I.

Following are several figures reported for PT and SS as December 31, 20x5 :
PT SS

Inventory P400,000 200,000

Sales 800,000 600,000
Cost of goods sold 400,000 300,000
Operating expenses 180,000 250,000
PT acquired 70% of SS on January 1,20x4, . In allocating the newly acquired subsidiary’s fair
value, PT noted that SS has developed a customer list worth P65,000 unrecorded on its
accounting records and had five years remaining useful life. Any remaining excess is allocated to
goodwill. During 20x5, SS sells goods costing P120,000 to PT for P160,000. Of this amount, 20%
remains unsold by PT at year end.
For purposes of consolidation, determine the following amounts to be reported for the current
year:
1. Inventory
2. Sales
3. Cost of goods sold
4. Gross profit
5. Operating expenses
6. Controlling interest in CNI
7. NCI in CNI
8. Consolidated net income

(Determine selected consolidated balances; includes inventory transfers and an outside ownership.)
Customer list amortization = P65,000/5 years = P13,000 per year

Intercompany Gross profit (P160,000 – P120,000)

P40,000

Inventory Remaining at Year's End 20%

Unrealized Intercompany Gross profit, 12/31 P8,000

Consolidated Totals:

 Inventory = P592,000 (add the two book values and subtract the ending unrealized gross
profit of P8,000)
 Sales = P1,240,000 (add the two book values and subtract the P160,000 intercompany
transfer)
 Cost of Goods Sold = P548,000 (add the two book values and subtract the intercompany
transfer and add [to defer] ending unrealized gross profit)
 Operating Expenses = P443,000 (add the two book values and the amortization expense for
the period)
 Gross profit: P1,240,000 – P548,000 = P692,000
 Controlling Interest in CNI:
Gross profit P692,000

Less: Operating expenses 443,000

Consolidated Net Income

P249,000

Less: NCI-CNI 8,700

 CI-CNI
P240,300

or
Consolidated Net Income for 20x5
P Company’s net income from own/separate operations (P800-P400-P180) P 220,000
Realized profit in beginning inventory of S Company (downstream sales) 0
Unrealized profit in ending inventory of S Company (downstream sales)… (_ 0)
P Company’s realized net income from separate operations*…….….. P 220,000
S Company’s net income from own operations (P600 – P300 – P250) P 50,000
Realized profit in beginning inventory of P Company (upstream sales) 0
Unrealized profit in ending inventory of P Company (upstream sales)… ( 8, 000)
S Company’s realized net income from separate operations*…….….. P 42,000 42,000
Total P 262,000
Less: Amortization of allocated excess…………………… 13,000
Consolidated Net Income for 20x5 P 249,000
Less: Non-controlling Interest in Net Income* * 8,700
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent – 20x5………….. P 240,300

**Non-controlling Interest in Net Income (NCINI) for 20x5

S Company’s net income of Subsidiary Company from its own operations
(Reported net income of Son Company) P 50,000
Realized profit in beginning inventory of P Company (upstream sales) 0
Unrealized profit in ending inventory of P Company (upstream sales) ( 8,000)
S Company’s realized net income from separate operations……… P 42,000
Less: Amortization of allocated excess 13,000
P 29,000
Multiplied by: Non-controlling interest %.......... 30%
Non-controlling Interest in Net Income (NCINI) P 8,700

II. Pine Company owns 80% in S Company and a 90& interest in T Company. During 20x3 and
20x4, intercompany sales of merchandise were made by all three companies. Total sales
amounted to P2,400,000 in 20x3, and P2,700,000, in 20x4. The companies sold their
merchandise at the following percentages above cost :
Pine 15%
S 20%
T 25%
The amount of merchandise remaining in the 20x4 beginning and ending inventories of the
companies from these intercompany sales is hown below :
Merchandise held in beginning inventory
Pine S T Total
Sold by
Pine 225,000 189,000 414,000
S 180,000 216,000 396,000
T 180,000 135,000 315,000

Merchandise held in ending inventory

Pine S T Total
 Sold by
Pine 207,000 138,000 345,000
S 144,000 198,000 342,000
T 195,000 150,000 345,000

Reported net income (from independent operations including sales to affiliates) of Pine, S
and T for 20x4 were P3,600,000, P1,500,000 and P2,400,000 respectively.
1. What is the CNI?
2. What is the CI in CNI?
3. What is the NCI in CNI ?

