Advanced Accounting 2-Dayag

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 ……………………………………………………………….. 4,500

Cash …………………………………………………………………………. 4,500
(e)Expenses-Agency ……………………………………………………………….. 2,250

Cash …………………………………………………………………………. 2,250
(f)Cost of Goods Sold-Agency …………………………………………………… 36,000

Merchandise Shipments-Agency ………………………………………. 36,000
Problem II
(a) Branch Books:
(a) Cash ………………………………………………………….. 42,500

Home Office …………………………………………… 42,500
(b) Shipments from Home Office …………………………… 50,200

Home Office …………………………………………... 50,200
(c) Accounts Receivable ……………………………………. 60,000

Sales …………………………………………………….. 60,000
(d) Purchases …………………………………………………… 22,500

Accounts Payable …………………………………… 22,500
(e) Home Office ……………………………………………….. 53,400

Accounts Receivable ………………………….. 53,400
(f) Accounts Payable ………………………………………... 12,250

Cash …………………………………………………….. 12,250
(g) Furniture & Fixtures ………………………………………… 8,000

Cash …………………………………………………….. 8,000
(h) Expenses …………………………………………………….. 18,000

Cash …………………………………………………….. 18,000
(b) Home Office Books:
(a) Branch ………………………………………………………. 42,500

Cash ……………………………………………………. 42,500
(b) Branch ……………………………………………………… 50,200
Shipments to Branch ……………………………….. 50,200
(c) Accounts Receivable …………………………………... 105,000

Sales …………………………………………………… 105,000
(d) Purchases …………………………………………………. 122,500

Accounts Payable …………………………………. 122,500
(e) Cash ……………………………………………………….. 113,600

Accounts Receivable ……………………………… 113,600
(f) Accounts Payable ………………………………………. 124,000

Cash …………………………………………………… 124,000
(g) Expenses …………………………………………………… 26,600

Cash …………………………………………………… 26,600
(h) Cash ……………………………………………………….. 53,400

Branch ………………………………………………... 53,400
(i) Retained Earnings ………………………………………. 10,000

Cash …………………………………………………... 10,000
BARTON CO.
Balance Sheet for Branch
December 31, 20x4
Assets Liabilities
Cash …………………………… P 4,250 Accounts Payable ………… P 10,250

Accounts Receivable ……… 12,600 Accrued Expenses …………… 300
Merchandise Inv……………... 23,500 Home Office ………………….. 37,900
Prepaid Expenses …………… 750
Furnitures & Fixtures …. P 8,000
Less accum. Depr …… 650 7,350
Total Assets …………………… P48,450 Total Liabilities ………………….P48,450
BARTON CO.
Income Statement for Branch
For Year Ended December 31, 19X6
Sales …………………………………………………………………………… P66,000

Cost of Goods Sold:
Purchases …………………………………………………………… P22,500
Shipments for home office ………………………………………. 50,200
Merchandise available for sale ………………………………… P72,700
Less merchandise inv, December 31 ………………………….. 23,500
Cost of Goods Sold ……………………………………………….. 49,200
Gross Profit ……………………………………………………………………. P16,800
Expenses ……………………………………………………………………… 18,200
Net loss ………………………………………………………………………... P 1,400
BARTON CO.
For Year Ended December 31, 20x4
Assets Liabilities & Stockholders Equity
Cash …………………………….. P 23,200 Liabilities

Accounts Receivable ……….. 19,050 Accounts payable ………… P 21,300
Merchandise Inventory……… 48,500 Accrued Expenses …………. 1,350 P22,650
Prepaid Expenses ……………. 2,050 Stockholders Equity
Furniture & Fixtures …. P 20,000 Capital stock, P20 par……… P50,000
Less accum. Depr….. 5,580 14,420 Retained Earnings …………. 72,740 122,470
Branch ………………………… 37,900 Total liabilities and stockholders’
Total Assets …………………... P145,120 equity ………………… P145,120
BARTON CO.
Income Statement for Home Office
Sales ……………………………………………………………………………....... P105,000

Cost of goods sold:
Merchandise inventory, January 1 …………………………………. P 40,120
Purchases ………………………………………………………………... 122,500
Merchandise available for sale ……………………………………… P162,620
Less shipments to branch ……………………………………………... 50,200
Merchandise available for own sale ……………………………….. P112,420
Less merchandise inventory, December 31 ………………………. 48,500
Cost of Goods Sold ……………………………………………………. 63,920
Gross Profit ………………………………………………………………………… P 41,080
Expenses …………………………………………………………………………… 27,630
Net income from own operations …………………………………………….. P 13,450
Deduct branch net loss …………………………………………………………. 1,400
Total Income ………………………………………………………………………. P 12,050
BARTON CO.
Sales …………………………………………………………………………………. P171,000

Cost of goods sold:
Merchandise inventory, January 1 ………………………………….. P 40,120
Purchases ………………………………………………………………… 145,000
Merchandise available for sale ……………………………………… P185,120
Less merchandise inventory, December 31 ……………………….. 72,000
Cost of goods sold ………………………………………………………. 113,120
Gross profit ………………………………………………………………………….. P 57,880
Expenses …………………………………………………………………………….. 45,830
Net Income …………………………………………………………………………. P 12,050
(a) Branch Books:
Expenses ………………………………………………………………. 650

Accumulated Depreciation – F&F………………………. 650
Sales …………………………………………………………………… 66,000

Merchandise Inventory ……………………………………………. 23,500
Income summary ………………………………………….. 89,500
Income Summary …………………………………………………… 90,900

Shipments from Home Office …………………………… 50,200
Purchases …………………………………………………… 22,500
Expenses …………………………………………………….. 18,200
Home Office ………………………………………………………… 1,400

Income Summary ………………………………………… 1,400
(b) Home Office Books
Expenses ………………………………………………………………. 1,180

Accumulated Depreciation – F&F………………………. 1,180
Sales …………………………………………………………………… 105,000

Shipments to Branch ……………………………………………….. 50,200
Income summary ………………………………………….. 203,700
Income Summary …………………………………………………… 190,250
Merchandise Inventory …………………………………… 40,120
Purchases ……………………………………………………. 122,500
Expenses …………………………………………………….. 27,630
Branch Income ……………………………………………………… 1,400

Branch ………………………………………………………. 1,400
Income Summary ………………………………………………….. 1,400

Branch Income …………………………………………… 1,400
Income Summary ………………………………………………….. 12,050

Retained Earnings ……………………………………….. 12,050
Problem III
(a) Branch Books:
Jan. 1 Cash …………………………………………. 1,500

Home Office ……………………… 1,500
1 Shipments from home office ……………. 10,200

Home Office ……………………… 10,200
1 Home Office ……………………………….. 900
Cash ……………………………….. 900
1 Accts. Rec. – Home office ………………. 2,600

Home Office ……………………… 2,600
1-31 Accts. Rec.-Home Office ………………. 6,200

Sales ……………………………….. 6,200
1-31 Cash ……………………………………….. 2,600

Accounts Receivable ………….. 2,600
1-31 Purchases …………………………………. 3,000

Accounts Payable ……………… 3,000
1-31 Accounts Payable ………………………. 1,450

Cash ……………………………….. 1,450
1-31 Expenses ………………………………….. 1,250

Cash ………………………………. 1,250
Jan. 1-31 Cash ………………………………………… 1,600

Accts. Rec.-Home Office ……... 1,600
1-31 Home Office ……………………………… 150

Accts. Rec.-Home Office ……. 150
1-31 Shipments from Home Office ………… 1,250

Home Office ……………………. 1,250
1-31 Home Office ……………………………… 1,000

Cash ……………………………… 1,000
Jan. 1 Branch …………………………………….. 1,500

Cash ……………………………… 1,500
1 Branch …………………………………….. 10,200
Shipments to Branch ………….. 10,200
1 Store Furniture and Fixtures Branch ….. 3,000

Store Furniture and Fixtures …... 3,000
1 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 Store Furniture and Fixtures Branch ….. 900

Branch …………………………… 900
1 Branch …………………………………… 2,600

Accounts Receivable …......... 2,600
1-31 Accounts Receivable ………………… 34,600
Sales ………................................ 34,600
1-31 Cash ………………………………………. 40,000

Accounts Receivable ………… 40,000
1-31 Purchases ………………………………….31,600

Accounts Receivable …………. 31,600
1-31 Accounts Payable ……………………… 36,200

Cash ……………………………... 36,200
1-31 Accrued Expenses Payable …………. 250

Expenses …………………………………. 8,950
Cash …………………………….. 9,200
1-31 Allowance for Doubtful Accounts ….. 150

Branch ………………………….. 150
1-31 Branch ……………………………………. 1,250

Shipments to Branch ………… 1,250
1-31 Cash ……………………………………… 1,000

Branch …………………………. 1,000
EAGLE CO.
Balance Sheet
January 31, 20x4
Assets Liabilities
Cash …………............................ P 1,100 Accounts Payable ………………. P 2,400

Accounts Receivable ………….. 3,600 Accrued expenses ………………. 400
Accts. Rec.-home office ………. 850 Home Office ……………………… 14,050
Merchandise Inventory ………… 9,800
Merchandise in Transit …………. 600
Total assets ………………… P37,200 Total Liabilities ……………………. P37,200
EAGLE CO.
For Month Ended January 31, 20x4
Sales …………………………………………………………………………………………. P 6,200

Cost of Goods Sold:
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
Cost of Goods Sold ……………………………………………………………. 4,650
Gross Profit ………………………………………………………………………………… P 1,550
Expenses …………………………………………………………………………………… 2,110
Net Loss ………………………………………………………………………………….. .. P 560
EAGLE CO.
Balance Sheet for Home Office
January 31, 20x4
Assets
Cash …………………………………………………………………… P 9,100
Accounts Receivable ……………………………………………… P34,000
Less allowance for doubtful accounts ……………….. 1,050 32,950
Store furniture and fixtures ………………………………………… P12,000
Less accumulated depreciation ………………………. 3,950 8,050
Store furniture and fixtures-branch ……………………………… P 3,900
Less accumulated depreciation ……………………… 785 3,315
Branch office ………………………………………………………... 14,050
Total Assets …………………………………………………………… 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 stockholder’s equity …………………………………… 81,865
Total liabilities and stockholders equity …………………… P111,765
EAGLE CO.
Sales ……………………………………………………………………………… P 34,600

Cost of goods sold:
Merchandise inventory, January 1 …………………….. P46,000
Purchases …………………………………………………… 31,600
Merchandise available for sale ………………………… 77,600
Less shipments to branch ………………………………… 12,050
Merchandise available for own sales …………………. P65,550
Less merchandise inventory, January 31 ……………… 44,500
Cost of goods sold …………………………………………………………… 21,050
Gross Profit ………………………………………………………………………… P 13,650
Expenses …………………………………………………………………………… 9,325
Net income from own operations ……………………………………………. P 4,225
Deduct branch net loss ………………………………………………………… 560
Total Income …………………………………………………………………… 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 doubt-
Ful 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 ………………………………………………………………………………….. P 40,800

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 …………………………………............................... 25,700
Gross profit …………………………………………………………………………... P 15,100
Expenses ……………………………………………………………………………… 11,435
Net Income ………………………………………………………………………….. P 3,665
(a) Branch Books
Jan. 31 Shipments from Office-in Transit ……………… 600

Home Office ……………………………. 600
31 Expenses …………………………………………. 475

Home Office ……………………………. 475
31 Expenses ………………………………………… 35
Home Office ………………………….. 35
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 Inventory ……………………… 9,800

Merchandise in Transit ……………………….. 600
Income Summary …………………… 10,400
31 Expenses ……………………………………….. 350

Accrued Expenses …………………. 350
31 Sales ……………………………………………. 6,200

Income Summary ………………….. 6,200
31 Income Summary ……………………………. 17,160

Shipments from Home Office ……. 11,450
Ship. From Home Office – in Trans . 600
Purchases …………………………… 3,000
Expenses …………………………….. 2,110
31 Home Office ………………………………….. 560

Income Summary …………………... 560
31 Branch …………………………………………. 600

Shipments to Branch ………………. 600
31 Branch …………………………………………. 475

Expenses ……………………………... 475
31 Branch …………………………………………. 35
Accumulated Depreciation, Store
Furniture and Fixtures Branch …….. 35
31 Expenses ………………………………………. 100

Accumulated Depreciation store
Furniture and Fixtures branch ……. 100
1/120 x P12,000, or P100 (depreciation for one
Month; asset life, 10 years)
31 Income Summary …………………………… 46,000

Merchandise Inventory …………… 46,000
31 Merchandise Inventory …………………….. 44,500

Income Summary ………………….. 44,500
31 Expenses ………………………………………. 750

Accrued Expenses …………………. 750
31 Sales …………………………………………… 40,925

Purchases …………………………… 31,600
Expenses …………………………….. 9,325
31 Branch Income ………………………………. 560

Branch ……………………………….. 560
31 Income Summary ……………………………. 560

Branch Income ……………………... 560
31 Income Summary ……………………………. 3,665

Retained Earnings ………………….. 3,665
Problem IV
1.
Socrates Company
Home Office and Plato Branch
Reconciliation of Reciprocal Ledger Accounts
June 30, 20x4
Investment in
Plato Branch Home Office
Ledger Ledger
Account Account
(Debit) (Credit)
Balances prior to adjustment P85,000 P33,500
Add: Merchandise shipped to branch 24,000
Less: Acquisition of office equipment by branch
(carried in accounting records of home office) (14,500)
Collection of branch trade accounts receivable (9,000)
Payment of cash by branch (22,000) _______
Adjusted balances P48,500 P48,500
2. (a) Accounting records of home office:

Office Equipment: Plato Branch 14,500
Investment in Plato Branch 14,500
To record acquisition of office equipment by branch.
Cash in Transit 22,000

Investment in Plato Branch 22,000
To record cash in transit from branch.
(b) Accounting records of branch:

Home Office 9,000
Trade Accounts Receivable 9,000
To record collection by home office of branch accounts
receivable.
Inventories in Transit 24,000

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

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

Branch …………………………………………………………… 2,500
Accounts Receivable ……………………………….. 2,500
Branch …………………………………………………………… 90
Retained Earnings ……………………………………. 90
Merchandise Returns from Branch – in Transit ……………. 640

Branch ………………………………………………….. 640
Problem VI
1.
Branch Home office
Account Account
Balances before adjustments P 77,150 P 56,450
Adjustments:
Additions:
Advertising charged to branch but not yet recorded
on branch books 600
Merchandise in transit to branch but not yet shown
on branch books 4,400
Collection of home office account by branch not yet
recorded by home office ____750 _______
P77,900 P61,450
Deductions:
Overstatement of branch profit for 20x0 on home
office books 540
Cash in transit to home office but not yet shown on
home office books 16,000
Overstatement of charge for merchandise from
home office on branch books (home office shipped
200 units @ P37.85, or P7,570, and 200 units @ P44,95,
or P8,990, a total of P16,560; branch erroneously
recorded shipment at P16,650, an overstatement of
P90 _______ ___90
Corrected balances P 61360 P 61,360
2. Home office books:

Jan. 31 Retained Earnings 540
Wilshire Branch 540
31 Cash in Transit 16,000

Wilshire Branch 16,000
31 Wilshire Branch 750

Accounts Receivable 750
Branch Books:
Jan. 31 Advertising Expense 600
Home Office 600
31 Shipments from Home Office – In Transit 4,400

Home Office 4,400
31 Home Office 90
Shipments from Home Office 90
Problem VII
1.
Branch Home Office
Account Account
Balances before adjustments P 59,365 P 57,525
Adjustments:
Additions:
Corrected branch income for January (P1,440 –
P215) 1,225
Understatement of branch paid by home office for
December 310
Expenses of branch paid by home office _______ ____215
P 60,900 P 57,740
Deductions:
Collection by home office of branch receivable 65
Correction of branch income for January 215
Merchandise transferred to Brentwood branch but
incorrectly charged by Beverly Hills branch 1,400
Merchandise returns to home office in transit 840
Uncollectible accounts of branch __1,200 _______
Corrected Balances P 57,460 P 57,460
2. (a) Entries to bring branch books up to date:
Correction in Income of Prior Periods 215

Home Office 215
Home Office 215

Income Summary 215
Home Office 65
Accounts Receivable 65
(b) Entries to bring home office books up to date:

Beverly Hills Branch 1,225
Beverly Hills Branch Income 1,225
Beverly Hills Branch 310
Retained Earnings 310
Shipments to Beverly Hills Branch 1,400

Brentwood Branch 1,400

Shipments to Brentwood Branch 1,400
Merchandise Returns from Branch – In Transit – Beverly

Hills Branch 840
Beverly Hills Branch 840
Allowance for Doubtful Accounts – Beverly Hills Branch 1,200

Problem VIII
1.
Home Office
(b) Mdse. allowance by home (a) Charge for office furniture
office 350.00 by home office 780.00
(f) Truck repairs charged by home (d) Charge for labor by home
office 293.00 office 866.00
(e) Charge for freight by home
office 78.50
(h) Proceeds from sale of truck 475.00
643.00 2,199.50
Net credit Total 1,556.50 _______
1,229.50 2,199.50
Branch
(a) Purchase of office furniture for (b) Mdse. allowance for
branch 870.00 branch 300.00
(c) Branch charge for interest 325.00 (g) Proceeds from sale of 475.00
truck
(d) Branch charge for labor 433.00
(e) Branch charge for freight _785.00 ______
2,413.00 775.00
_______ Net Debit Total 1,638,000
2,413.00 _2,413.00
Balance in branch account per home office book, September 30, 20x2 P 131,690.00
Deduct net debit total per home office books for transactions that involve
discrepancies 1,638.00
P 130,052.00
Add net credit total per branch books for transaction that involve
discrepancies __1,556.50
Balance in home office account per branch books, September 30, 20x2 P 131,608.50
2.
Balance in home office account per branch books,
September 30, 20x2 P 131,608.50
Add: (a) Failure by branch to take up full furniture charges P 90.00
(b) Recognition by branch of excess merchandise
allowance 50.00
(c) Failure by branch to recognize charge by home
office for interest 325
(e) Failure by branch to recognize full freight
charges 706.50
(f) Truck repairs charge to home office account in
error 293.00 ___1,464.50
P 133,073.00
Deduct: (d) Recognition by branch of excess labor 433.00
charges
(h) Credit entry to home office made in error on
sale of truck __475.00 ___908.00
Corrected interoffice balance, September 30, 20x2 P 132,265.00
3.
Balance in branch account per home office books,
September 30, 20x2 P 131,690.00
Add credit to branch account made in error for proceeds from sale of
truck _____475.00
Corrected interoffice balance, September 30, 20x2 P 132,265.00
4.
Office Furniture 90.00
Merchandise allowances 50.00
Home office interest charges payable 250.00
Interest expense 75.00
Freight In 706.50
Repairs on truck 293.00
Labor 433.00
Trucks 475.00
Home Office 556.50
Multiple Choice Problem

1. d
Branch A Branch B
Assets:
Inventory, January 1 P 21,000 P 19,000
Imprest branch fund 2,000 1,500
Accounts receivable, January 1 55,000 43,500
Total Assets P 78,000 P 64,000
Less: Liabilities -0- -0-
Home Office Current Account P 78,000 P 64,000
2. b
Branch A Branch B
Assets:
Inventory, December 31 P 19,000 P 12,000
Accounts receivable, December 31 70,000 53,500
Less: Liabilities -0- -0-
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 January 1, 20x5
Assets:
Inventory P 37,000 P 41,000
Petty cash fund 3,000 3,000
Accounts receivable 43,000 49,000
Less: Liabilities _____-0- _____-0-
5. a – refer to No. 4 for computations

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

9. d
Branch H. Office
Current 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 advertising 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
Home Office Books Branch Books
(Branch Current- (Home Office Current –
Dr. balance) Cr. balance)
Unadjusted balance P518,575 P452,276
Add (deduct) adjustments:
In transit 10,500
Remittance ( 17,000)
Returns ( 775)
Cash in transit 25,000
Expenses - HO ( 800)
Expenses – branch 12,000
Error ________ _____224
Adjusted balance P 500,000 P 500,000
11. d
Excess freight ( 750)
Cash in transit ( 11,000)
Returns ( 4,000)
Expenses – branch ________ 5,000
12. c – refer to No. 11 for computations

14. d – refer to No. 11 for computations
15. 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. a
Collection of branch receiv ( 9,000)
Shipments in transit 24,000
Purchase by branch of office
equipment ( 14,500)
Remittance ( 22,000) _________
17. b
Remittance (40,000)
Returns (15,000)
Error by the branch 300
Expenses – branch ________ 28,000
18. c
In transit 37,500
HO A/R collected by br. 10,500
Supplies returned ( 4,500)
Error in recording Br. NI ( 1,080)
Cash sent to branch
to General Expense by HO 25,000 25,000
19. d – refer to No. 18 for computation.
20. a
(Branch Current- Dr. (Home Office Current –
balance) Cr. balance)
In transit 5,800
HO A/R collected by br. 500
Cash in transit 2,000 2,000
Error in recording Br. NI ( 3,600) _______
Adjusted balance P38,900 P38,900
22. a
(Branch Current- Dr. (Home Office Current –
balance) Cr. balance)
Collection of branch A/R ( 800)
In transit 3,200
Purchase of furniture ( 1,200)
Return of excess merchandise ( 1,500)
Remittance ( 500) _______
Adjusted balance P46,400 P46,400
23. b – refer to No. 22 for computations

24. (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)
25. 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 hom e 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.
26. d
Normally, transactions of the agency are recorded in the books of the home office separately
identified with the appropriate agency.
Quiz- XII
1. P78,000
Branch A Branch B
Assets:
Inventory, January 1 P 21,000 P 19,000
Accounts receivable, January 1 55,000 43,500
Less: Liabilities _____-0- _____-0-
2. P64,000 – refer to No. 1
3. P10,416
Sales ……….………………………………………………………… P 80,000
Purchases……………………………..………………………. P 25,000
Shipments from home office……………………………… 56,216
Less: Inventory, ending (P3,391 + P7,625)…….………… 11,016 70,200
Gross profit…………………………………………………………… P 9,800
Add (deduct):
Expenses……………………………………………………….. ( 7,500)
Interest expense………………………………………………. ( 684)
Gain on sale…………………………………………………... 8,800
Net Income……………………………………………………………….. P 10,416
4. P31,416 = P21,000 + P10,416

5. Zero, since it is a nominal account
6. P117,420
In transit 37,500
HO A/R collected by br. 10,500
Supplies returned ( 4,500)
Error in recording Br. NI ( 1,080)
Cash sent to branch
to General Expense by HO 25,000 25,000
7. P179,920 - refer to No. 6 for computation.

8. c
9. a
10. P7,100
Sales P17,600
Less: Cost of goods sold 10,500
Gross profit P 7,100
Less: Expenses
Salaries and commission [P1,750 + (5% x (P17,600 – P10,000) P 2,130
Rent expense 800
Advertising expense 325
Samples expense [(P5,000 – P2,000) x 1/6] 500
Advertising materials expense (3/5 x P1,250) 750
Depreciati0n expense [(P2,400 / 5 years) x 1/12] 40
Miscellaneous expense ___600 __5,145
Net income P 1,955
11. P5,145 – refer to No. 10

12. P1,955 – refer to No. 10
Theories
1. decentralized 11. False 21. False 31. E 41. A
2. Home Office Current 12. False 22. True 32. B 42. C
3. Branch Income 13. False 23. True 33. c 43. B
4. Home Office 14. True 24. True 34. d 44. D
5. intracompany 15. True 25. False 35. A 45. D
6. True 16. False 26. C 36. C 46. C
7. True 17. True 27. A 37. A 47. B
8. False 18. False 28. A 38. B 48. B
9. False 19. True 29. D 39. B 49. C
10, True 20. True 30. A 40. B 50. C
51. C
52. D
Chapter 13
Problem I
Sales....................................................................................................................... 42,000
Shipments to Newark Branch................................................................ 35,000
Unrealized Intercompany Inventory Profit........................................... 7,000
Cost of merchandise shipped t branch: P42,000/1.20= P35,000.
Shipments to Newark Branch........................................................................... .. 625

Unrealized Intercompany Inventory Profit........................................................ 125
Sales Returns........................................................................................... 750
Cost of merchandise returned by branch: P750/1.20= P625.
Newark Branch Income..................................................................................... 2,600

Newark Branch....................................................................................... 2,600
Unrealized Intercompany Inventory Profit........................................................ 4,125

Newark Branch....................................................................................... 4,125
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........................................................... ......................... 1,525
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
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................................................... 540
Home Office Books:

Shipments to Branch.............................................................................. 400
Unrealized Intercompany Inventory Profit........................................... 140
Branch........................................................................................ 540
Cost of merchandise returned: P540/1.35, or P400.
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 10,00 0
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............................................................................ 260
Supplies used: P400 – P140, or P260.
31 Selling Expenses............................................................................ 80
Accumulated Depreciation-Store Furniture........................ 80
Depreciation:1% of P8,000, or P80.
31 Selling Expenses............................................................................ 120
Accrued Expenses Payable................................................. 120
31 Prepaid Selling Expenses............................................................ . 150

Selling Expenses..................................................................... 150
31 Income Summary......................................................................... 16,000
Merchandise Summary......................................................... 16,000
31 Merchandise Summary................................................................. 16,950

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

Purchases.................................................................................... 5,000
Shipments from Home Office................................................... 10,500
Selling Expenses....................................................... ................... 4,560
General Expenses....................................................................... 1,840
31 Home Office........................................................... ............................ 450

Income Summary....................................................................... 450
(2) Dec.31 Branch No. 1.......................................................... .......................... 1,000

Cash............................................................................................ 1,000
Branch No. 1 Income..................................................................... 450

Branch No. 1............................................................................... 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, Dec.1............................................................ P 12,500 P 9,375 P 3,125
Shipments during December...................................... 10,500 7,875 2,625
Total in unrealized profit on December 31................. P 5,750
Inventory, Dec.31......................................................... 14,200 10,650 3,550
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 Liabilities____________________
Cash..................................................... P 2,650 Accounts payable................................... P 4,200
Accounts receivable........................ 12,850 Accrued expenses................................... 1 05
Merchandise inventory..................... 14,600 Home office............................................... 29,239
Store supplies...................................... 300
Prepaid expenses............................... 120
Furniture and fixtures.............. P 3,600
Less: Accumulated
depreciation.............. 576 3,024 ________
Total assets....................................... P 33,544 Total liabilities............................................ P 33,544
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 5,90 0
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
Assets Liabilities and Stockholder’s Equity_______
Cash..................................................... P10,350 Liabilities
Cash in transit..................................... 1,500 Accounts payable................ P 35,400
Accounts receivable........................ 26,200 Accrued expenses............... 260 P 35,660
Merchandise inventory..................... 24,200 Stockholders’ Equity
Store supplies...................................... 380 Capital Stock......................... P 65,000
Prepaid expenses............................... 350 Less deficit.............................. 4,476 60,524
Furniture and fixtures.............. P 8,500
Less: Accumulated
depreciation.............. 2, 585 5,915
Branch..................................... P29,239
Less: Unrealized intercompany
inventory profit............ 1,950 27,289 Total liabilities and ________
Total assets........................................ P 96,184 stockholder’s equity............................... P 96,184
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 Liabilities and Stockholders’ Equity
Cash ………………………………. P 14,500 Liabilities

Accounts Receivable ………… 39,050 Accounts Payable ……….. P39,600
Merchandise Inv ………………. 36,850 Accrued Expenses ………. 365 P 39,965
Store Supplies ………………….. 680 Stockholders’ Equity
Prepaid Expenses …………….. 470 Capital Stock ……………… P65,000
Furniture & Fixtures ……… P12,100 Less deficit …………………. 4,476 60,524
Less accumulated
Depreciation …... 3,161 8,939 Total liabilities and
Total assets ……………………… P100,489 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) Branch Books
Dec 31 Income Summary …………………………………………….. 14,400

Merchandise Inventory …………………………….. 14,400
31 Merchandise Inventory ……………………………………… 14,600

Income Summary ……………………………………. 14,600
31 Store Supplies Expense ………………………………………. 280

Store Supplies ………………………………………… 280
Store supplies used: P580 – P300, or P280
Dec. 31 Prepaid Expenses ………………………………………………… 120

Miscellaneous General Expense ……………………. 120
31 Miscellaneous General Expense ……………………………… 105

Accrued Expenses …………………………………….. 105
31 Depreciation Expense – F&F ………………………………….. 36

Accumulated Depreciation ………………………… 36
Depreciation: 1% of P3,600
31 Miscellaneous General Expense …………………………….. 220

Home Office …………………………………………… 220
31 Sales ……………………………………………………………… 20,000

Income Summary ……………………………………. 20,000
31 Income Summary ……………………………………………… 22,221
Purchases ……………………………………………… 4,100
Shipments from Home Office ……………………… 10,200
Advertising Expense …………………………………. 2,800
Salaries and Commissions Expense ………………. 2,350
Store Supplies Expense ……………………………… 280
Miscellaneous Selling Expense …………………….. 1,050
Rent Expense …………………………………………. 1,500
Depreciation Expense – F&F ………………………. 36
Miscellaneous General Expense …………………. 905
31 Home Office ……………………………………………………. 3,021

Income Summary …………………………………….. 3,021
(b) Home Office Books
Dec 31 Income Summary ………………………………………………. 31,500

Merchandise Inventory ………………………………. 31,500
31 Merchandise Inventory ………………………………………... 24,200

Income Summary ……………………………………… 24,200
31 Store Supplies Expense …………………………………………. 560

Store Supplies …………………………………………… 560
Store supplies used: P940 – P380, or : 560
31 Prepaid Expense ………………………………………………… 350

Miscellaneous General Expense …………………… 350
31 Miscellaneous General Expense …………………………….. 260

Accrued Expenses ……………………………………. 260
31 Depreciation Expense ………………………………………….. 85

Accumulated Depreciation – F&F …………………. 85
Depreciation: 1% of P8,500, or P85
31 Cash in Transit …………………………………………………. 1,500

Branch ………………………………………………… 1,500
31 Sales …………………………………………………………… 44,850

Shipments to branch ………………………....................... 8,500
Income Summary …………………………………. 53,350
Dec 31 Income Summary ……………………………………………… 42,405

Purchases ……………………………………………… 27,600
Advertising Expense …………………………………. 2,850
Salaries and Commissions Expense ………………. 4,250
Store Supplies Expense ……………………………… 560
Miscellaneous Selling Expense …………………….. 1,850
Rent Expense …………………………………………. 2,700
Depreciation Expense – F&F ………………………. 85
Miscellaneous General Expense …………………. 2,510
31 Branch Income ……………………………………………….. 3,021
Branch ………………………………………………… 3,021
31 Unrealized Intercompany Inventory Profit ………………. 1,750

Branch Income ……………………………………… 1,750
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
31 Income Summary …………………………………………… 1,271

Branch Income ……………………………………. 1,271
31 Income Summary …………………………………………… 2,374

Retained Earnings …………………………………. 2,374
Problem VI
1.
Branch H. Office
Current Current
Unadjusted balance, 12/31/20x4 P 44,000 P 9,000
1 Cash in transit ( 10,000)
2. Merchandise in transit 10,000
3. Branch expenses paid by home office 12,000
4. Cash in transit from home office _______ 3,000
Adjusted balance, 12/31/20x4 P 34,000 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
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
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............................................................................................................... 24,500

Income Summary.......................................................................................... 24,500
(4) Branch Income..................................................................................................... 24,500

Branch............................................................................................................ 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 9,750
Reduction in unrealized profit account- adjustment to
branch income for overstatement of cost of
goods sold.................................................................. 41,150
Branch Income............................................................................................................. 1 6,650

Income Summary............................................................................................ 16,650
Merchandise Inventory, December 31...................................................................... 142,500

Sales............................................................................................................................... 1,060,000
Shipments to Branch.................................................................................................... 21 0,000
Income Summary............................................................................................. 1,412,500
Income Summary......................................................................................................... 1,31 7,000

Merchandise Inventory, January 1................................................................ 115,000
Purchases......................................................................................................... 820,000
Expenses........................................................................................................... 382,000
Income Summary.................................................................................................... ...... 112,150

Retained Earnings............................................................................................ 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 4 0,000
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
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
Merchandise available for own sales....................................... P 260,000
Less: Merchandise Inventory, December 31, 20x4.................. 55,000
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
Gross profit................................................................................................. ................... P 77,000
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......................................................................................................... 5, 500
Home Office..................................................................................................... 5,500
(4) Branch................................................................................................................... ... 5,500

Branch Income................................................................................................ 5,500
Unrealized Intercompany Inventory Profit............................................................... 8,000

Branch Income.............................................................................................. 8,000

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
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................................................................................... 8 0,000
Purchases......................................................................................................... 210,000
Expenses........................................................................................................... 60,000
Income Summary.......................................................................................................... 4,500

Retained Earnings............................................................................................ 4,500
Problem IX
1.
Branch H. Office
Current Current
Unadjusted balance, 12/31/20x4 P 60,000 P 51,500
1 Remittance I 1,700)
2. Cash in transit 1,800
3. Shipments in transit 5,800
Adjusted balance, 12/31/20x4 P 57,300 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.................................................................................................................... P 38,470
Net income................................................................................................................... P 14,170
Income Statement – Home Office

Sales.............................................................................................................................. P 155,000
Cost of goods sold:
Purchases...................................................................................... 190,000
Merchandise available for sale................................................. P 2 13,000
Merchandise available for own sales....................................... P 113,000
Less: Merchandise Inventory, December 31, 20x4.................. 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
Operating expenses........................................................................................ ............ 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 ……………………………………………………………. 1,950
Shipments from Home Office…………………………………….. 1,600
Freight In……………………………………………………………… 350
b. Books of branch No. 5:

Shipments from Home Office………………………………………… 1,600
Freight In…………………………………………………………………… 400
Home Office…………………………………………………………. 1,750
Cash…………………………………………………………………… 250
c. Books of the Home Office

Branch No. 5…………………………………………………………….. 1,750
Excess Freight on Inter branch Transfer of Merchandise……….. 200
Branch No. 1………………………………………………………… 1,950
Shipments to Branch No. 1…………………………………………….. 1,600

Shipments to Branch No. 5………………………………………… 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 P 31,000
From Outsiders 6,600
P 37,600
3. a
True Branch Net Income
Branch Net Income P 5,000
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 67,600
Unrecorded branch expenses ( 2,500)
True Branch Net Income P 70,100
4. a – P30,000 x (90,000 – 60,000)/90,000
5. a
6. d – (P50,000 – P40,000)/P40,000 = 25% markup on cost
7. c – (P480,000 – P360,000) x (P80,000/P480,000) = P20,000
8. c – P700,000, since the problem stated that the “home office adjusted the intracompany Profit
Deferred account” and the amount of P700,000 is the amount of net income in the adjusted
financial statements of the home office, and therefore it is understood to be combined net
income.
9. b
Note to teachers: The Intercompany Profit Deferred amounting to P6,000 should be in the column
of Home Office
Reported (unadjusted) branch net income (per branch books) ………………..P 30,000
Branch Income in so far as home office is concerned per home office books. 50,000
Overvaluation of branch cost of goods sold…………………………………………P 20,000
Cost of sales of Home Office…………………………………………………………….P 500,000

Cost of sales of Branch…………………………………………………………………… 100,000
Overvaluation of branch cost of sales…………………………………………………( 20,000)
Combined cost of sales…………………………………………………………………...P580,000
10. c – the amount of net income as reported by Home office is considered the combined net
income.
11. c
True Branch Net Income P156,000
Less: branch Net Income as reported by the branch 60,000
Overvaluation of CGS P 96,000
Less: Cost of goods sold from home office at BP
Inventory, December 1 P 70,000
Shipment from HO 350,000
COGAS P 420,000
Less: Inventory, December 31 84,000 336,000
CGS from home office, at cost P 240,000
Billing Price: P336,000 / P240,000 = 140%.
12. c – Allowance for overvaluation after adjustment / for December 31 inventory: P84,000 x 40/140
= P24,000.
13. b
Net Income as reported by the Branch P 20,000
Less: Rental expense charged by the home office
(P1,000 x 6 months) 6,000
Adjusted NI as reported by the Branch P 14,000
Add: Overvaluation of CGS
Billed Price
MI, beginning 0
SFHO 550,000
COGAS 550,000
Less: MI, ending 75,000
CGS, at BP 475,000
X: Mark-up ratio 25/125 95,000
True/Adjusted/Real Branch Net Income P109,000
14. 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
15. 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
16. d
Billed Price Cost Allowance
Merchandise Inventory, 12/31/2005 *P 36,000 P 30,000 P 6,000
Shipments 28,800 24,000 4,800
Cost of goods sold P10,800
From Home at billed price: *P6,000 / 20% = P30,000 + P6,000 = P36,000.
From outsiders: P45,000 – P36,000 = P9,000
17. d
Merch. Inventory, 12/31/20x4 *P12,000 P10,000 P 2,000
Shipments 9,600 8,000 1,600
Cost of Goods Sold P 3,600
*P2,000 / 20% = P10,000 + P2,000 = P12,000.
Merchandise inventory, December 1, 20x4…………………………………P 15,000

Less: Shipments from home office at billed price*………………………… 12,000
Merchandise from outsiders……………………………………………………P 3,000
18. 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
19. d
100% 60% 40%
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
20. d
Billed Cost Allowance
Price
Shipments (400,000 x 25%) 400,000 *100,,000
Less: MI, 8/31/x4 (160,000 x 25%) 160,000 40,000
Overvaluation of CGS/RPBSales 120,000
21. b
(1) Sales P 40,000
Inventory, 1/1/2003 (P4,950 / 110%) P 4,500
Add: Shipments (P22,000 / 110%) 20,000
COGAS P 24,500
Less: Inventory, 12/31/2003 (P6,050 / 110%) 5,500 19,000
Less: Expenses _ 13,100
Net income from own operations P 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
Cost of Goods Sold……………………………………………………. P 52,000
22. a - P48,000 / 120% = P40,000
23. 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 this case is considered
to be the adjustments in the books of Home Office to determine the adjusted branch net
income)
120% 100% 20%
Merchandise inventory, 1/1/x4 0
Shipments 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*
24. b
Sales (P148,000 + P44,000) P192,000
Less: Cost of Sales
Inventory, 1/1/20x4 P 0
Purchases 52,000
Shipments from home office 108,000
Cost of goods available for sale P 160,000
Less: Inventory, 12/31/20x4 60,000 100,000
Less: Expenses (P76,000 + P24,000) 100,000
Net income, unadjusted P( 8,000)
Add: Overvaluation of CGS 10,000
Adjusted branch net income P 2,000
25. c
125% 100% 25%
Shipments 250,000
Less: MI, 12/31/x4 (P60,000 x 80%) 60,000
Overvaluation of CGS(230,000x 25/125) 230,000 46,000*
26. d – P326,000
Sales (P600,000 + P300,000) P 900,000
Merchandise inventory, beg.
[P100,000 + (P40,000/1.25)] P132,000
Add: Purchases 350,000
Cost of goods available for sale P482,000
Less: MI, ending
[P30,000 + (P60,000/1.25)] 78,000 404,000
Less: Expenses (P120,000 + P50,000) _ 170,000
Net Income P 326,000
27. b
Sales (P537,500 + P300,000) P 837,500
Merchandise inventory, beg.
[P50,000 + (P60,000/1.20)] P 87,500
Add: Purchases 500,000
Less: MI, ending
[P70,000 + (P60,000/1.20)] 120,000 467,500
Less: Expenses (P120,000 + P50,000) _ 170,000
Net Income P 200,000
28. 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
Less: Expenses (P28,000 + P12,000)………………………… 40,000
Net Income……………………………………………………. P 50,200
29. 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
30. c
Sales P155,000
Less: Cost of Sales
Inventory, 1/1/10 P 23,000
Purchases 190,000
Less: Shipment/Sales to Branch,
at cost (P110,000/110%) 100,000
Cost of goods available for HO
Sale P113,000
Less: Inventory, 12/31/10 30,000 83,000
Less: Expenses 52,000
Net income – home office P 20,000
31. 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
Less: Inventory, 12/31/10
(P10,400 + P520 + P5,250) 16,170 111,130
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
MI. 1/1/2010 1,000
Shipments
110,000 100,000 **10,000
Available for sale 11,000
-: MI, 12/31/10 ***15,400 ****1,400
CGS 9,600
**110,000 x 10/110
***10,400 + 5,000, in transit
****15,400 x 10/110
32. 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
33. 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
34. 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.)
35. 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
36. 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
37. c
Home Office Books Davao Branch Baguio Branch
Davao Branch…39,000 SFHO…………….37,700
STB, cost……. 32,500 Freight-in………. 1,300
Unrealized profit 5,200 HOC………….. 39,000
Cash (freight)…. 1,300
BC – Baguio……19,630 HOC……………….20,150 SFHO………18,850
Excess freight… 520 SFHO(50%)… 18,850 Freight-in.. 780
BC-Davao……. 20,150 Freight-in (50%) 650 HOC……... 19,630
Cash…………...... 650
38. c – (P300,000 x ¼ = P75,000, ending inventory x (P300,000 – P250,000)/P300,000 = P12,500

39. d
40. d
41. b – refer to No. 21
43. c – refer to No. 21
44. c
45. d
Quiz – XIII
1. P63,000
Merchandise inventory, December 31 at cost –
From outsiders (see no.2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 18,000
From home office (see no.2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45,000
P63,000
2. P18,000
Branch inventory, 12/31 per books . . . . . . . . . . . . . . . . . P 72,000
Less Branch inventory from HO at billed price:
Overvaluation of branch inventory . . . . . . . . . . . P 9,000
Cost of branch inventory (P9,000 ÷ 20%) . . . . . . . 45,000 54,000
Branch inventory from outsiders . . . . . . . . . . . . . . . . . . . P 18,000
3. P93,600
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 351,000
Cost of sales:
Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54,000
Shipments from HO at cost (P216,000 ÷120%) . . . 180,000
Cost of goods available per sale . . . . . . . . . . . . . 234,000
Less inventory, 12/31 (see no.1) . . . . . . . . . . . . . . . 63,000 171,000
Gross Profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 180,000
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86,400
Branch net income as far as the HO is concerned . . . P 93,600
4. P14,040
Allowance for overvaluation of branch inventory . . . P119,880
Less Overvaluation of shipments from HO:
Billed price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 468,000
Cost (P468,000 ÷ 130%) . . . . . . . . . . . . . . . . . . . . . 360,000 108,000
Overvaluation of beginning inventory from HO: . . . . P 11,880
Add Beginning inventory from HO, at cost (11,880 ÷
30%) . 39,600
Beginning inventory from HO, at billed price . . . . . . . P 51,480
Merchandise inventory, January 1 . . . . . . . . . . . . . . . . P 65,520

Less Beginning inventory from HO, at billed price
(see above) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51,480
Beginning inventory from outsiders . . . . . . . . . . . . . . . P 14,040
5. P47,340
Sales ……………………………………………………… P648,000
Cost of sales:
Merchandise inventory January 1-. . . . . . . . . . . .
From outsiders (see no.4) . . . . . . . . . . . . . . . . . P14,040
From HO, at cost (see no.4) . . . . . . . . . . . . . . . 39,600 P 53,640
Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173,520
Shipments from HO, at cost
(equal Shipments to Branch) . . . . . . . . . . . . . . . . . . 360,000
CGAS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 587,160
Less Merchandise inventory, December 31 -
From outsiders (P58,500– P46,800) . . . . . . . . . . 11,700
From HO, at cost (P46,800 ÷ 130%) . . . . . . . . . 36,000 47,700 539,460
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108,540
Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61,200
Branch net income in so far as the HO is
concerned. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 47,340
6. P45,000
Balance of Allowance for overvaluation of branch inventory
account before adjustment . . . . . . . . . P 69,000
Less Overvaluation of shipments from HO:
Billed price (P240,000 x 125%). . . . . . . . . . . . . . . . . P 250,000
Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200,000 60,000
Overvaluation of beginning inventory. . . . . . . . . . . . . 9,000
Add Beginning inventory at cost (P11,640 ÷ 25%) . . . . 36,000
Branch beginning inventory at billed price . . . . . . . . . P 45,000
7. P63,000
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 480,000
Cost of sales: (see no.6) . . . . . . . . . . . . . . . . . . . . . . . . .
Beginning inventory. . . . . . . . . . . . . . . . . . . . . . . . . P 45,000
Shipments from HO (P240,000 x 125%). . . . . . . . . . 300,000
CGAS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 345,000
Less ending inventory. . . . . . . . . . . . . . . . . . . . . . . . 48,000 297,000
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 183,000
Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120,000
Branch net income, per books . . . . . . . . . . . . . . . . . . . P 63,000
8. P122,400
Branch net income, per books (see no. 7) . . . . . . . . . P 63,000
Add realized profit -
Allowance for overvaluation of branch inventory P 69,000
Less Overvaluation of branch ending inventory:
Billed price. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 48,000
Cost (P48,000 ÷ 125%). . . . . . . . . . . . . . . . . . . . 38,400 9,600 59,400
True branch net income. . . . . . . . . . . . . . . . . . . . . . . . P 122,400
9. 20%
Inventories, January 1, 20x5 at billed price. . . . . . . . . . . . . . . . . . . . . . P 90,000
Shipments from HO. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 432,000
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 522,000
Less Allowance for overvaluation of branch inventory. . . . . . . . . . . . 87,000
Cost of merchandise from home office . . . . . . . . . . . . . . . . . . . . . . . . P435,000
Allowance for overvaluation of branch inventory . . . . . . . . . . . . . . . P 87,000

Divide by Cost of merchandise from HO (see above) . . . . . . . . . . . . P 435,000
Percentage of profit on cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20%
10. P360,000
Shipments from HO, at billed price . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 432,000
Divide by the billing percentage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120%
Balance of shipments to Branch account. . . . . . . . . . . . . . . . . . . . . . P 360,000
11. P129,000
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 720,000
Cost of sales:
Inventories, January 1 at cost (P90,000 ÷ 120%) . . . . . . . . . . P 75,000
Shipments from HO, at cost (see no. 10) . . . . . . . . . . . . . . . . 360,000
CGAS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 435,000
Inventories, December 31 at cost (P100,800 ÷ 120%) . . . . . . 84,000 351,000
Gross profit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 369,000
Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 240,000
Adjusted branch profit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 129,000
12. P4,800
Inventory , January 1 per books . . . . . . . . . . . . . . . . . . . . . . . . . . . P 24,000
Less Inventory, January 1 from HO at billed price
Allowance for overvaluation of branch inventory . . . . . . . . P 28,900
Overvaluation of shipments from HO (P96,000 – P72,000) . . 24,000
Overvaluation of beginning inventory from HO . . . . . . . . . . 4,800
Add Inventory for HO, at cost (P4,800 ÷ 33.33%) . . . . . . . . . . 14,500 19,200
Inventory, January 1 from outsiders. . . . . . . . . . . . . . . . . . . . . . . . . P 4,800
13. P66,000
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 240,000
Cost of sales:
Inventory, January 1(cost)
From outsiders (see no.12) . . . . . . . . . . . . . . . . . . . . . P 4,800
From HO, at cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,500 P 19,200
Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,000
Shipments from HO, at cost . . . . . . . . . . . . . . . . . . . . . . 72,000
CGAS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127,200
Less Inventory, December 31 (cost) -
From outsiders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,200
From HO, at cost (P24,000 ÷ 133%). . . . . . . . . . . . . . 18,000 25,200 102,000
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138,000
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72,000
True branch net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . P66,000
14. 25%
Shipments from home office (billed price) . . . . . . . . . . . . . . . . . . . . . . . . . P 450,000
Divide by shipments to branch (cost) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 360,000
Billing percentage. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125%
Less percentage at cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
Rate of mark-up on cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25%
15. P24,000
Balance of allowance for overvaluation of branch inventory account P 94,800
Less Overvaluation of shipments from HO (P450,00 – P360,000) . . . . . . . 90,000
Overvaluation of beginning inventory from HO . . . . . . . . . . . . . . . . . . . . . 4,800
Add Cost of beginning inventory from HO (P4,800 ÷ 25%) . . . . . . . . . . . . 19,200
Branch beginning inventory from HO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 24,000
16. P89,040
Balance of allowance for overvaluation of branch inventory P 94,800
Less Overvaluation of branch ending inventory:
Billed price (P49,680 – P20,880) . . . . . . . . . . . . . . . . . . . . . P 28,800
Cost (P28,800 ÷ 125%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,040 5,760
Realized profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P89,040
17. P36,000
Balance of Allowance for overvaluation of branch inventory . . . . . . . P 43,200
Less Overvaluation of shipments from HO (P115,200 – P96,000) . . . . . . . 19,200
Overvaluation of beginning inventory from HO . . . . . . . . . . . . . . . . . . . . 24,000
Add Cost of beginning inventory from HO (P24,000 ÷ 20%) . . . . . . . . . . . 120,000
Beginning inventory from HO, at billed price. . . . . . . . . . . . . . . . . . . . . . . P 144,000
Merchandise inventory, January 1 per books . . . . . . . . . . . . . . . . . . . . . . P 180,000
Less beginning inventory from HO (see above) . . . . . . . . . . . . . . . . . . . . . 144,000
Branch beginning inventory from outsiders . . . . . . . . . . . . . . . . . . . . . . . . P 36,000
18. P26,400
Balance of allowance for overvaluation of branch inventory P 43,200
Less Overvaluation of branch ending inventory from HO:
Billed price (P120,000 – P19,200) . . . . . . . . . . . . . . . . . . . . P100,800
Cost (P100,800 ÷ 120%) . . . . . . . . . . . . . . . . . . . . . . . . . . . 84,000 16,800
Realized branch profit to be adjusted . . . . . . . . . . . . . . . . . . . P 26,400
19. P9,990
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 189,000
Cost of sales:
Inventory, January 1 at cost (P27,000÷ 125%) . . . . . . . . P 21,360
Shipments from HO, at cost . . . . . . . . . . . . . . . . . . . . . . . 126,000
CGAS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147,360
Inventory, December 31 at cost P35,100 ÷ 120%) . . . . . 29,250 118,110
Gross profit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70,890
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60,900
True branch income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 9,990
20. P67,290
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 636,000
Cost of sales:
Inventory, January 1. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 69,000
Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 492,000
CGAS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 561,000
Less Shipment to branch . . . . . . . . . . . . . . . . . . . . . . . . . . 126,000
Cost of goods available for own sale . . . . . . . . . . . . . . . 435,000
Less Inventory, December 31. . . . . . . . . . . . . . . . . . . . . . 85,500 349,500
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 286,500
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 229,200
Net income of home office . . . . . . . . . . . . . . . . . . . . . . . . . . . 57,300
Add Branch net income (see no. 19) . . . . . . . . . . . . . . . . . . . 9,990
Combined net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 67,290
21. Branch Inventory, 12/31/20x4: P30,000 x 60%...................................P 18,000

22. Branch Inventory, at cost: (P25,000 + P1,000) x 60%.........................P 15,600
23. P30,000
Merchandise inventory, January 1 P 26,400
Shipments from home office __20,000
Cost of goods available for sale P 46,400
Less: Cost of goods sold, at BP:
Sales P 15,000
Less: Sales returns ___2,000
Net sales P 13,000
Divided by: SP based on cost ____125% __10,400
Merchandise inventory, ending at BP P 36,000
Divided by: Billed price ____120%
Merchandise inventory, ending at cost
lost due to fire) P 30,000
Theories
1. True 6. False 11. False 16. True 21. D

2. False 7. False 12. True 17. True 22. A
3. True 8. False 13. False 18. True 23. d
4. True 9. True 14. True 19. False 24. d
5. False 10. True 15. False 20. d 25. a
26. c
Chapter 14
Problem I
1. Consideration transferred : FMV of shares issued by Robin (80,000 sh × P28) = P2,240,000
2. Consideration trasnferred P2,240,000

Less: Fair value of Hope’s net assets (P2,720,000+P200,000–P1,200,000) 1,720,000
Goodwill P 520,000
Problem II
1.. Accounts Receivable 180,000
Inventory 400,000
Land 50,000
Building 60,000
Equipment 70,000
Patent 20,000
Goodwill 10,000
Acquisition Expense 20,000
Current Liabilities 70,000
Long-term Debt 160,000
Cash 580,000
Consideration trasnsferred : Cash P560,000
Less : Fair value of West’s net assets
(P180,000 + P400,000 + P50,000
+ P60,000 + P P70,000 + P20,000
– P70,000 - P160,000) 550,000
Goodwill P 10,000
2. Acquisition Expense 20,000

Accounts Receivable 180,000
Inventory 400,000
Land 50,000
Building 60,000
Equipment 70,000
Patent 20,000
Cash 520,000
Gain on Acquisition 50,000
Consideration trasnsferred : Cash P500,000

Less : Fair value of West’s 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
Inventory 330,000
Land 550,000
Buildings and Equipment 1,144,000
Goodwill 848,000
Allowance for Uncollectible Accounts (P231,000 - P198,000) 33,000
Bonds Payable 450,000
Premium on Bonds Payable (P495,000 - P450,000) 45,000
Preferred Stock (15,000 x P100) 1,500,000
Common Stock (30,000 x P10) 300,000
PIC - par (P25 - P10) x 30,000 450,000
Cash 50,000
Consideration transferred: (P1,500,000 + P750,000

+ P50,000) P2,300,000
Less: Fair value of net assets (198,000 + 330,000 +
550,000 + 1,144,000 – 275,000 – 495,000) = 1,452,000
Goodwill P 848,000
Problem IV
Current Assets 960,000
Plant and Equipment 1,440,000
Goodwill 336,000
Liabilities 216,000
Cash 2,160,000
Estimated Liability for Contingent Consideration 360,000
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 500,000
2. Paid-in-Capital for Contingent Consideration – Issuable 500,000

Common Stock (P10 par) 100,000
Paid-In-Capital in Excess of Par 400,000
Platz Company does not adjust the original amount recorded as equity.
Problem VI
1. January 1, 20x4
Inventory 99,000
Land 162,000
Buildings 450,000
Equipment 288,000
Goodwill 54,000
Allowance for Uncollectible Accounts 7,000
Accounts Payable 83,000
Note Payable 180,000
Cash 720,000
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 240,000
Inventory 320,000
Land 1,508,000
Buildings 1,392,000
Goodwill 30,000
Note Payable 600,000
Cash 2,600,000
Goodwill 200,000
Consideration transferred P2,600,000

Fair value of net assets acquired
(P3,440,000 – P870,000) 2,570,000
Goodwill P 30,000
2. Estimated Liability for Contingent Consideration 200,000

Gain on Contingent Consideration 200,000
Problem VIII
Current Assets 362,000

Long-term Assets (P1,890,000 + P20,000) + (P98,000 + P5,000) 2,013,000
Goodwill * 395,000
Liabilities 119,000
Common Stock (144,000  P5) 720,000
PIC - par (144,000 x P15 - P5)) 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) 144,000

Fair value of stock issued (144,000P15) = P2,160,000
Problem IX
Case A
Consideration transferred P130,000
Less: Fair Value of Net Assets 120,000
Goodwill P 10,000
Case B
Goodwill P 20,000
Case C
Gain (P 5,000)
Assets Liabilities Retained

Goodwill Current Assets Long-Lived Assets Earnings (Gain)
Case A P10,000 P20,000 P130,000 P30,000 0
Case B 20,000 30,000 80,000 20,000 0
Case C 0 20,000 40,000 40,000 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) = 50,000
Consideration transferred above which goodwill would result P450,000
2. 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 = P187,080

Present value of interest annuity, 20 periods @ 6%: 11.46992 x 30,000 = 344,098
Total Present value 531,178
Par value 600,000
Discount on bonds payable P68,822
Cash 114,000
Inventory 310,000
Land 315,000
Buildings 54,900
Equipment 39,450
Bond Discount (P40,000 + P68,822) 108,822
Bonds Payable (P300,000 + P600,000) 900,000
Gain on Acquisition of Stalton (ordinary) 81,872
Computation of Excess of Net Assets Received Over Cost
Consideration transferred (P531,178 plus liabilities assumed of P95,300
and P260,000) P886,478
Less: Total fair value of assets received P968,350
Excess of fair value of net assets over cost (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) P750,000

Fair value of net assets acquired:
Cash P29,000
Receivables 63,000
Trademarks 225,000
Record music catalog 180,000
In-process R&D 200,000
Equipment 105,000
Accounts payable (34,000)
Notes payable (45,000) 723,000
Goodwill P27,000
Entry by NT to record combination with OTG:

Cash 29,000
Receivables 63,000
Trademarks 225,000
Record Music Catalog 180,000
Capitalized R&D 200,000
Equipment 105,000
Goodwill 27,000
Notes Payable 45,000
Common Stock (NewTune par value) 60,000
PIC - par 690,000
(To record merger with OTG at fair value)
PIC - par 25,000

Cash 25,000
(Stock issue costs incurred)
Post-Combination Balance Sheet:
Assets Liabilities and Owners’ Equity

Cash P 64,000 Accounts payable P 144,000
Receivables 213,000 Notes payable 415,000
Trademarks 625,000
Record music catalog 1,020,000
Capitalized R&D 200,000 Common stock 460,000
Equipment 425,000 Paid-in capital - par 695,000
Goodwill 27,000 Retained earnings 860,000
Total P 2,574,000 Total P 2,574,000
Problem XIII
Stockholders’ Equity:
Common Stock, P1 par P1,100,000
Other Contributed Capital 4,090,000 [P2,800,000 + (100,000 x P13) – P10,000]
Retained Earnings 600,000
Total stockholders’ Equity P 5,790,000
Problem XIV
Entry to record the acquisition on Pacifica’s records:
Cash 85,000
Receivables and inventory 180,000
PPE 600,000
Trademarks 200,000
IPRD 100,000
Goodwill 77,500
Liabilities 180,000
Common Stock (50,000 x P5) 250,000
Paid-In Capital in excess of par (50,000 x P15) 750,000
Contingent performance obligation 62,500
The goodwill is computed as:

Consideration transferred: 50,000 shares x P20 P1,000,000
Contingent consideration:
P130,000 payment x 50% probability x 0.961538 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 15,000

Cash 15,000
PIC - par 9,000

Cash 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
Retained earnings, 12/31 *(1,170,000)
* or, P1,185,000 – P15,000 = P1,170,000
Problem XV
Acquisition Method—Entry to record acquisition of Sampras
Consideration transferred (fair value) 315,000
Fair value of net identifiable assets 282,000
Goodwill P33,000
Receivables 80,000
Inventory 70,000
Buildings 115,000
Equipment 25,000
Customer list 22,000
IPRD 30,000
Goodwill 33,000
Current liabilities 10,000
Long-term liabilities 50,000
Contingent performance liability 15,000
Cash 300,000
Acquisition expenses 10,000

Cash 10,000
Problem XVI
1.
a. The computation of goodwill is as follows:
Consideration transferred;
Common shares: 30,000 shares x P25 P 750,000
Notes payable 180,000
Contingent consideration (cash contingency):
P120,000 x 30% probability 36,000
Total P 966,000
Less: Fair value of identifiable assets acquired and
liabilities assumed:
Cash P 24,000
Receivables – net 48,000
Inventories 72,000
Land 240,000
Buildings – net 360,000
Equipment – net 300,000
In-process research and development 60,000
Accounts payable ( 72,000)
Other liabilities ( 168,000) 864,000
Positive Excess – Goodwill P 102,000
b. The journal entries by Peter Corporation to record the acquisition is as follows:
Cash 24,000
Inventories 72,000
Land 240,000
Goodwill 102,000
Accounts payable 62,000
Other liabilities 168,000
Common stock (P10 par x 30,000 shares) 300,000
Paid-in capital in excess of par
[(P25 – P10) x 30,000 shares] 450,000
Acquisition of Saul Company.
Acquisition-related expenses 78,000

Cash 78,000
Acquisition related costs – direct costs.
Paid-in capital in excess of par 32,400

Cash 32,400
Acquisition related costs – costs to issue and
register stocks.
Acquisition-related expenses 27,600

Cash 27,600
Acquisition related costs – indirect costs.
c. The balance sheet of Pure Corporation immediately after the acquisition is as follows:
Pure Corporation
Balance Sheet
December 31, 20x4
Assets
Cash P 162,000
Inventories 360,000
Land 348,000
Goodwill 102,000
Total Assets P2,748,000
Liabilities and Stockholders’ Equity

Liabilities
Accounts payable P 288,000
Estimated liability for contingent consideration 36,000
Total Liabilities P 912,000
Stockholders’ Equity
Common stock, P10 par P 1,020,000
Paid-in capital in excess of par1 657,600
Retained earnings2 158,400
Total Stockholders’ Equity P1,836,000
Total Liabilities and Stockholders’ Equity P2,748,000
1 P240,000 + P446,400 – P32,400
2 P264,000 - P78,000 – P27,600
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 24,000
Adjustment to goodwill due to measurement date.
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 12,000
Adjustment after measurement date.
In this case, the measurement 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 30,000

consideration
c.3.3.
c.3.3.1. P126,000.
c.3.3.2. On January 1, 20x7, Saul’s 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 42,000
Cash 120,000
Settlement of contingent consideration.
4.
a. The amount of goodwill on acquisition will be recomputed as follows:
P120,000 x 35% probability x (1/[1 + .04]*) 40,385
Total P 970,385
liabilities assumed (refer to 1a above) 864,000
Goodwill P 106,385
b. The journal entries by Pure Corporation to record the acquisition is as follows:

Cash 24,000
Inventories 72,000
Land 240,000
Goodwill 106,386
[(P25 – P10) x 30,000 shares] 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
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 66,000
Cash [(P78,000 + P84,000)/2 – P30,000] x 2 102,000
5.
a. The amount of goodwill on acquisition will be recomputed as follows:
P120,000 x 30% probability 36,000
Contingent consideration (stock contingency) 18,000
Total P 984,000
b. The journal entries by Pure Corporation to record the acquisition is as follows:

Cash 24,000
Inventories 72,000
Land 240,000
Goodwill 120,000
Paid-in capital for Contingent Consideration
18,000
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:
Paid-in capital for Contingent Consideration 18,000
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:

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:

* Deficiency: (P25 – P20) x 25,000 shares issued to acquire..P150,000
Divide by fair value per share on January 1, 20x7………….P 20
Added number of shares to issue………………………………. 7,500
8. The amount of goodwill on acquisition will be recomputed as follows:

Contingent consideration (stock contingency):
[(P750,000 – P510,000) x 40% probability
x (1/[1 + .04]*) 92,308
Total P1,022,308
* present value of P1 @ 4% for one period.
The journal entries by Pure Corporation to record the acquisition is as follows:

Cash 24,000
Inventories 72,000
Land 240,000
Goodwill 158,308
[(P25 – P10) x 30,000 shares] 450,000
On December 31, 20x5, the contingent event occurs, wherein Peter’s 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:

Common stock, P10 par 75,000
* Deficiency: (P25 – P20) x 30,000 shares issued to acquire....P150,000
Divide by fair value per share on December 31, 20x5……P 20
Added number of shares to issue……………………………… 7,500
Problem XVII
1. The computation of bargain purchase gain is as follows:
Cash P 1,800,000
Common shares: 120,000 shares x P12 1,440,000
Costs of liquidation 12,000
Patent 240,000
Contingent consideration (P12,000 guarantee
+ P14,400 to vendors) 26,400
Total P3,518,400
liabilities assumed:
Merchandise inventory P1,440,000
Copyrights 240,000
Equipment 1.380,000
Accounts payable ( 300,000)
Loan payable ( 120,000) 3,540,000
Negative Excess – Bargain Purchase Gain P ( 21,600)
2. The journal entries by Ponder Corporation to record the acquisition is as follows:

Merchandise inventory 1,440,000
Patent 240,000
Equipment 1,380,000
Loan payable 120,000
Cash 1,812,000
Common stock (P10 par x 120,000 shares) 1,200,000
[(P12 – P10) x 120,000 shares] 240,000
Gain on sale of Patent 240,000
Bargain purchase gain 21,600
Problem XVIII
1.
Consideration transferred:
Shares: 2/3 x 60,000 x P3.20 128,000
Cash
Mortgage and interest 44,000
Debentures and premium 52,500
Liquidation expenses 2,400
144,000
Cash held (12,000) 132,000
260,000
Less: Fair value of assets and liabilities acquired:
Accounts receivable P34,700
Inventory 39,000
Freehold land 130,000
Buildings 40,000
Plant and equipment 46,000 289,700
Bargain Purchase Gain 29,700
Homer Ltd
Inventory 39,000
Freehold Land 130,000
Buildings 40,000
Plant and Equipment 46,000
Payable to Tan Ltd 132,000
Common stock, P1 par x 40,000 shares 40,000
Additional paid-in capital 88,000
Gain on acquisition 29,700
(Acquisition of net assets of
Tan Ltd and shares issued)
Payable to Tan Ltd 132,000

Cash 132,000
(Being payment of cash consideration)

Cash 1,200
(Being costs of issuing shares)
2.
Tan LTD
General Ledger
Liquidation
P P
Accounts Receivable 34,700 Additional paid in capital 26,800
Inventory 27,600 Retained earnings 32,000
Freehold Land 100,000 Receivable from Homer Ltd 260,000
Buildings 30,000
Goodwill 2,000
Interest Payable 4,000
Liquidation Expenses 2,400
Premium on Debentures 2,500
Shareholders’ Distribution 68,000
318,800 318,800
Liquidator’s Cash
P P
Opening Balance 12,000 Liquidation Expenses 2,400
Receivable from Homer Ltd 132,000 Mortgage and Interest 44,000
Debentures and Premium 52,500
144,000 144,000
Shareholders’ Distribution
P P
Shares in Homer Ltd 128,000 Common stock 60,000
Liquidation 68,0000
128,000 128,000
Problem XIX
Cash 20,000
Inventory 134,000
Land 55,000
Plant Assets 463,000
Discount on Bonds Payable 20,000
Goodwill* 127,200
Bonds Payable 200,000
Deferred Income Tax Liability 67,200
Cash 600,000

(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) P148,000
Decrease bonds payable to fair value ( 20,000)
Increase in net assets P168,000
Establish deferred income tax liability (P168,000 x 40%) P 67,200

1. c
Finder’s 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 finder’s 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 acquisition-related 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 issuance………………………………P 10,000
Stock registration fees……………………………………………...... 5,000
Stock listing fees…………………………………………………......... 4,000
P 19,000
3. c
4. a – at fair value
5. 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.
6. 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.
7. b
Consideration transferred (fair value)…………………….. P80,000
Less: Fair value of net identifiable assets acquired:
Fair value of assets……………………………………… P 98,000
Less: Present value/ Fair Value of liabilities………… 23,000 75,000
Goodwill…………………………………………………… P 5,000
 A net identifiable asset means net assets excluding goodwill (unidentifiable asset).
 An acquisition-related costs are considered outright expenses.
8. d – [P1,600,000 – P1,210,000] = P390,000

9. a – [(P1,600,000 – PP390,000) - P1,210,000] = P0
10. 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 acquiree’s 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 …”
11. 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.
12. c
Fair value of Subsidiary - Homer
Consideration transferred………………………………………………………P 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 PFRS
3 pars. 39, 40 and 58.
13. b – [(P47 x 12,000 shares) – (P70,000 + P210,000 + P240,000 + P270,000 + P90,000 – P420,000)
= P104,000
14. d
APIC: P20,000 + [(P42 – P5) x12,000 = P464,000
Retained earnings: P160,000, parent only
15. b
Inventory: PP230,000 + P210,000 = P440,000
Land: P280,000 + P240,000 = P520,000
16. b – [P480,000 – (P70,000 + P210,000 + P240,000 + P270,000 + P90,000 – P420,000)] = P20,000
17. a
Cost of Investment (100,000 shares x P1.90) P 190,000

Less: Market value of net assets acquired:
Cash P 50,000
Furniture and fittings 20,000
Plant 125,000
Current tax liability ( 8,000)
Liabilities ( 2,000) 175,000
Goodwill P 15,000
18. 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
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.
19. c AA records new shares at fair value

Value of shares issued (51,000 × P3)............................................................... P153,000
Par value of shares issued (51,000 × P1) ........................................................ 51,000
Additional paid-in capital (new shares) ....................................................... P102,000
Additional paid-in capital (existing shares) ................................................. 90,000
Consolidated additional paid-in capital ...................................................... P192,000
At the date of acquisition, the parent makes no change to retained earnings.

21. c
Depreciation expense:
Building, at book value (P200,000 – P100,000) / 10 years P 10,000
Building, undervaluation (P130,000, fair value
– P100,000, book value) / 10 years 3,000
Equipment, at book value (P100,000 – P50,000) / 5 years 10,000
Equipment, undervaluation (P75,000, fair value
- P50,000, book value) / 5 years 5,000
Total depreciation expense P 28,000
22. c - [(24,000 shares x P30) – P686,400] = P33,600

23. d - [(24,000 shares x P30) – (P270,000 + P726,000 – P168,000)] = P108,000, gain
24. b
Consideration transferred (fair value) P400,000
(P60,000 + P175,000 + P200,000 + P225,000 + P75,000 – P100,000) 385,000
Goodwill P 15,000
25. a - only the subsidiary’s post-acquisition income is included in consolidated totals.
26. 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.
27. d
Cost P180,000
Less: Accumulated depreciation (P180,000/30 years = P6,000/year x 3 yrs) 18,000
Net book value P162,000
28. c
Net Assets [P100,000 + P50,000 + P162,000 (No. 54)] P312,000
Less: Shares issued at par (15,000 shares x P10 par) 150,000
APIC P162,000
29. 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.
30. c
Shares: 2/3 x 60,000 x P3.20 128,000
Cash
Mortgage and interest 44,000
Debentures and premium 52,500
Liquidation expenses 2,400
144,000
Cash held (12,000) 132,000
260,000
Less: Fair value of assets and liabilities acquired:
Accounts receivable P34,700
Inventory 39,000
Freehold land 130,000
Buildings 40,000
Plant and equipment 46,000 289,700
Bargain Purchase Gain 29,700
31. d
PFRS 3 (2008) par. 18 requires an identifiable assets and liabilities assumed are measured
at their acquisition-date fair values.
32. c
Selling price P 110,000
Less: Book value of Comb (P50,000 + P80,000 + P40,000
- P30,000) 140,000
Loss on sale of business by the acquiree (Comb) P( 30,000)
33. d P215,000 = P130,000 + P85,000
34. b P23,000 = P198,000 – (P405,000 - P265,000 + P15,000 + P20,000)
35. c P1,109,000 = Total Assets of TT Corp. P 844,000

Less: Investment in SS Corp. (198,000)
Book value of assets of TT Corp. P 646,000
Book value of assets of SS Corp. 405,000
Total book value P1,051,000
Payment in excess of book value
(P198,000 - P140,000) 58,000
Total assets reported P1,109,000
36. c P701,500 = (P61,500 + P95,000 + P280,000) + (P28,000 + P37,000

+P200,000)
37. d P257,500 = The amount reported by TT Corporation
38. a P407,500 = The amount reported by TT Corporation
39. 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.
40. 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
41. a – refer to No. 39 and 40 for further discussion.
42. c
Deficiency: (P16 – P10) x 100,000 shares issued to acquire………P 600,000
Divided by: Fair value of share……………………………………...... P 10
Added number of shares to issue…………………………………..... 60,000
43. (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
44. b
45. c
46. c
47. b
48. c
Par value of shares outstanding before issuance P200,000
Par value of shares outstanding after issuance 250,000
Par value of additional shares issued P 50,000
Divided by: No. of shares issued* __12,500
Par value of common stock P 4
*Paid-in capital before issuance (P200,000 + P350,000) P 550,000

Paid-in capital after issuance (P250,000 + P550,00) 800,000
Paid-in capital of share issued at the time of exchange P 250,000
Divided by: Fair value per share of stock P 20
Shares issued 12,500
49. a
Consideration transferred: Shares – 12,500 shares P250,000
Less: Goodwill 56,000
Fair value of identifiable net assets acquired P194,000
50. 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
51. d
52. c
Common stock – combined…………………………………………………………P 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
53. 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 2
Add: Share premium/APIC per share from the additional
issuance of shares (P245,000 – P65,000)/30,000…………............ 6
Fair value per share when stock was issued……………………………....... P 8
54. 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
55. 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
56. 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.
57. a
II ____ _____JJ _ ____Total____
Average annual earnings P 46,080 P 69,120 P 115,200
Divided by: Capitalized at _ 10%
Total stock to be issued P1,152,000
Less: Net Assets (for P/S) 864,000
Goodwill (for Common Stock) P 288,000
Preferred stock (same with Net Assets):
864,000/P100 par 8,640 shares
Quiz - XIV
1. P90,000 = P65,000 + P25,000
2. P280,000 = P210,000 + P70,000
3. P180,000
4. P475,000
5. P100,000 = P600,000 - (P25,000 + P180,000 + P475,000 - P60,000 - P120,000)
6. [P500,000 – (P200,000 + P220,000 – P110,000)]= P190,000
7. Gain of P45,000
8. [(12,000 shares x P30) – P343,200 = P16,800
9. (P863,000 + P363,000) = P1,226,000
10. [P400 + (40 shares x P10)] = P800
11. [P1,080 + (P280 + P10) = P1,370
12. [P1,260 + (P440 + P60) = P1,760
13. [P600 + (P360 + P40)] = P1,000
14. [P480 + P100] = P580
15. [P330 + (40 shares x P1)] = P370
16. [P1,080 + 40 shares x (P10 - P1)] – P15, stock issuance costs = P1,425
17. [P180 + P40 – P20 – P15} =P185
18. [(50,000 shares x P 35) + P5,000] = P1,755,000
19. [P1,230,000 + P580,000] = P1,810,000
20. [P1,800,000 + P250,000] = P2,050,000
21. (P1,800,000 + P650,000]= P2,450,000
22. [P1,755,000 – (P240,000 + P600,000 + P580,000 + P250,000 + P650,000 + P400,000
- P240,000 – P60,000 – P1,120,000)] = P455,000
23. [P660,000 + P400,000} = P1,060,000
24. P1,280,000
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
25. P2,880,000, parent only on the date of combination
26. (P2,760,000 + P10,000) = P2,770,000
27. [(P870,000 – P15,000 – P10,000) + P240,000] = P1,085,000
28. P46,000 = (P60,000 + P26,000, fair value) – P40,000, cash paid
29. P154,000 = (P100,000 + P54,000, fair value)
30. P7,000 = [P40,000 – (P26,000 + P54,000 – P35,000 – P12,000)]
31. P98,000 = (P90,000 + P8,000), only the stockholders’ equity of acquirer
32. CC, 26%; DD, 50%; EE, 24%
CC_____ DD_______ EE Total______
Assets, appraised value P375,000 P750,000 P375,000 P1,500,000
Add: Goodwill:
Annual earnings P41,250 P75,000 P33,750 P150,000
Less: Normal earnings
6% x Assets 22,500 45,000 22,500 90,000
Excess earnings P18,750 P30,000 P11,250 P60,000
/ capitalized at 20% 20% _ 20%__ 20%__
Goodwill P93,750 P150,000 P56,250 P300,000
Total stock to be issued P468,750 P900,000 P431,250 P1,800,000
P468,750 P900,000 P431,250
1,800,000 1,800,000 431,250
Percentage 26% 50% 24% (c)
Theories
1. True 21. False 41. True 61. c 81. b 101. c 121 a
2. False 22. True 42. False 62. b 82. a 102. d 122. b
3. True 23. False 43. a 63. c 83. d 103. d 123. b
4. True 24. True 44. c 64. d 84. a 104. d 124. c
5. False 25, True 45, b 65, d 85. c 105. c 125. b
6. True 26. False 46. b 66. a 86. d 106. d 126. c
7. False 27. True 47. d 67. a 87. c 107. d 127. c
8. True 28. False 48. c 68. d 88. a 108. d
9. True 29. True 49. c 69. a 89. c 109. b
10. True 30, True 50, b 70, b 90, d 110, c
11. True 31. False 51. a 71. c 91. b 111. c
12. True 32. True 52. b 72. A 92. a 112. c
13. False 33. True 53. c 73. c 93. C 113. a
14. False 34. False 54. a 74. c 94. B 114. d
15. False 35. True 55. c 75. a 95. D 115. d
16. True 36. True 56. b 76. d 96. A 116. c
17. False 37. False 57. a 77. a 97. A 117. b
18. True 38. True 58. c 78. d 98. c 118. b
19. True 39. False 59. a 79. b 99. d 119. b
20. False 40, False 60, c 80, c 100, d 120. a
Note for the following numbers:
2. A horizontal combination occurs when management attempts to dominate an industry.
5. A vertical combination exists when an entity purchases another entity that could have a
buyer-seller relationship with the acquirer. The combination described here is a
horizontal combination.
7. A conglomerate combination is one where an unrelated or tangentially related business
is acquired. A vertical combination occurs when a supplier is acquired.
13. Greenmail is the payment of a price above market value to acquire stock back from a potential
acquirer.
15. The sale of the crown jewels results when a target sells assets that would be particularly valuable to
the potential acquirer. The scorched earth defense results when a target generally sells large
amounts of assets without regard to the specific desirability to the potential acquirer.
17. Golden parachutes are generally given only to top executives of the acquiree.
20. Control over the net assets of an entity can be accomplished by purchasing the net assets or by
purchasing the acquiree voting common stock that represents ownership of the assets.
21. The amount of cash will always equal the net assets recorded by the acquirer. As a result, the
acquirer book value will not change due to an acquisition.
23. There is no exchange of stock in an asset for asset acquisition so there cannot be a change in
ownership structure of either entity.
26. The acquiree corporation becomes an acquirer stockholder, not the acquiree
stockholders.
28. A combination that results in one of the original entities in existence after the
combination is a statutory merger.
31. The combination results in the stockholders of one entity controlling the other entity. The
Retained Earnings of the entity acquiring control is carried forward to the newly formed
corporation.
34. The stock of the acquiree company must be purchased by the acquirer, but the value
transferred to the acquiree stockholders does not have to be in stock. Payment may be
in another asset or the issuance of debt.
37. The consideration to be given by the acquirer is sometimes not completely known
because the consideration is based partially on acquiree future earnings or the market
value of acquirer debt or stock.
39. Any change in the number of shares of acquirer stock given returns the purchase price to
the agreed level. The adjustment is to stock and additional paid-in capital. The
investment account is unchanged.
40. The acquiree stockholders must continue to have an indirect ownership interest in the
acquiree net assets. Preferred stock or a nonvoting class of stock qualifies as an indirect
ownership as well as voting common stock.
42. A net operating loss carryforward cannot be acquired. They are only available to the
acquirer if the combination qualifies as a nontaxable exchange.
Chapter 15
Problem I
Investment in Shy Inc. [P2,500,000 + (15,000  P40)] 3,100,000
Cash 2,500,000
Common Stock 30,000
Paid in capital in excess of par (P40 - P2)  15,000 570,000
Paid in capital in excess of par 30,000

Deferred Acquisition Charges 90,000
Acquisition Costs Payable 7,000
Problem II
Cash consideration transferred P 300,000
Contingent performance obligation __15,000
Fair value of Subsidiary P 315,000
Less: Book value of SS Company (P90,000 + P100,000) 190,000
Allocated excess P125,000
Less: Over/under valuation of assets and liabilities:
Increase in building: P40,000 x 100% P 40,000
Increase in customer list: P22,000 x 100% 22,000
Increase in R&D: P30,000 x 100% 30,000 __92,000
Goodwill P 33,000
Investment in SS Company 315,000

Cash 300,000
Estimated Liability on Contingent Consideration 15,000

Cash 10,000
Not Required: The working paper eliminating entry on the date of acquisition, 6/30/20x4 would
be:
Receivables 80,000
Inventory 70,000
Buildings 115,000
Equipment 25,000
Customer list 22,000
Capitalized R&D 30,000
Goodwill 33,000
Current liabilities 10,000
Long-term liabilities 50,000
Investment in SS Company 315,000
Problem III
1.
A. Investment in Sewell 675,000
Cash 675,000
B. Investment in Sewell 675,000
Cash 675,000
C. Investment in Sewell 318,000
Cash 318,000
2.
A.
Fair value of Subsidiary:
Less: BV of SHE of S (P450,000 + P180,000 + P75,000)x100% 705,000
Allocated excess P( 30,000)
Less: Over/under valuation of A and L: Inc. (Dec.)
Inventory (P30,000 – P20,000) x 100% (P10,000)
Land (P50,000 – P70,000) x 100% __20,000 __10,000
Bargain Purchase Gain – full (P 40,000)
B.
Partial Goodwill
Less: BV of SHE of S (P450,000 + P180,000 + P75,000) x 90% 634,500
Allocated excess P 40,500
Inventory (P30,000 – P20,000) x 90% (P9,000)
Land (P50,000 – P70,000) x 90% __18,000 __9,000
Goodwill – partial P 31,500
Full-Goodwill
Consideration transferred (P675,000/90%) P750,000
Less: BV of SHE of S (P450,000 + P180,000 + P75,000)x100% 705,000
Inventory (P30,000 – P20,000) x 100% (P10,000)
Land (P50,000 – P70,000) x 100% __20,000 __10,000
Goodwill – full P 35,000
C.
Partial Goodwill
Allocated excess (P306,000)
Inventory (P30,000 – P20,000) x 80% (P 8,000)
Land (P50,000 – P70,000) x 80% __16,000 __8,000
Bargain Purchase Gain – partial (parent only) (P314,000)
Full-Goodwill
Consideration transferred P 318,000
FV of NCI* _158,000
P 476,000
Allocated excess (P304,000)
Inventory (P30,000 – P20,000) x 100% (P10,000)
Land (P50,000 – P70,000) x 100% __20,000 _10,000
Bargain Purchase Gain – full (parent only) (P314,000)
*BV of SHE of S P780,000
Adjustments to reflect fair value 10,000
FV of SHE of S P790,000
x: NCI% 20%
FV of NCI P158,000
3.
A.
Common Stock – Sewell 450,000
Paid in capital in excess of par – Sewell 180,000
Retained Earnings – Sewell 75,000
Land 20,000
Inventory 10,000
Investment in Sewell 675,000
Retained earnings (gain) – Parent (since
balance sheet accounts are being
examined) 40,000
B.
Partial-Goodwill (Proportionate Basis)
Land 20,000
Goodwill 31,500
Inventory 10,000
Non-controlling Interest 71,500
BV – SHE of Sewell
(P450,000 + P180,000 + P75,000) P705,000
FV of SHE of Sewell P715,000
x: NCI% 10%
FV of NCI (partial) P 71,500
Full-Goodwill (Fair Value Basis)
Land 20,000
Goodwill 35,000
Inventory 10,000
(P450,000 + P180,000 + P75,000) P705,000
x: NCI% 10%
NCI on Full-Goodwill
(P35,000 – P31,500) 3,500
FV of NCI (full) P 75,000
C.
Partial-Goodwill (Proportionate Basis)
Land 20,000
Inventory 10,000
Retained earnings (gain)–Parent (refer to 3A) 314,000
(P620,000 + P140,000 + P20,000) P780,000
x: NCI% 20%
FV of NCI (partial) P158,000
Full-Goodwill (Fair Value Basis)

Land 20,000
Inventory 10,000
Retained earnings (gain)–Parent (refer to 3A) 314,000
(P620,000 + P140,000 + P20,000) P780,000
x: NCI% 20%
FV of NCI (full) P158,000
Problem IV
1.
January 1, 20x4
Investment in S Company…………………………………………… 408,000
Cash…………………………………………………………………….. 408,000
2.
Schedule of Determination and Allocation of Excess
Date of Acquisition – January 1, 20x4
Fair value of Subsidiary (100%)
Consideration transferred……………………………….. P 408,000
Less: Book value of stockholders’ equity of S:
Common stock (P240,000 x 100%)………………….. P 240,000
Paid-in capital in excess of par (P24,000 x 100%)... 24,000
Retained earnings (P96,000 x 100%)………………... 96,000 360,000
Allocated excess (excess of cost over book value)…… P 48,000
Increase in inventory (P18,000 x 100%)…………….. P 18,000
Increase in land (P72,000 x 100%)…………………… 72,000
Decrease in buildings and equipment
(P12,000 x 100%)……………………………………... ( 12,000)
Increase in bonds payable (P42,000 x 100%)…….. ( 42,000) 36,000
Positive excess: Goodwill (excess of cost over fair
value)…………………………………………………….. P 12,000
3.
(E1) Common stock – S Co………………………………………………. 240,000
Additional paid-in capital – S Co…………………………………. 24,000
Retained earnings – S Co…………………………………………... 96.000
Investment in S Co………………………………………………… 360,000
Eliminate investment against stockholders’ equity of S Co.
(E2) Inventory…………………………………………………………………. 18,000

Land………………………………………………………………………. 72,000
Goodwill…………………………………………………………………. 12,000
Buildings and equipment………………………………………….. 12,000
Premium on bonds payable……………………………………… 42,000
Investment in S Co……………………………………………….. 48,000
Eliminate investment against allocated excess.
4.
Eliminations
Assets P Co. S Co. Dr. Cr. Consolidated
Cash*…………………………. P 12,000 P 60,000 P 72,000
Accounts receivable…….. 90,000 60,000 150,000
Inventory…………………. 120,000 72,000 (2) 18,000 210,000
Land……………………………. 210,000 48,000 (2) 72,000 330,000
Buildings and equipment (net) 480,000 360,000 (2) 12,000 828,000
Goodwill…………………… (2) 12,000 12,000
Investment in S Co…………. 408,000 (1) 360,000
(2) 48,000 -
Total Assets 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) 42,000 42,000
Common stock, P10 par……… 600,000 600,000
Common stock, P10 par……… 240,000 (1) 240,000
Paid in capital in excess of par. 60,000 60,000
Paid in capital in excess of par. 24,000 (1) 24,000
Retained earnings…………… 300,000 300,000
Retained earnings…………… _________ 96,000 (1) 96,000 __________ _________
Total Liabilities and Stockholders’
Equity P1,320,000 P600,000 P 462,000 P 462,000 P1,602,000
(1) Eliminate investment against stockholders’ equity of S Co.
(2) Eliminate investment against allocated excess.
* P420,000 – P408,000 = P12,000.
5.
Assets
Cash P 72,000
Accounts receivables 150,000
Inventories 210,000
Land 330,000
Buildings and equipment (net) 828,000
Goodwill 12,000

Liabilities
Bonds payable P 360,000
Premium on bonds payable 42,000 402,000
Common stock, P10 par P 600,000
Retained earnings 300,000
Total Stockholders’ Equity P 960,000
Problem V
1.
January 1, 20x4
(1) Investment in S Company…………………………………………… 432,000
Cash…………………………………………………………………….. 288,000
Common stock, P10 par…………………………………………….. 120,000
Paid-in capital in excess of par……………………………………. 24,000
(2) Retained earnings (acquisition-related expense - close to

retained earnings since only balance sheets are being
examined)…………………………………………………………… 12,000
Cash……………………………………………………………………. 12,000
Acquisition- related costs.
(3) Paid-in capital in excess of par……………………………………….. 8,400

Cash……………………………………………………………………. 8,400
Costs to issue and register stocks.
2.

