Advanced-Accounting-Part 2-Dayag-2015-Chapter-16

Chapter 16
Problem I - Cost Model/Method versus Equity Method

Partial-Goodwill Approach:
Fair value of Subsidiary
Consideration transferred: P600,000.............................................. 600,000
Less: Carrying amount of Small’s net assets =
Carrying amount of Small’s shareholders’ equity
Common/Ordinary shares – Small (400,000 x 75%)............ 300,000
Retained earnings – Small (100,000 x 75%)......................... 75,000 375,000
Allocated Excess: Acquisition differential – Jan. 1, 20x4 225,000
Less: Over/under valuation of A/L (Allocated to):
Increase in Inventory (40,000 x 75%)........................................ 30,000
Decrease in Patents (70,000 x 75%).......................................... (52,500) ( 22,500)
Positive Excess: Goodwill - partial 247,500
Full-Goodwill Approach:
Fair value of Subsidiary (Implied cost of 100% investment); P600,000/75% 800,000
Less: Carrying amount of Small’s net assets =
Carrying amount of Small’s shareholders’ equity
Common/Ordinary shares 400,000
Retained earnings 100,000
500,000
Increase in Inventory 40,000
Decrease in Patents (70,000) (30,000)
Positive Excess: Goodwill - full 330,000
A summary or depreciation and amortization adjustments is as follows:
Account Adjustments to be Over/ Annual Current
amortized Under Life Amount Year(20x4) 20x5 20x6
Inventory P40,000 1 P 40,000 P 40,000 P - P -
Subject to Annual Amortization
Patents (70,000) 5 (14,000) ( 14,000) (14,000) (14,000)
Amortization P 26,000 P 26,000 P(14,000) P(14,000)
Impairment of goodwill (full) 330,000 - _____ _____ ______ __ 19,300
P 26,000 P 26,000 P(14,000) P 5,300
For purposes of comparison between Cost Model/Method and Equity Method

Cost Method
Journal Entries Year 1 Year 2 Year 3
Investment
Investment in Small 600,000
Cash 600,000
Dividend of Subsidiary
Cash 18,750 7,500 30,000
Dividend income 18,750 7,500 30,000
Investment in Son Dividend Income
1/1/x4 CI…… 600,000
18,750 - Div–S (75 x80%)
12/31/x4 600,000 18,750
7,500 - Div–S (10 x80%)
12/31/x5 600,000 18,750
30,000 - Div–S (40 x80%)
12/31/x6 600,000 30,000
Equity Method
1. Year 1 Year 2 Year 3
Investment
Cash 600,000
Net Income (Loss) of Subsidiary:
Investment in Small (75% x Small’s profit) 60,000 67,500
Investment income 60,000 67,500
Investment income 26,,250
Investment in Small (75% x Small’s profit) 26,250
Dividend of Subsidiary
Cash (75% x Small’s dividends) 18,750 7,500 30,000
Investment in Small 18,750 7,500 30,000
Amortization of Allocated Excess
Investment income (75% x amortization of PD*) 19,500 3,975
Investment in Small 19,500 3,975

Investment income 10,500
Investment in Son Investment Income (loss)
1/1/x4: CI 600,000
NI of S 18,750 75% Div - Son NI of Son
(80,000 75% Amort& Amortization (80,000
x 75%)……. 60,000 19,500 impairment impairment 19,500 60,000 x 75%)
12/31/x4 621,750 40,500
75% NL – Sub 75% NL – Sub
26,250 (35,000 x 75%) (35,000 x 75%) 26,250
7,500 75% Div - Son
75% Amort& 75% Amort&
Impairment 10,500 10,500 impairment
12/31/x5 598,500 15,750
NI of S 30,00075% Div - Son NI of Son
(90,000 75%Amort& Amortization (90,000
12/31/x6632,025 63,525
Reconciliation of Investment /Conversion of Investment Account from Cost to Equity Method:

Investment balance under cost model P 600,000
Retroactive adjustments: (Small’s net income less dividends)
Small’s retained earnings, end of year P160,000
Less: Small’s retained earnings, date of acquisition _100,000
Increase in retained earnings (NI less dividend) P 60,000
Less: Cumulative amortization of allocated excess _17,300
P 42,700
X: Controlling interests ____75%
P 32,025
Less: Impairment of goodwill _______0 _32,025
Investment balance under equity method P 632,025
2.
a. Goodwill, 12/31/20x6 (P330,000 – P19,300) P 310,700
b. FV of NCI, 12/31/20x6:
Non-controlling interest (full-goodwill), December 31, 20x6
Common stock – Subsidiary Company, December 31, 20x6 . . . . . . . . . . . . . . . . . . P 400,000
Retained earnings – Subsidiary Company, December 31, 20x6
Retained earnings – Subsidiary Company, January 1, 20x6
(P100,000 + P80,000 – P25,000 – P35,000 – P10,000).............................. P110,000
Add: Net income of Small for 20x6……………………………………………….. 90,000
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P200,000
Less: Dividends paid – 20x6…………………………………………………………. 40,000 160,000
Stockholders’ equity – Subsidiary Company, December 31, 20x5 . . . . . . . . . . . . . P 560,000
Adjustments to reflect fair value - (over) undervaluation of assets and
liabilities, date of acquisition (January 1, 20x4)- decreased in Net Assets . . . . ( 30,000)
Less: Amortization of allocated excess (refer to amortization above):
20x4 (P40,000 – P14,000). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 26,000
20x5 and 20x6. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (28,000) (2,000)
Fair value of stockholders’ equity of subsidiary, December 31, 20x6 . . . . . . . . . . . P 532,000
Multiplied by: Non-controlling Interest percentage . . . . . . . . . . . . . . . . . . . . . . . . . 20
FV of Non-controlling interest (partial goodwill), 12/31/20x6 . . . . . . . . . . . . . . . . . P 133,000
Add: Non-controlling interest on full goodwill , net of impairment loss
[(P330,000 full – P247,000, partial = P82,500…………………………………. P 82,500
Less: Impairment on the NCI (P19,300 x 25%)………………………………… ___4,825 ___*77,675
FV of Non-controlling interest (full-goodwill), 12/31/20x6. . . . . . . . . . . . . . . . . . . . . P 210,675
*or P330,000 full – P247,000, partial = P82,500 – (impairment loss on full goodwill less (P19,300 x 25%)]
= P77,625
Alternatively, NCI on December 31, 20x6may also be computed as follows (Note: This is the
American version of computing NCI, since they only allowed using Full-goodwill Method):
Common stock, 12/31/20x6………………………………………………… P 400,000
Retained earnings, 12/31/20x6
(P100,000+P80,000 – P25,000 – P35,000 – P10,000)………….. P 110,000
Add: NI – Subsidiary (20x6) …………………………………………………. 90,000
Dividends – Subsidiary 20x6………………………………………………….( 40,000) 160,000
Book value of SHE – S, 12/31/20x6…………………………………………. P560,000
Adjustments to reflect fair value (Increase in Net Assets)………………P 300,000
Amortization of allocated excess:
Inventory – 20x4...…………………………………………………….( 40,000)
Patent (P14,000 x 3 years)………………………………………….. 42,000
Impairment of goodwill – 20x6……………………………………..( 19,300) 282,700
FV of SHE of Small……………………………………………………………… P 842,700
Multiplied by: NCI%..................................................................................... 25%
FV of NCI, 12/31/20x6………………………………………………………….. P 210,675
Or, alternatively:
Common stock – Subsidiary Company, December 31, 20x6 . . . . . . . . . . . . . . . . . . P 400,000
Retained earnings – Subsidiary Company, December 31, 20x6
Retained earnings – Subsidiary Company, January 1, 20x6
(P100,000 + P80,000 – P25,000 – P35,000 – P10,000).............................. P110,000
Add: Net income of Small for 20x6……………………………………………….. 90,000
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P200,000
Less: Dividends paid – 20x6…………………………………………………………. 40,000 160,000
Stockholders’ equity – Subsidiary Company, December 31, 20x6 . . . . . . . . . . . . . P 560,000
Unamortized acquisition differential / allocated excess / increase in net assets:
{P300,000, allocated excess – {P40,000 - (P14,000 x 3) + P19,300, full impairment __282,500
P 842,500
Multiplied by: Non-controlling Interest percentage . . . . . . . . . . . . . . . . . . . . . . . . . ______25%
FV of Non-controlling interest (full-goodwill), 12/31/20x6. . . . . . . . . . . . . . . . . . . . . P 210,675
c. Consolidated Retained Earnings, 1/1/20x6 – P498,500

Consolidated Retained Earnings, January 1, 20x6
Retained earnings - Large Company, January 1, 20x6 (cost model) P500,000
Adjustment to convert from cost model to equity method for purposes of
consolidation or to establish reciprocity:/Parent’s share in adjusted net
increased in subsidiary’s retained earnings:
Retained earnings – Small, January 1, 20x6
(P100,000 + P80,00 – P25,000 – P35,000 – P10,000) P 110,000
Less: Retained earnings – Small, January 1, 20x4 (date of acquisition) 100,000
Increase in retained earnings since date of acquisition P 10,000
Less: Amortization of allocated excess – 20x4 26,000
Amortization of allocated excess – 20x5 (14,000)
P ( 2,000)
Multiplied by: Controlling interests %................... _____75%
P ( 1,500)
Less: Goodwill impairment loss (full-goodwill) – 20x6 ________0 (___1,500)
Consolidated Retained earnings, January 1, 20x6 P498,500
The CRE, December 31, 20x6 would be as follows:
Consolidated Retained earnings, January 1, 20x6 P498,500
Add: Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of Large for 20x6 233,525
Total P717,550
Less: Dividends paid – Large Company for 20x6 70,000
Consolidated Retained Earnings, December 31, 20x6 P662,025
Or, alternatively: to compute CRE, 12/31/20x6

Consolidated Retained Earnings, December 31, 20x6
Retained earnings - Large Company, December 31, 20x6 (cost model) P630,000
Retained earnings – Small, December 31, 20x6
(P100,000 + P80,00 – P25,000 – P35,000 – P10,000 + P90,000 – P40,000) P 160,000
Less: Retained earnings – Small, January 1, 20x4 (date of acquisition) 100,000
Amortization of allocated excess – 20x5 and 20x6: P14,000 x 2 (28,000)
P 62,000
Multiplied by: Controlling interests %................... _____75%
P 46,500
Less: Goodwill impairment loss on full-goodwill) – 20x6 (P19,300 x 75%) __14,475 __32,025
Consolidated Retained earnings, December 31, 20x6 P 662,025
d. P233.525
Consolidated Net Income for 20x6
Net income from own/separate operations
Parent Company: Large Company [P200,000 – (P40,000 x 75%)] P170,000
Small Company 90,000
Total P260,000
Less: Non-controlling Interest in Net Income* P 21,175
Amortization of allocated excess (14,000)
Goodwill impairment _19,300 __26,475
Controlling Interest in Consolidated Net Income or Profit
attributable to equity holders of parent………….. P233,525
Add: Non-controlling Interest in Net Income (NCINI) __21,175
Consolidated Net Income for 20x6 P254,700
*Net income of subsidiary – 20x6 P 90,000

Amortization of allocated excess – 20x6 ( 14,000)
P 104,000
Multiplied by: Non-controlling interest %.......... 25%
P 26,000
Less: Non-controlling interest on impairment loss on full-goodwill ( (P19,300 x 25%)* ___4,825
Non-controlling Interest in Net Income (NCINI) P 21,175
*this procedure would be not be applicable where the NCI on goodwill impairment loss would not
be proportionate to NCI acquired.
e. P21,175 – refer to (d) for computations
Note: Regardless of the method used (cost or equity) answers for No. 2 (a) to (e) above are exactly
the same.
Problem II
A.
1.
a. P87,725
Pill Company P55,000
Sill Company 40,000
Total P95,000
Amortization of allocated excess 0
Goodwill impairment 1,500 __7,275
b. P5,775
Amortization of allocated excess – 20x4 ( 0))
P 40,000
Multiplied by: Non-controlling interest %.......... _____15%
P 6,000
Less: Non-controlling interest on impairment loss on full-goodwill (P1,500 x 15%)* _____225
c. P93,500 – refer to computation in (a)

d.
d.1. P75,000. Retained earnings of Parent on the date of acquisition should always be the
same with the Consolidated Retained Earnings also on the date of acquisition.
d.2
Retained earnings of P Co, 1/1/20x4 P75,000
Add; Net income under cost method [P55,000 + (P9,000 x 85%)] _62,650
P 137,650
Less: Dividends of P Company ___5,000
Retained Earnings of P Co, 12/31/20x4 under cost model P 132,650
d.3
Retained earnings of P company (same with Consolidated RE), 1/1/20x4 P75,000
Add; Controlling Interest in CNI (refer to a above) _87,725
P 162,725
Less: Dividends of P Company ____5,000
Consolidated Retained Earnings, 12/31/20x4 P 157,725
e. P238,000
2.
a. P87,725
Pill Company P55,000
Sill Company 40,000
Total P95,000
b. P5,775
P 40,000
P 6,000
d.
d.2
Add; Net income under equity method {P55,000 + [(P40,000 x 85%) -
(P1,500, impairment loss x 85%) – (P0, amortization)} _87,725
P162,725
Retained Earnings of P Co., 12/31/20x4 under equity method P157,725
d.3
Retained earnings of P Co., (same with Consolidated RE), 1/1/20x4 P75,000
Add; Controlling Interest in CNI same with Net Income in d.2 above under
equity method but not cost model _87,725
P162,725
Consolidated Retained Earnings, 12/31/20x4 P157,725
e. P263,075 = P238,000 + (P40,000 x 85%) – (P9,000, div x 85%) – (P1,500, impair, x 85%)
3. Reconciliation of Investment balance – Cost Model to Equity Method

Retroactive adjustments: (Sill’s net income less dividends)
Sill’s net income – 20x4 40,000
Less: Sill’s dividend – 20x4 _9,000
Increase in retained earnings (NI less dividend) 31,000
Less: Cumulative amortization of allocated excess _____0
31,000
X: Controlling interests __85%
26,350
Less: Impairment of goodwill (P1,500 x 85%) _1,275 __25,075
Investment balance under equity method P263,075
Reconciliation of Retained Earnings – Cost Model to Equity Method

Retained earnings, 12/31/20x4 under cost model(requirement 1 d.2) P 132,650
Sill’s net income – 20x4 40,000
Less: Sill’s dividend – 20x4 _9,000
Increase in retained earnings (NI less dividend) 31,000
Less: Cumulative amortization of allocated excess _____0
31,000
X: Controlling interests __85%
26,350
Less: Impairment of goodwill (P1,500 x 85%) _1,275 __25,075
Retained earnings, 12/31/20x4 under equity method(requirement 2 d.2) P157,725
B.
4.
a. P87,725
Pill Company [P62,650 – (P9,000 x 85%)] P55,000
Sill Company 40,000
Total P95,000
b. P5,775
P 40,000
P 6,000

d.
d.1. P75,000. Retained earnings of Parent on the date of acquisition should always be the same
with the Consolidated Retained Earnings also on the date of acquisition.
d.2
Add; Net income under cost method (given) _62,650
P 137,650
P 132,650
Retained Earnings of P Co, 12/31/20x4 under cost model
d.3
Retained earnings of P company (same with Consolidated RE), 1/1/20x4 P75,000
Add; Controlling Interest in CNI (refer to a above) _87,725
P 162,725
Less: Dividends of P Company ____5,000
Consolidated Retained Earnings, 12/31/20x4 P 157,725
e. P238,000
5. Correction: Pill’s net income should be P87,725 instead of P86,725

a. P87,725
Pill Company [P87,725 – (P40,000 x 85%) + (P1,500 x 85%)] P55,000
Sill Company 40,000
Total P95,000
b. P5,775
P 40,000
P 6,000

d.
d.2
Add; Net income under equity method (given) _87,725
P162,725
d.3
Retained earnings of P Co., (same with Consolidated RE), 1/1/20x4 P75,000
Add; Controlling Interest in CNI same with Net Income in d.2 above under
equity method but not cost model _87,725
P162,725
Consolidated Retained Earnings, 12/31/20x4 P157,725
e. P263,075 = P238,000 + (P40,000 x 85%) – (P9,000, div x 85%) – (P1,500, impair, x 85%)
5. Reconciliation of Investment balance – Cost Model to Equity Method

