Business Combination (the successor corporation), the original

corporations cease to exist and to do

PFRS 3 defines “business combination” as a business, and the successor corporation
transaction or other event in which an acquires all of the assets and liabilities of
acquirer obtains control of one or more the original (now defunct) corporations.
businesses. Transactions sometimes referred  A (Parent) + B (Subsidiary) = C
to as “true mergers” or “mergers of equals”  Three Financial statements:
also are business combination. o A and B – Separate FS
o C – consolidated FS

A first key aspect of this definition is

“control”. This means that there must be a Three Major Stages of Consolidation:
triggering economic event or transaction and
not, for example, merely a decision to start 1. Date of Acquisition
preparing combined or consolidated financial 2. Subsequent to Date of Acquisition
statements for an existing group. 3. Intercompany Transactions

Control can usually be obtained either by:

1. Buying the assets themselves which Stock Acquisition

automatically gives control to the
 The acquirer obtains the acquire by
buyer), or
acquiring majority of ownership interest
2. Buying enough shares in the
in the voting rights of the acquire.
corporation that owns the assets to
 A + B = A and B
enable the investor (acquirer) to
control the investee (acquire)
corporation (which makes the
purchased corporation a subsidiary) Terminologies

1. Previously held interest (PHI) -

interests already acquired prior to
Merger/Acquisition acquisition of control; Re-measured
at Fair Value and difference should be
 A contractual and statutory process by
treated as Gain or Loss on
which one corporation (the surviving
measurement (effect on Profit or
corporation) acquires all of the assets
Loss).
and liabilities of another corporation (the
2. Control premium - premium/amount
merged corporation), causing the merged
paid in excess of Fair Value to gain
corporation to become defunct/ no
control
longer existing.
3. Acquisition Related Costs - costs
 A + B = A or B
incurred to effect business
 Only one Financial Statements.
combination.
a. Stock/Debt Issuance Costs
b. Direct and Indirect Costs
Consolidation 4. Non-controlling interest (NCI) - other
 A contractual and statutory process by remaining portion of the interest
which two or more corporations jointly acquired.
become a completely new corporation 5. Goodwill - difference between
consideration (including control
 premium, previously held interest
and FV or Implied Value or
Proportionate Share in INA) over the
identifiable net asset.
- How much yung binayad ng
acquirer kumapara sa
nareceive nya
6. Bargain Purchase (Gain on
acquisition) - difference the
identifiable net asset over the
consideration (including control
premium, previously held interest
and FV or Implied Value or
Proportionate Share in INA).

IFRS 3 Does NOT apply to:

 The formation of a joint venture
 The acquisition of an asset or group of
assets that is not a business
 Combinations of entities or businesses
under common control
 Acquisitions by an investment entity of a
subsidiary that is required to be measured
at fair value through profit or loss under
IFRS 10 Consolidated Financial
Statements.
 Business Combination – Merger Example

The following are the condensed Statement of Financial Position of Brad and Fitt on Jan. 1, 2020:

Brad Fitt
Total Assets P10,250,000 P3,057,000

Liabilities P2,775,000 P800,000

Ordinary Shares 3,100,000 1,295,000
Share Premium 1,250,000 100,000
Retained Earnings 3,125,000 862,500
Total Equity 7,475,000 2,257,500

Pinaccle Corp. acquired the net assets of both Brad and Fitt. Paying cash in the amount of P185,000
and by issuing 198,500 shares to Brad. Paying cash in the amount of P72,000 and by issuing 54,350
to Fitt. The par value of these shares is P30/share and market value as of Jan. 1, 2020 is P40/share.
Pinnacle Corp. also incurred the following unpaid expenses:

Brad Fitt
Indirect Costs P93,750 P101,250
Expensed Finder’s Fee 66,250 35,000
Accounting and Legal fees for SEC registration 343,750 362,500
APIC
Printing costs of stock certificates 125,000 93,750

