Eliminating Entries

Chapter 18
Problem I
1. Journal entry to record sale:
Cash
Accumulated Depreciation
Equipment
Gain on Sale of Equipment
Record the sale of equipment:
P84,000 = P150,000 - P80,000 + P14,000
P80,000 = (P150,000 / 15 years) x 8 years
2.
3.
150,000
14,000
Journal entry to record purchase:

Equipment
Cash
84,000
Journal entry to record depreciation expense:

Depreciation Expense
12,000
84,000
12,000
Eliminating entry at December 31, 20x4, to eliminate intercompany sale of

equipment:
E(1)
Equipment
Gain on Sale of Equipment
Eliminate unrealized profit on equipment.
Adjustment to equipment
Amount paid by WW to acquire building
Amount paid by LL on intercompany sale
Adjustment to buildings and equipment
Adjustment to depreciation expense
Depreciation expense recorded by Lance
Corporation (P84,000 / 7 years)
Depreciation expense recorded by WW
Adjustment to accumulated depreciation
Amount required (P10,000 x 9 years)
Amount reported by LL (P12,000 x 1 year)
Required adjustment
4.
84,000
80,000
66,000
14,000
2,000
78,000
P150,000
(84,000)
P 66,000
P 12,000
(10,000)
P 2,000
P 90,000
(12,000)
P 78,000
Eliminating entry at January 1, 20x4, to eliminate intercompany sale of

equipment and prepare a consolidated balance sheet only:
E(1) Equipment
66,000
Retained Earnings
12,000
Eliminate unrealized profit on equipment.
Problem II
1. Eliminating entry, December 31, 20x8:
E(1)
Truck
Gain on Sale of Truck
Computation of gain on sale of truck:
Price paid by Minnow
Cost of truck to Frazer
P300,000
Accumulated depreciation
(P300,000 / 10 years) x 3 years
( 90,000)
78,000
55,000
35,000
5,000
85,000
P245,000
(210,000
)
2.
Gain on sale of truck
P 35,000
Accumulated depreciation adjustment:

Required [(P300,000 / 10 years) x 4 years]
Reported [(P245,000 / 7 years) x 1 year]
Required increase
P120,000
(35,000)
P 85,000
Eliminating entry, December 31, 20x9:

E(1)
Truck
Retained Earnings
55,000
30,000
5,000
80,000

Reported [(P245,000 / 7 years) x 2 years]
P150,000
(70,000
)
P 80,000
Required increase
Problem III
a. Eliminating entry, December 31, 20x8:
E(1)
Truck
Gain on Sale of Truck
Computation of gain on sale of truck:

Price paid by MM
Cost of truck to FF
(P300,000 / 10 years) x 4 years
(120,000)
Gain on sale of truck
b.
90,000
30,000
120,000
P210,000
P300,000
(180,000)
P 30,000

E(1)
Truck
Retained Earnings, January 1

Recorded [(P210,000 / 6 years) x 1 year]
Required increase
90,000
30,000
5,000
115,000
P150,000
(35,000)
P115,000
Problem IV
1
Equipment
Beginning R/E Prince (P100,000 .80)
Noncontrolling Interest (P100,000 .20)
540,000
80,000
20,000
Accumulated Depreciation (P100,000/4) 2 50,000

Beginning R/E Prince (P25,000 .80)
Noncontrolling Interest (P25,000 .20)
2
Controlling Interest in Consolidated Net Income:

Prince Companys income from its
independent operations
Reported net income of Serf Company P820,000
Plus profit on intercompany sale of
equipment considered to be realized
640,000
25,000
20,000
5,000
P3,270,000
through depreciation in 2014

25,000
Reported subsidiary income that has been
realized in transactions with third
parties
845,000
.8
Prince Companys share thereof
Controlling Interest in Consolidated net income
3.
Noncontrolling Interest Calculation:

Reported income of Serf Company
Plus: Intercompany profit considered realized
in the current period
Noncontrolling interest in Serf Company
(.20 845,000)
4.
676,000
P3,946,000
P820,000
25,000
P845,000
P169,000
NCI-CNI (No. 3)
CI-CNI (No. 2)
CNI
P 169,000
3,946,000
P4,115,000
or,
Consolidated Net Income for 20x5
P Companys net income from own/separate operations.
Realized gain on sale of equipment (downstream sales) through
depreciation
P Companys realized net income from separate operations...
S Companys net income from own operations.
Realized gain on sale of equipment (upstream sales) through
depreciation*
Son Companys realized net income from separate operations*...
Total
Less: Amortization of allocated excess
Less: Non-controlling Interest in Net Income* *
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent 20x5..
P3,270,000
0
P3,270,000
P 820,000
25,000
P 845,000
845,000
P4,115,000
0
P4,115,000
169,000
P3,946,000
Or, alternatively
depreciation
Realized gain on sale of equipment (upstream sales) through depreciation
S Companys realized net income from separate operations...
Total
Amortization of allocated excess
equity holders of parent..
Add: Non-controlling Interest in Net Income (NCINI)
**Non-controlling Interest in Net Income (NCINI) for 20x5

S Companys net income of Subsidiary Company from its own operations
(Reported net income of S Company)
S Companys realized net income from separate operations
Multiplied by: Non-controlling interest %..........
Non-controlling Interest in Net Income (NCINI) partial goodwill
1/1/20x4:
Selling price of equipment
Less: BV of equipment
Cost
P3,270,000
0
P3,270,000
P820,000
25,000
P 845,000
P 169,000
0
169,000
P3,946,000
_169,000
P4,115,000
P 820,000
25,000
P 845,000
0
P845,000
20%
P 169,000
P 740,000
P1,280,000
845,000
P4,115,000
Less: Accumulated depreciation:

P1,280,000 / 8 years x 4 years*
640,000
Unrealized gain on sales 1/1/20x4
640,000
P 100,000
Realized gain depreciation: P100,000 / 4 years

P 25,000
*the original life is 8 years as of 1/1/20x3, since the remaining life as of
1/1/20x4
expired.
5
in only 4 years, for purposes of computing the accumulated depreciation to

determine the gain on sale, the difference of 4 years is presumed to be
Equipment
Beginning R/E Prince
Accumulated Depreciation (P100,000/4) 2
Beginning R/E Prince
540,000
100,000
640,000
50,000
Controlling Interest in Consolidated Net Income:

Prince Companys income from its
independent operations
Plus profit on intercompany sale of
equipment considered to be realized
through depreciation in 2014
Reported net income of S Company
P3,270,000
P820,000
.8
Prince Companys share thereof

Controlling Interest in Consolidated net income
Noncontrolling Interest Calculation:
Reported income of S Company
Noncontrolling interest in S Company
(.20 820,000)
NCI-CNI
CI-CNI
CNI
25,000
25,000
25,000
P3,295,000
656,000
P3,951,000
P820,000
P164,000
P 164,000
3,951,000
P4,115,000
or,
depreciation
depreciation*
S Companys realized net income from separate operations*...
Total
P3,270,000
__
__25,000
P3,295,000
P 820,000
0
P 820,000
820,000
P4,115,000
0
P4,115,000
164,000
P3,951,000
Or, alternatively
depreciation
S Companys realized net income from separate operations...
Total
P3,270,000
25,0
00
P3,295,000
P820,000
0
P 820,000
P 164,000
0
820,000
P4,115,000
164,000

P3,951,000
_169,000
P4,115,000

P 820,000
0
P 820,000
0
P820,000
20%
P 164,000
Problem V
Requirements 1 to 4
Schedule of Determination and Allocation of Excess (Partial-goodwill)
Date of Acquisition January 1, 20x4
Fair value of Subsidiary (80%)
Consideration
transferred..
Less: Book value of stockholders equity of S:
Common stock (P240,000 x 80%)
.
Retained earnings (P120,000 x 80%)
...
Allocated excess (excess of cost over book value)
..
Less: Over/under valuation of assets and liabilities:
Increase in inventory (P6,000 x 80%)
Increase in land (P7,200 x 80%)

.
Increase in equipment (P96,000 x 80%)
Decrease in buildings (P24,000 x 80%)
.....
Decrease in bonds payable (P4,800 x 80%)
Positive excess: Partial-goodwill (excess of cost over

fair value)
...
P 372,000
P 192,000
96,000
288,000
P
84,000
P 4,800
5,760
76,800
( 19,200)
3,840
72,000
P 12,000
The over/under valuation of assets and liabilities are summarized as follows:

S Co.
Book value
Inventory.
..
Land
Equipment (net).........
Buildings (net)
Bonds payable
Net..
P 24,000
48,000
84,000
168,000
(120,000)
P 204,000
S Co.
Fair value
P
30,000
55,200
180,000
144,000
( 115,200)
P 294,000
(Over) Under
Valuation
P
6,000
7,200
96,000
(24,000)
4,800
P 90,000
The buildings and equipment will be further analyzed for consolidation purposes as follows:
Equipment..................
Less: Accumulated
depreciation..
Net book
value...
S Co.
Book value
180,000
S Co.
Fair value
180,000
Increase
(Decrease)
0
96,000
( 96,000)
84,000
180,000
96,000
S Co.
Book value
S Co.
Fair value
(Decrease)
Buildings................
Less: Accumulated
depreciation..
Net book
value...
360,000
144,000
( 216,000)
1992,000
( 192,000)
168,000
144,000
24,000)
A summary or depreciation and amortization adjustments is as follows:

Account
amortized
Adjustments
to
Inventory
Subject to Annual Amortization
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
The goodwill impairment loss of P3,750 based on 100% fair value would be allocated to the
controlling interest and the NCI based on the percentage of total goodwill each equity
interest received. For purposes of allocating the goodwill impairment loss, the full-goodwill is
computed as follows:
Consideration transferred: Cash (80%)
Fair value of NCI (given) (20%)
Less: Book value of stockholders equity of S (P360,000 x 100%)
Allocated excess (excess of cost over book value)..
Add (deduct): (Over) under valuation of assets and liabilities
(P90,000 x 100%)
Positive excess: Full-goodwill (excess of cost over
fair value)...
P 372,000
93,000
P 465,000
__360,000
P 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%
The goodwill impairment loss would be allocated as follows

Goodwill impairment loss attributable to parent or controlling
Interest
Goodwill impairment loss based on 100% fair value or fullGoodwill
750
20.00%
P 3,750
100.00%
The unrealized and gain on intercompany sales for 20x4 are as follows:
Date
of Sale
4/1/20x
4
Seller
P Co.
Selling
Price
Book
Value
Unrealized*
Gain on sale
P90,00
0
P75,00
0
P15,000
Remainin
g
Life
5 years
Realized gain
depreciation**
P3,000/year
20x4
P2,25
0
1/2/20x
4
S Co.
60,00
0
28,80
0
31,200
8 years
P3,900/year
P3,90
0
* selling price less book value

** unrealized gain divided by remaining life; 20x4 P3,000 x 9/12 = P2,250
20x4: First Year after Acquisition

Parent Company Cost Model Entry
January 1, 20x4:
(1) Investment in S Company
Cash.
.
Acquisition of S Company.
January 1, 20x4 December 31, 20x4:
(2) Cash
Dividend income (P36,000 x 80%).
Record dividends from S Company.
372,000
372,000
28,800
28,800
No entries are made on the parents books to depreciate, amortize or write-off the portion of
the allocated excess that expires during 20x4, and unrealized profits in ending inventory.
Consolidation Workpaper Year of Acquisition

(E1) Common stock S Co
Retained earnings S Co
Investment in S Co
Non-controlling interest (P360,000 x 20%)
..
240,000
120.000
288,000
72,000
To eliminate intercompany investment and equity accounts

of subsidiary on date of acquisition; and to establish noncontrolling
interest (in net assets of subsidiary) on date of acquisition.
(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
12,000
216,000
18,000
84,000
To allocate excess of cost over book value of identifiable assets

acquired, with remainder to goodwill; and to establish noncontrolling interest (in net assets of subsidiary) on date of
acquisition.
(E3) Cost of Goods Sold.

Depreciation expense..
6,000
6,000
6,000
Interest expense
Goodwill impairment loss.
Inventory..
Discount on bonds payable
Goodwill
1,200
3,000
6,000
12,000
1,200
3,000
To provide for 20x4 impairment loss and depreciation and

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

Cost of
Depreciation/
Goods
Amortization
Amortizatio
Sold
Expense
n
-Interest
Inventory sold
P
6,000
Equipment
P 12,000
Buildings
( 6,000)
Bonds payable
_______
_______
P 1,200
Totals
P 6,000
P 6,000
P1,200
Total
13,200
(E4) Dividend income - P.

Non-controlling interest (P36,000 x 20%)..
Dividends paid S
28,800
7,200
36,000
To eliminate intercompany dividends and non-controlling interest

share of dividends.
(E5) Gain on sale of equipment

Equipment
its
15,000
30,000
45,000
To eliminate the downstream intercompany gain and restore to

original cost to the consolidate entity (along with its accumulated
depreciation at the point of the intercompany sale).

Equipment
31,200
12,000
43,200
To eliminate the upstream intercompany gain and restore to its

(E7) Accumulated depreciation..

Depreciation expense
2,250
2,250
To adjust downstream depreciation expense on equipment sold

to subsidiary, thus realizing a portion of the gain through
depreciation
(P15,000 / 5 years x 9/12 = P2,250).

3,900
3,900
To adjust upstream depreciation expense on equipment sold to

parent, thus realizing a portion of the gain through depreciation
(P31,200/85 years x 1 year = P3,900).
(E9)
Non-controlling
interest
in
Subsidiary
Non-controlling interest ..
Net
Income
of
To establish non-controlling interest in subsidiarys adjusted net

income for 20x4 as follows:
10,140
10,140
Net income of subsidiary..

Unrealized gain on sale of equipment
(upstream sales)
Realized gain on sale of equipment (upstream
sales) through depreciation
S Companys realized net income from
separate operations
Less: Amortization of allocated excess [(E3)].
P 91,200
( 31,200)
3,900

Non-controlling Interest in Net Income (NCINI)
partial goodwill
P 63,900
13,200
P 50,700
20%
P
10,140
Subsidiary accounts are adjusted to full fair value regardless on the controlling interest
percentage or what option used to value non-controlling interest or goodwill.
Worksheet for Consolidated Financial Statements, December 31, 20x4.

