I

Intercompany Fixed Assets Transactions Reviewer

1. DD Corporation Owns 100 percent of GG Corporation’s common stock. On
January 2, 20x4, DD sold to GG for P40,000 machinery with a carrying amount
of P30,000. GG is depreciating the acquired machinery over a five-year life by
the straight-line method. The net adjustments to compute 20x4 and 20x5
consolidated net income would be an increase (decrease) of

2. WW Corporation owns 70 percent of the outstanding stock of HH,

Incorporated. On January I, 20x4, WW acquired a building with a 10-year life
for P300,000. WW anticipated no salvage value, and the building was to be
depreciated on the straight-line basis. On January 1, 20x5 WW sold this building
to HH for P280,000. At that time, the building had a remaining life of eight years
but still no expected salvage value. In preparing financial statements for 20x5:

How does this transfer affect the computation of consolidated net income?
a. Income must be reduced by c. Income must be reduced by
P32,000. P36,000.
b. Income must be reduced by d. Income must be reduced by
P35,000. P40,000.

Use the following information for questions 3 to 5:

On 1/2/x6, Palex sold equipment costing P100,000 to its 100%-owned subsidiary,
Salex, for P75,000. At the time of the sale, the equipment had been 60%
depreciated (using the straight-line method and an assigned life of 10 years).
Salex continued depreciating the equipment by using the straight-line method
but assigned a remaining life of 5 years.

3. What are the cost and accumulated depreciation, respectively, of this

equipment in the 12/31/x6 consolidated balance sheet?

4. What is the amount of the intercompany profit or loss that must be deferred
at 12/31/x6?

5. What is the amount of the adjustment to Depreciation Expense (debit or

credit) in preparing the consolidation worksheet at 12/31/x6?

Use the following information for questions 6 to 9:

The parent sells its 80 percent subsidiary equipment for P25,000 on December 31,
20x5. At that date, the equipment has a cost and accumulated depreciation on
the parent’s financial records of P40,000 and P10,000, respectively.
6. What is the worksheet elimination to the equipment account (debit or credit)
if consolidated financial statements are prepared on December 31, 20x5?
7. What is the worksheet elimination to the gain or loss on sale of equipment
account if consolidated financial statements are prepared on December 31,
20x5?
8. What is the worksheet elimination to the accumulated depreciation account
(debit or credit) if consolidated financial statements are prepared on
December 31, 20x5?
9. What is the worksheet elimination to the retained earnings account (debit or
credit) if consolidated financial statements are prepared on December 31,
20x6?

Use the following information for questions 10 to 13:

The 70 percent subsidiary acquires equipment from its parent on December 31,
20x5 for P160,000. At that date, the equipment has a cost and accumulated
depreciation on the parent’s books of P130,000 and P60,000, respectively.

10. What is the worksheet elimination to the equipment account (debit or credit)
if consolidated financial statements are prepared on December 31, 20x5?

11. What is the worksheet elimination to the gain or loss on sale of equipment
account (debit or credit) if consolidated financial statements are prepared on
December 31, 20x5?

12. What is the worksheet elimination to the accumulated depreciation account

(debit or credit) if consolidated financial statements are prepared on
December 31, 20x5?

13. What is the worksheet elimination to the retained earnings account (debit or
credit) if consolidated financial statements are prepared on December 31,
20x6?

Use the following information for questions 14 to 16:

The parent sells its 60 percent subsidiary a machine for P60,000 on December 31,
20x5. At that date, the machine has a cost and accumulated depreciation on
the parent’s financial records of P80,000 and P30,000, respectively.
What is the worksheet elimination to the machine account (debit or credit) if
consolidated financial statements are prepared on December 31, 20x5?

14. What is the worksheet elimination to the gain or loss on sale of machine
account (debit or credit) if consolidated financial statements are prepared on
December 31, 20x5?

15. What is the worksheet elimination to the accumulated depreciation account

(debit or credit) if consolidated financial statements are prepared on
December 31, 20x5?
16. What is the worksheet elimination to the retained earnings account (debit or
credit) if consolidated financial statements are prepared on December 31,
20x6?

