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PRACTICAL ACCOUNTING II P2.708-Consolidated Statements

DE LEON / DE LEON OCTOBER 2009

LECTURE NOTES Consolidated financial statements- are the financial statements of a group presented as those of a single economic entity. Group is a parent and all of its subsidiaries. Separate financial statements – are those presented by a parent, an investor in an associate, or a venturer in a jointly controlled entity, in which the investments are accounted for on the basis of the direct equity interest rather than on the basis of the reported credits, and the net assets of the investee. PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS A parent shall present consolidated financial statements, except when • The partner is itself a wholly-owned subsidiary, or is a partially-owned subsidiary of another entity • The parent’s debt or equity instruments are not traded in a public market • The parent did not file, nor is in the process of filing, its financial statements with a securities commission for the purpose of issuing any class of instruments in a public market • The ultimate parent produces consolidated financial statements available for public use CONSOLIDATION PROCEDURES • The carrying amount of the parent’s investment in each subsidiary and the parent’s portion of equity of each subsidiary are eliminated • Minority interests in the profit or loss of consolidated subsidiaries for the reporting period are identified • Minority interests in the net assets of consolidated subsidiaries are identified separately from the parent shareholders’ equity in them. Minority interests in the net assets consist of: 1. The amount of those minority interests at the date of the original combination 2. The minority’s share of changes in equity since the date of the combination ACCOUNTING FOR INVESTMENTS IN SUBSIDIARIES, JOINTLY CONTROLLED ENTITIES AND ASSOCIATES IN SEPARATE FINANCIAL STATEMENTS For separate financial statements investment in subsidiaries, jointly controlled entities and associates, that are not classified as held for sales, shall be accounted for either: • at cost, or

•

in accordance with IAS 39

Summary of Critical Points: 1. Consolidated statements are prepared from the separate statements of the acquiring company and acquired company(ies) from the standpoint of a single economic entity. 2. Consolidation procedures are necessary whenever a parent and a subsidiary relationship existed, except if the parent is exempted under PAS 27 to present consolidated financial statements.

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3. The acquiring company, generally, is a parent if it owns, directly and indirectly, more than 50% of the outstanding voting shares of the acquired company. If the controlling interest is not 100%, the difference would represent the minority interest. 4. The following steps summarize the consolidation worksheet procedures. a. Prepare a schedule of excess to determine if there is either goodwill, or, income from acquisition. This will also be the basis in formulating the working paper elimination entries. b. If the working paper is to prepare post acquisition consolidated statements, computations must show the amortization of increase/decrease in value of net assets of the acquired company. 5. Increase/decrease to fair value of net asset items and GOODWILL are recognized in full regardless of the extent of the minority interest. Such remeasurement and resulting amortization/impairment loss accrue to both the controlling interest and the non-controlling interests. Please note that goodwill, which is part of the excess is no longer amortized but subjected to annual tests for impairment losses. 6. Working paper elimination entries orchestrate the items and balances that must comprise the consolidated statements. Their two basic objectives are (1) to eliminate intercompany balances and (2) to make adjustments to or set-up some items in order to conform with purchase principles. 7. In purchase combination, for example, working paper elimination entries aim to accomplish the following: a. Eliminate inter-company balances b. Make adjustments for acquired assets and assumed liabilities to comply with fair value considerations. c. Set up goodwill or income from acquisition into the consolidated statements. d. Amortize increase/decrease in value of net assets and measure their effects in the consolidated financial statements, e. Make adjustments to consolidated amounts as a result of inter-company transactions. f. And for a variety of other consolidation requirements. 8. Basically, in the working papers, similar items from the parent’s records and from the subsidiary’s records are simply combined, plus/minus any working paper adjustments affecting such items. 9. The fair value method is usually applied to small stockholdings. Generally it is the method used by the investor if the interest acquired is less than 20% of outstanding voting shares. An investor that can exercise significant influence must use the equity method as required by PAS 28. Control by the investor over the investee may use either the cost method or the equity method and must consolidate unless exempted. The cost method is however preferred.

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P2.708

EXCEL PROFESSIONAL SERVICES, INC. - done –

MULTIPLE CHOICE THEORETICAL Select the best answer for each of the following multiple-choice questions: 1.