Pinnacle’s Retained Earnings has a balance of P10,750,000 on Jan. 1, 2020 immediately before the
acquisition. As a result of the merger, compute the following:

a. Goodwill
b. Gain on Bargain Purchas
c. Net increase or decrease in RE of Pinnacle Corporation
d. Net increase or decrease in the Stockholder’s equity of Pinnacle Corporation
e. Net increase or decrease in the Identifiable Assets of Pinnacle Corporation

a. Goodwill & b. Gain on Bargain Purchase

Goodwill for Brad and Fitt shall be computed separately:

a.) Brad Goodwill b.) Fitt Gain on Bargain Purchase

Cash 185,000 Cash 72,000
Shares (198,500 x 40 mv) 7,940,000 Shares (54,350 x 40 mv) 2,174,000
Total Consideration Given 8,125,000 Total Consideration Given 2,246,000
FV of Net Assets (7,475,000) FV of Net Assets (2,257,500)
Goodwill 650,000 Gain on Bargain Purchase -11,500
Also called as Gain on Acquisition
 Mas malaki yung Consideration Given kesa sa
Net Assets na Makukuha mo.
 FV of Net Assets is computed by subtracting
the Total Assets from Liabilities if the problem
does not states that there is a difference
between the Book Value and FV of the FS.
 c. Net Increase or Decrease in RE e. Net Increase or Decrease in the
Identifiable Assets
Expenses:
Brad: If magkaiba yung Book Value and Fair Value ng
Indirect Cost 93,750 Assets, use the Fair Value. In case na silent
Finder’s Fee 66,250 yung problem, assume na Book Value is the
Fitt: same as the Fair Value. BV = FV
Indirect Cost 101,250
Finder’s Fee 35,000 Brat Assets 10,250,000
Total Expenses 296,250 Fitt Assets 3,057,500
Cash Paid by Brad (185,000)
Expenses (296,250) Cash Paid by Fitt (72,000)
Gain on Bargain Purchase 11,500 Net Increase in IA 13,050,500
Net Decrease in RE (284,750)
 Expenses was not deducted because of
 Indirect Costs and Finder’s Fee are the word Unpaid. This means that it is still
expensed. a part of the Liabilities.
 Hindi kasama yung Accounting and Legal  Goodwill was not added because of the
Fees tsaka Printing costs of stock word Identifiable. Goodwill is considered
certificates because they are part of APIC. an Unidentifiable asset or just asset.

All costs related to incorporation are charged

to Additional Paid-in Capital (APIC).

d. Net Increase or Decrease in Stockholder’s

Equity

Total amount charged to APIC:

Brad:
Acc & Legal Fees 343,750
Printing Costs of SC 125,000
Fitt:
Acc & Legal Fees 363,500
Printing Costs of SC 93,750
APIC 925,000

Shares of Brad 7,940,000

Shares of Fitt 2,174,000
Expenses (296,250)
Gain on Bargain Purchase 11,500
APIC (925,000)
Net Increase in SE 8,904,250
 Consolidation: Date of Acquisition 3 sets of Financial Statements

PFRS 3 defines “acquisition date” as the date Timeline:

on which the acquirer obtains control of the Jan. 1 Dec. 31
acquiree.

Level of Initial Recording

Separate FS
Ownership Recording of Income Working Consolidated
A + B + =
Passive At cost Cost Paper FS
Investment – including Method B/S B/S
generally under brokers’ I/S I/S
20% ownership fees. CF CF
Strategic (Active) Investments
a. Influential – At cost Equity
generally including Method Working Papers
20% to 50% brokers’
 Only prepared on Dec.31
ownership fees.
b. Controlling – At cost Cost,  Only Temporary Entries which means
generally Equity that they shouldn’t be reflected on
over 50% and FV the separate FS of the subsidiary.
ownership method

JOURNAL ENTRIES
Goodwill Computation Entry at the Date of Acquisition:
A (acquirer/parent) acquired 80% of B Book of Parent:
(acquiree/subsidiary).
Investment in Subsidiary xxx

Cash xxx
FV of Consideration Transferred (80%)
Add: Non-controlling Interest NCI (20%) Book of Subsidiary:
Less: Fair Value of Net Assets of Subsidiary
Goodwill / Gain on Bargain Purchase No Entry

