Chapter 16 Advanced 2

8/20/2019 Chapter 16 Advanced 2

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Chapter 16Problem I

1. P50,075Consolidated Net Income for 20x4

Net income from own/separate operations

Pill Company [P25,000 – (P9,000 x 85%)] P17,350

Sill Company 40,000Total 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 Profitattributable 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 600,000Fair value of Subsidiary (Implied cost of 100% investment); P600,000/75% 800,000Less: Carrying amount of Small’s net assets =

Carrying amount of Small’s shareholders’ equityCommon/Ordinary shares 400,000Retained earnings 100,000

500,000Allocated Excess: Acquisition differential – Jan. 1, 20x4 300,000Less: Over/under valuation of A/L (Allocated to):

Increase in Inventory 40,000Decrease in Patents (70,000) (30,000)

Goodwill - full 330,000

A summary or depreciation and amortization adjustments is as follows:Account Adjustments to beamortized

Over/Under Life

AnnualAmount

CurrentYear(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


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Unamortized balance of allocated excess:

Balance Balance

Jan. 1 Amortization Dec. 31

20x4 20x4 & 20x5 20x6

Inventory 40,000 40,000Patents (70,000) (28,000) (14,000) (28,000)

Goodwill 330,000 0 19,300 310,700300,000 12,000 5,300 282,700

Journal Entries Year 1 Year 2 Year 3

Investment in Small 600,000Cash 600,000

Cash 18,750 7,500 30,000Dividend income 18,750 7,500 30,000

2.a. Goodwill, 12/31/20x6 (P330,000 – P19,300) P 310,700b.

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) 90,000Dividends – Subsidiary 20x6 ( 40,000) 160,000

Book value of SHE – S, 12/31/20x6 P 560,000Adjustments to reflect fair value P 300,000

Amortization of allocated excess – 20x5 ( 12,000)- 20x6 14,000

Impairment of goodwill – 20x5 ( 19,300)___282,700FV of SHE of S P842,700

Multiplied by: NCI% 25%FV of NCI P210,675

Or, alternatively;

Small’s common/ordinary shares 400,000Small’s retained earnings (100,000+80,000-25,000-35,000-10,000+90,000

-40,000) 160,000560,000

Unamortized acquisition differential 282,700842,700

NCI’s share (25%) 210,675c. 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 ofconsolidation or to establish reciprocity:/Parent’s share in adjusted netincreased 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)


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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:

Consolidated Retained earnings, January 1, 20x6 P498,500Add: 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. P219,050Consolidated Net Income for 20x6


Large Company [P200,000 – (P40,000 x 75%)] P170,000

Small Company 90,000

Total P260,000


Amortization of allocated excess 5,300Goodwill impairment 19,300 40,950




*Net income of subsidiary – 20x6 P 90,000

Amortization of allocated excess – 20x6 ( 5,300)

P 84,700

Multiplied by: Non-controlling interest %.......... 25%

P 21,175

Less: Non-controlling interest on impairment loss on full-goodwill ( (P19,300 x 25%)* ___4,825

Non-controlling Interest in Net Income (NCINI) P 16,350*this procedure would be not be applicable where the NCI on goodwill impairment loss would not


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 3Investment in Small 600,000

Cash 600,000Investment 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 30,000Investment in Small 18,750 7,500 30,000

Investment income (75% x amortization of PD*) 19,500 (10,500) 3,975Investment in Small 19,500 (10,500) 3,975

*purchase differential

( ) – indicates reduction


4/99

Investment in Small under cost method 600,000Small’s retained earnings, end of year 160,000Small’s retained earnings, date of acquisition 100,000Change since acquisition 60,000Less: cumulative amortization of acquisit ion differential 17,300

42,700

Large’s share (75%) 32,025Investment 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 646,000Fair value of Subsidiary (Implied cost of 100% investment); P646,000/85% 760,000Less: Carrying amount of Silk’s net assets =

Carrying amount of Silk’s shareholders’ equityCommon/Ordinary shares 500,000Retained earnings 100,000

600,000

Allocated Excess: Acquisition differential – December 31, 20x4 160,000Less: Over/under valuation of A/L (Allocated to):

Increase in Inventory 70,000Patents 90,000Non-controlling interest (15% x 760,000, fair value of subsidiary),12/31/20x4 114,000

A summary or depreciation and amortization adjustments is as follows:Account Adjustments to beamortized

Over/under Life

AnnualAmount

CurrentYear(20x5) 20x6 20x7

Inventory P70,000 1 P 70,000 P 70,000 P - P -Subject to Annual Amortization

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,

Unamortized balance of allocated excess:

Balance Balance

Dec. 31 Amortization Dec. 31

20x4 20x5 20x6 20x6

Inventory 70,000 70,000Patents 90,000 9,000 9,000 72,000

160,000 79,000 9,000 72,000


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1. NCI-CNI

20x5: P(7,350)

20x6: P6,45020x5 20x6

Consolidated Net Income


Large Company20x5 [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*this procedure would be not be applicable where the NCI on goodwill impairment loss would not


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) - 7,35020x6: 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 toPen’s shareholders (13,650) (21,200)