Consideration transferred
Cash………………………………………………………. P 288,000
Common stock: 12,000 shares x P12 per share….. 144,000 P 432,000
Common stock (P240,000 x 100%)………………….. P 240,000
Paid-in capital in excess of par (P96,000 x 100%).. 96,000
Add: Existing Goodwill of Sky Co. (P6,000 x 100%)……… 6,000
Adjusted allocated excess…………………………………. P 78,000
(P12,000 x 100%)……………………………………... ( 12,000)
value)…………………………………………………….. P 42,000
Alternatively, the unrecorded goodwill may also be computed 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……………………………………………………… P 432,000
Less: Book value of stockholders’ equity of S……………………………….. 360,000
Allocated excess (excess of cost over book value)…………………………. P 72,000
Less: Over/under valuation of assets and liabilities…………………………… 36,000
Positive excess: Goodwill (excess of cost over fair value)…………………... P 36,000
Add: Existing Goodwill……………………………………………………………… 6,000
value)…………………………………………………………………………… P 42,000
3.
Eliminations
Cash*………………………….. P 111,600 P 54,000 P 165,600
Inventory…………………. 120,000 72,000 (2) 18,000 210,000
Land……………………………. 210,000 48,000 (2) 72,000 330,000
Buildings and equipment (net) 480,000 360,000 (2) 12,000 828,000
Goodwill…………………… 6,000 (2) 36,000 42,000
Investment in S Co…………. 432,000 (4) 360,000
(5) 72,000 -
Total Assets 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**…..… 720,000 720,000
Additional paid in capital*** 75,600 75,600
Additional paid in capital…… 24,000 (1) 24,000
Retained earnings**** 288,000 288,000
Retained earnings…………… _________ 96,000 (1) 96,000 __________ _________
Equity P1,443,600 P600,000 P 486,000 P 486,000 P1,725,600
(1) Eliminate investment against stockholders’ equity 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.
4.
Assets
Cash P 165,600
Inventories 210,000
Land 330,000
Goodwill 42,000

Liabilities
Additional paid-in capital in excess of par 75,600
Total Stockholders’ Equity P 1083,600
Problem VI
1.

Consideration transferred (P408,000 – P6,000)…….. P 402,000
Common stock (P240,000 x 100%)………………….. P 240,000
(P12,000 x 100%)……………………………………... ( 12,000)
value)…………………………………………………….. P 6,000
2. Goodwill, P6,000
Problem VII
1.

Common stock: 24,000 shares x P14 per share P 336,000
Less: Book value of stockholders’ equity of Sky:
Common stock (P240,000 x 100%)………………….. P 240,000
Allocated excess (excess of book value over cost)…… (P 24,000)
(P12,000 x 100%)……………………………………... ( 12,000)
Increase in patent (P24,000 x 100%)………………... 24,000
Increase in contingent liability (P18,000 x 100%)…. ( 18,000)
Negative excess: Bargain Purchase Gain (excess of
fair value over cost)…………………………………… (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 liabilities:
(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 the fair value of the non-controlling interest of subsidiary is not given.
Case 2:
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;
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
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:
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
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……………………….. P270,000 (75%)
Less: Book value of stockholders’ equity
(net assets) – S Company:
(P480,000 – P228,000) x 75%....................................... 189,000 (75%)
Allocated excess………………………………………………... P 81,000 (75%)
[(P612,000 – P228,000) – (P480,000 – P228,000) x 75% 99,000 (75%)
Negative excess: Bargain purchase gain (to controlling
interest or attributable to parent only)………………. (P18,000) (75%)
 Full-goodwill (Fair Value Basis)

Consideration transferred: Cash……………………….. P270,000 ( 75%)
Fair value of non-controlling interest (given)………… 98,400 ( 25%)
Fair value of subsidiary ………………………………………… P368,400 (100%)
Less: Book value of stockholders’ equity
(net assets) – S Company:
(P480,000 – P228,000) x 100%..................................... 252,000 (100%)
Allocated excess………………………………………………... P116,400 (100%)
[(P612,000 – P228,000) – (P480,000 – P228,000) x 100% 132,000 (100%)
Negative excess: Bargain purchase gain (to controlling
interest or attributable to parent only)………………. (P15,600) (100%)
Problem X
Partial-goodwill Approach
Schedule of Determination and Allocation of Excess (Partial-goodwill)
Common stock (P240,000 x 80%)……………………. P 192,000
Paid-in capital in excess of par (P96,000 x 80%).... 76,800
Retained earnings (P24,000 x 80%)……………….... 19,200 288,000
Allocated excess (excess of cost over book value)….. P 72,000
Increase in inventory (P18,000 x 80%)……………… P 14,400
Increase in land (P72,000 x 80%)……………………. 57,600
(P12,000 x 80%)……………………………………..... ( 9,600)
Increase in bonds payable (P42,000 x 80%)………. ( 33,600) 28,800
Positive excess: Partial-goodwill (excess of cost over
fair value)………………………………………………... P 43,200
The over/under valuation of assets and liabilities are summarized as follows:

Sky Co. Sky Co. Over/ Under
Book value Fair value Valuation
Inventory………………….…………….. 72,000 90,000 18,000
Land……………………………………… 48,000 120,000 72,000
Buildings and equipment (net)......... 360,000 348,000 ( 12,000)
Bonds payable………………………… (120,000) (162,000) 42,000
Net……………………………………….. 360,000 396,000 36,000
The buildings and equipment will be further analyzed for consolidation purposes as follows:
Sky Co. Sky Co.
Book value Fair value (Decrease)
Buildings and equipment .................. 720,000 348,000 ( 372,000)
Less: Accumulated depreciation….. 360,000 - ( 360,000)
Net book value………………………... 360,000 348,000 ( 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
Cash…………………………………………………………………….. 360,000
Acquisition of Sky Company.

examined)…………………………………………………………… 14,400
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 Co………………………………………………. 240,000
Additional paid-in capital – Sky Co…………………………………. 24,000
Retained earnings – Sky Co…………………………………………... 96,000
Investment in Sky Co………………………………………………… 288,000
Non-controlling interest (P300,000 x 20%)……………………….. 72,000
Eliminate investment against stockholders’ equity of Sky Co.
(E2) Inventory…………………………………………………………………. 18,000

Accumulated depreciation…………………………………………. 360,000
Land………………………………………………………………………. 72,000
Goodwill…………………………………………………………………. 43,200
Investment in Sky Co……………………………………………….. 72,000
Worksheet for Consolidated balance Sheet, January 1, 20x4. Date of Acquisition: 80%-Owned
Subsidiary (Partial-goodwill)
Eliminations
Assets Peer Co. Sky Co. Dr. Cr. Consolidated
Cash*…………………………. P 45,600 P 60,000 P 105,600
Inventory…………………. 120,000 72,000 (2) 18,000 210,000
Land……………………………. 210,000 48,000 (2) 72,000 330,000
Buildings and equipment 960,000 720,000 (2) 372,000 1,308,000

Goodwill…………………… (2) 43,200 43,200
Investment in Sky Co…………. 360,000 (1) 288,000
(2) 72,000 -
Total Assets P1,785,600 P960,000 P 2,146,800
Accumulated depreciation P 480,000 P360,000 (2) 360,000 P 480,000
Accounts payable…………… 120,000 120,000 240,000
Bonds payable………………… 240,000 120,000 360,000
Retained earnings**…………… 285,600 285,600
Retained earnings…………… 96,000 (1) 96,000
Non-controlling interest………… (1 ) 72,000
_________ _______ _________ (2) 7,200 _79,200
Equity P1,785,600 P960,000 P 853,200 P 853,200 P2,146,800
* P420,000 – P360,000 – P14,400 = P45,600.
**P300,000 – P14,400 = P285,600.
 Incidentally, the non-controlling interest on the date of acquisition is computed as

follows:
Common stock – Sky company…………………………………… P 240,000
Paid-in capital in excess of par – Sky co………………………… 24,000
Retained earnings – Sky Co..………………………………………. 80,000
Book value of stockholders’ equity – Sky Co………..………….. P 360,000
of assets and liabilities)…………………………………………. 36,000
Fair value of stockholders’ equity of subsidiary………………… P 396,000
Multiplied by: Non-controlling Interest percentage…………... 20
Non-controlling interest (partial)………………………………….. P 79,200
The balance sheet:

Peer Company and Subsidiary
Consolidated Balance Sheet
January 1, 20x4
Assets
Cash P 105,600
Inventories 210,000
Land 330,000
Buildings and equipment 1,308,000
Accumulated depreciation ( 480,000)
Goodwill 43,200

Liabilities
Parent’s Stockholders’ Equity/Equity Attributable to the
Owners of the Parent P 945,600
Non-controlling interest 79,200
Total Stockholders’ Equity (Total Equity) P 1,024,800
Full-goodwill Approach
Schedule of Determination and Allocation of Excess (Full-goodwill)

Consideration transferred (P360,000 / 80%)………….. P 450,000
Common stock (P240,000 x 100%)…………………. P 240,000
Paid-in capital in excess of par (P96,000 x 100%).. 96,000
Retained earnings (P24,000 x 100%)…………….... 24,000 360,000
Increase in inventory (P18,000 x 100%)…………… P 18,000
Increase in land (P72,000 x 100%)…………………. 72,000
(P12,000 x 100%)…………………………………..... ( 12,000)
Increase in bonds payable (P42,000 x 100%)……. ( 42,000) 36,000
Positive excess: Full -goodwill (excess of cost over
fair value)………………………………………………... P 54,000
January 1, 20x4
(1) Investment in Sky Company…………………………………………… 360,000
Cash…………………………………………………………………….. 360,000
Acquisition of Sky Company.

examined)…………………………………………………………… 14,400
Cash……………………………………………………………………. 14,400
240,000
(E1) Common stock – Sky Co……………………………………………….
Additional paid-in capital – Sky Co…………………………………. 24,000
Retained earnings – Sky Co…………………………………………... 96,000
Investment in Sky Co………………………………………………… 288,000
Eliminate investment against stockholders’ equity of Sky Co.
(E2) Inventory…………………………………………………………………. 18,000

Accumulated depreciation…………………………………………. 360,000
Land………………………………………………………………………. 72,000
Goodwill…………………………………………………………………. 54,000
Non-controlling interest [(P30,000 x 20%) +
(P45,000 – P36,000)]……………………………………………. 18,000
Investment in Sky Co……………………………………………….. 72,000
Subsidiary (Full-goodwill)
Eliminations
Assets Peer Co. Sky Co. Dr. Cr. Consolidated
Cash*…………………………. P 45,600 P 60,000 P 105,600
Inventory…………………. 120,000 72,000 (2) 18,000 210,000
Land……………………………. 210,000 48,000 (2) 72,000 330,000
Buildings and equipment 960,000 720,000 (2) 372,000 1,308,000

Goodwill…………………… (2) 54,000 54,000
Investment in Sky Co…………. 360,000 (1) 288,000
(2) 72,000 -
Total Assets P1,785,600 P960,000 P 2,157,600
Accumulated depreciation P 480,000 P360,000 (2) 360,000 P 480,000
Bonds payable………………… 240,000 120,000 360,000
Retained earnings**…………… 285,600 285,600
_________ _______ _________ (2) 18,000 _90,000
Equity P1,785,600 P960,000 P 864,000 P 864,000 P2,157,600
* P420,000 – P360,000 – P14,400 = P45,600.
**P300,000 – P14,400 = P285,600.

follows:
Add: Non-controlling interest (P54,000, full – P43,200, partial). 10,800
Non-controlling interest (full)………………………………………. P 90,000
The balance sheet;

Peer Company and Subsidiary
Consolidated Balance Sheet
January 1, 20x4
Assets
Cash P 105,600
Inventories 210,000
Land 330,000
Buildings and equipment 1,308,000
Accumulated depreciation ( 480,000)
Goodwill 54,000

Liabilities
Parent’s Stockholders’ Equity/Equity Attributable to the P 945,600
Owners of the Parent
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…... P 300,000
Common stock (P12,000 x 80%)……………………. P 9,600
Retained earnings (P72,000 x 80%)……………….... 57,600 153,600
Increase in buildings and equipment
(P150,000 x 80%)…………………………………...... 120,000
Increase in copyrights (P60,000 x 80%)…………….. 48,000
Increase in contingent liabilities – estimated
liability for contingencies (P6,000 x 80%)……..... ( 4,800) 196,800
Negative excess: Bargain purchase gain to controlling
interest or attributable to parent only)…………….. (P 50,400)
S Co. S Co. Over/Under

Inventory………………….……………... P 60,000 P 66,000 P 6,000
Land………………………………………. 48,000 84,000 36,000
Buildings and equipment (net)......... 222,000 372,000 150,000
Copyright……………………………….. -0- 60,000 60,000
Estimated liability for contingencies.. 0 ( 6,000) ( 6,000)
Net undervaluation……………………. P 330,000 P 576,000 P246,000
The following entry on the date of acquisition in the books of Parent Company
January 1, 20x4
(1) Investment in S Company…...…………………………………… 300,000
Common stock, P1 par……………………………………………… 12,000
Paid-in capital in excess of par (P300,000 – P12,000 par)…….. 288,000
Acquisition of S Company.
(E1) Common stock – S Co……………………………………………. 12,000
Additional paid-in capital – S Co………………………………. 108,000
Retained earnings – S Co………………………………………… 72,000
Investment in S Co……………………………………………… 153,600
Eliminate investment against stockholders’ equity of S Co
(E2) Inventory………………………………………………………………….. 6,000

Land……………………………………………………………………….. 36,000
Buildings and equipment……………………………………………… 150,000
Copyright……………………………………………………………….... 60,000
Estimated liability for contingencies…………………………….. 6,000
Investment in S Co……………………………………………... 146,400
Non-controlling interest (P246,000 x 20%)………………………. 49,200
Retained earnings (bargain purchase gain - closed to
examined)............................................................................. 50,400
Subsidiary (Proportionate Basis)
Eliminations
Cash………………… P 334,800 P 334,800
Accounts receivable…….. 86,400 P 24,000 110,400
Inventory…………………. 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……………………... (2) 60,000 60,000
Investment in S Co…….. 300,000 (1) 153,600
__________ _________ (2) 146,400 -
Total Assets P1,681,200 354,000 P1,987,200
Accounts payable……… P 96,000 42,000 P 138,000
Estimated liability for
contingencies… (2) 6,000 6,000
Bonds payable……… 240,000 120,000 360,000
Common stock, P1 par*…..… 44,160 44,160
Paid-in capital in excess of
par** 723,840 723,840
Paid-in capital in excess of par 108,000(1) (1) 108,000
Retained earnings 577,200 (2) 50,400 627,600
_________ _______ _________ (2) 49,200 _87,600
Equity P1,681,200 P354,000 P 444,000 P 444,000 P1,987,200
(1) Eliminate investment against stockholders’ equity of Scud Co.
* P32,160 + (12,000 shares xP1 par) = P44,160.
**P435,840 + [12,000 shares x (P25 – P1)] = P723,840.
follows:
Common stock – S Co……….………………………………… P 12,000
Paid-in capital in excess of par – S Co…………………….. 108,000
Retained earnings – S Co……………………………………… 72,000
Book value of stockholders’ equity – S Co…………………. P 192,000
of assets and liabilities)…………………………………………. 246,000
Fair value of stockholders’ equity of subsidiary………………… P 438,000
The balance sheet:
Assets
Cash P 334,800
Inventories 162,000
Land 204,000
Buildings and equipment (net) 1,116,000
Copyright 60,000

Liabilities
Estimated liability for contingencies 6,000
Bonds payable 360,000
Owners of the Parent P1,395,600
Total Stockholders’ Equity (Total Equity) P1,483,200
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%)……………… P 300,000
Fair value of NCI (given) (20%)………………………. 90,000
Fair value of subsidiary (100%)………………………. P 390,000
Common stock (P12,000 x 100%)……………………. P 12,000
Paid-in capital in excess of par (P108,000 x 100%). 108,000
Increase in buildings and equipment
(P150,000 x 100%)………………………………….... 150,000
Increase in copyrights (P60,000 x 100%)…………… 6,000
Increase in contingent liabilities – estimated
liability for contingencies (P6,000 x 100%)…….. ( 6,000) 246,000
Negative excess: Bargain purchase gain to controlling
interest or attributable to parent only)…………….. (P 48,000)
January 1, 20x4
(1) Investment in S Company…...…………………………………… 300,000
Common stock, P1 par……………………………………………… 12,000
Paid-in capital in excess of par (P300,000 – P12,000 par)…….. 288,000
(E1) Common stock – S Co……………………………………………. 12,000
Additional paid-in capital – S Co………………………………. 108,000
Retained earnings – S Co………………………………………… 72,000
Investment in S Co……………………………………………… 153,600
Eliminate investment against stockholders’ equity of S Co
(E2) Inventory………………………………………………………………….. 6,000

Land……………………………………………………………………….. 36,000
Buildings and equipment……………………………………………… 150,000
Copyright……………………………………………………………….... 60,000
Estimated liability for contingencies…………………………….. 6,000
Investment in S Co……………………………………………... 146,400
Non-controlling interest (P90,000 given – P38,400)…………… 51,600
Retained earnings (bargain purchase gain - closed to
examined)............................................................................. 48,000
Subsidiary (Fair Value Basis)
Eliminations
Cash………………… P 334,800 P 334,800
Accounts receivable…….. 86,400 P 24,000 110,400
Inventory…………………. 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……………………... (2) 60,000 60,000
Investment in S Co…….. 300,000 (1) 153,600
__________ _________ (2) 146,400 -
Total Assets P1,681,200 P354,000 P1,987,200
Accounts payable……… P 96,000 42,000 P 138,000
Estimated liability for
contingencies… (2) 6,000 6,000
Bonds payable……… 240,000 120,000 360,000
Common stock, P1 par*…..… 44,160 44,160
Paid-in capital in excess of par** 723,840 723,840
Paid-in capital in excess of par 108,000(2) (1) 108,000
Retained earnings 577,200 (2) 48,000 625,200
_________ _______ _________ (2) 51,600 _90,000
Equity P1,681,200 P354,000 P 444,000 P 444,000 P1,987,200
(1) Eliminate investment against stockholders’ equity of Scud Co.
* P32,160 + (12,000 shares xP1 par) = P44,160.
**P435,840 + [12,000 shares x (P25 – P1)] = P723,840.
The balance sheet:
Assets
Cash P 334,800
Inventories 162,000
Land 204,000
Buildings and equipment (net) 1,116,000
Copyright 60,000

Liabilities
Estimated liability for contingencies 6,000
Bonds payable 360,000
Owners of the Parent P1,393,200
Problem XII
1. Inventory P 140,000
2. Land P 60,000
3. Buildings and Equipment P 550,000
4. Goodwill
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)
Buildings and equipment 70,000 80,000
Goodwill P 46,000
5. Investment in AA Corporation: Nothing would be reported; the balance in the
investment account is eliminated.
Problem XIII
1. Inventory (P120,000 + P20,000) P140,000
2. Land (P70,000 – P10,000) P 60,000
3. Buildings and Equipment (P480,000 + P70,000) 550,000
4. Full-Goodwill, P57,500
Add: FV of NCI 117,500 P587,500
Less: BV of SHE of Slim (P250,000 + P200,000) 450,000
Inventory P 20,000
Land (10,000)
Buildings and equipment (net) 70,000 80,000
or,
Fair value of consideration given by Ford P470,000
Fair value of noncontrolling interest 117,500
Total fair value P587,500
Book value of Slim’s net assets P450,000
Fair value increment for:
Inventory 20,000
Land (10,000)
Fair value of identifiable net assets (530,000)
Goodwill - full P 57,500
Partial Goodwill, P46,000

Less: BV of SHE of Slim (P250,000 + P200,000) x 80% 360,000
Inventory (P20,000 x 80%) P 16,000
Land (P10,000 x 80%) ( 8,000)
Buildings and equipment (net) (P70,000 x 80%) 56,000 64,000
5. Investment in Slim Corporation: None would be reported;

the balance in the investment account is eliminated.
Noncontrolling Interest (P587,500 x .20) P117,500
6.
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 XIV
(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
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
Patented technology 700,000
Customer relationships 500,000
IPR&D 300,000
Liabilities (400,000) 1,180,000
Goodwill P 350,000
6. 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.
7. The subsidiary’s Common Stock and Additional Paid-in Capital accounts have no
impact on the consolidated totals.
8. 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 XV
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 SS’s net assets acquired.
1. Inventory = P670,000 (P's book value plus Sun's fair value)

2. Land = P710,000 (P's book value plus Sun's fair value)
3. Buildings and equipment = P930,000 (P's book value plus S's fair value)
4. Franchise agreements = P440,000 P's book value plus S's fair value)
5. Goodwill = P80,000 (calculated above)
6. 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 XVI
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 XVII – refer also to Multiple Choice; Nos. 24-32

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) 20,000
Goodwill 40,000
Total assets reported (based on full-
goodwill) 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
Parent’s SHE or Equity Attributable to Parent P355,000
NCI (full-goodwill) 64,500
Consolidated SHE P419,500
Computation of Goodwill:
Full-goodwill:
Add: FV of NCI **64,500 P215,000
Less: BV of SHE of SS (P50,000 + P90,000) x 100% 140,000
Inventory (P70,000 – P85,000) x 100% P 15,000
Land (P25,000 – P45,000) x 100% 20,000 35,000
**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% __98,000
Inventory (P15,000 x 70%) P 10,500
Land (P20,000 x 70%) 14,000 24,500
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:
FV of SHE of SSD P 175,000
Consolidated SHE:
Parent’s SHE or Equity Attributable to Parent P 355,000
NCI (partial-goodwill) 52,500
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. 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 XX
1. Investment in Craig Company........................................................... 950,000
Cash ................................................................................................... 950,000
2.
Less: BV of SHE of Craig (P300,000 + P420,000) 720,000
Less: Over/under valuation of A and L: Inc (Decrease)
Land (P250,000 fair – P200,000 book value P 50,000
Building (P700,000 fair – P600,000 book value) 100,000
Discount on bonds payable P280,000 fair – P300,000
book value) 20,000
Deferred tax liability (P40,000 fair – P50,000 book value) 10,000
Goodwill P 50,000
3. Adjustments on Craig books:

Land......................................................................................................... 50,000
Building.................................................................................................... 100,000
Discount on Bonds Payable................................................................ 20,000
Goodwill.................................................................................................. 50,000
Deferred Tax Liability ............................................................................ 10,000
Retained Earnings................................................................................. 420,000
Paid-In Capital in Excess of Par..................................................... 650,000
4. Elimination entries:
Common Stock ..................................................................................... 300,000
Paid-In Capital in Excess of Par .......................................................... 650,000
Investment in Craig Company...................................................... 950,000
Problem XXI
Full-Goodwill
Consideration transferred (200 shares x P25) P 5,000
Less: BV of SHE of Public (P200 + P800 + P1,000) _2,000
Fixed assets (P3,000 fair – P2,000 book value) _1,000
Goodwill – full P2,000
or,
Consideration transferred (200 shares x P25) P 5,000
Less: FV of SHE of Public (P1,0000 + P3,000 – P1,000) _3,000
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.
Public Private
Company Company
Fair value of net assets……………. P3,000 ?
Fair value of common stock per share P25
Public Private
Currently issued 200 40%** ? /40%
Additional shares issued 300 60% 100 /60%
500 ?
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 Company.
 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 XXII (Assume the use of Full-Goodwill Method)

Note: This solution assumes a difference between the basis of acquired assets for accounting
and tax purposes for this stock acquisition.
1. Investment in Seely Company 570,000

Common Stock*** 95,000
Additional Paid-in-Capital 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 80,000

Other Contributed Capital – Seely 132,000
Retained Earnings - Seely 160,000
Inventory 52,000
Land 25,000
Plant Assets 71,000
Discount on Bonds Payable 20,000
Goodwill** 127,200
Deferred Income Tax Liability* 67,200
Investment in Seely Company 570,000
Non-controlling Interest [(P570,000/.95) x .05] 30,000
*(.40 x (P52,000 + P25,000 + P71,000 + P20,000))
Problem XXIII
 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 Media’s 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 consolidate 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 entity. 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 arrangements
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 if 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 XXIV
1. Implied valuation and excess allocation for S.
Non-controlling interest fair value P 60,000
Consideration transferred by P. 20,000
Total business fair value 80,000
Fair value of VIE net assets 100,000
Excess net asset value fair value 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 P20,000
Marketing software 160,000
Computer equipment 40,000
Long-term debt (120,000)
Noncontrolling interest (60,000)
Pantech equity interest (20,000)
Gain on bargain purchase (20,000)
-0-
2. Implied valuation and excess valuation for Softplus.

Noncontrolling interest fair value 60,000
Consideration transferred by Pantech 20,000
Total business fair value 80,000
Fair value of VIE net identifiable assets 60,000
Goodwill 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)
Noncontrolling interest (60,000)
Pantech equity interest (20,000)
-0-

1. c – at fair value
2. c [P300,000 – (P35,000 + P60,000 + 125,000 + P250,000 – P65,000 – P150,000)]
3. d
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
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 - P600,000 - P15,000 - P255,000 = P330,000
8. c - P475,000 - P300,000 = P175,000 debit
9. b – fair value
10. d – fair value
11. d – fair value
12. c -
Full-goodwill:
Add: FV of NCI 100,000 P400,000
Less: BV of SHE of Silver (P100,000 + P180,000) x 100% 280,000
Inventory (P65,000 – P70,000) x 100% P( 5,000)
Land (P100,000 – P90,000) x 100% 10,000
Buildings and equipment (P300,000 – P250,00) x 100% 50,000 __55,000
If partial-goodwill, no answer available, computed as follows:

Less: BV of SHE of Silver (P100,000 + P180,000) x 75% _210,000
Inventory (P65,000 – P70,000) x 75% P( 3,750)
Land (P100,000 – P90,000) x 75% 7,500
Buildings and equipment (P300,000 – P250,00) x 75% 37,500 __41,250
13. a – Investment in Silver will be eliminated in the consolidated balance sheet

14. d
FV of SHE of S:
Book value of SHE of S (P100,000 + P180,000)………………..P 280,000
Adjustments to reflect fair value ……………………………… 55,000
FV of SHE of S……………………………………………………… P 335,000
Multiplied by: NCI%.................................................................... 25%
FV of NCI (partial)………………………………………………….P 83,750
Add: NCI on full goodwill (P65,000 – P48,750)……………….. 16,250
FV of NCI (full-goodwill)*…………………………………………P100,000
* same with the NCI given per problem
15. b – P135,000 = P90,000 + P45,000

16. d
Full-goodwill:
Add: FV of NCI _40,000 P200,000
Less: BV of SHE of Silver (P40,000 + P120,000) x 100% _160,000
Inventory (P45,000 – P40,000) x 100% P 5,000
Land (P60,000 – P40,000) x 100% 20,000 25,000
17. a
Total Assets of Gulliver (Jonathan) P610,000
Less: Investment in Sea-Gull Corp. (160,000)
P 450,000
Book value of assets of Sea Corp. 230,000
Book value reported by Gulliver/Jonathan and Sea P 680,000
Increase in inventory (P45,000 – P40,000) 5,000
Increase in land (P60,000 – P40,000) 20,000
Goodwill (full)* 15,000
Total assets reported P 720,000
18. c – P100,000 + P95,000 + P30,000 + P40,000 = P265,000
19. c
FV of SHE of S:
Book value of SHE of S (P40,000 + P120,000)………………….P 160,000
Adjustments to reflect fair value [(P45,000 + P60,000) -
(P40,000 + P40,000)………….……………………………… 25,000
FV of SHE of S……………………………………………………… P 185,000
Multiplied by: NCI%.................................................................... 20%
FV of NCI (partial)………………………………………………….P 37,000
Add: NCI on full goodwill (P15,000 – P12,000)……………….. 3,000
FV of NCI (full-goodwill)*………………………………………… P 40,000
* same with the NCI given per problem
Partial Goodwill
Less: BV of SHE of S (P40,000 + P120,000) x 80% _128,000
Inventory (P5,000 x 80%) P 4,000
Land (P20,000 x 80%) 16,000 __20,000
20. a - The amount reported by Jonathan Corporation

21. a
Jonathan stockholders' equity(P200,000 + P205,000)……………….. P405,000
NCI (full-goodwill) – refer to No. 19…………………………………….. 40,000
Consolidated stockholders’ equity……………………………………. P445,000
22. d – [P132,000 + (P38,000 + {P60,000 – P38,000}] or P132,000 + P60,000
23. b
Total Assets of P. P1,278,000
Less: Investment in Swimmer Corp. (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 plant assets [P350,000 – (P300,000 – P60,000)] 110,000
Goodwill (full)* 26,667
*(P440,000/75%) – (P702,000 – P142,000) = P26,667
Total Assets of P. P1,278,000
Less: Investment in S Corp. (440,000)
P 838,000
Book value of assets of S Corp. 542,000
Goodwill (partial)* 20,000
*[P440,000 – (P702,000 – P142,000) x 75%]
24. d P215,000 = P130,000 + P70,000 + (P85,000 - P70,000)

25. a
Partial Goodwill
Less: BV of SHE of SSD (P50,000 + P90,000) x 70% __98,000
Inventory (P15,000 x 70%) P 10,500
Land (P20,000 x 70%) 14,000 24,500
26. c
Full-goodwill:
Add: FV of NCI **64,500 P215,000
Less: BV of SHE of SS (P50,000 + P90,000) x 100% 140,000
Inventory (P70,000 – P85,000) x 100% P 15,000
Land (P25,000 – P45,000) x 100% 20,000 35,000
**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:
FV of SHE of SS P 175,000
27. b
P 641,000
Silk P1,046,000
Goodwill (full) 40,000
P 641,000
Silk P1,046,000
Goodwill (partial) 28,000
28. d P701,500 = (P61,500 + P95,000 + P280,000) + (P28,000 + P37,000

+ P200,000)
29. a
Non-controlling interest (partial-goodwill): P52,500
NCI
FV of SHE of SSD:
30. d
Non-controlling interest (fulll-goodwill): P64,500
NCI
FV of SHE of SSD:
Add: NCI on full-goodwill (P40,000 – P12,000)…………... 12,000
FV of NCI (full)…………………………………………………..P 64,500
31. d P205,000 = The amount reported by Power Corporation
32. c P419,500 = (P150,000 + P205,000) + P64,500

Consolidated SHE:
Parent’s SHE or Equity Attributable to Parent P355,000
NCI (partial-goodwill) 52,500
33. b
Consideration transferred ........................................................................................ P60,000
Less: Strand's book value (P50,000 x 80%) .............................................................. (40,000)
Fair value in excess of book value ......................................................................... P20,000
Excess assigned to inventory (60%) .......................................................... P12,000
Excess assigned to goodwill (40%) ........................................................... P 8,000
34. c
Consideration transferred (P60,000 ÷ 80%) ............................................................ P75,000
Less: Strand's book value .......................................................................................... (50,000)
Fair value in excess of book value ......................................................................... P25,000
Excess assigned to inventory (60%) .......................................................... P15,000
Excess assigned to goodwill (40%) ........................................................... P10,000
35. a
Park current assets ....................................................................................................... P 70,000
Strand current assets ................................................................................................... 20,000
Excess inventory fair value ......................................................................................... 15,000
Consolidated current assets...................................................................................... P105,000
36. c
Park noncurrent assets............................................................................................... P 90,000
Strand noncurrent assets........................................................................................... 40,000
Excess fair value to goodwill (partial) ..................................................................... ___8,000
Consolidated noncurrent assets.............................................................................. P140,000
37. d
Park noncurrent assets................................................................................................ P 90,000
Strand noncurrent assets ............................................................................................ 40,000
Excess fair value to goodwill (full)............................................................................. __10,000
Consolidated noncurrent assets............................................................................... P140,000
38. b Add the two book values and include 10% (the P6,000 current portion) of the loan taken
out by Park to acquire Strand.
39. b Add the two book values and include 90% (the P54,000 noncurrent portion) of the loan
taken out by Polk to acquire Strand.
40. b
Park stockholders' equity........................................................................................... P80,000
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% 13,000
Total stockholders' equity......................................................................................... P93,000
41. 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
42. b
43. a – P150,000 + P500,000
45. b
FV, stocks issued………………………………………………… P 4,200,000
Less: Par value of stocks issued (500,000 shares x P5)…….. __2,500,000
APIC P 1,700,000
Add: APIC of P 7,500,000
Less: Stock issuance cost ___100,000
P 9,100,000
46. a ( P10 x 100,000 = P1,000,000 – P1,400,000) = P400,000

48. c
49. 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
50. b
P1,500,000 – (1,700,000 – 50,000 decrease in inventories) + (P100,000 increase in PPE –
P300,000 – P500,000) = P550,000
51. a
52. d (P1,000,000 + P250,000) = P1,250,000 P only.
53. d [P99,000 + (P45,000 – P26,000)] or (P99,000 + P45,000) = P144,000
54. b [(P330,000/75%) – (P565,000 – P105,000)] = (P20,000) – full-goodwill approach
55. a - P only
56. 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
Goodwill (full) _____0
If partial-goodwill – same answer with full-goodwill approach, since there is no gain.
57. b – step-acquisition
60% FV, stocks issued: 60,000 shares x P6, fair value P360,000
30% FV of previously held equity interest: 30,000 shares x P5, fair value 150,000
10% FV of NCI (100,000 – 60,000 – 30,000) x P, fair value 40,000
100% Fair value of subsidiary P560,000
Less: Fair value of net assets (SHE) of subsidiary 500,000
P 60,000
58. b
59. a
60. a [(P700,000 + P980,000) + (34,000 shares x P35)] = P2,780,000
61. d
Book value of Assets (P80,000 + P50,000 + P200,000) P330,000
Fair value of Assets (P85,000 + P60,000 + P250,000) 395,000
P 65,000
62. a – zero, since the revaluation of P65,000 is already recorded in the books of subsidiary (not in
the worksheet or eliminating entries.
63. b – (P250,000 – P200,000)/10 years = P5,000 depreciation to reduce net income of Sirius.
64. c
65. a
66. 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.
67. d
68. a
69. c – In the combined financial statements (which normally used to described financial
statements in a “common control” situation), intercompany accounts are eliminated in full.
70. 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.
71. d
The acquisition method consolidates assets at fair value at acquisition date regardless of the
parent’s percentage ownership.
72. c
73. 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 ....................................................................... P45,000
Amortization for 2 years (10 year life) ..................................................................... (9,000)
Patent reported amount December 31, 2010 ...................................................... P36,000
74. a
PP - building .................................................................................................................. P510,000
TT building acquisition-date fair value P300,000
Amortization for 3 years (10-year life) (90,000) 210,000
Consolidated buildings ............................................................................................... P720,000
-OR-
PP - building ................................................................................................................... 510,000
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) 210,000
Consolidated buildings ............................................................................................... P720,000
75. 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 excess………………………………………………………………………………P 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
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 ½ shares in exchange for each ordinary share of Santi Ltd. All of Santi Ltd’s
shareholders exchange their shares for Pedro Ltd. Pedro Ltd therefore issues 150 shares (60 x 2
½) 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 by 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 acquirer 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.
76. d
Consideration transferred (4,000,000 shares* x P6)…………………………P24,000,000
Less: Book value of SHE – Man: P18,000,000 x 100%.................................... 18,000,000
Allocated excess …………………………………………………………………P 6,000,000
Less: Over/Under valuation of assets and liabilities
(book value same fair value)…………………………………………… 0
Goodwill…………………………………………………………………………… P 6,000,000
100%
* Man Mask
Currently issued…………………… 15 M 60% ** 6 M 60%
Additional shares issued……….. 10 M 40% 4 M / 40%
Total shares………………………… 25 M 10 M
**15M/25M
77. 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.
78. b
Target not met: 100,000 shares x .75 share x P10 = P750,000
Target met: 100,000 shares x .8 x P10 = P800,000
79. c
Target not met: 250,000 shares x 1.50 share x P30 = P11,250,000
Target met: 250,000 shares x 1.8 x P30 = P13,500,000
80. c
500,000 shares x 1.7 exchange ratio x P25 = P21,250,000
The investment value does not change as a result of a change in the share prices.
Quiz- XV
1. P290,000
2. None, since there are no revenues and expenses of the acquire up to the date of
acquisition
3. P525,000
4. P80,000 = P250,000 - P170,000
5. P99,000 = (P10,000 + P80,000 + P350,000 - P110,000)(.30)
6. P21,000 = (P60,000 - P12,000 - P5,000 - P8,000 - P14,000)
7. P70,000 = P56,000/.8
8. P56,000 = (P220,000 - P120,000 - P44,000)
9. P700,000 = P490,000/.70
10. P180,000 = [(P490,000/.70) - (P30,000 + P140,000 + P460,000 - P110,000)]
11. P90,000 = P460,000 - P370,000
12. P160,000 = (P430,000 - P210,000 - P60,000)
13. P700,000 = P560,000/.80
14. P80,000 = [(P560,000/.80) - (P50,000 + P200,000 + P600,000 - P230,000)]
15. P70,000 = P600,000 - P530,000
16. P130,000 = ($60,000 + $210,000 + $630,000 - $250,000)(.20)
17. P50,000
18. P420,000
19. P201,000 = (P40,000 + P230,000 + P700,000 - P300,000)(.30)
20. P80,000 = (P700,000 - P620,000)
21. P90,000 credit (P260,000 - P350,000)
22. P110,000 debit
23. P120,000 credit (P300,000 - P420,000)
24. P180,000 debit
25. P50,000 debit (P300,000 - P250,000)
26. P56,000 debit
27. P150,000 debit (P600,000 - P450,000)
28. P260,000 debit
29. c
30. 500,000 shares x 1.7 exchange ratio x P25 = P21,250,000. The investment value does not
change as a result of a change in the share prices.
31. Inventories (P110,000 + P180,000 – P10,000) = P280,000
32. Buildings and equipment, net (P350,000 + P350,000 + P25,000 = P725,000
33. Investment in DD stock will be fully eliminated and will not appear in the consolidated
balance sheet
34. P35,000
Less: BV of SHE of DD (P100,000 + P200,000 – P40,000) 260,000
Less: Over/under valuation of A and L: Inc (Decrease)
Inventory (P 10,000)
Buildings and equipment (net) 25,000 15,000
P 5,000
Add: Existing goodwill (to be eliminated 30,000
Goodwill to be reported 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
Notes payable (250,000)
Fair value of net identifiable
Assets (245,000)
Goodwill to be reported P 35,000
Note: Goodwill on books of DD is not an identifiable asset and therefore is not included in the
computation of Decibel's net identifiable assets at the date of acquisition.
35. Common stock, P400,000 (parent only, SHE of subsidiary is eliminated)

36. Retained earnings, P105,000 (parent only, SHE of subsidiary is eliminated)
37. The investment balance reported by Roof will be P192,000.
38. Total assets will increase by P310,000.
39. Total liabilities will increase by P95,000.
40. The amount of goodwill for the entity as a whole will be P25,000
[(P192,000 + P48,000) - (P310,000 - P95,000)].
41. Non-controlling interest will be reported at P48,000 (P240,000 x .20).
Theories
1. c 6. B 11. c 16. d 21. b 26. d 31 c 36. d
2. a 7. b 12. c 17. c 22. a 27. c 32. d 37. d
3. e 8. A 13. d 18. b 23. a 28. c 33. b 38. c
4. e 9. D 14. d 19. c 24. b 29. d 34. d 39. b
5. b 10, a 15, b 20. c 25. c 30. b 35. d 40. c
41. c 46. b 51. c 56. c

42. c 47. a 52. b 57. d
43. c 48. c 53. a
44. c 49. d 54. a
45. c 50, b 55, b
Chapter 16
Problem I
1. P50,075
Consolidated Net Income for 20x4
Net income from own/separate operations
Pill Company [P25,000 – (P9,000 x 85%)] P17,350
Sill Company 40,000
Total P57,350
Less: Non-controlling Interest in Net Income* P 5,775
Amortization of allocated excess 0
Goodwill impairment 1,500 7,275
Controlling Interest in Consolidated Net Income or Profit
attributable to equity holders of parent………….. P50,075
Add: Non-controlling Interest in Net Income (NCINI) 5,775
Consolidated Net Income for 20x4 P55,850
*Net income of subsidiary – 20x4 P 40,000

Amortization of allocated excess – 20x4 ( 0))
P 40,000
Multiplied by: Non-controlling interest %.......... 15%
P 6,000
Less: Non-controlling interest on impairment loss on full-goodwill (P1,500 x 15%)* ____225
Non-controlling Interest in Net Income (NCINI) P 5,775
*this procedure would be not be applicable where the NCI on goodwill impairment loss would not
be proportionate to NCI acquired.
2. P5,775 – refer to computation in No. 1
Problem II (Assume the use of full-goodwill approach)

Cost of 75% investment 600,000
Fair value of Subsidiary (Implied cost of 100% investment); P600,000/75% 800,000
Less: Carrying amount of Small’s net assets =
Carrying amount of Small’s shareholders’ equity
Common/Ordinary shares 400,000
500,000
Allocated Excess: Acquisition differential – Jan. 1, 20x4 300,000
Less: Over/under valuation of A/L (Allocated to):
Increase in Inventory 40,000
Decrease in Patents (70,000) (30,000)
Goodwill - full 330,000
A summary or depreciation and amortization adjustments is as follows:

Account Adjustments to be Over/ Annual Current
amortized Under Life Amount Year(20x4) 20x5 20x6
Inventory P40,000 1 P 40,000 P 40,000 P - P -
Subject to Annual Amortization
Patents (70,000) 5 (14,000) ( 14,000) (14,000) (14,000)
Amortization P 26,000 P 26,000 P(14,000) P(14,000)
Impairment of goodwill 330,000 - _____ _____ ______ __ 19,300
P 26,000 P 26,000 P(14,000) P 5,300
Unamortized balance of allocated excess:
Balance Balance
Jan. 1 Amortization Dec. 31
20x4 20x4 & 20x5 20x6
Inventory 40,000 40,000
Patents (70,000) (28,000) (14,000) (28,000)
Goodwill 330,000 0 19,300 310,700
300,000 12,000 5,300 282,700
Journal Entries Year 1 Year 2 Year 3

Investment in Small 600,000
Cash 600,000
Cash 18,750 7,500 30,000
Dividend income 18,750 7,500 30,000
2.
a. Goodwill, 12/31/20x6 (P330,000 – P19,300) P 310,700
b.
FV of NCI, 12/31/20x6:
Common stock, 12/31/20x6 P 400,000
Retained earnings, 1/1/20x6
(P100,000 + P80,000 – P25,000 – P35,000 – P10,000) P 110,000
Add; NI – Subsidiary (20x6) 90,000
Dividends – Subsidiary 20x6 ( 40,000) 160,000
Book value of SHE – S, 12/31/20x6 P 560,000
Adjustments to reflect fair value P 300,000
Amortization of allocated excess – 20x5 ( 12,000)
- 20x6 14,000
Impairment of goodwill – 20x5 ( 19,300)___282,700
FV of SHE of S P842,700
Multiplied by: NCI% 25%
FV of NCI P210,675
Or, alternatively;
Small’s common/ordinary shares 400,000
Small’s retained earnings (100,000+80,000-25,000-35,000-10,000+90,000
-40,000) 160,000
560,000
Unamortized acquisition differential 282,700
842,700
NCI’s share (25%) 210,675
c. Consolidated Retained Earnings, 1/1/20x6 – P498,500

Consolidated Retained Earnings, December 31, 20x6
Retained earnings - Large Company, January 1, 20x5 (cost model P500,000
Adjustment to convert from cost model to equity method for purposes of
consolidation or to establish reciprocity:/Parent’s share in adjusted net
increased in subsidiary’s retained earnings:
Retained earnings – Small, January 1, 20x5
(P100,000 + P80,00 – P25,000 – P35,000 – P10,000) P 110,000
Less: Retained earnings – Small, January 1, 20x4 (date of acquisition) 100,000
Increase in retained earnings since date of acquisition P 10,000
Less: Amortization of allocated excess – 20x4 26,000
Amortization of allocated excess – 20x5 (14,000)
P ( 2,000)
Multiplied by: Controlling interests %................... 75%
P ( 1,500)
Less: Goodwill impairment loss (full-goodwill) – 20x5 _____0 1,500
Consolidated Retained earnings, January 1, 20x6 P498,500
Incidentally, the CRE, December 31, 20x6 would be as follows:

Add: Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of Large for 20x6 219,050
Total P717,550
Less: Dividends paid – Large Company for 20x6 70,000
Consolidated Retained Earnings, December 31, 20x6 P647,550
d. P219,050
Large Company [P200,000 – (P40,000 x 75%)] P170,000
Small Company 90,000
Total P260,000
Amortization of allocated excess 5,300
Goodwill impairment 19,300 40,950

P 84,700
P 21,175
Less: Non-controlling interest on impairment loss on full-goodwill ( (P19,300 x 25%)* ___4,825
e. P16,350 – refer to (d) for computations
Teacher’s Guide: For purposes of comparison between Cost Model/Method and Equity Method
1. Year 1 Year 2 Year 3

Investment in Small 600,000
Cash 600,000
Investment in Small (75% x Small’s profit) 60,000 (26,250) 67,500
Investment income 60,000 (26,250) 67,500
Cash (75% x Small’s dividends) 18,750 7,500 30,000
Investment in Small 18,750 7,500 30,000
Investment income (75% x amortization of PD*) 19,500 (10,500) 3,975
Investment in Small 19,500 (10,500) 3,975
*purchase differential
( ) – indicates reduction
Investment in Small under cost method 600,000
Small’s retained earnings, end of year 160,000
Small’s retained earnings, date of acquisition 100,000
Change since acquisition 60,000
Less: cumulative amortization of acquisition differential 17,300
42,700
Large’s share (75%) 32,025
Investment in Small under equity method 632,025
Note: Regardless of the method used (cost or equity) answers for No. 2 (a) to (e) above are
exactly the same.
Problem III
Cost of 8% investment 646,000
Fair value of Subsidiary (Implied cost of 100% investment); P646,000/85% 760,000
Less: Carrying amount of Silk’s net assets =
Carrying amount of Silk’s shareholders’ equity
Common/Ordinary shares 500,000
600,000
Allocated Excess: Acquisition differential – December 31, 20x4 160,000
Less: Over/under valuation of A/L (Allocated to):
Increase in Inventory 70,000
Patents 90,000
Non-controlling interest (15% x 760,000, fair value of subsidiary),12/31/20x4 114,000

Account Adjustments to be Over/ Annual Current
amortized under Life Amount Year(20x5) 20x6 20x7
Inventory P70,000 1 P 70,000 P 70,000 P - P -
Patents 90,000 10 __9,000 ___9,000 ___9,000 ___9,000
P160,000 P 79,000 P 79,000 P 9,000 P 9,000,

Balance Balance
Dec. 31 Amortization Dec. 31
20x4 20x5 20x6 20x6
Inventory 70,000 70,000
Patents 90,000 9,000 9,000 72,000
160,000 79,000 9,000 72,000
1. NCI-CNI
20x5: P(7,350)
20x6: P6,450
20x5 20x6
Consolidated Net Income
Large Company
20x5 [P28,000 – P0)] P 28,000
20x6 [(P45,000, loss + (P15,000 x 85%)] P(57,750)
Small Company 30,000 52,000
Total P 58,000 P( 5,750)
Less: Non-controlling Interest in Net Income* P(7,350) P 6,450
Amortization of allocated excess 79,000 9,000
Goodwill impairment _____0 71,650 _____0 15,450
CI-CNI (loss) or Profit (loss) attributable to equity
holders of parent P(13,650) P(21,200)
Add: Non-controlling Interest in Net Income (NCINI) ( 7,350) 6,450
Consolidated Net Income/Loss (CNI) P(21,000) P(14,750)
20x5 20x6
*Net income (loss) of subsidiary P 30,000 P 52,000
Amortization of allocated excess ( 79,000) ( 9,000)
P(49,000) P 43,000
Multiplied by: Non-controlling interest %.......... 15% 15%
P( 7,350) P 6,450
Less: Non-controlling interest on impairment loss on full-goodwill _______- ___ _-
Non-controlling Interest in Net Income (NCINI) P( 7,350) P 6,450
2. CI-CNI – refer to computation in No. 1

20x5: P(21,000)
20x6: P14,750
Or, alternatively:
(1) Non-controlling interest in profit
20x5: 15%  (30,000 – 79,000) - 7,350
20x6: 15%  (52,000 – 9,000) 6,450
(2)
20x5 20x6
Profit (loss) Pen 28,000 (45,000)
Dividends from Silk
20x5 0
20x6 (85%  15,000) (12,750)
28,000 (57,750)
Share of Silk’s profit
85%  (30,000 – 79,000) (41,650)
85%  (52,000 – 9,000) _ 36,550_
Consolidated profit (loss) attributable to
Pen’s shareholders (13,650) (21,200)
3. CRE, 12/31/20x6 – P73,150
Retained earnings - Pen Company, December 31, 20x6 (cost model P 91,000
Retained earnings – Silk, December 31, 20x6:
(P100,000 + P30,00 – P0 + P52,000 – P15,000) P 167,000
Less: Retained earnings – Silk, December 31, 20x4 (date of acquisition) 100,000
Amortization of allocated excess – 20x6 __ 9,000
P (21,000)
P (17,850)
Less: Goodwill impairment loss (full-goodwill) – 20x5 _____0 ( 17,850)
Consolidated Retained earnings, December 31, 20x6 P 73,150
4. NCI, 12/31/20x6: P110,850

FV of SHE of Silk:
Common stock, 12/31/20x6 P 500,000
Retained earnings, 12/31/20x:
Retained earnings, 1/1/20x4 P 100,000
NI – Subsidiary (20x5 and 20x6): P30,000 + P52,000 82,000
Dividends – Subsidiary (20x5 and 20x6): P) + P15,000 ( 15,000) 167,000
Book value of SHE – S, 12/31/20x6 P 667,000
Adjustments to reflect fair value, 12/31/20x4 160,000
Amortization of allocated excess (P79,000 + P9,000) ( 88,000)
FV of SHE of S P 739,000
FV of NCI (partial), 12/31/20x6 P 110,850
Add: NCI on full-goodwill 0
FV of NCI (full),12/31/20x6 P 110,850
Or, alternatively:
Non-controlling interest – date of acquisition,12/31/20x4 (1) P 114,000
Retained earnings Silk – Dec. 31, 20x6
(100,000 + 30,000 + 52,000 – 15,000) 167,000
Retained earnings, 12/31/20x4 (date of acquisition) 100,000
Increase since acquisition 67,000
Less: Amortization of allocated excess (79,000 + 9,000) 88,000
( 21,000)
NCI’s share 15% ( 3,150)
Non-controlling interest – Dec. 31, 20x6 P 110,850
5. Consolidated Patents, 12/31/20x6: P72,000

Balance Balance
Dec. 31 Amortization Dec. 31
20x4 20x5 20x6 20x6
Inventory 70,000 70,000
Patents 90,000 9,000 9,000 72,000
160,000 79,000 9,000 72,000
Or, alternatively:
Invest. account – equity Dec. 31, 20x6 628,150
Cost of investment 646,000
Retained earnings Silk – Dec. 31, 20x6
(100,000 + 30,000 + 52,000 – 15,000) 167,000
Retained earnings,12/31/20x4 (date of acquisition) 100,000
Increase since acquisition 67,000
Less: Accumulated amortization (79,000 + 9,000) 88,000
- 21,000
85% - 17,850
Invest. account – equity method as at Dec. 31, 20x6 628,150
Implied value of 100% (628,150 / 85%) 739,000

Silk –Common shares 500,000
667,000
Balance unamortized allocated excess – Patents 72,000
Problem IV
1. (Full or partial-goodwill) – the same answer.
Consideration transferred by MM ........................... P664,000
Noncontrolling interest fair value............................. 166,000*
Fair value of Subsidiary………………………… P830,000
Less: Book value of SHE – S…..……………………. (600,000)
Positive excess ............................................................ 230,000 Annual Excess
Life Amortizations
Excess fair value assigned to buildings 80,000 20 years P4,000
Goodwill - full P150,000 indefinite -0-
Total ........................................................................ P4,000
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 .................................................................. 300,000
Additional Paid-in Capital - TT ............................................... 90,000
Retained Earnings - TT .............................................................. 210,000
Investment in TT Company (80%) ................................... 480,000
Non-controlling interest (20%) ......................................... 120,000
Buildings ..................................................................................... 80,000

Goodwill .................................................................................... 150,000
Non-controlling interest (P166,000 – P120,000) ............ 46,000
Partial-goodwill
Common Stock - TT .................................................................. 300,000
Additional Paid-in Capital - TT ............................................... 90,000
Retained Earnings - TT .............................................................. 210,000
Non-controlling interest (20%) ......................................... 120,000
Buildings ..................................................................................... 80,000

Goodwill .................................................................................... 120,000
Non-controlling interest (20% x P80,000) ....................... 16,000
4. Cost Model/Initial Value Method

Dividends received (80%) ............................................................. P 8,000
Investment in Taylor—12/31/x4 (original value paid)………… 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 value—buildings .................................................... P 800,000
TT book value—buildings ........................................................ 300,000
Allocation .................................................................................. 80,000
Excess Amortizations for 20x4–20x5 (P4,000 × 2) …………. ( 8,000)
Consolidated buildings account ………………… P 1,172,000
7. Acquisition-date fair value allocated to goodwill:

Goodwill-full ( see No. 1 above) .................................................. P 150,000
Goodwill-partial (see No. 1 above)……………………………… P 120,000
8. The common stock and additional paid-in capital figures to be reported are the parent
balances only.
Common stock, P500,000
Additional paid-in capital, P280,000
Problem V
1.
Partial Goodwill or Proportionate Basis
a. Investment in S 225,000
Beginning Retained Earnings-Palm Inc. 225,000
To establish reciprocity/convert to equity (0.90 x(P1,250,000 – P1,000,000))
b. Common stock – S 3,000,000

Retained earnings – S 1,250.000
Investment in S Co 3,825,000
NCI (P4,250,000 x 10%) 425,000
c. Land 400,000
Investment in S 150,000
NCI [(P500,000 x 10%)– (P100,000 x 10%)] 40,000
Retained earnings – P (bargain purchase gain –
closed to retained earnings since only balance
sheets are being examined, P300,000 – P90,000
depreciation, 20x4) 210,000
FV of SHE of S:
Common stock, 1/1/20x5 P3,000,000
Retained earnings, 1/1/20x4 P1,000,000
NI – Subsidiary (20x4) 250,000
Dividends – Subsidiary 20x4 ( 0) 1,250,000
Book value of SHE – S, 1/1/20x5 P4,250,000
Amortization of allocated excess (P100,000 x 1) ( 100,000)
FV of SHE of S P4,650,000
FV of NCI P 465,000
Computation of Gain:
Less: BV of SHE of S (P3,000,000 + P1,000,000) x 90% _3,600,000
Inventory (P800,000 – P700,000) x 90% P 90,000
Land (P2,000,000 – P1,600,000) x 90% 360,000 __450,000
Gain – partial (attributable to parent) (P300,000)
Full Goodwill or Fair Value Basis

a. Investment in S 225,000
Beginning Retained Earnings-P Inc. 225,000
To establish reciprocity/convert to equity (0.90 x(P1,250,000 – P1,000,000))
b. Common stock – S 3,000,000

Retained earnings – S 1,250.000
Investment in S 3,825,000
NCI (P4,250,000 x 10%) 425,000
c. Land 400,000
Investment in S 150,000
NCI [(P500,000 x 10%)– (P100,000 x 10%)] 40,000
Retained earnings – P (bargain purchase gain –
closed to retained earnings since only balance
sheets are being examined, P300,000 – P90,000
depreciation, 20x4) 210,000
FV of SHE of S:
Common stock, 1/1/20x5 P3,000,000
FV of NCI P 465,000
Full-goodwill or Fair Value Basis
Consideration transferred P3,750,000 / 90% P4,166,667
Less: BV of SHE of S (P3,000,000 + P1,000,000) x 100% 4,000,000
Inventory (P800,000 – P700,000) x 100% P 100,000
Land (P2,000,000 – P1,600,000) x 100% 400,000 __500,000
Gain – full (attributable to parent) (P333,333
Note: In case of gain, the working paper eliminating entries under partial and full-goodwill
approach are the same.
2.
Retained earnings - Parent Company, December 31, 20x5 (cost model P2,000,000
Retained earnings – Subsidiary, December 31, 20x5
(P1,000,000 + P250,000 – P0 + P300,000 – P0) P1,550,000
Less: Retained earnings – Subsidiary, January 1, 20x4 1,000,000
Less: Amortization of allocated excess – 20x4 (inventory) 100,000
P 450,000
P405,000
Add: Bargain purchase gain (Controlling interest – P300,000) 300,000
Less: Goodwill impairment loss _______0 __705,,000
Consolidated Retained earnings, December 31, 20x5 P 4,705,000
Problem VI
Partial Goodwill
Less: BV of SHE of S (P1,000,000 + P500,000) x 80% _1,200,000
Allocated excess P1,600,000
Prop., plant and eqpt. (P1,500,000 – P600,000) x 80% __720,000
Full-goodwill:
Less: BV of SHE of S (P1,500,000 x 100%) 1,500,000
Allocated excess P2,000,000
Prop., plant and eqpt. (P1,500,000 – P600,000) x 80% __900,000
Goodwill – full P1,100,000
Amortization of allocated excess:
P900,000 / 10 years = P90,000 per year
1.
Cost Model-Full Goodwill (Eliminating Entries)
20x4
a. Beginning Retained Earnings-S Co. 1,000,000
Capital Stock- S Co. 500,000
Property and Equipment (net) 900,000
Goodwill 1,100,000
Investment in S Co. 2,800,000
Common stock, 1/1/20x4 P 500,000
Retained earnings, 1/1/20x4 1,000,000
FV of SHE of S1/1/x5 P2,400,000
Add: NCI on full-goodwill (P1,100,000 – P880,000) 220,000
b. Depreciation Expense 90,000

20x5
a. Investment in S Company (P300,000 x 0.80) 240,000
Beginning Retained Earnings-P Co. 240,000
To establish reciprocity/convert to equity as of 1/1/20x5
b. Beginning Retained Earnings-S Company 1,300,000

Capital Stock-S Company 500,000
Goodwill 1,100,000
Investment in S Company (P2,800,000 + P240,000) 3,040,000
Non-controlling Interest P700,000 +
[(P1,300,000 – P1,000,000) x 0.20] 760,000
FV of SHE of S:
FV of SHE of S1/1/x5 P2,700,000
c. Beginning Retained Earnings-P Co. (P90,000 x 80%) 72,000

Non-controlling Interest (P90,000, depreciation x 20%) 18,000
Depreciation Expense 90,000
NCI (partial), 12/31/20x5: [(a) P760,000 – (b) P18,000 = P522,000]
FV of SHE of S:
Cost Model-Partial Goodwill (Eliminating Entries)

20x4
a. Beginning Retained Earnings-S Co. 1,000,000
Capital Stock- S Co. 500,000
Goodwill 880,000
Investment in S Co. 2,800,000
b. Depreciation Expense 90,000

20x5
a. Investment in S Company (P300,000 x 0.80) 240,000
Beginning Retained Earnings-P Co. 240,000
To establish reciprocity/convert to equity as of 1/1/20x5
b. Beginning Retained Earnings-S Company 1,300,000

Capital Stock-S Company 500,000
Goodwill 880,000
Investment in S Company (P2,800,000 + P240,000) 3,040,000
Non-controlling Interest P700,000 +
[(P1,300,000 – P1,000,000) x 0.20] – (P1,100,000 – P880,000) 540,000
NCI:
FV of SHE of S:
FV of SHE of S1/1/x5 P2,700,000
c. Beginning Retained Earnings-P Co. (P90,000 x 80%) 72,000
Non-controlling Interest (P90,000 depreciation x 20%) 18,000
NCI (partial), 12/31/20x5: [(a) P540,000 – (b) P18,000 = P522,000]
FV of SHE of S:
2. Consolidated Net Income (CNI) = Controlling Interest in CNI + NCI in CNI
20x4
P Company P400,000
S Company 300,000
Total P700,000
Goodwill impairment ____0 132,000
attributable to equity holders of P………….. P568,000
Net income of subsidiary…………………….. P 300,000

Amortization of allocated excess …... ( 90,000)
P210,000
20x5
P Company P425,000
S Company 400,000
Total P825,000

Amortization of allocated excess …... ( 90,000)
P310,000
Problem VII
1. Common stock of TT Company
on December 31, 20x4 P 90,000
Retained earnings of TT Company
January 1, 20x4 P 130,000
Sales for 20x4 195,000
Less: Expenses (160,000)
Dividends paid (15,000)
Retained earnings of TT Company
on December 31, 20x4 150,000
Net book value on December 31, 20x4 P240,000
Proportion of stock acquired by QQ x .80
Purchase price P192,000
2. Net book value on December 31, 20x4 P240,000
Proportion of stock held by
noncontrolling interest x .20
Balance assigned to noncontrolling interest P 48,000
3. Consolidated net income is P143,000. None of the 20x4 net income of TT Company was
earned after the date of purchase and, therefore, none can be included in consolidated
net income.
4. Consolidate net income would be P178,000 [P143,000 + (P195,000 - P160,000)].
Problem VIII
Requirements 1 to 4:
Cash P 360,000
Notes payable 105,000 P 465,000
Common stock (P200,000 x 100%)………………. P 240,000
Retained earnings (P100,000 x 100%)………... 120,000 360,000
Increase in equipment (P80,000 x 100%) 96,000
Decrease in buildings (P20,000 x 100%)………..... ( 24,000)
Decrease in bonds payable (P4,000 x 100%)…… 4,800 90,000
Positive excess: Goodwill (excess of cost over
fair value)………………………………………………... P 15,000

S Co. S Co. (Over) Under
Inventory………………….…………….. P 24,000 P 30,000 P 6,000
Land……………………………………… 48,000 55,200 7,200
Equipment (net)......... 84,000 180,000 96,000
Buildings (net) 168,000 144,000 (24,000)
Bonds payable………………………… (120,000) ( 115,200) 4,800
Net……………………………………….. P 204,000 P 294,000 P 90,000
S Co. S Co. Increase
Equipment .................. 180,000 180,000 0
Net book value………………………... 84,000 180,000 96,000
S Co. S Co.
Buildings................ 360,000 144,000 ( 216,000)
Net book value………………………... 168,000 144,000 ( 24,000)
Over/ Annual Current
Account Adjustments to be amortized under Life Amount Year(20x4) 20x5
Inventory P 6,000 1 P 6,000 P 6,000 P -
Equipment (net)......... 96,000 8 12,000 12,000 12,000
Buildings (net) (24,000) 4 ( 6,000) ( 6,000) (6,000)
Bonds payable… 4,800 4 1,200 1,200 1,200
P 13,200 P 13,200 P 7,200
20x4 : First Year after Acquisition

Parent Company Cost Model Entry
January 1, 20x4:
Cash…………………………………………………………………….. 360,000
Notes payable…………………………………… 105,000
January 1, 20x4 – December 31, 20x4:

(2) Cash……………………… 36,000
Dividend income (P36,000 x 100%)……………. 36,000
Record dividends from S Company.
On the books of S Company, the P36,000 dividend paid was recorded as follows:
Dividends paid………… 36,000
Cash……. 36,000
Dividends paid by S Co..
Consolidation Workpaper – First Year after Acquisition
(E1) Common stock – S Co………………………………………… 240,000
Retained earnings – S Co…………………………………… 120,000
Investment in S Co…………………………………………… 360,000
To eliminate intercompany investment and equity accounts
of subsidiary on date of acquisition. ; and to establish non-controlling
interest (in net assets of subsidiary) on date of acquisition.
(E2) Inventory…………………………………………………………………. 6,000

Accumulated depreciation – equipment……………….. 96,000
Accumulated depreciation – buildings………………….. 192,000
Land………………………………………………………………………. 7,200
Discount on bonds payable…………………………………………. 4,800
Goodwill…………………………………………………………………. 15,000
Buildings……………………………………….. 216,000
Investment in S Co………………………………………………. 105,000
To allocate excess of cost over book value of identifiable assets
acquired, with remainder to goodwill
(E3) Cost of Goods Sold……………. 6,000
Depreciation expense……………………….. 6,000
Interest expense………………………………… 1,200
Goodwill impairment loss 3,600
Inventory………………………………………………………….. 6,000
Discount on bonds payable………………………… 1,200
Goodwill…………….. 3,600
To provide for 20x4 impairment loss and depreciation and
amortization on differences between acquisition date fair value and
book value of Son’s identifiable assets and liabilities as follows:
Cost of Depreciation/
Goods Amortization Amortization
Sold Expense -Interest
Inventory sold P 6,000
Equipment P12,000
Buildings ( 6,000)
Bonds payable _______ _______ P 1,200
Totals P 6,000 P 6,000 P1,200
(E4) Dividend income - P………. 36,000

Dividends paid – S…………………… 36,000
To eliminate intercompany dividends and non-controlling interest
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 P Co S Co. Dr. Cr. Consolidated

Sales P480,000 P240,000 P 720,000
Dividend income 36,000 - (4) 36,000 _________
Total Revenue P516,000 P240,000 P 720,000
Cost of goods sold P204,000 P138,000 (3) 6,000 P 348,000
Depreciation expense 60,000 24,000 (3) 6,000 90,000
Interest expense - - (3) 1,200 1,200
Goodwill impairment loss (3) 3,600 3,600
Other expenses 48,000 18,000 66,000
Total Cost and Expenses P312,000 P180,000 P508,800
Net Income to Retained Earnings P204,000 P 60,000 P211,200
Statement of Retained Earnings

Retained earnings, 1/1
P Company P360,000 P 360,000
S Company P120,000 (1) 120,000
Net income, from above 204,000 60,000 211,200
Total P564,000 P180,000 P571,200
Dividends paid
P Company 72,000 72,000
S Company - 36,000 (4) 36,000 ________
Retained earnings, 12/31 to Balance
Sheet P492,000 P144,000 P 499,200
Balance Sheet
Cash………………………. P 147,000 P 90,000 P 237,000
Inventory…………………. 120,000 90,000 (2) 6,000 (3) 6,000 210,000
Land……………………………. 210,000 48,000 (2) 7,200 265,200
Equipment 240,000 180,000 420,000
Buildings 720,000 540,000 (2) 216,000 1,044,000
Discount on bonds payable (2) 4,800 (3) 1,200 3,600
Goodwill…………………… (2) 15,000 (3) 3,600 11,400
Investment in S Co……… 465,000 (1) 360,000
(2) 105,000 -
Total P1,992,000 P1,008,000 P2,341,200
Accumulated depreciation
- equipment P 135,000 P 96,000 (2) 96,000 (3) 12,000 P 147,000
Accumulated depreciation 405,000 288,000 (2) 192,000
- buildings (3) 6,000 495,000
Bonds payable………………… 240,000 120,000 360,000
Retained earnings, from above ___590,400 144,000 499,200
Total P1,992,000 P1,008,000 P 736,200 P 736,200 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……………………… 48,000
Cash 48,000
Consolidation Workpaper – Second Year after Acquisition

(E1) Investment in S Company………………………… 24,000
Retained earnings – P Company……………………… 24,000
To provide entry to convert from the cost method to the equity
method or the entry to establish reciprocity at the beginning of the
year, 1/1/20x5.
Retained earnings – S Company, 1/1/20x5 P144,000

Retained earnings – S Company, 1/1/20x4 120,000
Increase in retained earnings…….. P 24,000
Multiplied by: Controlling interest % 100%
Retroactive adjustment P 24,000

Retained earnings – S Co., 1/1/20x5 144,000
Investment in S Co ………………………… 384,000
of subsidiary and to establish non-controlling interest (in net assets of
subsidiary) on January 1, 20x5.
(E3) Inventory…………………………………………………………………. 6,000
Land………………………………………………………………………. 7,200
Goodwill…………………………………………………………………. 15,000
Buildings……………………………………….. 216,000
acquired, with remainder to goodwill; and to establish non-
controlling interest (in net assets of subsidiary) on January 1, 20x5.
(E4) Retained earnings – P Company, 1/1/20x5

(P16,800 x 100%) 16,800
Inventory………………………………………………………….. 6,000
Goodwill…………………………………… 3,600
To provide for years 20x4 and 20x5 depreciation and amortization on
differences between acquisition date fair value and book value of
S’s identifiable assets and liabilities as follows:
Year 20x4 amounts are debited to P’s retained earnings
Year 20x5 amounts are debited to respective nominal accounts..
(20x4) Depreciation/
Retained Amortization Amortization
earnings, expense -Interest
Equipment 12,000 P 12,000
Buildings (6,000) ( 6,000)
Bonds payable 1,200 P 1,200
Impairment loss 3,600
Totals P 16,800 P 6,000 P1,200

share of dividends.
(E6) Non-controlling interest in Net Income of Subsidiary………… 16,560

Non-controlling interest ………….. 16,560
To establish non-controlling interest in subsidiary’s adjusted net
income for 20x5 as follows:

Amortization of allocated excess [(E4)]…... ( 7,200)
P 82,000
Cost Model
Income Statement P Co. S Co. Dr. Cr. Consolidated
Sales P540,000 P360,000 P 900,000
Dividend income 48,000 - (5) 48,000 ___________
Cost of goods sold P216,000 P192,000 P 408,000
Other expenses 72,000 54,000 126,000
Goodwill impairment loss - - -
Total Cost and Expenses P348,000 P270,000 P 625,200
Net Income to Retained Earnings P240,000 P 90,000 P 274,800

P Company P492,000 (4) 16,800 (1) 24,000 P 499,200
(2)
S Company P144,000 144,000
Total P732,000 P234,000 P 774,000
Dividends paid
P Company 72,000 72,000
S Company - 48,000 (5) 48,000 _ ________
Sheet P660,000 P186,000 P 702,000
Balance Sheet
Cash………………………. P 189,000 P 102,000 P 291,000
Inventory…………………. 216,000 108,000 (3) 6,000 (4) 6,000 324,000
Land……………………………. 252,000 48,000 (3) 7,200 265,200
Equipment 240,000 180,000 420,000
Buildings 720,000 540,000 (3) 216,000 1,044,000
Goodwill…………………… (3) 15,000 (4) 3,600 11,400
Investment in S Co……… 465,000 (1) 24,000 (2) 384,000
(3) 105,000 -
Total P2,220,000 P1,074,000 P2,634,000
- equipment P 150,000 P 102,000 (3) 96,000 (4) 24,000 P 180,000
- buildings (4) 12,000 552,000
Bonds payable………………… 240,000 120,000 360,000
Retained earnings, from above 660,000 186,000 702,000
Total P2,220,000 P1,074,000 P 783,120 P 783,120 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.
Total Stockholders’ Equity (Total Equity) 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 P168,000
S Company 60,000
Total P228,000
Less: Amortization of allocated excess P 13,200
Goodwill impairment loss 3,600 16,800
b. NCINI – not applicable, since it is 100% owned subsidiary

c. P211,200 – same with NCI-CNI since there is no NCI.
d.
equity holders of P for 20x4 or Consolidated Net Income (CNI)* 211,200
Total P571,200
Less: Dividends paid – P Company for 20x4 72,000
*since it is a 100%-owned subsidiary, Controlling Interest in Net Income is the same with Consolidated Net
Income.
e. NCI – not applicable, since it is 100% owned subsidiary
f.
12/31/20x5
a. P274,800 – same with CNI since there is no NCI.
P Company P192,000
S Company 90,000
Total P282,000
Less: Amortization of allocated excess P 7,200
Goodwill impairment loss 0 7,200
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent or CNI 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 P492,000
consolidation or to establish reciprocity:/P’s share in adjusted net
Retained earnings – S, January 1, 20x5 P 144,000
Less: Retained earnings – S, January 1, 20x4 120,000
P 7,200
Multiplied by: Controlling interests %................... 100% 7,200
Consolidated Retained earnings, January 1, 20x5 P 499,200
equity holders of P for 20x5 or CNI 274,800
Total P774,000
e. NCI – not applicable, since it is 100% owned subsidiary
f.
Problem IX
Common stock (P240,000 x 80%)……………………. P 192,000
fair value)………………………………………………... P 12,000

Inventory………………….…………….. P 24,000 P 30,000 P 6,000
Land……………………………………… 48,000 55,200 7,200
Equipment (net)......... 84,000 180,000 96,000
Buildings (net) 168,000 144,000 (24,000)
Bonds payable………………………… (120,000) ( 115,200) 4,800
Net……………………………………….. P 204,000 P 294,000 P 90,000
he buildings and equipment will be further analyzed for consolidation purposes as follows:
Equipment .................. 180,000 180,000 0
Net book value………………………... 84,000 180,000 96,000
S Co. S Co.
Buildings................ 360,000 144,000 ( 216,000)
Net book value………………………... 168,000 144,000 ( 24,000)
Account Adjustments to be amortized Under Life Amount Year(20x4) 20x5
Inventory P 6,000 1 P 6,000 P 6,000 P -
Equipment (net)......... 96,000 8 12,000 12,000 12,000
Buildings (net) (25,000) 4 ( 6,000) ( 6,000) (6,000)
Bonds payable… 4,800 4 1,200 1,200 1,200
P 13,200 P 13,200 P 7,200
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%) P 372,000
Fair value of NCI (given) (20%) 93,000
Fair value of Subsidiary (100%) P 465,000
Less: Book value of stockholders’ equity of Son (P360,000 x 100%) __360,000
Add (deduct): (Over) under valuation of assets and liabilities
(P90,000 x 100%) 90,000
Positive excess: Full-goodwill (excess of cost over
fair value)………………………………………………... P 15,000
In this case, the goodwill was proportional to the controlling interest of 80% and non-controlling
interest of 20% computed as follows:
Value % of Total
Goodwill applicable to parent………………… P12,000 80.00%
Goodwill applicable to NCI…………………….. 3,000 20.00%
Total (full) goodwill……………………………….. P15,000 100.00%
The goodwill impairment loss would be allocated as follows
Value % of Total
Goodwill impairment loss attributable to parent or controlling P 3,000 80.00%
Interest
Goodwill applicable to NCI…………………….. 750 20.00%
Goodwill impairment loss based on 100% fair value or full-
Goodwill P 3,750 100.00%
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:
Cash…………………………………………………………………….. 372,000

(2) Cash……………………… 28,800
Cash……. 36,000
Consolidation Workpaper – Year of Acquisition
Retained earnings – S Co…………………………………… 120.000
of subsidiary on date of acquisition; and to establish non-controlling
(E2) Inventory…………………………………………………………………. 6,000

Land………………………………………………………………………. 7,200
Goodwill…………………………………………………………………. 12,000
Buildings……………………………………….. 216,000
controlling interest (in net assets of subsidiary) on date of acquisition.