X has control over the composition of Y's board of directors. X owns 49% of Y and is the largest shareholder. X has an agreement with Z, which owns 10% of Y, whereby Z will always vote in the same way as X. Can X exercise control over Y? a. X cannot exercise control because it owns only 49% of the voting rights b. X cannot exercise control because it can control only the makeup of the board and not necessarily the way the directors vote c. X can exercise control solely because it has an agreement with Z for the voting rights to be used in whatever manner X wishes d. X can exercise control because it controls more than 50% of the voting power, and it can govern the financial and operating policies of Y through is control of the board of directors

5.

A manufacturing group has just acquired a controlling interest in a football club that is listed on a stock exchange. The management of the manufacturing group wishes to exclude the football club from the consolidated financial statements on the grounds that its activities are dissimilar. How should the football club be accounted for? a. The entity should be consolidated as there is no exemption from consolidation on the grounds of dissimilar activities b. The entity should not be consolidated using the purchase method but should be consolidated using equity accounting c. The entity should not be consolidated and should appear as an investment in the group accounts d. The entity should not be consolidated; details should be disclosed in the financial statements

2.

X owns 50% of Y's voting shares. The board of directors consists of six members; X appoints three of them and Y appoints the other three. The casting vote at meetings always lies with the directors appointed by X. Does X have control over Y? a. No, control is equally split between X and Z b. Yes, X holds 50% of the voting power and has the casting vote at board meetings in the event that there is not a majority decision c. No, x owns only 50% of the entity's shares and therefore does not have control d. No, control can be exercised only through voting power, not through a casting vote

6.

In the separate financial statements of a parent entity, investments in subsidiaries that are not classified as held for sale should be accounted for a. At cost b. In accordance with IAS 39 c. At cost or in accordance with IAS 39 d. Using the equity method

7.

Which of the following is not a valid conditions that will exempt an entity from preparing consolidated financial statements? a. The parent entity is a wholly owned subsidiary of another entity b. The parent entity's debt or equity capital is not traded on the stock exchange c. The ultimate parent entity produces consolidated financial statements available for public use that comply with IFRS d. The parent entity is in the process of filing its financial statements with a securities commission

8.

Entity X controls an overseas entity Y. Because of exchange controls, it is difficult to transfer funds out of the country to the parent entity. X owns 100% of the voting power of Y. How should Y be accounted for? a. It should be excluded from consolidation and the equity method should be used b. It should be excluded from consolidation and stated at cost c. It should be excluded from consolidation and accounted for in accordance with IAS 39 d. It is not permitted to be excluded from consolidation because control is not lost

9.

Where should minority interests be presented in the consolidated balance sheet? a. Within long-term liabilities b. In between long-term liabilities and current liabilities c. Within the parent shareholders' equity d. Within equity but separate from the parent shareholders' equity

3.

4.

Z has sold all of its shares to the public. The company was formerly a state-owned entity. The national regulator has retained the power to appoint the board of directors. An overseas entity acquires 55% of the voting shares, but the regulator still retains its power to appoint the board of directors. Who has control of the entity? a. The national regulator b. The overseas entity c. Neither the national regulator nor the overseas entity d. The board of directors A has acquired an investment in a subsidiary, B, with the view to dispose of this investment within six months. The investment in the subsidiary has been classified as held for sale and is to be accounted for in accordance with IFRS 5. The subsidiary has never been consolidated. How should the investment in the subsidiary be treated in the financial statements? a. Purchase accounting should be used b. Equity accounting should be used c. The subsidiary should not be consolidated but IFRS 5 should be used d. The subsidiary should remain off balance sheet

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P2.708

EXCEL PROFESSIONAL SERVICES, INC.