Use the following information for questions 17 to 21:

The 80 percent subsidiary (Scottsdale) acquires a building from its parent
(Phoenix) on October 1, 20x5 for P640,000. At that date, the building has a cost
and accumulated depreciation on Phoenix’s books of P500,000 andP350,000,
respectively. The building had a remaining life of six years on Phoenix’s books and
was assigned a life of ten years by Scottsdale.
17. What is the worksheet elimination to the building account (debit or credit) if
consolidated financial statements are prepared on December 31, 20x5?
18. What is the worksheet elimination to the gain or loss on sale of building account
(debit or credit) if consolidated financial statements are prepared on
December 31, 20x5?
19. What is the worksheet elimination to the depreciation expense account (debit
or credit) if consolidated financial statements are prepared December 31,
20x5?
20. What is the worksheet elimination to the accumulated depreciation account
(debit or credit) if consolidated financial statements are prepared on
December 31, 20x5?
21. What is the worksheet elimination to the retained earnings account if
consolidated financial statements are prepared on December 31, 20x6?

Use the following information for questions 22 to 26:

On January 1, 20x1, P Company acquired a 90% interest in S Company. During
20x2, S Company sold merchandise to P Company at 25% above cost in the
amount (selling price) of P225,000. At the end of the year, P Company had in its
inventory one-third of the amount of good purchased from S Company.

On January 1, 20x2, P Company sold equipment that had a book value of P80,000
to S Company for P120,000. The equipment had an estimated remaining life of
four years.

S Company reported net income of P120,000, and P Company reported net

income of P300,000 from their independent operations (including sales to
affiliates) for the year ended December 31,20x2.

22. Calculate non-controlling interest in consolidated net income for the year
ended December 31,20x2.
23. Calculate controlling interest in consolidated net income for the year ended
December 31,20x2.
24. Calculate consolidated net income for the year ended December 31,20x2.
Use the following information for questions 25 to 28:
Platt Company acquired an 80% interest in Sloane Company when the retained
earnings of
Sloane Company were P300,000. On January 1, 20x1, Sloane Company recorded
a P250,000 gain on the sale to Platt Company of equipment with a remaining life
of five years. On January 1, 20x2, Platt Company recorded a P180,000 gain on the
sale to Sloane Company of equipment with a remaining life of six years. Sloane
Company reported net income of P180,000 and declared dividends of P60,000 in
20x2. It reported retained earnings of P520,000 on January 1, 20x2, and P640,000
on December 31, 20x2. Platt Company reported net income from independent
operations of P400,000 in 20x2 and retained earnings of P1,800,000 on December
31, 20x2.

25. Calculate non-controlling interest in consolidated net income for the year
ended December 31,20x2.
26. Calculate controlling interest in consolidated net income for the year ended
December 31,20x2.
27. Calculate consolidated net income for the year ended December 31,20x2.
28. Calculate consolidated retained earnings on December 31, 20x2.

Use the following information for questions 29 to 32:

Bowen Limited purchased 60% of Sloch Co. when Sloch's reported retained
earnings of P330,000. Bowen also owns 80% in Zeek Limited, which was purchased
when Zeek reported retained earnings of P575,000. For each acquisition, the
purchase price was equal to the fair value of the identifiable net assets which was
the same as the carrying value of their carrying values.

An analysis of the changes in retained earnings of the three companies at

December 31, 20x7 was:
Bowen Sloch Zeek
Retained earnings — January 1, 20x7……… P1,020,000 P525,000 P 875,000
Net income for the year………………………. 750,000 360,000 275,000
Dividends paid…………………………………. ( 500,000) (200,000) ( 100,000)
Retained earnings — December 31, 20x7… P1,270,000 P 685,000 P1,050,000

Sloch sells product to Bowen that is used in Bowen's production. Bowen will then
sell part of its products to Zeek.

Intercompany profits included on sales from Sloch to Bowen were P25,000

included in January 1, 20x7 inventory and P40,000 included in December 31, 20x7
inventory.

