Problem I A. Downstream Sale Cost Model - 20x5 (104,000/130,000 80% Ownership)

Chapter 18
Problem I
A. Downstream Sale
1.
Cost Model – 20x5 (104,000/130,000 = 80% ownership)
Dividends – S Company
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48,000
Dividend income (P60,000 x 80%) . . . . . . . . . . . . . . . . . . . . . . . 48,000
Net Income – S Company

No entry
Amortization of Allocated Excess

No entry
Unrealized Gain on Sale of Equipment

No entry
Realized Gain on Sale – depreciation

No entry
Equity Method – 20x5

Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,000
Investment in S Co (60,000 x 80%) . . . . . . . . . . . . . . . . . . . . . . . 32,000

Investment in S Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 656,000
Investment income (P820,000 x 80%). . . . . . . . . . . . . . . . . . . . . 656,000

None, since there is no amount available

No entry
1/1/20x4
Selling price……………………………………… P740,000
Less: Book value:
Cost…………………………………………P 1,280,000
Less: Accumulated depreciation
P1,280,000/8 years x 4 years……. 640,000 640,000
Unrealized gain on sales………………………. P 100,000
Realized gain on sale thru depreciation
based on remaining life of equipment
[P100,000 / (8 – 4, expired years)……… P 25,000
Realized Gain on Sale – depreciation 25,000

Investment in S Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2. Working Paper Elimination Entries:
Cost Model
Equipment 540,000
Beginning R/E – Prince 100,000
Accumulated Depreciation 640,000
Accumulated Depreciation (P100,000/4) × 2 50,000

Depreciation Expense 25,000
Beginning R/E – Prince 25,000
Equity Method
Equipment 540,000
Investment in S Co. 100,000

Investment in S Co. 25,000
3 Controlling Interest in Consolidated Net Income:

Prince Company’s income from its
independent operations P3,270,000
Reported net income of Serf Company P820,000
Plus profit on intercompany sale of
equipment considered to be realized
through depreciation in 20x4 25,000
Reported subsidiary income that has been
realized in transactions with third
parties 845,000
× .8
Prince Company’s share thereof 676,000
Controlling Interest in Consolidated net income P3,946,000
4. Noncontrolling Interest Calculation:

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

CI-CNI (No. 3) 3,946,000
CNI P4,115,000
or,
Consolidated Net Income for 20x5
P Company’s net income from own/separate operations…………. P3,270,000
Realized gain on sale of equipment (downstream sales) through depreciation 0
P Company’s realized net income from separate operations…….….. P3,270,000
S Company’s net income from own operations…………………………………. P 820,000
Realized gain on sale of equipment (upstream sales) through depreciation* 25,000
Son Company’s realized net income from separate operations*…….….. P 845,000 845,000
Total P4,115,000
Less: Amortization of allocated excess…………………… 0
Consolidated Net Income for 20x5 P4,115,000
Less: Non-controlling Interest in Net Income* * 169,000
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent – 20x5………….. P3,946,000
Or, alternatively
S Company’s net income from own operations…………………………………. P820,000
Realized gain on sale of equipment (upstream sales) through depreciation 25,000
S Company’s realized net income from separate operations…….….. P 845,000 845,000
Total P4,115,000
Less: Non-controlling Interest in Net Income* * P 169,000
Amortization of allocated excess…………………… 0 169,000
equity holders of parent………….. P3,946,000
Add: Non-controlling Interest in Net Income (NCINI) _169,000
**Non-controlling Interest in Net Income (NCINI) for 20x5

S Company’s net income of Subsidiary Company from its own operations
(Reported net income of S Company) P 820,000
S Company’s realized net income from separate operations……… P 845,000
Less: Amortization of allocated excess 0
P845,000
Multiplied by: Non-controlling interest %.......... 20%
Non-controlling Interest in Net Income (NCINI) – partial goodwill P 169,000
1/1/20x4:
Selling price of equipment P 740,000
Less: BV of equipment
Cost P1,280,000
Less: Accumulated depreciation:
P1,280,000 / 8 years x 4 years* 640,000 640,000
Unrealized gain on sales – 1/1/20x4 P 100,000
Realized gain – depreciation: P100,000 / 4 years P 25,000

*the original life is 8 years as of 1/1/20x3, since the remaining life as of 1/1/20x4
in only 4 years, for purposes of computing the accumulated depreciation to
determine the gain on sale, the difference of 4 years is presumed to be expired.
Controlling Interest in Consolidated Net Income:

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

Realized gain on sale of equipment (upstream sales) through depreciation 0
P820,000
B. Upstream Sale
1.
Cost Model – 20x5 (104,000/130,000 = 80% ownership)
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48,000
Dividend income (P60,000 x 80%) . . . . . . . . . . . . . . . . . . . . . . . 48,000

No entry

No entry

No entry
Realized Gain on Sale – depreciation
No entry
Equity Method – 20x5

Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,000
Investment in S Co (60,000 x 80%) . . . . . . . . . . . . . . . . . . . . . . . 32,000

Investment in S Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 656,000

None, since there is no amount available

No entry
1/1/20x4
Selling price……………………………………… P740,000
Less: Book value:
Cost…………………………………………P 1,280,000
Less: Accumulated depreciation
P1,280,000/8 years x 4 years……. 640,000 640,000
Unrealized gain on sales………………………. P 100,000
Realized gain on sale thru depreciation
based on remaining life of equipment
[P100,000 / (8 – 4, expired years)……… P 25,000
Realized Gain on Sale – depreciation 25,000

Investment in S Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2. Working Paper Elimination Entries:

Cost Model
Equipment 540,000
Beginning R/E – Prince (P100,000 × .80) 80,000
Noncontrolling Interest (P100,000 × .20) 20,000

Beginning R/E – Prince (P25,000 × .80) 20,000
Equity Method
Equipment 540,000
Investment in S Co. (P100,000 × .80) 80,000

Investment in S Co. (P25,000 × .80) 20,000
3 Controlling Interest in Consolidated Net Income:

Reported net income of Serf Company P820,000
through depreciation in 20x4 25,000
Reported subsidiary income that has been
realized in transactions with third
parties 845,000
× .8
4. Noncontrolling Interest Calculation:

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

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

P845,000
1/1/20x4:
Selling price of equipment P 740,000
Less: BV of equipment
Cost P1,280,000
Less: Accumulated depreciation:
P1,280,000 / 8 years x 4 years* 640,000 640,000
Unrealized gain on sales – 1/1/20x4 P 100,000
Realized gain – depreciation: P100,000 / 4 years P 25,000

*the original life is 8 years as of 1/1/20x3, since the remaining life as of 1/1/20x4
in only 4 years, for purposes of computing the accumulated depreciation to
determine the gain on sale, the difference of 4 years is presumed to be expired.
Problem II
1. Eliminating entry, December 31, 20x8:
E(1) Truck 55,000
Gain on Sale of Truck 35,000
Computation of gain on sale of truck:

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

Required [(P300,000 / 10 years) x 4 years] P120,000
Reported [(P245,000 / 7 years) x 1 year] (35,000)
Required increase P 85,000
E(1) Truck 55,000

Retained Earnings 30,000

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

E(1) Truck 90,000
Gain on Sale of Truck 30,000
Computation of gain on sale of truck:

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

Retained Earnings, January 1 30,000

Recorded [(P210,000 / 6 years) x 1 year] (35,000)
Required increase P115,000
Problem IV
1. Consolidated net income for 20x9:
Operating income reported by BW P100,000

Net income reported by TW P40,000
Amount of gain realized in 20x9
(P30,000 / 12 years) 2,500
Realized net income of TW 42,500
Consolidated net income P142,500
2. Consolidated net income for 20x9 would be unchanged.
E(1) Buildings and Equipment 30,000

Non-controlling Interest 5,000
Eliminate unrealized profit on building.
Adjustment to buildings and equipment
Amount paid by TW to acquire building P300,000

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

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

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

Industries (P270,000 / 12 years) P 22,500
Depreciation expense recorded by TW
Corporation (P300,000 / 15 years) (20,000)
Adjustment to depreciation expense P 2,500
Adjustment to accumulated depreciation
Amount required (P20,000 x 6 years) P120,000

Amount reported by BW (P22,500 x 3 years) (67,500)
Problem V
20x5 20x6
1.
Noncontrolling interest in P 7,000 (1) P 46,200 (2)
Consolidated net income
Controlling interest in 290,500 (3) 279,300 (4)

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

(2) .4(P105,000 + P10,500) = P46,200
(3) P280,000 + .6(P70,000 – P63,000 + P10,500) = P290,500
(4) P210,000 + .6(P105,000 + P10,500) = P279,300
20x5 20x6
2.
Noncontrolling interest in P 28,000 (5) P 42,000 (6)
Consolidated income
Controlling interest in 269,500 (7) 283,500 (8)
(5) .4(P70,000) = P28,000
(6) .4(P105,000) = P42,000
(7) (P280,000 – P63,000 + P10,500) + .6(P70,000) = P269,500
(8) (P210,000 + P10,500) + .6(P105,000) = P283,500
Problem VI
Quail Corporation and Subsidiary
Consolidated Income Statement
for the year ended December 31, 20x5
Sales P 1,100,000
Gain on land (P20,000 + P25,000) 45,000
Cost of sales ( 560,000 )
Other expenses (see below) ( 320,000 )
Consolidated Net Income P 265,000
NCI-CNI (see below) ( 20,000 )
Consolidated net income P 245,000
Other expenses:
P265,000 + P60,000 - P5,000 piecemeal recognition of gain on
equipment P 320,000
Non-controlling Interest in CNI:

Net income from Savannah x 20%: (P100,000 x 20%) = P 20,000
Problem VII
Requirements 1 to 4
Schedule of Determination and Allocation of Excess (Partial-goodwill)
Date of Acquisition – January 1, 20x4
Fair value of Subsidiary (80%)
Consideration transferred……………………………….. P 372,000
Less: Book value of stockholders’ equity of S:
Common stock (P240,000 x 80%)……………………. P 192,000
Retained earnings (P120,000 x 80%)………………... 96,000 288,000
Allocated excess (excess of cost over book value)….. P 84,000
Less: Over/under valuation of assets and liabilities:
Increase in inventory (P6,000 x 80%)……………… P 4,800
Increase in land (P7,200 x 80%)……………………. 5,760
Increase in equipment (P96,000 x 80%) 76,800
Decrease in buildings (P24,000 x 80%)………..... ( 19,200)
Decrease in bonds payable (P4,800 x 80%)…… 3,840 72,000
Positive excess: Partial-goodwill (excess of cost over
fair value)………………………………………………... P 12,000
The over/under valuation of assets and liabilities are summarized as follows:

S Co. S Co. (Over) Under
Book value Fair value Valuation
Inventory………………….…………….. P 24,000 P 30,000 P 6,000
Land……………………………………… 48,000 55,200 7,200
Equipment (net)......... 84,000 180,000 96,000
Buildings (net) 168,000 144,000 (24,000)
Bonds payable………………………… (120,000) ( 115,200) 4,800
Net……………………………………….. P 204,000 P 294,000 P 90,000
The buildings and equipment will be further analyzed for consolidation purposes as follows:
S Co. S Co. Increase
Book value Fair value (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. S Co.
Buildings................ 360,000 144,000 ( 216,000)
Net book value………………………... 168,000 144,000 ( 24,000)
A summary or depreciation and amortization adjustments is as follows:

Over/ Annual Current
Account Adjustments to be amortized Under Life Amount Year(20x4) 20x5
Inventory P 6,000 1 P 6,000 P 6,000 P -
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
The goodwill impairment loss of P3,750 based on 100% fair value would be allocated to the
controlling interest and the NCI based on the percentage of total goodwill each equity interest
received. For purposes of allocating the goodwill impairment loss, the full-goodwill is computed
as follows:

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 S (P360,000 x 100%) __360,000
Add (deduct): (Over) under valuation of assets and liabilities
(P90,000 x 100%) 90,000
Positive excess: Full-goodwill (excess of cost over
fair value)………………………………………………... P 15,000
In this case, the goodwill was proportional to the controlling interest of 80% and non-controlling
interest of 20% computed as follows:
Value % of Total
Goodwill applicable to parent………………… P12,000 80.00%
Goodwill applicable to NCI…………………….. 3,000 20.00%
Total (full) goodwill……………………………….. P15,000 100.00%
The goodwill impairment loss would be allocated as follows

Value % of Total
Goodwill impairment loss attributable to parent or controlling P 3,000 80.00%
Interest
Goodwill applicable to NCI…………………….. 750 20.00%
Goodwill impairment loss based on 100% fair value or full-
Goodwill P 3,750 100.00%
The unrealized and gain on intercompany sales for 20x4 are as follows:
Date Selling Book Unrealized* Remaining Realized gain –

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

Parent Company Cost Model Entry
January 1, 20x4:
(1) Investment in S Company…………………………………………… 372,000
Cash…………………………………………………………………….. 372,000
Acquisition of S Company.
January 1, 20x4 – December 31, 20x4:

(2) Cash……………………… 28,800
Dividend income (P36,000 x 80%)……………. 28,800
Record dividends from S Company.
No entries are made on the parent’s books to depreciate, amortize or write-off the portion of the
allocated excess that expires during 20x4, and unrealized profits in ending inventory.
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 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…………………………………………………………………. 12,000
Buildings……………………………………….. 216,000
Investment in S Co………………………………………………. 84,000
To 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
Interest expense………………………………… 1,200
Goodwill impairment loss………………………………………. 3,000
Inventory………………………………………………………….. 6,000
Discount on bonds payable………………………… 1,200
Goodwill…………………………………… 3,000
To provide for 20x4 impairment loss and depreciation and
amortization on differences between acquisition date fair value and
book value of Son’s identifiable assets and liabilities as follows:
Cost of Depreciation/
Goods Amortization Amortization
Sold Expense -Interest 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
(E4) Dividend income - P………. 28,800

Non-controlling interest (P36,000 x 20%)……………….. 7,200
Dividends paid – S…………………… 36,000
To eliminate intercompany dividends and non-controlling interest
share of dividends.
(E5) Gain on sale of equipment 15,000
Equipment 30,000
Accumulated depreciation 45,000
To eliminate the downstream intercompany gain and restore to its
original cost to the consolidate entity (along with its accumulated
depreciation at the point of the intercompany sale).

