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    Cost Model Skeletal Approach Ans Keys

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    Melvin Bagasin
    Femur Co acquired 80% of Ribs Co for P400,000 cash. The document provides financial information for Femur and Ribs for 2023-2024, including income statements, statements of financial position, and retained earnings. It asks to prepare consolidated financial statements for 2024 using the cost and equity methods.

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    Cost Model Skeletal Approach Ans Keys

    Uploaded by

    Melvin Bagasin
    3 views4 pages
    Femur Co acquired 80% of Ribs Co for P400,000 cash. The document provides financial information for Femur and Ribs for 2023-2024, including income statements, statements of financial position, and retained earnings. It asks to prepare consolidated financial statements for 2024 using the cost and equity methods.

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    Femur Co acquired 80% of Ribs Co for P400,000 cash. The document provides financial information for Femur and Ribs for 2023-2024, including income statements, statements of financial position, and retained earnings. It asks to prepare consolidated financial statements for 2024 using the cost and equity methods.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    3 views4 pages

    Cost Model Skeletal Approach Ans Keys

    Uploaded by

    Melvin Bagasin
    Femur Co acquired 80% of Ribs Co for P400,000 cash. The document provides financial information for Femur and Ribs for 2023-2024, including income statements, statements of financial position, and retained earnings. It asks to prepare consolidated financial statements for 2024 using the cost and equity methods.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 4

    Cost Method

    On January 1, 2023, Femur Co. acquired 80% of all the outstanding ordinary shares Ribs
    Co. for P400,000 cash. At that time the 20% non-controlling interest had a market value of
    P80,000. On that date, the following assets and liabilities of Ribs had book values that were
    different from their respective market values:

    Book value Fair value


    Equipment - net 100,000 80,000

    The following information were available in 2023 and 2024:


    • On January 1, 2023 the equipment had remaining life of 10 years.
    • Femur uses the full goodwill method.
    • The retained earnings of Ribs on January 1, 2023 were P140,000.
    The income statement on December 31, 2023 and 2024 respectively, for the two
    parties were as follows.

    2023 Income Statement Femur Ribs


    Sales P 300,000 P 150,000
    Dividend income (10,000 x 80%) 8,000
    Less: Cost of sales (150,000) (80,000)
    Less: Depreciation expense ( 40,000) ( 20,000)
    Other expenses ( 10,000) ( 20,000)
    Net income 108,000 30,000

    2024 Income Statement Femur Ribs


    Sales P 400,000 P 220,000
    Dividend income (5,000 x 80%) 4,000
    Less: Cost of sales (300,000) (170,000)
    Less: Depreciation expense ( 60,000) ( 40,000)
    Other expenses ( 30,000) -
    Net income 14,000 10,000

    The statement of financial position on December 31, 2024, for the two parties were as
    follows.

    Femur Ribs
    Cash P 400,000 P 300,000
    Equipment – net 90,000 72,000
    Investment in Ribs 400,000 -
    Total Assets P 890,000 P 372,000
    Liabilities 148,000 114,000
    Ordinary shares 290,000 85,000
    Share premium 170,000 48,000
    Retained earnings, Dec. 31, 2024 282,000 125,000
    Total Liabilities and Equity P 890,000 P 372,000
    Prepared by: Louise Robert Segura, CPA Page | 1
    Investment in Subsidiary, Jan. 1, 2021 400,000
    Impairment -
    Investment in Subsidiary, Dec. 31, 2021 400,000

    Both in 2023 and 2024, the only changes in equity were in retained earnings
    consisting of the following:
    Femur Ribs
    Retained earnings, Jan. 1, 2023 P200,000 P100,000
    Net income 108,000 30,000
    Dividends paid (50,000) (10,000)
    Retained earnings, Dec. 31, 2023 258,000 120,000

    Femur Ribs
    Retained earnings, Jan. 1, 2024 274,000 P120,000
    Net income 14,000 10,000
    Dividends paid (10,000) (5,000)
    Retained earnings, Dec. 31, 2024 278,000 125,000

    Requirement: Prepare the Consolidated Financial Statements (Statement of Financial Position


    and Income Statement) for year 2024
    YEAR 2023 Conso NI Parent’s NCI’s Income
    Income
    Parent’s net income 14,000

    If cost model: (4,000)


    dividend income
    Income from operation 10,000 10,000 -

    Net income from subsidiary 10,000 8,000 2,000

    OVA: Equipment (20,000/10) 2,000 1,600 400

    Goodwill impairment - - -

    NET INCOME 22,000 19,600 2,400

    Prepared by: Louise Robert Segura, CPA Page | 2


    YEAR 2024 Conso NI Parent’s NCI’s Income
    Income
    Parent’s net income 108,000

    If cost model: (8,000)


    dividend income
    Income from operation 100,000 100,000 -

    Net income from subsidiary 30,000 24,000 6,000

    OVA: Equipment (20,000/10) 2,000 1,600 400

    Goodwill impairment - - -

    NET INCOME 132,000 125,600 6,400

    IF COST METHOD IS USED,

    TO FIND CONSOLIDATED RETAINED EARNINGS (2024),

    Step 1: Adjustment from cost to equity

    Subsidiary’s RE, Jan. 1, 2024 120,000


    Subsidiary’s RE Jan. 1, 2023 (100,000)
    Prior year’s RE increase (decrease) or NI-dividends (2020) 20,000
    Prior years amortization (2023):
    Equipment (20,0000/10) 2,000
    Adjusted prior year’s RE increase (decrease) 22,000
    Multiply by controlling interest percentage 80%
    17,600
    Prior year goodwill impairment loss (6,000 x 85%) (-)
    Adjustment from cost to equity 17,600

    Step 2:

    Retained earnings, Jan. 1, 2024: 274,000 291,600


    + 17,600
    Parent’s net income 100,000
    Parent’s share in net income 25,600
    Dividends paid (10,000)
    Retained earnings, Dec. 31, 2024: 407,200

    Prepared by: Louise Robert Segura, CPA Page | 3


    If equity method is used, this is the formula for finding the RE, EB:

    Retained earnings, Jan. 1, 2024: xx


    Parent’s net income xx
    Parent’s share in net income xx
    Dividends paid (xx)
    Retained earnings, Dec. 31, 2024: xx

    Prepared by: Louise Robert Segura, CPA Page | 4

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