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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
Net income from own/separate operations
Large Company [P200,000 – (P40,000 x 75%)] P170,000
Small Company 90,000
Total P260,000
Less: Non-controlling Interest in Net Income* P 16,350
Amortization of allocated excess 5,300Goodwill impairment 19,300 40,950
Controlling Interest in Consolidated Net Income or Profitattributable to equity holders of parent………….. P219,050
Add: Non-controlling Interest in Net Income (NCINI) 16,350
Consolidated Net Income for 20x4 P235,400
*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
be proportionate to NCI acquired.
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
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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
Net income from own/separate operations
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
be proportionate to NCI acquired.
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
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 – 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
Increase in retained earnings since date of acquisition P 67,000
Less: Amortization of allocated excess – 20x5 79,000
Amortization of allocated excess – 20x6 __ 9,000
P (21,000)
Multiplied by: Controlling interests %................... 85%
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 –
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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
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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
Less: Over/under valuation of A and L: Inc. (Dec.)
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
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 – 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
Increase in retained earnings since date of acquisition P 550,000
Less: Amortization of allocated excess – 20x4 (inventory) 100,000
P 450,000
Multiplied by: Controlling interests %................... 90%
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
Less: Over/under valuation of A and L: Inc. (Dec.)
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
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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
Retained 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 900,000FV 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]
FV of SHE of S:Common stock, 1/1/20x5 P 500,000Retained earnings, 1/1/20x5
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:
FV of SHE of S:Common stock, 1/1/20x5 P 500,000Retained earnings, 1/1/20x5
Retained 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 900,000FV of SHE of S1/1/x5 P2,700,000Multiplied by: NCI% 20%FV of NCI (partial) P 540,000
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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
Less: Non-controlling Interest in Net Income* P 42,000
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
Add: Non-controlling Interest in Net Income (NCINI) 42,000
Consolidated Net Income for 20x4 P610,000
Net income of subsidiary…………………….. P 300,000
Amortization of allocated excess …... ( 90,000)P210,000
Multiplied by: Non-controlling interest %.......... 20%
Non-controlling Interest in Net Income (NCINI) P 42,000
20x5Consolidated Net Income for 20x5
Net income from own/separate operations
P Company P425,000
S Company 400,000
Total P825,000
Less: Non-controlling Interest in Net Income* P 62,000
Amortization of allocated excess 90,000
Goodwill impairment ____0 152,000
Controlling Interest in Consolidated Net Income or Profitattributable to equity holders of parent………….. P673,000
Add: Non-controlling Interest in Net Income (NCINI) 62,000
Consolidated Net Income for 20x4 P735,000
Net income of subsidiary…………………….. P 400,000
Amortization of allocated excess …... ( 90,000)
P310,000
Multiplied by: Non-controlling interest %.......... 20%
Non-controlling Interest in Net Income (NCINI) P 62,000
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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
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(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
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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
Dividend income (P48,000 x 100%)……………. 48,000Record dividends from S Company.
On the books of S Company, the P40,000 dividend paid was recorded as follows:Dividends paid………… 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
(E2) Common stock – S Co………………………………………… 240,000
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.
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(E3) 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………………………………………………. 105,000To 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 January 1, 20x5.
(E4) Retained earnings – P Company, 1/1/20x5(P16,800 x 100%) 16,800
Depreciation expense……………………….. 6,000
Accumulated depreciation – buildings………………….. 12,000
Interest expense………………………………… 1,200
Inventory………………………………………………………….. 6,000
Accumulated depreciation – equipment……………….. 24,000
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,
Depreciation/Amortization
expenseAmortization
-Interest
Inventory sold P 6,000
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
(E5) Dividend income - P………. 48,000
Dividends paid – S…………………… 48,000To eliminate intercompany dividends and non-controlling interest
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:
Net income of subsidiary…………………….. P 90,000
Amortization of allocated excess [(E4)]…... ( 7,200)
P 82,000
Multiplied by: Non-controlling interest %.......... 20%
Non-controlling Interest in Net Income (NCINI) P 16,560
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Worksheet for Consolidated Financial Statements, December 31, 20x5.
