Professional Documents
Culture Documents
Problem I
1. P50,075
P17,350
40,000
P57,350
P 5,775
0
1,500
7,275
P50,075
5,775
P55,850
P 40,000
(
0))
P 40,000
15%
P 6,000
____225
P 5,775
*this procedure would be not be applicable where the NCI on goodwill impairment loss would
not be proportionate to NCI acquired.
to
be
Inventory
Subject to Annual Amortization
Over/
Under
Lif
e
P40,000
Annual
Amount
P
40,000
Current
Year(20x4)
P 40,000
20x5
P
20x6
-
P
-
Patents
(70,000)
Amortization
Impairment of goodwill
330,00
0
(14,000)
P
26,000
( 14,000)
_____
P
26,000
_____
P 26,000
P 26,000
(14,000)
P(14,000
)
______
P(14,000
)
Year 1
600,000
600,000
18,750
18,750
Year 2
7,500
(14,000)
P(14,000
)
__
19,300
P
5,300
Balance
Dec.
(28,000)
310,700
282,700
Year 3
30,000
7,500
30,000
2.
a. Goodwill, 12/31/20x6 (P330,000 P19,300)
P 310,700
b.
FV of NCI, 12/31/20x6:
Common stock, 12/31/20x6
P 400,000
Retained earnings, 1/1/20x6
(P100,000 + P80,000 P25,000 P35,000 P10,000) P 110,000
Add; NI Subsidiary (20x6)
90,000
Dividends Subsidiary 20x6
( 40,000)
160,000
Book value of SHE S, 12/31/20x6
P 560,000
Adjustments to reflect fair value
P 300,000
Amortization of allocated excess 20x5
( 12,000)
- 20x6
14,000
Impairment of goodwill 20x5
( 19,300)___282,700
FV of SHE of S
P842,700
Multiplied by: NCI%
25%
FV of NCI
P210,675
Or, alternatively;
Smalls common/ordinary shares
400,000
Smalls retained earnings (100,000+80,000-25,000-35,000-10,000+90,000
-40,000)
160,000
560,000
Unamortized acquisition differential
282,700
842,700
NCIs share (25%)
210,675
c. Consolidated Retained Earnings, 1/1/20x6 P498,500
Consolidated Retained Earnings, December 31, 20x6
P500,000
P 110,000
100,000
P 10,000
26,000
(14,000)
P ( 2,000)
75%
P ( 1,500)
_____0
1,500
P498,500
P498,500
219,050
P717,550
70,000
P647,550
d. P219,050
Consolidated Net Income for 20x6
Net income from own/separate operations
Large Company [P200,000 (P40,000 x 75%)]
Small Company
Total
Less: Non-controlling Interest in Net Income*
Amortization of allocated excess
Goodwill impairment
Controlling Interest in Consolidated Net Income or Profit
attributable to equity holders of parent..
Add: Non-controlling Interest in Net Income (NCINI)
Consolidated Net Income for 20x4
P170,000
90,000
P260,000
P 16,350
5,300
19,300
40,950
P219,050
16,350
P235,400
P 90,000
( 5,300)
P 84,700
25%
P 21,175
___4,825
P 16,350
*this procedure would be not be applicable where the NCI on goodwill impairment loss would
not be proportionate to NCI acquired.
1.
Year 1
Investment in Small
600,000
Cash
600,000
Investment in Small (75% x Smalls profit)
60,000
Investment income
60,000
Cash (75% x Smalls dividends)
18,750
Investment in Small
18,750
Investment income (75% x amortization of PD*)19,500
Investment in Small
19,500
Year 2
Year 3
(26,250)
(26,250)
7,500
(10,500)
67,500
67,500
30,000
7,500
3,975
(10,500)
*purchase differential
( ) indicates reduction
30,000
3,975
600,000
160,000
100,000
60,000
17,300
42,700
32,025
632,025
Note: Regardless of the method used (cost or equity) answers for No. 2 (a) to (e)
above are exactly the same.
Problem III
Cost of 8% investment
646,000
Fair value of Subsidiary (Implied cost of 100% investment); P646,000/85%
760,000
Less: Carrying amount of Silks net assets =
Carrying amount of Silks shareholders equity
Common/Ordinary shares
500,000
Retained earnings
100,000
600,000
Allocated Excess: Acquisition differential December 31, 20x4
160,000
Less: Over/under valuation of A/L (Allocated to):
Increase in Inventory
70,000
Patents
90,000
Non-controlling interest (15% x 760,000, fair value of subsidiary),12/31/20x4114,000
to
be
Inventory
Subject to Annual Amortization
Patents
Over/
under
Lif
e
P70,000
90,000
10
P160,000
Annual
Amount
P
70,000
Current
Year(20x5)
__9,000
P
79,000
___9,000
P 70,000
P 79,000
20x6
20x7
P
-
P
-
___9,000
P
9,000
___9,000
P
9,000,
Balance
Dec.
Amortization
20x5
70,000
9,000
79,000
20x6
20x6
9,000
9,000
72,000
72,000
1. NCI-CNI
20x5: P(7,350)
20x6: P6,450
20x5
Consolidated Net Income
Net income from own/separate operations
Large Company
20x5 [P28,000 P0)]
20x6
P
28,000
30,00
0
P
58,000
Total
Less: Non-controlling Interest in Net Income*
Amortization of allocated excess
Goodwill impairment
P(57,75
0)
52,00
0
P( 5,75
0)
P(7,350)
79,000
_____
0
71,65
0
P 6,450
9,000
_____0
P(13,6
50)
( 7,35
0)
P(21,00
0)
20x5
P 30,000
( 79,000)
P(49,000)
15%
P( 7,350)
_______P( 7,350)
15,45
0
P(21,2
00)
6,45
0
P(14,75
0)
20x6
P 52,000
( 9,000)
P 43,000
15%
P 6,450
___
_P
6,450
*this procedure would be not be applicable where the NCI on goodwill impairment loss would
not be proportionate to NCI acquired.
20x5
28,000
20x6
(45,000)
0
28,000
(57,750)
(41,650)
_
36,550_
(13,650)
(21,200)
P 91,000
P 167,000
100,000
P 67,000
79,000
__ 9,000
P (21,000)
85%
P (17,850)
_____0
( 17,850)
P 73,150
15,000)
667,000
(
15%
0
160,000
739,000
110,850
110,850
Or, alternatively:
Non-controlling interest date of acquisition,12/31/20x4 (1)
P 114,000
Retained earnings Silk Dec. 31, 20x6
(100,000 + 30,000 + 52,000 15,000)
167,000
Retained earnings, 12/31/20x4 (date of acquisition) 100,000
Increase since acquisition
67,000
Less: Amortization of allocated excess (79,000 + 9,000)88,000
( 21,000)
NCIs share
15%
(
3,150)
Non-controlling interest Dec. 31, 20x6
P 110,850
5. Consolidated Patents, 12/31/20x6: P72,000
Unamortized balance of allocated excess:
Balance
Dec. 31
Amortization
31
20x4
20x5
20x6
Inventory
70,000
70,000
Patents
90,000
9,000
9,000
160,000
79,000
9,000
Or, alternatively:
Invest. account equity Dec. 31, 20x6
Cost of investment
Retained earnings Silk Dec. 31, 20x6
(100,000 + 30,000 + 52,000 15,000)
167,000
Retained earnings,12/31/20x4 (date of acquisition)100,000
Increase since acquisition
67,000
Less: Accumulated amortization (79,000 + 9,000)
88,000
- 21,000
85%
Invest. account equity method as at Dec. 31, 20x6
Implied value of 100% (628,150 / 85%)
Silk Common shares
Retained earnings
Balance unamortized allocated excess Patents
500,000
167,000
Balance
Dec.
20x6
72,000
72,000
628,150
646,000
- 17,850
628,150
739,000
667,000
72,000
Problem IV
1.
(Full or partial-goodwill) the same answer.
Consideration transferred by MM .................... P664,000
Noncontrolling interest fair value..................... 166,000*
Fair value of Subsidiary
P830,000
Less: Book value of SHE S...
(600,000)
Positive excess ...............................................
230,000
Annual Excess
Life
Amortizations
Excess fair value assigned to buildings
80,000 20 years
P4,000
Goodwill - full
P150,000 indefinite
-0Total...........................................................
P4,000
2.
3.
Full-goodwill
Common Stock - TT ....................................................
Additional Paid-in Capital - TT .....................................
Retained Earnings - TT.................................................
Investment in TT Company (80%) .........................
Non-controlling interest (20%) ..............................
Buildings .....................................................................
Goodwill ......................................................................
Investment in TT Company (80%) .........................
Non-controlling interest (P166,000 P120,000)....
Partial-goodwill
Common Stock - TT ....................................................
Additional Paid-in Capital - TT .....................................
Retained Earnings - TT.................................................
Investment in TT Company (80%) .........................
Non-controlling interest (20%) ..............................
Buildings .....................................................................
Goodwill ......................................................................
Investment in TT Company (80%) .........................
Non-controlling interest (20% x P80,000) .............
4.
5.
300,000
90,000
210,000
480,000
120,000
80,000
150,000
184,000
46,000
300,000
90,000
210,000
80,000
120,000
480,000
120,000
184,000
16,000
P
P664,000
6.
Using the acquisition method, the allocation will be the total difference (P80,000)
between the buildings' book value and fair value. Based on a 20 year life, annual excess
amortization is P4,000.
MM book valuebuildings ..........................................
P
800,000
TT book valuebuildings ............................................
300,000
Allocation ...................................................................
80,000
Excess Amortizations for 20x420x5 (P4,000 2) .
(
8,000)
Consolidated buildings account
P 1,172,000
7.
150,000
120,000
8. The common stock and additional paid-in capital figures to be reported are the parent
balances only.
Common stock, P500,000
Additional paid-in capital, P280,000
Problem V
1.
Partial Goodwill or Proportionate Basis
a.
Investment in S
225,000
Beginning Retained Earnings-Palm Inc.
225,000
To establish reciprocity/convert to equity (0.90 x(P1,250,000 P1,000,000))
b.
c.
Common stock S
Retained earnings S
Investment in S Co
NCI (P4,250,000 x 10%)
Land
Investment in S
NCI [(P500,000 x 10%) (P100,000 x 10%)]
Retained earnings P (bargain purchase gain
closed to retained earnings since only balance
sheets are being examined, P300,000 P90,000
depreciation, 20x4)
3,000,000
1,250.000
3,825,000
425,000
400,000
FV of SHE of S:
Common stock, 1/1/20x5
P3,000,000
Retained earnings, 1/1/20x5
Retained earnings, 1/1/20x4
P1,000,000
NI Subsidiary (20x4)
250,000
Dividends Subsidiary 20x4
(
0) 1,250,000
Book value of SHE S, 1/1/20x5
P4,250,000
Adjustments to reflect fair value
500,000
Amortization of allocated excess (P100,000 x 1)
( 100,000)
FV of SHE of S
P4,650,000
Multiplied by: NCI%
10%
FV of NCI
P 465,000
Computation of Gain:
Partial Goodwill or Proportionate Basis
Fair value of Subsidiary:
150,000
40,000
210,000
Consideration transferred
Less: BV of SHE of S (P3,000,000 + P1,000,000) x 90%
Allocated excess
Less: Over/under valuation of A and L: Inc. (Dec.)
Inventory (P800,000 P700,000) x 90%
Land (P2,000,000 P1,600,000) x 90%
Gain partial (attributable to parent)
P3,750,000
_3,600,000
P 150,000
P 90,000
360,000
__450,000
(P300,000)
c.
Common stock S
Retained earnings S
Investment in S
NCI (P4,250,000 x 10%)
Land
Investment in S
NCI [(P500,000 x 10%) (P100,000 x 10%)]
Retained earnings P (bargain purchase gain
closed to retained earnings since only balance
sheets are being examined, P300,000 P90,000
depreciation, 20x4)
3,000,000
1,250.000
3,825,000
425,000
400,000
150,000
40,000
FV of SHE of S:
Common stock, 1/1/20x5
P3,000,000
Retained earnings, 1/1/20x5
Retained earnings, 1/1/20x4
P1,000,000
NI Subsidiary (20x4)
250,000
Dividends Subsidiary 20x4
(
0) 1,250,000
Book value of SHE S, 1/1/20x5
P4,250,000
Adjustments to reflect fair value
500,000
Amortization of allocated excess (P100,000 x 1)
( 100,000)
FV of SHE of S
P4,650,000
Multiplied by: NCI%
10%
FV of NCI
P 465,000
P4,166,66
7
4,000,000
210,000
P
166,667
P 100,000
400,000
__500,000
(P333,333
Note: In case of gain, the working paper eliminating entries under partial and fullgoodwill approach are the same.
2.
Consolidated Retained Earnings, December 31, 20x5
Retained earnings - Parent Company, December 31, 20x5 (cost model
P2,000,000
P1,550,000
1,000,00
0
P 550,000
100,000
P 450,000
90%
P405,000
300,000
_______0
Problem VI
Computation of Goodwill:
Partial Goodwill
Fair value of Subsidiary:
Consideration transferred
P2,800,00
0
_1,200,00
0
P1,600,00
0
__720,000
P
880,000
Full-goodwill:
Fair value of Subsidiary:
Consideration transferred P2,800,000 / 80%
P3,500,0
00
1,500,00
0
P2,000,0
00
__900,00
0
P1,100,00
0
1.
__705,,000
P
4,705,000
1,000,000
500,000
900,000
Goodwill
Investment in S Co.
Non-controlling Interest
b. Depreciation Expense
Property and Equipment (net)
1,100,000
2,800,000
700,000
P 500,000
1,000,000
P1,500,000
900,000
P2,400,000
20%
P 480,000
220,000
P 700,000
90,000
90,000
20x5
a. Investment in S Company (P300,000 x 0.80)
240,000
Beginning Retained Earnings-P Co.
To establish reciprocity/convert to equity as of 1/1/20x5
b. Beginning Retained Earnings-S Company
1,300,000
Capital Stock-S Company
500,000
Property and Equipment (net)
900,000
Goodwill
1,100,000
Investment in S Company (P2,800,000 + P240,000)
Non-controlling Interest P700,000 +
[(P1,300,000 P1,000,000) x 0.20]
240,000
3,040,000
760,000
FV of SHE of S:
Common stock, 1/1/20x5
P 500,000
Retained earnings, 1/1/20x5
Retained earnings, 1/1/20x4
P1,000,000
NI Subsidiary (20x4)
300,000
Dividends Subsidiary 20x4
(
0) 1,300,000
Book value of SHE S, 1/1/20x5
P1,800,000
Adjustments to reflect fair value
900,000
FV of SHE of S1/1/x5
P2,700,000
Multiplied by: NCI%
20%
FV of NCI (partial)
P 540,000
Add: NCI on full-goodwill (P1,100,000 P880,000)
220,000
FV of NCI (full)
P 760,000
72,000
18,000
90,000
180,000
90,000)
P2,610,000
20%
P 522,000
220,000
P 742,000
1,000,000
500,000
900,000
880,000
b. Depreciation Expense
Property and Equipment (net)
2,800,000
480,000
90,000
20x5
a. Investment in S Company (P300,000 x 0.80)
240,000
Beginning Retained Earnings-P Co.
To establish reciprocity/convert to equity as of 1/1/20x5
90,000
240,000
P 500,000
P1,000,000
300,000
(
0) 1,300,000
P1,800,000
900,000
P2,700,000
20%
P 540,000
72,000
18,000
90,000
180,000
90,000)
P2,610,000
20%
522,000
P400,000
300,000
P700,000
P 42,000
90,000
____0
132,00
0
P568,000
42,000
P610,000
P 300,000
( 90,000)
P210,000
20
%
P 42,000
20x5
Consolidated Net Income for 20x5
Net income from own/separate operations
P Company
S Company
Total
Less: Non-controlling Interest in Net Income*
Amortization of allocated excess
Goodwill impairment
P425,000
400,000
P825,000
P 62,000
90,000
____0
P673,000
62,000
P735,000
P 400,000
( 90,000)
P310,000
20
%
P 62,000
Problem VII
1. Common stock of TT Company
on December 31, 20x4
Retained earnings of TT Company
January 1, 20x4
Sales for 20x4
152,00
0
P 90,000
P 130,000
195,000
2.
Less: Expenses
Dividends paid
Retained earnings of TT Company
on December 31, 20x4
Net book value on December 31, 20x4
Proportion of stock acquired by QQ
Purchase price
Net book value on December 31, 20x4
Proportion of stock held by
noncontrolling interest
Balance assigned to noncontrolling interest
(160,000)
(15,000)
150,000
P240,000
x
.80
P192,000
P240,000
x
.20
P 48,000
3. Consolidated net income is P143,000. None of the 20x4 net income of TT Company was
earned after the date of purchase and, therefore, none can be included in consolidated
net income.
4. Consolidate net income would be P178,000 [P143,000 + (P195,000 - P160,000)].
Problem VIII
Requirements 1 to 4:
Date of Acquisition January 1, 20x4
Fair value of Subsidiary (100%)
Consideration transferred:
Cash
Notes payable
Less: Book value of stockholders equity of S:
Common stock (P200,000 x 100%)
.
Retained earnings (P100,000 x 100%)...