Intercompany profits included on sales from Bowen to Zeek were P31,000

included in January 1, 20x7 inventory and P35,000 included in December 31, 20x7
inventory.

During 20x5, Bowen sold a building to Zeek for a gain of P300,000. The building
had a remaining life of 25 years. During 20x7, Sloch sold a building to Bowen for a
gain of P75,000. This building has a useful remaining life of 15 years. Full
depreciation has been recorded in the year of acquisition by each company and
no depreciation is recorded in the year of sale.

29. Calculate non-controlling interest in consolidated net income for the year
ended December 31,20x7.

30. Calculate controlling interest in consolidated net income for the year ended
December 31,20x7.

31. Calculate consolidated net income for the year ended December 31,20x7.

32. Calculate consolidated retained earnings on December 31, 20x7.

33. P Corporation acquired an 80% interest in S Corporation two years ago at an

implied value equal to the book value of S. On January 2, 20x4, S sold
equipment with a five-year remaining life to P for a gain of P180,000. S reports
net income of P900,000 for 20x4 and pays dividends of P300,000. P’s Equity
from Subsidiary Income for 20x4 is:

34. P Corporation acquired an 80% interest in S Corporation two years ago at an

implied value equal to the book value of S. On January 2, 20x4, S sold
equipment with a five-year remaining life to P for a gain of P120,000. S reports
net income of P600,000 for 20x4 and pays dividends of P200,000. P’s Equity
from Subsidiary Income for 20x4 is:

35. A parent sold land costing P1 million to its subsidiary for P1.2 million in 20x2. The
subsidiary still holds the land at the end of 20x4. On a working paper prepared
to consolidate the financial statements of the parent and subsidiary in 20x4,
the eliminating entry connected with this land includes a credit to
a. Investment in subsidiary, because the gain reduced the Investment
account in 20x2.
b. Beginning retained earnings of the subsidiary, because prior year gains
are included in retained earnings.
c. Gain on sale of land, to eliminate the gain recorded on the parent’s books.
d. Land, to restore the land to its original cost.

36. A subsidiary sold its parent some land at a profit in 20x2. The parent still holds
the land. On a working paper prepared to consolidate the financial
statements of the parent and its subsidiary in 20x4, the eliminating entry
connected with this land affects which account?
a. Investment in subsidiary
b. Beginning retained earnings
c. Gains on sales of land
d. No effect – elimination entry is not required
37. A parent owns 80% of its subsidiary. In 20x4, the subsidiary sold land costing
P1,000,000 to its parent for P1,500,000. In 20x8, the parent sold the land to an
outside company for P1,800,000. How do these events affect consolidated
net income for 20x8?
a. increase of P300,000 d. increase of P300,000
b. increase of P300,000 e. increase of P800,000

38. A parent provides administrative services to its subsidiary during 20x4, which
the subsidiary records as an expense. The services cost the parent P100,000
and the parent charged the subsidiary P125,000. On the consolidation working
paper, what elimination entry is necessary?
a. none, since there is no ending inventory of services.
b. debit service revenue P125,000, credit service expense P125,000.
c. debit service revenue P125,000, credit service expense P100,000, credit
Investment in Subsidiary P25,000.
d. debit service revenue P100,000, credit service expense P100,000.

Solutions
1. a
Individual Records after Transfer
12/31/x4
Machinery—P40,000
Gain—P10,000
Depreciation expense P8,000 (P40,000/5 years)
Income effect net—P2,000 (P10,000 – P8,000)
12/31/x5
Depreciation expense—P8,000

Consolidated Figures—Historical Cost

12/31/x4
Machinery—P30,000
Depreciation expense—P6,000 (P30,000/5 years)
12/31/x5
Depreciation expense--P6,000

Adjustments for Consolidation Purposes:

