Financial Accounting and AIRIVERA

Reporting Investments 2017-004

Financial assets at Fair Value Measurement – FVPL and FVOCI

1. On January 1, 2015, AIR Co. purchased marketable equity securities
to be held as “trading” for 5,000,0000. The entity also paid
transaction cost amounting to 200,000.

The securities had a market value of 5,500,000 on December 31, 2015

and the transaction cost that would be incurred on sale is estimated
at 100,000. No securities were sold during 2015.

What amount of unrealized gain or loss on these securities should be

reported in the 2015 income statement?

2. At year-end, AIR Co. held several investments with the intent of

selling them in the near term. The investments consisted of
1,000,000 8% five-year bonds purchased for 920,000 and equity
securities purchased for 350,000. At year-end, the bonds were
selling on the open market for 1,050,000 and the equity securities
had a market value of 500,000.

What amount should be reported as trading securities at year-end?

3. AIR DC reported on a calendar-year basis. The December 31, 2015

financial statements were issued on February 15, 2016. The auditor’s
report was dated January 31, 2016. The following information
pertains to aggregate marketable equity securities portfolio held
for trading:

Cost 5,000,000
Market Value December 31, 2015 4,000,000
Market Value January 31, 2016 3,500,000
Market Value February 15, 2016 3,000,000

What amount should be reported on December 31, 2015 for trading

securities?

4. During 2015, AIR GC purchase marketable equity securities as

trading investment. For the year ended December 31, 2015, the entity
recognized an unrealized loss of 230,000.

There were no security transactions during 2016. The entity provided

the following information on December 31, 2016:

Security Cost Market Value

A 2,450,000 2,300,000
B 1,800,000 1,820,000
4,250,000 4,120,000

In the 2016, income statement, what amount should be reported

as unrealized gain or loss?

5. AIR CC acquired an equity instrument for 4,000,000 on Marche 31,

2015. The quity instrument is classified as financial asset at fair
value through other comprehensive income.

The transaction cost incurred amounted to 700,000.

On December 31, 2015, the fair value of the instrument was 5,500,000
and the transaction cost that would be incurred on the sale of the
investment is estimated at 600,000.

Albert I. Rivera, CPA,MBA,CRA 1

 What amount of gain should be recognized in other comprehensive
income for the year ended December 31, 2015?

6. On December 31, 2015, AIR FC appropriately reported a 100,000

unrealized loss. There was no change during 2016 I the composition
of the portfolio of marketable equity securities head as financial
asset at fair value through other comprehensive income.

Security Cost Market Value

A 1,200,000 1,300,000
B 900,000 500,000
C 1,600,000 1,500,000
3,700,000 3,300,000

What amount of loss on these securities should be included in the

statement of comprehensive income for the year ended December 31,
2016 as a component of other comprehensive income?

7. AIR IC had trading and nontrading equity investments held throughout

2015 and 2016. The nontrading investments are measured at fair value
through other comprehensive income. The measured investments had a
cost of 3,000,000 for trading and 3,000,000 for nontrading. The
investments had the following fair value at year-end.

12/31/2015 12/31/2016
Trading 4,000,000 3,800,000
Nontrading 3,200,000 3,700,000

a. What amount of the unrealized gain or loss should be reported in

the income statement for 2016?
b. What amount of cumulative unrealized gain or loss should be
reported a s component of other comprehensive income in the
statement of changes in equity on December 31, 2016?

8. AIR B Company began operations on January 1, 2015, the following

information pertains to the December 31, 2015 portfolio of equity
securities:

Trading Non-trading
Aggregate Cost 4,000,000 3,800,000
Aggregate Market Valu 3,700,000 3,700,000
Aggregate lower of
cost or market value 3,500,000 5,300,000
applied to each
community

The market declines are judge to be “other than temporary” the

nontrading securities are designated at fair value through other
comprehensive income.

What amount should be reported a s total loss on these securities in

the income statement for 2015?

