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    Investments P1!

    Copyright:

    © All Rights Reserved
    Download as PDF or read online from Scribd
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    2 views18 pages

    P1 - Investments

    Uploaded by

    asdfghjkl
    Investments P1!

    Copyright:

    © All Rights Reserved
    Download as PDF or read online from Scribd
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    of 18
    ReSA The Review Schoo! of Accountancy ‘@Tel. No, 735-9807 & 734-3989 PRACTICAL ACCOUNTING 1 UberitaC Espenilla’@, Macariolg fnyestment In Associate Associate ~ is, an ty Such, Which the investor has cat influen: nity, including an un-incorporated rivership, ov nif ul thac is neither a subsidiary nor an interest in v joint venture Significant influence - 1s the power ( participate in the financial and operating policy decisions of the investee but control gr joint control over those poticits. Below are the features of the definition: stor to have the power, oF the capacity pequites the in > atiect the investee but does not require the investor to actually exercise thar power, Instead, th us is on the existence af the power or capacity The specific power is that of bein uble to participate in the financial and operating decisions of the investee but has no power or eapacity to dominate the financial and operating decisions, In the definitions of an associate and significant influence, there is no requirement for the investor to hold any hares: or have a e equity method of or owning, shares in the associate. In other words, if significant influence is er by virtwe of an association or contract other than from the holding of shares, then the equity metho cannot be applied in relation to the associate associate. However. the application of 1 4. The level of influence is significant when the investor holds 209 st in the voting power of the inyestee it is presumed that the investor has significant influence over the investee, This is a rebuttable the investee is not classified as an associate. Further, where the investor owns: less than 20% of another entity. there is presumption that the investee isnot an associate up to 50% inter presumption because if the investor can demonstrate that such influence does not exist th Measurement (Full Application of the S Equity method a method of accour thereafter for the post-acquisition ehange in 4h ‘of the investor includes the investor te investment is initlally recorded at cost and adjusted tce. ‘The profit or lass hare of the profit or loss of the investee adjusted for the effect of any fair snces recognized on sequisition of the associate value diffe Measure at point of acquisition — messured at historical cost, ‘The cost represents the fait market value of the shares acquired or the consideration issued and any iransaction ests incurred. Measure subsequent 10 acquisition — the cost and carrying value of the equity securities is increaséd or decreased to recognize the investor's sharé of the profit or loss of the investee after the date of acquisition. The investor's share of the profit or loss of the investee is recognized in the investor's profit or loss. Distributions received fiom: an investée reduce the carrying ‘mount of the investment. Adjustment to the carrying. amount may also be necessary for changes in the investor's proportionate interest in the investee arising from changes in the investee’s equity that have not been recognized in the investee’s profit or loss known as other comprehensive income. Such changes include those arising trom the revaluation of property, plant and equipment and inta equity investments, unrealized gain ar loss on hedges and including remeas The carrying value ofthe investment is also affected by the recognition of the excess ofthe acquirer's interest in the net fair value of acquitee’s identifiable assets, liabilities and contingent liabilities over cost after reassessing the identification and measurement of the acquirce’s idemtifiable assets, liabilities and contingent liai ly the ne amount of excess is at tive goodwill However, if there is an indication that the investment in associate is impstited Such that the mount of investment Is higher than its recoverable amount, the amount of im loss should be recognized, the investment in associate account should be reported jn the balance sheet at its recoverable amount xceptions> The equity method of accounting is not applied lo investments. in associates classified as held for sale in accordance with PFRS $“Non-current assets held for sale and discontinued operations”. An investor measures ‘an associate that is classified as held for sale atthe lower of is carrying amount at the date of classificatioh a held for sale and fair value Jess cost to sell. ‘Therefore, equity method ceases once an associate fs classified as held forsale re of Jucome (Loss) From bavest a. During the holding period or when held - share in the inyestce’s reported net profit or loss adjusted by the nount of any understatement or overstatement of expenses on the related assets and liabilities of the investoe, impairment of goodwill or any amount of negative goodwill, The “Income from Investment or Equity in Earnings of Associate” may be used to reflect the share on the earnings oF loss and the related adjustments When an ‘associat us outstanding cumrulative preference shares that are held by parties other than the investor and classified as equity, the investor computes its share of earnings or losses after deducting the dividends on such shares. whether or not such dividends have been declared. For preference shares that are rnon-cumulaive, the dividends are deducted only when there is declaration The above discussion relates only to dividends that are classified as equity because, for those preference shares classified as debt. the payments to the holders are treated as interest and deducted before calculating, profit of loss for the period. For preference shares treated as equity, the pay idends and appropriated subsequent co the calculation of profit or loss Also, in the calculation of the investor's share of the profit of the associate, adjustments must then be made 10 the recorded profit of the associate where that figure has been