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FAR OCAMPO/OCAMPO
FAR.3421-Investments in Equity Instruments –
Financial Assets at Fair Value MAY 2023

DISCUSSION PROBLEMS
1. Significant influence is 3. An investment in equity instrument may not be
a. The power to participate in the financial and classified as a financial asset subsequently measured
operating policy decisions of the investee but is not at
control or joint control over those policies. a. Fair value through profit or loss
b. Deemed to exist when the investor is exposed, or b. Fair value through other comprehensive income
has rights, to variable returns from its involvement c. Amortized cost
with the investee and has the ability to affect those d. None of these
returns through its power over the investee.
c. The contractually agreed sharing of control of an 4. At initial recognition, an entity may make an
arrangement, which exists only when decisions irrevocable election to present in other comprehensive
about the relevant activities require the unanimous income subsequent changes in the fair value of an
consent of the parties sharing control. investment in an equity instrument that is
d. The power to govern the financial and operating a. Acquired principally for the purpose of selling it in
policies of an entity so as to obtain benefits from the near term.
its activities. b. On initial recognition is part of a portfolio of
identified financial instruments that are managed
LECTURE NOTES: together and for which there is evidence of a
recent actual pattern of short-term profit-taking.
Accounting for Investments in Ordinary Shares c. A derivative.
Summary d. None of these.
Level of
Influence Investment Method Standard 5. All investments in equity instruments and contracts on
Little or Financial Fair value PFRS 9 those instruments must be measured at fair value.
none asset PAS 32 Cost may be an appropriate estimate of fair value in
PFRS 7 which of the following?
a. Insufficient more recent information is available to
Significant Investment Equity PAS 28
measure fair value.
in Associate
b. There is a wide range of possible fair value
Control Investment Consolidation PFRS 10
measurements and cost represents the best
in Subsidiary
estimate of fair value within that range.
Joint Investment Equity PAS 28
c. Investments in quoted equity instruments.
control in Joint
d. Either a or b.
Venture

LECTURE NOTES:
2. On Jan. 1, 2023, Totga Co. purchased 20,000 ordinary
shares of FZ Co. at P100 per share. At the time of the Financial Assets Measurement Summary
purchase, FZ Co. had 100,000 ordinary shares
Classification Initial Subsequent Change in FV
outstanding. For the year ended Dec. 31, 2023, FZ Co.
FA@FVTPL FV FV P/L
reported profit of P2,400,000 and paid cash dividends
FA@FVTOCI FV + TC FV OCI (Equity)
of P600,000. The shares of FZ are selling at P110 per
FA@AC FV + TC AC Ignore
share on Dec. 31, 2023.
Totga is entitled to appoint two directors to the board,
which consists of eight members. The remaining of the 6. An entity acquired an investment in equity instrument
voting rights are held by two other companies, each of for P800,000 on Mar. 31, 2023. The direct acquisition
which is entitled to appoint three directors. The board costs incurred were P140,000.
makes decisions on the basis of simple majority.
On Dec. 31, 2023 the fair value of the instrument was
Because board meetings are often held at very short
P1,100,000 and the transaction costs that would be
notice, Totga does not always have representation on
incurred on sale were estimated at P120,000.
the board. Often the suggestions of the representative
of Totga are ignored, and the decisions of the board If the investment is designated as FA at FVTOCI, what
seem to take little notice of any representations made amount of gain would be recognized in the financial
by the director from Totga. statements for the year ended Dec. 31, 2023?
a. Nil c. P420,000
The carrying amount of the investment in FZ Co. as of
b. P40,000 d. P160,000
Dec. 31, 2023 should be
a. P2,200,000 c. P2,360,000
b. P2,000,000 d. P2,480,000

