Sol-man-chapter-5-consolidated-fs-part-2-acctg-for-bus-

combinations compress
Bachelor of Science in Accountancy

Chapter 5
Consolidated Financial Statements (Part 2)

PROBLEM 1: MULTIPLE CHOICE - THEORY

1. A 6. B
2. C 7. B
3. A 8. B
4. A 9. C
5. B 10. A

PROBLEM 2: FOR CLASSROOM DISCUSSION

1. Solutions:
Requirement (a):
Sales of Parent 1,000,000
Sales of Subsidiary 700,000
Less: Intercompany sales during the year (38,000 +
40,000) (78,000)
Consolidated sales 1,622,000

Requirement (b):
The unrealized profits in ending inventory are computed as follows:
Downstream Upstream Total
Sale price of intercompany sale 38,000
Cost of intercompany sale (20,000)
Profit from intercompany sale 18,000 8,000a
Multiply by: Unsold portion as of yr.-
end (9.5/38) 3/4
6,00
Unrealized gross profit 4,500 10,500
0

a
(40,000 x 20%) = 8,000

Cost of sales of Parent 400,000

Cost of sales of Subsidiary 350,000
Less: Intercompany sales during the yr. (38,000 + (78,000
40,000) )
Add: Unrealized profit in ending inventory 10,500
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Less: Realized profit in beginning inventory -
Add: Depreciation of FVA on inventory -
682,50
Consolidated cost of sales 0

Requirement (c):

Ending inventory of Parent 300,000

Ending inventory of Subsidiary 80,000
Less: Unrealized profit in ending inventory (10,500)
Consolidated ending inventory 369,500

2. Solutions:
Requirement (a):
Historical cost 120,000
Accumulated dep'n. 1/1/x1 (72,000)
Depreciation based on historical cost (12,000)
Carrying amount 36,000

The solution above is based on the notion that it is as if the intercompany

sale never happened.

Requirement (b):
Equipment - net (Bright Co.) 400,000
Equipment - net (Dull Co.) 190,000
Unamortized deferred gain (see Step 1 below) (9,000)
Consolidated equipment - net 581,000

OR

Equipment - net (Bright Co.) 400,000

Equipment - net (Dull Co.) 190,000
Carrying amount of equipment sold in Dull's books (45,000)
Carrying amount of equipment sold in Bright's books if the
sale never happened 36,000
Consolidated equipment - net 581,000

Requirement (c):
Depreciation expense (Bright Co.) 40,000
Depreciation expense (Dull Co.) 12,000
Amortization of the deferred gain
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 (12,000 gain on sale ÷ 4 years) (3,000)
Consolidated depreciation expense 49,000

OR
Depreciation expense (Bright Co.) 40,000
Depreciation expense (Dull Co.) 12,000
Depreciation in Dull's books (60,000 ÷ 4 yrs.) (15,000)
Depreciation in Bright's books if the sale never happened
(120,000 ÷ 10 yrs.) 12,000
Consolidated depreciation expense 49,000

Step 1: Analysis of effects of intercompany transaction

The intercompany sale is downstream because the seller is the
parent (Bright Co.).

The unamortized balance of the deferred gain is computed as follows:

Deferred gain on sale - Jan. 1, 20x1 [60K – (120K -
72K)] 12,000
Multiply by: (3 yrs. remaining as of Dec. 31, 20x1 over 4 yrs.) 3/4
Deferred gain on sale - Dec. 31, 20x1 9,000

Step 2: Analysis of net assets

Acquisition Consolidation Net
Dull Co.
date date change
Total net assets at carrying amounts 160,000 210,000
Fair value adjustments at acquisition
date - -
Subsequent depreciation of FVA NIL -
Unrealized profits (Upstream only) NIL -
Subsidiary's net assets at fair value 160,000 210,000 50,000

Step 3: Goodwill computation

Consideration transferred 180,000
Non-controlling interest in the acquiree (160K x 25%) 40,000
Previously held equity interest in the acquire -
Total 220,000
Fair value of net identifiable assets acquired (160,000)
Goodwill 60,000

Step 4: Non-controlling interest in net assets

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Dull's net assets at fair value – Dec. 31, 20x1 (Step 2) 210,000
Multiply by: NCI percentage 25%
Total 52,500
Add: Goodwill to NCI net of accumulated impairment losses - *
Non-controlling interest in net assets – Dec. 31,
20x1 52,500
*No goodwill is attributed to NCI because NCI is measured at proportionate share.
Step 5: Consolidated retained earnings
Bright's retained earnings – Dec. 31, 20x1 110,000
Consolidation adjustments:
Bright's share in the net change in Dull's net assets
(a)
37,500
Unamortized deferred gain (Downstream only) - (Step
1) (9,000)
Gain or loss on extinguishment of bonds -
Impairment loss on goodwill attributable to
Parent -
28,50
Net consolidation adjustments 0
Consolidated retained earnings – Dec. 31,
20x1 138,500
(a)
Net change in Dull’s net assets (Step 2) of ₱50,000 x 75% = ₱37,500.

Step 6: Consolidated profit or loss

Subsidiar
Parent y Consolidated
Profits before adjustments 240,000 50,000 290,000
Consolidation adjustments:
Unamortized def. gain - (Step (9,000
1) ) ( - ) (9,000)
Dividend income from ( -
subsidiary ) N/A ( - )
Gain or loss on extinguishment ( -
of bonds ) ( - ) ( - )
Net consolidation (9,000
adjustments ) ( - ) (9,000)
231,00
Profits before FVA 0 50,000 281,000
( -
Depreciation of FVA ) ( - ) ( - )
( -
Impairment loss on goodwill ) ( - ) ( - )
Consolidated profit 231,000 50,000 281,000
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Step 7: Profit or loss attributable to owners of parent and NCI
Owners Consoli-
of parent NCI dated
Bright's profit before FVA (Step 6) 231,000 N/A 231,000
Share in Dull’s profit before FVA (c) 37,500 12,500 50,000
Depreciation of FVA ( - ) ( - ) ( - )
Share in impairment loss on goodwill ( - ) ( - ) ( - )
Totals 268,500 12,500 281,000
(c)
Shares in Dull’s profit before FVA (Step 6): (50,000 x 75%); (50,000 x 25%)

Requirement (d):
Consolidated
ASSETS
Investment in subsidiary (at cost) - eliminated -
Equipment - net (Requirement 'b') 581,000
Other assets (200,000 + 45,000) 245,000
Goodwill (Step 3) 60,000
TOTAL ASSETS 886,000

LIABILITIES AND EQUITY

Liabilities (70,000 + 25,000) 95,000
Share capital (Bright's only) 600,000
Retained earnings (Step 5) 138,500
Equity attributable to owners of the parent 738,500
Non-controlling interest (Step 4) 52,500
Total equity 791,000
TOTAL LIABILITIES AND EQUITY 886,000

Consolidated
Revenues (300,000 + 80,000) 380,000
Depreciation expense (Requirement 'c') (49,000)
Other expenses (32,000 + 18,000) (50,000)
Gain on sale of equipment (eliminated) -
Profit for the year 281,000

Profit attributable to owners of the parent (Step 7) 268,50

1 0
 0
12,50
Profit attributable to NCI (Step 7)
0
281,00
Profit for the year
0

3. Solutions:
Step 1: Analysis of effects of intercompany transaction
The dividends declared by the subsidiary are allocated as follows:
Total dividends declared ₱100,000
Allocation:
Owners of the parent (100,000 x 75%) 75,000
Non-controlling interest (100,000 x 25%) 25,000
As allocated
₱100,000

Step 2: Analysis of net assets

Acquisition Consolidation Net
Subsidiary
date date change
Net assets at carrying amts. 240,000 320,000
Fair value adjustments at acquisition
date - -
Subsequent depreciation of FVA NIL -
Unrealized profits (Upstream only) NIL -
80,00
Subsidiary's net assets at fair value 240,000 320,000 0

Step 3: Goodwill computation

We can leave out this step because the information is insufficient.

Step 4: Non-controlling interest in net assets

Sub.'s net assets at fair value – Dec. 31, 20x1 (Step 2) 320,000
Multiply by: NCI percentage 25%
Total 80,000
Add: Goodwill to NCI net of accumulated impairment losses -
Non-controlling interest in net assets – Dec. 31,
20x1 80,000

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Step 5: Consolidated retained earnings
Parent's retained earnings – Dec. 31, 20x1 280,000
Consolidation adjustments:
Parent's sh. in the net change in Sub.'s net assets
(a)
60,000
Unrealized profits (Downstream only) -
Gain or loss on extinguishment of bonds -
Impairment loss on goodwill attributable to
Parent -
60,00
Net consolidation adjustments 0
Consolidated retained earnings – Dec. 31,
20x1 340,000
(a)
₱80,000 Net change in subsidiary’s assets (Step 2) x 75%

The dividends received from the subsidiary are not separately

adjusted in the formula above because their effect is automatically
eliminated by including only the parent’s share in the net change in
the subsidiary’s net assets.

Step 6: Consolidated profit or loss

Subsidiar
Parent y Consolidated
Profits before adjustments 475,000 132,000 607,000
Consolidation adjustments:
Unrealized profits - - -
Dividend income from (75,000
subsidiary ) N/A (75,000)
Gain or loss on extinguishment
of bonds - - -
Net consolidation (75,000
adjustments ) - (75,000)
400,00
Profits before FVA 0 132,000 532,000
( -
Depreciation of FVA ) ( - ) ( - )

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 ( -
Impairment loss on goodwill ) ( - ) ( - )
Consolidated profit 400,000 132,000 532,000

Step 7: Profit or loss attributable to owners of parent and NCI

Owners Consoli-
of parent NCI dated
Parent's profit before FVA (Step 6) 400,000 N/A 400,000
Share in Sub.’s profit before FVA (c) 99,000 33,000 132,000
Depreciation of FVA (Step 6) ( - ) ( - ) ( - )
Share in impairment loss on goodwill ( - ) ( - ) ( - )
Totals 499,000 33,000 532,000
(c)
Shares in Sub.’s profit before FVA (Step 6) – (132,000 x 75%);
(132,000 x 25%)

SUMMARY OF ANSWERS TO REQUIREMENTS:

a. NCI in the net assets = 80,000 (Step 4)
b. Consolidated retained earnings = 340,000 (Step 5)
c. Consolidated profit = 532,000 (Step 6)
Attributable to owners of parent = 499,000 (Step 7)
Attributable to NCI = 33,000 (Step 7)

4. Solutions:
Step 1: Analysis of effects of intercompany transaction

Requirement (a): Gain (loss) on extinguishment of bonds

The gain or loss on the extinguishment of bonds is computed as:

Acquisition cost of bonds (assumed retirement price) 250,000
Carrying amount of bonds payable (300,000)
Gain on extinguishment of bonds 50,000

Requirement (b): Consolidated total bonds payable

Bonds payable (at face amount) - issued by Parent 300,000
Portion acquired by Subsidiary
(300,000)
Consolidated total bonds payable -

Step 2: Analysis of net assets

Acquisition Consolidation Net
Subsidiary date date change

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Net assets at carrying amounts 200,000 270,000
Fair value adjustments at acquisition
date - -
Subsequent depreciation of FVA NIL -
Unrealized profits (Upstream only) NIL -
70,00
Subsidiary's net assets at fair value 200,000 270,000 0

Step 3: Goodwill computation

Consideration transferred (cost of investment in sub.) 180,000
Non-controlling interest in the acquiree (200K x 25%) 50,000
Previously held equity interest in the acquire -
Total 230,000
Fair value of net identifiable assets acquired (200,000)
Goodwill 30,000

Step 4: Non-controlling interest in net assets

Sub.'s net assets at fair value – Dec. 31, 20x1 (Step 2) 270,000
Multiply by: NCI percentage 25%
Total 67,500
Add: Goodwill to NCI net of accumulated impairment losses -
Non-controlling interest in net assets – Dec. 31,
20x1 67,500

Step 5: Consolidated retained earnings

Parent's retained earnings – Dec. 31, 20x1 140,000
Consolidation adjustments:
Parent's share in the net change in Sub.'s net assets
(a)
52,500
Unrealized profits (Downstream only) -
Gain on extinguishment of bonds (Step 1) 50,000
Impairment loss on goodwill attributable to
Parent -
102,50
Net consolidation adjustments 0
Consolidated retained earnings – Dec. 31,
20x1 242,500
(a)
Net change in Subsidiary’s net assets (Step 2) of ₱70,000 x 75% = ₱52,500.
Step 6: Consolidated profit or loss

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 Subsidiar
Parent y Consolidated
Profits before adjustments 80,000 20,000 100,000
Consolidation adjustments:
( -
Unrealized profits ) ( - ) ( - )
Dividend income from ( -
subsidiary ) N/A ( - )
Gain on extinguishment of
bonds 50,000 ( - ) 50,000
Net consolidation
adjustments 50,000 ( - ) 50,000
130,00
Profits before FVA 0 20,000 150,000
( -
Depreciation of FVA ) ( - ) ( - )
( -
Impairment loss on goodwill ) ( - ) ( - )
Consolidated profit 130,000 20,000 150,000

Step 7: Profit or loss attributable to owners of parent and NCI

Owners Consoli-
of parent NCI dated
Parent's profit before FVA (Step 6) 130,000 N/A 130,000
Share in Sub.’s profit before FVA (c) 15,000 5,000 20,000
Depreciation of FVA ( - ) ( - ) ( - )
Share in impairment loss on goodwill ( - ) ( - ) ( - )
Totals 145,000 5,000 150,000
(c)
Shares in Sub.’s profit before FVA (Step 6): (20,000 x 75%); (20,000 x 25%)

Requirement (c): Consolidated financial statements

Consolidated
ASSETS
Investment in subsidiary (at cost) - eliminated -
Investment in bonds - eliminated -
Other assets (500,000 + 50,000) 550,000
Goodwill (Step 3) 30,000
TOTAL ASSETS 580,000

LIABILITIES AND EQUITY

Accounts payable (40,000 + 30,000) 70,000
Bonds payable (at face amount) - eliminated -
Total liabilities 70,000
200,000
Share capital (Parent only)
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Retained earnings (Step 5) 242,500
Equity attributable to owners of parent 442,500
NCI in net assets (Step 4) 67,500
Total equity 510,000

TOTAL LIABILITIES AND EQUITY 580,000

Consolidate
d
Revenues (300,000 + 120,000) 420,000
Operating expenses (217,000 + 100,000) (317,000)
(3,000
Interest expense (3,000* + 0)
)
Gain on extinguishment of bonds (Step 1) 50,000
Profit for the year 150,000

Profit attributable to owners of the parent (Step 7) 145,000

5,00
Profit attributable to NCI (Step 7)
0
Profit for the year 150,000

*The interest expense is not eliminated because the interest expense

was paid to unrelated parties, the previous holder of the bonds (i.e.,
the bonds were acquired by the subsidiary only at year-end.

SUMMARY OF ANSWERS TO REQUIREMENTS

a. Gain (loss) on extinguishment of bonds = 50,000 gain (Step 1)
b. Consolidated bonds payable = 0 (Step 1)
c. Consolidated financial statements (See above)

PROBLEM 3: EXERCISES
1. Solutions:
Requirement (a):
Sales of Parent 1,000,000
Sales of Subsidiary 700,000
Less: Intercompany sales during the year (16K* +
60K) (76,000)
Consolidated sales 1,624,000

* (12,000 ÷ 75%) = 16,000

Requirement (b):
The unrealized profits in ending inventory are computed as follows:
Downstream Upstream Total
Sale price of intercompany sale 16,000

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Cost of intercompany sale (12,000)
Profit from intercompany sale 4,000 10,000a
Multiply by: Unsold portion as of yr.-
end ½ 1/4
2,50
Unrealized gross profit 2,000 4,500
0

a
(60,000 ÷ 120%) x 20% = 10,000

Cost of sales of Parent 400,000

Cost of sales of Subsidiary 350,000
Less: Intercompany sales during the yr. (16,000 + (76,000
60,000) )
Add: Unrealized profit in ending inventory 4,500
Less: Realized profit in beginning inventory -
Add: Depreciation of FVA on inventory (Step 2) -
678,50
Consolidated cost of sales 0

Requirement (c):

Ending inventory of Parent 300,000

Ending inventory of Subsidiary 80,000
Less: Unrealized profit in ending inventory (4,500)
Consolidated ending inventory 375,500
2. Solutions:
Requirement (a):
Historical cost 144,000
Accumulated dep'n. 1/1/x1 (86,400)
Depreciation based on historical cost (14,400)
Carrying amount 43,200

The solution above is based on the notion that it is as if the intercompany

sale never happened.

Requirement (b):
Equipment - net (Day Co.) 480,000
Equipment - net (Night Co.) 228,000
Unamortized deferred gain (see Step 1 below) (10,800)
Consolidated equipment - net 697,200

OR
Equipment - net (Day Co.) 480,000
Equipment - net (Night Co.) 228,000
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 (54,000
Carrying amount of equipment sold in Night's books )
Carrying amount of equipment sold in Day's books if the
43,200
sale never happened
Consolidated equipment - net 697,200

Requirement (c):
Depreciation expense (Day Co.) 48,000
Depreciation expense (Night Co.) 14,400
Amortization of the deferred gain
(3,600)
(12,000 gain on sale ÷ 4 years)
Consolidated depreciation expense 58,800

OR
Depreciation expense (Day Co.) 48,000
Depreciation expense (Night Co.) 14,400
Depreciation in Night's books (72,000 ÷ 4 yrs.) (18,000)
Depreciation in Day's books if the sale never happened
14,400
(144,000 ÷ 10 yrs.)
Consolidated depreciation expense 58,800

Step 1: Analysis of effects of intercompany transaction

The intercompany sale is downstream because the seller is the
parent (Day Co.).

The unamortized balance of the deferred gain is computed as follows:

Deferred gain on sale - Jan. 1, 20x1 [72K – (144K –
86.4K)] 14,400
Multiply by: (3 yrs. remaining as of Dec. 31, 20x1 over 4 yrs.) 3/4
Deferred gain on sale - Dec. 31, 20x1 10,800

Step 2: Analysis of net assets

Acquisition Consolidation Net
Night Co.
date date change
Total net assets at carrying amounts 192,000 252,000
Fair value adjustments at acquisition
date - -
Subsequent depreciation of FVA NIL -
Unrealized profits (Upstream only) NIL -
Subsidiary's net assets at fair value 192,000 252,000 60,000

Step 3: Goodwill computation

Consideration transferred 216,000
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 Non-controlling interest in the acquiree (192K x 25%) 48,000
Previously held equity interest in the acquire -
Total 264,000
Fair value of net identifiable assets acquired (192,000)
Goodwill 72,000

Step 4: Non-controlling interest in net assets

Night's net assets at fair value – Dec. 31, 20x1 (Step 2) 252,000
Multiply by: NCI percentage 25%
Total 63,000
Add: Goodwill to NCI net of accumulated impairment losses - *
Non-controlling interest in net assets – Dec. 31,
20x1 63,000
*No goodwill is attributed to NCI because NCI is measured at proportionate share.

Step 5: Consolidated retained earnings

Day's retained earnings – Dec. 31, 20x1 132,000
Consolidation adjustments:
Day's share in the net change in Night's net assets
(a)
45,000
Unamortized deferred gain (Downstream only) - (Step (10,800
1) )
Gain or loss on extinguishment of bonds -
Impairment loss on goodwill attributable to
Parent -
34,20
Net consolidation adjustments 0
Consolidated retained earnings – Dec. 31,
20x1 166,200
(a)
Net change in Night’s net assets (Step 2) of ₱60,000 x 75% = ₱45,000.

Step 6: Consolidated profit or loss

Subsidiar
Parent y Consolidated
Profits before adjustments 288,000 60,000 348,000
Consolidation adjustments:
Unamortized def. gain - (Step (10,800
1) ) ( - ) (10,800)
Dividend income from ( -
subsidiary ) N/A ( - )
Gain or loss on extinguishment ( -
of bonds ) ( - ) ( - )
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 Net consolidation (10,800
adjustments ) ( - ) (10,800)
277,20
Profits before FVA 0 60,000 337,200
( -
Depreciation of FVA ) ( - ) ( - )
( -
Impairment loss on goodwill ) ( - ) ( - )
Consolidated profit 277,200 60,000 337,200

Step 7: Profit or loss attributable to owners of parent and NCI

Owners Consoli-
of parent NCI dated
Day's profit before FVA (Step 6) 277,200 N/A 277,200
Share in Night’s profit before FVA (c) 45,000 15,000 60,000
Depreciation of FVA ( - ) ( - ) ( - )
Share in impairment loss on goodwill ( - ) ( - ) ( - )
Totals 322,200 15,000 337,200
(c)
Shares in Night’s profit before FVA (Step 6): (60,000 x 75%); (60,000 x 25%)

Requirement (d):
Consolidated
ASSETS
Investment in subsidiary (at cost) - eliminated -
Equipment - net (Requirement 'b') 697,200
Other assets (240,000 + 54,000) 294,000
Goodwill (Step 3) 72,000
TOTAL ASSETS 1,063,200

LIABILITIES AND EQUITY

Liabilities (84,000 + 30,000) 114,000
Share capital (Day's only) 720,000
Retained earnings (Step 5) 166,200
Equity attributable to owners of the parent 886,200
Non-controlling interest (Step 4) 63,000
Total equity 949,200
TOTAL LIABILITIES AND EQUITY 1,063,200

Consolidated
Revenues (360,000 + 96,000) 456,000
Depreciation expense (Requirement 'c') (58,800)
Other expenses (38,400 + 21,600) (60,000)
Gain on sale of equipment (eliminated) -

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Profit for the year 337,200

322,20
Profit attributable to owners of the parent (Step 7)
0
15,00
Profit attributable to NCI (Step 7)
0
337,20
Profit for the year
0

3. Solutions:
Step 1: Analysis of effects of intercompany transaction
The dividends declared by the subsidiary are allocated as follows:
Total dividends declared ₱150,000
Allocation:
Owners of the parent (150,000 x 75%) 112,500
Non-controlling interest (150,000 x 25%) 37,500
As allocated
₱150,000

Step 2: Analysis of net assets

Acquisition Consolidation Net
Subsidiary
date date change
Net assets at carrying amts. 360,000 480,000
Fair value adjustments at acquisition
date - -
Subsequent depreciation of FVA NIL -
Unrealized profits (Upstream only) NIL -
Subsidiary's net assets at fair value 360,000 480,000 120,000

Step 3: Goodwill computation

We can leave out this step because the information is insufficient.

Step 4: Non-controlling interest in net assets

Sub.'s net assets at fair value – Dec. 31, 20x1 (Step 2) 480,000
Multiply by: NCI percentage 25%
Total 120,000
Add: Goodwill to NCI net of accumulated impairment losses -
Non-controlling interest in net assets – Dec. 31,
20x1 120,000

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Step 5: Consolidated retained earnings
Parent's retained earnings – Dec. 31, 20x1 420,000
Consolidation adjustments:
Parent's sh. in the net change in Sub.'s net assets
(a)
90,000
Unrealized profits (Downstream only) -
Gain or loss on extinguishment of bonds -
Impairment loss on goodwill attributable to
Parent -
90,00
Net consolidation adjustments 0
Consolidated retained earnings – Dec. 31,
20x1 510,000
(a)
₱120,000 Net change in subsidiary’s assets (Step 2) x 75%

Step 6: Consolidated profit or loss

Subsidiar
Parent y Consolidated
Profits before adjustments 712,500 198,000 910,500
Consolidation adjustments:
Unrealized profits - - -
Dividend income from
subsidiary (112,500) N/A (112,500)
Gain or loss on extinguishment
of bonds - - -
Net consolidation
adjustments (112,500) - (112,500)
600,00
Profits before FVA 0 198,000 798,000
( -
Depreciation of FVA ) ( - ) ( - )
( -
Impairment loss on goodwill ) ( - ) ( - )
Consolidated profit 600,000 198,000 798,000

Step 7: Profit or loss attributable to owners of parent and NCI

Owners Consoli-
of parent NCI dated
Parent's profit before FVA (Step 6) 600,000 N/A 600,000
Share in Sub.’s profit before FVA (c) 148,500 49,500 198,000
Depreciation of FVA (Step 6) ( - ) ( - ) ( - )
Share in impairment loss on goodwill ( - ) ( - ) ( - )
Totals 748,500 49,500 798,000

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(c)
Shares in Sub.’s profit before FVA (Step 6) – (198,000 x 75%);
(198,000 x 25%)

SUMMARY OF ANSWERS TO REQUIREMENTS:

a. NCI in the net assets = 120,000 (Step 4)
b. Consolidated retained earnings = 510,000 (Step 5)
c. Consolidated profit = 798,000 (Step 6)
Attributable to owners of parent = 748,500 (Step 7)
Attributable to NCI = 49,500 (Step 7)
4. Solutions:
Step 1: Analysis of effects of intercompany transaction

Requirement (a): Gain (loss) on extinguishment of bonds

The gain or loss on the extinguishment of bonds is computed as:

Acquisition cost of bonds (assumed retirement price) 320,000

Carrying amount of bonds payable (300,000)
Loss on extinguishment of bonds
( 20,000)

Requirement (b): Consolidated total bonds payable

Bonds payable (at face amount) - issued by Parent 300,000
Portion acquired by Subsidiary
(300,000)
Consolidated total bonds payable -

Step 2: Analysis of net assets

Acquisition Consolidation Net
Subsidiary date date change

Net assets at carrying amounts 208,000 234,000

Fair value adjustments at acquisition
date - -
Subsequent depreciation of FVA NIL -
Unrealized profits (Upstream only) NIL -
26,00
Subsidiary's net assets at fair value 208,000 234,000 0

Step 3: Goodwill computation

Consideration transferred (cost of investment in sub.) 234,000
Non-controlling interest in the acquiree (208K x 25%) 52,000
Previously held equity interest in the acquire -
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Total 286,000
Fair value of net identifiable assets acquired (208,000)
Goodwill 78,000

Step 4: Non-controlling interest in net assets

Sub.'s net assets at fair value – Dec. 31, 20x1 (Step 2) 234,000
Multiply by: NCI percentage 25%
Total 58,500
Add: Goodwill to NCI net of accumulated impairment losses -
Non-controlling interest in net assets – Dec. 31,
20x1 58,500

Step 5: Consolidated retained earnings

Parent's retained earnings – Dec. 31, 20x1 182,000
Consolidation adjustments:
Parent's share in the net change in Sub.'s net assets
(a)
19,500
Unrealized profits (Downstream only) -
Gain on extinguishment of bonds (Step 1) (20,000)
Impairment loss on goodwill attributable to
Parent -
Net consolidation adjustments (500)
Consolidated retained earnings – Dec. 31,
20x1 181,500
(a)
Net change in Subsidiary’s net assets (Step 2) of ₱26,000 x 75% = ₱19,500.

Step 6: Consolidated profit or loss

Subsidiar
Parent y Consolidated
Profits before adjustments 104,900 26,000 130,900
Consolidation adjustments:
( -
Unrealized profits ) ( - ) ( - )
Dividend income from ( -
subsidiary ) N/A ( - )
Loss on extinguishment of (20,000
bonds ) ( - ) (20,000)
Net consolidation (20,000
adjustments ) ( - ) (20,000)
Profits before FVA 84,900 26,000 110,900
Depreciation of FVA ( - ( - ) ( - )

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 )
( -
Impairment loss on goodwill ) ( - ) ( - )
Consolidated profit 84,900 26,000 110,900

Step 7: Profit or loss attributable to owners of parent and NCI

Owners Consoli-
of parent NCI dated
Parent's profit before FVA (Step 6) 84,900 N/A 84,900
Share in Sub.’s profit before FVA (c) 19,500 6,500 26,000
Depreciation of FVA ( - ) ( - ) ( - )
Share in impairment loss on goodwill ( - ) ( - ) ( - )
Totals 104,400 6,500 110,900
(c)
Shares in Sub.’s profit before FVA (Step 6): (26,000 x 75%); (26,000 x 25%)

Requirement (c): Consolidated financial statements

Consolidated
ASSETS
Investment in subsidiary (at cost) - eliminated -
Investment in bonds - eliminated -
Other assets (650,000 + 64,000) 714,000
Goodwill (Step 3) 78,000
TOTAL ASSETS 792,000

LIABILITIES AND EQUITY

Accounts payable (52,000 + 150,000) 202,000
Bonds payable (at face amount) - eliminated -
Total liabilities 202,000
Share capital (Parent only) 350,000
Retained earnings (Step 5) 181,500
Equity attributable to owners of the parent 531,500
NCI in net assets (Step 4) 58,500
Total equity 590,000
TOTAL LIABILITIES AND EQUITY 792,000

Consolidated
Revenues (390,000 + 156,000) 546,000
Operating expenses (282,100 + 130,000)
(412,100)
Interest expense (3,000 + 0)
(3,000)
Loss on extinguishment of bonds (Step 1)
(20,000)
Profit for the year 110,900

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Step 4: Non-controlling interest in net assets
Sub.'s net assets at fair value – Dec. 31, 20x1 (Step 2) 480,000
Multiply by: NCI percentage 25%
Total 120,000
Add: Goodwill to NCI net of accumulated impairment losses -
Non-controlling interest in net assets – Dec. 31,
20x1 120,000