Goodwill impairment loss………………………………………. 3,000
Inventory………………………………………………………….. 6,000
Goodwill…………………………………… 3,000
Sold expense -Interest Total
Equipment P 12,000
Buildings ( 6,000)
Bonds payable _______ _______ P 1,200
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 of 80% and non-controlling interest of 20% computed as follows:
Value % of Total
Therefore, the goodwill impairment loss of P3,125 based on 100% fair value or full-goodwill would
be allocated as follows:
Value % of Total
Goodwill impairment loss attributable to P or controlling P 3,000 80.00%
Interest
Goodwill impairment loss applicable to NCI…………………….. 750 20.00%
Goodwill P 3,750 100.00%

Non-controlling interest (P36,000 x 20%)……………….. 7,200
share of dividends.


P 46,800

Cost Model (Partial-goodwill)
Sales P480,000 P240,000 P 720,000
Dividend income 28,800 - (4) 28,800 _________
Other expenses 48,000 18,000 66,000
Goodwill impairment loss - - (3) 3,000 3,000
Net Income P196,800 P 60,000 P211,800
NCI in Net Income - Subsidiary - - (5) 9,360 ( 9,360)

P Company P360,000 P 360,000
S Company P120,000 (1) 120,000
Total P552,000 P180,000 P562,440
Dividends paid
P Company 72,000 72,000
S Company - 36,000 (4) 36,000 _ ________
Sheet P484,800 P144,000 P 490,440
Balance Sheet
Cash………………………. P 232,800 P 90,000 P 322,800
Inventory…………………. 120,000 90,000 (2) 6,000 (3) 6,000 210,000
Land……………………………. 210,000 48,000 (2) 7,200 265,200
Equipment 240,000 180,000 420,000
Buildings 720,000 540,000 (2) 216,000 1,044,000
Goodwill…………………… (2) 12,000 (3) 3,000 9,000
(5) 84,000 -
Total P1,984,800 P1,008,000 P2,424,600
- equipment P 135,000 P 96,000 (2) 96,000 (3) 12,000 P147,000
- buildings (3) 6,000 495,000
Bonds payable………………… 240,000 120,000 360,000
Non-controlling interest………… (4) 7,200 (1 ) 72,000
(2) 18,000
_________ _________ __________ (5) 9,360 ____92,160
Total P1,984,800 P1,008,000 P 745,560 P 745,560 P2,424,600

P Co. S Co.
Sales P 540,000 P 360,000
Less: Cost of goods sold 216,000 192,000
Gross profit P 324,000 P 168,000
Less: Depreciation expense 60,000 24,000
Other expense 72,000 54,000
Net income from its own separate operations P 192,000 P 90,000
Add: Dividend income 38,400 -
Net income P 230,400 P 90,000
Dividends paid P 72,000 P 48,000
No goodwill impairment loss for 20x5.

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

Cash……………………… 38,400

Cash 48,000
The working paper eliminations (in journal entry format) on December 31, 20x5, are as follows:

year, 1/1/20x5, computed as follows:

Investment in S Co (P384,000 x 80%)………………………… 307,200
(E3) Inventory…………………………………………………………………. 6,000

Land………………………………………………………………………. 7,200
Goodwill…………………………………………………………………. 12,000
Buildings……………………………………….. 216,000
Non-controlling interest (P90,000 x 20%) 18,000

[(P13,200 x 80%) + P3,000, impairment loss on
partial-goodwill] 13,560
Non-controlling interests (P13,200 x 20%)……………………. 2,640
Inventory………………………………………………………….. 6,000
Goodwill…………………………………… 3,000
Year 20x4 amounts are debited to P’s retained earnings &
NCI;
Year 20x5 amounts are debited to respective nominal accounts.
Buildings (6,000) ( 6,000)
Bonds payable 1,200 ________ P 1,200
Sub-total P13,200 P 6,000 P 1,200
Multiplied by: 80%
To Retained earnings P 10,560
Total P 13,560
share of dividends.


P 82,800
Non-controlling Interest in Net Income (NCINI P 16,560

December 31, 20x5 (Second Year after Acquisition)
Sales P540,000 P360,000 P 900,000
Dividend income 38,400 - (5) 38,400 ___________
Other expenses 72,000 54,000 126,000
Net Income P230,400 P 90,000 P 274,800

P Company P484,800 (4) 13,560 (1) 19,200 P 490,440
S Company P 144,000 (2) 144,000
Total P715,200 P234,000 P 748,680
Dividends paid
P Company 72,000 72,000
S Company - 48,000 (5) 48,000 _ ________
Sheet P643,200 P186,000 P 676,680
Balance Sheet
Cash………………………. P 265,200 P 114,000 P 367,200
Inventory…………………. 216,000 108,000 (3) 6,000 (4) 6,000 324,000
Land……………………………. 210,000 48,000 (3) 7,200 265,200
Equipment 240,000 180,000 420,000
Buildings 720,000 540,000 (3) 216,000 1,044,000
Goodwill…………………… (3) 12,000 (4) 3,000 9,000
(3) 84,000 -
Total P2,203,200 P1,074,000 P2,707,800
- equipment P 150,000 P 102,000 (3) 96,000 (4) 24,000 P180,000
- buildings (4) 12,000 552,000
Bonds payable………………… 240,000 120,000 360,000
Non-controlling interest………… (5) 9,600
(4) 2,640 (2 ) 76,800
(3) 18,000
___ _____ _________ __________ (6) 16,560 ____99,120
Total P2,203,200 P1,074,000 P 821,160 P 821,160 P2,707,800
5. 1/1/20x4
a. On date of acquisition the retained earnings of P should always be considered as the
b.
Non-controlling interest (partial-goodwill), January 1, 20x4
Common stock – S Company, January 1, 20x4…… P 240,000
Retained earnings – S Company, January 1, 20x4 120,000
Stockholders’ equity – S Company, January 1, 20x4 P 360,000
Adjustments to reflect fair value - (over) undervaluation of assets and
liabilities, date of acquisition (January 1, 20x4) 90,000
Fair value of stockholders’ equity of subsidiary, January 1, 20x4…… P450,000
Non-controlling interest (partial-goodwill)………………………………….. P 90,000
c.
Consolidated SHE:
P’s Stockholders’ Equity / CI - SHE P 960,000
NCI, 1/1/20x4 ___90,000
Consolidated SHE, 1/1/20x4 P1,050,000
6.
Note: The goodwill recognized on consolidation purely relates to the P’s share. NCI is
measured as a proportion of identifiable assets and goodwill attributable to NCI share is not
recognized.
12/31/20x4:
a. CI-CNI
P Company P168,000
S Company 60,000
Total P228,000
Amortization of allocated excess (refer to amortization above) 13,200
Goodwill impairment (impairment under partial-goodwill approach) 3,000 25,560
equity holders of parent………….. P202,440
Consolidated Net Income for 20x4 P211.800
b. NCI-CNI
*Non-controlling Interest in Net Income (NCINI) for 20x4
Net income of S Company P 60,000
Less: Amortization of allocated excess / goodwill impairment
(refer to amortization table above) 13,200
P 46,800
c. CNI, P211,800 – refer to (a)

d. On subsequent to date of acquisition, consolidated retained earnings would be computed
as follows:
equity holders of parent for 20x4 202,440
Total P562,440
e.
Non-controlling interest (partial-goodwill), December 31, 20x4
Common stock – S Company, December 31, 20x4…… P 240,000
Retained earnings – S Company, December 31, 20x4
Retained earnings – S Company, January 1, 20x4 P120,000
Add: Net income of S for 20x4 60,000
Total P180,000
Less: Dividends paid – 20x4 36,000 144,000
Stockholders’ equity – S Company, December 31, 20x4 P 384,000
Amortization of allocated excess (refer to amortization above) – 20x4 ( 13,200)
Fair value of stockholders’ equity of subsidiary, December 31, 20x4…… P460,000
f.
Consolidated SHE:
P’s Stockholders’ Equity / CI – SHE, 12/31/20x4 P1,090,440
NCI, 12/31/20x4 ___92,160
12/31/20x5:
a. CI-CNI
P Company P192,000
S Company 90,000
Total P282,000
Less: Non-controlling Interest in Net Income* P16,560
Amortization of allocated excess (refer to amortization above) __7,200 23,760
b. NCI-CNI
Less: Amortization of allocated excess / goodwill impairment for 20x5
P 82,800
Non-controlling Interest in Net Income (NCINI) for 20x5 P 16,560

as follows:
P 10,800
P 8,640
Less: Goodwill impairment loss (full-goodwill), net (P3,750– P750)* or
(P3, 750 x 80%) 3,000 5,640
equity holders of P for 20x5 258,240
Total P748,680
*this procedure would be more appropriate, instead of multiplying the full-goodwill impairment loss of P3,750 by
80%. There might be situations where the controlling interests on goodwill impairment loss would not be
proportionate to NCI acquired.
e.
Total P234,000
Amortization of allocated excess (refer to amortization above) :
20x4 P 13,200
20x5 7,200 ( 20,400)
Fair value of stockholders’ equity of S, December 31, 20x5…… P 495,600
Non-controlling interest (partial goodwill)………………………………….. P 99,120
f.
Consolidated SHE:
Parent’s Stockholders’ Equity / CI – SHE, 12/31/20x5 P1,276,680
NCI, 12/31/20x5 ___99,120
Problem X
Consideration transferred (80%)…………….. P 372,000
Fair value of NCI (given) (20%)……………….. 93,000
Fair value of Subsidiary (100%)………. P 465,000
Less: Book value of stockholders’ equity of Son:
Common stock (P240,000 x 100%)………………. P 240,000
fair value)………………………………………………... P 15,000

Inventory P 6,000 1 P 6,000 P 6,000 P -
Equipment (net)......... 96,000 8 12,000 12,000 12,000
Buildings (net) (24,000) 4 ( 6,000) ( 6,000) (6,000)
Bonds payable… 4,800 4 1,200 1,200 1,200
P 13,200 P 13,200 P 7,200

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

(2) Cash……………………… 28,800
Dividend income (P36,000x 80%)……………. 28,800
Cash……. 36,000
No entries are made on the P’s books to depreciate, amortize or write-off the portion of the
allocated excess that expires during 20x4.
(E2) Inventory…………………………………………………………………. 6,000
Land………………………………………………………………………. 7,200
Goodwill…………………………………………………………………. 13,000
Buildings……………………………………….. 216,000
Non-controlling interest (P90,000 x 20%) + [(P15,000, full –
P12,000, partial goodwill)]………… 21,000

Inventory………………………………………………………….. 6,000
Goodwill…………………………………… 3,750
book value of S’s identifiable assets and liabilities as follows:
Equipment P12,000
Buildings ( 6,000)
Bonds payable _______ _______ P 1,200
Totals P 6,000 P 6,000 P1,200

share of dividends.

Income less NCI on goodwill impairment loss on full-goodwill
for 20x4 as follows:

P 46,800
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
*this procedure would be more appropriate, instead of multiplying the
full-goodwill impairment loss of P3,125 by 20%. There might be situations
where the NCI on goodwill impairment loss would not be proportionate
to NCI acquired (refer to Illustration 15-6).
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)
Sales P480,000 P240,000 P 720,000
Dividend income 28,800 - (4) 28,800 _________
Other expenses 48,000 18,000 66,000
Net Income P196,800 P 60,000 P211,050

P Company P360,000 P 360,000
S Company P120,000 (1) 120,000
Total P556,800 P180,000 P562,440
Dividends paid
P Company 72,000 86,400
S Company - 36,000 (4) 36,000 _ ________
Sheet P484,800 P144,000 P 490,440
Balance Sheet
Cash………………………. P 232,800 P 90,000 P 322,800
Inventory…………………. 120,000 90,000 (2) 6,000 (3) 6,000 210,000
Land……………………………. 210,000 48,000 (2) 7,200 265,200
Equipment 240,000 180,000 420,000
Buildings 720,000 540,000 (2) 216,000 1,044,000
Goodwill…………………… (2) 15,000 (3) 3,750 11,250
(4) 84,000 -
Total P1,984,800 P1,008,000 P2,426,850
- equipment P 135,000 P 96,000 (2) 96,000 (3) 12,000 P147,000
- buildings (6) 6,000 495,000
Bonds payable………………… 240,000 120,000 360,000
(2) 21,000
_________ _________ __________ (5) 8,610 ____94,410
Total P1,984,800 P1,984,800 P 748,560 P 748,560 P2,426,850
P Co. S Co.
Sales P 540,000 P 360,000
Net income P 230,400 P 90,000


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

year, 1/1/20x5.


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

Land………………………………………………………………………. 7,200
Goodwill…………………………………………………………………. 15,000
Buildings……………………………………….. 216,000

(P16,950 x 80%) 13,560
Inventory………………………………………………………….. 6,000
Goodwill…………………………………… 3,750
Son’s identifiable assets and liabilities as follows:
Year 20x4 amounts are debited to Perfect’s retained earnings
and NCI.
Buildings (6,000) ( 6,000)
Totals P 16,950 P 6,000 P1,200
Multiplied by: CI%.... 80%
To Retained earnings P13,560

share of dividends.


P 82,800
P 16,560
Less: NCI on goodwill impairment loss on full-
Goodwill 0

Sales P540,000 P360,000 P 900,000
Dividend income 38,400 - (5) 38,400 ___________
Other expenses 72,000 54,000 126,000
Net Income P230,400 P 90,000 P 274,800

P Company P484,800 (5) 13,560 (5) 19,200 P 490,440
S Company P 144,000 (6) 144,000
Total P715,200 P234,000 P 748,680
Dividends paid
P Company 72,000 72,000
S Company - 48,000 (5) 57,600 _ ________
Sheet P643,200 P186,000 P 676,680
Balance Sheet
Cash………………………. P 265,200 P 102,000 P 367,200
Inventory…………………. 216,000 108,000 (3) 6,000 (4) 6,000 324,000
Land……………………………. 210,000 48,000 (3) 7,200 265,200
Equipment 240,000 180,000 420,000
Buildings 720,000 540,000 (3) 216,000 1,044,000
Goodwill…………………… (3) 15,000 (4) 3,750 11,250
(7) 84,000 -
Total P2,203,200 P1,074,000 P2,710,050
- equipment P 150,000 P 102,000 (3) 96,000 (4) 24,000 P180,000
- buildings (4) 12,000 552,000
Bonds payable………………… 240,000 120,000 360,000
(8) 3,390 (2 ) 76,800
(3) 21,000
___ _____ _________ __________ (6) 16,560 ____101,370
Total P2,203,200 P1,074,000 P 824,910 P 824,910 P2,710,050
5. 1/1/20x4
a. On date of acquisition the retained earnings of parent should always be considered as
the consolidated retained earnings, thus:

b.
Non-controlling interest (full-goodwill), January 1, 20x4
Fair value of stockholders’ equity of S, January 1, 20x4…… P450,000
Add: NCI on full-goodwill (P15,000 – P12,000) ___3,000
c.
Consolidated SHE:
Parent’s Stockholders’ Equity / CI - SHE P 960,000
NCI, 1/1/20x4 ___93,000
6.
Note: The goodwill recognized on consolidation purely relates to the parent’s share. NCI is
recognized.
12/31/20x4:
a. CI-CNI – P202,440
P Company P168,000
S Company 60,000
Total P228,000
Goodwill impairment (impairment under full-goodwill approach) 3,750 25,560
equity holders of P………….. P202,440
b. NCI-CNI – P8,610
Less: Amortization of allocated excess (refer to amortization table above) 13,200
P 46,800
Less: Non-controlling interest on impairment loss on full-goodwill (P3,750 x 20%)
or (P3,750 impairment on full-goodwill less P3,000, impairment on
partial-goodwill)* 750
*this procedure would be more appropriate, instead of multiplying the full-goodwill impairment loss
of P3,750 by 20%. There might be situations where the NCI on goodwill impairment loss would not

as follows:
Total P562,440
e.
Non-controlling interest (full-goodwill), December 31, 20x4
Total P180,000
Fair value of stockholders’ equity of S, December 31, 20x4…… P460,800
Non-controlling interest (partial-goodwill, 12/31/20x4………………………….. P 92,160
Add: Non-controlling interest on full goodwill , net of impairment loss, 12/31/x4:
[(P15,000 full – P12,000, partial = P3,000) – P750 impairment loss 2,250
Non-controlling interest (full-goodwill), 12/31/20x4…………….. P 94,410
f.
Consolidated SHE:
NCI, 12/31/20x4 ___94,410
12/31/20x5:
a. CI-CNI – P258,240
P Company P192,000
S Company 90,000
Total P282,000
Goodwill impairment (impairment under full-goodwill approach) 0 23,760
P 82,800
as follows:
Retained earnings – Subsidiary, January 1, 20x5 P 144,000
Less: Retained earnings – Subsidiary, January 1, 20x4 120,000
P 10,800
P 8,640
(P3, 750 x 80%) 3,000 5,640
Total P748,680
e.
Total P234,000
20x4 P 13,200
20x5 7,200 ( 20,400)
Add: Non-controlling interest on full goodwill , net of impairment loss
Non-controlling interest (full-goodwill)………………………………….. P 101,370
f.
Consolidated SHE:
NCI, 12/31/20x4 __101,370
Problem XI
Under the acquisition method, the shares issued by WW are recorded at fair value:
Investment in BB (value of debt and shares issued) ............................ 900,000
Common Stock (par value) ............................................................... 150,000
Additional Paid-in Capital (excess over par value) ...................... 450,000
Liabilities ................................................................................................. 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 ................................................................................... 30,000
Additional Paid-in Capital......................................................................... 40,000
Cash ................................................................................................... 70,000
Allocation of Acquisition-Date Excess Fair Value:
Consideration transferred (fair value) for BB Stock ............................ P900,000
Book Value of BB, 6/30............................................................................... 770,000
Fair Value in Excess of Book Value ................................................... P130,000
Excess fair value (undervalued equipment) ......................................... 100,000
Excess fair value (overvalued patented technology) ........................ (20,000)
Goodwill................................................................................................. P 50,000
Consolidated Balances:
1. Net income (adjusted for combination expenses. The
figures earned by the subsidiary prior to the takeover
are not included) ............................................................................................... P210,000
2. Retained Earnings, 1/1 (the figures earned by the subsidiary
prior to the takeover are not included) ........................................................ 800,000
3. Patented Technology (the parent's book value plus the fair
value of the subsidiary)..................................................................................... 1,180,000
4. Goodwill (computed above) ........................................................................... 50,000
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) .............................................................................. 1,210,000
6. Common Stock (the parent's book value after recording
the newly-issued shares) ................................................................................... 510,000
7. Additional Paid-in Capital (the parent's book value
after recording the two entries above)......................................................... 680,000
Problem XII
1. P15,000 = (P115,000 + P46,000) - P146,000
2. P65,000 = (P148,000 - P98,000) + P15,000
3. SS: P24,000 = P380,000 - (P46,000 + P110,000
+ P75,000 + P125,000)
BB P70,000 = P94,000 - P24,000
4. Fair value of SS as a
whole:
P200,000 Book value of SS shares
10,000 Differential assigned to inventory
(P195,000 - P105,000 - P80,000)
40,000 Differential assigned to buildings and equipment
(P780,000 - P400,000 - P340,000)
9,000 Differential assigned to goodwill
P259,000 Fair value of SS
5. 65 percent = 1.00 – (P90,650 / P259,000)
6. Capital Stock = P120,000
Retained Earnings = P115,000
Problem XIII
1. Investment in WP, Inc. 500,000
Cash 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 50,000

Cash 50,000
3. Cost Model/Initial Value Method

Investment in WP 30,000
Retained earnings-BS 30,000
Common stock 200,000

Retained earnings-WP 180,000
Royalty agreements 90,000

Goodwill 60,000
Dividend income 35,000

Dividends paid 35,000
Amortization expense 10,000

Royalty agreements 10,000
Problem XIV (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 _____-0-
Total ....................................................................... P20,000
1. Consolidated copyrights
PP (book value) ................................................................. P900,000
SS (book value) .................................................................. 400,000
Allocation (above) ........................................................... 120,000
Excess amortizations, 20x4 ............................................... (20,000)
Total .............................................................................. P1,400,000
2. Consolidated net income, 20X4

Revenues (add book values) ......................................... P1,100,000
Expenses:
Add book values ........................................................ P700,000
Excess amortizations .................................................. 20,000 720,000
Consolidated net income ................................................ 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
SS’s 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 XV
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 -0-
Total ....................................................................... 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 XVI
1. Net income for 20x4:
QQ NN
Operating income P 90,000 P35,000
Income from subsidiary 24,500
Net income P114,500 P35,000
2. Consolidated net income is P125,000 (P90,000 + P35,000).
3. Retained earnings reported at December 31, 20x4:
QQ NN
Retained earnings, January 1, 20x4 P290,000 P40,000
Net income for 20x4 114,500 35,000
Dividends paid in 20x4 (30,000) (10,000)
Retained earnings, December 31, 20x4 P374,500 P65,000
4. Consolidated retained earnings at December 31, 20x4, is equal to the P374,500 retained
earnings balance reported by QQ.
5. When the cost method is used, the parent's proportionate share of the increase in retained
earnings of the subsidiary subsequent to acquisition is not included in the parent's retained
earnings. Thus, this amount must be added to the total retained earnings reported by the
parent in arriving at consolidated retained earnings.
Problem XVII
(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.
PS’s consideration transferred (P31.25 × 80,000 shares)............................................. P2,500,000

Non-controlling interest fair value (P30.00 × 20,000 shares) ...................................... P600,000
SR’s total fair value 1/1/09 ............................................................................................... P3,100,000
1. Each identifiable asset acquired and liability assumed in a business combination should
initially be reported at its acquisition-date fair value.
2. In periods subsequent to acquisition, the subsidiary’s 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. SR’s total fair value 1/1/09 ............................................................................................... P3,100,000

SR’s net assets book value............................................................................................... 1,290,000
Excess acquisition-date fair value over book value ................................................... P1,810,000
Adjustments from book to fair values ............................................................................
Buildings and equipment........................................................ (250,000)
Trademarks ................................................................................ 200,000
Patented technology.............................................................. 1,060,000
Unpatented technology......................................................... 600,000 1,610,000
Goodwill ................................................................................................................... P 200,000
4. Combined revenues ......................................................................................................... P4,400,000

Combined expenses......................................................................................................... (2,350,000)
Building and equipment excess depreciation ............................................................ 50,000
Trademark excess amortization...................................................................................... (20,000)
Patented technology amortization ............................................................................... (265,000)
Unpatented technology amortization .......................................................................... (200,000)
Consolidated net income ............................................................................................... P1,615,000
To non-controlling interest:
SR’s revenues ............................................................................................................... P1,400,000
SR’s expenses............................................................................................................... (600,000)
Total excess amortization expenses (above)........................................................ (435,000)
SR’s adjusted net income ......................................................................................... P365,000
Non-controlling interest percentage ownership .................................................. 20%
Non-controlling interest share of consolidated net income .............................. P73,000
To controlling interest:
Consolidated net income......................................................................................... P1,615,000
Non-controlling interest share of consolidated net income .............................. (73,000)
Controlling interest share of consolidated net income ...................................... P1,542,000
-OR-
PS’s revenues ............................................................................................................... P3,000,000

PS’s expenses............................................................................................................... 1,750,000
PS’s separate net income ......................................................................................... P1,250,000
PS’s share of SR’s adjusted net income
(80% × P365,000)............................................................................................ 292,000
Controlling interest share of consolidated net income ...................................... P1,542,000
5. Fair value of non-controlling interest January 1, 20x4 ................................................ P600,000

20x4 income ....................................................................................................... 73,000
Dividends (20% × P30,000) ............................................................................................... (6,000)
Non-controlling interest December 31, 20x4................................................................ P 667,000
6. If SR’s acquisition-date total fair value was P2,250,000, then a bargain purchase has
occurred.
SR’s total fair value 1/1/09 ............................................................................................... P2,250,000
Collective fair values of SR’s 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 SR’s 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 XVIII (Full-Goodwill)

A variety of consolidated balances-midyear acquisition)
Book value of RR, 1/1 (stockholders' equity accounts)
(P100,000 + P600,000 + P700,000) ...................... P1,400,000
Increase in book value:
Net Income (revenues less cost of
goods sold and expenses) ................................ P120,000
Dividends .............................................................. (20,000)
Change during year ................................................. P100,000
Change during first six months of year .......... 50,000
Book value of RR, 7/1 (acquisition date) . P1,450,000
(Full-Goodwill)
Consideration transferred by KL (P1,330,000 +
P30,000)................................................................... P1,360,000
Non-controlling interest fair value ................................. 300,000
RRs’ fair value (given) ....................................................... P1,630,000
Note: The fair value of subsidiary amounting P1,630,000, indicates a fair value of NCI
amounting to P300,000 (refer to above computation), which is lower compared to the FV
of the NCI based on FV of SHE of Subsidiary (RR), computed as follows:
BV of SHE of Subsidiary (RR) ...................................... P1,450,000

Adjustments to reflect fair value (undervaluation) 150,000
FV of SHE of Subsidiary (RR)....................................... P 1,600,000
Multiplied by: NCI%..................................................... 20%
FV of NCI………………………………………………. P 320,000
Consideration transferred by KL (P1,330,000 +

P30,000)................................................................... P1,360,000
Non-controlling interest fair value ................................. ___320,000
RRs’ fair value (given) ....................................................... P1,680,000
Book value of RR, 7/1 ........................................................ (1,450,000)
Fair value in excess of book value ................................. P 230,000 Annual Excess
Excess fair value assigned Life Amortizations
Trademarks ..................................................................... 150,000 5 years P30,000
Goodwill (full-goodwill) ................................................ P 80,000 indefinite -0-
Total .......................................................................... P30,000
It should be carefully noted, that NCI can never be less than its share of fair value of net
identifiable assets (which is P320,000). Thus, the NCI share of company value is raised to
P320,000 (replacing the P300,000 NCI computed as residual amount – refer to
computation above). The rationale behind such rule is to avoid having a lower amount
of goodwill under the full-goodwill approach as compared to goodwill computed under
the partial-goodwill approach.
(Partial-Goodwill)
Consideration transferred by KL ..................................... P 1,360,000
Less: Book value of SHE – RR (P1,450,000 x 80%)…….. 1,160,000
Allocated excess…………………………………………. P 200,000
P150,000 x 80%.............................................. 120,000
Goodwill - partial ............................................................... P 80,000
Note that the goodwill under the full-goodwill and partial-goodwill approach are the
same because the FV of the NCI based on the FV of SHE of subsidiary (P320,000) is higher
compared to the imputed or the computed residual amount of NCI (P300,000).
Consolidation Totals:
 Expenses, P265,000 = P200,000 KK operating expenses plus P50,000 (post-acquisition
subsidiary operating expenses) plus ½ 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
 Subsidiary’s 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 ½ year excess amortization of P15,000
(4) 20% of post-acquisition subsidiary income less excess fair value amortization
[20% × (120,000 – 30,000) × ½ year] = P9,000
 Retained Earnings, 1/1 = P1,400,000 (the parent’s 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 XIX (Consolidated balances after a mid-year acquisition)

Note: Investment account balance indicates the initial value method.
Consideration transferred ........................................ P526,000

Non-controlling interest fair value .......................... 300,000
FV of SHE - subsiary .................................................... P826,000
Less: Book value of DD (below)................................ (765,000)
Fair value in excess of book value (positive) ........ P 61,000
Excess assigned Annual Excess
based on fair value: Life Amortizations
Equipment ...................................................... (30,000) 5 years P(6,000)
Goodwill (full) ................................................. P 91,000 indefinite -0-
Total ....................................................................... P(6,000)
Amortization for 9 months ................................. P(4,500)
Acquisition-Date Subsidiary Book Value

Book value of Duncan, 1/1/x4 (CS + 1/1 RE) ............................ P740,000
Increase in book value-net income (dividends
were paid after acquisition) ................................................. P100,000
Time prior to purchase (3 months) .............................................. ×¼ 25,000
Book value of DD, 4/1/x4 (acquisition date) ............................ 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) ..…………………… P765,000

Adjustments to reflect fair value (undervaluation) ( 30,000)
FV of SHE of Subsidiary (DD) ................................ P735,000
Multiplied by: NCI% ............................................... 40%
FV of NCI……………………………………………. P294,000
(Partial-Goodwill)
Consideration transferred ................................. P 526,000
Less: Book value of SHE – DD (P765,000 x 60%) 459,000
Allocated excess………………………………… P 67,000
(P30,000 x 60%)........................................... ( 18,000)
Goodwill - partial.................................................. 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 XX
(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 equity investment in AD (book value) P178,000
25% income for 1st 6 months 8,750
Investment book value at 6/30 186,750
Fair value of investment 200,000
Gain on revaluation to fair value P13,250
3. Goodwill at 12/31
Fair value of AD at 6/30 P800,000
Book value at 6/30 (700,000 + [70,000 ÷ 2]) 735,000
Excess fair value P65,000
Allocation to goodwill (no impairment) P65,000
4. Non-controlling interest
5% fair value balance at 6/30 P40,000
5% Income from 6/30 to 12/31 1,750
5% dividends (1,000)
Non-controlling interest 12/31 P40,750
Problem XXI
P’s gain on sale of subsidiary stock is computed as follows:
Cash proceeds……………………………………… P 720,000

Fair value of retained non-controlling interest equity investment (35%) 420,000
Carrying value of the non-controlling interest before deconsolidation
(15% or prior outside non-controlling interest in Subsidiary) 120,000
P1,260,000
Less: Carrying value of Subsidiary’s net assets 1,200,000
Gain on disposal or deconsolidation P 60,000
Read discussion on step-acquisition regarding the initial treatment of investment as FVTOCI

or FVTPL and its disposition. It is assumed that the investment above is FVTPL.
Problem XXII
P Company’s additional paid-in capital arising sale of subsidiary shares is computed as follows:
Cash proceeds……………………………………… P 84,000

Less: Carrying value of non-controlling interest (P720,000* x 10%) 1,200,000
“Gain” – transfer within equity in “Additional paid-in capital” account P 60,000
*the P720,000 is already the gross-up amount since it is the amount presented in the consolidated balance sheet.
Because P Company continues to have the ability to control S Company, the sale of S’s shares
is treated as an equity transaction. Therefore, no gain or loss is recognized. Instead, Palmer
Company’s additional paid-in capital increases by P60,000.
Problem XXIII
P Company’s additional paid-in capital arising sale of subsidiary shares is computed as follows:
Cash proceeds from issuance of additional shares ….. P 210,000

Less: Carrying Value of non-controlling from issuance
of additional shares:
Non-controlling interest prior to issuance
of additional shares:
Book value of SHE before issuance…P720,000
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 XXIV
1. Equity Method
Income accrual (80%) ................................................................... P56,000
Excess amortization expense ....................................................... (3,200)
Investment income .................................................................. P52,800
Initial fair value paid........................................................................ P664,000

Income accrual 20x4–20x6 (P260,000 × 80%) ............................ 208,000
Dividends 20x4–20x6 (P45,000 × 80%) ......................................... (36,000)
Excess Amortizations 20x4–20x6 (P3,200 × 3) ............................. (9,600)
Investment in TT—12/31/x6 ..................................................... 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 value—buildings .................................................... P 800,000
TT book value—buildings ........................................................ 300,000
Allocation .................................................................................. 80,000
Excess Amortizations for 20x4–20x5 (P4,000 × 2) (8,000)
Consolidated buildings account ............................ P1,172,000
4. Acquisition-date fair value allocated to goodwill
Goodwill-full ( see Problem I above) ......................................... P 150,000
Goodwill-partial (see Problem I above)………………………… P 120,000
5. 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 XXV
(Consolidated balances three years after purchase. Parent has applied the equity method.)
1. Schedule 1—Acquisition-Date Fair Value Allocation and Amortization
JJ’s 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 Annual Excess
Life Amortization
Equipment .............................................. 54,400 8 yrs. P6,800
Buildings (overvalued) ......................... (10,000) 20 yrs. (500)
Goodwill .................................................. P21,600 indefinite -0-
Total ......................................................... P6,300
Investment in JJ Company—12/31/x6
JJ’s acquisition-date fair value ........................................................... P206,000
20x4 Increase in book value of subsidiary 40,000
20x4 Excess amortizations (Schedule 1) ........................................... (6,300)
20x5 Increase in book value of subsidiary ........................................ 20,000
20x6 Increase in book value of subsidiary ........................................ 10,000
Investment in J Company ............................................................ P257,100
2. Equity in Subsidiary Earnings
Income accrual ..................................................................................... P30,000
Excess amortizations (Schedule 1) .................................................... (6,300)
Equity in subsidiary earnings ........................................................ P23,700
3. Consolidated Net Income
Consolidated revenues (add book values) .................................... P414,000
Consolidated expenses (add book values) .................................... (272,000)
Excess amortization expenses (Schedule 1) .................................... (6,300)
Consolidated net income ................................................................... P135,700
4. Consolidated Equipment
Book values added together ............................................................. P370,000
Allocation of purchase price .............................................................. 54,400
Excess depreciation (P6,800 × 3) ....................................................... (20,400)
Consolidated equipment ............................................................. P404,000
5. Consolidated Buildings ........................................................................................

Book values added together ............................................................. P288,000
Allocation of purchase price .............................................................. (10,000)
Excess depreciation (P500 × 3) .......................................................... 1,500
Consolidated buildings .................................................................. 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 XXVI
Less: BV of SHE of S (P1,200,000 + P600,000) x 80% _1,440,000
Inventory (P725,000 – P600,000) x 80% P 100,000
Equipment (P1,075,000 – P900,000) x 80% 140,000 __240,000
Full-goodwill or Fair Value Basis

Less: BV of SHE of S (P1,200,000 + P600,000) x 100% 1,800,000
Inventory (P725,000 – P600,000) x 100% P125,000
Equipment (P1,075,000 – P900,000) x 100% 175,000 __300,000
Amortization
20x4 20x5
Inventory: P125,000 x 60% P 75,000
P125,000 x 40% P 50,000
Equipment: P175,000 / 7 years 25,000 25,000
P 100,000 P 75,000
1.
20x4
Investment in S Company 1,970,000
Cash 1,970,000
Cash (0.8 x P150,000) 120,000

Investment in S Company 120,000

Equity in Subsidiary Income (.80)(P750,000) 600,000
Equity in Subsidiary Income 80,000
20x5
Cash (0.8 x P225,000) 180,000

Equity in Subsidiary Income (.80)(P900,000) 720,000
Equity in Subsidiary Income 60,000

2.
20x4
(1) Equity in Subsidiary Income ((.80)(P750,000) -P80,000) 520,000
Dividends Declared (0.80 x P150,000) 120,000
(2) Beginning Retained Earnings - S Company 600,000

Common Stock- S Company 1,200,000
Investment in S Company 1,307,500
Noncontrolling Interest 492,500
(3) Inventory (P125,000 – P75,000) 50,000

Cost of Goods Sold 75,000
Equipment (net) 175,000
Goodwill 362,500
(4) Depreciation Expense 25,000

20x5
(1) Equity in Subsidiary Income ((.80)(P900,000) - P60,000) 660,000
Dividends Declared (0.80 x P225,000) 180,000
Investment in Superstition Company 480,000
(2) Beginning Retained Earnings-Superstition Company 1,200,000

Common Stock - Superstition Company. 1,200,000
Investment in Superstition Company
Non-controlling Interest
(P492,500 + (P1,200,000 – P600,000) x .20) 612,500
(3) Investment in S Company 60,000

Goodwill 362,500
3.
P Company (P1,000,000 – P120,000) P 880,000
S Company __ 750,000
Total P1,630,000
attributable to equity holders of parent………….. P1,400,000
Consolidated Net Income for 20x4 P1,530,000

Amortization of allocated excess (P25,000 + P75,000) ( 100,000)
P650,000
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 XXVII
Common stock (P240,000 x 80%)……………………. P 192,000
fair value)………………………………………………... P 12,000
Inventory………………….…………….. P 24,000 P 30,000 P 6,000
Land……………………………………… 48,000 55,200 7,200
Equipment (net)......... 84,000 180,000 96,000
Buildings (net) 168,000 144,000 (24,000)
Bonds payable………………………… (120,000) ( 115,200) 4,800
Net……………………………………….. P 204,000 P 294,000 P 90,000
Equipment .................. 180,000 180,000 0
Net book value………………………... 84,000 180,000 96,000
S Co. S Co.
Buildings................ 360,000 144,000 ( 216,000)
Net book value………………………... 168,000 144,000 ( 24,000)

Inventory P 6,000 1 P 6,000 P 6,000 P -
Equipment (net)......... 96,000 8 12,000 12,000 12,000
Buildings (net) (25,000) 4 ( 6,000) ( 6,000) (6,000)
Bonds payable… 4,800 4 1,200 1,200 1,200
P 13,200 P 13,200 P 7,200
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:
Less: Book value of stockholders’ equity of S (P360,000 x 100%) __360,000
(P90,000 x 100%) 90,000
fair value)………………………………………………... P 15,000
In this case, the goodwill was proportional to the controlling interest of 80% and non-controlling
interest of 20% computed as follows:
Value % of Total
Goodwill applicable to P………………… P12,000 80.00%

Value % of Total
Goodwill impairment loss attributable to P or controlling P 3,000 80.00%
Interest
Goodwill P 3,750 100.00%
Parent Company Equity Method Entry
The following are entries recorded by the P in 20x4 in relation to its subsidiary investment:
January 1, 20x4:
Cash…………………………………………………………………….. 372,000

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

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

(4) Investment income [(P13,200 x 80%) + P3,000*, goodwill 13,560
impairment loss)]
Record amortization of allocated excess of inventory, 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:
Investment in S
Cost, 1/1/x4 372,000 28,800 Dividends – S (36,000x 80%)
NI of S Amortization &
(60,000 x 80%) 48,000 13,560 impairment
Balance, 12/31/x4 377,640
Investment Income
Amortization & NI of S
impairment 13,560 48,000 (P60,000 x 80%)
34,440 Balance, 12/31/x4
The schedule of determination and allocation of excess presented above provides complete
guidance for the worksheet eliminating entries on January 1, 20x4:

Investment in Son Co…………………………………………… 288,000
To eliminate investment on January 1, 20x4 and equity accounts
of subsidiary on date of acquisition; and to establish non-
controlling interest (in net assets of subsidiary) on date of
acquisition.
(E2) Inventory…………………………………………………………………. 6,000

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

Inventory………………………………………………………….. 6,000
Goodwill…………………………………… 3,000
Sold Expense -Interest Total
Equipment P 12,000
Buildings ( 6,000)
Bonds payable _______ _______ P 1,200
Totals P 6,000 P 6,000 P1,200 13,200
Value % of Total
Value % of Total
Interest
Goodwill P 3,750 100.00%
(E4) Investment income 34,440
To eliminate intercompany dividends and investment income under
equity method and establish share of dividends, computed as
follows:
Investment in S Investment Income

NI of S 28,800 Dividends - S NI of S
(60,000 Amortization & Amortization (60,000
x 80%)……. 48,000 13,560 impairment impairment 13,560 48,000 x 80%)
5,640 34,440
After the eliminating entries are posted in the investment account, it should be observed that
from consolidation point of view the investment account is totally eliminated. Thus,
Investment in S
NI of Son Amortization &
(60,000 x 80%) 48,000 13,560 impairment
Balance, 12/31/x4 377,640 288,000 (E1) Investment, 1/1/20x4
84,000 (E2) Investment, 1/1/20x4
5,640 (E4) Investment Income
and dividends
377,640 377,640
Percentage of goodwill for amortization purposes:

Value % of Total
Goodwill applicable to parent P12,000 80.00%
Goodwill applicable to NCI 3,000 20.00%
Total (full) goodwill………… P15,000 100.00%
The goodwill impairment loss of P3,750 based on 100% fair value 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 value or full-goodwill P 3,750 100.00%


P 46,800

Equity Method (Partial-goodwill)
Sales P480,000 P240,000 P 720,000
Investment income 34,440 - (4) 34,440 _________
Other expenses 48,000 18,000 66,000
Net Income P202,440 P 60,000 P211,800
P Company P360,000 P360,000
S Company P120,000 (1) 120,000
Total P562,440 P180,000 P562,440
Dividends paid
P Company 72,000 72,000
S Company - 36,000 (4) 36,000 -
Sheet P490,440 P144,000 P490,440
Balance Sheet
Cash………………………. P 232,800 P 90,000 P 322,800
Inventory…………………. 120,000 90,000 (2) 6,000 (3) 6,000 210,000
Land……………………………. 210,000 48,000 (2) 7,200 265,200
Equipment 240,000 180,000 420,000
Buildings 720,000 540,000 (2) 216,000 1,044,000
Goodwill…………………… (2) 12,000 (3) 3,000 9,000
(2) 84,000
(4) 5,640 -
Total P1,990,440 P1,008,000 P2,424,600
- equipment P 135,000 P 96,000 (2) 96,000 (3) 12,000 P147,000
- buildings (9) 6,000 495,000
Bonds payable………………… 240,000 120,000 360,000
(2) 18,000
_________ _________ __________ (5) 9,360 ____92,160
Total P1,990,440 P1,008,000 P 751,200 P 751,200 P2,424,600
P Co. S Co.
Sales P 540,000 P 360,000
Add: Investment income 66,240 -
Net income P 258,240 P 90,000
The following are entries recorded by the parent in 20x5 in relation to its subsidiary investment:
(2) Cash……………………… 38,400
December 31, 20x5:

December 31, 20x5:
(4) Investment income (P7,200 x 80%) 5,760
buildings and bonds payable
Investment in S
NI of S Amortization
(90,000 x 80%) 72,000 5,760 (P7,200 x 80%)
Balance, 12/31/x5 405,480
Investment Income
Amortization NI of S
(7,200 x 80%) 5,760 72,000 (90,000 x 80%)
66,240 Balance, 12/31/x4
guidance for the worksheet eliminating entries:

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

Accumulated depreciation – buildings (P192,000 + 6,000) 198,000
Land………………………………………………………………………. 7,200
Discount on bonds payable (P4,800 – P1,200)…. 3,600
Goodwill (P12,000 – P3,000)…………………………….. 9,000
Buildings……………………………………….. 216,000
Non-controlling interest [(P90,000 – P13,200) x 20%] 15,360
to the original amount of goodwill; and to establish non- controlling
interest (in net assets of subsidiary) on 1/1/20x5.
(E3) Depreciation expense……………………….. 6,000

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

follows:

NI of S 38,400 Dividends – S NI of S
(90,000 Amortization Amortization (90,000
x 80%)……. 72,000 5,760 (P7,200 x 80%) (P7,200 x 80%) 5,760 72,000 x 80%)
27,840 66,240
Investment in S
(90,000 x 80%) 72,000 5,760 (7,200 x 80%)
70,440 (E2) Investment, 1/1/20x5
and dividends
405,480 405,480


P 82,800
Sales P540,000 P360,000 P 900,000
Investment income 66,240 - (4) 66,240 ___________
Other expenses 72,000 54,000 126,000
Net Income P258,240 P 90,000 P 274,800
P Company P490,440 P490,440
S Company P144,000 (1) 144,000
Total P748,680 P234,000 P748,680
Dividends paid
P Company 72,000 72,000
S Company - 48,000 (4) 48,000 -
Sheet P676,680 P186,000 P676,680
Balance Sheet
Cash………………………. P 265,200 P 102,000 P 367,200
Inventory…………………. 216,000 108,000 324,000
Land……………………………. 210,000 48,000 (2) 7,200 265,200
Equipment 240,000 180,000 420,000
Buildings 720,000 540,000 (3) 216,000 1,044,000
Goodwill…………………… (2) 9,000 9,000
(2) 70,440
(4) 27,840 -
Total P2,236,680 P1,074,000 P2,707,800
Accumulated depreciation (2) 84,000

- equipment P 150,000 P 102,000 (3) 12,000 P180,000
- buildings (3) 6,000 552,000
Bonds payable………………… 240,000 120,000 360,000
(2 ) 76,800
(2) 15,360
___ _____ _________ __________ (5) 16,560 ____99,120
Total P2,236,680 P1,074,000 P 794,400 P 794,400 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
b.
c.
Consolidated SHE:
NCI, 1/1/20x4 ___90,000
6.
12/31/20x4:
a. CI-CNI
P Company P168,000
S Company 60,000
Total P228,000
equity holders of P………….. P202,440
b. NCI-CNI
P 46,800

as follows:
Total P562,440
e.
Total P180,000
f.
Consolidated SHE:
NCI, 12/31/20x4 ___92,160
12/31/20x5:
a. CI-CNI
P Company P192,000
S Company 90,000
Total P282,000
Amortization of allocated excess (refer to amortization above) __7,200 23,760
b. NCI-CNI
P 82,800

as follows:
P 10,800
P 8,640
(P3, 750 x 80%) 3,000 5,640
Total P748,680
e.
Total P234,000
20x4 P 13,200
20x5 7,200 ( 20,400)
Fair value of stockholders’ equity of subsidiary, December 31, 20x5…… P 495,600
f.
Consolidated SHE:
NCI, 12/31/20x4 ___99,120
Problem XXVIII
Common stock (P240,000 x 100%)………………. P 240,000
fair value)………………………………………………... P 15,000

Inventory P 6,000 1 P 6,000 P 6,000 P -
Equipment (net)......... 96,000 8 12,000 12,000 12,000
Buildings (net) (24,000) 4 ( 6,000) ( 6,000) (6,000)
Bonds payable… 4,800 4 1,200 1,200 1,200
P 13,200 P 13,200 P 7,200
January 1, 20x4:
Cash…………………………………………………………………….. 372,000

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

December 31, 20x4:

(4) Investment income [(P13,200 x 80%) + (P3,750 – P750)*, 13,560
goodwill impairment loss)]
*this procedure would be more appropriate, instead of multiplying the full-goodwill impairment loss of P3,750 by 80%.
There might be situations where the controlling interests on goodwill impairment loss would not be proportionate to NCI
acquired (refer to Illustration 15-6).
Investment in S
(60,000 x 80%) 48,000 13,560 Impairment
Balance, 12/31/x4 377,640
Investment Income
Impairment 13,560 48,000 (P60,000 x 80%)
34,440 Balance, 12/31/x4

guidance for the worksheet eliminating entries on January 1, 20x4:

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

Land………………………………………………………………………. 7,200
Goodwill…………………………………………………………………. 15,000
Buildings……………………………………….. 216,000

Inventory………………………………………………………….. 6,000
Goodwill…………………………………… 3,750
Equipment P 12,000
Buildings ( 6,000)
Bonds payable _______ _______ P 1,200
Totals P 6,000 P 6,000 P1,200 13,200
Value % of Total
Value % of Total
Interest
Goodwill P 3,750 100.00%

follows:
NI of S 28,800 Dividends – S NI of Son
(60,000 Amortization & Amortization & (60,000
x 80%)……. 48,000 13,560 Impairment Impairment 13,560 48,000 x 80%)
5,640 34,440
Investment in S
(60,000 x 80%) 40,000 13,560 Impairment
84,000 (E2) Investment, 1/1/20x4
and dividends
377,640 377,640
Percentage of goodwill for amortization purposes:

Value % of Total
Goodwill applicable to parent P12,000 80.00%
Goodwill applicable to NCI 3,000 20.00%
Total (full) goodwill………… P15,000 100.00%
The goodwill impairment loss of P3,750 based on 100% fair value 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 value or full-goodwill P 3,750 100.00%


P 46,800
*this procedure would be more appropriate, instead of multiplying the
full-goodwill impairment loss of P3,750 by 20%. There might be situations
where the NCI on goodwill impairment loss would not be proportionate
to NCI acquired (refer to Illustration 15-6).
Equity Method (Full-goodwill)
Sales P480,000 P240,000 P 720,000
Other expenses 48,000 18,000 66,000
Net Income P202,440 P 60,000 P211,050

P Company P360,000 P360,000
S Company P120,000 (1) 120,000
Total P562,440 P180,000 P562,440
Dividends paid
P Company 72,000 72,000
S Company - 36,000 (4) 36,000 -
Sheet P490,440 P144,000 P490,440
Balance Sheet
Cash………………………. P 232,800 P 90,000 P 322,800
Inventory…………………. 120,000 90,000 (2) 6,000 (3) 6,000 210,000
Land……………………………. 210,000 48,000 (2) 7,200 265,200
Equipment 240,000 180,000 420,000
Buildings 720,000 540,000 (2) 216,000 1,044,000
Goodwill…………………… (2) 15,000 (3) 3,750 11,250
(2) 84,000
(4) 5,640 -
Total P1,990,440 P1,008,000 P2,426,850
- equipment P 135,000 P 96,000 (2) 96,000 (3) 12,000 P147,000
- buildings (3) 6,000 495,000
Bonds payable………………… 240,000 120,000 360,000
(2) 21,000
_________ _________ __________ (5) 8,610 ____94,410
Total P1,990,440 P1,008,000 P 754,200 P 754,200 P2,426,850

P Co. S Co.
Sales P 540,000 P 380,000
Net income P 258,240 P 90,000

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

December 31, 20x5:

P Company’s P12,000 portion of the differential related to goodwill related to goodwill is not
adjusted on the parent’s books following Option 2 as referred to above for goodwill impairment
loss. Even though the goodwill of the consolidated entity is impaired,
Investment in S
(90,000 x 80%) 72,000 5,760 (P7,200 x 80%)
Balance, 12/31/x5 405,480
Investment Income
Amortization NI of S
(7,200 x 80%) 5,760 72,000 (90,000 x 80%)
66,240 Balance, 12/31/x4

guidance for the worksheet eliminating entries.

Accumulated depreciation – buildings (P192,000 + P6,000) 198,000
Land………………………………………………………………………. 7,200
Goodwill (P15,000 – P3,750)…………………………….. 11,250
Buildings……………………………………….. 216,000
Non-controlling interest [(P90,000 – P13,200) x 20%] +
[P3,000, full goodwill - [(P3,750, full-goodwill impairment
– P3,000, partial- goodwill impairment)*
or (P3,750 x 20%)] 17,610
There might be situations where the NCI on goodwill impairment loss would not be proportionate to NCI acquired (refer
to Illustration 15-6).
Depreciation/
Inventory sold
Equipment P 12,000
Buildings ( 6,000)
Totals P 6,000 P1,200 P7,200
follows:

x 80%)……. 72,000 5,760 (P7,200 x 80%) (P7,200 x 80%) 5,760 72,000 x 80%)
27,840 66,240
Investment in S
(90,000 x 80%) 72,000 5,760 (7,200 x 80%)
70,440 (E2) Investment, 1/1/20x5
and dividends
405,480 405,480

P 82,800
Goodwill 0

Sales P540,000 P360,000 P 900,000
Other expenses 72,000 54,000 126,000
Net Income P258,240 P 90,000 P 274,800

P Company P490,440 P490,440
S Company P144,000 (1) 144,000
Total P748,680 P234,000 P748,680
Dividends paid
P Company 72,000 72,000
S Company - 48,000 (4) 48,000 -
Sheet P676,680 P186,000 P676,680
Balance Sheet
Cash………………………. P 265,200 P 102,000 P 367,200
Inventory…………………. 216,000 108,000 324,000
Land……………………………. 210,000 48,000 (2) 7,200 265,200
Equipment 240,000 180,000 420,000
Buildings 720,000 540,000 (3) 216,000 1,044,000
Goodwill…………………… (2) 11,250 11,250
(5) 70,440
(4) 27,840 -
Total P2,236,680 P1,074,000 P2,634,000

- equipment P 150,000 P 102,000 (3) 12,000 P 180,000
Accumulated depreciation 450,000 306,000 (2) 198,000 552,000
- buildings (3) 6,000
Bonds payable………………… 240,000 120,000 360,000
Non-controlling interest…………
(3) 9,600 (2 ) 76,800
(2) 17,610
___ _____ __________ __________ (5) 16,560 __________
Total P2,236,680 P1,074,000 P 796,650 P 796,650 P2,634,000
exactly the same (refer to Problem VII solution).
5. 1/1/20x4
b.
Non-controlling interest (full-goodwill), January 1, 20x4
c.
Consolidated SHE:
NCI, 1/1/20x4 ___93,000
6.
a. CI-CNI – P202,440
P Company P168,000
S Company 60,000
Total P228,000
Less: Amortization of allocated excess (refer to amortization table above) 13,200
P 46,800
Less: Non-controlling interest on impairment loss on full-goodwill (P3,750 x 20%)
or (P3,750 impairment on full-goodwill less P3,000, impairment on
partial-goodwill)* 750
*this procedure would be more appropriate, instead of multiplying the full-goodwill impairment loss
of P3,750 by 20%. There might be situations where the NCI on goodwill impairment loss would not

as follows:
Total P562,440
e.
Retained earnings – SCompany, January 1, 20x4 P120,000
Total P180,000
Non-controlling interest (partial-goodwill, 12/31/20x4………………………….. P 92,160
Non-controlling interest (full-goodwill), 12/31/20x4…………….. P 94,410
f.
Consolidated SHE:
NCI, 12/31/20x4 ___94,410
12/31/20x5:
a. CI-CNI – P258,240
P Company P192,000
S Company 90,000
Total P282,000
P 82,800

as follows:
P 10,800
P 8,640
(P3, 750 x 80%) 3,000 5,640
Total P748,680
e.
Total P234,000
20x4 P 13,200
20x5 7,200 ( 20,400)
f.
Consolidated SHE:
NCI, 12/31/20x4 __101,370
Problem XXVIII
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
Consolidated net income P70,000
4. Income of P79,000 would be attained by adding the income reported by AA (P59,000) to the
income reported by KR (P20,000). However, the dividend income from KR recorded by AA
must be excluded from consolidated net income.

1. b
Full-Goodwill: (P600,000/70%) – P640,000 = P217,143 – P40,000 = P177,143
If partial goodwill: P600,000 – (P640,000 x 70%) = P152,000 – (P40,000 x 70%) = P124,000
2. b – P500,000 + P3,461
3. b
4. d – equivalent to consideration transferred, P320,000
5. d – equivalent to consideration transferred, P380,000
6. a
20x4 Investment income: Dividend of P10,000 x 100%
20x4 Investment balance: P500,000
7. d – P45,000/15% = P300,000
8. c
Pigeon’s separate income P150,000
Less: 60% of Home’s P10,000 loss = 6,000
Less: Equipment depreciation
P10,000/ 10 years = __1,000
9. a
Non-controlling Interest in Net Income (NCINI) for Year 3
Net income of S Company P240,000
Less: Amortization of allocated excess 45,000
P195,000
Non-controlling Interest in Net Income (NCINI) for Year 3 P 58,500
10. c
P Company P 375,000
S Company 30,000
Total P405,000

Less: Amortization of allocated excess** 3,750
P26,250
**P270,000/80% = P337,500 – (P150,000 + P150,000) = P37,500 / 10 years = P3,750
Note: Whether the partial or full-goodwill approach are used the amortization of excess are always
the same.
11. a
*Non-controlling Interest in Net Income (NCINI) for Year 3
P487,500
Non-controlling Interest in Net Income (NCINI) for Year 3 P146,250
12. c
P Company P 625,000
S Company 50,000
Total P675,000

Less: Amortization of allocated excess** 6,250
P43,750
**P450,000/80% = P562,500 – (P250,000 + P250,000) = P62,500 / 10 years = P6,250
Note: Whether the partial or full-goodwill approach are used the amortization of excess are always
the same.
13. b
As a general rule, if problem is silent It is assumed that expenses are generated evenly
throughout the year, thus:
Expenses (9/1/20x4-12/31/20x4): P620,000 x 4/12 P206,667
Amortization of allocated excess: P15,000 x 4/12 5,000
P211,667
14. c
Net income of S Company (P800,000 – P620,000) P180,000
P165,000
Multiplied by: No of mos. (9/1-12/31) 4/12
P 55,000
15. a
Net income of S Company (P800,000 – P620,000) P180,000
P165,000
Multiplied by: No of mos. (9/1-12/31) 4/12
P 55,000
Multiplied by: Non-controlling interest %.......... ____20%
16. b Combined revenues .................................................................................................. P1,100,000

Combined expenses.................................................................................................. (700,000)
Excess acquisition-date fair value amortization ................................................... (15,000)
Consolidated net income......................................................................................... P385,000
Less: noncontrolling interest (P85,000 × 40%)......................................................... (34,000)
Consolidated net income to controlling interest ................................................. P351,000
17. c HH expense.................................................................................................................. P621,000

NN expenses ................................................................................................................ 714,000
Excess fair value amortization (70,000 ÷ 10 yrs)..................................................... 7,000
Consolidated expenses............................................................................................. P1,342,000
18. d
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.
19. d – refer to No. 18 for further discussion.

20. b – refer to No. 18 for further discussion.
21. a – P40,000 x 80%
22. b – P50,000 x 80%
23. a – P60,000 x 80%
23. c
Full/Gross-up Goodwill Presentation:
Non-controlling interest in Net Income:
Subsidiary net income from own operations……….P100,000
Less: Amortization of allocated excess*…………… 7,000
Impairment of full-goodwill (if any)**………… 0
P 93,000
x: Non-controlling interests………………………. 20%
Non-controlling interest in Net Income…………………… P 18,600
*Amortization of allocated excess:
Increase in equipment: P30,000 / 10 years = P 3,000
Increase in buildings: P40,000 / 10 years = 4,000
Total amortization……………………………… P 7,000
** In case, there is an impairment of goodwill then the amount impaired under the 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
Non-controlling interest in Net Income…………………. P 18,600
24. c
Impairment of full-goodwill (if any)**……… 0
P113,000

Total amortization………………………. P 7,000
interests

P113,000
25. a
Impairment of full-goodwill (if any)**……… 0
P123,000

Total amortization………………………. P 7,000
interests

P123,000
26. a
Book value of Stockholders’ Equity of Subsidiary
Common stock, 12/31/20x4……………………………… P 300,000
Retained earnings, 12/31/20x4:
Retained earnings, 1/1/20x4………………………….P200,000
Add: Net income – 20x4…………………………….. 100,000
Less: Dividends paid, 20x4…………..……………… 40,000 260,000
Book value of Stockholders’ Equity of Subsidiary, 12/31/x4 P 560,000
Add: Adjustments to reflect fair value (P30,000 + P40,000).. 70,000
Less: Accumulated amortization of allocated excess
P7,000 x 1 year…………………………………….…. 7,000
Fair value of Stockholders’ Equity of Subsidiary. 12/31/x4… P 623,000
Multiplied by: Non-controlling Interest %........................... 20%
Non-controlling Interest (partial goodwill)………………….. P 124,600
Add: Non-controlling interest in Full Goodwill
(P55,000, full – P44,000 partial l) or
(P55,00,000 x 20%)*……………………………… 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 non-
controlling 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%........………………………….. P 625,000
Less: Book value of Net Assets (Stockholders’
Equity - Subsidiary)…………................................... 500,000
Allocated Excess.…………………………………………. P 125,000
Less: Over/Undervaluation of Assets and
Liabilities (P40,000 + P30,000)……………………. 70,000
Goodwill (Full/Gross-up)..……………………………….. P 55,000
27. e
Common stock, 12/31/20x5……………………………… 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
Less: Accumulated amortization of allocated excess – 2 yrs 14,000
Multiplied by: Non-controlling Interest %.............................. 20%
(P55,00,000 x 20%)*……………………………… 11,000
28. e
Common stock, 12/31/20x6……………………………… P 300,000
Retained earnings, 1/1/20x6………………………….P 330,000
Add: Net income, 20x6……………………………… 130,000
Less: Dividends paid, 20x6………………………….. 60,000 400,000
Less: Accumulated amortization of allocated excess
(1/1/20x4 – 12/31/20x6): P7,000 x 3 years…………… 21,000
Multiplied by: Non-controlling Interest %............................ 20%
(P55,00,000 x 20%)*……………………………… 11,000
* this computation (i.e., P55,000 x 20%) should only be use when the fair value of the non-
controlling interest of acquiree (subsidiary) is not given.
29. d – Economic Unit or Entity Concept (as required by PFRS 10)

P Company P 500,000
S Company 100,000
Total P600,000
Goodwill impairment (impairment under full-goodwill approach) _ 0 20,000
Add: NCINI __20,000
CNI - entity concept P600,000

Less: Amortization of allocated excess _______0
P100,000
30. c – Parent Company Concept – Parent’s Net Income only (not required by PFRS 10)
P Company P 500,000
S Company 100,000
Total P600,000
CNI - entity concept P580,000

Less: Amortization of allocated excess _______0
P100,000
31. No requirement
32. Podex’s separate earnings for 20x6 ............................................................ P2,000,000
Dividend income from Sodex................................................................ __120,000
Podex’s 20x6 net income ................................................................... P2,120,000
33. P2,260,000
Podex’s separate earnings for 20X6 P2,000,000
Podex’s equity in net income of Sodex ............................................... 300,000
Less: Amortization of cost in excess of book value ........................... (40,000)
Podex’s 20x6 net income ................................................................... P2,260,000
34. b
35. b
Net Income from own operations: 20x4 20x5
Parent …………………………………………………P 100,000 P100,000
Subsidiary……………………………………………... 25,000 35,000
P125,000 P135,000
Subsidiary’s 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

Subsidiary’s:
Net income from own operations………….......P 25,000 P 35,000
Other Comprehensive Income (P30,000 –
P25,000)…………………………….…………... 5,000 10,000
Subsidiary’s 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 Income...P 4,750 P 7,750

Increase in other intangibles: P50,000 / 8 years = P 6,250

38. b- refer to No. 35
39. d
Inventory – not yet sold in 20x4 p 0
Building: (P390,000 – P200,000)/ 10 years 19,000
Equipment (P280,000 – P350,000)/ 5 years ( 14,000)
P 5,000
40. a
41. a
Cost of Goods Sold P80,000 debit
Depreciation Expense (P192,000/120) 7 = P11,200 debit
42. c
Cost of Goods Sold (P60,000 x 4/6) = P40,000 debit
Interest Expense: (P15,000/5) = P3,000 debit
43. a
[(P250,000 - P180,000)/10]7
44. c
[(P380,000 - P260,000)/120]88
45. a
46. c
P170,000 - {[P320,000 - (P300,000 - P170,000)]/10}2
47. b
[P320,000 - (P300,000 - P170,000)]/10
48. d
49. d
P105,000 - {[P405,000 - (P450,000 - P105,000)]/20}2
50. a
[P405,000 - (P450,000 - P105,000)]/20
51. d - The acquisition method consolidates assets at fair value at acquisition date regardless of
the parent’s percentage ownership.
52. b
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
53. 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
54. c – inventory at fair value

55. No answer available
Book value of Building, 1/1/x4 1,500
Less: excess BV over FV ( 300)
Fair value 1,200
Less: Dept’n based on BV (1,500/5) ( 300)
Add: Excess depreciation (300/5) 60
Carrying amount on Conso BS, 12/31/x4 960
Or,
FV of Building 1,200
Depreciation (1,200/5) ( 240)
Carrying amount on Conso BS, 12/31/x4 960

FV of equipment 1/1/x4 1,250
Depreciation (1,250/2) ( 625)
Carrying amount on Conso BS 12/31/x4 625
57. c – (P900, book value + (P1,300 – P900) = P1,300

58. c – (P1,800 – (P1,800 – P1,700) + (P100/4) = P1,725
59.
FV as of 1/1/x4 1,200
Acc. Dep. (1,200/5 * 2) (480)
Carrying Amount in Conso BS, 12/31/x5 720
Or
Book Value 1/1/x4 1,500
Excess BV over FV ( 300)
Acc. Depc’n based on BV (1,500/5 * 2) ( 600)
Excess depreciation ( 300 / 5 * 2) 120
Carrying Amount in Conso BS, 12/31/x5 720
60.
Book Value of Equipment 1/1/x4 1,000
Excess FV over BV 250
Dep based on BV (20x4 to 20x5) (1,000/2 *2) (1,000)
Amortization of Excess FV over BV ( 250)
Carrying amount 12/31/x5 0
Or
FV of Equipment, 1/1/x4 1,250
Depreciation based on FV (1,250/2 *2) (1,250)
Carrying amount 12/31/x5 0
61. b - (P900, book value + (P1,300 – P900) = P1,3000

62. d - (P1,800 – (P1,800 – P1,700) + (P100/4) x 2 years = P1,750
63. d
P: BV,12/31/20x6 P250,000
S:
BV of building, 12/31/20x4 P170,000
Add: Adjustments to reflect fair value, 1/1/20x4
(P350,000 – P240,000) 110,000
Less: Amortization of excess (P110,000/10) x 3 years 33,000 247,000
P497,000
64. b
P: BV,12/31/20x5 P 975,000
S:
Add: Adjustments to reflect fair value, 1/4/20x4
(P120,000 – P90,000) 30,000
Less: Amortization of excess (P30,000/10) x 2 years 6,000 129,000
P1,104,000
65. 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 ....................................................................... P45,000
Amortization for 2 years (10 year life) ..................................................................... (9,000)
Patent reported amount December 31, 20x5 ...................................................... P36,000
66. b
Adjustments to reflect fair value, 1/1/20x4 (P300,000 – P200,000) 100,000
Depreciation 1/1/20x4 – 12/31/20x6 (P100,000/20 x 3 years) ( 15,000)
P285,000
67. d – same with No. 5
68. d
BV of equipment, 1/1/20x4 P 80,000
Adjustments to reflect fair value, 1/1/20x4 (P80,000 – P75,000) ( 5,000)
Depreciation 1/1/20x4 – 12/31/20x6 (P5,000/10 x 3 years) 1,500
P 76,500
69. a
Adjustments to reflect fair value, 1/1/20x4 (P80,000 – P75,000) (P 5,000)
Depreciation 1/1/20x4 – 12/31/20x6 (P5,000/10 x 3 years) 1,500
(P 3,500)
70. d – 1/2/20x4:
BV of equipment, 1/1/20x4 P200,000
Adjustments to reflect fair value, 1/1/20x4 (P300,000 – P200,000) 100,000
P300,000
71. c
P Company P30,200 – (P150,0000 – P20,000 – P60,000) P 70,000
S Company (P100,000 – P15,000 – P45,000) 40,000
Total P110,000
Less: Non-controlling Interest in Net Income P 0
Goodwill impairment ____0 ____0
Add: Non-controlling Interest in Net Income (NCINI) _____0
72. b
Plimsol: P100,000 + P200,000,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,P 300, 000
Shipping: P75,000 + P150,000………………………………………………………………. 225,000
P 525,000
73.
Retained Earnings - Plimsol, 1/1/20x4 (cost method, same with equity method and
consoiidated retained earnings since it is the date of acdquisition) P 150,000
Add: CI – CNI (refer to No. 71) 110,000
Less: CI – Dividends (Dividend of parent only) 25,000
Retained earnings, 12/31/20x4 (equity method same with CRE) P 235,000
74. d
Liabilities:
Plimsol (P40,000 + P75,000) P115,000
Shipping (P25,000 + P50,000) 75,000
P 190,000
75. d
Total assets (No. 72) P525,000
Les: Liabilities (No. 74) 190,000
Stockholders’ equity P335,000
76. b
Decrease in Buildings account:
Fair value…………………………………………… P 8,000
Book value………………………………………….. __10,000
Decrease……………………………………………. P 2,000
77. d
Decrease in buildings account (refer to No. 73)………… P 2,000
Less: Increase due to depreciation (P2,000/10)………… 200
Decrease in buildings accounts…………………………….. P 1,800
78. d
Decrease in buildings account (refer to No. 74)………… P 1,800
Less: Increase due to depreciation (P2,000/10)………… 200
Decrease in buildings accounts…………………………….. P 1,600
79. a
Increase in Equipment account:
Fair value…………………………………………… P 14,000
Book value………………………………………….. __18,000
Increase……………………………………………. P 4,000
80. a
Increase in equipment account (refer to No. 76)………… P 4,000
Less: Decrease due to depreciation (P4,000/4)…………… 1,000
Increase in equipment accounts…………………………….. P 3,000
81. a
Increase in equipment account (refer to No. 77)………… P 3,000
Less: Decrease due to depreciation (P4,000/4…………… 1,000
Increase in equipment accounts…………………………….. P 2,000
82. a
Increase in Land account:
Fair value……………………………………………P 12,000
Book value………………………………………….. 5,000
Increase…………………………………………….. P 7,000
83. b – refer to No. 82, no depreciation/amortization

84. b – refer to No. 82, no depreciation/amortization
85. e
Increase in Patent account:
Fair value…………………………………………… P 11,000
Book value………………………………………….. _ 0
Increase……………………………………………. 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.
86. e
Increase in patent account (refer to No. 85)……………… P 11,000
Less: Decrease due to depreciation (P11,000/5).………… 2,200
Increase in patent accounts…………………………………. P 8,800
87. d
Increase in patent account (refer to No. 86)……………… P 8,800
Less: Decrease due to depreciation (P11,000/5).………… 2,200
Increase in patent accounts…………………………………. P 6,600
88. d - Parent’s inventory of P132,000 plus subsidiary’s book value of inventory of P38,000 plus
excess of the fair value over the book value of P22,000 = P132,000 + P38,000 + P22,000 =
P192,000
89. d - if partial
Purchase price minus 75% of Grass’s underlying book value - P16,500 of excess cost over book
value allocated to inventory (see 88) = P392,000 – (75%) x (P400,000) - P16,500 = P75,500,
partial; if full goodwill , P75,500/75% (since no NCI available) = P100,667
90. d - Just add the liability amounts together

Net Assets at Book Value P 400,000
Increase in Inventories 22,000
Net Assets @ FV 422,000
Multiplied by 25%
NCI, partial goodwill 105,500
Add: NCI on full goodwill
Full goodwill (P75,500/75%) P100,667
Partial goodwill 75,500 25,167
NCI, partial goodwill 130,667
92. a- The parent’s Retained Earnings is the amount of consolidated Retained Earnings
Cash 230,000
Inventory (132,000 + 60,000) 192,000
Land 100,000
Plant Assets (net) 700,000
Goodwill - partial 75,500 if full 100,667
Total Assets 1,467,500 1,492,667
94. 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. (P17,100–P16,100) x 90% P 900
Increase in Eqpt. (P48,000–P40,000) x 90% 7,200
Increase in Patents (P13,000–P10,000) 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
Equipment: P8,000 / 4 years 2,000
Patents: P3,000 / 10 years 300
P 3,300
95. c
Common stock – S P 50,000
APIC – S 15,000
RE – S 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
96. a – P48,000, parent only.
97. a – P48,000. On the date of acquisition, the parent’s retained earnings is also the
consolidated retained earnings.
98. No requirement.
99. b – P120,600, the initial value
100. b – P4,000 x 90% = P3,600
101. c
P Company P30,200 – (P4,000 x 90%) P26,600
S Company 9,400
Total P36,000
Less: Non-controlling Interest in Net Income* P 610
Add: Non-controlling Interest in Net Income (NCINI) 610

