Solution Chapter 16

Chapter 16Problem I1. P50,075

Consolidated Net Income for 20x4Net income from own/separate operations

Pill Company [P25,000 – (P9,000 x 85%)] P17,350Sill Company 40,000

Total P57,350Less: Non-controlling Interest in Net Income* P 5,775

Amortization of allocated excess 0Goodwill impairment 1,500 7,275

Controlling Interest in Consolidated Net Income or Profitattributable to equity holders of parent………….. P50,075

Add: Non-controlling Interest in Net Income (NCINI) 5,775Consolidated Net Income for 20x4 P55,850

*Net income of subsidiary – 20x4 P 40,000Amortization of allocated excess – 20x4 ( 0))

P 40,000Multiplied by: Non-controlling interest %.......... 15%

P 6,000Less: Non-controlling interest on impairment loss on full-goodwill (P1,500 x 15%)* ____225Non-controlling Interest in Net Income (NCINI) P 5,775

*this procedure would be not be applicable where the NCI on goodwill impairment loss would notbe proportionate to NCI acquired.

2. P5,775 – refer to computation in No. 1

Problem II (Assume the use of full-goodwill approach)Cost of 75% investment 600,000Fair value of Subsidiary (Implied cost of 100% investment); P600,000/75% 800,000Less: Carrying amount of Small’s net assets =

Carrying amount of Small’s shareholders’ equityCommon/Ordinary shares 400,000Retained earnings 100,000

500,000Allocated Excess: Acquisition differential – Jan. 1, 20x4 300,000Less: Over/under valuation of A/L (Allocated to):

Increase in Inventory 40,000Decrease in Patents (70,000) (30,000)

Goodwill - full 330,000

A summary or depreciation and amortization adjustments is as follows:Account Adjustments to beamortized

Over/Under Life

AnnualAmount

CurrentYear(20x4) 20x5 20x6

Inventory P40,000 1 P 40,000 P 40,000 P - P -Subject to Annual Amortization

Patents (70,000) 5 (14,000) ( 14,000) (14,000) (14,000)Amortization P 26,000 P 26,000 P(14,000) P(14,000)Impairment of goodwill 330,000 - _____ _____ ______ __ 19,300

P 26,000 P 26,000 P(14,000) P 5,300

Unamortized balance of allocated excess:Balance Balance

Jan. 1 Amortization Dec. 3120x4 20x4 & 20x5 20x6

Inventory 40,000 40,000Patents (70,000) (28,000) (14,000) (28,000)Goodwill 330,000 0 19,300 310,700

300,000 12,000 5,300 282,700

Journal Entries Year 1 Year 2 Year 3Investment in Small 600,000

Cash 600,000Cash 18,750 7,500 30,000

Dividend income 18,750 7,500 30,000

2.a. Goodwill, 12/31/20x6 (P330,000 – P19,300) P 310,700b.

FV of NCI, 12/31/20x6:Common stock, 12/31/20x6 P 400,000Retained earnings, 1/1/20x6

(P100,000 + P80,000 – P25,000 – P35,000 – P10,000) P 110,000Add; NI – Subsidiary (20x6) 90,000

Dividends – Subsidiary 20x6 ( 40,000) 160,000Book value of SHE – S, 12/31/20x6 P 560,000Adjustments to reflect fair value P 300,000

Amortization of allocated excess – 20x5 ( 12,000)- 20x6 14,000

Impairment of goodwill – 20x5 ( 19,300)___282,700FV of SHE of S P842,700Multiplied by: NCI% 25%FV of NCI P210,675

Or, alternatively;Small’s common/ordinary shares 400,000Small’s retained earnings (100,000+80,000-25,000-35,000-10,000+90,000

-40,000) 160,000560,000

Unamortized acquisition differential 282,700842,700

NCI’s share (25%) 210,675

c. Consolidated Retained Earnings, 1/1/20x6 – P498,500Consolidated Retained Earnings, December 31, 20x6

Retained earnings - Large Company, January 1, 20x5 (cost model P500,000Adjustment to convert from cost model to equity method for purposes of

consolidation or to establish reciprocity:/Parent’s share in adjusted netincreased in subsidiary’s retained earnings:

Retained earnings – Small, January 1, 20x5(P100,000 + P80,00 – P25,000 – P35,000 – P10,000) P 110,000

Less: Retained earnings – Small, January 1, 20x4 (date of acquisition) 100,000Increase in retained earnings since date of acquisition P 10,000Less: Amortization of allocated excess – 20x4 26,000

Amortization of allocated excess – 20x5 (14,000)P ( 2,000)

Multiplied by: Controlling interests %................... 75%P ( 1,500)

Less: Goodwill impairment loss (full-goodwill) – 20x5 _____0 1,500Consolidated Retained earnings, January 1, 20x6 P498,500

Incidentally, the CRE, December 31, 20x6 would be as follows:Consolidated Retained earnings, January 1, 20x6 P498,500Add: Controlling Interest in Consolidated Net Income or Profit attributable to

equity holders of Large for 20x6 219,050Total P717,550Less: Dividends paid – Large Company for 20x6 70,000Consolidated Retained Earnings, December 31, 20x6 P647,550

d. P219,050Consolidated Net Income for 20x6

Net income from own/separate operationsLarge Company [P200,000 – (P40,000 x 75%)] P170,000Small Company 90,000


Amortization of allocated excess 5,300Goodwill impairment 19,300 40,950



*Net income of subsidiary – 20x6 P 90,000Amortization of allocated excess – 20x6 ( 5,300)


P 21,175Less: Non-controlling interest on impairment loss on full-goodwill ( (P19,300 x 25%)* ___4,825Non-controlling Interest in Net Income (NCINI) P 16,350


e. P16,350 – refer to (d) for computations

Teacher’s Guide: For purposes of comparison between Cost Model/Method and Equity Method

1. Year 1 Year 2 Year 3Investment in Small 600,000

Cash 600,000Investment in Small (75% x Small’s profit) 60,000 (26,250) 67,500

Investment income 60,000 (26,250) 67,500Cash (75% x Small’s dividends) 18,750 7,500 30,000

Investment in Small 18,750 7,500 30,000Investment income (75% x amortization of PD*) 19,500 (10,500) 3,975

Investment in Small 19,500 (10,500) 3,975*purchase differential( ) – indicates reduction

Investment in Small under cost method 600,000Small’s retained earnings, end of year 160,000Small’s retained earnings, date of acquisition 100,000Change since acquisition 60,000Less: cumulative amortization of acquisition differential 17,300

42,700Large’s share (75%) 32,025Investment in Small under equity method 632,025

Note: Regardless of the method used (cost or equity) answers for No. 2 (a) to (e) above areexactly the same.

Problem IIICost of 8% investment 646,000Fair value of Subsidiary (Implied cost of 100% investment); P646,000/85% 760,000Less: Carrying amount of Silk’s net assets =

Carrying amount of Silk’s shareholders’ equityCommon/Ordinary shares 500,000Retained earnings 100,000

600,000Allocated Excess: Acquisition differential – December 31, 20x4 160,000Less: Over/under valuation of A/L (Allocated to):

Increase in Inventory 70,000Patents 90,000Non-controlling interest (15% x 760,000, fair value of subsidiary),12/31/20x4 114,000

A summary or depreciation and amortization adjustments is as follows:Account Adjustments to beamortized

Over/under Life

AnnualAmount

CurrentYear(20x5) 20x6 20x7

Inventory P70,000 1 P 70,000 P 70,000 P - P -Subject to Annual Amortization

Patents 90,000 10 __9,000 ___9,000 ___9,000 ___9,000P160,000 P 79,000 P 79,000 P 9,000 P 9,000,

Unamortized balance of allocated excess:Balance BalanceDec. 31 Amortization Dec. 31

20x4 20x5 20x6 20x6Inventory 70,000 70,000Patents 90,000 9,000 9,000 72,000

160,000 79,000 9,000 72,000

1. NCI-CNI20x5: P(7,350)20x6: P6,450

20x5 20x6Consolidated Net Income

Net income from own/separate operationsLarge Company

20x5 [P28,000 – P0)] P 28,00020x6 [(P45,000, loss + (P15,000 x 85%)] P(57,750)

Small Company 30,000 52,000Total P 58,000 P( 5,750)Less: Non-controlling Interest in Net Income* P(7,350) P 6,450

Amortization of allocated excess 79,000 9,000Goodwill impairment _____0 71,650 _____0 15,450

CI-CNI (loss) or Profit (loss) attributable to equityholders of parent P(13,650) P(21,200)

Add: Non-controlling Interest in Net Income (NCINI) ( 7,350) 6,450Consolidated Net Income/Loss (CNI) P(21,000) P(14,750)

20x5 20x6*Net income (loss) of subsidiary P 30,000 P 52,000Amortization of allocated excess ( 79,000) ( 9,000)

P(49,000) P 43,000Multiplied by: Non-controlling interest %.......... 15% 15%

P( 7,350) P 6,450Less: Non-controlling interest on impairment loss on full-goodwill _______- ___ _-Non-controlling Interest in Net Income (NCINI) P( 7,350) P 6,450


2. CI-CNI – refer to computation in No. 120x5: P(21,000)20x6: P14,750

Or, alternatively:(1) Non-controlling interest in profit

20x5: 15% (30,000 – 79,000) - 7,35020x6: 15% (52,000 – 9,000) 6,450

(2)20x5 20x6

Profit (loss) Pen 28,000 (45,000)Dividends from Silk

20x5 020x6 (85% 15,000) (12,750)

28,000 (57,750)Share of Silk’s profit

85% (30,000 – 79,000) (41,650)85% (52,000 – 9,000) _ 36,550_

Consolidated profit (loss) attributable toPen’s shareholders (13,650) (21,200)

3. CRE, 12/31/20x6 – P73,150Consolidated Retained Earnings, December 31, 20x6

Retained earnings - Pen Company, December 31, 20x6 (cost model P 91,000Adjustment to convert from cost model to equity method for purposes of


Retained earnings – Silk, December 31, 20x6:(P100,000 + P30,00 – P0 + P52,000 – P15,000) P 167,000

Less: Retained earnings – Silk, December 31, 20x4 (date of acquisition) 100,000Increase in retained earnings since date of acquisition P 67,000Less: Amortization of allocated excess – 20x5 79,000

Amortization of allocated excess – 20x6 __ 9,000P (21,000)

Multiplied by: Controlling interests %................... 85%P (17,850)

Less: Goodwill impairment loss (full-goodwill) – 20x5 _____0 ( 17,850)Consolidated Retained earnings, December 31, 20x6 P 73,150

4. NCI, 12/31/20x6: P110,850FV of SHE of Silk:

Common stock, 12/31/20x6 P 500,000Retained earnings, 12/31/20x:

Retained earnings, 1/1/20x4 P 100,000NI – Subsidiary (20x5 and 20x6): P30,000 + P52,000 82,000Dividends – Subsidiary (20x5 and 20x6): P) + P15,000 ( 15,000) 167,000

Book value of SHE – S, 12/31/20x6 P 667,000Adjustments to reflect fair value, 12/31/20x4 160,000Amortization of allocated excess (P79,000 + P9,000) ( 88,000)FV of SHE of S P 739,000Multiplied by: NCI% 15%FV of NCI (partial), 12/31/20x6 P 110,850Add: NCI on full-goodwill 0FV of NCI (full),12/31/20x6 P 110,850

Or, alternatively:Non-controlling interest – date of acquisition,12/31/20x4 (1) P 114,000Retained earnings Silk – Dec. 31, 20x6

(100,000 + 30,000 + 52,000 – 15,000) 167,000Retained earnings, 12/31/20x4 (date of acquisition) 100,000Increase since acquisition 67,000Less: Amortization of allocated excess (79,000 + 9,000) 88,000

( 21,000)NCI’s share 15% ( 3,150)Non-controlling interest – Dec. 31, 20x6 P 110,850

5. Consolidated Patents, 12/31/20x6: P72,000Unamortized balance of allocated excess:

Balance BalanceDec. 31 Amortization Dec. 31

20x4 20x5 20x6 20x6Inventory 70,000 70,000Patents 90,000 9,000 9,000 72,000

160,000 79,000 9,000 72,000

Or, alternatively:Invest. account – equity Dec. 31, 20x6 628,150Cost of investment 646,000

Retained earnings Silk – Dec. 31, 20x6(100,000 + 30,000 + 52,000 – 15,000) 167,000

Retained earnings,12/31/20x4 (date of acquisition) 100,000Increase since acquisition 67,000

Less: Accumulated amortization (79,000 + 9,000) 88,000- 21,000

85% - 17,850Invest. account – equity method as at Dec. 31, 20x6 628,150

Implied value of 100% (628,150 / 85%) 739,000Silk –Common shares 500,000

Retained earnings 167,000667,000

Balance unamortized allocated excess – Patents 72,000

Problem IV1. (Full or partial-goodwill) – the same answer.

Consideration transferred by MM ........................... P664,000Noncontrolling interest fair value............................. 166,000*

Fair value of Subsidiary………………………… P830,000Less: Book value of SHE – S…..……………………. (600,000)Positive excess ............................................................ 230,000 Annual Excess

Life AmortizationsExcess fair value assigned to buildings 80,000 20 years P4,000Goodwill - full P150,000 indefinite -0-

Total ........................................................................ P4,000

2. P150,000 – full goodwill (see No. 1 above)P120,000 – partial-goodwill:

Consideration transferred by MM ........................... P664,000Less: Book value of SHE – S (P600,000 x 80%)…….. 480,000Allocated excess…………………………………….. P184,000Less: Over/under valuation of A and L:

P80,000 x 80%................................................. 64,000Goodwill - partial ........................................................ P120,000

3. Full-goodwillCommon Stock - TT .................................................................. 300,000Additional Paid-in Capital - TT ............................................... 90,000Retained Earnings - TT .............................................................. 210,000

Investment in TT Company (80%) ................................... 480,000Non-controlling interest (20%) ......................................... 120,000

Buildings ..................................................................................... 80,000Goodwill .................................................................................... 150,000

Investment in TT Company (80%) ................................... 184,000Non-controlling interest (P166,000 – P120,000) ............ 46,000

Partial-goodwillCommon Stock - TT .................................................................. 300,000Additional Paid-in Capital - TT ............................................... 90,000Retained Earnings - TT .............................................................. 210,000

Investment in TT Company (80%) ................................... 480,000Non-controlling interest (20%) ......................................... 120,000

Buildings ..................................................................................... 80,000Goodwill .................................................................................... 120,000

Investment in TT Company (80%) ................................... 184,000Non-controlling interest (20% x P80,000) ....................... 16,000

4. Cost Model/Initial Value MethodDividends received (80%) ............................................................. P 8,000Investment in Taylor—12/31/x4 (original value paid)………… P664,000

5. Cost Model/Initial Value Method – same answer with No. 4.

6. Using the acquisition method, the allocation will be the total difference (P80,000) betweenthe buildings' book value and fair value. Based on a 20 year life, annual excess amortizationis P4,000.

MM book value—buildings .................................................... P 800,000TT book value—buildings ........................................................ 300,000Allocation .................................................................................. 80,000Excess Amortizations for 20x4–20x5 (P4,000 × 2) …………. ( 8,000)

Consolidated buildings account ………………… P 1,172,000

7. Acquisition-date fair value allocated to goodwill:Goodwill-full ( see No. 1 above) .................................................. P 150,000Goodwill-partial (see No. 1 above)……………………………… P 120,000

8. The common stock and additional paid-in capital figures to be reported are the parentbalances only.

Common stock, P500,000Additional paid-in capital, P280,000

Problem V1.

Partial Goodwill or Proportionate Basisa. Investment in S 225,000

Beginning Retained Earnings-Palm Inc. 225,000To establish reciprocity/convert to equity (0.90 x(P1,250,000 – P1,000,000))

b. Common stock – S 3,000,000Retained earnings – S 1,250.000

Investment in S Co 3,825,000NCI (P4,250,000 x 10%) 425,000

c. Land 400,000Investment in S 150,000NCI [(P500,000 x 10%)– (P100,000 x 10%)] 40,000Retained earnings – P (bargain purchase gain –

closed to retained earnings since only balance

sheets are being examined, P300,000 – P90,000depreciation, 20x4) 210,000

FV of SHE of S:Common stock, 1/1/20x5 P3,000,000Retained earnings, 1/1/20x5

Retained earnings, 1/1/20x4 P1,000,000NI – Subsidiary (20x4) 250,000Dividends – Subsidiary 20x4 ( 0) 1,250,000

Book value of SHE – S, 1/1/20x5 P4,250,000Adjustments to reflect fair value 500,000Amortization of allocated excess (P100,000 x 1) ( 100,000)FV of SHE of S P4,650,000Multiplied by: NCI% 10%FV of NCI P 465,000

Computation of Gain:Partial Goodwill or Proportionate Basis

Fair value of Subsidiary:Consideration transferred P3,750,000

Less: BV of SHE of S (P3,000,000 + P1,000,000) x 90% _3,600,000Allocated excess P 150,000Less: Over/under valuation of A and L: Inc. (Dec.)

Inventory (P800,000 – P700,000) x 90% P 90,000Land (P2,000,000 – P1,600,000) x 90% 360,000 __450,000

Gain – partial (attributable to parent) (P300,000)

Full Goodwill or Fair Value Basisa. Investment in S 225,000

Beginning Retained Earnings-P Inc. 225,000To establish reciprocity/convert to equity (0.90 x(P1,250,000 – P1,000,000))

b. Common stock – S 3,000,000Retained earnings – S 1,250.000

Investment in S 3,825,000NCI (P4,250,000 x 10%) 425,000

c. Land 400,000Investment in S 150,000NCI [(P500,000 x 10%)– (P100,000 x 10%)] 40,000Retained earnings – P (bargain purchase gain –

closed to retained earnings since only balancesheets are being examined, P300,000 – P90,000depreciation, 20x4) 210,000

FV of SHE of S:Common stock, 1/1/20x5 P3,000,000Retained earnings, 1/1/20x5


Book value of SHE – S, 1/1/20x5 P4,250,000Adjustments to reflect fair value 500,000Amortization of allocated excess (P100,000 x 1) ( 100,000)FV of SHE of S P4,650,000Multiplied by: NCI% 10%FV of NCI P 465,000

Full-goodwill or Fair Value BasisFair value of Subsidiary:

Consideration transferred P3,750,000 / 90% P4,166,667Less: BV of SHE of S (P3,000,000 + P1,000,000) x 100% 4,000,000Allocated excess P 166,667Less: Over/under valuation of A and L: Inc. (Dec.)

Inventory (P800,000 – P700,000) x 100% P 100,000Land (P2,000,000 – P1,600,000) x 100% 400,000 __500,000

Gain – full (attributable to parent) (P333,333

Note: In case of gain, the working paper eliminating entries under partial and full -goodwillapproach are the same.

2.Consolidated Retained Earnings, December 31, 20x5

Retained earnings - Parent Company, December 31, 20x5 (cost model P2,000,000Adjustment to convert from cost model to equity method for purposes of


Retained earnings – Subsidiary, December 31, 20x5(P1,000,000 + P250,000 – P0 + P300,000 – P0) P1,550,000

Less: Retained earnings – Subsidiary, January 1, 20x4 1,000,000Increase in retained earnings since date of acquisition P 550,000Less: Amortization of allocated excess – 20x4 (inventory) 100,000

P 450,000Multiplied by: Controlling interests %................... 90%

P405,000Add: Bargain purchase gain (Controlling interest – P300,000) 300,000Less: Goodwill impairment loss _______0 __705,,000

Consolidated Retained earnings, December 31, 20x5 P 4,705,000

Problem VIComputation of Goodwill:

Partial GoodwillFair value of Subsidiary:

Consideration transferred P2,800,000Less: BV of SHE of S (P1,000,000 + P500,000) x 80% _1,200,000Allocated excess P1,600,000Less: Over/under valuation of A and L: Inc. (Dec.)

Prop., plant and eqpt. (P1,500,000 – P600,000) x 80% __720,000Goodwill – partial P 880,000

Full-goodwill:Fair value of Subsidiary:

Consideration transferred P2,800,000 / 80% P3,500,000Less: BV of SHE of S (P1,500,000 x 100%) 1,500,000Allocated excess P2,000,000Less: Over/under valuation of A and L: Inc. (Dec.)

Prop., plant and eqpt. (P1,500,000 – P600,000) x 80% __900,000Goodwill – full P1,100,000

Amortization of allocated excess:P900,000 / 10 years = P90,000 per year

1.

