Consolidated Net Income

Chapter 17
Problem I
1. 20x4
Sales
Purchases (Cost of Goods Sold)
12/31 Inventory (Income Statement)

[216,000 (216,000/1.20)]
12/31 Inventory (Balance Sheet)
1,080,000
36,000
1,080,000
36,000
20x5
Sales
Purchases (Cost of Goods Sold)

[300,000 (300,000/1.20)]
Beginning R/E Puma
1,200,000
50,000
1,200,000
50,000
36,000
36,000
2.
Consolidated Net Income for 20x5
P Companys net income from own/separate operations.
Realized profit in beginning inventory of S Company (downstream sales)
Unrealized profit in ending inventory of S Company (downstream sales)
P Companys realized net income from separate operations*...
S Companys net income from own operations.
Realized profit in beginning inventory of P Company (upstream sales)
Unrealized profit in ending inventory of P Company (upstream sales)
S Companys realized net income from separate operations*...
Total
Less: Amortization of allocated excess
Less: Non-controlling Interest in Net Income* *
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent 20x5..
P 760,000
36,000
(_50,000)
P 746,000
P 460,000
0
(
0)
P 460,000
460,000
P1,206,000
0
P1,206,000
92,000
P
1,114,000
*that has been realized in transactions with third parties.
Or, alternatively
Total
Amortization of allocated excess
equity holders of parent..
Add: Non-controlling Interest in Net Income (NCINI)
P 760,000
36,000
(_50,000)
P 746,000
P 460,000
0
(
0)
P460,000
460,000
P1,206,000
P 92,000
0
92,000
P1,114,000
_ 92,000
P
1,206,000
**Non-controlling Interest in Net Income (NCINI) for 20x5

S Companys net income of Subsidiary Company from its own operations
(Reported net income of Son Company)
P460,000
0

S Companys realized net income from separate operations
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI) partial goodwill
Problem II
1.
Sales
(
0)
P460,000
_____0
P460,000
20%
P 92,000
1,020,000
Purchases (Cost of Sales)

To eliminate intercompany sales.
1,020,000

51,000
Inventory (Balance Sheet)
51,000
To eliminate unrealized intercompany profit in ending inventory.
Beginning Retained Earnings Pinta
(.90 P40,000)
36,000
Noncontrolling interest
4,000
40,000
To recognize unrealized profit in beginning inventory realized during the year.
P
1,720,000
0
(_
0)
P 1,
720,000

Son Companys realized net income from separate operations*...
Total
P 600,000
40,000
( 51,00 0)
P 589,000
589,000
P2,309,000
0
P2,309,000
58,900
P
2,250,100
Or, alternatively
P
1,720,000
0
(________0)
P1,720,,00
0

Total
P 600,000
40,000
( 51,000)
P589,000
589,000
P2,309,000
P 58,900
0
__58,900
P2,250,100
_ 58,900
P
2,309,000

P600,000
40,000
( 51,000)
Son Companys realized net income from separate operations

Non-controlling Interest in Net Income (NCINI)
P589,000
_____0
P589,000
10%
P 58,900
Problem III
P
3,600,000
54,000
(_ 45,00 0)
P
3,609,000

S Companys net income from own operations (P1,500,000 + P2,400,000)
Salad
Realized profit in beginning inventory of P Company (upstream sales)Tuna
Salad
Tuna
Total
Less: Non-controlling Interest in Net Income* *- Salad
Non-controlling Interest in Net Income* *- Tuna
P3,900,00
0
66,000
63,000
( 57,000)
( 69,000)
P3,903,00
0
3,903,000
P7,512,000
0
P7,512,000
P
301,800
___239,40
0

___541,200
P6,970,800
Or, alternatively
P
3,600,000
54,000
(___45,000)
P3,609,,00
0

S Companys net income from own operations (P1,500,000 + P2,400,000)
Salad
Realized profit in beginning inventory of P Company (upstream sales)Tuna
Salad
Tuna
Total
Less: Non-controlling Interest in Net Income* * - Salad
Non-controlling Interest in Net Income* * - Tuna
**Salad
Non-controlling Interest in Net Income (NCINI) for 20x4
P3,900,00
0
66,000
63,000
( 57,000)
( 69,000)
P3,903,00
0
3,903,000
P7,512,000
P 301,800
239,400
0
__541,20
0
P6,970,800
_541,200
P
7,512,000

(Reported net income of S Company)
P1,500,000
66,000
( 57,000)
P1,509,000
_____0
P1,509,00
0
__
20%
P 301,800

**Tuna
P2,400,000
63,000
( 69,000)
P2,394,000
_____0
P2,394,00
0
10%
P 239,400

Realized Profit in Beginning inventory:

Downstream Sales (Sales from Parent to Subsidiary)
P414,000 x 15/115
Upstream Sales (Sales from Subsidiary-Salad to Parent):
Salad: P396,000 x 20/120
Upstream Sales (Sales from Subsidiary-Tuna to Parent):
Tuna: P315,000 x 25/125
Unrealized Profit in Ending inventory:
Downstream Sales (Sales from Parent to Subsidiary)
P345,000 x 15/115
Upstream Sales (Sales from Subsidiary-Salad to Parent):
Salad: P342,000 x 20/120
Upstream Sales (Sales from Subsidiary-Tuna to Parent):
Tuna: P345,000 x 25/125
Problem IV
1.
Sales
Cost of Goods Sold
Cost of Goods Sold
Ending Inventory (Balance Sheet)
[P1,250,000 - (P1,250,000/1.25)]
P54,000
66,000
63,000
P45,000
57,000
69,000
4,000,000
4,000,000
250,000
1/1 Retained Earnings P Company (1)

84,000
Noncontrolling interest (2)
21,000
Cost of Goods Sold (Beginning Inventory)
[P525,000 (P525,000/1.25)] = P105,000
250,000
105,000
(1) .8(P105,000)
(2) .2(P105,000)
2/3.
4.
P3,000,000 .20 = P600,000 non-controlling interest in consolidated income.

[(.20 P5,400,000) -.20(P1,250,000 P1,250,000/1.25)] = P1,030,000 noncontrolling interest in consolidated net assets on December 31, 20x4.
Problem V
P COMPANY AND SUBSIDIARY

Consolidated Income Statement
For the Year Ended December 31, 20x4
Sales (P13,800,000 P1,350,000)

Cost of Goods Sold (a)
Operating Expenses
Consolidated Income
Less Non-controlling Interest in Consolidated Income (b)
Controlling Interest in Consolidated Net Income
P12,450,000
P7,755,000
1,800,000 9,555,000
2,895,000
197,500
P2,697,500
(a)
Reported Cost of Goods Sold
Less intercompany sales in 20x4
Plus unrealized profit in ending inventory (2/5 x (P1,350,000 - P900,000))
Less realized profit in beginning inventory (1/4 x (P1,800,000 - P1,500,000))
Corrected cost of goods sold
P9,000,000
(1,350,000)
180,000
(75,000)
P7,755,000
P190,000
P1,900,000
0.1
Plus unrealized profit on subsidiary sales in 2013 that is considered realized in 20x4
(1/4 x (P1,800,000 - P1,500,000))
75,000
Less unrealized profit on subsidiary sales in 20x4 (there were no upstream sales in 20x4)
0
Income realized in transactions with third parties
1,975,000
0.10
Non-controlling interest in consolidated income
P197,500
(b)
Reported net income of subsidiary
Problem VIII
(Determine selected consolidated balances; includes inventory transfers and an outside
ownership.)
Customer list amortization = P65,000/5 years = P13,000 per year
Intercompany Gross profit (P160,000 P120,000) ..................................
Inventory Remaining at Year's End..........................................................
Unrealized Intercompany Gross profit, 12/31 ...............................................
P40,000
20%
P8,000
Consolidated Totals:
Inventory = P592,000 (add the two book values and subtract the ending
unrealized gross profit of P8,000)
Sales = P1,240,000 (add the two book values and subtract the P160,000
intercompany transfer)
Cost of Goods Sold = P548,000 (add the two book values and subtract the
intercompany transfer and add [to defer] ending unrealized gross profit)
Operating Expenses = P443,000 (add the two book values and the amortization
expense for the period)
Gross profit: P1,240,000 P548,000 = P692,000
Controlling Interest in CNI:
Gross profit................................................................................... P692,000
Less: Operating expenses........................................................
443,000
Consolidated Net Income ............................................................P249,000
Less: NCI-CNI................................................................................ 8,700
CI-CNI........................................................................................... P240,300
or
P Companys net income from own/separate operations (P800-P400-P180)
S Companys net income from own operations (P600 P300 P250)
Total
P 220,000
0
(_
0)
P 220,000
P 50,000
0
( 8, 000)
P 42,000
42,000
P 262,000
13,000
P 249,000
8,700
P 240,300
Or, alternatively

Total
P 220,000
0
(_
0)
P 220,000
P 50,000
0
( 8,000)
P 42,000
42,000
P 262,000
P 8,700
13,000
21,700
P240,300
_ 8,700
P249,000

P 50,000
0
( 8,00 0)
P 42,000
13,000
P 29,000
30%
P 8,700
Noncontrolling Interest in Subsidiary's Net Income = P8,700 (30 percent of the

reported income after subtracting 13,000 excess fair value amortization and
deferring P8,000 ending unrealized gross profit) Gross profit is included in this
computation because the transfer was upstream from SS to PT.
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 Son:
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
P
84,000
P 4,800
5,760
76,800
( 19,200)
3,840
72,000
P 12,000
The over/under valuation of assets and liabilities are summarized as follows:

S Co.
Book value
Inventory.
..
Land
Equipment (net).........
Buildings (net)
Bonds payable
Net..
S Co.
Fair value
P 24,000
48,000
84,000
168,000
(120,000)
P 204,000
(Over) Under
Valuation
30,000
55,200
180,000
144,000
( 115,200)
P 294,000
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...
Buildings................
Less: Accumulated
depreciation..
Net book
value...
S Co.
Book value
180,000
S Co.
Fair value
180,000
Increase
(Decrease)
0
96,000
( 96,000)
84,000
180,000
96,000
S Co.
Book value
360,000
S Co.
Fair value
144,000
(Decrease)
( 216,000)
192,000
( 192,000)
168,000
144,000
24,000)
A summary of depreciation and amortization adjustments is as follows:

Account
amortized
Adjustments
to
be
Inventory
Subject to Annual Amortization
Buildings (net)
Bonds payable
Over/
Under
P
6,000
Lif
e
Current
Year(20x4)
Annual
Amount
P
6,000
P 6,000
P
-
96,000
(24,00
0)
12,000
12,000
12,000
( 6,000)
4800
( 6,000)
1,20
0
P
13,200
1,200
(6,000)
1,20
0
P 13,200
P 7,200
20x5
The goodwill impairment loss of P3,750 based on 100% fair value would be allocated to the
controlling interest and the NCI based on the percentage of total goodwill each equity
interest received. For purposes of allocating the goodwill impairment loss, the full-goodwill
is computed as follows:
Consideration transferred: Cash (80%)
P 372,000
Fair value of NCI (given) (20%)
93,000
P 465,000
Less: Book value of stockholders equity of Son (P360,000 x 100%)

Allocated excess (excess of cost over book value)..
Add (deduct): (Over) under valuation of assets and liabilities
(P90,000 x 100%)
Positive excess: Full-goodwill (excess of cost over
fair value)...
__360,000
P
105,000
90,000
P
15,000
In this case, the goodwill was proportional to the controlling interest of 80% and noncontrolling 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%
The goodwill impairment loss would be allocated as follows

Goodwill impairment loss attributable to parent or controlling
Interest
Goodwill impairment loss based on 100% fair value or fullGoodwill
750
20.00%
P 3,750
100.00%
The unrealized profits on January 1, and on December 31, 20x5, resulting intercompany
sales, are as summarized below:
Downstream Sales:
Year
20x
4
20x
5
Sales of Parent to
Subsidiary
P150,000
120,000
Intercompany Merchandise
in 12/31 Inventory
of S Company
P150,000 x 60% = P90,000
Unrealized Intercompany
Profit in Ending Inventory
P90,000 x 20% = P18,000
P120,000 x 80% = P96,000
P96,000 x 25% = P24,000
in 12/31 Inventory
of S Company
P60,000 x 50% = P30,000
P30,000 x 40% = P12,000
P 75,000 x 40% = P30,000
P30,000 x 20% = P 6,000
Upstream Sales:
Year
20x
4
20x
5
Sales of
Subsidiary to
Parent
P 60,000
75,000
20x4: First Year after Acquisition

Parent Company Cost Model Entry
January 1, 20x4:
(1) Investment in S Company

Cash.
.
Acquisition of S Company.
January 1, 20x4 December 31, 20x4:
(2) Cash
Dividend income (P36,000 x 80%).
Record dividends from S Company.
372,000
372,000
28,800
28,800
No entries are made on the parents books to depreciate, amortize or write-off the portion
of the allocated excess that expires during 20x4, and unrealized profits in ending inventory.
Consolidation Workpaper Year of Acquisition

(E1) Common stock S Co
Retained earnings S Co
Investment in S Co
Non-controlling interest (P360,000 x 20%)
..
240,000
120.000
288,000
72,000
To eliminate intercompany investment and equity accounts

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

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

Depreciation expense..
Interest expense
Goodwill impairment loss.
Inventory..
Discount on bonds payable
Goodwill
and
To provide for 20x4 impairment loss and depreciation and

amortization on differences between acquisition date fair value
book value of Ss identifiable assets and liabilities as follows:
Cost of
Goods
Sold
Depreciation/
Amortization
Expense
Amortizatio
n
Total
6,000
6,000
6,000
1,200
3,000
6,000
12,000
1,200
3,000
-Interest
Inventory sold
Equipment
Buildings
Bonds payable
Totals
P
6,000
_______
P 6,000
P 12,000
( 6,000)
_______
P 2,000
P 1,200
P1,200
13,20
0
(E4) Dividend income - P.

Non-controlling interest (P36,000 x 20%)..
Dividends paid S
28,800
7,200
36,000
To eliminate intercompany dividends and non-controlling interest

share of dividends.
(E5) Sales.
Cost of Goods Sold (or Purchases)
150,000
150,000
To eliminated intercompany downstream sales.
(E6) Sales.
60,000
60,000
To eliminated intercompany upstream sales.
(E7) Cost of Goods Sold (Ending Inventory Income Statement)
Inventory Balance Sheet
18,000
18,000
To defer the downstream sales - unrealized profit in ending

inventory
until it is sold to outsiders.
12,000
12,000
To defer the upstream sales - unrealized profit in ending

inventory
(E9)
Non-controlling
interest
in
Subsidiary
Non-controlling interest ..
Net
Income
of
6,960
To establish non-controlling interest in subsidiarys adjusted net

income for 20x4 as follows:
Net income of subsidiary..

Unrealized profit in ending inventory of P
Company
(upstream
sales)
..
S Companys realized net income from
separate operations*...
Less: Amortization of allocated excess [(E3)]
.
Multiplied by:
Non-controlling interest
%..........
Non-controlling
Interest in Net Income
(NCINI)
partial goodwill
6,960
P 60,000
( 12,000)
P 48,000
13,200
P 34,800
20%
P
6,960
Worksheet for Consolidated Financial Statements, December 31, 20x4.