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3. CRE, 12/31/20x6 – P73,150Consolidated Retained Earnings, December 31, 20x6

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 167,000Less: 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 100,000NI – Subsidiary (20x5 and 20x6): P30,000 + P52,000 82,000Dividends – Subsidiary (20x5 and 20x6): P) + P15,000 ( 15,000) 167,000

Book value of SHE – S, 12/31/20x6 P 667,000Adjustments to reflect fair value, 12/31/20x4 160,000Amortization of allocated excess (P79,000 + P9,000) ( 88,000)FV of SHE of S P 739,000Multiplied by: NCI% 15%FV of NCI (partial), 12/31/20x6 P 110,850Add: NCI on full-goodwill 0FV of NCI (full),12/31/20x6 P 110,850

Or, alternatively:

Non-controlling interest – date of acquisition,12/31/20x4 (1) P 114,000Retained earnings Silk – Dec. 31, 20x6

(100,000 + 30,000 + 52,000 – 15,000) 167,000Retained earnings, 12/31/20x4 (date of acquisition) 100,000Increase since acquisition 67,000Less: 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

Unamortized balance of allocated excess:Balance Balance

Dec. 31 Amortization Dec. 31

20x4 20x5 20x6 20x6

Inventory 70,000 70,000Patents 90,000 9,000 9,000 72,000

160,000 79,000 9,000 72,000


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Or, alternatively:

Invest. account – equity Dec. 31, 20x6 628,150Cost 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 67,000Less: Accumulated amortization (79,000 + 9,000) 88,000

- 21,00085% - 17,850

Invest. account – equity method as at Dec. 31, 20x6 628,150

Implied value of 100% (628,150 / 85%) 739,000Silk –Common shares 500,000

Retained earnings 167,000667,000

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 AmortizationsExcess fair value assigned to buildings 80,000 20 years P4,000Goodwill - 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 ........................... P 664,000Less: Book value of SHE – S (P600,000 x 80%)…….. 480,000Allocated excess…………………………………….. P184,000Less: Over/under valuation of A and L:

P80,000 x 80%................................................. 64,000Goodwill - partial ........................................................ P120,000

3. Full-goodwillCommon Stock - TT .................................................................. 300,000Additional Paid-in Capital - TT ............................................... 90,000Retained Earnings - TT .............................................................. 210,000

Investment in TT Company (80%) ................................... 480,000

Non-controlling interest (20%) ......................................... 120,000

Buildings ..................................................................................... 80,000Goodwill .................................................................................... 150,000

Investment in TT Company (80%) ................................... 184,000Non-controlling interest (P166,000 – P120,000)............ 46,000


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Partial-goodwillCommon Stock - TT .................................................................. 300,000Additional Paid-in Capital - TT ............................................... 90,000Retained Earnings - TT .............................................................. 210,000

Investment in TT Company (80%) ................................... 480,000Non-controlling interest (20%) ......................................... 120,000

Buildings ..................................................................................... 80,000Goodwill .................................................................................... 120,000

Investment in TT Company (80%) ................................... 184,000Non-controlling interest (20% x P80,000) ....................... 16,000

4. Cost Model/Initial Value MethodDividends received (80%) ............................................................. P 8,000Investment 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 amortizationis P4,000.

MM book value—buildings .................................................... P 800,000TT book value—buildings ........................................................ 300,000Allocation .................................................................................. 80,000Excess 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 150,000Goodwill-partial (see No. 1 above)……………………………… P 120,000

8. The common stock and additional paid-in capital figures to be reported are the parentbalances only.

Common stock, P500,000Additional paid-in capital, P280,000

Problem V

1.

Partial Goodwill or Proportionate Basis

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

b. Common stock – S 3,000,000Retained earnings – S 1,250.000

Investment in S Co 3,825,000NCI (P4,250,000 x 10%) 425,000

c. Land 400,000Investment in S 150,000NCI [(P500,000 x 10%)– (P100,000 x 10%)] 40,000Retained earnings – P (bargain purchase gain –


9/99

closed to retained earnings since only balancesheets are being examined, P300,000 – P90,000depreciation, 20x4) 210,000

FV of SHE of S:Common stock, 1/1/20x5 P3,000,000Retained earnings, 1/1/20x5

Retained earnings, 1/1/20x4 P1,000,000NI – Subsidiary (20x4) 250,000Dividends – Subsidiary 20x4 ( 0) 1,250,000

Book value of SHE – S, 1/1/20x5 P4,250,000Adjustments to reflect fair value 500,000Amortization of allocated excess (P100,000 x 1) ( 100,000)FV of SHE of S P4,650,000Multiplied by: NCI% 10%FV of NCI P 465,000

Computation of Gain:

Partial Goodwill or Proportionate BasisFair value of Subsidiary:

Consideration transferred P3,750,000

Less: BV of SHE of S (P3,000,000 + P1,000,000) x 90% _3,600,000Allocated excess P 150,000

Less: Over/under valuation of A and L: Inc. (Dec.)

