Chap 17 Intercompany Sales of Inventory

Chapter 17
Problem I
1.
Consolidated Net Income for 20x5
P Company’s net in come from own/separate operations…………. P 760,000
Realized profit in beginning inventory of S Company (downstream sales) 36,000
Unrealized profit in ending inventory of S Company (downstream sales)… (_50,000)
P Company’s realized net income from separate operations*…….….. P 746,000
S Company’s net income from own operations…………………………………. P 460,000
Realized profit in beginning inventory of P Company (upstream sales) 0
Unrealized profit in ending inventory of P Company (upstream sales)… ( 0)
S Company’s realized net income from separate operations*…….….. P 460,000 460,000
Total P1,206,000
Less: Amortization of allocated excess…………………… 0
Consolidated Net Income for 20x5 P1,206,000
Less: Non-controlling Interest in Net Income* * 92,000
Controlling Interest in Consolidated Net Income or Profit attributable
attributable to
equity holders of parent – 20x5…………..
– 20x5………….. P 1,114,000
*that has been realized in transactions with third parties.
Beginning inventory: P1,080,000 x 1/5 = P216,000 x 20/120 = P36,000 profit
Ending inventory: P1,200,000 x ¼ = P300,000 x 20/120 = P50,000 profit
Or, alternatively
P Company’s net in come from own/separate operations…………. P 760,000
S Company’s realized net income from separate operations*…….….. P460,000 460,000
Total P1,206,000
Less: Non-controlling Interest in Net Income* * P 92,000
Amortization of allocated excess…………………… 0 92,000
attributable to
equity holders of parent………….. P1,114,000
Add: Non-controlling Interest in Net Income (NCINI) _ 92,000
Consolidated Net Income for 20x5 P 1,206,000
**Non-controlling Interest in Net Income (NCINI)

(NCINI) for 20x5
S Company’s net income of Subsidiary Company from its own operations
(Reported net income of Son Company) P460,000
Unrealized profit in ending inventory of P Company (upstream sales) ( 0)
S Company’s realized net income from separate operations……… P460,000
Less: Amortization of allocated excess _____0
P460,000
Multiplied by: Non-controlling interest %..........
%.......... 20%
Non-controlling Interest in Net Income (NCINI) – partial goodwill P 92,000
2. Books of
of Puma
(a) Cost Method
20x4
Dividend – Smarte
Smarte Company:
None, since, there is no amount given
20x5
Dividend – Smarte
Smarte Company:
(b) Equity Method

20x4
Net income – Smarte
Smarte
Investment in Smarte (400,000 x 80%) 320,000
Equity in Subsidiary Income 320,000
Dividend – Smarte
Smarte
Cash/Dividends receivable 0
Investment in Smarte 0
Amortization of Allocated excess:

Equity in Subsidiary Income 0
Realized Profit in BI :
Unrealized Profit in EI:

Investment in Smarte 36,000
20x5
Smarte
Dividend – Smarte
Smarte


Equity in Subsidiary Income 50,000 50,000
Investment in Smarte
3. Downstream Sales
20x4
Sales………………………………………………………………………………… 1,080,000
Sold)……………………………………... 1,080,000
Purchases (Cost of Goods Sold)……………………………………...
**100% UPEI of S:
Cost of Sales (Ending Inventory in I ncome Statement)
[216,000 – (216,000/1.20)]………..…………………………………………..
– (216,000/1.20)]………..………………………………………….. 36,000
Inventory (Ending Inventory in Balance Sheet)……………………..
Sheet)…………………….. 36,000
20x5
100% Interscompany Sales
Sales…………………………………………
Sales………………………………………………………………… ……………………………………….1,200,000
……………….1,200,000
Purchases (Cost of Goods Sold) ………………………………….. 1,200,000
Downstream Sales:
*100% RPBI of S:
Retained Earnings – P,
– P, beginning……………………
beginning……………………………………….....
…………………..... 36,000
Cost of Sales (Beginning Inventory in Income Statement)….. 36,000
**100% UPEI of S:
Cost of Sales (Ending Inventory in Income Statement)
[300,000 – (300,000/1.20)]………..…………………………………………..
– (300,000/1.20)]………..………………………………………….. 15,000
Inventory (Ending Inventory in Balance Sheet)………………..
Sheet)……………….. 15,000
Problem II
1.
P Company’s net income
income from own/separate
own/separate operations…………. P 1,720,000
Realized profit in beginning inventory of S Company (downstream sales) 0
Unrealized profit in ending inventory of S Company (downstream sales)… (_ 0)
P Company’s realized
realized net income from separate operations*…….…..
operations*…….….. P 1, 720,000
Realized profit in beginning inventory of P Company (upstream sales) 40,000
Unrealized profit in ending inventory of P Company (upstream sales)… ( 51,00 0)
Son Company’s realized net income from separate operations*…….….. P 589,000 589,000
Total P2,309,000


20x5
Smarte
Dividend – Smarte
Smarte


Equity in Subsidiary Income 50,000 50,000
Investment in Smarte
3. Downstream Sales
20x4
Sales………………………………………………………………………………… 1,080,000
Sold)……………………………………... 1,080,000
Purchases (Cost of Goods Sold)……………………………………...
**100% UPEI of S:
Cost of Sales (Ending Inventory in I ncome Statement)
[216,000 – (216,000/1.20)]………..…………………………………………..
– (216,000/1.20)]………..………………………………………….. 36,000
Inventory (Ending Inventory in Balance Sheet)……………………..
Sheet)…………………….. 36,000
20x5
Sales…………………………………………
Sales………………………………………………………………… ……………………………………….1,200,000
……………….1,200,000
Purchases (Cost of Goods Sold) ………………………………….. 1,200,000
Downstream Sales:
*100% RPBI of S:
– P, beginning……………………
beginning……………………………………….....
…………………..... 36,000
Cost of Sales (Beginning Inventory in Income Statement)….. 36,000
**100% UPEI of S:
Cost of Sales (Ending Inventory in Income Statement)
[300,000 – (300,000/1.20)]………..…………………………………………..
– (300,000/1.20)]………..………………………………………….. 15,000
Inventory (Ending Inventory in Balance Sheet)………………..
Sheet)……………….. 15,000
Problem II
1.
P Company’s net income
income from own/separate
own/separate operations…………. P 1,720,000
P Company’s realized
realized net income from separate operations*…….…..
operations*…….….. P 1, 720,000
Unrealized profit in ending inventory of P Company (upstream sales)… ( 51,00 0)
Total P2,309,000
attributable to
equity holders of parent – 20x5…………..
– 20x5………….. P 2,250,100
Beginning inventory: P800,000 x 1/4 = P200,000 x 25/125 = P40,000 profit
Ending inventory: P1,020,000 x ¼ = P255,000 x 25/125 = P51,000 profit
Or, alternatively
P Company’s net in come from own/separate operations…………. P 1,720,000
Unrealized profit in ending inventory of S Company (downstream sales)… (________0)
P Company’s realized net income from separate operations*…….….. P1,720,,000
Unrealized profit in ending inventory of P Company (upstream sales)… ( 51,000)
Total P2,309,000
Amortization of allocated excess…………………… 0 __58,900
attributable to
**Non-controlling Interest in Net Income (NCINI)

(NCINI) for 20x5
(Reported net income of Son Company) P600,000
Unrealized profit in ending inventory of P Company (upstream sales) ( 51,000)
Son Company’s realized net income from separate operations……… P589,000
P589,000
%.......... 10%
Non-controlling Interest in Net Income (NCINI) P 58,900
2. Books of Pinta
(a) Cost Method
20x4
Dividend – Simplex
Simplex Company:
20x5
Simplex Company:
(b) Equity Method

20x4
Net income – Simplex
Simplex
Investment in Simplex (600,000 x 90%) 540,000
Simplex
Investment in Simplex 0


20x5
Net income – Simplex


3. Upstream Sales:
Sales…………………………………………………………………………………1,020,000
Purchases (Cost of Sales)………………………………………. ……. 1,020,000
To eliminate intercompany sales.
***100% RPBI of P: (if e quity method Investment in S instead of RE – P, beg.)
Retained Earnings – P, beginning (90% x P40,000)……………...…. 36,000
NCI ……………………………………………….…………………………. 4,000
Cost of Sales (Beginning Inventory in Income Statement) 40,000
To recognize unrealized profit in beginning inventory realized during the year.
****100% UPEI of P:
Cost of Sales (Ending Inventory in Income Statement)………………51,000
Inventory (Ending Inventor y in Balance Sheet)……………… 51,000
To eliminate unrealized intercompany profit in ending inventory.
Problem III
1.
Non-controlling Interest in Net Income (NCINI) for 20x4
(Reported net income of Son Company) P3,000,000
Realized profit in beginning inventory of P Company (upstream sales): P525,000 x 25/125 105,000
Unrealized profit in ending inventory of P Company (upstream sales): P1,250,000 x 25/125 ( 250,000)
Son Company’s realized net income from separate operations……… P 2,855,000
P3,055,000
Multiplied by: Non-controlling interest %.......... 20%
2 .Controlling Interest in Consolidated Net Income or Profit attributable to equity holders of parent
– 20x5 – cannot be solved, since there is no net income from separate operations for P
Company.
Incidentally, the eliminating entries are as follows:

Sales 4,000,000
Cost of Goods Sold 4,000,000
Cost of Goods Sold 250,000
Ending Inventory (Balance Sheet) 250,000
[P1,250,000 - (P1,250,000/1.25)]
Retained Earnings, beginning – P Company (80%) 84,000
Noncontrolling interest (20%) 21,000
Cost of Goods Sold (Beginning Inventory) 105,000
[P525,000 – (P525,000/1.25)] = P105,000
3.
Stockholders’ equi ty – Subsidiary Company, December 31, 20x4 P5,400,000
Adjustments to reflect fair value - (over) undervaluation of assets and
liabili ties, date of acquisition (January 1, 20x4) 0
Amortization of allocated excess (refer to amortization above) – 20x4 ( 0)
Fair value of stockholders’ equity of subsidiary, December 31, 20x4…… P5,400,000
Less: Unrealized profit in ending inventory of P Company (upstream sales) 250,000
Realized stockholders’ equity of subsidiary, December 31, 20x4…… P5,150,000
Multiplied by: Non- controlling Interest percentage…………... 20
Non-controlling interest (in net assets)…………………………….. P1,030,000
Problem IV
Requirements 1 to 4:
Schedule of Determination and Allocation of Excess (Partial-goodwill)
Date of Acquisition – January 1, 20x4
Fair value of Subsidiary (80%)

Consideration transferred……………………………….. P 372,000
Less: Book value of stockholders’ equity of Son:
Common stock (P240,000 x 80%)……………………. P 192,000
Retained earnings (P120,000 x 80%)………………... 96,000 288,000
Allocated excess (excess of cost over book value)….. P 84,000
Less: Over/under valuation of assets and liabilities:
Increase in inventory (P6,000 x 80%)……………… P 4,800
Increase in land (P7,200 x 80%)……………………. 5,760
Increase in equipment (P96,000 x 80%) 76,800
Decrease in buildings (P24,000 x 80%)………..... ( 19,200)
Decrease in bonds payable (P4,800 x 80%)…… 3,840 72,000
Positive excess: Partial-goodwill (excess of cost over
fair value)………………………………………………... P 12,000
The over/under valuation of assets and liabilities are summarized as follows:

SCo. S Co. (Over) Under
Book value Fair value Valuation
Inventory………………….…………….. P 24,000 P 30,000 P 6,000
Land……………………………………… 48,000 55,200 7,200
Equipment (net)......... 84,000 180,000 96,000
Buildings (net) 168,000 144,000 (24,000)
Bonds payable………………………… (120,000) ( 115,200) 4,800
Net……………………………………….. P 204,000 P 294,000 P 90,000
The buildings and equipment will be further analyzed for consolidation purposes as follows:
S Co. S Co. Increase
Book value Fair value (Decrease)
Equipment .................. 180,000 180,000 0
Less: Accumulated depreciation….. 96,000 - ( 96,000)
Net book value………………………... 84,000 180,000 96,000
S Co. SCo.
Buildings................ 360,000 144,000 ( 216,000)
Net book value………………………... 168,000 144,000 ( 24,000)
A summary or depreciation and amortization adjustments is as follows:

Over/ Annual Current
Account Adjustments to be amortized Under Life Amount Year(20x4) 20x5
Inventory P 6,000 1 P 6,000 P 6,000 P -
Subject to Annual Amortization
Equipment (net)......... 96,000 8 12,000 12,000 12,000
Buildings (net) (24,000) 4 ( 6,000) ( 6,000) (6,000)
Bonds payable… 48000 4 1,200 1,200 1,200
P 13,200 P 13,200 P 7,200
The goodwill impairment loss of P3,750 based on 100% fair value would be allocated to the
controlling interest and the NCI based on the percentage of total goodwill each equity interest
received. For purposes of allocating the goodwill impairment loss, the full-goodwill is computed as
follows:

Consideration transferred: Cash (80%) P 372,000
Fair value of NCI (given) (20%) 93,000
Fair value of Subsidiary (100%) P 465,000
Less: Book value of stockholders’ equity of Son (P360,000 x 100%) __360,000
Add (deduct): (Over) under valuation of assets and liabilities
(P90,000 x 100%) 90,000
Positive excess: Full-goodwill (excess of cost over
fair value)………………………………………………... P 15,000
In this case, the goodwill was proportional to the controlling interest of 80% and non-controlling
interest of 20% computed as follows:
Value % of Total
Goodwill applicable to parent………………… P12,000 80.00%
Goodwill applicable to NCI…………………….. 3,000 20.00%
Total (full) goodwill……………………………….. P15,000 100.00%
The goodwill impairment loss would be allocated as follows

Value % of Total
Goodwill impairment loss attributable to parent or controlling P 3,000 80.00%
Interest
Goodwill applicable to NCI…………………….. 750 20.00%
Goodwill impairment loss based on 100% fair value or full-
Goodwill P 3,750 100.00%
The unrealized profits on January 1, and on December 31, 20x5, resulting intercompany sales, are
as summarized below:
Downstream Sales:
Intercompany Merchandise
Year Sales of Parent to in 12/31 Inventory Unrealized Intercompany
Subsidiary of S Company Profit in Ending Inventory
20x4 P150,000 P150,000 x 60% = P90,000 P90,000 x 20% = P18,000
20x5 120,000 P120,000 x 80% = P96,000 P96,000 x 25% = P40,000
Upstream Sales:
Year Sales of Subsidiary in 12/31 Inventory Unrealized Intercompany
to Parent of S Company Profit in Ending Inventory
20x4 P 50,000 P100,000 x 50% = P25,000 P25,000 x 40% = P10,000
20x5 62,500 P 62,500 x 40% = P25,000 P25,000 x 20% = P 5,000
20x4: First Year after Acquisition

Parent Company Cost Model Entry
January 1, 20x4:
(1) Investment in S Company…………………………………………… 372,000
Cash…………………………………………………………………….. 372,000
Acquisition of S Company.
January 1, 20x4 – December 31, 20x4:

(2) Cash……………………… 28,800
Dividend income (P36,000 x 80%)……………. 28,800
Record dividends from S Company.
No entries are made on the parent’s books to depreciate, amortize or write -off the portion of the
allocated excess that expires during 20x4, and unrealized profits in ending inventory.
Consolidation Workpaper – Year of Acquisition
(E1) Common stock – S Co………………………………………… 240,000
Retained earnings – S Co…………………………………… 120.000
Investment in S Co…………………………………………… 288,000
Non-controlling interest (P360,000 x 20%)……………………….. 72,000
To eliminate intercompany investment and equity accounts
of subsidiary on date of acquisition; and to establish non-controlling
interest (in net assets of subsidiary) on date of acquisition.
(E2) Inventory…………………………………………………………………. 6,000
Accumulated depreciation – equipment……………….. 96,000
Accumulated depreciation – buildings………………….. 192,000
Land………………………………………………………………………. 7,200
Discount on bonds payable…………………………………………. 4,800
Goodwill…………………………………………………………………. 12,000
Buildings……………………………………….. 216,000
Investment in Son Co………………………………………………. 84,000
To allocate excess of cost over book value of identifiable assets
acquired, with remainder to goodwill; and to establish non-
controlling interest (in net assets of subsidiary) on date of acquisition.
(E3) Cost of Goods Sold……………. 6,000

Depreciation expense……………………….. 6,000
Interest expense………………………………… 1,200
Goodwill impairment loss………………………………………. 3,000
Inventory………………………………………………………….. 6,000
Discount on bonds payable………………………… 1,200
Goodwill…………………………………… 3,000
To provide for 20x4 impairment loss and depreciation and
amortization on differences between acquisition date fair value and
book value of S’s identifiable assets and liabilities as follows:
Cost of Depreciation/
Goods Amortization Amortization
Sold Expense -Interest Total
Inventory sold P 6,000
Equipment P 12,000
Buildings ( 6,000)
Bonds payable _______ _______ P 1,200
Totals P 6,000 P 2,000 P1,200 13,200
(E4) Dividend income - P ………. 28,800

Non-controlling interest (P36,000 x 20%)……………….. 7,200
Dividends paid – S…………………… 36,000
To eliminate intercompany dividends and non-controlling interest
share of dividends.
(E5) Sales………………………. 150,000

Cost of Goods Sold (or Purchases) 150,000
To eliminated intercompany downstream sales.
(E6) Sales………………………. 60,000

To eliminated intercompany upstream sales.
(E7) Cost of Goods Sold (Ending Inventory – Income Statement)… 18,000
Inventory – Balance Sheet…… 18,000
To defer the downstream sales - unrealized profit in ending inventory
until it is sold to outsiders.