Sill’s net income – 20x4 P 40,000
Less: Sill’s dividend – 20x4 ___9,000
Less: Cumulative amortization of allocated excess _______0
P 31,000
P 26,350
Less: Impairment of goodwill (P1,500 x 85%) ___1,275 __25,075
Investment balance under equity method P263,075
Reconciliation of Retained Earnings – Cost Model to Equity Method

Retained earnings, 12/31/20x4 under cost model(requirement 1 d.2) P 132,650
Sill’s net income – 20x4 P 40,000
Less: Sill’s dividend – 20x4 ___9,000
Less: Cumulative amortization of allocated excess _______0
P 31,000
P 26,350
Less: Impairment of goodwill (P1,500 x 85%) ___1,275 __25,075
Retained earnings, 12/31/20x4 under equity method(requirement 2 d.2) P157,725
Problem III
Cost of 85% investment 646,000
Fair value of Subsidiary (Implied cost of 100% investment); P646,000/85% 760,000
Less: Carrying amount of Silk’s net assets =
Carrying amount of Silk’s shareholders’ equity
Common/Ordinary shares 500,000
600,000
Allocated Excess: Acquisition differential – December 31, 20x4 160,000
Increase in Inventory 70,000
Patents 90,000
Non-controlling interest (15% x 760,000, fair value of subsidiary),12/31/20x4 114,000
amortized under Life Amount Year(20x5) 20x6 20x7
Inventory P70,000 1 P 70,000 P 70,000 P - P -
Patents 90,000 10 __9,000 ___9,000 ___9,000 ___9,000
P160,000 P 79,000 P 79,000 P 9,000 P 9,000,
Unamortized balance of allocated excess:
Balance Balance
Dec. 31 Amortization Dec. 31
20x4 20x5 20x6 20x6
Inventory 70,000 70,000
Patents 90,000 9,000 9,000 72,000
160,000 79,000 9,000 72,000
1. NCI-CNI
20x5: P(7,350)
20x6: P6,450
20x5 20x6
Consolidated Net Income
Large Company
20x5 [P28,000 – P0)] P 28,000
20x6 [(P45,000, loss + (P15,000 x 85%)] P(57,750)
Small Company 30,000 52,000
Total P 58,000 P( 5,750)
Less: Non-controlling Interest in Net Income* P(7,350) P 6,450
Amortization of allocated excess 79,000 9,000
Goodwill impairment _____0 71,650 _____0 15,450
CI-CNI (loss) or Profit (loss) attributable to equity
holders of parent P(13,650) P(21,200)
Add: Non-controlling Interest in Net Income (NCINI) ( 7,350) 6,450
Consolidated Net Income/Loss(CNI) P(21,000) P(14,750)
20x5 20x6
*Net income (loss) of subsidiary P 30,000 P 52,000
Amortization of allocated excess ( 79,000) ( 9,000)
P(49,000) P43,000
Multiplied by: Non-controlling interest %.......... 15% 15%
P(7,350) P 6,450
Less: Non-controlling interest on impairment loss on full-goodwill _______- ___ _-
Non-controlling Interest in Net Income (NCINI) P( 7,350) P6,450
2. CI-CNI – refer to computation in No. 1
20x5: P(21,000)
20x6: P14,750
Or, alternatively:
(1) Non-controlling interest in profit
20x5: 15%  (30,000 – 79,000).............................................................7,350
20x6: 15%  (52,000 – 9,000)............................................................... 6,450
(2)
20x5 20x6
NI (loss) Pen 28,000 (45,000)
Less: Dividends from Silk
20x5 0
20x6 (85%  15,000) (12,750)
28,000 (57,750)
Share of Silk’s profit
85%  (30,000 – 79,000) (41,650)
85%  (52,000 – 9,000) ________ 36,550_
Consolidated profit (loss) attributable to
Pen’s shareholders (13,650) (21,200)
3. CRE, 12/31/20x6 – P73,150

Retained earnings - Pen Company, December 31, 20x6 (cost model P 91,000
Retained earnings – Silk, December 31, 20x6:
(P100,000 + P30,00 – P0 + P52,000 – P15,000) P 167,000
Less: Retained earnings – Silk, December 31, 20x4 (date of acquisition) 100,000
Amortization of allocated excess – 20x6 __9,000
P (21,000)
Multiplied by: Controlling interests %................... 85%
P (17,850)
Less: Goodwill impairment loss (full-goodwill) – 20x5 _____0 ( 17,850)
Consolidated Retained earnings, December 31, 20x6 P 73,150
4. NCI, 12/31/20x6: P110,850

FV of SHE of Silk:
Common stock, 12/31/20x6 P 500,000
Retained earnings, 12/31/20x6:
Retained earnings, 1/1/20x4 P 100,000
NI – Subsidiary (20x5 and 20x6): P30,000 + P52,000 82,000
Dividends – Subsidiary (20x5 and 20x6): P0 + P15,000( 15,000) 167,000
Book value of SHE – S, 12/31/20x6 P 667,000
Adjustments to reflect fair value, 12/31/20x4 160,000
Amortization of allocated excess (P79,000 + P9,000) ( 88,000)
FV of SHE of S P 739,000
Multiplied by: NCI% _____15%
FV of NCI (partial), 12/31/20x6 P 110,850
Add: NCI on full-goodwill ______ _0
FV of NCI (full),12/31/20x6 P 110,850
Or, alternatively:
Non-controlling interest – date of acquisition,12/31/20x4 (1) P114,000
Retained earnings Silk – Dec. 31, 20x6
(100,000 + 30,000 + 52,000 – 15,000) P167,000
Less: Retained earnings, 12/31/20x4 (date of acquisition)100,000
Increase since acquisition P 67,000
Less: Amortization of allocated excess (79,000 + 9,000)88,000
P( 21,000)
Multiplied by: NCI’s share ____ 15% ( 3,150)
Non-controlling interest (full) 12/31/20x6 P 110,850
5. Consolidated Patents, 12/31/20x6: P72,000

Unamortized balance of allocated excess:
Balance Balance
Dec. 31 Amortization Dec. 31
20x4 20x5 20x6 20x6
Inventory 70,000 70,000
Patents 90,000 9,000 9,000 72,000
160,000 79,000 9,000 72,000
Or, alternatively:
Invest. account – equity Dec. 31, 20x6 628,150
Cost of investment, cost model 646,000
Retained earnings Silk – Dec. 31, 20x6
(100,000 + 30,000 + 52,000 – 15,000) 167,000
Retained earnings,12/31/20x4 (date of acquisition) 100,000
Increase since acquisition 67,000
Less: Accumulated amortization (79,000 + 9,000) 88,000
( 21,000)
Multiplied by: CI share 85% (17,850)
Invest. account – equity method as at Dec. 31, 20x6 628,150
Implied value of 100% (628,150 / 85%) 739,000

Silk –Common shares 500,000
Retained earnings – Silk, 12/31/20x6 167,000
667,000
Balance unamortized allocated excess – Patents 72,000
Problem IV
Additional information:
Parent’s net income from own operations - 20x4, P100,000; 20x5, P120,000
Parent’s dividend declared – 20x4, P30,000; 20x5, P40,000
1. NCNCI for 20x4, P8,400; NCNCI for 20x5, P12,020

20x4
Parent – Davis Company P100,000
Subsidiary - Martin Company 60,000
Total P160,000
Amortization of allocated excess** 18,000
Goodwill impairment _______0 __26,400
Add: Non-controlling Interest in Net Income (NCINI) ___8,400

Amortization of allocated excess – 20x4 (P2,000 + P16,000) ( 18,000)
P 42,000
P 8,400
Less: Non-controlling interest on impairment loss on full-goodwill _______0
** Amortization of allocated excess

Partial-Goodwill Approach:
Fair value of Subsidiary
Consideration transferred:.................................................................. 300,000
Less: Carrying amount of Martins net assets =
Carrying amount of Martin’s shareholders’ equity
Common/Ordinary shares – Martin (180,000 x 80%)............ 144,000
Retained earnings – Martin (60,000 x 80%)......................... 48,000192,000
Increase in Patents (20,000 x 80%).......................................... 16,000 28,800
Full-Goodwill Approach:
Fair value of Subsidiary P300,000/80%..................................................
Consideration transferred:.................................................................. 375,000
Less: Carrying amount of Martins net assets =
Carrying amount of Martin’s shareholders’ equity
Common/Ordinary shares – Martin (180,000 x 100%)............ 180,000
Retained earnings – Martin (60,000 x 100%)......................... 60,000 240,000
Increase in Patents (20,000 x 100%).......................................... 20,000 36,000
amortized Under Life Amount Year(20x4) 20x5
Inventory P16,000 1 P 16,000 P 16,000 P -
Patents 20,000 10 2,000 2,000 ___2,000
Amortization P 18,000 P 18,000 P 2,000
Impairment of goodwill (full) 99,000 - ________ _____ ___9,900
P 18,000 P 18,000 P 11,900
20x5
Parent – Davis Company P120,000
Subsidiary - Martin Company 72,000
Total P192,000
Amortization of allocated excess** 2,000
Goodwill impairment ___9,900 __23,920

P70,000
P 14,000
Less: Non-controlling interest on impairment loss on full-goodwill (P99,000 x 10% =
P9,900 x 20%) ___1,980
2. CI – CNI for 20x4, P133,600; CI – CNI for 20x5, P168,080

3. CRE, 12/31/20x5, P208,080
Correction: RE on January 1, 20x5 instead of December 31, 20x5.
Retained earnings of P Co, 1/1/20x5, equity method (same with CRE) P 80,000
Add; CI – CNI 168,080
P248,080
Less: Dividends of P Company __40,000
4. NCI, 12/31/20x5
Non-controlling interest, December 31, 20x5
Common stock – Martin Company, December 31, 20x5…… P 180,000
Retained earnings – Martin Company, December 31, 20x4
Retained earnings – Martin Company, January 1, 20x4 P 60,000
Add: NI of Martin for 20x4 and 20x5 (60,000 + 72,000) 132,000
Total P192,000
Less: Dividends paid – 20x4 and 20x5 (12,000 + 15,000) 27,000 165,000
Stockholders’ equity – S Company, December 31, 20x4 P 345,000
Adjustments to reflect fair value - (over) undervaluation of
assets and liabilities, date of acquisition (January 1, 20x4)
(20,000 + 16,000) 36,000
Amortization of allocated excess (refer to amortization
above – 20x4 and 20x5 (P2,000 + 16,000 + 2,000) ( 20,000)
Fair value of stockholders’ equity of S, December 31, 20x5…… P 361,000
Multiplied by: Non-controlling Interest percentage…………... 20
Non-controlling interest (partial-goodwill), 12/31/20x5……….. P 72,200
Add: Non-controlling interest on full goodwill , net of
impairment loss, 12/31/x5:[(P99,000 full – P79,200, partial
= P19,800) – (P99,000 x 10%, impairment loss x 20%) 17,820
Non-controlling interest (full-goodwill), 12/31/20x5…………….. P 90,020
5.
Partial (80%) Full (100%)
Goodwill balance, 1/1/20x4 79,200 99,000
Less Impairment – 20x4 ____-0- ____-0-
Less Impairment – 20x5 (99,000 x 10% = 9,900) _7,920 __9,900
6.
Patents, 1/1/20x4 20,000

Less: Amortization (20,000/10 years = 2,000 x 2) _4,000
Consolidated Patents, 12/31/20x5 16,000
Problem V
1. (Full or partial-goodwill) – the same answer.
Consideration transferred by MM............................ P664,000
Noncontrolling interest fair value .................................... 166,000*

air value of Subsidiary…………………………………. P830,000
Less: Book value of SHE – S…..……………………. (600,000)
Positive excess ............................................................ 230,000 Annual Excess
Life Amortizations
Excess fair value assigned to buildings 80,000 20 years P4,000
Goodwill - full P150,000 indefinite -0-
Total ........................................................................ P4,000
2. P150,000 – full goodwill (see No. 1 above)
P120,000 – partial-goodwill:
Consideration transferred by MM ........................... P664,000
Less: Book value of SHE – S (P600,000 x 80%)…….. 480,000
Allocated excess…………………………………….. P184,000
Less: Over/under valuation of A and L:
P80,000 x 80%................................................. 64,000
Goodwill - partial ........................................................ P120,000
3. Full-goodwill
Common Stock - TT ................................................................... 300,000
Additional Paid-in Capital - TT ................................................ 90,000
Retained Earnings - TT .............................................................. 210,000
Investment in TT Company (80%) ................................... 480,000
Non-controlling interest (20%) ......................................... 120,000
Buildings ..................................................................................... 80,000

Goodwill .................................................................................... 150,000
Non-controlling interest (P166,000 – P120,000) ............ 46,000
Partial-goodwill
Common Stock - TT ................................................................... 300,000
Additional Paid-in Capital - TT ................................................ 90,000
Retained Earnings - TT .............................................................. 210,000
Non-controlling interest (20%) ......................................... 120,000
Buildings ..................................................................................... 80,000

Goodwill .................................................................................... 120,000
Non-controlling interest (20% x P80,000) ........................ 16,000
4. Cost Model/Initial Value Method

Dividends received (80%) ............................................................. P 8,000
Investment in Taylor—12/31/x4 (original value paid)………… P664,000
Equity Method
Income accrual (80%) ................................................................... P56,000
Excess amortization expense ....................................................... (3,200)
Investment income .................................................................. P52,800
Initial fair value paid ..................................................................................... P664,000

Income accrual 20x4–20x6 (P260,000 × 80%) ............................ 208,000
Dividends 20x4–20x6 (P45,000 × 80%) ......................................... (36,000)
Excess Amortizations 20x4–20x6 (P3,200 × 3) ............................. (9,600)
Investment in TT—12/31/x6 ...................................................... P826,400
5. Same answer with No. 4.
6. Using the acquisition method, the allocation will be the total difference (P80,000) between
the buildings' book value and fair value. Based on a 20 year life, annual excess amortization
is P4,000.
MM book value—buildings .................................................... P 800,000
TT book value—buildings ........................................................ 300,000
Allocation .................................................................................. 80,000
Excess Amortizations for 20x4–20x5 (P4,000 × 2) …………. (8,000)
Consolidated buildings account ………………… P1,172,000
7. Acquisition-date fair value allocated to goodwill:

Goodwill-full ( see No. 1 above) .................................................. P 150,000
Goodwill-partial (see No. 1 above)……………………………… P 120,000
8. The common stock and additional paid-in capital figures to be reported are the parent
balances only.
Common stock, P500,000
Additional paid-in capital, P280,000
Problem VI
1. Common stock of TT Company on December 31, 20x4 P 90,000
Retained earnings of TT Company
January 1, 20x4 P 130,000
Sales for 20x4 195,000
Less: Expenses (160,000)
Dividends paid (15,000)
Retained earnings of TT Company
on December 31, 20x4 150,000
Net book value on December 31, 20x4 P240,000
Proportion of stock acquired by QQ x .80
Purchase price P192,000
2. Net book value on December 31, 20x4 P240,000
Proportion of stock held by
noncontrolling interest x .20
Balance assigned to noncontrolling interest P 48,000
3. Consolidated net income is P143,000. None of the 20x4 net income of TT Company was earned
after the date of purchase and, therefore, none can be included in consolidated net income.
4. Consolidated net income would be P178,000 [P143,000 + (P195,000 - P160,000)].
Problem VII
(Several valuation and income determination questions for a business combination involving a
non-controlling interest.)
Business combinations are recorded generally at the fair value of the consideration transferred by
the acquiring firm plus the acquisition-date fair value of the non-controlling interest.
PS’s consideration transferred (P31.25 × 80,000 shares) ............................................. P2,500,000

