Chapter 17
Problem I
1. 20x4 Sales 1,080,000
Purchases (Cost of Goods Sold) 1,080,000
12/31 Inventory (Income Statement)
[216,000 (216,000/1.20)] 36,000 12/31 Inventory (Balance Sheet) 36,000
20x5
Sales 1,200,000
Purchases (Cost of Goods Sold) 1,200,000
12/31 Inventory (Income Statement)
[300,000 (300,000/1.20)] 50,000 12/31 Inventory (Balance Sheet) 50,000
Beginning R/E Puma 36,000 1/1 Inventory (Income Statement) 36,000
2. Consolidated Net Income for 20x5
P Companys net income from own/separate operations. P 760,000
Realized profit in beginning inventory of S Company (downstream sales) 36,000
Unrealized profit in ending inventory of S Company (downstream sales) (_50,000)
P Companys realized net income from separate operations*... P 746,000
S Companys net income from own operations. P 460,000
Realized profit in beginning inventory of P Company (upstream sales) 0
Unrealized profit in ending inventory of P Company (upstream sales) ( 0)
S Companys realized net income from separate operations*... P 460,000 460,000
Total P1,206,000
Less: Amortization of allocated excess 0
Consolidated Net Income for 20x5 P1,206,000
Less: Non-controlling Interest in Net Income* * 92,000
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent 20x5..
P 1,114,000
*that has been realized in transactions with third parties.
Or, alternatively Consolidated Net Income for 20x5
P Companys net income from own/separate operations. P 760,000
Realized profit in beginning inventory of S Company (downstream sales) 36,000
Unrealized profit in ending inventory of S Company (downstream sales) (_50,000)
P Companys realized net income from separate operations*... P 746,000
S Companys net income from own operations. P 460,000
Realized profit in beginning inventory of P Company (upstream sales) 0
Unrealized profit in ending inventory of P Company (upstream sales) ( 0)
S Companys realized net income from separate operations*... P460,000 460,000
Total P1,206,000
Less: Non-controlling Interest in Net Income* * P 92,000
Amortization of allocated excess 0 92,000
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent..
P1,114,000
Add: Non-controlling Interest in Net Income (NCINI) _ 92,000
Consolidated Net Income for 20x5 P 1,206,000
*that has been realized in transactions with third parties.
**Non-controlling Interest in Net Income (NCINI) for 20x5
S Companys net income of Subsidiary Company from its own operations (Reported net income of Son Company)
P460,000
Realized profit in beginning inventory of P Company (upstream sales) 0
Unrealized profit in ending inventory of P Company (upstream sales) ( 0)
S Companys realized net income from separate operations P460,000
Less: Amortization of allocated excess _____0
P460,000
Multiplied by: Non-controlling interest %.......... 20%
Non-controlling Interest in Net Income (NCINI) partial goodwill P 92,000
Problem II
1. Sales 1,020,000
Purchases (Cost of Sales) 1,020,000
To eliminate intercompany sales.
12/31 Inventory (Income Statement) 51,000
Inventory (Balance Sheet) 51,000
To eliminate unrealized intercompany profit in ending inventory.
Beginning Retained Earnings Pinta (.90 P40,000) 36,000
Noncontrolling interest 4,000
1/1 Inventory (Balance Sheet) 40,000
To recognize unrealized profit in beginning inventory realized during the year.
Consolidated Net Income for 20x5
P Companys net income from own/separate operations. P 1,720,000
Realized profit in beginning inventory of S Company (downstream sales) 0
Unrealized profit in ending inventory of S Company (downstream sales) (_ 0)
P Companys realized net income from separate operations*... P 1, 720,000
S Companys net income from own operations. P 600,000
Realized profit in beginning inventory of P Company (upstream sales) 40,000
Unrealized profit in ending inventory of P Company (upstream sales) ( 51,00 0)
Son Companys realized net income from separate operations*... P 589,000 589,000
Total P2,309,000
Less: Amortization of allocated excess 0
Consolidated Net Income for 20x5 P2,309,000
Less: Non-controlling Interest in Net Income* * 58,900
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent 20x5..
P 2,250,100
*that has been realized in transactions with third parties.
Or, alternatively Consolidated Net Income for 20x5
P Companys net income from own/separate operations. P 1,720,000
Realized profit in beginning inventory of S Company (downstream sales) 0
Unrealized profit in ending inventory of S Company (downstream sales) (________0)
P Companys realized net income from separate operations*... P1,720,,000
S Companys net income from own operations. P 600,000
Realized profit in beginning inventory of P Company (upstream sales) 40,000
Unrealized profit in ending inventory of P Company (upstream sales) ( 51,000)
S Companys realized net income from separate operations*... P589,000 589,000
Total P2,309,000
Less: Non-controlling Interest in Net Income* * P 58,900
Amortization of allocated excess 0 __58,900
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent..
P2,250,100
Add: Non-controlling Interest in Net Income (NCINI) _ 58,900
Consolidated Net Income for 20x5 P 2,309,000
*that has been realized in transactions with third parties.