STRAIGHT PROBLEMS Problem 1 On January 1, 2010, P Company purchased interest in S Company. On this date the book values and the fair values of S Company were as follows: Fair Market Book Values Values Cash P 300,000 Accounts receivable 180,000 Merchandise inventory 720,000 900,000 Building (net) 1,860,000 1,920,000 Equipment 600,000 480,000 Long term inv. in MS 1,200,000 1,740,000 P 4,860,000 Current liabilities P 600,000 Bonds payable 1,260,000 1,560,000 Common stock 1,200,000 Retained earnings 1,800,000 P 4,860,000 Requirements: Prepare the following assuming that P Company paid (a) P 3,420,000 for a 100% interest (b) P 2,208,000 for an 80% interest 1. Determination and distribution of excess schedule 2. Working paper elimination entries Problem 2 Pluto Company acquired a 60% interest in Saturn Co on 2 January, 2010. Book and fair values at the date of acquisition were close to each other. The fair value of non-controlling interests as at the date of acquisition is P75,000. A control premium was paid by Pluto to acquire Saturn. The following balance sheets relate to Pluto and Saturn right after the combination: Pluto Co Saturn Co Investment in Saturn Co, cost P117,000 P 0 Other assets 578,000 294,700 Total assets P695,000 P294,700 Share capital P300,000 P 80,000 Retained earnings 140,000 30,000 Long-term liabilities 200,000 150,400 Current liabilities 55,000 34,300 Total equities P695,000 P294,700 Required: 1. Determination and distribution of excess schedule at the date of acquisition. 2. Consolidation working paper entries at the date of acquisition. 3. Consolidated balance sheet at the date of acquisition. Problem 3 On January 1, 20x9, P Company purchased an 80% interest in S Company for P340,000. On this date, S Company had Capital Stock of P150,000 and Retained Earnings of P100,000. An examination of S Company’s assets and liabilities revealed that book values were equal to market values for all except the following: Book value Market value Plant and equipment (net) 300,000 400,000 Merchandise inventory 80,000 100,000

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The plant and equipment had an expected remaining life of 5 years, and the inventory should be sold in 20x9. P Company’s income was P250,000 in 20x9 and P290,000 in 20x0. S Company’s income was P120,000 in 20x9 and P 180,000 in 20x0. S Company paid cash dividends of P50,000 in 20x9 and P60,000 in 20x0. P Company uses the cost method in accounting for its investment in stocks of S Company. Requirements: 1. Calculate the investment income of P Company from S Company in 20x9 and in 20x0. 2. Elimination entries for consolidated statement working papers on January 1, 20x9, December 31, 20x9 and December 31, 20x0. 3. Calculation of minority interest in net income of subsidiary for 20x9 and 20x0 4. Calculation of consolidated net income for 20x9 and 20x0. 5. Calculation of minority interest in net assets as of January 1, 20x9, December 31, 20x9 and December 31, 20x0. Problem 4 Pet Company acquired a 60% interest in Show Enterprises on 2 January 20x1 when Show’s share capital and retained earnings were P80,000 and P30,000 respectively. The net assets of Show were fairly valued on that date. The fair value of noncontrolling interest as at the date of acquisition is P78,000. The following financial statements pertain to the two companies for the year ended December 31, 20x8 Income Statement for the year ended December 31, 20x8 Operating profit Dividend income from Show Net profit before tax Tax expense Net profit after tax Retained earnings, January 1 Dividends declared Retained earnings, December 31

Pet Co P160,000

Show Ent P 60,000

18,900 178,900 (48,900) 130,000

60,000 (18,000) 42,000

110,000 (100,000)

38,200 (31,500)

P140,000

P 48,700

Balance as at December 31, 20x8 Pet Co Show Ent Investment in Saturn Co, cost P117,000 P Other assets 520,200 265,230 Total assets P637,200 P265,230 Share capital P270,000 P 80,000 Retained earnings 126,000 48,700 Long-term liabilities 180,000 120,000 Current liabilities 61,200 16,530 Total equities P637,200 P265,230 Required: 1. Show the consolidation working paper entries for the year ended December 31, 20x8. 2. Perform an analytical check on the non-controlling interests as at December 31, 20x8.

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P2.708

EXCEL PROFESSIONAL SERVICES, INC. 3.

Prepare the consolidation worksheet for the year ended December 31, 20x8.