Cost Model (Partial-goodwill)
80%-Owned Subsidiary
December 31, 20x4 (First Year after Acquisition)
Income Statement
P Co
S Co.
Sales
P480,000
P240,000
Dividend income
Total Revenue
28,800
P508,800
P240,000
Cost of goods sold
P204,000
P138,000
Depreciation expense
60,000
24,000
Interest expense
Other expenses
48,000
18,000
Goodwill impairment loss

Total Cost and Expenses
Net Income
P312,000
P196,800
P180,000
P 60,000
NCI in Net Income - Subsidiary

Net Income to Retained Earnings
P196,800
P 60,000
Dr.
(5)
150,000
(6)
60,000
(4)
36,000
(3)
6,000
(7)
18,000
(8)
12,000
(3)
6,000
(3)
1,200
Cr.
Consolidated
P 510,000
_________
P 510,000
P 168,000
(5)
150,000
(6)
60,000
90,000
1,200
66,000
3,000
(3)
3,000
P328,200
P181,800
( 6,960)
(9)
6,960
P174,840
Statement of Retained Earnings

Retained earnings, 1/1
P Company
S Company
Net income, from above
Total
Dividends paid
Perfect Company
Son Company
Retained earnings, 12/31 to Balance
Sheet
P
360,000
P432,000
236,160
P668,160
P144,000
72,000
P216,000
(1)
120,000
174,840
P538,840
86,400
72,000
43,200
P581,760
P172,800
P
232,800
90,000
P 90,000
60,000
(4)
36,000
________
P
466,840
Balance Sheet
Cash.
Accounts receivable..
Inventory.
Land.
Equipment
Buildings
120,000
90,000
1210,000
240,000
48,000
180,000
720,000
540,000
Total
(2)
6,000
372,000
P1,984,800
P1,008,0
00
(3)
6,000
(7)
18,000
(8)
12,000
(2)
7,200
(2)
4,800
(2)
12,000

Goodwill
Investment in S Co
355,200
150,000
180,000
265,200
420,000
(2)
216,000
(3)
12000
(3)
3,000
(1) 288,000
(2) 84,000
1,044,000
3,600
9,000
P2,394,600
Accumulated depreciation
equipment
buildings
Accounts payable
Bonds payable
Common stock, P10 par
Retained earnings, from above
P 135,000
405,000
120,000
240,000
600,000
581,760
_________
Total
P1,984,800
(2)
96,000
(2)
192,000
288,000 (3)
6,000
120,000
120,000
P 96,000
240,000
144,000
______
___
P1,008,0
00
(3)
12,000
P147,000
495,000
240,000
360,000
600,000
(1)
240,000
462,840
(1 )
72,000 (2)
(4) 7,200 18,000
(9)
__________
6,960
P
P
983,160
983,160

Unrealized profit in ending inventory of S Company (upstream sales)
Total
Amortization of allocated excess (refer to amortization above)
Goodwill impairment (impairment under partial-goodwill approach)
____89,760
P2,394,600
P168,000
( 18,000)
P150,000
P 60,000
( 12,000)
P 48,000
48,000
P198,000
P 6,960
13,200
3,000
23,160
P174,840
_ 6,960
P181.800

P 60,000
( 12,000)
P 48,000
13,200
P 34,800
20%
P
6,960
Since NCI share of goodwill is not recognized, no adjustment is required for the impairment
loss on goodwill and impairment losses are not shared with NCI.
20x5: Second Year after Acquisition

Sales
Less: Cost of goods sold
Gross profit
Less: Depreciation expense
Other expense
Net income from its own separate operations
Add: Dividend income
Net income
Dividends paid
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
S Co.
P 360,000
192,000
P 168,000
24,000
54,000
P 90,000
P 90,000
P 48,000
No goodwill impairment loss for 20x5.
20x5: Parent Company Cost Model Entry
Only a single entry is recorded by the parent in 20x5 in relation to its subsidiary
investment:

Cash
38,400
38,400
On the books of S Company, the P48,000 dividend paid was recorded as follows:
Dividends paid
Cash
Dividends paid by S Co..
48,000
48,000
Consolidation Workpaper Second Year after Acquisition

(E1) Investment in S Company
Retained earnings P Company
19,200
19,200
To provide entry to convert from the cost method to the equity

method or the entry to establish reciprocity at the beginning of
the
year, 1/1/20x5, computed as follows:
Retained earnings S Company, 1/1/20x5

Increase in retained earnings..
Multiplied by: Controlling interest %
Retroactive adjustment
P144,000
120,000
P 24,000
80%
P 19,200

Retained earnings S Co., 1/1/20x5
Investment in S Co (P384,000 x 80%)

..
240,000
144.000
307,200
76,800

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

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

[(P13,200 x 80%) + P3,000, impairment loss on
partial-goodwill]
Non-controlling interests (P13,200 x 20%).
Interest expense
Inventory..
Goodwill
13,560
2,640
6,000
12,000
1,200
6,000
24,000
2,400
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.
Inventory sold
Equipment
Buildings
Bonds payable
Sub-total
Multiplied by:
To Retained earnings
Impairment loss
Total
(20x4)
Retaine
d
earnings
,
P
6,000
12,000
(6,000)
1,20
0
P13,200
80%
P
10,560
3,00
0
P
13,560
Depreciation/
Amortization
expense
Amortizatio
n
-Interest
P 12,000
( 6,000)
________
P 1,200
P 6,000
P 1,200

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

share of dividends.
(E6) Sales.
120,000
120,000
(E7) Sales.
75,000
75,000
(E8) Beginning Retained Earnings P Company

Cost of Goods Sold (Ending Inventory Income
Statement)
18,000
18,000
To realized profit in downstream beginning inventory deferred in

the
prior period.
(E9) Beginning Retained Earnings P Company (P12,000 x 80%)

Noncontrolling interest (P12,000 x 20%)
Statement)
9,600
2,400
12,000
To realized profit in beginning inventory deferred in the prior

period.
(E10) Cost of Goods Sold (Ending Inventory Income

Statement)
24,000
24,000

inventory

Statement)
6,000
6,000

inventory
(E12)
Non-controlling
interest
in
Subsidiary
Net
Income
of
17,760
17,760

Realized profit in beginning inventory of P
Company - 20x5 (upstream sales)
S Companys Realized net income*
Multiplied by:
%..........
Non-controlling
(NCINI )
partial goodwill
12,000
( 6,000)
P 96,000
7,200
P 88,800
20%
P 17,760
*from separate transactions that has been realized in transactions

with third persons.

Cost Model (Partial-goodwill)
December 31, 20x5 (Second Year after Acquisition)
Income Statement
P Co
S Co.
Dr.
Sales
P540,000
P360,000
Dividend income
Total Revenue
38,400
P501,600
P360,000
Cost of goods sold
P216,000
P192,000
60,000
24,000
Interest expense
Other expenses
72,000
P348,000
Net Income
P230,400
54,000
P270,000
P
90,000

P230,400
P
90,000
Cr.
(6)
120,000
(7)
75,000
(5)
38,400
Consolidated
P 705,000
___________
P
(10) 24,000
(11) 6,000
705,000
(6)
120,000
(7)
75,000
(8)
18,000
(9)
12,000
213,000
(4)
6,000
(4)
1,200
90,000
1,200
126,000
P 430,200
P 274,800
(12)
17,760
( 17,760)
P 257,040

P Company
S Company
Total
Dividends paid
P Company
S Company
Sheet
P484,800
230,400
P715,200
(2) 13,56
0
(8)
18,000
(9)
9,600
(2)
P
144,00
144,000
0
90,000
P234,000
(1) 19,200
P 462,840
257,040
P 719,880
72,000
72,000
(5)
48,000
48,000
________
P643,200
P186,000
P 647,880
P
265,200
180,000
P
102,000
96,000
P 367,200
276,000
Balance Sheet
Cash.
Inventory.
216,000
108,000
Land.
Equipment
210,000
240,000
48,000
180,000
Buildings
720,000
540,000
(3)
7,200
(3)
4,800
(3)
12,000

Goodwill
Investment in S Co
(3)
(4)
7,200
(10)
7,200 24,000
(11)
6,000
372,000
(1)
19,200
Total
P2,203,200
P1,074,0
00
P 150,000
294,000
265,200
420,000
(3)
216,000
(4)
2,400
(4)
3,000
(2)
307,200
(3)
84,000
1,044,000
2,400
9,000
P2,677,800
(3)
(4)
P180,000
equipment
buildings
Accounts payable
Bonds payable
102,000
450,000
306,000
120,000
240,000
600,000
120,000
120,000
643,200
240,000
186,000
___
_____
Total
2,203,200
______
___
P1,074,0
00
96,000
(3)
192,000
(4)
12,000
24,000
552,000
240,000
360,000
600,000
(2)
240,000
647,880
(4)
2,640
(5)
9,600
(9)
2,400
__________
P1,077,36
0
(2 )
76,800 (3)
18,000
(12)
17,760
P1,077,36
0
____97,920
P2,677,800
5. 1/1/20x4
a.
On date of acquisition the retained earnings of parent should always be considered

as the consolidated retained earnings, thus:
Consolidated Retained Earnings, January 1, 20x4

Retained earnings P Company, January 1, 20x4 (date of acquisition)
P360,000
b.
Non-controlling interest (partial-goodwill), January 1, 20x4

P 240,000
Common stock Subsidiary Company
Retained earnings Subsidiary Company.
Stockholders equity Subsidiary Company...
Adjustments to reflect fair value - (over) undervaluation of assets and liabilities
Fair value of stockholders equity of subsidiary, January 1, 20x4
Multiplied by: Non-controlling Interest percentage...
Non-controlling interest (partial)
120,000
P 360,000
90,000
P 450,000
20
P 90,000
c.
Consolidated SHE:
Stockholders Equity
Retained earnings
Parents Stockholders Equity / CI - SHE
NCI, 1/1/20x4
Consolidated SHE, 1/1/20x4
P 600,000
360,000
P 960,000
___90,000
P1,050,000
6.
Note: The goodwill recognized on consolidation purely relates to the parents share. NCI
is measured as a proportion of identifiable assets and goodwill attributable to NCI share
is not recognized.
12/31/20x4:
a. CI-CNI P174,840
Total
Goodwill impairment (impairment under partial-goodwill approach)
P168,000
( 18,000)
P150,000
P 60,000
( 12,000)
P 48,000
P 6,960
13,200
3,000
48,000
P198,000
23,160
P174,840
_ 6,960
P181.800
b. NCI-CNI P6,960
P 60,000
( 12,000)
P 48,000
13,200
P 34,800
20%
P
6,960
c. CNI, P181,800 refer to (a)
d. On subsequent to date of acquisition, consolidated retained earnings would be

computed as follows:
Consolidated Retained Earnings, December 31, 20x4

Retained earnings - P Company, January 1, 20x4 (date of acquisition)
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
P360,000
174,840
P534,840
72,000
P462,840
e. The goodwill recognized on consolidation purely relates to the parents share. NCI is
measured as a proportion of identifiable assets and goodwill attributable to NCI
share is not recognized. The NCI on December 31, 20x4 are computed as follows:
Non-controlling interest (partial-goodwill), December 31, 20x4

P 240,000
Common stock Subsidiary Company, December 31, 20x4
Retained earnings Subsidiary Company, December 31, 20x4

Retained earnings Subsidiary Company, January 1, 20x4
Add: Net income of subsidiary for 20x4
Total
Less: Dividends paid 20x4
Stockholders equity Subsidiary Company, December 31, 20x4
Adjustments to reflect fair value - (over) undervaluation of assets and
liabilities, date of acquisition (January 1, 20x4)
Amortization of allocated excess (refer to amortization above) 20x4
Fair value of stockholders equity of subsidiary, December 31, 20x4
Less: Unrealized profit in ending inventory of P Company (upstream sales)
Realized stockholders equity of subsidiary, December 31, 20x4
Non-controlling interest (partial-goodwill)..
P120,000
6,000
P180,000
36,000
144,000
P 384,000
90,000
( 13,200)
P460,000
12,000
P448,800
20
P 89,760
f.
Consolidated SHE:
Stockholders Equity
Retained earnings
Parents Stockholders Equity / CI SHE, 12/31/20x4
NCI, 12/31/20x4
P 600,000
462,840
P1,062,840
___89,760
P1,152,600
12/31/20x5:
a. CI-CNI
Total
P192,000
18,000
(_24,000)
P186,000
P 90,000
12,000
( 6,000)
P 96,000
96,000
P282,000
7,200
P274,800
17,760
P257,040
Or, alternatively
Total
b. NCI-CNI
P192,000
18,000
(_24,000)
P186,000
P 90,000
12,000
( 6,000)
P 96,000
P 17,760
7,200
96,000
P282,000
24,960
P257,040
_ 17,760
P274,800

P 90,000
12,000
( 6,000)
P 96,000
7,200
P 88,800
20%
P 17,760

Retained earnings - Parent Company, January 1, 20x5 (cost model
Less: Unrealized profit in ending inventory of S Company (downstream
sales)
20x4 (UPEI of S 20x4) or Realized profit in beginning inventory of S

Company (downstream sales) 20x4 (RPBI of S - 20x5).
Adjusted Retained Earnings Parent 1/1/20x5 (cost model (S Companys
Retained earnings that have been realized in transactions with third
parties..
Adjustment to convert from cost model to equity method for purposes of
consolidation or to establish reciprocity:/Parents share in adjusted
net
increased in subsidiarys retained earnings:
Retained earnings Subsidiary, January 1, 20x5
Less: Retained earnings Subsidiary, January 1, 20x4
Increase in retained earnings since date of acquisition
Less: Amortization of allocated excess 20x4
Unrealized profit in ending inventory of P Company
(upstream
sales) 20x4 (UPEI of P 20x4) or Realized profit in beginning
inventory of P Company (upstream sales) 20x5 (RPBI of P 20x5)
Multiplied by: Controlling interests %...................
Less: Goodwill impairment loss, partial goodwill
Consolidated Retained earnings, January 1, 20x5
Add: Controlling
Interest in Consolidated Net Income or Profit
attributable to
Total
Less: Dividends paid Parent Company for 20x5
P484,800
18,000
P466,800
P 144,000
120,000
P 24,000
13,200
12,000
(P 1,200)
80%
(P
960)
3,000
( 3,960)
P462,840
257,040
P748,680
72,000
P647,880
*this procedure would be more appropriate, instead of multiplying the full-goodwill impairment loss of
P3,125 by 80%. There might be situations where the controlling interests on goodwill impairment loss
would not be proportionate to NCI acquired (refer to Illustration 15-6).
Or, alternatively:
Retained earnings - Parent Company, December 31, 20x5 (cost model
sales)

Adjusted Retained Earnings Parent 12/31/20x5 (cost model (
S Companys Retained earnings that have been realized in
transactions with third parties..
net
Retained earnings Subsidiary, December 31, 20x5
Less: Accumulated amortization of allocated excess
20x4 and 20x5 (P11,000 + P6,000)
P643,200
24,000
P619,200
P 186,000
120,000
P 66,000
20,400
(upstream

inventory of P Company (upstream sales) 20x6 (RPBI of P -
6,000
20x6)
P
P
Less: Goodwill impairment loss, partial goodwill
Consolidated Retained earnings, December 31, 20x5
39,600
80%
31,680
3,000
28,680
P647,880
e.

P 240,000
Retained earnings Subsidiary Company, January 1, 20x5*
Total
Amortization of allocated excess (refer to amortization above) :
20x4
P144,000
90,000
P234,000
48,000
186,000
P 426,000
90,000
P
13,200
7,200
20x5
( 20,400)
P 495,600
Less: Unrealized profit in ending inventory of P Company (upstream
inventory
6,000
of P Company (upstream sales) 20x6 (RPBI of P - 20x6
Realized stockholders equity of subsidiary, December 31, 20x5.
P489,600
20
Non-controlling interest (partial goodwill)..
P 97,920
* the realized profit in beginning inventory of P Company (upstream sales) 20x5 (RPBI of P - 20x5
amounting to P10,000 is already included in the beginning retained earnings of S Company.
f.
Consolidated SHE:
Stockholders Equity
Retained earnings
Parents Stockholders Equity / CI SHE, 12/31/20x4
NCI, 12/31/20x4
P 600,000
647,880
P1,247,880
___97,920
P1,345,800
Problem X
Schedule of Determination and Allocation of Excess
Consideration transferred (80%)..
Fair value of NCI (given) (20%)..
Fair value of Subsidiary (100%).
.
Retained earnings (P120,000 x 100%)...
..
P 372,000
93,000
P 465,000
P 240,000
120,000
360,000
P 105,000

.
.....

fair value)
...
6,000
7,200
96,000
( 24,000)
4,800
90,000
P 15,000
A summary or depreciation and amortization adjustments is as follows:

Account
amortized
Adjustments
to
be
Inventory
Buildings (net)
Bonds payable
Over/
under
P
6,000
96,000
(24,00
0)
4,80
0
Lif
e
Current
Year(20x4)
Annual
Amount
P
6,000
P 6,000
P
-
12,000
12,000
12,000
( 6,000)
1,20
0
P
13,200
( 6,000)
1,200
(6,000)
1,20
0
P 13,200
P 7,200
20x5

January 1, 20x4:
Cash.
.
(2) Cash
Record dividends from Son Company.
372,000
372,000
28,800
28,800
On the books of Son Company, the P36,000 dividend paid was recorded as follows:
Dividends paid
Cash.
36,000
36,000
No entries are made on the parents books to depreciate, amortize or write-off the portion
of the allocated excess that expires during 20x4.
Consolidation Workpaper First Year after Acquisition

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

of subsidiary on date of acquisition; and to establish noncontrolling
(E2)
Inventory.
Land
.
Discount
on
bonds
payable.
Goodwill.
Buildings..
Non-controlling interest (P90,000 x 20%) + [(P15,000,
full
P12,000, partial goodwill)]
Investment
in
Son
Co.
6,000
96,000
192,000
7,200
4,800
15,000
216,000
21,000
84,000