Non-controlling interest fair value (P30.00 × 20,000 shares) ...................................... P600,000
SR’s total fair value 1/1/09 ............................................................................................... P3,100,000
1. Each identifiable asset acquired and liability assumed in a business combination should
initially be reported at its acquisition-date fair value.
2. In periods subsequent to acquisition, the subsidiary’s assets and liabilities are reported at their
acquisition-date fair values adjusted for amortization and depreciation. Except for certain
financial items, they are not continually adjusted for changing fair values.
3. SR’s total fair value 1/1/09 ............................................................................................... P3,100,000

SR’s net assets book value ............................................................................................... 1,290,000
Excess acquisition-date fair value over book value ................................................... P1,810,000
Adjustments from book to fair values ............................................................................
Buildings and equipment ........................................................ (250,000)
Trademarks ................................................................................ 200,000
Patented technology .............................................................. 1,060,000
Unpatented technology ......................................................... 600,000 1,610,000
Goodwill ................................................................................................................... P200,000
4. Combined revenues ......................................................................................................... P4,400,000

Combined expenses......................................................................................................... (2,350,000)
Building and equipment excess depreciation ............................................................ 50,000
Trademark excess amortization ...................................................................................... (20,000)
Patented technology amortization ............................................................................... (265,000)
Unpatented technology amortization .......................................................................... (200,000)
Consolidated net income ............................................................................................... P1,615,000
To non-controlling interest:
SR’s revenues ............................................................................................................... P1,400,000
SR’s expenses............................................................................................................... (600,000)
Total excess amortization expenses (above) ........................................................ (435,000)
SR’s adjusted net income ......................................................................................... P365,000
Non-controlling interest percentage ownership .................................................. 20%
Non-controlling interest share of consolidated net income .............................. P73,000
To controlling interest:
Consolidated net income......................................................................................... P1,615,000
Non-controlling interest share of consolidated net income .............................. (73,000)
Controlling interest share of consolidated net income ...................................... P1,542,000
-OR-
PS’s revenues ............................................................................................................... P3,000,000
PS’s expenses ............................................................................................................... 1,750,000
PS’s separate net income ......................................................................................... P1,250,000
PS’s share of SR’s adjusted net income
(80% × P365,000) ............................................................................................ 292,000
Controlling interest share of consolidated net income ...................................... P1,542,000
5. Fair value of non-controlling interest January 1, 20x4 ................................................ P600,000
20x4 income ..................................................................................................................... ……..73,000
Dividends (20% × P30,000) ............................................................................................... (6,000)
Non-controlling interest December 31, 20x4 ................................................................ P 667,000
6. If SR’s acquisition-date total fair value was P2,250,000, then a bargain purchase has occurred.
SR’s total fair value 1/1/09 ............................................................................................... P2,250,000
Collective fair values of SR’s net assets ......................................................................... P2,300,000
Bargain purchase .............................................................................................................. P50,000
The acquisition method requires that the subsidiary assets acquired and liabilities assumed be
recognized at their acquisition date fair values regardless of the assessed fair value. Therefore,
none of SR’s identifiable assets and liabilities would change as a result of the assessed fair value.
When a bargain purchase occurs, however, no goodwill is recognized.
Problem VIII (Full-Goodwill)

A variety of consolidated balances-midyear acquisition)
Book value of RR, 1/1(stockholders' equity accounts)
(P100,000 + P600,000 + P700,000) ...................... P1,400,000
Increase in book value:
Net Income (revenues less cost of
goods sold and expenses) ................................ P120,000
Dividends .............................................................. (20,000)
Change during year ................................................. P100,000
Change during first six months of year .......... 50,000
Book value of RR, 7/1 (acquisition date) . P1,450,000
(Full-Goodwill)
Consideration transferred by KL(P1,330,000 +
P30,000) ................................................................... P1,360,000
Non-controlling interest fair value ................................. 300,000
RRs’ fair value (given) ....................................................... P1,630,000
Note: The fair value of subsidiary amounting P1,630,000, indicates a fair value of NCI
amounting to P300,000 (refer to above computation), which is lower compared to the FV
of the NCI based on FV of SHE of Subsidiary (RR), computed as follows:
BV of SHE of Subsidiary (RR) ...................................... P1,450,000

Adjustments to reflect fair value (undervaluation) 150,000
FV of SHE of Subsidiary (RR) ....................................... P 1,600,000
Multiplied by: NCI% ..................................................... 20%
FV of NCI………………………………………………. P 320,000
Consideration transferred by KL(P1,330,000 +

P30,000) ................................................................... P1,360,000
Non-controlling interest fair value ................................. ___320,000
RRs’ fair value (given) ....................................................... P1,680,000
Book value of RR, 7/1 ........................................................ (1,450,000)
Fair value in excess of book value ................................. P 230,000 Annual Excess
Excess fair value assigned Life Amortizations
Trademarks ..................................................................... 150,000 5 years P30,000
Goodwill (full-goodwill).................................................. P 80,000 indefinite -0-
Total .......................................................................... P30,000
It should be carefully noted, that NCI can never be less than its share of fair value of net
identifiable assets (which is P320,000). Thus, the NCI share of company value is raised to
P320,000 (replacing the P300,000 NCI computed as residual amount – refer to computation
above). The rationale behind such rule is to avoid having a lower amount of goodwill
under the full-goodwill approach as compared to goodwill computed under the partial-
goodwill approach.
(Partial-Goodwill)
Consideration transferred by KL ..................................... P1,360,000
Less: Book value of SHE – RR (P1,450,000 x 80%)…….. 1,160,000
Allocated excess………………………………………….P 200,000
P150,000 x 80%.............................................. 120,000
Goodwill - partial P80,000
Note that the goodwill under the full-goodwill and partial-goodwill approach are the same
because the FV of the NCI based on the FV of SHE of subsidiary (P320,000) is higher
compared to the imputed or the computed residual amount of NCI (P300,000).
Consolidation Totals:
 Expenses, P265,000 = P200,000 KK operating expenses plus P50,000 (post-acquisition
subsidiary operating expenses) plus ½ year excess amortization of P15,000.
 Dividends paid = P80,000
 Sales, P1,050,000 = P800,000 KK revenues plus P250,000 (post-acquisition subsidiary
revenue, P500,000 x 1/2)
 Equipment, none
 Depreciation expense, none
 Subsidiary’s net income, P60,000 = [(P500,000 – P280,000 – P100,000) x 1/2]
 Buildings, none
 Goodwill (full), P80,000; Goodwill (partial), P80,000
 Consolidated Net Income, P245,000
 Sales (1) P1,050,000
 Cost of goods sold (2) 540,000
 Operating expenses (3) __265,000
 Net Income P 245,000
 Non-controlling Interest in Sub. Income (4) P 9,000
 Controlling Interest in CNI P 236,000
(1) P800,000 KK revenues plus P250,000 (post-acquisition subsidiary revenue)
(2) P400,000 KK COGS plus P140,000 (post-acquisition subsidiary COGS)
(3) P200,000 KK operating expenses plus P50,000 (post-acquisition subsidiary
operating expenses) plus ½ year excess amortization of P15,000
(4) 20% of post-acquisition subsidiary income less excess fair value amortization
[20% × (120,000 – 30,000) × ½ year] = P9,000
 Retained Earnings, 1/1 = P1,400,000 (the parent’s balance because the subsidiary
was acquired during the current year)
 Trademark = P935,000 (add the two book values and the excess fair value allocation
after taking one-half year excess amortization)
 Goodwill (full)= P80,000 (the original allocation)
 Goodwill (partial) = P80,000 (the original allocation)
Problem IX: Consolidated balances after a mid-year acquisition)

Note: Investment account balance indicates the initial value method.
Consideration transferred ........................................ P526,000

Non-controlling interest fair value .......................... 300,000
FV of SHE - subsiary ..................................................... P826,000
Less: Book value of DD (below)................................ (765,000)
Fair value in excess of book value (positive) ........ P 61,000
Excess assigned Annual Excess
based on fair value: Life Amortizations
Equipment ...................................................... (30,000) 5 years P(6,000)
Goodwill (full) ................................................. P 91,000 indefinite -0-
Total ....................................................................... P(6,000)
Amortization for 9 months ................................. P(4,500)
Acquisition-Date Subsidiary Book Value

Book value of Duncan, 1/1/x4 (CS + 1/1 RE) ............................ P740,000
Increase in book value-net income (dividends
were paid after acquisition) ................................................. P100,000
Time prior to purchase (3 months) .............................................. ×¼ 25,000
Book value of DD, 4/1/x4 (acquisition date) ............................ P765,000
* The fair value of NCI amounting to P300,000 is higher compared to the FV of the NCI
based on FV of SHE of Subsidiary (RR), computed as follows:
BV of SHE of Subsidiary (DD) ..…………………… P765,000

Adjustments to reflect fair value (undervaluation) ( 30,000)
FV of SHE of Subsidiary (DD) ................................ P735,000
Multiplied by: NCI% ............................................... _______40%
FV of NCI……………………………………………. P294,000
(Partial-Goodwill)
Consideration transferred ................................. P 526,000
Less: Book value of SHE – DD (P765,000 x 60%) 459,000
Allocated excess………………………………… P 67,000
(P30,000 x 60%)........................................... ................................ ( 18,000)
Goodwill - partial .................................................. P 85,000
1. Consolidated Income Statement:

Revenues (1) P825,000
Cost of goods sold (2) P405,000
Operating expenses (3) 214,500 619,500
Consolidated net income P 205,500
Noncontrolling interest in CNI (4) 28,200
Controlling interest in CNI P 177,300
(1) P900,000 combined revenues less P75,000 (preacquisition subsidiary revenue)
(2) P440,000 combined COGS less P35,000 (preacquisition subsidiary COGS)
(3) P234,000 combined operating expenses less P15,000 (preacquisition subsidiary
operating expenses) less nine month excess overvalued equipment depreciation
reduction of P4,500
(4) 40% of post-acquisition subsidiary income less excess amortization
2.
Goodwill, full = P91,000 (original allocation); Goodwill , partial = P85,000
Equipment = P774,500 (add the two book values less P30,000 reduction to fair value plus
P4,500 nine months excess amortization)
Common Stock = P630,000 (P company balance only)
Buildings = P1,124,000 (add the two book values)
Dividends Paid = P80,000 (P company balance only)
Problem X
1. AA should report income from its subsidiary of P15,000 (P20,000 x .75) rather than dividend
income of P9,000.
2. A total of P5,000 (P20,000 x .25) should be assigned to the non-controlling interest in the 20x4
consolidated income statement.
3. Consolidated net income of P70,0000 should be reported for 20X4, computed as follows:
Reported net income of AA P59,000
Less: Dividend income from KR (9,000)
Operating income of AA P50,000
Net income of KR 20,000
Consolidated net income P70,000
4. Income of P79,000 would be attained by adding the income reported by AA (P59,000) to the
income reported by KR (P20,000). However, the dividend income from KR recorded by AA
must be excluded from consolidated net income.
Problem XI
1. Net income for 20x4:
QQ NN
Operating income P 90,000 P35,000
Income from subsidiary 24,500
Net income P114,500 P35,000
2. Consolidated net income is P125,000 (P90,000 + P35,000).
3. Retained earnings reported at December 31, 20x4:
QQ NN
Retained earnings, January 1, 20x4 P290,000 P40,000
Net income for 20x4 114,500 35,000
Dividends paid in 20x4 (30,000) (10,000)
Retained earnings, December 31, 20x4 P374,500 P65,000
4. Consolidated retained earnings at December 31, 20x4, is equal to the P374,500 retained
earnings balance reported by QQ.
5. When the cost method is used, the parent's proportionate share of the increase in retained
earnings of the subsidiary subsequent to acquisition is not included in the parent's retained
earnings. Thus, this amount must be added to the total retained earnings reported by the
parent in arriving at consolidated retained earnings.
Problem XII
(Consolidated balances three years after purchase. Parent has applied the equity method.)
1. Schedule 1—Acquisition-Date Fair Value Allocation and Amortization
JJ’s acquisition-date fair value . P206,000
Book value of JJ ............................................ (140,000)
Fair value in excess of book value ........... 66,000
Excess fair value assigned to specific
accounts based on individual fair values Annual Excess
Life Amortization
Equipment .............................................. 54,400 8 yrs. P6,800
Buildings (overvalued) ......................... (10,000) 20 yrs. (500)
Goodwill .................................................. P21,600 indefinite -0-
Total ......................................................... P6,300
Investment in JJ Company—12/31/x6
JJ’s acquisition-date fair value ........................................................... P206,000
20x4 Increase in book value of subsidiary 40,000
20x4 Excess amortizations (Schedule 1) ........................................... (6,300)
20x5 Increase in book value of subsidiary ........................................ 20,000
20x6 Increase in book value of subsidiary ........................................ 10,000
Investment in J Company ............................................................ P257,100
2. Equity in Subsidiary Earnings
Income accrual .................................................................................................. P30,000
Excess amortizations (Schedule 1) ................................................................. (6,300)
Equity in subsidiary earnings ..................................................................... P23,700
3.Consolidated Net Income

Consolidated revenues (add book values) .................................... P414,000
Consolidated expenses (add book values) .................................... (272,000)
Excess amortization expenses (Schedule 1) .................................... (6,300)
Consolidated net income ................................................................... P135,700
4. Consolidated Equipment
Book values added together ............................................................. P370,000
Allocation of purchase price .............................................................. 54,400
Excess depreciation (P6,800 × 3) ....................................................... (20,400)
Consolidated equipment ............................................................. P404,000
5.Consolidated Buildings...........................................................................................
Book values added together ............................................................. P288,000
Allocation of purchase price .............................................................. (10,000)
Excess depreciation (P500 × 3) .......................................................... 1,500
Consolidated buildings .................................................................. P279,500
6. Consolidated goodwill
Allocation of excess fair value to goodwill ....................................... P21,600
7. Consolidated Common Stock ............................................................................ P290,000
As a purchase, the parent's balance of P290,000 is used (the acquired company's
common stock will be eliminated each year on the consolidation worksheet).
8. Consolidated Retained Earnings ....................................................................... P410,000
Tyler's balance of P410,000 is equal to the consolidated total because the equity
method has been applied.
Problem XIII – 80% Partial Goodwill - Cost Model

Correction: The dividend income in the trial balance should be P38,400 instead P48,000
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%)……………………. P192,000
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)

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 -
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 P3,125 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 Son (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
fair value)………………………………………………... P 15,000
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.
On the books of S Company, the P30,000 dividend paid was recorded as follows:
Dividends paid………… 36,000
Cash……. 36,000
Dividends paid by S Co..
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 Son’s 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
It should be observed that the goodwill computed above 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%
Therefore, the goodwill impairment loss of P3,125 based on 100% fair value or full-goodwill would
be allocated as follows:
Value % of Total
Goodwill impairment loss attributable to P or controlling P 3,000 80.00%
Interest
Goodwill impairment loss applicable to NCI…………………….. 750 20.00%
Goodwill impairment loss based on 100% fair value or full-
Goodwill P 3,750 100.00%
(E4) Dividend income - P………. 28,800
Non-controlling interest (P36,000 x 20%)……………….. 7,200
Dividends paid – S…………………… 36,000
To eliminate intercompany dividends and non-controlling interest
share of dividends.
(E5) Non-controlling interest in Net Income of Subsidiary………… 9,360

Non-controlling interest ………….. 9,360
To establish non-controlling interest in subsidiary’s adjusted net
income for 20x4 as follows:
Net income of subsidiary…………………….. P 60,000