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 225,000Beginning Retained Earnings-P Inc. 225,000To establish reciprocity/convert to equity (0.90 x(P1,250,000 – P1,000,000))

b. Common stock – S 3,000,000Retained earnings – S 1,250.000

Investment in S 3,825,000NCI (P4,250,000 x 10%) 425,000

c. Land 400,000Investment in S 150,000NCI [(P500,000 x 10%)– (P100,000 x 10%)] 40,000Retained earnings – P (bargain purchase gain –

closed to retained earnings since only balancesheets are being examined, P300,000 – P90,000depreciation, 20x4) 210,000

FV of SHE of S:Common stock, 1/1/20x5 P3,000,000

Retained earnings, 1/1/20x5Retained earnings, 1/1/20x4 P1,000,000NI – Subsidiary (20x4) 250,000Dividends – Subsidiary 20x4 ( 0) 1,250,000

Book value of SHE – S, 1/1/20x5 P4,250,000Adjustments to reflect fair value 500,000Amortization of allocated excess (P100,000 x 1) ( 100,000)FV of SHE of S P4,650,000Multiplied by: NCI% 10%FV of NCI P 465,000


10/99

Full-goodwill or Fair Value Basis

Fair value of Subsidiary: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

Allocated excess P 166,667


Inventory (P800,000 – P700,000) x 100% P 100,000Land (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-goodwillapproach are the same.

2.Consolidated Retained Earnings, December 31, 20x5

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) P1,550,000Less: 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

Computation of Goodwill:

Partial Goodwill

Fair value of Subsidiary:Consideration transferred P2,800,000

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

Goodwill – partial P 880,000

Full-goodwill:

Fair value of Subsidiary:Consideration transferred P2,800,000 / 80% P3,500,000

Less: BV of SHE of S (P1,500,000 x 100%) 1,500,000

Allocated excess P2,000,000Less: Over/under valuation of A and L: Inc. (Dec.)

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


11/99

1.Cost Model-Full Goodwill (Eliminating Entries)

20x4a. Beginning Retained Earnings-S Co. 1,000,000

Capital Stock- S Co. 500,000Property and Equipment (net) 900,000

Goodwill 1,100,000Investment in S Co. 2,800,000Non-controlling Interest 700,000

Common stock, 1/1/20x4 P 500,000Retained earnings, 1/1/20x4 1,000,000Book value of SHE – S, 1/1/20x5 P1,500,000Adjustments to reflect fair value 900,000FV of SHE of S1/1/x5 P2,400,000Multiplied by: NCI% 20%FV of NCI (partial) P 480,000Add: NCI on full-goodwill (P1,100,000 – P880,000) 220,000FV of NCI (full) P 700,000

b. Depreciation Expense 90,000Property and Equipment (net) 90,000

20x5a. Investment in S Company (P300,000 x 0.80) 240,000

Beginning Retained Earnings-P Co. 240,000To establish reciprocity/convert to equity as of 1/1/20x5

b. Beginning Retained Earnings-S Company 1,300,000Capital Stock-S Company 500,000Property and Equipment (net) 900,000Goodwill 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:Common stock, 1/1/20x5 P 500,000Retained earnings, 1/1/20x5


Book value of SHE – S, 1/1/20x5 P1,800,000Adjustments to reflect fair value 900,000FV of SHE of S1/1/x5 P2,700,000Multiplied by: NCI% 20%FV of NCI (partial) P 540,000Add: NCI on full-goodwill (P1,100,000 – P880,000) 220,000FV of NCI (full) P 760,000

c. Beginning Retained Earnings-P Co. (P90,000 x 80%) 72,000Non-controlling Interest (P90,000, depreciation x 20%) 18,000Depreciation Expense 90,000

Property and Equipment (net) 180,000


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NCI (partial), 12/31/20x5: [(a) P760,000 – (b) P18,000 = P522,000]


Retained earnings, 1/1/20x4 P1,000,000NI – Subsidiary (20x4) 300,000

Dividends – Subsidiary 20x4 ( 0) 1,300,000Book value of SHE – S, 1/1/20x5 P1,800,000Adjustments to reflect fair value 900,000Amortization of allocated excess (P90,000 x 1) ( 90,000)FV of SHE of S P2,610,000Multiplied by: NCI% 20%FV of NCI (partial) P 522,000Add: NCI on full-goodwill (P1,100,000 – P880,000) 220,000FV of NCI (full) P 742,000

Cost Model-Partial Goodwill (Eliminating Entries)

20x4a. Beginning Retained Earnings-S Co. 1,000,000

Capital Stock- S Co. 500,000Property and Equipment (net) 900,000Goodwill 880,000

Investment in S Co. 2,800,000Non-controlling Interest 480,000

b. Depreciation Expense 90,000Property and Equipment (net) 90,000

20x5a. Investment in S Company (P300,000 x 0.80) 240,000

Beginning Retained Earnings-P Co. 240,000To establish reciprocity/convert to equity as of 1/1/20x5

b. Beginning Retained Earnings-S Company 1,300,000Capital Stock-S Company 500,000Property and Equipment (net) 900,000Goodwill 880,000

Investment in S Company (P2,800,000 + P240,000) 3,040,000Non-controlling Interest P700,000 +