20x4: P2,000 income is reduced to a P6,000 expense (income is reduced by P8,000)
20x5: P8,000 expense is reduced to a P6,000 expense (income is increased by P2,000)
2. b
UNREALIZED GAIN
Transfer Price ........................................................................................................ P280,000
Book Value (cost after two years of depreciation) ..................................... 240,000
Unrealized Gain ................................................................................................... P40,000

EXCESS DEPRECIATION
Annual Depreciation Based on Cost (P300,000/10 years) ........................... P30,000
Annual Depreciation Based on Transfer Price
(P280,000/8 years) ........................................................................................ 35,000
Excess Depreciation ........................................................................................... P5,000
 ADJUSTMENTS TO CONSOLIDATED NET INCOME
Defer Unrealized Gain ....................................................................................... P(40,000)
Remove Excess Depreciation ........................................................................... 5,000
Decrease to Consolidated Net Income ........................................................ P(35,000)
3. Cost, P100,000; Accumulated depreciation, P68,000
Original cost of P 100,000

Accumulated depreciation, 1/1/20x6 (P100,000 x 60%) P 60,000

Add: Additional depreciation (P100,000 – P60,000) / 5 years ____8,000
Accumulated depreciation, 12/31/20x6 P 68,000

4. P28,000
Sales price P 75,000
Less: Book value
Cost P100,000
Less: Accumulated depreciation (60% x P100,000) __60,000 __40,000
Unrealized gain on sale P 35,000
Less: Realized gain - depreciation (P35,000 / 5 years) ___7,000
Net unrealized gain, 12/31/20x6 P 28,000

5. credit to depreciation expenses of P7,000

Eliminating entries:
12/31/20x6: subsequent to date of acquisition
Realized Gain – depreciation
Accumulated depreciation 7,000
Depreciation expense 7,000
[P75,000 - (P100,000 - {P100,000 x 40%])] = P35,000 / 5 years or
P15,000 – P8,000 = P7,000

“Should be in CFS” Parent – Palex “Recorded as” Subsidiary - Salex

Depreciation expense Depreciation expense
(P40,000 /5 years) 8,000 (P75,000 / 5 years) 15,000
Acc. Depreciation 8,000 Acc. depreciation 15,000
6. P40,000 - P25,000 = P15,000 debit
7. P25,000 - (P40,000 - P10,000) = P5,000 loss (credit)
8. P10,000 credit, entire accumulated depreciation is reestablished
9. P25,000 - (P40,000 - P10,000) = P5,000 loss (credit)
10. P160,000 - P130,000 = P30,000 credit
11. P160,000 - (P130,000 - P60,000) = P90,000 gain (debit)
12. P60,000 credit, entire accumulated depreciation is reestablished
13. P160,000 - (P130,000 - P60,000) = P90,000 gain (debit)
14. P80,000 - P60,000 = P20,000 debit
15. P30,000 credit, entire accumulated depreciation is reestablished
16. P60,000 - (P80,000 - P30,000) = P10,000 gain (debit)
17. P640,000 - P500,000 = P140,000 credit
18. P640,000 - (P500,000 - P350,000) = P490,000 gain (debit)
19. (P640,000/10)(3/12) - [(P500,000 - P350,000)/10](3/12) = P12,250 credit
20. P350,000 - {(P640,000/10)(3/12) - [(P500,000 - P350,000)/10](3/12)} = P337,750 credit
21. P640,000 - (P500,000 - P350,000) = P490,000 gain (debit)
(P640,000/10)(3/12) - [(P500,000 - P350,000)/10](3/12) = P12,250 credit
22. P10,500
 **Non-controlling Interest in Net Income (NCINI) for 20x2
S Company’s net income of Subsidiary Company from its own operations
(Reported net income of S Company) P 120,000
Realized profit in beginning inventory of P Company (upstream sales) 0
Unrealized profit in ending inventory of P Company (upstream sales)
[P225,000 x 1/3 = P75,000 x 25/125] ( 15,000)
S Company’s realized net income from separate operations……… P 105,000
Less: Amortization of allocated excess 0
P 105,000
Multiplied by: Non-controlling interest %.......... 10%
Non-controlling Interest in Net Income (NCINI) - partial goodwill P 10,500
Less: NCI on goodwill impairment loss on full-goodwill . . . . . . . . . . . . . . . . . . . . . 0
Non-controlling Interest in Net Income (NCINI) – full goodwill . . . . . . . . . . . . . P 10,500

