MODADV2 – Lecture Cases

Consolidation

Problem 1

On January 1, 2014, Parent Company purchased 80% of the outstanding shares of Subsidiary Company. Subsidiary
Company’s ordinary share capital and retained earnings on this date amounted to P1,500,000 and P2,300,000,
respectively. Also, on this date, an equipment is undervalued by P500,000 with a remaining life of ten years while a
building is overvalued by P600,000 with a remaining life of twenty years. The following condensed statement of
profit or loss is provided for the years 2014 and 2015.

Parent Subsidiary
2014 2015 2014 2015
Sales P1,000,000 P1,200,000 P500,000 P700,000
Less: Cost of sales 600,000 720,000 250,000 350,000
Less: Other expenses 200,000 250,000 100,000 200,000
Dividend Income 8,000 40,000 5,000 2,000
Net Income 208,000 270,000 155,000 152,000

Case A: Assuming that the price paid by Parent to acquire 80% of the outstanding shares of Subsidiary is
P4,400,000 and that goodwill was impaired by P500,000 during 2015, compute the following items:

1. Consolidated net income for 2014 and 2015.

2. Consolidated net income attributable to parent for 2014 and 2015.
3. Non-controlling interest in Net Income for 2014 and 2015.
4. Assuming that the retained earnings of Parent immediately prior to the acquisition was P2,000,000 and that
dividends of P50,000 and P100,000 were declared during 2014 and 2015, how much is the consolidated
retained earnings as of December 31, 2014 and 2015?
5. How much is the non-controlling interest in net assets as of December 31, 2014 and 2015?

Case B: Assuming that the price paid by Parent to acquire 80% of the outstanding shares of Subsidiary is
P4,400,000; fair value of non-controlling interest on date of acquisition was P1,000,000 and that goodwill was
impaired by P500,000 during 2015, compute the following items:

1. Consolidated net income for 2015.

2. Consolidated net income attributable to parent for 2015.
3. Non-controlling interest in net income for 2015.

Case C: Assuming that the price paid by Parent to acquire 80% of the outstanding shares of Subsidiary is
P2,500,000, compute the following items:

1. Consolidated net income for 2014 and 2015.

2. Consolidated net income attributable to parent for 2014 and 2015.
3. Non-controlling interest in Net Income for 2014 and 2015.
4. Assuming that the retained earnings of Parent immediately prior to the acquisition was P2,000,000 and that
dividends of P50,000 and P100,000 were declared during 2014 and 2015, how much is the consolidated
retained earnings as of December 31, 2014 and 2015?
5. How much is the Non-controlling Interest in Net Assets as of December 31, 2014 and 2015?
Problem 2

S is a 90% subsidiary of P. P acquired the shares of S at book value on January 1, 2014. Separate income statements
for P and S for 2014 and 2015 are as follows:

P S
2014 2015 2014 2015
Sales P1,000,000 P1,200,000 P500,000 P700,000
Less: Cost of sales 600,000 720,000 250,000 350,000
Less: Other expenses 200,000 250,000 100,000 200,000
Net income from own operations P 200,000 P 230,000 P150,000 P150,000

Intercompany sales were P80,000 during 2014 and P120,000 during 2015. 20% of the 2014 intercompany sales
were still unsold at the end of 2014 and 30% of the intercompany sales in 2015 were still unsold at the end of 2015.

Case 1: Assume that all intercompany sales are from S to P.

1. How much is the consolidated cost of sales for 2014?

2. How much is the non-controlling interest in net income for 2014?
3. How much is the consolidated net income attributable to parent for 2014?

Case 2: Assume that all intercompany sales are from P to S.

1. How much is the consolidated cost of sales for 2015?

2. How much is the non-controlling interest in net income for 2015?
3. How much is the consolidated net income attributable to parent for 2015?

On January 2, 2014, P acquired 90% of the outstanding shares of S at underlying book value. During 2014 and
2015, intercompany sales amounted to P2,000,000 and P4,000,000, respectively. P consistently recognized a 25%
mark-up based on cost while S had a 25% gross profit rate on sales. The inventories of the buying affiliate, which
came from inter-company transactions show:

December December
31, 2014 31, 2015
P P240,000 P160,000
S 100,000 40,000

On October 1, 2014, S purchased a piece of land costing P1,000,000 from P for P1,500,000. On December 1, 2015,
S sold this land to unrelated party for P1,500,000. On the other hand, on July 1, 2015, S sold equipment with a
carrying value of P60,000 and remaining life of 3 years to P for P42,000.
Separate statement of comprehensive income for the two companies for the year 2015 follow:

P S
Sales P25,000,000 P14,000,000
Less: Cost of sales 15,000,000 8,400,000
Gross profit 10,000,000 5,600,000
Less: Operating expenses 6,000,000 3,800,000
Operating profit 4,000,000 1,800,000
Dividend income 40,000
Less: Loss on sale of
equipment 18,000
Net income 4,000,000 1,822,000

1. How much is the consolidated gross profit?

2. How much is the consolidated net income attributable to parent?
3. How much is the non-controlling interest in net income?
4. How much is the consolidated operating expense?