Cost Model (Partial-goodwill)
80%-Owned Subsidiary
December 31, 20x4 (First Year after Acquisition)
Income Statement
Sales
Gain on sale of equipment
Dividend income
Total Revenue
Cost of goods sold
P Co
P480,000
S Co.
P240,000
15,000
31,200
28,800
P523,800
P271,200
P204,000
P138,000
(3)
6,000
60,000
24,000
Interest expense
Other expenses
48,000
18,000
P312,000
P211,800
P211,800
Statement of Retained Earnings

Retained earnings, 1/1
P Company
P360,000
S Company
Net income, from above
Total
Dividends paid
P Company
S Company
Retained earnings, 12/31 to Balance
Sheet
211,800
P571,800
P180,000
P 91,200
P 91,200
Cr.
Consolidated
P 720,000
(5)
15,000
(6)
31,200
(4)
28,800
(3)
6,000
Goodwill impairment loss

Total Cost and Expenses
Net Income
NCI in Net Income - Subsidiary
Net Income to Retained Earnings
Dr.
_________
P 720,000
P 348,000
(7)
2,250
83,850
(8)
3,900
(3)
1,200
1,200
66,000
3,000
(3)
3,000
P
P
(
P
(9 10,140
502,050
217,950
10,140)
207,810
P 360,000
P120,000
91,200
P211,200
(1)
120,000
207,810
P 567,810
72,000
72,000
(4)
36,000
36,000
________
P499,800
P175,200
P 495,810
Cash.
Accounts receivable..
P
232,800
90,000
P 90,000
60,000
P 322,800
150,000
Inventory.
120,000
90,000
Land.
210,000
48,000
Balance Sheet
(2)
6,000
(2)
7,200
3)
6,000
210,000
265,200
(5)
30,000
Equipment
Buildings
240,000
720,000
180,000
540,000
(2)
4,800
(2)
12,000

Goodwill
Investment in S Co
Total
equipment
buildings
Accounts payable
Bonds payable
Common stock, P10 par
Retained earnings, from above
372,000
P1,984,800
P 135,000
405,000
105,000
240,000
600,000
499,800
Non-controlling interest
_________
Total
(6)
12,000
P1,984,800
462,000
(2)
216,000
(3)
1,200
(3)
3,000
(1) 288,000
(2) 84,000
P1,008,0
00
______
___
P1,008,0
00
3,600
9,000
P2,466,600
(3) 96,000
(7)
2,250
P 96,000 (8)
3,900
(2)
288,000
192,000
(3) 6,000
88,800
120,000
240,000
175,200
1,044,000
(3)
12,000
(5)
45,000
(6)
43,200
P229,050
495,000
193,800
360,000
600,000
(1)
240,000
495,810
(1 )
72,000 (2)
(4) 7,200 18,000
(9)
__________
10,140
P
P
834,450
834,450
____92,940
P2,466,600
20x5: Second Year after Acquisition

Sales
Less: Cost of goods sold
Gross profit
Less: Depreciation expense
Other expense
Net income from its own separate operations
Add: Dividend income
Net income
Dividends paid
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
No goodwill impairment loss for 20x5.

Only a single entry is recorded by the parent in 20x5 in relation to its subsidiary investment:

Cash
38,400
38,400
On the books of S Company, the P48,000 dividend paid was recorded as follows:
Dividends paid
Cash
Dividends paid by S Co..
48,000
48,000
Consolidation Workpaper Second Year after Acquisition

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

44,160
Retained earnings P Company
the
44,160
To provide entry to convert from the cost method to the equity

method or the entry to establish reciprocity at the beginning of
year, 1/1/20x5, computed as follows:
Retained earnings S Company, 1/1/20x5

Increase in retained earnings..
Multiplied by: Controlling interest %
Retroactive adjustment
P175,200
120,000
P 55,200
80%
P 44,160
Entry (1) above is needed only for firms using the cost method to account for their
investments in the subsidiary. If the parent is already using the equity method, there is no
need to convert to equity.

Retained earnings S Co., 1/1/20x5
Investment in S Co (P415,200 x 80%)

..
240,000
175,200
332,160
83,040

of subsidiary and to establish non-controlling interest (in net
assets of
subsidiary) on January 1, 20x5.
(E3)
Inventory.
Land
.
Discount
on
bonds
payable.
Goodwill.
Buildings..
Investment in S Co.
6,000
96,000
192,000
7,200
4,800
12,000
216,000
18,000
84,000

acquired, with remainder to goodwill; and to establish noncontrolling interest (in net assets of subsidiary) on January 1,
20x5.
(E4) Retained earnings P Company, 1/1/20x5

[(P13,200 x 80%) + P3,000, impairment loss on
partial-goodwill]
Non-controlling interests (P13,200 x 20%).
13,560
2,640
Interest expense
Inventory..
Goodwill
6,000
12,000
1,200
6,000
24,000
2,400
3,000
To provide for years 20x4 and 20x5 depreciation and

amortization on
differences between acquisition date fair value and book value
of
Sons identifiable assets and liabilities as follows:
Year 20x4 amounts are debited to Perfects retained earnings
&
NCI;
Year 20x5 amounts are debited to respective nominal
accounts.
Inventory sold
Equipment
Buildings
Bonds payable
Sub-total
Multiplied by:
To Retained earnings
Impairment loss
Total
(20x4)
Retaine
d
earnings
,
P
6,000
12,000
(6,000)
1,20
0
P13,200
80%
P
10,560
3,00
0
P
13,560
Depreciation/
Amortization
expense
Amortizatio
n
-Interest
P 12,000
( 6,000)
________
P 1,200
P 6,000
P 1,200

Dividends paid S
38,400
9,600
48,000

share of dividends.
(E5) Retained Earnings P Company, 1/1/20x5

Equipment
its
15,000
30,000
45,000

(E6) Retained EarningsP Company, 1/1/20x5 (P31,200 x 80%)

Equipment
24,960
6,240
12,000
43,200


Depreciation expense (current year)
Retained EarningsP Company, 1/1/20x5 (prior year)
depreciation
5,250
3,000
2,250

Retained EarningsP Co. 1/1/20x5 (P3,900 x 80%)
7,800
3,900
3,120
780

(P31,200/85 years x 1 year = P3,900).
(E9)
Non-controlling
interest
in
Subsidiary
Net
Income
of
17,340
17,340


Realized gain on sale of equipment
(upstream
S Companys Realized net income*
Multiplied by:
%..........
Non-controlling
Interest in Net Income
(NCINI)
partial goodwill
P 90,000
3,900
P 93,900
( 7,200)
P 86,700
20
%
P 17,340
*from separate transactions that has been realized in transactions

with third persons.

Cost Model (Partial-goodwill)
December 31, 20x5 (Second Year after Acquisition)
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
72,000
P348,000
Net Income
P230,400
-
P230,400
54,000
P270,000
P
90,000
P
90,000

P Company
P499,800
Dr.
Cr.
(5)
38,400
(4)
6,000
(7)
3,000
(8)
3,900
(4)
1,200
Consolidated
P 900,000
___________
P 900,000
P 408,000
83,100
1,200
126,000
P 618,300
P 281,700
(9) 17,340
(1) 13,560
(5) 15,00
0
( 17,340)
P 264,360
(1) 44,160
(7) 2,250
(8) 3,120
P 495,810
S Company
Total
Dividends paid
P Company
S Company
Sheet
230,400
P730,200
P
175,200
__90,000
P265,200
(6) 24,96
0
(2)
175,200
264,360
P 760,170
72,000
72,000
(5)
48,000
48,000
________
P658,200
P217,200
P 688,170
Cash.
P
265,200
180,000
P
102,000
96,000
P 367,200
276,000
Inventory.
216,000
108,000
Land.
210,000
48,000
Equipment
240,000
180,000
Balance Sheet
(2)
Buildings
720,000
540,000
(3)
4,800
(3)
12,000

Goodwill
Investment in S Co
(1) 6,000
(3)
7,200
(5)
30,000
(6)
12,000
372,000
(1)
44,160
Total
P2,203,200
equipment
buildings
Accounts payable
Bonds payable
P 150,000
P
102,000
306,000
105,000
240,000
600,000
88,800
120,000
240,000
217,200
___
_____
Total
P2,203,200
______
___
P1,074,0
00
324,000
265,200
462,000
(3)
216,000
(4)
2,400
(4)
3,000
(2)
332,160
(3)
84,000
P1,074,0
00
450,000
658,200
6,00
0
1,044,000
2,400
9,000
P2,749,800
(4)
24,000
(5)
(3) 96,000 45,000
(7)
5,250 (6)
(8)
7,800 43,200
(3)
192,000
(4)
12,000
P 255,150
552,000
193,800
360,000
600,000
(2)
240,000
688,170
(2
83,040 (3)
18,000
(4)
2,640 (8)
(5)
9,600 780
(6)
6,240 (9)
__________
17,340
P
P
979,350
979,350
____100,680
P2,749,800
5. 1/1/20x4
a. On date of acquisition the retained earnings of parent should always be considered as
the consolidated retained earnings, thus:
Consolidated Retained Earnings, January 1, 20x4
Retained earnings - Parent Company, January 1, 20x4 (date of acquisition)
b.
Non-controlling interest (partial-goodwill), January 1, 20x4
P360,000
P 240,000
Common stock Subsidiary Company
Retained earnings Subsidiary Company.
Stockholders equity Subsidiary Company...
Adjustments to reflect fair value - (over) undervaluation of assets and liabilities
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
P 450,000
20
P 90,000
c.
Consolidated SHE:
Stockholders Equity
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.
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 - P
Unrealized gain on sale of equipment (upstream sales)
P Companys realized net income from separate operations*...
Total
Amortization of allocated excess (refer to amortization above)
Goodwill impairment (impairment under partial-goodwill approach)
P183,000
(15,000)
2,250
P170,250
P 91,200
( 31,200)
3,900
P 63,900
P 10,140
13,200
3,000
b. NCI-CNI P10,140
26,340
P207,810
_ 10,140
P217,950
*that has been realized in transactions with third parties.

Less: Amortization of allocated excess / goodwill impairment
(refer to amortization table above)
63,900
P234,150
P 91,200
( 31,200)
3,900
P 63,900
13,200
P 50,700
20%
10,140
c. CNI, P217,950 refer to (a)

d. On subsequent to date of acquisition, consolidated retained earnings would be
Consolidated Retained Earnings, December 31, 20x4

Add: Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent for 20x4
Total
Less: Dividends paid Parent Company for 20x4
P360,000
207,810
P567,810
72,000
P495,810
e.
The goodwill recognized on consolidation purely relates to the parents share. NCI is
not recognized. The NCI on January 1, 20x4 and December 31, 20x4 are computed as
follows:
Non-controlling interest (partial-goodwill), December 31, 20x4
P 240,000
Common stock Subsidiary Company, December 31, 20x4
Retained earnings Subsidiary Company, December 31, 20x4
Retained earnings Subsidiary Company, January 1, 20x4
Add: Net income of subsidiary for 20x4
Total
Less: Dividends paid 20x4
Stockholders equity Subsidiary 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
Realized stockholders equity of subsidiary, December 31, 20x4
Non-controlling interest (partial-goodwill)..
P120,000
91,200
P211,200
36,000
175,200
P 415,200
90,000
( 13,200)
P492,000
( 31,200)
3,900
P464,700
20
P 92,940
f.
Consolidated SHE:
Stockholders Equity
Retained earnings
Parents Stockholders Equity / CI SHE, 12/31/20x4
NCI, 12/31/20x4
12/31/20x5:
a. CI-CNI P264,360
P 600,000
495,810
P1,095,810
___92,940
P1,188,750

depreciation
Total
P192,000
3,000
P195,000
P 90,000
3,90
P 93,900
93,900
P288,900
7,200
P281,700
17,340
P264,360
Or, alternatively
depreciation
Total
P192,000
3,000
P195,000
P 90,000
3,900
P 93,900
P 17,340
7,200
93,900
P288,900
24,540
P264,360
_ 17,340
P281,700
b. NCI-CNI P17,340
(Reported net income of Son Company)
P 90,000
3,900
P 93,900
7,200
P 86,700
20%
P 17,340

Retained earnings - Parent Company, January 1, 20x5 (cost model)
Less: Downstream - net unrealized gain on sale of equipment prior to
20x5
(P15,000 P2,250)
Adjusted Retained Earnings Parent 1/1/20x5 (cost model ) Son
Companys
Retained earnings that have been realized in transactions with third
parties..
Adjustment to convert from cost model to equity method for purposes of
consolidation or to establish reciprocity:/Parents share in adjusted
net
increased in subsidiarys retained earnings:
Retained earnings Subsidiary, January 1, 20x5
Less: Retained earnings Subsidiary, January 1, 20x4
P499,800
12,750
P487,050
P 175,200
120,000
Increase in retained earnings since date of acquisition

Less: Amortization of allocated excess 20x4
Upstream - net unrealized gain on sale of equipment prior to
20x5 (P31,200 P3,900)
P 55,200
13,200
27,300
P 14,700
80%
P
11,760
3,000
Multiplied by: Controlling interests %...................

Less: Goodwill impairment loss
Consolidated Retained earnings, January 1, 20x5
Add: Controlling
Interest in Consolidated Net Income or Profit
attributable to
Total
__ 8,760
P495,810
264,360
P760,170
72,000
P688,170
*this procedure would be more appropriate, instead of multiplying the full-goodwill impairment loss of
P3,750 by 80%. There might be situations where the controlling interests on goodwill impairment loss would
not be proportionate to NCI acquired (refer to Illustration 15-6).
Or, alternatively:
Retained earnings - Parent Company, December 31, 20x5 (cost model)
12/31/20x5 (P15,000 P2,250 P3,000)
Adjusted Retained Earnings Parent 12/31/20x5 (cost model )
S Companys Retained earnings that have been realized in
transactions with third parties..
net
Retained earnings Subsidiary, December 31, 20x5
Less: Accumulated amortization of allocated excess
20x4 and 20x5 (P11,000 + P6,000)
Upstream - net unrealized gain on sale of equipment prior
to
12/31/20x5 (P31,200 P3,900 P3,900)
P658,200
9,750
P648,450
P 217,200
120,000
P 97,200
20,400
23,400
P

P
Consolidated Retained earnings, December 31, 20x5
53,400
80%
42,720
3,000
39,720
P688,170
e.
P 240,000
Total
Amortization of allocated excess (refer to amortization above) :
20x4
20x5
Less: Upstream - net unrealized gain on sale of equipment prior to
12/31/20x5
P175,200
90,000
P
265,200
48,000
217,20
0
P 457,200
90,000
P
13,200
7,200
( 20,400)
P 526,800
(P31,200 P3,900 P3,900)

Realized stockholders equity of subsidiary, December 31, 20x5.
Non-controlling interest (partial goodwill)..
23,400
P503,400
20
P 100,680
f.
Consolidated SHE:
Stockholders Equity
Retained earnings
NCI, 12/31/20x5
P 600,000
688,170
P1,288,170
__100,680
P1,188,850
Problem VI
Requirements 1 to 4
Schedule of Determination and Allocation of Excess
Consideration transferred (80%)..
Fair value of NCI (given) (20%)..
Fair value of Subsidiary (100%).
Less: Book value of stockholders equity of Son:
.
Retained earnings (P120,000 x 100%)...
..