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Use the following information for the next two questions. 12. For the year ended Dec. 31, 2022, an entity reported
opening retained earnings of P1,850,000 and
On its Dec. 31, 2022, balance sheet, an entity
cumulative unrealized gains recorded as reserves of
appropriately reported a P4,000 credit balance in its
P25,000. These gains are from an investment with an
Market Adjustment-Trading Securities account. There was
original cost of P100,000 and a fair value of P125,000.
no change during 2023 in the composition of the entity’s
The entity’s policy is to value all investments at fair
portfolio of trading securities. Pertinent data are as
value with unrealized gains and losses included in
follows:
reserves. The entity’s accounting policy is that when
Fair Value an investment is sold, the reserve amount is
Security Cost 12/31/23 transferred to retained earnings. During 2023, one-half
A P120,000 P126,000 of the investment was sold. The remaining investment
B 90,000 80,000 increased in value to P70,000. A second investment
C 160,000 157,000 was bought for P150,000 and its fair value had
P370,000 P363,000 increased to P165,000 by the end of 2023. What is the
reserve balance at Dec. 31, 2023?
7. The credit balance in the account Market Adjustment-- a. P27,500 c. P45,000
Trading Securities at Dec. 31, 2022 should be b. P35,000 d. P60,000
interpreted as
a. The net unrealized holding gain for 2022. 13. On June 1, 2023, Ping Corp. purchased 10,000 of
b. The net realized holding loss for 2022. Pong’s 50,000 outstanding ordinary shares at a price
c. The net unrealized holding gain to date. of P6.00 per share. Pong had earnings of P3,000 per
d. The net unrealized holding loss to date. month during 2023 and paid dividends of P10,000 on
Mar. 1, 2023 and P12,500 on Dec. 1, 2023. The fair
8. What amount of loss on these securities should be value of Pong’s shares was P6.50 per share on Dec.
included in the entity’s income statement for the year 31, 2023.
ended Dec. 31, 2023?
a. P11,000 c. P3,000 Which statement is correct?
b. P 7,000 d. P0 a. Assuming that the investment is FVTPL, the total
effect on Ping’s profit or loss for the year ended
Dec. 31, 2023 is P2,500.
Use the following information for the next two questions. b. Assuming that the investment is FVTOCI, the total
effect on Ping’s profit or loss for the year ended
Pompey Inc. carries the following marketable equity Dec. 31, 2023 is P7,500.
securities on its books at Dec. 31, 2022 and 2023. All c. Assuming that the investment is an associate, the
securities were purchased during 2022. total effect on Ping’s profit or loss for the year
ended Dec. 31, 2023 is P3,600.
FA at FVTPL:
d. After all closing entries for 2022 are completed, the
Cost Fair value
effect of the increase in fair value on total
12/31/22 12/31/23
shareholders' equity would be the same amount
P Company P 500,000 P 260,000 P 400,000
under the FVTOCI and FVTPL approaches.
R Company 260,000 400,000 400,000
T Company 700,000 600,000 500,000
Total P1,460,000 P1,260,000 P1,300,000
14. On Jan. 1, 2022, Lallo Company purchased 15% of
Vintar Company’s ordinary shares for P20,000,000.
FA at FVTOCI:
The following data concerning Vintar Company are
Cost Fair value
available:
12/31/22 12/31/23
2022 2023
C Company P4,100,000 P3,600,000 P3,600,000
Net income P6,000,000 P7,000,000
I Company 1,000,000 1,200,000 1,400,000
Cash dividend paid None 15,000,000
Total P5,100,000 P4,800,000 P5,000,000
In its income statement for the year ended Dec. 31,
9. The net amount to be recognized in 2023 2023, how much should Lallo report as income from
comprehensive income is this investment?
a. P240,000 gain c. P260,000 loss a. P2,250,000 c. P700,000
b. P200,000 gain d. P 60,000 loss b. P1,950,000 d. P600,000

10. The net unrealized gain/loss at Dec. 31, 2023 in 15. Lasam Company received dividends from its
accumulated other comprehensive income in investments in ordinary shares during the current
shareholders' equity is period as follows:
a. P260,000 loss c. P100,000 loss a. A share dividend of 20,000 shares from A
b. P200,000 gain d. P 40,000 gain Company when the market price of A’s shares was
P30 per share.
b. A cash dividend of P2,000,000 from B Company in
11. PFRS 9 permits an entity to make an irrevocable which Lasam owns a 20% interest.
election to present in other comprehensive income c. A cash dividend of P1,500,000 from C Company in
changes in the fair value of an investment in an equity which Lasam owns a 10% interest.
instrument. Amounts presented in other d. 10,000 ordinary shares of D Company in lieu of
comprehensive income cash dividend of P20 per share. The market price
a. May be subsequently transferred to profit or loss. of D Company’s shares was P180. Lasam holds
b. Shall be subsequently transferred to retained originally 100,000 ordinary shares of D Company.
earnings. Lasam owns 5% interest in D Company.
c. Either a or b. e. A liquidating dividend of P2,000,000 from E
d. Neither a nor b. Company. Lasam owns a 5% interest in E
Company.