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

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

To adjust upstream depreciation expense on equipment sold to
parent, thus realizing a portion of the gain through depreciation
(P31,200/85 years x 1 year = P3,900).
(E9) Non-controlling interest in Net Income of Subsidiary………… 10,140

Non-controlling interest ………….. 10,140
To establish non-controlling interest in subsidiary’s adjusted net
income for 20x4 as follows:
Net income of subsidiary…………………….. P 91,200

Unrealized gain on sale of equipment
(upstream sales) ( 31,200)
Realized gain on sale of equipment (upstream
sales) through depreciation 3,900
S Company’s realized net income from
separate operations P 63,900
Less: Amortization of allocated excess [(E3)]…. 13,200
P 50,700
Non-controlling Interest in Net Income (NCINI) –
partial goodwill P 10,140
Subsidiary accounts are adjusted to full fair value regardless on the controlling interest
percentage or what option used to value non-controlling interest or goodwill.
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
Gain on sale of equipment 15,000 31,200 (5) 15,000
(6) 31,200
Dividend income 28,800 - (4) 28,800 _________
Total Revenue P523,800 P271,200 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 (7) 2,250 83,850
(8) 3,900
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 P312,000 P180,000 P 502,050
Net Income P211,800 P 91,200 P 217,950
NCI in Net Income - Subsidiary - - (9 10,140 ( 10,140)
Net Income to Retained Earnings P211,800 P 91,200 P 207,810
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 211,800 91,200 207,810
Total P571,800 P211,200 P 567,810
Dividends paid
P Company 72,000 72,000
S Company - 36,000 (4) 36,000 _ ________
Retained earnings, 12/31 to Balance
Sheet P499,800 P175,200 P 495,810
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 (5) 30,000
(6) 12,000 462,000
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 (1) 288,000
(2) 84,000 -
Total P1,984,800 P1,008,000 P2,466,600
Accumulated depreciation (3) 96,000 (3) 12,000

- equipment P 135,000 P 96,000 (7) 2,250 (5) 45,000
(8) 3,900 (6) 43,200 P229,050
Accumulated depreciation 405,000 288,000 (2) 192,000
- buildings (3) 6,000 495,000
Accounts payable…………… 105,000 88,800 193,800
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 499,800 175,200 495,810
Non-controlling interest………… (4) 7,200 (1 ) 72,000
(2) 18,000
_________ _________ __________ (9) 10,140 ____92,940
Total P1,984,800 P1,008,000 P 834,450 P 834,450 P2,466,600
20x5: Second Year after Acquisition

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

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

Cash……………………… 38,400
On the books of S Company, the P48,000 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………………………… 44,160

Retained earnings – P Company……………………… 44,160
To provide entry to convert from the cost method to the equity
method or the entry to establish reciprocity at the beginning of the
year, 1/1/20x5, computed as follows:
Retained earnings – S Company, 1/1/20x5 P175,200

Retained earnings – S Company, 1/1/20x4 120,000
Increase in retained earnings…….. P 55,200
Multiplied by: Controlling interest % 80%
Retroactive adjustment P 44,160
Entry (1) above is needed only for firms using the cost method to account for their investments in
the subsidiary. If the parent is already using the equity method, there is no need to convert to
equity.
Retained earnings – S Co., 1/1/20x5 175,200
Investment in S Co (P415,200 x 80%)………………………… 332,160
of subsidiary and to establish non-controlling interest (in net assets of
subsidiary) on January 1, 20x5.
(E3) Inventory…………………………………………………………………. 6,000

Land………………………………………………………………………. 7,200
Goodwill…………………………………………………………………. 12,000
Buildings……………………………………….. 216,000
Non-controlling interest (P90,000 x 20%) 18,000
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 on
partial-goodwill] 13,560
Non-controlling interests (P13,200 x 20%)……………………. 2,640
Inventory………………………………………………………….. 6,000
Goodwill…………………………………… 3,000
To 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 &
NCI;
Year 20x5 amounts are debited to respective nominal accounts.
(20x4) Depreciation/
Retained Amortization Amortization
earnings, expense -Interest
Equipment 12,000 P 12,000
Buildings (6,000) ( 6,000)
Bonds payable 1,200 ________ P 1,200
Sub-total P13,200 P 6,000 P 1,200
Multiplied by: 80%
To Retained earnings P 10,560
Impairment loss 3,000
Total P 13,560

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

Equipment 30,000
(E6) Retained Earnings–P Company, 1/1/20x5 (P31,200 x 80%) 24,960
Equipment 12,000

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

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


S Company’s Realized net income* P 93,900
Less: Amortization of allocated excess ( 7,200)
P 86,700
Non-controlling Interest in Net Income (NCINI) P 17,340
– partial goodwill
*from separate transactions that has been realized in transactions
with third persons.

Cost Model (Partial-goodwill)
December 31, 20x5 (Second Year after Acquisition)

Sales P540,000 P360,000 P 900,000
Dividend income 38,400 - (5) 38,400 ___________
Cost of goods sold P216,000 P192,000 P 408,000
(7) 83,100
3,000
Depreciation expense 60,000 24,000 (4) 6,000 (8)
3,900
Other expenses 72,000 54,000 126,000
Goodwill impairment loss - - -
Net Income P230,400 P 90,000 P 281,700
NCI in Net Income - Subsidiary - - (9) 17,340 ( 17,340)

P Company P499,800 (1) 13,560 (1) 44,160
(5) 15,000 (7) 2,250
(6) 24,960 (8) 3,120 P 495,810
S Company P 175,200 (2) 175,200
Net income, from above 230,400 __90,000 264,360
Total P730,200 P265,200 P 760,170
Dividends paid
P Company 72,000 72,000
S Company - 48,000 (5) 48,000 _ ________
Sheet P658,200 P217,200 P 688,170
Balance Sheet
Cash………………………. P 265,200 P 102,000 P 367,200
Inventory…………………. 216,000 108,000 (1) 6,000 (2) 6,000 324,000
Land……………………………. 210,000 48,000 (3) 7,200 265,200
Equipment 240,000 180,000 (5) 30,000
(6) 12,000 462,000
Buildings 720,000 540,000 (3) 216,000 1,044,000
Goodwill…………………… (3) 12,000 (4) 3,000 9,000
Investment in S Co……… 372,000 (1) 44,160 (2) 332,160
(3) 84,000 -
Total P2,203,200 P1,074,000 P2,749,800
Accumulated depreciation P 150,000 P 102,000 (3) 96,000 (4) 24,000
- equipment (7) 5,250 (5) 45,000
(8) 7,800 (6) 43,200 P 255,150
- buildings (4) 12,000 552,000
Bonds payable………………… 240,000 120,000 360,000
Non-controlling interest………… (4) 2,640 (2 83,040
(5) 9,600 (3) 18,000
(6) 6,240 (8) 780
___ _____ _________ __________ (9) 17,340 ____100,680
Total P2,203,200 P1,074,000 P 979,350 P 979,350 P2,749,800
5. 1/1/20x4
a. On date of acquisition the retained earnings of parent should always be considered as the consolidated
retained earnings, thus:
Consolidated Retained Earnings, January 1, 20x4
Retained earnings - Parent Company, January 1, 20x4 (date of acquisition) P360,000
b.
Non-controlling interest (partial-goodwill), January 1, 20x4
Common stock – Subsidiary Company…………………………………… P 240,000
Retained earnings – Subsidiary Company…………………………………. 120,000
Stockholders’ equity – Subsidiary Company.………….. P 360,000
Adjustments to reflect fair value - (over) undervaluation of assets and liabilities 90,000
Fair value of stockholders’ equity of subsidiary, January 1, 20x4………………… P 450,000
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
Parent’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 parent’s share. NCI is
measured as a proportion of identifiable assets and goodwill attributable to NCI share is not
recognized.
12/31/20x4:
a. CI-CNI - P
P Company’s net income from own/separate operations…………. P183,000
Unrealized gain on sale of equipment (downstream sales) (15,000)
P Company’s realized net income from separate operations*…….….. P170,250
Unrealized gain on sale of equipment (upstream sales) ( 31,200)
Total P234,150
Amortization of allocated excess (refer to amortization above) 13,200
Goodwill impairment (impairment under partial-goodwill approach) 3,000 26,340
equity holders of parent………….. P207,810
Add: Non-controlling Interest in Net Income (NCINI) _ 10,140
Consolidated Net Income for 20x4 P217,950
*that has been realized in transactions with third parties.
b. NCI-CNI – P10,140
Less: Amortization of allocated excess / goodwill impairment
(refer to amortization table above) 13,200
P 50,700
c. CNI, P217,950 – 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 to
equity holders of parent for 20x4 207,810
Total P567,810
Less: Dividends paid – Parent Company for 20x4 72,000
Consolidated Retained Earnings, December 31, 20x4 P495,810
e.
The goodwill recognized on consolidation purely relates to the parent’s share. NCI is
measured as a proportion of identifiable assets and goodwill attributable to NCI share is
not recognized. The NCI on January 1, 20x4 and December 31, 20x4 are computed as
follows:
Non-controlling interest (partial-goodwill), December 31, 20x4
Common stock – Subsidiary Company, December 31, 20x4…… P 240,000
Retained earnings – Subsidiary Company, December 31, 20x4
Retained earnings – Subsidiary Company, January 1, 20x4 P120,000
Add: Net income of subsidiary for 20x4 91,200
Total P211,200
Less: Dividends paid – 20x4 36,000 175,200
Stockholders’ equity – Subsidiary Company, December 31, 20x4 P 415,200
Adjustments to reflect fair value - (over) undervaluation of assets and
liabilities, 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…… P492,000
Realized stockholders’ equity of subsidiary, December 31, 20x4…… P464,700
Non-controlling interest (partial-goodwill)………………………………….. P 92,940
f.
Consolidated SHE:
Parent’s Stockholders’ Equity / CI – SHE, 12/31/20x4 P1,095,810
NCI, 12/31/20x4 ___92,940
12/31/20x5:
a. CI-CNI – P264,360
Total P288,900
Less: Amortization of allocated excess…………………… 7,200
equity holders of parent – 20x5………….. P264,360
Or, alternatively
Total P288,900
Amortization of allocated excess…………………… 7,200 24,540
S Company’s net income of Subsidiary Company from its own operations P 90,000
(Reported net income of Son Company)
Less: Amortization of allocated excess 7,200
P 86,700

as follows:
Retained earnings - Parent Company, January 1, 20x5 (cost model) P499,800
Less: Downstream - net unrealized gain on sale of equipment – prior to 20x5
(P15,000 – P2,250) 12,750
Adjusted Retained Earnings – Parent 1/1/20x5 (cost model ) Son Company’s
Retained earnings that have been realized in transactions with third
parties.. P487,050
Adjustment to convert from cost model to equity method for purposes of
consolidation or to establish reciprocity:/Parent’s share in adjusted net
increased in subsidiary’s retained earnings:
Retained earnings – Subsidiary, January 1, 20x5 P 175,200
Less: Retained earnings – Subsidiary, January 1, 20x4 120,000
Increase in retained earnings since date of acquisition P 55,200
Less: Amortization of allocated excess – 20x4 13,200
Upstream - net unrealized gain on sale of equipment –prior to
20x5 (P31,200 – P3,900) 27,300
P 14,700
Multiplied by: Controlling interests %................... 80%
P 11,760
Less: Goodwill impairment loss 3,000 __ 8,760
Consolidated Retained earnings, January 1, 20x5 P495,810
Total P760,170
*this procedure would be more appropriate, instead of multiplying the full-goodwill impairment loss of P3,750 by
80%. There might be situations where the controlling interests on goodwill impairment loss would not be
proportionate to NCI acquired (refer to Illustration 15-6).
Or, alternatively:
Retained earnings - Parent Company, December 31, 20x5 (cost model) P658,200
Less: Downstream - net unrealized gain on sale of equipment – prior to
12/31/20x5 (P15,000 – P2,250 – P3,000) 9,750
Adjusted Retained Earnings – Parent 12/31/20x5 (cost model )
S Company’s Retained earnings that have been realized in
transactions with third parties.. P648,450
Retained earnings – Subsidiary, December 31, 20x5 P 217,200
Less: Accumulated amortization of allocated excess –
20x4 and 20x5 (P11,000 + P6,000) 20,400
Upstream - net unrealized gain on sale of equipment – prior to
12/31/20x5 (P31,200 – P3,900 – P3,900) 23,400
P 53,400
P 42,720
Less: Goodwill impairment loss 3,000 39,720
Consolidated Retained earnings, December 31, 20x5 P688,170
e.
Total P 265,200
Amortization of allocated excess (refer to amortization above) :
20x4 P 13,200
20x5 7,200 ( 20,400)
Fair value of stockholders’ equity of subsidiary, December 31, 20x5…… P 526,800
Less: Upstream - net unrealized gain on sale of equipment – prior to 12/31/20x5
(P31,200 – P3,900 – P3,900) 23,400
Realized stockholders’ equity of subsidiary, December 31, 20x5………. P503,400
Non-controlling interest (partial goodwill)………………………………….. P 100,680
f.
Consolidated SHE:
NCI, 12/31/20x5 __100,680
Problem VIII
Requirements 1 to 4
Schedule of Determination and Allocation of Excess
Consideration transferred (80%)…………….. P 372,000
Fair value of NCI (given) (20%)……………….. 93,000
Fair value of Subsidiary (100%)………. P 465,000
Less: Book value of stockholders’ equity of Son:
Common stock (P240,000 x 100%)………………. P 240,000
Retained earnings (P120,000 x 100%)………... 120,000 360,000
fair value)………………………………………………... P 15,000

