MODULE 3

Problem 1: On January 1 2013 P acquired 80% interest in S company for 2,000,000 cash. The SHE of S
at the time of acquisition is 1875,000. On January 1 2013. NCI is measures at its implied fair value. The
excess of cost over book value of interest acquired is allocated to the following assets:
Inventories P100,000 (sold in 2013)
Building 200,000 (5 year remaining life)
During 2013 S reported total comprehensive income of P500,000 and paid dividends of P100,000
1. What is the F.V. of NCI on Jan 1 2013 P500,000
2. 2. How much goodwill (gain on acquisition) is reported in the consolidated statement of financial
position on Jan 1 2013?
3. What is the consolidated total comprehensive income attributable to parents on DEC. 31 2013, if
P’s net income for 2013 is P600,000?
4. What is the NCI in net assets of subsidiary on Dec 31 2013?

Problem 2: Power purchased a 70% interest in Star on Jan 1 2013 for P140,000, when Star’s SHE
consisted of P30,000 common stock , P100,000 additional paid-in capital and P200,000 retained
earnings. Income and dividends data for Star are as follows:
Net Income (or loss) P50,000
Dividends 5,000
NCI is measured at fair value
1. If power reported separate income from own operations of P120,000 for 2013, what

MODULE 4
PROBLEM 1 : P company had 90% ownership interest acquired several years ago in S company. The
amortization of allocated excess (identifiable assets) arising from the acquisition amounted to P2,000
per year (based on 100% or full fair value of identifiable assets). The inventories acquired from the
affiliates are:
Beg. Inventory P10,000
End. Inventory P16,000
An inter-company sale of merchandise was made during the year amounting to P40,000 at a gross
profit rate of 25% based on sales (the same rate consistently applied on previous years intercompany
sales of merchandise) of which 60% are sold to outsiders at P35,000.

The net Income from own operations and dividends for 2019 were as follows:

Company Net Income Dividends paid

Parent P120,000 P8,000
Subsidiary 70,000 6,000

Required: Assuming that Parent is the seller (downstream sale), in the books of P assuming the
investment balance on Jan 1 2019 amounted to P800,000. Determine the following: (COST METHOD)
A. Investment In S
B. Investment Income
C. Consolidated Net Income for 2019
D. The profit attributable to equity holders of parent/ controlling interest in consolidated net income
for 2019
E. The non-controlling interest in net income for 2019
Using equity method, assuming the balance on jan 1 2019 amounted to 810,000
F. The equity in subsidiary income or net earnings account on dec. 31 2019
G. The investment account on dec. 31 2019
H. Profit attributable to equity holders of parent in conso net income for 2019
I. NCI in net income for 2019
J. Conso net income for 2019

Problem 2: On January 2 2017, Par company purchased 80% of the outstanding shares of Sub by
paying P340,000, the Sub’s common stock and retained earnings on this date amounted to P150,000
and P230,000 respectively. Also on this date, an equipment us undervalued by P20,000 with
remaining life of 10 years.
On January 1 2019, Sub had P150,000 of capital stock and P300,000 of retained earnings. Also on the
same date, Par company had P1,000,000 of capital stock and P700,000 (Cost method) and P750,000
(Equity method) of retained earnings.

During the year, Par company sold merchandise to Sub for P60,000 and in turn, purchased P40,000
from Sub Company. Inter-company sales of merchandise were made at the following gross profit
rates:
Sales made by parent 25% based on cost
Sales made by subsidiary 20% based on sales

On december 31 2019, 30% of all intercompany sales remain in the ending inventory of the
purchasing affiliate.
The beginning inventory of Par Company includes P2,500 worth of merchandise acquired from Sub
Company on which Sub company reported a profit of P1,000. While beginning inventory of Sub
includes P3,000 of merchandise acquired from Par company at 35% mark up.

The following selected results of operations were as follows:

Particulars Par Sub
Dividends Paid P60,000 P10,000
Sales 1,100,000 900,000
Cost of Sales 880,000 720,000
Gross Profit 220,000 180,000
Net Income from own operations 100,000 30,000

1. Dividend Income under Cost method for 2019 8,000

2. Balance of investment as of december 31 2019 under cost method 340,000
3. equity in subsidiary income or net earnings account under equity method 18,730
4. The balance of investment as of dec 31 2019 under equity method assuming the investment
balance on jan 1 2019 is 390,950 401,680
5. The nci in net income for 2019 5,320
6. Profit attributable to equity holders of parent in conso net income 118,730
7. Conso net income for 2019 124,050
8. SHE of subsidiary of subsidiary on dec 31 2019 470,000
9. NCI (In net assets) on dec 312019 using proportionate basis should be 96,320
10. “” using fair value basis 101,320
11. Parent’s portion of consolidated retained earnings on dec 2019 809,680
12. Conso retained earnings on dec 31 2019 809,680
13. Conso SHE using proportionate basis 1,906,000
14. Conso SHE using fair value basis 1,911,000
15. Conso sales for 2019 1,900,000
16. Conso COGS for 2019 1.503,950

Problem 3
Problem 3: Lorn Corporation purchased inventory from Dresser Corporation for P120,000 on
September 20, 2019 and resold 80% of the purchased inventory to unaffiliated companies prior to
December 31, 2019, for P140,000. Dresser produced the inventory sold to Lorn for P75,000. Lorn
owns 70% of Dresser’svoting common stock. The companies had no other transactions during 2019.
1.What amount of sales will be reported in the 2019 consolidated income statement?
a. P98,000b. P120,000c. P140,000d. P260,000
2.What amount of cost of goods sold will be reportedin the 2019 consolidated income statement
a. P60,000b. P75,000c. P96,000d. P120,000
3.What amount of consolidated net income will be assigned to the controlling interest for 2019?
a. P44,000b. P45,000c. P69,200d. P80,000
4.What inventory balances will be provided by the consolidated entity on December 31, 2019?
a. P15,000b. P16,800c. P24,000d. P39,000
MODULE 5
On January 1, 2014, Padre Company purchased 90% of the outstanding shares of Salve Company by
paying P693,000. On that date, Salve Company had P300,000 of capital stock and P400,000 of
retained earnings. Excess, if any, is attributable to undervalued machinery with a remaining life of 20
years. All other assets and liabilities of Salve Company had book value approximated their fair market
values.
On January 2, 2014, there is an intercompany sale of equipment for P42,000. The cost and
accumulated depreciation are P70,000 and P40,000, respectively. The equipment has a remaining life
of six (6) years.
The net income from own operations and dividends paid of Padre Company and its subsidiary are as
follows (fiscal year ends December 31)

Company Net income 14 Net income 15 Dividends 14 Dividends 15

Padre P160,000 P120,000 P10,000 P7,000
Salve P70,000 P40,000 P12,000 P8,000

Required:
Assuming that Padre Company is the seller (downstream sale), in the books of Padre Company
Using cost method,
1.The investment account on December 31, 2014 and 2015
2.The dividend account on December 31, 2014 and 2015.

Using equity method, assuming the investment balance on January 1, 2019 amounted to P810,000
3.The investment account on December 31, 2014 and 2015
4.The equity in subsidiary income or net earnings account on December 31, 2014 and 2015

Assuming that Padre Company is the seller (downstream sale), in the consolidated financial
statements of Padre Company and Salve Company
5.The investment account on December 31, 2014 and 2015
6.The dividend income account on December 31, 2014 and 2015 if cost method is used
7.The equity in subsidiary income or net earnings account on December 31, 2014 and 2015 if equity
method is used
8.The profit attributable to equity holders of parent/controlling interest in consolidated net income
for 2014 and 2015
9.The noncontrolling interest in net income for 2014 and 2015
10.Consolidated/group net income for 2014 and 2015

Assuming that Salve Company is the seller (upstream sale), in the books of Padre Company
Using cost method,
11.The investment account on December 31, 2014 and 2015.
12.The dividend account on December 31, 2014 and 2015.

Using equity method, assuming the investment balance on January 1, 2019 amounted to P810,000
13.The investment account on December 31, 2014 and 2015
14.The equity in subsidiary income or net earnings account on December 31, 2014 and 2015

Assuming that Salve Company is the seller (downstream sale), in the consolidated financial
statements of Padre Company and Salve Company
15.The investment account on December 31, 2014 and 2015
16.The dividend income account on December 31, 2014 and 2015 if cost method is used
17.The equity in subsidiary income or net earnings account on December 31, 2014 and 2015 if equity
method is used
18.The profit attributable to equity holders of parent/controlling interest in consolidated net income
for 2014 and 2015
19.The noncontrolling interest in net income for 2014 and 2015
20. Consolidated/group net income for 2014 and 2015

Problem 2: On January 1, 2014, P Company purchased 80 percent of the outstanding shares of S

Company by paying P700,000. On that date, S Company had P300,000 capital stock and P500,000 of
retained earnings. An undervalued asset attributable to building amounted to P75,000 with a
remaining life of 25 years. All other assets and liabilities of S Company had book value approximated
their fair market value.
On January 1, 2015, P’s common stock of P1,000,000 and retained earnings amounted to P800,000
(cost method) and P877,600 (equity method) of retained earnings, while S Company’s retained
earnings is P600,000. The 2015 separate net income from operations were as follows:
Net Income Dividends
P Company P300,000 P100,000
S Company P150,000 P50,000
On April 1, 2015, S Company sold equipment with a book value of P30,000 to P Company for P60,000.
The gain on sale is included in the net income of S Company indicated above. The equipment is
expected to have a remaining useful life of five years from the date of sale.
On September 30, 2015, P Company sold machinery with a book value of P40,000 to S Company for
P75,000. The gain on sale is also included in the net income of P Company indicated above. The
machinery is expected to last for 10 years from the date of sale.

1. The investment in subsidiary account under cost model on December 31, 2015
2. The dividend income/investment income under cost model for 2015
3. The balance of investment as of December 31, 2015 under equity method assuming the investment
balance on January 1, 2015 amounted to P777,600 should be
4. The equity in subsidiary loss or net loss/loss from subsidiary under equity method for 2015 should
be
5. The non-controlling interest in net income for 2015
6. The profit attributable to equity holders of parent (Parent’s Interest/Controlling interest in profit)
for 2015:
7. The consolidated/group net income for 2015
8. The non-controlling interest on December 31, 2015
9. The non-controlling interest (in net assets) on December 31, 2016 assuming that the net income
and dividends of subsidiary amounted to P200,000 and P70,000, respectively
10. Using the same information on #7 and #8, determine the stockholders’ equity of subsidiary as of
December 31 2015 2016
11. The controlling (parent’s) interest – retained earnings or the consolidated retained earnings on
December 31,
2015
a. P1,040,000 b. P1,063,075 c. P1,123,075 d. P1,140,675
12. The consolidated stockholders’ equity on December 31, 2015
a. P2,040,000 b. P2,349,375 c. P2,358,375 d. P2,375,975