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f. A dividend in kind of one ordinary share of X 21. What is the principle for recognition of a financial asset
Company for every 5 ordinary shares of F in PFRS 9?
Company held. Lasam holds 200,000 F Company a. A financial asset is recognized when, and only
shares which have a market price of P50 per share. when, it is probable that future economic benefits
The market price of X Company’s ordinary share is will flow to the entity and the cost or value of the
P30 per share. instrument can be measured reliably.
b. A financial asset is recognized when, and only
What amount of dividend income should Lasam report
when, the entity obtains control of the instrument
in its current period income statement?
and has the ability to dispose of the financial asset
a. P4,500,000 c. P6,300,000
independent of the actions of others.
b. P5,700,000 d. P5,900,000
c. A financial asset is recognized when, and only
when, the entity obtains the risks and rewards of
16. Dividends are recognized in profit or loss only when:
ownership of the financial asset and has the ability
a. The entity’s right to receive payment of the
to dispose of the financial asset.
dividend is established.
d. A financial asset is recognized when, and only
b. It is probable that the economic benefits
when, the entity becomes a party to the
associated with the dividend will flow to the entity.
contractual provisions of the instrument.
c. The amount of the dividend can be measured
reliably.
d. All of the above.
22. A regular way purchase or sale is a purchase or sale of
a financial asset under a contract whose terms require
delivery of the asset within the time frame established
Use the following information for the next two questions.
generally by regulation or convention in the
Pamplona Corp. owns 1,000,000 shares of Penablanca marketplace concerned. Which statement is incorrect
Corp.’s 5,000,000 shares of P50 par, 10% cumulative, regarding regular way purchase or sale of a financial
nonparticipating preference shares. During 2023 asset?
Penablanca declared and paid dividends of P40,000,000 on a. A regular way purchase or sale of financial assets
preference shares. No dividends had been declared or paid is recognized and derecognized using either trade
during 2022. date or settlement date accounting. The choice of
method is an accounting policy.
17. What amount should Pamplona report as dividend b. Under trade date accounting, the financial asset is
income in its 2023 income statement? recognized and derecognized on the date the entity
a. P5,000,000 c. P10,000,000 commits to the purchase or sale.
b. P8,000,000 d. Nil c. Under settlement date accounting, the financial
asset is recognized and derecognized on the date it
18. How should Pamplona report the 2022 dividend in is delivered.
arrears that was received in 2023? d. For purposes of regular way accounting, assets
a. As a reduction in cumulative preferred dividends held for trading and designated at fair value
receivable. through profit or loss form one category.
b. As a retroactive change of the prior period financial
statements.
c. Include, net of income taxes, after 2023 income 23. On June 29, 2023, an entity commits itself to purchase
from continuing operations. investment in shares to be classified as FA at FVTPL for
d. Include in 2023 income from continuing P100,000, its fair value on commitment (trade) date.
operations. This financial asset has a fair value of P101,000 and
P101,500 on June 30, 2023 (the entity’s financial year-
19. On Jan. 2, 2023, Theodora Corp. purchased 40,000 end), and July 2, 2023 (settlement date), respectively.
shares of Byzantine, Inc. stock at P100 per share. In the marketplace concerned, the time frame for
Brokerage fees amounted to P120,000. A P5 dividend delivery of the asset or payment of liability is
per share of Byzantine, Inc. shares had been declared transaction date plus 3 days (“T+3”).
on Dec. 15, 2022, to be paid on Mar. 31, 2023 to
Which statement is correct?
shareholders of record on Jan. 31, 2023. The shares
a. The transaction is not a regular way purchase.
are designated as FVTOCI. On Dec. 31, 2023 the
b. If the entity applies the trade date accounting
investment has a fair value of P4,200,000. How much
method, the entity will recognize a gain of P1,500
should be recognized in the 2023 other comprehensive
on July 2, 2023.
income related to these securities?
c. If the entity applies the settlement date accounting
a. P400,000 c. P200,000
method, the entity will recognize the financial
b. P280,000 d. P 80,000
asset at P100,000 on July 2, 2023.
d. If the entity applies the settlement date accounting
20. On Jan. 2, 2023, Gamu Corp. purchased as a long-
method, the entity will recognize a gain of P500 on
term investment 10,000 ordinary shares of Ilagan
July 2, 2023.
Corporation for P70 per share, which represents a 1%
interest. On July 1, Ilagan Corporation declared its
annual dividend on its ordinary shares of P5 per share
payable on Aug. 1 to shareholders of record at July 25,
2023. On July 20, 2023 Gamu needed additional cash
for operations and sold all 10,000 shares Ilagan for
P100 per share.

