Consolidation Workpaper Year Acquisition

Consolidation Workpaper – Year of Acquisition
(E1) Common stock – Son Co………………………………………… 200,000

Retained earnings – Son Co…………………………………… 100.000
Investment in Son Co…………………………………………… 240,000
Non-controlling interest (P300,000 x 20%)……………………….. 60,000
To eliminate intercompany investment and equity accounts
of subsidiary on date of acquisition; and to establish non-controlling
interest (in net assets of subsidiary) on date of acquisition.
(E2) Inventory…………………………………………………………………. 6,000

Accumulated depreciation – equipment……………….. 96,000
Accumulated depreciation – buildings………………….. 192,000
Land………………………………………………………………………. 7,200
Discount on bonds payable…………………………………………. 4,800
Goodwill…………………………………………………………………. 12,000
Buildings……………………………………….. 216,000
Investment in Son Co………………………………………………. 84,000
To allocate excess of cost over book value of identifiable assets
acquired, with remainder to goodwill; and to establish non-
controlling interest (in net assets of subsidiary) on date of acquisition.
(E3) Cost of Goods Sold……………. 6,000

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

Totals P 6,000 P 2,000 P1,200 13,200
(E4) Dividend income - P………. 28,800

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

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

To eliminated intercompany upstream sales.
(E7) Cost of Goods Sold (Ending Inventory – Income Statement)… 18,000

Inventory – Balance Sheet…… 18,000
To defer the downstream sales - unrealized profit in ending inventory
until it is sold to outsiders.

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

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

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

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

Sales P480,000 P240,000 (5) 150,000 P 510,000
(6) 60,000
Dividend income 28,800 - (4) 36,000 _________
Total Revenue P508,800 P240,000 P 510,000
Cost of goods sold P204,000 P138,000 (3) 6,000 (5) 150,000 P 168,000
(7) 18,000 (6) 60,000
(8) 12,000
Depreciation expense 60,000 24,000 (3) 6,000 90,000

Interest expense - - (3) 1,200 1,200
Other expenses 48,000 18,000 66,000
Goodwill impairment loss - - (3) 3,000 3,000
Total Cost and Expenses P312,000 P180,000 P328,200
Net Income P196,800 P 60,000 P181,800
NCI in Net Income - Subsidiary - - (9) 6,960 ( 6,960)
Net Income to Retained Earnings P196,800 P 60,000 P174,840
Statement of Retained Earnings

Retained earnings, 1/1
P Company P432,000 P 360,000
S Company P144,000 (1) 120,000
Net income, from above 236,160 174,840
Total P668,160 P538,840
Dividends paid
Perfect Company 86,400 72,000
Son Company - 43,200 (4) 36,000 _ ________
Retained earnings, 12/31 to Balance
Sheet P581,760 P172,800 P 466,840
Balance Sheet
Cash………………………. P 232,800 P 90,000 P 355,200
Accounts receivable…….. 90,000 60,000 150,000
Inventory…………………. 120,000 90,000 (2) 6,000 (3) 6,000
(7) 18,000
(8) 12,000
180,000
Land……………………………. 1210,000 48,000 (2) 7,200 265,200
Equipment 240,000 180,000 420,000
Buildings 720,000 540,000 (2) 216,000 1,044,000
Discount on bonds payable (2) 4,800 (3) 12000 3,600
Goodwill…………………… (2) 12,000 (3) 3,000 9,000
Investment in S Co……… 372,000 (1) 288,000
(2) 84,000 -
Total P1,984,800 P1,008,000 P2,394,600
Accumulated depreciation
- equipment P 135,000 P 96,000 (2) 96,000 (3) 12,000 P147,000
Accumulated depreciation 405,000 288,000 (2) 192,000
- buildings (3) 6,000 495,000
Accounts payable…………… 120,000 120,000 240,000
Bonds payable………………… 240,000 120,000 360,000
Common stock, P10 par……… 600,000 600,000
Common stock, P10 par……… 240,000 (1) 240,000
Retained earnings, from above 581,760 144,000 462,840
Non-controlling interest………… (4) 7,200 (1 ) 72,000
(2) 18,000
__________ (9) 6,960
_________ _________ ____89,760
Total P1,984,800 P1,008,000 P 983,160 P 983,160 P2,394,600
Consolidated Net Income for 20x4

P Company’s net income from own/separate operations…………. P168,000
Unrealized profit in ending inventory of S Company (downstream sales)… ( 18,000)
P Company’s realized net income from separate operations*…….….. P150,000
S Company’s net income from own operations…………………………………. P 60,000
Unrealized profit in ending inventory of S Company (upstream sales)… ( 12,000)
Son Company’s realized net income from separate operations*…….….. P 48,000 48,000
Total P198,000
Less: Non-controlling Interest in Net Income* * P 6,960
Amortization of allocated excess (refer to amortization above) 13,200
Goodwill impairment (impairment under partial-goodwill approach) 3,000 23,160
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent………….. P174,840
Add: Non-controlling Interest in Net Income (NCINI) _ 6,960
Consolidated Net Income for 20x4 P181.800
*that has been realized in transactions with third parties.
**Non-controlling Interest in Net Income (NCINI) for 20x4

S Company’s net income of Subsidiary Company from its own operations P 60,000
(Reported net income of S Company)
Unrealized profit in ending inventory of P Company (upstream sales) ( 12,000)
S Company’s realized net income from separate operations……… P 48,000
Less: Amortization of allocated excess 13,200
P 34,800
Non-controlling Interest in Net Income (NCINI) – partial goodwill P 6,960
Since NCI share of goodwill is not recognized, no adjustment is required for the impairment loss
on goodwill and impairment losses are not shared with NCI.
20x5: Second Year after Acquisition

P Co. S Co.
Sales P 540,000 P 360,000
Less: Cost of goods sold 216,000 192,000
Gross profit P 324,000 P 168,000
Less: Depreciation expense 60,000 24,000
Other expense 72,000 54,000
Net income from its own separate operations P 192,000 P 90,000
Add: Dividend income 38,400 -
Net income P 230,400 P 90,000
Dividends paid P 72,000 P 48,000
No goodwill impairment loss for 20x5.
20x5: Parent Company Cost Model Entry
Only a single entry is recorded by the parent in 20x5 in relation to its subsidiary investment:
January 1, 20x5 – December 31, 20x5:

Cash……………………… 38,400
Dividend income (P48,000 x 80%)……………. 38,400
Record dividends from S Company.
On the books of S Company, the P48,000 dividend paid was recorded as follows:
Dividends paid………… 48,000

Cash 48,000
Dividends paid by S Co..
Consolidation Workpaper – Second Year after Acquisition

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

Retained earnings – S Company, 1/1/20x4 120,000
Increase in retained earnings…….. P 24,000
Multiplied by: Controlling interest % 80%
Retroactive adjustment P 19,200
(E2) Common stock – S Co………………………………………… 240,000

Retained earnings – S Co., 1/1/20x5 144.000
Investment in S Co (P384,000 x 80%)………………………… 307,200
of subsidiary and to establish non-controlling interest (in net assets of
subsidiary) on January 1, 20x5.
(E3) Inventory…………………………………………………………………. 6,000

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

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

Bonds payable 1,200 ________ P 1,200
Sub-total P13,200 P 6,000 P 1,200
Multiplied by: 80%
To Retained earnings P 10,560
Impairment loss 3,000
Total P 13,560

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

(E7) Sales………………………. 75,000

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

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

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



Realized profit in beginning inventory of P

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

Cost Model (Partial-goodwill) 80%-Owned Subsidiary December 31, 20x5 (Second Year
after Acquisition)

Sales P540,000 P360,000 (6) 120,000 P 705,000
(7) 75,000
Dividend income 38,400 - (5) 38,400 ___________
Cost of goods sold P216,000 P192,000 (10) 24,000 (6) 120,000
(11) 6,000 (7) 75,000 213,000
(8) 18,000
(9) 12,000

Other expenses 72,000 54,000 126,000
Goodwill impairment loss - - -
Total Cost and Expenses P348,000 P270,000 P 430,200
Net Income P230,400 P 90,000 P 274,800
Net Income to Retained Earnings P230,400 P 90,000 P 257,040

P Company P484,800 (2) 13,560
(8) 18,000
(9) 9,600
(1) 19,200 P 462,840
S Company P 144,000 (2) 144,000
Net income, from above 230,400 90,000 257,040
Total P715,200 P234,000 P 719,880
Dividends paid
P Company 72,000 72,000
S Company - 48,000 (5) 48,000 _ ________
Sheet P643,200 P186,000 P 647,880
Balance Sheet
Cash………………………. P 265,200 P 102,000 P 367,200
Inventory…………………. 216,000 108,000 (3) 7,200 (4) 7,200
(10) 24,000
(11) 6,000
294,000
Land……………………………. 210,000 48,000 (3) 7,200 265,200
Equipment 240,000 180,000 420,000
Buildings 720,000 540,000 (3) 216,000 1,044,000
Discount on bonds payable (3) 4,800 (4) 2,400 2,400
Goodwill…………………… (3) 12,000 (4) 3,000 9,000
Investment in S Co……… 372,000 (1) 19,200 (2) 307,200
(3) 84,000 -
Total P2,203,200 P1,074,000 P2,677,800
Accumulated
depreciation -
equipment P 150,000 P 102,000 (3) 96,000 (4) 24,000 P180,000
Accumulated 450,000 306,000 (3) 192,000
depreciation - buildings (4) 12,000 552,000
Bonds payable………………… 240,000 120,000 360,000
Non-controlling interest………… ___ _____ (4) 2,640 (2 ) 76,800 ____97,920
_________ (5) 9,600 (9) (3) 18,000
2,400 (12) 17,760
__________
Total 2,203,200 P1,074,000 P1,077,360 P1,077,360 P2,677,800
5. 1/1/20x4
a. On date of acquisition the retained earnings of parent should always be considered as
the consolidated retained earnings, thus:
Consolidated Retained Earnings, January 1, 20x4

Retained earnings – P Company, January 1, 20x4 (date of acquisition) P360,000
b.
Non-controlling interest (partial-goodwill), January 1, 20x4
Common stock – Subsidiary Company…………………………………… P 240,000
Retained earnings – Subsidiary Company…………………………………. 120,000
Stockholders’ equity – Subsidiary Company.………….. P 360,000
Adjustments to reflect fair value - (over) undervaluation of assets and liabilities 90,000
Fair value of stockholders’ equity of subsidiary, January 1, 20x4………………… P 450,000
Multiplied by: Non-controlling Interest percentage…………... 20
Non-controlling interest (partial) P 90,000
c.
Consolidated SHE:
Stockholders’ Equity
Common stock, P10 par P 600,000

Retained earnings 360,000
Parent’s Stockholders’ Equity / CI - SHE P 960,000
NCI, 1/1/20x4 ___90,000
Consolidated SHE, 1/1/20x4 P1,050,000
6.
Note: The goodwill recognized on consolidation purely relates to the parent’s share. NCI is
measured as a proportion of identifiable assets and goodwill attributable to NCI share is not
recognized.
12/31/20x4:
a. CI-CNI – P174,840

S Company’s realized net income from separate operations*…….….. P 48,000 48,000
Total P198,000
Goodwill impairment (impairment under partial-goodwill approach) 3,000 23,160
b. NCI-CNI – P6,960
P 34,800
c. CNI, P181,800 – refer to (a)
d. On subsequent to date of acquisition, consolidated retained earnings would be computed

as follows:
Consolidated Retained Earnings, December 31, 20x4

Retained earnings - P Company, January 1, 20x4 (date of acquisition) P360,000
Add: Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent for 20x4 174,840
Total P534,840
Less: Dividends paid – P Company for 20x4 72,000
Consolidated Retained Earnings, December 31, 20x4 P462,840
e. The goodwill recognized on consolidation purely relates to the parent’s share. NCI is measured
as a proportion of identifiable assets and goodwill attributable to NCI share is not recognized.
The NCI on December 31, 20x4 are computed as follows:
Non-controlling interest (partial-goodwill), December 31, 20x4
Common stock – Subsidiary Company, December 31, 20x4…… P 240,000
Retained earnings – Subsidiary Company, December 31, 20x4
Retained earnings – Subsidiary Company, January 1, 20x4 P120,000
Add: Net income of subsidiary for 20x4 6,000
Total P180,000
Less: Dividends paid – 20x4 36,000 144,000
Stockholders’ equity – Subsidiary Company, December 31, 20x4 P 384,000
Adjustments to reflect fair value - (over) undervaluation of assets and
liabilities, date of acquisition (January 1, 20x4) 90,000
Amortization of allocated excess (refer to amortization above) – 20x4 ( 13,200)
Fair value of stockholders’ equity of subsidiary, December 31, 20x4…… P460,000
Less: Unrealized profit in ending inventory of P Company (upstream sales) 12,000
Realized stockholders’ equity of subsidiary, December 31, 20x4…… P448,800
Non-controlling interest (partial-goodwill)………………………………….. P 89,760
f.
Consolidated SHE:
Parent’s Stockholders’ Equity / CI – SHE, 12/31/20x4 P1,062,840
NCI, 12/31/20x4 ___89,760
12/31/20x5:
a. CI-CNI
Realized profit in beginning inventory of S Company (downstream sales) 18,000
Unrealized profit in ending inventory of S Company (downstream sales)… (_24,000)