23. P364,500
Consolidated Net Income for 20x2
P Company’s net income from own/separate operations…………. P 300,000
Net unrealized gain on sale of equipment (downstream sales) through
depreciation [(P120,000 – P80,000 = P40,000 – (P40,000/4 years)] ( 30,000)
P Company’s realized net income from separate operations*…….….. P 270,000
S Company’s net income from own operations…………………………………. P 120,000
Realized profit in beginning inventory of P Company (upstream sales)
Unrealized profit in ending inventory of P Company (upstream sales)
[P225,000 x 1/3 = P75,000 x 25/125] ( 15,000)
S Company’s realized net income from separate operations*…….….. P 105,000 105,000
Total P375,000
Less: Amortization of allocated excess…………………… 0
Consolidated Net Income for 20x2 P375,000
Less: Non-controlling Interest in Net Income* * (refer to No. 22) 10,500
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent – 20x2………….. P364,500

Or, alternatively
Consolidated Net Income for 20x2
P Company’s net income from own/separate operations…………. P 300,000
Net unrealized gain on sale of equipment (downstream sales) through
depreciation [(P120,000 – P80,000 = P40,000 – (P40,000/4 years)] ( 30,000)
P Company’s realized net income from separate operations*…….….. P 270,000
S Company’s net income from own operations…………………………………. P 120,000
Realized profit in beginning inventory of P Company (upstream sales)
Unrealized profit in ending inventory of P Company (upstream sales)
[P225,000 x 1/3 = P75,000 x 25/125] ( 15,000)
S Company’s realized net income from separate operations*…….….. P 105,000 105,000
Total P375,000
Less: Non-controlling Interest in Net Income* * (refer to No. 22) P 10,500
Amortization of allocated excess…………………… ____0 10,500
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent………….. P364,500
Add: Non-controlling Interest in Net Income (NCINI) _ 10,500
Consolidated Net Income for 20x2 P375,000
*that has been realized in transactions with third parties.

24. P375,000 – refer to No. 23

25. P46,000
**Non-controlling Interest in Net Income (NCINI) for 20x5
S Company’s net income of Subsidiary Company from its own operations P 180,000
(Reported net income of S Company)
Unrealized gain on sales of equipment (upstream sales) ( 0)
Realized gain on sale of equipment (upstream sales) through depreciation 50,000
S Company’s realized net income from separate operations……… P 230,000
Less: Amortization of allocated excess 0
P 230,000
 Multiplied by: Non-controlling interest %.......... 20%
Non-controlling Interest in Net Income (NCINI) - partial goodwill P 46,000
Less: NCI on goodwill impairment loss on full-goodwill . . . . . . . . . . . . . . . . . . . . . 0
Non-controlling Interest in Net Income (NCINI) – full goodwill . . . . . . . . . . . . . P 46,000

26. P434,000
Consolidated Net Income for 20x2
P Company’s net income from own/separate operations…………. P 400,000
Net unrealized gain on sale of equipment (downstream sales) through
depreciation [P180,000 – (P180,000/6) ( 150,000)
P Company’s realized net income from separate operations*…….….. P 250,000
S Company’s net income from own operations…………………………………. P 180,000
Unrealized gain on sales of equipment (upstream sales) ( 0)
Realized gain on sale of equipment (upstream sales) through depreciation
(P250,000/5 years) 50,000
S Company’s realized net income from separate operations*…….….. P 230,000 230,000
Total P480,000
Less: Amortization of allocated excess…………………… ____0
Consolidated Net Income for 20x5 P480,000
Less: Non-controlling Interest in Net Income* * 46,000
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent – 20x5………….. P334,000
*that has been realized in transactions with third parties.