Problem 5 (Upstream Merchandise Transfer) S Company, a 75% owned subsidiary of P Company, sold merchandise during 2009 to its parent company for P 150,000. The merchandise cost S Company P 110,000, 25% of the transferred merchandise remained in P Company’s ending inventory. For the year 2009, S Company reported a net income of P 150,000 and P Company reported net income (including dividend income of P 60,000) of P 275,000. Requirements: 1. Calculate P Company’s investment income from S Company in 2009. 2. Elimination entries for 2009 3. Determine non-controlling interests in the net income of the subsidiary for 2009. 4. Show consolidated net income for 2009, and allocate to Controlling interests and Non-controlling interests. Problem 6 (Downstream Land Transfer) During 2008 P Company sold land with a cost of P150,000 to its 80% owned subsidiary, S Company, for P 200,000. The subsidiary sold the land in 2010 to an outsider for P280,000. The subsidiary and the parent reported net income as follows: Parent Subsidiary 2008 351,000 154,000 2009 335,000 149,000 2010 315,000 165,000 The reported income of the parent company includes P 51,000 of dividend income each year. Requirements: 1. Calculate P Company’s investment income from S Company in 2008, 2009, and 2010. 2. Elimination entries for 2008, 2009, and 2010 3. Determine non-controlling interest in the net income of the subsidiary in 2008, 2009 and 2010 4. Show the consolidated net income for 2008, 2009 & 2010. Allocate each to Controlling and noncontrolling interests. Problem 7 (Upstream depreciable asset transfer) On January 1, 2009, S Company a 90% owned subsidiary of P Company transferred equipment to its parent in exchange for P75,000 cash. At the date of transfer, the subsidiary’s record carried the equipment at a cost of P106,000 less accumulated depreciation of P45,000. The equipment has an estimated remaining life of 7 years. The subsidiary reported net income for 2009 and 2010 of P 132,000 and P197,000, respectively. The parent company reported income of P 220,000 (including dividend income of P 45,000) and P295,000 (including dividend income of P45,000) for 2009 and 2010, respectively.

Requirements 1. Calculate P Company’s investment income from S Company in 2009 and in 2010. 2. Elimination entries for 2009 and for 2010. 3. Determine non-controlling interest in the net income of the subsidiary for 2009 and for 2010. 4. Show the consolidated net income for 2009 and 2010. Allocate each to Controlling and MNoncontrolling interests. Problem 8 (Intercompany Transactions) On January 1, 2009, P Company acquired 75% of the outstanding shares of S Company at book value. During 2010, P Company purchased merchandise from S Company in the amount of P 400,000 at billed prices. S Company shipped the merchandise at 40% above its cost, and this pricing policy was also used for shipments made in 2009 to P Company. The inventories of P Company included merchandise at billed prices from S Company as follows: January 1, 2010 December 31, 2010

112,000 84,000

Also, in 2009 P Co sold land to S Co for P200, 000. The cost of the land to P Co was P150, 000. S Co sold the land to an outsider for P230, 000 in 2010. Furthermore, on January 1, 2010 S Co sold equipment to P Co for P75, 000 cash at the date of the transfer, the equipment is carried at a cost of P106, 000 less accumulated depreciation of P45, 000. The equipment has an estimated remaining life of 7 years. Income statements for the two companies for the year 2010 are as follows: P Company S Company Sales P2,000,000 P1,000,000 Cost of sales 800,000 500,000 Gross profit 1,200,000 500,000 Operating expenses 720,000 320,000 Operating income 480,000 180,000 Gain on sale of land 30,000 Gain on sale of equipment _________ 14,000 Net income P 480,000 P 224,000 Requirements: 1. Calculate the non-controlling interests in consolidated net income in 2010. 2. Calculate the controlling interest in consolidated net income in 2010. 3. Prepare working paper elimination entries for above information at December 31, 2010. 4. Prepare a consolidated income statement for year ended December 31, 2010.

the the the the

- end –

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P2.708

EXCEL PROFESSIONAL SERVICES, INC.