Realized profit in beginning inventory of P Company (upstream sales) 12,000
Unrealized profit in ending inventory of P Company (upstream sales)… ( 6,000)
Total P282,000
Less: Amortization of allocated excess…………………… 7,200

Consolidated Net Income for 20x5 P274,800
Less: Non-controlling Interest in Net Income* * 17,760
equity holders of parent – 20x5………….. P257,040
Or, alternatively

Total P282,000
Amortization of allocated excess…………………… 7,200 24,960

Controlling Interest in Consolidated Net Income or Profit attributable to equity
holders of parent………….. P257,040
b. NCI-CNI
P 88,800


as follows:
Retained earnings - Parent Company, January 1, 20x5 (cost model P484,800
Less: Unrealized profit in ending inventory of S Company (downstream sales)
– 20x4 (UPEI of S – 20x4) or Realized profit in beginning inventory of S
Company (downstream sales) –20x4 (RPBI of S - 20x5)…………….
18,000
Adjusted Retained Earnings – Parent 1/1/20x5 (cost model (S Company’s
Retained earnings that have been realized in transactions with third
parties..
P466,800
Adjustment to convert from cost model to equity method for purposes of
consolidation or to establish reciprocity:/Parent’s share in adjusted net
increased in subsidiary’s retained earnings:
Retained earnings – Subsidiary, January 1, 20x5 P 144,000
Less: Retained earnings – Subsidiary, January 1, 20x4 120,000

Increase in retained earnings since date of acquisition P 24,000
Less: Amortization of allocated excess – 20x4 13,200
Unrealized profit in ending inventory of P Company (upstream
sales) 20x4 (UPEI of P – 20x4) or Realized profit in beginning
inventory of P Company (upstream sales) –20x5 (RPBI of P - 20x5)
12,000
(P 1,200)
Multiplied by: Controlling interests %................... 80%
(P 960)
Less: Goodwill impairment loss, partial goodwill 3,000 ( 3,960)
Consolidated Retained earnings, January 1, 20x5 P462,840

Total P748,680
Less: Dividends paid – Parent Company for 20x5 72,000
*this procedure would be more appropriate, instead of multiplying the full-goodwill impairment loss of P3,125 by
80%. There might be situations where the controlling interests on goodwill impairment loss would not be
proportionate to NCI acquired (refer to Illustration 15-6).
Or, alternatively:
Retained earnings - Parent Company, December 31, 20x5 (cost model P643,200
24,000
Adjusted Retained Earnings – Parent 12/31/20x5 (cost model (
S Company’s Retained earnings that have been realized in
transactions with third parties..
P619,200
Retained earnings – Subsidiary, December 31, 20x5 P 186,000

Less: Accumulated amortization of allocated excess –

20x4 and 20x5 (P11,000 + P6,000) 20,400
6,000
P 39,600
P 31,680
Less: Goodwill impairment loss, partial goodwill 3,000 28,680
Consolidated Retained earnings, December 31, 20x5 P647,880
e.

Retained earnings – Subsidiary Company, January 1, 20x5* P144,000
Total P234,000

Amortization of allocated excess (refer to amortization above) :
20x4 P 13,200
20x5 7,200 ( 20,400)

Fair value of stockholders’ equity of subsidiary, December 31, 20x5…… P 495,600
Less: Unrealized profit in ending inventory of P Company (upstream
sales) 20x5 (UPEI of P – 20x5) or Realized profit in beginning inventory
of P Company (upstream sales) –20x6 (RPBI of P - 20x6 6,000
Realized stockholders’ equity of subsidiary, December 31, 20x5………. P489,600
Non-controlling interest (partial goodwill)………………………………….. P 97,920
* the realized profit in beginning inventory of P Company (upstream sales) –20x5 (RPBI of P - 20x5 amounting to
P10,000 is already included in the beginning retained earnings of S Company.
f.
Consolidated SHE:
Parent’s Stockholders’ Equity / CI – SHE, 12/31/20x4 P1,247,880
NCI, 12/31/20x4 ___97,920
Problem X
Requirements 1 to 4:
Schedule of Determination and Allocation of Excess
Date of Acquisition – January 1, 20x4
Fair value of Subsidiary (80%)
Consideration transferred (80%)…………….. P 372,000
Fair value of NCI (given) (20%)……………….. 93,000
Fair value of Subsidiary (100%)………. P 465,000
Less: Book value of stockholders’ equity of Son:
Common stock (P240,000 x 100%)………………. P 240,000
Retained earnings (P120,000 x 100%)………... 120,000 360,000
Allocated excess (excess of cost over book value)….. P 105,000
Less: Over/under valuation of assets and liabilities:
Increase in inventory (P6,000 x 100%)……………… P 6,000
Increase in land (P7,200 x 100%)……………………. 7,200
Increase in equipment (P96,000 x 100%) 96,000
Decrease in buildings (P24,000 x 100%)………..... ( 24,000)
Decrease in bonds payable (P4,800 x 100%)…… 4,800 90,000
Positive excess: Full-goodwill (excess of cost over
fair value)………………………………………………... P 15,000
A summary or depreciation and amortization adjustments is as follows:
Over/ Annual Current
Account Adjustments to be amortized under Life Amount Year(20x4) 20x5
Inventory P 6,000 1 P 6,000 P 6,000 P -
Subject to Annual Amortization
Equipment (net)......... 96,000 8 12,000 12,000 12,000
Buildings (net) (24,000) 4 ( 6,000) ( 6,000) (6,000)
Bonds payable… 4,800 4 1,200 1,200 1,200
P 13,200 P 13,200 P 7,200
20x4: First Year after Acquisition Parent Company Cost Model Entry
January 1, 20x4:
(1) Investment in S Company…………………………………………… 372,000
Cash…………………………………………………………………….. 372,000 Acquisition
of S Company.
(2) Cash……………………… 28,800 Dividend income (P36,000 x 80%)……………. 28,800
Record dividends from Son Company.
On the books of Son Company, the P36,000 dividend paid was recorded as follows:
Dividends paid………… 36,000 Cash……. 36,000

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

Retained earnings – S Co…………………………………… 120.000
Investment in S Co…………………………………………… 288,000
of subsidiary on date of acquisition; and to establish non-controlling
interest (in net assets of subsidiary) on date of acquisition.
(E2) Inventory…………………………………………………………………. 6,000

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

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

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

(E6) Sales………………………. 60,000





Less: Amortization of allocated excess [(E3)]…. 13,200
P 34,800
Non-controlling Interest in Net Income (NCINI) P 6,960
– partial goodwill
Less: Non-controlling interest on impairment
loss on full-goodwill (P3,750 x 20%) or
(P3,750 impairment on full-goodwill less
P3,000, impairment on partial-goodwill)
750
– full goodwill P 6,210

Cost Model (Full-goodwill) 80%-Owned Subsidiary December 31, 20x4 (First Year after
Acquisition)
Sales P480,000 P240,000 (5) 150,000 P 510,000
(6) 60,000
Dividend income 28,800 - (4) 28,800 _________
(7) 18,000 (6) 60,000
(8) 12,000

Other expenses 48,000 18,000 66,000

Net Income P196,800 P 60,000 P181,050

P Company P360,000 P 360,000
S Company P120,000 (1) 120,000
Total P556,800 P180,000 P534,840
Dividends paid
P Company 72,000 72,000
S Company - 36,000 (4) 36,000 _ ________
Sheet P484,800 P144,000 P 462,840
Balance Sheet
Cash………………………. P 232,800 P 90,000 P 322,800
Inventory…………………. 120,000 90,000 (2) 6,000 (3) 6,000
(7) 18,000 180,000
(8) 12,000
Land……………………………. 210,000 48,000 (2) 7,200 265,200

Equipment 240,000 180,000 420,000
Buildings 720,000 540,000 (2) 216,000 1,044,000
Goodwill…………………… (2) 15,000 (3) 3,750 11,250
Investment in S Co……… 372,000 (3) 288,000
(4) 84,000 -
Total P1,984,800 P1,008,000 P2,396,850
- equipment P 135,000 P 96,000 (2) 96,000 (3) 12,000 P147,000
- buildings (7) 6,000 495,000
Bonds payable………………… 240,000 120,000 360,000
(2) 21,000
(9) 6,210
_________ _________ ____92,010
Total P1,984,800 P1,008,000 P 986,160 P 986,160 P2,396,850

Perfect Co. Son Co.
Sales P 540,000 P 360,000
Add: Dividend income 38,400 -
Net income P 230,400 P 90,000

20x5: Parent Company Cost Model Entry
Only a single entry is recorded by the parent in 20x5 in relation to its subsidiary investment:

Cash……………………… 38,400
Dividend income (P48,000 x 80%)……………. 38,400
On the books of S Company, the P48,000 dividend paid was recorded as follows:
Dividends paid………… 48,000

Cash 48,000
(E1) Investment in S Company………………………… 19,200

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

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

Retained earnings – S Co., 1/1/20x5 144.000
Investment in S Co (P384,000 x 80%)………………………… 307,200
of subsidiary and to establish non-controlling interest (in net assets of
subsidiary) on January 1, 20x5.
(E3) Inventory…………………………………………………………………. 6000

Land………………………………………………………………………. 7,200
Goodwill…………………………………………………………………. 15,000
Buildings……………………………………….. 216,000
controlling interest (in net assets of subsidiary) on January 1, 20x5.
(E4) Retained earnings – P Company, 1/1/20x5

(P16,950 x 80%) 13,560
Non-controlling interests (P16,950 x 20%)……………………. 3,390
Inventory………………………………………………………….. 6,000
Goodwill…………………………………… 3,750
To provide for years 20x4 and 20x5 depreciation and amortization on
differences between acquisition date fair value and book value of
Son’s identifiable assets and liabilities as follows:
Year 20x4 amounts are debited to Perfect’s retained earnings
and NCI.
Year 20x5 amounts are debited to respective nominal accounts..
(20x4) Depreciation/
Retained Amortization Amortization
earnings, expense -Interest
Equipment 12,000 P 12,000
Buildings (6,000) ( 6,000)
Bonds payable 1,200 P 1,200
Impairment loss 3,750

Totals P 16,950 P 6,000 P1,200
Multiplied by: CI%.... 80%
To Retained earnings P13,560

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

(E7) Sales………………………. 75,000

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

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

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

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


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

Cost Model (Full-goodwill) 80%-Owned Subsidiary December 31, 20x5 (Second Year
after Acquisition)
Sales P540,000 P360,000 (6) 120,000 P 705,000
(7) 75,000
Dividend income 38,400 - (5) 38,400 ___________
(11) 6,000 (7) 90,000
(8) 21,600
(9) 14,400

