
Fair value of NCI (given) (20%).. 20,000
Fair value of Subsidiary (100%). P 200,000
Less: Book value of stockholders equity of Son:
Common stock (P100,000 x 100%)
. P 100,000
Retained earnings (P60,000 x 100%)... 60,000 160,000
Allocated excess (excess of cost over book value)
.. P 40,000
Less: Over/under valuation of assets and liabilities:
Increase in land (P5,000 x 100%)
. P 5,000
Increase in equipment (P10,000 x 100%) ___10,000 15,000
Positive excess: Full-goodwill (excess of cost over
fair value)
... P 25,000
Partial-Goodwill Approach
116. d
Investment in Wisden
(20,000 x
90%)
NI of S
(60,000 Amortization
1/1/x6
203,400
117. c
Investment in Wisden
P 550,000
Tinys earnings, 20x4-20x77: 100% x P166,000 166,000
Less: Dividends received: 100% x P114,000 114,000
Balance, December 31, 20x7.. P602,000
122. a
The adjusting entry required in 20x7 to convert from the cost to the equity method is:
Investment in Tiny.52,000
Retained earnings beg.. 4,000
Dividend revenue 54,000
Equity in subsidiary income of Tiny. 110,000
123. b
Peer Sea-Breeze
Sales P 600,000 P 300,000
Less: Cost of goods sold Operating expenses 410,000 210,000
Net income from its own separate operations P 190,000 P 90,000
Add: Investment income 45,000 -
Net income P 235,000 P 90,000
Computation of Goodwill:
Fair value of Subsidiary (100%)
Consideration transferred: Cash (60%) P 414,000
Fair value of NCI (given) (40%) 276,000
Fair value of Subsidiary (100%) P 690,000
Less: Book value of stockholders equity of Sea (P550,000 x
100%) __550,000
Allocated excess (excess of cost over book value).. P 140,000
Add (deduct): (Over) under valuation of assets and liabilities
(P140,000 x 100%) 140,000
Positive excess: Full-goodwill (excess of cost over fair value) P 0
128. c - P811,000.
Consolidated Retained Earnings, December 31, 20x5
Retained earnings - Parent Company, January 1, 20x5 (cost P700,000
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, January 1, 20x5 P 300,000
Less: Retained earnings Subsidiary, January 1, 20x2 70,000
Increase in retained earnings since date of acquisition P 230,000
Less: Amortization of allocated excess 20x2 20x4
(P15,000 x 3 years) 45,000
P 185,000
Multiplied by: Controlling interests %................... 60%
P
111,000
Less: Goodwill impairment loss (full-goodwill), 0 111,00
0
Consolidated Retained earnings, January 1, 20x5 P 811,000
Note:
a. Date of acquisition: RE of Parent = Consolidated RE
Regardless of the method used in the books of the subsidiary, the following rule should
always be applied
b. Subsequent to date of acquisition:
Retained earnings of Parent under equity method = CRE
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.
P
Common stock Subsidiary Company, December 31, 2015 480,000
134. c
Stockholders Equity
Common stock - Peer P
724,000
Retained earnings 954,000
Parents Stockholders Equity/Equity Attributable to the
Owners of the Parent P
1,678,000
Non-controlling interest** 352,000
Total Stockholders Equity (Total Equity) P 985,500
Total Liabilities and Stockholders Equity P2,030,000
135. c
Investment in Sea-Breeze Investment Income
Retro (70,000 x
111,000 60%
NI of S
12/31/x5 45,000
528,000
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 P997,500
Less: BV of SHE S (?) 857,500
Allocated excess; P140,000
Less: O/U valuation of A and L:
Undervaluation of land P40,000
Overvaluation of buildings ( 30,000)
Undervaluation of equipment 80,000
Undervaluation/unrecorded trademark 50,000 140,000
P 0
148. a P900,000 + P500,000 = P1,400,000
149. d assumed that total expenses includes cost of goods sold which is different when
the question is total operating expenses
Cost of goods sold (P360,000 + P200,000) P 560,000
Depreciation expense (P140,000 + P40,000)
180,000
Other expenses (P100,000 + P60,000) 160,000
Amortization of allocated excess:
Buildings: (P30,000) / 20 (P1,500)
Equipment; P80,000 / 10 8,000
Trademark: P50,000 / 16 3,125 9,625
Total expenses P909,625
150. b (P750,000 + P280,000) P30,000 + (P1,500 x 5 years) = P1,007,500
151. c (P300,000 + P500,000) + P80,000 (P8,000 x 5 years) = P840,000
152. c P450,000 + P180,000 + P40,000 = P670,000
153. d P50,000 P3,125 x 5 years) = P34,375
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) P
1,350,000
Add: Controlling Interest in Consolidated Net Income or Profit
attributable to 490,375
equity holders of parent for 20x4
Total P1,840,375
Less: Dividends paid P Company for 20x4 195,000
Consolidated Retained Earnings, December 31, 20x4 (under equity P1,645,375
method)
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. P 100,000
161. a
Net income of S (5/1/x5 12/31/x5): P840,000 x 8/12 P560,000
Less: Dividend S (11/1/20x5 no need to pro-rate) 300,000
Cumulative net income less dividends since
date of acquisition, 1/1/20x6 (date to establish reciprocity
not 12/31/x6) P260,000
x: Controlling interests 80%
P208,000
162. b
Retained earnings S Company, 1/1/20x4 P 60,000
Less: Retained earnings S Company, 12/31/20x6 190,000
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) P130,000
x: Controlling interests 90%
P117,000
163. (b)
Net income of Subsidiary 2015 and 2016 (P15,000 + P22,000).P 37,000
Less: Dividends of Subsidiary 2015 and 2016 (P6,000 + P9,000).. . 15,000
Cumulative net income less dividends since date of acquisition, 1/1/2017 (date to establish
reciprocity should always be beginning of the year, not 12/31/17) / Increase in
Retained earnings...P 22,000
x: Controlling interests 70%
P 15,400
It should be noted that the amortization/depreciation and any unrealized/realized profits (in case of
intercompany sales of inventory/fixed assets) should not be included (refer to next number) as part of the
entry to established reciprocity since there will be separate eliminating entry to be made at the end of the
year (2017) for amortization and depreciation.
