PROBLEM NO.

At the beginning of the current year, the CCC company purchased 40% of the ordinary shares of BBB
company for P3,500,000.

At the acquisition date, the carrying amounts of the identifiable assets and liabilities of the investee were
equal to their fair value, except for equipment for which the fair value was P1,500,000 greater than the
carrying amount and the inventory whose fair value was P500,000 greater than cost.

The equipment has a remaining life of 4 years and the inventory was all sold during the current year.

The investee reported net income of P4,000,000 and paid P1,000,000 dividends on October 1 of the
current year.

Assume the following independent cases, determine the balance of:

1. Investment Income during the year

2. Investment Account balance at the end of the current year

Case no. 1 – assume that the investment is accounted for as investment in equity designated as at fair
value through OCI and the fair value of the share is P4,000,000.

Case no. 2 – the carrying amount of the net assets of the investee on the date of the acquisition is
P5,000,000.

Case no. 3 – the carrying amount of net assets of the investee on the date of acquisition is P5,000,000
also assume that the date of acquisition is April 1 of the current year.

Case no. 4 – the carrying amount of net assets of the investee on the date of acquisition is P7,000,000

Case no. 5 – the carrying amount of net assets of the investee on the date of acquisition is P9,000,000.

Case no. 6 – the carrying amount of net assets of the investee on the date of acquisition and at the end of
the reporting period is:

January 1 December 31
Share Capital 4,000,000 4,000,000
Revaluation Surplus 1,500,000
Retained Earnings 2,000,000 5,000,000
The revaluation surplus is the result of the land recognized by BBB company on December 31, of the
current year.

Additionally, depreciation is provided by BBB company on the diminishing balance method whereas CCC
company uses straight line method.

Had BBB company used the straight line, the accumulated depreciation would be increased by P200,000.
The tax rate is 30%.

PROBLEM NO. 2

On January 1, 2009, NCPAR company acquired 20% of the outstanding ordinary shares of BRAYDEN
company for P4,500,000. This investment gave NCPAR the ability to exercise significant influence over
BRAYDEN. The book value of the acquired shares was P3,000,000. The excess of cost over book value
was attributed to a depreciable asset which was undervalued on BRAYDEN’ statement of financial
position and which had a remaining useful life of 10 years.

For the year ended December 31, 2009, BRAYDEN’ share capital outstanding is as follows:

10% cumulative preference share capital P2,500,000

Ordinary Share Capital P10,000,000

BRAYDEN reported Net Income P1,500,000 for the year ended December 31, 2009.

Case no. 1: Assuming the cumulative preference share is treated as equity by BRAYDEN and that
BRAYDEN declared dividends of P200,000 on the preference shares, answer the following:

1. What amount should NCPAR record as investment income for the year ended December 31,
2009?
 2. What amount should NCPAR record as investment in associate for the year ended December 31,
2009?

Case no. 2: Assume instead that the preference shares are non-cumulative preference share treated as
equity by BRAYDEN and that BRAYDEN declared dividends of P200,000 on the preference shares,
answer the following:

1. What amount should NCPAR record as investment income for the year ended December 31,
2009?
2. What amount should NCPAR record as investment in associate for the year ended December 31,
2009?

Case no. 3: Assuming the cumulative preference share is treated as Financial Liability by BRAYDEN,
answer the following:

1. What amount should NCPAR record as investment income for the year ended December 31,
2009?
2. What amount should NCPAR record as investment in associate for the year ended December 31,
2009?

PROBLEM NO. 3

On January 1, 2016, CCC company acquired 20,000 ordinary shares out of the 200,000 outstanding
ordinary shares of MMM company for P3,400,000. The investment was classified as fair value through
profit or loss (FVTPL). The fair value per share of Mary are as follows: December 31, 2016, P160;
December 31, 2017, P150; and December 31, 2018, P180.

On January 1, 2018, CCC purchased an additional 24,000 of MMM stock representing 12% additional
interest for P3,840,000, its fair value on that date, when the carrying amount of MMM net assets was
P10,000,000. The excess was attributable to the machinery having a remaining life of 10 years.

On December 31, 2016, MMM reported Net Income of P800,000 and declared and paid dividends of
P400,000. On December 31, 2017, MMM reported net income of P1,400,000 and declared and paid
dividends of P550,000. On December 31, 2018, MMM reported net income of P1,300,000 and declared
and paid dividends of P400,000.

Questions:

1. How much is the amount of unrealized gain (or loss) to be recognized in the profit or loss in
2017?
a. Nil c. (P400,000)
b. (P200,000) d. (P300,000)
2. How much is the amount of investment income to be recognized in the profit or loss in 2017?
a. Nil c. P82,500
b. P55,000 d. P88,000
3. How much is the gain on reclassification of January 1, 2018 as a result of acquisition of 12%
interest in MMM company to be recognized in profit or loss?
a. Nil c. P200,000
b. P88,000 d. P275,000
4. How much is the net share in the profit or loss of the associate (investment income) in 2018?
a. P286,000 c. P770,000
b. (P198,000) d. P308,000
5. How much is the carrying amount of the investment as of December 31, 2018?
a. P7,326,000 c. P7,810,000
b. P6,754,000 d. P7,722,000

PROBLEM NO. 4

On July 1, 2016 MMM company acquired 60,000 shares of the 200,000 shares outstanding of SSS
company at P25 per share. The company incurred P2 transaction cost per share. The book value of SSS
net assets on this date amounted to P5,000,000. The fair value of one of its identifiable intangibles with a
5-year remaining life higher than book value by P50,000 while its equipment having a remaining life of 8
years had a fair value P160,000 higher than book value. All other identifiable assets had fair value
approximating their book values.

SSS reported total net income in 2016 at P800,000 and distributed dividends at year end at P300,000.
Fair value of shares on this date was P30 per share while cost to sell is at P2 per share.

SSS reported total comprehensive income in 2017 at P1,250,000 which is net of a foreign translation loss
amounting to P150,000. It also distributed dividends at year end at P500,000. Fair value of shares on this
date was P30 per share while cost to sell remained P2 per share.
On January 1, 2018, MMM sold 24,000 SSS company shares at P32/share, its fair value on that date, and
reclassified the remaining shares to investment in equity securities designated as at fair value through
OCI.

Questions:

1. The investment in associate balance on December 31, 2016

a. P1,645,500 c. P1,680,000
b. P1,740,000 d. P1,590,000
2. The impairment loss on December 31, 2016
a. Nil c. P154,500
b. P34,500 d. P181,500
3. The impairment loss on December 31, 2017
a. Nil c. P154,500
b. P34,500 d. P181,500
4. The investment income to be recognized by the company in its income statement for 2017 should
be
a. P150,000 c. P270,000
b. P420,000 d. P411,000
5. The total net gain (or loss) due to reclassification from investment in associate to fair value
through OCI to be recognized 2018 profit or loss
a. P96,000 c. (P45,000)
b. P99,000 d. P195,000

PROBLEM NO. 5

III company held an interest in CCC company. On January 1, 2018, CCC issued 40,000 new shares of P8
each to CJ company. CCC company has the following data prior to issuance of the new shares:

 Share capital before its increase was P800,000 at P5 par

 Net assets were P1,000,000

Case no. 1: III company has 20% interest in CCC company and the adjusted balances of the related
accounts before deemed disposal are:

 Investment in associate account is P200,000

 Cumulative share in the associate’s gain on exchange difference on translation of foreign
operation is P100,000.
1. How much is the gain or loss on deemed disposal to be recognized in the 2018 profit or loss?
a. Nil c. P16,800
b. P11,200 d. P40,000
2. How much is the amount of share in the OCI to be recycled to profit or loss in 2018?
a. Nil c. P16,000
b. P100,000 d. P4,000
3. Assume instead that the share in other comprehensive of P100,000 arises not from translation
gain of foreign operations but from the share in the revaluation surplus of the associate. How
much is the amount of share in the OCI to be recycled to profit or loss in 2018?
a. Nil c. P4,000
b. P100,000 d. P20,000

Case no. 2: III company has 30% interest in CCC company and the adjusted balances of the related
accounts before deemed disposal are:

 Investment in associate account is P300,000 before deemed disposal

 Cumulative share in the associate’s gain on exchange difference on translation of foreign
operation is P100,000.
4. How much is the gain or loss on deemed disposal to be recognized in the 2018 profit or loss?
a. Nil c. P16,800
b. P90,000 d. P106,800
5. How much is the amount of share in the OCI to be recycled to profit or loss in 2018?
a. Nil c. P20,000
b. P100,000 d. P6,000
6. Assume instead that the share in other comprehensive of P100,000 arises not from translation
gain of foreign operations but from the share in the revaluation surplus of the associate, how
much is the amount of share in the OCI to be recycled to profit or loss in 2018?
a. Nil c. P20,000
b. P100,000 d. P6,000

PROBLEM NO. 6
On January 1, 2017, MYRAH Company acquired 30% of the ordinary shares of an associate for
P5,000,000. 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 P400,000 was acquired.