Consolidated Net Income for 20x4

P Company’s net income from own/separate operations…………. P 3,600,000
Realized profit in beginning inventory of S Company (downstream sales) 54,000
Unrealized profit in ending inventory of S Company (downstream sales)… (_ 45,00 0)
P Company’s realized net income from separate operations*…….….. P 3,609,000
S Company’s net income from own operations (P1,500,000 + P2,400,000) P3,900,000
Realized profit in beginning inventory of P Company (upstream sales) – S 66,000
Realized profit in beginning inventory of P Company (upstream sales)- T 63,000
Unrealized profit in ending inventory of P Company (upstream sales) – S ( 57,000)
Unrealized profit in ending inventory of P Company (upstream sales) – T ( 69,000)
S Company’s realized net income from separate operations*…….….. P3,903,000 3,903,000
Total P7,512,000
Less: Amortization of allocated excess…………………… 0
Consolidated Net Income for 20x4 P7,512,000
Less: Non-controlling Interest in Net Income* *- S P 301,800
Non-controlling Interest in Net Income* *- T ___239,400 ___541,200
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent – 20x4………….. P6,970,800

S Company
Non-controlling Interest in Net Income (NCINI) for 20x4
S Company’s net income of Subsidiary Company from its own
operations P1,500,00
(Reported net income of S Company) 0
Realized profit in beginning inventory of P Company (upstream 66,000
sales)
Unrealized profit in ending inventory of P Company (upstream ( 57,000)
sales)
Son Company’s realized net income from separate P1,509,00
operations……… 0
Less: Amortization of allocated excess _____0
P1,509,00
0
Multiplied by: Non-controlling interest %.......... __
20%
Non-controlling Interest in Net Income (NCINI) P 301,800

T Company
 Non-controlling Interest in Net Income (NCINI) for 20x4
S Company’s net income of Subsidiary Company from its own
operations P2,400,00
(Reported net income of S Company) 0
Realized profit in beginning inventory of P Company (upstream 63,000
sales)
Unrealized profit in ending inventory of P Company (upstream ( 69,000)
sales)
S Company’s realized net income from separate P2,394,00
operations……… 0
Less: Amortization of allocated excess _____0
P2,394,00
0
Multiplied by: Non-controlling interest %.......... 10%
Non-controlling Interest in Net Income (NCINI) P 239,400

Realized Profit in Beginning inventory:

Downstream Sales (Sales from Parent to Subsidiary)
P414,000 x 15/115 P54,000
Upstream Sales (Sales from Subsidiary-S to Parent):
S: P396,000 x 20/120 66,000
Upstream Sales (Sales from Subsidiary-T to Parent):
T: P315,000 x 25/125 63,000

Unrealized Profit in Ending inventory:

Downstream Sales (Sales from Parent to Subsidiary)
P345,000 x 15/115 P45,000
Upstream Sales (Sales from Subsidiary-S to Parent):
S: P342,000 x 20/120 57,000
Upstream Sales (Sales from Subsidiary-T to Parent):
T: P345,000 x 25/125 69,000

III. P Company acquired 90% ownership of S Company in 20x3, at underlying book value. On
that date, the fair value of the NCI was equal to 10% of the book value of S. P Purchased
inventory from S for P90,000 on Aug 2, 20x4, and resold 70% of the inventory to outsiders
on December 1, 20x4 for P100,000. S produced the inventory sold to P for P67,000. There
were no other intercompany transactions.
1. What amount of sales will be reported in the 20x4 consolidated income statement ?