9. AIR JC acquired an equity investment a number of years ago for

3,000,000 and classified it as at fair value through other
comprehensive income.

Albert I. Rivera, CPA,MBA,CRA 2

 On December 31, 2015, the cumulative loss recognized in other
comprehensive income was 400,000 and the carrying amount of the
investment was 2,600,000.

On December 31, 2016, the issuer of the equity instrument was in

sever financial difficulty and the fair value of the equity
investment had fallen to 1, 200,000.

What cumulative amount of unrealized loss should be reported as

component of other comprehensive income in the statement of changes
in equity for the year ended December 31, 2016?

10. AIR LC purchased the following equity securities during 2015:

Classification Cost Market Value 12/31/2015

Security A(Trading) 900,000 1,000,000
Security B(Trading) 1,000,000 1,600,000

On July 31, 2016, the entity sold all of the shares of Security B
for a total of 1,100,000. On December 31, 2016, the shares of
Security A had a market value of 1,200,000. No other activity
occurred ring 2016 in relation to the trading security portfolio.

a. What amount of unrealized gain or loss should be reported on the

income stament for 2016?
b. What is the gain or loss on the transfer on the sale of Security
July 31, 2016.

11. During 2015, AIR LC purchased trading securities with the

following cost and market value on December 31, 2015:

Security Shares Cost Market Value

A 1,000.00 200,000 300,000
B 10,000.00 1,700,000 1,600,000
C 20,000.00 3,100,000 2,900,000
5,000,000 4,800,000

The entity sold 10,000 shares of Security B on January 15, 2016 for
P150 per share.

a. What amount of unrealized gain or loss should be reported in the

income statement for 2015?
b. What amount should be reported as loss on the sale of trading
investments for 2016?

12. On January 1, 2015, AIR LC purchased equity securities to be held

at fair value through other comprehensive income. On December 31,
2015. The cost and market value were:

Security Cost Market Value

X 2,000,000 2,400,000
Y 3,000,000 3,500,000
Z 5,000,000 4,900,000
10,000,000 10,800,000

On July 1, 2016, the entity sold Security X for 2,500,0000.

What amount should be recognized directly in retained earnings as a

result of the sale of financial asset in 2016?

Albert I. Rivera, CPA,MBA,CRA 3

13. On January 1, 2015, AIR CC purchased equity securities to be held
as financial assets measured at fair value through other
comprehensive income

Security Cost Market Value - 12/31/15 Market Value - 12/31/16

R 3,000,000 3,200,000 -
S 4,000,000 3,500,000 3,700,000
T 5,000,000 4,600,000 4,700,000
12,000,000 11,300,000 8,400,000

On January 31, 2016, the entity sold Security R for 3,500,000.

a. What amount should be recognized directly in retained earnings as

a result of the sale of investment in 2016?
b. What cumulative unrealized gain or loss on the remaining
financial assets should be reported in the statement of change in
equity for 2016?

14. On January 1, 2015, AIR RC acquired 200,000 ordinary shares of UC

for 9,000,000. At the time of purchased, UC had outstanding 800,000
shares with a carrying amount of 36,000,000.

The following events took place during the year:

 UC reported net income of 1,800,000 for 2015
 AIR RC received from UC a dividend of 0.75 per ordinary share
 The market value of UC share had temporarily declined to 40

AIR RC has elected irrevocable to measure the investment at fair

value thorugh other comprehensive income.

What is the carrying amount of the investment on December 31, 2015?

15. Neal Company held the following financial assets as trading

investments on December 31, 2015:

Cost Market Value

100,000 shares of Comany A
nonredeemable prefernce 775,000 825,000
share capita, par value 75
7,000 shares of Company B
prefernce share capital, par
valuje 100 subject to 690,000 625,000
mandatory redemption by
the issuer at par on
December 31, 2016
1,465,000 1,450,000

On December 31, 2015, what is the total carrying amount of

the investments?