MULTIPLE CHOICE Daito Corporation owns 100% of Prince Enterprises. On January 1, 2010, Daito sold Prince delivery equipment at a gain. Daito had owned the equipment for two years and used a five-year straight-line depreciation rate with no residual value. Prince is using a three-year straight-line depreciation rate with no residual value for the equipment. 1. In the consolidated income statement, Prince recorded depreciation expense on the equipment for 2010 will be decreased by: a. 20% of the gain on sale b. 33.33% of the gain on sale c. 50% of the gain on sale d. 100% of the gain on sale Parker Corporation sells equipment with a book value of P80,000 to Sheaffer Enterprises, its 75%-owned subsidiary, for P100,000 on January 1, 2010. Sheaffer determines that the remaining useful life of the equipment is four years and that straight-line depreciation is appropriate. The December 31, 2010 separate company financial statements of Parker and Sheaffer show equipment-net of P500,000 and P300,000, respectively. 2. The consolidated equipment-net will be: a. P800,000 c. P780,000 b. P785,000 d P650,000 Balance sheet data for P Corporation and S Company on December 31, 2010, are given below: P Corporation S Company Cash P 70,000 P 90,000 Merchandise Inventory 100,000 60,000 Property and equipment (net) 500,000 250,000 Investment in S Company 260,000 ________ Total assets P930,000 P400,000 Current liabilities P180,000 Long term liabilities 200,000 Common stock 300,000 Retained earnings 250,000 Total liabilities & SE P930,000

P 60,000 90,000 100,000 150,000 P400,000

P Corporation purchased 80% interest in S Company on December 31, 2010 for P260,000. S Company’s property and equipment had a fair value of P50,000 more than the book value shown above. All other book values approximated fair value. In the consolidated balance sheet on December 31, 2010. 3. The amount of total stockholders’ equity to be reported will be a. P 550,000 c. P 750,000 b. P 610,000 d. P 615,000 4. The amount of non-controlling interest will be a. P 50,000 c. P 110,000 b. P 60,000 d. P 65,000

Separate balance sheet data for the companies at the combination date are given below: Cash Accounts Receivables Inventory Land Plant Assets Accum. Depreciation Invesment in Argo Total Assets Accounts Payable Capital Stock Retained Earnings Total Equities.

Argo 103,000 13,000 19,000 16,000 150,000 (30,000) _______271,000 71,000 150,000 50,000 271,000

At the date of combination the book values of ARGO’s net assets was equal to the fair value of the net assets except for ARGO’s inventory which has a fair value of P30,000. 5.

What amount of goodwill will be reported? a. P15,667 c. P21,000 b. P37,750 d. P50,333

6.

What amount of total liability will be reported? a. P174,000 c. P213,000 b. P284,333 d. P 90,667

7.

What is the amount of total assets? a. P590,667 c. P751,333 b. P686,000 d. P738,750

On January 1, 2009, Paul Company purchased 90% of the common stock of Bryan Company for P81,000 over the book value of the shares acquired. All of the differential was related to land held by Bryan. On May 1, 2010, Bryan sold the land at a gain of P145,000. For the year 2010, Bryan reported net income of P331,000 and paid dividends of P80,000. Paul reported income from its own separate operations of P659,000 and paid no dividends. 9. Consolidated net income for 2010 was a. P 824,000 c. P 1,005,400 b. P 875,900 d. P 900,000 On January 1, 2009 the Blumentritt Corporation sold equipment to its wholly-owned subsidiary, Morayta Enterprises, for P1,800,000. The equipment cost Blumentritt P2,000,000; accumulated depreciation at the time of the sale of P500,000. Blumentritt was depreciating the equipment on the straight-linemethod over twenty years with no salvage value, a procedure that Morayta continued. 10. On the consolidated balance sheet at December 31, 2009 the cost and accumulated depreciation, respectively, should be: a. P1,500,000 and P600,000 b. P1,800,000 and P100,000 c. P1,800,000 and P500,000 d. P2,000,000 and P600,000

On January 1, 2010. SABINA Corporation purchased 75% of the common stock of ARGO Company.

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Sabina 12,000 72,000 66,000 39,000 350,000 (120,000) 196,000 615,000 103,000 400,000 112,000 615,000

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- now do the DIY drill -

P2.708

EXCEL PROFESSIONAL SERVICES, INC.