[(P1,300,000 – P1,000,000) x 0.20] – (P1,100,000 – P880,000) 540,000NCI:



Book value of SHE – S, 1/1/20x5 P1,800,000Adjustments to reflect fair value 900,000FV of SHE of S1/1/x5 P2,700,000Multiplied by: NCI% 20%FV of NCI (partial) P 540,000


13/99

c. Beginning Retained Earnings-P Co. (P90,000 x 80%) 72,000Non-controlling Interest (P90,000 depreciation x 20%) 18,000Depreciation Expense 90,000

Property and Equipment (net) 180,000NCI (partial), 12/31/20x5: [(a) P540,000 – (b) P18,000 = P522,000]

FV of SHE of S:

Common stock, 1/1/20x5 P 500,000Retained earnings, 1/1/20x5Retained earnings, 1/1/20x4 P1,000,000NI – Subsidiary (20x4) 300,000Dividends – Subsidiary 20x4 ( 0) 1,300,000

Book value of SHE – S, 1/1/20x5 P1,800,000Adjustments to reflect fair value 900,000Amortization of allocated excess (P90,000 x 1) ( 90,000)FV of SHE of S P2,610,000Multiplied by: NCI% 20%FV of NCI (partial) P 522,000

2. Consolidated Net Income (CNI) = Controlling Interest in CNI + NCI in CNI

20x4

Consolidated Net Income for 20x4Net income from own/separate operations

P Company P400,000

S Company 300,000

Total P700,000


Amortization of allocated excess 90,000

Goodwill impairment ____0 132,000

Controlling Interest in Consolidated Net Income or Profitattributable to equity holders of P………….. P568,000



Net income of subsidiary…………………….. P 300,000

Amortization of allocated excess …... ( 90,000)P210,000


Non-controlling Interest in Net Income (NCINI) P 42,000

20x5Consolidated Net Income for 20x5


P Company P425,000

S Company 400,000

Total P825,000


Amortization of allocated excess 90,000

Goodwill impairment ____0 152,000





Amortization of allocated excess …... ( 90,000)

P310,000




14/99


15/99

The buildings and equipment will be further analyzed for consolidation purposes as follows:S Co.

Book valueS Co.

Fair valueIncrease

(Decrease)Equipment .................. 180,000 180,000 0Less: Accumulated depreciation….. 96,000 - ( 96,000)Net book value………………………... 84,000 180,000 96,000

S Co.Book value

S Co.Fair value (Decrease)

Buildings................ 360,000 144,000 ( 216,000)Less: Accumulated depreciation….. 192,000 - ( 192,000)Net book value………………………... 168,000 144,000 ( 24,000)

A summary or depreciation and amortization adjustments is as follows:

Account Adjustments to be amortizedOver/under Life

AnnualAmount

CurrentYear(20x4) 20x5

Inventory P 6,000 1 P 6,000 P 6,000 P -

Subject to Annual Amortization

Equipment (net)......... 96,000 8 12,000 12,000 12,000

Buildings (net) (24,000) 4 ( 6,000) ( 6,000) (6,000)

Bonds payable… 4,800 4 1,200 1,200 1,200

P 13,200 P 13,200 P 7,200

20x4 : First Year after Acquisition

Parent Company Cost Model EntryJanuary 1, 20x4:(1) Investment in S Company…………………………………………… 465,000

Cash…………………………………………………………………….. 360,000Notes payable…………………………………… 105,000

Acquisition of S Company.

January 1, 20x4 – December 31, 20x4:(2) Cash……………………… 36,000

Dividend income (P36,000 x 100%)……………. 36,000Record dividends from S Company.

On the books of S Company, the P36,000 dividend paid was recorded as follows:Dividends paid………… 36,000

Cash……. 36,000Dividends 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…………………………………………… 360,000To 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……………….. 96,000Accumulated depreciation – buildings………………….. 192,000

Land………………………………………………………………………. 7,200

Discount on bonds payable…………………………………………. 4,800

Goodwill…………………………………………………………………. 15,000

Buildings……………………………………….. 216,000

Investment in S Co………………………………………………. 105,000To allocate excess of cost over book value of identifiable assets

acquired, with remainder to goodwill


16/99

(E3) Cost of Goods Sold……………. 6,000

Depreciation expense……………………….. 6,000

Accumulated depreciation – buildings………………….. 6,000

Interest expense………………………………… 1,200

Goodwill impairment loss 3,600

Inventory………………………………………………………….. 6,000

Accumulated depreciation – equipment……………….. 12,000

Discount on bonds payable………………………… 1,200

Goodwill…………….. 3,600To 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 ofGoods Sold

Depreciation/Amortization

ExpenseAmortization

-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…………………… 36,000To 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 360,000S 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 BalanceSheet P492,000 P144,000 P 499,200

Balance Sheet


17/99

Cash………………………. P 147,000 P 90,000 P 237,000

Accounts receivable…….. 90,000 60,000 150,000

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 11,400Investment 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- buildings

405,000 288,000 (2) 192,000(3) 6,000 495,000

Accounts payable…………… 120,000 120,000 240,000

Bonds payable………………… 240,000 120,000 360,000

Common stock, P10 par……… 600,000 600,000

Common stock, P10 par……… 240,000 (1) 240,000

Retained earnings, from above ___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

Parent Company Cost Model Entry

Only a single entry is recorded by the parent in 20x5 in relation to its subsidiary investment:January 1, 20x5 – December 31, 20x5:

Cash……………………… 48,000



Cash 48,000

Dividends paid by S Co..

