PROBLEM NO.

GGG company portfolio of debt securities at December 31, 2015 and December 31, 2016 are shown
below. All the bonds were acquired by the company at the beginning of 2015.

December 31, 2015 December 31, 2016

Face Value Acquisition Amortized Fair values Amortized Fair values
Costs costs costs
12% ADIOS P1,000,000 1,063,397 1,049,737 1,024,437 1,034,711 1,052,773
10% 2,000,000 1,903,926 1,932,398 1,965,750 1,964,286 2,018,348
SAYONARA
12%, AUF 3,000,000 3,190,191 3,149,211 3,073,311 3,104,132 3,158,320

ADIOS and AUF company bonds were acquired at prevailing market rate of interest at 10%, while
SAYONARA company bonds were acquired at an effective rate of 12%.

The prevailing market rate of interest at the end of 2015 and 2016 applicable to the bonds were at 11%
and 9% respectively.

Situation 1: Assuming that the above securities are properly classified as FVTPL under PFRS 9.

Situation 2: Assuming that the above securities are financial assets that are held within a business model
whose objective is achieve by both collecting contractual cash flows and selling financial assets and the
contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments
of principal and interest on the principal amount outstanding.

Situation 3: Assuming that the financial assets are held within a business model whose objective is to
hold financial assets in order to collect contractual cash flows and the contractual terms of the financial
asset give rise on specified dates to cash flows that are solely payments of principal and interest on the
principal amount outstanding.

Answer the following:

1. How much is the unrealized holding gain or (loss) to be reported in the company’s income
statement for 2015 and 2016?
a. (67,848); 126,312 c. (26,168); (28,217)
b. (94,016), 165,943 d. 0; 0
2. How much is the corresponding interest income to be reported in the company’s income
statement for 2015 and 2016?
a. 680,000; 680,000 c. 585,984; 845,943
b. 653,832; 651,783 d. 0; 0
3. What is the carrying value of the investment in debt securities categorized as trading as of
December 31, 2015 and 2016?
a. 6,000,000; 6,000,000 c. 6,157,514; 6,157,514
b. 6,131,346; 6,103,129 d. 6,063,498; 6,229,441
4. If the SAYONARA bonds were sold at P2,000,000 on January 2, 2017, how much realized gain or
(loss) on the sale should be recognized?
a. 35,714 b. 96,074 c. (67,602) d. (18,348)

PROBLEM NO. 2

RRR company purchases P1,000,000 financial assets at fair value through OCI, 10% bonds for
P1,079,870 on January 1, 2020. The bonds were purchased to yield 8% interest. Interest is payable
annually on December 31. RRR uses the effective interest method to amortize premium or discount. On
January 2, 2022, RRR sold the bonds for P1,500,000 after receiving interest to meet its liquidity needs.

The market values of the bonds are as follows; December 31, 2020, P1,032,370; December 31, 2021,
P1,078,730.

Questions

1. Interest income for the year 2020

a. 100,000 c. 85,301
b. 86,390 d. 88,456
2. Unrealized loss on FVTOCI as of December 31, 2020
a. 33,890 c. 27,169
b. 14,699 d. 19,191
3. Interest income for the year 2021
a. 100,000 c. 85,301
b. 86,390 d. 88,456
4. Unrealized gain or loss on FVTOCI as of December 31, 2021
a. 27,170 gain c. 61,059 loss
b. 46,360 loss d. 12,470 gain
5. Realized gain on sale of FVTOCI on January 2, 2022
 a. 448,440 gain c. 467,360 gain
b. 421,270 gain d. 482,329 gain

PROBLEM NO. 3

On January 1, 2018, KKK company acquired a 4-year bonds with a face value of P1,800,000 and stated
interest of 10% per year. The bonds mature in 4 equal annual installments every December 31. The
interest is also payable every December 31. The bonds were acquired to yield 12%. The bonds are to be
appropriately classified as financial asset at amortized cost.

Questions: (Round off present value factors to four decimal places)

1. How much is the purchase price of bonds on January 1, 2018?

a. Nil c. 1,727,834
b. 612,167 d. 1,030,521
2. How much is the interest income for 2018?
a. Nil c. 156,621
b. 207,340 d. 188,052

PROBLEM NO. 4

On January 1, 2016, FFF company purchased 5-year bonds with face value of P2,000,000 and stated
interest rate of 10% per year payable annually every December 31. The bonds were acquired to yield
12%. The following date relate to the bonds:

December 31, 2016 December 31, 2017

Acquisition Costs Amortized Cost Fair Value Amortized Cost Fair Value
1,855,809 1,878,506 2,064,794 1,903,927 1,951,126
The prevailing market rate of interest applicable to the bonds at the end of 2016 and 2017 were at 9%
and 11%, respectively. The prevailing market rate of interest on January 1, 2018 is also 11%.