Cost Model-Full Goodwill (Eliminating Entries)20x4a. Beginning Retained Earnings-S Co. 1,000,000

Capital Stock- S Co. 500,000Property and Equipment (net) 900,000Goodwill 1,100,000

Investment in S Co. 2,800,000Non-controlling Interest 700,000

Common stock, 1/1/20x4 P 500,000Retained earnings, 1/1/20x4 1,000,000Book value of SHE – S, 1/1/20x5 P1,500,000Adjustments to reflect fair value 900,000FV of SHE of S1/1/x5 P2,400,000Multiplied by: NCI% 20%FV of NCI (partial) P 480,000Add: NCI on full-goodwill (P1,100,000 – P880,000) 220,000FV of NCI (full) P 700,000

b. Depreciation Expense 90,000Property and Equipment (net) 90,000

20x5a. Investment in S Company (P300,000 x 0.80) 240,000

Beginning Retained Earnings-P Co. 240,000To establish reciprocity/convert to equity as of 1/1/20x5

b. Beginning Retained Earnings-S Company 1,300,000Capital Stock-S Company 500,000Property and Equipment (net) 900,000Goodwill 1,100,000

Investment in S Company (P2,800,000 + P240,000) 3,040,000Non-controlling Interest P700,000 +

[(P1,300,000 – P1,000,000) x 0.20] 760,000FV of SHE of S:

Common stock, 1/1/20x5 P 500,000Retained earnings, 1/1/20x5


Book value of SHE – S, 1/1/20x5 P1,800,000Adjustments to reflect fair value 900,000FV of SHE of S1/1/x5 P2,700,000Multiplied by: NCI% 20%FV of NCI (partial) P 540,000Add: NCI on full-goodwill (P1,100,000 – P880,000) 220,000FV of NCI (full) P 760,000

c. Beginning Retained Earnings-P Co. (P90,000 x 80%) 72,000Non-controlling Interest (P90,000, depreciation x 20%) 18,000Depreciation Expense 90,000

Property and Equipment (net) 180,000

NCI (partial), 12/31/20x5: [(a) P760,000 – (b) P18,000 = P522,000]FV of SHE of S:

Common stock, 1/1/20x5 P 500,000Retained earnings, 1/1/20x5


Book value of SHE – S, 1/1/20x5 P1,800,000Adjustments to reflect fair value 900,000Amortization of allocated excess (P90,000 x 1) ( 90,000)FV of SHE of S P2,610,000Multiplied by: NCI% 20%FV of NCI (partial) P 522,000Add: NCI on full-goodwill (P1,100,000 – P880,000) 220,000FV of NCI (full) P 742,000

Cost Model-Partial Goodwill (Eliminating Entries)20x4a. Beginning Retained Earnings-S Co. 1,000,000

Capital Stock- S Co. 500,000Property and Equipment (net) 900,000Goodwill 880,000

Investment in S Co. 2,800,000Non-controlling Interest 480,000

b. Depreciation Expense 90,000Property and Equipment (net) 90,000

20x5a. Investment in S Company (P300,000 x 0.80) 240,000

Beginning Retained Earnings-P Co. 240,000To establish reciprocity/convert to equity as of 1/1/20x5

b. Beginning Retained Earnings-S Company 1,300,000Capital Stock-S Company 500,000Property and Equipment (net) 900,000Goodwill 880,000

Investment in S Company (P2,800,000 + P240,000) 3,040,000Non-controlling Interest P700,000 +

[(P1,300,000 – P1,000,000) x 0.20] – (P1,100,000 – P880,000) 540,000NCI:

FV of SHE of S:Common stock, 1/1/20x5 P 500,000Retained earnings, 1/1/20x5


Book value of SHE – S, 1/1/20x5 P1,800,000Adjustments to reflect fair value 900,000FV of SHE of S1/1/x5 P2,700,000Multiplied by: NCI% 20%FV of NCI (partial) P 540,000

c. Beginning Retained Earnings-P Co. (P90,000 x 80%) 72,000Non-controlling Interest (P90,000 depreciation x 20%) 18,000Depreciation Expense 90,000

Property and Equipment (net) 180,000NCI (partial), 12/31/20x5: [(a) P540,000 – (b) P18,000 = P522,000]

FV of SHE of S:Common stock, 1/1/20x5 P 500,000Retained earnings, 1/1/20x5


Book value of SHE – S, 1/1/20x5 P1,800,000Adjustments to reflect fair value 900,000Amortization of allocated excess (P90,000 x 1) ( 90,000)FV of SHE of S P2,610,000Multiplied by: NCI% 20%FV of NCI (partial) P 522,000

2. Consolidated Net Income (CNI) = Controlling Interest in CNI + NCI in CNI20x4Consolidated Net Income for 20x4

Net income from own/separate operationsP Company P400,000S Company 300,000


Amortization of allocated excess 90,000Goodwill impairment ____0 132,000

Controlling Interest in Consolidated Net Income or Profitattributable to equity holders of P………….. P568,000


Net income of subsidiary…………………….. P 300,000Amortization of allocated excess …... ( 90,000)

P210,000Multiplied by: Non-controlling interest %.......... 20%Non-controlling Interest in Net Income (NCINI) P 42,000

20x5Consolidated Net Income for 20x5

Net income from own/separate operationsP Company P425,000S Company 400,000





Net income of subsidiary…………………….. P 400,000Amortization of allocated excess …... ( 90,000)


Problem VII1. Common stock of TT Company

on December 31, 20x4 P 90,000Retained earnings of TT Company

January 1, 20x4 P 130,000Sales for 20x4 195,000Less: Expenses (160,000)

Dividends paid (15,000)Retained earnings of TT Company

on December 31, 20x4 150,000Net book value on December 31, 20x4 P240,000Proportion of stock acquired by QQ x .80Purchase price P192,000

2. Net book value on December 31, 20x4 P240,000Proportion of stock held by

noncontrolling interest x .20Balance assigned to noncontrolling interest P 48,000

3. Consolidated net income is P143,000. None of the 20x4 net income of TT Company wasearned after the date of purchase and, therefore, none can be included in consolidatednet income.

4. Consolidate net income would be P178,000 [P143,000 + (P195,000 - P160,000)].

Problem VIIIRequirements 1 to 4:Date of Acquisition – January 1, 20x4

Fair value of Subsidiary (100%)Consideration transferred:

Cash P 360,000Notes payable 105,000 P 465,000

Less: Book value of stockholders’ equity of S:Common stock (P200,000 x 100%)………………. P 240,000Retained earnings (P100,000 x 100%)………... 120,000 360,000

Allocated excess (excess of cost over book value)….. P 105,000Less: Over/under valuation of assets and liabilities:

Increase in inventory (P5,000 x 100%)……………… P 6,000Increase in land (P6,000 x 100%)……………………. 7,200Increase in equipment (P80,000 x 100%) 96,000Decrease in buildings (P20,000 x 100%)………..... ( 24,000)Decrease in bonds payable (P4,000 x 100%)…… 4,800 90,000

Positive excess: Goodwill (excess of cost overfair value)………………………………………………... P 15,000

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

Book valueS Co.

Fair value(Over) Under

ValuationInventory………………….…………….. P 24,000 P 30,000 P 6,000Land……………………………………… 48,000 55,200 7,200Equipment (net)......... 84,000 180,000 96,000Buildings (net) 168,000 144,000 (24,000)Bonds payable………………………… (120,000) ( 115,200) 4,800Net……………………………………….. P 204,000 P 294,000 P 90,000

The buildings and equipment will be further analyzed for consolidation purposes as follows:S Co.

Book valueS Co.

Fair valueIncrease

(Decrease)Equipment .................. 180,000 180,000 0Less: Accumulated depreciation….. 96,000 - ( 96,000)Net book value………………………... 84,000 180,000 96,000

S Co.Book value

S Co.Fair value (Decrease)

Buildings................ 360,000 144,000 ( 216,000)Less: Accumulated depreciation….. 192,000 - ( 192,000)Net book value………………………... 168,000 144,000 ( 24,000)

A summary or depreciation and amortization adjustments is as follows:

Account Adjustments to be amortizedOver/under Life

AnnualAmount

CurrentYear(20x4) 20x5

Inventory P 6,000 1 P 6,000 P 6,000 P -Subject to Annual Amortization

Equipment (net)......... 96,000 8 12,000 12,000 12,000Buildings (net) (24,000) 4 ( 6,000) ( 6,000) (6,000)Bonds payable… 4,800 4 1,200 1,200 1,200

P 13,200 P 13,200 P 7,200

20x4 : First Year after AcquisitionParent Company Cost Model Entry

January 1, 20x4:(1) Investment in S Company…………………………………………… 465,000

Cash…………………………………………………………………….. 360,000Notes payable…………………………………… 105,000

Acquisition of S Company.

January 1, 20x4 – December 31, 20x4:(2) Cash……………………… 36,000

Dividend income (P36,000 x 100%)……………. 36,000Record dividends from S Company.

On the books of S Company, the P36,000 dividend paid was recorded as follows:Dividends paid………… 36,000

Cash……. 36,000Dividends paid by S Co..

Consolidation Workpaper – First Year after Acquisition(E1) Common stock – S Co………………………………………… 240,000

Retained earnings – S Co…………………………………… 120,000Investment in S Co…………………………………………… 360,000

To eliminate intercompany investment and equity accountsof subsidiary on date of acquisition. ; and to establish non-controllinginterest (in net assets of subsidiary) on date of acquisition.

(E2) Inventory…………………………………………………………………. 6,000Accumulated depreciation – equipment……………….. 96,000Accumulated depreciation – buildings………………….. 192,000Land………………………………………………………………………. 7,200Discount on bonds payable…………………………………………. 4,800Goodwill…………………………………………………………………. 15,000

Buildings……………………………………….. 216,000Investment in S Co………………………………………………. 105,000

To allocate excess of cost over book value of identifiable assetsacquired, with remainder to goodwill

(E3) Cost of Goods Sold……………. 6,000Depreciation expense……………………….. 6,000Accumulated depreciation – buildings………………….. 6,000Interest expense………………………………… 1,200Goodwill impairment loss 3,600

Inventory………………………………………………………….. 6,000Accumulated depreciation – equipment……………….. 12,000Discount on bonds payable………………………… 1,200Goodwill…………….. 3,600

To provide for 20x4 impairment loss and depreciation andamortization on differences between acquisition date fair value andbook value of Son’s identifiable assets and liabilities as follows:

Cost ofGoods

Sold

Depreciation/Amortization

ExpenseAmortization

-InterestInventory sold P 6,000Equipment P12,000Buildings ( 6,000)Bonds payable _______ _______ P 1,200Totals P 6,000 P 6,000 P1,200

(E4) Dividend income - P………. 36,000Dividends paid – S…………………… 36,000

To eliminate intercompany dividends and non-controlling interestshare of dividends.

Worksheet for Consolidated Financial Statements, December 31, 20x4.Cost Model100%-Owned SubsidiaryDecember 31, 20x4 (First Year after Acquisition)

Income Statement P Co S Co. Dr. Cr. ConsolidatedSales P480,000 P240,000 P 720,000Dividend income 36,000 - (4) 36,000 _________

Total Revenue P516,000 P240,000 P 720,000Cost of goods sold P204,000 P138,000 (3) 6,000 P 348,000Depreciation expense 60,000 24,000 (3) 6,000 90,000Interest expense - - (3) 1,200 1,200Goodwill impairment loss (3) 3,600 3,600Other expenses 48,000 18,000 66,000

Total Cost and Expenses P312,000 P180,000 P508,800Net Income to Retained Earnings P204,000 P 60,000 P211,200

Statement of Retained EarningsRetained earnings, 1/1

P Company P360,000 P 360,000S Company P120,000 (1) 120,000

Net income, from above 204,000 60,000 211,200Total P564,000 P180,000 P571,200

Dividends paidP Company 72,000 72,000S Company - 36,000 (4) 36,000 ________

Retained earnings, 12/31 to BalanceSheet P492,000 P144,000 P 499,200

Balance SheetCash………………………. P 147,000 P 90,000 P 237,000Accounts receivable…….. 90,000 60,000 150,000

Inventory…………………. 120,000 90,000 (2) 6,000 (3) 6,000 210,000Land……………………………. 210,000 48,000 (2) 7,200 265,200Equipment 240,000 180,000 420,000Buildings 720,000 540,000 (2) 216,000 1,044,000Discount on bonds payable (2) 4,800 (3) 1,200 3,600Goodwill…………………… (2) 15,000 (3) 3,600 11,400Investment in S Co……… 465,000 (1) 360,000

(2) 105,000 -Total P1,992,000 P1,008,000 P2,341,200

Accumulated depreciation- equipment P 135,000 P 96,000 (2) 96,000 (3) 12,000 P 147,000

Accumulated depreciation- buildings

405,000 288,000 (2) 192,000(3) 6,000 495,000

Accounts payable…………… 120,000 120,000 240,000Bonds payable………………… 240,000 120,000 360,000Common stock, P10 par……… 600,000 600,000Common stock, P10 par……… 240,000 (1) 240,000Retained earnings, from above ___590,400 144,000 499,200

Total P1,992,000 P1,008,000 P 736,200 P 736,200 P2,341,200

20x5: Second Year after AcquisitionParent Company Cost Model Entry

Only a single entry is recorded by the parent in 20x5 in relation to its subsidiary investment:January 1, 20x5 – December 31, 20x5:

Cash……………………… 48,000Dividend income (P48,000 x 100%)……………. 48,000

Record dividends from S Company.


Cash 48,000Dividends paid by S Co..

Consolidation Workpaper – Second Year after Acquisition(E1) Investment in S Company………………………… 24,000

Retained earnings – P Company……………………… 24,000To provide entry to convert from the cost method to the equitymethod or the entry to establish reciprocity at the beginning of theyear, 1/1/20x5.

Retained earnings – S Company, 1/1/20x5 P144,000Retained earnings – S Company, 1/1/20x4 120,000Increase in retained earnings…….. P 24,000Multiplied by: Controlling interest % 100%Retroactive adjustment P 24,000

(E2) Common stock – S Co………………………………………… 240,000Retained earnings – S Co., 1/1/20x5 144,000

Investment in S Co ………………………… 384,000To eliminate intercompany investment and equity accountsof subsidiary and to establish non-controlling interest (in net assets ofsubsidiary) on January 1, 20x5.


Buildings……………………………………….. 216,000Investment in S Co………………………………………………. 105,000

To allocate excess of cost over book value of identifiable assetsacquired, with remainder to goodwill; and to establish non-controlling interest (in net assets of subsidiary) on January 1, 20x5.

(E4) Retained earnings – P Company, 1/1/20x5(P16,800 x 100%) 16,800

Depreciation expense……………………….. 6,000Accumulated depreciation – buildings………………….. 12,000Interest expense………………………………… 1,200

Inventory………………………………………………………….. 6,000Accumulated depreciation – equipment……………….. 24,000Discount on bonds payable………………………… 2,400Goodwill…………………………………… 3,600

To provide for years 20x4 and 20x5 depreciation and amortization ondifferences between acquisition date fair value and book value ofS’s identifiable assets and liabilities as follows:

Year 20x4 amounts are debited to P’s retained earningsYear 20x5 amounts are debited to respective nominal accounts..

(20x4)Retainedearnings,


expenseAmortization

-InterestInventory sold P 6,000Equipment 12,000 P 12,000Buildings (6,000) ( 6,000)Bonds payable 1,200 P 1,200Impairment loss 3,600Totals P 16,800 P 6,000 P1,200

(E5) Dividend income - P………. 48,000Dividends paid – S…………………… 48,000

To eliminate intercompany dividends and non-controlling interestshare of dividends.

(E6) Non-controlling interest in Net Income of Subsidiary………… 16,560Non-controlling interest ………….. 16,560

To establish non-controlling interest in subsidiary’s adjusted netincome for 20x5 as follows:

Net income of subsidiary…………………….. P 90,000Amortization of allocated excess [(E4)]…... ( 7,200)

P 82,000Multiplied by: Non-controlling interest %.......... 20%Non-controlling Interest in Net Income (NCINI) P 16,560

Worksheet for Consolidated Financial Statements, December 31, 20x5.Cost Model100%-Owned Subsidiary

Income Statement P Co. S Co. Dr. Cr. ConsolidatedSales P540,000 P360,000 P 900,000Dividend income 48,000 - (5) 48,000 ___________

Total Revenue P588,000 P360,000 P 900,000Cost of goods sold P216,000 P192,000 P 408,000Depreciation expense 60,000 24,000 (4) 6,000 90,000Interest expense - - (4) 1,200 1,200Other expenses 72,000 54,000 126,000Goodwill impairment loss - - -

Total Cost and Expenses P348,000 P270,000 P 625,200Net Income to Retained Earnings P240,000 P 90,000 P 274,800


P Company P492,000 (4) 16,800 (1) 24,000 P 499,200

S Company P144,000(2)144,000

Net income, from above 240,000 90,000 274,800Total P732,000 P234,000 P 774,000

Dividends paidP Company 72,000 72,000S Company - 48,000 (5) 48,000 _ ________


Balance SheetCash………………………. P 189,000 P 102,000 P 291,000Accounts receivable…….. 180,000 960,000 276,000Inventory…………………. 216,000 108,000 (3) 6,000 (4) 6,000 324,000Land……………………………. 252,000 48,000 (3) 7,200 265,200Equipment 240,000 180,000 420,000Buildings 720,000 540,000 (3) 216,000 1,044,000Discount on bonds payable (3) 4,800 (4) 2,400 2,400Goodwill…………………… (3) 15,000 (4) 3,600 11,400Investment in S Co……… 465,000 (1) 24,000 (2) 384,000

(3) 105,000 -Total P2,220,000 P1,074,000 P2,634,000

Accumulated depreciation- equipment P 150,000 P 102,000 (3) 96,000 (4) 24,000 P 180,000


450,000 306,000 (3) 192,000(4) 12,000 552,000

Accounts payable…………… 120,000 120,000 240,000Bonds payable………………… 240,000 120,000 360,000Common stock, P10 par……… 600,000 600,000Common stock, P10 par……… 240,000 (2) 240,000Retained earnings, from above 660,000 186,000 702,000

Total P2,220,000 P1,074,000 P 783,120 P 783,120 P2,634,000

5. 1/1/20x4a. On date of acquisition the retained earnings of P should always be considered as the

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

Retained earnings - P Company, January 1, 20x4 (date of acquisition) P360,000

b. NCI – not applicable, since it is 100% owned subsidiaryc.

Stockholders’ EquityCommon stock, P10 par P 600,000Retained earnings 360,000

Total Stockholders’ Equity (Total Equity) P 960,000

6. 12/31/20x4:a. P211,200 – same with CNI since there is no NCI.

Consolidated Net Income for 20x4Net income from own/separate operations:

Pa Company P168,000S Company 60,000

Total P228,000Less: Amortization of allocated excess P 13,200

Goodwill impairment loss 3,600 16,800Consolidated Net Income for 20x4 P211,200

b. NCINI – not applicable, since it is 100% owned subsidiaryc. P211,200 – same with NCI-CNI since there is no NCI.

d.Consolidated Retained Earnings, December 31, 20x4

Retained earnings - P Company, January 1, 20x4 (date of acquisition) P360,000Add: Controlling Interest in Consolidated Net Income or Profit attributable to

equity holders of P for 20x4 or Consolidated Net Income (CNI)* 211,200Total P571,200Less: Dividends paid – P Company for 20x4 72,000Consolidated Retained Earnings, December 31, 20x4 P499,200

*since it is a 100%-owned subsidiary, Controlling Interest in Net Income is the same with Consolidated NetIncome.

e. NCI – not applicable, since it is 100% owned subsidiaryf.


Total Stockholders’ Equity (Total Equity) P 1,099,200

12/31/20x5a. P274,800 – same with CNI since there is no NCI.


P Company P192,000S Company 90,000

Total P282,000Less: Amortization of allocated excess P 7,200

Goodwill impairment loss 0 7,200Controlling Interest in Consolidated Net Income or Profit attributable to

equity holders of parent or CNI P274,800

b. NCINI – not applicable, since it is 100% owned subsidiaryc. P274,800 – same with NCI-CNI since there is no NCI.d.

Consolidated Retained Earnings, December 31, 20x5Retained earnings - P Company, January 1, 20x5 (cost model P492,000Adjustment to convert from cost model to equity method for purposes of

consolidation or to establish reciprocity:/P’s share in adjusted netincreased in subsidiary’s retained earnings:

Retained earnings – S, January 1, 20x5 P 144,000Less: Retained earnings – S, January 1, 20x4 120,000Increase in retained earnings since date of acquisition P 24,000

Less: Amortization of allocated excess – 20x4 16,800P 7,200

Multiplied by: Controlling interests %................... 100% 7,200Consolidated Retained earnings, January 1, 20x5 P 499,200Add: Controlling Interest in Consolidated Net Income or Profit attributable to

equity holders of P for 20x5 or CNI 274,800Total P774,000Less: Dividends paid – P Company for 20x5 72,000Consolidated Retained Earnings, December 31, 20x5 P702,000

e. NCI – not applicable, since it is 100% owned subsidiaryf.


Total Stockholders’ Equity (Total Equity) P1,302,000

Problem IXRequirements 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……………………………….. P 372,000

Less: Book value of stockholders’ equity of S:Common stock (P240,000 x 80%)……………………. P 192,000Retained earnings (P120,000 x 80%)………………... 96,000 288,000



Positive excess: Partial-goodwill (excess of cost overfair value)………………………………………………... P 12,000


Book valueS Co.



he buildings and equipment will be further analyzed for consolidation purposes as follows:S Co.

Book valueS Co.

Fair valueIncrease


S Co.Book value




Account Adjustments to be amortizedOver/Under Life

AnnualAmount




P 13,200 P 13,200 P 7,200The goodwill impairment loss of P3,125 based on 100% fair value would be allocated to thecontrolling interest and the NCI based on the percentage of total goodwill each equity interestreceived. For purposes of allocating the goodwill impairment loss, the full-goodwill is computedas follows:

Fair value of Subsidiary (100%)Consideration transferred: Cash (80%) P 372,000Fair value of NCI (given) (20%) 93,000Fair value of Subsidiary (100%) P 465,000

Less: Book value of stockholders’ equity of Son (P360,000 x 100%) __360,000Allocated excess (excess of cost over book value)….. P 105,000Add (deduct): (Over) under valuation of assets and liabilities

(P90,000 x 100%) 90,000Positive excess: Full-goodwill (excess of cost over

fair value)………………………………………………... P 15,000In this case, the goodwill was proportional to the controlling interest of 80% and non-controllinginterest of 20% computed as follows:

Value % of TotalGoodwill applicable to parent………………… P12,000 80.00%Goodwill applicable to NCI…………………….. 3,000 20.00%Total (full) goodwill……………………………….. P15,000 100.00%

The goodwill impairment loss would be allocated as followsValue % of Total

Goodwill impairment loss attributable to parent or controllingInterest

P 3,000 80.00%

Goodwill applicable to NCI…………………….. 750 20.00%Goodwill impairment loss based on 100% fair value or full-

Goodwill P 3,750 100.00%When cost model is used, only two journal entries are recorded by P Company during 20x4related to its investment in S Company.20x4: First Year after AcquisitionParent Company Cost Model Entry


Cash…………………………………………………………………….. 372,000Acquisition of S Company.





