Solution Chapter 17

(1)

Chapter 17

Problem I

1.

Consolidated Net Income for 20x5

P Company’s net income from own/separate operations…………. P 760,000

Realized profit in beginning inventory of S Company (downstream sales) 36,000 Unrealized profit in ending inventory of S Company (downstream sales)… (_50,000) P Company’s realized net income from separate operations*…….….. P 746,000 S Company’s net income from own operations………. P 460,000

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 460,000 460,000

Total P1,206,000

Less: Amortization of allocated excess……… 0

Consolidated Net Income for 20x5 P1,206,000

Less: Non-controlling Interest in Net Income* * 92,000

Controlling Interest in Consolidated Net Income or Profit attributable to

equity holders of parent – 20x5………….. P 1,114,000

*that has been realized in transactions with third parties.

Or, alternatively

Realized profit in beginning inventory of S Company (downstream sales) 36,000 Unrealized profit in ending inventory of S Company (downstream sales)… (_50,000) P Company’s realized net income from separate operations*…….….. P 746,000 S Company’s net income from own operations………. P 460,000

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*…….….. P460,000 460,000

Total P1,206,000

Less: Non-controlling Interest in Net Income* * P 92,000

Amortization of allocated excess……… 0 92,000

equity holders of parent………….. P1,114,000

Add: Non-controlling Interest in Net Income (NCINI) _ 92,000

Consolidated Net Income for 20x5 P 1,206,000

*that has been realized in transactions with third parties. **Non-controlling Interest in Net Income (NCINI) for 20x5

S Company’s net income of Subsidiary Company from its own operations

(Reported net income of Son Company) P460,000

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……… P460,000

Less: Amortization of allocated excess _____0

P460,000

Multiplied by: Non-controlling interest %... 20%

Non-controlling Interest in Net Income (NCINI) – partial goodwill P 92,000

2. 20x4

Sales

1,080,000

Purchases (Cost of Goods Sold)

1,080,000

12/31 Inventory (Income Statement)

[216,000 – (216,000/1.20)]

36,000

12/31 Inventory (Balance Sheet)

36,000

20x5

(2)

Purchases (Cost of Goods Sold)

1,200,000

12/31 Inventory (Income Statement)

[300,000 – (300,000/1.20)]

50,000

12/31 Inventory (Balance Sheet)

50,000

Beginning R/E – Puma

36,000

1/1 Inventory (Income Statement)

36,000

Problem II

1.

P Company’s net income from own/separate operations…………. P 1,720,000

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 1, 720,000 S Company’s net income from own operations………. P 600,000

Realized profit in beginning inventory of P Company (upstream sales) 40,000 Unrealized profit in ending inventory of P Company (upstream sales)… ( 51,00 0)

Son Company’s realized net income from separate operations*…….….. P 589,000 589,000

Total P2,309,000

equity holders of parent – 20x5………….. P 2,250,100

Or, alternatively

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*…….….. P1,720,,000 S Company’s net income from own operations………. P 600,000

Realized profit in beginning inventory of P Company (upstream sales) 40,000 Unrealized profit in ending inventory of P Company (upstream sales)… ( 51,000)

S Company’s realized net income from separate operations*…….….. P589,000 589,000

Total P2,309,000

Amortization of allocated excess……… 0 __58,900

(Reported net income of Son Company) P600,000

Realized profit in beginning inventory of P Company (upstream sales) 40,000 Unrealized profit in ending inventory of P Company (upstream sales) ( 51,000) Son Company’s realized net income from separate operations……… P589,000

P589,000

Non-controlling Interest in Net Income (NCINI) P 58,900

2. Sales

1,020,000

Purchases (Cost of Sales)

1,020,000

(3)

12/31 Inventory (Income Statement)

51,000

Inventory (Balance Sheet)

51,000

To eliminate unrealized intercompany profit in ending inventory.

Beginning Retained Earnings – Pinta

(.90 × P40,000)

36,000

Noncontrolling interest

4,000

1/1 Inventory (Balance Sheet)

40,000

To recognize unrealized profit in beginning inventory realized during the year.

Problem III

Realized profit in beginning inventory of S Company (downstream sales) 54,000 Unrealized profit in ending inventory of S Company (downstream sales)… (_ 45,00 0) P Company’s realized net income from separate operations*…….….. P 3,609,000 S Company’s net income from own operations (P1,500,000 + P2,400,000) P3,900,000

Realized profit in beginning inventory of P Company (upstream sales) – Salad 66,000 Realized profit in beginning inventory of P Company (upstream sales)- Tuna 63,000 Unrealized profit in ending inventory of P Company (upstream sales) – Salad ( 57,000) Unrealized profit in ending inventory of P Company (upstream sales) – Tuna ( 69,000)

S Company’s realized net income from separate operations*…….….. P3,903,000 3,903,000

Total P7,512,000

Less: Non-controlling Interest in Net Income* *- Salad P 301,800

Non-controlling Interest in Net Income* *- Tuna ___239,400 ___541,200 Controlling Interest in Consolidated Net Income or Profit attributable to

equity holders of parent – 20x4………….. P6,970,800

Or, alternatively

Realized profit in beginning inventory of S Company (downstream sales) 54,000 Unrealized profit in ending inventory of S Company (downstream sales)… (___45,000) P Company’s realized net income from separate operations*…….….. P3,609,,000 S Company’s net income from own operations (P1,500,000 + P2,400,000) P3,900,000

Realized profit in beginning inventory of P Company (upstream sales) – Salad 66,000 Realized profit in beginning inventory of P Company (upstream sales)- Tuna 63,000 Unrealized profit in ending inventory of P Company (upstream sales) – Salad ( 57,000) Unrealized profit in ending inventory of P Company (upstream sales) – Tuna ( 69,000)

S Company’s realized net income from separate operations*…….….. P3,903,000 3,903,000

Total P7,512,000

Less: Non-controlling Interest in Net Income* * - Salad P 301,800

Non-controlling Interest in Net Income* * - Tuna 239,400

Amortization of allocated excess……… 0 __541,200

Add: Non-controlling Interest in Net Income (NCINI) _541,200

**Salad

Non-controlling Interest in Net Income (NCINI) for 20x4

(Reported net income of S Company) P1,500,000

Realized profit in beginning inventory of P Company (upstream sales) 66,000 Unrealized profit in ending inventory of P Company (upstream sales) ( 57,000) Son Company’s realized net income from separate operations……… P1,509,000

P1,509,000

Multiplied by: Non-controlling interest %... __ 20%

(4)

**Tuna

Non-controlling Interest in Net Income (NCINI) for 20x4

(Reported net income of S Company) P2,400,000

Realized profit in beginning inventory of P Company (upstream sales) 63,000 Unrealized profit in ending inventory of P Company (upstream sales) ( 69,000) Son Company’s realized net income from separate operations……… P2,394,000

P2,394,000

Non-controlling Interest in Net Income (NCINI) P 239,400

Realized Profit in Beginning inventory:

Downstream Sales (Sales from Parent to Subsidiary)

P414,000 x 15/115

P54,000

Upstream Sales (Sales from Subsidiary-Salad to Parent):

Salad: P396,000 x 20/120

66,000

Upstream Sales (Sales from Subsidiary-Tuna to Parent):

Tuna: P315,000 x 25/125

63,000

Unrealized Profit in Ending inventory:

Downstream Sales (Sales from Parent to Subsidiary)

P345,000 x 15/115

P45,000

Upstream Sales (Sales from Subsidiary-Salad to Parent):

Salad: P342,000 x 20/120

57,000

Upstream Sales (Sales from Subsidiary-Tuna to Parent):

Tuna: P345,000 x 25/125

69,000

Problem IV

1. Sales

4,000,000

Cost of Goods Sold

4,000,000

Cost of Goods Sold

250,000

Ending Inventory (Balance Sheet)

250,000

[P1,250,000 - (P1,250,000/1.25)]

1/1 Retained Earnings – P Company (1)

84,000

Noncontrolling interest (2)

21,000

Cost of Goods Sold (Beginning Inventory)

105,000

[P525,000 – (P525,000/1.25)] = P105,000

(1) .8(P105,000)

(2) .2(P105,000)

2/3.

P3,000,000 × .20 = P600,000 non-controlling interest in consolidated income.

4. [(.20 × P5,400,000) -.20(P1,250,000 – P1,250,000/1.25)] = P1,030,000 non-controlling interest in

consolidated net assets on December 31, 20x4.

Problem V

P COMPANY AND SUBSIDIARY

Consolidated Income Statement For the Year Ended December 31, 20x4

(5)

Cost of Goods Sold (a) P7,755,000

Operating Expenses 1,800,000 9,555,000

Consolidated Income 2,895,000

Less Non-controlling Interest in Consolidated Income (b) 197,500

Controlling Interest in Consolidated Net Income P2,697,500

(a) Reported Cost of Goods Sold P9,000,000

Less intercompany sales in 20x4 (1,350,000)

Plus unrealized profit in ending inventory (2/5 x (P1,350,000 - P900,000)) 180,000 Less realized profit in beginning inventory (1/4 x (P1,800,000 - P1,500,000)) (75,000)

Corrected cost of goods sold P7,755,000

(b) Reported net income of subsidiary P1,900,000

Plus unrealized profit on subsidiary sales in 2013 that is considered realized in 20x4

(1/4 x (P1,800,000 - P1,500,000)) 75,000

Less unrealized profit on subsidiary sales in 20x4 (there were no upstream sales in 20x4) 0

Income realized in transactions with third parties 1,975,000

× 0.10

Non-controlling interest in consolidated income P197,500

Problem VIII

(Determine selected consolidated balances; includes inventory transfers and an outside ownership.)

Customer list amortization = P65,000/5 years = P13,000 per year

Intercompany Gross profit (P160,000 – P120,000) ...

P40,000

Inventory Remaining at Year's End ...

20%

Unrealized Intercompany Gross profit, 12/31 ...

P8,000

Consolidated Totals:



Inventory = P592,000 (add the two book values and subtract the ending unrealized gross

profit of P8,000)



Sales = P1,240,000 (add the two book values and subtract the P160,000 intercompany

transfer)



Cost of Goods Sold = P548,000 (add the two book values and subtract the intercompany

transfer and add [to defer] ending unrealized gross profit)



Operating Expenses = P443,000 (add the two book values and the amortization expense for

the period)



Gross profit: P1,240,000 – P548,000 = P692,000



Controlling Interest in CNI:

Gross profit ... P692,000

Less: Operating expenses ... 443,000

Consolidated Net Income ...P249,000

Less: NCI-CNI ...

8,700

CI-CNI...P240,300

or

P Company’s net income from own/separate operations (P800-P400-P180) P 220,000 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 220,000 S Company’s net income from own operations (P600 – P300 – P250) P 50,000

Realized profit in beginning inventory of P Company (upstream sales) 0 Unrealized profit in ending inventory of P Company (upstream sales)… ( 8, 000)

P190,000 0.1

(6)

Total P 262,000

Less: Amortization of allocated excess……… 13,000

Consolidated Net Income for 20x5 P 249,000

equity holders of parent – 20x5………….. P 240,300

Or, alternatively

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 220,000 S Company’s net income from own operations………. P 50,000

Realized profit in beginning inventory of P Company (upstream sales) 0 Unrealized profit in ending inventory of P Company (upstream sales)… ( 8,000)

Total P 262,000

Amortization of allocated excess……… 13,000 21,700

equity holders of parent………….. P240,300

Consolidated Net Income for 20x5 P249,000

(Reported net income of Son Company) P 50,000

Realized profit in beginning inventory of P Company (upstream sales) 0 Unrealized profit in ending inventory of P Company (upstream sales) ( 8,00 0) S Company’s realized net income from separate operations……… P 42,000

Less: Amortization of allocated excess 13,000

P 29,000



Noncontrolling Interest in Subsidiary's Net Income = P8,700 (30 percent of the reported

income after subtracting 13,000 excess fair value amortization and deferring P8,000 ending

unrealized gross profit) Gross profit is included in this computation because the transfer was

upstream from SS to PT.

Problem IX

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

(7)

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.

Book value Fair valueS Co. (Over) UnderValuation

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.

Book value Fair valueS Co. (Decrease)Increase

Equipment ... 180,000 180,000 0

Less: Accumulated depreciation….. 96,000 - ( 96,000)

Net book value………... 84,000 180,000 96,000

S Co.

Book value Fair valueS Co. (Decrease)

Buildings... 360,000 144,000 ( 216,000)

Less: Accumulated depreciation….. 192,000 - ( 192,000)

Net book value………... 168,000 144,000 ( 24,000)

A summary or depreciation and amortization adjustments is as follows:

Account Adjustments to be amortized UnderOver/ Life AmountAnnual Year(20x4)Current 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… 48000 4 1,200 1,200 1,200

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

The goodwill impairment loss of P3,750 based on 100% fair value would be allocated to the controlling

interest and the NCI based on the percentage of total goodwill each equity interest received. For

purposes of allocating the goodwill impairment loss, the full-goodwill is computed as follows:

Consideration transferred: Cash (80%) P 372,000

Fair value of NCI (given) (20%) 93,000

Fair value of Subsidiary (100%) P 465,000

Less: Book value of stockholders’ equity of Son (P360,000 x 100%) __360,000 Allocated excess (excess of cost over book value)….. P 105,000 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

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

(8)

Goodwill applicable to NCI……….. 3,000 20.00%

Total (full) goodwill……….. P15,000 100.00%

The goodwill impairment loss would be allocated as follows

Value % of Total Goodwill impairment loss attributable to parent or controlling

Interest P 3,000 80.00%

Goodwill applicable to NCI……….. 750 20.00%

Goodwill impairment loss based on 100% fair value or

full-Goodwill P 3,750 100.00%

The unrealized profits on January 1, and on December 31, 20x5, resulting intercompany sales, are as

summarized below:

Downstream Sales:

Year Sales of Parent to

Subsidiary

Intercompany Merchandise in 12/31 Inventory

of S Company Unrealized IntercompanyProfit 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:

Year Sales of Subsidiary to Parent

Intercompany Merchandise in 12/31 Inventory

of S Company Unrealized IntercompanyProfit 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

20x4: First Year after Acquisition

Parent Company Cost Model Entry

January 1, 20x4: (1) Investment in S Company……… 372,000 Cash……….. 372,000 Acquisition of S Company. January 1, 20x4 – December 31, 20x4: (2) Cash……… 28,800 Dividend income (P36,000 x 80%)………. 28,800

Record dividends from S Company.

No entries are made on the parent’s books to depreciate, amortize or write-off the portion of the

allocated excess that expires during 20x4, and unrealized profits in ending inventory.

Consolidation Workpaper – Year of Acquisition

(E1) Common stock – S Co……… 240,000

Retained earnings – S Co……… 120.000

Investment in S Co……… 288,000

Non-controlling interest (P360,000 x 20%)……….. 72,000

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

(E2) Inventory………. 6,000

Accumulated depreciation – equipment……….. 96,000

Accumulated depreciation – buildings……….. 192,000

Land………. 7,200

(9)

Goodwill………. 12,000

Buildings……….. 216,000

Investment in Son 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 S’s identifiable assets and liabilities as follows:

Cost of Goods Sold

Depreciation/ Amortization

Expense Amortization-Interest Total Inventory sold P 6,000

Equipment P 12,000

Buildings ( 6,000)

Bonds payable _______ _______ P 1,200

Totals P 6,000 P 2,000 P1,200 13,200

(E4) Dividend income - P………. 28,800

Dividends paid – S……… 36,000

To eliminate intercompany dividends and non-controlling interest share of dividends.

(E5) Sales………. 150,000

Cost of Goods Sold (or Purchases) 150,000

To eliminated intercompany downstream sales.

(E6) Sales………. 60,000

To eliminated intercompany upstream sales.

(E7) Cost of Goods Sold (Ending Inventory – Income Statement)… 18,000

Inventory – Balance Sheet…… 18,000

To defer the downstream sales - unrealized profit in ending inventory until it is sold to outsiders.

To defer the upstream sales - unrealized profit in ending inventory until it is sold to outsiders.

(E9) Non-controlling interest in Net Income of Subsidiary………… 6,960

Non-controlling interest ………….. 6,960

To establish non-controlling interest in subsidiary’s adjusted net income for 20x4 as follows:

Net income of subsidiary……….. P 60,000 Unrealized profit in ending inventory of P

(10)

Company (upstream sales)……….. ( 12,000) S Company’s realized net income from

separate operations*…….….. P 48,000

Less: Amortization of allocated excess [(E3)]…. 13,200 P 34,800 Multiplied by: Non-controlling interest %... 20%

Non-controlling Interest in Net Income (NCINI)

– partial goodwill P 6,960

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 (5) 150,000

(6) 60,000 P 510,000

Dividend income 28,800 - (4) 36,000 _________

Total Revenue P508,800 P240,000 P 510,000

Cost of goods sold P204,000 P138,000 (3) 6,000

(7) 18,000 (8) 12,000 (5) 150,000 (6) 60,000 P 168,000 Depreciation expense 60,000 24,000 (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 P312,000 P180,000 P328,200

Net Income P196,800 P 60,000 P181,800

NCI in Net Income - Subsidiary - - (9) 6,960 ( 6,960)

Net Income to Retained Earnings P196,800 P 60,000 P174,840

Statement of Retained Earnings Retained earnings, 1/1

P Company P432,000 P 360,000

S Company P144,000 (1) 120,000

Net income, from above 236,160 72,000 174,840

Total P668,160 P216,000 P538,840

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 - buildings 405,000 288,000 (2) 192,000(3) 6,000 495,000 Accounts payable……… 120,000 120,000 240,000 Bonds payable……… 240,000 120,000 360,000

(11)

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

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

Unrealized profit in ending inventory of S Company (upstream sales)… ( 12,000)

Total P198,000

Amortization of allocated excess (refer to amortization above) 13,200

Goodwill impairment (impairment under partial-goodwill approach) 3,000 23,160 Controlling Interest in Consolidated Net Income or Profit attributable to

Consolidated Net Income for 20x4 P181.800

(Reported net income of S Company) P 60,000

Unrealized profit in ending inventory of P Company (upstream sales) ( 12,000) S Company’s realized net income from separate operations……… P 48,000

P 34,800

Non-controlling Interest in Net Income (NCINI) – partial goodwill P 6,960 *that has been realized in transactions with third parties.

Since NCI share of goodwill is not recognized, no adjustment is required for the impairment loss on

goodwill and impairment losses are not shared with NCI.

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.

20x5: Parent Company Cost Model Entry

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

January 1, 20x5 – December 31, 20x5:

Cash……… 38,400

Dividend income (P48,000 x 80%)………. 38,400

(12)

Dividends paid………… 48,000

Cash 48,000

Dividends paid by S Co..

Consolidation Workpaper – Second Year after Acquisition

(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

Accumulated depreciation – equipment……….. .... 96,000 Accumulated depreciation – buildings……….. ... 192,000

Land………. 7,200

Discount on bonds payable………. 4,800

Buildings………... 216,000

Non-controlling interest (P90,000 x 20%)... 18,000

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 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

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)

Retained earnings,

expense Amortization-Interest Inventory sold P 6,000

(13)

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

(E6) Sales………. 120,000

(E7) Sales………. 75,000

(E8) Beginning Retained Earnings – P Company…… 18,000

Cost of Goods Sold (Ending Inventory – Income Statement) 18,000 To realized profit in downstream beginning inventory deferred in the

prior period.

(E9) Beginning Retained Earnings – P Company (P12,000 x 80%) 9,600

Noncontrolling interest (P12,000 x 20%)…… 2,400

Cost of Goods Sold (Ending Inventory – Income Statement) 12,000 To realized profit in beginning inventory deferred in the prior period.

Realized profit in beginning inventory of P

Company - 20x5 (upstream sales) 12,000

Unrealized profit in ending inventory of P

Company - 20x5 (upstream sales) ( 6,000) S Company’s Realized net income* 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 )

*from separate transactions that has been realized in transactions with third persons.

(14)

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

Cost Model (Partial-goodwill)

80%-Owned Subsidiary

December 31, 20x5 (Second Year after Acquisition)

Sales P540,000 P360,000 (6) 120,000

(7) 75,000 P 705,000

Dividend income 38,400 - (5) 38,400 ___________

(11) 6,000 (6) 120,000(7) 75,000 (8) 18,000 (9) 12,000 213,000 Depreciation expense 60,000 24,000 (4) 6,000 90,000 Interest expense - - (4) 1,200 1,200 Other expenses 72,000 54,000 126,000

Goodwill impairment loss - -

-Total Cost and Expenses P348,000 P270,000 P 430,200

Net Income P230,400 P 90,000 P 274,800

Net Income to Retained Earnings P230,400 P 90,000 P 257,040

P Company P484,800 (2) 13,560

(8) 18,000

(9) 9,600 (1) 19,200 P 462,840

S Company P 144,000 (2) 144,000

Total P715,200 P234,000 P 719,880

Dividends paid

P Company 72,000 72,000

S Company - 48,000 (5) 48,000 _ ________

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 depreciation - buildings 450,000 306,000 (3) 192,000(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

Non-controlling interest………… ___ _____ _________ (4) 2,640 (5) 9,600 (9) 2,400 __________ (2 ) 76,800 (3) 18,000 (12) 17,760 ____97,920 Total 2,203,200 P1,074,000 P1,077,360 P1,077,360 P2,677,800

(15)

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 – P 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

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 ___90,000

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

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

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

Unrealized profit in ending inventory of S Company (upstream sales)… ( 12,000)

Total P198,000

Amortization of allocated excess (refer to amortization above) 13,200

Goodwill impairment (impairment under partial-goodwill approach) 3,000 23,160 Controlling Interest in Consolidated Net Income or Profit attributable to

Consolidated Net Income for 20x4 P181.800

b. NCI-CNI – P6,960

**Non-controlling Interest in Net Income (NCINI) for 20x4

Unrealized profit in ending inventory of P Company (upstream sales) ( 12,000) S Company’s realized net income from separate operations……… P 48,000

P 34,800

Non-controlling Interest in Net Income (NCINI) – partial goodwill P 6,960 *that has been realized in transactions with third parties.

(16)

c. CNI, P181,800 – refer to (a)

d. On subsequent to date of acquisition, consolidated retained earnings would be computed as

follows:

Consolidated Retained Earnings, December 31, 20x4

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

equity holders of parent for 20x4 174,840

Total P534,840

Less: Dividends paid – P Company for 20x4 72,000

Consolidated Retained Earnings, December 31, 20x4 P462,840

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

Non-controlling interest (partial-goodwill)……….. P 89,760

f.

Parent’s Stockholders’ Equity / CI – SHE, 12/31/20x4 P1,062,840

NCI, 12/31/20x4 ___89,760

12/31/20x5:

a. CI-CNI

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

Total P282,000

Less: Amortization of allocated excess……… 7,200

equity holders of parent – 20x5………….. P257,040

(17)

Or, alternatively

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

Total P282,000

Amortization of allocated excess……… 7,200 24,960

Controlling Interest in Consolidated Net Income or Profit attributable to equity

holders of parent………….. P257,040

b. NCI-CNI

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

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

P 88,800

c. CNI, P274,800 – refer to (a)

d. On subsequent to date of acquisition, consolidated retained earnings would be computed as

follows:

Retained earnings - Parent Company, January 1, 20x5 (cost model P484,800 Less: Unrealized profit in ending inventory of S Company (downstream sales)

– 20x4 (UPEI of S – 20x4) or Realized profit in beginning inventory of S

Company (downstream sales) –20x5 (RPBI of S - 20x5)………. 18,000

Adjusted Retained Earnings – Parent 1/1/20x5 (cost model (S Company’s Retained earnings that have been realized in transactions with third

parties.. P466,800

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 144,000

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

Less: Amortization of allocated excess – 20x4 13,200

Unrealized profit in ending inventory of P Company (upstream sales) 20x4 (UPEI of P – 20x4) or Realized profit in beginning

inventory of P Company (upstream sales) –20x5 (RPBI of P - 20x5) 12,000 (P 1,200) Multiplied by: Controlling interests %... 80% (P 960)

Less: Goodwill impairment loss, partial goodwill 3,000 ( 3,960)

Consolidated Retained earnings, January 1, 20x5 P462,840

Add: Controlling Interest in Consolidated Net Income or Profit attributable to

equity holders of parent for 20x5 257,040

Total P748,680

Less: Dividends paid – Parent Company for 20x5 72,000

Consolidated Retained Earnings, December 31, 20x5 P647,880

*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).

(18)

Or, alternatively:

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:

Retained earnings – Subsidiary, December 31, 20x5 P 186,000 Less: Retained earnings – Subsidiary, January 1, 20x4 120,000 Increase in retained earnings since date of acquisition P 66,000 Less: Accumulated amortization of allocated excess –

20x4 and 20x5 (P11,000 + P6,000) 20,400

Unrealized profit in ending inventory of P Company (upstream sales) 20x5 (UPEI of P – 20x5) or Realized profit in beginning

inventory of P Company (upstream sales) –20x6 (RPBI of P - 20x6) 6,000 P 39,600 Multiplied by: Controlling interests %... 80% P 31,680

Less: Goodwill impairment loss, partial goodwill 3,000 28,680

Consolidated Retained earnings, December 31, 20x5 P647,880

e.

Non-controlling interest (partial-goodwill), 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

Less: Dividends paid – 20x5 48,000 186,000

Stockholders’ equity – Subsidiary Company, December 31, 20x5 P 426,000 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 P 13,200

20x5 7,200 ( 20,400)

Fair value of stockholders’ equity of subsidiary, December 31, 20x5…… P 495,600 Less: Unrealized profit in ending inventory of P Company (upstream

sales) 20x5 (UPEI of P – 20x5) or Realized profit in beginning inventory

of P Company (upstream sales) –20x6 (RPBI of P - 20x6 6,000

Realized stockholders’ equity of subsidiary, December 31, 20x5………. P489,600

Non-controlling interest (partial goodwill)……….. P 97,920

* the realized profit in beginning inventory of P Company (upstream sales) –20x5 (RPBI of P - 20x5 amounting to P10,000 is already included in the beginning retained earnings of S Company.

f.

Parent’s Stockholders’ Equity / CI – SHE, 12/31/20x4 P1,247,880

NCI, 12/31/20x4 ___97,920

Problem X

Requirements 1 to 4:

Schedule of Determination and Allocation of Excess

Date of Acquisition – January 1, 20x4

(19)

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:

Account Adjustments to be amortized Over/under Life AmountAnnual Year(20x4)Current 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:

Cash……. 36,000

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.

Consolidation Workpaper – First Year after Acquisition

Retained earnings – S Co……… 120.000

Investment in S Co……… 288,000

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.

(20)

Accumulated depreciation – equipment……….. 96,000 Accumulated depreciation – buildings……….. 192,000

Land………. 7,200

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

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

Investment in Son 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

Goodwill impairment loss………. 3,750

To provide for 20x4 impairment loss and depreciation and

amortization on differences between acquisition date fair value and book value of S’s identifiable assets and liabilities as follows:

Cost of Goods Sold

Expense Amortization-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

(E5) Sales………. 150,000

(E6) Sales………. 60,000

(21)

Non-controlling interest ………….. 6,210 To establish non-controlling interest in subsidiary’s adjusted net

income for 20x4 as follows:

Net income of subsidiary……….. P 60,000 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 [(E3)]…. 13,200 P 34,800 Multiplied by: Non-controlling interest %... 20%

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 Non-controlling Interest in Net Income (NCINI)

– full goodwill P 6,210

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

Cost Model (Full-goodwill)

80%-Owned Subsidiary

December 31, 20x4 (First Year after Acquisition)

Sales P480,000 P240,000 (5) 150,000

(6) 60,000 P 510,000

Dividend income 28,800 - (4) 28,800 _________

(7) 18,000 (8) 12,000 (5) 150,000 (6) 60,000 P 168,000 Depreciation expense 60,000 24,000 (3) 6,000 90,000 Interest expense - - (3) 1,200 1,200 Other expenses 48,000 18,000 66,000