Allocated excess (excess of cost over book value)
..
Less: Over/under valuation of assets and liabilities:
Increase in inventory (P5,000 x 100%)
P 360,000
105,000
P 465,000
P 240,000
120,000
360,000
P 105,000
6,000
7,200
96,000
( 24,000)
4,800
90,000
P 15,000
P 24,000
48,000
84,000
168,000
(120,000)
S Co.
Fair value
P
30,000
55,200
180,000
144,000
( 115,200)
(Over) Under
Valuation
P
6,000
7,200
96,000
(24,000)
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:
Equipment ..................
Less: Accumulated
depreciation..
Net book
value...
Buildings................
Less: Accumulated
depreciation..
Net book
value...
S Co.
Book value
180,000
S Co.
Fair value
180,000
Increase
(Decrease)
0
96,000
( 96,000)
84,000
180,000
S Co.
Book value
360,000
S Co.
Fair value
144,000
(Decrease)
( 216,000)
192,000
( 192,000)
168,000
144,000
96,000
24,000)
Adjustments
to
be
Inventory
Subject to Annual Amortization
Equipment (net).........
Buildings (net)
Bonds payable
Over/
under
P
6,000
Lif
e
Current
Year(20x4)
Annual
Amount
P
6,000
P 6,000
P
-
96,000
(24,00
0)
4,80
0
12,000
12,000
12,000
( 6,000)
1,20
0
P
13,200
( 6,000)
1,200
(6,000)
1,20
0
P 13,200
P 7,200
20x5
January 1, 20x4:
(1) Investment in S Company
Cash.
.
Notes payable
Acquisition of S Company.
465,000
360,000
105,000
(2) Cash
Dividend income (P36,000 x 100%).
36,000
36,000
On the books of S Company, the P36,000 dividend paid was recorded as follows:
Dividends paid
Cash.
36,000
36,000
240,000
120,000
360,000
(E2)
Inventory.
Accumulated depreciation equipment..
Accumulated depreciation buildings..
Land
.
Discount
on
bonds
payable.
Goodwill.
Buildings..
Investment in S Co.
6,000
96,000
192,000
7,200
4,800
15,000
216,000
105,000
Cost of
Goods Sold
Inventory
sold
Equipment
Buildings
Depreciation/
Amortization
Expense
P 6,000
P12,000
( 6,000)
Amortizatio
n
-Interest
6,000
6,000
6,000
1,200
3,600
6,000
12,000
1,200
3,600
Bonds
payable
Totals
_______
_______
P 1,200
P 6,000
P 6,000
P1,200
36,000
36,000
Sales
Income Statement
P Co
P480,000
S Co.
P240,000
Dividend income
Total Revenue
36,000
P516,000
P240,000
P204,000
P138,000
60,000
24,000
48,000
P312,000
P204,000
P360,000
S Company
Net income, from above
Total
Dividends paid
P Company
S Company
Retained earnings, 12/31 to Balance
Sheet
204,000
P564,000
Dr.
Cr.
(4)
36,000
Consolidated
P 720,000
_________
P 720,000
P 348,000
(3)
6,000
(3)
6,000
(3)
1,200
(3)
3,600
90,000
1,200
3,600
18,000
P180,000
P 60,000
66,000
P508,800
P211,200
P 360,000
P120,000
60,000
P180,000
(1)
120,000
211,200
P571,200
72,000
72,000
36,000
P492,000
P144,000
P
147,000
P 90,000
(4)
36,000
________
P 499,200
Balance Sheet
Cash.
237,000
Accounts receivable..
90,000
60,000
Inventory.
120,000
90,000
Land.
Equipment
Buildings
210,000
240,000
720,000
48,000
180,000
540,000
Goodwill
Investment in S Co
Accumulated depreciation
equipment
465,000
P1,992,000
P1,008,0
00
P 135,000
P 96,000
Accumulated depreciation
buildings
Accounts payable
Bonds payable
Common stock, P10 par
Common stock, P10 par
Retained earnings, from above
Total
405,000
120,000
240,000
600,000
___590,400
P1,992,00
0
(3)
6,000
210,000
(2) 216,000
(2)
4,800
(2)
15,000
Total
150,000
(2)
6,000
(2)
7,200
(3)
1,200
3,600
(3)
3,600
(1) 360,000
(2) 105,00
0
11,400
P2,341,200
(2)
(3)
96,000
12,000
(2)
192,000
288,000 (3)
6,000
120,000
120,000
240,000
144,000
P1,008,0
00
265,200
420,000
1,044,000
P 147,000
495,000
240,000
360,000
600,000
(1)
240,000
499,200
P
736,200
P
736,200
P2,341,200
Only a single entry is recorded by the parent in 20x5 in relation to its subsidiary investment:
January 1, 20x5 December 31, 20x5:
Cash
Dividend income (P48,000 x 100%).
48,000
48,000
On the books of S Company, the P40,000 dividend paid was recorded as follows:
Dividends paid
Cash
48,000
48,000
24,000
24,000
the
year, 1/1/20x5.
P144,000
120,000
P 24,000
100%
P 24,000
240,000
144,000
384,000
(E3)
Inventory.
Accumulated depreciation equipment..
Accumulated depreciation buildings..
Land
.
Discount
on
bonds
payable.
Goodwill.
Buildings..
Investment in S Co.
20x5.
6,000
96,000
192,000
7,200
4,800
15,000
216,000
105,000
16,800
6,000
12,000
1,200
6,000
24,000
2,400
3,600
amortization on
differences between acquisition date fair value and book value
of
Ss identifiable assets and liabilities as follows:
Year 20x4 amounts are debited to Ps retained earnings
Year 20x5 amounts are debited to respective nominal
accounts..
Inventory sold
Equipment
Buildings
Bonds payable
Impairment loss
Totals
(20x4)
Retaine
d
earnings
,
P
6,000
12,000
(6,000)
1,200
3,60
0
P
16,800
Depreciation/
Amortization
expense
Amortizatio
n
-Interest
12,000
( 6,000)
P 1,200
P 6,000
P1,200
48,000
48,000
(E6)
Non-controlling
interest
in
Subsidiary
Non-controlling interest ..
Net
Income
of
16,560
Non-controlling
16,560
interest
P 90,000
(
7,200)
P 82,000
20
%
P 16,560
Income Statement
P Co.
P540,000
S Co.
P360,000
Dividend income
Total Revenue
Cost of goods sold
48,000
P588,000
P216,000
P360,000
P192,000
60,000
24,000
Interest expense
Other expenses
Goodwill impairment loss
Total Cost and Expenses
72,000
P348,000
P240,000
54,000
P270,000
P
90,000
Depreciation expense
Dr.
Cr.
(5)
48,000
Consolidated
P 900,000
___________
P
P
(4)
6,000
(4)
1,200
900,000
408,000
90,000
1,200
P
P
126,000
625,200
274,800
P492,000
240,000
P732,000
P144,000
90,000
P234,000
(4)
16,800
(2)
144,000
(1)
24,000
499,200
274,800
P 774,000
72,000
72,000
(5)
48,000
48,000
________
P660,000
P186,000
P 702,000
Cash.
Accounts receivable..
P
189,000
180,000
P
102,000
960,000
P 291,000
276,000
Inventory.
216,000
108,000
Land.
Equipment
252,000
240,000
48,000
180,000
Buildings
720,000
540,000
Balance Sheet
(3)
4,800
(3)
15,000
Total
Accumulated depreciation
equipment
Accumulated depreciation
(3)
6,000
(3)
7,200
465,000
(1)
24,000
P2,220,000
P1,074,0
00
P 150,000
450,000
P
102,000
306,000
(4)
6,000
324,000
265,200
420,000
(3)
216,000
(4)
2,400
(4)
3,600
(2)
384,000
(3) 105,00
0
1,044,000
2,400
11,400
P2,634,000
(3)
96,000
(3)
(4)
24,000
P 180,000
552,000
buildings
Accounts payable
Bonds payable
Common stock, P10 par
Common stock, P10 par
Retained earnings, from above
Total
192,000
(4)
12,000
120,000
240,000
600,000
660,000
P2,220,000
120,000
120,000
240,000
186,000
P1,074,0
00
240,000
360,000
600,000
(2)
240,000
702,000
P
783,120
P
783,120
P2,634,000
5. 1/1/20x4
a.
P360,000
c.
Stockholders Equity
Common stock, P10 par
Retained earnings
Total Stockholders Equity (Total Equity)
P 600,000
360,000
P 960,000
6. 12/31/20x4:
a. P211,200 same with CNI since there is no NCI.
Consolidated Net Income for 20x4
Net income from own/separate operations:
Pa Company
S Company
Total
Less: Amortization of allocated excess
Goodwill impairment loss
Consolidated Net Income for 20x4
P168,000
60,000
P228,000
P 13,200
3,600
16,800
P211,200
d.
Consolidated Retained Earnings, December 31, 20x4
Retained earnings - P Company, January 1, 20x4 (date of acquisition)
Add: Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of P for 20x4 or Consolidated Net Income (CNI)*
Total
Less: Dividends paid P Company for 20x4
Consolidated Retained Earnings, December 31, 20x4
P360,000
211,200
P571,200
72,000
P499,200
*since it is a 100%-owned subsidiary, Controlling Interest in Net Income is the same with Consolidated Net
Income.
P 600,000
499,200
P
1,099,200
12/31/20x5
a. P274,800 same with CNI since there is no NCI.
Consolidated Net Income for 20x5
Net income from own/separate operations
P Company
S Company
Total
Less: Amortization of allocated excess
Goodwill impairment loss
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent or CNI
P192,000
90,000
P282,000
P 7,200
0
7,200
P274,800
d.
Consolidated Retained Earnings, December 31, 20x5
Retained earnings - P Company, January 1, 20x5 (cost model
Adjustment to convert from cost model to equity method for purposes of
consolidation or to establish reciprocity:/Ps share in adjusted net
increased in subsidiarys retained earnings:
Retained earnings S, January 1, 20x5
Less: Retained earnings S, January 1, 20x4
Increase in retained earnings since date of acquisition
Less: Amortization of allocated excess 20x4
Multiplied by: Controlling interests %...................
Consolidated Retained earnings, January 1, 20x5
Add: Controlling
Interest in Consolidated Net Income or Profit
attributable to
equity holders of P for 20x5 or CNI
Total
Less: Dividends paid P Company for 20x5
Consolidated Retained Earnings, December 31, 20x5
P492,000
P 144,000
120,000
P 24,000
16,800
P
7,200
100%
274,800
P774,000
72,000
P702,000
P 600,000
702,000
P1,302,000
Problem IX
Requirements 1 to 4:
Schedule of Determination and Allocation of Excess (Partial-goodwill)
Date of Acquisition January 1, 20x4
Fair value of Subsidiary (80%)
Consideration
transferred..
Less: Book value of stockholders equity of S:
Common stock (P240,000 x 80%)
.
Retained earnings (P120,000 x 80%)
...
Allocated excess (excess of cost over book value)
..
Less: Over/under valuation of assets and liabilities:
Increase in inventory (P6,000 x 80%)
P 372,000
P 192,000
96,000
288,000
P
84,000
P 4,800
5,760
76,800
( 19,200)
3,840
7,200
P 499,200
72,000
P 12,000
fair value)
...
P 24,000
S Co.
Fair value
P
(Over) Under
Valuation
30,000
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:
Equipment ..................
Less: Accumulated
depreciation..
Net book
value...
Buildings................
Less: Accumulated
depreciation..
Net book
value...
S Co.
Book value
S Co.
Fair value
Increase
(Decrease)
180,000
180,000
96,000
( 96,000)
84,000
S Co.
Book value
180,000
S Co.
Fair value
96,000
(Decrease)
360,000
144,000
( 216,000)
192,000
( 192,000)
168,000
144,000
24,000)
Adjustments
to
Inventory
be
Over/
Under
P
6,000
Lif
e
Current
Year(20x4)
Annual
Amount
P
6,000
P 6,000
P
-
96,000
(25,00
0)
4,80
0
12,000
12,000
12,000
( 6,000)
1,20
0
P
13,200
( 6,000)
1,200
(6,000)
1,20
0
P 13,200
P 7,200
20x5
The goodwill impairment loss of P3,125 based on 100% fair value would be allocated to the
controlling interest and the NCI based on the percentage of total goodwill each equity
interest received. For purposes of allocating the goodwill impairment loss, the full-goodwill is
computed as follows:
Fair value of Subsidiary (100%)
Consideration transferred: Cash (80%)
P 372,000
93,000
P 465,000
__360,000
105,000
90,000
P
15,000
In this case, the goodwill was proportional to the controlling interest of 80% and noncontrolling interest of 20% computed as follows:
Goodwill applicable to parent
Goodwill applicable to NCI..
Total (full) goodwill..
Value
P12,000
3,000
P15,000
% of Total
80.00%
20.00%
100.00%
Value
P 3,000
% of Total
80.00%
750
20.00%
P 3,750
100.00%
When cost model is used, only two journal entries are recorded by P Company during 20x4
related to its investment in S Company.
January 1, 20x4:
(1) Investment in S Company
Cash.
.
Acquisition of S Company.
January 1, 20x4 December 31, 20x4:
(2) Cash
Dividend income (P36,000 x 80%).
Record dividends from S Company.
372,000
372,000
28,800
28,800
On the books of S Company, the P30,000 dividend paid was recorded as follows:
Dividends paid
Cash.
Dividends paid by S Co..
36,000
36,000
240,000
120.000
288,000
72,000
(E2)
Inventory.
Accumulated depreciation equipment..
Accumulated depreciation buildings..
Land
.
Discount
on
bonds
payable.
Goodwill.
Buildings..
Non-controlling interest (P90,000 x 20%)
..
Investment in S Co.
6,000
96,000
192,000
7,200
4,800
12,000
216,000
18,000
84,000
Cost of
Goods
Sold
Depreciation/
Amortization
expense
Amortizatio
n
-Interest
Total
6,000
6,000
6,000
1,200
3,000
6,000
12,000
1,200
3,000
Inventory sold
Equipment
Buildings
Bonds payable
Totals
P
6,000
_______
P 6,000
P 12,000
( 6,000)
_______
P 6,000
P 1,200
P1,200
13,20
0
It should be observed that the goodwill computed above was proportional to the controlling
interest of 80% and non-controlling interest of 20% computed as follows:
Value
P12,000
3,000
P15,000
% of Total
80.00%
20.00%
100.00%
Therefore, the goodwill impairment loss of P3,125 based on 100% fair value or full-goodwill
would be allocated as follows:
Value
P 3,000
% of Total
80.00%
750
20.00%
P 3,750
100.00%
28,800
7,200
36,000
(E5)
Non-controlling
interest
in
Subsidiary
Non-controlling interest ..
Net
Income
of
9,360
9,360
P 60,000
interest
( 13,200)
P 46,800
20%
P 9,360
Non-controlling
Sales
Income Statement
P Co
P480,000
S Co.
P240,000
Dividend income
Total Revenue
28,800
P508,800
P240,000
P204,000
P138,000
Depreciation expense
60,000
28,000
Interest expense
Other expenses
48,000
18,000
P310,000
P196,800
P180,000
P 60,000
P196,800
P 60,000
Dr.
Cr.
(4)
28,800
Consolidated
P 720,000
_________
P 720,000
P 348,000
(3)
6,000
(3)
6,000
(3)
1,200
90,000
1,200
66,000
3,000
(3)
3,000
P508,200
P211,800
( 9,360)
(5)
9,360
P202,440
P
360,000
P360,000
196,800
P552,000
P120,000
60,000
P180,000
(1)
120,000
202,440
P562,440
72,000
72,000
36,000
P484,800
P144,000
P
232,800
90,000
120,000
P 90,000
60,000
90,000
(4)
36,000
________
P
490,440
Balance Sheet
Cash.
Accounts receivable..
Inventory.
P
(2)
(3)
322,800
150,000
210,000
Land.
Equipment
210,000
240,000
48,000
180,000
Buildings
720,000
540,000
(2)
4,800
(2)
12,000
372,000
P1,984,800
P1,008,0
00
P 135,000
P 96,000
405,000
120,000
240,000
600,000
484,800
240,000
144,000
_________
P1,984,800
______
___
P1,008,0
00
6,000
265,200
420,000
(2)
216,000
(3)
1,200
(3)
3,000
(4) 288,000
(5) 84,000
1,044,000
3,600
9,000
P2,424,600
(2)
96,000
(2)
192,000
288,000 (3)
6,000
120,000
120,000
Non-controlling interest
Total
6,000
(2)
7,200
(3)
12,000
P147,000
495,000
240,000
360,000
600,000
(1)
240,000
490,440
(1 )
72,000 (2)
(4) 7,200 18,000
(5)
__________
9,360
P
P
745,560
745,560
____92,160
P2,424,600
P Co.
P 540,000
216,000
P 324,000
60,000
72,000
P 192,000
38,400
P 230,400
P 72,000
S Co.
P 360,000
192,000
P 168,000
24,000
54,000
P 90,000
P 90,000
P 48,000
38,400
38,400
On the books of S Company, the P40,000 dividend paid was recorded as follows:
Dividends paid
Cash
Dividends paid by S Co..