Account Adjustments to be amortized under Life Amount Year(20x4) 20x5
Inventory P 6,000 1 P 6,000 P 6,000 P -
Equipment (net)......... 96,000 8 12,000 12,000 12,000
Buildings (net) (24,000) 4 ( 6,000) ( 6,000) (6,000)
Bonds payable… 4,800 4 1,200 1,200 1,200
P 13,200 P 13,200 P 7,200

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

(2) Cash……………………… 28,800

Cash……. 36,000
No entries are made on the parent’s books to depreciate, amortize or write-off the portion of the
allocated excess that expires during 20x4.
Consolidation Workpaper – First Year after Acquisition
of subsidiary on date of acquisition; and to establish non-controlling
interest (in net assets of subsidiary) on date of acquisition.
(E2) Inventory…………………………………………………………………. 6,000

Land………………………………………………………………………. 7,200
Goodwill…………………………………………………………………. 15,000
Buildings……………………………………….. 216,000
Non-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.
Since the set-up entry in (E2) NCI at fair value, non-controlling interests have a share of entity
goodwill and hence is exposed to impairment loss on goodwill. PAS 36 requires the impairment
loss to be pro-rated between the parent and NCI on the same basis as that on which profit or
loss is allocated. In other words, the impairment loss is not pro-rated in accordance with the
proportion of goodwill recognized by parent and NCI.
Inventory………………………………………………………….. 6,000
Goodwill…………………………………… 3,750
Sold Expense -Interest
Equipment P12,000
Buildings ( 6,000)
Bonds payable _______ _______ P 1,200
Totals P 6,000 P 6,000 P1,200

share of dividends.

Equipment 30,000

Equipment 12,000

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

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


P 50,700
Less: Non-controlling interest on impairment
loss on full-goodwill (P3,750 x 20%) or
(P3,750 impairment on full-goodwill less
P3,000, impairment on partial-goodwill) 750
Cost Model (Full-goodwill)
Sales P480,000 P240,000 P 720,000
(6) 31,200
Dividend income 28,800 - (4) 28,800 _________
Depreciation expense 60,000 24,000 (3) 6,000 (7) 2,250 83,850
(8) 3,900
Other expenses 48,000 18,000 66,000
Net Income P211,800 P 91,200 P 217,200

P Company P360,000 P 360,000
S Company P120,000 (1) 120,000
Total P571,800 P211,200 P 567,810
Dividends paid
P Company 72,000 72,000
S Company - 36,000 (4) 36,000 _ ________
Retained earnings, 12/31 to Balance P499,800 P175,200 P 495,810
Sheet
Balance Sheet
Cash………………………. P 232,800 P 90,000 P 322,800
Inventory…………………. 120,000 90,000 (2) 6,000 3) 6,000 210,000
Land……………………………. 210,000 48,000 (2) 7,200 265,200
Equipment 240,000 180,000 (5) 30,000
(6) 12,000 462,000
Buildings 720,000 540,000 (2) 216,000 1,044,000
Goodwill…………………… (2) 15,000 (3) 3,750 11,250
(2) 84,000 -
Total P1,984,800 P1,008,000 P2,468,850

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

P Co. S Co.
Sales P 540,000 P 360,000
Less: Cost of goods sold 216000 192,000
Add: Dividend income 38,400 -
Net income P 230,400 P 90,000

Cash……………………… 38,400

Cash 48,000

(E1) Investment in S Company………………………… 44,160
Retained earnings – P Company……………………… 44,160
To provide entry to convert from the cost method to the equity
method or the entry to establish reciprocity at the beginning of the
year, 1/1/20x5, computed as follows:
Retained earnings – S Company, 1/1/20x5 P175,200

Retained earnings – S Company, 1/1/20x4 120,000
Increase in retained earnings…….. P 55,200
Multiplied by: Controlling interest % 80%
Retroactive adjustment P 44,160

Retained earnings – S Co., 1/1/20x5 175,200
Investment in S Co (P415,200 x 80%)………………………… 332,160
of subsidiary and to establish non-controlling interest (in net assets of
subsidiary) on January 1, 20x5.
(E3) Inventory…………………………………………………………………. 6,000

Land………………………………………………………………………. 7,200
Goodwill…………………………………………………………………. 15,000
Buildings……………………………………….. 216,000
Non-controlling interest (P90,000 x 20%) + [(P15,000, full –
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 on
partial-goodwill] 13,560
Non-controlling interests (P16,950 x 20%) or (P13,200 x 20% +
(P3,750 – P3,000 = P750) 3,390
Inventory………………………………………………………….. 6,000
Goodwill…………………………………… 3,750
To 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 &
NCI;
Year 20x5 amounts are debited to respective nominal accounts.
(20x4) Depreciation/
Retained Amortization Amortization
earnings, expense -Interest
Equipment 12,000 P 12,000
Buildings (6,000) ( 6,000)
Bonds payable 1,200 ________ P 1,200
Sub-total P13,200 P 6,000 P 1,200
Multiplied by: 80%
To Retained earnings P 10,560
Impairment loss 3,000
Total P 13,560

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

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

Equipment 12,000

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

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


P 86,700
Non-controlling Interest in Net Income (NCINI P 17,340
Less: NCI on goodwill impairment loss on full-
Goodwill 0
with third persons.

Cost Model (Full-goodwill)

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

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

- equipment (8) 5,250 (6) 45,000
(9) 7,800 (7) 43,200 P 255,150
- buildings (4) 12,000 552,000
Bonds payable………………… 240,000 120,000 360,000
(5) 9,600 (3) 21,000
(7) 6,240 (9) 780
___ _____ _________ __________ (10) 17,340 ____102,930
Total P2,203,200 P1,074,000 P 983,100 P 983,100 P2,752,050
5. 1/1/20x4
a. On date of acquisition the retained earnings of parent should always be considered as
the consolidated retained earnings, thus:
Consolidated Retained Earnings, January 1, 20x4
b.
Non-controlling interest (partial-goodwill), January 1, 20x4
Common stock – Subsidiary Company…………………………………… P 240,000
Retained earnings – Subsidiary Company…………………………………. 120,000
Stockholders’ equity – Subsidiary Company.………….. P 360,000
Adjustments to reflect fair value - (over) undervaluation of assets and liabilities 90,000
Fair value of stockholders’ equity of subsidiary, January 1, 20x4………………… P 450,000
Non-controlling interest (partial goodwill),……………………………….. P 90,000
Add: Non-controlling interests on full goodwill, 1/1/20x4 (P12,500, full-goodwill – P10,000, partial
goodwill) 3,000
Non-controlling interest (full-goodwill) P 93,000
c.
Consolidated SHE:
Parent’s Stockholders’ Equity / CI – SHE P 960,000
NCI, 1/1/20x4 ___93,000
6.
Note: The goodwill recognized on consolidation purely relates to the parent’s share. NCI is
measured as a proportion of identifiable assets and goodwill attributable to NCI share is not
recognized.
12/31/20x4:
a. CI-CNI – P207,810
Unrealized gain on sale of equipment (downstream sales) (15,000)
Total P234,150
Amortization of allocated excess (refer to amortization above) 13,200
Goodwill impairment (impairment under partial-goodwill approach) 3,000 26,340
Add: Non-controlling Interest in Net Income (NCINI) 10,140
(Reported net income of S Company)
Less: Amortization of allocated excess / goodwill impairment
(refer to amortization table above) 13,200
P 50,700
Less: Non-controlling interest on impairment loss on full-goodwill (P3,750 x
20%) or (P3,750mpairment on full-goodwill less P3,000, impairment on
partial- goodwill) 750
Non-controlling Interest in Net Income (NCINI) – full goodwill P 9,390

as follows:
Total P567,810
e.
Total P211,200
Amortization of allocated excess (refer to amortization above) – 20x4 ( 13,200)
Fair value of stockholders’ equity of subsidiary, December 31, 20x4…… P492,000
Realized stockholders’ equity of subsidiary, December 31, 20x4…… P464,700
Non-controlling interest (partial-goodwill)………………………………….. P 92,940
Add: Non-controlling interest on full goodwill , net of impairment loss, 12/31/x4:
[(P15,000 full – P12,000, partial = P3,000) – P750 impairment loss 2,250
Non-controlling interest (full-goodwill)…………….. P 95,190
f.
Consolidated SHE:
NCI, 12/31/20x4 ___95,190
12/31/20x5:
a. CI-CNI – P281,700
Total P288,900
Or, alternatively
Total P288,900
P 86,700
Non-controlling Interest in Net Income (NCINI) - partial goodwill P 17,340
Less: NCI on goodwill impairment loss on full-goodwill . . . . . . . . . . . . . . . . . . . . . 0
Non-controlling Interest in Net Income (NCINI) – full goodwill . . . . . . . . . . . . . P 17,340

as follows:
Retained earnings - Parent Company, January 1, 20x5 (cost model) P499,800
Less: Downstream - net unrealized gain on sale of equipment – prior to 20x5
(P15,000 – P2,250) 12,750
Adjusted Retained Earnings – Parent 1/1/20x5 (cost model ) Son Company’s
parties.. P487,050
Less: Amortization of allocated excess – 20x4 13,200
20x5 (P31,200 – P3,900) 27,300
P 14,700
P 11,760
Less: Goodwill impairment loss 3,000 __ 8,760
Consolidated Retained earnings, January 1, 20x5 P495,810
Total P760,170
*this procedure would be more appropriate, instead of multiplying the full-goodwill impairment loss of P3,750 by
80%. There might be situations where the controlling interests on goodwill impairment loss would not be
proportionate to NCI acquired (refer to Illustration 15-6).
Or, alternatively:
Retained earnings - Parent Company, December 31, 20x5 (cost model) P658,200
12/31/20x5 (P15,000 – P2,250– P3,000) 9,750
transactions with third parties.. P648,450
Retained earnings – Subsidiary, December 31, 20x5 P 217,200
Less: Accumulated amortization of allocated excess –
20x4 and 20x5 (P13,200 + P7,200) 20,400
12/31/20x5 (P31,200 – P3,900– P3,900) 23,400
P 53,400
P 42,720
Less: Goodwill impairment loss (full-goodwill) 3,000 39,720
Consolidated Retained earnings, December 31, 20x5 P688,170
e.
Non-controlling interest, December 31, 20x5
Total P 265,200
Amortization of allocated excess (refer to amortization above) :
20x4 P 13,200
20x5 7,200 ( 20,400)
Fair value of stockholders’ equity of subsidiary, December 31, 20x5…… P 526,800
Less: Upstream - net unrealized gain on sale of equipment – prior to 12/31/20x5
(P31,200 – P3,900 – P3,900) 23,400
Realized stockholders’ equity of subsidiary, December 31, 20x5………. P503,400
Add: Non-controlling interest on full goodwill , net of impairment loss
[(P15,000 full – P12,000, partial = P3,000) – P750 impairment loss 2,250
Non-controlling interest (full-goodwill)………………………………….. P 102,930
f.
Consolidated SHE:
NCI, 12/31/20x5 __102,930
Problem IX
Requirements 1 to 4
Schedule of Determination and Allocation of Excess (Partial-goodwill)
Consideration transferred……………………………….. P 372,000
Less: Book value of stockholders’ equity of S:
Common stock (P240,000 x 80%)……………………. P 192,000
Retained earnings (P120,000 x 80%)………………... 96,000 288,000
Positive excess: Partial-goodwill (excess of cost over
fair value)………………………………………………... P 12,000
The over/under valuation of assets and liabilities are summarized as follows:

S Co. S Co. (Over) Under
Book value Fair value Valuation
Inventory………………….…………….. P 24,000 P 30,000 P 6,000
Land……………………………………… 48,000 55,200 7,200
Equipment (net)......... 84,000 180,000 96,000
Buildings (net) 168,000 144,000 (24,000)
Bonds payable………………………… (120,000) ( 115,200) 4,800
Net……………………………………….. P 204,000 P 294,000 P 90,000
The buildings and equipment will be further analyzed for consolidation purposes as follows:
S Co. S Co. Increase
Equipment.................. 180,000 180,000 0
Net book value………………………... 84,000 180,000 96,000
S Co. S Co.
Buildings................ 360,000 144,000 ( 216,000)
Net book value………………………... 168,000 144,000 ( 24,000)