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

Interest expense
Inventory..
Goodwill
6,000
6,000
6,000
1,200
3,750
6,000
12,000
1,200
3,750

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

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

share of dividends.
(E5) Sales.
150,000
150,000
(E6) Sales.
60,000
60,000
18,000
18,000

inventory
12,000
12,000

inventory
(E9)
Non-controlling
interest
in
Subsidiary
Net
Income
of
6,210
6,210


Company
(upstream
sales)
..
.
Multiplied by:
%..........
Non-controlling
(NCINI)
partial goodwill
Less: Non-controlling interest on impairment
loss on full-goodwill (P3,750 x 20%) or
(P3,750 impairment on full-goodwill
less
P3,000,
impairment on partialgoodwill)
Non-controlling
(NCINI)
full goodwill
P 60,000
( 12,000)
P 48,000
13,200
P 34,800
20%
P
6,960
750
6,210

Cost Model (Full-goodwill)
Income Statement
Sales
P Co
P480,000
S Co.
P240,000
Dr.
(5)
150,000
(6)
Cr.
Consolidated
P 510,000
Dividend income
Total Revenue
Cost of goods sold
28,800
P451,200
P240,000
P204,000
P138,000
60,000
24,000
Interest expense
Other expenses
48,000
18,000

Net Income
P312,000
P196,800
P180,000
P 60,000

P196,800
P 60,000
60,000
(4)
28,800
(3)
6,000
(7)
18,000
(8)
12,000
(3)
6,000
(3)
1,200
_________
P 510,000
P 168,000
(5)
150,000
(6)
60,000
90,000
1,200
66,000
3,750
(3)
3,750
P328,950
P181,050
( 6,210)
(9)
6,210
P174,840

P Company
S Company
Total
Dividends paid
P Company
S Company
Sheet
P
360,000
P360,000
196,800
P556,800
P120,000
60,000
P180,000
(1)
120,000
174,840
P534,840
72,000
72,000
36,000
P484,800
P144,000
P
232,800
90,000
P 90,000
60,000
(4)
36,000
________
P
462,840
Balance Sheet
Cash.
Inventory.
120,000
90,000
Land.
Equipment
210,000
240,000
48,000
180,000
Buildings
720,000
540,000
Total
equipment
buildings
Accounts payable
Bonds payable
P1,984,800
P1,008,0
00
P 135,000
P 96,000
405,000
120,000
240,000
600,000
484,800
_________
P1,984,800
(3)
6,000
(7)
18,000
(8)
12,000
(2)
7,200
372,000
Total
(2)
6,000
(2)
4,800
(2)
15,000

Goodwill
Investment in S Co
______
___
P1,008,0
00
180,000
265,200
420,000
(2)
216,000
(3)
1,200
(3)
3,750
(3) 288,000
(4) 84,000
1,044,000
3,600
11,250
P2,396,850
(2)
(3)
96,000
12,000
(6)
192,000
288,000 (7)
6,000
120,000
120,000
240,000
144,000
322,800
150,000
P147,000
495,000
240,000
360,000
600,000
(1)
240,000
462,840
(4)
7,200
P
986,160
(1 )
72,000 (2)
21,000
(9)
6,210
P
986,160
____92,010
P2,396,850

Perfect 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
Gross profit
Other expense
Add: Dividend income
Net income
Dividends paid
Son Co.
P 360,000
192,000
P 168,000
24,000
54,000
P 90,000
P 90,000
P 48,000

20x5: Parent Company Cost Model Entry
Only a single entry is recorded by the parent in 20x5 in relation to its subsidiary
investment:

Cash
38,400
38,400
On the books of S Company, the P48,000 dividend paid was recorded as follows:
Dividends paid
Cash
48,000
48,000
(E1) Investment in S Company

Retained earnings P Company
19,200
19,200
To provide entry to convert from the cost method to the equity

method or the entry to establish reciprocity at the beginning of
the
year, 1/1/20x5.

Increase in retained earnings..
Multiplied by: Controlling interest %
Retroactive adjustment
P144,000
120,000
P 24,000
80%
P 19,200

Retained earnings S Co., 1/1/20x5

..
of subsidiary and to establish non-controlling interest (in net
240,000
144.000
307,200
76,800
assets of
subsidiary) on January 1, 20x5.
(E3)
Inventory.
Land
.
Discount
on
bonds
payable.
Goodwill.
Buildings..
full
Investment in S Co.
20x5.
6000
96,000
192,000
7,200
4,800
15,000
216,000
21,000
84,000

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

(P16,950 x 80%)
Non-controlling interests (P16,950 x 20%).
Interest expense
Inventory..
Goodwill
13,560
3,390
6,000
12,000
1,200
6,000
24,000
2,800
3,750
To provide for years 20x4 and 20x5 depreciation and

amortization on
differences between acquisition date fair value and book value
of
Sons identifiable assets and liabilities as follows:
Year 20x4 amounts are debited to Perfects retained earnings
and NCI.
Year 20x5 amounts are debited to respective nominal
accounts..
Inventory sold
Equipment
Buildings
Bonds payable
Impairment loss
Totals
Multiplied by: CI%....
To Retained earnings
(20x4)
Retaine
d
earnings
,
P
6,000
12,000
(6,000)
1,200
3,75
0
P
16,950
80
%
P13,560
Depreciation/
Amortization
expense
Amortization
-Interest
12,000
( 6,000)
P 1,200
P 6,000

Dividends paid S
P1,200
38,400
9,600
48,000

share of dividends.
(E6) Sales.
120,000
120,000
(E7) Sales.
75,000
75,000
(E8) Beginning Retained Earnings P Company

Statement)
18,000
18,000

the
prior period.
(E9) Beginning Retained Earnings P Company (P12,000 x 80%)

Statement)
9,600
2,400
12,000
To realized profit in upstream beginning inventory deferred in

the
prior period.

Statement)
24,000
24,000

inventory

Statement)
6,000
6,000

inventory
(E12)
Non-controlling
interest
in
Subsidiary
Net
Income
of
17,760


Son Companys Realized net income*
Multiplied by:
Non-controlling
%..........
Non-controlling
Interest in Net
(NCINI)
partial goodwill
Less: NCI on goodwill impairment
fullGoodwill
Non-controlling
Interest in Net
(NCINI)
full goodwill
interest
Income
P 90,000
12,000
( 6,000)
P 96,000
7,200
P 88,800
20
%
P 17,760
loss on
0
Income
P 17,760

with third persons.
17,760

Cost Model (Full-goodwill)
Income Statement
P Co
S Co.
Sales
P540,000
P360,000
Dividend income
Total Revenue
38,400
P574,800
P360,000
Cost of goods sold
P216,000
P192,000
60,000
24,000
Interest expense
Other expenses
72,000
P348,000
Net Income
P230,400
54,000
P270,000
P
90,000

P230,400
P
90,000
Dr.
Cr.
(6)
120,000
(7)
75,000
(5)
38,400
(10) 24,000
(11) 6,000
Consolidated
P 705,000
___________
(6)
120,000
(7)
90,000
(8)
21,600
(9)
14,400
P
P
705,000
213,000
(4)
6,000
(4)
1,200
90,000
1,200
126,000
P 430,200
P 274,800
(12)
17,760
( 17,760)
P 257,040

P Company
S Company
Total
Dividends paid
P Company
S Company
Sheet
P484,800
230,400
P715,200
(3) 13,56
0
(8)
18,000
(9)
96000
(5)
P
144,00
144,000
0
90,000
P234,000
(4) 19,200
P 462,840
257,040
P 719,880
72,000
72,000
(5)
48,000
48,000
________
P643,200
P186,000
P 647,880
P
265,200
180,000
P
102,000
96,000
P 367,200
276,000
Balance Sheet
Cash.
Inventory.
216,000
108,000
Land.
Equipment
210,000
240,000
48,000
180,000
Buildings
720,000
540,000

Goodwill
(6)
(4)
6,000
(10)
6,000 24,000
(11)
6,000
(3)
7,200
(3)
4,800
(3)
15,000
294,000
265,200
420,000
(3)
216,000
(4)
2,400
(4)
3,750
1,044,000
2,400
11,250
Investment in S Co
Total
equipment
buildings
Accounts payable
Bonds payable
372,000
(1)
19,200
P2,203,200
P1,074,0
00
P 150,000
P
102,000
450,000
306,000
120,000
240,000
600,000
120,000
120,000
643,200
240,000
186,000
___
_____
Total
P2,203,200
______
___
P1,074,0
00
(2)
307,200
(3)
84,000
P2,680,050
(3)
96,000
(3)
192,000
(4)
12,000
(4)
24,000
P180,000
552,000
240,000
360,000
600,000
(2)
240,000
647,880
(4)
3,390
(8)
9,600
(9)
2,400
__________
P1,081,11
0
(2 )
76,800 (3)
21,000
(12)
17,760
P1,081,11
0
____100,170
P2,680,050
5. 1/1/20x4
a.
On date of acquisition the retained earnings of parent should always be considered

as the consolidated retained earnings, thus:
Consolidated Retained Earnings, January 1, 20x4
Retained earnings - Parent Company, January 1, 20x4 (date of acquisition)
P360,000
b.
Non-controlling interest (partial-goodwill), January 1, 20x4
P 240,000
Common stock Subsidiary Company
Retained earnings Subsidiary Company.
Stockholders equity Subsidiary Company...
Adjustments to reflect fair value - (over) undervaluation of assets and liabilities
Fair value of stockholders equity of subsidiary, January 1, 20x4
Non-controlling interest (partial)..
Add: Non-controlling interests on full goodwill, 1/1/20x4 (P12,500, full-goodwill P10,000,
partial
goodwill)
Non-controlling interest (full-goodwill)
120,000
P 360,000
90,000
P 450,000
20
P 90,000
3,000
P 93,000
c.
Consolidated SHE:
Stockholders Equity
Retained earnings
NCI, 1/1/20x4
P 600,000
360,000
P 960,000
___93,000
P1,053,000
6.
Note: The goodwill recognized on consolidation purely relates to the parents share. NCI
is measured as a proportion of identifiable assets and goodwill attributable to NCI share
is not recognized.
12/31/20x4:
a. CI-CNI P174,840
Perfect Companys realized net income from separate operations*.
..
Total
Less: Non-controlling Interest in Net Income
Goodwill impairment (impairment under full-goodwill approach)
P168,000
( 18,000)
P150,000
P 60,000
( 12,000)
P 48,000
P 6,1210
13,200
3,750
48,000
P198,000
23,160
P174,840
_ 6,210
P181.050
b. NCI-CNI P6,210

Non-controlling Interest in Net Income (NCINI) partial
Less: Non-controlling interest on impairment loss on full-goodwill (P3,750
x
20%) or (P3,750 impairment on full-goodwill less

impairment on
partial- goodwill)
P 60,000
( 12,000)
P 48,000
13,200
P 34,800
20%
P
6,960
P3,000,
750
P
6,210
c. CNI P181,050 refer to (a)

Retained earnings - Parent Company, January 1, 20x4 (date of acquisition)
Add: Controlling Interest in Consolidated Net Income or Profit attributable to
Total
P360,000
174,840
P534,840
72,000
P462,840
e.
Non-controlling interest ), December 31, 20x4

P 240,000
Retained earnings Subsidiary Company, January 1, 20x4

Total
Amortization of allocated excess (refer to amortization above) 20x4
Less: Unrealized profit in ending inventory of P Company (upstream sales)
Realized stockholders equity of subsidiary, December 31, 20x4
Non-controlling interest (partial-goodwill)..
Add: Non-controlling interest on full goodwill , net of impairment loss,
12/31/x4:
[(P15,000 full P12,000, partial = P3,000) P750 impairment loss
Non-controlling interest (full-goodwill)..
P120,000
60,000
P180,000
36,000
144,000
P 384,000
90,000
( 13,200)
P460,800
12,000
P448,800
20
P 89,760
2,250
P 92,010
f.
Consolidated SHE:
Stockholders Equity
Retained earnings
NCI, 1/1/20x4
P 600,000
462,840
P1,062,840
___92,010
P1,154,840
12/31/20x5:
a. CI-CNI P257,040
Total
P192,000
18,000
(_24,000)
P186,000
P 90,000
12,000
( 6,000)
P 96,000
96,000
P282,000
7,200
P274,800
17,760
P257,040
Or, alternatively
Total
P192,000
18,000
(_24,000)
P186,000
P 90,000
12,000
( 6,000)
P 96,000
P 17,760
7,200
96,000
P282,000
24,960
P257,040
_ 17,760
P274,800
b. NCI-CNI P16,560
Less: NCI on goodwill impairment loss on full goodwill
Non-controlling Interest in Net Income (NCINI) full goodwill
P 90,000
12,000
( 6,000)
P 96,000
7,200
P 88,800
20%
P 17,760
0
P 17,760

Retained earnings - Parent Company, January 1, 20x5 (cost model
sales)

Adjusted Retained Earnings Parent 1/1/20x5 (cost model (S Companys
Retained earnings that have been realized in transactions with third
parties..
net
Retained earnings Subsidiary, January 1, 20x5
Less: Amortization of allocated excess 20x4
(upstream
or
Less: Goodwill impairment loss (full-goodwill), net (P3,750 P750)*
(P3,750 x 80%)
Consolidated Retained earnings, January 1, 20x5
Add: Controlling
Interest in Consolidated Net Income or Profit
attributable to
Total
P484,800
18,000
P466,800
P 144,000
120,000
P 24,000
13,200
12,000
(P 1,200)
80%
(P
960)
3,000
( 3,960)
P462,840
257,040
P719,880
72,000
P647,880
*this procedure would be more appropriate, instead of multiplying the full-goodwill impairment loss of
P3,750 by 80%. There might be situations where the controlling interests on goodwill impairment loss
would not be proportionate to NCI acquired (refer to Illustration 15-6).
Or, alternatively:
Retained earnings - Parent Company, December 31, 20x5 (cost model
sales)

P643,200
24,000
Adjusted Retained Earnings Parent 12/31/20x5 (cost model (

S Companys Retained earnings that have been realized in
transactions with third parties..
net
Retained earnings Subsidiary, December 31, 20x5
Less: Accumulated amortization of allocated excess
20x4 and 20x5 (P13,200 + P7,200)
(upstream
P619,200
P 186,000
120,000
P 66,000
20,400
6,000
P

P
or
Less: Goodwill impairment loss (full-goodwill), net (P3,750 P750)*
39,600
80%
31,680
3,000
(P3,750 x 80%)
Consolidated Retained earnings, December 31, 20x5
28,680
P647,880
e.
Non-controlling interest, December 31, 20x5

P 240,000
Retained earnings Subsidiary Company, January 1, 20x5*
Total
20x4
P144,000
90,000
P234,000
48,000
186,000
P 426,000
90,000
P
13,200
7,200
20x5
( 20,400)
P 495,600
Less: Unrealized profit in ending inventory of P Company (upstream
inventory
6,000
of P Company (upstream sales) 20x6 (RPBI of P - 20x6
Realized stockholders equity of subsidiary, December 31, 20x5.
P489,600
20
P 97,920
Add: Non-controlling interest on full goodwill , net of impairment loss
[(P15,000 full P12,000, partial = P3,000) P750 impairment loss
2,250
Non-controlling interest (full-goodwill)..
P 100,170
* the realized profit in beginning inventory of P Company (upstream sales) 20x5 (RPBI of P - 20x5
amounting to P10,000 is already included in the beginning retained earnings of S Company.
f.
Consolidated SHE:
Stockholders Equity
Retained earnings
NCI, 1/1/20x4
P 600,000
647,880
P1,247,880
___100,170
P1,348,050
Problem XI
(Compute selected balances based on three different intercompany asset transfer
scenarios)
1.
Consolidated Cost of Goods Sold
PPs cost of goods sold ......................................................................
P290,000
SWs cost of goods sold ....................................................................