Or, alternatively
Consolidated Net Income for 20x5
P Company’s net income from own/separate operations…………. P 400,000
Net unrealized gain on sale of equipment (downstream sales) through
depreciation [P180,000 – (P180,000/6) ( 150,000)
P Company’s realized net income from separate operations*…….….. P 250,000
S Company’s net income from own operations…………………………………. P 180,000
Unrealized gain on sales of equipment (upstream sales) ( 0)
Realized gain on sale of equipment (upstream sales) through depreciation
(P250,000/5 years) 50,000
S Company’s realized net income from separate operations*…….….. P 230,000 230,000
Total P480,000
Less: Non-controlling Interest in Net Income* * P 46,000
Amortization of allocated excess…………………… ____0 46,000
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent………….. P434,000
Add: Non-controlling Interest in Net Income (NCINI) _ 46,000
Consolidated Net Income for 20x5 P480,000
*that has been realized in transactions with third parties.

27. P480,000 – refer to No. 26.

28. P1,802,000
Consolidated Retained Earnings, December 31, 20x2
Retained earnings - Parent Company, December 31, 20x2 (cost model) P1,80 0,000
Less: Downstream - net unrealized gain on sale of equipment – prior to
12/31/20x2 [P180,000 – (P30,000 x 1 year)] 150,000
Adjusted Retained Earnings – Parent 12/31/20x2 (cost model )
S Company’s Retained earnings that have been realized in
transactions with third parties.. P1,650,000
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, December 31, 20x2 P 640,000
Less: Retained earnings – Subsidiary, date of acquisition 300,000
Increase in retained earnings since date of acquisition P 340,000
Less: Accumulated amortization of allocated excess 0
Upstream - net unrealized gain on sale of equipment – prior to
12/31/20x2 [P250,000 – (P50,000 x 2 years)] 150,000
P 190,000
 Multiplied by: Controlling interests %................... 80%
P 152,000
Less: Goodwill impairment loss _____0 152,000
Consolidated Retained earnings, December 31, 20x2 P1,802,000

Parent Subsidiary
Unrealized gain on sale of equipment P180,000 P250,000
Realized gain through depreciation
P180,000/6 years = P30,000 per year P
P250,000/ 5 years = P25,000 30,000 P 25,000

29. P165,000
For 20x7: P110,000 + P55,000 = P165,000
**NCI-CNI - Sloch
Non-controlling Interest in Net Income (NCINI) for 20x7
Sloch Company’s net income from own operations………………………………. P 360,000
Realized profit in beginning inventory of P Company (upstream sales) 25,000
Unrealized profit in ending inventory of P Company (upstream sales)… ( 40,000)
Unrealized gain on sale of building (upstream sales) – Sloch ( 75,000)
Realized gain on sale of building (upstream sales) - Sloch ___5,000
P 275,000
Less: Amortization of allocated excess 0
P 275,000
Multiplied by: Non-controlling interest %.......... 40%
Non-controlling Interest in Net Income (NCINI) - partial goodwill P 110,000
Less: NCI on goodwill impairment loss on full-goodwill . . . . . . . . . . . . . . . . . . . . . 0
Non-controlling Interest in Net Income (NCINI) – full goodwill . . . . . . . . . . . . . P 110,000
**NCI-CNI - Zeek
Non-controlling Interest in Net Income (NCINI) for 20x7
Zeek Company’s net income from own operations…………………………………. P 275,000
Less: Amortization of allocated excess 0
P 275,000
Multiplied by: Non-controlling interest %.......... 20%
Non-controlling Interest in Net Income (NCINI) - partial goodwill P 55,000
Less: NCI on goodwill impairment loss on full-goodwill . . . . . . . . . . . . . . . . . . . . . 0
Non-controlling Interest in Net Income (NCINI) – full goodwill . . . . . . . . . . . . . P 55,000

