Solution Chapter 18

Chapter 18
Problem I
1. Journal entry to record sale:
Cash 84,000
Accumulated Depreciation 80,000
Equipment 150,000
Gain on Sale of Equipment 14,000
Record the sale of equipment:
P84,000 = P150,000 - P80,000 + P14,000
P80,000 = (P150,000 / 15 years) x 8 years
2. Journal entry to record purchase:

Equipment 84,000
Cash 84,000
Journal entry to record depreciation expense:

Depreciation Expense 12,000
3. Eliminating entry at December 31, 20x4, to eliminate intercompany sale of equipment:
E(1) Equipment 66,000

Gain on Sale of Equipment 14,000
Eliminate unrealized profit on equipment.
Adjustment to equipment
Amount paid by WW to acquire building P150,000
Amount paid by LL on intercompany sale (84,000)
Adjustment to buildings and equipment P 66,000
Adjustment to depreciation expense

Depreciation expense recorded by Lance
Corporation (P84,000 / 7 years) P 12,000
Depreciation expense recorded by WW
Corporation (P150,000 / 15 years) (10,000)
Adjustment to depreciation expense P 2,000
Adjustment to accumulated depreciation

Amount required (P10,000 x 9 years) P 90,000
Amount reported by LL (P12,000 x 1 year) (12,000)
Required adjustment P 78,000
4. Eliminating entry at January 1, 20x4, to eliminate intercompany sale of equipment and

prepare a consolidated balance sheet only:
E(1) Equipment 66,000
Retained Earnings 12,000
Eliminate unrealized profit on equipment.
Problem II
1. Eliminating entry, December 31, 20x8:
E(1) Truck 55,000
Gain on Sale of Truck 35,000
Computation of gain on sale of truck:

Price paid by Minnow P245,000
Cost of truck to Frazer P300,000
Accumulated depreciation
(P300,000 / 10 years) x 3 years ( 90,000) (210,000)
Gain on sale of truck P 35,000
Accumulated depreciation adjustment:
Required [(P300,000 / 10 years) x 4 years] P120,000
Reported [(P245,000 / 7 years) x 1 year] (35,000)
Required increase P 85,000
E(1) Truck 55,000

Retained Earnings 30,000

Reported [(P245,000 / 7 years) x 2 years] (70,000)
Required increase P 80,000
Problem III
a. Eliminating entry, December 31, 20x8:
E(1) Truck 90,000

Gain on Sale of Truck 30,000
Computation of gain on sale of truck:

Price paid by MM P210,000
Cost of truck to FF P300,000
Accumulated depreciation
(P300,000 / 10 years) x 4 years (120,000) (180,000)
Gain on sale of truck P 30,000
b. Eliminating entry, December 31, 20x9:
E(1) Truck 90,000

Retained Earnings, January 1 30,000

Recorded [(P210,000 / 6 years) x 1 year] (35,000)
Required increase P115,000
Problem IV
1 Equipment 540,000
Beginning R/E Prince (P100,000 .80) 80,000
Noncontrolling Interest (P100,000 .20) 20,000
Accumulated Depreciation (P100,000/4) 2 50,000

Beginning R/E Prince (P25,000 .80) 20,000
Noncontrolling Interest (P25,000 .20) 5,000
2 Controlling Interest in Consolidated Net Income:

Prince Companys income from its
independent operations P3,270,000
Reported net income of Serf Company P820,000
Plus profit on intercompany sale of
equipment considered to be realized
through depreciation in 2014 25,000
Reported subsidiary income that has been
realized in transactions with third
parties 845,000
.8
Prince Companys share thereof 676,000
Controlling Interest in Consolidated net income P3,946,000
3. Noncontrolling Interest Calculation:

Reported income of Serf Company P820,000
Plus: Intercompany profit considered realized
in the current period 25,000
P845,000
Noncontrolling interest in Serf Company
(.20 845,000) P169,000
4. NCI-CNI (No. 3) P 169,000

CI-CNI (No. 2) 3,946,000
CNI P4,115,000
or,
Consolidated Net Income for 20x5
P Companys net income from own/separate operations. P3,270,000
Realized gain on sale of equipment (downstream sales) through depreciation 0
P Companys realized net income from separate operations... P3,270,000
S Companys net income from own operations. P 820,000
Realized gain on sale of equipment (upstream sales) through depreciation* 25,000
Son Companys realized net income from separate operations*... P 845,000 845,000
Total P4,115,000
Less: Amortization of allocated excess 0
Consolidated Net Income for 20x5 P4,115,000
Less: Non-controlling Interest in Net Income* * 169,000
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent 20x5.. P3,946,000
Or, alternatively
Realized gain on sale of equipment (downstream sales) through depreciation 0
S Companys net income from own operations. P820,000
Realized gain on sale of equipment (upstream sales) through depreciation 25,000
S Companys realized net income from separate operations... P 845,000 845,000
Total P4,115,000
Less: Non-controlling Interest in Net Income* * P 169,000
Amortization of allocated excess 0 169,000
equity holders of parent.. P3,946,000
Add: Non-controlling Interest in Net Income (NCINI) _169,000
**Non-controlling Interest in Net Income (NCINI) for 20x5

S Companys net income of Subsidiary Company from its own operations
(Reported net income of S Company) P 820,000
S Companys realized net income from separate operations P 845,000
P845,000
Multiplied by: Non-controlling interest %.......... 20%
Non-controlling Interest in Net Income (NCINI) partial goodwill P 169,000
1/1/20x4:
Selling price of equipment P 740,000
Less: BV of equipment
Cost P1,280,000
Less: Accumulated depreciation:
P1,280,000 / 8 years x 4 years* 640,000 640,000
Unrealized gain on sales 1/1/20x4 P 100,000
Realized gain depreciation: P100,000 / 4 years P 25,000

*the original life is 8 years as of 1/1/20x3, since the remaining life as of 1/1/20x4
in only 4 years, for purposes of computing the accumulated depreciation to
determine the gain on sale, the difference of 4 years is presumed to be expired.
5 Equipment 540,000
Beginning R/E Prince 100,000
Accumulated Depreciation (P100,000/4) 2 50,000

Beginning R/E Prince 25,000
6 Controlling Interest in Consolidated Net Income:

Prince Companys income from its
independent operations P3,270,000
Plus profit on intercompany sale of
equipment considered to be realized
through depreciation in 2014 25,000
P3,295,000
Reported net income of S Company P820,000
.8
Prince Companys share thereof 656,000
Controlling Interest in Consolidated net income P3,951,000
Noncontrolling Interest Calculation:
Reported income of S Company P820,000
Noncontrolling interest in S Company
(.20 820,000) P164,000
NCI-CNI P 164,000
CI-CNI 3,951,000
CNI P4,115,000
or,
Realized gain on sale of equipment (downstream sales) through depreciation
____25,000
Realized gain on sale of equipment (upstream sales) through depreciation* 0
S Companys realized net income from separate operations*... P 820,000 820,000
Total P4,115,000
equity holders of parent 20x5.. P3,951,000
Or, alternatively
Realized gain on sale of equipment (downstream sales) through depreciation 25,000
S Companys net income from own operations. P820,000
Realized gain on sale of equipment (upstream sales) through depreciation 0
S Companys realized net income from separate operations... P 820,000 820,000
Total P4,115,000
Amortization of allocated excess 0 164,000
equity holders of parent.. P3,951,000
Add: Non-controlling Interest in Net Income (NCINI) _169,000

(Reported net income of S Company) P 820,000
Realized gain on sale of equipment (upstream sales) through depreciation 0
P820,000
Problem V
Requirements 1 to 4
Schedule of Determination and Allocation of Excess (Partial-goodwill)
Date of Acquisition January 1, 20x4
Fair value of Subsidiary (80%)
Consideration transferred.. P 372,000
Less: Book value of stockholders equity of S:
Common stock (P240,000 x 80%). P 192,000
Retained earnings (P120,000 x 80%)... 96,000 288,000
Allocated excess (excess of cost over book value).. P 84,000
Less: Over/under valuation of assets and liabilities:
Increase in inventory (P6,000 x 80%) P 4,800
Increase in land (P7,200 x 80%). 5,760
Increase in equipment (P96,000 x 80%) 76,800
Decrease in buildings (P24,000 x 80%)..... ( 19,200)
Decrease in bonds payable (P4,800 x 80%) 3,840 72,000
Positive excess: Partial-goodwill (excess of cost over
fair value)... P 12,000
The over/under valuation of assets and liabilities are summarized as follows:

S Co. S Co. (Over) Under
Book value Fair value Valuation
Inventory... P 24,000 P 30,000 P 6,000
Land 48,000 55,200 7,200
Equipment (net)......... 84,000 180,000 96,000
Buildings (net) 168,000 144,000 (24,000)
Bonds payable (120,000) ( 115,200) 4,800
Net.. P 204,000 P 294,000 P 90,000
The buildings and equipment will be further analyzed for consolidation purposes as follows:
S Co. S Co. Increase
Book value Fair value (Decrease)
Equipment.................. 180,000 180,000 0
Less: Accumulated depreciation.. 96,000 - ( 96,000)
Net book value... 84,000 180,000 96,000
S Co. S Co.
Buildings................ 360,000 144,000 ( 216,000)
Net book value... 168,000 144,000 ( 24,000)
A summary or depreciation and amortization adjustments is as follows:

Over/ Annual Current
Account Adjustments to be amortized Under Life Amount Year(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 12,000
Buildings (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
The goodwill impairment loss of P3,750 based on 100% fair value would be allocated to the controlling
interest and the NCI based on the percentage of total goodwill each equity interest received. For purposes
of allocating the goodwill impairment loss, the full-goodwill is computed as follows:

Consideration transferred: Cash (80%) P 372,000
Fair value of NCI (given) (20%) 93,000
Fair value of Subsidiary (100%) P 465,000
Less: Book value of stockholders equity of S (P360,000 x 100%) __360,000
Add (deduct): (Over) under valuation of assets and liabilities
(P90,000 x 100%) 90,000
Positive excess: Full-goodwill (excess of cost over
In this case, the goodwill was proportional to the controlling interest of 80% and non-controlling interest of
20% computed as follows:
Value % of Total
Goodwill applicable to parent P12,000 80.00%
Goodwill applicable to NCI.. 3,000 20.00%
Total (full) goodwill.. P15,000 100.00%
The goodwill impairment loss would be allocated as follows

Value % of Total
Goodwill impairment loss attributable to parent or controlling P 3,000 80.00%
Interest
Goodwill applicable to NCI.. 750 20.00%
Goodwill impairment loss based on 100% fair value or full-
Goodwill P 3,750 100.00%
The unrealized and gain on intercompany sales for 20x4 are as follows:
Date Selling Book Unrealized* Remaining Realized gain

of Sale Seller Price Value Gain on sale Life depreciation** 20x4
4/1/20x4 P Co. P90,000 P75,000 P15,000 5 years P3,000/year P2,250
1/2/20x4 S Co. 60,000 28,800 31,200 8 years P3,900/year P3,900
* selling price less book value
** unrealized gain divided by remaining life; 20x4 P3,000 x 9/12 = P2,250
20x4: First Year after Acquisition

Parent Company Cost Model Entry
January 1, 20x4:
(1) Investment in S Company 372,000
Cash.. 372,000
Acquisition of S Company.
January 1, 20x4 December 31, 20x4:

(2) Cash 28,800
Dividend income (P36,000 x 80%). 28,800
Record dividends from S Company.
No entries are made on the parents books to depreciate, amortize or write-off the portion of the allocated
excess that expires during 20x4, and unrealized profits in ending inventory.
Consolidation Workpaper Year of Acquisition
(E1) Common stock S Co 240,000
Retained earnings S Co 120.000
Investment in S Co 288,000
Non-controlling interest (P360,000 x 20%).. 72,000
To eliminate intercompany investment and equity accounts
of 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.. 96,000
Accumulated depreciation buildings.. 192,000
Land. 7,200
Discount on bonds payable. 4,800
Goodwill. 12,000
Buildings.. 216,000
Investment in S Co. 84,000
To allocate excess of cost over book value of identifiable assets
acquired, with remainder to goodwill; and to establish non-
controlling interest (in net assets of subsidiary) on date of acquisition.
(E3) Cost of Goods Sold. 6,000

Depreciation expense.. 6,000
Interest expense 1,200
Goodwill impairment loss. 3,000
Inventory.. 6,000
Discount on bonds payable 1,200
Goodwill 3,000
To provide for 20x4 impairment loss and depreciation and
amortization on differences between acquisition date fair value and
book value of Sons identifiable assets and liabilities as follows:
Cost of Depreciation/
Goods Amortization Amortization
Sold Expense -Interest Total
Inventory sold P 6,000
Equipment P 12,000
Buildings ( 6,000)
Bonds payable _______ _______ P 1,200
Totals P 6,000 P 6,000 P1,200 13,200
(E4) Dividend income - P. 28,800

Dividends paid S 36,000
To eliminate intercompany dividends and non-controlling interest
share of dividends.
(E5) Gain on sale of equipment 15,000

Equipment 30,000
Accumulated depreciation 45,000
To eliminate the downstream intercompany gain and restore to its
original cost to the consolidate entity (along with its accumulated
depreciation at the point of the intercompany sale).

