Documente Academic
Documente Profesional
Documente Cultură
Cost of Depreciation/
Goods Amortization Amortization
Sold Expense -Interest Total
Inventory sold P 6,000
Equipment P 12,000
Buildings ( 6,000)
Dividends paid
Perfect Company 86,400 72,000
Son Company - 43,200 (4) 36,000 _ ________
Retained earnings, 12/31 to Balance
Sheet P581,760 P172,800 P 466,840
Balance Sheet
Cash………………………. P 232,800 P 90,000 P 355,200
Accounts receivable…….. 90,000 60,000 150,000
Inventory…………………. 120,000 90,000 (2) 6,000 (3) 6,000
(7) 18,000
(8) 12,000
180,000
Land……………………………. 1210,000 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) 12000 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 P2,394,600
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 581,760 144,000 462,840
Non-controlling interest………… (4) 7,200 (1 ) 72,000
(2) 18,000
__________ (9) 6,960
_________ _________ ____89,760
Total P1,984,800 P1,008,000 P 983,160 P 983,160 P2,394,600
Only a single entry is recorded by the parent in 20x5 in relation to its subsidiary investment:
On the books of S Company, the P48,000 dividend paid was recorded as follows:
(20x4) Depreciation/
Retained Amortization Amortization
earnings, expense -Interest
Inventory sold P 6,000
Equipment 12,000 P 12,000
Balance Sheet
Cash………………………. P 265,200 P 102,000 P 367,200
Accounts receivable…….. 180,000 96,000 276,000
Inventory…………………. 216,000 108,000 (3) 7,200 (4) 7,200
(10) 24,000
(11) 6,000
294,000
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
Discount on bonds payable (3) 4,800 (4) 2,400 2,400
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 P2,677,800
Accumulated
depreciation -
equipment P 150,000 P 102,000 (3) 96,000 (4) 24,000 P180,000
Accumulated 450,000 306,000 (3) 192,000
depreciation - buildings (4) 12,000 552,000
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 (2) 240,000
Retained earnings, from above 643,200 186,000 647,880
Non-controlling interest………… ___ _____ (4) 2,640 (2 ) 76,800 ____97,920
_________ (5) 9,600 (9) (3) 18,000
2,400 (12) 17,760
__________
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 (partial-goodwill), January 1, 20x4
Common stock – Subsidiary Company…………………………………… P 240,000
Retained earnings – Subsidiary Company…………………………………. 120,000
Stockholders’ equity – Subsidiary Company.………….. P 360,000
Adjustments to reflect fair value - (over) undervaluation of assets and liabilities 90,000
Fair value of stockholders’ equity of subsidiary, January 1, 20x4………………… P 450,000
Multiplied by: Non-controlling Interest percentage…………... 20
Non-controlling interest (partial) P 90,000
c.
Consolidated SHE:
Stockholders’ Equity
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 – P174,840
Consolidated Net Income for 20x4
P Company’s net income from own/separate operations…………. P168,000
Unrealized profit in ending inventory of S Company (downstream sales)… ( 18,000)
P Company’s realized net income from separate operations*…….….. P150,000
S Company’s net income from own operations…………………………………. P 60,000
b. NCI-CNI – P6,960
**Non-controlling Interest in Net Income (NCINI) for 20x4
S Company’s net income of Subsidiary Company from its own operations P 60,000
(Reported net income of S Company)
Unrealized profit in ending inventory of P Company (upstream sales) ( 12,000)
S Company’s realized net income from separate operations……… P 48,000
Less: Amortization of allocated excess 13,200
P 34,800
Multiplied by: Non-controlling interest %.......... 20%
Non-controlling Interest in Net Income (NCINI) – partial goodwill P 6,960
*that has been realized in transactions with third parties.
e. 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.
The NCI on December 31, 20x4 are computed as follows:
Non-controlling interest (partial-goodwill), December 31, 20x4
Common stock – Subsidiary Company, December 31, 20x4…… P 240,000
Retained earnings – Subsidiary Company, December 31, 20x4
Retained earnings – Subsidiary Company, January 1, 20x4 P120,000
Add: Net income of subsidiary for 20x4 6,000
Total P180,000
Less: Dividends paid – 20x4 36,000 144,000
Stockholders’ equity – Subsidiary Company, December 31, 20x4 P 384,000
Adjustments to reflect fair value - (over) undervaluation of assets and
liabilities, date of acquisition (January 1, 20x4) 90,000
Amortization of allocated excess (refer to amortization above) – 20x4 ( 13,200)
Fair value of stockholders’ equity of subsidiary, December 31, 20x4…… P460,000
Less: Unrealized profit in ending inventory of P Company (upstream sales) 12,000
Realized stockholders’ equity of subsidiary, December 31, 20x4…… P448,800
Multiplied by: Non-controlling Interest percentage…………... 20
Non-controlling interest (partial-goodwill)………………………………….. P 89,760
f.
Consolidated SHE:
Stockholders’ Equity
Common stock, P10 par P 600,000
Retained earnings 462,840
Parent’s Stockholders’ Equity / CI – SHE, 12/31/20x4 P1,062,840
NCI, 12/31/20x4 ___89,760
Consolidated SHE, 12/31/20x4 P1,152,600
12/31/20x5:
a. CI-CNI
Consolidated Net Income for 20x5
P Company’s net income from own/separate operations…………. P192,000
Realized profit in beginning inventory of S Company (downstream sales) 18,000
Unrealized profit in ending inventory of S Company (downstream sales)… (_24,000)
Or, alternatively
Consolidated Net Income for 20x5
P Company’s net income from own/separate operations…………. P192,000
Realized profit in beginning inventory of S Company (downstream sales) 18,000
Unrealized profit in ending inventory of S Company (downstream sales)… (_24,000)
Or, alternatively:
Consolidated Retained Earnings, December 31, 20x5
Retained earnings - Parent Company, December 31, 20x5 (cost model P643,200
Less: Unrealized profit in ending inventory of S Company (downstream sales)
– 20x5 (UPEI of S – 20x5) or Realized profit in beginning inventory of S
Company (downstream sales) –20x6 (RPBI of S - 20x6)…………….
24,000
Adjusted Retained Earnings – Parent 12/31/20x5 (cost model (
S Company’s Retained earnings that have been realized in
transactions with third parties..
P619,200
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:
f.