measured based on policies that are different from those applied by the investor b. Upon derecognition or disposal - the difference of the net diyposal proceeds over the carrying value of the investment at the time of disposal is the measure of gain or foss on disposal of investment. Any other ‘comprehensive inicome recognized hy the investor in relation to the investinent in associate must be recycled ‘and included i the gain oF loss on disposal measurement C: Financial instrument becoming an associate: ‘An entity should account for the step acquisition ofan assoc rust apply the selected policy consistently 4 A cost-based approach, or b. An TRS 3 approach c by applying either (Once selected, the investor. J. Where a cost-based approach is applied 10 accounting for @ siep acquisition of an associate, this involves, the determination of {a) the cast ofthe investment; {b) whether or not any catch-up adjustment is required when first applying equity ace (©) the goodwill implicit in the investment (or gain on bargain purchase), inting; and, In all approaches, cost is the sum of the consideration gi attributable costs, However, as a result of the sn for each tranche together with any directly swers to (a) and (b), the four approaches aré as follows: Cost Based Approach Approach 1 None ‘of consideration and! share of fair value tassels at date investment becomes an associat nce between the cost of each tranche and the share of value of net assets acquired in each tranche Approach 3 For profits (less dividends), Difference bet he and the share of fair ‘and changes in other value of rict assets acquired in each tranche comprehensive income (OC1) Approach 4’ For profits (less dividends), Difference between the cost of each tranche and the share of fair changes in OCI and changes value of net assets acquired in each tr in fair value of net assets Approach 2 None veen the cost of each u wy ot Approaches 1 and 2 do not reco the investment held by the investor ize a ‘catch-up’ equity-accounting adjustment relating 4o the first tranche of On the other hand, Approaches 3 and 4 do recognize a “catch-up” equity-accounting: adjustment telat first tranche of the investment held by the investor. This adjustment is recognized against the appropriate balance within equity - that is, retained earnings, oF other equity reserve, To the extent that they are recognized these will be reflected in other comprehensive income in the statement of comprehensive income. Approach | determines zoodwill in sin, associnte jtleulation based on amounts a the date the investment becomes an On the other hand. Approaches 2. 3 and 4 deter ons at the date of acquisition of each tranche. ne goodwill based on separate calcul Approach | aragraph 23 of JAS 28 states thar “An investment in an associate is accounted for using the equity method from the date on which it becomes an associate Recognising any catch-up adjustments may be interpreted as a form of equity: accounting for a period prior to gaining significant influence, which contradiets this principle of [AS 28 IAS 28 refers f© the fact that an investor applies equity Therefore, cumutative adjustments for periods prior 1 this e ‘counting to the investment once it is an associate nl are not recognized Paragraph 23 of |AS 28 also goes on to state that ‘on o¢@uisition of the investment any difference betwee nestment and the investor's share of the net fair value of the associate's identifiable assets and cost of the oodiwill relating 10 an associate is included in the carrying amount of the investment. Amortization of that sodill is not permite (b) any excess of the investor's share of the net far value Of the associaie’s identifiable assets and liabilities the cost of the investment is included as income in the determination of the investor's share of the 's profit or loss in the period in which the investment is aequired. However, paragraph 23 of IAS 28 does not specify at Which dates the fait values of the net assets are 10 be determined. 1 may be interpreted lo mean only at the dae that the investment becomes an associate. This is also ‘consistent with the approach in IFRS 3 whereby the underlying fair values of net assets are only determined at ‘one time rather than determining them several times. for individual sransactions leading to the change in the This approach avoids some of the practical difficulties encountered when applying the other approaches. However, the drawback of this approach is that goodwill may absorb the effects of other events, because a portion of the cost is determined at a different date t0 the fair value of the assets No eatet-up adjustitent is recognized, sinilar to the reasons noted in Approach 1. However, paragraph 23 of TAS 28 i interpreted to mean that the fuir values of the associate's net assets are determined at a date that corresponds to the date at which consideration was given. Therefore. the fair valves are detérmined for each ‘anche. This may require the fait value 19 be determined for previous periods when no such exercise was: performed at the date of the original purchase. The drawback of this approach ‘is that the measurement of the assets and liabilities iy based on fair values at ifferent dates. soproach 3 A catch-up adjustment is recognized (o reflect the application of the equity method as deseribed in paragrapl 11 of IAS 28 with respect tothe frst tranche. However. the application of that paragraph restriets the adjustment only 10 the share a profits anil other comprehensive income relting to the first tranche. That is there is no fustment made for changes assets not recognized by the investee (except for any adjustments necessary to give effect fo uniform sccounting poicies) Similar 10 Approach 2, paragraph 23 of [AS 28 is interpreted lo nica thatthe fair values of the associate’s net assets are determined at a date (hat corresponds to te date at which consideration was given. Therefore, the fair values are det tranche, This may require the fair values to be determined for previous periods ‘when no such exercise was performed at the date of the original purchase The drawbacks of this approach are the same as Appcos of the underlying net assets plus goodwill inherent in the purchase price. Therefore, where the investment was ‘acquired in tranches a catch-up adjustment is necessary in order 10 apply equity accounting from the date the investment becomes an associate as required by paragraph 23 of IAS 28, The catch-up ad only the post-acquisition share of profits ahd other comprehensive income relating to the first tranche. but aiso the share of the unrecognized fair value adjusiments based on the fair values at the date of becoming an assoctate Similar to Approach 2, paragraph 23 of IAS 28 is interpreted 10 mean that the fair values of the associate's net assets are determined at a date that corresponds {0 the date at which consideration was given, Therefore, the fair Values are-determined for each tranche, This may require the fair values to be determined for previous periods ‘when no such exercise was performed atthe date of the origins By including a catch-up adjustme assets relating to the fiest tranche, this me tor the postacquisition changes in the fair values of the underlyin od overcomes the mixed-measurement drawback of Approach 2 2 Applving an TERS 3 approach Using an IFRS 3 approvch, at the date that significant influence 1s obtained the previously held interest ‘sould be revalued to fair value and the resulting gain or loss recognized in profit or tos. Ds Acctug for Cessation — plication of IAS 27 (as amended in 2 ised in 2008) ‘An investor shall discontinue the use of the equity method from the date when it ceases to have significant influence over an associate and shall account for the investment in accordance with PERS 9 from that date, provided the associate does hot becom 3 subsidiary oF a jointly controlled entity a5 defined in IAS 31. On loss of significant influence, the investor shall measure at fair value any investment the investor tetains in the former associate. The javestor shal! recognize in profit or loss any difference between: 4) the fair value of any retained investment and any proceeds trom disposing, of the part interest in the associate, and b) the carrying amount ofthe iovestment at the date when significant influence is lost Therefore upon loss of si is taken to profit or loss Deemed Disposal: ‘An investor's interest in an associate may be reduced of inerest, which is commonly reerred w as a deemed i disposal may arse for a number of reasons. includin 8) the investor doesnot tahe up its ful allocation in a rights igsu by. the assoeiate declares scrip dividends which ate not taken up by the investor 50 that its proportional intrest is diminished ¢) another panty exercises its options oF warrants issued by the associate; )- the associate issues shares to third parties icant influence thére is a remeasurement to fair value of any remaining inte aidiess of the prospective accounting designation under TERS 9, st that eh a reduction in by the asso Although IASB did not explicitly consider accounting for déemed disposals of associates in drafting IAS 28, paragraph 20 of the standard refers to the concepts underlying the procedures used in accounting. for the acquisition of @ subsidiary in accounting for acquisitions of interests in associates, Therefore, rather than relying on a literal reading of the detinition of the equity method. i is more appropriate to account for deemed disposals of associates in the same way as deemed disposals of subsidiaries. TAS 27 has been amended as part Of pltase II of the business combination project so as to require that partial disposals of subsidiaries. were control is retained, are accounted for us equity transactions, Under equity accou for its own interest. Given that the other investors” ownership in the associate és not reflected in the a an investor there is no hasis for concluding that deemed disposals can only be treated as equity transactio investor only accounts con HERS for SMEs and FULL LERS: TPRS for SM —TFUELTFRS Three measurement lls ate provided — con | Oily the equity method fs allowed, excep Tor mied catty ad a vals * | circumsinnces where fair value can be uized. | Traneaciyn cons are ppediicalynclnded a ct | No specie equlferpentsregang tamtation cons] wer dhe equity method ‘ Se [choc aed Hote Te coy ret irene Good Te oelodc Ww the caring amma ot OE | | separately and amortized | investment and is not amortized User the equity ethod: te accounting polis of | The niracicability exception 1 Bor provided | the associate are adjusted to that of the investor unless | itistmprseableta dos. | aR Baa reust aerace fits] Ae ic eR dates must be used, chcept fits impractical ta do $0, | dates is limited to three monite and ibe difesence { | should be consistent year-on-yea difference in ae / F cost * tor were TL . H jong. (ngs. x Bigs meet € nan 32s (1255 ReSA The Review School of Accountancy ‘BTel. No. 735-9807 & 734-3989 PRACTICAL ACCOUNT oe _C. Uberita/C. Espenilla/G, Macariola A (OOD x fol = jer 009 B 1000 Xho = Itsoo Inyestmer ¢ 280000 Fy) ot. 292 oD 1, On k 2, 2014, Parker Company, « ued sized entity, acquired 25% of the ity of cach of entities, A, Vail C tr P100,000. P50, 000 and ¥280.000, ‘Parker Company has significant infucnee over ettites A, Iv and €. Transaction ests of 1% a the purse price ofthe shares were incurred by Parker Company | 09 December 31, 2014_A Company declared anid paid dividends of 210.000: On December 31, 2014 Company declared a dividend of PSD.O00 forthe year ended 2014 which will be paid in 20)5. For the year inde December 31, 2014 A Company. gad B Company recognized profits of P50.000 and 180.000 respectively. Howeber, © Company 1esugnized aus gi P40 000 re the year 2014, Published price quotations do. tot exist Tor the shares Of emities A, B and C. Using. appropriate valuation techuiques Parker Conpany determina the fair value ofits investimchts in entities A, D and C al December 31, 2014 4s PL30,000, P290,000 and P150,000 regpctively. Costs to sel are estimated ut SB. the fa value ofthe invesuncuts. Parker Company has no sibsidiarics and therefore does not produce consolidated financial iia cee MON ¥aEL > (3100 a FAS & gaox ear) - certo © lee Kost way cog ie Question J. U Parker Compally Woes Wis goaLgodel WY mesvuring its investme ould the investment in A, B ann C. respectively, BE reported in its Deeember 31, 2014 statement of Fi position 1. PHOKRONND,P150,000, P280,000 6 P101,000, 151,800, PLA2.S00 