Problem I

Cost Model
1. January 1, 20x4
a. On date of acquisition the retained earnings of P should always be considered as the consolidated retained earnings,
thus:
Consolidated Retained Earnings, January 1, 20x4
Retained earnings - P Company, January 1, 20x4 (date of acquisition) P360,000

b. NCI (Partial/Full)
Non-controlling interest (partial-goodwill), January 1, 20x4
Common stock – S Company, January 1, 20x4…… P 240,000
Retained earnings – S Company, January 1, 20x4 120,000
Stockholders’ equity – S Company, January 1, 20x4 P 360,000
Adjustments to reflect fair value - (over) undervaluation of assets and
liabilities, date of acquisition (January 1, 20x4) 90,000
Fair value of stockholders’ equity of subsidiary, January 1, 20x4…… P450,000
Multiplied by: Non-controlling Interest percentage…………... 20
Non-controlling interest (partial-goodwill)………………………………….. P 90,000
Add: NCI on full-goodwill (P15,000 – P12,000) ___3,000
Non-controlling interest (full-goodwill/fair value basis)………………………………….. P 93,000

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

A summary or depreciation and amortization adjustments is as follows:

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

c. Partial/Proportionate Goodwill
Consolidated SHE:
Stockholders’ Equity
Common stock, P10 par P 600,000
 Retained earnings 360,000
P’s Stockholders’ Equity / CI – SHE P 960,000
NCI, 1/1/20x4 (b) ___90,000
Consolidated SHE, 1/1/20x4 P1,050,000

Full-Goodwill/Fair Value Basis

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 (b) ___93,000
Consolidated SHE, 1/1/20x4 P1,053,000

2, The following items for December 31, 20x4 and December 31, 20x5 in the Consolidated Financial Statements:
(refer to requirement 6 as a guide)

December 31, 20x4 December 31, 20x5

Partial Full- Partial Full-Goodwill
Consolidated Amounts Goodwill Goodwill Goodwill
a. Cash P 322,800 P 322,800 P 367,200 P 367,200
b. Accounts receivable 150,000 150,000 276,000 276,000
c. Inventory 210,000 210,000 324,000 324,000
d. Land 265,200 265,200 265,200 265,200
e. Equipment (net) 273,000 273,000 240,000 240,000
f. Buildings (net) 549,000 549,000 492,000 492,000
g. Investment in Sax -0- -0- -0- -0-
h. Total Assets 1,782,600 1,784,850 1,975,800 1,978,050
i. Accounts payable 240.000 240.000 240,000 240,000
j. Bonds payable 360,000 360,000 360,000 360,000
k. Total Liabilities 600,000 600,000 600,000 600,000
l. Common stock/Ordinary share 600,000 600,000 600,000 600,000
m. Retained earnings/Accumulated P&L 490,440 490,440 676,680 676,680
n. Sales 720,000 720,000 900,000 900,000
o. Cost of Goods sold 348,000 348,000 408,000 408,000
p. Gross profit 372,000 372,000 492,000 492,000
q. Expenses (including GW impairment) 160,200 160,950 217,200 217,200
r. Dividend income -0- -0- -0- -0-
s. Controlling Interests in Net Income 202,440 202,440 258,240 258,240
t. Non-controlling Interests in Net Income 9,360 8,610 16,560 16,560
u. Net Income or CNI 211,800 211,050 274,800 274,800
v. Common stock/Ordinary share* 600,000 600,000 600,000 600,000

w. Retained Earnings/Accumulated P&L*

490,440 490,440 676,680 676,680
x. Controlling Interests / Equity Holders of
Parent/ Parent’s Stockholders’ Equity
1,090,440 1,090,440 1,276,680 1,276,680
y. Non-Controlling Interests 92,160 94,410 99,120 101,370
z1. Stockholders’ Equity 1,182,600 1,184,850 1,375,800 1,378,050
z2. Liabilities and Stockholders’ Equity 1,782,600 1,784,850 1,975,800 1,978,050

Alternative Solution (refer also to the worksheet)

80% Owned: Partial/Proportionate-Goodwill
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.
Book value Fair value (Decrease)
Buildings................ 360,000 144,000 ( 216,000)
Less: Accumulated depreciation….. 192,000 - ( 192,000)
Net book value………………………... 168,000 144,000 ( 24,000)