Consolidation Workpaper – Second Year after Acquisition(E1) Investment in S Company………………………… 24,000

Retained earnings – P Company……………………… 24,000To 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 ………………………… 384,000To eliminate intercompany investment and equity accounts

of subsidiary and to establish non-controlling interest (in net assets of

subsidiary) on January 1, 20x5.


18/99

(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


Discount on bonds payable………………………… 2,400Goodwill…………………………………… 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)Retainedearnings,


expenseAmortization

-Interest


Equipment 12,000 P 12,000

Buildings (6,000) ( 6,000)

Bonds payable 1,200 P 1,200

Impairment loss 3,600Totals 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 ………….. 16,560To establish non-controlling interest in subsidiary’s adjusted net

income for 20x5 as follows:


Amortization of allocated excess [(E4)]…... ( 7,200)

P 82,000




19/99


Cost Model

100%-Owned SubsidiaryIncome 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 408,000Depreciation expense 60,000 24,000 (4) 6,000 90,000


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

S Company P144,000(2)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 _ ________


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

Accumulated depreciation- equipment P 150,000 P 102,000 (3) 96,000 (4) 24,000 P 180,000


450,000 306,000 (3) 192,000(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. 1/1/20x4a. 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


20/99

c.Stockholders’ Equity

Common stock, P10 par P 600,000

Retained earnings 360,000

Total Stockholders’ Equity (Total Equity) P 960,000

6. 12/31/20x4:a. P211,200 – same with CNI since there is no NCI.

Consolidated Net Income for 20x4

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 subsidiaryc. P211,200 – same with NCI-CNI since there is no NCI.

d.Consolidated Retained Earnings, December 31, 20x4


Add: Controlling Interest in Consolidated Net Income or Profit attributable toequity 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 subsidiaryf.

Stockholders’ Equity

Common stock, P10 par P 600,000Retained earnings 499,200

Total Stockholders’ Equity (Total Equity) P 1,099,200

12/31/20x5a. 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.


21/99


22/99

The buildings and equipment will be further analyzed for consolidation purposes as follows:S Co.

Book valueS Co.

Fair valueIncrease

(Decrease)

Equipment .................. 180,000 180,000 0

Less: Accumulated depreciation….. 96,000 - ( 96,000)

Net book value………………………... 84,000 180,000 96,000

S Co.Book value

S Co.Fair value (Decrease)

Buildings................ 360,000 144,000 ( 216,000)

Less: Accumulated depreciation….. 192,000 - ( 192,000)

Net book value………………………... 168,000 144,000 ( 24,000)


Account Adjustments to be amortizedOver/Under Life

AnnualAmount


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 thecontrolling interest and the NCI based on the percentage of total goodwill each equity interestreceived. For purposes of allocating the goodwill impairment loss, the full-goodwill is computedas follows:

Fair value of Subsidiary (100%)

Consideration transferred: Cash (80%) P 372,000

Fair value of NCI (given) (20%) 93,000

Fair value of Subsidiary (100%) P 465,000

Less: Book value of stockholders’ equity of Son (P360,000 x 100%) __360,000Allocated excess (excess of cost over book value)….. P 105,000Add (deduct): (Over) under valuation of assets and liabilities

(P90,000 x 100%) 90,000Positive 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-controllinginterest of 20% computed as follows:

Value % of TotalGoodwill 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 followsValue % of Total

Goodwill impairment loss attributable to parent or controllingInterest

P 3,000 80.00%

Goodwill applicable to NCI…………………….. 750 20.00%Goodwill impairment loss based on 100% fair value or full-

Goodwill P 3,750 100.00%

When cost model is used, only two journal entries are recorded by P Company during 20x4related to its investment in S Company.


23/99

20x4: First Year after Acquisition


Cash…………………………………………………………………….. 372,000Acquisition of S Company.




Cash……. 36,000Dividends paid by S Co..

Consolidation Workpaper – Year of Acquisition(E1) Common stock – S Co………………………………………… 240,000

Retained earnings – S Co…………………………………… 120.000

Investment in S Co…………………………………………… 288,000

Non-controlling interest (P360,000 x 20%)……………………….. 72,000

To eliminate intercompany investment and equity accountsof subsidiary on date of acquisition; and to establish non-controlling


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



Land………………………………………………………………………. 7,200


Goodwill…………………………………………………………………. 12,000

Buildings……………………………………….. 216,000

Non-controlling interest (P90,000 x 20%)……………………….. 18,000



controlling interest (in net assets of subsidiary) on date of acquisition.





Goodwill impairment loss………………………………………. 3,000

Inventory………………………………………………………….. 6,000



Goodwill…………………………………… 3,000To provide for 20x4 impairment loss and depreciation and

amortization on differences between acquisition date fair value andbook value of Son’s identifiable assets and liabilities as follows:

Cost ofGoods

Sold


expenseAmortization

-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


24/99

It should be observed that the goodwill computed above was proportional to the controllinginterest of 80% and non-controlling interest of 20% computed as follows:

Value % of TotalGoodwill applicable to parent………………… P12,000 80.00%Goodwill applicable to NCI…………………….. 3,000 20.00%Total (full) goodwill……………………………….. P15,000 100.00%

Therefore, the goodwill impairment loss of P3,125 based on 100% fair value or full-goodwill wouldbe allocated as follows:

Value % of TotalGoodwill impairment loss attributable to P or controlling

InterestP 3,000 80.00%

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%


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


share of dividends.



income for 20x4 as follows:



P 46,800Multiplied by: Non-controlling interest %.......... 20%



Cost Model (Partial-goodwill)


December 31, 20x4 (First Year after Acquisition)


Sales P480,000 P240,000 P 720,000

Dividend income 28,800 - (4) 28,800 _________


Cost of goods sold P204,000 P138,000 (3) 6,000 P 348,000Depreciation expense 60,000 28,000 (3) 6,000 90,000


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)



25/99



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 72,000S Company - 36,000 (4) 36,000 _ ________


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

Investment in S Co……… 372,000 (4) 288,000

(5) 84,000 -Total P1,984,800 P1,008,000 P2,424,600

Accumulated depreciation- equipment P 135,000 P 96,000 (2) 96,000 (3) 12,000 P147,000


405,000 288,000 (2) 192,000(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

20x5: Second Year after AcquisitionP Co. S Co.

Sales P 540,000 P 360,000Less: Cost of goods sold 216,000 192,000Gross profit P 324,000 P 168,000Less: Depreciation expense 60,000 24,000

Other expense 72,000 54,000Net income from its own separate operations P 192,000 P 90,000Add: Dividend income 38,400 -Net income P 230,400 P 90,000Dividends paid P 72,000 P 48,000

No goodwill impairment loss for 20x5.Parent Company Cost Model Entry

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

January 1, 20x5 – December 31, 20x5:

Cash……………………… 38,400

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

Record dividends from S Company.


26/99

On the books of S Company, the P40,000 dividend paid was recorded as follows:

Dividends paid………… 48,000

Cash 48,000


Consolidation Workpaper – Second Year after Acquisition

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

(E1) Investment in S Company………………………… 19,200


method or the entry to establish reciprocity at the beginning of theyear, 1/1/20x5, computed as follows:




Multiplied by: Controlling interest % 80%

Retroactive adjustment P 19,200

(E2) Common stock – S Co………………………………………… 240,000Retained earnings – S Co., 1/1/20x5 144,000

Investment in S Co (P384,000 x 80%)………………………… 307,200

Non-controlling interest (P384,000 x 20%)……………………….. 76,800To eliminate intercompany investment and equity accounts



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



Land………………………………………………………………………. 7,200


Goodwill…………………………………………………………………. 12,000

Buildings……………………………………….. 216,000

Non-controlling interest (P90,000 x 20%) 18,000




(E4) Retained earnings – P Company, 1/1/20x5[(P13,200 x 80%) + P3,000, impairment loss onpartial-goodwill] 13,560

Non-controlling interests (P13,200 x 20%)……………………. 2,640



Interest expense………………………………… 1,200Inventory………………………………………………………….. 6,000



Goodwill…………………………………… 3,000To provide for years 20x4 and 20x5 depreciation and amortization on


S’s identifiable assets and liabilities as follows:

Year 20x4 amounts are debited to P’s retained earnings &

NCI;

Year 20x5 amounts are debited to respective nominal accounts.


27/99


28/99

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

Discount on bonds payable (3) 4,800 (4) 2,400 2,400Goodwill…………………… (3) 12,000 (4) 3,000 9,000


Total P2,203,200 P1,074,000 P2,707,800



450,000 306,000 (3) 192,000(4) 12,000 552,000


Bonds payable………………… 240,000 120,000 360,000





___ _____ _________

(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. 1/1/20x4a. 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


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 120,000Stockholders’ equity – S Company, January 1, 20x4 P 360,000

Adjustments to reflect fair value - (over) undervaluation of assets andliabilities, date of acquisition (January 1, 20x4) 90,000

Fair value of stockholders’ equity of subsidiary, January 1, 20x4…… P450,000

Multiplied by: Non-controlling Interest percentage…………... 20

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 ismeasured as a proportion of identifiable assets and goodwill attributable to NCI share is notrecognized.12/31/20x4:


29/99

a. CI-CNIConsolidated Net Income for 20x4


P Company P168,000

S Company 60,000

Total P228,000


Amortization of allocated excess (refer to amortization above) 13,200Goodwill impairment (impairment under partial-goodwill approach) 3,000 25,560

Controlling Interest in Consolidated Net Income or Profit attributable toequity 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:Consolidated Retained Earnings, December 31, 20x4


Add: Controlling Interest in Consolidated Net Income or Profit attributable toequity holders of parent for 20x4 202,440

Total P562,440



e.