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 ___________
Total Revenue P588,000 P360,000 P 900,000
Cost of goods sold P216,000 P192,000 P 408,000Depreciation expense 60,000 24,000 (4) 6,000 90,000
Interest expense - - (4) 1,200 1,200
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
Statement of Retained Earnings
Retained earnings, 1/1
P Company P492,000 (4) 16,800 (1) 24,000 P 499,200
S Company P144,000(2)144,000
Net income, from above 240,000 90,000 274,800
Total P732,000 P234,000 P 774,000
Dividends paid
P Company 72,000 72,000
S Company - 48,000 (5) 48,000 _ ________
Retained earnings, 12/31 to BalanceSheet P660,000 P186,000 P 702,000
Balance Sheet
Cash………………………. P 189,000 P 102,000 P 291,000
Accounts receivable…….. 180,000 960,000 276,000
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
Discount on bonds payable (3) 4,800 (4) 2,400 2,400
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
Accumulated depreciation- buildings
450,000 306,000 (3) 192,000(4) 12,000 552,000
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 (2) 240,000
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
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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
Consolidated Net Income for 20x4 P211,200
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
Retained earnings - P Company, January 1, 20x4 (date of acquisition) P360,000
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
Consolidated Retained Earnings, December 31, 20x4 P499,200
*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.
Consolidated Net Income for 20x5
Net income from own/separate operations
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.
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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)
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) (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.
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20x4: First Year after Acquisition
Parent Company Cost Model EntryJanuary 1, 20x4:(1) Investment in S Company…………………………………………… 372,000
Cash…………………………………………………………………….. 372,000Acquisition of S Company.
January 1, 20x4 – December 31, 20x4:(2) Cash……………………… 28,800
Dividend income (P36,000 x 80%)……………. 28,800Record dividends from S Company.
On the books of S Company, the P30,000 dividend paid was recorded as follows:Dividends paid………… 36,000
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
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…………………………………………………………………. 12,000
Buildings……………………………………….. 216,000
Non-controlling interest (P90,000 x 20%)……………………….. 18,000
Investment in S Co………………………………………………. 84,000To 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.
(E3) Cost of Goods Sold……………. 6,000
Depreciation expense……………………….. 6,000
Accumulated depreciation – buildings………………….. 6,000
Interest expense………………………………… 1,200
Goodwill impairment loss………………………………………. 3,000
Inventory………………………………………………………….. 6,000
Accumulated depreciation – equipment……………….. 12,000
Discount on bonds payable………………………… 1,200
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
Depreciation/Amortization
expenseAmortization
-Interest Total
Inventory sold P 6,000
Equipment P 12,000
Buildings ( 6,000)
Bonds payable _______ _______ P 1,200
Totals P 6,000 P 6,000 P1,200 13,200
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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%
(E4) Dividend income - P………. 28,800
Non-controlling interest (P36,000 x 20%)……………….. 7,200
Dividends paid – S…………………… 36,000To eliminate intercompany dividends and non-controlling interest
share of dividends.
(E5) Non-controlling interest in Net Income of Subsidiary………… 9,360
Non-controlling interest ………….. 9,360To establish non-controlling interest in subsidiary’s adjusted net
income for 20x4 as follows:
Net income of subsidiary…………………….. P 60,000
Amortization of allocated excess [(E3)]…... ( 13,200)
P 46,800Multiplied by: Non-controlling interest %.......... 20%
Non-controlling Interest in Net Income (NCINI) P 9,360
Worksheet for Consolidated Financial Statements, December 31, 20x4.
Cost Model (Partial-goodwill)
80%-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 28,800 - (4) 28,800 _________
Total Revenue P508,800 P240,000 P 720,000
Cost of goods sold P204,000 P138,000 (3) 6,000 P 348,000Depreciation expense 60,000 28,000 (3) 6,000 90,000
Interest expense - - (3) 1,200 1,200
Other expenses 48,000 18,000 66,000
Goodwill impairment loss - - (3) 3,000 3,000
Total Cost and Expenses P310,000 P180,000 P508,200
Net Income P196,800 P 60,000 P211,800
NCI in Net Income - Subsidiary - - (5) 9,360 ( 9,360)
Net Income to Retained Earnings P196,800 P 60,000 P202,440
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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 196,800 60,000 202,440
Total P552,000 P180,000 P562,440
Dividends paid
P Company 72,000 72,000S Company - 36,000 (4) 36,000 _ ________
Retained earnings, 12/31 to BalanceSheet P484,800 P144,000 P 490,440
Balance Sheet
Cash………………………. P 232,800 P 90,000 P 322,800
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) 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
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 484,800 144,000 490,440
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.