P 6,100
P 610
Less: Non-controlling interest on impairment loss on full-goodwill ____0
Non-controlling Interest in Net Income (NCINI) P 610
102. c
Noncontrolling Interests (in net assets):
Common stock - S, 12/31 P 50,000
Additional paid-in capital - S, 12/31 15,000
Retained earnings - S, 12/31:
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 P 111,400
Add: Adjustments to reflect fair value, 1/1 12,000
Less: Amortization of allocated excess (1 yr.) 3,300
Fair Value of Net Assets/SHE - S, 12/31 P 120,100
x: Noncontrolling Interest % 10%
Noncontrolling Interest (in net assets), 12/31 P 12,010
103. b – refer to 101 for computation
104. c – refer to 101 for computation
105. b
Controlling RE / RE Attributable to EH of Parent, 1/1 (refer to No. 102 P 48,000
Add: CI – CNI (refer to 106 and 109) 32,090
Less: CI – Dividends (Dividend of parent only) 15,000
Controlling RE / RE Attributable to EH of Parent, 12/31 P 65,090
106. b – same with No. 105
107. c
Consolidated Equity:
Controlling Interest / Equity Holders
Attributable to Parent:
Common stock – P: [P100,000 + P120,600 – (5,400 shares x P10 par)] P154,000
APIC – P: [15,000 + [P120,600 – (5,400 x P10)] 81,600
RE – P (refer to No. 105) 65,090
Parent’s Stockholders Equity or Controlling Interest – Equity P300,690
Noncontrolling Interest 12,010
Consolidated Equity P312,700
108. c P95,000 = (P956,000 / .80) - P1,000,000 - P100,000
109. c P251,000 = .20[(P956,000 + P239,000) + (P190,000 - P5,000 - P125,000)]
110. b Combined revenues .................................................................................................. P1,300,000

Combined expenses.................................................................................................. (800,000)
Trademark amortization ............................................................................................ (6,000)
Patented technology amortization ........................................................................ (8,000)
Consolidated net income......................................................................................... P486,000
111. c
NCI-CNI - P34,400; NCI – P260,800
Subsidiary income (P100,000 – P14,000 excess amortizations) .......................... P86,000
Non-controlling interest percentage ...................................................................... 40%
Non-controlling interest in subsidiary income ....................................................... P34,400
Fair value of non-controlling interest at acquisition date................................... P180,000

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

SS trademark balance.............................................................................................. 200,000
Excess fair value .......................................................................................................... 60,000
Two years amortization (10-year life) ...................................................................... (12,000)
Consolidated trademarks ......................................................................................... P508,000
113. a Fair value of non-controlling interest on April 1 .................................................... P165,000

30% of net income for 9 months (¾ year × P240,000 × 30%) .............................. 54,000
Non-controlling interest December 31 ................................................................... P219,000
114. c
Add: Net income of S – 20x4 ___150,000
Total P1,150,000
Less: Dividends paid – 20x4 ____90,000
Stockholders’ equity – S Company, December 31, Year 2 P1,060,000
liabilities, date of acquisition January 1, 20x4 200,000
Amortization of allocated excess (refer to amortization above: P200,000/10 _( 20,000)
Fair value of stockholders’ equity of subsidiary, December 31, 20x5…… P1,240,000
Multiplied by: Non-controlling Interest percentage…………... 30%
Non-controlling interest (partial) P 372,000
Add: NCI on full-goodwill P85,714 – P60,000) ___25,714
Non-controlling interest (full) 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.
115. b – (P50,000 + P70,000) x 25% = P30,000
116. b – P only.
117. b
{(P250,000/.8) + [P75,000 + P90,000 - P25,000 - P50,000 - P30,000 - (P80,000/8)2]}.2
118. d
{(P420,000/.7) + [P160,000 + P210,000 - P60,000 - P80,000 - P50,000 - (P90,000/5)2]}.3
119. a - P650,000 =P500,000 + P200,000 - P50,000
120. a – assume the use of equity method
Punn’s equity in net income of Sunn (3 months ended,12/31/x6)…… P 200,000
Amortization of cost in excess of book value........................................... ( 60,000)
Increase in Parent’s retained earnings……………………………………. P 140,000
e - If cost model/cost method, the answer would be P100,000.
Dividend income……………………………………………………………. P 100,000
121. c – P120,000 x 70%
122. 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
Investment, 12/31/20x5 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.
123. c – P60,000 x 80% = P48,000

124. c
Investment.1/1/20x4 P105,000
Investment, 12/31/20x4 P129,000
Investment, 12/31/20x5 P159,000
125. d
Investment balance, 1/1/20x4……………………………………………….. P 150,000
Add: Puma’s equity in net income of Slume (30% x P25,000)..………… 7,500
Less: Dividends (P30% x P10,000)……………………………………………. 3,000
Amortization of cost in excess of book value
(P50,000/10 years) x 30%.............................................................. 1,500
Puma’s 20x6 net income (equity method) ............................................... P 153,000
126. b
Puma’s equity in net income of Slume (30% x P25,000)..……………….. P 7,500
Less: Amortization of cost in excess of book value
(P50,000/10 years) x 30%.............................................................. 1,500
Investment income – 20x4 (equity method)………………………………. P 6,000
127. b
Full—goodwill Aproach
Common stock (P100,000 x 100%)………………. P 100,000
Increase in land (P5,000 x 100%)……………………. P 5,000
Increase in equipment (P10,000 x 100%) ___10,000 15,000
fair value)………………………………………………... P 25,000
Partial-Goodwill Approach
Common stock (P100,000 x 90%)……………………. P 90,000
Increase in land (P5,000 x 90%)……………………. P 4,500
Increase in equipment (P10,000 x 90%) ___9,000 13,500
Positive excess: partial-goodwill (excess of cost over
fair value)………………………………………………... P 22,500

Account Adjustments to be amortized under Life Amount Year(20x4)
Equipment (net)......... 10,000 5 P 2,000 P 2,000
Patent 25,000 5 5,000 5,000
P 7,000 P 7,000
128. d
Investment in Wisden
1/1/x4. 180,000 18,000 Dividends – S
(20,000 x 90%)
NI of S
(60,000 Amortization
x 90%)……. 54,000 12,600 (P14,000 x 90%)
1/1/x6 203,400
129. c
Investment in Wisden
1/1/x6. 230,400 9,000 Dividends – S
(10,000 x 90%)
NI of S
(30,000 Amortization
x 90%)……. 27,000 6,300 (7,000 x 90%)
1/1/x6 215,100
130. d – 20x3: P30,000 x 75% = P22,500

20x4: P40,000 x 75% = P30,000
131. a – no changes in investment unless there are dispositions of investment and permanent
impairment.
132. None – no answer available. Under the cost model share in net income or earnings of
subsidiary does not affect investment.
133. d
Investment account, December 31, 20x7:
Original investment …………………………………………P 550,000
Tiny’s earnings, 20x4-20x77: 100% x P166,000…………… 166,000
Less: Dividends received: 100% x P114,000……………… 114,000
Balance, December 31, 20x7…………………………….. P602,000
134. a
The adjusting entry required in 20x7 to convert from the cost to the equity method is:
Investment in Tiny………………………………….52,000
Retained earnings beg………………………….. 4,000
Dividend revenue………………………………… 54,000
Equity in subsidiary income of Tiny……. 110,000
135. b
136. b – Dividend paid – S, P70,000 x 60% = P42,000
137. d – CNI amounted to P265,000 [CI-CNI, P235,000 and NCI-CNI, P30,000
P Company P190,000
S Company 90,000
Total P280,000

Amortization of allocated excess – 20x4 ( 15,000_
P 75,000
P 30,000
Less: Non-controlling interest on impairment loss on full-goodwill (P1,500 x 15%)* ______0
P 30,000
20x5 results of operations are as follows:

Peer Sea-Breeze
Sales P 600,000 P 300,000
Less: Cost of goods sold Operating expenses 410,000 210,000
Net income P 235,000 P 90,000
Less: Book value of stockholders’ equity of Sea (P550,000 x 100%) __550,000
(P140,000 x 100%) 140,000
Positive excess: Full-goodwill (excess of cost over fair value) P 0
Amortization of Allocated Excess

Book Value Fair Value Over/under Amort.
Buildings (net)- 6 300,000 360,000 P 60,000 P 10,000
Equipment (net)– 4 300,000 280,000 (20,000) (5,000)
Patent -10 -0- 100,000 100,000 10,000
Net P 140,000 P 15,000
140. c - P811,000.
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:/Parent’s
share in adjusted net increased in subsidiary’s retained earnings:
Less: Amortization of allocated excess – 20x2 – 20x4
(P15,000 x 3 years) 45,000
P 185,000
P 111,000
Less: Goodwill impairment loss (full-goodwill), 0 111,000
Note:
a. Date of acquisition: RE of Parent = Consolidated RE
Regardless of the method used in the books of the subsidiary, the following rule should always be
applied –
b. Subsequent to date of acquisition:
Retained earnings of Parent under equity method = CRE
Since, the P811,000 is the retained earnings of parent under the equity method, it should also be
considered as the parent’s portion or interest in consolidated retained earnings or simply the
consolidated retained earnings.
141. c - P811,000 – refer to note (b) of No. 140

142. b – P111,000 – refer to No. 140
143. d
Consolidated Retained earnings, January 1, 20x5 (refer to Nos. 118 and 119) P 811,000
Add: Controlling Interest in Consolidated Net Income or
Profit attributable to equity holders of parent for 20x5 235,000
Total P1,046,000
Less: Dividends paid – Parent Company for 20x5 92,000
Consolidated Retained Earnings, December 31, 20x5 P 954,000
144. d – refer to No.143
145. 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, January 1, 2015 P300,000
Add: Net income of subsidiary for 2015 90,000
Less: Dividends paid – Subsidiary - 2015 70,000 320,000
Stockholders’ equity – Subsidiary Company, December 31, 2015 P 800,000
Adjustments to reflect fair value - (over) undervaluation
of assets and liabilities, date of acquisition (January 1, 2012) 140,000
Amortization of allocated excess (refer to amortization above) –
(P15,000 x 4) ( 60,000)
Fair value of stockholders’ equity of subsidiary, 12/31/ 2015 P 880,000
Multiplied by: Non-controlling Interest percentage. 40
Add: NCI on full-goodwill……………………. ____0
Non-controlling interest (full) P 352,000
146. c
Common stock - Peer P 724,000
Owners of the Parent P 1,678,000
Non-controlling interest** 352,000
Total Stockholders’ Equity (Total Equity) P 985,500
147. c
Investment in Sea-Breeze Investment Income
1/1/x2. 414,000 42,000 Dividends – S NI of S
Retro 111,000 (70,000 x 60%
NI of S
x 60%)……. 54,000 9,000 (P15,000 x 60%) (P15,000 x 60%) 9,000 54,000 x 60%)
12/31/x5 528,000 45,000
148. c
149. d – refer to No. 137
154. a – not applicable under equity method.
159. b
Consideration transferred: 10,500 shares x P95 P997,500
Less: BV of SHE – S (?) 857,500
Allocated excess; P140,000
Less: O/U valuation of A and L:
Undervaluation of land P40,000
Overvaluation of buildings ( 30,000)
Undervaluation of equipment 80,000
Undervaluation/unrecorded trademark 50,000 140,000
P 0
160. a – P900,000 + P500,000 = P1,400,000
161. 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
162. b – (P750,000 + P280,000) – P30,000 + (P1,500 x 5 years) = P1,007,500
163. c – (P300,000 + P500,000) + P80,000 – (P8,000 x 5 years) = P840,000
164. c – P450,000 + P180,000 + P40,000 = P670,000
165. d – P50,000 – P3,125 x 5 years) = P34,375
166. a – P only (the stock issued In 20x0 includes already in the December 31, 20x4 balance.
167. a – P only
168. a
Consolidated Retained earnings, January 1, 20x4 (equity method) P 1,350,000
Total P1,840,375
Consolidated Retained Earnings, December 31, 20x4 (under equity method) P1,645,375
Net Income from own operations: P Co S Co

Sales P900,000 P500,000
Less: cost of goods sold 360,000 200,000
Gross profit P540,000 P300,000
Other expenses 100,000 60,000
Net income P300,000 P200,000

P Company P300,000
S Company 200,000
Total P500,000
Less: Non-controlling Interest in Net Income P 0
169. c
Note: Normally, the term used in the requirement “equity in subsidiary income”, is a term
used under equity method, but it should be noted that under PAS 27, it prohibits the use of
equity method for a parent to consolidate a subsidiary. But, assuming the use of equity
method, the answer would be, P190,375.
Share in net income: P200,000 x 100% P200,000
P190,375
170. c – P3,1250 / .20 = P15,750
171. a
Punn’s separate earnings for 20x6.............................................................. P6,000,000
Add: Punn’s equity in net income of Sunn (3 months ended,12/31/x6) 200,000
Less: Amortization of cost in excess of book value ................................. ( 60,000)
Punn’s 20x6 net income (equity method)................................................. P6,140,000
172. a – assume the use of equity method
Punn’s equity in net income of Sunn (3 months ended,12/31/x6)…… P 200,000
Amortization of cost in excess of book value........................................... ( 60,000)
Increase in Parent’s retained earnings……………………………………. P 140,000
E - If cost model/cost method, the answer would be P100,000.

Dividend income……………………………………………………………. P 100,000
173. a
Net income of S (5/1/x5 – 12/31/x5): P840,000 x 8/12 P560,000
Less: Dividend – S (11/1/20x5 – no need to pro-rate) 300,000
Cumulative net income less dividends since
date of acquisition, 1/1/20x6 (date to establish reciprocity –
not 12/31/x6) P260,000
x: Controlling interests 80%
P208,000
174. a
Net income of S (5/1/x5 – 12/31/x5): P210,000 x 8/12 P140,000
Less: Dividend – S (11/1/20x5 – no need to pro-rate) 75,000
not or 1/1/20x6) P 65,000
P 52,000
175. b
Retained earnings – S Company, 1/1/20x4 P 60,000
Less: Retained earnings – S Company, 12/31/20x6 190,000
should always be beginning of the year, not 12/31/x6) P130,000
P117,000
176. b
{(P260,000 - P230,000) + [(P650,000 - P590,000)/120] 8}.8
177. d
{(P190,000 - P160,000) 4/6 - [(P241,000 - P220,000)/60] 5}.7
178. c
[{(P15,000 + P22,000) - [(P80,000 - P60,000)/10]2} - (P6,000 + P9,000)].7
179. b
[{(P84,000 + P105,000) - [(P310,000 - P220,000)/20]2} - (P30,000 + P50,000)].8
180. b – building account in the books of subsidiary at fair value
181. e – building account in the books of subsidiary at book value
182. d – push-down accounting: equipment account in the books of subsidiary is at fair value
183. b
184. a – P540,000 = (P500,000 + P150,000 – P90,000 – P20,000)
185. c – equivalent to the original cost
186. 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.
187. b - Intercompany receivables and payables from unconsolidated subsidiaries would not be
eliminated.
Quiz - XVI
1. b
{P150,000 - [(P550,000 - P450,000)/10] - [(P300,000 - P280,000)/5]}.8
2. P36,925
{P110,000 - (P250,000 - P160,000 - P50,000) - [(P130,000 - P100,000) 3/5] + [(P215,000 -
P200,000)/5] (3/12)}.7
3. P545,500
P500,000 + [P110,000 + P130,000 - P30,000 - P40,000 - P55,000 - (P200,000/8)2].7
4. P388,000
P320,000 + [P100,000 + P140,000 - P40,000 - P50,000 - P35,000 - (P75,000/5)2].8
5. P15,400
{P80,000 - [(P290,000 - P250,000)/8] + [(P160,000 - P150,000)/5]}.2
6. P13,200
{P150,000 - (P470,000 - P300,000 - P90,000) - [(P190,000 - P160,000) 4/5] - [(P520,000 -
P400,000)/10] (4/12) + [(P380,000 - P350,000)/5] (4/12)}.3
7. P70,500
{(P250,000/.8) + [P75,000 + P90,000 - P25,000 - P50,000 - P30,000 - (P80,000/8)2]}.2
8. 20x5: P56,000
20x6: P14,000
Purchase differential amortization to investment income 20x5 20x6
Inventory (P300,000 - P240,000).7 P42,000 P 0
Plant Assets [(P700,000 - P560,000)/7].7 14,000 14,000
P56,000 P14,000
9.
Consolidation worksheet:
Cost of Goods Sold P60,000
10. P2,900
Sandpiper’s share of Shore net income (P18,000 x 30%) P 5,400
Add: Overvalued accounts receivable collected in 20x5 600
Undervalued accounts payable paid in 20x5 300
Less: Undervalued inventories sold in 20x5 ( 2,400)
Depreciation on building undervaluation P3,600/6 ( 600)
Amortization on patent P3,200/8 years ( 400)
Income from Shore/Income from subsidiary 2,900
11. No requirement
12. P1,050,000
Parrco’s income from its own separate operations for 20x6 P 900,000
Subbco’s net income for the nine months ended 12/31/x6 200,000
Less: Amortization of cost in excess of book value (P30,000 ÷ 60%) ___50,000)
Consolidated net income for 20x6 (economic unit concept) P1,050,000
Division of consolidated net income:
To controlling interest (Parrco’s stockholders) P 990,000
To non-controlling interest (stockholders of Subbco) ___60,000
P1,050,000
13. P990,000
Parrco’s income from its own separate operations for 20x6 P 900,000
Parrco’s equity in net income of Subbco Company for
nine months ended 12/31/x6 (P200,000  60%) 120,000
Less: Parrco’s amortization of cost in excess of book value ( 30,000)
Consolidated net income for 20x6 (parent company concept) P 990,000
14. P400,000 (P100,000 + P300,000)
15. P3,600,000
Plyco’s separate earnings for 20x6 P 3,500,000
Add:Dividend income from Slyco .............................................................. 100,000
Plyco’s 20x6 net income P 3,600,000
16. P3,867,000
Plyco’s separate earnings for 20x6............................................................ P3,500,000
Add:Plyco’s equity in net income of Slyco ............................................... 400,000
Less: Amortization of cost in excess of book value ................................. ( 33,000)
Plyco’s 20x6 net income ............................................................................... P3,867,000
17. P3,867,000 (same amount as calculated in Requirement 16).
18. Correction 20x0 should be 20y0: P372,850

Step-acquisition, either full-goodwill or partial goodwill approach, the answer remains the
same.
Full-Goodwill Presentation:
Net income from own operations;
Parent - Keefe…………………………………… P 300,000
Subsidiary - George (P500,000 – P400,000)…….. 100,000
P 400,000
Less: Amortization of allocated excess…………………… 6,000
Impairment of goodwill (if any)……………………. 0
Consolidated/Group Net Income…………………………. P 394,000
Less: Non-controlling interest in Net Income
Subsidiary net income from own operations:
1/1/20y0 - 4/1/20y0 (3 months):
P100,000 x 3/12 = P25,000 x 30%................ P 7,500
4/1/20y0 – 12/31/20y0 (9 months):
P100,000 x 9/12 = P75,000 x 20%................ 15,000
Total…………………………………………….. P 22,500
Less: Amortization of allocated excess:
1/1/20y0 – 4/1/20y0 (3 months)
P6,000 x 3/12 = P1,500 x 30%.......... 450
4/1/20y0 – 12/31/20y0 (9 months)
P6,000 x 9/12 = P4,500 x 20%........... 900
Impairment of goodwill (if any):
First 3 months: P 0 x 30%.......………… 0
Remaining 9 months: P 0 x 20%............... 0 21,150
CNI attributable to the controlling interest (CI-CNI)/ Profit
attributable to equity holders of parent…………………. P372,850
* It should be noted that the phrase without regard for this investment means that
excluding any income arising from investment in subsidiary (i.e., dividend income).
19. Correction 20y0 should be 20x4

20x4 = P86,400
Consolidated Net Income 20x4 20x5
Peters Company's reported net income 64,000 37,500
Less: dividend income from Smith (1,600) 0
Peters' income from independent operations 62,400 37,500
Add: Smith's net income in 20x4 since acquisition (8/12)(P45,000) 30,000
Less: Smith's net loss in 20x5 P5,000) ( 5,000)
Controlling Interest in Consolidated net income 92,400 32,500
20. 20x5 = P32,500 – refer to No. 19

21. 20x4 = P151,400
Consolidated Retained Earnings 20x4 20x5
Peter's 12/31 retained earnings (P80,000 + P64,000 - P15,000) P129,000 P161,500
Add: Peter's share of the increase in Smith's retained earnings
from the date of acquisition to the current date:
(.80  (P53,000 – P25,000)) 22,400
(.80  (P48,000 – P25,000) 18,400
P151,400 P179,900
22. 20x5 = P179,900 – refer to No. 21
23. P9,200
Pinta Company 20y4 equity-method income:
Proportionate share of reported income (P30,000 x .40) P 12,000
Amortization of differential assigned to:
Buildings and equipment [(P35,000 x .40) / 5 years] ( 2,800)
Goodwill (P8,000: not impaired) -0-
Investment Income P 9,200
Assignment of differential
Purchase price P150,000
Proportionate share of book value of
net assets (P320,000 x .40) (128,000)
Proportionate share of fair value increase in
buildings and equipment (P35,000 x .40) (14,000)
Goodwill P 8,000
24. P3,600 - Dividend income, 20y4 (P9,000 x .40) P 3,600
25. Cost-method account balance (unchanged): P150,000

Equity-method account balance:
Balance, January 1, 20y4 P150,000
Investment income 9,200
Dividends received (3,600)
Balance, December 31, 20y4 P155,600
Theories
1. c 6. b 11. C** 16. c 21. d 26. c 31 c 36. d 41. a
2. d 7. c 12. b 17. c 22. a 27. d 32. b 37. b 42. c
3. d 8. d 13. d 18. d 23. b 28. c 33. c 38. b 43. a
4. d* 9. d 14. c 19. d 24. c 29. c 34. c 39. c 44.
5. d 10, a 15, c 20. b 25. c 30. b 35. d 40. d 45.
*under PAS 27, cost model recognizes any dividend declared/paid by the subsidiary is classified as income regardless
of retained earnings balance, which means there is no such thing as liquidating dividend under the cost model. On the
other hand, under FASB ruling, a liquidating dividend still exists under the cost method.
**partial equity is the same with equity method except that amortization of allocated excess is not recognized in the
investment and income account.
Chapter 17
Problem I
1.
P Company’s net income from own/separate operations…………. P 760,000
Realized profit in beginning inventory of S Company (downstream sales) 36,000
Unrealized profit in ending inventory of S Company (downstream sales)… (_50,000)
P Company’s realized net income from separate operations*…….….. P 746,000
S Company’s net income from own operations…………………………………. P 460,000
Realized profit in beginning inventory of P Company (upstream sales) 0
Unrealized profit in ending inventory of P Company (upstream sales)… ( 0)
S Company’s realized net income from separate operations*…….….. P 460,000 460,000
Total P1,206,000
Less: Amortization of allocated excess…………………… 0
Less: Non-controlling Interest in Net Income* * 92,000
equity holders of parent – 20x5………….. P 1,114,000
*that has been realized in transactions with third parties.
Or, alternatively
S Company’s realized net income from separate operations*…….….. P460,000 460,000
Total P1,206,000
Less: Non-controlling Interest in Net Income* * P 92,000
Amortization of allocated excess…………………… 0 92,000
equity holders of parent………….. P1,114,000
Add: Non-controlling Interest in Net Income (NCINI) _ 92,000
Consolidated Net Income for 20x5 P 1,206,000
**Non-controlling Interest in Net Income (NCINI) for 20x5

S Company’s net income of Subsidiary Company from its own operations
(Reported net income of Son Company) P460,000
Unrealized profit in ending inventory of P Company (upstream sales) ( 0)
S Company’s realized net income from separate operations……… P460,000
Less: Amortization of allocated excess _____0
P460,000
Non-controlling Interest in Net Income (NCINI) – partial goodwill P 92,000
2. 20x4
Sales 1,080,000
Purchases (Cost of Goods Sold) 1,080,000
12/31 Inventory (Income Statement)

[216,000 – (216,000/1.20)] 36,000
12/31 Inventory (Balance Sheet) 36,000
20x5
Sales 1,200,000
Purchases (Cost of Goods Sold) 1,200,000
12/31 Inventory (Income Statement)

[300,000 – (300,000/1.20)] 50,000
Beginning R/E – Puma 36,000

1/1 Inventory (Income Statement) 36,000
Problem II
1.
P Company’s net income from own/separate operations…………. P 1,720,000
Realized profit in beginning inventory of S Company (downstream sales) 0
Unrealized profit in ending inventory of S Company (downstream sales)… (_ 0)
P Company’s realized net income from separate operations*…….….. P 1, 720,000
Realized profit in beginning inventory of P Company (upstream sales) 40,000
Unrealized profit in ending inventory of P Company (upstream sales)… ( 51,00 0)
Son Company’s realized net income from separate operations*…….….. P 589,000 589,000
Total P2,309,000
equity holders of parent – 20x5………….. P 2,250,100
Or, alternatively
Unrealized profit in ending inventory of S Company (downstream sales)… (________0)
P Company’s realized net income from separate operations*…….….. P1,720,,000
Unrealized profit in ending inventory of P Company (upstream sales)… ( 51,000)
Total P2,309,000
Amortization of allocated excess…………………… 0 __58,900

(Reported net income of Son Company) P600,000
Unrealized profit in ending inventory of P Company (upstream sales) ( 51,000)
Son Company’s realized net income from separate operations……… P589,000
P589,000
2. Sales 1,020,000
Purchases (Cost of Sales) 1,020,000
To eliminate intercompany sales.
12/31 Inventory (Income Statement) 51,000
Inventory (Balance Sheet) 51,000
To eliminate unrealized intercompany profit in ending inventory.
Beginning Retained Earnings – Pinta

(.90 × P40,000) 36,000
Noncontrolling interest 4,000
To recognize unrealized profit in beginning inventory realized during the year.
Problem III
Unrealized profit in ending inventory of S Company (downstream sales)… (_ 45,00 0)
P Company’s realized net income from separate operations*…….….. P 3,609,000
S Company’s net income from own operations (P1,500,000 + P2,400,000) P3,900,000
Realized profit in beginning inventory of P Company (upstream sales) – Salad 66,000
Realized profit in beginning inventory of P Company (upstream sales)- Tuna 63,000
Unrealized profit in ending inventory of P Company (upstream sales) – Salad ( 57,000)
Unrealized profit in ending inventory of P Company (upstream sales) – Tuna ( 69,000)
S Company’s realized net income from separate operations*…….….. P3,903,000 3,903,000
Total P7,512,000
Less: Non-controlling Interest in Net Income* *- Salad P 301,800
Non-controlling Interest in Net Income* *- Tuna ___239,400 ___541,200
equity holders of parent – 20x4………….. P6,970,800
Or, alternatively
Unrealized profit in ending inventory of S Company (downstream sales)… (___45,000)
P Company’s realized net income from separate operations*…….….. P3,609,,000
S Company’s net income from own operations (P1,500,000 + P2,400,000) P3,900,000
Realized profit in beginning inventory of P Company (upstream sales) – Salad 66,000
Realized profit in beginning inventory of P Company (upstream sales)- Tuna 63,000
Unrealized profit in ending inventory of P Company (upstream sales) – Salad ( 57,000)
Unrealized profit in ending inventory of P Company (upstream sales) – Tuna ( 69,000)
S Company’s realized net income from separate operations*…….….. P3,903,000 3,903,000
Total P7,512,000
Less: Non-controlling Interest in Net Income* * - Salad P 301,800
Non-controlling Interest in Net Income* * - Tuna 239,400
Amortization of allocated excess…………………… 0 __541,200
Add: Non-controlling Interest in Net Income (NCINI) _541,200
**Salad
Non-controlling Interest in Net Income (NCINI) for 20x4
(Reported net income of S Company) P1,500,000
Son Company’s realized net income from separate operations……… P1,509,000
P1,509,000
Multiplied by: Non-controlling interest %.......... __ 20%
**Tuna
Son Company’s realized net income from separate operations……… P2,394,000
P2,394,000
Realized Profit in Beginning inventory:

Downstream Sales (Sales from Parent to Subsidiary)
P414,000 x 15/115 P54,000
Upstream Sales (Sales from Subsidiary-Salad to Parent):
Salad: P396,000 x 20/120 66,000
Upstream Sales (Sales from Subsidiary-Tuna to Parent):
Tuna: P315,000 x 25/125 63,000
Unrealized Profit in Ending inventory:

Downstream Sales (Sales from Parent to Subsidiary)
P345,000 x 15/115 P45,000
Upstream Sales (Sales from Subsidiary-Salad to Parent):
Salad: P342,000 x 20/120 57,000
Upstream Sales (Sales from Subsidiary-Tuna to Parent):
Tuna: P345,000 x 25/125 69,000
Problem IV
1.
Sales 4,000,000
Cost of Goods Sold 4,000,000

Ending Inventory (Balance Sheet) 250,000
[P1,250,000 - (P1,250,000/1.25)]
1/1 Retained Earnings – P Company (1) 84,000

Noncontrolling interest (2) 21,000
Cost of Goods Sold (Beginning Inventory) 105,000
[P525,000 – (P525,000/1.25)] = P105,000
(1) .8(P105,000)
(2) .2(P105,000)
2/3. P3,000,000 × .20 = P600,000 non-controlling interest in consolidated income.
4. [(.20 × P5,400,000) -.20(P1,250,000 – P1,250,000/1.25)] = P1,030,000 non-controlling interest in

consolidated net assets on December 31, 20x4.
Problem V
P COMPANY AND SUBSIDIARY
Consolidated Income Statement
For the Year Ended December 31, 20x4
Sales (P13,800,000 – P1,350,000) P12,450,000

Cost of Goods Sold (a) P7,755,000
Operating Expenses 1,800,000 9,555,000
Consolidated Income 2,895,000
Less Non-controlling Interest in Consolidated Income (b) 197,500
Controlling Interest in Consolidated Net Income P2,697,500
(a) Reported Cost of Goods Sold P9,000,000

Less intercompany sales in 20x4 (1,350,000)
Plus unrealized profit in ending inventory (2/5 x (P1,350,000 - P900,000)) 180,000
Less realized profit in beginning inventory (1/4 x (P1,800,000 - P1,500,000)) (75,000)
Corrected cost of goods sold P7,755,000
(b) Reported net income of subsidiary P190,000 P1,900,000

0.1
Plus unrealized profit on subsidiary sales in 2013 that is considered realized in 20x4
(1/4 x (P1,800,000 - P1,500,000)) 75,000
Less unrealized profit on subsidiary sales in 20x4 (there were no upstream sales in 20x4) 0
Income realized in transactions with third parties 1,975,000
× 0.10
Non-controlling interest in consolidated income P197,500
Problem VIII
(Determine selected consolidated balances; includes inventory transfers and an outside ownership.)
Customer list amortization = P65,000/5 years = P13,000 per year
Intercompany Gross profit (P160,000 – P120,000) ............................................... P40,000

Inventory Remaining at Year's End ......................................................................... 20%
Unrealized Intercompany Gross profit, 12/31 ............................................................. P8,000
Consolidated Totals:
 Inventory = P592,000 (add the two book values and subtract the ending unrealized gross
profit of P8,000)
 Sales = P1,240,000 (add the two book values and subtract the P160,000 intercompany
transfer)
 Cost of Goods Sold = P548,000 (add the two book values and subtract the intercompany
transfer and add [to defer] ending unrealized gross profit)
 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 Company’s net income from own/separate operations (P800-P400-P180) P 220,000
S Company’s net income from own operations (P600 – P300 – P250) P 50,000
Unrealized profit in ending inventory of P Company (upstream sales)… ( 8, 000)
Total P 262,000
Consolidated Net Income for 20x5 P 249,000
equity holders of parent – 20x5………….. P 240,300
Or, alternatively

Total P 262,000
Amortization of allocated excess…………………… 13,000 21,700

(Reported net income of Son Company) P 50,000
Unrealized profit in ending inventory of P Company (upstream sales) ( 8,00 0)
S Company’s realized net income from separate operations……… P 42,000
P 29,000
 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

Common stock (P240,000 x 80%)……………………. P 192,000
fair value)………………………………………………... P 12,000

Inventory………………….…………….. P 24,000 P 30,000 P 6,000
Land……………………………………… 48,000 55,200 7,200
Equipment (net)......... 84,000 180,000 96,000
Buildings (net) 168,000 144,000 (24,000)
Bonds payable………………………… (120,000) ( 115,200) 4,800
Net……………………………………….. P 204,000 P 294,000 P 90,000
Equipment .................. 180,000 180,000 0
Net book value………………………... 84,000 180,000 96,000
S Co. S Co.
Buildings................ 360,000 144,000 ( 216,000)
Net book value………………………... 168,000 144,000 ( 24,000)

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

(P90,000 x 100%) 90,000
fair value)………………………………………………... P 15,000
In this case, the goodwill was proportional to the controlling interest of 80% and non-controlling interest
of 20% computed as follows:
Value % of Total

Value % of Total
Interest
Goodwill P 3,750 100.00%
The unrealized profits on January 1, and on December 31, 20x5, resulting intercompany sales, are as
summarized below:
Downstream Sales:
Intercompany Merchandise
Year Sales of Parent to in 12/31 Inventory Unrealized Intercompany
Subsidiary of S Company Profit in Ending Inventory
20x4 P150,000 P150,000 x 60% = P90,000 P90,000 x 20% = P18,000
20x5 120,000 P120,000 x 80% = P96,000 P96,000 x 25% = P40,000
Upstream Sales:
Year Sales of Subsidiary in 12/31 Inventory Unrealized Intercompany
to Parent of S Company Profit in Ending Inventory
20x4 P 50,000 P100,000 x 50% = P25,000 P25,000 x 40% = P10,000
20x5 62,500 P 62,500 x 40% = P25,000 P25,000 x 20% = P 5,000

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

(2) Cash……………………… 28,800
No entries are made on the parent’s books to depreciate, amortize or write-off the portion of the
allocated excess that expires during 20x4, and unrealized profits in ending inventory.

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

Land………………………………………………………………………. 7,200
Goodwill…………………………………………………………………. 12,000
Buildings……………………………………….. 216,000
Investment in Son Co………………………………………………. 84,000

Inventory………………………………………………………….. 6,000
Goodwill…………………………………… 3,000
Equipment P 12,000
Buildings ( 6,000)
Bonds payable _______ _______ P 1,200
Totals P 6,000 P 2,000 P1,200 13,200

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

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

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

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

To defer the upstream sales - unrealized profit in ending inventory


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


Sales P480,000 P240,000 (5) 150,000 P 510,000
(6) 60,000
Dividend income 28,800 - (4) 36,000 _________
Cost of goods sold P204,000 P138,000 (3) 6,000 (5) 150,000 P 168,000
(7) 18,000 (6) 60,000
(8) 12,000
Other expenses 48,000 18,000 66,000
Net Income P196,800 P 60,000 P181,800

P Company P432,000 P 360,000
S Company P144,000 (1) 120,000
Total P668,160 P216,000 P538,840
Dividends paid
Perfect Company 86,400 72,000
Son Company - 43,200 (4) 36,000 _ ________
Sheet P581,760 P172,800 P 466,840
Balance Sheet
Cash………………………. P 232,800 P 90,000 P 355,200
Inventory…………………. 120,000 90,000 (2) 6,000 (3) 6,000
(7) 18,000
(8) 12,000 180,000
Land……………………………. 1210,000 48,000 (2) 7,200 265,200
Equipment 240,000 180,000 420,000
Buildings 720,000 540,000 (2) 216,000 1,044,000
Discount on bonds payable (2) 4,800 (3) 12000 3,600
Goodwill…………………… (2) 12,000 (3) 3,000 9,000
(2) 84,000 -
Total P1,984,800 P1,008,000 P2,394,600
- equipment P 135,000 P 96,000 (2) 96,000 (3) 12,000 P147,000
- buildings (3) 6,000 495,000
Bonds payable………………… 240,000 120,000 360,000
(2) 18,000
_________ _________ __________ (9) 6,960 ____89,760
Total P1,984,800 P1,008,000 P 983,160 P 983,160 P2,394,600

P Company’s net income from own/separate operations…………. P168,000
Unrealized profit in ending inventory of S Company (downstream sales)… ( 18,000)
P Company’s realized net income from separate operations*…….….. P150,000
Unrealized profit in ending inventory of S Company (upstream sales)… ( 12,000)
Total P198,000

S Company’s net income of Subsidiary Company from its own operations P 60,000
(Reported net income of S Company)
P 34,800
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.

P Co. S Co.
Sales P 540,000 P 360,000
Net income P 230,400 P 90,000
20x5: Parent Company Cost Model Entry

Cash……………………… 38,400
Cash 48,000



Retained earnings – S Co., 1/1/20x5 144.000
(E3) Inventory…………………………………………………………………. 6,000

Accumulated depreciation – equipment……………….. .... 96,000
Accumulated depreciation – buildings………………….. ... 192,000
Land………………………………………………………………………. 7,200
Goodwill…………………………………………………………………. 12,000
Buildings………………………………………........................... 216,000
Non-controlling interest (P90,000 x 20%)............................ 18,000

Inventory………………………………………………………….. 6,000
Goodwill…………………………………… 3,000
Year 20x4 amounts are debited to P’s retained earnings &
NCI;
Buildings (6,000) ( 6,000)
Bonds payable 1,200 ________ P 1,200
Sub-total P13,200 P 6,000 P 1,200
Multiplied by: 80%
Total P 13,560

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

(E7) Sales………………………. 75,000

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

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

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



Realized profit in beginning inventory of P

Company - 20x5 (upstream sales) 12,000
Company - 20x5 (upstream sales) ( 6,000)
S Company’s Realized net income* P 96,000
P 88,800
Non-controlling Interest in Net Income (NCINI )
*from separate transactions that has been realized in transactions
with third persons.
Sales P540,000 P360,000 (6) 120,000 P 705,000
(7) 75,000
Dividend income 38,400 - (5) 38,400 ___________
Cost of goods sold P216,000 P192,000 (10) 24,000 (6) 120,000
(11) 6,000 (7) 75,000 213,000
(8) 18,000
(9) 12,000
Other expenses 72,000 54,000 126,000
Net Income P230,400 P 90,000 P 274,800

P Company P484,800 (2) 13,560
(8) 18,000
(9) 9,600 (1) 19,200 P 462,840
S Company P 144,000 (2) 144,000
Total P715,200 P234,000 P 719,880
Dividends paid
P Company 72,000 72,000
S Company - 48,000 (5) 48,000 _ ________
Sheet P643,200 P186,000 P 647,880
Balance Sheet
Cash………………………. P 265,200 P 102,000 P 367,200
Inventory…………………. 216,000 108,000 (3) 7,200 (4) 7,200
(10) 24,000
(11) 6,000 294,000
Land……………………………. 210,000 48,000 (3) 7,200 265,200
Equipment 240,000 180,000 420,000
Buildings 720,000 540,000 (3) 216,000 1,044,000
Goodwill…………………… (3) 12,000 (4) 3,000 9,000
(3) 84,000 -
Total P2,203,200 P1,074,000 P2,677,800
- equipment P 150,000 P 102,000 (3) 96,000 (4) 24,000 P180,000
- buildings (4) 12,000 552,000
Bonds payable………………… 240,000 120,000 360,000
(5) 9,600 (2 ) 76,800
(9) 2,400 (3) 18,000
___ _____ _________ __________ (12) 17,760 ____97,920
Total 2,203,200 P1,074,000 P1,077,360 P1,077,360 P2,677,800
5. 1/1/20x4
a. On date of acquisition the retained earnings of parent should always be considered as the

Retained earnings – P Company, January 1, 20x4 (date of acquisition) P360,000
b.
Common stock – Subsidiary Company…………………………………… P 240,000
Retained earnings – Subsidiary Company…………………………………. 120,000
Stockholders’ equity – Subsidiary Company.………….. P 360,000
Adjustments to reflect fair value - (over) undervaluation of assets and liabilities 90,000
Fair value of stockholders’ equity of subsidiary, January 1, 20x4………………… P 450,000
c.
Consolidated SHE:
NCI, 1/1/20x4 ___90,000
6.
recognized.
12/31/20x4:
a. CI-CNI – P174,840
Total P198,000
P 34,800
d. On subsequent to date of acquisition, consolidated retained earnings would be computed as

follows:

Total P534,840
e. The goodwill recognized on consolidation purely relates to the parent’s share. NCI is measured
as a proportion of identifiable assets and goodwill attributable to NCI share is not recognized.
The NCI on December 31, 20x4 are computed as follows:
Common stock – Subsidiary Company, December 31, 20x4…… P 240,000
Retained earnings – Subsidiary Company, December 31, 20x4
Retained earnings – Subsidiary Company, January 1, 20x4 P120,000
Add: Net income of subsidiary for 20x4 6,000
Total P180,000
Stockholders’ equity – Subsidiary Company, December 31, 20x4 P 384,000
Less: Unrealized profit in ending inventory of P Company (upstream sales) 12,000
Realized stockholders’ equity of subsidiary, December 31, 20x4…… P448,800
f.
Consolidated SHE:
NCI, 12/31/20x4 ___89,760
12/31/20x5:
a. CI-CNI
Total P282,000
equity holders of parent – 20x5………….. P257,040
Or, alternatively
Total P282,000
Controlling Interest in Consolidated Net Income or Profit attributable to equity
holders of parent………….. P257,040
b. NCI-CNI
P 88,800

follows:
Retained earnings - Parent Company, January 1, 20x5 (cost model P484,800
Less: Unrealized profit in ending inventory of S Company (downstream sales)
– 20x4 (UPEI of S – 20x4) or Realized profit in beginning inventory of S
Company (downstream sales) –20x5 (RPBI of S - 20x5)……………. 18,000
Adjusted Retained Earnings – Parent 1/1/20x5 (cost model (S Company’s
Retained earnings that have been realized in transactions with third
parties.. P466,800
Unrealized profit in ending inventory of P Company (upstream
sales) 20x4 (UPEI of P – 20x4) or Realized profit in beginning
inventory of P Company (upstream sales) –20x5 (RPBI of P - 20x5) 12,000
(P 1,200)
(P 960)
Less: Goodwill impairment loss, partial goodwill 3,000 ( 3,960)
Total P748,680
Or, alternatively:
Retained earnings - Parent Company, December 31, 20x5 (cost model P643,200
Adjusted Retained Earnings – Parent 12/31/20x5 (cost model (
S Company’s Retained earnings that have been realized in
transactions with third parties.. P619,200
Retained earnings – Subsidiary, December 31, 20x5 P 186,000
Less: Accumulated amortization of allocated excess –
20x4 and 20x5 (P11,000 + P6,000) 20,400
P 39,600
P 31,680
Less: Goodwill impairment loss, partial goodwill 3,000 28,680
Consolidated Retained earnings, December 31, 20x5 P647,880
e.
Retained earnings – Subsidiary Company, January 1, 20x5* P144,000
Total P234,000
20x4 P 13,200
20x5 7,200 ( 20,400)
Less: Unrealized profit in ending inventory of P Company (upstream
sales) 20x5 (UPEI of P – 20x5) or Realized profit in beginning inventory
of P Company (upstream sales) –20x6 (RPBI of P - 20x6 6,000
Realized stockholders’ equity of subsidiary, December 31, 20x5………. P489,600
* the realized profit in beginning inventory of P Company (upstream sales) –20x5 (RPBI of P - 20x5 amounting to P10,000 is
already included in the beginning retained earnings of S Company.
f.
Consolidated SHE:
NCI, 12/31/20x4 ___97,920
Problem X
Common stock (P240,000 x 100%)………………. P 240,000
fair value)………………………………………………... P 15,000

Inventory P 6,000 1 P 6,000 P 6,000 P -
Equipment (net)......... 96,000 8 12,000 12,000 12,000
Buildings (net) (24,000) 4 ( 6,000) ( 6,000) (6,000)
Bonds payable… 4,800 4 1,200 1,200 1,200
P 13,200 P 13,200 P 7,200

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

(2) Cash……………………… 28,800
Record dividends from Son Company.
On the books of Son Company, the P36,000 dividend paid was recorded as follows:

Cash……. 36,000
No entries are made on the parent’s books to depreciate, amortize or write-off the portion of the
allocated excess that expires during 20x4.
(E2) Inventory…………………………………………………………………. 6,000

Land………………………………………………………………………. 7,200
Goodwill…………………………………………………………………. 15,000
Buildings……………………………………….. 216,000

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

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

(E6) Sales………………………. 60,000





P 34,800
– partial goodwill
P3,000, impairment on partial-goodwill) 750
– full goodwill P 6,210

Sales P480,000 P240,000 (5) 150,000 P 510,000
(6) 60,000
Dividend income 28,800 - (4) 28,800 _________
(7) 18,000 (6) 60,000
(8) 12,000
Other expenses 48,000 18,000 66,000
Net Income P196,800 P 60,000 P181,050

P Company P360,000 P 360,000
S Company P120,000 (1) 120,000
Total P556,800 P180,000 P534,840
Dividends paid
P Company 72,000 72,000
S Company - 36,000 (4) 36,000 _ ________
Sheet P484,800 P144,000 P 462,840
Balance Sheet
Cash………………………. P 232,800 P 90,000 P 322,800
Inventory…………………. 120,000 90,000 (2) 6,000 (3) 6,000
(7) 18,000
(8) 12,000 180,000
Land……………………………. 210,000 48,000 (2) 7,200 265,200
Equipment 240,000 180,000 420,000
Buildings 720,000 540,000 (2) 216,000 1,044,000
Goodwill…………………… (2) 15,000 (3) 3,750 11,250
(4) 84,000 -
Total P1,984,800 P1,008,000 P2,396,850
- equipment P 135,000 P 96,000 (2) 96,000 (3) 12,000 P147,000
- buildings (7) 6,000 495,000
Bonds payable………………… 240,000 120,000 360,000
(2) 21,000
_________ _________ (9) 6,210 ____92,010
Total P1,984,800 P1,008,000 P 986,160 P 986,160 P2,396,850

Perfect Co. Son Co.
Sales P 540,000 P 360,000
Net income P 230,400 P 90,000

20x5: Parent Company Cost Model Entry

Cash……………………… 38,400

Cash 48,000

year, 1/1/20x5.


Retained earnings – S Co., 1/1/20x5 144.000
(E3) Inventory…………………………………………………………………. 6000
Land………………………………………………………………………. 7,200
Goodwill…………………………………………………………………. 15,000
Buildings……………………………………….. 216,000

(P16,950 x 80%) 13,560
Inventory………………………………………………………….. 6,000
Goodwill…………………………………… 3,750
Year 20x4 amounts are debited to Perfect’s retained earnings
and NCI.
Buildings (6,000) ( 6,000)
Totals P 16,950 P 6,000 P1,200
Multiplied by: CI%.... 80%
To Retained earnings P13,560

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

(E7) Sales………………………. 75,000

(E8) Beginning Retained Earnings – P Company…… 18,000
prior period.
(E9) Beginning Retained Earnings – P Company (P12,000 x 80%) 9,600

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

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


Son Company’s Realized net income* P 96,000
P 88,800
- partial goodwill
Goodwill 0
with third persons.

Sales P540,000 P360,000 (6) 120,000 P 705,000
(7) 75,000
Dividend income 38,400 - (5) 38,400 ___________
(11) 6,000 (7) 90,000
(8) 21,600
(9) 14,400
Other expenses 72,000 54,000 126,000
Net Income P230,400 P 90,000 P 274,800

P Company P484,800 (3) 13,560
(8) 18,000
(9) 96000 (4) 19,200 P 462,840
S Company P 144,000 (5) 144,000
Total P715,200 P234,000 P 719,880
Dividends paid
P Company 72,000 72,000
S Company - 48,000 (5) 48,000 _ ________
Sheet P643,200 P186,000 P 647,880
Balance Sheet
Cash………………………. P 265,200 P 102,000 P 367,200
Inventory…………………. 216,000 108,000 (6) 6,000 (4) 6,000
(10) 24,000
(11) 6,000 294,000
Land……………………………. 210,000 48,000 (3) 7,200 265,200
Equipment 240,000 180,000 420,000
Buildings 720,000 540,000 (3) 216,000 1,044,000
Goodwill…………………… (3) 15,000 (4) 3,750 11,250
(3) 84,000 -
Total P2,203,200 P1,074,000 P2,680,050
- equipment P 150,000 P 102,000 (3) 96,000 (4) 24,000 P180,000
- buildings (4) 12,000 552,000
Bonds payable………………… 240,000 120,000 360,000
(8) 9,600 (2 ) 76,800
(9) 2,400 (3) 21,000
___ _____ _________ __________ (12) 17,760 ____100,170
Total P2,203,200 P1,074,000 P1,081,110 P1,081,110 P2,680,050
5. 1/1/20x4
a. On date of acquisition the retained earnings of parent should always be considered as the
Retained earnings - Parent Company, January 1, 20x4 (date of acquisition) P360,000
b.
Add: Non-controlling interests on full goodwill, 1/1/20x4 (P12,500, full-goodwill – P10,000, partial
goodwill) 3,000
Non-controlling interest (full-goodwill) P 93,000
c.
Consolidated SHE:
NCI, 1/1/20x4 ___93,000
6.
recognized.
12/31/20x4:
a. CI-CNI – P174,840
Perfect Company’s realized net income from separate operations*…….….. P150,000
Total P198,000
Less: Non-controlling Interest in Net Income P 6,1210

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

follows:
Total P534,840
e.
Non-controlling interest ), December 31, 20x4
Total P180,000
Less: Unrealized profit in ending inventory of P Company (upstream sales) 12,000
Non-controlling interest (full-goodwill)…………….. P 92,010
f.
Consolidated SHE:
Parent’s Stockholders’ Equity / CI - SHE P1,062,840
NCI, 1/1/20x4 ___92,010
12/31/20x5:
a. CI-CNI – P257,040
Total P282,000
Or, alternatively
Total P282,000
P 88,800
Less: NCI on goodwill impairment loss on full goodwill 0
Non-controlling Interest in Net Income (NCINI) – full goodwill P 17,760

follows:
Retained earnings - Parent Company, January 1, 20x5 (cost model P484,800
parties.. P466,800
(P 1,200)
(P 960)
Less: Goodwill impairment loss (full-goodwill), net (P3,750 – P750)* or
(P3,750 x 80%) 3,000 ( 3,960)
Total P719,880
Or, alternatively:
Retained earnings - Parent Company, December 31, 20x5 (cost model P643,200
20x4 and 20x5 (P13,200 + P7,200) 20,400
P 39,600
P 31,680
Less: Goodwill impairment loss (full-goodwill), net (P3,750 – P750)* or
(P3,750 x 80%) 3,000 28,680
e.
Non-controlling interest, December 31, 20x5
Retained earnings – Subsidiary Company, January 1, 20x5* P144,000
Total P234,000
20x4 P 13,200
20x5 7,200 ( 20,400)
Less: Unrealized profit in ending inventory of P Company (upstream
sales) 20x5 (UPEI of P – 20x5) or Realized profit in beginning inventory
of P Company (upstream sales) –20x6 (RPBI of P - 20x6 6,000
* the realized profit in beginning inventory of P Company (upstream sales) –20x5 (RPBI of P - 20x5 amounting to P10,000 is
already included in the beginning retained earnings of S Company.
f.
Consolidated SHE:
Parent’s Stockholders’ Equity / CI - SHE P1,247,880
NCI, 1/1/20x4 ___100,170
Problem XI
(Compute selected balances based on three different intercompany asset transfer scenarios)
1.
Consolidated Cost of Goods Sold
PP’s cost of goods sold ...................................................................................... P290,000
SW’s cost of goods sold ..................................................................................... 197,000
Elimination of 20x5 intercompany transfers ................................................... (110,000)
Reduction of beginning Inventory because of
20x4unrealized gross profit (P28,000/1.4 = P20,000
cost; P28,000 transfer price less P20,000
cost = P8,000 unrealized gross profit) ....................................................... (8,000)
Reduction of ending inventory because of
20x5 unrealized gross profit (P42,000/1.4 = P30,000
cost = P12,000 unrealized gross profit) ..................................................... 12,000
Consolidated cost of goods sold ....................................................... P381,000
Consolidated Inventory
PP book value .............................................................................................. P346,000
SW book value ............................................................................................. 110,000
Eliminate ending unrealized gross profit (see above) .......................... (12,000)
Consolidated Inventory .............................................................................. P444,000
Non-controlling Interest in Subsidiary’s Net Income

Because all intercompany sales were downstream, the deferrals do not affect SW. Thus, the
non-controlling interest is 20% of the P58,000 (revenues minus cost of goods sold and
expenses) reported income or P11,600.
or
Unrealized profit in ending inventory of S Company (downstream sales)… (_ 12,000)
Total P 254,000
Less: Amortization of allocated excess…………………… ____0

Less: Amortization of allocated excess ____0
P 58,000
2.
Consolidated Cost of Goods Sold
PP book value ..................................................................................................... P290,000
SW book value .................................................................................................... 197,000
Elimination of 20x5 intercompany transfers ................................................... (80,000)
Reduction of beginning inventory because of
cost = P6,000 unrealized gross profit) ....................................................... (6,000)
Reduction of ending inventory because of
cost = P10,000 unrealized gross profit) ..................................................... 10,000
Consolidated cost of goods sold .................................................................... P411,000
Consolidated Inventory
PP book value ..................................................................................................... P346,000
SW book value .................................................................................................... 110,000
Eliminate ending unrealized gross profit (see above) ................................. (10,000)
Consolidated inventory .............................................................................. P446,000
Non-controlling Interest in Subsidiary's Net income
Since all intercompany sales are upstream, the effect on Snow's income must be reflected
in the non-controlling interest computation:
SW reported income .......................................................................................... P58,000
20x4 unrealized gross profit realized in 20x5 (above) .................................. 6,000
20x5 unrealized gross profit to be realized in 20x6 (above) ....................... (10,000)
SW realized income ........................................................................................... P54,000
Outside ownership percentage ...................................................................... 20%
Non-controlling interest in SW’s income .................................................. P10,800
or
Realized profit in beginning inventory of S Company (downstream sales)
Total P 254,000

Less: Amortization of allocated excess ____0
P 54,000
Problem XIII
1. (Computation of selected consolidation balances as affected by downstream inventory transfers)
UNREALIZED GROSS PROFIT, 12/31/x4: (downstream transfer)
Intercompany gross profit (P120,000 – P72,000) .......................................................... P48,000
Inventory remaining at year's end ....................................................................................... 30%
Unrealized Intercompany Gross profit, 12/31/x4 ............................................................... P14,400
UNREALIZED GROSS PROFIT, 12/31/x5: (downstream transfer)
Intercompany gross profit (P250,000 – P200,000) ....................................................... P50,000
Inventory remaining at year's end ....................................................................................... 20%
Unrealized intercompany gross profit, 12/31/x5 ................................................................ P10,000
CONSOLIDATED TOTALS
 Sales = P1,150,000 (add the two book values and eliminate intercompany sales of P250,000)
 Cost of goods sold:
Benson's book value ....................................................................................................... P535,000
Broadway's book value .................................................................................................. 400,000
Eliminate intercompany transfers ................................................................................. (250,000)
Realized gross profit deferred in 20x4 .......................................................................... (14,400)
Deferral of 20x5 unrealized gross profit ........................................................................ 10,000
Cost of goods sold ................................................................................................... P680,600
 Operating expenses = P210,000 (add the two book values and include intangible amortization for
current year)
 Dividend income = -0- (intercompany transfer eliminated in consolidation)
 Noncontrolling interest in consolidated income: (impact of transfers is not included because they
were downstream)
Broadway reported income for 20x5 ........................................................................... P100,000
Intangible amortization ................................................................................................... (10,000)
Broadway adjusted income ........................................................................................... 90,000
Outside ownership ........................................................................................................... 30%
Noncontrolling interest in Broadway’s earnings.......................................................... P 27,000
or,
Total P 269,400
Less: Amortization of allocated excess…………………… __10,000

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

UNREALIZED GROSS PROFIT, 12/31/x4: (upstream transfer)
Intercompany gross profit (P120,000 – P72,000) ......................................................... P48,000
Inventory remaining at year's end ................................................................................ 30%
UNREALIZED GROSS PROFIT, 12/31/x5: (upstream transfer)

Intercompany gross profit (P250,000 – P200,000) ....................................................... P50,000
Inventory remaining at year's end ................................................................................ 20%
CONSOLIDATED TOTALS
 Sales = P1,150,000 (add the two book values and eliminate the Intercompany transfer)
 Cost of goods sold:
Benson's COGS book value ........................................................................................... P535,000
Broadway's COGS book value ...................................................................................... 400,000
Eliminate intercompany transfers ................................................................................. (250,000)
Realized gross profit deferred in 20x4 .......................................................................... (14,400)
Deferral of 20x5 unrealized gross profit ........................................................................ 10,000
Consolidated cost of goods sold .......................................................................... P680,600
 Operating expenses = P210,000 (add the two book values and include intangible amortization for
current year)
 Dividend income = -0- (interco. transfer eliminated in consolidation)
 Noncontrolling interest in consolidated income: (impact of transfers is included because they were
upstream)
Broadway reported income for 20x5 ........................................................................... P100,000
Intangible amortization ................................................................................................... (10,000)
20x4 gross profit recognized in 20x5 ...................................................................... 14,400
20x5 gross profit deferred ....................................................................................... (10,000)
Broadway realized income for 20x5 ...................................................................... P94,400
Outside ownership ........................................................................................................... 30%
Noncontrolling interest .................................................................................................... P28,320
Total P 269,400
Less: Amortization of allocated excess…………………… __10,000

Less: Amortization of allocated excess __10,000
P 94,400
 Inventory = P988,000 (add the two book values and defer the P10,000 ending unrealized gross profit)
 Noncontrolling interest in subsidiary, 12/31/x5 = P382,500
30% beginning book value less P14,400
unrealized gross profit (30% × P935,600)............................................................. P280,680
Excess intangible allocation (30% × P295,000)..................................................... (88,500)
Noncontrolling Interest in Broadway’s earnings .................................................. 28,320
Dividends (30% × P50,000)............................................................................................... (15,000)
Total noncontrolling interest at 12/31/x5............................................................... 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
Consolidated Net Income for 2014

P Company’s net income from own/separate operations (P724,000 – P24,000 P700,000
Unrealized profit in ending inventory of S Company (downstream sales)… (20,00 0)
Total P790,000
Consolidated Net Income for 2014 P788,000
equity holders of parent – 2014………….. P769,400
Or, alternatively
P Company’s net income from own/separate operations P700,000
Unrealized profit in ending inventory of S Company (downstream sales)… (20,00 0)
Total P790,000
**Non-controlling Interest in Net Income (NCINI) for 2014

P 93,000
Note: Preferred Solution - since what is given is the RE – P, 12/31/2014 (ending

balance of the current year) -
Retained earnings – Parent, 12/31/2014 (cost)……………………….. P 3,500,000
-: UPEI of S (down) – 2014 or RPBI of S (down) – 2015..…………. 20,000
Adjusted Retained earnings – Parent, 12/31/2014 (cost)………….. P 3,480,000
Retroactive Adjustments to convert Cost to “Equity” for
purposes of consolidation / Parent’s share of adjusted
net increase in subsidiary’s retained earnings:
Retained earnings – Subsidiary, 1/1/2011……………………….P 150,000
Less: Retained earnings – Subsidiary, 12/31/2014…………... 320,000
Increase in Retained earnings since acquisition
(cumulative net income – cumulative dividends)………… P 170,000
Accumulated amortization (1/1/2011 – 12/31/2014):
P 2,000 x 4 years………………………………………………..( 8,000)
UPEI of P (up) – 2014 or RPBI of P (up) – 2015………………........( 5,000)
P157,000
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
Accumulated amortization (1/1/2011 – 1/1/2014):
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) ........................................................................................... P21,000
Markup percentage (P21,000 ÷ P70,000) .................................................................... 30%
Remaining inventory ...................................................................................................................... P30,000

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

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

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

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

Inventory………………….…………….. P 24,000 P 30,000 P 6,000
Land……………………………………… 48,000 55,200 7,200
Equipment (net)......... 84,000 180,000 96,000
Buildings (net) 168,000 144,000 (24,000)
Bonds payable………………………… (120,000) ( 115,200) 4,800
Net……………………………………….. P 204,000 P 294,000 P 90,000
Equipment .................. 180,000 180,000 0
Net book value………………………... 84,000 180,000 96,000
S Co. S Co.
Buildings................ 360,000 144,000 ( 216,000)
Net book value………………………... 168,000 144,000 ( 24,000)

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

(P90,000 x 100%) 90,000
fair value)………………………………………………... P 15,000
In this case, the goodwill was proportional to the controlling interest of 80% and non-controlling interest
of 20% computed as follows:
Value % of Total
Value % of Total
Interest
Goodwill P 3,750 100.00%
The unrealized profits on January 1, and on December 31, 20x5, resulting intercompany sales, are as
summarized below:
Downstream Sales:
Year Sales of Parent to in 12/31 Inventory Unrealized Intercompany
Subsidiary of S Company Profit in Ending Inventory
20x4 P150,000 P150,000 x 60% = P90,000 P90,000 x 20% = P18,000
20x5 120,000 P120,000 x 80% = P96,000 P96,000 x 25% = P40,000
Upstream Sales:
Year Sales of Subsidiary in 12/31 Inventory Unrealized Intercompany
to Parent of S Company Profit in Ending Inventory
20x4 P 50,000 P100,000 x 50% = P25,000 P25,000 x 40% = P10,000
20x5 62,500 P 62,500 x 40% = P25,000 P25,000 x 20% = P 5,000

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

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

December 31, 20x4:

(4) Investment income [(P13,200 x 80%) + P3,000, goodwill 13,560
impairment loss)]
December 31, 20x4:

To adjust investment income for downstream sales - unrealized profit
in ending inventory of S.
December 31, 20x4:

To adjust investment income for upstream sales - unrealized profit in
ending inventory P .
Investment in S
(60,000 x 80%) 48,000 13,560 impairment
18,000 UPEI of Son (P15,000 x 100%)
9,600 UPEI of Perfect (P10,000 x80%)
Balance, 12/31/x4 350,040
Investment Income
impairment 13,560 48,000 (P60,000 x 80%)
UPEI of S (P18,000 x 100%) 18,000
UPEI of P (P12,000 x80%) 9,600
6,840 Balance, 12/31/x4

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

Land………………………………………………………………………. 7,200
Goodwill…………………………………………………………………. 12,000
Buildings……………………………………….. 216,000

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

follows:

After NI of S 28,800 Dividends - S NI of S the
18,000 UPEI of S UPEI of S 18,000
9,600 UPEI of P UPEI of P 9,600
21,960 6,840
eliminating entries are posted in the investment account, it should be observed that from consolidation
point of view the investment account is totally eliminated. Thus,
Investment in S
(60,000 x 80%) 48,000 13,560 impairment
18,000 UPEI of Son
9,600 UPEI of Perfect
(E4) Investment Income 84,000 (E2) Investment, 1/1/20x4
and dividends …………… 21,960
372,000 372,000
(E5) Sales………………………. 150,000
(E6) Sales………………………. 60,000





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

Sales P480,000 P240,000 (5) 150,000 P 510,000
(6) 60,000
(5) P 168,000
Cost of goods sold P204,000 P138,000 (3) 6,000 150,000
(7) 18,000 (6)
(8) 12,000 60,000
Other expenses 48,000 18,000 66,000
Net Income P174,840 P 60,000 P181,800

P Company P360,000 P 360,000
S Company P120,000 (1) 120,000
Total P414,840 P180,000 P414,840
Dividends paid
P Company 72,000 72,000
S Company - 36,000 (4) 36,000 _ ________
Sheet P462,840 P144,000 P 642,840
Balance Sheet
Cash………………………. P 232,800 P 90,000 P 387,360
Inventory…………………. 120,000 90,000 (1) 5,000 (3) 6,000
(7) 18,000
(8) 12,000 180,000
Land……………………………. 210,000 48,000 (2) 7,200 265,200
Equipment 220,000 180,000 380,000
Buildings 720,000 540,000 (2) 216,000 1,044,000
Goodwill…………………… (2) 12,000 (3) 3,000 9,000
(2) 84,000
-
Total P1,635,700 P1,006,000 P2,394,600
- equipment P 135,000 P 96,000 (2) 96,000 (3) 12,000 P 147,000
- buildings (3) 6,000 495,000
Bonds payable………………… 240,000 120,000 360,000
(2) 18,000
_________ _________ __________ (5) 6,960 ____89,760
Total P1,962,840 P1,008,000 P 983,160 P 983,160 P2,394,600
Second Year after Acquisition

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

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

December 31, 20x5:

December 31, 20x5:

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

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

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

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

guidance for the worksheet eliminating entries:

Land………………………………………………………………………. 7,200
Goodwill (P12,000 – P3,000)…………………………….. 9,000
Buildings……………………………………….. 216,000

Depreciation/
Inventory sold
Equipment P 12,000
Buildings ( 6,000)
Totals P 6,000 P1,200 P7,200

follows:

x 80%)……. 72,000 5,760 (P7,200 x 80%) (P7,200 x 80%) 5,760 72,000 x 80%)
RPBI of S 18,000 24,000 UPEI of S UPEI of S 24,000 18,000 RPBI of S
RPBI of P 9,600 4,800 UPEI of P UPEI of P 4,800 9,600 RPBI of P
26,640 65,040
(E6) Sales………………………. 120,000
(E7) Sales………………………. 75,000

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

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

prior period.
After the eliminating entries are posted in the investment account, it should be observed that from
consolidation point of view the investment account is totally eliminated. Thus,
Investment in S
(90,000 x 80%) 72,000 5,760 (6,000 x 80%)
RPBI of S (P18,000 x 100%) 18,000 24,000 UPEI of S (P20,000 x 100%)
RPBI of P (P12,000 x 80%) 9,600 4,800 UPEI of P (P5,000 x 80%)
(E8) RPBI of S 18,000 70,440 (E2) Investment, 1/1/20x5
(E9) RPBI of P 9,600 26,640 (E4) Investment Income
and dividends
336,900 404,280



Less: Amortization of allocated excess ( 7,200)
P 88,800
with third persons.

Sales P540,000 P360,000 (6) 120,000 P 705,000
(7) 75,000
(11) 6,000 (7) 75,000
(8) 18,000
(9) 12,000
Other expenses 72,000 54,000 126,000
Net Income P257,040 P 90,000 P 274,800

P Company P462,840 P 462,840
S Company P144,000 (1) 144,000
Total P719,880 P234,000 P 719,880
Dividends paid
P Company 72,000 72,000
S Company - 48,000 (4) 48,000 _ ________
Sheet P777,456 P223,200 P 777,456
Balance Sheet
Cash………………………. P 265,200 P 102,000 P 367,200
Inventory…………………. 216,000 108,000 (10) 24,000
(11) 6,000 294,000
Land……………………………. 210,000 48,000 (2) 7,200 265,200
Equipment 240,000 180,000 420,000
Buildings 720,000 540,000 (3) 216,000 1,044,000
Goodwill…………………… (2) 9,000 9,000
(9) 9,600 (2) 70,440
(4) 26,640 -
Total P2,207,880 P1,074,000 P2,677,800

- equipment P 150,000 P 102,000 (3) 12,000 P180,000
- buildings (3) 6,000 552,000
Bonds payable………………… 240,000 120,000 360,000
(9) 2,400 (2 ) 76,800
(2) 15,360
___ _____ _________ __________ (5) 17,760 ____97,920
Total P2,207,880 P1,074,000 P1,046,400 P1,046,400 P2,677,800
5 and 6. Refer to Problem IX for computations

exactly the same (refer to Problem IX solution).
Problem XVII

Common stock (P240,000 x 100%)………………. P 240,000
fair value)………………………………………………... P 15,000

Inventory P 6,000 1 P 6,000 P 6,000 P -
Equipment (net)......... 96,000 8 12,000 12,000 12,000
Buildings (net) (24,000) 4 ( 6,000) ( 6,000) (6,000)
Bonds payable… 4,800 4 1,200 1,200 1,200
P 13,200 P 13,200 P 7,200

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

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

December 31, 20x4:

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

in ending inventory of S.
December 31, 20x4:

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

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

Land………………………………………………………………………. 7,200
Goodwill…………………………………………………………………. 15,000
Buildings……………………………………….. 216,000

Inventory………………………………………………………….. 6,000
Goodwill…………………………………… 3,750
Equipment P 12,000
Buildings ( 6,000)
Bonds payable _______ _______ P 1,200
Totals P 6,000 P 7,200 P1,200 14,400
follows:
Investment Income
After Investment in S the
18,000 UPEI of S UPEI of S 18,000
9,600 UPEI of P UPEI of P 9,600
21,960 6,840
eliminating entries are posted in the investment account, it should be observed that from consolidation
point of view the investment account is totally eliminated. Thus,
Investment in S
(60,000 x 80%) 48,000 13,560 impairment
18,000 UPEI of S
9,600 UPEI of P
372,000 372,000
(E5) Sales………………………. 150,000

(E6) Sales………………………. 60,000





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


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

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

Perfect Co. Son Co.
Sales P 540,000 P 360,000
Net income P 257,040 P 90,000

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

December 31, 20x5:

December 31, 20x5:

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

To adjust investment income for downstream sales - realized profit in
beginning inventory of S (RPBI of S).
December 31, 20x5:

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

guidance for the worksheet eliminating entries.

Land………………………………………………………………………. 7,200
Goodwill (P15,000 – P3,750)…………………………….. 11,250
Buildings……………………………………….. 216,000
or (P3,750 x 20%)] 17,610
be situations where the NCI on goodwill impairment loss would not be proportionate to NCI acquired (refer to Illustration 15-6).

Depreciation/
Inventory sold
Equipment P 12,000
Buildings ( 6,000)
Totals P 6,000 P1,200 P7,200

follows:

NI of Son 38,400 Dividends – S NI of S
x 80%)……. 72,000 5,760 (P7,200 x 80%) (P7,200 x 80%) 5,760 72,000 x 80%)
RPBI of S 18,000 24,000 UPEI of S UPEI of S 24,000 18,000 RPBI of S
RPBI of P 9,600 4,800 UPEI of P UPEI of P 4,800 9,600 RPBI of P
26,640 65,040
(E6) Sales………………………. 120,000
(E7) Sales………………………. 75,000

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

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

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




Son Company’s Realized net income* P 96,000
P 88,000
Goodwill 0
with third persons.


Sales P540,000 P360,000 (6) 120,000 P 705,000
(7) 75,000
(11) 6,000 (7) 75,000
(8) 18,000
(9) 12,000
Other expenses 72,000 54,000 126,000
Net Income P257,040 P 90,000 P 274,800

P Company P462,840 P 462,840
S Company P144,000 (1) 144,000
Total P719,880 P234,000 P 719,880
Dividends paid
P Company 72,000 72,000
S Company - 48,000 (4) 48,000 _ ________
Sheet P647,880 P186,000 P 647,880
Balance Sheet
Cash………………………. P 265,200 P 114,000 P 367,200
Inventory…………………. 216,000 108,000 (10) 24,000
(11) 6,000 294,000
Land……………………………. 210,000 48,000 (2) 7,200 265,200
Equipment 240,000 180,000 420,000
Buildings 720,000 540,000 (3) 216,000 1,044,000
Goodwill…………………… (2) 11,250 11,250
(9) 9,600 (3) 70,440
(4) 26,640 -
Total P2,207,880 P1,074,000 P2,680,050

- equipment P 150,000 P 102,000 (3) 12,000 P180,000
- buildings (3) 6,000 552,000
Bonds payable………………… 240,000 120,000 360,000
(9) 2,400 (1 ) 76,800
(2) 17,610
___ _____ _________ __________ (14)17,760 ____100,170
Total P2,207,880 P1,074,000 P1,048,650 P1,048,650 P2,680,050
5 and 6. Refer to Problem X for computations

exactly the same (refer to Problem X solution).

1. b
2. a
3. c – P400,000 x 1/4 = P100,000 x 30% = P30,000
4. c
Ending inventory at selling price: P300,000 x 1/3 = P100,000 x (300,000 – 240,000)/300,000 P20,000
Less: Inventory write-down (P100,000 – P92,000) __8,000
Intercompany profit to be eliminated P12,000
5. b – [P300,000 x 1/2 = P150,000 x 40% = P60,000]

6. c – P100,00 sales to unrelated/unaffiliated company.
7. c
Cost of Sales
P Company 67,000
S Company _63,000
Total 130,000
Less: Intercompany sales 90,000
Add: Unrealized profit in EI of S Co.
[P90,000 x 30% = P27,000 x (90 - 67)/90] __6,900
Consolidated 46,900
Parent Subsidiary
Sales 90,000 100,000
Less: Cost of goods sold – Parent 67,000
Subsidiary (90,000 x 70%) ______ 63,000
Gross profit 23,000 37,000
Ending inventory (90,000 x 30%) 27,000
8. a
P Company’s net income from own/separate operations
[P100,000 – (P90,000 x 70%)] P 37,000
S Company’s net income from own operations (P90,000 – P67,000) P23,000
Unrealized profit in ending inventory of P Company (upstream sales)
[P90,000 x 30% = P27,000 x (90-67/90)] ( 6,900 )
Total P 53,100
Or, alternatively
[P100,000 – (P90,000 x 70%)] P 37,000
S Company’s net income from own operations (P90,000 – P67,000) P23,000
[P90,000 x 30% = P27,000 x (90-67/90)] ( 6,900 )
Total P 53,100
equity holders of parent………….. P 51,490

Less: Amortization of allocated excess 0
P 16,100
9. d – P27,000 x 67/90 = P20,100

10. b – P120,000, the amount of sales to outsiders is the amount of sales presented in the consolidated
income statement.
11. a – the cost of inventory produced by the parent (downstream sales)
12. c
P Company’s net income from own/separate operations (P90,000 – P62,000) P 28,000
S Company’s net income from own operations (P120,000 – P90,000) P3 0,000
Unrealized profit in ending inventory of P Company (upstream sales) ( )
Total P 58,000
Or, alternatively
S Company’s net income from own operations (P120,000 – P90,000) P3 0,000
Unrealized profit in ending inventory of P Company (upstream sales ( )
Total P 58,000

P 30,000
13. c
Sales Cost of Sales
P Company 10,000,000 7,520,000
S Company __200,000 _160,000
Total 10,200,000 7,680,000
Less: Intercompany sales – upstream sales 60,000 60,000
[P60,000 x 30% = P18,000 x (10 – 7.5)/10] ________ __ 4,500
Consolidated 10,140,000 7,604,500
14. No requirement
15. d – refer to No. 13 for computation
16. c
Sales
P Company 10,000,000
S Company __200,000
Total 10,200,000
Less: Intercompany sales – downstream sales 60,000
[P60,000 x 30% = P18,000 x (10 – 7.5)/10] ________
Consolidated 10,140,000
17. a – (P40,000 x 140% = P56,000)

18. a – (P56,000 – P40,000 = P16,000)
19. a
20x5 Sales Cost of Sales
P Company 1,800,000 1,440,000
S Company __900,000 _750,000
Total 2,700,000 2,190,000
Less: Intercompany sales 375,000 375,000
Realized profit in BI of S Co.
[P240,000 x 1/2 = P120,000 x (240-192)/240] 24,000
[P375,000 x 40% = P150,000 x (375-300)/375] ________ __30,000
Consolidated 2.325,000 1,821,000
20. c - refer to No. 19 for computations

21. b
P Company’s net income from own/separate operations P 225,000
S Company’s net income from own operations P 90,000
Realized profit in beginning inventory of P Company (upstream sales)
[P150,000 x 50% = P75,000 x (P30,000/P150,000)] ( 15,000 )
Total P 300,000
Less: Amortization of allocated excess…………………… _ 0

P 75,000
23. c
24 a Amount paid by Lorn Corporation P120,000
Unrealized profit (45,000)
Actual cost P 75,000
Portion sold x .80
Cost of goods sold P 60,000
25. e Consolidated sales P140,000

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

Unrealized profit (P45,000 x .20) (9,000)
Ending inventory reported P 15,000
27. c
Sales
P Company 500,000
S Company _350,000
Total 850,000
Less: Intercompany sales to Dundee 100,000
Intercompany sales to Perth 150,000
Consolidated 600,000
28. a
Ending inventory of Perth from Dundee (P36,000 / 110%) 32,727
Ending inventory of Dundee from Perth (P31,000 / 130%) _23,846
Total 56,573
29. a Selling price P 50,000

Less: Cost of sales _40,000
Original unrealized profit 10,000
Unsold percentage __30%
Unrealized profit P _3,000
30. a
S Company’s net income from own operations…………………………………. 76,000
Total P253,000
31. a
Combined 20x5 sales (P580,000 + P445,000) P 1,025,000
Less: 20x5 intercompany sales 0
Consolidated sales P 1,025,000
32. d
Combined cost of sales P 480,000
Less: 20x5 intercompany sales 0
Less: Unrealized profit in the 20x5 beginning inventory
from 20x4 ( 3,000)
Add: Unrealized profit in 20x5 ending inventory ________0
Consolidated cost of sales P 477,000
33. d
Cost of Sales
P Company 5,400,000
S Company _1,200,000
Total 6,600,000
Less: Intercompany sales 1,000,000
[P625,000 x 12% = P75,000 x (625 - 425)/625] 24,000
[P1,000,000 x 10% = P100,000 x (1,000 - 800)/1,000] __20,000
34. b
Cost of Sales
Bates Company 690,000
Sam Company 195,000
Total 885,000
Realized profit in BI of Bates Co.
[P40,000 x 20%] 8,000
Add: Unrealized profit in EI of Bates Co.
[P15,000 x 20%] __3,000
35. b
Parent Subsidiary
Net Income from own operations:
X-Beams (parent) Kent (subsidiary), 70%:30% 210,000 90,000
Unrealized Profit in EI of Parent (X-Beams):
P180,000x 20% = P36,000 x (180-100/180) = P16,000,
70%:30% ( 11,200) ( 4,800)
Non-controlling Interest in Kent’s Net Income 85,200
36. d
Non-controlling Interest in Net Income (NCINI) for 20x5 20x6
(Reported net income of S Company) P 400,000 P 480,000
Unrealized profit in ending inventory of P Company (upstream sales) ( 20,000) 0
S Company’s realized net income from separate operations……… P 380,000 P 500,000
Less: Amortization of allocated excess 0 0
P380,000 P500,000
Multiplied by: Non-controlling interest %.......... 20% 20%
Non-controlling Interest in Net Income (NCINI) – partial goodwill P 76,000 P100,000
Less: NCI on goodwill impairment loss on full goodwill 0 0
Non-controlling Interest in Net Income (NCINI) – full goodwill P 76,000 P100,000
37. a
(Reported net income of S Company) P 0
(P100,000 x 10% = P10,000 x 30%) ( 3,000)
S Company’s realized net income from separate operations……… P( 3,000)
P( 3,000)
Non-controlling Interest in GP P( 300)
Non-controlling Interest in GP P( 300)
38. a
39. a Selling price P 60,000
Less: Cost of sales ( 48,000 )
Unrealized profit 12,000
Unsold fraction 1/3
Credit to Inventory P 4,000
40. a – the cost from parent of P48,000 x 45/60 = P36,000

Parent Subsidiary 1 Subsidiary 2
Sales 60,000 60,000 67,000
Less: Cost of goods sold – P and S1 48,000 60,000
Subsidiary (60,000 x 45/60) ______ ______ 45,000
Gross profit 12,000 0 22,000
Ending inventory (60,000 x 15/60) 15,000
41. b – the cost from parent of P48,000 x 15/60 = P12,000

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

[P15,000 x (48/60] ________ __12,000
Amount to be eliminated 120,000 *117,000
*or, P60,000 + P60,000 – [P15,000 x (60-48/60]
43. b – refer to No. 42 for computation

44. d – P15,000 x [(60-48)/60] = P3,000
45. a
S Company’s net income from own operations P150,000
[P105,000 x 20/120) ( 17,500 )
Total P 357,500
46. c
[P105,000 x 20/120) 17,500
[P157,500 x 20/120) ( 26,250 )
Total P 486,250
Or, alternatively
S Company’s net income from own operations ( P135,000
[P105,000 x 20/120) 17,500
[P157,500 x 20/120) ( 26,250 )
Total P 486,250

P126,250
47. a – refer to No. 46 for computation.
48. d
[P157,500 x 20/120) 26,250
[P180,000 x 20/120) ( 30,000 )
Total P 686,250
Or, alternatively
[P157,500 x 20/120) 26,250
[P180,000 x 20/120) ( 30,000 )
Total P 686,250
Add: Non-controlling Interest in Net Income (NCINI) __70,875

P 236,250
Non-controlling Interest in Net Income (NCINI) – partial goodwill P 70.875

50. d
Sales
P Company 420,000
S Company 280,000
Total 700,000
51. b
Operating
Expenses
P Company 28,000
S Company 14,000
Total 42,000
Add: Undervalued equipment (P35,000/7 years) _5,000
Consolidated 49,000
52. c
Cost of Sales
P Company 196,000
S Company _112,000
Total 308,000
[P140,000 x 60% = P84,000 x (140 - 112)/140] _16,800
53. a
Total P364,000
Less: Dividends paid – 20x4 0 364,000
20x5 (P35,000/7 years) ( 5,000)
Add: NCI on full-goodwill (P70,000 – P56,000) 14,000
Non-controlling interest (full- goodwill)………………………………….. P 120,800
Partial-goodwill
Common stock (P140,000 x 80%)……………………. P 112,000
Increase in equipment (P35,000 x 80%) ___28,000
fair value)………………………………………………... P 56,000
Full-goodwill
Consideration transferred: Cash (P364,000/80%) P 455,000
Increase in equipment P35,000 x 100% 35,000
fair value)………………………………………………... P 70,000
54. d
Equipment
P Company 616,000
S Company 420,000
Total 1,036,000
Add: Undervalued equipment 35,000
Less: Depreciation on undervalued equipment (P35,000/7 years) 7,000
55. d
Inventory
P Company 210,000
S Company 154,000
Total 364,000
Less: Unrealized profit in EI: [P140,000 x 60% = P84,000 x (140 - 112)/140] 16,800
56. d Add the two book values and remove P100,000 intercompany transfers.
57. c Intercompany gross profit (P100,000 - P80,000) ................................................... P20,000

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

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

Non-controlling interest fair value .................................. 65,000
SZ total fair value ............................................................... P325,000
Book value of net assets .................................................. (250,000)
Excess fair over book value P75,000
Annual Excess
Life Amortizations
Excess fair value assigned to undervalued assets:
Equipment.................................................................... 25,000 5 years P5,000
Secret Formulas .......................................................... 50,000 20 years 2,500
Total ................................................................................. P -0- P7,500
Consolidated Expenses = P37,500 (add the two book values and include current year
amortization expense)
59. a
Total P260,000
Less: Dividends paid – 20x4 0 260,000
Amortization of allocated excess (refer to amortization above) : ( 7,500)
Add: NCI on full-goodwill ( ________0
Partial-goodwill
Common stock (P100,000 x 80%)……………………. P 80,000
Increase in secret formulas: P50,000 x 80% 40,000
Full-goodwill
FV of NCI (20%) ___65,000
Less: BV of stockholders’ equity of S (P100,000 + P150,000) x 100% __250,000
Increase in equipment P25,000 x 100% 25,000
Increase in secret formulas: P50,000 x 100% P 50,000
Amortization:
Equipment: P25,000 / 5 years = P 5,000
Secret formulas: P50,000 / 20 years = 2,500
Total amortization of allocated P 7,500
60. c Add the two book values plus the original allocation (P25,000) less one year of excess
amortization expense (P5,000).
61. b Add the two book values less the ending unrealized gross profit of P12,000.
Intercompany Gross profit (P100,000 – P80,000) ................................................. P20,000
Inventory Remaining at Year's End ........................................................................ 60%
Unrealized Intercompany Gross profit, 12/31 ...................................................... P12,000
62. b
20x3 20x4 20x5
Share in net income
20x3: P70,000 x 90% P 63,000
20x4: P85,000 x 90% P 76,500
20x5: P94,000 x 90% P 84,600
Less: Unrealized profit in ending inventory of P
20x3: P1,200 x 25% = P300 x 90% ( 270) 270
20x4: P4,000 x 25% = P1,000 x 90% ( 900) 900
20x5: P3,000 x 25% = P750 x 90% ________ ________ __( 675)
Income from S P 62,730 P 75,870 P 84,825
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.
63. c – refer to No. 62 for computation.