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Step 5: Consolidated retained earnings

Parent's retained earnings – Dec. 31, 20x1 420,000
Consolidation adjustments:
Parent's sh. in the net change in Sub.'s net assets
(a)
90,000
Unrealized profits (Downstream only) -
Gain or loss on extinguishment of bonds -
Impairment loss on goodwill attributable to
Parent -
90,00
Net consolidation adjustments 0
Consolidated retained earnings – Dec. 31,
20x1 1 0
510,000
(a)
₱120,000 Net change in subsidiary’s assets (Step 2) x 75%
Step 6: Consolidated profit or loss
Subsidiar
Parent y Consolidated
Profits before adjustments 712,500 198,000 910,500
Consolidation adjustments:
Unrealized profits - - -
Dividend income from
subsidiary (112,500) N/A (112,500)
Gain or loss on extinguishment
of bonds - - -
Net consolidation
adjustments (112,500) - (112,500)
600,00
Profits before FVA 0 198,000 798,000
( -
Depreciation of FVA ) ( - ) ( - )
( -
Impairment loss on goodwill ) ( - ) ( - )
Consolidated profit 600,000 198,000 798,000

Step 7: Profit or loss attributable to owners of parent and NCI

Owners Consoli-
of parent NCI dated
Parent's profit before FVA (Step 6) 600,000 N/A 600,000
(c)
Share in Sub.’s profit before FVA 148,500 49,500 198,000
Depreciation of FVA (Step 6) ( - ) ( - ) ( - )
Share in impairment loss on goodwill ( - ) ( - ) ( - )
Totals 748,500 49,500 798,000

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(c)
Shares in Sub.’s profit before FVA (Step 6) – (198,000 x 75%);
(198,000 x 25%)

SUMMARY OF ANSWERS TO REQUIREMENTS:

a. NCI in the net assets = 120,000 (Step 4)
b. 1
Consolidated retained earnings =0510,000 (Step 5)
c. Consolidated profit = 798,000 (Step 6)
 Attributable to owners of parent = 748,500 (Step 7)
Attributable to NCI = 49,500 (Step 7)
4. Solutions:
Step 1: Analysis of effects of intercompany transaction

Requirement (a): Gain (loss) on extinguishment of bonds

The gain or loss on the extinguishment of bonds is computed as:

Acquisition cost of bonds (assumed retirement price) 320,000

Carrying amount of bonds payable (300,000)
Loss on extinguishment of bonds
( 20,000)

Requirement (b): Consolidated total bonds payable

Bonds payable (at face amount) - issued by Parent 300,000
Portion acquired by Subsidiary
(300,000)
Consolidated total bonds payable -

Step 2: Analysis of net assets

Acquisition Consolidation Net
Subsidiary date date change

Net assets at carrying amounts 208,000 234,000

Fair value adjustments at acquisition
date - -
Subsequent depreciation of FVA NIL -
Unrealized profits (Upstream only) NIL -
26,00
Subsidiary's net assets at fair value 208,000 234,000 0

Step 3: Goodwill computation

Consideration transferred (cost of investment in sub.) 234,000
Non-controlling interest in the acquiree (208K x 25%) 52,000
Previously held equity interest in the acquire -
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Total 286,000
Fair value of net identifiable assets acquired (208,000)
Goodwill 78,000

Step 4: Non-controlling interest in net assets

Sub.'s net assets at fair value – Dec. 31, 20x1 (Step 2) 234,000
Multiply by: NCI percentage 25%
Total 58,500
Add: Goodwill to NCI net of accumulated impairment losses -
Non-controlling interest in net assets – Dec. 31,
20x1 58,500

Step 5: Consolidated retained earnings

Parent's retained earnings – Dec. 31, 20x1 182,000
Consolidation adjustments:
Parent's share in the net change in Sub.'s net assets
(a)
19,500
Unrealized profits (Downstream only) -
Gain on extinguishment of bonds (Step 1) (20,000)
Impairment loss on goodwill attributable to
Parent -
Net consolidation adjustments (500)
Consolidated retained earnings – Dec. 31,
20x1 181,500
(a)
Net change in Subsidiary’s net assets (Step 2) of ₱26,000 x 75% = ₱19,500.

Step 6: Consolidated profit or loss

Subsidiar
1 0
Parent y Consolidated
Profits before adjustments 104,900 26,000 130,900