FV of CT + NCI = FVNA + Goodwill

Working Papers Eliminating Entries:
FV of Consideration Transferred
composition: To Eliminate the Pre-acquisition Equity of the
Subsidiary
a. Cash or Price Paid
b. Shares Common Stock xxx
APIC xxx
c. Non-cash assets (NCA)
Retained Earnings xxx
d. Contingent Considerations
Investment in Subsidiary xxx
NCI -> part of equity xxx
NCI or Minority Stake composition:
Yung mga dating shareholders daw ni
a. Fair Value Subsidiary is dapat nabayaran na kaya
b. Proportionate Share ineeliminate yung common stock, APIC and
RE. Di na dapat sila makita sa Consolidated FS.
Excess of FV over Book Value Goodwill

PPE xxx Goodwill xxx

Inventory xxx Investment in Sub. xxx
Investment in Sub. xxx NCI xxx
NCI xxx Gain on Bargain Purchase

Kaya sya nag eeliminate ng excess kasi hindi Investment in Sub. xxx
pwedeng ang ireflect sa Consolidated FS is at NCI xxx
book value. Dapat laging naka reflect is Fair Gain xxx
Value of the assets and liabilities.

Consolidation: Date of Acquisition Example

On Jan. 1, 2020, the Statements of Financial Position of Brad and Fitt Company prior to the
combination are:

Brad Co. Fitt Co. FV

Cash P675,000 P22,500
Inventories 450,000 45,000
Property & Equipment (net) 1,125,000 157,500 229,500
Total Assets P2,250,000 225,000 297,000
FVNA
Current Liabilities P135,000 22,500 (297K – 22,500)274,500

Ordinary Shares, P100 par 225,000 22,500

Share Premium 2,115,000 675,000 45,000 202,500
Retained Earnings 1,215,000 135,000
Total Liabilities & SHE P2,250,000 P225,000
2,115,000 is the SHE of Parent on date of acquisition while 202,500 is the SHE of the Subsidiary on DOA.

The fair value of Fitt Company’s equipment is P229,500.

Assume the following independent cases:

a. Assuming Brad Company acquired 100% of the outstanding stock of Fitt Company resulting
to a goodwill of P99,000, contingent consideration is P54,000, how much is the price paid to
Fitt Company’s stock?

b. Assuming Brad Company Acquired 70% of the outstanding common stock of Fritt Company
for P157,500 and Non-controlling interest (NCI) is measured at Fair value of P91,500, how
much is the Goodwill/Gain on Acquisition?

c. Assuming Brad Company Acquired 80% of the outstanding common stock of Fritt Company
for P205,200 and NCI is measured at NCI’s proportionate share of Fritt Company’s
identifiable net assets, how much is the consolidated Stockholder’s Equity on the date of
acquisition?

d. Assuming Brad Company acquired 90% of the outstanding common stock of Fritt Company
for P364,500 and NCI is measured at Fair value, how much is the total consolidated Assets
on the date of acquisition?
 a. Price Paid Parent 2,250,000
Subsidiary (FV) 297,000
Work back using the formula: Goodwill 130,500
Less: Cash paid / Investment (364,500)
Price Paid or Cash 319,500 Consolidated Assets on DOA 2,313,000
Contingent Consideration 54,000
NCI (No NCI since 100%) 0 Cash paid is deducted because it is an outflow
Less: FVNA (274,500) of cash from the parent company.
Goodwill 99,000

Algebra using straight line formula:

PP + CC = FVNA + GW
PP + 54,000 = 274,500 + 99,000
PP = 274,500 + 99,000 – 54,000
Price Paid = 319,500

b. Goodwill/Gain on Acquisition

Price Paid 157,500

NCI 91,500
Less: FVNA (274,500)
Gain on Bargain Purchase -25,500

c. Consolidated SHE on date of acquisition

Price Paid (80%) 205,200

NCI (274,500 x 20%) 54,900
Less: FVNA (274,500)
Gain on Bargain Purchase -14,400

NCI is based on proportionate share of

identifiable net asset or FVNA

Parent 2,115,000
Subsidiary -
Gain on BP 14,400
NCI 54,900
Consolidated SHE on DOA 2,184,300

Hindi na kasama yung Sub kasi eliminated sya

d. Consolidated Assets on DOA

Price Paid (90%) 364,500

NCI (364,500/90% x 10%) 40,500
Less: FVNA (274,500)
Goodwill 130,500

NCI is based on FV of PP.