Equipment 12,000
To eliminate the upstream intercompany gain and restore to its
(E7) Accumulated depreciation.. 2,250

Depreciation expense 2,250
To adjust downstream depreciation expense on equipment sold to subsidiary,
thus realizing a portion of the gain through depreciation
(P15,000 / 5 years x 9/12 = P2,250).

To adjust upstream depreciation expense on equipment sold to parent, thus
realizing a portion of the gain through depreciation
(P31,200/85 years x 1 year = P3,900).
(E9) Non-controlling interest in Net Income of Subsidiary 10,140

Non-controlling interest .. 10,140
To establish non-controlling interest in subsidiarys adjusted net
income for 20x4 as follows:
Net income of subsidiary.. P 91,200

Unrealized gain on sale of equipment
(upstream sales) ( 31,200)
Realized gain on sale of equipment (upstream
sales) through depreciation 3,900
S Companys realized net income from
separate operations P 63,900
Less: Amortization of allocated excess [(E3)]. 13,200
P 50,700
Non-controlling Interest in Net Income (NCINI)
partial goodwill P 10,140
Subsidiary accounts are adjusted to full fair value regardless on the controlling interest percentage or what
option used to value non-controlling interest or goodwill.
Worksheet for Consolidated Financial Statements, December 31, 20x4.

Cost Model (Partial-goodwill)
80%-Owned Subsidiary
December 31, 20x4 (First Year after Acquisition)
Income Statement P Co S Co. Dr. Cr. Consolidated
Sales P480,000 P240,000 P 720,000
Gain on sale of equipment 15,000 31,200 (5) 15,000
(6) 31,200
Dividend income 28,800 - (4) 28,800 _________
Total Revenue P523,800 P271,200 P 720,000
Cost of goods sold P204,000 P138,000 (3) 6,000 P 348,000
Depreciation expense 60,000 24,000 (3) 6,000 (7) 2,250 83,850
(8) 3,900
Interest expense - - (3) 1,200 1,200
Other expenses 48,000 18,000 66,000
Goodwill impairment loss - - (3) 3,000 3,000
Total Cost and Expenses P312,000 P180,000 P 502,050
Net Income P211,800 P 91,200 P 217,950
NCI in Net Income - Subsidiary - - (9 10,140 ( 10,140)
Net Income to Retained Earnings P211,800 P 91,200 P 207,810
Statement of Retained Earnings

Retained earnings, 1/1
P Company P360,000 P 360,000
S Company P120,000 (1) 120,000
Net income, from above 211,800 91,200 207,810
Total P571,800 P211,200 P 567,810
Dividends paid
P Company 72,000 72,000
S Company - 36,000 (4) 36,000 _ ________
Retained earnings, 12/31 to Balance
Sheet P499,800 P175,200 P 495,810
Balance Sheet
Cash. P 232,800 P 90,000 P 322,800
Accounts receivable.. 90,000 60,000 150,000
Inventory. 120,000 90,000 (2) 6,000 3) 6,000 210,000
Land. 210,000 48,000 (2) 7,200 265,200
Equipment 240,000 180,000 (5) 30,000
(6) 12,000 462,000
Buildings 720,000 540,000 (2) 216,000 1,044,000
Discount on bonds payable (2) 4,800 (3) 1,200 3,600
Goodwill (2) 12,000 (3) 3,000 9,000
Investment in S Co 372,000 (1) 288,000
(2) 84,000 -
Total P1,984,800 P1,008,000 P2,466,600
Accumulated depreciation (3) 96,000 (3) 12,000

- equipment P 135,000 P 96,000 (7) 2,250 (5) 45,000
(8) 3,900 (6) 43,200 P229,050
Accumulated depreciation 405,000 288,000 (2) 192,000
- buildings (3) 6,000 495,000
Accounts payable 105,000 88,800 193,800
Bonds payable 240,000 120,000 360,000
Common stock, P10 par 600,000 600,000
Common stock, P10 par 240,000 (1) 240,000
Retained earnings, from above 499,800 175,200 495,810
Non-controlling interest (4) 7,200 (1 ) 72,000
(2) 18,000
_________ _________ __________ (9) 10,140 ____92,940
Total P1,984,800 P1,008,000 P 834,450 P 834,450 P2,466,600
20x5: Second Year after Acquisition

P Co. S Co.
Sales P 540,000 P 360,000
Less: Cost of goods sold 216,000 192,000
Gross profit P 324,000 P 168,000
Less: Depreciation expense 60,000 24,000
Other expense 72,000 54,000
Net income from its own separate operations P 192,000 P 90,000
Add: Dividend income 38,400 -
Net income P 230,400 P 90,000
Dividends paid P 72,000 P 48,000
No goodwill impairment loss for 20x5.

Only a single entry is recorded by the parent in 20x5 in relation to its subsidiary investment:

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

Cash 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 44,160

Retained earnings P Company 44,160
To provide entry to convert from the cost method to the equity
method or the entry to establish reciprocity at the beginning of the
year, 1/1/20x5, computed as follows:
Retained earnings S Company, 1/1/20x5 P175,200

Retained earnings S Company, 1/1/20x4 120,000
Increase in retained earnings.. P 55,200
Multiplied by: Controlling interest % 80%
Retroactive adjustment P 44,160
Entry (1) above is needed only for firms using the cost method to account for their investments in the
subsidiary. If the parent is already using the equity method, there is no need to convert to equity.

Retained earnings S Co., 1/1/20x5 175,200
Investment in S Co (P415,200 x 80%) 332,160
of subsidiary and to establish non-controlling interest (in net assets of
subsidiary) on January 1, 20x5.

Land. 7,200
Goodwill. 12,000
Buildings.. 216,000
Non-controlling interest (P90,000 x 20%) 18,000
controlling interest (in net assets of subsidiary) on January 1, 20x5.
(E4) Retained earnings P Company, 1/1/20x5

[(P13,200 x 80%) + P3,000, impairment loss on
partial-goodwill] 13,560
Non-controlling interests (P13,200 x 20%). 2,640
Inventory.. 6,000
Goodwill 3,000
To provide for years 20x4 and 20x5 depreciation and amortization on
differences between acquisition date fair value and book value of
Sons identifiable assets and liabilities as follows:
Year 20x4 amounts are debited to Perfects retained earnings &
NCI;
Year 20x5 amounts are debited to respective nominal accounts.
(20x4) Depreciation/
Retained Amortization Amortization
earnings, expense -Interest
Equipment 12,000 P 12,000
Buildings (6,000) ( 6,000)
Bonds payable 1,200 ________ P 1,200
Sub-total P13,200 P 6,000 P 1,200
Multiplied by: 80%
To Retained earnings P 10,560
Impairment loss 3,000
Total P 13,560
share of dividends.
(E5) Retained Earnings P Company, 1/1/20x5 15,000

Equipment 30,000
(E6) Retained EarningsP Company, 1/1/20x5 (P31,200 x 80%) 24,960

Equipment 12,000

Depreciation expense (current year) 3,000
Retained EarningsP Company, 1/1/20x5 (prior year) 2,250

Retained EarningsP Co. 1/1/20x5 (P3,900 x 80%) 3,120
Non-controlling interest (P31,200 x 20%) 780
(P31,200/85 years x 1 year = P3,900).


S Companys Realized net income* P 93,900
Less: Amortization of allocated excess ( 7,200)
P 86,700
Non-controlling Interest in Net Income (NCINI) P 17,340
partial goodwill
*from separate transactions that has been realized in transactions
with third persons.

Cost Model (Partial-goodwill)
December 31, 20x5 (Second Year after Acquisition)
Sales P540,000 P360,000 P 900,000
Dividend income 38,400 - (5) 38,400 ___________
Cost of goods sold P216,000 P192,000 P 408,000
(8) 3,900
Other expenses 72,000 54,000 126,000
Goodwill impairment loss - - -
Net Income P230,400 P 90,000 P 281,700
NCI in Net Income - Subsidiary - - (9) 17,340 ( 17,340)

P Company P499,800 (1) 13,560 (1) 44,160
(5) 15,000 (7) 2,250
(6) 24,960 (8) 3,120 P 495,810
S Company P 175,200 (2) 175,200
Net income, from above 230,400 __90,000 264,360
Total P730,200 P265,200 P 760,170
Dividends paid
P Company 72,000 72,000
S Company - 48,000 (5) 48,000 _ ________
Sheet P658,200 P217,200 P 688,170
Balance Sheet
Cash. P 265,200 P 102,000 P 367,200
Inventory. 216,000 108,000 (1) 6,000 (2) 6,000 324,000
Land. 210,000 48,000 (3) 7,200 265,200
Equipment 240,000 180,000 (5) 30,000
(6) 12,000 462,000
Buildings 720,000 540,000 (3) 216,000 1,044,000
Goodwill (3) 12,000 (4) 3,000 9,000
Investment in S Co 372,000 (1) 44,160 (2) 332,160
(3) 84,000 -
Total P2,203,200 P1,074,000 P2,749,800
Accumulated depreciation P 150,000 P 102,000 (3) 96,000 (4) 24,000

- equipment (7) 5,250 (5) 45,000
(8) 7,800 (6) 43,200 P 255,150
- buildings (4) 12,000 552,000
Bonds payable 240,000 120,000 360,000
Non-controlling interest (4) 2,640 (2 83,040
(5) 9,600 (3) 18,000
(6) 6,240 (8) 780
___ _____ _________ __________ (9) 17,340 ____100,680
Total P2,203,200 P1,074,000 P 979,350 P 979,350 P2,749,800
5. 1/1/20x4
a. On date of acquisition the retained earnings of parent should always be considered as the
consolidated retained earnings, thus:
Consolidated Retained Earnings, January 1, 20x4
Retained earnings - Parent Company, January 1, 20x4 (date of acquisition) P360,000
b.
Non-controlling interest (partial-goodwill), January 1, 20x4
Common stock Subsidiary Company P 240,000
Retained earnings Subsidiary Company. 120,000
Stockholders equity Subsidiary Company... P 360,000
Adjustments to reflect fair value - (over) undervaluation of assets and liabilities 90,000
Fair value of stockholders equity of subsidiary, January 1, 20x4 P 450,000
Multiplied by: Non-controlling Interest percentage... 20
Non-controlling interest (partial goodwill),.. P 90,000
c.
Consolidated SHE:
Stockholders Equity
Common stock, P10 par P 600,000
Retained earnings 360,000
Parents Stockholders Equity / CI SHE P 960,000
NCI, 1/1/20x4 ___90,000
Consolidated SHE, 1/1/20x4 P1,050,000
6.
Note: The goodwill recognized on consolidation purely relates to the parents share. NCI is measured as
a proportion of identifiable assets and goodwill attributable to NCI share is not recognized.
12/31/20x4:
a. CI-CNI - P
P Companys net income from own/separate operations. P183,000
Unrealized gain on sale of equipment (upstream sales) (15,000)
P Companys realized net income from separate operations*... P170,250
Unrealized gain on sale of equipment (upstream sales) ( 31,200)
Total P234,150
Amortization of allocated excess (refer to amortization above) 13,200
Goodwill impairment (impairment under partial-goodwill approach) 3,000 26,340
equity holders of parent.. P207,810
Add: Non-controlling Interest in Net Income (NCINI) _ 10,140
Consolidated Net Income for 20x4 P217,950
*that has been realized in transactions with third parties.
b. NCI-CNI P10,140
S Companys net income of Subsidiary Company from its own operations P 91,200
(Reported net income of S Company)
Less: Amortization of allocated excess / goodwill impairment
(refer to amortization table above) 13,200
P 50,700
c. CNI, P217,950 refer to (a)

d. On subsequent to date of acquisition, consolidated retained earnings would be computed as follows:
Consolidated Retained Earnings, December 31, 20x4

Add: Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent for 20x4 207,810
Total P567,810
Less: Dividends paid Parent Company for 20x4 72,000
Consolidated Retained Earnings, December 31, 20x4 P495,810
e.
The goodwill recognized on consolidation purely relates to the parents share. NCI is measured as a
proportion of identifiable assets and goodwill attributable to NCI share is not recognized. The NCI on
January 1, 20x4 and December 31, 20x4 are computed as follows:
Non-controlling interest (partial-goodwill), December 31, 20x4
Common stock Subsidiary Company, December 31, 20x4 P 240,000
Retained earnings Subsidiary Company, December 31, 20x4
Retained earnings Subsidiary Company, January 1, 20x4 P120,000
Add: Net income of subsidiary for 20x4 91,200
Total P211,200
Less: Dividends paid 20x4 36,000 175,200
Stockholders equity Subsidiary Company, December 31, 20x4 P 415,200
Adjustments to reflect fair value - (over) undervaluation of assets and
liabilities, date of acquisition (January 1, 20x4) 90,000
Amortization of allocated excess (refer to amortization above) 20x4 ( 13,200)
Fair value of stockholders equity of subsidiary, December 31, 20x4 P492,000
Realized stockholders equity of subsidiary, December 31, 20x4 P464,700
Non-controlling interest (partial-goodwill).. P 92,940
f.
Consolidated SHE:
Stockholders Equity
Parents Stockholders Equity / CI SHE, 12/31/20x4 P1,095,810
NCI, 12/31/20x4 ___92,940
12/31/20x5:
a. CI-CNI P264,360
Total P288,900
Less: Amortization of allocated excess 7,200
equity holders of parent 20x5.. P264,360
Or, alternatively
Total P288,900
Amortization of allocated excess 7,200 24,540
b. NCI-CNI P17,340
(Reported net income of Son Company)
P 86,700

