JMJ

Marist Brothers
Notre Dame of Dadiangas University
Accountancy Program

ACC 211 Intermediate Accounting 1

Investments Ms. Denise Meryl H. Javellana, CPA, MBA

Name: _________________________________________________ Score: ____________

Theory

1. Any instrument representing ownership shares and the right to acquire ownership shares
is
a. Debt security
b. Equity security
c. Shareholder’s equity
d. Marketable security

2. Equity securities acquired for trading shall be measured at

a. Cost, being the purchase price
b. Fair value, with change in fair value taken to profit or loss
c. Fair value, with change in fair value taken to other comprehensive income
d. Cost, being the purchase price plus transaction costs

3. ABC Corporation purchased ordinary shares of XYZ Company. ABC does not intend to
hold the shares for trading purposes and the shares are not enough for ABC to exercise
significant influence over XYZ. Can ABC designate the shares as (A) at fair value
through profit or loss or (B) at fair value through other comprehensive income?

At FV through Profit or Loss At FV through OCI

a. Yes Yes
b. Yes No
c. No Yes
d. No No

4. Under which type of investment classification is transaction cost of acquisition taken to

profit or loss?
a. Financial assets at fair value through profit or loss.
b. Financial assets at fair value through other comprehensive income.
c. Financial assets at amortized cost.
d. Investment in associate.

5. Which of the following shall be taken to profit or loss for equity investments measured at
fair value through other comprehensive income?
a. Change in fair value during the reporting period.
b. Gain or loss on disposal of the securities.
c. Dividends received declared from current year’s earnings of the investee.
d. Impairment in the value of the securities.

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 6. Which of the following statements regarding trading securities correct?
I. They are held with the intention of being sold in a short period of time.
II. Unrealized holding gains and losses are reported in profit or loss.
III. Any discount or premium on debt securities is not amortized.
IV. Gain on sale is the excess of the net selling price over the cost of the securities
sold.

a. All of the statements are correct.

b. I, II, and IV
c. II, III, and IV
d. I, II, and III

7. The market of an investee's ordinary shares increased by 10% during the year. How
would this increase in the market value of the ordinary shares affect the investment
account under each of the following appropriate classification?

Held for Trading Securities Investment in Associate

a. Increase Increase
b. Increase No effect
c. No effect No effect
d. No effect Increase

8. Which one of the following indicates that the investor exercise significant influence over
the investee?

a. The investor has representation in the investee's directors.

b. Majority ownership of the investee is concentrated small group of
shareholders who operate the without regard to the views of the investor.
c. There are material intercompany transactions between the investor and the investee.
d. There is interchange of managerial personnel between the investor and the investee.

9. Under IFRS 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 objective evidence of impairment.
c. shall not be reversed to profit or loss but may be transferred to another equity
account.
d. shall not be reversed to profit or loss and may not be transferred to another equity
account.

10. Under IFRS 9, investments in debt securities that meet the business model test of
collecting contractual cash flows, and for which the enterprise does not exercise its
option to measure at fair value shall be initially recognized at
a. purchase price.
b. fair value.
c. purchase price plus transaction costs.
d. Purchase price plus transaction costs plus accrued interest.

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 11. Hilton, Inc. has equity securities designated as at fair through profit or loss that were
purchased during 2016. At the end of 2016, the securities had total market value of
P525,000. As of December 31, 2017, the records show cost and market values as
follows:
Investment Cost Market Value
1 P100,000 P 90,000
2 190,000 210,000
3 250,000 235,000

The gain or loss that would be reported in profit or loss as a result of the valuation of the
securities at the end of 2017 is,

Total market, December 31, 2017 P535,000

Total market, December 31, 2016 525,000
Gain reported in 2017 profit or loss P 10,000

12. On January 1, 2016, the Pacita Corporation purchased n equity securities to be held as
trading for P2,000,000. The company also paid commission, taxes and other transaction
costs amounting to P50,000. The securities had the following market values at:
December 31, 2016 and 2017, respectively: P1,750,000 P2,100,000.

No securities were sold during 2016. What amount of unrealized gain or loss should be
reported in the 2016 profit or loss section of the statement of comprehensive
income?

Market value, December 31, 2016 P1,750,000

Acquisition cost, January 1, 2016 2,000,000
Unrealized loss taken to profit or loss P 250,000

13. On January 1, 2015, the Pacita Corporation purchased marketable equity securities for
P2,000,000. The company, also paid commission, taxes and other transaction costs
amounting to P50,000. Because the securities were acquired not for immediate trading,
Pacita exercised its option to measure the change in fair value through other
comprehensive income. The securities had the following market values at December 31,
2015 and 2016, respectively: P1,750,000 and P2,100,000.

No securities were sold during 2015 or 2016. What amount of unrealized gain or loss
should be reported in the December 31, 2016 statement of financial position as a
component of shareholders' equity?

Market value, December 31, 2016 P2,100,000

Investment cost on January 1, 2015 (2.0M + 50,000) 2,050,000
Unrealized gain (cumulative) reported in statement of financial
position, December 31, 2016 P 50,000

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 14. S. Trading made investments in non-trading equity securities. The cumulative "Holding
Gain or Loss" account has a debit balance of P12,900 at December 31, Year 1. An
analysis of the investments on December 31, Year 1 showed the following:
No. of Shares
or Face Value Cost Fair Value
Asia Textile ordinary 600 shares P307,500 P270,000
S-Mart, Inc. ordinary 225 shares 76,500 90,000
RJ Company ordinary 2,000 shares 269,500 280,600
P653,500 P640,600

On July 1, Year 2, the shares of S-Mart were sold for P70,000. The balance of
the equity pertaining to these shares was transferred to the retained earnings account.

On December 31, Year 2, Asia Textile shares were quoted at P440 per share; RI
shares were quoted at P138 per share. How much is the required debit to other
comprehensive income account at the end of Year 2?

Asia Textile (600 x 440) P264,000

RJ Company (2,000 x 138) 276,000
Total fair value, December 31, Year 2 P540,000
Total fair value, December 31, Year 1 (270,000 + 280,600) 550,600
Decrease in fair value (debit) P 10,600

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