REVIEWER FOR IA Security Cost Market Value

A 2,450,000 2,300,000
(Reported by Erica Torrecampo Lat, Reviewer pp 433 –
436) B 1 ,800,000 1,820,000
FINANCIAL ASSET AT FAIR VALUE
4,250,000 4,120,000
Measurement -̶ FVPL and FVOCI

Problem 36-1 (IFRS)

2. In the 2018 income statement, what amount should
On January 1, 2017 Alexis Company purchased
be reported as unrealized gain or loss?
marketable equity securities to be held as “trading”
for P5,000,000. The entity also paid transaction cost a. Unrealized gain of P100,000
amounting to P 200,000. The securities had a market
b. Unrealized loss of P100,000
value of P 5,500,000 on December 31, 2017 and the
transaction cost that would be incurred on sale is c. Unrealized loss of P130,000
estimated at P100,000. No securities were sold during
2017. d. Unrealized gain of P130,000

1. What amount of unrealized gain or loss on these Solution 36-2 Answer a

securities should be reported in the 2017 Market value- December 31, 2018
income statement? 4,120,000

a. 500,000 gain Carrying amount equal to market value

b. 500,000 loss on December 31, 2017

4,020,000
c. 300,000 gain
Unrealized gain in 2018
d. 400,000 gain 100,000
Solution 36-1 Answer a Cost
4,250,000
Fair value
5,500,000 Unrealized loss - 2017
(230,000)
Acquisition cost- trading
5,000,000 Market value - December 31, 2017
4,020,000
Unrealized gain-included in profit or loss
500,000 Trading securities are measured at FVPL on a portfolio
basis.
Under PFRS 9, any transaction cost is not included as
part of the initial measurement of a financial asset as FVPL means fair value through profit or loss.
fair value through profit or loss. A financial asset held
for “trading” is a financial asset measured at fair value
through profit or loss. The transaction cost that would Problem 36-3 (AICPA Adapted)
be incurred on sale is ignored because the financial
asset held for trading is measured at fair value and During 2017, Latvia Company purchased trading
not at fair value less cost of disposal. securities with the following cost and

Problem 36-2 (AICPA Adapted) market value on December 31,2017:

During 2017, Garr Company purchased marketable Security Cost Market value
equity securities as a trading investment. For the year A - 1,000 shares 200,000 300,000
ended December 31, 2017, the entity recognized an
unrealized loss of P230,000. There were no security B - 10,000 shares 1,700,000 1,600,000
transaction during 2018. The entity provided the
C - 20,000 shares 3,100,000 2,900,000
following information on December 31,2018:
 5,000,000 4,800,000 What amount of gain should be recognized in other
comprehensive income for the year ended December
The entity sold 10,000 shares of Security B on January
31, 2017?
15, 2018, for P150 per share.
a. 200,000
1. What amount of unrealized gain or loss should be
reported in the income statement for 2017? b. 900,000

a. 200,000 loss c. 800,000

b. 200,000 gain d. 0

c. 300,000 loss Solution 36-4 Answer c

d. 300,000 gain Fair value- December 31,2017

5,500,000
2. What amount should be reported as loss on sale of
trading investment in 2018? Acquisition cost
4,700,000
a. 200,000 gain
Unrealized gain - other comprehensive income
b. 200,000 loss
800,000
c. 100,000 gain
Acquisition price
d. 100,000 loss 4,000,000

Solution 36-3 Transaction cost

700,000
Question 1 Answer a
Total acquisition cost of investment
Total market value- December 31,2017 4,800,000 4,700,000
Total cost- December 31,2017 5,000,000 Under PFRS 9, any transaction cost is included as part
Unrealized loss in 2017 ( 200,000) of the initial measurement of a financial asset
measured at fair value through other comprehensive
income or FVOCI. The transaction cost that would be
Question 2 Answer d incurred on the sale of the investment is ignored
because the equity investment at fair value through
Sale price (10,000 x P150) comprehensive is measured at fair value and not fair
1,500,000 value less cost of disposal.
Carrying amount of B shares on December 31,2017 (Reported by Maria Ruby Christine Borjal, Reviewer pp
(1,600,000) 447 - 450)
Loss on sale of trading investment INVESTMENT IN EQUITY SECURITIES
( 100,000)
Dividend, share split and stock right

