Simple problem for better understanding: (SUBSEQUENT DATE)

On January 1, 2022, Powell Company acquires 80% of the common stock of Scarlett Company for P372,000. At that time, Scarlett Company’s
shareholders’ equity is composed of common stock (P10 par), P240,000 and retained earnings, P120,000. On the other hand, Powell Company’s
shareholders’ equity is composed of common stock (P10 par), P600,000 and retained earnings, P360,000. Also, the fair value of the non-
controlling interest is P98,200. On the same date, the following assets of Scarlett Company had carrying values that were different from their
respective fair values:

Carrying value: Fair value:

Inventory (undervalued) 24,000 30,000
Land (undervalued) 48,000 55,200
Equipment, net (undervalued) 84,000 180,000
Building, net (overvalued) 168,000 144,000

Other assets and all liabilities of Scarlett Company had carrying values approximately equal to their respective fair values.

On January 1, 2022, the equipment and building had a remaining life of 8 and 4 years, respectively. The inventories on January 1, 2022, were all
sold during 2022 and FIFO inventory costing is used. Goodwill, if any, is impaired by P5,000 during 2022. No goodwill impairment occurred during
2023. The investment is to be accounted for using the cost method.

The net income and dividends paid for 2022 and 2023 are as follows:

POWELL COMPANY SCARLET COMPANY

2022 2023 2022 2023
Net income 196,800 234,200 60,000 60,000
Dividends paid 72,000 72,000 36,000 48,000
REQUIREMENTS:
1. Goodwill arising from business combination on January 1, 2022, is…
2. How much of the goodwill is attributable to the parent and non-controlling interest, respectively?

TOTAL (100) P (80) NCI (20)

COI 470,200 372,000 (g) 98,200 (g)
FVNA CS 240,000 356,160 89,040
RE 120,000
Changes in assets: (DIFFS)
Inv. + 6,000
Land + 7,200
Eqpt. + 96,000
Bldg. – 24,000

Total: 445,200
GW/GBP 25,000 (1) 15,840 (2) 9,160 (2)
GWR (15,840 / 25,000) x 100 = (9,160 / 25,000) x 100 = 36.64%
63.36%
3. How much is the consolidated net income for the year 2022?
4. How much of the 2022 consolidated net income is attributable to the parent and non-controlling interest, respectively?

2022 CNI-P NCINIS TOTAL

NI-P 196,800 196,800 (g)
NI-S 48,000 12,000 60,000 (g)
DIV-S (28,800) 36,000 (g) x 80% = (28,800)
AMORTS (DIFFS) (9,600) (2,400) INV (6,000)
 all were sold in 2022, if
not amortize lang using
the ratio kung ilan
nabenta.
LAND (0)
 not stated na sold,
assumed to be used in
operations.
EQPT (96,000/8 = (12,000))
 Depreciate natin ang
mga undervalued or
overvalued depreciable
assets.
 If sold next year, 96,000
– 12,000 = 84,000
would be amortized.
BLDG (24,000 / 4 = 6,000)
 Depreciated using
remaining useful life.
TOTAL: (12,000)
IMP LOSS ON GW (3,168) (1,832) (5,000) (g)
GBP NO GBP
CONSOLIDATED 203,232 (4) 7,768 (4) 211,000 (3)
5. What amount of retained earnings shall be presented on the consolidated statement of financial position on December 31, 2022?

CRE, beg 360,000 (g)

CNI-P 203,232
DIV-DEC by parent (2022) (72,000)
CRE, end 491,232
6. What amount of non-controlling interest shall be presented on the (1) separate statement of financial position and (2) consolidated
statement of financial position on December 31, 2022?

(1) none presented, therefore 0

(2) NCINAS, beg 98,200 @acqui table
NCINIS (2022) 7,768
DIV-S @S (36,000 x 20%) (7,200)
NCINAS, END 98,760
7. How much is the consolidated net income for the year 2023?
8. How much of the 2023 consolidated net income is attributable to the parent and non-controlling interest, respectively?

