UNIVERSITY OF SANTO TOMAS

UST-Alfredo M. Velayo – College of Accountancy

España, Manila

IAC 11 – INTEGRATED REVIEW IN FINANCIAL ACCOUNTING AND REPORTING

2ND TERM, A.Y. 2019-2020

INVESTMENT IN EQUITY SECURITIES

In 2019, All Home Corp. acquired the following portfolio of
equity instruments and reported the following information.

Purchase Broker’s Fair Value Fair Value

Security
Price fee 12/31/19 12/31/20
2Go Group P 300,000 P 5,000 P 350,000 P 345,000
Asiabest 450,000 10,000 410,000 400,000
ACE Enexor 540,000 12,500 640,000 350,000
Aboitiz 610,000 15,000 650,000 700,000

On October 1, 2020, All Home Corp. sold half of the investment

ACE Enexor for P325,000.

Assuming All Home Corp. classified the foregoing securities as

at fair value through profit or loss, determine the following:

1. The amount taken to profit or loss for the year ended

December 31, 2019. P107,500

Brokers fee P(42,500)

Change in fair value (P2,050,000 – 1,900,000 150,000
Total in profit or loss for 2019 P107,500

2. Gain on sale of ACE Enexor’s security. P5,000

Net selling price P 325,000

Last carrying amount (FV at 12/31/2019) 320,000
Gain on sale in profit or loss P 5,000

3. Unrealized gain or loss to be presented in profit or loss

the year ended December 31, 2020. P65,000 UG

Fair value, December 31, 2020 P1,795,000

Fair value of remaining securities, 12/31/2020 1,730,000
Unrealized gain in profit or loss P 65,000

Assuming All Home Corp. classified the foregoing securities as

at fair value through other comprehensive income, determine the
following:

4. The amount taken to profit or loss for the year ended

December 31, 2019. P0

Except for most dividends, no other amounts shall be taken

to profit or loss for financial assets at fair value
through other comprehensive income.

5. Amount transferred to retained earnings as a result of the

sale of ACE Enexor’s security. P48,750
 Net selling price P 325,000
Purchase cost and transaction costs
½ (540,000 + 12,500) 276,250
Amount transferred to RE (optional) P 48,750

6. Cumulative balance of unrealized gain or loss reported in

other comprehensive income section as component of
shareholders’ equity as at December 31, 2020. P128,750 UG

FV of remaining securities at 12/31/2020 P1,795,000

Purchase price plus transaction costs
2Go P305,000
Asiabest 460,000
ACE 552,500 x ½ 276,250
Aboitiz 625,000 1,666,250
Cumulative OCI in equity P128,750 G

SM Investment, Corp. provided the following information on

December 31, 2019:

Financial asset at fair value through OCI P6,750,000

Unrealized loss on Financial Asset @ FVOCI (in the
2019 statement of comprehensive income) 200,000
Unrealized gain on Financial Asset @ FVOCI (in the
2019 statement of financial position) 480,000

The financial asset was purchased in 2017. SM Investment paid

and capitalized P20,000 transaction cost in relation to the
acquisition of the asset.

7. What was the historical cost of the financial asset?

P6,270,000

P6750,000 – P480,000 = P6,270,000

8. What was the carrying value of the investment on December

31, 2018? P6,950,000

P6,750,000 + loss of P200,000 = P6,950,000

On October 1, 2019, Forum Pacific, Inc. acquired 10,000 ordinary

shares representing 10% ownership of Global Company at P30 per
share. Forum Pacific classified this investment as at fair value
through profit or loss.

On January 5, 2020, Forum Pacific sold 4,000 of the 10,000

Global Company’s shares to FirstGen Corporation at P40 per
share. Both FirstGen and Forum Pacific incurred transaction cost
P0.50 per share. FirstGen designated the investment as at fair
value through other comprehensive income.

In 2020, Global Company made the following transactions:

• Distributed to shareholders P250,000 cash dividends on
February 20. These dividends were declared on December 15,
2019 to shareholders of record January 31, 2020; and
• Effected a 2-for-1 share split on November 1.
Global Company shares were selling at P35 and P20 per share on
December 31, 2019 and 2020, respectively

9. What amount should Forum Pacific report as gain on sale?

P18,000

Net proceeds (4,000 x 39.50) P158,000

Dividends on (4% ownership* x P250,000) 10,000
Net selling price ex-dividends P148,000
Purchase price ex-dividends(4,000 x 35)-10,000 130,000
Gain on sale P 18,000

10. What is the initial cost of the investment to FirstGen

Corporation? P152,000

Total amount paid 4,000 x 40.50 = P162,000

Dividends receivable (dividends-on) 10,000
Cost of the investment P152,000

11. What amount of dividend income should FirstGen

Corporation report on February 20? P0

The amount of dividends received were originally paid by the

company upon purchase, on which date shares were selling
dividends-on. Upon purchase, the P10,000 dividends on should
have been charged to dividends receivable, which should have
been subsequently credited upon actual receipt of the
dividends.