Answer : P100,00 sales to unrelated/unaffiliated company

2. What amount of cost of goods sold will be reported in the 20x4 consolidated income
statement ?

Cost of Sales
S Company 67,000
PCompany _63,000
Total 130,000
Less: Intercompany sales 90,000
Add: Unrealized profit in EI of PCo.
 [P90,000 x 30% = P27,000 x (90 - 67)/90] __6,900
Consolidated 46,900

3. What is the CI in the CNI ?

Consolidated Net Income for 20x4

P Company’s net income from own/separate operations

[P100,000 – (P90,000 x 70%)] P 37,000

Realized profit in beginning inventory of S Company (downstream sales) 0

Unrealized profit in ending inventory of S Company (downstream sales)… (_0)

P Company’s realized net income from separate operations*…….….. P 37,000

S Company’s net income from own operations (P90,000 – P67,000) P23,000

Realized profit in beginning inventory of P Company (upstream sales) 0

Unrealized profit in ending inventory of P Company (upstream sales)

[P90,000 x 30% = P27,000 x (90-67/90)] ( 6,900 )

S Company’s realized net income from separate operations*…….….. P16,100 16,100

Total P 53,100

Less: Amortization of allocated excess…………………… 0

Consolidated Net Income for 20x4 P 53,100

Less: Non-controlling Interest in Net Income* * 1,610

Controlling Interest in Consolidated Net Income or Profit attributable to

equity holders of parent – 20x4………….. P 51,490

4. How much is the inventory balance to be reported by the consolidated entity ?

P27,000 x 67/90 = P20,100

IV. P Co acquired a 60% interest in S Company on January 1, 20x1 for P360,000 when S
Company’s net assets had book value and fair value at P600,000. During 20x1, P sold
inventory items that cost P600,000 to S for P800,000, and S inventory on Dec 31, 20x1,
included ¼ of this merchandise. P reported separate income from its operations of
P300,000, and S reported net loss of P150,000 for 20x1. How much is the CNI ?

CI from own operations- P P 300,000

Unrealized profit in ending inventory – DS (P200,000 x .25) (50,000)
Adjusted CI for own operations – P 250,000
S net loss from own operations (150,000)
Consolidated CI P 100,000
V. On jan 1, 20x1, P Co purchased 75% of the outstanding shares of S Company at book value.
During 20x2, S sold goods to P Co costing P50,000 for P75,000. P resold 60% of the goods to
outsiders during the year for P100,000. For the year 20x2, P had CI from its own operations
of P200,000. S Co’s net income for the year was P110,000. What is the Consolidated CI
attributable to parent for 20x2 ?

CI from own operation – P P 200,000

S’s adjusted CI from own operations:
CI P110,000
Unrealized profit in ending inventory-
Upstream (P25,000 x 40%) ( 10,000) 100,000
Consolidated CI P 300,000
Attributable to NCI (P100,000 x 25%) (25.000)
Attributable to parent P 275,000

VI. Popo Corp purchased 95% of the stock of Sotto Company in January 20x1. During 20x1,
Sotto sold goods to Popo. On Dec 31,20x1, Sotto had unrealized profits on its books of
P10,000. By Dec 31, 20x2, all of the inventory left on Popo’s books had been sold to
outsiders. During 20x2, Popo sold inventory to Sotto and had P15,000 of unrealized profits
left on its books at the end of 20x2. For 20x2, Popo reported net income of P500,000 and
Sotto reported net income of P360,000. What is the CI attributable to parent for 20x2 ?

CI from own operations – Popo P 500,000

Unrealized profit in ending inventory – Downstream ( 15,000)
Realized CI from own operation – Popo P 485,000
Adjusted CI from own operations - Sotto
CI P 360,000
Realized profit in beginning inventory-
Upstream 10,000 370,000
Consolidated CI P 855,000
Attributable to NCI (P370,000 x 5%) 18,500
Attributable to parent P 836,500