Elimination of 20x5 intercompany transfers ......................................
Reduction of beginning Inventory because of
20x4unrealized gross profit (P28,000/1.4 = P20,000
cost; P28,000 transfer price less P20,000
cost = P8,000 unrealized gross profit) .........................................
Reduction of ending inventory because of
20x5 unrealized gross profit (P42,000/1.4 = P30,000
cost = P12,000 unrealized gross profit) .......................................
Consolidated cost of goods sold ............................................
Consolidated Inventory
PP book value ..............................................................................
SW book value .............................................................................
Eliminate ending unrealized gross profit (see above) .................
Consolidated Inventory ...............................................................
197,000
(110,000)
(8,000)
12,000
P381,000
P346,000
110,000
(12,000)
P444,000
Non-controlling Interest in Subsidiarys Net Income

Because all intercompany sales were downstream, the deferrals do not affect
SW. Thus, the non-controlling interest is 20% of the P58,000 (revenues minus
cost of goods sold and expenses) reported income or P11,600.
or
Total
P 200,000
8,000
(_ 12,000)
P 196,000
P 58,000
0
(
0)
P 58,000
58,000
P 254,000
____0
P 254,000
11,600
P 242,200
P 58,000
0
(
0)
P 58,000
____0
P 58,000
20%
P 11,600
2.
Consolidated Cost of Goods Sold
PP book value ...................................................................................
SW book value ..................................................................................
Elimination of 20x5 intercompany transfers ......................................
Reduction of beginning inventory because of
cost = P6,000 unrealized gross profit) .........................................
Reduction of ending inventory because of
cost = P10,000 unrealized gross profit) .......................................
Consolidated cost of goods sold ........................................................
Consolidated Inventory
PP book value ...................................................................................
SW book value ..................................................................................
Eliminate ending unrealized gross profit (see above) ........................
Consolidated inventory ................................................................
Non-controlling Interest in Subsidiary's Net income
P290,000
197,000
(80,000)
(6,000)
10,000
P411,000
P346,000
110,000
(10,000)
P446,000
Since all intercompany sales are upstream, the effect on Snow's income must be
reflected in the non-controlling interest computation:
SW reported income .........................................................................
20x4 unrealized gross profit realized in 20x5 (above) .......................
20x5 unrealized gross profit to be realized in 20x6 (above) ..............
SW realized income ...........................................................................
Outside ownership percentage .........................................................
Non-controlling interest in SWs income ......................................
or
Total
P58,000
6,000
(10,000)
P54,000
20%
P10,800
P 200,000
(_
0)
P 200,000
P 58,000
6,000
( 10,000)
P 54,000
54,000
P 254,000
____0
P 254,000
10,800
P 243,200
P 58,000
6,000
( 10,000)
P 54,000
____0
P 54,000
20%
P 10,800
Problem XIII
1. (Computation of selected consolidation balances as affected by downstream inventory
transfers)
UNREALIZED GROSS PROFIT, 12/31/x4: (downstream transfer)
Intercompany gross profit (P120,000 P72,000)...........................................
Inventory remaining at year's end .....................................................................
Unrealized Intercompany Gross profit, 12/31/x4 .................................................
P48,000
30%
P14,400
UNREALIZED GROSS PROFIT, 12/31/x5: (downstream transfer)

Intercompany gross profit (P250,000 P200,000) ........................................
P50,000
Inventory remaining at year's end .....................................................................
20%
Unrealized intercompany gross profit, 12/31/x5 .................................................
P10,000
CONSOLIDATED TOTALS
Sales = P1,150,000 (add the two book values and eliminate intercompany sales of
P250,000)
Cost of goods sold:

Benson's book value ....................................................................................
P535,000
Broadway's book value .................................................................................
400,000
Eliminate intercompany transfers .................................................................
(250,000)
Realized gross profit deferred in 20x4 ..........................................................
(14,400)
Deferral of 20x5 unrealized gross profit .......................................................
10,000
Cost of goods sold ..................................................................................
P680,600
Operating expenses = P210,000 (add the two book values and include intangible
amortization for current year)
Dividend income = -0- (intercompany transfer eliminated in consolidation)
Noncontrolling interest in consolidated income: (impact of transfers is not included

because they were downstream)
Broadway reported income for 20x5 ............................................................
P100,000
Intangible amortization.................................................................................
(10,000)
Broadway adjusted income...........................................................................
90,000
Outside ownership .......................................................................................
30%
Noncontrolling interest in Broadways earnings.............................................
P 27,000
or,
P 165,000
14,400
(_10,000)
P 169,400
P
100,000

0
0)
P
100,000
100,000
Total
P 269,400
__10,000
P 259,400
27,000
P 232,400
P 100,000
0
(
0)
P 100,000
__10,000
P 90,000
30%
P 27,000
Inventory = P988,000 (add the two book values less the P10,000 ending unrealized gross
profit)
Noncontrolling interest in subsidiary, 12/31/x5 = P385,500
30% beginning P950,000 book value.........................................................
P285,000
Excess January 1 intangible allocation (30% P295,000)..........................
88,500
Noncontrolling Interest in Broadways earnings................................................
27,000
Dividends (30% P50,000)..............................................................................
(15,000)
Total noncontrolling interest at 12/31/x5....................................................
P385,500
2. (Computation of selected consolidation balances as affected by upstream inventory

transfers).
UNREALIZED GROSS PROFIT, 12/31/x4: (upstream transfer)
Intercompany gross profit (P120,000 P72,000) ..........................................
Inventory remaining at year's end ................................................................
P48,000
30%
P14,400
UNREALIZED GROSS PROFIT, 12/31/x5: (upstream transfer)

Intercompany gross profit (P250,000 P200,000) ........................................
Inventory remaining at year's end ................................................................
P50,000
20%
P10,000
CONSOLIDATED TOTALS
Sales = P1,150,000 (add the two book values and eliminate the Intercompany transfer)
Cost of goods sold:

Benson's COGS book value ...........................................................................
P535,000
Broadway's COGS book value .......................................................................
400,000
Eliminate intercompany transfers .................................................................
(250,000)
Realized gross profit deferred in 20x4 ..........................................................
(14,400)
Deferral of 20x5 unrealized gross profit .......................................................
10,000
Consolidated cost of goods sold .............................................................
P680,600
Operating expenses = P210,000 (add the two book values and include intangible
amortization for current year)
Dividend income = -0- (interco. transfer eliminated in consolidation)
Noncontrolling interest in consolidated income: (impact of transfers is included because

they were upstream)
Broadway reported income for 20x5 ............................................................
P100,000
Intangible amortization.................................................................................
(10,000)
20x4 gross profit recognized in 20x5 .....................................................
14,400
20x5 gross profit deferred ......................................................................
(10,000)
Broadway realized income for 20x5........................................................
P94,400
Outside ownership .......................................................................................
30%
Noncontrolling interest .................................................................................
P28,320
Total
P 165,000
0
(_
0)
P 165,000
P
100,000
14,400
( 10,000)
P
104,400
104,400
P 269,400
__10,000

P 259,400
28,320
P 231,080

P 100,000
14,400
( 10,000)
P 104,400
__10,000
P 94,400
30%
P 28,320

Inventory = P988,000 (add the two book values and defer the P10,000 ending unrealized
gross profit)
Noncontrolling interest in subsidiary, 12/31/x5 = P382,500
30% beginning book value less P14,400
unrealized gross profit (30% P935,600)............................................
P280,680
Excess intangible allocation (30% P295,000).......................................
(88,500)
Noncontrolling Interest in Broadways earnings......................................
28,320
Dividends (30% P50,000)..........................................................................
(15,000)
Total noncontrolling interest at 12/31/x5.................................................
P382,500
Problem XIV
Amortization of equipment: P20,000 / 10 years = P2,000
RPBI of S (downstream sales):........................................................
P15,000
RPBI of P (upstream sales).......................................................
10,000
UPEI of S (downstream sales)... 20,000
UPEI of P (upstream sales).
5,000
Pepper
(CI-CNI)
Salt
(NCI-CNI)
Net Income from own operations:

Pepper [P724,000 (PP30,000 x P700,000
80%)]
Salt
72,000
P 18,000
RPBI of S (down)
15,000
RPBI of P (up)
8,000
2,000
UPEI of S (down)
( 20,000)
UPEI of P (up)
( 4,000)
(1,000)
Amortization
( 1,600)
( 400)
Impairment of goodwill
(
0) ____( 0)__
P769,400
P18,600
Profit Attributable to Equity
Holders of Parent
CNI
P788,000
NC Interest
CNI
in Net Income
Note: Preferred Solution - since what is given is the RE P, 12/31/2014 (ending

balance of the current year) Retained earnings Parent, 12/31/2014 (cost)..
P
3,500,000
-: UPEI of S (down) 2014 or RPBI of S (down) 2015...
20,000
Adjusted Retained earnings Parent, 12/31/2014 (cost)..
P
3,480,000
Retroactive Adjustments to convert Cost to Equity for
purposes of consolidation / Parents share of adjusted
net increase in subsidiarys retained earnings:
Retained earnings Subsidiary, 1/1/2011.P 150,000
Less: Retained earnings Subsidiary, 12/31/2014...
320,000
Increase in Retained earnings since acquisition
(cumulative net income cumulative dividends)P 170,000
Accumulated amortization (1/1/2011 12/31/2014):
P 2,000 x 4 years..(
8,000)
UPEI of P (up) 2014 or RPBI of P (up) 2015.....(

5,000)
P 157,000
X: Controlling Interests 80% 125,600
RE P, 12/31/2014 (equity method) = CRE, 12/31/2014. P 3,605,600
15,000
Or, compute first the RE P on January 1, 2014 (use work back approach),
Retained earnings Parent, 1/1/2014 (cost)
(P3,500,000 plus P25,000 Div of P less P724,000 NI of P).
P2,801,000
Adjusted Retained earnings Parent, 1/1/2014 (cost)

P2,786.000
Retained earnings Subsidiary, 1/1/2011P 150,000
Less: Retained earnings Subsidiary, 1/1/2014
260,000
(cumulative net income cumulative dividends)P110,000
P 2,000 x 3 years. ( 6,000)
UPEI of P (up) 2013 or RPBI of P (up) 2014... ( 10,000)
P 94,000
X: Controlling Interests 80% 75,200
RE P, 1/1/2014 (equity method) = CRE, 1/1/2014..P2,861,200
+: CI CNI or Profit Attributable to Equity Holders of Parent.. 769,400
-: Dividends P..
25,000
RE P, 12/31/2014 (equity method) = CRE, 12/31/2014..P3,605,600
P
S
Intercompany sales - downstream
Intercompany sales - upstream
RPBI of S (downstream sales)*
RPBI of P (upstream sales)***
UPEI of S (downstream sales)**
UPEI of P (upstream sales)****
Consolidated
Sales
Cost of Sales
P2,500,000 P1,250,000
1,200,000
875,000
( 320,000) ( 320,000)
( 290,000)
( 290,000)
( 15,000)
( 10,000)
20,000
_________
5,000
P1,515,000
P3,090,000
Working Paper Eliminating Entries:

1. Intercompany Sales and Purchases:
Downstream Sales:
Sales.. 320,000
Cost of Sales (or Purchases)....
320,000
Upstream Sales:
Sales.. 290,000
Cost of Sales (or Purchases)
290,000
2. Intercompany Profit:
(COST Model)
Downstream Sales:
*100% RPBI of S:
Retained Earnings P, beginning..... 15,000
Cost of Sales (Beginning Inventory in Income Statement)............
15,000
**100% UPEI of S:
Cost of Sales (Ending Inventory in Income Statement) 20,000
Inventory (Ending Inventory in Balance Sheet)..
20,000
Upstream Sales:
***100% RPBI of P: (if equity method Investment in S instead of RE P, beg.)
Retained Earnings P, beginning..... 16,000
NCI .... 4,000
Cost of Sales (Beginning Inventory in Income Statement)........

20,000
****100% UPEI of P:
Cost of Sales (Ending Inventory in Income Statement) 5,000
Inventory (Ending Inventory in Balance Sheet)..
5,000
Problem XV (Change 2009 20x4; 2010 20x5; 2011 20x6)
(Compute consolidated totals with transfers of both inventory and a building.)

Excess Amortization Expenses
Equipment P60,000 10 years =
P6,000 per year
Franchises P80,000 20 years =
P4,000 per year
Annual excess amortizations
P10,000
Unrealized Gross profitInventory, 1/1/x6
Markup (P70,000 P49,000) .........................................................................
Markup percentage (P21,000 P70,000) .....................................................
P21,000
30%
Remaining inventory .................................................................................................

Markup percentage ...................................................................................................
Unrealized gross profit, 1/1/x6.......................................................................
P30,000
30%
P9,000
Unrealized Gross profitInventory, 12/31/x6

Markup (P100,000 P50,000) .......................................................................
Markup percentage (P50,000 P100,000) ...............................................................
P50,000
50%
Remaining inventory ....................................................................................

Markup percentage ...................................................................................................
Unrealized gross profit, 12/31/x6 ..................................................................
P40,000
50%
P20,000
Impact of intercompany Building Transfer

12/31/x5Transfer price figures
Transfer price .........................................................................................
Gain on transfer (P50,000 P30,000) .....................................................
Depreciation expense (P50,000 5) ......................................................
Accumulated depreciation ......................................................................
12/31/x6Transfer price figures
Depreciation expense ............................................................................
12/31/x5Historical cost figures
Historical cost ........................................................................................
Depreciation expense (P30,000 book value 5 years) ..........................
Accumulated depreciation (P40,000 + P6,000) ......................................
12/31/x6Historical cost figures
Depreciation expense ............................................................................
P50,000
20,000
10,000
10,000
10,000
20,000
P70,000
6,000
46,000
6,000
52,000
CONSOLIDATED BALANCES
Sales = P1,000,000 (add the two book values and subtract P100,000 in intercompany transfers)
Cost of Goods Sold = P571,000 (add the two book values and subtract P100,000 in intercompany
purchases. Subtract P9,000 because of the previous year unrealized gross profit and add P20,000
to defer the current year unrealized gross profit.)
Operating Expenses = P206,000 (add the two book values and include the P10,000 excess
amortization expenses but remove the P4,000 in excess depreciation expense [P10,000 P6,000]
created by building transfer)
Investment Income = P0 (the intercompany balance is removed so that the individual revenue
and expense accounts of the subsidiary can be shown)
Inventory = P280,000 (add the two book values and subtract the P20,000 ending unrealized gross
profit)
Equipment (net) = P292,000 (add the two book values and include the P60,000 allocation from
the acquisition-date fair value less three years of excess amortizations)
Buildings (net) = P528,000 (add the two book values and subtract the P20,000 unrealized gain on
the transfer after two years of excess depreciation [P4,000 per year])
Problem XVI
Schedule of Determination and Allocation of Excess (Partial-goodwill)
Consideration
transferred..
P 372,000
P 192,000
.
...
..

.
.....

fair value)
...
96,000
288,000
P
84,000
P 4,800
5,760
76,800
( 19,200)
3,840
72,000
P 12,000
The over/under valuation of assets and liabilities are summarized as follows:

S Co.
Book value
Inventory.
..
Land
Buildings (net)
Bonds payable
Net..
S Co.
Fair value
P 24,000
48,000
84,000
168,000
(120,000)
P 204,000
(Over) Under
Valuation
30,000
55,200
180,000
144,000
( 115,200)
P 294,000
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...
Buildings................
Less: Accumulated
depreciation..
Net book
value...
S Co.
Book value
180,000
S Co.
Fair value
180,000
Increase
(Decrease)
96,000
( 96,000)
84,000
180,000
96,000
S Co.
Book value
360,000
S Co.
Fair value
144,000
(Decrease)
( 216,000)
192,000
( 192,000)
168,000
144,000
24,000)

Account
amortized
Adjustments
to
Inventory
Buildings (net)
be
Over/
Under
P
6,000
96,000
(24,00
0)
Lif
e
Current
Year(20x4)
Annual
Amount
P
6,000
P 6,000
P
-
12,000
12,000
12,000
( 6,000)
( 6,000)
(6,000)
20x5
4800
0
Bonds payable
1,20
0
P
13,200
1,200
1,20
0
P 13,200
P 7,200
The goodwill impairment loss of P3,750 based on 100% fair value would be allocated to the
controlling interest and the NCI based on the percentage of total goodwill each equity
interest received. For purposes of allocating the goodwill impairment loss, the full-goodwill
is computed as follows:
P 372,000
Fair value of NCI (given) (20%)
93,000
P 465,000
Less: Book value of stockholders equity of Son (P360,000 x 100%)
__360,000

(P90,000 x 100%)
fair value)...
105,000
90,000
P
15,000
In this case, the goodwill was proportional to the controlling interest of 80% and noncontrolling interest of 20% computed as follows:
Goodwill applicable to parent

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%
The goodwill impairment loss would be allocated as follows
Goodwill impairment loss attributable to parent or controlling

Interest
Goodwill impairment loss based on 100% fair value or fullGoodwill
750
20.00%
P 3,750
100.00%
The unrealized profits on January 1, and on December 31, 20x5, resulting intercompany
sales, are as summarized below:
Downstream Sales:
Year
20x
4
20x
5
Sales of Parent to
Subsidiary
P150,000
120,000
in 12/31 Inventory
of S Company
P150,000 x 60% = P90,000
P90,000 x 20% = P18,000
P120,000 x 80% = P96,000
P96,000 x 25% = P40,000
Upstream Sales:
Year
20x
4
20x
5
Sales of
Subsidiary to
Parent
P 50,000
62,500
in 12/31 Inventory
of S Company
P100,000 x 50% = P25,000
P25,000 x 40% = P10,000
P 62,500 x 40% = P25,000
P25,000 x 20% = P 5,000

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

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

Investment income (P60,000 x 80%)
48,000
48,000
Record share in net income of subsidiary.
December 31, 20x4:

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

buildings and bonds payable and goodwill impairment loss.
December 31, 20x4:
(5) Investment income (P18,000 x 100%)
To adjust investment income for downstream sales - unrealized
profit in ending inventory of S.
December 31, 20x4:
To adjust investment income for upstream sales - unrealized
profit in ending inventory P .
18,000
18,000
9,600
9,600
Thus, the investment balance and investment income in the books of P Company is as
follows:
Investment in S
Cost,
372,000
1/1/x4
28,800
80%)
NI of S
Dividends S (30,000x
Amortization &
(60,000
80%)
13,560
impairment
48,000
Investment18,000
Income
100%)
Amortization &
9,600
x80%)
impairment
UPEI of Son (P15,000 x
NI of S
UPEI of Perfect (P10,000
48,000
(P60,000 x 80%)
13,560
Balance,
350,040
12/31/x4
UPEI
of
18,000
UPEI
9,600
of
(P18,000
(P12,000
100%)
x80%)
6,840
Balance, 12/31/x4

Investment in S Co
..
240,000
120.000
288,000
72,000
To eliminate investment on January 1, 20x4 and equity accounts of

subsidiary on date of acquisition; and to establish non-controlling
(E2)
Inventory.
Land
.
Discount
on
bonds
payable.
Goodwill.
Buildings..
..
Investment in S Co.
6,000
96,000
192,000
7,200
4,800
12,000
216,000
18,000
84,000
To eliminate investment on January 1, 20x4 and allocate excess
of
cost over book value of identifiable assets acquired, with

remainder
to goodwill; and to establish noncontrolling interest (in net
assets of
subsidiary) on date of acquisition.