48,000
48,000
19,200
19,200
P144,000
120,000
P 24,000
80%
P 19,200
240,000
144,000
307,200
76,800
(E3)
Inventory.
Accumulated depreciation equipment..
Accumulated depreciation buildings..
Land
.
Discount
on
bonds
6,000
96,000
192,000
7,200
4,800
payable.
Goodwill.
Buildings..
Non-controlling interest (P90,000 x 20%)
Investment in S Co.
20x5.
12,000
216,000
18,000
84,000
13,560
2,640
6,000
12,000
1,200
6,000
24,000
2,400
3,000
P 1,200
P 1,200
38,400
9,600
48,000
(E6)
Non-controlling
interest
in
Subsidiary
Non-controlling interest ..
Net
Income
of
16,560
16,560
Non-controlling
interest
P 90,000
(
7,200)
P 82,800
20
%
P 16,560
Sales
Income Statement
P Co
P540,000
S Co.
P360,000
Dividend income
Total Revenue
Cost of goods sold
38,400
P578,400
P216,000
P360,000
P192,000
60,000
24,000
Interest expense
Other expenses
Goodwill impairment loss
Total Cost and Expenses
72,000
P348,000
Net Income
P230,400
54,000
P270,000
P
90,000
Depreciation expense
P230,400
P
90,000
Dr.
Cr.
(5)
38,400
Consolidated
P 900,000
___________
P
P
900,000
408,000
90,000
(4)
6,000
(4)
1,200
1,200
126,000
P 625,200
P 274,800
(6)
16,560
( 16,560)
P 258,240
P484,800
230,400
P715,200
72,000
-
(4) 13,56
0
(2)
P
144,00
144,000
0
90,000
P234,000
48,000
(1) 19,200
P 490,440
258,240
P 748,680
(5)
72,000
________
48,000
Retained earnings, 12/31 to Balance
Sheet
P643,200
P186,000
P 676,680
Cash.
Accounts receivable..
P
265,200
180,000
P
114,000
96,000
P 367,200
276,000
Inventory.
216,000
108,000
Land.
Equipment
210,000
240,000
48,000
180,000
Buildings
720,000
540,000
Balance Sheet
(3)
4,800
(3)
12,000
(3)
6,000
(3)
7,200
372,000
(1)
19,200
Total
Accumulated depreciation
equipment
Accumulated depreciation
buildings
Accounts payable
Bonds payable
Common stock, P10 par
Common stock, P10 par
Retained earnings, from above
P2,203,200
P1,074,0
00
P 150,000
P
102,000
450,000
306,000
120,000
240,000
600,000
120,000
120,000
643,200
240,000
186,000
(3)
96,000
(3)
192,000
(4)
12,000
Total
P2,203,200
______
___
P1,074,0
00
324,000
265,200
420,000
(3)
216,000
(4)
2,400
(4)
3,000
(2)
307,200
(3)
84,000
1,044,000
2,400
9,000
(4)
24,000
P180,000
552,000
240,000
360,000
600,000
(2)
240,000
676,680
9,600
(4)
2,640
___
_____
6,000
P2,707,800
(5)
Non-controlling interest
(4)
__________
P
821,160
(2 )
76,800 (3)
18,000
(6)
16,560
P
821,160
____99,120
P2,707,800
5. 1/1/20x4
a.
b.
Non-controlling interest (partial-goodwill), January 1, 20x4
P360,000
P 240,000
Common stock S Company, January 1, 20x4
Retained earnings S Company, January 1, 20x4
Stockholders equity S Company, January 1, 20x4
Adjustments to reflect fair value - (over) undervaluation of assets and
liabilities, date of acquisition (January 1, 20x4)
Fair value of stockholders equity of subsidiary, January 1, 20x4
Multiplied by: Non-controlling Interest percentage...
Non-controlling interest (partial-goodwill)..
120,000
P 360,000
90,000
P450,000
20
P 90,000
c.
Consolidated SHE:
Stockholders Equity
Common stock, P10 par
Retained earnings
Ps Stockholders Equity / CI - SHE
NCI, 1/1/20x4
Consolidated SHE, 1/1/20x4
P 600,000
360,000
P 960,000
___90,000
P1,050,000
6.
Note: The goodwill recognized on consolidation purely relates to the Ps share. NCI is
measured as a proportion of identifiable assets and goodwill attributable to NCI share is
not recognized.
12/31/20x4:
a. CI-CNI
Consolidated Net Income for 20x4
Net income from own/separate operations
P Company
S Company
Total
Less: Non-controlling Interest in Net Income*
Amortization of allocated excess (refer to amortization above)
Goodwill impairment (impairment under partial-goodwill approach)
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent..
Add: Non-controlling Interest in Net Income (NCINI)
Consolidated Net Income for 20x4
P168,000
60,000
P228,000
P 9,360
13,200
3,000
P202,440
9,360
P211.800
b. NCI-CNI
*Non-controlling Interest in Net Income (NCINI) for 20x4
Net income of S Company
25,560
P 60,000
13,200
P 46,800
20%
P 9,360
P360,000
202,440
P562,440
72,000
P490,440
e.
Non-controlling interest (partial-goodwill), December 31, 20x4
P 240,000
Common stock S Company, December 31, 20x4
Retained earnings S Company, December 31, 20x4
Retained earnings S Company, January 1, 20x4
Add: Net income of S for 20x4
Total
Less: Dividends paid 20x4
Stockholders equity S Company, December 31, 20x4
Adjustments to reflect fair value - (over) undervaluation of assets and
liabilities, date of acquisition (January 1, 20x4)
Amortization of allocated excess (refer to amortization above) 20x4
Fair value of stockholders equity of subsidiary, December 31, 20x4
Multiplied by: Non-controlling Interest percentage...
Non-controlling interest (partial-goodwill)..
P120,000
60,000
P180,000
36,000
144,000
P 384,000
90,000
( 13,200)
P460,000
20
P 92,160
f.
Consolidated SHE:
Stockholders Equity
Common stock, P10 par
Retained earnings
Ps Stockholders Equity / CI SHE, 12/31/20x4
NCI, 12/31/20x4
Consolidated SHE, 12/31/20x4
P 600,000
490,440
P1,090,440
___92,160
P1,182,600
12/31/20x5:
a. CI-CNI
Consolidated Net Income for 20x5
Net income from own/separate operations:
P Company
S Company
Total
Less: Non-controlling Interest in Net Income*
Amortization of allocated excess (refer to amortization above)
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent..
Add: Non-controlling Interest in Net Income (NCINI)
Consolidated Net Income for 20x5
P192,000
90,000
P282,000
P16,560
__7,200
23,760
P258,240
16,560
P274,800
b. NCI-CNI
*Non-controlling Interest in Net Income (NCINI) for 20x5
Net income of S Company
Less: Amortization of allocated excess / goodwill impairment for 20x5
(refer to amortization table above)
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI) for 20x5
P 90,000
80,400
P 82,800
20%
P 16,560
or
P484,800
P 144,000
120,000
P 24,000
13,200
P
10,800
80%
P
8,640
3,000
5,640
P 490,440
258,240
P748,680
72,000
P676,680
*this procedure would be more appropriate, instead of multiplying the full-goodwill impairment loss of
P3,750 by 80%. There might be situations where the controlling interests on goodwill impairment loss would
not be proportionate to NCI acquired.
e.
Non-controlling interest (partial-goodwill), December 31, 20x5
P 240,000
Common stock S Company, December 31, 20x5
Retained earnings S Company, December 31, 20x5
Retained earnings S Company, January 1, 20x5
Add: Net income of S for 20x5
Total
Less: Dividends paid 20x5
Stockholders equity S Company, December 31, 20x5
Adjustments to reflect fair value - (over) undervaluation of assets and
liabilities, date of acquisition (January 1, 20x4)
Amortization of allocated excess (refer to amortization above) :
20x4
20x5
Fair value of stockholders equity of S, December 31, 20x5
Multiplied by: Non-controlling Interest percentage...
Non-controlling interest (partial goodwill)..
P14,000
90,000
P234,000
48,000
186,000
P 426,000
90,000
P
13,200
7,200
( 20,400)
P 495,600
20
P 99,120
f.
Consolidated SHE:
Stockholders Equity
Common stock, P10 par
Retained earnings
Parents Stockholders Equity / CI SHE, 12/31/20x5
NCI, 12/31/20x5
Consolidated SHE, 12/31/20x5
P 600,000
676,680
P1,276,680
___99,120
P1,1375,80
0
Problem X
Requirements 1 to 4:
Schedule of Determination and Allocation of Excess
Date of Acquisition January 1, 20x4
Fair value of Subsidiary (80%)
Consideration transferred (80%)..
Fair value of NCI (given) (20%)..
Fair value of Subsidiary (100%).
Less: Book value of stockholders equity of Son:
Common stock (P240,000 x 100%)
.
Retained earnings (P120,000 x 100%)...
Allocated excess (excess of cost over book value)
P 372,000
93,000
P 465,000
P 240,000
120,000
360,000
P 105,000
..
Less: Over/under valuation of assets and liabilities:
Increase in inventory (P6,000 x 100%)
6,000
7,200
96,000
( 24,000)
4,800
90,000
P 15,000
Adjustments
to
Inventory
Subject to Annual Amortization
Equipment (net).........
Buildings (net)
Bonds payable
be
Over/
under
P
6,000
Lif
e
Current
Year(20x4)
Annual
Amount
P
6,000
P 6,000
P
-
96,000
(24,00
0)
4,80
0
12,000
12,000
12,000
( 6,000)
1,20
0
P
13,200
( 6,000)
1,200
(6,000)
1,20
0
P 13,200
P 7,200
20x5
January 1, 20x4:
(1) Investment in S Company
Cash.
.
Acquisition of S Company.
January 1, 20x4 December 31, 20x4:
(2) Cash
Dividend income (P36,000x 80%).
Record dividends from S Company.
372,000
372,000
28,800
28,800
On the books of S Company, the P30,000 dividend paid was recorded as follows:
Dividends paid
Cash.
Dividends paid by S Co..
36,000
36,000
No entries are made on the Ps books to depreciate, amortize or write-off the portion of the
allocated excess that expires during 20x4.
240,000
120.000
288,000
72,000
(E2)
Inventory.
Accumulated depreciation equipment..
Accumulated depreciation buildings..
Land
.
Discount
on
bonds
payable.
Goodwill.
Buildings..
Non-controlling interest (P90,000 x 20%) + [(P15,000,
full
P12,000, partial goodwill)]
Investment in S Co.
6,000
96,000
192,000
7,200
4,800
13,000
216,000
21,000
84,000
6,000
6,000
6,000
1,200
3,750
6,000
12,000
1,200
3,750
Cost of Goods
Sold
Inventory sold
Equipment
Buildings
Bonds payable
Depreciation/ Amortization
Expense
Amortizatio
n
-Interest
P 6,000
_______
P12,000
( 6,000)
_______
P 1,200
Totals
P 6,000
P 6,000
P1,200
28,800
7,200
36,000
(E5)
Non-controlling
interest
in
Subsidiary
Non-controlling interest ..
Net
Income
of
8,610
8,610
by:
Non-controlling
P 60,000
( 13,200)
P 46,800
20%
interest
P
Less: Non-controlling interest on impairment
loss on full-goodwill (P3,125 x 20%) or
(P3,125 impairment on full-goodwill
less
P2,500,
impairment on partialgoodwill)*
Non-controlling
Interest in Net Income
(NCINI)
9,360
750
P
8,610
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.
Income Statement
P Co
P480,000
S Co.
P240,000
Dividend income
Total Revenue
Cost of goods sold
28,800
P508,800
P204,000
P240,000
P138,000
Dr.
(4)
28,800
(3)
Cr.
Consolidated
P 720,000
_________
P 720,000
P 348,000
Depreciation expense
60,000
24,000
Interest expense
Other expenses
48,000
18,000
P312,000
P196,800
P180,000
P 60,000
P196,800
P 60,000
6,000
(3)
6,000
(3)
1,200
90,000
1,200
66,000
3,750
(3)
3,750
P508,950
P211,050
( 8,610)
(5)
8,610
P202,680
P
360,000
P360,000
196,800
P556,800
P120,000
60,000
P180,000
(1)
120,000
202,680
P562,440
72,000
86,400
36,000
P484,800
P144,000
Cash.
Accounts receivable..
P
232,800
90,000
P 90,000
60,000
Inventory.
120,000
90,000
Land.
Equipment
210,000
240,000
48,000
180,000
Buildings
720,000
540,000
(4)
36,000
________
P
490,440
Balance Sheet
Total
Accumulated depreciation
equipment
Accumulated depreciation
buildings
Accounts payable
Bonds payable
Common stock, P10 par
Common stock, P10 par
Retained earnings, from above
(2)
6,000
(2)
7,200
(2)
4,800
(2)
15,000
372,000
P1,984,800
P1,008,0
00
P 135,000
P 96,000
405,000
120,000
240,000
600,000
484,800
Non-controlling interest
_________
______
___
210,000
265,200
420,000
(2)
216,000
(3)
1,200
(3)
3,750
(3) 288,000
(4) 84,000
1,044,000
3,600
11,250
P2,426,850
(2)
96,000
(5)
192,000
288,000 (6)
6,000
120,000
120,000
240,000
144,000
(3)
6,000
322,800
150,000
(3)
12,000
P147,000
495,000
240,000
360,000
600,000
(1)
240,000
490,440
(1 )
72,000 (2)
(7) 7,200 21,000
(5)
__________
8,610
____94,410
Total
P1,984,800
P1,984,8
00
P
748,560
P
748,560
P2,426,850
Sales
Less: Cost of goods sold
Gross profit
Less: Depreciation expense
Other expense
Net income from its own separate operations
Add: Dividend income
Net income
Dividends paid
S Co.
P 360,000
192,000
P 168,000
24,000
54,000
P 90,000
P 90,000
P 48,000
38,400
38,400
On the books of S Company, the P40,000 dividend paid was recorded as follows:
Dividends paid
Cash
Dividends paid by S Co..
48,000
48,000
P144,000
120,000
P 24,000
80%
P 19,200
19,200
19,200
240,000
144,000
307,200
76,800
(E3)
Inventory.
Accumulated depreciation equipment..
Accumulated depreciation buildings..
Land
.
Discount
on
bonds
payable.
Goodwill.
Buildings..
Non-controlling interest (P90,000 x 20%) + [(P15,000,
full
P12,000, partial goodwill)]
Investment in S Co.
20x5.
6,000
96,000
192,000
7,200
4,800
15,000
216,000
21,000
84,000
Inventory sold
Equipment
Buildings
(20x4)
Retaine
d
earnings
,
P
6,000
12,000
(6,000)
Depreciation/
Amortization
expense
12,000
( 6,000)
Amortizatio
n
-Interest
13,560
3,390
6,000
12,000
1,200
6,000
24,000
2,400
3,750
Bonds payable
Impairment loss
1,200
3,75
0
P
16,950
80
%
P13,560
Totals
Multiplied by: CI%....
To Retained earnings
P 1,200
P 6,000
P1,200
38,400
9,600
48,000
(E6)
Non-controlling
interest
in
Subsidiary
Non-controlling interest ..
Net
Income
of
16,560
16,560
by:
Non-controlling
interest
P 90,000
(
7,200)
P 82,800
20
%
P 16,560
Goodwill
Non-controlling
(NCINI)
0
Interest in Net Income
P 16,560
Income Statement
P Co
P540,000
S Co.
P360,000
38,400
P578,400
P216,000
P360,000
P192,000
Depreciation expense
60,000
24,000
Interest expense
Other expenses
72,000
54,000
Sales
Dividend income
Total Revenue
Cost of goods sold
Dr.
(5)
38,400
Cr.
Consolidated
P 900,000
___________
P
P
(4)
6,000
(4)
1,200
900,000
408,000
90,000
1,200
126,000
P348,000
Net Income
P230,400
P230,400
P270,000
P
90,000
P
90,000
P 625,200
P 274,800
(6)
16,560
( 16,560)
P 258,240
P484,800
230,400
P715,200
(5) 13,56
0
(6)
P
144,00
144,000
0
90,000
P234,000
(5) 19,200
P 490,440
258,240
P 748,680
72,000
72,000
(5)
57,600
48,000
________
P643,200
P186,000
P 676,680
Cash.
Accounts receivable..
P
265,200
180,000
P
102,000
96,000
P 367,200
276,000
Inventory.
216,000
108,000
Land.
Equipment
210,000
240,000
48,000
180,000
Buildings
720,000
540,000
Balance Sheet
(3)
4,800
(3)
15,000
(1)
19,200
Total
Accumulated depreciation
equipment
Accumulated depreciation
buildings
Accounts payable
Bonds payable
Common stock, P10 par
Common stock, P10 par
Retained earnings, from above
372,000
P2,203,200
P1,074,0
00
P 150,000
P
102,000
450,000
306,000
120,000
240,000
600,000
120,000
120,000
643,200
240,000
186,000
(4)
6,000
324,000
265,200
420,000
(3)
216,000
(4)
2,400
(4)
3,750
(2)
307,200
(7) 84,000
1,044,000
2,400
11,250
P2,710,050
(3)
96,000
(3)
192,000
(4)
12,000
(4)
24,000
P180,000
552,000
240,000
360,000
600,000
(2)
240,000
676,680
(6)
Non-controlling interest
___
_____
Total
(3)
6,000
(3)
7,200
P2,203,200
______
___
P1,074,0
00
(2 )
9,600
76,800 (3)
(8)
3,390 21,000
(6)
__________
16,560
P
P
824,910
824,910
____101,370
P2,710,050
5. 1/1/20x4
a. On date of acquisition the retained earnings of parent should always be considered as
the consolidated retained earnings, thus:
P360,000
b.