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On the books of S Company, the P40,000 dividend paid was recorded as follows:
Dividends paid………… 48,000
Cash 48,000
Dividends paid by S Co..
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
Retained earnings – P Company……………………… 19,200To provide entry to convert from the cost method to the equity
method or the entry to establish reciprocity at the beginning of theyear, 1/1/20x5, computed as follows:
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 % 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
of subsidiary and to establish non-controlling interest (in net assets of
subsidiary) on January 1, 20x5.
(E3) Inventory…………………………………………………………………. 6,000
Accumulated depreciation – equipment……………….. 96,000
Accumulated depreciation – buildings………………….. 192,000
Land………………………………………………………………………. 7,200
Discount on bonds payable…………………………………………. 4,800
Goodwill…………………………………………………………………. 12,000
Buildings……………………………………….. 216,000
Non-controlling interest (P90,000 x 20%) 18,000
Investment in S Co………………………………………………. 84,000To 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 January 1, 20x5.
(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
Depreciation expense……………………….. 6,000
Accumulated depreciation – buildings………………….. 12,000
Interest expense………………………………… 1,200Inventory………………………………………………………….. 6,000
Accumulated depreciation – equipment……………….. 24,000
Discount on bonds payable………………………… 2,400
Goodwill…………………………………… 3,000To 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 &
NCI;
Year 20x5 amounts are debited to respective nominal accounts.
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Balance Sheet
Cash………………………. P 265,200 P 114,000 P 367,200
Accounts receivable…….. 180,000 96,000 276,000
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
Investment in S Co……… 372,000 (1) 19,200 (2) 307,200(3) 84,000 -
Total P2,203,200 P1,074,000 P2,707,800
Accumulated depreciation- equipment P 150,000 P 102,000 (3) 96,000 (4) 24,000 P180,000
Accumulated depreciation- buildings
450,000 306,000 (3) 192,000(4) 12,000 552,000
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 (2) 240,000
Retained earnings, from above 643,200 186,000 676,680
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. 1/1/20x4a. 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.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:
Stockholders’ Equity
Common stock, P10 par P 600,000
Retained earnings 360,000
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:
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a. CI-CNIConsolidated Net Income for 20x4
Net income from own/separate operations
P Company P168,000
S Company 60,000
Total P228,000
Less: Non-controlling Interest in Net Income* P 9,360
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
Add: Non-controlling Interest in Net Income (NCINI) 9,360
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
Multiplied by: Non-controlling interest %.......... 20%
Non-controlling Interest in Net Income (NCINI) P 9,360
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
Retained earnings - P Company, January 1, 20x4 (date of acquisition) P360,000
Add: Controlling Interest in Consolidated Net Income or Profit attributable toequity holders of parent for 20x4 202,440
Total P562,440
Less: Dividends paid – P Company for 20x4 72,000
Consolidated Retained Earnings, December 31, 20x4 P490,440
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
Adjustments to reflect fair value - (over) undervaluation of assets andliabilities, date of acquisition (January 1, 20x4) 90,000
Amortization of allocated excess (refer to amortization above) – 20x4 ( 13,200)
Fair value of stockholders’ equity of subsidiary, December 31, 20x4…… P460,000
Multiplied by: Non-controlling Interest percentage…………... 20
Non-controlling interest (partial-goodwill)………………………………….. P 92,160
f.Consolidated SHE:
Stockholders’ Equity
Common stock, P10 par P 600,000
Retained earnings 490,440
P’s Stockholders’ Equity / CI – SHE, 12/31/20x4 P1,090,440
NCI, 12/31/20x4 ___92,160
Consolidated SHE, 12/31/20x4 P1,182,600
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12/31/20x5:a. CI-CNI
Consolidated Net Income for 20x5
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
Add: Non-controlling Interest in Net Income (NCINI) 16,560
Consolidated Net Income for 20x5 P274,800
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
Multiplied by: Non-controlling interest %.......... 20%
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
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 – S, January 1, 20x5 P 144,000
Less: Retained earnings – S, January 1, 20x4 120,000
Increase in retained earnings since date of acquisition P 24,000
Less: Amortization of allocated excess – 20x4 13,200
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
Less: Dividends paid – P Company for 20x5 72,000
Consolidated Retained Earnings, December 31, 20x5 P676,680
*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
Adjustments to reflect fair value - (over) undervaluation of assets andliabilities, date of acquisition (January 1, 20x4) 90,000
Amortization of allocated excess (refer to amortization above) :
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20x4 P 13,200
20x5 7,200 ( 20,400)
Fair value of stockholders’ equity of S, December 31, 20x5…… P 495,600
Multiplied by: Non-controlling Interest percentage…………... 20
Non-controlling interest (partial goodwill)………………………………….. P 99,120
f.