Retained earnings - Parent Company, January 1, 20x5 (cost model) P499,800
Less: Downstream - net unrealized gain on sale of equipment prior to 20x5
(P15,000 P2,250) 12,750
Adjusted Retained Earnings Parent 1/1/20x5 (cost model ) Son Companys
Retained earnings that have been realized in transactions with third
parties.. P487,050
Adjustment to convert from cost model to equity method for purposes of
consolidation or to establish reciprocity:/Parents share in adjusted net
increased in subsidiarys retained earnings:
Retained earnings Subsidiary, January 1, 20x5 P 175,200
Less: Retained earnings Subsidiary, January 1, 20x4 120,000
Increase in retained earnings since date of acquisition P 55,200
Less: Amortization of allocated excess 20x4 13,200
Upstream - net unrealized gain on sale of equipment prior to
20x5 (P31,200 P3,900) 27,300
P 14,700
Multiplied by: Controlling interests %................... 80%
P 11,760
Less: Goodwill impairment loss 3,000 __ 8,760
Consolidated Retained earnings, January 1, 20x5 P495,810
Total P760,170
*this procedure would be more appropriate, instead of multiplying the full-goodwill impairment loss of P3,750 by 80%. There
might be situations where the controlling interests on goodwill impairment loss would not be proportionate to NCI acquired
(refer to Illustration 15-6).
Or, alternatively:
Retained earnings - Parent Company, December 31, 20x5 (cost model) P658,200
Less: Downstream - net unrealized gain on sale of equipment prior to
12/31/20x5 (P15,000 P2,250 P3,000) 9,750
Adjusted Retained Earnings Parent 12/31/20x5 (cost model )
S Companys Retained earnings that have been realized in
transactions with third parties.. P648,450
Retained earnings Subsidiary, December 31, 20x5 P 217,200
Less: Accumulated amortization of allocated excess
20x4 and 20x5 (P11,000 + P6,000) 20,400
12/31/20x5 (P31,200 P3,900 P3,900) 23,400
P 53,400
P 42,720
Less: Goodwill impairment loss 3,000 39,720
Consolidated Retained earnings, December 31, 20x5 P688,170
e.
Total P 265,200
Amortization of allocated excess (refer to amortization above) :
20x4 P 13,200
20x5 7,200 ( 20,400)
Fair value of stockholders equity of subsidiary, December 31, 20x5 P 526,800
Less: Upstream - net unrealized gain on sale of equipment prior to 12/31/20x5
(P31,200 P3,900 P3,900) 23,400
Realized stockholders equity of subsidiary, December 31, 20x5. P503,400
Non-controlling interest (partial goodwill).. P 100,680
f.
Consolidated SHE:
Stockholders Equity
NCI, 12/31/20x5 __100,680
Problem VI
Requirements 1 to 4
Schedule of Determination and Allocation of Excess

Consideration transferred (80%).. P 372,000
Fair value of NCI (given) (20%).. 93,000
Fair value of Subsidiary (100%). P 465,000
Less: Book value of stockholders equity of Son:
Common stock (P240,000 x 100%). P 240,000

Account Adjustments to be amortized under Life Amount Year(20x4) 20x5
Inventory P 6,000 1 P 6,000 P 6,000 P -
Equipment (net)......... 96,000 8 12,000 12,000 12,000
Buildings (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

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

(2) Cash 28,800

Cash. 36,000
No entries are made on the parents books to depreciate, amortize or write-off the portion of the allocated
excess that expires during 20x4.
Consolidation Workpaper First Year after Acquisition

of subsidiary on date of acquisition; and to establish non-controlling
interest (in net assets of subsidiary) on date of acquisition.

Land. 7,200
Goodwill. 15,000
Buildings.. 216,000
Non-controlling interest (P90,000 x 20%) + [(P15,000, full
P12,000, partial goodwill)] 21,000
controlling interest (in net assets of subsidiary) on date of acquisition.
Since the set-up entry in (E2) NCI at fair value, non-controlling interests have a share of entity goodwill and
hence is exposed to impairment loss on goodwill. PAS 36 requires the impairment loss to be pro-rated
between the parent and NCI on the same basis as that on which profit or loss is allocated. In other words,
the impairment loss is not pro-rated in accordance with the proportion of goodwill recognized by parent
and NCI.

Inventory.. 6,000
Goodwill 3,750
Sold Expense -Interest
Equipment P12,000
Buildings ( 6,000)
Bonds payable _______ _______ P 1,200
Totals P 6,000 P 6,000 P1,200

share of dividends.

Equipment 30,000

Equipment 12,000

(P15,000 / 5 years x 9/12 = P2,250).

(P31,200/85 years x 1 year = P3,900).


P 50,700
Less: Non-controlling interest on impairment
loss on full-goodwill (P3,750 x 20%) or
(P3,750 impairment on full-goodwill less
P3,000, impairment on partial-goodwill) 750

Cost Model (Full-goodwill)
Sales P480,000 P240,000 P 720,000
(6) 31,200
Dividend income 28,800 - (4) 28,800 _________
(8) 3,900
Other expenses 48,000 18,000 66,000
Net Income P211,800 P 91,200 P 217,200

P Company P360,000 P 360,000
S Company P120,000 (1) 120,000
Total P571,800 P211,200 P 567,810
Dividends paid
P Company 72,000 72,000
S Company - 36,000 (4) 36,000 _ ________
Sheet P499,800 P175,200 P 495,810
Balance Sheet
Cash. P 232,800 P 90,000 P 322,800
Inventory. 120,000 90,000 (2) 6,000 3) 6,000 210,000
Land. 210,000 48,000 (2) 7,200 265,200
Equipment 240,000 180,000 (5) 30,000
(6) 12,000 462,000
Buildings 720,000 540,000 (2) 216,000 1,044,000
Goodwill (2) 15,000 (3) 3,750 11,250
(2) 84,000 -
Total P1,984,800 P1,008,000 P2,468,850

- equipment P 135,000 P 96,000 (7) 2,250 (5) 45,000
(8) 3,900 (6) 43,200 P229,050
- buildings (3) 6,000 495,000
Bonds payable 240,000 120,000 360,000
(2) 21,000
_________ _________ __________ (9) 9,390 ____95,190
Total P1,984,800 P1,008,000 P 843,690 P 843,690 P2,468,850

P Co. S Co.
Sales P 540,000 P 360,000
Less: Cost of goods sold 216000 192,000
Add: Dividend income 38,400 -
Net income P 230,400 P 90,000

Cash 38,400

Cash 48,000

Retained earnings P Company 44,160
To provide entry to convert from the cost method to the equity
method or the entry to establish reciprocity at the beginning of the
year, 1/1/20x5, computed as follows:
Retained earnings S Company, 1/1/20x5 P175,200

Retained earnings S Company, 1/1/20x4 120,000
Increase in retained earnings.. P 55,200
Multiplied by: Controlling interest % 80%
Retroactive adjustment P 44,160

Retained earnings S Co., 1/1/20x5 175,200
of subsidiary and to establish non-controlling interest (in net assets of
subsidiary) on January 1, 20x5.

Land. 7,200
Goodwill. 15,000
Buildings.. 216,000
Non-controlling interest (P90,000 x 20%) + [(P15,000, full
controlling interest (in net assets of subsidiary) on January 1, 20x5.
(E4) Retained earnings P Company, 1/1/20x5

[(P13,200 x 80%) + P3,000, impairment loss on
partial-goodwill] 13,560
Non-controlling interests (P16,950 x 20%) or (P13,200 x 20% +
(P3,750 P3,000 = P750) 3,390
Inventory.. 6,000
Goodwill 3,750
To provide for years 20x4 and 20x5 depreciation and amortization on
differences between acquisition date fair value and book value of
Sons identifiable assets and liabilities as follows:
Year 20x4 amounts are debited to Perfects retained earnings &
NCI;
Year 20x5 amounts are debited to respective nominal accounts.
(20x4) Depreciation/
Retained Amortization Amortization
earnings, expense -Interest
Equipment 12,000 P 12,000
Buildings (6,000) ( 6,000)
Bonds payable 1,200 ________ P 1,200
Sub-total P13,200 P 6,000 P 1,200
Multiplied by: 80%
To Retained earnings P 10,560
Impairment loss 3,000
Total P 13,560

share of dividends.
(E6) Retained Earnings P Company, 1/1/20x5 15,000

Equipment 30,000
(E7) Retained EarningsP Company, 1/1/20x5 (P31,200 x 80%) 24,960

Equipment 12,000

Retained EarningsP Company, 1/1/20x5 (prior year) 2,250

Retained EarningsP Co. 1/1/20x5 (P3,900 x 80%) 3,120
(P31,200/85 years x 1 year = P3,900).


P 86,700
Non-controlling Interest in Net Income (NCINI P 17,340
Less: NCI on goodwill impairment loss on full-
Goodwill 0
with third persons.

Cost Model (Full-goodwill)
Sales P540,000 P360,000 P 900,000
Dividend income 38,400 - (5) 38,400 ___________
(9) 3,900
Other expenses 72,000 54,000 126,000
Net Income P230,400 P 90,000 P 281,700

P Company P499,800 (2) 13,560 (1) 44,160
(6) 15,00 (8) 2,250
(7) 24,960 (9) 3,120 P 495,810
S Company P 175,200 (1) 175,200
Total P730,200 P265,200 P 760,170
Dividends paid
P Company 72,000 72,000
S Company - 48,000 (5) 48,000 _ ________
Sheet P658,200 P217,200 P 688,170
Balance Sheet
Cash. P 265,200 P 102,000 P 367,200
Inventory. 216,000 108,000 (3) 6,000 (4) 6,000 324,000
Land. 210,000 48,000 (3) 7,200 265,200
Equipment 240,000 180,000 (6) 30,000
(7) 12,000 462,000
Buildings 720,000 540,000 (3) 216,000 1,044,000
Goodwill (3) 15,000 (4) 3,750 11,250
(3) 90,000 -
Total P2,203,200 P1,074,000 P2,752,050

- equipment (8) 5,250 (6) 45,000
(9) 7,800 (7) 43,200 P 255,150
- buildings (4) 12,000 552,000
Bonds payable 240,000 120,000 360,000
(5) 9,600 (3) 21,000
(7) 6,240 (9) 780
___ _____ _________ __________ (10) 17,340 ____102,930
Total P2,203,200 P1,074,000 P 983,100 P 983,100 P2,752,050
5. 1/1/20x4
a. On date of acquisition the retained earnings of parent should always be considered as the
consolidated retained earnings, thus:
Consolidated Retained Earnings, January 1, 20x4
b.
Non-controlling interest (partial-goodwill), January 1, 20x4
Common stock Subsidiary Company P 240,000
Retained earnings Subsidiary Company. 120,000
Stockholders equity Subsidiary Company... P 360,000
Adjustments to reflect fair value - (over) undervaluation of assets and liabilities 90,000
Fair value of stockholders equity of subsidiary, January 1, 20x4 P 450,000
Non-controlling interest (partial goodwill),.. P 90,000
Add: Non-controlling interests on full goodwill, 1/1/20x4 (P12,500, full-goodwill P10,000, partial
goodwill) 3,000
Non-controlling interest (full-goodwill) P 93,000
c.
Consolidated SHE:
Stockholders Equity
Parents Stockholders Equity / CI SHE P 960,000
NCI, 1/1/20x4 ___93,000
6.
Note: The goodwill recognized on consolidation purely relates to the parents share. NCI is measured as
a proportion of identifiable assets and goodwill attributable to NCI share is not recognized.
12/31/20x4:
a. CI-CNI P207,810
Unrealized gain on sale of equipment (upstream sales) (15,000)
Total P234,150
Amortization of allocated excess (refer to amortization above) 13,200
Goodwill impairment (impairment under partial-goodwill approach) 3,000 26,340
Add: Non-controlling Interest in Net Income (NCINI) 10,140
b. NCI-CNI P10,140
Less: Amortization of allocated excess / goodwill impairment
(refer to amortization table above) 13,200
P 50,700
Less: Non-controlling interest on impairment loss on full-goodwill (P3,750 x
20%) or (P3,750mpairment on full-goodwill less P3,000, impairment on
partial- goodwill) 750
Non-controlling Interest in Net Income (NCINI) full goodwill P 9,390

Total P567,810
e.
Total P211,200
Amortization of allocated excess (refer to amortization above) 20x4 ( 13,200)
Fair value of stockholders equity of subsidiary, December 31, 20x4 P492,000
Realized stockholders equity of subsidiary, December 31, 20x4 P464,700
Non-controlling interest (partial-goodwill).. P 92,940
Add: Non-controlling interest on full goodwill , net of impairment loss, 12/31/x4:
[(P15,000 full P12,000, partial = P3,000) P750 impairment loss 2,250
Non-controlling interest (full-goodwill).. P 95,190
f.
Consolidated SHE:
Stockholders Equity
NCI, 12/31/20x4 ___95,190
12/31/20x5:
a. CI-CNI P281,700
Total P288,900
Or, alternatively
Total P288,900
b. NCI-CNI P17,340
P 86,700
Non-controlling Interest in Net Income (NCINI) - partial goodwill P 17,340
Less: NCI on goodwill impairment loss on full-goodwill . . . . . . . . . . . . . . . . . . . . . 0
Non-controlling Interest in Net Income (NCINI) full goodwill . . . . . . . . . . . . . P 17,340