Consolidated SHE:
Stockholders’ Equity
Common stock, P10 par P 600,000
Retained earnings 647,880
Parent’s Stockholders’ Equity / CI – SHE, 12/31/20x4 P1,247,880
NCI, 12/31/20x4 ___97,920
Consolidated SHE, 12/31/20x4 P1,345,800
Problem X
Requirements 1 to 4:
Schedule of Determination and Allocation of Excess
Date of Acquisition – January 1, 20x4
Fair value of Subsidiary (80%)
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
Allocated excess (excess of cost over book value)….. P 105,000
Less: Over/under valuation of assets and liabilities:
Increase in inventory (P6,000 x 100%)……………… P 6,000
Increase in land (P7,200 x 100%)……………………. 7,200
Increase in equipment (P96,000 x 100%) 96,000
Decrease in buildings (P24,000 x 100%)………..... ( 24,000)
Decrease in bonds payable (P4,800 x 100%)…… 4,800 90,000
Positive excess: Full-goodwill (excess of cost over
fair value)………………………………………………... P 15,000
A summary or depreciation and amortization adjustments is as follows:
Over/ Annual Current
Account Adjustments to be amortized under Life Amount Year(20x4) 20x5
Inventory P 6,000 1 P 6,000 P 6,000 P -
Subject to Annual Amortization
Equipment (net)......... 96,000 8 12,000 12,000 12,000
Buildings (net) (24,000) 4 ( 6,000) ( 6,000) (6,000)
Bonds payable… 4,800 4 1,200 1,200 1,200
P 13,200 P 13,200 P 7,200
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 Son Company.
On the books of Son Company, the P36,000 dividend paid was recorded as follows:
No entries are made on the parent’s books to depreciate, amortize or write-off the portion of the
allocated excess that expires during 20x4.
Cost of Depreciation/
Goods Amortization Amortization
Sold Expense -Interest
Inventory sold P 6,000
Equipment P12,000
Buildings ( 6,000)
Bonds payable _______ _______ P 1,200
Totals P 6,000 P 6,000 P1,200
Cost of goods sold P204,000 P138,000 (3) 6,000 (5) 150,000 P 168,000
(7) 18,000 (6) 60,000
(8) 12,000
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
(7) 18,000 180,000
(8) 12,000
Accumulated depreciation
- equipment P 135,000 P 96,000 (2) 96,000 (3) 12,000 P147,000
Accumulated depreciation 405,000 288,000 (6) 192,000
- buildings (7) 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 484,800 144,000 462,840
Non-controlling interest………… (4) 7,200 (1 ) 72,000
(2) 21,000
(9) 6,210
_________ _________ ____92,010
Total P1,984,800 P1,008,000 P 986,160 P 986,160 P2,396,850
On the books of S Company, the P48,000 dividend paid was recorded as follows:
(20x4) Depreciation/
Retained Amortization Amortization
earnings, expense -Interest
Inventory sold P 6,000
Equipment 12,000 P 12,000
Buildings (6,000) ( 6,000)
Bonds payable 1,200 P 1,200
Balance Sheet
Cash………………………. P 265,200 P 102,000 P 367,200
Accounts receivable…….. 180,000 96,000 276,000
Inventory…………………. 216,000 108,000 (6) 6,000 (4) 6,000 (10)
24,000
(11) 6,000
294,000
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
Discount on bonds payable (3) 4,800 (4) 2,400 2,400
Goodwill…………………… (3) 15,000 (4) 3,750 11,250
Investment in S Co……… 372,000 (1) 19,200 (2) 307,200
(3) 84,000 -
Total P2,203,200 P1,074,000 P2,680,050
Accumulated
depreciation -
equipment P 150,000 P 102,000 (3) 96,000 (4) 24,000 P180,000
Accumulated 450,000 306,000 (3) 192,000
depreciation - buildings (4) 12,000 552,000
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 (2) 240,000
Retained earnings, from above 643,200 186,000 647,880
Non-controlling interest………… (4) 3,390
(8) 9,600
(9) 2,400 (2 ) 76,800
__________ (3) 21,000
___ _____ _________ (12) 17,760 ____100,170
Total P2,203,200 P1,074,000 P1,081,110 P1,081,110 P2,680,050
5. 1/1/20x4
a. On date of acquisition the retained earnings of parent should always be considered as
the consolidated retained earnings, thus:
Consolidated Retained Earnings, January 1, 20x4
Retained earnings - Parent Company, January 1, 20x4 (date of acquisition) P360,000
b.
Non-controlling interest (partial-goodwill), January 1, 20x4
Common stock – Subsidiary Company…………………………………… P 240,000
Retained earnings – Subsidiary Company…………………………………. 120,000
Stockholders’ equity – Subsidiary Company.………….. P 360,000
Adjustments to reflect fair value - (over) undervaluation of assets and liabilities 90,000
Fair value of stockholders’ equity of subsidiary, January 1, 20x4………………… P 450,000
Multiplied by: Non-controlling Interest percentage…………... 20
Non-controlling interest (partial)………………………………….. P 90,000
Add: Non-controlling interests on full goodwill, 1/1/20x4 (P12,500, full-goodwill – P10,000, partial
goodwill) 3,000
Non-controlling interest (full-goodwill) P 93,000
c.
Consolidated SHE:
Stockholders’ Equity
Common stock, P10 par P 600,000
Retained earnings 360,000
Parent’s Stockholders’ Equity / CI - SHE P 960,000
NCI, 1/1/20x4 ___93,000
Consolidated SHE, 1/1/20x4 P1,053,000
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 – P174,840
Consolidated Net Income for 20x4
P Company’s net income from own/separate operations…………. P168,000
Unrealized profit in ending inventory of S Company (downstream sales)… ( 18,000)
Perfect Company’s realized net income from separate operations*…….….. P150,000
S Company’s net income from own operations…………………………………. P 60,000
Unrealized profit in ending inventory of S Company (upstream sales)… ( 12,000)
Son Company’s realized net income from separate operations*…….….. P 48,000 48,000
Total P198,000
Less: Non-controlling Interest in Net Income P 6,1210
Amortization of allocated excess (refer to amortization above) 13,200
Goodwill impairment (impairment under full-goodwill approach) 3,750 23,160
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent………….. P174,840
Add: Non-controlling Interest in Net Income (NCINI) _ 6,210
Consolidated Net Income for 20x4 P181.050
*that has been realized in transactions with third parties.
b. NCI-CNI – P6,210
Consolidated SHE:
Stockholders’ Equity
Common stock, P10 par P 600,000
Retained earnings 462,840
Parent’s Stockholders’ Equity / CI - SHE P1,062,840
NCI, 1/1/20x4 ___92,010
Consolidated SHE, 1/1/20x4 P1,154,840
12/31/20x5:
a. CI-CNI – P257,040
Consolidated Net Income for 20x5
P Company’s net income from own/separate operations…………. P192,000
Realized profit in beginning inventory of S Company (downstream sales) 18,000
Or, alternatively
Consolidated Net Income for 20x5
P Company’s net income from own/separate operations…………. P192,000
Realized profit in beginning inventory of S Company (downstream sales) 18,000
Unrealized profit in ending inventory of S Company (downstream sales)… (_24,000)
P Company’s realized net income from separate operations*…….….. P186,000
S Company’s net income from own operations…………………………………. P 90,000
Realized profit in beginning inventory of P Company (upstream sales) 12,000
Unrealized profit in ending inventory of P Company (upstream sales)… ( 6,000)
Son Company’s realized net income from separate operations*…….….. P 96,000 96,000
Total P282,000
Less: Non-controlling Interest in Net Income* * P 17,760
Amortization of allocated excess…………………… 7,200 24,960
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent………….. P257,040
Add: Non-controlling Interest in Net Income (NCINI) _ 17,760
Consolidated Net Income for 20x5 P274,800
*that has been realized in transactions with third parties.
b. NCI-CNI – P16,560
**Non-controlling Interest in Net Income (NCINI) for 20x5
S Company’s net income of Subsidiary Company from its own operations P 90,000
(Reported net income of S Company)
Realized profit in beginning inventory of P Company (upstream sales) 12,000
Unrealized profit in ending inventory of P Company (upstream sales) ( 6,000)
S Company’s realized net income from separate operations……… P 96,000
Less: Amortization of allocated excess 7,200
P 88,800
Multiplied by: Non-controlling interest %.......... 20%
Non-controlling Interest in Net Income (NCINI) – partial goodwill P 17,760
Less: NCI on goodwill impairment loss on full goodwill 0
Non-controlling Interest in Net Income (NCINI) – full goodwill P 17,760
Or, alternatively:
Consolidated Retained Earnings, December 31, 20x5
Retained earnings - Parent Company, December 31, 20x5 (cost model P643,200
Less: Unrealized profit in ending inventory of S Company (downstream sales) –
20x5 (UPEI of S – 20x5) or Realized profit in beginning inventory of S
Company (downstream sales) –20x6 (RPBI of S - 20x6)…………….
24,000
Adjusted Retained Earnings – Parent 12/31/20x5 (cost model (
S Company’s Retained earnings that have been realized in
transactions with third parties..
P619,200
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:
e.
Non-controlling interest, December 31, 20x5
Common stock – Subsidiary Company, December 31, 20x5…… P 240,000
Retained earnings – Subsidiary Company, December 31, 20x5
Retained earnings – Subsidiary Company, January 1, 20x5* P144,000
Add: Net income of subsidiary for 20x5 90,000
Total P234,000
Problem XI
(Compute selected balances based on three different intercompany asset transfer scenarios)
1.
Consolidated Cost of Goods Sold
or
Consolidated Net Income for 20x5
P Company’s net income from own/separate operations (P640-P290-P150) P 200,000
Realized profit in beginning inventory of S Company (downstream sales) 8,000
Unrealized profit in ending inventory of S Company (downstream sales)… (_ 12,000)
P Company’s realized net income from separate operations*…….….. P 196,000
S Company’s net income from own operations (P360 – P197 – P105) P 58,000
2.
Consolidated Cost of Goods Sold
PP book value ...................................................................................................... P290,000
SW book value .................................................................................................... 197,000
Elimination of 20x5 intercompany transfers ................................................... (80,000)
Reduction of beginning inventory because of
20x4 unrealized gross profit (P21,000/1.4 =
P15,000 cost; P21,000 transfer price less
P15,000
cost = P6,000 unrealized gross profit) ....................................................... (6,000)
Reduction of ending inventory because of
20x5 unrealized gross profit (P35,000/1.4 =
P25,000 cost; P35,000 transfer price less P25,000
cost = P10,000 unrealized gross profit) ..................................................... 10,000
Consolidated cost of goods sold .................................................................... P411,000
Consolidated Inventory
PP book value ...................................................................................................... P346,000
SW book value .................................................................................................... 110,000
Eliminate ending unrealized gross profit (see above) ................................. (10,000)
Consolidated inventory .............................................................................. P446,000
Since all intercompany sales are upstream, the effect on Snow's income must be
reflected in the non-controlling interest computation:
Problem XIII
1. (Computation of selected consolidation balances as affected by downstream inventory
transfers)
UNREALIZED GROSS PROFIT, 12/31/x4: (downstream transfer)
S Company’s net income from own operations (P600 – P400 – P100) P 100,000
Realized profit in beginning inventory of P Company (upstream sales) 0
Unrealized profit in ending inventory of P Company (upstream sales)… ( 0)
S Company’s realized net income from separate operations*…….….. P 100,000 100,000
Total P 269,400
Less: Amortization of allocated excess…………………… __10,000
Consolidated Net Income for 20x5 P 259,400
Less: Non-controlling Interest in Net Income* * 27,000
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent – 20x5………….. P 232,400
CONSOLIDATED TOTALS
Sales = P1,150,000 (add the two book values and eliminate the Intercompany transfer)
Cost of goods sold:
Benson's COGS book value ............................................................................................ P535,000
Broadway's COGS book value ...................................................................................... 400,000
Eliminate intercompany transfers .................................................................................. (250,000)
Realized gross profit deferred in 20x4 ........................................................................... (14,400)
Deferral of 20x5 unrealized gross profit ......................................................................... 10,000
Consolidated cost of goods sold ........................................................................... P680,600
Operating expenses = P210,000 (add the two book values and include intangible amortization
for current year)
Dividend income = -0- (interco. transfer eliminated in consolidation)
Noncontrolling interest in consolidated income: (impact of transfers is included because they
were upstream)
Broadway reported income for 20x5 ............................................................................ P100,000
Intangible amortization .................................................................................................... (10,000)
20x4 gross profit recognized in 20x5 ...................................................................... 14,400
20x5 gross profit deferred ........................................................................................
(10,000) Broadway realized income for 20x5
....................................................................... P94,400
Outside ownership ........................................................................................................... 30%
Noncontrolling interest .................................................................................................... P28,320
Consolidated Net Income for 20x5
P Company’s net income from own/separate operations (P800-P535-P100) P 165,000
Realized profit in beginning inventory of S Company (downstream sales) 0
Inventory = P988,000 (add the two book values and defer the P10,000 ending unrealized gross
profit)
Noncontrolling interest in subsidiary, 12/31/x5 = P382,500 30% beginning book value less
P14,400
unrealized gross profit (30% × P935,600) ............................................................. P280,680
Excess intangible allocation (30% × P295,000) ..................................................... (88,500)
Noncontrolling Interest in Broadway’s earnings ................................................... 28,320
Dividends (30% × P50,000) ............................................................................................... (15,000)
Total noncontrolling interest at 12/31/x5 ............................................................... P 382,500
Problem XIV
Amortization of equipment: P20,000 / 10 years = P2,000
RPBI of S (downstream sales):…………………........................................................ P15,000
RPBI of P (upstream sales)………………………....................................................... 10,000
UPEI of S (downstream sales)……………………………………………………..……. 20,000
UPEI of P (upstream sales)………………………………………………….…………… 5,000
Pepper Salt
(CI-CNI) (NCI-CNI) CNI
Net Income from own operations:
Pepper [P724,000 – (PP30,000 x 80%)] P700,000
Salt 72,000 P 18,000
RPBI of S (down) 15,000
RPBI of P (up) 8,000 2,000
UPEI of S (down) ( 20,000)
UPEI of P (up) ( 4,000) (1,000)
Amortization ( 1,600) ( 400)
Impairment of goodwill ( 0) ____( 0)__
P769,400 P18,600 P788,000
Or, compute first the RE – P on January 1, 2014 (use work back approach),
Retained earnings – Parent, 1/1/2014 (cost)
(P3,500,000 plus P25,000 Div of P less P724,000 NI of P)…. P2,801,000
-: UPEI of S (down) – 2013 or RPBI of S (down) – 2014..…………. 15,000
Adjusted Retained earnings – Parent, 1/1/2014 (cost)……………… P2,786.000
Retroactive Adjustments to convert Cost to ―Equity‖ for
purposes of consolidation / Parent’s share of adjusted
net increase in subsidiary’s retained earnings:
Retained earnings – Subsidiary, 1/1/2011………………………P 150,000
Less: Retained earnings – Subsidiary, 1/1/2014……………… 260,000
Increase in Retained earnings since acquisition
(cumulative net income – cumulative dividends)…………P110,000
Accumulated amortization (1/1/2011 – 1/1/2014):
P 2,000 x 3 years………………………………………………. ( 6,000)
UPEI of P (up) – 2013 or RPBI of P (up) – 2014………………... ( 10,000)
P 94,000
X: Controlling Interests………………………………………… 80% 75,200
RE – P, 1/1/2014 (equity method) = CRE, 1/1/2014………………..P2,861,200
+: CI – CNI or Profit Attributable to Equity Holders of Parent…….. 769,400
-: Dividends – P………………………..……………………… 25,000
RE – P, 12/31/2014 (equity method) = CRE, 12/31/2014…………..P3,605,600
CONSOLIDATED BALANCES
Sales = P1,000,000 (add the two book values and subtract P100,000 in intercompany transfers)
Cost of Goods Sold = P571,000 (add the two book values and subtract P100,000 in intercompany
purchases. Subtract P9,000 because of the previous year unrealized gross profit and add P20,000 to
defer the current year unrealized gross profit.)
Operating Expenses = P206,000 (add the two book values and include the P10,000 excess amortization
expenses but remove the P4,000 in excess depreciation expense [P10,000 – P6,000] created by building
transfer)
Investment Income = P0 (the intercompany balance is removed so that the individual revenue and
expense accounts of the subsidiary can be shown)
Inventory = P280,000 (add the two book values and subtract the P20,000 ending unrealized gross profit)
Equipment (net) = P292,000 (add the two book values and include the P60,000 allocation from the
acquisition-date fair value less three years of excess amortizations)
Buildings (net) = P528,000 (add the two book values and subtract the P20,000 unrealized gain on the
transfer after two years of excess depreciation [P4,000 per year])
Problem XVI
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 Son:
Common stock (P240,000 x 80%)……………………. P 192,000
Retained earnings (P120,000 x 80%)………………... 96,000 288,000
Allocated excess (excess of cost over book value)….. P 84,000
Less: Over/under valuation of assets and liabilities:
Increase in inventory (P6,000 x 80%)……………… P 4,800
Increase in land (P7,200 x 80%)……………………. 5,760
Increase in equipment (P96,000 x 80%) 76,800
Decrease in buildings (P24,000 x 80%)………..... ( 19,200)
Decrease in bonds payable (P4,800 x 80%)…… 3,840 72,000
Positive excess: Partial-goodwill (excess of cost over
fair value)………………………………………………... P 12,000
The goodwill impairment loss of P3,750 based on 100% fair value would be allocated to the
controlling interest and the NCI based on the percentage of total goodwill each equity interest
received. For purposes of allocating the goodwill impairment loss, the full-goodwill is computed
as follows:
In this case, the goodwill was proportional to the controlling interest of 80% and non-controlling
interest of 20% computed as follows:
Value % of Total
Goodwill applicable to parent………………… P12,000 80.00%
Goodwill applicable to NCI…………………….. 3,000 20.00%
Total (full) goodwill……………………………….. P15,000 100.00%
Value % of Total
Goodwill impairment loss attributable to parent or controlling P 3,000 80.00%
Interest
Goodwill applicable to NCI…………………….. 750 20.00%
Goodwill impairment loss based on 100% fair value or full-
Goodwill P 3,750 100.00%
The unrealized profits on January 1, and on December 31, 20x5, resulting intercompany sales, are
as summarized below:
Downstream Sales:
Intercompany Merchandise
Year Sales of Parent to in 12/31 Inventory Unrealized Intercompany Subsidiary of S
Company Profit in Ending Inventory
20x4 P150,000 P150,000 x 60% = P90,000 P90,000 x 20% = P18,000
20x5 120,000 P120,000 x 80% = P96,000 P96,000 x 25% = P40,000
Upstream Sales:
Intercompany Merchandise
Year Sales of Subsidiary in 12/31 Inventory Unrealized Intercompany
to Parent of S Company Profit in Ending Inventory
20x4 P 50,000 P100,000 x 50% = P25,000 P25,000 x 40% = P10,000
20x5 62,500 P 62,500 x 40% = P25,000 P25,000 x 20% = P 5,000
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
NI of S 28,800 Dividends - S NI of S
(60,000 Amortization &
Amortization (50,000
x 80%)……. 48,000 13,560 impairment
impairment 13,560 48,000 x 80%)
18,000 UPEI of of
UPEI S S 18,000
9,600 UPEI of of
UPEI P P 9,600
21,960 6,840
After the eliminating entries are posted in the investment account, it should be observed that
from consolidation point of view the investment account is totally eliminated. Thus,
Investment in S
Cost, 1/1/x4 372,000 28,800 Dividends – S (30,000x 80%)
NI of S Amortization &
(60,000 x 80%) 48,000 13,560 impairment
18,000 UPEI of Son
9,600 UPEI of Perfect
372,000 372,000
(E5) Sales………………………. 150,000
Subsidiary accounts are adjusted to full fair value regardless on the controlling interest
percentage or what option used to value non-controlling interest or goodwill.
(5) P 168,000
Cost of goods sold P204,000 P138,000
(3) 6,000 150,000
(7) 18,000 (6)
(8) 12,000 60,000
Depreciation expense 60,000 24,000 (3) 6,000 90,000
Balance Sheet
Cash………………………. P 232,800 P 90,000 P 387,360
Accounts receivable…….. 90,000 60,000 150,000
Inventory…………………. 120,000 90,000 (1) 5,000 (3) 6,000
(7) 18,000
(8) 12,000
180,000
Land……………………………. 210,000 48,000 (2) 7,200 265,200
Equipment 220,000 180,000 380,000
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……… 350,040 (4) 21,960 (2) 288,000
(2) 84,000
-
Total P1,635,700 P1,006,000 P2,394,600
Accumulated depreciation
- equipment P 135,000 P 96,000 (2) 96,000 (3) 12,000 P 147,000
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
Thus, the investment balance and investment income in the books of P Company is as follows:
Investment in S
Cost, 1/1/x5 350,040 38,400 Dividends – S (48,000x 80%)
NI of Son 5,760 Amortization (7,200 x 80%)
(90,000 x 80%) 72,000 24,000 UPEI of Son (P24,000 x 100%)
RPBI of S (P18,000 x 100%) 18,000 4,800 UPEI of Perfect (P6,000 x 80%)
RPBI of P (P12,000 x 80%) 9,600
Balance, 12/31/x5 376,680
Investment Income
Amortization (7,200 x 805) 5,760 NI of S
UPEI of S (P24,000 x 100%) 24,000 72,000 (P90,000 x 80%)
UPEI of P (P6,000 x 80%) 4,800 18,000 RPBI of S (P18,000 x 100%)
9,600 RPBI of P(P12,000 x 80%)
65,040 Balance, 12/31/x5
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
(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%)
RPBI of S 18,000 24,000 UPEI of S
UPEI of S 24,000 18,000 RPBI of S
RPBI of P 9,600 4,800 UPEI of of
UPEI P P 4,800 9,600 RPBI of P
26,640 65,040
After the eliminating entries are posted in the investment account, it should be observed that
from consolidation point of view the investment account is totally eliminated. Thus,
Investment in S
Cost, 1/1/x5 350,040 38,400 Dividends – S (40,000x 80%)
NI of S Amortization
(90,000 x 80%) 72,000 5,760 (6,000 x 80%)
RPBI of S (P18,000 x 100%) 18,000 24,000 UPEI of S (P20,000 x 100%)
4,800 UPEI of P (P5,000 x 80%)
RPBI of P (P12,000 x 80%) 9,600
Balance, 12/31/x5 376,680 307,200 (E1) Investment, 1/1/20x5
(E8) RPBI of S 18,000 70,440 (E2) Investment, 1/1/20x5
(E9) RPBI of P 9,600 26,640 (E4) Investment Income
and dividends
336,900 404,280
(E10) Cost of Goods Sold (Ending Inventory – Income Statement)… 24,000
Inventory – Balance Sheet…… 24,000
To defer the downstream sales - unrealized profit in ending inventory
until it is sold to outsiders.
Balance Sheet
Cash………………………. P 265,200 P 102,000 P 367,200
Accounts receivable…….. 180,000 96,000 276,000
Inventory…………………. 216,000 108,000 (10) 24,000
(11) 6,000 294,000
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
Problem XVII
Requirements 1 to 4:
Schedule of Determination and Allocation of Excess
Date of Acquisition – January 1, 20x4
20x4: First Year after Acquisition Parent Company Equity Method 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
Investment in S Company (P36,000 x 80%)……………. 28,800
Record dividends from S Company.
*this procedure would be more appropriate, instead of multiplying the full-goodwill impairment loss of P3,125 by 80%. There
might be situations where the controlling interests on goodwill impairment loss would not be proportionate to NCI acquired
(refer to Illustration 15-6).
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
18,000 UPEI of S (P18,000 x 100%)
9,600 UPEI of P (P12,000 x80%)
Investment Income
Amortization & NI of S
impairment 13,560 48,000 (P60,000 x 80%)
UPEI of S (P18,000 x 100%) 18,000
UPEI of P (P12,000 x80%) 9,600
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 7,200 P1,200 14,400
NI of S 28,800 Dividends - S NI of S
(60,000 Amortization
Amortization
& (50,000
x 80%)……. 48,000 13,560 impairment
impairment 13,560 48,000 x 80%)
18,000 UPEI
UPEI of of
S S 18,000
9,600 UPEI
UPEI of of
P P 9,600
21,960 6,840
After the eliminating entries are posted in the investment account, it should be observed that
from consolidation point of view the investment account is totally eliminated. Thus,
Investment in S
Cost, 1/1/x4 372,000 28,800 Dividends – S (30,000x 80%)
NI of S Amortization &
(60,000 x 80%) 48,000 13,560 impairment
18,000 UPEI of S
9,600 UPEI of P
372,000 372,000
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
(7) 18,000
(8) 12,000
180,000
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) 15,000 (3) 3,750 11,250
Investment in S Co……… 350,040 (4) 21,960 (2) 288,000
(2) 84,000
-
Total P1,635,700 P1,008,000 P2,396,850
Accumulated depreciation
- equipment P 135,000 P 96,000 (2) 96,000 (3) 12,000 P 147,000
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 462,840 144,000 462,840
Non-controlling interest………… (4) 7,200 (1 ) 72,000
(2) 21,000
__________ (9) 6,210
_________ _________ ____92,010
Total P1,962,840 P1,008,000 P 986,160 P 986,160 P2,396,850
Thus, the investment balance and investment income in the books of Perfect Company is as
follows:
Investment in S
Cost, 1/1/x5 350,040 38,400 Dividends – S (48,000x 80%)
NI of Son 5,760 Amortization (7,200 x 80%)
(90,000 x 80%) 72,000 24,000 UPEI of S (P24,000 x 100%)
RPBI of (P18,000 x 100%) 18,000 4,800 UPEI of P (P6,000 x 80%)
RPBI of P (P12,000 x 80%) 9,600
Balance, 12/31/x5 376,680
Investment Income
Amortization (7,200 x 805) 5,760 NI of S
UPEI of S (P24,000 x 100%) 24,000 72,000 (P90,000 x 80%)
UPEI of P (P6,000 x 80%) 4,800 18,000 RPBI of S (P18,000 x 100%)
9,600 RPBI of P (P12,000 x 80%)
65,040 Balance, 12/31/x5
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
After the eliminating entries are posted in the investment account, it should be observed that
from consolidation point of view the investment account is totally eliminated. Thus,
Investment in S
Cost, 1/1/x5 350,040 38,400 Dividends – S (48,000x 80%)
NI of Son Amortization
(90,000 x 80%) 72,000 5,600 (7,000 x 80%)
RPBI of S (P18,000 x 100%) 18,000 24,000 UPEI of S (P24,000 x 100%)
RPBI of P (P18,000 x 80%) 9,600 4,800 UPEI of P (P6,000 x 80%)
Balance, 12/31/x5 376,680 307,200 (E1) Investment, 1/1/20x5
(E8) RPBI of S 18,000 70,440 (E2) Investment, 1/1/20x5
(E9) RPBI of P 9,600 26,640 (E4) Investment Income
and dividends
404,280 404,280
Balance Sheet
Cash………………………. P 265,200 P 114,000 P 367,200
Accounts receivable…….. 180,000 96,000 276,000
Inventory…………………. 216,000 108,000 (10) 24,000
(11) 6,000 294,000
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
Discount on bonds payable (2) 3,600 (3) 1,200 2,400
3. b
Consolidated Net Income for 20x4
P Company’s net income from own/separate operations…………. P225,000
8. b
Parent Subsidiary
Net Income from own operations:
X-Beams (parent) Kent (subsidiary), 70%:30% 210,000 90,000
Unrealized Profit in EI of Parent (X-Beams):
P180,000x 20% = P36,000 x (180-100/180) = P16,000,
70%:30% ( 11,200) ( 4,800)
Non-controlling Interest in Kent’s Net Income 85,200
9. d
Non-controlling Interest in Net Income (NCINI) for 20x4:
S Company’s net income of Subsidiary Company from its own operations
(Reported net income of S Company) P 137,000
Realized profit in beginning inventory of P Company (upstream sales) 40,000
Unrealized profit in ending inventory of P Company (upstream sales) ( 25,000)
S Company’s realized net income from separate operations……… P 152,000
Less: Amortization of allocated excess _ 0
P 152,000
Multiplied by: Non-controlling interest %.......... 30%
Non-controlling Interest in Net Income (NCINI) – partial goodwill P 45,600
Less: NCI on goodwill impairment loss on full goodwill 0
Non-controlling Interest in Net Income (NCINI) – full goodwill P 45,600
10. c –
Parent Subsidiary
Net Income from own operations:
Gibson (Parent): Sparis(subsidiary), 90%:10% 820,800 91,200
RPBI of Parent (upstream: 420,000 x 30% = 126,000;
126,000 x 25/125 = 25,200; 90%:10% 22,680 2,520
UPEI of Parent (upstream): 500,000 x 30% = 150,000;
150,000 x 25/125 = 30,000; 90%:10% (27,000) ( 3,000)
Non-controlling Interest in Kent’s Net Income 90,720
11. b
12. a
13. b (downstream sales)
Sales – Pot (parent) 1,120,000
- Skillet (subsidiary) 420,000
Total 1,540,000
Add(Deduct): Intercompany sales - down ( 140,000)
Consolidated Sales 1,400,000
The problem is quite intriguing because of the statement ―Pot had established the transfer
price base on its normal markup‖ . It should be noted that Parent Company established
the transfer price based on its normal price (in this case it is assumed that the mark-up of
the parent which is 25% is also the normal transfer price). So, the solution should be as
follows:
Or, alternatively
Consolidated Net Income for 20x4
P Company’s net income from own/separate operations (P90,000 – P62,000) P 28,000
Realized profit in beginning inventory of S Company (downstream sales) 0
Unrealized profit in ending inventory of S Company (downstream sales)… (_ 0)
21. c
Cost of Sales
P Company 67,000
S Company _63,000
Total 130,000
Less: Intercompany sales 90,000
Add: Unrealized profit in EI of S Co.
[P90,000 x 30% = P27,000 x (90 - 67)/90] __6,900
Consolidated 46,900
Parent Subsidiary
Sales 90,000 100,000
Less: Cost of goods sold – Parent 67,000
Subsidiary (90,000 x 70%) ______ 63,000
Gross profit 23,000 37,000
Ending inventory (90,000 x 30%) 27,000
22. a
Consolidated Net Income for 20x4
P Company’s net income from own/separate operations
[P100,000 – (P90,000 x 70%)] P 37,000
Realized profit in beginning inventory of S Company (downstream sales) 0
Or, alternatively
Consolidated Net Income for 20x4
P Company’s net income from own/separate operations
[P100,000 – (P90,000 x 70%)] P 37,000
Realized profit in beginning inventory of S Company (downstream sales) 0
Unrealized profit in ending inventory of S Company (downstream sales)… (_ 0)
P Company’s realized net income from separate operations*…….….. P 37,000
S Company’s net income from own operations (P90,000 – P67,000) P23,000
Realized profit in beginning inventory of P Company (upstream sales) 0
Unrealized profit in ending inventory of P Company (upstream sales)
[P90,000 x 30% = P27,000 x (90-67/90)] ( 6,900 )
S Company’s realized net income from separate operations*…….….. P16,100 16,100
Total P 53,100
Less: Non-controlling Interest in Net Income* * P 1,610
Amortization of allocated excess…………………… 0 1,610
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent………….. P 51,490
Add: Non-controlling Interest in Net Income (NCINI) _ 1,610
Consolidated Net Income for 20x4 P 53,100
*that has been realized in transactions with third parties.
30. c
Consolidated Net Income for 20x4
P Company’s net income from own/separate operations P360,000
35. a
Ending inventory of Perth from Dundee (P36,000 / 110%) 32,727
Ending inventory of Dundee from Perth (P31,000 / 130%) _23,846
Total 56,573
36. d
Sales
P Company 420,000
S Company 280,000
Total 700,000
Less: Intercompany sales 140,000
Consolidated 560,000
38. c
Cost of Sales
P Company 196,000
S Company _112,000
Total 308,000
Less: Intercompany sales 140,000
Add: Unrealized profit in EI of S Co.
[P140,000 x 60% = P84,000 x (140 - 112)/140] _16,800
Consolidated 184,900
Partial-goodwill
Fair value of Subsidiary (80%)
Consideration transferred……………………………….. P 364,000
Less: Book value of stockholders’ equity of S:
Common stock (P140,000 x 80%)……………………. P 112,000
Retained earnings (P210,000 x 80%)………………... 168,000 280,000
Allocated excess (excess of cost over book value)….. P 84,000
Less: Over/under valuation of assets and liabilities:
Increase in equipment (P35,000 x 80%) ___28,000
Positive excess: Partial-goodwill (excess of cost over
fair value)………………………………………………... P 56,000
Full-goodwill
Fair value of Subsidiary (100%)
Consideration transferred: Cash (P364,000/80%) P 455,000
Less: Book value of stockholders’ equity of S (P350,000 x 100%) __350,000
Allocated excess (excess of cost over book value)….. P 105,000
Add (deduct): (Over) under valuation of assets and liabilities
Increase in equipment P35,000 x 100% 35,000
Positive excess: Full-goodwill (excess of cost over
fair value)………………………………………………... P 70,000
40. d
Equipment
P Company 616,000
S Company 420,000
Total 1,036,000
Add: Undervalued equipment 35,000
Less: Depreciation on undervalued equipment (P35,000/7 years) 7,000
Consolidated 1,064,000
41. d
Inventory
P Company 210,000
S Company 154,000
Total 364,000
Less: Unrealized profit in EI: [P140,000 x 60% = P84,000 x (140 - 112)/140] 16,800
Consolidated 347,200
44. a
Combined 20x5 sales (P580,000 + P445,000) P 1,025,000
Less: 20x5 intercompany sales 0
Consolidated sales P 1,025,000
45. d
Combined cost of sales P 480,000
Less: 20x5 intercompany sales 0
Less: Unrealized profit in the 20x5 beginning inventory from 20x4 (
3,000)
Add: Unrealized profit in 20x5 ending inventory ________0
Consolidated cost of sales P 477,000
46. b Combined cost of sales P 160,000 Less: Intercompany sales revenue 110,000
Add: Unrealized profit taken out of inventory
(75%)x(35,000) = 26,250
Consolidated cost of sales P 76,250
47. Incomplete data – PAS 27 allows the use of cost model in accounting for investment in
subsidiary in the books of parent company. Income recognized under this model is the
dividends declared or paid by the subsidiary multiplied by controlling interest. Since, there
is no data as to dividends of subsidiary, the amount of dividend income from the point of
parent cannot be determined.
But equity method is not allowed in the books of parent for purposes of CFS.
PAS 27 allows the use of cost model in accounting for investment in subsidiary in the books
of parent company
The use of equity method is not allowed in the books of parent (unless it is a stand-alone
entity).
52. a - It will be overstated by the amount of the NC interests’ share of the P1,600 of profit margin
in the P9,600 of materials carried over to 20x5 (20% x P1,600 = P320
53. c
Grebe plus Swamp’s separate cost of goods sold =
P400,000 + P320,000 = P 720,000
Less: Intercompany sales = 200,000
Add: Profit +12,500 - 10,000 = ____2,500
Consolidated COGS = P 522,500
54. a
Ending inventory of Grebe (1/2 x P100,000) P 50,000
x: GP% of Parent (P100,000 – P80,00)/P100,000 20%
Unrealized profit in ending inventory P 10,000
55. a
56. b Inventory remaining P100,000 × 50% = P50,000 Unrealized gross profit (based on LL's
markup as the seller) P50,000 × 40% = P20,000. The ownership percentage has no impact on
this computation.
57. c
Unrealized Profit, 12/31/x4
Intercompany Gross profit (P100,000 – P75,000) ................................................. P25,000
Inventory Remaining at Year's End ........................................................................ 16%
Unrealized Intercompany Gross profit, 12/31/x4 ................................................. P4,000
59. c - The only change here from No. 58 is the markup percentage which would now be 40
percent (P120,000 gross profit P300,000 sales). Thus, the unrealized gross profit to be
deferred is P16,000 (P40,000 × 40%). Consequently, consolidated cost of goods sold is
P696,000 (P600,000 + P180,000 – P100,000 + P16,000).
60. b
EXCESS DEPRECIATION
Annual Depreciation Based on Cost (P300,000/10 years) ........................... P30,000
Annual Depreciation Based on Transfer Price
(P280,000/8 years) ........................................................................................ 35,000
Excess Depreciation ........................................................................................... P5,000
ADJUSTMENTS TO CONSOLIDATED NET INCOME
Defer Unrealized Gain ....................................................................................... P(40,000)
Remove Excess Depreciation ........................................................................... 5,000
Decrease to Consolidated Net Income ........................................................ P(35,000)
63. c
Sales Cost of Sales
P Company 10,000,000 7,520,000
S Company __200,000 _160,000
Total 10,200,000 7,680,000
Less: Intercompany sales – upstream sales 60,000 60,000
Add: Unrealized profit in EI of S Co.
[P60,000 x 30% = P18,000 x (10 – 7.5)/10] ________ __ 4,500
Consolidated 10,140,000 7,604,500
66. d Add the two book values and remove P100,000 intercompany transfers.
Consolidated Expenses = P37,500 (add the two book values and include current year
amortization expense)
69. a
Non-controlling interest (partial-goodwill), December 31, 20x4
Common stock – S Company, December 31, 20x4…… P 100,000
Retained earnings – S Company, December 31, 20x4
Partial-goodwill
Fair value of Subsidiary (80%)
Consideration transferred……………………………….. P 260,000
Less: Book value of stockholders’ equity of S:
Common stock (P100,000 x 80%)……………………. P 80,000
Retained earnings (P150,000 x 80%)………………... 120,000 200,000
Allocated excess (excess of cost over book value)….. P 60,000
Less: Over/under valuation of assets and liabilities:
Increase in equipment (P25,000 x 80%) 20,000
Increase in secret formulas: P50,000 x 80% 40,000
Full-goodwill
Fair value of Subsidiary (100%)
Consideration transferred: Cash (80%) P 260,000
FV of NCI (20%) ___65,000
Fair value of Subsidiary (100%) P 325,000
Less: BV of stockholders’ equity of S (P100,000 + P150,000) x 100% __250,000
Allocated excess (excess of cost over book value)….. P 75,000
Add (deduct): (Over) under valuation of assets and liabilities
Increase in equipment P25,000 x 100% 25,000
Increase in secret formulas: P50,000 x 100% P 50,000
Amortization:
Equipment: P25,000 / 5 years = P 5,000
Secret formulas: P50,000 / 20 years = 2,500
Total amortization of allocated P 7,500
70. c Add the two book values plus the original allocation (P25,000) less one year of excess
amortization expense (P5,000).
71. b Add the two book values less the ending unrealized gross profit of P12,000.
74. c
Ending inventory at selling price: P300,000 x 1/3 = P100,000 x (300,000 – 240,000)/300,000 P20,000
Less: Inventory write-down (P100,000 – P92,000) __8,000
Intercompany profit to be eliminated P12,000
75. The requirement ―P’s income from S‖ is a term normally used under the equity method, but,
in some cases it may also refer to the term ―dividend income‖ under the cost model
depending on how the problem was described and presented.
Since there are no data available to arrive at the dividend income under the cost model for
reason that dividend declared or paid by subsidiary is not given, so the term ―P’s income
from S‖ may mean ―Income from subsidiary‖ which is computed under the equity method,
thus:
Share in net income (P120,000 x 60%) P72,000
Less: Unrealized profit in ending inventory of S {P189,000 x 1/3 = P63,000 x (P189-135)/P189] __18,000
Intercompany profit to be eliminated P54,000
It should be noted that PAS 27 allow the use of cost model in accounting for investment in
subsidiary in the books of parent company but not the equity method.