b. PIOLOU0, P1S1.S00, P282.800- «i. P123,500, P275,500, P142,500 SFE _ a . Question 2° Assume thatthe shares oF A. 1s and C ore publicly traded andl Patker Company uses the fair valle “anode! to measine its investment in s,-at-whit-amowit should the investmaint.in A, Tran C respectively, be reported in its Decem O14 statcnien! of Bintan position? Sane i P100,000, P150,400, P20,000, ©, P123.500, P275,500, PIH?,500 a4 aa eet 101,000, P1S1,S00, P282.800 isn.000,290,000,P150,000™ ™ eset ERO — = (Onedtioin dy Assit that’ Parker Company 1ses the guns” nttaad fn mea its investment in associates, at Svat mate stoi Oe tented i A: aul fesicetvel¥itbe reported in fs Debembgh 31, 2014 sealer of Financia! position? watel Gone & = 7P100,000, P150,000, P24, 000 «111,000, #176,500, Piaz.soo "282 #00 ose aoe b. PIO}-U00, PESH,S00, P282,%00 &. P111,000, P176,500, 7232.8 B32 feu WHITE OD 9 D On Japa 22014, Moros Company parchase< 20,000, shares 206) of Polo Coxapany’s ordiy share fot 14,560,000. The fait value-of she net asset acguired is ¥4.200,000. Ducting 2014, Polo reported the following its statement of comprehensive income » P00T0H0 tet income and a 500,000 revaluation surplus recognize utube endothe year. Polo Company pid cash dividends of P3,000,000 on Decemb = woop Gast 4A Question 1: Whats the ulue ofthe fnvestinent as of December 31, 20149 fay on fone (44D a) P4.000,000 ee 24,770,000 zs Ger SOE |b PAGO, a. PA.800,000 ise ant ® Question 2: Assuming Maio Company’ a mediuun size cuterprise, what Ys The earying value of the Wwestnient as of Descmber 32014’ aM so Bf coo CHE) 2. P9,600,000 & Pap TO.000 3 FER] SF gevey b Pa.670.000 3. P4.800,000 i pion ic 3. ta ApsiLt 2014, Holy Company’ acquined 31%, of the 100,000 shar ‘ordinary share of Trini Coinpany for P3,000,000- Tits investment-fave Fly the ability (o exercise significant influence over trinity. Tic boo the Shinns was P2.400.000. ‘The excess of the cost over Book value was attributed 10 an \dentifiable intangible + and hick haa a remaining life For the year ended Dovemiber 3), 2014, Trmntty repoinel income of P1,100,000 which includes 4 1300,000 revaluation reserve vn lis land andl paid eas of 200,000 on its ordinary share and thereatterisstred 15% share dividend cos ete 2 ¥9/n0)) 3109 a ao nM > Gok r a ReSA / Practical Accounting 1 __ Investment in Associates Assuming the investment has act realizable value OF P2,900,000, what isthe amount of impairment loss? a. None P289,00 vb. PIB7.S00 a. P347,500 e 1. On January 1, 2014 Shell Company acquired 9 308% interest in Petron Company's 1,000,0000 outstanding, shares ¢ 015,000,000. Daring the year Shell Company received P300,000 cash dividend and 300,000 share dividends. ALDecember 31, 20/4 Petron Company repored a profit of PS,500,000. On January 2, 2015 Petron Company Issued £000,000 new shares fr P20 peer share. Shell Company did (Question L: What is jon should Shell Company recognize? Pir tige bee! $60 fam 2. 014, A Cpaty acauired 303% ern Company ot vest of 9.000000, ieee Se Company has significant influence over 1b During te year ended December 31, 2014, B reported a post-tix profit of PAOO,000 and paid dividend of 172000. 1 « e. On January 2, han dites investor A Company oh WS aoe lao ‘hare in Peviegds ayers ven (222 «amv. AV inscbine Srn gal 1 aA IGTN Coen foogt ie Gat tery 2 ROLSD se ae ey a. sane ©. P194,733 Shor 22 ) ( b SiL.A00 confi hg hIIA733 Sho xls Be aA wee Oo hee Aaa 6 T3014. Maret Company acguincd a 10% in an invest for P100,000, In 208% te inv Requted a tunher. \LE2O) erst nthe fnvesice for H228.000, inwuediately after the second acauisition Martel Company now holds = 'o and Is able to exercise significant influence The following are relevant information: 1994 Book value of the net assets Gf the juvestee —Janyary 2, 208 600,000 Fair value of the net assels of the investee — January 2. 2014" 800,000 Profitof the investee in 2014 509,000, Dividends declared in 2014 200,000) Increase in fair value of net assess of the investee 100,000 Book value of net assets of the investee in 2015 900,000 fof net assets af the investee in 2015 1.200.000, 214 403 ~40e4 7] AAI, = 19479; after the 2015 acquisition ay aC MR el eublaguses t Gde caey eecrta Si snoop 225 008)15L2 sh a P325,000, ‘ ; vid « b. 7358.00. igh ahheug d, P375,0001 re é Wet tire tye dy p368.000- 8) 305.0007 8) Question 2: What should be the carryine value of the investment inimediately after the 2015 aeguisition 7 assuming Martel Company’ uses the cost Bsc approach scene cost but does Ha reuirete ‘catch up" adjusime a P325,000 1. P865.000 : bh. P35S.000 d, P375,000 Keclatiig: cation aoe ME 7. Bloom Comper 22,000,000 when the in 2014 and 2015, respectively Market value of Gloom’s ordinary shi Jangary 2, 2015, 1oom Company so ry 2 2014 nd P5004 mn Company's 100,000. voting stock on, ‘was P6,000,00). «loo eamed PF,000,000 300,090 in 2014 and PS00,000 in, 2015, es is PRO on December 31/2014 and P9O on Decernber 31, 2015. On Gloom Cony 140% of its investm ital the prevailing market value of Gloom’s shares x | ygox 3109 i: jrense , w) nde Adyartertnt aad 4 ee ee tape ros FE To 7 Oe OK joe ReSA ‘ The Review School of Accountancy (4 ‘BTel, No. 735-9807 & 734-3989, * ! suse quok ft Creew) “a , Soh Wok End (reson) ‘ Aoieeees ac ReSA (Pructical Accounting | ‘estment in Assoc Question J: What anount of pain or oss should Bloom Company recognize ns a result of selling the securities? a None PL1,000 See bP 76,000 4. P190,000 e Question 2: Hf after the sale Bloom Company rselassified its Fema siment to other comprehensive neous, what amount of unrealized gain GF Hoss should be reported in its December 31, 2018 othet Somprshcnsise ian: 4 nN ©. PIR0.000 (~), 2 be PIL4,000 Question 41 alter the sale Bloown Compenuy reclassified the rénsining investment to proitor loss, what total ACEO) ajc of should be repoited in the comipatty's pofiterfoss related to the investment? 