16. On January 1, 20x1, AIR Co. acquired 8% P1,000,000 bonds for

P936,603. The principal is due on December 31, 20x4 but interest is
due annually at each year-end. The yield rate on the bonds is 10%,
the investment will be subsequently measured at amortized cost. How
much is the carrying amount of the investment on December 31, 20x2?

17. On January 1, 20x1, AIR Co. acquired 14%, P1,000,000 bonds for
1,099,474. The principal is due on December 31, 20x3 but interest is
due annually starting December 31, 20x1. The effective interest rate

Albert I. Rivera, CPA,MBA,CRA 4

 on the bonds is 10%. The bonds are classified as investment measured
at amortized cost. How much is the carrying of the investment on
December 31, 20x2?

18. Refer to No. 17, assume that half of the investment was sold on
January1, 20x2 for 480,000. Transaction costs incurred on the sale
amounted to 15,000. How much is the gain (loss) on the sale?

19. On April 30, 20x1, AIR Co. acquired 10%, P100,000 bonds dated
January 1, 20x1 at 102. If the purchase price excludes interest, how
much is the initial carrying amount of the investment?

20. Refer to No. 19, if the purchase includes interest, how much is
the initial carrying amount of the investment?

21. On January 1, 20x1, AIR Co. acquired 12% P1,000,000 bonds for
P1,049, 737. The principal is due on January 1, 20x4 but interest is
due annually starting December 31, 20x1. The bonds are classified as
investment measured at amortized cost. The yield rates on the bonds
is 10%. On September 30, 20x2, the entire bonds were sold at 110.
Commission paid to the broker amounted to P10,000. How much is the
gain (loss) on the sale?

22. AIR Co. is contemplating on investing on 12%, 3-yeat, P1,000,000

bonds. Principal is due at maturity but interest is due annually at
each year-end. AIR Co. determines that the current market rate on
January 1, 20x1 is 14%. How much is the estimated purchase price of
the bonds on January 1, 20x1?

23. On January 1, 20x1, AIR Co. purchased 10%, P3,000,000 bonds for
P3,105,726. The bonds are classified as financial asset measured at
amortized cost. Principal on the bonds mature as follows:

December 31, 20x1 1,000,000.00

December 31, 20x2 1,000,000.00
December 31, 20x3 1,000,000.00
Total 3,000,000.00

Interest is due annually at each year-end. The effective interest

rate on the bonds is 8%. How much is the current portion of the
investment on January 1, 20x1?

24. Refer to No. 24, how much is the unamortized premium on December
31, 20x1?

25. On January 1, 20x1, AIR Co. contemplates on acquiring 10%

P3,000,000 bonds as investment. Principal on the bonds will mature
in four semi-annual installments as follows:

July 1, 20x1 1,200,000

December 31, 20x1 800,000
July 1, 20x2 600,000
December 31, 20x2 400,000
Total 3,000,000
Interest on the outstanding principal balance is also due semi-
annually. The effective rate as of January 1, 20x1 is 8%. How much
is the estimate purchase price of the bonds on January 1, 20x1.

Albert I. Rivera, CPA,MBA,CRA 5

Dividend-On
26. On March 31, 20x1, LG Inc, declares cash dividends of P40 per
share to shareholders of record on April 15, 20x1 to be distributed
on April 30, 20x1. On April 9, 20x1, CC purchases 10,000 LG shares
for P400 per share. The investment is classified as investment in
equity securities measured at FVOCI. How much is the initial amount
of the investment?

Ex-Dividend
27. On March 31, 20x1, CA, Inc. declares cash dividends of P40 per
share to shareholders of record on April 15, 20x1 to be distributed
on April 30, 20x1. On April 26, 20x1, JC purchases 10,000 CA shares
for P400 per share. The investment is classified as investment in
equity securities measured at FVOCI. How much is the initial
carrying amount of the investment?

Cash Dividends
28. AC holds 10,000 shares of XZ, Inc. as investment in equity
securities. On April 1, 20x1, AC receives notice of declaration of
P10 per share cash dividends. On April 20, 20x1, AC collects the
cash dividends. How much is the dividend income?