Problem 37-1 (AICPA Adapted)

Problem 36-4 (IFRS)
On January 1, 2017, ABC Company purchased 40,000
Carmela Company acquired non-trading equity shares at P100 per share to be held for trading.
instrument for P4,000,000 on March 31,2017. The Brokerage fees amounted to P120,000. A P5 dividend
equity instrument is classified as financial asset at fair per share had been declared on December 15 ,2016 ,
value through other comprehensive income. The to be paid on March 31, 2017 to shareholders of
transaction cost incurred amounted to P700,000. On record on January 31 ,2017. No other transactions
December 31, 2017, the fair value of the instrument occured in 2017 affecting the investment.
was P 5,500,000 and the transaction cost that would
be incurred on the sale of the investment is estimated What is the initial measurement of the investment?
at P600,000. a. 4,120,000
b. 4,000,000 Cobb Company purchased 10,000 shares representing
passive ownership of Roe Company on February 15,
c. 3,920,000
2017. Cobb Company received a share dividend of
d. 3,800,000 2,000 shares on March 31, 2017, when the carrying
amount per share was P350 and the market value per
Solution 37-1 Answer d share was P400. Roe Company paid a cash dividend of
Purchase price (40,000 x 100 ). P15 per share on September 15, 2017.
4,000,000 In the income statement for the year ended October
Purchase dividend (40,000 x 5 ) 31, 2017, what amount should be reported as
( 200,000) dividend income?

Cost of investment a. 980,000

3,800,000 b. 880,000
The shares were purchased dividend-on because the c. 180,000
date of purchase is January 1, 2017 and dividend was
declared on December 15, 2016 to shareholders of d. 150,000
record on January 31, 2017. The purchased dividend
Solution 37-3 Answer c
is excluded from the cost of investment. The
transaction cost is not capitalized because the Original shares 10,000
investment is held for trading measured at fair value
Share dividend 2,000
through profit or loss.
Total shares . 12,000

Dividend income (12,000 x P15) 180,000

Problem 37-2 (AICPA Adapted)

On January 1, 2017, Adam Company purchased as a

long term investment unlisted 100,000 ordinary Problem 37-4 ( PHILCPA Adapted)
shares of Mill Company for P40 a share. On December
28, 2017, Adam Company sold 80,000 shares of Mill During 2017, Lawan Company bought the shares of
Company for P50 a share. Burwood Company as follows:

For the year ended December 31, 2017, what amount June 1 20,000 shares @ P100 2,000,000
should be reported as gain on disposal December 1 30,000 shares @ P120 3,600,000
of long -term investment? 5,600,000
a. 200,000 Transactions for 2018
b. 900,000 January 10 Received cash dividend at P10 per share.
c. 800,000 January 20 Received 20% stock dividend.
d. 400,000 December 10 Sold 30,000 shares at P125 per share.
Solution 37-2 Answer c If the FIFO approach is used, what is the gain on the
Sale price (80,000 x 50 ) sale of the shares?
4,000,000 a. 1,150,000
Cost of investment sold ( 80,000x 40) b. 950,000
( 3,200,000)
c. 150,000
Gain on disposal of investment
800,000 d. 550,000

Problem 37-3 (AICPA Adapted) Solution 37-4 Answer a

FIFO approach June 1 December 1

Original shares 20,000 30,000 Problem 37-6 (AICPA Adapted)

Stock dividend - 20% 4,000 6,000 Day Company received dividends from share
investment during the year ended December 31,
Total shares 24,000 36,000
2017:
Sale price (30,000x125)
3,750,000 • A share dividend of 4,000 shares from Parr Company
on July 31, 2017 when the market price of Parr's share
Cost of shares sold:
was P20 Day Company owns less than 1% of Parr's
From June 1 (24,000 shares) 2,000,000 share capital.

From December 1 (6,000 shares) • A cash dividend of P150,000 from Lark Company in
which Day Company owns a 25% interest. A majority
(6,000/36,000x3,600,000) 600,000 of Lark's directors are also directors of Day Company.
2,600,000
What amount of dividend revenue should be reported
Gain on sale in 2017?
1,150,000
a. 230,000
Average approach
b. 150,000
Sale price
3,750,000 c. 80,000

Cost of shares sold (30,000/60,000 x 5,600,000) d. 0

2,800,000
Solution 37-6 Answer d
Gain on sale
The share dividend from Parr Company is not an
950,000
income. The cash dividend from Lark Company is not
Problem 37-5 (AICPA Adapted) also an income but a reduction of investment because
the interest is 25% and therefore the equity method is
Wood Company owns 20,000 shares of Arlo used.
Company's 200,000 shares of P100 par, 6%
cumulative, nonparticipating preference share capital
and 10,000 shares representing 2% ownership of
(Reported by Ira Isaac Villegas Oldan, Reviewer pp 459
Arlo's ordinary share capital. During 2017, Arlo
– 462)
Company declared and paid preference dividends of
P2,400,000. No dividends had been declared or paid INVESTMENT IN ASSOCIATE
during 2016. In addition, Wood Company received a
Basic problems
5% share dividend on ordinary share from Arlo
Company when the quoted market price of Arlo's Problem 38-1 (AICPA Adapted)
ordinary share was P10.
At the beginning of current year, Saxe Company
What amount should be reported as stock dividend purchased 20% of Lex Company’s shares outstanding
income for 2017? for P6,000,000. The acquisition cost is equal to the
carrying amount of the net assets acquired. During
a. 120,000
the current year, the investee reported net income of
b. 125,000 P7,000,000 and paid cash dividend of P4,000,000.

c. 240,000 What is the carrying amount of the investment in

associated at year-end?
d. 245,000
a. 5,200,000
Solution 37-5 Answer c
b. 6,000,000
Dividend income on preference share
c. 6,600,000
( 20,000/200,000=10%x2,400,000) 240,000
d. 7,400,000
Solution 38-1 Answer c The excess of cost over the carrying amount of the
underlying equity acquired which is attributable to
Acquisition cost
undervalued of a depreciable asset should be
6,000,000
amortized over the remaining useful life of the
Add: Share in net income (20% x 7,000,000) depreciable asset. Such amortization is recorded by
1,400,000 debiting investment income and crediting investment
in associate.
Total
7,400,000 2. What amount should be reported as investment
income for the current year?
Less: Share in cash dividend (20% x 4,000,000)
800,000 a. 360,000

Carrying amount b. 160,000

6,600,000
c. 240,000
PAS 28, paragraph 5, provides that if an investor
d. 340,000
holds, directly or indirectly through subsidiaries, 20%
or more of the voting power of the investee, it is Question 2 Answer b
presumed that investors does have significant
Share in net income 20% x 1,800,000)
influence, unless it can be clearly demonstrated that
360,000
this is not the case. The equity method of accounting
is used if the investment is 20% or more of the voting Amortization of excess of cost (2,000,000/10)
power of the investee. (200,000)
Problem 38-2 (AICPA Adapted) Investment income for current year
160,000
At the beginning of current year, Farley Company
acquired 20% of the outstanding ordinary shares of Under the method, the investment account is
Davis Company for P8,000,000. This investment gave increased by the investor’s share of the investee’s
Farley the ability to exercise significant influence over earnings and decreased by the investor’s share of the
Davis. The carrying amount of the acquired shares was investee’s losses. Dividend received from the investee
P6,000,000. The excess of cost over carrying amount reduces the carrying amount of the investment.
was attributed to a depreciable asset which was
undervalued on Davis’ statement of financial position 3. What is the carrying amount of the investment in
and which had a remaining useful life of ten years. associate at year-end?