 Consolidation: Subsequent to Date of Cost Model
Acquisition (Cost Method or Initial Value Method)

The preparation of consolidated financial  In PFRS 3, the term “cost” no longer refers
statement after acquisition is not materially to cost of an acquisition, so the relevant
different in concept from preparing them at measure will be:
the acquisition date in the sense that 1. The consideration transferred
reciprocal accounts are eliminated and 2. Another point of reference might
remaining balances are combined. be PAS 32 – Financial
instruments: Presentation – and
The process is more complex, however, PFRS 9.
because time has elapsed and business  It should be noted that aside for purposes
activity has taken place between date of of preparing consolidated statements,
acquisition and the date of consolidated companies that use the COST MODEL
statement preparation. should be converted to EQUITY
METHOD.
On the date of acquisition, the only relevant  When the cost model is used, the
FS is: investment in subsidiary account is
a. Consolidated balance Sheet retained at its original cost of acquisition
balance.
On the after acquisition, the relevant FS are:  No adjustments are made to the account
a. Consolidated FS – statement of for income as it is earned by the
comprehensive income and Retained subsidiary.
Earnings statement  Income on the investment is limited to
dividends received from the subsidiary.

Accounting for Subsidiaries, Associates and

Joint Venture in the Parent’s Separate Equity Method
Financial Statements
 The equity method of accounting is
 A parent will usually produce its own essentially accrual accounting for equity
single company financial statements and investments that enable the investor to
these should be prepared in accordance exercise significant influence over the
with PAS 27, Separate Financial investee.
Statements.  The equity method of accounting is often
 In these statements, investment in called the one-line consolidation.
subsidiaries, associates and joint ventures  One-line consolidation also means that a
included in the consolidated financial parent company/investor’s income and
statements should be either: stockholder’s equity are the same when a
o At cost, or subsidiary company/investee is
o In accordance with PFRS 9 (FV accounted for under a complete and
Option), or correct application of the equity method
o Using equity method as and when the financial statements of a
described in PAS 28 parent and subsidiary are consolidated.
 Consolidated FS show the same income
 Where subsidiaries are classified as held and same net assets but include the
for sale, they should be accounted in details of revenues and expenses and
accordance with PFRS 5. assets and liabilities.
 The main diff between Cos and Equity
method is difference in timing.
 3 sets of Financial Statements Goodwill

Timeline: Goodwill xxx

Investment in Sub. xxx
Jan. 1,2020 Dec. 31, 2020 Dec. 31,2021 NCI xxx

Gain on Bargain Purchase

Investment in Sub. xxx

Date of Acquisition Subsequent to DOA NCI xxx
Gain xxx

Separate FS
Working Consolidated Net Income is Overstated
A + B + =
Paper FS
Dividend Income xxx
B/S B/S
NCI xxx
I/S I/S
Retained Earnings xxx
CF CF

JOURNAL ENTRIES

Working Papers Eliminating Entries:

To Eliminate the Pre-acquisition Equity of the

Subsidiary

Common Stock xxx

APIC xxx
Retained Earnings xxx
Investment in Subsidiary xxx
NCI -> part of equity xxx

Excess of FV over Book Value

PPE xxx
Inventory xxx
Investment in Sub. xxx
NCI xxx

Dito sa subsequent to DOA, continuously pa

rin daw na nag dedepreciate yung PPE and
patuloy pa rin na nag bebenta yung subsidiary
so dapat may entry for that.
Allocated to Parent
Depreciation Allocated to NCI xxx
Accumulated Depr. xxx
Allocated to Parent
COGS Allocated to NCI xxx
Inventory xxx
 Consolidation: Subsequent to Date of Acquisition Example

On January 1, 2020, Mister Corporation acquired 80% of Accounting Inc.’s ordinary shares for
P3,240,000 (price paid). P150,000 of the excess is attributable to goodwill and the balance to a
depreciable asset with an economic life of ten (10) years. Non-controlling interest (NCI) is measured
at its fair value of P810,000 on date of acquisition. On the date of acquisition, the Stockholder’s
Equity of the two companies were as follows:

Mister Corp Accounting Inc.