DO-IT-YOURSELF (DIY) DRILL P Company acquired a 65% interest in S company in 2008. For years ended December 31, 2009 and 2010, S reported net income of P325,000 and P390,000, respectively. During 2009, S sold merchandise to P for P70,000 at a cost of P54,000. Two-fifths of the merchandise was later resold by P to outsiders for P38,000 during 2010. In 2010, P sold merchandise to S for P98,000 at a profit of P24,000. One-fourth of the merchandise was resold by S to outsiders for P30,000 during 2010. 1. Minority interest net income in 2009 is P__________ . 2. Minority interest net income in 2010 is P__________ . CORN Corporation sells equipment with a book value of P200,000 to BEANS Company, its 75% owned subsidiary for P160,000 on April 1, 2009. BEANS determines that the remaining useful life of the equipment is four years and that the straight-line depreciation is appropriate. The December 31, 2009 separate financial statements of CORN and BEANS show equipment-net of P1,000,000 and P600,000, respectively. 3. Consolidated equipment-net will be P___________. RICH Corporation paid P1,125,000 for an 80% interest in HARD Corporation on January 1, 2009 at a price P37,500 in excess of underlying book value. The excess was allocated P15,000 to undervalued equipment with a tenyear remaining useful life and P22,500 to goodwill which was not impaired during the year. During 2009, HARD Corporation paid dividend of P60,000 to RICH Corporation. The income statements of RICH and HARD for 2009 are given below: Sales Cost of sales Depreciation expense Other expense Net income

4. 5.

RICH P2,500,000 (1,250,000)

HARD P1,000,000 (500,000)

(250,000) (500,000) P500,000

(150,000) (225,000) P125,000

Consolidated net income for 2009 is P____________. Non-controlling interest in net assets at December 31, 2009 is P____________ .

Income information for 2009 taken from the separate company financial statements of PARKER Corporation remaining useful life that was sold to SPENCER for P45,000 on October 1, 2009. Sales Cost of goods sold Depreciation expense Loss on sale of equipment Other expense Net income

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PARKER P1,250,000 (625,000) (125,000) (30,000) (250,000) P220,000

SPENCER P575,000 (325,000) (75,000) (50,000) P125,000

PARKER’s loss o sale of equipment relates to an equipment with a book value of P75,000 and a 6-year remaining useful life that was sold to SPENCER for P45,000 on October 1, 2009. 6.

Consolidated Depreciation expense in 2009 is P___________. On December 31, 2008, PANDOY Inc. purchased 75% of the outstanding shares of SAHARA Company at cost of P1,750,000. On that date, SAHARA Company had P500,000 of capital stock and P1,250,000 of retained earnings. For 2009, the results of operations are: PANDOY SAHARA Inc. Company Net income (loss) from own operations P900,00 P(110,000) 0 Dividends paid 350,000 60,000 All assets and liabilities of SAHARA Company have book values approximately equal to their respective market values. The beginning inventory of PANDOY Inc. includes P20,000 of merchandise purchased from SAHARA Company on December 31, 2008 at 25% above its cost. The ending inventory of SAHARA Company includes P22,500 of merchandise purchased from PANDOY Inc. in 2009 at 20% above its cost. Goodwill is not impaired. 7. 8. 9.

Consolidated net income in 2009 is P___________ . Non-controlling interest net income (loss) for 2009 is P___________ . Total non-controlling interest at December 31, 2009 is P_____________ .

On January 1, 2009, PAN Co. purchased 85% of the outstanding shares of SAN Company for P640,000 when the latter’s stockholders’ equity is P640,000. On October 1, 2009. SAN Company sold equipment with a book value of P32,000 to PAN Company for P64,000. The equipment is expected to have a remaining life of five years. The gain on sale is included in the 2009 net income of SAN Company. Goodwill if any is not impaired. SAN Company paid dividends of P60,000 in 2009 and P100,000 in 2010. The individual income of PAN Company and SAN Company from their own operations are: PAN Company SAN Company

2009 P220,000 140,000

2010 P360,000 240,000

10. Minority interest in a assets for 2009 is P__________ . 11. Consolidated net income in 2010 is P____________

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P2.708

EXCEL PROFESSIONAL SERVICES, INC.