2.46 yarcAl-eed = a None © P1800 Nine ' FU 1c vendita bs. Pha. 000 1 P160,000 ae ® ‘Question 5: Wh Deceimber 31, 2014 angi isa susdimn-sized coterprise and ases the caitity method in associat vid te. _ uc 4 P2.000,000 Gaon Nene AO Rep into qeera yer) 4 GW [aye tot) 66, yo”) tad Uses tie culty method AGS by its IF Diogm' Company Bia mea in assortae, what abu OT oF fs should Blooms Company eeognized on January 1015 ithe retained nvestrcht was reels Wek mein Sed UH < piz6nn Coan ethene) Ph.000 1 PignOW ee Cisne ue eude (Spero) mz 3 a8 120% of Chair Cor ot yy and pirsference shares, respec Chair's shares mutstanding at Deccniber 31, 2015 follow Pa,00010040 910,900 1 = JOR? Chair reported pet icone of 2600.00W for Nic year ended Decetnber 31, 2015 and deélared the current year dividend on the preference shares a What fotal amount of Should Hable Company disebve nthe sta ment of compréhynsive income related {0 its investment in Chair Company’ for the year ended December 31, 2015: 4 none &. P273,000 285,000 4. 1500.00 : j 3109 Diluhse Gain) Lax See ASR Poge Sof + FP Reir Yelue Aperooeh eos fr Peete ay ae FF Remeasure OL0 jnteek de Faw vole. | ioe ® Career D.cot-vared Aeyioos CN o¢ Sou “deanes'OP yy ED Sie Stan RU Sith cated eh on Emer og Sguivivant snquenc neclarsigication (Less of Sgrivicant snp 2D Se Dined hy Clog smyenedt (ae sciruerst * i N. tr ner Fy ve owe, Pile rile or, ee: Kx (4K) Seo in Acco anes x Witenes ee (<0) FYRY oirvelve Le oy Torah pitasen gain lO mee DW Sent. |) Tete! dy cm) ane Con Jama BI Ine 293K) ” , gh Cfo is gsr ne, : We 23k - 0 Merle ibs) *yok ( The Review School of Accountancy WTel. No. 735-9807 & 734-3989 ReSA The Review School of Accountancy ‘@Tel, No. 735-9807 & 734-3989 PRACTICAL ACCOUNTING 1 __CUherital, Espenilla’G. Macarita Investment in Debt Instruments Full Application of PERS 9 und PERS for SMEs Investment in debt secu obligation (¢ ties — representing. creditor's claim with fixed amount and usually some interest government securities, corporate bonds, convertible bonds commercial paper, etc.) Designation and Measuren it Full Application of the Standard (PERS 9) and PERS for SMEs Classification of debt securities, the standard Feiguires financial assets to be classified on initial recognition as 41 amortized cost ~ X financial asset js measured at amortized cost when the entity has business mode! to hold contractual cash flows, and the contractual ferms give rise, on specified dates, to cash flows that are solely paymients of principal and interest on the prineipal outstanding assets in order to c Fair value — a financial asset (9 measured at fair value to profit or lass when the entity has the objective of realizing cash flows through sale of assets, manage a port fair value changes ‘arising Jrom changes in eredit spreads and yteld curves or when the emity's objective results in active buying and ¢ fair value gains rather than collect the contractual cash ho of asses in order to real selling with the managing. the instruments to reali flows Investment at fair value to profit or loss. - measured initially at fair market value of the securities acquired, which is equal to the fair value of the cousideration being used 0 acquire the debt instruments excluding ansaction costs, are re-measured al fair value (iransaction cost is mot deducted) with changes in fair valu taken to profit or loss. Premium or discount is not amortized. Investment at amortized cost ~ measured initially at fair market value of the securities acquired which is equal to the fair value of the consideration being sacrifice to aequire the debt instruments plus transaction costs incurred, Premiam or discount and any transaction cast are amor usiness model for managing financial ussers The business model approwch Wu fundamental buitduag block of HERS 9 ard aligns the accownting with te way thaw management deploys assets in is Businens sehilé alte conshdering the characteristics of aise. The business mode is termined by the com termined ul & Kieher level. A company ay manage differen portfolio assets with different o hhaxe more than one business model for Individual asset, vist mamas assets and Note: Debt instruments bear imerest. hence. it would be necessary to consider if the fair value of the consideration given or the cash paid includes ar exe s ans accrued imerest. If interest were included ecause the instrumems were acquired benveen interest dates, the interest shauld not be part of th historical cost of the instruments 4. Reclassification of debt instrument i UFemtity’s model objective changes, reclassification is permitted between Fair value through profit or Joss (FVPL) ‘or amortized cost (AC) of vice versa. Such changes should be demonstrable to external parties and are expected to be very infrequent Uy an entity reclassifies financial assets it shall apply.she reclassification prospectively from the reclassification date The entity shall not restate any previously rece financial asset so that it is measured at fair d yains, lobwes rest. If an entity reclassifies a 1 is determined at the reclassification date. Any ‘gain or loss arising from a difference between the previous carrsing amoun tor loss. If'an entity reclassifie a financial asset sv that 1 1 measured at nd Jair value is recognized in profit mortized cost. its fair value at the reclassification date becomes tis new carrying amour 5, Impairment of a debt instrument Impairment in value of amortized cost ~ the difference between the amortized costs of the debt instrument at the is deemed to-exist und the revised eash flows discounted atthe rate of inital recognition, EMPL (cel) EVOCE (SEU Coles) TAC Coclet) 1 Ir @ Aaa ned) cect Te Eepeme Capito zed capitolzed NEML 20% Tok Secon Foe MR CY ER, cy eee Seis OL Fy Arertizatien none wie), niet fom Coat (20) Gevierode verve — eaevave pao eed co "POE orm) P/L Ouje re A “"" ReSA Male More: Fucet The Review School of Accountancy “ayy ¥91 x4/n.