Retained earnings - Parent Company, January 1, 20x5 (cost model) P499,800
Less: Downstream - net unrealized gain on sale of equipment prior to 20x5
(P15,000 P2,250) 12,750
Adjusted Retained Earnings Parent 1/1/20x5 (cost model ) Son Companys
Retained earnings that have been realized in transactions with third
parties.. P487,050
Retained earnings Subsidiary, January 1, 20x5 P 175,200
Less: Amortization of allocated excess 20x4 13,200
20x5 (P31,200 P3,900) 27,300
P 14,700
P 11,760
Less: Goodwill impairment loss 3,000 __ 8,760
Consolidated Retained earnings, January 1, 20x5 P495,810
Total P760,170
*this procedure would be more appropriate, instead of multiplying the full-goodwill impairment loss of P3,750 by 80%. There
might be situations where the controlling interests on goodwill impairment loss would not be proportionate to NCI acquired
(refer to Illustration 15-6).
Or, alternatively:
Retained earnings - Parent Company, December 31, 20x5 (cost model) P658,200
Less: Downstream - net unrealized gain on sale of equipment prior to
12/31/20x5 (P15,000 P2,250 P3,000) 9,750
Adjusted Retained Earnings Parent 12/31/20x5 (cost model )
S Companys Retained earnings that have been realized in
transactions with third parties.. P648,450
Retained earnings Subsidiary, December 31, 20x5 P 217,200
Less: Accumulated amortization of allocated excess
20x4 and 20x5 (P13,200 + P7,200) 20,400
12/31/20x5 (P31,200 P3,900 P3,900) 23,400
P 53,400
P 42,720
Less: Goodwill impairment loss (full-goodwill) 3,000 39,720
Consolidated Retained earnings, December 31, 20x5 P688,170
e.
Non-controlling interest, December 31, 20x5
Total P 265,200
Amortization of allocated excess (refer to amortization above) :
20x4 P 13,200
20x5 7,200 ( 20,400)
Fair value of stockholders equity of subsidiary, December 31, 20x5 P 526,800
Less: Upstream - net unrealized gain on sale of equipment prior to 12/31/20x5
(P31,200 P3,900 P3,900) 23,400
Realized stockholders equity of subsidiary, December 31, 20x5. P503,400
Non-controlling interest (partial goodwill).. P 100,680
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 102,930
f.
Consolidated SHE:
Stockholders Equity
NCI, 12/31/20x5 __102,930
Problem VII
20x4 20x5
1.
Noncontrolling interest in P 7,000 (1) P 46,200 (2)
Consolidated net income
Controlling interest in 290,500 (3) 279,300 (4)

(1) .4(P70,000 P63,000 + P10,500) = P7,000

(2) .4(P105,000 + P10,500) = P46,200
(3) P280,000 + .6(P70,000 P63,000 + P10,500) = P290,500
(4) P210,000 + .6(P105,000 + P10,500) = P279,300
2014 2015
2.
Noncontrolling interest in P 28,000 (5) P 42,000 (6)
Consolidated income
Controlling interest in 269,500 (7) 283,500 (8)
(5) .4(P70,000) = P28,000
(6) .4(P105,000) = P42,000
(7) (P280,000 P63,000 + P10,500) + .6(P70,000) = P269,500
(8) (P210,000 + P10,500) + .6(P105,000) = P283,500
Problem VIII
(Determine consolidated net income when an intercompany transfer of equipment occurs. Includes an
outside ownership)
a. IncomeST ................................................................................................................ P220,000

IncomeBB ................................................................................................................. 90,000
Excess amortization for unpatented technology ..................................................... (8,000)
Remove unrealized gain on equipment ................................................................... (50,000)
(P120,000 P70,000)
Remove excess depreciation created by
inflated transfer price (P50,000 5) ................................................................. 10,000
Consolidated net income .......................................................................................... P262,000
b. Income calculated in (part a.) ................................................................................... P262,000

Non-controlling interest in BB's income
IncomeBB .................................................................................... P90,000
Excess amortization ....................................................................... (8,000)
Adjusted net income ...................................................................... P82,000
Non-controlling interest in BBs income (10%) ................................................ (8,200)
Consolidated net income to parent company .......................................................... P253,800
c. Income calculated in (part a.) ................................................................................... P262,000

Non-controlling interest in BB's income (see Schedule 1) ................... (4,200)
Consolidated net income to parent company .......................................................... P257,800
Schedule 1: Non-controlling Interest in Bennett's Income (includes upstream transfer)

Reported net income of subsidiary .......................................................................... P90,000
Excess amortization .................................................................................................... (8,000)
Eliminate unrealized gain on equipment transfer .................................................. (50,000)
Eliminate excess depreciation (P50,000 5) ........................................................... 10,000
Bennett's realized net income ................................................................................... P42,000
Outside ownership ..................................................................................................... 10%
Non-controlling interest in subsidiary's income .................................................... P 4,200
d. Net income 20x5ST ................................................................................................ P240,000

Net income 20x5BB ................................................................................................ 100,000
Excess amortization .................................................................................................... (8,000)
Eliminate excess depreciation stemming from transfer
(P50,000 5) (year after transfer) ..................................................................... 10,000
Consolidated net income ............................................................................... P342,000
Problem IX
1.
20x4 20x5 20x6
Consolidated net income as reported P 750,000 P 600,000 P 910,000
Less: P10,000 deferred gain -10,000
Plus: NCI portion of the gain 3,000
Plus: Deferred gain 7,000
Corrected consolidated net income P 743,000 P 600,000 P 917,000
2.
20x4 20x5 20x6
Land account as reported P 200,000 P 240,000 P 300,000
Less: Intercompany profit -10,000 -10,000
Restated land account P 190,000 P 230,000 P 300,000
3.
Final sales price outside the entity minus the original cost to the combined entity equals P102,000
minus P72,000 = P30,000
Problem X
1. On the consolidated balance sheet, the machine must be reported at its original cost when Tool
purchased it on January 1, 20x1, which is P120,000. Since the elimination entry debited the machine
account for P22,000 which must be the amount needed to bring the machine account up to P120,000,
Buzzard must have recorded the machine at P98,000. Since the remaining useful life is seven years,
Buzzard will record P14,000 of depreciation expense each year.
2. The correct balances on the consolidated balance sheet for the Machine and Accumulated Depreciation
accounts are the balances that would be in the accounts if there had been no sale. The balance in the
machine account would be the original purchase price to Tool or P120,000. The balance in the
Accumulated Depreciation account will be the original amount of annual depreciation, (P12,000)
times the number of years the machine has been depreciated (4), or P48,000.
3. The non-controlling interest income will be 30% of Tool adjusted net income. Tool reported net
income of P60,000 is reduced by the P14,000 unrealized gain on the sale of the machine and is
increased by the piecemeal recognition of the gain, which is P2,000. The net result of P48,000 is then
multiplied by 30% to calculate a P14,400 income for the non-controlling interest.
Problem XI
1. Consolidated net income for 20x9:
Operating income reported by BW P100,000

Net income reported by TW P40,000
Amount of gain realized in 20x9
(P30,000 / 12 years) 2,500
Realized net income of TW 42,500
Consolidated net income P142,500
2. Consolidated net income for 20x9 would be unchanged.
E(1) Buildings and Equipment 30,000

Non-controlling Interest 5,000
Eliminate unrealized profit on building.
Adjustment to buildings and equipment

Amount paid by TW to acquire building P300,000
Amount paid by BW on intercompany sale (270,000)
Adjustment to buildings and equipment P 30,000
Adjustment to retained earnings, January 1, 20x9
Unrealized gain recorded January 1, 20x4 P 30,000

Amount realized following intercompany sale
(P2,500 x 2) (5,000)
Unrealized gain, January 1, 20x9 P 25,000
Proportion of ownership held by Baywatch x .80
Adjustment to Noncontrolling interest, January 1, 20x9
Unrealized gain at January 1, 20x9 P 25,000

Proportion of ownership held by non-controlling
interest x .20
Depreciation expense recorded by BW

Industries (P270,000 / 12 years) P 22,500
Depreciation expense recorded by TW
Amount required (P20,000 x 6 years) P120,000

Amount reported by BW (P22,500 x 3 years) (67,500)
Problem XII
1. The gain on the sale of the land in 20x5 was equal to the sales price minus the original cost of the land
when it was first acquired by the combined entity. In this case the gain was P150,000 - P90,000, or
P60,000.
2. The consolidated amount of depreciation expense was the combined amounts of depreciation expense
showing on the separate income statements minus the piecemeal recognition of the gain on the sale of
the equipment. Thus, the consolidated amount of depreciation expense was P95,000 + P32,000
(P35,000/4 years) = P118,250.
3.
Consolidated net income:
Osprey separate income (not including Income
from Branch)= P153,000 - P55,000 = P 98,000
Income from Branch 20,000
Plus: Deferred gain on land 50,000
Plus: Piecemeal recognition of gain on equipment
sale: P35,000 gain/4 years = 8,750
Problem XIII
Quail Corporation and Subsidiary
Consolidated Income Statement
for the year ended December 31, 20x5
Sales P 1,100,000
Gain on land (P20,000 + P25,000) 45,000
Cost of sales ( 560,000 )
Other expenses (see below) ( 320,000 )
Consolidated Net Income P 265,000
NCI-CNI (see below) ( 20,000 )
Consolidated net income P 245,000
Other expenses:
P265,000 + P60,000 - P5,000 piecemeal recognition of gain on equipment
P 320,000
Non-controlling Interest in CNI:

Net income from Savannah x 20%: (P100,000 x 20%) = P 20,000
Problem XIV refer to Problem IX
Problem XV refer to Problem X
Problem XVI
E(1) Gain on Sale of Land 10,000
Land 10,000
Eliminating entry, December 31, 20x8:

E(1) Retained Earnings, January 1 10,000
Land 10,000

Land 10,000

Land 10,000
Problem XVII
Land 45,000

Land 45,000
2. Eliminating entries, December 31, 20x4 and 20x5:

E (1) Retained Earnings, January 1 30,000
Land 30,000
Problem XVIII
1. Downstream sale of land:
20x4 20x5
VVs separate operating income P 90,000 P110,000
Less: Unrealized gain on sale of land (25,000)
VVs realized operating income P 65,000 P110,000
Spawns realized net income 60,000 40,000
Consolidated net income P125,000 P150,000
Income to non-controlling interest:
(P60,000 x .25) (15,000)
(P40,000 X .25) (10,000)
Income to controlling interest P110,000 P140,000
2. Upstream sale of land:
20x4 20x5
VVs separate operating income P 90,000 P110,000
SSs net income P60,000
Less: Unrealized gain on sale of land (25,000)
Spawns realized net income 35,000 40,000
Consolidated net income P125,000 P150,000
Income to non-controlling interest:
(P35,000 x .25) (8,750)
(P40,000 x .25) (10,000)
Income to controlling interest P116,250 P140,000
Problem XIX
1. Consolidated net income for 20x4 will be greater than PP Company's income from operations plus SS's
reported net income. The eliminating entries at December 31, 20x4, will result in an increase of
P16,000 to consolidated net income.
2. As a result of purchasing the equipment at less than Parent's book value, depreciation expense
reported by SS will be P2,000 (P16,000 / 8 years) below the amount that would have been recorded by
PP. Thus, depreciation expense must be increased by P2,000 when eliminating entries are prepared at
December 31, 20x5. Consolidated net income will be decreased by the full amount of the P2,000
increase in depreciation expense.
Problem XX
Loss on Sale of Building 36,000
Eliminate unrealized loss on building.
2. Consolidated net income and income to controlling interest for

20x9:
Operating income reported by BB P125,000

Net income reported by TT P 15,000
Add: Loss on sale of building 36,000
Realized net income of TT 51,000
Income to non-controlling interest (P51,000 x .30) (15,300)
Income to controlling interest P160,700
3. Eliminating entry, December 31, 20y0:

Eliminate unrealized loss on building.
Adjustment to buildings and equipment

Amount paid by TT to acquire building P300,000
Amount paid by BB on intercompany sale (144,000)
Adjustment to buildings and equipment P156,000

Depreciation expense recorded by TT
Company (P300,000 / 15 years) P 20,000
Depreciation expense recorded by BB
Amount required (P20,000 x 7 years) P140,000
Amount reported by BB (P16,000 x 1 year) (16,000)
Required adjustment P124,000
Adjustment to retained earnings, January 1, 20y0

Unrealized loss recorded, December 31, 20x9 P36,000
Proportion of ownership held by BB x .70
Adjustment to Noncontrolling interest, January 1, 20y0

