ASSESSMENT ACTIVITIES

PROBLEMS
For problems that needs solutions, show them in good accounting form, on a separate
sheet of paper.
1. Equity securities acquired for trading shall be measured at
a. Cost, being the purchase price plus transaction costs
b. Cost, being the purchase price
c. Fair value, with change in fair value taken to profit or loss
d. Fair value, with change in fair value taken to other comprehensive income
2. Under which type of investment classification is directly attributable cost of
acquisition not included in the initial measurement basis?
a. Investment in associate
b. Financial assets at amortized cost
c. Financial assets at fair value through profit or loss
d. Financial assets at fair value through other comprehensive income

3. An instrument representing ownership shares and the right to acquire ownership

shares
a. Debt Security
b. Equity Security
c. Shareholder's Equity
d. Treasury Bills

4. Which one of the following indicates that the investor does not exercise
significant influence over the investee?
a. Majority ownership of the investee is concentrated among a small
group of shareholders who operate the investee without regard to the
views of the investor.
b. There is interchange of managerial personnel between the investor and the
investee.
c. There are material intercompany transactions between investor and investee.
d. The investor has representation in the investee's board of directors.

5. An investor uses equity method to account for investment in associate. The

purchase price implies a fair value of the investee's depreciable assets in
excess of the investee's net asset carrying values. The investor's amortization
of the excess
a. Decreases goodwill account.
b. Decreases the investment in associate account.
c. Increases the investment income account.
d. Does not affect the carrying value of the investment.

6. Investment in associate gives the holder of the securities the power to

participate in (but not to govern) the financial and operating policy decisions of
the investee. Cash dividends received by the holder of securities from the
associate will:
a. Be credited to dividend income.
b. Be debited to Dividends Payable.
c. Be credited to Retained Earnings.
 d. Be a deduction from the investment in associate account.

7. Under IFRS 9, the cumulative balance of equity as a result of measuring

equity investments at fair value through OCI.
a. Shall not be reversed to P/L but may be transferred to another equity
account
b. Shall not be reversed to P/L and shall be transferred to another equity account
c. Shall be reversed to P/L at the date the security is sold
d. Shall be reversed to P/L when there is objective evidence of impairment.

8. Non-trading equity instrument shall be classified as

a. At fair value through profit or loss
b. At fair value through other comprehensive income
c. Based on irrevocable choice at date of initial recognition either at fair
value through P/L or at fair value through OCI
d. Based on irrevocable choice at the reporting date either at fair value
through P/L or at fair value through OCI
9. According to IAS 28, which of the following will not fall under the situation of
"existence of significant influence by an investor in the financial and operating
policy decisions of the investee but not control of these decisions."
a. Technological dependencies
b. Material intercompany transactions
c. Participation in the policy making decisions
d. Power to govern the financial and operating policy decisions of an
enterprise so as to obtain benefits from its activities.

10. An investor uses the equity method to account for its 30% investment in
ordinary shares of an investee. Amortization of the investor's share of the
excess of market value over book value of depreciable assets at the date of the
purchase should be reported in the investor's statement of comprehensive
income as part of
a. Share in the profit of investee
b. Other Expense
c. Depreciation Expense
d. Amortization of Goodwill

11. Pacman Company purchased 1,000 shares of RJ Company ordinary shares at

P540/share. Pacman also paid broker's commission of P10,000 in relation to
the said investment. The securities are designated as at fair value through profit
or loss. At the end of 2019, the securities had total market value of P565,000.
At December 31, 2020 the total market value of the equity securities is P
590,000. The holding gain or loss that would be reported by Pacman on its
income statement for the year 2020 is
₱25,000 .

Market Value, 2020 590,000

Less: Carrying Value, 2019 565,000
Holding Gain, 2020 25,000
 12. On December 01, 2020, Matiyaga Company purchased 1,000 shares of
Masipag Corp. P100 par ordinary shares (5% interest in voting rights) at P175
per share. Matiyaga also paid transaction cost of P3,500. The shares were
designated as equity investments at fair value through other comprehensive
income. On December 31, 2020, Masipag ordinary shares were quoted at P200
per share. What is the carrying value of the equity investment of Matiyaga at
December 31, 2019?

13. On September 11, 2020, Ali Company purchased for P7,000,000 the assets
and will assumed all the liabilities of Iris Corporation. As of this date, the book
value and fair market value of Iris assets are P10,000,000 and P11,500,000
respectively. Iris has current liabilities of P2,000,000 and noncurrent liabilities of
P3,250,000 respectively. How much goodwill is to be recorded by Ali?
Using the information 14 – 15:
LA SCALA Corporation had the following equity investments transactions:
Date Reference Particulars
2019 Buy invoice 10,000 Gerphil Corporation at P5 per share. Transaction cost P500.
Dec. 2 123 Designated as Equity Investment at Fair Value through Profit or
Loss.
Dec. 3 Sell invoice 10,000 Gerphil Corporation at P7 per share. Transaction cost
456 P700.
Dec. 6 Buy invoice 1,000 Gaudioso Corporation at P50 per share. Transaction cost
135 P500. Designated as Equity Investment at Fair Value Through Other
Comprehensive Income.
Dec. 18 Buy invoice 20,000 Gerphil Corporation at P6 per share. Transaction cost
156 P1,400. Designated as Equity Investment at Fair Value through
Profit or Loss.
Dec. 26 CM 1000 P500 Cash Dividend from Gaudioso Corporation.
Dec. 31 PSE Report Closing prices per share: Gerphil P7; Gaudioso P48; La Scala
P100

