FINANCIAL ASSET AT FAIR VALUE MEASUREMENT-FVPL and FVOCI

PROBLEM 1

During 2021, Leo Company purchased marketable equity securities as a trading investment.

For the year ended December 31,2021, the entity recognized an unrealized loss of P200,000.

There were no security transactions during 2022. The entity provided the following information on
December 31,2022.

Security Cost Market Value

A 2,450,000 2,300,000

B 1,800,000 2,700,000

4,250,000 5,000,000

In the 2022 income statement, what amount should be reported as unrealized gain or loss?

PROBLEM 2

At the beginning of current year, Anya Company acquired nontrading equity instrument for P4,000,000.

The equity instrument is irrevocably designated as financial asset at fair value through other
comprehensive income.

The transaction cost incurred amounted to P700,000.

The fair value of the instrument was P5,500,000 at year-end and the transaction cost that would be
incurred on the sale of investment is estimated at P600,000.

What amount of gain should be recognized in other comprehensive income for the current year?

PROBLEM 3

On December 31,2021, Zeinab Company appropriately reported a P100,000 unrealized loss.

There was no change during 2022 in the composition of the portfolio of nontrading equity securities
held at fair value through other comprehensive income.

Security Cost Market Value

December 31,2022
 A 1,200,000 1,300,000

B 900,000 500,000

C 1,600,000 1,500,000

3,700,000 3,300,000

1. What is the market value of the investment on December 31,2021?

2. What amount of loss on these securities should be included in the statement of comprehensive
income for the year ended December 31,2022 as component of OCI?

3. What cumulative amount of loss on these securities should be reported in the statement of changes
in equity for the year ended December 31,2022 as component of OCI?

EQUITY INVESTMENT (DIVIDEND,SHARE SPLIT, AND SHARE RIGHT)

PROBLEM 4

On January 1,2021, ABC Company purchased 40,000 shares at P100 per share to be held for trading.
Brokerage fees amounted to P120,000.

A P5 dividend per share had been declared on Decembee 15,2020 to be paid on March 31,2021 to
shareholders of record on January 31,2021. No other transactions occurred in 2021 affecting the
investment.

What amount should be recognized as initial cost of investment?

PROBLEM 5

During 2021,Lawan Company bought the shares of Burwood Company.

June 1 20,000 shares @P100

December 1 30,000 shares @P120

Transactions for 2022

January 10 Received 20% share dividend.

July 20 Received cash dividend of P10 per share.

December 10 Sold 30,000 shares at P125 per share.

2. What amount should be recognized as gain on the sale of shares under FIFO approach?

3. What amount should be recognized as gain on sale of shares under average approach?

PROBLEM 6

Day Company received dividends from share investments during the current year:

a. A share dividend of 4,000 shares from Parr Company when the market price of Parr's share was P20.
Day Company owns less than 1% of Parr's share capital.

b. A cash dividend of P150,000 from Lark Company in which Day Company owns a 25% interest. A
majority of Lark's directors are also directors of Day Company.

What amount of dividend revenue should be reported for the current year?

PROBLEM 7

Rice Company owned 30,000 ordinary shares of Wood Company acquired on July 31 at a total cost of
P1,100,000

On December 1, Rice received 30,000 share rights from Wood. Each right entitles the holder to acquire
one share at P45.

The market price of Wood's share on this date was P50 and the market price of each right was P10. Rice
sold the rights on December 31 for P450,000 less a P10,000 commission.

What amount should be reported as gain from the sale of the rights?

INVESTMENT IN ASSOCIATE

PROBLEM 8

At the beginning of current year, a company acquired 20% of the outstanding ordinary shares of Davis
Company for P8,000,000.

The investment gave Farley the ability to exercise significant influence over Davis. The carrying amount
of the acquired shares was P6,000,000.

The excess of cost over carrying amount was attributed to a depreciable asset which is undervalued on
Davis’ Statement of Financial Position and which had a remaining useful life of ten years.

The investee reported net income of P1,800,000 and paid cash dividends of P400,000 and thereafter
issued 5% share dividend during the current year.

1. What amount should be reported as investment income for the current year?
2. What is the carrying amount of the investment in associate at year-end?

PROBLEM 9

Blue Company purchased 10% of Tot Company's 100,000 outstanding ordinary shares on January 1,2021
for P500,000.

On December 31,2021, Blue Company purchased an additional 20,000 shares of Tot Company for
P1,500,000. Tot Company had not issued any additional shares during 2021.

The fair value of the 10% interest is P900,000 on December 31, 2021.

1. What is the carrying amount of the investment in associate on December 31,2021?

2. What total amount of income should be recognized in 2021?

PROBLEM 10

On January 1,2021, Haven Company acquired 20% of the ordinary shares of an associate for P6,000,000.
On this date, all the identifiable assets and liabilities of the associate were recorded at fair value.

An analysis of the acquisition showed that goodwill of P300,000 was acquired. The associate reported
the following net income and dividend:

2021 2022

Net income 3,000,000 4,000,000

Dividend paid 1,000,000 1,500,000

In December 2021, the associate sold inventory to Haven Company for P900,000. The cost of inventory
was P600,000

The inventory remained unsold by Haven Company on December 31,2021. However, it was sold by
Haven Company in 2022.

In December 2022, the associate sold inventory to Haven Company for P750,000. The cost of inventory
was P500,000.

The inventory remained unsold by Haven Company on December 31,2022.

1. What amount should be reported as investment income for 2021?

2. What amount should be reported as investment income for 2022?

FINANCIAL ASSET AT AMORTIZED COST

PROBLEM 11

On July 1,2021, Cody Company paid P1,198,000 of 10%,20-year bonds with a face amount of
P1,000,000. Interest is paid on June 30 and December 31.

The bonds were purchased to yield 8%. The effective interest method is used to recognize interest
income from this long-term investment.

What is the carrying amount of the investment in bonds on December 31,2021?

PROBLEM 12

On July 1, 2021, York Company purchased as a long-term investment P1,000,000 of Park Company's 8%
bonds for P946,000, including accrued interest of P40,000. The bonds were purchased to yield 10%
interest.

The bonds mature on January 1,2027, and pay interest annually on January 1. York Company used this
effective interest method of amortization?

1. What amount should be reported as interest income for 2021?

2. On December 31,2021, what is the carrying amount of the investment in bonds?

PROBLEM 13

Jent Company purchased bonds at a discount of P100,000. Subsequently, Jent sold these bonds at a
premium of P140,000.

During the period that Jent held this long-term investment, amortization of the discount amounted to
P20,000

What amount should be reported as gain on the sale of bonds?

PROBLEM 14

On January 1,2021, Michelle Company purchased bonds with face amount of P5,000,000 . The entity
paid P4,600,000 plus transaction cost of P142,000.

The bonds mature on December 31,2023 and pay 6% interest annually on December 31 of each year
with 8% effective yield.

The bonds are quoted at 105 on December 31,2021 and 110 on December 31,2022.
The business model in managing the financial asset is to collect contractual cash flows that are solely
payments of principal and interest and also to sell the bonds in the open market.

1. What amount of unrealized gain should be reported as component of other comprehensive income
for 2021?

2. What cumulative amount of unrealized gain should be reported as component of other

3. What amount should be reported as interest income in 2022?