Account Adjustments to be amortized Under Life Amount Year(20x4) 20x5
Inventory P 6,000 1 P 6,000 P 6,000 P -
Equipment (net)......... 96,000 8 12,000 12,000 12,000
Buildings (net) (24,000) 4 ( 6,000) ( 6,000) (6,000)
Bonds payable… 4,800 4 1,200 1,200 1,200
P 13,200 P 13,200 P 7,200
The goodwill impairment loss of P3,750 based on 100% fair value would be allocated to the
controlling interest and the NCI based on the percentage of total goodwill each equity interest
received. For purposes of allocating the goodwill impairment loss, the full-goodwill is computed
as follows:
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 S (P360,000 x 100%) __360,000
Add (deduct): (Over) under valuation of assets and liabilities
(P90,000 x 100%) 90,000
fair value)………………………………………………... P 15,000
In this case, the goodwill was proportional to the controlling interest of 80% and non-controlling
interest of 20% computed as follows:
Value % of Total
Goodwill applicable to parent………………… P12,000 80.00%
Goodwill applicable to NCI…………………….. 3,000 20.00%
Total (full) goodwill……………………………….. P15,000 100.00%
The goodwill impairment loss would be allocated as follows

Value % of Total
Goodwill impairment loss attributable to parent or controlling P 3,000 80.00%
Interest
Goodwill applicable to NCI…………………….. 750 20.00%
Goodwill impairment loss based on 100% fair value or full-
Goodwill P 3,750 100.00%
The unrealized and gain on intercompany sales for 20x4 are as follows:
Date Selling Book Unrealized* Remaining Realized gain –

of Sale Seller Price Value Gain on sale Life depreciation** 20x4
4/1/20x4 P P90,000 P75,000 P15,000 5 years P3,000/year P2,250
1/2/20x4 S 60,000 28,800 31,200 8 years P3,900/year P3,900
* selling price less book value
** unrealized gain divided by remaining life; 20x4 – P2,500 x 9/12 = P1,875
The following summary for 20x4 results of operations is as follows:

P Co. S Co.
Sales P 480,000 P 240,000
Other expenses 48,000 18,000
P 168,000 P 60,000
Add: Gain on sale of equipment 15,000 31,200
Add: Investment income 24,810 -
Net income P 207,810 P 91,200

Parent Company Equity Method Entry
January 1, 20x4:
(1) Investment in S Company……………………………………… 372,000
Cash…………………………………………………………… 372,000

(2) Cash……………………… 28,800
Investment in S Company (P36,000 x 80%)……………. 28,800
Record dividends from Son Company.
December 31, 20x4:
(3) Investment in S Company 72,960
Investment income (P91,200 x 80%) 72,960
Record share in net income of subsidiary.
December 31, 20x4:
(4) Investment income [(P13,200 x 80%) + P3,000, goodwill 13,560
impairment loss)]
Investment in S Company 13,560
Record amortization of allocated excess of inventory,
equipment, buildings and bonds payable and goodwill
impairment loss.
December 31, 20x4:
(5) Investment income (P15,000 x 100%) 15,000
To adjust investment income for downstream sales -
unrealized gain on sale of equipment..
December 31, 20x4:

To adjust investment income for upstream sales -
December 31, 20x4:

realized gain on sale of equipment..
December 31, 20x4:

Thus, the investment balance and investment income in the books of P Company is as follows:
Investment in S
Cost, 1/1/x4 372,000 28,800 Dividends – S (36,000x 80%)
NI of Son Amortization &
(91,200 x 80%) 72,960 13,560 impairment
Realized gain downstream sale 2,250 15,000 Unrealized gain downstream sale
Realized gain upstream sale 3,120 24,960 Unrealized gain upstream sale
Balance, 12/31/x4 368,010
Investment Income
Amortization & NI of S
impairment 13,560 72,960 (91,200 x 80%)
Unrealized gain downstream sale 15,000 2,250 Realized gain downstream sale
Unrealized gain upstream sale 24,960 3,120 Realized gain upstream sale
24,810 Balance, 12/31/x4

Retained earnings – S Co…………………………………… 120,000
To eliminate investment on January 1, 20x4 and equity accounts
of subsidiary on date of acquisition; and to establish non-
controlling interest (in net assets of subsidiary) on date of
acquisition.
(E2) Inventory…………………………………………………………………. 6,000

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

Inventory………………………………………………………….. 6,000
Goodwill…………………………………… 3,000
Equipment P 12,000
Buildings ( 6,000)
Bonds payable _______ _______ P 1,200
Totals P 6,000 P 6,000 P1,200 14,400
(E4) Investment income 24,810

To eliminate intercompany dividends and investment income under
equity method and establish share of dividends, computed as
follows:
Investment in S Investment Income

NI of S 28,800 Dividends - S NI of S
(91,200 Amortization & Amortization (91,200
x 80%)……. 72,960 13,560 impairment impairment 13,560 72,960 x 80%)
Realized gain* 2,250 15,000 Unrealized gain * Unrealized gain * 15,000 2,250 Realized gain*
Realized gain** 3,120 24,960 Unrealized gain ** Unrealized gain **24,960 3,120 Realized gain**
3,990 24,810
*downstream sale (should be multiplied by 100%)
**upstream sale (should be multiplied by 80%)
After the eliminating entries are posted in the investment account, it should be observed that
from consolidation point of view the investment account is totally eliminated. Thus,
Investment in S
NI of S Amortization &
(91,200 x 80%) 72,960 13,560 impairment
Balance, 12/31/x4 368,010 288,000 (E1) Investment, 1/1/20x4
(E4) Investment Income 84,000 (E2) Investment, 1/1/20x4
and dividends …………… 3,990
372,000 372,000

Equipment 30,000

Equipment 12,000

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

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


P 50,700

Equity Method (Partial-goodwill)
Sales P480,000 P240,000 P 720,000
(6) 31,200
Investment income 24,810 - (4) 28,800 _________
(7) 2,250 83,850
3,900
Other expenses 48,000 18,000 66,000
Net Income P207,810 P 91,200 P 217,950

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

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

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

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

December 31, 20x5:

equipment, buildings and bonds payable
December 31, 20x4:
realized gain on sale of equipment.
December 31, 20x4:
Investment in S
NI of Son 5,760 Amortization (7,200 x 80%)
(90,000 x 80%) 72,000
Realized gain downstream sale 3,000
Realized gain upstream sale 3,120
Balance, 12/31/x5 401,970
Investment Income
Amortization (6,000 x 805) 5,760 NI of S
72,000 (90,000 x 80%)
3,000 Realized gain downstream sale
3,120 Realized gain upstream sale
72,360 Balance, 12/31/x5

Retained earnings – S Co, 1/1/x5…………………………. 175,200
Investment in S Co (P415,200 x 80%) 332,160
controlling interest (in net assets of subsidiary) on 1/1/20x5.
(E2) Accumulated depreciation – equipment (P96,000 – P12,000) 84,000

Accumulated depreciation – buildings (P192,000 + P6,000) 198,000
Land………………………………………………………………………. 6,000
Discount on bonds payable (P4,800 – P1,200)…. 3,600
Goodwill (P12,000 – P3,000)…………………………….. 9,000
Buildings……………………………………….. 180,000
Non-controlling interest [(P90,000 – P13,200) x 20%] 15,360
Investment in Son Co………………………………………………. 70,440
to the original amount of goodwill; and to establish non- controlling
interest (in net assets of subsidiary) on 1/1/20x5.
(E3) Depreciation expense……………………….. 6,000
To provide for 20x5 depreciation and amortization on differences
between acquisition date fair value and book value of Son’s
identifiable assets and liabilities as follows:
Depreciation/
Amortization Amortization
Expense -Interest Total
Inventory sold
Equipment P 12,000
Buildings ( 6,000)
Bonds payable _______ P 1,200
Totals P 6,000 P1,200 P7,200
(E4) Investment income 72.360

follows:

NI of S 38,400 Dividends – S NI of S
(90,000 Amortization Amortization (90,000
x 80%)……. 72,000 5,760 (P7,200 x 80%) (P7,200 x 80%) 5,760 72,000 x 80%)
Realized gain* 3,000 3,000 Realized gain*
Realized gain** 3,120 3,120 Realized gain**
33,960 72,360
(E5) Investment in S Company 15,000

Equipment 30,000
Accumulated depreciation – equipment 45,000

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

Investment in S Company (prior year) 2,250
(E8) Accumulated depreciation- equipment…….. 7,800
(P31,200/85 years x 1 year = P3,900).

P 86,700
Non-controlling Interest in Net Income (NCINI P 17,340
with third persons.

Equity Method (Partial-goodwill)
Sales P540,000 P360,000 P 900,000
Investment income 72,360 - (4) 72,360 ___________
(7) 83,100
3,000
3,900
Other expenses 72,000 54,000 126,000
Net Income P264,360 P 90,000 P 281,700

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

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

Note: Using cost model or equity method, the consolidated net income, consolidated
retained earnings, non-controlling interests, consolidated equity on December 31, 20x4 and
20x5 are exactly the same (refer to Problem X solution).
Problem X
Requirements 1 to 4
Schedule of Determination and Allocation of Excess

Consideration transferred (80%)…………….. P 372,000
Fair value of NCI (given) (20%)……………….. 93,000
Fair value of Subsidiary (100%)………. P 465,000
Less: Book value of stockholders’ equity of Son:
Common stock (P240,000 x 100%)………………. P 240,000
Retained earnings (P120,000 x 100%)………... 120,000 360,000
fair value)………………………………………………... P 15,000

Account Adjustments to be amortized under Life Amount Year(20x4) 20x5
Inventory P 6,000 1 P 6,000 P 6,000 P -
Equipment (net)......... 96,000 8 12,000 12,000 12,000
Buildings (net) (24,000) 4 ( 6,000) ( 6,000) (6,000)
Bonds payable… 4,800 4 1,200 1,200 1,200
P 13,200 P 13,200 P 7,200
The following summary for 20x4 results of operations is as follows:

P Co. S Co.
Sales P 480,000 P 240,000
Other expenses 48,000 18,000
P 168,000 P 60,000
Add: Gain on sale of equipment 15,000 31,200
Net income P 207,810 P 91,200

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

(2) Cash……………………… 28,800
Record dividends from Son Company.
December 31, 20x4:

December 31, 20x4:

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

December 31, 20x4:

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

To adjust investment income for downstream sales - realized
December 31, 20x4:

To adjust investment income for upstream sales - realized
Thus, the investment balance and investment income in the books of Perfect Company is as
follows:
Investment in S
NI of Son Amortization &
(91,200 x 80%) 72,960 13,560 impairment
Balance, 12/31/x4 368,010
Investment Income
Amortization & NI of S
impairment 13,560 72,960 (76,000 x 80%)
Unrealized gain downstream sale 15,000 2,250 Realized gain downstream sale
Unrealized gain upstream sale 24,960 3,120 Realized gain upstream sale
24,810 Balance, 12/31/x4

controlling interest (in net assets of subsidiary) on date of
acquisition.
(E2) Inventory…………………………………………………………………. 6,000

Land………………………………………………………………………. 7,200
Goodwill…………………………………………………………………. 15,000
Buildings……………………………………….. 216,000
Non-controlling interest (P90,000 x 20%) + [(P15,000 full –
to goodwill; and to establish non- controlling interest (in net assets of
subsidiary) on date of acquisition.

Inventory………………………………………………………….. 6,000
Goodwill…………………………………… 3,750
Equipment P 12,000
Buildings ( 6,000)
Bonds payable _______ _______ P 1,200
Totals P 6,000 P 6,000 P1,200 14,400
follows:

NI of S 28,800 Dividends - S NI of S
(91,200 Amortization & Amortization (91,200
x 80%)……. 72,960 13,560 impairment impairment 13,560 72,960 x 80%)
Realized gain* 2,250 15,000 Unrealized gain * Unrealized gain * 15,000 2,250 Realized gain*
Realized gain** 3,120 24,960 Unrealized gain ** Unrealized gain **24,960 3,120 Realized gain**
3,990 24,810
After the eliminating entries are posted in the investment account, it should be observed that
from consolidation point of view the investment account is totally eliminated. Thus,
Investment in S
NI of S Amortization &
(91,200 x 80%) 72,960 13,560 impairment
Balance, 12/31/x4 368,010 288,000 (E1) Investment, 1/1/20x4
(E4) Investment Income 84,000 (E2) Investment, 1/1/20x4
and dividends …………… 3,990
372,000 372,000

Equipment 30,000

Equipment 12,000

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

(P31,120/85 years x 1 year = P3,900).