For the year ended Dec. 31, 2023, Gamu should report
on its income statement a gain on disposal of
a. P300,000 c. P175,000
b. P210,000 d. P250,000

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SOLUTION GUIDE: c. The change in value is not recognized for

investments in equity instruments measured at fair
TRADE DATE ACCOUNTING value through other comprehensive income.
d. In the same way as it accounts for the acquired
June 29, 2023
asset.
Equity investment – FVTPL P100,000
Due to broker P100,000
June 30, 2023 Use the following information for the next two questions.
Equity investment - FVTPL P1,000
On Dec. 28, 2023 (trade date), Francis Corp. enters into a
FV adj. gain-P/L P1,000
contract to sell investment in shares classified as FA at
July 2, 2023 FVTOCI for its current fair value of P303,000. The asset
Equity investment - FVTPL P 500 was acquired a year ago and its cost was P300,000. On
Due to broker 100,000 Dec. 31, 2023 (financial year-end), the fair value of the
Cash P100,000 asset is P303,600. On Jan. 5, 2024 (settlement date), the
FV adj. gain-P/L 500 asset's fair value is P303,900.

SETTLEMENT DATE ACCOUNTING 25. If Francis uses the trade date method to account for
regular way sales of its securities, the net amount to
June 29, 2023 be recognized in 2023 comprehensive income is
Memo entry a. P3,900 c. P3,000
June 30, 2023 b. P3,600 d. P 0
Due from broker P1,000
FV adj. gain-P/L P1,000 SOLUTION GUIDE:

July 2, 2023 Dec. 28, 2023

Equity investment - FVTPL P101,500 Equity investment – FVTOCI P3,000
Cash P100,000 FV adj. gain – OCI P3,000
Due from broker 1,000 Due from broker P303,000
FV adj. gain-P/L 500 Equity investment - FVTOCI P303,000

Dec. 31, 2023

LECTURE NOTES: No entry
Summary of recognition and derecognition in a regular way Jan. 5, 2024
purchase and sale of financial assets: Cash P303,000
Trade Date Settlement Date Due from broker P303,000
Recognize Commitment Delivery date
date
Derecognize Commitment Delivery date 26. If Francis uses the settlement date method to account
date for regular way sales of its securities, the net amount
Change in FV from to be recognized in 2024 comprehensive income is
trade date to a. P3,900 c. P3,000
settlement date b. P3,600 d. P 0
(for FA measured
at FV): SOLUTION GUIDE:
Purchase Recognize Recognize Dec. 28, 2023
Sale Ignore Ignore Equity investment – FVTOCI P3,000
FV adj. gain – OCI P3,000
Regular way purchase - Initial measurement
Memo entry - sale
Dec. 31, 2023
No entry
Jan. 5, 2024
Cash P303,000
Equity investment - FVTOCI P303,000

27. If an entity derecognized investments in equity

instruments measured at fair value through other
comprehensive income during the reporting period,
PFRS 7 requires disclosure of
24. When settlement date accounting is applied, how a. The reasons for disposing of the investments.
should an entity account for any change in the fair b. The fair value of the investments at the date of
value of the asset to be received during the period derecognition.
between the trade date and the settlement date? c. The cumulative gain or loss on disposal.
a. The change in value is recognized for all financial d. All of these.
assets.
b. The change in value is not recognized for all J - end of FAR.3421 - J
financial assets.

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