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CHAPTER 4:

Discussant:
Carolino, Dean Victor
Fetalcorin, Julie Jorraine
De Guzman, Jessa E.
Bias, Czarina Kate
CBET-01-601E

MC 4-H
On
December
31,2013,
Pureza
Corporation purchased 80% of the
outstanding shares of Sta. Mesa
Company at a cost of P400,000. On
that date, Sta. Mesa Company had
P150,000 of Ordinary share capital and
P250,000 of Retained Earnings.
For 2014, the operating results of Pureza
Corporation and Sta. Mesa
Company
Pureza
Sta. Mesa
Corporation Corporation
are:
Net income from own operations

P200,000

P100,000

Dividends Paid

50,000

20,000

By: De Guzman, Jessa E.

All the assets and liabilities of Sta. Mesa


Company have book values approximately
equal to their respective market values.
Goodwill is to be tested for impairment. Pureza
measures
non-controlling
interest
at
its
proportionate share of the identifiable net
assets.
During
2014,
Pureza
Corporation
sold
merchandise to Sta. Mesa Company at 125% of
its cost, the same as that used in 2013 sales.
The January 1, 2014 inventory included P4,800
of
merchandise
purchased
from
Pureza
Corporation. Its December 31,2014 inventory
included P9,000 purchased from Pureza Corp.
Impairment loss on goodwill for 2014 is P4,900.

1. The amount that Pureza Corporation should record


as non-controlling interest net income for 2014 is:
A. P15,160

C. P19,160

B. P16,000

D. P20,000

2. The net income attributable to Pureza for 2014 is:


A. P277,160

C. P279,160

B. P275,160

D. P299,160

3. The consolidated net income for 2014 is:


A. P277,160

C. P279,160

B. P275,160

D. P299,160

4. The non-controlling interest at


December 31,2014 is:
A. P66,000

C. P96,000

B. P90,000

D. P116,000

Solutions:
1. D. P20,000
Net income from own operations of subsidiary (Sta. Mesa)
P100,000
Multiply by Non-controlling interest percentage
20%
NON-CONTROLLING INTEREST NET INCOME
P 20,000
CNI
Pureza
Sta. Mesa
Net income from own operation
Impairment loss on goodwill
Realized profit in inventory, beg
(4,800 x 25% / 125%)
Unrealized profit in inventory, end
(9,000 x 25% / 125%)

P 300,000

P 200,000

(4,000)

(4,000)

960

960

(1,800)

Consolidated Net Income

P
295,160

Non Controlling Interest Net


Income

P 20,000

(1,800)
P 195,160

Share in Subsidiary Net Income


Net Income Attributable to Pureza

P 100,000

80,000
P

P 100,000

Consolidated NI
NonNet Income
Attributable Controlling
to parent
Interest NI
Net Income of S
Co.

P 100,000

P 80,000

Net Income of P
Co.

200,000

200,000

Impairment Loss
on goodwill

P 20,000

(4,000)
(4,000)

Realized Profit in
Inventory, beg

960

Unrealized Profit in
inventory, end
(1,800)
P
295,160

960

(1,800)
P
275,160

P 20,000

Ordinary Share Capital Sta. Mesa


P
150,000
Retained Earnings: Dec. 31 2014
Ret. Earn., 12/31/13 P 250,000
Income 100,000
Less: Dividends
20,000 330,000
Book Value of Net Assets equal to FV
480,000
Multiply: Percentage of NCI
20%
NON-CONTROLLING INTEREST
P 96,000
DEC 31, 2014

Consideration Transferred
P 400,000
NCI (400,000 x 20%)
80,000
Total
480,000
FV of Assets Acquired
(400,000)
Goodwill December 31, 2013
80,000
Less Impairment
4,000
Goodwill December 31, 2014
P
76,000