78. b
Consolidated Net Income for 20x4
P Company’s net income from own/separate operations P 300,000
Realized profit in beginning inventory of S Company (downstream sales) 0
Unrealized profit in ending inventory of S Company (downstream sales)… (_ 0)
P Company’s realized net income from separate operations*…….….. P300,000
S Company’s net income from own operations P120,000
Realized profit in beginning inventory of P Company (upstream sales)
Unrealized profit in ending inventory of P Company (upstream sales)
[P200,000 x 50% = P100,000 x (P40,000/P200,000)] ( 20,000 )
S Company’s realized net income from separate operations*…….….. P100,000 100,000
Total P 400,000
Less: Amortization of allocated excess…………………… _ 0
Consolidated Net Income for 20x4 P 400,000
Since there are no data available to arrive at the dividend income under the cost model for
reason that dividend declared or paid by subsidiary is not given, so the term ―P’s income
from S‖ may mean ―Income from subsidiary‖ which is computed under the equity method,
thus:
Share in net income (P200,000 x 60%) P120,000
Less: Unrealized profit in ending inventory of S {P315,000 x 1/3 = P105,000 x (P315-P225)/P315] __30,000
Intercompany profit to be eliminated P 90,000
It should be noted that PAS 27 allow the use of cost model in accounting for investment in
subsidiary in the books of parent company but not the equity method.
81. a
20x5 Sales Cost of Sales
P Company 1,800,000 1,440,000
S Company __900,000 _750,000
Total 2,700,000 2,190,000
Less: Intercompany sales 375,000 375,000
Realized profit in BI of S Co.
[P240,000 x 1/2 = P120,000 x (240-192)/240] 24,000
Add: Unrealized profit in EI of S Co.
[P375,000 x 40% = P150,000 x (375-300)/375] ________ __30,000
Consolidated 2.325,000 1,821,000
88. b
20x3 20x4 20x5
Share in net income
20x3: P70,000 x 90% P 63,000
20x4: P85,000 x 90% P 76,500
20x5: P94,000 x 90% P 84,600
Less: Unrealized profit in ending inventory of P
It should be noted that PAS 27 allow the use of cost model in accounting for investment in
subsidiary in the books of parent company but not the equity method.
91. a
**Non-controlling Interest in Net Income (NCINI) for 20x3 20x4 20x5
S Company’s net income of Subsidiary Company from its
own operations (Reported net income of S Company) P 70,000 P 85,000 P 94,000
RPBI of P Company (upstream sales) 0 300 1,000
UPEI of P Company (upstream sales) ( 300) ( 1,000) ( 750)
S Company’s realized net income from separate operations P 69,700 P 84,300 P 94,250
Less: Amortization of allocated excess 0 0 0
P 69,700 P 84,300 P 94,250
Multiplied by: Non-controlling interest %.......... 10% 10% 10%
Non-controlling Interest in Net Income (NCINI) – partial goodwill P 6,970 P 8,430 P 9,425
Less: NCI on goodwill impairment loss on full goodwill 0 0 0
Non-controlling Interest in Net Income (NCINI) – full goodwill P 6,970 P 8,430 P 9,425
105. c Clark
Net assets reported P320,000
Profit on intercompany sale P48,000
Proportion of inventory unsold at year end
($60,000 / $240,000) x .25
Unrealized profit at year end (12,000)
Amount reported in consolidated statements P308,000
105. c Dunn
Inventory reported by Banks (P175,000 + P60,000) P235,000
Inventory reported by Lamm 250,000
Total inventory reported P485,000
Unrealized profit at year end
[P50,000 x (P60,000 / P200,000)] (15,000)
Amount reported in consolidated statements P470,000
106. b
Cost of goods sold reported by Park P 800,000
Cost of goods sold reported by Small 700,000
Total cost of goods sold reported P1,500,000
Cost of goods sold reported by Park on sale to
Small (P500,000 x .40) (200,000)
Reduction of cost of goods sold reported by
Small for profit on intercompany sale
[(P500,000 x 4 / 5) x .60] (240,000)
Cost of goods sold for consolidated entity P1,060,000
113. b – the original cost (I,e., the cost to produced on the part of the seller – Blue Company)
115. c
Sales P120,000
Reported cost of sales (75,000)
Report income P 45,000
Portion realized x .80
Realized net income P 36,000
Portion to Noncontrolling
Interest x .30
Income to noncontrolling
Interest (10,800)
Income to controlling interest P 69,200
Or, alternatively
Consolidated Net Income for 20x5
Or, if RE – P is not given on January 1, 2012, then RE – P on December 31, 2012 should be use:
Retained earnings – Parent, 12/31/2012 (cost):
(P700,000 + P108,000 – P60,000)………..…………………………… P 748,000
-: UPEI of S (down) – 2012 or RPBI of S (down) – 2013..…………. 3,600
Adjusted Retained earnings – Parent, 1/1/2012 (cost)……………… P 744,400
Retroactive Adjustments to convert Cost to ―Equity‖ for
purposes of consolidation / Parent’s share of adjusted net
increase in subsidiary’s retained earnings:
Retained earnings – Subsidiary, 1/1/2010……………………….P 230,000
Less: Retained earnings – Subsidiary, 12/31/2012
(P300,000 + P20,000 – P10,000)………………………..... 320,000
Increase in Retained earnings since acquisition
(cumulative net income – cumulative dividends)…………P 90,000
Accumulated amortization (1/1/2010 – 12/31/2012):
P 2,000 x 3 years……………………………………………… ( 6,000)
UPEI of P (up) – 2012 or RPBI of P (up) – 2013……………….. ( 2,400)
P 81,600
X: Controlling Interests……………………………………………… . 80% 65,280
RE – P, 12/31/2012 (equity method) = CRE, 12/31/2012…………. P809,680
132. b
Consolidated Stockholders’ Equity, 12/31/2012:
Controlling Interest / Parent’s Interest / Parent’s Portion /
Equity Holders of Parent – SHE, 12/31/2012:
Common stock – P (P only)…………………………………………….. P1,000,000
Retained Earnings – P (equity method), 12/31/2012………….. 809,680
Controlling Interest / Parent’s Stockholders’ Equity……………. P1,809,680
Non-controlling interest, 12/31/2012 (partial)…………………………. 96,320
Consolidated Stockholders’ Equity, 12/31/2012………………………… P1,906,000
133. a
Consolidated Stockholders’ Equity, 12/31/2012:
Controlling Interest / Parent’s Interest / Parent’s Portion /
Equity Holders of Parent – SHE, 12/31/2012:
Common stock – P (P only)…………………………………………….. P1,000,000
Retained Earnings – P (equity method), 12/31/2012………….. 809,680
Controlling Interest / Parent’s Stockholders’ Equity……………. P1,809,680
Non-controlling interest, 12/31/2012 (full)……..………………………. 101,320
Consolidated Stockholders’ Equity, 12/31/2012………………………… P1,911,000
Theories
1. d 6. d 11. d 16. c 21. c 26. a 31 b
2. b 7. c 12. a 17. c 22. a 27. b 32.
3. c 8. b 13. c 18. b 23. a 28. b 33.
4. a 9. c 14. c 19. c 24. b 29. c 34.
5. c 10, a 15, d 20. b 25. c 30. d 35.