Consolidated Net Income Analysis

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This document provides financial information for three companies - Pill Company, Sill Company, and Small. For 20x4: - Consolidated net income is P55,850, which includes controlling interes…

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Problem II
Chapter 16 Overview
Problem III
Problem IV
Problem V
Problem VI
Problem VII
Problem VIII
Problem IX
Problem X
Problem XI
Problem XII
Problem XIII

Chapter 16

Problem I
1. P50,075

Consolidated Net Income for 20x4

Net income from own/separate operations
Pill Company [P25,000 (P9,000 x 85%)]
Sill Company
Total
Less: Non-controlling Interest in Net Income*
Amortization of allocated excess
Goodwill impairment
Controlling Interest in Consolidated Net Income or Profit
attributable to equity holders of parent..
Add: Non-controlling Interest in Net Income (NCINI)
Consolidated Net Income for 20x4

P17,350
40,000
P57,350

P 5,775
0
1,500

7,275
P50,075
5,775
P55,850

*Net income of subsidiary 20x4

Amortization of allocated excess 20x4
Multiplied by: Non-controlling interest %..........
Less: Non-controlling interest on impairment loss on full-goodwill (P1,500 x 15%)*
Non-controlling Interest in Net Income (NCINI)

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

P 40,000
(
0))
P 40,000
15%
P 6,000
____225
P 5,775

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

Problem II (Assume the use of full-goodwill approach)
Cost of 75% investment
Fair value of Subsidiary (Implied cost of 100% investment); P600,000/75%
Less: Carrying amount of Smalls net assets =
Carrying amount of Smalls shareholders equity
Common/Ordinary shares
400,000
Retained earnings
100,000
Allocated Excess: Acquisition differential Jan. 1, 20x4
Less: Over/under valuation of A/L (Allocated to):
Increase in Inventory
Decrease in Patents
Goodwill - full

600,000
800,000

500,000
300,000

40,000
(70,000)

(30,000)
330,000

A summary or depreciation and amortization adjustments is as follows:

Account Adjustments to be
amortized
Inventory
Subject to Annual Amortization
Patents
Amortization
Impairment of goodwill

Over/
Under
P40,000

Life
1

(70,000)

330,000

Annual
Amount
P 40,000

Current
Year(20x4)
P 40,000

(14,000)
P 26,000
_____
P 26,000

( 14,000)
P 26,000
_____
P 26,000

20x5
P

(14,000)
P(14,000)
______
P(14,000)

20x6

(14,000)
P(14,000)
__ 19,300
P 5,300

Unamortized balance of allocated excess:

Balance
Jan. 1
20x4
Inventory
40,000
Patents
(70,000)
Goodwill
330,000
300,000
Journal Entries
Investment in Small
Cash
Cash
Dividend income
2.

Balance
Dec. 31

Amortization
20x4 & 20x5
20x6
40,000
(28,000)
(14,000)
0
19,300
12,000
5,300
Year 1
600,000
600,000
18,750
18,750

(28,000)
310,700
282,700

Year 2
7,500

a. Goodwill, 12/31/20x6 (P330,000 P19,300)

b.
FV of NCI, 12/31/20x6:
Common stock, 12/31/20x6
Retained earnings, 1/1/20x6
(P100,000 + P80,000 P25,000 P35,000 P10,000)
Add; NI Subsidiary (20x6)
Dividends Subsidiary 20x6
Book value of SHE S, 12/31/20x6
Adjustments to reflect fair value
Amortization of allocated excess 20x5
- 20x6
Impairment of goodwill 20x5
FV of SHE of S
Multiplied by: NCI%
FV of NCI

Year 3

7,500

NCIs share (25%)

30,000

P 310,700
P 400,000
P 110,000
90,000
( 40,000)

160,000
P 560,000

P 300,000
( 12,000)
14,000
( 19,300)___282,700
P842,700
25%
P210,675

Or, alternatively;
Smalls common/ordinary shares
Smalls retained earnings (100,000+80,000-25,000-35,000-10,000+90,000
-40,000)
Unamortized acquisition differential

30,000

400,000
160,000
560,000
282,700
842,700
210,675

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

Consolidated Retained Earnings, December 31, 20x6

Retained earnings - Large Company, January 1, 20x5 (cost model
Adjustment to convert from cost model to equity method for purposes of
consolidation or to establish reciprocity:/Parents share in adjusted net
increased in subsidiarys retained earnings:
Retained earnings Small, January 1, 20x5
(P100,000 + P80,00 P25,000 P35,000 P10,000)
Less: Retained earnings Small, January 1, 20x4 (date of acquisition)
Increase in retained earnings since date of acquisition
Less: Amortization of allocated excess 20x4

P500,000

P 110,000
100,000
P 10,000
26,000

Amortization of allocated excess 20x5

(14,000)
P ( 2,000)
75%
P ( 1,500)
_____0

Multiplied by: Controlling interests %...................

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

1,500
P498,500

Incidentally, the CRE, December 31, 20x6 would be as follows:

Consolidated Retained earnings, January 1, 20x6

Add: Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of Large for 20x6
Total
Less: Dividends paid Large Company for 20x6
Consolidated Retained Earnings, December 31, 20x6

P498,500
219,050
P717,550
70,000
P647,550

d. P219,050

Consolidated Net Income for 20x6

Net income from own/separate operations
Large Company [P200,000 (P40,000 x 75%)]
Small Company
Total
Less: Non-controlling Interest in Net Income*
Amortization of allocated excess
Goodwill impairment
Controlling Interest in Consolidated Net Income or Profit
attributable to equity holders of parent..
Add: Non-controlling Interest in Net Income (NCINI)
Consolidated Net Income for 20x4

P170,000
90,000
P260,000

P 16,350
5,300
19,300

40,950
P219,050
16,350
P235,400

*Net income of subsidiary 20x6

Amortization of allocated excess 20x6
Multiplied by: Non-controlling interest %..........
Less: Non-controlling interest on impairment loss on full-goodwill ( (P19,300 x 25%)*
Non-controlling Interest in Net Income (NCINI)

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

P 90,000
( 5,300)
P 84,700
25%
P 21,175
___4,825
P 16,350

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

Teachers Guide: For purposes of comparison between Cost Model/Method and Equity Method
1.
Year 1
Investment in Small
600,000
Cash
600,000
Investment in Small (75% x Smalls profit)
60,000
Investment income
60,000
Cash (75% x Smalls dividends)
18,750
Investment in Small
18,750
Investment income (75% x amortization of PD*) 19,500
Investment in Small
19,500
*purchase differential
( ) indicates reduction

Year 2

Year 3

(26,250)
67,500
(26,250)
67,500
7,500
30,000
7,500
30,000
(10,500)
3,975
(10,500)
3,975

Investment in Small under cost method

Smalls retained earnings, end of year
Smalls retained earnings, date of acquisition
Change since acquisition
Less: cumulative amortization of acquisition differential

600,000

160,000
100,000
60,000
17,300

42,700
32,025
632,025

Larges share (75%)

Investment in Small under equity method

Note: Regardless of the method used (cost or equity) answers for No. 2 (a) to (e) above are
exactly the same.
Problem III
Cost of 8% investment
Fair value of Subsidiary (Implied cost of 100% investment); P646,000/85%
Less: Carrying amount of Silks net assets =
Carrying amount of Silks shareholders equity
Common/Ordinary shares
500,000
Retained earnings
100,000

646,000
760,000

600,000
160,000

Allocated Excess: Acquisition differential December 31, 20x4

Less: Over/under valuation of A/L (Allocated to):
Increase in Inventory
Patents
Non-controlling interest (15% x 760,000, fair value of subsidiary),12/31/20x4

70,000
90,000
114,000

A summary or depreciation and amortization adjustments is as follows:

Account Adjustments to be
amortized
Inventory
Subject to Annual Amortization
Patents

Over/
under
P70,000

90,000
P160,000

Life
1
10

Unamortized balance of allocated excess:

Balance
Dec. 31
20x4
Inventory
70,000
Patents
90,000
160,000

Annual
Amount
P 70,000

Current
Year(20x5)
P 70,000

__9,000
P 79,000

___9,000
P 79,000

20x6

___9,000
P 9,000

Amortization
20x5
20x6
70,000
9,000
9,000
79,000
9,000

20x7

___9,000
P 9,000,

Balance
Dec. 31
20x6
72,000
72,000

1. NCI-CNI
20x5: P(7,350)
20x6: P6,450
Consolidated Net Income
Net income from own/separate operations
Large Company
20x5 [P28,000 P0)]
20x6 [(P45,000, loss + (P15,000 x 85%)]
Small Company
Total
Less: Non-controlling Interest in Net Income*
Amortization of allocated excess
Goodwill impairment
CI-CNI (loss) or Profit (loss) attributable to equity
holders of parent
Add: Non-controlling Interest in Net Income (NCINI)
Consolidated Net Income/Loss (CNI)

20x5

20x6

P 28,000

P(7,350)
79,000
_____0

30,000
P 58,000
71,650

P 6,450
9,000
_____0

P(13,650)
( 7,350)
P(21,000)

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

Less: Non-controlling interest on impairment loss on full-goodwill
Non-controlling Interest in Net Income (NCINI)

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

2. CI-CNI refer to computation in No. 1

20x5: P(21,000)
20x6: P14,750
Or, alternatively:
(1) Non-controlling interest in profit
20x5: 15% (30,000 79,000)
20x6: 15% (52,000 9,000)
(2)
Profit (loss) Pen
Dividends from Silk
20x5
20x6 (85% 15,000)
Share of Silks profit
85% (30,000 79,000)
85% (52,000 9,000)
Consolidated profit (loss) attributable to
Pens shareholders

- 7,350
6,450
20x5
28,000
0

15,450
P(21,200)
6,450
P(14,750)

20x5
P 30,000
( 79,000)
P(49,000)
15%
P( 7,350)
_______P( 7,350)

*Net income (loss) of subsidiary

Amortization of allocated excess

P(57,750)
52,000
P( 5,750)

20x6
(45,000)

28,000

(12,750)
(57,750)

(41,650)
_

36,550_

(13,650)

(21,200)

20x6
P 52,000
( 9,000)
P 43,000
15%
P 6,450
___
_P 6,450

3. CRE, 12/31/20x6 P73,150

Consolidated Retained Earnings, December 31, 20x6

Retained earnings - Pen Company, December 31, 20x6 (cost model
Adjustment to convert from cost model to equity method for purposes of
consolidation or to establish reciprocity:/Parents share in adjusted net
increased in subsidiarys retained earnings:
Retained earnings Silk, December 31, 20x6:
(P100,000 + P30,00 P0 + P52,000 P15,000)
Less: Retained earnings Silk, December 31, 20x4 (date of acquisition)
Increase in retained earnings since date of acquisition
Less: Amortization of allocated excess 20x5
Amortization of allocated excess 20x6
Multiplied by: Controlling interests %...................
Less: Goodwill impairment loss (full-goodwill) 20x5
Consolidated Retained earnings, December 31, 20x6

P 91,000

P 167,000
100,000
P 67,000
79,000
__ 9,000
P (21,000)
85%
P (17,850)
_____0

( 17,850)
P 73,150

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

FV of SHE of Silk:
Common stock, 12/31/20x6
P 500,000
Retained earnings, 12/31/20x:
Retained earnings, 1/1/20x4
P 100,000
NI Subsidiary (20x5 and 20x6): P30,000 + P52,000
82,000
Dividends Subsidiary (20x5 and 20x6): P) + P15,000 ( 15,000)
167,000
Book value of SHE S, 12/31/20x6
P 667,000
Adjustments to reflect fair value, 12/31/20x4
160,000
Amortization of allocated excess (P79,000 + P9,000)
(
88,000)
FV of SHE of S
P 739,000
Multiplied by: NCI%
15%
FV of NCI (partial), 12/31/20x6
P 110,850
Add: NCI on full-goodwill
0
FV of NCI (full),12/31/20x6
P 110,850
Or, alternatively:
Non-controlling interest date of acquisition,12/31/20x4 (1)
Retained earnings Silk Dec. 31, 20x6
(100,000 + 30,000 + 52,000 15,000)
167,000
Retained earnings, 12/31/20x4 (date of acquisition)
100,000
Increase since acquisition
67,000
Less: Amortization of allocated excess (79,000 + 9,000)
88,000
( 21,000)
NCIs share
15%
Non-controlling interest Dec. 31, 20x6
5. Consolidated Patents, 12/31/20x6: P72,000
Unamortized balance of allocated excess:
Balance
Dec. 31
20x4
Inventory
70,000
Patents
90,000
160,000

Amortization
20x5
20x6
70,000
9,000
9,000
79,000
9,000

P 114,000

(
3,150)
P 110,850

Balance
Dec. 31
20x6
72,000
72,000

Or, alternatively:
Invest. account equity Dec. 31, 20x6
Cost of investment
Retained earnings Silk Dec. 31, 20x6
(100,000 + 30,000 + 52,000 15,000)
Retained earnings,12/31/20x4 (date of acquisition)
Increase since acquisition
Less: Accumulated amortization (79,000 + 9,000)
Invest. account equity method as at Dec. 31, 20x6
Implied value of 100% (628,150 / 85%)
Silk Common shares
Retained earnings

628,150
646,000
167,000
100,000
67,000
88,000
- 21,000
85%

500,000
167,000

Balance unamortized allocated excess Patents

Problem IV
1. (Full or partial-goodwill) the same answer.
Consideration transferred by MM ...........................
Noncontrolling interest fair value.............................
Fair value of Subsidiary
Less: Book value of SHE S...
Positive excess ............................................................
Excess fair value assigned to buildings
Goodwill - full
Total ........................................................................
2.

P150,000 full goodwill (see No. 1 above)

P120,000 partial-goodwill:
Consideration transferred by MM ...........................
Less: Book value of SHE S (P600,000 x 80%)..
Allocated excess..
Less: Over/under valuation of A and L:
P80,000 x 80%.................................................
Goodwill - partial ........................................................

- 17,850
628,150
739,000
667,000
72,000

P664,000
166,000*
P830,000
(600,000)
230,000

Annual Excess
Life
Amortizations
80,000 20 years
P4,000
P150,000 indefinite
-0P4,000

P664,000
480,000
P184,000
64,000
P120,000

Full-goodwill
Common Stock - TT ..................................................................
Additional Paid-in Capital - TT ...............................................
Retained Earnings - TT ..............................................................
Investment in TT Company (80%) ...................................
Non-controlling interest (20%) .........................................
Buildings .....................................................................................
Goodwill ....................................................................................
Investment in TT Company (80%) ...................................
Non-controlling interest (P166,000 P120,000) ............

300,000
90,000
210,000

80,000
150,000

480,000
120,000

184,000
46,000

Partial-goodwill
Common Stock - TT ..................................................................
Additional Paid-in Capital - TT ...............................................
Retained Earnings - TT ..............................................................
Investment in TT Company (80%) ...................................
Non-controlling interest (20%) .........................................
Buildings .....................................................................................
Goodwill ....................................................................................
Investment in TT Company (80%) ...................................
Non-controlling interest (20% x P80,000) .......................

300,000
90,000
210,000

80,000
120,000

480,000
120,000

184,000
16,000

Cost Model/Initial Value Method

Dividends received (80%) .............................................................
Investment in Taylor12/31/x4 (original value paid)

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

Using the acquisition method, the allocation will be the total difference (P80,000) between
the buildings' book value and fair value. Based on a 20 year life, annual excess amortization
is P4,000.
MM book valuebuildings ....................................................
TT book valuebuildings ........................................................
Allocation ..................................................................................
Excess Amortizations for 20x420x5 (P4,000 2) .
Consolidated buildings account

Acquisition-date fair value allocated to goodwill:

Goodwill-full ( see No. 1 above) ..................................................
Goodwill-partial (see No. 1 above)

P 8,000
P664,000

800,000
300,000
80,000
(
8,000)
P 1,172,000
P
P

150,000
120,000

8. The common stock and additional paid-in capital figures to be reported are the parent
balances only.
Common stock, P500,000
Additional paid-in capital, P280,000
Problem V
1.
Partial Goodwill or Proportionate Basis
a. Investment in S
225,000
Beginning Retained Earnings-Palm Inc.
To establish reciprocity/convert to equity (0.90 x(P1,250,000 P1,000,000))
b.

Common stock S
Retained earnings S
Investment in S Co
NCI (P4,250,000 x 10%)
Land
Investment in S
NCI [(P500,000 x 10%) (P100,000 x 10%)]
Retained earnings P (bargain purchase gain
closed to retained earnings since only balance

3,000,000
1,250.000

400,000

225,000

3,825,000
425,000
150,000
40,000

sheets are being examined, P300,000 P90,000

depreciation, 20x4)

210,000

FV of SHE of S:
Common stock, 1/1/20x5
P3,000,000
Retained earnings, 1/1/20x5
Retained earnings, 1/1/20x4
P1,000,000
NI Subsidiary (20x4)
250,000
Dividends Subsidiary 20x4
(
0) 1,250,000
Book value of SHE S, 1/1/20x5
P4,250,000
Adjustments to reflect fair value
500,000
Amortization of allocated excess (P100,000 x 1)
( 100,000)
FV of SHE of S
P4,650,000
Multiplied by: NCI%
10%
FV of NCI
P 465,000

Computation of Gain:
Partial Goodwill or Proportionate Basis
Fair value of Subsidiary:
Consideration transferred
Less: BV of SHE of S (P3,000,000 + P1,000,000) x 90%
Allocated excess
Less: Over/under valuation of A and L: Inc. (Dec.)
Inventory (P800,000 P700,000) x 90%
Land (P2,000,000 P1,600,000) x 90%
Gain partial (attributable to parent)

P3,750,000
_3,600,000
P 150,000
P 90,000
360,000

__450,000
(P300,000)

Full Goodwill or Fair Value Basis

a. Investment in S
225,000
Beginning Retained Earnings-P Inc.
To establish reciprocity/convert to equity (0.90 x(P1,250,000 P1,000,000))
b.

Common stock S
Retained earnings S
Investment in S
NCI (P4,250,000 x 10%)
Land
Investment in S
NCI [(P500,000 x 10%) (P100,000 x 10%)]
Retained earnings P (bargain purchase gain
closed to retained earnings since only balance
sheets are being examined, P300,000 P90,000
depreciation, 20x4)

3,000,000
1,250.000

400,000

225,000

3,825,000
425,000
150,000
40,000

210,000

Full-goodwill or Fair Value Basis

Fair value of Subsidiary:
Consideration transferred P3,750,000 / 90%
Less: BV of SHE of S (P3,000,000 + P1,000,000) x 100%
Allocated excess
Less: Over/under valuation of A and L: Inc. (Dec.)
Inventory (P800,000 P700,000) x 100%
Land (P2,000,000 P1,600,000) x 100%
Gain full (attributable to parent)

P 100,000
400,000

__500,000
(P333,333

Note: In case of gain, the working paper eliminating entries under partial and full-goodwill
approach are the same.
Consolidated Retained Earnings, December 31, 20x5
Retained earnings - Parent Company, December 31, 20x5 (cost model
Adjustment to convert from cost model to equity method for purposes of
consolidation or to establish reciprocity:/Parents share in adjusted net
increased in subsidiarys retained earnings:
Retained earnings Subsidiary, December 31, 20x5
(P1,000,000 + P250,000 P0 + P300,000 P0)
Less: Retained earnings Subsidiary, January 1, 20x4
Increase in retained earnings since date of acquisition
Less: Amortization of allocated excess 20x4 (inventory)
Multiplied by: Controlling interests %...................
Add: Bargain purchase gain (Controlling interest P300,000)
Less: Goodwill impairment loss
Consolidated Retained earnings, December 31, 20x5

Problem VI
Computation of Goodwill:
Partial Goodwill
Fair value of Subsidiary:
Consideration transferred
Less: BV of SHE of S (P1,000,000 + P500,000) x 80%
Allocated excess
Less: Over/under valuation of A and L: Inc. (Dec.)
Prop., plant and eqpt. (P1,500,000 P600,000) x 80%
Goodwill partial
Full-goodwill:
Fair value of Subsidiary:
Consideration transferred P2,800,000 / 80%
Less: BV of SHE of S (P1,500,000 x 100%)
Allocated excess
Less: Over/under valuation of A and L: Inc. (Dec.)
Prop., plant and eqpt. (P1,500,000 P600,000) x 80%
Goodwill full
Amortization of allocated excess:
P900,000 / 10 years = P90,000 per year
1.

P4,166,667
4,000,000
P 166,667

P2,000,000

P1,550,000
1,000,000
P 550,000
100,000
P 450,000
90%
P405,000
300,000
_______0

__705,,000
P 4,705,000

P2,800,000
_1,200,000
P1,600,000
__720,000
P 880,000

P3,500,000
1,500,000
P2,000,000
__900,000
P1,100,000

Cost Model-Full Goodwill (Eliminating Entries)

20x4
a. Beginning Retained Earnings-S Co.
Capital Stock- S Co.
Property and Equipment (net)
Goodwill
Investment in S Co.
Non-controlling Interest

Common stock, 1/1/20x4

Retained earnings, 1/1/20x4
Book value of SHE S, 1/1/20x5
Adjustments to reflect fair value
FV of SHE of S1/1/x5
Multiplied by: NCI%
FV of NCI (partial)
Add: NCI on full-goodwill (P1,100,000 P880,000)
FV of NCI (full)

b. Depreciation Expense
Property and Equipment (net)
20x5
a. Investment in S Company (P300,000 x 0.80)
Beginning Retained Earnings-P Co.
To establish reciprocity/convert to equity as of 1/1/20x5
b. Beginning Retained Earnings-S Company
Capital Stock-S Company
Property and Equipment (net)
Goodwill
Investment in S Company (P2,800,000 + P240,000)
Non-controlling Interest P700,000 +
[(P1,300,000 P1,000,000) x 0.20]

FV of SHE of S:
Common stock, 1/1/20x5
Retained earnings, 1/1/20x5
Retained earnings, 1/1/20x4
P1,000,000
NI Subsidiary (20x4)
300,000
Dividends Subsidiary 20x4
(
0)
Book value of SHE S, 1/1/20x5
Adjustments to reflect fair value
FV of SHE of S1/1/x5
Multiplied by: NCI%
FV of NCI (partial)
Add: NCI on full-goodwill (P1,100,000 P880,000)
FV of NCI (full)

c. Beginning Retained Earnings-P Co. (P90,000 x 80%)

Non-controlling Interest (P90,000, depreciation x 20%)
Depreciation Expense
Property and Equipment (net)

1,000,000
500,000
900,000
1,100,000
P 500,000
1,000,000
P1,500,000
900,000
P2,400,000
20%
P 480,000
220,000
P 700,000

90,000

240,000

1,300,000
500,000
900,000
1,100,000

2,800,000
700,000

90,000

240,000

3,040,000
760,000

P 500,000

1,300,000
P1,800,000
900,000
P2,700,000
20%
P 540,000
220,000
P 760,000

72,000
18,000
90,000

180,000

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

FV of SHE of S:
Common stock, 1/1/20x5
P 500,000
Retained earnings, 1/1/20x5
Retained earnings, 1/1/20x4
P1,000,000
NI Subsidiary (20x4)
300,000
Dividends Subsidiary 20x4
(
0) 1,300,000
Book value of SHE S, 1/1/20x5
P1,800,000
Adjustments to reflect fair value
900,000
Amortization of allocated excess (P90,000 x 1)
( 90,000)
FV of SHE of S
P2,610,000
Multiplied by: NCI%
20%
FV of NCI (partial)
P 522,000
Add: NCI on full-goodwill (P1,100,000 P880,000)
220,000
FV of NCI (full)
P 742,000

Cost Model-Partial Goodwill (Eliminating Entries)

20x4
a. Beginning Retained Earnings-S Co.
Capital Stock- S Co.
Property and Equipment (net)
Goodwill
Investment in S Co.
Non-controlling Interest

1,000,000
500,000
900,000
880,000

b. Depreciation Expense
Property and Equipment (net)

90,000

20x5
a. Investment in S Company (P300,000 x 0.80)
Beginning Retained Earnings-P Co.
To establish reciprocity/convert to equity as of 1/1/20x5

240,000

b. Beginning Retained Earnings-S Company

1,300,000
Capital Stock-S Company
500,000
Property and Equipment (net)
900,000
Goodwill
880,000
Investment in S Company (P2,800,000 + P240,000)
Non-controlling Interest P700,000 +
[(P1,300,000 P1,000,000) x 0.20] (P1,100,000 P880,000)
NCI:
FV of SHE of S:
Common stock, 1/1/20x5
Retained earnings, 1/1/20x5
Retained earnings, 1/1/20x4
NI Subsidiary (20x4)
Dividends Subsidiary 20x4
Book value of SHE S, 1/1/20x5
Adjustments to reflect fair value
FV of SHE of S1/1/x5
Multiplied by: NCI%
FV of NCI (partial)

P 500,000
P1,000,000
300,000
(
0) 1,300,000
P1,800,000
900,000
P2,700,000
20%
P 540,000

2,800,000
480,000
90,000

240,000

3,040,000
540,000

c. Beginning Retained Earnings-P Co. (P90,000 x 80%)

Non-controlling Interest (P90,000 depreciation x 20%)
Depreciation Expense
Property and Equipment (net)

72,000
18,000
90,000

NCI (partial), 12/31/20x5: [(a) P540,000 (b) P18,000 = P522,000]

180,000

2. Consolidated Net Income (CNI) = Controlling Interest in CNI + NCI in CNI

20x4
Consolidated Net Income for 20x4
Net income from own/separate operations
P Company
S Company
Total
Less: Non-controlling Interest in Net Income*
Amortization of allocated excess
Goodwill impairment
Controlling Interest in Consolidated Net Income or Profit
attributable to equity holders of P..
Add: Non-controlling Interest in Net Income (NCINI)
Consolidated Net Income for 20x4

P 42,000
90,000
____0

P 300,000
( 90,000)
P210,000
20%
P 42,000

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

Non-controlling Interest in Net Income (NCINI)

20x5

Net income of subsidiary..