To defer the upstream sales - unrealized profit in ending inventory
(E9) Non- controlling interest in Net Income of Subsidiary………… 6,960

Non-controlling interest ………….. 6,960
To establish non-controlling interest in subsidiary’s adjusted net
income for 20x4 as follows:
Net income of subsidiary…………………….. P 60,000

Unrealized profit in ending inventory of P
Company (upstream sales)……………………….. ( 12,000)
S Company’s realized net income from
separate operations*…….….. P 48,000
Less: Amortization of allocated excess [(E3)]…. 13,200
P 34,800
Non-controlling Interest in Net Income (NCINI)
– partial goodwill P 6,960
Worksheet for Consolidated Financial Statements, December 31, 20x4.

Cost Model (Partial-goodwill)
80%-Owned Subsidiary
December 31, 20x4 (First Year after Acquisition)
Income Statement P Co S Co. Dr. Cr. Consolidated

Sales P480,000 P240,000 (5) 150,000 P 510,000
(6) 60,000
Dividend income 28,800 - (4) 36,000 _________
Total Revenue P508,800 P240,000 P 510,000
Cost of goods sold P204,000 P138,000 (3) 6,000 (5) 150,000 P 168,000
(7) 18,000 (6) 60,000
(8) 12,000
Depreciation expense 60,000 24,000 (3) 6,000 90,000
Interest expense - - (3) 1,200 1,200
Other expenses 48,000 18,000 66,000
Goodwill impairment loss - - (3) 3,000 3,000
Total Cost and Expenses P312,000 P180,000 P328,200
Net Income P196,800 P 60,000 P181,800
NCI in Net Income - Subsidiary - - (9) 6,960 ( 6,960)
Net Income to Retained Earnings P196,800 P 60,000 P174,840
Statement of Retained Earnings

Retained earnings, 1/1
P Company P360,000 P 360,000
S Company P120,000 (1) 120,000
Net income, from above 196,800 __60,000 174,840
Total P556,800 P180,000 P534,840
Dividends paid
P Company 72,000 72,000
S Company - __36,000 (4) 36,000 _ ________
Retained earnings, 12/31 to Balance
Sheet P484,800 P144,000 P 462,840
Balance Sheet
Cash………………………. P 232,800 P 90,000 P 355,200
Accounts receivable…….. 90,000 60,000 150,000
Inventory…………………. 120,000 90,000 (2) 6,000 (3) 6,000
(7) 18,000
(8) 12,000 180,000
Land……………………………. 210,000 48,000 (2) 7,200 265,200
Equipment 240,000 180,000 420,000
Buildings 720,000 540,000 (2) 216,000 1,044,000
Discount on bonds payable (2) 4,800 (3) 12000 3,600
Goodwill…………………… (2) 12,000 (3) 3,000 9,000
Investment in S Co……… 372,000 (1) 288,000
(2) 84,000 -
Total P1,984,800 P1,008,000 P2,394,600
Accumulated depreciation
- equipment P 135,000 P 96,000 (2) 96,000 (3) 12,000 P147,000
Accumulated depreciation 405,000 288,000 (2) 192,000
- buildings (3) 6,000 495,000
Accounts payable…………… 120,000 120,000 240,000
Bonds payable………………… 240,000 120,000 360,000
Common stock, P10 par……… 600,000 600,000
Common stock, P10 par……… 240,000 (1) 240,000
Retained earnings, from above 484,800 144,000 462,840
Non-controlling interest………… (4) 7,200 (1 ) 72,000
(2) 18,000
_________ _________ __________ (9) 6,960 ____89,760
Total P1,984,800 P1,008,000 P 983,160 P 983,160 P2,394,600

P Company’s net income from own/separate operations…………. P168,000
Unrealized profit in ending inventory of S Company (downstream sales)… ( 18,000)
P Company’s realized net income from separate operations*…….….. P150,000
Unrealized profit in ending inventory of S Company (upstream sales)… ( 12,000)
Total P198,000
Amortization of allocated excess (refer to amortization above) 13,200
Goodwill impairment (impairment under partial-goodwill approach) 3,000 23,160
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent………….. P174,840
Consolidated Net Income for 20x4 P181.800
**Non-controlling Interest in Net Income (NCINI) for 20x4

S Company’s net income of Subsidiary Company from its own operations P 60,000
(Reported net income of S Company)
S Company’s realized net income from separate operations……… P 48,000
Less: Amortization of allocated excess 13,200
P 34,800
Since NCI share of goodwill is not recognized, no adjustment is required for the impairment loss on
goodwill and impairment losses are not shared with NCI.
20x5: Second Year after Acquisition

P Co. S Co.
Sales P 540,000 P 360,000
Less: Cost of goods sold 216,000 192,000
Gross profit P 324,000 P 168,000
Less: Depreciation expense 60,000 24,000
Other expense 72,000 54,000
Net income from its own separate operations P 192,000 P 90,000
Add: Dividend income 38,400 -
Net income P 230,400 P 90,000
Dividends paid P 72,000 P 48,000
No goodwill impairment loss for 20x5.

20x5: Parent Company Cost Model Entry
Only a single entry is recorded by the parent in 20x5 in relation to it s subsidiary investment:
Cash……………………… 38,400
On the books of S Company, the P48,000 dividend paid was recorded as follows:
Dividends paid………… 48,000
Cash 48,000
Dividends paid by S Co..
Consolidation Workpaper – Second Year after Acquisition

(E1) Investment in S Company………………………… 19,200
Retained earnings – P Company……………………… 19,200
To provide entry to convert from the cost method to the equity
method or the entry to establish reciprocity at the beginning of the
year, 1/1/20x5, computed as follows:
Retained earnings – S Company, 1/1/20x5 P144,000

Retained earnings – S Company, 1/1/20x4 120,000
Increase in retained earnings…….. P 24,000
Multiplied by: Controlling interest % 80%
Retroactive adjustment P 19,200

Retained earnings – S Co., 1/1/20x5 144.000
Investment in S Co (P384,000 x 80%)………………………… 307,200
of subsidiary and to establish non-controlling interest (in net assets of
subsidiary) on January 1, 20x5.
(E3) Inventory…………………………………………………………………. 6,000
Accumulated depreciation – equipment……………….. .... 96,000
Accumulated depreciation – buildings………………….. ... 192,000
Land………………………………………………………………………. 7,200
Goodwill…………………………………………………………………. 12,000
Buildings……………………………………….. ......................... 216,000
Non-controlling interest (P90,000 x 20%)............................ 18,000
Investment in S Co………………………………………………. 84,000
controlling interest (in net assets of subsidiary) on January 1, 20x5.
(E4) Retained earnings – P Company, 1/1/20x5

[(P13,200 x 80%) + P3,000, impairment loss on
partial-goodwill] 13,560
Non-controlling interests (P13,200 x 20%)……………………. 2,640
Inventory………………………………………………………….. 6,000
Goodwill…………………………………… 3,000
To provide for years 20x4 and 20x5 depreciation and amortization on
differences between acquisition date fair value and book value of
S’s identifiable assets and liabilities as follows:
Year 20x4 amounts are debited to P’s retained earnings &
NCI;
Year 20x5 amounts are debited to respective nominal accounts.
(20x4) Depreciation/
Retained Amortization Amortization
earnings, expense -Interest
Equipment 12,000 P 12,000
Buildings (6,000) ( 6,000)
Bonds payable 1,200 ________ P 1,200
Sub-total P13,200 P 6,000 P 1,200
Multiplied by: 80%
To Retained earnings P 10,560
Impairment loss 3,000
Total P 13,560
(E5) Dividend income - P………. 38,400

share of dividends.
(E6) Sales………………………. 120,000

(E7) Sales………………………. 75,000

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

Cost of Goods Sold (Ending Inventory – Income Statement) 18,000
To realized profit in downstream beginning inventory deferred in the
prior period.
(E9) Beginning Retained Earnings – P Company (P12,000 x 80%) 9,600

Noncontrolling interest (P12,000 x 20%)…… 2,400
To realized profit in beginning inventory deferred in the prior period.


(E12) Non- controlling interest in Net I ncome of Subsidiary………… 17,760

Realized profit in beginning inventory of P

Company - 20x5 (upstream sales) 12,000
Company - 20x5 (upstream sales) ( 6,000)
S Company’s Realized net income* P 96,000
P 88,800
Non-controlling Interest in Net Income (NCINI )
*from separate transactions that has been realized in transactions
with third persons.

Cost Model (Partial-goodwill)
December 31, 20x5 (Second Year after Acquisition)

Sales P540,000 P360,000 (6) 120,000 P 705,000
(7) 75,000
Dividend income 38,400 - (5) 38,400 ___________
Cost of goods sold P216,000 P192,000 (10) 24,000 (6) 120,000
(11) 6,000 (7) 75,000 213,000
(8) 18,000
(9) 12,000
Other expenses 72,000 54,000 126,000
Goodwill impairment loss - - -
Total Cost and Expenses P348,000 P270,000 P 430,200
Net Income P230,400 P 90,000 P 274,800
Net Income to Retained Earnings P230,400 P 90,000 P 257,040

P Company P484,800 (2) 13,560
(8) 18,000
(9) 9,600 (1) 19,200 P 462,840
S Company P 144,000 (2) 144,000
Net income, from above 230,400 90,000 257,040
Total P715,200 P234,000 P 719,880
Dividends paid
P Company 72,000 72,000
S Company - 48,000 (5) 48,000 _ ________
Sheet P643,200 P186,000 P 647,880
Balance Sheet
Cash………………………. P 265,200 P 102,000 P 367,200
Inventory…………………. 216,000 108,000 (3) 7,200 (4) 7,200
(10) 24,000
(11) 6,000 294,000
Land……………………………. 210,000 48,000 (3) 7,200 265,200
Equipment 240,000 180,000 420,000
Buildings 720,000 540,000 (3) 216,000 1,044,000
Discount on bonds payable (3) 4,800 (4) 2,400 2,400
Goodwill…………………… (3) 12,000 (4) 3,000 9,000
Investment in S Co……… 372,000 (1) 19,200 (2) 307,200
(3) 84,000 -
Total P2,203,200 P1,074,000 P2,677,800
- equipment P 150,000 P 102,000 (3) 96,000 (4) 24,000 P180,000
- buildings (4) 12,000 552,000
Bonds payable………………… 240,000 120,000 360,000
Non-controlling interest………… (4) 2,640
(5) 9,600 (2 ) 76,800
(9) 2,400 (3) 18,000
___ _____ _________ __________ (12) 17,760 ____97,920
Total 2,203,200 P1,074,000 P1,077,360 P1,077,360 P2,677,800
5. 1/1/20x4
a. On date of acquisition the retained earnings of parent should always be considered as the
consolidated retained earnings, thus:
Consolidated Retained Earnings, January 1, 20x4

Retained earnings – P Company, January 1, 20x4 (date of acquisition) P360,000
b.
Non-controlling interest (partial-goodwill), January 1, 20x4
Common stock – Subsidiary Company…………………………………… P 240,000
Retained earnings – Subsidiary Company…………………………………. 120,000
Stockholders’ equity – Subsidiary Company.………….. P 360,000
Adjustments to reflect fair value - (over) undervaluation of assets and liabilities 90,000
Fair value of stockholders’ equity of subsidiary, January 1, 20x4………………… P 450,000
Non-controlling interest (partial) P 90,000
c.
Consolidated SHE:
Stockholders’ Equity
Common stock, P10 par P 600,000
Retained earnings 360,000
Parent’s Stockholders’ Equity / CI - SHE P 960,000
NCI, 1/1/20x4 ___90,000
Consolidated SHE, 1/1/20x4 P1,050,000
6.
Note: The goodwill recognized on consolidation purely relates to the parent’s share. NCI is
measured as a proportion of identifiable assets and goodwill attributable to NCI share is not
recognized.
12/31/20x4:
a. CI-CNI – P174,840
Total P198,000
Goodwill impairment (impairment under partial-goodwill approach) 3,000 23,160
b. NCI-CNI – P6,960
P 34,800
c. CNI, P181,800 – refer to (a)
d. On subsequent to date of acquisition, consolidated retained earnings would be computed as

follows:
Consolidated Retained Earnings, December 31, 20x4

Retained earnings - P Company, January 1, 20x4 (date of acquisition) P360,000
Add: Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent for 20x4 174,840
Total P534,840
Less: Dividends paid – P Company for 20x4 72,000
Consolidated Retained Earnings, December 31, 20x4 P462,840
e. The goodwill recognized on consolidation purely relates to the parent’s share. NCI is
recognized. The NCI on December 31, 20x4 are c omputed as follows:
Non-controlling interest (partial-goodwill), December 31, 20x4
Common stock – Subsidiary Company, December 31, 20x4…… P 240,000
Retained earnings – Subsidiary Company, December 31, 20x4
Retained earnings – Subsidiary Company, January 1, 20x4 P120,000
Add: Net income of subsidiary for 20x4 6,000
Total P180,000
Less: Dividends paid – 20x4 36,000 144,000
Stockholders’ equity – Subsidiary Company, December 31, 20x4 P 384,000
liabilities, date of acquisition (January 1, 20x4) 90,000
Amortization of allocated excess (refer to amortization above) – 20x4 ( 13,200)
Fair value of stockholders’ equity of subsidiary, December 31, 20x4…… P460,000
Realized stockholders’ equity of subsidiary, December 31, 20x4…… P448,800
Non-controlling interest (partial-goodwill)………………………………….. P 89,760
f.
Consolidated SHE:
Parent’s Stockholders’ Equity / CI – SHE, 12/31/20x4 P1,062,840
NCI, 12/31/20x4 ___89,760
12/31/20x5:
a. CI-CNI
Total P282,000
Less: Amortization of allocated excess…………………… 7,200
Consolidated Net Income for 20x5 P274,800
equity holders of parent – 20x5………….. P257,040
Or, alternatively
Total P282,000
Amortization of allocated excess…………………… 7,200 24,960
Controlling Interest in Consolidated Net Income or Profit attributable toequity
holders of parent………….. P257,040
b. NCI-CNI
P 88,800

follows:
Retained earnings - Parent Company, January 1, 20x5 (cost model P484,800
Less: Unrealized profit in ending i nventory of S Company (downstream sales)
– 20x4 (UPEI of S – 20x4) or Realized profit in beginning inventory of S
Company (downstream sales) – 20x5 (RPBI of S - 20x5)……………. 18,000
Adjusted Retained Earnings – Parent 1/1/20x5 (cost model (S Company’s
Retained earnings that have been realized in transactions with third
parties.. P466,800
Adjustment to convert from cost model to equity method for purposes of
consolidation or to establish reciprocity:/Parent’s share in adjusted net
increased in subsidiary’s retained earnings:
Retained earnings – Subsidiary, January 1, 20x5 P 144,000
Less: Retained earnings – Subsidiary, January 1, 20x4 120,000
Increase in retained earnings since date of acquisition P 24,000
Less: Amortization of allocated excess – 20x4 13,200
Unrealized profit in ending inventory of P Company (upstream
sales) 20x4 (UPEI of P – 20x4) or Realized profit in beginning
inventory of P Company (upstream sales) – 20x5 (RPBI of P - 20x5) 12,000
(P 1,200)
Multiplied by: Controllin g interests %................... 80%
(P 960)
Less: Goodwill impairment loss, partial goodwill 3,000 ( 3,960)
Consolidated Retained earnings, January 1, 20x5 P462,840
Total P748,680
Less: Dividends paid – Parent Company for 20x5 72,000
*this procedure would be more appropriate, instead of multiplying the full-goodwill impairment loss of P3,125 by
80%. There might be situations where the controlling interests on goodwill impairment loss would not be
proportionate to NCI acquired (refer to Illustration 15-6).
Or, alternatively:
Retained earnings - Parent Company, December 31, 20x5 (cost model P643,200
Adjusted Retained Earnings – Parent 12/31/20x5 (cost model (
S Company’s Retained earnings that have been realized in
transactions with third parties.. P619,200
Retained earnings – Subsidiary, December 31, 20x5 P 186,000
Less: Accumulated amortization of allocated excess –
20x4 and 20x5 (P11,000 + P6,000) 20,400
P 39,600
P 31,680
Less: Goodwill impairment loss, partial goodwill 3,000 28,680
Consolidated Retained earnings, December 31, 20x5 P647,880
e.
Retained earnings – Subsidiary Company, January 1, 20x5* P144,000
Total P234,000
Amortization of allocated excess (refer to amortization above) :
20x4 P 13,200
20x5 7,200 ( 20,400)
Fair value of stockholders’ equity of subsidiary, December 31, 20x5…… P 495,600
Less: Unrealized profit in ending i nventory of P Company (upstream
sales) 20x5 (UPEI of P – 20x5) or Realized profit in beginning inventory
of P Company (upstream sales) – 20x6 (RPBI of P - 20x6 6,000
Realized stockholders’ equity of subsidiary, December 31, 20x5………. P489,600
Multiplied by: Non-controlling Interest percentage…………... 20
Non-controlling interest (partial goodwill)………………………………….. P 97,920
* the realized profit in beginning inventory of P Company (upstream sales) – 20x5 (RPBI of P - 20x5 amounting to
P10,000 is already included in the beginning retained earnings of S Company.
f.
Consolidated SHE:
Parent’s Stockholders’ Equity / CI – SHE, 12/31/20x4 P1,247,880
NCI, 12/31/20x4 ___97,920
Problem V
Schedule of Determination and Allocation of Excess
Consideration transferred (80%)…………….. P 372,000
Fair value of NCI (given) (20%)……………….. 93,000
Fair value of Subsidiary (100%)………. P 465,000
Common stock (P240,000 x 100%)………………. P 240,000
Retained earnings (P120,000 x 100%)………... 120,000 360,000
fair value)………………………………………………... P 15,000

Account Adjustments to be amortized under Life Amount Year(20x4) 20x5
Inventory P 6,000 1 P 6,000 P 6,000 P -
Equipment (net)......... 96,000 8 12,000 12,000 12,000
Buildings (net) (24,000) 4 ( 6,000) ( 6,000) (6,000)
Bonds payable… 4,800 4 1,200 1,200 1,200
P 13,200 P 13,200 P 7,200

January 1, 20x4:
Cash…………………………………………………………………….. 372,000

(2) Cash……………………… 28,800
Record dividends from Son Company.
On the books of Son Company, the P36,000 dividend paid was recorded as follows:

Cash……. 36,000
Dividends paid by SCo..
No entries are made on the parent’s books to depreciate, amortize or write -off the portion of the
allocated excess that expires during 20x4.
Consolidation Workpaper – First Year after Acquisition

of subsidiary on date of acquisition; and to establish non-controlling
interest (in net assets of subsidiary) on date of acquisition.
(E2) Inventory…………………………………………………………………. 6,000

Land………………………………………………………………………. 7,200
Goodwill…………………………………………………………………. 15,000
Buildings……………………………………….. 216,000
Non-controlling interest (P90,000 x 20%) + [(P15,000, full –
P12,000, partial goodwill)]………… 21,000
controlling interest (in net assets of subsidiary) on date of acquisition.