Non-controlling interest (full-goodwill), January 1, 20x4
P 240,000
Common stock S Company, January 1, 20x4
Retained earnings S Company, January 1, 20x4
Stockholders equity S Company, January 1, 20x4
Adjustments to reflect fair value - (over) undervaluation of assets and
liabilities, date of acquisition (January 1, 20x4)
Fair value of stockholders equity of S, January 1, 20x4
Multiplied by: Non-controlling Interest percentage...
Non-controlling interest (partial-goodwill)..
Add: NCI on full-goodwill (P15,000 P12,000)
Non-controlling interest (partial-goodwill)..
120,000
P 360,000
90,000
P450,000
20
P 90,000
___3,000
P 93,000
c.
Consolidated SHE:
Stockholders Equity
Common stock, P10 par
Retained earnings
Parents Stockholders Equity / CI - SHE
NCI, 1/1/20x4
Consolidated SHE, 1/1/20x4
P 600,000
360,000
P 960,000
___93,000
P1,053,000
6.
Note: The goodwill recognized on consolidation purely relates to the parents share. NCI is
measured as a proportion of identifiable assets and goodwill attributable to NCI share is
not recognized.
12/31/20x4:
a. CI-CNI P202,440
Consolidated Net Income for 20x4
Net income from own/separate operations:
P Company
S Company
Total
Less: Non-controlling Interest in Net Income*
Amortization of allocated excess (refer to amortization above)
Goodwill impairment (impairment under full-goodwill approach)
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of P..
Add: Non-controlling Interest in Net Income (NCINI)
Consolidated Net Income for 20x4
P168,000
60,000
P228,000
P 8,610
13,200
3,750
25,560
P202,440
8,610
P211.050
b. NCI-CNI P8,610
*Non-controlling Interest in Net Income (NCINI) for 20x4
Net income of S Company
Less: Amortization of allocated excess (refer to amortization table above)
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI)
Less: Non-controlling interest on impairment loss on full-goodwill (P3,750
x 20%)
or (P3,750 impairment on full-goodwill less P3,000, impairment on
partial-goodwill)*
Non-controlling Interest in Net Income (NCINI)
P 60,000
13,200
P 46,800
20%
P
9,360
750
P 8,610
*this procedure would be more appropriate, instead of multiplying the full-goodwill impairment
loss of P3,750 by 20%. There might be situations where the NCI on goodwill impairment loss
would not be proportionate to NCI acquired.
e.
P360,000
202,440
P562,440
72,000
P490,440
P120,000
60,000
P180,000
36,000
144,000
P 384,000
90,000
( 13,200)
P460,800
20
P 92,160
2,250
P 94,410
f.
Consolidated SHE:
Stockholders Equity
Common stock, P10 par
Retained earnings
Ps Stockholders Equity / CI SHE, 12/31/20x4
NCI, 12/31/20x4
Consolidated SHE, 12/31/20x4
P 600,000
490,440
P1,090,440
___94,410
P1,184,850
12/31/20x5:
a. CI-CNI P258,240
Consolidated Net Income for 20x5
Net income from own/separate operations
P Company
S Company
Total
Less: Non-controlling Interest in Net Income*
Amortization of allocated excess (refer to amortization above)
Goodwill impairment (impairment under full-goodwill approach)
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent..
Add: Non-controlling Interest in Net Income (NCINI)
Consolidated Net Income for 20x5
P192,000
90,000
P282,000
P16,560
7,200
0
P258,240
16,560
P274,800
b. NCI-CNI P16,560
*Non-controlling Interest in Net Income (NCINI) for 20x5
Net income of S Company
Less: Amortization of allocated excess / goodwill impairment for 20x5
23,760
P 90,000
80,400
P 82,800
20%
P 16,560
or
P484,800
P 144,000
120,000
P 24,000
13,200
P
10,800
80%
P
8,640
3,000
5,640
P 490,440
258,240
P748,680
72,000
P676,680
*this procedure would be more appropriate, instead of multiplying the full-goodwill impairment loss of
P3,750 by 80%. There might be situations where the controlling interests on goodwill impairment loss would
not be proportionate to NCI acquired.
e.
Non-controlling interest (partial-goodwill), December 31, 20x5
P 240,000
Common stock S Company, December 31, 20x5
Retained earnings S Company, December 31, 20x5
Retained earnings S Company, January 1, 20x5
Add: Net income of S for 20x5
Total
Less: Dividends paid 20x5
Stockholders equity S Company, December 31, 20x5
Adjustments to reflect fair value - (over) undervaluation of assets and
liabilities, date of acquisition (January 1, 20x4)
Amortization of allocated excess (refer to amortization above) :
P144,000
90,000
P234,000
48,000
186,000
P 426,000
90,000
20x4
20x5
Fair value of stockholders equity of S, December 31, 20x5
Multiplied by: Non-controlling Interest percentage...
Non-controlling interest (partial goodwill)..
Add: Non-controlling interest on full goodwill , net of impairment loss
[(P15,000 full P12,000, partial = P3,000) P750 impairment loss
Non-controlling interest (full-goodwill)..
P
13,200
7,200
( 20,400)
P 495,600
20
P 99,120
2,250
P 101,370
f.
Consolidated SHE:
Stockholders Equity
Common stock, P10 par
Retained earnings
Ps Stockholders Equity / CI SHE, 12/31/20x4
NCI, 12/31/20x4
Consolidated SHE, 12/31/20x4
P 600,000
676,680
P1,276,680
__101,370
P1,378,050
Problem XI
Under the acquisition method, the shares issued by WW are recorded at fair value:
Investment in BB (value of debt and shares issued)...................
Common Stock (par value)....................................................
Additional Paid-in Capital (excess over par value).................
Liabilities...............................................................................
900,000
150,000
450,000
300,000
The payment to the broker is accounted for as an expense. The stock issue cost is a
reduction in additional paid-in capital.
Acquisition expense....................................................................
Additional Paid-in Capital............................................................
Cash ..................................................................................
30,000
40,000
70,000
P900,000
770,000
P130,000
100,000
(20,000)
P 50,000
P210,000
800,000
500,000
1,180,000
50,000
1,210,000
35,000
465,000
2.
12/31/x4 Loss from increase in contingent performance
obligation
Contingent performance obligation
5,000
10,000
5,000
10,000
50,000
50,000
30,000
30,000
200,000
180,000
380,000
Royalty agreements
Goodwill
Investment in WP
90,000
60,000
Dividend income
Dividends paid
35,000
Amortization expense
Royalty agreements
10,000
150,000
35,000
10,000
Life
510,000
680,000
6 yrs.
indefinite
_____-0P20,000
1. Consolidated copyrights
PP (book value) .....................................................
P900,000
SS (book value) .....................................................
400,000
Allocation (above) .................................................
120,000
Excess amortizations, 20x4 ..................................
(20,000)
Total ................................................................ P1,400,000
2. Consolidated net income, 20X4
Revenues (add book values) .................................
Expenses:
Add book values ..............................................
Excess amortizations .......................................
Consolidated net income.......................................
P1,100,000
P700,000
20,000
720,000
P380,000
P80,000
Problem XIV
Consolidated balances three years after the date of acquisition. Includes questions about
parent's method of recording investment for internal reporting purposes.)
1. Acquisition-Date Fair Value Allocation and Amortization:
Consideration transferred 1/1/09 ..................... P600,000
Book value (given) .......................................... (470,000)
Annual
Fair value in excess of book value ............. 130,000
Excess
Allocation to equipment based on
Life Amortizations
difference in fair value and
book value .................................................
90,000 10 yrs.
P9,000
Goodwill .......................................................... P40,000 indefinite
-0Total ...........................................................
P9,000
Consolidated Balances
Depreciation expense = P659,000 (book values plus P9,000 excess
depreciation)
Dividends Paid = P120,000 (parent balance only. Subsidiary's dividends are
eliminated as intercompany transfer)
Revenues = P1,400,000 (add book values)
Equipment = P1,563,000 (add book values plus P90,000 allocation less three
years of excess depreciation [P27,000])
Buildings = P1,200,000 (add book values)
Goodwill = P40,000 (original residual allocation)
QQ
Operating income
P 90,000
Income from subsidiary
24,500
Net income
P114,500
2. Consolidated net income is P125,000 (P90,000 + P35,000).
3. Retained earnings reported at December 31, 20x4:
QQ
Retained earnings, January 1, 20x4
P290,000
Net income for 20x4
114,500
Dividends paid in 20x4
(30,000)
Retained earnings, December 31, 20x4
P374,500
NN
P35,000
P35,000
NN
P40,000
35,000
(10,000)
P65,000
4. Consolidated retained earnings at December 31, 20x4, is equal to the P374,500 retained
earnings balance reported by QQ.
5. When the cost method is used, the parent's proportionate share of the increase in
retained earnings of the subsidiary subsequent to acquisition is not included in the
parent's retained earnings. Thus, this amount must be added to the total retained
earnings reported by the parent in arriving at consolidated retained earnings.
Problem XVI
(Several valuation and income determination questions for a business combination involving
a non-controlling interest.)
Business combinations are recorded generally at the fair value of the consideration
transferred by the acquiring firm plus the acquisition-date fair value of the non-controlling
interest.
PSs consideration transferred (P31.25 80,000 shares)............................. P2,500,000
Non-controlling interest fair value (P30.00 20,000 shares)........................
P600,000
SRs total fair value 1/1/09............................................................................ P3,100,000
1.
Each identifiable asset acquired and liability assumed in a business combination should
initially be reported at its acquisition-date fair value.
2.
In periods subsequent to acquisition, the subsidiarys assets and liabilities are reported
at their acquisition-date fair values adjusted for amortization and depreciation. Except for
certain financial items, they are not continually adjusted for changing fair values.
6. If SRs acquisition-date total fair value was P2,250,000, then a bargain purchase has
occurred.
SRs total fair value 1/1/09............................................................................ P2,250,000
Collective fair values of SRs net assets........................................................ P2,300,000
Bargain purchase..........................................................................................
P50,000
The acquisition method requires that the subsidiary assets acquired and liabilities
assumed be recognized at their acquisition date fair values regardless of the assessed fair
value. Therefore, none of SRs identifiable assets and liabilities would change as a result
of the assessed fair value. When a bargain purchase occurs, however, no goodwill is
recognized.
Problem XVII (Full-Goodwill)
A variety of consolidated balances-midyear acquisition)
Book value of RR, 1/1 (stockholders' equity accounts)
(P100,000 + P600,000 + P700,000)...........
P1,400,000
Increase in book value:
Net Income (revenues less cost of
goods sold and expenses) .........................
P120,000
Dividends ................................................
(20,000)
Change during year .........................................
P100,000
Change during first six months of year .....
50,000
Book value of RR, 7/1 (acquisition date)
P1,450,000
(Full-Goodwill)
Consideration transferred by KL (P1,330,000 +
P30,000)................................................... P1,360,000
Non-controlling interest fair value .........................
300,000
RRs fair value (given)............................................ P1,630,000
Note: The fair value of subsidiary amounting P1,630,000, indicates a fair value of NCI
amounting to P300,000 (refer to above computation), which is lower compared to the
FV of the NCI based on FV of SHE of Subsidiary (RR), computed as follows:
BV of SHE of Subsidiary (RR).......................
P1,450,000
Adjustments to reflect fair value (undervaluation)
150,000
FV of SHE of Subsidiary (RR).......................
P 1,600,000
Multiplied by: NCI%........................
20%
FV of NCI.
P 320,000
Consideration transferred by KL (P1,330,000 +
P30,000)................................................... P1,360,000
Non-controlling interest fair value ......................... ___320,000
RRs fair value (given)............................................ P1,680,000
Book value of RR, 7/1............................................ (1,450,000)
Fair value in excess of book value.......................... P 230,000
Annual Excess
Excess fair value assigned
Life
Amortizations
Trademarks ........................................................
150,000 5 years
P30,000
Goodwill (full-goodwill) ....................................... P
80,000 indefinite
-0Total
.............................................................
P30,000
It should be carefully noted, that NCI can never be less than its share of fair value of
net identifiable assets (which is P320,000). Thus, the NCI share of company value is
raised to P320,000 (replacing the P300,000 NCI computed as residual amount refer
to computation above). The rationale behind such rule is to avoid having a lower
amount of goodwill under the full-goodwill approach as compared to goodwill
computed under the partial-goodwill approach.
(Partial-Goodwill)
Consideration transferred by KL............................. P 1,360,000
Less: Book value of SHE RR (P1,450,000 x 80%)..
1,160,000
Allocated excess.
P 200,000
Less: Over/under valuation of A and L:
P150,000 x 80%..............................................
120,000
Goodwill - partial.................................................. P
80,000
Note that the goodwill under the full-goodwill and partial-goodwill approach are the
same because the FV of the NCI based on the FV of SHE of subsidiary (P320,000) is
higher compared to the imputed or the computed residual amount of NCI (P300,000).
Consolidation Totals:
Expenses, P265,000 = P200,000 KK operating expenses plus P50,000 (postacquisition subsidiary operating expenses) plus year excess amortization of
P15,000.
Dividends paid = P80,000
Sales, P1,050,000 = P800,000 KK revenues plus P250,000 (post-acquisition
subsidiary revenue, P500,000 x 1/2)
Equipment, none
Depreciation expense, none
Subsidiarys net income, P60,000 = [(P500,000 P280,000 P100,000) x 1/2]
Buildings, none
Goodwill (full), P80,000; Goodwill (partial), P80,000
Consolidated Net Income, P245,000
Sales (1)
P1,050,000
Cost of goods sold (2)
540,000
Operating expenses (3)
__265,000
Net Income
P 245,000
Non-controlling Interest in Sub. Income (4)
P
9,000
Controlling Interest in CNI
P 236,000
(1) P800,000 KK revenues plus P250,000 (post-acquisition subsidiary revenue)
(2) P400,000 KK COGS plus P140,000 (post-acquisition subsidiary COGS)
(3) P200,000 KK operating expenses plus P50,000 (post-acquisition
subsidiary operating expenses) plus year excess amortization of
P15,000
(4) 20% of post-acquisition subsidiary income less excess fair value
amortization [20% (120,000 30,000) year] = P9,000
Retained Earnings, 1/1 = P1,400,000 (the parents balance because the
subsidiary was acquired during the current year)
Trademark = P935,000 (add the two book values and the excess fair value
allocation after taking one-half year excess amortization)
Goodwill (full)= P80,000 (the original allocation)
Goodwill (partial) = P80,000 (the original allocation)
Problem XVIII (Consolidated balances after a mid-year acquisition)
Note: Investment account balance indicates the initial value method.
Consideration transferred ................................
Non-controlling interest fair value ...................
FV of SHE - subsiary ........................................
Less: Book value of DD (below)........................
Fair value in excess of book value (positive).
Excess assigned
based on fair value:
Equipment............................................
Goodwill (full)........................................
Total ...........................................................
Amortization for 9 months .........................
P526,000
300,000
P826,000
(765,000)
P 61,000
Annual Excess
Life
Amortizations
(30,000) 5 years
P(6,000)
P 91,000 indefinite
-0P(6,000)
P(4,500)
P740,000
P100,000
25,000
P765,000
(2)
(4)
P 526,000
459,000
P 67,000
( 18,000)
P 85,000
P800,000
2. Revaluation gain
1/1 equity investment in AD (book value)
25% income for 1st 6 months
Investment book value at 6/30
Fair value of investment
Gain on revaluation to fair value
P178,000
8,750
186,750
200,000
P13,250
3. Goodwill at 12/31
Fair value of AD at 6/30
Book value at 6/30 (700,000 + [70,000 2])
Excess fair value
Allocation to goodwill (no impairment)
P800,000
735,000
P65,000
P65,000
4. Non-controlling interest
5% fair value balance at 6/30
5% Income from 6/30 to 12/31
5% dividends
Non-controlling interest 12/31
P40,000
1,750
(1,000)
P40,750
Problem XX
Ps gain on sale of subsidiary stock is computed as follows:
Cash proceeds
Fair value of retained non-controlling interest equity investment (35%)
Carrying value of the non-controlling interest before deconsolidation
(15% or prior outside non-controlling interest in Subsidiary)
Less: Carrying value of Subsidiarys net assets
Gain on disposal or deconsolidation
P
720,000
420,000
120,000
P1,260,000
1,200,000
P
60,000
P 84,000
1,200,000
P
60,000
*the P720,000 is already the gross-up amount since it is the amount presented in the consolidated balance
sheet.
Because P Company continues to have the ability to control S Company, the sale of Ss
shares is treated as an equity transaction. Therefore, no gain or loss is recognized. Instead,
Palmer Companys additional paid-in capital increases by P60,000.
Problem XXII
P Companys additional paid-in capital arising sale of subsidiary shares is computed as
follows:
Cash proceeds from issuance of additional shares ..
P 210,000
Less: Carrying Value of non-controlling from issuance
of additional shares:
Non-controlling interest prior to issuance
of additional shares:
Book value of SHE before issuanceP720,000
x: Non-controlling interest.
20%* P 144,000
Non-controlling interest after issuance of
additional shares:
Book value of SHE before
issuance.P720,000
Additional issuance.. 210,000
P56,000
(3,200)
P52,800
P664,000
208,000
(36,000)
(9,600)
P826,400
2.
3.
4.
5.
P
150,000
120,000
If the parent has been applying the equity method, the stockholders' equity accounts on
its books will already represent consolidated totals. The common stock and additional
paid-in capital figures to be reported are the parent balances only.
Common stock, P500,000
Additional paid-in capital, P280,000
Problem XXIV
(Consolidated balances three years after purchase. Parent has applied the equity method.)
1. Schedule 1Acquisition-Date Fair Value Allocation and Amortization
JJs acquisition-date fair value P206,000
Book value of JJ ....................................
(140,000)
Fair value in excess of book value ........
66,000
Excess fair value assigned to specific
accounts based on individual fair values
Equipment ......................................
Buildings (overvalued) ....................
54,400
(10,000)
Life
8 yrs.
20 yrs.
Annual Excess
Amortization
P6,800
(500)
Goodwill .........................................
Total ...............................................
P21,600
indefinite
-0P6,300
Investment in JJ Company12/31/x6
JJs acquisition-date fair value.................................................
20x4 Increase in book value of subsidiary
20x4 Excess amortizations (Schedule 1) ...............................
20x5 Increase in book value of subsidiary .............................
20x5 Excess amortizations (Schedule 1) ...............................
20x6 Increase in book value of subsidiary .............................
20x6 Excess amortizations (Schedule 1) ...............................
Investment in J Company .................................................
P206,000
40,000
(6,300)
20,000
(6,300)
10,000
(6,300)
P257,100
P30,000
(6,300)
P23,700
P414,000
(272,000)
(6,300)
P135,700
4. Consolidated Equipment
Book values added together ..................................................
Allocation of purchase price ...................................................
Excess depreciation (P6,800 3) ..........................................
Consolidated equipment ..................................................
P370,000
54,400
(20,400)
P404,000
5. Consolidated Buildings.......................................................................
Book values added together ..................................................
Allocation of purchase price ...................................................
Excess depreciation (P500 3) .............................................
Consolidated buildings......................................................
6. Consolidated goodwill
Allocation of excess fair value to goodwill..............................
P288,000
(10,000)
1,500
P279,500
P21,600
P1,970,00
0
_1,440,00
0
P
530,000
P 100,000
140,000
__240,000
Goodwill partial
P 290,000
P2,467,50
0
1,800,000
P
662,500
P125,000
175,000
__300,000
P362,500
Amortization
Inventory: P125,000 x 60%
P125,000 x 40%
Equipment: P175,000 / 7 years
20x4
P 75,000
25,000
P
100,000
20x5
P 50,000
25,000
P 75,000
1.
20x4
Investment in S Company
Cash
1,970,000
1,970,000
120,000
Investment in S Company
Equity in Subsidiary Income (.80)(P750,000)
600,000
120,000
600,000
80,000
80,000
180,000
180,000
720,000
720,000
Equity in Subsidiary Income
Investment in S Company
60,000
60,000
2.
20x4
(1) Equity in Subsidiary Income ((.80)(P750,000) -P80,000) 520,000
Dividends Declared (0.80 x P150,000)
120,000
Investment in S Company
400,000
(2) Beginning Retained Earnings - S Company
Common Stock- S Company
Investment in S Company
Noncontrolling Interest
(3) Inventory (P125,000 P75,000)
Cost of Goods Sold
Equipment (net)
Goodwill
Investment in S Company
(4)
Depreciation Expense
Equipment (net)
600,000
1,200,000
1,307,500
492,500
50,000
75,000
175,000
362,500
662,500
25,000
25,000
20x5
(1) Equity in Subsidiary Income ((.80)(P900,000) - P60,000) 660,000
Dividends Declared (0.80 x P225,000)
Investment in Superstition Company
180,000
480,000
612,500
662,500
60,000
15,000
50,000
175,000
362,500
20,000
5,000
25,000
50,000
3.
Consolidated Net Income for 20x5
Net income from own/separate operations
P Company (P1,000,000 P120,000)
P
880,000
__
750,000
P1,630,00
0
S Company
Total
Less: Non-controlling Interest in Net Income*
Amortization of allocated excess
Goodwill impairment
Controlling Interest in Consolidated Net Income or Profit
attributable to equity holders of parent..
P130,000
100,000
____0
230,00
0
P1,400,00
0
130,000
P1,530,00
0
P 750,000
( 100,000)
P650,000
20
%
P 130,000
Note: Regardless on the method used in recording investments (cost model or equity
method) the manner of computing CI-CNI, NCI-CNI and CNI are exactly the same.
Problem XXVI
Requirements 1 to 4:
Schedule of Determination and Allocation of Excess (Partial-goodwill)
Date of Acquisition January 1, 20x4
Fair value of Subsidiary (80%)
Consideration
transferred..
Less: Book value of stockholders equity of S:
Common stock (P240,000 x 80%)
.
Retained earnings (P120,000 x 80%)
...
Allocated excess (excess of cost over book value)
..
Less: Over/under valuation of assets and liabilities:
Increase in inventory (P6,000 x 80%)
P 372,000
P 192,000
96,000
288,000
P
84,000
P 4,800
5,760
76,800
( 19,200)
3,840
72,000
P 12,000
P 24,000
S Co.
Fair value
P
30,000
(Over) Under
Valuation
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:
Equipment ..................
Less: Accumulated
depreciation..
Net book
value...
Buildings................
Less: Accumulated
depreciation..
Net book
value...
S Co.
Book value
S Co.
Fair value
Increase
(Decrease)
180,000
180,000
96,000
( 96,000)
84,000
S Co.
Book value
180,000
S Co.
Fair value
96,000
(Decrease)
360,000
144,000
( 216,000)
192,000
( 192,000)
168,000
144,000
24,000)
Adjustments
to
be
Inventory
Over/
Under
P
6,000
Lif
e
Current
Year(20x4)
Annual
Amount
P
6,000
P 6,000
P
-
12,000
12,000
12,000
( 6,000)
1,20
0
P
13,200
( 6,000)
1,200
(6,000)
1,20
0
P 13,200
P 7,200
20x5
96,000
(25,00
0)
4,80
0
The goodwill impairment loss of P3,125 based on 100% fair value would be allocated to the
controlling interest and the NCI based on the percentage of total goodwill each equity
interest received. For purposes of allocating the goodwill impairment loss, the full-goodwill is
computed as follows:
Fair value of Subsidiary (100%)
Consideration transferred: Cash (80%)
P 372,000
93,000
P 465,000
__360,000
105,000
90,000
P
15,000
In this case, the goodwill was proportional to the controlling interest of 80% and noncontrolling interest of 20% computed as follows:
Goodwill applicable to P
Goodwill applicable to NCI..
Total (full) goodwill..
Value
P12,000
3,000
P15,000
% of Total
80.00%
20.00%
100.00%
Value
P 3,000
% of Total
80.00%
750
20.00%
P 3,750
100.00%
January 1, 20x4:
(1) Investment in S Company
Cash.
.
372,000
372,000
Acquisition of S Company.
28,800
28,800
48,000
48,000
13,560
13,560
Thus, the investment balance and investment income in the books of P Company is as
follows:
Investment in S
Cost,
372,000
1/1/x4
28,800
80%)
Dividends S (36,000x
Investment Income
NI of S
Amortization &
Amortization &
48,000
NI of S
(60,000
80%)
impairment
13,560
48,000
impairment
(P60,000 x 80%)
13,560
Balance,
377,640
12/31/x4
34,440
Balance, 12/31/x4
240,000
120.000
288,000
72,000
(E2)
Inventory.
Accumulated depreciation equipment..
Accumulated depreciation buildings..
Land
.
Discount
on
bonds
payable.
Goodwill.
Buildings..
Non-controlling interest (P96,000 x 20%)
..
Investment in S Co.
6,000
96,000
192,000
7,200
4,800
12,000
216,000
18,000
84,000
6,000
6,000
6,000
1,200
3,000
6,000
12,000
1,200
3,000
Cost of
Goods
Sold
Inventory sold
Equipment
Buildings
Bonds payable
Totals
Depreciation/
Amortization
Expense
Amortizatio
n
-Interest
Total
P
6,000
_______
P 6,000
P 12,000
( 6,000)
_______
P 6,000
P 1,200
P1,200
13,20
0
It should be observed that the goodwill computed above was proportional to the controlling
interest of 80% and non-controlling interest of 20% computed as follows:
Value
P12,000
3,000
P15,000
% of Total
80.00%
20.00%
100.00%
Therefore, the goodwill impairment loss of P3,750 based on 100% fair value or full-goodwill
would be allocated as follows:
Value
P 3,000
% of Total
80.00%
625
20.00%
P 3,750
34,440
7,200
100.00%
36,000
5,640
under
Investment Income
NI of S
28,800
(60,000
Dividends - S
NI of S
Amortization
Amortization
impairment
13,560
(60,000
&
48,000
40
80%).
5,6
13,560
impairment
48,000
80%)
34,440
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
Cost,
372,000
of goodwill
1/1/x4
28,800
80%)
NI of Son
Dividends S (36,000x
Amortization &
(60,000
80%)
13,560
impairment
12/31/x4
288,000
84,000
48,000
Balance,
377,640
5,640
377,640
377,640
amortization purposes:
Value
P12,000
3,000
P15,000
% of Total
80.00%
20.00%
100.00%
The goodwill impairment loss of P3,750 based on 100% fair value or fullgoodwill would be allocated as follows:
Value
P 3,000
% of Total
80.00%
750
_20.00%
P 3,750
100.00%
Percentage
for
(E5)
Non-controlling
interest
in
Subsidiary
Non-controlling interest ..
Net
Income
of
9,360
9,360
interest
P 60,000
( 13,200)
P 46,800
20%
P 9,360
Non-controlling
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.
Sales
Income Statement
P Co
P480,000
S Co.
P240,000
Investment income
Total Revenue
34,440
P513,600
P240,000
P204,000
P138,000
Depreciation expense
60,000
24,000
Interest expense
Other expenses
48,000
18,000
P312,000
P202,440
P180,000
P 60,000
P202,440
P 60,000
P360,000
Dr.
(4)
34,440
(3)
6,000
(3)
6,000
(3)
1,200
(3)
3,000
(5)
9,360
Cr.
Consolidated
P 720,000
_________
P 720,000
P 348,000
90,000
1,200
66,000
3,000
P508,200
P211,800
( 9,360)
P202,440
P360,000
S Company
Net income, from above
Total
Dividends paid
P Company
S Company
Retained earnings, 12/31 to Balance
Sheet
Balance Sheet
202,440
P562,440
P120,000
60,000
P180,000
72,000
36,000
P490,440
P144,000
Cash.
Accounts receivable..
P
232,800
90,000
P 90,000
60,000
Inventory.
120,000
90,000
Land.
Equipment
210,000
240,000
48,000
180,000
Buildings
720,000
540,000
Accumulated depreciation
equipment
Accumulated depreciation
buildings
Accounts payable
Bonds payable
Common stock, P10 par
Common stock, P10 par
Retained earnings, from above
P1,990,440
P1,008,0
00
P 135,000
P 96,000
405,000
120,000
240,000
600,000
P
(2)
6,000
(2)
7,200
490,440
_________
P1,990,440
______
___
P1,008,0
00
322,800
150,000
(3)
6,000
210,000
265,200
420,000
(2)
216,000
(3)
1,200
(3)
3,000
(2)
288,000
(2)
84,000
(4)
5,640
1,044,000
3,600
9,000
P2,424,600
(2)
96,000
(8)
192,000
288,000 (9)
6,000
120,000
120,000
240,000
144,000
P490,440
377,640
Non-controlling interest
Total
(4)
36,000
(2)
4,800
(2)
12,000
Total
202,440
P562,440
72,000
-
Goodwill
Investment in S Co
(1)
120,000
(3)
12,000
P147,000
495,000
240,000
360,000
600,000
(1)
240,000
490,440
(1 )
72,000 (2)
(10) 7,200 18,000
(5)
__________
9,360
P
P
751,200
751,200
____92,160
P2,424,600
P Co.
P 540,000
216,000
P 324,000
60,000
72,000
P 192,000
S Co.
P 360,000
192,000
P 168,000
24,000
54,000
P 90,000
66,240
P 258,240
P 72,000
P 90,000
P 48,000
38,400
38,400
72,000
72,000
5,760
5,760
Thus, the investment balance and investment income in the books of P Company is as
follows:
Investment in S
Cost,
377,640
1/1/x5
38,400
80%)
NI of S
Dividends S (48,000x
Amortization
(90,000
80%)
5,760
(P7,200 x 80%)
72,000
Investment Income
Balance,
405,480
Amortization
5,760
12/31/x5
NI of S
(7,200
80%)
72,000
66,240
(90,000 x 80%)
Balance, 12/31/x4
The schedule of determination and allocation of excess presented above provides complete
guidance for the worksheet eliminating entries:
(E1) Common stock S Co
Retained earnings S Co, 1/1/x5.
Investment in S Co (P384,000 x 80%)
Non-controlling interest (P384,000 x 20%)
..
240,000
144.000
307,200
76,800
84,000
198,000
7,200
3,600
9,000
216,000
15,360
70,440
remainder
6,000
6,000
1,200
12,000
1,200
Depreciation/
Amortization
Expense
Inventory
sold
Equipment
Buildings
Bonds
payable
Totals
Amortizatio
n
-Interest
P 12,000
( 6,000)
_______
P 1,200
P 6,000
P1,200
Total
P7,,200
66,240
9,600
48,000
27,840
under
Investment in S
NI of S
38,400
(90,000
72,000
Investment Income
Dividends S
Amortization
80%).
5,760
80%)
(P7,200 x
NI of S
Amortization
(P7,200
5,760
(90,000
x
80%)
27,8
40
72,000
80%)
66,240
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
Cost,
377,640
1/1/x5
38,400
80%)
Dividends S (48,000x
NI of S
Amortization
(E5)
Non-controlling
interest
in
Subsidiary
(90,000..
x
Non-controlling interest
Net
Income
80%)
5,760
12/31/x5
307,200
of
72,000
To establish
non-controlling interest in subsidiarys adjusted net
income for 20x4 as follows:
Balance,
405,480
Non-controlling
interest
P 90,000
( 7,200)
P70,440
82,800
20%
P 16,560
27,840
16,560
(7,200 x 80%)
405,480
405,480
16,560
Sales
Income Statement
P Co
P540,000
S Co.
P360,000
Investment income
Total Revenue
Cost of goods sold
66,240
P606,000
P216,000
P360,000
P192,000
60,000
24,000
Interest expense
Other expenses
Goodwill impairment loss
Total Cost and Expenses
72,000
P348,000
Net Income
P258,240
54,000
P270,000
P
90,000
Depreciation expense
P258,240
P490,440
S Company
Net income, from above
Total
Dividends paid
P Company
S Company
Retained earnings, 12/31 to Balance
Sheet
258,240
P748,680
P
90,000
Dr.
Cr.
(4)
66,240
Consolidated
P 900,000
___________
P
P
(3)
6,000
(3)
1,200
900,000
408,000
90,000
1,200
126,000
P 625,200
P 274,800
(5)
16,560
( 16,560)
P258,240
P490,440
P144,000
90,000
P234,000
(1)
144,000
258,240
P748,680
72,000
72,000
(4)
48,000
48,000
P676,680
P186,000
P676,680
Cash.
Accounts receivable..
Inventory.
P
265,200
180,000
216,000
P
102,000
96,000
108,000
P 367,200
276,000
324,000
Land.
Equipment
210,000
240,000
48,000
180,000
Buildings
720,000
540,000
Balance Sheet
(2)
3,600
(2)
9,000
(2)
7,200
405,480
265,200
420,000
(3)
216,000
(3)
1,200
(1)
307,200
1,044,000
2,400
9,000
-
(2) 70,440
(4)
27,840
Total
Accumulated depreciation
equipment
Accumulated depreciation
buildings
Accounts payable
Bonds payable
Common stock, P10 par
Common stock, P10 par
Retained earnings, from above
P2,236,680
P1,074,0
00
P 150,000
P
102,000
450,000
306,000
120,000
240,000
600,000
120,000
120,000
676,680
240,000
186,000
P2,707,800
(2)
84,000
(2)
198,000
(3)
6,000
(1)
240,000
676,680
9,600
___
_____
Total
P2,236,680
______
___
P1,074,0
00
P180,000
552,000
240,000
360,000
600,000
(7)
Non-controlling interest
(3)
12,000
__________
P
794,400
(2 )
76,800 (2)
15,360
(5)
16,560
P
794,400
____99,120
P2,707,800
Note: Using cost model or equity method, the consolidated net income, consolidated
retained earnings, non-controlling interests, consolidated equity on December 31, 20x4 and
20x5 are exactly the same (refer to Problem VI solution).