64. d – refer to No. 62 for computation.
65. a
**Non-controlling Interest in Net Income (NCINI) for 20x3 20x4 20x5
S Company’s net income of Subsidiary Company from its
own operations (Reported net income of S Company) P 70,000 P 85,000 P 94,000
RPBI of P Company (upstream sales) 0 300 1,000
UPEI of P Company (upstream sales) ( 300) ( 1,000) ( 750)
S Company’s realized net income from separate operations P 69,700 P 84,300 P 94,250
Less: Amortization of allocated excess 0 0 0
P 69,700 P 84,300 P 94,250
Multiplied by: Non-controlling interest %.......... 10% 10% 10%
Non-controlling Interest in Net Income (NCINI) – partial goodwill P 6,970 P 8,430 P 9,425
Less: NCI on goodwill impairment loss on full goodwill 0 0 0
Non-controlling Interest in Net Income (NCINI) – full goodwill P 6,970 P 8,430 P 9,425

70. b – refer to No. 65 for computation.
71. a – none, since intercompany profit starts only at the end of 20x3.
72. b – the amount of unrealized profit at the end of 20x3.
73. c – the amount of unrealized profit at the end of 20x4.
74. d P32,000 = (P200,000 + P140,000) – P308,000
75. b P6,000 = (P26,000 + P19,000) – P39,000
76. c P9,000 = Inventory held by Spin P12,000
(P32,000 x .375)
Unrealized profit on sale
[(P30,000 + P25,000) – P52,000] (3,000)
Carrying cost of inventory for
Power P 9,000
77. b .20 = P14,000 / [(Stockholders’ Equity P50,000)

+(Patent P20,000)]
78 b 14 years = (P28,000 / [(28,000 - P20,000) / 4 years]
79. c (P10,000 x 80%)
80. c – the original cost
81. 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
RPBI of S (downstream sales): P3,000 x 35%............................................... ....... P1,050

RPBI of P (upstream sales): P2,500 (given)….................................................... 1,000
UPEI of S (downstream sales):
Sales of Parent EI % EI of S GP% of Parent
P60,000 x 30% = P18,000 x 25/125………………………………. 3,600
UPEI of P (upstream sales):
Sales of Subsidiary EI % EI of P GP% of Subsidiary
P60,000 x 30% = P18,000 x 20%…………………………..…. 2,400
Unrealized profit in ending inventory of P Company (upstream sales) ( ,2,400 )
Total P 126,050
Or, alternatively
Unrealized profit in ending inventory of P Company (upstream sales) ( 2,400 )
Total P 126,050
Add: Non-controlling Interest in Net Income (NCINI) __ 5,320

P 26,600

83. a – P124,050 – refer to No. 81
86. a
Non-controlling Interests (in net assets):
Common stock - S, 12/31/20x2.…………..….…………………………….. P 150,000
Retained earnings - S, 12/31/20x2:

RE- S, 1/1/20x2…………….……………………………………………….P300,000
+: NI-S…………………………………………………………………………. 30,000
-: Div – S……………………………………………………………………… 10,000 320,000
Book value of Stockholders’ equity, 12/31/20x2……..………………..... P 470,000
Adjustments to reflect fair value of net assets
Increase in equipment, 1/1/20x0 .………………………….. 20,000
Accumulated amortization (P2,000 x 3 years)………………………….... ( 6,000)
Fair Value of Net Assets/SHE, 12/31/20x2…………………………………. P 484,000
UPEI of P (up)…………………………………………………………………… ( 2,400)
Realized SHE – S,12/31/20x2…………………………………………………. 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
88. d
Note: Preferred solution - since what is given is the RE – P, 1/1/20x2 (beginning
Retained earnings – Parent, 1/1/20x2 (cost)…………………………… P 700,000
-: UPEI of S (down) – 20x1 or RPBI of S (down) – 20x2..…………. 1,050
Adjusted Retained earnings – Parent, 1/1/20x2 (cost)……………… P 698,950
Retained earnings – Subsidiary, 1/1/20x0……………………….P 230,000
Less: Retained earnings – Subsidiary, 1/1/20x2……………… 300,000
(cumulative net income – cumulative dividends)…………P 70,000
Accumulated amortization (1/1/20x0 – 1/1/20x2):
P 2,000 x 2 years…………………………………………………( 4,000)
UPEI of P (up) – 20x1 or RPBI of P (up) – 20x2………………......( 1,000)
P 65,000
X: Controlling Interests………………………………………….........____80% 52,000
RE – P, 1/1/2012 (equity method) = CRE, 1/1/20x2…………………..... P750,950
+: CI – CNI or Profit Attributable to Equity Holders of Parent…….. 118,730
-: Dividends – P……………………………………………………………… 60,000
RE – P, 12/31/20x2 (equity method) = CRE, 12/31/20x2…………...... P809,680
Or, if RE – P is not given on January 1, 20x2, then RE – P on December 31, 2012 should be use:
Retained earnings – Parent, 12/31/20x2 (cost):
(P700,000 + P108,000 – P60,000)………..…………………………… P 748,000
Less: Retained earnings – Subsidiary, 12/31/20x2
(P300,000 + P20,000 – P10,000)………………………..... 320,000
P 2,000 x 3 years……………………………………………… ( 6,000)
UPEI of P (up) – 20x2 or RPBI of P (up) – 20x3……………….. ( 2,400)
P 81,600
X: Controlling Interests……………………………………………… . 80% 65,280
RE – P, 12/31/20x2 (equity method) = CRE, 12/31/20x2…………. P809,680
89. b
Consolidated Stockholders’ Equity, 12/31/20x2:
Controlling Interest / Parent’s Interest / Parent’s Portion /
Equity Holders of Parent – SHE, 12/31/20x2:
Common stock – P (P only)…………………………………………….. P1,000,000
Retained Earnings – P (equity method), 12/31/20x2………….. 809,680
Controlling Interest / Parent’s Stockholders’ Equity……………. P1,809,680
Non-controlling interest, 12/31/20x2 (partial)…………………………. 96,320
Consolidated Stockholders’ Equity, 12/31/20x2………………………… P1,906,000
90. a
Common stock – P (P only)…………………………………………….. P1,000,000
Retained Earnings – P (equity method), 12/31/20x2………….. 809,680
Controlling Interest / Parent’s Stockholders’ Equity……………. P1,809,680
Non-controlling interest, 12/31/20x2 (full)……..………………………. 101,320
Consolidated Stockholders’ Equity, 12/31/20x2………………………… P1,911,000
91. c
Non-controlling interest , December 31, 20x1
Retained earnings – Subsidiary Company, December 31, 20x1 8,600
liabilities, date of acquisition (January 1, 20x4) 0
Amortization of allocated excess (refer to amortization above) – 20x4 ( 0)
Less: Unrealized profit in ending inventory of P Company (upstream sales)
P3,000 x 40% 1,200
Realized stockholders’ equity of subsidiary, December 31, 20x4…… P 17,400
Non-controlling interest. December 31, 20x1 ………………………………….. P 3,480
92. a
Realized profit in BI of Bates Co. [P40,000 x 20%] P 8,000
Unrealized profit in EI of Bates Co. [P15,000 x 20%] __3,000
Net realized profit in intercompany sales of inventory P 5,000
Multiplied by: NCI% ___40%
NCI share in net realized profit P 2,000
93. c
RPBI of P (upstream sales)……..………………………..………………………… 45,000
UPEI of P (upstream sales):
EI of Paque GP% of Subsidiary
P75,000 x 20%...................................………………………..…. 15,000

Total P 150,750
Or, alternatively
Total P 150,750
Amortization of allocated excess…………………… ___0 10,125
Add: Non-controlling Interest in Net Income (NCINI) __ 10,125

Less: Amortization of allocated excess _0
P101,250
(Not required)
Analysis of workpaper entries
(1) Investment in Segal (0.90  (P180,000 – P150,000)) 27,000
Beginning Retained Earnings-Paque Co. 27,000
To establish reciprocity as of 1/1/20x8
(2) Sales 300,000

Purchases (Cost of Goods Sold) 300,000
To eliminate intercompany sales
(3) Ending Inventory - Income Statement (CGS) 15,000

To eliminate unrealized intercompany profit in ending inventory (P75,000  0.20)
(4) Beginning Retained Earnings - Paque Co. (P45,000  0.90) 40,500

Non-controlling Interest P45,000  0.10) 4,500
Beginning Inventory (Income statement) 45,000
To recognize intercompany profit realized during the year and to reduce
controlling and non-controlling interests for their share of unrealized profit
at beginning of year
(5) Dividend Income (P60,000  0.90) 54,000

Dividends Declared 54,000
To eliminate intercompany dividends
(6) Beginning Retained Earnings- Segal Co. 180,000
Common Stock - Segal Company 750,000
Investment in Segal Company (P810,000 + P27,000) 837,000
Non-controlling Interest (P750,000 + P180,000) x .10 93,000
To eliminate investment account and create non-controlling interest account
94. c
Preferred Solution - since what is given is the RE – P, 1/1/20x8 -
Retained earnings – Parent, 1/1/20x8 (cost)…………………….. P 598,400
Adjusted Retained earnings – Parent, 1/1/20x8 (cost)……………… P 573.400
Retained earnings – Subsidiary, 1/1/20x4……………………P 95,000
Less: Retained earnings – Subsidiary, 1/1/20x8…………….. 144,000
(cumulative net income – cumulative dividends)………P 49,000
Accumulated amortization (1/1/20x4 – 1/1/20x8)…………. 0
UPEI of P (up) – 20x7 or RPBI of P (up) – 20x8………………... ( 0)
P 49,000
X: Controlling Interests…………………………………………… 90% 44,100
RE – P, 1/1/20x8 (equity method) = CRE, 1/1/20x8……………….. P 617,500
+: CI – CNI or Profit Attributable to Equity Holders of Parent…… 203,700
-: Dividends – P………………………..………………………………… 110,000
RE – P, 12/31/2014 (equity method) = CRE, 12/31/2014………….. P 711,200

Unrealized profit in ending inventory of S Company (downstream sales)… (10,000)
Total P210,000
Or, alternatively
Unrealized profit in ending inventory of S Company (downstream sales)… (10,000)
Total P210,000
Amortization of allocated excess…………………… _____0 6,300
P 63,000

RPBI of Sedbrock (downstream sales) – 20x8......................................................... P25,000
UPEI of Sedbrock (downstream sales) – 20x8: P60,000 x 20%/120%……..……… 10,000
Net income:
Pruitt Co. Sedbrook
Sales P1,210,000 P 636,000
Inventory, 1/1 165,000 132,000
Purchases 935,000 420,000
Inventory, 12/31 (220,000) __880,000 (144,000) __408,000
Less: Other expense 198,000 165,000
Net income from its own
separate operations P 132,000 P 63,000
Net income P 163,500 P 63,000
Dividends declared P 110,000 P 35,000
Or, alternatively(compute the RE-P end of the year under the cost model)
Retained earnings – Parent, 1/1/20x8 (cost)………………………….. P 598,400
Add: NI of Parent as reported – 20x8 under cost model…………… 163,500
Less: Dividend of Parent – 20x8………………………………………….. 110,000
Retained earnings – Parent, 12/31/20x8 (cost)……………………….. P 651,900
-: UPEI of S (down) – 20x8 or RPBI of S (down) – 20x9..……………….. 10,000
Adjusted Retained earnings – Parent, 12/31/20x8 (cost model)….. P 641,900
Retained earnings – Subsidiary, 1/1/20x4………… P 95,000
Retained earnings – Subsidiary , 1/1/20x8..… P144,000
Add: NI of Subsidiary – 20x8…………………… 63,000
Less: Dividend of Subsidiary – 20x8…………... 35,000 172,000
Accumulated amortization (1/1/20x4 – 12/31/20x8)…………..( 0)
UPEI of P (up) – 20x8 or RPBI of P (up) – 20x9………………........ ( 0)
P 97,000
RE – P, 12/31/20x8 (equity method) = CRE, 12/31/20x8……… P 711,200
(Not required)
(1) Investment in Sedbrook Company (0.90( P144,000 – P95,000)) 44,100
Beginning Retained Earnings - Pruitt Co. 44,100
To establish reciprocity/convert to equity as of 1/1/x8
(2) Sales 250,000

To eliminate intercompany sales
(3) Ending Inventory - Income Statement (CGS) 10,000

To eliminate unrealized intercompany profit in ending
inventory (P60,000 – (P60,000/1.2)
(4) Beginning Retained Earnings - Pruitt Co. 25,000

Beginning Inventory (Income Statement) 25,000
To recognize intercompany profit in beginning inventory
realized during the year
(5) Dividend Income (P35,000.90) 31,500

(6) Beginning Retained Earnings - Sedbrook Co. 144,000

Common Stock - Sedbrook Co. 600,000
Investment in Sedbrook Co.(P625,500 + P44,100) 669,600
Non-controlling Interest (P744,000 x .10) 74,400
To eliminate investment account and create non-controlling interest account
95. P941,000.
Additional information and correction:
In 20x4, Simon Company reported net income of P270,000 and declared dividends of P90,000.
Paul Company reported net income from independent operations in 20x4 in the amount of
P700,000 and retained earnings on December 31, 20x4, of P1,500,000.
Fair value of consideration given…………………P1,360,000

(P1,000,000 + P450,000) x 80%................... 1,160,000
Allocated Excess.…………………………………….P 200,000
Increase in franchise (P250,000 x 80%)…….. 200,000 / 80% = P250,000
P 0
RPBI of S (downstream sales):…………………........................................................ P 30,000

RPBI of P (upstream sales)………………………....................................................... 20,000
UPEI of S (downstream sales)……………………………………………………..……. 5,000
UPEI of P (upstream sales)………………………………………………….…………… 10,000

S Company’s net income from own operations…………………………………. P270,000
Total P1,005,000
Or, alternatively
Total P1,005,000
Add: Non-controlling Interest in Net Income (NCINI) __ _ 54,000
Consolidated Net Income for 2014 P 995,000

S Company’s net income of Subsidiary Company from its own operations P270,000
S Company’s realized net income from separate operations……… P280,000
P270,000
(Not required)
(1) Sales 120,000
To eliminate intercompany sales (P50,000 + P70,000)
(2) Ending Inventory – Income Statement (CGS) 15,000

Inventory (Balance Sheet) 15,000
To eliminate unrealized profit in ending inventories
(P10,000 + P5,000)
(3) Beginning Retained Earnings – Paul Company (P20,000  0.8) 16,000

Beginning Inventory – Income Statement (CGS) 20,000
To recognize profit in beginning inventory (upstream sales)
realized during year and to reduce the controlling and
noncontrolling interests for their shares of the amount of
unrealized upstream intercompany profit at beginning of year
(4) Beginning Retained Earnings – Paul Company. 30,000

Beginning Inventory – Income Statement (CoGS) 30,000
To recognize profit in beginning inventory (downstream sales)
realized during the year and to reduce consolidated retained
earnings at beginning of the year for the amount of unrealized
downstream intercompany profit at the beginning of the year
96. P1,863,000
Retained earnings – Parent, 12/31/20x4 (cost)……………………….. P 1,500,000
Adjusted Retained earnings – Parent, 12/31/20x4 (cost model)….. P 1,495,000
Accumulated amortization (1/1/20x1 – 12/31/20x4)…………..( 40,000)
UPEI of P (up) – 20x4 or RPBI of P (up) – 20x5………………........ ( 10,000)
P 460,000
RE – P, 12/31/20x4 (equity method) = CRE, 12/31/20x4……… P1,863,000
97. P54,000 – refer to No. 95 for computation

98. a
Full-goodwill
Consideration transferred: Cash (P7,500,000/80%) P9,375,000
Less: Book value of stockholders’ equity of S (P6,000,000 x 100%) _6,000,000
Allocated excess (excess of cost over book value)….. P3,375,000
Decrease in inventory: P(150,000 x 100%) P( 150,000)
Increase in building: P450,000 x 100% ___450,000 ___300,000
fair value)………………………………………………... P3,075,000
Partial-goodwill
Consideration transferred……………………………….. P7,500,000
Common stock (P1,000,000 x 80%)……………………. P 800,000
Retained earnings (P5,000,000 x 80%)………………... 4,000,000 4,800,000
Allocated excess (excess of cost over book value)….. P2,700,000
Increase in building: P450,000 x 80% ___360,000 240,000
fair value)………………………………………………... P2,460,000
Amortization schedule
Balance at Remaining
acquisition Amortization Amortization at
Dec. 31/X2 20X3 20X4 Dec.31/X4
Inventory P(150,000) P(150,000) 0 P 0
Building (15 years) 450,000 30,000 P30,000 390,000
Goodwill 3,075,000 _________0 ______0 3,075,000
Total P3,375,000 P(120,000) P30,000 P3,465,000
99. a
Non-controlling interest is 20% × 9,375,000 (fair value of subsidiary, 12/31/20x2) = P1,875,000
Or, alternatively:
Common stock – S Company, December 31, 20x2…… P1,000,000
Retained earnings – S Company, December 31, 20x2 5,000,000
Stockholders’ equity – S Company, December 31, 20x2 P6,000,000
liabilities, date of acquisition (December 31, 20x2) ___300,000
Fair value of stockholders’ equity of S, December 31, 20x2…… P6,300,000
Non-controlling interest (partial goodwill)………………………………….. P 1,260,000
Add: NCI on full-goodwill (P3,075,000 – P2,460,000) ___615,000
Non-controlling interest (full- goodwill)………………………………….. P1,875,000
100. d – P2,393,800
Common stock – S Company, December 31, 20x4 P1,000,000
Retained earnings – S Company, December 31, 20x4 7,524,000
liabilities, date of acquisition (December 31, 20x2) 300,000
Amortization of allocated excess (refer to amortization above- 20x3 and 20x4: __90,000
Less: UPEI of P (up) – 20x3 or RPBI of P (up) – 20x4 ____20,000
P8,894,000
Multiplied by: Non-controlling Interest percentage…………... _ 20
Non-controlling interest (partial goodwill)………………………………….. P1,778,800
Add: NCI on full-goodwill ___615,000
Non-controlling interest (full- goodwill)………………………………….. P2,393,800
RPBI of P (upstream sales):

P100,000 x 60% = P60,000 x 50,000/100,000………………………..…. 30,000
UPEI of P (upstream sales): (given)………………………………………………………. 20,000
Or, alternatively:
Balance of NCI on acquisition — December 31, 20x2 P1,875,000
Add: NCI's share of the adjusted change in retained earnings to 12/ 31/20x4
Jane's retained earnings, December 31, 20x4 P7,524,000
Jane's retained earnings at December 31, 20x2 ( 5,000,000)
Change in carrying value P2,524,000
Adjustments:
Amortization of fair value increments to date 90,000
Unrealized upstream profit — 20x4 ( 20,000)
djusted change in retained earnings of Jane since acquisition P2,594,000
Multiplied by: NCI's share at 20% 518,800
Ending balance of NCI on December 31, 20x4 P2,393,800
101. b
Retained earnings – Parent, 12/31/20x4 (cost)……………………….. P11,900,000
-: UPEI of S (down) – 20x4 or RPBI of S (down) – 20x5..……………….. 0
Adjusted Retained earnings – Parent, 12/31/20x4 (cost model)….. P11,900,000
Retained earnings – Subsidiary, 12/31/20x2…………………..P5,000,000
Less: Retained earnings – Subsidiary, 12/31/20x4…………… 7,524,000
(cumulative net income – cumulative dividends)……….P2,524,000
Accumulated amortization (1/1/20x1 – 12/31/20x4)……….. 90,000
UPEI of P (up) – 20x4 or RPBI of P (up) – 20x5……………….....( 20,000)
P2,594,000
x: Controlling Interests………………………………………… 80% 2,075,200
102. b - (P125,000 - P93,000) .8 = P25,600
103. c - (P125,000 - P93,000) .2 = P6,400
104. d
105. a - (P125,000 - P93,000) .7
106. c - (P125,000 - P93,000) .3
107. a - [P293,000 + (P125,000 - P93,000) .7] .2 = P63,080
108. d
Non-controlling Interest in Net Income (NCINI) for 20x4:
Less: Amortization of allocated excess _ 0
P 152,000
109. b Combined cost of sales P 160,000
Less: Intercompany sales revenue 110,000
Add: Unrealized profit taken out of inventory
(75%)x(35,000) = 26,250
Consolidated cost of sales P 76,250
110. a
(P115,000 x 70%) - P26,250 = P 54,250
The requirement “P’s income from S” is a term normally used under the equity method, but, in
some cases it may also refer to the term “dividend income” under the cost model depending on
how the problem was described and presented.
Since there are no data available to arrive at the dividend income under the cost model for
reason that dividend declared or paid by subsidiary is not given, so the term “P’s income from S”
may mean “Income from subsidiary” which is computed under the equity method,
subsidiary in the books of parent company but not the equity method.
111. a - P720,000 = P500,000 + P400,000 - P200,000 +P 20,000

112. b
(P120,000 x 80%) – (P200,000 x 50% = P100,000 x 20% = P20,000) = P76,000
113. d Downstream situation
S Company’s net income from own/separate operations P120,000
x: NCI % 20%
P 24,000
114. c
Share in net income (P120,000 x 60%) P72,000
Less: Unrealized profit in ending inventory of S {P189,000 x 1/3 = P63,000 x (P189-135)/P189] __18,000
Intercompany profit to be eliminated P54,000
115. b
Share in net income (P200,000 x 60%) P120,000
Less: Unrealized profit in ending inventory of S {P315,000 x 1/3 = P105,000 x (P315-P225)/P315] __30,000
Intercompany profit to be eliminated P 90,000
Quiz - XVII
1. Overstated by P320
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
2. P20,000 - 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
3. (downstream sales) Sales, P1,400,000; Cost of Sales, P966,00

Sales – Pot (parent) 1,120,000
- Skillet (subsidiary) 420,000
Total 1,540,000
Add(Deduct): Intercompany sales - down ( 140,000)
Consolidated Sales 1,400,000
CGS – Pot (parent) 840,000

Total 1,092,000
Unrealized Profit in
Ending Inventory of
Skillet (subsidiary)-down
EI of Skillet :
Sales of Pot 140,000
x: EI of Skillet 40%
EI of Skillet 56,000
X: GP of Pot
(1,120 – 840)
1,120 25% 14,000
Consolidated CGS 966,000
4. (upstream sales) - P1,400,000; Cost of Sales, P974,400 (or – refer to Note)

Note: The only change here from No. 3 is the markup percentage which would now be 40
percent*
Total 1,092,000
Add(Deduct): Intercompany sales - upstream ( 140,000)
Ending Inventory of
Pot (subsidiary)-upstream
EI of Pot:
Sales of Skillet 140,000
x: EI of Pot 40%
EI of Pot 56,000
X: GP of Skillet
(420 – 252)
420 40%* 22,400
Consolidated CGS (preferred answer) 974,400
Note: 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 th e
mark-up of the parent which is 25% is also the normal transfer price). So, if is assumed to be
of the same markup with parent company, then the answer would be as follows:
Sales – Pot (parent) 1,120,000

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

Total 1,092,000
Ending Inventory of
Skillet (subsidiary)-down
EI of Skillet :
Sales of Pot 140,000
x: EI of Skillet 40%
EI of Skillet 56,000
X: GP of Pot
(1,120 – 840)
1,120 25% 14,000
Consolidated CGS 966,000
5. P522,500
Grebe plus Swamp’s separate cost of goods sold =
P400,000 + P320,000 = P 720,000
Less: Intercompany sales = 200,000
Add: Profit +12,500 - 10,000 = ____2,500
Consolidated COGS = P 522,500
6. P10,000
Ending inventory of Grebe (1/2 x P100,000) P 50,000
x: GP% of Parent (P100,000 – P80,00)/P100,000 20%
Unrealized profit in ending inventory P 10,000
7. Sales, P1,000,000; Cost of Sales, P690,000

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).
8. Sales, P1,000,000; Cost of Sales, P696,000 (refer to No. 4 above for further discussions)
The only change here from No. 7 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).
9. Sales, P2,907,000
Sales Cost of Sales
P Company 2,250,000 1,800,000
S Company 1,125,000 _937,500
Total 3,375,000 2,737,500
[P300,000 x 1/2 = P150,000 x (300-240)/300] 30,000
[P468,000 x 40% = P187,200 x (468-375)/468] ________ __37,200
Consolidated 2.907,000 2,276,700
10. Cost of sales, P2,276,700 - refer to No. 9

11. P380,000
[P200,000 x 50% = P100,000 x (P40,000/P200,000)] ( 20,000 )
Total P 400,000

P 100,000
12. P20,000 – refer to No, 11 for computations.

13. Sales, P2,907,000
Sales Cost of Sales
P Company 2,250,000 1,800,000
S Company 1,200,000 _1,000,000
Total 3,450,000 2,800,000
[P300,000 x 1/2 = P150,000 x (300-240)/300] 30,000
[P468,000 x 40% = P187,200 x (468-375)/468] ________ __37,200
Consolidated 2.982,000 2,339,200
14. Cost of sales, P2,339,200 - refer to No. 13

15. P285,000
[P150,000 x 50% = P75,000 x (30/150)] ( 15,000)
Total P300,000
Or, alternatively
Total P300,000

P 75,000
16. P15,000 - refer to No. 15 for computation
17. P25,000 x 125% = P31,250 intercompany sales and purchases (cost of sales)
18. P25,000 x 125% = P31,250 intercompany sales and purchases (cost of sales)
19. P86,000 - the amount of sales to outsiders or unaffiliated company
20. P47,000 – the original cost (I,e., the cost to produced on the part of the seller – Blue
Company)
21. P28,600
Total income (P86,000 - P47,000) P39,000
Income assigned to noncontrolling
interest [.40(P86,000 - P60,000)] (10,400)
Consolidated net income assigned
to controlling interest P28,600
22. P20,000 = P30,000 x [(P48,000 - P16,000) / P48,000]

23. P47,000
Sales reported by Movie Productions Inc. P67,000
Cost of goods sold (P30,000 x 2/3) (20,000)
24. P7,000 = [(P67,000 - $32,000) x .20]
25. P90,720
Parent Subsidiary
Net Income from own operations:
Gibson (Parent): Sparis(subsidiary), 90%:10% 820,800 91,200
RPBI of Parent (upstream: 420,000 x 30% = 126,000;
126,000 x 25/125 = 25,200; 90%:10% 22,680 2,520
UPEI of Parent (upstream): 500,000 x 30% = 150,000;
150,000 x 25/125 = 30,000; 90%:10% (27,000) ( 3,000)
Non-controlling Interest in Kent’s Net Income 90,720
26. P28,000 – P140,000 x 50% = P70,000 x 40% = P28,000

27. P474,400
Unrealized Profit, 12/31/x4
Intercompany Gross profit (P100,000 – P75,000) ................................................. P25,000
Unrealized Intercompany Gross profit, 12/31/x4 ................................................. P4,000
UNREALIZED GROSS PROFIT, 12/31/x5
Intercompany Gross profit (P120,000 – P96,000) .................................................. P24,000
Unrealized Intercompany Gross profit, 12/31/x5 ................................................. P8,400
CONSOLIDATED COST OF GOODS SOLD

Parent balance ................................................................................................... P380,000
Subsidiary Balance ............................................................................................. 210,000
Remove Intercompany Transfer ...................................................................... (120,000)
Recognize 20x4 Deferred Gross profit ............................................................ (4,000)
Defer 20x5 Unrealized Gross profit ................................................................... 8,400
Cost of Goods Sold ................................................................................................... P474,400
28. P8,400
Squid’s reported income P 100,000
Less: Unrealized profits in the ending inventory _____16,000
Squid’s adjusted income P 84,000
NCI percentage _______10%
NCI-CNI P 8,400
29. P8,200
Ending inventory ................................................................................................. P 40,000
Markup (P33,000/P110,000) ............................................................................... __ 30%
Unrealized intercompany gross profit, 12/31/x4 ........................................... P 12,000

Ending inventory ................................................................................................. P 50,000
Markup (P48,000/P120,000) ............................................................................... 40%
Unrealized intercompany gross profit, 12/31/x5 ........................................... P 20,000
30. P10,000 = [P100,000 x (25/100) = P25,000 x 40/100

31. Sales and cost of goods sold should be reduced by the intercompany sales.
32. P500,000
Cost of Sales
P Company 400,000
S Company _350,000
Total 750,000
33. P1,060,000
Cost of goods sold reported by Park P 800,000
Cost of goods sold reported by Small 700,000
Total cost of goods sold reported P1,500,000
Cost of goods sold reported by Park on sale to
Small (P500,000 x .40) (200,000)
Reduction of cost of goods sold reported by
Small for profit on intercompany sale
[(P500,000 x 4 / 5) x .60] (240,000)
Cost of goods sold for consolidated entity P1,060,000
34. P115,000
35. P102,400 = P94,000 + (P115,000 - P94,000).4
36. P12,600 = (P115,000 - P94,000) .6
37. P6,300 = (P37,000 - P28,000) .7
38. P2,700 = (P37,000 - P28,000) .3
39. Zero
40. P5,400 = (P37,000 - P28,000) .6
41. P3,600 = (P37,000 - P28,000) .4
42. P56,820 = [P184,000 + (P37,000 - P28,000) .6] .3
43. P9,360 = [(P65,000 - P52,000) - (P65,000 - P52,000) .2] .9
44. P1,040 = [(P65,000 - P52,000) - (P65,000 - P52,000) .2] .1
45. Zero
46. P9,100 =(P65,000 - P52,000) .7
47. P32,110 = [P312,000 + (P65,000 - P52,000) .7] .1
48. P280,000
Full-goodwill
Consideration transferred: Cash (P960,000/60%) P1,600,000
Less: Book value of stockholders’ equity of S (P600,000 + P540,000)
x 100%) _1,140,000
Decrease in inventory: P(40,000) x 100% P( 40,000)
Increase in capital assets P220,000 x 100% __220,000 __180,000
fair value)………………………………………………... P 280,000
Partial-goodwill
Consideration transferred………………………………..................... P 960,000
Common stock (P600,000 x 60%)……………………................... P 360,000
Retained earnings (P540,000 x 60%)………………................... _ 324,000 _ 684,000
Increase in building: P220,000 x 60% ___132,000 _108,000
fair value)………………………………………………... P 168,000
Amortization Table: (in thousands of P's)

Amortization/ Amortization/ Balance of
Amortization/ Impairment Impairment Allocated Excess
Allocated Amortizati Impairment 20x6 loss during remaining at end of
Asset Excess on period per year 1 year 20x7 20x7
Inventory (40) 1 (40) - 0
Building 220 20 11 11 11 198
Goodwill 280 - 280
Total 460 (29) 11 478
49. P640,000
Non-controlling interest , 12/31/20x5 — 40% × P1,600,000, fair value of subsidiary = P640,000
Or, alternatively:
Retained earnings – S Company, December 31, 20x5 540,000
liabilities, date of acquisition (December 31, 20x5) ___180,000
50. Since there was no impairment in goodwill reported in 20x6 and 20x7, the balance showing
for goodwill is P280,000.
51. P779,200
Common stock – S Company, December 31, 20x7 P 600,000
Retained earnings – S Company, December 31, 20x7 __935,000
liabilities, date of acquisition (December 31, 20x5) 180,000
Amortization of allocated excess (refer to amortization above- 20x6 and
20x7 (P40,000 - P11,000) = P(29,000) + P11,000 __18,000
Less: UPEI of P (up) – 20x7 or RPBI of P (up) – 20x8 ____65,000
P1,668,000
Add: NCI on full-goodwill ___112,000
Or, alternatively: Calculation of Non-controlling interest at December 31, 20X7:
Balance of NCI at time of acquisition P640,000
Add: NCI's share of adjusted change in retained earnings in prior years:
Retained earnings balance of Book at end of 20X7 P935,000
Retained earnings balance of Book at date of acquisition (540,000)
Change in carrying value of Book since acquisition P395,000
Adjustments:
Amortization of fair value increments 18,000
Unrealized profit on upstream sale of inventory in 20X7 ( 65,000)
Adjusted change in retained earnings since acquisition P348,000
NCI's share 40% 139,200
Ending balance of NCI on December 31, 20X7 P779,200
RPBI of S (downstream sales)- 20x7:

P800,000 x 25% = P200,000 x 30%………………………………. 60,000
RPBI of P (upstream sales - 20x7
P500,000 x 60% = P300,000 x 25%......………………………….. 75,000
UPEI of S (downstream sales) - 20x7
P1,000,000 x 15% = P150,000 x 30%………………………………. 45,000
UPEI of P (upstream sales) - 20x7
P650,000 x 40% = P260,000 x 25%…………………………..... 65,000
52. P1,780,400
Retained earnings – Subsidiary, 12/31/20x5…………………..P540,000
Less: Retained earnings – Subsidiary, 12/31/20x6…………… 695,000
(cumulative net income – cumulative dividends)……….P155,000
Accumulated amortization - 20x6…………………………….. 29,000
UPEI of P (up) – 20x6 or RPBI of P (up) – 20x7………………....( 75,000)
P 109,000
Or, alternatively:
Ending balance - Retained earnings separate entity - Paper P1,775,000

Less unrealized profit on downstream sale of inventory 20x6 (60,000)
Subtotal P1,715,000
Paper’s share of adjusted retained earnings - see Note 1 below:
60% × P109,000 65,400
Ending consolidated retained earnings balance of Paper, 12/ 31/ 20x6 P1,780,400
Note 1:
Retained earnings balance of Book at end of 20x6 P695,000
Adjustments:
Unrealized profit on upstream sale of inventory in 20x6 (75,000)
Paper's s share 60% × 109,000 P 65,400
53. P2,428,800
Retained earnings – Subsidiary, 12/31/20x5…………………..P540,000
Less: Retained earnings – Subsidiary, 12/31/20x7…………… 935,000
(cumulative net income – cumulative dividends)……….P395,000
Accumulated amortization - 20x6 and 20x7
(P29,000 – P11,000)…………………………………………….. 18,000
UPEI of P (up) – 20x7 or RPBI of P (up) – 20x8………………....( 65,000)
P 348,000
Or, alternatively:
Ending balance - Retained earnings separate entity - Paper P2,265,000
Less unrealized profit on downstream sale of inventory 20x7 (__45,000)
Subtotal P2,220,000
Paper's share of adjusted retained earnings - see Note 1 below:
60% × 348,000 208,800
Ending consolidated retained earnings balance of Paper, 12/31/20x7 P2,428,800
Note 1:
Retained earnings balance of Book at end of 20x7 P935,000
Adjustments:
Unrealized profit on upstream sale of inventory in 20x7 (65,000)
Paper's s share 60% × 348,000 P208,800
or alternatively:
Consolidated retained earnings, December 31, 20x6 (No. 52) P1,780,400
Controlling Interests in Consolidated Net income (refer to statement
of comprehensive income below) 1,148,400
Dividends declared – paper ( 500,000)
Retained earnings, December 31, 20x7 P2,428,800
Incidentally, the
Eliminate intercompany transactions for 20X7
Intercompany transactions and balances
Accounts receivable/accounts payable still outstanding P 150,000
Downstream sales by Paper P1,000,000
Upstream sales by Book P 650,000
Dividends declared by Book P 250,000
Paper's portion of dividends P250,000 X 60% = P150,000
Paper Co.
Consolidated Statement of Comprehensive Income
For the year ended December 31,20s7
Sales (2,520 + 2,400 - 1,000 - 650) 3,270,000

Management fees (250 - 250) 0
Dividend income (150 - 150) 0
3,270,000
Cost of sales (800 + 1,200 - 1,000 - 650 - 60 - 75 + 45 + 65) 325,000
Depreciation and amortization expenses (670 + 325 + 11) 1,006,000
Management fees expense (250 - 250) 0
Other expenses (460 + 135) 595,000
1,926,000
Consolidated Net income 1,344,000
Allocated as follows:
Non-controlling interests in CNI — see below 195,600
Controlling Interest in CNI Owners of the parent 1,148,400
Consolidated Net Income 1,344,000
Non-controlling interest's portion of adjusted net earnings:
Net income of Book for 20X7 as per separate-entity statement P490,000
Adjustments for 20X7
Realized profits on upstream sale of inventory 20x6 75,000
Unrealized profits on upstream sale of inventory — 20x7 ( 65,000)
Amortization of fair value increments for 20x7 ( 11,000)
Adjusted net income of Book for 20x7 P489,000
NCI's share 40% × P489,000 P195,600
Theories
1. True 6. True 11. True 16. False 21. True 26. e 31 b 36. a
2. False 7. False 12. False 17. False 22. False 27. e 32. e 37. b
3. False 8. False 13. False 18. True 23. b 28. c 33. b 38. e
4. True 9. True 14. True 19. True 24. e 29. d 34. d 39. d
5. False 10, False 15, True 20. False 25. a 30. a 35. a 40. d
41. b 46. c 51. a 56. c 61. a 66. b 71 b 76. c

42. c 47. b 52. c 57. b 62. a 67. b 72. a 77. c
43. a 48. c 53. c 58. c 63. b 68. c 73. a 78. a
44. c 49. a 54. d 59. b 64. c 69. d 74. a 79. c
45. d 50, d 55, c 60. c 65. a 70. b 75. c 80. e
Chapter 18
Problem I
1 Equipment 540,000
Beginning R/E – Prince (P100,000 × .80) 80,000
Noncontrolling Interest (P100,000 × .20) 20,000
Accumulated Depreciation 640,000
Accumulated Depreciation (P100,000/4) × 2 50,000

Beginning R/E – Prince (P25,000 × .80) 20,000
Noncontrolling Interest (P25,000 × .20) 5,000
2 Controlling Interest in Consolidated Net Income:

Prince Company’s income from its
independent operations P3,270,000
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 Company’s share thereof 676,000
Controlling Interest in Consolidated net income P3,946,000
3. Noncontrolling Interest Calculation:

Reported income of Serf Company P820,000
Plus: Intercompany profit considered realized
in the current period 25,000
P845,000
Noncontrolling interest in Serf Company
(.20 × 845,000) P169,000
4. NCI-CNI (No. 3) P 169,000

CI-CNI (No. 2) 3,946,000
CNI P4,115,000
or,
P Company’s net income from own/separate operations…………. P3,270,000
Realized gain on sale of equipment (downstream sales) through depreciation 0
P Company’s realized net income from separate operations…….….. P3,270,000
Realized gain on sale of equipment (upstream sales) through depreciation* 25,000
Total P4,115,000
Or, alternatively
Realized gain on sale of equipment (downstream sales) through depreciation 0
Realized gain on sale of equipment (upstream sales) through depreciation 25,000
S Company’s realized net income from separate operations…….….. P 845,000 845,000
Total P4,115,000

P845,000
1/1/20x4:
Selling price of equipment P 740,000
Less: BV of equipment
Cost P1,280,000
Less: Accumulated depreciation:
P1,280,000 / 8 years x 4 years* 640,000 640,000
Unrealized gain on sales – 1/1/20x4 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.
5 Equipment 540,000
Beginning R/E – Prince 100,000
Accumulated Depreciation (P100,000/4) × 2 50,000

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

Prince Company’s income from its
independent operations P3,270,000
Plus profit on intercompany sale of
equipment considered to be realized
through depreciation in 2014 25,000
P3,295,000
Reported net income of S Company P820,000
× .8
Prince Company’s share thereof 656,000
Controlling Interest in Consolidated net income P3,951,000
Noncontrolling Interest Calculation:
Reported income of S Company P820,000
Noncontrolling interest in S Company
(.20 × 820,000) P164,000
NCI-CNI P 164,000
CI-CNI 3,951,000
CNI P4,115,000
or,
Realized gain on sale of equipment (downstream sales) through depreciation ____25,000
Realized gain on sale of equipment (upstream sales) through depreciation* 0
Total P4,115,000
Or, alternatively
Realized gain on sale of equipment (downstream sales) through depreciation 25,000
Realized gain on sale of equipment (upstream sales) through depreciation 0
S Company’s realized net income from separate operations…….….. P 820,000 820,000
Total P4,115,000

Realized gain on sale of equipment (upstream sales) through depreciation 0
P820,000
Problem II
1. Journal entry to record sale:
Cash 84,000
Equipment 150,000
Gain on Sale of Equipment 14,000
Record the sale of equipment:
P84,000 = P150,000 - P80,000 + P14,000
P80,000 = (P150,000 / 15 years) x 8 years
2. Journal entry to record purchase:

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

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

equipment:
E(1) Equipment 66,000

Eliminate unrealized profit on equipment.
Adjustment to equipment
Amount paid by WW to acquire building P150,000
Amount paid by LL on intercompany sale (84,000)
Adjustment to buildings and equipment P 66,000
Adjustment to depreciation expense

Depreciation expense recorded by Lance
Corporation (P84,000 / 7 years) P 12,000
Depreciation expense recorded by WW
Corporation (P150,000 / 15 years) (10,000)
Adjustment to depreciation expense P 2,000
Adjustment to accumulated depreciation

Amount required (P10,000 x 9 years) P 90,000
Amount reported by LL (P12,000 x 1 year) (12,000)
Required adjustment P 78,000
4. Eliminating entry at January 1, 20x4, to eliminate intercompany sale of equipment

and prepare a consolidated balance sheet only:
E(1) Equipment 66,000
Eliminate unrealized profit on equipment.
Problem III
1. Eliminating entry, December 31, 20x8:
E(1) Truck 55,000
Gain on Sale of Truck 35,000
Computation of gain on sale of truck:

Price paid by Minnow P245,000
Cost of truck to Frazer P300,000
(P300,000 / 10 years) x 3 years ( 90,000) (210,000)
Gain on sale of truck P 35,000
Accumulated depreciation adjustment:

Required [(P300,000 / 10 years) x 4 years] P120,000
Reported [(P245,000 / 7 years) x 1 year] (35,000)
Required increase P 85,000

E(1) Truck 55,000

Reported [(P245,000 / 7 years) x 2 years] (70,000)
Required increase P 80,000
Problem IV
a. Eliminating entry, December 31, 20x8:
E(1) Truck 90,000

Gain on Sale of Truck 30,000
Computation of gain on sale of truck:

Price paid by MM P210,000
Cost of truck to FF P300,000
(P300,000 / 10 years) x 4 years (120,000) (180,000)
Gain on sale of truck P 30,000
b. Eliminating entry, December 31, 20x9:
E(1) Truck 90,000

Retained Earnings, January 1 30,000

Recorded [(P210,000 / 6 years) x 1 year] (35,000)
Required increase P115,000
Problem V
Requirements 1 to 4
Common stock (P240,000 x 80%)……………………. P 192,000
fair value)………………………………………………... P 12,000
Inventory………………….…………….. P 24,000 P 30,000 P 6,000
Land……………………………………… 48,000 55,200 7,200
Equipment (net)......... 84,000 180,000 96,000
Buildings (net) 168,000 144,000 (24,000)
Bonds payable………………………… (120,000) ( 115,200) 4,800
Net……………………………………….. P 204,000 P 294,000 P 90,000
Equipment.................. 180,000 180,000 0
Net book value………………………... 84,000 180,000 96,000
S Co. S Co.
Buildings................ 360,000 144,000 ( 216,000)
Net book value………………………... 168,000 144,000 ( 24,000)

Inventory P 6,000 1 P 6,000 P 6,000 P -
Equipment (net)......... 96,000 8 12,000 12,000 12,000
Buildings (net) (24,000) 4 ( 6,000) ( 6,000) (6,000)
Bonds payable… 4,800 4 1,200 1,200 1,200
P 13,200 P 13,200 P 7,200
The goodwill impairment loss of P3,750 based on 100% fair value would be allocated to the controlling interest
and the NCI based on the percentage of total goodwill each equity interest received. For purposes of
allocating the goodwill impairment loss, the full-goodwill is computed as follows:

(P90,000 x 100%) 90,000
fair value)………………………………………………... P 15,000
In this case, the goodwill was proportional to the controlling interest of 80% and non-controlling interest of 20%
computed as follows:
Value % of Total

Value % of Total
Interest
Goodwill P 3,750 100.00%
The unrealized and gain on intercompany sales for 20x4 are as follows:
Date Selling Book Unrealized* Remaining Realized gain –

of Sale Seller Price Value Gain on sale Life depreciation** 20x4
4/1/20x4 P Co. P90,000 P75,000 P15,000 5 years P3,000/year P2,250
1/2/20x4 S Co. 60,000 28,800 31,200 8 years P3,900/year P3,900
* selling price less book value
** unrealized gain divided by remaining life; 20x4 – P3,000 x 9/12 = P2,250

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

(2) Cash……………………… 28,800
No entries are made on the parent’s books to depreciate, amortize or write-off the portion of the allocated
excess that expires during 20x4, and unrealized profits in ending inventory.
(E2) Inventory…………………………………………………………………. 6,000

Land………………………………………………………………………. 7,200
Goodwill…………………………………………………………………. 12,000
Buildings……………………………………….. 216,000

Inventory………………………………………………………….. 6,000
Goodwill…………………………………… 3,000
Equipment P 12,000
Buildings ( 6,000)
Bonds payable _______ _______ P 1,200
Totals P 6,000 P 6,000 P1,200 13,200

share of dividends.
(E5) Gain on sale of equipment 15,000

Equipment 30,000
Accumulated depreciation 45,000
To eliminate the downstream intercompany gain and restore to its
original cost to the consolidate entity (along with its accumulated
depreciation at the point of the intercompany sale).

Equipment 12,000
To eliminate the upstream intercompany gain and restore to its
(E7) Accumulated depreciation……….. 2,250

Depreciation expense…………… 2,250
To adjust downstream depreciation expense on equipment sold to
subsidiary, thus realizing a portion of the gain through depreciation
(P15,000 / 5 years x 9/12 = P2,250).

To adjust upstream depreciation expense on equipment sold to
parent, thus realizing a portion of the gain through depreciation
(P31,200/85 years x 1 year = P3,900).


Unrealized gain on sale of equipment
(upstream sales) ( 31,200)
Realized gain on sale of equipment (upstream
sales) through depreciation 3,900
separate operations P 63,900
P 50,700
Non-controlling Interest in Net Income (NCINI) –
partial goodwill P 10,140
Subsidiary accounts are adjusted to full fair value regardless on the controlling interest percentage or what
option used to value non-controlling interest or goodwill.

Sales P480,000 P240,000 P 720,000
Gain on sale of equipment 15,000 31,200 (5) 15,000
(6) 31,200
Dividend income 28,800 - (4) 28,800 _________
Depreciation expense 60,000 24,000 (3) 6,000 (7) 2,250 83,850
(8) 3,900
Other expenses 48,000 18,000 66,000
Net Income P211,800 P 91,200 P 217,950
NCI in Net Income - Subsidiary - - (9 10,140 ( 10,140)

P Company P360,000 P 360,000
S Company P120,000 (1) 120,000
Total P571,800 P211,200 P 567,810
Dividends paid
P Company 72,000 72,000
S Company - 36,000 (4) 36,000 _ ________
Sheet P499,800 P175,200 P 495,810
Balance Sheet
Cash………………………. P 232,800 P 90,000 P 322,800
Inventory…………………. 120,000 90,000 (2) 6,000 3) 6,000 210,000
Land……………………………. 210,000 48,000 (2) 7,200 265,200
Equipment 240,000 180,000 (5) 30,000
(6) 12,000 462,000
Buildings 720,000 540,000 (2) 216,000 1,044,000
Goodwill…………………… (2) 12,000 (3) 3,000 9,000
(2) 84,000 -
Total P1,984,800 P1,008,000 P2,466,600
Accumulated depreciation (3) 96,000 (3) 12,000

- equipment P 135,000 P 96,000 (7) 2,250 (5) 45,000
(8) 3,900 (6) 43,200 P229,050
- buildings (3) 6,000 495,000
Bonds payable………………… 240,000 120,000 360,000
(2) 18,000
_________ _________ __________ (9) 10,140 ____92,940
Total P1,984,800 P1,008,000 P 834,450 P 834,450 P2,466,600
P Co. S Co.
Sales P 540,000 P 360,000
Net income P 230,400 P 90,000


Cash……………………… 38,400

Cash 48,000

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


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.

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

Land………………………………………………………………………. 7,200
Goodwill…………………………………………………………………. 12,000
Buildings……………………………………….. 216,000

Inventory………………………………………………………….. 6,000
Goodwill…………………………………… 3,000
Year 20x4 amounts are debited to Perfect’s retained earnings &
NCI;
Buildings (6,000) ( 6,000)
Bonds payable 1,200 ________ P 1,200
Sub-total P13,200 P 6,000 P 1,200
Multiplied by: 80%
Total P 13,560

share of dividends.
(E5) Retained Earnings – P Company, 1/1/20x5 15,000

Equipment 30,000
(E6) Retained Earnings–P Company, 1/1/20x5 (P31,200 x 80%) 24,960

Equipment 12,000

Depreciation expense (current year)…………… 3,000
Retained Earnings–P Company, 1/1/20x5 (prior year) 2,250

Depreciation expense (current year) 3,900
Retained Earnings–P Co. 1/1/20x5 (P3,900 x 80%) 3,120
Non-controlling interest (P31,200 x 20%) 780
(P31,200/85 years x 1 year = P3,900).


P 86,700
with third persons.

Sales P540,000 P360,000 P 900,000
Dividend income 38,400 - (5) 38,400 ___________
(7) 83,100
3,000
Depreciation expense 60,000 24,000 (4) 6,000 (8)
3,900
Other expenses 72,000 54,000 126,000
Net Income P230,400 P 90,000 P 281,700

P Company P499,800 (1) 13,560 (1) 44,160
(5) 15,000 (7) 2,250
(6) 24,960 (8) 3,120 P 495,810
S Company P 175,200 (2) 175,200
Net income, from above 230,400 __90,000 264,360
Total P730,200 P265,200 P 760,170
Dividends paid
P Company 72,000 72,000
S Company - 48,000 (5) 48,000 _ ________
Sheet P658,200 P217,200 P 688,170
Balance Sheet
Cash………………………. P 265,200 P 102,000 P 367,200
Inventory…………………. 216,000 108,000 (1) 6,000 (2) 6,000 324,000
Land……………………………. 210,000 48,000 (3) 7,200 265,200
Equipment 240,000 180,000 (5) 30,000
(6) 12,000 462,000
Buildings 720,000 540,000 (3) 216,000 1,044,000
Goodwill…………………… (3) 12,000 (4) 3,000 9,000
(3) 84,000 -
Total P2,203,200 P1,074,000 P2,749,800
Accumulated depreciation P 150,000 P 102,000 (3) 96,000 (4) 24,000

- equipment (7) 5,250 (5) 45,000
(8) 7,800 (6) 43,200 P 255,150
- buildings (4) 12,000 552,000
Bonds payable………………… 240,000 120,000 360,000
Non-controlling interest………… (4) 2,640 (2 83,040
(5) 9,600 (3) 18,000
(6) 6,240 (8) 780
___ _____ _________ __________ (9) 17,340 ____100,680
Total P2,203,200 P1,074,000 P 979,350 P 979,350 P2,749,800
5. 1/1/20x4
a. On date of acquisition the retained earnings of parent should always be considered as the consolidated
retained earnings, thus:
b.
Non-controlling interest (partial goodwill),……………………………….. P 90,000
c.
Consolidated SHE:
Parent’s Stockholders’ Equity / CI – SHE P 960,000
NCI, 1/1/20x4 ___90,000
6.
Note: The goodwill recognized on consolidation purely relates to the parent’s share. NCI is measured as a
proportion of identifiable assets and goodwill attributable to NCI share is not recognized.
12/31/20x4:
a. CI-CNI - P
Unrealized gain on sale of equipment (downstream sales) (15,000)
Unrealized gain on sale of equipment (upstream sales) ( 31,200)
Total P234,150
P 50,700

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

Total P567,810
e.
The goodwill recognized on consolidation purely relates to the parent’s share. NCI is measured as a
proportion of identifiable assets and goodwill attributable to NCI share is not recognized. The NCI on
January 1, 20x4 and December 31, 20x4 are computed as follows:
Total P211,200
f.
Consolidated SHE:
NCI, 12/31/20x4 ___92,940
12/31/20x5:
a. CI-CNI – P264,360
Total P288,900
Or, alternatively
Total P288,900
(Reported net income of Son Company)
P 86,700

Less: Downstream - net unrealized gain on sale of equipment – prior to 20x5
(P15,000 – P2,250) 12,750
Adjusted Retained Earnings – Parent 1/1/20x5 (cost model ) Son Company’s
parties.. P487,050
Upstream - net unrealized gain on sale of equipment –prior to
20x5 (P31,200 – P3,900) 27,300
P 14,700
P 11,760
Less: Goodwill impairment loss 3,000 __ 8,760
Total P760,170
Illustration 15-6).
Or, alternatively:
Retained earnings - Parent Company, December 31, 20x5 (cost model) P658,200
Less: Downstream - net unrealized gain on sale of equipment – prior to
12/31/20x5 (P15,000 – P2,250 – P3,000) 9,750
Adjusted Retained Earnings – Parent 12/31/20x5 (cost model )
20x4 and 20x5 (P11,000 + P6,000) 20,400
Upstream - net unrealized gain on sale of equipment – prior to
12/31/20x5 (P31,200 – P3,900 – P3,900) 23,400
P 53,400
P 42,720
Less: Goodwill impairment loss 3,000 39,720
e.
Total P 265,200
20x4 P 13,200
20x5 7,200 ( 20,400)
Less: Upstream - net unrealized gain on sale of equipment – prior to 12/31/20x5
(P31,200 – P3,900 – P3,900) 23,400
f.
Consolidated SHE:
NCI, 12/31/20x5 __100,680
Problem VI
Requirements 1 to 4
Common stock (P240,000 x 100%)………………. P 240,000
fair value)………………………………………………... P 15,000

Inventory P 6,000 1 P 6,000 P 6,000 P -
Equipment (net)......... 96,000 8 12,000 12,000 12,000
Buildings (net) (24,000) 4 ( 6,000) ( 6,000) (6,000)
Bonds payable… 4,800 4 1,200 1,200 1,200
P 13,200 P 13,200 P 7,200

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

(2) Cash……………………… 28,800

Cash……. 36,000
No entries are made on the parent’s books to depreciate, amortize or write-off the portion of the allocated
excess that expires during 20x4.

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

Land………………………………………………………………………. 7,200
Goodwill…………………………………………………………………. 15,000
Buildings……………………………………….. 216,000
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.

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

share of dividends.
Equipment 30,000

Equipment 12,000

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

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


P 50,700
P3,000, impairment on partial-goodwill) 750

Sales P480,000 P240,000 P 720,000
(6) 31,200
Dividend income 28,800 - (4) 28,800 _________
Depreciation expense 60,000 24,000 (3) 6,000 (7) 2,250 83,850
(8) 3,900
Other expenses 48,000 18,000 66,000
Net Income P211,800 P 91,200 P 217,200

P Company P360,000 P 360,000
S Company P120,000 (1) 120,000
Total P571,800 P211,200 P 567,810
Dividends paid
P Company 72,000 72,000
S Company - 36,000 (4) 36,000 _ ________
Sheet P499,800 P175,200 P 495,810
Balance Sheet
Cash………………………. P 232,800 P 90,000 P 322,800
Inventory…………………. 120,000 90,000 (2) 6,000 3) 6,000 210,000
Land……………………………. 210,000 48,000 (2) 7,200 265,200
Equipment 240,000 180,000 (5) 30,000
(6) 12,000 462,000
Buildings 720,000 540,000 (2) 216,000 1,044,000
Goodwill…………………… (2) 15,000 (3) 3,750 11,250
(2) 84,000 -
Total P1,984,800 P1,008,000 P2,468,850

- equipment P 135,000 P 96,000 (7) 2,250 (5) 45,000
(8) 3,900 (6) 43,200 P229,050
- buildings (3) 6,000 495,000
Bonds payable………………… 240,000 120,000 360,000
(2) 21,000
_________ _________ __________ (9) 9,390 ____95,190
Total P1,984,800 P1,008,000 P 843,690 P 843,690 P2,468,850

P Co. S Co.
Sales P 540,000 P 360,000
Less: Cost of goods sold 216000 192,000
Net income P 230,400 P 90,000

Cash……………………… 38,400

Cash 48,000



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

Land………………………………………………………………………. 7,200
Goodwill…………………………………………………………………. 15,000
Buildings……………………………………….. 216,000

Non-controlling interests (P16,950 x 20%) or (P13,200 x 20% +
(P3,750 – P3,000 = P750) 3,390
Inventory………………………………………………………….. 6,000
Goodwill…………………………………… 3,750
Year 20x4 amounts are debited to Perfect’s retained earnings &
NCI;
Buildings (6,000) ( 6,000)
Bonds payable 1,200 ________ P 1,200
Sub-total P13,200 P 6,000 P 1,200
Multiplied by: 80%
Total P 13,560

share of dividends.
(E6) Retained Earnings – P Company, 1/1/20x5 15,000

Equipment 30,000
(E7) Retained Earnings–P Company, 1/1/20x5 (P31,200 x 80%) 24,960

Equipment 12,000

Retained Earnings–P Company, 1/1/20x5 (prior year) 2,250

Retained Earnings–P Co. 1/1/20x5 (P3,900 x 80%) 3,120
(P31,200/85 years x 1 year = P3,900).


P 86,700
Goodwill 0
with third persons.

Sales P540,000 P360,000 P 900,000
Dividend income 38,400 - (5) 38,400 ___________
(8) 83,100
3,000
3,900
Other expenses 72,000 54,000 126,000
Net Income P230,400 P 90,000 P 281,700

P Company P499,800 (2) 13,560 (1) 44,160
(6) 15,00 (8) 2,250
(7) 24,960 (9) 3,120 P 495,810
S Company P 175,200 (1) 175,200
Total P730,200 P265,200 P 760,170
Dividends paid
P Company 72,000 72,000
S Company - 48,000 (5) 48,000 _ ________
Sheet P658,200 P217,200 P 688,170
Balance Sheet
Cash………………………. P 265,200 P 102,000 P 367,200
Inventory…………………. 216,000 108,000 (3) 6,000 (4) 6,000 324,000
Land……………………………. 210,000 48,000 (3) 7,200 265,200
Equipment 240,000 180,000 (6) 30,000
(7) 12,000 462,000
Buildings 720,000 540,000 (3) 216,000 1,044,000
Goodwill…………………… (3) 15,000 (4) 3,750 11,250
(3) 90,000 -
Total P2,203,200 P1,074,000 P2,752,050

- equipment (8) 5,250 (6) 45,000
(9) 7,800 (7) 43,200 P 255,150
- buildings (4) 12,000 552,000
Bonds payable………………… 240,000 120,000 360,000
(5) 9,600 (3) 21,000
(7) 6,240 (9) 780
___ _____ _________ __________ (10) 17,340 ____102,930
Total P2,203,200 P1,074,000 P 983,100 P 983,100 P2,752,050
5. 1/1/20x4
a. On date of acquisition the retained earnings of parent should always be considered as the consolidated
retained earnings, thus:
b.
Non-controlling interest (partial goodwill),……………………………….. P 90,000
Add: Non-controlling interests on full goodwill, 1/1/20x4 (P12,500, full-goodwill – P10,000, partial
goodwill) 3,000
Non-controlling interest (full-goodwill) P 93,000
c.
Consolidated SHE:
Parent’s Stockholders’ Equity / CI – SHE P 960,000
NCI, 1/1/20x4 ___93,000
6.
Note: The goodwill recognized on consolidation purely relates to the parent’s share. NCI is measured as a
proportion of identifiable assets and goodwill attributable to NCI share is not recognized.
12/31/20x4:
a. CI-CNI – P207,810
Unrealized gain on sale of equipment (downstream sales) (15,000)
Total P234,150
P 50,700
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) 750

Total P567,810
e.
Total P211,200
Non-controlling interest (full-goodwill)…………….. P 95,190
f.
Consolidated SHE:
NCI, 12/31/20x4 ___95,190
12/31/20x5:
a. CI-CNI – P281,700
Total P288,900
Or, alternatively
Total P288,900
P 86,700
Non-controlling Interest in Net Income (NCINI) - partial goodwill P 17,340
Less: NCI on goodwill impairment loss on full-goodwill . . . . . . . . . . . . . . . . . . . . . 0
Non-controlling Interest in Net Income (NCINI) – full goodwill . . . . . . . . . . . . . P 17,340

Less: Downstream - net unrealized gain on sale of equipment – prior to 20x5
(P15,000 – P2,250) 12,750
Adjusted Retained Earnings – Parent 1/1/20x5 (cost model ) Son Company’s
parties.. P487,050
20x5 (P31,200 – P3,900) 27,300
P 14,700
P 11,760
Less: Goodwill impairment loss 3,000 __ 8,760
Total P760,170
Illustration 15-6).
Or, alternatively:
Retained earnings - Parent Company, December 31, 20x5 (cost model) P658,200
12/31/20x5 (P15,000 – P2,250– P3,000) 9,750
20x4 and 20x5 (P13,200 + P7,200) 20,400
12/31/20x5 (P31,200 – P3,900– P3,900) 23,400
P 53,400
P 42,720
Less: Goodwill impairment loss (full-goodwill) 3,000 39,720
e.
Total P 265,200
20x4 P 13,200
20x5 7,200 ( 20,400)
Less: Upstream - net unrealized gain on sale of equipment – prior to 12/31/20x5
(P31,200 – P3,900 – P3,900) 23,400
f.
Consolidated SHE:
NCI, 12/31/20x5 __102,930
Problem VII
20x4 20x5
1.
Noncontrolling interest in P 7,000 (1) P 46,200 (2)
Consolidated net income
Controlling interest in 290,500 (3) 279,300 (4)

(1) .4(P70,000 – P63,000 + P10,500) = P7,000

(2) .4(P105,000 + P10,500) = P46,200
(3) P280,000 + .6(P70,000 – P63,000 + P10,500) = P290,500
(4) P210,000 + .6(P105,000 + P10,500) = P279,300
2014 2015
2.
Noncontrolling interest in P 28,000 (5) P 42,000 (6)
Consolidated income
Controlling interest in 269,500 (7) 283,500 (8)
(5) .4(P70,000) = P28,000
(6) .4(P105,000) = P42,000
(7) (P280,000 – P63,000 + P10,500) + .6(P70,000) = P269,500
(8) (P210,000 + P10,500) + .6(P105,000) = P283,500
Problem VIII
(Determine consolidated net income when an intercompany transfer of equipment occurs. Includes an outside
ownership)
a. Income—ST .......................................................................................................... P220,000

Income—BB .......................................................................................................... 90,000
Excess amortization for unpatented technology ......................................... (8,000)
Remove unrealized gain on equipment ....................................................... (50,000)
(P120,000 – P70,000)
Remove excess depreciation created by
inflated transfer price (P50,000 ÷ 5) ......................................................... 10,000
Consolidated net income ................................................................................ P262,000
b. Income calculated in (part a.) ....................................................................... P262,000

Non-controlling interest in BB's income
Income—BB .............................................................................. P90,000
Excess amortization ................................................................. (8,000)
Adjusted net income .............................................................. P82,000
Non-controlling interest in BB’s income (10%)......................................... (8,200)
Consolidated net income to parent company ............................................ P253,800
c. Income calculated in (part a.) ....................................................................... P262,000

Non-controlling interest in BB's income (see Schedule 1) ........ (4,200)
Consolidated net income to parent company ............................................ 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 20x5—ST ......................................................................................... P240,000

Net income 20x5—BB ........................................................................................ 100,000
Excess amortization............................................................................................. (8,000)
Eliminate excess depreciation stemming from transfer
(P50,000 ÷ 5) (year after transfer) ............................................................. 10,000
Consolidated net income ..................................................................... P342,000
Problem IX
1.
20x4 20x5 20x6
Consolidated net income as reported P 750,000 P 600,000 P 910,000
Less: P10,000 deferred gain -10,000
Plus: NCI portion of the gain 3,000
Plus: Deferred gain 7,000
Corrected consolidated net income P 743,000 P 600,000 P 917,000
2.
20x4 20x5 20x6
Land account as reported P 200,000 P 240,000 P 300,000
Less: Intercompany profit -10,000 -10,000
Restated land account P 190,000 P 230,000 P 300,000
3.
Final sales price outside the entity minus the original cost to the combined entity equals
P102,000 minus P72,000 = P30,000
Problem X
1. On the consolidated balance sheet, the machine must be reported at its original cost
when Tool purchased it on January 1, 20x1, which is P120,000. Since the elimination entry
debited the machine account for P22,000 which must be the amount needed to bring the
machine account up to P120,000, Buzzard must have recorded the machine at P98,000.
Since the remaining useful life is seven years, Buzzard will record P14,000 of depreciation
expense each year.
2. The correct balances on the consolidated balance sheet for the Machine and
Accumulated Depreciation accounts are the balances that would be in the accounts if
there had been no sale. The balance in the machine account would be the original
purchase price to Tool or P120,000. The balance in the Accumulated Depreciation account
will be the original amount of annual depreciation, (P12,000) times the number of years the
machine has been depreciated (4), or P48,000.
3. The non-controlling interest income will be 30% of Tool’ adjusted net income. Tool’ reported
net income of P60,000 is reduced by the P14,000 unrealized gain on the sale of the
machine and is increased by the piecemeal recognition of the gain, which is P2,000. The
net result of P48,000 is then multiplied by 30% to calculate a P14,400 income for the non-
controlling interest.
Problem XI
1. Consolidated net income for 20x9:
Operating income reported by BW P100,000

Net income reported by TW P40,000
Amount of gain realized in 20x9
(P30,000 / 12 years) 2,500
Realized net income of TW 42,500
2. Consolidated net income for 20x9 would be unchanged.
E(1) Buildings and Equipment 30,000

Eliminate unrealized profit on building.
Adjustment to buildings and equipment
Amount paid by TW to acquire building P300,000

Amount paid by BW on intercompany sale (270,000)
Adjustment to buildings and equipment P 30,000
Adjustment to retained earnings, January 1, 20x9
Unrealized gain recorded January 1, 20x4 P 30,000

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

Proportion of ownership held by non-controlling
interest x .20
Depreciation expense recorded by BW

Industries (P270,000 / 12 years) P 22,500
Depreciation expense recorded by TW
Amount required (P20,000 x 6 years) P120,000

Amount reported by BW (P22,500 x 3 years) (67,500)
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 = P 98,000
Income from Branch 20,000
Plus: Deferred gain on land 50,000
Plus: Piecemeal recognition of gain on equipment
sale: P35,000 gain/4 years = 8,750
Problem XIII
Quail Corporation and Subsidiary
Consolidated Income Statement
for the year ended December 31, 20x5
Sales P 1,100,000
Gain on land (P20,000 + P25,000) 45,000
Cost of sales ( 560,000 )
Other expenses (see below) ( 320,000 )
Consolidated Net Income P 265,000
NCI-CNI (see below) ( 20,000 )
Other expenses:
P265,000 + P60,000 - P5,000 piecemeal recognition of gain on
equipment P 320,000
Non-controlling Interest in CNI:

Net income from Savannah x 20%: (P100,000 x 20%) = P 20,000
Problem XIV – refer to Problem IX
Problem XV
E(1) Gain on Sale of Land 10,000
Land 10,000
Eliminating entry, December 31, 20x8:

E(1) Retained Earnings, January 1 10,000
Land 10,000

Land 10,000

Land 10,000
Problem XVI
Land 45,000

Land 45,000
2. Eliminating entries, December 31, 20x4 and 20x5:

E (1) Retained Earnings, January 1 30,000
Land 30,000
Problem XVII
1. Downstream sale of land:
20x4 20x5
VV’s separate operating income P 90,000 P110,000
Less: Unrealized gain on sale of land (25,000)
VV’s realized operating income P 65,000 P110,000
Spawn’s realized net income 60,000 40,000
Consolidated net income P125,000 P150,000
Income to non-controlling interest:
(P60,000 x .25) (15,000)
(P40,000 X .25) (10,000)
Income to controlling interest P110,000 P140,000
2. Upstream sale of land:

20x4 20x5
VV’s separate operating income P 90,000 P110,000
SS’s net income P60,000
Less: Unrealized gain on sale of land (25,000)
Spawn’s realized net income 35,000 40,000
Consolidated net income P125,000 P150,000
Income to non-controlling interest:
(P35,000 x .25) (8,750)
(P40,000 x .25) (10,000)
Income to controlling interest P116,250 P140,000
Problem XVIII
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 XIX
Loss on Sale of Building 36,000
Eliminate unrealized loss on building.
2. Consolidated net income and income to controlling

interest for 20x9:
Operating income reported by BB P125,000

Net income reported by TT P 15,000
Add: Loss on sale of building 36,000
Realized net income of TT 51,000
Income to non-controlling interest (P51,000 x .30) (15,300)
Income to controlling interest P160,700
3. Eliminating entry, December 31, 20y0:

Eliminate unrealized loss on building.
Adjustment to buildings and equipment

Amount paid by TT to acquire building P300,000
Amount paid by BB on intercompany sale (144,000)
Adjustment to buildings and equipment P156,000

Depreciation expense recorded by TT
Company (P300,000 / 15 years) P 20,000
Depreciation expense recorded by BB

Amount required (P20,000 x 7 years) P140,000
Amount reported by BB (P16,000 x 1 year) (16,000)
Required adjustment P124,000
Adjustment to retained earnings, January 1, 20y0

Unrealized loss recorded, December 31, 20x9 P36,000
Proportion of ownership held by BB x .70
Adjustment to Noncontrolling interest, January 1, 20y0

Unrealized loss recorded, December 31, 20x9 P36,000
Proportion of ownership held by non-controlling
Interest x .30
4. Consolidated net income and income assigned to

controlling interest in 20y0:
Operating income reported by BB P150,000
Net income reported by TT P40,000
Adjustment for loss on sale of building (4,000)
Realized net income of TT 36,000
Income assigned to non-controlling interest
(P36,000 x .30) (10,800)
Income assigned to controlling interest P175,200
Problem XX
Requirements 1 to 4
Common stock (P240,000 x 80%)……………………. P 192,000
fair value)………………………………………………... P 12,000

Inventory………………….…………….. P 24,000 P 30,000 P 6,000
Land……………………………………… 48,000 55,200 7,200
Equipment (net)......... 84,000 180,000 96,000
Buildings (net) 168,000 144,000 (24,000)
Bonds payable………………………… (120,000) ( 115,200) 4,800
Net……………………………………….. P 204,000 P 294,000 P 90,000
Equipment.................. 180,000 180,000 0
Net book value………………………... 84,000 180,000 96,000
S Co. S Co.
Buildings................ 360,000 144,000 ( 216,000)
Net book value………………………... 168,000 144,000 ( 24,000)

Inventory P 6,000 1 P 6,000 P 6,000 P -
Equipment (net)......... 96,000 8 12,000 12,000 12,000
Buildings (net) (24,000) 4 ( 6,000) ( 6,000) (6,000)
Bonds payable… 4,800 4 1,200 1,200 1,200
P 13,200 P 13,200 P 7,200
The goodwill impairment loss of P3,750 based on 100% fair value would be allocated to the controlling interest
and the NCI based on the percentage of total goodwill each equity interest received. For purposes of
allocating the goodwill impairment loss, the full-goodwill is computed as follows:
(P90,000 x 100%) 90,000
fair value)………………………………………………... P 15,000
In this case, the goodwill was proportional to the controlling interest of 80% and non-controlling interest of 20%
Value % of Total

Value % of Total
Interest
Goodwill P 3,750 100.00%
The unrealized and gain on intercompany sales for 20x4 are as follows:
Date Selling Book Unrealized* Remaining Realized gain –

of Sale Seller Price Value Gain on sale Life depreciation** 20x4
4/1/20x4 P P90,000 P75,000 P15,000 5 years P3,000/year P2,250
1/2/20x4 S 60,000 28,800 31,200 8 years P3,900/year P3,900
* 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:

P Co. S Co.
Sales P 480,000 P 240,000
P 168,000 P 60,000
Add: Gain on sale of equipment 15,000 31,200
Net income P 207,810 P 91,200

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

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

December 31, 20x4:

impairment loss)]
December 31, 20x4:

To adjust investment income for downstream sales - unrealized gain
on sale of equipment..
December 31, 20x4:

To adjust investment income for upstream sales - unrealized gain on
sale of equipment..
December 31, 20x4:

To adjust investment income for downstream sales - realized gain on
sale of equipment..
December 31, 20x4:

To adjust investment income for upstream sales - realized gain on
sale of equipment..
Investment in S
(91,200 x 80%) 72,960 13,560 impairment
Realized gain downstream sale 2,250 15,000 Unrealized gain downstream sale
Realized gain upstream sale 3,120
Investment 24,960
Income Unrealized gain upstream sale
Balance, 12/31/x4
Amortization & 368,010 NI of S
impairment 13,560 72,960 (91,200 x 80%)
Unrealized gain downstream sale 15,000 2,250 Realized gain downstream sale
Unrealized gain upstream sale 24,960 3,120 Realized gain upstream sale
24,810 Balance, 12/31/x4

Retained earnings – S Co…………………………………… 120,000
acquisition.
(E2) Inventory…………………………………………………………………. 6,000

Land………………………………………………………………………. 7,200
Goodwill…………………………………………………………………. 12,000
Buildings……………………………………….. 216,000

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

follows:

Realized gain* 2,250 15,000 Unrealized gain * Unrealized gain * 15,000 2,250 Realized gain*
Realized gain** 3,120 24,960 Unrealized gain ** Unrealized gain **24,960 3,120 Realized gain**
3,990 24,810
*downstream sale (should be multiplied by 100%)
**upstream sale (should be multiplied by 80%)
Investment in S
(91,200 x 80%) 72,960 13,560 impairment
Realized gain upstream sale 3,120 24,960 Unrealized gain upstream sale
372,000 372,000

Equipment 30,000

Equipment 12,000

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

(P26,000/85 years x 1 year = P3,250).