Amortization of allocated excess ...
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI)

132,000
P568,000
42,000
P610,000

Net income of subsidiary..

Amortization of allocated excess ...

Consolidated Net Income for 20x5

Net income from own/separate operations
P Company
S Company
Total
Less: Non-controlling Interest in Net Income*
Amortization of allocated excess
Goodwill impairment
Controlling Interest in Consolidated Net Income or Profit
attributable to equity holders of parent..
Add: Non-controlling Interest in Net Income (NCINI)
Consolidated Net Income for 20x4

P400,000
300,000
P700,000

P 62,000
90,000
____0

P425,000
400,000
P825,000
152,000
P673,000
62,000
P735,000
P 400,000
( 90,000)
P310,000
20%
P 62,000

Problem VII
1.
Common stock of TT Company
on December 31, 20x4
Retained earnings of TT Company
January 1, 20x4
Sales for 20x4
Less: Expenses
Dividends paid
Retained earnings of TT Company
on December 31, 20x4
Net book value on December 31, 20x4
Proportion of stock acquired by QQ
Purchase price
2.
Net book value on December 31, 20x4
Proportion of stock held by
noncontrolling interest
Balance assigned to noncontrolling interest

P 90,000
P 130,000
195,000
(160,000)
(15,000)
150,000
P240,000
x
.80
P192,000
P240,000
x
.20
P 48,000

3. Consolidated net income is P143,000. None of the 20x4 net income of TT Company was
earned after the date of purchase and, therefore, none can be included in consolidated
net income.
4. Consolidate net income would be P178,000 [P143,000 + (P195,000 - P160,000)].
Problem VIII
Requirements 1 to 4:
Date of Acquisition January 1, 20x4

Fair value of Subsidiary (100%)

Consideration transferred:
Cash
Notes payable
Less: Book value of stockholders equity of S:
Common stock (P200,000 x 100%).
Retained earnings (P100,000 x 100%)...
Allocated excess (excess of cost over book value)..
Less: Over/under valuation of assets and liabilities:
Increase in inventory (P5,000 x 100%)
Increase in land (P6,000 x 100%).
Increase in equipment (P80,000 x 100%)
Decrease in buildings (P20,000 x 100%).....
Decrease in bonds payable (P4,000 x 100%)
Positive excess: Goodwill (excess of cost over
fair value)...

P 360,000
105,000

P 465,000

P 240,000
120,000

360,000
P 105,000

6,000
7,200
96,000
( 24,000)
4,800

90,000
P 15,000

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

Inventory...
Land
Equipment (net).........
Buildings (net)
Bonds payable
Net..

S Co.
Book value
P 24,000
48,000
84,000
168,000
(120,000)
P 204,000

S Co.
Fair value
P 30,000
55,200
180,000
144,000
( 115,200)
P 294,000

(Over) Under
Valuation
P 6,000
7,200
96,000
(24,000)
4,800
P 90,000

The buildings and equipment will be further analyzed for consolidation purposes as follows:
Equipment ..................
Less: Accumulated depreciation..
Net book value...

S Co.
Book value
180,000
96,000
84,000

S Co.
Fair value
180,000
180,000

Increase
(Decrease)
0
( 96,000)
96,000

Buildings................
Less: Accumulated depreciation..
Net book value...

S Co.
Book value
360,000
192,000
168,000

S Co.
Fair value
144,000
144,000

(Decrease)
( 216,000)
( 192,000)
( 24,000)

A summary or depreciation and amortization adjustments is as follows:

Account Adjustments to be amortized
Inventory
Subject to Annual Amortization
Equipment (net).........
Buildings (net)
Bonds payable

Over/
under
P 6,000

Life
1

96,000
(24,000)
4,800

8
4
4

Annual
Amount
P 6,000

Current
Year(20x4)
P 6,000

20x5
P
-

12,000
( 6,000)
1,200
P 13,200

12,000
(6,000)
1,200
P 7,200

20x4 : First Year after Acquisition

Parent Company Cost Model Entry

January 1, 20x4:
(1) Investment in S Company
Cash..
Notes payable

465,000

Acquisition of S Company.

January 1, 20x4 December 31, 20x4:

(2) Cash
Dividend income (P36,000 x 100%).

36,000

Record dividends from S Company.

360,000
105,000

36,000

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

36,000

Dividends paid by S Co..

36,000

Consolidation Workpaper First Year after Acquisition

(E1) Common stock S Co
Retained earnings S Co
Investment in S Co

240,000
120,000

(E2) Inventory.
Accumulated depreciation equipment..
Accumulated depreciation buildings..
Land.
Discount on bonds payable.
Goodwill.
Buildings..
Investment in S Co.

6,000
96,000
192,000
7,200
4,800
15,000

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.

To allocate excess of cost over book value of identifiable assets

acquired, with remainder to goodwill

360,000

216,000
105,000

(E3) Cost of Goods Sold.

Depreciation expense..
Accumulated depreciation buildings..
Interest expense
Goodwill impairment loss
Inventory..
Accumulated depreciation equipment..
Discount on bonds payable
Goodwill..

6,000
6,000
6,000
1,200
3,600

6,000
12,000
1,200
3,600

To provide for 20x4 impairment loss and depreciation and

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

Inventory sold
Equipment
Buildings
Bonds payable
Totals

Cost of
Goods
Sold
P 6,000

Depreciation/
Amortization
Expense

Amortization
-Interest

P12,000
( 6,000)
_______
P 6,000

P 1,200
P1,200

_______
P 6,000

(E4) Dividend income - P.

Dividends paid S

36,000

To eliminate intercompany dividends and non-controlling interest

share of dividends.

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

Cost Model
100%-Owned Subsidiary
December 31, 20x4 (First Year after Acquisition)
Income Statement
Sales
Dividend income
Total Revenue
Cost of goods sold
Depreciation expense
Interest expense
Goodwill impairment loss
Other expenses
Total Cost and Expenses
Net Income to Retained Earnings
Statement of Retained Earnings
Retained earnings, 1/1
P Company
S Company
Net income, from above
Total
Dividends paid
P Company
S Company
Retained earnings, 12/31 to Balance
Sheet
Balance Sheet
Cash.
Accounts receivable..

P Co
P480,000
36,000
P516,000
P204,000
60,000
-

S Co.
P240,000
P240,000
P138,000
24,000
-

48,000
P312,000
P204,000

18,000
P180,000
P 60,000

P360,000

204,000
P564,000

P120,000
60,000
P180,000

72,000
-

36,000

P492,000

P144,000

147,000
90,000

P 90,000
60,000

Dr.
(4)

36,000

(3)
(3)
(3)
(3)

6,000
6,000
1,200
3,600

Cr.

Consolidated
P 720,000
_________
P 720,000
P 348,000
90,000
1,200
3,600
66,000
P508,800
P211,200

P 360,000

(1) 120,000

211,200
P571,200
(4)

72,000
________

36,000

P 499,200
P

237,000
150,000

Inventory.
Land.
Equipment
Buildings
Discount on bonds payable
Goodwill
Investment in S Co
Total
Accumulated depreciation
- equipment
Accumulated depreciation
- buildings
Accounts payable
Bonds payable
Common stock, P10 par
Common stock, P10 par
Retained earnings, from above
Total

120,000
210,000
240,000
720,000

90,000
48,000
180,000
540,000

465,000
P1,992,000

P1,008,000

P 135,000
405,000

P 96,000
288,000

120,000
240,000
600,000

120,000
120,000

___590,400
P1,992,000

240,000
144,000
P1,008,000

(2)
(2)

6,000
7,200

(2)
(2)

4,800
15,000

(3)

6,000

(2) 216,000
(3) 1,200
(3) 3,600
(1) 360,000
(2) 105,000

(2) 96,000 (3)

(2) 192,000
(3)
6,000

12,000

(1) 240,000
P 736,200

P 736,200

210,000
265,200
420,000
1,044,000
3,600
11,400
P2,341,200
P 147,000
495,000
240,000
360,000
600,000
499,200
P2,341,200

20x5: Second Year after Acquisition

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
Dividend income (P48,000 x 100%).

48,000

Record dividends from S Company.

48,000

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

48,000

Dividends paid by S Co..

Consolidation Workpaper Second Year after Acquisition

(E1) Investment in S Company
Retained earnings P Company

24,000

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
Retained earnings S Company, 1/1/20x4
Increase in retained earnings..
Multiplied by: Controlling interest %
Retroactive adjustment

48,000

24,000

P144,000
120,000
P 24,000
100%
P 24,000

(E2) Common stock S Co

Retained earnings S Co., 1/1/20x5
Investment in S Co

To eliminate intercompany investment and equity accounts

of subsidiary and to establish non-controlling interest (in net assets of
subsidiary) on January 1, 20x5.

240,000
144,000

384,000

(E3) Inventory.
Accumulated depreciation equipment..
Accumulated depreciation buildings..
Land.
Discount on bonds payable.
Goodwill.
Buildings..
Investment in S Co.

6,000
96,000
192,000
7,200
4,800
15,000

To allocate excess of cost over book value of identifiable assets

acquired, with remainder to goodwill; and to establish noncontrolling interest (in net assets of subsidiary) on January 1, 20x5.

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

(P16,800 x 100%)
Depreciation expense..
Accumulated depreciation buildings..
Interest expense
Inventory..
Accumulated depreciation equipment..
Discount on bonds payable
Goodwill

16,800
6,000
12,000
1,200

To provide for years 20x4 and 20x5 depreciation and amortization on

differences between acquisition date fair value and book value of
Ss identifiable assets and liabilities as follows:
Year 20x4 amounts are debited to Ps retained earnings
Year 20x5 amounts are debited to respective nominal accounts..

Inventory sold
Equipment
Buildings
Bonds payable
Impairment loss
Totals

(20x4)
Retained
earnings,
P 6,000
12,000
(6,000)
1,200
3,600
P 16,800

Depreciation/
Amortization
expense
P

P 1,200

P 6,000

P1,200

(E5) Dividend income - P.

Dividends paid S

48,000

(E6) Non-controlling interest in Net Income of Subsidiary

Non-controlling interest ..

16,560

To eliminate intercompany dividends and non-controlling interest

share of dividends.

To establish non-controlling interest in subsidiarys adjusted net

income for 20x5 as follows:

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

Non-controlling Interest in Net Income (NCINI)

6,000
24,000
2,400
3,600

Amortization
-Interest

12,000
( 6,000)

Net income of subsidiary..

Amortization of allocated excess [(E4)]...

216,000
105,000

P 90,000
( 7,200)
P 82,000
20%
P 16,560

48,000

16,560

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

Cost Model
100%-Owned Subsidiary
Income Statement
Sales
Dividend income
Total Revenue
Cost of goods sold
Depreciation expense
Interest expense
Other expenses
Goodwill impairment loss
Total Cost and Expenses
Net Income to Retained Earnings

P Co.
P540,000
48,000
P588,000
P216,000
60,000
72,000
P348,000
P240,000

Statement of Retained Earnings

Retained earnings, 1/1
P Company

P492,000

S Company
Net income, from above
Total
Dividends paid
P Company
S Company
Retained earnings, 12/31 to Balance
Sheet
Balance Sheet
Cash.
Accounts receivable..
Inventory.
Land.
Equipment
Buildings
Discount on bonds payable
Goodwill
Investment in S Co
Total
Accumulated depreciation
- equipment
Accumulated depreciation
- buildings
Accounts payable
Bonds payable
Common stock, P10 par
Common stock, P10 par
Retained earnings, from above
Total

S Co.
P360,000
P360,000
P192,000
24,000
54,000
P270,000
P 90,000

Dr.

(5)

48,000

(4)
(4)

6,000
1,200

(4) 16,800
(2)
144,000

(1)

Cr.

24,000

Consolidated
P 900,000
___________
P 900,000
P 408,000
90,000
1,200
126,000
P 625,200
P 274,800

499,200

240,000
P732,000

P144,000
90,000
P234,000

72,000
-

48,000

P660,000

P186,000

P 702,000

189,000
180,000
216,000
252,000
240,000
720,000

P 102,000
960,000
108,000
48,000
180,000
540,000

P 291,000
276,000
324,000
265,200
420,000
1,044,000
2,400
11,400

465,000
P2,220,000

P1,074,000

P 150,000
450,000

P 102,000
306,000

120,000
240,000
600,000

120,000
120,000

660,000
P2,220,000

240,000
186,000
P1,074,000

274,800
P 774,000
(5)

(3)
(3)

6,000
7,200

(3)
(3)
(1)

4,800
15,000
24,000

(3) 96,000
(3) 192,000
(4) 12,000

(4)

48,000

6,000

(3) 216,000
(4) 2,400
(4) 3,600
(2) 384,000
(3) 105,000

(4)

24,000

72,000
________

P2,634,000
P 180,000
552,000
240,000
360,000
600,000

(2) 240,000
P 783,120

P 783,120

702,000
P2,634,000

5. 1/1/20x4
a. On date of acquisition the retained earnings of P should always be considered as the
consolidated retained earnings, thus:
Consolidated Retained Earnings, January 1, 20x4
Retained earnings - P Company, January 1, 20x4 (date of acquisition)

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

P360,000

Stockholders Equity
Common stock, P10 par
Retained earnings
Total Stockholders Equity (Total Equity)

P 600,000
360,000
P 960,000

6. 12/31/20x4:
a. P211,200 same with CNI since there is no NCI.
Consolidated Net Income for 20x4
Net income from own/separate operations:
Pa Company
S Company
Total
Less: Amortization of allocated excess
Goodwill impairment loss
Consolidated Net Income for 20x4

P 13,200
3,600

P168,000
60,000
P228,000
16,800
P211,200

b. NCINI not applicable, since it is 100% owned subsidiary

c. P211,200 same with NCI-CNI since there is no NCI.
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 P for 20x4 or Consolidated Net Income (CNI)*
211,200
Total
P571,200
Less: Dividends paid P Company for 20x4
72,000
Consolidated Retained Earnings, December 31, 20x4
P499,200
*since it is a 100%-owned subsidiary, Controlling Interest in Net Income is the same with Consolidated Net
Income.

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

f.
Stockholders Equity
Common stock, P10 par
Retained earnings
Total Stockholders Equity (Total Equity)

P 600,000
499,200
P 1,099,200

12/31/20x5
a. P274,800 same with CNI since there is no NCI.

Consolidated Net Income for 20x5

Net income from own/separate operations
P Company
S Company
Total
Less: Amortization of allocated excess
Goodwill impairment loss
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent or CNI

P 7,200
0

P192,000
90,000
P282,000
7,200
P274,800

b. NCINI not applicable, since it is 100% owned subsidiary

c. P274,800 same with NCI-CNI since there is no NCI.
d.

Consolidated Retained Earnings, December 31, 20x5

Retained earnings - P Company, January 1, 20x5 (cost model
Adjustment to convert from cost model to equity method for purposes of
consolidation or to establish reciprocity:/Ps share in adjusted net
increased in subsidiarys retained earnings:
Retained earnings S, January 1, 20x5
Less: Retained earnings S, January 1, 20x4
Increase in retained earnings since date of acquisition

P492,000

P 144,000
120,000
P 24,000

Less: Amortization of allocated excess 20x4

Multiplied by: Controlling interests %...................

Consolidated Retained earnings, January 1, 20x5
Add: Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of P for 20x5 or CNI
Total
Less: Dividends paid P Company for 20x5
Consolidated Retained Earnings, December 31, 20x5

16,800
7,200
100%

7,200
P 499,200
274,800
P774,000
72,000
P702,000

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

f.
Stockholders Equity
Common stock, P10 par
Retained earnings
Total Stockholders Equity (Total Equity)

P 600,000
702,000
P1,302,000

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..
Less: Book value of stockholders equity of S:
Common stock (P240,000 x 80%).
Retained earnings (P120,000 x 80%)...
Allocated excess (excess of cost over book value)..
Less: Over/under valuation of assets and liabilities:
Increase in inventory (P6,000 x 80%)
Increase in land (P7,200 x 80%).
Increase in equipment (P96,000 x 80%)
Decrease in buildings (P24,000 x 80%).....
Decrease in bonds payable (P4,800 x 80%)
Positive excess: Partial-goodwill (excess of cost over
fair value)...

P 372,000
P 192,000
96,000

288,000
84,000

P 4,800
5,760
76,800
( 19,200)
3,840

72,000
P 12,000

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

S Co.
Book value

S Co.
Fair value

Inventory...

P 24,000

Land

48,000

55,200

Equipment (net).........

(Over) Under
Valuation

30,000

6,000
7,200

84,000

180,000

96,000

168,000

144,000

(24,000)

Bonds payable

(120,000)

( 115,200)

4,800

Net..

P 204,000

P 294,000

P 90,000

Buildings (net)

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

S Co.
Fair value

Increase
(Decrease)

Equipment ..................

180,000

Less: Accumulated depreciation..

96,000

( 96,000)

Net book value...

84,000
S Co.
Book value

180,000
S Co.
Fair value

96,000
(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
Inventory

Over/
Under

Life

Annual
Amount

Current
Year(20x4)

P 6,000

96,000

12,000

(25,000)

( 6,000)

(6,000)

4,800

1,200

P 13,200

P 7,200

20x5
P

Subject to Annual Amortization

Equipment (net).........
Buildings (net)
Bonds payable

The goodwill impairment loss of P3,125 based on 100% fair value would be allocated to the
controlling interest and the NCI based on the percentage of total goodwill each equity interest
received. For purposes of allocating the goodwill impairment loss, the full-goodwill is computed
as follows:
Fair value of Subsidiary (100%)
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)..

Add (deduct): (Over) under valuation of assets and liabilities
(P90,000 x 100%)
Positive excess: Full-goodwill (excess of cost over
fair value)...

105,000
90,000

15,000

In this case, the goodwill was proportional to the controlling interest of 80% and non-controlling
interest of 20% computed as follows:
Goodwill applicable to parent
Goodwill applicable to NCI..
Total (full) goodwill..

The goodwill impairment loss would be allocated as follows

Goodwill impairment loss attributable to parent or controlling
Interest
Goodwill applicable to NCI..
Goodwill impairment loss based on 100% fair value or fullGoodwill

Value
P12,000
3,000
P15,000

% of Total
80.00%
20.00%
100.00%

Value
P 3,000

% of Total
80.00%

750

20.00%

P 3,750

100.00%

When cost model is used, only two journal entries are recorded by P Company during 20x4
related to its investment in S Company.
20x4: First Year after Acquisition
Parent Company Cost Model Entry
January 1, 20x4:
(1) Investment in S Company
Cash..
Acquisition of S Company.
January 1, 20x4 December 31, 20x4:
(2) Cash
Dividend income (P36,000 x 80%).
Record dividends from S Company.

372,000

28,800

372,000

28,800

On the books of S Company, the P30,000 dividend paid was recorded as follows:
Dividends paid
Cash.
Dividends paid by S Co..

36,000

Consolidation Workpaper Year of Acquisition

(E1) Common stock S Co

Retained earnings S Co
Investment in S Co
Non-controlling interest (P360,000 x 20%)..

240,000
120.000

(E2) Inventory.
Accumulated depreciation equipment..
Accumulated depreciation buildings..
Land.
Discount on bonds payable.
Goodwill.
Buildings..
Non-controlling interest (P90,000 x 20%)..
Investment in S Co.

6,000
96,000
192,000
7,200
4,800
12,000

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.

To allocate excess of cost over book value of identifiable assets

acquired, with remainder to goodwill; and to establish noncontrolling interest (in net assets of subsidiary) on date of acquisition.

(E3) Cost of Goods Sold.

Depreciation expense..
Accumulated depreciation buildings..
Interest expense
Goodwill impairment loss.
Inventory..
Accumulated depreciation equipment..
Discount on bonds payable
Goodwill

6,000
6,000
6,000
1,200
3,000

To provide for 20x4 impairment loss and depreciation and

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

Inventory sold
Equipment
Buildings
Bonds payable
Totals

Cost of
Goods
Sold
P 6,000
_______
P 6,000

Depreciation/
Amortization
expense

Amortization
-Interest

P 12,000
( 6,000)
_______
P 6,000

P 1,200
P1,200

288,000
72,000

216,000
18,000
84,000

6,000
12,000
1,200
3,000

Total

13,200

It should be observed that the goodwill computed above was proportional to the controlling
interest of 80% and non-controlling interest of 20% computed as follows:
Goodwill applicable to parent
Goodwill applicable to NCI..
Total (full) goodwill..

Value
P12,000
3,000
P15,000

% of Total
80.00%
20.00%
100.00%

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

Goodwill impairment loss attributable to P or controlling

Interest
Goodwill impairment loss applicable to NCI..
Goodwill impairment loss based on 100% fair value or fullGoodwill
(E4) Dividend income - P.
Non-controlling interest (P36,000 x 20%)..
Dividends paid S

Value
P 3,000

% of Total
80.00%

750

20.00%

P 3,750

100.00%

28,800
7,200

36,000

To eliminate intercompany dividends and non-controlling interest

share of dividends.

(E5) Non-controlling interest in Net Income of Subsidiary

Non-controlling interest ..

9,360

To establish non-controlling interest in subsidiarys adjusted net

income for 20x4 as follows:
Net income of subsidiary..
Amortization of allocated excess [(E3)]...
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI)

P 60,000
( 13,200)
P 46,800
20%
P 9,360

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

Cost Model (Partial-goodwill)
80%-Owned Subsidiary
December 31, 20x4 (First Year after Acquisition)
Income Statement
Sales
Dividend income
Total Revenue
Cost of goods sold
Depreciation expense
Interest expense
Other expenses
Goodwill impairment loss
Total Cost and Expenses
Net Income
NCI in Net Income - Subsidiary
Net Income to Retained Earnings

P Co
P480,000
28,800
P508,800
P204,000
60,000
48,000
P310,000
P196,800
P196,800

Statement of Retained Earnings

P360,000

S Co.
P240,000
P240,000
P138,000
28,000
18,000
P180,000
P 60,000
P 60,000

196,800
P552,000

P120,000
60,000
P180,000

72,000
-

36,000

P484,800
232,800
90,000
120,000
210,000
240,000

Dr.

(4)

28,800

(3)
(3)
(3)

6,000
6,000
1,200

(3)

3,000

(5)

9,360

Cr.

Consolidated
P 720,000
_________
P 720,000
P 348,000
90,000
1,200
66,000
3,000
P508,200
P211,800
( 9,360)
P202,440

(1) 120,000

360,000
202,440
P562,440

72,000
________

P144,000

490,440

P 90,000
60,000
90,000
48,000
180,000

322,800
150,000
210,000
265,200
420,000

(4)

(2)
(2)

6,000
7,200

(3)

36,000

6,000

Buildings
Discount on bonds payable
Goodwill
Investment in S Co

720,000
372,000

Total
Accumulated depreciation
- equipment
Accumulated depreciation
- buildings
Accounts payable
Bonds payable
Common stock, P10 par
Common stock, P10 par
Retained earnings, from above
Non-controlling interest
Total

540,000

P1,984,800

P1,008,000

P 135,000
405,000

P 96,000
288,000

120,000
240,000
600,000

120,000
120,000

(2)
(2)

4,800
12,000

(2) 216,000
(3) 1,200
(3) 3,000
(4) 288,000
(5) 84,000

(2) 96,000 (3)

(2) 192,000
(3)
6,000

484,800

240,000
144,000

(1) 240,000

_________
P1,984,800

_________
P1,008,000

__________
P 745,560

(4)

20x5: Second Year after Acquisition

Sales
Less: Cost of goods sold
Gross profit
Less: Depreciation expense
Other expense
Net income from its own separate operations
Add: Dividend income
Net income
Dividends paid

7,200

P2,424,600

12,000

P147,000
495,000
240,000
360,000
600,000

(1 ) 72,000
(2) 18,000
(5) 9,360
P 745,560

P Co.
P 540,000
216,000
P 324,000
60,000
72,000
P 192,000
38,400
P 230,400
P 72,000

1,044,000
3,600
9,000

490,440
____92,160
P2,424,600

S Co.
P 360,000
192,000
P 168,000
24,000
54,000
P 90,000
P 90,000
P 48,000

No goodwill impairment loss for 20x5.

Parent Company Cost Model Entry
Only a single entry is recorded by the P in 20x5 in relation to its subsidiary investment:
January 1, 20x5 December 31, 20x5:
Cash
Dividend income (P48,000 x 80%).
Record dividends from S Company.

38,400

On the books of S Company, the P40,000 dividend paid was recorded as follows:
Dividends paid
Cash
Dividends paid by S Co..