5. 1/1/20x4
a. On date of acquisition the retained earnings of parent should always be considered as
the consolidated retained earnings, thus:
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
P 240,000
Common stock S Company, January 1, 20x4
Retained earnings S Company, January 1, 20x4
Stockholders equity S Company, January 1, 20x4
Adjustments to reflect fair value - (over) undervaluation of assets and
liabilities, date of acquisition (January 1, 20x4)
Fair value of stockholders equity of subsidiary, January 1, 20x4
Multiplied by: Non-controlling Interest percentage...
Non-controlling interest (partial-goodwill)..
120,000
P 360,000
90,000
P450,000
20
P 90,000
c.
Consolidated SHE:
Stockholders Equity
Common stock, P10 par
Retained earnings
Parents Stockholders Equity / CI - SHE
NCI, 1/1/20x4
Consolidated SHE, 1/1/20x4
P 600,000
360,000
P 960,000
___90,000
P1,050,000
6.
12/31/20x4:
a. CI-CNI
Consolidated Net Income for 20x4
Net income from own/separate operations
P Company
S Company
Total
Less: Non-controlling Interest in Net Income*
Amortization of allocated excess (refer to amortization above)
Goodwill impairment (impairment under partial-goodwill approach)
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of P..
Add: Non-controlling Interest in Net Income (NCINI)
Consolidated Net Income for 20x4
P168,000
60,000
P228,000
P 9,360
13,200
3,000
25,560
P202,440
9,360
P211.800
b. NCI-CNI
*Non-controlling Interest in Net Income (NCINI) for 20x4
Net income of S Company
Less: Amortization of allocated excess / goodwill impairment
(refer to amortization table above)
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI)
P 60,000
13,200
P 46,800
20%
P 9,360
P360,000
202,440
P562,440
72,000
P490,440
e.
Non-controlling interest (partial-goodwill), December 31, 20x4
P 240,000
Common stock S Company, December 31, 20x4
Retained earnings S Company, December 31, 20x4
Retained earnings S Company, January 1, 20x4
Add: Net income of S for 20x4
Total
Less: Dividends paid 20x4
Stockholders equity S Company, December 31, 20x4
Adjustments to reflect fair value - (over) undervaluation of assets and
liabilities, date of acquisition (January 1, 20x4)
Amortization of allocated excess (refer to amortization above) 20x4
Fair value of stockholders equity of subsidiary, December 31, 20x4
Multiplied by: Non-controlling Interest percentage...
Non-controlling interest (partial-goodwill)..
P120,000
60,000
P180,000
36,000
144,000
P 384,000
90,000
( 13,200)
P460,000
20
P 92,160
f.
Consolidated SHE:
Stockholders Equity
Common stock, P10 par
Retained earnings
Ps Stockholders Equity / CI SHE, 12/31/20x4
NCI, 12/31/20x4
Consolidated SHE, 12/31/20x4
P 600,000
490,440
P1,090,440
___92,160
P1,182,600
12/31/20x5:
a. CI-CNI
Consolidated Net Income for 20x5
Net income from own/separate operations:
P Company
S Company
Total
Less: Non-controlling Interest in Net Income*
Amortization of allocated excess (refer to amortization above)
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent..
Add: Non-controlling Interest in Net Income (NCINI)
Consolidated Net Income for 20x5
P192,000
90,000
P282,000
P16,560
__7,200
P258,240
16,560
P274,800
b. NCI-CNI
*Non-controlling Interest in Net Income (NCINI) for 20x5
Net income of S Company
Less: Amortization of allocated excess / goodwill impairment for 20x5
(refer to amortization table above)
Multiplied by: Non-controlling interest %..........
23,760
P 90,000
80,400
P 82,800
20%
P 16,560
P484,800
P 144,000
120,000
P 24,000
13,200
P
10,800
80%
P
8,640
3,000
5,640
P 490,440
258,240
P748,680
72,000
P676,680
*this procedure would be more appropriate, instead of multiplying the full-goodwill impairment loss of
P3,750 by 80%. There might be situations where the controlling interests on goodwill impairment loss would
not be proportionate to NCI acquired.
e.
Non-controlling interest (partial-goodwill), December 31, 20x5
P 240,000
Common stock S Company, December 31, 20x5
Retained earnings S Company, December 31, 20x5
Retained earnings S Company, January 1, 20x5
Add: Net income of S for 20x5
Total
Less: Dividends paid 20x5
Stockholders equity S Company, December 31, 20x5
Adjustments to reflect fair value - (over) undervaluation of assets and
liabilities, date of acquisition (January 1, 20x4)
Amortization of allocated excess (refer to amortization above) :
20x4
20x5
Fair value of stockholders equity of subsidiary, December 31, 20x5
Multiplied by: Non-controlling Interest percentage...
P14,000
90,000
P234,000
48,000
186,000
P 426,000
90,000
P
13,200
7,200
( 20,400)
P 495,600
20
P 99,120
f.
Consolidated SHE:
Stockholders Equity
Common stock, P10 par
Retained earnings
Ps Stockholders Equity / CI SHE, 12/31/20x4
NCI, 12/31/20x4
Consolidated SHE, 12/31/20x4
P 600,000
676,680
P1,276,680
___99,120
P1,1375,80
0
Problem XXVII
Requirements 1 to 4:
Schedule of Determination and Allocation of Excess
Date of Acquisition January 1, 20x4
Fair value of Subsidiary (80%)
Consideration transferred (80%)..
Fair value of NCI (given) (20%)..
Fair value of Subsidiary (100%).
Less: Book value of stockholders equity of Son:
Common stock (P240,000 x 100%)
.
Retained earnings (P120,000 x 100%)...
Allocated excess (excess of cost over book value)
..
Less: Over/under valuation of assets and liabilities:
Increase in inventory (P6,000 x 100%)
P 372,000
93,000
P 465,000
P 240,000
120,000
360,000
P 105,000
6,000
7,200
96,000
( 24,000)
4,800
90,000
P 15,000
Adjustments
to
Inventory
Subject to Annual Amortization
Equipment (net).........
Buildings (net)
Bonds payable
be
Over/
under
P
6,000
96,000
(24,00
0)
4,80
0
Lif
e
Current
Year(20x4)
Annual
Amount
P
6,000
P 6,000
P
-
12,000
12,000
12,000
( 6,000)
1,20
0
( 6,000)
(6,000)
1,20
0
1,200
20x5
P
13,200
P 13,200
P 7,200
January 1, 20x4:
(1) Investment in S Company
Cash.
.
372,000
372,000
Acquisition of S Company.
28,800
28,800
48,000
48,000
13,560
13,560
Thus, the investment balance and investment income in the books of P Company is as
follows:
Investment in S
Cost,
372,000
1/1/x4
NI of S
Balance,
13,560
377,640
28,800
80%)
Investment Income
80%)
13,560
Impairment
12/31/x4
48,000
34,440
Dividends S (36,000x
Amortization &
NI Impairment
of S
(P60,000 x 80%)
Balance, 12/31/x4
240,000
120.000
288,000
72,000
(E2)
Inventory.
Accumulated depreciation equipment..
Accumulated depreciation buildings..
Land
.
Discount
on
bonds
payable.
Goodwill.
Buildings..
Non-controlling interest (P90,000 x 20%) + [(P15,000,
full
P12,000, partial goodwill)]
Investment in S Co.
6,000
96,000
192,000
7,200
4,800
15,000
216,000
21,000
84,000
6,000
6,000
6,000
1,200
3,750
6,000
12,000
1,200
3,750
Cost of
Goods
Sold
Inventory sold
Equipment
Buildings
Bonds payable
Totals
Depreciation/
Amortization
Expense
Amortizatio
n
-Interest
Total
P
6,000
_______
P 6,000
P 12,000
( 6,000)
_______
P 6,000
P 1,200
P1,200
13,20
0
It should be observed that the goodwill computed above was proportional to the controlling
interest of 80% and non-controlling interest of 20% computed as follows:
Value
P12,000
3,000
P15,000
% of Total
80.00%
20.00%
100.00%
Therefore, the goodwill impairment loss of P3,125 based on 100% fair value or full-goodwill
would be allocated as follows:
Value
P 3,000
% of Total
80.00%
750
20.00%
P 3,750
100.00%
37,440
7,200
36,000
8,640
Investment in S
NI of S
28,800
(60,000
Investment Income
Dividends S
NI of Son
Amortization
Amortization &
Impairment
13,560
(60,000
&
48,000
80%).
13,560
5,6
40
Impairment
48,000
80%)
34,440
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
Cost,
372,000
1/1/x4
28,800
80%)
NI of S
40,000
Balance,
377,640
Dividends S (36,000x
Amortization &
(60,000
80%)
13,560
12/31/x4
288,000
84,000
5,640
Impairment
377,640
377,640
Value
P12,000
3,000
P15,000
% of Total
80.00%
20.00%
100.00%
The goodwill impairment loss of P3,750 based on 100% fair value or fullgoodwill would be allocated as follows:
(E5)
Non-controlling
interest
in
Subsidiary
Non-controlling interest ..
Value
P 3,000
% of Total
80.00%
750
_20.00%
P 3,750
100.00%
Net
Income
of
8,610
8,610
P 60,000
( 13,200)
P 46,800
20%
P
9,360
750
P
8,610
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.
Income Statement
P Co
P480,000
S Co.
P240,000
Investment income
Total Revenue
34,440
P514,440
P240,000
P204,000
P138,000
Depreciation expense
60,000
24,000
Interest expense
Other expenses
48,000
18,000
P312,000
P202,440
P180,000
P 60,000
P202,440
P 60,000
P360,000
S Company
Net income, from above
Total
Dividends paid
P Company
S Company
Retained earnings, 12/31 to Balance
Sheet
202,440
P562,440
Dr.
Cr.
(4)
34,440
Consolidated
P 720,000
_________
P 720,000
P 348,000
(3)
6,000
(3)
6,000
(3)
1,200
90,000
1,200
66,000
3,750
(3)
3,750
P508,950
P211,050
( 8,610)
(5)
8,610
P202,440
P360,000
P120,000
60,000
P180,000
(1)
120,000
202,440
P562,440
72,000
72,000
36,000
P490,440
P144,000
Cash.
Accounts receivable..
P
232,800
90,000
P 90,000
60,000
Inventory.
120,000
90,000
Land.
Equipment
210,000
240,000
48,000
180,000
Buildings
720,000
540,000
(4)
36,000
P490,440
Balance Sheet
Total
(2)
6,000
(2)
7,200
(2)
4,800
(2)
15,000
377,640
P1,990,440
P1,008,0
00
(3)
6,000
322,800
150,000
210,000
265,200
420,000
(2)
216,000
(3)
1,200
(3)
3,750
(2)
288,000
(2)
84,000
(4)
5,640
1,044,000
3,600
11,250
P2,426,850
Accumulated depreciation
equipment
P 135,000
Accumulated depreciation
buildings
Accounts payable
Bonds payable
Common stock, P10 par
405,000
120,000
240,000
600,000
490,440
Non-controlling interest
_________
Total
P1,990,440
(2)
96,000
(2)
192,000
288,000 (3)
6,000
120,000
120,000
P 96,000
240,000
144,000
______
___
P1,008,0
00
(3)
12,000
P147,000
495,000
240,000
360,000
600,000
(1)
240,000
490,440
(1 )
72,000 (2)
(4) 7,200 21,000
(5)
__________
8,610
P
P
754,200
754,200
____94,410
P2,426,850
P Co.
P 540,000
216,000
P 324,000
60,000
72,000
P 192,000
66,240
P 258,240
P 72,000
S Co.
P 380,000
192,000
P 168,000
24,000
54,000
P 90,000
P 90,000
P 48,000
38,400
38,400
72,000
72,000
5,760
5,760
P Companys P12,000 portion of the differential related to goodwill related to goodwill is not
adjusted on the parents books following Option 2 as referred to above for goodwill
impairment loss. Even though the goodwill of the consolidated entity is impaired,
Thus, the investment balance and investment income in the books of P Company is as
follows:
Investment in S
Cost,
377,640
1/1/x5
38,400
80%)
NI of S
72,000
Dividends S (48,000x
Amortization
(90,000
80%)
5,760
(P7,200 x 80%)
Investment Income
Balance,
405,480
Amortization
12/31/x5
NI of S
(7,200
80%)
72,000
(90,000 x 80%)
5,760
66,240
Balance, 12/31/x4
240,000
144.000
307,200
76,800
84,000
198,000
7,200
3,600
11,250
216,000
17,610
70,440
of
remainder
6,000
6,000
1,200
12,000
1,200
Depreciation/
Amortization
Expense
Inventory
sold
Equipment
Buildings
Bonds
payable
Totals
Amortizatio
n
-Interest
P 12,000
( 6,000)
_______
P 1,200
P 6,000
P1,200
Total
P7,20
0
66,240
9,600
48,000
27,840
under
NI of S
38,400
(90,000
72,000
40
Investment Income
Dividends - S
Amortization
80%).
27,8
5,760
80%)
(P7,200 x
NI of S
Amortization
(P7,200
5,760
(90,000
x
80%)
72,000
80%)
66,240
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
Cost,
377,640
1/1/x5
38,400
80%)
Dividends S (48,000x
NI of S
Amortization
(90,000
72,000
(E5)
Non-controlling
interest
in
Subsidiary
Non-controlling interest ..
80%)
Net
5,760
(7,200 x 80%)
Income
of
16,560
16,560
Balance,
12/31/x5 adjusted
307,200 net
To establish
non-controlling interest in subsidiarys
income 405,480
for 20x5 as follows:
70,440
27,840
P
90,000
( 7,200)
P 82,800
20%
P 16,560
405,480
0
P 16,560
Income Statement
Sales
P Co
P540,000
S Co.
P360,000
Dr.
Cr.
Consolidated
P 900,000
Investment income
Total Revenue
Cost of goods sold
66,240
P606,000
P216,000
P360,000
P192,000
60,000
24,000
Interest expense
Other expenses
Goodwill impairment loss
Total Cost and Expenses
72,000
P348,000
Net Income
P258,240
54,000
P270,000
P
90,000
Depreciation expense
P258,240
P490,440
S Company
Net income, from above
Total
Dividends paid
P Company
S Company
Retained earnings, 12/31 to Balance
Sheet
258,240
P748,680
P
90,000
(4)
66,240
___________
P
P
(3)
6,000
(3)
1,200
900,000
408,000
90,000
1,200
P
P
(5)
16,560
126,000
625,200
274,800
( 16,560)
P 258,240
P490,440
P144,000
90,000
P234,000
(1)
144,000
258,240
P748,680
72,000
72,000
(4)
48,000
48,000
P676,680
P186,000
P676,680
Cash.
Accounts receivable..
Inventory.
P
265,200
180,000
216,000
P
102,000
960,000
108,000
P 367,200
276,000
324,000
Land.
Equipment
210,000
240,000
48,000
180,000
Buildings
720,000
540,000
Balance Sheet
(2)
3,600
(2)
11,250
Total
Accumulated depreciation
equipment
Accumulated depreciation
buildings
Accounts payable
Bonds payable
Common stock, P10 par
Common stock, P10 par
(2)
7,200
405,9480
265,200
420,000
(3)
216,000
(3)
1,200
P2,236,680
P 150,000
P
102,000
450,000
306,000
120,000
240,000
600,000
120,000
120,000
240,000
2,400
11,250
(1)
307,200
(5) 70,440
(4)
27,840
P1,074,0
00
1,044,000
P2,634,000
(2)
84,000
(2)
198,000
(3)
6,000
(1)
240,000
(3)
12,000
P 180,000
552,000
240,000
360,000
600,000
676,680
186,000
Non-controlling interest
___
_____
Total
P2,236,680
_________
_
P1,074,0
00
676,680
(3)
9,600
__________
P
796,650
(2 )
76,800
(2)
17,610
(5)
16,560
P
796,650
__________
P2,634,000
Note: Using cost model or equity method, the consolidated net income, consolidated
retained earnings, non-controlling interests, consolidated equity on December 31, 20x4 and
20x5 are exactly the same (refer to Problem VII solution).
5. 1/1/20x4
a. On date of acquisition the retained earnings of parent should always be considered as
the consolidated retained earnings, thus:
Consolidated Retained Earnings, January 1, 20x4
Retained earnings - P Company, January 1, 20x4 (date of acquisition)
P360,000
b.
Non-controlling interest (full-goodwill), January 1, 20x4
P 240,000
Common stock S Company, January 1, 20x4
Retained earnings S Company, January 1, 20x4
Stockholders equity S Company, January 1, 20x4
Adjustments to reflect fair value - (over) undervaluation of assets and
liabilities, date of acquisition (January 1, 20x4)
Fair value of stockholders equity of subsidiary, January 1, 20x4
Multiplied by: Non-controlling Interest percentage...
Non-controlling interest (partial-goodwill)..
Add: NCI on full-goodwill (P15,000 P12,000)
Non-controlling interest (partial-goodwill)..
120,000
P 360,000
90,000
P450,000
20
P 90,000
___3,000
P 93,000
c.