Inventory………………………………………………………….. 6,000
Goodwill…………………………………… 3,750
Sold Expense -Interest
Equipment P12,000
Buildings ( 6,000)
Bonds payable _______ _______ P 1,200
Totals P 6,000 P 6,000 P1,200

share of dividends.
(E5) Sales………………………. 150,000

(E6) Sales………………………. 60,000





Less: Amortization of allocated excess [(E3)]…. 13,200
P 34,800
– partial goodwill
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
– full goodwill P 6,210
Cost Model (Full-goodwill)
Sales P480,000 P240,000 (5) 150,000 P 510,000
(6) 60,000
Dividend income 28,800 - (4) 28,800 _________
(7) 18,000 (6) 60,000
(8) 12,000
Other expenses 48,000 18,000 66,000
Net Income P196,800 P 60,000 P181,050

P Company P360,000 P 360,000
S Company P120,000 (1) 120,000
Total P556,800 P180,000 P534,840
Dividends paid
P Company 72,000 72,000
S Company - 36,000 (4) 36,000 _ ________
Sheet P484,800 P144,000 P 462,840
Balance Sheet
Cash………………………. P 232,800 P 90,000 P 322,800
Inventory…………………. 120,000 90,000 (2) 6,000 (3) 6,000
(7) 18,000
(8) 12,000 180,000
Land……………………………. 210,000 48,000 (2) 7,200 265,200
Equipment 240,000 180,000 420,000
Buildings 720,000 540,000 (2) 216,000 1,044,000
Goodwill…………………… (2) 15,000 (3) 3,750 11,250
Investment in S Co……… 372,000 (3) 288,000
(4) 84,000 -
Total P1,984,800 P1,008,000 P2,396,850
- equipment P 135,000 P 96,000 (2) 96,000 (3) 12,000 P147,000
- buildings (7) 6,000 495,000
Bonds payable………………… 240,000 120,000 360,000
(2) 21,000
_________ _________ (9) 6,210 ____92,010
Total P1,984,800 P1,008,000 P 986,160 P 986,160 P2,396,850

Perfect Co. Son Co.
Sales P 540,000 P 360,000
Net income P 230,400 P 90,000

20x5: Parent Company Cost Model Entry
Only a single entry is recorded by the parent in 20x5 in relation to its subsidiary investment:
Cash……………………… 38,400
On the books of S Company, the P48,000 dividend paid was recorded as follows:

Cash 48,000
Dividends paid by SCo..

(E1) Investment in S Company………………………… 19,200
Retained earnings – P Company……………………… 19,200
To provide entry to convert from the cost method to the equity
method or the entry to establish reciprocity at the beginning of the
year, 1/1/20x5.
Retained earnings – S Company, 1/1/20x5 P144,000

Retained earnings – S Company, 1/1/20x4 120,000
Increase in retained earnings…….. P 24,000
Multiplied by: Controlling interest % 80%
Retroactive adjustment P 19,200

Retained earnings – S Co., 1/1/20x5 144.000
Investment in S Co (P384,000 x 80%)………………………… 307,200
of subsidiary and to establish non-controlling interest (in net assets of
subsidiary) on January 1, 20x5.
(E3) Inventory…………………………………………………………………. 6000
Land………………………………………………………………………. 7,200
Goodwill…………………………………………………………………. 15,000
Buildings……………………………………….. 216,000
controlling interest (in net assets of subsidiary) on January 1, 20x5.
(E4) Retained earnings – P Company, 1/1/20x5
(P16,950 x 80%) 13,560
Non-controlling interests (P16,950 x 20%)……………………. 3,390
Inventory………………………………………………………….. 6,000
Goodwill…………………………………… 3,750
To provide for years 20x4 and 20x5 depreciation and amortization on
differences between acquisition date fair value and book value of
Son’s identifiable assets and liabilities as follows:
Year 20x4 amounts are debited to Perfect’s retained earnings
and NCI.
Year 20x5 amounts are debited to respective nominal accounts..
(20x4) Depreciation/
Retained Amortization Amortization
earnings, expense -Interest
Equipment 12,000 P 12,000
Buildings (6,000) ( 6,000)
Bonds payable 1,200 P 1,200
Impairment loss 3,750
Totals P 16,950 P 6,000 P1,200
Multiplied by: CI%.... 80%
To Retained earnings P13,560

share of dividends.
(E6) Sales………………………. 120,000

(E7) Sales………………………. 75,000

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

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

To realized profit in upstream beginning inventory deferred in the
prior period.



Son Company’s Realized net income* P 96,000
P 88,800
- partial goodwill
Less: NCI on goodwill impairment loss on full-
Goodwill 0
with third persons.

Cost Model (Full-goodwill)

Sales P540,000 P360,000 (6) 120,000 P 705,000
(7) 75,000
Dividend income 38,400 - (5) 38,400 ___________
(11) 6,000 (7) 90,000
(8) 21,600
(9) 14,400
Other expenses 72,000 54,000 126,000
Net Income P230,400 P 90,000 P 274,800

P Company P484,800 (3) 13,560
(8) 18,000
(9) 96000 (4) 19,200 P 462,840
S Company P 144,000 (5) 144,000
Total P715,200 P234,000 P 719,880
Dividends paid
P Company 72,000 72,000
S Company - 48,000 (5) 48,000 _ ________
Sheet P643,200 P186,000 P 647,880
Balance Sheet
Cash………………………. P 265,200 P 102,000 P 367,200
Inventory…………………. 216,000 108,000 (6) 6,000 (4) 6,000
(10) 24,000
(11) 6,000 294,000
Land……………………………. 210,000 48,000 (3) 7,200 265,200
Equipment 240,000 180,000 420,000
Buildings 720,000 540,000 (3) 216,000 1,044,000
Goodwill…………………… (3) 15,000 (4) 3,750 11,250
(3) 84,000 -
Total P2,203,200 P1,074,000 P2,680,050
- equipment P 150,000 P 102,000 (3) 96,000 (4) 24,000 P180,000
- buildings (4) 12,000 552,000
Bonds payable………………… 240,000 120,000 360,000
(8) 9,600 (2 ) 76,800
(9) 2,400 (3) 21,000
___ _____ _________ __________ (12) 17,760 ____100,170
Total P2,203,200 P1,074,000 P1,081,110 P1,081,110 P2,680,050
5. 1/1/20x4
a. On date of acquisition the retained earnings of parent should always be considered as the
consolidated retained earnings, thus:
Consolidated Retained Earnings, January 1, 20x4
Retained earnings - Parent Company, January 1, 20x4 (date of acquisition) P360,000
b.
Non-controlling interest (partial-goodwill), January 1, 20x4
Common stock – Subsidiary Company…………………………………… P 240,000
Retained earnings – Subsidiary Company…………………………………. 120,000
Stockholders’ equity – Subsidiary Company.………….. P 360,000
Adjustments to reflect fair value - (over) undervaluation of assets and liabilities 90,000
Fair value of stockholders’ equity of subsidiary, January 1, 20x4………………… P 450,000
Non-controlling interest (partial)………………………………….. P 90,000
Add: Non-controlling interests on full goodwill, 1/1/20x4 (P12,500, full-goodwill – P10,000, partial
goodwill) 3,000
Non-controlling interest (full-goodwill) P 93,000
c.
Consolidated SHE:
Parent’s Stockholders’ Equity / CI - SHE P 960,000
NCI, 1/1/20x4 ___93,000
6.
Note: The goodwill recognized on consolidation purely relates to the parent’s share. NCI is
recognized.
12/31/20x4:
a. CI-CNI – P174,840
Perfect Company’s realized net income from separate operations*…….….. P150,000
Total P198,000
Less: Non-controlling Interest in Net Income P 6,1210
Goodwill impairment (impairment under full-goodwill approach) 3,750 23,160
P 34,800
Non-controlling Interest in Net Income (NCINI) – partial P 6,960
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
c. CNI – P181,050 – refer to (a)
d. On subsequent to date of acquisition, consolidated retained earnings would be computed
as follows:
Retained earnings - Parent Company, January 1, 20x4 (date of acquisition) P360,000
Total P534,840
e.
Non-controlling interest ), December 31, 20x4
Retained earnings – Subsidiary Company, January 1, 20x4 P120,000
Total P180,000
Amortization of allocated excess (refer to amortization above) – 20x4 ( 13,200)
Fair value of stockholders’ equity of subsidiary, December 31, 20x4…… P460,800
Realized stockholders’ equity of subsidiary, December 31, 20x4…… P448,800
Non-controlling interest (partial-goodwill)………………………………….. P 89,760
Add: Non-controlling interest on full goodwill , net of impairment loss, 12/31/x4:
[(P15,000 full – P12,000, partial = P3,000) – P750 impairment loss 2,250
Non-controlling interest (full-goodwill)…………….. P 92,010
f.
Consolidated SHE:
Parent’s Stockholders’ Equity / CI - SHE P1,062,840
NCI, 1/1/20x4 ___92,010
12/31/20x5:
a. CI-CNI – P257,040
Total P282,000
Or, alternatively
Total P282,000
P 88,800
Less: NCI on goodwill impairment loss on full goodwill 0
Non-controlling Interest in Net Income (NCINI) – full goodwill P 17,760

follows:

Retained earnings - Parent Company, January 1, 20x5 (cost model P484,800
Adjusted Retained Earnings – Parent 1/1/20x5 (cost model (S Company’s
Retained earnings that have been realized in transactions with third
parties.. P466,800
Retained earnings – Subsidiary, January 1, 20x5 P 144,000
Less: Amortization of allocated excess – 20x4 13,200
(P 1,200)
(P 960)
Less: Goodwill impairment loss (full-goodwill), net (P3,750 – P750)* or
(P3,750 x 80%) 3,000 ( 3,960)
Consolidated Retained earnings, January 1, 20x5 P462,840
Total P719,880
*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).
Or, alternatively:
Retained earnings - Parent Company, December 31, 20x5 (cost model P643,200
Adjusted Retained Earnings – Parent 12/31/20x5 (cost model (
S Company’s Retained earnings that have been realized in
transactions with third parties.. P619,200
Retained earnings – Subsidiary, December 31, 20x5 P 186,000
Less: Accumulated amortization of allocated excess –
20x4 and 20x5 (P13,200 + P7,200) 20,400
P 39,600
P 31,680
Less: Goodwill impairment loss (full-goodwill), net (P3,750 – P750)* or
(P3,750 x 80%) 3,000 28,680
Consolidated Retained earnings, December 31, 20x5 P647,880
e.
Non-controlling interest, December 31, 20x5
Retained earnings – Subsidiary Company, January 1, 20x5* P144,000
Total P234,000
20x4 P 13,200
20x5 7,200 ( 20,400)
Less: Unrealized profit in ending i nventory of P Company (upstream
sales) 20x5 (UPEI of P – 20x5) or Realized profit in beginning inventory
of P Company (upstream sales) – 20x6 (RPBI of P - 20x6 6,000
Realized stockholders’ equity of subsidiary, December 31, 20x5………. P489,600
Add: Non-controlling interest on full goodwill , net of impairment loss
[(P15,000 full – P12,000, partial = P3,000) – P750 impairment loss 2,250
Non-controlling interest (full-goodwill)………………………………….. P 100,170
* the realized profit in beginning inventory of P Company (upstream sales) – 20x5 (RPBI of P - 20x5 amounting to
P10,000 is already included in the beginning retained earnings of S Company.
f.
Consolidated SHE:
Parent’s Stockholders’ Equity / CI - SHE P1,247,880
NCI, 1/1/20x4 ___100,170
Problem VI
Schedule of Determination and Allocation of Excess (Partial-goodwill)
Common stock (P240,000 x 80%)……………………. P 192,000
fair value)………………………………………………... P 12,000
The over/under valuation of assets and liabilities are summarized as follows:

S Co. S Co. (Over) Under
Book value Fair value Valuation
Inventory………………….…………….. P 24,000 P 30,000 P 6,000
Land……………………………………… 48,000 55,200 7,200
Equipment (net)......... 84,000 180,000 96,000
Buildings (net) 168,000 144,000 (24,000)
Bonds payable………………………… (120,000) ( 115,200) 4,800
Net……………………………………….. P 204,000 P 294,000 P 90,000
The buildings and equipment will be further analyzed for consolidation purposes as follows:
S Co. S Co. Increase
Equipment .................. 180,000 180,000 0
Net book value………………………... 84,000 180,000 96,000
S Co. S Co.
Buildings................ 360,000 144,000 ( 216,000)
Net book value………………………... 168,000 144,000 ( 24,000)

Over/ AnnualA CurrentYea
Account Adjustments to be amortized Under Life mount r(20x4) 20x5
Inventory P 6,000 1 P 6,000 P 6,000 P -
Equipment (net)......... 96,000 8 12,000 12,000 12,000
Buildings (net) (24,000) 4 ( 6,000) ( 6,000) (6,000)
Bonds payable… 48000 4 1,200 1,200 1,200
P 13,200 P 13,200 P 7,200
The goodwill impairment loss of P3,750 based on 100% fair value would be allocated to the
controlling interest and the NCI based on the percentage of total goodwill each equity interest
received. For purposes of allocating the goodwill impairment loss, the full-goodwill is computed as
follows:

Fair value of NCI (given) (20%) 93,000
Less: Book value of stockholders’ equity of Son (P360,000 x 100%) __360,000
(P90,000 x 100%) 90,000
fair value)………………………………………………... P 15,000
In this case, the goodwill was proportional to the controlling interest of 80% and non-controlling
interest of 20% computed as follows:
Value % of Total
Goodwill applicable to parent………………… P12,000 80.00%
Goodwill applicable to NCI…………………….. 3,000 20.00%
Total (full) goodwill……………………………….. P15,000 100.00%
The goodwill impairment loss would be allocated as follows
Value % of Total
Goodwill impairment loss attributable to parent or controlling P 3,000 80.00%
Interest
Goodwill applicable to NCI…………………….. 750 20.00%
Goodwill impairment loss based on 100% fair value or full-
Goodwill P 3,750 100.00%
The unrealized profits on January 1, and on December 31, 20x5, resulting intercompany sales, are
as summarized below:
Downstream Sales:
Year Sales of Parent to in 12/31 Inventory Unrealized Intercompany
Subsidiary of S Company Profit in Ending Inventory
20x4 P150,000 P150,000 x 60% = P90,000 P90,000 x 20% = P18,000
20x5 120,000 P120,000 x 80% = P96,000 P96,000 x 25% = P40,000
Upstream Sales:
Year Sales of Subsidiary in 12/31 Inventory Unrealized Intercompany
to Parent of S Company Profit in Ending Inventory
20x4 P 50,000 P100,000 x 50% = P25,000 P25,000 x 40% = P10,000
20x5 62,500 P 62,500 x 40% = P25,000 P25,000 x 20% = P 5,000

January 1, 20x4:
Cash…………………………………………………………………….. 372,000

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

(3) Investment in S Company 48,000
Investment income (P60,000 x 80%) 48,000
Record share in net income of subsidiary.
December 31, 20x4:

(4) Investment income [(P13,200 x 80%) + P3,000, goodwill 13,560
impairment loss)]
Investment in S Company 13,560
Record amortization of allocated excess of inventory, equipment,
buildings and bonds payable and goodwill impairment loss.
December 31, 20x4:
(5) Investment income (P18,000 x 100%) 18,000
To adjust investment income for downstream sales - unrealized profit
in ending inventory of S.
December 31, 20x4:

To adjust investment income for upstream sales - unrealized profit in
ending inventory P .
Thus, the investment balance and investment income in the books of P Company is as follows:
Investment in S
Cost, 1/1/x4 372,000 28,800 Dividends – S (30,000x 80%)
NI of S Amortization &
(60,000 x 80%) 48,000 13,560 impairment
18,000 UPEI of Son (P15,000 x 100%)
9,600 UPEI of Perfect (P10,000 x80%)
Balance, 12/31/x4 350,040
Investment Income
Amortization & NI of S
impairment 13,560 48,000 (P60,000 x 80%)
UPEI of S (P18,000 x 100%) 18,000
UPEI of P (P12,000 x80%) 9,600
6,840 Balance, 12/31/x4

To eliminate investment on January 1, 20x4 and equity accounts of
subsidiary on date of acquisition; and to establish non-controlling interest
(in net assets of subsidiary) on date of acquisition.
(E2) Inventory…………………………………………………………………. 6,000

Land………………………………………………………………………. 7,200
Goodwill…………………………………………………………………. 12,000
Buildings……………………………………….. 216,000
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 noncontrolling interest (in net assets of
subsidiary) on date of acquisition.