P 50,700
Less: Non-controlling interest on impairment
loss on full-goodwill (P3,750 x 20%) or
(P3,750 impairment on full-goodwill less
P3,000, impairment on partial-goodwill)* 750
Non-controlling Interest in Net Income (NCINI)
– full goodwill P 9,390

Equity Method (Full-goodwill)
Sales P480,000 P240,000 P 720,000
(6) 31,200
Investment income 24,810 - (4) 28,800 _________
(7) 2,250 83,850
3,900
Other expenses 48,000 18,000 66,000
Net Income P207,810 P 91,200 P 217,200

P Company P360,000 P 360,000
S Company P120,000 (1) 120,000
Total P567,810 P211,200 P 567,810
Dividends paid
P Company 72,000 72,000
S Company - 36,000 (4) 36,000 _ ________
Sheet P495,810 P175,200 P 495,810
Balance Sheet
Cash………………………. P 232,800 P 90,000 P 322,800
Inventory…………………. 120,000 90,000 (2) 6,000 (3) 6,000 210,000
Land……………………………. 210,000 48,000 (2) 6,000 265,200
Equipment 240,000 180,000 (5) 30,000
(6) 12,000 462,000
Buildings 720,000 540,000 (2) 216,000 1,044,000
Goodwill…………………… (2) 15,000 (3) 3,750 11,250
(2) 84,000 -
Total P1,980,810 P1,008,000 P2,468,850

- equipment P 135,000 P 96,000 (7) 2,250 (5) 45,000
(8) 3900 (6) 43,200 P229,050
- buildings (3) 6,000 495,000
Bonds payable………………… 240,000 120,000 360,000
(2) 21,000
_________ _________ __________ (9) 9,390 ____95,190
Total P1,980,810 P1,008,000 P 843,690 P 843,690 P2,468,850
Second Year after Acquisition

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

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

December 31, 20x5:

Record amortization of allocated excess of inventory, equipment,
buildings and bonds payable
December 31, 20x4:

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

To adjust investment income for upstream sales - realized gain on
sale of equipment..
Investment in S
NI of S 5,760 Amortization (6,000 x 80%)
(90,000 x 80%) 72,000
Realized gain downstream sale 3,000
Realized gain upstream sale 3,120
Balance, 12/31/x5 401,970
Investment Income
Amortization (7,200 x 805) 5,760 NI of S
72,000 (90,000 x 80%)
3,000 Realized gain downstream sale
3,120 Realized gain upstream sale
72,360 Balance, 12/31/x5

Retained earnings – S Co, 1/1/x5…………………………. 175.200
Investment in S Co (P415,200 x 80%) 332,160
controlling interest (in net assets of subsidiary) on 1/1/20x5.
(E2) Accumulated depreciation – equipment (P96,000 – P12,000) 84,000
Accumulated depreciation – buildings (P192,000 + P6,000) 198,000
Land………………………………………………………………………. 7,200
Discount on bonds payable (P4,800 – P1,200)…. 3,600
Goodwill (P15,000 – P3,900)…………………………….. 11,250
Buildings……………………………………….. 216,000
Non-controlling interest [(P90,000 – P13,200) x 20%] +
[P3,000, full goodwill - [(P3,750, full-goodwill impairment
– P3,000, partial- goodwill impairment)*
or (P3,750 x 20%)] 17,610
to the original amount of goodwill; and to establish non- controlling
interest (in net assets of subsidiary) on 1/1/20x5.
*this procedure would be more appropriate, instead of multiplying the full-goodwill impairment loss of P3,750 by 20%.
There might be situations where the NCI on goodwill impairment loss would not be proportionate to NCI acquired (refer
to Illustration 15-6).
(E3) Depreciation expense……………………….. 6,000

To provide for 20x5 depreciation and amortization on differences
between acquisition date fair value and book value of Son’s
identifiable assets and liabilities as follows:
Depreciation/
Amortization Amortization
Expense -Interest Total
Inventory sold
Equipment P 12,000
Buildings ( 6000)
Bonds payable _______ P 1,200
Totals P 6,000 P1,200 P7,,200

follows:

NI of S 38,400 Dividends – S NI of S
(90,000 Amortization Amortization (75,000
x 80%)……. 72,000 5,760 (P72,000 x 80%) (P7,200 x 80%) 5,760 72,000 x 80%)
Realized gain* 3,000 3,000 Realized gain*
Realized gain** 3,120 3,120 Realized gain**
33,960 72,360

Equipment 30,000
Accumulated depreciation – equipment 45,000

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

(E8) Accumulated depreciation- equipment…….. 7,800

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


P 86,700
– partial goodwill P 17,340
Less: NCI on goodwill impairment loss on full-
Goodwill 0
– full goodwill P 17,340
with third persons.
Equity Method (Full-goodwill)
Sales P540,000 P360,000 P 900,000
Investment income 72,360 - (4) 72,360 ___________
(7) 83,100
3,000
3,900
Other expenses 72,000 54,000 126,000
Net Income P264,360 P 90,000 P 281,700

P Company P495,810 P495,810
S Company P 175,200 (1) 175,200
Net income, from above _264,360 90,000 264,360
Total P760,170 P265,200 P 760,170
Dividends paid
P Company 72,000 72,000
S Company - 48,000 (5) 48,000 _ ________
Sheet P688,170 P217,200 P 688,170
Balance Sheet
Cash………………………. P 265,200 P 102,000 P 367,200
Inventory…………………. 216,000 108,000 324,000
Land……………………………. 210,000 48,000 (2) 7,200 265,200
Equipment 240,000 180,000 (5) 30,000
(6) 12,000 462,000
Buildings 720,000 540,000 (2) 216,000 1,044,000
Goodwill…………………… (2) 11,250 11,250
(6) 24,960 (2) 70,440
(4) 33,960
(7) 2,250
(8) 3,120 -
Total P2,233,170 P1,074,000 P2,752,050

- equipment (7) 5,250 (5) 45,000
(8) 7,800 (6) 43,200 P 255,150
- buildings (3) 6,000 552,000
Bonds payable………………… 240,000 120,000 360,000
Non-controlling interest………… (4) 9,600 (1) 83,040
(6) 6,240 (2) 17,610
(8) 780
___ _____ _________ __________ (9) 17,340 ____102,930
Total P2,233,170 P1,074,000 P 933,000 P 933,000 P2,752,050
5 and 6. Refer to Problem VI for computations
Note: Using cost model or equity method, the consolidated net income, consolidated
retained earnings, non-controlling interests, consolidated equity on December 31, 20x4 and
20x5 are exactly the same (refer to Problem X solution).
Problem XI
(Determine consolidated net income when an intercompany transfer of equipment occurs.
Includes an outside ownership)
1. Income—ST ........................................................................................................... P220,000

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

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

Non-controlling interest in BB's income (see Schedule 1) ........ (4,200)
Consolidated net income to parent company ............................................. P257,800
Schedule 1: Non-controlling Interest in Bennett's Income (includes upstream transfer)

Reported net income of subsidiary ................................................................. P90,000
Excess amortization ............................................................................................. (8,000)
Eliminate unrealized gain on equipment transfer ........................................ (50,000)
Eliminate excess depreciation (P50,000 ÷ 5) .................................................. 10,000
Bennett's realized net income .......................................................................... P42,000
Outside ownership .............................................................................................. 10%
Non-controlling interest in subsidiary's income .............................................. P 4,200
4. Net income 20x5—ST .......................................................................................... P240,000

Net income 20x5—BB ......................................................................................... 100,000
Excess amortization ............................................................................................. (8,000)
Eliminate excess depreciation stemming from transfer
(P50,000 ÷ 5) (year after transfer) .............................................................. 10,000
Consolidated net income ...................................................................... P342,000
Problem XII
1. On the consolidated balance sheet, the machine must be reported at its original cost
when Tool purchased it on January 1, 20x1, which is P120,000. Since the elimination entry
debited the machine account for P22,000 which must be the amount needed to bring the
machine account up to P120,000, Buzzard must have recorded the machine at P98,000.
Since the remaining useful life is seven years, Buzzard will record P14,000 of depreciation
expense each year.
2. The correct balances on the consolidated balance sheet for the Machine and
Accumulated Depreciation accounts are the balances that would be in the accounts if
there had been no sale. The balance in the machine account would be the original
purchase price to Tool or P120,000. The balance in the Accumulated Depreciation account
will be the original amount of annual depreciation, (P12,000) times the number of years the
machine has been depreciated (4), or P48,000.
3. The non-controlling interest income will be 30% of Tool’ adjusted net income. Tool’ reported
net income of P60,000 is reduced by the P14,000 unrealized gain on the sale of the
machine and is increased by the piecemeal recognition of the gain, which is P2,000. The
net result of P48,000 is then multiplied by 30% to calculate a P14,400 income for the non-
controlling interest.
Problem XIII
1. Downstream sale of land:
20x4 20x5
VV’s separate operating income P 90,000 P110,000
Less: Unrealized gain on sale of land (25,000)
VV’s realized operating income P 65,000 P110,000
Spawn’s realized net income 60,000 40,000
Consolidated net income P125,000 P150,000
Income to non-controlling interest:
(P60,000 x .25) (15,000)
(P40,000 X .25) (10,000)
Income to controlling interest P110,000 P140,000
2. Upstream sale of land:

20x4 20x5
VV’s separate operating income P 90,000 P110,000
SS’s net income P60,000
Less: Unrealized gain on sale of land (25,000)
Spawn’s realized net income 35,000 40,000
Consolidated net income P125,000 P150,000
Income to non-controlling interest:
(P35,000 x .25) (8,750)
(P40,000 x .25) (10,000)
Income to controlling interest P116,250 P140,000
Problem XIV
1. Consolidated net income for 20x4 will be greater than PP Company's income from
operations plus SS's reported net income. The eliminating entries at December 31, 20x4, will
result in an increase of P16,000 to consolidated net income.
2. As a result of purchasing the equipment at less than Parent's book value, depreciation
expense reported by SS will be P2,000 (P16,000 / 8 years) below the amount that would
have been recorded by PP. Thus, depreciation expense must be increased by P2,000 when
eliminating entries are prepared at December 31, 20x5. Consolidated net income will be
decreased by the full amount of the P2,000 increase in depreciation expense.
Problem XV
Loss on Sale of Building 36,000
Eliminate unrealized loss on building.
2. Consolidated net income and income to controlling

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

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

Eliminate unrealized loss on building.
Adjustment to buildings and equipment

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

Depreciation expense recorded by TT
Company (P300,000 / 15 years) P 20,000
Depreciation expense recorded by BB
Corporation (P144,000 / 9 years) (16,000)
Adjustment to depreciation expense P 4,000
Adjustment to accumulated depreciation

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

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

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

controlling interest in 20y0:
Operating income reported by BB P150,000
Net income reported by TT P40,000
Adjustment for loss on sale of building (4,000)
Realized net income of TT 36,000
Income assigned to non-controlling interest
(P36,000 x .30) (10,800)
Income assigned to controlling interest P175,200
Problem XVI
1.
20x4 20x5 20x6
Consolidated net income as reported P 750,000 P 600,000 P 910,000
Less: P10,000 deferred gain -10,000
Plus: NCI portion of the gain 3,000
Plus: Deferred gain 7,000
Corrected consolidated net income P 743,000 P 600,000 P 917,000
2.
20x4 20x5 20x6
Land account as reported P 200,000 P 240,000 P 300,000
Less: Intercompany profit -10,000 -10,000
Restated land account P 190,000 P 230,000 P 300,000
3.
Final sales price outside the entity minus the original cost to the combined entity equals
P102,000 minus P72,000 = P30,000
Problem XVII
1. The gain on the sale of the land in 20x5 was equal to the sales price minus the original cost of
the land when it was first acquired by the combined entity. In this case the gain was P150,000
- P90,000, or P60,000.
2. The consolidated amount of depreciation expense was the combined amounts of

depreciation expense showing on the separate income statements minus the piecemeal
recognition of the gain on the sale of the equipment. Thus, the consolidated amount of
depreciation expense was P95,000 + P32,000 – (P35,000/4 years) = P118,250.
3.
Consolidated net income:
Osprey separate income (not including Income
from Branch)= P153,000 - P55,000 = P 98,000
Income from Branch 20,000
Plus: Deferred gain on land 50,000
Plus: Piecemeal recognition of gain on equipment
sale: P35,000 gain/4 years = 8,750
Problem XVIII
E(1) Gain on Sale of Land 10,000
Land 10,000
Eliminating entry, December 31, 20x8:

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

Land 10,000

Land 10,000
Problem XIX
Land 45,000

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

E (1) Retained Earnings, January 1 30,000
Land 30,000
Multiple Choice Problems

1. a
Combined equipment amounts P1,050,000
Less: gain on sale 25,000
Consolidated equipment balance P1,025,000
Combined Accumulated Depreciation P 250,000

Less: Depreciation on gain 5,000
Consolidated Accumulated Depreciation P 245,000
2. a
Original cost of P1,100,000
Accumulated depreciation, 1/1/20x4 P 250,000

Add: Additional depreciation (P1,100,000 – P100,000) / 20 years ____50,000
3. a
Combined building amounts P650,000
Less: Intercompany gain __30,000
Consolidated buildings P620,000
Combined Accumulated Depreciation P195,000

Less: Piecemeal recognition of gain ___3,000
Consolidated accumulated depreciation P192,000
4. a – the amount of land that will be presented in the presented in the CFS is the original cost
of P416,000 + P256,000 = P672,000.
5. a The costs incurred by BB to develop the equipment are research and development
costs and must be expensed as they are incurred. Transfer to another legal entity does
not cause a change in accounting treatment within the economic entity.
6. e
Original cost of P 100,000
Accumulated depreciation, 1/1/20x6 (P100,000 x 50%) P 50,000

Add: Additional depreciation (P100,000 – P50,000) / 5 years ___10,000
7. d
Sales price P 80,000
Less: Book value
Cost P100,000
Less: Accumulated depreciation (50% x P100,000) __50,000 __50,000
Unrealized gain on sale P 30,000
Less: Realized gain - depreciation (P30,000 / 5 years) ___6,000
Net unrealized gain, 12/31/20x6 P 24,000
8. e
Eliminating entries:
12/31/20x6: subsequent to date of acquisition
Realized Gain – depreciation
Depreciation expense 6,000
[P80,000 - (P100,000 - {P100,000 x 50%])] = P30,000 / 5 years or
P15,000 – P8,000 = P7,000
“Should be in CFS” Parent – Pylux “Recorded as” Subsidiary - Sylux

