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On January 1, 2019, Entity A acquired 60% of outstanding ordinary shares of Entity B at a gain on bargain purchase of P40,000. For the year ended December 31, 2020, Entity A and Entity B reported sales revenue of P2,000,000 and P1,000,000 in their respective separate income statements. At the same year, Entity A and Entity B reported cost of goods sold of P1,200,000 and P700,000, respectively.

During 2019, Entity A sold inventory to Entity B at a selling price of P280,000 with gross profit rate of 40% based on cost. On the other hand, Entity B sold inventory to Entity A at a selling price of P400,000 with gross profit rate of 30% based on sales during 2020.

On December 31, 2019, 25% of the goods coming from Entity A remained in Entity B's inventory but all were eventually sold to third persons during 2020. As of December 31, 2020, 40% of the goods coming from Entity B were eventually sold to third persons.

For the year ended December 31, 2020, Entity A reported net income of P500,000 while Entity B reported net income of P200,000 and distributed dividends of P50,000. Entity A accounted for its investment in Entity B using cost method in its separate financial statements.

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