MC 4-L
Acacia Corp. has 80% interest in Molave Co. By the
end of the current year Acacia Corp. holds
inventory purchased from Molave for P520,000
at cost plus 25% mark up. The groups
consolidated statement of financial position has
been drafted without any adjustments in
relation to this inventory.
Under PFRS 10 Consolidated Financial Statements,
what adjustments should be made to the draft
consolidated statement of financial position
figures for non-controlling interest and retained
earnings?
A.Non-controlling
No Change
Reduce by
P104,000 Earnings
interest
Retained
B.
No Change
C.
Reduce by P28,000
P112,000
D.
Reduce by P20,800

Reduce by P140,000
Reduce by
Reduce by P83,200

Inventory Ending P 520,000


Divide: Cost Plus Mark Up
125%
Cost of Sale P 416,000
Multiply: Mark Up 25%
Unrealized Gross Profit (End. Inv) P
104,000
Multiply: NCI Percentage 20%
Reduction in NCI P 20,800
Unrealized Gross Profit (End. Inv) P
104,000
Less: Reduction in NCI
20,800
Reduction in Retained Earnings P 83,200

NON
CONTROLLING
INTEREST NET INCOME AND
NON

CONTROLLING
INTEREST ARE NOT AFFECTED
BY
DOWNSTREAM
SALES.
(Page 218, under Key Points
5th bullet)

The
amount
reported
as
CONSOLIDATED NET INCOME is
the combined net income of the
parent and all the subsidiaries
after taking into consideration
the various adjustments for
intragroup
balances
and
transactions, intragroup profit
and
the
impairment/
amortization / depreciation of
differentials. (Page 175, under
consolidated net income, 2nd

MC4-F

Pancho Company owns 80% of Sanchez Company's


share capital. In 2014, Pancho Company sold
merchandise to Sanchez Co. for P100000 and purchased
P40000 from Sanchez Co. Intragroup sales are made at
a selling price of 25% above cost. At year-end, 20% of
all intragroup sales remains in the ending inventory of
the purchasing entity. The beginning inventory of
Pancho Co. included P2,000 of merchandise acquired
from Sanchez Co. on which Sanchez Co. reported a
profit of P800. In 2014, Pancho Co. and Sanchez Co.
reported net income of P120,000 and P70,000
respectively, from their own operations.

1. The non-controlling interest net income for 2014 is:


a. P13,840
c. P14,500
b. P14,000
d, P15,000
2. The consolidated net income for 2014 is:
a. P120,000
c. P185,200
b. P171,360
d. P190,000
3. The net income attributable to the parent in 2014 is:
a. P120,000
c. P171,360
b. P176,000
d. P185200

CNI
Net income from own operation
P70,000
Realized profit in Inv. Beginning
Unrealized profit in Inv. End
(1,600)
Consolidated net income
P69,200
NCI
13,840

Pancho Co.

Sanchez Co

P120,000
800
(4,000)
P185,200
P116,000

Share in subsidiary income


Net income Attributable to parent

55,360
P171,360

Sanchez Co. Net Income


P70,000
Realized profit on beginning inventory
800
Unrealized profit on ending inventory
(1,600)
Adjusted Subsidiary net income
69,200
NCI
20%
Non Controlling Interest Net Income
P13,840

Adjusted Parent net income:


Own Operation income of Pancho Co.
Unrealized profit on ending inventory
P116,000
Adjusted Subsidiary Net Income:
Sanchez Co. net income
P70,000
Realized profit on beginning inventory
Unrealized profit on ending inventory
69,200 Consolidated Net Income
P185,200

P120,000
(4,000)

800
(1,600)

Adjusted Net Income of Pancho Co.