Consolidation Workpaper – Year of Acquisition(E1) Common stock – S Co………………………………………… 240,000

Retained earnings – S Co…………………………………… 120.000Investment in S Co…………………………………………… 288,000Non-controlling interest (P360,000 x 20%)……………………….. 72,000

To eliminate intercompany investment and equity accountsof subsidiary on date of acquisition; and to establish non-controllinginterest (in net assets of subsidiary) on date of acquisition.


Buildings……………………………………….. 216,000Non-controlling interest (P90,000 x 20%)……………………….. 18,000Investment in S Co………………………………………………. 84,000

To allocate excess of cost over book value of identifiable assetsacquired, with remainder to goodwill; and to establish non-controlling interest (in net assets of subsidiary) on date of acquisition.

(E3) Cost of Goods Sold……………. 6,000Depreciation expense……………………….. 6,000Accumulated depreciation – buildings………………….. 6,000Interest expense………………………………… 1,200Goodwill impairment loss………………………………………. 3,000



Cost ofGoods

Sold


expenseAmortization

-Interest TotalInventory sold P 6,000Equipment P 12,000Buildings ( 6,000)Bonds payable _______ _______ P 1,200Totals P 6,000 P 6,000 P1,200 13,200

It should be observed that the goodwill computed above was proportional to the controllinginterest of 80% and non-controlling interest of 20% computed as follows:


Therefore, the goodwill impairment loss of P3,125 based on 100% fair value or full-goodwill wouldbe allocated as follows:

Value % of TotalGoodwill impairment loss attributable to P or controlling

InterestP 3,000 80.00%

Goodwill impairment loss applicable to NCI…………………….. 750 20.00%Goodwill impairment loss based on 100% fair value or full-

Goodwill P 3,750 100.00%

(E4) Dividend income - P………. 28,800Non-controlling interest (P36,000 x 20%)……………….. 7,200

Dividends paid – S…………………… 36,000To eliminate intercompany dividends and non-controlling interestshare of dividends.





Worksheet for Consolidated Financial Statements, December 31, 20x4.Cost Model (Partial-goodwill)80%-Owned SubsidiaryDecember 31, 20x4 (First Year after Acquisition)


Total Revenue P508,800 P240,000 P 720,000Cost of goods sold P204,000 P138,000 (3) 6,000 P 348,000Depreciation expense 60,000 28,000 (3) 6,000 90,000Interest expense - - (3) 1,200 1,200Other expenses 48,000 18,000 66,000Goodwill impairment loss - - (3) 3,000 3,000

Total Cost and Expenses P310,000 P180,000 P508,200Net Income P196,800 P 60,000 P211,800NCI in Net Income - Subsidiary - - (5) 9,360 ( 9,360)Net Income to Retained Earnings P196,800 P 60,000 P202,440






Balance SheetCash………………………. P 232,800 P 90,000 P 322,800Accounts receivable…….. 90,000 60,000 150,000Inventory…………………. 120,000 90,000 (2) 6,000 (3) 6,000 210,000Land……………………………. 210,000 48,000 (2) 7,200 265,200Equipment 240,000 180,000 420,000

Buildings 720,000 540,000 (2) 216,000 1,044,000Discount on bonds payable (2) 4,800 (3) 1,200 3,600Goodwill…………………… (2) 12,000 (3) 3,000 9,000Investment in S Co……… 372,000 (4) 288,000

(5) 84,000 -Total P1,984,800 P1,008,000 P2,424,600

Accumulated depreciation- equipment P 135,000 P 96,000 (2) 96,000 (3) 12,000 P147,000


405,000 288,000 (2) 192,000(3) 6,000 495,000

Accounts payable…………… 120,000 120,000 240,000Bonds payable………………… 240,000 120,000 360,000Common stock, P10 par……… 600,000 600,000Common stock, P10 par……… 240,000 (1) 240,000Retained earnings, from above 484,800 144,000 490,440Non-controlling interest…………

_________ _________

(4) 7,200

__________

(1 ) 72,000(2) 18,000(5) 9,360 ____92,160

Total P1,984,800 P1,008,000 P 745,560 P 745,560 P2,424,600

20x5: Second Year after AcquisitionP Co. S Co.

Sales P 540,000 P 360,000Less: Cost of goods sold 216,000 192,000Gross profit P 324,000 P 168,000Less: Depreciation expense 60,000 24,000

Other expense 72,000 54,000Net income from its own separate operations P 192,000 P 90,000Add: Dividend income 38,400 -Net income P 230,400 P 90,000Dividends paid P 72,000 P 48,000

No goodwill impairment loss for 20x5.Parent Company Cost Model EntryOnly a single entry is recorded by the P in 20x5 in relation to its subsidiary investment:

January 1, 20x5 – December 31, 20x5:Cash……………………… 38,400


On the books of S Company, the P40,000 dividend paid was recorded as follows:

Dividends paid………… 48,000Cash 48,000

Dividends paid by S Co..

Consolidation Workpaper – Second Year after Acquisition

The working paper eliminations (in journal entry format) on December 31, 20x5, are as follows:

(E1) Investment in S Company………………………… 19,200Retained earnings – P Company……………………… 19,200

To provide entry to convert from the cost method to the equitymethod or the entry to establish reciprocity at the beginning of theyear, 1/1/20x5, computed as follows:



Investment in S Co (P384,000 x 80%)………………………… 307,200Non-controlling interest (P384,000 x 20%)……………………….. 76,800

To eliminate intercompany investment and equity accountsof subsidiary and to establish non-controlling interest (in net assets ofsubsidiary) on January 1, 20x5.


Buildings……………………………………….. 216,000Non-controlling interest (P90,000 x 20%) 18,000Investment in S Co………………………………………………. 84,000

To allocate excess of cost over book value of identifiable assetsacquired, with remainder to goodwill; and to establish non-controlling interest (in net assets of subsidiary) on January 1, 20x5.

(E4) Retained earnings – P Company, 1/1/20x5[(P13,200 x 80%) + P3,000, impairment loss onpartial-goodwill] 13,560

Non-controlling interests (P13,200 x 20%)……………………. 2,640Depreciation expense……………………….. 6,000Accumulated depreciation – buildings………………….. 12,000Interest expense………………………………… 1,200


To provide for years 20x4 and 20x5 depreciation and amortization ondifferences between acquisition date fair value and book value ofS’s identifiable assets and liabilities as follows:

Year 20x4 amounts are debited to P’s retained earnings &NCI;

Year 20x5 amounts are debited to respective nominal accounts.



expenseAmortization

-InterestInventory sold P 6,000Equipment 12,000 P 12,000Buildings (6,000) ( 6,000)Bonds payable 1,200 ________ P 1,200Sub-total P13,200 P 6,000 P 1,200Multiplied by: 80%To Retained earnings P 10,560Impairment loss 3,000Total P 13,560






P 82,800Multiplied by: Non-controlling interest %.......... 20%Non-controlling Interest in Net Income (NCINI P 16,560

Worksheet for Consolidated Financial Statements, December 31, 20x5.Cost Model (Partial-goodwill)80%-Owned SubsidiaryDecember 31, 20x5 (Second Year after Acquisition)

Income Statement P Co S Co. Dr. Cr. ConsolidatedSales P540,000 P360,000 P 900,000Dividend income 38,400 - (5) 38,400 ___________


Total Cost and Expenses P348,000 P270,000 P 625,200Net Income P230,400 P 90,000 P 274,800NCI in Net Income - Subsidiary - - (6) 16,560 ( 16,560)Net Income to Retained Earnings P230,400 P 90,000 P 258,240


P Company P484,800 (4) 13,560 (1) 19,200 P 490,440S Company P 144,000 (2) 144,000





(3) 84,000 -Total P2,203,200 P1,074,000 P2,707,800



450,000 306,000 (3) 192,000(4) 12,000 552,000


___ _____ _________

(5) 9,600(4) 2,640

__________

(2 ) 76,800(3) 18,000(6) 16,560 ____99,120

Total P2,203,200 P1,074,000 P 821,160 P 821,160 P2,707,800

5. 1/1/20x4a. On date of acquisition the retained earnings of P should always be considered as the

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

Retained earnings - P Company, January 1, 20x4 (date of acquisition) P360,000b.

Non-controlling interest (partial-goodwill), January 1, 20x4Common stock – S Company, January 1, 20x4…… P 240,000Retained earnings – S Company, January 1, 20x4 120,000Stockholders’ equity – S Company, January 1, 20x4 P 360,000Adjustments to reflect fair value - (over) undervaluation of assets and

liabilities, date of acquisition (January 1, 20x4) 90,000Fair value of stockholders’ equity of subsidiary, January 1, 20x4…… P450,000Multiplied by: Non-controlling Interest percentage…………... 20Non-controlling interest (partial-goodwill)………………………………….. P 90,000

c.Consolidated SHE:

Stockholders’ EquityCommon stock, P10 par P 600,000Retained earnings 360,000P’s Stockholders’ Equity / CI - SHE P 960,000

NCI, 1/1/20x4 ___90,000Consolidated SHE, 1/1/20x4 P1,050,000

6.Note: The goodwill recognized on consolidation purely relates to the P’s share. NCI ismeasured as a proportion of identifiable assets and goodwill attributable to NCI share is notrecognized.12/31/20x4:a. CI-CNI




Amortization of allocated excess (refer to amortization above) 13,200Goodwill impairment (impairment under partial-goodwill approach) 3,000 25,560

Controlling Interest in Consolidated Net Income or Profit attributable toequity holders of parent………….. P202,440

Add: Non-controlling Interest in Net Income (NCINI) 9,360Consolidated Net Income for 20x4 P211.800

b. NCI-CNI*Non-controlling Interest in Net Income (NCINI) for 20x4

Net income of S Company P 60,000Less: Amortization of allocated excess / goodwill impairment

(refer to amortization table above) 13,200P 46,800

Multiplied by: Non-controlling interest %.......... 20%Non-controlling Interest in Net Income (NCINI) P 9,360

c. CNI, P211,800 – refer to (a)d. On subsequent to date of acquisition, consolidated retained earnings would be computed

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


equity holders of parent for 20x4 202,440Total P562,440Less: Dividends paid – P Company for 20x4 72,000Consolidated Retained Earnings, December 31, 20x4 P490,440

e.Non-controlling interest (partial-goodwill), December 31, 20x4

Common stock – S Company, December 31, 20x4…… P 240,000Retained earnings – S Company, December 31, 20x4

Retained earnings – S Company, January 1, 20x4 P120,000Add: Net income of S for 20x4 60,000Total P180,000Less: Dividends paid – 20x4 36,000 144,000

Stockholders’ equity – S Company, December 31, 20x4 P 384,000Adjustments to reflect fair value - (over) undervaluation of assets and

liabilities, date of acquisition (January 1, 20x4) 90,000Amortization of allocated excess (refer to amortization above) – 20x4 ( 13,200)Fair value of stockholders’ equity of subsidiary, December 31, 20x4…… P460,000Multiplied by: Non-controlling Interest percentage…………... 20Non-controlling interest (partial-goodwill)………………………………….. P 92,160

f.Consolidated SHE:

Stockholders’ EquityCommon stock, P10 par P 600,000Retained earnings 490,440P’s Stockholders’ Equity / CI – SHE, 12/31/20x4 P1,090,440


12/31/20x5:a. CI-CNI



Total P282,000Less: Non-controlling Interest in Net Income* P16,560

Amortization of allocated excess (refer to amortization above) __7,200 23,760Controlling Interest in Consolidated Net Income or Profit attributable to

equity holders of parent………….. P258,240Add: Non-controlling Interest in Net Income (NCINI) 16,560Consolidated Net Income for 20x5 P274,800


Net income of S Company P 90,000Less: Amortization of allocated excess / goodwill impairment for 20x5


Multiplied by: Non-controlling interest %.......... 20%Non-controlling Interest in Net Income (NCINI) for 20x5 P 16,560



Retained earnings - P Company, January 1, 20x5 (cost model P484,800Adjustment to convert from cost model to equity method for purposes of


Retained earnings – S, January 1, 20x5 P 144,000Less: Retained earnings – S, January 1, 20x4 120,000Increase in retained earnings since date of acquisition P 24,000Less: Amortization of allocated excess – 20x4 13,200


P 8,640Less: Goodwill impairment loss (full-goodwill), net (P3,750– P750)* or

(P3, 750 x 80%) 3,000 5,640Consolidated Retained earnings, January 1, 20x5 P 490,440Add: Controlling Interest in Consolidated Net Income or Profit attributable to

equity holders of P for 20x5 258,240Total P748,680Less: Dividends paid – P Company for 20x5 72,000Consolidated Retained Earnings, December 31, 20x5 P676,680

*this procedure would be more appropriate, instead of multiplying the full-goodwill impairment loss of P3,750 by80%. There might be situations where the controlling interests on goodwill impairment loss would not beproportionate to NCI acquired.





liabilities, date of acquisition (January 1, 20x4) 90,000Amortization of allocated excess (refer to amortization above) :

20x4 P 13,20020x5 7,200 ( 20,400)

Fair value of stockholders’ equity of S, December 31, 20x5…… P 495,600Multiplied by: Non-controlling Interest percentage…………... 20Non-controlling interest (partial goodwill)………………………………….. P 99,120

f.Consolidated SHE:

Stockholders’ EquityCommon stock, P10 par P 600,000Retained earnings 676,680Parent’s Stockholders’ Equity / CI – SHE, 12/31/20x5 P1,276,680


Problem XRequirements 1 to 4:Schedule of Determination and Allocation of ExcessDate of Acquisition – January 1, 20x4

Fair value of Subsidiary (80%)Consideration transferred (80%)…………….. P 372,000Fair value of NCI (given) (20%)……………….. 93,000Fair value of Subsidiary (100%)………. P 465,000

Less: Book value of stockholders’ equity of Son:Common stock (P240,000 x 100%)………………. P 240,000Retained earnings (P120,000 x 100%)………... 120,000 360,000



Positive excess: Full-goodwill (excess of cost overfair value)………………………………………………... P 15,000



AnnualAmount




P 13,200 P 13,200 P 7,200

20x4: First Year after AcquisitionParent Company Cost Model Entry




Dividend income (P36,000x 80%)……………. 28,800Record dividends from S Company.



No entries are made on the P’s books to depreciate, amortize or write-off the portion of theallocated excess that expires during 20x4.

Consolidation Workpaper – First Year after Acquisition(E1) Common stock – S Co………………………………………… 240,000

Retained earnings – S Co…………………………………… 120.000Investment in S Co…………………………………………… 288,000Non-controlling interest (P360,000 x 20%)……………………….. 72,000

To eliminate intercompany investment and equity accountsof subsidiary on date of acquisition; and to establish non-controlling

interest (in net assets of subsidiary) on date of acquisition.(E2) Inventory…………………………………………………………………. 6,000

Accumulated depreciation – equipment……………….. 96,000Accumulated depreciation – buildings………………….. 192,000Land………………………………………………………………………. 7,200Discount on bonds payable…………………………………………. 4,800Goodwill…………………………………………………………………. 13,000

Buildings……………………………………….. 216,000Non-controlling interest (P90,000 x 20%) + [(P15,000, full –

P12,000, partial goodwill)]………… 21,000Investment in S Co………………………………………………. 84,000

To allocate excess of cost over book value of identifiable assetsacquired, with remainder to goodwill; and to establish non-controlling interest (in net assets of subsidiary) on date of acquisition.



To provide for 20x4 impairment loss and depreciation andamortization on differences between acquisition date fair value andbook value of S’s identifiable assets and liabilities as follows:

Cost ofGoods

Sold


ExpenseAmortization

-InterestInventory sold P 6,000Equipment P12,000Buildings ( 6,000)Bonds payable _______ _______ P 1,200Totals P 6,000 P 6,000 P1,200




To establish non-controlling interest in subsidiary’s adjusted netIncome less NCI on goodwill impairment loss on full-goodwillfor 20x4 as follows:



P 9,360Less: Non-controlling interest on impairment

loss on full-goodwill (P3,125 x 20%) or(P3,125 impairment on full-goodwill lessP2,500, impairment on partial-goodwill)* 750

Non-controlling Interest in Net Income (NCINI) P 8,610*this procedure would be more appropriate, instead of multiplying thefull-goodwill impairment loss of P3,125 by 20%. There might be situations

where the NCI on goodwill impairment loss would not be proportionateto NCI acquired (refer to Illustration 15-6).

Subsidiary accounts are adjusted to full fair value regardless on the controlling interestpercentage or what option used to value non-controlling interest or goodwill.

Worksheet for Consolidated Financial Statements, December 31, 20x4.Cost Model (Full-goodwill)80%-Owned SubsidiaryDecember 31, 20x4 (First Year after Acquisition)









Balance SheetCash………………………. P 232,800 P 90,000 P 322,800Accounts receivable…….. 90,000 60,000 150,000Inventory…………………. 120,000 90,000 (2) 6,000 (3) 6,000 210,000Land……………………………. 210,000 48,000 (2) 7,200 265,200Equipment 240,000 180,000 420,000Buildings 720,000 540,000 (2) 216,000 1,044,000Discount on bonds payable (2) 4,800 (3) 1,200 3,600Goodwill…………………… (2) 15,000 (3) 3,750 11,250Investment in S Co……… 372,000 (3) 288,000

(4) 84,000 -Total P1,984,800 P1,008,000 P2,426,850



405,000 288,000 (5) 192,000(6) 6,000 495,000


_________ _________

(7) 7,200

__________

(1 ) 72,000(2) 21,000(5) 8,610 ____94,410

Total P1,984,800 P1,984,800 P 748,560 P 748,560 P2,426,850


Sales P 540,000 P 360,000Less: Cost of goods sold 216,000 192,000Gross profit P 324,000 P 168,000Less: Depreciation expense 60,000 24,000

Other expense 72,000 54,000Net income from its own separate operations P 192,000 P 90,000Add: Dividend income 38,400 -Net income P 230,400 P 90,000Dividends paid P 72,000 P 48,000

No goodwill impairment loss for 20x5.

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

January 1, 20x5 – December 31, 20x5:Cash……………………… 38,400

Dividend income (P48,000x 80%)……………. 38,400Record dividends from S Company.


Cash 48,000Dividends paid by S Co..

Consolidation Workpaper – Second Year after Acquisition(E1) Investment in S Company………………………… 19,200

Retained earnings – P Company……………………… 19,200To provide entry to convert from the cost method to the equitymethod or the entry to establish reciprocity at the beginning of theyear, 1/1/20x5.



Investment in S Co (P384,000 x 80%)………………………… 307,200Non-controlling interest (P384,000 x 20%)……………………….. 76,800

To eliminate intercompany investment and equity accountsof subsidiary and to establish non-controlling interest (in net assets ofsubsidiary) on January 1, 20x5.



P12,000, partial goodwill)]………… 21,000

Investment in S Co………………………………………………. 84,000To allocate excess of cost over book value of identifiable assetsacquired, with remainder to goodwill; and to establish non-controlling interest (in net assets of subsidiary) on January 1, 20x5.

(E4) Retained earnings – P Company, 1/1/20x5(P16,950 x 80%) 13,560

Non-controlling interests (P16,950 x 20%)……………………. 3,390Depreciation expense……………………….. 6,000Accumulated depreciation – buildings………………….. 12,000Interest expense………………………………… 1,200


To provide for years 20x4 and 20x5 depreciation and amortization ondifferences between acquisition date fair value and book value ofSon’s identifiable assets and liabilities as follows:

Year 20x4 amounts are debited to Perfect’s retained earningsand NCI.