.
.....

fair value)
...
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

Account
amortized
Adjustments
to
Inventory
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:
Cash.
.
(2) Cash
372,000
372,000
28,800
28,800
Dividends paid
Cash.
36,000
36,000
No entries are made on the parents books to depreciate, amortize or write-off the portion of
the allocated excess that expires during 20x4.
Consolidation Workpaper First Year after Acquisition

Investment in S Co
..
240,000
120.000
288,000
72,000

of subsidiary on date of acquisition; and to establish noncontrolling
interest (in net assets of subsidiary) on date of acquisition.
(E2)
Inventory.
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

acquired, with remainder to goodwill; and to establish noncontrolling interest (in net assets of subsidiary) on date of
acquisition.
Since the set-up entry in (E2) NCI at fair value, non-controlling interests have a share of
entity goodwill and hence is exposed to impairment loss on goodwill. PAS 36 requires the
impairment loss to be pro-rated between the parent and NCI on the same basis as that on
which profit or loss is allocated. In other words, the impairment loss is not pro-rated in
accordance with the proportion of goodwill recognized by parent and NCI.

Interest expense
Inventory..
Goodwill
6,000
6,000
6,000
1,200
3,750
6,000
12,000
1,200
3,750

and
Cost of
Goods
Sold
Inventory sold
Equipment
Buildings
Bonds payable
Totals
Depreciation/
Amortization
Expense
Amortizatio
n
-Interest
P
6,000
P12,000
( 6,000)
_______
P 6,000
_______
P 6,000
P 1,200
P1,200

Dividends paid S
28,800
7,200
36,000

share of dividends.

Equipment
15,000
30,000
45,000

its


Equipment
31,200
12,000
43,200


2,250
2,250

depreciation
(P15,000 / 5 years x 9/12 = P2,250).

3,900
3,900

(P31,200/85 years x 1 year = P3,900).
(E9)
Non-controlling
interest
in
Net
Income
of
9,390
Subsidiary
9,390


(upstream sales)
separate operations
P 91,200
( 31,200)
3,900

partial goodwill
Less: Non-controlling interest on impairment
loss on full-goodwill (P3,750 x 20%) or
(P3,750 impairment on full-goodwill less
P3,000, impairment on partial-goodwill)
P 63,900
13,200
P 50,700
20%
P
10,140
750
9,390

Cost Model (Full-goodwill)
Income Statement
Sales
Dividend income
Total Revenue
Cost of goods sold
P Co
P480,000
S Co.
P240,000
15,000
31,200
28,800
P523,800
P271,200
P204,000
P138,000
(3)
6,000
60,000
24,000
Interest expense
Other expenses
48,000
18,000

Net Income
P312,000
P211,800
P180,000
P 91,200

P211,800
P 91,200

P Company
P360,000
S Company
Sheet
211,800
P571,800
Cr.
Consolidated
P 720,000
(5)
15,000
(6)
31,200
(4)
28,800
(3)
6,000
S Company
Total
Dividends paid
P Company
Dr.
_________
P 720,000
P 348,000
(7)
2,250
83,850
(8)
3,900
(3)
1,200
1,200
66,000
3,750
(3)
3,750
P 502,800
P 217,200
( 9,390)
(9)
9,390
P 207,810
P 360,000
P120,000
91,200
P211,200
(1)
120,000
207,810
P 567,810
72,000
72,000
36,000
P499,800
P175,200
(4)
36,000
________
P 495,810
Balance Sheet
Cash.
P
232,800
90,000
P 90,000
60,000
Inventory.
120,000
90,000
Land.
210,000
48,000
Equipment
240,000
180,000
Buildings
720,000
Total
equipment
buildings
Accounts payable
Bonds payable
372,000
P1,984,800
P 96,000
405,000
288,000
105,000
240,000
600,000
88,800
120,000
_________
P1,984,800
240,000
175,200
______
___
P1,008,0
00
210,000
265,200
462,000
(2)
216,000
(3)
1,200
(3)
3,750
(1)
288,000
(2)
84,000
P1,008,0
00
P 135,000
499,800
3)
6,000
(6)
12,000
(2)
4,800
(2)
15,000
Total
(2)
6,000
(2)
7,200
(5)
30,000
540,000

Goodwill
Investment in S Co
P 322,800
150,000
1,044,000
3,600
11,250
P2,468,850
(2)
80,000
(7)
2,250
(8)
3,900
(2)
192,000
(3)
6,000
(3)
10,000
(5)
45,000
(6)
43,200
P229,050
495,000
193,800
360,000
600,000
(1)
240,000
495,810
(3)
7,200
__________
P
843,690
(1 )
72,000 (2)
21,000
(9)
9,390
P
843,690
____95,190
P2,468,850

Sales
Gross profit
Other expense
Add: Dividend income
Net income
Dividends paid
P Co.
P 540,000
216000
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

Cash
38,400
38,400
Dividends paid
Cash
48,000
48,000

Retained earnings P Company
the
44,160
44,160
To provide entry to convert from the cost method to the equity

method or the entry to establish reciprocity at the beginning of
year, 1/1/20x5, computed as follows:

Increase in retained earnings..
Multiplied by: Controlling interest %
Retroactive adjustment
P175,200
120,000
P 55,200
80%
P 44,160

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

..
240,000
175,200
332,160
83,040

of subsidiary and to establish non-controlling interest (in net
assets of
subsidiary) on January 1, 20x5.
(E3)
Inventory.
Land
.
Discount
on
bonds
payable.
Goodwill.
Buildings..
Non-controlling interest (P90,000 x 20%) + [(P15,000,
full
Investment in S Co.
6,000
96,000
192,000
7,200
4,800
15,000
216,000
21,000
84,000

acquired, with remainder to goodwill; and to establish noncontrolling interest (in net assets of subsidiary) on January 1,
20x5.
(E4) Retained earnings P Company, 1/1/20x5

[(P13,200 x 80%) + P3,000, impairment loss on
partial-goodwill]
Non-controlling interests (P16,950 x 20%) or (P13,200 x
20% +
(P3,750 P3,000 = P750)
13,560
3,390
6,000

Interest expense
Inventory..
Goodwill
12,000
1,200
6,000
24,000
2,400
3,750
To provide for years 20x4 and 20x5 depreciation and

amortization on
differences between acquisition date fair value and book value
of
Sons identifiable assets and liabilities as follows:
Year 20x4 amounts are debited to Perfects retained earnings
&
NCI;
Year 20x5 amounts are debited to respective nominal
accounts.
Inventory sold
Equipment
Buildings
Bonds payable
Sub-total
Multiplied by:
To Retained earnings
Impairment loss
Total
(20x4)
Retaine
d
earnings
,
P
6,000
12,000
(6,000)
1,20
0
P13,200
80%
P
10,560
3,00
0
P
13,560
Depreciation/
Amortization
expense
Amortizatio
n
-Interest
P 12,000
( 6,000)
________
P 1,200
P 6,000
P 1,200

Dividends paid S
38,400
9,600
48,000

share of dividends.
(E6) Retained Earnings P Company, 1/1/20x5

Equipment
its
15,000
30,000
45,000

(E7) Retained EarningsP Company, 1/1/20x5 (P31,200 x 80%)

Equipment
24,960
6,240
12,000
43,200


Retained EarningsP Company, 1/1/20x5 (prior year)
depreciation
5,250
3,000
2,250

Retained EarningsP Co. 1/1/20x5 (P3,900 x 80%)
7,800
3,900
3,120
780

(P31,200/85 years x 1 year = P3,900).
(E10)
Non-controlling
interest
in
Subsidiary
Net
Income
of
17,340
17,340


(upstream
Multiplied by:
Non-controlling
%..........
Non-controlling
Interest in Net
(NCINI
Less: NCI on goodwill impairment
fullGoodwill
Non-controlling
Interest in Net
(NCINI)
interest
Income
P 90,000
3,900
P 93,900
( 7,200)
P 86,700
20
%
P 17,340
loss on
0
Income
P 17,340

with third persons.

Cost Model (Full-goodwill)
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
72,000
P348,000
Net Income
P230,400
54,000
P270,000
P
90,000
P230,400

P Company
P499,800
P
90,000
Dr.
Cr.
(5)
38,400
(4)
6,000
(8)
3,000
(9)
3,900
(4)
1,200
Consolidated
P 900,000
___________
P 900,000
P 408,000
83,100
1,200
126,000
P 618,300
P 281,700
(10)
17,340
( 17,340)
P 264,360
(2) 13,560
(6)
(1) 44,160
(8)
2,250
P 495,810
S Company
Total
Dividends paid
P Company
S Company
Sheet
230,400
P730,200
P
175,200
90,000
P265,200
15,00
(7)
24,960
(1)
175,200
(9)
3,120
264,360
P 760,170
72,000
72,000
(5)
48,000
48,000
________
P658,200
P217,200
P 688,170
Cash.
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
Balance Sheet
Buildings
720,000
540,000
(3)
4,800
(3)
15,000

Goodwill
Investment in S Co
Total
372,000
P2,203,200
(1)
44,160
equipment
P 150,000
buildings
450,000
306,000
Accounts payable
Bonds payable
105,000
240,000
600,000
88,800
120,000
658,200
240,000
217,200
___
_____
Total
P2,203,200
(4)
6,000
______
___
P1,074,0
00
324,000
265,200
462,000
(3)
216,000
(4)
2,400
(4)
3,750
(2)
332,160
(3)
90,000
P1,074,0
00
P
102,000

(3)
6,000
(3)
7,200
(6)
30,000
(7)
12,000
1,044,000
2,400
11,250
P2,752,050
(3)
96,000
(8)
5,250
(9)
7,800
(3)
192,000
(4)
12,000
(4)
24,000
(6)
45,000
(7)
43,200
P 255,150
552,000
193,800
360,000
600,000
(2)
240,000
688,170
(2 )
(4)
83,040 (3)
3,390
21,000
(5)
9,600 (9)
(7)
780
6,240
(10)
__________
17,340
P
P
983,100
983,100
____102,930
P2,752,050
5. 1/1/20x4
a. On date of acquisition the retained earnings of parent should always be considered as
the consolidated retained earnings, thus:
Consolidated Retained Earnings, January 1, 20x4
b.
Non-controlling interest (partial-goodwill), January 1, 20x4
P360,000
P 240,000
Common stock Subsidiary Company
Retained earnings Subsidiary Company.
Stockholders equity Subsidiary Company...
Adjustments to reflect fair value - (over) undervaluation of assets and liabilities
Fair value of stockholders equity of subsidiary, January 1, 20x4
Non-controlling interest (partial goodwill),..
Add: Non-controlling interests on full goodwill, 1/1/20x4 (P12,500, full-goodwill P10,000,
partial
goodwill)
Non-controlling interest (full-goodwill)
120,000
P 360,000
90,000
P 450,000
20
P 90,000
3,000
P 93,000
c.
Consolidated SHE:
Stockholders Equity
Retained earnings
Parents Stockholders Equity / CI SHE
NCI, 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
not recognized.
12/31/20x4:
a. CI-CNI P207,810
Total
Amortization of allocated excess (refer to amortization above)
Goodwill impairment (impairment under partial-goodwill approach)
P183,000
(15,000)
2,250
P170,250
P 91,200
( 31,200)
3,900
P 63,900
P 10,140
13,200
3,000
26,340
P207,810
10,140
P217,950
b. NCI-CNI P10,140
63,900
P234,150
P 91,200
( 31,200)
3,900
P 63,900
Less: Amortization of allocated excess / goodwill impairment

(refer to amortization table above)
Less: Non-controlling interest on impairment loss on full-goodwill (P3,750
x
20%) or (P3,750mpairment on full-goodwill less

impairment on
partial- goodwill)
Non-controlling Interest in Net Income (NCINI) full goodwill
P3,000,
13,200
P 50,700
20%
P
10,140
750
P 9,390

Add: Controlling Interest in Consolidated Net Income or Profit attributable to
Total
P360,000
207,810
P567,810
72,000
P495,810
e.
P 240,000
Total
Amortization of allocated excess (refer to amortization above) 20x4
Realized stockholders equity of subsidiary, December 31, 20x4
Non-controlling interest (partial-goodwill)..
Add: Non-controlling interest on full goodwill , net of impairment loss,
12/31/x4:
[(P15,000 full P12,000, partial = P3,000) P750 impairment loss
Non-controlling interest (full-goodwill)..
P120,000
91,200
P211,200
36,000
175,200
P 415,200
90,000
( 13,200)
P492,000
( 31,200)
3,900
P464,700
20
P 92,940
2,250
P 95,190
f.
Consolidated SHE:
Stockholders Equity
Retained earnings
P 600,000
495,810
P1,095,810
NCI, 12/31/20x4
___95,190
P1,191,000
12/31/20x5:
a. CI-CNI P281,700
depreciation
Total
P192,000
3,000
P195,000
P 90,000
3,900
P 93,900
93,900
P288,900
7,200
P281,700
17,340
P264,360
Or, alternatively
depreciation
Total
P192,000
3,000
P195,000
P 90,000
3,900
P 93,900
P 17,340
7,200
93,900
P288,900
24,540
P264,360
_ 17,340
P281,700
b. NCI-CNI P17,340
Non-controlling Interest in Net Income (NCINI) - partial goodwill
Less:
NCI on goodwill impairment loss on fullgoodwill . . . . . . . . . . . . . . . . . . . . .
Non-controlling
Interest in Net Income (NCINI) full
goodwill . . . . . . . . . . . . .
P 90,000
3,900
P 93,900
7,200
P 86,700
20%
P 17,340
0
P 17,340


Retained earnings - Parent Company, January 1, 20x5 (cost model)
20x5
(P15,000 P2,250)
Adjusted Retained Earnings Parent 1/1/20x5 (cost model ) Son
Companys
Retained earnings that have been realized in transactions with third
parties..
net
Retained earnings Subsidiary, January 1, 20x5
Less: Amortization of allocated excess 20x4
Upstream - net unrealized gain on sale of equipment prior to
20x5 (P31,200 P3,900)
P499,800
12,750
P487,050
P 175,200
120,000
P 55,200
13,200
27,300
P 14,700
80%
P
11,760
3,000