48,000

Consolidation Workpaper Second Year after Acquisition

The working paper eliminations (in journal entry format) on December 31, 20x5, are as follows:
(E1) Investment in S Company
Retained earnings P Company

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:

19,200

Retained earnings S Company, 1/1/20x5

Retained earnings S Company, 1/1/20x4
Increase in retained earnings..
Multiplied by: Controlling interest %
Retroactive adjustment

P144,000
120,000
P 24,000
80%
P 19,200

(E2) Common stock S Co

Retained earnings S Co., 1/1/20x5
Investment in S Co (P384,000 x 80%)
Non-controlling interest (P384,000 x 20%)..

240,000
144,000

(E3) Inventory.
Accumulated depreciation equipment..
Accumulated depreciation buildings..
Land.
Discount on bonds payable.
Goodwill.
Buildings..
Non-controlling interest (P90,000 x 20%)
Investment in S Co.

6,000
96,000
192,000
7,200
4,800
12,000

To eliminate intercompany investment and equity accounts

of subsidiary and to establish non-controlling interest (in net assets of
subsidiary) on January 1, 20x5.

To allocate excess of cost over book value of identifiable assets

acquired, with remainder to goodwill; and to establish noncontrolling 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]
Non-controlling interests (P13,200 x 20%).
Depreciation expense..
Accumulated depreciation buildings..
Interest expense
Inventory..
Accumulated depreciation equipment..
Discount on bonds payable
Goodwill

To provide for years 20x4 and 20x5 depreciation and amortization on

differences between acquisition date fair value and book value of
Ss identifiable assets and liabilities as follows:
Year 20x4 amounts are debited to Ps retained earnings &
NCI;
Year 20x5 amounts are debited to respective nominal accounts.

Inventory sold
Equipment
Buildings
Bonds payable
Sub-total
Multiplied by:
To Retained earnings
Impairment loss
Total

(20x4)
Retained
earnings,
P 6,000
12,000
(6,000)
1,200
P13,200
80%
P 10,560
3,000
P 13,560

Depreciation/
Amortization
expense

Amortization
-Interest

P 12,000
( 6,000)
________
P 6,000

P 1,200
P 1,200

13,560
2,640
6,000
12,000
1,200

307,200
76,800

216,000
18,000
84,000

6,000
24,000
2,400
3,000

(E5) Dividend income - P.

Non-controlling interest (P48,000 x 20%)..
Dividends paid S

38,400
9,600

(E6) Non-controlling interest in Net Income of Subsidiary

Non-controlling interest ..

16,560

48,000

To eliminate intercompany dividends and non-controlling interest

share of dividends.

16,560

To establish non-controlling interest in subsidiarys adjusted net

income for 20x5 as follows:
Net income of subsidiary..
Amortization of allocated excess [(E4)]...
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI

P 90,000
( 7,200)
P 82,800
20%
P 16,560

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

Cost Model (Partial-goodwill)
80%-Owned Subsidiary
December 31, 20x5 (Second Year after Acquisition)
Income Statement
Sales
Dividend income
Total Revenue
Cost of goods sold
Depreciation expense
Interest expense
Other expenses
Goodwill impairment loss
Total Cost and Expenses
Net Income
NCI in Net Income - Subsidiary
Net Income to Retained Earnings

P Co
P540,000
38,400
P578,400
P216,000
60,000
72,000
P348,000
P230,400
P230,400

Statement of Retained Earnings

P484,800

S Co.
P360,000
P360,000
P192,000
24,000
54,000
P270,000
P 90,000
P 90,000

Dr.

(5)

38,400

(4)
(4)

6,000
1,200

(6)

16,560

(4) 13,560
(2) 144,000

Cr.

Consolidated
P 900,000
___________
P 900,000
P 408,000
90,000
1,200
126,000
P 625,200
P 274,800
( 16,560)
P 258,240

(1) 19,200

P 490,440

230,400
P715,200

P 144,000
90,000
P234,000

72,000
-

48,000

P643,200

P186,000

P 676,680

265,200
180,000
216,000
210,000
240,000
720,000

P 114,000
96,000
108,000
48,000
180,000
540,000

P 367,200
276,000
324,000
265,200
420,000
1,044,000
2,400
9,000

372,000
P2,203,200

P1,074,000

258,240
P 748,680
(5)

(3)
(3)

6,000
7,200

(3)
(3)
(1)

4,800
12,000
19,200

(4)

48,000

6,000

(3) 216,000
(4) 2,400
(4) 3,000
(2) 307,200
(3) 84,000

72,000
________

P2,707,800

Accumulated depreciation
- equipment
Accumulated depreciation
- buildings
Accounts payable
Bonds payable
Common stock, P10 par
Common stock, P10 par
Retained earnings, from above
Non-controlling interest

Total

P 150,000
450,000

P 102,000
306,000

120,000
240,000
600,000

120,000
120,000

643,200

___ _____
P2,203,200

240,000
186,000

_________
P1,074,000

(3) 96,000
(3) 192,000
(4) 12,000

(4)

24,000

552,000
240,000
360,000
600,000

(2) 240,000
(5)
(4)

9,600
2,640

__________
P 821,160

P180,000

676,680
(2 ) 76,800
(3) 18,000
(6) 16,560
P 821,160

____99,120
P2,707,800

5. 1/1/20x4
a. On date of acquisition the retained earnings of P should always be considered as the
consolidated retained earnings, thus:
b.

Consolidated Retained Earnings, January 1, 20x4

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

Non-controlling interest (partial-goodwill), January 1, 20x4

Common stock S Company, January 1, 20x4
Retained earnings S Company, January 1, 20x4
Stockholders equity S Company, January 1, 20x4
Adjustments to reflect fair value - (over) undervaluation of assets and
liabilities, date of acquisition (January 1, 20x4)
Fair value of stockholders equity of subsidiary, January 1, 20x4
Multiplied by: Non-controlling Interest percentage...
Non-controlling interest (partial-goodwill)..

Consolidated SHE:
Stockholders Equity
Common stock, P10 par
Retained earnings
Ps Stockholders Equity / CI - SHE
NCI, 1/1/20x4
Consolidated SHE, 1/1/20x4

P360,000

P 240,000
120,000
P 360,000
90,000
P450,000
20
P 90,000

P 600,000
360,000
P 960,000
___90,000
P1,050,000

Note: The goodwill recognized on consolidation purely relates to the Ps 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
Consolidated Net Income for 20x4
Net income from own/separate operations
P Company
S Company
Total
Less: Non-controlling Interest in Net Income*
Amortization of allocated excess (refer to amortization above)
Goodwill impairment (impairment under partial-goodwill approach)
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent..
Add: Non-controlling Interest in Net Income (NCINI)
Consolidated Net Income for 20x4

P 9,360
13,200
3,000

P168,000
60,000
P228,000
25,560
P202,440
9,360
P211.800

b. NCI-CNI

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

Net income of S Company
Less: Amortization of allocated excess / goodwill impairment
(refer to amortization table above)
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI)

P 60,000
13,200
P 46,800
20%
P 9,360

c. CNI, P211,800 refer to (a)

d. On subsequent to date of acquisition, consolidated retained earnings would be computed
as follows:
Consolidated Retained Earnings, December 31, 20x4
Retained earnings - P Company, January 1, 20x4 (date of acquisition)
Add: Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent for 20x4
Total
Less: Dividends paid P Company for 20x4
Consolidated Retained Earnings, December 31, 20x4

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

Common stock S Company, December 31, 20x4
Retained earnings S Company, December 31, 20x4
Retained earnings S Company, January 1, 20x4
Add: Net income of S for 20x4
Total
Less: Dividends paid 20x4
Stockholders equity S Company, December 31, 20x4
Adjustments to reflect fair value - (over) undervaluation of assets and
liabilities, date of acquisition (January 1, 20x4)
Amortization of allocated excess (refer to amortization above) 20x4
Fair value of stockholders equity of subsidiary, December 31, 20x4
Multiplied by: Non-controlling Interest percentage...
Non-controlling interest (partial-goodwill)..

Consolidated SHE:
Stockholders Equity
Common stock, P10 par
Retained earnings
Ps Stockholders Equity / CI SHE, 12/31/20x4
NCI, 12/31/20x4
Consolidated SHE, 12/31/20x4

P360,000
202,440
P562,440
72,000
P490,440

P 240,000
P120,000
60,000
P180,000
36,000

144,000
P 384,000
90,000
( 13,200)
P460,000
20
P 92,160

P 600,000
490,440
P1,090,440
___92,160
P1,182,600

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

Consolidated Net Income for 20x5

Net income from own/separate operations:
P Company
S Company
Total
Less: Non-controlling Interest in Net Income*
Amortization of allocated excess (refer to amortization above)
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent..
Add: Non-controlling Interest in Net Income (NCINI)
Consolidated Net Income for 20x5

P16,560
__7,200

P192,000
90,000
P282,000
23,760
P258,240
16,560
P274,800

b. NCI-CNI

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

Net income of S Company
Less: Amortization of allocated excess / goodwill impairment for 20x5
(refer to amortization table above)
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI) for 20x5

P 90,000
80,400
P 82,800
20%
P 16,560

c. CNI, P274,800 refer to (a)

d. On subsequent to date of acquisition, consolidated retained earnings would be computed
as follows:
Consolidated Retained Earnings, December 31, 20x5
Retained earnings - P Company, January 1, 20x5 (cost model
Adjustment to convert from cost model to equity method for purposes of
consolidation or to establish reciprocity:/Parents share in adjusted net
increased in subsidiarys retained earnings:
Retained earnings S, January 1, 20x5
Less: Retained earnings S, January 1, 20x4
Increase in retained earnings since date of acquisition
Less: Amortization of allocated excess 20x4
Multiplied by: Controlling interests %...................

P484,800

P 144,000
120,000
P 24,000
13,200
P 10,800
80%
P 8,640

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

(P3, 750 x 80%)
3,000
5,640
Consolidated Retained earnings, January 1, 20x5
P 490,440
Add: Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of P for 20x5
258,240
Total
P748,680
Less: Dividends paid P Company for 20x5
72,000
Consolidated Retained Earnings, December 31, 20x5
P676,680
*this procedure would be more appropriate, instead of multiplying the full-goodwill impairment loss of P3,750 by
80%. There might be situations where the controlling interests on goodwill impairment loss would not be
proportionate to NCI acquired.

Non-controlling interest (partial-goodwill), December 31, 20x5

Common stock S Company, December 31, 20x5
Retained earnings S Company, December 31, 20x5
Retained earnings S Company, January 1, 20x5
Add: Net income of S for 20x5
Total
Less: Dividends paid 20x5
Stockholders equity S Company, December 31, 20x5
Adjustments to reflect fair value - (over) undervaluation of assets and
liabilities, date of acquisition (January 1, 20x4)
Amortization of allocated excess (refer to amortization above) :
20x4
20x5
Fair value of stockholders equity of S, December 31, 20x5
Multiplied by: Non-controlling Interest percentage...
Non-controlling interest (partial goodwill)..

Consolidated SHE:
Stockholders Equity
Common stock, P10 par
Retained earnings
Parents Stockholders Equity / CI SHE, 12/31/20x5
NCI, 12/31/20x5
Consolidated SHE, 12/31/20x5

P 240,000
P14,000
90,000
P234,000
48,000

186,000
P 426,000
90,000

P 13,200
7,200

( 20,400)
P 495,600
20
P 99,120

P 600,000
676,680
P1,276,680
___99,120
P1,1375,800

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%)..
Fair value of NCI (given) (20%)..
Fair value of Subsidiary (100%).
Less: Book value of stockholders equity of Son:
Common stock (P240,000 x 100%).
Retained earnings (P120,000 x 100%)...
Allocated excess (excess of cost over book value)..
Less: Over/under valuation of assets and liabilities:
Increase in inventory (P6,000 x 100%)
Increase in land (P7,200 x 100%).
Increase in equipment (P96,000 x 100%)
Decrease in buildings (P24,000 x 100%).....
Decrease in bonds payable (P4,800 x 100%)
Positive excess: Full-goodwill (excess of cost over
fair value)...

P 372,000
93,000
P 465,000
P 240,000
120,000
P

6,000
7,200
96,000
( 24,000)
4,800

90,000
P 15,000

A summary or depreciation and amortization adjustments is as follows:

Account Adjustments to be amortized
Inventory
Subject to Annual Amortization
Equipment (net).........
Buildings (net)
Bonds payable

360,000
P 105,000

Over/
under
P 6,000

Life
1

96,000
(24,000)
4,800

8
4
4

Annual
Amount
P 6,000

Current
Year(20x4)
P 6,000

20x5
P
-

12,000
( 6,000)
1,200
P 13,200

12,000
(6,000)
1,200
P 7,200

20x4: First Year after Acquisition

Parent Company Cost Model Entry

January 1, 20x4:
(1) Investment in S Company
Cash..
Acquisition of S Company.
January 1, 20x4 December 31, 20x4:
(2) Cash
Dividend income (P36,000x 80%).
Record dividends from S Company.

372,000

28,800

372,000

28,800

On the books of S Company, the P30,000 dividend paid was recorded as follows:
Dividends paid
Cash.
Dividends paid by S Co..

36,000

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

(E1) Common stock S Co

Retained earnings S Co
Investment in S Co
Non-controlling interest (P360,000 x 20%)..
To eliminate intercompany investment and equity accounts
of subsidiary on date of acquisition; and to establish non-controlling

240,000
120.000

288,000
72,000

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

6,000
96,000
192,000
7,200
4,800
13,000

21,000
84,000

To allocate excess of cost over book value of identifiable assets

acquired, with remainder to goodwill; and to establish noncontrolling interest (in net assets of subsidiary) on date of acquisition.

(E3) Cost of Goods Sold.

Depreciation expense..
Accumulated depreciation buildings..
Interest expense
Goodwill impairment loss.
Inventory..
Accumulated depreciation equipment..
Discount on bonds payable
Goodwill

6,000
6,000
6,000
1,200
3,750

To provide for 20x4 impairment loss and depreciation and

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

Inventory sold
Equipment
Buildings
Bonds payable
Totals

Cost of
Goods
Sold
P 6,000
_______
P 6,000

Depreciation/
Amortization
Expense

Amortization
-Interest

P12,000
( 6,000)
_______
P 6,000

P 1,200
P1,200

(E4) Dividend income - P.

Non-controlling interest (P36,000 x 20%)..
Dividends paid S

28,800
7,200

To eliminate intercompany dividends and non-controlling interest

share of dividends.

(E5) Non-controlling interest in Net Income of Subsidiary

Non-controlling interest ..
To establish non-controlling interest in subsidiarys adjusted net
Income less NCI on goodwill impairment loss on full-goodwill
for 20x4 as follows:
Net income of subsidiary..
Amortization of allocated excess [(E3)]...
Multiplied by: Non-controlling interest %..........

P 60,000
( 13,200)
P 46,800
20%
P 9,360

Less: Non-controlling interest on impairment

loss on full-goodwill (P3,125 x 20%) or
(P3,125 impairment on full-goodwill less
P2,500, impairment on partial-goodwill)*
750
Non-controlling Interest in Net Income (NCINI)
P 8,610
*this procedure would be more appropriate, instead of multiplying the
full-goodwill impairment loss of P3,125 by 20%. There might be situations

216,000

8,610

6,000
12,000
1,200
3,750

36,000

8,610

where the NCI on goodwill impairment loss would not be proportionate

to NCI acquired (refer to Illustration 15-6).

Subsidiary accounts are adjusted to full fair value regardless on the controlling interest
percentage or what option used to value non-controlling interest or goodwill.
Worksheet for Consolidated Financial Statements, December 31, 20x4.
Cost Model (Full-goodwill)
80%-Owned Subsidiary
December 31, 20x4 (First Year after Acquisition)
Income Statement
Sales
Dividend income
Total Revenue
Cost of goods sold
Depreciation expense
Interest expense
Other expenses
Goodwill impairment loss
Total Cost and Expenses
Net Income
NCI in Net Income - Subsidiary
Net Income to Retained Earnings

P Co
P480,000
28,800
P508,800
P204,000
60,000
48,000
P312,000
P196,800
P196,800

Statement of Retained Earnings

Retained earnings, 1/1
P Company
S Company
Net income, from above
Total
Dividends paid
P Company
S Company
Retained earnings, 12/31 to Balance
Sheet
Balance Sheet
Cash.
Accounts receivable..
Inventory.
Land.
Equipment
Buildings
Discount on bonds payable
Goodwill
Investment in S Co
Total
Accumulated depreciation
- equipment
Accumulated depreciation
- buildings
Accounts payable
Bonds payable
Common stock, P10 par
Common stock, P10 par
Retained earnings, from above
Non-controlling interest
Total

P360,000

S Co.
P240,000
P240,000
P138,000
24,000
18,000
P180,000
P 60,000
P 60,000

196,800
P556,800

P120,000
60,000
P180,000

72,000
-

36,000

P484,800
232,800
90,000
120,000
210,000
240,000
720,000

Dr.

(4)

28,800

(3)
(3)
(3)

6,000
6,000
1,200

(3)

3,750

(5)

8,610

Cr.

Consolidated
P 720,000
_________
P 720,000
P 348,000
90,000
1,200
66,000
3,750
P508,950
P211,050
( 8,610)
P202,680

(1) 120,000

360,000
202,680
P562,440

86,400
________

P144,000

490,440

P 90,000
60,000
90,000
48,000
180,000
540,000

322,800
150,000
210,000
265,200
420,000
1,044,000
3,600
11,250

372,000
P1,984,800

P1,008,000

P 135,000
405,000

P 96,000
288,000

120,000
240,000
600,000

120,000
120,000

(4)

(2)
(2)

6,000
7,200

(2)
(2)

4,800
15,000

(3)

240,000
144,000

(1) 240,000

_________
P1,984,800

__________
P 748,560

(7)

7,200

6,000

(2) 216,000
(3) 1,200
(3) 3,750
(3) 288,000
(4) 84,000

(2) 96,000 (3)

(5) 192,000
(6)
6,000

484,800

36,000

12,000

(1 ) 72,000
(2) 21,000
(5) 8,610
P 748,560

P2,426,850
P147,000
495,000
240,000
360,000
600,000
490,440
____94,410
P2,426,850

20x5: Second Year after Acquisition

P Co.
P 540,000
216,000
P 324,000
60,000
72,000
P 192,000
38,400
P 230,400
P 72,000

Sales
Less: Cost of goods sold
Gross profit
Less: Depreciation expense
Other expense
Net income from its own separate operations
Add: Dividend income
Net income
Dividends paid

No goodwill impairment loss for 20x5.

S Co.
P 360,000
192,000
P 168,000
24,000
54,000
P 90,000
P 90,000
P 48,000

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

38,400

On the books of S Company, the P40,000 dividend paid was recorded as follows:
Dividends paid
Cash
Dividends paid by S Co..

48,000

Consolidation Workpaper Second Year after Acquisition

(E1) Investment in S Company
Retained earnings P Company

19,200

To provide entry to convert from the cost method to the equity

48,000

19,200

P144,000
120,000
P 24,000
80%
P 19,200

(E2) Common stock S Co

Retained earnings S Co., 1/1/20x5
Investment in S Co (P384,000 x 80%)
Non-controlling interest (P384,000 x 20%)..

240,000
144,000

6,000
96,000
192,000
7,200
4,800
15,000

To eliminate intercompany investment and equity accounts

of subsidiary and to establish non-controlling interest (in net assets of
subsidiary) on January 1, 20x5.

307,200
76,800

216,000
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 noncontrolling interest (in net assets of subsidiary) on January 1, 20x5.

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

(P16,950 x 80%)
Non-controlling interests (P16,950 x 20%).
Depreciation expense..
Accumulated depreciation buildings..
Interest expense
Inventory..
Accumulated depreciation equipment..
Discount on bonds payable
Goodwill

13,560
3,390
6,000
12,000
1,200

To provide for years 20x4 and 20x5 depreciation and amortization on

differences between acquisition date fair value and book value of
Sons identifiable assets and liabilities as follows:
Year 20x4 amounts are debited to Perfects retained earnings
and NCI.
Year 20x5 amounts are debited to respective nominal accounts..

Inventory sold
Equipment
Buildings
Bonds payable
Impairment loss
Totals
Multiplied by: CI%....
To Retained earnings

(20x4)
Retained
earnings,
P 6,000
12,000
(6,000)
1,200
3,750
P 16,950
80%
P13,560

Depreciation/
Amortization
expense
P

Amortization
-Interest

12,000
( 6,000)

P 1,200

P 6,000

P1,200

(E5) Dividend income - P.

Non-controlling interest (P48,000 x 20%)..
Dividends paid S

38,400
9,600

(E6) Non-controlling interest in Net Income of Subsidiary

Non-controlling interest ..

16,560

To eliminate intercompany dividends and non-controlling interest

share of dividends.

To establish non-controlling interest in subsidiarys adjusted net

income for 20x5 as follows:
Net income of subsidiary..
Amortization of allocated excess [(E4)]...
Multiplied by: Non-controlling interest %..........
Less: NCI on goodwill impairment loss on fullGoodwill
Non-controlling Interest in Net Income (NCINI)

6,000
24,000
2,400
3,750

P 90,000
( 7,200)
P 82,800
20%
P 16,560
0
P 16,560

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

Cost Model (Full-goodwill)
80%-Owned Subsidiary
December 31, 20x5 (Second Year after Acquisition)

48,000

16,560

Income Statement
Sales
Dividend income
Total Revenue
Cost of goods sold
Depreciation expense
Interest expense
Other expenses
Goodwill impairment loss
Total Cost and Expenses
Net Income
NCI in Net Income - Subsidiary
Net Income to Retained Earnings

P Co
P540,000
38,400
P578,400
P216,000
60,000
72,000
P348,000
P230,400
P230,400

Statement of Retained Earnings

Total

P484,800

S Co.
P360,000
P360,000
P192,000
24,000
54,000
P270,000
P 90,000
P 90,000

Dr.
(5)

38,400

(4)
(4)

6,000
1,200

(6)

16,560

(5) 13,560
(6) 144,000

Cr.

Consolidated
P 900,000
___________
P 900,000
P 408,000
90,000
1,200
126,000
P 625,200
P 274,800
( 16,560)
P 258,240

(5) 19,200

P 490,440

230,400
P715,200

P 144,000
90,000
P234,000

72,000
-

48,000

P643,200

P186,000

P 676,680

265,200
180,000
216,000
210,000
240,000
720,000

P 102,000
96,000
108,000
48,000
180,000
540,000

P 367,200
276,000
324,000
265,200
420,000
1,044,000
2,400
11,250

372,000
P2,203,200

P1,074,000

P 150,000
450,000

P 102,000
306,000

120,000
240,000
600,000

120,000
120,000

643,200

___ _____
P2,203,200

240,000
186,000

_________
P1,074,000

258,240
P 748,680
(5)

(3)
(3)

6,000
7,200

(3)
(3)
(1)

4,800
15,000
19,200

(4)

57,600

6,000

(3) 216,000
(4) 2,400
(4) 3,750
(2) 307,200
(7) 84,000

(3) 96,000
(3) 192,000
(4) 12,000

(4)

24,000

9,600
3,390

__________
P 824,910

72,000
________

P2,710,050
P180,000
552,000
240,000
360,000
600,000

(2) 240,000
(6)
(8)

676,680
(2 ) 76,800
(3) 21,000
(6) 16,560
P 824,910

____101,370
P2,710,050

5. 1/1/20x4
a. On date of acquisition the retained earnings of parent should always be considered as
the consolidated retained earnings, thus:
Consolidated Retained Earnings, January 1, 20x4
Retained earnings - P Company, January 1, 20x4 (date of acquisition)

P360,000

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

Common stock S Company, January 1, 20x4
Retained earnings S Company, January 1, 20x4
Stockholders equity S Company, January 1, 20x4
Adjustments to reflect fair value - (over) undervaluation of assets and
liabilities, date of acquisition (January 1, 20x4)
Fair value of stockholders equity of S, January 1, 20x4
Multiplied by: Non-controlling Interest percentage...
Non-controlling interest (partial-goodwill)..
Add: NCI on full-goodwill (P15,000 P12,000)
Non-controlling interest (partial-goodwill)..

Consolidated SHE:
Stockholders Equity
Common stock, P10 par
Retained earnings
Parents Stockholders Equity / CI - SHE
NCI, 1/1/20x4
Consolidated SHE, 1/1/20x4

P 240,000
120,000
P 360,000
90,000
P450,000
20
P 90,000
___3,000
P 93,000

P 600,000
360,000
P 960,000
___93,000
P1,053,000

Note: The goodwill recognized on consolidation purely relates to the parents share. NCI is
measured as a proportion of identifiable assets and goodwill attributable to NCI share is not
recognized.
12/31/20x4:
a. CI-CNI P202,440
Consolidated Net Income for 20x4
Net income from own/separate operations:
P Company
S Company
Total
Less: Non-controlling Interest in Net Income*
Amortization of allocated excess (refer to amortization above)
Goodwill impairment (impairment under full-goodwill approach)
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of P..
Add: Non-controlling Interest in Net Income (NCINI)
Consolidated Net Income for 20x4

P 8,610
13,200
3,750

P168,000
60,000
P228,000
25,560
P202,440
8,610
P211.050

b. NCI-CNI P8,610

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

Net income of S Company
Less: Amortization of allocated excess (refer to amortization table above)

P 60,000
13,200
P 46,800
20%
P 9,360

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

Non-controlling Interest in Net Income (NCINI)
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)
P 8,610
*this procedure would be more appropriate, instead of multiplying the full-goodwill impairment loss
of P3,750 by 20%. There might be situations where the NCI on goodwill impairment loss would not
be proportionate to NCI acquired.

c. CNI, P211,050 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)
Add: Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent for 20x4
Total
Less: Dividends paid P Company for 20x4
Consolidated Retained Earnings, December 31, 20x4

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

Common stock S Company, December 31, 20x4
Retained earnings S Company, December 31, 20x4
Retained earnings S Company, January 1, 20x4
Add: Net income of S for 20x4
Total
Less: Dividends paid 20x4
Stockholders equity S Company, December 31, 20x4
Adjustments to reflect fair value - (over) undervaluation of assets and
liabilities, date of acquisition (January 1, 20x4)
Amortization of allocated excess (refer to amortization above) 20x4
Fair value of stockholders equity of S, December 31, 20x4
Multiplied by: Non-controlling Interest percentage...
Non-controlling interest (partial-goodwill, 12/31/20x4..
Add: Non-controlling interest on full goodwill , net of impairment loss, 12/31/x4:
[(P15,000 full P12,000, partial = P3,000) P750 impairment loss
Non-controlling interest (full-goodwill), 12/31/20x4..

Consolidated SHE:
Stockholders Equity
Common stock, P10 par
Retained earnings
Ps Stockholders Equity / CI SHE, 12/31/20x4
NCI, 12/31/20x4
Consolidated SHE, 12/31/20x4

P360,000
202,440
P562,440
72,000
P490,440

P 240,000
P120,000
60,000
P180,000
36,000

144,000
P 384,000
90,000
( 13,200)
P460,800
20
P 92,160
2,250
P 94,410

P 600,000
490,440
P1,090,440
___94,410
P1,184,850

12/31/20x5:
a. CI-CNI P258,240

Consolidated Net Income for 20x5

Net income from own/separate operations
P Company
S Company
Total
Less: Non-controlling Interest in Net Income*
Amortization of allocated excess (refer to amortization above)
Goodwill impairment (impairment under full-goodwill approach)
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent..
Add: Non-controlling Interest in Net Income (NCINI)
Consolidated Net Income for 20x5

P16,560
7,200
0

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

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

23,760
P258,240
16,560
P274,800

b. NCI-CNI P16,560

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

Net income of S Company
Less: Amortization of allocated excess / goodwill impairment for 20x5
(refer to amortization table above)

P192,000
90,000
P282,000

P 90,000
80,400
P 82,800
20%
P 16,560

c. CNI, P274,800 refer to (a)

d. On subsequent to date of acquisition, consolidated retained earnings would be computed
as follows:
Consolidated Retained Earnings, December 31, 20x5
Retained earnings - P Company, January 1, 20x5 (cost model
Adjustment to convert from cost model to equity method for purposes of
consolidation or to establish reciprocity:/Ps share in adjusted net
increased in subsidiarys retained earnings:
Retained earnings Subsidiary, January 1, 20x5
Less: Retained earnings Subsidiary, January 1, 20x4
Increase in retained earnings since date of acquisition
Less: Amortization of allocated excess 20x4
Multiplied by: Controlling interests %...................

P484,800

P 144,000
120,000
P 24,000
13,200
P 10,800
80%
P 8,640

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

(P3, 750 x 80%)
3,000
5,640
Consolidated Retained earnings, January 1, 20x5
P 490,440
Add: Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent for 20x5
258,240
Total
P748,680
Less: Dividends paid P Company for 20x5
72,000
Consolidated Retained Earnings, December 31, 20x5
P676,680
*this procedure would be more appropriate, instead of multiplying the full-goodwill impairment loss of P3,750 by
80%. There might be situations where the controlling interests on goodwill impairment loss would not be
proportionate to NCI acquired.

Non-controlling interest (partial-goodwill), December 31, 20x5

Consolidated SHE:
Stockholders Equity
Common stock, P10 par
Retained earnings
Ps Stockholders Equity / CI SHE, 12/31/20x4
NCI, 12/31/20x4
Consolidated SHE, 12/31/20x4

P 240,000
P144,000
90,000
P234,000
48,000

186,000
P 426,000
90,000

P 13,200
7,200

( 20,400)
P 495,600
20
P 99,120
2,250
P 101,370

P 600,000
676,680
P1,276,680
__101,370
P1,378,050

Problem XI
Under the acquisition method, the shares issued by WW are recorded at fair value:
Investment in BB (value of debt and shares issued) ............................
Common Stock (par value) ...............................................................
Additional Paid-in Capital (excess over par value) ......................
Liabilities .................................................................................................

900,000

150,000
450,000
300,000

The payment to the broker is accounted for as an expense. The stock issue cost is a
reduction in additional paid-in capital.
Acquisition expense ...................................................................................
Additional Paid-in Capital.........................................................................
Cash ...................................................................................................

30,000
40,000

70,000

Allocation of Acquisition-Date Excess Fair Value:

Consideration transferred (fair value) for BB Stock ............................
Book Value of BB, 6/30...............................................................................
Fair Value in Excess of Book Value ...................................................
Excess fair value (undervalued equipment) .........................................
Excess fair value (overvalued patented technology) ........................
Goodwill.................................................................................................
Consolidated Balances:
1. Net income (adjusted for combination expenses. The
figures earned by the subsidiary prior to the takeover
are not included) ...............................................................................................
2. Retained Earnings, 1/1 (the figures earned by the subsidiary
prior to the takeover are not included) ........................................................
3. Patented Technology (the parent's book value plus the fair
value of the subsidiary).....................................................................................
4. Goodwill (computed above) ...........................................................................
5. Liabilities (the parent's book value plus the fair value
of the subsidiary's debt plus the debt issued by the parent
in acquiring the subsidiary) ..............................................................................
6. Common Stock (the parent's book value after recording
the newly-issued shares) ...................................................................................
7. Additional Paid-in Capital (the parent's book value
after recording the two entries above).........................................................
Problem XII
1.
P15,000
2.
P65,000
3.
SS: P24,000
4.

=
=
=

BB P70,000
Fair value of SS as a
whole:
P200,000
10,000
40,000
9,000
P259,000

(P115,000 + P46,000) - P146,000

(P148,000 - P98,000) + P15,000
P380,000 - (P46,000 + P110,000
+ P75,000 + P125,000)
P94,000 - P24,000
Book value of SS shares
Differential assigned to inventory
(P195,000 - P105,000 - P80,000)
Differential assigned to buildings and equipment
(P780,000 - P400,000 - P340,000)
Differential assigned to goodwill
Fair value of SS

P900,000
770,000
P130,000
100,000
(20,000)
P 50,000

P210,000
800,000
1,180,000
50,000
1,210,000
510,000
680,000

5.
6.

65 percent
Capital Stock
Retained Earnings

= 1.00 (P90,650 / P259,000)

= P120,000
= P115,000

Problem XIII
1.
Investment in WP, Inc.
Contingent performance obligation
Cash
2.

500,000

12/31/x4 Loss from increase in contingent performance

obligation
Contingent performance obligation

5,000

12/31/x5 Loss from increase in contingent performance

obligation
Contingent performance obligation

10,000

12/31/x5 Contingent performance obligation

Cash
3. Cost Model/Initial Value Method
Investment in WP
Retained earnings-BS
Common stock
Retained earnings-WP
Investment in WP

50,000

30,000
200,000
180,000

Royalty agreements
Goodwill
Investment in WP

90,000
60,000

Dividend income
Dividends paid

35,000

Amortization expense
Royalty agreements

10,000

35,000
465,000

5,000

10,000
50,000

30,000

380,000

150,000
35,000
10,000

Problem XIV (Consolidated accounts one year after acquisition)

SS acquisition fair value ($10,000 in
stock issue costs reduce
additional paid-in capital) ................................ P680,000
Book value of subsidiary
(1/1/x4stockholders' equity balances) ............... (480,000)
Fair value in excess of book value ......................... P200,000
Excess fair value allocated to copyrights
Life
Amortizations
based on fair value ............................................ 120,000
6 yrs.
P20,000
Goodwill ...................................................................... P 80,000 indefinite
_____-0Total .......................................................................
P20,000

1. Consolidated copyrights
PP (book value) .................................................................
SS (book value) ..................................................................
Allocation (above) ...........................................................
Excess amortizations, 20x4 ...............................................
Total ..............................................................................
2. Consolidated net income, 20X4
Revenues (add book values) .........................................
Expenses:
Add book values ........................................................
Excess amortizations ..................................................
Consolidated net income ................................................

P900,000
400,000
120,000
(20,000)
P1,400,000
P1,100,000
P700,000
20,000

720,000
P380,000

3. Consolidated retained earnings, 12/31/x4

Retained earnings 1/1/x4 (PP) ........................................
P600,000
Net income 20x4 (above) ...............................................
380,000
Dividends paid 20x4 (PP) .................................................
(80,000)
Total ..............................................................................
P900,000
SSs retained earnings balance as of January 1, 20x4, is not included because these
operations occurred prior to the purchase. SS's dividends were paid to PP and
therefore are excluded because they are intercompany in nature.
4. Consolidated goodwill, 12/31/x4
Allocation (above) ...........................................................

P80,000

Problem XV
Consolidated balances three years after the date of acquisition. Includes questions about
parent's method of recording investment for internal reporting purposes.)
1. Acquisition-Date Fair Value Allocation and Amortization:
Consideration transferred 1/1/09 ........................... P600,000
Book value (given) ....................................................
(470,000)
Annual
Fair value in excess of book value ...................
130,000
Excess
Allocation to equipment based on
Life Amortizations
difference in fair value and
book value ...........................................................
90,000
10 yrs.
P9,000
Goodwill ......................................................................
P40,000 indefinite
-0Total .......................................................................
P9,000
Consolidated Balances
Depreciation expense = P659,000 (book values plus P9,000 excess depreciation)
Dividends Paid = P120,000 (parent balance only. Subsidiary's dividends are
eliminated as intercompany transfer)
Revenues = P1,400,000 (add book values)
Equipment = P1,563,000 (add book values plus P90,000 allocation less three years
of excess depreciation [P27,000])
Buildings = P1,200,000 (add book values)
Goodwill = P40,000 (original residual allocation)
Common Stock = P900,000 (parent balance only)

2. The parent's choice of an investment method has no impact on the consolidated

totals. The choice of an investment method only affects the internal reporting of the
parent. Under PAS 27, it requires a choice between cost model or under PFRS 9
(known as fair value model)
3. The cost model or initial value method is used. The parent's Investment in Subsidiary
account still retains the original consideration transferred of P600,000. In addition, the
Investment Income account equals the amount of dividends paid by the subsidiary.
4. If the equity method had been applied which is not allowed under PAS 27 for a
parent to consolidate, the Investment Income account would have included both
the equity accrual of P100,000 and excess amortizations of P9,000 for a balance of
P91,000.
Problem XVI
1.
Net income for 20x4:
Operating income
Income from subsidiary
Net income
2. Consolidated net income is P125,000 (P90,000 + P35,000).
3. Retained earnings reported at December 31, 20x4:
Retained earnings, January 1, 20x4
Net income for 20x4
Dividends paid in 20x4
Retained earnings, December 31, 20x4

QQ
P 90,000
24,500
P114,500

NN
P35,000

QQ
P290,000
114,500
(30,000)
P374,500

NN
P40,000
35,000
(10,000)
P65,000

P35,000

4. Consolidated retained earnings at December 31, 20x4, is equal to the P374,500 retained
earnings balance reported by QQ.
5. When the cost method is used, the parent's proportionate share of the increase in retained
earnings of the subsidiary subsequent to acquisition is not included in the parent's retained
earnings. Thus, this amount must be added to the total retained earnings reported by the
parent in arriving at consolidated retained earnings.
Problem XVII
(Several valuation and income determination questions for a business combination involving a
non-controlling interest.)
Business combinations are recorded generally at the fair value of the consideration transferred by
the acquiring firm plus the acquisition-date fair value of the non-controlling interest.
PSs consideration transferred (P31.25 80,000 shares).............................................
Non-controlling interest fair value (P30.00 20,000 shares) ......................................
SRs total fair value 1/1/09 ...............................................................................................
1.

P2,500,000
P600,000
P3,100,000

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

In periods subsequent to acquisition, the subsidiarys assets and liabilities are reported at their
acquisition-date fair values adjusted for amortization and depreciation. Except for certain
financial items, they are not continually adjusted for changing fair values.

3. SRs total fair value 1/1/09 ...............................................................................................

SRs net assets book value...............................................................................................
Excess acquisition-date fair value over book value ...................................................
Adjustments from book to fair values ............................................................................
Buildings and equipment........................................................
(250,000)
Trademarks ................................................................................
200,000
Patented technology..............................................................
1,060,000
Unpatented technology.........................................................
600,000
Goodwill
...................................................................................................................

P3,100,000
1,290,000
P1,810,000

4. Combined revenues .........................................................................................................

Combined expenses.........................................................................................................
Building and equipment excess depreciation ............................................................
Trademark excess amortization......................................................................................
Patented technology amortization ...............................................................................
Unpatented technology amortization ..........................................................................
Consolidated net income ...............................................................................................

P4,400,000
(2,350,000)
50,000
(20,000)
(265,000)
(200,000)
P1,615,000

To non-controlling interest:
SRs revenues ...............................................................................................................
SRs expenses...............................................................................................................
Total excess amortization expenses (above)........................................................
SRs adjusted net income .........................................................................................
Non-controlling interest percentage ownership ..................................................
Non-controlling interest share of consolidated net income ..............................

P1,400,000
(600,000)
(435,000)
P365,000
20%
P73,000

To controlling interest:
Consolidated net income.........................................................................................
Non-controlling interest share of consolidated net income ..............................
Controlling interest share of consolidated net income ......................................

P1,615,000
(73,000)
P1,542,000

1,610,000
P 200,000

-ORPSs revenues ...............................................................................................................

PSs expenses...............................................................................................................
PSs separate net income .........................................................................................
PSs share of SRs adjusted net income
(80% P365,000)............................................................................................
Controlling interest share of consolidated net income ......................................

P3,000,000
1,750,000
P1,250,000

5. Fair value of non-controlling interest January 1, 20x4 ................................................

20x4 income ....................................................................................................... 73,000
Dividends (20% P30,000) ...............................................................................................
Non-controlling interest December 31, 20x4................................................................

P600,000

292,000
P1,542,000

(6,000)
P 667,000

6. If SRs acquisition-date total fair value was P2,250,000, then a bargain purchase has
occurred.

SRs total fair value 1/1/09 ...............................................................................................

Collective fair values of SRs net assets.........................................................................
Bargain purchase ..............................................................................................................

P2,250,000
P2,300,000
P50,000

The acquisition method requires that the subsidiary assets acquired and liabilities assumed be
recognized at their acquisition date fair values regardless of the assessed fair value.
Therefore, none of SRs identifiable assets and liabilities would change as a result of the
assessed fair value. When a bargain purchase occurs, however, no goodwill is recognized.
Problem XVIII (Full-Goodwill)
A variety of consolidated balances-midyear acquisition)
Book value of RR, 1/1 (stockholders' equity accounts)
(P100,000 + P600,000 + P700,000) ......................
P1,400,000
Increase in book value:
Net Income (revenues less cost of
goods sold and expenses) ................................
P120,000
Dividends ..............................................................
(20,000)
Change during year .................................................
P100,000
Change during first six months of year ..........
50,000
Book value of RR, 7/1 (acquisition date) .
P1,450,000
(Full-Goodwill)
Consideration transferred by KL (P1,330,000 +
P30,000)................................................................... P1,360,000
Non-controlling interest fair value .................................
300,000
RRs fair value (given) ....................................................... P1,630,000
Note: The fair value of subsidiary amounting P1,630,000, indicates a fair value of NCI
amounting to P300,000 (refer to above computation), which is lower compared to the FV
of the NCI based on FV of SHE of Subsidiary (RR), computed as follows:
BV of SHE of Subsidiary (RR) ...................................... P1,450,000
Adjustments to reflect fair value (undervaluation)
150,000
FV of SHE of Subsidiary (RR)....................................... P 1,600,000
Multiplied by: NCI%.....................................................
20%
FV of NCI.
P 320,000
Consideration transferred by KL (P1,330,000 +
P30,000)...................................................................
Non-controlling interest fair value .................................
RRs fair value (given) .......................................................
Book value of RR, 7/1 ........................................................
Fair value in excess of book value .................................
Excess fair value assigned
Trademarks .....................................................................
Goodwill (full-goodwill) ................................................
Total
..........................................................................

P1,360,000
___320,000
P1,680,000
(1,450,000)
P 230,000

Annual Excess
Life
Amortizations
150,000 5 years
P30,000
P 80,000 indefinite
-0P30,000

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

of goodwill under the full-goodwill approach as compared to goodwill computed under

the partial-goodwill approach.
(Partial-Goodwill)
Consideration transferred by KL ..................................... P 1,360,000
Less: Book value of SHE RR (P1,450,000 x 80%)..
1,160,000
Allocated excess. P 200,000
Less: Over/under valuation of A and L:
P150,000 x 80%..............................................
120,000
Goodwill - partial ............................................................... P 80,000
Note that the goodwill under the full-goodwill and partial-goodwill approach are the
same because the FV of the NCI based on the FV of SHE of subsidiary (P320,000) is higher
compared to the imputed or the computed residual amount of NCI (P300,000).
Consolidation Totals:
Expenses, P265,000 = P200,000 KK operating expenses plus P50,000 (post-acquisition
subsidiary operating expenses) plus year excess amortization of P15,000.
Dividends paid = P80,000
Sales, P1,050,000 = P800,000 KK revenues plus P250,000 (post-acquisition subsidiary
revenue, P500,000 x 1/2)
Equipment, none
Depreciation expense, none
Subsidiarys net income, P60,000 = [(P500,000 P280,000 P100,000) x 1/2]
Buildings, none
Goodwill (full), P80,000; Goodwill (partial), P80,000
Consolidated Net Income, P245,000
Sales (1)
P1,050,000
Cost of goods sold (2)
540,000
Operating expenses (3)
__265,000
Net Income
P 245,000
Non-controlling Interest in Sub. Income (4)
P
9,000
Controlling Interest in CNI
P 236,000
(1) P800,000 KK revenues plus P250,000 (post-acquisition subsidiary revenue)
(2) P400,000 KK COGS plus P140,000 (post-acquisition subsidiary COGS)
(3) P200,000 KK operating expenses plus P50,000 (post-acquisition subsidiary
operating expenses) plus year excess amortization of P15,000
(4) 20% of post-acquisition subsidiary income less excess fair value amortization
[20% (120,000 30,000) year] = P9,000
Retained Earnings, 1/1 = P1,400,000 (the parents balance because the subsidiary
was acquired during the current year)
Trademark = P935,000 (add the two book values and the excess fair value allocation
after taking one-half year excess amortization)
Goodwill (full)= P80,000 (the original allocation)
Goodwill (partial) = P80,000 (the original allocation)
Problem XIX (Consolidated balances after a mid-year acquisition)
Note: Investment account balance indicates the initial value method.
Consideration transferred ........................................
Non-controlling interest fair value ..........................
FV of SHE - subsiary ....................................................
Less: Book value of DD (below)................................

P526,000
300,000
P826,000
(765,000)

Fair value in excess of book value (positive) ........

Excess assigned
based on fair value:
Equipment ......................................................
Goodwill (full) .................................................
Total .......................................................................
Amortization for 9 months .................................

P 61,000

Annual Excess
Life
Amortizations
(30,000) 5 years
P(6,000)
P 91,000 indefinite
-0P(6,000)
P(4,500)

Acquisition-Date Subsidiary Book Value

Book value of Duncan, 1/1/x4 (CS + 1/1 RE) ............................
Increase in book value-net income (dividends
were paid after acquisition) .................................................
Time prior to purchase (3 months) ..............................................
Book value of DD, 4/1/x4 (acquisition date) ............................

P740,000
P100,000

25,000
P765,000

* The fair value of NCI amounting to P300,000 is higher compared to the FV of the NCI
based on FV of SHE of Subsidiary (RR), computed as follows:
BV of SHE of Subsidiary (DD) ..
Adjustments to reflect fair value (undervaluation)
FV of SHE of Subsidiary (DD) ................................
Multiplied by: NCI% ...............................................
FV of NCI.
(Partial-Goodwill)
Consideration transferred .................................
Less: Book value of SHE DD (P765,000 x 60%)
Allocated excess
Less: Over/under valuation of A and L:
(P30,000 x 60%)...........................................
Goodwill - partial..................................................

P765,000
( 30,000)
P735,000
40%
P294,000
P 526,000
459,000
P 67,000
( 18,000)
P 85,000

1. Consolidated Income Statement:

Revenues (1)
P825,000
Cost of goods sold (2)
P405,000
Operating expenses (3)
214,500
619,500
Consolidated net income
P 205,500
Noncontrolling interest in CNI (4)
28,200
Controlling interest in CNI
P 177,300
(1) P900,000 combined revenues less P75,000 (preacquisition subsidiary revenue)
(2) P440,000 combined COGS less P35,000 (preacquisition subsidiary COGS)
(3) P234,000 combined operating expenses less P15,000 (preacquisition subsidiary
operating expenses) less nine month excess overvalued equipment depreciation
reduction of P4,500
(4) 40% of post-acquisition subsidiary income less excess amortization
2.
Goodwill, full = P91,000 (original allocation); Goodwill , partial = P85,000
Equipment = P774,500 (add the two book values less P30,000 reduction to fair value plus
P4,500 nine months excess amortization)
Common Stock = P630,000 (P company balance only)
Buildings = P1,124,000 (add the two book values)
Dividends Paid = P80,000 (P company balance only)

Problem XX
(Determine consolidated balances for a step acquisition).
1. AD fair value implied by price paid by MM
P560,000 70% =

P800,000

2. Revaluation gain
1/1 equity investment in AD (book value)
25% income for 1st 6 months
Investment book value at 6/30
Fair value of investment
Gain on revaluation to fair value

P178,000
8,750
186,750
200,000
P13,250

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

P800,000
735,000
P65,000
P65,000

4. Non-controlling interest
5% fair value balance at 6/30
5% Income from 6/30 to 12/31
5% dividends
Non-controlling interest 12/31

P40,000
1,750
(1,000)
P40,750

Problem XXI
Ps gain on sale of subsidiary stock is computed as follows:
Cash proceeds
Fair value of retained non-controlling interest equity investment (35%)
Carrying value of the non-controlling interest before deconsolidation
(15% or prior outside non-controlling interest in Subsidiary)
Less: Carrying value of Subsidiarys net assets
Gain on disposal or deconsolidation

720,000
420,000

120,000
P1,260,000
1,200,000
P 60,000

Read discussion on step-acquisition regarding the initial treatment of investment as FVTOCI

or FVTPL and its disposition. It is assumed that the investment above is FVTPL.
Problem XXII
P Companys additional paid-in capital arising sale of subsidiary shares is computed as follows:
Cash proceeds
Less: Carrying value of non-controlling interest (P720,000* x 10%)
Gain transfer within equity in Additional paid-in capital account

P 84,000
1,200,000
P 60,000

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

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

Problem XXIII
P Companys additional paid-in capital arising sale of subsidiary shares is computed as follows:
Cash proceeds from issuance of additional shares ..
P 210,000
Less: Carrying Value of non-controlling from issuance
of additional shares:
Non-controlling interest prior to issuance
of additional shares:
Book value of SHE before issuanceP720,000
x: Non-controlling interest.
20%* P 144,000
Non-controlling interest after issuance of
additional shares:
Book value of SHE before
issuance.P720,000
Additional issuance.. 210,000
BV of SHE after issuance.P930,000
x: Non-controlling interest...
36%** 334,800 190,800
Gain transfer within equity in
Additional paid-in capital account...............
P 19,200
* (120,000 96,000) / 120,000 = 20% ownership before additional issuance of shares.
** [(24,000 + 30,000) / (120.000 + 30,000)] = 36% ownership after additional issuance of shares
P Company recognizes an increases in its Investment in S from P576,000 (P720,000x 80%) to
P595,200 [P930,000 x (96,000/150,000) and in additional paid-in capital of P19,200.
Problem XXIV
1. Equity Method
Income accrual (80%) ...................................................................
Excess amortization expense .......................................................
Investment income ..................................................................

P56,000
(3,200)
P52,800

Initial fair value paid........................................................................

Income accrual 20x420x6 (P260,000 80%) ............................
Dividends 20x420x6 (P45,000 80%) .........................................
Excess Amortizations 20x420x6 (P3,200 3) .............................
Investment in TT12/31/x6 .....................................................

P664,000
208,000
(36,000)
(9,600)
P826,400

Equity Method same with No. 1

Acquisition-date fair value allocated to goodwill

Goodwill-full ( see Problem I above) .........................................
Goodwill-partial (see Problem I above)

P 800,000
300,000
80,000
(8,000)
P1,172,000
P
P

150,000
120,000

If the parent has been applying the equity method, the stockholders' equity accounts on its
books will already represent consolidated totals. The common stock and additional paid-in
capital figures to be reported are the parent balances only.
Common stock, P500,000
Additional paid-in capital, P280,000

Problem XXV
(Consolidated balances three years after purchase. Parent has applied the equity method.)
1. Schedule 1Acquisition-Date Fair Value Allocation and Amortization
JJs acquisition-date fair value . P206,000
Book value of JJ ...........................................
(140,000)
Fair value in excess of book value ...........
66,000
Excess fair value assigned to specific
accounts based on individual fair values
Equipment ..............................................
Buildings (overvalued) .........................
Goodwill ..................................................
Total .........................................................

54,400
(10,000)
P21,600

Life
8 yrs.
20 yrs.
indefinite

Annual Excess
Amortization
P6,800
(500)
-0P6,300

Investment in JJ Company12/31/x6
JJs acquisition-date fair value ...........................................................
20x4 Increase in book value of subsidiary
20x4 Excess amortizations (Schedule 1) ...........................................
20x5 Increase in book value of subsidiary ........................................
20x5 Excess amortizations (Schedule 1) ...........................................
20x6 Increase in book value of subsidiary ........................................
20x6 Excess amortizations (Schedule 1) ...........................................
Investment in J Company ............................................................

P206,000
40,000
(6,300)
20,000
(6,300)
10,000
(6,300)
P257,100

2. Equity in Subsidiary Earnings

Income accrual .....................................................................................
Excess amortizations (Schedule 1) ....................................................
Equity in subsidiary earnings ........................................................

P30,000
(6,300)
P23,700

3. Consolidated Net Income

Consolidated revenues (add book values) ....................................
Consolidated expenses (add book values) ....................................
Excess amortization expenses (Schedule 1) ....................................
Consolidated net income ...................................................................

P414,000
(272,000)
(6,300)
P135,700

4. Consolidated Equipment
Book values added together .............................................................
Allocation of purchase price ..............................................................
Excess depreciation (P6,800 3) .......................................................
Consolidated equipment .............................................................

P370,000
54,400
(20,400)
P404,000

5. Consolidated Buildings ........................................................................................

Book values added together .............................................................
Allocation of purchase price ..............................................................
Excess depreciation (P500 3) ..........................................................
Consolidated buildings ..................................................................

P288,000
(10,000)
1,500
P279,500

6. Consolidated goodwill
Allocation of excess fair value to goodwill .......................................

P21,600

7. Consolidated Common Stock............................................................................

P290,000
As a purchase, the parent's balance of P290,000 is used (the acquired company's
common stock will be eliminated each year on the consolidation worksheet).
8. Consolidated Retained Earnings .......................................................................
P410,000
Tyler's balance of P410,000 is equal to the consolidated total because the equity
method has been applied.
Problem XXVI
Computation of Goodwill:
Partial Goodwill or Proportionate Basis
Fair value of Subsidiary:
Consideration transferred
Less: BV of SHE of S (P1,200,000 + P600,000) x 80%
Allocated excess
Less: Over/under valuation of A and L: Inc. (Dec.)
Inventory (P725,000 P600,000) x 80%
Equipment (P1,075,000 P900,000) x 80%
Goodwill partial

Full-goodwill or Fair Value Basis

Fair value of Subsidiary:
Consideration transferred P1,970,000 / 80%
Less: BV of SHE of S (P1,200,000 + P600,000) x 100%
Allocated excess
Less: Over/under valuation of A and L: Inc. (Dec.)
Inventory (P725,000 P600,000) x 100%
Equipment (P1,075,000 P900,000) x 100%
Goodwill full
Amortization
Inventory: P125,000 x 60%
P125,000 x 40%
Equipment: P175,000 / 7 years
1.

20x4

Investment in S Company
Cash

P1,970,000
_1,440,000
P 530,000
P 100,000
140,000

__240,000
P 290,000

P2,467,500
1,800,000
P 662,500
P125,000
175,000

20x4
P 75,000
25,000
P 100,000

1,970,000

Cash (0.8 x P150,000)

Investment in S Company

120,000

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

600,000

__300,000
P362,500
20x5
P 50,000
25,000
P 75,000

1,970,000
120,000
600,000

20x5

Equity in Subsidiary Income

Investment in S Company

80,000

Cash (0.8 x P225,000)

Investment in S Company

180,000

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

720,000

Equity in Subsidiary Income

Investment in S Company
2.

20x4

(1) Equity in Subsidiary Income ((.80)(P750,000) -P80,000)

Dividends Declared (0.80 x P150,000)
Investment in S Company
(2) Beginning Retained Earnings - S Company
Common Stock- S Company
Investment in S Company
Noncontrolling Interest
(3) Inventory (P125,000 P75,000)
Cost of Goods Sold
Equipment (net)
Goodwill
Investment in S Company
(4) Depreciation Expense
Equipment (net)

20x5

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

Dividends Declared (0.80 x P225,000)
Investment in Superstition Company
(2) Beginning Retained Earnings-Superstition Company
Common Stock - Superstition Company.
Investment in Superstition Company
Non-controlling Interest
(P492,500 + (P1,200,000 P600,000) x .20)
(3) Investment in S Company
Non-controlling Interest
Cost of Goods Sold
Equipment (net)
Goodwill
Investment in S Company

60,000

520,000

600,000
1,200,000

50,000
75,000
175,000
362,500
25,000

660,000

80,000

180,000
720,000
60,000

120,000
400,000

1,307,500
492,500

662,500
25,000

180,000
480,000

1,200,000
1,200,000
612,500
60,000
15,000
50,000
175,000
362,500

662,500

(4) Investment in S Company

Non-controlling Interest
Depreciation Expense
Equipment (net)
3.

20,000
5,000
25,000

Consolidated Net Income for 20x5

Net income from own/separate operations
P Company (P1,000,000 P120,000)
S Company
Total
Less: Non-controlling Interest in Net Income*
Amortization of allocated excess
Goodwill impairment
Controlling Interest in Consolidated Net Income or Profit
attributable to equity holders of parent..
Add: Non-controlling Interest in Net Income (NCINI)
Consolidated Net Income for 20x4

50,000

P130,000
100,000
____0

P 880,000
__ 750,000
P1,630,000
230,000
P1,400,000
130,000
P1,530,000

Net income of subsidiary..

Amortization of allocated excess (P25,000 + P75,000)

P 750,000
( 100,000)
P650,000
20%
P 130,000

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

Non-controlling Interest in Net Income (NCINI)

Note: Regardless on the method used in recording investments (cost model or equity
method) the manner of computing CI-CNI, NCI-CNI and CNI are exactly the same.
Problem XXVII
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..
Less: Book value of stockholders equity of S:
Common stock (P240,000 x 80%).
Retained earnings (P120,000 x 80%)...
Allocated excess (excess of cost over book value)..
Less: Over/under valuation of assets and liabilities:
Increase in inventory (P6,000 x 80%)
Increase in land (P7,200 x 80%).
Increase in equipment (P96,000 x 80%)
Decrease in buildings (P24,000 x 80%).....
Decrease in bonds payable (P4,800 x 80%)
Positive excess: Partial-goodwill (excess of cost over
fair value)...

P 372,000
P 192,000
96,000
P 4,800
5,760
76,800
( 19,200)
3,840

72,000

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

S Co.
Book value

288,000
84,000

S Co.
Fair value

30,000

(Over) Under
Valuation

Inventory...

P 24,000

Land

48,000

55,200

7,200

Equipment (net).........

84,000

180,000

96,000
(24,000)

Buildings (net)

P 12,000

6,000

168,000

144,000

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

S Co.
Fair value

Increase
(Decrease)

Equipment ..................

180,000

Less: Accumulated depreciation..

96,000

( 96,000)

Net book value...

84,000
S Co.
Book value

180,000
S Co.
Fair value

96,000
(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
Inventory

Over/
Under

Life

Annual
Amount

P 6,000

Current
Year(20x4)

20x5

P 6,000

Subject to Annual Amortization

Equipment (net).........
Buildings (net)

96,000

12,000

(25,000)

( 6,000)

(6,000)

4,800

Bonds payable

1,200

P 13,200

P 7,200

P 372,000

Fair value of NCI (given) (20%)

93,000

Fair value of Subsidiary (100%)

P 465,000

Less: Book value of stockholders equity of S (P360,000 x 100%)

__360,000

Allocated excess (excess of cost over book value)..

Add (deduct): (Over) under valuation of assets and liabilities
(P90,000 x 100%)
Positive excess: Full-goodwill (excess of cost over
fair value)...

105,000
90,000

15,000

In this case, the goodwill was proportional to the controlling interest of 80% and non-controlling
interest of 20% computed as follows:
Goodwill applicable to P
Goodwill applicable to NCI..
Total (full) goodwill..

The goodwill impairment loss would be allocated as follows

Goodwill impairment loss attributable to P or controlling
Interest
Goodwill applicable to NCI..
Goodwill impairment loss based on 100% fair value or fullGoodwill

Value
P12,000
3,000
P15,000

% of Total
80.00%
20.00%
100.00%

Value
P 3,000

% of Total
80.00%

750

20.00%

P 3,750

100.00%

20x4: First Year after Acquisition

Parent Company Equity Method Entry
The following are entries recorded by the P in 20x4 in relation to its subsidiary investment:
January 1, 20x4:
(1) Investment in S Company
Cash..

372,000

Acquisition of S Company.

January 1, 20x4 December 31, 20x4:

(2) Cash
Investment in S Company (P36,000 x 80%).

28,800

December 31, 20x4:

(3) Investment in S Company
Investment income (P60,000 x 80%)

48,000

372,000

28,800

Record dividends from S Company.

48,000

Record share in net income of subsidiary.

December 31, 20x4:

(4) Investment income [(P13,200 x 80%) + P3,000*, goodwill
impairment loss)]
Investment in S Company

13,560
13,560

Record amortization of allocated excess of inventory, equipment,

buildings and bonds payable and goodwill impairment loss.

Thus, the investment balance and investment income in the books of P Company is as follows:
Cost, 1/1/x4
NI of S
(60,000 x 80%)
Balance, 12/31/x4

Amortization &
impairment

Investment in S
372,000
28,800
48,000
377,640

13,560

Investment Income
13,560

48,000
34,440

Dividends S (36,000x 80%)

Amortization &
impairment

NI of S
(P60,000 x 80%)
Balance, 12/31/x4

Consolidation Workpaper First Year after Acquisition

The schedule of determination and allocation of excess presented above provides complete
guidance for the worksheet eliminating entries on January 1, 20x4:
(E1) Common stock S Co
Retained earnings S Co
Investment in Son Co
Non-controlling interest (P360,000 x 20%)..

240,000
120.000

(E2) Inventory.
Accumulated depreciation equipment..
Accumulated depreciation buildings..
Land.
Discount on bonds payable.
Goodwill.
Buildings..

6,000
96,000
192,000
7,200
4,800
12,000

To eliminate investment on January 1, 20x4 and equity accounts

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

288,000
72,000

216,000

Non-controlling interest (P96,000 x 20%)..

Investment in S Co.

18,000
84,000

To eliminate investment on January 1, 20x4 and allocate excess of

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

(E3) Cost of Goods Sold.

Depreciation expense..
Accumulated depreciation buildings..
Interest expense
Goodwill impairment loss.
Inventory..
Accumulated depreciation equipment..
Discount on bonds payable
Goodwill

6,000
6,000
6,000
1,200
3,000

6,000
12,000
1,200
3,000

To provide for 20x4 impairment loss and depreciation and

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

Inventory sold
Equipment
Buildings
Bonds payable
Totals

Cost of
Goods
Sold
P 6,000
_______
P 6,000

Depreciation/
Amortization
Expense

Amortization
-Interest

P 12,000
( 6,000)
_______
P 6,000

P 1,200
P1,200

Total

13,200

It should be observed that the goodwill computed above was proportional to the controlling
interest of 80% and non-controlling interest of 20% computed as follows:
Value
P12,000
3,000
P15,000

Goodwill applicable to parent

Goodwill applicable to NCI..
Total (full) goodwill..

% of Total
80.00%
20.00%
100.00%

Therefore, the goodwill impairment loss of P3,750 based on 100% fair value or full-goodwill would
be allocated as follows:
Goodwill impairment loss attributable to parent or controlling
Interest
Goodwill impairment loss applicable to NCI..
Goodwill impairment loss based on 100% fair value or fullGoodwill
(E4) Investment income
Non-controlling interest (P36,000 x 20%)..
Dividends paid S
Investment in S Company

Value
P 3,000

% of Total
80.00%

625

20.00%

P 3,750
34,440
7,200

100.00%

To eliminate intercompany dividends and investment income under

equity method and establish share of dividends, computed as
follows:

Investment in S
NI of S
28,800
Dividends - S
(60,000
Amortization &
x 80%). 48,000
13,560
impairment
5,640

Investment Income
Amortization
impairment

13,560

48,000
34,440

36,000
5,640

NI of S
(60,000
x 80%)

After the eliminating entries are posted in the investment account, it should be observed that
from consolidation point of view the investment account is totally eliminated. Thus,
Investment in S
372,000
28,800

Cost, 1/1/x4
NI of Son
(60,000 x 80%)
Balance, 12/31/x4

48,000
377,640

377,640
Percentage of goodwill for amortization purposes:
Goodwill applicable to parent
Goodwill applicable to NCI
Total (full) goodwill

Dividends S (36,000x 80%)

Amortization &
impairment
(E1) Investment, 1/1/20x4
(E2) Investment, 1/1/20x4
(E4) Investment Income
and dividends

13,560
288,000
84,000
5,640
377,640

Value
P12,000
3,000
P15,000

% of Total
80.00%
20.00%
100.00%

The goodwill impairment loss of P3,750 based on 100% fair value or full-goodwill
would be allocated as follows:
Value
% of Total
Goodwill impairment loss attributable
P 3,000
80.00%
to parent or controlling Interest
Goodwill impairment loss applicable to
NCI..
750
_20.00%
Goodwill impairment loss based on
100% fair value or full-goodwill
P 3,750
100.00%

(E5) Non-controlling interest in Net Income of Subsidiary

Non-controlling interest ..

9,360

To establish non-controlling interest in subsidiarys adjusted net

income for 20x4 as follows:
Net income of subsidiary..
Amortization of allocated excess [(E3)]...
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI)

9,360

P 60,000
( 13,200)
P 46,800
20%
P 9,360

Subsidiary accounts are adjusted to full fair value regardless on the controlling interest
percentage or what option used to value non-controlling interest or goodwill.
Worksheet for Consolidated Financial Statements, December 31, 20x4.
Equity Method (Partial-goodwill)
80%-Owned Subsidiary
December 31, 20x4 (First Year after Acquisition)
Income Statement
Sales
Investment income
Total Revenue
Cost of goods sold
Depreciation expense
Interest expense
Other expenses
Goodwill impairment loss
Total Cost and Expenses
Net Income
NCI in Net Income - Subsidiary
Net Income to Retained Earnings

P Co
P480,000
34,440
P513,600
P204,000
60,000
48,000
P312,000
P202,440
P202,440

S Co.
P240,000
P240,000
P138,000
24,000
18,000
P180,000
P 60,000
P 60,000

Dr.

(4)

34,440

(3)
(3)
(3)

6,000
6,000
1,200

(3)

3,000

(5)

9,360

Cr.

Consolidated
P 720,000
_________
P 720,000
P 348,000
90,000
1,200
66,000
3,000
P508,200
P211,800
( 9,360)
P202,440

Statement of Retained Earnings

P360,000

20x5: Second Year after Acquisition

202,440
P562,440

P120,000
60,000
P180,000

72,000
-

36,000

P490,440

P144,000

232,800
90,000
120,000
210,000
240,000
720,000

P 90,000
60,000
90,000
48,000
180,000
540,000

377,640
P1,990,440

P1,008,000

P 135,000
405,000

P 96,000
288,000

120,000
240,000
600,000

120,000
120,000

202,440
P562,440
(4)

72,000
-

36,000

P490,440
P
(2)
(2)

6,000
7,200

(2)
(2)

4,800
12,000

(3)

240,000
144,000

(1) 240,000

_________
P1,990,440

_________
P1,008,000

__________
P 751,200

(10) 7,200

6,000

(2) 216,000
(3) 1,200
(3) 3,000
(2) 288,000
(2) 84,000
(4) 5,640

(2) 96,000 (3)

(8) 192,000
(9)
6,000

490,440

Sales
Less: Cost of goods sold
Gross profit
Less: Depreciation expense
Other expense
Net income from its own separate operations
Add: Investment income
Net income
Dividends paid

P360,000

(1) 120,000

P2,424,600

12,000

P147,000
495,000
240,000
360,000
600,000

(1 ) 72,000
(2) 18,000
(5) 9,360
P 751,200

P Co.
P 540,000
216,000
P 324,000
60,000
72,000
P 192,000
66,240
P 258,240
P 72,000

322,800
150,000
210,000
265,200
420,000
1,044,000
3,600
9,000

490,440
____92,160
P2,424,600

S Co.
P 360,000
192,000
P 168,000
24,000
54,000
P 90,000
P 90,000
P 48,000

No goodwill impairment loss for 20x5.

Parent Company Equity Method Entry
The following are entries recorded by the parent in 20x5 in relation to its subsidiary investment:
January 1, 20x5 December 31, 20x5:
(2) Cash
Investment in S Company (P48,000 x 80%).

38,400

December 31, 20x5:

(3) Investment in S Company
Investment income (P90,000 x 80%)

72,000

Record dividends from S Company.

Record share in net income of subsidiary.

38,400

72,000

December 31, 20x5:

(4) Investment income (P7,200 x 80%)
Investment in S Company

5,760

Record amortization of allocated excess of inventory, equipment,

buildings and bonds payable

Thus, the investment balance and investment income in the books of P Company is as follows:
Cost, 1/1/x5
NI of S
(90,000 x 80%)
Balance, 12/31/x5

Investment in S
377,640
38,400
72,000
405,480

5,760

Investment Income

Amortization
(7,200 x 80%)

5,760

72,000
66,240

Dividends S (48,000x 80%)

Amortization
(P7,200 x 80%)

NI of S
(90,000 x 80%)
Balance, 12/31/x4

Consolidation Workpaper Second Year after Acquisition

The schedule of determination and allocation of excess presented above provides complete
guidance for the worksheet eliminating entries:
(E1) Common stock S Co
Retained earnings S Co, 1/1/x5.
Investment in S Co (P384,000 x 80%)
Non-controlling interest (P384,000 x 20%)..

240,000
144.000

(E2) Accumulated depreciation equipment (P96,000 P12,000)

Accumulated depreciation buildings (P192,000 + 6,000)
Land.
Discount on bonds payable (P4,800 P1,200).
Goodwill (P12,000 P3,000)..
Buildings..
Non-controlling interest [(P90,000 P13,200) x 20%]
Investment in S Co.

84,000
198,000
7,200
3,600
9,000

To eliminate investment on January 1, 20x5 and equity accounts

of subsidiary on date of acquisition; and to establish noncontrolling interest (in net assets of subsidiary) on 1/1/20x5.

To eliminate investment on January 1, 20x5 and allocate excess of

cost over book value of identifiable assets acquired, with remainder
to the original amount of goodwill; and to establish non- controlling
interest (in net assets of subsidiary) on 1/1/20x5.

(E3) Depreciation expense..

Accumulated depreciation buildings..
Interest expense
Accumulated depreciation equipment..
Discount on bonds payable

To provide for 20x5 depreciation and amortization on differences

between acquisition date fair value and book value of Sons
identifiable assets and liabilities as follows:

Inventory sold
Equipment

Depreciation/
Amortization
Expense
P 12,000

Amortization
-Interest

Total

6,000
6,000
1,200

307,200
76,800

216,000
15,360
70,440

12,000
1,200

Buildings
Bonds payable
Totals

( 6,000)
_______
P 6,000

P 1,200
P1,200

P7,,200

(E4) Investment income

Non-controlling interest (P48,000 x 20%)..
Dividends paid S
Investment in S Company

66,240
9,600

48,000
27,840

To eliminate intercompany dividends and investment income under

equity method and establish share of dividends, computed as
follows:

Investment in S
NI of S
38,400
Dividends S
(90,000
Amortization
x 80%). 72,000
5,760
(P7,200 x 80%)
27,840

Investment Income
Amortization
(P7,200 x 80%)

5,760

72,000
66,240

NI of S
(90,000
x 80%)

Investment in S
377,640
38,400
72,000
405,480

405,480

Dividends S (48,000x 80%)

Amortization
(7,200 x 80%)
(E1) Investment, 1/1/20x5
(E2) Investment, 1/1/20x5
(E4) Investment Income
and dividends

5,760
307,200
70,440
27,840
405,480

(E5) Non-controlling interest in Net Income of Subsidiary

Non-controlling interest ..

16,560

To establish non-controlling interest in subsidiarys adjusted net

income for 20x4 as follows:
Net income of subsidiary..
Amortization of allocated excess [(E3)]...
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI)

P 90,000
( 7,200)
P 82,800
20%
P 16,560

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

Equity Method (Partial-goodwill)
80%-Owned Subsidiary
December 31, 20x5 (Second Year after Acquisition)
Income Statement
Sales
Investment income
Total Revenue
Cost of goods sold
Depreciation expense
Interest expense
Other expenses
Goodwill impairment loss
Total Cost and Expenses
Net Income
NCI in Net Income - Subsidiary
Net Income to Retained Earnings

P Co
P540,000
66,240
P606,000
P216,000
60,000
72,000
P348,000
P258,240
P258,240

16,560

S Co.
P360,000
P360,000
P192,000
24,000
54,000
P270,000
P 90,000
P 90,000

Dr.

(4)

66,240

(3)
(3)

6,000
1,200

(5)

16,560

Cr.

Consolidated
P 900,000
___________
P 900,000
P 408,000
90,000
1,200
126,000
P 625,200
P 274,800
( 16,560)
P258,240

Statement of Retained Earnings

Total

P490,440

258,240
P748,680

P144,000
90,000
P234,000

72,000
-

48,000

P676,680

P186,000

P676,680

265,200
180,000
216,000
210,000
240,000
720,000

P 102,000
96,000
108,000
48,000
180,000
540,000

P 367,200
276,000
324,000
265,200
420,000
1,044,000
2,400
9,000

405,480
P2,236,680

P1,074,000

P 150,000
450,000

P 102,000
306,000

120,000
240,000
600,000

120,000
120,000

676,680

___ _____
P2,236,680

240,000
186,000

_________
P1,074,000

(1) 144,000

258,240
P748,680
(4)

(2)

7,200

(2)
(2)

3,600
9,000

(2)

48,000

(3) 216,000
(3) 1,200
(1) 307,200
(2) 70,440
(4) 27,840

84,000

(2) 198,000
(3) 6,000

(3)

12,000

9,600

__________
P 794,400

P2,707,800
P180,000
552,000
240,000
360,000
600,000

(1) 240,000
(7)

72,000
-

676,680
(2 ) 76,800
(2) 15,360
(5) 16,560
P 794,400

____99,120
P2,707,800

Note: Using cost model or equity method, the consolidated net income, consolidated retained
earnings, non-controlling interests, consolidated equity on December 31, 20x4 and 20x5 are
exactly the same (refer to Problem VI solution).
5. 1/1/20x4
a. On date of acquisition the retained earnings of parent should always be considered as
the consolidated retained earnings, thus:
b.

Consolidated Retained Earnings, January 1, 20x4

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

Non-controlling interest (partial-goodwill), January 1, 20x4

P360,000

P 240,000
120,000
P 360,000
90,000
P450,000
20
P 90,000

Consolidated SHE:
Stockholders Equity
Common stock, P10 par
Retained earnings
Parents Stockholders Equity / CI - SHE
NCI, 1/1/20x4
Consolidated SHE, 1/1/20x4

P 600,000
360,000
P 960,000
___90,000
P1,050,000

12/31/20x4:
a. CI-CNI

Consolidated Net Income for 20x4

Net income from own/separate operations
P Company
S Company
Total
Less: Non-controlling Interest in Net Income*
Amortization of allocated excess (refer to amortization above)
Goodwill impairment (impairment under partial-goodwill approach)
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of P..
Add: Non-controlling Interest in Net Income (NCINI)
Consolidated Net Income for 20x4

P 9,360
13,200
3,000

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

Non-controlling Interest in Net Income (NCINI)

25,560
P202,440
9,360
P211.800

b. NCI-CNI

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

Net income of S Company
Less: Amortization of allocated excess / goodwill impairment
(refer to amortization table above)

P168,000
60,000
P228,000

P 60,000
13,200
P 46,800
20%
P 9,360

c. CNI, P211,800 refer to (a)

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

P360,000
202,440
P562,440
72,000
P490,440

P 240,000
P120,000
60,000
P180,000
36,000

144,000
P 384,000
90,000
( 13,200)
P460,000
20
P 92,160

Consolidated SHE:
Stockholders Equity
Common stock, P10 par
Retained earnings
Ps Stockholders Equity / CI SHE, 12/31/20x4
NCI, 12/31/20x4
Consolidated SHE, 12/31/20x4

P 600,000
490,440
P1,090,440
___92,160
P1,182,600

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

Consolidated Net Income for 20x5

P16,560
__7,200

P192,000
90,000
P282,000
23,760
P258,240
16,560
P274,800

b. NCI-CNI

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

P 90,000
80,400
P 82,800
20%
P 16,560

c. CNI, P274,800 refer to (a)

P484,800

P 144,000
120,000
P 24,000
13,200
P 10,800
80%
P 8,640

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

(P3, 750 x 80%)
3,000
5,640
Consolidated Retained earnings, January 1, 20x5
P 490,440
Add: Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent for 20x5
258,240
Total
P748,680
Less: Dividends paid P Company for 20x5
72,000
Consolidated Retained Earnings, December 31, 20x5
P676,680
*this procedure would be more appropriate, instead of multiplying the full-goodwill impairment loss of P3,750 by
80%. There might be situations where the controlling interests on goodwill impairment loss would not be
proportionate to NCI acquired.

Non-controlling interest (partial-goodwill), December 31, 20x5

Common stock S Company, December 31, 20x5
Retained earnings S Company, December 31, 20x5
Retained earnings S Company, January 1, 20x5
Add: Net income of S for 20x5
Total
Less: Dividends paid 20x5
Stockholders equity S Company, December 31, 20x5
Adjustments to reflect fair value - (over) undervaluation of assets and
liabilities, date of acquisition (January 1, 20x4)
Amortization of allocated excess (refer to amortization above) :
20x4
20x5
Fair value of stockholders equity of subsidiary, December 31, 20x5
Multiplied by: Non-controlling Interest percentage...
Non-controlling interest (partial goodwill)..

P 240,000
P14,000
90,000
P234,000
48,000

186,000
P 426,000
90,000

P 13,200
7,200

Consolidated SHE:
Stockholders Equity
Common stock, P10 par
Retained earnings
Ps Stockholders Equity / CI SHE, 12/31/20x4
NCI, 12/31/20x4
Consolidated SHE, 12/31/20x4

( 20,400)
P 495,600
20
P 99,120

P 600,000
676,680
P1,276,680
___99,120
P1,1375,800

Problem XXVIII
Requirements 1 to 4:
Schedule of Determination and Allocation of Excess
Date of Acquisition January 1, 20x4

Fair value of Subsidiary (80%)

P 372,000
93,000
P 465,000
P 240,000
120,000
P

6,000
7,200
96,000
( 24,000)
4,800

90,000
P 15,000

A summary or depreciation and amortization adjustments is as follows:

Account Adjustments to be amortized
Inventory
Subject to Annual Amortization
Equipment (net).........
Buildings (net)
Bonds payable

360,000
P 105,000

Over/
under
P 6,000

Life
1

96,000
(24,000)
4,800

8
4
4

Annual
Amount
P 6,000

Current
Year(20x4)
P 6,000

20x5
P
-

12,000
( 6,000)
1,200
P 13,200

12,000
(6,000)
1,200
P 7,200

2x4: First Year after Acquisition

Parent Company Equity Method Entry
The following are entries recorded by the parent in 20x4 in relation to its subsidiary investment:
January 1, 20x4:
(1) Investment in S Company
Cash..

372,000

Acquisition of S Company.

January 1, 20x4 December 31, 20x4:

(2) Cash
Investment in S Company (P36,000 x 80%).

28,800

December 31, 20x4:

(3) Investment in S Company
Investment income (P60,000 x 80%)

48,000

372,000

28,800

Record dividends from S Company.

48,000

Record share in net income of subsidiary.

December 31, 20x4:

(4) Investment income [(P13,200 x 80%) + (P3,750 P750)*,
goodwill impairment loss)]
Investment in S Company

13,560
13,560

Record amortization of allocated excess of inventory, equipment,

buildings and bonds payable and goodwill impairment loss.
*this procedure would be more appropriate, instead of multiplying the full-goodwill impairment loss of P3,750 by 80%.
There might be situations where the controlling interests on goodwill impairment loss would not be proportionate to NCI
acquired (refer to Illustration 15-6).

Thus, the investment balance and investment income in the books of P Company is as follows:
Cost, 1/1/x4
NI of S
(60,000 x 80%)
Balance, 12/31/x4

Amortization &
Impairment

Investment in S
372,000
28,800
48,000
377,640

13,560

Investment Income
13,560

48,000
34,440

Dividends S (36,000x 80%)

Amortization &
Impairment

NI of S
(P60,000 x 80%)
Balance, 12/31/x4

Consolidation Workpaper First Year after Acquisition

240,000
120.000

(E2) Inventory.
Accumulated depreciation equipment..
Accumulated depreciation buildings..
Land.

6,000
96,000
192,000
7,200

To eliminate investment on January 1, 20x4 and equity accounts

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

288,000
72,000

Discount on bonds payable.

Goodwill.
Buildings..
Non-controlling interest (P90,000 x 20%) + [(P15,000, full
P12,000, partial goodwill)]
Investment in S Co.

4,800
15,000

21,000
84,000

To eliminate investment on January 1, 20x4 and allocate excess of

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

(E3) Cost of Goods Sold.

Depreciation expense..
Accumulated depreciation buildings..
Interest expense
Goodwill impairment loss.
Inventory..
Accumulated depreciation equipment..
Discount on bonds payable
Goodwill

6,000
6,000
6,000
1,200
3,750

To provide for 20x4 impairment loss and depreciation and

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

Inventory sold
Equipment
Buildings
Bonds payable
Totals

Cost of
Goods
Sold
P 6,000
_______
P 6,000

Depreciation/
Amortization
Expense

Amortization
-Interest

P 12,000
( 6,000)
_______
P 6,000

P 1,200
P1,200

216,000

6,000
12,000
1,200
3,750

Total

13,200

Value
P12,000
3,000
P15,000

% of Total
80.00%
20.00%
100.00%

Therefore, the goodwill impairment loss of P3,125 based on 100% fair value or full-goodwill would
be allocated as follows:
Goodwill impairment loss attributable to parent or controlling
Interest
Goodwill impairment loss applicable to NCI..
Goodwill impairment loss based on 100% fair value or fullGoodwill
(E4) Investment income
Non-controlling interest (P36,000 x 20%)..
Dividends paid S
Investment in S Company

To eliminate intercompany dividends and investment income under

equity method and establish share of dividends, computed as
follows:

Value
P 3,000

% of Total
80.00%

750

20.00%

P 3,750

100.00%

37,440
7,200

36,000
8,640

Investment in S
NI of S
28,800
Dividends S
(60,000
Amortization &
x 80%). 48,000
13,560
Impairment
5,640

Investment Income
Amortization &
Impairment

13,560

48,000
34,440

NI of Son
(60,000
x 80%)

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

Cost, 1/1/x4
NI of S
(60,000 x 80%)
Balance, 12/31/x4

Investment in S
372,000
28,800
40,000
377,640

377,640
Percentage of goodwill for amortization purposes:
Goodwill applicable to parent
Goodwill applicable to NCI
Total (full) goodwill

13,560
288,000
84,000
5,640
377,640

Value
P12,000
3,000
P15,000

Dividends S (36,000x 80%)

Amortization &
Impairment
(E1) Investment, 1/1/20x4
(E2) Investment, 1/1/20x4
(E4) Investment Income
and dividends

% of Total
80.00%
20.00%
100.00%

(E5) Non-controlling interest in Net Income of Subsidiary

Non-controlling interest ..
To establish non-controlling interest in subsidiarys adjusted net
income for 20x4 as follows:
Net income of subsidiary..
Amortization of allocated excess [(E3)]...

8,610

P 60,000
( 13,200)
P 46,800
20%
P 9,360

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

Non-controlling Interest in Net Income (NCINI)
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)
P 8,610
*this procedure would be more appropriate, instead of multiplying the
full-goodwill impairment loss of P3,750 by 20%. There might be situations
where the NCI on goodwill impairment loss would not be proportionate
to NCI acquired (refer to Illustration 15-6).

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

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

Equity Method (Full-goodwill)
80%-Owned Subsidiary
December 31, 20x4 (First Year after Acquisition)
Income Statement
Sales
Investment income
Total Revenue
Cost of goods sold
Depreciation expense
Interest expense
Other expenses
Goodwill impairment loss
Total Cost and Expenses
Net Income
NCI in Net Income - Subsidiary
Net Income to Retained Earnings

P Co
P480,000
34,440
P514,440
P204,000
60,000
48,000
P312,000
P202,440
P202,440

Statement of Retained Earnings

P360,000

20x5: Second Year after Acquisition

Sales

S Co.
P240,000
P240,000
P138,000
24,000
18,000
P180,000
P 60,000
P 60,000

202,440
P562,440

P120,000
60,000
P180,000

72,000
-

36,000

P490,440

P144,000

232,800
90,000
120,000
210,000
240,000
720,000

P 90,000
60,000
90,000
48,000
180,000
540,000

377,640
P1,990,440

P1,008,000

P 135,000
405,000

P 96,000
288,000

120,000
240,000
600,000

120,000
120,000

Dr.

(4)

34,440

(3)
(3)
(3)

6,000
6,000
1,200

(3)

3,750

(5)

8,610

Cr.

Consolidated
P 720,000
_________
P 720,000
P 348,000
90,000
1,200
66,000
3,750
P508,950
P211,050
( 8,610)
P202,440

P360,000

(1) 120,000

202,440
P562,440
(4)

72,000
-

36,000

P490,440
P
(2)
(2)

6,000
7,200

(2)
(2)

4,800
15,000

(2) 96,000
(2) 192,000
(3)
6,000

490,440

240,000
144,000

(1) 240,000

_________
P1,990,440

_________
P1,008,000

__________
P 754,200

(4)

7,200

(3)

6,000

(2) 216,000
(3) 1,200
(3) 3,750
(2) 288,000
(2) 84,000
(4) 5,640

(3)

322,800
150,000
210,000
265,200
420,000
1,044,000
3,600
11,250

P2,426,850

12,000

P147,000
495,000
240,000
360,000
600,000

(1 ) 72,000
(2) 21,000
(5) 8,610
P 754,200

P Co.
P 540,000

490,440
____94,410
P2,426,850

S Co.
P 380,000

Less: Cost of goods sold

Gross profit
Less: Depreciation expense
Other expense
Net income from its own separate operations
Add: Investment income
Net income
Dividends paid

216,000
P 324,000
60,000
72,000
P 192,000
66,240
P 258,240
P 72,000

192,000
P 168,000
24,000
54,000
P 90,000
P 90,000
P 48,000

No goodwill impairment loss for 20x5.

38,400

December 31, 20x5:

(3) Investment in S Company
Investment income (P90,000 x 80%)

72,000

38,400

Record dividends from S Company.

72,000

Record share in net income of subsidiary.

December 31, 20x5:

(4) Investment income (P7,200 x 80%)
Investment in S Company

5,760

Record amortization of allocated excess of inventory, equipment,

buildings and bonds payable

P Companys P12,000 portion of the differential related to goodwill related to goodwill is not
adjusted on the parents books following Option 2 as referred to above for goodwill impairment
loss. Even though the goodwill of the consolidated entity is impaired,
Thus, the investment balance and investment income in the books of P Company is as follows:
Cost, 1/1/x5
NI of S
(90,000 x 80%)
Balance, 12/31/x5

Amortization
(7,200 x 80%)

Investment in S
377,640
38,400
72,000
405,480

5,760

Investment Income
5,760

72,000
66,240

Dividends S (48,000x 80%)

Amortization
(P7,200 x 80%)

NI of S
(90,000 x 80%)
Balance, 12/31/x4

Consolidation Workpaper Second Year after Acquisition

The schedule of determination and allocation of excess presented above provides complete
guidance for the worksheet eliminating entries.
(E1) Common stock S Co
Retained earnings S Co, 1/1/x5.
Investment in S Co (P384,000 x 80%)
Non-controlling interest (P384,000 x 20%)..
To eliminate investment on January 1, 20x5 and equity accounts
of subsidiary on date of acquisition; and to establish noncontrolling interest (in net assets of subsidiary) on 1/1/20x5.

240,000
144.000

307,200
76,800

(E2) Accumulated depreciation equipment (P96,000 P12,000)

Accumulated depreciation buildings (P192,000 + P6,000)
Land.
Discount on bonds payable (P4,800 P1,200).
Goodwill (P15,000 P3,750)..
Buildings..
Non-controlling interest [(P90,000 P13,200) x 20%] +
[P3,000, full goodwill - [(P3,750, full-goodwill impairment
P3,000, partial- goodwill impairment)*
or (P3,750 x 20%)]
Investment in S Co.

84,000
198,000
7,200
3,600
11,250

216,000

17,610
70,440

To eliminate investment on January 1, 20x5 and allocate excess of

cost over book value of identifiable assets acquired, with remainder
to the original amount of goodwill; and to establish non- controlling
interest (in net assets of subsidiary) on 1/1/20x5.
*this procedure would be more appropriate, instead of multiplying the full-goodwill impairment loss of P3,750 by 20%.
There might be situations where the NCI on goodwill impairment loss would not be proportionate to NCI acquired (refer
to Illustration 15-6).

(E3) Depreciation expense..

Accumulated depreciation buildings..
Interest expense
Accumulated depreciation equipment..
Discount on bonds payable

6,000
6,000
1,200

To provide for 20x5 depreciation and amortization on differences

between acquisition date fair value and book value of Sons
identifiable assets and liabilities as follows:

Inventory sold
Equipment
Buildings
Bonds payable
Totals

Depreciation/
Amortization
Expense

Amortization
-Interest

P 12,000
( 6,000)
_______
P 6,000

P 1,200
P1,200

Total

P7,200

(E4) Investment income

Non-controlling interest (P48,000 x 20%)..
Dividends paid S
Investment in S Company

66,240
9,600

To eliminate intercompany dividends and investment income under

equity method and establish share of dividends, computed as
follows:

Investment in S
NI of S
38,400
Dividends - S
(90,000
Amortization
x 80%). 72,000
5,760
(P7,200 x 80%)
27,840

12,000
1,200

Investment Income
Amortization
(P7,200 x 80%)

5,760

72,000
66,240

48,000
27,840

NI of S
(90,000
x 80%)

Investment in S
377,640
38,400
72,000
405,480

405,480

5,760
307,200
70,440
27,840
405,480

Dividends S (48,000x 80%)

Amortization
(7,200 x 80%)
(E1) Investment, 1/1/20x5
(E2) Investment, 1/1/20x5
(E4) Investment Income
and dividends

(E5) Non-controlling interest in Net Income of Subsidiary

Non-controlling interest ..

16,560

To establish non-controlling interest in subsidiarys adjusted net

income for 20x5 as follows:
Net income of subsidiary..
Amortization of allocated excess [(E3)]...
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI)
Less: NCI on goodwill impairment loss on fullGoodwill
Non-controlling Interest in Net Income (NCINI)

P 90,000
( 7,200)
P 82,800
20%
P 16,560
0
P 16,560

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

Equity Method (Full-goodwill)
80%-Owned Subsidiary
December 31, 20x5 (Second Year after Acquisition)
Income Statement
Sales
Investment income
Total Revenue
Cost of goods sold
Depreciation expense
Interest expense
Other expenses
Goodwill impairment loss
Total Cost and Expenses
Net Income
NCI in Net Income - Subsidiary
Net Income to Retained Earnings

P Co
P540,000
66,240
P606,000
P216,000
60,000
72,000
P348,000
P258,240
P258,240

Statement of Retained Earnings

P490,440

16,560

S Co.
P360,000
P360,000
P192,000
24,000
54,000
P270,000
P 90,000
P 90,000

Dr.

(4)

66,240

(3)
(3)

6,000
1,200

(5)

16,560

Cr.

Consolidated
P 900,000
___________
P 900,000
P 408,000
90,000
1,200
126,000
P 625,200
P 274,800
( 16,560)
P 258,240

P490,440

258,240
P748,680

P144,000
90,000
P234,000

72,000
-

48,000

P676,680

P186,000

P676,680

265,200
180,000
216,000
210,000
240,000
720,000

P 102,000
960,000
108,000
48,000
180,000
540,000

P 367,200
276,000
324,000
265,200
420,000
1,044,000
2,400
11,250

405,9480
P2,236,680

P1,074,000

P 150,000
450,000

P 102,000
306,000

(1) 144,000

258,240
P748,680
(4)

(2)

7,200

(2)
(2)

3,600
11,250

(2)

84,000

(2) 198,000

48,000

(3) 216,000
(3) 1,200
(1) 307,200
(5) 70,440
(4) 27,840

(3)

12,000

72,000
-

P2,634,000
P 180,000
552,000

- buildings
Accounts payable
Bonds payable
Common stock, P10 par
Common stock, P10 par
Retained earnings, from above
Non-controlling interest

120,000
240,000
600,000
676,680

240,000
186,000

(3)

__________
P1,074,000

6,000

240,000
360,000
600,000

(1) 240,000
(3)

___ _____
P2,236,680

Total

120,000
120,000

9,600

__________
P 796,650

676,680
(2 ) 76,800
(2) 17,610
(5) 16,560
P 796,650

__________
P2,634,000

Note: Using cost model or equity method, the consolidated net income, consolidated retained
earnings, non-controlling interests, consolidated equity on December 31, 20x4 and 20x5 are
exactly the same (refer to Problem VII solution).
5. 1/1/20x4
a. On date of acquisition the retained earnings of parent should always be considered as
the consolidated retained earnings, thus:
b.

Consolidated Retained Earnings, January 1, 20x4

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

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

Consolidated SHE:
Stockholders Equity
Common stock, P10 par
Retained earnings
Parents Stockholders Equity / CI - SHE
NCI, 1/1/20x4
Consolidated SHE, 1/1/20x4

P360,000

P 240,000
120,000
P 360,000
90,000
P450,000
20
P 90,000
___3,000
P 93,000

P 600,000
360,000
P 960,000
___93,000
P1,053,000

a. CI-CNI P202,440

Consolidated Net Income for 20x4

Net income from own/separate operations:
P Company
S Company
Total
Less: Non-controlling Interest in Net Income*
Amortization of allocated excess (refer to amortization above)
Goodwill impairment (impairment under full-goodwill approach)
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent..
Add: Non-controlling Interest in Net Income (NCINI)
Consolidated Net Income for 20x4

P 8,610
13,200
3,750

25,560
P202,440
8,610
P211.050

b. NCI-CNI P8,610

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

Net income of S Company

P168,000
60,000
P228,000

P 60,000

Less: Amortization of allocated excess (refer to amortization table above)

13,200
P 46,800
20%
P 9,360

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

c. CNI, P211,050 refer to (a)

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

Common stock S Company, December 31, 20x4
Retained earnings S Company, December 31, 20x4
Retained earnings SCompany, January 1, 20x4
Add: Net income of S for 20x4
Total
Less: Dividends paid 20x4
Stockholders equity S Company, December 31, 20x4
Adjustments to reflect fair value - (over) undervaluation of assets and
liabilities, date of acquisition (January 1, 20x4)
Amortization of allocated excess (refer to amortization above) 20x4
Fair value of stockholders equity of subsidiary, December 31, 20x4
Multiplied by: Non-controlling Interest percentage...
Non-controlling interest (partial-goodwill, 12/31/20x4..
Add: Non-controlling interest on full goodwill , net of impairment loss, 12/31/x4:
[(P15,000 full P12,000, partial = P3,000) P750 impairment loss
Non-controlling interest (full-goodwill), 12/31/20x4..

Consolidated SHE:
Stockholders Equity
Common stock, P10 par
Retained earnings
Ps Stockholders Equity / CI SHE, 12/31/20x4
NCI, 12/31/20x4
Consolidated SHE, 12/31/20x4

P360,000
202,440
P562,440
72,000
P490,440

P 240,000
P120,000
60,000
P180,000
36,000

144,000
P 384,000
90,000
( 13,200)
P460,800
20
P 92,160
2,250
P 94,410

P 600,000
490,440
P1,090,440
___94,410
P1,184,850

12/31/20x5:
a. CI-CNI P258,240

Consolidated Net Income for 20x5

Net income from own/separate operations
P Company
S Company
Total
Less: Non-controlling Interest in Net Income*
Amortization of allocated excess (refer to amortization above)

P16,560
7,200

P192,000
90,000
P282,000

Goodwill impairment (impairment under full-goodwill approach)

Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent..
Add: Non-controlling Interest in Net Income (NCINI)
Consolidated Net Income for 20x5

23,760
P258,240
16,560
P274,800

b. NCI-CNI P16,560

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

P 90,000
80,400
P 82,800
20%
P 16,560

c. CNI, P274,800 refer to (a)

d. On subsequent to date of acquisition, consolidated retained earnings would be computed
as follows:
Consolidated Retained Earnings, December 31, 20x5
Retained earnings - P Company, January 1, 20x5 (cost model
Adjustment to convert from cost model to equity method for purposes of
consolidation or to establish reciprocity:/Ps share in adjusted net
increased in subsidiarys retained earnings:
Retained earnings S, January 1, 20x5
Less: Retained earnings S, January 1, 20x4
Increase in retained earnings since date of acquisition
Less: Amortization of allocated excess 20x4
Multiplied by: Controlling interests %...................

P484,800

P 144,000
120,000
P 24,000
13,200
P 10,800
80%
P 8,640

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

(P3, 750 x 80%)
3,000
5,640
Consolidated Retained earnings, January 1, 20x5
P 490,440
Add: Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent for 20x5
258,240
Total
P748,680
Less: Dividends paid P Company for 20x5
72,000
Consolidated Retained Earnings, December 31, 20x5
P676,680
*this procedure would be more appropriate, instead of multiplying the full-goodwill impairment loss of P3,750 by
80%. There might be situations where the controlling interests on goodwill impairment loss would not be
proportionate to NCI acquired.

Non-controlling interest (full-goodwill), December 31, 20x5

Common stock S Company, December 31, 20x5
Retained earnings S Company, December 31, 20x5
Retained earnings S Company, January 1, 20x5
Add: Net income of S for 20x5
Total
Less: Dividends paid 20x5
Stockholders equity S Company, December 31, 20x5
Adjustments to reflect fair value - (over) undervaluation of assets and
liabilities, date of acquisition (January 1, 20x4)
Amortization of allocated excess (refer to amortization above) :
20x4
20x5
Fair value of stockholders equity of subsidiary, December 31, 20x5
Multiplied by: Non-controlling Interest percentage...
Non-controlling interest (partial goodwill)..

P 240,000
P144,000
90,000
P234,000
48,000

186,000
P 426,000
90,000

P 13,200
7,200

( 20,400)
P 495,600
20
P 99,120

Add: Non-controlling interest on full goodwill , net of impairment loss

[(P15,000 full P12,000, partial = P3,000) P750 impairment loss
Non-controlling interest (full-goodwill)..

Consolidated SHE:
Stockholders Equity
Common stock, P10 par
Retained earnings
Ps Stockholders Equity / CI SHE, 12/31/20x4
NCI, 12/31/20x4
Consolidated SHE, 12/31/20x4

2,250
P 101,370

P 600,000
676,680
P1,276,680
__101,370
P1,378,050

Problem XXVIII
1. Ambrose should report income from its subsidiary of P15,000 (P20,000 x .75) rather than
dividend income of P9,000.
2. A total of P5,000 (P20,000 x .25) should be assigned to the noncontrolling interest in the 20x4
consolidated income statement.
3. Consolidated net income of P70,0000 should be reported for 20X4, computed as follows:
Reported net income of AA
P59,000
Less: Dividend income from KR
(9,000)
Operating income of AA
P50,000
Net income of KR
20,000
Consolidated net income
P70,000
4. Income of P79,000 would be attained by adding the income reported by AA (P59,000) to the
income reported by KR (P20,000). However, the dividend income from KR recorded by AA
must be excluded from consolidated net income.
Multiple Choice Problems
1. b
Full-Goodwill: (P600,000/70%) P640,000 = P217,143 P40,000 = P177,143
If partial goodwill: P600,000 (P640,000 x 70%) = P152,000 (P40,000 x 70%) = P124,000
2. b P500,000 + P3,461
3. b
4. d equivalent to consideration transferred, P320,000
5. d equivalent to consideration transferred, P380,000
6. a
20x4 Investment income: Dividend of P10,000 x 100%
20x4 Investment balance: P500,000
7. d P45,000/15% = P300,000
8. c
Pigeons separate income
P150,000
Less: 60% of Homes P10,000 loss =
6,000
Less: Equipment depreciation
P10,000/ 10 years =
__1,000
Consolidated net income
P143,000
9. a
Non-controlling Interest in Net Income (NCINI) for Year 3
Net income of S Company
Less: Amortization of allocated excess

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

Non-controlling Interest in Net Income (NCINI) for Year 3

P240,000
45,000
P195,000
30%
P 58,500

10. c

Net income from own/separate operations

P Company
S Company
Total
Less: Non-controlling Interest in Net Income*
Amortization of allocated excess (refer to amortization above)
Goodwill impairment (impairment under full-goodwill approach)
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent..
*Non-controlling Interest in Net Income (NCINI) for 20x4
Net income of S Company
Less: Amortization of allocated excess**

11. a

9,000
P396,000

P30,000
3,750
P26,250
20%
P 5,250

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

Non-controlling Interest in Net Income (NCINI) for 20x4
**P270,000/80% = P337,500 (P150,000 + P150,000) = P37,500 / 10 years = P3,750
Note: Whether the partial or full-goodwill approach are used the amortization of excess are always
the same.
*Non-controlling Interest in Net Income (NCINI) for Year 3
Net income of S Company
Less: Amortization of allocated excess
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI) for Year 3

12. c

P5,250
3,750
0

P 375,000
30,000
P405,000

Net income from own/separate operations

P600,000
112,500
P487,500
30%
P146,250

P 8,750
6,250
0

P 625,000
50,000
P675,000
15,000
P660,000

P50,000
6,250
P43,750
20%
P 8,750

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

Non-controlling Interest in Net Income (NCINI) for 20x4
**P450,000/80% = P562,500 (P250,000 + P250,000) = P62,500 / 10 years = P6,250
Note: Whether the partial or full-goodwill approach are used the amortization of excess are always
the same.

13. b
As a general rule, if problem is silent It is assumed that expenses are generated evenly
throughout the year, thus:
Expenses (9/1/20x4-12/31/20x4): P620,000 x 4/12
P206,667
Amortization of allocated excess: P15,000 x 4/12
5,000
P211,667
14. c

Net income of S Company (P800,000 P620,000)

Less: Amortization of allocated excess

P180,000
15,000
P165,000

15. a

Multiplied by: No of mos. (9/1-12/31)

4/12
P 55,000

Net income of S Company (P800,000 P620,000)

Less: Amortization of allocated excess

P180,000
15,000
P165,000
4/12
P 55,000
____20%
P 22,000

Multiplied by: No of mos. (9/1-12/31)

Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI) for 20x4

16. b

Combined revenues ..................................................................................................

Combined expenses..................................................................................................
Excess acquisition-date fair value amortization ...................................................
Consolidated net income.........................................................................................
Less: noncontrolling interest (P85,000 40%).........................................................
Consolidated net income to controlling interest .................................................

P1,100,000
(700,000)
(15,000)
P385,000
(34,000)
P351,000

17. c

HH expense..................................................................................................................
NN expenses ................................................................................................................
Excess fair value amortization (70,000 10 yrs).....................................................
Consolidated expenses.............................................................................................

P621,000
714,000
7,000
P1,342,000

18. d

Under the cost method, an investor recognizes its investment in the investee at cost.
Income is recognized only to the extent that the investor receives distributions from the
accumulated net profits (or dividend declared/paid by the investee) of the investee
arising after the date of acquisition by the investor. Distributions (dividends) received in
excess of such profits are regarded as a recovery of investment and are accounted for
as a reduction of the cost of the investment (i.e., as a return of capital or liquidating
dividend).
Therefore, the investment balance of P500,000 on the acquisition date remains to be the
same.

19.
20.
21.
22.
23.
23.

d refer to No. 18 for further discussion.

b refer to No. 18 for further discussion.
a P40,000 x 80%
b P50,000 x 80%
a P60,000 x 80%
c
Full/Gross-up Goodwill Presentation:
Non-controlling interest in Net Income:
Subsidiary net income from own operations.P100,000
Less: Amortization of allocated excess*
7,000
Impairment of full-goodwill (if any)**
0
P 93,000
x: Non-controlling interests.
20%
Non-controlling interest in Net Income P 18,600
*Amortization of allocated excess:
Increase in equipment: P30,000 / 10 years = P 3,000
Increase in buildings: P40,000 / 10 years =
4,000
Total amortization P 7,000

** In case, there is an impairment of goodwill then the amount impaired under the fullgoodwill method should also be allocated between controlling and non-controlling
interests
Partial Goodwill Presentation:
Non-controlling interest in Net Income:
Subsidiary net income from own operations.P100,000
Less: Amortization of allocated excess*.
7,000
P 93,000
x: Non-controlling interests.
20%
Non-controlling interest in Net Income.
P 18,600
24. c
Full/Gross-up Goodwill Presentation:
Non-controlling interest in Net Income:
Subsidiary net income from own operations.P120,000
Less: Amortization of allocated excess*
7,000
Impairment of full-goodwill (if any)**
0
P113,000
x: Non-controlling interests.
20%
Non-controlling interest in Net Income P 22,600
*Amortization of allocated excess:
Increase in equipment: P30,000 / 10 years = P 3,000
Increase in buildings: P40,000 / 10 years =
4,000
Total amortization.
P 7,000
** In case, there is an impairment of goodwill then the amount impaired under the fullgoodwill method should also be allocated between controlling and non-controlling
interests
Partial Goodwill Presentation:
Non-controlling interest in Net Income:
Subsidiary net income from own operations.P120,000
Less: Amortization of allocated excess*
7,000
P113,000
x: Non-controlling interests.
20%
Non-controlling interest in Net Income
P 22,600
25. a
Full/Gross-up Goodwill Presentation:
Non-controlling interest in Net Income:
Subsidiary net income from own operations.P130,000
Less: Amortization of allocated excess*
7,000
Impairment of full-goodwill (if any)**
0
P123,000
x: Non-controlling interests.
20%
Non-controlling interest in Net Income P 24,600
*Amortization of allocated excess:
Increase in equipment: P30,000 / 10 years = P 3,000
Increase in buildings: P40,000 / 10 years =
4,000
Total amortization.
P 7,000

Book value of Stockholders Equity of Subsidiary

Common stock, 12/31/20x4
P 300,000
Retained earnings, 12/31/20x4:
Retained earnings, 1/1/20x4.P200,000
Add: Net income 20x4.. 100,000
Less: Dividends paid, 20x4..
40,000 260,000
Book value of Stockholders Equity of Subsidiary, 12/31/x4
P 560,000
Add: Adjustments to reflect fair value (P30,000 + P40,000)..
70,000
Less: Accumulated amortization of allocated excess
P7,000 x 1 year..
7,000
Fair value of Stockholders Equity of Subsidiary. 12/31/x4
P 623,000
Multiplied by: Non-controlling Interest %...........................
20%
Non-controlling Interest (partial goodwill)..
P 124,600
Add: Non-controlling interest in Full Goodwill
(P55,000, full P44,000 partial l) or
(P55,00,000 x 20%)*
11,000
Non-controlling Interest (full)
P 135,600
* this computation (i.e., P55,000 x 20%) should only be use when the fair value of the noncontrolling interest of acquiree (subsidiary) is not given.

Partial Goodwill:
Fair value of Subsidiary:
Fair value of consideration transferred: Cash
P 500,000
Less: Book value of Net Assets (Stockholders
Equity - Subsidiary): (P300,000 + P200,000) x 80%..
400,000
Allocated Excess..
P 100,000
Less: Over/Undervaluation of Assets and Liabilities:
Increase in equipment: P30,000 x 80%................... P 24,000
Increase in building: P40,000 x 80%.........................
32,000 56,000
Goodwill (Partial)..
P 44,000
Full-goodwill:
(100%) Fair value of Subsidiary:
(100%) Fair value of consideration transferred:
P500,000 / 80%..........
Less: Book value of Net Assets (Stockholders
Equity - Subsidiary)...................................
Allocated Excess..

P 625,000
500,000
P 125,000

Less: Over/Undervaluation of Assets and

Liabilities (P40,000 + P30,000).
Goodwill (Full/Gross-up)....
27. e

28. e

70,000
55,000

Book value of Stockholders Equity of Subsidiary

Common stock, 12/31/20x5
P 300,000
Retained earnings, 12/31/20x5:
Retained earnings, 1/1/20x5 (refer to No. 94).P260,000
Add: Net income, 20x5.
120,000
Less: Dividends paid, 20x5
50,000 330,000
Book value of Stockholders Equity of Subsidiary, 12/31/x5
P 630,000
Add: Adjustments to reflect fair value (P30,000 + P40,000)..
70,000
Less: Accumulated amortization of allocated excess 2 yrs
14,000
Fair value of Stockholders Equity of Subsidiary. 12/31/x5
P 686,000
Multiplied by: Non-controlling Interest %..............................
20%
Non-controlling Interest (partial goodwill)..
P 137,200
Add: Non-controlling interest in Full Goodwill
(P55,000, full P44,000 partial l) or
(P55,00,000 x 20%)*
11,000
Non-controlling Interest (full)
P 148,200
Book value of Stockholders Equity of Subsidiary
Common stock, 12/31/20x6
Retained earnings, 12/31/20x6:
Retained earnings, 1/1/20x6.P 330,000
Add: Net income, 20x6 130,000
Less: Dividends paid, 20x6..
60,000
Book value of Stockholders Equity of Subsidiary, 12/31/x6
Add: Adjustments to reflect fair value (P30,000 + P40,000)..
Less: Accumulated amortization of allocated excess
(1/1/20x4 12/31/20x6): P7,000 x 3 years
Fair value of Stockholders Equity of Subsidiary. 12/31/x6
Multiplied by: Non-controlling Interest %............................
Non-controlling Interest (partial goodwill)..
Add: Non-controlling interest in Full Goodwill
(P55,000, full P44,000 partial l) or
(P55,00,000 x 20%)*
Non-controlling Interest (full)

P 300,000

400,000
P 700,000
70,000
21,000
P 749,000
20%
P 149,800
11,000
P 160,800

* this computation (i.e., P55,000 x 20%) should only be use when the fair value of the noncontrolling interest of acquiree (subsidiary) is not given.
29. d Economic Unit or Entity Concept (as required by PFRS 10)

Net income from own/separate operations

P Company
S Company
Total
Less: Non-controlling Interest in Net Income*
Amortization of allocated excess
Goodwill impairment (impairment under full-goodwill approach)
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent..

P 20,000
0
_
0

P 500,000
100,000
P600,000
20,000
P580,000

Add: NCINI
CNI - entity concept

__20,000
P600,000

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

Net income of S Company
Less: Amortization of allocated excess

P100,000
_______0
P100,000
20%
P 20,000

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

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

30. c Parent Company Concept Parents Net Income only (not required by PFRS 10)
Net income from own/separate operations
P Company
S Company
Total
Less: Non-controlling Interest in Net Income*
Amortization of allocated excess
Goodwill impairment (impairment under full-goodwill approach)
CNI - entity concept

P 20,000
0
_
0

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

Net income of S Company
Less: Amortization of allocated excess

P100,000
_______0
P100,000
20%
P 20,000

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

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

31. No requirement
32. Podexs separate earnings for 20x6 ............................................................ P2,000,000
Dividend income from Sodex................................................................ __120,000
Podexs 20x6 net income ................................................................... P2,120,000
33.

P2,260,000

Podexs separate earnings for 20X6

P2,000,000
Podexs equity in net income of Sodex ...............................................
300,000
Less: Amortization of cost in excess of book value ...........................
(40,000)
Podexs 20x6 net income ................................................................... P2,260,000

34. b
35. b
Net Income from own operations:
20x4
20x5
Parent P 100,000 P100,000
Subsidiary... 25,000
35,000
P125,000 P135,000
Subsidiarys other comprehensive income..
5,000
10,000
Total Comprehensive Income.....P130,000 P145,000
Less: Amortization of allocated excess.
6,250
6,250
Impairment of full- goodwill (if any).
0
0
Consolidated /Group Comprehensive Income P123,750
P138,750
Less: Non-controlling interest in Comprehensive
Income *
4,750
7,750
Controlling Interest in Consolidated
__________________
Comprehensive Income . P119,000 P131,000
*Non-controlling interest in Comprehensive Income:

20x4

2012

P 500,000
100,000
P600,000
20,000
P580,000

Subsidiarys:
Net income from own operations.......P 25,000
P 35,000
Other Comprehensive Income (P30,000
P25,000).... 5,000
10,000
Subsidiarys Comprehensive Income........P 30,000
P 45,000
Less: Amortization of allocated excess*.. 6,250
6,250
Impairment of full-goodwill (if any).....
0
0
P 23,750
P 38,750
x: Non-controlling interests.
20%
20%
Non-controlling interest in Comprehensive Income...P 4,750 P 7,750
*Amortization of allocated excess:
Increase in other intangibles: P50,000 / 8 years = P 6,250
36.
37.
38.
39.

c refer to No. 35
c refer to No. 35
b- refer to No. 35
d
Inventory not yet sold in 20x4
Building: (P390,000 P200,000)/ 10 years
Equipment (P280,000 P350,000)/ 5 years

40. a
41. a
42. c
43. a
44. c
45. a
46. c
47. b
48. d
49. d
50. a

0
19,000
( 14,000)
P 5,000

Cost of Goods Sold P80,000 debit

Depreciation Expense (P192,000/120) 7 = P11,200 debit
Cost of Goods Sold (P60,000 x 4/6) = P40,000 debit
Interest Expense: (P15,000/5) = P3,000 debit
[(P250,000 - P180,000)/10]7
[(P380,000 - P260,000)/120]88
P170,000 - {[P320,000 - (P300,000 - P170,000)]/10}2
[P320,000 - (P300,000 - P170,000)]/10
P105,000 - {[P405,000 - (P450,000 - P105,000)]/20}2
[P405,000 - (P450,000 - P105,000)]/20

51. d - The acquisition method consolidates assets at fair value at acquisition date regardless of
the parents percentage ownership.
52. b

53. a

Consideration transferred
P3,800
Less: BV of SHE of S: P1,000 + P600 + P1,500
3,100
Allocated excess /differential / excess of cost or fair value over book value P 700

Allocated excess /differential / excess of cost or fair value over book value P 700
Less: O/U valuation of A and L
Book value (P800 + P1,000 + P1,500 + P900 P1,800)
P2,400
Fair value (P900 + P1,200 + P1,250 + P1,300 P1,700)
2,950
Net increase
550
Goodwill
P 150
54. c inventory at fair value
55. No answer available
Book value of Building, 1/1/x4
Less: excess BV over FV
Fair value
Less: Deptn based on BV (1,500/5)
Add: Excess depreciation (300/5)
Carrying amount on Conso BS, 12/31/x4
Or,
FV of Building
Depreciation (1,200/5)
Carrying amount on Conso BS, 12/31/x4
56. No answer available
FV of equipment 1/1/x4
Depreciation (1,250/2)
Carrying amount on Conso BS 12/31/x4

1,500
( 300)
1,200
( 300)
60
960
1,200
( 240)
960
1,250
( 625)
625

57. c (P900, book value + (P1,300 P900) = P1,300

58. c (P1,800 (P1,800 P1,700) + (P100/4) = P1,725
59.
FV as of 1/1/x4
1,200
Acc. Dep. (1,200/5 * 2)
(480)
Carrying Amount in Conso BS, 12/31/x5
720
Or
Book Value 1/1/x4
Excess BV over FV
Acc. Depcn based on BV (1,500/5 * 2)
Excess depreciation ( 300 / 5 * 2)
Carrying Amount in Conso BS, 12/31/x5
60.

1,500
( 300)
( 600)
120
720

Book Value of Equipment 1/1/x4

Excess FV over BV
Dep based on BV (20x4 to 20x5) (1,000/2 *2)
Amortization of Excess FV over BV
Carrying amount 12/31/x5

1,000
250
(1,000)
( 250)
0

Or
FV of Equipment, 1/1/x4
Depreciation based on FV (1,250/2 *2)
Carrying amount 12/31/x5

1,250
(1,250)
0

61. b - (P900, book value + (P1,300 P900) = P1,3000

62. d - (P1,800 (P1,800 P1,700) + (P100/4) x 2 years = P1,750

63. d

64. b

P: BV,12/31/20x6
S:
BV of building, 12/31/20x4
Add: Adjustments to reflect fair value, 1/1/20x4
(P350,000 P240,000)
Less: Amortization of excess (P110,000/10) x 3 years

P: BV,12/31/20x5
S:
BV of building, 12/31/20x5
Add: Adjustments to reflect fair value, 1/4/20x4
(P120,000 P90,000)
Less: Amortization of excess (P30,000/10) x 2 years

P250,000
P170,000
110,000
33,000

247,000
P497,000
P 975,000

P105,000
30,000
6,000

129,000
P1,104,000

65. c - An asset acquired in a business combination is initially valued at 100% acquisition-date

fair value and subsequently amortized its useful life.
Patent fair value at January 1, 20x4 .......................................................................
Amortization for 2 years (10 year life) .....................................................................
Patent reported amount December 31, 20x5 ......................................................
66. b

BV of building, 1/1/20x4
Adjustments to reflect fair value, 1/1/20x4 (P300,000 P200,000)
Depreciation 1/1/20x4 12/31/20x6 (P100,000/20 x 3 years)

67. d same with No. 5

68. d
BV of equipment, 1/1/20x4
Adjustments to reflect fair value, 1/1/20x4 (P80,000 P75,000)
Depreciation 1/1/20x4 12/31/20x6 (P5,000/10 x 3 years)
69. a

Adjustments to reflect fair value, 1/1/20x4 (P80,000 P75,000)

Depreciation 1/1/20x4 12/31/20x6 (P5,000/10 x 3 years)

70. d 1/2/20x4:
BV of equipment, 1/1/20x4
Adjustments to reflect fair value, 1/1/20x4 (P300,000 P200,000)
71. c

Consolidated Net Income for 20x4

Net income from own/separate operations
P Company P30,200 (P150,0000 P20,000 P60,000)
S Company (P100,000 P15,000 P45,000)
Total
Less: Non-controlling Interest in Net Income
Amortization of allocated excess
Goodwill impairment

P45,000
(9,000)
P36,000

P200,000
100,000
( 15,000)
P285,000
P 80,000
( 5,000)
1,500
P 76,500
(P 5,000)
1,500
(P 3,500)
P200,000
100,000
P300,000

0
0
____0

P 70,000
40,000
P110,000
____0

Controlling Interest in Consolidated Net Income or Profit

attributable to equity holders of parent..
Add: Non-controlling Interest in Net Income (NCINI)
Consolidated Net Income for 20x4

P110,000
_____0
P110,000

72. b
Plimsol: P100,000 + P200,000,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,P 300, 000
Shipping: P75,000 + P150,000. 225,000
P 525,000
73.

Retained Earnings - Plimsol, 1/1/20x4 (cost method, same with equity method and
consoiidated retained earnings since it is the date of acdquisition)
P 150,000
Add: CI CNI (refer to No. 71)
110,000
Less: CI Dividends (Dividend of parent only)
25,000
Retained earnings, 12/31/20x4 (equity method same with CRE)
P 235,000

74. d

75. d

76. b

77. d

78. d

79. a

80. a

81. a

Liabilities:
Plimsol (P40,000 + P75,000)
Shipping (P25,000 + P50,000)

P115,000
75,000
P 190,000

Total assets (No. 72)

Les: Liabilities (No. 74)
Stockholders equity

P525,000
190,000
P335,000

Decrease in Buildings account:

Fair value
Book value..
Decrease.

P 8,000
__10,000
P 2,000

Decrease in buildings account (refer to No. 73)

Less: Increase due to depreciation (P2,000/10)
Decrease in buildings accounts..

P 2,000
200
P 1,800

Decrease in buildings account (refer to No. 74)

Less: Increase due to depreciation (P2,000/10)
Decrease in buildings accounts..

P 1,800
200
P 1,600

Increase in Equipment account:

Fair value
Book value..
Increase.

P 14,000
__18,000
P 4,000

Increase in equipment account (refer to No. 76)

Less: Decrease due to depreciation (P4,000/4)
Increase in equipment accounts..

Increase in equipment account (refer to No. 77)

P 3,000

4,000
1,000
3,000

Less: Decrease due to depreciation (P4,000/4

Increase in equipment accounts..
82. a

1,000
P 2,000

Increase in Land account:

Fair valueP 12,000
Book value.. 5,000
Increase.. P 7,000

83. b refer to No. 82, no depreciation/amortization

84. b refer to No. 82, no depreciation/amortization
85. e
Increase in Patent account:
Fair value
Book value..
Increase.

P 11,000
_
0
P 11,000

(P234,000/90%) (P160,000 + P80,000) = P20,000 (P4,000 P2,000 + P7,000) = P11,000.

Partial or full-goodwill approach, the amortization remains the same.
86. e

87. d

Increase in patent account (refer to No. 85)

Less: Decrease due to depreciation (P11,000/5).
Increase in patent accounts.

P 11,000
2,200
P 8,800

Increase in patent account (refer to No. 86)

Less: Decrease due to depreciation (P11,000/5).
Increase in patent accounts.

P
P

8,800
2,200
6,600

88. d - Parents inventory of P132,000 plus subsidiarys book value of inventory of P38,000 plus
excess of the fair value over the book value of P22,000 = P132,000 + P38,000 + P22,000 =
P192,000
89. d - if partial
Purchase price minus 75% of Grasss underlying book value - P16,500 of excess cost over book
value allocated to inventory (see 88) = P392,000 (75%) x (P400,000) - P16,500 = P75,500,
partial; if full goodwill , P75,500/75% (since no NCI available) = P100,667
90. d - Just add the liability amounts together
91. No answer available
Net Assets at Book Value
P 400,000
Increase in Inventories
22,000
Net Assets @ FV
422,000
Multiplied by
25%
NCI, partial goodwill
105,500
Add: NCI on full goodwill
Full goodwill (P75,500/75%) P100,667
Partial goodwill
75,500 25,167
NCI, partial goodwill
130,667
92. a- The parents Retained Earnings is the amount of consolidated Retained Earnings

93. No answer available

Cash
Accounts Receivable
Inventory (132,000 + 60,000)
Land
Plant Assets (net)
Goodwill - partial
Total Assets

230,000
170,000
192,000
100,000
700,000
75,500
1,467,500

94. c
Fair Value of Subsidiary:
Consideration Transferred (5,400 shares)
Less: Book value of SHE-S, 1/1:
Common stock S: P50,000 x 90%
APIC S: P15,000 x 90%
RE S: P41,000 x 90%
Allocated Excess
Less: Over/undervaluation of A & L:
Increase in Inv. (P17,100P16,100) x 90%
Increase in Eqpt. (P48,000P40,000) x 90%
Increase in Patents (P13,000P10,000) x 90%
Positive Excess: Goodwill
Amortization of allocated excess - Starting January 1:
Inventory: P1,000 / 1 year
Equipment: P8,000 / 4 years
Patents: P3,000 / 10 years
95. c

Common stock S
APIC S
RE S
Stockholders equity Subsidiary, 1/1
Add: Adjustments to reflect fair value
Fair value of Stockholders Equity S, 1/1
x: Non-controlling) interests
Non-controlling Interests (in net assets)

if full

100,667
1,492,667

P120,600
P 45,000
13,500
36,900 95,400
P 25,200
P

900
7,200
2,700

10,800
P 14,400

P 1,000
2,000
300
P 3,300
P 50,000
15,000
41,000
P106,000
12,000
P118,000
10%
P 11,800

96. a P48,000, parent only.

97. a P48,000. On the date of acquisition, the parents retained earnings is also the
consolidated retained earnings.
98. No requirement.
99. b P120,600, the initial value
100. b P4,000 x 90% = P3,600
101. c
Consolidated Net Income for 20x4
Net income from own/separate operations
P Company P30,200 (P4,000 x 90%)
S Company
Total
Less: Non-controlling Interest in Net Income*
Amortization of allocated excess

610
3,300

P26,600
9,400
P36,000

Goodwill impairment
Controlling Interest in Consolidated Net Income or Profit
attributable to equity holders of parent..
Add: Non-controlling Interest in Net Income (NCINI)
Consolidated Net Income for 20x4

____0

3,910
P32,090
610
P32,700

*Net income of subsidiary 20x4

Amortization of allocated excess 20x4

P 9,400
3,300)
P 6,100
10%
P 610
____0
P
610

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

Less: Non-controlling interest on impairment loss on full-goodwill
Non-controlling Interest in Net Income (NCINI)

102. c
Noncontrolling Interests (in net assets):
Common stock - S, 12/31
P 50,000
Additional paid-in capital - S, 12/31
15,000
Retained earnings - S, 12/31:
RE-S, 1/1/2011
P 41,000
Add: NI-S, 2011
9,400
Less: Dividends S
4,000 46,400
Book value of SHE - S, 12/31
P 111,400
Add: Adjustments to reflect fair value, 1/1
12,000
Less: Amortization of allocated excess (1 yr.)
3,300
Fair Value of Net Assets/SHE - S, 12/31
P 120,100
x: Noncontrolling Interest %
10%
Noncontrolling Interest (in net assets), 12/31
P 12,010
103. b refer to 101 for computation
104. c refer to 101 for computation
105. b
Controlling RE / RE Attributable to EH of Parent, 1/1 (refer to No. 102
P 48,000
Add: CI CNI (refer to 106 and 109)
32,090
Less: CI Dividends (Dividend of parent only)
15,000
Controlling RE / RE Attributable to EH of Parent, 12/31
P 65,090
106. b same with No. 105
107. c
Consolidated Equity:
Controlling Interest / Equity Holders
Attributable to Parent:
Common stock P: [P100,000 + P120,600 (5,400 shares x P10 par)] P154,000
APIC P: [15,000 + [P120,600 (5,400 x P10)]
81,600
RE P (refer to No. 105)
65,090
Parents Stockholders Equity or Controlling Interest Equity
P300,690
Noncontrolling Interest
12,010
Consolidated Equity
P312,700
108. c

P95,000 = (P956,000 / .80) - P1,000,000 - P100,000

109. c

P251,000 = .20[(P956,000 + P239,000) + (P190,000 - P5,000 - P125,000)]

110. b Combined revenues ..................................................................................................

Combined expenses..................................................................................................

P1,300,000
(800,000)

Trademark amortization ............................................................................................

Patented technology amortization ........................................................................
Consolidated net income.........................................................................................

(6,000)
(8,000)
P486,000

NCI-CNI - P34,400; NCI P260,800

Subsidiary income (P100,000 P14,000 excess amortizations) ..........................
Non-controlling interest percentage ......................................................................
Non-controlling interest in subsidiary income .......................................................

P86,000
40%
P34,400

Fair value of non-controlling interest at acquisition date...................................

40% change in Scott book value since acquisition .............................................
Excess fair value amortization (P14,000 40%) .....................................................
40% current year income ..........................................................................................
Non-controlling interest at end of year ..................................................................

P180,000
52,000
(5,600)
34,400
P260,800

112. a MM trademark balance............................................................................................

SS trademark balance..............................................................................................
Excess fair value ..........................................................................................................
Two years amortization (10-year life) ......................................................................
Consolidated trademarks .........................................................................................

P260,000
200,000
60,000
(12,000)
P508,000

113. a Fair value of non-controlling interest on April 1 ....................................................

30% of net income for 9 months ( year P240,000 30%) ..............................
Non-controlling interest December 31 ...................................................................

P165,000
54,000
P219,000

111. c

114. c

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

Book value of SHE S, 12/31/20x4
Add: Net income of S 20x4
Total
Less: Dividends paid 20x4
Stockholders equity S Company, December 31, Year 2
Adjustments to reflect fair value - (over) undervaluation of assets and
liabilities, date of acquisition January 1, 20x4
Amortization of allocated excess (refer to amortization above: P200,000/10
Fair value of stockholders equity of subsidiary, December 31, 20x5
Multiplied by: Non-controlling Interest percentage...
Non-controlling interest (partial)
Add: NCI on full-goodwill P85,714 P60,000)
Non-controlling interest (full)

P1,000,000
___150,000
P1,150,000
____90,000
P1,060,000
200,000
_( 20,000)
P1,240,000
30%
P 372,000
___25,714
P397,714

*P900,000/70% = P1,285,714 P1,000,000 = P285,714 P200,000 = P85,714, full goodwill

*P900,000 (P1,000,000 x 70%) = P200,000 (P200,000 x 70%) = P60,000, partial goodwill
It is assumed that full-goodwill is used. But, it should be noted that PFRS 3 either partial or fullgoodwill approach are considered acceptable.

115. b (P50,000 + P70,000) x 25% = P30,000

116. b P only.
117. b
{(P250,000/.8) + [P75,000 + P90,000 - P25,000 - P50,000 - P30,000 - (P80,000/8)2]}.2
118. d
{(P420,000/.7) + [P160,000 + P210,000 - P60,000 - P80,000 - P50,000 - (P90,000/5)2]}.3
119. a - P650,000 =P500,000 + P200,000 - P50,000
120. a assume the use of equity method
Punns equity in net income of Sunn (3 months ended,12/31/x6)
P 200,000
Amortization of cost in excess of book value...........................................
( 60,000)

Increase in Parents retained earnings.

P 140,000
e - If cost model/cost method, the answer would be P100,000.
Dividend income.
P 100,000
121. c P120,000 x 70%
122. c
Investment.1/1/20x4
P210,000
Add: Share in net income 20x4 (P90,000 x 70%)
63,000
Less: Dividends received
24,000
Investment, 12/31/20x4
P249,000
Add: Share in net income 20x5 (P120,000 x 70%)
84,000
Less: Dividends received
36,000
Investment, 12/31/20x5
P297,000
Note: The term received means that is the amount attributable to parent. If the term
declared or paid were used then it should be multiplied further by controlling interest.
123. c P60,000 x 80% = P48,000
124. c
Investment.1/1/20x4
P105,000
Add: Share in net income 20x4 (P45,000 x 80%)
36,000
Less: Dividends received
12,000
Investment, 12/31/20x4
P129,000
Add: Share in net income 20x5 (P60,000 x 80%)
48,000
Less: Dividends received
18,000
Investment, 12/31/20x5
P159,000
125. d
Investment balance, 1/1/20x4.. P 150,000
Add: Pumas equity in net income of Slume (30% x P25,000)..
7,500
Less: Dividends (P30% x P10,000).
3,000
Amortization of cost in excess of book value
(P50,000/10 years) x 30%..............................................................
1,500
Pumas 20x6 net income (equity method) ...............................................
P 153,000
126. b
Pumas equity in net income of Slume (30% x P25,000).... P
7,500
Less: Amortization of cost in excess of book value
(P50,000/10 years) x 30%..............................................................
1,500
Investment income 20x4 (equity method).
P
6,000
127. b
Fullgoodwill Aproach
Fair value of Subsidiary (100%)
Consideration transferred (80%)..
Fair value of NCI (given) (20%)..
Fair value of Subsidiary (100%).
Less: Book value of stockholders equity of Son:
Common stock (P100,000 x 100%).
Retained earnings (P60,000 x 100%)...
Allocated excess (excess of cost over book value)..
Less: Over/under valuation of assets and liabilities:
Increase in land (P5,000 x 100%).
Increase in equipment (P10,000 x 100%)
Positive excess: Full-goodwill (excess of cost over
fair value)...

P 180,000
20,000
P 200,000
P 100,000
60,000
P
5,000
___10,000

160,000
P 40,000
15,000
P 25,000

Partial-Goodwill Approach

Fair value of Subsidiary (90%)

Consideration transferred..
Less: Book value of stockholders equity of S:
Common stock (P100,000 x 90%).
Retained earnings (P60,000 x 90%)...
Allocated excess (excess of cost over book value)..
Less: Over/under valuation of assets and liabilities:
Increase in land (P5,000 x 90%).
Increase in equipment (P10,000 x 90%)
Positive excess: partial-goodwill (excess of cost over
fair value)...

P 180,000
P 90,000
54,000
P

Over/
under

10,000
25,000

144,000
36,000

4,500
___9,000

13,500
P 22,500

A summary or depreciation and amortization adjustments is as follows:

Account Adjustments to be amortized
Subject to Annual Amortization
Equipment (net).........
Patent

Life
5
5

Annual
Amount

P 2,000
5,000
P 7,000

Current
Year(20x4)
P 2,000
5,000
P 7,000

128. d
1/1/x4.

Investment in Wisden
180,000
18,000
Dividends S
(20,000 x 90%)

NI of S
(60,000
x 90%). 54,000
1/1/x6
203,400

12,600

Amortization
(P14,000 x 90%)

129. c
1/1/x6.

Investment in Wisden
230,400
9,000
Dividends S
(10,000 x 90%)

NI of S
(30,000
x 90%). 27,000
1/1/x6
215,100

6,300

Amortization
(7,000 x 90%)

130. d 20x3: P30,000 x 75% = P22,500

20x4: P40,000 x 75% = P30,000
131. a no changes in investment unless there are dispositions of investment and permanent
impairment.
132. None no answer available. Under the cost model share in net income or earnings of
subsidiary does not affect investment.
133. d
Investment account, December 31, 20x7:
Original investment P 550,000
Tinys earnings, 20x4-20x77: 100% x P166,000 166,000
Less: Dividends received: 100% x P114,000 114,000
Balance, December 31, 20x7.. P602,000
134. a
The adjusting entry required in 20x7 to convert from the cost to the equity method is:
Investment in Tiny.52,000

Retained earnings beg.. 4,000

Dividend revenue 54,000
Equity in subsidiary income of Tiny.
110,000

135. b
136. b Dividend paid S, P70,000 x 60% = P42,000
137. d CNI amounted to P265,000 [CI-CNI, P235,000 and NCI-CNI, P30,000
Consolidated Net Income for 20x5
Net income from own/separate operations
P Company
S Company
Total
Less: Non-controlling Interest in Net Income*
Amortization of allocated excess
Goodwill impairment
Controlling Interest in Consolidated Net Income or Profit
attributable to equity holders of parent..
Add: Non-controlling Interest in Net Income (NCINI)
Consolidated Net Income for 20x4

P 30,000
15,000
____0

P 90,000
( 15,000_
P 75,000
40%
P 30,000
______0
P 30,000

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

Less: Non-controlling interest on impairment loss on full-goodwill (P1,500 x 15%)*

Sales
Less: Cost of goods sold Operating expenses
Net income from its own separate operations
Add: Investment income
Net income

Peer
P 600,000
410,000
P 190,000
45,000
P 235,000

Computation of Goodwill:
Fair value of Subsidiary (100%)
Consideration transferred: Cash (60%)
Fair value of NCI (given) (40%)
Fair value of Subsidiary (100%)
Less: Book value of stockholders equity of Sea (P550,000 x 100%)
Allocated excess (excess of cost over book value)..
Add (deduct): (Over) under valuation of assets and liabilities
(P140,000 x 100%)
Positive excess: Full-goodwill (excess of cost over fair value)
Amortization of Allocated Excess
Book Value
Buildings (net)- 6
300,000
Equipment (net) 4
300,000
Patent -10
-0Net

Fair Value
360,000
280,000
100,000

45,000
P235,000
30,000
P265,000

*Net income of subsidiary 20x4

Amortization of allocated excess 20x4

20x5 results of operations are as follows:

P190,000
90,000
P280,000

Over/under
P 60,000
(20,000)
100,000
P 140,000

Sea-Breeze
P 300,000
210,000
P 90,000
P 90,000

P 414,000
276,000
P 690,000
__550,000
P 140,000

140,000
0
Amort.
P 10,000
(5,000)
10,000
P 15,000

138. c refer to No. 137 for computations

139. b refer to No. 137 for computations
140. c - P811,000.

Consolidated Retained Earnings, December 31, 20x5

Retained earnings - Parent Company, January 1, 20x5 (cost model)
Adjustment to convert from cost model to equity method for
purposes of consolidation or to establish reciprocity:/Parents
share in adjusted net increased in subsidiarys retained earnings:
Retained earnings Subsidiary, January 1, 20x5
Less: Retained earnings Subsidiary, January 1, 20x2
Increase in retained earnings since date of acquisition
Less: Amortization of allocated excess 20x2 20x4
(P15,000 x 3 years)
Multiplied by: Controlling interests %...................

Less: Goodwill impairment loss (full-goodwill),

Consolidated Retained earnings, January 1, 20x5
Note:
a. Date of acquisition: RE of Parent = Consolidated RE
Regardless of the method used in the books of the subsidiary,
applied
b. Subsequent to date of acquisition:
Retained earnings of Parent under equity method = CRE

P700,000

P 300,000
70,000
P 230,000
45,000
P 185,000
60%
P 111,000
0

111,000
P 811,000

the following rule should always be

Since, the P811,000 is the retained earnings of parent under the equity method, it should also be
considered as the parents portion or interest in consolidated retained earnings or simply the
consolidated retained earnings.

141. c - P811,000 refer to note (b) of No. 140

142. b P111,000 refer to No. 140
143. d

Consolidated Retained earnings, January 1, 20x5 (refer to Nos. 118 and 119)
Add: Controlling Interest in Consolidated Net Income or
Profit attributable to equity holders of parent for 20x5
Total
Less: Dividends paid Parent Company for 20x5
Consolidated Retained Earnings, December 31, 20x5

144. d refer to No.143

145. c

Non-controlling interest (partial-goodwill), December 31, 2015

Common stock Subsidiary Company, December 31, 2015
Retained earnings Subsidiary Company, December 31, 2015
Retained earnings Subsidiary Company, January 1, 2015
Add: Net income of subsidiary for 2015
Less: Dividends paid Subsidiary - 2015
Stockholders equity Subsidiary Company, December 31, 2015
Adjustments to reflect fair value - (over) undervaluation
of assets and liabilities, date of acquisition (January 1, 2012)
Amortization of allocated excess (refer to amortization above)
(P15,000 x 4)
Fair value of stockholders equity of subsidiary, 12/31/ 2015
Multiplied by: Non-controlling Interest percentage.
Non-controlling interest (partial)
Add: NCI on full-goodwill.

P 811,000
235,000
P1,046,000
92,000
P 954,000

P 480,000
P300,000
90,000
70,000

320,000
P 800,000
140,000
( 60,000)
P 880,000
40
P 352,000
____0

146. c

Non-controlling interest (full)

P 352,000

Stockholders Equity
Common stock - Peer
Retained earnings
Parents Stockholders Equity/Equity Attributable to the
Owners of the Parent
Non-controlling interest**
Total Stockholders Equity (Total Equity)
Total Liabilities and Stockholders Equity

P 1,678,000
352,000
P 985,500
P2,030,000

147. c

Investment in Sea-Breeze
1/1/x2.
414,000
42,000
Dividends S
Retro
111,000
(70,000 x 60%
NI of S
(90,000
Amortization
x 60%). 54,000
9,000
(P15,000 x 60%)
12/31/x5
528,000

724,000
954,000

Investment Income

Amortization
(P15,000 x 60%) 9,000

148. c
149. d refer to No. 137
150. c refer to No. 137
151. b refer to No. 137
152. c refer to No. 140
153. c refer to No. 140
154. a not applicable under equity method.
155. d refer to No. 143
156. d refer to No. 143
157. d refer to No. 145
158. c refer to No. 146
159. b
Consideration transferred: 10,500 shares x P95
Less: BV of SHE S (?)
Allocated excess;
Less: O/U valuation of A and L:
Undervaluation of land
Overvaluation of buildings
Undervaluation of equipment
Undervaluation/unrecorded trademark

54,000
45,000

NI of S
(90,000
x 60%)

P997,500
857,500
P140,000
P40,000
( 30,000)
80,000
50,000 140,000
P
0

160. a P900,000 + P500,000 = P1,400,000

161. d assumed that total expenses includes cost of goods sold which is different when the
question is total operating expenses
Cost of goods sold (P360,000 + P200,000)
P 560,000
Depreciation expense (P140,000 + P40,000)
180,000
Other expenses (P100,000 + P60,000)
160,000
Amortization of allocated excess:
Buildings: (P30,000) / 20
(P1,500)
Equipment; P80,000 / 10
8,000
Trademark: P50,000 / 16
3,125
9,625
Total expenses
P909,625
162. b (P750,000 + P280,000) P30,000 + (P1,500 x 5 years) = P1,007,500
163. c (P300,000 + P500,000) + P80,000 (P8,000 x 5 years) = P840,000
164. c P450,000 + P180,000 + P40,000 = P670,000

165.
166.
167.
168.

d P50,000 P3,125 x 5 years) = P34,375

a P only (the stock issued In 20x0 includes already in the December 31, 20x4 balance.
a P only
a
Consolidated Retained Earnings, December 31, 20x4
Consolidated Retained earnings, January 1, 20x4 (equity method)
Add: Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent for 20x4
Total
Less: Dividends paid P Company for 20x4
Consolidated Retained Earnings, December 31, 20x4 (under equity method)
Net Income from own operations:
Sales
Less: cost of goods sold
Gross profit
Less: Depreciation expense
Other expenses
Net income
Non-controlling interest (full-goodwill), December 31, 20x4
P Company
S Company
Total
Less: Non-controlling Interest in Net Income
Amortization of allocated excess (refer to amortization above)
Goodwill impairment (impairment under full-goodwill approach)
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent..

P 1,350,000
490,375
P1,840,375
195,000
P1,645,375
P Co
P900,000
360,000
P540,000
140,000
100,000
P300,000

0
9,625
_
0

S Co
P500,000
200,000
P300,000
40,000
60,000
P200,000

P300,000
200,000
P500,000
9,625
P490,375

169. c
Note: Normally, the term used in the requirement equity in subsidiary income, is a term
used under equity method, but it should be noted that under PAS 27, it prohibits the use of
equity method for a parent to consolidate a subsidiary. But, assuming the use of equity
method, the answer would be, P190,375.
Share in net income: P200,000 x 100%
P200,000
Less: Amortization of allocated excess
9,625
P190,375
170. c P3,1250 / .20 = P15,750
171. a
Punns separate earnings for 20x6..............................................................
P6,000,000
Add: Punns equity in net income of Sunn (3 months ended,12/31/x6)
200,000
Less: Amortization of cost in excess of book value .................................
( 60,000)
Punns 20x6 net income (equity method).................................................
P6,140,000
172. a assume the use of equity method
Punns equity in net income of Sunn (3 months ended,12/31/x6)
P 200,000
Amortization of cost in excess of book value...........................................
( 60,000)
Increase in Parents retained earnings.
P 140,000
E - If cost model/cost method, the answer would be P100,000.
Dividend income.
173. a
Net income of S (5/1/x5 12/31/x5): P840,000 x 8/12
Less: Dividend S (11/1/20x5 no need to pro-rate)
Cumulative net income less dividends since

P 100,000
P560,000
300,000

date of acquisition, 1/1/20x6 (date to establish reciprocity

not 12/31/x6)
x: Controlling interests
174. a
Net income of S (5/1/x5 12/31/x5): P210,000 x 8/12
Less: Dividend S (11/1/20x5 no need to pro-rate)
Cumulative net income less dividends since
date of acquisition, 12/31/20x5 (date to establish reciprocity
not or 1/1/20x6)
x: Controlling interests
175. b
Retained earnings S Company, 1/1/20x4
Less: Retained earnings S Company, 12/31/20x6
Cumulative net income less dividends since
date of acquisition, 1/1/20x6 (date to establish reciprocity
should always be beginning of the year, not 12/31/x6)
x: Controlling interests
176. b
177. d
178. c
179. b

P260,000
80%
P208,000
P140,000
75,000
P 65,000
80%
P 52,000
P 60,000
190,000
P130,000
90%
P117,000

{(P260,000 - P230,000) + [(P650,000 - P590,000)/120] 8}.8

{(P190,000 - P160,000) 4/6 - [(P241,000 - P220,000)/60] 5}.7
[{(P15,000 + P22,000) - [(P80,000 - P60,000)/10]2} - (P6,000 + P9,000)].7

[{(P84,000 + P105,000) - [(P310,000 - P220,000)/20]2} - (P30,000 + P50,000)].8

180. b building account in the books of subsidiary at fair value
181. e building account in the books of subsidiary at book value
182. d push-down accounting: equipment account in the books of subsidiary is at fair value
183. b
184. a P540,000 = (P500,000 + P150,000 P90,000 P20,000)
185. c equivalent to the original cost
186. d - In consolidating the subsidiary's figures, all intercompany balances must be eliminated
in their entirety for external reporting purposes. Even though the subsidiary is less than fully
owned, the parent nonetheless controls it.
187. b - Intercompany receivables and payables from unconsolidated subsidiaries would not be
eliminated.

Quiz - XVI
1.
2.
3.
4.
5.

b
{P150,000 - [(P550,000 - P450,000)/10] - [(P300,000 - P280,000)/5]}.8
P36,925
{P110,000 - (P250,000 - P160,000 - P50,000) - [(P130,000 - P100,000) 3/5] + [(P215,000 P200,000)/5] (3/12)}.7
P545,500
P500,000 + [P110,000 + P130,000 - P30,000 - P40,000 - P55,000 - (P200,000/8)2].7
P388,000
P320,000 + [P100,000 + P140,000 - P40,000 - P50,000 - P35,000 - (P75,000/5)2].8
P15,400
{P80,000 - [(P290,000 - P250,000)/8] + [(P160,000 - P150,000)/5]}.2

6.
7.

P13,200
{P150,000 - (P470,000 - P300,000 - P90,000) - [(P190,000 - P160,000) 4/5] - [(P520,000 P400,000)/10] (4/12) + [(P380,000 - P350,000)/5] (4/12)}.3
P70,500
{(P250,000/.8) + [P75,000 + P90,000 - P25,000 - P50,000 - P30,000 - (P80,000/8)2]}.2

8. 20x5: P56,000
20x6: P14,000
Purchase differential amortization to investment income
Inventory (P300,000 - P240,000).7
Plant Assets [(P700,000 - P560,000)/7].7
9.

Consolidation worksheet:
Cost of Goods Sold
Depreciation Expense

20x5
P42,000
14,000
P56,000

20x6
P
0
14,000
P14,000

P60,000
20,000

10. P2,900
Sandpipers share of Shore net income (P18,000 x 30%)
Add: Overvalued accounts receivable collected in 20x5
Undervalued accounts payable paid in 20x5
Less: Undervalued inventories sold in 20x5
Depreciation on building undervaluation P3,600/6
Amortization on patent P3,200/8 years
Income from Shore/Income from subsidiary

P
(
(
(

11. No requirement
12. P1,050,000
Parrcos income from its own separate operations for 20x6
Subbcos net income for the nine months ended 12/31/x6
Less: Amortization of cost in excess of book value (P30,000 60%)
Consolidated net income for 20x6 (economic unit concept)
Division of consolidated net income:
To controlling interest (Parrcos stockholders)
To non-controlling interest (stockholders of Subbco)
13. P990,000
Parrcos income from its own separate operations for 20x6
Parrcos equity in net income of Subbco Company for
nine months ended 12/31/x6 (P200,000 60%)
Less: Parrcos amortization of cost in excess of book value
Consolidated net income for 20x6 (parent company concept)

P 900,000
200,000
___50,000)
P1,050,000
P 990,000
___60,000
P1,050,000
P 900,000
120,000
( 30,000)
P 990,000

14. P400,000 (P100,000 + P300,000)

15.

P3,600,000
Plycos separate earnings for 20x6
P 3,500,000
Add:Dividend income from Slyco ..............................................................
100,000
Plycos 20x6 net income
P 3,600,000

5,400
600
300
2,400)
600)
400)
2,900

16.

P3,867,000
Plycos separate earnings for 20x6............................................................
Add:Plycos equity in net income of Slyco ...............................................
Less: Amortization of cost in excess of book value .................................
Plycos 20x6 net income ...............................................................................

17.

P3,867,000 (same amount as calculated in Requirement 16).

P3,500,000
400,000
( 33,000)
P3,867,000

18. Correction 20x0 should be 20y0: P372,850

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

19. Correction 20y0 should be 20x4

20x4 = P86,400
Consolidated Net Income
Peters Company's reported net income
Less: dividend income from Smith
Peters' income from independent operations
Add: Smith's net income in 20x4 since acquisition (8/12)(P45,000)

20x4
64,000
(1,600)
62,400
30,000

20x5
37,500
0
37,500

Less: Smith's net loss in 20x5

P5,000)
Controlling Interest in Consolidated net income
20. 20x5 = P32,500 refer to No. 19
21. 20x4 = P151,400
Consolidated Retained Earnings
Peter's 12/31 retained earnings (P80,000 + P64,000 - P15,000)
Add: Peter's share of the increase in Smith's retained earnings
from the date of acquisition to the current date:
(.80 (P53,000 P25,000))
(.80 (P48,000 P25,000)
22. 20x5 = P179,900 refer to No. 21
23. P9,200
Pinta Company 20y4 equity-method income:
Proportionate share of reported income (P30,000 x .40)
Amortization of differential assigned to:
Buildings and equipment [(P35,000 x .40) / 5 years]
Goodwill (P8,000: not impaired)
Investment Income
Assignment of differential
Purchase price
Proportionate share of book value of
net assets (P320,000 x .40)
Proportionate share of fair value increase in
buildings and equipment (P35,000 x .40)
Goodwill

( 5,000)
32,500

92,400

20x4
P129,000
22,400
P151,400

20x5
P161,500

18,400
P179,900

P 12,000
( 2,800)
-0P 9,200
P150,000
(128,000)
P

(14,000)
8,000

24.

P3,600 - Dividend income, 20y4 (P9,000 x .40)

3,600

25.

Cost-method account balance (unchanged):

Equity-method account balance:
Balance, January 1, 20y4
Investment income
Dividends received
Balance, December 31, 20y4

P150,000
P150,000
9,200
(3,600)
P155,600

Theories
1.
2.
3.
4.
5.

c
d
d
d*
d

6.
7.
8.
9.
10,

b
c
d
d
a

11.
12.
13.
14.
15,

C**
b
d
c
c

16.
17.
18.
19.
20.

c
c
d
d
b

21.
22.
23.
24.
25.

d
a
b
c
c

26.
27.
28.
29.
30.

c
d
c
c
b

31
32.
33.
34.
35.

c
b
c
c
d

36.
37.
38.
39.
40.

d
b
b
c
d

41.
42.
43.
44.
45.

a
c
a

*under PAS 27, cost model recognizes any dividend declared/paid by the subsidiary is classified as income regardless
of retained earnings balance, which means there is no such thing as liquidating dividend under the cost model. On the
other hand, under FASB ruling, a liquidating dividend still exists under the cost method.
**partial equity is the same with equity method except that amortization of allocated excess is not recognized in the
investment and income account.

Chapter 16
Problem I
1. P50,075
Consolidated Net Income for 20x4
Net income from own/separate operations
Pill Company [P25,00

Unamortized balance of allocated excess:
Balance
Balance
Jan. 1
Amortization
Dec. 31
20x4
20x4 & 20x5
20x6
Inventory
40,000
4

Amortization of allocated excess – 20x5
(14,000)
P ( 2,000)
Multiplied by: Controlling interests %...................
75%
P (

Investment in Small under cost method
600,000
Small’s retained earnings, end of year
160,000
Small’s retained earnings, date

1. NCI-CNI
20x5: P(7,350)
20x6: P6,450
20x5
20x6
Consolidated Net Income
Net income from own/separate operations
Large Compan

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

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

Partial-goodwill
Common Stock - TT ..................................................................
300,000
Additional Paid

sheets are being examined, P300,000 – P90,000
depreciation, 20x4)
210,000
FV of SHE of S:
Common stock, 1/1/20x5
P3,000,000
R

Full-goodwill or Fair Value Basis
Fair value of Subsidiary:
Consideration transferred P3,750,000 / 90%
P4,166,667
Less: BV of

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