The investee reported net income of P1,800,000 and a. 7,720,000

paid cash dividends of P400,000 and thereafter issued b. 7,800,000
5% share dividend during the current year.
c. 8,000,000
1. What is excess of cost over the carrying amount of
net assets acquired? d. 8,080,000

a. 2,000,000 Solution 38-2

b. 3,000,000 Question 3 Answer d

c. 1,000,000 Original cost 8,000,000

d. 0 Share in net income (20% x 1,800,000) 360,000

Question 1 Answer a Amortization of excess of cost ( 200,000)

Acquisition cost 8,000,000 Share in cash dividend (20% x 400,000) ( 80,000)

Carrying amount of interest acquired (6,000,000) Carrying amount of investment in associate 8,080,000

Excess of cost over carrying amount 2,000,000 Problem 38-3 (AICPA Adapted)
At the beginning of current year, Well Company In January 2017, the entity purchased an equipment
purchased 10% of Rea Company’s outstanding for P2,500,000 with no residual value. 
ordinary shares for P4,000,000. Well Company is the  
largest single shareholder in Rea and Well’s officers At the end of 2017, the entity sold an equipment with
are a majority of Rea’s board of directors. The an original cost of P1,000,000 and a residual value of
investee reported net income of P5,000,000 for the P200,000 for P350,000. This asset was acquired on
current year and paid cash dividend of P1,500,000. January 1, 2015. 
 
What amount should be reported as investment in
1. What is the depreciation for 2017? 
Rea Company at year-end?
 
a. 4,500,000 a. 1,625,000 
b. 1,875,000 
b. 4,350,000 c. 1,125,000 
c. 4,000,000 d. 975,000 

d. 3,850,000 2. What is the gain or loss from the derecognition of

Solution 38-3 Answer b the asset on December 31, 2017? 
 
PAS 28, paragraph 5, provides that if investors holds, a. 100,000 gain 
directly or indirectly through subsidiaries, less than b. 150,000 loss 
20% of the voting power of the investee, it is c. 50,000 loss 
presumed that investor does not have significant d. 0 
influence, unless such influence can be clearly  
demonstrated. Well’s position as Rea’s largest single Solution 55-7 
shareholder and the presence of Well’s officers as a  
majority of Rea’s board of directors demonstrate that Question 1 Answer a 
Well does have significant influence despite the 10%  
ownership. Total cost – January 1, 2017
5,000,000 
Accordingly, the equity method is used.
Cost of new asset acquired
Acquisition, January 1 4,000,000 2,500,000 
Cost of asset sold
Add: Share in net income (10% x 5,000,000) 500,000
1,000,000) 
Total
4,500,000 Remaining cost – December 31, 2017
6,500,000
Less: Share in cash dividend (10% x 1,500,000)
150,000
Depreciation for 2017 (25% x 6,500,000)
Carrying amount of investment, December 31 1,625,000
4,350,000

(Reported by Maria Joana mae Briña, Reviewer pp 689 Question 2 Answer d

– 692)
Under the composite method, no gain or loss is
Problem 55-7 (IAA)  recognized on the derecognition of an asset.
 
Norraine Company used the composite method of Cash 350,000
depreciation based on a composite rate of 25%. At the Accumulated depreciation 650,000
beginning of 2017, the total cost of equipment was Equipment
P5,000,000 with a total residual value of P600,000 and 1,000,000
accumulated depreciation of P3,000,000. 
 
Problem 55-8 (IAA)
 2017
Jade Company acquired a new milling machine on (2,000,000 – 400,000/4 x 9/12)
April 1, 2011. The machine has a special component 300,000
that required replacement before the end of the
useful life. The asset was originally recorded in two Total depreciation for 2017
accounts, one representing the main unit and the 1,100,000
other for the special component. Depreciation is
recorded by the straight line method and residual The second component is depreciated over the
value is disregarded. remaining life of the main machine of 4 years.