Unrealized loss recorded, December 31, 20x9 P36,000
Proportion of ownership held by non-controlling
Interest x .30
4. Consolidated net income and income assigned to controlling

interest in 20y0:
Operating income reported by BB P150,000
Net income reported by TT P40,000
Adjustment for loss on sale of building (4,000)
Realized net income of TT 36,000
Income assigned to non-controlling interest
(P36,000 x .30) (10,800)
Income assigned to controlling interest P175,200
Problem XXI
Requirements 1 to 4
Schedule of Determination and Allocation of Excess (Partial-goodwill)
Consideration transferred.. P 372,000
Less: Book value of stockholders equity of S:
Common stock (P240,000 x 80%). P 192,000
Positive excess: Partial-goodwill (excess of cost over
The over/under valuation of assets and liabilities are summarized as follows:

S Co. S Co. (Over) Under
Book value Fair value Valuation
Inventory... P 24,000 P 30,000 P 6,000
Land 48,000 55,200 7,200
Equipment (net)......... 84,000 180,000 96,000
Buildings (net) 168,000 144,000 (24,000)
Bonds payable (120,000) ( 115,200) 4,800
Net.. P 204,000 P 294,000 P 90,000
The buildings and equipment will be further analyzed for consolidation purposes as follows:
S Co. S Co. Increase
Equipment.................. 180,000 180,000 0
Net book value... 84,000 180,000 96,000
S Co. S Co.
Buildings................ 360,000 144,000 ( 216,000)
Net book value... 168,000 144,000 ( 24,000)
Account Adjustments to be amortized Under Life Amount Year(20x4) 20x5
Inventory P 6,000 1 P 6,000 P 6,000 P -
Equipment (net)......... 96,000 8 12,000 12,000 12,000
Buildings (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
The goodwill impairment loss of P3,750 based on 100% fair value would be allocated to the controlling
interest and the NCI based on the percentage of total goodwill each equity interest received. For purposes
of allocating the goodwill impairment loss, the full-goodwill is computed as follows:
Consideration transferred: Cash (80%) P 372,000
Fair value of NCI (given) (20%) 93,000
Fair value of Subsidiary (100%) P 465,000
Less: Book value of stockholders equity of S (P360,000 x 100%) __360,000
Add (deduct): (Over) under valuation of assets and liabilities
(P90,000 x 100%) 90,000
In this case, the goodwill was proportional to the controlling interest of 80% and non-controlling interest of
20% computed as follows:
Value % of Total
Goodwill applicable to parent P12,000 80.00%
Goodwill applicable to NCI.. 3,000 20.00%
Total (full) goodwill.. P15,000 100.00%
The goodwill impairment loss would be allocated as follows

Value % of Total
Goodwill impairment loss attributable to parent or controlling P 3,000 80.00%
Interest
Goodwill applicable to NCI.. 750 20.00%
Goodwill impairment loss based on 100% fair value or full-
Goodwill P 3,750 100.00%
The unrealized and gain on intercompany sales for 20x4 are as follows:
Date Selling Book Unrealized* Remaining Realized gain

of Sale Seller Price Value Gain on sale Life depreciation** 20x4
4/1/20x4 P P90,000 P75,000 P15,000 5 years P3,000/year P2,250
1/2/20x4 S 60,000 28,800 31,200 8 years P3,900/year P3,900
* selling price less book value
** unrealized gain divided by remaining life; 20x4 P2,500 x 9/12 = P1,875
The following summary for 20x4 results of operations is as follows:

P Co. S Co.
Sales P 480,000 P 240,000
Other expenses 48,000 18,000
P 168,000 P 60,000
Add: Gain on sale of equipment 15,000 31,200
Add: Investment income 24,810 -
Net income P 207,810 P 91,200

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

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

Investment income (P91,200 x 80%) 72,960
Record share in net income of subsidiary.
December 31, 20x4:

(4) Investment income [(P13,200 x 80%) + P3,000, goodwill 13,560
impairment loss)]
Investment in S Company 13,560
Record amortization of allocated excess of inventory, equipment, buildings and
bonds payable and goodwill impairment loss.
December 31, 20x4:

(5) Investment income (P15,000 x 100%) 15,000
To adjust investment income for downstream sales - unrealized gain on sale of
equipment..
December 31, 20x4:

To adjust investment income for upstream sales - unrealized gain on sale of
equipment..
December 31, 20x4:

To adjust investment income for downstream sales - realized gain on sale of
equipment..
December 31, 20x4:

To adjust investment income for upstream sales - realized gain on sale of
equipment..
Thus, the investment balance and investment income in the books of P Company is as follows:
Investment in S
Cost, 1/1/x4 372,000 28,800 Dividends S (36,000x 80%)
NI of Son Amortization &
(91,200 x 80%) 72,960 13,560 impairment
Realized gain downstream sale 2,250 15,000 Unrealized gain downstream sale
Realized gain upstream sale 3,120 24,960 Unrealized gain upstream sale
Balance, 12/31/x4 368,010
Investment Income
Amortization & NI of S
impairment 13,560 72,960 (91,200 x 80%)
Unrealized gain downstream sale 15,000 2,250 Realized gain downstream sale
Unrealized gain upstream sale 24,960 3,120 Realized gain upstream sale
24,810 Balance, 12/31/x4

Retained earnings S Co 120,000
To eliminate investment on January 1, 20x4 and equity accounts
of subsidiary on date of acquisition; and to establish non-
controlling interest (in net assets of subsidiary) on date of
acquisition.

Land. 7,200
Goodwill. 12,000
Buildings.. 216,000
To eliminate investment on January 1, 20x4 and allocate excess of
cost over book value of identifiable assets acquired, with remainder
to goodwill; and to establish non- controlling interest (in net assets of
subsidiary) on date of acquisition.

Inventory.. 6,000
Goodwill 3,000
Equipment P 12,000
Buildings ( 6,000)
Bonds payable _______ _______ P 1,200
Totals P 6,000 P 6,000 P1,200 14,400
(E4) Investment income 24,810

To eliminate intercompany dividends and investment income under
equity method and establish share of dividends, computed as
follows:
Investment in S Investment Income

NI of S 28,800 Dividends - S NI of S
(91,200 Amortization & Amortization (91,200
x 80%). 72,960 13,560 impairment impairment 13,560 72,960 x 80%)
Realized gain* 2,250 15,000 Unrealized gain * Unrealized gain * 15,000 2,250 Realized gain*
Realized gain** 3,120 24,960 Unrealized gain ** Unrealized gain **24,960 3,120 Realized gain**
3,990 24,810
*downstream sale (should be multiplied by 100%)
**upstream sale (should be multiplied by 80%)
After the eliminating entries are posted in the investment account, it should be observed that from
consolidation point of view the investment account is totally eliminated. Thus,
Investment in S
NI of S Amortization &
(91,200 x 80%) 72,960 13,560 impairment
Balance, 12/31/x4 368,010 288,000 (E1) Investment, 1/1/20x4
(E4) Investment Income 84,000 (E2) Investment, 1/1/20x4
and dividends 3,990
372,000 372,000

Equipment 30,000

Equipment 12,000

(P15,000 / 5 years x 9/12 = P2,250).

(P26,000/85 years x 1 year = P3,250).


P 50,700

Equity Method (Partial-goodwill)

Sales P480,000 P240,000 P 720,000
(6) 31,200
Investment income 24,810 - (4) 28,800 _________
(8) 3,900
Other expenses 48,000 18,000 66,000
Net Income P207,810 P 91,200 P 217,950

P Company P360,000 P 360,000
S Company P120,000 (1) 120,000
Total P567,810 P211,200 P567,810
Dividends paid
P Company 72,000 72,000
S Company - 36,000 (4) 36,000 _ ________
Sheet P495,810 P175,200 P 495,810
Balance Sheet
Cash. P 232,800 P 90,000 P 322,800
Inventory. 120,000 90,000 (2) 6,000 (3) 5,000 210,000
Land. 210,000 48,000 (2) 7,200 265,200
Equipment 240,000 180,000 (5) 30,000
(6) 12,000 462,000
Buildings 720,000 540,000 (2) 216,000 1,044,000
Goodwill (2) 12,000 (3) 3,000 9,000
(2) 84,000 -
Total P1,980,810 P1,008,000 P2,466,600

- equipment P 135,000 P 96,000 (7) 2,250 (5) 45,000
(8) 3,900 (6) 43,200 P229,050
- buildings (3) 6,000 495,000
Bonds payable 240,000 120,000 360,000
(2) 18,000
_________ _________ __________ (9) 10,140 92,940
Total P1,980,810 P1,008,000 P 840,690 P 840,690 P2,466,600

P Co. S Co.
Sales P 540,000 P 360,000
Net income P 264,360 P 90,000

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

December 31, 20x5:

bonds payable
December 31, 20x4:

equipment.
December 31, 20x4:

equipment..
Investment in S
NI of Son 5,760 Amortization (7,200 x 80%)
(90,000 x 80%) 72,000
Realized gain downstream sale 3,000
Realized gain upstream sale 3,120
Balance, 12/31/x5 401,970
Investment Income
Amortization (6,000 x 805) 5,760 NI of S
72,000 (90,000 x 80%)
3,000 Realized gain downstream sale
3,120 Realized gain upstream sale
72,360 Balance, 12/31/x5

Retained earnings S Co, 1/1/x5. 175,200
controlling interest (in net assets of subsidiary) on 1/1/20x5.
(E2) Accumulated depreciation equipment (P96,000 P12,000) 84,000

Accumulated depreciation buildings (P192,000 + P6,000) 198,000
Land. 6,000
Discount on bonds payable (P4,800 P1,200). 3,600
Goodwill (P12,000 P3,000).. 9,000
Buildings.. 180,000
Non-controlling interest [(P90,000 P13,200) x 20%] 15,360
Investment in Son Co. 70,440
to the original amount of goodwill; and to establish non- controlling
interest (in net assets of subsidiary) on 1/1/20x5.
(E3) Depreciation expense.. 6,000

To provide for 20x5 depreciation and amortization on differences
between acquisition date fair value and book value of Sons
identifiable assets and liabilities as follows:
Depreciation/
Amortization Amortization
Expense -Interest Total
Inventory sold
Equipment P 12,000
Buildings ( 6,000)
Bonds payable _______ P 1,200
Totals P 6,000 P1,200 P7,200
(E4) Investment income 72.360

follows:

NI of S 38,400 Dividends S NI of S
(90,000 Amortization Amortization (90,000
x 80%). 72,000 5,760 (P7,200 x 80%) (P7,200 x 80%) 5,760 72,000 x 80%)
Realized gain* 3,000 3,000 Realized gain*
Realized gain** 3,120 3,120 Realized gain**
33,960 72,360

Equipment 30,000
Accumulated depreciation equipment 45,000

Equipment 12,000
Accumulated depreciation- equipment 43,200
(E7) Accumulated depreciation equipment .. 5,250

Investment in S Company (prior year) 2,250
(E8) Accumulated depreciation- equipment.. 7,800

(P31,200/85 years x 1 year = P3,900).


P 86,700
Non-controlling Interest in Net Income (NCINI P 17,340
with third persons.

Equity Method (Partial-goodwill)
Sales P540,000 P360,000 P 900,000
Investment income 72,360 - (4) 72,360 ___________
(8) 3,900
Other expenses 72,000 54,000 126,000
Net Income P264,360 P 90,000 P 281,700

P Company P495,810 P495,810
S Company P 175,200 (1) 175,200
Net income, from above _264,360 90,000 264,360
Total P760,170 P265,200 P 760,170
Dividends paid
P Company 72,000 72,000
S Company - 48,000 (5) 48,000 _ ________
Sheet P688,170 P217,200 P 688,170
Balance Sheet
Cash. P 265,200 P 102,000 P 367,200
Inventory. 216,000 108,000 324,000
Land. 210,000 48,000 (2) 7,200 265,200
Equipment 240,000 180,000 (5) 30,000
(6) 12,000 462,000
Buildings 720,000 540,000 (2) 216,000 1,044,000
Goodwill (2) 9,000 9,000
Investment in Son Co 401,970 (5) 15,000 (1) 332,160
(6) 24,960 (2) 70,440
(4) 33,960
(7) 2,250
(8) 3,120 -
Total P2,233,170 P1,074,000 P2,749,800

- equipment (7) 5,250 (5) 45,000
(8) 7,800 (6) 43,200 P 255,150
- buildings (3) 6,000 552,000
Bonds payable 240,000 120,000 360,000
Non-controlling interest (4) 9,600 (1) 69,200
(6) 6,240 (2) 15,360
(8) 780
___ _____ _________ __________ (9) 17,340 ____100,680
Total P2,233,170 P1,074,000 P 930,750 P 930,750 P2,749,800
5 and 6. Refer to Problem V for computations

Note: Using cost model or equity method, the consolidated net income, consolidated retained
earnings, non-controlling interests, consolidated equity on December 31, 20x4 and 20x5 are exactly
the same (refer to Problem X solution).
Problem XXII
Requirements 1 to 4
Schedule of Determination and Allocation of Excess
Consideration transferred (80%).. P 372,000
Fair value of NCI (given) (20%).. 93,000
Fair value of Subsidiary (100%). P 465,000
Less: Book value of stockholders equity of Son:
Common stock (P240,000 x 100%). P 240,000

Account Adjustments to be amortized under Life Amount Year(20x4) 20x5
Inventory P 6,000 1 P 6,000 P 6,000 P -
Equipment (net)......... 96,000 8 12,000 12,000 12,000
Buildings (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
The following summary for 20x4 results of operations is as follows:

P Co. S Co.
Sales P 480,000 P 240,000
Other expenses 48,000 18,000
P 168,000 P 60,000
Add: Gain on sale of equipment 15,000 31,200
Net income P 207,810 P 91,200

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

(2) Cash 28,800
Record dividends from Son Company.
December 31, 20x4:

December 31, 20x4:

(4) Investment income [(P13,200 x 80%) + P3,000, goodwill 13,560
impairment loss)]
bonds payable and goodwill impairment loss.
December 31, 20x4:

To adjust investment income for downstream sales - unrealized gain on sale of
equipment..
December 31, 20x4:

To adjust investment income for upstream sales - unrealized gain on sale of
equipment..
December 31, 20x4:

equipment..
December 31, 20x4:

equipment..
Thus, the investment balance and investment income in the books of Perfect Company is as follows:
Investment in S
NI of Son Amortization &
(91,200 x 80%) 72,960 13,560 impairment
Balance, 12/31/x4 368,010
Investment Income
Amortization & NI of S
impairment 13,560 72,960 (76,000 x 80%)
Unrealized gain downstream sale 15,000 2,250 Realized gain downstream sale
Unrealized gain upstream sale 24,960 3,120 Realized gain upstream sale
24,810 Balance, 12/31/x4

controlling interest (in net assets of subsidiary) on date of
acquisition.