Property Dividends
29. AE holds 10,000 shares of JE as an investment in equity
securities. On April 1, 20x1, AE receives inventory with cost of
P130,000 and fair value of P120,000 as property dividend. How much
is the dividend income?

Share dividends on financial assets measured at fair value

30. DN holds 10,000 shares of EA as an investment in equity
securities. On April 1, 20x1, DN receives shares with fair value of
P130,000 and aggregate par value of P100,000 as share dividend. How
much is the dividend income?

Liquidating Dividends
31. On April 1, 20x1, JN received P120,000 cash dividends, 1/3 of
which represents liquidating dividends. How much is the dividend
income?

Shares in lieu of cash dividend

32. AN holds 10,000 shares of ARO as investment in equity securities.
On April1, 20x1, AN received 1,000 shares in lieu of cash dividends
of P8 per share.

a. If the investment is measured at FVOCI and the fair value of the

shares received is P10 per share, how much is the dividend
income?
b. If the investment is measured at cost, how much is the dividend
income?

Cash in lieu of share dividend – Investment at FVOCI

33. BY holds 10,000 shares of AL as investment in equity securities
measured at FVOCI. On April 1, 20x1, BY received P8,000 cash in lieu
of 1,000 share dividends. The fair value of the shares on April 1,
20x1 is P10 per share. How much is the net effect of the dividends
received on profit or loss?

Cash in lieu of share dividend – Investment at cost

34. NC holds 10,000 shares of SL as investment in equity securities
measured at cost. The investment has a carrying amount of P110,000.
On April 1, 20x1, NC received P12,000 in lieu of 1,000 share

Albert I. Rivera, CPA,MBA,CRA 6

 dividends. How much is the net effect of the dividends received on
profit or loss?

Accounting for stock rights

35. ST holds 12,000 shares of JE as investment in equity securities
measured at FVOCI. The carrying amount of the investment is
P100,000. On March 31, 20x1, ST received 12,000 stock rights to
subscribe to new shares at P6 per share for every 4 rights held. On
March 31, 20x1, the shares and the stock rights have fair values of
P10 and P2, respectively. How much is the initial carrying amount of
the stock rights?

Theoretical or parity value – Right on

36. On March 31, 20x1, By received 10,000 stock rights from the
investment in equity securities to subscribe to new shares of P15
per share for every 4 rights held. Prior to issuance of stock
rights, the shares were selling at P20 per share. How much is the
initial carrying amount of the stock rights?

Ex-Right
37. On March 31, 20x1, BT received 10,000 stock rights from the
investment in equity securities to subscribe to new shares of P15
per share for every 4 rights held. Immediately after issuance of
stock rights, the shares were selling at P20 per share. How much is
the initial carrying amount of the stock rights?

Investment in bonds with detachable warrants

38. SY acquired investments in bonds with detachable warrants for
P1,050,000. The bonds have a face amount of P1,000,000. Without the
detachable warrants, the bonds are selling at P950,000. The
detachable warrants have a fair value of P100,000. The detachable
warrants were subsequently sold at P120,000. How much is the gain
(loss) on the sale?

Significant Influence
39. ABC Co. owns 30% of the voting shares of Alpha Co. the other 60%
is held by XYZ and all seats on the board of directors are appointed
by XYZ.

40. ABC Co. owns 15% of the voting shares of Alpha Co. all other
shares are held in very small blocks and therefore ABC Co. has many
seats on the board of directors.

Determining Percentage of Ownership

41. On January 1 20x1, Abet Co. acquired 30,000 shares of XYZ’s
100,000 outstanding shares at P10 per share. Compute for the
percentage of ownership acquired?

42. On January 1, 20x1, Abet Co acquired 30,000 newly issued shares

of XYZ at P10 per share. Before the acquisition, XYZ had 100,000
ordinary shares outstanding. Compute the percentage of ownership
acquired?