Inventory………………………………………………………….. 6,000
Goodwill…………………………………… 3,000
Equipment P 12,000
Buildings ( 6,000)
Bonds payable _______ _______ P 1,200
Totals P 6,000 P 7,200 P1,200 14,400
(E4) Investment income 6,840

To eliminate intercompany dividends and investment income under
equity method and establish share of dividends, computed as
follows:
Investment in S Investment Income

NI of S 28,800 Dividends - S NI of S
(60,000 Amortization & Amortization (50,000
x 80%)……. 48,000 13,560 impairment impairment 13,560 48,000 x 80%)
18,000 UPEI of S UPEI of S 18,000
9,600 UPEI of P UPEI of P 9,600
21,960 6,840
After the eliminating entries are posted in the investment account, it should be observed that from
consolidation point of view the investment account is totally eliminated. Thus,
Investment in S
(60,000 x 80%) 48,000 13,560 impairment
18,000 UPEI of Son
9,600 UPEI of Perfect
Balance, 12/31/x4 350,040 288,000 (E1) Investment, 1/1/20x4
(E4) Investment Income 84,000 (E2) Investment, 1/1/20x4
and dividends …………… 21,960
372,000 372,000
(E5) Sales………………………. 150,000
(E6) Sales………………………. 60,000





Son Company’s realized net income from
Less: Amortization of allocated excess [(E3)]…. ( 13,200)
P 34,800
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.
Equity Method (Partial-goodwill)

Sales P480,000 P240,000 (5) 150,000 P 510,000
(6) 60,000
Investment income 6,840 - (4) 6,840 _________
(7) 18,000 (6) 60,000
(8) 12,000
Other expenses 48,000 18,000 66,000
Net Income P174,840 P 60,000 P181,800

PCompany P360,000 P 360,000
S Company P120,000 (1) 120,000
Total P414,840 P180,000 P414,840
Dividends paid
P Company 72,000 72,000
S Company - 36,000 (4) 36,000 _ ________
Sheet P462,840 P144,000 P 642,840
Balance Sheet
Cash………………………. P 232,800 P 90,000 P 387,360
Inventory…………………. 120,000 90,000 (1) 5,000 (3) 6,000
(7) 18,000
(8) 12,000 180,000
Land……………………………. 210,000 48,000 (2) 7,200 265,200
Equipment 220,000 180,000 380,000
Buildings 720,000 540,000 (2) 216,000 1,044,000
Goodwill…………………… (2) 12,000 (3) 3,000 9,000
(2) 84,000
-
Total P1,635,700 P1,006,000 P2,394,600
- equipment P 135,000 P 96,000 (2) 96,000 (3) 12,000 P 147,000
- buildings (3) 6,000 495,000
Bonds payable………………… 240,000 120,000 360,000
(2) 18,000
_________ _________ __________ (5) 6,960 ____89,760
Total P1,962,840 P1,008,000 P 983,160 P 983,160 P2,394,600
Second Year after Acquisition

P Co. S Co.
Sales P 540,000 P 360,000
Add: Investment income 65,040 -
Net income P 257,040 P 90,000
20x5: Parent Company Equity Method Entry

(2) Cash……………………… 38,400
December 31, 20x5:

December 31, 20x5:

buildings and bonds payable
December 31, 20x5:

in ending inventory of Son (UPEI of S).
December 31, 20x5:

(6) Investment in S Company…………….. 18,000
Investment income (P18,000 x 100%)……….. 18,000
To adjust investment income for downstream sales - realized profit in
beginning inventory of S (RPBI of S).
December 31, 20x5:

ending inventory Perfect (UPEI of P).
December 31, 20x5:

To adjust investment income for upstream sales - realized profit in
beginning inventory of Perfect (RPBI of P)
Thus, the investment balance and investment income in the books of P Company is as follows:
Investment in S
NI of Son 5,760 Amortization (7,200 x 80%)
(90,000 x 80%) 72,000 24,000 UPEI of Son (P24,000 x 100%)
RPBI of S (P18,000 x 100%) 18,000 4,800 UPEI of Perfect (P6,000 x 80%)
RPBI of P (P12,000 x 80%) 9,600
Balance, 12/31/x5 376,680
Investment Income
Amortization (7,200 x 805) 5,760 NI of S
UPEI of S (P24,000 x 100%) 24,000 72,000 (P90,000 x 80%)
UPEI of P (P6,000 x 80%) 4,800 18,000 RPBI of S (P18,000 x 100%)
9,600 RPBI of P(P12,000 x 80%)
65,040 Balance, 12/31/x5

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

Accumulated depreciation – buildings (P160,000 + P6,000) 198,000
Land………………………………………………………………………. 7,200
Discount on bonds payable (P4,800 – P1,200)…. 3,600
Goodwill (P12,000 – P3,000)…………………………….. 9,000
Buildings……………………………………….. 216,000
Non-controlling interest [(P90,000 – P13,200) x 20%] 15,360
to the original amount of goodwill; and to establish noncontrolling
interest (in net assets of subsidiary) on 1/1/20x5.
(E3) Depreciation expense……………………….. 6,000

To provide for 20x5 depreciation and amortization on differences
between acquisition date fair value and book value of Son’s
identifiable assets and liabilities as follows:
Depreciation/
Amortization Amortization
Expense -Interest Total
Inventory sold
Equipment P 12,000
Buildings ( 6,000)
Bonds payable _______ P 1,200
Totals P 6,000 P1,200 P7,200

follows:

NI of S 38,400 Dividends – S NI of S
(90,000 Amortization Amortization (90,000
x 80%)……. 72,000 5,760 (P7,200 x 80%) (P7,200 x 80%) 5,760 72,000 x 80%)
RPBI of S 18,000 24,000 UPEI of S UPEI of S 24,000 18,000 RPBI of S
RPBI of P 9,600 4,800 UPEI of P UPEI of P 4,800 9,600 RPBI of P
26,640 65,040
(E6) Sales………………………. 120,000

(E7) Sales………………………. 75,000

(E8) Investment in Son Company……………………. 18,000

prior period.
(E9) Investment in Son Company (P12,000 x 80%) 9,600

prior period.
Investment in S
NI of S Amortization
(90,000 x 80%) 72,000 5,760 (6,000 x 80%)
RPBI of S (P18,000 x 100%) 18,000 24,000 UPEI of S (P20,000 x 100%)
RPBI of P(P12,000 x 80%) 9,600 4,800 UPEI of P (P5,000 x 80%)
(E8) RPBI of S 18,000 70,440 (E2) Investment, 1/1/20x5
(E9) RPBI of P 9,600 26,640 (E4) Investment Income
and dividends
336,900 404,280



S Company’s Realized net income* P 96,000
Less: Amortization of allocated excess ( 7,200)
P 88,800
with third persons.

Equity Method (Partial-goodwill)
Sales P540,000 P360,000 (6) 120,000 P 705,000
(7) 75,000
Investment income 65,040 - (4) 65,040 ___________
(11) 6,000 (7) 75,000
(8) 18,000
(9) 12,000
Other expenses 72,000 54,000 126,000
Net Income P257,040 P 90,000 P 274,800

P Company P462,840 P 462,840
S Company P144,000 (1) 144,000
Total P719,880 P234,000 P 719,880
Dividends paid
P Company 72,000 72,000
S Company - 48,000 (4) 48,000 _ ________
Sheet P777,456 P223,200 P 777,456
Balance Sheet
Cash………………………. P 265,200 P 102,000 P 367,200
Inventory…………………. 216,000 108,000 (10) 24,000 294,000
(11) 6,000
Land……………………………. 210,000 48,000 (2) 7,200 265,200
Equipment 240,000 180,000 420,000
Buildings 720,000 540,000 (3) 216,000 1,044,000
Goodwill…………………… (2) 9,000 9,000
(9) 9,600 (2) 70,440
(4) 26,640 -
Total P2,207,880 P1,074,000 P2,677,800
Accumulated depreciation (2) 84,000

- equipment P 150,000 P 102,000 (3) 12,000 P180,000
- buildings (3) 6,000 552,000
Bonds payable………………… 240,000 120,000 360,000
(9) 2,400 (2 ) 76,800
(2) 15,360
___ _____ _________ __________ (5) 17,760 ____97,920
Total P2,207,880 P1,074,000 P1,046,400 P1,046,400 P2,677,800
5 and 6. Refer to Problem IX for computations

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 IX solution).
Problem VII
Schedule of Determination and Allocation of Excess
Consideration transferred (80%)…………….. P 372,000
Fair value of NCI (given) (20%)……………….. 93,000
Fair value of Subsidiary (100%)………. P 465,000
Common stock (P240,000 x 100%)………………. P 240,000
Retained earnings (P120,000 x 100%)………... 120,000 360,000
fair value)………………………………………………... P 15,000
Account Adjustments to be amortized under Life Amount Year(20x4) 20x5
Inventory P 6,000 1 P 6,000 P 6,000 P -
Equipment (net)......... 96,000 8 12,000 12,000 12,000
Buildings (net) (24,000) 4 ( 6,000) ( 6,000) (6,000)
Bonds payable… 4,800 4 1,200 1,200 1,200
P 13,200 P 13,200 P 7,200

Parent Company Equity Method Entry
January 1, 20x4:
Cash…………………………………………………………………….. 372,000

(2) Cash……………………… 28,800
December 31, 20x4:

December 31, 20x4:

(4) Investment income [(P13,200 x 80%) + (P3,750 – P750)*, 13,560
goodwill impairment loss)]
buildings and bonds payable and goodwill impairment loss.
*this procedure would be more appropriate, instead of multiplying the full-goodwill impairment loss of P3,125 by 80%. There
might be situations where the controlling interests on goodwill impairment loss would not be proportionate to NCI acquired
(refer to Illustration 15-6).
December 31, 20x4:

in ending inventory of S.
December 31, 20x4:

ending inventory P .
Thus, the investment balance and investment income in the books of P Company is as follows
Investment in S
(60,000 x 80%) 48,000 13,560 impairment
18,000 UPEI of S (P18,000 x 100%)
9,600 UPEI of P (P12,000 x80%)
Balance, 12/31/x4 324,000
Investment Income
Amortization & NI of S
impairment 13,560 48,000 (P60,000 x 80%)
UPEI of S (P18,000 x 100%) 18,000
UPEI of P (P12,000 x80%) 9,600
6,840 Balance, 12/31/x4
controlling interest (in net assets of subsidiary) on date of
acquisition.
(E2) Inventory…………………………………………………………………. 6,000

Land………………………………………………………………………. 7,200
Goodwill…………………………………………………………………. 15,000
Buildings……………………………………….. 216,000
to goodwill; and to establish noncontrolling interest (in net assets of
subsidiary) on date of acquisition.
Inventory………………………………………………………….. 6,000
Goodwill…………………………………… 3,750
Equipment P 12,000
Buildings ( 6,000)
Bonds payable _______ _______ P 1,200
Totals P 6,000 P 7,200 P1,200 14,400

follows:
Investment Income
Investment in S
NI of S 28,800 Dividends - S NI of S
(60,000 Amortization & Amortization (50,000
x 80%)……. 48,000 13,560 impairment impairment 13,560 48,000 x 80%)
18,000 UPEI of S UPEI of S 18,000
9,600 UPEI of P UPEI of P 9,600
21,960 6,840
Investment in S
(60,000 x 80%) 48,000 13,560 impairment
18,000 UPEI of S
9,600 UPEI of P
(E4) Investment Income 84,000 (E2) Investment, 1/1/20x4
and dividends …………… 21,960
372,000 372,000
(E5) Sales………………………. 150,000
(E6) Sales………………………. 60,000





Less: Amortization of allocated excess [(E3)]…. ( 13,200)
P 34,800
Less: Non-controlling interest on impairment
loss on full-goodwill (P3,750 x 20%) or
(P3,750 impairment on full-goodwill less
P3,000, impairment on partial-goodwill)* 750
– full goodwill P 6210
*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).
Equity Method (Full-goodwill)
Sales P480,000 P240,000 (5) 150,000 P 510,000
(6) 60,000
Investment income 6,840 - (4) 6,840 _________
(7) 18,000 (6) 60,000
(8) 12,000
Other expenses 48,000 18,000 66,000
Net Income P174,840 P 50,000 P150,875

P Company P360,000 P 360,000
S Company P120,000 (1) 120,000
Total P414,840 P180,000 P 414,840
Dividends paid
P Company 72,000 72,000
S Company - 36,000 (4) 36,000 _ ________
Sheet P462,840 P144,000 P 462,840
Balance Sheet
Cash………………………. P 232,800 P 90,000 P 322,800
Inventory…………………. 120,000 90,000 (2) 6,000 (3) 6,000
(7) 18,000
(8) 12,000 180,000
Land……………………………. 210,000 48,000 (2) 7,200 265,200
Equipment 240,000 180,000 420,000
Buildings 720,000 540,000 (2) 216,000 1,044,000
Goodwill…………………… (2) 15,000 (3) 3,750 11,250
(2) 84,000
-
Total P1,635,700 P1,008,000 P2,396,850
- equipment P 135,000 P 96,000 (2) 96,000 (3) 12,000 P 147,000
- buildings (3) 6,000 495,000
Bonds payable………………… 240,000 120,000 360,000
(2) 21,000
_________ _________ __________ (9) 6,210 ____92,010
Total P1,962,840 P1,008,000 P 986,160 P 986,160 P2,396,850

Perfect Co. Son Co.
Sales P 540,000 P 360,000
Add: Investment income 65,040 -
Net income P 257,040 P 90,000
Parent Company Equity Method Entry

(2) Cash……………………… 38,400
December 31, 20x5:

December 31, 20x5:

buildings and bonds payable
December 31, 20x5:

in ending inventory of S (UPEI of S).
December 31, 20x5:

To adjust investment income for downstream sales - realized profit in
beginning inventory of S (RPBI of S).
December 31, 20x5:

ending inventory P (UPEI of P).
December 31, 20x5:
To adjust investment income for upstream sales - realized profit
inbeginning inventory of P (RPBI of P)
Thus, the investment balance and investment income in the books of Perfect Company is as
follows:
Investment in S
NI of Son 5,760 Amortization (7,200 x 80%)
(90,000 x 80%) 72,000 24,000 UPEI of S (P24,000 x 100%)
RPBI of (P18,000 x 100%) 18,000 4,800 UPEI of P (P6,000 x 80%)
RPBI of P (P12,000 x 80%) 9,600
Balance, 12/31/x5 376,680
Investment Income
Amortization (7,200 x 805) 5,760 NI of S
UPEI of S (P24,000 x 100%) 24,000 72,000 (P90,000 x 80%)
UPEI of P (P6,000 x 80%) 4,800 18,000 RPBI of S (P18,000 x 100%)
9,600 RPBI of P (P12,000 x 80%)
65,040 Balance, 12/31/x5

The schedule of determination and allocation of excess presented above provides complete
guidance for the worksheet eliminating entries.
Retained earnings – S Co, 1/1/x5…………………………. 144.000
Investment in SCo (P384,000 x 80%) 307,200
controlling interest (in net assets of subsidiary) on 1/1/20x5.
(E2) Accumulated depreciation – equipment (P96,000 – P12,000) 84,000

Accumulated depreciation – buildings (P192,000 + P6,000) 198,000
Land………………………………………………………………………. 7,200
Discount on bonds payable (P4,800 – P1,200)…. 3,600
Goodwill (P15,000 – P3,750)…………………………….. 11,250
Buildings……………………………………….. 216,000
Non-controlling interest [(P90,000 – P13,200) x 20%] +
[P3,000, full goodwill - [(P3,750, full-goodwill impairment
– P3,000, partial- goodwill i mpairment)*
or (P3,750 x 20%)] 17,610
to the original amount of goodwill; and to establish noncontrolling
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……………………….. 6,000

To provide for 20x5 depreciation and amortization on differences
between acquisition date fair value and book value of Son’s
identifiable assets and liabilities as follows:
Depreciation/
Amortization Amortization
Expense -Interest Total
Inventory sold
Equipment P 12,000
Buildings ( 6,000)
Bonds payable _______ P 1,200
Totals P 6,000 P1,200 P7,200

follows:

NI of Son 38,400 Dividends – S NI of S
(90,000 Amortization Amortization (90,000
x 80%)……. 72,000 5,760 (P7,200 x 80%) (P7,200 x 80%) 5,760 72,000 x 80%)
RPBI of S 18,000 24,000 UPEI of S UPEI of S 24,000 18,000 RPBI of S
RPBI of P 9,600 4,800 UPEI of P UPEI of P 4,800 9,600 RPBI of P
26,640 65,040
(E6) Sales………………………. 120,000

(E7) Sales………………………. 75,000

(E8) Investment in Son Company……………………. 18,000

prior period.
(E9) Investment in Son Company (P12,000 x 80%) 9,600

prior period.
Investment in S
NI of Son Amortization
(90,000 x 80%) 72,000 5,600 (7,000 x 80%)
RPBI of S (P18,000 x 100%) 18,000 24,000 UPEI of S (P24,000 x 100%)
RPBI of P (P18,000 x 80%) 9,600 4,800 UPEI of P (P6,000 x 80%)
(E8) RPBI of S 18,000 70,440 (E2) Investment, 1/1/20x5
(E9) RPBI of P 9,600 26,640 (E4) Investment Income
and dividends
404,280 404,280


(E12) Non-controlling interest in Net Income of Subsidiary………… 17,760


Son Company’s Realized net income* P 96,000
Less: Amortization of allocated excess ( 7,200)
P 88,000
Less: NCI on goodwill impairment loss on full-
Goodwill 0
with third persons.