Land. 7,200
Goodwill. 15,000
Buildings.. 216,000
Non-controlling interest (P90,000 x 20%) + [(P15,000 full
to goodwill; and to establish non- controlling interest (in net assets of
subsidiary) on date of acquisition.

Inventory.. 6,000
Goodwill 3,750
Equipment P 12,000
Buildings ( 6,000)
Bonds payable _______ _______ P 1,200
Totals P 6,000 P 6,000 P1,200 14,400

follows:

NI of S 28,800 Dividends - S NI of S
(91,200 Amortization & Amortization (91,200
x 80%). 72,960 13,560 impairment impairment 13,560 72,960 x 80%)
Realized gain* 2,250 15,000 Unrealized gain * Unrealized gain * 15,000 2,250 Realized gain*
Realized gain** 3,120 24,960 Unrealized gain ** Unrealized gain **24,960 3,120 Realized gain**
3,990 24,810
After the eliminating entries are posted in the investment account, it should be observed that from
consolidation point of view the investment account is totally eliminated. Thus,
Investment in S
NI of S Amortization &
(91,200 x 80%) 72,960 13,560 impairment
Balance, 12/31/x4 368,010 288,000 (E1) Investment, 1/1/20x4
(E4) Investment Income 84,000 (E2) Investment, 1/1/20x4
and dividends 3,990
372,000 372,000

Equipment 30,000

Equipment 12,000

(P15,000 / 5 years x 9/12 = P2,250).

(P31,120/85 years x 1 year = P3,900).


P 50,700
Less: Non-controlling interest on impairment
loss on full-goodwill (P3,750 x 20%) or
(P3,750 impairment on full-goodwill less
P3,000, impairment on partial-goodwill)* 750
full goodwill P 9,390

Equity Method (Full-goodwill)
Sales P480,000 P240,000 P 720,000
(6) 31,200
Investment income 24,810 - (4) 28,800 _________
(8) 3,900
Other expenses 48,000 18,000 66,000
Net Income P207,810 P 91,200 P 217,200

P Company P360,000 P 360,000
S Company P120,000 (1) 120,000
Total P567,810 P211,200 P 567,810
Dividends paid
P Company 72,000 72,000
S Company - 36,000 (4) 36,000 _ ________
Sheet P495,810 P175,200 P 495,810
Balance Sheet
Cash. P 232,800 P 90,000 P 322,800
Inventory. 120,000 90,000 (2) 6,000 (3) 6,000 210,000
Land. 210,000 48,000 (2) 6,000 265,200
Equipment 240,000 180,000 (5) 30,000
(6) 12,000 462,000
Buildings 720,000 540,000 (2) 216,000 1,044,000
Goodwill (2) 15,000 (3) 3,750 11,250
(2) 84,000 -
Total P1,980,810 P1,008,000 P2,468,850

- equipment P 135,000 P 96,000 (7) 2,250 (5) 45,000
(8) 3900 (6) 43,200 P229,050
- buildings (3) 6,000 495,000
Bonds payable 240,000 120,000 360,000
(2) 21,000
_________ _________ __________ (9) 9,390 ____95,190
Total P1,980,810 P1,008,000 P 843,690 P 843,690 P2,468,850
Second Year after Acquisition

Perfect Co. Son Co.
Sales P 540,000 P 360,000
Net income P 264,360 P 90,000

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

bonds payable
December 31, 20x4:

equipment..
December 31, 20x4:

equipment..
Investment in S
NI of S 5,760 Amortization (6,000 x 80%)
(90,000 x 80%) 72,000
Realized gain downstream sale 3,000
Realized gain upstream sale 3,120
Balance, 12/31/x5 401,970
Investment Income
Amortization (7,200 x 805) 5,760 NI of S
72,000 (90,000 x 80%)
3,000 Realized gain downstream sale
3,120 Realized gain upstream sale
72,360 Balance, 12/31/x5

Retained earnings S Co, 1/1/x5. 175.200
controlling interest (in net assets of subsidiary) on 1/1/20x5.
(E2) Accumulated depreciation equipment (P96,000 P12,000) 84,000
Accumulated depreciation buildings (P192,000 + P6,000) 198,000
Land. 7,200
Discount on bonds payable (P4,800 P1,200). 3,600
Goodwill (P15,000 P3,900).. 11,250
Buildings.. 216,000
Non-controlling interest [(P90,000 P13,200) x 20%] +
[P3,000, full goodwill - [(P3,750, full-goodwill impairment
P3,000, partial- goodwill impairment)*
or (P3,750 x 20%)] 17,610
to the original amount of goodwill; and to establish non- controlling
interest (in net assets of subsidiary) on 1/1/20x5.
*this procedure would be more appropriate, instead of multiplying the full-goodwill impairment loss of P3,750 by 20%. There might be
situations where the NCI on goodwill impairment loss would not be proportionate to NCI acquired (refer to Illustration 15-6).
(E3) Depreciation expense.. 6,000

To provide for 20x5 depreciation and amortization on differences
between acquisition date fair value and book value of Sons
identifiable assets and liabilities as follows:
Depreciation/
Amortization Amortization
Expense -Interest Total
Inventory sold
Equipment P 12,000
Buildings ( 6000)
Bonds payable _______ P 1,200
Totals P 6,000 P1,200 P7,,200

follows:

NI of S 38,400 Dividends S NI of S
(90,000 Amortization Amortization (75,000
x 80%). 72,000 5,760 (P72,000 x 80%) (P7,200 x 80%) 5,760 72,000 x 80%)
Realized gain* 3,000 3,000 Realized gain*
Realized gain** 3,120 3,120 Realized gain**
33,960 72,360

Equipment 30,000
Accumulated depreciation equipment 45,000

Equipment 12,000
Accumulated depreciation- equipment 43,200
(E7) Accumulated depreciation equipment .. 5,250

(E8) Accumulated depreciation- equipment.. 7,800

(P31,200/85 years x 1 year = P3,900).


P 86,700
Less: NCI on goodwill impairment loss on full-
Goodwill 0
full goodwill P 17,340
with third persons.

Equity Method (Full-goodwill)
Sales P540,000 P360,000 P 900,000
Investment income 72,360 - (4) 72,360 ___________
(8) 3,900
Other expenses 72,000 54,000 126,000
Net Income P264,360 P 90,000 P 281,700

P Company P495,810 P495,810
S Company P 175,200 (1) 175,200
Net income, from above _264,360 90,000 264,360
Total P760,170 P265,200 P 760,170
Dividends paid
P Company 72,000 72,000
S Company - 48,000 (5) 48,000 _ ________
Sheet P688,170 P217,200 P 688,170
Balance Sheet
Cash. P 265,200 P 102,000 P 367,200
Inventory. 216,000 108,000 324,000
Land. 210,000 48,000 (2) 7,200 265,200
Equipment 240,000 180,000 (5) 30,000
(6) 12,000 462,000
Buildings 720,000 540,000 (2) 216,000 1,044,000
Goodwill (2) 11,250 11,250
(6) 24,960 (2) 70,440
(4) 33,960
(7) 2,250
(8) 3,120 -
Total P2,233,170 P1,074,000 P2,752,050

- equipment (7) 5,250 (5) 45,000
(8) 7,800 (6) 43,200 P 255,150
- buildings (3) 6,000 552,000
Bonds payable 240,000 120,000 360,000
Non-controlling interest (4) 9,600 (1) 83,040
(6) 6,240 (2) 17,610
(8) 780
___ _____ _________ __________ (9) 17,340 ____102,930
Total P2,233,170 P1,074,000 P 933,000 P 933,000 P2,752,050
5 and 6. Refer to Problem VI for computations

Note: Using cost model or equity method, the consolidated net income, consolidated retained
earnings, non-controlling interests, consolidated equity on December 31, 20x4 and 20x5 are exactly
the same (refer to Problem X solution).
Multiple Choice Problems
1. c
2. b
3. c (P20,000/20 years = P1,000), the eliminating entry to recognize the gain depreciation would be as
follows:
Depreciation expenses.. 1,000
4. a no effect, since intercompany sales of equipment will be reverted back to its original cost/book
value.
5. a
6. No answer available - It should be noted that PAS 27 allow the use of cost model in accounting for
investment in subsidiary in the books of parent company but not the equity method. Since, the cost
model is presumed to be the method used, the unrealized gain of P15,000 (P60,000 P45,000) will not
be recorded in the books of parent company, which give rise to no equity-adjustments at year-end.
The available choices in the problem are on the assumption of the use of equity method. So, the
answer then would be (d) the unrealized gain of P15,000 (P60,000 P45,000).
7. No answer available the truck account will be debited for P3,000 in the eliminating entry:
Truck 3,000
Gain 15,000
Seller Buyer
Cash 50,000 Truck 50,000
Accumulated 18,000 Cash 50,000
Truck 53,000
Gain 15,000
8. b
P Companys net income from own/separate operations. P 98,000
Realized gain on sale of equipment (downstream sales) through depreciation ___0
P Companys realized net income from separate operations*... P 98,000
Unrealized gain on sales of equipment (upstream sales) (15,000)
Realized gain on sale of equipment (upstream sales) through depreciation
(P15,000 / 5 years) 3,000
Total P143,000
Or, alternatively
(P15,000 / 3 years) 5,000
Total P143,000
Amortization of allocated excess ____0 18,000

Unrealized gain on sales of equipment (upstream sales) ( 15,000)
P 45,000
10. a
11. a
Combined equipment amounts P1,050,000
Less: gain on sale 25,000
Consolidated equipment balance P1,025,000
Combined Accumulated Depreciation P 250,000

Less: Depreciation on gain 5,000
Consolidated Accumulated Depreciation P 245,000
12. Incomplete data - It should be noted that PAS 27 allow the use of cost model in accounting for
model is presumed to be the method used and there is no available data for dividends paid/declared
by Cliff therefore, the requirement cannot be properly addressed.
The requirement and available choices in the problem are on the assumption of the use of equity
method. So, the answer then would be (c) computed as follows:
Cliff reported income P225,000

Less: Intercompany gain on truck 45,000
Plus: Piecemeal recognition of gain = P45,000/10
years ___4,500
Cliffs adjusted income P184,500
Majority percentage 90%
Income from Cliff P166,050
13. a
Combined building amounts P650,000
Less: Intercompany gain __30,000
Consolidated buildings P620,000
Combined Accumulated Depreciation P195,000

Less: Piecemeal recognition of gain ___3,000
Consolidated accumulated depreciation P192,000
14. d P30,000 + P40,000 = P70,000

S P Consolidated
Selling price
Less: Book value
Gain P 30,000 P 40,000 P 70,000
15. Incomplete data - It should be noted that PAS 27 allow the use of cost model in accounting for
model is presumed to be the method used and there is no available data for dividends paid/declared
by Cliff therefore, the requirement cannot be properly addressed.
Pied Imperial-Pigeons share of Rogers income = (P320,000 x 90%) = P288,000

Less: Profit on intercompany sale (P130,000 - P80,000) x 90% = 45,000
Add: Piecemeal recognition of deferred profit ($50,000/4 years)90% = 11,250
Income from Offshore P254,250
16. d P110,000 P30,000 = P80,000

S (Nectar) P (Lorikeet) Consolidated
Selling price P 50,000 P 110,000 P 110,000
Less: Book value _30,000 __50,000 _30,000
Gain P 20,000 P 60,000 P 80,000
17. No answer available No effect. It should be noted that PAS 27 allow the use of cost model in
accounting for investment in subsidiary in the books of parent company but not the equity method.
P30,000 - (1/4 x P30,000) = P 22,500
18. b
(Reported net income of S Company) P2,000,000
Unrealized gain on sales of equipment (upstream sales) (P700,000 P600,000) ( 100,000)
Realized gain on sale of equipment (upstream sales) through depreciation (P100,000/10) 10,000
S Companys realized net income from separate operations P1,910,000
Less: Amortization of allocated excess _ 0
P1,910,000
Multiplied by: Non-controlling interest %.......... __40%
Less: NCI on goodwill impairment loss on full-goodwill . . . . . . . . . . . . . . . . . . . . . __ 0
19. d
20x4 20x5
Unrealized gain on sales of equipment (downstream sales) ( 90,000) -0-
P90,000 / 10 years ___9,000 9,000
Net ( 81,000) 9,000
20. No answer available P780,000