* WiC Berk yx ‘Tel. No. 735-9807 & 734-3989 perwsicead Cor C48) Senin Fe) Lele et Praetical Accountin C. Uberita/C, By uMest = Ge mec] dy suk Secon HOE Financial Instrument —Debt Instruments yee 0 <‘/u hows OO Fw ste = 888° May 1, 2014, Golken Company pureliased a short-term 14,000,000 Face value 96 debt instruments Aei- we D nilla/G. M: sor ev eee) ert eae PL 3o8 for PS,720.000 including the accrued interest and designated as an investment to profit or loss which is based on the business mode! of the entity to buy and sell portfolio of securities and to make profit for shorterm movements in the market rate of interest, Golden Company incurred and paid P20,000 transaction cost related to the acquisition of the instrument. The debt instruments mature on January 1, 2017, and pay interest semi-annually on January 1 and July 1. On December 31, the fair market 4 value of the instruments is P3.880,000 and estimated cost to scll of 40,000. What amount ofjgain oF Joss should Golden Company diseTse in the profit or loss in the statement of comprehensive income for the year encled December 31, 2014? angars Shr— Moow 8, P120,000 1. P240,000 b. P160,000 d. P280,000 om n Oster 2013 RI cof bg tn oer, perches « 2.000.000 face val 96 deb nscale Wha rexseinng term of 2yeqrs and Ure months for P2 174867. The prevaliog market rat fares the ime eabeege tensed received every December 31. On December 31, the fair market va Tc neve! rho: SE UME oP unre gal o los shoud Craig, Company report ins December 31,2015 profit loss? Wie ATEN. 2 beet - fh pazasa @ PI33000 rea ‘9f'PS,000,000 bearing interest rate of 8% Tor P4,621,006 to yield 10% interest per year. ‘The bonds ‘mature on January 1, 2019 and pay interest annually on Decetnber 30, On December 31,2014 the fair valu of the investments P4838014 which is based on the prevailing market rate of 9%? We 1 TE Ue coals bus eaeRmeRiNn Gan pifective/ol.trbding:oncisaaking:« prof front ‘changes inthe fir value ofthe securities, whaLamoun of unrealized gain or ns boul the compa disclose in their December 31,2014 pit or ls a None ¢. P1S4,907 uncaiz b. P26.559 unrealized gain 1. P217008 une He Question 2: Ite company’s business model has the objective of collecting all the coniratual cash flows including interest and principal, at what amount should the favestment be reported in the company’s statement offical position forthe year ended December 31,2014? sey 4424 ave ¥tty - Pba21.008 ©. PAISLAIS GL Bees ahs b. P4,683,107 cd. PAR3ROL4 = 4 een > ized pain On January 2, 2013, Saini Company invested in a 4-year 10% bond with a face value of P6,000,000 in which interest is to be paid every December 31. The bonds has an effective interest rate of 9% and ‘wats acquired for P6,194,383, Saint Company has a portfolio of commercial loans that it holds to sell the short term. On December 31, 2013, the security has a fair value of P6,229,862 which is hased ‘on the prevaiting market rate of 8.5%. On December 31, 2013, Saint Company acquires Joseph Company that manages commercial loans an hhas a business model that holds the loans in order to collect the contractual cash flows. Saint Company al portfolio of commercial loans is no longer for sale, and the portfolio is now managed together with the acquired commercial loans and all ure held to collect the contractual cash ows, On nber 31, 2014, the debt investinent has a fair value of P6,213,992 which is based on the ling rate of #9. What ammount should the debt investment be reported in the December 31, 2014 nent of financial position? a. P6,082,949 P6,213,992 b P6.159,400 d, P6,229,862 3110 Page 1 0f2 ReSA ‘The Review School of Accountancy Tel. No. 735-9807 & 734-3989 wnting 1 C. Uberita/C, Esper ‘inancial Instrument —Debt Instruments 1 | On May 1, 2014, Golden Company purebased a short-term P4,000,000 face value 9% debt instruments for P3,720,000 including the accrued interest and designated as an investment to profit or loss which is based on the business mode! of the entity to buy and sell portolio of securities and to make profit for shorterm movements in the market rale of interest. Golden Company incurred and paid 20,000 transaction cost related to the acquisition of the instrument. The debt instruments mature on January 1, 2017, and pay interest semi-annually on January 1 and July 1, On December 31, the fir market value ofthe insiruinents is P3,880,000 and estimated cost to sell of P40,000. What amount of gain or Joss should Golden Company disclose in the profit or loss in the statement of compreliensive for the year ended December 31, 2014? a. P120,000 . 240,000 b. P160,000 ; d. P280,000 i ‘On October 1, 2013, Graham Company, with a business model of trading debt securities, purchased a 2,000,000 face value 96 debt instruments for with # remaining term of 2years and three months for 2,174,867... The prevailing market rate of interest at the time of acquisition was received every December 31, On December 31, the fair murket value ofthe instruments is P based on prevailing market rate, of 7%. What amount of unrealized gain or loss should Graham ‘Company report in its December 31, 2013 profit or loss? a. none ©. PLOD,S46. b. P3244 135,000. 3: On January 1, 2614, Sun Company purchased the debt instruments of Silk Company (of PS.000,000 bearing interest rate of 8% for P4,621,006 to yield 10% interest per year. The bonds mature on Fanwary 1, 2019 and pay interest annually on December 30, On December 31, 2014 the fair ‘value of the investment is P4.838,014 whieh is based on the pre Question J: W the company's business model has the objes di making 9 profit from changes in the fir value of the securities, what amount of unrealized gain or loss should the company disclose in their December 31, 2014 profit or kiss? a. None ©. P1S4,907 unrealized gain b. 26,559 unrealized gain , P217.008 unrealized gain Question 2: Mf the company’s business model has the objéctive of collecting all the contractual cash jows including interest and principal, at what amount should the investment be reported in the ‘company's statement of financial position for the year ended December 31; 2014? a. 4,621,006 fe. PATSIAIS b. PA,683,107 f d. PASSROL4 4. On January 2, 2013, Saimt Cosnpany invested in u 4-year 1% bond with fice vahie OF P6,000,000 in which interest is to he paid every December 31. The bonkls has an effective interest rate of 9% and ‘vas acquired for P6,194,383. Saint Company hs a portfolio of commercial loans tha it holds vo sell the short term,” On Detemiber 31, 2013, the security has a fair value of P6.270.867 which is based the prevailing market rate of 8.5%, ‘On December 31, 2013, Saint Company acquires Joseph Company that manages commercial loans and Jas a business model that boll the loans in order to collect the contractual cash flows, Saint Company ‘original portfolio of commercial loans is no longer for sale, and et ‘with the acquired commercial loans and all are hekl 10 collect the contractual cash flows, On December 31, 2014, the debt investment has a fair value of P6,213.992 which is based on the prevailing rate of 8%, What amount should the debt investment he reported in the December 31, 2014 statement of financial position? 