Goodwill impairment loss - - (3) 3,750 3,750

Total Cost and Expenses P312,000 P180,000 P328,950

Net Income P196,800 P 60,000 P181,050

Net Income to Retained Earnings P196,800 P 60,000 P174,840

P Company P360,000 P 360,000

S Company P120,000 (1) 120,000

Total P556,800 P180,000 P534,840

Dividends paid

P Company 72,000 72,000

S Company - 36,000 (4) 36,000 _ ________

(22)

Investment in S Co……… 372,000 (3) 288,000 (4) 84,000 -Total P1,984,800 P1,008,000 P2,396,850 Accumulated depreciation - equipment P 135,000 P 96,000 (2) 96,000 (3) 12,000 P147,000 Accumulated depreciation - buildings 405,000 288,000 (6) 192,000(7) 6,000 495,000 Accounts payable……… 120,000 120,000 240,000 Bonds payable……… 240,000 120,000 360,000

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

20x5: Second Year after Acquisition

Perfect Co. Son 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.

20x5: Parent Company Cost Model Entry

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

January 1, 20x5 – December 31, 20x5:

Cash……… 38,400

Dividend income (P48,000 x 80%)………. 38,400

On the books of S Company, the P48,000 dividend paid was recorded as follows:

Cash 48,000

Consolidation Workpaper – Second Year after Acquisition

(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

(23)

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………. 6000

Land………. 7,200

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

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

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

(P16,950 x 80%) 13,560

Non-controlling interests (P16,950 x 20%)………. 3,390

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

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

Year 20x5 amounts are debited to respective nominal accounts.. (20x4)

Retained earnings,

expense Amortization-Interest Inventory sold P 6,000 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

(E6) Sales………. 120,000

(E7) Sales………. 75,000

(24)

(E8) Beginning Retained Earnings – P Company…… 18,000

Cost of Goods Sold (Ending Inventory – Income Statement) 18,000 To realized profit in downstream beginning inventory deferred in the

prior period.

(E9) Beginning Retained Earnings – P Company (P12,000 x 80%) 9,600

Noncontrolling interest (P12,000 x 20%)…… 2,400

Cost of Goods Sold (Ending Inventory – Income Statement) 12,000 To realized profit in upstream beginning inventory deferred in the

prior period.

(E11) Cost of Goods Sold (Ending Inventory – Income

Statement)… 6,000

Net income of subsidiary……….. P 90,000 Realized profit in beginning inventory of P

Company - 20x5 (upstream sales) 12,000

Unrealized profit in ending inventory of P

Company - 20x5 (upstream sales) ( 6,000) Son Company’s Realized net income* 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

– full goodwill P 17,760

*from separate transactions that has been realized in transactions with third persons.

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

Cost Model (Full-goodwill)

80%-Owned Subsidiary

December 31, 20x5 (Second Year after Acquisition)

Sales P540,000 P360,000 (6) 120,000

(7) 75,000 P 705,000

Dividend income 38,400 - (5) 38,400 ___________

(11) 6,000 (6) 120,000(7) 90,000 (8) 21,600 (9) 14,400 P 213,000 Depreciation expense 60,000 24,000 (4) 6,000 90,000 Interest expense - - (4) 1,200 1,200 Other expenses 72,000 54,000 126,000

Goodwill impairment loss - -

-Total Cost and Expenses P348,000 P270,000 P 430,200

(25)

Net Income to Retained Earnings P230,400 P 90,000 P 257,040

P Company P484,800 (3) 13,560

(8) 18,000

(9) 96000 (4) 19,200 P 462,840

S Company P 144,000 (5) 144,000

Total P715,200 P234,000 P 719,880

Dividends paid

P Company 72,000 72,000

S Company - 48,000 (5) 48,000 _ ________

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 depreciation - buildings 450,000 306,000 (3) 192,000(4) 12,000 552,000 Accounts payable……… 120,000 120,000 240,000 Bonds payable……… 240,000 120,000 360,000

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

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