Amortization of allocated excess [(E3)]…... ( 13,200)
P 46,800
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
Dividend income 28,800 - (4) 28,800 _________
Total Revenue P508,800 P240,000 P 720,000
Cost of goods sold P204,000 P138,000 (3) 6,000 P 348,000
Depreciation expense 60,000 28,000 (3) 6,000 90,000
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 P310,000 P180,000 P508,200
Net Income P196,800 P 60,000 P211,800
NCI in Net Income - Subsidiary - - (5) 9,360 ( 9,360)
Net Income to Retained Earnings P196,800 P 60,000 P202,440
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 196,800 60,000 202,440
Total P552,000 P180,000 P562,440
Dividends paid
P Company 72,000 72,000
S Company - 36,000 (4) 36,000 _ ________
Retained earnings, 12/31 to Balance
Sheet P484,800 P144,000 P 490,440
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 240,000 180,000 420,000
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 P2,424,600
Accumulated depreciation
- equipment P 135,000 P 96,000 (2) 96,000 (3) 12,000 P147,000
Accumulated depreciation 405,000 288,000 (2) 192,000
- buildings (3) 6,000 495,000
Accounts payable…………… 120,000 120,000 240,000
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 484,800 144,000 490,440
Non-controlling interest………… (4) 7,200 (1 ) 72,000
(2) 18,000
_________ _________ __________ (5) 9,360 ____92,160
Total P1,984,800 P1,008,000 P 745,560 P 745,560 P2,424,600
20x5: Second Year after 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 P in 20x5 in relation to its subsidiary investment:
Cash……………………… 38,400
Dividend income (P48,000 x 80%)……………. 38,400
Consolidation Workpaper – Second Year after Acquisition

The working paper eliminations (in journal entry format) on December 31, 20x5, are as follows:
(E1) Investment in S Company………………………… 19,200
Retained earnings – P Company……………………… 19,200
To provide entry to convert from the cost method to the equity
method or the entry to establish reciprocity at the beginning of the
year, 1/1/20x5, computed as follows:
Retained earnings – S Company, 1/1/20x5 P144,000
Retained earnings – S Company, 1/1/20x4 120,000
Increase in retained earnings…….. P 24,000
Multiplied by: Controlling interest % 80%
Retroactive adjustment P 19,200
Retained earnings – S Co., 1/1/20x5 144,000
Investment in S Co (P384,000 x 80%)………………………… 307,200
To eliminate intercompany investment and equity accounts
of subsidiary and to establish non-controlling interest (in net assets of
subsidiary) on January 1, 20x5.
(E3) Inventory…………………………………………………………………. 6,000
Land………………………………………………………………………. 7,200
Goodwill…………………………………………………………………. 12,000
Buildings……………………………………….. 216,000
Non-controlling interest (P90,000 x 20%) 18,000
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 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
S’s identifiable assets and liabilities as follows:
Year 20x4 amounts are debited to P’s retained earnings &
NCI;
Year 20x5 amounts are debited to respective nominal accounts.
(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.
P 82,800
Non-controlling Interest in Net Income (NCINI P 16,560

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
Other expenses 72,000 54,000 126,000
Goodwill impairment loss - - -
Total Cost and Expenses P348,000 P270,000 P 625,200
Net Income P230,400 P 90,000 P 274,800
Net Income to Retained Earnings P230,400 P 90,000 P 258,240
P Company P484,800 (2) 13,560 (1) 19,200 P 490,440
S Company P 144,000 (2) 144,000
Total P715,200 P234,000 P 748,680
Dividends paid
P Company 72,000 72,000
S Company - 48,000 (5) 48,000 _ ________
Sheet P643,200 P186,000 P 676,680
Balance Sheet
Cash………………………. P 265,200 P 114,000 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 240,000 180,000 420,000
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) 19,200 (2) 307,200
(3) 84,000 -
Total P2,203,200 P1,074,000 P2,707,800
- equipment P 150,000 P 102,000 (3) 96,000 (4) 24,000 P180,000
- buildings (4) 12,000 552,000
Bonds payable………………… 240,000 120,000 360,000
Non-controlling interest………… (5) 9,600
(4) 2,640 (2 ) 76,800
(3) 18,000
___ _____ _________ __________ (6) 16,560 ____99,120
Total P2,203,200 P1,074,000 P 821,160 P 821,160 P2,707,800
5. 1/1/20x4
a. On date of acquisition the retained earnings of P should always be considered as the consolidated
retained earnings, thus:
Retained earnings - P Company, January 1, 20x4 (date of acquisition) P360,000
b.
Non-controlling interest (partial-goodwill), January 1, 20x4
Common stock – S Company, January 1, 20x4…… P 240,000
Retained earnings – S Company, January 1, 20x4 120,000
Stockholders’ equity – S Company, January 1, 20x4 P 360,000
liabilities, date of acquisition (January 1, 20x4) 90,000
Fair value of stockholders’ equity of subsidiary, January 1, 20x4…… P450,000
Non-controlling interest (partial-goodwill)………………………………….. P 90,000
c.
Consolidated SHE:
Stockholders’ Equity
Common stock, P10 par P 600,000
P’s 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 P’s 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 Company P168,000
S Company 60,000
Total P228,000
Amortization of allocated excess (refer to amortization above) 13,200
Goodwill impairment (impairment under partial-goodwill approach) 3,000 25,560
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent………….. P202,440
Add: Non-controlling Interest in Net Income (NCINI) 9,360
Consolidated Net Income for 20x4 P211.800
b. NCI-CNI
*Non-controlling Interest in Net Income (NCINI) for 20x4
Net income of S Company P 60,000
Less: Amortization of allocated excess / goodwill impairment
(refer to amortization table above) 13,200
P 46,800
c. CNI, P211,800 – refer to (a)
d. On subsequent to date of acquisition, consolidated retained earnings would be computed
as follows:
equity holders of parent for 20x4 202,440
Total P562,440
Less: Dividends paid – P Company for 20x4 72,000
e.
Non-controlling interest (partial-goodwill), December 31, 20x4
Common stock – S Company, December 31, 20x4…… P 240,000
Retained earnings – S Company, December 31, 20x4
Retained earnings – S Company, January 1, 20x4 P120,000
Add: Net income of S for 20x4 60,000
Total P180,000
Less: Dividends paid – 20x4 36,000 144,000
Amortization of allocated excess (refer to amortization above) – 20x4 ( 13,200)
Fair value of stockholders’ equity of subsidiary, December 31, 20x4…… P460,000
f.
Consolidated SHE:
P’s Stockholders’ Equity / CI – SHE, 12/31/20x4 P1,090,440
NCI, 12/31/20x4 ___92,160
12/31/20x5:
a. CI-CNI
Net income from own/separate operations:
P Company P192,000
S Company 90,000
Total P282,000
Less: Non-controlling Interest in Net Income* P16,560
Amortization of allocated excess (refer to amortization above) __7,200 23,760
b. NCI-CNI
Less: Amortization of allocated excess / goodwill impairment for 20x5
P 82,800
Non-controlling Interest in Net Income (NCINI) for 20x5 P 16,560
d. On subsequent to date of acquisition, consolidated retained earnings would be computed as follows:
Retained earnings - P Company, January 1, 20x5 (cost model P484,800
Retained earnings – S, January 1, 20x5 P 144,000
Less: Retained earnings – S, January 1, 20x4 120,000
P 10,800
P 8,640
Less: Goodwill impairment loss (full-goodwill), net (P3,750– P750)* or
(P3, 750 x 80%) 3,000 5,640
Consolidated Retained earnings, January 1, 20x5 P 490,440
equity holders of P for 20x5 258,240
Total P748,680
*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.
e.
Total P234,000
Amortization of allocated excess (refer to amortization above) :
20x4 P 13,200
20x5 7,200 ( 20,400)
Non-controlling interest (partial goodwill)………………………………….. P 99,120
f.
Consolidated SHE:
Parent’s Stockholders’ Equity / CI – SHE, 12/31/20x5 P1,276,680
NCI, 12/31/20x5 ___99,120
Problem XIV – 80% Full Goodwill – Cost Model
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
Retained earnings (P120,000 x 100%)………... 120,000 360,000
fair value)………………………………………………... P 15,000

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
Dividend income (P36,000x 80%)……………. 28,800
No entries are made on the P’s books to depreciate, amortize or write-off the portion of the
allocated excess that expires during 20x4.
Consolidation Workpaper – First Year after Acquisition
(E2) Inventory…………………………………………………………………. 6,000

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
Inventory………………………………………………………….. 6,000
Goodwill…………………………………… 3,750
Cost of Goods Depreciation/ Amortization Amortization
Sold Expense -Interest
Equipment P12,000
Buildings ( 6,000)
Bonds payable _______ _______ P 1,200
Totals P 6,000 P 6,000 P1,200
P 46,800
P 9,360
Less: Non-controlling interest on impairment
loss on full-goodwill (P3,125 x 20%) or
(P3,125 impairment on full-goodwill less
P2,500, impairment on partial-goodwill)* 750
20%. There might be situations where the NCI on goodwill impairment loss would not be proportionate to NCI
acquired (refer to Illustration 15-6).
Cost Model (Full-goodwill)
Sales P480,000 P240,000 P 720,000
Dividend income 28,800 - (4) 28,800 _________
Other expenses 48,000 18,000 66,000
Net Income P196,800 P 60,000 P211,050
P Company P360,000 P 360,000
S Company P120,000 (1) 120,000
Total P556,800 P180,000 P562,440
Dividends paid
P Company 72,000 86,400
S Company - 36,000 (4) 36,000 _ ________
Sheet P484,800 P144,000 P 490,440
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 240,000 180,000 420,000
Buildings 720,000 540,000 (2) 216,000 1,044,000
Goodwill…………………… (2) 15,000 (3) 3,750 11,250
(4) 84,000 -
Total P1,984,800 P1,008,000 P2,426,850
- equipment P 135,000 P 96,000 (2) 96,000 (3) 12,000 P147,000
- buildings (6) 6,000 495,000
Bonds payable………………… 240,000 120,000 360,000
(2) 21,000
_________ _________ __________ (5) 8,610 ____94,410
Total P1,984,800 P1,984,800 P 748,560 P 748,560 P2,426,850
P Co. S Co.
Sales P 540,000 P 360,000
Add: Dividend income 38,400 -
Net income P 230,400 P 90,000
Only a single entry is recorded by the parent in 20x5 in relation to its subsidiary investment:
Cash……………………… 38,400
Dividend income (P48,000x 80%)……………. 38,400
(E1) Investment in S Company………………………… 19,200
Retained earnings – P Company……………………… 19,200
To provide entry to convert from the cost method to the equity
method or the entry to establish reciprocity at the beginning of the
year, 1/1/20x5.
Retained earnings – S Company, 1/1/20x5 P144,000
Retained earnings – S Company, 1/1/20x4 120,000
Increase in retained earnings…….. P 24,000
Multiplied by: Controlling interest % 80%
Retroactive adjustment P 19,200
Retained earnings – S Co., 1/1/20x5 144,000
Investment in S Co (P384,000 x 80%)………………………… 307,200
(E3) Inventory…………………………………………………………………. 6,000
Land………………………………………………………………………. 7,200
Goodwill…………………………………………………………………. 15,000
Buildings……………………………………….. 216,000
(E4) Retained earnings – P Company, 1/1/20x5

(P16,950 x 80%) 13,560
Non-controlling interests (P16,950 x 20%)……………………. 3,390
Inventory………………………………………………………….. 6,000
Goodwill…………………………………… 3,750
(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
Impairment loss 3,750
Totals P 16,950 P 6,000 P1,200
Multiplied by: CI%.... 80%
To Retained earnings P13,560

share of dividends.

P 82,800
P 16,560
Less: NCI on goodwill impairment loss on full-
Goodwill 0

Cost Model (Full-goodwill)

Sales P540,000 P360,000 P 900,000
Dividend income 38,400 - (5) 38,400 ___________
Other expenses 72,000 54,000 126,000
Net Income P230,400 P 90,000 P 274,800

P Company P484,800 (3) 13,560 (5) 19,200 P 490,440
S Company P 144,000 (6) 144,000
Total P715,200 P234,000 P 748,680
Dividends paid
P Company 72,000 72,000
S Company - 48,000 (5) 57,600 _ ________
Sheet P643,200 P186,000 P 676,680
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 240,000 180,000 420,000
Buildings 720,000 540,000 (3) 216,000 1,044,000
Goodwill…………………… (3) 15,000 (4) 3,750 11,250
Investment in S Co……… 372,000 (1) 19,200 (2) 307,200
(7) 84,000 -
Total P2,203,200 P1,074,000 P2,710,050
- equipment P 150,000 P 102,000 (3) 96,000 (4) 24,000 P180,000
- buildings (4) 12,000 552,000
Bonds payable………………… 240,000 120,000 360,000
Non-controlling interest………… (6) 9,600
(8) 3,390 (2 ) 76,800
(3) 21,000
___ _____ _________ __________ (6) 16,560 ____101,370
Total P2,203,200 P1,074,000 P 824,910 P 824,910 P2,710,050
5. 1/1/20x4
a. On date of acquisition the retained earnings of parent should always be considered as the
consolidated retained earnings, thus:
b.
Non-controlling interest (full-goodwill), January 1, 20x4
Fair value of stockholders’ equity of S, January 1, 20x4…… P450,000
Add: NCI on full-goodwill (P15,000 – P12,000) ___3,000
c.
Consolidated SHE:
Parent’s Stockholders’ Equity / CI - SHE P 960,000
NCI, 1/1/20x4 ___93,000
6.
Note: The goodwill recognized on consolidation purely relates to the parent’s 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 – P202,440
P Company P168,000
S Company 60,000
Total P228,000
Goodwill impairment (impairment under full-goodwill approach) 3,750 25,560
equity holders of P………….. P202,440
b. NCI-CNI – P8,610
Less: Amortization of allocated excess (refer to amortization table above) 13,200
P 46,800
Less: Non-controlling int. 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
*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

Total P562,440
e.
Total P180,000
Fair value of stockholders’ equity of S, December 31, 20x4…… P460,800
Non-controlling interest (partial-goodwill, 12/31/20x4………………………….. P 92,160
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
f.
Consolidated SHE:
NCI, 12/31/20x4 ___94,410
12/31/20x5:
a. CI-CNI – P258,240
P Company P192,000
S Company 90,000
Total P282,000
Goodwill impairment (impairment under full-goodwill approach) 0 23,760
P 82,800

consolidation or to establish reciprocity:/P’s share in adjusted net
Retained earnings – Subsidiary, January 1, 20x5 P 144,000
Less: Retained earnings – Subsidiary, January 1, 20x4 120,000
P 10,800
P 8,640
(P3, 750 x 80%) 3,000 5,640
Total P748,680
e.
Total P234,000
20x4 P 13,200
20x5 7,200 ( 20,400)
Non-controlling interest (full-goodwill)………………………………….. P 101,370
f.
Consolidated SHE:
NCI, 12/31/20x4 __101,370
Problem XV – 80% Partial Goodwill – Equity Method

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%)……………………. P192,000
Retained earnings (P120,000 x 80%)………………... 96,000 288,000
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
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 P3,125 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:
Less: Book value of stockholders’ equity of S (P360,000 x 100%) __360,000
(P90,000 x 100%) 90,000
fair value)………………………………………………... P 15,000

Parent Company Equity Method Entry
The following are entries recorded by the P in 20x4 in relation to its subsidiary investment:
January 1, 20x4:
Cash…………………………………………………………………….. 372,000

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

(3) Investment in S Company 48,000
Investment income (P60,000 x 80%) 48,000
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.
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 S Amortization &
(60,000 x 80%) 48,000 13,560 impairment
Balance, 12/31/x4 377,640
Investment Income
Amortization & NI of S
impairment 13,560 48,000 (P60,000 x 80%)
34,440 Balance, 12/31/x4
The schedule of determination and allocation of excess presented above provides complete
guidance for the worksheet eliminating entries on January 1, 20x4:
Investment in Son Co…………………………………………… 288,000
(E2) Inventory…………………………………………………………………. 6,000
Land………………………………………………………………………. 7,200
Goodwill…………………………………………………………………. 12,000
Buildings……………………………………….. 216,000

Inventory………………………………………………………….. 6,000
Goodwill…………………………………… 3,000
Sold Expense -Interest Total
Equipment P 12,000
Buildings ( 6,000)
Bonds payable _______ _______ P 1,200
Totals P 6,000 P 6,000 P1,200 13,200
It should be observed that the goodwill computed above 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%
Therefore, the goodwill impairment loss of P3,750 based on 100% fair value or full-goodwill would
be allocated as follows:
Value % of Total
Goodwill impairment loss attributable to parent or controlling P 3,000 80.00%
Interest
Goodwill impairment loss applicable to NCI…………………….. 625 20.00%
Goodwill impairment loss based on 100% fair value or full-
Goodwill P 3,750 100.00%
(E4) Investment income 34,440