Equity Method (Full-goodwill)
Sales P540,000 P360,000 (6) 120,000 P 705,000
(7) 75,000
Investment income 65,040 - (4) 65,040 ___________
(11) 6,000 (7) 75,000
(8) 18,000
(9) 12,000
Other expenses 72,000 54,000 126,000
Net Income P257,040 P 90,000 P 274,800

P Company P462,840 P 462,840
S Company P144,000 (1) 144,000
Total P719,880 P234,000 P 719,880
Dividends paid
P Company 72,000 72,000
S Company - 48,000 (4) 48,000 _ ________
Sheet P647,880 P186,000 P 647,880
Balance Sheet
Cash………………………. P 265,200 P 114,000 P 367,200
Inventory…………………. 216,000 108,000 (10) 24,000
(11) 6,000 294,000
Land……………………………. 210,000 48,000 (2) 7,200 265,200
Equipment 240,000 180,000 420,000
Buildings 720,000 540,000 (3) 216,000 1,044,000
Goodwill…………………… (2) 11,250 11,250
(9) 9,600 (3) 70,440
(4) 26,640 -
Total P2,207,880 P1,074,000 P2,680,050
Accumulated depreciation (2) 84,000

- equipment P 150,000 P 102,000 (3) 12,000 P180,000
- buildings (3) 6,000 552,000
Bonds payable………………… 240,000 120,000 360,000
(9) 2,400 (1 ) 76,800
(2) 17,610
___ _____ _________ __________ (14)17,760 ____100,170
Total P2,207,880 P1,074,000 P1,048,650 P1,048,650 P2,680,050
5 and 6. Refer to Problem V for computations

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 V solution).
Problem VIII
1. (Computation of selected consolidation balances as affected by downstream inventory
transfers)
UNREALIZED GROSS PROFIT, 12/31/x4: (downstream transfer)
Intercompany gross profit (P120,000 – P72,000) ........................................................... P48,000
Inventory remaining at year's end ........................................................................................ 30%
Unrealized Intercompany Gross profit, 12/31/x4 ................................................................ P14,400
UNREALIZED GROSS PROFIT, 12/31/x5: (downstream transfer)
Intercompany gross profit (P250,000 – P200,000) ........................................................ P50,000
Inventory remaining at year's end ........................................................................................ 20%
Unrealized intercompany gross profit, 12/31/x5 ................................................................. P10,000
CONSOLIDATED TOTALS
 Sales = P1,150,000 (add the two book values and eliminate i ntercompany sales of P250,000)
 Cost of goods sold:
Benson's book value ........................................................................................................ P535,000
Broadway's book value ................................................................................................... 400,000
Eliminate intercompany transfers .................................................................................. (250,000)
Realized gross profit deferred in 20x4 ........................................................................... (14,400)
Deferral of 20x5 unrealized gross profit ......................................................................... 10,000
Cost of goods sold .................................................................................................... P680,600
 Operating expenses = P210,000 (add the two book values and include intangible amortization
for current year)
 Dividend income = -0- (intercompany transfer eliminated in consolidation)
 Noncontrolling interest in consolidated income: (impact of transfers is not included because they
were downstream)
Broadway reported income for 20x5 ............................................................................ P100,000
Intangible amortization .................................................................................................... (10,000)
Broadway adjusted income ............................................................................................ 90,000
Outside ownership ........................................................................................................... 30%
Noncontrolling interest in Broadway’s earnings .......................................................... P 27,000
or,
P Company’s net income from own/separate operations (P800-P535-P100) P 165,000
S Company’s net income from own operations (P600 – P400 – P100) P 100,000
Total P 269,400
Less: Amortization of allocated excess…………………… __10,000
Consolidated Net Income for 20x5 P 259,400
equity holders of parent – 20x5………….. P 232,400

(Reported net income of S Company) P 100,000
Less: Amortization of allocated excess __10,000
P 90,000
 Inventory = P988,000 (add the two book values less the P10,000 ending unrealized gross profit)
 Noncontrolling interest in subsidiary, 12/31/x5 = P385,500
30% beginning P950,000 book value ......................................................................... P285,000
Excess January 1 intangible allocation (30% × P295,000)...................................... 88,500
Noncontrolling Interest in Broadway’s earnings ............................................................. 27,000
Dividends (30% × P50,000) .................................................................................................. (15,000)
Total noncontrolling interest at 12/31/x5 .................................................................. P385,500
2. (Computation of selected consolidation balances as affected by upstream inventory transfers).
UNREALIZED GROSS PROFIT, 12/31/x4: (upstream transfer)
Intercompany gross profit (P120,000 – P72,000) .......................................................... P48,000
Inventory remaining at year's end ................................................................................ 30%
UNREALIZED GROSS PROFIT, 12/31/x5: (upstream transfer)

Intercompany gross profit (P250,000 – P200,000) ........................................................ P50,000
Inventory remaining at year's end ................................................................................ 20%
CONSOLIDATED TOTALS
 Sales = P1,150,000 (add the two book values and eliminate the Intercompany transfer)
 Cost of goods sold:
Benson's COGS book value ............................................................................................ P535,000
Broadway's COGS book value ...................................................................................... 400,000
Eliminate intercompany transfers .................................................................................. (250,000)
Realized gross profit deferred in 20x4 ........................................................................... (14,400)
Deferral of 20x5 unrealized gross profit ......................................................................... 10,000
Consolidated cost of goods sold ........................................................................... P680,600
 Operating expenses = P210,000 (add the two book values and include intangible amortization
for current year)
 Dividend income = -0- (interco. transfer eliminated in consolidation)
 Noncontrolling interest in consolidated income: (impact of transfers is included because they were
upstream)
Broadway reported income for 20x5 ............................................................................................ P100,000

Intangible amortizati on .................................................................................................................... (10,000)
20x4 gross profit recognized in 20x5 ..................................................................................... 14,400
20x5 gross profit deferred ....................................................................................................... (10,000)
Broadway realized income for 20x5 ...................................................................................... P94,400
Outside ownership ........................................................................................................................... 30%
Noncontrolling interest .................................................................................................................... P28,320

Total P 269,400
Less: Amortization of allocated excess…………………… __10,000

Less: Amortization of allocated excess __10,000
P 94,400
 Inventory = P988,000 (add the two book values and defer the P10,000 ending unrealized gross
profit)
 Noncontrolling interest in subsidiary, 12/31/x5 = P382,500
30% beginning book value less P14,400
unrealized gross profit (30% × P935,600) ................................................................ P280,680
Excess intangible allocation (30% × P295,000) ..................................................... (88,500)
Noncontrolling Interest in Broadway’s earnings ................................................... 28,320
Dividends (30% × P50,000) ............................................................................................... (15,000)
Total noncontrolling interest at 12/31/x5 ............................................................... P382,500
Problem IX
(Compute selected balances based on three different intercompany asset transfer scenarios)
1.
Consolidated Cost of Goods Sold
PP’s cost of goods sold ...................................................................................... P290,000
SW’s cost of goods sold ..................................................................................... 197,000
Elimination of 20x5 intercompany transfers ................................................... (110,000)
Reduction of beginning Inventory because of
20x4unrealized gross profit (P28,000/1.4 = P20,000
cost; P28,000 transfer price less P20,000
cost = P8,000 unrealized gross profit) ....................................................... (8,000)
Reduction of ending inventory because of
20x5 unrealized gross profit (P42,000/1.4 = P30,000
cost = P12,000 unrealized gross profit) ..................................................... 12,000
Consolidated cost of goods sold ....................................................... P381,000
Consolidated Inventory
PP book value ............................................................................................... P346,000
SW book value .............................................................................................. 110,000
Eliminate ending unrealized gross profit (see above) .......................... (12,000)
Consolidated Inventory .............................................................................. P444,000
Non-controlling Interest in Subsidiary’s Net Income

Because all intercompany sales were downstream, the deferrals do not affect SW. Thus,
the non-controlling interest is 20% of the P58,000 (revenues minus cost of goods sold and
expenses) reported income or P11,600.
or
Unrealized profit in ending inventory of S Company (downstream sales)… (_ 12,000)
Total P 254,000
Less: Amortization of allocated excess…………………… ____0

(Reported net income of Son Company) P 58,000
Less: Amortization of allocated excess ____0
P 58,000
2.
Consolidated Cost of Goods Sold
PP book value ...................................................................................................... P290,000
SW book value .................................................................................................... 197,000
Elimination of 20x5 intercompany transfers ................................................... (80,000)
Reduction of beginning inventory because of
cost = P6,000 unrealized gross profit) ....................................................... (6,000)
Reduction of ending inventory because of
cost = P10,000 unrealized gross profit) ..................................................... 10,000
Consolidated cost of goods sold .................................................................... P411,000
Consolidated Inventory
PP book value ...................................................................................................... P346,000
SW book value .................................................................................................... 110,000
Eliminate ending unrealized gross profit (see above) ................................. (10,000)
Consolidated inventory .............................................................................. P446,000
Non-controlling Interest in Subsidiary's Net income
Since all intercompany sales are upstream, the effect on Snow's income must be
reflected in the non-controlling interest computation:
SW reported income .......................................................................................... P58,000
20x4 unrealized gross profit realized in 20x5 (above) .................................. 6,000
20x5 unrealized gross profit to be realized in 20x6 (above) ....................... (10,000)
SW realized income ............................................................................................ P54,000
Outside ownership percentage ....................................................................... 20%
Non-controlling interest in SW’s income .................................................. P10,800
or
Realized profit in beginning inventory of S Company (downstream sales)
Total P 254,000

Less: Amortization of allocated excess ____0
P 54,000
Problem X
P Company’s net income from own/separate operations…………. P 3,600,000
Unrealized profit in ending inventory of S Company (downstream sales)… (_ 45,00 0)
P Company’s realized net income from separate operations*…….….. P 3,609,000
S Company’s net income from own operations (P1,500,000 + P2,400,000) P3,900,000
Realized profit in beginning inventory of P Company (upstream sales) – Salad 66,000
Realized profit in beginning inventory of P Company (upstream sales)- Tuna 63,000
Unrealized profit in ending inventory of P Company (upstream sales) – Salad ( 57,000)
Unrealized profit in ending inventory of P Company (upstream sales) – Tuna ( 69,000)
S Company’s realized net income from separate operations*…….….. P3,903,000 3,903,000
Total P7,512,000
Less: Non-controlling Interest in Net Income* *- Salad P 301,800
Non-controlling Interest in Net Income* *- Tuna ___239,400 ___541,200
equity holders of parent – 20x4………….. P6,970,800
Or, alternatively
P Company’s net in come from own/separate operations…………. P 3,600,000
Unrealized profit in ending inventory of S Company (downstream sales)… (___45,000)
P Company’s realized net income from separate operations*…….….. P3,609,,000
S Company’s net income from own operations (P1,500,000 + P2,400,000) P3,900,000
Realized profit in beginning inventory of P Company (upstream sales) – Salad 66,000
Realized profit in beginning inventory of P Company (upstream sales)- Tuna 63,000
Unrealized profit in ending inventory of P Company (upstream sales) – Salad ( 57,000)
Unrealized profit in ending inventory of P Company (upstream sales) – Tuna ( 69,000)
S Company’s realized net income from separate operations*…….….. P3,903,000 3,903,000
Total P7,512,000
Less: Non-controlling Interest in Net Income* * - Salad P 301,800
Non-controlling Interest in Net Income* * - Tuna 239,400
Amortization of allocated excess…………………… 0 __541,200
Add: Non-controlling Interest in Net Income (NCINI) _541,200
**Salad
(Reported net income of S Company) P1,500,000
Son Company’s realized net income from separate operations……… P1,509,000
Less: Amortizati on of allocated excess _____0
P1,509,000
Multiplied by: Non-controlling interest %.......... __ 20%
**Tuna
(Reported net income of S Company) P2,400,000
Son Company’s realized net income from separate operations……… P2,394,000
Less: Amortizati on of allocated excess _____0
P2,394,000
Realized Profit in Beginning inventory:

Downstream Sales (Sales from Parent to Subsidiary)
P414,000 x 15/115 P54,000
Upstream Sales (Sales from Subsidiary-Salad to Parent):
Salad: P396,000 x 20/120 66,000
Upstream Sales (Sales from Subsidiary-Tuna to Parent):
Tuna: P315,000 x 25/125 63,000
Unrealized Profit in Ending inventory:

Downstream Sales (Sales from Parent to Subsidiary)
P345,000 x 15/115 P45,000
Upstream Sales (Sales from Subsidiary-Salad to Parent):
Salad: P342,000 x 20/120 57,000
Upstream Sales (Sales from Subsidiary-Tuna to Parent):
Tuna: P345,000 x 25/125 69,000
Problem XI
(Determine selected consolidated balances; includes inventory transfers and an outside
ownership.)
Customer list amortization = P65,000/5 years = P13,000 per year
Intercompany Gross profit (P160,000 – P120,000) ............................................... P40,000

Inventory Remaining at Year's End ......................................................................... 20%
Unrealized Intercompany Gross profit, 12/31 .............................................................. P8,000
Consolidated Totals:
 Inventory = P592,000 (add the two book values and subtract the ending unrealized gross
profit of P8,000)
 Sales = P1,240,000 (add the two book values and subtract the P160,000 intercompany
transfer)
 Cost of Goods Sold = P548,000 (add the two book values and subtract the
intercompany transfer and add [to defer] ending unrealized gross profit)
 Operating Expenses = P443,000 (add the t wo book values and the amortization expense
for the period)
 Gross profit: P1,240,000 – P548,000 = P692,000
 Controlling Interest in CNI:
Gross profit ...................................................................................................... P692,000

Less: Operating expenses ............................................................................ 443,000
Consolidated Net Income ...........................................................................P249,000
Less: NCI-CNI ................................................................................................... 8,700
CI-CNI ...............................................................................................................P240,300
or
Unrealized profit in ending inventory of P Company (upstream sales)… ( 8, 000)
Total P 262,000
Or, alternatively

P Company’s net income from own/separate operations…………. P 220,000
Total P 262,000

Unrealized profit in ending inventory of P Company (upstream sales) ( 8,00 0)
P 29,000
 Noncontrolling Interest in Subsidiary's Net Income = P8,700 (30 percent of the reported
income after subtracting 13,000 excess fair value amortization and deferring P8,000
ending unrealized gross profit) Gross profit is included in this computation because the
transfer was upstream from SS to PT.
Problem XII
Amortization of equipment: P20,000 / 10 years = P2,000
RPBI of S (downstream sales):…………………........................................................ P15,000
RPBI of P (upstream sales)………………………............................ ........................... 10,000
UPEI of S (downstream sal es)……………………………………………………..……. 20,000
UPEI of P (upstream sales)………………………………………………….…………… 5,000
Consolidated Net Income for 2014
P Company’s net income from own/separate operations (P724,000 – P24,000 P700,000
Unrealized profit in ending inventory of S Company (downstream sales)… (20,00 0)
Total P790,000
Consolidated Net Income for 2014 P788,000
equity holders of parent – 2014………….. P769,400
Or, alternatively
P Company’s net income from own/separate operations P700,000
Unrealized profit in ending inventory of S Company (downstream sales)… (20,00 0)
Total P790,000
**Non-controlling Interest in Net Income (NCINI) for 2014