1 a P6082, 949 © P6219 bh Pent39.400 44 6229.46 ; 3110 (224, Bee ¥ 1.008 — Gourd Page 0 = Gisnde ’ eee ReSAPractical 5 ¢c C Go & Dv ___ Financial Instruments _Debt ‘On Janvary 1, 2014, Princess Conway, with a business modkt thal collects the contractual cash ows and selfs the securities, purchased a quoted debt instrument for 18,800,000 and paid P200,000 Coumsuction cost. The debt justrunient pass & coupon rate of 5% on the nominablace yale of 10,000,000, at the end of each financial year, On Jan. 1, 2014 the tvarket interest rate lacs instruments is 8.01% but the eflvctive rae is. 7.47%. AL-end of € the market interest rate and market value are as follows: Dec, 3 2015 (796), PI.A7S,137; Dee, 31, 2016 (6%), 9,816,661; Dee 31, 2018 (8%), P10,000,000, Question 1: Whi a PSO0, i b. 672,300 7 ons SX should Princess Com 6, PORS, 160 a Pays.o92 ty report in the Dec. 31, 2015? tow Question 2: What is the amount of ubreslized gain or loss should be reported in the other ‘Compreticnsive incorne of the slateinent of comprehensive income AL 2044? a, None ©. P16S,93R unrealized loss bb. 6,362 unreitived vain « PY On December 31, 20011, Outer Company invested in the 5-year bonds of Inner Corporation. The bonds have a tice value of P3,000.000- with. 8% interest payable per year. Outer Company pa 72,172,552 nstruments, at the prevailing market rate of 10%. The company has a velwal eash flows ifcluding interests and the principal for all acquire the business model of collecting all the can debt investmenis During, 2013, Inner Corporation's business deteriorated dae to political instability and faltering global economy. After reviewing sll available evidence at Deveniber 31, 2013, Outer Company determined that it was probable t interest on the original loan Dut a redyced principal of P2,500,000- at maturity. As a result, Outer Company decided that the ivestaient in bonds was impaired, and that a loss shovld be recorded immediately inner Company will stil beable to pay the ann Question J+ What amount” of isiquistent Joss should Outer Company recognize on. its’ debt instruments? a par32 b 4 pastas Question. 2° Assume that ow December 31, 2014, Inner Company's financial condition had improved any fo pay back 22,900,000 on maturity instead of the reduced amount of covery should Outer Company report ‘and infornied Outer Cotn P2,500)0000 in Dew nbet 31,2013, what amount of impairment 2014 profit wr bss a. None F bh, PROM qd 0,578 4 A-yeur 10%e bond with a fice value of P3,000,600 in The bonds has an effective ‘of 8% ated the debt instrument as anvestment ng rate of 12%. On Jatruary 2, 2012, Hely.Company in Which interest is to be paid every Decer ‘wats acquited for P3,198,728. Holy Company huis desig aunortized cost, On December 31,2014, Nol Comipany s Queition 13, What amount of vain or loss shoud Holy Company recognize on the sale of the seeurity? ©. 109.127 205.447) bo 1SHD 250.477 Question 2: Whist mndunt of interest incowne should Holy Company report i its 2014 statement of a 237 259363 bh 248,552 300,000 * 3110 ReSA The Review School of Accountancy ‘Wel, No. 735-9807 & 734-2989 ReSA The Review School of Accountancy ‘@Tel. No. 735-9807 & 734-3989 Property a unds Investment Property as defined ( a held by th hi ; “ 7 Two specific sit where transfers do not take plat re ee ee S_Disposal of Lavestment Property he jovestinent peu a When sold When ihe subjoet oF finanee lease. the owner becoming the lessor ‘© When it becomes the subject oa sale and feasshack 1. When i is withdrawn font use and no further economic bens are expected to urise erty should be removed from the bance sheet under the flowing The gain or Joss on disposi shoukd be the difference betw cen the et spol proceeds and the carrying amount and should be recognized in petit or disposal.» ss PAS | ines otherwise cn sate un leaschack) in period of in ftom thied parties ow investonent property pensation (rom tht partis for nvestnnent property that was impaired, fo PAS 4 par. 72, recognized in peolt or kiss wher! competsition Hecomes reel vale PAS 40 par. 73...ipairmcat losses oF invest {claims for oF payments of compensation from third hase of constuction afreplacement assets are separate en party and any subseguett spate International F Meusurement at initial rec Durchased investment property comprises its purchase price and any dinsety atributable Fees, proper traisce taxes nl the value of all future payments. For sett at its costs at initial recognition. The cost of penditure such as legal and rok costs. Ifpayment is deferted beyond normal ereit ferns, the cost s the present onstruciedinvestinemt property the casts shout include the wstal costs curred in ‘constrting the wset (PAS 16) excluding any burrowing ceat Mewwurement subsequent to intial recognition -inssinicnt propetty whose fae vale can be measired reliably without undue cost or effort shall be measurcd at fe valu at cach reporting date with changes in Tair value recognized in profit or oss. 1a J undera tease is elasificd as investment property, the iter aceounted for a fie value is tha interes. and 3. The entity shall aecount forall ty as roperty, plat Property intrest hot the underlying props ‘ther investncnt squipment using the ‘sastdepreciatonsinpaeicnt mo a reliable measure of fie sale is no lander the fair value model dhe entity’ onger available without undue cos! or efit for an item investment property measur all thereafter account fo th oper as property, plant and equipment winder lof the investment property on that d te oF citsumstances and no a change in aecountingg policy reliable measure of far value becomes available. The carying an re comes its cust The accounting standard requites disclosure af this change. Iisa cha TERS for SMES POLL IRS 1 | Tavestment properiy whose far value can be measured | Accounting policy choice between fie Value and con} | reliably without undue cost or effort must be measured at | is applied to all investment property | { tanyahiadisough BISevAll ker ineoatonr yy oheny 1 } accounted foras propery, plant and equipment using the | | ‘ost - depreciation impairment | Mixed-use property should