Consolidated SHE:
Stockholders Equity
Common stock, P10 par
Retained earnings
Parents Stockholders Equity / CI - SHE
NCI, 1/1/20x4
Consolidated SHE, 1/1/20x4
6.
P 600,000
360,000
P 960,000
___93,000
P1,053,000
a. CI-CNI P202,440
Consolidated Net Income for 20x4
Net income from own/separate operations:
P Company
S Company
Total
Less: Non-controlling Interest in Net Income*
Amortization of allocated excess (refer to amortization above)
Goodwill impairment (impairment under full-goodwill approach)
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent..
Add: Non-controlling Interest in Net Income (NCINI)
Consolidated Net Income for 20x4
P168,000
60,000
P228,000
P 8,610
13,200
3,750
25,560
P202,440
8,610
P211.050
b. NCI-CNI P8,610
*Non-controlling Interest in Net Income (NCINI) for 20x4
Net income of S Company
Less: Amortization of allocated excess (refer to amortization table above)
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI)
Less: Non-controlling interest on impairment loss on full-goodwill (P3,750
x 20%)
or (P3,750 impairment on full-goodwill less P3,000, impairment on
partial-goodwill)*
Non-controlling Interest in Net Income (NCINI)
P 60,000
13,200
P 46,800
20%
P
9,360
750
P 8,610
*this procedure would be more appropriate, instead of multiplying the full-goodwill impairment
loss of P3,750 by 20%. There might be situations where the NCI on goodwill impairment loss
would not be proportionate to NCI acquired.
P360,000
202,440
P562,440
72,000
P490,440
e.
Non-controlling interest (full-goodwill), December 31, 20x4
P 240,000
Common stock S Company, December 31, 20x4
P120,000
60,000
P180,000
36,000
144,000
P 384,000
90,000
( 13,200)
P460,800
20
P 92,160
2,250
P 94,410
f.
Consolidated SHE:
Stockholders Equity
Common stock, P10 par
Retained earnings
Ps Stockholders Equity / CI SHE, 12/31/20x4
NCI, 12/31/20x4
Consolidated SHE, 12/31/20x4
P 600,000
490,440
P1,090,440
___94,410
P1,184,850
12/31/20x5:
a. CI-CNI P258,240
Consolidated Net Income for 20x5
Net income from own/separate operations
P Company
S Company
Total
Less: Non-controlling Interest in Net Income*
Amortization of allocated excess (refer to amortization above)
Goodwill impairment (impairment under full-goodwill approach)
P192,000
90,000
P282,000
P16,560
7,200
0
23,760
P258,240
16,560
P274,800
b. NCI-CNI P16,560
*Non-controlling Interest in Net Income (NCINI) for 20x5
Net income of S Company
Less: Amortization of allocated excess / goodwill impairment for 20x5
(refer to amortization table above)
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI) for 20x5
P 90,000
80,400
P 82,800
20%
P 16,560
or
P484,800
P 144,000
120,000
P 24,000
13,200
P
10,800
80%
P
8,640
3,000
5,640
P 490,440
258,240
P748,680
72,000
P676,680
*this procedure would be more appropriate, instead of multiplying the full-goodwill impairment loss of
P3,750 by 80%. There might be situations where the controlling interests on goodwill impairment loss would
not be proportionate to NCI acquired.
e.
Non-controlling interest (full-goodwill), December 31, 20x5
P 240,000
Common stock S Company, December 31, 20x5
P144,000
90,000
P234,000
48,000
186,000
P 426,000
90,000
P
13,200
7,200
( 20,400)
P 495,600
20
P 99,120
2,250
P 101,370
f.
Consolidated SHE:
Stockholders Equity
Common stock, P10 par
Retained earnings
Ps Stockholders Equity / CI SHE, 12/31/20x4
NCI, 12/31/20x4
Consolidated SHE, 12/31/20x4
P 600,000
676,680
P1,276,680
__101,370
P1,378,050
Problem XXVIII
1. AA should report income from its subsidiary of P15,000 (P20,000 x .75) rather than
dividend income of P9,000.
2. A total of P5,000 (P20,000 x .25) should be assigned to the non-controlling interest in the
20x4 consolidated income statement.
3. Consolidated net income of P70,0000 should be reported for 20X4, computed as follows:
Reported net income of AA
P59,000
Less: Dividend income from KR
(9,000)
Operating income of AA
P50,000
Net income of KR
20,000
Consolidated net income
P70,000
4. Income of P79,000 would be attained by adding the income reported by AA (P59,000) to
the income reported by KR (P20,000). However, the dividend income from KR recorded
by AA must be excluded from consolidated net income.
Multiple Choice Problems
1. b
Full-Goodwill: (P600,000/70%) P640,000 = P217,143 P40,000 = P177,143
If partial goodwill: P600,000 (P640,000 x 70%) = P152,000 (P40,000 x 70%) =
P124,000
2. b P500,000 + P3,461
3.
4.
5.
6.
b
d equivalent to consideration transferred, P320,000
d equivalent to consideration transferred, P380,000
a
20x4 Investment income: Dividend of P10,000 x 100%
20x4 Investment balance: P500,000
7. d P45,000/15% = P300,000
8. c
Pigeons separate income
Less: 60% of Homes P10,000 loss =
Less: Equipment depreciation
P10,000/ 10 years =
Consolidated net income
P150,00
0
6,000
__1,000
P143,00
0
9. a
Non-controlling Interest in Net Income (NCINI) for Year 3
Net income of S Company
Less: Amortization of allocated excess
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI) for Year 3
P240,000
45,000
P195,000
30%
P 58,500
10. c
Net income from own/separate operations
P Company
S Company
Total
Less: Non-controlling Interest in Net Income*
Amortization of allocated excess (refer to amortization above)
Goodwill impairment (impairment under full-goodwill approach)
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent..
P 375,000
30,000
P405,000
P5,250
3,750
0
9,000
P396,000
P30,000
3,750
P26,250
Multiplied by: Non-controlling interest %..........
20%
Non-controlling Interest in Net Income (NCINI) for 20x4
P 5,250
**P270,000/80% = P337,500 (P150,000 + P150,000) = P37,500 / 10 years = P3,750
Note: Whether the partial or full-goodwill approach are used the amortization of excess are
always the same.
11. a
*Non-controlling Interest in Net Income (NCINI) for Year 3
Net income of S Company
Less: Amortization of allocated excess
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI) for Year 3
P600,000
112,500
P487,500
30%
P146,250
12. c
Net income from own/separate operations
P Company
S Company
Total
Less: Non-controlling Interest in Net Income*
Amortization of allocated excess (refer to amortization above)
Goodwill impairment (impairment under full-goodwill approach)
P 625,000
50,000
P675,000
P 8,750
6,250
0
15,000
P660,000
P50,000
6,250
P43,750
Multiplied by: Non-controlling interest %..........
20%
Non-controlling Interest in Net Income (NCINI) for 20x4
P 8,750
**P450,000/80% = P562,500 (P250,000 + P250,000) = P62,500 / 10 years = P6,250
Note: Whether the partial or full-goodwill approach are used the amortization of excess are
always the same.
13. b
As a general rule, if problem is silent It is assumed that expenses are generated evenly
throughout the year, thus:
Expenses (9/1/20x4-12/31/20x4): P620,000 x 4/12
P206,667
Amortization of allocated excess: P15,000 x 4/12
5,000
P211,667
14. c
Net income of S Company (P800,000 P620,000)
Less: Amortization of allocated excess
Multiplied by: No of mos. (9/1-12/31)
P180,000
15,000
P165,000
4/12
P 55,000
15. a
Net income of S Company (P800,000 P620,000)
Less: Amortization of allocated excess
Multiplied by: No of mos. (9/1-12/31)
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI) for 20x4
16. b
P180,000
15,000
P165,000
4/12
P 55,000
____20%
P 22,000
17. c HH expense.............................................................................................
P621,000
NN expenses............................................................................................
714,000
Excess fair value amortization (70,000 10 yrs)....................................
7,000
Consolidated expenses............................................................................ P1,342,000
18. b
Step-acquisition, either full-goodwill or partial goodwill approach, the answer remains
the same.
Full-Goodwill Presentation:
Net income from own operations;
Parent - Keefe
P 300,000
Subsidiary - George (P500,000 P400,000)..
100,000
P 400,000
29. c
Full/Gross-up Goodwill Presentation:
Non-controlling interest in Net Income:
Subsidiary net income from own operations.P100,000
Less: Amortization of allocated excess*
7,000
Impairment of full-goodwill (if any)**
0
P 93,000
x: Non-controlling interests.
20%
Non-controlling interest in Net Income
P 18,600
*Amortization of allocated excess:
Increase in equipment: P30,000 / 10 years = P 3,000
Increase in buildings: P40,000 / 10 years =
4,000
Total amortization P 7,000
** In case, there is an impairment of goodwill then the amount impaired under the fullgoodwill method should also be allocated between controlling and non-controlling
interests
Partial Goodwill Presentation:
Non-controlling interest in Net Income:
Subsidiary net income from own operations.P100,000
Less: Amortization of allocated excess*.
7,000
P 93,000
x: Non-controlling interests.
20%
Non-controlling interest in Net Income.
P 18,600
30. c
Full/Gross-up Goodwill Presentation:
Non-controlling interest in Net Income:
Subsidiary net income from own operations.P120,000
Less: Amortization of allocated excess*
7,000
Impairment of full-goodwill (if any)**
0
P113,000
x: Non-controlling interests.
20%
Non-controlling interest in Net Income
P 22,600
*Amortization of allocated excess:
Increase in equipment: P30,000 / 10 years = P 3,000
Increase in buildings: P40,000 / 10 years =
4,000
Total amortization.
P 7,000
** In case, there is an impairment of goodwill then the amount impaired under the fullgoodwill method should also be allocated between controlling and non-controlling
interests
31. a
Full/Gross-up Goodwill Presentation:
Non-controlling interest in Net Income:
Subsidiary net income from own operations.P130,000
Less: Amortization of allocated excess*
7,000
Impairment of full-goodwill (if any)**
0
P123,000
x: Non-controlling interests.
20%
Non-controlling interest in Net Income
P 24,600
*Amortization of allocated excess:
Increase in equipment: P30,000 / 10 years = P 3,000
Increase in buildings: P40,000 / 10 years =
4,000
Total amortization.
P 7,000
** In case, there is an impairment of goodwill then the amount impaired under the fullgoodwill method should also be allocated between controlling and non-controlling
interests
Partial Goodwill Presentation:
Non-controlling interest in Net Income:
Subsidiary net income from own operations.P130,000
Less: Amortization of allocated excess*
7,000
P123,000
x: Non-controlling interests.
20%
Non-controlling interest in Net Income
P 24,600
32. a
Book value of Stockholders Equity of Subsidiary
Common stock, 12/31/20x4
P 300,000
Retained earnings, 12/31/20x4:
Retained earnings, 1/1/20x4.P200,000
Add: Net income 20x4.. 100,000
Less: Dividends paid, 20x4..
40,000
260,000
Book value of Stockholders Equity of Subsidiary, 12/31/x4
P 560,000
Add: Adjustments to reflect fair value (P30,000 + P40,000)..
70,000
Less: Accumulated amortization of allocated excess
P7,000 x 1 year..
7,000
Fair value of Stockholders Equity of Subsidiary. 12/31/x4
P 623,000
Multiplied by: Non-controlling Interest %...........................
20%
Non-controlling Interest (partial goodwill)..
P 124,600
Add: Non-controlling interest in Full Goodwill
(P55,000, full P44,000 partial l) or
(P55,00,000 x 20%)*
Non-controlling Interest (full)
11,000
P 135,600
* this computation (i.e., P55,000 x 20%) should only be use when the fair
value of the non-controlling interest of acquiree (subsidiary) is not given.
Partial Goodwill:
Fair value of Subsidiary:
Fair value of consideration transferred: Cash
P 500,000
Less: Book value of Net Assets (Stockholders
Equity - Subsidiary): (P300,000 + P200,000) x 80%..
400,000
Allocated Excess..
P 100,000
Less: Over/Undervaluation of Assets and Liabilities:
Increase in equipment: P30,000 x 80%................... P 24,000
Increase in building: P40,000 x 80%.........................
32,000
56,000
Goodwill (Partial)..
P 44,000
Full-goodwill:
(100%) Fair value of Subsidiary:
(100%) Fair value of consideration transferred:
P500,000 / 80%..........
Less: Book value of Net Assets (Stockholders
Equity - Subsidiary)...................................
Allocated Excess..
Less: Over/Undervaluation of Assets and
Liabilities (P40,000 + P30,000).
Goodwill (Full/Gross-up)....
P 625,000
500,000
P 125,000
P
70,000
55,000
33. e
Book value of Stockholders Equity of Subsidiary
Common stock, 12/31/20x5
P 300,000
Retained earnings, 12/31/20x5:
Retained earnings, 1/1/20x5 (refer to No. 32)
P260,000
Add: Net income, 20x5.
120,000
Less: Dividends paid, 20x5
50,000 330,000
Book value of Stockholders Equity of Subsidiary, 12/31/x5
P 630,000
Add: Adjustments to reflect fair value (P30,000 + P40,000)..
70,000
Less: Accumulated amortization of allocated excess 2 yrs
14,000
Fair value of Stockholders Equity of Subsidiary. 12/31/x5
P 686,000
Multiplied by: Non-controlling Interest %..............................
20%
Non-controlling Interest (partial goodwill)..
P 137,200
Add: Non-controlling interest in Full Goodwill
(P55,000, full P44,000 partial l) or
(P55,00,000 x 20%)*
11,000
Non-controlling Interest (full)
P 148,200
34. e
P 500,000
100,000
P600,000
P 20,000
0
_
0
20,000
P580,000
__20,000
P600,000
P100,000
_______0
P100,000
20%
P 20,000
36. c Parent Company Concept Parents Net Income only (not required by PFRS
10)
Net income from own/separate operations
P Company
S Company
Total
Less: Non-controlling Interest in Net Income*
Amortization of allocated excess
Goodwill impairment (impairment under full-goodwill approach)
CNI - entity concept
*Non-controlling Interest in Net Income (NCINI) for 20x4
Net income of S Company
Less: Amortization of allocated excess
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI) for 20x4
P 500,000
100,000
P600,000
P 20,000
0
_
0
P100,000
_______0
P100,000
20%
P 20,000
P2,260,000
20,000
P580,000
c refer to No. 40
c refer to No. 40
b- refer to No. 40
d
Inventory not yet sold in 20x4
Building: (P390,000 P200,000)/ 10 years
Equipment (P280,000 P350,000)/ 5 years
P
19,000
( 14,000)
P 5,000
45. c
1,000,000
32,000,000
1,800,000
P45,000
(9,000)
P36,000
62. b
63.
64.
65.
66.
67.
BV of building, 1/1/20x4
P200,000
Adjustments to reflect fair value, 1/1/20x4 (P300,000 P200,000) 100,000
Depreciation 1/1/20x4 12/31/20x6 (P100,000/20 x 3 years)
( 15,000)
P285,000
d same with No. 62
d
BV of equipment, 1/1/20x4
P 80,000
Adjustments to reflect fair value, 1/1/20x4 (P80,000 P75,000) ( 5,000)
Depreciation 1/1/20x4 12/31/20x6 (P5,000/10 x 3 years)
1,500
P 76,500
a
Adjustments to reflect fair value, 1/1/20x4 (P80,000 P75,000) (P 5,000)
Depreciation 1/1/20x4 12/31/20x6 (P5,000/10 x 3 years)
1,500
(P 3,500)
d 1/2/20x4:
BV of equipment, 1/1/20x4
P200,000
Adjustments to reflect fair value, 1/1/20x4 (P300,000 P200,000)
100,000
P300,000
c
Consolidated Net Income for 20x4
Net income from own/separate operations
P Company P30,200 (P150,0000 P20,000 P60,000)
S Company (P100,000 P15,000 P45,000)
Total
Less: Non-controlling Interest in Net Income
Amortization of allocated excess
Goodwill impairment
Controlling Interest in Consolidated Net Income or Profit
attributable to equity holders of parent..
Add: Non-controlling Interest in Net Income (NCINI)
Consolidated Net Income for 20x4
P 70,000
40,000
P110,000
P
0
0
____0
____0
P110,000
_____0
P110,000
68. b
Plimsol: P100,000 +
P200,000,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,P 300,000
Shipping: P75,000 + P150,000.
225,000
P 525,000
69.
Retained Earnings - Plimsol, 1/1/20x4 (cost method, same with equity method and
consoiidated retained earnings since it is the date of acdquisition)
P
150,000
Add: CI CNI (refer to No. 71)
110,000
Less: CI Dividends (Dividend of parent only)
25,000
Retained earnings, 12/31/20x4 (equity method same with CRE)
P 235,000
70. d
Liabilities:
Plimsol (P40,000 + P75,000)
P115,000
75,000
P 190,000
71. d
Total assets (No. 72)
Les: Liabilities (No. 74)
Stockholders equity
P525,000
190,000
P335,000
72. b
73. d
74. d
P 8,000
__10,000
P 2,000
P 2,000
200
P 1,800
P 1,800
200
P 1,600
P 14,000
__18,000
P 4,000
75. a
76. a
P
P
4,000
1,000
3,000
P 3,000
1,000
P 2,000
78. a
Increase in Land account:
Fair valueP 12,000
Book value..