P 93,000
Note: Preferred Solution - since what is given is the RE – P, 12/31/2014 (ending
balance of the current year) -
Retained earnings – Parent, 12/31/2014 (cost)……………………….. P 3,500,000
-: UPEI of S (down) – 2014 or RPBI of S (down) – 2015..…………. 20,000
Adjusted Retained earnings – Parent, 12/31/2014 (cost)………….. P 3,480,000
Retroactive Adjustmen ts to convert Cost to “Equity” for
purposes of consolidation / Parent’s share of adjusted
net increase in subsidiary’s retained earnings:
Retained earnings – Subsidiary, 1/1/2011……………………….P 150,000
Less: Retained earnings – Subsidiary, 12/31/2014…………... 320,000
Increase in Retained earnings since acquisition
(cumulative net income – cumulative dividends)………… P 170,000
Accumulated amortization (1/1/2011 – 12/31/2014):
P 2,000 x 4 years………………………………………………..( 8,000)
UPEI of P (up) – 2014 or RPBI of P (up) – 2015………………........( 5,000)
P157,000
x: Controlling Interests………………………………………… 80% 125,600
RE – P, 12/31/2014 (equity method) = CRE, 12/31/2014…………. P 3,605,600
Or, compute first the RE – P on January 1, 2014 (use work back approach),
Retained earnings – Parent, 1/1/2014 (cost)
(P3,500,000 plus P25,000 Div of P less P724,000 NI of P)…. P2,801,000
-: UPEI of S (down) – 2013 or RPBI of S (down) – 2014..…………. 15,000
Adjusted Retained earnings – Parent, 1/1/2014 (cost)……………… P2,786.000
Retroactive Adjustments to convert Cost to “Equity” for
purposes of consolidatio n / Parent’s share of adjusted
Retained earnings – Subsidiary, 1/1/2011………………………P 150,000
Less: Retained earnings – Subsidiary, 1/1/2014……………… 260,000
(cumulative net income – cumulative dividends)…………P 110,000
Accumulated amortization (1/1/2011 – 1/1/2014):
P 2,000 x 3 years………………………………………………. ( 6,000)
UPEI of P (up) – 2013 or RPBI of P (up) – 2014………………... ( 10,000)
P 94,000
X: Controlling Interests………………………………………… 80% 75,200
RE – P, 1/1/2014 (equity method) = CRE, 1/1/2014………………..P2,861,200
+: CI – CNI or Profit Attributable to Equity Holders of Parent…….. 769,400
-: Dividends – P………………………..……………………… 25,000
RE – P, 12/31/2014 (equity method) = CRE, 12/31/2014………….P3,605,600
Sales Cost of Sales

P P2,500,000 P1,250,000
S 1,200,000 875,000
Intercompany sales - downstream ( 320,000) ( 320,000)
Intercompany sales - upstream ( 290,000) ( 290,000)
RPBI of S (downstream sales)* ( 15,000)
RPBI of P (upstream sales)*** ( 10,000)
UPEI of S (downstream sales)** 20,000
UPEI of P (upstream sales)**** _________ 5,000
Consolidated P3,090,000 P1,515,000
Working Paper Eliminating Entries:

1. Intercompany Sales and Purchases:
Downstream Sales:
Sales………………………………………………………………………….. 320,000
Cost of Sales (or Purchases)…………………………………….... 320,000
Upstream Sales:
Sales………………………………………………………………………….. 290,000
Cost of Sales (or Purchases)……………………………………… 290,000
2. Intercompany Profit:
(COST Model)
Downstream Sales:
*100% RPBI of S:
Retained Earnings – P, beginning………………………………………..... 15,000
Cost of Sales (Beginning Inventory in Income Statement)…............ 15,000
**100% UPEI of S:
Cost of Sales (Ending Inventory in Income Statement)……………… 20,000
Inventory (Ending Inventory in Balance Sheet)……………….. 20,000
Upstream Sales:
***100% RPBI of P: (if equity method Investment in S instead of RE – P, beg.)
Retained Earnings – P, beginning…………………………………...…….. 16,000
NCI ……………………………………………….……………………………... 4,000
Cost of Sales (Beginning Inventory in Income Statement)…........ 20,000
****100% UPEI of P:
Cost of Sales (Ending Inventory in Income Statement)………………… 5,000
Inventory (Ending Inventory in Balance Sheet)……………….. 5,000
Multiple Choice Problems

1. a
20x4 and 20x5:: P12,000 x 80% = P9,600
20x6: P18,000 x 80% = P14,400
2. c
20x4: (P84,000 x 80%) = P67,200 – (P1,440
(P1,440 x 30% x 80%) = P66,854.40
20x5: (P102,000 x 80%) + (P1,440 x 30% x 80%) - (P4,800 x 30% x 80%) = P80,793.60
20x6: (P112,800 x 80%) + (P4,800 x 30% x 80%) – (P3,600
(P3,600 x 30% x 80%) = P90,258.00
3. No requirement.
4. b – (P14,400
(P14,400 + P432 – P1,440
P1,440 = P13,392)
Analysis: Eliminating entries
Upstream Sales:
Sales………………………………………………………………………….. 14,400
Cost of Sales (or Purchases)…………………………………… 14,400
100% RPBI of P: (if equity method Investment in S instead of RE – P,

P, beg.):
(P1,440 x 30% = P432)
– P, beginning…………………………
beginning…………………………………...….. ………...….. 345.60
NCI ……………………………………………….…
……………………………………………….…………………………… ………………………… 86.40
Cost of Sales (Beginning Inventory in Income Statement).. 432.00
100% UPEI of P: (P4,800 x 30% = P1,440)

Cost of Sales (Ending Inventory in Income Statement)…………….. 1,440
Inventory (Ending Inventory in Balance Sheet)…………… ... 1,440
5. a – there
there are no intercompany profit in 20x3 (prior year), so need to adjust retained earnings.
6. a - Investment income,
income, P5,000 x 80% = P4,000;
P4,000; Investment
Investment in Leisure, P100,000.
7.c
Investment in Leisure
Cost, 1/1/x3 109,070 4,000 Dividends – Lei
Lei (5,000x 80%)
NI of Leisure 4,800 Amortization (6,000 x 80%)
(13,000 x 80%) 10,400 850 Impairment (1,000 x 85%)*
RPBI of LP (350 x 80%) 280 336 UPEI of LP (420 x 80%)
Balance, 12/31/x3 109,764
Investment Income
Amortization 4,800 NI of Leisure
Impairment* 850 10,400 (13,000 x 80%)
UPEI of LP (420 x 80%)) 336 280 RPBI of LP (350 x 80%)
4,694 Balance, 12/31/x4
RPBI of LP: P1,350 x 35/135 = P350

UPEI of LP: P1,620 x 35/135 = P420
Partial
Consideration
Consider ation transferred
transferr ed . . . . . . . . . . . . . . . . . . . . . . P 100,000
Less: Book value of stockholders’ equity of LP
80%)………………………………………...
(P10,000 x 80%)………………………………………... ____8,000
Allocated excess (excess of cost over book value) . . . P 92,000
Increase in favorable leases (P30,000 x 80%) . . . . . ___24,000
fair value) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 68,000
Full
Consideration
Consider ation transferred
transferr ed (80%). . . . . . . . . . . . . . . . . . P 100,000
Fair value of NCI (given) (20%)……………………………..
(20%)…………………………….. ___20,000
Fair value of Subsidiary (100%) ……………………………. P 120,000
Less: Book value of stockholders’ equity of LP
(P10,000 x 100%)………………………………………. ___10,000
Allocated excess (excess of cost over book value) . . . P 110,000
Increase in favorable leases (P30,000 x 100%) . . . . ___30,000
fair value) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 80,000
Note: The controlling interests of parent to subsidiary of 80% is not an outright

application to impairment of goodwill, it still depends on the resulting goodwill of
partial and full goodwill, for instance in Questions 6 to 10, the CI is 85% and NCI is
15% for impairment computed as follows:
Partial goodwill 68,000 85%

NCI on Full Goodwill 12,000 _15%
Full-goodwill 80,000 100%
8. a
Parent Company’s net income from own/separate operations operations
(P400,000 – P250,000
P250,000 – P130,000) P 20,000
Subsidiary Company’s net income from own operations
(P200,000 – P120,000
P120,000 – P67,000) P 13,000
Realized profit in beginning inventory of P Company (upstream sales) . . . . . . . 350
Unrealized profit in ending inventory of P Company (upstream sales) . . . . . . . . ( 420)
Son Company’s realized net income from separate operations* . . . . . . . . . . P12,930 12,930
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 32,930
Less: Amortizati on of allocated excess . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000
Impairment
Impairmen t of goodwill. . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . ___1,000
Consolidated
Consolidate d Net Income for 20x3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 25,930
Less: Non-controlling
Non-cont rolling Interest Intere st in Net Income* * . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,236
Controlling Interest in Consolidated Net Income or Profit attributable attributable to
equity holders of parent – 20x3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P24,694
Or, alternatively
Parent Company’s net income from own/separate operations
(P400,000 – P250,000
P250,000 – P130,000) P 20,000
Subsidiary Company’s net income from own operations
(P200,000 – P120,000
P120,000 – P67,000) P 13,000
Son Company’s realized net income from separate operations* . . . . . . . . . . P12,930 12,930
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 32,930
Less: Non-controlling Interest in Net Income* * . . . . . . . . . . . . . . . . . . . . . . . . . . . P 1,236
Impairment
Impairme nt of goodwill. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000
Amortization
Amortizati on of allocated excess . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000 8,236
Controlling Interest in Consolidated Net Income or Profit Profit attributable to
equity holders of parent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 24,694
Add: Non-controlling
Non-cont rolling Interest Interes t in Net Income (NCINI) (NCINI ) . . . . . . . . . . . . . . . . . . . . . . _ _ 1,236
Consolidated
Consolida ted Net Income for 20x3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P25,930

S Company’s net income of Subsidiary
Subsidiary Company from its own operations P 13,000
S Company’s realized net income from separate operations . . . . . . . . . . P 12,930
Less: Amortization
Amortizati on of allocated excess . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000
P 6,930
Multiplied by: Non -controlling
-controll ing interest
interes t % . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20%
Income (NCINI) – partial goodwill . . . . . . . . . . .
Non-controlling Interest in Net Income P 1,386
Less: NCI on goodwill impairment loss on full goodwill (P1,000 x 15%). . . . . . . . . 150
Income (NCINI) – full goodwill . . . . . . . . . . . . . .
Or, alternatively
CI-CNI NCINI CNI

Parent’s net income own operations 20,000
Subsidiary’s reported net income 1
0
,4
Favora
Fav orable
ble lease
le asess amort
amo rtiz
izati
ation
on (4
,80
)
Goodwill impairment loss
Upstream beg. inv. profit confirmed 80
Upstream end. inv. profit unconfirmed
2
,4
6
9
9. b
Retained earnings of Parent Company (under equity equity method) /
Consolidated
Consolidate d Retained earnings , January 1, 20x3. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 40,000
Add: Controlling Interest in Consolidated Net Income or Profit attributable attributable to
equity holders of parent for 20x5. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,694
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 64,694
Less: Dividends paid – Parent Company for 20x4. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000
Retained earnings of Parent Company (under equity equity method) /
Consolidated
Consolidat ed Retained Earnings, December 31, 20x4. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 54,694
Therefore, regardless of the method used in the separate financial statement of parent, the consolidated balance (which
is under equity method) is always the same.
10. Ignore, there are some missing figures particularly the details of subsidiary’s
subsidiary’s stockholders equity
since the date of acquisition.
11. d
(NCINI) for 20x4:
S Company’s net income of Subsidiary
Subsidiary Company from its own operations
operations
Less: Amortizati on of allocated excess _ 0
P 152,000
%.......... 30%
Income (NCINI) – partial goodwill
Income (NCINI) – full goodwill
12. b Combined cost of sales P 160,000

Less: Intercompany sales revenue 110,000
Add: Unrealized profit taken out of inventory
(75%)x(35,000) = 26,250
Consolidated cost of sales P 76,250
13. d
Cost method: P40,000 x 70% = P28,000, dividend income
Equity Method: (P115,000
(P115,000 x 70%) - P26,250 = P54,250, equity in subsidiary
subsidiary income
14. a - P720,000 = P500,000 + P400,000 - P200,000 +P 20,000
15. b
Cost method: P60,000 x 80% = P48,000
Equity Method: (P120,000 x 80%) – (P200,000
(P200,000 x 50% = P100,000 x 20% = P20,000)=P76,000
16. d Downstream situation

S Company’s net
net income from own/separate
own/separate operations P120,000
x: NCI % 20%
P 24,000
17. c
Share in net income (P120,000 x 60%) P72,000
Less: Unrealized profit in ending inventory of S {P189,000 x 1/3 = P63,000 x (P189-135)/P189] __18,000
Intercompany profit to be eliminated P54,000
18. b
Share in net income (P200,000 x 60%) P120,000
Less: Unrealized profit in ending inventory of S {P315,000 x 1/3 = P105,000 x (P315-P225)/P315] __30,000
Intercompany profit to be eliminated P 90,000
19. b - P45,000 + P110,000 - P50,000 - P80,000 = P25,000

P25,000 increase
20. a
Beginning inventory profit = P825,000 - P825,000/1.25 = P165,000
Ending inventory profit = P750,000 - P750,000/1.25 = P150,000
Downstream sales only affect equity in net income.
income. P165,000 - P150,000 = P15,000 increase.
increase.
21. c - There is no unconfirmed profit in beginning or ending inventory, so the only eliminating entry
is to debit sales revenue and credit cost of goods sold for P1,000,000.
22. b
23. a
24. c – P400,000 x 1/4 = P100,000 x 30% = P30,000
25. c
Ending inventory at selling price: P300,000 x 1/3 = P100,000 x (300,000 – 240,000)/300,000 P20,000
Less: Inventory write-down (P100,000 – P92,000) __8,000
Intercompany profit to be eliminated P12,000
26. b – [P300,000 x 1/2 = P150,000 x 40% = P60,000]

27. c – P100,00 sales to unrelated/unaffiliated company.
28. c
Cost of Sales
P Company 67,000
S Company _63,000
Total 130,000
Less: Intercompany sales 90,000
Add: Unrealized profit in EI of S Co.
[P90,000 x 30% = P27,000 x (90 - 67)/90] __6,900
Consolidated 46,900
Parent Subsidiary
Sales 90,000 100,000
Less: Cost of goods sold – Parent 67,000
Subsidiary (90,000 x 70%) ______ 63,000
Gross profit 23,000 37,000
Ending inventory (90,000 x 30%) 27,000
29. a
P Company’s net income from own/separate operations
[P100,000 – (P90,000 x 70%)] P 37,000
Unrealized profit in ending inventory of S Company (downstream sales)… (_0)
S Company’s net income from own operati ons (P90,000 – P67,000) P23,000
Unrealized profit in ending inventory of P Company (upstream sales)
[P90,000 x 30% = P27,000 x (90-67/90)] ( 6,900 )
Total P 53,100
Or, alternatively
P Company’s net income from own/separate operations
[P100,000 – (P90,000 x 70%)] P 37,000
S Company’s net income from own operati ons (P90,000 – P67,000) P23,000
[P90,000 x 30% = P27,000 x (90-67/90)] ( 6,900 )
Total P 53,100
equity holders of parent………….. P 51,490
Less: Amortization of allocated excess 0
P 16,100
30. d – P27,000 x 67/90 = P20,100

31. b – P120,000, the amount of sales to outsiders is the amount of sales presented in the
consolidated income statement.
32. a – the cost of inventory produced by the parent (downstream sales)
33. c
P Company’s net income from own/separate operations (P90,000 – P62,000) P 28,000
S Company’s net income from own operati ons (P120,000 – P90,000) P3 0,000
Unrealized profit in ending inventory of P Company (upstream sales) ()
Total P 58,000
Or, alternatively
S Company’s net income from own operations (P120,000 – P90,000) P3 0,000
Unrealized profit in ending inventory of P Company (upstream sales ()
Total P 58,000

P 30,000
34. c
Sales Cost of Sales
P Company 10,000,000 7,520,000
S Company __200,000 _160,000
Total 10,200,000 7,680,000
Less: Intercompany sales – upstream sales 60,000 60,000
[P60,000 x 30% = P18,000 x (10 – 7.5)/10] ________ __ 4,500
Consolidated 10,140,000 7,604,500
35. d – refer to No. 34 for computation

36. c – (P10,140,000 – P7,604,500) = P2,535,500
37. c
Sales
P Company 10,000,000
S Company __200,000
Total 10,200,000
Less: Intercompany sales – downstream sales 60,000
[P60,000 x 30% = P18,000 x (10 – 7.5)/10] ________
Consolidated 10,140,000
38. a – (P40,000 x 140% = P56,000)

39. a – (P56,000 – P40,000 = P16,000)
40. a
20x5 Sales Cost of Sales
P Company 1,800,000 1,440,000
S Company __900,000 _750,000
Total 2,700,000 2,190,000
Less: Intercompany sales 375,000 375,000
Realized profit in BI of S Co.
[P240,000 x 1/2 = P120,000 x (240-192)/240] 24,000
[P375,000 x 40% = P150,000 x (375-300)/375] ________ __30,000
Consolidated 2.325,000 1,821,000
41. c - refer to No. 40 for computations

42. b
P Company’s net income from own/separate operations P 225,000
S Company’s net income from own operati ons P 90,000
Realized profit in beginning inventory of P Company (upstream sales)
[P150,000 x 50% = P75,000 x (P30,000/P150,000)] ( 15,000 )
Total P 300,000
Less: Amortization of allocated excess…………………… _0

P 75,000
43. c – refer to No. 42 for computations

44. c
45 a Amount paid by Lorn Corporation P120,000
Unrealized profit (45,000)
Actual cost P 75,000
Portion sold x .80
Cost of goods sold P 60,000
46. e Consolidated sales P140,000

Cost of goods sold (60,000)
Consolidated net income P 80,000
Income to Dresser’s noncontrolling
interest:
Sales P120,000
Reported cost of sales (75,000)
Report income P 45,000
Portion realized x .80
Realized net income P 36,000
Portion to Noncontrolling
Interest x .30
Income to noncontrolling
Interest (10,800)
Income to controlling interest P 69,200
47. A Inventory reported by Lorn P 24,000

Unrealized profit (P45,000 x .20) (9,000)
Ending inventory reported P 15,000
48. c
Sales
P Company 500,000
S Company _350,000
Total 850,000
Less: Intercompany sales to Dundee 100,000
Intercompany sales to Perth 150,000
Consolidated 600,000
49. a
Ending inventory of Perth from Dundee (P36,000 / 110%) 32,727
Ending inventory of Dundee from Perth (P31,000 / 130%) _23,846
Total 56,573
50. a Selling price P 50,000

Less: Cost of sales _40,000
Original unrealized profit 10,000
Unsold percentage __30%
Unrealized profit P _3,000
51. a
S Company’s net income from own operations…………………………………. 76,000
Total P253,000
52. a
Combined 20x5 sales (P580,000 + P445,000) P 1,025,000
Less: 20x5 intercompany sales 0
Consolidated sales P 1,025,000
53. d
Combined cost of sales P 480,000
Less: 20x5 intercompany sales 0
Less: Unrealized profit in the 20x5 beginning inventory
from 20x4 ( 3,000)
Add: Unrealized profit in 20x5 ending inventory ________0
Consolidated cost of sales P 477,000
54. d
Cost of Sales
P Company 5,400,000
S Company _1,200,000
Total 6,600,000
Less: Intercompany sales 1,000,000
Realized profit in BI of S Co.
[P625,000 x 12% = P75,000 x (625 - 425)/625] 24,000
[P1,000,000 x 10% = P100,000 x (1,000 - 800)/1,000] __20,000
55. b
Cost of Sales
Bates Company 690,000
Sam Company 195,000
Total 885,000
Realized profit in BI of Bates Co.
[P40,000 x 20%] 8,000
Add: Unrealized profit in EI of Bates Co.
[P15,000 x 20%] __3,000
56. b
Parent Subsidiary
Net Income from own operations:
X-Beams (parent)Kent (subsidiary), 70%:30% 210,000 90,000
Unrealized Profit in EI of Parent (X-Beams):
P180,000x 20% = P36,000 x (180-100/180)= P16,000, 70%:30%
( 11,200) ( 4,800)
Non-controlling Interest in Kent’s Net Income 85,200
57. d
Non-controlling Interest in Net Income (NCINI) for 20x5 20x6
(Reported net income of S Company) P 400,000 P 480,000
Unrealized profit in ending inventory of P Company (upstream sales) ( 20,000) 0
S Company’s realized net income from separate operations……… P 380,000 P 500,000
Less: Amortization of allocated excess 0 0
P380,000 P500,000
Multiplied by: Non-controlling interest %.......... 20% 20%
Non-controlling Interest in Net Income (NCINI) – partial goodwill P 76,000 P100,000
Less: NCI on goodwill impairment loss on full goodwill 0 0
Non-controlling Interest in Net Income (NCINI) – full goodwill P 76,000 P100,000
58. a
(Reported net income of S Company) P 0
(P100,000 x 10% = P10,000 x 30%) ( 3,000)
S Company’s realized net income from separate operations……… P( 3,000)
P( 3,000)
Non-controlling Interest in GP P(300)
Non-controlling Interest in GP P( 300)
59. a
60. a Selling price P 60,000
Less: Cost of sales ( 48,000 )
Unrealized profit 12,000
Unsold fraction 1/3
Credit to Inventory P 4,000
61. a – the cost from parent of P48,000 x 45/60 = P36,000
Parent Subsidiary 1 Subsidiary 2
Sales 60,000 60,000 67,000
Less: Cost of goods sold – P and S1 48,000 60,000
Subsidiary (60,000 x 45/60) ______ ______ 45,000
Gross profit 12,000 0 22,000
Ending inventory (60,000 x 15/60) 15,000
62. b – the cost from parent of P48,000 x 15/60 = P12,000

63. a
Sales Cost of Sales
Intercompany
Parent 60,000 60,000
Subsidiary 1 60,000 45,000
Add: Cost of EI in S2 Co.

[P15,000 x (48/60] ________ __12,000
Amount to be eliminated 120,000 *117,000
*or, P60,000 + P60,000 – [P15,000 x (60-48/60]
64. b – refer to No. 63 for computation
65. d – P15,000 x [(60-48)/60] = P3,000
66. a
S Company’s net income from own operati ons P150,000
[P105,000 x 20/120) ( 17,500 )
Total P 357,500
67. c
[P105,000 x 20/120) 17,500
[P157,500 x 20/120) ( 26,250 )
Total P 486,250
Or, alternatively
S Company’s net income from own operati ons ( P135,000
[P105,000 x 20/120) 17,500
[P157,500 x 20/120) ( 26,250 )
Total P 486,250
Add: Non-controlling Interest in Net Income (NCINI) _37,875

P126,250
68. a – refer to No. 67 for computation.
69. d
[P157,500 x 20/120) 26,250
[P180,000 x 20/120) ( 30,000 )
Total P 686,250
Or, alternatively
[P157,500 x 20/120) 26,250
[P180,000 x 20/120) ( 30,000 )
Total P 686,250
Add: Non-controlling Interest in Net Income (NCINI) __70,875

P 236,250
Non-controlling Interest in Net Income (NCINI) – partial goodwill P 70.875

71. d
Sales
P Company 420,000
S Company 280,000
Total 700,000
72. b
Operating
Expenses
P Company 28,000
S Company 14,000
Total 42,000
Add: Undervalued equipment (P35,000/7 years) _5,000
Consolidated 47,000
73. c
Cost of Sales
P Company 196,000
S Company _112,000
Total 308,000
[P140,000 x 60% = P84,000 x (140 - 112)/140] _16,800
74. a or e - if full goodwill method.

Common stock – S Company, December 31, 20x4 …… P 140,000
Retained earnings – S Company, December 31, 20x4
Retained earnings – S Company, January 1, 20x4 P210,000
Add: Net income of S for 20x4 154,000
Total P364,000
Less: Dividends paid – 20x4 0 364,000
Stockholders’ equity – S Company, December 31, 20x4 P 504,000
20x5 (P35,000/7 years) ( 5,000)
Fair value of st ockholders’ equity of S, December 31, 20x5…… P 534,000
Add: NCI on full-goodwill (P70,000 – P56,000) 14,000
Non-controlling interest (full- goodwill)………………………………….. P 120,800
Partial-goodwill
Less: Book value of stockholders’ equity of S:
Common stock (P140,000 x 80%)……………………. P112,000
Retained earnings (P210,000 x 8 0%)………………... 168,000 280,000

Increase in equipment (P35,000 x 80%) ___28,000
fair value)………………………………………………... P 56,000
Full-goodwill
Consideration transferred: Cash (P364,000/80%) P 455,000
Less: Book value of stockholders’ equity of S (P350,000 x 100%) __350,000
P
Allocated excess (excess of cost over book value)….. 105,000
Increase in equipment P35,000 x 100% 35,000
fair value)………………………………………………... P 70,000
75. d
Equipment
P Company 616,000
S Company 420,000
Total 1,036,000
Add: Undervalued equipment 35,000
Less: Depreciation on undervalued equipment (P35,000/7 years) 7,000
76. d
Inventory
P Company 210,000
S Company 154,000
Total 364,000
Less: Unrealized profit in EI: [P140,000 x 60% = P84,000 x (140 - 112)/140] 16,800
77. d Add the two book values and remove P100,000 intercompany transfers.
78. c Intercompany gross profit (P100,000 - P80,000) ................................................... P20,000
Inventory remaining at year's end ......................................................................... 60%
Unrealized intercompany gross profit .................................................................... P12,000
CONSOLIDATED COST OF GOODS SOLD

Parent balance ................................................................................................... P140,000
Subsidiary balance ............................................................................................. 80,000
Remove intercompany transfer ....................................................................... (100,000)
Defer unrealized gross profit (above) ............................................................. 12,000
Cost of goods sold ..................................................................................................... P132,000
79. c Consideration transferred .............................................. P260,000

Non-controlling interest fair value .................................. 65,000
SZ total fair value ............................................................... P325,000
Book value of net assets ................................................... (250,000)
Excess fair over book value P75,000
Annual Excess
Life Amortizations
Excess fair value assigned to undervalued assets:
Equipment .................................................................... 25,000 5 years P5,000
Secret Formulas .......................................................... 50,000 20 years 2,500
Total ................................................................................. P -0- P7,500
Consolidated Expenses = P37,500 (add the two book values and include current year
amortization expense)
80. a
Common stock – S Company, December 31, 20x4…… P 100,000
Retained earnings – S Company, December 31, 20x4
Retained earnings – S Company, January 1, 20x4 P150,000
Add: Net income of S for 20x4 110,000
Total P260,000
Less: Dividends paid – 20x4 0 260,000
Stockholders’ equity – S Company, December 31, 20x4 P 360,000
Amortization of allocated excess (refer to amortization above) : ( 7,500)
Fair value of stockholders’ equity of S, December 31, 20x5…… P 427,500
Add: NCI on full-goodwill ( ________0
Non-controlling interest (full- goodwill)………………………………….. P 85,500
Partial-goodwill
Common stock (P100,000 x 80%)……………………. P 80,000

Increase in secret formulas: P50,000 x 80% 40,000
Full-goodwill
FV of NCI (20%) ___65,000
Less: BV of stockholders’ equity of S (P100,000 + P150,000) x 100% __250,000
Increase in equipment P25,000 x 100% 25,000
Increase in secret formulas: P50,000 x 100% P 50,000
Amortization:
Equipment: P25,000 / 5 years = P 5,000
Secret formulas: P50,000 / 20 years = 2,500
Total amortization of allocated P 7,500
81. c Add the two book values plus the original allocation (P25,000) less one year of excess
amortization expense (P5,000).
82. b Add the two book values less the ending unrealized gross profit of P12,000.
Intercompany Gross profit (P100,000 – P80,000) .................................................. P20,000
Inventory Remaining at Year's End ........................................................................ 60%
Unrealized Intercompany Gross profit, 12/31 ....................................................... P12,000
83. b
20x3 20x4 20x5
Share in net income
20x3: P70,000 x 90% P 63,000
20x4: P85,000 x 90% P 76,500
20x5: P94,000 x 90% P 84,600
Less: Unrealized profit in ending inventory of P
20x3: P1,200 x 25% = P300 x 90% ( 270) 270
20x4: P4,000 x 25% = P1,000 x 90% ( 900) 900
20x5: P3,000 x 25% = P750 x 90% ________ ________ __( 675)
Income from S P 62,730 P 75,870 P 84,825
It should be noted that PAS 27 allow the use of cost model in accounting for investment in
subsidiary in the books of parent company but not the equity method.
84. c – refer to No. 83 for computation.

85. d – refer to No. 83 for computation.
86. a
**Non-controlling Interest in Net Income (NCINI) for 20x3 20x4 20x5
S Company’s net income of Subsidiary Company from its
own operations (Reported net income of S Company) P 70,000 P 85,000 P 94,000
RPBI of P Company (upstream sales) 0 300 1,000
UPEI of P Company (upstream sales) ( 300) ( 1,000) ( 750)
S Company’s realized net income from separate operations P 69,700 P 84,300 P 94,250
Less: Amortization of allocated excess 0 0 0
P 69,700 P 84,300 P 94,250
Multiplied by: Non-controlling interest %.......... 10% 10% 10%
Non-controlling Interest in Net Income (NCINI) – partial goodwill P 6,970 P 8,430 P 9,425
Less: NCI on goodwill impairment loss on full goodwill 0 0 0
Non-controlling Interest in Net Income (NCINI) – full goodwill P 6,970 P 8,430 P 9,425

91. b – refer to No. 86 for computation.
92. a – none, since intercompany profit starts only at the end of 20x3.
93. b – the amount of unrealized profit at the end of 20x3.
94. c – the amount of unrealized profit at the end of 20x4.
95. d P32,000 = (P200,000 + P140,000) – P308,000
96. b P6,000 = (P26,000 + P19,000) – P39,000
97. c P9,000 = Inventory held by Spin P12,000
(P32,000 x .375)
Unrealized profit on sale
[(P30,000 + P25,000) – P52,000] (3,000)
Carrying cost of inventory for
Power P 9,000
98. B .20 = P14,000 / [(Stockholders’ Equity P50,000)

+(Patent P20,000)]
99 B 14 years = (P28,000 / [(28,000 - P20,000) / 4 years]
100. c (P10,000 x 80%)
101. d – the original cost
102. d
Date of Acquisition (1/1/2010) Partial Full
Fair value of consideration given…………………P 340,000
Less: Book value of SHE - Subsidiary):
(P150,000 + P230,000) x 80%..................... 304,000
Allocated Excess.…………………………………….P 36,000
Less: Over/Undervaluation of Assets & Liabilities
(P20,000 x 80%)…………………………….. 16,000
Goodwill ………….…………………………………...P 20,000 / 80% P 25,000
Amortization of equipment: P20,000 / 10 years = P2 ,000
RPBI of S (downstream sales): P3,000 x 35%...................................................... P1,050

RPBI of P (upstream sales): P2,500 (given)….................................................... 1,000
UPEI of S (downstream sales):
Sales of Parent EI % EI of S GP% of Parent
P60,000 x 30% = P18,000 x 25/125………………………………. 3,600
UPEI of P (upstream sales):
Sales of Subsidiary EI % EI of P GP% of Subsidiary
P60,000 x 30% = P18,000 x 20%…………………………..…. 2,400
S Company’s net income from own operations P 30,000
Unrealized profit in ending inventory of P Company (upstream sales) ( ,2,400 )
Total P 126,050
Or, alternatively
Unrealized profit in ending inventory of P Company (upstream sales) ( 2,400 )
Total P 126,050
Add: Non-controlling Interest in Net Income (NCINI) __ 5,320

P 26,600
103. b – refer to No. 102

104. a – P124,050 – refer to No. 102
105. b – refer to No. 107
106. c – refer to No. 107
107. a
Non-controlling Interests (in net assets):
Common stock - S, 12/31/20x2.…………..….…………………………….. P 150,000
Retained earnings - S, 12/31/20x2:

RE- S, 1/1/20x2…………….……………………………………………….P300,000
+: NI-S…………………………………………………………………………. 30,000
-: Div – S……………………………………………………………………… 10,000 320,000
Book value of Stockholders’ equity, 12/31/20x2……..………………..... P 470,000
Adjustments to reflect fair value of net assets
Increase in equipment, 1/1/20x0 .………………………….. 20,000
Accumulated amortization (P2,000 x 3 years)………………………….... ( 6,000)
Fair Value of Net Assets/SHE, 12/31/20x2…………………………………. P 484,000
UPEI of P (up)…………………………………………………………………… ( 2,400)
Realized SHE – S,12/31/20x2…………………………………………………. P 481,600
x: NCI %.......................................................................................................... _ 20%
Non-controlling Interest (in net assets) - partial………………………….. P 96,320
+: NCI on full goodwill (25,000 – 20,000)………………………….. 5,000
Non-controlling Interest (in net assets) – full…………………………….... P 101,320
108. d – refer to No. 109
109. d
Note: Preferred solution - since what is given is the RE – P, 1/1/20x2 (beginning
balance of the current year) -
Retained earnings – Parent, 1/1/20x2 (cost)…………………………… P 700,000
-: UPEI of S (down) – 20x1 or RPBI of S (down) – 20x2..…………. 1,050
Adjusted Retained earnings – Parent, 1/1/20x2 (cost)……………… P698,950
Retained earnings – Subsidiary, 1/1/20x0……………………….P 230,000
Less: Retained earnings – Subsidiary, 1/1/20x2……………… 300,000
Accumulated amortization (1/1/20x0 – 1/1/20x2):
P 2,000 x 2 years…………………………………………………( 4,000)
UPEI of P (up) – 20x1 or RPBI of P (up) – 20x2………………...... ( 1,000)
P 65,000
X: Controlling Interests………………………………………….........____ 80% 52,000
RE – P, 1/1/2012 (equity method) = CRE, 1/1/20x2…………………..... P750,950
+: CI – CNI or Profit Attributable to Equity Holders of Parent…….. 118,730
-: Dividends – P……………………………………………………………… 60,000
RE – P, 12/31/20x2 (equity method) = CRE, 12/31/20x2…………...... P809,680
Or, if RE – P is not given on January 1, 20x2, then RE – P on December 31, 2012 should be use:
Retained earnings – Parent, 12/31/20x2 (cost):
(P700,000 + P108,000 – P60,000)………..…………………………… P 748,000
Adjusted Retained earnings – Parent, 1/1/20x2 (cost)……………… P 744,400
Less: Retained earnings – Subsidiary, 12/31/20x2
(P300,000 + P20,000 – P10,000)………………………........ 320,000
Accumulated amortization (1/1/20x0 – 12/31/20x2):
P 2,000 x 3 years……………………………………………….. ( 6,000)
UPEI of P (up) – 20x2 or RPBI of P (up) – 20x3……………….. .. ( 2,400)
P 81,600
X: Controlling Interests………………………………………………. 80% 65,280
RE – P, 12/31/20x2 (equity method) = CRE, 12/31/20x2…………. P809,680
110. b
Consolidated Stockholders’ Equity, 12/31/20x2:
Controlling Interest / Parent’s Interest / Parent’s Portion /
Equity Holders of Parent – SHE, 12/31/20x2:
Common stock – P (P only)…………………………………………….. P1,000,000
Retained Earnings – P (equit y method), 12/31/20x2………….. 809,680
Controlling Interest / Parent’s Stockholders’ Equity……………. P1,809,680
Non-controlling interest, 12/31/20x2 (partial)…………………………. 96,320
Consolidated Stockholders’ Equity, 12/31/20x2………………………… P1,906,000
111. a
Consolidated Stockholders’ Equity, 12/31/20x2:
Controlling Interest / Parent’s Interest / Parent’s Portion /
Equity Holders of Parent – SHE, 12/31/20x2:
Common stock – P (P only)…………………………………………….. P1,000,000
Retained Earnings – P (equity method), 12/31/20x2………….. 809,680
Controlling Interest / Parent’s Stockholders’ Equity……………. P1,809,680
Non-controlling interest, 12/31/20x2 (full)……..………………………. 101,320
Consolidated Stockholders’ Equity, 12/31/20x2………………………… P1,911,000
112. c
Non-controlling interest , December 31, 20x1
Retained earnings – Subsidiary Company, December 31, 20x1 8,600
liabilities, date of acquisition (January 1, 20x4) 0
Amortization of allocated excess (refer to amortization above) – 20x4 ( 0)
Less: Unrealized profit in ending inventory of P Company (upstream sales)
P3,000 x 40% 1,200
Realized stockholders’ equity of subsidiary, December 31, 20x4…… P 17,400
Non-controlling interest. December 31, 20x1 ………………………………….. P 3,480
113. a
Realized profit in BI of Bates Co. [P40,000 x 20%] P 8,000
Unrealized profit in EI of Bates Co. [P15,000 x 20%] __3,000
Net realized profit in intercompany sales of inventory P 5,000
Multiplied by: NCI% ___40%
NCI share in net realized profit P 2,000
114. c
RPBI of P (upstream sales)……..………………………..………………………… 45,000
UPEI of P (upstream sales):
EI of Paque GP% of Subsidiary
P75,000 x 20%...................................………………………..…. 15,000