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
(60,000 Amortization & Amortization (60,000
5,640 34,440
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 Son Amortization &
(60,000 x 80%) 48,000 13,560 impairment
Balance, 12/31/x4 377,640 288,000 (E1) Investment, 1/1/20x4
84,000 (E2) Investment, 1/1/20x4
5,640 (E4) Investment Income
and dividends
377,640 377,640


P 46,800
Equity Method (Partial-goodwill)
Sales P480,000 P240,000 P 720,000
Investment income 34,440 - (4) 34,440 _________
Other expenses 48,000 18,000 66,000
Net Income P202,440 P 60,000 P211,800

P Company P360,000 P360,000
S Company P120,000 (1) 120,000
Total P562,440 P180,000 P562,440
Dividends paid
P Company 72,000 72,000
S Company - 36,000 (4) 36,000 -
Sheet P490,440 P144,000 P490,440
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 240,000 180,000 420,000
Buildings 720,000 540,000 (2) 216,000 1,044,000
Goodwill…………………… (2) 12,000 (3) 3,000 9,000
(2) 84,000
(4) 5,640 -
Total P1,990,440 P1,008,000 P2,424,600
- equipment P 135,000 P 96,000 (2) 96,000 (3) 12,000 P147,000
- buildings (9) 6,000 495,000
Bonds payable………………… 240,000 120,000 360,000
(2) 18,000
_________ _________ __________ (5) 9,360 ____92,160
Total P1,990,440 P1,008,000 P 751,200 P 751,200 P2,424,600

P Co. S Co.
Sales P 540,000 P 360,000
Add: Investment income 66,240 -
Net income P 258,240 P 90,000

The following are entries recorded by the parent in 20x5 in relation to its subsidiary investment:
(2) Cash……………………… 38,400
December 31, 20x5:
December 31, 20x5:
(4) Investment income (P7,200 x 80%) 5,760
buildings and bonds payable
Investment in S
NI of S Amortization
(90,000 x 80%) 72,000 5,760 (P7,200 x 80%)
Balance, 12/31/x5 405,480
Investment Income
Amortization NI of S
(7,200 x 80%) 5,760 72,000 (90,000 x 80%)
66,240 Balance, 12/31/x4
The schedule of determination and allocation of excess presented above provides complete guidance for
the worksheet eliminating entries:
Retained earnings – S Co, 1/1/x5…………………………. 144.000
Investment in S Co (P384,000 x 80%) 307,200
(E2) Accumulated depreciation – equipment (P96,000 – P12,000) 84,000

Accumulated depreciation – buildings (P192,000 + 6,000) 198,000
Land………………………………………………………………………. 7,200
Discount on bonds payable (P4,800 – P1,200)…. 3,600
Goodwill (P12,000 – P3,000)…………………………….. 9,000
Buildings……………………………………….. 216,000
Non-controlling interest [(P90,000 – P13,200) x 20%] 15,360
(E3) Depreciation expense……………………….. 6,000

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

To eliminate intercompany dividends and investment income under
equity method and establish share of dividends, computed as
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%)
27,840 66,240
Investment in S
(90,000 x 80%) 72,000 5,760 (7,200 x 80%)
70,440 (E2) Investment, 1/1/20x5
and dividends
405,480 405,480

P 82,800

Equity Method (Partial-goodwill)
Sales P540,000 P360,000 P 900,000
Investment income 66,240 - (4) 66,240 ___________
Other expenses 72,000 54,000 126,000
Net Income P258,240 P 90,000 P 274,800

P Company P490,440 P490,440
S Company P144,000 (1) 144,000
Total P748,680 P234,000 P748,680
Dividends paid
P Company 72,000 72,000
S Company - 48,000 (4) 48,000 -
Sheet P676,680 P186,000 P676,680
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 240,000 180,000 420,000
Buildings 720,000 540,000 (3) 216,000 1,044,000
Goodwill…………………… (2) 9,000 9,000
(2) 70,440
(4) 27,840 -
Total P2,236,680 P1,074,000 P2,707,800
Accumulated depreciation (2) 84,000

- equipment P 150,000 P 102,000 (3) 12,000 P180,000
- buildings (3) 6,000 552,000
Bonds payable………………… 240,000 120,000 360,000
(2) 15,360
___ _____ _________ (5) 16,560 ____99,120
__________
Total P2,236,680 P1,074,000 P 794,400 P 794,400 P2,707,800
Note: Using cost model or equity method, the consolidated net income, consolidated retained earnings,
non-controlling interests, consolidated equity on December 31, 20x4 and 20x5 are exactly the same (refer
to Problem VI solution).
5. 1/1/20x4
b.
Non-controlling interest (partial-goodwill), January 1, 20x4
c.
Consolidated SHE:
NCI, 1/1/20x4 ___90,000
6.
12/31/20x4:
a. CI-CNI
P Company P168,000
S Company 60,000
Total P228,000
Goodwill impairment (impairment under partial-goodwill approach) 3,000 25,560
equity holders of P………….. P202,440
b. NCI-CNI
Less: Amortization of allocated excess / goodwill impairment
P 46,800

as follows:
Total P562,440
e.
Total P180,000
f.
Consolidated SHE:
NCI, 12/31/20x4 ___92,160
12/31/20x5:
a. CI-CNI
P Company P192,000
S Company 90,000
Total P282,000
Amortization of allocated excess (refer to amortization above) __7,200 23,760
b. NCI-CNI
P 82,800

P 10,800
P 8,640
(P3, 750 x 80%) 3,000 5,640
Total P748,680
e.
Total P234,000
20x4 P 13,200
20x5 7,200 ( 20,400)
Fair value of stockholders’ equity of subsidiary, December 31, 20x5…… P 495,600
f.
Consolidated SHE:
NCI, 12/31/20x4 ___99,120
Problem XVI - 80% Full Goodwill – Equity Method
Schedule of Determination and Allocation of Excess
Common stock (P240,000 x 100%)………………. P 240,000
fair value)………………………………………………... P 15,000

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
December 31, 20x4:

December 31, 20x4:

(4) Investment income [(P13,200 x 80%) + (P3,750 – P750)*, 13,560
goodwill impairment loss)]
buildings and bonds payable and goodwill impairment loss.
Investment in S
(60,000 x 80%) 48,000 13,560 Impairment
Balance, 12/31/x4 377,640
Investment Income
Amortization & NI of S
Impairment 13,560 48,000 (P60,000 x 80%)
34,440 Balance, 12/31/x4
guidance for the worksheet eliminating entries on January 1, 20x4:
(E2) Inventory…………………………………………………………………. 6,000
Land………………………………………………………………………. 7,200
Goodwill…………………………………………………………………. 15,000
Buildings……………………………………….. 216,000
Inventory………………………………………………………….. 6,000
Goodwill…………………………………… 3,750
Sold Expense -Interest Total
Equipment P 12,000
Buildings ( 6,000)
Bonds payable _______ _______ P 1,200
Totals P 6,000 P 6,000 P1,200 13,200
NI of S 28,800 Dividends – S NI of Son
(60,000 Amortization & Amortization & (60,000
x 80%)……. 48,000 13,560 Impairment Impairment 13,560 48,000 x 80%)
5,640 34,440
Investment in S
(60,000 x 80%) 40,000 13,560 Impairment
84,000 (E2) Investment, 1/1/20x4
and dividends
377,640 377,640

P 46,800
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
20%. There might be situations where the NCI on goodwill impairment loss would not be proportionate to NCI
acquired (refer to Illustration 15-6).

Equity Method (Full-goodwill)
Sales P480,000 P240,000 P 720,000
Investment income 34,440 - (4) 34,440 _________
Other expenses 48,000 18,000 66,000
Net Income P202,440 P 60,000 P211,050

P Company P360,000 P360,000
S Company P120,000 (1) 120,000
Total P562,440 P180,000 P562,440
Dividends paid
P Company 72,000 72,000
S Company - 36,000 (4) 36,000 -
Sheet P490,440 P144,000 P490,440
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 240,000 180,000 420,000
Buildings 720,000 540,000 (2) 216,000 1,044,000
Goodwill…………………… (2) 15,000 (3) 3,750 11,250
(2) 84,000
(4) 5,640 -
Total P1,990,440 P1,008,000 P2,426,850
- equipment P 135,000 P 96,000 (2) 96,000 (3) 12,000 P147,000
- buildings (3) 6,000 495,000
Bonds payable………………… 240,000 120,000 360,000
(2) 21,000
_________ _________ __________ (5) 8,610 ____94,410
Total P1,990,440 P1,008,000 P 754,200 P 754,200 P2,426,850
P Co. S Co.
Sales P 540,000 P 380,000
Net income P 258,240 P 90,000
(2) Cash……………………… 38,400
December 31, 20x5:

December 31, 20x5:

(4) Investment income (P7,200 x 80%) 5,760
buildings and bonds payable
P Company’s P12,000 portion of the differential related to goodwill related to goodwill is not
adjusted on the parent’s books following Option 2 as referred to above for goodwill impairment
loss. Even though the goodwill of the consolidated entity is impaired,
Investment in S
(90,000 x 80%) 72,000 5,760 (P7,200 x 80%)
Balance, 12/31/x5 405,480
Investment Income
Amortization NI of S
(7,200 x 80%) 5,760 72,000 (90,000 x 80%)
66,240 Balance, 12/31/x4

guidance for the worksheet eliminating entries.
Retained earnings – S Co, 1/1/x5…………………………. 144.000
Investment in S Co (P384,000 x 80%) 307,200
To eliminate investment on January 1, 20x5 and equity accounts
of subsidiary on date of acquisition; and to establish non-
controlling interest (in net assets of subsidiary) on 1/1/20x5.
(E2) Accumulated depreciation – equipment (P96,000 – P12,000) 84,000

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 – P3,750)…………………………….. 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
(E3) Depreciation expense……………………….. 6,000
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

NI of S 38,400 Dividends - S NI of S
x 80%)……. 72,000 5,760 (P7,200 x 80%) (P7,200 x 80%) 5,760 72,000 x 80%)
27,840 66,240
Investment in S
(90,000 x 80%) 72,000 5,760 (7,200 x 80%)
70,440 (E2) Investment, 1/1/20x5
and dividends
405,480 405,480

P 82,800
Less: NCI on goodwill impairment loss on full-
Goodwill 0

Equity Method (Full-goodwill)
Sales P540,000 P360,000 P 900,000
Investment income 66,240 - (4) 66,240 ___________
Other expenses 72,000 54,000 126,000
Net Income P258,240 P 90,000 P 274,800
P Company P490,440 P490,440
S Company P144,000 (1) 144,000
Total P748,680 P234,000 P748,680
Dividends paid
P Company 72,000 72,000
S Company - 48,000 (4) 48,000 -
Sheet P676,680 P186,000 P676,680
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 240,000 180,000 420,000
Buildings 720,000 540,000 (3) 216,000 1,044,000
Goodwill…………………… (2) 11,250 11,250
(5) 70,440
(4) 27,840 -
Total P2,236,680 P1,074,000 P2,634,000
Accumulated depreciation (2) 84,000
- equipment P 150,000 P 102,000 (3) 12,000 P 180,000
- buildings (3) 6,000 552,000
Bonds payable………………… 240,000 120,000 360,000
Non-controlling interest…………
(3) 9,600
(2 ) 76,800
(2) 17,610
___ _____ __________ __________ (5) 16,560 __________
Total P2,236,680 P1,074,000 P 796,650 P 796,650 P2,634,000
Note: Using cost model or equity method, the consolidated net income, consolidated retained earnings, non-controlling
interests, consolidated equity on December 31, 20x4 and 20x5 are exactly the same (refer to Problem VII solution).
5. 1/1/20x4
b.
Non-controlling interest (full-goodwill), January 1, 20x4
Add: NCI on full-goodwill (P15,000 – P12,000) ___3,000
c.
Consolidated SHE:
NCI, 1/1/20x4 ___93,000
6.
a. CI-CNI – P202,440
P Company P168,000
S Company 60,000
Total P228,000
Goodwill impairment (impairment under full-goodwill approach) 3,750 25,560
Less: Amortization of allocated excess (refer to amortization table above) 13,200
P 46,800
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

Total P562,440
e.
Retained earnings – SCompany, January 1, 20x4 P120,000
Total P180,000
Non-controlling interest (partial-goodwill, 12/31/20x4………………………….. P 92,160
Add: Non-controlling interest on full goodwill , net of impairment loss, 12/31/x4:
f.
Consolidated SHE:
NCI, 12/31/20x4 ___94,410
12/31/20x5:
a. CI-CNI – P258,240
P Company P192,000
S Company 90,000
Total P282,000
P 82,800
as follows:
consolidation or to establish reciprocity:/P’s share in adjusted net
P 10,800
P 8,640
(P3, 750 x 80%) 3,000 5,640
Total P748,680
e.
Total P234,000
20x4 P 13,200
20x5 7,200 ( 20,400)
Fair value of stockholders’ equity of subsidiary, December 31, 20x5…… P 495,600
Non-controlling interest (full-goodwill)………………………………….. P 101,370
f.
Consolidated SHE:
NCI, 12/31/20x4 __101,370
Problem XVII
P’s gain on sale of subsidiary stock is computed as follows:
Cash proceeds……………………………………… P 720,000

Fair value of retained non-controlling interest equity investment (35%) 420,000
Carrying value of the non-controlling interest before deconsolidation
(15% or prior outside non-controlling interest in Subsidiary) 120,000
P1,260,000
Less: Carrying value of Subsidiary’s net assets 1,200,000
Gain on disposal or deconsolidation P 60,000
Read discussion on step-acquisition regarding the initial treatment of investment as FVTOCI

or FVTPL and its disposition. It is assumed that the investment above is FVTPL.
Problem XVIII
P Company’s additional paid-in capital arising sale of subsidiary shares is computed as follows:
Cash proceeds……………………………………… P 84,000

Less: Carrying value of non-controlling interest (P720,000* x 10%) 72,000
“Gain” – transfer within equity in “Additional paid-in capital” account P 12,000
*the P720,000 is already the gross-up amount since it is the amount presented in the consolidated balance sheet.
Because P Company continues to have the ability to control S Company, the sale of S’s shares is
treated as an equity transaction. Therefore, no gain or loss is recognized. Instead, Palmer
Company’s additional paid-in capital increases by P60,000.
Problem XIX
P Company’s additional paid-in capital arising sale of subsidiary shares is computed as follows:
Cash proceeds from issuance of additional shares …..P210,000

Less: Carrying Value of non-controlling from issuance
of additional shares:
Non-controlling interest prior to issuance
of additional shares:
Book value of SHE before issuance…P720,000
x: Non-controlling interest……………. 20%* P 144,000
Non-controlling interest after issuance of
additional shares:
Book value of SHE before
issuance…………………….P720,000
Additional issuance…………………..…210,000
BV of SHE after issuance……………….P930,000
x: Non-controlling interest……………... 36%** 334,800 190,800
“Gain” – transfer within equity in
“Additional paid-in capital” account...P 19,200
* (120,000 – 96,000) / 120,000 = 20% ownership before additional issuance of shares.