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

and
Cost of
Goods
Sold
Inventory sold
Equipment
Buildings
Bonds payable
Totals
Depreciation/
Amortization
Expense
Amortizatio
n
-Interest
Total
P
6,000
_______
P 6,000
P 12,000
( 6,000)
_______
P 7,200
P 1,200
P1,200
14,40
0
(E4) Investment income

Dividends paid S
6,840
21,960
7,200
36,000
To eliminate intercompany dividends and investment income

under
equity method and establish share of dividends, computed as

follows:
Investment in S
NI of S
28,800
(60,000
Investment Income
Dividends - S
Amortization
NI of S
Amortization
(50,000
&
48,000
80%).
13,560
impairment
13,560
impairment
18,000
UPEI of S
UPEI
18,000
of
9,600
UPEI of P
UPEI
9,600
of
21,960
48,000
80%)
6,840
After the eliminating entries are posted in the investment account, it should be observed
that from consolidation point of view the investment account is totally eliminated. Thus,
Investment in S
Cost,
372,000
1/1/x4
28,800
80%)
NI of S
48,000
Amortization &
(60,000
80%)
13,560
impairment
18,000
UPEI of Son
9,600
Balance,
12/31/x4
(E5) Sales.
350,040
UPEI of Perfect
288,000
(E1) Investment, 1/1/20x4
150,000
150,000

(E4) Investment Income
84,000
and dividends
21,960
(E6) Sales.
60,000
60,000

372,000
372,000
18,000
18,000

inventory
12,000
12,000

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

6,960
6,960

Company
(upstream
sales)
..
Son Companys realized net income from
.
Multiplied by:
%..........
Non-controlling
(NCINI)
partial goodwill
P 60,000
( 12,000)
P 48,000
( 13,200)
P 34,800
20%
P
6,960
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.

Equity Method (Partial-goodwill)
Income Statement
P Co
S Co.
Sales
P480,000
P240,000
Investment income
Total Revenue
6,840
P486,840
P240,000
Cost of goods sold
P204,000
P138,000
60,000
24,000
Interest expense
Other expenses
48,000
18,000

Net Income
P312,000
P174,840
P180,000
P 60,000

P174,840
P 60,000
Dr.
(5)
150,000
(6)
60,000
(4)
6,840
(3)
6,000
(7)
18,000
(8)
12,000
(3)
6,000
(3)
1,200
Cr.
Consolidated
P 510,000
_________
P 510,000
P 168,000
(5)
150,000
(6)
60,000
90,000
1,200
66,000
3,000
(3)
3,000
P328,200
P181,800
( 6,960)
(9)
6,960
P174,840

P Company
S Company
Total
Dividends paid
P Company
S Company
Sheet
P
360,000
P360,000
174,840
P414,840
P120,000
60,000
P180,000
(1)
120,000
174,840
P414,840
72,000
72,000
36,000
P462,840
P144,000
P
232,800
90,000
P 90,000
60,000
(4)
36,000
________
P
642,840
Balance Sheet
Cash.
387,360
150,000
Inventory.
120,000
90,000
Land.
Equipment
210,000
220,000
48,000
180,000
Buildings
720,000
540,000
(1)
(3)
6,000
(7)
5,000 18,000
(8)
12,000
(2)
4,800
(2)
12,000

Goodwill
Investment in S Co
350,040
(4) 21,96
0
Total
equipment
P1,635,700
P1,006,0
00
P 135,000
P 96,000
405,000
288,000
120,000
240,000
600,000
120,000
120,000
buildings
Accounts payable
Bonds payable
462,840
Total
(2)
96,000
(2)
192,000
(3)
6,000
P1,962,840
______
___
P1,008,0
00
(2)
216,000
(3)
1,200
(3)
3,000
(2)
288,000
(2)
84,000
1,044,000
3,600
9,000
(3)
12,000
P 147,000
495,000
240,000
360,000
600,000
(1)
240,000
462,840
(4)
7,200
_________
265,200
380,000
P2,394,600
240,000
144,000
180,000
(2)
7,200
__________
P
983,160
(1 )
72,000 (2)
18,000
(5)
6,960
P
983,160
____89,760
P2,394,600
Second Year after Acquisition

Sales
Gross profit
Other expense
Add: Investment income
Net income
Dividends paid
P Co.
P 540,000
216,000
P 324,000
60,000
72,000
P 192,000
65,040
P 257,040
P 72,000
S Co.
P 360,000
192,000
P 168,000
24,000
54,000
P 90,000
P 90,000
P 48,000
20x5: Parent Company Equity Method Entry

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

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

5,760
5,760

buildings and bonds payable
December 31, 20x5:
profit in ending inventory of Son (UPEI of S).
24,000
December 31, 20x5:

(6) Investment in S Company..
Investment income (P18,000 x 100%)..
To adjust investment income for downstream sales - realized
profit in beginning inventory of S (RPBI of S).
18,000
December 31, 20x5:

profit in ending inventory Perfect (UPEI of P).
4,800
December 31, 20x5:

To adjust investment income for upstream sales - realized profit
in beginning inventory of Perfect (RPBI of P)
9,600
24,000
18,000
4,800
9,600
follows:
Investment in S
Cost,
350,040
1/1/x5
NI of Son
5,760
(90,000
(P18,000
Amortization (7,200 x 80%)
80%)
24,000
100%)
UPEI of Son (P24,000 x
100%)
4,800
80%)
UPEI of Perfect (P6,000 x
72,000
RPBI
of
18,000
38,400
80%)
Investment Income
RPBI
of
P
9,600
Amortization
5,760
Balance,
376,680
UPEI
of
24,000
UPEI
4,800
of
(P12,000
(7,200
x
x
80%)
805)
NI of S
12/31/x5
S
(P24,000
(P6,000
100%)
80%)
72,000
18,000
9,600
65,040
(P90,000 x 80%)
RPBI of S (P18,000 x 100%)
RPBI of P(P12,000 x 80%)
Balance, 12/31/x5

The schedule of determination and allocation of excess presented above provides complete
guidance for the worksheet eliminating entries:

Retained earnings S Co, 1/1/x5.
..
240,000
144.000
307,200
76,800
To eliminate investment on January 1, 20x5 and equity accounts

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

P12,000)
Accumulated depreciation buildings (P160,000 + P6,000)
Land
.
Discount on bonds payable (P4,800 P1,200).
Goodwill (P12,000 P3,000)..
Buildings..
Non-controlling interest [(P90,000 P13,200) x 20%]
Investment in S Co.
of
84,000
198,000
7,200
3,600
9,000
216,000
15,360
70,440
remainder
to the original amount of goodwill; and to establish noncontrolling

interest (in net assets of subsidiary) on 1/1/20x5.
(E3) Depreciation expense..

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

between acquisition date fair value and book value of Sons
identifiable assets and liabilities as follows:
Depreciation/
Amortization
Expense
Inventory
sold
Equipment
Buildings
Bonds
payable
Totals
Amortizatio
n
-Interest
P 12,000
( 6,000)
_______
P 1,200
P 6,000
P1,200
Total
P7,20
0

Dividends paid S
under

follows:
65,040
9,600
48,000
26,640
Investment in S
Investment Income
(E6) Sales.
120,000
120,000

NI of S
38,400
Dividends S
(90,000
Amortization
(E7) Sales.
NI of S
Amortization
x 80%).
5,760
(P7,200 x
72,000
80%)
(P7,200
5,760
RPBI
UPEI
of
24,000
UPEI of S
(E8)18,000
Investment in Son Company.
24,000
Statement)
of
80%)
72,000
18,000
18,000
75,000
x 80%)
RPBI of S
18,000

of
P
4,800
UPEI of P
UPEI
of
the RPBI
9,600
4,800
prior period.
9,600
26,
640
(90,000
75,000
RPBI of P
65,040
(E9) Investment in Son Company (P12,000 x 80%)

Statement)
9,600
2,400
12,000

the
prior period.
Investment in S
Cost,
350,040
1/1/x5
38,400
80%)
NI of S
Amortization
(90,000
80%)
5,760
(6,000 x 80%)
72,000

Statement)
RPBI of S
(P18,000 x 100%)
24,000
Inventory
Balance Sheet
18,000
100%)
24,000
UPEI of S (P20,000 x
24,000

inventory
RPBI
of
9,600
(P12,000
80%)
4,800

Balance,
12/31/x5 307,200
Statement)
376,680
Inventory
Balance Sheet
inventory
(E8)
RPBI
of
S
70,440
18,000
(E12)
Non-controlling
(E9)
interest
RPBI
in
of
NetP
Income
26,640
UPEI of P (P5,000 x 80%)
6,000
6,000
of (E4) Investment
17,760Income
9,600
and dividends
336,900
404,280
Subsidiary
17,760


S Companys Realized net income*
P 90,000
12,000
(
P
(
P
Multiplied by:
%..........
Non-controlling
(NCINI)
partial goodwill
6,000)
96,000
7,200)
88,800
20
%
P 17,760

with third persons.

Equity Method (Partial-goodwill)
Income Statement
P Co
S Co.
Sales
P540,000
P360,000
Investment income
Total Revenue
65,040
P605,040
P360,000
Cost of goods sold
P216,000
P192,000
60,000
24,000
Interest expense
Other expenses
72,000
P348,000
Net Income
P257,040
54,000
P270,000
P
90,000
P257,040

P Company
P462,840
S Company
P
90,000
Dr.
Cr.
(6)
120,000
(7)
75,000
(4)
65,040
(10) 24,000
(11) 6,000
(3)
6,000
(3)
1,200
Consolidated
P 705,000
___________
(6)
120,000
(7)
75,000
(8)
18,000
(9)
12,000
P
P
705,000
213,000
90,000
1,200
126,000
P 430,200
P 274,800
(5)
17,760
( 17,760)
P 257,040
P 462,840
P144,000
(1)
144,000

Total
Dividends paid
P Company
S Company
Sheet
257,040
P719,880
90,000
P234,000
257,040
P 719,880
72,000
72,000
(4)
48,000
48,000
________
P777,456
P223,200
P 777,456
Cash.
P
265,200
180,000
P
102,000
96,000
P 367,200
276,000
Inventory.
216,000
108,000
Balance Sheet
Land.
Equipment
Buildings
210,000
240,000
720,000
48,000
180,000
540,000

Goodwill
Investment in S Co
Total
equipment
buildings
Accounts payable
Bonds payable
376,680
P2,207,880
P1,074,0
00
P 150,000
P
102,000
450,000
306,000
120,000
240,000
600,000
120,000
120,000
647,880
___
_____
Total
P2,207,880
240,000
186,000
(10)
24,000
(11) 6,000
(2)
7,200
(3) 216,000
(2)
3,600
(3)
1,200
(2)
9,000
(8)
(1) 307,200
18,000
(2) 70,440
(9)
9,600 (4)
26,640
294,000
265,200
420,000
1,044,000
2,400
9,000
P2,677,800
(2)
84,000
(3)
12,000
P180,000
(2)
198,000
(3)
6,000
552,000
240,000
360,000
600,000
(1)
240,000
647,880
(4)
(9)
_________
P1,074,0
00
9,600
2,400 (2 ) 76,800
(2) 15,360
__________
(5) 17,760
P1,046,40
P1,046,40
0
0
____97,920
P2,677,800
5 and 6. Refer to Problem IX for computations

Note: Using cost model or equity method, the consolidated net income, consolidated
retained earnings, non-controlling interests, consolidated equity on December 31, 20x4
and 20x5 are exactly the same (refer to Problem IX solution).
Problem XVII
Schedule of Determination and Allocation of Excess
Consideration transferred (80%)..
Fair value of NCI (given) (20%)..
Fair value of Subsidiary (100%).
.
Retained earnings (P120,000 x 100%)...
..
P 372,000
93,000
P 465,000
P 240,000
120,000
360,000
P 105,000
6,000

.
.....

fair value)
...
7,200
96,000
( 24,000)
4,800
90,000
P 15,000

Account
amortized
Adjustments
to
be
Inventory
Buildings (net)
Bonds payable
Over/
under
P
6,000
96,000
(24,00
0)
4,80
0
Lif
e
Current
Year(20x4)
Annual
Amount
P
6,000
P 6,000
P
-
12,000
12,000
12,000
( 6,000)
1,20
0
P
13,200
( 6,000)
1,200
(6,000)
1,20
0
P 13,200
P 7,200
20x5

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

(2) Cash
28,800
28,800
December 31, 20x4:

48,000
48,000
December 31, 20x4:

(4) Investment income [(P13,200 x 80%) + (P3,750 P750)*,
goodwill impairment loss)]
13,560
13,560

buildings and bonds payable and goodwill impairment loss.
*this procedure would be more appropriate, instead of multiplying the full-goodwill impairment loss of P3,125 by
80%. There might be situations where the controlling interests on goodwill impairment loss would not be
proportionate to NCI acquired (refer to Illustration 15-6).
December 31, 20x4:

18,000
18,000
profit in ending inventory of S.

December 31, 20x4:
profit in ending inventory P .
9,600
9,600
follows
Investment in S
Cost,
372,000
1/1/x4
28,800
80%)
NI of S
Amortization &
(60,000
80%)
13,560
impairment
48,000
18,000
UPEI of S (P18,000 x 100%)
Investment Income
9,600
UPEI of P (P12,000 x80%)
Amortization &
NI of S
Balance,
324,000
12/31/x4
impairment
13,560
UPEI
of
18,000
UPEI
9,600
of
(P18,000
(P12,000
48,000
(P60,000 x 80%)
100%)
x80%)
6,840
Balance, 12/31/x4

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

of subsidiary on date of acquisition; and to establish noncontrolling interest (in net assets of subsidiary) on date of
acquisition.
(E2)
Inventory.
6,000
96,000

Land
192,000
7,200
Discount
on
bonds
payable.
Goodwill.
Buildings..
full
Investment
in
Son
Co.
4,800
of
15,000
216,000
21,000
84,000

remainder
to goodwill; and to establish noncontrolling interest (in net
assets of
subsidiary) on date of acquisition.