Fixed Assets:
Bowen to Zeek Sloch to Bowen
(downstream) (upstream)
Unrealized (loss) gain:
20x5 300,000
20x7 75,000
Realized gain
P300,000/25 years 12,000/year
P75,000/15 years 5,000/year
Inventory
Realized profits in inventory from downstream sales (Bowen to Zeek) P31,000
Realized profits in inventory from upstream sales (Sloch to Bowen) P25,000
Unrealized profits in inventory from downstream sales (Bowen to Zeek) P35,000
Unrealized profits in inventory from upstream sales (Sloch to Bowen) P40,000

30. P943,000
For 20x7: P943,000
Consolidated Net Income for 20x7
P Company’s net income from own/separate operations
[P750,000 – (P200,000 x 60%) – (P100,000 x 80%)] P 550,000
Realized gain on sale of equipment (downstream sales) through depreciation 12,000
 Realized profit in beginning inventory of S Company (downstream sales) 31,000
Unrealized profit in ending inventory of S Company (downstream sales)… (_ _35,000)
P Company’s realized net income from separate operations*…….….. P 558,000
Sloch Company’s net income from own operations………………………………. P360,000
Zeek Company’s net income from own operations…………………………………. 275,000
Realized profit in beginning inventory of P Company (upstream sales) 25,000
Unrealized profit in ending inventory of P Company (upstream sales)… ( 40,000)
Unrealized gain on sale of building (upstream sales) – Sloch ( 75,000)
Realized gain on sale of building (upstream sales) - Sloch ___5,000
S Company’s realized net income from separate operations*…….….. P550,000 550,000
Total P1,108,000
Less: Amortization of allocated excess…………………… __ 0
Consolidated Net Income for 20x7 P1,108,000
Less: Non-controlling Interest in Net Income – Sloch* * 110,000
Non-controlling Interest in Net Income - Bowen* * ___55,000
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent – 20x7………….. P 943,000
*that has been realized in transactions with third parties.

Or, alternatively
Consolidated Net Income for 20x7
P Company’s net income from own/separate operations
[P750,000 – (P200,000 x 60%) – (P100,000 x 80%)] P 550,000
Realized gain on sale of equipment (downstream sales) through depreciation 12,000
Realized profit in beginning inventory of S Company (downstream sales) 31,000
Unrealized profit in ending inventory of S Company (downstream sales)… (_ _35,000)
P Company’s realized net income from separate operations*…….….. P 558,000
Sloch Company’s net income from own operations………………………………. P 360,000
Zeek Company’s net income from own operations…………………………………. 275,000
Realized profit in beginning inventory of P Company (upstream sales) 25,000
Unrealized profit in ending inventory of P Company (upstream sales)… ( 40,000)
Unrealized gain on sale of building (upstream sales) – Sloch ( 75,000)
Realized gain on sale of building (upstream sales) - Sloch ___5,000
S Company’s realized net income from separate operations*…….….. P 550,000 _ 550,000
Total P1,108,000
Less: Non-controlling Interest in Net Income* * refer to No. 29 P165,000
Amortization of allocated excess…………………… ____0 _ _165,000
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent………….. P 943,000
Add: Non-controlling Interest in Net Income (NCINI) _ _165,000
Consolidated Net Income for 20x7 P1,108,000
*that has been realized in transactions with third parties.

31. P1,108,000 – refer to No. 30

For 20x7: P1,108,000

32. P1,498,000
Consolidated Retained Earnings, December 31, 20x7
Retained earnings - Parent Company, January 1, 20x7 (cost model P1,020,000
Less: Unrealized profit in ending inventory of S Company (downstream sales)
- 20x6 (UPEI of S – 20x6) or Realized profit in beginning inventory of S
Company (downstream sales) –20x7 (RPBI of S - 20x7)……………. 31,000
Downstream - net unrealized gain on sale of equipment – prior to
12/31/20x6 or 1/1/20x7 [P300,000 – (P12,000 x 2 years)] __276,000
Adjusted Retained Earnings – Parent 1/1/20x5 (cost model (S Company’s
Retained earnings that have been realized in transactions with third
parties.. P 713,000
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 Sloch, date of acquisition P330,000
Less: Retained earnings – Subsidiary Sloch, January 1, 20x7 525,000
 Increase in retained earnings since date of acquisition P195,000
Less: Amortization of allocated excess 0
Unrealized profit in ending inventory of P Company (upstream
sales) 20x6 (UPEI of P – 20x6) or Realized profit in beginning
inventory of P Company (upstream sales) –20x7 (RPBI of P - 20x7) 25,000
Upstream - net unrealized gain on sale of equipment – prior to
12/31/20x6 or 1/1/20x7 ________0
P170,000
Multiplied by: Controlling interests %................... 60%
P102,000
Less: Goodwill impairment loss 0 102,000

Retained earnings – Subsidiary Zeek, date of acquisition P575,000

Less: Retained earnings – Subsidiary Zeek, January 1, 20x7 875,000
Increase in retained earnings since date of acquisition P300,000
Less: Amortization of allocated excess _____ 0
P300,000
Multiplied by: Controlling interests %................... 80%
P240,000
Less: Goodwill impairment loss 0 240,000
Consolidated Retained earnings, January 1, 20x7 P1.055,000
Add: Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent for 20x7 (refer to No. 30) 943,000
Total P1,998,000
Less: Dividends paid – Parent Company for 20x7 500,000
Consolidated Retained Earnings, December 31, 20x7 P1,498,000

Or, alternatively:
Consolidated Retained Earnings, December 31, 20x7
Retained earnings - Parent Company, December 31, 20x7 (cost model P1,270,000
Less: Unrealized profit in ending inventory of S Company (downstream sales)
- 20x7 (UPEI of S – 20x7) or Realized profit in beginning inventory of S
Company (downstream sales) –20x8 (RPBI of S - 20x8)……………. 35,000
Downstream - net unrealized gain on sale of equipment – prior to
12/31/20x6 or 1/1/20x7 [P300,000 – (P12,000 x 3 years)] __264,000
Adjusted Retained Earnings – Parent 12/31/20x7 (cost model (
S Company’s Retained earnings that have been realized in
transactions with third parties.. P 971,000
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 Sloch, December 31, 20x7 P 330,000
Less: Retained earnings – Subsidiary Sloch, date of acquisition 685,000
Increase in retained earnings since date of acquisition P 355,000
Less: Accumulated amortization of allocated excess 0
Unrealized profit in ending inventory of P Company (upstream
sales) 20x7 (UPEI of P – 20x7) or Realized profit in beginning
inventory of P Company (upstream sales) –20x8 (RPBI of P - 20x8) 40,000
Upstream - net unrealized gain on sale of equipment – prior to
12/31/20x7 or 1/1/20x8 (P75,000 – P5,000) __70,000
P 245,000
Multiplied by: Controlling interests %................... 60%
P 147,000
Less: Goodwill impairment loss, partial goodwill ____0 147,000

Retained earnings – Subsidiary Zeek, date of acquisition P 575,000

Less: Retained earnings – Subsidiary Zeek, January 1, 20x7 1,050,000
Increase in retained earnings since date of acquisition P 475,000
Less: Amortization of allocated excess ______ 0
P 475,000
Multiplied by: Controlling interests %................... _ 80%
P 380,000
Less: Goodwill impairment loss __ 0 380,000
 Consolidated Retained earnings, December 31, 20x7 P1,498,000

33. Increase of P3,000

The requirement and available choices in the problem are on the assumption of the use of
“equity method”. So, the answer then would be (d) – (P60,000 – P48,000)/4 years = P3,000

34. P403,200
The requirement “equity from subsidiary income” and available choices in the problem are on
the assumption of the use of “equity method”. So, the answer then would be (c) computed
as follows:
20x4
Share in subsidiary net income (600,000 x 80%) 480,000
Unrealized gain on sale of equipment (upstream sales): 120,000 x 80% ( 96,000)
Realized gain on sale of equipment (upstream sales) through depreciation
P120,000 / 5 years = P24,000 x 80% ___19,200
Net 403,200

35. d
36. b
37. d – P500,000 + P300,000 = P800,000
38. b