** [(24,000 + 30,000) / (120.000 + 30,000)] = 36% ownership after additional issuance of shares
PCompany recognizes an increases in its Investment in S from P576,000 (P720,000x 80%) to P595,200
[P930,000 x (96,000/150,000) and in additional paid-in capital of P19,200.
Multiple Choice Problems
1. b
Full-Goodwill: (P600,000/70%) – P640,000 = P217,143 – P40,000 = P177,143
If partial goodwill: P600,000 – (P640,000 x 70%) = P152,000 – (P40,000 x 70%) = P124,000
2. b – P500,000 + P3,461
3. b
4. d – equivalent to consideration transferred, P320,000
5. d – equivalent to consideration transferred, P380,000
6. a
7. P2,120,000
Podex’s separate earnings for 20x6 ..................................................... P2,000,000
Dividend income from Sodex ................................................................ __120,000
Podex’s 20x6 net income ....................................................................... P2,120,000
8. P2,260,000
Podex’s separate earnings for 20X6 P2,000,000
Podex’s equity in net income of Sodex ............................................... 300,000
Less: Amortization of cost in excess of book value ........................... (40,000)
Podex’s 20x6 net income ....................................................................... P2,260,000
9. b
10. c
Retained earnings of Parent, 12/31/20x6, Cost Method 310,000
Add: Increased in Retained earnings of Subsidiary _80,000
RE of Parent, 12/31/20x6, Equity Method (same with Consolidated RE) 390,000
11. c
Investment balance 12/31/x6, Cost Method 200,000
Add: Increased in Retained earnings of Subsidiary 80,000
Investment balance 12/31/x6, Equity Method 280,000
12. d
Add: Increased in Retained earnings of Subsidiary _240,000
13. b – dividends of subsidiary considered as dividend income in the parent’s separate income
statement.
14. b
Less: Decreased in Retained earnings of Subsidiary _40,000
15. d – 20x3: P30,000 x 75% = P22,500

20x4: P40,000 x 75% = P30,000
16. a – no changes in investment unless there are dispositions of investment and permanent
impairment.
17. c - 20x4 = P86,400
Consolidated Net Income 20x4 20x5
Peters Company's reported net income64,000 37,500
Less: dividend income from Smith (1,600) _____0
Peters' income from independent operations62,400 37,500
Add: Peter's share of Smith's net income in 20x4 since acquisition
(.80)(8/12)(P45,000)24,000
Less: Peter's share of Smith's net loss in 20x4 (.80  P5,000 ______ (4,000)
Controlling Interest in Consolidated net income86,400 33,500
18. c - 20x5 = P33,500 – refer to No. 17

19. b - 20x4 = P151,400
Consolidated Retained Earnings 20x4 20x5
Peter's 12/31 retained earnings (P80,000 + P64,000 - P15,000) P129,000 P161,500
Add: Peter's share of the increase in Smith's retained earnings
from the date of acquisition to the current date:
(.80  (P53,000 – P25,000)) 22,400
(.80  (P48,000 – P25,000) ________18,400
P151,400 P179,900
20. c - 20x5 = P179,900 – refer to No. 19
21. c
P Company P30,200 – (P150,0000 – P20,000 – P60,000) P70,000
S Company (P100,000 – P15,000 – P45,000) 40,000
Total P110,000
Less: Non-controlling Interest in Net Income P 0
Goodwill impairment ____0 ____0
Add: Non-controlling Interest in Net Income (NCINI) _____0
22. b
Plimsol: P100,000 + P200,000,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,P300,000
Shipping: P75,000 + P150,000………………………………………………………………. 225,000
P525,000
23.
Retained Earnings - Plimsol, 1/1/20x4 (cost method, same with equity method and
consoilidated retained earnings since it is the date of acquisition)P 150,000
Add: CI – CNI (refer to No. 21) 110,000
Less: CI – Dividends (Dividend of parent only)25,000
Retained earnings, 12/31/20x4 (equity method same with CRE) P 235,000
24. d
Liabilities:
Plimsol (P40,000 + P75,000) P115,000
Shipping (P25,000 + P50,000) 75,000
P 190,000
25. d
Total assets (No. 22) P525,000
Les: Liabilities (No. 24) 190,000
Stockholders’ equity P335,000
26. c – P60,000 x 80% = P48,000

27. c
Investment.1/1/20x4 P105,000
Add: Share in net income – 20x4 (P45,000 x 80%) 36,000
Less: Dividends received 12,000
Investment, 12/31/20x4 P129,000
Add: Share in net income – 20x5 (P60,000 x 80%) 48,000
Less: Dividends received 18,000
Investment, 12/31/20x5 P159,000
28. a
Investment. 4/1/20x6 P500,000
Add: Share in net income – 20x6
(3 quarters x P30,000 x 90%) 81,000
Less: Dividends declared of Satz (3 quarters x P10,000 x 90%) 27,000
Amortization (the recorded amount which means it represents
only 9 months, no need to pro-rate) 10,000
Investment, 12/31/20x6 P544,000
29. c
Patz’s equity in net income of Sats (90% x P30,000 x 3 qtrs) P81,000
Less: Amortization (the recorded amount which means it represents
only 9 months, no need to pro-rate) 10,000
Investment income – 20x4 (equity method)P 71,000
30. d
Investment balance, 1/1/20x4……………………………………………….. P150,000
Add: Puma’s equity in net income of Slume (30% x P25,000)..………… 7,500
Less: Dividends (P30% x P10,000)……………………………………………. 3,000
Amortization of cost in excess of book value
(P50,000/10 years) x 30%.............................................................. 1,500
Puma’s 20x6 net income (equity method) ............................................... P153,000
31. b
Puma’s equity in net income of Slume (30% x P25,000)..……………….. P 7,500
Less: Amortization of cost in excess of book value
(P50,000/10 years) x 30%.............................................................. 1,500
Investment income – 20x4 (equity method)………………………………. P 6,000
32. a – under equity method, the Parent’s retained earnings is the same with Consolidated RE.
33. b
{(P260,000 - P230,000) + [(P650,000 - P590,000)/120] 8}.8
34. d
{(P190,000 - P160,000) 4/6 - [(P241,000 - P220,000)/60] 5}.7
35. b
Consideration transferred: 10,500 shares x P95 P997,500
Less: BV of SHE – S (?) 857,500
Allocated excess; P140,000
Less: O/U valuation of A and L:
Undervaluation of land P40,000
Overvaluation of buildings ( 30,000)
Undervaluation of equipment 80,000
Undervaluation/unrecorded trademark 50,000 140,000
P 0
36. a – P900,000 + P500,000 = P1,400,000
37. d – assumed that total expenses includes cost of goods sold which is different when the
question is “total operating expenses”
Cost of goods sold (P360,000 + P200,000) P 560,000
Depreciation expense (P140,000 + P40,000) 180,000
Other expenses (P100,000 + P60,000) 160,000
Amortization of allocated excess:
Buildings: (P30,000) / 20 (P1,500)
Equipment; P80,000 / 10 8,000
Trademark: P50,000 / 16 3,125 9,625
Total expenses P909,625
38. b – (P750,000 + P280,000) – P30,000 + (P1,500 x 5 years) = P1,007,500
39. c – (P300,000 + P500,000) + P80,000 – (P8,000 x 5 years) = P840,000
40. c – P450,000 + P180,000 + P40,000 = P670,000
41. d – P50,000 – P3,125 x 5 years) = P34,375
42. a – P only (the stock issued In 20x0 includes already in the December 31, 20x4 balance.
43. a – P only
44. a
Consolidated Retained earnings, January 1, 20x4 (equity method) P 1,350,000
Total P1,840,375
Consolidated Retained Earnings, December 31, 20x4 (under equity method) P1,645,375
Net Income from own operations: P Co S Co

Sales P900,000 P500,000
Less: cost of goods sold 360,000 200,000
Gross profit P540,000 P300,000
Other expenses 100,000 60,000
Net income P300,000 P200,000

P Company P300,000
S Company 200,000
Total P500,000
Less: Non-controlling Interest in Net Income P 0
Goodwill impairment (impairment under full-goodwill approach) _ 0 9,625
45. c
Note: Normally, the term used in the requirement “equity in subsidiary income”, is a term used
under equity method, but it should be noted that under PAS 27, it prohibits the use of equity
method for a parent to consolidate a subsidiary. But, assuming the use of equity method, the
answer would be, P190,375.
Share in net income: P200,000 x 100% P200,000
Less: Amortization of allocated excess 9,625
P190,375
46. a
Punn’s equity in net income of Sunn (3 months ended,12/31/x6)…… P 200,000
Amortization of cost in excess of book value ........................................... ( 60,000)
Increase in Parent’s retained earnings……………………………………. P 140,000
47. a
Punn’s net income from own operations, 12 months ended, 12/31/x6 P6,000,000
Add: Increase in RE of Sunn:
Punn’s equity in net income of Sunn (3 months ended,12/31/x6)P200,000
Amortization of cost in excess of book value ............................................... ( 60,000)
Increase in Parent’s retained earnings……………………………………. P 140,000
Punn’s net income for 20x6 under the equity method……………………… P6,140,000
48. b
Full—goodwill Aproach
Common stock (P100,000 x 100%)………………. P 100,000
Increase in land (P5,000 x 100%)……………………. P 5,000
Increase in equipment (P10,000 x 100%) ___10,000 15,000
Positive excess: Increase in Patent (excess of cost over
fair value)………………………………………………... P 25,000

Account Adjustments to be amortized under Life Amount Year(20x4)
Equipment (net)......... 10,000 5 P 2,000 P 2,000
Patent 25,000 5 5,000 5,000
P 7,000 P 7,000
49. d
Investment in Wisden
1/1/x4. 180,000 18,000 Dividends – S
(20,000 x 90%)
NI of S
(60,000 Amortization
x 90%)……. 54,000 12,600 (P14,000 x 90%)
1/1/x6203,400
50. c
Investment in Wisden
1/1/x6. 230,400 9,000 Dividends – S
(10,000 x 90%)
NI of S
(30,000 Amortization
x 90%)……. 27,000 6,300 (7,000 x 90%)
1/1/x6215,100
51. a
20x4 Investment income: Dividend of P10,000 x 100% = P10,000
20x4 Investment balance: P500,000
52. b
Pedro’s equity in net income of Sanburn – x4 (100% x P80,000)..………. P 80,000
Less: Amortization of cost in excess of book value
Inventory: P20,000 x 100%……………………………………………….. 20,000
Patent [P500,000 – P380,000 = P120,000 – P20,000 = P100,000)
(P100,000/20 years) x 100%.......................................................... 5,000

Add: Pedro’s equity in net income of Sanburn – x4 (100% x P80,000)..…80,000
Less: Dividends (100% x P10,000)……………………………………………. 10,000
Amortization of cost in excess of book value:
Inventory: P20,000 x 100%……………………………………………… 20,000
Patent [P500,000 – P380,000 = P120,000 – P20,000 = P100,000)
(P100,000/20 years) x 100%.......................................................... ___5,000
Investment balance, equity method, 12/31/20x4…………………………. P545,000
53. d
Under the cost method, an investor recognizes its investment in the investee at cost. Income is
recognized only to the extent that the investor receives distributions from the accumulated
net profits (or dividend declared/paid by the investee) of the investee arising after the date
of acquisition by the investor. Distributions (dividends) received in excess of such profits are
regarded as a recovery of investment and are accounted for as a reduction of the cost of the
investment (i.e., as a return of capital or liquidating dividend).
Therefore, the investment balance of P500,000 on the acquisition date remains to be the same.
54. d – refer to No. 53 for further discussion.

55. b – refer to No. 53 for further discussion.
56. a – P40,000 x 80%
57. b – P50,000 x 80%
58. a – P60,000 x 80%
59. c
Full/Gross-up Goodwill Presentation:
Non-controlling interest in Net Income:
Subsidiary net income from own operations……….P100,000
Less: Amortization of allocated excess*…………… 7,000
Impairment of full-goodwill (if any)**………… 0
P 93,000
x: Non-controlling interests……………………………. 20%
Non-controlling interest in Net Income………………………..P 18,600
*Amortization of allocated excess:
Increase in equipment: P30,000 / 10 years = P 3,000
Increase in buildings: P40,000 / 10 years = 4,000
Total amortization……………………………… P 7,000
** In case, there is an impairment of goodwill then the amount impaired under the full-
goodwill method should also be allocated between controlling and non-controlling
interests
Partial Goodwill Presentation:
Less: Amortization of allocated excess*………………7,000
P 93,000
Non-controlling interest in Net Income…………………. P 18,600
60. c
Less: Amortization of allocated excess*…………….. 7,000
Impairment of full-goodwill (if any)**………… 0
P113,000
Non-controlling interest in Net Income………………………..P 22,600

Total amortization………………………. P 7,000
interests

Less: Amortization of allocated excess*…………….. 7,000
P113,000
Non-controlling interest in Net Income…………………………P 22,600
61. a
Less: Amortization of allocated excess*…………… 7,000
Impairment of full-goodwill (if any)**……… 0
P123,000
x: Non-controlling interests………………………….. 20%
Non-controlling interest in Net Income……………………… P 24,600
Total amortization………………………. P 7,000
interests

Less: Amortization of allocated excess*……………… 7,000
P123,000
x: Non-controlling interests……………………………… 20%
Non-controlling interest in Net Income………………..P 24,600
62. a
Book value of Stockholders’ Equity of Subsidiary
Common stock, 12/31/20x4……………………………… P 300,000
Retained earnings, 1/1/20x4………………………….P200,000
Add: Net income – 20x4…………………………….. 100,000
Less: Dividends paid, 20x4…………..………………40,000 260,000
Book value of Stockholders’ Equity of Subsidiary, 12/31/x4 P 560,000
Add: Adjustments to reflect fair value (P30,000 + P40,000).. 70,000
Less: Accumulated amortization of allocated excess
P7,000 x 1 year…………………………………….…. 7,000
Fair value of Stockholders’ Equity of Subsidiary. 12/31/x4… P623,000
Multiplied by: Non-controlling Interest %........................... ____ 20%
Non-controlling Interest (partial goodwill)………………….. P124,600
Add: Non-controlling interest in Full Goodwill
(P55,000, full – P44,000 partial l) or
(P55,00,000 x 20%)*……………………………… 11,000
Non-controlling Interest (full)……………………………… P135,600
* this computation (i.e., P55,000 x 20%) should only be use when the fair value of the non-
controlling interest of acquiree (subsidiary) is not given.
Partial Goodwill:
Fair value of Subsidiary:
Fair value of consideration transferred: Cash………… P 500,000
Less: Book value of Net Assets (Stockholders’
Equity - Subsidiary): (P300,000 + P200,000) x 80%.. 400,000
Allocated Excess.…………………………………………. P 100,000
Less: Over/Undervaluation of Assets and Liabilities:
Increase in equipment: P30,000 x 80%................... P 24,000
Increase in building: P40,000 x 80%......................... 32,000 56,000
Goodwill (Partial)………………………………………….. P 44,000
Full-goodwill:
(100%) Fair value of Subsidiary:
(100%) Fair value of consideration transferred:
P500,000 / 80%........………………………….. P 625,000
Less: Book value of Net Assets (Stockholders’
Equity - Subsidiary)…………................................... 500,000
Allocated Excess.…………………………………………. P 125,000
Less: Over/Undervaluation of Assets and
Liabilities (P40,000 + P30,000)……………………. 70,000
Goodwill (Full/Gross-up)..……………………………….. P 55,000
63. e
Common stock, 12/31/20x5……………………………… P 300,000
Retained earnings, 1/1/20x5 …………………..……P260,000
Add: Net income, 20x5………………………………. 120,000
Less: Dividends paid, 20x5…………………………… 50,000 330,000
Less: Accumulated amortization of allocated excess – 2 yrs 14,000
Fair value of Stockholders’ Equity of Subsidiary. 12/31/x5… P 686,000
Multiplied by: Non-controlling Interest %.............................. 20%
Non-controlling Interest (partial goodwill)………………….. P 137,200
(P55,00,000 x 20%)*……………………………… 11,000
Non-controlling Interest (full)……………………………… P 148,200
64. e
Common stock, 12/31/20x6……………………………… P 300,000
Retained earnings, 1/1/20x6………………………….P330,000
Add: Net income, 20x6……………………………… 130,000
Less: Dividends paid, 20x6…………………………..60,000 400,000
Less: Accumulated amortization of allocated excess
(1/1/20x4 – 12/31/20x6): P7,000 x 3 years…………… 21,000
Fair value of Stockholders’ Equity of Subsidiary. 12/31/x6… P 749,000
Multiplied by: Non-controlling Interest %............................ 20%
Non-controlling Interest (partial goodwill)………………….. P 149,800
(P55,00,000 x 20%)*……………………………… 11,000
Non-controlling Interest (full)……………………………… P 160,800
* this computation (i.e., P55,000 x 20%) should only be use when the fair value of the non-
controlling interest of acquiree (subsidiary) is not given.
65. P542,400
Add: Bell’s equity in net income of Demers – x4 (80% x P100,000)..……80,000
Less: Dividends (80% x P40,000)……………………………………………….32,000
Equipment: P30,000/10 years x 80%………………………………… 2,400
Building: P40,000/10 years x 80%................................................. 3,200
66. c
Add: Bell’s equity in net income of Demers – x4 (80% x P120,000)..…… 96,000
Less: Dividends (80% x P50,000)………………………………………………. 40,000
67. b
Add: Bell’s equity in net income of Demers – x4 (80% x P130,000)..…… 104,000
Less: Dividends (80% x P60,000)………………………………………………. 48,000
68. a
Bell’s equity in net income of Demers (80% x P100,000)………………. P 80,000
Less: Amortization of cost in excess of book value (refer to No. 65):
(P2,400 + P3,200) 5,600
69. a
(P2,400 + P3,200) 5,600
70. c
(P2,400 + P3,200) 5,600
71. c
Subsidiary net income from own operations…………………………… P100,000
Less: Amortization of allocated excess (refer to No. 65)
(P3,000 + P4,000)………………………………………..……………. 7,000
P 93,000
x: Non-controlling interests……………………………………………….. 20%
Non-controlling interest in Net Income…………………………………P 18,600
72. c
(P3,000 + P4,000)………………………………………..……………. 7,000
P 113,000
Non-controlling interest in Net Income………………………………… P 22,600
72. c
(P3,000 + P4,000)………………………………………..……………. 7,000
P 123,000
Non-controlling interest in Net Income………………………………… P 24,600
73. a – same with No. 62 (cost method)
74. e – same with No. 63 (cost method)
75. d – same with No. 64 (cost method)
76. b
77. b – Dividend paid – S, P70,000 x 60% = P42,000
78. d – CNI amounted to P265,000 [CI-CNI, P235,000 and NCI-CNI, P30,000
P Company P190,000
SCompany 90,000
Total P280,000
Amortization of allocated excess 15,000
Goodwill impairment ____0 45,000