Interest expense
Inventory..
Goodwill
6,000
6,000
6,000
1,200
3,750
6,000
12,000
1,200
3,750

and
Cost of
Goods
Sold
Inventory sold
Equipment
Buildings
Bonds payable
Totals
Depreciation/
Amortization
Expense
Amortizatio
n
-Interest
Total
P
6,000
_______
P 6,000
P 12,000
( 6,000)
_______
P 7,200
P 1,200
P1,200
14,40
0

Investment in S interest (P36,000 x 20%)..
Non-controlling
Dividends paid S
Investment Income
6,840
21,960
7,200
36,000
underNI of S
28,800
Dividends - S
follows:
(60,000
x
48,000
&
Amortization
NI of S
Amortization
80%).
(50,000
impairment
13,560
impairment
13,560
18,000
UPEI of S
UPEI
18,000
of
9,600
UPEI of P
UPEI
9,600
of
21,960
48,000
80%)
6,840
Investment in S
Cost,
372,000
1/1/x4
28,800
80%)
NI of S
Amortization &
(60,000
80%)
13,560
impairment
48,000
Balance,
350,040
12/31/x4
(E5) Sales.
Cost(E4)
of Goods
SoldIncome
(or Purchases)
Investment
UPEI of S
9,600
UPEI of P
288,000
150,000

21,960
18,000
150,000
84,000
and dividends
(E6) Sales.
60,000
60,000
372,000
372,000
18,000
18,000

inventory
12,000
12,000

inventory
(E9)
Non-controlling
interest
in
Subsidiary
Net
Income
of
6,210


6,210
P 60,000
Company
(upstream
sales)
..
.
Multiplied by:
%..........
Non-controlling
(NCINI)
partial goodwill
Less: Non-controlling interest on impairment
loss on full-goodwill (P3,750 x 20%) or
(P3,750 impairment on full-goodwill
less
P3,000,
impairment on partialgoodwill)*
Non-controlling
(NCINI)
full goodwill
( 12,000)
P 48,000
( 13,200)
P 34,800
20%
P
6,960
750
6210
*this procedure would be more appropriate, instead of multiplying

the full-goodwill impairment loss of P3,750 by 20%. There might be
situations where the NCI on goodwill impairment loss would not be
proportionate to NCI acquired (refer to Illustration 15-6).

Equity Method (Full-goodwill)
Income Statement
P Co
S Co.
Sales
P480,000
P240,000
Investment income
Total Revenue
6,840
P486,840
P240,000
Cost of goods sold
P204,000
P138,000
60,000
24,000
Interest expense
Other expenses
48,000
18,000

Net Income
P312,000
P174,840
P150,000
P 50,000

P174,840
P 50,000
Dr.
(5)
150,000
(6)
60,000
(4)
6,840
(3)
6,000
(7)
18,000
(8)
12,000
(3)
6,000
(3)
1,200
(3)
3,750
(9)
5,175
Cr.
Consolidated
P 510,000
_________
(5)
150,000
(6)
60,000
P 510,000
P 168,000
90,000
1,200
66,000
3,750
P274,125
P150,875
( 5,175)
P145,700

P Company
S Company
Total
Dividends paid
P Company
P
360,000
P360,000
174,840
P120,000
60,000
P414,840
P180,000
72,000
(1)
120,000
174,840
P
414,840
72,000
S Company
Sheet
36,000
P462,840
P144,000
P
232,800
90,000
P 90,000
60,000
(4)
36,000
________
P
462,840
Balance Sheet
Cash.
Inventory.
120,000
90,000
Land.
Equipment
210,000
240,000
48,000
180,000
Buildings
720,000
540,000
(2)
350,040
322,800
150,000
(3)
6,000
(7)
6,000 18,000
(8)
12,000
180,000
(2)
7,200
(2)
4,800
(2)
15,000

Goodwill
Investment in S Co
(4)
21,960
265,200
420,000
(2)
216,000
(3)
1,200
(3)
3,750
(2)
288,000
(2)
84,000
1,044,000
3,600
11,250
Total
equipment
buildings
Accounts payable
Bonds payable
P1,635,700
P1,008,0
00
P 135,000
P 96,000
405,000
288,000
120,000
240,000
600,000
120,000
120,000
462,840
_________
Total
P1,962,840
240,000
144,000
______
___
P1,008,0
00
P2,396,850
(2)
96,000
(2)
192,000
(3)
6,000
(3)
12,000
P 147,000
495,000
240,000
360,000
600,000
(1)
240,000
462,840
(4)
7,200
__________
P
986,160
(1 )
72,000 (2)
21,000
(9)
6,210
P
986,160
____92,010
P2,396,850

Sales
Gross profit
Other expense
Add: Investment income
Net income
Dividends paid
Parent Company Equity Method Entry
Perfect Co.
P 540,000
216,000
P 324,000
60,000
72,000
P 192,000
65,040
P 257,040
P 72,000
Son Co.
P 360,000
192,000
P 168,000
24,000
54,000
P 90,000
P 90,000
P 48,000

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

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

5,760
5,760

buildings and bonds payable
December 31, 20x5:
profit in ending inventory of S (UPEI of S).
24,000
December 31, 20x5:

To adjust investment income for downstream sales - realized
profit in beginning inventory of S (RPBI of S).
18,000
December 31, 20x5:

profit in ending inventory P (UPEI of P).
December 31, 20x5:
To adjust investment income for upstream sales - realized profit
in beginning inventory of P (RPBI of P)
24,000
18,000
4,800
4,800
9,600
9,600
Thus, the investment balance and investment income in the books of Perfect Company is as
follows:
Investment in S
Cost,
350,040
1/1/x5
NI of Son
(90,000
38,400
80%)
5,760
Amortization (7,200 x 80%)
80%)
24,000
UPEI of S (P24,000 x 100%)
100%)
4,800
72,000
RPBI
of
18,000
(P18,000
UPEI of P (P6,000 x 80%)
Investment Income
RPBI
of
P
9,600
Amortization
5,760
Balance,
376,680
UPEI
of
24,000
UPEI
4,800
of
(P12,000
(7,200
x
x
80%)
805)
NI of S
12/31/x5
S
(P24,000
(P6,000
100%)
80%)
72,000
18,000
9,600
65,040
(P90,000 x 80%)
RPBI of S (P18,000 x 100%)
RPBI of P (P12,000 x 80%)
Balance, 12/31/x5

The schedule of determination and allocation of excess presented above provides complete
guidance for the worksheet eliminating entries.

Retained earnings S Co, 1/1/x5.
..
240,000
144.000
307,200
76,800

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

P12,000)
Accumulated depreciation buildings (P192,000 + P6,000)
Land
.
Discount on bonds payable (P4,800 P1,200).
Goodwill (P15,000 P3,750)..
Buildings..
Non-controlling interest [(P90,000 P13,200) x 20%] +
[P3,000, full goodwill - [(P3,750, full-goodwill
impairment
P3,000, partial- goodwill impairment)*
or (P3,750 x 20%)]
Investment in S Co.
of
84,000
198,000
7,200
3,600
11,250
216,000
17,610
70,440
remainder
to the original amount of goodwill; and to establish noncontrolling

interest (in net assets of subsidiary) on 1/1/20x5.
*this procedure would be more appropriate, instead of multiplying the full-goodwill impairment loss of P3,750 by
20%. There might be situations where the NCI on goodwill impairment loss would not be proportionate to NCI
acquired (refer to Illustration 15-6).
(E3) Depreciation expense..

Interest expense
To provide for 20x5 depreciation and amortization on differences
between acquisition date fair value and book value of Sons
identifiable assets and liabilities as follows:
Depreciation/
Amortization
Expense
Inventory
sold
Equipment
Buildings
Bonds
payable
Totals
Amortizatio
n
-Interest
P 12,000
( 6,000)
_______
P 1,200
P 6,000
P1,200
Total
P7,20
0
6,000
6,000
1,200
12,000
1,200

Dividends paid S
65,040
9,600
48,000
26,640
under

follows:
Investment in S
Investment Income
(E6) Sales.
(or Purchases)
NI of Cost
Son of Goods Sold
38,400
Dividends S
120,000
120,000
NI
of S
(90,000
Amortization
(E7) Sales.
x 80%).
5,760
(P7,200 x
Cost of Goods Sold
(or Purchases)
72,000
80%)
RPBI
18,000
of
24,000
UPEI of S
Amortization
(P7,200
5,760
UPEI
24,000
(E8) Investment in Son Company.

Statement)
RPBI
of
P
4,800
UPEI of P
UPEI
the
To realized profit in downstream beginning inventory 4,800

deferred in
9,600
(90,000
x
of
75,000
80%)
72,000
18,000
x 80%)
75,000
RPBI of S
18,000
18,000
of
9,600
RPBI of P
prior period.
640
26,
(E9) Investment in Son Company (P12,000 x 80%)

Statement)
65,040
9,600
2,400
12,000

the
prior period.
Investment in S
Cost,
350,040
1/1/x5
38,400
80%)
NI of Son
Amortization
(90,000
80%)
5,600
100%)
24,000
100%)
80%)
4,800
12/31/x5
307,200
(7,000 x 80%)
72,000
RPBI
of
18,000
RPBI
of
9,600
(P18,000
(P18,000
Balance,
376,680
UPEI of S (P24,000 x
UPEI of P (P6,000 x 80%)

Statement)
(E8)
RPBI
of
S
70,440
Inventory
Balance Sheet
24,000
24,000
18,000
inventory
(E9)
9,600
RPBI
of
26,640
(E4) Investment Income

and dividends
404,280
404,280
(E11) Cost of Goods Sold (Ending Inventory
Income
Statement)
6,000
6,000

inventory
(E12)
Non-controlling
interest
in
Subsidiary
Net
Income
of
17,760


Son Companys Realized net income*
Multiplied by:
%..........
Non-controlling
Non-controlling
17,760
interest
P 90,000
12,000
(
P
(
P
6,000)
96,000
7,200)
88,000
20
%
P 17,760
(NCINI)
partial goodwill
Less: NCI on goodwill impairment loss on
fullGoodwill
Non-controlling
(NCINI)
full goodwill
0
P 17,760

with third persons.

Equity Method (Full-goodwill)
Income Statement
P Co
S Co.
Sales
P540,000
P360,000
Investment income
Total Revenue
65,040
P605,040
P360,000
Cost of goods sold
P216,000
P192,000
60,000
24,000
Interest expense
Other expenses
72,000
P348,000
Net Income
P257,040
54,000
P270,000
P
90,000
P257,040

P Company
P462,840
S Company
Total
Dividends paid
P Company
S Company
Sheet
257,040
P719,880
P
90,000
Dr.
Cr.
(6)
120,000
(7)
75,000
(4)
65,040
(10) 24,000
(11) 6,000
Consolidated
P 705,000
___________
(6)
120,000
(7)
75,000
(8)
18,000
(9)
12,000
P
P
705,000
213,000
(3)
6,000
(3)
1,200
90,000
1,200
126,000
P 430,200
P 274,800
(5)
17,760
( 17,760)
P 308,448
P 462,840
P144,000
90,000
P234,000
(1)
144,000
257,040
P 719,880
72,000
72,000
(4)
48,000
48,000
________
P647,880
P186,000
P 647,880
P
265,200
180,000
216,000
P
114,000
96,000
108,000
P 367,200
276,000
294,000
Balance Sheet
Cash.
Inventory.
(10)
24,000
(11) 6,000
Land.
Equipment
Buildings
210,000
48,000
240,000
720,000
180,000
540,000
Total
equipment
buildings
376,680
P2,207,880
P 150,000
450,000
Accounts payable
Bonds payable
120,000
240,000
600,000

647,880
(3)
216,000
(3)
1,200
P
102,000
306,000
420,000
1,044,000
2,400
11,250
(1) 307,200
(3) 70,440
(4)
26,640
P1,074,0
00
(2)
84,000
(3)
12,000
P2,680,050
P180,000
(2)
198,000
(3)
6,000
552,000
240,000
360,000
600,000
120,000
120,000
240,000
(1)
240,000
186,000
647,880
(4)
(9)
___
_____
Total
265,200
(2)
3,600
(2)
11,250
(8)
18,000
(9)
9,600
Goodwill
Investment in S Co
(2)
7,200
P2,207,880
______
___
P1,074,0
00
9,600 (1 ) 76,800
2,400 (2) 17,610
(14)17,760
__________
P1,048,65
P1,048,65
0
0
____100,170
P2,680,050
5 and 6. Refer to Problem X for computations

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

1. a
P Company
S Company
Total
Less: Intercompany sales
Realized profit in BI of S Co.
[P300,000 x 1/2 = P150,000 x (300-240)/300]
Add: Unrealized profit in EI of S Co.
[P468,000 x 40% = P187,200 x (468-375)/468]
Consolidated
Sales
2,250,000
1,125,000
3,375,000
468,000
Cost of Sales
1,800,000
_937,500
2,737,500
468,000
30,000
________
2.907,000
__37,200
2,276,700
2. c refer to No. 1 for computations
3. b
P225,000

[P150,000 x 50% = P75,000 x (30/150)]
Total
0
(_
0)
P225,000
P 90,000
0
( 15,000)
P 75,000
75,000
P300,000
0
P300,000
15,000
P285,000
Or, alternatively
Total
P225,000
0
(_
0)
P225,000
P 90,000
0
( 15,000)
P 75,000
P 15,000
0
75,000
P300,000
15,000
P285,000
_ 15,000
P290,000

4.
5.
6.
7.
P 90,000
0
( 15,000)
P 75,000
0
P 75,000
20%
P 15,000
0
P 15,000
c refer to No. 3 for computation

a P25,000 x 125% = P31,250 intercompany sales and purchases (cost of sales)
c P25,000 x 125% = P31,250 intercompany sales and purchases (cost of sales)
d
Cost of Sales
P Company
5,400,000
S Company
_1,200,000
Total
6,600,000
1,000,000
[P625,000 x 12% = P75,000 x (625 - 425)/625]
24,000
[P1,000,000 x 10% = P100,000 x (1,000 - 800)/1,000]
__20,000
Consolidated
5,596,000
8. b
X-Beams (parent) Kent (subsidiary), 70%:30%
Unrealized Profit in EI of Parent (X-Beams):
P180,000x 20% = P36,000 x (180-100/180) =
P16,000, 70%:30%
Non-controlling Interest in Kents Net Income
Parent
Subsidiary
210,000
90,000
( 11,200)
( 4,800)
85,200
9. d
Non-controlling Interest in Net Income (NCINI) for 20x4:
P 137,000
40,000
( 25,000)
P 152,000
_
0
P 152,000
30%
P 45,600
0
P 45,600

10. c
Parent
Gibson (Parent): Sparis(subsidiary), 90%:10%
RPBI of Parent (upstream: 420,000 x 30% = 126,000;
126,000 x 25/125 = 25,200; 90%:10%
UPEI of Parent (upstream): 500,000 x 30% = 150,000;
150,000 x 25/125 = 30,000; 90%:10%
Non-controlling Interest in Kents Net Income
Subsidiar
y
820,800
91,200
22,680
2,520
(27,000)
( 3,000)
90,720
11. b
12. a
13. b (downstream sales)
Sales Pot (parent)

- Skillet (subsidiary)
Total
Add(Deduct): Intercompany sales - down
Consolidated Sales
1,120,000
420,000
1,540,000
( 140,000)
1,400,000
CGS Pot (parent)

Total
Unrealized Profit in
Ending Inventory of
Skillet (subsidiary)-down
EI of Skillet :
Sales of Pot
140,000
x: EI of Skillet
40%
EI of Skillet
56,000
X: GP of Pot
(1,120 840)
1,120
25%
Consolidated CGS
840,000
252,000
1,092,000
( 140,000)
14,000
966,000
14. c upstream sales

Note: The only change here from Problem 13 is the markup percentage which
would now be 40 percent*
CGS Pot (parent)

840,000
252,000
Total
1,092,000
Add(Deduct): Intercompany sales - upstream ( 140,000)
Ending Inventory of
Pot (subsidiary)-upstream
EI of Pot:
Sales of Skillet
140,000
x: EI of Pot
40%
EI of Pot
56,000
X: GP of Skillet
(420 252)
420
40%*
22,400
Consolidated CGS
974,400
The problem is quite intriguing because of the statement Pot had established the
transfer price base on its normal markup. It should be noted that Parent Company
established the transfer price based on its normal price (in this case it is assumed
that the mark-up of the parent which is 25% is also the normal transfer price). So,
the solution should be as follows:
Sales Pot (parent)
Total
Consolidated Sales
1,120,000
420,000
1,540,000
( 140,000)
1,400,000
CGS Pot (parent)

Total
Ending Inventory of
Skillet (subsidiary)-down
EI of Skillet :
Sales of Pot
140,000
x: EI of Skillet
40%
EI of Skillet
56,000
X: GP of Pot
(1,120 840)
1,120
25%
Consolidated CGS
840,000
252,000
1,092,000
( 140,000)
14,000
966,000
15. No answer available P140,000, intercompany sales

16. a P20 x 28,000 picture tubes, intercompany sales
17. b P120,000, the amount of sales to outsiders is the amount of sales presented in the
consolidated income statement.
18. a the cost of inventory produced by the parent (downstream sales)
19. c
P Companys net income from own/separate operations (P90,000