S P Consolidated
Selling price P1,980,000 P1,440,000 P1,440,000
Less: Book value: Cost P2,000,000 P1,980,000 P 1,800,000
Accumulated ___200,000 1,800,00 *1,320,000 660,000 **1,200,000 __600,000
Unrealized gain on sale of
equipment P 180,000
Realized Gain depreciation
(P180,000/9 x 6 yrs) 120,000
Net unrealized gain, 1/1/20x9 P 60,000
Gain on sale P 60,000 P 780,000 P 840,000
*P1,980,000/ 9 x 6 years = P1,320,000
**P1,800,000/9 x 6 years = P1,200,000
21. a
22. b
Eliminating entries:
Restoration of BV and eliminate unrealized gain
Gain 50,000
Land 50,000
Subsidiary Parent
Cash xxx Land xxx
Land xxx Cash xxx
Gain 50,000
23. It should be noted that PAS 27 allow the use of cost model in accounting for investment in subsidiary in
the books of parent company but not the equity method.
method. So, the answer then would be (d) (P60,000 P48,000)/4 years = P3,000
24. d (P100,000 + P50,000 = P150,000)
S P Consolidated
Selling price
Less: Book value
Gain P 100,000 P 50,000 P 150,000
25. d the entry under the cost model would be as follows ;

Accumulated depreciation. 4,000
Depreciation expenses (current year) P6,000/3 years. 2,000
Retained earnings (prior year 20x4).. 2,000
26. d
20x4 20x5
Unrealized gain on sale of equipment (downstream sales) ( 150,000) -0-
P150,000 / 10 years ___15,000 15,000
Net ( 135,000) 15,000
27. No answer available P780,000

S P Consolidated
Selling price P 990,000 P720,000 P 720,000
Less: Book value : Cost P1,000,000 P990,000 P 900,000
Accumulated 100,000 __900,00 *440,000 550,000 **400,000 __500,000
Unrealized gain on sale of
equipment P 90,000
(P90,000/9 x 4 yrs) 40,000
Net unrealized gain, 1/1/20x8 P 50,000 __________ ___________
Gain on sale P 50,000 P 170,000 P 220,000
*P990,000/ 9 x 4 years = P440,000
**P900,000/9 x 4 years = P400,000
The requirement equity from subsidiary income and available choices in the problem are on the
assumption of the use of equity method. So, the answer then would be (c) computed as follows:
20x4
Share in subsidiary net income (900,000 x 80%) 720,000
Unrealized gain on sale of equipment (upstream sales): 180,000 x 80% ( 144,000)
P180,000 / 5 years = P36,000 x 80% ___28,800
Net 604,800
29 d (P30,000 + P15,000)
30. d the entry under the cost model would be as follows ;
Accumulated depreciation. 10,000
Depreciation expenses (current year) P15,000/3 years.. 5,000
Retained earnings (prior year 20x5).. 5,000
31. a
32. b
33. a
20x4 20x5
Unrealized gain on sale of equipment (upstream sales) : 50,000 30,000 ( 20,000) -0-
P20,000 / 5 years ___4,000 __4,000
Net ( 16,000) __4,000
34. a
Original cost of P1,100,000
Accumulated depreciation, 1/1/20x4 P 250,000

Add: Additional depreciation (P1,100,000 P100,000) / 20 years ____50,000
35. c
Selling price unrelated party P 14,000
Less: Original Book value, 12/31/20x5
Book value, 1/1/20x4 P20,000
Less: Depreciation for 20x4 and 20x5: P20,000/4 years x 2 years 10,000 10,000
36. b at its original cost or book value.

37. b
20x4: Any intercompany gain should be eliminated in the CFS.
20x5
Selling price unrelated party P 100,000
Less: Original Book value, 9/26/20x5 __60,000
38. c P50,000/5 years = P10,000 per year starting January 1, 20x6.
The requirement equity from subsidiary income and available choices in the problem are on the
20x4
Unrealized gain on sale of equipment (upstream sales): 120,000 x 80% ( 96,000)
P120,000 / 5 years = P24,000 x 80% ___19,200
Net 403,200
40. b P40,000
Depreciation expense recorded by Pirn
Depreciation expense recorded by Scroll 10,000
Total depreciation reported P50,000
Adjustment for excess depreciation charged
by Scroll as a result of increase in
carrying value of equipment due to gain
on intercompany sale (P12,000 / 4 years) (3,000)
Depreciation for consolidated statements P47,000
41. d When only retained earnings is debited, and not the non-controlling interest, a gain has been
recorded in a prior period on the parent's books.
42. a The costs incurred by BB to develop the equipment are research and development costs and
must be expensed as they are incurred. Transfer to another legal entity does not cause a change
in accounting treatment within the economic entity.
43. b The P39,000 paid to GG Company will be charged to depreciation expense by TLK Corporation
over the remaining 3 years of ownership. As a result, TLK Corporation will debit depreciation
expense for P13,000 each year. GG Company had charged P16,000 to accumulated depreciation
in 2 years, for an annual rate of P8,000. Depreciation expense therefore must be reduced by
P5,000 (P13,000 - P8,000) in preparing the consolidated statements.
44. a TLK Corporation will record the purchase at P39,000, the amount it paid. GG Company had the
equipment recorded at P40,000; thus, a debit of P1,000 will raise the equipment balance back to
its original cost from the viewpoint of the consolidated entity.
45. b Reported net income of GG Company P 45,000

Reported gain on sale of equipment P15,000
Intercompany profit realized in 20x6 (5,000) (10,000)
Realized net income of GG Company P 35,000
Proportion of stock held by
non-controlling interest x .40
Income assigned to non-controlling interests P 14,000
46. c Operating income reported by TLK Corporation P 85,000
Net income reported by GG Company 45,000
P130,000
Less: Unrealized gain on sale of equipment
(P15,000 - P5,000) (10,000)
47. d
48. a
49. b
50. a the amount of land that will be presented in the presented in the CFS is the original cost of P416,000
+ P256,000 = P672,000.
51. e
Depreciation expense:
Parent P 84,000
Subsidiary 60,000
Total P144,000
Less: Over-depreciaton due to realized gain:
[P115,000 (P125,000 P45,000)] = P35,000/8 years __ 4,375
52. c
20x6
Unrealized gain on sale of equipment ( 56,000)
Realized gain on sale of equipment (upstream sales) through depreciation ___7,000
Net ( 49,000)
Selling price P 392,000

Less: Book value, 1/1/20x6
Cost, 1/1/20x2 P420,000
Less: Accumulated depreciation: P420,000/10 years x 2 years 84,000 336,000
Unrealized gain on sale of equipment P 56,000
Realized gain depreciation: P56,000/8 years P 7,000
53. b
12/31/20x5: date of acquisition
Equipment 10,000
Gain 150,000
Parent Books Mortar Subsidiary Books Granite

Cash 390,000 Equipment 390,000
Accumulated depreciation 160,000 Cash 390,000
Equipment 400,000
Gain 150,000
Mortar
Selling price P390,000
Cost, 1/1/20x2 P400,000
Less: Accumulated depreciation : P400,000/10 years x 4 years 160,000 240,000
54. a refer to No. 53 for computation

55. b - refer to No. 53 for computation
56. d
12/31/20x6: subsequent to date of acquisition
P150,000 / 6 years or P65,000 P40,000
Should be in CFS Parent Books Mortar Recorded as Subsidiary Books - Granite

Depreciation expense Depreciation expense
(P400,000 / 10 years) 40,000 (P390,000 / 6 years) 65,000
Acc. Depreciation 40,000 Acc. depreciation 65,000
57. c
Equipment 10,000
Retained earnings (150,000 25,000) 100,000
Accumulated depreciation (P160,000 P25,000) 135,000
58. a
Equipment 50,000
Gain 70,000
Parent Books Mortar Subsidiary Books - Granite

Equipment 400,000
Gain 70,000
Mortar
Cost, 1/1/20x2 P400,000
59. a - refer to No. 58 for computation

60. b
P700,000 / 7 years or P50,000 P40,000
Should be in CFS Parent Books Mortar Recorded as Subsidiary Books - Granite

(P400,000 / 10 years) 40,000 (P350,000 / 7 years) 50,000
Equipment 50,000
Retained earnings (70,000 10,000) 60,000
Accumulated depreciation (P120,000 P10,000) 110,000
61. b - refer to No. 60 for computation

62. c - refer to No. 60 for computation
63. a
Unrealized loss on sale of equipment (upstream sales) 20,000
Realized loss on sale of equipment (upstream sales) through depreciation
none, since the date of sale is end of the year ( 0)
Total P190,000

Cost, 1/1/20x4 P500,000
Unrealized loss on sale of equipment P( 20,000)
Realized loss depreciation: P20,000/4 years P( 5,000)
Or, alternatively
Realized loss on sale of equipment (upstream sales) through depreciation ( 0)
Total P190,000

Realized loss on sale of equipment (upstream sales) through depreciation ( 0)
P 50,000
64. b
Consolidated Net Income for 20y0
Unrealized loss on sale of equipment (upstream sales)
Realized loss on sale of equipment (upstream sales) through depreciation ( 5,000)
Total P202,000
Consolidated Net Income for 20y0 P202,000
equity holders of parent 20y0.. P194,500
Or, alternatively
Consolidated Net Income for 20y0
Total P202,000
Add: Non-controlling Interest in Net Income (NCINI) _ _ 7,500
**Non-controlling Interest in Net Income (NCINI) for 20y0

P 25,000
65. d the original cost of land

66. b no intercompany gain or loss be presented in the CFS.
67. a
S3 Companys net income from own operations. P100,000
S2 Companys net income from own operations. 70,000
Unrealized loss on sale of equipment (upstream sales) S3 15,000
Unrealized gain on sale of equipment (upstream sales) S2 ( 52,000)
Unrealized gain on sale of equipment (upstream sales) - S1 ( 23,000)
S Companys realized net income from separate operations*... P205,000 205,000
Total P405,000
Less: Non-controlling Interest in Net Income* * (P23,000 + P5,400 + P7,200) 35,600
S3 S2 S1
Sales price 145,000 197,000 220,000
Less: Cost 160,000 145,000 197,000
Unrealized (loss) gain ( 15,000) 52,000 23,000
Or, alternatively
S3 Companys net income from own operations. P100,000
Unrealized loss on sale of equipment (upstream sales) S3 15,000
Unrealized gain on sale of equipment (upstream sales) S2 ( 52,000)
Unrealized gain on sale of equipment (upstream sales) - S1 ( 23,000)
S Companys realized net income from separate operations* P205,000 205,000
Total P405,000
Less: Non-controlling Interest in Net Income* * (P23,000 + P5,400 + P7,200) P 35,600
Amortization of allocated excess ____0 _ 35,600
Add: Non-controlling Interest in Net Income (NCINI) _ _35,600
**Non-controlling Interest in Net Income (NCINI) S3 S2 S1

S Companys net income of Subsidiary Company from its own
operations (Reported net income of S Company) P 100,000 P 70,000 P 95,000
Unrealized (gain) loss on sale of land (upstream sales) 15,000 ( 52,000) ( 23,000)
S Companys realized net income from separate operations P 115,000 P 18,000 P 72,000
Less: Amortization of allocated excess 0 0 0
P 115000 P 18,000 P 72,000
Multiplied by: Non-controlling interest %.......... 20% 30% 10%
Non-controlling Interest in Net Income (NCINI) - partial goodwill P 23,000 P 5,400 P 7,200
Less: NCI on goodwill impairment loss on full-goodwill 0 0 0
Non-controlling Interest in Net Income (NCINI) full goodwill P 23,000 P 5,400 P 7,200
68. d
Building 3,000
Gain 8,250
Parent Books Sky Subsidiary Books - Earth

Cash 33,000 Building 33,000
Building 36,000
Gain 8,250
Sky, 7/1/20x4
Cost, 1/1/20x2 P36,000
Less: Accumulated depreciation : P36,000/8years x 2.5 years 11,250 24,750
Realized gain depreciation: P8,250/5.5 years P 1,500
69. a - refer to No. 60 for computation

70. b
Realized Gain depreciation (July 1, 20x4 December 31, 20x4)
Accumulated depreciation 750
Depreciation expense 750
P8,250 / 5.5 x years or P3,000 P2,250
Should be in CFS Parent Books Sky Recorded as Subsidiary Books - Earth

(P24,750 / 5.5 x years) 2,250 (P33,000 / 5.5 years x yrs) 3,000
71. c
P8,250 / 5.5 x years or P6,000 P4,500
Should be in CFS Parent Books Sky Recorded as Subsidiary Books - Earth