Total P 150,750
Or, alternatively
Total P 150,750
Amortization of allocated excess…………………… ___0 10,125
Add: Non-controlling Interest in Net Income (NCINI) __ 10,125

Less: Amortization of allocated excess _0
P101,250
(Not required)
Analysis of workpaper entries
(1) Investment in Segal (0.90  (P180,000 – P150,000)) 27,000
Beginning Retained Earnings-Paque Co.
27,000
To establish reciprocity as of 1/1/20x8
(2) Sales 300,000

Purchases (Cost of Goods Sold)
300,000
To eliminate intercompany sales
(3) Ending Inventory - Income Statement (CGS) 15,000

Ending Inventory (Balance Sheet)
15,000
To eliminate unrealized i ntercompany profit in ending inventory (P75,000  0.20)
(4) Beginning Retained Earnings - Paque Co. (P45,000  0.90) 40,500

Non-controlling Interest P45,000  0.10) 4,500
Beginning Inventory (Income statement)
45,000
To recognize intercompany profit realized during the year and to reduce
controlling and non-controlling interests for their share of unrealized profit
at beginning of year
(5) Dividend Income (P60,000  0.90) 54,000

Dividends Declared 54,000
To eliminate intercompany dividends
(6) Beginning Retained Earnings- Segal Co. 180,000

Common Stock - Segal Company 750,000
Investment in Segal Company (P810,000 + P27,000) 837,000
Non-controlling Interest (P750,000 + P180,000) x .10 93,000
To eliminate investment account and create non-controlling interest account
115. c
Preferred Solution - since what is given is the RE – P, 1/1/20x8 -
Retained earnings – Parent, 1/1/20x8 (cost)…………………….. P 598,400
Adjusted Retained earnings – Parent, 1/1/20x8 (cost)……………… P 573.400
Retroactive Adjustments to convert C ost to “Equity” for
Retained earnings – Subsidiary, 1/1/20x4……………………P 95,000
Less: Retained earnings – Subsidiary, 1/1/20x8…………….. 144,000
(cumulative net income – cumulative dividends)………P 49,000
Accumulated amortization (1/1/20x4 – 1/1/20x8)…………. 0
UPEI of P (up) – 20x7 or RPBI of P (up) – 20x8………………... ( 0)
P 49,000
X: Controlling Interests…………………………………………… 90% 44,100
RE – P, 1/1/20x8 (equity method) = CRE, 1/1/20x8……………….. P 617,500
+: CI – CNI or Profit Attributable to Equity Holders of Parent…… 203,700
-: Dividends – P………………………..………………………………… 110,000
RE – P, 12/31/2014 (equity method) = CRE, 12/31/2014………….. P 711,200

P Company’s net income from own/separate ope rations P132,000
Unrealized profit in ending inventory of S Company (downstream sales)… (10,000)
Total P210,000
Or, alternatively
Unrealized profit in ending inventory of S Company (downstream sales)… (10,000)
Total P210,000
Amortization of allocated excess…………………… _____0 6,300
equity holders of paren t………….. P203,700

P 63,000

RPBI of Sedbrock (downstream sales) – 20x8......................................................... P25,000
UPEI of Sedbrock (downstream sales) – 20x8: P60,000 x 20%/120%……..……… 10,000
Net income:
Pruitt Co. Sedbrook
Sales P1,210,000 P 636,000
Less: Cost of goods sold
Inventory, 1/1 165,000 132,000
Purchases 935,000 420,000
Inventory, 12/31 (220,000) __880,000 (144,000) __408,000
Less: Other expense 198,000 165,000
Net income from its own
separate operations P 132,000 P 63,000
Net income P 163,500 P 63,000
Dividends declared P 110,000 P 35,000
Or, alternatively(compute the RE-P end of the year under the cost model)
Retained earnings – Parent, 1/1/20x8 (cost)………………………….. P 598,400
Add: NI of Parent as reported – 20x8 under cost model…………… 163,500
Less: Dividend of Parent – 20x8………………………………………….. 110,000
Retained earnings – Parent, 12/31/20x8 (cost)……………………….. P 651,900
-: UPEI of S (down) – 20x8 or RPBI of S (down) – 20x9..……………….. 10,000
Adjusted Retained earnings – Parent, 12/31/20x8 (cost model)….. P 641,900
Retained earnings – Subsidiar y, 1/1/20x4………… P 95,000
Less: Retained earnings – Subsidiary, 12/31/20x8
Retained earnings – Subsidiary , 1/1/20x8..… P144,000
Add: NI of Subsidiary – 20x8…………………… 63,000
Less: Dividend of Subsidiary – 20x8…………... 35,000 172,000
Accumulated amortization (1/1/20x4 – 12/31/20x8)…………..( 0)
UPEI of P (up) – 20x8 or RPBI of P (up) – 20x9………………........( 0)
P 97,000
RE – P, 12/31/20x8 (equity method) = CRE, 12/31/20x8……… P 711,200
(Not required)
(1) Investment in Sedbrook Company (0.90 (P144,000 – P95,000)) 44,100
Beginning Retained Earnings - Pruitt Co. 44,100
To establish reciprocity/convert to equity as of 1/1/x8
(2) Sales 250,000

Purchases (Cost of Goods Sold) 250,000
To eliminate intercompany sales
(3) Ending Inventory - Income Statement (CGS) 10,000

Ending Inventory (Balance Sheet) 10,000
To eliminate unrealized intercompany profit in ending
inventory (P60,000 – (P60,000/1.2)
(4) Beginning Retained Earnings - Pruitt Co. 25,000

Beginning Inventory (Income Statement) 25,000
To recognize intercompany profit in beginning inventory
realized during the year
(5) Dividend Income (P35,000 .90) 31,500

Dividends Declared 31,500
To eliminate intercompany dividends
(6) Beginning Retained Earnings - Sedbrook Co. 144,000

Common Stock - Sedbrook Co. 600,000
Investment in Sedbrook Co.(P625,500 + P44,100) 669,600
Non-controlling Interest (P744,000 x .10) 74,400
To eliminate investment account and create non-controlling interest account
116. P941,000.
Fair value of consideration given…………………P1,360,000
Less: Book value of SHE - Subsidiary):
(P1,000,000 + P450,000) x 80%................... 1,160,000
Allocated Excess.…………………………………….P 200,000
Less: Over/Undervaluation of Assets & Liabilities
Increase in franchise (P250,000 x 80%)…….. 200,000 / 80% = P250,000
P 0
RPBI of S (downstream sales):…………………........................................................ P30,000

RPBI of P (upstream sales)………………………....................................................... 20,000
UPEI of S (downstream sales)……………………………………………………..……. 5,000
UPEI of P (upstream sales)………………………………………………….…………… 10,000

S Company’s net income from own operations…………………………………. P270,000
Total P1,005,000
Or, alternatively
S Company’s net income from own operations…………………………………. P270,000
Total P1,005,000
Add: Non-controlling Interest in Net Income (NCINI) __ _ 54,000
Consolidated Net Income for 2014 P 995,000

S Company’s net income of Subsidiary Company from its own operations P270,000
S Company’s realized net income from separate operations……… P280,000
P270,000
(Not required)
(1) Sales 120,000
Purchases (Cost of Goods Sold) 120,000
To eliminate intercompany sales (P50,000 + P70,000)
(2) Ending Inventory – Income Statement (CGS) 15,000

Inventory (Balance Sheet) 15,000
To eliminate unrealized profit in ending inventories
(P10,000 + P5,000)
(3) Beginning Retained Earnings – Paul Company (P20,000  0.8) 16,000

Non-controlling Interest 4,000
Beginning Inventory – Income Statement (CGS) 20,000
To recognize profit in beginning inventory (upstream sales)
realized during year and to reduce the controlling and
noncontrolling interests for their shares of the amount of
unrealized upstream intercompany profit at beginning of year
(4) Beginning Retained Earnings – Paul Company. 30,000

Beginning Inventory – Income Statement (CoGS) 30,000
To recognize profit in beginning inventory (downstream sales)
realized during the year and to r educe consolidated retained
earnings at beginning of the year f or the amount of unrealized
downstream intercompany profit at the beginning of the year
117. P1,863,000
Retained earnings – Parent, 12/31/20x4 (cost)……………………….. P 1,500,000
-: UPEI of S (down) – 20x4 or RPBI of S (down) – 20x5..……………….. 5,000
Adjusted Retained earnings – Parent, 12/31/20x4 (cost model)….. P 1,495,000
Less: Retained earnings – Subsidiary, 12/31/20x4……………… 960,000
Accumulated amortization (1/1/20x1 – 12/31/20x4)…………..( 40,000)
UPEI of P (up) – 20x4 or RPBI of P (up) – 20x5………………........ ( 10,000)
P 460,000
RE – P, 12/31/20x4 (equity method) = CRE, 12/31/20x4……… P1,863,000
118. P54,000 – refer to No. 116 for computation

119. a
Full-goodwill
Consideration transferred: Cash (P7,500,000/80%) P9,375,000
Less: Book value of stockholders’ equity of S (P6,000,000 x 100%) _6,000,000
Allocated excess (excess of cost over book value)….. P3,375,000
Decrease in inventory: P(150,000 x 100%) P( 150,000)
Increase in building: P450,000 x 100% ___450,000 ___300,000
fair value)………………………………………………... P3,075,000
Partial-goodwill
Consideration transferred……………………………….. P7,500,000
Common stock (P1,000,000 x 80%)……………………. P 800,000
Retained earnings (P5,000,000 x 80%)………………... 4,000,000 4,800,000
Allocated excess (excess of cost over book value)….. P2,700,000
Add (deduct): (Over) under valuation of assets and liabilities P( 120,000)
Decrease in inventory: P(150,000 x 80%) ___360,000 240,000
Increase in building: P450,000 x 80%
fair value)………………………………………………... P2,460,000
Amortization schedule
Balance at Remaining
acquisition Amortization Amortization at
Dec. 31/X2 20X3 20X4 Dec.31/X4
Inventory P(150,000) P(150,000) 0 P 0
Building (15 years) 450,000 30,000 P30,000 390,000
Goodwill 3,075,000 _________0 ______0 3,075,000
Total P3,375,000 P(120,000) P30,000 P3,465,000
120. a
Non-controlling interest is 20% × 9,375,000 (fair value of subsidiary, 12/31/20x2) = P1,875,000
Or, alternatively:
Non-controlling interest, December 31, 20x2
Common stock – S Company, December 31, 20x2…… P1,000,000
Retained earnings – S Company, December 31, 20x2 5,000,000
Stockholders’ equity – S Company, December 31, 20x2 P6,000,000
liabilities, date of acquisition (December 31, 20x2) ___300,000
Fair value of stockholders’ equity of S, December 31, 20x2…… P6,300,000
Non-controlling interest (partial goodwill)………………………………….. P 1,260,000
Add: NCI on full-goodwill (P3,075,000 – P2,460,000) ___615,000
Non-controlling interest (full- goodwill)………………………………….. P1,875,000
121. d – P2,393,800
Non-controlling interest , December 31, 20x4
Common stock – S Company, December 31, 20x4 P1,000,000
Retained earnings – S Company, December 31, 20x4 7,524,000
Stockholders’ equity – S Company, December 31, 20x4 P8,524,000
liabilities, date of acquisition (December 31, 20x2) 300,000
Amortization of allocated excess (refer to amortization above- 20x3 and 20x4: __90,000
Fair value of stockholders’ equity of S, December 31, 20x4…… P8,914,000
Less: UPEI of P (up) – 20x3 or RPBI of P (up) – 20x4 ____20,000
P8,894,000
Multiplied by: Non-controlling Interest percentage…………... _ 20
Non-controlling interest (partial goodwill)………………………………….. P1,778,800
Add: NCI on full-goodwill ___615,000
Non-controlling interest (full- goodwill)………………………………….. P2,393,800
RPBI of P (upstream sales):

Sales of Subsidiary EI % EI of P GP% of Subsidiary
P100,000 x 60% = P60,000 x 50,000/100,000………………………..…. 30,000
UPEI of P (upstream sales): (given)………………………………………………………. 20,000
Or, alternatively:
Balance of NCI on acquisition — December 31, 20x2 P1,875,000
Add: NCI's share of the adjusted change in retained earnings to 12/ 31/20x4
Jane's retained earnings, December 31, 20x4 P7,524,000
Jane's retained earnings at December 31, 20x2 ( 5,000,000)
Change in carrying value P2,524,000
Adjustments:
Amortization of fair value increments to date 90,000
Unrealized upstream profit — 20x4 ( 20,000)
Adjusted change in retained earnings of Jane since
acquisition P2,594,000
Multiplied by: NCI's share at 20% 518,800
Ending balance of NCI on December 31, 20x4 P2,393,800
122. b
Retained earnings – Parent, 12/31/20x4 (cost)……………………….. P11,900,000

Chap 17 Intercompany Sales of Inventory

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Chapter 17

**Non-controlling Interest in Net Income (NCINI)

(b) Equity Method

Amortization of Allocated excess:

Unrealized Profit in EI:

Amortization of Allocated excess:

Unrealized Profit in EI:

Amortization of Allocated excess:

Unrealized Profit in EI:

Amortization of Allocated excess:

Unrealized Profit in EI:

**Non-controlling Interest in Net Income (NCINI)

(b) Equity Method

Amortization of Allocated excess:

Unrealized Profit in EI:

Amortization of Allocated excess:

Unrealized Profit in EI:

Incidentally, the eliminating entries are as follows:

Fair value of Subsidiary (80%)

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

A summary or depreciation and amortization adjustments is as follows:

Fair value of Subsidiary (100%)

The goodwill impairment loss would be allocated as follows

20x4: First Year after Acquisition

January 1, 20x4 – December 31, 20x4:

(E3) Cost of Goods Sold……………. 6,000

(E4) Dividend income - P ………. 28,800

(E5) Sales………………………. 150,000

(E6) Sales………………………. 60,000

(E8) Cost of Goods Sold (Ending Inventory – Income Statement)… 12,000

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

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

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

Income Statement P Co S Co. Dr. Cr. Consolidated

Statement of Retained Earnings

Consolidated Net Income for 20x4

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

20x5: Second Year after Acquisition

No goodwill impairment loss for 20x5.

Consolidation Workpaper – Second Year after Acquisition

Retained earnings – S Company, 1/1/20x5 P144,000

(E2) Common stock – S Co………………………………………… 240,000

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

(E5) Dividend income - P………. 38,400

(E6) Sales………………………. 120,000

(E7) Sales………………………. 75,000

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

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

(E10) Cost of Goods Sold (Ending Inventory – Income Statement)… 24,000

(E11) Cost of Goods Sold (Ending Inventory – Income Statement)… 6,000

(E12) Non- controlling interest in Net I ncome of Subsidiary………… 17,760

Realized profit in beginning inventory of P

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

Income Statement P Co S Co. Dr. Cr. Consolidated

Statement of Retained Earnings

Consolidated Retained Earnings, January 1, 20x4

c. CNI, P181,800 – refer to (a)

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

Consolidated Retained Earnings, December 31, 20x4

c. CNI, P274,800 – refer to (a)