2023 CNI-P NCINIS TOTAL

NI-P 234,200 234,200 (g)
NI-S 48,000 12,000 60,000 (g)
DIV-S (38,400) 48,000 (g) x 80% = (38,400)
AMORTS (DIFFS) (4,800) (1,200) INV (0) – FULLY AMORTIZED
LAND (0) – SAME AS EARLIER
EQPT (12,000) – SAME EARLIER
BLDG 6,000 – SAME EARLIER

TOTAL: (6,000)
IMP LOSS ON GW N/A
GBP N/A
CONSOLIDATED 239,000 (8) 10,800 (8) 249,800 (7)
 9. What amount of retained earnings shall be presented on the consolidated statement of financial position on December 31, 2023?
CRE, beg 491,232 (computed earlier, cumulative siya)
CNI-P 239,000
DIV-DEC by parent (2023) (72,000)
CRE, end 658,232

10. What amount of non-controlling interest shall be presented on the consolidated statement of financial position on December 31, 2023?

(1) none presented, therefore 0

(2) NCINAS, beg 98,768 @cumulative also
NCINIS (2023) 10,800
DIV-S @S (48,000 x 20%) (9,600)
NCINAS, END 99,960

INDEPENDENT ASSUMPTION: Non-controlling interest is to be measured at its proportionate share basis.

11. Goodwill arising from business combination on January 1, 2022 is…
12. How much of the goodwill is attributable to the parent and non-controlling interest, respectively?

TOTAL (100) P (80) NCI (20)

COI 461,040 372,000 (g) 89,040
FVNA CS 240,000 356,160 89,040
RE 120,000
Changes in assets: (DIFFS)
Inv. + 6,000
Land + 7,200
Eqpt. + 96,000
Bldg. – 24,000
 Total: 445,200
GW/GBP 15,840 (1) 15,840 (2) 0(2)
GWR 100 0

13. How much of the 2022 consolidated net income is attributable to the parent and non-controlling interest, respectively?

2022 CNI-P NCINIS TOTAL

NI-P 196,800 196,800 (g)
NI-S 48,000 12,000 60,000 (g)
DIV-S (28,800) 36,000 (g) x 80% = (28,800)
AMORTS (DIFFS) (9,600) (2,400) INV (6,000)
 all were sold in 2022, if
not amortize lang using
the ratio kung ilan
nabenta.
LAND (0)
 not stated na sold,
assumed to be used in
operations.
EQPT (96,000/8 = (12,000))
 Depreciate natin ang
mga undervalued or
overvalued depreciable
assets.
 If sold next year, 96,000
– 12,000 = 84,000
would be amortized.
BLDG (24,000 / 4 = 6,000)
 Depreciated using
remaining useful life.
TOTAL: (12,000)
IMP LOSS ON GW (5,000) (5,000) (g) *0 NCI if
 proportionate method is used
GBP NO GBP
CONSOLIDATED 201,400 (4) 9,600 (4) 211,000 (3)

14. What amount of retained earnings shall be presented on the consolidated statement of financial position on December 31, 2022?

CRE, beg 360,000 (g)

CNI-P 201,400
DIV-DEC by parent (2022) (72,000)
CRE, end 489,400

15. What amount of non-controlling interest shall be presented on the consolidated statement of financial position on December 31, 2022?

NCINAS, beg 89,040 @acqui table

NCINIS (2022) 9,600
DIV-S @S (36,000 x 20%) (7,200)
NCINAS, END 91,440
Simple problem for better understanding: (INTERCOMPANY SALE OF INVENTORY)

Several years ago, P Company acquired 75% of the outstanding ordinary shares of S Corporation by paying an amount equal to the fair value of
S's net assets. All the assets and liabilities of S Corporation had carrying values equal to the fair values at that time.

For the years 2023 and 2024, Both P and S had intercompany sales of inventories with each other. Information resulting from intercompany sales,
ending inventory and gross profit rates are summarized below:

Year: Sales of P to S Intercompany Intercompany

merchandise remained Gross profit rate
in 12/31 Inventory of
the buying affiliate
(EI-S)
2023 P300,000 60% of sales 25% based on sales
2024 240,000 80% of sales 20% based on cost

Year: Sales of S to P Intercompany Intercompany

merchandise remained Gross profit rate
in 12/31 Inventory of
the buying affiliate
(EI-P)
2023 P120,000 50% of sales 25% based on cost
2024 150,000 40% of sales 40% based on sales