Purchase cost equal to fair value of interest acquired

43. On January 1, 20x1, Abet Co purchased 20,000 shares of the
100,000 total outstanding shares of XYZ for P1,000,000. XYZ’s assets
and liabilities approximate their fair values. In 20x1, XYZ reported
profit of P3,000,000 and declared and paid cash dividends of
P200,000.

In 20x2, XYZ reported loss of P2,000,000, declared and issued 10%

stock dividends, and reported gain on property revaluation of

Albert I. Rivera, CPA,MBA,CRA 7

 P500,000 and loss on exchange difference on translation of foreign
operations of P100,000.

a. Compute for the share in profit or loss of associate in 20x1 and

20x2.
b. Compute for the carrying amount of investment on 31 December 20x1
& 20x2.

Purchase cost not equal to the fair value of interest acquired

44. On January 1, 20x1, Abet Co purchased 25% interest I the ordinary
share of XYZ for P2,000,000. XYZ’s assets and liabilities
approximate their fair values except for inventories with carrying
amount of P500,000 and fair value of P100,000 and depreciate asset
with carrying amount of P3,000,000 and fair value of P5,000,000. The
remaining useful life of the depreciable asset is 10 years. XYZ’s
net assets has a book value of P5,000,0000.

a. Compute for the share in profit or loss/ investment income on 31

December 20x1
b. Compute for the carrying amount of investment on 31 December 20x1

Potential voting rights

45. ABC Co owns 15,000 shares out of the 100,000 outstanding shares of
XYZ, Inc. As of year-end, ABC holds 20,000 stock rights which enable
ABC to acquire additional shares from XYZ on a “2 rights for 1
share” basis. The stock rights are exercisable immediately.
However, management does not intend to exercise the stock rights.
XYZ does not have any other rights outstanding aside from those held
by ABC.

XYZ reports year-end profit of P1M and declares cash dividends of

P100,000. The investment has a carrying amount of P300.000 before
any year-end adjustment.

a. How much is ABC’s share in profit of associate for the year?

b. How much is the carrying amount of the investment as of year-end?

Cumulative preference shares

46. ABC owns 20% of XYZ Inc.’s ordinary shares. XYZ also has an
outstanding cumulative 6% preference shares of P2,000,000. None of
those preference shares is held by ABC. Cumulative preference share
dividends are in arrears for 3 years. XYZ reported year-end profits
of P1,000,000 and declared no dividends.

a. How much is ABC’s Co share in profit or loss of associate?

b. What if XYZ declared dividends that pay all of the dividends in
arrears on preference shares, how much is the share in profit or
loss in prior years?
c. What if the preference shares are non-cumulative, how much is the
share in profit or loss of associate?
d. What if the shares are redeemable preference shares and XYZ
declared P150,000 cash dividends on the redeemable preference
shares during the year, how much is the share in profit or loss
of associate?

Relationship between investment in associate and associate’s equity

47. On January 1, 20x1, ABC Co acquired 20% interest in XYZ for
P1,000,000 at a price that did not resulted to goodwill. The
carrying amounts of identifiable assets and liabilities of XYZ
approximate their fair values. Information on XYZ’s financial
position as of January 1. 20x1 is shown below:

Albert I. Rivera, CPA,MBA,CRA 8

 Assets 12,000,000.00
Liabilities 5,000,000.00
6% cumulative preferenche shares 2,000,000.00
Ordinary shares 4,000,000.00
Retained Earnings 1,000,000.00
Total Equity 7,000,000.00

ABC holds none of the cumulative preference shares of XYZ. No

dividends were in arrears as of January 1, 20x1.

