INTERMEDIATE ACCOUNTING MODULE 4 DIFFERENT INVESTMENTS PDF

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MODULE 4ASSESSMENT ACTIVITIES Equity securities acquired for trading shall be measured at ______. ANSWER : C. Fair value, with change in fair value taken to profit o r loss Under which type of investment classification is directly attributable cost of acquisition not included in the initial measurem...

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MODULE 4 ASSESSMENT ACTIVITIES 1. Equity securities acquired for trading shall be measured at ______. ANSWER: C. Fair value, with change in fair value taken to profit or loss 2. Under which type of investment classification is directly attributable cost of acquisition not included in the initial measurement basis? ANSWER: C. Financial assets at fair value through profit or loss 3. An instrument representing ownership shares and the right to acquire ownership shares ANSWER: B. Equity Security

4. Which one of the following indicates that the investor does not exercise significant influence over the investee? ANSWER: 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. 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 ANSWER: C. Increases the investment income account. 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: ANSWER: 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. ANSWER: D. Be a deduction from the investment in associate account. 8. Non-trading equity instrument shall be classified as ANSWER: C. Based on irrevocable choice at date of initial recognition 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." ANSWER: A. Technological dependencies 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 ANSWER: A. Share in the profit of investee 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 _________________. ANSWER: ₱50,000 GAIN

Market Value, Dec. 31,2019 less: Initial measurement Unrealized gain, Dec. 31, 2019

₱565,000.00 ₱540,000.00

Market Value, Dec. 31, 2020 less: Market Value, Dec. 31,2019

₱590,000.00

add: Unrealized gain, Dec. 31, 2019 GAIN ON 2020

₱25,000.00

₱565,000.00 ₱25,000.00 ₱25,000.00 ₱50,000.00

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? ______________ ANSWER: ₱100,000 No. of shares multiply: par value Carrying Amount at Dec. 31, 2019

1000 ₱100.00 ₱100,000.0 0

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? ____________ ANSWER: ₱750,000

Acquisition Price

₱7,000,000.00

Less: Net Assets (11,500,000 - 2,000,000 3,250,000) GOODWILL

₱6,250,000.00 ₱750,000.00

14 – 15)

14.

W hi c h amounts should LA SCALA Corporation report in its December 31, 2019 Statement of Financial Position? ANSWER: B. ₱140,000, ₱48,000, ₱2,500 debit

Gerphil Market price per share, Dec. 31, 2020 multiply: Shares purchased on Dec. 18 Equity Investment at Fair Value through Profit and Loss Gaudioso Market price per share, Dec. 31, 2020 multiply: Shares purchased on Dec. 6 Equity Investment at Fair Value through Other Comprehensive Income less: initial measurement UNREALIZED LOSS

₱7.00 20,000 ₱140,000.0 0 ₱48.00 1,000 ₱48,000.00 ₱50,500.00 -₱2,500.00

15.What is the journal entry to recognize P500 dividend received by LA SCALA from Gaudioso? ANSWER: Dividend Receivable Dividend Income

₱500.00 ₱500.00

16 – 17)

16.How much is the revised cost per share after receipt of bonus issue? ___________ ANSWER: ₱96.80 Ordinary Shares Cost (4,000 x 88) multiply: bonus issue divided by: # of shares REVISED COST PER SHARE

₱352,000.00 1.1 ₱387,200.00 4000 ₱96.80

17.Based on the foregoing, what is the journal entry to recognize the receipt of cash dividend? ANSWER: ₱16,000.00

Cash Dividend Receivable (4,000 x 4)

₱16,000.00

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?

__________________ ANSWER: ₱4,250,000 B COMPANY C COMPANY (100,000/4) x 10

₱4,000,000.00

DIVIDEND INCOME

₱4,250,000.00

₱250,000.00

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? ANSWER: ₱4,750,000 Market Share less Exercise Price # of rights to purchase one share + 1

125-100

4+1 ₱5.00 Cost of original investment

₱5,000,000.00

less: Cost of Stock Rights (50,000 x 5) COST OF NEW INVESTMENT

₱250,000.00 ₱4,750,000.00

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? __________________ ANSWER: ₱5,400,000 Initial Measurement add: Share in profit (6,000,000 x 20%) x 6/12 less: Share Dividend (1,000,000 x 20%) INVESTMENT ON ASSOCIATES, Dec. 31, 2020

₱5,000,000.00 ₱600,000.00 ₱200,000.00 ₱5,400,000.00...