Papa Co. and Son Co. entered into a business combination wherein Papa Co.

acquired 75% interest

in the common stock of Son Co. All of which were settled on January 1, 2016, the date of
acquisition by paying cash worth P1,000,000. The NCI has a fair value of P320 per share at the
date of acquistion. At that date, all assets and liabilities of Son Co. are equal to their respective fair
values except the following:

Book Values Fair Values Net Effect in FVNA

Inventories 100,000 110,000 10,000
Equipment-net 200,000 180,000 (20,000)
Machinery-net 150,000 175,000 25,000
Loans Payable 100,000 120,000 (20,000)

60% of the inventories were sold in 2016, 25% on 2017 and 15% on 2018. The equipment has a
remaining life of 4 years. Machinery, on the other hand, is expected to be useful at the end of 5
years from the acquisition date. The loans payable has a maturity of 2 years from the date of
acquisition.

It was also ascertained that Papa Co.'s goodwill was impaired by P10,000 and P5,000 at the end
of 2016 and 2017, respectively. While Son Co.'s goodwill was believed to be impaired by P20,000
and P10,000 at the end of 2016 and 2017, respectively.

Other information with regard to the two companies are as follows:

Net Income Dividends Paid

Papa Co. 800,000 100,000
2016
Son Co. 200,000 50,000
Papa Co. 1,000,000 200,000
2017
Son Co. 300,000 100,000
 As of December 31, 2016 As of December 31, 2017

Papa Co. Son Co. Papa Co. Son Co.

Cash 500,000 800,000 1,075,000 950,000

Accounts Receivable 500,000 300,000 750,000 460,000

Inventories 150,000 120,000 205,000 110,000

Equipment-net 300,000 150,000 280,000 100,000

Machinery-net 250,000 120,000 225,000 90,000

Investment in Subsidiary 1,000,000 - 1,000,000 -

Goodwill 50,000 - 45,000 -

Total Assets 2,750,000 1,490,000 3,580,000 1,710,000

Accounts Payable 200,000 50,000 220,000 70,000

Loans Payable 50,000 100,000 60,000 100,000

Total Liabilities 250,000 150,000 280,000 170,000

Ordinary Share Capital, P100 par 1,000,000 500,000 1,000,000 500,000

Ordinary Share premium 500,000 200,000 500,000 200,000

Retained Earnings 1,000,000 640,000 1,800,000 840,000

Determine the following:

1. Goodwill/Gain on acquisition
2. 2016 Consolidated Net Income
3. Parent's Share in the 2016 Consolidated Net Income
4. Non-controlling Interest's Share in 2016 Consolidated Net Income
5. Consolidated Total Assets as of December 31, 2016
6. Consolidated Total Liabilities as of December 31, 2016
7. Consolidated Retained Earnings as of December 31, 2016
8. Non-controlling Interest as of December 31, 2016
9. Consolidated Total Shareholders' Equity as of December 31, 2016
10. 2017 Consolidated Net Income
11. Consolidated Total Assets as of December 31, 2017
12. Consolidated Total Liabilities as of December 31, 2017
13. Consolidated Retained Earnings as of December 31, 2017
14. Non-controlling Interest as of December 31, 2017
15. Consolidated Total Shareholders' Equity as of December 31, 2017

SOLUTIONS:
75% 25% Total
Fair Value of the Whole Subsidiary 1,000,000 400,000 1,400,000
FVNA-Subsidiary 888,750 296,250 1,185,000
Goodwill 111,250 103,750 215,000
Amortization Schedule
FV-BV 2016 2017
Inventories 10,000 (6,000) (2,500)
Equipment-net (20,000) 5,000 5,000
Machinery-net 25,000 (5,000) (5,000)
BV-FV
Bonds Payable (20,000) 10,000 10,000
Total Amortization 4,000 7,500
2016
Subsidiary's Net Income 200,000
2016 Amortization 4,000
204,000

Parent's Share 153,000 51,000 NCI's Share

Goodwill Impairment Loss (10,349) (9,651)
Share in Subsidiary's Net Income 142,651 41,349
Parent's Net Income 800,000
Dividend Income Received From Subsidiary (37,500)
Consolidated Net Income 905,151 + 41,349 = 946,500 Total CNI
Retained Earnings of Parent, January 1, 2016 300,000 400,000 NCI, January 1, 2016
Dividend Paid by Parent (100,000) (12,500) Dividend Received from Subsidiary
Consolidated Retained Earnings, December 31, 2016 1,105,151 428,849 NCI, December 31, 2016

2017
Subsidiary's Net Income 300,000
2017 Amortization 7,500
307,500

Parent's Share 230,625 76,875 NCI's Share

Goodwill Impairment Loss (5,174) (4,826)
Share in Subsidiary's Net Income 225,451 72,049
Parent's Net Income 1,000,000
Dividend Income Received From Subsidiary (75,000)
Consolidated Net Income 1,150,451 + 72,049 = 1,222,500 Total CNI
Consolidated Retained Earnings, January 1, 2017 1,105,151 428,849 NCI, January 1, 2017
Dividend Paid by Parent (200,000) (25,000) Dividend Received from Subsidiary
Consolidated Retained Earnings, December 31, 2017 2,055,602 475,898 NCI, December 31, 2017
ANSWERS:

1. Goodwill 215,000.00

2. 2016 Consolidated Net Income 946,500.00

3. Parent's Share in 2016 CNI 905,151.16

4. NCI's Share in 2016 CNI 41,348.84

5. Parent's Assets at 12/31/16 2,750,000

Investment in Subsidiary (1,000,000)
Subsidiary's Assets at 12/31/16 1,490,000
FV-BV adjustments 15,000
Accumulated Amortization-2016 (6,000)
Goodwill 215,000
Goodwill Impairment (20,000)
Consolidated Total Assets, 12/31/16 3,444,000

6. Parent's Liabilities at 12/31/16 250,000

Subsidiary's Liabilities at 12/31/16 150,000
FV-BV adjustments 20,000
Accumulated Amortization-2016 (10,000)
Consolidated Total Liabilities, 12/31/16 410,000

7. Consolidated Retained Earnings, 12/31/16 1,105,151

8. Non-controlling Interest, 12/31/16 428,849

9. Ordinary Share Capital-Parent 1,000,000

Ordinary Share Premium-Parent 500,000
Consolidated Retained Earnings, 12/31/16 1,105,151
Non-controlling Interest, 12/31/16 428,849
Consolidated Shareholders' Equity, 12/31/16 3,034,000

10. 2017 Consolidated Net Income 1,222,500

11. Parent's Assets at 12/31/17 3,580,000

Investment in Subsidiary (1,000,000)
Subsidiary's Assets at 12/31/17 1,710,000
FV-BV adjustments 15,000
Accumulated Amortization-2017 (8,500)
 Goodwill 215,000
Accumulated Goodwill Impairment Loss-2017 (30,000)
Consolidated Total Assets, 12/31/17 4,481,500

12. Parent's Liabilities at 12/31/17 280,000

Subsidiary's Liabilities at 12/31/17 170,000
FV-BV adjustments 20,000
Accumulated Amortization-2017 (20,000)
Consolidated Total Liabilities, 12/31/17 450,000

13. Consolidated Retained Earnings, 12/31/17 2,055,602

14. Non-controlling Interest, 12/31/17 475,898

15. Ordinary Share Capital-Parent 1,000,000

Ordinary Share Premium-Parent 500,000
Consolidated Retained Earnings, 12/31/17 2,055,602
Non-controlling Interest, 12/31/17 475,898
Consolidated Shareholders' Equity, 12/31/17 4,031,500