P62,000)
S Companys net income from own operations (P120,000 P90,000)
Total
P 28,000
0
(_
0)
P 28,000
P3 0,000
0
(
)
P30,000
30,000
P 58,000
0
P 58,000
3,000
P 55,000
Or, alternatively
P Companys net income from own/separate operations (P90,000
P62,000)
Unrealized profit in ending inventory of P Company (upstream sales
Total
P 28,000
0
(_
0)
P 28,000
P3 0,000
0
(
)
P30,000
30,000
P 58,000
P 3,000
0
3,000
P 55,000
_ 3,000
P 58,000

P 30,000
(
P
P

20. c P100,00 sales to unrelated/unaffiliated company.
P
P
0
0)
30,000
0
30,000
10%
3,000
0
3,000
21. c
Cost of Sales
67,000
_63,000
130,000
90,000
P Company
S Company
Total
[P90,000 x 30% = P27,000 x (90 - 67)/90]
Consolidated
__6,900
46,900
Parent
90,000
67,000
______
23,000
Sales
Less: Cost of goods sold Parent
Subsidiary (90,000 x 70%)
Gross profit
Ending inventory (90,000 x 30%)
Subsidiary
100,000
63,000
37,000
27,000
22. a
P Companys net income from own/separate operations
[P100,000 (P90,000 x 70%)]
[P90,000 x 30% = P27,000 x (90-67/90)]
Total
P 37,000
0
(_
0)
P 37,000
P23,000
0
(
6,900 )
P16,100
16,100
P 53,100
0
P 53,100
1,610
P 51,490
Or, alternatively
[P100,000 (P90,000 x 70%)]
[P90,000 x 30% = P27,000 x (90-67/90)]
Total

P 37,000
0
(_
0)
P 37,000
P23,000
0
(
6,900 )
P16,100
P 1,610
0
16,100
P 53,100
1,610
P 51,490
_ 1,610
P 53,100

P 23,000
0
( 6,900)
P 16,100
0
P 16,100
10%
P 1,610
0
P 1,610

23. d P27,000 x 67/90 = P20,100

24. a the cost from parent of P48,000 x 45/60 = P36,000
Parent
Sales
Less: Cost of goods sold P and S1
Subsidiary (60,000 x
45/60)
Gross profit
Ending inventory (60,000 x 15/60)
Subsidiary 2
60,000
48,000
______
Subsidiary
1
60,000
60,000
______
12,000
22,000
15,000
67,000
45,000
25. b the cost from parent of P48,000 x 15/60 = P12,000

26. a
Sales
Intercompany
Parent
Subsidiary 1
Add: Cost of EI in S2 Co.
[P15,000 x (48/60]
Amount to be eliminated
*or, P60,000 + P60,000 [P15,000 x (60-48/60]
Cost of Sales
60,000
60,000
60,000
45,000
________
120,000
__12,000
*117,000
27. b refer to No. 26 for computation

28. d P15,000 x [(60-48)/60] = P3,000
29. a
S Companys net income from own operations
[P105,000 x 20/120)
Total
P 225,000
0
(_
0)
P225,000
P150,000
0
(
17,500
)
P132,500
132,500
P 357,500
_
0
P357,500
30. c
[P105,000 x 20/120)
[P157,500 x 20/120)
Total
P360,000
0
(_
0)
P360,000
P135,000
17,500
( 26,250
)
P126,250
126,250
P 486,250
_
0
P486,250
1,610
P 51,490
Or, alternatively
S Companys net income from own operations (
[P105,000 x 20/120)
[P157,500 x 20/120)
Total
P360,000
0
(_
0)
P360,000
P135,000
17,500
( 26,250
)
P126,250
P 37,875
0
126,250
P 486,250
37,875
P 448,375
_37,875
P 486,250

P 135,000
17,500
( 26,250)
P 126,250
0
P126,250
30%
P 37,875
0
P 37,875
31. a refer to No. 30 for computation.

32. d
P 450,000
0
(_
0)
P450,000

[P157,500 x 20/120)
[P180,000 x 20/120)
P240,000
26,250
(

Total
30,000
)
P236,250
236,250
P 686,250
_
0
P686,750
70,875
P 615,375
Or, alternatively
[P157,500 x 20/120)
[P180,000 x 20/120)
Total
P 450,000
0
(_
0)
P450,000
P240,000
26,250
(
30,000
)
P236,250
P 70,875
0
236,250
P 686,250
70,875
P 615,375
__70,875
P 686,250

P 240,000
26,250
( 30,000)
P 236,250
0
P 236,250
30%
P 70.875
0
P 70,875
33. a - refer to No. 32 for computation.

34. c
P Company
S Company
Total
Less: Intercompany sales to Dundee
Intercompany sales to Perth
Consolidated
Sales
500,000
_350,000
850,000
100,000
150,000
600,000
35. a
Ending inventory of Perth from Dundee (P36,000 / 110%)
Ending inventory of Dundee from Perth (P31,000 / 130%)
Total
36. d
32,727
_23,846
56,573
Sales
420,000
280,000
700,000
140,000
560,000
P Company
S Company
Total
Consolidated
37. No answer available P47,000
Operating
Expenses
28,000
14,000
42,000
_5,000
47,000
P Company
S Company
Total
Add: Undervalued equipment (P35,000/7 years)
Consolidated
38. c
Cost of Sales
196,000
_112,000
308,000
140,000
P Company
S Company
Total
[P140,000 x 60% = P84,000 x (140 - 112)/140]
Consolidated
_16,800
184,900
39. No answer available P120,800

P 140,000
Common stock S Company, December 31, 20x4
Retained earnings S Company, December 31, 20x4
Retained earnings S Company, January 1, 20x4
Add: Net income of S for 20x4
P210,000
154,00
0
P364,000
Total
364,000
0
Stockholders equity S Company, December 31, 20x4

20x5 (P35,000/7 years)
Fair value of stockholders equity of S, December 31, 20x5
Add: NCI on full-goodwill (P70,000 P56,000)
Non-controlling interest (full- goodwill)..
P 504,000
35,000
( 5,000)
P 534,000
20
P 106,800
14,000
P 120,800
Partial-goodwill
Consideration
transferred..
Less: Book value of stockholders equity of S:
.
...
..
fair value)
...
P 364,000
P 112,000
168,000
280,000
P
84,000
___28,000
P 56,000
Full-goodwill
Consideration transferred: Cash (P364,000/80%)
P 455,000
Less: Book value of stockholders equity of S (P350,000 x 100%)

Increase in equipment P35,000 x 100%
fair value)...
__350,000
105,000
35,000
P
70,000
40. d
Equipment
616,000
420,000
1,036,000
35,000
7,000
1,064,000
P Company
S Company
Total
Add: Undervalued equipment
Less: Depreciation on undervalued equipment (P35,000/7 years)
Consolidated
41. d
Inventory
210,000
154,000
364,000
16,800
P Company
S Company
Total
Less: Unrealized profit in EI: [P140,000 x 60% = P84,000 x (140 112)/140]
Consolidated
42. a
Selling price
Less: Cost of sales
Original unrealized profit

Unsold percentage
Unrealized profit
43.
347,200
No answer available P253,000

P Companys realized net income from separate operations*.

..
S
Companys
net
income
from
own
operations.
Total
44.
45.
Combined 20x5 sales (P580,000 + P445,000)

Less: 20x5 intercompany sales
Consolidated sales
Combined cost of sales
Less: 20x5 intercompany sales
Less: Unrealized profit in the 20x5 beginning inventory
from 20x4
Add: Unrealized profit in 20x5 ending inventory
Consolidated cost of sales
46.
50,000
_40,00
0
10,000
__30%
_3,000
Combined cost of sales

Less: Intercompany sales revenue
P180,000
3,000)
P 177,000
76,000
P253,000
0
P253,000
P
P
1,025,000
0
1,025,000
P
480,000
0
(
3,00
0)
________0
P
477,000
P
160,000
110,000
Add: Unrealized profit taken out of

inventory
(75%)x(35,000)
=
Consolidated cost of sales
47.
26,250
P
76,250
Incomplete data PAS 27 allows the use of cost model in accounting for investment in
subsidiary in the books of parent company. Income recognized under this model is the
dividends declared or paid by the subsidiary multiplied by controlling interest. Since,
there is no data as to dividends of subsidiary, the amount of dividend income from the
point of parent cannot be determined.
If Equity Method is used, then the answer would be:
(P115,000 x 70%) - P26,250
= P
54,250
But equity method is not allowed in the books of parent for purposes of CFS.
48.
Selling price
Less: Cost of sales
Unrealized profit
Unsold fraction
Credit to Inventory
P
(
60,000
48,000 )
12,000
1/3
4,000
49. a - P720,000 = P500,000 + P400,000 - P200,000 +P 20,000

50. b using equity method.
(P120,000 x 80%) (P200,000 x 50% = P100,000 x 20% = P20,000)
= P76,000
PAS 27 allows the use of cost model in accounting for investment in subsidiary in the
books of parent company
The use of equity method is not allowed in the books of parent (unless it is a standalone entity).
51. d Downstream situation
S Companys net income from own/separate operations
x: NCI %
P120,000
20%
P 24,000
52. a - It will be overstated by the amount of the NC interests share of the P1,600 of profit
margin in the P9,600 of materials carried over to 20x5 (20% x P1,600 = P320
53. c
54. a
Grebe plus Swamps separate cost of goods sold

=
P400,000 + P320,000 =
=
Add: Profit +12,500 - 10,000 =
Consolidated COGS
=
Ending inventory of Grebe (1/2 x P100,000)
x: GP% of Parent (P100,000 P80,00)/P100,000
Unrealized profit in ending inventory
P 720,000
200,000
____2,500
P 522,500
P
P
50,000
10,000
55. a
Squids reported income
Less: Unrealized profits in the ending inventory
Squids adjusted income
NCI percentage
P
100,000
_____16,000
P
84,000
_______10%
20%
NCI-CNI
56. b
P
8,400
Inventory remaining P100,000 50% = P50,000 Unrealized gross profit (based

on LL's markup as the seller) P50,000 40% = P20,000. The ownership
percentage has no impact on this computation.
57. c
Unrealized Profit, 12/31/x4
Intercompany Gross profit (P100,000 P75,000) .................................
Inventory Remaining at Year's End .........................................................
Unrealized Intercompany Gross profit, 12/31/x4 .....................................
P25,000
16%
P4,000
UNREALIZED GROSS PROFIT, 12/31/x5

Intercompany Gross profit (P120,000 P96,000) ....................................
Inventory Remaining at Year's End .........................................................
Unrealized Intercompany Gross profit, 12/31/x5 .....................................
P24,000
35%
P8,400
CONSOLIDATED COST OF GOODS SOLD

Parent balance ..................................................................................
Subsidiary Balance ............................................................................
Remove Intercompany Transfer ........................................................
Recognize 20x4 Deferred Gross profit ...............................................
Defer 20x5 Unrealized Gross profit ...................................................
Cost of Goods Sold .................................................................................
P380,000
210,000
(120,000)
(4,000)
8,400
P474,400
58. a - Intercompany sales and purchases of P100,000 must be eliminated. Additionally, an

unrealized gross profit of P10,000 must be removed from ending inventory based on
a markup of 25 percent (P200,000 gross profit/P800,000 sales) which is multiplied by
the P40,000 ending balance. This deferral increases cost of goods sold because
ending inventory is a negative component of that computation. Thus, cost of goods
sold for consolidation purposes is P690,000 (P600,000 + P180,000 P100,000 +
P10,000).
59. c - The only change here from No. 58 is the markup percentage which would now be 40
percent (P120,000 gross profit P300,000 sales). Thus, the unrealized gross profit to
be deferred is P16,000 (P40,000 40%). Consequently, consolidated cost of goods
sold is P696,000 (P600,000 + P180,000 P100,000 + P16,000).
60. b

Ending inventory ...............................................................................
Markup (P33,000/P110,000) ..............................................................
Unrealized intercompany gross profit, 12/31/x4 ................................
P 40,000
__ 30%
P 12,000

Ending inventory ...............................................................................
Markup (P48,000/P120,000) ..............................................................
Unrealized intercompany gross profit, 12/31/x5 ................................
P 50,000
40%
P 20,000

61. a this topic is for Chapter 18
P 90,000
12,000
( 20,000)
P 82,000
0
P 82,000
10%
P 8,200
0
P 8,200
Individual Records after Transfer

12/31/x4
MachineryP40,000
GainP10,000
Depreciation expense P8,000 (P40,000/5 years)
Income effect netP2,000 (P10,000 P8,000)
12/31/x5
Depreciation expenseP8,000
Consolidated FiguresHistorical Cost
12/31/x4
MachineryP30,000
Depreciation expenseP6,000 (P30,000/5 years)
12/31/x5
Depreciation expense--P6,000
Adjustments for Consolidation Purposes:
20x4: P2,000 income is reduced to a P6,000 expense (income is reduced by P8,000)
20x5: P8,000 expense is reduced to a P6,000 expense (income is increased by
P2,000)
62. b
- this topic is for Chapter 18

UNREALIZED GAIN
Transfer Price ....................................................................................
Book Value (cost after two years of depreciation) .............................
Unrealized Gain .................................................................................
EXCESS DEPRECIATION
Annual Depreciation Based on Cost (P300,000/10 years).................
Annual Depreciation Based on Transfer Price
(P280,000/8 years) ......................................................................
Excess Depreciation ..........................................................................
63. c
ADJUSTMENTS TO CONSOLIDATED NET INCOME

Defer Unrealized Gain .......................................................................
Remove Excess Depreciation ............................................................
Decrease to Consolidated Net Income ..............................................
P Company
S Company
Total
Less: Intercompany sales upstream sales
[P60,000 x 30% = P18,000 x (10 7.5)/10]
Consolidated
P280,000
240,000
P40,000
P30,000
35,000
P5,000
P(40,000)
5,000
P(35,000)
Sales
10,000,00
0
__200,000
10,200,00
0
60,000
Cost of Sales
7,520,000
________
10,140,00
0
__ 4,500
7,604,500
_160,000
7,680,000
60,000
64. d refer to No. 63 for computation

65. c
P Company
S Company
Total
Less: Intercompany sales downstream sales
[P60,000 x 30% = P18,000 x (10 7.5)/10]
Consolidated
Sales
10,000,000
__200,000
10,200,000
60,000
________
10,140,000
66. d
Add the two book values and remove P100,000 intercompany transfers.
67. c
Intercompany gross profit (P100,000 - P80,000) .....................................

Inventory remaining at year's end ..........................................................
Unrealized intercompany gross profit .....................................................
P20,000
60%
P12,000
CONSOLIDATED COST OF GOODS SOLD

Parent balance ..................................................................................
Subsidiary balance ............................................................................
Remove intercompany transfer .........................................................
Defer unrealized gross profit (above) ................................................
Cost of goods sold ..................................................................................
68. c
Consideration transferred ....................................