Other expenses 72,000 54,000 126,000
Net Income P230,400 P 90,000 P 274,800

P Company P484,800 (3) 13,560
(8) 18,000
(9) 96000
(4) 19,200 P 462,840
S Company P 144,000 (5) 144,000
Total P715,200 P234,000 P 719,880
Dividends paid
P Company 72,000 72,000
S Company - 48,000 (5) 48,000 _ ________
Sheet P643,200 P186,000 P 647,880
Balance Sheet
Cash………………………. P 265,200 P 102,000 P 367,200
Inventory…………………. 216,000 108,000 (6) 6,000 (4) 6,000 (10)
24,000
(11) 6,000
294,000
Land……………………………. 210,000 48,000 (3) 7,200 265,200
Equipment 240,000 180,000 420,000
Buildings 720,000 540,000 (3) 216,000 1,044,000
Goodwill…………………… (3) 15,000 (4) 3,750 11,250
(3) 84,000 -
Total P2,203,200 P1,074,000 P2,680,050
Accumulated
depreciation -
equipment P 150,000 P 102,000 (3) 96,000 (4) 24,000 P180,000
Accumulated 450,000 306,000 (3) 192,000
Bonds payable………………… 240,000 120,000 360,000
Non-controlling interest………… (4) 3,390
(8) 9,600
(9) 2,400 (2 ) 76,800
__________ (3) 21,000
___ _____ _________ (12) 17,760 ____100,170
Total P2,203,200 P1,074,000 P1,081,110 P1,081,110 P2,680,050
5. 1/1/20x4
a. On date of acquisition the retained earnings of parent should always be considered as
the consolidated retained earnings, thus:
Consolidated Retained Earnings, January 1, 20x4
Retained earnings - Parent Company, January 1, 20x4 (date of acquisition) P360,000
b.
Non-controlling interest (partial-goodwill), January 1, 20x4
Common stock – Subsidiary Company…………………………………… P 240,000
Retained earnings – Subsidiary Company…………………………………. 120,000
Stockholders’ equity – Subsidiary Company.………….. P 360,000
Adjustments to reflect fair value - (over) undervaluation of assets and liabilities 90,000
Fair value of stockholders’ equity of subsidiary, January 1, 20x4………………… P 450,000
Non-controlling interest (partial)………………………………….. P 90,000
Add: Non-controlling interests on full goodwill, 1/1/20x4 (P12,500, full-goodwill – P10,000, partial
goodwill) 3,000
Non-controlling interest (full-goodwill) P 93,000
c.
Consolidated SHE:
Parent’s Stockholders’ Equity / CI - SHE P 960,000
NCI, 1/1/20x4 ___93,000
6.
Note: The goodwill recognized on consolidation purely relates to the parent’s share. NCI is
measured as a proportion of identifiable assets and goodwill attributable to NCI share is not
recognized.
12/31/20x4:
a. CI-CNI – P174,840
Perfect Company’s realized net income from separate operations*…….….. P150,000
Total P198,000
Less: Non-controlling Interest in Net Income P 6,1210
Goodwill impairment (impairment under full-goodwill approach) 3,750 23,160

P 34,800
Non-controlling Interest in Net Income (NCINI) – partial P 6,960
Less: Non-controlling interest on impairment loss on full-goodwill (P3,750 x
20%) or (P3,750 impairment on full-goodwill less P3,000, impairment on
partial- goodwill) 750
c. CNI – P181,050 – refer to (a)

d. On subsequent to date of acquisition, consolidated retained earnings would be computed as
follows:
Retained earnings - Parent Company, January 1, 20x4 (date of acquisition) P360,000
Total P534,840
e.
Non-controlling interest ), December 31, 20x4
Retained earnings – Subsidiary Company, January 1, 20x4 P120,000

f.
Total P180,000
Amortization of allocated excess (refer to amortization above) – 20x4 ( 13,200)
Fair value of stockholders’ equity of subsidiary, December 31, 20x4…… P460,800
Less: Unrealized profit in ending inventory of P Company (upstream sales) 12,000
Realized stockholders’ equity of subsidiary, December 31, 20x4…… P448,800
Non-controlling interest (partial-goodwill)………………………………….. P 89,760

Add: Non-controlling interest on full goodwill , net of impairment loss, 12/31/x4:
[(P15,000 full – P12,000, partial = P3,000) – P750 impairment loss 2,250
Non-controlling interest (full-goodwill)…………….. P 92,010
Consolidated SHE:
Parent’s Stockholders’ Equity / CI - SHE P1,062,840
NCI, 1/1/20x4 ___92,010
12/31/20x5:
a. CI-CNI – P257,040

Total P282,000
Or, alternatively
Total P282,000
P 88,800
Less: NCI on goodwill impairment loss on full goodwill 0
Non-controlling Interest in Net Income (NCINI) – full goodwill P 17,760

as follows:
Retained earnings - Parent Company, January 1, 20x5 (cost model P484,800
18,000
Adjusted Retained Earnings – Parent 1/1/20x5 (cost model (S Company’s
Retained earnings that have been realized in transactions with third
parties..
P466,800
Retained earnings – Subsidiary, January 1, 20x5 P 144,000

Less: Amortization of allocated excess – 20x4 13,200
12,000
(P 1,200)
(P 960)
Less: Goodwill impairment loss (full-goodwill), net (P3,750 – P750)* or
(P3,750 x 80%) 3,000 ( 3,960)
Consolidated Retained earnings, January 1, 20x5 P462,840
Total P719,880
*this procedure would be more appropriate, instead of multiplying the full-goodwill impairment loss of P3,750 by
80%. There might be situations where the controlling interests on goodwill impairment loss would not be
proportionate to NCI acquired (refer to Illustration 15-6).
Or, alternatively:
Retained earnings - Parent Company, December 31, 20x5 (cost model P643,200
Less: Unrealized profit in ending inventory of S Company (downstream sales) –
20x5 (UPEI of S – 20x5) or Realized profit in beginning inventory of S
24,000
Adjusted Retained Earnings – Parent 12/31/20x5 (cost model (
S Company’s Retained earnings that have been realized in
transactions with third parties..
P619,200
Retained earnings – Subsidiary, December 31, 20x5 P 186,000

Less: Accumulated amortization of allocated excess –
20x4 and 20x5 (P13,200 + P7,200) 20,400
6,000
P 39,600
P 31,680
Less: Goodwill impairment loss (full-goodwill), net (P3,750 – P750)* or
(P3,750 x 80%) 3,000 28,680
Consolidated Retained earnings, December 31, 20x5 P647,880
e.
Non-controlling interest, December 31, 20x5
Retained earnings – Subsidiary Company, January 1, 20x5* P144,000
Total P234,000

20x4 P 13,200
20x5 7,200 ( 20,400)
Fair value of stockholders’ equity of subsidiary, December 31, 20x5…… P 495,600
Less: Unrealized profit in ending inventory of P Company (upstream
sales) 20x5 (UPEI of P – 20x5) or Realized profit in beginning inventory
of P Company (upstream sales) –20x6 (RPBI of P - 20x6 6,000
Realized stockholders’ equity of subsidiary, December 31, 20x5………. P489,600
Add: Non-controlling interest on full goodwill , net of impairment loss
[(P15,000 full – P12,000, partial = P3,000) – P750 impairment loss 2,250
Non-controlling interest (full-goodwill)………………………………….. P 100,170
* the realized profit in beginning inventory of P Company (upstream sales) –20x5 (RPBI of P - 20x5 amounting to
P10,000 is already included in the beginning retained earnings of S Company. f.
Consolidated SHE:
Parent’s Stockholders’ Equity / CI - SHE P1,247,880
NCI, 1/1/20x4 ___100,170
Problem XI
(Compute selected balances based on three different intercompany asset transfer scenarios)
1.
Consolidated Cost of Goods Sold
PP’s cost of goods sold ...................................................................................... P290,000

SW’s cost of goods sold ..................................................................................... 197,000
Elimination of 20x5 intercompany transfers ................................................... (110,000)
Reduction of beginning Inventory because of
20x4unrealized gross profit (P28,000/1.4 = P20,000
cost; P28,000 transfer price less P20,000
cost = P8,000 unrealized gross profit) ....................................................... (8,000)
Reduction of ending inventory because of
20x5 unrealized gross profit (P42,000/1.4 =
P30,000 cost; P42,000 transfer price less P30,000
cost = P12,000 unrealized gross profit) ..................................................... 12,000
Consolidated cost of goods sold ....................................................... P381,000
Consolidated Inventory
PP book value ............................................................................................... P346,000
SW book value .............................................................................................. 110,000
Eliminate ending unrealized gross profit (see above) .......................... (12,000)
Consolidated Inventory .............................................................................. P444,000
Non-controlling Interest in Subsidiary’s Net Income

Because all intercompany sales were downstream, the deferrals do not affect SW. Thus,
the non-controlling interest is 20% of the P58,000 (revenues minus cost of goods sold
and expenses) reported income or P11,600.
or
P Company’s net income from own/separate operations (P640-P290-P150) P 200,000
Unrealized profit in ending inventory of S Company (downstream sales)… (_ 12,000)
P Company’s realized net income from separate operations*…….….. P 196,000
S Company’s net income from own operations (P360 – P197 – P105) P 58,000
Realized profit in beginning inventory of P Company (upstream sales) 0

Unrealized profit in ending inventory of P Company (upstream sales)… ( 0)
Total P 254,000
Less: Amortization of allocated excess…………………… ____0
Consolidated Net Income for 20x5 P 254,000
equity holders of parent – 20x5………….. P 242,200

S Company’s net income of Subsidiary Company from its own operations
(Reported net income of Son Company) P 58,000
Unrealized profit in ending inventory of P Company (upstream sales) ( 0)
Less: Amortization of allocated excess ____0
P 58,000
2.
Consolidated Cost of Goods Sold
PP book value ...................................................................................................... P290,000
SW book value .................................................................................................... 197,000
Elimination of 20x5 intercompany transfers ................................................... (80,000)
Reduction of beginning inventory because of
P15,000 cost; P21,000 transfer price less
P15,000
cost = P6,000 unrealized gross profit) ....................................................... (6,000)
Reduction of ending inventory because of
P25,000 cost; P35,000 transfer price less P25,000
cost = P10,000 unrealized gross profit) ..................................................... 10,000
Consolidated cost of goods sold .................................................................... P411,000
Consolidated Inventory
PP book value ...................................................................................................... P346,000
SW book value .................................................................................................... 110,000
Eliminate ending unrealized gross profit (see above) ................................. (10,000)
Consolidated inventory .............................................................................. P446,000
Non-controlling Interest in Subsidiary's Net income
Since all intercompany sales are upstream, the effect on Snow's income must be
reflected in the non-controlling interest computation:
SW reported income .......................................................................................... P58,000

20x4 unrealized gross profit realized in 20x5 (above) .................................. 6,000
20x5 unrealized gross profit to be realized in 20x6 (above) ....................... (10,000)
SW realized income ............................................................................................ P54,000
Outside ownership percentage ....................................................................... 20%
Non-controlling interest in SW’s income .................................................. P10,800
or
Realized profit in beginning inventory of S Company (downstream sales)
Unrealized profit in ending inventory of S Company (downstream sales)… (_ 0)
Total P 254,000
Less: Amortization of allocated excess…………………… ____0

(Reported net income of Son Company) P 58,000
Less: Amortization of allocated excess ____0
P 54,000
Problem XIII
1. (Computation of selected consolidation balances as affected by downstream inventory
transfers)
UNREALIZED GROSS PROFIT, 12/31/x4: (downstream transfer)
Intercompany gross profit (P120,000 – P72,000) ........................................................... P48,000

Inventory remaining at year's end ........................................................................................ 30%
Unrealized Intercompany Gross profit, 12/31/x4 ................................................................ P14,400
UNREALIZED GROSS PROFIT, 12/31/x5: (downstream transfer)

Intercompany gross profit (P250,000 – P200,000) ........................................................ P50,000
Inventory remaining at year's end ........................................................................................ 20%
Unrealized intercompany gross profit, 12/31/x5 ................................................................. P10,000
CONSOLIDATED TOTALS
 Sales = P1,150,000 (add the two book values and eliminate intercompany sales of P250,000) 
Cost of goods sold:
Benson's book value ........................................................................................................ P535,000
Broadway's book value ................................................................................................... 400,000
Eliminate intercompany transfers .................................................................................. (250,000)
Realized gross profit deferred in 20x4 ........................................................................... (14,400)
Deferral of 20x5 unrealized gross profit ......................................................................... 10,000
Cost of goods sold .................................................................................................... P680,600
 Operating expenses = P210,000 (add the two book values and include intangible amortization
for current year)
 Dividend income = -0- (intercompany transfer eliminated in consolidation)
 Noncontrolling interest in consolidated income: (impact of transfers is not included because
they were downstream)
Broadway reported income for 20x5 ............................................................................ P100,000
Intangible amortization .................................................................................................... (10,000)
Broadway adjusted income ............................................................................................ 90,000
Outside ownership ........................................................................................................... 30%
Noncontrolling interest in Broadway’s earnings P 27,000
.......................................................... or,
Unrealized profit in ending inventory of P Company (upstream sales)… ( 0)
Total P 269,400
Less: Amortization of allocated excess…………………… __10,000

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

transfers).
UNREALIZED GROSS PROFIT, 12/31/x4: (upstream transfer)
Intercompany gross profit (P120,000 – P72,000) .......................................................... P48,000

Inventory remaining at year's end ................................................................................ 30%
UNREALIZED GROSS PROFIT, 12/31/x5: (upstream transfer)

Intercompany gross profit (P250,000 – P200,000) ........................................................ P50,000
Inventory remaining at year's end ................................................................................ 20%
CONSOLIDATED TOTALS
 Sales = P1,150,000 (add the two book values and eliminate the Intercompany transfer) 
Cost of goods sold:
Benson's COGS book value ............................................................................................ P535,000
Broadway's COGS book value ...................................................................................... 400,000
Eliminate intercompany transfers .................................................................................. (250,000)
Realized gross profit deferred in 20x4 ........................................................................... (14,400)
Deferral of 20x5 unrealized gross profit ......................................................................... 10,000
Consolidated cost of goods sold ........................................................................... P680,600
 Operating expenses = P210,000 (add the two book values and include intangible amortization
for current year)
 Dividend income = -0- (interco. transfer eliminated in consolidation)
 Noncontrolling interest in consolidated income: (impact of transfers is included because they
were upstream)
Broadway reported income for 20x5 ............................................................................ P100,000
Intangible amortization .................................................................................................... (10,000)
20x4 gross profit recognized in 20x5 ...................................................................... 14,400
20x5 gross profit deferred ........................................................................................
(10,000) Broadway realized income for 20x5
....................................................................... P94,400
Outside ownership ........................................................................................................... 30%
Noncontrolling interest .................................................................................................... P28,320
Realized profit in beginning inventory of S Company (downstream sales) 0

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

Less: Amortization of allocated excess __10,000
P 94,400
 Inventory = P988,000 (add the two book values and defer the P10,000 ending unrealized gross
profit)
 Noncontrolling interest in subsidiary, 12/31/x5 = P382,500 30% beginning book value less
P14,400
unrealized gross profit (30% × P935,600) ............................................................. P280,680
Excess intangible allocation (30% × P295,000) ..................................................... (88,500)
Noncontrolling Interest in Broadway’s earnings ................................................... 28,320
Dividends (30% × P50,000) ............................................................................................... (15,000)
Total noncontrolling interest at 12/31/x5 ............................................................... P 382,500
Problem XIV
Amortization of equipment: P20,000 / 10 years = P2,000
RPBI of S (downstream sales):…………………........................................................ P15,000
RPBI of P (upstream sales)………………………....................................................... 10,000
UPEI of S (downstream sales)……………………………………………………..……. 20,000
UPEI of P (upstream sales)………………………………………………….…………… 5,000
Pepper Salt
(CI-CNI) (NCI-CNI) CNI
Net Income from own operations:
Pepper [P724,000 – (PP30,000 x 80%)] P700,000
Salt 72,000 P 18,000
RPBI of S (down) 15,000
RPBI of P (up) 8,000 2,000
UPEI of S (down) ( 20,000)
UPEI of P (up) ( 4,000) (1,000)
Amortization ( 1,600) ( 400)
Impairment of goodwill ( 0) ____( 0)__
P769,400 P18,600 P788,000
Profit Attributable to Equity NC Interest CNI

Holders of Parent in Net Income
Note: Preferred Solution - since what is given is the RE – P, 12/31/2014 (ending

balance of the current year) -
Retained earnings – Parent, 12/31/2014 (cost)……………………….. P 3,500,000
-: UPEI of S (down) – 2014 or RPBI of S (down) – 2015..…………. 20,000
Adjusted Retained earnings – Parent, 12/31/2014 (cost)………….. P 3,480,000
Retroactive Adjustments to convert Cost to ―Equity‖ for
purposes of consolidation / Parent’s share of adjusted net
increase in subsidiary’s retained earnings:
Retained earnings – Subsidiary, 1/1/2011……………………….P 150,000
Less: Retained earnings – Subsidiary, 12/31/2014…………... 320,000
Increase in Retained earnings since acquisition
(cumulative net income – cumulative dividends)…………P 170,000
Accumulated amortization (1/1/2011 – 12/31/2014):
P 2,000 x 4 years………………………………………………..( 8,000)
UPEI of P (up) – 2014 or RPBI of P (up) – 2015……………….....( 5,000)
P 157,000
X: Controlling Interests………………………………………… 80% 125,600
RE – P, 12/31/2014 (equity method) = CRE, 12/31/2014…………. P 3,605,600
Or, compute first the RE – P on January 1, 2014 (use work back approach),
Retained earnings – Parent, 1/1/2014 (cost)
(P3,500,000 plus P25,000 Div of P less P724,000 NI of P)…. P2,801,000
Adjusted Retained earnings – Parent, 1/1/2014 (cost)……………… P2,786.000
purposes of consolidation / Parent’s share of adjusted
net increase in subsidiary’s retained earnings:
Retained earnings – Subsidiary, 1/1/2011………………………P 150,000
Less: Retained earnings – Subsidiary, 1/1/2014……………… 260,000
(cumulative net income – cumulative dividends)…………P110,000
P 2,000 x 3 years………………………………………………. ( 6,000)
UPEI of P (up) – 2013 or RPBI of P (up) – 2014………………... ( 10,000)
P 94,000
X: Controlling Interests………………………………………… 80% 75,200
RE – P, 1/1/2014 (equity method) = CRE, 1/1/2014………………..P2,861,200
+: CI – CNI or Profit Attributable to Equity Holders of Parent…….. 769,400
-: Dividends – P………………………..……………………… 25,000
RE – P, 12/31/2014 (equity method) = CRE, 12/31/2014…………..P3,605,600
Sales Cost of Sale

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

1. Intercompany Sales and Purchases:
Downstream Sales:
Sales………………………………………………………………………….. 320,000
Cost of Sales (or Purchases)…………………………………….... 320,000
Upstream Sales:
Sales………………………………………………………………………….. 290,000
Cost of Sales (or Purchases)……………………………………… 290,000
2. Intercompany Profit:
(COST Model)
Downstream Sales:
*100% RPBI of S:
Retained Earnings – P, beginning………………………………………..... 15,000
Cost of Sales (Beginning Inventory in Income Statement)…............ 15,000
**100% UPEI of S:
Cost of Sales (Ending Inventory in Income Statement)……………… 20,000
Inventory (Ending Inventory in Balance Sheet)……………….. 20,000
Upstream Sales:
***100% RPBI of P: (if equity method Investment in S instead of RE – P, beg.)
Retained Earnings – P, beginning…………………………………...…….. 16,000
NCI ……………………………………………….……………………………... 4,000
Cost of Sales (Beginning Inventory in Income Statement)…........ 20,000
****100% UPEI of P:
Cost of Sales (Ending Inventory in Income Statement)………………… 5,000
Inventory (Ending Inventory in Balance Sheet)……………….. 5,000
Problem XV (Change 2009 – 20x4; 2010 – 20x5; 2011 – 20x6)

(Compute consolidated totals with transfers of both inventory and a building.) Excess
Amortization Expenses
Equipment P60,000 ÷ 10 years = P6,000 per year
Franchises P80,000 ÷ 20 years = P4,000 per year
Annual excess amortizations P10,000
Unrealized Gross profit—Inventory, 1/1/x6
Markup (P70,000 – P49,000) ............................................................................................ P21,000
Markup percentage (P21,000 ÷ P70,000) ..................................................................... 30%
Remaining inventory ....................................................................................................................... P30,000

Markup percentage ....................................................................................................................... 30%
Unrealized gross profit, 1/1/x6 ......................................................................................... P9,000
Unrealized Gross profit—Inventory, 12/31/x6
Markup (P100,000 – P50,000) .......................................................................................... P50,000

Markup percentage (P50,000 ÷ P100,000) .................................................................................. 50%
Remaining inventory ........................................................................................................ P40,000

Markup percentage ....................................................................................................................... 50%
Unrealized gross profit, 12/31/x6 .................................................................................... P20,000
Impact of intercompany Building Transfer
12/31/x5—Transfer price figures

Transfer price ............................................................................................................. P50,000
Gain on transfer (P50,000 – P30,000) ..................................................................... 20,000
Depreciation expense (P50,000 ÷ 5) ...................................................................... 10,000
Accumulated depreciation .................................................................................... 10,000
12/31/x6—Transfer price figures
Depreciation expense ............................................................................................. 10,000
12/31/x5—Historical cost figures
Historical cost ............................................................................................................. P70,000
Depreciation expense (P30,000 book value ÷ 5 years) ..................................... 6,000
Accumulated depreciation (P40,000 + P6,000) 46,000
.................................................. 12/31/x6—Historical cost figures
Depreciation expense ............................................................................................. 6,000
CONSOLIDATED BALANCES
 Sales = P1,000,000 (add the two book values and subtract P100,000 in intercompany transfers)
 Cost of Goods Sold = P571,000 (add the two book values and subtract P100,000 in intercompany
purchases. Subtract P9,000 because of the previous year unrealized gross profit and add P20,000 to
defer the current year unrealized gross profit.)
 Operating Expenses = P206,000 (add the two book values and include the P10,000 excess amortization
expenses but remove the P4,000 in excess depreciation expense [P10,000 – P6,000] created by building
transfer)
 Investment Income = P0 (the intercompany balance is removed so that the individual revenue and
expense accounts of the subsidiary can be shown)
 Inventory = P280,000 (add the two book values and subtract the P20,000 ending unrealized gross profit)
 Equipment (net) = P292,000 (add the two book values and include the P60,000 allocation from the
acquisition-date fair value less three years of excess amortizations)
 Buildings (net) = P528,000 (add the two book values and subtract the P20,000 unrealized gain on the
transfer after two years of excess depreciation [P4,000 per year])
Problem XVI
Schedule of Determination and Allocation of Excess (Partial-goodwill) Date
of Acquisition – January 1, 20x4
Consideration transferred……………………………….. P 372,000
Common stock (P240,000 x 80%)……………………. P 192,000
Retained earnings (P120,000 x 80%)………………... 96,000 288,000
Positive excess: Partial-goodwill (excess of cost over
fair value)………………………………………………... P 12,000
The over/under valuation of assets and liabilities are summarized as follows:

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

value value (Decrease)
Buildings................ 360,000 144,000 ( 216,000)
Less: Accumulated depreciation….. 192,000 - ( 192,000)
Net book value………………………... 168,000 144,000 ( 24,000)

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

Consideration transferred: Cash (80%) P 372,000
Fair value of NCI (given) (20%) 93,000
Fair value of Subsidiary (100%) P 465,000
Less: Book value of stockholders’ equity of Son (P360,000 x 100%) __360,000
Add (deduct): (Over) under valuation of assets and liabilities
(P90,000 x 100%) 90,000
fair value)………………………………………………... P 15,000
In this case, the goodwill was proportional to the controlling interest of 80% and non-controlling
interest of 20% computed as follows:
Value % of Total
Goodwill applicable to parent………………… P12,000 80.00%
Goodwill applicable to NCI…………………….. 3,000 20.00%
Total (full) goodwill……………………………….. P15,000 100.00%
The goodwill impairment loss would be allocated as follows
Value % of Total
Goodwill impairment loss attributable to parent or controlling P 3,000 80.00%
Interest
Goodwill applicable to NCI…………………….. 750 20.00%
Goodwill impairment loss based on 100% fair value or full-
Goodwill P 3,750 100.00%
The unrealized profits on January 1, and on December 31, 20x5, resulting intercompany sales, are
as summarized below:
Downstream Sales:
Intercompany Merchandise
Year Sales of Parent to in 12/31 Inventory Unrealized Intercompany Subsidiary of S
Company Profit in Ending Inventory
20x4 P150,000 P150,000 x 60% = P90,000 P90,000 x 20% = P18,000
20x5 120,000 P120,000 x 80% = P96,000 P96,000 x 25% = P40,000
Upstream Sales:
Intercompany Merchandise
Year Sales of Subsidiary in 12/31 Inventory Unrealized Intercompany
to Parent of S Company Profit in Ending Inventory
20x4 P 50,000 P100,000 x 50% = P25,000 P25,000 x 40% = P10,000
20x5 62,500 P 62,500 x 40% = P25,000 P25,000 x 20% = P 5,000
20x4: First Year after Acquisition

Parent Company Cost Model Entry
January 1, 20x4:
Cash…………………………………………………………………….. 372,000
Acquisition of S Company.

