RELEVANT INFORMATION:

On January 1, 2022, ABC acquired 80% of of the outstanding shares of XYZ for P1,500,000 and measures
at fair value of P350,000. The statement of financial position of XYZ on the date of business combination is

Cash 1,000,000 The assets and liabilities of X

Accounts Receivable 270,000 except for the following:
Inventory 500,000
Equipment 300,000
Accumulated Depreciation - 60,000 Inventory
Total Assets 2,010,000 Equipment
Acc. Depn
Accounts Payable 500,000
Ordinary Shares 1,000,000 The equipment has a remaini
Share Premium 100,000 inventory is sold in 2022. The
Retained Earnings 410,000 to P42,000 in 2022.
Total Liabilities and SHE 2,010,000

The intercompany sale of inventory in year 2022 and 2023 are shown below:
Sales GP Rate Unsold Sold in
Downstream:
Year 2022 500,000 25% 60% Year 2023
Year 2023 600,000 30% 40% Year 2024
Upstream:
Year 2022 200,000 30% 40% Year 2023
Year 2023 250,000 40% 25% Year 2024

On December 31, 2022, ABC and XYZ declared and paid dividends amounting to P100,000 and P20,000,
financial statement of ABC and XYZ on December 31, 2022 are as follows:

Income Statement: ABC XYZ

Sales 900,000 600,000
Less: Cost of Goods Sold 500,000 250,000
Gross Profit 400,000 350,000
Less: Depreciation Expense - Equipment 100,000 60,000
Less: Other Expenses 120,000 50,000
Net Income from Own Operations 180,000 240,000

Balance Sheet: ABC XYZ

Cash 2,500,000 1,350,000
Accounts Receivable 500,000 400,000
Inventory 300,000 300,000
Investment in Subsidiary 1,500,000 -
Equipment 800,000 300,000
Accumulated Depreciation - 200,000 - 120,000
Total Assets 5,400,000 2,230,000

Accounts Payable 1,000,000 500,000

Ordinary Share 2,000,000 1,000,000
Share Premium 200,000 100,000
Retained Earnings 2,200,000 630,000
Total Liabilities and SHE 5,400,000 2,230,000
COMPREHENSIVE SOLUTION TO THE PROBLEM:
A. Computation of Goodwill
FVCT 1,500,000 BV of NAA
Add: NCI 350,000 Add: OV of Inventory
Total Consideration 1,850,000 Less: OV of Equipment
Less: FVNAA 1,550,000 FV of NAA
Goodwill 300,000

B. Allocation Table
Full Parent NCI
Total Consideration 1,850,000 1,500,000 350,000
Less: FVNAA 1,550,000 1,240,000 310,000
Goodwill 300,000 260,000 40,000

C. Computation of Unrealized Gross Profit of Ending Inventory

Sales GP Rate Unsold UGP
Downstream:
Year 2022 500,000 25% 60% 75,000
Year 2023 600,000 30% 40% 72,000
Upstream:
Year 2022 200,000 30% 40% 24,000
Year 2023 250,000 40% 25% 25,000

D. Journal Entries Related to Business Combination

1. To record the investment in subsidiary. Investment in Subsidiary
Cash
#

2. To record the receipt of dividends from subsidiary. Cash

Dividend Income
#

E. Journal Entries Related to Intercompany Sale of Inventories

Transactions in 2022 Separate Book of Parent

1. Downstream Sale of Inventory Cash 500,000
Sales 500,000
#

COGS 375,000
Inventory 375,000
#
2. Usptream Sale of Inventory Inventory 200,000
Cash 200,000
#

Cash 150,000
Sales 150,000
#

COGS 120,000
Inventory 120,000
#

F. Working Paper Elimination Entries

1. To eliminate Investment in Subsidiary against SHE. Ordinary Shares
Share Premium
Retained Earnings
Investment in Subsidiary
NCI
#

2. To record the fair value adjustments. Inventory

Accumulated Depreciation
Equipment
Investment in Subsidiary
NCI
#

3. To record goodwill. Goodwill

Investment in Subdiary
NCI
#

4. To recognize the amortization of FV Adjustments. Cost of Goods Sold

Accumulated Depreciation
Impairment Loss
Inventory
Depreciation Expense
Goodwill
#