The net income and dividends paid for 2023 and 2024 are as follows:

P COMPANY S COMPANY
Net income Dividends paid Net income Dividends paid
2023 P393,600 144,000 120,000 72,000
2024 468,400 160,000 100,000 60,000
Requirements:

1. How much is the downstream unrealized profit in ending inventory for 2023 and 2024?
Formula for UPEI:
= total sales x unsold percentage (%) x GPR of seller based on sales

UPEI: DOWNSTREAM
2023: 300,000 x 60% (unsold) = 180,000 x 25% (based on sales) = 45,000 2023
2024: 240,000 x 80% (unsold) = 192,000 x 20/120 = 32,000 2024

Formula for GPR (cost) to be converted to GPR (sales):

= GPR (cost) / 100% + GPR (cost)
= 20% / 100% + 20%
= 20 / 120
Basis:
SALES 120% (squeeze)
COGS 100%
GP 20% based on COGS
2. How much is the upstream unrealized profit in ending inventory for 2023 and 2024?

UPEI: UPSTREAM
2023: 120,000 x 50% = 60,000 x 25/125 = 12,000 2023
2024: 150,000 x 40% = 60,000 x 40% = 24,000 2024

= 25 / 100+25
= 25 / 125
3. How much is the downstream realized profit in beginning inventory for 2024?

RPBI: DOWNSTREAM 2024 (equal to UPEI DOWNSTREAM last year)

= 45,000
4. How much is the upstream realized profit in beginning inventory for 2024?

RPBI: UPSTREAM 2024 (equal to UPEI UPSTREAM last year)

= 12,000

5. How much is the consolidated net income for 2023?

6. How much of the consolidated net income is attributable to the parent or controlling interest for 2023?
7. How much of the consolidated net income is attributable to the non-controlling interest for 2023?

CNI-P (75%) NCINIS (25%) TOTAL

NI-P 393,600 - 393,600
NI-S 90,000 30,000 120,000
DIV-S (54,000) - (72,000) – (54,000)
UPEI-DS (45,000) - (45,000)
UPEI-US (9,000) (3,000) (12,000)
CONSO 375,600 (6) 27,000 (7) 402,600 (5)

8. How much is the consolidated net income for 2024?

9. How much of the consolidated net income is attributable to the parent or controlling interest for 2024?
10. How much of the consolidated net income is attributable to the non-controlling interest for 2024?

CNI-P (75%) NCINIS (25%) TOTAL

NI-P 468,400 468,400
NI-S 75,000 25,000 100,000
DIV-S (45,000) (60,000) – (45,000)
UPEI-DS (32,000) (32,000)
UPEI-US (18,000) (6,000) (24,000)
RPBI-DS 45,000 45,000
RPBI-US 9,000 3,000 12,000
CONSO 502,400 (9) 22,000 (10) 524,400 (8)
 *RPBI by default is total ng UPEI last year unless the problem states that not all the unsold (UPEI) merchandises are sold in the current
year, if so, proportion it equivalent to the sold portion in the current year.

Simple problem for better understanding: (INTERCOMPANY SALE OF FIXED ASSETS)

Several years ago, P Company acquired 80% of the outstanding ordinary shares of S Corporation by paying an amount
equal to the fair value of S's net assets. All the assets and liabilities of S Corporation had carrying values equal to their
fair values at that time.

For the years 2023 and 2024, Both P and S had intercompany sales of fixed assets with each other. information resulting
from intercompany sales of equipment are summarized below:

Date of sale Seller Selling price Original cost A/D Book value Remaining life
1/1/2023 S Company 15,000 72,000 43,200 28,800 8 years
3/31/2023 P Company 90,000 120,000 45,000 75,000 5 years
5/1/2024 S Company 300,000 250,000 - 250,000 -
9/30/2024 S Company 125,000 400,000 300,000 100,000 10 years

The net income and dividends paid for 2023 and 2024 are as follows:

P COMPANY S COMPANY
Net income Dividends paid Net income Dividends paid
2023 P196,800 72,000 60,000 36,000
2024 234,200 80,000 50,000 30,000
 Analysis of fixed assets 2023 2024
sold:
Date of sale 1/1/2023 3/31/2023 5/1/2024 9/30/24
Classification of Upstream Downstream Upstream Upstream
intercompany sale