Scenario 1: Assuming the above securities are properly classified as FVTPL under PFRS 9 and assuming
that the bonds are reclassified into:

Case 1: Financial Asset at FVTOCI

Case 2: Financial Asset at Amortized Cost

Scenario 2: Assuming that the above securities are properly classified as FVTOCI under PFRS 9 and
assuming that the bonds are reclassified into:

Case 1: Financial Asset at FVTPL

Case 2: Financial Asset at Amortized Cost

Scenario 3: Assuming that the above securities are properly classified as FAAC under PFRS 9 and
assuming that the bonds are reclassified into:

Case 1: Financial Asset at FVTPL

Case 2: Financial Asset at FVTOCI

Required:

Under each item described above, prepare the necessary entries on January 1, 2018 and December 31,
2018. The fair value of the bonds on December 31, 2018 is P2,020,000.

PROBLEM NO. 5

On January 1, 2017, RRR company acquired a 5-year bonds with a total face value of P5,000,000 and
stated interest of 12% per year payable annually on December 31. The bonds were acquired to yield
10%. The bonds are to be appropriately classified as financial asset at amortized cost.

On January 3, 2018, the ½ of the bonds were sold at 105.

On November 1, 2018, RRR company changed its business model. It was determined that the remaining
financial asset at amortized cost should be reclassified to held for trading securities on reclassification
date. On December 31, 2018, the bonds are quoted at 102.

On January 1, 2019, the bonds were quoted at 104.

Questions:

1. How much is the interest income for 2017?

a. Nil c. 600,000
b. 537,908 d. 645,489
2. How much is the unrealized gain (loss) in 2017 to be recognized in the profit or loss?
a. Nil c. 200,000
b. (179,079) d. (379,079)
3. How much is the realized gain (loss) on sale in 2018 to be recognized in the profit or loss?
a. Nil c. (33,494)
b. 25,000 d. (64,540)
4. How much is the interest income for 2018?
a. 265,849 c. 531,699
b. 300,000 d. 600,000
5. How much is the gain (loss) on reclassification to be recognized in the profit or loss on January 1,
2019?
a. Nil c. 50,000
b. (24,343) d. 100,000

PROBLEM NO. 6

On January 1, 2019, GGG bank loaned P3,000,000 to a borrower. The contract specified that the loan
had a 6-year term and a 9% interest rate.

Interest is payable annually every December 31 and the principal amount will be collected on December
31, 2024. Interest is collected for 2019.

On December 31, 2019, the bank determined that the loan has a 12-month probability of default of 2%
and expected to collect only 90% of the loan.

On December 31, 2020, the bank determined that there is significant increase in the credit risk of the loan
but no objective evidence of impairment.

Based on relevant information, the bank concluded that there is a 30% probability of default over the
remaining term of the loan and it is expected that only 60% of the loan will be collected. Interest is
collected for 2020.

On December 31, 2021, the borrower was under financial difficulty and the loan was considered impaired.

The bank agreed that only 40% of the principal will be collected on due date. Interest is collected for
2021.

The present value of 1 at 9% is 0.65 for 5 periods, 0.71 for four periods and 0.77 for three periods.

Required:

1. Prepare the journal entries for 2019, 2020 and 2021

2. Compute the carrying amount of the loan receivable on December 31, 2019, 2020 and 2021.

PROBLEM NO. 7

On January 1, 2015, LLL company acquired a 4-year bonds with a face value of P4,000,000 for
P3,756,920. The stated interest is 10% per year payable annually on December 31. The bonds were
acquired to yield 12%. The bonds are to be appropriately classified as financial asset at amortized cost.

On December 31, 2015, after receiving the interest, the issuer of the financial instrument is in financial
difficulties and it becomes probable that an impairment loss should be recognized. The company
assesses that only the principal amount will be received on the maturity date. On that date, the prevailing
rate of interest is 14%. The present value of the future cash flows based on 14% is P3,078,000 while the
present of expected cash flows for the remaining period using 12% is P3,188,800.