Consolidated SHE:Stockholders’ Equity
Common stock, P10 par P 600,000
Retained earnings 676,680
Parent’s Stockholders’ Equity / CI – SHE, 12/31/20x5 P1,276,680
NCI, 12/31/20x5 ___99,120
Consolidated SHE, 12/31/20x5 P1,1375,800
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
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…………………………………………… 372,000
Cash…………………………………………………………………….. 372,000Acquisition of S Company.
January 1, 20x4 – December 31, 20x4:(2) Cash……………………… 28,800
Dividend income (P36,000x 80%)……………. 28,800Record dividends from S Company.
On the books of S Company, the P30,000 dividend paid was recorded as follows:
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Dividends paid………… 36,000Cash……. 36,000
Dividends paid by S Co..
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
Non-controlling interest (P360,000 x 20%)……………………….. 72,000To 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……………….. 96,000
Accumulated depreciation – buildings………………….. 192,000
Land………………………………………………………………………. 7,200
Discount on bonds payable…………………………………………. 4,800
Goodwill…………………………………………………………………. 13,000
Buildings……………………………………….. 216,000Non-controlling interest (P90,000 x 20%) + [(P15,000, full –
P12,000, partial goodwill)]………… 21,000
Investment in S Co………………………………………………. 84,000To 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.
(E3) Cost of Goods Sold……………. 6,000
Depreciation expense……………………….. 6,000
Accumulated depreciation – buildings………………….. 6,000
Interest expense………………………………… 1,200
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
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………. 28,800Non-controlling interest (P36,000 x 20%)……………….. 7,200
Dividends paid – S…………………… 36,000To eliminate intercompany dividends and non-controlling interest
share of dividends.
(E5) Non-controlling interest in Net Income of Subsidiary………… 8,610
Non-controlling interest ………….. 8,610To establish non-controlling interest in subsidiary’s adjusted net
Income less NCI on goodwill impairment loss on full-goodwill
for 20x4 as follows:
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Net income of subsidiary…………………….. P 60,000
Amortization of allocated excess [(E3)]…... ( 13,200)
P 46,800
Multiplied by: Non-controlling interest %.......... 20%
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
Non-controlling Interest in Net Income (NCINI) P 8,610
*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.
Worksheet for Consolidated Financial Statements, December 31, 20x4.
Cost Model (Full-goodwill)
80%-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 28,800 - (4) 28,800 _________
Total Revenue P508,800 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
Other expenses 48,000 18,000 66,000
Goodwill impairment loss - - (3) 3,750 3,750
Total Cost and Expenses P312,000 P180,000 P508,950
Net Income P196,800 P 60,000 P211,050
NCI in Net Income - Subsidiary - - (5) 8,610 ( 8,610)
Net Income to Retained Earnings P196,800 P 60,000 P202,680
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 196,800 60,000 202,680
Total P556,800 P180,000 P562,440
Dividends paid
P Company 72,000 86,400
S Company - 36,000 (4) 36,000 _ ________
Retained earnings, 12/31 to BalanceSheet P484,800 P144,000 P 490,440
Balance Sheet
Cash………………………. P 232,800 P 90,000 P 322,800
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) 3,750 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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Accumulated depreciation- equipment P 135,000 P 96,000 (2) 96,000 (3) 12,000 P147,000
Accumulated depreciation- buildings
405,000 288,000 (5) 192,000(6) 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) 240,000Retained earnings, from above 484,800 144,000 490,440
Non-controlling interest…………
_________ _________
(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.
On the books of S Company, the P40,000 dividend paid was recorded as follows:
Dividends paid………… 48,000Cash 48,000
Dividends paid by S Co..