In 20x1, XYZ reported profit of P1,000,000 and paid no dividends. In

20x2, XYZ reported profit of P1,000,000, paid 2-year dividends on
the cumulative preference shares and paid P200,000 dividends on
ordinary shares.

a. What is the carrying amount of investment in associate on

01 January 20x1
b. What is investor’s interest in residual equity of associate on
01 January 20x1
c. Compute for the share in associate’s profit in 20x1
d. What is the carrying amount of investment in associate on 31
Dec 20x1
e. What is the investor’s interest in residual equity of
associate on 01 January 20x1
f. What is the share in associate’s profit in 20x2
g. What is the carrying amount of investment on 31 Dec 20x2
h. What is the investor’s interest in residual equity of
associate on 31 Dec 20x2

Loss on significant influence

48. On January 1, 20x1, ABC Co. acquired 30,000 ordinary shares for
P3,000,000 which represents 30% interest in XYZ’s net assets. At the
time of acquisition, XYZ’s net assets are fairly revalued at
P10,000,000. Prior to revaluation, the net assets had a book value
of P8,000,000. The difference between the revalued amount and
carrying amount is attributable to a building which was credited to
revaluation surplus. The building has a remaining useful life of 10
years with no residual value. It is XYZ’s policy to depreciate all
tangible assets using the straight line method.

At the end of 20x1, XYZ reported a profit of P1,000,000 and paid

cash dividends of P600,000. At December 31, 20x1, the shares are
selling at P100 per share.

On July 1, 20x2, ABC sold 60% of its investment in XYZ at the

prevailing market price of P120 per share. XYZ reported interim
profit of P500,000 for the six months ended June 30, 20x2. On
December 31, 20x2, XYZ reported total profit of P1,200,000 for the
year and declared P1,000,000 cash dividend. The shares are quoted at
P135 per share at year-end.

a. Compute for the carrying amount of investment on July 1, 20x2?

b. How much is the gain on sale of investment?
c. How much is the gain on remeasurement or reclassification?
d. What is the total income to be recognized in profit or loss in
20x2?

Change from FVPL to equity method

49. On January 1, 20x1, ABC Co. acquired 10,000 shares representing a
10% interest in XYZ’s 100,000 outstanding shares for P800,000. In
20x1, XYZ reported profit of P5,000,000 and declared and paid
dividends of P1,000,000. The investment was initially classified as

Albert I. Rivera, CPA,MBA,CRA 9

 investment held for trading securities measured at FVPL. The fair
value of the shares on December 31, 20x1 is P85 per share.

As of December 31, 20x1, the investment held for trading securities

has a carrying mount of P850,000 equal to fair value.

On July 1, 20x2, ABC Co. acquired additional 15,000 shares at P70

per share resulting to an increase in ownership interest over XYZ
from the previous 10% to 25%. The transaction did not give rise to
goodwill.

In 20x2, XYZ reported profit of P6,000,000, of which P4,000,000 were

earned in the second half of the year. In addition, XYZ declared and
paid dividends of P1,000,000 on December 31, 20x2. The XYZ shares
have quoted price of P90 per share on December 31, 20x2.

a. Compute of the carrying amount of investment in July 1, 20x2?

b. Compute for the carrying amount of investment 31 Dec 20x2?

Change from FVOCI to equity mehod

50. On January 1, 20x1, ABC Co. acquired 10,000 shares representing a
10% interest in XYZ’s 100,000 outstanding shares for P800,000. In
20x1, XYZ reported profit of P5,000,000 and declared and paid
dividends of P1,000,000. The investment was initially classified as
investment held for trading securities measured at FVPL. The fair
value of the shares on December 31, 20x1 is P85 per share.

As of December 31, 20x1, the investment has a carrying mount of

P850,000 equal to fair value and the net cumulative unrealized gains
recognized in equity amounted to P50,000.

On July 1, 20x2, ABC Co. acquired additional 15,000 shares at P70

per share resulting to an increase in ownership interest over XYZ
from the previous 10% to 25%. The fair value of the net assets of
XYZ as of July 1, 20x2 is P6,00,000.

a. How much is the total carrying amount of investment on July 1,

20x2?
b. How much is the goodwill arising from investment in associate on
July 1, 20x2?

Downstream sale of inventory

51. ABC owns 20% of XYZ Inc. and uses the equity method because it has
significant influence. In 20x1, ABC sells inventory to XYZ for
P100,000 with a 60% gross profit on the transaction. The inventory
remains unsold during 20x1 and was sold by XYZ to external parties
only in 20x2. ABC’s income tax rate is 30%.