SOLUTION TO PROBLEM 4 Determination and Distribution of Excess Schedule: Cost Less

(P117,000 + P78,000) Book value acquired: Share capital Retained earnings Goodwill (Excess of Cost over Fair Value)

P195,000 P80,000 30,000

110,000 P 85,000

Consolidation working paper entries: CWPE#1: Share capital (Show) P80,000 Retained earnings (Show) 30,000 Goodwill 85,000 Investment in Show P117,000 Non-controlling interests 78,000 Elimination of investment in Show, share capital, and pre-acquisition retained earnings and recognition of goodwill and non-controlling interests as at date of acquisition. CWPE#2: Retained earnings (Show) 3,280 Non-controlling interests 3,280 Allocation of share of change in retained earnings of Show to non-controlling interests from the date of acquisition to beginning of current period. (P38,200 – P30,000) x 40% = P3,280; (P38,200 – P30,000) x 60% = P4,920 CWPE#3: Dividend income (Pet) (60% x P31,500) 18,900 Non-controlling interests (40% x P31,500) 12,600 Dividends declared by Show 31,500 Elimination of dividends declared by Show against (a) Dividend income of Pet, and (b) non-controlling interests - balance sheet CPWE#4: Income to non-controlling interests (I/S) 16,800 Non-controlling interests (B/S) 16,800 Allocation of share of current profit after tax of Show to non-controlling Interests. (Show’s net income, P42,000 x 40%) 2. Analytical check on the non-controlling interests as at December 31, 20x8. NCI, 12/31/x8: ( P78,000 + P3,280 + P16,800 – P12,600 P85,480 Show’s book value of net assets as at December 31, 20x8 Goodwill Total at fair value X NCI% NCI, 12/31/x8

P128,700 85,000 P213,700 40% P 85,480

4. Consolidation Worksheets for the year ended December 31, 20x8. INCOME STATEMENTS for the year ended December 31, 20x8: Cons. Adjustment Consolidted Pet Co Show Ent Debit Credit Balance Sheet Operating profit P160,000 P 60,000 P 220,000 Dividend income 18,900 0 18,900 0 Net profit b4 tax P178,900 P 60,000 220,000 Tax expense (48,900) (18,000) 66,900 Net prft after tax P130,000 P 42,000 153,100 Profit to NCI 16,800 ( 16,800) Profit to Parent P130,000 P 42,000 P136,300 Page 7 of 8

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P2.708

EXCEL PROFESSIONAL SERVICES, INC. RE, Jan. 1

110,000

38,200

30,000 3,280

114,920

Dividends dclrd (100,000) (31,500) RE, Dec. 31 P140,000 P 48,700 P68,980 BALANCE SHEETS as at December 31, 20x8

31,500 P31,500

(100,000) P 151,220

Inv in Show Other assets Goodwill Total assets

117,000

P

Share capital RE, 12/31 NCI, 12/31

P117,000 520,200

P 0 265,230

P637,200

P265,230

P270,000 126,000

P80,000 48,700

LT liabilities 180,000 120,000 C / liabilities 61,200 16,530 Total equities P637,200 P265,230

85,000 85,000 80,000 68,980 12,600

246,580

117,000 31,500 78,000 3,280 16,800 246,580

0 785,430 85,000 P 870,430 P 270,000 137,220 85,480 300,000 77,730 P870,430

CONSOLIDATED INCOME SSTATEMENT FOR YEAR ENDED DEC. 31, 20X8 Net profit before tax Tax expense Net profit after tax

P220,000 ( 66,900) P153,100

Attributable to NCI Attributable to parent’s shareholders Total

P 16,800 136,300 P153,100

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR 20X8 Retained earnings, January 1 Net profit after tax attributable to parent’s shareholders Dividends declared by Pet Retained earnings, December 31, 20x8

P114,920 136,300 (100,000) P151,220

CONSOLIDATED BALANCE SHEET AS AT December 31, 20x8 Other assets Goodwill Total assets

P785,430 85,000 P870,430

Share capital Retained earnings Parent’s shareholders’ equity Non-controlling interests Total shareholders’ equity Long-term liabilities Current liabilities Total equity and liabilities

P270,000 137,220 P407,220 85,480 P492,700

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P300,000 77,730

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377,730 P 870,430

P2.708