Ordinary Shares P5,250,000 P1,200,000
Retained Earnings 7,800,000 2,100,000
Total Equity 13,050,000 3,300,000

On December 31, 2020, Accounting Inc. reported net income of P525,000 and paid dividends of
P180,000 to Mister Corp. Mister Corp. reported net income of P1,425,000 and paid dividends of
P690,000.

Compute for the following:

a. How much is the NCI in profit of Accounting Inc. on December 31,2020?

b. How much is the consolidated profit on December 31, 2020?
c. How much is the consolidated Retained Earnings attributable to parent’s Shareholders
Equity on December 31, 2020?
d. What amount of NCI is represented in the consolidated Statement of Financial Position on
December 31, 2020?

First Step - Compute for FVNA

Price Paid 3,240,000
Price Paid 3,240,000 NCI (FV) 810,000
NCI (FV) 810,000 Less: FVNA (3,900,000)
Less: FVNA (3,300,000 + x) Goodwill 150,000
Goodwill 150,000
FVNA: 3,300,000 + 600,000 = 3,900,000
Yung 3,300,000 is from Total Equity since Net
Asset’s formula is Total Asset – Total Liability, Journal Entry:
so bale Total Equity = Net Asset.
Ang kaso nga lang may depreciation yung Excess of FV over Book Value
asset so hindi Fair Value yung 3.3M, Book
PPE 600,000
value on Net asset lang sya so need naten
Inventory xxx
malaman yung excess of FV over BV.
Investment in Sub. xxx
NCI xxx
To compute for the Excess of FV over BV, use
the straight line formula:
Depreciation (600k / 10 years) 60,000
PP + NCI = Goodwill + FVNA
3,240,000 + 810,000 = 150,000 + (3,300,000 + x) Accumulated Depr. xxx
3,240,000 + 810,000 – 150,000 – 3,300,000 = x
X = 600,000
 a. NCI’s share in profit of Subsidiary d. NCI represented in the consolidated
Statement of Financial Position
NI of Subsidiary (525k x 20%) 105,000
Depreciation (60k x 20%) (12,000) NCI, beg at FV 810,000
NCI’s share in profit of Subsidiary 93,000 NCI’s share in profit of Sub. 93,000
NCI’s share on excess Div. (45,000)
NCI in the Conso. SFP 858,000
b. Consolidated Profit (100%)

NI of Parent 1,425,000
NI of Subsidiary 525,000
Depreciation (60,000)
Dividends Rec. from Sub. (180,000)
Consolidated Profit 1,710,000

Dividends received from subsidiary shall be

eliminated kasi overstatement sya. Iisa na
kasi ang tingin naten sa sub and parent so
reflected na sa NI ng parent na 1,425,000 yung
dividend na 180,000.

Journal Entry to Eliminate the Overstatement:

Dividend Income (80%) 180k
NCI (180k/80%x20%) 45k
Retained Earnings 225k

Yun namang 690k na dividend declared by the

parent, hindi sya kasama kasi ang effect nya is
sa shareholders ng parent lang. Wala syang
kinalaman sa consolidated income ng sub and
parent.

c. Consolidated RE attributable to Parent

(80%)

RE, beg of Parent 7,800,000

NI of Parent 1,425,000
NI of Subsidiary (525k x 80%) 420,000
Depreciation (60k x 80%) (48,000)
Dividends rec. from Sub. (180,000)
Dividends Paid (690,000)
Conso. RE attrib. to Parent 8,727,000

Yung dividends paid na 690,000 is kasama na

dito since naapektuhan nga nya yung SHE ng
parent.