5,000
Increase.. P 7,000
79. b refer to No. 78, no depreciation/amortization
80. b refer to No. 78, no depreciation/amortization
81. e
Increase in Patent account:
Fair value
Book value..
Increase.
P 11,000
_
0
P 11,000
P 11,000
83. d
84. c
Fair Value of Subsidiary:
Consideration Transferred (5,400 shares)
Less: Book value of SHE-S, 1/1:
Common stock S: P50,000 x 90%
APIC S: P15,000 x 90%
RE S: P41,000 x 90%
Allocated Excess
Less: Over/undervaluation of A & L:
Increase in Inv. (P17,100P16,100) x 90%
Increase in Eqpt. (P48,000P40,000) x 90%
Increase in Patents (P13,000P10,000) x 90%
Positive Excess: Goodwill
Amortization of allocated excess - Starting January 1:
Inventory: P1,000 / 1 year
Equipment: P8,000 / 4 years
Patents: P3,000 / 10 years
85. c
Common stock S
APIC S
RE S
Stockholders equity Subsidiary, 1/1
Add: Adjustments to reflect fair value
Fair value of Stockholders Equity S, 1/1
x: Non-controlling) interests
Non-controlling Interests (in net assets)
P
P
P
2,200
8,800
8,800
2,200
6,600
P120,600
P 45,000
13,500
36,900 95,400
P 25,200
P
900
7,200
2,700 10,800
P 14,400
P 1,000
2,000
300
P 3,300
P 50,000
15,000
41,000
P106,000
12,000
P118,000
10%
P 11,800
P26,600
9,400
P36,000
P
610
3,300
____0
3,910
P32,090
610
P32,700
P 9,400
3,300)
P 6,100
10%
P
610
____0
P
610
92. c
P 50,000
P 41,000
9,400
4,000
46,400
P 111,400
12,000
3,300
P 120,100
x: Noncontrolling Interest %
10%
99. c
Combined expenses................................................................................
Trademark amortization...........................................................................
Patented technology amortization...........................................................
Consolidated net income.........................................................................
(800,000)
(6,000)
(8,000)
P486,000
101. c
P86,000
40%
P34,400
P180,000
52,000
(5,600)
34,400
P260,800
P260,000
200,000
60,000
(12,000)
P508,000
P165,000
54,000
P219,000
104. c
Non-controlling interest (full-goodwill), December 31, 20x4
Book value of SHE S, 12/31/20x4
Add: Net income of S 20x4
Total
Less: Dividends paid 20x4
Stockholders equity S Company, December 31, Year 2
Adjustments to reflect fair value - (over) undervaluation of assets and
liabilities, date of acquisition January 1, 20x4
Amortization of allocated excess (refer to amortization above: P200,000/10
Fair value of stockholders equity of subsidiary, December 31, 20x5
Multiplied by: Non-controlling Interest percentage...
Non-controlling interest (partial)
Add: NCI on full-goodwill P85,714 P60,000)
Non-controlling interest (full)
P1,000,000
___150,000
P1,150,000
____90,000
P1,060,000
200,000
_( 20,000)
P1,240,000
30
%
P 372,000
___25,714
P397,714
P 180,000
20,000
P 200,000
P 100,000
60,000
160,000
P 40,000
P
5,000
___10,000
15,000
P 25,000
Partial-Goodwill Approach
Fair value of Subsidiary (90%)
Consideration
transferred..
Less: Book value of stockholders equity of S:
Common stock (P100,000 x 90%)
.
Retained earnings (P60,000 x 90%)
...
Allocated excess (excess of cost over book value)
..
Less: Over/under valuation of assets and liabilities:
Increase in land (P5,000 x 90%)
.
Increase in equipment (P10,000 x 90%)
Positive excess: partial-goodwill (excess of cost over
fair value)
...
P 180,000
P 90,000
54,000
144,000
P
4,500
___9,000
36,000
13,500
P 22,500
116. d
be
Over/
under
10,000
25,000
Lif
e
5
5
Annual
Amount
Current
Year(20x4)
P 2,000
5,00
0
P 7,000
P 2,000
5,000
P 7,000
Investment in Wisden
1/1/x4.
180,000
18,000
Dividends
(20,000 x
90%)
NI of S
(60,000
54,000
Amortization
90%).
12,600
90%)
(P14,000 x
1/1/x6
203,400
117. c
Investment in Wisden
1/1/x6.
230,400
9,000
Dividends S
(10,000 x
90%)
investment
unless
dispositions
of
permanent impairment.
NI of S
(30,000
x
27,000
Amortization
90%).
6,300
x 75% = P22,500
75% = P30,000
(7,000 x 90%)
1/1/x6
215,100
P 550,000
Tinys earnings, 20x4-20x77: 100% x P166,000 166,000
Less: Dividends received: 100% x P114,000 114,000
Balance, December 31, 20x7.. P602,000
122. a
The adjusting entry required in 20x7 to convert from the cost to the equity method is:
Investment in Tiny.52,000
Retained earnings beg.. 4,000
Dividend revenue 54,000
Equity in subsidiary income of Tiny.
110,000
123. b
124. b Dividend paid S, P70,000 x 60% = P42,000
P190,000
90,000
P280,000
P 30,000
15,000
____0
45,000
P235,000
30,000
P265,000
P 90,000
( 15,000_
P 75,000
40%
P 30,000
______0
P 30,000
Sales
Less: Cost of goods sold Operating expenses
Net income from its own separate operations
Add: Investment income
Net income
Computation of Goodwill:
Fair value of Subsidiary (100%)
Consideration transferred: Cash (60%)
Fair value of NCI (given) (40%)
Fair value of Subsidiary (100%)
Peer
P 600,000
410,000
P 190,000
45,000
P 235,000
Sea-Breeze
P 300,000
210,000
P 90,000
P 90,000
P 414,000
276,000
P 690,000
Fair Value
360,000
280,000
100,000
__550,000
140,000
140,000
0
Over/under
P 60,000
(20,000)
100,000
P 140,000
Amort.
P 10,000
(5,000)
10,000
P 15,000
P700,000
P 300,000
70,000
P 230,000
45,000
P 185,000
60%
P
111,000
0
111,00
0
P 811,000
Since, the P811,000 is the retained earnings of parent under the equity method, it should also be
considered as the parents portion or interest in consolidated retained earnings or simply the
consolidated retained earnings.
P 811,000
235,00
0
P1,046,00
0
92,00
0
P
954,000
(P15,000 x 4)
Fair value of stockholders equity of subsidiary, 12/31/ 2015
Multiplied by: Non-controlling Interest percentage.
Non-controlling interest (partial)
Add: NCI on full-goodwill.
Non-controlling interest (full)
P300,00
0
90,00
0
70,00
0
320,000
P
800,000
140,000
( 60,000
)
P
880,000
4
0
P
352,000
____0
P
352,000
134. c
Stockholders Equity
Common stock - Peer
Retained earnings
Parents Stockholders Equity/Equity Attributable to the
Owners of the Parent
Non-controlling interest**
Total Stockholders Equity (Total Equity)
Total Liabilities and Stockholders Equity
135. c
P
724,000
954,000
P
1,678,000
352,000
P 985,500
P2,030,000
Investment in Sea-Breeze
1/1/x2.
414,000
42,000
Retro
111,000
60%
Investment Income
Dividends S
NI of S
(70,000 x
NI of S
(90,000
54,000
Amortization
60%).
9,000
60%)
(P15,000 x
Amortization
(P15,000 x 60%)
9,000
12/31/x5
528,000
136.
137.
138.
139.
140.
141.
142.
143.
144.
145.
146.
147.
(90,000
c
d refer to No. 125
c refer to No. 125
b refer to No. 125
c refer to No. 128
c refer to No. 128
a not applicable under equity method.
d refer to No. 131
d refer to No. 131
d refer to No. 133
c refer to No. 134
b
Consideration transferred: 10,500 shares x P95
Less: BV of SHE S (?)
Allocated excess;
Less: O/U valuation of A and L:
Undervaluation of land
Overvaluation of buildings
Undervaluation of equipment
Undervaluation/unrecorded trademark
54,000
60%)
45,000
P997,500
857,500
P140,000
P40,000
( 30,000)
80,000
50,000 140,000
P
0
Equipment; P80,000 / 10
8,000
Trademark: P50,000 / 16
3,125
9,625
Total expenses
P909,625
150. b (P750,000 + P280,000) P30,000 + (P1,500 x 5 years) = P1,007,500
151. c (P300,000 + P500,000) + P80,000 (P8,000 x 5 years) = P840,000
152. c P450,000 + P180,000 + P40,000 = P670,000
153. d P50,000 P3,125 x 5 years) = P34,375
154. a P only (the stock issued In 20x0 includes already in the December 31, 20x4
balance.
155. a P only
156. a
Consolidated Retained Earnings, December 31, 20x4
Consolidated Retained earnings, January 1, 20x4 (equity method)
P
1,350,000
Add: Controlling
Interest in Consolidated Net Income or Profit
attributable to
equity holders of parent for 20x4
Total
Less: Dividends paid P Company for 20x4
Consolidated Retained Earnings, December 31, 20x4 (under equity
method)
Net Income from own operations:
Sales
Less: cost of goods sold
Gross profit
Less: Depreciation expense
Other expenses
Net income
Non-controlling interest (full-goodwill), December 31, 20x4
P Company
S Company
Total
Less: Non-controlling Interest in Net Income
Amortization of allocated excess (refer to amortization above)
Goodwill impairment (impairment under full-goodwill approach)
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent..
490,375
P1,840,375
195,000
P1,645,375
P Co
P900,000
360,000
P540,000
140,000
100,000
P300,000
S Co
P500,000
200,000
P300,000
40,000
60,000
P200,000
P300,000
200,000
P500,000
P
0
9,625
_
0
9,625
P490,375
157. c
Note: Normally, the term used in the requirement equity in subsidiary income, is a
term used under equity method, but it should be noted that under PAS 27, it prohibits the
use of equity method for a parent to consolidate a subsidiary. But, assuming the use of
equity method, the answer would be, P190,375.
Share in net income: P200,000 x 100%
P200,000
Less: Amortization of allocated excess
9,625
P190,375
158. c P3,1250 / .20 = P15,750
159. a
Punns separate earnings for 20x6..............................................
P 6,000,000
Add: Punns equity in net income of Sunn (3 months ended,12/31/x6)
200,000
Less: Amortization of cost in excess of book value.......................
(
60,000)
Punns 20x6 net income (equity method).....................................
P 6,140,000
160. a assume the use of equity method
Punns equity in net income of Sunn (3 months ended,12/31/x6)
P 200,000
Amortization of cost in excess of book value................................
(
60,000)
Increase in Parents retained earnings.
P 140,000
162. b
Retained earnings S Company, 1/1/20x4
Less: Retained earnings S Company, 12/31/20x6
Cumulative net income less dividends since
date of acquisition, 1/1/20x6 (date to establish reciprocity
should always be beginning of the year, not 12/31/x6)
x: Controlling interests
P560,000
300,000
P260,000
P208,000
80%
P 60,000
190,000
P130,000
P117,000
90%
163. (b)
Net income of Subsidiary 2015 and 2016 (P15,000 + P22,000).P 37,000
Less: Dividends of Subsidiary 2015 and 2016 (P6,000 + P9,000).. . 15,000
Cumulative net income less dividends since date of acquisition, 1/1/2017 (date to establish
reciprocity should always be beginning of the year, not 12/31/17) / Increase in
Retained earnings...P 22,000
x: Controlling interests
70%
P 15,400
It should be noted that the amortization/depreciation and any unrealized/realized profits (in case of
intercompany sales of inventory/fixed assets) should not be included (refer to next number) as part of the
entry to established reciprocity since there will be separate eliminating entry to be made at the end of the
year (2017) for amortization and depreciation.
Further, the eliminating entry to establish reciprocity for the year 20x7 should be made on January 1, 2017
not December 31, 2017
Incidentally, the entry to convert from cost method to equity method or the entry to establish reciprocity at
the beginning of the year, 1/1/2017 would be as follows:
Investment in Subsidiary 15,400
Retained earning Parent Company, 1/1/2017.
15,400
164. (a)
Net income of Subsidiary 2015 and 2016 (P15,000 + P22,000). P 37,000
Less: Dividends of Subsidiary 2015 and 2016 (P6,000 + P9,000)
15,000
Increase in Retained earnings for 2 years P 22,000
Less: Amortization of allocated excess [(P80,000 P60,000)/10 years x 2 years]
4,000
P 18,000
x: Controlling interests.
70%
Retroactive amount, December 31, 20x6 or January 1, 2017 P 12,600
165. b
166. d
{(P190,000 - P160,000) 4/6 - [(P241,000 - P220,000)/60] 5}.7
167. b
168.
169.
170.
171.
172.
173.
174.
175. b - Intercompany receivables and payables from unconsolidated subsidiaries would not
be eliminated.
Quiz - XVI
1.
2.
3.
4.
5.
6.
7.
8.
9.
b
{P150,000 - [(P550,000 - P450,000)/10] - [(P300,000 - P280,000)/5]}.8
P36,925
{P110,000 - (P250,000 - P160,000 - P50,000) - [(P130,000 - P100,000) 3/5] +
[(P215,000 - P200,000)/5] (3/12)}.7
P545,500
P500,000 + [P110,000 + P130,000 - P30,000 - P40,000 - P55,000 - (P200,000/8)2].7
P388,000
P320,000 + [P100,000 + P140,000 - P40,000 - P50,000 - P35,000 - (P75,000/5)2].8
P15,400
{P80,000 - [(P290,000 - P250,000)/8] + [(P160,000 - P150,000)/5]}.2
P13,200
{P150,000 - (P470,000 - P300,000 - P90,000) - [(P190,000 - P160,000) 4/5] [(P520,000 -P400,000)/10] (4/12) + [(P380,000 - P350,000)/5] (4/12)}.3
P70,500
{(P250,000/.8) + [P75,000 + P90,000 - P25,000 - P50,000 - P30,000 (P80,000/8)2]}.2
20x5: P56,000
20x6: P14,000
Purchase differential amortization to investment income
20x5
20x6
Inventory (P300,000 - P240,000).7
P42,000
P
0
Plant Assets [(P700,000 - P560,000)/7].7
14,000
14,000
P56,000
P14,000
Consolidation worksheet:
Cost of Goods Sold
Depreciation Expense
P60,000
20,000
10. P2,900
Sandpipers share of Shore net income (P18,000 x 30%)
Add: Overvalued accounts receivable collected in 20x5
Undervalued accounts payable paid in 20x5
Less: Undervalued inventories sold in 20x5
Depreciation on building undervaluation P3,600/6
Amortization on patent P3,200/8 years
Income from Shore/Income from subsidiary
11. P1,050,000
Parrcos income from its own separate operations for 20x6
Subbcos net income for the nine months ended 12/31/x6
P
(
(
(
P 900,000
200,000
5,400
600
300
2,400)
600)
400)
2,900
P3,600,000
Plycos separate earnings for 20x6
P 3,500,000
Add:Dividend income from Slyco.................................................
100,000
Plycos 20x6 net income
P 3,600,000
15.
P3,867,000
Plycos separate earnings for 20x6.............................................
Add:Plycos equity in net income of Slyco.....................................
Less: Amortization of cost in excess of book value.......................
Plycos 20x6 net income...............................................................
16.
P3,500,000
400,000
(
33,000)
P3,867,000
17. P52,000
Net income of S (5/1/x5 12/31/x5): P210,000 x 8/12
Less: Dividend S (11/1/20x5 no need to pro-rate)
Cumulative net income less dividends since
date of acquisition, 12/31/20x5 (date to establish reciprocity
not or 1/1/20x6)
x: Controlling interests
P140,000
75,000
P 65,000
80%
P 52,000
18. P12,600
[{(P15,000 + P22,000) - [(P80,000 - P60,000)/10]2} - (P6,000 + P9,000)].7 =
P12,600
86,400
33,500
20x4
P129,000
22,400
P151,400
P 12,000
( 2,800)
-0P 9,200
P150,000
(128,000)
P
(14,000)
8,000
20.
3,600
21.
P150,000
P150,000
9,200
(3,600)
P155,600
Theories
1
.
2
.
3
.
4
.
5
.
6.
7.
8.
d*
9.
10
,
11
.
12
.
13
.
14
.
15
,
C*
*
b
d
c
c
16
.
17
.
18
.
19
.
20
.
c
c
d
d
b
21
.
22
.
23
.
24
.
25
.
d
a
b
c
c
26
.
27
.
28
.
29
.
30
.
31
32
.
33
.
34
.
35
.
c
c
b
c
c
d
36
.
37
.
38
.
39
.
40
.
d
b
b
c
d
41
.
42
.
43
.
44
.
45
.
a
c
a
*under PAS 27, cost model recognizes any dividend declared/paid by the subsidiary is classified as
income regardless of retained earnings balance, which means there is no such thing as liquidating
dividend under the cost model. On the other hand, under FASB ruling, a liquidating dividend still exists
under the cost method.
**partial equity is the same with equity method except that amortization of allocated excess is not
recognized in the investment and income account.