On April 1, 2017, the special component is scrapped The original life of the main machine is 10 years and 6
and is replaced with a similar component. This new years already expired from April 1, 2011 to April 1,
component is expected to have a residual value of 2017.
approximately 20% of cost at the end of the useful life
of the main unit, and because of materiality, the
residual value will be considered in calculating Problem 55-9 (AICPA Adapted)
depreciation.
Canada Company purchased a machine at an invoice
Main milling machine: price of P4,500,000 with terms 2/10, n/30. The entity
Purchase price in 2011 paid the required amount for the machine beyond the
7,500,000 discount period.
Residual value
The entity paid P80,000 for delivery of the machine
100,000
and P310,000 for installation and testing. The machine
Estimated useful life
was ready for use on January 1, 2017.
10 years
First special component:
It was estimated that the machine would have a
Purchase price
useful life of 5 years and a residual value of P800,000.
1,200,000
Residual value
Engineering estimate indicated that the useful life in
60,000
productive units was 200,000.
Estimated useful life
6 years
Units actually produced during the first two years
Second special component:
were 30,000 in 2017 and 48,000 in 2018. The entity
Purchase price
decided to use the output method of depreciation.
2,000,000
Residual value (20% X 2,000,000)
What is the accumulated depreciation of the machine
400,000
on December 31, 2018?
What is the total depreciation for 2017?
a. 1,560,000
b. 1,600,000
a. 1,100,000
c. 960,000
b. 1,087,500
d. 600,000
c. 1,350,000
d. 1,175,000
Solution 55-9 Answer a
Solution 55-8 Answer a
Invoice price
Main machine (7,500,000/10) 4,500,000
750,000 Cash discount (2% x 4,500,000)
First component – from January 1 to April 1, 2017 ( 90,000)
(1,200,000/6 x 3/12) Delivery cost
50,000 80,000
Second component – from April 1 to December 31, Installation and testing
310,000 Leonard Company acquired a machine on July 1, 2017
and paid P5,200,000 including freight P50,000 and
Total cost installation P150,000. The estimated life of the
4,800,000 machine is 8 years or a total of 100,000 working hours
Residual value with no residual value.
( 800,000)
The operating hours of the machine totaled 5,000
hours in 2017 and 12,000 hours in 2018. The entity
Depreciable amount
followed the working hours method of depreciation.
4,000,000
On December 31, 2018, what is the carrying amount
Rate per unit (4,000,000 / 200,000) of the machine?
20
a. 3,900,000
Depreciation for 2017 (30,000 x 20) b. 4,299,000
600,000 c. 4,940,000
Depreciation for 2018 (48,000 x 20) d. 4,316,000
960,000

Accumulated depreciation – December 31, 2018 Solution 55-11 Answer d

1,560,000
Cost – July 1, 2017
5,200,000
Accumulated depreciation – December 31, 2018
Problem 55-10 (IFRS) (17,000 hours x 52)
884,000
Tania Company purchased a boring machine on
January 1, 2017 for P8,100,000. The useful life of the Carrying amount – December 31, 2018
machine is estimated at 3 years with a residual value 4,316,000
at the end of this period of P600,000.
Rate per hour (5,200,000/100,000)
During the useful life, the expected units of 52
production are 12,000 units in 2017, 7,000 units in
2018, and 6,000 units in 2019.
(Reported by Carlo H. Manito , Reviewer pp 693 – 696)
What is the depreciation expense for 2018 using the
most appropriate depreciation method?
DEPRECIATON
Sum of years’ digits and declining balance
a. 2,100,000
b. 2,268,000 Problem 56-1 (AICPA Adapted)
c. 3,600,000
d. 1,800,000 Frey Company purchased a machine for P4,500,000 on
January 1 2017. The machine has an estimated useful
Solution 55-10 Answer a life of four years and a residual value of P500,000. The
machine is being depreciated using the sum of the
years’ digit method.
Rate per unit (8,100,000 – 600,000 / 25,000 units)
300 1. What is the accumulated depreciation on
December 31, 2018?
Depreciation for 2018 (7,000 x 300)
2,100,000 a. 1,600,000
b. 2,800,000
c. 1,200,000
Problem 55-11 (IAA) d. 3,150,000
 2. What is the carrying amount on December 31, Depreciation for 2017
2018? 240,000
Divide by equivalent fraction
a. 2,900,000 8/55
b. 2,700,000 Depreciable amount
c. 1,700,000 1,650,000
d. 1,350,000 Residual value
50,000
Solution 56-1 Acquisition cost
1,700,000
Question 1 Answer b