Questions:

1. How much is the impairment loss in 2015?

a. Nil c. 786,680
b. 675,880 d. 110,800
2. How much is the interest income for 2016?
a. 430,920 c. 471,599
b. 421,070 d. 382,656
PROBLEM NO. 8

Your audit of UUU company disclosed that the company owned the following securities on December 31,
2017:

Trading Securities

Securities Shares Cost Market

PANAGHOY 14,400 P216,000 P276,000

LAMENTATIONS 24,000 P648,000 P432,000

P864,000 P708,000

Fair Value through OCI securities

Equity Securities Shares Cost Market

ZEPHANIAH 360,000 P9,360,000 P8,760,000

Debt Securities Cost Fair Value Unrealized Gain

12%, P5,000,000 face value, ? P5,350,000 P38,600

Genesis Bonds, acquired on

January 1, 2017

(Interest is payable every Dec. 31)

Financial Asset at Amortized Cost

Cost Book Value

13%, P2,000,000 face value, P1,881,000 P1,903,150

Exodus Bonds (Interest is payable

Annually December 31)

The following transactions occurred:

March 1, 2018: Sold 12,000 shares of LAMENTATIONS stock for P204,000.

December 30, 2018: The company changes its business model. It was determined that the EXODUS
bonds be reclassified to held for trading.

On January 1, 2019, the bonds were quoted at 101. The EXODUS bonds were purchased on January 2,
2017. The discount was amortized using effective interest method.

The market value of the stocks December 31, 2018, are as follows:

PANAGHOY P22 per share

LAMENTATIONS P15 per share

ZEPHANIAH P28 per share

GENESIS 104

UUU company reported net unrealized loss of P42,540 on the GENESIS bonds on December 31, 2018
statement of financial position.

Questions:

1. Gain (or loss) on sale of 12,000 LAMENTATIONS shares on March 1, 2018

a. 12,000 c. (96,000)
b. (12,000) d. 96,000
2. Interest income on the GENESIS bonds for the year 2018
a. 537,499 c. 531,140
 b. 524,254 d. 600,000
3. Interest income on the EXODUS bonds for the year 2018
a. 260,000 c. 285,473
b. 282,150 d. 247,410
4. The gain (loss) on reclassification on January 1, 2019?
a. 228,590 c. 91,377
b. 185,460 d. Nil
5. The carrying value of trading securities and financial assets at FVTOCI as of December 31, 2018
should be
Trading Securities FA at FVTOCI
a. 496,800 15,280,000
b. 496,800 17,300,000
c. 540,000 5,166,794
d. 540,000 15,280,000

PROBLEM NO. 9

Your audit of AAA company disclosed that the company financial assets at fair value through OCI
securities on December 31, 2020:

Financial assets at fair value through OCI securities

Cost Unrealized Gain

15%, P4,000,000 face value, Andrew Bonds

(interest payable annually every Dec. 31) ? P115,800

Additional information:

 Acquired 40% interest in Simon Peter Company for P3,400,000 on January 1, 2021. The
shareholder’s equity of Simon Peter Company on January 1 and December 31, 2021 is presented
below:

January 1 December 31

Share Capital 6,000,000 6,000,000

Revaluation Surplus 2,600,000

Retained Earnings 2,000,000 3,000,000

On January 1, 2021, all the identifiable assets and liabilities of Simon Peter Company were recorded at
fair value. Simon peter company reported profit of P1,300,000, after income tax expense of P700,000 and
paid dividend of P300,000 to shareholders during the current year.

The revaluation surplus is the result of the revaluation of land recognized by Simon Peter company on
December 31, 2021. Additionally, depreciation is provided by Simon Peter Company on the diminishing
balance method whereas AAA company uses straight line, the accumulated depreciation would be
increase by P400,000. The tax rate is 35%.

 The Andrew Bonds were acquired on January 1, 2020. The bonds mature on December 31,
2023. The bonds are quoted at 115% on December 31, 2020. On December 31, 2021, the
company properly reported unrealized loss on these bonds in the statement of changes in equity
amounting to P252,620.

The market value of the stocks and bonds on December 31, 2021, are as follows:

Simon Peter P200 per share

Andrew Bonds 102%

Questions:

1. What is the investment revenue on Simon Peter’s stock for the year ended December 31, 2021?
a. 416,000 c. 1,040,000
b. 640,000 d. 1,440,000
2. Carrying amount of investment in Simon Peter as of December 31, 2021?
a. 4,736,000 c. 3,800,000
b. 3,400,000 d. 4,640,000
3. How much is the acquisition cost of the bonds on January 1, 2020?
a. 4,115,800 c. 4,622,000
 b. 3,884,200 d. 4,484,200
4. How much is the interest income on Andrew Bonds for the year ended December 31, 2021?
a. 462,200 c. 600,000
b. 448,420 d. 411,580
5. Net unrealized gain or loss on financial assets at fair value through OCI securities as of
December 31, 2021.
a. 136,820 c. 252,620
b. 115,800 d. 368,420