P 50,700


Sales P480,000 P240,000 P 720,000
(6) 31,200
(7) 2,250 83,850
3,900
Other expenses 48,000 18,000 66,000
Net Income P207,810 P 91,200 P 217,950

P Company P360,000 P 360,000
S Company P120,000 (1) 120,000
Total P567,810 P211,200 P567,810
Dividends paid
P Company 72,000 72,000
S Company - 36,000 (4) 36,000 _ ________
Sheet P495,810 P175,200 P 495,810
Balance Sheet
Cash………………………. P 232,800 P 90,000 P 322,800
Inventory…………………. 120,000 90,000 (2) 6,000 (3) 5,000 210,000
Land……………………………. 210,000 48,000 (2) 7,200 265,200
Equipment 240,000 180,000 (5) 30,000
(6) 12,000 462,000
Buildings 720,000 540,000 (2) 216,000 1,044,000
Goodwill…………………… (2) 12,000 (3) 3,000 9,000
(2) 84,000 -
Total P1,980,810 P1,008,000 P2,466,600

- equipment P 135,000 P 96,000 (7) 2,250 (5) 45,000
(8) 3,900 (6) 43,200 P229,050
- buildings (3) 6,000 495,000
Bonds payable………………… 240,000 120,000 360,000
(2) 18,000
_________ _________ __________ (9) 10,140 92,940
Total P1,980,810 P1,008,000 P 840,690 P 840,690 P2,466,600

P Co. S Co.
Sales P 540,000 P 360,000
Net income P 264,360 P 90,000

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

December 31, 20x5:

December 31, 20x4:

sale of equipment.
December 31, 20x4:

sale of equipment..
Investment in S
(90,000 x 80%) 72,000
Realized gain downstream sale 3,000
Balance, 12/31/x5 401,970
Investment Income
72,000 (90,000 x 80%)
3,000 Realized gain downstream sale
3,120 Realized gain upstream sale
72,360 Balance, 12/31/x5

Retained earnings – S Co, 1/1/x5…………………………. 175,200

Land………………………………………………………………………. 6,000
Goodwill (P12,000 – P3,000)…………………………….. 9,000
Buildings……………………………………….. 180,000

Depreciation/
Inventory sold
Equipment P 12,000
Buildings ( 6,000)
Totals P 6,000 P1,200 P7,200
(E4) Investment income 72.360

follows:

x 80%)……. 72,000 5,760 (P7,200 x 80%) (P7,200 x 80%) 5,760 72,000 x 80%)
Realized gain* 3,000 3,000 Realized gain*
Realized gain** 3,120 3,120 Realized gain**
33,960 72,360
(E5) Investment in S Company 15,000

Equipment 30,000
Accumulated depreciation – equipment 45,000

Equipment 12,000
Accumulated depreciation- equipment 43,200
(E7) Accumulated depreciation – equipment ……….. 5,250

Investment in S Company (prior year) 2,250
(E8) Accumulated depreciation- equipment…….. 7,800

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


P 86,700
with third persons.

Sales P540,000 P360,000 P 900,000
(7) 83,100
3,000
3,900
Other expenses 72,000 54,000 126,000
Net Income P264,360 P 90,000 P 281,700

P Company P495,810 P495,810
S Company P 175,200 (1) 175,200
Net income, from above _264,360 90,000 264,360
Total P760,170 P265,200 P 760,170
Dividends paid
P Company 72,000 72,000
S Company - 48,000 (5) 48,000 _ ________
Sheet P688,170 P217,200 P 688,170
Balance Sheet
Cash………………………. P 265,200 P 102,000 P 367,200
Inventory…………………. 216,000 108,000 324,000
Land……………………………. 210,000 48,000 (2) 7,200 265,200
Equipment 240,000 180,000 (5) 30,000
(6) 12,000 462,000
Buildings 720,000 540,000 (2) 216,000 1,044,000
Goodwill…………………… (2) 9,000 9,000
Investment in Son Co……… 401,970 (5) 15,000 (1) 332,160
(6) 24,960 (2) 70,440
(4) 33,960
(7) 2,250
(8) 3,120 -
Total P2,233,170 P1,074,000 P2,749,800

- equipment (7) 5,250 (5) 45,000
(8) 7,800 (6) 43,200 P 255,150
- buildings (3) 6,000 552,000
Bonds payable………………… 240,000 120,000 360,000
Non-controlling interest………… (4) 9,600 (1) 69,200
(6) 6,240 (2) 15,360
(8) 780
___ _____ _________ __________ (9) 17,340 ____100,680
Total P2,233,170 P1,074,000 P 930,750 P 930,750 P2,749,800
5 and 6. Refer to Problem V for computations

Note: Using cost model or equity method, the consolidated net income, consolidated retained earnings,
non-controlling interests, consolidated equity on December 31, 20x4 and 20x5 are exactly the same (refer
to Problem X solution).
Problem XXI
Requirements 1 to 4
Common stock (P240,000 x 100%)………………. P 240,000
fair value)………………………………………………... P 15,000

Inventory P 6,000 1 P 6,000 P 6,000 P -
Equipment (net)......... 96,000 8 12,000 12,000 12,000
Buildings (net) (24,000) 4 ( 6,000) ( 6,000) (6,000)
Bonds payable… 4,800 4 1,200 1,200 1,200
P 13,200 P 13,200 P 7,200
The following summary for 20x4 results of operations is as follows:

P Co. S Co.
Sales P 480,000 P 240,000
P 168,000 P 60,000
Add: Gain on sale of equipment 15,000 31,200
Net income P 207,810 P 91,200

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

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

December 31, 20x4:

impairment loss)]
December 31, 20x4:
To adjust investment income for downstream sales - unrealized gain
on sale of equipment..
December 31, 20x4:

To adjust investment income for upstream sales - unrealized gain on
sale of equipment..
December 31, 20x4:

sale of equipment..
December 31, 20x4:

sale of equipment..
Thus, the investment balance and investment income in the books of Perfect Company is as follows:
Investment in S
(91,200 x 80%) 72,960 13,560 impairment
Balance, 12/31/x4 368,010
Investment Income
impairment 13,560 72,960 (76,000 x 80%)
Unrealized gain downstream sale 15,000 2,250 Realized gain downstream sale
Unrealized gain upstream sale 24,960 3,120 Realized gain upstream sale
24,810 Balance, 12/31/x4

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

Land………………………………………………………………………. 7,200
Goodwill…………………………………………………………………. 15,000
Buildings……………………………………….. 216,000
Non-controlling interest (P90,000 x 20%) + [(P15,000 full –

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

follows:

Realized gain* 2,250 15,000 Unrealized gain * Unrealized gain * 15,000 2,250 Realized gain*
Realized gain** 3,120 24,960 Unrealized gain ** Unrealized gain **24,960 3,120 Realized gain**
3,990 24,810
Investment in S
(91,200 x 80%) 72,960 13,560 impairment
372,000 372,000

Equipment 30,000
Equipment 12,000

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

(P31,120/85 years x 1 year = P3,900).


P 50,700

Sales P480,000 P240,000 P 720,000
(6) 31,200
(7) 2,250 83,850
3,900
Other expenses 48,000 18,000 66,000
Net Income P207,810 P 91,200 P 217,200

P Company P360,000 P 360,000
S Company P120,000 (1) 120,000
Total P567,810 P211,200 P 567,810
Dividends paid
P Company 72,000 72,000
S Company - 36,000 (4) 36,000 _ ________
Sheet P495,810 P175,200 P 495,810
Balance Sheet
Cash………………………. P 232,800 P 90,000 P 322,800
Inventory…………………. 120,000 90,000 (2) 6,000 (3) 6,000 210,000
Land……………………………. 210,000 48,000 (2) 6,000 265,200
Equipment 240,000 180,000 (5) 30,000
(6) 12,000 462,000
Buildings 720,000 540,000 (2) 216,000 1,044,000
Goodwill…………………… (2) 15,000 (3) 3,750 11,250
(2) 84,000 -
Total P1,980,810 P1,008,000 P2,468,850

- equipment P 135,000 P 96,000 (7) 2,250 (5) 45,000
(8) 3900 (6) 43,200 P229,050
- buildings (3) 6,000 495,000
Bonds payable………………… 240,000 120,000 360,000
(2) 21,000
_________ _________ __________ (9) 9,390 ____95,190
Total P1,980,810 P1,008,000 P 843,690 P 843,690 P2,468,850
Second Year after Acquisition

Perfect Co. Son Co.
Sales P 540,000 P 360,000
Net income P 264,360 P 90,000

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

December 31, 20x4:

sale of equipment..
December 31, 20x4:

sale of equipment..
Investment in S
NI of S 5,760 Amortization (6,000 x 80%)
(90,000 x 80%) 72,000
Realized gain downstream sale 3,000
Balance, 12/31/x5 401,970
Investment Income
72,000 (90,000 x 80%)
3,000 Realized gain downstream sale
3,120 Realized gain upstream sale
72,360 Balance, 12/31/x5

Land………………………………………………………………………. 7,200
Goodwill (P15,000 – P3,900)…………………………….. 11,250
Buildings……………………………………….. 216,000
or (P3,750 x 20%)] 17,610
*this procedure would be more appropriate, instead of multiplying the full-goodwill impairment loss of P3,750 by 20%. There might be
situations where the NCI on goodwill impairment loss would not be proportionate to NCI acquired (refer to Illustration 15-6).
Depreciation/
Inventory sold
Equipment P 12,000
Buildings ( 6000)
Totals P 6,000 P1,200 P7,,200

follows:

x 80%)……. 72,000 5,760 (P72,000 x 80%) (P7,200 x 80%) 5,760 72,000 x 80%)
Realized gain* 3,000 3,000 Realized gain*
Realized gain** 3,120 3,120 Realized gain**
33,960 72,360

Equipment 30,000
Accumulated depreciation – equipment 45,000

Equipment 12,000
Accumulated depreciation- equipment 43,200
(E7) Accumulated depreciation – equipment ……….. 5,250

(E8) Accumulated depreciation- equipment…….. 7,800

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


P 86,700
Goodwill 0
with third persons.

Sales P540,000 P360,000 P 900,000
(7) 83,100
3,000
3,900
Other expenses 72,000 54,000 126,000
Net Income P264,360 P 90,000 P 281,700

P Company P495,810 P495,810
S Company P 175,200 (1) 175,200
Net income, from above _264,360 90,000 264,360
Total P760,170 P265,200 P 760,170
Dividends paid
P Company 72,000 72,000
S Company - 48,000 (5) 48,000 _ ________
Sheet P688,170 P217,200 P 688,170
Balance Sheet
Cash………………………. P 265,200 P 102,000 P 367,200
Inventory…………………. 216,000 108,000 324,000
Land……………………………. 210,000 48,000 (2) 7,200 265,200
Equipment 240,000 180,000 (5) 30,000
(6) 12,000 462,000
Buildings 720,000 540,000 (2) 216,000 1,044,000
Goodwill…………………… (2) 11,250 11,250
(6) 24,960 (2) 70,440
(4) 33,960
(7) 2,250
(8) 3,120 -
Total P2,233,170 P1,074,000 P2,752,050

- equipment (7) 5,250 (5) 45,000
(8) 7,800 (6) 43,200 P 255,150
- buildings (3) 6,000 552,000
Bonds payable………………… 240,000 120,000 360,000
Non-controlling interest………… (4) 9,600 (1) 83,040
(6) 6,240 (2) 17,610
(8) 780
___ _____ _________ __________ (9) 17,340 ____102,930
Total P2,233,170 P1,074,000 P 933,000 P 933,000 P2,752,050
5 and 6. Refer to Problem VI for computations

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

1. a
Combined equipment amounts P1,050,000
Less: gain on sale 25,000
Consolidated equipment balance P1,025,000
Combined Accumulated Depreciation P 250,000

Less: Depreciation on gain 5,000
Consolidated Accumulated Depreciation P 245,000
2. a
Original cost of P1,100,000
Accumulated depreciation, 1/1/20x4 P 250,000

Add: Additional depreciation (P1,100,000 – P100,000) / 20 years ____50,000
3. a
Combined building amounts P650,000
Less: Intercompany gain __30,000
Consolidated buildings P620,000
Combined Accumulated Depreciation P195,000

Less: Piecemeal recognition of gain ___3,000
Consolidated accumulated depreciation P192,000
4. 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.
5. a 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.
6. e
Original cost of P 100,000
Accumulated depreciation, 1/1/20x6 (P100,000 x 50%) P 50,000

Add: Additional depreciation (P100,000 – P50,000) / 5 years ___10,000
7. d
Sales price P 80,000
Less: Book value
Cost P100,000
Less: Accumulated depreciation (50% x P100,000) __50,000 __50,000
Unrealized gain on sale P 30,000
Less: Realized gain - depreciation (P30,000 / 5 years) ___6,000
Net unrealized gain, 12/31/20x6 P 24,000
8. e
Eliminating entries:
12/31/20x6: subsequent to date of acquisition
Realized Gain – depreciation
Depreciation expense 6,000
[P80,000 - (P100,000 - {P100,000 x 50%])] = P30,000 / 5 years or
P15,000 – P8,000 = P7,000
“Should be in CFS” Parent – Pylux “Recorded as” Subsidiary - Sylux

Depreciation expense Depreciation expense
(P50,000 /5 years) 10,000 (P80,000 / 5 years) 16,000
Acc. Depreciation 8,000 Acc. depreciation 16,000
9. d
20x4 20x5
Unrealized gain on sales of equipment (downstream sales) ( 90,000) -0-
Realized gain on sale of equipment (downstream sales) through depreciation
P90,000 / 10 years ___9,000 9,000
Net ( 81,000) 9,000
10. d
20x4 20x5
Unrealized gain on sale of equipment (downstream sales) ( 150,000) -0-
P150,000 / 10 years ___15,000 15,000
Net ( 135,000) 15,000
11. a
20x4 20x5
Unrealized gain on sale of equipment (upstream sales) : 50,000 – 30,000 ( 20,000) -0-
Realized gain on sale of equipment (upstream sales) through depreciation
P20,000 / 5 years ___4,000 __4,000
Net ( 16,000) __4,000
12. e

Add: Additional depreciation (P100,000 – P40,000) / 6 years x 2 years ___20,000
13. c
Less: Book value
Cost P100,000
Less: Accumulated depreciation __40,000 __60,000
Unrealized loss on sale P(12,000)
Add: Realized loss - depreciation (P12,000 / 6 years) x 2 years ___4,000
Net unrealized loss, 12/31/20x7 P( 8,000)
14. a
[P48,000 - (P100,000 - P40,000) = P(12,000) / 6 years or P10,000 –
P8,000 = P2,000
“Should be in CFS” Parent – Poxey “Recorded as” Subsidiary - Soxey

(P60,000 /6 years) 10,000 (P48,000 / 6 years) 8,000
15. c
Accumulated depreciation, 1/1/20x6 (P100,000 - P20,000) P 80,000

Add: Additional depreciation (P100,000 – P80,000) / 5 years x 2 years ____8,000
16. c
Less: Book value
Cost P100,000
Less: Accumulated depreciation __80,000 __20,000
Less: Realized gain - depreciation (P25,000 / 5 years) x 2 years __10,000
17. b
[P45,000 - (P100,000 - P80,000) = P25,000 / 5 years or P4,000 –
P9,000 = P5,000
“Should be in CFS” Parent – Sayex “Recorded as” Subsidiary - Payex

(P20,000 /5 years) 4,000 (P45,000 / 5 years) 9,000
18. c
19. b
20. 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
21. a
The truck account will be debited for P3,000 in the eliminating entry:
Truck 3,000
Gain 15,000
Seller Buyer
Cash 50,000 Truck 50,000
Accumulated 18,000 Cash 50,000
Truck 53,000
Gain 15,000
22. b
Correction: On January 1, 20x3 instead of 20x4
Realized gain on sale of equipment (downstream sales) through depreciation ___0
Unrealized gain on sales of equipment (upstream sales) (15,000)
(P15,000 / 3 years) 5,000
Total P143,000
Or, alternatively
(P15,000 / 3 years) 5,000
Total P143,000
Amortization of allocated excess…………………… ____0 18,000

Unrealized gain on sales of equipment (upstream sales) ( 15,000)
P 45,000
23. a - refer to No. 22 computation

24. a
25. a
26. b
27. 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
28. 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
29. a
30. b
31. c – P50,000/5 years = P10,000 per year starting January 1, 20x6.
32. b P40,000
Depreciation expense recorded by Pirn
Depreciation expense recorded by Scroll 10,000
Total depreciation reported P50,000
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) (3,000)
Depreciation for consolidated statements P47,000
33. e
Depreciation expense:
Parent P 84,000
Subsidiary 60,000
Total P144,000
Less: Over-depreciation due to realized gain:
[P115,000 – (P125,000 – P45,000)] = P35,000/8 years __ 4,375
34. c
20x6
Unrealized gain on sale of equipment ( 56,000)
Realized gain on sale of equipment (upstream sales) through depreciation ___7,000
Net ( 49,000)
Selling price P 392,000

Less: Book value, 1/1/20x6
Cost, 1/1/20x2 P420,000
Less: Accumulated depreciation: P420,000/10 years x 2 years 84,000 336,000
Unrealized gain on sale of equipment P 56,000
Realized gain – depreciation: P56,000/8 years P 7,000
35. c – (P22,500 x 4/15 = P6,000)

36. a – [P50,000 – (P50,000 x 4/10) = P30,000]
37. b 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.
38. a 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.
39. b Reported net income of GG Company P 45,000

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

Net income reported by GG Company 45,000
P130,000
Less: Unrealized gain on sale of equipment
(P15,000 - P5,000) (10,000)
41. b
12/31/20x5: date of acquisition
Restoration of BV and eliminate unrealized gain
Equipment 10,000
Gain 150,000
Parent Books – Mortar Subsidiary Books – Granite

Cash 390,000 Equipment 390,000
Accumulated depreciation 160,000 Cash 390,000
Equipment 400,000
Gain 150,000
Mortar
Selling price P390,000
Cost, 1/1/20x2 P400,000
Less: Accumulated depreciation : P400,000/10 years x 4 years 160,000 240,000
42. a – refer to No. 41 for computation

43. b - refer to No. 41 for computation
44. d
P150,000 / 6 years or P65,000 – P40,000
“Should be in CFS” Parent Books – Mortar “Recorded as” Subsidiary Books - Granite
(P400,000 / 10 years) 40,000 (P390,000 / 6 years) 65,000
45. c
Equipment 10,000
Retained earnings (150,000 – 25,000) 100,000
Accumulated depreciation (P160,000 – P25,000) 135,000
46. a
Equipment 50,000
Gain 70,000
Parent Books – Mortar Subsidiary Books - Granite

Equipment 400,000
Gain 70,000
Mortar
Cost, 1/1/20x2 P400,000
47. a - refer to No. 46 for computation

48. b
P700,000 / 7 years or P50,000 – P40,000
“Should be in CFS” Parent Books – Mortar “Recorded as” Subsidiary Books - Granite
(P400,000 / 10 years) 40,000 (P350,000 / 7 years) 50,000
Equipment 50,000
Retained earnings (70,000 – 10,000) 60,000
Accumulated depreciation (P120,000 – P10,000) 110,000
49. b - refer to No. 48 for computation

50. c - refer to No. 48 for computation
51. a
Unrealized loss on sale of equipment (upstream sales) 20,000
Realized loss on sale of equipment (upstream sales) through depreciation –
none, since the date of sale is end of the year ( 0)
Total P190,000
Cost, 1/1/20x4 P500,000
Unrealized loss on sale of equipment P( 20,000)
Realized loss – depreciation: P20,000/4 years P( 5,000)
Or, alternatively
Realized loss on sale of equipment (upstream sales) through depreciation ( 0)
Total P190,000

Realized loss on sale of equipment (upstream sales) through depreciation ( 0)
P 50,000
52. b
Consolidated Net Income for 20y0
Unrealized loss on sale of equipment (upstream sales)
Realized loss on sale of equipment (upstream sales) through depreciation ( 5,000)
Total P202,000
Consolidated Net Income for 20y0 P202,000
equity holders of parent – 20y0………….. P194,500
Or, alternatively
Total P202,000
Add: Non-controlling Interest in Net Income (NCINI) _ _ 7,500
**Non-controlling Interest in Net Income (NCINI) for 20y0

P 25,000
53. d
Building 3,000
Gain 8,250
Parent Books – Sky Subsidiary Books - Earth

Cash 33,000 Building 33,000
Building 36,000
Gain 8,250
Sky, 7/1/20x4
Cost, 1/1/20x2 P36,000
Less: Accumulated depreciation : P36,000/8years x 2.5 years 11,250 24,750
Realized gain – depreciation: P8,250/5.5 years P 1,500
54. a - refer to No. 53 for computation

55. b
Realized Gain – depreciation (July 1, 20x4 – December 31, 20x4)
Accumulated depreciation 750
Depreciation expense 750
P8,250 / 5.5 x ½ years or P3,000 – P2,250
“Should be in CFS” Parent Books – Sky “Recorded as” Subsidiary Books - Earth
(P24,750 / 5.5 x ½ years) 2,250 (P33,000 / 5.5 years x ½ yrs) 3,000
56. c
P8,250 / 5.5 x years or P6,000 – P4,500
“Should be in CFS” Parent Books – Sky “Recorded as” Subsidiary Books - Earth
(P24,750 / 5.5 years) 4,500 (P33,000 / 5.5 years) 6,000
57. d
Building 3,000
Retained earnings (8,250 – 750) 7,500
Accumulated depreciation (P11,250 – P750) 10,500
58. d - P60,000 - P36,000 = P24,000 debit

59. b - P36,000 - (P60,000 - P31,200) = P7,200 gain (debit)
60. c - (P36,000/6)(8/12) - [(P60,000 - P31,200)/6](8/12) = P800 credit
61. a - P31,200 - {(P36,000/6)(8/12) - [(P60,000 - P31,200)/6](8/12)} = P30,400 credit
62. c - P36,000 - (P60,000 - P31,200) = P7,200 gain (debit)
(P36,000/6)(8/12) - [(P60,000 - P31,200)/6](8/12) = P800 credit
63. b
P72,000 - (P96,000 - P36,600) = P12,600 gain (debit)
(P72,000/5)(4/12) - [(P96,000 - P36,600)/5](4/12) = P840 (credit)
(P12,600 - P840) .1 = P1,176 debit
64. d 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.
65. d
66. a
67. b
68. b – at its original cost or book value.
69. b
20x4: Any intercompany gain should be eliminated in the CFS.
20x5
Selling price – unrelated party P 100,000
Less: Original Book value, 9/26/20x5 __60,000
70. d – P30,000 + P40,000 = P70,000

S P Consolidated
Selling price
Less: Book value
Gain P 30,000 P 40,000 P 70,000
71. d – P110,000 – P30,000 = P80,000

S (Nectar) P (Lorikeet) Consolidated
Selling price P 50,000 P 110,000 P 110,000
Less: Book value _30,000 __50,000 _30,000
Gain P 20,000 P 60,000 P 80,000
72. d
S P Consolidated
Selling price P1,980,000 P1,440,000 P1,440,000
Less: Book value: Cost P2,000,000 P1,980,000 P 1,800,000
Accumulated ___200,000 1,800,00 *1,320,000 660,000 **1,200,000 __600,000
Unrealized gain on sale of
equipment P 180,000
(P180,000/9 x 6 yrs) 120,000
Gain on sale P 60,000 P 780,000 P 840,000
*P1,980,000/ 9 x 6 years = P1,320,000
**P1,800,000/9 x 6 years = P1,200,000
73. d –(P100,000 + P50,000 = P150,000)

S P Consolidated
Selling price
Less: Book value
Gain P 100,000 P 50,000 P 150,000
74. c
S P Consolidated
Selling price P 990,000 P720,000 P 720,000
Less: Book value : Cost P1,000,000 P990,000 P 900,000
Accumulated 100,000 __900,000 *440,000 550,000 **400,000 __500,000
Equipment,1/1/20x4 P 90,000
(P90,000/9 x 4 yrs) 40,000
Net unrealized gain, 1/1/20x8 P 50,000 __________ ___________
Gain on sale P 50,000 P 170,000 P 220,000
*P990,000/ 9 x 4 years = P440,000
**P900,000/9 x 4 years = P400,000
75. d – (P30,000 + P15,000)
76. c
Selling price – unrelated party P 14,000
Less: Original Book value, 12/31/20x5
Book value, 1/1/20x4 P20,000
Less: Depreciation for 20x4 and 20x5: P20,000/4 years x 2 years 10,000 10,000
77. b
Sort Fort Consolidated
Less: Book value : Cost P 120,000 P100,000 P 90,000
Accumulated __30,000 __90,000 **50,000 50,000 **45,000 __45,000
Equipment, 12/30/20x3 P 10,000
(P10,000/6 x 3 yrs) __ 5,000
Net unrealized gain, 12/31/20x6 P 5,000 __________ _________
Gain on sale P 5,000 P 15,000 P 20,000
*P100,000/6 x 3 years = P48,000
***P90,000/6 x 3 years = P45,000
78. b
Depreciation expense: (P50,000 - P40,000) / 10 years = P1,000 over depreciation
79. b
Unrealized gain on sales of equipment (upstream sales) (P700,000 – P600,000) ( 100,000)
Realized gain on sale of equipment (upstream sales) through depreciation (P100,000/10) 10,000
S Company’s realized net income from separate operations……… P1,910,000
Less: Amortization of allocated excess _ 0
P1,910,000
Multiplied by: Non-controlling interest %.......... __40%
Less: NCI on goodwill impairment loss on full-goodwill . . . . . . . . . . . . . . . . . . . . . __ 0
80. a
**Non-controlling Interest in Net Income (NCINI) for 20y2
Unrealized gain on sale of equipment (downstream sales)
Realized gain on sale of equipment (downstream sales) through depreciation ( 0)
P 135,000
81. a
Realized gain on sale of equipment (downstream sales) through depreciation _ 8,000
Unrealized gain on sale of equipment (upstream sales)
Realized gain on sale of equipment (upstream sales) through depreciation ( 0)
Total P343,800
Less: Non-controlling Interest in Net Income* *(refer to No. 80) 27,000
equity holders of parent – 20y2………….. P316,800
Net income from own operations:
Prout Sexton
Sales P1,475,000 P1,110,000
Other expenses (including depreciation) 145,000 90,000
Income tax expense __187,200 ____90,000
Net income from own operations P 200,800 P 135,000
Add: Dividend income ____80,000
Net income P 280,800 P 135,000
Sexton, 1/1/20y1
Less: Book value, 1/1/20y1
Cost, 1/1/20x1 P400,000
Unrealized gain on sale of equipment P120,000
Or, alternatively
Unrealized gain on sale of equipment (upstream sales)
Realized gain on sale of equipment (upstream sales) through depreciation ( 0)
Total P343,800
Less: Non-controlling Interest in Net Income* * (refer to No. 80) P 27,000
Add: Non-controlling Interest in Net Income (NCINI) _ _27,000
82. a – refer to No. 81

83. c
Consolidated Retained Earnings, December 31, 20y2
Retained earnings - Parent Company, January 1, 20y1 (cost model) P1,300,000
Less: Downstream - net unrealized gain on sale of equipment – prior to 20y1
[P120,000 – (P8,000 x 1 year)] 112,000
Adjusted Retained Earnings – Parent 1/1/20y1 (cost model ) Son Company’s
parties.. P1,188,000
Less: Retained earnings – Subsidiary, January 1, 20y1 1,040,000
Less: Amortization of allocated excess – 20x9 to – 20y0 0
20y1 0
P 240,000
P192,000
Less: Goodwill impairment loss 0 _192,000
Consolidated Retained earnings, January 1, 20x5 P1,380,000
Total P1,696,800
Less: Dividends declared – Parent Company for 20y1 120,000
Consolidated Retained Earnings, December 31, 20y1 P1,576,8000
Or, alternatively:
Consolidated Retained Earnings, December 31, 20y2
Retained earnings - Parent Company, December 31, 20y1 (cost model)
(P1,300,000 + P280,800 – P120,000) P1,460,800
12/31/20y1 [P120,000 – (P8,000 x 2 years)] 104,000
transactions with third parties.. P1,356,800
Retained earnings – Subsidiary, December 31, 20y2
(P1,040,000 + P135,000 – P100,000) P 1,075,000
Less: Accumulated amortization of allocated excess 0
12/31/20y2 _______0
P 275,000
P 220,000
Less: Goodwill impairment loss _____0 220,000
Consolidated Retained earnings, December 31, 20y2 P1,576,800
84. c
Non-controlling interest (fulll-goodwill), December 31, 20y2
Common stock – Subsidiary Company, December 31, 20y2…… P 1,200,000
Retained earnings – Subsidiary Company, December 31, 20y2
Retained earnings – Subsidiary Company, January 1, 20y2 P1,040,000
Add: Net income of subsidiary for 20y2 135,000
Total P1,175,000
Less: Dividends paid – 20y2 100,000 1,075,000
Stockholders’ equity – Subsidiary Company, December 31, 20x5 P 2,275,200
liabilities, date of acquisition (January 1, 20x4) 0
Amortization of allocated excess (refer to amortization above) : 0
Fair value of stockholders’ equity of subsidiary, December 31, 20x5…… P2,275,200
Less: Upstream - net unrealized gain on sale of equipment – prior to
12/31/20y2 _____)0
Realized stockholders’ equity of subsidiary, December 31, 20x5………. P 2,275,00
85. c
Additional information: Gain or loss to outsiders on 1/1/20y3 in the books of Sexton.
Prout Sexton Consolidated
Selling price P 360,000 P300,000 P 300,000
Less: Book value : Cost P 400,000 P360,000 P 240,000
Accumulated *160,000 __240,000 **48,000 312,000 ***32,000 _208,000
Equipment, 1/1/20y1 P 120,000
(P120,000/15 x 2 yrs) __16,000
Net unrealized gain, 1/1/20y3 P 104,000 __________ _________
Gain on sale P 104,000 P( 12,000) P 92,000
*P400,000/25 x 10 years = P160,000
**P360,000/15 x 2 years = P48,000
***P240,000/15 x 2years = P400,000

Requirement should be: Calculate the book value on January 1, 20y3 from the consolidated point of
view:
87. a – refer to No. 85
Requirement should be: Calculate the gain or loss on fixed assets on January 1, 20y3 from the
consolidated point of view:
Analysis:
Workpaper entries (not required)
Intercompany Sale of Equipment
Accumulated Remaining
Cost Depreciation Carrying Value Life Depreciation
Original Cost P400,000 P160,000 P240,000 15 yr P 16,000
Intercompany Selling Price 360,000 _______ 360,000 15 yr 24,000
Difference P 40,000 P160,000 P120,000 P 8,000
(1) Investment in Sexton Company 192,000

Retained Earnings - Prout 192,000
To establish reciprocity/convert to equity (.80 x (P1,040,000 - P800,000))
(2) Equipment 40,000

Beginning Retained Earnings - Prout 120,000
To reduce beginning consolidated retained earnings by amount of unrealized profit at the beginning of the year, to restate
property and equipment to its book value to Prout Company on the date of the intercompany sale.
(3) Accumulated Depreciation 16,000

Beginning Retained Earnings - Prout 8,000
To reverse amount of excess depreciation recorded during current year and recognize an equivalent amount of
intercompany profit as realized
(4) Dividend Income 80,000

(5) Beginning Retained Earnings – Sexton 1,040,000

Common Stock – Sexton 1,200,000
Investment in Sexton Company (P1,600,000 + P192,000) 1,792,000
Noncontrolling Interest [P400,000 + (P1,040,000 - P800,000) x .20] 448,000
To eliminate investment account and create noncontrolling interest account
Entry analysis:
Journal Entry on the books of Sexton to record the sale
Cash 300,000
Accumulated Depreciation - Fixed Assets (P360,000/15) x 2 years) 48,000
Loss on Sale of Equipment 12,000
Workpaper eliminating entry on December 31, 20y3 consolidated statement necessary to prepare consolidated
statements:
Beginning Retained Earnings – Prout(P120,000 - P16,000) 104,000
Loss on Sale of Equipment 12,000
Cost to the Affiliated Companies P400,000

Accumulated Depreciation Based on Original Cost ((12/25)x P400,000) 192,000
Book Value, 1/1/y3 P 208,000
Proceeds from Sale to Non-affiliate (300,000)
Gain from consolidated point of view P 92,000
Note: As of Dec. 31, 20y3, the amount of profit recorded by the affiliates on their books (P120,000 - P12,000 =
P108,000) is equal to the amount of profit considered realized in the consolidated financial statements
(P8,000 + P8,000 + P92,000) = P108,000.
88. d - Investment in subsidiary, 12/31/20x5 (cost model) P700,000).
Date of Acquisition (1/1/20x4) Partial Full
Fair value of consideration given…………………………P 700,000
(P300,000 + P500,000) x 80%................. 640,000
Allocated Excess.……………………………………………….P 60,000
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
89. d
Dividend paid or declared – S…………………………………………………P 50,000
x: Controlling Interest %…………………………………………………………. 80%
Dividend income of Parent……………………………………………………..P 40,000
90. d
Net unrealized gain on sale of equipment (downstream sales) through
depreciation P35,000 – P875) 34,125
Total P390,375
Or, alternatively
depreciation P35,000 – P875) 34,125
Total P390,375
Unrealized gain on sales of equipment (upstream sales) ( 30,000)
P 121,500

93. 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

Retained earnings – Parent, 1/1/20x5 (cost)…………………………… P 800,000
-: Downstream sale – 20x4 or prior to 20x5, Net unrealized gain 0
Retroactive Adjustments to convert Cost to “Equity”:
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, P’s 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”:
(P600,000 + P150,000 – P50,000)..…………..…….. 700,000
(cumulative net income – cumulative dividends)……….P 200,000
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
94. c – refer to No, 93 computations.

97. b
Common stock – P (P only)……………………………………………..P1,000,000
Retained Earnings – P (equity method), 12/31/20x5…………. 1,140,675
Controlling Interest / Parent’s Stockholders’ Equity…………… P2,140,675
Non-controlling interest, 12/31/20x5 (partial/full)…………………… 208,700
Consolidated Stockholders’ Equity, 12/31/20x5……………………….P2,349,375
98. d – the original cost of land

99. b – no intercompany gain or loss be presented in the CFS.
100. a
S3 Company’s net income from own operations…………………………………. P100,000
S2 Company’s net income from own operations…………………………………. 70,000
Unrealized loss on sale of equipment (upstream sales) – S3 15,000
Unrealized gain on sale of equipment (upstream sales) – S2 ( 52,000)
Unrealized gain on sale of equipment (upstream sales) - S1 ( 23,000)
Total P405,000
Less: Non-controlling Interest in Net Income* * (P23,000 + P5,400 + P7,200) 35,600
S3 S2 S1
Sales price 145,000 197,000 220,000
Less: Cost 160,000 145,000 197,000
Unrealized (loss) gain ( 15,000) 52,000 23,000
Or, alternatively
S3 Company’s net income from own operations…………………………………. P100,000
Unrealized loss on sale of equipment (upstream sales) – S3 15,000
Unrealized gain on sale of equipment (upstream sales) – S2 ( 52,000)
Unrealized gain on sale of equipment (upstream sales) - S1 ( 23,000)
S Company’s realized net income from separate operations* P205,000 205,000
Total P405,000
Less: Non-controlling Interest in Net Income* * (P23,000 + P5,400 + P7,200) P 35,600
Amortization of allocated excess…………………… ____0 _ 35,600
**Non-controlling Interest in Net Income (NCINI) S3 S2 S1

S Company’s net income of Subsidiary Company from its own
operations (Reported net income of S Company) P 100,000 P 70,000 P 95,000
Unrealized (gain) loss on sale of land (upstream sales) 15,000 ( 52,000) ( 23,000)
S Company’s realized net income from separate operations P 115,000 P 18,000 P 72,000
Less: Amortization of allocated excess 0 0 0
P 115000 P 18,000 P 72,000
Multiplied by: Non-controlling interest %.......... 20% 30% 10%
Non-controlling Interest in Net Income (NCINI) - partial goodwill P 23,000 P 5,400 P 7,200
Less: NCI on goodwill impairment loss on full-goodwill 0 0 0
Non-controlling Interest in Net Income (NCINI) – full goodwill P 23,000 P 5,400 P 7,200
101. b
Non-controlling Interest in Net Income (NCINI) for 20y2
Unrealized gain on sales of equipment (upstream sales) – year of sale -
(P14,500 – P9,000) / 5 years 1,100
P 41,100
102. d – the unrealized gain amounted to P15,000 (P60,000 – P45,000).

subsidiary in the books of parent company but not the equity method. Since, the cost
model is presumed to be the method used, the unrealized gain of P15,000 (P60,000 –
P45,000) will not be recorded in the books of parent company, which give rise to no equity-
adjustments at year-end.
103. c
Cliff reported income P225,000
Less: Intercompany gain on truck 45,000
Plus: Piecemeal recognition of gain = P45,000/10
years ___4,500
Cliff’s adjusted income P184,500
Majority percentage 90%
Income from Cliff P166,050
104. c
Pied Imperial-Pigeon’s share of Roger’s income = (P320,000 x 90%) = P288,000

Less: Profit on intercompany sale (P130,000 - P80,000) x 90% = 45,000
Add: Piecemeal recognition of deferred profit ($50,000/4 years)90% = 11,250
Income from Offshore P254,250
105 c
P30,000 - (1/4 x P30,000) = P 22,500
106. d - P60,000 – P48,000)/4 years = P3,000

107. a
Simon, 4/1/20x4
Cost, 1/1/20x4 P50,000
Less: Accumulated depreciation : P50,000/10 years x 3/12 __1,250 48,750
Realized gain – depreciation: P19,500/9.75 years P 2,000
108. c – P2,000 x 9/12 (April 1, 20x4 – December 31, 20x4) = P1,500

109. c – P19,500 / 9.75 years = P2,000
110. c – P19,500 / 9.75 years = P2,000
111. d
20x4
Share in subsidiary net income (100,000 x 90%) 90,000
Unrealized gain on sale of equipment (downstream sales) ( 19,500)
P2,000 x 9/12 (April 1, 20x4 – December 31, 20x4) = P1,500 _ 1,500
Net 72,000
112. b
20x5
Net 110,000
113. d
20x6
Net 119,000
114. c
Smeder, 1/1/20x4
Cost, 1/1/20x4 P120,000
Less: Accumulated depreciation __48,000 72,000
115. b
20x4
Unrealized gain on sale of equipment (upstream sales); 12,000 x 80% ( 9,600)
P2,000 x 80% _ 1,600
Net 14,400
116. c
20x5
P2,000 x 80% _ 1,600
Net 27,200
117. d
Equipment 36,000
Gain 12,000
Parent – Smeder Subsidiary - Collins

Equipment 120,000
Gain 12,000
Smeder, 1/1/20x4
Cost, 1/1/20x4 P120,000
Less: Accumulated depreciation __48,000 72,000
P12,000 / 6 years or P14,000 – P12,000
“Should be in CFS” Parent – Smeder “Recorded as” Subsidiary - Collins

(P72,000 /6 years) 12,000 (P84,000 / 6 years) 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).
118. c
20x4
Unrealized gain on sale of equipment ( 12,000)
Realized gain on sale of equipment through depreciation ___2,000
Net ( 10,000)
119. d
Cash 5,000
Loss 5,000
Parent – Stark Subsidiary - Parker

Cash 80,000 Land 85,000
Loss 5,000 Cash 85,000
Land 85,000
Stark Parker Consolidated

Less: Book value, 5/1/20x4 _85,000 __80,000 _85,000
Unrealized gain on sale of equipment P ( 5,000) P 12,000 P 7,000
120. b – refer to No. 119 for eliminating entry

121. b
Cash 5,000
122. e
20x4
Unrealized loss on sale of land (upstream sales): P5,000 x 90% _ 4,500
Net 184,500
123. d
20x4
Unrealized loss on sale of land (upstream sales): P5,000 x 90% _ 4,500
Net 184,500
124. b
Stark Parker Consolidated
Less: Book value, 5/1/20x4 _85,000 __80,000 _85,000
Unrealized gain on sale of equipment P ( 5,000) P 12,000 P 7,000
125. a – refer to No. 124 for computation

126. e – None, the loss was already recognized in the books of Stark in the year of sale - 20x4 but
not in the subsequent years.
127. c
20x6
Intercompany realized loss on sale of land (upstream sales): P5,000 x 90% _ ( 4,500)
Net 193,500
Quiz XVIII
1. a
Individual Records after Transfer
12/31/x4
Machinery—P40,000
Gain—P10,000
Depreciation expense P8,000 (P40,000/5 years)
Income effect net—P2,000 (P10,000 – P8,000)
12/31/x5
Depreciation expense—P8,000
Consolidated Figures—Historical Cost

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

20x4: P2,000 income is reduced to a P6,000 expense (income is reduced by P8,000)
20x5: P8,000 expense is reduced to a P6,000 expense (income is increased by P2,000)
2. b
UNREALIZED GAIN
Transfer Price ........................................................................................................ P280,000
Book Value (cost after two years of depreciation) ..................................... 240,000
Unrealized Gain ................................................................................................... P40,000
EXCESS DEPRECIATION
Annual Depreciation Based on Cost (P300,000/10 years)........................... P30,000
Annual Depreciation Based on Transfer Price
(P280,000/8 years) ........................................................................................ 35,000
Excess Depreciation ........................................................................................... P5,000
ADJUSTMENTS TO CONSOLIDATED NET INCOME

Defer Unrealized Gain ....................................................................................... P(40,000)
Remove Excess Depreciation ........................................................................... 5,000
Decrease to Consolidated Net Income ........................................................ P(35,000)
3. Cost, P100,000; Accumulated depreciation, P68,000

Accumulated depreciation, 1/1/20x6 (P100,000 x 60%) P 60,000

Add: Additional depreciation (P100,000 – P60,000) / 5 years ____8,000
4. P28,000
Less: Book value
Cost P100,000
Less: Accumulated depreciation (60% x P100,000) __60,000 __40,000
Less: Realized gain - depreciation (P35,000 / 5 years) ___7,000
5. credit to depreciation expenses of P7,000

[P75,000 - (P100,000 - {P100,000 x 40%])] = P35,000 / 5 years or
P15,000 – P8,000 = P7,000
“Should be in CFS” Parent – Palex “Recorded as” Subsidiary - Salex
(P40,000 /5 years) 8,000 (P75,000 / 5 years) 15,000
6. P40,000 - P25,000 = P15,000 debit
7. P25,000 - (P40,000 - P10,000) = P5,000 loss (credit)
8. P10,000 credit, entire accumulated depreciation is reestablished
9. P25,000 - (P40,000 - P10,000) = P5,000 loss (credit)
10. P160,000 - P130,000 = P30,000 credit
11. P160,000 - (P130,000 - P60,000) = P90,000 gain (debit)
13. P160,000 - (P130,000 - P60,000) = P90,000 gain (debit)
14. P80,000 - P60,000 = P20,000 debit
16. P60,000 - (P80,000 - P30,000) = P10,000 gain (debit)
17. P640,000 - P500,000 = P140,000 credit
18. P640,000 - (P500,000 - P350,000) = P490,000 gain (debit)
19. (P640,000/10)(3/12) - [(P500,000 - P350,000)/10](3/12) = P12,250 credit
20. P350,000 - {(P640,000/10)(3/12) - [(P500,000 - P350,000)/10](3/12)} = P337,750 credit
21. P640,000 - (P500,000 - P350,000) = P490,000 gain (debit)
(P640,000/10)(3/12) - [(P500,000 - P350,000)/10](3/12) = P12,250 credit
22. P10,500
Correction: equipment selling price is P120,000.
[P225,000 x 1/3 = P75,000 x 25/125] ( 15,000)
P 105,000
23. P364,500
depreciation [(P120,000 – P80,000 = P40,000 – (P40,000/4 years)] ( 30,000)
[P225,000 x 1/3 = P75,000 x 25/125] ( 15,000)
Total P375,000
Less: Non-controlling Interest in Net Income* * (refer to No. 22) 10,500
Or, alternatively
depreciation [(P120,000 – P80,000 = P40,000 – (P40,000/4 years)] ( 30,000)
[P225,000 x 1/3 = P75,000 x 25/125] ( 15,000)
Total P375,000
Less: Non-controlling Interest in Net Income* * (refer to No. 22) P 10,500
24. P375,000 – refer to No. 23

25. P46,000
Unrealized gain on sales of equipment (upstream sales) ( 0)
P 230,000
26. P434,000
depreciation [P180,000 – (P180,000/6) ( 150,000)
(P250,000/5 years) 50,000
Total P480,000
Or, alternatively
depreciation [P180,000 – (P180,000/6) ( 150,000)
(P250,000/5 years) 50,000
Total P480,000
27. P480,000 – refer to No. 26.

28. P1,802,000
Retained earnings - Parent Company, December 31, 20x2 (cost model) P1,80 0,000
12/31/20x2 [P180,000 – (P30,000 x 1 year)] 150,000
transactions with third parties.. P1,650,000
Less: Retained earnings – Subsidiary, date of acquisition 300,000
12/31/20x2 [P250,000 – (P50,000 x 2 years)] 150,000
P 190,000
P 152,000
Less: Goodwill impairment loss _____0 152,000
Consolidated Retained earnings, December 31, 20x2 P1,802,000
Parent Subsidiary
Unrealized gain on sale of equipment P180,000 P250,000
Realized gain through depreciation
P180,000/6 years = P30,000 per year P 30,000
P250,000/ 5 years = P25,000 P 25,000
29. P165,000
For 20x6: Not determinable since data are incomplete.
For 20x7: P110,000 + P55,000 = P165,000
**NCI-CNI - Sloch
Sloch Company’s net income from own operations………………………………. P 360,000
Unrealized gain on sale of building (upstream sales) – Sloch ( 75,000)
Realized gain on sale of building (upstream sales) - Sloch ___5,000
P 275,000
P 275,000
**NCI-CNI - Zeek
Zeek Company’s net income from own operations…………………………………. P 275,000
P 275,000
Fixed Assets:
Bowen to Zeek Sloch to Bowen
(downstream) (upstream)
Unrealized (loss) gain:
20x5 300,000
20x7 75,000
Realized gain
P300,000/25 years 12,000/year
P75,000/15 years 5,000/year
Inventory
Realized profits in inventory from downstream sales (Bowen to Zeek) P31,000
Realized profits in inventory from upstream sales (Sloch to Bowen) P25,000
Unrealized profits in inventory from downstream sales (Bowen to Zeek) P35,000
Unrealized profits in inventory from upstream sales (Sloch to Bowen) P40,000
30. P943,000
For 20x7: P943,000
[P750,000 – (P200,000 x 60%) – (P100,000 x 80%)] P 550,000
Unrealized profit in ending inventory of S Company (downstream sales)… (_ _35,000)
Sloch Company’s net income from own operations………………………………. P360,000
Zeek Company’s net income from own operations…………………………………. 275,000
Total P1,108,000
Less: Amortization of allocated excess…………………… __ 0
Less: Non-controlling Interest in Net Income – Sloch* * 110,000
Non-controlling Interest in Net Income - Bowen* * ___55,000
Or, alternatively
[P750,000 – (P200,000 x 60%) – (P100,000 x 80%)] P 550,000
Unrealized profit in ending inventory of S Company (downstream sales)… (_ _35,000)
Sloch Company’s net income from own operations………………………………. P 360,000
Zeek Company’s net income from own operations…………………………………. 275,000
S Company’s realized net income from separate operations*…….….. P 550,000 _ 550,000
Total P1,108,000
Less: Non-controlling Interest in Net Income* * refer to No. 29 P165,000
Amortization of allocated excess…………………… ____0 _ _165,000
31. P1,108,000 – refer to No. 30

For 20x7: P1,108,000
32. P1,498,000
Correction: the requirement should be Consolidated retained earnings on December 31,
20x7not 20y2.
Retained earnings - Parent Company, January 1, 20x7 (cost model P1,020,000
- 20x6 (UPEI of S – 20x6) or Realized profit in beginning inventory of S
Downstream - net unrealized gain on sale of equipment – prior to
12/31/20x6 or 1/1/20x7 [P300,000 – (P12,000 x 2 years)] __276,000
parties.. P 713,000
Retained earnings – Subsidiary Sloch, date of acquisition P330,000
Less: Retained earnings – Subsidiary Sloch, January 1, 20x7 525,000
Increase in retained earnings since date of acquisition P195,000
12/31/20x6 or 1/1/20x7 ________0
P170,000
P102,000
Less: Goodwill impairment loss 0 102,000
Retained earnings – Subsidiary Zeek, date of acquisition P575,000

Less: Retained earnings – Subsidiary Zeek, January 1, 20x7 875,000
Increase in retained earnings since date of acquisition P300,000
Less: Amortization of allocated excess _____ 0
P300,000
P240,000
Less: Goodwill impairment loss 0 240,000
Consolidated Retained earnings, January 1, 20x7 P1.055,000
equity holders of parent for 20x7 (refer to No. 30) 943,000
Total P1,998,000
Consolidated Retained Earnings, December 31, 20x7 P1,498,000
Or, alternatively:
Retained earnings - Parent Company, December 31, 20x7 (cost model P1,270,000
- 20x7 (UPEI of S – 20x7) or Realized profit in beginning inventory of S
Downstream - net unrealized gain on sale of equipment – prior to
12/31/20x6 or 1/1/20x7 [P300,000 – (P12,000 x 3 years)] __264,000
transactions with third parties.. P 971,000
Retained earnings – Subsidiary Sloch, December 31, 20x7 P 330,000
Less: Retained earnings – Subsidiary Sloch, date of acquisition 685,000
12/31/20x7 or 1/1/20x8 (P75,000 – P5,000) __70,000
P 245,000
P 147,000
Less: Goodwill impairment loss, partial goodwill ____0 147,000
Retained earnings – Subsidiary Zeek, date of acquisition P 575,000

Less: Retained earnings – Subsidiary Zeek, January 1, 20x7 1,050,000
Less: Amortization of allocated excess ______ 0
P 475,000
Multiplied by: Controlling interests %................... _ 80%
P 380,000
Less: Goodwill impairment loss __ 0 380,000
Consolidated Retained earnings, December 31, 20x7 P1,498,000
33. Increase of P3,000

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
34. P403,200
The requirement “equity from subsidiary income” and available choices in the problem are
on the assumption of the use of “equity method”. So, the answer then would be (c)
20x4
Unrealized gain on sale of equipment (upstream sales): 120,000 x 80% ( 96,000)
P120,000 / 5 years = P24,000 x 80% ___19,200
Net 403,200
Theories
1. d 6. c 11. c 16. b 21. b 26. b 31 d
2. c 7. c 12. c 17. a 22. d 27. c
3. d 8. a 13. d 18. a 23. c 28. b
4. d 9. a 14. b 19. c 24. c 29. c
5. b 10, c 15, d 20. a 25. b 30. c
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)
Peso P8,000
2. FCU = = = $200; or
Direct Exchange Rate P40.00
= P8,000 x $1/P40 = $200
3. 4,000 Singapore dollars x P32 = P128,000
Problem II
a. Exchange rates:
Arrival Date Departure Date
1 Singapore dollar = P33.00 1 Singapore Dollar = P32.50

Direct
Exchange Rate (P33,000 / 1,000 Singapore (P3,250 / 100 Singapore
dollars) dollars)
P1.00 = .03 Singapore dollars P1.00 = .03 Singapore dollars

Indirect
Exchange Rate (1,000 Singapore dollars / (100 Singapore dollars /
P33,000) P3,250))
2. 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 = P3,300
Departure date
100 dollars x P32.50 = 3,250
Foreign Currency Transaction Loss P 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.
Settlement Direct Exchange Rate Indirect Exchange Rate

Transaction Currency Increases Decreases Increases Decreases
Importing Peso NA NA NA NA
Importing L G G L
LCU
Exporting Peso NA NA NA NA
Exporting LCU G L L G
Problem IV
1.
December 1, 20x4 (Transaction date):
Purchases…………………….. 973,200
Accounts payable ($24,000 x P40.55)……………………………… 973,200
December 31, 20x4 (Balance sheet date):

Foreign currency transaction loss….………………….. 6,000
Accounts payable [$24,000 x (P40.80 – P40.55)]……… 6,000
Accounts payable valued at 12/31 Balance Sheet

($24,000 x P40.80)……… P979,200
Accounts payable valued at 12/1 Date of Transaction
($24,000 x P40.55)……… 973,200
Adjustment to accounts payable needed……….. P 6,000
March 1, 20x5 (Settlement date):

Accounts payable………………… 979,200
Foreign currency transaction gain [$24,000 x (P40.80 – P40.65)] 3,600
Cash ($24,000 x P40.65)……………. 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 receivable ($60,000 x P40.00)……………………………… 2,400,000
Sales 2,400,000
Accounts receivable……….. 42,000
Foreign currency transaction gain [$60,000 x (P40.70 – P40.00)] 42,000
Accounts receivable valued at 12/31 Balance Sheet

($60,000 x P40.70)……… P2,442,000
Accounts receivable valued at 12/1 Date of Transaction
($60,000 x P40.00)……… 2,400,000
Adjustment to accounts receivable needed……….. P 42,000
March 1, 20x5 (Settlement date):

Cash ($60,000 x P40,60)……………….. 2,436,000
Foreign currency transaction loss……… 6,000
Accounts receivable ($60,000 x P40.70)………. 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 the 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 investment (FVTPL)/Financial Asset …………… 3,840,000
Cash 3,840,000
To record the purchase of shares in Pineapple Computers at a cost of
$96,000 at the exchange rate of P40.
December 10, 20x4 (Transaction date):

Equipment ………………………… 636,000
Cash 636,000
To record the purchase of equipment costing 12,000 euros at the
exchange rate of P53.

Equity investment (FVTPL)/Financial Asset …………… 1,020,000
Unrealized gain in fair value of equity investment (financial asset) 1,020,000
To record gain in fair value of Pineapple Computer’s share.
12/31/x4: Revalued Investment and translated at the rate on

the date of revaluation (closing/current rate):
(1,200 units x $100 x P40.50)……………. P4,860,000
11/1/x4: Investment, cost (1,200 units x $80 x P40.00) 3,840,000
Unrealized gain on equity investment P1,020,000
Less: Foreign currency transaction gain – equity investment
11/1/20x4: Date of transaction (1,200 units x $80 x P40).. P3,840,000
Less: 12/31/20x4: B/S Date (1,200 units x $80 x P40.50)…. 3,888,000 48,000
Other unrealized gain in the fair value of equity investment... P 972,000
Foreign currency transaction loss….………………….. 19,200

Accounts payable [$96,000 x (P53.20 – P53)]……… 19,200
To record exchange loss on accounts payable in euros.
Accounts payable valued at 12/31 Balance Sheet

(1,200 x $80 x P53.20)……… 5,107,200
Accounts payable valued at 12/1 Date of Transaction
(1,200 x $80 x P53.00)……… 5,088,000
Adjustment to accounts payable needed……….. P 19,200
February 3, 20x5 (Settlement date):

Accounts payable………………… 5,107,200
Foreign currency transaction loss [$96,000 x (P53.80 – P53.20)] 57,600
Cash ($96,000 x P53.80)……………. 5,164,800
To record exchange loss on accounts payable in euros and settlement of
accounts 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 equity investment through profit or loss (or
a financial 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
non-monetary 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 c u rr en t / closing rate at balance sheet date. The
exchange loss is expensed off to the income statement
Problem VII
1. May 1 Inventory (or Purchases) 8,400
Foreign purchase denominated in pesos
June 20 Accounts Payable 8,400

Cash 8,400
Settle payable.
July 1 Accounts Receivable 10,000

Sales 10,000
Foreign sale denominated in pesos
August 10 Cash 10,000

Collect receivable.
2. May 1 Inventory (or Purchases) 8,400

Accounts Payable (FC1) 8,400
Foreign purchase denominated in yen:
P8,400 / P.0070 = FC1 1,200,000
June 20 Foreign Currency Transaction Loss 600
Accounts Payable (FC1) 600
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) 9,000
Settle payable denominated in FC1.
July 1 Accounts Receivable (FC2) 10,000

Sales 10,000
Foreign sale denominated in foreign currency 2
(FC 2)
FC3: P10,000 / P.20 = FC2 50,000
August 10 Accounts Receivable (FC2) 1,000

Foreign Currency Transaction Gain 1,000
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 11,000
Receive FC 2 in settlement of receivable
Problem VIII
1. Denominated in FC
RR Imports reports in Philippine pesos:
12/1/x4 12/31/x4 1/15/x5
Transaction Balance Sheet Settlement

Date Date Date
Direct
Exchange P.70 P.66 P.68
Rate
2. December 1, 20x4
Inventory (or Purchases) 10,500
Accounts Payable (FC) 10,500
P10,500 = FC 15,000 x P.70
December 31, 20x4

Accounts Payable (FC) 600
Foreign Currency Transaction Gain 600
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)
January 15, 20x5

Foreign Currency Transaction Loss 300
Accounts Payable (FC) 300
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)
Accounts Payable (FC) 10,200

Foreign Currency Units (FC) 10,200
P10,200 = FC 15,000 x P.68
Accounts Payable (FC)

(FC 15,000 x P.70) 12/1/x4 10,500
AJE 12/31/x4 600
(FC 15,000 x P.66) Bal 12/31/x4 9,900
AJE 1/15/x5 300
(FC 15,000 x P.68) Bal 1/15/ x5 10,200
1/15/x5 Settlement 10,200
Bal 1/16/x5 -0-
Problem IX
1. December 31, 20x6
Accounts Receivable (FC1) 10,000
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

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
2. Accounts Receivable (FC1) 1,900

Adjust receivable denominated in FC1
to equivalent peso value on
settlement date:
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 164,000
Accounts Receivable (P) 164,000
Collect all accounts receivable.
3. Accounts Payable (FC2) 6,300

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) 86,000

Cash 86,000
Payment of all accounts payable.
4. Transaction gain on FC:

December 31, 20x6 P10,000 gain
December 31, 20x7 1,900 gain
Overall P11,900 gain
5. Transaction gain on FC2:

December 31, 20x6 P 5,200 gain
December 31, 20x7 6,300 gain
Overall P11,500 gain
6. Overall foreign currency transactions gain:

Gain on FC1 transaction P11,900
Gain on FC2 transaction 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
Foreign Currency Foreign Currency
Accounts Accounts Transaction Transaction
Receivable Payable Exchange Loss 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) LCU 40,000 x P.40
(b) LCU 40,000 x (P.40 - P.45)
(c) LCU 20,000 x P1.90
(d) LCU 20,000 x (P1.90 - P1.80)
(e) LCU 30,000 x P.90
(f) LCU 30,000 x (P.90 - P.80)
(g) LCU 2,500,000 x P.0025
(h) LCU 2,500,000 x (P.0025 - P.003)
1. c C$1 / P.90 (C$1.11 = P1.00)
2. d 20x4 20x5
P.4895 x FC30,000 P14,685 P.4845 x FC30,000 P14,535
P.4845 x FC30,000 14,535 P.4945 x FC30,000 14,835
Gain P 150 Loss P (300)
3. b
20x4
Date of transaction (12/1/20x4) P .0095
Balance sheet date (12/31/20x4) .0096
Foreign exchange currency loss per FC P .0001
Multiplied by: No. of FC 1,000,000
Foreign exchange currency loss P 100
20x5
Balance sheet date (12/31/20x4) P .0096
Date of settlement (1/10/20x5) .0094
Foreign exchange currency gain per FC P .0002
Foreign exchange currency gain P 200
4. c
Balance sheet date (12/31/20x4) P125,000
Date of settlement (7/1/20x5) 140,000
Foreign exchange currency loss P 15,000
5. b January 15
Foreign Currency Units (LCU) 300,000
Exchange Loss 15,000
Accounts Receivable (LCU) 315,000
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
6. c – spot rate on the date of transaction

7. a - spot rate on the date of transaction
8. d P120,000 = July 1, 20x4, Peso equivalent value
P140,000 = December 31, 20x4, Peso equivalent value
(LCU 840,000 / P140,000) = LCU 6 / P1
-105,000 = July 1, 20x5, Peso equivalent value
(LCU 840,000 / 8) = P105,000
P(35,000) Foreign currency transaction loss
9. d P27,000 = P6,000 + P20,000 + P1,000
Accounts Payable (FCU)

1/20/x4 90,000
AJE 6,000
3/20/x4 96,000
Foreign Exchange Loss 6,000

Accounts Payable (FCU) 6,000
Notes Payable (FCU)

7/01/x4 500,000
AJE 20,000
12/31/x4 520,000
Notes Payable (FCU) 20,000
Interest Payable (FCU)

(FCU500,000 x .10 x 1/2 year) 25,000
AJE 1,000
12/3/x4 26,000
Interest expense 25,000
Interest Payable (FCU) 25,000

Interest Payable (FCU) 1,000
10. c P5,000
Accounts Receivable (FCU)
10/15/x4 100,000
AJE 5,000
11/16/x4 105,000 Settlement 11/16/x4 105,000
Accounts Receivable (FCU) 5,000

Foreign Exchange Gain 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.
11. b P1,000
(10,000 x P.60) 4/08/x4 6,000
x4 AJE 500
(10,000 x P.55) 12/31/x4 5,500
X5 AJE 1,000
(10,000 x P.45) 3/01/x5 4,500
Settlement 4,500
Bal. -0-
X5 AJE Accounts Payable (FCU) 1,000
12. b 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.
13. c –
Date of transaction (7/7) P 2.08
Balance sheet date (8/31) 2.05
Foreign exchange currency gain per FCU P .03
Multiplied by: No. of FCU 350,000
Foreign exchange currency gain P 10,500
14. 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)
15. a
Date of transaction P .75
Date of settlement .80
16. d
Date of transaction (12/15) P .60
Balance sheet date (12/31) .65
17. b
Date of transaction (11/30) P 1 .65
18. b
Date of transaction (11/30) P1.49
19. a
Date of arrival (P1,000 / 480,000 FC) P .00208
Date of departure (P100/50,000 FC) .00200
Foreign exchange currency loss per FCU P .00008
20. b
Foreign exchange currency gain per LCU P .10
Multiplied by: No. of LCU 5,000
21. d
Date of transaction (11/2) P 1. 08
Foreign exchange currency gain per LCU P .02
Multiplied by: No. of LCU 23,000
22. a
Date of transaction (9/3) : P17,000 / P.85 = 20,000 FC P . 85
Date of settlement (10/10) .90
Multiplied by: No. of FC 20,000
23. a
Balance sheet date (12/31) .262
24. d
Balance sheet date (12/31) P .262
25. c
Foreign exchange currency gain (No. 25) P 300
Foreign exchange currency loss (No. 26) _ 200
Overall gain , net P 100
or,
26. b – any gain or loss on foreign currency should be considered ordinary.

27. d
Pigskin, a Philippine Corporation
Date of transaction (4/8) : P1 / .65 FC (direct quote) P 1.54
Date of settlement (5/8): P1/ .70 FC (direct quote) 1.43
28. 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.
29. e
1/1: Date of transaction – spot rate P 1.7241
12/31: Balance sheet date 1.8182
30. b
Balance sheet date (12/31/20x4) P 1.8182
Date of settlement (1/30/20x5) 1.6666
31. 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).
32. c
5/8: Date of transaction – spot rate P 1.25
5/31: Balance sheet date 1.26
Foreign exchange currency loss per FC P 0.01
33. 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)
34. a
35. d
4/8/20x3: Date of transaction P 97,000
12/31/20x3: Balance sheet date 103,000
36. d
37. d
11/4/x6: Date of transaction – spot rate P .70
12//31/x6: Balance sheet date .67
38. d
39. b
Income statement:
Foreign exchange currency gain per FC P 0.003
Balance sheet: Inventory should be spot rate on the transaction date:

P.798 x 1,000,000 = P798,000.
40. a
Income statement:
Sales should be spot rate on the transaction date:

P.181 x 1,000,000 = P181,000
41. b - 70,000 x P.65

42. b - 70,000 x P.65
43. a - 70,000 x P.72
44. c - 70,000 x (P.72 - P.65)
45. b - 70,000 x (P.69 - P.72)
46. d - 25,000 x P1.14
47. b - 25,000 x P1.06
48. a - 25,000 (P1.14 - P1.06)
49. d - 25,000 (P1.06 - P1.09)
50. d – spot rate on the date of settlement
51. b – spot rate on the date of purchase/transaction
52. b - spot rate on the date of transaction
53. a – refer to page 646 of the book for the discussion of “one-transaction theory”
54. c – (P.82 – P.82) x 1,000 FCUs
55. No answer available - P5 exchange gain = (P.81 – P.8050) x 1,000 FCUs
56. b – spot rate on the date of transaction(loan date) – 5,000,000 x P1.150
57. d – spot rate on the balance sheet date – (5,000,000 x 5%) x P1.1490
58. a – (P1.15 – P1.149) x 5,000,000 = P5,000 gain
59. d – spot rate on the date of transaction(loan date) – (5,000,000 x 5%) x P1.1485
60. d
P78,000/P.80 per FCU = P 97,500
P78,000/P.78 per FCU = _100,000
Difference in FCU = P (2,500)
Difference in pesos (2,500) x .78 = P (1,950)
61. b - P97,500 francs (from 60 above) x P.78 = P76,050

62. d
Indirect exchange rate:
for the Singapore dollars: 1/07025 = 1.4235
for the HK dollars: 1/2.5132 = .3979
63. a - HK$10,000 x P2.5132/HK$ = P25,132

64. b - P10,000/P.7025 = 14,235 Singapore dollars
Quiz-XIX
1. c P4,000
(200,000 x P.4875) 12/10/x4 97,500
AJE 4,000
(200,000 x P.4675) 12/31/x4 93,500
Accounts Payable (FCU) 4,000

2. d P280,000 = July 1, 20x5, Peso equivalent value

-240,000 = December 31, 20x4, Peso equivalent value
P 40,000 Foreign currency transaction loss
3. d
20x4: (P.5395 – P.5445) loss x 70,000 FCU = P350 loss
20x5: (P.5445 - .P5495) loss x 70,000 FCU = P350 loss
4. b - 30,000 x P.67 = P20,100; P20,100 - P20,400 = P300 loss
5. b
6. b
Date of transaction (3/1) : P31,000 / P.31 = 100,000 FC P . 31
7. P4,000 gain
8. P5,000 gain
9. d
20x4: (P.5395 – P.5445) loss x 70,000 FCU = P350 loss
20x5: (P.5445 - .P5495) loss x 70,000 FCU = P350 loss
10. P188,500 – spot rate on the date of transaction (date of purchase)– 6,500,000 x P0.029
11. P26,000 exchange gain – (P0.029 – P0.025) x 6,500,000
12. P162,500 – spot rate on the date of settlement – P0.025 x 6,500,000 = P162,500
13. P87,376 – spot rate on the date of transaction (date of sale) – P1.016 x 86,000 = P87,376
14. P516 exchange gain = (P1.022 – P1.016) x 86,000
15. P87,892 – spot rate on the date of settlement
16. P200,000 exchange gain = (P1.50 – P1.48) x 10,000,000 FCUs
17. P(500,000) exchange loss = (P1.45 – P1.50) x 10,000,000 FCUs
18. P136,920 = spot rate on the date of transaction (P1.1410 x 120,000 FCUs)
19. P137,400 = spot rate on the date of settlement (P1.1450 x 120,000 FCUs)
20. P360 exchange gain = (P1.420 – P1.450) x 120,000 FCUs
21. P480 exchange gain = (P1.1410 – P1.1450) x 120,000 FCUs
22. 20x3 - P1,000 gain; 20x4 - P500 loss
Account payable, Dec 05, 20x3
1,000,000 x P0.168 = 168,000
Account payable, Dec 31, 20x3
1,000,000 x P0.167 = 167,000
Gain 1,000
Account payable, Dec 31, 20x3 167,000

Account payable, at settlement 167,500
Realized loss 500
23. 150,000 FCUs x (1.60 – 1.62) = P(3,000) loss

24. 150,000 FCUs x 1.62 = P243,000
25. P1,042 foreign exchange loss
10/15/x5 Accounts receivable 16,667
Sales 20,000/P1.2 16,667
12/10/x5 No entry
12/13/x5 Cash 20,000/P1.28 15,625
Foreign exchange loss 1,042
26. P16,667 - refer to No. 25
27. P16,667
28. c
29. c
Theories
Completion Statements
1. International Accounting Standards Board
2. International Accounting Standards
3. commodities
4. conversion
5. translation
6. indirect
7. direct
8. floating, free
9. spot
10. differential rates of inflation
11. purchasing power parity theory
12. denominated
13. measures
14. exposed asset position
15. exposed liability position
16. transaction date
17. bank wire transfers
True or False/Multiple Choice

1. False 6. False 11. True 16. False 21. False 26. True 31. True 36. False
2. True 7. True 12. False 17. True 22. True 27. False 32. False 37. True
3. False 8. False 13. True 18. False 23. True 28. False 33. False 38. False
4. True 9. True 14. False 19. False 24. False 29. True 34. True 39. True
5. False 10. False 15. True 20. False 25. True 30. False 35. False 40. True
41. False 46. b 51. c 56. d 61. c 66. d 71. d 76. b

42. True 47. b 52. a 57. c 62. b 67. c 72. c 77. a
43. False 48. d 53. a 58. d 63. a 68. c 73. b 78. d
44. True 49. b 54. b 59. a 64. c 69. b 74. a 79. b
45. True 50. d 55. d 60. c 65. c 70. d 75. c 80. d
81. b 86. d 91. c 96. b

82. d 87. b 92. a 97. a
83. d 88. b 93. d 98. d
84. c 89. b 94. c 99. c
85. d 90. d 95. c/d 100. d
.
Chapter 20
Problem I
In relation to the above data, the following relevant exchange rates are needed for further
analysis in relation to hedged item and hedging instrument:
Forward Rate for

3/1/20x5 Settlement
Spot Rate (or Expiration)
December 1, 20x4…………………………. P40.00 P40.15 (*90 days)
December 31, 20x4…………………………. P40.30 P40.40 (**60 days)
March 1, 20x5………………………………….. P40.20***
*original 90-day forward rate on 12/1/20x4
**remaining or current forward rate on 12/31/20x4
***the forward rate at expiration or maturity is equal to spot rate as the remaining period of the forward contract is
zero.
1. Not a Hedge Accounting - Importing Transaction (Exposed Liability).
a. The journal entries to record the hedged item and hedging instrument are as follows:
Gross Method
Hedged Item – Importing Transaction Hedging Instrument – Forward Contracts
(Exposed Liability) ( Broad Approach or Gross Position Accounting)
December 1, 20x4
Transaction Date Date of Inception/Hedging of 90 days Forwards
Inventory ($1,200 x P40)…………... 48,000 FC Receivable from XD…………… 48,180

Accounts payable………………. 48,000 Pesos Payable to XD 48,180
To record purchase of goods on (P40.15 x $1,200)
account using the spot rate on To record forward contract to
2/1/1/x4. buy $12000 using forward rate.
*XD – exchange dealer
If the financial statements are prepared on December 1, 20x4, the value of the forward
contract is as follows:
Balance Sheet Presentation on 12/1/20x4

FC Receivable from XD……………………… P48,180
Less: Pesos payable to XD…………………… 48,180
Forward Contract (fair value)………………. P 0
December 31, 20x4

(Balance Sheet Date an intervening financial reporting date)
FC Transaction Loss 360 FC Receivable from XD…………… 300

Account payable……………. 360 FC Transaction Gain 300
[P40.30 – P48.00) x $1,200 [(P40.40 – P40.15) x $1,200]
To record a loss on the exposed To record a gain on foreign
liability denominated in foreign currency to be received from
currency. FC dealer.
*FC – foreign currency

FC Receivable from XD (P40.40 x $1,200)… P48,480
Less: Pesos payable to XD (fixed at P40.15) 48,180
Forward Contract (fair value – asset)……… P 300
On March 1, 20x5 (the transaction date and the settlement date), the journal entries are:
March 1, 20x5
Settlement Date Settlement Date/Date of Expiration of Contract
Accounts payable 120 FC Transaction Loss 240

FC Transaction gain……. 120 FC Receivable from XD 240
[(P40.20 – P40.30) x $1,200}…….. [(P40.40 – P40.20) x $1,200]
To record a gain from 12/31/x4 to To record a loss on foreign
3/1/x5 on liability denominated in currency to be received from
FC. FC dealer.
Pesos Payable from XD……………. 48,180

Cash………………………………. 48,180
To record payment to
exchange dealer.
Investment in FC……………………. 48,240

FC Receivable from XD 48,240
To record receipt of foreign
Currency.
Accounts payable…………………… 48,240 Cash……………………………………. 48,240

Cash (refer to note below)……… 48,240 Investment in FC…………………. 48,240
To record payment of accounts To record conversion of US
payable at spot rate. dollars into cash for payment of
accounts payable.
Note: This entry may be ignored and instead the
Investment in FC will be outright credited in payment
of accounts payable. For succeeding illustrations the
conversion of FC to peso cash to settle items
acquired will be used.
These transactions can be summarized in the following table.
Hedged Item (Exposed Liability) Hedging Instrument (Forward Contract)

Transaction Transaction
Accounts Payable Balance gain (loss) FC Receivable Balance gain (loss)
12/1/20x4 P48,000 12/1/20x4 P48,180
12/31/20x4 48,360 (P 360) 12/31/20x4 48,480 P 300
3/1/20x5 48,240 120 3/1/20x5 48,240 (240)
Total gain (loss) (P 240) P 60
Thus, the net effect is a P150 loss when the forward contract is used.
“Net” Position Accounting
The following illustrates the effects of “net” position accounting using the same illustration
above:

(Exposed Liability) ( Net Position Accounting)
December 1, 20x4
Inventory ($1,200 x P40)…………... 48,000 Memorandum entry only,

Accounts payable………………. 48,000 No formal journal entry as the fair value of forward
To record purchase of goods on contract is zero.
account using the spot rate on
2/1/1/x4.
It should be noted that the accounts payable for the inventory purchase is recorded using
the spot rate on the transaction date (on December 1, 20x3).
December 31, 20x4

(Balance Sheet Date, an intervening financial reporting date)
FC Transaction Loss 360 Forward Contract 300

Accounts payable 360 FC Transaction Gain 300
[P40.30 – P40.00) x $1,200 [(P40.40 – P40.15) x $1,200]
To record a loss on the exposed To record a gain on foreign
liability denominated in foreign currency to be received from
currency. FC dealer.
Forward contract (debit balance – asset)………………………. P 300
The income statement would report an exchange loss of P360 and an exchange gain of
P250.
March 1, 20x5

FC Transaction gain……. 120 Forward Contract 240
[(40.20 – P40.30) x $1,200}…….. [(P40.40 – P40.20) x $1,200]
To record a gain from 12/31/x4 to To record a loss on foreign
FC. FC dealer.
Accounts payable (P40.20 x $1,200) 48,240 Cash………………………………….. 60

Cash (P40.20 x $1,200) or * 48,240 Forward Contract 60
To record payment to exchange Net settlement received from the
dealer (XD) dealer on expiration or maturity
date of forward contract.
*(P40.15, forward rate on the date of inception x $1,200) + cash received from the exchange dealer of P50.
Forward Contract (Asset/Liability)

12/31/x4 Gain… 300 240… …..3/1/x5 Loss
3/1/x5 Net…… 60 60
b.
b.1. P360 loss - [(P40.30 – P40.00) x $1,200]
b.2. P300 gain - [(P40.40 – P40.15) x $1,200]
b.3. P360 loss – P300 gain = P60 net loss (decrease in net income)
b.4. P120 gain - [(P40.20 – P40.30) x $1,200}
b.5. P240 loss - [(P40.40 – P40.20) x $1,200]
b.6. P240 loss – P120 gain = P120 net loss (decrease in net income)
c.
c.1. P48,360 - [P40.30, spot rate/current rate on the balance sheet date x $1,200]
c.2. P48,240 – [P40.20, spot rate on the date of settlement x $1,200]
d.
d.1. P48,180 - [P40.15, original (90-day) forward rate on the date of hedging x $1,200]
d.2. No entry required
d.3. Same amount with d.1
d.4. No entry required
e.
e.1.
Gross Method
Net Method: Zero. No entry required.
e.2. P300 asset

Gross method
Net Method: P300.