Question 2 Answer c Problem 56-3 (AICPA Adapted)

SYD = 1 + 2 + 3 + 4 = 10 On April 1, 2017, Kew Company purchased new

machinery for P3,300,000. The machinery had an
Acquisition cost estimated useful life of five years with residual value
4,500,000 of P300,000. Depreciation is computed by the sum of
Accumulated depreciation the years’ digit method.
2017 (4/10 x 4,000,000)
1,600,000 1. What is the depreciation for 2017?
2018 (3/10 x 4,000,000)
1,200,000 2,800,000 a. 500,000
Carrying amount - December 31, 2018 b. 750,000
1,700,000 c. 900,000
d. 800,000

Problem 56-2 (AICPA Adapted) 2. What is the depreciation for 2018?

On January 1, 2015, Mogul Company acquired a. 1,600,000

equipment to be used in the manufacturing b. 1,800,000
operations. c. 850,000
d. 600,000
The equipment had an estimated useful life of 10
years and an estimated residual value of P50,000.
Solution 56-3
The depreciation applicable to this equipment was
P240,000 for 2017 computed under the sum of years’ Question 1 Answer b
digits method.
SYD = 1 + 2 + 3 + 4 + 5
What was the acquisition cost of the equipment? SYD = 15

a. 1,650,000
b. 1,700,000 April 1, 2017 to March 31, 2018 (5/15 x 3,000,000)
c. 2,400,000 1,000,000
d. 2,450,000 April 1, 2018 to March 31, 2019 (4/15 x 3,000,000)
800,000
Solution 56-2 Answer b Accumulated depreciation – March 31, 2019
1,800,000
SYD = 1 + 2 + 3 + 4 + 5 + 6 + 7 + 8 + 9 + 10 = 55
April 1, 2017 – December 31, 2017 (1,000,000 x 9/12)
The first three fractions are 10/55 for 201, 9/55 for 750,000
2016 and 8/55 for 2017.
Question 2 Answer c
Thus, the 2017 depreciation of P240,000 is equal to
8/55. January 1, 2018 – March 31, 2018 (1,000,000 x 3/12)
250,000
April 1, 2018 – December 31, 2018 (800,000 x 9/12) Accordingly, the SYD is followed for 2017.
600,000
Total 2018 depreciation Depreciation for 2017 (2/15 x 900,000)
850,000 120,000

Accumulated depreciation – December 31, 2018

(750,000 + 850,000)
1,600,000

Problem 56-4 (AICPA Adapted)

Rago Company takes full depreciation expense in the

ear of acquisition and no depreciation expense in the
year of disposition.

Data relating to a depreciable asset on December 31,

2016 are as follows:

Acquisition year
2014
Cost
1,100,000
Residual value
200,000
Accumulated depreciation
720,000
Estimated useful life
5 years

Using the same depreciation method in 2014, 2015

and 2016, what amount of depreciation should be
recorded in 2017?

a. 120,000
b. 180,000
c. 220,000
d. 240,000

Solution 56-4 Answer a

The accumulated depreciation on December 31, 2016

is recomputed following a certain method.

The same is arrived at using the SYD.

SYD = 1 + 2 + 3 + 4 + 5 = 15

2014 (5/15 x 900,000)

300,000
2015 (4/15 x 900,000)
240,000
2016 (3/15 x 900,000)
180,000
Accumulated depreciation – December 31, 2016
720,000