**Non-controlling Interest in Net Income (NCINI) for 20x5
S Companys net income of Subsidiary Company from its own operations (Reported net income of Son Company)
P600,000
Realized profit in beginning inventory of P Company (upstream sales) 40,000
Unrealized profit in ending inventory of P Company (upstream sales) ( 51,000)
Son Companys realized net income from separate operations P589,000
Less: Amortization of allocated excess _____0
P589,000
Multiplied by: Non-controlling interest %.......... 10%
Non-controlling Interest in Net Income (NCINI) P 58,900
Problem III
Consolidated Net Income for 20x4
P Companys net income from own/separate operations. P 3,600,000
Realized profit in beginning inventory of S Company (downstream sales) 54,000
Unrealized profit in ending inventory of S Company (downstream sales) (_ 45,00 0)
P Companys realized net income from separate operations*... P 3,609,000
S Companys net income from own operations (P1,500,000 + P2,400,000) P3,900,000
Realized profit in beginning inventory of P Company (upstream sales) Salad 66,000
Realized profit in beginning inventory of P Company (upstream sales)- Tuna 63,000
Unrealized profit in ending inventory of P Company (upstream sales) Salad ( 57,000)
Unrealized profit in ending inventory of P Company (upstream sales) Tuna ( 69,000)
S Companys realized net income from separate operations*... P3,903,000 3,903,000
Total P7,512,000
Less: Amortization of allocated excess 0
Consolidated Net Income for 20x4 P7,512,000
Less: Non-controlling Interest in Net Income* *- Salad P 301,800
Non-controlling Interest in Net Income* *- Tuna ___239,400 ___541,200
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent 20x4..
P6,970,800
*that has been realized in transactions with third parties.
Or, alternatively Consolidated Net Income for 20x4
P Companys net income from own/separate operations. P 3,600,000
Realized profit in beginning inventory of S Company (downstream sales) 54,000
Unrealized profit in ending inventory of S Company (downstream sales) (___45,000)
P Companys realized net income from separate operations*... P3,609,,000
S Companys net income from own operations (P1,500,000 + P2,400,000) P3,900,000
Realized profit in beginning inventory of P Company (upstream sales) Salad 66,000
Realized profit in beginning inventory of P Company (upstream sales)- Tuna 63,000
Unrealized profit in ending inventory of P Company (upstream sales) Salad ( 57,000)
Unrealized profit in ending inventory of P Company (upstream sales) Tuna ( 69,000)
S Companys realized net income from separate operations*... P3,903,000 3,903,000
Total P7,512,000
Less: Non-controlling Interest in Net Income* * - Salad P 301,800
Non-controlling Interest in Net Income* * - Tuna 239,400
Amortization of allocated excess 0 __541,200
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent..
P6,970,800
Add: Non-controlling Interest in Net Income (NCINI) _541,200
Consolidated Net Income for 20x4 P 7,512,000
*that has been realized in transactions with third parties.
**Salad Non-controlling Interest in Net Income (NCINI) for 20x4
S Companys net income of Subsidiary Company from its own operations (Reported net income of S Company)
P1,500,000
Realized profit in beginning inventory of P Company (upstream sales) 66,000
Unrealized profit in ending inventory of P Company (upstream sales) ( 57,000)
Son Companys realized net income from separate operations P1,509,000
Less: Amortization of allocated excess _____0
P1,509,000
Multiplied by: Non-controlling interest %.......... __ 20%
Non-controlling Interest in Net Income (NCINI) P 301,800
**Tuna
Non-controlling Interest in Net Income (NCINI) for 20x4
S Companys net income of Subsidiary Company from its own operations (Reported net income of S Company)
P2,400,000
Realized profit in beginning inventory of P Company (upstream sales) 63,000
Unrealized profit in ending inventory of P Company (upstream sales) ( 69,000)
Son Companys realized net income from separate operations P2,394,000
Less: Amortization of allocated excess _____0
P2,394,000
Multiplied by: Non-controlling interest %.......... 10%
Non-controlling Interest in Net Income (NCINI) P 239,400
Realized Profit in Beginning inventory:
Downstream Sales (Sales from Parent to Subsidiary)
P414,000 x 15/115 P54,000
Upstream Sales (Sales from Subsidiary-Salad to Parent):
Salad: P396,000 x 20/120 66,000
Upstream Sales (Sales from Subsidiary-Tuna to Parent):
Tuna: P315,000 x 25/125 63,000
Unrealized Profit in Ending inventory:
Downstream Sales (Sales from Parent to Subsidiary)
P345,000 x 15/115 P45,000
Upstream Sales (Sales from Subsidiary-Salad to Parent):
Salad: P342,000 x 20/120 57,000
Upstream Sales (Sales from Subsidiary-Tuna to Parent):
Tuna: P345,000 x 25/125 69,000
Problem IV
1.
Sales 4,000,000
Cost of Goods Sold 4,000,000
Cost of Goods Sold 250,000
Ending Inventory (Balance Sheet) 250,000
[P1,250,000 - (P1,250,000/1.25)]
1/1 Retained Earnings P Company (1) 84,000 Noncontrolling interest (2) 21,000
Cost of Goods Sold (Beginning Inventory) 105,000
[P525,000 (P525,000/1.25)] = P105,000
(1) .8(P105,000)
(2) .2(P105,000)
2/3. P3,000,000 .20 = P600,000 non-controlling interest in consolidated income.
4. [(.20 P5,400,000) -.20(P1,250,000 P1,250,000/1.25)] = P1,030,000 non-controlling interest in consolidated net assets on December 31, 20x4.
Problem V P COMPANY AND SUBSIDIARY
Consolidated Income Statement
For the Year Ended December 31, 20x4
Sales (P13,800,000 P1,350,000) P12,450,000 Cost of Goods Sold (a) P7,755,000
Operating Expenses 1,800,000 9,555,000
Consolidated Income 2,895,000
Less Non-controlling Interest in Consolidated Income (b) 197,500
Controlling Interest in Consolidated Net Income P2,697,500
(a) Reported Cost of Goods Sold P9,000,000
Less intercompany sales in 20x4 (1,350,000)
Plus unrealized profit in ending inventory (2/5 x (P1,350,000 - P900,000)) 180,000
Less realized profit in beginning inventory (1/4 x (P1,800,000 - P1,500,000)) (75,000)
Corrected cost of goods sold P7,755,000
(b) Reported net income of subsidiary P1,900,000
Plus unrealized profit on subsidiary sales in 2013 that is considered realized in 20x4
(1/4 x (P1,800,000 - P1,500,000)) 75,000
Less unrealized profit on subsidiary sales in 20x4 (there were no upstream sales in 20x4) 0
Income realized in transactions with third parties 1,975,000
0.10
Non-controlling interest in consolidated income P197,500
Problem VIII
(Determine selected consolidated balances; includes inventory transfers and an outside
ownership.)
Customer list amortization = P65,000/5 years = P13,000 per year
Intercompany Gross profit (P160,000 P120,000) ............................................... P40,000 Inventory Remaining at Year's End ......................................................................... 20%
Unrealized Intercompany Gross profit, 12/31 .............................................................. P8,000
Consolidated Totals:
Inventory = P592,000 (add the two book values and subtract the ending unrealized gross profit of P8,000)
Sales = P1,240,000 (add the two book values and subtract the P160,000 intercompany transfer)
Cost of Goods Sold = P548,000 (add the two book values and subtract the intercompany transfer and add [to defer] ending unrealized gross profit)
P190,000
0.1
Operating Expenses = P443,000 (add the two book values and the amortization expense for the period)
Gross profit: P1,240,000 P548,000 = P692,000 Controlling Interest in CNI:
Gross profit ...................................................................................................... P692,000
Less: Operating expenses ............................................................................ 443,000
Consolidated Net Income ...........................................................................P249,000
Less: NCI-CNI ................................................................................................... 8,700
CI-CNI ...............................................................................................................P240,300
or Consolidated Net Income for 20x5
P Companys net income from own/separate operations (P800-P400-P180) P 220,000
Realized profit in beginning inventory of S Company (downstream sales) 0
Unrealized profit in ending inventory of S Company (downstream sales) (_ 0)
P Companys realized net income from separate operations*... P 220,000
S Companys net income from own operations (P600 P300 P250) P 50,000
Realized profit in beginning inventory of P Company (upstream sales) 0
Unrealized profit in ending inventory of P Company (upstream sales) ( 8, 000)
S Companys realized net income from separate operations*... P 42,000 42,000
Total P 262,000
Less: Amortization of allocated excess 13,000
Consolidated Net Income for 20x5 P 249,000
Less: Non-controlling Interest in Net Income* * 8,700
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent 20x5..
P 240,300
*that has been realized in transactions with third parties.
Or, alternatively
Consolidated Net Income for 20x5
P Companys net income from own/separate operations. P 220,000
Realized profit in beginning inventory of S Company (downstream sales) 0
Unrealized profit in ending inventory of S Company (downstream sales) (_ 0)
P Companys realized net income from separate operations*... P 220,000
S Companys net income from own operations. P 50,000
Realized profit in beginning inventory of P Company (upstream sales) 0
Unrealized profit in ending inventory of P Company (upstream sales) ( 8,000)
S Companys realized net income from separate operations*... P 42,000 42,000
Total P 262,000
Less: Non-controlling Interest in Net Income* * P 8,700
Amortization of allocated excess 13,000 21,700
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent..
P240,300
Add: Non-controlling Interest in Net Income (NCINI) _ 8,700
Consolidated Net Income for 20x5 P249,000
*that has been realized in transactions with third parties.
**Non-controlling Interest in Net Income (NCINI) for 20x5
S Companys net income of Subsidiary Company from its own operations (Reported net income of Son Company)
P 50,000
Realized profit in beginning inventory of P Company (upstream sales) 0
Unrealized profit in ending inventory of P Company (upstream sales) ( 8,00 0)
S Companys realized net income from separate operations P 42,000
Less: Amortization of allocated excess 13,000
P 29,000
Multiplied by: Non-controlling interest %.......... 30%
Non-controlling Interest in Net Income (NCINI) partial goodwill P 8,700
Noncontrolling Interest in Subsidiary's Net Income = P8,700 (30 percent of the reported income after subtracting 13,000 excess fair value amortization and
deferring P8,000 ending unrealized gross profit) Gross profit is included in this
computation because the transfer was upstream from SS to PT.
Problem IX
Requirements 1 to 4:
Schedule of Determination and Allocation of Excess (Partial-goodwill)
Date of Acquisition January 1, 20x4
Fair value of Subsidiary (80%)
Consideration transferred.. P 372,000 Less: Book value of stockholders equity of Son: Common stock (P240,000 x 80%). P 192,000 Retained earnings (P120,000 x 80%)... 96,000 288,000 Allocated excess (excess of cost over book value).. P 84,000 Less: Over/under valuation of assets and liabilities:
Increase in inventory (P6,000 x 80%) P 4,800 Increase in land (P7,200 x 80%). 5,760 Increase in equipment (P96,000 x 80%) 76,800
Decrease in buildings (P24,000 x 80%)..... ( 19,200) Decrease in bonds payable (P4,800 x 80%) 3,840 72,000 Positive excess: Partial-goodwill (excess of cost over
fair value)... P 12,000
The over/under valuation of assets and liabilities are summarized as follows:
S Co.
Book value
S Co.
Fair value
(Over) Under
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 value
S Co.
Fair value
Increase
(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 value
S Co.
Fair 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)
A summary of depreciation and amortization adjustments is as follows:
Account Adjustments to be amortized
Over/
Under Life
Annual
Amount
Current
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 4800 4 1,200 1,200 1,200
P 13,200 P 13,200 P 7,200
The goodwill impairment loss of P3,750 based on 100% fair value would be allocated to the
controlling interest and the NCI based on the percentage of total goodwill each equity interest
received. For purposes of allocating the goodwill impairment loss, the full-goodwill is computed
as follows:
Fair value of Subsidiary (100%)
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
Allocated excess (excess of cost over book value).. P 105,000 Add (deduct): (Over) under valuation of assets and liabilities
(P90,000 x 100%) 90,000
Positive excess: Full-goodwill (excess of cost over
fair value)... P 15,000
In this case, the goodwill was proportional to the controlling interest of 80% and non-controlling
interest of 20% computed as follows:
Value % of Total
Goodwill applicable to parent P12,000 80.00% Goodwill applicable to NCI.. 3,000 20.00% Total (full) goodwill.. P15,000 100.00%
The goodwill impairment loss would be allocated as follows Value % of Total
Goodwill impairment loss attributable to parent or controlling
Interest
P 3,000 80.00%
Goodwill applicable to NCI.. 750 20.00% Goodwill impairment loss based on 100% fair value or full-
Goodwill
P 3,750
100.00%
The unrealized profits on January 1, and on December 31, 20x5, resulting intercompany sales,
are as summarized below:
Downstream Sales:
Year
Sales of Parent to
Subsidiary
Intercompany Merchandise
in 12/31 Inventory
of S Company
Unrealized Intercompany
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% = P24,000
Upstream Sales:
Year
Sales of Subsidiary
to Parent
Intercompany Merchandise
in 12/31 Inventory
of S Company
Unrealized Intercompany
Profit in Ending Inventory
20x4 P 60,000 P60,000 x 50% = P30,000 P30,000 x 40% = P12,000
20x5 75,000 P 75,000 x 40% = P30,000 P30,000 x 20% = P 6,000
20x4: First Year after Acquisition
Parent Company Cost Model Entry
January 1, 20x4:
(1) Investment in S Company 372,000 Cash.. 372,000 Acquisition of S Company.
January 1, 20x4 December 31, 20x4: (2) Cash 28,800 Dividend income (P36,000 x 80%). 28,800 Record dividends from S Company.
No entries are made on the parents books to depreciate, amortize or write-off the portion of the allocated excess that expires during 20x4, and unrealized profits in ending inventory.
Consolidation Workpaper Year of Acquisition (E1) Common stock S Co 240,000
Retained earnings S Co 120.000
Investment in S Co 288,000
Non-controlling interest (P360,000 x 20%).. 72,000 To eliminate intercompany investment and equity accounts
of subsidiary on date of acquisition; and to establish non-controlling
interest (in net assets of subsidiary) on date of acquisition.
(E2) Inventory. 6,000
Accumulated depreciation equipment.. 96,000
Accumulated depreciation buildings.. 192,000
Land. 7,200
Discount on bonds payable. 4,800
Goodwill. 12,000
Buildings.. 216,000
Non-controlling interest (P90,000 x 20%).. 18,000
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
Accumulated depreciation buildings.. 6,000
Interest expense 1,200
Goodwill impairment loss. 3,000
Inventory.. 6,000
Accumulated depreciation equipment.. 12,000
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 Ss identifiable assets and liabilities as follows:
Cost of
Goods
Sold
Depreciation/
Amortization
Expense
Amortization
-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
Cost of Goods Sold (or Purchases) 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.
(E8) Cost of Goods Sold (Ending Inventory Income Statement) 12,000
Inventory Balance Sheet 12,000 To defer the upstream sales - unrealized profit in ending inventory
until it is sold to outsiders.
(E9) Non-controlling interest in Net Income of Subsidiary 6,960
Non-controlling interest .. 6,960 To establish non-controlling interest in subsidiarys 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 Companys 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
(6) 60,000
P 510,000
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
(7) 18,000
(8) 12,000
(5) 150,000
(6) 60,000
P 168,000
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 72,000 174,840
Total P668,160 P216,000 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
- buildings
405,000
288,000
(2) 192,000
(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 Companys net income from own/separate operations. P168,000
Unrealized profit in ending inventory of S Company (downstream sales) ( 18,000)
P Companys realized net income from separate operations*... P150,000
S Companys net income from own operations. P 60,000
Unrealized profit in ending inventory of S Company (upstream sales) ( 12,000)
Son Companys 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 Companys net income of Subsidiary Company from its own operations (Reported net income of S Company)
P 60,000
Unrealized profit in ending inventory of P Company (upstream sales) ( 12,000)
S Companys realized net income from separate operations P 48,000
Less: Amortization of allocated excess 13,200
P 34,800
Multiplied by: Non-controlling interest %.......... 20%
Non-controlling Interest in Net Income (NCINI) partial goodwill P 6,960
*that has been realized in transactions with third parties.
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
Non-controlling interest (P384,000 x 20%).. 76,800 To eliminate intercompany investment and equity accounts
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
Discount on bonds payable. 4,800
Goodwill. 12,000
Buildings........................... 216,000
Non-controlling interest (P90,000 x 20%)............................ 18,000
Investment in S 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 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
Depreciation expense.. 6,000
Accumulated depreciation buildings.. 12,000
Interest expense 1,200
Inventory.. 6,000
Accumulated depreciation equipment.. 24,000
Discount on bonds payable 2,400
Goodwill 3,000 To provide for years 20x4 and 20x5 depreciation and amortization on
differences between acquisition date fair value and book value of
Ss identifiable assets and liabilities as follows: Year 20x4 amounts are debited to Ps retained earnings & NCI;
Year 20x5 amounts are debited to respective nominal accounts.
(20x4)
Retained
earnings,
Depreciation/
Amortization
expense
Amortization
-Interest
Inventory sold P 6,000
Equipment 12,000 P 12,000
Buildings (6,000) ( 6,000)
Bonds payable 1,200 ________ P 1,200
Sub-total P13,200 P 6,000 P 1,200
Multiplied by: 80%
To Retained earnings P 10,560
Impairment loss 3,000
Total P 13,560
(E5) Dividend income - P. 38,400
Non-controlling interest (P48,000 x 20%).. 9,600
Dividends paid S 48,000 To eliminate intercompany dividends and non-controlling interest
share of dividends.
(E6) Sales. 120,000
Cost of Goods Sold (or Purchases) 120,000 To eliminated intercompany downstream sales.
(E7) Sales. 75,000
Cost of Goods Sold (or Purchases) 75,000 To eliminated intercompany upstream sales.
(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
Cost of Goods Sold (Ending Inventory Income Statement) 12,000 To realized profit in beginning inventory deferred in the prior period.
(E10) Cost of Goods Sold (Ending Inventory Income Statement) 24,000
Inventory Balance Sheet 24,000 To defer the downstream sales - unrealized profit in ending inventory
until it is sold to outsiders.
(E11) Cost of Goods Sold (Ending Inventory Income Statement) 6,000
Inventory Balance Sheet 6,000 To defer the upstream sales - unrealized profit in ending inventory
until it is sold to outsiders.
(E12) Non-controlling interest in Net Income of Subsidiary 17,760
Non-controlling interest .. 17,760 To establish non-controlling interest in subsidiarys adjusted net income for 20x5 as follows:
Realized profit in beginning inventory of P
Company - 20x5 (upstream sales)
12,000
Unrealized profit in ending inventory of P
Company - 20x5 (upstream sales)
( 6,000)
S Companys Realized net income* P 96,000
Less: Amortization of allocated excess 7,200
P 88,800
Multiplied by: Non-controlling interest %.......... 20%
Non-controlling Interest in Net Income (NCINI )
partial goodwill
P 17,760
*from separate transactions that has been realized in transactions
with third persons.
Worksheet for Consolidated Financial Statements, December 31, 20x5.
Cost Model (Partial-goodwill)
80%-Owned Subsidiary
December 31, 20x5 (Second Year after Acquisition)
Income Statement P Co S Co. Dr. Cr. Consolidated
Sales
P540,000
P360,000
(6) 120,000
(7) 75,000
P 705,000
Dividend income 38,400 - (5) 38,400 ___________
Total Revenue P501,600 P360,000 P 705,000
Cost of goods sold
P216,000
P192,000
(10) 24,000
(11) 6,000
(6) 120,000
(7) 75,000
(8) 18,000
(9) 12,000
213,000
Depreciation expense 60,000 24,000 (4) 6,000 90,000
Interest expense - - (4) 1,200 1,200
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
NCI in Net Income - Subsidiary - - (12) 17,760 ( 17,760)
Net Income to Retained Earnings P230,400 P 90,000 P 257,040
Statement of Retained Earnings
Retained earnings, 1/1
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 _ ________
Retained earnings, 12/31 to Balance
Sheet P643,200 P186,000 P 647,880
Balance Sheet
Cash. P 265,200 P 102,000 P 367,200
Accounts receivable.. 180,000 96,000 276,000
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 depreciation
- buildings
450,000
306,000
(3) 192,000
(4) 12,000 552,000
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 (2) 240,000
Retained earnings, from above 643,200 186,000 647,880
Non-controlling interest ___ _____ (4) 2,640 (2 ) 76,800 ____97,920
_________ (5) 9,600
(9) 2,400
__________
(3) 18,000
(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
Parents 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 parents share. NCI is measured as a proportion of identifiable assets and goodwill attributable to NCI share is not
recognized.
12/31/20x4:
a. CI-CNI P174,840 Consolidated Net Income for 20x4
P Companys net income from own/separate operations. P168,000
Unrealized profit in ending inventory of S Company (downstream sales) ( 18,000)
P Companys realized net income from separate operations*... P150,000
S Companys net income from own operations. P 60,000
Unrealized profit in ending inventory of S Company (upstream sales) ( 12,000)
S Companys 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.
b. NCI-CNI P6,960 **Non-controlling Interest in Net Income (NCINI) for 20x4
S Companys net income of Subsidiary Company from its own operations (Reported net income of S Company)
P 60,000
Unrealized profit in ending inventory of P Company (upstream sales) ( 12,000)
S Companys realized net income from separate operations P 48,000
Less: Amortization of allocated excess 13,200
P 34,800
Multiplied by: Non-controlling interest %.......... 20%
Non-controlling Interest in Net Income (NCINI) partial goodwill P 6,960
*that has been realized in transactions with third parties.
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 parents 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
Multiplied by: Non-controlling Interest percentage... 20
Non-controlling interest (partial-goodwill).. P 89,760
f. Consolidated SHE:
Stockholders Equity
Common stock, P10 par P 600,000
Retained earnings 462,840
Parents Stockholders Equity / CI SHE, 12/31/20x4 P1,062,840
NCI, 12/31/20x4 ___89,760
Consolidated SHE, 12/31/20x4 P1,152,600
12/31/20x5:
a. CI-CNI Consolidated Net Income for 20x5
P Companys net income from own/separate operations. P192,000
Realized profit in beginning inventory of S Company (downstream sales) 18,000
Unrealized profit in ending inventory of S Company (downstream sales) (_24,000)
P Companys realized net income from separate operations*... P186,000
S Companys net income from own operations. P 90,000
Realized profit in beginning inventory of P Company (upstream sales) 12,000
Unrealized profit in ending inventory of P Company (upstream sales) ( 6,000)
Son Companys realized net income from separate operations*... P 96,000 96,000
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
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent 20x5..
P257,040
*that has been realized in transactions with third parties.
Or, alternatively Consolidated Net Income for 20x5
P Companys net income from own/separate operations. P192,000
Realized profit in beginning inventory of S Company (downstream sales) 18,000
Unrealized profit in ending inventory of S Company (downstream sales) (_24,000)
P Companys realized net income from separate operations*... P186,000
S Companys net income from own operations. P 90,000
Realized profit in beginning inventory of P Company (upstream sales) 12,000
Unrealized profit in ending inventory of P Company (upstream sales) ( 6,000)
S Companys realized net income from separate operations*... P 96,000 96,000
Total P282,000
Less: Non-controlling Interest in Net Income* * P 17,760
Amortization of allocated excess 7,200 24,960
Controlling Interest in Consolidated Net Income or Profit attributable to equity
holders of parent..
P257,040
Add: Non-controlling Interest in Net Income (NCINI) _ 17,760
Consolidated Net Income for 20x5 P274,800
*that has been realized in transactions with third parties.
b. NCI-CNI **Non-controlling Interest in Net Income (NCINI) for 20x5
S Companys net income of Subsidiary Company from its own operations (Reported net income of S Company)
P 90,000
Realized profit in beginning inventory of P Company (upstream sales) 12,000
Unrealized profit in ending inventory of P Company (upstream sales) ( 6,000)
S Companys realized net income from separate operations P 96,000
Less: Amortization of allocated excess 7,200
P 88,800
Multiplied by: Non-controlling interest %.......... 20%
Non-controlling Interest in Net Income (NCINI) partial goodwill P 17,760
c. CNI, P274,800 refer to (a) d. On subsequent to date of acquisition, consolidated retained earnings would be
computed as follows: Consolidated Retained Earnings, December 31, 20x5
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 Companys 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:/Parents share in adjusted net increased in subsidiarys 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
Add: Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent for 20x5
257,040
Total P748,680
Less: Dividends paid Parent Company for 20x5 72,000
Consolidated Retained Earnings, December 31, 20x5 P647,880
*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: Consolidated Retained Earnings, December 31, 20x5
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 Company (downstream sales) 20x6 (RPBI of S - 20x6).
24,000
Adjusted Retained Earnings Parent 12/31/20x5 (cost model ( S Companys Retained earnings that have been realized in transactions with third parties..
P619,200
Adjustment to convert from cost model to equity method for purposes of
consolidation or to establish reciprocity:/Parents share in adjusted net increased in subsidiarys retained earnings:
Retained earnings Subsidiary, December 31, 20x5 P 186,000
Less: Retained earnings Subsidiary, January 1, 20x4 120,000
Increase in retained earnings since date of acquisition P 66,000
Less: Accumulated amortization of allocated excess 20x4 and 20x5 (P11,000 + P6,000)
20,400
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
P 39,600
Multiplied by: Controlling interests %................... 80%
P 31,680
Less: Goodwill impairment loss, partial goodwill 3,000 28,680
Consolidated Retained earnings, December 31, 20x5 P647,880
e. Non-controlling interest (partial-goodwill), December 31, 20x5
Common stock Subsidiary Company, December 31, 20x5 P 240,000
Retained earnings Subsidiary Company, December 31, 20x5
Retained earnings Subsidiary Company, January 1, 20x5* P144,000
Add: Net income of subsidiary for 20x5 90,000
Total P234,000
Less: Dividends paid 20x5 48,000 186,000
Stockholders equity Subsidiary Company, December 31, 20x5 P 426,000
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 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
Multiplied by: Non-controlling Interest percentage... 20
Non-controlling interest (partial goodwill).. P 97,920
* the realized profit in beginning inventory of P Company (upstream sales) 20x5 (RPBI of P - 20x5 amounting to P10,000 is already included in the beginning retained earnings of S Company.
f. Consolidated SHE:
Stockholders Equity
Common stock, P10 par P 600,000
Retained earnings 647,880
Parents Stockholders Equity / CI SHE, 12/31/20x4 P1,247,880
NCI, 12/31/20x4 ___97,920
Consolidated SHE, 12/31/20x4 P1,345,800
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:
Account Adjustments to be amortized
Over/
under Life
Annual
Amount
Current
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.
January 1, 20x4 December 31, 20x4: (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 Dividends paid by S Co..
No entries are made on the parents books to depreciate, amortize or write-off the portion of the allocated excess that expires during 20x4.
Consolidation Workpaper First Year after Acquisition (E1) Common stock S Co 240,000
Retained earnings S Co 120.000
Investment in S Co 288,000
Non-controlling interest (P360,000 x 20%).. 72,000 To eliminate intercompany investment and equity accounts
of subsidiary on date of acquisition; and to establish non-controlling
interest (in net assets of subsidiary) on date of acquisition.
(E2) Inventory. 6,000
Accumulated depreciation equipment.. 96,000
Accumulated depreciation buildings.. 192,000
Land. 7,200
Discount on bonds payable. 4,800
Goodwill. 15,000
Buildings.. 216,000
Non-controlling interest (P90,000 x 20%) + [(P15,000, full P12,000, partial goodwill)]
21,000
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
Accumulated depreciation buildings.. 6,000
Interest expense 1,200
Goodwill impairment loss. 3,750
Inventory.. 6,000
Accumulated depreciation equipment.. 12,000
Discount on bonds payable 1,200
Goodwill 3,750 To provide for 20x4 impairment loss and depreciation and
amortization on differences between acquisition date fair value and
book value of Ss identifiable assets and liabilities as follows:
Cost of
Goods
Sold
Depreciation/
Amortization
Expense
Amortization
-Interest
Inventory sold P 6,000
Equipment P12,000
Buildings ( 6,000)
Bonds payable _______ _______ P 1,200
Totals P 6,000 P 6,000 P1,200
(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
Cost of Goods Sold (or Purchases) 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.
(E8) Cost of Goods Sold (Ending Inventory Income Statement) 12,000
Inventory Balance Sheet 12,000 To defer the upstream sales - unrealized profit in ending inventory
until it is sold to outsiders.
(E9) Non-controlling interest in Net Income of Subsidiary 6,210
Non-controlling interest .. 6,210 To establish non-controlling interest in subsidiarys 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 Companys 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
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
Non-controlling Interest in Net Income (NCINI)
full goodwill
P 6,210
Worksheet for Consolidated Financial Statements, December 31, 20x4.
Cost Model (Full-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
(6) 60,000
P 510,000
Dividend income 28,800 - (4) 28,800 _________
Total Revenue P451,200 P240,000 P 510,000
Cost of goods sold
P204,000
P138,000
(3) 6,000
(7) 18,000
(8) 12,000
(5) 150,000
(6) 60,000
P 168,000
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) 3,750 3,750
Total Cost and Expenses P312,000 P180,000 P328,950
Net Income P196,800 P 60,000 P181,050
NCI in Net Income - Subsidiary - - (9) 6,210 ( 6,210)
Net Income to Retained Earnings P196,800 P 60,000 P174,840
Statement of Retained Earnings
Retained earnings, 1/1
P Company P360,000 P 360,000
S Company P120,000 (1) 120,000
Net income, from above 196,800 60,000 174,840
Total P556,800 P180,000 P534,840
Dividends paid
P Company 72,000 72,000
S Company - 36,000 (4) 36,000 _ ________
Retained earnings, 12/31 to Balance
Sheet P484,800 P144,000 P 462,840
Balance Sheet
Cash. P 232,800 P 90,000 P 322,800
Accounts receivable.. 90,000 60,000 150,000
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
Discount on bonds payable (2) 4,800 (3) 1,200 3,600
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
Accumulated depreciation
- equipment P 135,000 P 96,000 (2) 96,000 (3) 12,000 P147,000
Accumulated depreciation
- buildings
405,000
288,000
(6) 192,000
(7) 6,000 495,000
Accounts payable 120,000 120,000 240,000
Bonds payable 240,000 120,000 360,000
Common stock, P10 par 600,000 600,000
Common stock, P10 par 240,000 (1) 240,000
Retained earnings, from above 484,800 144,000 462,840
Non-controlling interest
_________
_________
(4) 7,200
(1 ) 72,000
(2) 21,000
(9) 6,210 ____92,010
Total P1,984,800 P1,008,000 P 986,160 P 986,160 P2,396,850
20x5: Second Year after Acquisition Perfect Co. Son 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.
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
Non-controlling interest (P384,000 x 20%).. 76,800 To eliminate intercompany investment and equity accounts
of subsidiary and to establish non-controlling interest (in net assets of
subsidiary) on January 1, 20x5.
(E3) Inventory. 6000
Accumulated depreciation equipment.. 96,000
Accumulated depreciation buildings.. 192,000
Land. 7,200
Discount on bonds payable. 4,800
Goodwill. 15,000
Buildings.. 216,000
Non-controlling interest (P90,000 x 20%) + [(P15,000, full P12,000, partial goodwill)]
21,000
Investment in S 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 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
Depreciation expense.. 6,000
Accumulated depreciation buildings.. 12,000
Interest expense 1,200
Inventory.. 6,000
Accumulated depreciation equipment.. 24,000
Discount on bonds payable 2,800
Goodwill 3,750 To provide for years 20x4 and 20x5 depreciation and amortization on
differences between acquisition date fair value and book value of
Sons identifiable assets and liabilities as follows: Year 20x4 amounts are debited to Perfects retained earnings and NCI.
Year 20x5 amounts are debited to respective nominal accounts..
(20x4)
Retained
earnings,
Depreciation/
Amortization
expense
Amortization
-Interest
Inventory sold P 6,000
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
(E5) Dividend income - P. 38,400
Non-controlling interest (P48,000 x 20%).. 9,600
Dividends paid S 48,000 To eliminate intercompany dividends and non-controlling interest
share of dividends.
(E6) Sales. 120,000
Cost of Goods Sold (or Purchases) 120,000 To eliminated intercompany downstream sales.
(E7) Sales. 75,000
Cost of Goods Sold (or Purchases) 75,000 To eliminated intercompany upstream sales.
(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
Cost of Goods Sold (Ending Inventory Income Statement) 12,000 To realized profit in upstream beginning inventory deferred in the
prior period.
(E10) Cost of Goods Sold (Ending Inventory Income Statement) 24,000
Inventory Balance Sheet 24,000 To defer the downstream sales - unrealized profit in ending inventory
until it is sold to outsiders.
(E11) Cost of Goods Sold (Ending Inventory Income Statement) 6,000
Inventory Balance Sheet 6,000 To defer the upstream sales - unrealized profit in ending inventory
until it is sold to outsiders.
(E12) Non-controlling interest in Net Income of Subsidiary 17,760
Non-controlling interest .. 17,760 To establish non-controlling interest in subsidiarys adjusted net income for 20x5 as follows:
Net income of subsidiary.. P 90,000
Realized profit in beginning inventory of P
Company - 20x5 (upstream sales)
12,000
Unrealized profit in ending inventory of P
Company - 20x5 (upstream sales)
( 6,000)
Son Companys Realized net income* P 96,000
Less: Amortization of allocated excess 7,200
P 88,800
Multiplied by: Non-controlling interest %.......... 20%
Non-controlling Interest in Net Income (NCINI)
- partial goodwill
P 17,760
Less: NCI on goodwill impairment loss on full-
Goodwill
0
Non-controlling Interest in Net Income (NCINI)
full goodwill
P 17,760
*from separate transactions that has been realized in transactions
with third persons.
Worksheet for Consolidated Financial Statements, December 31, 20x5.
Cost Model (Full-goodwill)
80%-Owned Subsidiary
December 31, 20x5 (Second Year after Acquisition) Income Statement P Co S Co. Dr. Cr. Consolidated
Sales
P540,000
P360,000
(6) 120,000
(7) 75,000
P 705,000
Dividend income 38,400 - (5) 38,400 ___________
Total Revenue P574,800 P360,000 P 705,000
Cost of goods sold
P216,000
P192,000
(10) 24,000
(11) 6,000
(6) 120,000
(7) 90,000
(8) 21,600
(9) 14,400
P 213,000
Depreciation expense 60,000 24,000 (4) 6,000 90,000
Interest expense - - (4) 1,200 1,200
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
NCI in Net Income - Subsidiary - - (12) 17,760 ( 17,760)
Net Income to Retained Earnings P230,400 P 90,000 P 257,040
Statement of Retained Earnings
Retained earnings, 1/1
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
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 _ ________
Retained earnings, 12/31 to Balance
Sheet P643,200 P186,000 P 647,880
Balance Sheet
Cash. P 265,200 P 102,000 P 367,200
Accounts receivable.. 180,000 96,000 276,000
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
Discount on bonds payable (3) 4,800 (4) 2,400 2,400
Goodwill (3) 15,000 (4) 3,750 11,250
Investment in S Co 372,000 (1) 19,200
(2) 307,200
(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 depreciation
- buildings
450,000
306,000
(3) 192,000
(4) 12,000 552,000
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 (2) 240,000
Retained earnings, from above 643,200 186,000 647,880
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
Multiplied by: Non-controlling Interest percentage... 20
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:
Stockholders Equity
Common stock, P10 par P 600,000
Retained earnings 360,000
Parents Stockholders Equity / CI - SHE P 960,000
NCI, 1/1/20x4 ___93,000
Consolidated SHE, 1/1/20x4 P1,053,000
6.
Note: The goodwill recognized on consolidation purely relates to the parents share. NCI is measured as a proportion of identifiable assets and goodwill attributable to NCI share is not
recognized.
12/31/20x4:
a. CI-CNI P174,840 Consolidated Net Income for 20x4
P Companys net income from own/separate operations. P168,000
Unrealized profit in ending inventory of S Company (downstream sales) ( 18,000)
Perfect Companys realized net income from separate operations*... P150,000
S Companys net income from own operations. P 60,000
Unrealized profit in ending inventory of S Company (upstream sales) ( 12,000)
Son Companys realized net income from separate operations*... P 48,000 48,000
Total P198,000
Less: Non-controlling Interest in Net Income P 6,1210
Amortization of allocated excess (refer to amortization above) 13,200
Goodwill impairment (impairment under full-goodwill approach) 3,750 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) _ 6,210
Consolidated Net Income for 20x4 P181.050
*that has been realized in transactions with third parties.
b. NCI-CNI P6,210
**Non-controlling Interest in Net Income (NCINI) for 20x4
S Companys net income of Subsidiary Company from its own operations (Reported net income of S Company)
P 60,000
Unrealized profit in ending inventory of P Company (upstream sales) ( 12,000)
S Companys realized net income from separate operations P 48,000
Less: Amortization of allocated excess 13,200
P 34,800
Multiplied by: Non-controlling interest %.......... 20%
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
Non-controlling Interest in Net Income (NCINI) P 6,210
*that has been realized in transactions with third parties.
c. CNI P181,050 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 - Parent 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 Parent Company for 20x4 72,000
Consolidated Retained Earnings, December 31, 20x4 P462,840
e. Non-controlling interest ), 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 60,000
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 P460,800
Less: Unrealized profit in ending inventory of P Company (upstream sales) 12,000
Realized stockholders equity of subsidiary, December 31, 20x4 P448,800
Multiplied by: Non-controlling Interest percentage... 20
Non-controlling interest (partial-goodwill).. P 89,760
Add: Non-controlling interest on full goodwill , net of impairment loss, 12/31/x4:
[(P15,000 full P12,000, partial = P3,000) P750 impairment loss
2,250
Non-controlling interest (full-goodwill).. P 92,010
f. Consolidated SHE:
Stockholders Equity
Common stock, P10 par P 600,000
Retained earnings 462,840
Parents Stockholders Equity / CI - SHE P1,062,840
NCI, 1/1/20x4 ___92,010
Consolidated SHE, 1/1/20x4 P1,154,840
12/31/20x5:
a. CI-CNI P257,040 Consolidated Net Income for 20x5
P Companys net income from own/separate operations. P192,000
Realized profit in beginning inventory of S Company (downstream sales) 18,000
Unrealized profit in ending inventory of S Company (downstream sales) (_24,000)
P Companys realized net income from separate operations*... P186,000
S Companys net income from own operations. P 90,000
Realized profit in beginning inventory of P Company (upstream sales) 12,000
Unrealized profit in ending inventory of P Company (upstream sales) ( 6,000)
S Companys realized net income from separate operations*... P 96,000 96,000
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
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent 20x5..
P257,040
*that has been realized in transactions with third parties.
Or, alternatively Consolidated Net Income for 20x5
P Companys net income from own/separate operations. P192,000
Realized profit in beginning inventory of S Company (downstream sales) 18,000
Unrealized profit in ending inventory of S Company (downstream sales) (_24,000)
P Companys realized net income from separate operations*... P186,000
S Companys net income from own operations. P 90,000