Consolidation Workpaper – Second Year after Acquisition(E1) Investment in S Company………………………… 19,200
Retained earnings – P Company……………………… 19,200To 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 % 80%Retroactive adjustment P 19,200
(E2) Common stock – S Co………………………………………… 240,000
Retained 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
of subsidiary and to establish non-controlling interest (in net assets of
subsidiary) on January 1, 20x5.
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(E3) 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
Non-controlling interest (P90,000 x 20%) + [(P15,000, full – P12,000, partial goodwill)]………… 21,000
Investment in S Co………………………………………………. 84,000To 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 January 1, 20x5.
(E4) Retained earnings – P Company, 1/1/20x5(P16,950 x 80%) 13,560
Non-controlling interests (P16,950 x 20%)……………………. 3,390
Depreciation expense……………………….. 6,000
Accumulated depreciation – buildings………………….. 12,000
Interest expense………………………………… 1,200
Inventory………………………………………………………….. 6,000
Accumulated depreciation – equipment……………….. 24,000
Discount on bonds payable………………………… 2,400
Goodwill…………………………………… 3,750To provide for years 20x4 and 20x5 depreciation and amortization on
differences between acquisition date fair value and book value of
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,
Depreciation/Amortization
expenseAmortization
-Interest
Inventory sold P 6,000
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
(E5) Dividend income - P………. 38,400
Non-controlling interest (P48,000 x 20%)……………….. 9,600
Dividends paid – S…………………… 48,000To eliminate intercompany dividends and non-controlling interest
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 netincome for 20x5 as follows:
Net income of subsidiary…………………….. P 90,000
Amortization of allocated excess [(E4)]…... ( 7,200)
P 82,800
Multiplied by: Non-controlling interest %.......... 20%
P 16,560
Less: NCI on goodwill impairment loss on full-Goodwill 0
Non-controlling Interest in Net Income (NCINI) P 16,560
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Worksheet for Consolidated Financial Statements, December 31, 20x5.
Cost Model (Full-goodwill)
80%-Owned Subsidiary
December 31, 20x5 (Second Year after Acquisition)
Income Statement P Co S Co. Dr. Cr. Consolidated
Sales P540,000 P360,000 P 900,000Dividend income 38,400 - (5) 38,400 ___________
Total Revenue P578,400 P360,000 P 900,000
Cost of goods sold P216,000 P192,000 P 408,000
Depreciation expense 60,000 24,000 (4) 6,000 90,000
Interest expense - - (4) 1,200 1,200
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
NCI in Net Income - Subsidiary - - (6) 16,560 ( 16,560)
Net Income to Retained Earnings P230,400 P 90,000 P 258,240
Statement of Retained Earnings
Retained earnings, 1/1
P Company P484,800 (5) 13,560 (5) 19,200 P 490,440S Company P 144,000 (6) 144,000
Net income, from above 230,400 90,000 258,240
Total P715,200 P234,000 P 748,680
Dividends paid
P Company 72,000 72,000
S Company - 48,000 (5) 57,600 _ ________
Retained earnings, 12/31 to BalanceSheet P643,200 P186,000 P 676,680
Balance Sheet
Cash………………………. P 265,200 P 102,000 P 367,200
Accounts receivable…….. 180,000 96,000 276,000
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
Discount on bonds payable (3) 4,800 (4) 2,400 2,400
Goodwill…………………… (3) 15,000 (4) 3,750 11,250
Investment in S Co……… 372,000 (1) 19,200 (2) 307,200(7) 84,000 -
Total P2,203,200 P1,074,000 P2,710,050
Accumulated depreciation- equipment P 150,000 P 102,000 (3) 96,000 (4) 24,000 P180,000
Accumulated depreciation- buildings
450,000 306,000 (3) 192,000(4) 12,000 552,000
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 (2) 240,000Retained earnings, from above 643,200 186,000 676,680
Non-controlling interest…………
___ _____ _________
(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
Retained earnings - P Company, January 1, 20x4 (date of acquisition) P360,000
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
Adjustments to reflect fair value - (over) undervaluation of assets andliabilities, date of acquisition (January 1, 20x4) 90,000
Fair value of stockholders’ equity of S, January 1, 20x4…… P450
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