(P24,750 / 5.5 years) 4,500 (P33,000 / 5.5 years) 6,000
72. d
Building 3,000
Retained earnings (8,250 750) 7,500
Accumulated depreciation (P11,250 P750) 10,500
73. c (P22,500 x 4/15 = P6,000)

74. a [P50,000 (P50,000 x 4/10) = P30,000]
75. a
Simon, 4/1/20x4
Cost, 1/1/20x4 P50,000
Less: Accumulated depreciation : P50,000/10 years x 3/12 __1,250 48,750
Unrealized gain on sale of equipment P19,500
Realized gain depreciation: P19,500/9.75 years P 2,000
76. c P2,000 x 9/12 (April 1, 20x4 December 31, 20x4) = P1,500

77. c P19,500 / 9.75 years = P2,000
78. c P19,500 / 9.75 years = P2,000
The requirement share of income from Wilson and available choices in the problem are on the
assumption of the use of equity method. So, the answer then would be (a) computed as follows:
20x4
Unrealized gain on sale of equipment (downstream sales) ( 19,500)
P2,000 x 9/12 (April 1, 20x4 December 31, 20x4) = P1,500 _ 1,500
Net 72,000
assumption of the use of equity method. So, the answer then would be (b) computed as follows:
20x5
Realized gain on sale of equipment (downstream sales) through depreciation _ 2,000
Net 110,000
assumption of the use of equity method. So, the answer then would be (d) computed as follows:
20x6
Realized gain on sale of equipment (downstream sales) through depreciation _ 2,000
Net 119,000
82. c
Smeder, 1/1/20x4
Cost, 1/1/20x4 P120,000
Less: Accumulated depreciation __48,000 72,000
assumption of the use of equity method. So, the answer then would be (b) computed as follows:
20x4
Unrealized gain on sale of equipment (upstream sales); 12,000 x 80% ( 9,600)
P2,000 x 80% _ 1,600
Net 14,400
20x5
P2,000 x 80% _ 1,600
Net 27,200
85. d
Equipment 36,000
Gain 12,000
Parent Smeder Subsidiary - Collins

Equipment 120,000
Gain 12,000
Smeder, 1/1/20x4
Cost, 1/1/20x4 P120,000
Less: Accumulated depreciation __48,000 72,000
P12,000 / 6 years or P14,000 P12,000
Should be in CFS Parent Smeder Recorded as Subsidiary - Collins

(P72,000 /6 years) 12,000 (P84,000 / 6 years) 14,000
Combining the eliminating entries for 1/1/20x4 and 12/31/200x4, the net effect of accumulated
depreciation would be a net credit of P46,000 (P48,000 P2,000).
86. c
20x4
Unrealized gain on sale of equipment ( 12,000)
Realized gain on sale of equipment through depreciation ___2,000
Net ( 10,000)
87. d
Cash 5,000
Loss 5,000
Parent Stark Subsidiary - Parker

Cash 80,000 Land 85,000
Loss 5,000 Cash 85,000
Land 85,000
Stark Parker Consolidated

Less: Book value, 5/1/20x4 _85,000 __80,000 _85,000
Unrealized gain on sale of equipment P ( 5,000) P 12,000 P 7,000
88. b refer to No. 87 for eliminating entry

89. b
Cash 5,000
The requirement income from Stark and available choices in the problem are on the assumption of
the use of equity method. So, the answer then would be (e) computed as follows:
20x4
Unrealized loss on sale of land (upstream sales): P5,000 x 90% _ 4,500
Net 184,500
the use of equity method. So, the answer then would be (d) computed as follows:
20x4
Unrealized loss on sale of land (upstream sales): P5,000 x 90% _ 4,500
Net 184,500
92. b
Stark Parker Consolidated
Less: Book value, 5/1/20x4 _85,000 __80,000 _85,000
Unrealized gain on sale of equipment P ( 5,000) P 12,000 P 7,000
93. a refer to No. 92 for computation

94. e None, the loss was already recognized in the books of Stark in the year of sale - 20x4 but not in the
subsequent years.
the use of equity method. So, the answer then would be (c) computed as follows:
20x6
Intercompany realized loss on sale of land (upstream sales): P5,000 x 90% _ ( 4,500)
Net 193,500
96. d - Investment in subsidiary, 12/31/20x5 (cost model) P700,000).
Date of Acquisition (1/1/20x4) Partial Full

Fair value of consideration givenP 700,000
Less: Book value of SHE - Subsidiary):
(P300,000 + P500,000) x 80%................. 640,000
Allocated Excess..P 60,000
Less: Over/Undervaluation of Assets & Liabilities
Increase in Bldg. (P75,000 x 80%) 60,000
Goodwill ..P 0 P 0
Amortization of allocated excess: building - P75,000 / 25 years = P3,000
Upstream Sale of Equipment (date of sale 4/1/20x5):
Sales.......................................................................................................P 60,000
Less: Book value of equipment.. 30,000
Unrealized Gain (on sale of equipment)..P 30,000
Realized gain on sale of equipment:

20x5: P30,000/5 years = P6,000 x 9/12 (4/1/20x5-12/31/20x5).P 4,500
20x6 ....P 6,000
Downstream Sale of Machinery (date of sale 9/30/20x5):
Sales........................................................................................................P75,000
Less: Book value of machinery. 40,000
Unrealized Gain (on sale of machinery)P35,000
Realized gain on sale of machinery:

20x5: P35,000/10 years = P3,500 x 3/12 (9/30/20x5-12/31/20x5)..P 875
20x6.. ..P 3,500
97. d refer to No. 1 for cost model:
Dividend paid or declared SP 50,000
x: Controlling Interest %. 80%
Dividend income of Parent..P 40,000
98. d
(P35,000 P875) 34,125
Total P390,375
Or, alternatively
(P35,000 P875) 34,125
Total P390,375

Unrealized gain on sales of equipment (upstream sales) ( 30,000)
P 121,500
99. c refer to No. 98 for computations

100. d refer to No. 98 for computations
101. a
Non-controlling Interests (in net assets): 20x5 20x6
Common stock - S, 12/31... P 300,000 P 300,000
Retained earnings - S, 12/31:
RE- S, 1/1..P600,000 P 700,000
+: NI-S 150,000 200,000
-: Div S.. 50,000 700,000 70,000 830,000
Book value of Stockholders equity, 12/31.... P1,000,000 P1,130,000
Adjustments to reflect fair value of net assets
Increase in equipment, 1/1/2010.... 75,000 75,000
Accumulated amortization (P3,000 per year)*. ( 6,000) ( 9,000)
Fair Value of Net Assets/SHE, 12/31.. P1,069,000 P1,196,000
Unrealized gain on sale of equipment (upstream) ( 30,000) **( 25,500)
Realized gain thru depreciation (upstream) 4,500 6,000
Realized SHE S,12/31.. P1,043,500 P1,176,500
x: NCI %........................................................... ___ 20% 20%
Non-controlling Interest (in net assets) partial... P 208,700 P 235,300
+: NCI on full goodwill.... 0 0
Non-controlling Interest (in net assets) full.. P 208,700 P 235,300
* 20x5: P3,000 x 2 years; 2012: P3,000 x 3 years;
** P30,000 P4,500 realized gain in 20x5 = P25,500.
Note: Preferred solution - since what is given is the RE P, 1/1/20x5(beginning balance of

the current year) -
Retained earnings Parent, 1/1/20x5 (cost) P 800,000
-: Downstream sale 20x4 or prior to 20x5, Net unrealized gain 0
Adjusted Retained earnings Parent, 1/1/20x5 (cost) P 800,000
Retroactive Adjustments to convert Cost to Equity:
Retained earnings Subsidiary, 1/1/20x4.P 500,000
Less: Retained earnings Subsidiary, 1/1/20x5 600,000
Increase in Retained earnings since acquisition
(cumulative net income cumulative dividends)P 100,000
Accum. amortization (1/1/x4 1/1/x5): P2,000 x 1 year( 3,000)
Upstream Sale 2010 or prior to 20x5,
Net unrealized gain....( 0)
P 97,000
X: Controlling Interests %.. 80% 77,600
RE P, 1/1/20x5 (equity method) = CRE, 1/1/20x5 P 877,600
+: CI CNI or Profit Attributable to Equity Holders of Parent. 363,075
-: Dividends P.. 100,000
RE P, 12/31/20x5 (equity method) = CRE, 12/31/20x5.. P 1,140,675
Or, if RE P is not given on January 1, 20x5, then RE P on December 31, 20x5 should be use.
Retained earnings Parent, 12/31/20x5 (cost model):
(P800,000 + P340,000, Ps reported NI P100,000) P1,040,000
-: Downstream sale 20x5 or prior to 12/31/20x5,
Net unrealized gain - (P35,000 P875). 34,125
Adjusted Retained earnings Parent, 1/1/20x5 (cost model).. P1,005,875
Retroactive Adjustments to convert Cost to Equity:
Retained earnings Subsidiary, 1/1/20x4.P 500,000
Less: Retained earnings Subsidiary, 12/31/20x5
(P600,000 + P150,000 P50,000)...... 700,000
Increase in Retained earnings since acquisition
(cumulative net income cumulative dividends).P 200,000
Accumulated amortization (1/1/20x4 12/31/20x5):
P 3,000 x 2 years..( 6,000)
Upstream Sale 20x5 or prior to 12/31/20x5,
Net unrealized gain (P30,000 P4,500).( 25,500)
P 168,500
x: Controlling Interests %.. 80% 134,800
RE P, 12/31/20x5 (equity method) = CRE, 12/31/20x5. P1,140,675
102. c refer to No, 101 computations.

103. b refer to No. 101 for computations
104. d refer to No. 101 for computations
105. b
Consolidated Stockholders Equity, 12/31/20x5:
Controlling Interest / Parents Interest / Parents Portion /
Equity Holders of Parent SHE, 12/31/20x5:
Common stock P (P only)..P1,000,000
Retained Earnings P (equity method), 12/31/20x5. 1,140,675
Controlling Interest / Parents Stockholders Equity P2,140,675
Non-controlling interest, 12/31/20x5 (partial/full) 208,700
Consolidated Stockholders Equity, 12/31/20x5.P2,349,375
Theories
1. d 6. N/A 11. b 16. c 21. a 26. b 31 c
2. c 7. c 12. c 17. b 22. b 27. b 32. b
3. d 8. a 13. d 18. a 23. d 28. c 33. c
4. d 9. a 14. b 19. a 24. c 29. b 34. d
5. b 10, c 15, c 20. c 25. c 30. c 35.

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Chapter 18

2. Journal entry to record purchase:

Journal entry to record depreciation expense:

3. Eliminating entry at December 31, 20x4, to eliminate intercompany sale of equipment:

E(1) Equipment 66,000

Adjustment to depreciation expense

Adjustment to accumulated depreciation

4. Eliminating entry at January 1, 20x4, to eliminate intercompany sale of equipment and

Computation of gain on sale of truck:

2. Eliminating entry, December 31, 20x9:

E(1) Truck 55,000

Accumulated depreciation adjustment:

E(1) Truck 90,000

Computation of gain on sale of truck:

b. Eliminating entry, December 31, 20x9:

E(1) Truck 90,000

Accumulated depreciation adjustment:

Accumulated Depreciation (P100,000/4) 2 50,000

2 Controlling Interest in Consolidated Net Income:

3. Noncontrolling Interest Calculation:

4. NCI-CNI (No. 3) P 169,000

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

Realized gain depreciation: P100,000 / 4 years P 25,000

Accumulated Depreciation (P100,000/4) 2 50,000

6 Controlling Interest in Consolidated Net Income:

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

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

A summary or depreciation and amortization adjustments is as follows:

Fair value of Subsidiary (100%)

The goodwill impairment loss would be allocated as follows

Date Selling Book Unrealized* Remaining Realized gain

20x4: First Year after Acquisition

January 1, 20x4 December 31, 20x4:

(E2) Inventory. 6,000

(E3) Cost of Goods Sold. 6,000

(E4) Dividend income - P. 28,800

(E5) Gain on sale of equipment 15,000

(E6) Gain on sale of equipment 31,200

(E7) Accumulated depreciation.. 2,250

(E8) Accumulated depreciation.. 3,900

(E9) Non-controlling interest in Net Income of Subsidiary 10,140

Net income of subsidiary.. P 91,200

Worksheet for Consolidated Financial Statements, December 31, 20x4.

Statement of Retained Earnings

Accumulated depreciation (3) 96,000 (3) 12,000

20x5: Second Year after Acquisition

Parent Company Cost Model Entry

January 1, 20x5 December 31, 20x5:

Dividends paid 48,000

Consolidation Workpaper Second Year after Acquisition

(E1) Investment in S Company 44,160

Retained earnings S Company, 1/1/20x5 P175,200

(E2) Common stock S Co 240,000

(E3) Inventory. 6,000

(E4) Retained earnings P Company, 1/1/20x5

(E5) Retained Earnings P Company, 1/1/20x5 15,000

(E6) Retained EarningsP Company, 1/1/20x5 (P31,200 x 80%) 24,960

(E7) Accumulated depreciation.. 5,250

(E8) Accumulated depreciation.. 7,800

(E9) Non-controlling interest in Net Income of Subsidiary 17,340

Net income of subsidiary.. P 90,000

Worksheet for Consolidated Financial Statements, December 31, 20x5.

Statement of Retained Earnings