Retained Earnings 690,000

Dividends Payable 690,000
 Consolidation: Intercompany cost of sales, and inventory as if the
Transactions intercompany sale had never occurred.
 As a result, the recognition of income or
 Intercompany transactions are loss on the intercompany transaction,
transactions that occur between two including its allocation between the
entities of the same company. controlling and Non-controlling interests,
 These transactions are recorded in the is deferred until profit or loss is confirmed
books of both entities and can create by sale of the merchandise to non-
discrepancies in the consolidated financial affiliates or to outsiders.
statements if not adjusted properly.
 In the eyes of consolidation, the parent  Inventory Sales
and subsidiary are one, therefore, the  Depreciable Assets
goal should be to eliminate the  Non-depreciable Assets
intercompany transactions.
Parent – 100%
Classification of Intercompany Transactions: Downstream
PS
1. Downstream Transaction
- This is a transaction from a NCI – 0%
parent to a subsidiary. Parent – 80%
- In a downstream transaction, the Upstream
parent records the transaction SP
and the profit/loss resulting
NCI – 20%
from it.
- Thus, profit/loss will be visible to
the parent’s shareholders only, This illustration implies that:
and not to the minority interests.  If the Intercompany transaction is
Downstream, then there shall be no
2. Upstream Transaction allocation between the Parent and
- This is a transaction from the NCI since the parent is the sole
subsidiary to parent. owner.
 If the Intercompany transaction is
3. Lateral Transaction
Upstream, then there is an allocation
- This is a transaction between two
between the Parent and NCI. The
subsidiaries of the same
subsidiary is still owned by both the
company.
Parent and NCI.
- In both lateral and upstream
transactions, the subsidiary
records the transaction and the
profit/loss from it. JOURNAL ENTRIES
- Thus, the profit/loss can be Working Papers Eliminating Entries:
shared between majority and
minority interests, as the parent’s To Eliminate the Pre-acquisition Equity of the
shareholders and minority Subsidiary
interests share the ownership of
the subsidiary. Common Stock xxx
APIC xxx
 The objective of eliminating the effects of Retained Earnings xxx
intercompany sales of merchandise is to Investment in Subsidiary xxx
present consolidated balance for sales, NCI -> part of equity xxx
 Elimination of Gain from Non-depreciable
Excess of FV over Book Value Asset
PPE xxx Gain xxx
Inventory xxx Land xxx
Investment in Sub. xxx
NCI xxx Elimination of Loss on Depreciable Asset
Allocated to Parent
Depreciation xxx Equipment xxx
Allocated to NCI
Accumulated Depr. xxx Loss xxx

COGS Allocated to Parent

xxx Depreciation xxx
Allocated to NCI
Inventory xxx Accumulated Depr. xxx

Goodwill

Goodwill xxx
Investment in Sub. xxx
NCI xxx

Gain on Bargain Purchase

Investment in Sub. xxx

NCI xxx
Gain xxx

Eliminate Net Income Overstatement

Dividend Income xxx

NCI xxx
Retained Earnings xxx

Eliminating Entries for Beg. and End

Inventory

Beginning Inventory:

Retained Earnings, Beg. xxx

COGS xxx

Ending Inventory:

Sales xxx
COGS xxx
Inventory xxx
 Consolidation: Intercompany Transactions Example

On January 1, 2019, Super Company acquired 90% of the outstanding shares of Hero Inc. at book
value. During 2019 and 2020, intercompany sales amounted to P2,000,000 and P4,000,000,
respectively. Super Company consistently recognized a 20% mark-up based on sales with Hero Inc.
has 25% gross profit on sales.

The inventories in the buyers’ books, which all came from intercompany transactions show:
Beg., Inventory End., Inventory
Dec. 31, 2019 Dec. 31, 2020
Super Upstream P240,000 P160,000
Hero Downstream 100,000 40,000

Si Super, binili daw yung 240K and 160k na inventory, so galling sila kay Subsidiary kaya Upstream.
Yung 100k and 40k naman na nasa book ni Hero, galling daw kay parent kay Downstream
Downstream itong pag purchase ng Land, since the Land
came from the parent company which is Super Co.
On October 1, 2020, Hero Inc., purchased a piece of land costing P1,000,000 from Super Company
for P1,500,000. On the other hand, on July 1, 2020, Hero Inc., sold an equipment with a carrying
value of P60,000 and remaining life of 3 years to Super Company for P42,000. Upstream itong pag sold ng
Equipment, since the equip. came from
the Sub. company which is Hero Inc.

