FINANCIAL ACCOUNTING - Investment in Associate

A PROJECT OF BARTERS PH
Contributed by: Allyzza Carag
INVESTMENT IN ASSOCIATE Cash xx

Investment in Associate xx

20-50%- Share Dividends

Significant Influence Memo entry only

Equity Method

To record the purchase Amortization of Excess Cost

Investment in Associate xx Investment Income xx

Cash xx Investment in Associate xx

Share in Net Income

Investment in Associate xx Excess FV (Gain in Repurchase)

Net Income xx
Investment in Associate xx
Investment Income xx
Share in Net Loss

Loss xx Goodwill
Investment in Associate xx
No Entry

Investment in Preference Share

Share in other equity changes (ex. Revaluation Surplus)

Investment in Associate xx
Revaluation Surplus xx Deduct the annual Preference share on the Net Income

a. Cumulative- whether or not declared

b. Non-cumulative- only when declared
Cash Dividends
FINANCIAL ACCOUNTING - Investment in Associate
A PROJECT OF BARTERS PH
Contributed by: Allyzza Carag

Passive interest Significant Influence 1. On January 1, 2019, an entity purchased 40% of the outstanding ordinary shares of
another entity for P5, 000,000 when the net assets of the investee amounted to
Investment in Associate achieved in Stages
P10, 000,000.

At acquisition date, the carrying amounts of the identifiable assets and liabilities of
1. The previous interest should be remeasured at FV the investee were equal to the fair value, except for the land whose the fair value
a. Any adjustment to FV P/L was P2,000,000 greater than carrying amount and inventory whose fair value was
2. FV of the previous interest xx P1,500,000 greater than cost
+Additonal cost of interest xx
Initial cost of investment in Ass xx The land was sold in 2019 and one-half of the inventory was sold during 2019
-CA of Net Asset Acquired xx
Excess Cost xx During 2019, the investee reported net income of P8, 000,000, issued 10% share
+/-Adjustments xx dividend and paid cash dividend of P2, 500,000.
Goodwill/Excess FV XX
1. What is the Investment Income for 2019?
3. If the previous interest was measured to FVOCI a. 3,200,000
a. Adjust to FV OCI b. 2,100,000
b. OCI RE (as of disposal) c. 2,500,000
Loss of Significant Influence d. 3,300,000

1. Retained Investment @ FV 2. What is the carrying amount of the investment on December 31, 2019?
a. Any adjustment to FV P/L a. 6,500,000
2. Passive Interest (below 20%) b. 6,100,000
Reclassify the remaining interest c. 7,200,000
a. FVPL d. 7,300,000
b. FVOCI
c. @cost SOLUTION

To record the purchase

Investment in Associate 5,000,000

Cash 5,000,000
FINANCIAL ACCOUNTING - Investment in Associate
A PROJECT OF BARTERS PH
Contributed by: Allyzza Carag

2,500,000
Share in Net Income

Investment in Associate (8,000,000x 40%) 3,200,000

Investment Income 3,200,000 Investment in Associate
400,000 800,000
5,000,000 300,000
To record the amortization of Land and inventory 3, 200,000 1,000,000
Investment Income (2,000,000x40%) 800,000
Investment in Associate 800,000 6,500,000

Investment Income (1,500,000x40%x 50%) 300,000

Investment in Associate 300,000
To record the Cash Dividend

Cash (2,500,000x 40%) 1,000,000

Investment Income 1,000,000

Gain in purchase

Investment in Associate 400,000

Investment Income 400,000 2. An entity owned 100% of another entity’s preference shares and 20% of ordinary
shares. The investee’s share capital outstanding on December 31,2019 included
P5,000,000 of 10% cumulative preference shares and P10,000,000 of ordinary
Purchase Price 5,000,000 shares.
CA of Net Assets 4,000,000
Excess 1,000,000 The investee reported net income of P8,000,000 for 2019. No dividend was
Overvaluation/ (Undervaluation) of Land (800,000) declared for both preference and ordinary shares in 2019.
Overvaluation/ (Undervaluation) of Inventory (600,000)
Goodwill( Gain on Purchase) (400,000) What amount should be reported as investment income for 2019?
Investment Income
800,000 400,000 a. 1,600,000
300,000 3, 200,000 b. 1,500,000
FINANCIAL ACCOUNTING - Investment in Associate
A PROJECT OF BARTERS PH
Contributed by: Allyzza Carag
c. 2,000,000
d. 1,000,000 1. What amount of investment income should be recognized in 2019?
a. 400,000
Solution: b. 100,000
NET Income 8,000,000 c. 500,000
Cumulative Preference( 5,000,000x10%) 500,000 d. 300,000
7,500,000
X 20% 2. What total amount of income should be recognized by the investor in 2020?
1,500,000 a. 2,000,000
b. 2,500,000
c. 2,300,000
IF Dividend was declared d. 1,800,000

Preference Dividend 500,000 3. What is the carrying amount of the investment in associate on December
1,500,000 31,2020?
2,000,000 a. 12,300,000
b. 12,500,000
c. 13,800,000
d. 12,900,000
Solution :

3. On January 1, 2019, an entity acquired a 10% interest in an investee for 3, 000,000. Cost method 1,000,000x10%= 100,000
The investment was accounted for under the cost method. During 2019, the
investee reported net income of P4, 000,000 and paid dividend of P1, 000.000. 4. FV of the previous interest 3,500,000
+Additonal cost of interest 8,500,000
On January 1, 2020 the entity acquired a further 15% interest in the investee for P8, Initial cost of investment in Ass 12,000,000
500,000. On such date, the carrying amount of the nets assets of the investee was -CA of Net Asset Acquired(36,000,000x25% (9,000,000)
P36, 000,000 and the FV of the 10% existing interest was P3, 500,000. The FV of the Excess Cost 3,000,000
net assets of the investee is equal to carrying amount. The equipment and a +/-Adjustments (4,000,000x25% (1,000,000)
remaining life of 5 years. Goodwill/Excess FV 2,000,000

The investee reported net income of P8, 000,000 for 2020 and paid dividend of P6,
000,000 on December31, 2020. Adjustment( 3000,000-3500,000) 500,000
Net income ( 8,000,000x 25%) 2000,000
Amortization 1000,000/5yrs (200,000)
FINANCIAL ACCOUNTING - Investment in Associate
A PROJECT OF BARTERS PH
Contributed by: Allyzza Carag
2,300,000

Investment in assoc 12,000,000

Investment income(2000-200) 1,800,000
Dividend(6,000,000x25%) (1,500,000)
12,300,000