P116,000

Add: Share in Sanchez Adjusted net income


55,360
(69200 x 80%)
Net income attributable to parent
P171,360

Consolidated Working paper Eliminations:


Sales
100000
Cost of sale
100000
Cost of sale
4000
Inventories
4000
Sales
P40,000
Cost of sales
P40,000
Cost of Sales
1600
Inventories
1600
Retained Earnings - Pancho Co.
Retained Earning - Sanchez Co.
Cost of sales
800

640
160

MC4-R
The following working paper elimination entry appeared
in the consolidation worksheet of Parker Company and its
subsidiary, Parker Company, to eliminate unrealized
intragoup gain in machinery and its related depreciation
(ignoring tax effect):
Retained Earnings, Parker (P450,000x.90) P 405,000
Retained Earnings, Starter (450,000 x .10)
45,000
Accumulated Depreciation - Parker
300,000
Machinery - Parker
P600,000
Depreciation - Parker (SLM - P600,000/4)
150,000

Machinery
P600,000
Divided by accumulated Depreciation
Years depreciated

300,000
2

MC 4-P
On January 5, 2014, Portero Inc, sold to its 80%owned subsidiary, Sotero Company, a machine
for P120,000. At that time, the machine had a net
book value of P90,000. Sotero estimated the
remaining life of the machine to be six years.
Assume that in 2014, Portero, Inc. and Sotero
Company reported net income of P80,000 and
P100,000 respectively, from their own operations.
1. Determine the non-controlling interest net
income from 2014.
A. P10,000

C. P16,000

B. P11,000

D. P20,000

Solutions:
1.

D. P20,000

Net income from own


operations of subsidiary (Sotero)
P100,000
Multiply by Non-controlling
interest percentage
20%
NON-CONTROLLING
INTEREST NET INCOME
P 20,000

2.) Determine the consolidated net


income for 2014.
A. P119,000

C. P144,000

B. P135,000

D. P155,000

2.D. P155,000
Net income from own operations:
Portero
P 80,000
Sotero
100,000
Realized gain on sale of machine
Gain on sale of Machine
P30,000
Divided by:
Estimated remaining life
of machine
6 yrs
5,000
Unrealized gain on sale of machine
Selling Price
P120, 000
Less:
Net Book Value
90, 000 (30,000)

CONSOLIDATED NET INCOME


P155,000

Net income from own operations:


Portero
P 80,000
Sotero
(100, 000 x 80%)
80,000
Realized gain on sale of machine
Gain on sale of Machine P30,000
Divided by:
Estimated remaining
life of machine
6 yrs
5,000
Unrealized gain on sale of machine
Selling Price P120, 000
Less:
Net Book Value
90, 000 (30,000)

NET INCOME
ATTRIBUTABLE TO PARENT

P135,000

NON CONTROLLING
INTEREST NET INCOME

P20,000

Consolidated
Net Income

Net Income from


own operations:
Portero
P80, 000
Sotero
P100, 000

Realized Gain on P5,000


Sale of Machine

Unrealized Gain
on Sale of
Machine

(P30,000)

Net Income
Attributable to
Parent

NonControlling
Interest

Page 175, Under Consolidated


Net Income, sentence no.2
Page 225, Under Intragroup
Transfer of Fixed Assets

3. B. P75,000
Book value of machine,
Jan 5, 2014
P 90,000
Less Depreciation
for 2014:
BV(01/05/14)
P90,000
DIVIDED BY:

Estimated remaining
life
6 yrs 15,000
Book value of machine
Dec 31, 2014

P 75,000

Exercise 4-3
In 2014, Palawan company acquired
inventory from Samar Company, its 75%owned subsidiary, for P200, 000. Samars
cost was P160, 000. at December 31, 2014,
Palawans statement of financial position
showed P80, 000of intragroup acquired
inventory on hand.
Instruction: Prepare the elimination entries
required in 2014.

a.)
Sales P200, 000
Cost of Sales P200, 000
To eliminate intragroup sales and purchases
b.)
Cost of Sales P16, 000
Inventory P16, 000
To eliminate unrealized profit in the ending
inventory

Pg.213 Under
Consolidated Working
Paper Eliminations

Elimination Procedures are as follows:


1.) Eliminate current year
intragroup sales and purchases
2.) Eliminate the unrealized profit in
the ending inventories.
3.) Eliminate intragroup payables
and receivables.