Forward contract (debit balance – asset)… P 300
e.3. P60 debit balance – asset

Gross method
Net Position
12/31/x4 Gain… 300 240… …..3/1/x5 Loss
3/1/x5 Net…… 60
f. P48,000 [P40, spot (current) rates on the date of transaction x $1,200]
2. Fair Value Hedge – Hedging an Unrecognized Foreign Currency Firm Commitment.

Gross Method (for Net Position – same with Exposed Liability)
Hedged Item – (Unrecognized Hedging Instrument – Forward Contracts
Foreign Currency Firm Commitment) ( Broad Approach or Gross Position Accounting)
December 1, 20x4
Date of Commitment (Date of Issuing the Purchase
Order) Date of Inception/Hedging of 90 days Forwards
No journal entry is required to record the firm FC Receivable from XD…………… 48,180
commitment. The forward contract is designated as a Pesos Payable to XD 48,180
hedge of the firm commitment to purchase inventory (P40.15 x $1,200)
on March 1, 20x5. The hedge is accounted for as a To record forward contract to
fair value hedge. buy $1,200 using forward rate.
December 31, 20x4


Firm Commitment 300 FC Transaction Gain 300
[P40.40 – P40.15) x $1,200 [(P40.40 – P40.15) x $1,200]
To record a loss on firm To record a gain on foreign
commitment using the change in currency to be received from
the forward rate. FC dealer.

Assets Liability
FC Receivable from XD (P40.40 x $1,200)....…...P48,480 Firm Commitment…………………………………...P 300
Less: Pesos Payable to XD(fixed at P40.15)….… 48,180
Forward Contract (fair value)……………………P 300
March 1, 20x5
Date of Transaction and Settlement Settlement Date/Date of Expiration of Contract
Firm Commitment………… 240 FC Transaction Loss …………… 240

FC Transaction gain……. 240 FC Receivable from XD……… 240
To record a gain on fair value of [(P40.40 – P40.20) x $1,200]
firm commitment. To record a loss on foreign
currency to be received from
exchange dealer.

Cash………………………………. 48,180
exchange dealer.

currency.
Inventory (P40.20 x $1,200)…………. 48,240 Cash……………………………………. 48,240

Cash ………………………………… 48,240 Investment in FC……………..…... 48,240
To record the purchase of To record conversion of US
inventory for $1,200 at spot rate. dollars into cash for purchase of
inventory.
Firm Commitment……………………. 60
Inventory……………………………. 60
To remove the carrying amount of
the firm commitment from the
balance sheet6 and adjust the
initial carrying amount of the
machine that results from the firm
commitment. This treatment is an
accordance with PAS 39 par. 89b.
Firm Commitment
3/1/x5 Gain……. 240 300… …..12/31/x4 Loss
60 60 3/1/x5 Net
b.
b.1. P300 loss - [(P40.40 – P40.15) x $1,200]
b.2. P300 gain - [(P40.40 – P40.15) x $1,200]
b.3. P300 loss – P300 gain = P0
b.4. P240 gain - [(P40.40 – P40.20) x $1,200}
b.5. P240 loss - [(P40.40 – P40.20) x $1,200]
b.6. P240 loss – P240 gain = P0
c. – same with Exposed Liability

c.1. P48,180 - [P40.15, original (90-day) forward rate on the date of hedging x $1,200]
c.2. No entry required
c.3. Same amount with d.1
d.
d.1. Zero, no entry required
d.2. P300 liability, [(P40.40 – P40.15) x $1,200]
d.3. P60, liability
Firm Commitment
3/1/x5 Gain……. 240 300… …..12/31/x4 Loss
60 3/1/x5 Net
e. Same with Exposed Liability

e.1. Net Method: Zero. No entry required.
Gross Method
e.2. P300 asset

Net Method: P300.
Gross method
e.3. P60 debit balance – asset

Gross method
Net Method
12/31/x4 Gain… 300 240… …..3/1/x5 Loss
3/1/x5 Net…… 60
f. P48,240, spot rate on the date of transaction.
Inventory at spot rate on the date of transaction (P40.20 x $1,200)…………….P48,240
g. P48,180, original (90-day) forward rate on the date of hedging

Inventory at spot rate on the date of transaction (P40.20 x $1,200)…………….P48,240
Less: Firm Commitment account – liability, 3/1/20x5………………………………. 60
Inventory at original (90-day) forward rate on the date of hedging, P40.15….P48,180
3. Cash Flow Hedge - Hedge of a Forecasted Transaction.

Hedged Item – Hedging Instrument – Forward Contracts

Forecasted Transaction ( Broad Approach or Gross Position Accounting)
December 1, 20x4
Date of Forecast Date of Inception/Hedging of 90 days Forwards
No journal entry is required to record the forecasted FC Receivable from XD…………… 48,180
transaction. The forward contract is designated as a Pesos Payable to XD 48,180
hedge against the exposure to increases in the dollar (P40.15 x $1,200)
rate on March 1, 20x5. To record forward contract to
buy $1,200 using forward rate.
December 31, 20x4

No entry required, since it is only a forecasted FC Receivable from XD 300

transaction not guaranteed such as firm commitment. OCI – Exchange Gain (B/S) 300
[(P40.40 – P40.15) x $1,200]
To record a gain on foreign
FC dealer.
FC – foreign currency; OCI - Other Comprehensive Income; B/S – Balance Sheet

Forward Contract (fair value - asset)…..….. P 300
On March 1, 2011 (the transaction date and the settlement date), the journal entries are:
March 1, 20x5
OCI – Exchange Loss (B/S)……… 240

FC Receivable from XD……… 240
[(P40.40 – P40.20) x $1,200]
To record a loss on foreign
FC dealer.

Cash………………………………. 48,180
exchange dealer.

currency.
Machinery (P40.20 x $1,200)………... 48,240 Cash……………………………………. 48,240

Cash ………………………………… 48,240 Investment in FC…………………. 48,240
equipment for $1,200 at the spot dollars into cash for purchase of
rate of P40.20 machinery.
OCI – Exchange Gain……………….. 60 Other Comprehensive Income

Machinery………………………….. 60 3/1/x5 Loss 240 300… ….12/31/x4 Gain
To remove the gain recognized in 60 60 3/1/x5
OCI and adjust the carrying
amount if the machine that results
from the hedged transaction by
this amount. Also, to record the
basis adjustment of the carrying
value of the equipment. This entry
is recorded if PAS 39 par. 98b is
adopted.
b.
b.1. Gain or loss on hedged item, 3/1/20x4: None, no entry required
b.2. P300 gain, other comprehensive income - [(P40.40 – P40.15) x $1,200]
b.3. None.
b.4. Gain or loss on hedged item, 3/1/20x4: None, no entry required for gain or loss. the
only entry is to record the purchase of machinery.
b.5. P240 loss, other comprehensive income - [(P40.40 – P40.20) x $1,200] to be recorded
on March 1, 20x5. The balance of the OCI – gain amounted to P60 computed as
follows:
Other Comprehensive Income
3/1/x5 Loss 240 300… ….12/31/x4 Gain
60 3/1/x5
c. Same with Exposed Liability

c.1. Net Method: Zero. No entry required.
Gross Method
c.2. P300 asset

Net Method: P300.
Gross method
c.3. P60 debit balance – asset

Gross method
Net Method
12/31/x4 Gain… 300 240… …..3/1/x5 Loss
3/1/x5 Net…… 60
4. Not a Hedge Accounting – Speculation.

Hedging Instrument – Forward Contracts

Hedged Item - Speculation ( Broad Approach or Gross Position Accounting)
December 1, 20x4
Date of Inception/Hedging of 90 days Forwards
FC Receivable from XD…………… 48,180

Pesos Payable to XD 48,180
(P40.15 x $1,200)
To record forward contract to
December 31, 20x4

FC Receivable from XD 300

FC Transaction Gain 300
[(P40.40 – P40.15) x $1,200]
FC dealer.

March 1, 20x5
Settlement Date/Date of Expiration of Contract
FC Transaction Loss………………… 240

FC Receivable from XD…………. 240
[(P40.40 – P40.20) x $1,200]
FC dealer.

Cash………………………………. 48,180
exchange dealer.

currency.
Cash……………………………………. 48,240
Investment in FC…………………. 48,240
To record conversion of US
dollars into cash.
b.
b.1. No gain or loss, since it is the date of hedging.
b.2. P300 gain - [(P40.40 – P40.15) x $1,200], only hedging instrument.
b.3. P240 loss
c.
c.1. P48,180 - [P40.15, original (90-day) forward rate on the date of hedging x $1,200]
c.3. Same amount with c.1
d.
d.1.
Gross Method
d.2. P300 asset

Net Method: P300.
Gross method
d.3. P60 debit balance – asset

Gross method
Net Method
12/31/x4 Gain… 300 240… …..3/1/x5 Loss
3/1/x5 Net…… 60
Problem II (Discounting the Fair Value of the Forward Contract)

1. Not a Hedge Accounting - Importing Transaction (Exposed Liability).
The journal entries to record the hedged item and hedging instrument are as follows:

(Exposed Liability) ( Broad Approach or Gross Position Accounting)
December 1, 20x4
Purchases ($1,200 x P40)…………... 48,000 FC Receivable from XD…………… 48,180

Accounts payable………………. 48,000 Pesos Payable to XD 48,180
To record purchase of goods on (P40.15 x $1,200)
account using the spot rate on To record forward contract to
2/1/1/x4. buy $1,000 using forward rate.
*XD – exchange dealer

December 31, 20x4


Account payable……………. 360 FC Transaction Gain 294
[P40.30 – P40.00) x $1,200 To record a gain on foreign
To record a loss on the exposed currency to be received from
liability denominated in foreign FC dealer.
currency.
Note: Discounted or present value for hedged item is Gain [(P40.40 – P40.15) x $1,200]............ P 300
not necessary for exposed asset or liability since spot Less: Discount (P300 x 12% x 2/12)…………… ____6
Rate is in effect. Present value of gain*…………………………. P294
* or P300 x 1 / (1.02); 2% represents 12%/12 = 1% x 2
months = 2%

FC Receivable from XD (P40.40 x $1,200)- P6. P48,474
Less: Pesos payable to XD (fixed at P40.15)… 48,180
March 1, 20x5

FC Transaction gain……. 120 FC Receivable from XD 234
[(P40.20 – P40.30) x $1,200}…….. To record a loss on foreign
To record a gain from 12/31/x4 to currency to be received from
3/1/x5 on liability denominated in FC dealer.
FC.
Note: Discounted or present value for hedged item is Overall gain (P40.20 – P40.15) x $1,200 …….. P 60
not necessary for exposed asset or liability since spot Less: 12/31/20x4 Gain at present value…….. __294
rate is in effect. FC Transaction loss……………………………… P234

Cash………………………………. 48,180
exchange dealer.

Currency.

Cash (refer to note below)……… 48,240 Investment in FC…………………. 48,240
accounts payable.
Note: This entry may be ignored and instead the
Investment in FC will be outright credited in payment
of accounts payable. For succeeding illustrations the
conversion of FC to peso cash to settle items
acquired will be used.
a.
a.1. P360 loss
a.2. P294 gain
a.3. P360 loss – P294 gain = P66 net loss (decrease in net income)
a.4. P120 gain - [(P40.20 – P40.30) x $1,200}
a.5. P234 loss
a.6. P234 loss – P120 gain = P114 net loss (decrease in net income)
b.
b.1.
Gross Method
b.2. P294 asset

Gross method
Net Method: P294.

b.3. P60 debit balance – asset

Gross method
Net Method
12/31/x4 Gain… 300 240… …..3/1/x5 Loss
3/1/x5 Net…… 60
2. Fair Value Hedge – Hedging an Unrecognized Foreign Currency Firm Commitment.


December 1, 20x4
This is computed using the change in the forward rate. These entries are as follows:
December 31, 20x4

Firm Commitment 294 FC Transaction Gain 294
[P40.40 – P40.15) x $1,200 [(P40.40 – P40.15) x $1,200]
To record a loss on firm To record a gain on foreign
Loss…………………………………..................... P 300 Gain [(P40.40 – P40.15) x $1,200] P 300
Less: Discount (P300 x 12% x 2/12)…………… ____6 Less: Discount (P300 x 12% x 2/12)…………….. ____6
Present value of loss*…………………………. P294 Present value of gain*…………………………… P294
months = 2%

Assets Liability
FC Receivable from XD (P40.40 x $1,200) - P6…P48,474 Firm Commitment…………………………………...P 294
Less: Pesos Payable to XD(fixed at P40.15)….… 48,180
Forward Contract (fair value)……………………P 294
March 1, 20x5
Firm Commitment………… 234 FC Transaction Loss …………… 234

FC Transaction gain……. 234 FC Receivable from XD……… 234
To record a gain on fair value of To record a loss on foreign
firm commitment. currency to be received from
exchange dealer.
Overall loss (P40.20 – P40.15) x $1,200 ……….. P 60 Overall gain (P40.20 – P40.15) x $1,200 …….. P 60
Less: 12/31/20x4 Gain at present value……… __294 Less: 12/31/20x4 Gain at present value…….. __294
FC Transaction Gain…………………………….. P234 FC Transaction loss……………………………… P234

Cash………………………………. 48,180
exchange dealer.

currency.
Inventory (P40.20 x $1,200)…………. 48,240 Cash……………………………………. 48,240

Cash ………………………………… 48,240 Investment in FC……………..…... 48,240
inventory for $1,200 at spot rate. dollars into cash for purchase of
inventory.
Firm Commitment……………………. 60
Inventory……………………………. 60
inventory that results from the
firm commitment. This treatment is
an accordance with PAS 39 par.
89b.
Firm Commitment
3/1/x5 Gain……. 234 294… …..12/31/x4 Loss
60 60 3/1/x5 Net
a.
a.1. P294 loss
Foreign Currency Exchange Loss [(P40.40 – P40.15) x $1,200]………… P 300
Less: Discount (P300 x 12% x 2/12)…………………………………………… ____6
Present value of loss*…………………………………………………………… P294
a.2. P294 gain
Foreign Currency Exchange Gain [(P40.40 – P40.15) x $1,200]………. P 300
Present value of gain*………………………………………………………… P294
a.3. P294 loss(a.1) – P294 gain (a.2) = P0
a.4. P234 gain
Overall loss (P40.20 – P40.15) x $1,200 ……………………………………… P 60
Less: 12/31/20x4 Gain at present value……………………………………. __294
FC Transaction Gain……………………………………………………………. P234
a.5. P234 loss
Overall gain (P40.20 – P40.15) x $1,200 …….. P 60
Less: 12/31/20x4 Gain at present value…….. __294
FC Transaction loss……………………………… P234
a.6. P234 gain (a.4) – P234 loss (a.5) = P0
b.
b.1. Zero, no entry required
b.2. P294 liability
Present value of loss* / Firm Commitment…………………………………. P294
b.3. P60 - liability
Firm Commitment
3/1/x5 Gain……. 234 294… …..12/31/x4 Loss
60 3/1/x5 Net
c.
c.1.
Gross Method
c.2. P294 asset

Gross method
Net Method: P294.


Gross method
Net Method
12/31/x4 Gain… 300 240… …..3/1/x5 Loss
3/1/x5 Net…… 60
3. Cash Flow Hedge - Hedge of a Forecasted Transaction.


December 1, 20x4
December 31, 20x4

No entry required, since it is only a forecasted FC Receivable from XD…………… 294

transaction not guaranteed such as firm commitment. OCI – Exchange Gain (B/S)….... 294
FC dealer.
Gain [(P40.40 – P40.15) x $1,200] P 300
Less: Discount (P300 x 12% x 2/12)…………….. ____6
Present value of gain*…………………………… P294
months = 2%

FC Receivable from XD (P40.40 x $1,200)-P6 P48,474
Forward Contract (fair value - asset)…..….. P 294
March 1, 20x5
OCI – Exchange Loss (B/S)………. 234

FC dealer.

Cash………………………………. 48,180
exchange dealer.

currency.
Machinery (P40.20 x $1,200)………... 48,240 Cash……………………………………. 48,240

equipment for $1,000 at the spot dollars into cash for purchase of
rate of P40.20 machinery.
OCI – Exchange Gain……………….. 60 Other Comprehensive Income

Machinery………………………….. 60 3/1/x5 Loss 234 294… ….12/31/x4 Gain
OCI and adjust the carrying
amount if the machine that results
from the hedged transaction by
this amount. Also, to record the
basis adjustment of the carrying
value of the equipment. This entry
is recorded if PAS 39 par. 98b is
adopted.
a.
a.1. Gain or loss on hedged item, 3/1/20x4: None, no entry required.
a.2. P294 gain, other comprehensive income
a.3. None
a.4. Gain or loss on hedged item, 3/1/20x4: None, no entry required for gain or loss. The
only entry is to record the purchase of machinery.
a.4. P234 gain

Overall loss (P40.20 – P40.15) x $1,200 ……………………………………… P 60
Less: 12/31/20x4 Gain at present value……………………………………. __294
FC Transaction Gain……………………………………………………………. P234
a.5. P234 loss, other comprehensive income – {[(P40.40 – P40.20) x $1,200] – P6} to be
recorded on March 1, 20x5. The balance of the OCI – gain amounted to P60
Other Comprehensive Income
3/1/x5 Loss 234 294… ….12/31/x4 Gain
60 3/1/x5
b.
b.1.
Gross Method
b.2. P294 asset

Gross method
Net Method: P294.

b.3. P60 debit balance – asset

Gross method
Net Method
12/31/x4 Gain… 300 240… …..3/1/x5 Loss
3/1/x5 Net…… 60
4. Not a Hedge Accounting – Speculation.

Hedging Instrument – Forward Contracts

Hedged Item - Speculation ( Broad Approach or Gross Position Accounting)
December 1, 20x4
Date of Inception/Hedging of 90 days Forwards
FC Receivable from XD…………… 48,180

Pesos Payable to XD 48,180
(P40.15 x $1,200)
To record forward contract to
December 31, 20x4

FC Receivable from XD 294

FC Transaction Gain 294
FC dealer.
Gain [(P40.40 – P40.15) x $1,200] P 300
Less: Discount (P300 x 12% x 2/12)…………….. ____6
Present value of gain*…………………………… P294
months = 2%

FC Receivable from XD (P40.40 x $1,200)-P6 P48,474
March 1, 20x5
Settlement Date/Date of Expiration of Contract
FC Transaction Loss………………… 234

FC Receivable from XD…………. 234
FC dealer.

Cash………………………………. 48,180
exchange dealer.

currency.
Cash……………………………………. 48,240
Investment in FC…………………. 48,240
To record conversion of US
dollars into cash.
a.
a.1. P294 gain
a.3. P294 gain.
a.5. P234 loss – other comprehensive income
b.
b.1. Zero, no entry required
b.2. P294 liability
Present value of loss* / Firm Commitment…………………………………. P294
b.3. P60 - liability
Firm Commitment
3/1/x5 Gain……. 234 294… …..12/31/x4 Loss
60 3/1/x5 Net
c.
c.1.
Gross Method
c.2. P294 asset
Gross method
Net Method: P294.


Gross method
Net Method
12/31/x4 Gain… 300 240… …..3/1/x5 Loss
3/1/x5 Net…… 60
Problem III
The following relevant exchange rates are needed for further analysis in relation to hedged item
and hedging instrument:
Forward Rate for

8/1/20x5 Settlement
November 1, 20x4…………………. P40.60 P41.25 (*270 days)
December 31, 20x4…………………. P40.75 P41.00 (**210 days)
March 1, 20x5…………………………………… P40.70 P40.95 (***150 days)
August 1, 20x5……………………………….. P41.55****
***remaining or current forward rate on 3/1/20x5
zero.

November 1, 20x4
December 31, 20x4

Firm Commitment ……………………. 300 FC Transaction Loss……………….. 300

FC Transaction Gain……………... 300 FC Receivable from XD………… 300
[P41.25 – P41.00) x $1,200 (P41.25 – P41.00) x $1,200]
To record a loss on firm To record a loss on foreign
Assets Liability
Firm Commitment…………………………………...P 300 Pesos payable to XD (fixed at P41.25)………..P 49,500
Less: FC Receivable from XD (at spot rate)…. 49,200
Forward Contract (fair value)………………….P 300
On March 1, 20x5 (the transaction date), the journal entries are:
March 1, 20x5
Transaction Date (Exposed Liability)
Inventory (P40.70 x $1,200)…………. 48,840

Accounts payable………………. 48,840
(P40.70 x $1,200)
To record the purchase of
inventory for $1,200 at spot rate
and recognize accounts payable.
Inventory ……………………………… 300

Firm Commitment ……………….. 300
inventory that results from the firm
commitment. This treatment is an
accordance with PAS 39 par. 89b.
Firm Commitment
12/31/x4 Gain….. 300
3 / 1/x5 300 300
August 1, 20x5
FC Transaction Loss………………… 1,020 FC Receivable from XD……………. 660

Accounts payable…. 1,020 FC Transaction Gain……………. 660
[(P41.55 – P40.70) x $1,200}…….. [(P41.55 – P41.00) x $1,200]
To record a loss from 3/1/x5 to To record a gain on foreign
FC. FC dealer.

Cash………………………………. 49,500
exchange dealer.

currency.

Cash…………………………………. 49,860 Investment in FC…………………. 49,860
accounts payable.
Problem IV
The following relevant exchange rates are needed for further analysis in relation to hedged item
and hedging instrument:
Forward Rate for

3/1/20x5 Settlement
December 1, 20x4…………………………. P40.00 P40.15 (*90 days)
December 31, 20x4…………………………. P40.30 P40.40 (**60 days)
March 1, 20x5………………………………….. P40.20***
zero.

December 1, 20x4
December 31, 20x4

No entry required, since it is only a forecasted FC Receivable from XD 300

transaction not guaranteed such as firm commitment. OCI – Exchange Gain (B/S) 300
[(P40.40 – P40.15) x $1,200]
FC dealer.
FC – foreign currency; OCI - Other Comprehensive Income; B/S – Balance Sheet
Notice that unlike the fair value hedge, there is no offsetting firm commitment entry since this is a
forecasted transaction. The exchange gain or loss is reported in comprehensive income and will
affect the income statement when the inventory is eventually sold. On the balance sheet, the
forward contract is reported as an asset at its fair value of P300, and the offsetting amount is
reported in other comprehensive income (as a gain).

Fair value of Forward Contract, 12/1/20x4.. P 300
On March 1, 2011 (the transaction date and the settlement date), the journal entries are:
March 1, 20x5
OCI – Exchange Loss (B/S)……… 240

[(P40.40 – P40.20) x $1,200]
FC dealer.

Cash………………………………. 48,180
exchange dealer.

currency.
Inventory (P40.20 x $1,200)………... 48,240 Cash……………………………………. 48,240

merchandise for $1,200 at the dollars into cash for purchase of
spot rate of P40.20 machinery.
Suppose that in April 1, 20x5, the inventory is sold for P54,000 cash.
The entries to record the sale and to reclassify the amounts from Other Comprehensive Income
(a P50 gain, including P250 gain on December 31, 20x4, plus the P200 loss on March 1, 20x5) into
earnings are as follows:
April 1, 20x5
Date of Transaction (Sale) Settlement Date/Date of Expiration of Contract
Cash………... 54,000
Sales………………………………… 54,000
To record the sale of merchandise.
Cost of goods sold…………………… 48,240

Inventory, at cost………………… 48,240
To record cost of sales.
OCI – Exchange Loss……………….. 60 Other Comprehensive Income

Cost of goods sold....................... 60 3/1/x5 Loss 240 300… ….12/31/x4 Gain
OCI and release the OCI to profit
or loss. This entry is recorded in
accordance with PAS 39 par. 98a
is adopted.
Problem V
1. Indirect exchange rates for Australian dollars were:
December 1, 20x4: FC70,000 / P42,000 = 1.667 [P1 equals FC 1.667]
December 31, 20x4: FC70,000 / P41,700 = 1.679 [P1 equals FC 1.679]
2. The balance in the account Foreign Currency Payable to Exchange Broker was
P39,900 at December 31, 20X5, computed as:
P39,900 = FC 70,000 x P.57 Dec. 31 forward rate
3. The direct exchange rate for the 60-day forward contract for the 70,000 foreign
currency (FC) was FC 1 = P.58. This is the result of the following computation:
(P40,600 / FC 70,000) = P.58.
4. P40,600 is the amount of Pesos Receivable from Exchange Broker in the adjusted
trial balance at December 31, 20x4. The balance in this account does not change
because it is denominated in Philippine peso.
5. Indirect spot exchange rates for FC2 were:

October 2: FC2 400,000 / P80,000 = 5 [P1 equals FC2 5]
December 31: FC2 400,000 / P80,800 = 4.950 [P1 equals FC2 4.950]
Or, 4.950 = FC2 1 / P.2020
6. The Pesos Payable to Exchange Broker was P82,000 in both the adjusted and
unadjusted trial balances. The entry to record the forward contract for the 400,000
FC2 on October 2, 20x4, appears below. Note that the account Pesos Payable to
Exchange Broker is denominated in pesos and does not change as a result of
exchange rate changes.
Foreign Currency Receivable from

Exchange Broker (FC2) 82,000
Pesos Payable to Exchange Broker (P) 82,000
7. The direct exchange rate for the 120-day forward contract in FC2 on October 2,
20x4, was P.205. This amount is determined in the following manner: P82,000 / FC2
400,000 = P.205. The P82,000 is the amount of the pesos payable to exchange
broker. This amount is computed by using the forward rate.
8. The accounts payable balance was P80,800 at December 31, 20x4.

P80,800 = FC2 400,000 x P.2020 Dec. 31 spot rate
The entries to support the computations for are presented below:

1. Transactions with Foreign Company 1 (FC1)
December 1, 20x4
Sales 42,000
P42,000 = FC1 70,000 x (P1/FC1 1.667)
Pesos Receivable from Exchange Broker 40,600

Foreign Currency Payable to
P40,600 = FC1 70,000 x P.58 Dec. 1 forward rate,
and also peso amount stated in problem information
(P.58 = P40,600 / FC1 70,000)
December 31, 20x4

Accounts Receivable (FC1) 300
P300 = change in accounts receivable (FC1) as noted
in problem information.
Foreign Currency Payable to

Exchange Broker 700
P39,900 = FC1 70,000 x P.57 Dec. 31 forward rate
- 40,600 = FC1 70,000 x P.58 Dec. 1 forward rate
P 700 = FC1 70,000 x (P.57 - P.58)
2. Transactions with Foreign Company 2 (FC2)
October 2, 20x4
Equipment 80,000
P80,000 = FC2 400,000 x P.20

Pesos Payable to Exchange Broker 82,000
P82,000 = FC2 400,000 x P.2050, and the
P82,000 is presented in the problem
for the foreign currency receivable.
December 31, 20x4

Accounts Payable (FC2) 800
P80,800 = FC2 400,000 x P.202 Dec. 31 spot rate
- 80,000 = FC2 400,000 x P.200 October 2 spot rate
P 800 = FC2 400,000 x (P.202 - P.200)
Foreign Currency Transaction Loss 1,000

Exchange Broker 1,000
P81,000 = FC2 400,000 x P.2025 Dec. 31 forward rate
- 82,000 = FC2 400,000 x P.2050 Oct. 2 forward rate
P 1,000 = FC2 400,000 x (P.2025 - P.2050)
Problem VI
Based on the data given, the following situations can be derived:
Strike price Foreign

(exercise price Currency
Market or or option Option Element Time Intrinsic
Spot Rate price) Situation Existing Value** Value*
12/ 1/20x4 P1.20 P1.20 At-the-money TV P360 P 0
12/31/20x4 P1.28 P1.20 In-the-money TV & IV P240 P4,800
3/ 1/20x5 P1.27 P1.20 In-the-money IV*** P 0 P4,200
TV – time value; IV – intrinsic value.
* (Market price less – option price) x foreign currencies
** Fair value of option – intrinsic value
***time already expired, so need to determine time value unless It is a residual amount.
Hedged Item – Importing Transaction

(Exposed Liability) Hedging Instrument – Option Contracts
December 1, 20x4
Inventory (60,000 FC x P1.2)……….. 72,000 Investment in FC Call Option…….. 360

Accounts payable………………. 72,000 Cash……………………………….. 360
To record purchase of goods on To record purchase of call
account using the spot rate on option.
12/1/1/x4.
December 31, 20x4

FC Transaction Loss………………….. 4,800 Investment in FC Call Option…… 4,680

Account payable………………… 4,800 FC Transaction Gain…. 4,680
[P1.28 – P1.20) x 60,000 FC (P5,040 – P360 = P4,680)
To record a loss on the exposed To record a gain on call option.
liability denominated in foreign
currency.
March 1, 20x5
Accounts payable……………. 600 FC Transaction Loss…………………. 840

FC Transaction gain……. 600 Investment in FC Call Option… 840
[(P1.28 – P1.27) x 60,000 FC…….. (P5,040 – P4,200)
To record a gain from 12/31/x4 to To record a loss on call option
3/1/x5 on liability denominated in
FC.

Cash [(P1.20 x 60,000 FC) + Investment in FC Call Option… 4,200
P4,200, proceeds from call To record the derecognition of
option]………………………….. 76,200 call option on realization.
To record payment of accounts
payable at spot rate.
Problem VII
The following table summarizes the succeeding journal entries in relation to hedged item and
hedging instrument:
Firm Commitment Call Option Contract

Total Call Option (CO Premium x FCs)
Spot Fair Change in (CO)Premium Fair Value of Call Change in
Date Rate value Fair Value per FC Option Fair Value
11/20/x4 P0.20 P.002 P120
12/20/x4 P0.21 (P 600)* (P 600)** P.010*** P600 P480
* $12,000 – $12,600 = $(600).
**(P0.21 – P0.20, spot) x 60,000 FC.
***The premium on 12/20 for an option that expires on that date is equal to the option’s intrinsic value. Given the spot
rate on 12/20 of P.21, a call option with a strike price of P.20 has an intrinsic value of P.01 per mark.
Based on the above data, the following situations can be derived:

11/20/20x4 P0.20 P0.20 At-the-money TV P120 P 0
12/20/20x4 P0.21 P0.20 In-the-money IV P 0 P 600

(Firm Commitment) Hedging Instrument – Option Contracts
November 20, 20x4
Date of Commitment Date of Inception/Hedging of 90 days Forwards
There is no entry to record the sales agreement Investment in FC Call Option…… 120
because it is an executory contract. Cash………………………………. 120
To record purchase of call
option.
December 20, 20x4

FC Loss on Firm Commitment……… 600 Investment in FC Call Option…… 120

Firm Commitment………………… 600 FC Transaction Gain…. 120
[(P.21 – P0.20) x 60,000 FC] (P600 – P480 = P100)
To record loss on firm commitment To record a gain on call option.
based on spot rate.
Equipment…………………………….. 12,600 Cash……………………………….. 600

Cash [(P0.20 x 60,000 FC) + 12,600 Investment in FC Call Option 600
P600, proceeds from call To record the derecognition of
option]………………………….. call option on realization.
To record purchase of equipment
at spot rate (P.21 x 60,000 FC)
Firm Commitment …………………… 600

Equipment…………………………. 600
To derecognized firm
commitment and adjust the
carrying amount of equipment.
Problem VIII
The relevant exchange rates and option premiums are as follows:
11/20/20x4 12/20/20x4
Spot rate (market price) P0.20 P0.18
Strike price (exercise price) 0.20 0.20
Fair value of call option P480 N/A
N/A – not applicable
The following table summarizes the succeeding journal entries in relation to hedged item and
hedging instrument:
Firm Commitment Call Option Contract

Total Call Option (CO Premium x FCs)
Spot Fair Change in (CO)Premium Fair Value of Call Change in
Date Rate value Fair Value per FC Option Fair Value
11/20/x4 P0.20 P.002 P120
12/31/x4 P0.18 P1,200* P1,200** P.000*** P 0 (P120)
* P12,000 – P10,800 = P1,200
**(P.20 – P.18) x 60,000 FC
***The premium on 12/20 for an option that expires on that date is equal to the option’s intrinsic value. Given the spot
rate on 12/20 of P.18, a call option with a strike price of P.20 has no intrinsic value – the premium on 12/20 is P.000.
Based on the above data, the following situations can be derived:

11/20/20x4 P0.20 P0.20 In-the-money TV & IV P120 P 0
12/20/20x4 P0.18 P0.20 In-the-money IV P 0 P 0
** None since the option price is greater than the market price.

(Firm Commitment) Hedging Instrument – Option Contracts
November 20, 20x4
Date of Commitment Date of Inception/Hedging of 90 days Forwards
There is no entry to record the sales agreement Investment in FC Call Option…… 120
because it is an executory contract. Cash………………………………. 120
To record purchase of call
option.
December 20, 20x4

Firm Commitment……… 1,200 FC Transaction Loss……….…… 120

FC Gain on Firm Commitment 1,200 Investment in FC Call Option 120
[(P0.20 – P0.18) x 60,000 FC] (P120 – P0 = P120)
To record loss on firm commitment To record a gain on call option.
based on spot rate.
Equipment…………………………….. 12,000 No entry required since the

Cash [(P0.20 x 60,000 FC) + 12,000 Investment in call option has no
P0, no proceeds from call value.
option]…………………………..
To record purchase of equipment
at spot rate (P.21 x 50,000 FC)
Equipment……….…………………… 1,200
Firm Commitment………………. 1,200
To derecognized firm
commitment and adjust the
carrying amount of equipment.
Problem IX
Based on the data given in the problem, the following situations can be derived:

1/ 1/20x4 P1.15 P1.14 In-the-money TV & IV P8,400 P12,000
6/30/20x4 P1.18 P1.14 In-the-money TV & IV P4,800 P48,000
12/31/20x4 P1.17 P1.14 In-the-money IV*** P 0 P36,000
***time already expired, so need to determine time value unless It is a residual amount.

(Forecasted Transaction) Hedging Instrument – Option Contracts
December 1, 20x4
No journal entry is required to record the forecasted Investment in FC Call Option…….. 20,400
transaction. The forward contract is designated as a Cash……………………………….. 20,400
hedge against the exposure to increases in the dollar To record purchase of call
rate on March 1, 20x5. option.
December 31, 20x4

No entry required, since it is only a forecasted Investment in FC Call Option…….. 32,400

transaction not guaranteed such as firm commitment. OCI – FC Transaction Gain (B/S) 32,400
[P1.18 – P1.14) x 1,200,000 =
P52,800 – P20,400 = P32,400]
To record a gain on call option.
OCI – FC Transaction Gain (B/S) 25,920

FC Transaction Gain 25,920
To reclassify 80% of OCI to
earnings (720,000 /900,000) =
80% ; (80% × P32,400 = P25,920)
On December 31, 20x4 (the transaction date and the settlement date), the journal entries are:
December 31, 20x4

FC Transaction Loss…………………. 16,800

Investment in FC Call Option… 16,800
[(P1.17 – P1.14) x 1,200,000
baht = P36,000 – P52,800]
To record a loss on call option
OCI – FC Transaction Gain (B/S)…. 6,480

FC Transaction Gain………….… 6,480
To record reclassify the
remaining P6,480 of FC gain
from OCI to earnings
(180,000/900,000 x P32,400).n
This entry is recorded if PAS 39
par. 98b is adopted.
Cash……………………………………. 36,000
Investment in FC Call Option… 36,000
[(P1.17 – P1.14) x 1,200,000 baht]
To record the derecognition of
call option on realization.
1. c
Peso Value in 3 months = 3,750 + 37.50 = 3,787.50
FC Value in 3 months = 5,000 + 87.50 = 5,087.50
Fwd rate 3,787.50 ÷ 5,087.50 = .745
2. e
Pound should be FCU
11/10/x6: Original forward rate on the date of hedging..……………………….P 1.64
Balance Sheet date: Remaining (current) forward rate – 12/31/20x6......……. 1.59
Gain on forward contract per FC………...…………………………………………..P .05
Multiplied by: No. of FCs……………………………………………………………….. 100,000
Gain on forward contract..…………………………………………………………….P 5,000
3. a
Euro should be FCU
Balance Sheet date: Remaining (current) forward rate – 12/31/20x6.………. 0.445
Gain on forward contract per FC…………………………………………………..P .005
Gain on forward contract.....………………………………………………………….P 500
4. c -15,000,000 x P.0092
5. b - 15,000,000 x P.0094
6. b - 15,000,000 (P.0094 - P.0092)
7. d - 15,000,000 x P.0091
8. c - 15,000,000 (P.0091 - P.0094)
9. a – forward contract is zero on the date of hedging
10. b – since it is a gain (refer to No. 11) therefore the value of forward contract is an asset
11. d - P4,500 - P0
12. c
13. c - P3,000 - P4,500
14. b - 1,000,000 x P1.116
15. d - 1,000,000 x P1.129
16. a - 1,000,000 (P1.129 - P1.116)
17. a - 1,000,000 x P1.138
18. c - 1,000,000 (P1.138 - P1.129)
19. d – forward contract is zero on the date of hedging
20. a
21. b
22. c
23. d - (P8,000 - P6,000)
24. e – there is no fair value of forward contract on the date of hedging.
25. b – (100,000 FCU x P.74, the forward rate on the date of hedging), the entry would be as
follows (using the gross or broad approach):
Forward contract receivable……………………………………………… 74,000
Pesos payable to exchange dealer……………………………. 74,000
26. d
Original value of Forward Contract Receivable-FC 100,000 x .74 = 74,000
Current (6/30) value of the Fwd Contract Rec-FC 100,000 x .75 = 75,000
Increase in value of Forward Contract Receivable 1,000
Value of Receivable, discounted at 8%, n 1 1,000 - (1,000 x [.08 ÷ 12]) = 993
Value of receivable 74,000 + 993 = 74,993
or,
FC Receivable – date of hedging, 6/1 20x4……………………………………...P 74,000
Add: Forward contract gain P1,000 x [1/1 + (8%/12 x 1 month remaining)].. 993
Forward Contract (FC) Receivable, 6/30/20x4…………………………………. P 74,993
27. d
January 1: Origininal forward rate on the date of hedging..………………..P 0.94
March 1: Spot rate…………………………………………………………………… 0.93
Gain……………………………………………………………………………………..P 0.01
Multiplied by: No. of FCs……………………………………………………………. 100,000
FC Forward Contract Gain…………………………………………………………P 1,000
28. c
Hedging Instrument:
January 1: Origininal forward rate on the date of hedging..………………..P 0.94
March 1: Spot rate…………………………………………………………………… 0.93
Gain……………………………………………………………………………………..P 0.01
Hedged Item:
January 1: Spot rate………………………………………………..………………..P 0.945
March 1: Spot rate…………………………………………………………………… 0.930
Loss………………………………………………………………………………………P 0.015
Multiplied by: No. of FCs…………………………………………………………….. 100,000
Foregin currency exchange loss……..………………………………………….. P 1,500
Net loss………………………………………………………………………………….P 500
29. d
Hedged Item:
January 1: Spot rate………………………………………………..………………..P 0.945
March 1: Spot rate…………………………………………………………………… 0.930
Loss………………………………………………………………………………………P 0.015
Multiplied by: No. of FCs…………………………………………………………….. 100,000
Foreign currency exchange loss……..………………………………………….. P 1,500
30. c – (P.1865 – P.1850) gain x 100,000 FC = P150 gain
31. c – using spot rate
32. c
5/1: Original forward rate (90 days)……..……………………………….P .693
6/30: Current (remaining) forward rate (30 days)……....……………… .695
Forex gain per unit.......……………………………………………………….P .002
Multiplied by: Number of foreign currencies……………………………. 500,000
Foreign exchange gain due to hedging instrument……..……………P 1,000
Less: Discount – P1,000 x 6% x 30/360 days………………………………. 5
PV of foreign exchange gain due to hedging instrument……………P 995
Or, alternatively the computation of present value may also be presented as:
Foreign exchange gain………………………………………………...P 1,000
Divided by: [1% + (6%/12 x 1 month = equivalent to 30 days)]….. 1.005
PV of foreign exchange gain due to hedging instrument……….P 995
Note: Since, the discount rate is given it is assumed that all times present value should be
computed. Present value for hedged item is not necessary for exposed asset or liability since
spot rate is in effect. Unlike, the other types of hedging wherein, forward rates is used to
determine the gain or loss on the hedged item
33. c
Foreign exchange loss due to Hedged Item:
5/1: Spot rate………………………………………………………………P .687
6/30: Spot rate……………………………………………………………… .691
Forex loss per foreign currency…….……………………………………..P .04
Multiplied by: Number of foreign currencies………………………….. 500,000
Foreign exchange loss due to hedged item ………………………..P 2,000
PV of foreign exchange gain due to hedging instrument
(forward contract – refer to No. 32).………………………......... 995
Net Income effect – decrease ………………………………………........ P 1,005
34. d
5/1: Original forward rate (90 days)…..…………………………………….P .693
8/1: Spot rate…………………………………………………………………… .696
Forex gain per currency ……………………………………………………….P .003
Multiplied by: Number of foreign currencies……………………………….. 500,000
Total Foreign Exchange gain due to hedging instrument
(forward contract)............................................................................. .....P 1,500
Less: 6/30 cut-off - PV of foreign exchange gain due to hedging
instrument (forward contract – refer to No. 32)………………..... 995
August 1 - Foreign exchange gain due to hedging instrument
(forward contract)……………………………………………………….P 505
35. e
Hedging Instrument:
Origininal forward rate on the date of hedging……………………………….P 0.105
Balance Sheet date: Remaining (current) forward rate – 12/3/1/20x4…… 0.095
Loss………………………………………………………………………………………P 0.010
FC Forward Contract Loss…………………………………………………………..P 500
Multiplied by: PV factor……………………………………..………………………. .98,03
Forward contract – a liability account (since it is a loss)………………………P 490.15
36. b – (forward rate > spot rate – premium) seller’s point of view considered as premium
revenue since it was sold at a higher rate.
37. b
November 1, 20x4:
Exchange Broker (FC) 12,600
Pesos Payable to Exchange Broker 12,600
Signed 90-day forward exchange contract
to purchase 100,000 FC:
P12,600 = 100,000 FC x P.126 forward rate
38. c
December 31, 20x4
Exchange Broker (FC) 300
Revalue foreign currency receivable to
fair value:
P300 = 100,000 FC x (P.129 - P.126)
39. b
January 30, 20x5
Pesos Payable to Exchange Broker (Pesos) 12,600
Cash 12,600
Deliver pesos to exchange broker in
accordance with forward exchange contract:
P12,600 = 100,000 FC x P.126 contract rate
40. b
January 30, 20x5
Pesos Payable to Exchange Broker (Pesos) 12,600
Cash 12,600
Deliver pesos to exchange broker in
accordance with forward exchange contract:
P12,600 = 100,000 FC x P.126, the 90-day forward rate
41. a
January 30, 20x5
Foreign Currency Receivable from Exchange Broker (FC) 200
Adjust foreign currency receivable to
current peso equivalent:
P12,700 = 100,000 FC x P.127 Jan. 30 spot rate
- 12,900 = 100,000 FC x P.129 Dec. 31 forward rate
P 200 = 100,000 FC x (P.127 - P.129)
Foreign Currency Units 12,700
Foreign Currency Receivable from Exchange Broker 12,700
Receive 100,000 FC from exchange broker:
P12,700 = 100,000 FC x P.127 spot rate
42. d
PAS 32 and 39 (PFRS 9) requires the FCU payable be recorded at the forward rate on the
date of hedging.
Letter (d) is the required entry under the old practice wherein the FCU payable are recorded
using the spot rate on the date of hedging.
43. b
Receivable balance: P319,500 (spot rate on the balance sheet date, P.71 x 450,000 FCU)
Gain or loss: P9,000 loss [(P.73 – P.71) x 450,000 FCU]
44. c – (forward rate > spot rate= premium) buyer’s point of view considered as premium
expense since it was purchase at a higher rate plus a loss on firm commitment (i.e., P1.21 –
P1.20)
45. e
Firm Commitment:
Balance Sheet date: Remaining (current) forward rate – 12/31/206…………. 1.59
Loss on Forward Contract per FC…………………………………………………....P .05
Loss on forward contract……………………………………………………………….P 5,000
46. e
Firm Commitment:
Balance Sheet date: Remaining (current) forward rate – 12/31/20x6......……. 1.59
Gain on forward contract per FC………...…………………………………………..P .05
Gain on forward contract..…………………………………………………………….P 5,000
47. b
Firm Commitment:
Balance Sheet date: Remaining (current) forward rate – 12/31/20x6.………. 0.445
Gain on forward contract per FC…………………………………………………..P .005
Gain on forward contract.....………………………………………………………….P 500
48. a
December 1, 20x6: Spot rate – P1.64 x 100,000....…………............. P164,000
Less: Firm Commitment – liability (credit balance)
8/3/20x6: Original (120-day) forward rate…………………….P 1.60
12/1/20x6: Remaining (60-day) forward rate………………… 1.64
Loss on Firm Commitment………………………………………....P 0.04
Multiplied by: No. of FCs…………………………………………… 100,000 4,000
Value of machine...........................……………………………………… P160,000
49. c - refer to No. 48 (Note: There is no more commitment after the date of transaction which is
12/1/20x6)
50. c -
December 9, 20x6: Spot rate – P2.45 x 100,000……………………… P245,000
Add: Firm Commitment – asset (debit balance)
Gain on Firm Commitment………………………………………..P 0.02
Value of sales, 1/31/20x6…...............…………………………………… P243,000
51. b - refer to No. 50 for computation ((Note: There is no more commitment after the date of
transaction which is 12/9/20x6)
52. c - Forward contracts always have a value of P0 at the date they are established
53. a
54. a - P10,000 - P0
55. c - The forward contract gain or loss is offset by the loss or gain on the sales commitment
56. b
57. c - P25,000 - P10,000
59. a - (50,000,000 x P.0088) + [50,000,000 (P.0092 - P.0087)]
60. b - Forward contracts always have a value of P0 at the date they are established
61. c
62. d - P7,500 - P0
64. d
65. b - P2,500 + P7,500
66. a - The forward contract gain or loss is offset by the loss or gain on the sales commitment
67. b - (2,500,000 x P1.129) + [2,500,000 (P1.139 - P1.138)]
68. b
January 31: Spot rate – P1.59 x 100,000………………………............. P159,000
Add: Firm Commitment – asset (debit balance)
Gain on Firm Commitment………………………………………..P 0.05
Value of merchandise, 1/31/20x4……………………………………… P164,000
The entry would be as follows on 1/31/20x4:

Inventory………………………………………………………………… 164,000
Firm Commitment……………………………………………. 5,000
Cash (P1.59 x 100,000)………………………………………. 159,000
69. d – the original (30-day) forward rate on the date of hedging. Thus,
Hedged Item (Commitment):
Foreign currency exchange loss [(P.28 – P.25) x 100,000 FC]……. 3,000
Firm Commitment………………………………………………. 3,000
Inventory (P.28 x 100,000 FC)……………………………………………28,000

Cash……………………………………………………………….. 28,000
Firm Commitment………………………………………………………… 3,000

Inventory………………………………………………………….. 3,000
Therefore, inventory should be valued at P25,000 (P28,000 – P3,000)
70. e – the inventory should be valued based on the spot rate on the date of transaction since it
was assumed that the firm commitment account will be closed through earnings account.
Normally, the firm commitment should be closed to the asset account in accordance with
PAS 39 par.98b.
71. e - the accounts payable should be valued based on the spot rate on the date of
transaction.
72. c
Firm Commitment:
Original forward rate on the date of hedging…………………………………….P .58
Balance Sheet date: Remaining (current) forward rate – 6/30/20x4…………. .56
Loss on Firm Commitment per FC…………………………………………………..P .02
Loss on firm commitment……………………………………………………………….P 4,000
Loss on commitment (debit) results in a credit to Firm Commitment, thus:

Loss on Firm Commitment…………………………………………… 4,000
Firm Commitment (a liability account)…………………….. 4,000
73. b
Fwd value 4/1 200,000 x 0.58 116,000
Fwd value 6/30 200,000 x 0.56 112,000
Decrease in Fair Value of Payable 4,000
PV of change: 4,000 ÷ 1.01 3,960
[n 1; i (.12 ÷ 12) = .01]
Current value of fwd contract = 116,000 - 3,960 = 112,040
or,
FC payable – date of hedging, 4/1 20x4………………………………………….P 116,000
Less: Forward contract gain [P4,000 x 1/1 + (8%/12 x 1 month remaining)]... 3,960
FC payable – date of hedging, 6/30/ 20x4……………………………………….P 112,040
74. c – (P2.17 – P2.14) x 200,000 FCs = P6,000 loss. No need to compute present value because
the contract already expired.
75. b
1-Aug 30-Aug 30-Sep
Notional amount 15,000 15,000 15,000
Forward rate for remaining time 0.690 0.680 0.675
Initial forward rate 0.690 0.690
Change in original forward rate (0.010) (0.015)
Fair value of fwd contract in future pesos:
Original forward value 10,350 10,350
Current forward value 10,200 10,125
(Gain) Loss in forward rate (150) (225)
Current present value
PV of (P150) n=1; i=0.667% (149)
PV of (P225) n=0; no discounting (225)
Prior present value 0 149
Change in present value (149) (76)
76. d
1-Aug 30-Aug 30-Sep
Notional amount 15,000 15,000 15,000
Forward rate for remaining time 0.690 0.680 0.675
Initial forward rate 0.690 0.690
Change in original forward rate (0.010) (0.015)
Fair value of fwd contract in future dollars:
Original forward value 10,350 10,350
Current forward value 10,200 10,125
(Gain) Loss in forward rate (150) (225)
Current present value
PV of (P150) n=1; i=0.667% (149)
PV of (P225) n=0; no discounting (225)
Prior present value 0 149
Change in present value (149) (76)
77. c - Forward contracts always have a value of P0 at the date they are established
78. a
79. d - [(P600) - P0]
80. b
81. c - [P300 - (P600)]
82. b - Forward contracts always have a value of P0 at the date they are established
83. a
84. c - [(P1,950) - P0]
85. c
86. b - [P635 - (P1,905)]
87. c
Cost of equipment…………………………………………………………………..P 211,000
Less: Fair value of the equipment………………………………………………… 199,000
Impairment loss……………………………………………………………………….P 12,000
88. a – (P17,500 – P13,200) reclassified to earnings

89. e
Original forward rate on the date of hedging…………………………………P 1.64
Balance Sheet date: Remaining (current) forward rate – Dec. 31, 20x6… 1.59
Loss……………………………………………………………………………………..P 0.05
Multiplied by: No. of FCs…………………………………………………………… 100,000
FC Forward Contract Loss…………………………………………………………..P 5,000
90. a
P400 = 10,000 foreign currency units x (P.82 - P.78). The loss is calculated using only forward
rates. On December 31, 20x4, the loss is the difference between the 90-day future rate on
November 1 (P.78) and the 30-day forward rate on December 31 (P.82).
91. b - speculation (gain or loss – income statement)

Balance Sheet date: Remaining (current) forward rate – Dec. 31, 20x4… 0.036
Loss……………………………………………………………………………………..P 0.003
FC Forward Contract Loss…………………………………………………………P 300
92. b - (220,000 FCUs)x (P0.68) = P149,600
93. B - (220,000 FCUs)x(P.68 - P.70) = P4,400 loss
(To adjust the contract to the 30 day futures amount)
94. b
Manage an exposed position:
Value the forward exchange contract (FEC) at its fair value, measured by changes in the
forward exchange rate (FER). Note that the question asks only for the effect on income from
the forward contract transaction; thus, any effect on income from the foreign currency
denominated account payable is not included in the answer.
FER, 12/12/x4 P.90

FER, 12/31/x4 P.93
AJE:
Forward Contact Receivable 3,000
Revalue forward contract:
P3,000 = 100,000 FCU x (P.93 - P.90) change in forward rates

Account Payable 10,000
Revalue foreign currency payable:
P10,000 = 100,000 FCU x (P.98 - P.88) change in spot rates
95. b
Hedge of a Firm Commitment:
Value FEC based on changes in forward rate.
AJE:
Forward Contract Receivable 3,000
Revalue forward contract, using the forward rates.

Firm Commitment 3,000
Recognize loss on firm commitment.
Again, note that the question asks only about the effect on income from the forward
contract, not the underlying firm commitment portion of the transaction
96. b
Speculation:
Value forward exchange contract at fair value based on changes in the forward rate
AJE:
Forward Contract Receivable 3,000
97. b
Call Option:
P29.80 (Market price/Spot Price) > P27.90 (Option/Strike Price)..P1.90 in-the-money
Put Option
P14.25 (Market price/Spot Price) > P16.40 (Option/Strike Price).. 2.15 in-the-money
Intrinsic Value………………………………………………………………….. P4.05
98. d
January 1, 20x6
(the inception date of the 1-yr. put FX option period)
FX Contract Value—Option ............................................................ 8,000
Cash ........................................................................................... 8,000
To record cost of put option acquired.
Note: P1.40, OP > P1.368, Market/spot rate – In-the-money (put option)

March 31, 20x6
(an intervening financial reporting date)
FX Gain (P30,000 × 300,000 FCUs/1,000,000 FCUs)............. 9,000
OCI—FX Gain (P30,000 × 700,000 FCUs/1,000,000 FCUs) 21,000
To adjust option’s carrying value to its fair
value of P106,000 (a given amount). P106,000 – P6,000 = P100,000)
99. a
Note: P1.40, OP > P1.368, Market/spot rate – Out-of-the-money (call option). Time value
element only, therefore any gain or loss is charged to profit and loss or current earnings, not
OCI.
100. d
January 1, 20x6
(the inception date of the 1-yr. put FX option period)
Cash ........................................................................................... 16,000
To record cost of put option acquired.
Note: P.25, OP < P.292, Market/spot rate – In-the-money (Call option)

March 31, 20x6
(an intervening financial reporting date)
FX Gain (P80,000 × 500,000 FCUs/2,000,000 FCUs) x 50%.. 10,000
OCI—FX Gain (P80,000 – P10,000)……................................. 70,000
To adjust option’s carrying value to its fair
value of P106,000 (a given amount). P96,000 – P16,000 = P80,000)
Items 101 through 107 Solution Guide Table:
December 16 December 31 February 14
Spot rate (Market Price) ... P .16 P .15 P .147
Strike price (Option Price) P .16 P .16 .16
Notional amount (in Bolivar) 1,000,000 1,000,000 1,000,000
Intrinsic value (if Market
is < Option (Strike)*........ P 0 P 10,000 P 13,000
Time value** ........................ P 4,000 3,300 0
Fair (Total) value of Option. P 4,000 P 13,300 P 13,000
* (Option Price – Market Price ) x notional amount
** Fair value of option less Intrinsic Value
101. d - The notional amount is the total face amount of the asset or liability that underlies the
derivative contract. A notional amount may be expressed in the number of currency units,
shares, bushels, pounds or other units specified in the financial instrument. Choices letter (a),
(b), and (c) are all fair value of the option contract at different dates.
102. c
On December 31, 20x4:
Fair value of Call Option…………………………………………………………..P 13,300
Intrinsic Value: ( P.16 Option price less P.15 market price,
lower if put option) x 1,000,000 bolivar……………………………………. 10,000
Time Value……………………………………………………………………………P 3,300
103. c (P3,300 – P4,000 = P700 loss); refer to the solution guide table for further analysis.
104. a – (P10,000 – P0 = P10,000 gain); refer to the solution guide table for further analysis.
105. b
Hedging Instrument/Hedging Transaction/Option Contract:
Inception date: Fair value of call option…………………….............................P 4,000
Balance sheet date: Fair value of call option……………………………........ 13,300
Foreign exchange gain……………………………………………………............P 9,300
106. c
Foreign Currency Transaction (Hedged Item):
12/16/20x4: Spot rate…………………………………………………………………P .16
12/31/20x4: Spot rate………………………………………………………………... .15
Forex loss per unit……………………………………………………………………. P .01
Multiplied by: Number of foreign currencies…………………………………… 1,000,000
Foreign exchange loss..........…………………………………................................P 10,000
Inception date: Fair value of call option……………………..............................P 4,000
Balance sheet date: Fair value of call option………………………………….. 13,300
Foreign exchange gain……………………………………………………………...P 9,300
Net foreign exchange loss……………………………………………………………..P 700
107. c
Foreign Currency Transaction (Hedged Item):
12/31/20x4: Spot rate…………………………………………………………………..P .150
2/14/20x5: Spot rate………………………………………………………………….. .147
Forex loss per unit………………………………………………………………………P .003
Multiplied by: Number of foreign currencies…………………………………….. 1,000,000
Foreign exchange loss..........…………………………………..................................P 3,000
Balance sheet date (12/31/x4): Fair value of call option….…………..............P 13,300
Expiration date (2/14/x5): Fair value of call option..…………………………….. 13,000
Foreign exchange loss………………………………………………………………..P 300
Total foreign exchange loss……………………………………………………………..P 3,300
108. c
12/1/20x4:Spot rate……………………………………………………………P .92
12/31/20x4:Spot rate…………………………………………………………. .93
Foreign currency gain……………………………………………. …………P .01
x: No. of foreign currencies…………………………………………………. 1,000,000
Foreign currency gain due to hedged item/commitment…………...P 10,000
Less: Discount – P10,000 x 12% x 2/12 (January and February).…........ 200
PV of foreign exchange gain due to hedged item/commitment.... P 9,800*
Or, alternatively the computation of present value may also be presented as:
Foreign exchange gain – equity..…………………………………………P 10,000
Divided by: [100% + (12%/12 x 2 months remaining)]………………….. 1.02
PV of foreign exchange gain due to hedged item/commitment….P 9,803*
*P3 discrepancy due to rounding-off.
109. c
12/1/20x4: Fair value of Option (P10,000 x P.009)……………………………..P 9,000
12/31/20x4: Fair value of Option (P10,000 x P.006)…………………………… 6,000
Foreign currency loss on hedging transaction (option contract)…………P 3,000
110. b– refer to No. 101 for computation. It is an asset since the counterpart entry is a gain. Thus,
the entry should be:
Firm Commitment…………………………………………………….9, 803
Foreign Currency Gain on Hedged Item/Commitment…. 9,803
111. c
PV of foreign exchange gain due to hedged item/commitment
(refer to No. 70)…………………………………………………………………. P 9,803
Foreign currency loss on hedging transaction (option contract)
– refer to no. 71)………………………………………………………………… ( 3,000)
Impact on net income – increase………………………………………………… P 6,803
112. b
Sales (3/1/20x5 spot rate: P.90 x FC 1,000,000) ……………………… P900,000
Foreign exchange loss on hedged item/commitment, 3/31/20x5:
12/1/20x4 Spot rate…………………………………………………..P .92
3/31/20x5 Spot rate…………………………………………………... .90
Foreign currency loss……………………………………. …………P .02
x: No. of foreign currencies………………………………………… 1,000,000
Foreign currency loss for the entire hedged
item/commitment…………………………………………… P 20,000
Add back: PV of foreign gain due to hedged
item/commitment………………………………………….… 9,803 ( 29,803)
Adjustment: Firm Commitment Account balance (credit balance) –
since the P20,000 is a foreign currency loss then the firm
commitment account is a credit balance……………………… 20,000
Foreign currency gain on hedging transaction (option contract)
12/31/20x4 (inception date): Fair value of option
(P0.006 x FC 1,000,000)………………………………………… P 6,000
3/1/20x4 (expiration date) : Fair value of option
(P0.020 x FC 1,000,000)……………………………………….… 20,000 14,000
Impact on Net Income……………………………………………………. P904,197
113. d – (150,000 FC x P.05 premium = P7,500)

114. a – (150,000 FC x P.04 premium = P6,000)
115. b – (150,000 FC x P.03 premium = P4,500)

116. c – (150,000 FC x P.97 = P145,500)
117. a
Hedged Item/Commitment:
3/01/20x3: Spot rate……………………………………………..P .095
12/31/20x3: Spot rate…………………………………………….. .094
Foreign currency loss per unit…………………………………. P .001
x: No. of foreign currencies……………………………………... 2,000,000
Foreign currency loss due to hedged item/commitment..P 2,000
x: PV factor of an annuity of P1 @ for 12 periods………..… .9803
PV of foreign exchange loss due to hedged item/
commitment..………. ………………………………………. P 1,960.60
Hedging Instrument:
3/01/20x3: Fair value of Option………………………………..P 3,000
12/31/20x3: Fair value of Option6)……………………………... 3,200
Foreign currency gain on hedging transaction
(option contract)………………………………………………………… 200.00
Net impact on 20x3 income – loss (decrease)……………………..……P1,760.60
118. d
Sales (3/1/20x4 spot rate: P.089 x FC 2,000,000) …………………… P 178,000.00
Adjustment: Firm Commitment Account balance
(credit balance) – since the P12,000 is a foreign currency
loss then the firm commitment account is a credit balance 12,000.00*
Adjusted Sales…………………………………………………………… P190,000.00
Foreign exchange loss on hedged item/
commitment, 3/31/2012:
5/01/20x3: Spot rate…………………………………………P .095
3/01/20x4 Spot rate…………………………………………. .089
Foreign currency loss…………………………………. ……P .006
x: No. of foreign currencies…..……………………………. 2,000,000
Foreign currency loss for the entire hedged item
/commitment…………………………………………P 12,000*
Less: PV of foreign loss due to hedged item
/commitment………………………………………… 1,960.60 (10,039.40)
Foreign currency gain on hedging instrument
(option contract):
12/31/20x3 (balance sheet date): Fair value of option.P 3,200
3/01/20x4 (expiration date) : Fair value of option
[(P0.95 – P.089) x FC 2,000,000)..……………………… 12,000 8,800.00
Net impact on 20x4 income – loss (decrease)……………….. P188,760.60
119. c
Net cash inflow with option (P190,000 – P3,000)…………………… P187,000
Cash inflow without option (at spot rate of P.089 x 2,000,000 FC. 178,000
Net increase in cash inflow P 9,000
120. a
Note: P1.40, OP < P1.368, Market/spot rate – Out-of-the-money (put option). Time value
element only, therefore any gain or loss is charged to profit and loss or current earnings, not
OCI. Refer to No. 99.
Quiz - XX
1. a – the machine’s final recorded value should be the spot rate on the date of transaction
since it is hedging that involves exposed liability (P.00781 x 200,000,000 = P1,562,000).
2. c – (P.1865 – P.1850) gain x 100,000 FC = P150 gain
3. using spot rate

Accounts payable…………………………………………………………18,650
FC Units………………………………………………………………… 18,650
4. c – (P42 – P40) gain x 1,000 FC = P2,000 gain
5.
Accounts payable…………………………………………………………42,000
FC Units………………………………………………………………… 42,000
6. b
Hedging Instrument:
Origininal forward rate on the date of hedging……………………………….P 0.90
Balance Sheet date: Remaining (current) forward rate – 12/3/1/20x4…… 0.93
Gain…………………………………………………………………………………….P .03
The entry would be as follows:

Foreign Currency Receivable from Exchange Broker………………6,000
Foreign Currency Gain……………………………………………… 6,000
7. a
The entry on the date of expiration of the contract:
Pesos Payable to Exchange Broker (P.90 x 200,000 FC)……………..180,000
Cash…………………………………………………………………….. 180,000
Foreign Currency Units or Investment in Foreign Currency (P.92)…184,000

Foreign Currency Loss – forward contract...………………………….. 2,000
Foreign Currency Receivable from Exchange Broker (.P93)… 186,000
9. d – refer to No.7
10. c
P1,000 = 50,000 FCs x (P.74 - P.72). The loss is calculated using only forward rates. On
September 30, 20x4, the loss is the difference between the 60-day forward rate of P.74 on
September 1 and the 30-day forward rate of P.72 on September 30, 20x4.
11. d
Date of transaction: 9/1/20x4: Spot rate………………………………………..P 1.46
Balance Sheet date: Sept. 30, 20x4: Spot rate………………………………… 1.50
Gain…………………………………………………………………………………….P .04
FC Transaction Loss………..…………………………………………………………P 10,000
The question refers to foreign currency transaction loss which indicates that only the exposed
liability had a loss, while the the forward contract transaction results in a gain computed as
follows:

Balance Sheet date: Remaining (current) forward rate – Sept. 30, 20x4… 1.48
Gain…………………………………………………………………………………….P .01
If the question is the net impact on the net income the loss on exposed liability and the gain
of forward contract should be offsetted, thereby resulting a net effect of P7,500 decrease in
net income.
12. b – speculation (gain or loss – income statement)

Gain…………………………………………………………………………………….P .01
13. b
Receivable balance: P162,000 (spot rate on the balance sheet date, P.81 x 200,000 FCU)
Gain or loss: P4,000 loss [(P.83 – P.81) x 200,000 FCU]
14.
Balance Sheet date: 4/30/20x4: Spot rate……………………………………… 1.20
Gain…………………………………………………………………………………….P .04
follows:

Gain…………………………………………………………………………………….P .01
net income.
15. P12,000
Balance Sheet date: 4/30/20x4: Spot rate……………………………………… 1.20
Gain…………………………………………………………………………………….P .04
follows:

Gain…………………………………………………………………………………….P .01
net income.
16. P3,000
Gain…………………………………………………………………………………….P .01
17. d
PAS 32 and 39 requires the FCU payable be recorded at the forward rate on the date of
hedging.
Letter (d) is the required entry under the old practice wherein the FCU payable are recorded
using the spot rate on the date of hedging.
18. d – no adjustment required on the date of transaction.
19. (P1.47 x 600,000 FC) the original (60-day) forward rate on the date of hedging (i.e.,
November 30, 20x4)
20. since no forward contract was entered into, the only effect on income statement is only the
foreign currency exchange gain on exposed asset position.
Spot rate on the date of transaction: 12/16/20x4…………………………….P 0.00090
Balance Sheet date: Spot rate – December 31, 20x4………………………. 0.00092
Gain……………………………………………………………………………………P 0.00002
Multiplied by: No. of FCs…………………………………………………………… 10 M
Foreign Currency Exchange Gain……………………………………………….P 200
21. P695.05 increase

Hedged Item: Exposed Asset:
Spot rate on the date of transaction: 12/16/20x4…………………………….P 0.00090
Balance Sheet date: Spot rate – December 31, 20x4………………………. 0.00092
Gain……………………………………………………………………………………P 0.00002
Multiplied by: No. of FCs……………………………………………………………. 10 M
Hedging Instrument:
Original forward rate on the date of hedging: 12/16/20x4…………………P 0.00098
Balance Sheet date: Remaining (current) forward rate – 12/31/20x4…… 0.00093
Gain…………………………………………………………………………………….P .00005
Multiplied by: No. of FCs……………………………………………………………. 10,000,000
FC Forward Contract Gain…………………………………………………………P 500
Multiplied by: PV of P 1 at 12%............……………………………………………. .9901
FC Forward Contract Gain…………………………………………………………P 495.50
Net impact on 20x4 income statement…………………………………………..P 695.05
22. P100 increase

Hedged Item: Exposed Asset:
Balance Sheet date: Spot rate – December 31, 20x4……………………….P 0.00092
Date of Settlement: Spot rate – January 15, 20x5……………………………. 0.00095
Gain……………………………………………………………………………………P 0.00003
Multiplied by: No. of FCs……………………………………………………………. 10 M
Hedging Instrument:
Balance Sheet date: Remaining (current) forward rate – 12/31/20x4……P 0.00093
Date of expiration: Spot rate – January 15, 20x5……………………………… 0.00095
Loss……………………………………………………………………………………..P .00002
Multiplied by: No. of FCs…………………………………………………………… 10,000,000
FC Forward Contract Loss………………………………………………………….P 200
Net impact on 20x5 income statement…………………………………………..P 100
23. c – (forward rate > spot rate – premium) buyer’s point of view considered as premium
expense since it was purchase at a higher rate plus a loss on firm commitment (i.e., P1.21 –
P1.20)
Theories
1. hedging
2. existing assets and liabilities, firm commitments, forecasted transactions
3. firm commitment
4. forecasted
5. hedged item
6. hedging instrument
7. FX forwards, FX options
8. two-sided, counterbalanced
9. one-sided, counterbalanced
10. Hedge accounting
11. exchange rate, specified period
12. call, put
13. option holder
14. option writer
15. premium
16. “in the money”
17. time value element, intrinsic value element
18. exchange rate, future date
19. fulfill, obligation
20. take
21. executory
22. unrealized
23. the net position, setoff
24. premium, discount, time value
25. premium, decrease
26. split accounting
27. designated, effective, firm
28. speculating
29. firm commitment, forecasted transaction
30. market, credit, liquidity
31. market, credit
32. market, liquidity
33. unlimited
34. “on-balance-sheet,” “off-balance-sheet”
35. rights, obligations, assets, liabilities
36. fair values
37. assets, liabilities
38. undesignated, fair value, cash flow, net investment
39. asset, liability, firm commitment
40. forecasted transaction.
41. fair value
42. cash flow
43. net investment
44. earnings
45. other comprehensive income, earnings
46. earnings, earnings
47. forward
48. valuing, reporting
49. hedging effectiveness
50. time value
51. ineffective
True or False
52. False 68. False 84. True 100. False 116. True 132. True 148. False
53. False 69. False 85. False 101. True 117. False 133. False 149. True
54. False 70. True 86. True 102. True 118. False 134. True 150 False
55. False 71. False 87. True 103. False 119. True 135. False 151. True
56. True 72. False 88. False 104. True 120 True 136. False 152. False
57. True 73. False 89. False 105. True 121. False 137. False
58. False 74. True 90. False 106. True 122. False 138. False
59. True 75. True 91. True 107. True 123. False 139. False
60. True 76. True 92. False 108. False 124. False 140. True
61. False 77. True 93. True 109. True 125. True 141. False
62. True 78. True 94. False 110. False 126. False 142. True
63. False 79 False 95. True 111. False 127. True 143. False
64. False 80. False 96. False 112. False 128. False 144. True
65 True 81. False 97. False 113. False 129. True 145. False
66. False 82. False 98. False 114. True 130. False 146. True
67. False 83. True 99. False 115. False 131. False 147. False
Multiple Choice Questions (theories)

153. E 161. C 171. E 181. E 191. C 201. b 211. c
154. B 162. B 172. C 182. C 192. A 202. c 212. c
155. A 163. B 173. B 183. A 193. C 203. d 213. b
156. E 164. B 174. C 184. D 194. B 204. d 204. b
157. E 165 A 175. A 185. D 195. B 205. b 215. b
158. D 166. E 176. A 186. B 196. B 206. c 216. b
159. B 167. E 177. A 187. A 197. d 207. d 217. c
160. D 168. A 178. C 188. B 198. c 208. c 218. d
169. A 179 A 189. A 199. c 209. d 219. d
170. D 180. D 190. C 200. a 210. b 220 a
Note for:
197. An underlying is a financial or physical variable.
199. The net investment must be less than that required for other types.
202. Trading securities do not qualify for hedge accounting. Under PFRS 9, there is no more
classification as to trading and available-for-sale instead it is now classified either as FVTPL and
FVTOCI.
Chapter 21
Problem I
1. Functional Currency Is the Local Currency Unit – Translation Into the Presentation
Currency (Current/Closing Rate Method)
Functional Currency
Is Local Currency Unit – US Dollars
Translation into the Presentation Currency (Current/Closing Rate Method)
Translation Adjusted Trial
Combined Statement of Income and Adjusted Trial Exchange Balance
Retained Earnings Balance ($) Rate (Pesos)
Sales 3,624,000 (A) 40.20 145,684,800
Cost of goods sold 2,220,000 (A) 40.20 89,244,000
Depreciation expense 120,000 (A) 40.20 4,824,000
Other expenses 786,000 (A) 40.20 31,597,200
Income tax expense 98,400 (A) 40.20 3,955,680
Net Income to Retained Earnings 399,600 16,063,920
Retained earnings, 1/1 576,000 (1) 23,040,000
Total 975,600 39,103,920
Less: Dividends declared, 9/1/20x4 360,000 (H) 40.10 14,436,000
Retained earnings, 12/31 to Balance Sheet 615,600 24,667,920
Balance Sheet
Cash………………………. 1,116,000 (C) 40.25 44,919,000
Accounts receivable (net) 729,600 (C) 40.25 29,366,400
Inventory (FIFO) 996,000 (C) 40.25 40,089,000
Land……………………………. 600,000 (C) 40.25 24,150,000
Buildings (net) 780,000 (C) 40.25 31,395,000
Equipment (net) 516,000 (C) 40.25 20,769,000
Total 4,737,600 190,688,400
Accounts payable…………… 768,000 (C) 40.25 30,912,000

Short-term notes payable 762,000 (C) 40.25 30,670,500
Bonds payable………………… 1,080,000 (C) 40.25 43,470,000
Common stock, P10 par……… 1,152,000 (H) 40.00 46,080,000
Paid-in capital in excess of par 360,000 (H) 40.00 14,400,000
Retained earnings, from above _ 615,600 24,667,920
Total 4,737,600 190,200,420
Foreign Currency Translation Reserve Gain OCI) –
credit……………………………………………………… _________ B/A 487,980
Total…… 4,737,600 190,688,400
*Include as a component of other comprehensive income
(1) Retained earnings in pesos on January 2 (date of acquisition)
(A) Average exchange rate used to approximate the rate on the date these elements were recognized.
(H) Historical exchange rate
(C) Current exchange rate
(5) B/A – balancing amount
Verification of the Translation Adjustment – Current/Closing Rate Method (Functional

Currency – US Dollars)
Translation Reporting
Exchange Currency
US $ Rate (Pesos)
1/2 Exposed net asset position……………… *2,088,000 40.00 83,520,000
Adjustments for changes in net asset position
during year:
Net income for year………………. 399,600 40.20 16,063,920
Dividends declared……………………. (360,000) 40.10 ( 14,436,000)
Net asset position translated using rate in
effect at date of each transaction……………….. 85,147,920
12/31 Exposed net asset position……………. 2,127,600 40.25 85,635,900
Change in cumulative translation adjustment
during year—net increase…………. 487,980
1/2 Cumulative translation adjustment**……………. -0-
12/31 Cumulative translation adjustment………….. 487,980
*A condensed balance sheet for S Company on January 2, 20x4 was as follows:

US $ US $
Monetary assets 1,320,000 Monetary Liabilities 2,160,000
Nonmonetary assets Common stock 1,152,000
Inventory 912,000 Paid-in capital in excess of par 360,000
Fixed assets 2,016,000 Retained earnings 576,000
Total 4,248,000 Total 4,248,000
1/1 Net assets = $4,248,000 - $2,160,000 = 2,088,000
**the beginning balance is zero since this was the first year the investment was held.
Statement of Comprehensive Income and Statement of Shareholders’ Equity

Functional Currency
Is Local Currency Unit – US$
S Company
Statement of Comprehensive Income
For the Year Ended
December 31, 20x4
Net income ………………………………………………………………………………………… P16,063,920

Other comprehensive income:
Foreign currency translation reserve gain………………………………………….. 487,980
Comprehensive Income…………………………………………………………………………. P16,055,100
S Company
Statement of Shareholders’ Equity
For the Year Ended
December 31, 20x4
Paid-in
capital in
Common excess of Retained
Stock par Earnings OCI* Total
Balance, 1/1/20x4 P46,080,000 P14,400,000 P23,040,000 P 0 P83,520,000
Comprehensive Income:
Net income 16,063,920 16,063,920
Other comprehensive
Income 487,980 487,980
Comprehensive Income P100,071,900
Dividends declared _______ ___________ (14,436,000) ________ (14,436,000)
Balance, 12/31/20x4…… P46,080,000 P14,400,000 P24,667,920 P 487,980 P85,635,900
*OCI – other comprehensive income
2. Translation into the Functional Currency (Remeasurement or Temporal Method)

Functional Currency
Is Philippine Peso -
Translation into the Functional Currency (Remeasurement or Temporal Method)
Adjusted Remeasurement Adjusted
Trial Exchange Trial Balance
Balance Sheet Balance ($) Rate (Pesos)
Cash………………………. 1,116,000 (C) 40.25 44,919,000
Inventory (FIFO) 996,000 Schedule 40,059,120
Land……………………………. 600,000 (H) 40.00 24,000,000
Buildings (net) 780,000 (H) 40.00 31,200,000
Equipment (net) 516,000 (H) 40.00 20,640,000
Total 4,737,600 190,184,520
Accounts payable…………… 768,000 (C) 40.25 30,912,000

Bonds payable………………… 1,080,000 (C) 40.25 43,470,000
Common stock, P10 par……… 1,152,000 (H) 40.00 46,080,000
Paid-in capital in excess of par 360,000 (H) 40.00 14,400,000
Retained earnings _ 615,600 (B/A) 24,652,020
Total 4,737,600 190,184,520
Combined Statement of Income and
Retained Earnings
Sales 3,624,000 (A) 40.20 145,684,800
Cost of goods sold 2,220,000 Schedule 89,041,680
Depreciation expense 120,000 (H) 40.00 4,800,000
Other expenses 786,000 (A) 40.20 31,597,200
Income tax expense 98,400 (A) 40.20 __3,955,680
Net income before remeasurement loss 16,290,240
Remeasurement loss - debit 0 ___242,220
Net Income to Retained Earnings 399,600 16,048,020
Total 975,600 39,088,020
Less: Dividends declared, 9/1/20x4 360,000 (H) 40.10 14,436,000
Retained earnings, 12/31 from balance sheet 615,600 24,652,020
B/A – balancing amount
Schedule
Translation of Cost of Goods Sold
Remeasurement
Exchange
Accounts ($) Rate Pesos
Beginning inventory (assumed)…………. 912,000 (H) 40.00 36,480,000
Purchases (assumed)…………….. 2,304,000 (A) 40.20 92,620,800
Total…………………….. 3,216,000 129,100,800
Less: Ending inventory……………. 996,000 (A) 40.22 40,059,120
Cost of goods sold…………… 2,220,000 89,041,680
Verification of the Translation Adjustment – Remeasurement or Temporal Method

(Functional Currency – Philippine Peso)
Translation Reporting
Exchange Currency
US $ Rate (Pesos)
1/2 Exposed net monetary liability position….. *840,000 40.00 33,600,000
Adjustments for changes in net monetary position
during year:
Less: Increase in cash and receivables from sales (3,624,000) 40.20 145,684,800
Add: Decrease in monetary assets or increase in
monetary liabilities:
Purchases 2,304,000 40.20 92,620,800
Other expenses 786,000 40.20 31,597,200
Income taxes 98,400 40.20 3,955,680
Dividends declared…………….. 360,000 40.10 14,436,000
Net monetary liability position translated using rate
in effect at date of each transaction.. 30,524,880
Less: 12/31 Exposed net monetary liability position **764,400 40.25 30,767,100
Remeasurement gain (loss) ( 242,220)
*The January 2, 20x4 condensed balance sheet is given in Figure 19-3:

US $
Monetary liabilities 2,160,000
Less: Monetary assets 1,320,000
Net monetary liability position….. 840,000
**See above:
US $
Monetary liabilities (768,000 + 762,000 + 1,080,000) 2,610,000
Less: Monetary assets (1,116,000 + 729,600) 1,845,600
Net monetary liability position….. 764,400
3. Translation Using a Trial Balance Approach

Functional Currency
Is Local Currency Unit – US Dollars
Adjusted Trial Adjusted Trial Balance
Accounts Balance ($) Exchange (Pesos)
Debit Credit Rate Debit Credit
Sales 3,624,000 (A) 40.20 145,684,800
Cost of goods sold 2,220,000 (A) 40.20 89,244,000
Depreciation expense 120,000 (A) 40,20 4,824,000
Other expenses 786,000 (A) 40.20 31,597,200
Dividends declared, 9/1 360,000 (H) 40.10 14,436,000
Cash………………………. 1,116,000 (C) 40.25 44,919,000
Inventory (FIFO), 12/31 996,000 (C) 40.25 40,089,000
Land………………………… 600,000 (C) 40.25 24,150,000
Buildings (net) 780,000 (C) 40.25 31,395,000
Equipment (net) 516,000 (C) 40.25 20,769,000
Accounts payable………… 768,000 (C) 40.25 30,912,000
Bonds payable…………… 1,080,000 (C) 40.25 43,470,000
Common stock, P10 par… 1,152,000 (H) 40.00 46,080,000
Paid-in capital in excess of par _________ __360,000 (H) 40.00 ___________ _14,400,000
Sub-totals 8,322,000 8,322,000 334,745,280 334,257,300
Foreign Currency Translation
Reserve Gain OCI) – credit _________ _________ ___________ 487,980
Totals 8,322,000 8,322,000 334,745,280 334,745,280
Note: In the pre-closing trial balance approach, the following should be observed:
1. The retained earnings should be of beginning balance.
2. In the event that there are details as to the component of cost of goods sold purchases should be
translated using average and inventory should be of a beginning balance translated at the
appropriate rate existing at the date of inventory acquired.