5. To eliminated intercompany dividends. Dividend Income

NCI
Dividend Paid
#

6. To eliminate intercompany sale - downstream. Sales

Cost of Goods Sold
#

7. To eliminate intercompany sale - upstream. Sales

 Cost of Goods Sold
#

8. To eliminate unrealized gross profit for downstream sale. Cost of Goods Sold
Inventory
#

9. To eliminate unrealized gross profit for upstream sale. Cost of Goods Sold
Inventory
#

10. To record the share of NCI in Net Income NCI - Net Income
NCI
#

G. Consolidated Financial Statements

1. Income Statement: ABC XYZ
Sales 900,000 600,000
Add: Dividend Income 16,000 -
Total Revenue 916,000 600,000
Less: Cost of Goods Sold 500,000 250,000
Gross Profit 416,000 350,000
Less: Depreciation Expense 100,000 60,000
Less: Other Expenses 120,000 50,000
Less: Impairment Loss - -
Consolidated Net Income 196,000 240,000
Less: NCI Net Income - -
Consolidated Net Income - Parent 196,000 240,000

2. Statement of Retained Earnings: ABC XYZ

Retained Earnings, Beg. 2,104,000 410,000
Add: Net Income 196,000 240,000
Less: Dividends Declared 100,000 20,000
Retained Earnings, End 2,200,000 630,000

3. Balance Sheet: ABC XYZ

Cash 2,500,000 1,350,000
Accounts Receivable 500,000 400,000
Inventory 300,000 300,000
Investment in Subsidiary 1,500,000 -
Equipment 800,000 300,000
Accumulated Depreciation - 200,000 - 120,000
Goodwill - -
Total Assets 5,400,000 2,230,000

Accounts Payable 1,000,000 500,000

Ordinary Share 2,000,000 1,000,000
Share Premium 200,000 100,000
Retained Earnings 2,200,000 630,000
NCI - -
Total Liabilities and SHE 5,400,000 2,230,000
,500,000 and measures the non-controlling interest
business combination is as follows:

ssets and liabilities of XYZ approximate its fair value

pt for the following:

Book Value Fair Value FV Adjustment

500,000 550,000 50,000
300,000 230,000 - 10,000
- 60,000

quipment has a remaining useful life of 4 years. The

tory is sold in 2022. The goodwill is impaired amounting
2,000 in 2022.

The 40% was sold to customers for P250,000.

The 60% was sold to customers for P200,000.

P100,000 and P20,000, respectively. The separate

Note: The share of NCI in Net

Income is P28,100.
 1,510,000
OV of Inventory 50,000
OV of Equipment - 10,000
1,550,000

tment in Subsidiary 1,500,000

1,500,000

16,000
Dividend Income 16,000

Separate Book of Subsidiary

Inventory 500,000
Cash 500,000
#

Cash 250,000
Sales 250,000
#

COGS 200,000
Inventory 200,000
#
 Cash 200,000
Sales 200,000
#

COGS 140,000
Inventory 140,000
#

ary Shares 1,000,000

100,000
ned Earnings 410,000
nvestment in Subsidiary 1,208,000
302,000

50,000
mulated Depreciation 60,000
70,000
nvestment in Subsidiary 32,000
8,000

300,000
nvestment in Subdiary 260,000
40,000

of Goods Sold 50,000

mulated Depreciation 2,500
rment Loss 42,000
50,000
Depreciation Expense 2,500
42,000

end Income 16,000

4,000
Dividend Paid 20,000

500,000
Cost of Goods Sold 500,000

200,000
Cost of Goods Sold 200,000

of Goods Sold 75,000

75,000

of Goods Sold 24,000

24,000

Net Income 28,100

28,100

Adjustments Consolidated
- 700,000 800,000
- 16,000 -
800,000
- 551,000 199,000
601,000
- 2,500 157,500
170,000
42,000 42,000
231,500
- 28,100 - 28,100
203,400

Adjustments Consolidated
- 410,000 2,104,000
203,400
- 20,000 100,000
2,207,400

Adjustments Consolidated
3,850,000
900,000
- 99,000 501,000
- 1,500,000 -
- 70,000 1,030,000
62,500 - 257,500
258,000 258,000
6,281,500

1,500,000
- 1,000,000 2,000,000
- 100,000 200,000
2,207,400
374,100 374,100
6,281,500