Amortization of allocated excess – 20x4 ( 15,000_
P75,000
P 30,000
Less: Non-controlling interest on impairment loss on full-goodwill (P1,500 x 15%)* ______0
P 30,000
20x5 results of operations are as follows:

Peer Sea-Breeze
Sales P 600,000 P 300,000
Less: Cost of goods sold Operating expenses 410,000 210,000
Net income P 235,000 P 90,000
Computation of Goodwill:
Less: Book value of stockholders’ equity of Sea (P550,000 x 100%) __550,000
(P140,000 x 100%) 140,000
Positive excess: Full-goodwill (excess of cost over fair value) P 0
Amortization of Allocated Excess

Book Value Fair Value Over/under Amort.
Buildings (net)- 6 300,000 360,000 P 60,000 P 10,000
Equipment (net)– 4 300,000 280,000 (20,000) (5,000)
Patent -10 -0- 100,000 100,000 10,000
Net P 140,000 P 15,000
79. c – refer to No. 78 for computations
80. b – refer to No. 78 for computations
81. c - P811,000.
Retained earnings - Parent Company, January 1, 20x5 (cost model) P700,000
Adjustment to convert from cost model to equity method for
purposes of consolidation or to establish reciprocity:/Parent’s
share in adjusted net increased in subsidiary’s retained earnings:
Retained earnings – Subsidiary, January 1, 20x5 P 300,000
Less: Retained earnings – Subsidiary, January 1, 20x2 70,000
Less: Amortization of allocated excess – 20x2 – 20x4
(P15,000 x 3 years) 45,000
P 185,000
P 111,000
Less: Goodwill impairment loss (full-goodwill), 0 111,000
Note:
a. Date of acquisition: RE of Parent = Consolidated RE
Regardless of the method used in the books of the subsidiary, the following rule should always be
applied –
b. Subsequent to date of acquisition:
Retained earnings of Parent under equity method = CRE
Since, the P811,000 is the retained earnings of parent under the equity method, it should also be
considered as the parent’s portion or interest in consolidated retained earnings or simply the
consolidated retained earnings.
82. c - P811,000 – refer to note (b) of No. 81

83. b – P111,000 – refer to No. 81
84. d
Consolidated Retained earnings, January 1, 20x5 (refer to Nos. 81 and 82) P 811,000
Add: Controlling Interest in Consolidated Net Income or
Profit attributable to equity holders of parent for 20x5 235,000
Total P1,046,000
Less: Dividends paid – Parent Company for 20x5 92,000
Consolidated Retained Earnings, December 31, 20x5 P 954,000
85. d – refer to No. 84
86. c
Non-controlling interest (partial-goodwill), December 31, 2015
Common stock – Subsidiary Company, December 31, 2015…… P 480,000
Retained earnings – Subsidiary Company, December 31, 2015
Retained earnings – Subsidiary Company, January 1, 2015 P300,000
Add: Net income of subsidiary for 2015 90,000
Less: Dividends paid – Subsidiary - 2015 70,000 320,000
Stockholders’ equity – Subsidiary Company, December 31, 2015 P 800,000
Adjustments to reflect fair value - (over) undervaluation
of assets and liabilities, date of acquisition (January 1, 2012) 140,000
Amortization of allocated excess (refer to amortization above) –
(P15,000 x 4) ( 60,000)
Fair value of stockholders’ equity of subsidiary, 12/31/ 2015 P 880,000
Multiplied by: Non-controlling Interest percentage. 40
Non-controlling interest (partial) P 352,000
Add: NCI on full-goodwill……………………. ____0
Non-controlling interest (full) P 352,000
87. c
Common stock - Peer P 724,000
Parent’s Stockholders’ Equity/Equity Attributable to the
Owners of the Parent P 1,678,000
Non-controlling interest** 352,000
Total Stockholders’ Equity (Total Equity) P 985,500
Total Liabilities and Stockholders’ Equity P2,030,000
88. c
Investment in Sea-Breeze Investment Income
1/1/x2. 414,000 42,000 Dividends – S NI of S
Retro 111,000 (70,000 x 60%
NI of S
x 60%)……. 54,000 9,000 (P15,000 x 60%) (P15,000 x 60%) 9,000 54,000 x 60%)
12/31/x5528,000 45,000
89. c
91. c – refer to No. 78
92. b – refer to No. 78
95. a – not applicable under equity method.
100. a
Net income of S (5/1/x5 – 12/31/x5): P840,000 x 8/12 P560,000
Less: Dividend – S (11/1/20x5 – no need to pro-rate) 300,000
Cumulative net income less dividends since
date of acquisition, 1/1/20x6 (date to establish reciprocity –
not 12/31/x6) P260,000
x: Controlling interests 80%
P208,000
101. b
Retained earnings – S Company, 1/1/20x4 P 60,000
Less: Retained earnings – S Company, 12/31/20x6 190,000
Cumulative net income less dividends since
date of acquisition, 1/1/20x6 (date to establish reciprocity –
should always be beginning of the year, not 12/31/x6) P130,000
x: Controlling interests 90%
P117,000
102. (b)
Net income of Subsidiary – 2015 and 2016 (P15,000 + P22,000)…………………………………….P 37,000
Less: Dividends of Subsidiary – 2015 and 2016 (P6,000 + P9,000)……………………………………... 15,000
Cumulative net income less dividends since date of acquisition, 1/1/2017 (date to establish
reciprocity –should always be beginning of the year, not 12/31/17) / Increase in
Retained earnings………………………………………………………………………………………... P 22,000
x: Controlling interests……………………………………………………………………………………..70%
P 15,400
It should be noted that the amortization/depreciation and any unrealized/realized profits (in case of
intercompany sales of inventory/fixed assets) should not be included (refer to next number) as part of the entry to
established reciprocity since there will be separate eliminating entry to be made at the end of the year (2017) for
amortization and depreciation.
Further, the eliminating entry to establish reciprocity for the year 20x7 should be made on January 1, 2017 not
December 31, 2017
Incidentally, the entry to convert from cost method to equity method or the entry to establish reciprocity at the
beginning of the year, 1/1/2017 would be as follows:
Investment in Subsidiary………………………………………………………………… 15,400

Retained earning – Parent Company, 1/1/2017………………………………. 15,400
103. (a)
Net income of Subsidiary – 2015 and 2016 (P15,000 + P22,000)……………………………………. P 37,000
Less: Dividends of Subsidiary – 2015 and 2016 (P6,000 + P9,000)…………………………………… 15,000
Increase in Retained earnings for 2 years……………………………………………………………… P 22,000
Less: Amortization of allocated excess [(P80,000 – P60,000)/10 years x 2 years]………………… 4,000
P 18,000
x: Controlling interests………………………………………………………………………………………. 70%
Retroactive amount, December 31, 20x6 or January 1, 2017……………………………………… P 12,600
104. b
[{(P84,000 + P105,000) - [(P310,000 - P220,000)/20]2} - (P30,000 + P50,000)].8
105. a - under the cost model share in net income or earnings of subsidiary does not affect
investment.
106. d
Investment account, December 31, 20x7:
Original investment …………………………………………..P 550,000
Tiny’s earnings, 20x4-20x77: 100% x P166,000……………166,000
Less: Dividends received: 100% x P114,000………………114,000
Balance, December 31, 20x7……………………………..P602,000
107. a
The adjusting entry required in 20x7 to convert from the cost to the equity methodis:
Investment in Tiny………………………………….52,000
Retained earnings beg………………………….. 4,000
Dividend revenue………………………………… 54,000
Equity in subsidiary income of Tiny……. 110,000
108. d – P45,000/15% = P300,000

109. d
Pigeon’s separate income P150,000
Less: 60% of Home’s P10,000 loss = 6,000
Less: Equipment depreciation
P10,000/ 10 years = __1,000
Controlling Interest in Consolidated Net Income P143,000
Add: NCI in CNI
NL of S Company P( 10,000)
Less: Amortization of allocated excess (P1,000/60%) 1,667
P (11,667)
Multiplied by: NCI% 40% ( 4,667)
Consolidated Net Income P138,333
110. a
Non-controlling Interest in Net Income (NCINI) for Year 3
Net income of S Company P240,000
P195,000
Non-controlling Interest in Net Income (NCINI) for Year 3 P 58,500
111. c
P Company P 375,000
S Company 30,000
Total P405,000

Less: Amortization of allocated excess** 3,750
P26,250
**P270,000/80% = P337,500 – (P150,000 + P150,000) = P37,500 / 10 years = P3,750
Note: Whether the partial or full-goodwill approach are used the amortization of excess are always
the same.
112. a
*Non-controlling Interest in Net Income (NCINI) for Year 3
P487,500
Non-controlling Interest in Net Income (NCINI) for Year 3 P146,250
113. c
P Company P 625,000
S Company 50,000
Total P675,000

Less: Amortization of allocated excess** 6,250
P43,750
**P450,000/80% = P562,500 – (P250,000 + P250,000) = P62,500 / 10 years = P6,250
Note: Whether the partial or full-goodwill approach are used the amortization of excess are always
the same.
114. b
As a general rule, if problem is silent It is assumed that expenses are generated evenly
throughout the year, thus:
Expenses (9/1/20x4-12/31/20x4): P620,000 x 4/12 P206,667
Amortization of allocated excess: P15,000 x 4/12 5,000
P211,667
115. c
Net income of S Company (P800,000 – P620,000) P180,000
P165,000
Multiplied by: No of mos. (9/1-12/31) 4/12
P 55,000
116. a
Net income of S Company (P800,000 – P620,000) P180,000
P165,000
Multiplied by: No of mos. (9/1-12/31) 4/12
P 55,000
Multiplied by: Non-controlling interest %.......... ____20%
117.b Combined revenues .................................................................................................. P1,100,000

Combined expenses .................................................................................................. (700,000)
Excess acquisition-date fair value amortization ................................................... (15,000)
Consolidated net income......................................................................................... P385,000
Less: Noncontrolling interest (P85,000 × 40%) ........................................................ (34,000)
Consolidated net income to controlling interest ................................................. P351,000
118. c HH expense .................................................................................................................. P621,000

NN expenses ................................................................................................................ 714,000
Excess fair value amortization (70,000 ÷ 10 yrs) ..................................................... 7,000
Consolidated expenses ............................................................................................. P1,342,000
119. b
Step-acquisition, either full-goodwill or partial goodwill approach, the answer remains the
same.
Full-Goodwill Presentation:
Net income from own operations;
Parent - Keefe…………………………………… P 300,000
Subsidiary - George (P500,000 – P400,000)…….. 100,000
P 400,000
Less: Amortization of allocated excess…………………… 6,000
Impairment of goodwill (if any)……………………. 0
Consolidated/Group Net Income…………………………. P 394,000
Less: Non-controlling interest in Net Income
Subsidiary net income from own operations:
1/1/20y0 - 4/1/20y0 (3 months):
P100,000 x 3/12 = P25,000 x 30%................ P 7,500
4/1/20y0 – 12/31/20y0 (9 months):
P100,000 x 9/12 = P75,000 x 20%................ 15,000
Total…………………………………………….. P 22,500
Less: Amortization of allocated excess:
1/1/20y0 – 4/1/20y0 (3 months)
P6,000 x 3/12 = P1,500 x 30%.......... 450
4/1/20y0 – 12/31/20y0 (9 months)
P6,000 x 9/12 = P4,500 x 20%........... 900
Impairment of goodwill (if any):
First 3 months: P 0 x 30%.......………… 0
Remaining 9 months: P 0 x 20%............... 0 21,150
CNI attributable to the controlling interest (CI-CNI)/ Profit
attributable to equity holders of parent…………………. P372,850
* It should be noted that the phrase without regard for this investment means that
excluding any income arising from investment in subsidiary (i.e., dividend income).
120. d – Economic Unit or Entity Concept (as required by PFRS 10)

P Company P 500,000
S Company 100,000
Total P600,000
Add: NCINI __20,000
CNI - entity concept P600,000

Less: Amortization of allocated excess _______0
P100,000
121. c – Parent Company Concept – Parent’s Net Income only (not required by PFRS 10)
P Company P 500,000
S Company 100,000
Total P600,000
CNI - entity concept P580,000

Less: Amortization of allocated excess _______0
P100,000
122. b
Net Income from own operations: 20x420x5
Parent …………………………………………………P 100,000 P100,000
Subsidiary……………………………………………... 25,000 35,000
P125,000 P135,000
Subsidiary’s other comprehensive income…………..5,000 10,000
Total Comprehensive Income……………………….....P130,000 P145,000
Less: Amortization of allocated excess…………….… 6,250 6,250
Impairment of full- goodwill (if any)…………. 0 0
Consolidated /Group Comprehensive Income…… P123,750 P138,750
Less: Non-controlling interest in Comprehensive
Income *…………………………………………… 4,750 7,750
Controlling Interest in Consolidated __________________
Comprehensive Income …. …………………………P119,000 P131,000
*Non-controlling interest in Comprehensive Income: 20x420x5

Subsidiary’s:
Net income from own operations………….......P 25,000 P 35,000
Other Comprehensive Income (P30,000 –
P25,000)…………………………….…………... 5,000 10,000
Subsidiary’s Comprehensive Income…………........P 30,000 P45,000
Less: Amortization of allocated excess*………….. 6,250 6,250
Impairment of full-goodwill (if any)....………. 0 0
P 23,750 P 38,750
x: Non-controlling interests……………………………. 20% 20%
Non-controlling interest in Comprehensive IncomeP 4,750P 7,750

Increase in other intangibles: P50,000 / 8 years = P 6,250

125. b- refer to No. 122
126. d
Inventory – not yet sold in 20x4 P 0
Building: (P390,000 – P200,000)/ 10 years 19,000
Equipment (P280,000 – P350,000)/ 5 years ( 14,000)
P 5,000
127. c
Plochman’s acquisition entry is:
Investment in Shure……………………………………………………………40,000,000
Retained earnings (acquisition-related expense – close to
retained since only balance sheet accounts are being
examined)…………………………………………………………………… 1,000,000
Common stock, 1,000,000 x P1 par……………………………… 1,000,000
PIC in excess of par [(1,000,000 x P39) – P800,000)…………… 32,000,000
Cash (P800,000 + P1,000,000)…………………………………….. 1,800,000
Eliminating entries are:

