10-16.

Del Corporation

Requirement (1)
Assuming “other income” is zero, then the entire P74 million for 2006 and the P127 million for
2005 are equity in the income of affiliated companies:

2006 2005
Equity in income of affiliated companies...................................... P 74 P127
Less: Undistributed equity in income of affiliated companies...... 27 84
Maximum amount of dividends that could be received................. P 47 P 43

If dividends were zero, then all of the equity in income of affiliated companies would be retained.
Since the amount actually retained was P27 million, the amount of other income is P74 million
less P27 million, or P47 million.

Requirement (2)
Investment at December 31, 2006........................................... P1,456
Investment at December 31, 2005........................................... 1,332
Increase in investment in equity.............................................. P 124
Amount of increase resulting from undistributed equity
in income of affiliated companies....................................

27
Amount of increase (decrease) in investment from other
sources P 97

It appears Del either increased its equity holdings in its affiliated companies, or made “advances”
which had been recorded in the Investments account.

Requirement (3)
Rate of return on average investment in equity-basis companies = P74 / ([P1,332 + P1,456] / 2) =
0.053%

Requirement (4)
If the investment at equity represents a 50% owned joint venture with no goodwill or adjustment
for book value to fair value of net assets, the total shareholders’ equity (TSE) can be approximated
as:
Investment in Affiliate, at equity = 50% x TSE of Affiliate Joint Venture
TSE of Affiliate = P1,456 / 0.50 = P2,912 million.

Knowing the percentage owned allows estimates of the net assets of the equity-basis companies to
be made, assuming there are no adjustments or goodwill involved.