Separate Statements of Comprehensive Income for the two companies for the year 2020 follow:

Super Company Hero Inc.

Sales P25,000,000 P14,000,000
Cost of Sales (15,000,000) (8,400,000)
Gross Profit P10,000,000 P5,600,000
Operating Expenses (6,000,000) (3,800,000)
Operating Profit 4,000,000 P1,800,000
Loss on Sale of Office Equipment (18,000)
Dividends Revenue 40,000
Net Income P4,000,000 P1,822,000

Compute the following amounts for/as of December 31, 2020:

a. Consolidated Gross Profit

b. Consolidated Net Income Attributable to Parent
c. Non-controlling Interest (NCI) in Net Income

1. Compute for the Mark-up of Inventories

Dec. 31, 2019 Dec. 31, 2020
Super Company: Super U 60,000 40,000
Dec. 2019 (240k x 25%) = 60,000
Hero D 20,000 8,000
Dec. 2020 (150k x 25%) = 40,000
Total 80,000 48,000
Mark- Up
Hero Inc.:
Dec. 2019 (100k x 20%) = 20,000
25% ginamit sa Super since galing syang Sub.
Dec. 2020 (40k x 20%) = 8,000
20% gamit sa Hero since galing syang Parent
Working Paper JE: Need mo din syang idepreciate based on
18,000 loss. Nag depreciate kasi sya based on
Inventory, Beginning (Dec. 31, 2019): 42,000 pero it should have been based on the
RE, Beg. 80,000 CV of 60,000.
COGS 80,000
Depreciation (18k/3*6/12) 3,000
Inventory, Ending, (Dec. 31, 2020): Accumulated Depr. 3,000
Sales 48,000
COGS Start of Computation for the requirements:
} 48,000
Inventory a. Consolidation of Gross Profit (100%)

Di na hinimay ni Mr. Acc yung COGS and Gross Profit – Parent 10,000,000
Inventory. Basta daw 48k yung total. Gross Profit – Subsidiary 5,600,000
Inventory, Beg. 80,000
Inventory, End. (48,000)
2. Elimination of Gain on Sale of Land to Consolidated Gross Profit 15,632,000
Subsidiary

Sa paragraph 2, First sentence, bumili daw ng b. Consolidated Net Income attributable to

Land si subsidiary from parent company Parent Company (90%)
worth P1,000,000 pero P1,500,000 binayad ni
Subsidiary. NI – Parent (100%) 4,000,000
May P500,000 gain sa part ni Parent, pero NI of – Sub. (1.882M x 90%) 1,639,800
dapat eliminated ito kasi nga, iisa lang ang sub Gain (down so 100% to P) (500,000)
at parent. Bat magkaka gain/loss kung iisang Loss (up so 90%) (18k x 90%) 16,200
entity lang yung tingin sa kanila after the Depreciation (3k x 90%) (2,700)
consolidation. Inventory, Beg.
Up (60k x 90%) 54,000
Working Paper JE: Down (100%) 20,000
Inventory, End
Elimination of Gain on sale of NDA: Up (40k x 90%) (36,000)
Gain 500,000 Down (100%) (8,000)
Land 500,000 Conso. NI attri. to Parent 5,183,300

Inventory end Up and Downstream

3. Elimination of Loss on Sale of Equipment transaction decreases net Income kaya
to Parent Company negative yung dalawa.

Sa paragraph 2, Second sentence, nagbenta

daw si subsidiary ng equipment sa kanyang c. NCI in Consolidated Net Income (10%)
parent company for P42,000 pero may
carrying value yung equipment na P60,000. NI – Sub. (1.822M x 10%) 182,200
Loss (18k x 10%) 1,800
May P18,000 na Loss from the POV ni
Depreciation (3k x 10%) (300)
Subsidiary? Di ako sure.
Inv., Beg (60k x 10%) 6,000
Inv., End (40k x 10%) (4,000)
Working Paper JE:
NCI in Consolidated NI 185,700
Elimination of Loss on sale of DA:
Equipment 42,000 Dito sa letter C, since NCI sya ignored na yung
Loss 42,000 Downstreams since for parent lang yun. Lahat
Upstream na dito.