On January 3, 2020, Asian Terminals Company acquired 15,000

shares of BDO Unibank, Inc.’s P100 par, 150,000 outstanding
ordinary shares at P110 per share and classified the security as
fair value investment.

On August 31, 2020, BDO Unibank issued stock rights to Asian

Terminals that may be used to purchase additional 5,000 shares
of BDO Unibank at P113 per share.

On December 1, 2020, when BDO Unibank’s shares were selling at

P125 per share, Asian Terminals exercised 12,000 rights and
purchased some BDO Unibank’s shares. The remaining rights were
sold in 2021.

BDO Unibank’s shares were selling at P130 per share on December

31, 2020.

12. How much is the cost of the investment acquired using

the rights? P500,000

12,000/3 rights = 4,000

4,000 x P125 = P500,000

Difference between the fair value of the shares and the

cash paid is the value of the rights exercised. The shares
acquired will still be recorded at fair value.
 13. What amount of investment at fair value should Asian
Terminals Company present in its December 31, 2020
statement of financial position? P2,487,000

19,000 x P130 = P2,470,000

Share rights (130 – 113)/3 x 3,000 17,000
Total fair values P2,487,000

JG Summit Holdings, Inc. received the following dividends from

its investments during the current year:

• cash dividend of P100,000 from its investment in I-Remit,

Inc.’s ordinary shares (15% interest;
• cash dividend of P50,000 from its investment in City & Land
Developers Inc.’s preference shares (25%);
• 2,000 share dividends with fair value of P250,000 from its
investment in Ionics, Inc.’s ordinary shares (12%); and (Memo
entry only)
• property dividend with carrying value of P500,000 and market
value of P600,000 from Holcim Philippines (20% interest in
ordinary shares). (Equity method, so credited to the
investment account.)

14. How much is the total dividend income that should

reported for the current year? P150,000

Cash dividend from I-Remit P100,000

Cash dividend on preference shares held 50,000
Total dividend income P150,000

On January 2, 2020, United Bank, Inc. purchased 20,000 ordinary

shares at P100 per share representing 20% interest in Araneta
Properties, Inc.

The net assets of Araneta Properties on the date of acquisition

have carrying amount of P8 million. Araneta Properties’
identifiable assets equal their fair values, except for:
• land, which had a fair value in excess of carrying amount
of P200,000; and
• building which had a fair value in excess of carrying
amount of P400,000. The building had an estimated remaining
useful life of 10 years on January 1, 2020.

In 2020, United Bank received from Araneta Properties cash

dividends of P5 per share. Net income reported by Araneta
Properties for the year 2020 was P1,000,000.

15. How much from the acquisition cost on January 2, 2019 is

attributed to goodwill?P280,000

Cost 20,000 x P100 P 2,000,000

Underlying equity (P8,000,000 x 20%) 1,600,000
Excess of cost over underlying equity P 400,000
Undervaluation in
Land (20% X P200,000) (40,000)
Building (20% x P400,000) (80,000)
 Cost attributable to goodwill P 280,000

16. What amount of investment income should United Bank report

in its 2020 profit or loss? P192,000

Initial share in income of associate

P1,000,000 x 20% P200,000
Share in depreciation in undervaluation
Of building P80,000/10 ( 8,000)
Share in profit of associate P192,000

17. What is the carrying value of the Investment in Araneta

Properties on December 31, 2020? P2,092,000

Cost P2,000,000
Share in profit of associate 192,000
Dividends received (20,000 x P5) ( 100,000)
Carrying amount of investment, 12/31/20. P2,092,000

Benguet Corp. owns 25% of the P50 par value ordinary shares and
50% of the 8% P100 par value preference shares of Sapphire Corp.
During the year, Sapphire Corp. reported a profit of P3,000,000
and declared P700,000 dividends on its preference shares.

Sapphire Corp. have 200,000 outstanding ordinary shares and

100,000 outstanding preference shares.

18. How much is Benguet Corp.’s share in Sapphire Corp.’s net

income assuming the preference shares were cumulative?
P550,000

Total profit of the associate P3,000,000

Dividends on preference (8% x P10,000,000) ( 800,000)
Profit attributable to ordinary shareholders P2,200,000
Equity held on ordinary shares 25%___
Share in profit of associate P 550,000

Note: in addition to Share in Profit of Associate, the Benguet

shall likewise report dividend income on its preference
shareholdings equal to P350,000.

19. What amount of investment income should Benguet Corp. if

the preference shares were non-cumulative? P925,000

Total profit of the associate P3,000,000

Dividends on preference, limited to declared (700,000)
Profit attributable to ordinary shareholders P2,300,000
Equity held on ordinary shares 25%___
Share in profit of associate P 575,000
Dividend income 350,000
Total investment income. P 925,000

For recognition purposes, dividend shall be recognized as

income only when received or receivable.