Selling price 15,000 90,000 300,000 125,000

Book value (28,800) (75,000) (250,000) 100,000
Intercompany gain (loss) (13,800) 15,000 50,000 25,000
Remaining life 8 5 - 10
Realized gain (loss) – 2023 (1,725) 15,000 / 5 = 3,000 x 9/12 - -
= 2,250
Realized gain (loss) – 2024 (1,725) 15,000 / 5 = 3,000 (full - 25,000 / 10 = 2,500 x 3/12
*If not stated as sold to year amortization) *This is not sold so no = 625
outsiders, we continue to realized gain or loss
amortize or depreciate
Requirements:

1. How much is the consolidated net income for 2023?

2. How much of the consolidated net income is attributable to the parent or controlling interest for 2023?
3. How much of the consolidated net income is attributable to the non-controlling interest for 2023?

2023 CNI-P (80%) NCINIS (20%) TOTAL

NI-P 196,800 196,800
NI-S 48,000 12,000 60,000
DIV-S (28,800) (36,000) – (28,800)
Intercompany loss (gain) - (15,000) (15,000)
Downstream
Intercompany loss (gain) - 11,040 2,760 13,800
Upstream
Realized gain (loss) – 2,250 2,250
 Downstream
Realized gain (loss) – (1,380) (345) (1,725)
Upstream
CONSO 212,910 (2) 14,415 (3) 227,325 (1)

4. How much is the consolidated net income for 2024?

5. How much of the consolidated net income is attributable to the parent or controlling interest for 2024?
6. How much of the consolidated net income is attributable to the non-controlling interest for 2024?

2024 CNI-P (80%) NCINIS (20%) TOTAL

NI-P 234,200 234,200
NI-S 40,000 10,000 50,000
DIV-S (24,000) (30,000) – (24,000)
Intercompany loss (gain) - (X) (X) (X)
Downstream
Intercompany loss (gain) - (40,000) (10,000) (50,000)
Upstream (20,000) (5,000) (25,000)
Realized gain (loss) – 3,000 3,000
Downstream
Realized gain (loss) – (1,380) (345) (1,725)
Upstream 500 125 625
CONSO 192,320 (5) 5,220 (6) 184,100 (4)
Super summary of the topics

TOTAL CNI-P NCINIS

Net income (loss)- Parent XX(XX) XX(XX)
Net income (loss) - Subsidiary XX(XX) XX(XX) XX(XX)
Intercompany dividends (XX) (XX)
Amortization of purchase XX(XX) XX(XX) XX(XX)
differentials
Goodwill impairment (XX) (XX) (XX)/0 (IF GBP or at
proportionate share)
Gain on bargain purchase (only XX XX
in the year of acquisition, not
subsequent years)
UPEI - Downstream (XX) (XX)
UPEI - Upstream (XX) (XX) (XX)
RPBI - Downstream XX XX
RPBI - Upstream XX XX XX
Intercompany loss (gain) - XX(XX) XX(XX)
Downstream
Intercompany loss (gain) - XX(XX) XX(XX) XX(XX)
Upstream
Realized gain (loss) – XX(XX) XX(XX)
Downstream
Realized gain (loss) – XX(XX) XX(XX) XX(XX)
Upstream
Consolidated net income (loss)
 Concept summary for inventories:

1. Eliminate intercompany sales.

2. Eliminate the unrealized profit in ending inventory (UPEI).
3. If the unsold units last year is sold in the subsequent year, recognize the realized profit in beginning inventory (RPBI).

Concept summary for fixed assets:

1. Defer any intercompany gain or loss.

2. If the fixed asset is non-depreciable, recognize the gain or loss only when the asset is sold to an unrelated party.
3. If the fixed asset is depreciable:
a. Amortize the gain or loss over the asset's remaining useful life.
b. If the asset is sold to an unrelated party, the unamortized gain or loss will be recognized in profit or loss.

Formulas:

Consolidated INV or PPE

INV/PPE -P XX
INV/PPE-S XX
FV ADJ XX (XX)
CUMULATIVE AMORT OF DIFFS RELATED TO INV/PPE XX (XX)
CONSO INV XX