Functional Currency
Is Philippine Peso -
Accounts Balance ($) Exchange (Pesos)
Debit Credit Rate Debit Credit
Sales 3,624,000 (A) 40.20 145,684,800
Purchases 2,304,000 (A) 40.20 92,620,800
Depreciation expense 120,000 (H) 40.00 4,800,000
Other expenses 786,000 (A) 40.20 31,597,200
Cash………………………. 1,116,000 (C) 40.25 44,919,000
Inventory (FIFO), 1/1 (assumed) 912,000 (H) 40.00 36,480,000
Land………………………… 600,000 (C) 40.00 24,000,000
Buildings (net) 780,000 (C) 40.00 31,200,000
Equipment (net) 516,000 (C) 40.00 20,640,000
Bonds payable…………… 1,080,000 (C) 40.25 43,470,000
Paid-in capital in excess of par _________ __360,000 (H) 40.00 ___________ 14,400,000
Sub-totals 8,322,000 8,322,000 334,015,080 334,257,300
Remeasurement loss - debit _________ _________ ____242,220 ___________
Totals 8,322,000 8,322,000 334,257,300 334,257,300
Note: In the pre-closing trial balance approach, the following should be observed:
1. The retained earnings should be of beginning balance.
2. In the event that there are details as to the component of cost of goods sold purchases should be
translated using average and inventory should be of a beginning balance translated at the
appropriate rate existing at the date the inventory was acquired, refer to schedule below.
Schedule
Remeasurement
Exchange
Total…………………….. 3,216,000 129,100,800
Less: Ending inventory……………. 996,000 (A) 40.22 40,059,120
Alternatively, the cost of goods sold will be lump into one amount (refer to schedule below),
and the inventory ending balance will be the amount presented in the trial balance the way
it was presented under the current/closing rate method

Balance ($) Exchange (Pesos)
Accounts Debit Credit Rate Debit Credit
Sales 3,624,000 (A) 40.20 145,684,800
Cost of goods sold 2,220,000 Schedule 89,041,680
Depreciation expense 120,000 (A) 40.00 4,800,000
Other expenses 786,000 (A) 40.20 31,597,200
Cash………………………. 1,116,000 (C) 40.25 44,919,000
Inventory (FIFO), 1/1 (assumed) 996,000 (H) 40.00 40,059,120
Land………………………… 600,000 (C) 40.00 24,000,000
Buildings (net) 780,000 (C) 40.00 31,200,000
Equipment (net) 516,000 (C) 40.00 20,640,000
Bonds payable…………… 1,080,000 (C) 40.25 43,470,000
Paid-in capital in excess of par _________ __360,000 (H) 40.00 ___________ 14,400,000
Sub-totals 8,322,000 8,322,000 334,015,080 334,257,300
Remeasurement loss - debit _________ _________ ____242,220 ___________
Totals 8,322,000 8,322,000 278,547,750 278,547,750
Schedule
Remeasurement
Exchange
Total…………………….. 2,680,000 129,100,800
Less: Ending inventory……………. 830,000 (A) 40.22 _40,059,120
Correction: …Exchange rate for 1 dollar instead of 1 peso; 20x9 should be 20w9
Problem II
Translation Into the
Presentation Currency or
Translation From Functional Translation Into
Currency to the Presentation the Functional
Currency or Currency or
Current Rate Method Temporal Method
or Translation** or Remeasurement
Accounts payable P.16 C P.16 C
Accounts receivable P.16 C P.16 C
Accumulated depreciation P.16 C P.26 H
Advertising expense P.19 A P.19 A
Amortization expense P.19 A P.25 H
Buildings P.16 C P.26 H
Cash P.16 C P.16 C
Common stock P.28 H P.28 H
Depreciation expense P.19 A P.26 H
Dividends paid (10/1) P.20 H P.20 H
Notes payable P.16 C P.16 C
Patents (net) P.16 C P.25 H
Salary expense P.19 A P.19 A
Sales P.19 A P.19 A
* C = current rate, H = historical rate, A = average rate

** Revenue and expense accounts were translated using average rate, since the historical
rate is not practicable to determine.
Problem III
Remeasurement /
Current Method Temporal Method
Accounts Receivable Current Current
Prepaid Assets Current Historical
Accounts Payable Current Current
Common Stock Historical Historical
Land Current Historical
Goodwill Current Historical
Sales Revenue Weighted Average Weighted Average
Depreciation Expense Weighted Average Historical
Problem IV
a. Prepaid Insurance Current
b. Land Current
c. Common Stock Historical
d. Bonds Payable Current
e. Sales Weighted Average
f. Goodwill Current
g. Allowance for Doubtful Accounts Current
h. Deferred Income Taxes Current
Problem V
a. Cash Current
b. Accounts Receivable Current
c. Inventory, carried at cost Historical
d. Equipment Historical
e. Accumulated Depreciation Historical
f. Bonds Payable Current
g. Common Stock Historical
h. Sales Weighted Average
Problem VI
Rock Corporation
For the Year Ended December 31, 20x7
FC Rate Dollars
Income Statement
Net sales FC 2,000,000 .37 P740,000
Costs and expenses 800,000 .37 296,000
Net income FC 1,200,000 .37 P444,000

Retained earnings, beginning of year FC 6,500,000 P1,300,000
Net income 1,200,000 444,000
Subtotal FC 7,700,000 P1,744,000
Dividends (declared on March 31) 1,000,000 .40 _ 400,000
Retained earnings, end of year FC 6,700,000 P1,344,000
Balance Sheet
Assets:
Current assets FC 3,000,000 .50 P 1,500,000
Plant assets (net)
(purchased January 1, 20x4) 55,000,000 .50 27,500,000
Total assets FC 58,000,000 P29,000,000
Liabilities and Stockholders' Equity:

Current liabilities FC 4,000,000 .50 P 2,000,000
Long-term debt 25,000,000 .50 12,500,000
Common stock (issued January 1, 20x4) 5,000,000 .25 1,250,000
Paid-in capital in excess of par 17,300,000 .25 4,325,000
Retained earnings 6,700,000 P 1,344,000
Cumulative translation adjustments _____________ 7,581,000
Total liabilities and stockholders' equity FC 58,000,000 P29,000,000
Problem VII - Abercrombie

20x4 net loss (100,000 FCs) x P.215 P (21,500)
20x5 net income (200,000 FCs) x P.24 48,000
20x6 dividend (50,000 FCs) x P.245 (12,250)
20x6 net income 75,000 FCs x P.25 18,750
Translated balance on December 31, 20x6 P 33,000
Problem VIII – Philippine-owned Foreign Subsidiary

Beginning-of-year net assets x change in exchange rate during the year:
210,000 x (P1.15 P1.10) P10,500
Net income for 20X1 x (current rate average rate):
50,000 x (P1.15 P1.125) 1,250
Increase in net assets from stock issue x (current rate - historical rate):
30,000 x (P1.15 P1.12) 900
Decrease in assets from dividends (current rate dividend date rate):
(10,000) x (P1.15 P1.13) (200)
P12,450
Problem IX
Functional Currency
Is the Currency of a Hyperinflationary Economy
Price Restated Exchange Translated
FC Index (in FC) Rate (in Pesos)
Cash (M) . . . . . . . . . . . . . . . . . . . . . . 420,000 * 420,000 (C) 1.75 735,000
Inventory (N) . . . . . . . . . . . . . . . . . . . 3,240,000 300/270 3,600,000 (C) 1.75 6,300,000
Property, plant and equipment (N) 1,080,000 300/150 2,160,000 (C) 1.75 3,780,000
Total . . . . . . . . . . . . . . . . . . . . . . . . . . 4,740,000 6,180,000 10,815,000
Current liabilities (M) . . . . . . . . . . . . 840,000 * 840,000 (C) 1.75 1,470,000

Non-current liabilities (M) . . . . . . . . 600,000 * 600,000 (C) 1.75 1,050,000
Common stock (issued 20x0) (N) . . 480,000 300/100 1,440,000 (C) 1.75 2,520,000
Retained earnings . . . . . . . . . . . . . . 2,820,000 3,300,000 (C) (B/A) 5,775,000
Total . . . . . . . . . . . . . . . . . . . . . . . . . . 4,740,000 6,180,000 10,815,000
M – monetary; N – non-monetary
C – current rate
B/A – balancing amount
*monetary – no restatement

1. a
The peso is the functional currency, so a remeasurement (or temporal method) is
appropriate. Cash and accounts receivable are monetary assets remeasured at current
exchange rate of P47,500 and P95,000, respectively. Inventory is a nonmonetary asset
(carried at market value) are remeasured at the current exchange rate of P76,000. Land
and equipment, both nonmonetary assets (carried at cost) are remeasured at the
historical exchange rate of P54,000 and P135,000, respectively.
2. b
Because the functional currency is the local currency, a translation (or current rate
method) is required. All assets accounts are translated at current rates.
3. a
The foreign currency is the US dollars, so a translation (or current rate method) is
appropriate. All assets are translated at the current exchange rate of P1,270,000.
4. c The peso is the functional currency, so a remeasurement (or temporal method) is

appropriate. Accounts receivable is a monetary asset remeasured at current exchange
rate of P175,000. Inventories (carried at cost) is remeasured at the historical exchange
rate of P450,000. Prepaid insurance and land, both nonmonetary assets (carried at cost)
are remeasured at the historical exchange rate of P45,000 and P100,000, respectively.
5. d
The foreign currency is the LCU, so a translation (or current rate method) is appropriate.
All assets are translated at the current exchange rate of P215,000.
The peso is the functional currency, so a remeasurement (or temporal method) is

appropriate. All accounts receivable are monetary assets remeasured at current
exchange rate of P150,000 (P100,000 + P50,000). Prepaid insurance and patents, both
nonmonetary assets (carried at cost) are remeasured at the historical exchange rate of
P30,000 and P45,000, respectively.
6. a
LCU – it is assumed that historical rate is not practicable (despite the presence of it), then
PAS 21 requires the use of average rate [(2,600,000 - 0)/10 years x 1.8LCU per peso =
P144,444]
Peso - expense related to nonmonetary asset such as depreciation should be

remeasured using the historical exchange rate (exchange rate when the equipment was
acquired), i.e., :
20x2: (1,700,000 LCU – 0)/10 years = 170,000 LCU /1.5 LCU per peso..P113,333
20x3: (900,000 LCU – 0)/10 years = 90,000 LCU /1.6 LCU per peso…… 56,250
Total……………………………………………………………………………….P169,583
7. a
LCU – the current rate method is used since the term “translated” was used, a translation
(or current rate method) is required. Inventory account is translated at current rate
(25,000 LCU / 2 LCU per peso = P12,500)
Peso – the peso is the functional currency, so a remeasurement (or temporal method) is
appropriate. Inventory is a nonmonetary asset (carried at cost) is remeasured at the
historical exchange rate of 2.2 LCU per peso (25,000 LCU / 2.2 LCU per peso = P11,364)
8. b The foreign currency is the functional currency, so a translation (or current rate method)
is appropriate. All assets (including inventory) are translated at the current exchange
rate [100,000 x P.17].
9. c There is no indication that the historical rate is not practicable or any indication that the
revenue and expenses account were incurred evenly throughout the year and at the
same time the historical rate is given, therefore, cost of goods sold is translated at the
exchange rate in effect at the date of accounting recognition, which is the date the
goods were sold [100,000 x P.18].
10. d The foreign currency is the functional currency, so a translation (or current rate method)
is appropriate. All assets are translated at the current exchange rate of P.19.
11. c The peso is the functional currency, so a remeasurement (or temporal method) is
historical exchange rate of P.16. Marketable equity securities is a nonmonetary asset
(carried at market value) are remeasured at the current exchange rate of P.19.
12. a
LCU Peso
is Functional Currency is Functional Currency
P120,000 = 2/15/x4 Peso value P10,000 = Foreign currency
(110,000) = 12/31/x3 Peso value transaction gain
P 10,000 = Foreign currency 30,000 = Remeasurement gain
transaction gain P40,000 = Foreign exchange
Gain
Note: The term “restating” used by foreign subsidiary is an indication that the
temporal or remeasurement method is used.
13. a
LCU Peso
P15,000 = Preadjusted foreign P15,000 = Preadjusted foreign
exchange loss exchange loss
6,000 = Foreign currency 6,000 = Foreign currency
transaction loss transaction loss
($100,000 - $106,000) 20,000 = Remeasurement gain
P21,000 = Foreign exchange P41,000 = Net foreign
loss exchange loss
Note: The term “restatement” used by foreign subsidiary is an indication that

the temporal or remeasurement method is used.
14. b
Less:
Book and fair values of sub's net assets
680,000 FC x P.21 x .90 = 128,520
Positive excess: Goodwill (partial) P 31,480
Based on the choices given, the question is leaning on the partial goodwill approach. Since,
there is no choice available for full-goodwill approach.
15. c
Pesos FC
Goodwill P10,500 FC 50,000(P10,500 / P.21)
Impairment 1,100 (FC 5,000 x P.22) 5,000 (FC 50,000 / 10)
16. a - Impairment loss = P10,500 / 10 = P1,050
17. a - The foreign currency is the functional currency, so a translation (or current rate method) is
appropriate. All assets (including inventory) are translated at the current exchange rate
[48,000 FC x P1.53 = P73,440].
18. a - The peso is the functional currency, so a remeasurement (or temporal method) is
historical exchange rate, but since the historical exchange rate cannot be specifically
identified and purchases happens evenly throughout the period, therefore 20x4 historical
(average – which is unusual for a remeasurement method but allowed on exceptional cases
such as No. 33) rate of P1.45 is used. Thus:
Cost: 50,000 FC x P1.45 per FC (lower)………………………………………P 72,500

Market: 48,000 FC x P.153 per FC…………………………………………….P 73,440
Under the temporal method, since the valuation of inventory is at historical

exchange rate which leads to valuation at cost (average in this case), so the LCM
rule is applied, in contrast to the current rate method (in No. 32), wherein the
valuation of inventory is outright current exchange rate.
19. a - the current rate method is used since the term “translate” was used, a translation (or
current rate method) is required. Dividend declared and paid is translated at historical
exchange rate at the date of declaration. i.e. 121 FC to P1.
20. a – [1,500,000 baht / .630 baht, the average rate (historical rate is not practicable because
the data of sales per transaction were not given) = P2,380,952]
21. b – (280,000 / .620 baht, the current rate = P451,613)
22. c
Foreign Exchange
Currencies Rate Pesos
Net Assets (SHE), beginning…………… 20,000 .15 (HR) 3,000
Add: Net Income: (30,000 – 20,000)…. 10,000 .19 (HR) 1,900
Net Assets (SHE), ending……………….. 4,900
Net Assets (SHE), ending……………….. 30,000 .21 (CR) 6,300
Translation adjustment
(positive – credit) – gain……………… 1,400
SHE – stockholders’ equity.
HR (historical rate) was used for Net Income (Sales and Costs of Sales since the details of
transaction were given.)
CR (current rate) was used for Net Assets (Assets and Liabilities account) to determine
the ending balance, so that the translation gain should be properly determined.
23. a
FC Exchange Rate Pesos
Beginning net monetary assets, 1/1…………… 100,000 x P.16 = P16,000
Increases in net monetary assets:
Sale of inventory .................................... 50,000 x P.20 = 10,000
Decreases in net monetary assets:
Purchase of equipment........................ (60,000) x P.16 = (9,600)
Purchase of inventory ........................... (30,000) x P.18 = (5,400)
Transfer to parent................................... (10,000) x P.21 = (2,100)
Ending net monetary assets, 12/31 .................. 50,000 P 8,900
Ending net monetary assets at
the current exchange rate .................. 50,000 x P.22 = (11,000)
Remeasurement gain ......................................... P(2,100)
24. b – the term “translation adjustments” was used indicating that the current rate method is in
effect (in contrast to the term “remeasurement adjustments” used by the temporal method),
therefore any translation debit (which is a loss) will be classified as other comprehensive
income.
25. a - the foreign currency is the functional currency, so a translation (or current rate method) is
appropriate. All assets (including inventory) are translated at the current exchange rate
[120,000 FC x P.20 = P24,000].
26. e – Current Rate Method. The same situation with No. 9 except that the that the historical
rate is not practicable since the rate on January 17, 20x5 (date of sale) were not given,
therefore, cost of goods sold is translated at the average exchange rate for 20x5 which is
P.24 (120,000 FC x P.24 = P28,800).
27. d
Remeasurement
Exchange
Accounts (FC) Rate Pesos
Beginning inventory 500,000 (H)* P.00148 P 740
Purchases 1,000,000 (A) .00160 1,600
Total 1,500,000 P2,340
Less: Ending inventory 400,000 (A) .00162 __648
Cost of goods sold 1,100,000 P1,692
*not specifically identified unlike No. 46, may also be termed as average (historical) rate
28. b – If the functional currency is the currency of a third country, remeasure (temporal
method) from LCU into the functional currency; then translate ( c u r r e n t r a t e
m e t h o d ) into peso by using the average exchange rate since historical rate is not
practicable (no data available on the specific date the items that were purchased) , i.e.,
1,100,000 FC x P0.00160 = P1,760. It should be noted that the requirement is “translation” of
cost of goods sold which means that the value of cost of goods sold should be under the
current rate method.
29. c
Remeasurement
Exchange
Beginning inventory 10,000 (H) P1.60 P 16,000
Purchases 80,000 (A) 1.50 120,000
Total 90,000 P136,000
Less: Ending inventory 15,000 (A) 1.45 __21,750
Cost of goods sold 75,000 P114,250
30. b – If the functional currency is the foreign currency, then cost of goods sold will be
translated using the average exchange rate since historical rate is not practicable (no
data available on the specific date the items that were purchased) , i.e., 75,000 FC x P1.50
= P112.500.
31. b
Remeasurement
Exchange
Beginning inventory 20,000 (H) P.93 P 18,600
Purchases 400,000 (A) .96 384,000
Total 420,000 P402,6 00
Less: Ending inventory _15,000 (A) .99 __14,850
Cost of goods sold 405,000 P 387,750
*not specifically identified unlike No. 46, may also be termed as average (historical) rate
32. c - historical rate is not practicable since the rate on date of acquisition is not given unlike
No. 9, therefore, cost of goods sold is translated at the average exchange rate for 20x5
which is P.96 [405,000 FC (refer to No. 48) x P.96 = P388,800).
34. e – under the current rate method, all assets are translated at the current exchange rate,
therefore the inventory should be translated at P1.01 (FC 15,000 x P1.01 = P15,150).
35. a – under the temporal method, inventory being a nonmonetary asset (carried at cost) is
remeasured at the historical exchange rate, but since the historical exchange rate cannot
be specifically identified and purchases happens evenly throughout the period, therefore
20x4 historical (average – which is unusual for a remeasurement method but allowed on
exceptional cases such as No. 33) rate of P1.43 is used. Thus:
Cost: 300,000 LCU x P1.43 per LCU (lower)………………………………………P 429,000

Market (NRV at replacement cost) : 320,000 LCU x P.142 per LCU…………P 454,400
Under the temporal method, since the valuation of inventory is at historical exchange rate
which leads to valuation at cost (average in this case), so the LCM rule is applied, in contrast
to the current rate method (in No. 53), wherein the valuation of inventory is outright current
exchange rate.
36. a - under the current rate method, all assets are translated at the current
exchange rate, therefore the inventory should be translated at P1.42 (FC 320,000 x
P1.42 = P454,400).
37. a CNI, P3,100,000 and Cons. CI, P3,220,000

P Company P2,000,000
S Company 1,100,000
Total P3,100,000
Goodwill impairment _____ 0 220,000
Add: Comprehensive Income 120,000
Consolidated Comprehensive Income P3,220,000

Net income of S Company P 1,100,000
Less: Amortization of allocated excess (refer to amortization table above) 0
P 1,100,000
Add: NCI on Comprehensive Income (translation gain)
(P120,000 x 20%) 24,000
Non-controlling Interest in Comprehensive Income P 244,000
38. a – regardless of the method used (whether current rate or temporal method, the rate to be
used should be the historical rate on the date of declaration, i.e. P.23 (20,000 LCU x P.23 x
75% = P3,450).
39. c - Translation adjustment loss (debit): P8,000 x 75% = P6,000
40. c - under the current/closing rate method (the functional currency of Transport
Corporation is the LCU), the translation adjustments on the goodwill, if any and the fair
value differential relating to the patent as they are considered net assets of Transport
and are translated at the current or closing rate.
The translation adjustments are as follows:

On the fair value differential:
Undervalued patent on 1/1/20x4: P25,000 / P.20 = FC 125,000……. P 25,000
Less: Amortization expense [125,000/ 5 years = FC 25,000 x P.22]…. ( 5,500)
Undervalued patent, net on 12/31/20x4……………………................ P 19,500
Undervalued building, net on 12/31/20x4 [(125,000 FC – 25,000 FC
= 100,000 FC x P.24………………………………………………………. 24,000
Translation adjustment gain on undervalued patent (OCI)…….. P 4,500
41. b - Amortization expense [125,000/ 5 years = FC 25,000 x P.22] = P5,500. Under the current
rate method, the historical rate is not given therefore, historical rate is not practicable to be
use, and then PAS 21 requires the use of average rate.
42. a – Current rate method, (50,000 FC x P.90, current = P45,000)

Number of Foreign Currencies (FCs)
Sales: P40,000 / P.80 = 50,000 FC
Cost: P30,000 / P.80 = 37,500 FC
43. c – Current rate method:

Unrealized intercompany profit: (50,000 FC – 37,500 FC) x P.80, historical rate = P10,000.
44. d – (P45,000 – P10,000, unrealized profit = P35,000)
45. No answer available – P250,000

FC Pesos
Exchange
Debit Credit rate Debit Credit
Common stock 5,000,000 .20 1,000,000
Purchases 8,000,000 .18 1,440,000
Sales 12,000,000 .18 2,160,000
Cash* 8,000,000 .16 1,280,000
Equipment 1,000,000 _________ .16 _160,000 _________
17,000,000 17,000,000 2,880,000 3,160,000
Translation loss _250,000 ________
3,160,000 3,160,000
*5,000,000 – 8,000,000 + 12,000,000 – 1,000,000
Apply to rules under the current method.
48. b – under the current rate method, revenues and expenses will be translated using the
average rate since historical rates are not practicable (with revenues and expenses are not
identified as to the date of acquisition)
49. b –
FC Exchange rate Pesos
Net assets, 1/1/20x4 0 P 0
Changes in net assets, 20x4
Issued common stock 1,000,000 1 FC / P.48 2,083,333
Net income 80,000 1 FC / P.44 181,818
Dividends paid ( 20,000) 1 FC / P.46 ( 43,478)
Net assets, 12/31/20x4 1,060,000 P2,221,673
Net assets, 12/31/20x4 at current rate 1,060,000 1 FC / P.42 _2,523,810
Translation adjustment – increase (gain) P 302,137
Apply to rules under the current method.
50. a
51. b
52. b
On November 29, 20x4, the following amounts should be recorded by Manilow, ignoring
interest payable on the loan. The cash advance from the bank is translated at the rate
on the date that it was received (1,520,000 yen x P1 / 1.52 yen = P1,000,000) and a
liability recorded for the same amount.
53. b
As the loan was still outstanding at the end of the period and it is a monetary item, it
should be retranslated at the exchange rate at the end of the reporting period (1,520,000
yens x P1 / 1.66 yens = P915,663 ). The exchange difference should be recognized as a
gain in profit or loss for the period. (P1,000,000 less P915,663 = P84,337).
PAS 21 par. 28 states that “Exchange differences arising on the settlement of monetary
items (i.e. bank loan payable in this case) or on translating monetary items at rates
different from those at which they were translated on initial recognition during the period
or in previous financial statements shall be recognized in profit or loss in the period in
which they arise.
54. b
The goodwill at the date of acquisition is P100,000 (400,000 baht x P1 / 4 baht). At the year-
end it is retranslated to P80,000 (400,000 baht x P1/5 baht). The difference of P20,000 is
recorded as an exchange loss and reported in other comprehensive income.
55. c – Nt Dollar 175,000 / Nt Dollar 1.298 = P134,823

Goodwill arising from acquisition…………………………………………… Nt Dollar 175,000
Divided by: Closing/Current rate (Nt dollar : peso)………………………Nt Dollar 1.298
Goodwill in the consolidated balance sheet……………………………. P134,823
In the consolidated financial statements, any goodwill arising on the acquisition of a

foreign operation should be treated as an asset of the foreign operation. The goodwill
should therefore be expressed in the functional currency of the foreign operation and
translated at the closing rate at the date of each statement of financial position. The same
treatment is required of any fair value adjustments to the carrying amounts of assets and
liabilities arising on the acquisition of a foreign operation. In both cases exchange
differences are recognized in other comprehensive income, rather than as part of the
profit or loss for the period.
56. b
Fair value adjustments (undervaluation of land)……………… …………….Nt 50,000
Divided by: CLOSING / CURRENT RATE on the balance sheet
(Nt dollar per peso)………………………………………………… 1.56
Fair value adjustments…………………………………………………………... P 32,051
PAS21 par. 47 requires fair value adjustments to the carrying amounts of assets and
liabilities arising on the acquisition of a foreign operation to be treated as assets and
liabilities of the foreign operation. Therefore they are translated at the closing rate of
exchange.
57. c – 160,000 yens x P1 / 2.40 yens = P66,667

PAS 21 par. 23 (a) requires the foreign currency monetary items, such as trade payables, of
an entity to be retranslated at the closing rate at the end of a reporting period.
58. c
Consideration Transferred…………………………………………………………. 9.0 million
Less: Fair value of net assets acquired………………………………………….. 6.0 million
Goodwill………………………………………………………………………………. 3.0 million
Divided by: Current/Closing rate on the balance sheet……………………. 2.0 baht per peso
Goodwill in the Consolidated Balance Sheet………………………………….P1.5 million
Examinees or students may be misled that since the functional currency is peso, the
temporal method (applied only in case of subsequent to date of acquisition) should then be
applied wherein goodwill or any fair value adjustments is considered as a non-monetary
asset carried at historical cost be remeasured (or translated) using historical rate (which in
this problem is 1.5 baht = P1). But the problem do not fall under this category – the temporal
method, instead it is an example of a goodwill and fair value adjustments arising from
acquisition of subsidiaries.
Goodwill arising from the Acquisition of Subsidiaries (Date of Acquisition)
When a company acquires a controlling interest in another company, the excess of the
purchase price over the acquirer’s interest in the fair value of the identifiable net assets of
the acquired company is recognized as goodwill on consolidation. In the context of a
foreign company, the issue arises as to whether goodwill is an asset of the acquired
company or an asset in the acquirer’s books. If it is an asset of the acquired subsidiary, the
goodwill is a foreign asset which should be translated in the same manner as any other asset
of the acquired subsidiary, which may give rise to a translation difference. However, if it is
treated as an asset in the acquirer’s books, there is no need for translation.
Pas 21 par. 47 states that:

“Any goodwill arising on the acquisition of a foreign operation and any fair
value adjustments to the carrying amount of assets and liabilities arising on
the acquisition of that foreign operation shall be treated as assets and
liabilities of the foreign operations. Thus they shall be expressed in the
functional currency of the foreign operation and shall be translated at the
closing rate…”
Subsequent to date of acquisition, accordingly goodwill has to be measured in the

functional currency of the foreign operation. If the functional currency of the foreign
operation is the local currency, the goodwill on acquisition is to be translated at the closing
rate. On the other hand, if the functional currency of the foreign operation is the parent’s
currency (or the presentation currency), goodwill on acquisition is treated as a non-
monetary asset and remeasured at the exchange rate of the acquisition of the foreign
operation,
59. b - refer to No. 58 for further discussion.

The goodwill at the date of acquisition is P100,000 (400,000 baht x P1 / 4 baht). At the
year-end it is retranslated to P80,000 (400,000 baht x P1/5 baht). The difference of P20,000
is recorded as an exchange loss and reported in other comprehensive income.
In the consolidated financial statements, any goodwill arising on the acquisition of a

foreign operation should be treated as an asset of the foreign operation. The goodwill
should therefore be expressed in the functional currency of the foreign operation and
translated at the closing rate at the date of each statement of financial position. The same
treatment is required of any fair value adjustments to the carrying amounts of assets and
liabilities arising on the acquisition of a foreign operation. In both cases exchange
differences are recognized in other comprehensive income, rather than as part of the
profit or loss for the period.
60. a
Allocated Excess arising from consolidation………………………………………P1,200,000 baht
Divided by: CLOSING / CURRENT RATE on the balance sheet
(baht per peso) _ 2.0
Allocated Excess (over/under valuation)………………………………………... P 600,000
Refer to Nos. 55 and 58 for further discussion of using closing/current rate. Again, the same
with No. 58, the functional currency of peso is somewhat misleading; it does not refer to the
use of temporal method on the date of acquisition.
61. b = 60,000 LCUs x (P100,000 – P50,000)/P100,000 = 30,000 LCUs x P1/4 LCUs = P7,500
Note: The deferred profit included in the inventory should be translated based on the historical rate
(average rate if historical rate is not practicable) since it will eventually be treated as a revenue.
62. b – the P8,000 downward adjustment in liability indicates a gain on transaction presented in
statement of comprehensive income (income statement). The 60,000 occurred in translation since
the functional currency is the foreign currency, then current rate method is used and any
cumulative translation gain or loss (AOCI) will be in the stockholders’ equity.
63. c
Net income: 100,000 LCUs x P.70 (average rate since evenly)………………P 70,000
Less: Dividend paid: 20,000 LCUs x P.75 (historical rate)…………………….... 15,000
Effect on retained earnings – increase…………………………………………...P 55,000
64. d
Correction: LCU should be Pesos
Total assets P500,000
Total Liabilities and SHE
Liabilities P 300,000
SHE
Common stock 40,000
Retained earnings,1/1/x6 P 80,000
Add: Net income (P200,000- P150,000) 50,000
Less: Dividends _____-0- 130,000
AOCI (loss) ( 20,000) __450,000
Effect on the 20x6 exchange rate P 50,000
65. c
Correction: LCU should be Pesos
Retained earnings,1/1/x6 P 80,000
Add: Net income (P200,000- P150,000) 50,000
Less: Dividends _____-0-
Retained earnings,1/1/x6 P130,000
66. c
Hedging Instrument:
12 month -Forward rate date of hedging, 1/1/x6 P .60
Spot rate, date of expiration, 12/31/20x6 ____.56
P .04
x: No. of foreign currencies: LCUs 100,000
Forward Contract gain – Cash flow hedge (AOCI) P 4,000
Translation Loss (AOCI)
Net Assets (Assets – Liabilities): (700,000 – 600,000) x P.56,
current rate P 56,000
Stockholders’ equity: 100,000 LCU x P.60, historical rate __60,000 _4,000
Net AOCI P -0-
67. b
Selling price of subsidiary P 5,000,000
Less: Carrying/book value of subsidiary __4,000,000
Gain on sale of subsidiary P 1,000,000
AOCI – translation adjustment loss ___300,000
Net gain on sale of subsidiary P 700,000
68. d
PAS No. 29 does not establish an absolute rate at which hyperinflation is deemed to arise -
but allows judgment as to when restatement of financial statements becomes necessary.
One of the characteristics of the economic environment of a country which indicate the
existence of hyperinflation includes:
“the cumulative inflation rate over three years approaches, or exceeds, 100%”
The computation of cumulative inflation rate over three years is as follows: (210 –
90)/90 = 133.33%.
69. b - 64,000,000 x P.0085 = P544,000

70. a - 875,000 x P1.62 = P1,417,500
71. d - 4,300,000 x P.57 = P2,451,000
72. b – (930,000 - 600,000) P1.03 = P339,900 debit
73. c - 675,000,000 x P.0086 + 60,000,000 x P.0088 = P6,333,000
74. a - [(675,000,000 - 135,000,000)/8] P.0086 + (60,000,000/10) (8/12) P.0088 = P615,700
75. b-
Beginning balance 135,000,000 x P.0086 P1,161,000
Current period depreciation expense 615,700
[(675,000,000 - 135,000,000)/8] P.0086 +
(60,000,000/10) (8/12) P.0088
Ending balance P1,776,700
76. d - P1,529,000 + P52,000 - P490,000 - P253,000 - P352,000 = P486,000
77. b - (P692,000 + P18,000 - P185,000 - P72,000 - P126,000) .6 = P196,200
78. a - {[(198,000 - 138,000) + (720,000 - (650,000 - 230,000))/10] P.095} .9 = P7,695
79. c - (P690,000 - P351,000 - P103,000 - P125,000 - P12,000) .2 = P19,800
80. a - [P458,000 - P175,000 - P52,000 + P15,000 - (140,000 + 450,000/10) P.68] .2 = P24,040
81. d - [P760,000 - P260,000 - P80,000 - P20,000 - (100,000 + 260,000/10) P1.06] .4 = P114,576
81. a - (800,000,000 + 75,000,000) P.0084 = P7,350,000
82. b - [(800,000,000 - 300,000,000)/5] P.0088 + [(75,000,000/10) (3/12)] P.0086 = P896,125
83. c
Beginning balance 300,000,000
Current period depreciation expense [(800,000,000 - 101,875,000
300,000,000)/5] + [(75,000,000/10) (3/12)]
Ending balance (LCU) 401,875,000
Ending balance (pesos) 401,875,000 x P.0084 = P 3,375,750
84. b - P600,000 - P327,000 - P57,000 = P216,000
85. b - P370,000 + P760,000 + P374,000 + P36,000 + P30,000 - P572,000 - P472,000 - P550,000 =
P24,000 debit
86. a - P1,478,000 - P530,000 - P268,000 - P247,000 = P433,000
87. b - (P1,783,000 - P741,000 - P358,000 - P416,000) .7 = P187,600
88. b - {[(180,000 - 137,000) + (830,000 - 650,000)/10] P1.53} .8 = P74,664
89. b - (47,000 x P1.18 + 78,000 x P1.16) .8 = P116,752
90. a - (52,000 x P.66 + 76,000 x P.69) .9 = P47,196
91. c
Correction: 200x – should 20x5
(P120,000 - P86,000) .8 = P27,200 credit
92. b - (P1,623,000 - P847,000 - P179,000 - P252,000) .1 = P34,500
93. d - [P735,000 - P322,000 - P258,000 - (160,000 + 360,000/10) P.66] .3 = P7,692
94. c - [P1,200,000 - P420,000 - P190,000 - (110,000 + 180,000/10) P1.20] .2 = P87,280
95. a – the foreign currency is the functional currency, since historical rate (rate on date of
transaction) is not practicable to determine , then PAS 21 requires the use of average rate :
Share in net income: FC 25,000 x 100% x P.124……………….. P31,000
Less: Amortization of allocated excess………………………… 0
Income from subsidiary…………………………………………….P 31,000
96. d – regardless of what method used to translate the F/S of a foreign entity (subsidiary), the
rate use to translate dividends declared or paid would always be the historical rate on the
date of declaration, i.e., P1.30 x FC 5,000 = P6,500.
97. c
Less:
Book and fair values of sub's net assets
300,000 FC x P1.20x 100% = 360,000
Positive excess: Goodwill (partial) P 42,000
Dollars Euros
Goodwill P42,000 FC 35,000 (P 42,000 / P1.20)
Impairment 4,340 (FC3,500 x P1.24) 3,500 (FC 35,000 / 10)
Balance P37,660 FC 31,500
Translated
balance P41,580 (FC 31,500 x P1.32)
Translation adjustment: P41,580 minus P37,660 = P3,920 – use for No. 28.
98. b
Translation adjustment from translating the trial balance P 12,000 cr
Translation adjustments from translating goodwill 3,920 cr
Total translation adjustment P15,920cr
Quiz - XXI
1. P430,000 - Because the foreign currency is the functional currency, a translation (or current
rate method) is required. All assets accounts are translated at current rates.
2. P440,000, because the peso is the functional currency, a remeasurement is required. All
receivables which are monetary assets are remeasured at current rates. Assets carried at
historical cost, such as prepaid insurance and goodwill which are nonmonetary assets, are
remeasured at historical rates.
3. P755,000 - The current rate method is used since the term “translated” was used, a translation
(or current rate method) is required. All assets accounts are translated at current rates.
4. P1,270,000 - The current rate method is used since the term “translated” was used, a
translation (or current rate method) is required. All assets accounts are translated at current
rates.
5. a
The current rate method is used since the term “translated” was used, a translation (or
current rate method) is required. All assets accounts are translated at current rates.
6. P687,500
LCU – since the problem indicates that expense accounts occurred approximately evenly
during the year is an indication that historical rate is not practicable, then PAS 21 requires the
use of average rate [(375,000 + 250,000 + 625,000) x P.55 = P687,500].
7. The temporal method is used since the term “remeasure” was used. Patent is a nonmonetary
asset carried at cost is remeasured at the historical exchange rate of P1.50
8. P52,000 = 100,000 LCUs x P.52, current rate (or balance sheet rate, since it is a current rate
method. The inflation rate of 20% is not a basis to conclude that the country where the
subsidiary is located is experiencing a hyperinflationary economy because the requirement
should be a cumulative inflation of 100% or more over a three year period).
9. Assume the use of current rate method - P113,000 increase – assume revenue and expense
were incurred evenly during the year.
Net income: 300,000 LCUs x P.55…………………………………………………..P 165,000
Less: Dividend paid: 100,000 LCUs x P.52 (historical rate)…………………….. 52,000
Effect on retained earnings – increase………………………………………….P 113,000
10. Answers: P15,000 decrease or loss from the translation process;

P21,000 loss from hedging instrument;
P36,000 AOCI balance - loss
Hedging Instrument:
12 month -Forward rate date of hedging, 1/1/x6 P .82
Spot rate, date of expiration, 12/31/20x6 ____.75
P .07
x: No. of foreign currencies: LCUs 300,000
Forward Contract loss – Cash flow hedge (AOCI) P 21,000
Translation Loss (AOCI)
Net Assets (Assets – Liabilities): (800,000 – 500,000) x P.75,
current rate P 225,000
Stockholders’ equity: 300,000 LCU x P.80, historical rate _240,000 _15,000
AOCI balance - loss P36,000
11. P4,307,000 = 7,300,000 LCUs x P.59

12. P736,000 = 800,000 LCUs x P.92
13. P972,000 = 900,000 LCUs x P1.08
14. P164,900 debit = (400,000 - 230,000) P.97
15. P112,000 debit = (900,000 - 700,000) P.56
16. P21,000 credit = P440,000 + P670,000 + P329,000 + P27,000 + P20,000 - P327,000 - P728,000 -
P410,000 = P21,000 credit
17. a
LCU – since historical rate (rate on date of transaction) were not given for provision of
doubtful accounts and rent expense, therefore, historical rate is not practicable, then PAS 21
requires the use of average rate [(120,000 + 80,000 + 200,000) x P.44 = P176,000].
Peso –
Expense related to nonmonetary asset such as depreciation should be remeasured
using the historical exchange rate (exchange rate when the equipment was
acquired), i.e., 120,000 x P.50 = P60,000
Expenses related to monetary asset such as uncollectible accounts and rent expense
should be remeasured using average exchange rate [(80,000 + 200,000) x P.44 =
P123,200]
18. a
LCU Peso
(P60,000 - P64,000) (7,000) = Remeasurement gain
loss exchange loss
Note: The term “restatement” used by foreign subsidiary is an indication that the
19.
LCU (No. 39) Peso (No. 40)
(P50,000 – P53,000) 15,000 = Remeasurement loss
loss exchange loss
Note: The term “restatement” used by foreign subsidiary is an indication that the
20. refer to No. 19

21.
if analysis is in pesos:
Cash P350,000
Less: Book value of stockholders’ equity of Hastie:
(P450,000 FC x P.70, current rate x 100%) 315,000
Increase in patent due to undervaluation __35,000
P 0
or, if analysis is in foreign currency:

Fair value of Subsidiary (100%) FC
Cash P350,000 / P.70 500,000
Less: Book value of stockholders’ equity of Hastie:
(P450,000 FC x 100%) 450,000
Allocated excess (excess of cost over book value)….. 50,000
Increase in patent due to undervaluation __50,000
0
PAS 21 paragraph 47 states: “Any goodwill arising on the acquisition of a foreign

operation and any fair value adjustments to the carrying amounts of assets and liabilities
arising on the acquisition of that foreign operation shall be treated as assets and liabilities of
the foreign operation”. Thus, they shall be expressed in the functional currency of the foreign
operation (meaning their functional currency is the LCU), and shall be translated at the
current/closing rate.”
Thus, since patent is a fair value adjustments it should be translated at the current rate (on
the date of acquisition), i. e. P.70 (P.70 x 50,000 FC = P35,000).
22.
The subsequent accounting treatments for goodwill and fair value adjustments together
with their impairment and depreciation/amortization depend on the method being used,
since the functional currency of Hastie is the FC, then the current rate method is used.
Therefore, the average rate of P.68 [P.68 x (50,000 FC / 5 years) = P6,800] is used for
depreciation since the historical rate for patent is not practical to be determined.
23.
The subsequent accounting treatments for goodwill and fair value adjustments together
depend on the method being used, since the functional currency of Hastie is the FC, then
the current rate method is used. Therefore, the current rate on balance sheet date of P.65
[P.65 x (50,000 FC – 10,000 FC, depreciation) = P26,000] is used.
24. the foreign currency is the functional currency, since historical rate (rate on date of
transaction) is not practicable to determine , then PAS 21 requires the use of average rate :
Share in net income (given)..…………………………………….. P25,000
Less: Amortization of allocated excess (No.55)…..…………… 6,800
Income from subsidiary……………………………………………. P18,200
Note: The equity method of accounting is used, the manner the choices were presented.
25. a – under the current rate method since historical rate (rate on date of transaction) is not
practicable to determine , then PAS 21 requires the use of average rates:
Investment balance, January 1, 20x4……………………………P1,600,000

Add: Share in net income: 800,000 FC x 70% x P.57…………... 319,200
Less: Amortization of allocated excess ………..…..……………
Dividends; 50,000 FC x 70% x P.59, historical rate
on date of declaration…………………………………. 20,650
Translation adjustment loss (debit): P25,000 x 70%........... 17,500
Investment balance, December 31, 20x4………………………P1,881,050
26. d – 30% x P25,000 = P7,500.

27. P451,600
Beginning inventory (230,000 x P.68) P156,400
Purchases (720,000 x P.71) 511,200
Ending inventory (300,000 x P.72) (216,000)
28. P216,000
Beginning inventory (230,000 x P.68) P156,400
Purchases (720,000 x P.71) 511,200
Ending inventory (300,000 x P.72) (216,000)
29. P1,975,000
Beginning inventory 400,000
Purchases 1,700,000
Ending inventory (520,000)
Cost of Goods Sold 1,580,000 x P1.25 = P1,975,000
30. P629,200 - Ending inventory (520,000 x P1.21) = P629,200
Multiple Choice Theories

1. D 9. a 17. c 25. d 33. a 41. d 49. c 57. c 65. b 73. a
2. C 10. c 18. c 26. c 34. a 42. c 50. c 58. d 66. d 74. a
3. C 11. a 19. d 27. b 35. b 43. c 51. b 59. a 67. b 75. c
4. D 12. b 20. b 28. a 36. c 44. a 52. a 60. a 68. e 76. a
5. C 13. b 21. c 29. d 37. c 45. b 53. c 61. a 69. e 77. a
6. B 14. c 22. d 30. b 38. a 46. c 54. c 62. b 70. d 78. b
7. A 15. c 23. c 31. b 39. a 47. d 55. b 63. a 71. d
8. D 16. a 24. a 32. d 40. c 48. c 56. b 64. e 72. a
Note for:
17. Note: Answer – d – under PAS 29 in relation to PAS 21, it requires restatement first before translation and neither of the
two methods is use. In fact all assets, liabilities and equity accounts are translated using current rates. In US, the
temporal method is used in cases of highly inflationary economy.
39. The unadjusted trial balance is remeasured regardless of the functional currency. For US GAAP, the answer should
be letter “D.
51. Because the peso is the functional currency, the financial statements must be translated using the current rate
method. Therefore, answers (a) and (d) can be eliminated. Because the subsidiary has a net asset position and the
peso has appreciated from P.16 to P.19, a positive translation adjustment will result.
52. All asset accounts are translated at current rates.
56. By translating items carried at historical cost by the historical exchange rate, the temporal method maintains the
underlying valuation method used by the foreign subsidiary.
54. Marketable equity securities are carried at market value and therefore translated at the current exchange rate
under the temporal method.
55. When the U.S. dollar is the functional currency, SFAS 52 requires remeasurement using the temporal method with
remeasurement gains and losses reported in income.
56. Wages payable is translated at the current exchange rate.
57. Gains and losses on hedges of net investments (whether through a forward contract, borrowing, or other technique)
are offset against the translation adjustment being hedged.
58. Remeasurement gains are reported in the income statement as a part of income from continuing operations.
64. When the remeasurement method is used, monetary accounts are restated at the exchange rate at the balance
sheet date, while nonmonetary accounts are restated using the exchange rate(s) at the date(s) the transaction(s)
occurred which are reflected in the account balance. In this question, bonds payable and accrued liabilities are
both monetary accounts and would be restated using the balance sheet exchange rate. Trading securities
represent a nonmonetary account. Trading securities would be restated using the balance sheet rate because the
account balance is stated at the market values at the balance sheet date. Inventories are also a nonmonetary
asset. Since they are stated at cost, a historical exchange rate would be used to restate inventories.
62. The current rate method of translation allows the use of a weighted average exchange rate for revenues and
expenses that occur throughout the year. Since both sales and wages expense occurs throughout the year, a
weighted average exchange rate can be used for translation.
63. For hedges of net investments in a foreign entity, the amount of the change in fair value of the hedging instrument is
recorded to other comprehensive income that then becomes part of the accumulated other comprehensive
income. The change in the translation adjustment during the period is reported as a component of other
comprehensive income and then carried forward to be accumulated in the stockholders’ equity section of the
balance sheet with the other components of other comprehensive income. Therefore, in this case in which a hedge
of a net investment in a foreign entity is used, the exchange gain on the hedge is reported along with the change in
the translation adjustment.
Chapter 22
Problem I
(1) a Recognized in period received.
(2) b Recognized in period received. Restriction is released when expenses are incurred.
(3) a Recognized in period made.
(4) a Recorded at present value at time promise to give is received.
(5) c Endowment principal cannot be spent. Earnings are unrestricted.
(6) b Recognized in period received. Restriction released either (1) when asset is placed
in service or (2) over its useful life.
(7) f Recognized when conditions are met.
(8) a Recorded at fair value when received.
(9) a Donated services of a skilled nature that would otherwise be purchased.
(10) f Not skilled services. May be footnoted.
(11) b Recognized in period received. Restriction is released when time restriction is

satisfied.
(12) b Recognized in period received. Restriction is released when expenses are incurred.
(13) d Recognized revenue as expenses are incurred for research project.
(14) b Recognized in period received. Restriction is released either (1) when asset is placed
in service or (2) over useful life of asset.
(15) a, b, or f (If collection is displayed to the public or otherwise held for exhibit, the university
is not required to recognize contributions as revenue.)
Problem II
(a) Cash...................................................................................................... 200,000
Revenues—Temporarily Restricted Contributions ................. 200,000
(b) Expenses............................................................................................... 110,000

Cash ............................................................................................... 110,000
Reclassifications Out—Temporarily Restricted—

Satisfaction of Program Restrictions......................................... 110,000
Reclassifications In—Unrestricted—
Satisfaction of Program Restrictions ........................... 110,000
(c) Reclassifications Out—Temporarily Restricted—

Satisfaction of Program Restrictions......................................... 90,000
Reclassifications In—Permanently Restricted—
Satisfaction of Program Restrictions ........................... 90,000
Permanently Restricted Net Assets—Mandatory
Transfer-Out .................................................................................. 90,000
Due to Endowment Fund .................................................... 90,000
Note to Instructor: The following entry would be made in the endowment fund:
Due from Restricted Current Fund .................................................. 90,000

Permanently Restricted Net Assets—Mandatory
Transfer-In ............................................................................... 90,000
(d) Cash...................................................................................................... 15,000

Revenues—Temporarily Restricted Contributions ................. 15,000
Problem III
(1) (a) Cash ....................................................................................................... 90,000
Revenues—Temporarily Restricted Contributions................... 45,000
Revenues—Permanently Restricted Contributions................. 45,000
Endowment Investments .................................................................... 45,000
Cash................................................................................................. 45,000
(b) Cash ....................................................................................................... 1,686,000

Accounts Receivable ......................................................................... 148,000
Deferred Revenues.............................................................................. 66,000
Revenues—Student Tuition and Fees ........................................ 1,900,000
Cash ....................................................................................................... 158,000
Deferred Revenues ....................................................................... 158,000
(c) Cash ....................................................................................................... 308,000

Allowance for Uncollectible Tuition and Fees ................................ 12,000
Accounts Receivable................................................................... 320,000
Expenses—Institutional Support (Provision for Uncollectible
Tuition and Fees) ........................................................................... 9,000
Allowance for Uncollectible Tuition and Fees .................. 9,000
(d) Cash ....................................................................................................... 6,000
Revenues—Unrestricted Investment Income .......................... 6,000
(e) Cash ....................................................................................................... 75,000

State Appropriations Receivable............................................... 75,000
State Appropriations Receivable ..................................................... 40,000
Revenues—State Government Appropriations ...................... 40,000
(f) Cash ....................................................................................................... 30,000

(g) Cash ....................................................................................................... 24,000
Investments..................................................................................... 21,000
Revenues—Temporarily Restricted Gain on the Sale of
Investments.............................................................................. 1,100
Revenues—Temporarily Restricted Investment Income ........ 1,900
(h) Expenses—Instruction.......................................................................... 500,000
Expenses—Research ........................................................................... 400,000
Expenses—Institutional Support......................................................... 100,000
Expenses—Student Aid ....................................................................... 100,000
Expenses—Student Services............................................................... 200,000
Expenses—Operation and Maintenance of Plant ........................ 500,000
Accounts Payable ........................................................................ 60,000
Cash................................................................................................. 1,740,000
(i) Expenses—Research ........................................................................... 13,000

Cash................................................................................................. 13,000
Reclassifications Out—Temporarily Restricted—Satisfaction
of Program Restrictions ................................................................ 13,000
Reclassifications In—Unrestricted—Satisfaction of
Program Restrictions ......................................................... 13,000
(j) Accounts Payable ............................................................................... 40,000

Cash................................................................................................. 40,000
(k) Cash ....................................................................................................... 7,000

Revenues—Temporarily Restricted Endowment Income ...... 7,000
(l) Cash ....................................................................................................... 16,000

Pledges Receivable ............................................................................ 14,000
Revenues—Unrestricted Contributions ..................................... 30,000
Expenses—Institutional Support Provision for Uncollectible
Contributions.................................................................................. 2,000
Allowance for Uncollectible Contributions ....................... 2,000
(2) USJR Private University

Statement of Activities
For Year Ended June 30, 20x9
Temporarily Permanently
Unrestricted Restricted Restricted Total
Changes in net assets:

Revenues and gains:
Tuition and fees................................................. P1,900,000 P1,900,000
Contributions ..................................................... 30,000 P 75,000 P45,000 150,000
Government appropriations, grants, and
contracts....................................................... 40,000 40,000
Endowment income ........................................ 7,000 7,000
Net realized gains on investments ................ 1,100 1,100
Other investment income............................... 6,000 1,900 7,900
Total revenues and gains .......................... P1,976,000 P 85,000 P45,000 P2,106,000
Net assets released from restrictions:
Satisfaction of program restrictions.................... 13,000 (13,000) 0
Total revenues and gains and other support... P1,989,000 P 72,000 P45,000 P2,106,000
Expenses and losses:
Instruction................................................................ P 500,000 P 500,000
Research ................................................................. 413,000 413,000
Institutional support ............................................... 111,000 111,000
Student aid ............................................................. 100,000 100,000
Operation and maintenance of plant.............. 500,000 500,000
Student services ..................................................... 200,000 200,000
Total expenses and losses ............................... P1,824,000 P 0 P 0 P1,824,000
Increase (decrease) in net assets ...................... P 165,000 P 72,000 P45,000 P 282,000
Net assets at beginning of year ................................ 487,000 40,000 50,000 577,000
Net assets at end of year............................................ P 652,000 P112,000 P95,000 P 859,000
Problem IV
(1) Journal entries:
(a) Cash ....................................................................................................... 20,000,000
Bonds Payable............................................................................... 20,000,000
Cash ....................................................................................................... 5,000,000
Revenues—Temporarily Restricted Contributions................... 5,000,000
(b) Construction in Progress ..................................................................... 7,000,000

Cash................................................................................................. 7,000,000
(c) Expenses—Operation and Maintenance of Plant

(Interest Expense).......................................................................... 800,000
Cash.......................................................................................... 800,000
(d) Building................................................................................................... 25,000,000

Construction in Progress............................................................... 7,000,000
Cash................................................................................................. 16,000,000
Retained Percentage—Liability to Contractor ....................... 2,000,000
Reclassifications Out—Temporarily Restricted—Satisfaction of
Plant Restrictions............................................................................ 5,000,000
Reclassifications In—Unrestricted—Satisfaction of Plant
Restrictions .......................................................................... 5,000,000
(e) Mortgage Payable .............................................................................. 2,000,000

Expenses—Operation and Maintenance of Plant
(Interest Expense).......................................................................... 800,000
Cash.......................................................................................... 2,800,000
(f) Land........................................................................................................ 200,000

Building................................................................................................... 350,000
Mortgage Payable ....................................................................... 90,000
Revenues—Unrestricted Contributions ..................................... 460,000
(g) Contributions Receivable................................................................... 200,000

Expenses—Institutional Support (Provision for Uncollectible
Contributions) ................................................................................ 20,000
Allowance for Uncollectible Contributions ....................... 20,000
(h) Investments ........................................................................................... 500,000

(i) Cash ....................................................................................................... 10,000
Revenues—Temporarily Restricted Investment Income ........ 10,000
(j) Expenses—Operation and Maintenance of Plant

(Depreciation Expense) ............................................................... 25,000
Accumulated Depreciation................................................. 25,000
(2) USLS Private University

For Period Ended June 30, 20xx

Revenues and gains:
Contributions ................................................... P 460,000 P 5,700,000 P6,160,000
Other investment earnings ........................... 0 10,000 10,000
Total unrestricted revenues and gains.. P 460,000 P 5,710,000 P 0 P6,170,000
Satisfaction of plant acquisition restrictions ... 5,000,000 (5,000,000)* 0
Total revenues and gains and other support P5,460,000 P 710,000 P 0 P6,170,000
Expenses:
Operations and maintenance of plant .......... P1,625,000 P1,625,000
Institutional support ............................................. 20,000 20,000
Total expenses ................................................ P1,645,000 P 0 P 0 P1,645,000
Increase (decrease) in net assets ......... P3,815,000 P 710,000 P 0 P4,525,000
*Note to Instructor: The reclassification amount would total P25,000 if USLS’s policy is to release
the restrictions over the life of the assets rather than when placed into operation.
Problem V
(1) Closing entries:

Each asset Revenues—Tuition and Fees ...................................................... 1,500,000
class is closed Revenues—Government Appropriations ................................ 800,000
separately. Revenues—Unrestricted Contributions .................................... 265,000
Revenues—Unrestricted Other Investment Income .............. 250,000
Reclassifications In—Unrestricted—Satisfaction of
Program Restrictions ............................................................... 75,000
Reclassifications In—Unrestricted—Satisfaction of Plant
Acquisition Restrictions........................................................... 250,000
Reclassifications In—Unrestricted—Expiration of Time
Restrictions................................................................................ 50,000
Unrestricted Net Assets ............................................................ 305,000
Expenses—Research .............................................................. 840,000
Expenses—Instruction ............................................................. 1,230,000
Expenses—Academic Support............................................. 250,000
Expenses—Student Services.................................................. 200,000
Expenses—Instructional Support .......................................... 225,000
Expenses—Operation and Maintenance of Plant ........... 400,000
Expenses—Student Aid .......................................................... 350,000
Revenues—Sales and Services of Auxiliary Enterprises500,000

Expenses—Auxiliary
Enterprises............................................................................ 475,000
Unrestricted Net Assets ....................................................... 25,000
Revenues—Temporarily Restricted Contributions .................. 200,000

Revenues—Temporarily Restricted Endowment
Income ...................................................................................... 15,000
Revenues—Temporarily Restricted Net Realized Gains
on Endowment ........................................................................ 25,000
Temporarily Restricted Net Assets .......................................... 135,000
Satisfaction of Program Restrictions ............................... 75,000
Expiration of Time Restrictions .......................................... 50,000
Satisfaction of Equipment Acquisition Restrictions ...... 250,000
Revenues—Permanently Restricted
Contributions............................................................................ 500,000
Permanently Restricted Net Assets ............................... 500,000
(2) University of Cebu


Revenues and gains:
Tuition and fees .................................................... P1,500,000 P1,500,000
Contributions......................................................... 265,000 P 200,000 P 500,000 965,000
Government appropriations, grants, and
contracts .......................................................... 800,000 800,000
Investment income on endowment ................ 15,000 15,000
Net realized gains on endowment investments 25,000 25,000
Other investment income ............................. 250,000 250,000
Sales and services of auxiliary enterprises ....... 500,000 500,000
Total revenues and gains .............................. P3,315,000 P 240,000 P 500,000 P4,055,000
Satisfaction of program restrictions ....................... P 75,000 P (75,000) P 0
Satisfaction of equipment acquisition restrictions 250,000 (250,000) 0
Satisfaction of time restrictions ............................... 50,000 (50,000) 0
Total net assets released from restrictions ....... P 375,000 P(375,000) P 0
Total revenues and gains and other support P3,690,000 P(135,000)P 500,000 P4,055,0
Expenses:
Research ..................................................................... P 840,000 P 840,000
Instruction ................................................................... 1,230,000 1,230,000
Academic support.................................................... 250,000 250,000
Student services......................................................... 200,000 200,000
Institutional support................................................... 225,000 225,000
Operation and maintenance of plant ................. 400,000 400,000
Student aid ................................................................. 350,000 350,000
Auxiliary enterprises................................................... 475,000 475,000
Total expenses ...................................................... P3,970,000 P 0 P 0 P3,970,000
Increase (decrease) in net assets................ P (280,000) P(135,000) P 500,000 P 85,000
Net assets, January 1, 20x8........................................... 675,000 975,000 2,500,000 4,150,000
Net assets, December 31, 20x8.................................. P 395,000 P 840,000 P3,000,000 P4,235,000
Problem VI
University of Cebu
Statement of Financial Position
December 31, 20x8
Assets:
Cash .............................................................................................................................. P 255,000
Accounts receivable ................................................................................................. 625,000
Contributions receivable .......................................................................................... 85,000
Inventory of supplies .................................................................................................. 75,000
Student loans receivable .......................................................................................... 300,000
Land, buildings, and equipment (net) ................................................................... 1,000,000
Endowment investments........................................................................................... 3,025,000
Total assets........................................................................................................ P5,365,000
Liabilities:
Accounts payable ..................................................................................................... P 220,000
Amounts held on behalf of others .......................................................................... 250,000
Long-term debt........................................................................................................... 560,000
U.S. government grants refundable ....................................................................... 100,000
Total liabilities ................................................................................................... P1,130,000
Net assets:
Unrestricted ............................................................................................................. P 395,000
Temporarily restricted ............................................................................................ 840,000
Permanently restricted........................................................................................... 3,000,000
Total net assets ................................................................................................. P4,235,000
Total liabilities and net assets .......................................................................................... P5,365,000
Problem VII
(1) Patient service revenues include charges to patients for routine services, nursing services,
and professional services.
Other operating revenues include revenues from services other than health care provided
to patients as well as from sales and services to persons other than patients.
Nonoperating revenues are primarily from gifts, grants, and investment income and gains
that are peripheral or incidental to the major operation of the hospital.
(2) a. OO d. PS g. OO j. PS
b. N e. N h. PS k. N
c. PS f. N i. OO
Problem VIII
(1) Accounts Receivable ................................................................................ 1,010,000
Patient Service Revenues................................................................... 1,010,000
To record billings.
(2) Inventory....................................................................................................... 12,000

Other Operating Revenues—Unrestricted (contributions) .......... 12,000
To record donation of drugs from doctor.
(3) Cash .............................................................................................................. 28,800

Other Operating Revenues—Unrestricted...................................... 28,800
To record cash revenues.
(4) Charity Services........................................................................................... 13,000

To record charity allowance.
(5) Contractual Adjustments .......................................................................... 68,000

To record adjustments for Medicare charges.
(6) Provision for Bad Debts .............................................................................. 26,000

Allowance for Uncollectible Receivables ....................................... 26,000
To record increase in allowance.
Problem IX
(1) Accounts Receivable ................................................................................ 8,500,000
Revenues ............................................................................................... 8,500,000
Contractual Adjustments .......................................................................... 3,700,000
Allowance for Contractual Adjustments......................................... 3,700,000
Cash .............................................................................................................. 4,460,000
Contractual Adjustments .......................................................................... 340,000
Allowance for Contractual Adjustments ............................................... 3,700,000
Accounts Receivable ......................................................................... 8,500,000
Cash .............................................................................................................. 250,000
Contractual Adjustments ................................................................... 250,000
Contractual Adjustments .......................................................................... 90,000
Cash ....................................................................................................... 90,000
(2) Net patient service revenues = P4,620,000 (P8,500,000 – P3,700,000 – P340,000 + P250,000 –
P90,000)
(3) Net cash flow from transactions with Medicare = P4,620,000 (P4,460,000 + P250,000 –
P90,000)
(4) Assuming the P90,000 payment back to Medicare was in settlement, the revenue account
will be closed along with the contra-revenue account “Contractual Adjustments.” The net
amount will appear on the financial statements.
Problem X
Pure Air Rehabilitation Hospital
For Period Ended December 31, 20x9
Patient service revenues (net of $26,000
contractual adjustments) .................................... P 714,000 P 714,000
Other operating revenues:
Seminar income .................................................... P 23,000 P 23,000
Child day care income........................................ 15,000 15,000
Parking fees ............................................................ 4,500 4,500
Total other operating revenue ...................... P 42,500 P 42,500
Total operating revenues.......................................... P 756,500 P 756,500
Operating expenses:
Nursing services ..................................................... P 230,000 P 230,000
Professional fees .................................................... 340,000 340,000
General and administrative ................................ 150,000 150,000
Depreciation expense ......................................... 90,000 90,000
Interest expense .................................................... 13,000 13,000
Repairs and maintenance .................................. 110,000 110,000
Provision for uncollectibles .................................. 14,000 14,000
Total operating expenses ............................... P 947,000 P 947,000
Loss from operations .................................................. P(190,500) P (190,500)
Nonoperating revenue:
Interest income...................................................... P 3,000 P 3,000
Contributions .......................................................... P 18,000 18,000
Endowment income ............................................. 120,000 120,000
Gains on sale of endowments............................ 56,000 P 0 56,000
Total nonoperating revenue.......................... P 3,000 P194,000 P 0 P 197,000
Change in net assets ................................................. P(187,500) P194,000 P 0 P 6,500
Net assets, January 1, 20X9 ...................................... 800,000 755,000 750,000 2,305,000
Net assets, December 31, 20X9 ............................... P 612,500 P949,000 P750,000 P2,311,500
Problem XI
Requirement:
1. Prepare statement of activities for the year ended June 30, 20x8.
2. Prepare statement of financial position as of June 30, 20x8
(1) Adventist Hospital

For Year Ended June 30, 20x8
TemporarilyPermanently
Public support and revenue:
Public support:
Contributions ............................................................... P300,000 P15,000 P315,000
Annual auction proceeds (net of P11,000 expense) 31,000 31,000
Total public support ................................................ P331,000 P15,000 P 0 P346,000
Revenues:
Membership dues....................................................... P 25,000 P 25,000
Program service fees ................................................. 30,000 30,000
Investment income .................................................... 10,000 10,000
Endowment income .................................................. P20,000 20,000
Total revenue ........................................................... P 65,000 P20,000 P 0 P 85,000
Satisfaction of program restrictions ............................ P 5,000 P (5,000) P 0
Total public support, revenue, and other support...... P401,000 P30,000 P 0 P431,000
Expenses:
Program services:
Blind children ............................................................... P150,000 P150,000
Deaf children............................................................... 120,000 120,000
Supporting services:
Management and general ...................................... 51,000* 51,000
Fund raising.................................................................. 9,000 9,000
Total expenses ................................................................... P330,000 P 0 P 0 P330,000
Change in net assets ........................................................ P 71,000 P30,000 P 0 P101,000
Net assets, July 1, 20x7...................................................... 38,000 3,000 250,000 291,000
Net assets, June 30, 20x8 ................................................. P109,000 P33,000 P250,000 P392,000
*P49,000 + P2,000 provision for uncollectible pledges
(2) Adventist Hospital

Statement of Financial Position
June 30, 20x8
Assets:
Cash ....................................................................................................................... P 40,000
Pledges receivable (net of P3,000 allowance) ............................................. 9,000
Bequest receivable ............................................................................................. 5,000
Accrued interest receivable ............................................................................. 1,000
Long-term investments ....................................................................................... 140,000
Endowment investments .................................................................................... 250,000
Total assets ..................................................................................................... P445,000
Liabilities:
Accounts payable and accrued expenses ................................................... P 51,000
Refundable deposits ........................................................................................... 2,000
Total liabilities ................................................................................................. P 53,000
Net assets:
Unrestricted........................................................................................................... P109,000
Temporarily restricted ......................................................................................... 33,000
Permanently restricted ....................................................................................... 250,000
Total net assets .............................................................................................. P392,000
Total liabilities and net assets ................................................................................... P445,000
1. c 21. a 41. c 61. b 81. a 101. d 121. c 141. c 161. c
2. a 22. a 42. d 62. c 82. a 102. a 122. a 142. b 162. d
3. c 23. d 43. a 63. d 83. b 103. b 123. c 143. d 163. d
4. a 24. a 44. b 64. b 84. a 104. d 124. c 144. a 164. a
5. b 25. c 45. d 65. a 85. b 105. b 125. c 145. d 165. a
6. a 26. d 46. c 66. c 86. d 106. a 126. c 146. c 166. c
7. c 27. b 47. c 67. b 87. b 107. a 127. c 147. b 167. e
8. d 28. d 48. b 68. c 88. a 108. b 128. a 148. c 168. a
9. c 29. a 49. c 69. d 89. d 109. d 129. c 149. a 169. a
10. d 30. c 50. c 70. c 90. b 110. a 130. b 150. c 170. b
11. b 31. a 51. d 71. b 91. a 111. b 131. b 151. d 171. d
12. a 32. b 52. c 72. c 92. a 112. c 132. c 152. e 172. c
13. b 33. b 53. c 73. b 93. c 113. d 133. b 153. d 173. d
14. c 34. b 54. b 74. a 94. d 114. b 134. a 154. b 174. c
15 b 35 c 55 a 75 b 95 d 115. c 135. d 155. d 175. c
16. d 36. a 56. d 76. a 96. d 116. c 136. a 156. b 176. d
17. b 37. d 57. c 77. b 97. a 117. c 137. c 157. b 177. b
18. b 38. a 58. c 78. c 98. c 118. b 138. d 158. c 178. c
19. c 39. b 59. b 79. c 99. b 119. d 139. b 159. b
20. d 40. a 60. a 80. a 100. b 120. d 140. b 160. a
7. c – P210 x 4 = P840
8. d – term endowment
59. b (Permanently restricted net assets have increased by only P120,000.)
60.
61. b (The financial aid is shown as a direct reduction to the tuition revenue so that revenues and support should total
only P780,000.)
68. c (Amounts charged to patients less contractual adjustments)
69. d (The charity care work should not be recorded in any way because there is no expectation of collection. The
contractual adjustment is reported as a contra balance to the revenue.)
95. d (These services do not meet the criteria for donated services that are recognized.)
155. b (The charity must convey the donation to the designated beneficiary. Unless the charity was given varied powers
that allowed it to change the beneficiary, this amount
163. d (If the other information that is included contains a call for a specific action that will help accomplish the mission
of the charity and if the mailing is not directed solely to potential donors, a portion of the costs can be allocated
to program service expenses.)
164. a (Because of the time restriction, the amount spent for playground equipment remains in temporarily restricted
net assets until depreciated. The equipment was bought at the end of the year so that no depreciation was
recorded and no reclassification was made.)
Quiz-XXII
1. c 21. b 41. a
2. d 22. d 42. b
3. b 23. a 43. b
4. e 24. d 44. a
5. c 25. c 45. c
6. e 26. a 46. c
7. c 27. a 47. a
8. c 28. c 48. b
9. b 29. d
10. d 30. b
11. d 31. d
12. a 32. c
13. d 33. d
14. d 34. a
15 b 35 c
16. d 36. a
17. a 37. a
18. e 38. d
19. c 39. b
20. b 40. d
Theories
1. unconditional
2. nonreciprocal
3. unconditional
4. when received
5. conditional
6. fair value
7. market quotations, appraisals, present-value calculations
8. nonfinancial assets, specialized skills
9. fair value, asset or asset enhancement
10. collection items
11. selectively
12. unrestricted, temporarily restricted, permanently restricted
13. endowments
14. temporarily restricted
15. temporarily restricted
16. temporarily restricted, unrestricted, donor-imposed stipulations, accounting policy,
explicit donor instructions
17. expire
18. whole
19. donor-imposed restrictions, donor-imposed restrictions
20. total assets, total liabilities, total net assets (equity)
21. unrestricted, temporarily restricted, permanently restricted
22. board-designated, unrestricted
23. category
24. unrestricted
25. separately
26. natural, matrix
27. gross
28. columnar, layered
29. change
30. direct, indirect
31. permits
True or False Statements

32. True 43. True 54. True 65. True
33. False 44. False 55. False 66. False
34. False 45. False 56. True 67. False
35. True 46. False 57. False 68. True
36. True 47. False 58. False 69. True
37. False 48. False 59. False 70. True
38. False 49. True 60. True 71. False
39. True 50. False 61. True 72. False
40. True 51. True 62. True 73. False
41. True 52. False 63. True
42. False 53, False 64. True
Multiple Choice Theories

74. a 84. a 94. e 104. a 114. c 124. b 134. d 144. c
75. c 85. d 95. a 105. b 115. b 125. d 135. c 145. c
76. b 86. c 96. b 106. d 116. b 126. b 136. c 146. a
77. b 87. e 97. b 107. c 117. b 127. c 137. b 147. **
78. e 88. e 98. d 108. b 118. d 128. a 138. d 148. c
79. e 89. d 99. d 109. b 119. * 129. d 139. b 149. a
80. e 90. c 100. d 110. a 120. d 130. d 140. b 150. b
81. e 91. d 101. a 111. b 121. b 131. d 141. c 151. b
82. d 92. d 102. b 112. b 122. d 132. d 142. b 152. c
83. a 93. c 103. a 113. d 123. e 133. b 143. c
*contribution revenue
**incomplete data
Note for Nos.:

148. (The work of the librarian does not enhance a nonfinancial asset nor does it require a specialized skill that would be
purchased if not donated.)
149. (The FASB wanted to get away from fund accounting and provide information about the private not-for-profit
organization as a whole.)

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Chapter 12

(c)Cash ………………………………………………………..................................... 35,000

(d)Expenses-Agency ……………………………………………………………….. 4,500

(e)Expenses-Agency ……………………………………………………………….. 2,250

(f)Cost of Goods Sold-Agency …………………………………………………… 36,000

(a) Cash ………………………………………………………….. 42,500

(b) Shipments from Home Office …………………………… 50,200

(c) Accounts Receivable ……………………………………. 60,000

(d) Purchases …………………………………………………… 22,500

(e) Home Office ……………………………………………….. 53,400

(f) Accounts Payable ………………………………………... 12,250

(g) Furniture & Fixtures ………………………………………… 8,000

(h) Expenses …………………………………………………….. 18,000

(b) Home Office Books:

(a) Branch ………………………………………………………. 42,500

(c) Accounts Receivable …………………………………... 105,000

(d) Purchases …………………………………………………. 122,500

(e) Cash ……………………………………………………….. 113,600

(f) Accounts Payable ………………………………………. 124,000

(g) Expenses …………………………………………………… 26,600

(h) Cash ……………………………………………………….. 53,400

(i) Retained Earnings ………………………………………. 10,000

Cash …………………………… P 4,250 Accounts Payable ………… P 10,250

Sales …………………………………………………………………………… P66,000

Assets Liabilities & Stockholders Equity

Cash …………………………….. P 23,200 Liabilities

Sales ……………………………………………………………………………....... P105,000

Sales …………………………………………………………………………………. P171,000

Expenses ………………………………………………………………. 650

Sales …………………………………………………………………… 66,000

Income Summary …………………………………………………… 90,900

Home Office ………………………………………………………… 1,400

(b) Home Office Books

Expenses ………………………………………………………………. 1,180

Sales …………………………………………………………………… 105,000

Branch Income ……………………………………………………… 1,400

Income Summary ………………………………………………….. 1,400

Income Summary ………………………………………………….. 12,050

Jan. 1 Cash …………………………………………. 1,500

1 Shipments from home office ……………. 10,200

1 Accts. Rec. – Home office ………………. 2,600

1-31 Accts. Rec.-Home Office ………………. 6,200

1-31 Cash ……………………………………….. 2,600

1-31 Purchases …………………………………. 3,000

1-31 Accounts Payable ………………………. 1,450

1-31 Expenses ………………………………….. 1,250

Jan. 1-31 Cash ………………………………………… 1,600

1-31 Home Office ……………………………… 150

1-31 Shipments from Home Office ………… 1,250

1-31 Home Office ……………………………… 1,000

Jan. 1 Branch …………………………………….. 1,500

1 Store Furniture and Fixtures Branch ….. 3,000

1 Accumulated Depr. Store F&F ……….. 750

1 Store Furniture and Fixtures Branch ….. 900

1 Branch …………………………………… 2,600

1-31 Cash ………………………………………. 40,000

1-31 Purchases ………………………………….31,600

1-31 Accounts Payable ……………………… 36,200

1-31 Accrued Expenses Payable …………. 250

1-31 Allowance for Doubtful Accounts ….. 150

1-31 Branch ……………………………………. 1,250

1-31 Cash ……………………………………… 1,000

Cash …………............................ P 1,100 Accounts Payable ………………. P 2,400

Sales …………………………………………………………………………………………. P 6,200