Depreciation expense Depreciation expense
(P50,000 /5 years) 10,000 (P80,000 / 5 years) 16,000
Acc. Depreciation 8,000 Acc. depreciation 16,000
9. d
20x4 20x5
Unrealized gain on sales of equipment (downstream sales) ( 90,000) -0-
Realized gain on sale of equipment (downstream sales) through depreciation
P90,000 / 10 years ___9,000 9,000
Net ( 81,000) 9,000
10. d
20x4 20x5
Unrealized gain on sale of equipment (downstream sales) ( 150,000) -0-
P150,000 / 10 years ___15,000 15,000
Net ( 135,000) 15,000
11. a
20x4 20x5
Unrealized gain on sale of equipment (upstream sales) : 50,000 – 30,000 ( 20,000) -0-
Realized gain on sale of equipment (upstream sales) through depreciation
P20,000 / 5 years ___4,000 __4,000
Net ( 16,000) __4,000
12. e
Original cost of P
100,000
Accumulated depreciation, 1/1/20x6 P

40,000
Add: Additional depreciation (P100,000 – P40,000) / 6 years x 2 years ___20,000
Accumulated depreciation, 12/31/20x4 P
70,000
13. c
Less: Book value
Cost P100,000
Less: Accumulated depreciation __40,000 __60,000
Unrealized loss on sale P(12,000)
Add: Realized loss - depreciation (P12,000 / 6 years) x 2 years ___4,000
Net unrealized loss, 12/31/20x7 P( 8,000)
14. a
[P48,000 - (P100,000 - P40,000) = P(12,000) / 6 years or P10,000 –
P8,000 = P2,000
“Should be in CFS” Parent – Poxey “Recorded as” Subsidiary - Soxey

(P60,000 /6 years) 10,000 (P48,000 / 6 years) 8,000
15. c
Original cost of P 100,000
Accumulated depreciation, 1/1/20x6 (P100,000 - P20,000) P 80,000

Add: Additional depreciation (P100,000 – P80,000) / 5 years x 2 years ____8,000
16. c
Less: Book value
Cost P100,000
Less: Accumulated depreciation __80,000 __20,000
Unrealized gain on sale P 25,000
Less: Realized gain - depreciation (P25,000 / 5 years) x 2 years __10,000
17. b
[P45,000 - (P100,000 - P80,000) = P25,000 / 5 years or P4,000 – P9,000
= P5,000
“Should be in CFS” Parent – Sayex “Recorded as” Subsidiary - Payex

(P20,000 /5 years) 4,000 (P45,000 / 5 years) 9,000
18. c
19. b
20. c – (P20,000/20 years = P1,000), the eliminating entry to recognize the gain – depreciation
would be as follows:
Accumulated depreciation……………………………………………… 1,000
Depreciation expenses………………………………………….. 1,000
21. a
The truck account will be debited for P3,000 in the eliminating entry:
Truck 3,000
Gain 15,000
Seller Buyer
Cash 50,000 Truck 50,000
Accumulated 18,000 Cash 50,000
Truck 53,000
Gain 15,000
22. b
P Company’s net income from own/separate operations…………. P 98,000
Realized gain on sale of equipment (downstream sales) through depreciation ___0
P Company’s realized net income from separate operations*…….….. P 98,000
Unrealized gain on sales of equipment (upstream sales) (15,000)
(P15,000 / 3 years) 5,000
Total P143,000
Or, alternatively
(P15,000 / 3 years) 5,000
Total P143,000
Amortization of allocated excess…………………… ____0 18,000

Unrealized gain on sales of equipment (upstream sales) ( 15,000)
P 45,000
23. a - refer to No. 22 computation

24. a
25. a
26. b
27. d – the entry under the cost model would be as follows ;
Accumulated depreciation……………………………………………. 4,000
Depreciation expenses (current year) – P6,000/3 years…. 2,000
Retained earnings (prior year – 20x4)……………………….. 2,000
28. d – the entry under the cost model would be as follows ;

Accumulated depreciation……………………………………………. 10,000
Depreciation expenses (current year) – P15,000/3 years.. 5,000
Retained earnings (prior year – 20x5)……………………….. 5,000
29. a
30. b
31. c – P50,000/5 years = P10,000 per year starting January 1, 20x6.
32. b P40,000
Depreciation expense recorded by Pirn
Depreciation expense recorded by Scroll 10,000
Total depreciation reported P50,000
Adjustment for excess depreciation charged
by Scroll as a result of increase in
carrying value of equipment due to gain
on intercompany sale (P12,000 / 4 years) (3,000)
Depreciation for consolidated statements P47,000
33. e
Depreciation expense:
Parent P 84,000
Subsidiary 60,000
Total P144,000
Less: Over-depreciation due to realized gain:
[P115,000 – (P125,000 – P45,000)] = P35,000/8 years __ 4,375
Consolidated income statement P139,625
34. c
20x6
Unrealized gain on sale of equipment ( 56,000)
Realized gain on sale of equipment (upstream sales) through depreciation ___7,000
Net ( 49,000)
Selling price P 392,000

Less: Book value, 1/1/20x6
Cost, 1/1/20x2 P420,000
Less: Accumulated depreciation: P420,000/10 years x 2 years 84,000 336,000
Unrealized gain on sale of equipment P 56,000
Realized gain – depreciation: P56,000/8 years P 7,000
35. c – (P22,500 x 4/15 = P6,000)

36. a – [P50,000 – (P50,000 x 4/10) = P30,000]
37. b The P39,000 paid to GG Company will be charged to depreciation expense by TLK
Corporation over the remaining 3 years of ownership. As a result, TLK Corporation will
debit depreciation expense for P13,000 each year. GG Company had charged
P16,000 to accumulated depreciation in 2 years, for an annual rate of P8,000.
Depreciation expense therefore must be reduced by P5,000 (P13,000 - P8,000) in
preparing the consolidated statements.
38. a TLK Corporation will record the purchase at P39,000, the amount it paid. GG
Company had the equipment recorded at P40,000; thus, a debit of P1,000 will raise
the equipment balance back to its original cost from the viewpoint of the
consolidated entity.
39. b Reported net income of GG Company P 45,000

Reported gain on sale of equipment P15,000
Intercompany profit realized in 20x6 (5,000) (10,000)
Realized net income of GG Company P 35,000
Proportion of stock held by
non-controlling interest x .40
Income assigned to non-controlling interests P 14,000
40. c Operating income reported by TLK Corporation P 85,000

Net income reported by GG Company 45,000
P130,000
Less: Unrealized gain on sale of equipment
(P15,000 - P5,000) (10,000)
41. b
12/31/20x5: date of acquisition
Restoration of BV and eliminate unrealized gain
Equipment 10,000
Gain 150,000
Parent Books – Mortar Subsidiary Books – Granite

Cash 390,000 Equipment 390,000
Accumulated depreciation 160,000 Cash 390,000
Equipment 400,000
Gain 150,000
Mortar
Selling price P390,000
Cost, 1/1/20x2 P400,000
Less: Accumulated depreciation : P400,000/10 years x 4 years 160,000 240,000
42. a – refer to No. 41 for computation

43. b - refer to No. 41 for computation
44. d
P150,000 / 6 years or P65,000 – P40,000
“Should be in CFS” Parent Books – Mortar “Recorded as” Subsidiary Books - Granite
(P400,000 / 10 years) 40,000 (P390,000 / 6 years) 65,000
45. c
Equipment 10,000
Retained earnings (150,000 – 25,000) 100,000
Accumulated depreciation (P160,000 – P25,000) 135,000
46. a
Total gain on the sale = P1,000,000 – (P500,000 - P150,000) = P650,000
Unconfirmed gain after three years = 2/5 x P650,000 = P260,000
47. d
Depreciation to 1/1/x3 is P25,000
Depreciation expense for 20x3 and 20x4 is (P85,000 - P25,000)/6 = P10,000 per year
Therefore accumulated depreciation at 12/31/x4 is P45,000.
Net equipment balance is P85,000 - P45,000 = P40,000.
48. b
At the end of two years, the subsidiary reports the equipment at original cost of
P2,500,000 and accumulated depreciation of (P2,500,000/10) x 2 = P500,000.
Depreciation expense is P250,000.
The consolidated balance sheet reports the equipment at original cost of P1,000,000 and
accumulated depreciation of P200,000 + ([(P1,000,000 - P200,000)/10] x 2) = P360,000.
Depreciation expense is P80,000.
Eliminating entries at the end of the second year are:

Investment in subsidiary 1,530,000
Equipment 1,700,000
Equipment 200,000
Accumulated 200,000
depreciation

49. d
50. d
The subsidiary reports depreciation expense for the year at P500,000 (P2,500,000/5) and a
gain on the sale at P1,750,000 [P2,750,000 - ((P2,500,000 - (3)(P500,000))]. The
consolidated statements show depreciation expense for the year at P600,000
(P3,000,000/5) and a gain on the sale at P1,550,000 [P2,750,000 - ((P3,000,000 -
(3)(P600,000))]. Therefore the eliminating entries increase depreciation expense by
P100,000 and reduce the gain by P200,000, for a net effect on consolidated income of:
P300,000 decrease.
51. a
Unrealized loss on sale of equipment (upstream sales) 20,000
Realized loss on sale of equipment (upstream sales) through depreciation –
none, since the date of sale is end of the year ( 0)
Total P190,000

Cost, 1/1/20x4 P500,000
Unrealized loss on sale of equipment P( 20,000)
Realized loss – depreciation: P20,000/4 years P( 5,000)
Or, alternatively
Realized loss on sale of equipment (upstream sales) through depreciation ( 0)
Total P190,000

Realized loss on sale of equipment (upstream sales) through depreciation ( 0)
P 50,000
52. b
Consolidated Net Income for 20y0
Unrealized loss on sale of equipment (upstream sales)
Realized loss on sale of equipment (upstream sales) through depreciation ( 5,000)
Total P202,000
Consolidated Net Income for 20y0 P202,000
equity holders of parent – 20y0………….. P194,500
Or, alternatively
Total P202,000
Add: Non-controlling Interest in Net Income (NCINI) _ _ 7,500
**Non-controlling Interest in Net Income (NCINI) for 20y0

P 25,000
53. d
Building 3,000
Gain 8,250
Parent Books – Sky Subsidiary Books - Earth

Cash 33,000 Building 33,000
Building 36,000
Gain 8,250
Sky, 7/1/20x4
Cost, 1/1/20x2 P36,000
Less: Accumulated depreciation : P36,000/8years x 2.5 years 11,250 24,750
Realized gain – depreciation: P8,250/5.5 years P 1,500
54. a - refer to No. 53 for computation

55. b
Realized Gain – depreciation (July 1, 20x4 – December 31, 20x4)
Accumulated depreciation 750
Depreciation expense 750
P8,250 / 5.5 x ½ years or P3,000 – P2,250
“Should be in CFS” Parent Books – Sky “Recorded as” Subsidiary Books - Earth
(P24,750 / 5.5 x ½ years) 2,250 (P33,000 / 5.5 years x ½ yrs) 3,000
56. c
P8,250 / 5.5 x years or P6,000 – P4,500
“Should be in CFS” Parent Books – Sky “Recorded as” Subsidiary Books - Earth
(P24,750 / 5.5 years) 4,500 (P33,000 / 5.5 years) 6,000
57. d
Building 3,000
Retained earnings (8,250 – 750) 7,500
Accumulated depreciation (P11,250 – P750) 10,500
58. d - P60,000 - P36,000 = P24,000 debit
59. b - P36,000 - (P60,000 - P31,200) = P7,200 gain (debit)
60. c - (P36,000/6)(8/12) - [(P60,000 - P31,200)/6](8/12) = P800 credit
61. a - P31,200 - {(P36,000/6)(8/12) - [(P60,000 - P31,200)/6](8/12)} = P30,400 credit
62. c - P36,000 - (P60,000 - P31,200) = P7,200 gain (debit)
(P36,000/6)(8/12) - [(P60,000 - P31,200)/6](8/12) = P800 credit
63. b
P72,000 - (P96,000 - P36,600) = P12,600 gain (debit)
(P72,000/5)(4/12) - [(P96,000 - P36,600)/5](4/12) = P840 (credit)
(P12,600 - P840) .1 = P1,176 debit
64. d When only retained earnings is debited, and not the non-controlling interest, a gain
has been recorded in a prior period on the parent's books.
65. d
66. a
67. b
68. b – at its original cost or book value.
69. b
20x4: Any intercompany gain should be eliminated in the CFS.
20x5
Selling price – unrelated party P 100,000
Less: Original Book value, 9/26/20x5 __60,000
70. d – P30,000 + P40,000 = P70,000

S P Consolidated
Selling price
Less: Book value
Gain P 30,000 P 40,000 P 70,000
71. d – P110,000 – P30,000 = P80,000