XYZ reported profit of P1,000,000 & P1,200,000 on 31 December 20x1

and 31 December 20x2, respectively.

a. How much is the carrying amount of investment on 31 December

20x1?

b. How much is the carrying amount of investment on 31 December

20x2?

Upstream sale of inventory

52. ABC owns 20% of XYZ Inc. and uses the equity method because it has
significant influence. In 20x1, XYZ sells inventory to ABC for
P100,000 with a 60% gross profit on the transaction. The inventory
remains unsold during 20x1 and was sold by XYZ to external parties
only in 20x2. ABC’s income tax rate is 30%.

Albert I. Rivera, CPA,MBA,CRA 10

 XYZ reported profit of P1,000,000 & P1,200,000 on 31 December 20x1
and 31 December 20x2, respectively.

a. How much is the carrying amount of investment on 31 December

20x1?

b. How much is the carrying amount of investment on 31 December

20x2?

Downstream sale of depreciable asset

53. ABC Co. owns 20% of XYZ, Inc. outstanding shares. On January 1,
20x1, ABC sold equipment with a carrying amount of P100,000 and a
remaining useful life of 10 years to XYZ for P120,000. Gain of
P20,000 was recorded by ABC. Both ABC and XYZ use the straight line
method of depreciation.

XYZ reported profit of P1,000,000 & P1,200,000 on 31 December 20x1

and 31 December 20x2, respectively.

a. How much is the carrying amount of investment on 31 December

20x1?

b. How much is the carrying amount of investment on 31 December

20x2?

Upstream sale of depreciable asset

54. ABC Co. owns 20% of XYZ, Inc. outstanding shares. On January 1,
20x1, XYZ sold equipment with a carrying amount of P100,000 and a
remaining useful life of 10 years to ABC for P120,000. Gain of
P20,000 was recorded by ABC. Both ABC and XYZ use the straight line
method of depreciation.

XYZ reported profit of P1,000,000 & P1,200,000 on 31 December 20x1

and 31 December 20x2, respectively.

a. How much is the carrying amount of investment on 31 December

20x1?

b. How much is the carrying amount of investment on 31 December

20x2?

Downstream sale of non-depreciable asset

55. ABC Co. owns 20% of XYZ, Inc. outstanding shares. On January 1,
20x1, ABC sold land with a carrying amount of P100,000. Gain of
P20,000 was recorded by XY.

XYZ reported profit of P1,000,000 & P1,200,000 on 31 December 20x1

and 31 December 20x2, respectively.

a. How much is the carrying amount of investment on 31 December

20x1?

b. How much is the carrying amount of investment on 31 December

20x2?

Upstream sale of non-depreciable asset

56. ABC Co. owns 20% of XYZ, Inc. outstanding shares. On January 1,
20x1, XYZ sold land with a carrying amount of P100,000. Gain of
P20,000 was recorded by ABC.

XYZ reported profit of P1,000,000 & P1,200,000 on 31 December 20x1

and 31 December 20x2, respectively.
 a. How much is the carrying amount of investment on 31 December
20x1?

b. How much is the carrying amount of investment on 31 December

20x2?

Albert I. Rivera, CPA,MBA,CRA 11

Share in losses of associate

57. On January 1, 2012, Bart Company acquired as a long term investment

for P7,000,000, a 40% interest in Hall Company when the fair value
of Hall’s net assets was P17,500,000. Hall Company reported the
following net losses:

2012 – 5,000,000
2013 – 7,000,000
2014 – 8,000,000
2015 – 4,000,000

On January 1, 2014, Bart Company made cash advances of P2,000,000 to

Hall Company. On December 31, 2015, it is not expected that Bart
Company will provide further financial support for Hall Company.

What amount should be reported as loss from investment for 2015?

Albert I. Rivera, CPA,MBA,CRA 12