Further, the eliminating entry to establish reciprocity for the year 20x7 should be made on January 1, 2017
not December 31, 2017
Incidentally, the entry to convert from cost method to equity method or the entry to establish reciprocity at
the beginning of the year, 1/1/2017 would be as follows:
Investment in Subsidiary 15,400
Retained earning Parent Company, 1/1/2017. 15,400
164. (a)
Net income of Subsidiary 2015 and 2016 (P15,000 + P22,000). P 37,000
Less: Dividends of Subsidiary 2015 and 2016 (P6,000 + P9,000) 15,000
165. b
{(P260,000 - P230,000) + [(P650,000 - P590,000)/120] 8}.8
166. d
{(P190,000 - P160,000) 4/6 - [(P241,000 - P220,000)/60] 5}.7
167. b
[{(P84,000 + P105,000) - [(P310,000 - P220,000)/20]2} - (P30,000 + P50,000)].8
168. b building account in the books of subsidiary at fair value
169. e building account in the books of subsidiary at book value
170. d push-down accounting: equipment account in the books of subsidiary is at fair value
171. b
172. a P540,000 = (P500,000 + P150,000 P90,000 P20,000)
173. c equivalent to the original cost
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%) P 5,400
Add: Overvalued accounts receivable collected in 20x5 600
Undervalued accounts payable paid in 20x5 300
Less: Undervalued inventories sold in 20x5 ( 2,400)
Depreciation on building undervaluation P3,600/6 ( 600)
Amortization on patent P3,200/8 years ( 400)
Income from Shore/Income from subsidiary 2,900
11. P1,050,000
Parrcos income from its own separate operations for 20x6 P 900,000
Subbcos net income for the nine months ended 12/31/x6 200,000
Less: Amortization of cost in excess of book value (P30,000 60%) ___50,000)
Consolidated net income for 20x6 (economic unit concept) P1,050,000
Division of consolidated net income:
To controlling interest (Parrcos stockholders) P 990,000
To non-controlling interest (stockholders of Subbco) ___60,000
P1,050,000
12. P990,000
Parrcos income from its own separate operations for 20x6 P 900,000
Parrcos equity in net income of Subbco Company for
nine months ended 12/31/x6 (P200,000 60%) 120,000
Less: Parrcos amortization of cost in excess of book value ( 30,000)
Consolidated net income for 20x6 (parent company concept) P 990,000
14. 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............................................. P3,500,000
Add:Plycos equity in net income of Slyco..................................... 400,000
Less: Amortization of cost in excess of book value....................... ( 33,000)
Plycos 20x6 net income............................................................... P3,867,000
17. P52,000
Net income of S (5/1/x5 12/31/x5): P210,000 x 8/12 P140,000
Less: Dividend S (11/1/20x5 no need to pro-rate) 75,000
Cumulative net income less dividends since
date of acquisition, 12/31/20x5 (date to establish reciprocity
not or 1/1/20x6) P 65,000
x: Controlling interests 80%
P 52,000
18. P12,600
[{(P15,000 + P22,000) - [(P80,000 - P60,000)/10]2} - (P6,000 + P9,000)].7 =
P12,600
Theories
1 c 6. b 11 C* 16 c 21 d 26 c 31 c 36 d 41 a
. . * . . . . .
2 d 7. c 12 b 17 c 22 a 27 d 32 b 37 b 42 c
. . . . . . . .
3 d 8. d 13 d 18 d 23 b 28 c 33 c 38 b 43 a
. . . . . . . .
4 d* 9. d 14 c 19 d 24 c 29 c 34 c 39 c 44
. . . . . . . .
5 d 10 a 15 c 20 b 25 c 30 b 35 d 40 d 45
. , , . . . . . .
*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.