Non-controlling interest (partial-goodwill), December 31, 20x4Common 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


Non-controlling interest (partial-goodwill)………………………………….. P 92,160

f.Consolidated SHE:




P’s Stockholders’ Equity / CI – SHE, 12/31/20x4 P1,090,440

NCI, 12/31/20x4 ___92,160



30/99

12/31/20x5:a. CI-CNI


Net income from own/separate operations:

P Company P192,000

S Company 90,000

Total P282,000

Less: Non-controlling Interest in Net Income* P16,560Amortization of allocated excess (refer to amortization above) __7,200 23,760

Controlling Interest in Consolidated Net Income or Profit attributable toequity holders of parent………….. P258,240



b. NCI-CNI*Non-controlling Interest in Net Income (NCINI) for 20x5

Net income of S Company P 90,000

Less: Amortization of allocated excess / goodwill impairment for 20x5(refer to amortization table above) 80,400

P 82,800


Non-controlling Interest in Net Income (NCINI) for 20x5 P 16,560

c. CNI, P274,800 – refer to (a)d. On subsequent to date of acquisition, consolidated retained earnings would be computed

as follows:Consolidated Retained Earnings, December 31, 20x5

Retained earnings - P Company, January 1, 20x5 (cost model P484,800


Retained earnings – S, January 1, 20x5 P 144,000

Less: Retained earnings – S, January 1, 20x4 120,000



P 10,800

Multiplied by: Controlling interests %................... 80%P 8,640

Less: Goodwill impairment loss (full-goodwill), net (P3,750– P750)* or (P3, 750 x 80%) 3,000 5,640

Consolidated Retained earnings, January 1, 20x5 P 490,440

Add: Controlling Interest in Consolidated Net Income or Profit attributable toequity 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 by80%. There might be situations where the controlling interests on goodwill impairment loss would not be

proportionate to NCI acquired.

e.

Non-controlling interest (partial-goodwill), December 31, 20x5Common stock – S Company, December 31, 20x5…… P 240,000

Retained earnings – S Company, December 31, 20x5

Retained earnings – S Company, January 1, 20x5 P14,000

Add: Net income of S for 20x5 90,000

Total P234,000

Less: Dividends paid – 20x5 48,000 186,000

Stockholders’ equity – S Company, December 31, 20x5 P 426,000


Amortization of allocated excess (refer to amortization above) :


31/99

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:Stockholders’ Equity



Parent’s Stockholders’ Equity / CI – SHE, 12/31/20x5 P1,276,680

NCI, 12/31/20x5 ___99,120


Problem X

Requirements 1 to 4:Schedule of Determination and Allocation of ExcessDate of Acquisition – January 1, 20x4

Fair value of Subsidiary (80%)

Consideration transferred (80%)…………….. P 372,000

Fair value of NCI (given) (20%)……………….. 93,000Fair value of Subsidiary (100%)………. P 465,000

Less: Book value of stockholders’ equity of Son:

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

Retained earnings (P120,000 x 100%)………... 120,000 360,000

Allocated excess (excess of cost over book value)….. P 105,000

Less: Over/under valuation of assets and liabilities:

Increase in inventory (P6,000 x 100%)……………… P 6,000

Increase in land (P7,200 x 100%)……………………. 7,200

Increase in equipment (P96,000 x 100%) 96,000

Decrease in buildings (P24,000 x 100%)………..... ( 24,000)

Decrease in bonds payable (P4,800 x 100%)…… 4,800 90,000

Positive excess: Full-goodwill (excess of cost over fair value)………………………………………………... P 15,000


Account Adjustments to be amortizedOver/under Life

AnnualAmount


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


Cash…………………………………………………………………….. 372,000Acquisition of S Company.


Dividend income (P36,000x 80%)……………. 28,800Record dividends from S Company.



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Dividends paid………… 36,000Cash……. 36,000


No entries are made on the P’s books to depreciate, amortize or write-off the portion of theallocated excess that expires during 20x4.

Consolidation Workpaper – First Year after Acquisition(E1) Common stock – S Co………………………………………… 240,000Retained earnings – S Co…………………………………… 120.000

Investment in S Co…………………………………………… 288,000


of subsidiary on date of acquisition; and to establish non-controlling


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



Land………………………………………………………………………. 7,200


Goodwill…………………………………………………………………. 13,000

Buildings……………………………………….. 216,000Non-controlling interest (P90,000 x 20%) + [(P15,000, full –

P12,000, partial goodwill)]………… 21,000



controlling interest (in net assets of subsidiary) on date of acquisition.





Goodwill impairment loss………………………………………. 3,750

Inventory………………………………………………………….. 6,000

Accumulated depreciation – equipment……………….. 12,000Discount on bonds payable………………………… 1,200

Goodwill…………………………………… 3,750To provide for 20x4 impairment loss and depreciation and

amortization on differences between acquisition date fair value and

book value of S’s identifiable assets and liabilities as follows:

Cost of GoodsSold

Depreciation/ AmortizationExpense

Amortization-Interest


Equipment P12,000

Buildings ( 6,000)

Bonds payable _______ _______ P 1,200

Totals P 6,000 P 6,000 P1,200

(E4) Dividend income - P………. 28,800Non-controlling interest (P36,000 x 20%)……………….. 7,200


share of dividends.