14. Which amounts should LA SCALA Corporation report in its December 31, 2019
Statement of Financial Position?
Equity Investment at Equity Investment at Other Comprehensive
Fair Value through Fair Value through Income – Unrealized
Profit and Loss Other Comprehensive Gain/Loss from equity
Income investment at OCI
a. P140,000 P50,500 P2,500 credit
b. P140,000 P48,000 P2,500 debit
c. P70,700 P49,400 none
d. P120,000 P100,000 P1,400

15. What is the journal entry to recognize P500 dividend received by LA

SCALA from Gaudioso?

Cash 500,000
Dividend Revenue 500,000
(1,000 shares x P500 = 500,000)

Using the information 16 – 17:

 Holiday, Inc. had the following transactions in the ordinary shares of May Corp.,
which has 1,000,000,000 ordinary shares outstanding.
January 5 Bought 4,000 ordinary shares, P100 par, at P88.
June 15 Received 10% bonus issue.
August 31 Received P4 cash dividend for each ordinary share.
16. How much is the revised cost per share after receipt of bonus issue? 80

Purchased Ordinary Shares 4,000

Multiply: Bonus Received 10%
Additional Ordinary Shares 400

Purchased Ordinary Shares 4,000

Add: Additional Ordinary Shares 400
Total Ordinary Shares 4,400

Carrying Value, Jan. 5 (4,000 shares x P88) ₱ 352,000

Divide: Total Ordinary Shares 4,400
Cost per Share after the receipt of issued Bonus ₱ 80

17. Based on the foregoing, what is the journal entry to recognize the receipt of cash
dividend?

Cash 17,600
Dividend Revenue 17,600
(4,400 shares x P4 = 17,600)

18. Charmaine Company provided the following data pertaining to dividends on

ordinary share investments for the current year:
 On October 01, the entity received P600,000 liquidating dividend from A
Company. The entity owned a 10% interest in A Company.
 The entity owned a 20% interest in B Company which declared and paid a
P4,000,000 cash dividend to shareholders on December 31.
 On December 01, the entity received from C Company a dividend in kind of one
share of D Company for every 4 C Company shares held. The entity had
100,000 C Company shares which have a market price of P50 per share on
December 01. The market price of D Company share was P10.
How much is the dividend income to be recognize for the year?

Dividend –B Company (P4,000,000 x 20%) ₱ 800,000

Add: Property Dividend
(100,000 shares / 4 = 25,000)
(25,000 x P10 = 1,250,000) 250,000
Dividend Income ₱ 1,050,000

19. Therese Company issued rights to subscribe to its stock, the ownership of 4
shares entitling the shareholders to subscribe for 1 share at P100. An investor
owned 50,000 shares with total cost of P5,000,000. The share is quoted right-
 on at P125. The stock rights are accounted for separately and measured
initially at fair value. What is the cost of the new investment assuming all of the
stock rights are exercised by the investor?

Initial Cost of Rights (50,000 shares x 5*) ₱ 250,500

Add: Cash paid for the new shares
(5,000 shares / 4 = 12,500)
(12,500 x 100 = 1,250,000) 1,250,000
Cost of New Investment ₱ 1,500,000

*Theoretical value of right:(P125 –P100) / (4 + 1) = 5

20. On July 01, 2020, Jennifer Company acquired 20% of the outstanding ordinary
shares of another entity for P5,000,000. The carrying value of the acquired
assets was P4,000,000. The excess of cost over the carrying amount was
attributable to an identifiable intangible asset which was undervalued on the
investee’s statement of financial position and which had a remaining useful life
of 5 years. For the year ended December 31, 2020, the investee reported net
income of P6,000,000 and paid cash dividends of P1,000,000 on ordinary
shares capital and issued 10% stock dividend on December 31, 2020. What is
the carrying value of the investment in associate on December 31, 2020?

Acquisition Cost ₱ 5,000,000

Add: Share in Profit (P6,000,000 x 20% x 6/12) 600,000
Less: Cash Dividend (P1,000,000 x 20%) 200,000
Less: Adjustments in reported profit* 20,000
Less: Stocks Dividend (P4,000,000 x 10% x 20%) 80,000
Carrying Value of Investment in Associate ₱ 5,300,000

*Adjustments in reported profit: (20% x P1,000,000) / 5 = P40,000

P40,000 X 6/12 = P20,000