be separated between Portions oF the property are only accounted separately investment property and property pant and equipment,» | ide eould besa or leased under a finance lease) «xcept to do so would entail unduc cost and effort separately | When the fair value of investment property is no longer | The entity may only account for investment property available without undue costand effort, the investment | a cost in exceptional cases, where an entity fist propery becomes property plant and equipment. This és | acquires an investment property (or where an existing cha in use), and the fair value of the property | cannot be reliably determined on a continuing basis Other Long-term Investments Cash surrender value of life insu cancellation of the life insurance policy. Insurance companies usually allow a portion of accumulated premiums to build up as a savings plan, when the policy is cqucelled, the savings plan or cash surrender value is returned to the insured, The cash surrender value of life insurance increases from year 10 year anid is stated in the policy. Any rerease in the Cash Surrender Value account will be debited to this account with « corresponding eredit to the Lite Insurance Expense account, Any cash dividend: that recognized as a reduction to the Life Insurance Expense accoun ance ~ is the amount to be paid by the insurance company upon surrender and way be received from the insurance company should be Sinking Fund ~ forthe paymeat of long-term debt Plant expansion fund ~ for the purchase or construction of atonal plant Stock redemption fund ~ forthe retirement of share capil, usally preference shares Contingency fund forthe passat of unforeseen obligations ‘When funds ate establish the relate fund account should be debited und crit cw cash or oaber equivalent. Any incom and realized by the fund oF investient should be recognized dirgetly as dct the eorresporing fund investment account aad ‘any costs and expenses related to the tind invesiment would be vest ReSA The Review School of Accountancy ‘Tel. No. 735-9807 & 734-3989 el el ee ReSA The Review School of Accountancy ‘Tel. No. 735-9807 & 734-3989 RACTICAL ACCOUNTING I C. Uberita/C, Espenilla/G, Macariola Investment Property & Other Investments A 1. Paramount Purchases. a tanded property at a gost of P100,000,000, In the sale’ and purcbase.agreeme: P20,000,000 the purchase prive is attributed to the lundpoiap.. The building consists of 10 floors of equal pace. L are used for admninistrativ sand the balance it out to tenants, Paramount also incurs the following costs in connection with the purchase of the property: Legal and-agency tess. P3,000,000; frye" eSoft launching cost to market tor tenants, PS00,000; Feng shui cost for re ents of interiors, P30, 00477 wid administrative expenses, P200000, AC What amount should the investment property. be initially : oe: ‘ade 2 m #2.400,000 « #20000 oom + ay > oam(/ Me -a0uH b. 82,800,000 d. 103,000,000, eae ror _ EE 8 2. Moral Company leases an entre shopping comple fet Jourial Company under a 20ear operat tase’ eho 82.44 Under the tease agreement, Mortal would manag = and take the risks of operating the shopping complex for 20 vears. It pays a yearly rental of P40,000,000 io Journal Company. Mortal Company uses 20% of the floor area for its own operations. The rest of the floor area is subsleased to other tenants. Mortal Company expects rental income from the sublease to be about P35,000,000 per year for 20 years. The borrowing costs of Mortal per year. he cost of constructing the complex incurred by Journal Company is P480,000,000, the investment property be initially recognized by Mortal C ” 4m XD eleIT = 39.72 3._On January 1, 2014, Trunk Company uses the eost moda) for all investiment properti «quired an investment Property at cost of P4.000000. The estimated life of the property is 40-years, however, based on current market trend for similar property that is uscd for rents, its economnic life is 30 year The estimated salvage values based on its lite is P100,000, white based on its egondmie ie i, P40. 600. Question: What should be the carrying value'of the invtstinent property on December 31,.20147 a. P3,600,000, © P3,902,500 4M 400k. 120,000 b. P3.R80,000 475,912,500 30 ‘ 4M (lame) 4. On July 1 2014 Strata Company purchases at investment property at a cost of 250,000,000 including — (120% (ransaction egsts. On October f, 2014 the fair value of the property increases to PS1,000,000, At December 31 Bt 7014 the fai value oF te property is P 48,000,000, ‘The renal income received per quarter is P1,500,000,. The property has a useful life of 30 year Question I: Ifthe company’ wses the cost mde, what isthe net effet om the profit or lass forthe six months e g cost nude i ended December 31,2014 in relation vo ti investment proper of ee anata ape pines aay | ‘at. (P500,000) ©, PIS00.000. Dein @yp con / $0 € 4m. x¢fat StOK b. P1,000,000 TO eee S anew tnt aie k Question 2: ICY company aes the Harve wy, what isthe met effete the profit or Tos for the six py smonth® ended December 31, 2014 jn relation to the iwvestment property? Renal Tree boy ae 2. P1,000,000 ©. 92,000,000 DYMenp 49h [sox ive 4gue b. PL.S00,000 4: PS500,000 ayy quran: = aya DJG $ On January 2, 2014, Denmark's investment property has ganying value of P5,600.000 under the fair value / ipodsl. On Doceniber 31, 2014 the property has a fac value af PS, ARON0, what amount of gain or Ioes should Denmark continue to recognize if Denmark would shift cost mode? pipcdte © Gs BE PSON,OOD pari ether eorpechensivc isons FM PCM — no b. Loss of P600,000 reported. in the profit or | Chanelov elt : ee F castions Las of P400,000 reputed in equity as decrease in revaluation sun ae geny yah rer >» GH ee9 Lew t 6. On January 1, 2014, Double Company which uses the {air value maul. purchases an investment property at S2S= cox of PS0,000.000. At December 31. 2014 the market valu of the property js P60,000,000. The tir naked wale of the propeny on December 31.3018 is P85,000,000. Cn January 1, 2016, the property was reclasiied to property plant and equipment. At what amount should the property, plant and.equapaacn he initaly Sooerded! 150,000,000 ¢ tss.von.0n 3111 Sew 1, t0i4 rom Pech an Gor

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