On January 1, 2019 Sun Life, Inc. acquired 30,000 shares

representing 10% interest in Sta. Lucia Land, Inc.’s ordinary
shares for P4,000,000. Sun Life does not have any significant
influence nor control over the financial and operating policy of
Sta. Lucia Land. In 2019, Sta. Lucia Land reported net income of
P4,000,000 and distributed dividends of P400,000.

On January 1, 2020, Green purchased additional 20% interest of

Sta. Lucia Land’s ordinary shares for P7,500,000. On the same
date, the fair value of the original 10% interest was
P3,750,000. The net assets of Sta. Lucia Land are fairly valued.
In 2020, Sta. Lucia Land reported net income of P5,000,000 and
distributed a dividends of P300,000.

20. What is the carrying value of Investment on December 31,

2020?
a. P12,660,000

Fair value of shares previously acquired

(7,500,000 x 10%/20%), deemed cost P3,750,000
Cost of new shares acquired 7,500,000
Profit from associate 30% x P5,000,000 1,500,000
Dividends received (30% x P300,000) ( 90,000)
Carrying amount of associate P12,660,000

END OF HANDOUT
 UNIVERSITY OF SANTO TOMAS
UST-Alfredo M. Velayo – College of Accountancy
España, Manila

IAC 11 – INTEGRATED REVIEW IN FINANCIAL ACCOUNTING AND REPORTING

2ND TERM, A.Y. 2019-2020

INVESTMENT IN EQUITY SECURITIES

1. Investment in equity securities may be classified as

a. FVPL only
b. FVOCI only
c. FVPL and FVOCI
d. FVPL, FVPL and amortized cost

2. These investments are initially recorded at purchase price

plus transaction costs.
I. Financial assets at fair value through profit or loss.
II. Financial assets at fair value through other
comprehensive income.
III. Financial assets at amortized cost.
a. I only
b. II only
c. I and II
d. II and III

3.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 at Amortized Cost
d. FVOCI only

For FVPL, UGL is recognized in profit or loss, while for

FVOCI, UGL is recognized in OCI. Both profit or loss and OCI
are components of comprehensive income.

4. Which of the following is not correct regarding trading

securities?
a. They are held with the intention of being sold within
a short period of time
b. Any changes in fair value are reported in the
statement of comprehensive income
c. Any premium or discount on debt securities is not
amortized
d. Gain on sale is the excess of net selling price over
the cost of the securities sold

5. What is the effect of a stock split known as ‘split up?’

a.Increase in number of shares and increase in cost per
share
b.Decrease in number of shares and decrease in cost per
share
c.Increase in number of shares and decrease in cost per
share
d.Decrease in number of shares and increase in cost per
share
6. 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

7. 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

8. When share dividend is received in lieu of cash dividend, the

entity should recognize
a. Income at fair value of shares received
b. Income at cash dividend that would have been received
c. Gain or loss on disposal taken to profit or loss
d. Memorandum entry only stating the number of shares
increased

9. An entity has 25% investment in ordinary share and 10%

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 10% may be classified as Investment at
Amortized cost
c. Both investments may be classified as Investment at
fair value
d. The 10% may be classified as Investment in Associate
and 25% may be classified as Investment at fair value

Note: The answer c is the best available answer, as both may be

classified as at fair value, if the investor can clearly
demonstrate that the ordinary share investment, in spite of the
25% holding does not give significant influence over the
investee company. Otherwise, the investment in ordinary share
shall be designated as investment in associate (unless the FS is
a separate statement of the investor), while the investment in
preference share shall be classified as at fair value.

10. Which of the following does not describe the equity method
of accounting for equity investment?
a. It is based on economic relationship between an
investor and an investee (i.e., investor and investee
are viewed as a single economic unit).
b. Investment is initially carried at cost and is
subsequently increased by the net income of investee
 but is not affected by the investee’s net loss.
c. When investee declares dividends, the investor
recognizes the same as somewhat a return of
investment.
d. It is used when investor holds, directly or
indirectly, 20% or more of the voting stock of the
investee. This gives rise to the presumption of
existence of significant influence.

11. Existence of significant influence may be evidenced by

which of the following ways?
a. Representation in the board of directors and
participation in policy making process
b. Material transaction between investor and investee
c. Interchange of managerial personnel and provision of
essential technical information
d. All of the above

12. Which of the following is not a component of other

comprehensive income?
a. Unrealized gains/losses on trading securities
b. Gains/losses on Foreign currency translation of FS of
a foreign operation
c. Changes in revaluation surplus
d. Actuarial gains/losses on remeasurement of defined
benefit obligation under a defined benefit plan

13. 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. Amortization of excess relating to undervalued land
reported by the associate

14. If an associate has a preference share, the proper way of

computing the share in net income of an associate would be
a. Deduct preference dividend whether declared or not, if
preference is non-cumulative
b. Deduct preference dividend when declared, only if
preference is cumulative
c. Deduct preference dividend whether declared or not,
if preference is cumulative
d. Deduct preference and ordinary dividend whether
declared or not, if preference is cumulative

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.
END OF HANDOUT