Question

On December 31, 2015, P Company purchased 70 percent of the outstanding shares of S Company at a cost of P423,250. On that date, S Company had P145,000 worth of share capital and P362,500 worth of accumulated profits.

For 2016, P Company had income of P290,000 from its own operations and paid dividends of P145,000. S Company, on the other hand reported income of P43,500 and paid dividends of P29,000. All assets and liabilities of S Company have book values approximately equal to their market values.

The beginning inventory of P Company includes P8,000 of merchandise purchased from S Company on December 31, 2015 at 150 percent of cost. The ending inventory of P Company includes P13,050 worth of merchandise purchased from S Company at the same mark-up. P Company uses the FIFO inventory costing. P Company uses the cost method to account for its investment is S Company.

Required:

1.Compute the consolidated net income for 2016.

2. Compute the Non-controlling Interest in Net Income of Subsidiary for 2016.

Answer 1

Ans-1

Opening Inventory of from Subsidiary is not there in the closing (FIFO method) hence this requires no adjustment.

Unrealized portion of profit in closing needs to be adjusted.This will

13050 - 13050/150% = 13050 - 8700 = 4350

Second adjustment will be for the share of P in the dividend received from S i.e.

29000 * 70% = 20300

Note: Dividend payable to NCI = 29000*30%=8700

Ans-2

Share of Non Controlling Interest = 30%*(43500 - 29000) = 30%* 14500*30% = 4350