Consolidated Retained earnings, January 1, 20x5
Add: Controlling
Interest in Consolidated Net Income or Profit
attributable to
Total
__ 8,760
P495,810
264,360
P760,170
72,000
P688,170
*this procedure would be more appropriate, instead of multiplying the full-goodwill impairment loss of
P3,750 by 80%. There might be situations where the controlling interests on goodwill impairment loss would
not be proportionate to NCI acquired (refer to Illustration 15-6).
Or, alternatively:
Retained earnings - Parent Company, December 31, 20x5 (cost model)
12/31/20x5 (P15,000 P2,250 P3,000)
Adjusted Retained Earnings Parent 12/31/20x5 (cost model )
S Companys Retained earnings that have been realized in
transactions with third parties..
net
Retained earnings Subsidiary, December 31, 20x5
Less: Accumulated amortization of allocated excess
20x4 and 20x5 (P13,200 + P7,200)
Upstream - net unrealized gain on sale of equipment prior
to
12/31/20x5 (P31,200 P3,900 P3,900)
P658,200
9,750
P648,450
P 217,200
120,000
P 97,200
20,400
23,400
P

P
Less: Goodwill impairment loss (full-goodwill)
Consolidated Retained earnings, December 31, 20x5
53,400
80%
42,720
3,000
39,720
P688,170
e.
Non-controlling interest, December 31, 20x5
P 240,000
P175,200

Total
90,000
P
265,200
48,000

Amortization of allocated excess (refer to amortization above) :
20x4
20x5
Less: Upstream - net unrealized gain on sale of equipment prior to
12/31/20x5
(P31,200 P3,900 P3,900)
Realized stockholders equity of subsidiary, December 31, 20x5.
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)..
217,20
0
P 457,200
90,000
P
13,200
7,200
( 20,400)
P 526,800
23,400
P503,400
20
P 100,680
2,250
P 102,930
f.
Consolidated SHE:
Stockholders Equity
Retained earnings
NCI, 12/31/20x5
P 600,000
688,170
P1,288,170
__102,930
P1,391,100
Problem VII
20x4
20x5
1.
Noncontrolling interest inP 7,000 (1) P 46,200 (2)
Consolidated net income
Controlling interest in 290,500 (3)
(1)
(2)
(3)
(4)
279,300 (4)
.4(P70,000 P63,000 + P10,500) = P7,000

.4(P105,000 + P10,500) = P46,200
P280,000 + .6(P70,000 P63,000 + P10,500) = P290,500
P210,000 + .6(P105,000 + P10,500) = P279,300
2014
2015
2.
Noncontrolling interest in P 28,000 (5)P 42,000 (6)
Consolidated income
Controlling interest in 269,500 (7)
283,500 (8)
(5) .4(P70,000) = P28,000
(6) .4(P105,000) = P42,000
(7) (P280,000 P63,000 + P10,500) + .6(P70,000) = P269,500
(8) (P210,000 + P10,500) + .6(P105,000) = P283,500
Problem VIII
(Determine consolidated net income when an intercompany transfer of equipment occurs.
Includes an outside ownership)
a. IncomeST .......................................................................................
IncomeBB.......................................................................................
Excess amortization for unpatented technology................................
Remove unrealized gain on equipment .............................................
(P120,000 P70,000)
P220,000
90,000
(8,000)
(50,000)
Remove excess depreciation created by

inflated transfer price (P50,000 5) ...........................................
Consolidated net income ..................................................................
b. Income calculated in (part a.) ...........................................................
Non-controlling interest in BB's income
IncomeBB ................................................................ P90,000
Excess amortization ...................................................
(8,000)
Adjusted net income ................................................... P82,000
Non-controlling interest in BBs income (10%).............................
Consolidated net income to parent company.....................................
c. Income calculated in (part a.) ...........................................................
Non-controlling interest in BB's income (see Schedule 1)
(4,200)
Consolidated net income to parent company.....................................
10,000
P262,000
P262,000
(8,200)
P253,800
P262,000
P257,800
Schedule 1: Non-controlling Interest in Bennett's Income (includes upstream

transfer)
Reported net income of subsidiary ....................................................
P90,000
Excess amortization...........................................................................
(8,000)
Eliminate unrealized gain on equipment transfer ..............................
(50,000)
Eliminate excess depreciation (P50,000 5) ....................................
10,000
Bennett's realized net income ...........................................................
P42,000
Outside ownership ............................................................................
10%
Non-controlling interest in subsidiary's income .................................
P 4,200
d. Net income 20x5ST ........................................................................
Net income 20x5BB .......................................................................
Excess amortization...........................................................................
Eliminate excess depreciation stemming from transfer
(P50,000 5) (year after transfer) ..............................................
Consolidated net income .........................................................
P240,000
100,000
(8,000)
10,000
P342,000
Problem IX
1.
Consolidated net income as reported

Less: P10,000 deferred gain
Plus: NCI portion of the gain
Plus: Deferred gain
Corrected consolidated net income
2.
Land account as reported
Less: Intercompany profit
Restated land account
20x4
P 750,000
-10,000
3,000
20x5
P 600,000
20x6
P 910,000
P 743,000
P 600,000
7,000
P 917,000
20x4
P 200,000
-10,000
P 190,000
20x5
P 240,000
-10,000
P 230,000
20x6
P 300,000
P 300,000
3.
Final sales price outside the entity minus the original cost to the combined entity equals
P102,000 minus P72,000 = P30,000
Problem X
1. On the consolidated balance sheet, the machine must be reported at its original cost
when Tool purchased it on January 1, 20x1, which is P120,000. Since the elimination
entry debited the machine account for P22,000 which must be the amount needed to
bring the machine account up to P120,000, Buzzard must have recorded the machine
at P98,000. Since the remaining useful life is seven years, Buzzard will record P14,000
of depreciation expense each year.
2. The correct balances on the consolidated balance sheet for the Machine and
Accumulated Depreciation accounts are the balances that would be in the accounts if
there had been no sale. The balance in the machine account would be the original
purchase price to Tool or P120,000. The balance in the Accumulated Depreciation
account will be the original amount of annual depreciation, (P12,000) times the number
of years the machine has been depreciated (4), or P48,000.
3.
The non-controlling interest income will be 30% of Tool adjusted net income. Tool
reported net income of P60,000 is reduced by the P14,000 unrealized gain on the sale
of the machine and is increased by the piecemeal recognition of the gain, which is
P2,000. The net result of P48,000 is then multiplied by 30% to calculate a P14,400
income for the non-controlling interest.
Problem XI
1. Consolidated net income for 20x9:
Operating income reported by BW
Net income reported by TW
Amount of gain realized in 20x9
(P30,000 / 12 years)
Realized net income of TW
2.
Consolidated net income for 20x9 would be unchanged.
3.

E(1)
Buildings and Equipment

Non-controlling Interest
Eliminate unrealized profit on building.
P100,000
P40,000
2,500
42,500
P142,500
30,000
20,000
5,000
2,500
52,500

Amount paid by TW to acquire building
Amount paid by BW on intercompany sale
P300,000
(270,000)
P 30,000
Adjustment to retained earnings, January 1, 20x9

Unrealized gain recorded January 1, 20x4
Amount realized following intercompany sale
(P2,500 x 2)
Unrealized gain, January 1, 20x9
Proportion of ownership held by Baywatch
Required adjustment
P 30,000
(5,000)
P 25,000
x
.80
P 20,000
Adjustment to Noncontrolling interest, January 1, 20x9

Unrealized gain at January 1, 20x9
Proportion of ownership held by non-controlling
interest
Required adjustment
P 25,000
x
P
.20
5,000

Depreciation expense recorded by BW
Industries (P270,000 / 12 years)
Depreciation expense recorded by TW
P 22,500
(20,000)
P 2,500

Amount reported by BW (P22,500 x 3 years)
Required adjustment
Problem XII
P120,000
(67,500)
P 52,500
1.
The gain on the sale of the land in 20x5 was equal to the sales price minus the original cost
of the land when it was first acquired by the combined entity. In this case the gain was
P150,000 - P90,000, or P60,000.
2. The consolidated amount of depreciation expense was the combined amounts of depreciation
expense showing on the separate income statements minus the piecemeal recognition of the
gain on the sale of the equipment. Thus, the consolidated amount of depreciation expense
was P95,000 + P32,000 (P35,000/4 years) = P118,250.
3.
Consolidated net income:
Osprey separate income (not including Income
from Branch)= P153,000 - P55,000 =
Income from Branch
Plus: Deferred gain on land
Plus: Piecemeal recognition of gain on equipment
sale: P35,000 gain/4 years =
P 98,000
20,000
50,000
8,750
P176,750
Problem XIII
Quail Corporation and Subsidiary
Consolidated Income Statement
for the year ended December 31, 20x5
Sales
Gain on land (P20,000 + P25,000)
Cost of sales
Other expenses (see below)
Consolidated Net Income
NCI-CNI (see below)
P
(
(
P
(
P
Other expenses:
P265,000 + P60,000 - P5,000 piecemeal recognition of gain on
equipment
Non-controlling Interest in CNI:

Net income from Savannah x 20%: (P100,000 x 20%) =
1,100,000
45,000
560,000 )
320,000 )
265,000
20,000 )
245,000
P
320,000
P
20,000
Problem XIV refer to Problem IX

Problem XV refer to Problem X
Problem XVI
Gain on Sale of Land
E(1)
Land
E(1)
Land
2.

E(1)
Land

E(1) Retained Earnings, January 1
10,000
10,000
10,000
10,000
10,000
10,000
6,000
4,000
Land
10,000
Problem XVII
1.

E(1)
Land
45,000
45,000

E(1)
Land
2.
31,500
13,500
Eliminating entries, December 31, 20x4 and

20x5:
E
(1)
Land
45,000
30,000
30,000
Problem XVIII
1. Downstream sale of land:
20x4
P 90,000
(25,000)
P 65,000
60,000
P125,000
VVs separate operating income

Less: Unrealized gain on sale of land
VVs realized operating income
Spawns realized net income
Income to non-controlling interest:
(P60,000 x .25)
(P40,000 X .25)
P110,000
40,000
P150,000
(15,000)
Income to controlling interest

2.
20x5
P110,000
P110,000
(10,000
)
P140,000
20x4
P 90,000
20x5
P110,000
35,000
P125,000
40,000
P150,000
Upstream sale of land:

VVs separate operating income
SSs net income
Less: Unrealized gain on sale of land
Spawns realized net income
Income to non-controlling interest:
(P35,000 x .25)
(P40,000 x .25)
P60,000
(25,000)
(8,750)
P116,250
(10,000
)
P140,000
Problem XIX
1. Consolidated net income for 20x4 will be greater than PP Company's income from
operations plus SS's reported net income. The eliminating entries at December 31,
20x4, will result in an increase of P16,000 to consolidated net income.
2.
As a result of purchasing the equipment at less than Parent's book value, depreciation
expense reported by SS will be P2,000 (P16,000 / 8 years) below the amount that would
have been recorded by PP. Thus, depreciation expense must be increased by P2,000
when eliminating entries are prepared at December 31, 20x5. Consolidated net income
will be decreased by the full amount of the P2,000 increase in depreciation expense.
Problem XX
Buildings and Equipment
E(1)
156,000
Loss on Sale of Building

Eliminate unrealized loss on building.
2.
36,000
120,000
Consolidated net income and income to controlling

interest for 20x9:
Operating income reported by BB
Net income reported by TT
Add: Loss on sale of building
Realized net income of TT
Income to non-controlling interest (P51,000 x .30)
P125,000
P 15,000
36,000
51,000
P176,000
(15,300
)
P160,700

3.
Eliminating entry, December 31, 20y0:

E(1) Buildings and Equipment
Eliminate unrealized loss on building.
Amount paid by TT to acquire building
Amount paid by BB on intercompany sale
Depreciation expense recorded by TT
Company (P300,000 / 15 years)
Depreciation expense recorded by BB
Amount reported by BB (P16,000 x 1 year)
Required adjustment
Adjustment to retained earnings, January 1, 20y0
Unrealized loss recorded, December 31, 20x9
Proportion of ownership held by BB
Required adjustment
Adjustment to Noncontrolling interest, January 1, 20y0
Unrealized loss recorded, December 31, 20x9
Proportion of ownership held by non-controlling
Interest
Required adjustment
4.
Consolidated net income and income assigned to

controlling interest in 20y0:
Operating income reported by BB
Net income reported by TT
Adjustment for loss on sale of building
Realized net income of TT
Income assigned to non-controlling interest
(P36,000 x .30)
Income assigned to controlling interest
Problem XXI
156,000
4,000
124,000
25,200
10,800
P300,000
(144,000)
P156,000
P 20,000
P
(16,000)
4,000
P140,000
(16,000)
P124,000
P36,000
x
.70
P25,200
P36,000
x
.30
P10,800
P150,000
P40,000
(4,000)
36,000
P186,000
(10,800)
P175,200
Requirements 1 to 4
Schedule of Determination and Allocation of Excess (Partial-goodwill)
Consideration
transferred..
Less: Book value of stockholders equity of S:
.
Retained earnings (P120,000 x 80%)
...
..

.
.....
Positive excess: Partial-goodwill (excess of cost over

fair value)
...
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
The over/under valuation of assets and liabilities are summarized as follows:

S Co.
Book value
Inventory.
..
Land
Buildings (net)
Bonds payable
Net..
S Co.
Fair value
P 24,000
48,000
84,000
168,000
(120,000)
P 204,000
(Over) Under
Valuation
30,000
55,200
180,000
144,000
( 115,200)
P 294,000
6,000
7,200
96,000
(24,000)
4,800
P 90,000
The buildings and equipment will be further analyzed for consolidation purposes as follows:
Equipment..................
Less: Accumulated
depreciation..
Net book
value...
Buildings................
Less: Accumulated
depreciation..
Net book
value...
S Co.
Book value
180,000
S Co.
Fair value
180,000
Increase
(Decrease)
96,000
( 96,000)
84,000
180,000
96,000
S Co.
Book value
360,000
S Co.
Fair value
144,000
(Decrease)
( 216,000)
1992,000
( 192,000)
168,000
144,000
24,000)

Account
amortized
Adjustments
Inventory
to
be
Over/
Under
P
6,000
Lif
e
1
Annual
Amount
P
6,000
Current
Year(20x4)
P 6,000
20x5
P
-

Buildings (net)
Bonds payable
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
The goodwill impairment loss of P3,750 based on 100% fair value would be allocated to the
controlling interest and the NCI based on the percentage of total goodwill each equity
interest received. For purposes of allocating the goodwill impairment loss, the full-goodwill is
Consideration transferred: Cash (80%)
Fair value of NCI (given) (20%)
Less: Book value of stockholders equity of S (P360,000 x 100%)
Allocated excess (excess of cost over book value)..
Add (deduct): (Over) under valuation of assets and liabilities
(P90,000 x 100%)
fair value)...
P 372,000
93,000
P 465,000
__360,000
P 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
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%
The goodwill impairment loss would be allocated as follows

Goodwill impairment loss attributable to parent or controlling
Interest
Goodwill impairment loss based on 100% fair value or fullGoodwill
750
20.00%
P 3,750
100.00%
The unrealized and gain on intercompany sales for 20x4 are as follows:
Date
of Sale
4/1/20x
4
1/2/20x
4
Seller
P
S
Selling
Price
Book
Value
Unrealized*
Gain on sale
P90,00
0
60,00
0
P75,00
0
28,80
0
P15,000
31,200
Remainin
g
Life
5 years
Realized gain
depreciation**
8 years
P3,900/year
P3,000/year
* selling price less book value

** unrealized gain divided by remaining life; 20x4 P2,500 x 9/12 = P1,875
The following summary for 20x4 results of operations is as follows:

Sales
Gross profit
Other expenses
Add: Gain on sale of equipment
P Co.
P 480,000
204,000
P 276,000
60,000
48,000
P 168,000
15,000
S Co.
P 240,000
138,000
P 102,000
24,000
18,000
P 60,000
31,200
20x4
P2,25
0
P3,90
0

Add: Investment income
Net income
P 183,000
24,810
P 207,810
P 91,200
P 91,200

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

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

Investment income (P91,200 x 80%)
72,960
72,960
Record share in net income of subsidiary.
December 31, 20x4:

(4) Investment income [(P13,200 x 80%) + P3,000, goodwill
impairment loss)]
Investment in S Company
13,560
13,560
Record amortization of allocated excess of inventory, equipment,

buildings and bonds payable and goodwill impairment loss.
December 31, 20x4:
(5) Investment income (P15,000 x 100%)
To adjust investment income for downstream sales - unrealized
gain on sale of equipment..
December 31, 20x4:
To adjust investment income for upstream sales - unrealized gain
on sale of equipment..
December 31, 20x4:
To adjust investment income for downstream sales - realized gain
December 31, 20x4:
To adjust investment income for upstream sales - realized gain on
sale of equipment..
15,000
24,960
2,250
3,120
15,000
24,960
2,250
3,120
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
NI of Son
Dividends S (36,000x 80%)
Amortization &
(91,200
72,960
80%)
13,560
impairment
Investment Income
Realized
2,250
gain
downstream
sale
15,000
sale
Amortization &
Realized
3,120
gain
13,560
Balance,
368,010
Unrealized
15,000
Unrealized
24,960
Unrealized gain downstream

NI of S
upstream
sale
24,960
Unrealized gain upstream sale
impairment
72,960
(91,200 x 80%)
12/31/x4
gain
gain
downstream
sale
2,250
sale
upstream
sale
3,120
Realized gain downstream
Realized gain upstream sale
24,810
Balance, 12/31/x4

Investment in S Co
..
240,000
120,000
288,000
72,000
To eliminate investment on January 1, 20x4 and equity accounts

of subsidiary on date of acquisition; and to establish noncontrolling interest (in net assets of subsidiary) on date of
acquisition.
(E2)
Inventory.
Land
.
Discount
on
bonds
payable.
Goodwill.
Buildings..
..
Investment in S Co.
To eliminate investment on January 1, 20x4 and allocate excess
of
cost over book value of identifiable assets acquired, with

remainder
to goodwill; and to establish noncontrolling interest (in net
6,000
96,000
192,000
7,200
4,800
12,000
216,000
18,000
84,000
assets of
subsidiary) on date of acquisition.

Interest expense
Inventory..
Goodwill
and
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
14,40
0
(E4) Investment income

Dividends paid S
under
To eliminate intercompany dividends and investment income

equity method and establish share of dividends, computed as
follows:
24,810
3,990
7,200
36,000
*
o
n
t
e
d
w
s
r
a
m
Investment in S
NI of S
Investment Income
28,800
(91,200
Dividends - S
Amortization &
NI of S
Amortization
80%).
13,560
impairment
Realized
2,250
gain*
15,000
*
Unrealized gain
Unrealized
15,000
Realized
3,120
gain**
24,960
**
Unrealized gain
Unrealized
**24,960
72,960
3,990
13,560
(91,200
impairment
gain
gain
72,960
2,250
gain*
x 80%)
Realized
3,120
Realized
gain**
24,810
sale (should be multiplied by 100%)

**upstream sale (should be multiplied by 80%)
After the eliminating entries are posted in the investment account, it should be observed
that from consolidation point of view the investment account is totally eliminated. Thus,
Investment in S
Cost,
372,000
1/1/x4
28,800
NI of S
Amortization &
(91,200
80%)
13,560
impairment
72,960
Realized
2,250
Realized
3,120
gain
gain
downstream
sale
upstream
sale
(E5) Gain onBalance,

sale of equipment
368,010
Equipment
its
12/31/x4
15,000
sale
24,960
288,000
(E1) Investment,
1/1/20x4
15,000
30,000
45,000

(E4) Investment Income
84,000 (E2) Investment, 1/1/20x4
and dividends
3,990

Equipment
31,200
12,000
43,200

original cost to the consolidate entity (along
with its372,000
accumulated
372,000

2,250
2,250

depreciation
(P15,000 / 5 years x 9/12 = P2,250).

3,900
3,900

(P26,000/85 years x 1 year = P3,250).
(E9)
Non-controlling
interest
in
Subsidiary
Net
Income
of
10,140


(upstream sales)
10,140
P 91,200
( 31,200)

separate operations
3,900

partial goodwill
P 63,900
13,200
P 50,700
20%
P
10,140

Equity Method (Partial-goodwill)
Income Statement
Sales
Investment income
Total Revenue
Cost of goods sold
P Co
P480,000
S Co.
P240,000
15,000
31,200
24,810
P519,810
P271,200
P204,000
P138,000
(3)
6,000
60,000
24,000
Interest expense
Other expenses
48,000
18,000

Net Income
P312,000
P207,810
P180,000
P 91,200

P207,810
P 91,200

P Company
P360,000
S Company
Sheet
207,810
P567,810
Cr.
Consolidated
P 720,000
(5)
15,000
(6)
31,200
(4)
28,800
(3)
6,000
S Company
Total
Dividends paid
P Company
Dr.
_________
P 720,000
P 348,000
(7)
2,250
83,850
(8)
3,900
(3)
1,200
1,0200
66,000
3,000
(3)
3,000
P 502,050
P 217,950
( 10,140)
(9)
10,140
P 207,810
P 360,000
P120,000
91,200
P211,200
(1)
120,000
207,810
P567,810
72,000
72,000
(4)
36,000
36,000
________
P495,810
P175,200
P 495,810
Cash.
P
232,800
90,000
P 90,000
60,000
P 322,800
150,000
Inventory.
120,000
90,000
Land.
210,000
48,000
Equipment
240,000
180,000
Balance Sheet
Buildings
720,000
(2)
6,000
(2)
7,200
(5)
30,000
(3)
5,000
265,200
(6)
12,000
540,000
(2)
210,000
462,000
(2)
216,000
(3)
1,044,000
3,600
4,800
(2)
12,000
Goodwill
Investment in S Co
Total
equipment
368,010
P1,980,810
P 96,000
405,000
288,000
105,000
240,000
600,000
88,800
120,000

495,810
_________
Total
P1,008,0
00
P 135,000
buildings
Accounts payable
Bonds payable
P1,980,810
1,200
(3)
3,000
(1)
288,000
(2)
84,000
P2,466,600
(2)
96,000
(7)
2,250
(8)
3,900
(2)
192,000
(3)
6,000
(3)
12,000
(5)
45,000
(6)
43,200
P229,050
495,000
193,800
360,000
600,000
(1)
240,000
240,000
175,200
______
___
P1,008,0
00
9,000
495,810
(4)
7,200
__________
P
840,690
(1 )
72,000 (2)
18,000
(9)
10,140
P
840,690
92,940
P2,466,600

Sales
Gross profit
Other expense
Net income
Dividends paid
P Co.
P 540,000
216,000
P 324,000
60,000
72,000
P 192,000
72,360
P 264,360
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

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

72,000
72,000
December 31, 20x5:

5,760
5,760

buildings and bonds payable
December 31, 20x4:
on sale of equipment.
3,000
December 31, 20x4:

sale of equipment..
3,000
3,120
3,120
follows:
Investment in S
Cost,
368,010
1/1/x5
NI of Son
72,000
Realized
3,000
38,400
5,760
(90,000
gain
Amortization (7,200 x 80%)
80%)
downstream
sale
Investment Income
Realized
gain
upstream
3,120
Amortization
(6,000
x
5,760
Balance,
401,970
sale
805)
NI of S
12/31/x5
72,000
3,000
sale
3,120
(90,000 x 80%)
72,360
Balance, 12/31/x5

Retained earnings S Co, 1/1/x5.
..
240,000
175,200
332,160
83,040

of subsidiary on date of acquisition; and to establish noncontrolling interest (in net assets of subsidiary) on 1/1/20x5.
(E2) Accumulated depreciation equipment (P96,000

P12,000)
Accumulated depreciation buildings (P192,000 + P6,000)
Land
84,000
198,000
6,000
.
Discount on bonds payable (P4,800 P1,200).
Goodwill (P12,000 P3,000)..
Buildings..
Non-controlling interest [(P90,000 P13,200) x 20%]
Investment
in
Son
Co.
of
3,600
9,000
180,000
15,360
70,440
remainder
to the original amount of goodwill; and to establish noncontrolling

interest (in net assets of subsidiary) on 1/1/20x5.
(E3) Depreciation expense..

Interest expense
6,000
6,000
1,200
12,000
1,200
To provide for 20x5 depreciation and amortization on differences

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

Dividends paid S
under

follows:
72.360
9,600
48,000
33,960
o
ns
ea
Investment in S
Investment Income
NI of S
38,400
(90,000
80%).
Realized
3,000
gain*
Realized
3,120
gain**
960
Dividends S
Amortization
72,000
*d
w
tr
m
5,760
80%)
(P7,200 x
NI of S
Amortization
(P7,200
5,760
(90,000
x
80%)
72,000
3,000
gain*
x 80%)
Realized
3,120
33,
Realized
gain**
72,360


Equipment
Accumulated depreciation equipment
15,000
30,000
45,000

its


Equipment
Accumulated depreciation- equipment
24,960
6,240
12,000
43,200

(E7) Accumulated depreciation equipment ..

Investment in S Company (prior year)
5,250
3,000
2,250

depreciation
(E8) Accumulated depreciation- equipment..

7,800
3,900
3,120
780

(P31,200/85 years x 1 year = P3,900).
(E9)
Non-controlling
interest
in
Net
Income
of
17,340
Subsidiary
17,340


(upstream
Multiplied by:
%..........
Non-controlling
(NCINI
Non-controlling
interest
Interest in Net Income
P 90,000
3,900
P 93,900
( 7,200)
P 86,700
20
%
P 17,340

with third persons.

Equity Method (Partial-goodwill)
Sales
Income Statement
P Co
P540,000
S Co.
P360,000
Investment income
Total Revenue
Cost of goods sold
72,360
P612,360
P216,000
P360,000
P192,000
60,000
24,000
Interest expense
Other expenses
72,000
P348,000
Net Income
P264,360
54,000
P270,000
P
90,000
P264,360

P Company
P495,810
S Company
Total
Dividends paid
P Company
S Company
Sheet
_264,360
P760,170
P
90,000
Dr.
Cr.
(4)
72,360
(3)
6,000
(7)
3,000
(8)
3,900
Consolidated
P 900,000
___________
P 900,000
P 408,000
83,100
(3)
1,200
1,200
126,000
P 618,300
P 281,700
(9)
17,340
( 17,340)
P 264,360
P495,810
P
175,200
90,000
P265,200
(1)
175,200
264,360
P 760,170
72,000
72,000
(5)
48,000
48,000
________
P688,170
P217,200
P 688,170
P
265,200
180,000
216,000
210,000
P
102,000
96,000
108,000
48,000
P 367,200
276,000
324,000
265,200
Balance Sheet
Cash.
Inventory.
Land.
(2)
Equipment
Buildings
240,000
720,000
180,000
(2)
3,600
(2)
9,000
P2,233,170
equipment
buildings
Accounts payable
Bonds payable
P 150,000
450,000
306,000
105,000
240,000
600,000
88,800
120,000
688,170
240,000
217,200
___
_____
Total
P2,233,170
(1)
332,160
(2)
70,440
(4)
33,960
(7)
2,250
(8)
3,120
P1,074,0
00
P
102,000
______
___
P1,074,0
00
1,044,000
2,400
9,000
401,970
(5)
15,000
(6)
24,960
Total
462,000
(2)
216,000
(3)
1,200
540,000

Goodwill
Investment in Son Co
7,200
(5)
30,000
(6)
12,000
P2,749,800
(2)
84,000
(7)
5,250
(8)
7,800
(2)
198,000
(3)
6,000
(3)
12,000
(5)
45,000
(6)
43,200
P 255,150
552,000
193,800
360,000
600,000
(1)
240,000
688,170
(1)
69,200 (2)
(4)
9,600 15,360
(6)
(8)
6,240
780
(9)
__________
17,340
P
P
930,750
930,750
____100,680
P2,749,800
5 and 6. Refer to Problem V for computations

Note: Using cost model or equity method, the consolidated net income, consolidated
retained earnings, non-controlling interests, consolidated equity on December 31, 20x4
and 20x5 are exactly the same (refer to Problem X solution).
Problem XXII
Requirements 1 to 4
Schedule of Determination and Allocation of Excess
Consideration transferred (80%)..
Fair value of NCI (given) (20%)..
Fair value of Subsidiary (100%).
Less: Book value of stockholders equity of Son:
.
Retained earnings (P120,000 x 100%)...
..
P 372,000
93,000
P 465,000
P 240,000
120,000
360,000
P 105,000

.
.....

fair value)
...
6,000
7,200
96,000
( 24,000)
4,800
90,000
P 15,000

Account
amortized
Adjustments
to
be
Inventory
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
The following summary for 20x4 results of operations is as follows:

Sales
Gross profit
Other expenses
Add: Gain on sale of equipment
Net income
P Co.
P 480,000
204,000
P 276,000
60,000
48,000
P 168,000
15,000
P 183,000
24,810
P 207,810
S Co.
P 240,000
138,000
P 102,000
24,000
18,000
P 60,000
31,200
P 91,200
P 91,200

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

(2) Cash
28,800
28,800
Record dividends from Son Company.
December 31, 20x4:

72,960
72,960
December 31, 20x4:

(4) Investment income [(P13,200 x 80%) + P3,000, goodwill
impairment loss)]
13,560
13,560

buildings and bonds payable and goodwill impairment loss.
December 31, 20x4:
To adjust investment income for downstream sales - unrealized
gain on sale of equipment..
15,000
December 31, 20x4:

To adjust investment income for upstream sales - unrealized gain
24,960
December 31, 20x4:

2,250
December 31, 20x4:

sale of equipment..
3,120
15,000
24,960
2,250
3,120
Thus, the investment balance and investment income in the books of Perfect Company is as
follows:
Investment in S
Cost,
372,000
1/1/x4
28,800
NI of Son
72,960
Realized
2,250
Amortization &
(91,200
gain
downstream
80%)
13,560
sale
15,000
sale
impairment
Investment Income
Realized
gain
3,120
Amortization &
Balance,
368,010
13,560
Unrealized
15,000
Unrealized
24,960
upstream
sale
gain

NI of S
12/31/x4
impairment
gain
24,960
72,960
downstream
sale
2,250
sale
upstream
sale
3,120
24,810
(76,000 x 80%)
Balance, 12/31/x4

Investment in S Co
..
240,000
120.000
288,000
72,000

of subsidiary on date of acquisition; and to establish noncontrolling interest (in net assets of subsidiary) on date of
acquisition.
(E2)
Inventory.
Land
.
Discount
on
bonds
payable.
Goodwill.
Buildings..
Non-controlling interest (P90,000 x 20%) + [(P15,000
full
Investment in S Co.
6,000
96,000
192,000
7,200
4,800
15,000
216,000
21,000
84,000

of

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

Interest expense
Inventory..
Goodwill
and
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
14,40
0

Dividends paid S
under

24,810
3,990
7,200
36,000
follows:
d
w
s
r
a
m
Investment in S
NI of S
Investment Income
28,800
(91,200
x
Dividends - S
NI of S
Amortization &
80%).
13,560
Amortization
impairment
(91,200
impairment
72,960
*
o
n
t
e
72,960
x 80%)
13,560
Realized
2,250
gain*
15,000
*
Unrealized gain
Unrealized
15,000
Realized
3,120
gain**
24,960
**
Unrealized gain
Unrealized
**24,960
gain
2,250
gain*
gain
3,990
Realized
3,120
Realized
gain**
24,810

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
NI of S
72,960
Realized
2,250
Realized
3,120
Amortization &
(91,200
gain
gain
80%)
downstream
sale
upstream
sale
(E5) Gain onBalance,

sale of equipment
368,010
Equipment
12/31/x4
13,560
15,000
sale
24,960
288,000
impairment
(E1) Investment,
1/1/20x4
15,000
30,000
45,000

its
(E4) Investment Income

84,000 (E2) Investment, 1/1/20x4
and dividends
3,990
372,000
372,000

Equipment
31,200
12,000
43,200


2,250
2,250

depreciation
(P15,000 / 5 years x 9/12 = P2,250).

3,900
3,900

(P31,120/85 years x 1 year = P3,900).
(E9)
Non-controlling
interest
in
Subsidiary
Net
Income
of
9,390
9,390


(upstream sales)
separate operations
P 91,200
( 31,200)
3,900

partial goodwill
Less: Non-controlling interest on impairment
loss on full-goodwill (P3,750 x 20%) or
(P3,750 impairment on full-goodwill less
P3,000, impairment on partial-goodwill)*
full goodwill
P 63,900
13,200
P 50,700
20%
P
10,140
750
P
9,390

Equity Method (Full-goodwill)
Income Statement
Sales
P Co
P480,000
15,000
S Co.
P240,000
31,200
Dr.
(5)
15,000
(6)
31,200
Cr.
Consolidated
P 720,000
Investment income
Total Revenue
Cost of goods sold
24,810
P519,810
P204,000
P271,200
P138,000
(3)
6,000
(3)
6,000
60,000
24,000
Interest expense
Other expenses
48,000
18,000

Net Income
P312,000
P207,810
P180,000
P 91,200

P207,810
P 91,200

P Company
P360,000
S Company
Total
Dividends paid
P Company
S Company
Sheet
207,810
P567,810
(4)
28,800
_________
P 720,000
P 348,000
(7)
2,250
83,850
(8)
3,900
(3)
1,200
1,200
66,000
3,750
(3)
3,750
P 502,800
P 217,200
( 9,390)
(9)
9,390
P 207,810
P 360,000
P120,000
91,200
P211,200
(1)
120,000
207,810
P 567,810
72,000
72,000
(4)
36,000
36,000
________
P495,810
P175,200
P 495,810
Cash.
P
232,800
90,000
P 90,000
60,000
P 322,800
150,000
Inventory.
120,000
90,000
Land.
210,000
48,000
Equipment
240,000
180,000
Balance Sheet
Buildings
720,000
540,000
(2)
4,800
(2)
15,000

Goodwill
Investment in S Co
Total
equipment
buildings
Accounts payable
Bonds payable
368,010
P1,980,810
P 135,000
P 96,000
405,000
288,000
105,000
240,000
600,000
88,800
120,000
495,810
240,000
175,200
P1,980,810
______
___
P1,008,0
00
210,000
265,200
462,000
(2)
216,000
(3)
1,200
(3)
3,750
(1)
288,000
(2)
84,000
1,044,000
3,600
11,250
P2,468,850
(2)
96,000
(7)
2,250
(8)
3900
(2)
192,000
(3)
6,000
(3)
12,000
(5)
45,000
(6)
43,200
P229,050
495,000
193,800
360,000
600,000
(1)
240,000
495,810
(4)
_________
(3)
6,000
P1,008,0
00
Total
(2)
6,000
(2)
6,000
(5)
30,000
(6)
12,000
7,200
__________
P
843,690
(1 )
72,000 (2)
21,000
(9)
9,390
P
843,690
____95,190
P2,468,850
Second Year after Acquisition

Sales
Gross profit
Other expense
Net income
Dividends paid
Perfect Co.
P 540,000
1216,000
P 324,000
60,000
72,000
P 192,000
72,360
P 264,360
P 72,000
Son Co.
P 360,000
192,000
P 168,000
24,000
54,000
P 90,000
P 90,000
P 48,000

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

72,000
72,000
December 31, 20x5:

5,760
5,760

buildings and bonds payable
December 31, 20x4:
December 31, 20x4:
sale of equipment..
3,000
3,120
3,000
3,120
follows:
Investment in S
Cost,
368,010
1/1/x5
NI of S
38,400
5,760
(90,000
Amortization (6,000 x 80%)
80%)
72,000
Realized
3,000
gain
downstream
sale
Investment Income
Realized
gain (7,200
upstream
Amortization
x
3,120
5,760
Balance,
401,970
sale
805)
12/31/x5
NI of S
72,000
3,000
sale
3,120
(90,000 x 80%)
72,360
Balance, 12/31/x5

Retained earnings S Co, 1/1/x5.
..
240,000
175.200
332,160
83,040

of subsidiary on date of acquisition; and to establish noncontrolling interest (in net assets of subsidiary) on 1/1/20x5.
(E2) Accumulated depreciation equipment (P96,000

P12,000)
Accumulated depreciation buildings (P192,000 + P6,000)
Land
.
Discount on bonds payable (P4,800 P1,200).
Goodwill (P15,000 P3,900)..
Buildings..
Non-controlling interest [(P90,000 P13,200) x 20%] +
[P3,000, full goodwill - [(P3,750, full-goodwill
impairment
P3,000, partial- goodwill impairment)*
or (P3,750 x 20%)]
Investment in S Co.
of
remainder
to the original amount of goodwill; and to establish noncontrolling

interest (in net assets of subsidiary) on 1/1/20x5.
84,000
198,000
7,200
3,600
11,250
216,000
17,610
70,440
*this procedure would be more appropriate, instead of multiplying the full-goodwill impairment loss of P3,750 by
20%. There might be situations where the NCI on goodwill impairment loss would not be proportionate to NCI
acquired (refer to Illustration 15-6).
(E3) Depreciation expense..

Interest expense
6,000
6,000
1,200
12,000
1,200
To provide for 20x5 depreciation and amortization on differences

between acquisition date fair value and book value of Sons
identifiable assets and liabilities as follows:
Depreciation/
Amortization
Expense
Inventory
sold
Equipment
Buildings
Bonds
payable
Totals
Amortizatio
n
-Interest
P 12,000
( 6000)
_______
P 1,200
P 6,000
P1,200
Total
P7,,20
0

Dividends paid S
72,360
9,600
48,000
33,960

under
o
ns
ea

follows:
Investment in S
*d
w
tr
m
Investment Income
NI of S
38,400
(90,000
Dividends S
Amortization
80%).
Realized
3,000
gain*
Realized
3,120
gain**
72,000
5,760
80%)
33,
960
(P72,000 x
NI of S
Amortization
(P7,200
5,760
(75,000
x
80%)
72,000
3,000
gain*
x 80%)
Realized
3,120
72,360
Realized
gain**

Equipment
Accumulated depreciation equipment
its
15,000
30,000
45,000


Equipment
Accumulated depreciation- equipment
24,960
6,240
12,000
43,200

(E7) Accumulated depreciation equipment ..

5,250
3,000
2,250

depreciation
(E8) Accumulated depreciation- equipment..

7,800
3,900
3,120
780

(P31,200/85 years x 1 year = P3,900).
(E9)
Non-controlling
interest
in
Subsidiary
Net
Income
of
17,340


(upstream
Multiplied by:
Non-controlling
%..........
Non-controlling
Interest in Net
(NCINI)
partial goodwill
Less: NCI on goodwill impairment
fullGoodwill
Non-controlling
Interest in Net
(NCINI)
full goodwill
interest
Income
P 90,000
3,900
P 93,900
( 7,200)
P 86,700
20
%
P 17,340
loss on
0
Income
P 17,340

with third persons.
17,340

Equity Method (Full-goodwill)
Sales
Income Statement
P Co
P540,000
S Co.
P360,000
Investment income
Total Revenue
Cost of goods sold
72,360
P612,360
P216,000
P360,000
P192,000
60,000
24,000
Interest expense
Other expenses
72,000
P348,000
Net Income
P264,360
54,000
P270,000
P
90,000
P264,360

P Company
P495,810
S Company
Total
Dividends paid
P Company
S Company
Sheet
_264,360
P760,170
P
90,000
Dr.
Cr.
(4)
72,360
(3)
6,000
(7)
3,000
(8)
3,900
Consolidated
P 900,000
___________
P 900,000
P 408,000
83,100
(3)
1,200
1,200
126,000
P 618,300
P 281,700
(9)
17,340
( 17,340)
P 264,360
P495,810
P
175,200
90,000
P265,200
(1)
175,200
264,360
P 760,170
72,000
72,000
(5)
48,000
48,000
________
P688,170
P217,200
P 688,170
Cash.
Inventory.
P
265,200
180,000
216,000
P
102,000
96,000
108,000
P 367,200
276,000
324,000
Land.
210,000
48,000
Equipment
240,000
180,000
Balance Sheet
Buildings
720,000
540,000
(2)
3,600
(2)
11,250

Goodwill
Investment in S Co
(2)
7,200
(5)
30,000
(6)
12,000
401,970
(5)
15,000
(6)
24,960
Total
equipment
P2,233,170
P 150,000
265,200
462,000
(2)
216,000
(3)
1,200
2,400
11,250
(1)
332,160
(2)
70,440
(4)
33,960
(7)
2,250
(8)
3,120
P1,074,0
00
P
102,000
1,044,000
P2,752,050
(2)
84,000
(3)
12,000
P 255,150
buildings
Accounts payable
Bonds payable
450,000
306,000
105,000
240,000
600,000
88,800
120,000
240,000
217,200
688,170
___
_____
Total
P2,233,170
______
___
P1,074,0
00
(7)
5,250
(8)
7,800
(2)
198,000
(3)
6,000
(5)
45,000
(6)
43,200
552,000
193,800
360,000
600,000
(1)
240,000
688,170
(1)
83,040 (2)
(4)
9,600 17,610
(6)
(8)
6,240
780
(9)
__________
17,340
P
P
933,000
933,000
____102,930
P2,752,050
5 and 6. Refer to Problem VI for computations

Note: Using cost model or equity method, the consolidated net income, consolidated
retained earnings, non-controlling interests, consolidated equity on December 31, 20x4
and 20x5 are exactly the same (refer to Problem X solution).
Multiple Choice Problems

1. c
2. b
3. c (P20,000/20 years = P1,000), the eliminating entry to recognize the gain
depreciation would be as follows:
Accumulated depreciation 1,000
Depreciation expenses..
1,000
4. a no effect, since intercompany sales of equipment will be reverted back to its original
cost/book value.
5. a
6. No answer available - It should be noted that PAS 27 allow the use of cost model in
accounting for investment in subsidiary in the books of parent company but not the
equity method. Since, the cost model is presumed to be the method used, the unrealized
gain of P15,000 (P60,000 P45,000) will not be recorded in the books of parent company,
which give rise to no equity-adjustments at year-end.
The available choices in the problem are on the assumption of the use of equity
method. So, the answer then would be (d) the unrealized gain of P15,000 (P60,000
P45,000).
7. No answer available the truck account will be debited for P3,000 in the eliminating
entry:
Truck
3,000
Gain
15,000
18,000
Seller
Cash
Accumulated
Truck
Gain
Buyer
Truck
Cash
50,000
18,000
53,000
15,000
50,000
50,000
8. b
depreciation
Unrealized gain on sales of equipment (upstream sales)
(P15,000 / 5 years)
Total
P 98,000
___0
P 98,000
P 55,000
(15,000)
3,000
P 45,000
45,000
P143,000
0
P143,000
18,000
P125,000
Or, alternatively
depreciation
(P15,000 / 3 years)
Total
P 98,000
___0
P 98,000
P 55,000
(15,000)
5,000
P 45,000
45,000
P143,000
P 18,000
____0
18,000
P125,000
_ 18,000
P143,000

P 55,000

Less: NCI on goodwill impairment loss on full-goodwill . . . . . . . . . . . . . . . . . . . . .
Non-controlling Interest in Net Income (NCINI) full goodwill . . . . . . . . . . . . .
10. a
11. a
( 15,000)
5,000
P 45,000
0
P 45,000
40%
P 18,000
0
P 18,000
Combined equipment amounts

Less: gain on sale
Consolidated equipment balance
P1,050,000
25,000
P1,025,000
Combined Accumulated Depreciation

Less: Depreciation on gain
Consolidated Accumulated Depreciation
P 250,000
5,000
P 245,000
12.
Incomplete data - It should be noted that PAS 27 allow the use of cost model in
equity method. Since, the cost model is presumed to be the method used and there is
no available data for dividends paid/declared by Cliff therefore, the requirement
cannot be properly addressed.
The requirement and available choices in the problem are on the assumption of the use
of equity method. So, the answer then would be (c) computed as follows:
13. a
Cliff reported income

Less: Intercompany gain on truck
Plus: Piecemeal recognition of gain = P45,000/10
years
Cliffs adjusted income
Majority percentage
Income from Cliff
P225,000
45,000
Combined building amounts

Less: Intercompany gain
Consolidated buildings
P650,000
__30,000
P620,000
Combined Accumulated Depreciation

Less: Piecemeal recognition of gain
Consolidated accumulated depreciation
P195,000
___3,000
P192,000
___4,500
P184,500
90%
P166,050
14. d P30,000 + P40,000 = P70,000

S
Selling price
Less: Book value
Gain
15.
P 30,000
40,000
Consolidated
P 70,000
Incomplete data - It should be noted that PAS 27 allow the use of cost model in
equity method. Since, the cost model is presumed to be the method used and there is
no available data for dividends paid/declared by Cliff therefore, the requirement
cannot be properly addressed.
Pied Imperial-Pigeons share of Rogers income = (P320,000 x 90%)
=
Less: Profit on intercompany sale (P130,000 - P80,000) x 90% =
Add: Piecemeal recognition of deferred profit ($50,000/4 years)90%
=
Income from Offshore
P288,00
0
45,000
11,250
P254,25
0
16. d P110,000 P30,000 = P80,000

Selling price
Less: Book value
Gain
17.
S
(Nectar)
P 50,000
_30,000
P 20,000
P (Lorikeet)
P 110,000
__50,000
P 60,000
Consolidated
P 110,000
_30,000
P 80,000
No answer available No effect. It should be noted that PAS 27 allow the use of cost
model in accounting for investment in subsidiary in the books of parent company but
not the equity method.
P30,000 - (1/4 x P30,000) =
P
22,500
18. b
Unrealized gain on sales of equipment (upstream sales) (P700,000 P600,000)
P2,000,000
( 100,000)

(P100,000/10)
10,000
P1,910,000
_
0
P1,910,00
0
__40
%
P
764,000
__
0
P
764,000

19. d
20x4
( 90,000)
Unrealized gain on sales of equipment (downstream sales)

Realized gain on sale of equipment (downstream sales) through depreciation
P90,000 / 10 years
Net
20x5
-0-
___9,000
( 81,000)
9,000
9,000
20. No answer available P780,000

S
P1,980,0
00
Selling price
Less: Book value: Cost
Accumulat
ed
Unrealized gain on sale of
equipment
P2,000,00
0
___200,00
0
1,800,00
P
P1,440,0
00
P1,980,0
00
*1,320,00
0
Consolidated
P1,440,000
P
1,800,000
**1,200,00
0
660,00
0
__600,000
P
180,000
Realized Gain depreciation

(P180,000/9 x 6 yrs)
Net unrealized gain, 1/1/20x9
120,000
P
60,000
P
60,000
Gain on sale
P
780,000
P 840,000
*P1,980,000/ 9 x 6 years = P1,320,000

**P1,800,000/9 x 6 years = P1,200,000
21. a
22. b
Eliminating entries:
Restoration of BV and eliminate unrealized gain
Gain
Land
50,000
50,000
Subsidiary
Cash
Land
Gain
Parent
xxx
xxx
50,000
Land
Cash
xxx
xxx
23. It should be noted that PAS 27 allow the use of cost model in accounting for investment
in subsidiary in the books of parent company but not the equity method.
of equity method. So, the answer then would be (d) (P60,000 P48,000)/4 years =
P3,000
24. d (P100,000 + P50,000 = P150,000)
S
Selling price
Less: Book value
Gain
P
100,000
50,000
25. d the entry under the cost model would be as follows ;

Accumulated depreciation. 4,000
Depreciation expenses (current year) P6,000/3 years.
Retained earnings (prior year 20x4)..
26. d
Consolidated
P 150,000
2,000
2,000
20x4
( 150,000)
Unrealized gain on sale of equipment (downstream sales)

P150,000 / 10 years
Net
20x5
-0-
___15,000
( 135,000)
15,000
15,000
27. No answer available P780,000

S
Selling price
Less: Book value : Cost
Accumulat
ed
Unrealized gain on sale of
equipment
P
P720,000
P
990,000
P1,000,0
00
100,000

(P90,000/9 x 4 yrs)
Net unrealized gain, 1/1/20x8
Gain on sale
P990,000
__900,00
Consolidated
P 720,000
P 900,000
*440,000
550,00
0
**400,000
__500,000
P
90,000
40,000
P
50,000
P
50,000
_________
_
P
170,000
___________
P 220,000
*P990,000/ 9 x 4 years = P440,000

**P900,000/9 x 4 years = P400,000
The requirement equity from subsidiary income and available choices in the problem
are on the assumption of the use of equity method. So, the answer then would be (c)
20x4
720,000
( 144,000)
Share in subsidiary net income (900,000 x 80%)

Unrealized gain on sale of equipment (upstream sales): 180,000 x 80%
P180,000 / 5 years = P36,000 x 80%
Net
___28,800
604,800
29 d (P30,000 + P15,000)
30. d the entry under the cost model would be as follows ;
Accumulated depreciation. 10,000
Depreciation expenses (current year) P15,000/3 years..
Retained earnings (prior year 20x5)..
5,000
5,000
31. a
32. b
33. a
Unrealized gain on sale of equipment (upstream sales) : 50,000
30,000
depreciation
P20,000 / 5 years
Net
20x4
( 20,000)
20x5
-0-
___4,000
__4,000
( 16,000)
__4,000
34. a
Original cost of
P1,100,000
Accumulated depreciation, 1/1/20x4
P
250,000
____50,000
P
300,000
Add: Additional depreciation (P1,100,000 P100,000) / 20 years

35. c
Selling price unrelated party
Less: Original Book value, 12/31/20x5
Book value, 1/1/20x4
Less: Depreciation for 20x4 and 20x5: P20,000/4 years x 2 years
36. b at its original cost or book value.

37. b
20x4: Any intercompany gain should be eliminated in the CFS.
P 14,000
P20,000
10,000
10,000
P 4,000
20x5
Selling price unrelated party
Less: Original Book value, 9/26/20x5
P 100,000
__60,000
P 40,000
38. c P50,000/5 years = P10,000 per year starting January 1, 20x6.

The requirement equity from subsidiary income and available choices in the problem
20x4
480,000
( 96,000)

Unrealized gain on sale of equipment (upstream sales): 120,000 x 80%
P120,000 / 5 years = P24,000 x 80%
Net
40.
___19,200
403,200
P40,000
Depreciation expense recorded by Pirn
Depreciation expense recorded by Scroll
Total depreciation reported
Adjustment for excess depreciation charged
by Scroll as a result of increase in
carrying value of equipment due to gain
on intercompany sale (P12,000 / 4 years)
Depreciation for consolidated statements
10,000
P50,000
(3,000)
P47,000
41
.
When only retained earnings is debited, and not the non-controlling interest, a
gain has been recorded in a prior period on the parent's books.
42
.
The costs incurred by BB to develop the equipment are research and development
costs and must be expensed as they are incurred. Transfer to another legal entity
does not cause a change in accounting treatment within the economic entity.
43
.
The P39,000 paid to GG Company will be charged to depreciation expense by TLK

Corporation over the remaining 3 years of ownership. As a result, TLK Corporation
will debit depreciation expense for P13,000 each year. GG Company had charged
P16,000 to accumulated depreciation in 2 years, for an annual rate of P8,000.
Depreciation expense therefore must be reduced by P5,000 (P13,000 - P8,000) in
preparing the consolidated statements.
44
.
TLK Corporation will record the purchase at P39,000, the amount it paid. GG
Company had the equipment recorded at P40,000; thus, a debit of P1,000 will
raise the equipment balance back to its original cost from the viewpoint of the
consolidated entity.
45
.
Reported net income of GG Company

Reported gain on sale of equipment
Intercompany profit realized in 20x6
Realized net income of GG Company
Proportion of stock held by
non-controlling interest
Income assigned to non-controlling interests
46
.
P 45,000
P15,000
(5,000)
(10,000)
P 35,000
x
.40
P 14,000
Operating income reported by TLK Corporation
P 85,000
Net income reported by GG Company
45,000
P130,000
Less: Unrealized gain on sale of equipment

(P15,000 - P5,000)
(10,000)
P120,000
47.
48.
49.
50.
d
a
b
a the amount of land that will be presented in the presented in the CFS is the original
cost of P416,000 + P256,000 = P672,000.
51. e
Depreciation expense:
Parent
P 84,000
Subsidiary
60,000
Total
P144,000
Less: Over-depreciaton due to realized gain:
[P115,000 (P125,000 P45,000)] = P35,000/8 years
__ 4,375
P139,625
52. c
Net
Selling price
20x6
( 56,000)
___7,000
( 49,000)
P
392,000
Less: Book value, 1/1/20x6

Cost, 1/1/20x2
Less: Accumulated depreciation: P420,000/10 years x 2
years
Realized gain depreciation: P56,000/8 years
P420,000
84,000
53. b
12/31/20x5: date of acquisition
Equipment
Gain
336,00
0
P 56,000
P 7,000
10,000
150,00
0
160,00
0
Parent Books Mortar

Cash
Equipment
Gain
Subsidiary Books Granite
390,000
160,000
Equipment
Cash
390,000
390,000
400,000
150,000
Mortar
Selling price
Cost, 1/1/20x2
Less: Accumulated depreciation : P400,000/10 years x 4
years
54. a refer to No. 53 for computation

55. b - refer to No. 53 for computation
56. d
12/31/20x6: subsequent to date of acquisition
P150,000 / 6 years or P65,000 P40,000
Should be in CFS Parent Books Mortar
Granite
P390,000
P400,000
160,000
240,00
0
P
150,000
P
25,000
25,000
25,000
Recorded as Subsidiary Books -
(P400,000 / 10 years)
Acc. Depreciation
40,000
40,000
(P390,000 / 6 years)
Acc. depreciation
57. c
Equipment
Retained earnings (150,000 25,000)
65,000
65,000
10,000
100,00
0
Accumulated depreciation (P160,000 P25,000)
135,00
0
58. a
Equipment
Gain
Parent Books Mortar
Cash
Equipment
Gain
50,000
70,000
120,00
0
Subsidiary Books - Granite
350,000
120,000
Equipment
Cash
350,000
350,000
400,000
70,000
Mortar
Selling price
Cost, 1/1/20x2
years
P350,000
P400,000
120,000
59. a - refer to No. 58 for computation

60. b
P700,000 / 7 years or P50,000 P40,000
Should be in CFS Parent Books Mortar
Granite
(P400,000 / 10 years)
Acc. Depreciation
40,000
40,000
280,00
0
P
70,000
P
10,000
10,000
10,000
(P350,000 / 7 years)
Acc. depreciation
Equipment
Retained earnings (70,000 10,000)
Accumulated depreciation (P120,000 P10,000)
50,000
50,000
50,000
60,000
110,00
0
61. b - refer to No. 60 for computation

62. c - refer to No. 60 for computation
63. a
depreciation
Unrealized loss on sale of equipment (upstream sales)
Realized loss on sale of equipment (upstream sales) through depreciation
none, since the date of sale is end of the year

Total
P 140,000
___0
P 140,000
P 30,000
20,000
(
0)
P 50,000
50,000
P190,000
0
P190,000
15,000
P175,000
Selling price
Cost, 1/1/20x4
years
Unrealized loss on sale of equipment
P180,000
P500,000
300,000
Realized loss depreciation: P20,000/4 years
200,00
0
P( 20,000
)
P( 5,000
)
Or, alternatively
depreciation
Total
P 140,000
___0
P 140,000
P 30,000
20,000
(
0)
P 50,000
50,000
P190,000

P 15,000
____0
15,000
P175,000
_ 15,000
P190,000

P 30,000
(
P
P

P
P
20,000
0)
50,000
0
50,000
30%
15,000
0
15,000
64. b
Consolidated Net Income for 20y0
depreciation
Total
equity holders of parent 20y0..
P 162,000
___0
P 162,000
P 45,000
( 5,000)
P 40,000
40,000
P202,000
0
P202,000
7,500
P194,500
Or, alternatively
depreciation
Total
P 162,000
___0
P 162,000
P 45,000
( 5,000)
P 40,000
P 7,500
____0
40,000
P202,000
7,500
P194,500
_ _ 7,500
P202,000
**Non-controlling Interest in Net Income (NCINI) for 20y0

P 30,000

(
5,000)
P 25,000
0
P 25,000
30%
P
7,500
0
P 7,500

65. d the original cost of land

66. b no intercompany gain or loss be presented in the CFS.
67. a
depreciation
S3 Companys net income from own operations.
Unrealized loss on sale of equipment (upstream sales) S3
Unrealized gain on sale of equipment (upstream sales) S2
Unrealized gain on sale of equipment (upstream sales) - S1
Total
Less: Non-controlling Interest in Net Income* * (P23,000 + P5,400 +
P7,200)
P 200,000
___0
P 200,000
P100,000
70,000
95,000
15,000
( 52,000)
( 23,000)
P205,000
205,000
P405,000
0
P405,000
35,600
P369,400
Sales price
Less: Cost
Unrealized (loss) gain
S3
145,000
160,000
( 15,000)
S2
197,000
145,000
52,000
S1
220,000
197,000
23,000
Or, alternatively
depreciation
Unrealized loss on sale of equipment (upstream sales) S3
Unrealized gain on sale of equipment (upstream sales) S2
Unrealized gain on sale of equipment (upstream sales) - S1
S Companys realized net income from separate operations*
Total
Less: Non-controlling Interest in Net Income* * (P23,000 + P5,400 +
P7,200)
P 200,000
___0
P 200,000
P100,000
70,000
95,000
15,000
( 52,000)
( 23,000)
P205,000
205,000
P405,000
P 35,600
____0
_ 35,600
P369,400
_ _35,600
P405,000
**Non-controlling Interest in Net Income (NCINI)

S Companys net income of Subsidiary Company from its own
operations (Reported net income of S Company)
S3
S2
P
S1
P
P 95,000
Unrealized (gain) loss on sale of land (upstream sales)

Non-controlling Interest in Net Income (NCINI) - partial
goodwill
Less: NCI on goodwill impairment loss on full-goodwill
Non-controlling Interest in Net Income (NCINI) full goodwill
100,000
15,000
P
115,000
0
P
115000
20%
P 23,000
0
P 23,000
68. d
Building
Gain
Parent Books Sky
Cash
Building
Gain
70,000
( 52,000)
P
18,000
0
P
18,000
30%
P
5,400
0
P
5,400
( 23,000)
P 72,000
0
P
72,000
10%
P
7,200
0
7,200
3,000
8,250
11,250
Subsidiary Books - Earth
33,000
11,250
Building
Cash
33,000
33,000
36,000
8,250
Sky, 7/1/20x4
Selling price
Cost, 1/1/20x2
Less: Accumulated depreciation : P36,000/8years x 2.5
years
Realized gain depreciation: P8,250/5.5 years
P33,000
P36,000
11,250
24,750
P 8,250
P 1,500
69. a - refer to No. 60 for computation

70. b
Realized Gain depreciation (July 1, 20x4 December 31, 20x4)
750
P8,250 / 5.5 x years or P3,000 P2,250
Earth
Should be in CFS Parent Books Sky
(P24,750 / 5.5 x years)
Acc. Depreciation
2,250
2,250
71. c
750
Recorded as Subsidiary Books Depreciation expense

(P33,000 / 5.5 years x
yrs)
Acc. depreciation
3,000
3,000
1,500
P8,250 / 5.5 x years or P6,000 P4,500
1,500
Should be in CFS Parent Books Sky
Earth
(P24,750 / 5.5 years)
Acc. Depreciation
4,500
4,500
(P33,000 / 5.5 years)
Acc. depreciation
72. d
Building
Retained earnings (8,250 750)
Accumulated depreciation (P11,250 P750)
6,000
6,000
3,000
7,500
10,500
73. c (P22,500 x 4/15 = P6,000)

74. a [P50,000 (P50,000 x 4/10) = P30,000]
75. a
Simon, 4/1/20x4
Selling price
Cost, 1/1/20x4
Less: Accumulated depreciation : P50,000/10 years x 3/12
Realized gain depreciation: P19,500/9.75 years
P68,250
P50,000
__1,250
48,750
P19,500
P 2,000
76. c P2,000 x 9/12 (April 1, 20x4 December 31, 20x4) = P1,500

77. c P19,500 / 9.75 years = P2,000
78. c P19,500 / 9.75 years = P2,000
The requirement share of income from Wilson and available choices in the problem
are on the assumption of the use of equity method. So, the answer then would be (a)
Unrealized gain on sale of equipment (downstream sales)
P2,000 x 9/12 (April 1, 20x4 December 31, 20x4) = P1,500
Net
20x4
90,000
( 19,500)
_ 1,500
72,000
are on the assumption of the use of equity method. So, the answer then would be (b)
Net
20x5
108,000
_ 2,000
110,000
are on the assumption of the use of equity method. So, the answer then would be (d)
Net
20x6
117,000
_ 2,000
119,000
82. c
Smeder, 1/1/20x4
Selling price
P84,000

Cost, 1/1/20x4
Less: Accumulated depreciation
83.
P120,000
__48,000
72,000
P12,000
P 2,000
It should be noted that PAS 27 allow the use of cost model in accounting for investment
are on the assumption of the use of equity method. So, the answer then would be (b)
20x4
22,400
( 9,600)

Unrealized gain on sale of equipment (upstream sales); 12,000 x 80%
P2,000 x 80%
Net
84.
_ 1,600
14,400
It should be noted that PAS 27 allow the use of cost model in accounting for investment
20x5
25,600

P2,000 x 80%
Net
_ 1,600
27,200
85. d
Equipment
Gain
36,000
12,000
48,000
Parent Smeder
Cash
Equipment
Gain
Subsidiary - Collins
84,000
48,000
Equipment
Cash
84,000
84,000
120,000
12,000
Smeder, 1/1/20x4
Selling price
Cost, 1/1/20x4
Less: Accumulated depreciation
P84,000
P120,000
__48,000
P12,000 / 6 years or P14,000 P12,000
Should be in CFS Parent Smeder
(P72,000 /6 years)
Acc. Depreciation
12,000
12,000
72,000
P12,000
P 2,000
2,000
2,000
Recorded as Subsidiary - Collins
(P84,000 / 6 years)
Acc. depreciation
14,000
14,000
Combining the eliminating entries for 1/1/20x4 and 12/31/200x4, the net effect
of accumulated depreciation would be a net credit of P46,000 (P48,000
P2,000).
86. c
20x4
( 12,000)
___2,000
( 10,000)

Realized gain on sale of equipment through depreciation
Net
87. d
Cash
Loss
5,000
5,000
Parent Stark
Cash
Loss
Land
Subsidiary - Parker
80,000
5,000
Land
Cash
85,000
85,000
85,000
Selling price
88. b refer to No. 87 for eliminating entry

89. b
Cash
Retained earnings
Stark
P 80,000
_85,000
P
( 5,000)
Parker
Consolidated
P 92,000
P
92,000
__80,000
P
12,000
_85,000
P 7,000
5,000
5,000
The requirement income from Stark and available choices in the problem are on the
assumption of the use of equity method. So, the answer then would be (e) computed
as follows:
Unrealized loss on sale of land (upstream sales): P5,000 x 90%
Net
20x4
180,000
_ 4,500
184,500
assumption of the use of equity method. So, the answer then would be (d) computed
as follows:
Unrealized loss on sale of land (upstream sales): P5,000 x 90%
Net
20x4
180,000
_ 4,500
184,500
92. b
Selling price
Stark
P 80,000
_85,000
P
( 5,000)
Parker
P
92,000
__80,000
P
12,000
Consolidated
P 92,000
_85,000
P 7,000
93. a refer to No. 92 for computation

94. e None, the loss was already recognized in the books of Stark in the year of sale - 20x4
but not in the subsequent years.
assumption of the use of equity method. So, the answer then would be (c) computed
as follows:
Intercompany realized loss on sale of land (upstream sales): P5,000 x 90%
Net
20x6
198,000
_ ( 4,500)
193,500
96. d - Investment in subsidiary, 12/31/20x5 (cost model) P700,000).

Date of Acquisition (1/1/20x4)
Partial
Full
Fair value of consideration givenP 700,000
Less: Book value of SHE - Subsidiary):
(P300,000 + P500,000) x 80%................. 640,000
Allocated Excess..P 60,000
Less: Over/Undervaluation of Assets & Liabilities
Increase in Bldg. (P75,000 x 80%) 60,000
Goodwill ..P
0
P
0
Amortization of allocated excess: building - P75,000 / 25 years = P3,000
Upstream Sale of Equipment (date of sale 4/1/20x5):
Sales.......................................................................................................P
60,000
Less: Book value of equipment..
30,000
Unrealized Gain (on sale of equipment)
..P 30,000
Realized gain on sale of equipment:
20x5: P30,000/5 years = P6,000 x 9/12 (4/1/20x5-12/31/20x5).P
4,500
20x6 ..
..P 6,000
Downstream Sale of Machinery (date of sale 9/30/20x5):
Sales........................................................................................................P75,000
Less: Book value of
machinery. 40,000
Unrealized Gain (on sale of machinery)
P35,000
Realized gain on sale of machinery:
20x5: P35,000/10 years = P3,500 x 3/12 (9/30/20x5-12/31/20x5)..P
875
20x6..
..P 3,500
97. d refer to No. 1 for cost model:
Dividend paid or declared SP 50,000
x: Controlling Interest %.
80%
Dividend income of Parent..P 40,000
98. d
depreciation
P 300,000
34,125
(P35,000 P875)
Total
P 265,875
P 150,000
(30,000)
4,500
P 124,500
124,500
P390,375
3,000
P387,375
24,300
P363,075
Or, alternatively
depreciation
(P35,000 P875)
Total
P 300,000
34,125
P 265,875
P 150,000
(30,000)
4,500
P 124,500
P 24,300
3,000
124,500
P390,375
27,300
P363,075
_ 24,300
P387,375

P 150,000
( 30,000)
4,500
P 124,500
3,000
P 121,500
20%
P 24,300
0
P 24,300
99. c refer to No. 98 for computations

100. d refer to No. 98 for computations
101. a
Non-controlling Interests (in net assets):
20x5
20x6
Common stock - S, 12/31...
P 300,000
P
300,000
Retained earnings - S, 12/31:
RE- S, 1/1..P600,000
P 700,000
+: NI-S 150,000
200,000
-: Div S.. 50,000 700,000
70,000
830,000
Book value of Stockholders equity, 12/31....
P1,000,000
P1,130,000
Adjustments to reflect fair value of net assets

Increase in equipment, 1/1/2010....
75,000
Accumulated amortization (P3,000 per year)*.
(
9,000)
Fair Value of Net Assets/SHE, 12/31..
P1,196,000
Unrealized gain on sale of equipment (upstream)
**(
25,500)
Realized gain thru depreciation (upstream)
6,000
Realized SHE S,12/31..
P1,176,500
x: NCI %...........................................................
20%
Non-controlling Interest (in net assets) partial...
235,300
+: NCI on full goodwill....
0
Non-controlling Interest (in net assets) full..
235,300
* 20x5: P3,000 x 2 years; 2012: P3,000 x 3 years;
** P30,000 P4,500 realized gain in 20x5 = P25,500.
75,000
(
6,000)
P1,069,000
(
30,000)
4,500
P1,043,500
___
20%
P 208,700
0
P 208,700
Note: Preferred solution - since what is given is the RE P,

1/1/20x5(beginning
balance of the current year) Retained earnings Parent, 1/1/20x5 (cost)
P
800,000
-: Downstream sale 20x4 or prior to 20x5, Net unrealized gain
0
Adjusted Retained earnings Parent, 1/1/20x5 (cost)
P
800,000
Retroactive Adjustments to convert Cost to Equity:
Retained earnings Subsidiary, 1/1/20x4.P 500,000
Less: Retained earnings Subsidiary, 1/1/20x5 600,000
Increase in Retained earnings since acquisition
(cumulative net income cumulative dividends)P 100,000
Accum. amortization (1/1/x4 1/1/x5): P2,000 x 1 year( 3,000)
Upstream Sale 2010 or prior to 20x5,
Net unrealized gain....(
0)
P 97,000
X: Controlling Interests %..
80%
77,600
RE P, 1/1/20x5 (equity method) = CRE, 1/1/20x5
P
877,600
+: CI CNI or Profit Attributable to Equity Holders of Parent.
363,075
-: Dividends P..
100,000
RE P, 12/31/20x5 (equity method) = CRE, 12/31/20x5..
P
1,140,675
Or, if RE P is not given on January 1, 20x5, then RE P on December 31,
20x5 should be use.
Retained earnings Parent, 12/31/20x5 (cost model):
(P800,000 + P340,000, Ps reported NI P100,000)
P1,040,000
-: Downstream sale 20x5 or prior to 12/31/20x5,
Net unrealized gain - (P35,000 P875).
34,125
Adjusted Retained earnings Parent, 1/1/20x5 (cost model)..
P1,005,875
Retroactive Adjustments to convert Cost to Equity:
Retained earnings Subsidiary, 1/1/20x4.P 500,000
Less: Retained earnings Subsidiary, 12/31/20x5
(P600,000 + P150,000 P50,000)...... 700,000
Increase in Retained earnings since acquisition
(cumulative net income cumulative dividends).P 200,000

Accumulated amortization (1/1/20x4 12/31/20x5):
P 3,000 x 2 years..(
6,000)
Upstream Sale 20x5 or prior to 12/31/20x5,
Net unrealized gain (P30,000 P4,500).( 25,500)
P 168,500
x: Controlling Interests %..
134,800
80%
RE P, 12/31/20x5 (equity method) = CRE, 12/31/20x5.
P1,140,675
102.
103.
104.
105.
c refer to No, 101 computations.

b refer to No. 101 for computations
d refer to No. 101 for computations
b
Consolidated Stockholders Equity, 12/31/20x5:
Controlling Interest / Parents Interest / Parents Portion /
Equity Holders of Parent SHE, 12/31/20x5:
Common stock P (P only)..P1,000,000
Retained Earnings P (equity method), 12/31/20x5. 1,140,675
Controlling Interest / Parents Stockholders Equity P2,140,675
Non-controlling interest, 12/31/20x5 (partial/full)
208,700
Consolidated Stockholders Equity, 12/31/20x5.P2,349,375
Theories
1
.
2
.
3
.
4
.
5
.
6.
N/A
11.
16.
21.
26.
31
7.
12.
17.
22.
27.
32.
8.
13.
18.
23.
28.
33.
9.
14.
19.
24.
29.
34.
10,
15,
20.
25.
30.
35.

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Eliminating Entries

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Chapter 18

Journal entry to record purchase:

Journal entry to record depreciation expense:

Eliminating entry at December 31, 20x4, to eliminate intercompany sale of

Eliminating entry at January 1, 20x4, to eliminate intercompany sale of

Gain on sale of truck

Accumulated depreciation adjustment:

Eliminating entry, December 31, 20x9:

Accumulated depreciation adjustment:

Computation of gain on sale of truck:

Eliminating entry, December 31, 20x9:

Accumulated depreciation adjustment:

Accumulated Depreciation (P100,000/4) 2 50,000

Controlling Interest in Consolidated Net Income:

through depreciation in 2014

Noncontrolling Interest Calculation:

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

Less: Accumulated depreciation:

Unrealized gain on sales 1/1/20x4

Realized gain depreciation: P100,000 / 4 years

in only 4 years, for purposes of computing the accumulated depreciation to

Controlling Interest in Consolidated Net Income:

Prince Companys share thereof

equity holders of parent..

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

Increase in land (P7,200 x 80%)

Positive excess: Partial-goodwill (excess of cost over

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

A summary or depreciation and amortization adjustments is as follows:

The goodwill impairment loss would be allocated as follows

* selling price less book value

20x4: First Year after Acquisition

Consolidation Workpaper Year of Acquisition

To eliminate intercompany investment and equity accounts

To allocate excess of cost over book value of identifiable assets

(E3) Cost of Goods Sold.

To provide for 20x4 impairment loss and depreciation and

book value of Sons identifiable assets and liabilities as follows:

(E4) Dividend income - P.

To eliminate intercompany dividends and non-controlling interest

(E5) Gain on sale of equipment

To eliminate the downstream intercompany gain and restore to

(E6) Gain on sale of equipment

To eliminate the upstream intercompany gain and restore to its

(E7) Accumulated depreciation..

To adjust downstream depreciation expense on equipment sold

(E8) Accumulated depreciation..

To adjust upstream depreciation expense on equipment sold to

To establish non-controlling interest in subsidiarys adjusted net

Net income of subsidiary..

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

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

Statement of Retained Earnings

Goodwill impairment loss

Discount on bonds payable

20x5: Second Year after Acquisition

No goodwill impairment loss for 20x5.

Parent Company Cost Model Entry

January 1, 20x5 December 31, 20x5:

Consolidation Workpaper Second Year after Acquisition

(E1) Investment in S Company

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

Retained earnings S Company, 1/1/20x5

(E2) Common stock S Co