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

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

(4) Investment income [(P13,200 x 80%) + P3,000, goodwill 13,560
impairment loss)]
Investment in S Company 13,560
Record amortization of allocated excess of inventory, equipment,
buildings and bonds payable and goodwill impairment loss.
December 31, 20x4:

(5) Investment income (P18,000 x 100%) 18,000
To adjust investment income for downstream sales - unrealized profit in
ending inventory of S.
December 31, 20x4:

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


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

Land………………………………………………………………………. 7,200
Goodwill…………………………………………………………………. 12,000
Buildings……………………………………….. 216,000
To eliminate investment on January 1, 20x4 and allocate excess of
cost over book value of identifiable assets acquired, with remainder
to goodwill; and to establish noncontrolling interest (in net assets of
subsidiary) on date of acquisition.

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

(E4) Investment income 6,840
To eliminate intercompany dividends and investment income under
equity method and establish share of dividends, computed as
follows:
Investment in S Investment Income
NI of S 28,800 Dividends - S NI of S
(60,000 Amortization &
Amortization (50,000
x 80%)……. 48,000 13,560 impairment
impairment 13,560 48,000 x 80%)
18,000 UPEI of of
UPEI S S 18,000
9,600 UPEI of of
UPEI P P 9,600
21,960 6,840
After the eliminating entries are posted in the investment account, it should be observed that
from consolidation point of view the investment account is totally eliminated. Thus,
Investment in S
(60,000 x 80%) 48,000 13,560 impairment
18,000 UPEI of Son
9,600 UPEI of Perfect
Balance, 12/31/x4 350,040 288,000 (E1) Investment, 1/1/20x4

(E4) Investment Income 84,000 (E2) Investment, 1/1/20x4
and dividends …………… 21,960
372,000 372,000
(E5) Sales………………………. 150,000
(E6) Sales………………………. 60,000




Son Company’s realized net income from
Less: Amortization of allocated excess [(E3)]…. ( 13,200)
P 34,800
Subsidiary accounts are adjusted to full fair value regardless on the controlling interest
percentage or what option used to value non-controlling interest or goodwill.

Equity Method (Partial-goodwill) 80%-Owned Subsidiary December 31, 20x4 (First Year
after Acquisition)
Sales P480,000 P240,000 (5) 150,000 P 510,000
(6) 60,000
Investment income 6,840 - (4) 6,840 _________
(5) P 168,000
Cost of goods sold P204,000 P138,000
(3) 6,000 150,000
(7) 18,000 (6)
(8) 12,000 60,000

Other expenses 48,000 18,000 66,000
Net Income P174,840 P 60,000 P181,800

P Company P360,000 P 360,000
S Company P120,000 (1) 120,000

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

(2) 18,000
__________ (5) 6,960
_________ _________ ____89,760
Total P1,962,840 P1,008,000 P 983,160 P 983,160 P2,394,600
Second Year after Acquisition

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

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

Record amortization of allocated excess of inventory, equipment, buildings and

bonds payable
December 31, 20x5:

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

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

To adjust investment income for upstream sales - unrealized profit in ending
inventory Perfect (UPEI of P).
December 31, 20x5:

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

The schedule of determination and allocation of excess presented above provides complete
guidance for the worksheet eliminating entries:

Retained earnings – S Co, 1/1/x5…………………………. 144.000
Investment in S Co (P384,000 x 80%) 307,200
To eliminate investment on January 1, 20x5 and equity accounts
of subsidiary on date of acquisition; and to establish non-
controlling interest (in net assets of subsidiary) on 1/1/20x5.
(E2) Accumulated depreciation – equipment (P96,000 – P12,000) 84,000

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

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

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

(E7) Sales………………………. 75,000

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

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

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



S Company’s Realized net income* P 96,000
Less: Amortization of allocated excess ( 7,200)
P 88,800
with third persons.
Equity Method (Partial-goodwill) 80%-Owned Subsidiary December 31, 20x5 (Second
Year after Acquisition)
Sales P540,000 P360,000 (6) 120,000 P 705,000
(7) 75,000
Investment income 65,040 - (4) 65,040 ___________
(11) 6,000 (7) 75,000
(8) 18,000
(9) 12,000

Other expenses 72,000 54,000 126,000
Net Income P257,040 P 90,000 P 274,800

P Company P462,840 P 462,840
S Company P144,000 (1) 144,000
Total P719,880 P234,000 P 719,880
Dividends paid
P Company 72,000 72,000
S Company - 48,000 (4) 48,000 _ ________

Sheet P777,456 P223,200 P 777,456
Balance Sheet
Cash………………………. P 265,200 P 102,000 P 367,200
Inventory…………………. 216,000 108,000 (10) 24,000
(11) 6,000 294,000
Land……………………………. 210,000 48,000 (2) 7,200 265,200
Equipment 240,000 180,000 420,000
Buildings 720,000 540,000 (3) 216,000 1,044,000

Goodwill…………………… (2) 9,000 9,000
(9) 9,600 (2) 70,440
(4) 26,640 -
Total P2,207,880 P1,074,000 P2,677,800
Accumulated (2) 84,000

depreciation -
equipment P 150,000 P 102,000 (3) 12,000 P180,000
Accumulated 450,000 306,000 (2) 198,000
Bonds payable………………… 240,000 120,000 360,000

(9) 2,400
(2 ) 76,800 (2)
__________ 15,360
___ _____ _________ (5) 17,760 ____97,920
Total P2,207,880 P1,074,000 P1,046,400 P1,046,400 P2,677,800
5 and 6. Refer to Problem IX for computations

Note: Using cost model or equity method, the consolidated net income, consolidated
retained earnings, non-controlling interests, consolidated equity on December 31, 20x4 and
20x5 are exactly the same (refer to Problem IX solution).
Problem XVII
Schedule of Determination and Allocation of Excess
Date of Acquisition – January 1, 20x4

Consideration transferred (80%)…………….. P 372,000
Fair value of NCI (given) (20%)……………….. 93,000
Fair value of Subsidiary (100%)………. P 465,000
Common stock (P240,000 x 100%)………………. P 240,000
Retained earnings (P120,000 x 100%)………... 120,000 360,000
fair value)………………………………………………... P 15,000

Account Adjustments to be amortized under Life Amount Year(20x4) 20x5
Inventory P 6,000 1 P 6,000 P 6,000 P -
Equipment (net)......... 96,000 8 12,000 12,000 12,000
Buildings (net) (24,000) 4 ( 6,000) ( 6,000) (6,000)
Bonds payable… 4,800 4 1,200 1,200 1,200
P 13,200 P 13,200 P 7,200
20x4: First Year after Acquisition Parent Company Equity Method Entry
January 1, 20x4:
Cash…………………………………………………………………….. 372,000
Acquisition of S Company.
(2) Cash……………………… 28,800
December 31, 20x4:

December 31, 20x4:

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

ending inventory of S.
December 31, 20x4:

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

controlling interest (in net assets of subsidiary) on date of
acquisition.
(E2) Inventory…………………………………………………………………. 6,000

Land………………………………………………………………………. 7,200
Goodwill…………………………………………………………………. 15,000
Buildings……………………………………….. 216,000
to goodwill; and to establish noncontrolling interest (in net assets of
subsidiary) on date of acquisition.

Inventory………………………………………………………….. 6,000
Goodwill…………………………………… 3,750
Equipment P 12,000
Buildings ( 6,000)
Bonds payable _______ _______ P 1,200
Totals P 6,000 P 7,200 P1,200 14,400

follows:
Investment Income
Investment in S
NI of S 28,800 Dividends - S NI of S
Amortization
& (50,000
x 80%)……. 48,000 13,560 impairment
impairment 13,560 48,000 x 80%)
18,000 UPEI
UPEI of of
S S 18,000
9,600 UPEI
UPEI of of
P P 9,600
21,960 6,840
Investment in S
(60,000 x 80%) 48,000 13,560 impairment
18,000 UPEI of S
9,600 UPEI of P

(E4) Investment Income 84,000 (E2) Investment, 1/1/20x4
and dividends …………… 21,960
372,000 372,000
(E5) Sales………………………. 150,000

(E6) Sales………………………. 60,000





Less: Amortization of allocated excess [(E3)]…. ( 13,200)
P 34,800
Less: Non-controlling interest on impairment
loss on full-goodwill (P3,750 x 20%) or
(P3,750 impairment on full-goodwill less
P3,000, impairment on partial-goodwill)*
750
– full goodwill P 6210
*this procedure would be more appropriate, instead of multiplying the
full-goodwill impairment loss of P3,750 by 20%. There might be situations
where the NCI on goodwill impairment loss would not be proportionate
to NCI acquired (refer to Illustration 15-6).

Equity Method (Full-goodwill) 80%-Owned Subsidiary December 31, 20x4 (First Year
after Acquisition)

Sales P480,000 P240,000 (5) 150,000 P 510,000
(6) 60,000
Investment income 6,840 - (4) 6,840 _________
(5) P 168,000
Cost of goods sold P204,000 P138,000
(3) 6,000 150,000
(7) 18,000 (6)
(8) 12,000 60,000
Other expenses 48,000 18,000 66,000
Net Income P174,840 P 50,000 P150,875

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

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

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

December 31, 20x5:

Record amortization of allocated excess of inventory, equipment, buildings and
bonds payable
December 31, 20x5:

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

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

The schedule of determination and allocation of excess presented above provides complete
guidance for the worksheet eliminating entries.

Retained earnings – S Co, 1/1/x5…………………………. 144.000
Investment in S Co (P384,000 x 80%) 307,200
controlling interest (in net assets of subsidiary) on 1/1/20x5.
(E2) Accumulated depreciation – equipment (P96,000 – P12,000) 84,000

Accumulated depreciation – buildings (P192,000 + P6,000) 198,000
Land………………………………………………………………………. 7,200
Discount on bonds payable (P4,800 – P1,200)…. 3,600
Goodwill (P15,000 – P3,750)…………………………….. 11,250
Buildings……………………………………….. 216,000
Non-controlling interest [(P90,000 – P13,200) x 20%] +
[P3,000, full goodwill - [(P3,750, full-goodwill impairment
– P3,000, partial- goodwill impairment)*
or (P3,750 x 20%)] 17,610
to the original amount of goodwill; and to establish noncontrolling
interest (in net assets of subsidiary) on 1/1/20x5.
*this procedure would be more appropriate, instead of multiplying the full-goodwill impairment loss of P3,750 by 20%.
There might be situations where the NCI on goodwill impairment loss would not be proportionate to NCI acquired (refer
to Illustration 15-6).
(E3) Depreciation expense……………………….. 6,000
To provide for 20x5 depreciation and amortization on differences
between acquisition date fair value and book value of Son’s
identifiable assets and liabilities as follows:
Depreciation/
Amortization Amortization
Expense -Interest Total
Inventory sold
Equipment P 12,000
Buildings ( 6,000)
Bonds payable _______ P 1,200
Totals P 6,000 P1,200 P7,200

follows:
NI of Son 38,400 Dividends – S NI of S

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

(E7) Sales………………………. 75,000

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

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

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




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

Equity Method (Full-goodwill) 80%-Owned Subsidiary December 31, 20x5 (Second Year
after Acquisition)

Sales P540,000 P360,000 (6) 120,000 P 705,000
(7) 75,000
Investment income 65,040 - (4) 65,040 ___________
(11) 6,000 (7) 75,000
(8) 18,000
(9) 12,000

Other expenses 72,000 54,000 126,000

Net Income P257,040 P 90,000 P 274,800

P Company P462,840 P 462,840
S Company P144,000 (1) 144,000

Total P719,880 P234,000 P 719,880
Dividends paid
P Company 72,000 72,000
S Company - 48,000 (4) 48,000 _ ________
Sheet P647,880 P186,000 P 647,880
Balance Sheet
Cash………………………. P 265,200 P 114,000 P 367,200
Inventory…………………. 216,000 108,000 (10) 24,000
(11) 6,000 294,000
Land……………………………. 210,000 48,000 (2) 7,200 265,200
Equipment 240,000 180,000 420,000
Buildings 720,000 540,000 (3) 216,000 1,044,000
Goodwill…………………… (2) 11,250 11,250