The net income and dividend of the associate for 2017 and 2018 were as follows:

2017 2018

Net Income 2,500,000 4,000,000

Dividends paid 900,000 2,000,000

On January 3, 2017, MYRAH company sold an equipment costing P300,000 to the associate for
P400,000. The equipment has a remaining life of 5 years.

In December 2017, the associate sold inventory to MYRAH company for P350,000. The cost of the
inventory was P300,000. This inventory remained unsold by MYRAH company on December 31, 2017.
However, it was sold by MYRAH company in 2018.

In December 2018, MYRAH company sold inventory to the associate for P550,000. The cost of the
inventory was P400,000. This inventory remained unsold by the associate on December 31, 2018.

Questions:

1. Investment income in 2017

a. P575,000 c. P670,000
b. P655,000 d. P676,000
2. Investment income in 2018
a. P1,106,000 c. P1,190,000
b. P1,085,000 d. P1,215,000
3. Carrying amount of the investment in associate on December 31, 2017
a. P5,385,000 c. P4,440,000
b. P5,835,000 d. P4,170,000
4. Carrying amount of the investment in associate on December 31, 2018
a. P5,790,000 c. P5,912,000
b. P5,870,000 d. P5,975,000
5. Assuming the company is a small/medium entity and uses the equity method, the carrying
amount of investment on December 31, 2018 is
a. P5,790,000 c. P5,912,000
b. P5,870,000 d. P5,975,000

PROBLEM NO. 7

You were able to gather the following in connection with your audit of DDD company. On December 31,
2017, DDD reported the following fair value through OCI investments:

Cost Market Unrealized Loss

Solano Corp., 10,000 shares of ordinary

Shares (1% interest) P250,000 P220,000 P30,000

Castaneda Corp., 20,000 shares of ordinary

Shares (2% interest) 320,000 300,000 20,000

Pingkian Corp., 50,000 shares of ordinary

Shares (10% interest) 1,400,000 1,350,000 50,000

Total 1,970,000 1,870,000 100,000

Additional information:

 On April 1, 2018, Solano issued 15% stock dividend (bonus shares).

 On August 30, 2018, Castaneda company issued share rights to existing shareholders. DDD
received 20,000 share rights entitling him to purchase 5,000 new shares at P27. The ordinary
share was trading ex-rights at P27 a share and the rights had a market value P3 per right. On
October 1, 2018, DDD exercised all the share rights.
 On July 1, 2018, DDD acquired 100,000 additional shares of Pingkian corp.’s ordinary share
which represented a 20% investment in Pingkian and paid P30 per share, its fair value on that
date. The fair value of all Pingkian’s identifiable assets net of liabilities was equal to their carrying
 amount of P12,500,000. As a result of this transaction, DDD owns 30% of Pingkian and can
exercise significant influence over Pingkian’s operating and financial policies.
 DDD initial 10% interest of 50,000 shares of Pingkian’s ordinary share was acquired on January
2, 2017 for P1,600,000. At that date, the net assets of Pingkian totaled P12,000,000 and the fair
values of Pingkian’s identifiable assets net of liabilities were equal to their carrying amount.
 On December 31, DDD reclassified the Solano’s shares into fair value through profit or loss
securities.
 Market prices per share of the securities which are all listed in the PSE are as follows:
12/31/2018 12/31/2017

Solano Corp. – ordinary shares P23 P22

Castaneda Corp. – ordinary shares 14 15

Pingkian Corp. – ordinary shares 31 27

There were no other intercompany transactions between DDD and Pingkian.

Questions:

1. Net unrealized gain (or loss) on financial asset at FVTOCI to be presented in the statement of
financial position as of December 31, 2018
a. P14,500 c. (P150,500)
b. (P125,000) d. (P165,000)
2. Gain or loss on reclassification of Solano’s shares
a. Nil c. P30,000
b. P14,500 d. P60,000
3. Gain or loss on reclassification on July 1, 2018 as a result of the purchase of additional shares of
Pingkian corp.
a. Nil c. P150,000
b. P100,000 d. P200,000
4. Net investment income from Pingkian corp. for the year ended December 31, 2018
a. P237,500 c. P262,000
b. P225,000 d. P270,000
5. Carrying amount of investment in Pingkian Corp. as of December 31, 2018
a. P4,674,500 c. P4,470,000
b. P4,565,000 d. P4,200,000