Book value of stockholders’ equity:
Stockholders’ equity-Shure………………………………………………… 6,000,000
Investment in Shure………………………………………………… 6,000,000
Allocated excess (acquisition/purchase differential):
Identifiable assets……………………………………………………………. 7,000,000
Long-term debt………………………………………………………………. 500,000
Goodwill………………………………………………………………………..28,500,000
Lawsuit liability………………………………………………………. 2,000,000
Investment in Shure………………………………………………… 34,000,000
128. d –refer to No. 127

129. a
130. a
Cost of Goods Sold P80,000 debit
Depreciation Expense (P192,000/120) 7 = P11,200 debit
131. c
Cost of Goods Sold (P60,000 x 4/6) = P40,000 debit
Interest Expense: (P15,000/5) = P3,000 debit
132. a [(P250,000 - P180,000)/10]7
133. c
[(P380,000 - P260,000)/120]88
134. No question available
135. a
136.c
P170,000 - {[P320,000 - (P300,000 - P170,000)]/10}2
137.b
[P320,000 - (P300,000 - P170,000)]/10
138.d
139.d
P105,000 - {[P405,000 - (P450,000 - P105,000)]/20}2
140. a
[P405,000 - (P450,000 - P105,000)]/20
141. d - The acquisition method consolidates assets at fair value at acquisition date regardless
of the parent’s percentage ownership.
142. d
P: BV,12/31/20x6 P250,000
S:
BV of building, 12/31/20x4 P170,000
Add: Adjustments to reflect fair value, 1/1/20x4
(P350,000 – P240,000) 110,000
Less: Amortization of excess (P110,000/10) x 3 years 33,000 247,000
P497,000
143. b
P: BV,12/31/20x5 P 975,000
S:
Add: Adjustments to reflect fair value, 1/4/20x4
(P120,000 – P90,000) 30,000
Less: Amortization of excess (P30,000/10) x 2 years 129,000 6,000
P1,104,000
144. c - An asset acquired in a business combination is initially valued at 100% acquisition-date
fair value and subsequently amortized its useful life.
Patent fair value at January 1, 20x4 ....................................................................... P45,000
Amortization for 2 years (10 year life) ..................................................................... (9,000)
Patent reported amount December 31, 20x5 ...................................................... P36,000
145. b
Adjustments to reflect fair value, 1/1/20x4 (P300,000 – P200,000) 100,000
Depreciation 1/1/20x4 – 12/31/20x6 (P100,000/20 x 3 years) ( 15,000)
P285,000
146. d – same with No. 145
147. d
BV of equipment, 1/1/20x4 P 80,000
Adjustments to reflect fair value, 1/1/20x4 (P80,000 – P75,000) ( 5,000)
Depreciation 1/1/20x4 – 12/31/20x6 (P5,000/10 x 3 years) 1,500
P 76,500
148. a
Adjustments to reflect fair value, 1/1/20x4 (P80,000 – P75,000) (P 5,000)
Depreciation 1/1/20x4 – 12/31/20x6 (P5,000/10 x 3 years) 1,500
(P 3,500)
149. d – 1/2/20x4:
BV of equipment, 1/1/20x4 P200,000
Adjustments to reflect fair value, 1/1/20x4 (P300,000 – P200,000) 100,000
P300,000
150. b
Decrease in Buildings account:
Fair value……………………………………………P 8,000
Book value………………………………………….. __10,000
Decrease…………………………………………….P 2,000
151. d
Decrease in buildings account (refer to No. 73)………… P 2,000
Less: Increase due to depreciation (P2,000/10)………… 200
Decrease in buildings accounts……………………………..P 1,800
152. d
Decrease in buildings account (refer to No. 74)………… P 1,800
Less: Increase due to depreciation (P2,000/10)………… 200
Decrease in buildings accounts……………………………..P 1,600
153. a
Increase in Equipment account:
Fair value……………………………………………P 14,000
Book value………………………………………….. __18,000
Increase…………………………………………….P 4,000
154. a
Increase in equipment account (refer to No. 76)………… P 4,000
Less: Decrease due to depreciation (P4,000/4)…………… 1,000
Increase in equipment accounts……………………………..P 3,000
155. a
Increase in equipment account (refer to No. 77)………… P 3,000
Less: Decrease due to depreciation (P4,000/4…………… 1,000
Increase in equipment accounts……………………………..P 2,000
156. a
Increase in Land account:
Fair value……………………………………………P 12,000
Book value………………………………………….. 5,000
Increase…………………………………………….. P 7,000
157. b – refer to No. 156, no depreciation/amortization
158. b – refer to No. 156, no depreciation/amortization
159. e
Increase in Patent account:
Fair value……………………………………………P 11,000
Book value………………………………………….. _ 0
Increase…………………………………………….P 11,000
(P234,000/90%) – (P160,000 + P80,000) = P20,000 – (P4,000 – P2,000 + P7,000) = P11,000.

Partial or full-goodwill approach, the amortization remains the same.
160. e
Increase in patent account (refer to No. 159)……………… P 11,000
Less: Decrease due to depreciation (P11,000/5).………… 2,200
Increase in patent accounts…………………………………. P 8,800
161. d
Increase in patent account (refer to No. 160)……………… P 8,800
Less: Decrease due to depreciation (P11,000/5).………… 2,200
Increase in patent accounts…………………………………. P 6,600
162. c
Fair Value of Subsidiary:
Consideration Transferred (5,400 shares) P120,600
Less: Book value of SHE-S, 1/1:
Common stock – S: P50,000 x 90% P 45,000
APIC – S: P15,000 x 90% 13,500
RE – S: P41,000 x 90% 36,900 95,400
Allocated Excess P 25,200
Less: Over/undervaluation of A & L:
Increase in Inv. (P17,100–P16,100) x 90% P 900
Increase in Eqpt. (P48,000–P40,000) x 90% 7,200
Increase in Patents (P13,000–P10,000) x 90% 2,700 10,800
Positive Excess: Goodwill P 14,400
Amortization of allocated excess - Starting January 1:
Inventory: P1,000 / 1 year P 1,000
Equipment: P8,000 / 4 years 2,000
Patents: P3,000 / 10 years 300
P 3,300
163. c
Common stock – S P 50,000
APIC – S 15,000
RE – S 41,000
Stockholders’ equity – Subsidiary, 1/1 P106,000
Add: Adjustments to reflect fair value 12,000
Fair value of Stockholders’ Equity – S, 1/1 P118,000
x: Non-controlling) interests 10%
Non-controlling Interests (in net assets) P 11,800
164. a – P48,000, parent only.
165. a – P48,000. On the date of acquisition, the parent’s retained earnings is also the consolidated
retained earnings.
166. b – P120,600, the initial value

167. b – P4,000 x 90% = P3,600
168. c
P CompanyP30,200 – (P4,000 x 90%) P26,600
S Company 9,400
Total P36,000
Less: Non-controlling Interest in Net Income* P 610
Amortization of allocated excess 3,300
Goodwill impairment ____0 3,910
Add: Non-controlling Interest in Net Income (NCINI) 610

P 6,100
P 610
Less: Non-controlling interest on impairment loss on full-goodwill ____0
Non-controlling Interest in Net Income (NCINI) P 610
169. c
Noncontrolling Interests (in net assets):
Common stock - S, 12/31 P 50,000
Additional paid-in capital - S, 12/31 15,000
Retained earnings - S, 12/31:
RE-S, 1/1/2011 P 41,000
Add: NI-S, 2011 9,400
Less: Dividends – S 4,000 46,400
Book value of SHE - S, 12/31 P 111,400
Add: Adjustments to reflect fair value, 1/1 12,000
Less: Amortization of allocated excess (1 yr.) 3,300
Fair Value of Net Assets/SHE - S, 12/31 P 120,100
x: Noncontrolling Interest % 10%
Noncontrolling Interest (in net assets), 12/31 P 12,010
170. b – refer to 168 for computation
171. c – refer to 168 for computation
172. b
Controlling RE / RE Attributable to EH of Parent, 1/1 (refer to No. 102 P 48,000
Add: CI – CNI (refer to 168) 32,090
Less: CI – Dividends (Dividend of parent only) 15,000
Controlling RE / RE Attributable to EH of Parent, 12/31 P 65,090
173. b – same with No. 172
174. c
Consolidated Equity:
Controlling Interest / Equity Holders
Attributable to Parent:
Common stock – P: [P100,000 + P120,600 – (5,400 shares x P10 par)] P154,000
APIC – P: [15,000 + [P120,600 – (5,400 x P10)] 81,600
RE – P (refer to No. 172) 65,090
Parent’s Stockholders Equity or Controlling Interest – Equity P300,690
Noncontrolling Interest 12,010
Consolidated Equity P312,700
175. c P95,000 = (P956,000 / .80) - P1,000,000 - P100,000
176. c P251,000 = .20[(P956,000 + P239,000) + (P190,000 - P5,000 - P125,000)]
177. b Combined revenues .................................................................................................. P1,300,000

Combined expenses .................................................................................................. (800,000)
Trademark amortization ............................................................................................ (6,000)
Patented technology amortization ........................................................................ (8,000)
Consolidated net income......................................................................................... P486,000
178. c
Subsidiary income (P100,000 – P14,000 excess amortizations) .......................... P86,000
Non-controlling interest percentage ...................................................................... __40%
Non-controlling interest in subsidiary income ....................................................... P34,400
Fair value of non-controlling interest at acquisition date ................................... P200,000

40% change in Scott book value since acquisition ............................................. 52,000
Excess fair value amortization (P14,000 × 40%) ..................................................... (5,600)
40% current year income .......................................................................................... __34,400
Non-controlling interest at end of year .................................................................. P280,800
179. a MM trademark balance............................................................................................ P260,000

SS trademark balance .............................................................................................. 200,000
Excess fair value .......................................................................................................... 60,000
Two years amortization (10-year life) ...................................................................... (12,000)
Consolidated trademarks ......................................................................................... P508,000
180 a Fair value of non-controlling interest on April 1 .................................................... P165,000

30% of net income for 9 months (¾ year×P240,000 × 30%) ................................ 54,000
Non-controlling interest December 31 ................................................................... P219,000
181. c
Book value of SHE – S, 12/31/20x4 P1,000,000
Add: Net income of S – 20x4 ___150,000
Total P1,150,000
Less: Dividends paid – 20x4 ____90,000
Stockholders’ equity – S Company, December 31, Year 2 P1,060,000
liabilities, date of acquisition January 1, 20x4 200,000
Amortization of allocated excess (refer to amortization above: P200,000/10 _( 20,000)
Fair value of stockholders’ equity of subsidiary, December 31, 20x5…… P1,240,000
Multiplied by: Non-controlling Interest percentage…………... 30%
Non-controlling interest (partial) P372,000
Add: NCI on full-goodwill P85,714 – P60,000) ___25,714
Non-controlling interest (full) P397,714
*P900,000/70% = P1,285,714 – P1,000,000 = P285,714 – P200,000 = P85,714, full goodwill
*P900,000 – (P1,000,000 x 70%) = P200,000 – (P200,000 x 70%) = P60,000, partial goodwill
It is assumed that full-goodwill is used. But, it should be noted that PFRS 3 either partial or full-
goodwill approach are considered acceptable.
182. b – (P50,000 + P70,000) x 25% = P30,000
183. b – P only.
184. b
{(P250,000/.8) + [P75,000 + P90,000 - P25,000 - P50,000 - P30,000 - (P80,000/8)2]}.2
185. d
{(P420,000/.7) + [P160,000 + P210,000 - P60,000 - P80,000 - P50,000 - (P90,000/5)2]}.3
186. a - P650,000 =P500,000 + P200,000 - P50,000
187. b
188. a – P540,000 = (P500,000 + P150,000 – P90,000 – P20,000)
189. c – equivalent to the original cost
190. d - In consolidating the subsidiary's figures, all intercompany balances must be eliminated
in their entirety for external reporting purposes. Even though the subsidiary is less than fully
owned, the parent nonetheless controls it.
191. b - Intercompany receivables and payables from unconsolidated subsidiaries would not be
eliminated.
Theories
1. c 6. b 11. C** 16. c 21. d 26. c 31 c 36. d 41. a
2. d 7. c 12. b 17. c 22. a 27. d 32. b 37. b 42. c
3. d 8. d 13. d 18. d 23. b 28. c 33. c 38. b 43. a
4. d* 9. d 14. c 19. d 24. c 29. c 34. c 39. c 44.
5. d 10, a 15, c 20. b 25. c 30. b 35. d 40. d 45.
*under PAS 27, cost model recognizes any dividend declared/paid by the subsidiary is classified as income regardless
of retained earnings balance, which means there is no such thing as liquidating dividend under the cost model. On the
other hand, under FASB ruling, a liquidating dividend still exists under the cost method.
**partial equity is the same with equity method except that amortization of allocated excess is not recognized in the
investment and income account.

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Chapter 16

Problem I - Cost Model/Method versus Equity Method

For purposes of comparison between Cost Model/Method and Equity Method

Investment in Small 10,500

Reconciliation of Investment /Conversion of Investment Account from Cost to Equity Method:

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

Or, alternatively: to compute CRE, 12/31/20x6

*Net income of subsidiary – 20x6 P 90,000

e. P21,175 – refer to (d) for computations

c. P93,500 – refer to computation in (a)

3. Reconciliation of Investment balance – Cost Model to Equity Method

Reconciliation of Retained Earnings – Cost Model to Equity Method

c. P93,500 – refer to computation in (a)

5. Correction: Pill’s net income should be P87,725 instead of P86,725

c. P93,500 – refer to computation in (a)

5. Reconciliation of Investment balance – Cost Model to Equity Method

Reconciliation of Retained Earnings – Cost Model to Equity Method

3. CRE, 12/31/20x6 – P73,150

4. NCI, 12/31/20x6: P110,850

5. Consolidated Patents, 12/31/20x6: P72,000

Implied value of 100% (628,150 / 85%) 739,000

1. NCNCI for 20x4, P8,400; NCNCI for 20x5, P12,020

*Net income of subsidiary – 20x4 P 60,000

** Amortization of allocated excess

*Net income of subsidiary – 20x5 P 72,000

2. CI – CNI for 20x4, P133,600; CI – CNI for 20x5, P168,080

Patents, 1/1/20x4 20,000

Noncontrolling interest fair value .................................... 166,000*

Buildings ..................................................................................... 80,000

Buildings ..................................................................................... 80,000

4. Cost Model/Initial Value Method

Initial fair value paid ..................................................................................... P664,000

7. Acquisition-date fair value allocated to goodwill:

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

PS’s consideration transferred (P31.25 × 80,000 shares) ............................................. P2,500,000

3. SR’s total fair value 1/1/09 ............................................................................................... P3,100,000

4. Combined revenues ......................................................................................................... P4,400,000

Problem VIII (Full-Goodwill)

BV of SHE of Subsidiary (RR) ...................................... P1,450,000

Consideration transferred by KL(P1,330,000 +

Problem IX: Consolidated balances after a mid-year acquisition)

Consideration transferred ........................................ P526,000

Acquisition-Date Subsidiary Book Value

BV of SHE of Subsidiary (DD) ..…………………… P765,000

1. Consolidated Income Statement:

3.Consolidated Net Income

Problem XIII – 80% Partial Goodwill - Cost Model

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%)

20x4: First Year after Acquisition

(E2) Inventory…………………………………………………………………. 6,000

(E5) Non-controlling interest in Net Income of Subsidiary………… 9,360

Net income of subsidiary…………………….. P 60,000

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

Statement of Retained Earnings

No goodwill impairment loss for 20x5.

Consolidation Workpaper – Second Year after Acquisition

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

Problem XIV – 80% Full Goodwill – Cost Model

A summary or depreciation and amortization adjustments is as follows:

20x4: First Year after Acquisition

January 1, 20x4 – December 31, 20x4: