Advanced aCCOUNTING 2 SOLMAN PDF

Chapter 12
Problem I
(a)Working Fund Agency ..
5,000
Cash .
5,000
(b)Accounts Receivable ..................................... 50,000
Sales-Agency .
50,000
(c)Cash ..................................... 35,000
Accounts Receivable ..
35,000
(d)Expenses-Agency ..
Cash .
4,500
(e)Expenses-Agency ..
Cash .
2,250
4,500
2,250
(f)Cost of Goods Sold-Agency 36,000

Merchandise Shipments-Agency .
36,000
Problem II
(a) Branch Books:
(a) Cash ..
Home Office
42,500
(b) Shipments from Home Office

Home Office ...
50,200
(c) Accounts Receivable .

Sales ..
60,000
(d) Purchases
Accounts Payable
22,500
(e) Home Office ..

53,400
(f) Accounts Payable ...

Cash ..
12,250
(g) Furniture & Fixtures

Cash ..
8,000
(h) Expenses ..
Cash ..
18,000
42,500
50,200
60,000
22,500
53,400
12,250
8,000
18,000
(b) Home Office Books:

(a) Branch .
Cash .
42,500
(b) Branch
Shipments to Branch ..
50,200
(c) Accounts Receivable ...

Sales
105,000
(d) Purchases .
Accounts Payable .
122,500
(e) Cash ..
Accounts Receivable
113,600
(f) Accounts Payable .

Cash
124,000
(g) Expenses
Cash
26,600
(h) Cash ..
Branch ...
53,400
(i) Retained Earnings .

Cash ...
10,000
42,500
50,200
105,000
122,500
113,600
124,000
26,600
53,400
10,000
BARTON CO.
Balance Sheet for Branch
December 31, 20x4
Assets
Liabilities
Cash
Accounts Receivable
Merchandise Inv ...
Prepaid Expenses
Furnitures & Fixtures .
P 8,000
Less accum. Depr
650
Total Assets
P 4,250
12,600
23,500
750
7,350
P48,450
Accounts Payable P 10,250

Accrued Expenses
300
Home Office .. 37,900
Total Liabilities .P48,450
BARTON CO.
Income Statement for Branch
For Year Ended December 31, 19X6
Sales
Cost of Goods Sold:
Purchases
Shipments for home office .
Merchandise available for sale
P66,000
P22,500
50,200
P72,700
Less merchandise inv, December 31 ..

Cost of Goods Sold ..
Gross Profit .
Expenses
Net loss ...
23,500
49,200
P16,800
18,200
P 1,400
BARTON CO.
For Year Ended December 31, 20x4
Assets
Cash ..
Merchandise Inventory
Prepaid Expenses .
Furniture & Fixtures . P 20,000
Less accum. Depr ..
5,580
Branch
Total Assets ...
Liabilities & Stockholders Equity

P 23,200
19,050
48,500
2,050
14,420
37,900
P145,120
Liabilities
Accounts payable P 21,300
Accrued Expenses .
1,350
Stockholders Equity
Capital stock, P20 par P50,000
Retained Earnings .
72,740
Total liabilities and stockholders
equity
P22,650
122,470
P145,120
BARTON CO.
Income Statement for Home Office
Sales .......
Cost of goods sold:
Merchandise inventory, January 1 .
Purchases ...
Less shipments to branch ...
Merchandise available for own sale ..
Less merchandise inventory, December 31 .
Cost of Goods Sold .
Gross Profit
Expenses
Net income from own operations ..
Deduct branch net loss .
Total Income .
P105,000
P 40,120
122,500
P162,620
50,200
P112,420
48,500
63,920
P 41,080
27,630
P 13,450
1,400
P 12,050
BARTON CO.
Sales .
Cost of goods sold:
Merchandise inventory, January 1 ..
Purchases
Less merchandise inventory, December 31 ..
Cost of goods sold .
P171,000
P 40,120
145,000
P185,120
72,000
113,120
Gross profit ..
Expenses ..
Net Income .
P 57,880
45,830
P 12,050
(a) Branch Books:

Expenses .
Accumulated Depreciation F&F .
650
Sales
Merchandise Inventory .
Income summary ..
66,000
23,500
Income Summary
Shipments from Home Office
Purchases
Expenses ..
90,900
Home Office
Income Summary
650
89,500
50,200
22,500
18,200
1,400
1,400
(b) Home Office Books

Expenses .
1,180
Sales
Income summary ..
Income Summary
Purchases .
Expenses ..
105,000
48,500
50,200
Branch Income
Branch .
1,400
1,180
203,700
190,250
40,120
122,500
27,630
1,400
Income Summary ..
Branch Income
1,400
Income Summary ..
Retained Earnings ..
12,050
1,400
12,050
Problem III
(a) Branch Books:
Jan.
Cash .
Home Office
1,500
1,500
1-31
1-31
1-31
1-31
1-31
Jan.
1-31
1-31
1-31
1-31
Shipments from home office .

Home Office
10,200
Home Office ..
Cash ..
900
Accts. Rec. Home office .

Home Office
2,600
Accts. Rec.-Home Office .

Sales ..
6,200
Cash ..
2,600
Purchases .
Accounts Payable
3,000
Accounts Payable .
Cash ..
1,450
Expenses ..
Cash .
1,250
Cash
Accts. Rec.-Home Office ...
1,600
10,200
900
2,600
6,200
2,600
3,000
1,450
1,250
1,600
Home Office
Accts. Rec.-Home Office .
150

Home Office .
1,250
Home Office
Cash
1,000
150
1,250
1,000

Jan.
1
1
Branch .. 1,500
Cash
Branch .. 10,200
10,200
Store Furniture and Fixtures Branch .. 3,000

Store Furniture and Fixtures ...
3,000
1,500
Accumulated Depr. Store F&F .. 750

Accumulated Depr. Store Furniture
And Fixtures, Branch ..
750
Calculation of depreciation: 2.5years at P300, (10% of
P3,000), or P750
1-31
1-31
1-31
1-31
1-31
1-31
1-31
1-31
Store Furniture and Fixtures Branch ..

Branch
900
900
Branch 2,600
Accounts Receivable .........
2,600
Accounts Receivable 34,600

Sales ................................
34,600
Cash . 40,000
Accounts Receivable
40,000
Purchases .31,600
Accounts Receivable .
31,600
Accounts Payable 36,200

Cash ...
36,200
Accrued Expenses Payable .

Expenses .
Cash ..
250
8,950
Allowance for Doubtful Accounts ..

Branch ..
150
Branch .
Shipments to Branch
1,250
Cash
Branch .
1,000
9,200
150
1,250
1,000
EAGLE CO.
Balance Sheet
January 31, 20x4
Assets
Liabilities
Cash ............................
Accts. Rec.-home office .
Merchandise in Transit .
Total assets
P 1,100
3,600
850
9,800
600
P37,200
Accounts Payable . P 2,400

Accrued expenses .
400
Home Office 14,050
Total Liabilities . P37,200
EAGLE CO.
For Month Ended January 31, 20x4
Sales .
Cost of Goods Sold:
P 6,200
Purchases
P 3,000
Shipments from home office .
11,450
Shipments from home office in transit ..........
600
Merchandise Available for Sale ..
P15,050
Less merchandise inv. Dec 31, 19X9 ................P9,800
Merchandise in transit ..
600
10,400
Gross Profit
Expenses
Net Loss ....
4,650
P 1,550
2,110
P 560
EAGLE CO.
Balance Sheet for Home Office
January 31, 20x4
Assets
Cash
Accounts Receivable P34,000
Less allowance for doubtful accounts .. 1,050
Store furniture and fixtures P12,000
Less accumulated depreciation . 3,950
Store furniture and fixtures-branch P 3,900
Less accumulated depreciation
785
Branch office ...
Total Assets
P 9,100
32,950
44,500
8,050
3,315
14,050
P111,765
Liabilities
Accounts Payable .. P29,150
Accrued Expenses ..
750
Total Liabilities ..
P29,900
Stockholders Equity
Capital Stock P50,000
Retained earnings .. 31,865
Total stockholders equity
Total liabilities and stockholders equity
81,865
P111,765
AGLE CO.
Sales
Cost of goods sold:
Merchandise inventory, January 1 ..
P46,000
Purchases
31,600
77,600
Less shipments to branch
12,050
Merchandise available for own sales .
P65,550
Less merchandise inventory, January 31
44,500
P 34,600
Cost of goods sold

Gross Profit
Expenses
Net income from own operations .
Deduct branch net loss
Total Income
21,050
P 13,650
9,325
P 4,225
560
P 3,665
EAGLE CO.
Assets
Liabiities and Stockholders Equity
Liabilities
Cash .. . P 10,200
Accounts Payable P30,700
Accounts receivable .. P38,450
Accrued Expenses 1,100
P 31,800
Less allow for doubtFul accounts ..
1,050
37,400
Merchandise Inventory .. 54,900
Stockholders Equity
Store furn. & fixtures P15,900
Capital Stocks P50,000
Less accum depr
4,735
11,165
Retained earnings 31,865
81,865
Total assets P113,665
Total liab. And stockholders equity . P113,665
EAGLE CO.
Combined Income Statement for Home Office and Branch
Sales ..
Cost of goods sold:
Merchandise Inventory, January 1 .
P46,000
Purchases ...
34,600
Merchandise available for sale ...
P80,600
Less merchandise inventory, Jan 31 ...
54,900
Cost of goods sold ...............................
Gross profit ...
Expenses
Net Income ..
P 40,800
25,700
P 15,100
11,435
P 3,665
(a) Branch Books

Jan.
31
Shipments from Office-in Transit

Home Office .
600
600
31
Expenses . 475
Home Office .
31
Expenses
35
Home Office ..
1/120 x P3,000, or P25 (depreciation for one month;
Asset life, 10 years); 1/90 x P900, or P10 (depreciation
For one month; asset life, 7.5 years)
31
Merchandise in Transit ..
Income Summary
475
35
9,800
600
10,400
31
31
31
31
Expenses ..
Accrued Expenses .
350
Sales .
Income Summary ..
6,200
Income Summary .
Shipments from Home Office .
Ship. From Home Office in Trans .
Purchases
Expenses ..
17,160
Home Office ..
Income Summary ...
560
350
6,200
11,450
600
3,000
2,110
560

31
31
31
31
31
31
31
31
31
31
Branch .
Shipments to Branch .
600
Branch .
Expenses ...
475
Branch .
Accumulated Depreciation, Store
Furniture and Fixtures Branch ..
35
600
475
35
Expenses .
100
Accumulated Depreciation store
Furniture and Fixtures branch .
1/120 x P12,000, or P100 (depreciation for one
Month; asset life, 10 years)
Income Summary
46,000
Merchandise Inventory ..
Income Summary ..
44,500
Expenses .
Accrued Expenses .
750
Sales
Purchases
Expenses ..
40,925
Branch Income .
Branch ..
560
Income Summary .
Branch Income ...
560
100
46,000
44,500
750
31,600
9,325
560
560
31
Income Summary .
Retained Earnings ..
3,665
3,665
Problem IV
1.
Socrates Company
Home Office and Plato Branch
Reconciliation of Reciprocal Ledger Accounts
June 30, 20x4
Investment in
Plato Branch
Ledger
Account
(Debit)
Balances prior to adjustment
P85,000
Add: Merchandise shipped to branch
Less: Acquisition of office equipment by branch
(carried in accounting records of home office)
(14,500)
Collection of branch trade accounts receivable
Payment of cash by branch
(22,000)
Adjusted balances
P48,500
2.
(a)
Accounting records of home office:

Office Equipment: Plato Branch
Investment in Plato Branch
To record acquisition of office equipment by branch.
Cash in Transit
Investment in Plato Branch
To record cash in transit from branch.
(b)
Home Office
Ledger
Account
(Credit)
P33,500
24,000
14,500
14,500
22,000
22,000
Accounting records of branch:

Home Office
9,000
Trade Accounts Receivable
To record collection by home office of branch accounts
receivable.
Inventories in Transit
Home Office
To record shipment of merchandise in transit from
home office.
Problem V
((a)
Balances before Adjustments ..
Adjustments:
Additions:
Merchandise in transit to branch .
Collection of Home office receivable by Branch
Understatement of branch net income for Nov..
(9,000)
_______
P48,500
9,000
24,000
24,000
BRANCH
ACCOUNT
P 8,400
HOME OFFICE
ACCOUNT
P 9,735
615
2,500
90
P10,990
P10,350
Deductions:
Merchandise return to home office in transit .
Corrected Balances
640
P10,350
(b) Branch Books:

Shipments from Home Office-in Transit .
Home Office ...
615
Home Office Books:

Branch
2,500
P10,350
615
2,500
Branch
Retained Earnings .
90
Merchandise Returns from Branch in Transit .

Branch ..
640
90
640
Multiple Choice Problem

1. d
Branch A
Assets:
Inventory, January 1
Imprest branch fund
Accounts receivable, January 1
Total Assets
Less: Liabilities
Home Office Current Account
P 21,000
2,000
55,000
P 78,000
-0P 78,000
Branch B
P 19,000
1,500
43,500
P 64,000
-0P 64,000
2. b
Branch A
Assets:
Inventory, December 31
Imprest branch fund
Accounts receivable, December 31
Total Assets
Less: Liabilities
P 19,000
2,000
70,000
P 91,000
-0P 91,000
Branch B
P 12,000
1,500
53,500
P 67,000
-0P 67,000
3. d incidentally, the entry in the books of the branch would be as follows:

Profit and loss summary xxx
Home Office Current .
Xxx
4. c
January
1,20x4
Assets:
Inventory
Petty cash fund
Accounts receivable
Total Assets
Less: Liabilities
P 37,000
3,000
43,000
P 83,000
_____-0P 83,000
January 1,
20x5
P 41,000
3,000
49,000
P 93,000
_____-0P 93,000
5. a refer to No. 4 for computations

6. a
Sales
Less: Cost of goods sold:
SFHO
Less: Inventory, ending
Gross profit
Less: Expenses
Net Loss ..
P 74,000
P67,680
9,180
58,500
P 15,500
6,820
P 8,680
7. a
January 1,
20x6
Assets:
Cash
Inventory
Accounts receivable
Total Assets
Less: Liabilities
P 4,200
9,180
12,800
P 26,180
_____-0P 26,180
8. a nominal accounts have zero beginning balance.

9. d
Branch
Current
H. Office
Current
Unadjusted balance, 6/30/20x4

P 225,770
P 226,485*
Add (Deduct): Adjustments
1 Erroneous recording of branch equipment
3150
2. Insurance premium recorded twice
(
675)
3. Erroneous recording of freight
(
90)
4. Discount on merchandise
(
800)
5. Failure by the branch to record share in adv ertising
700
6. error by the home office to record remittance of Cebu
3,000
________
Adjusted balance, 6/30/20x4
P 228,770
P 228,770
* The P226,485 is compute simply by working back with P228,770 adjusted balance as the starting point.
P2-07
10. c
Unadjusted balance
Add (deduct) adjustments:
In transit
Remittance
Returns
Cash in transit
Expenses - HO
Expenses branch
Home Office Books

(Branch CurrentDr. balance)
P518,575
Branch Books
(Home Office Current
Cr. balance)
P452,276
10,500
( 17,000)
(
775)
25,000
(
800)
12,000
Error
Adjusted balance
________
P 500,000
_____224
P 500,000
Home Office Books

P515,000
Branch Books
Cr. balance)
P495,750
11. d
Unadjusted balance
Excess freight
Cash in transit
Returns
Expenses branch
Adjusted balance
12.
13.
14.
15.
750)
( 11,000)
( 4,000)
________
5,000
P 500,000
P 500,000
c refer to No. 11 for computations

a refer to No. 11 for computations
No answer available P495,750
d - No entry should be made in the books of the home office, since the freight should be
chargeable to the branch and the payment of the freight was made by the branch.
16. b
Unadjusted balance
Remittance
Returns
Error by the branch
Expenses branch
Adjusted balance
Home Office Books

P590,000
Branch Books
Cr. balance)
P506,700
(40,000)
(15,000)
________
300
28,000
P 535,000
P 535,000
Home Office Books

(Branch Current- Dr.
balance)
P150,000
Branch Books
Cr. balance)
P117,420
17. c
Unadjusted balance
In transit
HO A/R collected by br.
Supplies returned
Error in recording Br. NI
Cash sent to branch
to General Expense by HO
Adjusted balance
18. d refer to No. 17 for computation.
19. a
37,500
10,500
( 4,500)
( 1,080)
25,000
P 179,920
25,000
P 179,920
Unadjusted balance
In transit
HO A/R collected by br.
Cash in transit
Error in recording Br. NI
Adjusted balance
Home Office Books

balance)
P40,000
Branch Books
Cr. balance)
P31,100
5,800
500
2,000
( 3,600)
P38,900
2,000
_______
P38,900
Home Office Books

balance)
P49,600
Branch Books
Cr. balance)
P44,00
20. a refer to No. 19 for computations

21. a
Unadjusted balance
Collection of branch A/R
In transit
Purchase of furniture
Return of excess merchandise
Remittance
Adjusted balance
(
( 1,200)
( 1,500)
( 500)
P46,400
800)
3,200
_______
P46,400
22. b refer to No. 21 for computations

23. (C)
Sales (P350,000 + P100,000) .P 450,000
Purchases (P400,000 + P50,000) .
P 450,000
Less: Inventory, ending
90,000
360,000
Gross profit
P 90,000
Less: Expenses
Salaries and commission ..
P 70,000
Rent
20,000
Advertising supplies (P10,000 P6,000)
4,000
Other expenses .
5,000
99,000
Net Loss ..
P( 9,000)
24. a
In adopting the imprest system for the agency working fund, the home office writes a check to the
agency for the amount of the fund. Establishment of the fund is recorded on the home office
books by a debit to the Agency working fund and credit cash. The agency will request fund
replenishment whenever the fund runs low and at the end of each fiscal period. Such a request is
normally accomplished by an itemized and authenticated statement of disbursements and the
paid vouchers. Upon sending the agency a check in replenishment of the fund, the home office
debits expense or other accounts for which disbursements from the fund were reported and
credits cash.
25. d
Normally, transactions of the agency are recorded in the books of the home office separately
identified with the appropriate agency.
Theories
1. True
2. True
3. False
4. False
5. True
6.
7.
8.
9.
10,
False
False
False
True
True
11.
12.
13.
14.
15.
False
False
True
True
True
16.
17.
18.
19.
20.
b
c
d
a
c
21.
22.
23.
24.
25.
a
b
b
b
a
26.
27.
28.
29.
30.
c
b
d
d
c
31.
32.
33.
34.
35.
36.
b
b
c
c
c
d
Chapter 13
Problem I
Sales....................................................................................................................... 42,000
Shipments to Newark Branch................................................................
Unrealized Intercompany Inventory Profit...........................................
Cost of merchandise shipped t branch: P42,000/1.20= P35,000.
Shipments to Newark Branch.............................................................................
Unrealized Intercompany Inventory Profit........................................................
Sales Returns...........................................................................................
Cost of merchandise returned by branch: P750/1.20= P625.
Newark Branch Income.....................................................................................
Newark Branch.......................................................................................
35,000
7,000
625
125
750
2,600
Unrealized Intercompany Inventory Profit........................................................ 4,125

Newark Branch.......................................................................................
Decrease in Unrealized Intercompany Inventory Profit:
Balance prior to adjustment, 12/31, P7,000 P125............... P6,875
Balance required in account, 12/31,
P16,500 (P16,500/1.20)........................................................... 2,750
Decrease.................................................................................... P4,125
Newark Branch Income...................................................................................... 1,525
Income Summary....................................................................................
Problem II
a. Unrealized Intercompany Inventory Profit has a credit balance of P9,450 before adjustment on
December 31, calculated as follows:
Merchandise transferred by home office at billed price,

35% above cost (P16,200 plus P20,250)............................................. P36,450
Merchandise transferred by home office at cost, P36,450/1.35.... 27,000
2,600
4,125
1,525
Additions to unrealized profit account resulting from transfers

by home office..................................................................................... P9,450
b. Unrealized Intercompany Inventory Profit.................................................. 4,550
Cash.......................................................................................................
4,550
Balance of unrealized profit account at December 31

(as calculated above).......................................................................................................... P 9,450
Required balance, December 31, to reduce inventory to cost:
Ending inventory of merchandise shipped to branch by home office:
At billed price................................................................................................. P 18,900
At cost (P 18,900/1.35).................................................................................. 14,000
4,900
Required decrease in unrealized profit account as a result
of branch sales...................................................................................................................... P4,550
c. Branch Books:
Home Office........................................................................................... 540
Shipments from Home office...................................................
Home Office Books:
Shipments to Branch.............................................................................. 400
Unrealized Intercompany Inventory Profit........................................... 140
Branch........................................................................................
Cost of merchandise returned: P540/1.35, or P400.
540
540
Problem III
a. The branch office inventory as of December 1 considered of:

Shipments from Home Office (see below)............................................................. P 12,000
Purchases from outsiders (balance of inventory)..................................................
3,000
Total inventory........................................................................................................... P 15,000
Goods acquired from home office and included in branch inventory at billed price are calculated as
follows:
Balance of unrealized intercompany inventory profit, December 31.................... P 3,600
Additions to unrealized profit account during December, 20% of
shipments to branch (20% x P8,000)............................................................................. 1,600
Balance of unrealized profit account, December 1.................................................. P 2,000
Balance of unrealized profit account, December 1, P2,000 / 20% markup on
cost equals December 1 inventory at cost................................................................ P 10,000
Add 20% markup...........................................................................................................
2,000
Goods in branch inventory at billed price................................................................. P 12,000
b. Unrealized Intercompany Inventory Profit......................................... 2,200
Branch Income............................................................................
2,200
Calculation of reduction in Unrealized Intercompany

Inventory Profit:
Balance of unrealized profit account, December 31.........................P 3,600
Required balance, December 31, to reduce inventory to cost
At billed price................................................................... P8,400
At cost (P8,400/1.20)....................................................... 7,000
1,400
Required decrease in unrealized profit account as a result
of branch sales........................................................................................ P 2,200
Problem IV
(1) Dec.31 Selling Expenses............................................................................ 260

Store Supplies............................................................................
Supplies used: P400 P140, or P260.
31
260
Selling Expenses............................................................................ 80
Accumulated Depreciation-Store Furniture........................
80
Depreciation:1% of P8,000, or P80.
31 Selling Expenses............................................................................
Accrued Expenses Payable.................................................
120
120
31 Prepaid Selling Expenses.............................................................

150
Selling Expenses.....................................................................
31 Income Summary......................................................................... 16,000
Merchandise Summary.........................................................
16,000
31 Merchandise Summary................................................................. 16,950
Income Summary......................................................................
31 Notes Payable..................................................................................1,000
Home Office...............................................................................
150
16,950
1,000
31 Sales.................................................................................................20,500
Income Summary.......................................................................
20,500
31 Income Summary........................................................................... 21,900

Purchases....................................................................................
Shipments from Home Office...................................................
Selling Expenses..........................................................................
General Expenses.......................................................................
5,000
10,500
4,560
1,840
31 Home Office.......................................................................................
Income Summary.......................................................................
450
450
(2) Dec.31 Branch No. 1.................................................................................... 1,000

Cash............................................................................................
Branch No. 1 Income.....................................................................
Branch No. 1...............................................................................
1,000
450
450
31 Unrealized Intercompany Inventory Profit....................................... 2,200

Branch No. 1 Income.................................................................
2,200
Calculations of unrealized profit adjustment on merchandise shipped by home office:

Billing to
Cost
Unrealized
Branch
(Billing/1.1
Profit
/3)
(Billing Price
Minus Cost)
Inventory,
P 12,500
P 9,375
P 3,125
Dec.1............................................................
Shipments during
10,500
7,875
2,625
December......................................
Total in unrealized profit on December
P 5,750
31.................
Inventory,
14,200
10,650
3,550
Dec.31.........................................................
Reduction in unrealized profit account- adjustment
to branch profit for overstated of cost of goods
sold.................................................................
P 2,200
31 Branch No. 1 Income............................................................... 1,750
Income Summary.............................................................
1,750
Problems V
(1)
SPENCER CO.
Balance Sheet for Branch
December 31,20x4
Assets
Cash..................................................... P 2,650
4,200
Accounts receivable........................ 12,850
Merchandise inventory..................... 14,600
Store supplies......................................
300
Prepaid expenses...............................
120
Furniture and fixtures.............. P 3,600
Less: Accumulated
depreciation..............
576 3,024
Liabilities____________________
Accounts payable................................... P
Accrued expenses...................................
105
Home office............................................... 29,239
________
Total assets....................................... P 33,544

33,544
Total liabilities............................................ P
SPENCER CO.
For Month Ended December 31, 20x4
Sales........................................................................................................................................... P 20,000
Cost of goods sold:
Merchandise inventory, December 1................................................ P 14,400
Purchases..............................................................................................
4,100
Shipments from home office...............................................................
10,200
Merchandise available for sale.......................................................... P 28,700
Less: Merchandise Inventory, December 31..................................... 14,600
Cost of goods sold....................................................................................................... 14,100
Gross profit................................................................................................................................. P 5,900
Operating expenses:
Advertising expense............................................................................. P 2,800
Salaries and commissions expense.....................................................
2,350
Store supplies expense.........................................................................
280
Miscellaneous selling expense............................................................
1,050
Rent expense........................................................................................
1,500
Depreciation expense furniture and fixtures..................................
36
Miscellaneous general expense.........................................................
905
Total operating expenses..........................................................................................
8,921
Net loss...................................................................................................................................... P 3,021
SPENCER CO.
Balance Sheet for Home Office
December 31, 20x4
Liabilities and Stockholders
Assets
Equity_______
Cash..................................................... P10,350
Cash in transit.....................................
1,500
Accounts receivable........................
26,200
35,660
Merchandise inventory..................... 24,200
Store supplies......................................
380
Prepaid expenses...............................
350
60,524
Furniture and fixtures.............. P 8,500
Less: Accumulated
depreciation.............. 2, 585 5,915
Branch..................................... P29,239
Less: Unrealized intercompany
Liabilities
Accounts payable................ P 35,400
Accrued expenses...............
260 P
Stockholders Equity
Capital Stock......................... P 65,000
Less deficit..............................
4,476
inventory profit............ 1,950 27,289

________
Total assets........................................ P 96,184
96,184
Total liabilities and

stockholders equity............................... P
SPENCER CO.
Sales........................................................................................................................................... P 44,850
Cost of goods sold:
Merchandise inventory, December 1................................................ P 31,500
Purchases..............................................................................................
27,600
Merchandise available for sale.......................................................... P 59,100
Less: Shipments to branch...................................................................
8,500
Merchandise available for own sales................................................ P 50,600
Less: Merchandise Inventory, December 31..................................... 24,200
Cost of goods sold.......................................................................................... 26,400
Gross profit................................................................................................................................. P 18,450
Operating expenses:
Advertising expense............................................................................. P 2,850
Salaries and commissions expense.....................................................
4,250
Store supplies expense.........................................................................
560
Miscellaneous selling expense............................................................
1,850
Rent expense........................................................................................
2,700
Depreciation expense furniture and fixtures..................................
85
Miscellaneous general expense.........................................................
2,510
Total operating expenses............................................................................. 14,805
Net income from own operations......................................................................................... P 3,645
Less: Branch net loss................................................................................................................
1,271
Total income............................................................................................................................ P 2,374
2. WORKSHEET refer to a separate sheet
SPENCER CO.
Combined Balance Sheet for Home Office and Branch
December 31, 20x4
Assets
Cash .
P 14,500
Accounts Receivable
39,050
Merchandise Inv .
36,850
Store Supplies ..
680
Prepaid Expenses ..
470
Furniture & Fixtures
P12,100
Less accumulated
Depreciation ...
3,161
8,939
Total assets
P100,489
Liabilities and Stockholders Equity

Liabilities
Accounts Payable .. P39,600
Accrued Expenses .
365
Stockholders Equity
Capital Stock P65,000
Less deficit .
4,476
P 39,965
60,524
Total liabilities and

stockholders equity P100,489
SPENCER CO.
Sales P64,850
Cost of goods sold:
Merchandise Inventory, December 1 P43,900
Purchases 31,700
Merchandise available for sale P75,600
Less merchandise inventory, December 31 . 36,850
Cost of goods sold ..
38,750
Gross profit
P26,100
Operating Expenses:
Advertising Expense P 5,650
Salaries and Commissions expense
6,600
Store supplies expense ..
840
Miscellaneous selling expense 2,900
Rent expense
4,200
Depreciation Expense F&F .
121
Miscellaneous general expense . 3,415
Total operating expense . 23,726
Net Income P 2,374
(a)
Dec
Branch Books
31
31
31
Dec.
31
31
31
31
31
Income Summary .. 14,400

Merchandise Inventory ..
14,400
Merchandise Inventory 14,600

Income Summary .
14,600
Store Supplies Expense .

Store Supplies
Store supplies used: P580 P300, or P280
280
280
Prepaid Expenses
Miscellaneous General Expense .
120
Miscellaneous General Expense

Accrued Expenses ..
105
Depreciation Expense F&F ..

Accumulated Depreciation
Depreciation: 1% of P3,600
36
Miscellaneous General Expense ..

Home Office
220
Sales
Income Summary .
20,000
120
105
36
220
20,000
31
31
(b)
Dec
22,221
Home Office .
Income Summary ..
3,021
4,100
10,200
2,800
2,350
280
1,050
1,500
36
905
3,021
Home Office Books

31
31
31
31
31
31
31
31
Dec
Income Summary
Purchases
Advertising Expense .
Salaries and Commissions Expense .
Store Supplies Expense
Miscellaneous Selling Expense ..
Rent Expense .
31
Income Summary .
31,500
Merchandise Inventory ...

Income Summary
24,200

Store Supplies
Store supplies used: P940 P380, or : 560
560
Prepaid Expense
Miscellaneous General Expense
350

Accrued Expenses .
260
Depreciation Expense ..
Depreciation: 1% of P8,500, or P85
Cash in Transit .
Branch
Sales
Shipments to branch .......................
Income Summary .
31,500
24,200
560
350
260
85
85
1,500
1,500
44,850
8,500
Income Summary 42,405

Purchases
Advertising Expense .
Store Supplies Expense
Rent Expense .
53,350
27,600
2,850
4,250
560
1,850
2,700
85

31
31
31
31
2,510
Branch Income ..
Branch
3,021
Unrealized Intercompany Inventory Profit .

Branch Income
Calculation of unrealized profit adjustment:
Balance of unrealized profit account,
December 31 .. P3,700
Inventory merchandise received from
Home office at billed price on
December 31, P11,700
Inventory at cost: P11,700/ 1.20, or P9,750
Balance of unrealized profit account on
December 31, P11,700 P9,750 ....
1,950
Required decreased in unrealized profit
Adjustment to branch income for
Overstatement of cost of goods
Sold .. P1,750
1,750
Income Summary
Branch Income .
1,271
Income Summary
Retained Earnings .
2,374
3,021
1,750
1,271
2,374
Problem VI
1.

1 Cash in transit
2. Merchandise in transit
3. Branch expenses paid by home office
4. Cash in transit from home office
Branch
Current
P 44,000
H. Office
Current
P 9,000
( 10,000)
_______
P 34,000
10,000
12,000
3,000
P34,000
2. Combined Income Statement
Sales [(P350,000 P105,000) + P150,000)....................................................... P395,000

Less: Cost of goods sold [(P220,000 P84,000) +
(P93,000 + P3,600 P21,000 P1,200)]. 210,400
Gross profit................................................................................................................... P184,600
Operating expenses (P70,000 + P41,000 + P12,000)................................................ 123,000
Net income................................................................................................................... P 61,600
Problem VII
(1)
PAXTON CO.
Income Statement for Dayton Branch

Sales.............................................................................................................................. P315,000
Cost of goods sold:
Merchandise inventory, January 1, 20x5................................... P 44,500
Shipments from home office...................................................... 252,000
Merchandise available for sale................................................. P296,500
Less: Merchandise Inventory, December 31, 20x5..................
58,500 238,000
Gross profit................................................................................................................. P 77,000
Operating expenses................................................................................................. 101,500
Net loss....................................................................................................................... P 24,500
PAXTON CO.
Income Statement for Cincinnati Home Office
Sales.............................................................................................................................. P1,060,000
Cost of goods sold:
Merchandise inventory, January 1, 20x5................................... P115,000
Shipments from home office...................................................... 820,000
Less: Shipments to branch.......................................................... 210,000
Merchandise available for own sales....................................... P725,000
142,500
582,500
Gross profit..................................................................................................................
P477,500
Expenses......................................................................................................................
382,000
Net income from own operations............................................................................
P 95,500
Add branch net income...........................................................................................
16,650
Total income...............................................................................................................
P112,150
(2)
PAXTON CO.
Sales.............................................................................................................................. P1,375,000
Cost of goods sold:
Merchandise inventory, January 1, 20x5...................................P 150,600
Purchases...................................................................................... 820,000
191,250
779,350
Gross profit.................................................................................................................... P595,650
Operating expenses....................................................................................................
483,500
Net income................................................................................................................... P112,150
(3) Merchandise Inventory, December 31................................................................ 58,500
Sales.......................................................................................................................... 315,000
Income Summary............................................................................................
373,500
Income Summary......................................................................................................... 398,000
Merchandise Inventory, January 1................................................................
44,500
Shipments from Home Office.........................................................................
252,000
Operating expenses........................................................................................
101,500
Home Office...............................................................................................................
Income Summary..........................................................................................
24,500
24,500
(4) Branch Income.....................................................................................................

Branch............................................................................................................
24,500
24,500
Unrealized Intercompany Inventory Profit...............................................................

41,150
Branch Income..............................................................................................
41,150
Branch inventory, January 1, acquired from home office
at billed price...................................................................................... P 44,500
Less: Cost of inventory (P44,500/1.25)......................................................... 35,600
Unrealized Intercompany Inventory Profit Jan. 1....................................... P 8,900
Add: Increase in unrealized profit for shipments
made during year, billed price of goods,
P252,000, cost of goods, P210,000.................................................... 42,000
P 50,900
Deduct balance to remain in unrealized profit account:
Branch inventory, December 31,
acquired from home office....................................... P 58,500
Less: Cost of inventory to home office,
P58,500/1.20................................................................
48,750
Reduction in unrealized profit account- adjustment to
branch income for overstatement of cost of
goods sold..................................................................
9,750
41,150
Branch Income............................................................................................................. 16,650

Income Summary............................................................................................
16,650
Merchandise Inventory, December 31...................................................................... 142,500
Sales............................................................................................................................... 1,060,000
Shipments to Branch.................................................................................................... 210,000
Income Summary.............................................................................................
1,412,500
Income Summary......................................................................................................... 1,317,000

Merchandise Inventory, January 1................................................................
115,000
Purchases.........................................................................................................
820,000
Expenses...........................................................................................................
382,000
Income Summary..........................................................................................................
Retained Earnings............................................................................................
112,150
112,150
Problem VIII
(1)
RUGGLES CO.
Sales................................................................................................................................ P 78,500
Cost of goods sold:
Merchandise inventory, January 1, 20x4......................................... P 32,000
Shipments from home office........................................... P 40,000
Purchases from outsiders.................................................
20,000 60,000
Merchandise available for sale....................................................... P 92,000
Less: Merchandise Inventory, December 31, 20x4........................ 31,500
Cost of goods sold.............................................................................
60,500
Gross profit.................................................................................................................... P 18,000
12,500
Net income................................................................................................................... P 5,500
RUGGLES CO.
Sales.............................................................................................................................. P 256,000
Cost of goods sold:
Purchases...................................................................................... 210,000
Merchandise available for sale................................................. P 290,000
Less: Shipments to branch..........................................................
30,000
Merchandise available for own sales....................................... P 260,000
55,000
205,000
Gross profit................................................................................................................... P 51,000
Operating Expenses....................................................................................................
60,000
Net loss from own operations..................................................................................... P 9,000
Add branch net income............................................................................................
13,500
Total income................................................................................................................ P
4,500
(2)
RUGGLES CO.
Sales.............................................................................................................................. P 334,500
Cost of goods sold:
Purchases...................................................................................... 230,000
Merchandise available for sale.................................................. P 337,500
Less: Merchandise Inventory, December 31, 20x4...................
80,000
257,500
Gross profit.................................................................................................................... P 77,000
72,500
Net income................................................................................................................... P 4,500
(3) Merchandise Inventory......................................................................................... 31,500

Sales.......................................................................................................................... 78,500
Income Summary............................................................................................
110,000
Income Summary......................................................................................................... 104,500
Merchandise Inventory...................................................................................
32,000
Shipments from Home Office.........................................................................
40,000
Purchases.........................................................................................................
20,000
Expenses...........................................................................................................
12,500
Income Summary.........................................................................................................
Home Office.....................................................................................................
(4) Branch......................................................................................................................
Branch Income................................................................................................
Unrealized Intercompany Inventory Profit...............................................................
Branch Income..............................................................................................
Branch inventory, January 1, acquired from home office
at billed price.................................................................................... P 24,500
Less: Cost of inventory (P24,500/1.225).................................................... 20,000
Unrealized Intercompany Inventory Profit Jan. 1................................... P 4,500
Add: Increase in unrealized profit for shipments
5,500
5,500
5,500
5,500
8,000
8,000
made during year, billed price of goods,

P40,000, cost of goods, P30,000....................................................
10,000
P 14,500
Deduct balance to remain in unrealized profit account:
Branch inventory, December 31,
acquired from home office....................................... P 26,000
Less: Cost of inventory to home office,
P26,000/1.1/3................................................................ 19,500
6,500
Reduction in unrealized profit account- adjustment to branch
income for overstatement of cost of goods sold...........................
8,000
Branch Income............................................................................................................. 13,500
Income Summary............................................................................................
13,500
Merchandise Inventory................................................................................................ 55,000
Sales............................................................................................................................... 256,000
Shipments to Branch.................................................................................................... 30,000
Income Summary.............................................................................................
341,000
Income Summary......................................................................................................... 350,000
Merchandise Inventory...................................................................................
80,000
Purchases.........................................................................................................
210,000
Expenses...........................................................................................................
60,000
Income Summary..........................................................................................................
Retained Earnings............................................................................................
4,500
4,500
Problem IX
1.
Branch
Current
1 Remittance
2. Cash in transit
3. Shipments in transit
P 60,000
H. Office
Current
P 51,500
I 1,700)
P 57,300
1,800
5,800
P 57,300
2. Income Statement - Branch
Sales................................................................................................................................ P 140,000
Cost of goods sold:
Merchandise inventory, January 1, 20x4 (P11,550 P1,000)....... P 10,550
Shipments from home office (P105,000 + P5,000 P10,000)........ 100,000
Freight-in (P5,500 + P250)..
5,750
Merchandise available for sale..................................................... P116,300

Less: Merchandise Inventory, December 31, 20x4...................... 14,770
Gross profit....................................................................................................................
Net income...................................................................................................................
101,530
P 38,470
24,300
P 14,170
Income Statement Home Office

Sales..............................................................................................................................
P 155,000
Cost of goods sold:
Purchases...................................................................................... 190,000
Merchandise available for sale................................................. P 213,000
Less: Shipments to branch.......................................................... 100,000
Merchandise available for own sales....................................... P 113,000
30,000
Cost of goods sold........................................................................
83,000
Gross profit................................................................................................................... P 72,000
Operating Expenses....................................................................................................
42,000
Net loss from own operations..................................................................................... P 30,000
Add branch net income............................................................................................
14,170
Combined net income.............................................................................................. P 44,170
3.
Sales.............................................................................................................................. P 295,000
Cost of goods sold:
Purchases...................................................................................... 190,000
Freight-in
5,750
Merchandise available for sale.................................................. P 229,300
Less: Merchandise Inventory, December 31, 20x4...................
44,770
Cost of goods sold........................................................................
184,530
Gross profit.................................................................................................................... P 110,470
66,300
Net income................................................................................................................... P 44,170
Problem X
a. The cost of the merchandise destroyed was P30,000.

Total merchandise acquired from home ofiice, at billed price:
Inventory, January 1...................................................................................... P26,400
Shipments from home office, Jan. 1-17....................................................... 20,000
P46,400
Cost of goods sold, January 1-17, at billed price:
Net sales, P13,000/1.25......................................................................................
10,400
Merchandise on hand, January 17, at billed price....................................... P36,000

Merchandise on hand, January 17, at cost, P36,000/1.20............................ P30,000
b. Branch Books:
Loss from Fire (or Home Office)............................................................ 36,000
Merchandise Inventory............................................................
36,000
Home Office Books:
No entry needs to be made on the books of the home office until the end of the fiscal period, when the
branch earnings (including the loss from fire) are recognized and when the balance of the account
Unrealized Intercompany Inventory Profit is adjusted to conform to the branch ending inventory. If it
is desired to recognized the loss from fire on the home office books immediately, the following entry
may be made:
Branch Loss from Fire (or Retained Earnings)...................................... 30,000
Unrealized Intercompany Inventory Profit........................................... 6,000
Branch.........................................................................................
36,000
Problem XI
a. Books of Branch A:
Home Office........................................................................................ 1,500
Cash.........................................................................................
1,500
b. Books of branch B:
Cash...................................................................................................... 1,500
Home Office............................................................................
1,500
c. Books of Home Office:

Branch B............................................................................................... 1,500
Branch A..................................................................................
1,500
Problem XII
a. Books of Branch No. 1 :
Home Office .
Shipments from Home Office ..
Freight In
b. Books of branch No. 5:
Freight In
Home Office .
Cash
c. Books of the Home Office
Branch No. 5 ..
Excess Freight on Inter branch Transfer of Merchandise ..
Branch No. 1
Shipments to Branch No. 1 ..
Shipments to Branch No. 5
1,950
1,600
350
1,600
400
1,750
250
1,750
200
1,950
1,600
1,600
Multiple Choice Problems

1. c - P50,400, billed price x 40/140 = P 14,400
2. b
Ending inventory in the combined income statement:
From Home Office: (P50,000-P6,600) x 100/140
From Outsiders
P 31,000
6,600
P 37,600
3. a
True Branch Net Income
Branch Net Income
Add (deduct):
Overvaluation of cost of goods sold/realized profit
from sales made by branch:
Shipments from home office.
P 280,000
Less: Ending inventory, at billed
price (P50,000 P6,600)
43,400
Cost of goods sold from home
office at billed price
P 236,600
Multiplied by: Mark-up
40/140
Unrecorded branch expenses
5,000
67,600
( 2,500)
P 70,100
4. c
Less: branch Net Income as reported by the branch
Overvaluation of CGS
Less: Cost of goods sold from home office at BP
Inventory, December 1
Shipment from HO
COGAS
Less: Inventory, December 31
CGS from home office, at cost
P156,000
60,000
P 96,000
P 70,000
350,000
P 420,000
84,000
336,000
P 240,000
Billing Price: P336,000 / P240,000 = 140%.

5. c Allowance for overvaluation after adjustment / for December 31 inventory: (refer t o
No. 4 for further computation): P84,000 x 40/140 = P24,000.
6. No answer available P109,000
Net Income as reported by the Branch
Less: Rental expense charged by the home office
(P1,000 x 6 months)
Adjusted NI as reported by the Branch
Add: Overvaluation of CGS
MI, beginning
SFHO
COGAS
Less: MI, ending
P 20,000
6,000
P 14,000
Billed Price
0
550,000
550,000
75,000
CGS, at BP
X: Mark-up ratio
True/Adjusted/Real Branch Net Income
475,000
25/125
95,000
P109,000
7. d
Sales (P537,500 + P300,000) . . P 837,500
Less: Cost of goods sold
Merchandise inventory, beg. [P50,000 + (P45,000 / 1.20)]P 87,500
Add: Purchases . 500,000
Cost of Goods Available for Sale ... P 587,500
Less: MI, ending [P70,000 + (P60,000 / 1.20)] . 120,000
467,500
Gross profit .
P 370,000
Less: Expenses (P120,000 + P50,000.. .
170,000
Net Income
P 200,000
8. d
Overvaluation of Cost of Goods Sold:
Unrealized Profit in branch inventory/ before adjustment .P 7,200
Less: Allowance of ending branch inventory (P20,000 x 84% =
P16,800 x 20/120 .. 2,800
Overvaluation of Cost of Goods Sold . .P 4,400
Adjusted branch net income:
Sales P60,000
Inventory, January 1, 2003 .P 30,000
Add: Purchases ..... 11,000
Shipments from home office ..
19,200
Cost of Goods available for sale P 60,200
Less: Inventory, December 31, 2003 .
20,000
40,200
Gross profit .. P 19,200
Less: Expenses .. 12,000
Unadjusted branch net income .P 7,800
Add: Overvaluation of Cost of Goods Sold .
4,400
Adjusted branch net income ..P 12,000
9. d
Merchandise Inventory, 12/31/2005
Shipments
Cost of goods sold
Billed Price
*P 36,000
28,800
Cost
P 30,000
24,000
Allowance
P 6,000
4,800
P10,800
From Home at billed price: *P6,000 / 20% = P30,000 + P6,000 = P36,000.

From outsiders: P45,000 P36,000 = P9,000
10. d
Billed Price
Merch. Inventory, 12/31/20x4
*P12,000
Shipments
9,600
Cost of Goods Sold
*P2,000 / 20% = P10,000 + P2,000 = P12,000.
Cost
P10,000
8,000
Allowance
P 2,000
1,600
P 3,600
Merchandise inventory, December 1, 20x4 P 15,000

Less: Shipments from home office at billed price* 12,000
Merchandise from outsiders P 3,000
11. d
Combined Cost of Goods Sold:
Merchandise Inventory, 1/1/2003:
Home Office, cost
P 3,500
Branch: Outsiders, ...........................P 300
From Home Office (P2,500 P300)/110%................. 2,000
2,300 P 5,800
Add Purchases (P240,000 + P11,000) ..
251,000
COGAS
P256,800
Less: Merchandise Inventory, 12/31/2003
Home Office, cost .
P 3,000
Branch: Outsiders . P
150
From Home Office (P1,800 P150)/110%................
1,500
1,650
4,650
Cost of Goods Sold
P252,150
12. d
100%
Billed Price
60%
Cost
40%
Allowance
Merchandise inventory, 1/1/x4
32,000
Shipments
*60,000
36,000
*24,000
Cost of goods available for sale
56,000
Less: MI, 3/31/x4 (25,000 x 40%)
10,000
Overvaluation of CGS**
46,000
*36,000 cost / 60% = 60,000 x 40% = 24,000. (Note: Markup is based on billed price)
**Realized Profit from Branch Sales
13. d
Billed
Price
Shipments (400,000 x 25%)
Less: MI, 8/31/x4 (160,000 x 25%)
Overvaluation of CGS/RPBSales
400,000
160,000
14. b
(1) Sales
Inventory, 1/1/2003 (P4,950 / 110%)
Add: Shipments
(P22,000 / 110%)
COGAS
Less: Inventory, 12/31/2003 (P6,050 / 110%)
Gross profit
Less: Expenses
Net income from own operations
Cost
Allowance
60,000
*100,,000
160,000
40,000
120,000
P 40,000
P 4,500
20,000
P 24,500
5,500
P
_
P
19,000
21,000
13,100
7,900
(2) Combined Cost of Goods Sold:

Merchandise Inventory, 1/1/2003:
of Home Office, cost ..P 17,000
of Branch, cost: P4,950 / 110% .

4,500
P 21,500
Add Purchases .
50,000
COGAS ..
P 71,500
Less: Merchandise Inventory, 12/31/2003
of Home Office, cost P 14,000
of Branch, cost: P6,050 /100% ..
5,500
19,500
P 52,000
15. a - P48,000 / 120% = P40,000
16. a P48,000 x 20/120 = P8,000 (note: adjusted allowance refers to the allowance related to the
ending inventory, so, the allowance related to the CGS, which is P10,00 in t his case is considered
to be the adjustments in the books of Home Office to determine the adjusted branch net income)
120%
100%
20%
Billed Price
Cost
Allowance
0
Shipments
108,000
108,000
Less: MI, 12/31/x4 (P60,000 x 80%)
48,000
Overvaluation of CGS (60,000 x 20/120)
60,000
10,000*
17. b
Sales (P148,000 + P44,000)
Less: Cost of Sales
Inventory, 1/1/20x4
Purchases
Shipments from home office
Less: Inventory, 12/31/20x4
Gross profit
Less: Expenses (P76,000 + P24,000)
Net income, unadjusted
Add: Overvaluation of CGS
Adjusted branch net income
P192,000
P
0
52,000
108,000
P 160,000
60,000
100,000
P 92,000
100,000
P( 8,000)
10,000
P 2,000
18. c

Shipments
Less: MI, 12/31/x4 (P60,000 x 80%)
Overvaluation of CGS(230,000x 25/125)
19. d P326,000
Sales (P600,000 + P300,000)
Merchandise inventory, beg.
[P100,000 + (P40,000/1.25)]
125%
Billed Price
40,000
250,000
290,000
60,000
230,000
100%
Cost
25%
Allowance
46,000*
P 900,000
P132,000
Add: Purchases
Less: MI, ending
[P30,000 + (P60,000/1.25)]
Gross profit
Net Income
350,000
P482,000
78,000
404,000
P 496,000
_ 170,000
P 326,000
20. b
Sales (P537,500 + P300,000)
Merchandise inventory, beg.
[P50,000 + (P60,000/1.20)]
Add: Purchases
Less: MI, ending
[P70,000 + (P60,000/1.20)]
Gross profit
Net Income
P 837,500
P 87,500
500,000
P587,500
120,000
467,500
P 370,000
_ 170,000
P 200,000
21. c
Sales (P120,000 + P60,000)
P 180,000
Merchandise inventory, beg. [P40,000 + P6,000 +
(P24,000 / 1.2)] P 66,000
Add: Purchases (P70,000 + P11,000)
81,000
Cost of Goods Available for Sale P 147,000
Less: MI, ending [P40,000 + P3,200 + (P16,800 / 1.20)] 57,200
89,800
Gross profit
P 90,200
40,000
Net Income .
P 50,200
22. d
Sales (P100,000 P33,000 + P50,000)
P 117,000
Inventory, beg. [P15,000 + (P5,500/110%) or (P5,500 P500)] P20,000
Add: Purchases (P50,000 + P7,000) 57,000
COGAS .. P77,000
Less: Inventory, end [P11,000 + P1,050 +
(P6,000- P1,050)/110%] 16,550
60,450
Gross profit
P 56,550
Less: Expenses (P20,000 + P6,000 + P5,000)
31,000
Combined Net income .
P 25,550
23. c
Sales
Less: Cost of Sales
Inventory, 1/1/10
Purchases
Less: Shipment/Sales to Branch,
at cost (P110,000/110%)
Cost of goods available for HO
P155,000
P 23,000
190,000
P213,000
100,000
Sale
Less: Inventory, 12/31/10
Gross profit
Less: Expenses
Net income home office
P113,000
30,000
83,000
P 72,000
52,000
P 20,000
24. a
Sales
P140,000
Less: Cost of Sales
Inventory, 1/1/10
P 11,550
Purchases
105,000
Freight-in
5,500
Shipment in transit (P5,000+P250)
5,250
Cost of goods available for sale P127,300
Less: Inventory, 12/31/10
(P10,400 + P520 + P5,250)
16,170 111,130
Gross profit
P 28,870
Less: Expenses
28,000
Net income per branch books/unadjusted
P
870
Add: Overvaluation of CGS*
9,600
Net Income of Davao Branch, adjusted
P 10,470
BP
Cost
Allowance
1,000
100,000
**10,000
11,000
****1,400
9,600
MI. 1/1/2010
Shipments
110,000
Available for sale
-: MI, 12/31/10
***15,400
CGS
**110,000 x 10/110
***10,400 + 5,000, in transit
****15,400 x 10/110
25. a
Inventory, 1/1 at billed price

P165,000
Add: Shipments at billed price
110,000
Cost of goods available for sale at billed price
P275,000
Less: CGS at BP:
Sales
P169,000
Less: Sales returns and allowances
3,750
Sales price of merchandise
acquired from outsiders
(P7,500 / 120%)
9,000
Net Sales of merchandise acquired from
home office
P156,250
x: Intercompany cost ratio
100/125
125,000
Inventory, 8/1/2008 at billed price
P150,000
x: Cost ratio
100/125
Merchandise inventory at cost destroyed by fire
P120,000
26. d
Merchandise inventory, January 1
Shipments from home office
P 26,400
__20,000
P 46,400
Less: Cost of goods sold, at BP:

Sales
Less: Sales returns
Net sales
Divided by: SP based on cost
Merchandise inventory, ending at BP
Divided by: Billed price
Merchandise inventory, ending at cost
lost due to fire)
P 15,000
___2,000
P 13,000
____125%
__10,400
P 36,000
____120%
P 30,000
27. d
Freight actually paid by:
Home Office P 500
Branch P
700
Total P 1,200
Less: Freight that should be recorded ..
800
Excess freight P 400
28. d in arriving at the cost of merchandise inventory at the end of the period, freight charges are
properly recognized as a part of the cost. But a branch should not be charged with excessive
freight charges when, because of indirect routing, excessive costs are incurred. Under such
circumstances, the branch acquiring the goods should be charged for no more than the normal
freight from the usual shipping point. The office directing the inter-branch transfers are responsible
for the excessive cost should absorb the excess as an expense because it represents
management mistakes (or inefficiencies.)
29. c
Inventory of the Branch:
Shipments from home office at billed price.........................................P 37,700
X: Ending inventory %................................................................................
60%
Ending inventory at billed price .....P 22,620
Add: Freight (P1,300 x 60%) ......
780
P 23,400
Or, P39,000 x 60% = P23,400
30. b
Inventory in the published balance sheet, at cost
Shipments at cost ..........................................P 32,500
X: Ending inventory %....................................................................................
60%
Ending inventory at billed price .P19,500
Add: Freight (P1,300 x 60%) .........
780
P 20,280
31. c
Home Office Books
Davao Branch 39,000
STB, cost .
32,500
Unrealized profit
5,200
Cash (freight) .
1,300
BC Baguio 19,630
Excess freight
520
BC-Davao .
20,150
Davao Branch
SFHO .37,700
Freight-in . 1,300
HOC ..
39,000
HOC .20,150
SFHO(50%)
18,850
Freight-in (50%)
650
Baguio Branch
SFHO 18,850
Freight-in..
780
HOC ...
19,630
Cash ......
650
32. d
(1) Branch Inventory, 12/31/20x4: P30,000 x 60%...................................P 18,000
(2) Branch Inventory, at cost: (P25,000 + P1,000) x 60%.........................P 15,600
33.
34.
35.
36.
37.
38.
39.
40.
c (P300,000 x = P75,000, ending inventory x (P300,000 P250,000)/P300,000 = P12,500

d
d
b refer to No. 14
b refer to No. 14
c refer to No. 14
c
d
Theories
1. True
2. False
3. True
4. True
5. False
20.
21.
22.
23
6.
7.
8.
9.
10.
False
False
False
True
True
11.
12.
13.
14.
15.
False
True
False
True
False
16.
17.
18.
19.
True
True
True
False
d
d
a
d
Chapter 14
Problem I
1. Consideration transferred : FMV of shares issued by Robin (80,000 sh P28) = P2,240,000
2. Consideration trasnferred
Less: Fair value of Hopes net assets (P2,720,000+P200,000P1,200, 000)
Goodwill
Problem II
1..
Accounts Receivable
Inventory
Land
Building
Equipment
Patent
Goodwill
Acquisition Expense
Current Liabilities
Long-term Debt
Cash
Consideration trasnsferred : Cash
P560,000
Less : Fair value of Wests net assets
(P180,000 + P400,000 + P50,000
+ P60,000 + P P70,000 + P20,000
P2,240,000
1,720,000
P 520,000
180,000
400,000
50,000
60,000
70,000
20,000
10,000
20,000
70,000
160,000
580,000
P70,000 - P160,000)
Goodwill
2.
550,000
P 10,000
Acquisition Expense
Accounts Receivable
Inventory
Land
Building
Equipment
Patent
Current Liabilities
Long-term Debt
Cash
Gain on Acquisition
20,000
180,000
400,000
50,000
60,000
70,000
20,000
70,000
160,000
520,000
50,000
Consideration trasnsferred : Cash

P500,000
Less : Fair value of Wests net assets
(P180,000 + P400,000 + P50,000
+ P60,000 + P P70,000 + P20,000
P70,000 - P160,000)
550,000
Bargain Purchase Gain
(P 50,000)
Problem III
Accounts Receivable
Inventory
Land
Buildings and Equipment
Goodwill
Allowance for Uncollectible Accounts (P231,000 P198,000)
Current Liabilities
Bonds Payable
Premium on Bonds Payable (P495,000 - P450,000)
Preferred Stock (15,000 x P100)
Common Stock (30,000 x P10)
Other Contributed Capital (P25 - P10) x 30,000
Cash
Consideration transferred: (P1,500,000 + P750,000
+ P50,000)
Less: Fair value of net assets (198,000 + 330,000 +

550,000 + 1,144,000 275,000 495,000) =
Goodwill
231,000
330,000
550,000
1,144,000
848,000
33,000
275,000
450,000
45,000
1,500,000
300,000
450,000
50,000
P2,300,000
1,452,000
P 848,000
Problem IV
Current Assets
Plant and Equipment
Goodwill
960,000
1,440,000
336,000
Liabilities
Cash
216,000
2,160,00
0
360,000
Estimated Liability for Contingent Consideration

Problem V
The amount of the contingency is P500,000 (10,000 shares at P50 per share)
1.
Goodwill
500,000
Paid-in-Capital for Contingent Consideration Issuable
2.
Paid-in-Capital for Contingent Consideration Issuable

Common Stock (P10 par)
Paid-In-Capital in Excess of Par
500,000
500,000
100,000
400,000
Platz Company does not adjust the original amount recorded as equity.
Problem VI
1. January 1, 20x4
Accounts Receivable
Inventory
Land
Buildings
Equipment
Goodwill
Allowance for Uncollectible Accounts
Accounts Payable
Note Payable
Cash
72,000
99,000
162,000
450,000
288,000
54,000
7,000
83,000
180,000
720,000
135,000
Consideration transferred (P720,000 + P135,000)

P855,000
Total fair value of net assets acquired (P1,064,000 - P263,000)
801,000
Goodwill
P 54,000
2. January 2, 20x6
Cash
135,000
3. January 2, 20x6
Gain on Contingent Consideration
135,000
Problem VII
1.
Accounts Receivable
Inventory
Land
Buildings
Goodwill
135,000
135,000
240,000
320,000
1,508,000
1,392,000
30,000

Accounts Payable
Note Payable
Cash
20,000
270,000
600,000
2,600,000
Goodwill
Consideration transferred
Fair value of net assets acquired
(P3,440,000 P870,000)
Goodwill
2.
200,000
200,000
P2,600,000
2,570,000
P 30,000

Gain on Contingent Consideration
200,000
200,000
Problem VIII
Current Assets
Long-term Assets (P1,890,000 + P20,000) + (P98,000 + P5,000)
Goodwill *
Liabilities
Long-term Debt
Common Stock (144,000 P5)
Other Contributed Capital (144,000 x
P15 - P5))
362,000
2,013,000
395,000
119,000
491,000
720,000
1,440,000
* (144,000 P15) [P362,000 + P2,013,000 (P119,000 + P491,000)] = P395,000

Total shares issued (P700,000 / P5) + P20,000 / P5)
Fair value of stock issued (144,000P15)
144,000
= P2,160,000
Problem IX
Case A
P130,000
Less: Fair Value of Net Assets

Goodwill
120,000
P 10,000
Case B
Goodwill
P110,000
90,000
P 20,000
Case C
Gain
P15,000
20,000
(P 5,000)
Goodwill
Case A
Case B
Case C
P10,000
20,000
0
Assets
Current Assets
Liabilities
Retained
Earnings
(Gain)
Long-Lived Assets
P20,000
30,000
20,000
P130,000
80,000
40,000
P30,000
20,000
40,000
0
5,000
Problem X
1. Fair Value of Identifiable Net Assets
Book values P500,000 P100,000 =
P400,000
Write up of Inventory and Equipment:

(P20,000 + P30,000) =
Consideration transferred above which goodwill would result
2.
50,000
P450,000
Equipment would not be written down, regardless of the purchase price, unless it was reviewed
and determined to be overvalued originally.
3. A gain would be shown if the purchase price was below P450,000.
4. Anything below P450,000 is technically considered a bargain.
5. Goodwill would be P50,000 at a purchase price of P500,000 or (P450,000 + P50,000).
Problem XI
Present value of maturity value, 20 periods @ 6%: 0.3118 x P600,000 =

Present value of interest annuity, 20 periods @ 6%: 11.46992 x 30,000 =
Total Present value
Par value
Discount on bonds payable
Cash
Accounts Receivable
Inventory
Land
Buildings
Equipment
Bond Discount (P40,000 + P68,822)
Current Liabilities
Bonds Payable (P300,000 + P600,000)
Gain on Acquisition of Stalton (ordinary)
Computation of Excess of Net Assets Received Over Cost
P187,080
344,098
531,178
600,000
P68,822
114,000
135,000
310,000
315,000
54,900
39,450
108,822
95,300
900,000
81,872
Consideration transferred (P531,178 plus liabilities assumed of P95,300

and P260,000)
Less: Total fair value of assets received

Excess of fair value of net assets over cost
P886,478
P968,350
(P 81,872)
Problem XII
In accounting for the combination of NT and OTG, the fair value of the acquisition is allocated to
each identifiable asset and liability acquired with any remaining excess attributed to goodwill.
Consideration transferred (shares issued)
Fair value of net assets acquired:
Cash
Receivables
Trademarks
Record music catalog
In-process R&D
Equipment
Accounts payable
Notes payabl e
Goodwill
Entry by NT to record combination with OTG:
Cash
Receivables
Trademarks
Record Music Catalog
Capitalized R&D
Equipment
Goodwill
Accounts Payable
Notes Payable
Common Stock (NewTune par value)
Additional Paid-in Capital
(To record merger with OTG at fair value)
Additional Paid-in Capital
Cash
(Stock issue costs incurred)
P750,000
P29,000
63,000
225,000
180,000
200,000
105,000
(34,000)
(45,000)
723,000
P27,000
29,000
63,000
225,000
180,000
200,000
105,000
27,000
34,000
45,000
60,000
690,000
25,000
25,000
Post-Combination Balance Sheet:

Assets
Cash
Receivables
Trademarks
Record music catalog
Capitalized R&D
Equipment
Goodwill
Total
64,000
213,000
625,000
1,020,000
200,000
425,000
27,000
P 2,574,000
Liabilities and Owners Equity

Accounts payable
Notes payabl e
Common stock
Additional paid-in capital
Retained earnings
Total
P 144,000
415,000
460,000
695,000
860,000
P 2,574,000
Problem XIII
Stockholders Equity:
Common Stock, P1 par
Other Contributed Capital
Retained Earnings
Total stockholders Equity
P1,100,000
4,090,000 [P2,800,000 + (100,000 x P13) P10,000]
600,000
P 5,790,000
Problem XIV
Entry to record the acquisition on Pacificas records:
Cash
Receivables and inventory
PPE
Trademarks
IPRD
85,000
180,000
600,000
200,000
100,000
Goodwill
Liabilities
Common Stock (50,000 x P5)
Additional Paid-In Capital (50,000 x P15)
Contingent performance obligation
77,500
180,000
250,000
750,000
62,500
The goodwill is computed as:
Consideration transferred: 50,000 shares x P20

Contingent consideration:
P130,000 payment x 50% probability x 0.961538
P1,000,000
62,500
Total
P1,062,500
Less: Fair value of net assets acquired
(P85,000 + P180,000 + P600,000 + P200,000
+ P100,000 - P180,000)
985,000
Goodwill
P 77,500
Acquisition expenses
Cash
APIC
Cash
15,000
15,000
9,000
9,000
Note: The following amounts will appear in the income statement and statement of retained earnings
after business combination:
PP Inc.
Revenues
(1,200,000)
Expenses (P875,000 + P15,000)
890,000
Net income
(310,000)
Retained earnings, 1/1
(950,000)
Net income
(310,000)
Dividends paid
90,000
*(1,170,000)
* or, P1,185,000 P15,000 = P1,170,000
Problem XV
Acquisition MethodEntry to record acquisition of Sampras
Consideration transferred (fair value)
Fair value of net identifiable assets
Goodwill
P300,000
15,000
315,000
282,000
P33,000
Receivables
Inventory
Buildings
Equipment
Customer list
IPRD
Goodwill
Current liabilities
Long-term liabilities
Contingent performance liability
Cash
80,000
70,000
115,000
25,000
22,000
30,000
33,000
10,000
50,000
15,000
300,000
Acquisition expenses
Cash
10,000
Problem XVI
1.
a. The computation of goodwill is as follows:
Consideration transferred;
Common shares: 30,000 shares x P25
Notes payable
Contingent consideration (cash contingency):
P120,000 x 30% probability
Total
Less: Fair value of identifiable assets acquired and
liabilities assumed:
Cash
Receivables net
Inventories
Land
Buildings net
Equipment net
In-process research and development
10,000
P 750,000
180,000
36,000
P 966,000
24,000
48,000
72,000
240,000
360,000
300,000
60,000
Accounts payable
Other liabilities
Positive Excess - Goodwill
( 72,000)
( 168,000)
864,000
P
102,000
b. The journal entries by Peter Corporation to record the acquisition is as follows:

Cash
Receivables net
Inventories
Land
Buildings net
Equipment net
Goodwill
Accounts payable
Other liabilities
Notes payable
Estimated Liability for Contingent
Consideration
Common stock (P10 par x 30,000 shares)
Paid-in capital in excess of par
[(P25 P10) x 30,000 shares]
Acquisition of Saul Company.
24,000
48,000
72,000
240,000
360,000
300,000
60,000
102,000
62,000
168,000
180,000
36,000
300,000
450,000
Acquisition-related expenses
Cash
Acquisition related costs direct costs.
78,000

Cash
Acquisition related costs costs to issue and
register stocks.
32,400
Acquisition-related expenses
Cash
Acquisition related costs indirect costs.
27,600
78,000
32,400
27,600
c. The balance sheet of Pure Corporation immediately after the acquisition is as follows:
Pure Corporation
Balance Sheet
December 31, 20x4
Assets
Cash
Receivables net
Inventories
Land
Buildings net
Equipment net
Goodwill
Total Assets
162,000
144,000
360,000
348,000
840,000
732,000
60,000
102,000
P2,748,000

Liabilities
Accounts payable
Other liabilities
Notes payable
Estimated liability for contingent consideration
Total Liabilities
Stockholders Equity
Common stock, P10 par
Paid-in capital in excess of par1
Retained earnings2
Total Stockholders Equity
Total Liabilities and Stockholders Equity
1
P240,000 + P446,400 P32,400
2
P264,000 - P78,000 P27,600
P 288,000
408,000
180,000
36,000
P 912,000
P 1,020,000
657,600
158,400
P1,836,000
P2,748,000
It should be noted that under PFRS 3, in-process R&D is measured and recorded at fair value as an asset on the acquisition date. This
requirement does not extend to R&D in contexts other than business combinations.
2.
a. Assets that have been provisionally recorded as of the acquisition date are retrospectively
adjusted in value during the measurement period for new information that clarifies the
acquisition-date value. The adjustments affect goodwill since the measurement period is still
within one year (i.e., eight months) from the acquisition date. Therefore, the goodwill to be
reported then on the acquisition should be P78,000 (P102,000 P24,000).
b.
Buildings
24,000
Goodwill
24,000
Adjustment to goodwill due to measurement date.
3.
a. The
goodwill to be reported then on the acquisition should be P126,000 (P102,000 + P24,000).
b. The adjustment is still within the measurement period, the entry to adjust the liability would be:
Goodwill
Adjustment to goodwill due to measurement date.
24,000
24,000
c.
c.1. The goodwill remains at P126,000, since the change of estimate should be done only once
(last August 31, 20x5).
c.2. On November 1, 20x5, the probability value of the contingent consideration amounted to
P48,000, the entry to adjust the liability would be:

Gain on estimated contingent consideration
Adjustment after measurement date.
In this case, the measurement
12,000
12,000
period ends at the earlier of:
one year from the acquisition date, or

the date when the acquirer receives needed information about facts and circumstances (or
learns that the information is unobtainable) to consummate the acquisition.
c.3.
c.3.1. The goodwill remains at P126,000, since the change of estimate should be done only
once (last August 31, 20x5).
c.3.2. On December 15, 20x5, the entry would be:
Loss on estimated liability contingent

consideration
30,000
30,000
c.3.3.
c.3.3.1. P126,000.
c.3.3.2. On January 1, 20x7, Sauls average income in 20x5 is P270,000 and 20x6 is
P260,000, which means that the target is met, Peter Corporation will make the
following entry:

Loss on estimated contingent consideration
Cash
78,000
42,000
120,000
Settlement of contingent consideration.
4.
a. The amount of goodwill on acquisition will be recomputed as follows:
Notes payable
P120,000 x 35% probability x (1/[1 + .04]*)
750,000
180,000
40,385
Total
liabilities assumed (refer to 1a above)
Goodwill
P 970,385
864,000
P 106,385
b. The journal entries by Pure Corporation to record the acquisition is as follows:

Cash
24,000
Receivables net
48,000
Inventories
72,000
Land
240,000
Buildings net
360,000
Equipment net
300,000
60,000
Goodwill
106,386
Accounts payable
Other liabilities
Notes payable
Consideration
[(P25 P10) x 30,000 shares]
62,000
168,000
180,000
40,385
300,000
450,000
c.
c.1. Goodwill remains at P106,385.
c.2. The entry for Pure Corporation on December 31, 20x5 to record such occurrence would be:

Gain on estimated contingent consideration
40,385
40,385
Since the contingent event does not happen, the position taken by PFRS 3 is that the
conditions that prevent the target from being met occurred in a subsequent period and that
Peter had the information to measure the liability at the acquisition date based on
circumstances that existed at that time. Thus the adjustment will flow through income
statement in the subsequent period.
d. The entry by Peter Corporation on January 1, 20x7 for the payment of the contingent
consideration would be:

Loss on estimated contingent consideration
Cash [(P78,000 + P84,000)/2 P30,000] x 2
36,000
66,000
5.
a. The amount of goodwill on acquisition will be recomputed as follows:
102,000

Notes payable
P120,000 x 30% probability
Contingent consideration (stock contingency)
Total
Positive Excess Goodwill
P 750,000
180,000
36,000
18,000
P 984,000
864,000
P 120,000
b. The journal entries by Pure Corporation to record the acquisition is as follows:

Cash
24,000
Receivables net
48,000
Inventories
72,000
Land
240,000
Buildings net
360,000
Equipment net
300,000
60,000
Goodwill
120,000
Accounts payable
72,000
Other liabilities
168,000
Notes payable
180,000
36,000
Consideration
Paid-in capital for Contingent Consideration
18,000
300,000
Additional paid-in capital [(P25 P10) x 30,000
450,000
shares]
Acquisition of Saul Company.
c. Pure Corporation will make the following entry for the issuance of 1,200 additional shares:

18,000
12,000
6,000
6. On January 1, 20x7, the average income amounted to P132,000 (the contingent event occurs).
Thus, the entry record the occurrence of such event to reassign the P750,000 original consideration
to 36,000 shares (30,000 original shares issued + 6,000 additional shares due to contingency) would
be:

60,000
60,000
7. On January 1, 20x7, the contingent event happens since the fair value per share fall below P25.
Thus, the entry record the occurrence of such event to reassign the P750,000 original consideration
to 37,500 shares (30,000 original shares issued + 7,500* additional shares due to contingency)
would be:

75,000
75,000
* Deficiency: (P25 P20) x 25,000 shares issued to acquire..P150,000
Divide by fair value per share on January 1, 20x7.P

Added number of shares to issue.
20
7,500
8. The amount of goodwill on acquisition will be recomputed as follows:
Notes payable
Contingent consideration (stock contingency):
[(P750,000 P510,000) x 40% probability
x (1/[1 + .04]*)
Total
Positive Excess Goodwill
* present value of P1 @ 4% for one period.
The journal entries by Pure Corporation to record the acquisition is as follows:
Cash
24,000
Receivables net
48,000
Inventories
72,000
Land
240,000
Buildings net
360,000
Equipment net
300,000
60,000
Goodwill
158,308
Accounts payable
Other liabilities
Notes payable
[(P25 P10) x 30,000 shares]
P 750,000
180,000
92,308
P1,022,308
864,000
P 158,308
62,000
168,000
180,000
92,308
300,000
450,000
On December 31, 20x5, the contingent event occurs, wherein Peters stock price had fallen to P20,
thus requiring Peter to issue additional shares of stock to the former owners of Saul Corporation. The
entry for Peter Corporation on December 31, 20x5 to record such occurrence such event to
reassign the P750,000 original consideration to 37,500 shares (30,000 original shares issued + 7,500*
additional shares due to contingency) would be:

92,308
75,000
17,308
* Deficiency: (P25 P20) x 30,000 shares issued to acquire....P150,000
Divide by fair value per share on December 31, 20x5P

Added number of shares to issue
Problem XVII
1. The computation of bargain purchase gain is as follows:
Cash
Costs of liquidation
Patent
Contingent consideration (P12,000 guarantee
+ P14,400 to vendors)
Total
liabilities assumed:
Merchandise inventory
Accounts receivable
Copyrights
Equipment
Accounts payable
Loan payable
Negative Excess Bargain Purchase Gain
20
7,500
P 1,800,000
1,440,000
12,000
240,000
26,400
P3,518,400
P1,440,000
900,000
240,000
1.380,000
( 300,000)
( 120,000)
2. The journal entries by Ponder Corporation to record the acquisition is as follows:

Merchandise inventory
1,440,000
Accounts receivable
900,000
Patent
240,000
Equipment
1,380,000
Accounts payable
Loan payable
Cash
[(P12 P10) x 120,000 shares]
Gain on sale of Patent
Bargain purchase gain
Problem XVIII
1.
Consideration transferred:
3,540,000
P ( 21,600)
300,000
120,000
1,812,000
1,200,000
240,000
240,000
26,400
21,600
Shares: 2/3 x 60,000 x P3.20

Cash
Accounts payable
Mortgage and interest
Debentures and premium
Liquidation expenses
Cash held
Less: Fair value of assets and liabilities acquired:
Accounts receivable
Inventory
Freehold land
Buildings
Plant and equipment
128,000
45,100
44,000
52,500
2,400
144,000
(12,000)
P34,700
39,000
130,000
40,000
46,000
132,000
260,000
289,700
29,700
Homer Ltd
Accounts Receivable
Inventory
Freehold Land
Buildings
Plant and Equipment
Payable to Tan Ltd
Common stock, P1 par x 40,000 shares
Additional paid-in capital
Gain on acquisition
(Acquisition of net assets of
Tan Ltd and shares issued)
Payable to Tan Ltd
Cash
(Being payment of cash consideration)
Cash
(Being costs of issuing shares)
34,700
39,000
130,000
40,000
46,000
132,000
40,000
88,000
29,700
132,000
132,000
1,200
1,200
2.
Tan LTD
Accounts Receivable
Inventory
Freehold Land
Buildings
Plant and Equipment
Goodwill
Interest Payable
Liquidation Expenses
Premium on Debentures
Accounts Payable
Shareholders Distribution
Opening Balance
Receivable from Homer Ltd
Shares in Homer Ltd
General Ledger
Liquidation
P
34,700 Additional paid in capital
27,600 Retained earnings
100,000 Receivable from Homer Ltd
30,000
46,000
2,000
4,000
2,400
2,500
1,600
68,000
318,800
Liquidators Cash
P
12,000 Liquidation Expenses
132,000 Mortgage and Interest
Debentures and Premium
Accounts Payable
144,000
Shareholders Distribution
P
128,000 Common stock
Liquidation
128,000
Problem XIX
Cash
Accounts Receivable
Inventory
Land
Plant Assets
Discount on Bonds Payable
Goodwill*
Accounts Payable
Bonds Payable
Deferred Income Tax Liability
Cash
P
26,800
32,000
260,000
318,800
P
2,400
44,000
52,500
45,100
144,000
P
60,000
68,0000
128,000
20,000
112,000
134,000
55,000
463,000
20,000
127,200
10,000
54,000
200,000
67,200
600,000
P600,000
(P784,000 P10,000 P54,000 P180,000 - P67,200*)
472,800
Goodwill
P127,200
* Increase in net assets
Increase inventory, land, and plant assets to fair value
P52,000 + P25,000 + P71,000)
Decrease bonds payable to fair value
Increase in net assets
Establish deferred income tax liability (P168,000 x 40%)
P148,000
( 20,000)
P168,000
P 67,200

1. c
Finders fees.P 40,000
Legal fees. 13,000
Total expenses. P53,000
Acquisition-related costs. Acquisition-related costs are costs the acquirer incurs to effect a
business combination. Those costs include finders fee; advisory, legal, accounting, valuation
and other professional or consulting fees; general administrative costs, including the costs of
maintaining an internal acquisitions department; and costs of registering and issuing debt and
equity securities. Under PFRS 3 (2008), the acquirer is required to recognize acquisitionrelated costs as expenses in the periods in which the costs are incurred and the services are
received, with one exception, i.e. the costs to issue debt or equity securities are recognized in
accordance with PAS 32 (for equity) and PAS 39 (for debt).
2. b refer to No. 1 for further discussion.
Audit fees related to stock issuanceP 10,000
Stock registration fees...... 5,000
Stock listing fees......... 4,000
P19,000
3. b
Consideration transferred (fair value)..
Less: Fair value of net identifiable assets acquired:
Fair value of assets
Less: Present value/ Fair Value of liabilities
Goodwill
P80,000
P 98,000
23,000
75,000
P 5,000
A net identifiable asset means net assets excluding goodwill (unidentifiable asset).
An acquisition-related costs are considered outright expenses.
4. a
5. b
Fair value of identifiable assets
Cash
A/R
Software
In-process R&D
P800,000
P150,000
140,000
320,000
200,000
Liabilities
Fair value of net identifiable assets acquired
Goodwill
(130,000)
680,000
P120,000
The application of recognition measurements in business combination means that an acquirer

must, in recognizing separately the acquirers intangible assets, recognize intangible assets that
the acquiree has not recognized in its records, such as in-process research and development that
cannot be recognize under PAS 38 as internally generated assets. As noted in par 34, recognition
by an acquirer of an acquirees in-process research and development project only depends
whether the project meets the definition of an intangible asset. It can be seen that intangible
assets in a business combination will be able, and in fact are required, to recognize intangible
assets that are not separately recognizable when acquired by other means. The costs on
individual assets acquired are measured but reference to the fair value of those assets.
Therefore, In-Process Research and Development is capitalized as an asset of the combination
and reported as intangible assets with indefinite lives subject to impairment reviews.
6. c - [(24,000 shares x P30) P686,400] = P33,600
7. d - [(24,000 shares x P30) (P270,000 + P726,000 P168,000)] = P108,000, gain
8. d [P500,000 (P200,000 + P220,000 P110,000)]= P190,000
9. d 10. c
A bargain purchase is a business combination in which the net fair value of the identifiable assets
acquired and liabilities assumed exceeds the aggregate of the consideration transferred.
It should be noted that bargain purchase gain would arise only in exceptional circumstances.
Therefore, before determining that gain has arisen, the acquirer has to:
1. Reassess whether it has correctly identified all of the assets acquired and all of the
liabilities assumed. The acquirer should recognize any additional assets or
liabilities that are identified in that review.
2. Any balance should be recognized immediately in profit or loss.
11. d [P1,600,000 P1,210,000] = P390,000
12. d
13. c [(12,000 shares x P30) P343,200 = P16,800
14. b (P863,000 + P363,000) = P1,226,000
15. a
16. d
P215,000
= P130,000 + P85,000
17. b
1
8.
P23,000
P1,109,00
0
= P198,000 (P405,000 - P265,000 + P15,000 +

P20,000)
= Total Assets of TT Corp.
Less: Investment in SS Corp.
Book value of assets of TT Corp.
Book value of assets of SS Corp.
Total book value
Payment in excess of book value
P 844,000
(198,000)
P 646,000
405,000
P1,051,000
(P198,000 - P140,000)
Total assets reported
58,000
P1,109,000
19. c
P701,500
= (P61,500 + P95,000 + P280,000) + (P28,000 +

P37,000
+P200,000)
20. d
P257,500
= The amount reported by TT Corporation
21. a
P407,500 = The amount reported by TT Corporation
22. b [(P47 x 12,000 shares) (P70,000 + P210,000 + P240,000 + P270,000 + P90,000
P420,000)
= P104,000
23. d
APIC: P20,000 + [(P42 P5) x12,000 = P464,000
Retained earnings: P160,000, parent only
24. b
Inventory: PP230,000 + P210,000 = P440,000
Land: P280,000 + P240,000 = P520,000
25. b [P480,000 (P70,000 + P210,000 + P240,000 + P270,000 + P90,000 P420,000)] = P20,000
26. c (P50,000 + P8,000 + P100,000 = P158,000)
The acquirer should recognize, separately from goodwill, the identifiable assets acquired in a
business combination. [PFRS 3 (2008).B31]
A patent that have no useful life is not considered an asset.
An intangible is separable if it capable of being separated or divided from the entity and sold,
transferred, licensed, rented or exchanged, either individually together with a related
contract[PFRS 3(2008).B33]
The amount by which the lease terms are favorable compared with the terms of current market
transactions for the same or similar items is an intangible assets that meets the contractual-legal
criterion for recognition separately from goodwill, even though the acquirer cannot sell or
otherwise transfer the lease contract. [PFRS 3 (2008).B32 (a)]
Customer and subscriber lists are frequently licensed and thus meet the separability criterion.
[PFRS 3(2008).B33].
It may seem that the terms research and development, which may be associated with such
assets as patent and software development, are not applicable to all internally intangibles, such as
brand names. However, it needs to be remembered that all intangible assets must meet the
identifiability criterion, one part of which is separability.
27. c [P400 + (40 shares x P10)] = P800
28. d [P1,080 + (P280 + P10) = P1,370
29. b [P1,260 + (P440 + P60) = P1,760
30. a [P600 + (P360 + P40)] = P1,000
31. e [P480 + P100] = P580
32. b [P330 + (40 shares x P1)] = P370
33. d [P1,080 + 40 shares x (P10 - P1)] P15, stock issuance costs = P1,425
34. a [P180 + P40 P20 P15} =P185
35. c [(50,000 shares x P 35) + P5,000] = P1,755,000
36. d [P1,230,000 + P580,000] = P1,810,000
37. c - [P1,800,000 + P250,000] = P2,050,000
38. e (P1,800,000 + P650,000]= P2,450,000
39. c [P1,755,000 (P240,000 + P600,000 + P580,000 + P250,000 + P650,000 + P400,000
- P240,000 P60,000 P1,120,000)] = P455,000
40. e [P660,000 + P400,000} = P1,060,000
41. d
Retained earnings Atwood, January 1, 20x4
P1,170,000
Add: Net income 20-x4
Revenues
P2,880,000
Less: Expenses
2,760,000
Direct costs
10,000
110,000
Retained earnings Atwood, December 31, 20x4
P1,280,000
42. c P2,880,000, parent only on the date of combination
43. c (P2,760,000 + P10,000) = P2,770,000
44. d [(P870,000 P15,000 P10,000) + P240,000] = P1,085,000
45. a
PFRS 3 (2008 requires that, at the acquisition date, the identifiable assets acquired and liabilities
assumed should be designated as necessary to apply other PFRSs subsequently. The acquirer
makes those classifications or designations on the basis of contractual terms, ... as they exist at the
acquisition date [PFRS 3 (2008).15]
Since, the patent was not recorded separately as identifiable intangible asset on the date of
acquisition, and then no amount of patent should be subsequently recognized.
46. c
AA records new shares at fair value

Value of shares issued (51,000 P3)........................................................
Par value of shares issued (51,000 P1) ..................................................
Additional paid-in capital (new shares) .................................................
Additional paid-in capital (existing shares) ............................................
Consolidated additional paid-in capital ................................................
P153,000
51,000
P102,000
90,000
P192,000
At the date of acquisition, the parent makes no change to retained earnings.
47. c
Common stock combinedP 160,000
Common Acquirer Zyxel.. . 100,000
Common stock issued...P 60,000
Divided by: Par value of common stock.P
2
Number of Zyxel shares to acquire Globe Tattoo..... 30,000
48. d
Paid-in capital books of Zyxel (P100,000 + P65,000)........P 165,000
Paid-in capital in the combined balance sheet
(P160,000 + P245,000). 405,000
Paid-in capital from the shares issued to acquire Globe Tattoo... P 240,000
Divided by: No. of shares issued (No. 31).....
30,000
Fair value per share when stock was issued.... P
8
Or,
Par value of common stock of Zyxel
P
Add: Share premium/APIC per share from the additional
issuance of shares (P245,000 P65,000)/30,000............
Fair value per share when stock was issued....... P
2
6
8
49. b
Net identifiable assets of Zyxel before acquisition:
(P65,000 + P72,000 + P33,000 + P400,000 P50,000
- P250,000).
P270,000
Net identifiable assets in the combined balance sheet:
(P90,000 + P94,000 + P88,000 + P650,000 P75,000 - P350,000).......... 497,000
Fair value of the net identifiable assets held by Globe Tattoo
at the date of acquisition.... P227,000
50. a
Consideration transferred (30,000 shares x P8) P240,000
Less: Fair value of net identifiable assets acquired (No. 49)....
227,000
Goodwill.. P
13,000
51. c
Retained earnings:
Acquirer Zyxel (at book value).... P105,000
Acquiree Globe Tattoo (not acquired)
__
0
P105,000
It should be noted that, there was no bargain purchase gain and acquisition-related costs
which may affect retained earnings on the acquisition date.
52. b
(P60,000 + P175,000 + P200,000 + P225,000 + P75,000 P100,000)
Goodwill
P400,000
385,000
P 15,000
53. a
Only the subsidiarys post-acquisition income is included in consolidated totals.
54. d
Cost
P180,000
Less: Accumulated depreciation (P180,000/30 years = P6,000/year x 3 yrs)
18,000
Net book value
P162,000
55. c
Net Assets [P100,000 + P50,000 + P162,000 (No. 54)]

Less: Shares issued at par (15,000 shares x P10 par)
APIC
P312,000
150,000
P162,000
56. b
PFRS No. 3 par. 62 states that: If the initial accounting for business combination can be
determined only provisionally by the end of the period in which the combination is effected because
either the fair values to be assigned to the acquirees identifiable assets, liabilities, or contingent
liabilities or the cost of the combination can be determined only provisionally, the acquirer shall
account for the combination using those provisional values. The acquirer shall recognize any
adjustments to those provisional values as a result of completing the initial accounting:
(a) within twelve months of the acquisition date; and
57. c
The consideration transferred should be compared with the fair value of the net assets
acquired, per PFRS3 par. 32. The gain of P8 million results from a bargain purchase and
should be recognized in profit or loss, per PFRS3 par. 34.
58. b
The consideration transferred should be compared with the fair value of the net assets
acquired, per PFRS3 par 32. When provisional fair values have been identified at the
first reporting date after the acquisition, adjustments arising within the measurement
period (a maximum of 12 months from the acquisition date) should be related back to
the acquisition date. Subsequent adjustments are recognized in profit or loss, unless they
can be classified as errors under PAS8 Accounting policies, changes in accounting
estimates and errors. See PFRS 3 pars. 45 and 50. The final amount of goodwill is P160
million consideration transferred less P135 million fair values on May 31, 20x5 = P25
million.
59. c
Fair value of Subsidiary - Homer
Consideration transferredP 200 million
Add: Fair value of contingent consideration
10 million
Fair value of subsidiary P 210 million
Less: Fair value of identifiable assets and liabilities of Homer............... 116 million
Goodwill P 94
million
Note: The consideration transferred should be compared with the fair value of the net assets
acquired, per PFRS3 par. 32. The contingent consideration should be measured at its fair
value at the acquisition date; any subsequent change in this cash liability comes under PAS
39 Financial instruments: recognition and measurement and should be recognized in profit
or loss, even if it arises within the measurement period. See PFRS3 pars. 39, 40 and 58.
60. b
61. c
62. c
63. b
64. d
Shares: (100,000 shares x P6.20)
P620,000
Contingent consideration .
184,000
Total .
P804,000
Less: Fair value of net identifiable assets acquired:
Current assets P100,000
Equipment 150,000
Land
50,000
Buildings . 300,000
Liabilities . ( 80,000) 520,000
Goodwill.
P284,000
The P184,000 is one classical example of contingencies is where the future income of the
acquirer is regarded as uncertain; the agreement contains a clause that requires the acquirer to
provide additional consideration to the acquiree if the income of the acquirer is not equal to or
exceeds a specified amount over some specified period.
65. d
Goodwill, 1/1/20x4............ P 284,000
Less: Adjustment on contingent consideration (P184,000 P170,000) 14,000
Goodwill, 8/1/20x4............. P 270,000
Changes that are the result of the acquirer obtaining additional information about facts and
circumstances that existed at the acquisition date, and that occur within the measurement
period (which may be a maximum of one year from the acquisition date) are recognized as
adjustments against the original accounting for the acquisition (and so may impact goodwill)
see Section 11.3.[PFRS 3 (2008) par. 58]
Incidentally, the entry to record the revision of goodwill should be:
Estimated liability for contingent consideration. 14,000
Goodwill
14,000
66. a refer to No. 64 and 65 for further discussion.
67. c
Deficiency: (P16 P10) x 100,000 shares issued to acquireP 600,000
Divided by: Fair value of share...... P
10
Added number of shares to issue.....
60,000
68. (b) (P520,000 P60,000 = P460,000)
Changes resulting from events after (post-combination changes) the acquisition date (e.g. meeting
an earnings target, reaching a specified chare or reaching a milestone on research and
development project) are not measurement period adjustments. Such changes are therefore
accounted for separately from the business combination. The acquirer accounts for changes in the
fair value of contingent consideration that are not measurement period adjustments as follows:
1. contingent consideration classified as equity is not remeasured and its subsequent

settlement is accounted for within equity; and
2. contingent consideration classified as an asset or liability
The problem on hand falls within No. 1, so no adjustment would be required to goodwill but
accounted for within the equity section.
Incidentally, the entry would be:
Paid-in capital in excess of par.. 60,000
Common stock, P1 par..
60,000
69. c
Par value of shares outstanding before issuance
Par value of shares outstanding after issuance
Par value of additional shares issued
Divided by: No. of shares issued*
Par value of common stock
*Paid-in capital before issuance (P200,000 + P350,000)
Paid-in capital after issuance (P250,000 + P550,00)
Paid-in capital of share issued at the time of exchange
Divided by: Fair value per share of stock
Shares issued
P200,000
250,000
P 50,000
__12,500
P
4
P 550,000
800,000
P 250,000
P
20
12,500
70. a
Consideration transferred: Shares 12,500 shares
Less: Goodwill
Fair value of identifiable net assets acquired
P250,000
56,000
P194,000
71. c
Depreciation expense:
Building, at book value (P200,000 P100,000) / 10 years
Building, undervaluation (P130,000, fair value
P100,000, book value) / 10 years
Equipment, at book value (P100,000 P50,000) / 5 years
Equipment, undervaluation (P75,000, fair value
- P50,000, book value) / 5 years
Total depreciation expense
P 10,000
3,000
10,000
5,000
P 28,000
72. d
PFRS 3 (2008) par. 18 requires an identifiable assets and liabilities assumed are measured at
their acquisition-date fair values.
73. c
Selling price
Less: Book value of Comb (P50,000 + P80,000 + P40,000
- P30,000)
P 110,000
140,000
Loss on sale of business by the acquiree (Comb)
P( 30,000)
74. a
Blue Town:
Stockholders equity before issuance of shares (P700,000 + P980,000) P1,680,000
Issued shares: 34,000 shares x P35
1,190,000
Consolidated SHE/Net Assets
P2,870,000
75. No available answer - P115,000
Cost of Investment (100,000 shares x P1.90)
Less: Market value of net assets acquired:
Cash
Furniture and fittings
Accounts receivable
Plant
Accounts payable
Current tax liability
Liabities
Goodwill
P 190,000
P 50,000
20,000
5,000
25,000
(15,000)
( 8,000)
( 2,000)
75,000
P 115,000
76. b
Cost of Investment [P20,000 + (16,000 shares x P2.50)
+ P500, incidental costs)
P 60,500
Less: Market value of net assets acquired:
Plant
P 30,000
Inventory
28,000
Accounts receivable
5,000
Plant
20,000
Accounts payable
( 20,000)
58,000
Goodwill
P 2,500
When it liquidates, costs of liquidation paid by the acquiree should be for the liquidation
account of the acquiree and will eventually be transferred to shareholders equity account. Any
costs of liquidation paid or supplied by the acquirer should be capitalized as cost of acquisition
which is consistent with the cost model under PFRS No. 3 in measuring the cost of the
combination.
Any direct costs of acquisition should be capitalizable under the cost model reiterated in PFRS
No. 3 Phase I. This model in PFRS No. 3 will be amended under Phase II (pending
implementation possibly until early 2008), wherein all direct costs will be outright expense.
Costs of issuing shares will be debited to share premium or APIC account.
Any costs of liquidation paid or supplied by the acquirer should be capitalized as cost of
acquisition which is consistent with the cost model under PFRS No. 3 in measuring the cost of the
combination.
The fair values of liabilities undertaken are best measured by the present values of future cash
outflows.
Intangible assets are recognized when its fair value can be measured reliably.
Assets other than intangible assets must be recognized if it is probable that the future economic
benefits will flow to the acquirer and its fair value can be measured reliably.
77. c
Shares: 2/3 x 60,000 x P3.20
Cash
Accounts payable
Mortgage and interest
Debentures and premium
Liquidation expenses
128,000
45,100
44,000
52,500
2,400
144,000
(12,000)
Cash held
Less: Fair value of assets and liabilities acquired:
Accounts receivable
Inventory
Freehold land
Buildings
Plant and equipment
P34,700
39,000
130,000
40,000
46,000
132,000
260,000
289,700
29,700
78. d
79. c
CC_____
Total______
Assets, appraised value
Add: Goodwill:
Annual earnings
P150,000
Less: Normal earnings
6% x Assets
Excess earnings
/ capitalized at
Goodwill
Total stock to be issued
Percentage
P375,000
DD_______
P750,000
P41,250
22,500
P18,750
20%
P93,750
P468,750
P468,750
1,800,000
26%
EE
P375,000
P75,000
45,000
P30,000
20% _
P150,000
P900,000
P900,000
1,800,000
50%
P1,500,000
P33,750
22,500
P11,250
90,000
P60,000
20%__
20%__
P56,250
P300,000
P431,250
P1,800,000
P431,250
431,250
24%
(c)
80. a
II ____
Average annual earnings
P 46,080
Divided by: Capitalized at
Total stock to be issued
Less: Net Assets (for P/S)
Goodwill (for Common Stock)
Preferred stock (same with Net Assets):
864,000/P100 par
_____JJ
_
P 69,120
____Total____
P 115,200
_
10%
P1,152,000
864,000
P 288,000
8,640 shares
81. c
Theories
1.
2.
3.
4.
5.
a
a
c
d
d
6.
7.
8.
9.
10,
c
d
d
d
c
11.
12.
13.
14.
15,
d
d
b
d
b
16.
17.
18.
19.
20.
c
c
c
a
d
21.
22.
23.
24.
25.
d
c
b
b
b
Chapter 15
Problem I
Investment in Shy Inc. [P2,500,000 + (15,000 P40)]
Cash
Common Stock
Other Contributed Capital (P40 - P2) 15,000
Other Contributed Capital

Acquisition Expense
Deferred Acquisition Charges
Acquisition Costs Payable
26.
27.
28.
29.
30.
d
b
a
d
a
31
32.
33.
34.
35.
c
b
b
b
b
36.
37.
38.
39.
40.
c
b
c
c
c
3,100,000
2,500,000
30,000
570,000
30,000
67,000
90,000
7,000
Problem II
Cash: P74,000 = P44,000 + P30,000
Accounts receivable: P155,000 = P110,000 + P45,000
Inventory: P215,000 = [P130,000 + P70,000 + (P85,000 P70,000)]
Land: P125,000 = [P80,000 + P25,000 + (P45,000 P25,000)]
Buildings and equipment: P900,000 = P500,000 + P400,000
Accumulated depreciation: P388,000 = P223,000 + P165,000
Goodwill (full-goodwill) = P40,000*
Total Assets = P1,121,000 = (P74,000 + P155,000 + P215, 000 + P125,000 + P900,000 P388,000 +
P40,000, or:
Total Assets of Power Corp.
P 791,500
Less: Investment in Silk Corp.
(150,500)
P 641,000
Book value of assets of Silk Corp.
405,000
Book value reported by Power and
Silk
P1,046,000
Increase in inventory (P85,000 - P70,000)
15,000
Increase in land (P45,000 - P25,000)

Goodwill
Total assets reported (based on fullgoodwill)
20,000
40,000
P1,121,000
Accounts payable: P89,500 = P61,500 + P28,000

Taxes payable P132,000 = P95,000 + P37,000
Bonds payable: P480,000 = P280,000 + P200,000
Total liabilities: P701,500 = P89,500 + P132,000 + P480,000
Common stock: P150,000, parent only
Retained earnings: P205,000, the amount reported by parent
Non-controlling interest (full-goodwill): P64,500*
Stockholders equity: P419,500
Consolidated SHE:
Common stock
P150,000
Retained Earnings
205,000
Parents SHE or Equity Attributable to Parent
P355,000
NCI (full-goodwill)
64,500
Consolidated SHE
P419,500
Computation of Goodwill:
Full-goodwill:
Fair value of Subsidiary:
Add: FV of NCI
Less: BV of SHE of SS (P50,000 + P90,000) x 100%
Allocated excess
Less: Over/under valuation of A and L: Inc. (Dec.)
Inventory (P70,000 P85,000) x 100%
Land (P25,000 P45,000) x 100%
Goodwill full
P150,500
**64,500
P 15,000
20,000
P215,000
140,000
P 75,000
35,000
P 40,000
**given amount, but it should not be lower than the fair value of SHE
subsidiary amounting to
P52,500 computed as follows :
FV of SHE of SS:
Book value of SHE of SS (P50,000 + P90,000).P 140,000
Adjustments to reflect fair value (P15,000 + P20,000)
35,000
FV of SHE of SS
P 175,000
Multiplied by: NCI%..........................................................
30%
FV of NCI (partial)..P 52,500
or,
Partial Goodwill
Less: BV of SHE of SSD (P50,000 + P90,000) x 70%
Allocated excess
Inventory (P15,000 x 70%)
Land (P20,000 x 70%)
Goodwill partial
P150,500
__98,000
P 52,500
P 10,500
14,000
24,500
P 28,000
If partial-goodwill:
Total Assets = P1,109,000 = (P74,000 + P155,000 + P215,000 + P125,000 + P900,000 P388,000 +
P28,000,
Non-controlling interest (partial-goodwill): P52,500
NCI
FV of SHE of SSD:
35,000
FV of SHE of SSD
P 175,000
30%
Consolidated SHE:
Common stock
Retained Earnings
NCI (partial-goodwill)
Consolidated SHE
Problem III
1.
A.
Investment in Sewell
Cash
B.
C.
P150,000
205,000
P355,000
52,500
P404,500
675,000
675,000
Cash
675,000
Cash
318,000
675,000
318,000
2.
A.
Less: BV of SHE of S (P450,000 + P180,000 + P75,000)x100%
Allocated excess
Inventory (P30,000 P20,000) x 100%
Land (P50,000 P70,000) x 100%
Bargain Purchase Gain full
P675,000
705,000
P( 30,000)
(P10,000)
__20,000
__10,000
(P 40,000)
B.
Partial Goodwill
Less: BV of SHE of S (P450,000 + P180,000 + P75,000) x 90%
Allocated excess
Inventory (P30,000 P20,000) x 90%
Land (P50,000 P70,000) x 90%
Goodwill partial
Full-Goodwill
P675,000
634,500
P 40,500
(P9,000)
__18,000
__9,000
P 31,500

Consideration transferred (P675,000/90%)
Less: BV of SHE of S (P450,000 + P180,000 + P75,000)x100%
Allocated excess
Inventory (P30,000 P20,000) x 100%
Land (P50,000 P70,000) x 100%
Goodwill full
P750,000
705,000
P 45,000
(P10,000)
__20,000
__10,000
P 35,000
C.
Partial Goodwill
Allocated excess
Inventory (P30,000 P20,000) x 80%
Land (P50,000 P70,000) x 80%
Bargain Purchase Gain partial (parent only)
P318,000
624,000
(P306,000)
(P 8,000)
__16,000
Full-Goodwill
FV of NCI*
Allocated excess
Inventory (P30,000 P20,000) x 100%
Land (P50,000 P70,000) x 100%
Bargain Purchase Gain full (parent only)
*BV of SHE of S
Adjustments to reflect fair value
FV of SHE of S
x: NCI%
FV of NCI
__8,000
(P314,000)
P 318,000
_158,000
P 476,000
780,000
(P304,000)
(P10,000)
__20,000
_10,000
(P314,000)
P780,000
10,000
P790,000
20%
P158,000
3.
A.
Common Stock Sewell
Other Contributed Capital Sewell
Retained Earnings Sewell
Land
Inventory
Retained earnings (gain) Parent (since
balance sheet accounts are being
examined)
450,000
180,000
75,000
20,000
10,000
675,000
40,000
B.
Partial-Goodwill (Proportionate Basis)
Common Stock Sewell
450,000
180,000
75,000
Land
Goodwill
Inventory
Non-controlling Interest
BV SHE of Sewell
(P450,000 + P180,000 + P75,000)
FV of SHE of Sewell
x: NCI%
FV of NCI (partial)
Full-Goodwill (Fair Value Basis)
Common Stock Sewell
Land
Goodwill
Inventory
BV SHE of Sewell
(P450,000 + P180,000 + P75,000)
FV of SHE of Sewell
x: NCI%
FV of NCI (partial)
NCI on Full-Goodwill
(P35,000 P31,500)
FV of NCI (full)
20,000
31,500
10,000
675,000
71,500
P705,000
10,000
P715,000
10%
P 71,500
450,000
180,000
75,000
20,000
35,000
10,000
675,000
75,000
P705,000
10,000
P715,000
10%
P 71,500
3,500
P 75,000
C.
Partial-Goodwill (Proportionate Basis)
Common Stock Sewell
620,000
140,000
20,000
Land
20,000
Inventory
Retained earnings (gain)Parent (refer to 3A)
BV SHE of Sewell
(P620,000 + P140,000 + P20,000) P780,000
10,000
FV of SHE of Sewell
P790,000
x: NCI%
20%
FV of NCI (partial)
P158,000
Full-Goodwill (Fair Value Basis)
Common Stock Sewell
Land
620,000
140,000
20,000
20,000
10,000
318,000
314,000
158,000
Inventory
Retained earnings (gain)Parent (refer to 3A)
BV SHE of Sewell
(P620,000 + P140,000 + P20,000) P780,000
10,000
FV of SHE of Sewell
P790,000
x: NCI%
20%
FV of NCI (full)
P158,000
10,000
318,000
314,000
158,000
Problem IV
1.
January 1, 20x4
Investment in S
Company
408,000
408,000
Cash..
2.
Schedule of Determination and Allocation of Excess
Date of Acquisition January 1, 20x4
Fair value of Subsidiary (100%)

Consideration
transferred..
Less: Book value of stockholders equity of S:
Common stock (P240,000 x
100%)..
Paid-in capital in excess of par (P24,000 x
100%)...
Retained earnings (P96,000 x
100%)...
Allocated excess (excess of cost over book
value)
Less: Over/under valuation of assets and
liabilities:
Increase in inventory (P18,000 x
100%)..
Increase in land (P72,000 x
100%)
Decrease in buildings and equipment
(P12,000 x
100%)...
Increase in bonds payable (P42,000 x
100%)..
P
408,000
P 240,000
24,000
96,000 360,000
P
48,000
P 18,000
72,000
( 12,000)
( 42,000)
36,000
Positive excess: Goodwill (excess of cost over fair

P
12,000
value)..
3.
(E1) Common stock S

Co.
Additional paid-in capital S
Co.
Retained earnings S
Co...
Investment in S
Co
240,000
24,000
96.000
360,000
Eliminate investment against stockholders equity of S Co.
(E2)
18,000
Inventory.
72,000
Land.
12,000
Goodwill.
Buildings and
12,000
equipment..
Premium on bonds
42,000
payable
Investment in S
48,000
Co..
Eliminate investment against allocated excess.
4.
Eliminations
Assets
Cash* .
Accounts receiv able..
P Co.
S Co.
12,000
P 60,000
Dr.
Consolidated
P
90,000
60,000
Inv entory.
120,000
72,000
(2) 18,000
Land.
210,000
48,000
(2) 72,000
Buildings and equipment (net)
480,000
360,000
Goodwill
Inv estment in S Co.
408,000
Total Assets
Cr.
72,000
150,000
210,000
330,000
(2)
12,000
(2) 12,000
828,000
12,000
(1) 360,000
(2) 48,000
P1,320,000
P600,000
P1,602,000
Accounts payable
P 120,000
P120,000
P 240,000
Bonds payable
240,000
120,000
360,000
Premium on bonds payable

(3)
600,000
42,000
42,000
600,000

Paid in capital in excess of par.
240,000
(1) 240,000
60,000
60,000
24,000
(1) 24,000
Retained earnings
_________
96,000
Total Liabilities and Stockholders
Equity
P1,320,000
P600,000
(1) Eliminat e invest ment agai nst st ockholders equit y of S Co.
(2) Eliminat e invest ment against allocat ed excess.
* P420,000 P408,000 = P12,000.
(1) 96,000
__________
_________
P 462,000
P 462,000
P1,602,000
Retained earnings
300,000
300,000
5.
Assets
Cash
Accounts receiv ables
Inv entories
Land
Goodwill
Total Assets
Liabilities
Accounts payable
Bonds payable
Total Liabilities
Stockholders Equity
Retained earnings
72,000
150,000
210,000
330,000
828,000
12,000
P1,602,000
P 240,000
P 360,000
42,000
402,000
P 642,000
P 600,000
60,000
300,000
P 960,000
P1,602,000
Problem V
1.
January 1, 20x4
(1) Investment in S
Company
432,000
288,000
Cash..
Common stock, P10
par..
Paid-in capital in excess of
par.
(2) Retained earnings (acquisition-related expense - close
to
retained earnings since only balance sheets are
being
examined)
120,000
24,000
12,000
12,000
Cash.
Acquisition- related costs.
(3) Paid-in capital in excess of

par..
8,400
8,400
Cash.
Cost s t o issue and register stocks.
2.

Cash.
Common stock: 12,000 shares x P12 per
share..
100%)..
100%)..
100%)...
value)
Add: Existing Goodwill of Sky Co. (P6,000 x
100%)
Adjusted allocated
excess.
liabilities:
100%)..
100%)
(P12,000 x
100%)...
100%)..
P 288,000
P
144,000 432,000
P 240,000
96,000
24,000 360,000
P
72,000
6,000
P
78,000
P 18,000
72,000
( 12,000)
( 42,000)
36,000
P
42,000
value)..
Alternatively, the unrecorded goodwill may also be comput ed by ignoring the existing goodwill in
the books of the subsidiary, thus:
Date of Acquisition January 1, 20x4 (refer to previous table for details of computation)

Consideration
transferred
Less: Book value of stockholders equity of
S..
value).
liabilities
value)...
Add: Existing
Goodwill
P
432,000
360,000
P
72,000
36,000
P
36,000
6,000
value)
P
42,000
3.
Eliminations
P Co.
S Co.
111,600
P 54,000
P 165,600
90,000
60,000
150,000
Inv entory.
120,000
72,000
(2) 18,000
210,000
Land.
210,000
48,000
(2) 72,000
330,000
480,000
360,000
Assets
Cash* ..
Goodwill
Inv estment in S Co.
Total Assets
6,000
Dr.
Cr.
(2)
12,000
(2) 36,000
432,000
Consolidated
828,000
42,000
(4) 360,000
(5) 72,000
P1,443,600
P600,000
P1,725,600
Accounts payable
P 120,000
P120,000
P 240,000
Bonds payable
240,000
120,000
360,000

Common stock, P10 par* *..
(6)
720,000

Additional paid in capital***
Retained earnings
(1) 240,000
75,600
75,600
24,000
(1) 24,000
96,000
(1) 96,000
288,000
_________
42,000
720,000
240,000
Additional paid in capital

Retained earnings****
42,000
288,000
__________
_________

Equity
P1,443,600
P600,000
(1) Eliminat e invest ment against st ockholders equit y of Sky Co.
* P420,000 P288,000 P12,000 P8,400 = P111,600.
* * P600,000 + P120,000 (12,000 shares x p10 par) = P720,000.
* * * P50,000 + P20,000 P7,000 = P63,000.
* * * * P300,000 P12,000 = P288,000.
P 486,000
P 486,000
P1,725,600
4.
Assets
Cash
Inv entories
Land
Goodwill
Total Assets
Liabilities
Accounts payable
Bonds payable
Total Liabilities
Stockholders Equity
Additional paid-in capital in excess of par
Retained earnings
165,600
150,000
210,000
330,000
828,000
42,000
P1,725,600
P 360,000
42,000
P 240,000
402,000
P 642,000
P 720,000
75,600
288,000
P 1083,600
P1,725,600
Problem VI
1.

Consideration transferred (P408,000
P6,000)..
100%)..
100%)...
100%)...
value)
liabilities:
100%)..
P
402,000
P 240,000
96,000
24,000 360,000
P
42,000
P 18,000

100%)
(P12,000 x
100%)...
100%)..
72,000
( 12,000)
( 42,000)
value)..
36,000
P
6,000
2. Goodwill, P6,000
Problem VII
1.

Common stock: 24,000 shares x P14
per share
Less: Book value of stockholders equity
of Sky:
100%)..
(P96,000 x 100%)...
100%)...
Allocated excess (excess of book value
over cost)
liabilities:
100%)..
100%)
Decrease in buildings and
equipment
(P12,000 x
100%)...
Increase in patent (P24,000 x
100%)...
Increase in contingent liability
P 336,000
P 240,000
96,000
24,000
360,000
(P 24,000)
P 18,000
72,000
( 12,000)
24,000
( 18,000)
(P18,000 x 100%).
Increase in bonds payable (P42,000
x 100%)..
Negative excess: Bargain Purchase Gain
(excess of
fair value over
cost)
( 42,000)
42,000
(P 66,000)
2. Gain on acquisition, P66,000

Problem VIII
Case 1:
Proportionate Basis (Partial-goodwill Approach)
Partial-goodwill
Fair value of subsidiary (80%):
Consideration transferred: Cash .......P12,000,000 (80%)
Less: Book value of stockholders equity (net assets)
S Company: P7,200,000 x 80%.................................
5,760,000 (80%)
Allocated excess. ........P 6,240,000 (80%)
Less: Over/undervaluation of assets and liabilities:
(P9,600,000 P7,200,000) x 80%....................................... 1,920,000 (80%)
Positive excess: Goodwill (partial) ..... P 4,320,000 (80%)
Non-controlling interest
Book Value of stockholders equity of subsidiary .
P 7,200,000
Adjustments to reflect fair value (over/ undervaluation
of assets and liabilities): (P9,600,000 P7,200,000) ..
2,400,000
Fair value of stockholders equity of subsidiary
P 9,600,000
Multiplied by: Non-controlling interest percentage............
20%
Non-controlling Interest (partial) ..
P1,920,000
Fair Value Basis (Full-goodwill Approach)

Full-goodwill
Consideration transferred: Cash (P12,000,000 / 80%).. P15,000,000 (100%)
S Company: P7,200,000 x 100%..............................
7,200,000 (100%)
Allocated excess. ..
P 7,800,000 (100%)
Less: Over/Undervaluation of assets and liabilit ies:
(P9,600,000 P7,200,000) x 100%.................................... 2,400,000 (100%)
Positive excess: Goodwill (full) ........P 5,400,000 (100%)
The full goodwill of P5,400,000 consists of two parts:
Full-goodwill ....... P 5,400,000
Less: Controlling interest on full-goodwill
or partial-goodwill . .. 4,320,000
NCI on full-goodwill .......P 1,080,000
Non-controlling interest (partial) .......P1,920,000
Add: Non-controlling interest on full -goodwill
(P5,400,000 P4,320,000 partial-goodwill) or
(P5,400,000 x 20%)* ...... 1,080,000
Non-controlling interest (full) ........P3,000,000

* applicable only when t he fair value of t he non-cont rolling int erest of subsidiary is not given.
Case 2:
Partial-goodwill
Consideration transferred: Cash .....P 7,560,000 (60%)
S Company: P6,000,000 x 60%................................
3,600,000 (60%)
Allocated Excess. ..... P 3,960,000 (60%)
(P8,400,000 P6,000,000) x 60%...................................... 1,440,000 (60%)
Positive excess: Goodwill (partial) .... P 2,520,000 (60%)
Book value of stockholders equity of subsidiary . P 6,000,000
of assets and liabilities): (P8,400,000 P6,000,000) . 2,400,000
Fair value of stockholders equity of subsidiary .P 8,400,000
Multiplied by: Non-controlling Interest percentage............
40%
Non-controlling interest (partial) .P 3,360,000

Full-goodwill
Consideration transferred: Cash ...P 7,560,000 ( 60%)
Fair value of NCI (given) ..
4,800,000 ( 40%)
Fair value of subsidiary ...P12,360,000 (100%)
S Company: P6,000,000 x 100%...........................
6,000,000 (100%)
Allocated Excess. ..P 6,360,000 (100%)
(P8,400,000 P6,000,000) x 100%.................................. 2,400,000 (100%)
Positive excess: Goodwill (full) ......P 3,960,000 (100%)
Full-goodwill ...P 3,960,000
or partial-goodwill . 2,520,000
NCI on full-goodwill ..P 1,440,000
Non-controlling interest (partial) P 3,360,000
(P3,960,000 P2,520,000 partial-goodwill) .. 1,440,000
Non-controlling Interest (full) ..P 4,800,000
Case 3;
Partial-goodwill
Consideration transferred: Cash ..P 9,000,000 (75%)

S Company: P7,200,000 x 75%..........................
5,400,000 (75%)
Allocated Excess. ...P 3,600,000 (75%)
(P9,600,000 P7,200,000) x 75%................................. 1,800,000 (75%)
Positive excess: Goodwill (partial) .P 1,800,000 (75%)
Book value of stockholders equity of subsidiary ..P 7,200,000
Fair value of stockholders equity of subsidiary P 9,600,000
25%
Non-controlling interest (partial) .P 2,400,000

Full-goodwill
Fair value of subsidiary . P 11,640,000 (100%)
S Company: P7,200,000 x 100%...........................
7,200,000 (100%)
Allocated Excess. .P 4,440,000 (100%)
(P9,600,000 P7,200,000) x 100%.................................. 2,400,000 (100%)
Positive excess: Goodwill (full) .....P 2,040,000 (100%)
Full-goodwill ...P 2,040,000
or partial-goodwill .... 1,800,000
NCI on full-goodwill . .P 240,000
Non-controlling interest (partial) P 2,400,000
(P2,040,000 P1,800,000 partial-goodwill) .. ..... 240,000
Non-controlling Interest (full) ..P 2,640,000
Case 4:
Partial-goodwill
Fair value of previously held equity interest
in acquiree P2,592,000/60% = P4,320,000 x 15%......... 648,000 (15%)
Fair value of Subsidiary .. . P 3,240,000 (75%)
S Company: (P4,680,000 P2,280,000) x 75%......... 1,800,000 (75%)
Allocated Excess. ....P 1,440,000 (75%)
[(P6,120,000 P2,280,000)
(P4,680,000 P2,280,000)] x 75%................................ 1,080,000 (75%)

Positive excess: Goodwill (partial) ... P 360,000 (75%)
Book value of stockholders equity of subsidiary ..P 2,400,000
Fair value of stockholders equity of subsidiary P 3,840,000
25%
Non-controlling interest (partial) P 960,000

Full-goodwill
Fair value of previously held equity interest
in acquiree P2,592,000/60% = P4,320,000 x 15%......
648,000 (15%)
Fair value of NCI (given) . 1,080,000 (25%)
Fair value of subsidiary .P 4,320,000 (100%)
S Company: P2,400,000 x 100%........................ 2,400,000 (100%)
Allocated Excess. ..P 1,920,000 (100%)
(P3,840,000 P2,400,000) x 100%................................ 1,440,000 (100%)
Positive excess: Goodwill (full) ...P 480,000 (100%)
The full goodwill of P480,000 consists of two parts:
Full-goodwill ...P 480,000
or partial-goodwill . 360,000
NCI on full-goodwill ..P 120,000
Non-controlling interest (partial) P
960,000
(P480,000 P360,000 partial-goodwill) .. ..... 120,000
Non-controlling Interest (full) P 1,080,000
Problem IX
Partial-goodwill (Proportionate Basis)
Consideration transferred: Cash ..
(net assets) S Company:
(P480,000 P228,000) x 75%.......................................
Allocated excess ...
[(P612,000 P228,000) (P480,000 P228,000) x 75%
Negative excess: Bargain purchase gain (to controlling
interest or attributable to parent only) .
P270,000 (75%)
189,000 (75%)
P 81,000 (75%)
99,000 (75%)
(P18,000) (75%)
Full-goodwill (Fair Value Basis)

Consideration transferred: Cash ..
Fair value of non-controlling interest (given)
Fair value of subsidiary
(net assets) S Company:
(P480,000 P228,000) x 100%.....................................
Allocated excess ...
[(P612,000 P228,000) (P480,000 P228,000) x 100%
Negative excess: Bargain purchase gain (to controlling
interest or attributable to parent only) .
P270,000 ( 75%)
98,400 ( 25%)
P368,400 (100%)
252,000 (100%)
P116,400 (100%)
132,000 (100%)
(P15,600) (100%)
Problem X
Partial-goodwill Approach
Schedule of Determination and Allocation of Excess (Partial -goodwill)

Consideration
transferred..
Sky:
80%).
Paid-in capital in excess of par (P96,000
x 80%)....
80%)....
value)..
liabilities:
80%)
80%).
(P12,000 x
80%).....
80%).
Positive excess: Partial-goodwill (excess of
cost over
fair
P
360,000
P 192,000
76,800
19,200
288,000
P
72,000
P 14,400
57,600
(
9,600)
( 33,600)
28,800
P
43,200
value)...
The over/under valuation of assets and liabilities are summarized as follows:
Sky Co.
Book
value
Inventory...
72,000
Land
48,000
Buildings and equipment (net).........
360,000
Bonds payable (120,000)
Net..
360,000
Sky
Over/
Co.
Under
Fair
value
Valuation
90,000
18,000
120,000
72,000
348,000
( 12,000)
(162,000)
42,000
396,000
36,000
The buildings and equipment will be further analyzed for consolidation purposes as follows:
Buildings and equipment

..................
Less: Accumulated
depreciation..
Net book
value...
Sky Co.
Book value
Sky Co.
Fair value
720,000
348,000
( 372,000)
360,000
( 360,000)
360,000
348,000
(Decrease)
12,000)
The following entry on the date of acquisition in the books of Parent Company:
January 1, 20x4
(1) Investment in Sky

Company
360,000
360,000
Cash..
Acquisition of Sky Company.
to
being
14,400
examined)
Cash.
14,400
The schedule of determination and allocation of excess provides complete guidance for the
worksheet eliminating entries on January 1, 20x4:
(E1) Common stock Sky
240,000
Co.
Additional paid-in capital Sky
Co.
Retained earnings Sky
Co...
Investment in Sky
Co
Non-controlling interest (P300,000 x
20%)..
24,000
96,000
288,000
72,000
Eliminate investment against stockholders equity of Sky Co.
(E2)
18,000
Inventory.
Accumulated
360,000
depreciation.
72,000
Land.
43,200
Goodwill.
Buildings and
372,000
equipment..
Premium on bonds
42,000
payable
7,200
20%)..
Investment in Sky
72,000
Co..
Worksheet for Consolidated balance Sheet, January 1, 20x4. Date of Acquisition: 80%-Owned
Subsidiary (Partial-goodwill)
Eliminations
Assets
Cash* .
Peer Co.
Sky Co.
45,600
P 60,000
Dr.
Cr.
Consolidated
P
105,600
90,000
60,000
Inv entory.
120,000
72,000
(2) 18,000
210,000
Land.
210,000
48,000
(2) 72,000
330,000
960,000
720,000
Goodwill
Inv estment in Sky Co.
360,000
Total Assets
150,000
(2) 372,000
1,308,000
(2) 43,200
43,200
(1) 288,000
(2) 72,000
P1,785,600
P960,000
P 2,146,800
Accumulated depreciation
P 480,000
P360,000
Accounts payable
120,000
120,000
240,000
Bonds payable
240,000
120,000
360,000

(2) 360,000
480,000
(3)
42,000
600,000
600,000
240,000

Retained earnings**
(1) 240,000
60,000
60,000
24,000
(1) 24,000
285,600
Retained earnings
285,600
96,000
_________
_______

Equity
P1,785,600
P960,000
* P420,000 P360,000 P14,400 = P45,600.
* * P300,000 P14,400 = P285,600.
42,000
(1) 96,000
_________
P 853,200
(1 ) 72,000
(2) 7,200
_79,200
P 853,200
P2,146,800
Incidentally, the non-controlling interest on the date of acquisition is computed as follows:

Common stock Sky company
P
240,000
24,000
80,000
Paid-in capital in excess of par Sky co

Co...
Book value of stockholders equity Sky
Co....
Adjustments to reflect fair value (over/
undervaluation
of assets and
liabilities).
Fair value of stockholders equity of
subsidiary
Multiplied by: Non-controlling Interest
percentage...
(partial)..
P
360,000
36,000
P
396,000
20
P
79,200
The balance sheet:

Peer Company and Subsidiary
Consolidated Balance Sheet
January 1, 20x4
Assets
Cash
Inv entories
Land
Goodwill
Total Assets
Liabilities
Accounts payable
105,600
150,000
210,000
330,000
1,308,000
( 480,000)
43,200
P1,666,800
P 240,000
Bonds payable
Total Liabilities
Stockholders Equity
Retained earnings
Parents Stockholders Equity/Equity Attributable to the
Owners of the Parent
Total Stockholders Equity (Total Equity)
P 360,000
42,000
402,000
P 642,000
P 600,000
60,000
285,600
P 945,600
79,200
P 1,024,800
P1,666,800
Full-goodwill Approach
Schedule of Determination and Allocation of Excess (Full -goodwill)

Consideration transferred (P360,000 /
80%)..
Sky:
100%).
x 100%)..
100%)....
value)..
liabilities:
100%)
100%).
(P12,000 x
100%).....
100%).
Positive excess: Full -goodwill (excess of cost
over
fair
value)...
P
450,000
P 240,000
96,000
24,000
360,000
P
90,000
P 18,000
72,000
( 12,000)
( 42,000)
36,000
P
54,000
January 1, 20x4
(1) Investment in Sky

Company
360,000
360,000
Cash..
Acquisition of Sky Company.

to
being
examined)
14,400
14,400
Cash.
(E1) Common stock Sky

Co.
Additional paid-in capital Sky
Co.
Co...
Investment in Sky
Co
20%)..
240,000
24,000
96,000
288,000
72,000
Eliminate investment against stockholders equity of Sky Co.
(E2)
18,000
Inventory.
Accumulated
360,000
depreciation.
72,000
Land.
54,000
Goodwill.
Buildings and
372,000
equipment..
Premium on bonds
42,000
payable
Non-controlling interest [(P30,000 x 20%) +
(P45,000
P36,000)].
Investment in Sky
Co..
18,000
72,000
Worksheet for Consolidated balance Sheet, January 1, 20x4. Date of Acquisition: 80% -Owned
Subsidiary (Full-goodwill)
Eliminations
Assets
Cash*
.
Accounts
receivable..
Inventory.
Land
.
Goodwill
Investment in Sky
Co.
Total Assets
Peer Co.
Sky Co.
Dr.
Cr.
Consolidated
45,600
P 60,000
90,000
60,000
120,000
72,000
(2) 18,000
210,000
210,000
48,000
(2) 72,000
330,000
960,000
720,000
105,600
150,000
(2) 372,000
1,308,000
(2) 54,000
360,000
54,000
(1) 288,000
(2) 72,000
P1,785,600
P960,000
P 480,000
P360,000
P 2,157,600

Accounts payable
Bonds payable
120,00
0
240,00
0
(2) 360,000
240,000
120,000
360,000
(2) 42,000
600,00
0

Retained earnings**
(1) 240,000
60,000
60,000
24,000
(1) 24,000
285,60
0
Retained earnings
285,600
96,000
_______
__
42,000
600,000
240,000
480,000
120,000

_____
__
(1) 96,000
(1 )
72,000
_______ (2)
__ 18,000
_90,000

Equity
P1,785,600
P960,000
* P420,000 P360,000 P14,400 = P45,600.
* * P300,000 P14,400 = P285,600.
P 864,000
P 864,000
P2,157,600
(partial)..
Add: Non-controlling interest (P54,000, full
P43,200, partial).
(full).
P
79,200
10,800
P 90,000
The balance sheet;

Peer Company and Subsidiary
Consolidated Balance Sheet
January 1, 20x4
Cash
Inv entories
Land
Goodwill
Total Assets
Assets

Liabilities
Accounts payable
Bonds payable
Total Liabilities
Stockholders Equity
Retained earnings
105,600
150,000
210,000
330,000
1,308,000
( 480,000)
54,000
P1,677,600
P 360,000
42,000
P 240,000
402,000
P 642,000
P 600,000
60,000
285,600
P 945,600
90,000
P 1,035,600
P1,677,600
Problem XI
Partial-goodwill Approach (Proportionate Basis)
Schedule of Determination and Allocation of Excess (Proportionate Basis))

Common stock: 12,000 shares x P25
per share...
of S:
P 300,000

80%).
(P108,000 x 80%)...
80%)....
Allocated excess (excess of cost over
book value)
liabilities:
80%)
80%).
Increase in buildings and
equipment
(P150,000 x
80%)......
Increase in copyrights (P60,000 x
80%)..
Increase in contingent liabilities
estimated
liability for contingencies (P6,000
x 80%).....
Negative excess: Bargain purchase gain
to controlling
interest or attributable to parent
only)..
9,600
86,400
57,600
153,600
P 146,400
4,800
28,800
120,000
48,000
4,800)
196,800
(P 50,400)
Inventory....
Land.
Buildings and equipment (net).........
Copyright..
Estimated liability for contingencies..
Net undervaluation.
S Co.
Book
value
P
60,000
48,000
S Co.
Fair
Over/Under
value
Valuation
P
66,000
P
6,000
84,000
36,000
222,000 372,000
-00
P
60,000
(
6,000)
P
150,000
60,000
(
6,000)
P246,000
330,000 576,000
The following entry on the date of acquisition in the books of Parent Company
January 1, 20x4
(1) Investment in S
Company...
Common stock, P1
par
P12,000 par)..
300,000
12,000
288,000
Acquisition of S Company.
The schedule of determination and allocation of excess provides complete guidan ce for the
(E1) Common stock S

Co.
Co.
Retained earnings S
Co
Investment in S
Co
20%)..
12,000
108,000
72,000
153,600
38,400
Eliminate investment against stockholders equity of S Co
(E2)
Inventory..
6,000
36,000
Land..
Buildings and
150,000
equipment
60,000
Copyright....
Estimated liability for
6,000
contingencies..
Investment in S
146,400
Co...
49,200
20%).
Retained earnings (bargain purchase gain - closed to
being
50,400
examined).............................................................................
Subsidiary (Proportionate Basis)
Eliminations
P Co.
Assets
Cash
S Co.
Dr.
Cr.
Consolidated
P 334,800

Inv entory.
86,400
P 24,000
334,800
110,400
96,000
60,000
(2)
6,000
162,000
Land
120,000
48,000
(2) 36,000
204,000
Buildings and equipment (net).
744,000
222,000
(2) 150,000
1,116,000
Copyright...
Inv estment in S Co..
Total Assets
(2) 60,000
300,000
__________ _________
P1,681,200
60,000
(1) 153,600
(2) 146,400
354,000
P1,987,200
96,000
42,000
P 138,000
240,000
120,000

Accounts payable
contingencies
Bonds payable
Common stock, P1 par* ..
Paid-in capital in excess of
par* *
(2)
Retained earnings
44,160
12,000
723,840
(1) 12,000
(1)
108,000
_________
723,840
(1)
108,000
577,200
72,000
(1) 72,000
_______
_________

Equity
P1,681,200
P354,000
(1) Eliminate inv estment against stockholders equity of Scud Co.
(2) Eliminate inv estment against allocated excess.
* P32,160 + (12,000 shares xP1 par) = P44,160.
* * P435,840 + [12,000 shares x (P25 P1)] = P723,840.
6,000
360,000
44,160

Retained earnings
6,000
P 444,000
(2) 50,400
627,600
(1 ) 38,400
(2) 49,200
_87,600
P 444,000
P1,987,200

Common stock S Co.
Paid-in capital in excess of par S Co..
Retained earnings S
Co
Book value of stockholders equity S
Co.
Adjustments to reflect fair value (over/
undervaluation
of assets and
liabilities).
Fair value of stockholders equity of
subsidiary
Multiplied by: Non-controlling Interest
P 12,000
108,000
72,000
P
192,000
246,000
P
438,000
20
percentage...
(partial)..
P
87,600
The balance sheet:

Assets
Cash
Inv entories
Land
Copyright
Total Assets
334,800
110,400
162,000
204,000
1,116,000
60,000
P1,987,200

Liabilities
Accounts payable
Estimated liability for contingencies
Bonds payable
Total Liabilities
Stockholders Equity
Retained earnings
P 138,000
6,000
360,000
P 504,000
P
44,160
723,840
627,600
P1,395,600
87,600
P1,483,200
P1,987,200
Full-goodwill Approach (Fair Value Basis)

Schedule of Determination and Allocation of Excess (Full-goodwill or Fair Value Basis)

Common stock: 12,000 x P25
(80%)
Fair value of NCI (given)
(20%).
Fair value of subsidiary
(100%).
of S:
100%).
(P108,000 x 100%).
100%)...
book value)
300,000
90,000
390,000
P 12,000
108,000
72,000
192,000
P 198,000

liabilities:
100%)
100%)
Increase in buildings and
equipment
(P150,000 x
100%)....
Increase in copyrights (P60,000 x
100%)
Increase in contingent liabilities
estimated
liability for contingencies (P6,000
x 100%)..
Negative excess: Bargain purchase gain
to controlling
interest or attributable to parent
only)..
6,000
36,000
150,000
6,000
6,000)
246,000
(P 48,000)
January 1, 20x4
(1) Investment in S
Company...
Common stock, P1
par
P12,000 par)..
300,000
12,000
288,000
(E1) Common stock S

Co.
Co.
Retained earnings S
Co
Investment in S
Co
Non-controlling int erest (P192,000 x
20%)..
Eliminate investment against stockholders
12,000
108,000
72,000
153,600
38,400
equity of S Co
(E2)
Inventory..
6,000
36,000
Land..
Buildings and
150,000
equipment
60,000
Copyright....
6,000
contingencies..
Investment in S
146,400
Co...
Non-controlling interest (P90,000 given
51,600
P38,400)
Retained earnings (bargain purchase gain - closed to
being
48,000
examined).............................................................................
Subsidiary (Fair Value Basis)
Eliminations
P Co.
Assets
Cash
S Co.
Dr.
Cr.
P 334,800
Consolidated
P
334,800
86,400
P 24,000
Inv entory.
96,000
60,000
(2)
6,000
162,000
Land
120,000
48,000
(2) 36,000
204,000
Buildings and equipment (net).
744,000
222,000
(2) 150,000
1,116,000
Copyright...
Inv estment in S Co..
Total Assets
300,000
__________ _________
P1,681,200
110,400
(2) 60,000
(1) 153,600
(2) 146,400
60,000
-
P354,000
P1,987,200
42,000
P 138,000

Accounts payable
contingencies
Bonds payable
Common stock, P1 par* ..
96,000
(2)
240,000
6,000
360,000
44,160

Paid-in capital in excess of par* *
120,000
6,000
44,160
12,000
(2) 12,000
723,840
723,840
(2)
108,000
(1)
108,000
Retained earnings
Retained earnings
577,200
_________
72,000
(1) 72,000
_______
_________

Equity
P1,681,200
P354,000
(1) Eliminat e invest ment against st ockholders equit y of Scud Co.
* P32,160 + (12,000 shares xP1 par) = P44,160.
* * P435,840 + [12,000 shares x (P25 P1)] = P723,840.
P 444,000
(2) 48,000
625,200
(1 ) 38,400
(2) 51,600
_90,000
P 444,000
P1,987,200
The balance sheet:

Assets
Cash
Inv entories
Land
Copyright
Total Assets
Liabilities
Accounts payable
Estimated liability for contingencies
Bonds payable
Total Liabilities
Stockholders Equity
Retained earnings
Problem XII
1. Inventory
2. Land
3. Buildings and Equipment
4. Goodwill
5.
334,800
110,400
162,000
204,000
1,116,000
60,000
P1,987,200
P 138,000
6,000
360,000
P 504,000
P
44,160
723,840
652,200
P1,393,200
90,000
P1,483,200
P1,987,200
P 140,000
P 60,000
P 550,000
Fair value of consideration given

P 576,000
Less; Book value of SHE
450,000
Allocated excess:
P126,000
Increase / decrease in fair value (Fair value
increment) for:
Inventory
P 20,000
Land
(10,000)
70,000
80,000
Goodwill
P 46,000
Investment in AA Corporation: Nothing would be reported; the balance in the
investment account is eliminated.
Problem XIII
1. Inventories (P110,000 + P180,000 P10,000) = P280,000

2. Buildings and equipment, net (P350,000 + P350,000 + P25,000 = P725,000
3. Investment in DD stock will be fully eliminated and will not appear in the consolidated balance
sheet

Less: BV of SHE of DD (P100,000 + P200,000 P40,000)
Allocated excess
Less: Over/under valuation of A and L: Inc (Decrease)
Inventory
P280,000
260,000
P 20,000
(P 10,000)
25,000
Add: Existing goodwill (to be eliminated

Goodwill to be reported
15,000
P 5,000
30,000
P 35,000
or, (Approach used in business combination statutory merger/consolidation)

Fair value of consideration given
P280,000
Fair value of Decibel's net assets:
Cash and receivables
P 40,000
Inventory
170,000
375,000
Accounts payable
(90,000)
Notes payable
(250,000)
Fair value of net identifiable
assets
(245,000)
Goodwill to be reported
P 35,000
Not e: Goodwill on books of DD is not an identifiable asset and t herefore is not included in t he comput at ion of
Decibel's net ident ifiable asset s at t he dat e of acquisit ion.
5. Common stock, P400,000 (parent only, SHE of subsidiary is eliminated)

6. Retained earnings, P`05,000 (parent only, SHE of subsidiary is eliminated)
Problem XIV
1. Inventory (P120,000 + P20,000)
2. Land (P70,000 P10,000)
3. Buildings and Equipment (P480,000 + P70,000)
4. Full-Goodwill, P57,500
Add: FV of NCI
Less: BV of SHE of Slim (P250,000 + P200,000)
Allocated excess
Inventory
Land
Goodwill full
P140,000
P 60,000
550,000
P470,000
117,500
P 20,000
(10,000)
70,000
P587,500
450,000
P137,500
80,000
P 57,500
or,
Fair value of consideration given by Ford
Fair value of noncontrolling interest
Total fair value
Book value of Slims net assets
Fair value increment for:
Inventory
Land
Fair value of identifiable net assets
Goodwill - full
Partial Goodwill, P46,000
Less: BV of SHE of Slim (P250,000 + P200,000) x 80%
Allocated excess
Land (P10,000 x 80%)
Buildings and equipment (net) (P70,000 x 80%)
Goodwill partial
5.
6.
Investment in Slim Corporation: None would be reported;

the balance in the investment account is eliminated.
Noncontrolling Interest (P587,500 x .20)
P470,000
117,500
P587,500
P450,000
20,000
(10,000)
70,000
(530,000)
P 57,500
P470,000
360,000
P110,000
P 16,000
( 8,000)
56,000
64,000
P 46,000
P117,500
or,
BV SHE of SS
P450,000
Adjustments to reflect fair value (P20,000 P10,000 +P 70,000)
80,000
FV of SHE of SS
P530,000
Multiplied by: NCI %
20%
NCI partial goodwill
P106,000
Add: NCI on full-goodwill (P57,500 P46,000)
11,500
NCI full goodwill
P117,500
Problem XV
(Overview of the steps in applying the acquisition method when shares have been issued to create a
combination No. 8 includes a bargain purchase.)
1. The fair value of the consideration includes
Fair value of stock issued
P1,500,000
30,000
Fair value of consideration transferred
P1,530,000
2. Under the acquisition method, stock issue costs reduce additional paid -in capital.
3. The acquisition method records direct costs such as fees paid to investment banks for
arranging the combination as expenses.
4. The par value of the 20,000 shares issued is recorded as an increase of P20,000 in the
Common Stock account. The P74 fair value in excess of par value (P75 P1) is an increase to
additional paid-in capital of P1,480,000 (P74 20,000 shares).
5. Fair value of consideration transferred (above)
P1,530,000
Receivables
P 80,000
6.
7.
8.
Patented technology
700,000
Customer relationships
500,000
IPR&D
300,000
Liabilities
(400,000)
1,180,000
Goodwill
P 350,000
Revenues and expenses of the subsidiary from the period prior to the combination are
omitted from the consolidated totals. Only the operational figures for the subsidiary after the
purchase are applicable to the business combination. The previous owners earned any
previous profits.
The subsidiarys Common Stock and Additional Paid-in Capital accounts have no impact on
the consolidated totals.
The fair value of the consideration transferred is now P1,030,000. This amount indicates a
bargain purchase:
Fair value of consideration transferred (above)
P1,030,000
Receivables
P 80,000
Patented technology
700,000
Customer relationships
500,000
IPR&D
300,000
Liabilities
(400,000)
1,180,000
Gain on bargain purchase
P 150,000
Problem XVI
In acquisitions, the fair values of the subsidiary's assets and liabilities are consolidated (there are a
limited number of exceptions). Goodwill is reported as P80,000, the amount that the P760,000
consideration transferred exceeds the P680,000 fair value of SSs net assets acquired.
1.
2.
3.
4.
5.
6.
Inventory = P670,000 (P's book value plus Sun's fair value)

Land = P710,000 (P's book value plus Sun's fair value)
Buildings and equipment = P930,000 (P's book value plus S's fair value)
Franchise agreements = P440,000 P's book value plus S's fair value)
Goodwill = P80,000 (calculated above)
Revenues = P960,000 (only parent company operational figures are reported at date of
acquisition)
7. Additional Paid-in Capital = P65,000 (P's book value less stock issue costs)
8. Expenses = P940,000 (only parent company operational figures plus acquisition-related costs are
reported at date of acquisition)
9. Retained Earnings, 1/1 = P390,000 (P's book value)
Problem XVII
1. A total of P210,000 (P120,000 + P90,000) should be reported.
2. As shown in the investment account balance, Beryl paid P110,000 for the ownership of SS. The
amount paid was P30,000 greater than the book value of the net assets of SS and is reported as
goodwill in the consolidated balance sheet at January 1, 20X5.
3. In determining the amount to be reported for land in the consolidated balance sheet, P15,000
(P70,000 + P50,000 - P105,000) was eliminated. BB apparently sold the land to SS for P25,000 (P10,000
+ P15,000).
4. Accounts payable of P120,000 (P75,000 + P55,000 - P10,000) will be reported in the consolidated
balance sheet. A total of P10,000 was deducted in determining the balance reported for accounts
receivable (P90,000 + P50,000 - P130,000). The elimination of an intercompany receivable must be
offset by the elimination of an intercompany payable.
5. The par value of B's stock outstanding is P100,000.
Problem XVIII
1. P470,000 = P470,000 - P55,000 + P55,000
2. P605,000 = (P470,000 - P55,000) + P190,000
3. P405,000 = P270,000 + P135,000
4. P200,000 (as reported by GG Corporation)
Problem XIX
1.
The investment balance reported by Roof will be P192,000.
2.
Total assets will increase by P310,000.
3.
Total liabilities will increase by P95,000.
4.
The amount of goodwill for the entity as a whole will be P25,000
[(P192,000 + P48,000) - (P310,000 - P95,000)].
5.
Non-controlling interest will be reported at P48,000 (P240,000 x .20).
Problem XX
1.
P57,000 = (P120,000 - P25,000) x .60
2.
P81,000 = (P120,000 - P25,000) + P40,000 - P54,000
3.
P48,800 = (P120,000 - P25,000) + P27,000 - P73,200
Problem XXI
1. Investment in Craig Company....................................................
Cash .......................................................................................
950,000
950,000
2.
Less: BV of SHE of Craig (P300,000 + P420,000)
Allocated excess
Less: Over/under valuation of A and L: Inc (Decrease)
Land (P250,000 fair P200,000 book value
Building (P700,000 fair P600,000 book value)
Discount on bonds payable P280,000 fair P300,000
book value)
Deferred tax liability (P40,000 fair P50,000 book value)
Goodwill
3. Adjustments on Craig books:
Land ............................................................................................
Building........................................................................................
Discount on Bonds Payable ........................................................
Goodwill ......................................................................................
Deferred Tax Liability ...................................................................
Retained Earnings .......................................................................
Paid-In Capital in Excess of Par ..............................................
Elimination entries:
Common Stock ...........................................................................
Paid-In Capital in Excess of Par ...................................................
Investment in Craig Company ...............................................
Problem XXII
P950,000
720,000
P 230,000
P 50,000
100,000
20,000
10,000
180,000
P 50,000
50,000
100,000
20,000
50,000
10,000
420,000
650,000
4.
300,000
650,000
950,000
Full-Goodwill
Consideration transferred (200 shares x P25)
Less: BV of SHE of Public (P200 + P800 + P1,000)
Allocated excess
Fixed assets (P3,000 fair P2,000 book value)
Goodwill full
P 5,000
_2,000
P 3,000
_1,000
P2,000
or,
Consideration transferred (200 shares x P25)
Less: FV of SHE of Public (P1,0000 + P3,000 P1,000)
Goodwill full
P 5,000
_3,000
P2,000
Note: The currently issued shares of Public Company and its fair value were used for the following
reasons (refer to Illustration 15-15 for comparison):
Total number of shares for Public Company after acquisition not given
The fair value of share of Private Company not given.
Fair v alue of net assets.
Fair value of common stock

per share
Currently issued
Additional shares issued
Public
Company
P3,000
P25
Public
200 60%**
300 40%
500
Private
Company
?
Private
? /60%
100 /40%
?
15,000 shares / 25,000 shares = 60%
Values are prior to acquisition (200 shares P25 market value).

Subsequent to acquisition, Private Company is the parent with 60% ownership; prior to
acquisition, Private Company has 0% ownership of Public Co mpany.
Prior to acquisition, this represents 100% ownership of Public Company; subsequent to
acquisition, these holders of 100 shares of Public Company become the 40% NCI.
Incidentally, the partial goodwill amounted to P1,200 (P2,000 x 60%); FV of NCI on full -goodwill
amounted to P800 (P2,000 P1,200 or P2,000 x 40%). This approach to determine partial
goodwill is acceptable as long as there is FV of NCI in the acquirer.
Problem XXIII (Assume the use of Full-Goodwill Method)

Note: This solution assumes a difference between the basis of acquired assets for accounting and ta x
purposes for this stock acquisition.
1. Investment in Seel y Company
Common Stock***
Additional Paid-in-Capital
570,000
95,000
475,000
***Note: Depending on the wording of this exercise, the credit may be cash instead of common stock
and additional paid-in-capital. If cash is paid, the credit to cash is P570,000.
2. Common Stock - Seely
Other Contributed Capital Seel y
Retained Earnings - Seely
Inventory
Land
Plant Assets
Discount on Bonds Payable
Goodwill**
Deferred Income Tax Liability*
80,000
132,000
160,000
52,000
25,000
71,000
20,000
127,200
Investment in Seely Company

Non-controlling Interest [(P570,000/.95) x .05]
*(.40 x (P52,000 + P25,000 + P71,000 + P20,000))
67,200
570,000
30,000
Problem XXIV
HB Country and HCO Media
Consolidation of a variable interest entity is required if a parent has a variable interest that will
Absorb a majority of the entity's expected losses if they occur
Receive a majority of the entity's expected residual returns if they occur
Because (1) HCO Medias losses are limited by contract, and (2) Hillsborough has the right to
receive the residual benefits of the sales generated on the HCO Media internet site above
P500,000, Hillsborough should consolidat e HCO Media.
TPC (Nos. 1, 2 and 3 of the requirement are part of the information)

a. The purpose of consolidated financial statements is to present the financial position and
results of operations of a group of businesses as if they were a single entit y. They are
designed to provide information useful for making business and economic decisions
especially assessing amounts, timing, and uncertainty of prospective cash flows.
Consolidated statements also provide more complete information about the resources,
obligations, risks, and opportunities of an enterprise than separate statements.
b. An entity qualifies as a VIE and is subject to consolidation if either of the following conditions
exist.
The total equity at risk is not sufficient to permit the entity to finance its activities without
additional subordinated financial support from other parties. In most cases, if equity at risk is
less than 10% of total assets, the risk is deemed insufficient.
The equity investors in the VIE lack any one of the following three characteristics of a
controlling financial interest.
1. The direct or indirect ability to make decisions about an entity's activities through voting
rights or similar rights.
2. The obligation to absorb the expected losses of the entity if they occur (e.g., another firm
may guarantee a return to the equity investors)
3. The right to receive the expected residual returns of the entity (e.g., the investors' return
may be capped by the entity's governing documents or other arrangement s with
variable interest holders).
Consolidation is required if a parent has a variable interest that will

Absorb a majority of the entity's expected losses if they occur
Receive a majority of the entity's expected residual returns i f they occur

Also, a direct or indirect ability to make decisions that significantly affect the results of the
activities of a variable interest entity is a strong indication that an enterprise has one or both
of the characteristics that would require consolidation of the variable interest entity.
c. Risks of the construction project that has TPC has effectively shifted to the owners of the VIE
At the end of the 1st five-year lease term, if the parent opts to sell the facility, and the
proceeds are insufficient to repay the VIE investors, TPC may be required to pay up to 85% of
the project's cost. Thus, a potential 15% risk.
During construction 11.1% of project cost potential termination loss.
Risks that remain with TPC
Guarantees of return to VIE investors at market rate, if facility does not perform as
expected TPC is still obligated to pay market rates.
If lease is not renewed, TPC must either purchase the facility or sell it on behalf of the VIE
with a guarantee of Investors' (debt and equity) balances representing a risk of decline in
market value of asset
Debt guarantees
d. TPC possesses the following characteristics of a primary beneficiary Direct decision -making
ability (end of five-year lease term)
Absorb a majority of the entity's expected losses if they occur (via debt guarantees and
guaranteed lease payments and residual value)
Receive a majority of the entity's expected residual returns if they occur (via use of the
facility and potential increase in its market value).
Problem XXV
1. Implied valuation and excess allocation for S.
Noncontrolling interest fair value
Consideration transferred by P.
Total business fair value
Fair value of VIE net assets
Excess net asset value fair value
P 60,000
20,000
80,000
100,000
P20,000
The P20,000 excess net asset fair value is recognized by PanTech as a bargain purchase. All
SoftPlus assets and liabilities are recognized at their individual fair values.
Cash
Marketing software
Computer equipment
Long-term debt
Noncontrolling interest
Pantech equity interest
Gain on bargain purchase
2.
Implied valuation and excess valuation for Softplus.

Noncontrolling interest fair value
Consideration transferred by Pantech
Total business fair value
Fair value of VIE net identifiable assets
Goodwill
P20,000
160,000
40,000
(120,000)
(60,000)
(20,000)
(20,000)
-0-
60,000
20,000
80,000
60,000
P20,000
When the business fair value of a VIE (that is a business) is greater than assessed asset values,
all identifiable assets and liabilities are reported at fair values (unless a previously held interest)
and the difference is treated as a goodwill.
Cash
P20,000
Marketing software
120,000
Computer equipment
40,000
Goodwill (excess business fair value)
20,000
Long-term debt
(120,000)
(60,000)
Pantech equity interest
(20,000)
-0Multiple Choice Problem
1. c
2. c [P300,000 (P35,000 + P60,000 + 125,000 + P250,000 P65,000 P150,000)]
3. d
P300,000
Less: Book value of SHE of S (P100,000 + P115,000)
215,000
Allocated excess (excess of fair value or cost over book value)
- sometimes termed as Differential
P 85,000
4. a Investment in subsidiary in the consolidated statements is eliminated in its entirety.
5. d
P150,000
Less: Book value of SHE of S (P40,000 + P52,000)
92,000
Allocated excess (excess of fair value or cost over book value)
- sometimes termed as Differential
P 58,000
6. b [P150,000 (P173,000 P40,000 P5,000)]
7. d [P132,000 + (P38,000 + {P60,000 P38,000}] or P132,000 + P60,000
8. b
Total Assets of P.
P1,278,000
(440,000)
P 838,000
Book value of assets of S Corp.
542,000
Book value reported by P and S
P1,380,000
Increase in inventory (P60,000 P38,000)
22,000
Increase in land (P60,000 P32,000)
28,000
Increase in plant assets [P350,000 (P300,000 P60,000)]
110,000
Goodwill (full)*
26,667
P1,566,667
*(P440,000/75%) (P702,000 P142,000) = P26,667
Total Assets of P.
Less: Investment in S Corp.
Book value of assets of S Corp.
Increase in land (P60,000 P32,000)
Goodwill (partial)*
*[P440,000 (P702,000 P142,000) x 75%]
P1,278,000
(440,000)
P 838,000
542,000
P1,380,000
22,000
28,000
110,000
20,000
P1,540,000
9.
10.
d
P215,000
= P130,000 + P70,000 + (P85,000 - P70,000)
a
Partial Goodwill
Less: BV of SHE of SSD (P50,000 + P90,000) x 70%
Allocated excess
P 10,500
Land (P20,000 x 70%)
14,000
Goodwill partial
11.
P150,500
__98,000
P 52,500
24,500
P 28,000
c
Full-goodwill:
Add: FV of NCI
Less: BV of SHE of SS (P50,000 + P90,000) x 100%
Allocated excess
Inventory (P70,000 P85,000) x 100%
Land (P25,000 P45,000) x 100%
Goodwill full
P150,500
**64,500
P 15,000
20,000
P215,000
140,000
P 75,000
35,000
P 40,000
**given amount, but it should not be lower than the fair value of SHE
subsidiary amounting to
P52,500 computed as follows :
FV of SHE of SS:
35,000
FV of SHE of SS
P 175,000
30%
12. b
Silk
Goodwill (full)
P 791,500
(150,500)
P 641,000
405,000
P1,046,000
15,000
20,000
40,000
P1,121,000
P 791,500
(150,500)
P 641,000
405,000

Silk
Goodwill (partial)
13.
14.
P701,500
P1,046,000
15,000
20,000
28,000
P1,109,000
(P61,500 + P95,000 + P280,000) + (P28,000 + P37,000

+ P200,000)

NCI
FV of SHE of SSD:
35,000
FV of SHE of SSD
P 175,000
30%
15.
d
NCI
FV of SHE of SSD:
35,000
FV of SHE of SSD
P 175,000
30%
Add: NCI on full-goodwill (P40,000 P12,000)... 12,000
FV of NCI (full)..P 64,500
16.
P205,000
The amount reported by Power Corporation
17.
c
P419,500
= (P150,000 + P205,000) + P64,500
Consolidated SHE:
Common stock
Retained Earnings
NCI (partial-goodwill)
Consolidated SHE
P150,000
205,000
P355,000
52,500
P404,500
18. b
Consideration transferred ..............................................................................
Less: Strand's book value (P50,000 x 80%).......................................................
Fair value in excess of book value .................................................................
P60,000
(40,000)
P20,000
Excess assigned to inventory (60% ) .................................................... P12,000

Excess assigned to goodwill (40%) ................................... P 8,000
19. c
Consideration transferred (P60,000 80%) .....................................................
Less: Strand's book value ...............................................................................
Fair value in excess of book value .................................................................
Excess assigned to inventory (60%) .................................................... P15,000
Excess assigned to goodwill (40%) ................................... P10,000
P75,000
(50,000)
P25,000
20. a
Park current assets ...........................................................................................
Strand current assets .......................................................................................
Excess inventory fair value...............................................................................
Consolidated current assets ............................................................................
P 70,000
20,000
15,000
P105,000
Park noncurrent assets....................................................................................

Strand noncurrent assets ................................................................................
Excess fair value to goodwill (partial) .............................................................
Consolidated noncurrent assets .....................................................................
P 90,000
40,000
___8,000
P140,000
Park noncurrent assets.....................................................................................

Strand noncurrent assets .................................................................................
Excess fair value to goodwill (full)....................................................................
Consolidated noncurrent assets ......................................................................
P 90,000
40,000
__10,000
P140,000
21. c
22. d
23. b Add the two book values and include 10% (the P6,000 current portion) of the loan taken out
by Park to acquire Strand.
24. b
Add the two book values and include 90% (the P54,000 noncurrent portion) of the loan taken
out by Polk to acquire Strand.
25. b
Park stockholders' equity ................................................................................
NCI (partial):
BV of SHE S ..P50,000
Adjustments to reflect fair value (inventory) . 15,000
FV of SHE S P65,000
x: Multiplied by: NCI%........................................................................
20%
Total stockholders' equity ..............................................................................
P80,000
13,000
P93,000
26. c
Park stockholders' equity ................................................................ . P80,000
NCI (full):
BV of SHE S ..P50,000
Adjustments to reflect fair value (inventory) . 15,000
FV of SHE S P65,000
x: Multiplied by: NCI%.........................................................................
20%
NCI (partial) P13,000

Add: NCI on full-goodwill (P10,,000 P8,000) 2,000
Non-controlling interest at fair value (20% P75,000)
15,000
Total stockholders' equity
P95,000
27.
28.
29.
30.
b
a P150,000 + P500,000
a at fair value
d
(1) NCI measured at its share of net assets (Partial Goodwill)
Consideration transferred P 100 million
Less: Fair value of identifiable assets and liabilities of Loco
(80% x P85 million).. 68 million
Goodwill (partial)....P 32 million
(2) NCI is measured at its fair value (Full Goodwill)
Consideration transferred P 100 million
Fair value of NCI [(P100 million P24 million = P76 million / 80% =
P95 million] x 20%.................................................................................... 19 million
Fair value of Subsidiary ...P 119 million
Less: Fair value of identifiable assets and liabilities of Oak .
85 million
Goodwill (full) ...P 34 million
Under PFRS3 par. 32, goodwill is measured at the consideration transferred plus the
non-controlling interest (however measured) less net assets acquired. The noncontrolling interest may be measured at its share of net assets or its fair value, per PFRS3
par. 19.
Note: Fair value is assumed to be the same with the carrying/book value.
31.
d
Fair value of Subsidiary - Swan
Consideration transferred P 1,420,000
Less: Fair value of identifiable assets and liabilities of Swan
(70% x P1.2 million) .
840,000
Goodwill (partial)....P 580,000
Goodwill is carried as an asset in the consolidated statement of financial position.
Fair value of Subsidiary - Homer
Consideration transferred P 300,000
Less: Fair value of identifiable assets and liabilities of Homer
(65% x P640,000) ...
416,000
Gain on bargain purchase P ( 116,000)
Gain on a bargain purchase is recognized in profit or loss not on the statement of
financial position.
Notes:
1.
Moon measures non-controlling interests at the relevant share of the identifiable
net assets at the acquisition date; therefore partial goodwill is in effect.
2.
Fair value is assumed to be the same with the carrying/book value.
32.
a See PFRS 3 par. 32.

Consideration transferred P1,960,000
Less: Fair value of identifiable assets and liabilities of Oak
(P700,000 x 70%) .
490,000
Goodwill (partial).. P1,470,000
Or, alternatively:
Consideration transferred P1,960,000
Less: Book value of SHE of Oak (P100,000 + P300,000 + P1,400,000) x 70%.......... 1,260.000
Allocated excess ..P 700,000
Less: Over/under valuation of assets and liabilities
(P1,800,000 P700,000) x 70%...................................................................... 770,000
Goodwill (partial)..P1,470,000
Note: Since the company elected to measure NCI at its share of the identifiable net assets
instead of fair value, therefore the partial goodwill approach should be used.
33.
d - P592,000 = P300,000 + P270,000 + P22,000
34.
a P26,667
Partial Goodwill
Less: BV of SHE of S (P400,000 x 75%)
Allocated excess
Current assets (P22,000 x 75%)
Land, buildings and equipment (P138,000 x 75%)
Goodwill partial
Full-goodwill:
Consideration transferred (P440,000 / 75%)
Less: BV of SHE of S (P400,000 x 100%)
Allocated excess
Current assets (P22,000 x 100%)
Land, buildings and equipment (P138,000 x 100%)
Goodwill full
P440,000
__300,000
P140,000
P 16,500
103,500
120,000
P 20,000
P586,667
__400,000
P186,667
P 22,000
138,000
160,000
P 26,667
35. b
Consolidated Total Assets:
Current assets (No. 32)
Land, buildings and equipment
[P538,000 + P272,000 + P138,000 + P26,667, full-goodwill]
592,000
974,667
P 1,566,667
36 c
FV of SHE of SS:
Book value of SHE of S .P 400,000
Adjustments to reflect fair value . 160,000
FV of SHE of S ..P 560,000
Multiplied by: NCI%..............................................................

25%
FV of NCI (partial) ..P 140,000
Add: NCI on full-goo dwill (P26,667 P20,000) ....
6,667
FV of NCI (full-goodwill) ...P 146,667
37. d
Consolidated Total Liabilities:
Liabilities: P Co. (P300,000 + P538,000 + P440,000 P348,333)..P 929,667
S Co ..
142,000
P1,071,667
38. d
Consolidated Stockholders Equity
Parents stockholders equity P 348,333
Add: NCI (full-goodwill) (No. 36) .. 146,667
P 495,000
39. b
FV, stocks issued
Less: Par value of stocks issued (500,000 shares x P5) ..
APIC
Add: APIC of P
Less: Stock issuance cost
40.
41.
42.
43.
44.
45.
46.
47.
48.
49.
50.
51.
52.
53.
P 4,200,000
__2,500,000
P 1,700,000
7,500,000
___100,000
P 9,100,000
c
a
No answer available
a ( P10 x 100,000 = P1,000,000 P1,400,000) = P400,000
a
c
a
[P15 x 100,000 = P1,500,000 (P1,900,000 P100,000 600,000 )+ P100,000 increase + P100,000 in
increase in PPE] = P100,000
b
P1,500,000 (1,700,000 50,000 decrease in inventories) + (P100,000 increase in PPE P300,000
P500,000) = P550,000
a
d (P1,000,000 + P250,000) = P1,250,000 P only.
d [P99,000 + (P45,000 P26,000)] or (P99,000 + P45,000) = P144,000
b [(P330,000/75%) (P565,000 P105,000)] = (P20,000) full-goodwill approach
a P only
d
Total Assets of P
P 960,000
Less: Investment in S
(330,000)
P 630,000
Book value of assets of S
405,000
P1,035,000
19,000
21,000
120,000
Goodwill (full)
_____0
P1,195,000
If partial-goodwill same answer with full-goodwill approach, since there is no gain.
54. b step-acquisition
60% FV, stocks issued: 60,000 shares x P6, fair value
30% FV of previously held equity interest: 30,000 shares x P5, fair value
10% FV of NCI (100,000 60,000 30,000) x P, fair value
100% Fair value of subsidiary
Less: Fair value of net assets (SHE) of subsidiary
55.
56.
57.
58.
P360,000
150,000
40,000
P560,000
500,000
P 60,000
b
a
a [(P700,000 + P980,000) + (34,000 shares x P35)] = P2,780,000
d
Book value of Assets (P80,000 + P50,000 + P200,000)
Fair value of Assets (P85,000 + P60,000 + P250,000)
P330,000
395,000
P 65,000
59. a zero, since the revaluation of P65,000 is already recorded in the books of subsidiary (not in the
worksheet or eliminating entries.
60. b (P250,000 P200,000)/10 years = P5,000 depreciation to reduce net income of Sirius.
61. d Since, CC Corp. is not a subsidiary, no elimination of intercompany accounts will be made.
Therefore, the P200,000 remains to be a receivable. On the other hand, WW Corp. is a consolidated
subsidiary, so the P300,000 intercompany account will be eliminated.
62. d
63. a
64. c In the combined financial statements (which normally used to described financial statements
in a common control situation), intercompany accounts are eliminated in full.
65. d In consolidating the subsidiary's figures, all intercompany balances must be eliminated in their
entirety for external reporting purposes. Even though the subsidiary is less than fully owned, the
parent nonetheless controls it.
66. d
The acquisition method consolidates assets at fair value at acquisition date regardless of the
parents percentage ownership.
67. d refer to62
In consolidating the subsidiary's figures, all intercompany bal ances must be eliminated in their
68. d refer to No. 61
69. c
An asset acquired in a business combination is initially valued at 100% acquisition-date fair
value and subsequently amortized its useful life.
Patent fair value at January 1, 2009 ...............................................................
Amortization for 2 years (10 year life) .............................................................
Patent reported amount December 31, 2010 ................................................
P45,000
(9,000)
P36,000
70. a
PP - building .....................................................................................................
TT building acquisition-date fair value
P300,000
Amortization for 3 years (10-year life)
(90,000)
Consolidated buildings ....................................................................................
-ORPP - building ......................................................................................................
TT building 12/31/x4
P182,000
Excess acquisition-date fair value allocation
40,000
Excess amortization for (P40,000/ 10 x 3 years)
(12,000)
P510,000
210,000
P720,000
510,000
210,000
Consolidated buildings ....................................................................................
P720,000

AA, Inc. Fair value at January 1, 20x7:
30% previously owned fair value (30,000 shares P5) ...................................
60% new shares acquired (60,000 shares P6) ..............................................
10% NCI fair value (10,000 shares P5) ..........................................................
Acquisition-date fair value .............................................................................
Net assets' fair value .......................................................................................
Goodwill ......................................................................................................
P150,000
360,000
50,000
P560,000
500,000
P60,000
72. d
Cost of Investment (40 shares* x P40)P 1,600
Less: Book value of SHE Pedro Ltd (P300 + P800) x 100%......................... 1,100
Allocated excessP 500
Less: Over/Under valuation of Assets and Liabilities:
Increase in Non-current assets: [(P1,500 P1,300) x 100% x 70%........
140
Goodwill. P 360 (d)
100%
Pedro Ltd
Santi Ltd
Currently issued 150 60% **
60 60%
Additional shares issued.. 100 40%
40 / 40%
Total shares 250
100
**150/250
Pedro ltd issues 2 shares in exchange for each ordinary share of Santi Ltd. All of Santi Ltds shareholders exchange
their shares for Pedro Ltd. Pedro Ltd therefore issues 150 shares (60 x 2 ) for the 60 shares in Santi Ltd.
Pedro Ltd is now the legal parent of the subsidiary Santi Ltd. However, analyzing the shareholding in Pedro Ltd
shows that it consists of the 100 shares existing prior to the merger and 150 new shares held bye former shareholders
in Santi Ltd. In essence, the former shareholders of Santi Ltd now control both entities Pedro Ltd and Santi Ltd. The
former Santi Ltd shareholders have a 60% interest in Pedro Ltd [150/(100+150]. The IASB argues that there has been
a reverse acquisition, and that Santi Ltd is effectively the a cquirer of Pedro Ltd.
Reverse acquisition occurs when the legal subsidiary has this form of control over the legal parent. The usual
circumstance creating a reverse acquisition is where an entity (the legal parent) obtains ownership of the equity of
another entity (the legal subsidiary) but, as part of the exchange transaction, it issues enough voting equity as
consideration for control of the combined entity to pass to the owners of the legal subsidiary.
The key accounting effect of deciding that Santi Ltd is the acquirer is that the assets and liabilities of Pedro ltd are to
be valued at fair value. This is contrary to normal acquisition accounting, based on Pedro Ltd being the legal parent
of Santi Ltd, which would require the assets and liabilities of Santi Ltd to be valued at fair value.
73. c
P60,000 allocation to equipment is "pushed-down" to subsidiary and increases balance from
P330,000 to P390,000. Consolidated balance is P420,000 plus P390,000.
Theories
1.
2.
3.
4.
c
a
e
e
6.
7.
8.
9.
b
b
A
D
11.
12.
13.
14.
c
c
d
d
16.
17.
18.
19.
d
c
b
c
21.
22.
23.
24.
b
a
a
b
26.
27.
28.
29.
d
c
c
d
31
32.
33.
34.
c
d
b
d
36.
37.
38.
39.
d
d
c
b
5.
41.
42.
43.
44.
45.
b
c
c
c
c
c
10,
46.
47.
48.
49.
50,
a
b
a
c
d
b
15,
51.
52.
53.
54.
55,
b
c
b
a
a
c
20.
56.
57.
58.
59.
60.
25.
30.
35.
40.
Chapter 16
Problem I
1. (Full or partial-goodwill) the same answer.
Consideration transferred by MM ........................
Noncontrolling interest fair value..........................
Fair value of Subsidiary
Less: Book value of SHE S .. .
Positive excess .....................................................
Excess fair value assigned to buildings
Goodwill - full
Total ................................................................
P664,000
166,000*
P830,000
(600,000)
230,000
Annual Excess
Life
Amortizations
80,000 20 years
P4,000
P150,000 indefinite
-0P4,000
2.
P150,000 full goodwill (see No. 1 above)

P120,000 partial-goodwill:
Consideration transferred by MM ........................ P664,000
Less: Book value of SHE S (P600,000 x 80%) ..
480,000
Allocated excess ..
P184,000
Less: Over/under valuation of A and L:
P80,000 x 80%.................................................
64,000
Goodwill - partial .................................................. P120,000
3.
Full-goodwill
Common Stock - TT ..........................................................
Additional Paid-in Capital - TT .........................................
Retained Earnings - TT .......................................................
Investment in TT Company (80%) ...............................
Non-controlling interest (20%) ....................................
Buildings ...........................................................................
Goodwill ..........................................................................
Non-controlling interest (P166,000 P120,000)...........
Partial-goodwill
Common Stock - TT ..........................................................
Additional Paid-in Capital - TT .........................................
Retained Earnings - TT .......................................................
Non-controlling interest (20%) ....................................
Buildings ...........................................................................
Goodwill ..........................................................................
Non-controlling interest (20% x P80,000) ....................
300,000
90,000
210,000
480,000
120,000
80,000
150,000
184,000
46,000
300,000
90,000
210,000
480,000
120,000
80,000
120,000
184,000
16,000
4.
Cost Model/Initial Value Method

Dividends received (80%) ......................................................
Investment in Taylor12/31/x4 (original value paid)
P 8,000
P664,000
5.
Cost Model/Initial Value Method same answer with No. 4.
6.
Using the acquisition method, the allocation will be the total difference ( P80,000) between the
buildings' book value and fair value. Based on a 20 year life, annual excess amortization is P4,000.
MM book valuebuildings ..............................................
TT book valuebuildings .................................................
Allocation ........................................................................
Excess Amortizations for 20x420x5 (P4,000 2) .
Consolidated buildings account
7.
Acquisition-date fair value allocated to goodwill:

Goodwill-full ( see No. 1 above) ............................................
Goodwill-partial (see No. 1 above)
800,000
300,000
80,000
(
8,000)
P 1,172,000
P
P
150,000
120,000
8. The common stock and additional paid-in capital figures to be reported are the parent balances
only.
Common stock, P500,000
Additional paid-in capital, P280,000
Problem II
1.
Partial Goodwill or Proportionate Basis
a. Investment in S
225,000
Beginning Retained Earnings-Palm Inc.
To establish reciprocity/convert to equity (0.90 x(P1,250,000 P1,000,000))
b.
c.
Common stock S
Retained earnings S
Investment in S Co
NCI (P4,250,000 x 10%)
Land
Investment in S
NCI [(P500,000 x 10%) (P100,000 x 10%)]
Retained earnings P (bargain purchase gain
closed to retained earnings since only balance
sheets are being examined, P300,000 P90,000
depreciation, 20x4)
FV of SHE of S:
Common stock, 1/1/20x5
Retained earnings, 1/1/20x5
NI Subsidiary (20x4)
Dividends Subsidiary 20x4
225,000
3,000,000
1,250.000
3,825,000
425,000
400,000
150,000
40,000
210,000
P3,000,000
P1,000,000
250,000
(
0) 1,250,000
Book value of SHE S, 1/1/20x5

P4,250,000
500,000
Amortization of allocated excess (P100,000 x 1)
( 100,000)
FV of SHE of S
P4,650,000
Multiplied by: NCI%
10%
FV of NCI
P 465,000
Computation of Gain:
Less: BV of SHE of S (P3,000,000 + P1,000,000) x 90%
Allocated excess
Inventory (P800,000 P700,000) x 90%
Land (P2,000,000 P1,600,000) x 90%
Gain partial (attributable to parent)
P3,750,000
_3,600,000
P 150,000
P 90,000
360,000
__450,000
(P300,000)
Full Goodwill or Fair Value Basis

a. Investment in S
225,000
Beginning Retained Earnings-P Inc.
To establish reciprocity/convert to equity (0.90 x(P1,250,000 P1,000,000))
b.
c.
Common stock S
Retained earnings S
Investment in S
NCI (P4,250,000 x 10%)
Land
Investment in S
NCI [(P500,000 x 10%) (P100,000 x 10%)]
Retained earnings P (bargain purchase gain
closed to retained earnings since only balance
sheets are being examined, P300,000 P90,000
depreciation, 20x4)
225,000
3,000,000
1,250.000
3,825,000
425,000
400,000
150,000
40,000
210,000
FV of SHE of S:
P3,000,000
P1,000,000
250,000
(
0) 1,250,000
P4,250,000
500,000
( 100,000)
FV of SHE of S
P4,650,000
Multiplied by: NCI%

FV of NCI
Full-goodwill or Fair Value Basis
Consideration transferred P3,750,000 / 90%
Less: BV of SHE of S (P3,000,000 + P1,000,000) x 100%
Allocated excess
Inventory (P800,000 P700,000) x 100%
Land (P2,000,000 P1,600,000) x 100%
Gain full (attributable to parent)
10%
P 465,000
P4,166,667
4,000,000
P 166,667
P 100,000
400,000
__500,000
(P333,333
Note: In case of gain, the working paper eliminating entries under partial and full -goodwill
approach are the same.
2.
Consolidated Retained Earnings, December 31, 20x5
Retained earnings - Parent Company, December 31, 20x5 (cost model
Adjustment to conv ert 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
(P1,000,000 + P250,000 P0 + P300,000 P0)
Less: Retained earnings Subsidiary, January 1, 20x4
Increase in retained earnings since date of acquisition
Less: Amortization of allocated excess 20x4 (inv entory)
Multiplied by: Controlling interests %...................
Add: Bargain purchase gain (Controlling interest P300,000)
Less: Goodwill impairment loss
Consolidated Retained earnings, December 31, 20x5
Problem III
Partial Goodwill
Less: BV of SHE of S (P1,000,000 + P500,000) x 80%
Allocated excess
Prop., plant and eqpt. (P1,500,000 P600,000) x 80%
Goodwill partial
Full-goodwill:
Less: BV of SHE of S (P1,500,000 x 100%)
Allocated excess
Prop., plant and eqpt. (P1,500,000 P600,000) x 80%
Goodwill full
Amortization of allocated excess:
P2,000,000
P1,550,000
1,000,000
P 550,000
100,000
P 450,000
90%
P405,000
300,000
_______0
__705,,000
P2,705,000
P2,800,000
_1,200,000
P1,600,000
__720,000
P 880,000
P3,500,000
1,500,000
P2,000,000
__900,000
P1,100,000
P900,000 / 10 years = P90,000 per year

1.
Cost Model-Full Goodwill (Eliminating Entries)
20x4
a. Beginning Retained Earnings-S Co.
Capital Stock- S Co.
Property and Equipment (net)
Goodwill
Investment in S Co.
1,000,000
500,000
900,000
1,100,000
2,800,000
700,000

P 500,000
1,000,000
P1,500,000
900,000
FV of SHE of S1/1/x5
P2,400,000
Multiplied by: NCI%
20%
FV of NCI (partial)
P 480,000
Add: NCI on full-goodwill (P1,100,000 P880,000)
220,000
FV of NCI (full)
P 700,000
b. Depreciation Expense
Property and Equipment (net )
20x5
a. Investment in S Company (P300,000 x 0.80)
Beginning Retained Earnings-P Co.
To establish reciprocity/convert to equity as of 1/1/20x5
b. Beginning Retained Earnings-S Company
Capital Stock-S Company
Goodwill
Investment in S Company (P2,800,000 + P240,000)
Non-controlling Interest P700,000 +
[(P1,300,000 P1,000,000) x 0.20]
90,000
90,000
240,000
240,000
1,300,000
500,000
900,000
1,100,000
3,040,000
760,000
FV of SHE of S:
P 500,000
P1,000,000
300,000
(
0) 1,300,000
P1,800,000
900,000
P2,700,000
Multiplied by: NCI%
20%
FV of NCI (partial)
P 540,000
220,000
FV of NCI (full)
c. Beginning Retained Earnings-P Co. (P90,000 x 80%)
Non-controlling Interest (P90,000, depreciation x 20%)
Depreciation Expense
P 760,000
72,000
18,000
90,000
180,000
NCI (partial), 12/31/20x5: [(a) P760,000 (b) P18,000 = P522,000]

FV of SHE of S:
P 500,000
P1,000,000
300,000
(
0) 1,300,000
P1,800,000
900,000
( 90,000)
FV of SHE of S
P2,610,000
Multiplied by: NCI%
20%
FV of NCI (partial)
P 522,000
220,000
FV of NCI (full)
P 742,000
Cost Model-Partial Goodwill (Eliminating Entries)

20x4
a. Beginning Retained Earnings-S Co.
Capital Stock- S Co.
Goodwill
Investment in S Co.
b. Depreciation Expense
Property and Equipment (net )
20x5
a. Investment in S Company (P300,000 x 0.80)
Beginning Retained Earnings-P Co.
To establish reciprocity/convert to equity as of 1/1/20x5
1,000,000
500,000
900,000
880,000
2,800,000
480,000
90,000
90,000
240,000
b. Beginning Retained Earnings-S Company

1,300,000
Capital Stock-S Company
500,000
900,000
Goodwill
880,000
Investment in S Company (P2,800,000 + P240,000)
Non-controlling Interest P700,000 +
[(P1,300,000 P1,000,000) x 0.20] (P1,100,000 P880,000)
240,000
3,040,000
540,000
NCI:
FV of SHE of S:
Multiplied by: NCI%
FV of NCI (partial)
c. Beginning Retained Earnings-P Co. (P90,000 x 80%)
Non-controlling Interest (P90,000 depreciation x 20%)
P 500,000
P1,000,000
300,000
(
0) 1,300,000
P1,800,000
900,000
P2,700,000
20%
P 540,000
72,000
18,000
90,000
180,000
NCI (partial), 12/31/20x5: [(a) P540,000 (b) P18,000 = P522,000]

FV of SHE of S:
P 500,000
P1,000,000
300,000
(
0) 1,300,000
P1,800,000
900,000
( 90,000)
FV of SHE of S
P2,610,000
Multiplied by: NCI%
20%
FV of NCI (partial)
P 522,000
2. Consolidated Net Income (CNI) = Controlling Interest in CNI + NCI in CNI

20x4
Consolidated Net Income for 20x4

Net income from own/separate operations
P Company
S Company
Total
Less: Non-controlling Interest in Net Income*
Amortization of allocated excess
Goodwill impairment
P400,000
300,000
P700,000
P 42,000
90,000
____0
132,000
Controlling Interest in Consolidated Net Income

or Profit
attribut able to equity holders of P..
Add: Non-controlling Interest in Net Income
(NCINI)
P568,000
42,000
P610,000
Net income of subsidiary..
P
300,000
(
90,000)
P210,000
Amortization of allocated excess ...
Multiplied by: Non-controlling interest %..........
20%
P
42,000
Non-controlling Interest in Net Income (NCINI)

Note: If there is impairment in goodwill the CNI and NCI-CNI are not the same.
20x5

P Company
S Company
Total
Goodwill impairment
P425,000
400,000
P825,000
P 62,000
90,000
____0
152,000

or Profit
attributable
to
equity
holders
of
parent..
(NCINI)
Amortization of allocated excess ...

P673,000
62,000
P735,000
P
400,000
(
90,000)
P310,000
20%
P
62,000
Problem IV
1.
Common stock of TT Company
on December 31, 20x4
Retained earnings of TT Company
January 1, 20x4
Sales for 20x4
Less: Expenses
Dividends paid
Retained earnings of TT Company
on December 31, 20x4
Net book value on December 31, 20x4
Proportion of stock acquired by QQ
Purchase price
2.
Net book value on December 31, 20x4
Proportion of stock held by
noncontrolling interest
Balance assigned to noncontrolling interest
P 90,000
P 130,000
195,000
(160,000)
(15,000)
150,000
P240,000
x
.80
P192,000
P240,000
x
.20
P 48,000
3.
Consolidated net income is P143,000. None of the 20x4 net income of TT Company was earned
after the date of purchase and, therefore, none can be included in consolidated net income.
4.
Consolidate net income would be P178,000 [P143,000 + (P195,000 - P160,000)].
Problem V
Requirements 1 to 4:

Cash
Notes payable
100%).
100%)...
value)..
liabilities:
100%)
100%).
Increase in equipment (P96,000 x 100%)
Decrease in buildings (P24,000 x
P 360,000
105,000
P
465,000
P 240,000
120,000
6,000
7,200
96,000
( 24,000)
360,000
P
105,000
100%).....
Decrease in bonds payable (P4,800 x
100%)
Positive excess: Goodwill (excess of cost over
fair
value)...
4,800
90,000
P
15,000
S Co.
Book
value
Inventory...
Land
Equipment (net).........
Buildings (net)
Bonds payable
Net..
S Co.
Fair
value
(Over)
Under
Valuation
P
24,000
48,000
84,000
168,000
P
30,000
55,200
180,000
144,000
(
(120,000) 115,200)
P
P
204,000 294,000
6,000
7,200
96,000
(24,000)
4,800
P 90,000
Equipment ..................
Less: Accumulated
depreciation..
Net book
value...
Buildings................
Less: Accumulated
depreciation..
Net book
value...
S Co.
Book value
180,000
S Co.
Fair value
180,000
Increase
(Decrease)
0
96,000
( 96,000)
84,000
180,000
96,000
S Co.
Book value
360,000
S Co.
Fair value
144,000
(Decrease)
( 216,000)
192,000
( 192,000)
168,000
144,000
24,000)
A summary or depreciation and amortization adjustments is as follows:
Over/
Account Adjustments to be unde
amortized
r
P
Inventory
6,000
Subject
to
Annual
Lif
e
1
Annu
al
Current
Amou Year(20x
nt
4)
P
6,000 P 6,000
20x5
P
-
Amortization
Buildings (net)
96,00
0
(24,0
00)
Bonds payable
4,800
8
4
4
12,000
(
6,000)
1,200
P
13,200
12,00
0
(6,00
0)
12,000
( 6,000)
1,200
1,200
P
7,200
P 13,200
20x4 : First Year after Acquisition

Parent Company Cost Model Entry
January 1, 20x4:
(1)
Investment
in
Company
S 465,000
360,000
Cash..
Notes payable
105,000
Acquisit ion of S Company.
January 1, 20x4 December 31, 20x4:

(2) Cash
Dividend income (P36,000 x 100%).
36,000
36,000
Record dividends from S Company.
On the books of S Company, the P36,000 dividend paid was recorded as follows:
Dividends paid
Cash.
36,000
Div idends paid by S Co..
36,000
Consolidation Workpaper First Year after Acquisition
(E1)
Common
stock
Co
Retained
earnings
Co
Investment
in
Co
240,000
120,000
360,000
To eliminat e int ercompany invest ment and equit y account s

of subsidiary on date of acquisition. ; and t o establish non-controlling
int erest (in net asset s of subsidiary) on dat e of acquisit ion.
(E2)
6,000
Inventory.
Accumulated depreciation equipment..
96,000
Accumulated depreciation buildings..
192,000
7,200
Land.
Discount
on
bonds
payable.
Goodwill.
Buildings..
Investment
in
S
Co.
4,800
15,000
216,000
105,000
To allocat e excess of cost over book value of ident ifiable asset s

acquired, wit h remainder t o goodwill
(E3) Cost of Goods Sold.

Depreciation expense..
Accumulated
depreciation
buildings..
Interest expense
Goodwill impairment loss
6,000
6,000
6,000
1,200
3,600
6,000
Inventory..
Accumulated
depreciation
equipment..
Goodwill..
12,000
1,200
3,600
To provide for 20x4 impairment loss and depreciat ion and

amort izat ion on differences bet ween acquisit ion dat e fair value and
book value of Sons ident ifiable asset s and liabilit ies as follows:
Inv entory sold

Equipment
Buildings
Bonds payable
Totals
Cost of
Goods
Sold
P 6,000
_______
P 6,000
Depreciation/
Amortization
Expense
Amortization
-Interest
P12,000
( 6,000)
_______
P 6,000
P 1,200
P1,200
(E4) Dividend income - P.

Dividends paid S
36,000
36,000
To eliminate intercompany dividends and non-cont rolling int erest

share of dividends.
Worksheet for Consolidated Financial Statements, December 31, 20x4.

Cost Model
100%-Owned Subsidiary
December 31, 20x4 (First Year after Acquisition)
Income Statement
Sales
Div idend income
Total Rev enue
P Co
P480,000
36,000
P516,000
S Co.
P240,000
P240,000
Dr.
(4)
36,000
Cr.
Consolidated
P 720,000
_________
P 720,000
Cost of goods sold

Depreciation expense
Interest expense
Other expenses
Total Cost and Expenses
Net Income to Retained Earnings
Statement of Retained Earnings
P Company
S Company
Net income, from abov e
Total
Div idends paid
P Company
S Company
Retained earnings, 12/31 to Balance
Sheet
Balance Sheet
Cash.
Inv entory.
Land.
Equipment
Buildings
Goodwill
Inv estment in S Co
Total
- equipment
- buildings
Accounts payable
Bonds payable
Retained earnings, from above
Total
P204,000
60,000
-
P138,000
24,000
-
48,000
P312,000
P204,000
18,000
P180,000
P 60,000
(3)
(3)
(3)
(3)
6,000
6,000
1,200
3,600
P 348,000
90,000
1,200
3,600
66,000
P508,800
P211,200
P360,000
P 360,000
204,000
P564,000
P120,000
60,000
P180,000
72,000
-
36,000
P492,000
P144,000
147,000
90,000
120,000
210,000
240,000
720,000
P 90,000
60,000
90,000
48,000
180,000
540,000
(1) 120,000
211,200
P571,200
(4)
P 499,200
P
(2)
(2)
6,000
7,200
(2)
(2)
4,800
15,000
465,000
P1,992,000
P1,008,000
P 135,000
405,000
P 96,000
288,000
120,000
240,000
600,000
120,000
120,000
___590,400
P1,992,000
240,000
144,000
P1,008,000
72,000
________
36,000
(3)
6,000
(2) 216,000
(3) 1,200
(3) 3,600
(4) 360,000
(5) 105,000
(2) 96,000 (3)

(2) 192,000
(3)
6,000
12,000
237,000
150,000
210,000
265,200
420,000
1,044,000
3,600
11,400
P2,341,200
P 147,000
495,000
240,000
360,000
600,000
(1) 240,000
P 736,200
P 736,200
499,200
P2,341,200
20x5: Second Year after Acquisition

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

Cash
Dividend
income
(P48,000
100%).
48,000
x
48,000
Dividends paid
Cash
Dividends paid by S Co..
48,000
48,000
Consolidation Workpaper Second Year after Acquisition
(E1)
Investment
Company
Retained
earnings
Company
in
24,000
24,000
To provide ent ry t o convert from t he cost met hod t o t he equit y

met hod or t he entry t o establish reciprocit y at t he beginning of t he
year, 1/1/20x5.
Retained earnings S Company, 1/1/20x5
Increase in retained earnings..
Multiplied by: Controlling interest %
Retroactive adjustment
P144,000
120,000
P 24,000
100%
P 24,000
(E2)
Common
stock
Co
Retained earnings S Co., 1/1/20x5
Investment in S Co
240,000
144,000
384,000

of subsidiary and to establish non-controlling interest (in net asset s of
subsidiary) on January 1, 20x5.
(E3)
6,000
Inventory.
96,000
192,000
7,200
Land.
Discount
on
bonds
4,800
payable.
15,000
Goodwill.
Buildings..
216,000
Investment
in
S
105,000
Co.
acquired, wit h remainder t o goodwill; and t o est ablish noncont rolling int erest (in net asset s of subsidiary) on January 1, 20x5.
(E4) Retained earnings P Company, 1/1/20x5

(P16,800 x 100%)
Accumulated
depreciation
buildings..
Interest expense
16,800
6,000
12,000
1,200
6,000
Inventory..
Accumulated
depreciation
equipment..
Goodwill
24,000
2,400
3,600
To provide for years 20x4 and 20x5 depreciat ion and amort izat ion on
differences bet ween acquisit ion dat e fair value and book value of
Ss ident ifiable asset s and liabilit ies as follows:
Year 20x4 amount s are debit ed t o Ps ret ained earnings
Year 20x5 amount s are debit ed t o respect ive nominal account s..
Inv entory sold

Equipment
Buildings
Bonds payable
Impairment loss
Totals
(20x4)
Retained
earnings,
P 6,000
12,000
(6,000)
1,200
3,600
P 16,800
Depreciation/
Amortization
expense
P
Amortization
-Interest
12,000
( 6,000)
P 1,200
P 6,000
P1,200

Dividends paid S
48,000
48,000

share of dividends.
(E6) Non-controlling interest in Net Income of

Subsidiary
Non-controlling interest ..
16,560
16,560
To est ablish non-cont rolling int erest in subsidiarys adjust ed net

income for 20x5 as follows:
Amortization of allocated excess [(E4)] ...
P 90,000
( 7,200)
P 82,000
20%
P 16,560

Cost Model
Income Statement
Sales
Div idend income
Total Rev enue
Cost of goods sold
Interest expense
Other expenses
P Co.
P540,000
48,000
P588,000
P216,000
60,000
72,000
P348,000
P240,000
S Co.
P360,000
P360,000
P192,000
24,000
54,000
P270,000
P 90,000
Dr.
(5)
48,000
(4)
(4)
6,000
1,200
Cr.
Consolidated
P 900,000
___________
P 900,000
P 408,000
90,000
1,200
126,000
P 625,200
P 274,800
P Company
P492,000
S Company
Total
Div idends paid
P Company
S Company
Sheet
Balance Sheet
Cash.
Inv entory.
Land.
Equipment
Buildings
Goodwill
Inv estment in S Co
Total
- equipment
- buildings
Accounts payable
Bonds payable
Total
(4) 16,800
(2)
144,000
(1)
24,000
499,200
240,000
P732,000
P144,000
90,000
P234,000
72,000
-
48,000
P660,000
P186,000
P 702,000
189,000
180,000
216,000
252,000
240,000
720,000
P 102,000
960,000
108,000
48,000
180,000
540,000
P 291,000
276,000
324,000
265,200
420,000
1,044,000
2,400
11,400
(5)
(3)
(3)
(3)
(3)
(1)
465,000
P2,220,000
P1,074,000
P 150,000
450,000
P 102,000
306,000
120,000
240,000
600,000
120,000
120,000
660,000
P2,220,000
274,800
P 774,000
240,000
186,000
P1,074,000
6,000 (4)
7,200
4,800
15,000
24,000
(3) 96,000
(3) 192,000
(4) 12,000
48,000
6,000
(3) 216,000
(4) 2,400
(4) 3,600
(2) 384,000
(6) 105,000
(4)
24,000
72,000
________
P2,634,000
P 180,000
552,000
240,000
360,000
600,000
(2) 240,000
P 783,120
P 783,120
702,000
P2,634,000
5. 1/1/20x4
a.
On date of acquisition the retained earnings of P 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. NCI not applicable, since it is 100% owned subsidiary

c.
Stockholders Equity
P
600,000
Retained earnings
360,000
P
960,000
6. 12/31/20x4:
a. P211,200 same with CNI since there is no NCI.
Net income from own/separate operations:
Pa Company
S Company
P168,000
60,000
Total
Less: Amortization of allocated excess
P 13,200
3,600
P228,000
16,800
P211,200
b. NCINI not applicable, since it is 100% owned subsidiary

c. P211,200 same with NCI-CNI since there is no NCI.
d.
P360,000
Add: Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of P for 20x4 or Consolidated Net Income (CNI)*
211,200
Total
P571,200
Less: Div idends paid P Company for 20x4
72,000
P499,200
* since it is a 100%-owned subsidiary, Cont rolling Int erest in Net Income is t he same wit h Consolidat ed Net Income.
e. NCI not applicable, since it is 100% owned subsidiary

f.
Stockholders Equity
Retained earnings
P
600,000
499,200
P
1,099,200
12/31/20x5
a. P274,800 same with CNI since there is no NCI.
P Company
S Company
Total
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent or CNI
P192,000
90,000
P282,000
P 7,200
0
7,200
P274,800
b. NCINI not applicable, since it is 100% owned subsidiary

c. P274,800 same with NCI-CNI since there is no NCI.
d.
Retained earnings - P Company, January 1, 20x5 (cost model
consolidation or to establish reciprocity:/Ps share in adjusted net
Retained earnings S, January 1, 20x5
Less: Retained earnings S, January 1, 20x4
Less: Amortization of allocated excess 20x4
Consolidated Retained earnings, January 1, 20x5
equity holders of P for 20x5 or CNI
Total
P492,000
P 144,000
120,000
P 24,000
16,800
P 7,200
100%
7,200
P 499,200
274,800
P774,000
72,000
P702,000
e. NCI not applicable, since it is 100% owned subsidiary

f.
Stockholders Equity
Retained earnings
P 600,000
702,000
P1,302,000
Problem VI
Schedule of Determination and Allocation of Excess (Partial-goodwill)

Consideration
transferred..
80%).
80%)...
value)..
liabilities:
80%)
80%).
80%).....
80%)
cost over
fair
value)...
P
372,000
P 192,000
96,000
288,000
P
84,000
P 4,800
5,760
76,800
( 19,200)
3,840
72,000
P
12,000
S Co.
Book
value
Inventory...
S Co.
Fair
value
P
(Over)
Under
Valuation
P P 6,000
24,000
48,000
84,000
168,000
30,000
Land
55,200
180,000
Buildings (net)
144,000
(
Bonds payable (120,000) 115,200)
P
P
Net..
204,000 294,000
7,200
96,000
(24,000)
4,800
P 90,000
Equipment ..................
Less: Accumulated
depreciation..
Net book
value...
Buildings................
Less: Accumulated
depreciation..
Net book
value...
S Co.
Book value
180,000
S Co.
Fair value
180,000
Increase
(Decrease)
0
96,000
( 96,000)
84,000
180,000
96,000
S Co.
Book value
360,000
S Co.
Fair value
144,000
(Decrease)
( 216,000)
192,000
( 192,000)
168,000
144,000
24,000)
Over/
Account Adjustments to be Unde
amortized
r
P
Inventory
6,000
Subject
to
Annual
Amortization
96,00
0
(25,0
Buildings (net)
00)
Bonds payable
4,800
Lif
e
1
8
4
4
Annu
al
Current
Amou Year(20x
nt
4)
P
6,000 P 6,000
20x5
P
-
12,000
(
6,000)
12,00
0
(6,00
0)
1,200
P
13,200
12,000
( 6,000)
1,200
P 13,200
1,200
P
7,200
The goodwill impairment loss of P3,125 based on 100% fair value would be allocated to the controlling
interest and the NCI based on the percentage of total goodwill each equity interest received. For
purposes of allocating the goodwill impairment loss, the full -goodwill is computed as follows:

Consideration transferred: Cash (80%)
Fair value of NCI (given) (20%)
Less: Book value of stockholders equity of Son
(P360,000 x 100%)
Allocated excess (excess of cost over book value)..
Add (deduct): (Over) under valuation of assets and
liabilities
(P90,000 x 100%)
Positive excess: Full-goodwill (excess of cost over
fair value)...
P 372,000
93,000
P 465,000
__360,000
P 105,000
90,000
P
15,000
In this case, the goodwill was proportional to the controlling interest of 80% and non -controlling interest
of 20% computed as follows:
Value
Goodwill applicable to parent
Goodwill applicable to NCI..
Total (full) goodwill..
P12,00
0
3,000
P15,000
% of
Total
80.00%
20.00%
100.00%
The goodwill impairment loss would be allocated as follows
Value
Goodwill impairment loss attributable to parent
P
or controlling
3,000
Interest
750
Goodwill impairment loss based on 100% fair
value or fullP 3,750
Goodwill
% of
Total
80.00%
20.00%
100.00%
When cost model is used, only two journal entries are recorded by P Company during 20x4 related to
its investment in S Company.
20x4: First Year after Acquisition
January 1, 20x4:
(1)
Investment
in
Company
S 372,000
372,000
Cash..
(2) Cash
28,800
28,800
Dividends paid
Cash.
36,000
36,000
Consolidation Workpaper Year of Acquisition
(E1)
Common
stock
Co
Retained
earnings
Co
Investment
in
Co
Non-controlling
interest
(P360,000
20%)..
240,000
120.000
288,000
72,000

of subsidiary on date of acquisition; and t o establish non-cont rolling
(E2)
6,000
Inventory.
96,000
192,000
7,200
Land.
Discount
on
bonds
4,800
payable.
12,000
Goodwill.
Buildings..
216,000
Non-controlling
interest
(P90,000
x
18,000
20%)..
Investment
in
S
84,000
Co.
acquired, wit h remainder t o goodwill; and t o est ablish non-
cont rolling int erest (in net asset s of subsidiary) on dat e of acquisit ion.

Accumulated
depreciation
buildings..
Interest expense
Goodwill
impairment
loss.
6,000
6,000
6,000
1,200
3,000
6,000
Inventory..
Accumulated
depreciation
equipment..
Goodwill
12,000
1,200
3,000

Inv entory sold

Equipment
Buildings
Bonds payable
Totals
Cost of
Goods
Sold
P 6,000
_______
P 6,000
Depreciation/
Amortization
expense
Amortization
-Interest
P 12,000
( 6,000)
_______
P 6,000
P 1,200
P1,200
Total
13,200
It should be observed that the goodwill computed above was proportional t o the controlling interest
of 80% and non-controlling interest of 20% computed as follows:
Value
P12,00
0
3,000
P15,000
% of
Total
80.00%
20.00%
100.00%
Therefore, the goodwill impairment loss of P3,125 based on 100% fair value or full -goodwill would be
allocated as follows:
Value
Goodwill impairment loss attributable to P or
P
controlling
3,000
Interest
Goodwill impairment
loss applicable to
750
% of
Total
80.00%
20.00%
NCI..
value or fullGoodwill
Non-controlling
interest
(P36,000
20%)..
Dividends paid S
P 3,750
100.00%
28,800
7,200
36,000

share of dividends.

Subsidiary
9,360
9,360

P 60,000
( 13,200)
P 46,800
20%
P 9,360

Cost Model (Partial-goodwill)
P Co
P480,000
28,800
P508,800
P204,000
60,000
48,000
P310,000
P196,800
P196,800
Income Statement
Sales
Div idend income
Total Rev enue
Cost of goods sold
Interest expense
Other expenses
Net Income
NCI in Net Income - Subsidiary
P Company
S Company
Total
Div idends paid
P Company
S Company
Sheet
Balance Sheet
Cash.
S Co.
P240,000
P240,000
P138,000
28,000
18,000
P180,000
P 60,000
P 60,000
Dr.
(4)
28,800
(3)
(3)
(3)
6,000
6,000
1,200
(3)
3,000
(5)
9,360
Cr.
P360,000
Consolidated
P 720,000
_________
P 720,000
P 348,000
90,000
1,200
66,000
3,000
P508,200
P211,800
( 9,360)
P202,440
196,800
P552,000
P120,000
60,000
P180,000
72,000
-
36,000
P484,800
232,800
(1) 120,000
360,000
202,440
P562,440
72,000
________
P144,000
490,440
P 90,000
322,800
(4)
36,000

Inv entory.
Land.
Equipment
Buildings
Goodwill
Inv estment in S Co
Total
- equipment
- buildings
Accounts payable
Bonds payable
Total
90,000
120,000
210,000
240,000
720,000
60,000
90,000
48,000
180,000
540,000
(2)
(2)
6,000
7,200
(2)
(2)
4,800
12,000
372,000
P1,984,800
P1,008,000
P 135,000
405,000
P 96,000
288,000
120,000
240,000
600,000
120,000
120,000
484,800
240,000
144,000
_________
P1,008,000
Sales
Gross profit
P2,424,600
12,000
P147,000
495,000
240,000
360,000
600,000
490,440
7,200
__________
P 745,560
(1 ) 72,000
(2) 18,000
(5) 9,360
P 745,560
____92,160
P2,424,600
P Co.
S Co.
P
540,000
216,000
P
360,000
Less: Depreciation expense

Other expense
Net income from its own separate
operations
Add: Dividend income
P
192,000
38,400
Dividends paid
150,000
210,000
265,200
420,000
1,044,000
3,600
9,000
(1) 240,000
P
324,000
60,000
72,000
Net income
6,000
(2) 216,000
(3) 1,200
(3) 3,000
(7) 288,000
(8) 84,000
(2) 96,000 (3)

(2) 192,000
(3)
6,000
(4)
_________
P1,984,800
(3)
P
230,400
P
72,000
192,000
P
168,000
24,000
54,000
P
90,000
P
90,000
P
48,000
No goodwill impairment loss for 20x5.

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

Cash
Dividend
income
(P48,000
38,400
x
38,400
80%).
Dividends paid
Cash
48,000
48,000

The working paper eliminations (in journal entry format) on December 31, 20x5, are as follows:
(E1)
Investment
Company
Retained
earnings
Company
in
19,200
19,200

year, 1/1/20x5, comput ed as follows:
P144,000
120,000
P 24,000
80%
P 19,200
(E2)
Common
stock
Co
Investment
in
S
Co
(P384,000
80%)
Non-controlling
interest
(P384,000
20%)..
240,000
144,000
307,200
76,800

(E3)
6,000
Inventory.
96,000
192,000
7,200
Land.
Discount
on
bonds
4,800
payable.
12,000
Goodwill.
Buildings..
Non-controlling interest (P90,000 x 20%)
Investment
in
Co.
216,000
18,000
84,000


[(P13,200 x 80%) + P3,000, impairment loss on
partial-goodwill]
Non-controlling
interests
(P13,200
20%).
Accumulated
depreciation
buildings..
Interest expense
13,560
2,640
6,000
12,000
1,200
6,000
Inventory..
Accumulated
depreciation
equipment..
Goodwill
24,000
2,400
3,000
Year 20x4 amount s are debit ed t o Ps ret ained earnings &
NCI;
Year 20x5 amount s are debit ed t o respect ive nominal account s.
Inv entory sold

Equipment
Buildings
Bonds payable
Sub-total
Multiplied by:
To Retained earnings
Impairment loss
Total
(20x4)
Retained
earnings,
P 6,000
12,000
(6,000)
1,200
P13,200
80%
P 10,560
3,000
P 13,560
Depreciation/
Amortization
expense
Amortization
-Interest
P 12,000
( 6,000)
________
P 6,000
P 1,200
P 1,200

Non-controlling
interest
(P48,000
20%)..
Dividends paid S

share of dividends.
38,400
9,600
48,000

Subsidiary
16,560
16,560

Non-controlling Interest in Net Income (NCINI
P 90,000
( 7,200)
P 82,800
20%
P 16,560

December 31, 20x5 (Second Year after Acquisition)
P Co
P540,000
38,400
P578,400
P216,000
60,000
72,000
P348,000
P230,400
P230,400
Income Statement
Sales
Div idend income
Total Rev enue
Cost of goods sold
Interest expense
Other expenses
Net Income
P Company
S Company
Total
Div idends paid
P Company
S Company
Sheet
Balance Sheet
Cash.
Inv entory.
Land.
Equipment
Buildings
Goodwill
Inv estment in S Co
Total
- equipment
- buildings
Accounts payable
P484,800
S Co.
P360,000
P360,000
P192,000
24,000
54,000
P270,000
P 90,000
P 90,000
Dr.
(5)
38,400
(4)
(4)
6,000
1,200
(6)
16,560
(4) 13,560
(2) 144,000
Cr.
Consolidated
P 900,000
___________
P 900,000
P 408,000
90,000
1,200
126,000
P 625,200
P 274,800
( 16,560)
P 258,240
(1) 19,200
P 490,440
230,400
P715,200
P 144,000
90,000
P234,000
72,000
-
48,000
P643,200
P186,000
P 676,680
265,200
180,000
216,000
210,000
240,000
720,000
P 114,000
96,000
108,000
48,000
180,000
540,000
P 367,200
276,000
324,000
265,200
420,000
1,044,000
2,400
9,000
372,000
P2,203,200
P1,074,000
P 150,000
450,000
P 102,000
306,000
120,000
120,000
258,240
P 748,680
(5)
(3)
(3)
6,000
7,200
(3)
(3)
(1)
4,800
12,000
19,200
(3) 96,000
(3) 192,000
(4) 12,000
(4)
48,000
6,000
(3) 216,000
(4) 2,400
(4) 3,000
(2) 307,200
(3) 84,000
(4)
24,000
72,000
________
P2,707,800
P180,000
552,000
240,000
Bonds payable
240,000
600,000
643,200
240,000
186,000
360,000
600,000
(2) 240,000
676,680
(5)
(4)
___ _____
P2,203,200
Total
120,000
_________
P1,074,000
9,600
2,640
__________
P 821,160
(2 ) 76,800
(3) 18,000
(6) 16,560
P 821,160
____99,120
P2,707,800
5. 1/1/20x4
a.
On date of acquisition the retained earnings of P should always be considered as the
P360,000
b.
Non-controlling interest (partial-goodwill), January 1, 20x4
Common stock S Company, January 1, 20x4
Retained earnings S Company, January 1, 20x4
Stockholders equity S Company, January 1, 20x4
Adjustments to reflect fair v alue - (ov er) underv aluation of assets and
liabilities, date of acquisition (January 1, 20x4)
Fair v alue of stockholders equity of subsidiary, January 1, 20x4
Multiplied by: Non-controlling Interest percentage...
Non-controlling interest (partial-goodwill)..
P 240,000
120,000
P 360,000
90,000
P450,000
20
P 90,000
c.
Consolidated SHE:
Stockholders Equity
Retained earnings
Ps Stockholders Equity / CI - SHE
NCI, 1/1/20x4
Consolidated SHE, 1/1/20x4
P 600,000
360,000
P 960,000
___90,000
P1,050,000
6.
Note: The goodwill recognized on consolidation purely rel ates to the Ps share. NCI is measured as
a proportion of identifiable assets and goodwill attributable to NCI share is not recognized.
12/31/20x4:
a. CI-CNI
P Company
S Company
Total
Amortization of allocated excess (refer to amortization abov e)
Goodwill impairment (impairment under partial-goodwill approach)
equity holders of parent..
Add: Non-controlling Interest in Net Income (NCINI)
P 9,360
13,200
3,000
25,560
P202,440
9,360
P211.800
b. NCI-CNI
* Non-controlling Interest in Net Income (NCINI) for 20x4
Net income of S Company
P168,000
60,000
P228,000
P 60,000
Less: Amortization of allocated excess / goodwill impairment

(refer to amortization table abov e)
13,200
P 46,800
20%
P 9,360
c. CNI, P211,800 refer to (a)

d. On subsequent to date of acquisition, consolidated retained earnings would be computed a s
follows:
equity holders of parent for 20x4
Total
P360,000
202,440
P562,440
72,000
P490,440
e.
Non-controlling interest (partial-goodwill), December 31, 20x4
Common stock S Company, December 31, 20x4
Retained earnings S Company, December 31, 20x4
Add: Net income of S for 20x4
Total
Less: Div idends paid 20x4
Stockholders equity S Company, December 31, 20x4
Amortization of allocated excess (refer to amortization abov e) 20x4
Fair v alue of stockholders equity of subsidiary, December 31, 20x4
P 240,000
P120,000
60,000
P180,000
36,000
144,000
P 384,000
90,000
( 13,200)
P460,000
20
P 92,160
f.
Consolidated SHE:
Stockholders Equity
Retained earnings
Ps Stockholders Equity / CI SHE, 12/31/20x4
NCI, 12/31/20x4
P 600,000
490,440
P1,090,440
___92,160
P1,182,600
12/31/20x5:
a. CI-CNI
P Company
S Company
Total
P192,000
90,000
P282,000
P16,560
__7,200
23,760
P258,240
16,560
P274,800
b. NCI-CNI
Less: Amortization of allocated excess / goodwill impairment for 20x5
Non-controlling Interest in Net Income (NCINI) for 20x5
P 90,000
80,400
P 82,800
20%
P 16,560

d. On subsequent to date of acquisition, consolidated retained earnings would be computed as
follows:
P484,800
P 144,000
120,000
P 24,000
13,200
P 10,800
80%
P 8,640
Less: Goodwill impairment loss (full-goodwill), net (P3,750 P750)* or

(P3, 750 x 80%)
3,000
5,640
P 490,440
equity holders of P for 20x5
258,240
Total
P748,680
72,000
P676,680
* t his procedure would be more appropriate, instead of mult iplying t he full-goodwill impairment loss of P3,750 by 80%.
There might be situations where t he controlling interests on goodwill impairment loss would not be proportionate t o NCI
acquired.
e.
Total
Amortization of allocated excess (refer to amortization abov e) :
20x4
20x5
Fair v alue of stockholders equity of S, December 31, 20x5
Non-controlling interest (partial goodwill)..
P 240,000
P14,000
90,000
P234,000
48,000
186,000
P 426,000
90,000
P 13,200
7,200
( 20,400)
P 495,600
20
P 99,120
f.
Consolidated SHE:
Stockholders Equity
Retained earnings
Parents Stockholders Equity / CI SHE, 12/31/20x5
P 600,000
676,680
P1,276,680
NCI, 12/31/20x5
___99,120
P1,1375,800
Problem VII

(80%)..
(20%)..
P
372,000
Fair value of Subsidiary (100%).

Son:
100%).
100%)...
value)..
liabilities:
100%)
100%).
100%).....
100%)
Positive excess: Full-goodwill (excess of cost
over
fair
value)...
93,000
P
465,000
P 240,000
120,000
360,000
P
105,000
6,000
7,200
96,000
( 24,000)
4,800
90,000
P
15,000
Over/
amortized
r
P
Inventory
6,000
Lif
e
1
Annu
al
Current
Amou Year(20x
nt
4)
P
6,000 P 6,000
20x5
P
-
Subject
to
Amortization
Annual
Buildings (net)
96,00
0
(24,0
00)
Bonds payable
4,800
8
4
4
12,000
(
6,000)
1,200
P
13,200
12,000
( 6,000)
1,200
P 13,200
12,00
0
(6,00
0)
1,200
P
7,200

January 1, 20x4:
(1)
Investment
in
Company
S 372,000
372,000
Cash..
(2) Cash
Dividend income (P36,000x 80%).
28,800
28,800
Dividends paid
Cash.
36,000
36,000
No entries are made on the Ps books to depreciate, amortize or w rite-off the portion of the allocated
excess that expires during 20x4.
(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
72,000
20%)..
of subsidiary on dat e of acquisit ion; and t o est ablish non-cont rolling
(E2)
6,000
Inventory.
96,000
192,000
7,200
Land.
Discount
on
bonds
payable.
Goodwill.
Buildings..
Non-controlling interest (P90,000 x 20%) + [(P15,000, full
P12,000, partial goodwill)]

Investment
in
S
Co.
4,800
13,000
216,000
21,000
84,000

acquired, wit h remainder t o goodwill; and t o est ablish noncont rolling int erest (in net asset s of subsidiary) on dat e of acquisit ion.

Accumulated
depreciat ion
buildings..
Interest expense
Goodwill
impairment
loss.
6,000
6,000
6,000
1,200
3,750
6,000
Inventory..
Accumulated
depreciation
equipment..
Goodwill
12,000
1,200
3,750

book value of Ss ident ifiable asset s and liabilit ies as follows:
Inv entory sold

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

Non-controlling
interest
(P36,000
20%)..
Dividends paid S
28,800
7,200
36,000

share of dividends.

Subsidiary
8,610
8,610

Income less NCI on goodwill impairment loss on full-goodwill
for 20x4 as follows:
P 60,000
( 13,200)
P 46,800
20%
P 9,360
Less: Non-controlling interest on impairment

loss on full-goodwill (P3,125 x 20%) or
(P3,125 impairment on full-goodwill less
P2,500, impairment on partial-goodwill)*
750
P 8,610
* t his procedure would be more appropriat e, inst ead of mult iplying t he fullgoodwill impairment loss of P3,125 by 20%. There might be situat ions where t he
NCI on goodwill impairment loss would not be proport ionat e t o NCI acquired
(refer t o Illust rat ion 15-6).
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.
Cost Model (Full-goodwill)
P Co
P480,000
28,800
P508,800
P204,000
60,000
48,000
P312,000
P196,800
P196,800
Income Statement
Sales
Div idend income
Total Rev enue
Cost of goods sold
Interest expense
Other expenses
Net Income
P Company
S Company
Total
Div idends paid
P Company
S Company
Sheet
Balance Sheet
Cash.
Inv entory.
Land.
Equipment
Buildings
Goodwill
S Co.
P240,000
P240,000
P138,000
24,000
18,000
P180,000
P 60,000
P 60,000
Dr.
(4)
28,800
(3)
(3)
(3)
6,000
6,000
1,200
(3)
3,750
(5)
8,610
Cr.
P360,000
Consolidated
P 720,000
_________
P 720,000
P 348,000
90,000
1,200
66,000
3,750
P508,950
P211,050
( 8,610)
P202,680
196,800
P556,800
P120,000
60,000
P180,000
72,000
-
36,000
P484,800
232,800
90,000
120,000
210,000
240,000
720,000
360,000
(1) 120,000
202,680
P562,440
86,400
________
P144,000
490,440
P 90,000
60,000
90,000
48,000
180,000
540,000
322,800
150,000
210,000
265,200
420,000
1,044,000
3,600
11,250
(4)
(2)
(2)
6,000
7,200
(2)
(2)
4,800
15,000
(3)
36,000
6,000
(2) 216,000
(3) 1,200
(3) 3,750
Inv estment in S Co
Total
- equipment
- buildings
Accounts payable
Bonds payable
Total
372,000
P1,984,800
P1,008,000
P 135,000
405,000
P 96,000
288,000
120,000
240,000
600,000
120,000
120,000
(3) 288,000
(4) 84,000
(2) 96,000 (3)

(5) 192,000
(6)
6,000
240,000
144,000
(1) 240,000
484,800
_________
P1,984,800
_________
P1,984,800
__________
P 748,560
Sales
Gross profit
Other expense
(7)
7,200
P147,000
495,000
240,000
360,000
600,000
490,440
____94,410
P2,426,850
P Co.
S Co.
P
540,000
216,000
P
360,000
P
324,000
60,000
72,000
P
192,000
38,400
Net income
P
230,400
P
72,000
12,000
(1 ) 72,000
(2) 21,000
(5) 8,610
P 748,560

operations
Dividends paid
P2,426,850
192,000
P
168,000
24,000
54,000
P
90,000
P
90,000
P
48,000


Cash
Dividend income (P48,000x 80%).
38,400
38,400
Dividends paid
Cash
48,000
48,000
(E1)
Investment
Company
Retained
earnings
Company
in
19,200
19,200

year, 1/1/20x5.
P144,000
120,000
P 24,000
80%
P 19,200
(E2)
Common
stock
Co
Investment
in
S
Co
(P384,000
80%)
Non-controlling
interest
(P384,000
20%)..
240,000
144,000
307,200
76,800

(E3)
6,000
Inventory.
96,000
192,000
7,200
Land.
Discount
on
bonds
4,800
payable.
15,000
Goodwill.
Buildings..
216,000
21,000
Investment
in
S
84,000
Co.
acquired, wit h remainder t o goodwill; and t o est ablish noncont rolling int erest (in net asset s of subs idiary) on January 1, 20x5.
(P16,950 x 80%)
Non-controlling
interests
(P16,950
20%).
Accumulated
depreciation
buildings..
Interest expense
13,560
3,390
6,000
12,000
1,200
6,000
Inventory..
Accumulated
depreciation
equipment..
Goodwill
24,000
2,400
3,750
Sons ident ifiable asset s and liabilit ies as follows:
Year 20x4 amount s are debit ed t o Perfect s ret ained earnings
and NCI.
Inv entory sold

Equipment
Buildings
Bonds payable
Impairment loss
Totals
Multiplied by: CI%....
(20x4)
Retained
earnings,
P 6,000
12,000
(6,000)
1,200
3,750
P 16,950
80%
P13,560
Depreciation/
Amortization
expense
P
Amortization
-Interest
12,000
( 6,000)
P 1,200
P 6,000
P1,200

Non-controlling
interest
(P48,000
20%)..
Dividends paid S
38,400
9,600
48,000

share of dividends.

Subsidiary
Less: NCI on goodwill impairment loss on fullGoodwill
P 90,000
( 7,200)
P 82,800
20%
P 16,560
0
P 16,560
16,560
16,560

Income Statement
Sales
Div idend income
Total Rev enue
Cost of goods sold
Interest expense
Other expenses
Net Income
P Co
P540,000
38,400
P578,400
P216,000
60,000
72,000
P348,000
P230,400
P230,400

P Company
S Company
Total
Div idends paid
P Company
S Company
Sheet
Balance Sheet
Cash.
Inv entory.
Land.
Equipment
Buildings
Goodwill
Inv estment in S Co
Total
- equipment
- buildings
Accounts payable
Bonds payable
Total
S Co.
P360,000
P360,000
P192,000
24,000
54,000
P270,000
P 90,000
P 90,000
P484,800
Dr.
(5)
38,400
(4)
(4)
6,000
1,200
(6)
16,560
(5) 13,560
(6) 144,000
Cr.
Consolidated
P 900,000
___________
P 900,000
P 408,000
90,000
1,200
126,000
P 625,200
P 274,800
( 16,560)
P 258,240
(5) 19,200
P 490,440
230,400
P715,200
P 144,000
90,000
P234,000
72,000
-
48,000
P643,200
P186,000
P 676,680
265,200
180,000
216,000
210,000
240,000
720,000
P 102,000
96,000
108,000
48,000
180,000
540,000
P 367,200
276,000
324,000
265,200
420,000
1,044,000
2,400
11,250
372,000
P2,203,200
P1,074,000
P 150,000
450,000
P 102,000
306,000
120,000
240,000
600,000
120,000
120,000
643,200
240,000
186,000
258,240
P 748,680
(5)
(3)
(3)
(3)
(3)
(1)
6,000 (4)
7,200
4,800
15,000
19,200
(3) 96,000
(3) 192,000
(4) 12,000
57,600
6,000
(3) 216,000
(4) 2,400
(4) 3,750
(2) 307,200
(7) 84,000
(4)
24,000
72,000
________
P2,710,050
P180,000
552,000
240,000
360,000
600,000
(2) 240,000
676,680
(6)
(8)
___ _____
P2,203,200
_________
P1,074,000
9,600
3,390 (2 ) 76,800
(3) 21,000
__________ (6) 16,560
P 824,910
P 824,910
____101,370
P2,710,050
5. 1/1/20x4
a. On date of acquisition the retained earnings of parent should always be considered as the
P360,000
b.
Non-controlling interest (full-goodwill), January 1, 20x4
Fair v alue of stockholders equity of S, January 1, 20x4
P 240,000
120,000
P 360,000
90,000
P450,000
20
P 90,000
___3,000
P 93,000
c.
Consolidated SHE:
Stockholders Equity
Retained earnings
Parents Stockholders Equity / CI - SHE
NCI, 1/1/20x4
P 600,000
360,000
P 960,000
___93,000
P1,053,000
6.
Note: The goodwill recognized on consolidation purely relates to the parents share. NCI is
measured as a proportion of identifiable assets and goodwill attributable to NCI share is not
recognized.
12/31/20x4:
a. CI-CNI P202,440
P Company
S Company
Total
Goodwill impairment (impairment under full-goodwill approach)
equity holders of P..
P168,000
60,000
P228,000
P 8,610
13,200
3,750
P202,440
8,610
P211.050
b. NCI-CNI P8,610
Less: Amortization of allocated excess (refer to amortization table abov e)
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)*
25,560
P 60,000
13,200
P 46,800
20%
P 9,360
750

P 8,610
* t his procedure would be more appropriate, inst ead of mult iplying t he full-goodwill impairment loss of
P3,750 by 20%. There might be sit uat ions where t he NCI on goodwill impa irment loss would not be
proport ionat e t o NCI acquired.

follows:
Total
P360,000
202,440
P562,440
72,000
P490,440
e.
Non-controlling interest (full-goodwill), December 31, 20x4
Total
Non-controlling interest (partial-goodwill, 12/31/20x4..
Add: Non-controlling interest on full goodwill , net of impairment loss, 12/31/x4:
[(P15,000 full P12,000, partial = P3,000) P750 impairment loss
Non-controlling interest (full-goodwill), 12/31/20x4..
P 240,000
P120,000
60,000
P180,000
36,000
144,000
P 384,000
90,000
( 13,200)
P460,800
20
P 92,160
2,250
P 94,410
f.
Consolidated SHE:
Stockholders Equity
Retained earnings
NCI, 12/31/20x4
P 600,000
490,440
P1,090,440
___94,410
P1,184,850
12/31/20x5:
a. CI-CNI P258,240
P Company
S Company
Total
P16,560
7,200
0
P192,000
90,000
P282,000
23,760

P258,240
16,560
P274,800
b. NCI-CNI P16,560
P 90,000
80,400
P 82,800
20%
P 16,560

follows:
Retained earnings Subsidiary, January 1, 20x5
P484,800
P 144,000
120,000
P 24,000
13,200
P 10,800
80%
P 8,640

(P3, 750 x 80%)
3,000
5,640
P 490,440
258,240
Total
P748,680
72,000
P676,680
acquired.
e.
Total
20x4
20x5
Add: Non-controlling interest on full goodwill , net of impairment loss
Non-controlling interest (full-goodwill)..
P 240,000
P144,000
90,000
P234,000
48,000
186,000
P 426,000
90,000
P 13,200
7,200
( 20,400)
P 495,600
20
P 99,120
2,250
P 101,370
f.
Consolidated SHE:
Stockholders Equity
Retained earnings
NCI, 12/31/20x4
P 600,000
676,680
P1,276,680
__101,370
P1,378,050
Problem VIII
Under the acquisition method, the shares issued by WW are recorded at fair value:
Investment in BB (value of debt and shares issued)..........................
Common Stock (par value) ........................................................
Additional Paid-in Capital (excess over par value) ....................
Liabilities ......................................................................................
900,000
150,000
450,000
300,000
The payment to the broker is accounted for as an expense. The stock issue cost is a reduction in
additional paid-in capital.
Acquisition expense ..........................................................................
Additional Paid-in Capital.................................................................
Cash ........................................................................................
30,000
40,000
70,000
Allocation of Acquisition-Date Excess Fair Value:

Consideration transferred (fair value) for BB Stock .........................
Book Value of BB, 6/30 ......................................................................
Fair Value in Excess of Book Value ..............................................
Excess fair value (undervalued equipment) .....................................
Excess fair value (overvalued patented technology) ......................
Goodwill ......................................................................................
Consolidated Balances:
1. Net income (adjusted for combination expenses. The
figures earned by the subsidiary prior to the takeover
are not included) ....................................................................................
2. Retained Earnings, 1/1 (the figures earned by the subsidiary
prior to the takeover are not included) ..................................................
3. Patented Technology (the parent's book value plus the fair
value of the subsidiary) ...........................................................................
4. Goodwill (computed above) ...................................................................
5. Liabilities (the parent's book value plus the fair value
of the subsidiary's debt plus the debt issued by the parent
in acquiring the subsidiary) .....................................................................
6. Common Stock (the parent's book value after recording
the newly-issued shares) .........................................................................
7. Additional Paid-in Capital (the parent's book value
after recording the two entries above) ..................................................
Problem IX
1.
P15,000
(P115,000 + P46,000) - P146,000
P900,000
770,000
P130,000
100,000
(20,000)
P 50,000
P210,000
800,000
1,180,000
50,000
1,210,000
510,000
680,000
2.
3.
4.
P65,000
SS: P24,000
=
=
BB P70,000
Fair value of SS as a
whole:
P200,000
10,000
(P148,000 - P98,000) + P15,000

P380,000 - (P46,000 + P110,000
+ P75,000 + P125,000)
P94,000 - P24,000
Book value of SS shares
Differential assigned to inventory
(P195,000 - P105,000 - P80,000)
Differential assigned to buildings and equipment
(P780,000 - P400,000 - P340,000)
Differential assigned to goodwill
Fair value of SS
40,000
9,000
P259,000
5.
6.
65 percent
Capital Stock
Retained Earnings
=
=
=
1.00 (P90,650 / P259,000)

P120,000
P115,000
Problem X
1.
Investment in WP, Inc.
Cash
500,000
35,000
465,000
2.
12/31/x4 Loss from increase in contingent performance
obligation
5,000
12/31/x5 Loss from increase in contingent performance

obligation
10,000
12/31/x5 Contingent performance obligation

Cash
3. Cost Model/Initial Value Method
Investment in WP
Retained earnings-BS
Common stock
Retained earnings-WP
Investment in WP
5,000
10,000
50,000
50,000
30,000
30,000
200,000
180,000
380,000
Royalty agreements
Goodwill
Investment in WP
90,000
60,000
Dividend income
Dividends paid
35,000
Amortization expense
Royalty agreements
10,000
150,000
35,000
10,000
Problem XI (Consolidated accounts one year after acquisition)

SS acquisition fair value ($10,000 in
stock issue costs reduce
additional paid-in capital) ............................ P680,000
Book value of subsidiary
(1/1/x4stockholders' equity balances).............. (480,000)
Fair value in excess of book value ....................... P200,000
Excess fair value allocated to copyrights
Life
Amortizations
based on fair value ....................................... 120,000
6 yrs.
P20,000
Goodwill .............................................................. P 80,000 indefinite
_____-0Total ...............................................................
P20,000
1.
2.
Consolidated copyrights
PP (book value) .........................................................
SS (book value) ..........................................................
Allocation (above) ....................................................
Excess amortizations, 20x4 .........................................
Total .....................................................................
Consolidated net income, 20X4
Revenues (add book values) ....................................
Expenses:
Add book values .................................................
Excess amortizations ............................................
Consolidated net income ..........................................
P900,000
400,000
120,000
(20,000)
P1,400,000
P1,100,000
P700,000
20,000
720,000
P380,000
3.
Consolidated retained earnings, 12/31/x4

Retained earnings 1/1/x4 (PP) ...................................
P600,000
Net income 20x4 (above) .........................................
380,000
Dividends paid 20x4 (PP) ...........................................
(80,000)
Total .....................................................................
P900,000
SSs retained earnings balance as of January 1, 20x4, is not included because these
operations occurred prior to the purchase. SS's dividends were paid to PP and therefore
are excluded because they are intercompany in nature.
4.
Consolidated goodwill, 12/31/x4

Allocation (above) ....................................................
P80,000
Problem XII
Consolidated balances three years after the date of acquisition. Includes questions about parent's
method of recording investment for internal reporting purposes. )
1.
Acquisition-Date Fair Value Allocation and Amortization:

Consideration transferred 1/1/09 ........................ P600,000
Book value (given) ..............................................
(470,000)
Annual
Fair value in excess of book value .................
130,000
Excess
Allocation to equipment based on
Life Amortizations
difference in fair value and
book value ....................................................
90,000
10 yrs.
P9,000
Goodwill ..............................................................
P40,000 indefinite
-0Total ...............................................................
P9,000
Consolidated Balances
Depreciation expense = P659,000 (book values plus P9,000 excess depreciation)
Dividends Paid = P120,000 (parent balance only. Subsidiary's dividends are eliminated
as intercompany transfer)
Revenues = P1,400,000 (add book values)
Equipment = P1,563,000 (add book values plus P90,000 allocation less three years of
excess depreciation [P27,000])
Buildings = P1,200,000 (add book values)
Goodwill = P40,000 (original residual allocation)
Common Stock = P900,000 (parent balance only)
2.
The parent's choice of an investment method has no impact on the consolidated totals.
The choice of an investment method only affects the internal reporting of the parent.
Under PAS 27, it requires a choice between cost model or under PFRS 9 (known as fair
value model)
3.
The cost model or initial value method is used. The parent's Investment in Subsidiary
account still retains the original consideration transferred of P600,000. In addition, the
Investment Income account equals the amount of dividends paid by the subsidiary.
4.
If the equity method had been applied which is not allowed under PAS 27 for a parent to
consolidate, the Investment Income account would have included both the equity
accrual of P100,000 and excess amortizations of P9,000 for a balance of P91,000.
Problem XIII
1.
Net income for 20x4:
2.
3.
Operating income
Income from subsidiary
Net income
Consolidated net income is P125,000 (P90,000 + P35,000).
Retained earnings reported at December 31, 20x4:
Retained earnings, January 1, 20x4
Net income for 20x4
Dividends paid in 20x4
Retained earnings, December 31, 20x4
4.
5.
QQ
P 90,000
24,500
P114,500
NN
P35,000
QQ
P290,000
114,500
(30,000)
P374,500
NN
P40,000
35,000
(10,000)
P65,000
P35,000
Consolidated retained earnings at December 31, 20x4, is equal to the P374,500 retained earnings
balance reported by QQ.
When the cost method is used, the parent's proportionate share of the increase in retained
earnings of the subsidiary subsequent to acquisition is not included in the parent's retained
earnings. Thus, this amount must be added to the tot al retained earnings reported by the parent in
arriving at consolidated retained earnings.
Problem XIV
(Several valuation and income determination questions for a business combination involving a non controlling interest.)
Business combinations are recorded generally at the fair value of the consideration transferred by the
acquiring firm plus the acquisition-date fair value of the non-controlling interest.
PSs consideration transferred (P31.25 80,000 shares) .......................................
Non-controlling interest fair value (P30.00 20,000 shares) ..................................
SRs total fair value 1/1/09 ....................................................................................
P2,500,000
P600,000
P3,100,000
1.
Each identifiable asset acquired and liability assumed in a business combination should initially be
reported at its acquisition-date fair value.
2.
In periods subsequent to acquisition, the subsidiarys assets and liabilities are reported at their
acquisition-date fair values adjusted for amortization and depreciation. Except for certain
financial items, they are not continually adjusted for changing fair values.
3.

SRs net assets book value....................................................................................
Excess acquisition-date fair value over book value .............................................
Adjustments from book to fair values ...................................................................
Buildings and equipment .................................................
(250,000)
Trademarks ......................................................................
200,000
Patented technology ......................................................
1,060,000
Unpatent ed technology..................................................
600,000
Goodwill
......................................................................................................
P3,100,000
1,290,000
P1,810,000
Combined revenues.............................................................................................
Combined expenses ............................................................................................
Building and equipment excess depreciation .....................................................
Trademark excess amortization ............................................................................
Patented technology amortization ......................................................................
Unpatent ed technology amortization .................................................................
Consolidated net income ....................................................................................
P4,400,000
(2,350,000)
50,000
(20,000)
(265,000)
(200,000)
P1,615,000
To non-controlling interest:
SRs revenues ..................................................................................................
SRs expenses..................................................................................................
Total excess amortization expenses (above) .................................................
SRs adjusted net income ...............................................................................
Non-controlling interest percentage ownership ............................................
Non-controlling interest share of consolidated net income ...........................
P1,400,000
(600,000)
(435,000)
P365,000
20%
P73,000
To controlling interest:
Consolidated net income ..............................................................................
Non-controlling interest share of consolidated net income...........................
Controlling interest share of consolidated net income ..................................
P1,615,000
(73,000)
P1,542,000
4.
1,610,000
P 200,000
-ORPSs
PSs
PSs
PSs
revenues ..................................................................................................
expenses..................................................................................................
separate net income ..............................................................................
share of SRs adjusted net income
(80% P365,000) .................................................................................
P3,000,000
1,750,000
P1,250,000
292,000
5.
6.
Controlling interest share of consolidated net income ..................................
P1,542,000
Fair value of non-controlling interest January 1, 20x4...........................................

20x4 income ............................................................................................ 73,000
Dividends (20% P30,000) ....................................................................................
Non-controlling interest December 31, 20x4 ........................................................
P600,000
(6,000)
667,000
If SRs acquisition-date total fair value was P2,250,000, then a bargain purchase has occurred.
P2,250,000
Collective fair values of SRs net assets ................................................................
P2,300,000
Bargain purchase .................................................................................................
P50,000
The acquisition method requires that the subsidiary assets acquired and liabilities assumed be
recognized at their acquisition date fair values regardless of the assessed fair value. Therefore,
none of SRs identifiable assets and liabilities would change as a result of the assessed fair value.
When a bargain purchase occurs, however, no goodwill is recognized.
Problem XV (Full-Goodwill)
A variety of consolidated balances-midyear acquisition)
Book value of RR, 1/1 (stockholders' equity accounts)
(P100,000 + P600,000 + P700,000) ....................
Increase in book value:
Net Income (revenues less cost of
goods sold and expenses) ............................
Dividends .......................................................
Change during year ............................................
Change during first six months of year ..........
Book value of RR, 7/1 (acquisition date) .
(Full-Goodwill)
Consideration transferred by KL (P1,330,000 +
P30,000) ...........................................................
Non-controlling interest fair value ..............................
RRs fair value (given) .................................................
P1,400,000
P120,000
(20,000)
P100,000
50,000
P1,450,000
P1,360,000
300,000
P1,630,000
Note: The fair value of subsidiary amounting P1,630,000, indicates a fair value of NCI
amounting to P300,000 (refer to above computation), which is lower compared to the FV of
the NCI based on FV of SHE of Subsidiary (RR), computed as follow s:
BV of SHE of Subsidiary (RR) ..................................
Adjustments to reflect fair value (undervaluation)
FV of SHE of Subsidiary (RR) ..................................
Multiplied by: NCI%...............................................
FV of NCI .
Consideration transferred by KL (P1,330,000 +
P30,000) ...........................................................
Non-controlling interest fair value ..............................
RRs fair value (given) .................................................
Book value of RR, 7/1..................................................
Fair value in excess of book value..............................
Excess fair value assigned
Trademarks .............................................................
P1,450,000
150,000
P 1,600,000
20%
P 320,000
P1,360,000
___320,000
P1,680,000
(1,450,000)
P 230,000
Life
150,000 5 years
Annual Excess
Amortizations
P30,000
Goodwill (full-goodwill) ...........................................

Total
..................................................................
80,000 indefinite
-0P30,000
It should be carefully noted, that NCI can never be less than its share of fair value of net
identifiable assets (which is P320,000). Thus, the NCI share of company value is raised to
P320,000 (replacing the P300,000 NCI computed as residual amount refer to computation
above). The rationale behind such rule is to avoid having a lower amount of goodwill under
the full-goodwill approach as compared to goodwill computed under the partial -goodwill
approach.
(Partial-Goodwill)
Consideration transferred by KL ................................. P 1,360,000
Less: Book value of SHE RR (P1,450,000 x 80%) ..
1,160,000
Allocated excess . P 200,000
P150,000 x 80%..............................................
120,000
Goodwill - partial ........................................................ P 80,000
Note that the goodwill under the full-goodwill and partial-goodwill approach are the same
because the FV of the NCI based on the FV of SHE of subsidiary (P320,000) i s higher compared
to the imputed or the computed residual amount of NCI (P300,000).
Consolidation Totals:
Expenses, P265,000 = P200,000 KK operating expenses plus P50,000 (post-acquisition
subsidiary operating expenses) plus year excess amortization of P15,000.
Dividends paid = P80,000
Sales, P1,050,000 = P800,000 KK revenues plus P250,000 (post-acquisition subsidiary
revenue, P500,000 x 1/2)
Equipment, none
Depreciation expense, none
Subsidiarys net income, P60,000 = [(P500,000 P280,000 P100,000) x 1/2]
Buildings, none
Goodwill (full), P80,000; Goodwill (partial), P80,000
Consolidated Net Income, P245,000
Sales (1)
P1,050,000
Cost of goods sold (2)
540,000
Operating expenses (3)
__265,000
Net Income
P 245,000
Non-controlling Interest in Sub. Income (4)
P
9,000
Controlling Interest in CNI
P 236,000
(1) P800,000 KK revenues plus P250,000 (post-acquisition subsidiary revenue)
(2) P400,000 KK COGS plus P140,000 (post-acquisition subsidiary COGS)
(3) P200,000 KK operating expenses plus P50,000 (post-acquisition subsidiary operating
expenses) plus year excess amortization of P15,000
(4) 20% of post-acquisition subsidiary income less excess fair value amortization [20%
(120,000 30,000) year] = P9,000
Retained Earnings, 1/1 = P1,400,000 (the parents balance because the subsidiary was
acquired during the current year)
Trademark = P935,000 (add the two book values and the excess fair value allocation after
taking one-half year excess amortization)
Goodwill (full)= P80,000 (the original allocation)
Goodwill (partial) = P80,000 (the original allocation)
Problem XVI (Consolidated balances after a mid-year acquisition)

Note: Investment account balance indicates the initial value method.
Consideration transferred ....................................
Non-controlling interest fair value ........................
FV of SHE - subsiary ..............................................
Less: Book value of DD (below) ............................
Fair value in excess of book value (positive)........
Excess assigned
based on fair value:
Equipment ................................................
Goodwill (full) ...........................................
Total ...............................................................
Amortization for 9 months ..............................
P526,000
300,000
P826,000
(765,000)
P 61,000
Life
(30,000) 5 years
P 91,000 indefinite
Acquisition-Date Subsidiary Book Value

Book value of Duncan, 1/1/x4 (CS + 1/1 RE) .........................
Increase in book value-net income (dividends
were paid after acquisition) ............................................
Time prior to purchase (3 months) .........................................
Book value of DD, 4/1/x4 (acquisition date) .........................
Annual Excess
Amortizations
P(6,000)
-0P(6,000)
P(4,500)
P740,000
P100,000
25,000
P765,000
* The fair value of NCI amounting to P300,000 is higher compared to the FV of the NCI
based on FV of SHE of Subsidiary (RR), computed as follows:
BV of SHE of Subsidiary (DD)..
Adjustments to reflect fair value (undervaluation)
FV of SHE of Subsidiary (DD) .............................
Multiplied by: NCI% ..........................................
FV of NCI .
(Partial-Goodwill)
Consideration transferred ..............................
Less: Book value of SHE DD (P765,000 x 60%)
Allocated excess.
(P30,000 x 60%)...........................................
Goodwill - partial ............................................
P765,000
( 30,000)
P735,000
40%
P294,000
P 526,000
459,000
P 67,000
( 18,000)
P 85,000
1. Consolidated Income Statement:

Revenues (1)
P825,000
Cost of goods sold (2)
P405,000
Operating expenses (3)
214,500
619,500
Consolidated net income
P 205,500
Noncontrolling interest in CNI (4)
28,200
Controlling interest in CNI
P 177,300
(1) P900,000 combined revenues less P75,000 (preacquisition subsidiary revenue)
(2) P440,000 combined COGS less P35,000 (preacquisition subsidiary COGS)
(3) P234,000 combined operating expenses less P15,000 (preacquisition subsidiary
operating expenses) less nine month excess overvalued equipment depreciation
reduction of P4,500
(4) 40% of post-acquisition subsidiary income less excess amortization
2.
Goodwill, full = P91,000 (original allocation); Goodwill , partial = P85,000
Equipment = P774,500 (add the two book values less P30,000 reduction to fair value plus P4,500
nine months excess amortization)
Common Stock = P630,000 (P company balance only)
Buildings = P1,124,000 (add the two book values)
Dividends Paid = P80,000 (P company balance only)
Problem XVII
Ps gain on sale of subsidiary stock is computed as follows:
Cash proceeds
Fair value of retained non-controlling interest equity
investment (35%)
Carrying value of the non-controlling interest before
deconsolidation
(15% or prior outside non-controlling interest in
Subsidiary)
Less: Carrying value of Subsidiarys net assets
Gain on disposal or deconsolidation
P
720,000
420,000
120,000
P1,260,000
1,200,000
P 60,000
Parent Company reports the P60,000 gain in 20x5 income.

Problem XVIII
P Companys additional paid-in capital arising sale of subsidiary shares is computed as follows:
Cash proceeds
Less: Carrying value of non-controlling interest
(P720,000* x 10%)
Gain transfer within equity in Additional paid-in
capital account
P
96,000
72,000
P
60,000
* t he P720,000 is already t he gross-up amount since it is t he amount present ed in t he consolidat ed balance sheet .
Because P Company continues to have the ability to control S Company, the sale of Ss shares is
treated as an equity transaction. Therefore, no gain or loss is recognized. Instead, Pa lmer Companys
additional paid-in capital increases by P60,000.
Problem XIX
P Companys additional paid-in capital arising sale of subsidiary shares is computed as follows:
Cash proceeds from issuance of additional shares ..
Less: Carrying Value of non-controlling from issuance
of additional shares:
Non-controlling interest prior to issuance
of additional shares:
Book value of SHE before issuance P720,000
P 210,000
x: Non-controlling interest .
20%* P 144,000
Non-controlling interest after issuance of
additional shares:
Book value of SHE before
issuance .P720,000
Additional issuance .. 210,000
BV of SHE after issuance .P930,000
x: Non-controlling interest ...
36%** 334,800 190,800
Gain transfer within equity in
Additional paid-in capital account. ..............
P 19,200
* (120,000 96,000) / 120,000 = 20% ownership before additional issuance of shares.
** [(24,000 + 30,000) / (120.000 + 30,000)] = 36% ownership after additional issuance of shares
P Company recognizes an increases in its Investment in S from P576,000 (P720,000x 80%) to P595,200
[P930,000 x (96,000/150,000) and in additional paid-in capital of P19,200.
Problem XX
1. Equity Method
Income accrual (80%) ...........................................................
Excess amortization expense .................................................
Investment income ..........................................................
P56,000
(3,200)
P52,800
Initial fair value paid ...............................................................

Income accrual 20x420x6 (P260,000 80%) ........................
Dividends 20x420x6 (P45,000 80%) ....................................
Excess Amortizations 20x420x6 (P3,200 3) ..........................
Investment in TT12/31/x6 ...............................................
P664,000
208,000
(36,000)
(9,600)
P826,400
2.
Equity Method same with No. 1
3.
Using the acquisition method, the allocation will be the total difference (P80,000) between the
buildings' book value and fair value. Based on a 20 year life, annual excess amortization is P4,000.
MM book valuebuildings ..............................................
TT book valuebuildings .................................................
Allocation ........................................................................
Excess Amortizations for 20x420x5 (P4,000 2)
Consolidated buildings account .........................
4.
5.
Acquisition-date fair value allocated to goodwill

Goodwill-full ( see Problem I above) ....................................
Goodwill-partial (see Problem I above)
P 800,000
300,000
80,000
(8,000)
P1,172,000
P
P
150,000
120,000
If the parent has been applying the equity method, the stockholders' equity accounts on its
books will already represent consolidated totals. The common stock and additional paid -in capital
figures to be reported are the parent balances only.
Common stock, P500,000
Additional paid-in capital, P280,000
Problem XXI
(Consolidated balances three years after purchase. Parent has applied the equity method.)
1. Schedule 1Acquisition-Date Fair Value Allocation and Amortization
JJs acquisition-date fair value .. P206,000
Book value of JJ .......................................
(140,000)
Fair value in excess of book value ...........
66,000
Excess fair value assigned to specific
accounts based on individual fair values
Equipment .........................................
Buildings (overvalued) .......................
Goodwill ............................................
Total ...................................................
54,400
(10,000)
P21,600
Life
8 yrs.
20 yrs.
indefinite
Annual Excess
Amortization
P6,800
(500)
-0P6,300
Investment in JJ Company12/31/x6
JJs acquisition-date fair value .....................................................
20x4 Increase in book value of subsidiary
20x4 Excess amortizations (Schedule 1) .......................................
20x5 Increase in book value of subsidiary ...................................
20x6 Increase in book value of subsidiary ...................................
Investment in J Company ......................................................
P206,000
40,000
(6,300)
20,000
(6,300)
10,000
(6,300)
P257,100
2. Equity in Subsidiary Earnings

Income accrual ............................................................................
Excess amortizations (Schedul e 1) ...............................................
Equity in subsidiary earnings ..................................................
P30,000
(6,300)
P23,700
3. Consolidated Net Income

Consolidated revenues (add book values) .................................
Consolidated expenses (add book values) ................................
Excess amortization expenses (Schedule 1) ................................
Consolidated net income ...........................................................
P414,000
(272,000)
(6,300)
P135,700
4. Consolidated Equipment
Book values added together ......................................................
Allocation of purchase price .......................................................
Excess depreciation (P6,800 3) .................................................
Consolidated equipment ......................................................
P370,000
54,400
(20,400)
P404,000
5. Consolidated Buildings ..............................................................................

Book values added together ......................................................
Allocation of purchase price .......................................................
Excess depreciation (P500 3) ....................................................
Consolidated buildings...........................................................
P288,000
(10,000)
1,500
P279,500
6. Consolidated goodwill
Allocation of excess fair value to goodwill ...................................
P21,600
7. Consolidated Common Stock ...................................................................

P290,000
As a purchase, the parent's balance of P290,000 is used (the acquired company's
common stock will be eliminated each year on the consolidation worksheet).
8. Consolidated Retained Earnings ...............................................................
P410,000
Tyler's balance of P410,000 is equal to the consolidated total because the equity method
has been applied.
Problem XXII
Allocated excess
Inventory (P725,000 P600,000) x 80%
Equipment (P1,075,000 P900,000) x 80%
Goodwill partial
Full-goodwill or Fair Value Basis

Allocated excess
Inventory (P725,000 P600,000) x 100%
Equipment (P1,075,000 P900,000) x 100%
Goodwill full
P1,970,000
_1,440,000
P 530,000
P 100,000
140,000
__240,000
P 290,000
P2,467,500
1,800,000
P 662,500
P125,000
175,000
__300,000
P362,500
Amortization
Inventory: P125,000 x 60%
P125,000 x 40%
Equipment: P175,000 / 7 years
20x4
P 75,000
25,000
P 100,000
20x5
P 50,000
25,000
P 75,000
1.
20x4
Investment in S Company
Cash
1,970,000
1,970,000
Cash (0.8 x P150,000)

120,000
Equity in Subsidiary Income (.80)(P750,000)
600,000
120,000
600,000
Equity in Subsidiary Income

80,000
Cash (0.8 x P225,000)
180,000
80,000
20x5
Equity in Subsidiary Income (.80)(P900,000)
Equity in Subsidiary Income
180,000
720,000
720,000
60,000
60,000
2.
20x4
(1) Equity in Subsidiary Income ((.80)(P750,000) -P80,000)
Dividends Declared (0. 80 x P150,000)
(2) Beginning Retained Earnings - S Company
Common Stock- S Company
Noncontrolling Interest
(3) Inventory (P125, 000 P75,000)
Cost of Goods Sold
Equipment (net)
Goodwill
(4) Depreciation Expense
Equipment (net)
520,000
120,000
400,000
600,000
1,200,000
1,307,500
492,500
50,000
75,000
175,000
362,500
662,500
25,000
25,000
20x5
(1) Equity in Subsidiary Income ((.80)(P900,000) - P60,000)
Dividends Declared (0. 80 x P225,000)
Investment in Superstition Company
(2) Beginning Retained Earnings-Superstition Company
Common Stock - Superstition Company.
Investment in Superstition Company
660,000
180,000
480,000
1,200,000
1,200,000
1,787,500
(P492,500 + (P1,200,000 P600,000) x .20)
(3) Investment in S Company

Cost of Goods Sold
Equipment (net)
Goodwill
Equipment (net)
612,500
60,000
15,000
50,000
175,000
362,500
662,500
20,000
5,000
25,000
50,000
3.

P Company (P1,000,000 P120,000)
S Company
P 880,000
__
750,000
P1,630,000
Total
P130,000
100,000
Goodwill impairment
____0
230,000
Controlling
Interest in Consolidated Net
Income or Profit
P1,400,000
attributable
to
equity
holders
of
parent..
130,000
(NCINI)
P1,530,000
Amortization of allocated excess (P25,000 + P75,000)
P
750,000
(
100,000)
P650,000

20%
P
130,000
Note: Regardless on the method used in recording investments (cost model or equity method) the
manner of computing CI-CNI, NCI-CNI and CNI are exactly the same.
Problem XXIII
Schedule of Determination and Allocation of Excess (Partial-goodwill)

Consideration
transferred..
80%).
80%)...
P
372,000
P 192,000
96,000
288,000
P
value)..
liabilities:
80%)
80%).
80%).....
80%)
cost over
fair
value)...
84,000
P 4,800
5,760
76,800
( 19,200)
3,840
72,000
P
12,000
S Co.
Book
value
S Co.
Fair
value
P
24,000
48,000
84,000
168,000
P
Inventory...
30,000
Land
55,200
180,000
Buildings (net)
144,000
(
Bonds payable (120,000) 115,200)
P
P
Net..
204,000 294,000
(Over)
Under
Valuation
P
6,000
7,200
96,000
(24,000)
4,800
P 90,000
Equipment ..................
Less: Accumulated
depreciation..
Net book
value...
Buildings................
Less: Accumulated
S Co.
Book value
180,000
S Co.
Fair value
180,000
Increase
(Decrease)
0
96,000
( 96,000)
84,000
180,000
96,000
S Co.
Book value
360,000
192,000
S Co.
Fair value
144,000
-
(Decrease)
( 216,000)
( 192,000)
depreciat ion..
Net book
value...
168,000
144,000
24,000)
Over/
amortized
r
P
Inventory
6,000
Subject
to
Annual
Amortization
96,00
0
(25,0
Buildings (net)
00)
Bonds payable
4,800
Lif
e
1
8
4
4
Annu
al
Current
Amou Year(20x
nt
4)
P
6,000 P 6,000
20x5
P
-
12,000
(
6,000)
12,00
0
(6,00
0)
1,200
P
13,200
12,000
( 6,000)
1,200
P 13,200
1,200
P
7,200

Less: Book value of stockholders equity of S (P360,000
x 100%)
liabilities
(P90,000 x 100%)
fair value)...
P 372,000
93,000
P 465,000
__360,000
P 105,000
90,000
P
15,000
Value
% of
Total
Goodwill applicable to P
P12,00
0
3,000
P15,000
80.00%
20.00%
100.00%
Value
Goodwill impairment loss attributable to P or
P
controlling
3,000
Interest
750
Goodwill
% of
Total
80.00%
20.00%
100.00%

Parent Company Equity Method Entry
The following are entries recorded by the P in 20x4 in relation to its subsidiary investment:
January 1, 20x4:
(1)
Investment
in
Company
S 372,000
372,000
Cash..

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

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

(4) Investment income [(P13,200 x 80%) + P3,000*, goodwill
impairment loss)]
13,560
13,560
Record amortization of allocat ed excess of invent ory, equipment , buildings and

bonds payable and goodwill impairment loss.
Thus, the investment balance and investment income in the books of P Company is as follows:
Cost, 1/1/x4
Inv estment in S
372,000 28,800
Div idends S (36,000x 80%)
NI of S
(60,000 x 80%)
Balance, 12/31/x4
Amortization &
impairment
48,000
377,640
13,560
Inv estment Income

13,560
48,000
34,440
Amortization &
impairment
NI of S
(P60,000 x 80%)
Balance, 12/31/x4

The schedule of determination and allocation of excess presented a bove provides complete
guidance for the worksheet eliminating entries on January 1, 20x4:
(E1)
Common
stock
S
Co
Retained
earnings
S
Co
Investment
in
Son
Co
Non-controlling
interest
(P360,000
x
20%)..
240,000
120.000
288,000
72,000
To eliminat e invest ment on January 1, 20x4 and equit y account s

of subsidiary on dat e of acquisit ion; and t o est ablish noncont rolling int erest (in net asset s of subsidiary) on dat e of
acquisit ion.
(E2)
6,000
Inventory.
96,000
192,000
7,200
Land.
Discount
on
bonds
4,800
payable.
12,000
Goodwill.
Buildings..
216,000
Non-controlling
interest
(P96,000
x
18,000
20%)..
Investment
in
S
84,000
Co.
To eliminat e invest ment on January 1, 20x4 and allocat e excess of
cost over book value of ident ifiable asset s acquired, wit h remainder
t o goodwill; and t o est ablish non- cont rolling int erest (in net asset s of
subsidiary) on dat e of acquisit ion.

6,000
6,000
Accumulated
depreciation
buildings..
Interest expense
Goodwill
impairment
loss.
6,000
1,200
3,000
Inventory..
Accumulated
depreciation
equipment..
Goodwill
6,000
12,000
1,200
3,000

Inv entory sold

Equipment
Buildings
Bonds payable
Totals
Cost of
Goods
Sold
P 6,000
Depreciation/
Amortization
Expense
Amortization
-Interest
P 12,000
( 6,000)
_______
P 6,000
P 1,200
P1,200
_______
P 6,000
Total
13,200
It should be observed that the goodwill computed above was proportional to the controlling interest
Value
P12,00
0
3,000
P15,000
% of
Total
80.00%
20.00%
100.00%
Therefore, the goodwill impairment loss of P3,750 based on 100% fair value or full -goodwill would be
Value
P
or controlling
3,000
Interest
Goodwill impairment
loss applicable to
625
NCI..
Goodwill
(E4) Investment income
34,440
% of
Total
80.00%
20.00%
100.00%
Non-controlling
interest
(P36,000
20%)..
Dividends paid S
7,200
36,000
5,640
To eliminate intercompany dividends and investment income under

equit y met hod and est ablish share of dividends, comput ed as
follows:
Inv estment in S
NI of S
28,800
Div idends - S
(60,000
Amortization &
x 80%). 48,000
13,560
impairment
5,640
After
Inv estment Income

Amortization
impairment
13,560
NI of S
(60,000
x 80%)
48,000
34,440
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,
goodwill
purposes:
for
Cost, 1/1/x4
NI of Son
(60,000 x 80%)
Balance, 12/31/x4

Goodwill applicable to NCI
Total (full) goodwill
Inv estment in S
372,000
28,800
48,000
377,640
377,640
Value
P12,000
3,000
P15,000
13,560
288,000
84,000
5,640

Amortization &
impairment
(E1) Inv estment, 1/1/20x4
(E4) Inv estment Income
and div idends
Percentage of
amortization
377,640
% of Total
80.00%
20.00%
100.00%
The goodwill impairment loss of P3,750 based on 100% fair v alue or full-goodwill would
be allocated as follows:
Value
% of Total
Goodwill impairment loss attributable
P 3,000
80.00%
to parent or controlling Interest
Goodwill impairment loss applicable to
NCI..
750
_20.00%
Goodwill impairment loss based on
100% fair v alue or full-goodwill
P 3,750
100.00%

Subsidiary
9,360
9,360

P 60,000
( 13,200)
P 46,800
20%
P 9,360
Equity Method (Partial -goodwill)

P Co
P480,000
34,440
P513,600
P204,000
60,000
48,000
P312,000
P202,440
P202,440
Income Statement
Sales
Inv estment income
Total Rev enue
Cost of goods sold
Interest expense
Other expenses
Net Income
P Company
S Company
Total
Div idends paid
P Company
S Company
Sheet
Balance Sheet
Cash.
Inv entory.
Land.
Equipment
Buildings
Goodwill
Inv estment in S Co
Total
- equipment
- buildings
Accounts payable
Bonds payable
Total
P360,000
202,440
P562,440
P120,000
60,000
P180,000
72,000
-
36,000
P490,440
P144,000
232,800
90,000
120,000
210,000
240,000
720,000
P 90,000
60,000
90,000
48,000
180,000
540,000
Dr.
(4)
34,440
(3)
(3)
(3)
6,000
6,000
1,200
(3)
3,000
(5)
9,360
377,640
P1,990,440
P1,008,000
P 135,000
405,000
P 96,000
288,000
120,000
240,000
600,000
120,000
120,000
490,440
240,000
144,000
_________
P1,008,000
Consolidated
P 720,000
_________
P 720,000
P 348,000
90,000
1,200
66,000
3,000
P508,200
P211,800
( 9,360)
P202,440
P360,000
202,440
P562,440
(4)
72,000
-
36,000
P490,440
P
(2)
(2)
6,000 (3)
7,200
6,000
(2) 216,000
4,800 (3) 1,200
12,000 (3) 3,000
(2) 288,000
(2) 84,000
(4) 5,640
(2) 96,000 (3)

(8) 192,000
(9)
6,000
322,800
150,000
210,000
265,200
420,000
1,044,000
3,600
9,000
P2,424,600
12,000
P147,000
495,000
240,000
360,000
600,000
(1) 240,000
490,440
(10) 7,200
_________
P1,990,440
Cr.
(1) 120,000
(2)
(2)
Sales
S Co.
P240,000
P240,000
P138,000
24,000
18,000
P180,000
P 60,000
P 60,000
__________
P 751,200
(1 ) 72,000
(2) 18,000
(5) 9,360
P 751,200
P Co.
____92,160
P2,424,600
S Co.
P
540,000
216,000

Gross profit
Other expense
P
324,000
60,000
72,000

operations
Add: Investment income
P
192,000
66,240
Net income
P
258,240
P
72,000
Dividends paid
360,000
192,000
P
168,000
24,000
54,000
P
90,000
P
90,000
P
48,000

The following are entries recorded by the parent in 20x5 in relation to its subsidiary investment:

(2) Cash
Investment in S Company (P48,000 x
80%).
38,400
38,400
December 31, 20x5:

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

(4) Investment income (P7,200 x 80%)
5,760
5,760
Record amortizat ion of allocat ed excess of invent ory, equipment ,

buildings and bonds payable
Cost, 1/1/x5
NI of S
(90,000 x 80%)
Balance, 12/31/x5
Inv estment in S
377,640 38,400
72,000
405,480
5,760

Amortization
(P7,200 x 80%)
Inv estment Income

Amortization
(7,200 x 80%)
5,760
72,000
66,240
NI of S
(90,000 x 80%)
Balance, 12/31/x4
The schedule of determination and allocation of excess presented above provides complete
guidance for the worksheet eliminating entries:
(E1)
Common
stock
S
Co
Retained
earnings
S
Co,
1/1/x5.
Investment in S Co (P384,000 x 80%)
Non-controlling
interest
(P384,000
x
20%)..
240,000
144.000
307,200
76,800

of subsidiary on dat e of acquisit ion; and t o est ablish noncont rolling int erest (in net asset s of subsidiary) on 1/1/20x5.
(E2) Accumulated depreciation equipment (P96,000 84,000

P12,000)
Accumulat ed depreciation buildings (P192,000 + 6,000) 198,000
7,200
Land.
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
Investment
in
S
70,440
Co.
t o t he original amount of goodwill; and t o est ablish non- cont rolling
int erest (in net asset s of subsidiary) on 1/1/20x5.
(E3) Depreciation expense..

Accumulated
depreciation
buildings..
Interest expense
Accumulated
depreciation
equipment..
Discount
on
bonds
payable
To provide for 20x5 depreciat ion and amort izat ion on differences
bet ween acquisit ion dat e fair value and book value of Sons
ident ifiable asset s and liabilit ies as follows:
Inv entory sold

Equipment
Buildings
Bonds payable
Depreciation/
Amortization
Expense
Amortization
-Interest
P 12,000
( 6,000)
_______
P 1,200
Total
6,000
6,000
1,200
12,000
1,200
Totals
P 6,000
P1,200
P7,,200

Non-controlling
interest
(P48,000
20%)..
Dividends paid S
66,240
9,600
48,000
27,840

follows:
After
Inv estment in S
NI of S
38,400
Div idends S
(90,000
Amortization
x 80%). 72,000
5,760
(P7,200 x 80%)
27,840
Inv estment Income

Amortization
(P7,200 x 80%)
5,760
72,000
66,240
the
NI of S
(90,000
x 80%)
Cost, 1/1/x5
NI of S
(90,000 x 80%)
Balance, 12/31/x5
Inv estment in S
377,640
38,400
72,000
405,480
5,760
307,200
70,440
27,840
405,480
405,480

Amortization
(7,200 x 80%)
and div idends

Subsidiary
16,560
16,560

P 90,000
( 7,200)
P 82,800
20%
P 16,560

Income Statement
Sales
Inv estment income
Total Rev enue
Cost of goods sold
Interest expense
Other expenses
P Co
P540,000
66,240
P606,000
P216,000
60,000
72,000
-
S Co.
P360,000
P360,000
P192,000
24,000
54,000
-
Dr.
(4)
66,240
(3)
(3)
6,000
1,200
Cr.
Consolidated
P 900,000
___________
P 900,000
P 408,000
90,000
1,200
126,000
-

Net Income
P348,000
P258,240
P258,240

P Company
S Company
Total
Div idends paid
P Company
S Company
Sheet
Balance Sheet
Cash.
Inv entory.
Land.
Equipment
Buildings
Goodwill
Inv estment in S Co
Total
- equipment
- buildings
Accounts payable
Bonds payable
Total
P270,000
P 90,000
P 90,000
(5)
P 625,200
P 274,800
( 16,560)
P258,240
16,560
P490,440
P490,440
258,240
P748,680
P144,000
90,000
P234,000
72,000
-
48,000
P676,680
P186,000
P676,680
265,200
180,000
216,000
210,000
240,000
720,000
P 102,000
96,000
108,000
48,000
180,000
540,000
P 367,200
276,000
324,000
265,200
420,000
1,044,000
2,400
9,000
405,480
P2,236,680
P1,074,000
P 150,000
450,000
P 102,000
306,000
120,000
240,000
600,000
120,000
120,000
676,680
240,000
186,000
(1) 144,000
(4)
(2)
7,200
(2)
(2)
3,600
9,000
(2)
_________
P1,074,000
84,000
48,000
(3) 216,000
(3) 1,200
(1) 307,200
(2) 70,440
(4) 27,840
(3)
12,000
(2) 198,000
(3) 6,000
9,600
__________
P 794,400
72,000
-
P2,707,800
P180,000
552,000
240,000
360,000
600,000
(1) 240,000
(7)
___ _____
P2,236,680
258,240
P748,680
676,680
(2 ) 76,800
(2) 15,360
(5) 16,560
P 794,400
____99,120
P2,707,800
Note: Using cost model or equity method, the consolidated net income, consolidated retained
earnings, non-controlling interests, consolidated equity on December 31, 20x4 and 20x5 are exactly
the same (refer to Problem VI solution).
5. 1/1/20x4
P360,000
b.
P 240,000
120,000
P 360,000

90,000
P450,000
20
P 90,000
c.
Consolidated SHE:
Stockholders Equity
Retained earnings
NCI, 1/1/20x4
P 600,000
360,000
P 960,000
___90,000
P1,050,000
6.
12/31/20x4:
a. CI-CNI
P Company
S Company
Total
equity holders of P..
P 9,360
13,200
3,000
P168,000
60,000
P228,000
25,560
P202,440
9,360
P211.800
b. NCI-CNI
Less: Amortization of allocated excess / goodw ill impairment
P 60,000
13,200
P 46,800
20%
P 9,360

follows:
Total
P360,000
202,440
P562,440
72,000
P490,440
e.
Total
P 240,000
P120,000
60,000
P180,000

36,000
144,000
P 384,000
90,000
( 13,200)
P460,000
20
P 92,160
f.
Consolidated SHE:
Stockholders Equity
Retained earnings
NCI, 12/31/20x4
P 600,000
490,440
P1,090,440
___92,160
P1,182,600
12/31/20x5:
a. CI-CNI
P Company
S Company
Total
P192,000
90,000
P282,000
P16,560
__7,200
23,760
P258,240
16,560
P274,800
b. NCI-CNI
P 90,000
80,400
P 82,800
20%
P 16,560

follows:
P484,800
P 144,000
120,000
P 24,000
13,200
P 10,800
80%
P 8,640
(P3, 750 x 80%)

3,000
5,640
P 490,440
258,240
Total
P748,680
72,000
P676,680
acquired.
e.
Total
20x4
20x5
Fair v alue of stockholders equity of subsidiary, December 31, 20x 5
P 240,000
P14,000
90,000
P234,000
48,000
186,000
P 426,000
90,000
P 13,200
7,200
( 20,400)
P 495,600
20
P 99,120
f.
Consolidated SHE:
Stockholders Equity
Retained earnings
NCI, 12/31/20x4
P 600,000
676,680
P1,276,680
___99,120
P1,1375,800
Problem XXIV

(80%)..
(20%)..
Son:
P
372,000
93,000
P
465,000
P 240,000
100%).
100%)...
value)..
liabilities:
100%)
100%).
100%).....
100%)
over
fair
value)...
120,000
360,000
P
105,000
6,000
7,200
96,000
( 24,000)
4,800
90,000
P
15,000
Over/
amortized
r
P
Inventory
6,000
Subject
to
Annual
Amortization
96,00
0
(24,0
Buildings (net)
00)
Bonds payable
Lif
e
1
8
4
4,800
Annu
al
Current
Amou Year(20x
nt
4)
P
6,000 P 6,000
20x5
P
-
12,000
(
6,000)
12,00
0
(6,00
0)
1,200
P
13,200
12,000
( 6,000)
1,200
P 13,200
1,200
P
7,200

January 1, 20x4:
(1)
Investment
in
S 372,000
Company
372,000
Cash..

(2) Cash
28,800
December 31, 20x4:

48,000
28,800
48,000
December 31, 20x4:

(4) Investment income [(P13,200 x 80%) + (P3,750 P750)*,
goodwill impairment loss)]
13,560
13,560

* t his procedure would be more appropriate, instead of mult iplying t he full-goodwill impairment loss of P3,750 by 80%. There might
be sit uations where the controlling interests on goodwill impairment loss would not be proport ionat e t o NCI acquired (refer t o
Illust rat ion 15-6).
Cost, 1/1/x4
NI of S
(60,000 x 80%)
Balance, 12/31/x4
Inv estment in S
372,000 28,800
48,000
377,640

Amortization &
Impairment
13,560
Inv estment Income

Amortization &
Impairment
13,560
NI of S
(P60,000 x 80%)
Balance, 12/31/x4
48,000
34,440

guidance for the worksheet eliminating entries on January 1, 20x4:
(E1)
Common
stock
Co
Retained
earnings
Co
Investment
in
Co
Non-controlling
interest
(P360,000
20%)..
240,000
120.000
288,000
72,000
acquisit ion.
(E2)
6,000
Inventory.
96,000
192,000
7,200
Land.
Discount
on
bonds
4,800
payable.
15,000
Goodwill.
Buildings..
216,000
21,000
Investment
in
S
84,000
Co.

Accumulated
depreciation
buildings..
Interest expense
Goodwill
impairment
loss.
6,000
6,000
6,000
1,200
3,750
6,000
Inventory..
Accumulated
depreciation
equipment..
Goodwill
Inv entory sold

Equipment
Buildings
Bonds payable
Cost of
Goods
Sold
P 6,000
_______
Depreciation/
Amortization
Expense
Amortization
-Interest
P 12,000
( 6,000)
_______
P 1,200
Total
12,000
1,200
3,750
Totals
P 6,000
P 6,000
P1,200
13,200
It should be observed that the goodwill computed above was proportional to the controlling interest
Value
P12,00
0
3,000
P15,000

% of
Total
80.00%
20.00%
100.00%
Therefore, the goodwill impairment loss of P3,125 based on 100% fair value or full-goodwill would be
Value
P
or controlling
3,000
Interest
Goodwill impairment
loss applicable to
750
NCI..
Goodwill
Non-controlling
interest
(P36,000
20%)..
Dividends paid S
% of
Total
80.00%
20.00%
100.00%
37,440
7,200
36,000
8,640

follows:
After
Inv estment in S
NI of S
28,800
Div idends S
(60,000
Amortization &
x 80%). 48,000
13,560
Impairment
5,640
Inv estment Income

Amortization &
Impairment
13,560
48,000
34,440
NI of Son
(60,000
x 80%)
the
Cost, 1/1/x4
NI of S
(60,000 x 80%)
Balance, 12/31/x4
Inv estment in S
372,000
28,800
40,000
377,640
13,560
288,000
84,000
5,640

Amortization &
Impairment
and div idends

377,640
Percentage of goodwill for amortization purposes:

Value
P12,000
Goodwill applicable to NCI
3,000
Total (full) goodwill
P15,000
377,640
% of Total
80.00%
20.00%
100.00%
The goodwill impairment loss of P3,750 based on 100% fair v alue or full-goodwill would
be allocated as follows:
Value
% of Total
Goodwill impairment loss attributable
P 3,000
80.00%
to parent or controlling Interest
Goodwill impairment loss applicable to
NCI..
750
_20.00%
Goodwill impairment loss based on
100% fair v alue or full-goodwill
P 3,750
100.00%

Subsidiary
8,610
8,610
To est ablish non-cont rolling int erest in subsidiarys adj ust ed net
P 60,000
( 13,200)
P 46,800
20%
P 9,360

750
P 8,610
Equity Method (Full-goodwill)
Income Statement
Sales
Inv estment income
Total Rev enue
Cost of goods sold
Interest expense
P Co
P480,000
34,440
P514,440
P204,000
60,000
-
S Co.
P240,000
P240,000
P138,000
24,000
-
Dr.
(4)
34,440
(3)
(3)
(3)
6,000
6,000
1,200
Cr.
Consolidated
P 720,000
_________
P 720,000
P 348,000
90,000
1,200
Other expenses
Net Income
48,000
P312,000
P202,440
P202,440

P Company
S Company
Total
Div idends paid
P Company
S Company
Sheet
Balance Sheet
Cash.
Inv entory.
Land.
Equipment
Buildings
Goodwill
Inv estment in S Co
Total
- equipment
- buildings
Accounts payable
Bonds payable
Total
18,000
P180,000
P 60,000
P 60,000
(3)
3,750
(5)
8,610
66,000
3,750
P508,950
P211,050
( 8,610)
P202,440
P360,000
P360,000
202,440
P562,440
P120,000
60,000
P180,000
72,000
-
36,000
P490,440
P144,000
232,800
90,000
120,000
210,000
240,000
720,000
P 90,000
60,000
90,000
48,000
180,000
540,000
(1) 120,000
202,440
P562,440
(4)
P490,440
P
(2)
(2)
(2)
(2)
377,640
P1,990,440
P1,008,000
P 135,000
405,000
P 96,000
288,000
120,000
240,000
600,000
120,000
120,000
490,440
240,000
144,000
Sales
Gross profit
Other expense
_________
P1,008,000
6,000 (3)
7,200
6,000
(2) 216,000
4,800 (3) 1,200
15,000 (3) 3,750
(2) 288,000
(2) 84,000
(4) 5,640
(2) 96,000 (3)

(2) 192,000
(3)
6,000
322,800
150,000
210,000
265,200
420,000
1,044,000
3,600
11,250
P2,426,850
12,000
P147,000
495,000
240,000
360,000
600,000
(1) 240,000
490,440
(4)
_________
P1,990,440
72,000
-
36,000
7,200
__________
P 754,200
(1 ) 72,000
(2) 21,000
(5) 8,610
P 754,200
____94,410
P2,426,850
P Co.
S Co.
P
540,000
216,000
P
380,000
P
324,000
60,000
72,000
192,000
P
168,000
24,000
54,000

operations
Net income
P
192,000
66,240
P
258,240
P
72,000
Dividends paid
P
90,000
P
90,000
P
48,000


(2) Cash
80%).
38,400
38,400
December 31, 20x5:

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

5,760
5,760

P Companys P12,000 portion of the differential related to goodwill related to goodwill is not adjusted
on the parents books following Option 2 as referred to above for goodwill impairment loss. Even
though the goodwill of the consolidated entity is impaired,
Cost, 1/1/x5
NI of S
(90,000 x 80%)
Balance, 12/31/x5
Inv estment in S
377,640 38,400
72,000
405,480
5,760

Amortization
(P7,200 x 80%)
Inv estment Income

Amortization
(7,200 x 80%)
5,760
72,000
66,240
NI of S
(90,000 x 80%)
Balance, 12/31/x4

The schedule of determination and allocation of excess presented ab ove provides complete
guidance for the worksheet eliminating entries.
(E1)
Common
stock
S
Co
Retained
earnings
S
Co,
1/1/x5.
Non-controlling
interest
(P384,000
x
20%)..
240,000
144.000
307,200
76,800


P12,000)
Accumulated depreciation buildings (P192,000 + 198,000
P6,000)
7,200
Land.
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)*
17,610
or (P3,750 x 20%)]
Investment
in
S
70,440
Co.
* t his procedure would be more appropriate, inst ead of mult iplying t he full-goodwill impairment loss of P3,750 by 20%. There
might be situations where t he NCI on goodwill impairment loss would not be proportionate to NCI acquired (refer t o Illust rat ion
15-6).

Accumulated
depreciation
buildings..
Interest expense
Accumulated
depreciation
equipment..
Discount
on
bonds
payable
6,000
6,000
1,200
12,000
1,200
Depreciation/
Amortization
Expense
Amortization
-Interest
P 12,000
( 6,000)
_______
P 6,000
P 1,200
P1,200
Inv entory sold

Equipment
Buildings
Bonds payable
Totals
Total
P7,200

Non-controlling
interest
(P48,000
20%)..
Dividends paid S
66,240
9,600
48,000
27,840

follows:
After
Inv estment in S
NI of S
38,400
Div idends - S
(90,000
Amortization
x 80%). 72,000
5,760
(P7,200 x 80%)
27,840
Inv estment Income

Amortization
(P7,200 x 80%)
5,760
72,000
66,240
NI of S
(90,000
x 80%)
the
Inv estment in S
377,640
38,400
Cost, 1/1/x5
NI of S
(90,000 x 80%)
Balance, 12/31/x5
72,000
405,480
5,760
307,200
70,440
27,840
405,480
405,480

Amortization
(7,200 x 80%)
and div idends

Subsidiary
16,560
16,560

P 90,000
( 7,200)
P 82,800
20%
P 16,560
0
P 16,560

Income Statement
P Co
S Co.
Dr.
Cr.
Consolidated
Sales
Inv estment income
Total Rev enue
Cost of goods sold
Interest expense
Other expenses
Net Income
P540,000
66,240
P606,000
P216,000
60,000
72,000
P348,000
P258,240
P258,240

P Company
S Company
Total
Div idends paid
P Company
S Company
Sheet
Balance Sheet
Cash.
Inv entory.
Land.
Equipment
Buildings
Goodwill
Inv estment in S Co
Total
- equipment
- buildings
Accounts payable
Bonds payable
Total
P360,000
P360,000
P192,000
24,000
54,000
P270,000
P 90,000
P 90,000
(4)
66,240
(3)
(3)
6,000
1,200
(5)
16,560
P 900,000
___________
P 900,000
P 408,000
90,000
1,200
126,000
P 625,200
P 274,800
( 16,560)
P 258,240
P490,440
P490,440
258,240
P748,680
P144,000
90,000
P234,000
72,000
-
48,000
P676,680
P186,000
P676,680
265,200
180,000
216,000
210,000
240,000
720,000
P 102,000
960,000
108,000
48,000
180,000
540,000
P 367,200
276,000
324,000
265,200
420,000
1,044,000
2,400
11,250
405,9480
P2,236,680
P1,074,000
P 150,000
450,000
P 102,000
306,000
120,000
240,000
600,000
120,000
120,000
676,680
240,000
186,000
(1) 144,000
(4)
(2)
7,200
(2)
(2)
3,600
11,250
(2)
__________
P1,074,000
84,000
48,000
(3) 216,000
(3) 1,200
(1) 307,200
(5) 70,440
(4) 27,840
(3)
12,000
(2) 198,000
(3)
6,000
9,600
__________
P 796,650
72,000
-
P2,634,000
P 180,000
552,000
240,000
360,000
600,000
(1) 240,000
(3)
___ _____
P2,236,680
258,240
P748,680
676,680
(2 ) 76,800
(2) 17,610
(5) 16,560
P 796,650
__________
P2,634,000
Note: Using cost model or equity method, t he consolidated net income, consolidated retained
earnings, non-controlling interests, consolidated equity on December 31, 20x4 and 20x5 are exactly
the same (refer to Problem VII solution).
5. 1/1/20x4
a. On date of acquisition the retained earnings o f parent should always be considered as the

P360,000
b.
Non-controlling interest (full-goodwill), January 1, 20x4
P 240,000
120,000
P 360,000
90,000
P450,000
20
P 90,000
___3,000
P 93,000
c.
Consolidated SHE:
Stockholders Equity
Retained earnings
NCI, 1/1/20x4
P 600,000
360,000
P 960,000
___93,000
P1,053,000
6.
a. CI-CNI P202,440
P Company
S Company
Total
P168,000
60,000
P228,000
P 8,610
13,200
3,750
25,560
P202,440
8,610
P211.050
b. NCI-CNI P8,610
Less: Amortization of allocated excess (refer to amortization table abov e)
P 60,000
13,200
P 46,800
20%
P 9,360

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
P 8,610
* t his procedure would be more appropriate, inst ead of mult iplying t he full-goodwill impairment loss of
P3,750 by 20%. There might be sit uat ions where t he NCI on goodwill impairment loss would not be
proport ionat e t o NCI acquired.

follows:
P360,000

Total
202,440
P562,440
72,000
P490,440
e.
Retained earnings SCompany, January 1, 20x4
Total
Non-controlling interest (partial-goodwill, 12/31/20x4..
Non-controlling interest (full-goodwill), 12/31/20x4..
P 240,000
P120,000
60,000
P180,000
36,000
144,000
P 384,000
90,000
( 13,200)
P460,800
20
P 92,160
2,250
P 94,410
f.
Consolidated SHE:
Stockholders Equity
Retained earnings
NCI, 12/31/20x4
P 600,000
490,440
P1,090,440
___94,410
P1,184,850
12/31/20x5:
a. CI-CNI P258,240
P Company
S Company
Total
P192,000
90,000
P282,000
P16,560
7,200
0
P258,240
16,560
P274,800
b. NCI-CNI P16,560
23,760
P 90,000
80,400
P 82,800
20%
P 16,560

follows:
P484,800
P 144,000
120,000
P 24,000
13,200
P 10,800
80%
P 8,640

(P3, 750 x 80%)
3,000
5,640
P 490,440
258,240
Total
P748,680
72,000
P676,680
acquired.
e.
Total
20x4
20x5
P 240,000
P144,000
90,000
P234,000
48,000
186,000
P 426,000
90,000
P 13,200
7,200
( 20,400)
P 495,600
20
P 99,120
2,250
P 101,370
f.
Consolidated SHE:
Stockholders Equity
Retained earnings
P 600,000
676,680

NCI, 12/31/20x4
P1,276,680
__101,370
P1,378,050
Problem XXV
1. Ambrose should report income from its subsidiary of P15,000 (P20,000 x .75) rather than dividend
income of P9,000.
2. A total of P5,000 (P20,000 x .25) should be assigned to the noncontrolling interest in the 20x4
consolidated income statement.
3. Consolidated net income of P70,0000 should be reported for 20X4, computed as follows:
Reported net income of AA
P59,000
Less: Dividend income from KR
(9,000)
Operating income of AA
P50,000
Net income of KR
20,000
P70,000
4.
Income of P79,000 would be attained by adding the income reported by AA (P59,000) to the
income reported by KR (P20,000). However, the dividend income from KR recorded by AA must be
excluded from consolidated net income.
Problem XXVI
(Determine consolidated balances for a step acquisition).
1.
AD fair value implied by price paid by MM

P560,000 70% =
P800,000
2.
Revaluation gain
1/1 equit y investment in AD (book value)
25% income for 1st 6 months
Investment book value at 6/30
Fair value of investment
Gain on revaluation to fair value
P178,000
8,750
186,750
200,000
P13,250
Goodwill at 12/31
Fair value of AD at 6/30
Book value at 6/30 (700,000 + [70,000 2])
Excess fair value
Allocation to goodwill (no impairment)
P800,000
735,000
P65,000
P65,000
3.
4.
5% fair value balance at 6/30
5% Income from 6/30 to 12/31
5% dividends
Non-controlling interest 12/31
Multiple Choice Problem

1. d equivalent to consideration transferred, P320,000
P40,000
1,750
(1,000)
P40,750
2. d equivalent to consideration transferred, P380,000

3. d
P: BV,12/31/20x6
S:
BV of building, 12/31/20x4
Add: Adjustments to reflect fair value, 1/1/20x4
(P350,000 P240,000)
Less: Amortization of excess (P110,000/10) x 3 years
P250,000
P170,000
110,000
33,000
247,000
P497,000
4. d
Inventory not yet sold in 20x4
Building: (P390,000 P200,000)/ 10 years
Equipment (P280,000 P350,000)/ 5 years
0
19,000
( 14,000)
P 5,000
Adjustments to reflect fair value, 1/1/20x4 (P300,000 P200,000)
Depreciation 1/1/20x4 12/31/20x6 (P100,000/20 x 3 years)
P200,000
100,000
( 15,000)
P285,000
5. b
6. d same with No. 5

7. d
BV of equipment, 1/1/20x4
P 80,000
( 5,000)
1,500
P 76,500
8. a
9. d 1/2/20x4:
BV of equipment, 1/1/20x4
(P 5,000)
1,500
(P 3,500)
P200,000
100,000
P300,000
10. a
Net income of S (5/1/x5 12/31/x5): P840,000 x 8/12
Less: Dividend S (11/1/20x5 no need to pro-rate)
Cumulative net income less dividends since
date of acquisition, 1/1/20x6 (date to establish reciprocity
not 12/31/x6)
x: Controlling interests
P560,000
300,000
Net income of S (5/1/x5 12/31/x5): P210,000 x 8/12

Less: Dividend S (11/1/20x5 no need to pro-rate)
not or 1/1/20x6)
P140,000
75,000
P120,000
P260,000
80%
P208,000
11. a
P 65,000
80%
P 52,000
12. b
Less: Retained earnings S Company, 12/31/20x4

should always be beginning of the year, not 12/31/x6)
380,000
P260,000
90%
P234,000
13. b
Less: Retained earnings S Company, 12/31/20x6
should always be beginning of the year, not 12/31/x6)
P 60,000
190,000
P130,000
90%
P117,000
14. a
Non-controlling Interest in Net Income (NCINI) for Year 3
P240,000
45,000
P195,000
30%
P 58,500
15. c
P Company
S Company
Total
Less: Amortization of allocated excess* *
P 375,000
30,000
P405,000
P5,250
3,750
0
9,000
P396,000
P30,000
3,750
P26,250
20%
P 5,250

* * P270,000/80% = P337,500 (P150,000 + P150,000) = P37,500 / 10 years = P3,750
Note: Whether the partial or full-goodwill approach are used the amortization of excess are always the
same.
16. a
* Non-controlling Interest in Net Income (NCINI) for Year 3
P600,000
112,500
P487,500
30%
P146,250
17. c
P Company
S Company
Total
P 625,000
50,000
P675,000
P 8,750
6,250

15,000
P660,000
P50,000
6,250
P43,750
20%
P 8,750

* * P450,000/80% = P562,500 (P250,000 + P250,000) = P62,500 / 10 years = P6,250
same.
18. b
As a general rule, if problem is silent It is assumed that expenses are generated evenly throughout
the year, thus:
Expenses (9/1/20x4-12/31/20x4): P620,000 x 4/12
P206,667
Amortization of allocated excess: P15,000 x 4/12
5,000
P211,667
19. c
Net income of S Company (P800,000 P620,000)
Multiplied by: No of mos. (9/1-12/31)
P180,000
15,000
P165,000
4/12
P 55,000
20. a
Net income of S Company (P800,000 P620,000)
Multiplied by: No of mos. (9/1-12/31)
P180,000
15,000
P165,000
4/12
P 55,000
____20%
P 22,000
21. d
P Company
S Company
Total
P 560,000
140,000
P700,000
P 50,400
14,000
_
0
64,400
P635,600
P140,000
14,000
P126,000
40%
P 50,400

* * P420,000/60% = P700,000 P560,000 = P140,000 P140,000 = P0
Amortization: P140,000/10 years = P14,000
same.
22. a
NCI-CNI: P50,400 (refer to No. 21)
Non-controlling interest (full-goodwill), December 31, Year 2

Common stock S Company, December 31, Year 2
Retained earnings S Company, January 1, Year 2
Add: Net income of S for Year 2
Total
Less: Div idends paid Year 2
Stockholders equity S Company, December 31, Year 2
liabilities, date of acquisition (January 1, Year 1)
Year 1
Year 2
Fair v alue of stockholders equity of subsidiary, December 31, Year 2
Non-controlling interest (partial/full goodwill) since there is no goodwill
P 300,000
P260,000
140,000
P400,000
0
400,000
P 700,000
140,000
P 14,000
14,000
( 28,000)
P 812,000
40%
P 324,800
23. c
Book v alue equipment Parent, 12/31/Year 2
Fair v alue equipment Subsidiary, 12/31/Year 2
Book v alue, 1/1/Year 1
Adjustments to reflect fair v alue
Amortization depreciation (P14,000 x 2 years)
Consolidated equipment balance, 12/31/2Year 2
P444,000
P200,000
140,000
( 28,000)
312,000
P756,000
24. b
Full-Goodwill: (P600,000/70%) P640,000 = P217,143 P40,000 = P177,143
If partial goodwill: P600,000 (P640,000 x 70%) = P152,000 (P40,000 x 70%) = P124,000
25. c
26. d - The acquisition method consolidates assets at fair value at acquisition date regardless of the
parents percentage ownership.
27. d - In consolidating the subsidiary's figures, all intercompany balances must be eliminated in their
28. c - An asset acquired in a business combination is initially valued at 100% acquisition -date fair
value and subsequently amortized its useful life.
Patent fair value at January 1, 20x4 ...............................................................
Amortization for 2 years (10 year life) .............................................................
Patent reported amount December 31, 20x5 ................................................
P45,000
(9,000)
P36,000
29. c
Book v alue of SHE S, 12/31/20x4
Add: Net income of S 20x4
Total
Stockholders equity S Company, December 31, Year 2
liabilities, date of acquisition January 1, 20x4
Amortization of allocated excess (refer to amortization abov e: P200,000/10
Non-controlling interest (partial)
P1,000,000
___150,000
P1,150,000
____90,000
P1,060,000
200,000
_( 20,000)
P1,240,000
30%
P 372,000
Add: NCI on full-goodwill P85,714 P60,000)

Non-controlling interest (full)
___25,714
P397,714
*P900,000/70% = P1,285,714 P1,000,000 = P285,714 P200,000 = P85,714, full

goodwill
*P900,000 (P1,000,000 x 70%) = P200,000 (P200,000 x 70%) = P60,000,

partial goodwill
It is assumed that full-goodwill is used. But, it should be noted that PFRS 3
either partial or full-goodwill approach are considered acceptable.
30. b
Combined revenues .......................................................................................

Combined expenses ......................................................................................
Trademark amortization .................................................................................
Patented technology amortization ................................................................
31. No answer available: P34,400 and P260,800

NCI-CNI - P34,400; NCI P260,800
Subsidiary income (P100,000 P14,000 excess amortizations) .......................
Non-controlling interest percentage ..............................................................
Non-controlling interest in subsidiary income .................................................
P1,300,000
(800,000)
(6,000)
(8,000)
P486,000
P86,000
40%
P34,400
Fair value of non-controlling interest at acquisition date...............................

40% change in Scott book value since acquisition ........................................
Excess fair value amortization (P14,000 40%) ...............................................
40% current year income ...............................................................................
Non-controlling interest at end of year ..........................................................
P180,000
52,000
(5,600)
34,400
P260,800
32. a
MM trademark balance .................................................................................

SS trademark balance...................................................................................
Excess fair value .............................................................................................
Two years amortization (10-year life) ..............................................................
Consolidated trademarks...............................................................................
P260,000
200,000
60,000
(12,000)
P508,000
33. b
Combined revenues .......................................................................................

Combined expenses ......................................................................................
Excess acquisition-date fair value amortization .............................................
Less: noncontrolling interest (P85,000 40%) ..................................................
Consolidated net income to controlling interest ............................................
P1,100,000
(700,000)
(15,000)
P385,000
(34,000)
P351,000
34. No answer available:

20x4 Investment income: Dividend of P10,000 x 100%
20x4 Investment balance: P500,000
35. c
HH expense ....................................................................................................
NN expenses ...................................................................................................
Excess fair value amortization (70,000 10 yrs)...............................................
Consolidated expenses ..................................................................................
36. b refer to No. 33
P621,000
714,000
7,000
P1,342,000
37. a
Fair value of non-controlling interest on April 1 ..............................................

30% of net income for 9 months ( year P240,000 30%)...........................
Non-controlling interest December 31 ...........................................................
38. b (P50,000 + P70,000) x 25% = P30,000

39. b P only.
40. b
- refer to No. 30
41. No answer available refer to No. 31

42. a
- refer to No. 32
43. a
P650,000 =P500,000 + P200,000 - P50,000
44. c
P95,000 = (P956,000 / .80) - P1,000,000 - P100,000
45. c P251,000 = .20[(P956,000 + P239,000) + (P190,000 - P5,000 - P125,000)]

46. a
47. b
Net Income from own operations:
20x4
20x5
Parent P 100,000 P100,000
Subsidiary ...
25,000
35,000
P125,000
P135,000
Subsidiarys other comprehensive income ..
5,000
10,000
Total Comprehensive Income .....P130,000
P145,000
Less: Amortization of allocated excess .
6,250
6,250
Impairment of full- goodwill (if any) .
0
0
Consolidated /Group Comprehensive Income P123,750
P138,750
Less: Non-controlling interest in Comprehensive
Income *
4,750
7,750
Controlling Interest in Consolidated
__________________
Comprehensive Income . P119,000
P131,000
*Non-controlling interest in Comprehensive Income:
20x4
2012
Subsidiarys:
Net income from own operations .......P 25,000
P 35,000
Other Comprehensive Income (P30,000
P25,000) . ...
5,000
10,000
Subsidiarys Comprehensive Income ........P 30,000
P 45,000
Less: Amortization of allocated excess* ..
6,250
6,250
Impairment of full-goodwill (if any).... .
0
0
P 23,750
P 38,750
x: Non-controlling interests .
20%
20%
Non-controlling interest in Comprehensive Incom e...P
4,750
P 7,750
48.
49.
50.
51.
*Amortization of allocated excess:

Increase in other intangibles: P50,000 / 8 years = P 6,250
c refer to No. 47
c refer to No. 47
b- refer to No. 47
b
P165,000
54,000
P219,000
P3,800
Less: BV of SHE of S: P1,000 + P600 + P1,500
3,100
Allocated excess /differential / excess of cost or fair value over book value P 700
52. a
Allocated excess /differential / excess of cost or fair value over book value P 700
Less: O/U valuation of A and L
Book value (P800 + P1,000 + P1,500 + P900 P1,800)
P2,400
Fair value (P900 + P1,200 + P1,250 + P1,300 P1,700)
2,950
Net increase
550
Goodwill
P 150
53.
54.
55.
56.
57.
58.
59.
60.
61.
62.
c inventory at fair value

b - (P1,500, book value (P1,500 P1,200) + (P300/5) = P1,260
d (P1,000, book value + (P1,250 P1,000) (P250/2) = P1,125
c (P900, book value + (P1,300 P900) = P1,300
c (P1,800 (P1,800 P1,700) + (P100/4) = P1,725
c - (P1,500, book value (P1,500 P1,200) + (P300/5) x 2 years
b - (P1,000, book value + (P1,250 P1,000) (P250/2) x 2 years
b - (P900, book value + (P1,300 P900) = P1,3000
d - (P1,800 (P1,800 P1,700) + (P100/4) x 2 years = P1,750
b
Consideration transferred: 10,500 shares x P95
Less: BV of SHE S (?)
Allocated excess;
Less: O/U valuation of A and L:
Undervaluation of land
Overvaluation of buildings
Undervaluation of equipment
Undervaluation/unrecorded trademark
= P1,320
= P1,000
P997,500
857,500
P140,000
P40,000
( 30,000)
80,000
50,000 140,000
P
0
63. a P900,000 + P500,000 = P1,400,000

64. d assumed that total expenses includes cost of goods sold which is different when the question
is total operating expenses
Cost of goods sold (P360,000 + P200,000)
P 560,000
Depreciation expense (P140,000 + P40,000)
180,000
Other expenses (P100,000 + P60,000)
160,000
Amortization of allocated excess:
Buildings: (P30,000) / 20
(P1,500)
Equipment; P80,000 / 10
8,000
Trademark: P50,000 / 16
3,125
9,625
Total expenses
P909,625
65.
66.
67.
68.
69.
70.
71.
b (P750,000 + P280,000) P30,000 + (P1,500 x 5 years) = P1,007,500

c (P300,000 + P500,000) + P80,000 (P8,000 x 5 years) = P840,000
c P450,000 + P180,000 + P40,000 = P670,000
d P50,000 P3,125 x 5 years) = P34,375
a P only (the stock issued In 20x0 includes already in the December 31, 20x4 balance.
a P only
Cannot be determined. Since PAS 27 allows two methods in the books of Par ent (i.e. cost model
and fair value model (which is under PAS 39 or PFRS 9). It is therefore assumed that the retained
earnings of parent on 1/1/20x4 amounting to P1,350,000 is under the cost model, therefore, there
is a need to establish reciprocity (or retroactive adjustments from 1/1/20x0 to 1/1/20x4) but there
is data as given amount for retained earnings of subsidiary on 1/1/20x0.
If equity method is used (therefore assume the P1,350,000 is computed under the equity
method), the answer would be,
Consolidated Retained Earnings, December 31, 20x 4
Consolidated Retained earnings, January 1, 20x 4 (equity method)
Total
Consolidated Retained Earnings, December 31, 20x 4 (under equity method)
Sales
Less: cost of goods sold
Gross profit
Other expenses
Net income
P 1,350,000
490,375
P1,840,375
195,000
P1,645,375
P Co
P900,000
360,000
P540,000
140,000
100,000
P300,000

P Company
S Company
Total
Less: Non-controlling Interest in Net Income
S Co
P500,000
200,000
P300,000
40,000
60,000
P200,000
P300,000
200,000
P500,000
P
0
9,625
_
0
9,625
P490,375
72. No answer available (P80,000 x 100%) = P80,000. Refer to No. 71 for further discussion
Note: Normally, the term used in the requirement equity in subsidiary income, is a term used
under equity method, but it should be noted that under PAS 27, it prohibits the use of equity
method for a parent to consolidate a subsidiary. But, assuming the use of equity method, the
answer would be, P190,375.
Share in net income: P200,000 x 100%
P200,000
9,625
P190,375
73. b
Decrease in Buildings account:
Fair value
P 8,000
Book value ..
__10,000
Decrease .
P 2,000
74. d
Decrease in buildings account (refer to No. 73)
Less: Increase due to depreciation (P2,000/10)
Decrease in buildings accounts ..
P 2,000
200
P 1,800
Decrease in buildings account (refer to No. 74)

Less: Increase due to depreciation (P2,000/10)
Decrease in buildings accounts ..
P 1,800
200
P 1,600
Increase in Equipment account:

Fair value
Book value ..
P 14,000
__18,000
75. d
76. a
Increase .
4,000
77. a
Increase in equipment account (refer to No. 76)
Less: Decrease due to depreciation (P4,000/4)
Increase in equipment accounts ..
P
P
4,000
1,000
3,000
78. a
Increase in equipment account (refer to No. 77)
Less: Decrease due to depreciation (P4,000/4
Increase in equipment accounts ..
P 3,000
1,000
P 2,000
79. a
Increase in Land account:
Fair value P 12,000
Book value .. 5,000
Increase .. P 7,000
80. b refer to No. 79, no depreciation/amortization
81. b refer to No. 79, no depreciation/amortization
82. e
Increase in Patent account:
Fair value
Book value ..
Increase .
P 11,000
_
0
P 11,000
(P234,000/90%) (P160,000 + P80,000) = P20,000 (P4,000 P2,000 + P7,000) = P11,000.

Partial or full-goodwill approach, the amortization remains the same.
83. e
Increase in patent account (refer to No. 82)
Less: Decrease due to depreciation (P11,000/5).
Increase in patent accounts .
P 11,000
2,200
P 8,800
Increase in patent account (refer to No. 83)

Less: Decrease due to depreciation (P11,000/5).
Increase in patent accounts .
84. d
8,800
2,200
P 6,600
85. a
Under the cost method, an investor recognizes its investment in the investee at cost. Income is
recognized only to the extent that the investor receives distributions from the accumulated net
profits (or dividend declared/paid by the investee) of the investee arising after the date of
acquisition by the investor. Distributions (dividends) received in excess of such profits are
regarded as a recovery of investment and are accounted for as a reduction of the cost of the
investment (i.e., as a return of capital or liquidating dividend).
Therefore, the investment balance of P500,000 on the acquisition date remains to be the
same.
86. d refer to No. 85 for further discussion.
87. b refer to No. 85 for further discussion.
88.
89.
90.
91.
a P40,000 x 80%
b P50,000 x 80%
a P60,000 x 80%
c
Full/Gross-up Goodwill Presentation:
Non-controlling interest in Net Income:
Subsidiary net income from own operations .P100,000
Less: Amortization of allocated excess*
7,000
Impairment of full-goodwill (if any)**
0
P 93,000
20%
Non-controlling interest in Net Income
P 18,600
Increase in equipment: P30,000 / 10 years = P 3,000
Increase in buildings: P40,000 / 10 years =
4,000
Total amortization P 7,000
** In case, there is an impairment of goodwill then the amount impaired under the full-goodwill
method should also be allocated between controlling and non-controlling interests
Partial Goodwill Presentation:
Less: Amortization of allocated excess* .
7,000
P 93,000
20%
Non-controlling interest in Net Income .
P 18,600
92. c
7,000
0
P113,000
20%
P 22,600
4,000
Total amortization.
P 7,000
** In case, there is an impairment of goodwill then the amount impaired under the full -goodwill
7,000
P113,000
20%
P 22,600
93. a
Subsidiary net income from ow n operations .P130,000
7,000
0
P123,000
20%
P 24,600
4,000
Total amortization.
P 7,000
** In case, there is an impairment of goodwill then the amount impaired under the full -goodwill
7,000
P123,000
20%
P 24,600
94. a
Book value of Stockholders Equity of Subsidiary

P 300,000
Retained earnings, 12/31/20x4:
Retained earnings, 1/1/20x4.P200,000
Add: Net income 20x4.. 100,000
Less: Dividends paid, 20x4.. 40,000 260,000
Book value of Stockholders Equity of Subsidiary, 12/31/x4
P 560,000
Add: Adjustments to reflect fair value (P30,000 + P40,000)..
70,000
Less: Accumulated amortization of allocated excess
P7,000 x 1 year..
7,000
Fair value of Stockholders Equity of Subsidiary. 12/31/x4
P 623,000
Multiplied by: Non-controlling Interest %...........................
20%
Non-controlling Interest (partial goodwill)..
P 124,600
Add: Non-controlling interest in Full Goodwill
(P55,000, full P44,000 partial l) or
(P55,00,000 x 20%)*
11,000
Non-controlling Interest (full)
P 135,600
* this computation (i.e., P55,000 x 20%) should only be use when the fair value of the noncontrolling interest of acquiree (subsidiary) is not given.
Partial Goodwill:
Fair value of consideration transferred: Cash
P 500,000
Less: Book value of Net Assets (Stockholders
Equity - Subsidiary): (P300,000 + P200,000) x 80%..
400,000
Allocated Excess..
P 100,000
Less: Over/Undervaluation of Assets and Liabilities:
Increase in equipment: P30,000 x 80%...................... P 24,000
Increase in building: P40,000 x 80%..........................
32,000 56,000
Goodwill (Partial)..
P 44,000
Full-goodwill:
(100%) Fair value of Subsidiary:
(100%) Fair value of consideration transferred:
P500,000 / 80%..........
Less: Book value of Net Assets (Stockholders
Equity - Subsidiary)...................................
Allocated Excess..
Less: Over/Undervaluation of Assets and
Liabilities (P40,000 + P30,000).
Goodwill (Full/Gross- up)....
P 625,000
500,000
P 125,000
70,000
55,000
95. e

P 300,000
Retained earnings, 1/1/20x5 (refer to No. 94).P260,000
Add: Net income, 20x5. 120,000
Less: Dividends paid, 20x5 50,000 330,000
P 630,000
70,000
Less: Accumulated amortization of allocated excess 2 yrs
14,000
P 686,000
Multiplied by: Non-controlling Interest %..............................
20%
P 137,200
(P55,00,000 x 20%)*
11,000
P 148,200
96. e

P 300,000
Retained earnings, 1/1/20x6.P330,000
Add: Net income, 20x6 130,000
Less: Dividends paid, 20x6.. 60,000 400,000

P 700,000
70,000
(1/1/20x4 12/31/20x6): P7,000 x 3 years
21,000
P 749,000
Multiplied by: Non-controlling Interest %............................
20%
P 149,800
(P55,00,000 x 20%)*
11,000
P 160,800
* this computation (i.e., P55,000 x 20%) should only be use when the fair value of the noncontrolling interest of acquiree (subsidiary) is not given.
97. b
P: BV,12/31/20x5
S:
Add: Adjustments to reflect fair value, 1/4/20x4
(P120,000 P90,000)
Less: Amortization of excess (P30,000/10) x 2 years
P 975,000
P105,000
30,000
6,000
129,000
P1,104,000
98. b P500,000 + P3,461

99. b
100. c
Fair Value of Subsidiary:
Consideration Transferred (5,400 shares)
P120,600
Less: Book value of SHE-S, 1/1:
Common stock S: P50,000 x 90%
P 45,000
APIC S: P15,000 x 90%
13,500
RE S: P41,000 x 90%
36,900
95,400
Allocated Excess
P 25,200
Less: Over/undervaluation of A & L:
Increase in Inv. (P17,100P16,100) x 90%
P
900
Increase in Eqpt. (P48,000P40,000) x 90%
7,200
Increase in Patents (P13,000P10,000) x 90%
2,700
10,800
Positive Excess: Goodwill
P 14,400
Amortization of allocated excess - Starting January 1:
Inventory: P1,000 / 1 year
P 1,000
2,000
Patents: P3,000 / 10 years
300
P 3,300
101. c
Common stock S
P 50,000
APIC S
15,000
RE S
P 41,000
Stockholders equity Subsidiary, 1/1
P106,000
Add: Adjustments to reflect fair value
12,000
Fair value of Stockholders Equity S, 1/1
P118,000
x: Non-controlling) interests
10%
Non-controlling Interests (in net assets)
P 11,800
102. a P48,000, parent only.

103. a P48,000. On the date of acquisition, the parents retained earnings is
also the consolidated retained earnings.
104. No requirement.
105. b P120,600, the initial value
106. b P4,000 x 90% = P3,600
107. c - use also the traditional formula presented in the book
Parent Subsidiary Consolidated
P: [P30,200 (P4,000 x 90%)
P 266,000
S (90% : 10%)
8,460
P 940
Amort.of Allocated Excess (90%:10%) (
2,970)
( 330)
Impairment partial goodwill
(
0)
_____
P 32,090
P 610
P32,700
CI CNI/
NCI-CNI CNI/Group NI
Profit Attributable
to Equity Holders
of Parent
108. c
Noncontrolling Interests (in net assets):
Common stock - S, 12/31/2011
P
50,000
Additional paid-in capital - S, 12/31/2011
15,000
Retained earnings - S, 12/31/2011:
RE-S, 1/1/2011
P 41,000
Add: NI-S, 2011
9,400
Less: Dividends S
4,000
46,400
Book value of SHE - S, 12/31/2011
P 111,400
Add: Adjustments to reflect fair value, 1/1/2011
12,000
Less: Amortization of allocated excess (1 yr.)
3,300
Fair Value of Net Assets/SHE - S, 12/31/2011
P
120,100
x: Noncontrolling Interest %
10%
Noncontrolling Interest (in net assets), 12/31/2011 P
12,010
109. b refer to 106 for computation
110. c refer to 106 for computation
111. b
Controlling RE / RE Attributable
to EH of Parent, 1/1/2010 (refer to No. 102
Add: CI CNI (refer to 106 and 109)
Less: CI Dividends (Dividend of parent only)
Controlling RE / RE Attributable
to EH of Parent, 12/31/2011
112. b same with No. 111.
113. c
Consolidated Equity:
Controlling Interest / Equity Holders
Attributable to Parent:
Common stock P: [P100,000 + P120,600
(5,400 shares x P10 par)]
APIC P: [15,000 + [P120,600 (5,400 x P10)]
RE P (refer to No. 12)
Parents Stockholders Equity or
P 48,000
32,090
15,000
P 65,090
P154,000
81,600
65,090
Controlling Interest Equity

Noncontrolling Interest (refer to No. 8)
Consolidated Equity
P300,690
12,010
P312,700
114. b
115. b Dividend paid S, P70,000 x 60% = P42,000
116. d CNI amounted to P265,000 [CI-CNI, P235,000 (refer to No. 117) and NCI-CNI, P30,000 (refer to
No. 118)]
Peer
Sea-Breeze
Consolidated
Net income from own operations:
Parent
190,000
Subsidiary
54,000
36,000
( 9,000)
( 6,000)
Impairment of goodwill
(
0)
(
0)
235,000
30,000
265,000
CI-CNI
NCI-CNI
CNI
20x5 results of operations are as follows:
Sales
Less: Cost of goods sold Operating expenses
Net income from its own separate operations
Net income
Peer
P 600,000
410,000
P 190,000
45,000
P 235,000
Less: Book value of stockholders equity of Sea (P550,000 x 100%)
Allocated excess (excess of cost over book value) ..
Add (deduct): (Over) under valuation of assets and liabilities
(P140,000 x 100%)
Positive excess: Full-goodwill (excess of cost over fair value)
Amortization of Allocated Excess
Book Value
Buildings (net)- 6
300,000
Equipment (net) 4
300,000
Patent -10
-0Net
Fair Value
360,000
280,000
100,000
Over/under
P 60,000
(20,000)
100,000
P 140,000
Sea-Breeze
P 300,000
210,000
P 90,000
P 90,000
P 414,000
276,000
P 690,000
__550,000
P 140,000
140,000
0
Amort.
P 10,000
(5,000)
10,000
P 15,000
117. c refer to No. 116 for computations

118. b refer to No. 116 for computations
119. c - P811,000.
Consolidated Retained Earnings, December 31,

20x5
Retained earnings - Parent Company, January 1,
20x5 (cost model)
P700,000
Adjustment to convert from cost model to equity

method for
purposes of consolidation or to establish
reciprocity:/Parents
share in adjusted net increased in subsidiarys
retained earnings:
Retained earnings Subsidiary, January 1,
20x5
Less: Retained earnings Subsidiary,
January 1, 20x2
Increase in retained earnings since date of
acquisition
20x2 20x4
(P15,000 x 3 years)
Multiplied
%...................
by:
Controlling
P
300,000
70,000
P
230,000
45,000
P
185,000
interests
Less:
Goodwill
impairment
loss (fullgoodwill),
60%
P
111,000
0
Note:
a. Date of acquisition: RE of Parent = Consolidated RE
Regardless of the method used in the books of the subsidiary,
rule should always be applied
b. Subsequent to date of acquisition:
Retained earnings of Parent under equity method = CRE
111,000
P
811,000
the following
Since, the P811,000 is the retained earnings of parent under the equity method, it
should also be considered as the parents portion or interest in consolidated
retained earnings or simply the consolidated retained earnings.
120. c - P811,000 refer to note (b) of No. 119
121. b P111,000 refer to No. 119
122. d
Consolidated Retained earnings, January 1, 20x5 (refer to

Nos. 118 and 119)
Add: Controlling Interest in Consolidated Net Income or
Profit attributable to equity holders of parent for 20x5
P
811,000
235,000
Total
P1,046,0
00
Less: Dividends paid Parent Company for 20x5

92,000
P
954,000
123. d refer to No.122

124. c
Non-controlling interest (partial-goodwill), December 31, 2015
Common stock Subsidiary Company, December 31, 2015
P
480,000
Retained earnings Subsidiary Company,

December 31, 2015
Retained earnings Subsidiary Company, P300,000
January 1, 2015
Add: Net income of subsidiary for 2015
90,000
Less: Dividends paid Subsidiary - 2015
70,000
Stockholders equity Subsidiary Company,
December 31, 2015
Adjustments to reflect fair value - (over)
undervaluation
of assets and liabilities, date of acquisition
(January 1, 2012)
Amortization of allocated excess (refer to
amortization above)
(P15,000 x 4)
Fair value of stockholders equity of subsidiary,
12/31/ 2015
Multiplied
by:
Non-controlling
Interest
percentage.
Add: NCI on full-goodwill.
Non-controlling interest (full)
320,000
P
800,000
140,000
(
60,000)
P
880,000
40
P
352,000
____0
P
352,000
125. c
Stockholders Equity
Common stock - Peer
Retained earnings
Parents
Stockholders
Attributable to the
P
724,000
954,000
Equity/Equity

Non-controlling interest**
1,678,000
352,000
P 985,500
P2,030,000
126. c
Investment in Sea-Breeze
Investment Income
127.
1/1/x2.
414,000 42,000
Dividends S
NI of S
Retro
111,000
(70,000 x 60%
128.
NI of S
refer
(90,000
Amortization
Amortization
(90,000
No.
x 60%). 54,000
9,000
(P15,000 x 60%)
(P15,000
x
60%)
54,000
x
129.
9,000
60%)
12/31/x5
528,000
45,000
refer
No. 117
130. No requirement
131. b refer to No. 118
132. c refer to No. 119
134. a not applicable under equity method.
139. b building account in the books of subsidiary at fair value
140. e building account in the books of subsidiary at book value
141. d push-down accounting: equipment account in the books of subsidiary is at fair value
142. c P120,000 x 70%
143. c
Investment.1/1/20x4
P210,000
Add: Share in net income 20x4 (P90,000 x 70%)
63,000
Less: Dividends received
24,000
Investment, 12/31/20x4
P249,000
84,000
36,000
P297,000
Note: The term received means that is the amount attributable to parent. If the term
declared or paid were used then it should be multiplied further by controlling interest.
144. c P60,000 x 80% = P48,000
145. c
Investment.1/1/20x4
148. b
Fullgoodwill Aproach
P105,000
36,000
12,000
P129,000
48,000
18,000
P159,000
c
d
to
116
c
to
Fair value of Subsidiary ( 100%)

(80%)..
(20%)..
Son:
100%).
100%)...
value)..
liabilities:
100%).
over
fair
value)...
P
180,000
20,000
P
200,000
P 100,000
60,000
P
5,000
___10,000
160,000
P
40,000
15,000
P
25,000
Partial-Goodwill Approach

Consideration
transferred..
90%).
90%)...
value)..
liabilities:
90%).
Positive excess: partial-goodwill (excess of
cost over
P
180,000
P 90,000
54,000
4,500
___9,000
144,000
P
36,000
13,500
P
22,500
fair
value)...
Lif
e
Annu
al
Amou
nt
Current
Year(20x
4)
P
2,000
P 2,000
Account Adjustments to be
amortized
Subject
to
Annual
Amortization
Over/
under
10,000
Patent
25,000
5,000
P
7,000
5,000
P 7,000
149. d
Investment in Wisden
180,000
18,000
Dividends S
(20,000Inv
x 90%)
estment in Wisden
NI of S
1/1/x6.
230,400
9,000
Div idends S
(60,000
Amortization
(10,000 x 90%)
x 90%). 54,000
12,600
(P14,000 x
NI of S
90%)
(30,000
Amortization
1/1/x6
203,400
x 90%). 27,000
6,300
(7,000 x 90%)
1/1/x6
215,100
150.
1/1/x4.
Theories
1.
2.
3.
4.
5.
B
C
D
D
a
6.
7.
8.
9.
10,
D
B
c*
D
d
11.
12.
13.
14.
15,
A
C
B
D
c
16.
17.
18.
19.
20.
C
C
C
D
d
21.
22.
23.
24.
25.
B
D
A
B
c
26.
27.
28.
29.
30.
C
C
D
C
a
31
32.
33.
34.
35.
C
B
C
B
B
36.
37.
38.
39.
40.
C
C
D
D
B
* partial equity is the same with equity met hod except t hat amortization of allocated excess is not recognized in t he investment
and income account.
41.
42.
43.
44.
45.
B
C
D
A
c
46.
47.
48.
49.
50,
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)]
12/31 Inventory (Balance Sheet )
36,000
36,000
20x5
Sales
1,200,000
Purchases (Cost of Goods Sold)

[300,000 (300,000/1.20)]
Beginning R/E Puma
1,200,000
50,000
50,000
36,000
36,000
2.
P Companys net income from own/separate operations.
Realized profit in beginning inv entory of S Company (downstream sales)
Unrealized profit in ending inv entory of S Company (downstream sales)
P Companys realized net income from separate operations* ...
S Companys net income from own operations.
Realized profit in beginning inv entory of P Company (upstream sales)
Unrealized profit in ending inv entory of P Company (upstream sales)
S Companys realized net income from separate operations* ...
Total
Less: Non-controlling Interest in Net Income* *
equity holders of parent 20x5..
* t hat has been realized in t ransact ions wit h t hird part ies.
P 760,000
36,000
(_50,000)
P 746,000
P 460,000
0
(
0)
P 460,000
460,000
P1,206,000
0
P1,206,000
92,000
P 1,114,000
Or, alternatively

Total
* * 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 760,000
36,000
(_50,000)
P 746,000
P 460,000
0
(
0)
P460,000
P 92,000
0
460,000
P1,206,000
92,000
P1,114,000
_ 92,000
P 1,206,000
P460,000
0
(
0)
S Companys realized net income from separate operations

Non-controlling Interest in Net Income (NCINI) partial goodwill
Problem II
1.
Sales
P460,000
_____0
P460,000
20%
P 92,000
1,020,000
Purchases (Cost of Sales)

To eliminate intercompany sales.
1,020,000

51,000
Inventory (Balance Sheet )
51,000
To eliminate unrealized intercompany profit in ending inventory.
Beginning Retained Earnings Pinta
(.90 P40,000)
36,000
4,000
40,000
To recognize unrealized profit in beginning inventory realized during the year.
Son Companys realized net income from separate operations* ...
Total
P 600,000
40,000
( 51,00 0)
P 589,000
P 1,720,000
0
(_
0)
P 1, 720,000
589,000
P2,309,000
0
P2,309,000
58,900
P 2,250,100
Or, alternatively

Total
P 1,720,000
0
(________0)
P1,720,,000
P 600,000
40,000
( 51,000)
P589,000
P 58,900
0
589,000
P2,309,000
__58,900
P2,250,100
_ 58,900
P 2,309,000
P600,000

Son Companys realized net income from separate operations
40,000
( 51,000)
P589,000
_____0
P589,000
10%
P 58,900
Problem III

S Companys net income from own operations (P1,500,000 + P2,400,000)
Realized profit in beginning inv entory of P Company (upstream sales) Salad
Realized profit in beginning inv entory of P Company (upstream sales)- Tuna
Unrealized profit in ending inventory of P Company (upstream sales) Salad
Unrealized profit in ending inv entory of P Company (upstream sales) Tuna
Total
Less: Non-controlling Interest in Net Income* * - Salad
Non-controlling Interest in Net Income* * - Tuna
P 3,600,000
54,000
(_ 45,00 0)
P 3,609,000
P3,900,000
66,000
63,000
( 57,000)
( 69,000)
P3,903,000
P 301,800
___239,400
3,903,000
P7,512,000
0
P7,512,000
___541,200
P6,970,800
Or, alternatively

S Companys net income from own operations (P1,500,000 + P2,400,000)
Realized profit in beginning inv entory of P Company (upstream sales) Salad
Realized profit in beginning inv entory of P Company (upstream sales)- Tuna
Unrealized profit in ending inventory of P Company (upstream sales) Salad
Unrealized profit in ending inv entory of P Company (upstream sales) Tuna
Total
Less: Non-controlling Interest in Net Income* * - Salad
Non-controlling Interest in Net Income* * - Tuna
Controlling Interest in Consolidated Net Income or Profit attrib utable to
P 3,600,000
54,000
(___45,000)
P3,609,,000
P3,900,000
66,000
63,000
( 57,000)
( 69,000)
P3,903,000
3,903,000
P7,512,000
P 301,800
239,400
0
__541,200
P6,970,800
_541,200
P 7,512,000
**Salad

(Reported net income of S Company)
P1,500,000
66,000
( 57,000)
P1,509,000
_____0
P1,509,000
__
20%
P 301,800
**Tuna
Realized Profit in Beginning inventory:

Downstream Sales (Sales from Parent to Subsidiary)
P414,000 x 15/115
Upstream Sales (Sales from Subsidiary-Salad to Parent):
Salad: P396,000 x 20/120
Upstream Sales (Sales from Subsidiary-Tuna to Parent):
Tuna: P315,000 x 25/125
Unrealized Profit in Ending inventory:
Downstream Sales (Sales from Parent to Subsidiary)
P345,000 x 15/115
Upstream Sales (Sales from Subsidiary-Salad to Parent):
Salad: P342,000 x 20/120
Upstream Sales (Sales from Subsidiary-Tuna to Parent):
Tuna: P345,000 x 25/125
Problem IV
1.
Sales
Cost of Goods Sold
Cost of Goods Sold
Ending Inventory (Balance Sheet )
[P1,250,000 - (P1,250,000/1.25)]
1/1 Retained Earnings P Company (1)
Noncontrolling interest (2)
Cost of Goods Sold (Beginning Inventory)
[P525,000 (P525,000/1.25)] = P105,000
P2,400,000
63,000
( 69,000)
P2,394,000
_____0
P2,394,000
10%
P 239,400
P54,000
66,000
63,000
P45,000
57,000
69,000
4,000,000
4,000,000
250,000
250,000
84,000
21,000
105,000
(1) .8(P105,000)
(2) .2(P105,000)
2/3.
4.
P3,000,000 .20 = P600,000 non-controlling interest in consolidated income.

[(.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)
Cost of Goods Sold (a)
Operating Expenses
Consolidated Income
Less Non-controlling Interest in Consolidated Income (b)
P12,450,000
P7,755,000
1,800,000
9,555,000
2,895,000
197,500
P2,697,500
(a)
Reported Cost of Goods Sold
Less intercompany sales in 20x4
Plus unrealized profit in ending inv entory (2/5 x (P1,350,000 - P900,000))
Less realized profit in beginning inv entory (1/4 x (P1,800,000 - P1,500,000))
Corrected cost of goods sold
P9,000,000
(1,350,000)
180,000
(75,000)
P7,755,000
(b)
P1,900,000
Reported net income of subsidiary
P190,00
0
Plus unrealized profit on subsidiary sales in 2013 that is considered realized in 20x4
0.1
(1/4 x (P1,800,000 - P1,500,000))
Less unrealized profit on subsidiary sales in 20x4 (there were no upstream sales in 20x4)
Income realized in transactions with third parties
Non-controlling interest in consolidated income
75,000
0
1,975,000
0.10
P197,500
Problem VIII
(Determine selected consolidated balances; includes inventory tr ansfers and an outside ownership.)
Customer list amortization = P65,000/5 years = P13,000 per year
Intercompany Gross profit (P160,000 P120,000) ..........................................
Inventory Remaining at Year's End .................................................................
Unrealized Intercompany Gross profit, 12/31 ......................................................
P40,000
20%
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)
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

P Companys net income from own/separate operations (P800-P400-P180)
S Companys net income from own operations (P600 P300 P250)
Total
P 50,000
0
( 8, 000)
P 42,000
P 220,000
0
(_
0)
P 220,000
42,000
P 262,000
13,000
P 249,000
8,700
P 240,300
Or, alternatively
Total
P 220,000
0
(_
0)
P 220,000
P 50,000
0
( 8,000)
P 42,000
P 8,700
13,000
42,000
P 262,000
21,700
P240,300
_ 8,700
P249,000
P 50,000
0
( 8,00 0)
P 42,000
13,000
P 29,000
30%
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

Consideration
transferred..
Son:
80%).
80%)...
value)..
liabilities:
80%)
80%).
80%).....
80%)
cost over
fair
value)...
P
372,000
P 192,000
96,000
288,000
P
84,000
P 4,800
5,760
76,800
( 19,200)
3,840
72,000
P
12,000
Co.
Book
value
P
24,000
48,000
84,000
168,000
(Over)
Under
Co.
Fair
value Valuation
P
Inventory...
30,000 P 6,000
Land
55,200
7,200
180,000
96,000
Buildings (net)
144,000
(24,000)
(
Bonds payable (120,000) 115,200)
4,800
P
P
Net..
204,000 294,000 P 90,000
The buildings and equipment will be further analyzed for consolidat ion purposes as follows:
S Co.
Book value
Equipment ..................
Less: Accumulated
depreciation..
Net book
value...
Buildings................
Less: Accumulated
depreciation..
Net book
value...
180,000
Co.
Fair value
180,000
Increase
(Decrease)
0
96,000
( 96,000)
84,000
180,000
96,000
S Co.
Book value
360,000
S Co.
Fair value
144,000
(Decrease)
( 216,000)
192,000
( 192,000)
168,000
144,000
24,000)
A summary of depreciation and amortization adjustments is as follows:
Over/
amortized
r
P
Inventory
6,000
Subject
to
Annual
Amortization
96,00
0
(24,0
Buildings (net)
00)
Bonds payable
4800
Lif
e
1
8
4
4
Annu
al
Current
Amou Year(20x
nt
4)
P
6,000 P 6,000
20x5
P
-
12,000
(
6,000)
12,00
0
(6,00
0)
1,200
P
13,200
12,000
( 6,000)
1,200
P 13,200
1,200
P
7,200

(P360,000 x 100%)
P 372,000
93,000
P 465,000
P
__360,000
105,000

liabilities
(P90,000 x 100%)
fair value)...
90,000
P
15,000
Value
P12,00
0
3,000
P15,000
% of
Total
80.00%
20.00%
100.00%
Value
Goodwill impairment loss attributable t o parent
P
or controlling
3,000
Interest
750
Goodwill
% of
Total
80.00%
20.00%
100.00%
The unrealized profits on January 1, and on December 31, 20x5, resulting intercompany sales, are as
summarized below:
Downstream Sales:
20x4
Sales of
Parent to
Subsidiary
P150,000
Intercompany
Merchandise
in 12/31 Inventory
of S Company
P150,000 x 60% = P90,000
20x5
120,000
P120,000 x 80% = P96,000
Year
Unrealized
Intercompany Profit in
Ending Inventory
P90,000 x 20% =
P18,000
P96,000 x 25% =
P24,000
Upstream Sales:
Year
Sales of
Subsidiary to
Intercompany
Merchandise
in 12/31 Inventory
Unrealized
20x4
Parent
P 60,000
of S Company
P60,000 x 50% = P30,000
20x5
75,000
P 75,000 x 40% = P30,000
Ending Inventory
P30,000 x 40% =
P12,000
P30,000 x 20% = P
6,000

January 1, 20x4:
(1)
Investment
in
Company
S 372,000
372,000
Cash..
(2) Cash
28,800
28,800
No entries are made on the parents books to depreciate, amortize or write-off the portion of the
allocated excess that expires during 20x4, and unrealized profits in ending inventory.
(E1)
Common
stock
Co
Retained
earnings
Co
Investment
in
Co
Non-controlling
interest
(P360,000
20%)..
240,000
120.000
288,000
72,000

(E2)
6,000
Inventory.
96,000
192,000
7,200
Land.
Discount
on
bonds
4,800
payable.
12,000
Goodwill.
Buildings..
Non-controlling
interest
(P90,000
x
20%)..
Investment
in
Son
Co.
216,000
18,000
84,000


Accumulated
depreciation
buildings..
Interest expense
Goodwill
impairment
loss.
6,000
6,000
6,000
1,200
3,000
Inventory..
Accumulated
depreciation
equipment..
Goodwill
6,000
12,000
1,200
3,000

Inv entory sold

Equipment
Buildings
Bonds payable
Totals
Cost of
Goods
Sold
P 6,000
_______
P 6,000
Depreciation/
Amortization
Expense
Amortization
-Interest
P 12,000
( 6,000)
_______
P 2,000
P 1,200
P1,200

Non-controlling
interest
(P36,000
20%)..
Dividends paid S
Total
13,200
28,800
7,200
36,000

share of dividends.
(E5) Sales.
Cost of Goods Sold (or Purchases)
150,000
150,000
To eliminat ed int ercompany downst ream sales.
(E6) Sales.
60,000
60,000
To eliminat ed int ercompany upst ream sales.
(E7) Cost of Goods Sold (Ending Inventory

Income Statement)
Inventory Balance Sheet
18,000
18,000
To defer t he downstream sales - unrealized profit in ending inventory

unt il it is sold to outsiders.

Income Statement)
12,000
12,000
To defer t he upstream sales - unrealized profit in ending inventory


Subsidiary
6,960
6,960

Unrealized profit in ending inv entory of P
Company (upstream sales)..
S Companys realized net income from
separate operations* ...
Less: Amortization of allocated excess [(E3)] .
partial goodwill
P 60,000
( 12,000)
P 48,000
13,200
P 34,800
20%
P
6,960

P Co
P480,000
S Co.
P240,000
Div idend income

Total Rev enue
Cost of goods sold
28,800
P508,800
P204,000
P240,000
P138,000
Interest expense
Other expenses
Net Income
60,000
48,000
P312,000
P196,800
P196,800
24,000
18,000
P180,000
P 60,000
P 60,000
Sales
Income Statement

P Company
S Company
P432,000
P144,000
Dr.
(5) 150,000
(6) 60,000
(4) 36,000
(3)
(7)
(8)
(3)
(3)
Cr.
Consolidated
P 510,000
_________
P 510,000
P 168,000
6,000 (5) 150,000

18,000 (6) 60,000
12,000
6,000
1,200
(3)
3,000
(9)
6,960
(1) 120,000
90,000
1,200
66,000
3,000
P328,200
P181,800
( 6,960)
P174,840
360,000

Total
Div idends paid
Perfect Company
Son Company
Sheet
Balance Sheet
Cash.
Inv entory.
Land.
Equipment
Buildings
Goodwill
Inv estment in S Co
Total
- equipment
- buildings
Accounts payable
Bonds payable
Total
236,160
P668,160
72,000
P216,000
86,400
-
43,200
P581,760
174,840
P538,840
72,000
________
P172,800
466,840
232,800
90,000
120,000
P 90,000
60,000
90,000
355,200
150,000
1210,000
240,000
720,000
48,000
180,000
540,000
372,000
P1,984,800
P1,008,000
P 135,000
P 96,000
405,000
288,000
120,000
240,000
600,000
120,000
120,000
581,760
240,000
144,000
(4)
(2)
6,000
(2)
7,200
(2)
(2)
_________
P1,008,000
6,000
18,000
12,000
(2) 216,000
4,800 (3) 12000
12,000 (3) 3,000
(9) 288,000
(10) 84,000
(2) 96,000 (3)

(11)
192,000
(12) 6,000
180,000
265,200
420,000
1,044,000
3,600
9,000
P2,394,600
12,000
P147,000
495,000
240,000
360,000
600,000
(1) 240,000
462,840
(13) 7,200
_________
P1,984,800
(3)
(7)
(8)
36,000
__________
P 983,160
(1 ) 72,000
(2) 18,000
(9) 6,960
P 983,160

Unrealized profit in ending inv entory of S Company (upstream sales)
Total
____89,760
P2,394,600
P168,000
( 18,000)
P150,000
P 60,000
( 12,000)
P 48,000
P 6,960
13,200
3,000
48,000
P198,000
23,160
P174,840
_ 6,960
P181.800
P 60,000
( 12,000)
P 48,000
13,200
P 34,800

20%
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 Acquisi tion
P Co.
Sales
P
540,000
216,000

Gross profit
Other expense
P
324,000
60,000
72,000

operations
P
192,000
38,400
Net income
P
230,400
P
72,000
Dividends paid
S Co.
P
360,000
192,000
P
168,000
24,000
54,000
P
90,000
P
90,000
P
48,000

20x5: Parent Company Cost Model Entry

Cash
Dividend
income
(P48,000
80%).
38,400
x
38,400
Dividends paid
Cash
48,000
48,000
(E1)
Investment
Company
in
19,200
Retained
earnings
Company
19,200

P144,000
120,000
P 24,000
80%
P 19,200
(E2)
Common
stock
Co
Investment
in
S
Co
(P384,000
80%)
Non-controlling
interest
(P384,000
20%)..
240,000
144.000
307,200
76,800

(E3)
6,000
Inventory.
Accumulated depreciation equipment.. 96,000
....
Accumulated depreciation buildings.. ... 192,000
7,200
Land.
Discount
on
bonds
4,800
payable.
12,000
Goodwill.
216,000
Buildings...........................
Non-controlling
interest
(P90,000
20%)............................
Investment
in
Co.
18,000
84,000


partial-goodwill]
Non-controlling
interests
(P13,200
13,560
x
2,640
20%).
Accumulated
depreciation
buildings..
Interest expense
6,000
12,000
1,200
6,000
Inventory..
Accumulated
depreciation
equipment..
Goodwill
24,000
2,400
3,000
Year 20x4 amount s are debit ed t o Ps ret ained earnings &
NCI;
Inv entory sold

Equipment
Buildings
Bonds payable
Sub-total
Multiplied by:
Impairment loss
Total
(20x4)
Retained
earnings,
P 6,000
12,000
(6,000)
1,200
P13,200
80%
P 10,560
3,000
P 13,560
Depreciation/
Amortization
expense
Amortization
-Interest
P 12,000
( 6,000)
________
P 6,000
P 1,200
P 1,200

Non-controlling
interest
(P48,000
20%)..
Dividends paid S
38,400
9,600
48,000

share of dividends.
(E6) Sales.
120,000
120,000
(E7) Sales.
75,000
75,000
(E8) Beginning Retained Earnings P

Company
Cost of Goods Sold (Ending Inventory
Income Statement)
To realized profit in downstream beginning inventory deferred in t he
18,000
18,000
prior period.
(E9) Beginning Retained Earnings P Company

(P12,000 x 80%)
Noncontrolling interest (P12,000 x 20%)
Income Statement)
9,600
2,400
12,000
To realized profit in beginning inventory deferred in t he prior period.

Income Statement)
24,000
24,000


Income Statement)
6,000
6,000


Subsidiary
17,760
17,760

Realized profit in beginning inv entory of P
Company - 20x5 (upstream sales)
S Companys Realized net income*
12,000
( 6,000)
P 96,000
7,200
P 88,800
20%

Non-controlling Interest in Net Income (NCINI )
partial goodwill
P 17,760
* from separat e t ransact ions t hat has been realized in t ransact ions
wit h t hird persons.

Sales
Income Statement
Div idend income

Total Rev enue
Cost of goods sold
P Co
P540,000
S Co.
P360,000
38,400
P501,600
P216,000
P360,000
P192,000
Dr.
(6) 120,000
(7) 75,000
(5) 38,400
Cr.
(10) 24,000
(11) 6,000
(6) 120,000
(7) 75,000
(8) 18,000
(9) 12,000
Consolidated
P 705,000
___________
P 705,000
213,000
Interest expense
Other expenses
Net Income
60,000
72,000
P348,000
P230,400
P230,400

P Company
P484,800
S Company
Total
Div idends paid
P Company
S Company
Sheet
Balance Sheet
Cash.
Inv entory.
Land.
Equipment
Buildings
Goodwill
Inv estment in S Co
Total
- equipment
- buildings
Accounts payable
Bonds payable
Total
24,000
54,000
P270,000
P 90,000
P 90,000
(4)
(4)
6,000
1,200
P
P
(
P
(12) 17,760
(6) 13,560
(8) 18,000
(9) 9,600
(10)
144,000
(9) 19,200
90,000
1,200
126,000
430,200
274,800
17,760)
257,040
P 462,840
230,400
P715,200
P 144,000
90,000
P234,000
72,000
-
48,000
P643,200
P186,000
P 647,880
265,200
180,000
216,000
P 102,000
96,000
108,000
P 367,200
276,000
210,000
240,000
720,000
48,000
180,000
540,000
372,000
P2,203,200
P1,074,000
P 150,000
450,000
P 102,000
306,000
120,000
240,000
600,000
120,000
120,000
643,200
___ _____
2,203,200
240,000
186,000
_________
P1,074,000
257,040
P 719,880
(5)
(11) 7,200
(3)
7,200
(3)
(3)
(1)
4,800
12,000
19,200
(3) 96,000
(3) 192,000
(4) 12,000
48,000
(4) 7,200
(10) 24,000
(11) 6,000
(3) 216,000
(4) 2,400
(4) 3,000
(2) 307,200
(3) 84,000
(4)
24,000
72,000
________
294,000
265,200
420,000
1,044,000
2,400
9,000
P2,677,800
P180,000
552,000
240,000
360,000
600,000
(2) 240,000
(4)
2,640
(14) 9,600
(9)
2,400
__________
P1,077,360
647,880
(2 ) 76,800
(3) 18,000
(12) 17,760
P1,077,360
____97,920
P2,677,800
5. 1/1/20x4
Retained earnings P Company, January 1, 20x4 (date of acquisition)
b.
P360,000

Common stock Subsidiary Company
Retained earnings Subsidiary Company.
Stockholders equity Subsidiary Company...
Adjustments to reflect fair v alue - (ov er) underv aluation of assets and liabilities
P 240,000
120,000
P 360,000
90,000
P 450,000
20
P 90,000
c.
Consolidated SHE:
Stockholders Equity
Retained earnings
NCI, 1/1/20x4
P 600,000
360,000
P 960,000
___90,000
P1,050,000
6.
measured as a proportion of identifiable assets and goodwill attributabl e to NCI share is not
recognized.
12/31/20x4:
a. CI-CNI P174,840
Unrealized profit in ending inv entory of S Company (downstream sa les)
Total
P168,000
( 18,000)
P150,000
P 60,000
( 12,000)
P 48,000
P 6,960
13,200
3,000
48,000
P198,000
23,160
P174,840
_ 6,960
P181.800
b. NCI-CNI P6,960
P 60,000
( 12,000)
P 48,000
13,200
P 34,800
20%
P 6,960

follows:

Total
P360,000
174,840
P534,840
72,000
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:
Common stock Subsidiary Company, December 31, 20x4
Retained earnings Subsidiary Company, December 31, 20x4
Retained earnings Subsidiary Company, January 1, 20x4
Add: Net income of subsidiary for 20x4
Total
Stockholders equity Subsidiary Company, December 31, 20x4
Less: Unrealized profit in ending inv entory of P Company (upstream sales)
Realized stockholders equity of subsidiary, December 31, 20x4
P 240,000
P120,000
6,000
P180,000
36,000
144,000
P 384,000
90,000
( 13,200)
P460,000
12,000
P448,800
20
P 89,760
f.
Consolidated SHE:
Stockholders Equity
Retained earnings
NCI, 12/31/20x4
P 600,000
462,840
P1,062,840
___89,760
P1,152,600
12/31/20x5:
a. CI-CNI
Total
Or, alternatively
P192,000
18,000
(_24,000)
P186,000
P 90,000
12,000
( 6,000)
P 96,000
96,000
P282,000
7,200
P274,800
17,760
P257,040

Total
Controlling Interest in Consolidated Net Income or Profit attributable to equity
holders of parent..
P192,000
18,000
(_24,000)
P186,000
P 90,000
12,000
( 6,000)
P 96,000
P 17,760
7,200
96,000
P282,000
24,960
P257,040
_ 17,760
P274,800
b. NCI-CNI

P 90,000
12,000
( 6,000)
P 96,000
7,200
P 88,800
20%
P 17,760

follows:
Retained earnings - Parent Company, January 1, 20x5 (cost model
Less: Unrealized profit in ending inventory of S Company (downstream sales)
20x4 (UPEI of S 20x4) or Realized profit in beginning inv entory of S
Company (downstream sales) 20x4 (RPBI of S - 20x5).
Adjusted Retained Earnings Parent 1/1/20x5 (cost model (S Companys
Retained earnings that hav e been realized in transactions with third
parties..
Unrealized profit in ending inv entory of P Company (upstream
sales) 20x4 (UPEI of P 20x4) or Realized profit in beginning
inv entory of P Company (upstream sales) 20x5 (RPBI of P - 20x5)
P484,800
18,000
P466,800
P 144,000
120,000
P 24,000
13,200
12,000
(P 1,200)
80%
(P 960)
3,000
Less: Goodwill impairment loss, partial goodwill

( 3,960)
P462,840
257,040
Total
P748,680
Less: Div idends paid Parent Company for 20x5
72,000
P647,880
acquired (refer t o Illust rat ion 15-6).
Or, alternatively:

Adjusted Retained Earnings Parent 12/31/20x5 (cost model (
S Companys Retained earnings that hav e been realized in
transactions with third parties..
20x4 and 20x5 (P11,000 + P6,000)
P643,200
24,000
P619,200
P 186,000
120,000
P 66,000
20,400
P
P
Less: Goodwill impairment loss, partial goodwill

6,000
39,600
80%
31,680
3,000
28,680
P647,880
e.
P 240,000
Retained earnings Subsidiary Company, January 1, 20x5*
P144,000
90,000
Total
P234,000
48,000
186,000
P 426,000
90,000
20x4
P 13,200
20x5
7,200
( 20,400)
P 495,600
Less: Unrealized profit in ending inv entory of P Company (upstream
sales) 20x5 (UPEI of P 20x5) or Realized profit in beginning inv entory
of P Company (upstream sales) 20x6 (RPBI of P - 20x6
6,000
Realized stockholders equity of subsidiary, December 31, 20x5.
P489,600
20
P 97,920
* t he realized profit in beginning inventory of P Company (upstream sales) 20x5 (RPBI of P - 20x5 amounting t o P10,000 is
already included in t he beginning ret ained earnings of S Company.
f.
Consolidated SHE:
Stockholders Equity
Retained earnings
P 600,000
647,880
P1,247,880
NCI, 12/31/20x4
___97,920
P1,345,800
Problem X

(80%)..
(20%)..
P
372,000

Son:
100%).
100%)...
value)..
liabilities:
100%)
100%).
100%).....
100%)
over
fair
value)...
93,000
P
465,000
P 240,000
120,000
360,000
P
105,000
6,000
7,200
96,000
( 24,000)
4,800
90,000
P
15,000
Over/
amortized
r
Inventory
P
Lif
e
1
Annu
al
Current
Amou Year(20x
nt
4)
P P 6,000
20x5
P
6,000
Subject
to
Amortization
6,000
Annual
Buildings (net)
96,00
0
(24,0
00)
Bonds payable
4,800
8
4
4
12,000
(
6,000)
1,200
P
13,200
12,000
( 6,000)
1,200
P 13,200
12,00
0
(6,00
0)
1,200
P
7,200

January 1, 20x4:
(1)
Investment
in
Company
S 372,000
372,000
Cash..
(2) Cash
Record dividends from Son Company.
28,800
28,800
On the books of Son Company, the P36,000 dividend paid was recorded as follows:
Dividends paid
Cash.
36,000
36,000
allocated excess that expires during 20x4.
(E1)
Common
stock
Co
Retained
earnings
Co
Investment
in
Co
Non-controlling
interest
(P360,000
20%)..
240,000
120.000
288,000
72,000

(E2)
6,000
Inventory.
96,000
192,000
7,200
Land.
Discount
on
bonds
4,800
payable.
15,000
Goodwill.
Buildings..
216,000
21,000
Investment
in
Son
84,000
Co.

Accumulated
depreciation
buildings..
Interest expense
Goodwill
impairment
loss.
6,000
6,000
6,000
1,200
3,750
6,000
Inventory..
Accumulated
depreciation
equipment..
Goodwill
Inv entory sold

Equipment
Buildings
Bonds payable
Totals
Cost of
Goods
Sold
P 6,000
_______
P 6,000
Depreciation/
Amortization
Expense
Amortization
-Interest
P12,000
( 6,000)
_______
P 6,000
P 1,200
P1,200
12,000
1,200
3,750

Non-controlling
interest
(P36,000
20%)..
Dividends paid S
28,800
7,200
36,000

share of dividends.
(E5) Sales.
150,000
150,000
(E6) Sales.
60,000
60,000

Income Statement)
18,000
18,000


Income Statement)
12,000
12,000


Subsidiary
6,210

partial goodwill
P3,000, impairment on partial-goodwill)
full goodwill
P 60,000
( 12,000)
P 48,000
13,200
P 34,800
20%
P 6,960
750
P
6,210

6,210

P Co
Income Statement
S Co.
Sales
P480,000
P240,000
Div idend income

Total Rev enue
28,800
P451,200
P240,000
Cost of goods sold
P204,000
P138,000
60,000
24,000
Interest expense
Other expenses
48,000
18,000

Net Income
P312,000
P196,800
P196,800

P Company
P360,000
S Company
Total
Div idends paid
P Company
S Company
Balance
Sheet
P180,000
P 60,000
P 60,000
P120,000
60,000
P180,000
72,000
-
36,000
P484,800
Cash.
Inv entory.
Land.
Equipment
Buildings
Total
Consolidated
P 510,000
_________
P 510,000
P 168,000
(5) 150,000
(6) 60,000
90,000
1,200
66,000
3,750
(3)
3,750
(9)
P328,950
P181,050
( 6,210)
P174,840
6,210
360,000
(1)
120,000
174,840
P534,840
72,000
________
P144,000
462,840
P
232,800
90,000
P 90,000
60,000
322,800
150,000
120,000
90,000
(4)
36,000
to
210,000
240,000
720,000
48,000
180,000
540,000

Goodwill
Inv estment in S Co
(3)
6,000
(7)
18,000
(8)
12,000
(3)
6,000
(3)
1,200
Cr.
196,800
P556,800
Balance Sheet
Dr.
(5)
150,000
(6)
60,000
(4)
28,800
(2)
6,000
P1,008,000
P 135,000
P 96,000
6,000
18,000
12,000
180,000
(2) 216,000
265,200
420,000
1,044,000
(2)
7,200
(2)
4,800
(2)
15,000
372,000
P1,984,800
(3)
(7)
(8)
(2)
(3)
1,200
3,600
(3) 3,750
(11)
288,00
0
(12) 84,000
11,250
(3)
12,000
P2,396,850
P147,000
- equipment
- buildings
Accounts payable
Bonds payable
405,000
288,000
120,000
240,000
600,000
120,000
120,000
484,800
(4)
7,200
_________
P1,984,800
462,840
(1 ) 72,000 (2)
21,000
(9) 6,210
_________
P1,008,000
495,000
240,000
360,000
600,000
(1)
240,000
240,000
144,000
Total
96,000
(15)
192,000
(16)
6,000
P
986,160
P 986,160
____92,010
P2,396,850
Sales
Gross profit
Other expense
Perfect
Co.
P
540,000
216,000
P
324,000
60,000
72,000

operations
P
192,000
38,400
Net income
P
230,400
P
72,000
Dividends paid
Son Co.
P
360,000
192,000
P
168,000
24,000
54,000
P
90,000
P
90,000
P
48,000

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

Cash
Dividend
income
(P48,000
80%).
38,400
x
38,400
Dividends paid
Cash
48,000
48,000
(E1)
Investment
Company
Retained
earnings
Company
in
19,200
19,200

year, 1/1/20x5.
P144,000
120,000
P 24,000
80%
P 19,200

240,000
144.000
Investment
in
S
Co
(P384,000
x
307,200
80%)
Non-controlling
interest
(P384,000
x
76,800
20%)..
of subsidiary and t o est ablish non-cont rolling int erest (in net asset s of
(E3)
6000
Inventory.
96,000
192,000
7,200
Land.
Discount
on
bonds
4,800
payable.
15,000
Goodwill.
Buildings..
216,000
21,000
Investment
in
S
84,000
Co.
acquired, wit h remainder t o goodwill; and t o est ablish non-
cont rolling int erest (in net asset s of subsidiary) on January 1, 20x5.

(P16,950 x 80%)
Non-controlling
interests
(P16,950
20%).
Accumulated
depreciation
buildings..
Interest expense
13,560
x
3,390
6,000
12,000
1,200
Inventory..
Accumulated
depreciation
equipment..
Goodwill
6,000
24,000
2,800
3,750
Year 20x4 amount s are debit ed t o Perfect s ret ained earnings
and NCI.
Inv entory sold

Equipment
Buildings
Bonds payable
Impairment loss
Totals
Multiplied by: CI%....
(20x4)
Retained
earnings,
P 6,000
12,000
(6,000)
1,200
3,750
P 16,950
80%
P13,560
Depreciation/
Amortization
expense
P
Amortization
-Interest
12,000
( 6,000)
P 1,200
P 6,000

Non-controlling
interest
(P48,000
20%)..
Dividends paid S
P1,200
38,400
9,600
48,000

share of dividends.
(E6) Sales.
120,000
120,000
(E7) Sales.
75,000
75,000
To eliminat ed int ercompany upst r eam sales.
(E8) Beginning Retained Earnings P

Company
18,000

Income Statement)
18,000

prior period.
(E9) Beginning Retained Earnings P Company

(P12,000 x 80%)
Income Statement)
9,600
2,400
12,000
To realized profit in upstream beginning inventory deferred in t he

prior period.

Income Statement)
24,000
24,000


Income Statement)
6,000
6,000
To defer t he upstream sales - unrealized profit in ending inventor y


Subsidiary
17,760
17,760

Unrealized profit in ending inventory of P
Son Companys Realized net income*
P 90,000
12,000
( 6,000)
P 96,000
7,200
P 88,800
20%
P 17,760

partial goodwill
0
full goodwill
P 17,760

Sales
Income Statement
P Co
P540,000
S Co.
P360,000
Dr.
(6) 120,000
Cr.
Consolidated
P 705,000
Div idend income

Total Rev enue
Cost of goods sold
38,400
P574,800
P216,000
P360,000
P192,000
Interest expense
Other expenses
Net Income
60,000
72,000
P348,000
P230,400
P230,400
24,000
54,000
P270,000
P 90,000
P 90,000

P Company
P484,800
S Company
Total
Div idends paid
P Company
S Company
Sheet
Balance Sheet
Cash.
Inv entory.
Land.
Equipment
Buildings
Goodwill
Inv estment in S Co
Total
- equipment
- buildings
Accounts payable
Bonds payable
Total
5. 1/1/20x4
(7) 75,000
(5) 38,400
(10) 24,000
(11) 6,000
(4)
(4)
(6) 120,000
(7) 90,000
(8) 21,600
(9) 14,400
___________
P 705,000
P 213,000
6,000
1,200
P
P
(
P
(12) 17,760
(7) 13,560
(8) 18,000
(9) 96000
(13)
144,000
(12) 19,200
90,000
1,200
126,000
430,200
274,800
17,760)
257,040
P 462,840
230,400
P715,200
P 144,000
90,000
P234,000
72,000
-
48,000
P643,200
P186,000
P 647,880
265,200
180,000
216,000
P 102,000
96,000
108,000
P 367,200
276,000
210,000
240,000
720,000
48,000
180,000
540,000
372,000
P2,203,200
P1,074,000
P 150,000
450,000
P 102,000
306,000
120,000
240,000
600,000
120,000
120,000
643,200
___ _____
P2,203,200
240,000
186,000
_________
P1,074,000
257,040
P 719,880
(5)
(14) 6,000
(3)
7,200
(3)
(3)
(1)
4,800
15,000
19,200
(3) 96,000
(3) 192,000
(4) 12,000
48,000
(4) 6,000
(10) 24,000
(11) 6,000
(3) 216,000
(4) 2,400
(4) 3,750
(2) 307,200
(3) 84,000
(4)
24,000
72,000
________
294,000
265,200
420,000
1,044,000
2,400
11,250
P2,680,050
P180,000
552,000
240,000
360,000
600,000
(2) 240,000
647,880
(4)
3,390
(17) 9,600
(9)
2,400
__________
P1,081,110
(2 ) 76,800
(3) 21,000
(12) 17,760
P1,081,110
____100,170
P2,680,050
a.
On date of acquisition the retained earnings of parent should always be considered as the
Retained earnings - Parent Company, January 1, 20x4 (date of acquisition)
P360,000
b.
Non-controlling interest (partial)..
Add: Non-controlling interests on full goodwill, 1/1/20x4 (P12,500, full-goodwill P10,000, partial
goodwill)
Non-controlling interest (full-goodwill)
P 240,000
120,000
P 360,000
90,000
P 450,000
20
P 90,000
3,000
P 93,000
c.
Consolidated SHE:
Stockholders Equity
Retained earnings
NCI, 1/1/20x4
P 600,000
360,000
P 960,000
___93,000
P1,053,000
6.
recognized.
12/31/20x4:
a. CI-CNI P174,840
Perfect Companys realized net income from separate operations* ...
Total
Less: Non-controlling Interest in Net Income
P168,000
( 18,000)
P150,000
P 60,000
( 12,000)
P 48,000
P 6,1210
13,200
3,750
23,160
P174,840
_ 6,210
P181.050
b. NCI-CNI P6,210
48,000
P198,000
P 60,000
( 12,000)

Non-controlling Interest in Net Income (NCINI) partial
Less: Non-controlling interest on impairment loss on full-goodwill (P3,750 x
20%) or (P3,750 impairment on full-goodwill less P3,000, impairment on
partial- goodwill)
P 48,000
13,200
P 34,800
20%
P 6,960
750
6,210
c. CNI P181,050 refer to (a)

follows:
Total
P360,000
174,840
P534,840
72,000
P462,840
e.
Non-controlling interest ), December 31, 20x4
Total
Less: Unrealized profit in ending inv entory of P Company (upstream sales)
P 240,000
P120,000
60,000
P180,000
36,000
144,000
P 384,000
90,000
( 13,200)
P460,800
12,000
P448,800
20
P 89,760
2,250
P 92,010
f.
Consolidated SHE:
Stockholders Equity
Retained earnings
NCI, 1/1/20x4
P 600,000
462,840
P1,062,840
___92,010
P1,154,840
12/31/20x5:
a. CI-CNI P257,040
P192,000
18,000
(_24,000)
P186,000

Total
P 90,000
12,000
( 6,000)
P 96,000
96,000
P282,000
7,200
P274,800
17,760
P257,040
Or, alternatively

Total
P192,000
18,000
(_24,000)
P186,000
P 90,000
12,000
( 6,000)
P 96,000
P 17,760
7,200
96,000
P282,000
24,960
P257,040
_ 17,760
P274,800
b. NCI-CNI P16,560
Less: NCI on goodwill impairment loss on full goodwill
Non-controlling Interest in Net Income (NCINI) full goodwill
P 90,000
12,000
( 6,000)
P 96,000
7,200
P 88,800
20%
P 17,760
0
P 17,760

follows:
Retained earnings - Parent Company, January 1, 20x5 (cost model
Adjusted Retained Earnings Parent 1/1/20x5 (cost model (S Companys
parties..
P484,800
18,000
P466,800
P 144,000

120,000
P 24,000
13,200
12,000
(P 1,200)
80%
(P 960)

(P3,750 x 80%)
3,000
( 3,960)
P462,840
257,040
Total
P719,880
72,000
P647,880
acquired (refer t o Illust rat i on 15-6).
Or, alternatively:

Adjusted Retained Earnings Parent 12/31/20x5 (cost model (
20x4 and 20x5 (P13,200 + P7,200)
P643,200
24,000
P619,200
P 186,000
120,000
P 66,000
20,400

P
(P3,750 x 80%)
6,000
39,600
80%
31,680
3,000
28,680
P647,880
e.
Non-controlling interest, December 31, 20x5
Retained earnings Subsidiary Company, January 1, 20x5*
Total
20x4
20x5
P 240,000
P144,000
90,000
P234,000
48,000
186,000
P 426,000
90,000
P 13,200
7,200
( 20,400)
f.

P 495,600
Less: Unrealized profit in ending inv entory of P Company (upstream
sales) 20x5 (UPEI of P 20x5) or Realized profit in beginning inv entory
of P Company (upstream sales) 20x6 (RPBI of P - 20x6
6,000
P489,600
20
P 97,920
2,250
P 100,170
* t he realized profit in beginning inventory of P Company (upstream sales) 20x5 (RPBI of P - 20x5 amounting t o P10,000 is
already included in t he beginning ret ained earnings of S Company.
Consolidated SHE:
Stockholders Equity
Retained earnings
NCI, 1/1/20x4
P 600,000
647,880
P1,247,880
___100,170
P1,348,050
Problem XI
(Compute selected balances based on three different intercompany asset transfer scenarios)
1.
Consolidated Cost of Goods Sold
PPs cost of goods sold ............................................................................
P290,000
SWs 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 = 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 Subsidiarys 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 200,000
8,000
(_ 12,000)

Total
P 196,000
P 58,000
0
(
0)
P 58,000

58,000
P 254,000
____0
P 254,000
11,600
P 242,200
P 58,000
0
(
0)
P 58,000
____0
P 58,000
20%
P 11,600
2.
Consolidated Cost of Goods Sold
PP book value ..........................................................................................
SW book value .........................................................................................
Elimination of 20x5 intercompany transfers .............................................
Reduction of beginning inventory because of
cost = P6,000 unrealized gross profit) .................................................
Reduction of ending inventory because of
cost = P10,000 unrealized gross profit) ...............................................
Consolidated cost of goods sold .............................................................
Consolidated Inventory
PP book value ..........................................................................................
SW book value .........................................................................................
Eliminate ending unrealized gross profit (see above) .............................
Consolidated inventory .....................................................................
P290,000
197,000
(80,000)
(6,000)
10,000
P411,000
P346,000
110,000
(10,000)
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 ...............................................................................
20x4 unrealized gross profit realized in 20x5 (above) ..............................
20x5 unrealized gross profit to be realized in 20x6 (above) .....................
SW realized income .................................................................................
Outside ownership percentage ..............................................................
Non-controlling interest in SWs income ............................................
or
P58,000
6,000
(10,000)
P54,000
20%
P10,800
P 200,000

Total
(_
0)
P 200,000
P 58,000
6,000
( 10,000)
P 54,000
54,000
P 254,000
____0
P 254,000
10,800
P 243,200
P 58,000
6,000
( 10,000)
P 54,000
____0
P 54,000
20%
P 10,800
Problem XIII
1. (Computation of selected consolidation balances as affected by downstream i nventory transfers)
UNREALIZED GROSS PROFIT, 12/31/x4: (downstream transfer)

Intercompany gross profit (P120,000 P72,000).........................
P48,000
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
Inv entory remaining at year's end ..............................................................................................
Inv entory remaining at year's end ..............................................................................................
30%
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 t ransfer eliminated in consolidation)
Noncontrolling interest in consolidated income: (impact of transfers is not
included because they were downstream)
Broadway reported income for 20x5 .................................................................................
Intangible amortization...........................................................................................................
Broadway adjusted income..................................................................................................
Outside ownership ...................................................................................................................
P100,000
(10,000)
90,000
30%
Noncontrolling interest in Broadways earnings ..............................................................
P 27,000
or,

Total
P 165,000
14,400
(_10,000)
P 169,400
P 100,000
0
(
0)
P 100,000
100,000
P 269,400
__10,000
P 259,400
27,000
P 232,400
P 100,000
0
(
0)
P 100,000
__10,000
P 90,000
30%
P 27,000
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 Broadways earnings ..................................................................
Dividends (30% P50,000)..........................................................................................................
Total noncontrolling interest at 12/31/x5...................................
27,000
(15,000)
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) ........................

Inventory remaining at year's end ................................................
P48,000
30%
P14,400
UNREALIZED GROSS PROFIT, 12/31/x5: (upstream transfer)

Intercompany gross profit (P250,000 P200,000) .....................
Inventory remaining at year's end ................................................
P50,000
20%
P10,000
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 .................................................................................
Intangible amortization...........................................................................................................
P100,000
(10,000)
20x4 gross profit recognized in 20x5 .......................................

20x5 gross profit deferred ..........................................................
Broadway realized income for 20x5........................................
14,400
(10,000)
P94,400
Outside ownership ...................................................................................................................
Noncontrolling interest .....................................................................

Total
30%
P28,320
P 165,000
0
(_
0)
P 165,000
P 100,000
14,400
( 10,000)
P 104,400
104,400
P 269,400
__10,000
P 259,400
28,320
P 231,080
P 100,000
14,400
( 10,000)
P 104,400
__10,000
P 94,400
30%
P 28,320
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 int angible allocation (30% P295,000) .....................
(88,500)
Noncontrolling Interest in Broadways earnings ..................
28,320
Dividends (30% P50,000)......................................................................................................
Total noncontrolling interest at 12/31/x5................................
(15,000)
P382,500
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
(CI-CNI)
Pepper [P724,000 (PP30,000 x 80%)]
Salt
RPBI of S (down)
RPBI of P (up)
UPEI of S (down)
UPEI of P (up)
Amortization
Impairment of goodwill
P700,000
72,000
15,000
8,000
( 20,000)
( 4,000)
( 1,600)
(
0)
P769,400
Salt
(NCI-CNI)
CNI
P 18,000
2,000
(1,000)
( 400)
____( 0)__
P18,600
Profit Attributable to Equity NC Interest

Holders of Parent
in Net Income
P788,000
CNI
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 (dow n) 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 / Parents share of adjusted
net increase in subsidiarys 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
-: UPEI of S (down) 2013 or RPBI of S (down) 2014.. .
15,000
Adjusted Retained earnings Parent, 1/1/2014 (cost)
P2,786.000

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 Sales
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
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) ............................................................
Markup percentage (P21,000 P70,000) ...................................
P21,000
30%
Remaining inv entory ...............................................................................................................................

Markup percentage ...............................................................................................................................
P30,000
30%
Unrealized gross profit, 1/1/x6 .........................................................
P9,000
Unrealized Gross profit Inventory, 12/31/x6

Markup (P100,000 P50,000) ..........................................................
P50,000
Remaining inventory .........................................................................
P40,000
Unrealized gross profit, 12/31/x6 ....................................................
P20,000
Markup percentage (P50,000 P100,000) .......................................................................................
Markup percentage ...............................................................................................................................
50%
50%
Impact of intercompany Building Transfer

12/31/x5Transfer price figures
Transfer price .................................................................................
Gain on transfer (P50,000 P30,000) ......................................
Depreciation expense (P50,000 5) ......................................
Accumulated depreciation .....................................................
12/31/x6Transfer price figures
Depreciation expense ................................................................
12/31/x5Historical cost figures
Historical cost ................................................................................
Depreciation expense (P30,000 book value 5 years) ....
Accumulated depreciation (P40,000 + P6,000) ..................
12/31/x6Historical cost figures
Depreciation expense ................................................................
P50,000
20,000
10,000
10,000
10,000
20,000
P70,000
6,000
46,000
6,000
52,000
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

Consideration
transferred..
Son:
80%).
80%)...
value)..
liabilities:
80%)
80%).
80%).....
80%)
cost over
P
372,000
P 192,000
96,000
288,000
P
84,000
P 4,800
5,760
76,800
( 19,200)
3,840
72,000
P
12,000
fair
value)...
S Co.
Book
value
Inventory...
Land
Buildings (net)
Bonds payable
Net..
S Co.
Fair
value
(Over)
Under
Valuation
P
24,000
48,000
84,000
168,000
P
30,000
55,200
180,000
144,000
(
(120,000) 115,200)
P
P
204,000 294,000
6,000
7,200
96,000
(24,000)
4,800
P 90,000
Equipment ..................
Less: Accumulated
depreciation..
Net book
value...
Buildings................
Less: Accumulated
depreciation..
Net book
value...
S Co.
Book value
180,000
S Co.
Fair value
180,000
Increase
(Decrease)
0
96,000
( 96,000)
84,000
180,000
96,000
S Co.
Book value
360,000
S Co.
Fair value
144,000
(Decrease)
( 216,000)
192,000
( 192,000)
168,000
144,000
24,000)
amortized
Inventory
Subject
to
Amortization
Annual
Over/
Unde
r
P
6,000
Lif
e
1
Annu
al
Current
Amou Year(20x
nt
4)
P
6,000 P 6,000
20x5
P
-
Buildings (net)
Bonds payable
96,00
0
(24,0
00)
48000
8
4
4
12,000
(
6,000)
1,200
P
13,200
12,000
( 6,000)
1,200
P 13,200
12,00
0
(6,00
0)
1,200
P
7,200
purposes of allocating the goodwill impairment loss, the full-goodwill is computed as follows:

(P360,000 x 100%)
liabilities
(P90,000 x 100%)
fair value)...
P 372,000
93,000
P 465,000
__360,000
P 105,000
90,000
P
15,000
Value
P12,00
0
3,000
P15,000
% of
Total
80.00%
20.00%
100.00%
Value
P
or controlling
3,000
Interest
750
% of
Total
80.00%
20.00%
100.00%
Goodwill
The unrealized profits on January 1, and on December 31, 20x5, resulting intercompany sales, are as
summarized below:
Downstream Sales:
20x4
Sales of
Parent to
Subsidiary
P150,000
Intercompany
Merchandise
in 12/31 Inventory
of S Company
P150,000 x 60% = P90,000
20x5
120,000
P120,000 x 80% = P96,000
Year
Unrealized
Ending Inventory
P90,000 x 20% =
P18,000
P96,000 x 25% =
P40,000
Upstream Sales:
Year
20x4
20x5
Sales of
Subsidiary to
Parent
P 50,000
62,500
Intercompany
Merchandise
in 12/31 Inventory
of S Company
P100,000 x 50% = P25,000
P 62,500 x 40% = P25,000
Unrealized
Ending Inventory
P25,000 x 40% =
P10,000
P25,000 x 20% = P
5,000

January 1, 20x4:
(1)
Investment
in
Company
S 372,000
372,000
Cash..

(2) Cash
28,800
28,800
December 31, 20x4:

December 31, 20x4:
48,000
48,000
(4) Investment income [(P13,200 x 80%) + P3,000, goodwill

impairment loss)]
13,560
13,560

December 31, 20x4:
(5) Inv estment income (P18,000 x 100%)
Inv estment in S Company
To adjust inv estment income for downst ream sales - unrealized profit in ending
invent ory of S.
December 31, 20x4:
To adjust inv estment income for upstream sales - unrealized profit in ending
inv entory P .
18,000
9,600
18,000
9,600
Cost, 1/1/x4
NI of S
(60,000 x 80%)
Balance, 12/31/x4
Amortization &
impairment
UPEI of S (P18,000 x 100%)
UPEI of P (P12,000 x80%)
Inv estment in S
372,000 28,800
48,000

Amortization &
impairment
UPEI of Son (P15,000 x 100%)
UPEI of Perfect (P10,000 x80%)
13,560
18,000
9,600
350,040
Inv estment Income
13,560
18,000
9,600
NI of S
(P60,000 x 80%)
48,000
6,840
Balance, 12/31/x4
(E1)
Common
stock
Co
Retained
earnings
Co
Investment
in
Co
Non-controlling
interest
(P360,000
20%)..
240,000
120.000
288,000
72,000
To eliminat e invest ment on January 1, 20x4 and equit y account s of

subsidiary on date of acquisition; and t o establish non-controlling int erest
(in net asset s of subsidiary) on dat e of acquisit ion.
(E2)
6,000
Inventory.
96,000
192,000
7,200
Land.
Discount
on
bonds
4,800
payable.
12,000
Goodwill.
Buildings..
Non-controlling
interest
(P90,000
x
20%)..
Investment
in
S
Co.
216,000
18,000
84,000


Accumulated
depreciation
buildings..
Interest expense
Goodwill
impairment
loss.
6,000
6,000
6,000
1,200
3,000
Inventory..
Accumulated
depreciation
equipment..
Goodwill
6,000
12,000
1,200
3,000

Inv entory sold

Equipment
Buildings
Bonds payable
Totals
Cost of
Goods
Sold
P 6,000
_______
P 6,000
Depreciation/
Amortization
Expense
Amortization
-Interest
P 12,000
( 6,000)
_______
P 7,200
P 1,200
P1,200

Non-controlling
interest
(P36,000
20%)..
Dividends paid S
Total
14,400
6,840
21,960
7,200
36,000

follows:
NI of S
Inv estment in S
28,800
Div idends - S
Inv estment Income

NI of S
After
(60,000
x 80%). 48,000
13,560
18,000
9,600
21,960
Amortization &
impairment
UPEI of S
UPEI of P
Amortization
impairment
UPEI of S
UPEI of P
13,560
18,000
9,600
(50,000
x 80%)
48,000
the
6,840
Cost, 1/1/x4
NI of S
(60,000 x 80%)
Balance, 12/31/x4
and div idends
Inv estment in S
372,000
28,800
48,000
350,040
21,960
372,000
13,560
18,000
9,600
288,000
84,000

Amortization &
impairment
UPEI of Son
UPEI of Perfect
372,000
(E5) Sales.
150,000
150,000
(E6) Sales.
60,000
60,000

Income Statement)
18,000
18,000


Income Statement)
12,000
12,000


Subsidiary
Son Companys realized net income from
P 60,000
( 12,000)
P 48,000
( 13,200)
P 34,800
6,960
6,960

partial goodwill
20%
P
6,960
P Co
P480,000
S Co.
P240,000
Inv estment income

Total Rev enue
6,840
P486,840
P240,000
Cost of goods sold
P204,000
P138,000
Interest expense
Other expenses
Net Income
60,000
48,000
P312,000
P174,840
P174,840
24,000
18,000
P180,000
P 60,000
P 60,000
Sales
Income Statement

P Company
S Company
Total
Div idends paid
P Company
S Company
Sheet
Balance Sheet
Cash.
Inv entory.
Land.
Equipment
Buildings
Goodwill
Inv estment in S Co
Total
- equipment
- buildings
Dr.
(5) 150,000
(6) 60,000
(4) 6,840
(3)
(7)
(8)
(3)
(3)
6,000
18,000
12,000
6,000
1,200
(3)
3,000
(9)
6,960
Cr.
_________
P 510,000
P 168,000
(5)
150,000
(6)
60,000
90,000
1,200
66,000
3,000
P328,200
P181,800
( 6,960)
P174,840
P360,000
Consolidated
P 510,000
174,840
P414,840
P120,000
60,000
P180,000
72,000
-
36,000
P462,840
360,000
(1) 120,000
174,840
P414,840
72,000
________
P144,000
642,840
232,800
90,000
120,000
P 90,000
60,000
90,000
387,360
150,000
210,000
220,000
720,000
48,000
180,000
540,000
(4)
(1)
5,000
(2)
7,200
(2)
4,800
(2) 12,000
(8) 21,960
350,040
P1,635,700
P1,006,000
P 135,000
405,000
P 96,000
288,000
(2) 96,000
(2) 192,000
(3)
6,000
(3)
(7)
(8)
36,000
6,000
18,000
12,000
(2) 216,000
(3) 1,200
(3) 3,000
(2) 288,000
(2) 84,000
(3)
12,000
180,000
265,200
380,000
1,044,000
3,600
9,000
P2,394,600
P 147,000
495,000
Accounts payable
Bonds payable
Total
120,000
240,000
600,000
120,000
120,000
240,000
360,000
600,000
240,000
144,000
(1) 240,000
462,840
_________
P1,962,840
_________
P1,008,000
__________
P 983,160
(4)
7,200
(1 ) 72,000
(2) 18,000
(5) 6,960
P 983,160
462,840
____89,760
P2,394,600
Second Year after Acquisition
Sales
Gross profit
P Co.
P
540,000
216,000

Other expense
P
324,000
60,000
72,000

operations
P
192,000
65,040
Net income
Dividends paid
P
257,040
P
72,000
S Co.
P
360,000
192,000
P
168,000
24,000
54,000
P
90,000
P
90,000
P
48,000

20x5: Parent Company Equity Method Entry

(2) Cash
80%).
38,400
38,400
December 31, 20x5:

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

5,760
5,760
December 31, 20x5:

To adjust inv estment income for downst ream sales - unrealized profit
in ending invent ory of Son (UPEI of S).
December 31, 20x5:
(6) Inv estment in S Company..
Inv estment income (P18,000 x 100%)..
To adjust inv estment income for downst ream sales - realized profit in
beginning invent ory of S (RPBI of S).
December 31, 20x5:
To adjust inv estment income for upstream sales - unrealized profit in
ending inv entory Perfect (UPEI of P).
December 31, 20x5:

To adjust inv estment income for upstream sales - realized profit in
beginning inv entory of Perfect (RPBI of P)
24,000
24,000
18,000
18,000
4,800
4,800
9,600
9,600
Cost, 1/1/x5
NI of Son
(90,000 x 80%)
RPBI of S (P18,000 x 100%)
RPBI of P (P12,000 x 80%)
Balance, 12/31/x5
Amortization (7,200 x 805)

UPEI of S (P24,000 x 100%)
UPEI of P (P6,000 x 80%)
Inv estment in S
350,040 38,400
5,760
72,000 24,000
18,000
4,800
9,600
376,680
Inv estment Income
5,760
24,000
72,000
4,800 18,000
9,600
65,040

Amortization (7,200 x 80%)
UPEI of Son (P24,000 x 100%)
UPEI of Perfect (P6,000 x 80%)
NI of S
(P90,000 x 80%)
RPBI of S (P18,000 x 100%)
RPBI of P(P12,000 x 80%)
Balance, 12/31/x5
Consolidation Workpaper Second Year after Acquisi tion

guidance for the worksheet eliminating entries:
(E1)
Common
stock
S
Co
Retained
earnings
S
Co,
1/1/x5.
Non-controlling
interest
(P384,000
x
20%)..
240,000
144.000
307,200
76,800

P12,000)
P6,000)
7,200
Land.
3,600
Goodwill (P12,000 P3,000)..
9,000
Buildings..
216,000
15,360
Investment
in
S
70,440
Co.

Accumulated
depreciation
buildings..
Interest expense
Accumulated
depreciation
equipment..
Discount
on
bonds
payable
6,000
6,000
1,200
12,000
1,200
Inv entory sold

Equipment
Buildings
Bonds payable
Totals
Depreciation/
Amortization
Expense
Amortization
-Interest
P 12,000
( 6,000)
_______
P 6,000
P 1,200
P1,200
Total
P7,200

Non-controlling
interest
(P48,000
20%)..
Dividends paid S
65,040
9,600
48,000
26,640

follows:
NI of S
(90,000
x 80%).
Inv estment in S
38,400
Div idends S
Amortization
72,000
5,760
(P7,200 x 80%)
Inv estment Income

Amortization
(P7,200 x 80%)
5,760
72,000
NI of S
(90,000
x 80%)
RPBI of S
RPBI of P
18,000
9,600
26,640
24,000
4,800
UPEI of S
UPEI of P
UPEI of S
UPEI of P
(E6) Sales.
24,000
4,800
18,000 RPBI of S
9,600 RPBI of P
65,040
120,000
120,000
(E7) Sales.
75,000
75,000
(E8) Investment in Son Company.

Income Statement)
18,000
18,000

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

Income Statement)
9,600
2,400
12,000

prior period.
After the eliminating entries are posted in the investment account, it should be observed that from
Cost, 1/1/x5
NI of S
(90,000 x 80%)
RPBI of S (P18,000 x 100%)
RPBI of P (P12,000 x 80%)
Balance, 12/31/x5
(E8) RPBI of S
(E9) RPBI of P
Inv estment in S
350,040
38,400
72,000
18,000
9,600
376,680
18,000
9,600
5,760
24,000
4,800
307,200
70,440
26,640
336,900
404,280

Income Statement)

Amortization
(6,000 x 80%)
UPEI of S (P20,000 x 100%)
UPEI of P (P5,000 x 80%)
and div idends
24,000
24,000


Income Statement)
6,000
6,000


Subsidiary
17,760
17,760

P 90,000
12,000
(
P
(
P
6,000)
96,000
7,200)
88,800
20%

partial goodwill
P 17,760

P Co
P540,000
S Co.
P360,000
Inv estment income

Total Rev enue
Cost of goods sold
65,040
P605,040
P216,000
P360,000
P192,000
Interest expense
Other expenses
Net Income
60,000
72,000
P348,000
P257,040
P257,040
24,000
54,000
P270,000
P 90,000
P 90,000
(3)
(3)
(1) 144,000
257,040
P719,880
P144,000
90,000
P234,000
72,000
-
48,000
P777,456
P223,200
P 777,456
265,200
180,000
216,000
P 102,000
96,000
108,000
P 367,200
276,000
210,000
240,000
48,000
180,000
Sales
Income Statement

P Company
S Company
Total
Div idends paid
P Company
S Company
Sheet
Balance Sheet
Cash.
Inv entory.
Land.
Equipment
Dr.
(6) 120,000
(7) 75,000
(4) 65,040
Cr.
(10) 24,000
(11) 6,000
(6) 120,000
(7) 75,000
(8) 18,000
(9) 12,000
(5)
6,000
1,200
Consolidated
P 705,000
___________
P 705,000
P 213,000
P
P
(
P
17,760
P462,840
90,000
1,200
126,000
430,200
274,800
17,760)
257,040
P 462,840
257,040
P 719,880
(4)
(2)
7,200
48,000
(10) 24,000
(11) 6,000
72,000
________
294,000
265,200
420,000
Buildings
Goodwill
Inv estment in S Co
Total
- equipment
- buildings
Accounts payable
Bonds payable
Total
720,000
540,000
376,680
P2,207,880
P1,074,000
P 150,000
450,000
P 102,000
306,000
120,000
240,000
600,000
120,000
120,000
647,880
240,000
186,000
(2)
(2)
(8)
(9)
(3) 216,000
3,600 (3) 1,200
9,000
18,000 (1) 307,200
9,600 (6) 70,440
(4) 26,640
(2)
84,000
_________
P1,074,000
P2,677,800
12,000
(2) 198,000
(3) 6,000
P180,000
552,000
240,000
360,000
600,000
(1) 240,000
647,880
(4)
(9)
___ _____
P2,207,880
(3)
1,044,000
2,400
9,000
9,600
2,400
__________
P1,046,400
(2 ) 76,800
(2) 15,360
(5) 17,760
P1,046,400
____97,920
P2,677,800
5 and 6. Refer to Problem IX for computations

earnings, non-controlling interests, consolidated equity on December 31, 20x4 and 20x5 are
exactly the same (refer to Problem IX solution).
Problem XVII

(80%)..
(20%)..
Son:
100%).
100%)...
value)..
liabilities:
100%)
P
372,000
93,000
P
465,000
P 240,000
120,000
6,000
360,000
P
105,000

100%).
100%).....
100%)
over
fair
value)...
7,200
96,000
( 24,000)
4,800
90,000
P
15,000
amortized
Inventory
Subject
to
Amortization
Over/
unde
r
P
6,000
Lif
e
1
Annu
al
Current
Amou Year(20x
nt
4)
P
6,000 P 6,000
20x5
P
-
12,000
(
6,000)
12,00
0
(6,00
0)
Annual
Buildings (net)
96,00
0
(24,0
00)
Bonds payable
4,800
8
4
4
1,200
P
13,200
12,000
( 6,000)
1,200
P 13,200
1,200
P
7,200

January 1, 20x4:
(1)
Investment
in
Company
S 372,000
372,000
Cash..

(2) Cash
December 31, 20x4:
28,800
28,800

48,000
48,000
December 31, 20x4:

(4) Investment income [(P13,200 x 80%) + (P3,750 P750)*,
goodwill impairment loss)]
13,560
13,560

* t his procedure would be more appropriate, instead of mult iplying t he full-goodwill impairment loss of P3,125 by 80%. There might
be sit uations where the controlling interests on goodwill impairment loss would not be proport ionat e t o NCI acquired (refer t o
Illust rat ion 15-6).
December 31, 20x4:

in ending invent ory of S.
December 31, 20x4:
ending inv entory P .
18,000
9,600
18,000
9,600
Thus, the investment balance and investment income in the books of P Company is as follows
Cost, 1/1/x4
NI of S
(60,000 x 80%)
Balance, 12/31/x4
Inv estment in S
372,000 28,800
48,000

Amortization &
impairment
UPEI of S (P18,000 x 100%)
UPEI of P (P12,000 x80%)
13,560
18,000
9,600
324,000
Inv estment Income
Amortization &
impairment
UPEI of S (P18,000 x 100%)
UPEI of P (P12,000 x80%)
13,560
18,000
9,600
NI of S
(P60,000 x 80%)
48,000
6,840
Balance, 12/31/x4
(E1)
Common
stock
Co
Retained
earnings
Co
Investment
in
Co
Non-controlling
interest
(P360,000
240,000
120.000
288,000
72,000
20%)..
acquisit ion.
(E2)
6,000
Inventory.
96,000
192,000
7,200
Land.
Discount
on
bonds
4,800
payable.
15,000
Goodwill.
Buildings..
216,000
21,000
Investment
in
Son
84,000
Co.

Accumulated
depreciation
buildings..
Interest expense
Goodwill
impairment
loss.
6,000
6,000
6,000
1,200
3,750
6,000
Inventory..
Accumulated
depreciation
equipment..
Goodwill
Inv entory sold

Equipment
Cost of
Goods
Sold
P 6,000
Depreciation/
Amortization
Expense
P 12,000
Amortization
-Interest
Total
12,000
1,200
3,750
Buildings
Bonds payable
Totals
_______
P 6,000
( 6,000)
_______
P 7,200
P 1,200
P1,200
14,400

Non-controlling
interest
(P36,000
20%)..
Dividends paid S
6,840
21,960
7,200
36,000

follows:
After
Inv estment Income
Inv estment in S
NI of S
28,800
Div idends - S
(60,000
Amortization &
x 80%). 48,000
13,560
impairment
18,000
UPEI of S
9,600
UPEI of P
21,960
Amortization
impairment
UPEI of S
UPEI of P
13,560
18,000
9,600
48,000
the
NI of S
(50,000
x 80%)
6,840
Cost, 1/1/x4
NI of S
(60,000 x 80%)
Balance, 12/31/x4
and div idends
Inv estment in S
372,000
28,800
48,000
350,040
21,960
372,000
13,560
18,000
9,600
288,000
84,000

Amortization &
impairment
UPEI of S
UPEI of P
372,000
(E5) Sales.
150,000
150,000
(E6) Sales.
60,000
60,000

Income Statement)
18,000
18,000


Income St atement)
12,000
12,000

Subsidiary
6,210
6,210

P 60,000
( 12,000)
P 48,000
( 13,200)
P 34,800
20%
P 6,960

partial goodwill
750
full goodwill
P 6210

P Co
P480,000
S Co.
P240,000
Inv estment income

Total Rev enue
6,840
P486,840
P240,000
Cost of goods sold
P204,000
P138,000
Interest expense
Other expenses
Net Income
60,000
48,000
P312,000
P174,840
P174,840
24,000
18,000
P150,000
P 50,000
P 50,000
Sales
Income Statement

P Company
S Company
Total
Div idends paid
P Company
Dr.
(5) 150,000
(6) 60,000
(4)
6,840
(3)
(7)
(8)
(3)
(3)
174,840
P414,840
72,000
Consolidated
P 510,000
_________
P 510,000
P 168,000
(5)
6,000 150,000
18,000 (6)
12,000 60,000
6,000
1,200
(3)
3,750
(9)
5,175
P360,000
P120,000
60,000
P180,000
Cr.
90,000
1,200
66,000
3,750
P274,125
P150,875
( 5,175)
P145,700
360,000
174,840
414,840
(1) 120,000
72,000
S Company
Sheet
Balance Sheet
Cash.
Inv entory.
Land.
Equipment
Buildings
Goodwill
Inv estment in S Co
Total
- equipment
- buildings
Accounts payable
Bonds payable
Total
36,000
P462,840
________
P144,000
462,840
232,800
90,000
120,000
P 90,000
60,000
90,000
322,800
150,000
210,000
240,000
720,000
48,000
180,000
540,000
350,040
P1,635,700
P1,008,000
P 135,000
405,000
P 96,000
288,000
120,000
240,000
600,000
120,000
120,000
462,840
240,000
144,000
_________
P1,962,840
_________
P1,008,000
Sales
Gross profit
Other expense
operations
Dividends paid
(2)
6,000
(2)
7,200
(3)
(7)
(8)
36,000
6,000
18,000
12,000
(2) 216,000
(2)
4,800 (3) 1,200
(2) 15,000 (3) 3,750
(4) 21,960 (2) 288,000
(2) 84,000
(2) 96,000 (3)

(2) 192,000
(3)
6,000
12,000
180,000
265,200
420,000
1,044,000
3,600
11,250
P2,396,850
P 147,000
495,000
240,000
360,000
600,000
(1) 240,000
462,840
(4)
Net income
(4)
7,200
__________
P 986,160
(1 ) 72,000
(2) 21,000
(9) 6,210
P 986,160
Perfect
Co.
P
540,000
216,000
P
324,000
60,000
72,000
P
192,000
65,040
P
257,040
P
72,000
____92,010
P2,396,850
Son Co.
P
360,000
192,000
P
168,000
24,000
54,000
P
90,000
P
90,000
P
48,000

(2) Cash
80%).
38,400
38,400
December 31, 20x5:

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

5,760
5,760

December 31, 20x5:
in ending invent ory of S (UPEI of S).
December 31, 20x5:
To adjust inv estment income for downst ream sales - realized profit in
beginning invent ory of S (RPBI of S).
December 31, 20x5:
ending inv entory P (UPEI of P).
December 31, 20x5:
To adjust inv estment income for upstream sales - realized profit in
beginning inv entory of P (RPBI of P)
24,000
18,000
24,000
18,000
4,800
4,800
9,600
9,600
Thus, the investment balance and investment income in the books of Perfect C ompany is as follows:
Cost, 1/1/x5
NI of Son
(90,000 x 80%)
RPBI of (P18,000 x 100%)
RPBI of P (P12,000 x 80%)
Balance, 12/31/x5
Inv estment in S
350,040 38,400
5,760
72,000 24,000
18,000
4,800
9,600
376,680
Inv estment Income

UPEI of S (P24,000 x 100%)
UPEI of P (P6,000 x 80%)

UPEI of S (P24,000 x 100%)
UPEI of P (P6,000 x 80%)
5,760
24,000
4,800
72,000
18,000
9,600
65,040
NI of S
(P90,000 x 80%)
RPBI of S (P18,000 x 100%)
RPBI of P (P12,000 x 80%)
Balance, 12/31/x5

guidance for the worksheet eliminating entries.
(E1)
Common
stock
S
Co
Retained
earnings
S
Co,
1/1/x5.
Non-controlling
interest
(P384,000
x
20%)..
240,000
144.000
307,200
76,800


P12,000)
P6,000)
7,200
Land.
3,600
Goodwill (P15,000 P3,750)..
11,250
Buildings..
216,000
impairment
17,610
or (P3,750 x 20%)]
Investment
in
S
70,440
Co.
might be situations where t he NCI on goodwill impairment loss would not b e proportionate to NCI acquired (refer t o Illust rat ion
15-6).

Accumulated
depreciation
buildings..
Interest expense
6,000
6,000
1,200
Accumulated
depreciation
equipment..
Discount
on
payable
12,000
bonds
1,200
Inv entory sold

Equipment
Buildings
Bonds payable
Totals
Depreciation/
Amortization
Expense
Amortization
-Interest
P 12,000
( 6,000)
_______
P 6,000
P 1,200
P1,200
Total
P7,200

Non-controlling
interest
(P48,000
20%)..
Dividends paid S
65,040
9,600
48,000
26,640

follows:
NI of Son
(90,000
x 80%).
RPBI of S
RPBI of P
Inv estment in S
38,400
Div idends S
Amortization
72,000
5,760
(P7,200 x 80%)
18,000 24,000
UPEI of S
9,600
4,800
UPEI of P
26,640
Inv estment Income

Amortization
(P7,200 x 80%)
UPEI of S
UPEI of P
(E6) Sales.
5,760
24,000
4,800
72,000
18,000
9,600
65,040
NI of S
(90,000
x 80%)
RPBI of S
RPBI of P
120,000
120,000
To eliminat ed int ercompany downst ream s ales.
(E7) Sales.
75,000
75,000
(E8) Investment in Son Company.

Income Statement)
18,000
18,000

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

Income Statement)
prior period.
9,600
2,400
12,000
Cost, 1/1/x5
NI of Son
(90,000 x 80%)
RPBI of S (P18,000 x 100%)
RPBI of P (P18,000 x 80%)
Balance, 12/31/x5
(E8) RPBI of S
(E9) RPBI of P
Inv estment in S
350,040
38,400
72,000
18,000
9,600
376,680
18,000
9,600
5,600
24,000
4,800
307,200
70,440
26,640
404,280
404,280

Amortization
(7,000 x 80%)
UPEI of S (P24,000 x 100%)
UPEI of P (P6,000 x 80%)
and div idends

Income Statement)
24,000
24,000


Income Statement)
6,000
6,000


Subsidiary

Son Companys Realized net income*
P 90,000
12,000
(
P
(
P
6,000)
96,000
7,200)
88,000
20%
P 17,760

partial goodwill
0
full goodwill
P 17,760
17,760
17,760

P Co
P540,000
S Co.
P360,000
Inv estment income

Total Rev enue
Cost of goods sold
65,040
P605,040
P216,000
P360,000
P192,000
Interest expense
Other expenses
Net Income
60,000
72,000
P348,000
P257,040
P257,040
24,000
54,000
P270,000
P 90,000
P 90,000
(3)
(3)
(1) 144,000
257,040
P719,880
P144,000
90,000
P234,000
72,000
-
48,000
P647,880
P186,000
P 647,880
265,200
180,000
216,000
P 114,000
96,000
108,000
P 367,200
276,000
210,000
240,000
720,000
48,000
180,000
540,000
Sales
Income Statement

P Company
S Company
Total
Div idends paid
P Company
S Company
Sheet
Balance Sheet
Cash.
Inv entory.
Land.
Equipment
Buildings
Goodwill
Inv estment in S Co
Total
- equipment
- buildings
Accounts payable
Bonds payable
Dr.
(6) 120,000
(7) 75,000
(4) 65,040
Cr.
(10) 24,000
(11) 6,000
(6) 120,000
(7) 75,000
(8) 18,000
(9) 12,000
(5)
Consolidated
P 705,000
___________
P 705,000
P 213,000
6,000
1,200
P
P
(
P
17,760
P462,840
P 462,840
376,680
P2,207,880
P1,074,000
P 150,000
450,000
P 102,000
306,000
120,000
240,000
600,000
120,000
120,000
647,880
90,000
1,200
126,000
430,200
274,800
17,760)
308,448
240,000
186,000
257,040
P 719,880
(4)
(2)
7,200
48,000
(10) 24,000
(11) 6,000
(2)
(2)
(8)
(9)
(3) 216,000
3,600 (3) 1,200
11,250
18,000 (1) 307,200
9,600 (7) 70,440
(4) 26,640
(2)
84,000
(2) 198,000
(3) 6,000
(3)
12,000
72,000
________
294,000
265,200
420,000
1,044,000
2,400
11,250
P2,680,050
P180,000
552,000
240,000
360,000
600,000
(1) 240,000
647,880
Total
(4)
(9)
___ _____
P2,207,880
_________
P1,074,000
9,600
2,400
__________
P1,048,650
(1 ) 76,800
(2) 17,610
(14)17,760
P1,048,650
____100,170
P2,680,050
5 and 6. Refer to Problem X for computations

exactly the same (refer to Problem X solution).
1. a
P Company
S Company
Total
Less: Intercompany sales
Realized profit in BI of S Co.
[P300,000 x 1/2 = P150,000 x (300-240)/300]
Add: Unrealized profit in EI of S Co.
[P468,000 x 40% = P187,200 x (468-375)/468]
Consolidated
Sales
2,250,000
1,125,000
3,375,000
468,000
Cost of Sales
1,800,000
_937,500
2,737,500
468,000
30,000
________
2.907,000
__37,200
2,276,700
3. b
[P150,000 x 50% = P75,000 x (30/150)]
Total
P225,000
0
(_
0)
P225,000
P 90,000
0
( 15,000)
P 75,000
75,000
P300,000
0
P300,000
15,000
P285,000
Or, alternatively
P225,000

Total
* t hat has been realized i n t ransact ions wit h t hird part ies.
* * Non-controlling Interest in Net Income (NCINI) for 20x 4
0
(_
0)
P225,000
P 90,000
0
( 15,000)
P 75,000
75,000
P300,000
P 15,000
0
15,000
P285,000
_ 15,000
P290,000
P 90,000
0
( 15,000)
P 75,000
0
P 75,000
20%
P 15,000
0
P 15,000
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
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
X-Beams (parent) Kent (subsidiary), 70%:30%
Unrealized Profit in EI of Parent (X-Beams):
P180,000x 20% = P36,000 x (180-100/180) = P16,000,
70%:30%
Parent
Subsidiary
210,000
90,000
( 11,200)
( 4,800)
Non-controlling Interest in Kents Net Income
85,200
9. d
Non-controlling Interest in Net Income (NCINI) for 20x4:
P 137,000
40,000
( 25,000)
P 152,000
_ 0
P 152,000
30%
P 45,600
0
P 45,600

10. c
Parent
Gibson (Parent): Sparis(subsidiary), 90%:10%
RPBI of Parent (upstream: 420,000 x 30% = 126,000;
126,000 x 25/125 = 25,200; 90%:10%
UPEI of Parent (upstream): 500,000 x 30% = 150,000;
150,000 x 25/125 = 30,000; 90%:10%
Non-controlling Interest in Kents Net Income
11. b
12. a
13. b (downstream sales)
Sales Pot (parent)

- Skillet (subsidiary)
Total
Add(Deduct): I ntercompany sales - dow n
Consolidated Sales
1,120,000
420,000
1,540,000
( 140,000)
1,400,000
CGS Pot (parent)

Total
Add(Deduct): I ntercompany sales - dow n
Unrealized Profit in
Ending I nv entory of
Skillet (subsidiary)-dow n
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%
Consolidated CGS
840,000
252,000
1,092,000
( 140,000)
14,000
966,000
Subsidiary
820,800
91,200
22,680
2,520
(27,000)
( 3,000)
90,720
14. c upstream sales

Note: The only change here from Problem 13 is the markup percentage which
40 percent*
would now be
CGS Pot (parent)

840,000
252,000
Total
1,092,000
Add(Deduct): I ntercompany sales - upstream ( 140,000)
Ending I nv entory 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
Consolidated CGS
974,400
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)
Total
Add(Deduct): Intercompany sales - down
Consolidated Sales
1,120,000
420,000
1,540,000
( 140,000)
1,400,000
CGS Pot (parent)

Total
Add(Deduct): Intercompany sales - down
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%
Consolidated CGS
840,000
252,000
1,092,000
( 140,000)
14,000
966,000
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 Companys net income from own/separate operations (P90,000 P62,000)
S Companys net income from own operations (P120,000 P90,000)
Total
P 28,000
0
(_
0)
P 28,000
P3 0,000
0
(
)
P30,000
30,000
P 58,000
0
P 58,000
3,000
P 55,000
Or, alternatively

P Companys net income from own/separate operations (P90,000 P62,000)
Unrealized profit in ending inv entory of P Company (upstream sales
Total
* * Non-controlling Interest in Net Income (NCINI) for 20x 4
P 28,000
0
(_
0)
P 28,000
P3 0,000
0
(
)
P30,000
P 3,000
0
30,000
P 58,000
3,000
P 55,000
_ 3,000
P 58,000
P 30,000
0

(
0)
P 30,000
0
P 30,000
10%
P 3,000
0
P 3,000
20. c P100,00 sales to unrelated/unaffiliated company.
21. c
P Company
S Company
Total
[P90,000 x 30% = P27,000 x (90 - 67)/90]
Consolidated
Sales
Less: Cost of goods sold Parent
Subsidiary (90,000 x 70%)
Gross profit
Ending inventory (90,000 x 30%)
Cost of Sales
67,000
_63,000
130,000
90,000
__6,900
46,900
Parent Subsidiary
90,000
100,000
67,000
______
63,000
23,000
37,000
27,000
22. a
P Companys net income from own/separate operations
[P100,000 (P90,000 x 70%)]
P 37,000
0
(_
0)

[P90,000 x 30% = P27,000 x (90-67/90)]
Total
P23,000
0
(
6,900 )
P16,100
P 37,000
16,100
P 53,100
0
P 53,100
1,610
P 51,490
Or, alternatively

[P100,000 (P90,000 x 70%)]
[P90,000 x 30% = P27,000 x (90-67/90)]
Total
P 37,000
0
(_
0)
P 37,000
P23,000
0
(
6,900 )
P16,100
P 1,610
0
16,100
P 53,100
1,610
P 51,490
_ 1,610
P 53,100

Unrealized profit in ending inv entory of P Company (upstrea m sales)
P 23,000
0
( 6,900)
P 16,100
0
P 16,100
10%
P 1,610
0
P 1,610

23. d P27,000 x 67/90 = P20,100

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

26. a
Sales
Intercompany
Parent
Subsidiary 1
Add: Cost of EI in S2 Co.
[P15,000 x (48/60]
Amount to be eliminated
*or, P60,000 + P60,000 [P15,000 x (60-48/60]
Cost of Sales
60,000
60,000
60,000
45,000
________
120,000
__12,000
*117,000
27. b refer to No. 26 for computation

28. d P15,000 x [(60-48)/60] = P3,000
29. a
S Companys net income from own operations
[P105,000 x 20/120)
Total
P150,000
0
(
17,500 )
P132,500
P 225,000
0
(_
0)
P225,000
132,500
P 357,500
_
0
P357,500
30. c
[P105,000 x 20/120)
[P157,500 x 20/120)
Total
P360,000
0
(_
0)
P360,000
P135,000
17,500
( 26,250 )
P126,250
126,250
P 486,250
_
0
P486,250
1,610
P 51,490
Or, alternatively

S Companys net income from own operations (
[P105,000 x 20/120)
[P157,500 x 20/120)
Total
P360,000
0
(_
0)
P360,000
P135,000
17,500
( 26,250 )
P126,250
P 37,875
0
126,250
P 486,250
37,875
P 448,375
_37,875
P 486,250

P 135,000
17,500
( 26,250)
P 126,250
0
P126,250
30%
P 37,875
0
P 37,875

31. a refer to No. 30 for computation.

32. d
[P157,500 x 20/120)
[P180,000 x 20/120)
Total
Or, alternatively
P 450,000
0
(_
0)
P450,000
P240,000
26,250
(
30,000 )
P236,250
236,250
P 686,250
_
0
P686,750
70,875
P 615,375

[P157,500 x 20/120)
[P180,000 x 20/120)
Total
P 450,000
0
(_
0)
P450,000
P240,000
26,250
(
30,000 )
P236,250
P 70,875
0
236,250
P 686,250
70,875
P 615,375
__70,875
P 686,250
P 240,000
26,250
( 30,000)
P 236,250
0
P 236,250
30%
P 70.875
0
P 70,875
33. a - refer to No. 32 for computation.

34. c
P Company
S Company
Total
Less: Intercompany sales to Dundee
Intercompany sales to Perth
Consolidated
Sales
500,000
_350,000
850,000
100,000
150,000
600,000
35. a
Ending inventory of Perth from Dundee (P36,000 / 110%)
Ending inventory of Dundee from Perth (P31,000 / 130%)
Total
32,727
_23,846
56,573
36. d
P Company
S Company
Total
Consolidated
Sales
420,000
280,000
700,000
140,000
560,000
Operating
Expenses
28,000
14,000
42,000
_5,000
47,000
P Company
S Company
Total
Add: Undervalued equipment (P35,000/7 years)
Consolidated
38. c
Cost of Sales
196,000
_112,000
308,000
140,000
P Company
S Company
Total
[P140,000 x 60% = P84,000 x (140 - 112)/140]
Consolidated
_16,800
184,900

Total
20x5 (P35,000/7 years)
Non-controlling interest (full- goodwill)..
P 140,000
P210,000
154,000
P364,000
0
364,000
P 504,000
35,000
( 5,000)
P 534,000
20
P 106,800
14,000
P 120,800
Partial-goodwill

Consideration
transferred..
80%).
80%)...
value)..
liabilities:
P
364,000
P 112,000
168,000
280,000
P
84,000
___28,000

cost over
fair
value)...
P 56,000
Full-goodwill

Consideration transferred: Cash ( P364,000/80%)
x 100%)
liabilities
Increase in equipment P35,000 x 100%
fair
value)...
P 455,000
__350,000
P 105,000
35,000
70,000
40. d
Equipment
616,000
420,000
1,036,000
35,000
7,000
1,064,000
P Company
S Company
Total
Add: Undervalued equipment
Less: Depreciation on undervalued equipment (P35,000/7 years)
Consolidated
41. d
Inventory
210,000
154,000
364,000
16,800
347,200
P Company
S Company
Total
Less: Unrealized profit in EI: [P140,000 x 60% = P84,000 x (140 - 112)/140]
Consolidated
42.
43.
Selling price
Less: Cost of sales
Original unrealized profit
Unsold percentage
Unrealized profit
50,000
_40,000
10,000
__30%
_3,000
No answer available P253,000

Unrealized profit in ending inventory of S Company (downstream sales)
Total
P180,000
( 3,000)
P 177,000
76,000
P253,000
0
P253,000
44.
a
Combined 20x5 sales (P580,000 + P445,000)
Less: 20x5 intercompany sales
Consolidated sales
45.
P
P
d
Combined cost of sales
Less: 20x5 intercompany sales
Less: Unrealized profit in the 20x5 beginning inventory
from 20x4
Add: Unrealized profit in 20x5 ending inventory
Consolidated cost of sales
46.
47.
1,025,000
0
1,025,000
P 480,000
0
(
3,000)
________0
P 477,000
Combined cost of sales

Less: Intercompany sales revenue
Add: Unrealized profit taken out of inventory
(75%)x(35,000)
=
Consolidated cost of sales
P 160,000
110,000
26,250
P 76,250
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.
Selling price
Less: Cost of sales
Unrealized profit
Unsold fraction
Credit to Inventory
P
(
60,000
48,000 )
12,000
1/3
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 Companys 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 Swamps separate cost of goods sold =
P400,000 + P320,000 =
=
Add: Profit +12,500 - 10,000 =
Consolidated COGS
=
P 720,000
200,000
____2,500
P 522,500
54. a
Ending inventory of Grebe (1/2 x P100,000)
x: GP% of Parent (P100,000 P80,00)/P100,000
Unrealized profit in ending inventory
50,000
20%
10,000
Squids reported income

Less: Unrealized profits in the ending inventory
Squids adjusted income
NCI percentage
NCI-CNI
P 100,000
_____16,000
P
84,000
_______10%
P
8,400
55. a
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) ...........................................
Inventory Remaining at Year's End ................................................................
Unrealized Intercompany Gross profit, 12/31/x4 ............................................
P25,000
16%
P4,000
UNREALIZED GROSS PROFIT, 12/31/x5

Intercompany Gross profit (P120,000 P96,000) ............................................
Inventory Remaining at Year's End ................................................................
Unrealized Intercompany Gross profit, 12/31/x5 ............................................
P24,000
35%
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 ...........................................................
Cost of Goods Sold ........................................................................................
8,400
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 ......................................................................................
Markup (P33,000/P 110,000) .....................................................................
Unrealized intercompany gross profit, 12/31/x4 ......................................
P 40,000
__ 30%
P 12,000

Ending inventory ......................................................................................
Markup (P48,000/P 120,000) .....................................................................
Unrealized intercompany gross profit, 12/31/x5 ......................................
P 50,000
40%
P 20,000

61. a this topic is for Chapter 18

Individual Records after Transfer
12/31/x4
MachineryP40,000
GainP10,000
Depreciation expense P8,000 (P40,000/5 years)
Income effect netP2,000 (P10,000 P8,000)
12/31/x5
Depreciation expenseP8,000
Consolidated FiguresHistorical Cost
12/31/x4
MachineryP30,000
Depreciation expenseP6,000 (P30,000/5 years)
12/31/x5
P 90,000
12,000
( 20,000)
P 82,000
0
P 82,000
10%
P 8,200
0
P 8,200
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 ............................................................................................
Book Value (cost after two years of depreciation) .................................
Unrealized Gain .......................................................................................
EXCESS DEPRECIATION
Annual Depreciation Based on Cost (P300,000/10 years) ........................
Annual Depreciation Based on Transfer Price
(P280,000/8 years) .............................................................................
Excess D epreciation ................................................................................
ADJUSTMENTS TO CONSOLIDATED NET INCOME
Defer Unrealized Gain .............................................................................
Remove Excess Depreciation ..................................................................
Decrease to Consolidated Net Income ..................................................
P280,000
240,000
P40,000
P30,000
35,000
P5,000
P(40,000)
5,000
P(35,000)
63. c
P Company
S Company
Total
Less: Intercompany sales upstream sales
[P60,000 x 30% = P18,000 x (10 7.5)/10]
Consolidated
Sales
10,000,000
__200,000
10,200,000
60,000
Cost of Sales
7,520,000
_160,000
7,680,000
60,000
________
10,140,000
__ 4,500
7,604,500
64. d refer to No. 63 for computation

65. c
P Company
S Company
Total
Less: Intercompany sales downstream sales
[P60,000 x 30% = P18,000 x (10 7.5)/10]
Consolidated
Sales
10,000,000
__200,000
10,200,000
60,000
________
10,140,000
66. d
Add the two book values and remove P100,000 intercompany transfers.
67. c
Intercompany gross profit (P100,000 - P80, 000) .............................................

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

Parent balance .......................................................................................
Subsidiary balance ..................................................................................
P140,000
80,000
Remove intercompany transfer ...............................................................

Defer unrealized gross profit (above) ......................................................
Cost of goods sold .........................................................................................
68. c
Consideration transferred .........................................

Non-controlling interest fair value...............................
SZ total fair value ........................................................
Book value of net assets .............................................
Excess fair over book value
(100,000)
12,000
P132,000
P260,000
65,000
P325,000
(250,000)
P75,000
Annual Excess
Amortizations
Life
Excess fair value assigned to undervalued assets:
Equipment ............................................................
Secret Formulas ...................................................
Total ........................................................................
25,000 5 years
P50,000 20 years
-0-
P5,000
2,500
P7,500
Consolidated Expenses = P37,500 (add the two book values and include current year
amortization expense)
69. a
Total
Add: NCI on full-goodwill (
Non-controlling interest (full- goodwill)..
P 100,000
P150,000
110,000
P260,000
0
260,000
P 360,000
75,000
( 7,500)
P 427,500
20
P 85,500
________0
P 85,500
Partial-goodwill

Consideration
transferred..
of S:
80%).
80%)...
book value)..
liabilities:
Increase in equipment (P25,000 x
P 260,000
P 80,000
120,000
200,000
P
60,000
20,000
80%)
Increase in secret formulas: P50,000
x 80%
40,000
Full-goodwill

FV of NCI (20%)
Less: BV of stockholders equity of S (P100,000 +
P150,000) x 100%
liabilities
Increase in equipment P25,000 x 100%
Increase in secret formulas: P50,000 x 100%
P 260,000
___65,000
P 325,000
__250,000
P 75,000
25,000
50,000
Amortization:
= 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) ............................................
Inventory Remaining at Year's End ...............................................................
Unrealized Intercompany Gross profit, 12/31 ................................................
P20,000
60%
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
P 400,000
(
20,000)
P 380,000
0
P380,000
20%
P 76,000
0
P 76,000
20x6
P 480,000
20,000
0
P 500,000
0
P500,000
20%
P100,000
0
P100,000
74. c
Ending inv entory at selling price: P300,000 x 1/3 = P100,000 x (300,000 240,000)/300,000
Less: Inv entory write-down (P100,000 P92,000)
Intercompany profit to be eliminated
P20,000
__8,000
P12,000
75. The requirement Ps 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 Ps income from S
may mean Income from subsidiary which is computed under the equi ty method, thus:
Share in net income (P120,000 x 60%)
Less: Unrealized profit in ending inv entory of S {P189,000 x 1/3 = P63,000 x (P189-135)/P189]
P72,000
__18,000
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
78. b
[P200,000 x 50% = P100,000 x (P40,000/P200,000)]
Total
P 300,000
0
(_
0)
P300,000
P120,000
20,000 )
P100,000
100,000
P 400,000
_
0
P 400,000
20,000
P 380,000
P 120,000
0
( 20,000)
P 100,000
0
P 100,000
20%
P 20,000
0
P 20,000
79. c refer to No, 78 for computations.

80. refer to No. 75
The requirement Ps 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 Ps income from S
may mean Income from subsidiary which is computed under the equity method, thus:
Share in net income (P200,000 x 60%)
Less: Unrealized profit in ending inv entory of S {P315,000 x 1/3 = P105,000 x (P315-P225)/P315]
P120,000
__30,000
P 90,000
Answer: Equity method (b)

81. a
20x5
P Company
S Company
Total
[P240,000 x 1/2 = P120,000 x (240-192)/240]
[P375,000 x 40% = P150,000 x (375-300)/375]
Consolidated
Sales
1,800,000
__900,000
2,700,000
375,000
Cost of Sales
1,440,000
_750,000
2,190,000
375,000
24,000
________
2.325,000
__30,000
1,821,000
82. c - refer to No. 81 for computations
83. b
[P150,000 x 50% = P75,000 x (P30,000/P150,000)]
Total
P 225,000
0
(_
0)
P225,000
P 90,000
(
15,000 )
P 75,000
75,000
P 300,000
_
0
P 300,000
15,000
P 285,000
* t hat has been realized in t rans act ions wit h t hird part ies.
P 90,000
0
( 15,000)
P 75,000
0
P 75,000
20%
P 15,000
0
P 15,000

84.
85.
86.
87.
c refer to No. 83 for computations

a [P100,000 x (25/100) = P25,000 x 40/100 = P10,000
b [P300,000 x 1/2 = P150,000 x 40% = P60,000]
No answer available P300
(P100,000 x 10% = P10,000 x 30%)
0
0
( 3,000)
P( 3,000)
0
P( 3,000)
10%
P( 300)
0
P( 300)

Non-controlling Interest in GP
Non-controlling Interest in GP
88. b
20x3
Share in net income
20x3: P70,000 x 90%
20x4: P85,000 x 90%
20x5: P94,000 x 90%
Less: Unrealized profit in ending inv entory of P
20x3: P1,200 x 25% = P300 x 90%
20x4: P4,000 x 25% = P1,000 x 90%
20x5: P3,000 x 25% = P750 x 90%
Income from S
20x4
20x5
P 63,000
P 76,500
270)
________
P 62,730
270
(
900)
________
P 75,870
P 84,600
900
__( 675)
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
S Companys net income of Subsidiary Company from its
own operations (Reported net income of S Company)
20x3
P 70,000
20x4
P 85,000
20x5
P 94,000
RPBI of P Company (upstream sales)

UPEI of P Company (upstream sales)
0
(
300)
P 69,700
0
P 69,700
10%
P 6,970
0
P 6,970
300
( 1,000)
P 84,300
0
P 84,300
10%
P 8,430
0
P 8,430
1,000
(
750)
P 94,250
0
P 94,250
10%
P 9,425
0
P 9,425

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
400,000
_350,000
750,000
250,000
500,000
P Company
S Company
Total
Consolidated
102. a (P40,000 x 140% = P56,000)
103. a (P56,000 P40,000 = P16,000)
104. Not given
105.
105.
106.
Clark
Net assets reported
Profit on intercompany sale
Proportion of inventory unsold at year end
($60,000 / $240,000)
Unrealized profit at year end
Amount reported in consolidated statements
Dunn
Inventory reported by Banks (P175,000 + P60,000)
Inventory reported by Lamm
Total inventory reported
Unrealized profit at year end
[P50,000 x (P60,000 / P200,000)]
Amount reported in consolidated statements
P320,000
P48,000
x
.25
(12,000)
P308,000
P235,000
250,000
P485,000
(15,000)
P470,000
b
Cost of goods sold reported by Park
Cost of goods sold reported by Small
Total cost of goods sold reported
Cost of goods sold reported by Park on sale to
Small (P500,000 x .40)
P 800,000
700,000
P1,500,000
(200,000)
Reduction of cost of goods sold reported by

Small for profit on intercompany sale
[(P500,000 x 4 / 5) x .60]
Cost of goods sold for consolidated entity
Note:
107.
108.
109.
d
b
c
110.
111.
P32,000
P6,000
P9,000
(240,000)
P1,060,000
Answer b in the actual AICPA examination question was P1,100,000,

requiring candidates to select the closest answer.
=
=
=
(P200,000 + P140,000) P308,000

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

+(Patent P20,000)]
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.
Total income (P86,000 - P47,000)

Income assigned to noncontrolling
interest [.40(P86,000 - P60,000)]
Consolidated net income assigned
to controlling interest
P39,000
(10,400)
P28,600
115.
116.
Amount paid by Lorn Corporation

Unrealized profit
Actual cost
Portion sold
Cost of goods sold
P120,000
(45,000)
P 75,000
x
.80
P 60,000
117.
Consolidated sales
Cost of goods sold
Income to Dressers noncontrolling
interest:
Sales
Reported cost of sales
Report income
Portion realized
Realized net income
Portion to Noncontrolling
P140,000
(60,000)
P 80,000
P120,000
(75,000)
P 45,000
x
.80
P 36,000
Interest
Income to noncontrolling
Interest
Income to controlling interest
118.
.30
(10,800)
P 69,200
Inventory reported by Lorn

Unrealized profit (P45,000 x .20)
Ending inventory reported
P 24,000
(9,000)
P 15,000
119.
P20,000 = P30,000 x [(P48,000 - P16,000) / P48,000]
120.
Sales reported by Movie Productions Inc.

Cost of goods sold (P30,000 x 2/3)
121.
P7,000 = [(P67,000 - $32,000) x .20]
P67,000
(20,000)
P47,000
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
P60,000
x 30% = P18,000 x
GP% of Subsidiary
20% ...

Total
2,400
P 100,000
1,050
(_ 3,600)
P 97,450
P 30,000
1,000
( ,2,400 )
P28,600
28,600
P 126,050
2,000
P124,050
5,320

P 118,730
Or, alternatively

Total
Consolidated Net Income for 2012
P 100,000
1,050
(_ 3,600)
P 97,450
P 30,000
1,000
( 2,400 )
P 28,600
P
* * Non-controlling Interest in Net Income (NCINI) for 2012

125.
126.
127.
128.
129.
b refer to No. 124

a P124,050 refer to No. 124
b refer to No. 129
c refer to No. 129
a
Non-controlling Interests (in net assets):
Common stock - S, 12/31/2012. .....
5,320
2,000
28,600
P 126,050
7,320
P118,730
__ 5,320
P124,050
P 30,000
1,000
( 2,400)
P 28,600
2,000
P 26,600
20%
P 5,320
0
P 5,320
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
+:

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
1,050
P 698,950
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
3,600
P 744,400
(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 / Parents Interest / Parents 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 ..

Controlling Interest / Parents Stockholders Equity .
Non-controlling interest, 12/31/2012 (partial) .
Consolidated Stockholders Equity, 12/31/2012
809,680
P1,809,680
96,320
P1,906,000
Consolidated Stockholders Equity, 12/31/2012:

Equity Holders of Parent SHE, 12/31/2012:
Common stock P (P only) ..
Retained Earnings P (equity method), 12/31/2012 ..
Controlling Interest / Parents Stockholders Equity .
Non-controlling interest, 12/31/2012 (full) .. .
Consolidated Stockholders Equity, 12/31/2012
P1,000,000
809,680
P1,809,680
101,320
P1,911,000
133. a
Theories
1.
2.
3.
4.
5.
d
b
c
a
c
6.
7.
8.
9.
10,
d
c
b
c
a
11.
12.
13.
14.
15,
d
a
c
c
d
16.
17.
18.
19.
20.
c
c
b
c
b
21.
22.
23.
24.
25.
c
a
a
b
c
Chapter 18
Problem I
1. Journal entry to record sale:
Cash
Equipment
Gain on Sale of Equipment
Record the sale of equipment:
P84,000 = P150,000 - P80,000 + P14,000
P80,000 = (P150,000 / 15 years) x 8 years
2.
3.
26.
27.
28.
29.
30.
a
b
b
c
d
31
32.
33.
34.
35.
84,000
80,000
150,000
14,000
Journal entry to record purchase:

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

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

equipment:
E(1)
Equipment
Gain on Sale of Equipment
Eliminate unrealized profit on equipment.
Adjustment to equipment
Amount paid by WW to acquire building
Amount paid by LL on intercompany sale
66,000
14,000
2,000
78,000
P150,000
(84,000)
Adjustment to buildings and equipment

Adjustment to depreciation expense
Depreciation expense recorded by Lance
Corporation (P84,000 / 7 years)
Depreciation expense recorded by WW
Adjustment to accumulated depreciation
Amount required (P10,000 x 9 years)
Amount reported by LL (P12,000 x 1 year)
Required adjustment
4.
P 12,000
(10,000)
P 2,000
P 90,000
(12,000)
P 78,000
Eliminating entry at January 1, 20x4, to eliminate intercompany sale of equipment

and prepare a consolidated balance sheet only:
E(1)
Equipment
66,000
Retained Earnings
12,000
78,000
Eliminate unrealized profit on equipment.
Problem II
1. Eliminating entry, December 31, 20x8:
E(1)
Truck
Gain on Sale of Truck
Computation of gain on sale of truck:
Price paid by Minnow
Cost of truck to Frazer
P300,000
(P300,000 / 10 years) x 3 years
( 90,000)
Gain on sale of truck
Accumulated depreciation adjustment:
Required [(P300,000 / 10 years) x 4 years]
Reported [(P245,000 / 7 years) x 1 year]
Required increase
2.
P 66,000
55,000
35,000
5,000
85,000
P245,000
(210,000)
P 35,000
P120,000
(35,000)
P 85,000
Eliminating entry, December 31, 20x9:

E(1)
Truck
Retained Earnings
Reported [(P245,000 / 7 years) x 2 years]
Required increase
Problem III
55,000
30,000
5,000
80,000
P150,000
(70,000)
P 80,000
a.

E(1)
Truck
Gain on Sale of Truck
Computation of gain on sale of truck:

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

E(1)
Truck
Retained Earnings, January 1

Recorded [(P210,000 / 6 years) x 1 year]
Required increase
90,000
30,000
5,000
115,000
P150,000
(35,000)
P115,000
Problem IV
1
Equipment
Beginning R/E Prince (P100,000 .80)
Noncontrolling Interest (P100,000 .20)
Accumulated Depreciation (P100,000/4) 2
Beginning R/E Prince (P25,000 .80)
Noncontrolling Interest (P25,000 .20)
3.
540,000
80,000
20,000
640,000
50,000
25,000
20,000
5,000
Controlling Interest in Consolidated Net Income:

Prince Companys income from its
independent operations
Reported net income of Serf Company
P820,000
Plus profit on intercompany sale of
equipment considered to be realized
through depreciation in 2014
25,000
Reported subsidiary income that has been
realized in transactions with third
parties
845,000
.8
Prince Companys share thereof
Controlling Interest in Consolidated net income
Noncontrolling Interest Calculation:
Reported income of Serf Company
P3,270,000
676,000
P3,946,000
P820,000
Plus: Intercompany profit considered realized

in the current period
25,000
P845,000
Noncontrolling interest in Serf Company

(.20 845,000)
4.
P169,000
NCI-CNI (No. 3)
CI-CNI (No. 2)
CNI
P 169,000
3,946,000
P4,115,000
or,
Realized gain on sale of equipment (downstream sales) through depreciation
P Companys realized net income from separate operations...
Realized gain on sale of equipment (upstream sales) through depreciation*
Total
P3,270,000
0
P3,270,000
P 820,000
25,000
P 845,000
845,000
P4,115,000
0
P4,115,000
169,000
P3,946,000
Or, alternatively

Realized gain on sale of equipment (upstream sales) through depreciation
S Companys realized net income from separate operations...
Total
1/1/20x4:
Selling price of equipment
Less: BV of equipment
Cost
Less: Accumulated depreciation:
P1,280,000 / 8 years x 4 years*
Unrealized gain on sales 1/1/20x4
P3,270,000
0
P3,270,000
P820,000
25,000
P 845,000
P 169,000
0
169,000
P3,946,000
_169,000
P4,115,000
P 820,000
25,000
P 845,000
0
P845,000
20%
P 169,000
P 740,000
P1,280,000
640,000
845,000
P4,115,000
640,000
P 100,000
Realized gain depreciation: P100,000 / 4 years

P 25,000
*the original life is 8 years as of 1/1/20x3, since the remaining life as of 1/1/20x4
in only 4 years, for purposes of computing the accumulated depreciation to
determine the gain on sale, the difference of 4 years is presumed to be expired.
Equipment
540,000
Beginning R/E Prince
100,000
640,000
Accumulated Depreciation (P100,000/4) 2

Beginning R/E Prince
6
50,000
25,000
25,000
Controlling Interest in Consolidated Net Income:

Prince Companys income from its
independent operations
Plus profit on intercompany sale of
equipment considered to be realized
through depreciation in 2014
Reported net income of S Company
P3,270,000
25,000
P3,295,000
P820,000
.8
Prince Companys share thereof

Controlling Interest in Consolidated net income
Noncontrolling Interest Calculation:
Reported income of S Company
Noncontrolling interest in S Company
(.20 820,000)
NCI-CNI
CI-CNI
CNI
656,000
P3,951,000
P820,000
P164,000
P 164,000
3,951,000
P4,115,000
or,
Realized gain on sale of equipment (upstream sales) through depreciation*
Total
P3,270,000
____25,000
P3,295,000
P 820,000
0
P 820,000
820,000
P4,115,000
0
P4,115,000
164,000
P3,951,000
Or, alternatively

P3,270,000
25,000
P3,295,000
P820,000
0
S Companys realized net income from separate operations...

Total
P 820,000
P 164,000
0
P 820,000
0
P 820,000
0
P820,000
20%
P 164,000
P
372,000
P 192,000
96,000
288,000
P
84,000
P 4,800
5,760
76,800
( 19,200)
3,840
72,000
P
12,000
S Co.
S Co.
164,000
P3,951,000
_169,000
P4,115,000
Problem V
Requirements 1 to 4

Consideration
transferred..
80%).
80%)...
value)..
liabilities:
80%)
80%).
80%).....
80%)
cost over
fair
value)...
820,000
P4,115,000
(Over)
Book
value
Inventory...
Land
Buildings (net)
Bonds payable
Net..
Fair
value
P
24,000
48,000
84,000
168,000
Under
Valuation
P
30,000
55,200
180,000
144,000
(
(120,000) 115,200)
P
P
204,000 294,000
6,000
7,200
96,000
(24,000)
4,800
P 90,000
Equipment..................
Less: Accumulated
depreciation..
Net book
value...
Buildings................
Less: Accumulated
depreciation..
Net book
value...
S Co.
Book value
180,000
S Co.
Fair value
180,000
Increase
(Decrease)
0
96,000
( 96,000)
84,000
180,000
96,000
S Co.
Book value
360,000
S Co.
Fair value
144,000
(Decrease)
( 216,000)
1992,000
( 192,000)
168,000
144,000
24,000)
Over/
amortized
r
P
Inventory
6,000
Subject
to
Annual
Amortization
96,00
0
(24,0
Buildings (net)
00)
Bonds payable
4,800
Annu
al
Current
Amou Year(20x
nt
4)
P
6,000 P 6,000
20x5
P
-
12,000
(
6,000)
( 6,000)
12,00
0
(6,00
0)
1,200
1,200
1,200
Lif
e
1
12,000
P
13,200
P
7,200
P 13,200

x 100%)
liabilities
(P90,000 x 100%)
fair value)...
P 372,000
93,000
P 465,000
P
__360,000
105,000
90,000
15,000
Value
P12,00
0
3,000
P15,000
% of
Total
80.00%
20.00%
100.00%
Value
P
or controlling
3,000
Interest
750
Goodwill
% of
Total
80.00%
20.00%
100.00%
The unrealized and gain on intercompany sales for 20x4 are as follows:
Date
of
Sale
Seller
Selling Book
Price Value
Unrealize
d*
Gain on
Remaini
Realized
ng
gain
Life
depreciatio
20x4
4/1/20 P Co.
x4
1/2/20 S Co.
x4
P90,0
00
60,00
0
P75,0
00
28,80
0
sale
P15,000
5 years
31,200
8 years
n**
P3,000/year
P3,900/year
P2,2
50
P3,9
00
* selling price less book value

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

January 1, 20x4:
(1)
Investment
in
Company
S 372,000
372,000
Cash..
(2) Cash
28,800
28,800
allocated excess that expires during 20x4, and unrealized profits in ending inventory.
(E1)
Common
stock
Co
Retained
earnings
Co
Investment
in
Co
Non-controlling
interest
(P360,000
20%)..
240,000
120.000
288,000
72,000

(E2)
6,000
Inventory.
96,000
192,000
7,200
Land.
Discount
on
bonds
4,800
payable.
Goodwill.
Buildings..
Non-controlling
interest
(P90,000
x
20%)..
Investment
in
S
Co.
12,000
216,000
18,000
84,000


Accumulated
depreciation
buildings..
Interest expense
Goodwill
impairment
loss.
6,000
6,000
6,000
1,200
3,000
6,000
Inventory..
Accumulated
depreciation
equipment..
Goodwill
12,000
1,200
3,000

Cost of
Depreciation/
Goods
Amortization
Amortization
Sold
Expense
-Interest
Total
Inv entory sold
P 6,000
Equipment
P 12,000
Buildings
( 6,000)
Bonds payable
_______
_______
P 1,200
Totals
P 6,000
P 6,000
P1,200
13,200

Non-controlling
interest
(P36,000
20%)..
Dividends paid S
28,800
7,200
36,000

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

Equipment
To eliminate the downstream intercompany gain and rest ore t o it s
original cost to t he consolidate ent it y (along wit h it s accumulat ed
depreciat ion at t he point of t he int ercompany sale).
15,000
30,000
45,000

Equipment
31,200
12,000
43,200
To eliminat e t he upst ream int ercompany gain and rest ore t o it s

(E7) Accumulated depreciation..

2,250
2,250
To adjust downstream depreciation expense on equipment sold t o

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

3,900
3,900
To adjust upstream depreciation expense on equipment sold t o

parent, thus realizing a portion of t he gain through depreciation
(P31,200/85 years x 1 year = P3,900).

Subsidiary
10,140
10,140

Unrealized gain on sale of equipment
(upstream sales)
Realized gain on sale of equipment (upstream
sales) through depreciation
separate operations
partial goodwill
P 91,200
( 31,200)
3,900
P 63,900
13,200
P 50,700
20%
P
10,140
Income Statement
Sales
Gain on sale of equipment
P Co
P480,000
15,000
S Co.
P240,000
31,200
Div idend income

Total Rev enue
Cost of goods sold
28,800
P523,800
P204,000
60,000
P271,200
P138,000
24,000
48,000
18,000
Interest expense
Other expenses
Dr.
Cr.
(5) 15,000
(6) 31,200
(4) 28,800
(3)
(3)
6,000
6,000 (7)
(3)
1,200
2,250
(8) 3,900
Consolidated
P 720,000
_________
P 720,000
P 348,000
83,850
1,200
66,000

Net Income
P312,000
P211,800
P211,800

P Company
P360,000
S Company
Total
Div idends paid
P Company
S Company
Balance
Sheet
P180,000
P 91,200
P 91,200
(3)
3,000
P
P
(
P
(9 10,140
3,000
502,050
217,950
10,140)
207,810
P 360,000
(1)
120,000
211,800
P571,800
P120,000
91,200
P211,200
72,000
-
36,000
P499,800
P175,200
P 495,810
Cash.
Inv entory.
Land.
P
232,800
90,000
120,000
210,000
P 90,000
60,000
90,000
48,000
P 322,800
150,000
210,000
265,200
Equipment
240,000
180,000
Buildings
Goodwill
Inv estment in S Co
720,000
540,000
- equipment
372,000
P1,984,800
P1,008,000
P 135,000
P 96,000
405,000
288,000
105,000
240,000
600,000
88,800
120,000
- buildings
Accounts payable
Bonds payable
499,800
_________
Total
(4)
36,000
72,000
________
to
Balance Sheet
Total
207,810
P 567,810
P1,984,800
Sales
240,000
175,200
_________
P1,008,000
(2)
6,000 3)
6,000
(2)
7,200
(5)
30,000
(6)
12,000
(2) 216,000
(2)
4,800 (3) 1,200
(2) 12,000 (3) 3,000
(13)
288,00
0
(14) 84,000
462,000
1,044,000
3,600
9,000
P2,466,600
(15) 96,000 (3) 12,000

(7) 2,250 (5) 45,000
(8) 3,900 (6) 43,200
(18)
192,000
(19) 6,000
P229,050
495,000
193,800
360,000
600,000
(1)
240,000
495,810
(20) 7,200 (1 ) 72,000 (2)
18,000
__________ (9) 10,140
P
834,450
P 834,450
P Co.
P
540,000
216,000
____92,940
P2,466,600
S Co.
P
360,000
Gross profit
Other expense
P
324,000
60,000
72,000

operations
P
192,000
38,400
Net income
P
230,400
P
72,000
Dividends paid
192,000
P
168,000
24,000
54,000
P
90,000
P
90,000
P
48,000


Cash
Dividend
income
(P48,000
80%).
38,400
x
38,400
Dividends paid
Cash
48,000
48,000

The working paper eliminations (in journal entry format) on December 31, 20x5, are as follows:
(E1)
Investment
Company
Retained
earnings
Company
in
S
44,160

P175,200
120,000
P 55,200
80%
P 44,160
44,160
Entry (1) above is needed only for firms using the cost method to account for their investments in the
subsidiary. If the parent is already using the equity method, there is no need to convert to equity.
(E2)
Common
stock
Co
Investment
in
S
Co
(P415,200
80%)
Non-controlling
interest
(P415,200
20%)..
240,000
175,200
332,160
83,040

(E3)
6,000
Inventory.
96,000
192,000
7,200
Land.
Discount
on
bonds
4,800
payable.
12,000
Goodwill.
Buildings..
216,000
18,000
Investment
in
S
84,000
Co.

partial-goodwill]
Non-controlling
interests
(P13,200
20%).
Accumulated
depreciation
buildings..
Interest expense
13,560
x
2,640
6,000
12,000
1,200
6,000
Inventory..
Accumulated
depreciation
equipment..
24,000

Goodwill
2,400
3,000
Year 20x4 amount s are debit ed t o Perfect s ret ained earnings &
NCI;
Inv entory sold

Equipment
Buildings
Bonds payable
Sub-total
Multiplied by:
Impairment loss
Total
(20x4)
Retained
earnings,
P 6,000
12,000
(6,000)
1,200
P13,200
80%
P 10,560
3,000
P 13,560
Depreciation/
Amortization
expense
Amortization
-Interest
P 12,000
( 6,000)
________
P 6,000
P 1,200
P 1,200

Non-controlling
interest
(P48,000
20%)..
Dividends paid S
38,400
9,600
48,000

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

Equipment
15,000
30,000
45,000

(E6) Retained EarningsP Company, 1/1/20x5

(P31,200 x 80%)
Equipment
24,960
6,240
12,000
43,200


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

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

(P31,200/85 years x 1 year = P3,900).

Subsidiary
17,340
17,340

P 90,000
3,900
P 93,900
( 7,200)
P 86,700
20%
P 17,340

partial goodwill

Income Statement
Sales
Div idend income
Total Rev enue
Cost of goods sold
P Co
P540,000
38,400
P578,400
P216,000
S Co.
P360,000
P360,000
P192,000
Dr.
(5)
38,400
60,000
24,000
(4)
6,000
Interest expense
Other expenses
Net Income
72,000
P348,000
P230,400
P230,400
54,000
P270,000
P 90,000
P 90,000
(4)
1,200

P Company
P499,800
(1) 13,560
(21) 15,000
(22) 24,960
P 175,200 (2) 175,200
__90,000
P265,200
S Company
Total
Div idends paid
P Company
230,400
P730,200
72,000
Cr.
(7)
3,000
(8)
3,900
Consolidated
P 900,000
___________
P 900,000
P 408,000
83,100
P
P
(
P
(9) 17,340
(1) 44,160
(23) 2,250
(24) 3,120
1,200
126,000
618,300
281,700
17,340)
264,360
P 495,810
264,360
P 760,170
72,000
S Company
Sheet
Balance Sheet
Cash.
Inv entory.
Land.
Equipment
Buildings
Goodwill
Inv estment in S Co
Total
- equipment
- buildings
Accounts payable
Bonds payable
Total
48,000
P658,200
P217,200
P 688,170
265,200
180,000
216,000
210,000
240,000
P 102,000
96,000
108,000
48,000
180,000
P 367,200
276,000
324,000
265,200
720,000
540,000
372,000
P2,203,200
P1,074,000
P 150,000
P 102,000
450,000
306,000
105,000
240,000
600,000
88,800
120,000
658,200
___ _____
P2,203,200
240,000
217,200
_________
P1,074,000
(5)
(15)
(3)
(5)
(6)
(3)
(3)
(1)
6,000
7,200
30,000
12,000
4,800
12,000
44,160
(3) 96,000
(7) 5,250
(8) 7,800
(3) 192,000
(4) 12,000
48,000
(16) 6,000
(3) 216,000
(4) 2,400
(4) 3,000
(2) 332,160
(3) 84,000
(4)
(5)
(6)
24,000
45,000
43,200
________
462,000
1,044,000
2,400
9,000
P2,749,800
P 255,150
552,000
193,800
360,000
600,000
(2) 240,000
688,170
(4) 2,640
(5) 9,600
(6) 6,240
__________
P 979,350
(2 83,040
(3) 18,000
(8)
780
(9) 17,340
P 979,350
____100,680
P2,749,800
5. 1/1/20x4
P360,000
b.
Non-controlling interest (partial goodwill),..
P 240,000
120,000
P 360,000
90,000
P 450,000
20
P 90,000
c.
Consolidated SHE:
Stockholders Equity
Retained earnings
Parents Stockholders Equity / CI SHE
NCI, 1/1/20x4
P 600,000
360,000
P 960,000
___90,000
P1,050,000
6.
recognized.
12/31/20x4:
a. CI-CNI - P
Unrealized gain on sale of equipment (upstream sales)
Total
P 91,200
( 31,200)
3,900
P 63,900
P 10,140
13,200
3,000
P183,000
(15,000)
2,250
P170,250
63,900
P234,150
26,340
P207,810
_ 10,140
P217,950
b. NCI-CNI P10,140
P 91,200
( 31,200)
3,900
P 63,900
13,200
P 50,700
20%
P 10,140

follows:
Total
P360,000
207,810
P567,810
72,000
P495,810
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 January 1, 20x4 and December 31, 20x4 are computed as follows:
P 240,000
P120,000

Total
91,200
P211,200
36,000
175,200
P 415,200
90,000
( 13,200)
P492,000
( 31,200)
3,900
P464,700
20
P 92,940
f.
Consolidated SHE:
Stockholders Equity
Retained earnings
NCI, 12/31/20x4
P 600,000
495,810
P1,095,810
___92,940
P1,188,750
12/31/20x5:
a. CI-CNI P264,360
Total
P 90,000
3,90
P 93,900
P192,000
3,000
P195,000
93,900
P288,900
7,200
P281,700
17,340
P264,360
Or, alternatively

Total
b. NCI-CNI P17,340
P192,000
3,000
P195,000
P 90,000
3,900
P 93,900
P 17,340
7,200
93,900
P288,900
24,540
P264,360
_ 17,340
P281,700

P 90,000
3,900
P 93,900
7,200
P 86,700
20%
P 17,340


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

__ 8,760
P495,810
264,360
Total
P760,170
72,000
P688,170
Or, alternatively:

Retained earnings - Parent Company, December 31, 20x5 (cost model)
Less: Downstream - net unrealized gain on sale of equipment prior to
12/31/20x5 (P15,000 P2,250 P3,000)
Adjusted Retained Earnings Parent 12/31/20x5 (cost model )
Adjustment to conv ert from cost model to equity method for p urposes of
20x4 and 20x5 (P11,000 + P6,000)
12/31/20x5 (P31,200 P3,900 P3,900)
P658,200
9,750
P648,450
P 217,200
120,000
P 97,200
20,400
P
23,400
53,400
80%

42,720
3,000
39,720
P688,170
e.
Total
20x4
20x5
Less: Upstream - net unrealized gain on sale of equipment prior to 12/31/20x5
(P31,200 P3,900 P3,900)
P 240,000
P175,200
90,000
P 265,200
48,000
217,200
P 457,200
90,000
P 13,200
7,200
( 20,400)
P 526,800
23,400
P503,400
20
P 100,680
f.
Consolidated SHE:
Stockholders Equity
Retained earnings
NCI, 12/31/20x5
P 600,000
688,170
P1,288,170
__100,680
P1,188,850
Problem VI
Requirements 1 to 4

(80%)..
(20%)..
Son:
100%).
P
372,000
93,000
P
465,000
P 240,000

100%)...
value)..
liabilities:
100%)
100%).
100%).....
100%)
over
fair
value)...
120,000
360,000
P
105,000
6,000
7,200
96,000
( 24,000)
4,800
90,000
P
15,000
Over/
amortized
r
P
Inventory
6,000
Subject
to
Annual
Amortization
96,00
0
(24,0
Buildings (net)
00)
Bonds payable
4,800
Lif
e
1
8
4
4
Annu
al
Current
Amou Year(20x
nt
4)
P
6,000 P 6,000
20x5
P
-
12,000
(
6,000)
12,00
0
(6,00
0)
1,200
P
13,200
12,000
( 6,000)
1,200
P 13,200
1,200
P
7,200

January 1, 20x4:
(1)
Investment
in
Company
S 372,000
372,000
Cash..
(2) Cash
28,800
28,800
Dividends paid
Cash.
36,000
36,000
allocated excess that expires during 20x4.
(E1)
Common
stock
Co
Retained
earnings
Co
Investment
in
Co
Non-controlling
interest
(P360,000
20%)..
240,000
120.000
288,000
72,000

(E2)
6,000
Inventory.
96,000
192,000
7,200
Land.
Discount
on
bonds
4,800
payable.
15,000
Goodwill.
Buildings..
216,000
21,000
Investment
in
S
84,000
Co.

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

Accumulated
depreciation
buildings..
Interest expense
Goodwill
impairment
loss.
6,000
6,000
6,000
1,200
3,750
6,000
Inventory..
Accumulated
depreciation
equipment..
Goodwill
12,000
1,200
3,750

Inv entory sold

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

Non-controlling
interest
(P36,000
20%)..
Dividends paid S
28,800
7,200
36,000

share of dividends.

Equipment
15,000
30,000
45,000


Equipment
31,200
12,000
43,200


2,250
2,250

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

3,900
3,900

(P31,200/85 years x 1 year = P3,900).

Subsidiary
9,390
9,390

(upstream sales)
separate operations
partial goodwill
P3,000, impairment on partial-goodwill)
P 91,200
( 31,200)
3,900
P 63,900
13,200
P 50,700
20%
P
10,140
750
9,390

Income Statement
Sales
P Co
P480,000
15,000
S Co.
P240,000
31,200
Div idend income

Total Rev enue
Cost of goods sold
28,800
P523,800
P204,000
60,000
P271,200
P138,000
24,000
48,000
-
18,000
-
Interest expense
Other expenses
Dr.
Cr.
(5) 15,000
(6) 31,200
(4) 28,800
(3)
(3)
(3)
6,000
6,000 (7)
(8)
1,200
(3)
3,750
2,250
3,900
Consolidated
P 720,000
_________
P 720,000
P 348,000
83,850
1,200
66,000
3,750

Net Income
P312,000
P211,800
P211,800

P Company
S Company
Total
Div idends paid
P Company
S Company
Sheet
Balance Sheet
Cash.
Inv entory.
Land.
Equipment
- equipment
9,390
P 360,000
211,800
P571,800
P120,000
91,200
P211,200
72,000
-
36,000
P499,800
P175,200
P 495,810
232,800
90,000
120,000
210,000
240,000
P 90,000
60,000
90,000
48,000
180,000
P 322,800
150,000
210,000
265,200
720,000
540,000
372,000
P1,984,800
P1,008,000
P 135,000
P 96,000
405,000
288,000
105,000
240,000
600,000
88,800
120,000
- buildings
Accounts payable
Bonds payable
Total
(9)
P 502,800
P 217,200
( 9,390)
P 207,810
P360,000
Buildings
Goodwill
Inv estment in S Co
Total
P180,000
P 91,200
P 91,200
499,800
240,000
175,200
(1) 120,000
(4)
Sales
Gross profit
Other expense
_________
P1,008,000
36,000
(2)
6,000 3)
6,000
(2)
7,200
(5) 30,000
(6) 12,000
(2) 216,000
(2)
4,800 (3) 1,200
(2) 15,000 (3) 3,750
(1) 288,000
(2) 84,000
(2) 80,000
(7) 2,250
(8) 3,900
(2) 192,000
(3) 6,000
72,000
________
462,000
1,044,000
3,600
11,250
P2,468,850
(3) 10,000
(5) 45,000
(6) 43,200
P229,050
495,000
193,800
360,000
600,000
(1) 240,000
(17) 7,200
_________
P1,984,800
207,810
P 567,810
__________
P 843,690
495,810
(1 ) 72,000
(2) 21,000
(9) 9,390
P 843,690
P Co.
P
540,000
216000
P
324,000
60,000
72,000
____95,190
P2,468,850
S Co.
P
360,000
192,000
P
168,000
24,000
54,000

operations
Net income
P
192,000
38,400
P
230,400
P
72,000
Dividends paid
P
90,000
P
90,000
P
48,000


Cash
Dividend
income
(P48,000
80%).
38,400
x
38,400
Dividends paid
Cash
48,000
48,000
(E1)
Investment
Company
Retained
earnings
Company
in
44,160
44,160

P175,200
120,000
P 55,200
80%
P 44,160
(E2)
Common
stock
Co
Investment
in
S
Co
(P415,200
80%)
Non-controlling
interest
(P415,200
20%)..
240,000
175,200
332,160
83,040

(E3)
6,000
Inventory.
96,000
192,000
7,200
Land.
Discount
on
bonds
4,800
payable.
15,000
Goodwill.
Buildings..
216,000
21,000
Investment
in
S
84,000
Co.

partial-goodwill]
13,560
Non-controlling interests (P16,950 x 20%) or (P13,200
x 20% +
3,390
(P3,750 P3,000 = P750)
6,000
Accumulated
depreciation
12,000
buildings..
Interest expense
1,200
6,000
Inventory..
Accumulated
depreciation
equipment..
Goodwill
Year 20x4 amount s are debit ed t o Perfect s ret ained earnings &
NCI;
Inv entory sold
(20x4)
Retained
earnings,
P 6,000
Depreciation/
Amortization
expense
Amortization
-Interest
24,000
2,400
3,750
Equipment
Buildings
Bonds payable
Sub-total
Multiplied by:
Impairment loss
Total
12,000
(6,000)
1,200
P13,200
80%
P 10,560
3,000
P 13,560
P 12,000
( 6,000)
________
P 6,000
P 1,200
P 1,200

Non-controlling
interest
(P48,000
20%)..
Dividends paid S
38,400
9,600
48,000

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

Equipment
15,000
30,000
45,000

(E7) Retained EarningsP Company, 1/1/20x5

(P31,200 x 80%)
Equipment
24,960
6,240
12,000
43,200


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


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

(P31,200/85 years x 1 year = P3,900).

Subsidiary
17,340
17,340

P 90,000
3,900
P 93,900
( 7,200)
P 86,700
20%
P 17,340

0
P 17,340

P Co
P540,000
38,400
P578,400
P216,000
S Co.
P360,000
P360,000
P192,000
(5)
60,000
24,000
(4)
6,000
Interest expense
Other expenses
Net Income
72,000
P348,000
P230,400
P230,400
54,000
P270,000
P 90,000
P 90,000
(4)
1,200

P Company
P499,800
(2) 13,560
(6) 15,00
(7) 24,960
P 175,200 (1) 175,200
90,000
P265,200
Income Statement
Sales
Div idend income
Total Rev enue
Cost of goods sold
S Company
Total
Div idends paid
P Company
S Company
Sheet
Balance Sheet
Cash.
Inv entory.
Land.
Equipment
Buildings
Goodwill
230,400
P730,200
Dr.
Cr.
38,400
(8)
3,000
(9)
3,900
Consolidated
P 900,000
___________
P 900,000
P 408,000
83,100
P
P
(
P
(10) 17,340
(1) 44,160
(8) 2,250
(9) 3,120
1,200
126,000
618,300
281,700
17,340)
264,360
P 495,810
264,360
P 760,170
72,000
-
48,000
P658,200
P217,200
P 688,170
265,200
180,000
216,000
210,000
240,000
P 102,000
96,000
108,000
48,000
180,000
P 367,200
276,000
324,000
265,200
720,000
540,000
(5)
(3)
(3)
(6)
(7)
(3)
(3)
48,000
6,000 (4) 6,000

7,200
30,000
12,000
(3) 216,000
4,800 (4) 2,400
15,000 (4) 3,750
72,000
________
462,000
1,044,000
2,400
11,250
Inv estment in S Co
Total
- equipment
- buildings
Accounts payable
Bonds payable
Total
372,000
(1)
P2,203,200
P1,074,000
P 150,000
P 102,000
450,000
306,000
105,000
240,000
600,000
88,800
120,000
658,200
240,000
217,200
___ _____
P2,203,200
_________
P1,074,000
44,160 (2) 332,160

(3) 90,000
(3) 96,000
(8) 5,250
(9) 7,800
(3) 192,000
(4) 12,000
(4)
(6)
(7)
24,000
45,000
43,200
P2,752,050
P 255,150
552,000
193,800
360,000
600,000
(2) 240,000
(4) 3,390
(5) 9,600
(7) 6,240
__________
P 983,100
(2 ) 83,040
(3) 21,000
(9)
780
(10) 17,340
P 983,100
688,170
____102,930
P2,752,050
5. 1/1/20x4
P360,000
b.
Non-controlling interest (partial goodwill),..
Add: Non-controlling interests on full goodwill, 1/1/20x4 (P12,500, full-goodwill P10,000, partial
goodwill)
Non-controlling interest (full-goodwill)
P 240,000
120,000
P 360,000
90,000
P 450,000
20
P 90,000
3,000
P 93,000
c.
Consolidated SHE:
Stockholders Equity
Retained earnings
Parents Stockholders Equity / CI SHE
NCI, 1/1/20x4
P 600,000
360,000
P 960,000
___93,000
P1,053,000
6.
recognized.
12/31/20x4:
a. CI-CNI P207,810
P183,000
(15,000)
2,250

Total
P 91,200
( 31,200)
3,900
P 63,900
P 10,140
13,200
3,000
P170,250
63,900
P234,150
26,340
P207,810
10,140
P217,950
b. NCI-CNI P10,140
Less: Non-controlling interest on impairment loss on full-goodwill (P3,750 x
20%) or (P3,750mpairment on full-goodwill less P3,000, impairment on
partial- goodwill)
P 91,200
( 31,200)
3,900
P 63,900
13,200
P 50,700
20%
P 10,140
750
P 9,390

follows:
Total
P360,000
207,810
P567,810
72,000
P495,810
e.
Total
P 240,000
P120,000
91,200
P211,200
36,000
175,200
P 415,200
90,000
( 13,200)
P492,000
( 31,200)
3,900
P464,700
20

92,940
2,250
P 95,190
f.
Consolidated SHE:
Stockholders Equity
Retained earnings
NCI, 12/31/20x4
P 600,000
495,810
P1,095,810
___95,190
P1,191,000
12/31/20x5:
a. CI-CNI P281,700
Total
P192,000
3,000
P195,000
P 90,000
3,900
P 93,900
93,900
P288,900
7,200
P281,700
17,340
P264,360
Or, alternatively

Total
P192,000
3,000
P195,000
P 90,000
3,900
P 93,900
P 17,340
7,200
24,540
P264,360
_ 17,340
P281,700
b. NCI-CNI P17,340
93,900
P288,900
P 90,000
3,900
P 93,900
7,200
P 86,700
20%
P 17,340
0
P 17,340

Non-controlling Interest in Net Income (NCINI) - partial goodwill
Less: NCI on goodwill impairment loss on full-goodwill . . . . . . . . . . . . . . . . . . . . .
Non-controlling Interest in Net Income (NCINI) full goodwill . . . . . . . . . . . . .

follows:
Retained earnings - Parent Company, January 1, 20x5 (cost model)
Less: Downstream - net unrealized gain on sale of equipment prior to 20x5
(P15,000 P2,250)
Adjusted Retained Earnings Parent 1/1/20x5 (cost model ) Son Companys
parties..
20x5 (P31,200 P3,900)
P499,800
12,750
P487,050
P 175,200
120,000
P 55,200
13,200
27,300
P 14,700
80%
P 11,760
3,000

__ 8,760
P495,810
264,360
Total
P760,170
72,000
P688,170
Or, alternatively:

Retained earnings - Parent Company, December 31, 20x5 (cost model)
Less: Downstream - net unrealized gain on sale of equipment prior to
12/31/20x5 (P15,000 P2,250 P3,000)
Adjusted Retained Earnings Parent 12/31/20x5 (cost model )
20x4 and 20x5 (P13,200 + P7,200)
12/31/20x5 (P31,200 P3,900 P3,900)
P658,200
9,750
P648,450
P 217,200
120,000
P 97,200
20,400
P
P
Less: Goodwill impairment loss (full-goodwill)

23,400
53,400
80%
42,720
3,000
39,720
P688,170
e.
Non-controlling interest, December 31, 20x5
Total
20x4
20x5
Less: Upstream - net unrealized gain on sale of equipment prior to 12/31/20x5
(P31,200 P3,900 P3,900)
P 240,000
P175,200
90,000
P 265,200
48,000
217,200
P 457,200
90,000
P 13,200
7,200
( 20,400)
P 526,800
23,400
P503,400
20
P 100,680
2,250
P 102,930
f.
Consolidated SHE:
Stockholders Equity
Retained earnings
NCI, 12/31/20x5
Problem VII
1.
20x5
Noncontrolling interest in P 7,000 (1)

P 46,200 (2)
Controlling interest in
290,500 (3)
279,300 (4)
(1)
(2)
(3)
(4)
2.
20x4
.4(P70,000 P63,000 + P10,500) = P7,000

.4(P105,000 + P10,500) = P46,200
P280,000 + .6(P70,000 P63,000 + P10,500) = P290,500
P210,000 + .6(P105,000 + P10,500) = P279,300
2014
Noncontrolling interest in P 28,000 (5)

Consolidated income
2015
P 42,000 (6)
P 600,000
688,170
P1,288,170
__102,930
P1,391,100
Controlling interest in
269,500 (7)
283,500 (8)
(5) .4(P70,000) = P28,000
(6) .4(P105,000) = P42,000
(7) (P280,000 P63,000 + P10,500) + .6(P70,000) = P269,500
(8) (P210,000 + P10,500) + .6(P105,000) = P283,500
Problem VIII
(Determine consolidated net income when an intercompany transfer of equipment occurs. Includes
an outside ownership)
a. IncomeST ..............................................................................................
IncomeBB ..............................................................................................
Excess amortization for unpatented technology .....................................
Remove unrealized gain on equipment .................................................
(P120,000 P70,000)
Remove excess depreciation created by
inflated transfer price (P50,000 5) ...................................................
Consolidated net income .......................................................................
P220,000
90,000
(8,000)
(50,000)
b. Income calculated in (part a.) ................................................................

Non-controlling interest in BB's income
IncomeBB .....................................................................
P90,000
Excess amortization .........................................................
(8,000)
Adjusted net income .......................................................
P82,000
Non-controlling interest in BBs income (10%).....................................
Consolidated net income to parent company .......................................
P262,000
c. Income calculated in (part a.) ................................................................

Non-controlling interest in BB's income (see Schedule 1) ........
(4,200)
Consolidated net income to parent company .......................................
P262,000
10,000
P262,000
(8,200)
P253,800
P257,800
Schedule 1: Non-controlling Interest in Bennett's Income (includes upstream transfer)

Reported net income of subsidiary .........................................................
P90,000
Excess amortization ..................................................................................
(8,000)
Eliminate unrealized gain on equipment transfer ....................................
(50,000)
Eliminate excess depreciation (P50,000 5) ............................................
10,000
Bennett's realized net income .................................................................
P42,000
Outside ownership ...................................................................................
10%
Non-controlling interest in subsidiary's income ........................................
P 4,200
d. Net income 20x5ST ...............................................................................
Net income 20x5BB ..............................................................................
Excess amortization ..................................................................................
Eliminate excess depreciation stemming from transfer
(P50,000 5) (year after transfer) .......................................................
Consolidated net income ..............................................................
P240,000
100,000
(8,000)
10,000
P342,000
Problem IX
1.
20x4
20x5
20x6
Consolidated net income as

reported
Less: P10,000 deferred gain
Plus: NCI portion of the gain
Plus: Deferred gain
Corrected consolidated net
income
P 750,000
P 600,000
P 910,000
P 743,000
P 600,000
7,000
P 917,000
20x4
P 200,000
-10,000
P 190,000
20x5
P 240,000
-10,000
P 230,000
-10,000
3,000
2.
Land account as reported

Less: Intercompany profit
Restated land account
20x6
P 300,000
P 300,000
3.
Final sales price outside the entity minus the original cost to the combined entity equals
P102,000 minus P72,000 = P30,000
Problem X
1.
On the consolidated balance sheet, the machine must be reported at its original cost
when Tool purchased it on January 1, 20x1, which is P120,000. Since the elimination entry
debited the machine account for P22,000 which must be the amount needed to bring the
machine account up to P120,000, Buzzard must have recorded the machine at P98,000.
Since the remaining useful life is seven years, Buzzard will record P14,000 of depreciation
expense each year.
2.
The correct balances on the consolidated balance sheet for the Machine and
Accumulated Depreciation accounts are the balances that would be in the accounts if
there had been no sale. The balance in the machine account would be the original
purchase price to Tool or P120,000. The balance in the Accumulated Depreciation account
will be the original amount of annual depreciation, (P12,000) times the number of years the
machine has been depreciated (4), or P48,000.
3.
The non-controlling interest income will be 30% of Tool adjusted net income. Tool reported
net income of P60,000 is reduced by the P14,000 unrealized gain on the sale of the
machine and is increased by the piecemeal recognition of the gain, which is P2,000. The
net result of P48,000 is then multiplied by 30% to calculate a P14,400 income for the noncontrolling interest.
Problem XI
1.
Consolidated net income for 20x9:
Operating income reported by BW
Net income reported by TW
Amount of gain realized in 20x9
(P30,000 / 12 years)
Realized net income of TW
P100,000
P40,000
2,500
42,500
P142,500
2.
Consolidated net income for 20x9 would be unchanged.
3.

E(1)

Eliminate unrealized profit on building.
30,000
20,000
5,000
2,500
52,500

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

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

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

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

Amount reported by BW (P22,500 x 3 years)
Required adjustment
P120,000
(67,500)
P 52,500
Problem XII
1.
The gain on the sale of the land in 20x5 was equal to the sales price minus the original cost of
the land when it was first acquired by the combined entity. In this case the gain was P150,000
- P90,000, or P60,000.
2.
The consolidated amount of depreciation expense was the combined amounts of

depreciation expense showing on the separate income statements minus the piecemeal
recognition of the gain on the sale of the equipment. Thus, the consolidated amount of
depreciation expense was P95,000 + P32,000 (P35,000/4 years) = P118,250.
3.
Consolidated net income:
Osprey separate income (not including Income
from Branch)= P153,000 - P55,000 =
Income from Branch
Plus: Deferred gain on land
Plus: Piecemeal recognition of gain on equipment
sale: P35,000 gain/4 years =
P 98,000
20,000
50,000
8,750
P176,750
Problem XIII
Quail Corporation and Subsidiary
Consolidated Income Statement
for the year ended December 31, 20x5
Sales
Gain on land (P20,000 + P25,000)
Cost of sales
Other expenses (see below)
Consolidated Net Income
NCI-CNI (see below)
1,100,000
45,000
560,000 )
320,000 )
265,000
20,000 )
245,000
(
(
P
(
P
Other expenses:
P265,000 + P60,000 - P5,000 piecemeal recognition of gain on
equipment
320,000
Non-controlling Interest in CNI:

Net income from Savannah x 20%: (P100,000 x 20%) =
20,000
Problem XIV refer to Problem IX

Problem XV refer to Problem X
Problem XVI
1.
E(1)
Gain on Sale of Land
Land
E(1)
Land
2.
10,000
10,000
10,000
10,000
E(1)
Gain on Sale of Land

Land
10,000
10,000

E(1)
Land
6,000
4,000
10,000
Problem XVII
1.
2.

E(1) Gain on Sale of Land
Land
45,000

E(1) Retained Earnings, January 1
Land
31,500
13,500
Eliminating entries, December 31, 20x4 and 20x5:

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

Less: Unrealized gain on sale of land
VVs realized operating income
Spawns realized net income
Income to non-controlling interest:
(P60,000 x .25)
(P40,000 X .25)
2.
20x5
P110,000
P110,000
40,000
P150,000
(15,000)
P110,000
(10,000)
P140,000
20x4
P 90,000
20x5
P110,000
35,000
P125,000
40,000
P150,000
Upstream sale of land:

VVs separate operating income
SSs net income
Less: Unrealized gain on sale of land
Spawns realized net income
Income to non-controlling interest:
(P35,000 x .25)
(P40,000 x .25)
P60,000
(25,000)
(8,750)
P116,250
(10,000)
P140,000
Problem XIX
1.
Consolidated net income for 20x4 will be greater than PP Company's income from operations
plus SS's reported net income. The eliminating entries at December 31, 20x4, will result in an
increase of P16,000 to consolidated net income.
2.
As a result of purchasing the equipment at less than Parent's book value, depreciation expense
reported by SS will be P2,000 (P16,000 / 8 years) below the amount that would have been
recorded by PP. Thus, depreciation expense must be increased by P2,000 when eliminating
entries are prepared at December 31, 20x5. Consolidated net income will be decreased by the
full amount of the P2,000 increase in depreciation expense.
Problem XX
1.
E(1)
Loss on Sale of Building
Eliminate unrealized loss on building.
2.
36,000
120,000
Consolidated net income and income to controlling

interest for 20x9:
Operating income reported by BB
Net income reported by TT
Add: Loss on sale of building
Realized net income of TT
Income to non-controlling interest (P51,000 x .30)
3.
156,000
P125,000
P 15,000
36,000
51,000
P176,000
(15,300)
P160,700
Eliminating entry, December 31, 20y0:

E(1)
Eliminate unrealized loss on building.
Amount paid by TT to acquire building
Amount paid by BB on intercompany sale
Depreciation expense recorded by TT
Company (P300,000 / 15 years)
Depreciation expense recorded by BB
156,000
4,000
124,000
25,200
10,800
P300,000
(144,000)
P156,000
P 20,000
P
(16,000)
4,000
P140,000
Amount reported by BB (P16,000 x 1 year)

Required adjustment
Adjustment to retained earnings, January 1, 20y0
Unrealized loss recorded, December 31, 20x9
Proportion of ownership held by BB
Required adjustment
Adjustment to Noncontrolling interest, January 1, 20y0
Unrealized loss recorded, December 31, 20x9
Proportion of ownership held by non-controlling
Interest
Required adjustment
4.
Consolidated net income and income assigned to

controlling interest in 20y0:
Operating income reported by BB
Net income reported by TT
Adjustment for loss on sale of building
Realized net income of TT
Income assigned to non-controlling interest
(P36,000 x .30)
Income assigned to controlling interest
(16,000)
P124,000
P36,000
x
.70
P25,200
P36,000
x
.30
P10,800
P150,000
P40,000
(4,000)
36,000
P186,000
(10,800)
P175,200
Problem XXI
Requirements 1 to 4

Consideration
transferred..
80%).
80%)...
value)..
liabilities:
80%)
80%).
80%).....
P
372,000
P 192,000
96,000
P 4,800
5,760
76,800
( 19,200)
3,840
288,000
P
84,000
80%)
cost over
fair
value)...
72,000
P
12,000
S Co.
Book
value
S Co.
Fair
value
(Over)
Under
Valuation
P
24,000
48,000
84,000
168,000
P
Inventory...
30,000
Land
55,200
180,000
Buildings (net)
144,000
(
Bonds payable (120,000) 115,200)
P
P
Net..
204,000 294,000
6,000
7,200
96,000
(24,000)
4,800
P 90,000
Equipment..................
Less: Accumulated
depreciation..
Net book
value...
Buildings................
Less: Accumulated
depreciation..
Net book
value...
S Co.
Book value
180,000
S Co.
Fair value
180,000
Increase
(Decrease)
0
96,000
( 96,000)
84,000
180,000
96,000
S Co.
Book value
360,000
S Co.
Fair value
144,000
(Decrease)
( 216,000)
1992,000
( 192,000)
168,000
144,000
24,000)
amortized
Inventory
Subject
to
Annual
Over/
Unde
r
P
6,000
Lif
e
1
Annu
al
Current
Amou Year(20x
nt
4)
P
6,000 P 6,000
20x5
P
-
Amortization
Buildings (net)
96,00
0
(24,0
00)
Bonds payable
4,800
8
4
4
12,000
(
6,000)
1,200
P
13,200
12,000
( 6,000)
1,200
P 13,200
12,00
0
(6,00
0)
1,200
P
7,200

x 100%)
liabilities
(P90,000 x 100%)
fair value)...
P 372,000
93,000
P 465,000
__360,000
P 105,000
90,000
P
15,000
Value
P12,00
0
3,000
P15,000
% of
Total
80.00%
20.00%
100.00%
Value
P
or controlling
3,000
Interest
750
Goodwill
% of
Total
80.00%
20.00%
100.00%
The unrealized and gain on intercompany sales for 20x4 are as follows:
Date
of
Sale
Seller
4/1/20 P
x4
1/2/20 S
x4
Selling Book
Price Value
P90,0
00
P75,0
00
60,00
0
28,80
0
Unrealize
d*
Gain on
sale
P15,000
31,200
Remaini
Realized
ng
gain
Life
depreciatio
n**
5 years P3,000/year
8 years
P3,900/year
20x4
P2,2
50
P3,9
00
* selling price less book value

* * unrealized gain divided by remaining life; 20x4 P2,500 x 9/12 = P1,875
The following summary for 20x4 results of operations is as follows:
Sales
Gross profit
P Co.
S Co.
P
480,000
204,000
P
240,000

Other expenses
P
276,000
60,000
48,000
Add: Gain on sale of equipment
P
168,000
15,000

operations
P
183,000
24,810
Net income
P
207,810
138,000
P
102,000
24,000
18,000
P
60,000
31,200
P
91,200
P 91,200

January 1, 20x4:
(1)
Investment
in
Company
S 372,000
Cash..
372,000
(2) Cash
28,800
28,800
December 31, 20x4:

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

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

December 31, 20x4:
To adjust inv estment income for downst ream sales - unrealized gain on sale of
equipment ..
December 31, 20x4:
To adjust inv estment income for upstream sales - unrealized gain on sale of
equipment ..
December 31, 20x4:
(7) Inv estment in S Company
Inv estment income (P2,250 x 100%)
To adjust inv estment income for downstream sales - realized gain on sale of
equipment..
December 31, 20x4:
To adjust inv estment income for upstream sales - realized gain on sale of
equipment..
15,000
24,960
2,250
3,120
15,000
24,960
2,250
3,120
Cost, 1/1/x4
NI of Son
(91,200 x 80%)
Realized gain downstream sale
Realized gain upstream sale
Balance, 12/31/x4
Amortization &
impairment
Unrealized gain downstream sale
Unrealized gain upstream sale
Inv estment in S
372,000 28,800
72,960
2,250
3,120
368,010
13,560
15,000
24,960
Inv estment Income

13,560
15,000
24,960
72,960
2,250
3,120
24,810

Amortization &
impairment
NI of S
(91,200 x 80%)
Balance, 12/31/x4
(E1)
Common
stock
Co
Retained
earnings
Co
Investment
in
Co
Non-controlling
interest
(P360,000
20%)..
240,000
120,000
288,000
72,000

acquisit ion.
(E2)
6,000
Inventory.
96,000
192,000
7,200
Land.
Discount
on
bonds
4,800
payable.
12,000
Goodwill.
Buildings..
216,000
Non-controlling
interest
(P90,000
x
18,000
20%)..
Investment
in
S
84,000
Co.

Accumulated
depreciation
buildings..
Interest expense
Goodwill
impairment
loss.
Inventory..
Accumulated
depreciation
equipment..
6,000
6,000
6,000
1,200
3,000
6,000
12,000
1,200
Goodwill
3,000

Inv entory sold

Equipment
Buildings
Bonds payable
Totals
Cost of
Goods
Sold
P 6,000
_______
P 6,000
Depreciation/
Amortization
Expense
Amortization
-Interest
P 12,000
( 6,000)
_______
P 6,000
P 1,200
P1,200
Total
14,400

Non-controlling
interest
(P36,000
20%)..
Dividends paid S
24,810
3,990
7,200
36,000

follows:
Inv estment in S
NI of S
28,800 Div idends - S
(91,200
Amortization &
x 80%). 72,960 13,560
impairment
Realized gain* 2,250 15,000 Unrealized gain *
Realized gain** 3,120 24,960 Unrealized gain **
3,990
Inv estment Income

Amortization
impairment
13,560
Unrealized gain * 15,000
Unrealized gain * * 24,960
NI of S
(91,200
72,960
x 80%)
2,250 Realized gain*
3,120
Realized gain**
24,810
* downst ream sale (should be mult iplied by 100%)

* * upst ream sale (should be mult iplied by 80%)
Cost, 1/1/x4
NI of S
(91,200 x 80%)
Balance, 12/31/x4
and div idends
Inv estment in S
372,000
28,800
72,960
2,250
3,120
368,010
3,990
372,000
13,560
15,000
24,960
288,000
84,000

Amortization &
impairment
372,000

Equipment
15,000
30,000
45,000

Equipment
31,200
12,000
43,200


2,250
2,250

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

3,900
3,900

(P26,000/85 years x 1 year = P3,250).

Subsidiary
10,140
10,140

(upstream sales)
separate operations
partial goodwill
P 91,200
( 31,200)
3,900
P 63,900
13,200
P 50,700
20%
P
10,140

Income Statement
Sales
P Co
P480,000
15,000
S Co.
P240,000
31,200
Inv estment income

Total Rev enue
Cost of goods sold
24,810
P519,810
P204,000
P271,200
P138,000
60,000
Interest expense
Other expenses
48,000
-
Dr.
Cr.
(5) 15,000
(6) 31,200
(4) 28,800
(3)
6,000
24,000
(3)
6,000
18,000
-
(3)
1,200
(3)
3,000
(7)
2,250
(8)
3,900
Consolidated
P 720,000
_________
P 720,000
P 348,000
83,850
1,0200
66,000
3,000

Net Income
P312,000
P207,810
P207,810

P Company
S Company
Total
Div idends paid
P Company
S Company
Sheet
Balance Sheet
Cash.
Inv entory.
Land.
Equipment
- equipment
10,140
P 360,000
207,810
P567,810
72,000
-
36,000
P495,810
P175,200
P 495,810
232,800
90,000
120,000
210,000
240,000
P 90,000
60,000
90,000
48,000
180,000
P 322,800
150,000
210,000
265,200
720,000
540,000
P1,980,810
P1,008,000
P 135,000
P 96,000
405,000
288,000
105,000
240,000
600,000
88,800
120,000
495,810
_________
P1,980,810
(1) 120,000
(4)
36,000
(2)
6,000 (3) 5,000
(2)
7,200
(5) 30,000
(6) 12,000
(2) 216,000
(2)
4,800 (3) 1,200
(2) 12,000 (3) 3,000
(1) 288,000
(2) 84,000
72,000
________
462,000
1,044,000
3,600
9,000
P2,466,600
(2) 96,000 (3) 12,000

(7) 2,250 (5) 45,000
(8)
3,900 (6) 43,200
(2) 192,000
(3)
6,000
240,000 (1) 240,000

175,200
(4) 7,200
_________
P1,008,000
207,810
P567,810
__________
P 840,690
P229,050
495,000
193,800
360,000
600,000
495,810
(1 ) 72,000
(2) 18,000
(9) 10,140
P 840,690
92,940
P2,466,600
P Co.
Sales
Gross profit
Other expense
Net
502,050
217,950
10,140)
207,810
P120,000
91,200
P211,200
368,010
- buildings
Accounts payable
Bonds payable
Total
(9)
P
P
(
P
P360,000
Buildings
Goodwill
Inv estment in S Co
Total
P180,000
P 91,200
P 91,200
income from its own separate
P
540,000
216,000
P
324,000
60,000
72,000
P
S Co.
P
360,000
192,000
P
168,000
24,000
54,000
P
operations
192,000
72,360
Net income
P
264,360
P
72,000
Dividends paid
90,000
P
90,000
P
48,000

(2) Cash
80%).
38,400
38,400
December 31, 20x5:

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

5,760
5,760

December 31, 20x4:
To adjust inv estment income for downstream sales - realized gain on
sale of equipment.
December 31, 20x4:
To adjust inv estment income for upstream sales - realized gain on
sale of equipment..
3,000
3,120
3,000
3,120
Cost, 1/1/x5
NI of Son
(90,000 x 80%)
Balance, 12/31/x5
Inv estment in S
368,010 38,400
5,760
72,000
3,000
3,120
401,970

Inv estment Income

5,760
NI of S
72,000
3,000
3,120
72,360
(90,000 x 80%)
Balance, 12/31/x5
(E1)
Common
stock
S
Co
Retained
earnings
S
Co,
1/1/x5.
Non-controlling
interest
(P415,200
x
20%)..
240,000
175,200
332,160
83,040


P12,000)
P6,000)
6,000
Land.
3,600
Goodwill (P12,000 P3,000)..
9,000
Buildings..
180,000
15,360
Investment
in
Son
70,440
Co.

Accumulated
depreciation
buildings..
Interest expense
Accumulated
depreciation
equipment..
Discount
on
bonds
payable
Depreciation/
Amortization
Expense
Amortization
-Interest
Total
6,000
6,000
1,200
12,000
1,200
Inv entory sold

Equipment
Buildings
Bonds payable
Totals
P 12,000
( 6,000)
_______
P 6,000
P 1,200
P1,200
P7,200

Non-controlling
interest
(P48,000
20%)..
Dividends paid S
72.360
9,600
48,000
33,960

follows:
Inv estment in S
NI of S
38,400
Div idends S
(90,000
Amortization
x 80%). 72,000
5,760
(P7,200 x 80%)
Realized gain* 3,000
Realized gain** 3,120
33,960
Inv estment Income

NI of S
Amortization
(90,000
(P7,200 x 80%)
5,760 72,000
x 80%)
3,120 Realized gain**
72,360

(E5) Investment in S Company

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


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

(E7) Accumulated depreciation equipment

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

(E8) Accumulated depreciation- equipment..

7,800
3,900
3,120
780

(P31,200/85 years x 1 year = P3,900).

Subsidiary
17,340
17,340

P 90,000
3,900
P 93,900
( 7,200)
P 86,700
20%
P 17,340

P Co
P540,000
72,360
P612,360
P216,000
Income Statement
Sales
Inv estment income
Total Rev enue
Cost of goods sold
Interest expense
Other expenses
Net Income
P Company
S Company
Total
Div idends paid
P Company
S Company
Sheet
Balance Sheet
Cash.
Inv entory.
Land.
Equipment
Dr.
(4)
Cr.
72,360
(7)
3,000
(8)
3,900
Consolidated
P 900,000
___________
P 900,000
P 408,000
83,100
60,000
24,000
(3)
6,000
72,000
P348,000
P264,360
P264,360
54,000
P270,000
P 90,000
P 90,000
(3)
1,200
(1) 175,200
_264,360
P760,170
P 175,200
90,000
P265,200
72,000
-
48,000
P688,170
P217,200
P 688,170
265,200
180,000
216,000
210,000
240,000
P 102,000
96,000
108,000
48,000
180,000
P 367,200
276,000
324,000
265,200
462,000
P495,810
S Co.
P360,000
P360,000
P192,000
P
P
(
P
(9) 17,340
1,200
126,000
618,300
281,700
17,340)
264,360
P495,810
264,360
P 760,170
(5)
(2)
(5)
7,200
30,000
48,000
72,000
________
Buildings
Goodwill
Inv estment in Son Co
Total
- equipment
- buildings
Accounts payable
Bonds payable
Total
720,000
540,000
(2)
(2)
(5)
(6)
401,970
P2,233,170
P1,074,000
P 150,000
P 102,000
450,000
306,000
105,000
240,000
600,000
88,800
120,000
688,170
(6)
240,000
217,200
_________
P1,074,000
(2) 216,000
3,600 (3) 1,200
9,000
15,000 (1) 332,160
24,960 (2) 70,440
(4) 33,960
(7) 2,250
(8) 3,120
(2) 84,000
(7) 5,250
(8) 7,800
(2) 198,000
(3)
6,000
(3)
(5)
(6)
12,000
45,000
43,200
1,044,000
2,400
9,000
P2,749,800
P 255,150
552,000
193,800
360,000
600,000
(1) 240,000
688,170
(4)
(6)
___ _____
P2,233,170
12,000
9,600
6,240
__________
P 930,750
(1) 69,200
(2) 15,360
(8)
780
(9) 17,340
P 930,750
____100,680
P2,749,800
5 and 6. Refer to Problem V for computations

Problem XXII
Requirements 1 to 4

(80%)..
(20%)..
Son:
100%).
100%)...
value)..
liabilities:
P
372,000
93,000
P
465,000
P 240,000
120,000
360,000
P
105,000

100%)
100%).
100%).....
100%)
over
fair
value)...
6,000
7,200
96,000
( 24,000)
4,800
90,000
P
15,000
Over/
amortized
r
P
Inventory
6,000
Subject
to
Annual
Amortization
96,00
0
(24,0
Buildings (net)
00)
Bonds payable
4,800
Lif
e
1
8
4
4
Annu
al
Current
Amou Year(20x
nt
4)
P
6,000 P 6,000
20x5
P
-
12,000
(
6,000)
12,00
0
(6,00
0)
1,200
P
13,200
12,000
( 6,000)
1,200
P 13,200
The following summary for 20x4 results of operations is as follows:
Sales
Gross profit
Other expenses
P Co.
S Co.
P
480,000
204,000
P
240,000
P
276,000
60,000
48,000
P
138,000
P
102,000
24,000
18,000
P
1,200
P
7,200
Add: Gain on sale of equipment
168,000
15,000

operations
P
183,000
24,810
Net income
P
207,810
60,000
31,200
P
91,200
P 91,200

January 1, 20x4:
(1)
Investment
in
Company
S 372,000
372,000
Cash..

(2) Cash
December 31, 20x4:

28,800
28,800
72,960
72,960
December 31, 20x4:

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

buildings and bonds payable and goodwill impairment loss.
December 31, 20x4:

To adjust inv estment income for downst ream sales - unrealized gain
on sale of equipment ..
December 31, 20x4:
To adjust inv estment income for upstream sales - unrealized gain on
sale of equipment ..
December 31, 20x4:
15,000
24,960
2,250
15,000
24,960

sale of equipment..
December 31, 20x4:
sale of equipment..
2,250
3,120
3,120
Thus, the investment balance and investment income in the books of Perfect Company is as follows:
Cost, 1/1/x4
NI of Son
(91,200 x 80%)
Balance, 12/31/x4
Amortization &
impairment
Inv estment in S
372,000 28,800
72,960
2,250
3,120
368,010
13,560
15,000
24,960
Inv estment Income

13,560
15,000
24,960
72,960
2,250
3,120
24,810

Amortization &
impairment
NI of S
(76,000 x 80%)
Balance, 12/31/x4
(E1)
Common
stock
Co
Retained
earnings
Co
Investment
in
Co
Non-controlling
interest
(P360,000
20%)..
240,000
120.000
288,000
72,000

acquisit ion.
(E2)
6,000
Inventory.
96,000
192,000
7,200
Land.
Discount
on
bonds
4,800
payable.
15,000
Goodwill.
Buildings..
216,000
Non-controlling interest (P90,000 x 20%) + [(P15,000 full
21,000

Investment
in
Co.
84,000


Accumulated
depreciation
buildings..
Interest expense
Goodwill
impairment
loss.
6,000
6,000
6,000
1,200
3,750
6,000
Inventory..
Accumulated
depreciation
equipment..
Goodwill
12,000
1,200
3,750

Inv entory sold

Equipment
Buildings
Bonds payable
Totals
Cost of
Goods
Sold
P 6,000
_______
P 6,000
Depreciation/
Amortization
Expense
Amortization
-Interest
P 12,000
( 6,000)
_______
P 6,000
P 1,200
P1,200

Non-controlling
interest
(P36,000
20%)..
Dividends paid S
Total
14,400
24,810
3,990
7,200
36,000

follows:
Inv estment in S
NI of S
28,800 Div idends - S
(91,200
Amortization &
x 80%). 72,960 13,560
impairment
Realized gain* 2,250 15,000 Unrealized gain *
Realized gain** 3,120 24,960 Unrealized gain **
3,990
Inv estment Income

Amortization
impairment
13,560
Unrealized gain * 15,000
Unrealized gain * * 24,960
72,960
2,250
3,120
24,810
NI of S
(91,200
x 80%)
Realized gain*
Realized gain**
Cost, 1/1/x4
NI of S
(91,200 x 80%)
Balance, 12/31/x4
and div idends
Inv estment in S
372,000
28,800
72,960
2,250
3,120
368,010
3,990
372,000
13,560
15,000
24,960
288,000
84,000

Amortization &
impairment
372,000

Equipment
15,000
30,000
45,000


Equipment
31,200
12,000
43,200


2,250
2,250

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

3,900
3,900

(P31,120/85 years x 1 year = P3,900).

Subsidiary

(upstream sales)
P 91,200
( 31,200)
3,900
9,390
9,390

separate operations
partial goodwill
full goodwill
P 63,900
13,200
P 50,700
20%
P
10,140
750
P
9,390

Income Statement
Sales
P Co
P480,000
15,000
S Co.
P240,000
31,200
Inv estment income

Total Rev enue
Cost of goods sold
24,810
P519,810
P204,000
P271,200
P138,000
60,000
48,000
P312,000
P207,810
P207,810
Interest expense
Other expenses
Net Income
P Company
S Company
Total
Div idends paid
P Company
S Company
Sheet
Balance Sheet
Cash.
Inv entory.
Land.
Equipment
Buildings
Goodwill
Inv estment in S Co
Total
Cr.
Consolidated
P 720,000
(5) 15,000
(6) 31,200
(4) 28,800
_________
P 720,000
P 348,000
83,850
(3)
6,000
24,000
(3)
6,000
18,000
P180,000
P 91,200
P 91,200
(3)
1,200
(3)
3,750
(9)
9,390
(1) 120,000
207,810
P567,810
P120,000
91,200
P211,200
72,000
-
36,000
P495,810
P175,200
P 495,810
232,800
90,000
120,000
210,000
240,000
P 90,000
60,000
90,000
48,000
180,000
P 322,800
150,000
210,000
265,200
720,000
540,000
P360,000
Dr.
368,010
P1,980,810
P1,008,000
(7)
2,250
(8)
3,900
1,200
66,000
3,750
P 502,800
P 217,200
( 9,390)
P 207,810
P 360,000
207,810
P 567,810
(4)
36,000
(2)
6,000 (3) 6,000
(2)
6,000
(5) 30,000
(6) 12,000
(2) 216,000
(2)
4,800 (3) 1,200
(2) 15,000 (3) 3,750
(1) 288,000
(2) 84,000
72,000
________
462,000
1,044,000
3,600
11,250
P2,468,850
- equipment
P 135,000
P 96,000
405,000
288,000
105,000
240,000
600,000
88,800
120,000
- buildings
Accounts payable
Bonds payable
Total
495,810
240,000
175,200
(2) 96,000
(7) 2,250
(8) 3900
(2) 192,000
(3) 6,000
_________
P1,008,000
Second Year after Acquisition
Sales
P229,050
495,000
193,800
360,000
600,000
(1) 240,000
(4)
_________
P1,980,810
(3) 12,000
(5) 45,000
(6) 43,200
7,200
__________
P 843,690
495,810
(1 ) 72,000
(2) 21,000
(9) 9,390
P 843,690
____95,190
P2,468,850
Perfect
Co.
P
540,000
Son Co.
1216,000
P
324,000
60,000
72,000
192,000
P
168,000
24,000
P
360,000

Gross profit
Other expense
operations
P
192,000
72,360
Net income
P
264,360
P
72,000
Dividends paid
54,000
P
90,000
P
90,000
P
48,000


(2) Cash
80%).
38,400
38,400
December 31, 20x5:

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

5,760
5,760

December 31, 20x4:
sale of equipment..
December 31, 20x4:
sale of equipment..
3,000
3,120
3,000
3,120
Thus, the investment balance and investm ent income in the books of P Company is as follows:
Cost, 1/1/x5
NI of S
(90,000 x 80%)
Balance, 12/31/x5
Inv estment in S
368,010 38,400
5,760
72,000
3,000
3,120
401,970

Inv estment Income

5,760
NI of S
72,000
(90,000 x 80%)
3,000
3,120
72,360
Balance, 12/31/x5

240,000
Retained earnings S Co, 1/1/x5.
175.200
332,160
Non-controlling
interest
(P415,200
x
83,040
20%)..

P12,000)
P6,000)
7,200
Land.
3,600
Goodwill (P15,000 P3,900)..
11,250
Buildings..
216,000
impairment

or (P3,750 x 20%)]
Investment
in
Co.
17,610
S
70,440

might be situations where t he NCI on goodwill impairment loss would not be proportionate to NCI acquired (refer t o Illust rat i on
15-6).

Accumulated
depreciation
buildings..
Interest expense
Accumulated
depreciation
equipment..
Discount
on
bonds
payable
6,000
6,000
1,200
12,000
1,200
Inv entory sold

Equipment
Buildings
Bonds payable
Totals
Depreciation/
Amortization
Expense
Amortization
-Interest
P 12,000
( 6000)
_______
P 6,000
P 1,200
P1,200
Total
P7,,200

Non-controlling
interest
(P48,000
20%)..
Dividends paid S
72,360
9,600
48,000
33,960

follows:
Inv estment in S
NI of S
38,400
Div idends S
(90,000
Amortization
x 80%). 72,000
5,760
(P72,000 x 80%)
Realized gain* 3,000
Realized gain** 3,120
33,960
Inv estment Income

NI of S
Amortization
(75,000
(P7,200 x 80%)
5,760 72,000
x 80%)
3,120 Realized gain**
72,360

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


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

(E7) Accumulated depreciation equipment

..
year)
5,250
3,000
2,250

(E8) Accumulated depreciation- equipment..

7,800
3,900
3,120
780

(P31,200/85 years x 1 year = P3,900).

Subsidiary
partial goodwill
full goodwill
P 90,000
3,900
P 93,900
( 7,200)
P 86,700
20%
P 17,340
0
P 17,340
17,340
17,340

Income Statement
Sales
Inv estment income
Total Rev enue
Cost of goods sold
Interest expense
Other expenses
Net Income
P Company
S Company
Total
Div idends paid
P Company
S Company
Sheet
Balance Sheet
Cash.
Inv entory.
Land.
Equipment
Buildings
Goodwill
Inv estment in S Co
Total
- equipment
- buildings
Accounts payable
Bonds payable
P Co
P540,000
72,360
P612,360
P216,000
S Co.
P360,000
P360,000
P192,000
(4)
60,000
24,000
(3)
6,000
72,000
P348,000
P264,360
P264,360
54,000
P270,000
P 90,000
P 90,000
(3)
1,200
(1) 175,200
_264,360
P760,170
P 175,200
90,000
P265,200
72,000
-
48,000
P688,170
P217,200
P 688,170
265,200
180,000
216,000
210,000
240,000
P 102,000
96,000
108,000
48,000
180,000
P 367,200
276,000
324,000
265,200
720,000
540,000
P495,810
Dr.
P2,233,170
P1,074,000
P 150,000
P 102,000
450,000
306,000
105,000
240,000
600,000
88,800
120,000
240,000
72,360
(7)
3,000
(8)
3,900
Consolidated
P 900,000
___________
P 900,000
P 408,000
83,100
P
P
(
P
(9) 17,340
1,200
126,000
618,300
281,700
17,340)
264,360
P495,810
264,360
P 760,170
(5)
(2)
(5)
(6)
(2)
(2)
(5)
(6)
401,970
Cr.
48,000
7,200
30,000
12,000
(2) 216,000
3,600 (3) 1,200
11,250
15,000 (1) 332,160
24,960 (2) 70,440
(4) 33,960
(7) 2,250
(8) 3,120
(2) 84,000
(7) 5,250
(8) 7,800
(2) 198,000
(3)
6,000
(1) 240,000
(3)
(5)
(6)
12,000
45,000
43,200
72,000
________
462,000
1,044,000
2,400
11,250
P2,752,050
P 255,150
552,000
193,800
360,000
600,000

Total
688,170
217,200
___ _____
P2,233,170
_________
P1,074,000
(4)
(6)
9,600
6,240
__________
P 933,000
(1) 83,040
(2) 17,610
(8)
780
(9) 17,340
P 933,000
688,170
____102,930
P2,752,050
5 and 6. Refer to Problem VI for computations

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

Unrealized gain on sales of equipment (upstream sales)
(P15,000 / 5 years)
Total
P 55,000
(15,000)
3,000
P 45,000
45,000
P143,000
0
P143,000
18,000
P125,000
Or, alternatively

(P15,000 / 3 years)
Total
P 98,000
___0
P 98,000
P 55,000
(15,000)
5,000
P 45,000
45,000
P143,000
P 18,000
____0
18,000
P125,000
_ 18,000
P143,000
P 55,000
( 15,000)
5,000
P 45,000
0
P 45,000
40%
P 18,000
0
P 18,000
10. a
11. a
12.
Combined equipment amounts

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

Less: Depreciation on gain
Consolidated Accumulated Depreciation
P 250,000
5,000
P 245,000
Incomplete data - It should be noted that PAS 27 allow the use of cost model in accounting for
investment in subsidiary in the books of parent company but not the equity method. Since, the
cost model is presumed to be the method used and there is no avai lable data for dividends
paid/declared by Cliff therefore, the requirement cannot be properly addressed.
The requirement and available choices in the problem are on the assumption of the use of
equity method. So, the answer then would be (c) computed as follows:
Cliff reported income
Less: Intercompany gain on truck
Plus: Piecemeal recognition of gain = P45,000/10
years
Cliffs adjusted income
Majority percentage
Income from Cliff
P225,000
45,000
Combined building amounts

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

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

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

Selling price
Less: Book v alue
Gain
17.
S (Nectar)
P 50,000
_30,000
P 20,000
P (Lorikeet)
P 110,000
__50,000
P 60,000
Consolidated
P 110,000
_30,000
P 80,000
No answer available No effect. It should be noted that PAS 27 allow the use of cost model in
accounting for investment in subsidiary in the books of parent company but not the equity
method.
The requirement and available choices in the problem are on t he assumption of the use of
P30,000 - (1/4 x P30,000) =
P 22,500
18. b
Unrealized gain on sales of equipment (upstream sales) (P700,000 P600,000)
Realized gain on sale of equipment (upstream sales) through depreciation (P100,000/10)
P2,000,000
( 100,000)
10,000
P1,910,000
_
0
P1,910,000
__40%
P 764,000
__
0
P 764,000
19. d
20x4
( 90,000)
Unrealized gain on sales of equipment (downstream sales)

P90,000 / 10 years
Net
___9,000
( 81,000)
20x5
-09,000
9,000

Selling price
Less: Book v alue: Cost
P2,000,000
Accumulated ___200,000
Unrealized gain on sale of
equipment
Realized Gain depreciation
(P180,000/9 x 6 yrs)
Net unrealized gain, 1/1/20x9
Gain on sale
* P1,980,000/ 9 x 6 years = P1,320,000
* * P1,800,000/9 x 6 years = P1,200,000
S
P1,980,000
1,800,00
P
P1,440,000
P1,980,000
* 1,320,000
Consolidated
P1,440,000
P 1,800,000
* * 1,200,000
660,000
P 180,000
120,000
P 60,000
P 60,000
P 780,000
P 840,000
21. a
22. b
Eliminating entries:
Restoration of BV and eliminate unrealized gain
Gain
Land
50,000
50,000
Subsidiary
Cash
Land
Gain
23.
__600,000
Parent
xxx
xxx
50,000
Land
Cash
xxx
xxx
The requirement and available choices in the problem are on the assumption of the use of equity
method. So, the answer then would be (d) (P60,000 P48,000)/4 years = P3,000
24. d (P100,000 + P50,000 = P150,000)

Selling price
Less: Book v alue
Consolidated
Gain
P 100,000
50,000
P 150,000
25. d the entry under the cost model would be as follows ;

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

P150,000 / 10 years
Net
20x5
-0-
___15,000
( 135,000)
15,000
15,000

Selling price
Less: Book v alue : Cost
Accumulated
Unrealized gain on sale of
equipment
(P90,000/9 x 4 yrs)
Net unrealized gain, 1/1/20x8
Gain on sale
* P990,000/ 9 x 4 years = P440,000
* * P900,000/9 x 4 years = P400,000
28.
S
P 990,000
P1,000,000
100,000
__900,00
P
P720,000
P990,000
* 440,000
550,000
Consolidated
P 720,000
P 900,000
* * 400,000
__500,000
P 90,000
40,000
P 50,000
P 50,000
__________
P 170,000
___________
P 220,000
The requirement equity from subsidiary income and available choices in the problem are on
the assumption of the use of equity method. So, the answer then would be (c) computed as
follows:
20x4
720,000
( 144,000)
Share in subsidiary net income (900,000 x 80%)

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

Add: Additional depreciation (P1,100,000 P100,000) / 20 years
P 250,000
____50,000
P 300,000
35. c
Selling price unrelated party
Less: Original Book v alue, 12/31/20x5
Book v alue, 1/1/20x4
Less: Depreciation for 20x4 and 20x5: P20,000/4 years x 2 years
P 14,000
P20,000
10,000
10,000
P 4,000
36. b at its original cost or book value.

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

39.
The requirement equity from subsidiary income and available choices in the problem are on the
assumption of the use of equity method. So, the answer then would be (c) computed as follows:
Unrealized gain on sale of equipment (upstream sales): 120,000 x 80%
P120,000 / 5 years = P24,000 x 80%
Net
40.
20x4
480,000
( 96,000)
___19,200
403,200
P40,000
Depreciation expense recorded by Pirn
Depreciation expense recorded by Scroll
Total depreciation reported
Adjustment for excess depreciation charged
by Scroll as a result of increase in
carrying value of equipment due to gain
on intercompany sale (P12,000 / 4 years)
Depreciation for consolidated statements
10,000
P50,000
(3,000)
P47,000
41.
When only retained earnings is debited, and not the non-controlling interest, a gain
has been recorded in a prior period on the parent's books.
42.
The costs incurred by BB to develop the equipment are research and development
costs and must be expensed as they are incurred. Transfer to another legal entity
does not cause a change in accounting treatment within the economic entity.
43.
The P39,000 paid to GG Company will be charged to depreciation expense by TLK

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

Reported gain on sale of equipment
Intercompany profit realized in 20x6
Realized net income of GG Company
Proportion of stock held by
non-controlling interest
Income assigned to non-controlling interests
46.
47.
48.
49.
50.
P 45,000
P15,000
(5,000)
(10,000)
P 35,000
x
.40
P 14,000
Operating income reported by TLK Corporation

Net income reported by GG Company
P 85,000
45,000
P130,000
Less: Unrealized gain on sale of equipment

(P15,000 - P5,000)
(10,000)
P120,000
d
a
b
a the amount of land that will be presented in the presented in the CFS is the original cost of
P416,000 + P256,000 = P672,000.
51. e
Depreciation expense:
Parent
P 84,000
Subsidiary
60,000
Total
P144,000
Less: Over-depreciaton due to realized gain:
[P115,000 (P125,000 P45,000)] = P35,000/8 years
__ 4,375
P139,625
52. c
Net
Selling price
Less: Book v alue, 1/1/20x6
Cost, 1/1/20x2
20x6
( 56,000)
___7,000
( 49,000)
P 392,000
P420,000
Less: Accumulated depreciation: P420,000/10 years x 2 years

Realized gain depreciation: P56,000/8 years
84,000
53. b
12/31/20x5: date of acquisition
Equipment
Gain
10,000
150,000
160,000
Parent Books Mortar

Cash
Accumulat ed depreciat ion
Equipment
Gain
336,000
P 56,000
P 7,000
Subsidiary Books Granite
390,000
160,000
Equipment
Cash
390,000
390,000
400,000
150,000
Mortar
Selling price
Cost, 1/1/20x2
Less: Accumulated depreciation : P400,000/10 years x 4 years
P390,000
P400,000
160,000
54. a refer to No. 53 for computation

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

Cash
Equipment
Gain
350,000
120,000
Subsidiary Books - Granite

400,000
70,000
Equipment
Cash
350,000
350,000
Mortar
Selling price
Cost, 1/1/20x2
P350,000
P400,000
120,000
59. a - refer to No. 58 for computation

60. b
P700,000 / 7 years or P50,000 P40,000
Should be in CFS Parent Books Mortar
(P400,000 / 10 years)
Acc. Depreciation
40,000
40,000
10,000
10,000
Recorded as Subsidiary Books - Granite
(P350,000 / 7 years)
Acc. depreciation
Equipment
Retained earnings (70,000 10,000)
Accumulated depreciation (P120,000 P10,000)
61. b - refer to No. 60 for computation
62. c - refer to No. 60 for computation
280,000
P 70,000
P 10,000
50,000
50,000
50,000
60,000
110,000
63. a
Unrealized loss on sale of equipment (upstream sales)
Realized loss on sale of equipment (upstream sales) through depreciation
none, since the date of sale is end of the year
Total
Selling price
Cost, 1/1/20x4
Unrealized loss on sale of equipment
Realized loss depreciation: P20,000/4 years
P 140,000
___0
P 140,000
P 30,000
20,000
(
0)
P 50,000
50,000
P190,000
0
P190,000
15,000
P175,000
P180,000
P500,000
300,000
200,000
P( 20,000)
P( 5,000)
Or, alternatively

Total
P 30,000
20,000
(
0)
P 50,000
P 15,000
____0
P 140,000
___0
P 140,000
50,000
P190,000
15,000
P175,000
_ 15,000
P190,000

P 30,000
20,000
(
0)
P 50,000
0
P 50,000
30%
P 15,000
0
P 15,000

64. b
Consolidated Net Income for 20y0
Total
equity holders of parent 20y0..
P 162,000
___0
P 162,000
P 45,000
( 5,000)
P 40,000
40,000
P202,000
0
P202,000
7,500
P194,500
Or, alternatively

Total
* * Non-controlling Interest in Net Income (NCINI) for 20y0
P 162,000
___0
P 162,000
P 45,000
( 5,000)
P 40,000
P 7,500
____0
40,000
P202,000
7,500
P194,500
_ _ 7,500
P202,000
P 30,000
( 5,000)
P 25,000
0
P 25,000
30%
P 7,500

0
7,500
65. d the original cost of land

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

Unrealized loss on sale of equipment (upstream sales) S3
Unrealized gain on sale of equipment (upstream sales) S2
Unrealized gain on sale of equipment (upstream sales) - S1
S Companys realized net income from separate operations*
Total
Less: Non-controlling Interest in Net Income* * (P23,000 + P5,400 + P7,200)
* * Non-controlling Interest in Net Income (NCINI)
S Companys net income of Subsidiary Company from its own
operations (Reported net income of S Company)
Unrealized (gain) loss on sale of land (upstream sales)
Less: NCI on goodwill impairment loss on full-goodwill
P 200,000
___0
P 200,000
P100,000
70,000
95,000
15,000
( 52,000)
( 23,000)
P205,000
P 35,600
____0
_ 35,600
P369,400
_ _35,600
P405,000
S3
P 100,000
15,000
P 115,000
0
P 115000
20%
P 23,000
0
205,000
P405,000
S2
P
70,000
( 52,000)
P 18,000
0
P 18,000
30%
P
5,400
0
S1
P 95,000
( 23,000)
P 72,000
0
P 72,000
10%
P 7,200
0
P 23,000
68. d
Building
Gain
Parent Books Sky
Cash
Building
Gain
5,400
7,200
3,000
8,250
11,250
Subsidiary Books - Earth
33,000
11,250
Building
Cash
33,000
33,000
36,000
8,250
Sky, 7/1/20x4
Selling price
Cost, 1/1/20x2
Less: Accumulated depreciation : P36,000/8years x 2.5 years
Realized gain depreciation: P8,250/5.5 years
P33,000
P36,000
11,250
69. a - refer to No. 60 for computation

70. b
Realized Gain depreciation (July 1, 20x4 December 31, 20x4)
P8,250 / 5.5 x years or P3,000 P2,250
Should be in CFS Parent Books Sky
(P24,750 / 5.5 x years)
Acc. Depreciation
71. c
24,750
P 8,250
P 1,500
750
750
Recorded as Subsidiary Books - Earth
2,250
2,250
(P33,000 / 5.5 years x yrs)
Acc. depreciation
3,000
3,000

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

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

77. c P19,500 / 9.75 years = P2,000
78. c P19,500 / 9.75 years = P2,000
79. It should be noted that PAS 27 allow the use of cost model in accounting for investment in
The requirement share of income from Wilson and available choices in the problem are on the
assumption of the use of equity method. So, the answer then would be (a) computed as
follows:
Unrealized gain on sale of equipment (downstream sales)
P2,000 x 9/12 (April 1, 20x4 December 31, 20x4) = P1,500
Net
20x4
90,000
( 19,500)
_ 1,500
72,000
assumption of the use of equity method. So, the answer then would be (b) computed as
follows:
20x5

Net
108,000
_ 2,000
110,000
assumption of the use of equity method. So, the answer then would be (d) computed as
follows:
20x6
117,000
_ 2,000
119,000

Net
82. c
Smeder, 1/1/20x4
Selling price
Cost, 1/1/20x4
Less: Accumulated depreciation
83.
P84,000
P120,000
__48,000
72,000
P12,000
P 2,000
assumption of the use of equity method. So, the answer then would be (b) computed as
follows:
Unrealized gain on sale of equipment (upstream sales); 12,000 x 80%
P2,000 x 80%
Net
84.
20x4
22,400
( 9,600)
_ 1,600
14,400
assumption of the use of equity method. So, the answer then would be (c) computed as
follows:
P2,000 x 80%
Net
20x5
25,600
_ 1,600
27,200
85. d
Equipment
Gain
36,000
12,000
48,000
Parent Smeder
Cash
Equipment
Gain
Subsidiary - Collins
84,000
48,000
120,000
12,000
Equipment
Cash
84,000
84,000
Smeder, 1/1/20x4
Selling price
Cost, 1/1/20x4
Less: Accumulated depreciation
P84,000
P120,000
__48,000
P12,000 / 6 years or P14,000 P12,000
Should be in CFS Parent Smeder
(P72,000 /6 years)
Acc. Depreciation
72,000
P12,000
P 2,000
2,000
2,000
Recorded as Subsidiary - Collins
12,000
12,000
(P84,000 / 6 years)
Acc. depreciation
14,000
14,000
Combining the eliminating entries for 1/1/20x4 and 12/31/200x4, the net effect of accumulated
depreciation would be a net credit of P46,000 (P48,000 P2,000).
86. c
Realized gain on sale of equipment through depreciation
Net
20x4
( 12,000)
___2,000
( 10,000)
87. d
Cash
Loss
5,000
5,000
Parent Stark
Cash
Loss
Land
Subsidiary - Parker
80,000
5,000
Land
Cash
85,000
85,000
85,000
Selling price
Stark
P 80,000
_85,000
P ( 5,000)
Parker
P 92,000
__80,000
P 12,000
88. b refer to No. 87 for eliminating entry

89. b
Cash
Retained earnings
Consolidated
P 92,000
_85,000
P 7,000
5,000
5,000
The requirement income from Stark and available choices in the problem are on the
assumption of the use of equity method. So, the answer then would be (e) computed as
follows:
20x4
180,000
_ 4,500
184,500

Unrealized loss on sale of land (upstream sales): P5,000 x 90%
Net
assumption of the use of equity method. So, the answer then would be (d) computed as
follows:
20x4
180,000
_ 4,500
184,500

Unrealized loss on sale of land (upstream sales): P5,000 x 90%
Net
92. b
Selling price
Stark
P 80,000
_85,000
P ( 5,000)
Parker
P 92,000
__80,000
P 12,000
Consolidated
P 92,000
_85,000
P 7,000
93. a refer to No. 92 for computation

94. e None, the loss was already recognized in the books of Stark in the year of sale - 20x4 but not in
the subsequent years.
assumption of the use of equity method. So, the answer then would be (c) computed as
follows:
20x6
198,000
_ ( 4,500)
193,500

Intercompany realized loss on sale of land (upstream sales): P5,000 x 90%
Net
96. d - Investment in subsidiary, 12/31/20x5 (cost model) P700,000).

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

Total
(30,000)
4,500
P 124,500
124,500
P390,375
3,000
P387,375
24,300
P363,075
Or, alternatively

(P35,000 P875)
Total

P 300,000
34,125
P 265,875
P 150,000
(30,000)
4,500
P 124,500
P 24,300
3,000
124,500
P390,375
27,300
P363,075
_ 24,300
P387,375
P 150,000
( 30,000)
4,500
P 124,500
3,000
P 121,500
20%
P 24,300
0
P 24,300

100. d refer to No. 98 for computations
101. a
Non-controlling Interests (in net assets):
20x5
20x6
Common stock - S, 12/31...
P 300,000
P 300,000
Retained earnings - S, 12/31:
RE- S, 1/1..P600,000
P 700,000
+: NI-S 150,000
200,000
-: Div S.. 50,000 700,000
70,000 830,000
Book value of Stockholders equity, 12/31....
P1,000,000
P1,130,000
Adjustments to reflect fair value of net assets
Increase in equipment, 1/1/2010....
75,000
75,000
Accumulated amortization (P3,000 per year)*.
(
6,000)
(
9,000)
Fair Value of Net Assets/SHE, 12/31..
P1,069,000
P1,196,000
Unrealized gain on sale of equipment (upstream)

( 30,000)
**( 25,500)
Realized gain thru depreciation (upstream)
4,500
6,000
Realized SHE S,12/31..
P1,043,500
P1,176,500
x: NCI %...........................................................
___ 20%
20%
Non-controlling Interest (in net assets) partial...
P 208,700
P 235,300
+: NCI on full goodwill....
0
0
Non-controlling Interest (in net assets) full..
P 208,700
P 235,300
* 20x5: P3,000 x 2 years; 2012: P3,000 x 3 years;
** P30,000 P4,500 realized gain in 20x5 = P25,500.
Note: Preferred solution - since what is given is the RE P, 1/1/20x5(beginning
balance of the current
year) Retained earnings Parent, 1/1/20x5 (cost)
P 800,000
-: Downstream sale 20x4 or prior to 20x5, Net unrealized gain
0
Adjusted Retained earnings Parent, 1/1/20x5 (cost)
P 800,000
Retroactive Adjustments to convert Cost to Equity:
Retained earnings Subsidiary, 1/1/20x4.P 500,000
Less: Retained earnings Subsidiary, 1/1/20x5 600,000
(cumulative net income cumulative dividends)P 100,000
Accum. amortization (1/1/x4 1/1/x5): P2,000 x 1 year( 3,000)
Upstream Sale 2010 or prior to 20x5,
Net unrealized gain....(
0)
P 97,000
X: Controlling Interests %..
80% 77,600
RE P, 1/1/20x5 (equity method) = CRE, 1/1/20x5
P 877,600
+: CI CNI or Profit Attributable to Equity Holders of Parent.
363,075
-: Dividends P..
100,000
RE P, 12/31/20x5 (equity method) = CRE, 12/31/20x5..
P 1,140,675
Or, if RE P is not given on January 1, 20x5, then RE P on December 31, 20x5 should be use.
Retained earnings Parent, 12/31/20x5 (cost model):
(P800,000 + P340,000, Ps reported NI P100,000)
P1,040,000
-: Downstream sale 20x5 or prior to 12/31/20x5,
Net unrealized gain - (P35,000 P875).
34,125
Adjusted Retained earnings Parent, 1/1/20x5 (cost model)..
P1,005,875
Retroactive Adjustments to convert Cost to Equity:
Retained earnings Subsidiary, 1/1/20x4.P 500,000
Less: Retained earnings Subsidiary, 12/31/20x5
(P600,000 + P150,000 P50,000)...... 700,000
(cumulative net income cumulative dividends).P 200,000
Accumulated amortization (1/1/20x4 12/31/20x5):
P 3,000 x 2 years..(
6,000)
Upstream Sale 20x5 or prior to 12/31/20x5,
Net unrealized gain (P30,000 P4,500).( 25,500)
P 168,500
x: Controlling Interests %..
80%
134,800
RE P, 12/31/20x5 (equity method) = CRE, 12/31/20x5.
P1,140,675
102.
103.
104.
105.
c refer to No, 101 computations.

b refer to No. 101 for computations
d refer to No. 101 for computations
b
Consolidated Stockholders Equity, 12/31/20x5:

Equity Holders of Parent SHE, 12/31/20x5:
Common stock P (P only)..P1,000,000
Retained Earnings P (equity method), 12/31/20x5. 1,140,675
Controlling Interest / Parents Stockholders Equity P2,140,675
Non-controlling interest, 12/31/20x5 (partial/full)
208,700
Consolidated Stockholders Equity, 12/31/20x5.P2,349,375
Theories
1.
2.
3.
4.
5.
d
c
d
d
b
6.
7.
8.
9.
10,
N/A
c
a
a
c
11.
12.
13.
14.
15,
b
c
d
b
c
16.
17.
18.
19.
20.
c
b
a
a
c
21.
22.
23.
24.
25.
a
b
d
c
c
26.
27.
28.
29.
30.
b
b
c
b
c
31
32.
33.
34.
35.
c
b
c
d
Chapter 19
Problem I
1.
Indirect Exchange Rates

Philippine Viewpoint:
1 $ = P40; 1 Peso = $0.025 ($1/P40)
1 Singapore dollar = P32.00; 1 Peso = 0.03125 Singapore (1 Singapore Dollar/P32)
2.
FCU
Peso
Direct Exchange Rate
P8,000
P40.00
$200; or
= P8,000 x $1/P40 = $200

3.
4,000 Singapore dollars x P32 = P128,000
Problem II
a. Exchange rates:
Arrival Date
1 Singapore dollar = P33.00
Direct
Exchange Rate
(P33,000 / 1,000 Singapore

dollars)
P1.00 = .03 Singapore dollars
Indirect
Exchange Rate
2.
(1,000 Singapore dollars /

P33,000)
Departure Date
1 Singapore Dollar = P32.50
(P3,250 / 100 Singapore
dollars)
P1.00 = .03 Singapore dollars
(100 Singapore dollars /
P3,250))
The direct exchange rate has decreased. This means that the peso has strengthened
during Mr. Alt's visit. For example, upon arrival, Mr. Alt had to pay P33 per each dollar.
Upon departure, however, each dollar is worth just P32.50. This means that the relative
value of the peso has increased or, alternatively, the value of the dollar has decreased.
3.
The Philippine peso equivalent values for the 100 Singapore dollars are:
Arrival date
100 dollars x P33.00 =
Departure date
100 dollars x P32.50 =
Foreign Currency Transaction Loss
P3,300
P
3,250
50
Mr. Alt held dollars for a time in which the dollars was weakening against the peso. Thus,
Mr. Alt experienced a loss by holding the weaker currency.
Problem III
1. If the direct exchange rate increases, the peso weakens relative to the foreign currency
unit. If the indirect exchange rate increases, the peso strengthens relative to the foreign
currency unit.
2.
Direct Exchange Rate
Transaction
Importing
Importing
Settlement
Currency
Increases
Peso
Decreases
Indirect Exchange Rate

Increases
Decreases
NA
L
NA
G
NA
G
NA
L
NA
G
NA
L
NA
L
NA
G
Purchases..
Accounts payable ($24,000 x P40.55)
973,200
LCU
Exporting
Exporting
Peso
LCU
Problem IV
1.
December 1, 20x4 (Transaction date):
973,200
December 31, 20x4 (Balance sheet date):

Foreign currency transaction loss...
Accounts payable [$24,000 x (P40.80 P40.55)]
Accounts payable v alued at 12/31 Balance Sheet
($24,000 x P40.80)
Accounts payable v alued at 12/1 Date of Transaction
($24,000 x P40.55)
Adjustment to accounts payable needed..
6,000
6,000
P979,200
973,200
P 6,000
March 1, 20x5 (Settlement date):

Accounts payable
Foreign currency transaction gain [$24,000 x (P40.80 P40.65)]
Cash ($24,000 x P40.65).
979,200
3,600
975,600
2.
a.
a.1. None transaction date (December 1, 20x4)
a.2. P6,000 loss
a.3. P3,600 gain (March 1, 20x5)
b.
b.1. P979,200 spot rate on the balance sheet date or current rate on the balance sheet
b.2. P973,200 spot rate on the transaction date or historical rate on the balance sheet date.
Problem V
1. December 1, 20x4 (Transaction date):
Accounts receiv able ($60,000 x P40.00)
Sales
2,400,000
2,400,000

Foreign currency transaction gain [$60,000 x (P40.70 P40.00)]
Accounts receiv able v alued at 12/31 Balance Sheet
($60,000 x P40.70)
Accounts receiv able v alued at 12/1 Date of Transaction
($60,000 x P40.00)
Adjustment to accounts receiv able needed..
42,000
42,000
P2,442,000
2,400,000
P 42,000
March 1, 20x5 (Settlement date):

Cash ($60,000 x P40,60)..
Foreign currency transaction loss
Accounts receiv able ($60,000 x P40.70).
2,436,000
6,000
2,442,000
2.
a.
a.1. None transaction date
a.2. P42,000 gain
a.3. P6,000 loss (March 1, 20x5)
b.
b.1. P2,442,000 spot rate on the balance sheet date or current rate on the balance sheet
b.2. P973,200 spot rate on the transaction date or historical rate on t he balance sheet date.
Problem VI
The entries to record these transactions and the effects of changes in exchange rates are as
follows:
November 1, 20x4 (Transaction date):
Equity inv estment (FVTPL)/Financial Asset
Cash
3,840,000
3,840,000
To record t he purchase of shares in Pineapple Computers at a cost of

$96,000 at t he exchange rate of P40.
December 10, 20x4 (Transaction date):

Equipment
Cash
636,000
636,000
To record t he purchase of equipment costing 12,000 euros at the

exchange rate of P53.

Equity inv estment (FVTPL)/Financial Asset
Unrealized gain in fair v alue of equity inv estment (financial asset)
To record gain in fair v alue of Pineapple Computers share.
12/31/x4: Rev alued Inv estment and translated at the rate on
the date of rev aluation (closing/current rate):
(1,200 units x $100 x P40.50).
11/1/x4: Inv estment, cost (1,200 units x $80 x P40.00)
Unrealized gain on equity inv estment
Less: Foreign currency transaction gain equity inv estment
11/1/20x4: Date of transaction (1,200 units x $80 x P40)..
Less: 12/31/20x4: B/S Date (1,200 units x $80 x P40.50).
1,020,000
1,020,000
P4,860,000
3,840,000
P1,020,000
P3,840,000
3,888,000
48,000
Other unrealized gain in the fair v alue of equity inv estment...

Foreign currency transaction loss...
Accounts payable [$96,000 x (P53.20 P53)]
P 972,000
19,200
19,200
To record exchange loss on accounts payable in euros.
Accounts payable v alued at 12/31 Balance Sheet

(1,200 x $80 x P53.20)
Accounts payable v alued at 12/1 Date of Transaction
(1,200 x $80 x P53.00)
Adjustment to accounts payable needed..
5,107,200
5,088,000
P 19,200
February 3, 20x5 (Settlement date):

Accounts payable
Foreign currency transaction loss [$96,000 x (P53.80 P53.20)]
Cash ($96,000 x P53.80).
5,107,200
57,600
5,164,800
To record exchange loss on accounts payable in euros and settlement of

account s payable in euros at the spot rate of P53.80.
Note the following:

The investment in Pineapple Computers, Inc shares is a non-monetary item that is
carried at fair value as it is classified as equi t y i nv est m ent t hro ugh pro fi t o r l o ss (o r a
fi nanci al asset FVTPL refer PFRS 9). The investment is revalued and translated at the rate
on the date of revaluation, that is, December 31, 20x4.
The equipment is translated at the spot rate at the date of purchase and, being a nonmonetary item, is carried at cost. It is not adjusted for the change in the exchange rate at
balance sheet date. The accounts payable in euros is a monetary item and is remeasured
using the current / closing rate at balance sheet date. The exchange loss is expensed off to
the income statement
Problem VII
1.
May 1
June 20
July 1
August 10
2.
May 1
Inventory (or Purchases)

Accounts Payable
Foreign purchase denominated in pesos
8,400
Accounts Payable
Cash
Settle payable.
8,400
8,400
8,400
Accounts Receivable
Sales
Foreign sale denominated in pesos
10,000
Cash
Accounts Receivable
Collect receivable.
10,000
8,400
10,000
10,000
Accounts Payable (FC1)

Foreign purchase denominated in yen:
P8,400 / P.0070 = FC1 1,200,000
June 20

Revalue foreign currency payable to
peso equivalent value:
P9,000 = FC1 1,200,000 x P.0075 June 20 spot rate
- 8,400 = FC1 1,200,000 x P.0070 May 1 spot rate
P 600 = FC1 1,200,000 x (P.0075 - P.0070)
Foreign Currency Units (FC1)
Settle payable denominated in FC1.
July 1
August 10
8,400
Accounts Receivable (FC2)

Sales
Foreign sale denominated in foreign currency 2
(FC 2)
FC3: P10,000 / P.20 = FC2 50,000
Foreign Currency Transaction Gain
Revalue foreign currency receivable
to U.S. dollar equivalent value:
P 11,000 = FC2 50,000 x P.22 Aug. 10 spot rate
- 10,000 = FC2 50,000 x P.20 July 1 spot rate
P 1,000 = FC2 50,000 x (P.22 - P.20)
Accounts Receivable (FC2
Receive FC 2 in settlement of receivable
600
600
9,000
9,000
10,000
10,000
1,000
1,000
11,000
11,000
Problem VIII
1. Denominated in FC
RR Imports reports in Philippine pesos:
12/1/x4
12/31/x4
1/15/x5
Transaction
Date
Balance Sheet
Date
Settlement
Date
P.70
P.66
P.68
Direct
Exchange
Rate
2.
December 1, 20x4
Accounts Payable (FC)
P10,500 = FC 15,000 x P.70
December 31, 20x4
10,500
10,500

Revalue foreign currency payable to
equivalent peso value:
P 9,900 = FC 15,000 x P.66 Dec. 31 spot rate
-10,500 = FC 15,000 x P.70 Dec. 1 spot rate
P 600 = FC 15,000 x (P.66 - P.70)
600
600
January 15, 20x5

Revalue payable to current peso equivalent
P10,200 = FC 15,000 x P.68 Jan. 15, 20x5, value
- 9,900 = FC 15,000 x P.66 Dec. 31, 20x4, value
P 300 = FC 15,000 x (P.68 - P.66)
300
300

Foreign Currency Units (FC)
P10,200 = FC 15,000 x P.68
(FC 15,000 x P.70)
600
(FC 15,000 x P.66)
AJE 12/31/x4
(FC 15,000 x P.68)

1/15/x5 Settlement
10,200
10,200
10,200
12/1/x4
10,500
Bal 12/31/x4
AJE 1/15/x5
Bal 1/15/ x5
9,900
300
10,200
Bal 1/16/x5
Problem IX
1.
December 31, 20x6
Adjust receivable denominated in FC1
to current peso equivalent
and recognize exchange gain:
P83,600 = FC475,000 x P.176 Dec. 31 spot rate
- 73,600 = Preadjusted Dec. 31, 20x6, value
P10,000
2.
-0-
10,000
10,000

Adjust payable denominated in foreign
currency to current peso equivalent
and recognize exchange gain:
P175,300 = Preadjusted Dec. 31, 20x6, value
- 170,100 = FC2 21,000,000 x P.0081, Dec. 31 spot rate
P 5,200
5,200

Adjust receivable denominated in FC1
to equivalent peso value on
settlement date:
1,900
5,200
1,900
P85,500 = FC1 475,000 x P.180 20x7 collection date value

- 83,600 = FC1 475,000 x P.176 Dec. 31, 20x6, spot rate
P 1,900 = FC1 475,000 x (P.180 - P.176)
Cash
Accounts Receivable (P)
Collect all accounts receivable.
3.
164,000
85,500
85,500
164,000

Adjust payable to equivalent peso
value on settlement date:
P163,800 = FC2 21,000,000 x P.0078 20x7 payment date value
- 170,100 = FC2 21,000,000 x P.0081 Dec. 31, 20x6, spot rate
P 6,300 = FC2 21,000,000 x (P.0078 - P.0081)
Accounts Payable (P)
Cash
Payment of all accounts payable.
4.
5.
5.
6,300
6,300
86,000
163,800
163,800
86,000
Transaction gain on FC:

December 31, 20x6
December 31, 20x7
Overall
P10,000
1,900
P11,900
gain
gain
gain
Transaction gain on FC2:

December 31, 20x6
December 31, 20x7
Overall
P 5,200
6,300
P11,500
gain
gain
gain
Overall foreign currency transactions gain:

Gain on FC1 transaction
Gain on FC2 transaction
P11,900
11,500
P23,400
CDL could have hedged its exposed position. The exposed positions are only those
denominated in foreign currency units. The accounts receivable denominated in FC1
could be hedged by selling FC1 in the forward market, thereby locking in the value of
the FC1. The accounts payable denominated in FC2 could be hedged by buying FC2 in
the forward market, thereby locking in the value of the FC2.
Problem X
Accounts
Receivable
Accounts
Payable
Foreign Currency
Transaction Exchange
Loss
Foreign Currency
Transaction
Exchange Gain
Case 1
NA
P16,000(a)
NA
P2,000(b)
Case 2
P38,000(c)
NA
NA
P2,000(d)
Case 3
NA
P27,000(e)
P3,000(f)
NA
Case 4
P6,250(g)
NA
P1,250(h)
NA
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
LCU 40,000 x P.40

LCU 40,000 x (P.40 - P.45)
LCU 20,000 x P1.90
LCU 20,000 x (P1.90 - P1.80)
LCU 30,000 x P.90
LCU 30,000 x (P.90 - P.80)
LCU 2,500,000 x P.0025
LCU 2,500,000 x (P.0025 - P.003)

1.
2.
C$1 / P.90 (C$1.11 = P1.00)
d
P.4895
P.4845
3.
4.
x
x
FC30,000
FC30,000
Gain
P.4845
P.4945
x
x
FC30,000
FC30,000
Loss
January 15
Foreign Currency Units (LCU)
Exchange Loss
Accounts Receivable (LCU)
Collect foreign currency receivable and
recognize foreign currency transaction
loss for changes in exchange rates:
P300,000 = (LCU 900,000 / LCU 3) Jan. 15 value
- 315,000 = Dec. 31 Peso equivalent
P 15,000 Foreign currency transaction loss
P120,000
P140,000
=
=
-105,000
P(35,000)
5.
20x4
P14,685
14,535
P 150
P280,000
-240,000
P 40,000
=
=
20x5
P14,535
14,835
P (300)
300,000
15,000
315,000
July 1, 20x4, Peso equivalent value

December 31, 20x4, Peso equivalent value
(LCU 840,000 / P140,000) = LCU 6 / P1
(LCU 840,000 / 8) = P105,000
December 31, 20x4, Peso equivalent value
6. c P4,000
AJE
Accounts Payable (FCU)

(200,000 x P.4875) 12/10/x4
4,000
(200,000 x P.4675) 12/31/x4

Foreign Exchange Gain
97,500
93,500
4,000
4,000
7. d P27,000 = P6,000 + P20,000 + P1,000

1/20/x4
AJE
90,000
6,000
3/20/x4
Foreign Exchange Loss
96,000
6,000
6,000
Notes Payable (FCU)
7/01/x4
AJE
12/31/x4
20,000

Notes Payable (FCU)
Interest expense
Interest Payable (FCU)
500,000
20,000
520,000
20,000

(FCU500,000 x .10 x 1/2 year)
AJE
12/3/x4
25,000
25,000
1,000
26,000
25,000

1,000
1,000
8. c P5,000
Accounts Receivable (FCU)
10/15/x4
AJE
100,000
5,000
11/16/x4
105,000
Settlement
Accounts Receivable (FCU)

11/16/x4
105,000
5,000
5,000
Note: The receivable is recorded on October 15, 20x4, when the goods were shipped, not
on September 1, 20x4, when the order was received.
9. b P1,000
x4 AJE
500
X5 AJE
1,000
Settlement
4,500
(10,000 x P.60)
4/08/x4
6,000
(10,000 x P.55)
12/31/x4
5,500
(10,000 x P.45)
3/01/x5
4,500
Bal.
1,000
-0-
X5 AJE Accounts Payable (FCU)

10.
1,000
P9,000 = 300,000 FCUs x (P1.65 - P1.62). The foreign currency transaction gain is
computed using spot rates on the transaction date (November 30, 20x4) and the
balance sheet date (December 31, 20x4). The forward exchange rates are not
used because the transaction was not hedged.

11. b
Cash collected (spot rate date of settlement): 900,000 LCU x P.3333 = P300,000
12. d
20x4: (P.5395 P.5445) loss x 70,000 FCU = P350 loss
20x5: (P.5445 - .P5495) loss x 70,000 FCU = P350 loss
13. c
Date of transaction (7/7)
Balance sheet date (8/31)
Foreign exchange currency gain per FCU
Multiplied by: No. of FCU
Foreign exchange currency gain
2.08
2.05
P
.03
350,000
P 10,500
14. b
1.58
1.55
P
.03
375,000
P 11,250
15. b The value of the asset acquired should be the spot rate on the date of transaction, i.e. P -80.
Therefore, the final recorded value of the electric generator should be P40,000 (P.80 x 50,000
FCs)
16. a
Date of transaction
Date of settlement
.75
.80
P
.05
200,000
P 10,000
17. d
.60
.65
P
.05
80,000
P 4,000


18. b
1 .65
1.62
P
.03
300,000
P 9,000
19. b
1.49
1.45
P
.04
500,000
P 20,000
20. a
Date of arriv al (P1,000 / 480,000 FC)
Date of departure (P100/50,000 FC)
Foreign exchange currency loss per FCU
Foreign exchange currency loss
P .00208
.00200
P .00008
50,000
P
4
21. b
Foreign exchange currency gain per LCU
Multiplied by: No. of LCU
1.20
1.10
P
.10
5,000
P
500

Foreign exchange currency gain per LCU
Multiplied by: No. of LCU
Date of transaction (9/3) : P17,000 / P.85 = 20,000 FC

Date of settlement (10/10)
Foreign exchange currency loss per FC
Multiplied by: No. of FC
Date of transaction (3/1) : P31,000 / P.31 = 100,000 FC

Foreign exchange currency gain per FC


22. d
1. 08
1.10
P
.02
23,000
P
460
23. a
. 85
.90
P
.05
20,000
P 1,000
24. b
. 31
.34
P
.03
100,000
P 3,000
25. a
.265
.262
P .003
100,000
P
300
26. d
.262
.264
P .002
100,000
P
200
27. c
Foreign exchange currency gain (No. 25)
Foreign exchange currency loss (No. 26)
Ov erall gain , net
P
_
P
300
200
100
or,
.265
.264
P .001
100,000
P
100
28. c
9/5: Original forward rate or 90-day forward rate
12/2: Date of expiration of the contract (assumed) since the
term spot rate was used
.1850
.1865
.0015
100,000
P
150
P
It should be noted t hat since, the forward cont ract was not designat ed as a hedge, offset t ing of gain or loss on t he
hedged it em and hedging inst rument is not allowed. Therefore, t he foreign exchange gain due t o revaluat ion of
receivable from foreign currency receivable arising from forward contract will be reported separately, inst ead of being
net t ed against t he exchanges loss of P300 [(P.1865 P.1835) x 100,000 FCs.]
29. c the question is related to purchase transaction or exposed liability, therefore the payment of
the liability is equivalent to the spot rate on the date of settlement.
30. b
20x4
Date of transaction (12/1/20x4)
Balance sheet date (12/31/20x4)
.0095
.0096
P
.0001
1,000,000
P
100
20x5
Date of settlement (1/10/20x5)
.0096
.0094
P .0002
1,000,000
P
200
31. c
P125,000
140,000
P 15,000
32. b any gain or loss on foreign currency should be considered ordinary.

33. d
3/1: Date of expiration of the contract
P
P
.940
.930
.010

100,000
P 1,000
It should be noted t hat since, the forward cont ract was not designat ed as a hedge, offset t ing of gain or loss on t he
hedged it em and hedging inst rument is not allowed. Therefore, t he foreign exchange gain due t o revaluat ion of
payable t o foreign exchange dealer arising from forward contract will be reported separately, inst ead of being net t ed
against t he exchanges loss of P1,500 [(P.945 P.93) x 100,000 FCs.]
34. c
It was assumed that the forward contract was designated as a hedging instrument .
Hedged Item: Exposed Asset (Receivable)
1/1: Date of transaction spot rate
12/31: Balance sheet date
.945
.930
P
.015
100,000
P 1,500
P 1,500
Forward Contract/Hedging Instrument:

3/1: Date of expiration of the contract
Net loss
.940
.930
P .010
100,000
P 1,000
P
1,000
500
35. d
It was stated in the requirement that the forward contract will not be used, therefore, only the
loss on hedged item will be recognized.
Hedged Item: Exposed Asset (Receivable)
.945
.930
P
.015
100,000
P 1,500
36. d
Date of transaction (4/8) : P1 / .65 FC (direct quote)
Date of settlement (5/8): P1/ .70 FC (direct quote)
1.54
1.43
P
.11
35,000
P 3,850
37. d the amount of sales should be the spot rate on the date of transaction (or the balance sheet
date - historical rate). I.e., P1.7241 x 10,000 FCs = P17,241.
38. e
P 1.7241
1.8182
P .0941
10,000
P
941
39. b
P
P
P
1.8182
1.6666
.1516
10,000
1,516
40. a since accounts payable is an exposed account meaning their value will fluctuate based on
the spot exchange rates, the value of the accounts payable should be the value on May 8, i.e.,
the spot rate of P1.25 (P.15 x 2,000,000 FCs = P2,500,000).
41. c
1.25
1.26
P
0.01
2,000,000
P
20,000
42. e in a two-transaction approach, the recognition of foreign exchange gain or loss is separate
from the settlement, therefore, the amount of accounts payable to be settled should be the spot
rate on the settlement date, i.e., P1.20 (P1.20 x 2,000,000 FCs = P2,400,000)
43. a
P8,000
6,900
P 1,100
44. d
4/8/20x3: Date of transaction
12/31/20x3: Balance sheet date
P 97,000
103,000
P 6,000

P103,000
105,000
P 2,000
45. d
Theories
1. False
2. False
3. True
4. False
5. True
6.
7.
8.
9.
10,
True
False
True
False
True
11.
12.
13.
14.
15.
True
D
C
C
B
16.
17.
18.
19.
20.
d
d
c
b
a
21.
22.
23.
24.
25.
c
b
a
d
b
26.
27.
28.
29.
30.
d
b
d
a
31.
32.
33.
34.
35.
c
d
d
b
b
36
37.
38.
39.
b
d
c
a
Problem V
Income
SPENCER CO.
W ork Sheet for Combined Statements for Home Office and Branch
December 31, 20x5
Adjustments
Balance
Home
Sheet
Cr.
Dr.
Office
Cr.
and Eliminations
Branch
Debits
Cash ..
10,350
2,650
..
..
13,100
..
Cash in Transit . 1,500
..
..
..
1,500
..
Accounts Receiv able .
26,200
12,850
..
..
39,050
..
Merchandise Inv . Dec 1 .
31,500
14,400
..
..
..
..
Store Supplies .
380
300
..
..
580
..
Prepaid Expenses .
350
120
..
..
470
..
Furniture & Fixtures
8,500
3,600
..
..
12,700
..
Branch
32,260
..
..
..
..
Retained Earnings .
6,850
..
..
6,850
..
Purchases .
27,600
4,100
..
..
..
..
10,200
..
..
..
..
Adv ertising Expense .
2,850
2,800
..
..
..
..
4,250
2,350
..
..
..
..
560
280
..
..
..
..
1,850
1,050
..
..
..
..
Rent Expense ..
2,700
1,500
..
..
..
..
Depreciation Expense F&F ..
85
36
..
..
..
..
2,510
95
..
..
..
..
160,295
57,141
..
..
..
..
Merchandise Inv , Dec 31
24,900
14,600
..
..
36,850
..
(c)
(a)
(b)
Statement
Dr.
Cr.
..
..
..
..
..
..
2,000
43,900
..
..
..
..
..
..
..
32,260
..
..
..
..
10,200
..
..
5,650
..
6,600
..
840
..
2,900
..
4,200
..
121
..
3,415
..
..
..
(d)
Dr.
1,950
Problem V continued
Credits
Accumulated Depreciation Furniture
And Fixtures 2,585
..
..
Unrealized Intercompany Inv entory
..
..
Profit .
3,700
..
..
Accounts Payable 36,400
..
..
Accrued Expenses ...
260
..
..
Home Office .. ..
..
..
Capital Stock 65,000
..
..
Sales 44,850
64,850 ..
..
Shipments to Branch ...
8,500
..
..
57,141
..
..
Merchandise Inv , Dec 31 .. 24,200
36,850 ..
..
576
3,161
..
..
..
..
..
..
..
(c)
(b)
..
1,700
..
2,000
..
..
4,200
..
..
..
105
..
..
..
32,260
..
..
..
..
..
..
20,000
..
..
..
39,000
365
32,250
(a)
..
65,000
..
..
..
(b)
8,500
..
14,600
(d)
..
..
P160,295
..
..
1,950
..
46,410
99,326
101,700 110,500 108,126
Net Income to Balance .
..
..
2,374
101,700 ..
..
..
46,410
2,374
101,700
..
..
..
110,500 110,500
Explanation of adjustments and eliminations:
(a) To eliminate reciprocal accounts, Home Office and Branch.
(b) To eliminate shipments to Branch and Shipments to Home Office. Difference between the two balances
is debited to Unrealized Intercompany Inv entory profit (20% of P8,500, or P1,700).
(c) To eliminate unrealized profit in beginning inv entory balances : P3,700 balance per trial balance, less
P1,700 adjustment per entry (b) or P2,000
(d) To reduce ending inv entory cost:Branch inv entory form home office at billed price .
P11,700
Branch inv entory from home office at cost, P11,700/1.20
9,750
Inv entory reduction ..
P 1,950
Problem VI
Accounts
Trial Balance
Alignments and
Branch Income
Home
December 31, 20x4

Home
Office
Branch
Eliminations
Statement
Incom
Dr.
Cr.
Dr.
Cr.
Dr.
Debits
Cash
15,000
2,000
Accounts Receiv able
20,000
17,000
Inv entory, December 31,20x4
30,000
8,000
Plant Assets (net)
150,000
Branch
44,000
Cost of goods sold - Home

office
220,000
Expenses - Home Office
70,000
Cost of goods sold - Branch

Expenses - Branch
_______
10,000
(g)
3,000
(a)
10,000
(d)
3,600
(f)
10,000
(h)
34,000
(b)
84,000
136,00
70,000
93,000
549,000
(f)
__41000
(d)
3,600
(e)
12,000
(c)
1,200
(b)
105,000
(b)
21,000
(c)
1,200
74,400
53,000
161,000
Credits
Accounts Payable
23,000
Mortgage Payable
50,000
Capital Stock
Retained Earnings - January 1,
20x4
100,000
Sales - Home Office
350,000
26,000
Sales - Branch
150,000
Accrued Expenses
2,000
Home Office
9,000
150,000
(h)
34,000
________
_______
_______
549,000
161,000
178,800
(a)
10,000
(e)
12,000
(g)
___3000
_______
_______
_______
178,800
127,400
150,000
206,00
Problem VI continued
Branch Net Income
22,600
Home Office Net Income
_______
_______
__39,00
150,000
150,000
245,00
Explanation of adjustments and eliminations:

(a) To record merchandise in transit from home office, determined as follows:
Billings from home office plus beginning inventory amount available for sale P105,000 + P6,000
.P111,000
Less cost of goods sold and ending inventory per branch records: P93,000 + P8,000
. 101,000
Balance representing shipments from home office not yet recorded by the
branch .P 10,000
(b) To eliminate shipments of merchandise to branch recorded as sales. Reduction in home office cost
of goods sold: P105,000 1.25 or P84,000.
(c) To adjust branch cost of goods sold for unrealized profit on beginning inventory: P6,000 (P6,000
1.25), or P1,200.
(d) ) To adjust branch cost of goods sold for unrealized profit on ending inventory: P18,000 (P18,000
1.25) or P3,600.
(e) To record branch expenses paid by home office.
(f) To record cash deposited by branch on December 29 and 30 for accou nt of the home office and
not recorded by home office in 20x4.
(g) To record cash in transit from home office.
(h) To eliminate inter office accounts.
Corrections: Volume II
Chapters 12 to 19
page 23
page 24
page
page
page
page
page
page
page
page
137
142
155
161
259
272
394
395
page
page
page
page
page
page
401
403
406
408
410
411
page
page
page
page
417
423
427
429
questions 4 and 5: Sales P195,000 instead of P43,000; Shipments from home office P135,000 instead
of P135,000; Accounts receivable P43,000 instead of P135,000
questions 6 to 8: Accounts receivable P12,800 instead of shipments from home office
No. 9: Changi Corp 20x4 instead of 2004
Problem VIII Smiths current assets should be P350,000 instead of P950,000.
Problem XVI: change the name Peter to Pure
Nos. 35 to 36: 2nd par. Atwood issued 50,000 shares instead of 50
No. 66: Using the same information in No. 64 and 65,
Questions 9 to 17: PP Corporation acquired 70 percent instead 90 percent
No. 10. Under PFRS 3 instead of SFAS 141R
Problem VI: Pascal Co. Totals should be P2,368,800 instead of P2,368,000
Pascal Co.s net income should be P196,800 instead of P198,800
Problem VII: Refer to the same data in Problem VI instead of II
Problem XV: 3rd par. Should be 20x4 instead of 2009
Problem XVIII unrelated parties for P84,000 instead of P96,000
Problem XXIV Refer to the same data in Problem XXIII instead of X
No. 3: change 2011 to 20x6
No. 17: change 2013 to 20x4
No. 21:
Two years later the following data were reported by the two companies: Royces equipment (at BV),
12/31/Year 2, PP444,000; Parks equipment (at BV), 1/1/Year 1, P200,000; Separate net income in Year
2: Royce, P560,000; Park, P140,000; Common stock and retained earnings of Park, 1/1/Year 2 P300,000
and P260,000, respectively.
Questions 51 to 61: Long-term liabilities (due 20x7 instead of 2012)
Questions 98 and 99: change the name Harrison to Beatty
For items 126 to 138, use the equity method instead of cost model
Questions 142 and 143:
del ete the phra s e no bol d i ncons i s tent
P24,000 di vi dends from Suburbi a i n 20x4 a nd P36,000 i n 20x5

instead of 20x4
page
page
page
page
page
page
page
495
501
504
505
507
511
514
page 515
page 516
page 517
Page 520
page 521
page 523
page 598
page 603
page
604/605
page 607
page 611
page 613
page 615
page 617
page 620
page 621
page 622
page 626
page 645
page 646
page 652
page 655
page 657
Questions 14 and 145: delete the phrase no bold

Change 2014 to 20x4 and 2015 to 20x5
Problem XI: 3rd par. Change 2009 to 20x4
Problem XVI: Son Co. Land P55,200 instead of P46,000
reduced by P3,750 instead of P3,125
Questions 3 & 4: Net income (20x4 instead of 2014)
Questions 29 to 33: 2006 should be 20x3; 2007 should be 20x4; 2008 should be 20x5
Questions 42 to 45:
Eagle Corporation owns 80% of Flyway Inc.s common stock that was purchased at its underlying book
value. The two companies report the following information for 20x4 and 20x5.
During 20x4, one company sold inventory to the other company for P50,000 which cost the transferor
P40,000. As of the end of 20x4, 30% of the inventory was unsold. In 20x5, the remaining inventory was
resold outside the consolidated entity.
questions 49 to 51: During 20x4 instead of 20x5, Wren sold
questions 53 and 54: change 2004 to 20x4
No. 57: During 20x5 instead of 20x4, HH sold
No. 59: Use the same information in problem 58 instead of 18
No. 76 and 77 should be 20x5 instead of 20x4
No. 80: 2x14 should be 20x4
Questions 81 and 82: 2013 should be 20x4
Nos. 94 to 99: delete the phrase worksheet entry G
IV:
Serf Corporation on January 1, 20x4 instead of 20x3 for P1,280,000
remaining useful life of four years on January 1, 20x4 instead of 20x5
In 20x5 instead of 20x4 Prince Company reported net income
X: common stock of Tool, Inc. in 20x0 instead of 20x4. On January 1, 20x1 instead of 20x5, Tool Inc.
XIV:
Fruit Corporation in 20x1 instead of 20x5
In 20x4 instead of 20x6, Fruit sold
possession until 20x6 instead of 20x7
after the books were closed in 20x6 instead of 20x7
Cash in 20x4 instead of 20x6 for P82,000, and in 20x6 instead of 20x5
XXI: Trial Balance Accounts receivable of Per should be P90,000 instead of P75,000
Questions 7 to 9:
Avocet holds 60% of Shrimp. Shrimp reported net income of P55,000 in 20x5 and Avocet's separate net
income (excludes interest in Shrimp) for 20x5 was P98,000.
18. What was the NCI in net income for 20x4
20. In January 1, 20x3 instead of 20x4, S Company
27. 20x6 should be 20x8
28. 20x6 should be 20x4
30. On January 1, 20x5 instead of 20x4
No. 38:
end of 20x4 instead of 20x7
on December 31, 20x5 instead of 20x4
on January 1, 20x6 instead of 20x5
questions 53 to 57: 2005 should be 20x2
questions 58 to 62: 2007 should be 20x4; 2005 should be 20x2
questions 63 and 64: 20x10 should be 20y0
questions 65 to 67: On February 15, 20x4 instead of 20x9
2008 should be 20x4
questions 96 to 105: 2nd par. 201x5 should be 20x5
II: Required 2. the U.S. dollar should be Philippine peso
IV: a.1 December 1, 20x4 instead of December 16
a.3 March 1, 20x5 instead of January 15, 20x5
V: a.3 March 1, 20x5 instead of January 15, 20x5
No. 10: December 31, 20x4 instead of 20x5
No. 12: marks should be FCUs
No. 24: b. credit should be Transaction Gain instead of Loss
questions 25 to 27: December 31, 20x4 1FC = P.262 instead of P.265
No. 31: 12/31/20x4 (year-end instead of date borrowed)
Corrections: Volume II
Chapters 12 to 15
page 23
page 24
page
page
page
page
page
page
page
page
137
142
155
161
245
246
259
272
questions 4 and 5: Sales P195,000 instead of P43,000; Shipments from home office P135,000 instead
of P135,000; Accounts receivable P43,000 instead of P135,000
questions 6 to 8: Accounts receivable P12,800 instead of shipments from home office
No. 9: Changi Corp 20x4 instead of 2004
Problem VIII Smiths current assets should be P350,000 instead of P950,000.
Problem XVI: change the name Peter to Pure
Nos. 35 to 36: 2nd par. Atwood issued 50,000 shares instead of 50
No. 66: Using the same information in No. 64 and 65,
Problem V: Assuming the same data in Problem IV
Problem VII: Assuming the same data in Problem IV
Questions 9 to 17: PP Corporation acquired 70 percent instead 90 percent
No. 10. Under PFRS 3 instead of SFAS 141R

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Chapter 12

(f)Cost of Goods Sold-Agency 36,000

(b) Shipments from Home Office

(c) Accounts Receivable .

(e) Home Office ..

(f) Accounts Payable ...

(g) Furniture & Fixtures

(b) Home Office Books:

(c) Accounts Receivable ...

(f) Accounts Payable .

(i) Retained Earnings .

Accounts Payable P 10,250

Total Liabilities .P48,450

Less merchandise inv, December 31 ..

Liabilities & Stockholders Equity

(a) Branch Books:

(b) Home Office Books

Shipments from home office .

Accts. Rec. Home office .

Accts. Rec.-Home Office .

Shipments from Home Office

(b) Home Office Books:

Store Furniture and Fixtures Branch .. 3,000

Accumulated Depr. Store F&F .. 750

Store Furniture and Fixtures Branch ..

Accounts Receivable 34,600

Accounts Payable 36,200

Accrued Expenses Payable .

Allowance for Doubtful Accounts ..

Accounts Payable . P 2,400

Total Liabilities . P37,200

Cost of goods sold

(a) Branch Books

Shipments from Office-in Transit

(b) Home Office Books:

Accounting records of home office:

Accounting records of branch:

(b) Branch Books:

Home Office Books:

Merchandise Returns from Branch in Transit .

Multiple Choice Problem

3. d incidentally, the entry in the books of the branch would be as follows:

5. a refer to No. 4 for computations

8. a nominal accounts have zero beginning balance.

Unadjusted balance, 6/30/20x4

Home Office Books

Home Office Books

c refer to No. 11 for computations

Home Office Books

Home Office Books

Home Office Books

Home Office Books

20. a refer to No. 19 for computations

22. b refer to No. 21 for computations

Unrealized Intercompany Inventory Profit........................................................ 4,125

Merchandise transferred by home office at billed price,

Additions to unrealized profit account resulting from transfers

Balance of unrealized profit account at December 31

a. The branch office inventory as of December 1 considered of:

Calculation of reduction in Unrealized Intercompany

(1) Dec.31 Selling Expenses............................................................................ 260

31 Prepaid Selling Expenses.............................................................

31 Income Summary........................................................................... 21,900