Investments: Problem 1

ACC124AUDITING AND ASSURANCE: CONCEPTS AND APPLICATIONS 2 BSA
INVESTMENTS
PROBLEM 1
On January 1, 2019, YUWI Co. purchased 10% 700,000 at 95 when the prevailing market interest rate is 12%.
The bonds mature after 5 years and pay interest beginning January 1, 2020. Commission paid on the
acquisition amounted to P9,129.
On January 4, 2020, the bonds were sold at 105. The effective interest rates as of the end of year are as
follows:
December 31, 10%
2019
December 31, 12%
2020
December 31, 9%
2021
December 31, 14%
2022
REQUIRED:
Complete the table below: (Round off PV factors to 6 decimal places)
Applicable Standard IFRS 9 IFRS 9 IFRS 9

Classification FVTPL FVTOCI Amortized Cost
At what amount should the investment be initially recorded at?
Unrealized gain (loss) to be recognized in profit or loss on December
31, 2019?
How much is gain or loss to be recognized in other comprehensive
income in 2019?
How much is the interest income to be recognized in 2019?
How much is the cumulative gain (loss) to be recognized in the 2019
SFP?
How much should be the asset reported in the SFP as of December
31, 2019?
Unrealized gain (loss) to be recognized in profit or loss on December
31, 2020?
How much is the gain (loss) to be recognized in other comprehensive
income in 2020?
How much is the interest income to be recognized in 2020?
How much is the cumulative gain (loss) to be recognized in the 2020
SFP?
How much the asset should be reported in the SFP as of December
31, 2020?
How much is the realized gain (loss) to be recognized on sale of
investments on January 4, 2022?
Page 1 of 4 Compiled & Adapted

PROBLEM 2
In line with your audit of B Company investment accounts as of December 31, 2020, you noted and
summarized the following information:
Investment Type Carrying Value per books

Investment in bonds 8,000,000
Investment in 6,200,000
equity
In the course of your audit, the following were also noted:
Note 1 (Investment in bonds):

The investment in bonds which will mature on December 31, 2022 were acquired January 1, 2018 when the
prevailing market rate of interest was at 12%. Interest of 10% is collectible every December 31. The
acquisition was recorded by the client in the books as debit to investment in bonds as face value and the
difference of the total consideration given up and face value to interest income. Interest collected from years
2018 to 2020 were appropriately recorded. No entry relating to the investment was made by the client.
Further investigation revealed that the company’s business model with regard to the debt security investment
has an objective of collecting contractual cash flows. The prevailing market rate of interest was at 11%, 9%,
9.5% at the end of 2018, 2019 and 2020.
Note 2 (Investment in equity):

The investment in equity is for 40,000 shares of E Corp.’s ordinary shares acquired in September 30, 2019.
The shares were originally acquired at P145 per share. The book value of the net assets of E Corp on this date
was at P20,000,000 and its total outstanding shares was at 160,000. E’s depreciable assets with average
remaining useful life of 10 years were understated on this date.
Further investigation shows that the fair value of E’s shares was P155 per share at the end of 2019. The
company recorded the re-measurement (from acquisition cost to fair value) of the investment at the end of
2010 and recognized the same as unrealized holding gain in the 2020 profit or loss. There is also an entry for
the receipt of P2 per share dividend by the end of 2019 and P4 per share dividend during 2020 as dividend
income.
You are about to perform a further analysis of the account balance and summarized the relevant information
as follows:
2019 2020
E’s net income 3,800,000 5,200,000
Forex Loss – OCI 400,000
Unrealized holding gain – 300,000
OCI
Fair Value P155 per share P169 per share
REQUIRED:
1. What is the carrying value of the investment in bonds as of December 31, 2020?
2. What is the correct carrying value of the investment in equity as of December 31, 2020?

PROBLEM 3
C Company carries the following equity securities on its books at December 31, 2018 and 2019. All securities
were purchased during 2018.
Financial Assets Fair Value

at Cost 12/31/2019 12/31/2020
FVTPL
A Company 500,000 260,000 400,000
B Company 260,000 400,000 400,000
C Company 700,000 600,000 500,000
Total 0 0 0
Financial Assets Fair Value

at Cost 12/31/2019 12/31/2020
FVTOCI
D Company 4,100,00 3,600,000 3,600,000
0
I Company 1,000,00 1,200,000 1,400,000
0
Total 0 0 0
During 2020, the following transactions took place:
a. Half of I Company shares were sold at P725,000.
b. Purchased another shares (J Company) for P450,000, the company designated the changes in fair
value in other comprehensive income.
c. At the beginning of the year, C acquire additional 10,000 shares of D Company for P2,800,000, D
owned a total of 18,000 shares of D Company after the purchase which is representing 18% of the
voting rights. C obtained significant influence after the purchase.
d. Net income and dividends for the companies were as follows:
Net income Dividends

A Company 500,000 800,000
B Company 400,000 240,000
J Company 300,000 120,000
C Company 600,000 300,000
D 1,200,000 800,000
Company
I Company 500,000 350,000
e. The following were the fair value of the shares at the end of 2020:
No. of FV per share

shares
A Company 5,000 120
B Company 4,000 70
J Company 6,000 68
C Company 7,000 98
D Company 18,000 400
I Company 10,000 40
REQUIRED:
1. How much is the net amount to be recognized in the 2019 comprehensive income?
2. How much is the cumulative unrealized gain (loss) as of December 31, 2019, to be recognized in the
FS?
3. How much is the gain (loss) recognized in profit or loss of I company shares?
4. How much is the carrying value of the investment in associate at the end of 2020?
5. How much is the net amount to be recognized in other comprehensive income in 2020?

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ACC124AUDITING AND ASSURANCE: CONCEPTS AND APPLICATIONS 2 BSA

Applicable Standard IFRS 9 IFRS 9 IFRS 9

Page 1 of 4 Compiled & Adapted

Investment Type Carrying Value per books

In the course of your audit, the following were also noted:

Note 1 (Investment in bonds):

Note 2 (Investment in equity):

Page 2 of 4 Compiled & Adapted

Financial Assets Fair Value

Financial Assets Fair Value

During 2020, the following transactions took place:

a. Half of I Company shares were sold at P725,000.

d. Net income and dividends for the companies were as follows:

Net income Dividends

No. of FV per share

Page 4 of 4 Compiled & Adapted

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