S (Nectar) P (Lorikeet) Consolidated
Selling price P 50,000 P 110,000 P 110,000
Less: Book value _30,000 __50,000 _30,000
Gain P 20,000 P 60,000 P 80,000
72. d
S P Consolidated
Selling price P1,980,000 P1,440,000 P1,440,000
Less: Book value: Cost P2,000,000 P1,980,000 P 1,800,000
Accumulated ___200,000 1,800,00 *1,320,000 660,000 **1,200,000 __600,000
Unrealized gain on sale of
equipment P 180,000
(P180,000/9 x 6 yrs) 120,000
Gain on sale P 60,000 P 780,000 P 840,000
*P1,980,000/ 9 x 6 years = P1,320,000
**P1,800,000/9 x 6 years = P1,200,000
73. d –(P100,000 + P50,000 = P150,000)

S P Consolidated
Selling price
Less: Book value
Gain P 100,000 P 50,000 P 150,000
74. c
S P Consolidated
Selling price P 990,000 P720,000 P 720,000
Less: Book value : Cost P1,000,000 P990,000 P 900,000
Accumulated 100,000 __900,000 *440,000 550,000 **400,000 __500,000
Equipment,1/1/20x4 P 90,000
(P90,000/9 x 4 yrs) 40,000
Net unrealized gain, 1/1/20x8 P 50,000 __________ ___________
Gain on sale P 50,000 P 170,000 P 220,000
*P990,000/ 9 x 4 years = P440,000
**P900,000/9 x 4 years = P400,000
75. d – (P30,000 + P15,000)
76. c
Selling price – unrelated party P 14,000
Less: Original Book value, 12/31/20x5
Book value, 1/1/20x4 P20,000
Less: Depreciation for 20x4 and 20x5: P20,000/4 years x 2 years 10,000 10,000
77. b
Sort Fort Consolidated
Less: Book value : Cost P 120,000 P100,000 P 90,000
Accumulated __30,000 __90,000 **50,000 50,000 **45,000 __45,000
Equipment, 12/30/20x3 P 10,000
(P10,000/6 x 3 yrs) __ 5,000
Net unrealized gain, 12/31/20x6 P 5,000 __________ _________
Gain on sale P 5,000 P 15,000 P 20,000
*P100,000/6 x 3 years = P48,000
***P90,000/6 x 3 years = P45,000
78. b
Depreciation expense: (P50,000 - P40,000) / 10 years = P1,000 over depreciation
79. b
(Reported net income of S Company) P2,000,000
Unrealized gain on sales of equipment (upstream sales) (P700,000 – P600,000) ( 100,000)
Realized gain on sale of equipment (upstream sales) through depreciation (P100,000/10) 10,000
S Company’s realized net income from separate operations……… P1,910,000
Less: Amortization of allocated excess _ 0
P1,910,000
Multiplied by: Non-controlling interest %.......... __40%
Less: NCI on goodwill impairment loss on full-goodwill . . . . . . . . . . . . . . . . . . . . . __ 0
80. a
**Non-controlling Interest in Net Income (NCINI) for 20y2
Unrealized gain on sale of equipment (downstream sales)
Realized gain on sale of equipment (downstream sales) through depreciation ( 0)
P 135,000
81. a
Realized gain on sale of equipment (downstream sales) through depreciation _ 8,000
Unrealized gain on sale of equipment (upstream sales)
Realized gain on sale of equipment (upstream sales) through depreciation ( 0)
Total P343,800
Less: Non-controlling Interest in Net Income* *(refer to No. 80) 27,000
equity holders of parent – 20y2………….. P316,800
Net income from own operations:
Prout Sexton
Sales P1,475,000 P1,110,000
Other expenses (including depreciation) 145,000 90,000
Income tax expense __187,200 ____90,000
Net income from own operations P 200,800 P 135,000
Add: Dividend income ____80,000
Net income P 280,800 P 135,000
Sexton, 1/1/20y1
Less: Book value, 1/1/20y1
Cost, 1/1/20x1 P400,000
Unrealized gain on sale of equipment P120,000
Or, alternatively
Unrealized gain on sale of equipment (upstream sales)
Realized gain on sale of equipment (upstream sales) through depreciation ( 0)
Total P343,800
Less: Non-controlling Interest in Net Income* * (refer to No. 80) P 27,000
Add: Non-controlling Interest in Net Income (NCINI) _ _27,000
82. a – refer to No. 81

83. c
Consolidated Retained Earnings, December 31, 20y2
Retained earnings - Parent Company, January 1, 20y1 (cost model) P1,300,000
Less: Downstream - net unrealized gain on sale of equipment – prior to 20y1
[P120,000 – (P8,000 x 1 year)] 112,000
Adjusted Retained Earnings – Parent 1/1/20y1 (cost model ) Son Company’s
parties.. P1,188,000
Less: Retained earnings – Subsidiary, January 1, 20y1 1,040,000
Less: Amortization of allocated excess – 20x9 to – 20y0 0
20y1 0
P 240,000
P192,000
Less: Goodwill impairment loss 0 _192,000
Consolidated Retained earnings, January 1, 20x5 P1,380,000
Total P1,696,800
Less: Dividends declared – Parent Company for 20y1 120,000
Consolidated Retained Earnings, December 31, 20y1 P1,576,8000
Or, alternatively:
Consolidated Retained Earnings, December 31, 20y2
Retained earnings - Parent Company, December 31, 20y1 (cost model)
(P1,300,000 + P280,800 – P120,000) P1,460,800
12/31/20y1 [P120,000 – (P8,000 x 2 years)] 104,000
transactions with third parties.. P1,356,800
Retained earnings – Subsidiary, December 31, 20y2
(P1,040,000 + P135,000 – P100,000) P 1,075,000
Less: Accumulated amortization of allocated excess 0
12/31/20y2 _______0
P 275,000
P 220,000
Less: Goodwill impairment loss _____0 220,000
Consolidated Retained earnings, December 31, 20y2 P1,576,800
84. c
Non-controlling interest (fulll-goodwill), December 31, 20y2
Common stock – Subsidiary Company, December 31, 20y2…… P 1,200,000
Retained earnings – Subsidiary Company, December 31, 20y2
Retained earnings – Subsidiary Company, January 1, 20y2 P1,040,000
Add: Net income of subsidiary for 20y2 135,000
Total P1,175,000
Less: Dividends paid – 20y2 100,000 1,075,000
Stockholders’ equity – Subsidiary Company, December 31, 20x5 P 2,275,200
liabilities, date of acquisition (January 1, 20x4) 0
Amortization of allocated excess (refer to amortization above) : 0
Fair value of stockholders’ equity of subsidiary, December 31, 20x5…… P2,275,200
Less: Upstream - net unrealized gain on sale of equipment – prior to
12/31/20y2 _____)0
Realized stockholders’ equity of subsidiary, December 31, 20x5………. P 2,275,00
Multiplied by: Non-controlling Interest percentage…………... _ 20
85. c
Prout Sexton Consolidated
Selling price P 360,000 P300,000 P 300,000
Less: Book value : Cost P 400,000 P360,000 P 240,000
Accumulated *160,000 __240,000 **48,000 312,000 ***32,000 _208,000
Equipment, 1/1/20y1 P 120,000
(P120,000/15 x 2 yrs) __16,000
Net unrealized gain, 1/1/20y3 P 104,000 __________ _________
Gain on sale P 104,000 P( 12,000) P 92,000
*P400,000/25 x 10 years = P160,000
**P360,000/15 x 2 years = P48,000
***P240,000/15 x 2years = P400,000
86. b – refer to No. 85
87. a – refer to No. 85

Analysis:
Workpaper entries (not required)
Intercompany Sale of Equipment
Accumulated Remaining
Cost Depreciation Carrying Value Life Depreciation
Original Cost P400,000 P160,000 P240,000 15 yr P 16,000
Intercompany Selling Price 360,000 _______ 360,000 15 yr 24,000
Difference P 40,000 P160,000 P120,000 P 8,000
(1) Investment in Sexton Company 192,000

Retained Earnings - Prout 192,000
To establish reciprocity/convert to equity (.80 x (P1,040,000 - P800,000))
(2) Equipment 40,000

Beginning Retained Earnings - Prout 120,000
To reduce beginning consolidated retained earnings by amount of unrealized profit at the beginning of the
year, to restate property and equipment to its book value to Prout Company on the date of the
intercompany sale.
(3) Accumulated Depreciation 16,000

Beginning Retained Earnings - Prout 8,000
To reverse amount of excess depreciation recorded during current year and recognize an equivalent
amount of intercompany profit as realized
(4) Dividend Income 80,000

Dividends Declared 80,000
To eliminate intercompany dividends
(5) Beginning Retained Earnings – Sexton 1,040,000

Common Stock – Sexton 1,200,000
Investment in Sexton Company (P1,600,000 + P192,000) 1,792,000
Noncontrolling Interest [P400,000 + (P1,040,000 - P800,000) x .20] 448,000
To eliminate investment account and create noncontrolling interest account
Entry analysis:
Journal Entry on the books of Sexton to record the sale
Cash 300,000
Accumulated Depreciation - Fixed Assets (P360,000/15) x 2 years) 48,000
Loss on Sale of Equipment 12,000
Plant and Equipment 360,000
Workpaper eliminating entry on December 31, 20y3 consolidated statement necessary to prepare
consolidated statements:
Beginning Retained Earnings – Prout(P120,000 - P16,000) 104,000
Loss on Sale of Equipment 12,000
Gain on Sale of Equipment 92,000
Cost to the Affiliated Companies P400,000
Accumulated Depreciation Based on Original Cost ((12/25)x P400,000) 192,000
Book Value, 1/1/y3 P 208,000
Proceeds from Sale to Non-affiliate (300,000)
Gain from consolidated point of view P 92,000
Note: As of Dec. 31, 20y3, the amount of profit recorded by the affiliates on their books
(P120,000 - P12,000 = P108,000) is equal to the amount of profit considered realized in the
consolidated financial statements (P8,000 + P8,000 + P92,000) = P108,000.
88. d - Investment in subsidiary, 12/31/20x5 (cost model) P700,000).

Date of Acquisition (1/1/20x4) Partial Full
Fair value of consideration given…………………….P 700,000
Less: Book value of SHE - Subsidiary):
(P300,000 + P500,000) x 80%........................... 640,000
Allocated Excess.………………………………………….P 60,000
Less: Over/Undervaluation of Assets & Liabilities
Increase in Bldg. (P75,000 x 80%)……………… 60,000
Goodwill ………….………………………………………….P 0 P 0
Amortization of allocated excess: building - P75,000 / 25 years = P3,000
Upstream Sale of Equipment (date of sale – 4/1/20x5):
Sales.......................................................................................................P 60,000
Less: Book value of equipment………………………………………………………………. 30,000
Unrealized Gain (on sale of equipment)……………………………………………………P 30,000
Realized gain on sale of equipment:

20x5: P30,000/5 years = P6,000 x 9/12 (4/1/20x5-12/31/20x5)…………………………. .P 4,500
20x6 ………………..……………………………………………………………………………P 6,000
Downstream Sale of Machinery (date of sale – 9/30/20x5):
Sales.................................................................................................................................... P75,000
Less: Book value of machinery………………………………………………………………. 40,000
Unrealized Gain (on sale of machinery)…………………………………………………… P35,000
Realized gain on sale of machinery:

20x5: P35,000/10 years = P3,500 x 3/12 (9/30/20x5-12/31/20x5)………. ……………… .P 875
20x6………….. ………………………………………………………………………………...P 3,500
89. d
Dividend paid or declared – S…………………………………………………P 50,000
x: Controlling Interest %…………………………………………………………. 80%
Dividend income of Parent……………………………………………………..P 40,000
90. d
Net unrealized gain on sale of equipment (downstream sales) through
depreciation P35,000 – P875) 34,125
Total P390,375
Or, alternatively
Net unrealized gain on sale of equipment (downstream sales) through
depreciation P35,000 – P875) 34,125
Total P390,375

Unrealized gain on sales of equipment (upstream sales) ( 30,000)
P 121,500
91. c – refer to No. 90 for computations