Income less NCI on goodwill impairment loss on full-goodwill

for 20x4 as follows:


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P 46,800


P 9,360

Less: Non-controlling interest on impairmentloss on full-goodwill (P3,125 x 20%) or

(P3,125 impairment on full-goodwill lessP2,500, 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 interestpercentage or what option used to value non-controlling interest or goodwill.


Cost Model (Full-goodwill)


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 28,800 - (4) 28,800 _________


Cost of goods sold P204,000 P138,000 (3) 6,000 P 348,000



Other expenses 48,000 18,000 66,000

Goodwill impairment loss - - (3) 3,750 3,750


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 _ ________


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

Investment in S Co……… 372,000 (3) 288,000(4) 84,000 -

Total P1,984,800 P1,008,000 P2,426,850


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405,000 288,000 (5) 192,000(6) 6,000 495,000


Bonds payable………………… 240,000 120,000 360,000


Common stock, P10 par……… 240,000 (1) 240,000Retained earnings, from above 484,800 144,000 490,440


_________ _________

(7) 7,200

__________

(1 ) 72,000(2) 21,000(5) 8,610 ____94,410

Total P1,984,800 P1,984,800 P 748,560 P 748,560 P2,426,850

20x5: Second Year after AcquisitionP Co. S Co.

Sales P 540,000 P 360,000Less: Cost of goods sold 216,000 192,000Gross profit P 324,000 P 168,000Less: Depreciation expense 60,000 24,000

Other expense 72,000 54,000Net income from its own separate operations P 192,000 P 90,000Add: Dividend income 38,400 -Net income P 230,400 P 90,000Dividends paid P 72,000 P 48,000

No goodwill impairment loss for 20x5.

Parent Company Cost Model Entry

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

January 1, 20x5 – December 31, 20x5:

Cash……………………… 38,400

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

Record dividends from S Company.


Dividends paid………… 48,000Cash 48,000


Consolidation Workpaper – Second Year after Acquisition(E1) Investment in S Company………………………… 19,200


method or the entry to establish reciprocity at the beginning of the

year, 1/1/20x5.




Multiplied by: Controlling interest % 80%Retroactive adjustment P 19,200


Retained earnings – S Co., 1/1/20x5 144,000

Investment in S Co (P384,000 x 80%)………………………… 307,200





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



Land………………………………………………………………………. 7,200


Goodwill…………………………………………………………………. 15,000

Buildings……………………………………….. 216,000

Non-controlling interest (P90,000 x 20%) + [(P15,000, full – P12,000, partial goodwill)]………… 21,000




(E4) Retained earnings – P Company, 1/1/20x5(P16,950 x 80%) 13,560

Non-controlling interests (P16,950 x 20%)……………………. 3,390




Inventory………………………………………………………….. 6,000



Goodwill…………………………………… 3,750To provide for years 20x4 and 20x5 depreciation and amortization on


Son’s identifiable assets and liabilities as follows:

Year 20x4 amounts are debited to Perfect’s retained earnings

and NCI.

Year 20x5 amounts are debited to respective nominal accounts..

(20x4)Retainedearnings,


expenseAmortization

-Interest


Equipment 12,000 P 12,000

Buildings (6,000) ( 6,000)Bonds payable 1,200 P 1,200

Impairment loss 3,750

Totals P 16,950 P 6,000 P1,200

Multiplied by: CI%.... 80%

To Retained earnings P13,560


Non-controlling interest (P48,000 x 20%)……………….. 9,600


share of dividends.


Non-controlling interest ………….. 16,560

To establish non-controlling interest in subsidiary’s adjusted netincome for 20x5 as follows:



P 82,800


P 16,560

Less: NCI on goodwill impairment loss on full-Goodwill 0



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Cost Model (Full-goodwill)


December 31, 20x5 (Second Year after Acquisition)


Sales P540,000 P360,000 P 900,000Dividend income 38,400 - (5) 38,400 ___________


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 P230,400 P 90,000 P 274,800


Net Income to Retained Earnings P230,400 P 90,000 P 258,240



P Company P484,800 (5) 13,560 (5) 19,200 P 490,440S 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 _ ________


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 240,000 180,000 420,000Buildings 720,000 540,000 (3) 216,000 1,044,000


Goodwill…………………… (3) 15,000 (4) 3,750 11,250


Total P2,203,200 P1,074,000 P2,710,050



450,000 306,000 (3) 192,000(4) 12,000 552,000


Bonds payable………………… 240,000 120,000 360,000


Common stock, P10 par……… 240,000 (2) 240,000Retained earnings, from above 643,200 186,000 676,680


___ _____ _________

(6) 9,600(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


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5. 1/1/20x4a. On date of acquisition the retained earnings of parent should always be considered as

the consolidated retained earnings, thus:

Consolidated Retained Earnings, January 1, 20x4


b.Non-controlling interest (full-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


Fair value of stockholders’ equity of S, January 1, 20x4…… P450

Chapter 16 Advanced 2

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Transcript of Chapter 16 Advanced 2