(9) 9,600 (3) 70,440
(4) 26,640 -
Total P2,207,880 P1,074,000 P2,680,050
Accumulated (2) 84,000

depreciation -
equipment P 150,000 P 102,000 (3) 12,000 P180,000
Accumulated 450,000 306,000 (2) 198,000
Bonds payable………………… 240,000 120,000 360,000
(9) 2,400
(1 ) 76,800
(2) 17,610
__________
___ _____ _________ (14)17,760 ____100,170
Total P2,207,880 P1,074,000 P1,048,650 P1,048,650 P2,680,050
5 and 6. Refer to Problem X 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. a
Sales Cost of Sales
P Company 2,250,000 1,800,000
S Company 1,125,000 _937,500
Total 3,375,000 2,737,500
Less: Intercompany sales 468,000 468,000
Realized profit in BI of S Co.
[P300,000 x 1/2 = P150,000 x (300-240)/300] 30,000
Add: Unrealized profit in EI of S Co.
[P468,000 x 40% = P187,200 x (468-375)/468] ________ __37,200
Consolidated 2.907,000 2,276,700
2. c – refer to No. 1 for computations
3. b

Unrealized profit in ending inventory of P Company (upstream sales)
[P150,000 x 50% = P75,000 x (30/150)] ( 15,000)
Total P300,000
Less: Amortization of allocated excess…………………… 0

Or, alternatively

Total P300,000
Amortization of allocated excess…………………… 0 15,000

Less: Amortization of allocated excess 0
P 75,000
4. c – refer to No. 3 for computation

5. a – P25,000 x 125% = P31,250 intercompany sales and purchases (cost of sales)
6. c – P25,000 x 125% = P31,250 intercompany sales and purchases (cost of sales)
7. d
Cost of Sales
P Company 5,400,000
S Company _1,200,000
Total 6,600,000
Less: Intercompany sales 1,000,000
[P625,000 x 12% = P75,000 x (625 - 425)/625] 24,000
[P1,000,000 x 10% = P100,000 x (1,000 - 800)/1,000] __20,000
Consolidated 5,596,000
8. b
Parent Subsidiary
X-Beams (parent) Kent (subsidiary), 70%:30% 210,000 90,000
Unrealized Profit in EI of Parent (X-Beams):
P180,000x 20% = P36,000 x (180-100/180) = P16,000,
70%:30% ( 11,200) ( 4,800)
Non-controlling Interest in Kent’s Net Income 85,200
9. d
Non-controlling Interest in Net Income (NCINI) for 20x4:
Less: Amortization of allocated excess _ 0
P 152,000
10. c –
Parent Subsidiary
Gibson (Parent): Sparis(subsidiary), 90%:10% 820,800 91,200
RPBI of Parent (upstream: 420,000 x 30% = 126,000;
126,000 x 25/125 = 25,200; 90%:10% 22,680 2,520
UPEI of Parent (upstream): 500,000 x 30% = 150,000;
150,000 x 25/125 = 30,000; 90%:10% (27,000) ( 3,000)
Non-controlling Interest in Kent’s Net Income 90,720
11. b
12. a
13. b (downstream sales)
Sales – Pot (parent) 1,120,000
- Skillet (subsidiary) 420,000
Total 1,540,000
Add(Deduct): Intercompany sales - down ( 140,000)
Consolidated Sales 1,400,000
CGS – Pot (parent) 840,000

Total 1,092,000
Unrealized Profit in
Ending Inventory of
Skillet (subsidiary)-down
EI of Skillet :
Sales of Pot 140,000 x: EI of Skillet 40%
EI of Skillet 56,000
X: GP of Pot
(1,120 – 840)
1,120 25% 14,000
Consolidated CGS 966,000
14. c – upstream sales
Note: The only change here from Problem 13 is the markup percentage which would
now be 40 percent*
Total 1,092,000
Add(Deduct): Intercompany sales - upstream ( 140,000)
Ending Inventory of Pot (subsidiary)-
upstream EI of Pot:
Sales of Skillet 140,000 x: EI of Pot 40%
EI of Pot 56,000
X: GP of Skillet
(420 – 252)
420 40%* 22,400
The problem is quite intriguing because of the statement ―Pot had established the transfer
price base on its normal markup‖ . It should be noted that Parent Company established
the transfer price based on its normal price (in this case it is assumed that the mark-up of
the parent which is 25% is also the normal transfer price). So, the solution should be as
follows:
Sales – Pot (parent) 1,120,000

Total 1,540,000
Consolidated Sales 1,400,000

Total 1,092,000
Ending Inventory of Skillet (subsidiary)-
down EI of Skillet :
Sales of Pot 140,000
x: EI of Skillet 40%
EI of Skillet 56,000
X: GP of Pot
(1,120 – 840)
1,120 25% 14,000
15. No answer available – P140,000, intercompany sales

16. a – P20 x 28,000 picture tubes, intercompany sales
17. b – P120,000, the amount of sales to outsiders is the amount of sales presented in the
consolidated income statement.
18. a – the cost of inventory produced by the parent (downstream sales)
19. c
P Company’s net income from own/separate operations (P90,000 – P62,000) P 28,000
S Company’s net income from own operations (P120,000 – P90,000) P3 0,000
Unrealized profit in ending inventory of P Company (upstream sales) ( )
S Company’s realized net income from separate operations*…….….. P30,000 30,000
Total P 58,000
Or, alternatively
P Company’s net income from own/separate operations (P90,000 – P62,000) P 28,000

S Company’s net income from own operations (P120,000 – P90,000) P3 0,000
Unrealized profit in ending inventory of P Company (upstream sales ( )
Total P 58,000

equity holders of parent………….. P 55,000

P 30,000
20. c – P100,00 sales to unrelated/unaffiliated company.
21. c
Cost of Sales
P Company 67,000
S Company _63,000
Total 130,000
Less: Intercompany sales 90,000
[P90,000 x 30% = P27,000 x (90 - 67)/90] __6,900
Consolidated 46,900
Parent Subsidiary
Sales 90,000 100,000
Less: Cost of goods sold – Parent 67,000
Subsidiary (90,000 x 70%) ______ 63,000
Gross profit 23,000 37,000
Ending inventory (90,000 x 30%) 27,000
22. a
P Company’s net income from own/separate operations
[P100,000 – (P90,000 x 70%)] P 37,000

S Company’s net income from own operations (P90,000 – P67,000) P23,000
[P90,000 x 30% = P27,000 x (90-67/90)] ( 6,900 )
Total P 53,100

Or, alternatively
P Company’s net income from own/separate operations
[P100,000 – (P90,000 x 70%)] P 37,000
S Company’s net income from own operations (P90,000 – P67,000) P23,000
[P90,000 x 30% = P27,000 x (90-67/90)] ( 6,900 )
Total P 53,100

P 16,100
23. d – P27,000 x 67/90 = P20,100
24. a – the cost from parent of P48,000 x 45/60 = P36,000
Parent Subsidiary 1 Subsidiary 2
Sales 60,000 60,000 67,000
Less: Cost of goods sold – P and S1 48,000 60,000
Subsidiary (60,000 x 45/60) ______ ______ 45,000
Gross profit 12,000 0 22,000
Ending inventory (60,000 x 15/60) 15,000
25. b – the cost from parent of P48,000 x 15/60 = P12,000

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

[P15,000 x (48/60] ________ __12,000
Amount to be eliminated 120,000 *117,000
*or, P60,000 + P60,000 – [P15,000 x (60-48/60]
27. b – refer to No. 26 for computation

28. d – P15,000 x [(60-48)/60] = P3,000 29. a
P Company’s net income from own/separate operations P 225,000

S Company’s net income from own operations P150,000
[P105,000 x 20/120) ( 17,500 )
Total P 357,500
Less: Amortization of allocated excess…………………… _ 0
30. c
P Company’s net income from own/separate operations P360,000

Realized profit in beginning inventory of P Company (upstream sales)
[P105,000 x 20/120) 17,500
[P157,500 x 20/120) ( 26,250 )
Total P 486,250

Or, alternatively
S Company’s net income from own operations ( P135,000

[P105,000 x 20/120) 17,500
[P157,500 x 20/120) ( 26,250 )
Total P 486,250

Add: Non-controlling Interest in Net Income (NCINI) _37,875

P126,250
31. a – refer to No. 30 for computation. 32.

d

[P157,500 x 20/120) 26,250
[P180,000 x 20/120) ( 30,000 )
Total P 686,250
Or, alternatively

[P157,500 x 20/120) 26,250
[P180,000 x 20/120) ( 30,000 )
Total P 686,250

Add: Non-controlling Interest in Net Income (NCINI) __70,875

P 236,250
Non-controlling Interest in Net Income (NCINI) – partial goodwill P 70.875
33. a - refer to No. 32 for computation.

34. c
Sales
P Company 500,000
S Company _350,000
Total 850,000
Less: Intercompany sales to Dundee 100,000
Intercompany sales to Perth 150,000
Consolidated 600,000
35. a
Ending inventory of Perth from Dundee (P36,000 / 110%) 32,727
Ending inventory of Dundee from Perth (P31,000 / 130%) _23,846
Total 56,573
36. d
Sales
P Company 420,000
S Company 280,000
Total 700,000
37. No answer available – P47,000

Operating
Expenses
P Company 28,000
S Company 14,000
Total 42,000
Add: Undervalued equipment (P35,000/7 years) _5,000
Consolidated 47,000
38. c
Cost of Sales
P Company 196,000
S Company _112,000
Total 308,000
[P140,000 x 60% = P84,000 x (140 - 112)/140] _16,800

Common stock – S Company, December 31, 20x4…… P 140,000
Retained earnings – S Company, December 31, 20x4
Retained earnings – S Company, January 1, 20x4 P210,000
Add: Net income of S for 20x4 154,000
Total P364,000
Less: Dividends paid – 20x4 0 364,000
Stockholders’ equity – S Company, December 31, 20x4 P 504,000


20x5 (P35,000/7 years) ( 5,000)
Fair value of stockholders’ equity of S, December 31, 20x5…… P 534,000
Add: NCI on full-goodwill (P70,000 – P56,000) 14,000

Non-controlling interest (full- goodwill)………………………………….. P 120,800
Partial-goodwill
Less: Book value of stockholders’ equity of S:
Common stock (P140,000 x 80%)……………………. P 112,000
Increase in equipment (P35,000 x 80%) ___28,000
Positive excess: Partial-goodwill (excess of cost over
fair value)………………………………………………... P 56,000
Full-goodwill
Consideration transferred: Cash (P364,000/80%) P 455,000
Less: Book value of stockholders’ equity of S (P350,000 x 100%) __350,000
Increase in equipment P35,000 x 100% 35,000
fair value)………………………………………………... P 70,000
40. d
Equipment
P Company 616,000
S Company 420,000
Total 1,036,000
Add: Undervalued equipment 35,000
Less: Depreciation on undervalued equipment (P35,000/7 years) 7,000
41. d
Inventory
P Company 210,000
S Company 154,000
Total 364,000
Less: Unrealized profit in EI: [P140,000 x 60% = P84,000 x (140 - 112)/140] 16,800
42. a Selling price P 50,000 Less: Cost of

sales _40,000
Original unrealized profit 10,000
Unsold percentage __30%
Unrealized profit P _3,000

S Company’s net income from own operations…………………………………. 76,000
Total P253,000

44. a
Combined 20x5 sales (P580,000 + P445,000) P 1,025,000
Less: 20x5 intercompany sales 0
Consolidated sales P 1,025,000
45. d
Combined cost of sales P 480,000
Less: 20x5 intercompany sales 0
Less: Unrealized profit in the 20x5 beginning inventory from 20x4 (
3,000)
Add: Unrealized profit in 20x5 ending inventory ________0
Consolidated cost of sales P 477,000
46. b Combined cost of sales P 160,000 Less: Intercompany sales revenue 110,000
Add: Unrealized profit taken out of inventory
(75%)x(35,000) = 26,250
Consolidated cost of sales P 76,250
47. Incomplete data – PAS 27 allows the use of cost model in accounting for investment in
subsidiary in the books of parent company. Income recognized under this model is the
dividends declared or paid by the subsidiary multiplied by controlling interest. Since, there
is no data as to dividends of subsidiary, the amount of dividend income from the point of
parent cannot be determined.
If Equity Method is used, then the answer would be:

(P115,000 x 70%) - P26,250 = P 54,250
But equity method is not allowed in the books of parent for purposes of CFS.
48. aSelling price P 60,000

Less: Cost of sales ( 48,000 )
Unrealized profit 12,000 Unsold fraction 1/3
Credit to Inventory P 4,000
49. a - P720,000 = P500,000 + P400,000 - P200,000 +P 20,000
50. b – using equity method.

(P120,000 x 80%) – (P200,000 x 50% = P100,000 x 20% = P20,000) = P76,000
PAS 27 allows the use of cost model in accounting for investment in subsidiary in the books
of parent company
The use of equity method is not allowed in the books of parent (unless it is a stand-alone
entity).
51. d Downstream situation
S Company’s net income from own/separate operations P120,000

x: NCI % 20%
P 24,000
52. a - It will be overstated by the amount of the NC interests’ share of the P1,600 of profit margin
in the P9,600 of materials carried over to 20x5 (20% x P1,600 = P320
53. c
Grebe plus Swamp’s separate cost of goods sold =
P400,000 + P320,000 = P 720,000
Less: Intercompany sales = 200,000
Add: Profit +12,500 - 10,000 = ____2,500
Consolidated COGS = P 522,500
54. a
Ending inventory of Grebe (1/2 x P100,000) P 50,000
x: GP% of Parent (P100,000 – P80,00)/P100,000 20%
Unrealized profit in ending inventory P 10,000
55. a
Squid’s reported income P 100,000

Less: Unrealized profits in the ending inventory _____16,000
Squid’s adjusted income P 84,000
NCI percentage _______10%
NCI-CNI P 8,400
56. b Inventory remaining P100,000 × 50% = P50,000 Unrealized gross profit (based on LL's
markup as the seller) P50,000 × 40% = P20,000. The ownership percentage has no impact on
this computation.
57. c
Unrealized Profit, 12/31/x4
Intercompany Gross profit (P100,000 – P75,000) ................................................. P25,000
Inventory Remaining at Year's End ........................................................................ 16%
Unrealized Intercompany Gross profit, 12/31/x4 ................................................. P4,000
UNREALIZED GROSS PROFIT, 12/31/x5

Intercompany Gross profit (P120,000 – P96,000) .................................................. P24,000
Unrealized Intercompany Gross profit, 12/31/x5 ................................................. P8,400
CONSOLIDATED COST OF GOODS SOLD

Parent balance ................................................................................................... P380,000
Subsidiary Balance ............................................................................................. 210,000
Remove Intercompany Transfer ...................................................................... (120,000)
Recognize 20x4 Deferred Gross profit ............................................................ (4,000)
Defer 20x5 Unrealized Gross profit ................................................................... 8,400
Cost of Goods Sold ................................................................................................... P474,400
58. a - Intercompany sales and purchases of P100,000 must be eliminated. Additionally, an

unrealized gross profit of P10,000 must be removed from ending inventory based on a markup
of 25 percent (P200,000 gross profit/P800,000 sales) which is multiplied by the P40,000 ending
balance. This deferral increases cost of goods sold because ending inventory is a negative
component of that computation. Thus, cost of goods sold for consolidation purposes is
P690,000 (P600,000 + P180,000 – P100,000 + P10,000).
59. c - The only change here from No. 58 is the markup percentage which would now be 40
percent (P120,000 gross profit P300,000 sales). Thus, the unrealized gross profit to be
deferred is P16,000 (P40,000 × 40%). Consequently, consolidated cost of goods sold is
P696,000 (P600,000 + P180,000 – P100,000 + P16,000).
60. b
Ending inventory ................................................................................................. P 40,000
Markup (P33,000/P110,000) ............................................................................... __ 30%
Unrealized intercompany gross profit, 12/31/x4 ........................................... P 12,000

Ending inventory ................................................................................................. P 50,000
Markup (P48,000/P120,000) ............................................................................... 40%
Unrealized intercompany gross profit, 12/31/x5 ........................................... P 20,000
Non-controlling Interest in Net Income (NCINI) for 20x5

P 82,000

61. a – this topic is for Chapter 18

Individual Records after Transfer
12/31/x4
Machinery—P40,000
Gain—P10,000
Depreciation expense P8,000 (P40,000/5 years)
Income effect net—P2,000 (P10,000 – P8,000)
12/31/x5
Depreciation expense—P8,000
Consolidated Figures—Historical Cost

12/31/x4
Machinery—P30,000
Depreciation expense—P6,000 (P30,000/5 years)
12/31/x5
Depreciation expense--P6,000
Adjustments for Consolidation Purposes:

20x4: P2,000 income is reduced to a P6,000 expense (income is reduced by P8,000)
20x5: P8,000 expense is reduced to a P6,000 expense (income is increased by P2,000)
62. b - this topic is for Chapter 18

UNREALIZED GAIN
Transfer Price ........................................................................................................ P280,000
Book Value (cost after two years of depreciation) ..................................... 240,000
Unrealized Gain ................................................................................................... P40,000
EXCESS DEPRECIATION
Annual Depreciation Based on Cost (P300,000/10 years) ........................... P30,000
Annual Depreciation Based on Transfer Price
(P280,000/8 years) ........................................................................................ 35,000
Excess Depreciation ........................................................................................... P5,000
ADJUSTMENTS TO CONSOLIDATED NET INCOME
Defer Unrealized Gain ....................................................................................... P(40,000)
Remove Excess Depreciation ........................................................................... 5,000
Decrease to Consolidated Net Income ........................................................ P(35,000)
63. c
Sales Cost of Sales
P Company 10,000,000 7,520,000
S Company __200,000 _160,000
Total 10,200,000 7,680,000
Less: Intercompany sales – upstream sales 60,000 60,000
[P60,000 x 30% = P18,000 x (10 – 7.5)/10] ________ __ 4,500
Consolidated 10,140,000 7,604,500
64. d – refer to No. 63 for computation 65.

c
Sales
P Company 10,000,000
S Company __200,000
Total 10,200,000
Less: Intercompany sales – downstream sales 60,000
[P60,000 x 30% = P18,000 x (10 – 7.5)/10] ________
66. d Add the two book values and remove P100,000 intercompany transfers.
67. c Intercompany gross profit (P100,000 - P80,000) ...................................................

P20,000
Inventory remaining at year's end ......................................................................... 60%
Unrealized intercompany gross profit .................................................................... P12,000
CONSOLIDATED COST OF GOODS SOLD

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

Non-controlling interest fair value .................................. 65,000
SZ total fair value ............................................................... P325,000
Book value of net assets ................................................... (250,000)
Excess fair over book value P75,000
Annual Excess
Life Amortizations
Excess fair value assigned to undervalued assets:
Equipment .................................................................... 25,000 5 years P5,000
Secret Formulas .......................................................... P50,000 20 years 2,500
Total ................................................................................. -0- P7,500
Consolidated Expenses = P37,500 (add the two book values and include current year
amortization expense)
69. a
Common stock – S Company, December 31, 20x4…… P 100,000
Retained earnings – S Company, December 31, 20x4
Retained earnings – S Company, January 1, 20x4 P150,000

Add: Net income of S for 20x4 110,000
Total P260,000
Less: Dividends paid – 20x4 0 260,000
Stockholders’ equity – S Company, December 31, 20x4 P 360,000
Amortization of allocated excess (refer to amortization above) : ( 7,500)
Fair value of stockholders’ equity of S, December 31, 20x5…… P 427,500
Add: NCI on full-goodwill ( ________0
Non-controlling interest (full- goodwill)………………………………….. P 85,500
Partial-goodwill
Less: Book value of stockholders’ equity of S:
Common stock (P100,000 x 80%)……………………. P 80,000
Increase in secret formulas: P50,000 x 80% 40,000
Full-goodwill
Consideration transferred: Cash (80%) P 260,000
FV of NCI (20%) ___65,000
Fair value of Subsidiary (100%) P 325,000
Less: BV of stockholders’ equity of S (P100,000 + P150,000) x 100% __250,000
Increase in equipment P25,000 x 100% 25,000
Increase in secret formulas: P50,000 x 100% P 50,000
Amortization:
Equipment: P25,000 / 5 years = P 5,000
Secret formulas: P50,000 / 20 years = 2,500
Total amortization of allocated P 7,500
70. c Add the two book values plus the original allocation (P25,000) less one year of excess
amortization expense (P5,000).
71. b Add the two book values less the ending unrealized gross profit of P12,000.
Intercompany Gross profit (P100,000 – P80,000) .................................................. P20,000

Unrealized Intercompany Gross profit, 12/31 ....................................................... P12,000
72. c – P400,000 x 1/4 = P100,000 x 30% = P30,000 73.
d
Non-controlling Interest in Net Income (NCINI) for 20x5 20x6
(Reported net income of S Company) P 400,000 P 480,000
Unrealized profit in ending inventory of P Company (upstream sales) ( 20,000) 0
S Company’s realized net income from separate operations……… P 380,000 P 500,000
Less: Amortization of allocated excess 0 0
P380,000 P500,000
Multiplied by: Non-controlling interest %.......... 20% 20%
Non-controlling Interest in Net Income (NCINI) – partial goodwill P 76,000 P100,000
Less: NCI on goodwill impairment loss on full goodwill 0 0
Non-controlling Interest in Net Income (NCINI) – full goodwill P 76,000 P100,000
74. c
Ending inventory at selling price: P300,000 x 1/3 = P100,000 x (300,000 – 240,000)/300,000 P20,000
Less: Inventory write-down (P100,000 – P92,000) __8,000
Intercompany profit to be eliminated P12,000
75. The requirement ―P’s income from S‖ is a term normally used under the equity method, but,
in some cases it may also refer to the term ―dividend income‖ under the cost model
depending on how the problem was described and presented.
Since there are no data available to arrive at the dividend income under the cost model for
reason that dividend declared or paid by subsidiary is not given, so the term ―P’s income
from S‖ may mean ―Income from subsidiary‖ which is computed under the equity method,
thus:
Share in net income (P120,000 x 60%) P72,000
Less: Unrealized profit in ending inventory of S {P189,000 x 1/3 = P63,000 x (P189-135)/P189] __18,000
Intercompany profit to be eliminated P54,000
Answer: Equity method (c)
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.
76. a – refer to No. 1

77. c – refer to No. 1
78. b
[P200,000 x 50% = P100,000 x (P40,000/P200,000)] ( 20,000 )
Total P 400,000


P 100,000
79. c – refer to No, 78 for computations.

80. – refer to No. 75
The requirement ―P’s income from S‖ is a term normally used under the equity method, but,
in some cases it may also refer to the term ―dividend income‖ under the cost model
depending on how the problem was described and presented.
Since there are no data available to arrive at the dividend income under the cost model for
reason that dividend declared or paid by subsidiary is not given, so the term ―P’s income
from S‖ may mean ―Income from subsidiary‖ which is computed under the equity method,
thus:
Share in net income (P200,000 x 60%) P120,000
Less: Unrealized profit in ending inventory of S {P315,000 x 1/3 = P105,000 x (P315-P225)/P315] __30,000
Intercompany profit to be eliminated P 90,000
Answer: Equity method (b)
81. a
20x5 Sales Cost of Sales
P Company 1,800,000 1,440,000
S Company __900,000 _750,000
Total 2,700,000 2,190,000
Less: Intercompany sales 375,000 375,000
[P240,000 x 1/2 = P120,000 x (240-192)/240] 24,000
[P375,000 x 40% = P150,000 x (375-300)/375] ________ __30,000
Consolidated 2.325,000 1,821,000
82. c - refer to No. 81 for computations

83. b
S Company’s net income from own operations P 90,000
[P150,000 x 50% = P75,000 x (P30,000/P150,000)] ( 15,000 )
Total P 300,000

P 75,000
84. c – refer to No. 83 for computations

85. a – [P100,000 x (25/100) = P25,000 x 40/100 = P10,000
86. b – [P300,000 x 1/2 = P150,000 x 40% = P60,000] 87. No answer available – P300
(Reported net income of S Company) P 0
(P100,000 x 10% = P10,000 x 30%) ( 3,000)
S Company’s realized net income from separate operations……… P( 3,000)
P( 3,000)
Non-controlling Interest in GP P( 300)
Non-controlling Interest in GP P( 300)
88. b
20x3 20x4 20x5
Share in net income
20x3: P70,000 x 90% P 63,000
20x4: P85,000 x 90% P 76,500
20x5: P94,000 x 90% P 84,600
Less: Unrealized profit in ending inventory of P
20x3: P1,200 x 25% = P300 x 90% ( 270) 270

20x4: P4,000 x 25% = P1,000 x 90% ( 900) 900
20x5: P3,000 x 25% = P750 x 90% ________ ________ __( 675)
Income from S P 62,730 P 75,870 P 84,825
89. c – refer to No. 88 for computation.

90. d – refer to No. 88 for computation.
91. a
**Non-controlling Interest in Net Income (NCINI) for 20x3 20x4 20x5
S Company’s net income of Subsidiary Company from its
own operations (Reported net income of S Company) P 70,000 P 85,000 P 94,000
RPBI of P Company (upstream sales) 0 300 1,000
UPEI of P Company (upstream sales) ( 300) ( 1,000) ( 750)
S Company’s realized net income from separate operations P 69,700 P 84,300 P 94,250
Less: Amortization of allocated excess 0 0 0
P 69,700 P 84,300 P 94,250
Multiplied by: Non-controlling interest %.......... 10% 10% 10%
Non-controlling Interest in Net Income (NCINI) – partial goodwill P 6,970 P 8,430 P 9,425
Less: NCI on goodwill impairment loss on full goodwill 0 0 0
Non-controlling Interest in Net Income (NCINI) – full goodwill P 6,970 P 8,430 P 9,425

94. a – refer to No. 88 for computation.
95. a – refer to No. 88 for computation. 96. b – refer to No. 88 for computation.
97. a – none, since intercompany profit starts only at the end of 20x3.
98. b – the amount of unrealized profit at the end of 20x3.
99. c – the amount of unrealized profit at the end of 20x4.
100. a
101. c
Cost of Sales
P Company 400,000
S Company _350,000
Total 750,000
102. a – (P40,000 x 140% = P56,000)

103. a – (P56,000 – P40,000 = P16,000)
104. Not given
105. c Clark
Net assets reported P320,000
Profit on intercompany sale P48,000
Proportion of inventory unsold at year end
($60,000 / $240,000) x .25
Unrealized profit at year end (12,000)
Amount reported in consolidated statements P308,000
105. c Dunn
Inventory reported by Banks (P175,000 + P60,000) P235,000
Inventory reported by Lamm 250,000
Total inventory reported P485,000
Unrealized profit at year end
[P50,000 x (P60,000 / P200,000)] (15,000)
Amount reported in consolidated statements P470,000
106. b
Cost of goods sold reported by Park P 800,000
Cost of goods sold reported by Small 700,000
Total cost of goods sold reported P1,500,000
Cost of goods sold reported by Park on sale to
Small (P500,000 x .40) (200,000)
Reduction of cost of goods sold reported by
Small for profit on intercompany sale
[(P500,000 x 4 / 5) x .60] (240,000)
Cost of goods sold for consolidated entity P1,060,000
Note: Answer b in the actual AICPA examination question was

P1,100,000, requiring candidates to select the closest answer.
107. d P32,000 = (P200,000 + P140,000) – P308,000

108. b P6,000 = (P26,000 + P19,000) – P39,000
109. c P9,000 = Inventory held by Spin P12,000
(P32,000 x .375)
Unrealized profit on sale
[(P30,000 + P25,000) – P52,000] (3,000)
Carrying cost of inventory for
Power P 9,000
110. b .20 = P14,000 / [(Stockholders’ Equity P50,000)

+(Patent P20,000)]
111. b 14 years = (P28,000 / [(28,000 - P20,000) / 4 years]
112. c – the amount of sales to outsiders or unaffiliated company
113. b – the original cost (I,e., the cost to produced on the part of the seller – Blue Company)
114. c Total income (P86,000 - P47,000) P39,000

Income assigned to noncontrolling interest
[.40(P86,000 - P60,000)] (10,400) Consolidated net income
assigned to controlling interest P28,600
115. c
116. a Amount paid by Lorn Corporation P120,000

Unrealized profit (45,000)
Actual cost P 75,000
Portion sold x .80
Cost of goods sold P 60,000
117. e Consolidated sales P140,000

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

Unrealized profit (P45,000 x .20) (9,000)
Ending inventory reported P 15,000
119. a P20,000 = P30,000 x [(P48,000 - P16,000) / P48,000]
120. d Sales reported by Movie Productions Inc. P67,000

Cost of goods sold (P30,000 x 2/3) (20,000)
Consolidated net income P47,000
121. a P7,000 = [(P67,000 - $32,000) x .20]
122. c (P10,000 x 80%)

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

RPBI of P (upstream sales): P2,500 (given)….................................................... 1,000
UPEI of S (downstream sales):
Sales of Parent EI % EI of S GP% of Parent
P60,000 x 30% = P18,000 x 25/125………………………………. 3,600
UPEI of P (upstream sales):

Sales of Subsidiary EI % EI of P GP% of Subsidiary
P60,000 x 30% = P18,000 x 20%…………………………..…. 2,400


Unrealized profit in ending inventory of P Company (upstream sales) ( ,2,400 )
Total P 126,050

Or, alternatively

Unrealized profit in ending inventory of P Company (upstream sales) ( 2,400 )

Total P 126,050
Add: Non-controlling Interest in Net Income (NCINI) __ 5,320
Consolidated Net Income for 2012 P124,050
**Non-controlling Interest in Net Income (NCINI) for 2012

P 26,600
125. b – refer to No. 124

126. a – P124,050 – refer to No. 124
127. b – refer to No. 129
128. c – refer to No. 129
129. a
Non-controlling Interests (in net assets):
Common stock - S, 12/31/2012.…………..….…………………………….. P 150,000
Retained earnings - S, 12/31/2012:

RE- S, 1/1/2012…………….……………………………………………….P300,000
+: NI-S…………………………………………………………………………. 30,000
-: Div – S……………………………………………………………………… 10,000 320,000
Book value of Stockholders’ equity, 12/31/2012……..………………..... P 470,000
Adjustments to reflect fair value of net assets
Increase in equipment, 1/1/2010..……..………………………….. 20,000
Accumulated amortization (P2,000 x 3 years)………………………….... ( 6,000)
Fair Value of Net Assets/SHE, 12/31/2012…………………………………. P 484,000
UPEI of P (up)…………………………………………………………………… ( 2,400)
Realized SHE – S,12/31/2012…………………………………………………. P 481,600
x: NCI %.......................................................................................................... _ 20%
Non-controlling Interest (in net assets) - partial………………………….. P 96,320
+: NCI on full goodwill (25,000 – 20,000)………………………….. 5,000
Non-controlling Interest (in net assets) – full…………………………….... P 101,320
130. d – refer to No. 131 131.

d
Note: Preferred solution - since what is given is the RE – P, 1/1/2012 (beginning
balance of the current year) -
Retained earnings – Parent, 1/1/2012 (cost)…………………………… P 700,000
Adjusted Retained earnings – Parent, 1/1/2012 (cost)……………… P 698,950
Less: Retained earnings – Subsidiary, 1/1/2012……………… 300,000
P 2,000 x 2 years…………………………………………………( 4,000)
UPEI of P (up) – 2011 or RPBI of P (up) – 2012………………......( 1,000)
P 65,000
X: Controlling Interests………………………………………….........____80% 52,000
RE – P, 1/1/2012 (equity method) = CRE, 1/1/2012…………………..... P750,950
+: CI – CNI or Profit Attributable to Equity Holders of Parent…….. 118,730

-: Dividends – P……………………………………………………………… 60,000
RE – P, 12/31/2012 (equity method) = CRE, 12/31/2012…………...... P809,680
Or, if RE – P is not given on January 1, 2012, then RE – P on December 31, 2012 should be use:
Retained earnings – Parent, 12/31/2012 (cost):
(P700,000 + P108,000 – P60,000)………..…………………………… P 748,000
Adjusted Retained earnings – Parent, 1/1/2012 (cost)……………… P 744,400
Less: Retained earnings – Subsidiary, 12/31/2012
(P300,000 + P20,000 – P10,000)………………………..... 320,000
P 2,000 x 3 years……………………………………………… ( 6,000)
UPEI of P (up) – 2012 or RPBI of P (up) – 2013……………….. ( 2,400)
P 81,600
X: Controlling Interests……………………………………………… . 80% 65,280
RE – P, 12/31/2012 (equity method) = CRE, 12/31/2012…………. P809,680
132. b
Consolidated Stockholders’ Equity, 12/31/2012:
Controlling Interest / Parent’s Interest / Parent’s Portion /
Equity Holders of Parent – SHE, 12/31/2012:
Common stock – P (P only)…………………………………………….. P1,000,000
Retained Earnings – P (equity method), 12/31/2012………….. 809,680
Controlling Interest / Parent’s Stockholders’ Equity……………. P1,809,680
Non-controlling interest, 12/31/2012 (partial)…………………………. 96,320
Consolidated Stockholders’ Equity, 12/31/2012………………………… P1,906,000
133. a
Consolidated Stockholders’ Equity, 12/31/2012:
Controlling Interest / Parent’s Interest / Parent’s Portion /
Equity Holders of Parent – SHE, 12/31/2012:
Common stock – P (P only)…………………………………………….. P1,000,000
Retained Earnings – P (equity method), 12/31/2012………….. 809,680
Controlling Interest / Parent’s Stockholders’ Equity……………. P1,809,680
Non-controlling interest, 12/31/2012 (full)……..………………………. 101,320
Consolidated Stockholders’ Equity, 12/31/2012………………………… P1,911,000
Theories
1. d 6. d 11. d 16. c 21. c 26. a 31 b
2. b 7. c 12. a 17. c 22. a 27. b 32.
3. c 8. b 13. c 18. b 23. a 28. b 33.
4. a 9. c 14. c 19. c 24. b 29. c 34.
5. c 10, a 15, d 20. b 25. c 30. d 35.

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Consolidation Workpaper – Year of Acquisition

(E1) Common stock – Son Co………………………………………… 200,000

(E2) Inventory…………………………………………………………………. 6,000

(E3) Cost of Goods Sold……………. 6,000

Bonds payable _______ _______ P 1,200

(E4) Dividend income - P………. 28,800

(E5) Sales………………………. 150,000

(E6) Sales………………………. 60,000

(E7) Cost of Goods Sold (Ending Inventory – Income Statement)… 18,000

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

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

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

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

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

Depreciation expense 60,000 24,000 (3) 6,000 90,000

Statement of Retained Earnings

Total P668,160 P538,840

Consolidated Net Income for 20x4

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

20x5: Second Year after Acquisition

No goodwill impairment loss for 20x5.

20x5: Parent Company Cost Model Entry

January 1, 20x5 – December 31, 20x5:

Dividends paid………… 48,000

Consolidation Workpaper – Second Year after Acquisition

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

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

(E3) Inventory…………………………………………………………………. 6,000

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

Buildings (6,000) ( 6,000)

(E5) Dividend income - P………. 38,400

(E6) Sales………………………. 120,000

(E7) Sales………………………. 75,000

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

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

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

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

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

Realized profit in beginning inventory of P

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

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

Depreciation expense 60,000 24,000 (4) 6,000 90,000

Statement of Retained Earnings

Total 2,203,200 P1,074,000 P1,077,360 P1,077,360 P2,677,800

Consolidated Retained Earnings, January 1, 20x4

Common stock, P10 par P 600,000

Unrealized profit in ending inventory of S Company (upstream sales)… ( 12,000)

c. CNI, P181,800 – refer to (a)

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

Consolidated Retained Earnings, December 31, 20x4

P Company’s realized net income from separate operations*…….….. P186,000

Less: Amortization of allocated excess…………………… 7,200

P Company’s realized net income from separate operations*…….….. P186,000

Amortization of allocated excess…………………… 7,200 24,960

Multiplied by: Non-controlling interest %.......... 20%

c. CNI, P274,800 – refer to (a)

Retained earnings – Subsidiary, January 1, 20x5 P 144,000

Less: Retained earnings – Subsidiary, January 1, 20x4 120,000

Add: Controlling Interest in Consolidated Net Income or Profit attributable to

Retained earnings – Subsidiary, December 31, 20x5 P 186,000

Less: Accumulated amortization of allocated excess –

Common stock – Subsidiary Company, December 31, 20x5…… P 240,000

Less: Dividends paid – 20x5 48,000 186,000

Bonds payable _ _ P 1,200