Year 20x5 amounts are debited to respective nominal accounts..



expenseAmortization

-InterestInventory sold P 6,000Equipment 12,000 P 12,000Buildings (6,000) ( 6,000)Bonds payable 1,200 P 1,200Impairment loss 3,750Totals P 16,950 P 6,000 P1,200Multiplied by: CI%.... 80%To Retained earnings P13,560







P 16,560Less: NCI on goodwill impairment loss on full-

Goodwill 0Non-controlling Interest in Net Income (NCINI) P 16,560

Worksheet for Consolidated Financial Statements, December 31, 20x5.Cost Model (Full-goodwill)80%-Owned SubsidiaryDecember 31, 20x5 (Second Year after Acquisition)

Income Statement P Co S Co. Dr. Cr. ConsolidatedSales P540,000 P360,000 P 900,000Dividend income 38,400 - (5) 38,400 ___________




P Company P484,800 (5) 13,560 (5) 19,200 P 490,440S Company P 144,000 (6) 144,000





(7) 84,000 -Total P2,203,200 P1,074,000 P2,710,050



450,000 306,000 (3) 192,000(4) 12,000 552,000


___ _____ _________

(6) 9,600(8) 3,390

__________

(2 ) 76,800(3) 21,000(6) 16,560 ____101,370

Total P2,203,200 P1,074,000 P 824,910 P 824,910 P2,710,050

5. 1/1/20x4a. On date of acquisition the retained earnings of parent should always be considered as

the consolidated retained earnings, thus:

Consolidated Retained Earnings, January 1, 20x4Retained earnings - P Company, January 1, 20x4 (date of acquisition) P360,000

b.Non-controlling interest (full-goodwill), January 1, 20x4

Common stock – S Company, January 1, 20x4…… P 240,000Retained earnings – S Company, January 1, 20x4 120,000Stockholders’ equity – S Company, January 1, 20x4 P 360,000Adjustments to reflect fair value - (over) undervaluation of assets and

liabilities, date of acquisition (January 1, 20x4) 90,000Fair value of stockholders’ equity of S, January 1, 20x4…… P450,000Multiplied by: Non-controlling Interest percentage…………... 20Non-controlling interest (partial-goodwill)………………………………….. P 90,000Add: NCI on full-goodwill (P15,000 – P12,000) ___3,000Non-controlling interest (partial-goodwill)………………………………….. P 93,000

c.Consolidated SHE:

Stockholders’ EquityCommon stock, P10 par P 600,000Retained earnings 360,000Parent’s Stockholders’ Equity / CI - SHE P 960,000


6.Note: The goodwill recognized on consolidation purely relates to the parent’s share. NCI ismeasured as a proportion of identifiable assets and goodwill attributable to NCI share is notrecognized.12/31/20x4:a. CI-CNI – P202,440




Amortization of allocated excess (refer to amortization above) 13,200Goodwill impairment (impairment under full-goodwill approach) 3,750 25,560

Controlling Interest in Consolidated Net Income or Profit attributable toequity holders of P………….. P202,440


b. NCI-CNI – P8,610*Non-controlling Interest in Net Income (NCINI) for 20x4

Net income of S Company P 60,000Less: Amortization of allocated excess (refer to amortization table above) 13,200

P 46,800Multiplied by: Non-controlling interest %.......... 20%Non-controlling Interest in Net Income (NCINI) P 9,360Less: Non-controlling interest on impairment loss on full-goodwill (P3,750 x 20%)

or (P3,750 impairment on full-goodwill less P3,000, impairment onpartial-goodwill)* 750

Non-controlling Interest in Net Income (NCINI) P 8,610*this procedure would be more appropriate, instead of multiplying the full-goodwill impairment lossof P3,750 by 20%. There might be situations where the NCI on goodwill impairment loss would notbe proportionate to NCI acquired.

c. CNI, P211,050 – refer to (a)

d. On subsequent to date of acquisition, consolidated retained earnings would be computedas follows:

Consolidated Retained Earnings, December 31, 20x4Retained earnings - P Company, January 1, 20x4 (date of acquisition) P360,000Add: Controlling Interest in Consolidated Net Income or Profit attributable to


e.Non-controlling interest (full-goodwill), December 31, 20x4




liabilities, date of acquisition (January 1, 20x4) 90,000Amortization of allocated excess (refer to amortization above) – 20x4 ( 13,200)Fair value of stockholders’ equity of S, December 31, 20x4…… P460,800Multiplied by: Non-controlling Interest percentage…………... 20Non-controlling interest (partial-goodwill, 12/31/20x4………………………….. P 92,160Add: Non-controlling interest on full goodwill , net of impairment loss, 12/31/x4:

[(P15,000 full – P12,000, partial = P3,000) – P750 impairment loss 2,250Non-controlling interest (full-goodwill), 12/31/20x4…………….. P 94,410

f.Consolidated SHE:



12/31/20x5:a. CI-CNI – P258,240




Amortization of allocated excess (refer to amortization above) 7,200Goodwill impairment (impairment under full-goodwill approach) 0 23,760











Retained earnings – Subsidiary, January 1, 20x5 P 144,000Less: Retained earnings – Subsidiary, January 1, 20x4 120,000Increase in retained earnings since date of acquisition P 24,000Less: Amortization of allocated excess – 20x4 13,200











20x4 P 13,20020x5 7,200 ( 20,400)

Fair value of stockholders’ equity of S, December 31, 20x5…… P 495,600Multiplied by: Non-controlling Interest percentage…………... 20Non-controlling interest (partial goodwill)………………………………….. P 99,120Add: Non-controlling interest on full goodwill , net of impairment loss

[(P15,000 full – P12,000, partial = P3,000) – P750 impairment loss 2,250Non-controlling interest (full-goodwill)………………………………….. P 101,370

f.Consolidated SHE:


NCI, 12/31/20x4 __101,370Consolidated SHE, 12/31/20x4 P1,378,050

Problem XIUnder the acquisition method, the shares issued by WW are recorded at fair value:

Investment in BB (value of debt and shares issued) ............................ 900,000Common Stock (par value) ............................................................... 150,000Additional Paid-in Capital (excess over par value) ...................... 450,000Liabilities ................................................................................................. 300,000

The payment to the broker is accounted for as an expense. The stock issue cost is areduction in additional paid-in capital.

Acquisition expense ................................................................................... 30,000Additional Paid-in Capital......................................................................... 40,000

Cash ................................................................................................... 70,000

Allocation of Acquisition-Date Excess Fair Value:

Consideration transferred (fair value) for BB Stock ............................ P900,000Book Value of BB, 6/30............................................................................... 770,000

Fair Value in Excess of Book Value ................................................... P130,000Excess fair value (undervalued equipment) ......................................... 100,000Excess fair value (overvalued patented technology) ........................ (20,000)

Goodwill................................................................................................. P 50,000

Consolidated Balances:1. Net income (adjusted for combination expenses. The

figures earned by the subsidiary prior to the takeoverare not included) ............................................................................................... P210,000

2. Retained Earnings, 1/1 (the figures earned by the subsidiaryprior to the takeover are not included) ........................................................ 800,000

3. Patented Technology (the parent's book value plus the fairvalue of the subsidiary)..................................................................................... 1,180,000

4. Goodwill (computed above) ........................................................................... 50,0005. Liabilities (the parent's book value plus the fair value

of the subsidiary's debt plus the debt issued by the parentin acquiring the subsidiary) .............................................................................. 1,210,000

6. Common Stock (the parent's book value after recordingthe newly-issued shares) ................................................................................... 510,000

7. Additional Paid-in Capital (the parent's book valueafter recording the two entries above)......................................................... 680,000

Problem XII1. P15,000 = (P115,000 + P46,000) - P146,0002. P65,000 = (P148,000 - P98,000) + P15,0003. SS: P24,000 = P380,000 - (P46,000 + P110,000

+ P75,000 + P125,000)BB P70,000 = P94,000 - P24,000

4. Fair value of SS as awhole:

P200,000 Book value of SS shares10,000 Differential assigned to inventory

(P195,000 - P105,000 - P80,000)40,000 Differential assigned to buildings and equipment

(P780,000 - P400,000 - P340,000)9,000 Differential assigned to goodwill

P259,000 Fair value of SS

5. 65 percent = 1.00 – (P90,650 / P259,000)6. Capital Stock = P120,000

Retained Earnings = P115,000

Problem XIII1. Investment in WP, Inc. 500,000

Contingent performance obligation 35,000Cash 465,000

2.12/31/x4 Loss from increase in contingent performance

obligation 5,000Contingent performance obligation 5,000

12/31/x5 Loss from increase in contingent performanceobligation 10,000

Contingent performance obligation 10,000

12/31/x5 Contingent performance obligation 50,000Cash 50,000

3. Cost Model/Initial Value MethodInvestment in WP 30,000

Retained earnings-BS 30,000

Common stock 200,000Retained earnings-WP 180,000

Investment in WP 380,000

Royalty agreements 90,000Goodwill 60,000

Investment in WP 150,000

Dividend income 35,000Dividends paid 35,000

Amortization expense 10,000Royalty agreements 10,000

Problem XIV (Consolidated accounts one year after acquisition)SS acquisition fair value ($10,000 in

stock issue costs reduceadditional paid-in capital) ................................ P680,000

Book value of subsidiary(1/1/x4stockholders' equity balances) ............... (480,000)

Fair value in excess of book value ......................... P200,000Excess fair value allocated to copyrights Life Amortizations

based on fair value ............................................ 120,000 6 yrs. P20,000Goodwill ...................................................................... P 80,000 indefinite _____-0-

Total ....................................................................... P20,000

1. Consolidated copyrightsPP (book value) ................................................................. P900,000SS (book value) .................................................................. 400,000Allocation (above) ........................................................... 120,000Excess amortizations, 20x4 ............................................... (20,000)

Total .............................................................................. P1,400,000

2. Consolidated net income, 20X4Revenues (add book values) ......................................... P1,100,000Expenses:

Add book values ........................................................ P700,000Excess amortizations .................................................. 20,000 720,000

Consolidated net income................................................ P380,000

3. Consolidated retained earnings, 12/31/x4Retained earnings 1/1/x4 (PP) ........................................ P600,000Net income 20x4 (above) ............................................... 380,000Dividends paid 20x4 (PP) ................................................. (80,000)

Total .............................................................................. P900,000SS’s retained earnings balance as of January 1, 20x4, is not included because theseoperations occurred prior to the purchase. SS's dividends were paid to PP andtherefore are excluded because they are intercompany in nature.

4. Consolidated goodwill, 12/31/x4Allocation (above) ........................................................... P80,000

Problem XVConsolidated balances three years after the date of acquisition. Includes questions aboutparent's method of recording investment for internal reporting purposes.)

1. Acquisition-Date Fair Value Allocation and Amortization:Consideration transferred 1/1/09 ........................... P600,000Book value (given) .................................................... (470,000) Annual

Fair value in excess of book value ................... 130,000 ExcessAllocation to equipment based on Life Amortizations

difference in fair value andbook value ........................................................... 90,000 10 yrs. P9,000

Goodwill ...................................................................... P40,000 indefinite -0-Total ....................................................................... P9,000

Consolidated Balances Depreciation expense = P659,000 (book values plus P9,000 excess depreciation) Dividends Paid = P120,000 (parent balance only. Subsidiary's dividends are

eliminated as intercompany transfer) Revenues = P1,400,000 (add book values) Equipment = P1,563,000 (add book values plus P90,000 allocation less three years

of excess depreciation [P27,000]) Buildings = P1,200,000 (add book values) Goodwill = P40,000 (original residual allocation) Common Stock = P900,000 (parent balance only)

2. The parent's choice of an investment method has no impact on the consolidatedtotals. The choice of an investment method only affects the internal reporting of theparent. Under PAS 27, it requires a choice between cost model or under PFRS 9(known as fair value model)

3. The cost model or initial value method is used. The parent's Investment in Subsidiaryaccount still retains the original consideration transferred of P600,000. In addition, theInvestment Income account equals the amount of dividends paid by the subsidiary.

4. If the equity method had been applied which is not allowed under PAS 27 for aparent to consolidate, the Investment Income account would have included boththe equity accrual of P100,000 and excess amortizations of P9,000 for a balance ofP91,000.

Problem XVI1. Net income for 20x4:

QQ NNOperating income P 90,000 P35,000Income from subsidiary 24,500Net income P114,500 P35,000

2. Consolidated net income is P125,000 (P90,000 + P35,000).3. Retained earnings reported at December 31, 20x4:

QQ NNRetained earnings, January 1, 20x4 P290,000 P40,000Net income for 20x4 114,500 35,000Dividends paid in 20x4 (30,000) (10,000)Retained earnings, December 31, 20x4 P374,500 P65,000

4. Consolidated retained earnings at December 31, 20x4, is equal to the P374,500 retainedearnings balance reported by QQ.

5. When the cost method is used, the parent's proportionate share of the increase in retainedearnings of the subsidiary subsequent to acquisition is not included in the parent's retainedearnings. Thus, this amount must be added to the total retained earnings reported by theparent in arriving at consolidated retained earnings.

Problem XVII(Several valuation and income determination questions for a business combination involving anon-controlling interest.)

Business combinations are recorded generally at the fair value of the consideration transferred bythe acquiring firm plus the acquisition-date fair value of the non-controlling interest.

PS’s consideration transferred (P31.25 × 80,000 shares)............................................. P2,500,000Non-controlling interest fair value (P30.00 × 20,000 shares) ...................................... P600,000SR’s total fair value 1/1/09 ............................................................................................... P3,100,000

1. Each identifiable asset acquired and liability assumed in a business combination shouldinitially be reported at its acquisition-date fair value.

2. In periods subsequent to acquisition, the subsidiary’s assets and liabilities are reported at theiracquisition-date fair values adjusted for amortization and depreciation. Except for certainfinancial items, they are not continually adjusted for changing fair values.

3. SR’s total fair value 1/1/09 ............................................................................................... P3,100,000SR’s net assets book value............................................................................................... 1,290,000Excess acquisition-date fair value over book value................................................... P1,810,000Adjustments from book to fair values ............................................................................

Buildings and equipment........................................................ (250,000)Trademarks ................................................................................ 200,000Patented technology.............................................................. 1,060,000Unpatented technology......................................................... 600,000 1,610,000

Goodwill ................................................................................................................... P 200,000

4. Combined revenues......................................................................................................... P4,400,000Combined expenses......................................................................................................... (2,350,000)Building and equipment excess depreciation ............................................................ 50,000Trademark excess amortization...................................................................................... (20,000)Patented technology amortization ............................................................................... (265,000)Unpatented technology amortization .......................................................................... (200,000)Consolidated net income ............................................................................................... P1,615,000

To non-controlling interest:SR’s revenues ............................................................................................................... P1,400,000SR’s expenses............................................................................................................... (600,000)Total excess amortization expenses (above)........................................................ (435,000)SR’s adjusted net income ......................................................................................... P365,000Non-controlling interest percentage ownership .................................................. 20%Non-controlling interest share of consolidated net income .............................. P73,000

To controlling interest:Consolidated net income......................................................................................... P1,615,000Non-controlling interest share of consolidated net income .............................. (73,000)Controlling interest share of consolidated net income ...................................... P1,542,000

-OR-

PS’s revenues ............................................................................................................... P3,000,000PS’s expenses............................................................................................................... 1,750,000PS’s separate net income......................................................................................... P1,250,000PS’s share of SR’s adjusted net income

(80% × P365,000)............................................................................................ 292,000Controlling interest share of consolidated net income ...................................... P1,542,000

5. Fair value of non-controlling interest January 1, 20x4 ................................................ P600,00020x4 income ....................................................................................................... 73,000Dividends (20% × P30,000) ............................................................................................... (6,000)Non-controlling interest December 31, 20x4................................................................ P 667,000

6. If SR’s acquisition-date total fair value was P2,250,000, then a bargain purchase hasoccurred.

SR’s total fair value 1/1/09 ............................................................................................... P2,250,000Collective fair values of SR’s net assets......................................................................... P2,300,000Bargain purchase .............................................................................................................. P50,000

The acquisition method requires that the subsidiary assets acquired and liabilities assumed berecognized at their acquisition date fair values regardless of the assessed fair value.Therefore, none of SR’s identifiable assets and liabilities would change as a result of theassessed fair value. When a bargain purchase occurs, however, no goodwill is recognized.

Problem XVIII (Full-Goodwill)A variety of consolidated balances-midyear acquisition)

Book value of RR, 1/1 (stockholders' equity accounts)(P100,000 + P600,000 + P700,000) ...................... P1,400,000

Increase in book value:Net Income (revenues less cost ofgoods sold and expenses) ................................ P120,000Dividends .............................................................. (20,000)

Change during year ................................................. P100,000Change during first six months of year .......... 50,000

Book value of RR, 7/1 (acquisition date) . P1,450,000(Full-Goodwill)

Consideration transferred by KL (P1,330,000 +P30,000)................................................................... P1,360,000

Non-controlling interest fair value ................................. 300,000RRs’ fair value (given) ....................................................... P1,630,000

Note: The fair value of subsidiary amounting P1,630,000, indicates a fair value of NCIamounting to P300,000 (refer to above computation), which is lower compared to the FVof the NCI based on FV of SHE of Subsidiary (RR), computed as follows:

BV of SHE of Subsidiary (RR) ...................................... P1,450,000Adjustments to reflect fair value (undervaluation) 150,000FV of SHE of Subsidiary (RR)....................................... P 1,600,000Multiplied by: NCI%..................................................... 20%FV of NCI………………………………………………. P 320,000

Consideration transferred by KL (P1,330,000 +P30,000)................................................................... P1,360,000

Non-controlling interest fair value ................................. ___320,000RRs’ fair value (given) ....................................................... P1,680,000Book value of RR, 7/1 ........................................................ (1,450,000)Fair value in excess of book value ................................. P 230,000 Annual ExcessExcess fair value assigned Life Amortizations

Trademarks ..................................................................... 150,000 5 years P30,000Goodwill (full-goodwill) ................................................ P 80,000 indefinite -0-

Total .......................................................................... P30,000

It should be carefully noted, that NCI can never be less than its share of fair value of netidentifiable assets (which is P320,000). Thus, the NCI share of company value is raised toP320,000 (replacing the P300,000 NCI computed as residual amount – refer tocomputation above). The rationale behind such rule is to avoid having a lower amount

of goodwill under the full-goodwill approach as compared to goodwill computed underthe partial-goodwill approach.

(Partial-Goodwill)Consideration transferred by KL ..................................... P 1,360,000Less: Book value of SHE – RR (P1,450,000 x 80%)…….. 1,160,000Allocated excess…………………………………………. P 200,000Less: Over/under valuation of A and L:

P150,000 x 80%.............................................. 120,000Goodwill - partial ............................................................... P 80,000

Note that the goodwill under the full-goodwill and partial-goodwill approach are thesame because the FV of the NCI based on the FV of SHE of subsidiary (P320,000) is highercompared to the imputed or the computed residual amount of NCI (P300,000).

Consolidation Totals: Expenses, P265,000 = P200,000 KK operating expenses plus P50,000 (post-acquisition

subsidiary operating expenses) plus ½ year excess amortization of P15,000. Dividends paid = P80,000 Sales, P1,050,000 = P800,000 KK revenues plus P250,000 (post-acquisition subsidiary

revenue, P500,000 x 1/2) Equipment, none Depreciation expense, none Subsidiary’s net income, P60,000 = [(P500,000 – P280,000 – P100,000) x 1/2] Buildings, none Goodwill (full), P80,000; Goodwill (partial), P80,000 Consolidated Net Income, P245,000 Sales (1) P1,050,000 Cost of goods sold (2) 540,000 Operating expenses (3) __265,000 Net Income P 245,000 Non-controlling Interest in Sub. Income (4) P 9,000 Controlling Interest in CNI P 236,000

(1) P800,000 KK revenues plus P250,000 (post-acquisition subsidiary revenue)(2) P400,000 KK COGS plus P140,000 (post-acquisition subsidiary COGS)(3) P200,000 KK operating expenses plus P50,000 (post-acquisition subsidiary

operating expenses) plus ½ year excess amortization of P15,000(4) 20% of post-acquisition subsidiary income less excess fair value amortization

[20% × (120,000 – 30,000) × ½ year] = P9,000 Retained Earnings, 1/1 = P1,400,000 (the parent’s balance because the subsidiary

was acquired during the current year) Trademark = P935,000 (add the two book values and the excess fair value allocation

after taking one-half year excess amortization) Goodwill (full)= P80,000 (the original allocation) Goodwill (partial) = P80,000 (the original allocation)

Problem XIX (Consolidated balances after a mid-year acquisition)Note: Investment account balance indicates the initial value method.

Consideration transferred ........................................ P526,000Non-controlling interest fair value .......................... 300,000FV of SHE - subsiary .................................................... P826,000Less: Book value of DD (below)................................ (765,000)

Fair value in excess of book value (positive) ........ P 61,000Excess assigned Annual Excessbased on fair value: Life Amortizations

Equipment ...................................................... (30,000) 5 years P(6,000)Goodwill (full) ................................................. P 91,000 indefinite -0-

Total ....................................................................... P(6,000)Amortization for 9 months ................................. P(4,500)

Acquisition-Date Subsidiary Book ValueBook value of Duncan, 1/1/x4 (CS + 1/1 RE) ............................ P740,000Increase in book value-net income (dividends

were paid after acquisition) ................................................. P100,000Time prior to purchase (3 months) .............................................. × ¼ 25,000Book value of DD, 4/1/x4 (acquisition date) ............................ P765,000

* The fair value of NCI amounting to P300,000 is higher compared to the FV of the NCIbased on FV of SHE of Subsidiary (RR), computed as follows:

BV of SHE of Subsidiary (DD) ..…………………… P765,000Adjustments to reflect fair value (undervaluation) ( 30,000)FV of SHE of Subsidiary (DD) ................................ P735,000Multiplied by: NCI% ............................................... 40%FV of NCI……………………………………………. P294,000

(Partial-Goodwill)Consideration transferred ................................. P 526,000Less: Book value of SHE – DD (P765,000 x 60%) 459,000Allocated excess………………………………… P 67,000Less: Over/under valuation of A and L:

(P30,000 x 60%)........................................... ( 18,000)Goodwill - partial.................................................. P 85,000

1. Consolidated Income Statement:Revenues (1) P825,000Cost of goods sold (2) P405,000Operating expenses (3) 214,500 619,500Consolidated net income P 205,500Noncontrolling interest in CNI (4) 28,200Controlling interest in CNI P 177,300

(1) P900,000 combined revenues less P75,000 (preacquisition subsidiary revenue)(2) P440,000 combined COGS less P35,000 (preacquisition subsidiary COGS)(3) P234,000 combined operating expenses less P15,000 (preacquisition subsidiary

operating expenses) less nine month excess overvalued equipment depreciationreduction of P4,500

(4) 40% of post-acquisition subsidiary income less excess amortization2.

Goodwill, full = P91,000 (original allocation); Goodwill , partial = P85,000Equipment = P774,500 (add the two book values less P30,000 reduction to fair value plus

P4,500 nine months excess amortization)Common Stock = P630,000 (P company balance only)Buildings = P1,124,000 (add the two book values)Dividends Paid = P80,000 (P company balance only)

Problem XX(Determine consolidated balances for a step acquisition).

1. AD fair value implied by price paid by MMP560,000 ÷ 70% = P800,000

2. Revaluation gain1/1 equity investment in AD (book value) P178,00025% income for 1st 6 months 8,750Investment book value at 6/30 186,750Fair value of investment 200,000Gain on revaluation to fair value P13,250

3. Goodwill at 12/31Fair value of AD at 6/30 P800,000Book value at 6/30 (700,000 + [70,000 ÷ 2]) 735,000Excess fair value P65,000Allocation to goodwill (no impairment) P65,000

4. Non-controlling interest5% fair value balance at 6/30 P40,0005% Income from 6/30 to 12/31 1,7505% dividends (1,000)Non-controlling interest 12/31 P40,750

Problem XXIP’s gain on sale of subsidiary stock is computed as follows:

Cash proceeds……………………………………… P 720,000Fair value of retained non-controlling interest equity investment (35%) 420,000Carrying value of the non-controlling interest before deconsolidation

(15% or prior outside non-controlling interest in Subsidiary) 120,000P1,260,000

Less: Carrying value of Subsidiary’s net assets 1,200,000Gain on disposal or deconsolidation P 60,000

Read discussion on step-acquisition regarding the initial treatment of investment as FVTOCIor FVTPL and its disposition. It is assumed that the investment above is FVTPL.