Non-controlling interest fair value..........................
SZ total fair value..................................................
Book value of net assets........................................
Excess fair over book value
Excess fair value assigned to undervalued assets:
Equipment........................................................
Secret Formulas ..............................................
Total ...................................................................
P140,000
80,000
(100,000)
12,000
P132,000
P260,000
65,000
P325,000
(250,000)
P75,000
Annual Excess
Amortizations
Life
25,000 5 years
P50,000 20 years
-0-
P5,000
2,500
P7,500
Consolidated Expenses = P37,500 (add the two book values and include current
year amortization expense)
69. a
P 100,000
Common stock S Company, December 31, 20x4
Retained earnings S Company, December 31, 20x4
Retained earnings S Company, January 1, 20x4
Add: Net income of S for 20x4
P150,000
110,00
0
P260,000
Total
260,000
0
Stockholders equity S Company, December 31, 20x4

Fair value of stockholders equity of S, December 31, 20x5
Add: NCI on full-goodwill (
Non-controlling interest (full- goodwill)..
P 360,000
75,000
( 7,500)
P 427,500
20
P 85,500
________0
P 85,500
Partial-goodwill
Consideration
transferred..
Less: Book value of stockholders equity of S:
.
...
..
Increase in secret formulas: P50,000 x 80%
P 260,000
P 80,000
120,000
200,000
P
60,000
20,000
40,000
Full-goodwill
FV of NCI (20%)
Less: BV of stockholders equity of S (P100,000 + P150,000) x 100%
Increase in equipment P25,000 x 100%
Increase in secret formulas: P50,000 x 100%
P 260,000
___65,000
P 325,000
__250,000
P 75,000
P
25,000
50,000
Amortization:
Equipment: P25,000 / 5 years
= P 5,000
Secret formulas: P50,000 / 20 years =
2,500
Total amortization of allocated
P 7,500
70. c Add the two book values plus the original allocation (P25,000) less one year of
excess amortization expense (P5,000).
71. b Add the two book values less the ending unrealized gross profit of P12,000.
Intercompany Gross profit (P100,000 P80,000) ....................................
P20,000
Inventory Remaining at Year's End ........................................................
60%
Unrealized Intercompany Gross profit, 12/31 ..........................................
P12,000
72. c P400,000 x 1/4 = P100,000 x 30% = P30,000

73. d
Non-controlling Interest in Net Income (NCINI) for
S Companys net income of Subsidiary Company from its own
operations
20x5
20x6
P 400,000
P 480,000
20,000)
P 380,000
0
P380,000
20%
P
76,000
0
P 76,000
20,000
0
P 500,000
0
P500,000
20%
P100,000
0
P100,000
74. c
Ending inventory at selling price: P300,000
240,000)/300,000
Less: Inventory write-down (P100,000 P92,000)
Intercompany profit to be eliminated
1/3
P100,000
(300,000
P20,000
__8,000
P12,000
75. The requirement Ps income from S is a term normally used under the equity method,
but, in some cases it may also refer to the term dividend income under the cost model
depending on how the problem was described and presented.
Since there are no data available to arrive at the dividend income under the cost model
for reason that dividend declared or paid by subsidiary is not given, so the term Ps
income from S may mean Income from subsidiary which is computed under the
equity method, thus:
Share in net income (P120,000 x 60%)
Less: Unrealized profit in ending inventory of S {P189,000 x 1/3 = P63,000 x (P189135)/P189]
P72,000
__18,000
P54,000
Answer: Equity method (c)
It should be noted that PAS 27 allow the use of cost model in accounting for investment
in subsidiary in the books of parent company but not the equity method.
76. a refer to No. 1

77. c refer to No. 1
78. b
[P200,000 x 50% = P100,000 x (P40,000/P200,000)]
Total
P 300,000
0
(_
0)
P300,000
P120,000
(
20,000
)
P100,000
100,000
P 400,000
_
0
P 400,000
20,000
P 380,000

79. c refer to No, 78 for computations.

80. refer to No. 75
P 120,000
0
( 20,000)
P 100,000
0
P 100,000
20%
P 20,000
0
P 20,000
The requirement Ps income from S is a term normally used under the equity method,
but, in some cases it may also refer to the term dividend income under the cost model
depending on how the problem was described and presented.
Since there are no data available to arrive at the dividend income under the cost model
for reason that dividend declared or paid by subsidiary is not given, so the term Ps
income from S may mean Income from subsidiary which is computed under the
equity method, thus:
Share in net income (P200,000 x 60%)
Less: Unrealized profit in ending inventory of S {P315,000 x 1/3 = P105,000 x (P315P225)/P315]
P120,000
__30,000
P 90,000
Answer: Equity method (b)
81. a
20x5
P Company
S Company
Total
[P240,000 x 1/2 = P120,000 x (240-192)/240]
[P375,000 x 40% = P150,000 x (375-300)/375]
Consolidated
Sales
1,800,000
__900,000
2,700,000
375,000
Cost of Sales
1,440,000
_750,000
2,190,000
375,000
24,000
________
2.325,000
__30,000
1,821,000
82. c - refer to No. 81 for computations
83. b
[P150,000 x 50% = P75,000 x (P30,000/P150,000)]
P 225,000
0
(_
0)
P225,000
P 90,000
(
15,000
)
P 75,000

Total
75,000
P 300,000
_
0
P 300,000
15,000
P 285,000

P 90,000
0
( 15,000)
P 75,000
0
P 75,000
20%
P 15,000
0
P 15,000

84. c refer to No. 83 for computations

85. a [P100,000 x (25/100) = P25,000 x 40/100 = P10,000
86. b [P300,000 x 1/2 = P150,000 x 40% = P60,000]
87. No answer available P300
(P100,000 x 10% = P10,000 x 30%)
0
0
(
P(
3,000)
3,000)
0
P( 3,000)
10%
P( 300)
0
P( 300)

Non-controlling Interest in GP
Non-controlling Interest in GP
88. b
20x3
Share in net income
20x3: P70,000 x 90%
20x4: P85,000 x 90%
20x5: P94,000 x 90%
Less: Unrealized profit in ending inventory of P
20x3: P1,200 x 25% = P300 x 90%
20x4: P4,000 x 25% = P1,000 x 90%
20x5: P3,000 x 25% = P750 x 90%
Income from S
20x4
20x5
P 63,000
P 76,500
P 84,600
(
270)
270
900)
________
P 75,870
(
________
P 62,730
900
__( 675)
P 84,825
89. c refer to No. 88 for computation.

90. d refer to No. 88 for computation.
91. a
**Non-controlling Interest in Net Income (NCINI) for
S Companys net income of Subsidiary Company from its
own operations (Reported net income of S Company)
RPBI of P Company (upstream sales)
UPEI of P Company (upstream sales)
Non-controlling Interest in Net Income (NCINI) partial
goodwill
20x3
20x4
20x5
P 70,000
0
(
300)
P 69,700
0
P
69,700
10%
P 6,970
P 85,000
300
(
1,000)
P 84,300
0
P
84,300
10%
P
8,430
P 94,000
1,000
(
750)
P 94,250
0
P
94,250
10%
P
9,425
0
8,430
0
P 9,425
0
6,970

96. b refer to No. 88 for computation.
97. a none, since intercompany profit starts only at the end of 20x3.
98. b the amount of unrealized profit at the end of 20x3.
99. c the amount of unrealized profit at the end of 20x4.
100. a
101. c
P Company
S Company
Total
Consolidated
102. a (P40,000 x 140% = P56,000)

103. a (P56,000 P40,000 = P16,000)
Cost of Sales
400,000
_350,000
750,000
250,000
500,000
104. Not given
105
.
Clark
Net assets reported
Profit on intercompany sale
Proportion of inventory unsold at year end
($60,000 / $240,000)
Unrealized profit at year end
P48,000
x
.25
(12,000
)
P308,000
Amount reported in consolidated statements

105
.
Dunn
Inventory reported by Banks (P175,000 + P60,000)
Inventory reported by Lamm
Total inventory reported
Unrealized profit at year end
[P50,000 x (P60,000 / P200,000)]
P235,000
250,000
P485,000
(15,000
)
P470,000
Amount reported in consolidated statements

106
.
Cost of goods sold reported by Park

Cost of goods sold reported by Small
Total cost of goods sold reported
Cost of goods sold reported by Park on sale to
Small (P500,000 x .40)
Reduction of cost of goods sold reported by
Small for profit on intercompany sale
[(P500,000 x 4 / 5) x .60]
Cost of goods sold for consolidated entity
Note:
107
.
108
.
109
.
110
.
111
.
P32,000
P6,000
P9,000
P 800,000
700,000
P1,500,000
(200,000)
(240,000)
P1,060,00
0
Answer b in the actual AICPA examination question was

P1,100,000, requiring candidates to select the closest answer.
P320,000
(P200,000 + P140,000)
P308,000
(P26,000 + P19,000) P39,000
Inventory held by Spin
(P32,000 x .375)
Unrealized profit on sale
[(P30,000 + P25,000)
P52,000]
Carrying cost of inventory for
Power
P12,000
(3,000)
P 9,000
.20 = P14,000 / [(Stockholders Equity P50,000)

+(Patent P20,000)]
14 years = (P28,000 / [(28,000 - P20,000) / 4
years]
112. c the amount of sales to outsiders or unaffiliated company

113. b the original cost (I,e., the cost to produced on the part of the seller Blue
Company)
114
.
Total income (P86,000 - P47,000)

Income assigned to noncontrolling
interest [.40(P86,000 - P60,000)]
Consolidated net income assigned
to controlling interest
P39,000
(10,400)
P28,600
115
.
116
.
117
.
118
.
Amount paid by Lorn Corporation
P120,000
Unrealized profit
Actual cost
Portion sold
Cost of goods sold
(45,000)
P 75,000
x
.80
P 60,000
Consolidated sales
P140,000
Cost of goods sold

Consolidated net income
Income to Dressers noncontrolling
interest:
Sales
Reported cost of sales
Report income
Portion realized
Realized net income
Portion to Noncontrolling
Interest
Income to noncontrolling
Interest
Income to controlling interest
(60,000)
P 80,000
P120,000
(75,000)
P 45,000
x
.80
P 36,000
x
.30
(10,800)
P 69,200
Inventory reported by Lorn
P 24,000
Unrealized profit (P45,000 x .20)

Ending inventory reported
(9,000)
P 15,000
119
.
P20,000 = P30,000 x [(P48,000 - P16,000) / P48,000]
120
.
Sales reported by Movie Productions Inc.
P67,000
Cost of goods sold (P30,000 x 2/3)

Consolidated net income
(20,000)
P47,000
121
.
P7,000 = [(P67,000 - $32,000) x .20]
122. c (P10,000 x 80%)

123. c the original cost
124. d
Date of Acquisition (1/1/2010)
Partial
Fair value of consideration givenP 340,000
Less: Book value of SHE - Subsidiary):
(P150,000 + P230,000) x 80%..................... 304,000
Allocated Excess..P 36,000
Less: Over/Undervaluation of Assets & Liabilities
(P20,000 x 80%)..
16,000
Goodwill ....P 20,000 / 80%
Full
P 25,000
Amortization of equipment: P20,000 / 10 years = P2,000

RPBI of S (downstream sales): P3,000 x 35%...................................................... P1,050
RPBI of P (upstream sales): P2,500 (given).................................................... 1,000
UPEI of S (downstream sales):
Sales of Parent
EI %
EI of S
GP% of Parent
P60,000
x 30% = P18,000 x
25/125. 3,600
UPEI of P (upstream sales):

Sales of Subsidiary
EI %
EI of P
GP% of Subsidiary
P60,000
x 30% = P18,000 x
20%...
Total
2,400
P 100,000
1,050
(_ 3,600)
P 97,450
P 30,000
1,000
( ,2,400 )
P28,600
28,600
P 126,050
2,000
P124,050
5,320
P 118,730
Or, alternatively
Total
Consolidated Net Income for 2012
P 100,000
1,050
(_ 3,600)
P 97,450
P 30,000
1,000
( 2,400 )
P 28,600
P
5,320
2,000
28,600
P 126,050
7,320
P118,730
__ 5,320
P124,050
**Non-controlling Interest in Net Income (NCINI) for 2012

125.
126.
127.
128.
129.
P 30,000
1,000
( 2,400)
P 28,600
2,000
P 26,600
20%
P 5,320
0
P 5,320
b refer to No. 124

a P124,050 refer to No. 124
b refer to No. 129
c refer to No. 129
a
Non-controlling Interests (in net assets):
Common stock - S, 12/31/2012......
P
150,000
Retained earnings - S, 12/31/2012:
RE- S, 1/1/2012..P300,000
+: NI-S. 30,000
-: Div S 10,000
320,000
470,000
20,000
Book value of Stockholders equity, 12/31/2012.......
Adjustments to reflect fair value of net assets

Increase in equipment, 1/1/2010......
Accumulated amortization (P2,000 x 3 years)....

(
6,000)
Fair Value of Net Assets/SHE, 12/31/2012.
P 484,000
UPEI of P (up)
(
2,400)
Realized SHE S,12/31/2012.
P
481,600
x: NCI %..........................................................................................................
_ 20%
Non-controlling Interest (in net assets) - partial..
P 96,320
+: NCI on full goodwill (25,000 20,000)..
5,000
Non-controlling Interest (in net assets) full....
P
101,320
130. d refer to No. 131
131. d
Note: Preferred solution - since what is given is the RE P, 1/1/2012
(beginning
balance of the current year) Retained earnings Parent, 1/1/2012 (cost)
P
700,000
1,050
P
698,950
300,000
P 2,000 x 2 years( 4,000)
UPEI of P (up) 2011 or RPBI of P (up) 2012......( 1,000)
P 65,000
X: Controlling Interests.........____ 80%
52,000
RE P, 1/1/2012 (equity method) = CRE, 1/1/2012.....
P750,950
+: CI CNI or Profit Attributable to Equity Holders of Parent..
118,730
-: Dividends P
60,000
RE P, 12/31/2012 (equity method) = CRE, 12/31/2012......
P809,680
Or, if RE P is not given on January 1, 2012, then RE P on December 31,
2012 should be use:
Retained earnings Parent, 12/31/2012 (cost):
(P700,000 + P108,000 P60,000)..
P
748,000
3,600
P
744,400
(P300,000 + P20,000 P10,000).....
320,000

P 2,000 x 3 years ( 6,000)
UPEI of P (up) 2012 or RPBI of P (up) 2013.. ( 2,400)
P 81,600
X: Controlling Interests .
80%
65,280
RE P, 12/31/2012 (equity method) = CRE, 12/31/2012.

P809,680
132. b
Consolidated Stockholders Equity, 12/31/2012:
Controlling Interest / Parents Interest / Parents Portion /
Equity Holders of Parent SHE, 12/31/2012:
Common
stock
P
(P
only)..
P1,000,000
Retained
Earnings
P
(equity
method),
12/31/2012..
809,680
Controlling
Interest
/
Parents
Stockholders
Equity.
P1,809,680
Non-controlling interest, 12/31/2012 (partial).
96,320
Consolidated Stockholders Equity, 12/31/2012
P1,906,000
133. a
Consolidated Stockholders Equity, 12/31/2012:

Controlling Interest / Parents Interest / Parents Portion /
Equity Holders of Parent SHE, 12/31/2012:
Common
stock
P
(P
only)..
P1,000,000
Retained
Earnings
P
(equity
method),
12/31/2012..
809,680
Controlling
Interest
/
Parents
Stockholders
Equity.
P1,809,680
Non-controlling interest, 12/31/2012 (full)...
101,320
Consolidated Stockholders Equity, 12/31/2012
P1,911,000
Theories
1
.
2
.
3
.
4
.
5
.
6.
11.
16.
21.
26.
31
7.
12.
17.
22.
27.
32.
8.
13.
18.
23.
28.
33.
9.
14.
19.
24.
29.
34.
10,
15,
20.
25.
30.
35.

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Chapter 17

Purchases (Cost of Goods Sold)

12/31 Inventory (Income Statement)

Purchases (Cost of Goods Sold)

12/31 Inventory (Income Statement)

*that has been realized in transactions with third parties.

*that has been realized in transactions with third parties.

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

Unrealized profit in ending inventory of P Company (upstream sales)

Purchases (Cost of Sales)

12/31 Inventory (Income Statement)

Realized profit in beginning inventory of S Company (downstream sales)

*that has been realized in transactions with third parties.

Realized profit in beginning inventory of S Company (downstream sales)

*that has been realized in transactions with third parties.

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

Son Companys realized net income from separate operations

Realized profit in beginning inventory of S Company (downstream sales)

Controlling Interest in Consolidated Net Income or Profit attributable to

*that has been realized in transactions with third parties.

Realized profit in beginning inventory of S Company (downstream sales)

*that has been realized in transactions with third parties.

S Companys net income of Subsidiary Company from its own operations

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

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

Realized Profit in Beginning inventory:

1/1 Retained Earnings P Company (1)

P3,000,000 .20 = P600,000 non-controlling interest in consolidated income.

P COMPANY AND SUBSIDIARY

Sales (P13,800,000 P1,350,000)

Reported net income of subsidiary

Consolidated Net Income for 20x5

*that has been realized in transactions with third parties.

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

Noncontrolling Interest in Subsidiary's Net Income = P8,700 (30 percent of the

Increase in land (P7,200 x 80%)

Positive excess: Partial-goodwill (excess of cost over

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

A summary of depreciation and amortization adjustments is as follows:

Fair value of NCI (given) (20%)

Fair value of Subsidiary (100%)

Less: Book value of stockholders equity of Son (P360,000 x 100%)

Goodwill applicable to parent

The goodwill impairment loss would be allocated as follows

P120,000 x 80% = P96,000

P96,000 x 25% = P24,000

P60,000 x 50% = P30,000

P30,000 x 40% = P12,000

P 75,000 x 40% = P30,000

P30,000 x 20% = P 6,000

20x4: First Year after Acquisition

(1) Investment in S Company

Consolidation Workpaper Year of Acquisition

To eliminate intercompany investment and equity accounts

To allocate excess of cost over book value of identifiable assets

(E3) Cost of Goods Sold.

To provide for 20x4 impairment loss and depreciation and

(E4) Dividend income - P.

To eliminate intercompany dividends and non-controlling interest