Amortization Table: 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
12/31/20x4:
CI-CNI
Consolidated Net Income for 20x4
Net income from own/separate operations
P Company P168,000
S Company 60,000
Total P228,000
Less: Non-controlling Interest in Net Income* P 9,360
Amortization of allocated excess (refer to amortization above) 13,200
Goodwill impairment (impairment under partial-goodwill approach) 3,000 25,560
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent………….. P202,440
Add: Non-controlling Interest in Net Income (NCINI) 9,360
Consolidated Net Income for 20x4 P211.800
NCI-CNI
*Non-controlling Interest in Net Income (NCINI) for 20x4
Net income of S Company P 60,000
Less: Amortization of allocated excess / goodwill impairment
(refer to amortization table above) 13,200
P 46,800
Multiplied by: Non-controlling interest %.......... 20%
Non-controlling Interest in Net Income (NCINI) P 9,360
CNI, P211,800
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent………….. P202,440
Add: Non-controlling Interest in Net Income (NCINI) 9,360
Consolidated Net Income for 20x4 P211.800
On subsequent to date of acquisition, consolidated retained earnings would be computed as follows:
Consolidated Retained Earnings, December 31, 20x4
Retained earnings - P Company, January 1, 20x4 (date of acquisition) P360,000
Add: Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent for 20x4 202,440
Total P562,440
Less: Dividends paid – P Company for 20x4 72,000
Consolidated Retained Earnings, December 31, 20x4 P490,440
 NCI/NCINAS. 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 December 31, 20x4 are computed as follows:
Non-controlling interest (partial-goodwill), December 31, 20x4
Common stock – S Company, December 31, 20x4…… P 240,000
Retained earnings – S Company, December 31, 20x4
Retained earnings – S Company, January 1, 20x4 P120,000
Add: Net income of S for 20x4 60,000
Total P180,000
Less: Dividends paid – 20x4 36,000 144,000
Stockholders’ equity – S Company, December 31, 20x4 P 384,000
Adjustments to reflect fair value - (over) undervaluation of assets 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…… P460,000
Multiplied by: Non-controlling Interest percentage…………... 20
Non-controlling interest (partial-goodwill)………………………………….. P 92,160
Consolidated SHE:
Consolidated SHE:
Stockholders’ Equity
Common stock, P10 par P 600,000
Retained earnings 490,440
P’s Stockholders’ Equity / CI – SHE, 12/31/20x4 P1,090,440
NCI, 12/31/20x4 ___92,160
Consolidated SHE, 12/31/20x4 P1,182,600
12/31/20x5:
CI-CNI
Consolidated Net Income for 20x5
Net income from own/separate operations:
P Company P192,000
S Company 90,000
Total P282,000
Less: Non-controlling Interest in Net Income* P16,560
Amortization of allocated excess (refer to amortization above) __7,200 23,760
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent………….. P258,240
Add: Non-controlling Interest in Net Income (NCINI) 16,560
Consolidated Net Income for 20x5 P274,800
NCI-CNI
*Non-controlling Interest in Net Income (NCINI) for 20x5
Net income of S Company P 90,000
Less: Amortization of allocated excess / goodwill impairment for 20x5
(refer to amortization table above) 80,400
P 82,800
Multiplied by: Non-controlling interest %.......... 20%
Non-controlling Interest in Net Income (NCINI) for 20x5 P 16,560
CNI, P274,800
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent………….. P258,240
Add: Non-controlling Interest in Net Income (NCINI) 16,560
Consolidated Net Income for 20x5 P274,800
On subsequent to date of acquisition, consolidated retained earnings would be computed as follows:
Consolidated Retained Earnings, December 31, 20x5
Retained earnings - P Company, January 1, 20x5 (cost model P484,800
Adjustment to convert from cost model to equity method for purposes of
consolidation or to establish reciprocity:/Parent’s share in adjusted net
increased in subsidiary’s retained earnings:
Retained earnings – S, January 1, 20x5 P 144,000
Less: Retained earnings – S, January 1, 20x4 120,000
Increase in retained earnings since date of acquisition P 24,000
Less: Amortization of allocated excess – 20x4 13,200
P 10,800
Multiplied by: Controlling interests %................... 80%
 P 8,640
Less: Goodwill impairment loss (full-goodwill), net (P3,750– P750)* or
(P3, 750 x 80%) 3,000 5,640
Consolidated Retained earnings, January 1, 20x5 P 490,440
Add: Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of P for 20x5 258,240
Total P748,680
Less: Dividends paid – P Company for 20x5 72,000
Consolidated Retained Earnings, December 31, 20x5 P676,680
*this procedure would be more appropriate, instead of multiplying the full-goodwill impairment loss of P3,750 by 80%. There might be
situations where the controlling interests on goodwill impairment loss would not be proportionate to NCI acquired.
NCI/NCINAS. 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 December 31, 20x5 are computed as follows:
Non-controlling interest (partial-goodwill), December 31, 20x5
Common stock – S Company, December 31, 20x5…… P 240,000
Retained earnings – S Company, December 31, 20x5
Retained earnings – S Company, January 1, 20x5 P14,000
Add: Net income of S for 20x5 90,000
Total P234,000
Less: Dividends paid – 20x5 48,000 186,000
Stockholders’ equity – S Company, December 31, 20x5 P 426,000
Adjustments to reflect fair value - (over) undervaluation of assets and
liabilities, date of acquisition (January 1, 20x4) 90,000
Amortization of allocated excess (refer to amortization above) :
20x4 P 13,200
20x5 7,200 ( 20,400)
Fair value of stockholders’ equity of S, December 31, 20x5…… P 495,600
Multiplied by: Non-controlling Interest percentage…………... 20
Non-controlling interest (partial goodwill)………………………………….. P 99,120
Consolidated SHE:
Consolidated SHE:
Stockholders’ Equity
Common stock, P10 par P 600,000
Retained earnings 676,680
Parent’s Stockholders’ Equity / CI – SHE, 12/31/20x5 P1,276,680
NCI, 12/31/20x5 ___99,120
Consolidated SHE, 12/31/20x5 P1,375,800