Problem XXIIP Company’s additional paid-in capital arising sale of subsidiary shares is computed as follows:

Cash proceeds……………………………………… P 84,000Less: Carrying value of non-controlling interest (P720,000* x 10%) 1,200,000“Gain” – transfer within equity in “Additional paid-in capital” account P 60,000

*the P720,000 is already the gross-up amount since it is the amount presented in the consolidated balance sheet.

Because P Company continues to have the ability to control S Company, the sale of S’s sharesis treated as an equity transaction. Therefore, no gain or loss is recognized. Instead, PalmerCompany’s additional paid-in capital increases by P60,000.

Problem XXIIIP Company’s additional paid-in capital arising sale of subsidiary shares is computed as follows:

Cash proceeds from issuance of additional shares ….. P 210,000Less: Carrying Value of non-controlling from issuance

of additional shares:Non-controlling interest prior to issuance

of additional shares:Book value of SHE before issuance…P720,000x: Non-controlling interest……………. 20%* P 144,000

Non-controlling interest after issuance ofadditional shares:

Book value of SHE beforeissuance……………………………….P720,000

Additional issuance…………………..… 210,000BV of SHE after issuance……………….P930,000x: Non-controlling interest……………... 36%** 334,800 190,800

“Gain” – transfer within equity in“Additional paid-in capital” account.…….............. P 19,200

* (120,000 – 96,000) / 120,000 = 20% ownership before additional issuance of shares.** [(24,000 + 30,000) / (120.000 + 30,000)] = 36% ownership after additional issuance of shares

P Company recognizes an increases in its Investment in S from P576,000 (P720,000x 80%) toP595,200 [P930,000 x (96,000/150,000) and in additional paid-in capital of P19,200.

Problem XXIV1. Equity Method

Income accrual (80%) ................................................................... P56,000Excess amortization expense ....................................................... (3,200)

Investment income .................................................................. P52,800

Initial fair value paid........................................................................ P664,000Income accrual 20x4–20x6 (P260,000 × 80%) ............................ 208,000Dividends 20x4–20x6 (P45,000 × 80%) ......................................... (36,000)Excess Amortizations 20x4–20x6 (P3,200 × 3) ............................. (9,600)

Investment in TT—12/31/x6 ..................................................... P826,400

2. Equity Method – same with No. 1

3. Using the acquisition method, the allocation will be the total difference (P80,000) betweenthe buildings' book value and fair value. Based on a 20 year life, annual excess amortizationis P4,000.

MM book value—buildings .................................................... P 800,000TT book value—buildings ........................................................ 300,000Allocation .................................................................................. 80,000Excess Amortizations for 20x4–20x5 (P4,000 × 2) (8,000)

Consolidated buildings account ............................ P1,172,000

4. Acquisition-date fair value allocated to goodwillGoodwill-full ( see Problem I above) ......................................... P 150,000Goodwill-partial (see Problem I above)………………………… P 120,000

5. If the parent has been applying the equity method, the stockholders' equity accounts on itsbooks will already represent consolidated totals. The common stock and additional paid-incapital figures to be reported are the parent balances only.

Common stock, P500,000Additional paid-in capital, P280,000

Problem XXV(Consolidated balances three years after purchase. Parent has applied the equity method.)

1. Schedule 1—Acquisition-Date Fair Value Allocation and AmortizationJJ’s acquisition-date fair value . P206,000Book value of JJ ........................................... (140,000)Fair value in excess of book value ........... 66,000

Excess fair value assigned to specificaccounts based on individual fair values Annual Excess

Life AmortizationEquipment .............................................. 54,400 8 yrs. P6,800Buildings (overvalued) ......................... (10,000) 20 yrs. (500)Goodwill .................................................. P21,600 indefinite -0-Total ......................................................... P6,300

Investment in JJ Company—12/31/x6JJ’s acquisition-date fair value ........................................................... P206,00020x4 Increase in book value of subsidiary 40,00020x4 Excess amortizations (Schedule 1) ........................................... (6,300)20x5 Increase in book value of subsidiary ........................................ 20,00020x5 Excess amortizations (Schedule 1) ........................................... (6,300)20x6 Increase in book value of subsidiary ........................................ 10,00020x6 Excess amortizations (Schedule 1) ........................................... (6,300)

Investment in J Company ............................................................ P257,100

2. Equity in Subsidiary EarningsIncome accrual ..................................................................................... P30,000Excess amortizations (Schedule 1) .................................................... (6,300)

Equity in subsidiary earnings ........................................................ P23,700

3. Consolidated Net IncomeConsolidated revenues (add book values) .................................... P414,000Consolidated expenses (add book values) .................................... (272,000)Excess amortization expenses (Schedule 1) .................................... (6,300)Consolidated net income ................................................................... P135,700

4. Consolidated EquipmentBook values added together ............................................................. P370,000Allocation of purchase price .............................................................. 54,400Excess depreciation (P6,800 × 3) ....................................................... (20,400)

Consolidated equipment ............................................................. P404,000

5. Consolidated Buildings ........................................................................................Book values added together ............................................................. P288,000Allocation of purchase price .............................................................. (10,000)Excess depreciation (P500 × 3) .......................................................... 1,500

Consolidated buildings .................................................................. P279,500

6. Consolidated goodwillAllocation of excess fair value to goodwill ....................................... P21,600

7. Consolidated Common Stock............................................................................ P290,000As a purchase, the parent's balance of P290,000 is used (the acquired company'scommon stock will be eliminated each year on the consolidation worksheet).

8. Consolidated Retained Earnings ....................................................................... P410,000Tyler's balance of P410,000 is equal to the consolidated total because the equitymethod has been applied.

Problem XXVIComputation of Goodwill:

Partial Goodwill or Proportionate BasisFair value of Subsidiary:

Consideration transferred P1,970,000Less: BV of SHE of S (P1,200,000 + P600,000) x 80% _1,440,000Allocated excess P 530,000Less: Over/under valuation of A and L: Inc. (Dec.)

Inventory (P725,000 – P600,000) x 80% P 100,000Equipment (P1,075,000 – P900,000) x 80% 140,000 __240,000

Goodwill – partial P 290,000

Full-goodwill or Fair Value BasisFair value of Subsidiary:

Consideration transferred P1,970,000 / 80% P2,467,500Less: BV of SHE of S (P1,200,000 + P600,000) x 100% 1,800,000Allocated excess P 662,500Less: Over/under valuation of A and L: Inc. (Dec.)

Inventory (P725,000 – P600,000) x 100% P125,000Equipment (P1,075,000 – P900,000) x 100% 175,000 __300,000

Goodwill – full P362,500

Amortization20x4 20x5

Inventory: P125,000 x 60% P 75,000P125,000 x 40% P 50,000

Equipment: P175,000 / 7 years 25,000 25,000P 100,000 P 75,000

1.20x4

Investment in S Company 1,970,000Cash 1,970,000

Cash (0.8 x P150,000) 120,000Investment in S Company 120,000

Investment in S Company 600,000Equity in Subsidiary Income (.80)(P750,000) 600,000

Equity in Subsidiary Income 80,000Investment in S Company 80,000

20x5Cash (0.8 x P225,000) 180,000

Investment in S Company 180,000

Investment in S Company 720,000Equity in Subsidiary Income (.80)(P900,000) 720,000

Equity in Subsidiary Income 60,000Investment in S Company 60,000

2.20x4

(1) Equity in Subsidiary Income ((.80)(P750,000) -P80,000) 520,000Dividends Declared (0.80 x P150,000) 120,000Investment in S Company 400,000

(2) Beginning Retained Earnings - S Company 600,000Common Stock- S Company 1,200,000

Investment in S Company 1,307,500Noncontrolling Interest 492,500

(3) Inventory (P125,000 – P75,000) 50,000Cost of Goods Sold 75,000Equipment (net) 175,000Goodwill 362,500


(4) Depreciation Expense 25,000Equipment (net) 25,000

20x5(1) Equity in Subsidiary Income ((.80)(P900,000) - P60,000) 660,000

Dividends Declared (0.80 x P225,000) 180,000Investment in Superstition Company 480,000

(2) Beginning Retained Earnings-Superstition Company 1,200,000Common Stock - Superstition Company. 1,200,000

Investment in Superstition CompanyNon-controlling Interest

(P492,500 + (P1,200,000 – P600,000) x .20) 612,500

(3) Investment in S Company 60,000Non-controlling Interest 15,000Cost of Goods Sold 50,000Equipment (net) 175,000Goodwill 362,500


(4) Investment in S Company 20,000Non-controlling Interest 5,000Depreciation Expense 25,000

Equipment (net) 50,000

3.Consolidated Net Income for 20x5

Net income from own/separate operationsP Company (P1,000,000 – P120,000) P 880,000S Company __ 750,000

Total P1,630,000Less: Non-controlling Interest in Net Income* P130,000


Controlling Interest in Consolidated Net Income or Profitattributable to equity holders of parent………….. P1,400,000

Add: Non-controlling Interest in Net Income (NCINI) 130,000Consolidated Net Income for 20x4 P1,530,000

Net income of subsidiary…………………….. P 750,000Amortization of allocated excess (P25,000 + P75,000) ( 100,000)


Note: Regardless on the method used in recording investments (cost model or equitymethod) the manner of computing CI-CNI, NCI-CNI and CNI are exactly the same.

Problem XXVIIRequirements 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……………………………….. P 372,000

Less: Book value of stockholders’ equity of S:Common stock (P240,000 x 80%)……………………. P 192,000Retained earnings (P120,000 x 80%)………………... 96,000 288,000



Positive excess: Partial-goodwill (excess of cost overfair value)………………………………………………... P 12,000


Book valueS Co.



The buildings and equipment will be further analyzed for consolidation purposes as follows:S Co.

Book valueS Co.

Fair valueIncrease


S Co.Book value




Account Adjustments to be amortizedOver/Under Life

AnnualAmount




P 13,200 P 13,200 P 7,200

The goodwill impairment loss of P3,125 based on 100% fair value would be allocated to thecontrolling interest and the NCI based on the percentage of total goodwill each equity interestreceived. For purposes of allocating the goodwill impairment loss, the full-goodwill is computedas follows:

Fair value of Subsidiary (100%)Consideration transferred: Cash (80%) P 372,000Fair value of NCI (given) (20%) 93,000Fair value of Subsidiary (100%) P 465,000

Less: Book value of stockholders’ equity of S (P360,000 x 100%) __360,000Allocated excess (excess of cost over book value)….. P 105,000Add (deduct): (Over) under valuation of assets and liabilities

(P90,000 x 100%) 90,000Positive excess: Full-goodwill (excess of cost over

fair value)………………………………………………... P 15,000

In this case, the goodwill was proportional to the controlling interest of 80% and non-controllinginterest of 20% computed as follows:

Value % of TotalGoodwill applicable to P………………… P12,000 80.00%Goodwill applicable to NCI…………………….. 3,000 20.00%Total (full) goodwill……………………………….. P15,000 100.00%

The goodwill impairment loss would be allocated as followsValue % of Total

Goodwill impairment loss attributable to P or controllingInterest

P 3,000 80.00%

Goodwill applicable to NCI…………………….. 750 20.00%Goodwill impairment loss based on 100% fair value or full-

Goodwill P 3,750 100.00%

20x4: First Year after AcquisitionParent Company Equity Method EntryThe following are entries recorded by the P in 20x4 in relation to its subsidiary investment:




Investment in S Company (P36,000 x 80%)……………. 28,800Record dividends from S Company.

December 31, 20x4:(3) Investment in S Company 48,000

Investment income (P60,000 x 80%) 48,000Record share in net income of subsidiary.

December 31, 20x4:(4) Investment income [(P13,200 x 80%) + P3,000*, goodwill

impairment loss)]13,560

Investment in S Company 13,560Record amortization of allocated excess of inventory, equipment,buildings and bonds payable and goodwill impairment loss.

Thus, the investment balance and investment income in the books of P Company is as follows:

Consolidation Workpaper – First Year after AcquisitionThe schedule of determination and allocation of excess presented above provides completeguidance for the worksheet eliminating entries on January 1, 20x4:

(E1) Common stock – S Co………………………………………… 240,000Retained earnings – S Co…………………………………… 120.000

Investment in Son Co…………………………………………… 288,000Non-controlling interest (P360,000 x 20%)……………………….. 72,000

To eliminate investment on January 1, 20x4 and equity accountsof subsidiary on date of acquisition; and to establish non-controlling interest (in net assets of subsidiary) on date ofacquisition.


Buildings……………………………………….. 216,000

Investment in SCost, 1/1/x4 372,000 28,800 Dividends – S (36,000x 80%)NI of S Amortization &

(60,000 x 80%) 48,000 13,560 impairmentBalance, 12/31/x4 377,640

Investment IncomeAmortization & NI of S

impairment 13,560 48,000 (P60,000 x 80%)34,440 Balance, 12/31/x4

Non-controlling interest (P96,000 x 20%)……………………….. 18,000Investment in S Co………………………………………………. 84,000

To eliminate investment on January 1, 20x4 and allocate excess ofcost over book value of identifiable assets acquired, with remainderto goodwill; and to establish non- controlling interest (in net assets ofsubsidiary) on date of acquisition.




Cost ofGoods

Sold


ExpenseAmortization





Value % of TotalGoodwill impairment loss attributable to parent or controlling



Goodwill P 3,750 100.00%(E4) Investment income 34,440

Non-controlling interest (P36,000 x 20%)……………….. 7,200Dividends paid – S…………………… 36,000Investment in S Company 5,640

To eliminate intercompany dividends and investment income underequity method and establish share of dividends, computed asfollows:

Investment in S Investment IncomeNI of S 28,800 Dividends - S NI of S(60,000

x 80%)……. 48,000Amortization &

13,560 impairmentAmortization

impairment 13,560(60,000

48,000 x 80%)5,640 34,440

After the eliminating entries are posted in the investment account, it should be observed thatfrom consolidation point of view the investment account is totally eliminated. Thus,

Percentage of goodwill for amortization purposes:Value % of Total

Goodwill applicable to parent P12,000 80.00%Goodwill applicable to NCI 3,000 20.00%Total (full) goodwill………… P15,000 100.00%

The goodwill impairment loss of P3,750 based on 100% fair value or full-goodwillwould be allocated as follows:

Value % of TotalGoodwill impairment loss attributable

to parent or controlling InterestP 3,000 80.00%

Goodwill impairment loss applicable toNCI…………………….. 750 _20.00%

Goodwill impairment loss based on100% fair value or full-goodwill P 3,750 100.00%






Worksheet for Consolidated Financial Statements, December 31, 20x4.Equity Method (Partial-goodwill)80%-Owned SubsidiaryDecember 31, 20x4 (First Year after Acquisition)

Income Statement P Co S Co. Dr. Cr. ConsolidatedSales P480,000 P240,000 P 720,000Investment income 34,440 - (4) 34,440 _________



Investment in SCost, 1/1/x4 372,000 28,800 Dividends – S (36,000x 80%)NI of Son Amortization &

(60,000 x 80%) 48,000 13,560 impairmentBalance, 12/31/x4 377,640 288,000 (E1) Investment, 1/1/20x4

84,000 (E2) Investment, 1/1/20x45,640 (E4) Investment Income

and dividends377,640 377,640


P Company P360,000 P360,000S Company P120,000 (1) 120,000


Dividends paidP Company 72,000 72,000S Company - 36,000 (4) 36,000 -

Retained earnings, 12/31 to BalanceSheet P490,440 P144,000 P490,440


(2) 84,000(4) 5,640 -

Total P1,990,440 P1,008,000 P2,424,600



405,000 288,000 (8) 192,000(9) 6,000 495,000


_________ _________

(10) 7,200

__________

(1 ) 72,000(2) 18,000(5) 9,360 ____92,160

Total P1,990,440 P1,008,000 P 751,200 P 751,200 P2,424,60020x5: Second Year after Acquisition

P Co. S Co.Sales P 540,000 P 360,000Less: Cost of goods sold 216,000 192,000Gross profit P 324,000 P 168,000Less: Depreciation expense 60,000 24,000

Other expense 72,000 54,000Net income from its own separate operations P 192,000 P 90,000Add: Investment income 66,240 -Net income P 258,240 P 90,000Dividends paid P 72,000 P 48,000

No goodwill impairment loss for 20x5.Parent Company Equity Method EntryThe following are entries recorded by the parent in 20x5 in relation to its subsidiary investment:





December 31, 20x5:(4) Investment income (P7,200 x 80%) 5,760

Investment in S Company 5,760Record amortization of allocated excess of inventory, equipment,buildings and bonds payable


Consolidation Workpaper – Second Year after Acquisition

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

(E1) Common stock – S Co………………………………………… 240,000Retained earnings – S Co, 1/1/x5…………………………. 144.000

Investment in S Co (P384,000 x 80%) 307,200Non-controlling interest (P384,000 x 20%)……………………….. 76,800

To eliminate investment on January 1, 20x5 and equity accountsof subsidiary on date of acquisition; and to establish non-controlling interest (in net assets of subsidiary) on 1/1/20x5.

(E2) Accumulated depreciation – equipment (P96,000 – P12,000) 84,000Accumulated depreciation – buildings (P192,000 + 6,000) 198,000Land………………………………………………………………………. 7,200Discount on bonds payable (P4,800 – P1,200)…. 3,600Goodwill (P12,000 – P3,000)…………………………….. 9,000

Buildings……………………………………….. 216,000Non-controlling interest [(P90,000 – P13,200) x 20%] 15,360Investment in S Co………………………………………………. 70,440

To eliminate investment on January 1, 20x5 and allocate excess ofcost over book value of identifiable assets acquired, with remainderto the original amount of goodwill; and to establish non- controllinginterest (in net assets of subsidiary) on 1/1/20x5.

(E3) Depreciation expense……………………….. 6,000Accumulated depreciation – buildings………………….. 6,000Interest expense………………………………… 1,200

Accumulated depreciation – equipment……………….. 12,000Discount on bonds payable………………………… 1,200

To provide for 20x5 depreciation and amortization on differencesbetween acquisition date fair value and book value of Son’sidentifiable assets and liabilities as follows:


ExpenseAmortization

-Interest TotalInventory soldEquipment P 12,000

Investment in SCost, 1/1/x5 377,640 38,400 Dividends – S (48,000x 80%)NI of S Amortization

(90,000 x 80%) 72,000 5,760 (P7,200 x 80%)Balance, 12/31/x5 405,480

Investment IncomeAmortization NI of S

(7,200 x 80%) 5,760 72,000 (90,000 x 80%)66,240 Balance, 12/31/x4

Buildings ( 6,000)Bonds payable _______ P 1,200Totals P 6,000 P1,200 P7,,200

(E4) Investment income 66,240Non-controlling interest (P48,000 x 20%)……………….. 9,600

Dividends paid – S…………………… 48,000Investment in S Company 27,840







Worksheet for Consolidated Financial Statements, December 31, 20x5.Equity Method (Partial-goodwill)80%-Owned SubsidiaryDecember 31, 20x5 (Second Year after Acquisition)

Income Statement P Co S Co. Dr. Cr. ConsolidatedSales P540,000 P360,000 P 900,000Investment income 66,240 - (4) 66,240 ___________


Total Cost and Expenses P348,000 P270,000 P 625,200Net Income P258,240 P 90,000 P 274,800NCI in Net Income - Subsidiary - - (5) 16,560 ( 16,560)Net Income to Retained Earnings P258,240 P 90,000 P258,240

Investment in S Investment IncomeNI of S 38,400 Dividends – S NI of S(90,000

x 80%)……. 72,000Amortization

5,760 (P7,200 x 80%)Amortization

(P7,200 x 80%) 5,760(90,000

72,000 x 80%)27,840 66,240


(90,000 x 80%) 72,000 5,760 (7,200 x 80%)Balance, 12/31/x5 405,480 307,200 (E1) Investment, 1/1/20x5








Balance SheetCash………………………. P 265,200 P 102,000 P 367,200Accounts receivable…….. 180,000 96,000 276,000Inventory…………………. 216,000 108,000 324,000Land……………………………. 210,000 48,000 (2) 7,200 265,200Equipment 240,000 180,000 420,000Buildings 720,000 540,000 (3) 216,000 1,044,000Discount on bonds payable (2) 3,600 (3) 1,200 2,400Goodwill…………………… (2) 9,000 9,000Investment in S Co……… 405,480 (1) 307,200

(2) 70,440(4) 27,840 -

Total P2,236,680 P1,074,000 P2,707,800

Accumulated depreciation- equipment P 150,000 P 102,000

(2) 84,000(3) 12,000 P180,000


450,000 306,000 (2) 198,000(3) 6,000 552,000


___ _____ _________

(7) 9,600

__________

(2 ) 76,800(2) 15,360(5) 16,560 ____99,120

Total P2,236,680 P1,074,000 P 794,400 P 794,400 P2,707,800

Note: Using cost model or equity method, the consolidated net income, consolidated retainedearnings, non-controlling interests, consolidated equity on December 31, 20x4 and 20x5 areexactly the same (refer to Problem VI solution).


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


Non-controlling interest (partial-goodwill), January 1, 20x4Common stock – S Company, January 1, 20x4…… P 240,000Retained earnings – S Company, January 1, 20x4 120,000Stockholders’ equity – S Company, January 1, 20x4 P 360,000Adjustments to reflect fair value - (over) undervaluation of assets and

liabilities, date of acquisition (January 1, 20x4) 90,000Fair value of stockholders’ equity of subsidiary, January 1, 20x4…… P450,000Multiplied by: Non-controlling Interest percentage…………... 20Non-controlling interest (partial-goodwill)………………………………….. P 90,000

c.Consolidated SHE:



6.12/31/20x4:a. CI-CNI




Amortization of allocated excess (refer to amortization above) 13,200Goodwill impairment (impairment under partial-goodwill approach) 3,000 25,560

Controlling Interest in Consolidated Net Income or Profit attributable toequity holders of P………….. P202,440



Net income of S Company P 60,000Less: Amortization of allocated excess / goodwill impairment


Multiplied by: Non-controlling interest %.......... 20%Non-controlling Interest in Net Income (NCINI) P 9,360









liabilities, date of acquisition (January 1, 20x4) 90,000Amortization of allocated excess (refer to amortization above) – 20x4 ( 13,200)Fair value of stockholders’ equity of subsidiary, December 31, 20x4…… P460,000Multiplied by: Non-controlling Interest percentage…………... 20Non-controlling interest (partial-goodwill)………………………………….. P 92,160

f.Consolidated SHE:



12/31/20x5:a. CI-CNI




Amortization of allocated excess (refer to amortization above) __7,200 23,760Controlling Interest in Consolidated Net Income or Profit attributable to





















20x4 P 13,20020x5 7,200 ( 20,400)

Fair value of stockholders’ equity of subsidiary, December 31, 20x5…… P 495,600Multiplied by: Non-controlling Interest percentage…………... 20Non-controlling interest (partial goodwill)………………………………….. P 99,120

f.Consolidated SHE:



Problem XXVIIIRequirements 1 to 4:Schedule of Determination and Allocation of ExcessDate of Acquisition – January 1, 20x4








AnnualAmount




P 13,200 P 13,200 P 7,200

2x4: First Year after AcquisitionParent Company Equity Method EntryThe following are entries recorded by the parent in 20x4 in relation to its subsidiary investment:







December 31, 20x4:(4) Investment income [(P13,200 x 80%) + (P3,750 – P750)*,

goodwill impairment loss)]13,560

Investment in S Company 13,560Record amortization of allocated excess of inventory, equipment,buildings and bonds payable and goodwill impairment loss.

*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 NCIacquired (refer to Illustration 15-6).


Consolidation Workpaper – First Year after AcquisitionThe schedule of determination and allocation of excess presented above provides completeguidance for the worksheet eliminating entries on January 1, 20x4:

(E1) Common stock – S Co………………………………………… 240,000Retained earnings – S Co…………………………………… 120.000

Investment in S Co…………………………………………… 288,000Non-controlling interest (P360,000 x 20%)……………………….. 72,000

To eliminate investment on January 1, 20x4 and equity accountsof subsidiary on date of acquisition; and to establish non-controlling interest (in net assets of subsidiary) on date ofacquisition.

(E2) Inventory…………………………………………………………………. 6,000Accumulated depreciation – equipment……………….. 96,000Accumulated depreciation – buildings………………….. 192,000Land………………………………………………………………………. 7,200


(60,000 x 80%) 48,000 13,560 ImpairmentBalance, 12/31/x4 377,640

Investment IncomeAmortization & NI of S

Impairment 13,560 48,000 (P60,000 x 80%)34,440 Balance, 12/31/x4

Discount on bonds payable…………………………………………. 4,800Goodwill…………………………………………………………………. 15,000


P12,000, partial goodwill)]………… 21,000Investment in S Co………………………………………………. 84,000

To eliminate investment on January 1, 20x4 and allocate excess ofcost over book value of identifiable assets acquired, with remainderto goodwill; and to establish non- controlling interest (in net assets ofsubsidiary) on date of acquisition.



To provide for 20x4 impairment loss and depreciation andamortization on differences between acquisition date fair value andbook value of S’s identifiable assets and liabilities as follows:

Cost ofGoods

Sold


ExpenseAmortization





Value % of TotalGoodwill impairment loss attributable to parent or controlling



Goodwill P 3,750 100.00%





Percentage of goodwill for amortization purposes:Value % of Total

Goodwill applicable to parent P12,000 80.00%Goodwill applicable to NCI 3,000 20.00%Total (full) goodwill………… P15,000 100.00%

The goodwill impairment loss of P3,750 based on 100% fair value or full-goodwillwould be allocated as follows:

Value % of TotalGoodwill impairment loss attributable

to parent or controlling InterestP 3,000 80.00%

Goodwill impairment loss applicable toNCI…………………….. 750 _20.00%

Goodwill impairment loss based on100% fair value or full-goodwill P 3,750 100.00%





Less: Non-controlling interest on impairmentloss on full-goodwill (P3,750 x 20%) or(P3,750 impairment on full-goodwill lessP3,000, impairment on partial-goodwill)* 750

Non-controlling Interest in Net Income (NCINI) P 8,610*this procedure would be more appropriate, instead of multiplying thefull-goodwill impairment loss of P3,750 by 20%. There might be situationswhere the NCI on goodwill impairment loss would not be proportionateto NCI acquired (refer to Illustration 15-6).


Investment in S Investment IncomeNI of S 28,800 Dividends – S NI of Son(60,000

x 80%)……. 48,000Amortization &

13,560 ImpairmentAmortization &

Impairment 13,560(60,000

48,000 x 80%)5,640 34,440


(60,000 x 80%) 40,000 13,560 ImpairmentBalance, 12/31/x4 377,640 288,000 (E1) Investment, 1/1/20x4



Worksheet for Consolidated Financial Statements, December 31, 20x4.Equity Method (Full-goodwill)80%-Owned SubsidiaryDecember 31, 20x4 (First Year after Acquisition)

Income Statement P Co S Co. Dr. Cr. ConsolidatedSales P480,000 P240,000 P 720,000Investment income 34,440 - (4) 34,440 _________









(2) 84,000(4) 5,640 -

Total P1,990,440 P1,008,000 P2,426,850



405,000 288,000 (2) 192,000(3) 6,000 495,000


_________ _________

(4) 7,200

__________

(1 ) 72,000(2) 21,000(5) 8,610 ____94,410

Total P1,990,440 P1,008,000 P 754,200 P 754,200 P2,426,850


Sales P 540,000 P 380,000

Less: Cost of goods sold 216,000 192,000Gross profit P 324,000 P 168,000Less: Depreciation expense 60,000 24,000

Other expense 72,000 54,000Net income from its own separate operations P 192,000 P 90,000Add: Investment income 66,240 -Net income P 258,240 P 90,000Dividends paid P 72,000 P 48,000

No goodwill impairment loss for 20x5.

Parent Company Equity Method EntryThe following are entries recorded by the parent in 20x5 in relation to its subsidiary investment:





December 31, 20x5:(4) Investment income (P7,200 x 80%) 5,760

Investment in S Company 5,760Record amortization of allocated excess of inventory, equipment,buildings and bonds payable

P Company’s P12,000 portion of the differential related to goodwill related to goodwill is notadjusted on the parent’s books following Option 2 as referred to above for goodwill impairmentloss. Even though the goodwill of the consolidated entity is impaired,


Consolidation Workpaper – Second Year after AcquisitionThe schedule of determination and allocation of excess presented above provides completeguidance for the worksheet eliminating entries.

(E1) Common stock – S Co………………………………………… 240,000Retained earnings – S Co, 1/1/x5…………………………. 144.000

Investment in S Co (P384,000 x 80%) 307,200Non-controlling interest (P384,000 x 20%)……………………….. 76,800

To eliminate investment on January 1, 20x5 and equity accountsof subsidiary on date of acquisition; and to establish non-controlling interest (in net assets of subsidiary) on 1/1/20x5.


(90,000 x 80%) 72,000 5,760 (P7,200 x 80%)Balance, 12/31/x5 405,480

Investment IncomeAmortization NI of S

(7,200 x 80%) 5,760 72,000 (90,000 x 80%)66,240 Balance, 12/31/x4

(E2) Accumulated depreciation – equipment (P96,000 – P12,000) 84,000Accumulated depreciation – buildings (P192,000 + P6,000) 198,000Land………………………………………………………………………. 7,200Discount on bonds payable (P4,800 – P1,200)…. 3,600Goodwill (P15,000 – P3,750)…………………………….. 11,250

Buildings……………………………………….. 216,000Non-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%)] 17,610

Investment in S Co………………………………………………. 70,440To eliminate investment on January 1, 20x5 and allocate excess ofcost over book value of identifiable assets acquired, with remainderto the original amount of goodwill; and to establish non- controllinginterest (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 (referto Illustration 15-6).

(E3) Depreciation expense……………………….. 6,000Accumulated depreciation – buildings………………….. 6,000Interest expense………………………………… 1,200

Accumulated depreciation – equipment……………….. 12,000Discount on bonds payable………………………… 1,200

To provide for 20x5 depreciation and amortization on differencesbetween acquisition date fair value and book value of Son’sidentifiable assets and liabilities as follows:


ExpenseAmortization

-Interest TotalInventory soldEquipment P 12,000Buildings ( 6,000)Bonds payable _______ P 1,200Totals P 6,000 P1,200 P7,200





Investment in S Investment IncomeNI of S 38,400 Dividends - S NI of S(90,000



(P7,200 x 80%) 5,760(90,000

72,000 x 80%)27,840 66,240


(90,000 x 80%) 72,000 5,760 (7,200 x 80%)Balance, 12/31/x5 405,480 307,200 (E1) Investment, 1/1/20x5







Less: NCI on goodwill impairment loss on full-Goodwill 0

Non-controlling Interest in Net Income (NCINI) P 16,560

Worksheet for Consolidated Financial Statements, December 31, 20x5.Equity Method (Full-goodwill)80%-Owned SubsidiaryDecember 31, 20x5 (Second Year after Acquisition)

Income Statement P Co S Co. Dr. Cr. ConsolidatedSales P540,000 P360,000 P 900,000Investment income 66,240 - (4) 66,240 ___________








Balance SheetCash………………………. P 265,200 P 102,000 P 367,200Accounts receivable…….. 180,000 960,000 276,000Inventory…………………. 216,000 108,000 324,000Land……………………………. 210,000 48,000 (2) 7,200 265,200Equipment 240,000 180,000 420,000Buildings 720,000 540,000 (3) 216,000 1,044,000Discount on bonds payable (2) 3,600 (3) 1,200 2,400Goodwill…………………… (2) 11,250 11,250Investment in S Co……… 405,9480 (1) 307,200

(5) 70,440(4) 27,840 -

Total P2,236,680 P1,074,000 P2,634,000

Accumulated depreciation- equipment P 150,000 P 102,000

(2) 84,000(3) 12,000 P 180,000

Accumulated depreciation 450,000 306,000 (2) 198,000 552,000

- buildings (3) 6,000Accounts payable…………… 120,000 120,000 240,000Bonds payable………………… 240,000 120,000 360,000Common stock, P10 par……… 600,000 600,000Common stock, P10 par……… 240,000 (1) 240,000Retained earnings, from above 676,680 186,000 676,680Non-controlling interest…………

___ _____ __________

(3) 9,600

__________

(2 ) 76,800(2) 17,610(5) 16,560 __________

Total P2,236,680 P1,074,000 P 796,650 P 796,650 P2,634,000

Note: Using cost model or equity method, the consolidated net income, consolidated retainedearnings, non-controlling interests, consolidated equity on December 31, 20x4 and 20x5 areexactly the same (refer to Problem VII solution).


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


Non-controlling interest (full-goodwill), January 1, 20x4Common stock – S Company, January 1, 20x4…… P 240,000Retained earnings – S Company, January 1, 20x4 120,000Stockholders’ equity – S Company, January 1, 20x4 P 360,000Adjustments to reflect fair value - (over) undervaluation of assets and

liabilities, date of acquisition (January 1, 20x4) 90,000Fair value of stockholders’ equity of subsidiary, January 1, 20x4…… P450,000Multiplied by: Non-controlling Interest percentage…………... 20Non-controlling interest (partial-goodwill)………………………………….. P 90,000Add: NCI on full-goodwill (P15,000 – P12,000) ___3,000Non-controlling interest (partial-goodwill)………………………………….. P 93,000

c.Consolidated SHE:



6.a. CI-CNI – P202,440




Amortization of allocated excess (refer to amortization above) 13,200Goodwill impairment (impairment under full-goodwill approach) 3,750 25,560




Net income of S Company P 60,000

Less: Amortization of allocated excess (refer to amortization table above) 13,200P 46,800

Multiplied by: Non-controlling interest %.......... 20%Non-controlling Interest in Net Income (NCINI) P 9,360Less: Non-controlling interest on impairment loss on full-goodwill (P3,750 x 20%)

or (P3,750 impairment on full-goodwill less P3,000, impairment onpartial-goodwill)* 750

Non-controlling Interest in Net Income (NCINI) P 8,610*this procedure would be more appropriate, instead of multiplying the full-goodwill impairment lossof P3,750 by 20%. There might be situations where the NCI on goodwill impairment loss would notbe proportionate to NCI acquired.







Retained earnings – SCompany, January 1, 20x4 P120,000Add: Net income of S for 20x4 60,000Total P180,000Less: Dividends paid – 20x4 36,000 144,000


liabilities, date of acquisition (January 1, 20x4) 90,000Amortization of allocated excess (refer to amortization above) – 20x4 ( 13,200)Fair value of stockholders’ equity of subsidiary, December 31, 20x4…… P460,800Multiplied by: Non-controlling Interest percentage…………... 20Non-controlling interest (partial-goodwill, 12/31/20x4………………………….. P 92,160Add: Non-controlling interest on full goodwill , net of impairment loss, 12/31/x4:

[(P15,000 full – P12,000, partial = P3,000) – P750 impairment loss 2,250Non-controlling interest (full-goodwill), 12/31/20x4…………….. P 94,410

f.Consolidated SHE:



12/31/20x5:a. CI-CNI – P258,240




Amortization of allocated excess (refer to amortization above) 7,200

Goodwill impairment (impairment under full-goodwill approach) 0 23,760Controlling Interest in Consolidated Net Income or Profit attributable to






c. CNI, P274,800 – refer to (a)

d. On subsequent to date of acquisition, consolidated retained earnings would be computedas follows:

Consolidated Retained Earnings, December 31, 20x5Retained earnings - P Company, January 1, 20x5 (cost model P484,800Adjustment to convert from cost model to equity method for purposes of













20x4 P 13,20020x5 7,200 ( 20,400)

Fair value of stockholders’ equity of subsidiary, December 31, 20x5…… P 495,600Multiplied by: Non-controlling Interest percentage…………... 20Non-controlling interest (partial goodwill)………………………………….. P 99,120

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 101,370

f.Consolidated SHE:


NCI, 12/31/20x4 __101,370Consolidated SHE, 12/31/20x4 P1,378,050

Problem XXVIII1. Ambrose should report income from its subsidiary of P15,000 (P20,000 x .75) rather than

dividend income of P9,000.2. A total of P5,000 (P20,000 x .25) should be assigned to the noncontrolling interest in the 20x4

consolidated income statement.3. Consolidated net income of P70,0000 should be reported for 20X4, computed as follows:

Reported net income of AA P59,000Less: Dividend income from KR (9,000)Operating income of AA P50,000Net income of KR 20,000Consolidated net income P70,000

4. Income of P79,000 would be attained by adding the income reported by AA (P59,000) to theincome reported by KR (P20,000). However, the dividend income from KR recorded by AAmust be excluded from consolidated net income.

Multiple Choice Problems1. b

Full-Goodwill: (P600,000/70%) – P640,000 = P217,143 – P40,000 = P177,143If partial goodwill: P600,000 – (P640,000 x 70%) = P152,000 – (P40,000 x 70%) = P124,000

2. b – P500,000 + P3,4613. b4. d – equivalent to consideration transferred, P320,0005. d – equivalent to consideration transferred, P380,0006. a

20x4 Investment income: Dividend of P10,000 x 100%20x4 Investment balance: P500,000

7. d – P45,000/15% = P300,0008. c

Pigeon’s separate income P150,000Less: 60% of Home’s P10,000 loss = 6,000Less: Equipment depreciation

P10,000/ 10 years = __1,000Consolidated net income P143,000

9. aNon-controlling Interest in Net Income (NCINI) for Year 3

Net income of S Company P240,000Less: Amortization of allocated excess 45,000

P195,000Multiplied by: Non-controlling interest %.......... 30%Non-controlling Interest in Net Income (NCINI) for Year 3 P 58,500

10. cNet income from own/separate operations

P Company P 375,000S Company 30,000




*Non-controlling Interest in Net Income (NCINI) for 20x4Net income of S Company P30,000Less: Amortization of allocated excess** 3,750

P26,250Multiplied by: Non-controlling interest %.......... 20%Non-controlling Interest in Net Income (NCINI) for 20x4 P 5,250

**P270,000/80% = P337,500 – (P150,000 + P150,000) = P37,500 / 10 years = P3,750Note: Whether the partial or full-goodwill approach are used the amortization of excess are alwaysthe same.

11. a*Non-controlling Interest in Net Income (NCINI) for Year 3

Net income of S Company P600,000Less: Amortization of allocated excess 112,500

P487,500Multiplied by: Non-controlling interest %.......... 30%Non-controlling Interest in Net Income (NCINI) for Year 3 P146,250

12. cNet income from own/separate operations





*Non-controlling Interest in Net Income (NCINI) for 20x4Net income of S Company P50,000Less: Amortization of allocated excess** 6,250


**P450,000/80% = P562,500 – (P250,000 + P250,000) = P62,500 / 10 years = P6,250Note: Whether the partial or full-goodwill approach are used the amortization of excess are alwaysthe same.

13. bAs a general rule, if problem is silent It is assumed that expenses are generated evenlythroughout the year, thus:

Expenses (9/1/20x4-12/31/20x4): P620,000 x 4/12 P206,667Amortization of allocated excess: P15,000 x 4/12 5,000

P211,667

14. cNet income of S Company (P800,000 – P620,000) P180,000Less: Amortization of allocated excess 15,000

P165,000

Multiplied by: No of mos. (9/1-12/31) 4/12P 55,000

15. aNet income of S Company (P800,000 – P620,000) P180,000Less: Amortization of allocated excess 15,000

P165,000Multiplied by: No of mos. (9/1-12/31) 4/12

P 55,000Multiplied by: Non-controlling interest %.......... ____20%Non-controlling Interest in Net Income (NCINI) for 20x4 P 22,000

16. b Combined revenues .................................................................................................. P1,100,000Combined expenses.................................................................................................. (700,000)Excess acquisition-date fair value amortization ................................................... (15,000)Consolidated net income......................................................................................... P385,000Less: noncontrolling interest (P85,000 × 40%)......................................................... (34,000)Consolidated net income to controlling interest ................................................. P351,000

17. c HH expense.................................................................................................................. P621,000NN expenses ................................................................................................................ 714,000Excess fair value amortization (70,000 ÷ 10 yrs)..................................................... 7,000Consolidated expenses............................................................................................. P1,342,000

18. dUnder the cost method, an investor recognizes its investment in the investee at cost.Income is recognized only to the extent that the investor receives distributions from theaccumulated net profits (or dividend declared/paid by the investee) of the investeearising after the date of acquisition by the investor. Distributions (dividends) received inexcess of such profits are regarded as a recovery of investment and are accounted foras a reduction of the cost of the investment (i.e., as a return of capital or liquidatingdividend).

Therefore, the investment balance of P500,000 on the acquisition date remains to be thesame.

19. d – refer to No. 18 for further discussion.20. b – refer to No. 18 for further discussion.21. a – P40,000 x 80%22. b – P50,000 x 80%23. a – P60,000 x 80%23. c

Full/Gross-up Goodwill Presentation:Non-controlling interest in Net Income:

Subsidiary net income from own operations……….P100,000Less: Amortization of allocated excess*…………… 7,000

Impairment of full-goodwill (if any)**………… 0P 93,000

x: Non-controlling interests………………………. 20%Non-controlling interest in Net Income…………………… P 18,600*Amortization of allocated excess:

Increase in equipment: P30,000 / 10 years = P 3,000Increase in buildings: P40,000 / 10 years = 4,000Total amortization……………………………… P 7,000

** In case, there is an impairment of goodwill then the amount impaired under the full -goodwill method should also be allocated between controlling and non-controllinginterests

Partial Goodwill Presentation:Non-controlling interest in Net Income:

Subsidiary net income from own operations……….P100,000Less: Amortization of allocated excess*……………. 7,000

P 93,000x: Non-controlling interests………………………. 20%

Non-controlling interest in Net Income…………………. P 18,60024. c

Full/Gross-up Goodwill Presentation:Non-controlling interest in Net Income:


Impairment of full-goodwill (if any)**……… 0P113,000

x: Non-controlling interests………………………. 20%Non-controlling interest in Net Income…………………… P 22,600

*Amortization of allocated excess:Increase in equipment: P30,000 / 10 years = P 3,000Increase in buildings: P40,000 / 10 years = 4,000Total amortization………………………. P 7,000




P113,000x: Non-controlling interests………………………. 20%

Non-controlling interest in Net Income…………………… P 22,600

25. aFull/Gross-up Goodwill Presentation:

Non-controlling interest in Net Income:Subsidiary net income from own operations……….P130,000Less: Amortization of allocated excess*…………… 7,000

Impairment of full-goodwill (if any)**……… 0P123,000

x: Non-controlling interests………………………. 20%Non-controlling interest in Net Income…………………… P 24,600

*Amortization of allocated excess:Increase in equipment: P30,000 / 10 years = P 3,000Increase in buildings: P40,000 / 10 years = 4,000Total amortization………………………. P 7,000




P123,000x: Non-controlling interests………………………. 20%

Non-controlling interest in Net Income…………………… P 24,600

26. aBook value of Stockholders’ Equity of Subsidiary

Common stock, 12/31/20x4……………………………… P 300,000Retained earnings, 12/31/20x4:

Retained earnings, 1/1/20x4………………………….P200,000Add: Net income – 20x4…………………………….. 100,000Less: Dividends paid, 20x4…………..……………… 40,000 260,000

Book value of Stockholders’ Equity of Subsidiary, 12/31/x4 P 560,000Add: Adjustments to reflect fair value (P30,000 + P40,000).. 70,000Less: Accumulated amortization of allocated excess

P7,000 x 1 year…………………………………….…. 7,000Fair value of Stockholders’ Equity of Subsidiary. 12/31/x4… P 623,000Multiplied by: Non-controlling Interest %........................... 20%Non-controlling Interest (partial goodwill)………………….. P 124,600

Add: Non-controlling interest in Full Goodwill(P55,000, full – P44,000 partial l) or

(P55,00,000 x 20%)*……………………………… 11,000Non-controlling Interest (full)……………………………… P 135,600

* this computation (i.e., P55,000 x 20%) should only be use when the fair value of the non-controlling interest of acquiree (subsidiary) is not given.

Partial Goodwill:Fair value of Subsidiary:

Fair value of consideration transferred: Cash………… P 500,000Less: Book value of Net Assets (Stockholders’

Equity - Subsidiary): (P300,000 + P200,000) x 80%.. 400,000Allocated Excess.…………………………………………. P 100,000Less: Over/Undervaluation of Assets and Liabilities:

Increase in equipment: P30,000 x 80%................... P 24,000Increase in building: P40,000 x 80%......................... 32,000 56,000

Goodwill (Partial)………………………………………….. P 44,000

Full-goodwill:(100%) Fair value of Subsidiary:

(100%) Fair value of consideration transferred:P500,000 / 80%........………………………….. P 625,000

Less: Book value of Net Assets (Stockholders’Equity - Subsidiary)…………................................... 500,000

Allocated Excess.…………………………………………. P 125,000

Less: Over/Undervaluation of Assets andLiabilities (P40,000 + P30,000)……………………. 70,000

Goodwill (Full/Gross-up)..……………………………….. P 55,000

27. eBook value of Stockholders’ Equity of Subsidiary


Retained earnings, 1/1/20x5 (refer to No. 94)……….P260,000Add: Net income, 20x5………………………………. 120,000Less: Dividends paid, 20x5…………………………… 50,000 330,000

Book value of Stockholders’ Equity of Subsidiary, 12/31/x5 P 630,000Add: Adjustments to reflect fair value (P30,000 + P40,000).. 70,000Less: Accumulated amortization of allocated excess – 2 yrs 14,000Fair value of Stockholders’ Equity of Subsidiary. 12/31/x5… P 686,000Multiplied by: Non-controlling Interest %.............................. 20%Non-controlling Interest (partial goodwill)………………….. P 137,200



28. eBook value of Stockholders’ Equity of Subsidiary


Retained earnings, 1/1/20x6………………………….P 330,000Add: Net income, 20x6……………………………… 130,000Less: Dividends paid, 20x6………………………….. 60,000 400,000

Book value of Stockholders’ Equity of Subsidiary, 12/31/x6 P 700,000Add: Adjustments to reflect fair value (P30,000 + P40,000).. 70,000Less: Accumulated amortization of allocated excess

(1/1/20x4 – 12/31/20x6): P7,000 x 3 years…………… 21,000Fair value of Stockholders’ Equity of Subsidiary. 12/31/x6… P 749,000Multiplied by: Non-controlling Interest %............................ 20%Non-controlling Interest (partial goodwill)………………….. P 149,800



* this computation (i.e., P55,000 x 20%) should only be use when the fair value of the non-controlling interest of acquiree (subsidiary) is not given.

29. d – Economic Unit or Entity Concept (as required by PFRS 10)Net income from own/separate operations



Amortization of allocated excess 0Goodwill impairment (impairment under full-goodwill approach) _ 0 20,000


Add: NCINI __20,000CNI - entity concept P600,000

*Non-controlling Interest in Net Income (NCINI) for 20x4Net income of S Company P100,000Less: Amortization of allocated excess _______0


30. c – Parent Company Concept – Parent’s Net Income only (not required by PFRS 10)Net income from own/separate operations



Amortization of allocated excess 0Goodwill impairment (impairment under full-goodwill approach) _ 0 20,000

CNI - entity concept P580,000

*Non-controlling Interest in Net Income (NCINI) for 20x4Net income of S Company P100,000Less: Amortization of allocated excess _______0


31. No requirement32. Podex’s separate earnings for 20x6 ............................................................ P2,000,000

Dividend income from Sodex................................................................ __120,000Podex’s 20x6 net income................................................................... P2,120,000

33. P2,260,000Podex’s separate earnings for 20X6 P2,000,000

Podex’s equity in net income of Sodex............................................... 300,000Less: Amortization of cost in excess of book value ........................... (40,000)

Podex’s 20x6 net income................................................................... P2,260,000

34. b

35. bNet Income from own operations: 20x4 20x5

Parent …………………………………………………P 100,000 P100,000Subsidiary……………………………………………... 25,000 35,000

P125,000 P135,000Subsidiary’s other comprehensive income………….. 5,000 10,000Total Comprehensive Income……………………….....P130,000 P145,000Less: Amortization of allocated excess…………….… 6,250 6,250

Impairment of full- goodwill (if any)……………. 0 0Consolidated /Group Comprehensive Income…… P123,750 P138,750Less: Non-controlling interest in Comprehensive

Income *…………………………………………… 4,750 7,750Controlling Interest in Consolidated __________________

Comprehensive Income …. …………………………P119,000 P131,000

*Non-controlling interest in Comprehensive Income: 20x4 2012

Subsidiary’s:Net income from own operations………….......P 25,000 P 35,000Other Comprehensive Income (P30,000 –

P25,000)…………………………….…………... 5,000 10,000Subsidiary’s Comprehensive Income…………........P 30,000 P 45,000Less: Amortization of allocated excess*………….. 6,250 6,250

Impairment of full-goodwill (if any)....………. 0 0P 23,750 P 38,750

x: Non-controlling interests…………………………. 20% 20%Non-controlling interest in Comprehensive Income...P 4,750 P 7,750

*Amortization of allocated excess:Increase in other intangibles: P50,000 / 8 years = P 6,250

36. c – refer to No. 3537. c – refer to No. 3538. b- refer to No. 3539. d

Inventory – not yet sold in 20x4 p 0Building: (P390,000 – P200,000)/ 10 years 19,000Equipment (P280,000 – P350,000)/ 5 years ( 14,000)

P 5,00040. a41. a

Cost of Goods Sold P80,000 debitDepreciation Expense (P192,000/120) 7 = P11,200 debit

42. cCost of Goods Sold (P60,000 x 4/6) = P40,000 debitInterest Expense: (P15,000/5) = P3,000 debit

43. a[(P250,000 - P180,000)/10]7

44. c[(P380,000 - P260,000)/120]88

45. a46. c

P170,000 - {[P320,000 - (P300,000 - P170,000)]/10}247. b

[P320,000 - (P300,000 - P170,000)]/1048. d49. d

P105,000 - {[P405,000 - (P450,000 - P105,000)]/20}250. a

[P405,000 - (P450,000 - P105,000)]/20

51. d - The acquisition method consolidates assets at fair value at acquisition date regardless ofthe parent’s percentage ownership.

52. bConsideration transferred P3,800Less: BV of SHE of S: P1,000 + P600 + P1,500 3,100Allocated excess /differential / excess of cost or fair value over book value P 700

53. a

Allocated excess /differential / excess of cost or fair value over book value P 700Less: O/U valuation of A and L

Book value (P800 + P1,000 + P1,500 + P900 – P1,800) P2,400Fair value (P900 + P1,200 + P1,250 + P1,300 – P1,700) 2,950Net increase 550

Goodwill P 150

54. c – inventory at fair value55. No answer available

Book value of Building, 1/1/x4 1,500Less: excess BV over FV ( 300)Fair value 1,200Less: Dept’n based on BV (1,500/5) ( 300)Add: Excess depreciation (300/5) 60Carrying amount on Conso BS, 12/31/x4 960Or,

FV of Building 1,200Depreciation (1,200/5) ( 240)Carrying amount on Conso BS, 12/31/x4 960

56. No answer availableFV of equipment 1/1/x4 1,250Depreciation (1,250/2) ( 625)Carrying amount on Conso BS 12/31/x4 625

57. c – (P900, book value + (P1,300 – P900) = P1,30058. c – (P1,800 – (P1,800 – P1,700) + (P100/4) = P1,72559.

FV as of 1/1/x4 1,200Acc. Dep. (1,200/5 * 2) (480)Carrying Amount in Conso BS, 12/31/x5 720

OrBook Value 1/1/x4 1,500Excess BV over FV ( 300)Acc. Depc’n based on BV (1,500/5 * 2) ( 600)Excess depreciation ( 300 / 5 * 2) 120Carrying Amount in Conso BS, 12/31/x5 720

60.Book Value of Equipment 1/1/x4 1,000Excess FV over BV 250Dep based on BV (20x4 to 20x5) (1,000/2 *2) (1,000)Amortization of Excess FV over BV ( 250)Carrying amount 12/31/x5 0

OrFV of Equipment, 1/1/x4 1,250Depreciation based on FV (1,250/2 *2) (1,250)Carrying amount 12/31/x5 0

61. b - (P900, book value + (P1,300 – P900) = P1,300062. d - (P1,800 – (P1,800 – P1,700) + (P100/4) x 2 years = P1,750

63. dP: BV,12/31/20x6 P250,000S:

BV of building, 12/31/20x4 P170,000Add: Adjustments to reflect fair value, 1/1/20x4

(P350,000 – P240,000) 110,000Less: Amortization of excess (P110,000/10) x 3 years 33,000 247,000

P497,000

64. bP: BV,12/31/20x5 P 975,000S:

BV of building, 12/31/20x5 P105,000Add: Adjustments to reflect fair value, 1/4/20x4

(P120,000 – P90,000) 30,000Less: Amortization of excess (P30,000/10) x 2 years 6,000 129,000

P1,104,000

65. c - An asset acquired in a business combination is initially valued at 100% acquisition-datefair value and subsequently amortized its useful life.

Patent fair value at January 1, 20x4 ....................................................................... P45,000Amortization for 2 years (10 year life) ..................................................................... (9,000)Patent reported amount December 31, 20x5 ...................................................... P36,000

66. bBV of building, 1/1/20x4 P200,000Adjustments to reflect fair value, 1/1/20x4 (P300,000 – P200,000) 100,000Depreciation 1/1/20x4 – 12/31/20x6 (P100,000/20 x 3 years) ( 15,000)

P285,00067. d – same with No. 568. d

BV of equipment, 1/1/20x4 P 80,000Adjustments to reflect fair value, 1/1/20x4 (P80,000 – P75,000) ( 5,000)Depreciation 1/1/20x4 – 12/31/20x6 (P5,000/10 x 3 years) 1,500

P 76,50069. a

Adjustments to reflect fair value, 1/1/20x4 (P80,000 – P75,000) (P 5,000)Depreciation 1/1/20x4 – 12/31/20x6 (P5,000/10 x 3 years) 1,500

(P 3,500)70. d – 1/2/20x4:

BV of equipment, 1/1/20x4 P200,000Adjustments to reflect fair value, 1/1/20x4 (P300,000 – P200,000) 100,000

P300,00071. c


P Company P30,200 – (P150,0000 – P20,000 – P60,000) P 70,000S Company (P100,000 – P15,000 – P45,000) 40,000

Total P110,000Less: Non-controlling Interest in Net Income P 0

Amortization of allocated excess 0Goodwill impairment ____0 ____0


Add: Non-controlling Interest in Net Income (NCINI) _____0Consolidated Net Income for 20x4 P110,000

72. bPlimsol: P100,000 + P200,000,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,P 300, 000Shipping: P75,000 + P150,000………………………………………………………………. 225,000

P 525,000

73.Retained Earnings - Plimsol, 1/1/20x4 (cost method, same with equity method and

consoiidated retained earnings since it is the date of acdquisition) P 150,000Add: CI – CNI (refer to No. 71) 110,000Less: CI – Dividends (Dividend of parent only) 25,000Retained earnings, 12/31/20x4 (equity method same with CRE) P 235,000

74. dLiabilities:

Plimsol (P40,000 + P75,000) P115,000Shipping (P25,000 + P50,000) 75,000

P 190,000

75. dTotal assets (No. 72) P525,000Les: Liabilities (No. 74) 190,000Stockholders’ equity P335,000

76. bDecrease in Buildings account:

Fair value…………………………………………… P 8,000Book value………………………………………….. __10,000Decrease……………………………………………. P 2,000

77. dDecrease in buildings account (refer to No. 73)………… P 2,000Less: Increase due to depreciation (P2,000/10)………… 200Decrease in buildings accounts…………………………….. P 1,800

78. dDecrease in buildings account (refer to No. 74)………… P 1,800Less: Increase due to depreciation (P2,000/10)………… 200Decrease in buildings accounts…………………………….. P 1,600

79. aIncrease in Equipment account:

Fair value…………………………………………… P 14,000Book value………………………………………….. __18,000Increase……………………………………………. P 4,000

80. aIncrease in equipment account (refer to No. 76)………… P 4,000Less: Decrease due to depreciation (P4,000/4)…………… 1,000Increase in equipment accounts…………………………….. P 3,000

81. aIncrease in equipment account (refer to No. 77)………… P 3,000

Less: Decrease due to depreciation (P4,000/4…………… 1,000Increase in equipment accounts…………………………….. P 2,000

82. aIncrease in Land account:

Fair value……………………………………………P 12,000Book value………………………………………….. 5,000Increase…………………………………………….. P 7,000

83. b – refer to No. 82, no depreciation/amortization84. b – refer to No. 82, no depreciation/amortization85. e

Increase in Patent account:Fair value…………………………………………… P 11,000Book value………………………………………….. _ 0Increase……………………………………………. P 11,000

(P234,000/90%) – (P160,000 + P80,000) = P20,000 – (P4,000 – P2,000 + P7,000) = P11,000.Partial or full-goodwill approach, the amortization remains the same.

86. eIncrease in patent account (refer to No. 85)……………… P 11,000Less: Decrease due to depreciation (P11,000/5).………… 2,200Increase in patent accounts…………………………………. P 8,800

87. dIncrease in patent account (refer to No. 86)……………… P 8,800Less: Decrease due to depreciation (P11,000/5).………… 2,200Increase in patent accounts…………………………………. P 6,600

88. d - Parent’s inventory of P132,000 plus subsidiary’s book value of inventory of P38,000 plusexcess of the fair value over the book value of P22,000 = P132,000 + P38,000 + P22,000 =P192,000

89. d - if partialPurchase price minus 75% of Grass’s underlying book value - P16,500 of excess cost over bookvalue allocated to inventory (see 88) = P392,000 – (75%) x (P400,000) - P16,500 = P75,500,partial; if full goodwill , P75,500/75% (since no NCI available) = P100,667

90. d - Just add the liability amounts together91. No answer available

Net Assets at Book Value P 400,000Increase in Inventories 22,000Net Assets @ FV 422,000Multiplied by 25%NCI, partial goodwill 105,500Add: NCI on full goodwill

Full goodwill (P75,500/75%) P100,667Partial goodwill 75,500 25,167

NCI, partial goodwill 130,667

92. a- The parent’s Retained Earnings is the amount of consolidated Retained Earnings

93. No answer availableCash 230,000Accounts Receivable 170,000Inventory (132,000 + 60,000) 192,000Land 100,000Plant Assets (net) 700,000Goodwill - partial 75,500 if full 100,667Total Assets 1,467,500 1,492,667

94. cFair Value of Subsidiary:

Consideration Transferred (5,400 shares) P120,600Less: Book value of SHE-S, 1/1:

Common stock – S: P50,000 x 90% P 45,000APIC – S: P15,000 x 90% 13,500RE – S: P41,000 x 90% 36,900 95,400

Allocated Excess P 25,200Less: Over/undervaluation of A & L:

Increase in Inv. (P17,100–P16,100) x 90% P 900Increase in Eqpt. (P48,000–P40,000) x 90% 7,200Increase in Patents (P13,000–P10,000) x 90% 2,700 10,800

Positive Excess: Goodwill P 14,400Amortization of allocated excess - Starting January 1:

Inventory: P1,000 / 1 year P 1,000Equipment: P8,000 / 4 years 2,000Patents: P3,000 / 10 years 300

P 3,300

95. cCommon stock – S P 50,000APIC – S 15,000RE – S 41,000Stockholders’ equity – Subsidiary, 1/1 P106,000Add: Adjustments to reflect fair value 12,000Fair value of Stockholders’ Equity – S, 1/1 P118,000x: Non-controlling) interests 10%Non-controlling Interests (in net assets) P 11,800

96. a – P48,000, parent only.

97. a – P48,000. On the date of acquisition, the parent’s retained earnings is also theconsolidated retained earnings.

98. No requirement.99. b – P120,600, the initial value100. b – P4,000 x 90% = P3,600101. c


P Company P30,200 – (P4,000 x 90%) P26,600S Company 9,400

Total P36,000Less: Non-controlling Interest in Net Income* P 610

Amortization of allocated excess 3,300

Goodwill impairment ____0 3,910Controlling Interest in Consolidated Net Income or Profit

attributable to equity holders of parent………….. P32,090Add: Non-controlling Interest in Net Income (NCINI) 610Consolidated Net Income for 20x4 P32,700

*Net income of subsidiary – 20x4 P 9,400Amortization of allocated excess – 20x4 ( 3,300)


P 610Less: Non-controlling interest on impairment loss on full-goodwill ____0Non-controlling Interest in Net Income (NCINI) P 610

102. cNoncontrolling Interests (in net assets):

Common stock - S, 12/31 P 50,000Additional paid-in capital - S, 12/31 15,000

Retained earnings - S, 12/31:RE-S, 1/1/2011 P 41,000Add: NI-S, 2011 9,400Less: Dividends – S 4,000 46,400

Book value of SHE - S, 12/31 P 111,400Add: Adjustments to reflect fair value, 1/1 12,000Less: Amortization of allocated excess (1 yr.) 3,300Fair Value of Net Assets/SHE - S, 12/31 P 120,100x: Noncontrolling Interest % 10%Noncontrolling Interest (in net assets), 12/31 P 12,010

103. b – refer to 101 for computation104. c – refer to 101 for computation105. b

Controlling RE / RE Attributable to EH of Parent, 1/1 (refer to No. 102 P 48,000Add: CI – CNI (refer to 106 and 109) 32,090Less: CI – Dividends (Dividend of parent only) 15,000Controlling RE / RE Attributable to EH of Parent, 12/31 P 65,090

106. b – same with No. 105107. c

Consolidated Equity:Controlling Interest / Equity Holders

Attributable to Parent:Common stock – P: [P100,000 + P120,600 – (5,400 shares x P10 par)] P154,000APIC – P: [15,000 + [P120,600 – (5,400 x P10)] 81,600RE – P (refer to No. 105) 65,090

Parent’s Stockholders Equity or Controlling Interest – Equity P300,690Noncontrolling Interest 12,010

Consolidated Equity P312,700

108. c P95,000 = (P956,000 / .80) - P1,000,000 - P100,000

109. c P251,000 = .20[(P956,000 + P239,000) + (P190,000 - P5,000 - P125,000)]

110. b Combined revenues .................................................................................................. P1,300,000Combined expenses.................................................................................................. (800,000)

Trademark amortization ............................................................................................ (6,000)Patented technology amortization ........................................................................ (8,000)Consolidated net income......................................................................................... P486,000

111. cNCI-CNI - P34,400; NCI – P260,800Subsidiary income (P100,000 – P14,000 excess amortizations) .......................... P86,000Non-controlling interest percentage...................................................................... 40%Non-controlling interest in subsidiary income ....................................................... P34,400

Fair value of non-controlling interest at acquisition date................................... P180,00040% change in Scott book value since acquisition ............................................. 52,000Excess fair value amortization (P14,000 × 40%)..................................................... (5,600)40% current year income .......................................................................................... 34,400Non-controlling interest at end of year .................................................................. P260,800

112. a MM trademark balance............................................................................................ P260,000SS trademark balance.............................................................................................. 200,000Excess fair value .......................................................................................................... 60,000Two years amortization (10-year life) ...................................................................... (12,000)Consolidated trademarks ......................................................................................... P508,000

113. a Fair value of non-controlling interest on April 1 .................................................... P165,00030% of net income for 9 months (¾ year × P240,000 × 30%) .............................. 54,000Non-controlling interest December 31 ................................................................... P219,000

114. cNon-controlling interest (full-goodwill), December 31, 20x4

Book value of SHE – S, 12/31/20x4 P1,000,000Add: Net income of S – 20x4 ___150,000Total P1,150,000Less: Dividends paid – 20x4 ____90,000

Stockholders’ equity – S Company, December 31, Year 2 P1,060,000Adjustments to reflect fair value - (over) undervaluation of assets and

liabilities, date of acquisition January 1, 20x4 200,000Amortization of allocated excess (refer to amortization above: P200,000/10 _( 20,000)Fair value of stockholders’ equity of subsidiary, December 31, 20x5…… P1,240,000Multiplied by: Non-controlling Interest percentage…………... 30%Non-controlling interest (partial) P 372,000Add: NCI on full-goodwill P85,714 – P60,000) ___25,714Non-controlling interest (full) P397,714

*P900,000/70% = P1,285,714 – P1,000,000 = P285,714 – P200,000 = P85,714, full goodwill*P900,000 – (P1,000,000 x 70%) = P200,000 – (P200,000 x 70%) = P60,000, partial goodwill

It is assumed that full-goodwill is used. But, it should be noted that PFRS 3 either partial or full-goodwill approach are considered acceptable.

115. b – (P50,000 + P70,000) x 25% = P30,000116. b – P only.117. b

{(P250,000/.8) + [P75,000 + P90,000 - P25,000 - P50,000 - P30,000 - (P80,000/8)2]}.2118. d

{(P420,000/.7) + [P160,000 + P210,000 - P60,000 - P80,000 - P50,000 - (P90,000/5)2]}.3119. a - P650,000 =P500,000 + P200,000 - P50,000120. a – assume the use of equity method

Punn’s equity in net income of Sunn (3 months ended,12/31/x6)…… P 200,000Amortization of cost in excess of book value........................................... ( 60,000)

Increase in Parent’s retained earnings……………………………………. P 140,000e - If cost model/cost method, the answer would be P100,000.

Dividend income……………………………………………………………. P 100,000121. c – P120,000 x 70%122. c

Investment.1/1/20x4 P210,000Add: Share in net income – 20x4 (P90,000 x 70%) 63,000Less: Dividends received 24,000Investment, 12/31/20x4 P249,000Add: Share in net income – 20x5 (P120,000 x 70%) 84,000Less: Dividends received 36,000Investment, 12/31/20x5 P297,000

Note: The term “received” means that is the amount attributable to parent. If the term“declared or paid” were used then it should be multiplied further by controlling interest.

123. c – P60,000 x 80% = P48,000124. c

Investment.1/1/20x4 P105,000Add: Share in net income – 20x4 (P45,000 x 80%) 36,000Less: Dividends received 12,000Investment, 12/31/20x4 P129,000Add: Share in net income – 20x5 (P60,000 x 80%) 48,000Less: Dividends received 18,000Investment, 12/31/20x5 P159,000

125. dInvestment balance, 1/1/20x4……………………………………………….. P 150,000Add: Puma’s equity in net income of Slume (30% x P25,000)..………… 7,500Less: Dividends (P30% x P10,000)……………………………………………. 3,000

Amortization of cost in excess of book value(P50,000/10 years) x 30%.............................................................. 1,500

Puma’s 20x6 net income (equity method) ............................................... P 153,000126. b

Puma’s equity in net income of Slume (30% x P25,000)..……………….. P 7,500Less: Amortization of cost in excess of book value

(P50,000/10 years) x 30%.............................................................. 1,500Investment income – 20x4 (equity method)………………………………. P 6,000

127. bFull—goodwill Aproach




Increase in land (P5,000 x 100%)……………………. P 5,000Increase in equipment (P10,000 x 100%) ___10,000 15,000


Partial-Goodwill ApproachFair value of Subsidiary (90%)

Consideration transferred……………………………….. P 180,000Less: Book value of stockholders’ equity of S:

Common stock (P100,000 x 90%)……………………. P 90,000Retained earnings (P60,000 x 90%)………………... 54,000 144,000


Increase in land (P5,000 x 90%)……………………. P 4,500Increase in equipment (P10,000 x 90%) ___9,000 13,500

Positive excess: partial-goodwill (excess of cost overfair value)………………………………………………... P 22,500



AnnualAmount

CurrentYear(20x4)

Subject to Annual AmortizationEquipment (net)......... 10,000 5 P 2,000 P 2,000Patent 25,000 5 5,000 5,000

P 7,000 P 7,000

128. d

129. c

130. d – 20x3: P30,000 x 75% = P22,50020x4: P40,000 x 75% = P30,000

131. a – no changes in investment unless there are dispositions of investment and permanentimpairment.

132. None – no answer available. Under the cost model share in net income or earnings ofsubsidiary does not affect investment.

133. dInvestment account, December 31, 20x7:

Original investment …………………………………………P 550,000Tiny’s earnings, 20x4-20x77: 100% x P166,000…………… 166,000Less: Dividends received: 100% x P114,000……………… 114,000Balance, December 31, 20x7…………………………….. P602,000

134. aThe adjusting entry required in 20x7 to convert from the cost to the equity method is:

Investment in Tiny………………………………….52,000

Investment in Wisden1/1/x4. 180,000 18,000 Dividends – S

(20,000 x 90%)NI of S(60,000


12,600 (P14,000 x 90%)1/1/x6 203,400

Investment in Wisden1/1/x6. 230,400 9,000 Dividends – S

(10,000 x 90%)NI of S(30,000


6,300 (7,000 x 90%)1/1/x6 215,100

Retained earnings beg………………………….. 4,000Dividend revenue………………………………… 54,000

Equity in subsidiary income of Tiny……. 110,000135. b136. b – Dividend paid – S, P70,000 x 60% = P42,000137. d – CNI amounted to P265,000 [CI-CNI, P235,000 and NCI-CNI, P30,000







*Net income of subsidiary – 20x4 P 90,000Amortization of allocated excess – 20x4 ( 15,000_


P 30,000Less: Non-controlling interest on impairment loss on full-goodwill (P1,500 x 15%)* ______0

P 30,000

20x5 results of operations are as follows:Peer Sea-Breeze

Sales P 600,000 P 300,000Less: Cost of goods sold Operating expenses 410,000 210,000Net income from its own separate operations P 190,000 P 90,000Add: Investment income 45,000 -Net income P 235,000 P 90,000

Computation of Goodwill:Fair value of Subsidiary (100%)

Consideration transferred: Cash (60%) P 414,000Fair value of NCI (given) (40%) 276,000Fair value of Subsidiary (100%) P 690,000

Less: Book value of stockholders’ equity of Sea (P550,000 x 100%) __550,000Allocated excess (excess of cost over book value)….. P 140,000Add (deduct): (Over) under valuation of assets and liabilities

(P140,000 x 100%) 140,000Positive excess: Full-goodwill (excess of cost over fair value) P 0

Amortization of Allocated ExcessBook Value Fair Value Over/under Amort.

Buildings (net)- 6 300,000 360,000 P 60,000 P 10,000Equipment (net)– 4 300,000 280,000 (20,000) (5,000)Patent -10 -0- 100,000 100,000 10,000Net P 140,000 P 15,000

138. c – refer to No. 137 for computations139. b – refer to No. 137 for computations140. c - P811,000.

Consolidated Retained Earnings, December 31, 20x5Retained earnings - Parent Company, January 1, 20x5 (cost model) P700,000Adjustment to convert from cost model to equity method for

purposes of consolidation or to establish reciprocity:/Parent’sshare in adjusted net increased in subsidiary’s retained earnings:

Retained earnings – Subsidiary, January 1, 20x5 P 300,000Less: Retained earnings – Subsidiary, January 1, 20x2 70,000Increase in retained earnings since date of acquisition P 230,000Less: Amortization of allocated excess – 20x2 – 20x4

(P15,000 x 3 years) 45,000P 185,000

Multiplied by: Controlling interests %................... 60%P 111,000

Less: Goodwill impairment loss (full-goodwill), 0 111,000Consolidated Retained earnings, January 1, 20x5 P 811,000

Note:a. Date of acquisition: RE of Parent = Consolidated RE

Regardless of the method used in the books of the subsidiary, the following rule should always beapplied –

b. Subsequent to date of acquisition:Retained earnings of Parent under equity method = CRE

Since, the P811,000 is the retained earnings of parent under the equity method, it should also beconsidered as the parent’s portion or interest in consolidated retained earnings or simply theconsolidated retained earnings.

141. c - P811,000 – refer to note (b) of No. 140142. b – P111,000 – refer to No. 140143. d

Consolidated Retained earnings, January 1, 20x5 (refer to Nos. 118 and 119) P 811,000Add: Controlling Interest in Consolidated Net Income or

Profit attributable to equity holders of parent for 20x5 235,000Total P1,046,000Less: Dividends paid – Parent Company for 20x5 92,000Consolidated Retained Earnings, December 31, 20x5 P 954,000

144. d – refer to No.143145. c

Non-controlling interest (partial-goodwill), December 31, 2015Common stock – Subsidiary Company, December 31, 2015…… P 480,000Retained earnings – Subsidiary Company, December 31, 2015

Retained earnings – Subsidiary Company, January 1, 2015 P300,000Add: Net income of subsidiary for 2015 90,000Less: Dividends paid – Subsidiary - 2015 70,000 320,000

Stockholders’ equity – Subsidiary Company, December 31, 2015 P 800,000Adjustments to reflect fair value - (over) undervaluation

of assets and liabilities, date of acquisition (January 1, 2012) 140,000Amortization of allocated excess (refer to amortization above) –

(P15,000 x 4) ( 60,000)Fair value of stockholders’ equity of subsidiary, 12/31/ 2015 P 880,000Multiplied by: Non-controlling Interest percentage. 40Non-controlling interest (partial) P 352,000Add: NCI on full-goodwill……………………. ____0

Non-controlling interest (full) P 352,000146. c

Stockholders’ EquityCommon stock - Peer P 724,000Retained earnings 954,000

Parent’s Stockholders’ Equity/Equity Attributable to theOwners of the Parent P 1,678,000

Non-controlling interest** 352,000Total Stockholders’ Equity (Total Equity) P 985,500Total Liabilities and Stockholders’ Equity P2,030,000

147. c

148. c149. d – refer to No. 137150. c – refer to No. 137151. b – refer to No. 137152. c – refer to No. 140153. c – refer to No. 140154. a – not applicable under equity method.155. d – refer to No. 143156. d – refer to No. 143157. d – refer to No. 145158. c – refer to No. 146159. b

Consideration transferred: 10,500 shares x P95 P997,500Less: BV of SHE – S (?) 857,500Allocated excess; P140,000Less: O/U valuation of A and L:

Undervaluation of land P40,000Overvaluation of buildings ( 30,000)Undervaluation of equipment 80,000Undervaluation/unrecorded trademark 50,000 140,000

P 0160. a – P900,000 + P500,000 = P1,400,000161. d – assumed that total expenses includes cost of goods sold which is different when the

question is “total operating expenses”Cost of goods sold (P360,000 + P200,000) P 560,000Depreciation expense (P140,000 + P40,000) 180,000Other expenses (P100,000 + P60,000) 160,000Amortization of allocated excess:

Buildings: (P30,000) / 20 (P1,500)Equipment; P80,000 / 10 8,000Trademark: P50,000 / 16 3,125 9,625

Total expenses P909,625162. b – (P750,000 + P280,000) – P30,000 + (P1,500 x 5 years) = P1,007,500163. c – (P300,000 + P500,000) + P80,000 – (P8,000 x 5 years) = P840,000164. c – P450,000 + P180,000 + P40,000 = P670,000

Investment in Sea-Breeze Investment Income1/1/x2. 414,000 42,000 Dividends – S NI of SRetro 111,000 (70,000 x 60%NI of S(90,000



(P15,000 x 60%) 9,000(90,000

54,000 x 60%)12/31/x5 528,000 45,000

165. d – P50,000 – P3,125 x 5 years) = P34,375166. a – P only (the stock issued In 20x0 includes already in the December 31, 20x4 balance.167. a – P only168. a

Consolidated Retained Earnings, December 31, 20x4Consolidated Retained earnings, January 1, 20x4 (equity method) P 1,350,000Add: Controlling Interest in Consolidated Net Income or Profit attributable to

equity holders of parent for 20x4 490,375Total P1,840,375Less: Dividends paid – P Company for 20x4 195,000Consolidated Retained Earnings, December 31, 20x4 (under equity method) P1,645,375

Net Income from own operations: P Co S CoSales P900,000 P500,000Less: cost of goods sold 360,000 200,000Gross profit P540,000 P300,000Less: Depreciation expense 140,000 40,000

Other expenses 100,000 60,000Net income P300,000 P200,000

Non-controlling interest (full-goodwill), December 31, 20x4P Company P300,000S Company 200,000

Total P500,000Less: Non-controlling Interest in Net Income P 0

Amortization of allocated excess (refer to amortization above) 9,625Goodwill impairment (impairment under full-goodwill approach) _ 0 9,625


169. cNote: Normally, the term used in the requirement “equity in subsidiary income”, is a termused under equity method, but it should be noted that under PAS 27, it prohibits the use ofequity method for a parent to consolidate a subsidiary. But, assuming the use of equitymethod, the answer would be, P190,375.

Share in net income: P200,000 x 100% P200,000Less: Amortization of allocated excess 9,625

P190,375170. c – P3,1250 / .20 = P15,750171. a

Punn’s separate earnings for 20x6.............................................................. P6,000,000Add: Punn’s equity in net income of Sunn (3 months ended,12/31/x6) 200,000Less: Amortization of cost in excess of book value ................................. ( 60,000)Punn’s 20x6 net income (equity method)................................................. P6,140,000

172. a – assume the use of equity methodPunn’s equity in net income of Sunn (3 months ended,12/31/x6)…… P 200,000Amortization of cost in excess of book value........................................... ( 60,000)Increase in Parent’s retained earnings……………………………………. P 140,000

E - If cost model/cost method, the answer would be P100,000.Dividend income……………………………………………………………. P 100,000

173. aNet income of S (5/1/x5 – 12/31/x5): P840,000 x 8/12 P560,000Less: Dividend – S (11/1/20x5 – no need to pro-rate) 300,000Cumulative net income less dividends since

date of acquisition, 1/1/20x6 (date to establish reciprocity –not 12/31/x6) P260,000

x: Controlling interests 80%P208,000

174. aNet income of S (5/1/x5 – 12/31/x5): P210,000 x 8/12 P140,000Less: Dividend – S (11/1/20x5 – no need to pro-rate) 75,000Cumulative net income less dividends since

date of acquisition, 12/31/20x5 (date to establish reciprocity –not or 1/1/20x6) P 65,000

x: Controlling interests 80%P 52,000

175. bRetained earnings – S Company, 1/1/20x4 P 60,000Less: Retained earnings – S Company, 12/31/20x6 190,000Cumulative net income less dividends since

date of acquisition, 1/1/20x6 (date to establish reciprocity –should always be beginning of the year, not 12/31/x6) P130,000

x: Controlling interests 90%P117,000

176. b{(P260,000 - P230,000) + [(P650,000 - P590,000)/120] 8}.8

177. d{(P190,000 - P160,000) 4/6 - [(P241,000 - P220,000)/60] 5}.7

178. c[{(P15,000 + P22,000) - [(P80,000 - P60,000)/10]2} - (P6,000 + P9,000)].7

179. b[{(P84,000 + P105,000) - [(P310,000 - P220,000)/20]2} - (P30,000 + P50,000)].8

180. b – building account in the books of subsidiary at fair value181. e – building account in the books of subsidiary at book value182. d – push-down accounting: equipment account in the books of subsidiary is at fair value183. b184. a – P540,000 = (P500,000 + P150,000 – P90,000 – P20,000)185. c – equivalent to the original cost186. d - In consolidating the subsidiary's figures, all intercompany balances must be eliminated

in their entirety for external reporting purposes. Even though the subsidiary is less than fullyowned, the parent nonetheless controls it.

187. b - Intercompany receivables and payables from unconsolidated subsidiaries would not beeliminated.

Quiz - XVI1. b

{P150,000 - [(P550,000 - P450,000)/10] - [(P300,000 - P280,000)/5]}.82. P36,925

{P110,000 - (P250,000 - P160,000 - P50,000) - [(P130,000 - P100,000) 3/5] + [(P215,000 -P200,000)/5] (3/12)}.7

3. P545,500P500,000 + [P110,000 + P130,000 - P30,000 - P40,000 - P55,000 - (P200,000/8)2].7

4. P388,000P320,000 + [P100,000 + P140,000 - P40,000 - P50,000 - P35,000 - (P75,000/5)2].8

5. P15,400{P80,000 - [(P290,000 - P250,000)/8] + [(P160,000 - P150,000)/5]}.2

6. P13,200{P150,000 - (P470,000 - P300,000 - P90,000) - [(P190,000 - P160,000) 4/5] - [(P520,000 -P400,000)/10] (4/12) + [(P380,000 - P350,000)/5] (4/12)}.3

7. P70,500{(P250,000/.8) + [P75,000 + P90,000 - P25,000 - P50,000 - P30,000 - (P80,000/8)2]}.2

8. 20x5: P56,00020x6: P14,000

Purchase differential amortization to investment income 20x5 20x6Inventory (P300,000 - P240,000).7 P42,000 P 0Plant Assets [(P700,000 - P560,000)/7].7 14,000 14,000

P56,000 P14,0009.

Consolidation worksheet:Cost of Goods Sold P60,000Depreciation Expense 20,000

10. P2,900Sandpiper’s share of Shore net income (P18,000 x 30%) P 5,400Add: Overvalued accounts receivable collected in 20x5 600

Undervalued accounts payable paid in 20x5 300Less: Undervalued inventories sold in 20x5 ( 2,400)

Depreciation on building undervaluation P3,600/6 ( 600)Amortization on patent P3,200/8 years ( 400)

Income from Shore/Income from subsidiary 2,900

11. No requirement

12. P1,050,000Parrco’s income from its own separate operations for 20x6 P 900,000Subbco’s net income for the nine months ended 12/31/x6 200,000Less: Amortization of cost in excess of book value (P30,000 ÷ 60%) ___50,000)Consolidated net income for 20x6 (economic unit concept) P1,050,000Division of consolidated net income:

To controlling interest (Parrco’s stockholders) P 990,000To non-controlling interest (stockholders of Subbco) ___60,000

P1,050,000

13. P990,000Parrco’s income from its own separate operations for 20x6 P 900,000Parrco’s equity in net income of Subbco Company for

nine months ended 12/31/x6 (P200,000 60%) 120,000Less: Parrco’s amortization of cost in excess of book value ( 30,000)Consolidated net income for 20x6 (parent company concept) P 990,000

14. P400,000 (P100,000 + P300,000)

15. P3,600,000Plyco’s separate earnings for 20x6 P 3,500,000Add:Dividend income from Slyco .............................................................. 100,000Plyco’s 20x6 net income P 3,600,000

16. P3,867,000Plyco’s separate earnings for 20x6............................................................ P3,500,000

Add:Plyco’s equity in net income of Slyco ............................................... 400,000Less: Amortization of cost in excess of book value ................................. ( 33,000)Plyco’s 20x6 net income............................................................................... P3,867,000

17. P3,867,000 (same amount as calculated in Requirement 16).

18. Correction 20x0 should be 20y0: P372,850Step-acquisition, either full-goodwill or partial goodwill approach, the answer remains thesame.Full-Goodwill Presentation:

Net income from own operations;Parent - Keefe…………………………………… P 300,000Subsidiary - George (P500,000 – P400,000)…….. 100,000

P 400,000Less: Amortization of allocated excess…………………… 6,000

Impairment of goodwill (if any)……………………. 0Consolidated/Group Net Income…………………………. P 394,000Less: Non-controlling interest in Net Income

Subsidiary net income from own operations:1/1/20y0 - 4/1/20y0 (3 months):

P100,000 x 3/12 = P25,000 x 30%................ P 7,5004/1/20y0 – 12/31/20y0 (9 months):

P100,000 x 9/12 = P75,000 x 20%................ 15,000Total…………………………………………….. P 22,500Less: Amortization of allocated excess:

1/1/20y0 – 4/1/20y0 (3 months)P6,000 x 3/12 = P1,500 x 30%.......... 450

4/1/20y0 – 12/31/20y0 (9 months)P6,000 x 9/12 = P4,500 x 20%........... 900

Impairment of goodwill (if any):First 3 months: P 0 x 30%.......………… 0Remaining 9 months: P 0 x 20%............... 0 21,150

CNI attributable to the controlling interest (CI-CNI)/ Profitattributable to equity holders of parent…………………. P372,850

* It should be noted that the phrase without regard for this investment means thatexcluding any income arising from investment in subsidiary (i.e., dividend income).

19. Correction 20y0 should be 20x420x4 = P86,400Consolidated Net Income 20x4 20x5

Peters Company's reported net income 64,000 37,500Less: dividend income from Smith (1,600) 0Peters' income from independent operations 62,400 37,500Add: Smith's net income in 20x4 since acquisition (8/12)(P45,000) 30,000

Less: Smith's net loss in 20x5 P5,000) ( 5,000)Controlling Interest in Consolidated net income 92,400 32,500

20. 20x5 = P32,500 – refer to No. 1921. 20x4 = P151,400

Consolidated Retained Earnings 20x4 20x5Peter's 12/31 retained earnings (P80,000 + P64,000 - P15,000) P129,000 P161,500Add: Peter's share of the increase in Smith's retained earnings

from the date of acquisition to the current date:(.80 (P53,000 – P25,000)) 22,400(.80 (P48,000 – P25,000) 18,400

P151,400 P179,90022. 20x5 = P179,900 – refer to No. 2123. P9,200

Pinta Company 20y4 equity-method income:Proportionate share of reported income (P30,000 x .40) P 12,000Amortization of differential assigned to:

Buildings and equipment [(P35,000 x .40) / 5 years] ( 2,800)Goodwill (P8,000: not impaired) -0-

Investment Income P 9,200Assignment of differential

Purchase price P150,000Proportionate share of book value of

net assets (P320,000 x .40) (128,000)Proportionate share of fair value increase in

buildings and equipment (P35,000 x .40) (14,000)Goodwill P 8,000

24. P3,600 - Dividend income, 20y4 (P9,000 x .40) P 3,600

25. Cost-method account balance (unchanged): P150,000Equity-method account balance:

Balance, January 1, 20y4 P150,000Investment income 9,200Dividends received (3,600)Balance, December 31, 20y4 P155,600

Theories1. c 6. b 11. C** 16. c 21. d 26. c 31 c 36. d 41. a2. d 7. c 12. b 17. c 22. a 27. d 32. b 37. b 42. c3. d 8. d 13. d 18. d 23. b 28. c 33. c 38. b 43. a4. d* 9. d 14. c 19. d 24. c 29. c 34. c 39. c 44.5. d 10, a 15, c 20. b 25. c 30. b 35. d 40. d 45.

*under PAS 27, cost model recognizes any dividend declared/paid by the subsidiary is classified as income regardlessof retained earnings balance, which means there is no such thing as liquidating dividend under the cost model. On theother hand, under FASB ruling, a liquidating dividend still exists under the cost method.**partial equity is the same with equity method except that amortization of allocated excess is not recognized in theinvestment and income account.

Solution Chapter 16

Documents