UNIVERSITY OF SANTO TOMAS

AMV-COLLEGE OF ACCOUNTANCY ACC 4-FINANCIAL ACCOUNTING AND REPORTING

II QUIZ 1-INVESTMENT IN EQUITY SECURITIES

1. THEORIES ( 2 pts, each )

1. Under PFRS 9, the cumulative balance of equity as a result of measuring financial

assets at fair value through other comprehensive income:
A. Shall be reversed to profit or loss at the date the security is sold
B. Shall be reversed to profit or loss when there is an objective evidence of impairment
C. Shall not be reversed to profit or loss but may be transferred to retained earnings account
D. Shall not be reversed to profit or loss but may be transferred to revaluation surplus account
2. Which of the following is not correct regarding trading securities?
A. They are classified as current assets
B. Unrealized holding gains and losses are reported in profit or loss
C. Cash dividend shall be recognized as dividend income
D. Share in profit of the investee increases carrying of the investment
3. Investments in equity securities that provide neither control nor significant influence
over the investee, are measured at the end of the reporting period at
A. Fair value B. Cost
C. Carrying value D. Net realizable value
4. Which of the following dividends received by an investor holding equity investments
valued at fair value is not recognized as dividend income?
A. Cash dividend B. Property dividend
C. Liquidating dividend D. None of the above
5. The following statements are based on PAS 28 (Investment in Associates):
Statement I: An investment in an associate shall be accounted for using the equity
method (benchmark) or cost method (alternative).
Statement II: An investor shall discontinue the use of equity method from the date when
it ceases to have significant influence over an associate and shall account for the
investment in accordance with PAS 39.
Statement III: On the loss of significant influence, the investor shall measure at historical
cost any investment the investor retains in the former associate.
A. Only statement I is false B. Only statement II is true
C. Only statement III is true D. All of the statements are false

6. Which of the following statements is a proper accounting treatment and measurement

of investments?
A. Investments at fair value shall be carried at fair value less cost to sell
B. Investment in associate shall be carried using the equity method
C. Dividends paid reduce the carrying amount of investment at fair value
D. Share in profit of investee increases the investment at fair value
7. In case of an investment in associate reclassified to fair value through OCI due to loss
of significant influence, the gain/loss from cessation that is unrealized shall:
A. Be reported in profit or loss B. Be reported in OCI
C. Be directly reported in retained earnings D. Not be accounted for

8. Change those arising from revaluation subsequent to acquisition of investment in

associate shall
A. Be recognized in profit or loss
B. Be recognized in OCI
C. Not be adjusted to the carrying value of the investment
D. Be disclosed only in the notes to the FS
9. An entity has 25% investment in ordinary share and 30% investment in preference
share over the investee. Which of the following is true?
A. Both investments should be classified as Investment in Associate
B. The 25% interest may be classified as Investment at fair value and 30% may
be classified as Investment at Amortized cost
C. Both investments may be classified as Investment at fair value
D. The 30% may be classified as Investment in Associate and 25% may be classified as
Investment at fair value
10. Which of the following items does not affect the Investment in Associate account of
the Investor?
A. Share in net loss of the associate
B. Cash dividends received from the associate
C. Share in Other comprehensive income recognized by the associate
D. None of the choices
11. How would an increase in the fair value of the ordinary shares affect the investment
account under each of the following appropriate classification?
Trading equity securities Investment in Associate
A. Increase Increase
B. Increase No effect
C. No effect No effect
D .No effect Increase
12. Gains or losses on sale of Investment at FVOCI are recognized
A. In profit or loss whether debt or equity securities
B. In profit or loss when debt securities only
C. In other comprehensive income whether debt or equity securities
D. In profit or loss when equity securities only
13. Unrealized holding gains or losses which are recognized in the statement of
comprehensive income are from securities classified as
A. FVPL only B. FVPL and FVOCI
C. FVOCI and Investment in Associate D. FVOCI only
14. For an investment in equity securities classified as FVOCI, unrealized loss taken to
equity is
A. The excess of fair value over the original cost
B. The excess of fair value over the amortized cost
C. The excess of original cost over the fair value
D. The excess of amortized cost over the fair value
15. Which of the following is true when "significant influence" is lost by the investor over
the associate ?
A. The investor may still use the equity method until the asset is sold
B. The investor may recognize gain or loss on remeasurement of the investment
C. This situation refers to investment in associate achieved in stages
D. The investor shall account for retained investment as financial asset through other
comprehensive income only
II. PROBLEM SOLVING (2.5 pts. each )
Problem I
Grapes Company purchased 20,000 ordinary shares of Ubas Corp. for P700,000 which
includes P5,000 transaction cost, on January 1, 2017. December 31, 2017, the shares were
selling at P32, which increased to P36 on December 31, 2018.
On June 30, 2019, Ubas Corp. distributed 20% bonus issue. On July 15, 2019, Grapes
Company sold 15,000 shares at P35 per share. On December 31, 2019, Ubas Corp. shares
were selling at P34 per share.
If Grapes Company classified the investment as held for trading, determine the following:
1. The amount of unrealized gains or losses that should be included in the profit or
loss statement for the year ended December 31, 2017.

2. The amount of gain or loss on sale on July 15, 2019.

IF Grapes Company classified the investment as fair value through other comprehensive
income,determine the following:
3. The amount of unrealized gain/loss that should be reported in the statement of
financial position on December 31, 2018.
 4. The cumulative balance of unrealized gain/loss that would be transferred to
retained earnings in relation to the sale of 15,000 shares.

Problem II
Ogen Trading has the following securities in its investment at fair value through other
comprehensive Income. An analysis of the investments on December 31, 2017 showed the
following:
Market value
No. of shares Cost Market Value
NI Co. common 600 shares 307,500 270,000
TRO Inc. common 225 shares 76,500 90,000
GEN Co. common 2,000 shares 269,500 280,600

On July 1, 2018, the shares of TRO were sold for P 70,000. On December 31, 2018, NI shares
were quoted at P 440 per share; GEN shares were quoted at P 138 per share.

5. How much is the unrealized gain/loss that should be reported in the statement of
financial position on December 31, 2018?

6. How much is the total amount reported in 2018 profit or loss assuming the
designation is investment at fair value through profit or loss?

Apple Company owns 8% of Orange Inc. P100 par, 150,000 outstanding ordinary shares
which was acquired on November 10, 2017 for P1,320,000. Apple classified this as fair value
through profit or loss.
On December 1, 2017, Orange declared a P2 per share cash dividend to shareholders of
record January 10, 2018, payable on January 31, 2018.
On December 28, 2017, Apple sold all the shares to Banana Company at P115 per share.
7. How much gain or loss on sale shall be recognized by Apple on December 28,
2017?
 8. 8. By what amount shall Banana record the investment acquired from Apple on
December 28, 2017?

9. Which company shall recognize the dividend income for the year 2017?

Japan Company owns 10,000 shares of Tokyo Inc., P100 par, 150,000 outstanding ordinary
shares, which were acquired on January 1, 2017 at P120 per share. Japan classified this as fair
value investment. On May 31, 2017, Tokyo, Inc. issued stock rights to Japan Company that may
be used to purchased additional 2,000 shares of Tokyo at P80 per share.
On December 1, 2017, when Tokyo Inc.'s shares were at P120 per share, Japan Company
exercised 60% rights and purchased some shares. The remaining rights were sold in 2018.
10. How much is the cost of the new investment as a result of exercising the rights?

11. How much is the total investment income for the year 2017?

12. How much should be reported as investment in stock rights on December 31,
2017?

On January 1, 2017, Silicon Corp. acquired 20,000 shares of the 125,000 outstanding of SI
Company's ordinary shares for P5,000,000. Silicon does not have any significant influence nor
control over the financial and operating policy of Si. Si Company reported during 2017 a total
net income of P4,000,000 and distributed dividends of P400,000. On January 1, 2018, Silicon
purchased additional 10,000 ordinary shares at P260 per share. The net assets of Si are fairly
valued. During 2018, Si Company reported net Income of P2,000,000 and distributed a total
dividends of P100,000.
13. What is the carrying value of Investment on December 31, 2018?
14.How much is the carrying value of investment in associate immediately after the
second acquisition?

Peso Corporation acquired 20,000 shares of Yen Company on March 1, 2017 at a total cost of
P940,000 including brokerage fees and commissions of P40,000. The company received a
P40,000 cash dividend on July 31, 2017. Yen Company shares were acquired by the company
with the intention of designating the same as a financial asset at fair value through profit or loss.
The shares were selling at P40 per share as of December 31, 2017.
On May 1, 2017, 15,000 shares of Yuan Corporation were acquired at P30 per share. On July 1,
2017, Yuan's shares were split 5 to 1. The company had neither significant influence over Yuan
Corp. nor does it intend to sell the stocks for short-term profits, thus designated the same at fair
value through other Comprehensive income. Yuan transferred to Peso Corp. its investment in
Won Corp. representing 5,000 shares as dividend. The fair values per share of Yuan and Won
on this date were P15 and P25, respectively. Peso designated this as fair value through profit or
loss. The market values of Yuan shares and Won shares were P12 and P20, respectively on
December 31, 2017.
15. How much is the total dividend income for the year 2017?
16. How much is the total carrying value of Investment at FVPL on December 31, 2017?
17. How much is the total unrealized gain/loss that should be presented in the
Statement of Comprehensive Income for year 2017?

On June 1, 2017, Straw Company acquired 18% equivalent to 20,000 shares of Berry
Company for P2.500.000 when Berry's net assets had carrying values of P12,000,000. The
acquisition Still resulted to having a significant influence because of the material transactions
between Straw and Berry. Except for land whose fair value is P500,000 higher than its book
value, an equipment (with 3 years remaining tre from the date of acquisition) whose fair value
exceeds its carrying values by P800,000, and inventories with a book value of P4,500,000 and
fair value of p4,700,000. All other identifiable assets and liabilities show carrying values equal to
their fair values.
On December 31, 2017, 20% of the inventories remained unsold and Berry reported a
an increase in revaluation surplus of P200,000 and net income of P5,400,000. Straw received
from Berry a total dividends of P540,000. Fair value of the shares at year-end is P140 per
share.
18. How much from the acquisition cost is attributable to goodwill?
19. How much is the adjusted investment income taken to profit or loss for the year
ended 2017?
20.How much is the carrying value of the investment on December 31, 2017?

Cobalt Company purchased 150,000 ordinary shares of the 750,000 ordinary shares and
50,000 preference shares of the 200,000, P100 par, 12% Cumulative preference shares of Co
Company. On December 31, 2017, Co company reported net income of P3,000,000 and
declared dividends to preference shareholders.
21. How much is the total income taken to 2017 profit or loss statemen

Fluorine, Inc. bought 40% of F Corp.'s outstanding ordinary shares on January 2, 2017,
for P4,000,000. The carrying amount of F's net assets at that date totaled P9,000,000. Fair
values and carrying amounts were the same for all items except for a machinery, for which fair
value exceeded its carrying amount by P900,000. The machinery has an estimated remaining
useful life of 15 years. During 2017, F Corp.'s reported net income of P1,200,000 and paid a
total P 200,000 cash dividend. During 2018, F Corp.'s reported a net profit of P825,000 and
Fluorine received a cash dividend of P40,000.
22. How much is the carrying value of investment on December 31, 2017?
23. How much is the carrying value of investment on December 31, 2018?

Damelo Company purchased 150,000 ordinary shares of the 750,000 ordinary shares and
100,000 preferencence shares of the 200,000, P100 par, 12% preference shares of Kiwi
Company. On December 31, 2017 Kiwi reported net income of P5,000,000 and declared
P2,150,000 preference dividends.
24. How much is the share in net income assuming the preference share is non-
cumulative?
25. How much is the share in net income assuming the preference share is cumulative

On January 1, 2017, Lychee Company acquired 25%, equivalent to 30,000 shares of Tomato
Company for P3,000,000. All identifiable assets and liabilities of Tomato show carrying values
equal to their fair values, On December 31, 2017, Tomato reported a net income of P5,000,000.
Lychee received from Tomato a total dividends of P400,000. Fair value of the shares on
December 31, 2017 is P140 per share.
On January 1, 2018, Lychee sold 12,000 shares of Tomato at fair value existing at end of 2017.
A loss of significant influence occurred as a result of sale. During 2018, Tomato reported a net
income of P2,000,000 and distributed a total dividends of P600,000. Fair value at the end of
2018 is P160 per share.
26. How much is the total income taken to profit or loss that should be recognized on
January 1, 2018?
27. How much is the total unrealized gain/loss that should be taken to 2018 profit or loss
assuming the investment was reclassified to FVPL?
28.How much is the total income that should be reported in the statement of
comprehensive income for the year 2018 assuming the investment was reclassified to
FVOCI?
QUIZ 1 FINACC 2
THEORIES PROBLEMS
1. C 1. 55,000-Unrealized Loss
2. D 2.75,000
3. A 3. 20,000-Unrealized Gain
4. C 4. 87,500
5. C 5. (37,000)
6. B 6. (30,600)
7. A 7. 36,000
8. B 8. 1,356,000
9. C 9. Apple Company
10. D 10. 144,000
11. B 11. 80,000
12. D 12.32,000
13. B 13. 8,256,000
14. C 14. 7,800,000
15. B 15. 165,000
16. 900,000
17. 325,000
18.70,000
19.510,200
20. 2,506,200
21. 720,000
22 4,376,000
23. 4,642,000
24. 570,000
25. 520,000
26. 350,000
27. 360,000
28. 800,000