92. d – refer to No. 90 for computations
93. a
Non-controlling Interests (in net assets): 20x5 20x6
Common stock - S, 12/31..….………………………… P 300,000 P 300,000
Retained earnings - S, 12/31:
RE- S, 1/1.…………………………………………….P600,000 P 700,000
+: NI-S………………………………………………… 150,000 200,000
-: Div – S…………………………………………….. 50,000 700,000 70,000 830,000
Book value of Stockholders’ equity, 12/31…….... P1,000,000 P1,130,000
Adjustments to reflect fair value of net assets
Increase in equipment, 1/1/2010..……..… 75,000 75,000
Accumulated amortization (P3,000 per year)*.…… ( 6,000) ( 9,000)
Fair Value of Net Assets/SHE, 12/31..……………… P1,069,000 P1,196,000
Unrealized gain on sale of equipment (upstream) ( 30,000) **( 25,500)
Realized gain thru depreciation (upstream)……… 4,500 6,000
Realized SHE – S,12/31………………………………….. P1,043,500 P1,176,500
x: NCI %........................................................... ………… ___ 20% 20%
Non-controlling Interest (in net assets) – partial... P 208,700 P 235,300
+: NCI on full goodwill……..…………………………….. 0 0
Non-controlling Interest (in net assets) – full…….. P 208,700 P 235,300
* 20x5: P3,000 x 2 years; 2012: P3,000 x 3 years;
** P30,000 – P4,500 realized gain in 20x5 = P25,500.
Note: Preferred solution - since what is given is the RE – P, 1/1/20x5(beginning balance of the
current year) -
Retained earnings – Parent, 1/1/20x5 (cost)…………………………… P 800,000
-: Downstream sale – 20x4 or prior to 20x5, Net unrealized gain 0
Adjusted Retained earnings – Parent, 1/1/20x5 (cost)……………… P 800,000
Retroactive Adjustments to convert Cost to “Equity”:
Retained earnings – Subsidiary, 1/1/20x4……………………….P 500,000
Less: Retained earnings – Subsidiary, 1/1/20x5……………….. 600,000
Increase in Retained earnings since acquisition
(cumulative net income – cumulative dividends)…………P 100,000
Accum. amortization (1/1/x4– 1/1/x5): P2,000 x 1 year…….. ( 3,000)
Upstream Sale – 2010 or prior to 20x5,
Net unrealized gain……………………………..……………….( 0)
P 97,000
X: Controlling Interests %..…………………………………………… 80% 77,600
RE – P, 1/1/20x5 (equity method) = CRE, 1/1/20x5………………… P 877,600
+: CI – CNI or Profit Attributable to Equity Holders of Parent……. 363,075
-: Dividends – P………………………………………………………………….. 100,000
RE – P, 12/31/20x5 (equity method) = CRE, 12/31/20x5………….. P 1,140,675
Or, if RE – P is not given on January 1, 20x5, then RE – P on December 31, 20x5 should be use.
Retained earnings – Parent, 12/31/20x5 (cost model):
(P800,000 + P340,000, P’s reported NI – P100,000)……………… P1,040,000
-: Downstream sale – 20x5 or prior to 12/31/20x5,
Net unrealized gain - (P35,000 – P875)……………………………. 34,125
Adjusted Retained earnings – Parent, 1/1/20x5 (cost model)..…… P1,005,875
Retroactive Adjustments to convert Cost to “Equity”:
Retained earnings – Subsidiary, 1/1/20x4……………………….P 500,000
Less: Retained earnings – Subsidiary, 12/31/20x5
(P600,000 + P150,000 – P50,000)..…………..……………. 700,000
Increase in Retained earnings since acquisition
(cumulative net income – cumulative dividends)……. ….P 200,000
Accumulated amortization (1/1/20x4 – 12/31/20x5):
P 3,000 x 2 years……………………………………………. .( 6,000)
Upstream Sale – 20x5 or prior to 12/31/20x5,
Net unrealized gain – (P30,000 – P4,500)……………. ( 25,500)
P 168,500
x: Controlling Interests %..………………………………………… 80% 134,800
RE – P, 12/31/20x5 (equity method) = CRE, 12/31/20x5…………. P1,140,675
94. c – refer to No, 93 computations.
95. b – refer to No. 93 for computations
96. d – refer to No. 93 for computations
97. b
Consolidated Stockholders’ Equity, 12/31/20x5:
Controlling Interest / Parent’s Interest / Parent’s Portion /
Equity Holders of Parent – SHE, 12/31/20x5:
Common stock – P (P only)……………………………………….. .P 1,000,000
Retained Earnings – P (equity method), 12/31/20x5…………. 1,140,675
Controlling Interest / Parent’s Stockholders’ Equity……………P2,140,675
Non-controlling interest, 12/31/20x5 (partial/full)…………………… 208,700
Consolidated Stockholders’ Equity, 12/31/20x5……………………….P2,349,375
98. d – the original cost of land

99. b – no intercompany gain or loss be presented in the CFS.
100. a
S3 Company’s net income from own operations…………………………………. P100,000
S2 Company’s net income from own operations…………………………………. 70,000
Unrealized loss on sale of equipment (upstream sales) – S3 15,000
Unrealized gain on sale of equipment (upstream sales) – S2 ( 52,000)
Unrealized gain on sale of equipment (upstream sales) - S1 ( 23,000)
S Company’s realized net income from separate operations*…….….. P205,000 205,000
Total P405,000
Less: Non-controlling Interest in Net Income* * (P23,000 + P5,400 + P7,200) 35,600
S3 S2 S1
Sales price 145,000 197,000 220,000
Less: Cost 160,000 145,000 197,000
Unrealized (loss) gain ( 15,000) 52,000 23,000
Or, alternatively
S3 Company’s net income from own operations…………………………………. P100,000
Unrealized loss on sale of equipment (upstream sales) – S3 15,000
Unrealized gain on sale of equipment (upstream sales) – S2 ( 52,000)
Unrealized gain on sale of equipment (upstream sales) - S1 ( 23,000)
S Company’s realized net income from separate operations* P205,000 205,000
Total P405,000
Less: Non-controlling Interest in Net Income* * (P23,000 + P5,400 + P7,200) P 35,600
Amortization of allocated excess…………………… ____0 _ 35,600
Add: Non-controlling Interest in Net Income (NCINI) _ _35,600
**Non-controlling Interest in Net Income (NCINI) S3 S2 S1

S Company’s net income of Subsidiary Company from its own
operations (Reported net income of S Company) P 100,000 P 70,000 P 95,000
Unrealized (gain) loss on sale of land (upstream sales) 15,000 ( 52,000) ( 23,000)
S Company’s realized net income from separate operations P 115,000 P 18,000 P 72,000
Less: Amortization of allocated excess 0 0 0
P 115000 P 18,000 P 72,000
Multiplied by: Non-controlling interest %.......... 20% 30% 10%
Non-controlling Interest in Net Income (NCINI) - partial goodwill P 23,000 P 5,400 P 7,200
Less: NCI on goodwill impairment loss on full-goodwill 0 0 0
Non-controlling Interest in Net Income (NCINI) – full goodwill P 23,000 P 5,400 P 7,200
101. b
Non-controlling Interest in Net Income (NCINI) for 20y2
Unrealized gain on sales of equipment (upstream sales) – year of sale -
(P14,500 – P9,000) / 5 years 1,100
P 41,100
102. d – the unrealized gain amounted to P15,000 (P60,000 – P45,000).

It should be noted that PAS 27 allow the use of cost model in accounting for investment in
subsidiary in the books of parent company but not the equity method. Since, the cost
model is presumed to be the method used, the unrealized gain of P15,000 (P60,000 –
P45,000) will not be recorded in the books of parent company, which give rise to no
equity-adjustments at year-end.
103. c
Cliff reported income P225,000
Less: Intercompany gain on truck 45,000
Plus: Piecemeal recognition of gain = P45,000/10
years ___4,500
Cliff’s adjusted income P184,500
Majority percentage 90%
Income from Cliff P166,050
104. c
Pied Imperial-Pigeon’s share of Roger’s income = (P320,000 x 90%) = P288,000

Less: Profit on intercompany sale (P130,000 - P80,000) x 90% = 45,000
Add: Piecemeal recognition of deferred profit ($50,000/4 years)90% = 11,250
Income from Offshore P254,250
105 c
P30,000 - (1/4 x P30,000) = P 22,500
106. d - P60,000 – P48,000)/4 years = P3,000

107. a
Simon, 4/1/20x4
Cost, 1/1/20x4 P50,000
Less: Accumulated depreciation : P50,000/10 years x 3/12 __1,250 48,750
Realized gain – depreciation: P19,500/9.75 years P 2,000
108. c – P2,000 x 9/12 (April 1, 20x4 – December 31, 20x4) = P1,500

109. c – P19,500 / 9.75 years = P2,000
110. c – P19,500 / 9.75 years = P2,000
111. d
20x4
Share in subsidiary net income (100,000 x 90%) 90,000
Unrealized gain on sale of equipment (downstream sales) ( 19,500)
P2,000 x 9/12 (April 1, 20x4 – December 31, 20x4) = P1,500 _ 1,500
Net 72,000
112. b
20x5
Net 110,000
113. d
20x6
Net 119,000
114. c
Smeder, 1/1/20x4
Cost, 1/1/20x4 P120,000
Less: Accumulated depreciation __48,000 72,000
115. b
20x4
Unrealized gain on sale of equipment (upstream sales); 12,000 x 80% ( 9,600)
P2,000 x 80% _ 1,600
Net 14,400
116. c
20x5
P2,000 x 80% _ 1,600
Net 27,200
117. d
Equipment 36,000
Gain 12,000
Parent – Smeder Subsidiary - Collins

Cash 84,000 Equipment 84,000
Equipment 120,000
Gain 12,000
Smeder, 1/1/20x4
Cost, 1/1/20x4 P120,000
Less: Accumulated depreciation __48,000 72,000
P12,000 / 6 years or P14,000 – P12,000
“Should be in CFS” Parent – Smeder “Recorded as” Subsidiary - Collins

(P72,000 /6 years) 12,000 (P84,000 / 6 years) 14,000
Combining the eliminating entries for 1/1/20x4 and 12/31/200x4, the net effect of
accumulated depreciation would be a net credit of P46,000 (P48,000 – P2,000).
118. c
20x4
Unrealized gain on sale of equipment ( 12,000)
Realized gain on sale of equipment through depreciation ___2,000
Net ( 10,000)
119. d
Cash 5,000
Loss 5,000
Parent – Stark Subsidiary - Parker

Cash 80,000 Land 85,000
Loss 5,000 Cash 85,000
Land 85,000
Stark Parker Consolidated

Less: Book value, 5/1/20x4 _85,000 __80,000 _85,000
Unrealized gain on sale of equipment P ( 5,000) P 12,000 P 7,000
120. b – refer to No. 119 for eliminating entry
121. b
Cash 5,000
122. e
20x4
Unrealized loss on sale of land (upstream sales): P5,000 x 90% _ 4,500
Net 184,500
123. d
20x4
Unrealized loss on sale of land (upstream sales): P5,000 x 90% _ 4,500
Net 184,500
124. b
Stark Parker Consolidated
Less: Book value, 5/1/20x4 _85,000 __80,000 _85,000
Unrealized gain on sale of equipment P ( 5,000) P 12,000 P 7,000
125. a – refer to No. 124 for computation

126. e – None, the loss was already recognized in the books of Stark in the year of sale - 20x4
but not in the subsequent years.
127. c
20x6
Intercompany realized loss on sale of land (upstream sales): P5,000 x 90% _ ( 4,500)
Net 193,500
Theories
1. d 6. c 11. c 16. b 21. b 26. b 31 d
2. c 7. c 12. c 17. a 22. d 27. c
3. d 8. a 13. d 18. a 23. c 28. b
4. d 9. a 14. b 19. c 24. c 29. c
5. b 10, c 15, d 20. a 25. b 30. c

Problem I A. Downstream Sale Cost Model - 20x5 (104,000/130,000 80% Ownership)

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Problem I A. Downstream Sale Cost Model - 20x5 (104,000/130,000 80% Ownership)

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Chapter 18

Net Income – S Company

Amortization of Allocated Excess

Unrealized Gain on Sale of Equipment

Realized Gain on Sale – depreciation

Equity Method – 20x5

Net Income – S Company

Amortization of Allocated Excess

Unrealized Gain on Sale of Equipment

Realized Gain on Sale – depreciation 25,000

Accumulated Depreciation (P100,000/4) × 2 50,000

Accumulated Depreciation (P100,000/4) × 2 50,000

3 Controlling Interest in Consolidated Net Income:

4. Noncontrolling Interest Calculation:

5. NCI-CNI (No. 4) P 169,000

**Non-controlling Interest in Net Income (NCINI) for 20x5

Realized gain – depreciation: P100,000 / 4 years P 25,000

Controlling Interest in Consolidated Net Income:

**Non-controlling Interest in Net Income (NCINI) for 20x5

Net Income – S Company

Amortization of Allocated Excess

Unrealized Gain on Sale of Equipment

Equity Method – 20x5

Net Income – S Company

Amortization of Allocated Excess

Unrealized Gain on Sale of Equipment

Realized Gain on Sale – depreciation 25,000

2. Working Paper Elimination Entries:

Accumulated Depreciation (P100,000/4) × 2 50,000

Accumulated Depreciation (P100,000/4) × 2 50,000

3 Controlling Interest in Consolidated Net Income:

4. Noncontrolling Interest Calculation:

5. NCI-CNI (No. 4) P 169,000

**Non-controlling Interest in Net Income (NCINI) for 20x5

Realized gain – depreciation: P100,000 / 4 years P 25,000

Computation of gain on sale of truck:

Accumulated depreciation adjustment:

2. Eliminating entry, December 31, 20x9:

E(1) Truck 55,000

Accumulated depreciation adjustment:

a. Eliminating entry, December 31, 20x8:

Computation of gain on sale of truck:

b. Eliminating entry, December 31, 20x9:

E(1) Truck 90,000

Accumulated depreciation adjustment:

Operating income reported by BW P100,000

2. Consolidated net income for 20x9 would be unchanged.

3. Eliminating entry, December 31, 20x9:

E(1) Buildings and Equipment 30,000

Adjustment to buildings and equipment

Amount paid by TW to acquire building P300,000

Adjustment to retained earnings, January 1, 20x9

Unrealized gain recorded January 1, 20x4 P 30,000

Adjustment to Noncontrolling interest, January 1, 20x9

Unrealized gain at January 1, 20x9 P 25,000

Adjustment to depreciation expense

Depreciation expense recorded by BW

Adjustment to accumulated depreciation

Amount required (P20,000 x 6 years) P120,000

Controlling interest in 290,500 (3) 279,300 (4)

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

Non-controlling Interest in CNI:

The over/under valuation of assets and liabilities are summarized as follows: