Since 1977

FAR OCAMPO/OCAMPO
FAR.2922-Investments in Equity Instruments –
Financial Assets at Fair Value

DISCUSSION PROBLEMS
Use the following information for the next two questions. c. Contractual rights to receive cash or another
financial asset from another entity.
On 1 January 2020, Totga Co. purchased 20,000 ordinary
d. Contractual rights to exchange financial assets or
shares of FZ Co. at P100 per share. At the time of the
financial liabilities with another entity under
purchase, FZ Co. had 100,000 ordinary shares
conditions that are potentially favorable to the
outstanding. For the year ended December 31, 2020, FZ
entity.
Co. reported profit of P2,400,000 and paid cash dividends
of P600,000. The shares of FZ are selling at P110 per
4. An investment in equity instrument may not be
share on December 31, 2020.
classified as a financial asset subsequently measured
at
Totga is entitled to appoint two directors to the board,
a. Fair value through profit or loss
which consists of eight members. The remaining of the
b. Fair value through other comprehensive income
voting rights are held by two other companies, each of
c. Amortized cost
which is entitled to appoint three directors. The board
d. None of the above
makes decisions on the basis of simple majority. Because
board meetings are often held at very short notice, Totga
5. At initial recognition, an entity may make an
does not always have representation on the board. Often
irrevocable election to present in other comprehensive
the suggestions of the representative of Totga are ignored,
income subsequent changes in the fair value of an
and the decisions of the board seem to take little notice of
investment in an equity instrument that is
any representations made by the director from Totga.
a. Acquired principally for the purpose of selling it in
the near term.
1. Significant influence is
b. On initial recognition is part of a portfolio of
a. The power to participate in the financial and
identified financial instruments that are managed
operating policy decisions of the investee but is not
together and for which there is evidence of a
control or joint control over those policies.
recent actual pattern of short-term profit-taking.
b. Deemed to exist when the investor is exposed, or
c. A derivative.
has rights, to variable returns from its involvement
d. None of the above.
with the investee and has the ability to affect those
returns through its power over the investee. 6. All investments in equity instruments and contracts on
c. The contractually agreed sharing of control of an those instruments must be measured at fair value.
arrangement, which exists only when decisions Cost may be an appropriate estimate of fair value in
about the relevant activities require the unanimous which of the following?
consent of the parties sharing control. a. Insufficient more recent information is available to
d. The power to govern the financial and operating measure fair value.
policies of an entity so as to obtain benefits from b. There is a wide range of possible fair value
its activities. measurements and cost represents the best
estimate of fair value within that range.
2. The carrying amount of the investment in FZ Co. as of c. Investments in quoted equity instruments.
December 31, 2020 should be d. Either a or b.
a. P2,200,000 c. P2,360,000
b. P2,000,000 d. P2,480,000 LECTURE NOTES:

LECTURE NOTES: Financial Assets Measurement Summary

Accounting for Investments in Ordinary Shares Classification Initial Subsequent Change in FV

Summary FA@FVTPL FV FV P/L
FA@FVTOCI FV + TC FV OCI (Equity)
Level of FA@AC FV + TC AC Ignore
Influence Method Investment Standard
Little or Fair value Financial PFRS 9
none asset PAS 32 7. An entity acquired an investment in equity instrument
PFRS 7 for P800,000 on 31 March 2020. The direct acquisition
Significant Equity Investment in PAS 28 costs incurred were P140,000.
Associate
Control Consolidation Investment in PFRS 10 On 31 December 2020 the fair value of the instrument
Subsidiary was P1,100,000 and the transaction costs that would be
Joint Equity Investment in PAS 28 incurred on sale were estimated at P120,000.
control Joint Venture If the investment is designated as FA@FVTOCI, what
gain would be recognized in the financial statements for
3. Investments in equity instruments are financial assets the year ended 31 December 2020?
because they are a. Nil c. P420,000
a. Cash equivalents. b. P40,000 d. P160,000
b. Equity instruments of another entity.

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EXCEL PROFESSIONAL SERVICES, INC.

Use the following information for the next two questions. 13. For the year ended December 31, 2019, WQA
Company reported opening retained earnings of
On its December 31, 2019, balance sheet, an entity
P1,850,000 and cumulative unrealized gains recorded
appropriately reported a P4,000 credit balance in its
as reserves of P25,000. These gains are from an
Market Adjustment-Trading Securities account. There was
investment with an original cost of P100,000 and a fair
no change during 2020 in the composition of the entity’s
value of P125,000. The company policy is to value all
portfolio of trading securities. Pertinent data are as
investments at fair value with unrealized gains and
follows:
losses included in reserves. The company’s accounting
Fair Value policy is that when an investment is sold, the reserve
Security Cost 12/31/20 amount is transferred to retained earnings. During
A P120,000 P126,000 2020, one-half of the investment was sold. The
B 90,000 80,000 remaining investment increased in value to P70,000. A
C 160,000 157,000 second investment was bought for P150,000 and its
P370,000 P363,000 fair value had increased to P165,000 by the end of
2020. What is the reserve balance at December 31,
8. The credit balance in the account Market Adjustment--
2020?
Trading Securities at December 31, 2019 should be
a. P27,500 c. P45,000
interpreted as
b. P35,000 d. P60,000
a. The net unrealized holding gain for 2019.
b. The net realized holding loss for 2019.
14. On June 1, 2020, Ping Corp. purchased 10,000 of
c. The net unrealized holding gain to date.
Pong’s 50,000 outstanding shares at a price of P6.00
d. The net unrealized holding loss to date.
per share. Pong had earnings of P3,000 per month
during 2020 and paid dividends of P10,000 on March
9. What amount of loss on these securities should be
1, 2020 and P12,500 on December 1, 2020. The fair
included in the entity’s income statement for the year
value of Pong’s shares was P6.50 per share on
ended December 31, 2020?
December 31, 2020.
a. P11,000 c. P3,000
b. P 7,000 d. P0 Which statement is correct?
a. Assuming that the investment is FVTPL, the total
effect on Ping’s profit or loss for the year ended
Use the following information for the next two questions. December 31, 2020 is P2,500.
b. Assuming that the investment is FVTOCI, the total
Pompey Inc. carries the following marketable equity
effect on Ping’s profit or loss for the year ended
securities on its books at December 31, 2019 and 2020.
December 31, 2020 is P7,500.
All securities were purchased during 2019.
c. Assuming that the investment is an associate, the
FA@FVTPL: total effect on Ping’s profit or loss for the year
Cost Fair value ended December 31, 2020 is P3,600.
12/31/19 12/31/20 d. After all closing entries for 2020 are completed, the
P Company P 500,000 P 260,000 P 400,000 effect of the increase in fair value on total
R Company 260,000 400,000 400,000 shareholders' equity would be the same amount
T Company 700,000 600,000 500,000 under the FVTOCI and FVTPL approaches.
Total P1,460,000 P1,260,000 P1,300,000

FA@FVTOCI: 15. On January 1, 2019, Lallo Company purchased 15% of

Cost Fair value Vintar Company’s ordinary shares for P20,000,000.
12/31/19 12/31/20 The following data concerning Vintar Company are
C Company P4,100,000 P3,600,000 P3,600,000 available:
I Company 1,000,000 1,200,000 1,400,000 2019 2020
Total P5,100,000 P4,800,000 P5,000,000 Net income P6,000,000 P7,000,000
Cash dividend paid None 15,000,000
10. The net amount to be recognized in 2020
In its income statement for the year ended December
comprehensive income is
31, 2020, how much should Lallo report as income
a. P240,000 gain c. P260,000 loss
from this investment?
b. P200,000 gain d. P 60,000 loss
a. P2,250,000 c. P700,000
b. P1,950,000 d. P600,000
11. The net unrealized gain/loss at December 31, 2020 in
accumulated other comprehensive income in
16. Lasam Company received dividends from its
shareholders' equity is
investments in ordinary shares during the current
a. P260,000 loss c. P100,000 loss
period as follows:
b. P200,000 gain d. P 40,000 gain
a. A share dividend of 20,000 shares from A
Company when the market price of A’s shares was
12. PFRS 9 permits an entity to make an irrevocable P30 per share.
election to present in other comprehensive income b. A cash dividend of P2,000,000 from B Company in
changes in the fair value of an investment in an equity which Lasam owns a 20% interest.
instrument. Amounts presented in other c. A cash dividend of P1,500,000 from C Company in
comprehensive income which Lasam owns a 10% interest.
a. May be subsequently transferred to profit or loss. d. 10,000 ordinary shares of D Company in lieu of
b. Shall be subsequently transferred to retained cash dividend of P20 per share. The market price
earnings. of D Company’s shares was P180. Lasam holds
c. Either a or b. originally 100,000 ordinary shares of D Company.
d. Neither a nor b. Lasam owns 5% interest in D Company.

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EXCEL PROFESSIONAL SERVICES, INC.
e. A liquidating dividend of P2,000,000 from E
Company. Lasam owns a 5% interest in E
Company.
f. A dividend in kind of one ordinary share of X
Company for every 5 ordinary shares of F
Company held. Lasam holds 200,000 F Company
shares which have a market price of P50 per share.
The market price of X Company’s ordinary share is
P30 per share.
What amount of dividend income should Lasam report
in its current period income statement?
a. P4,500,000 c. P6,300,000
b. P5,700,000 d. P5,900,000
Use the following information for the next three questions.
Pamplona Company owns 1,000,000 shares of Penablanca
Company’s 5,000,000 shares of P50 par, 10% cumulative,
nonparticipating preference shares. During 2020
Penablanca declared and paid dividends of P40,000,000 on
preference shares. No dividends had been declared or
paid during 2019.
17. Dividends are recognized in profit or loss only when:
a. The entity’s right to receive payment of the
dividend is established.
b. It is probable that the economic benefits
associated with the dividend will flow to the entity.
c. The amount of the dividend can be measured
reliably.
d. All of the above.
18. What amount should Pamplona report as dividend
income in its 2020 income statement?
a. P5,000,000 c. P10,000,000
b. P8,000,000 d. Nil
19. How should Pamplona report the 2019 dividend in
arrears that was received in 2020?
a. As a reduction in cumulative preferred dividends
receivable.
b. As a retroactive change of the prior period financial
statements.
c. Include, net of income taxes, after 2020 income
from continuing operations.
d. Include in 2020 income from continuing
operations.
20. On January 2, 2020, Theodora Company purchased
40,000 shares of Byzantine, Inc. stock at P100 per
share. Brokerage fees amounted to P120,000. A P5
dividend per share of Byzantine, Inc. shares had been
declared on December 15, 2019, to be paid on March
31, 2020 to shareholders of record on January 31,
2020. The shares are designated as FVTOCI. On
December 31, 2020 the investment has a fair value of
P4,200,000. How much should be recognized in the
2020 other comprehensive income related to these
securities?
a. P400,000 c. P200,000
b. P280,000 d. P 80,000
21. On January 2, 2020, Gamu Company purchased as a
long term investment 10,000 ordinary shares of Ilagan
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 August 1 to shareholder’s of record at July
25, 2020. On July 20, 2020 Gamu needed additional
cash for operations and sold all 10,000 shares Ilagan
for P100 per share.
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For the year ended December 31, 2020, Gamu should
report on its income statement a gain on disposal of
a. P300,000 c. P175,000
b. P210,000 d. P250,000
22. What is the principle for recognition of a financial asset
in PFRS 9?
a. A financial asset is recognized when, and only
when, it is probable that future economic benefits
will flow to the entity and the cost or value of the
instrument can be measured reliably.
b. A financial asset is recognized when, and only
when, the entity obtains control of the instrument
and has the ability to dispose of the financial asset
independent of the actions of others.
c. A financial asset is recognized when, and only
when, the entity obtains the risks and rewards of
ownership of the financial asset and has the ability
to dispose of the financial asset.
d. A financial asset is recognized when, and only
when, the entity becomes a party to the
contractual provisions of the instrument.
23. 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
generally by regulation or convention in the
marketplace concerned. Which statement is incorrect
regarding regular way purchase or sale of a financial
asset?
a. A regular way purchase or sale of financial assets
is recognized and derecognized using either trade
date or settlement date accounting. The choice of
method is an accounting policy.
b. Under trade date accounting, the financial asset is
recognized and derecognized on the date the entity
commits to the purchase or sale.
c. Under settlement date accounting, the financial
asset is recognized and derecognized on the date it
is delivered.
d. For purposes of regular way accounting, assets
held for trading and designated at fair value
through profit or loss form one category.
24. On June 29, 2020, an entity commits itself to purchase
a financial asset to be classified as FVTPL for
P100,000, its fair value on commitment (trade) date.
This financial asset has a fair value of P101,000 and
P101,500 on June 30, 2020 (the entity’s financial year-
end), and July 2, 2020 (settlement date), respectively.
In the marketplace concerned, the time frame for
delivery of the asset or payment of liability is
transaction date plus 3 days (“T+3”).
Which statement is correct?
a. The transaction is not a regular way purchase.
b. If the entity applies the trade date accounting
method, the entity will recognize a gain of P1,500
on July 2, 2020.
c. If the entity applies the settlement date accounting
method, the entity will recognize the financial
asset at P100,000 on July 2, 2020.
d. If the entity applies the settlement date accounting
method, the entity will recognize a gain of P500 on
July 2, 2020.
FAR.2922
EXCEL PROFESSIONAL SERVICES, INC.

SOLUTION GUIDE: 25. When settlement date accounting is applied, how

should an entity account for any change in the fair
TRADE DATE ACCOUNTING value of the asset to be received during the period
between the trade date and the settlement date?
June 29, 2020
a. The change in value is recognized for all financial
Equity investment – FVTPL P100,000
assets.
Due to broker P100,000
b. The change in value is not recognized for all
June 30, 2020 financial assets.
Equity investment - FVTPL P1,000 c. The change in value is not recognized for
FV adj. gain-P/L P1,000 investments in equity instruments measured at fair
value through other comprehensive income.
July 2, 2020 d. In the same way as it accounts for the acquired
Equity investment - FVTPL P 500 asset.
Due to broker 100,000
Cash P100,000
FV adj. gain-P/L 500 Use the following information for the next two questions.

SETTLEMENT DATE ACCOUNTING On December 28, 2020 (trade date), Francis Corp. enters
into a contract to sell an equity security classified as
June 29, 2020 FVTOCI for its current fair value of P303,000. The asset
Memo entry was acquired a year ago and its cost was P300,000. On
June 30, 2020 December 31, 2020 (financial year-end), the fair value of
Due from broker P1,000 the asset is P303,600. On January 5, 2021 (settlement
FV adj. gain-P/L P1,000 date), the asset's fair value is P303,900.

July 2, 2020 26. If Francis uses the trade date method to account for
Equity investment - FVTPL P101,500 regular way sales of its securities, the net amount to
Cash P100,000 be recognized in 2020 comprehensive income is
Due from broker 1,000 a. P3,900 c. P3,000
FV adj. gain-P/L 500 b. P3,600 d. P 0

SOLUTION GUIDE:
LECTURE NOTES:
December 28, 2020
Summary of recognition and derecognition in a regular way Equity investment – FVTOCI P3,000
purchase and sale of financial assets: FV adj. gain – OCI P3,000
Trade Date Settlement Date Due from broker P303,000
Recognize Commitment Delivery date Equity investment - FVTOCI P303,000
date
Derecognize Commitment Delivery date December 31, 2020
date No entry
Change in FV from
trade date to January 5, 2021
settlement date Cash P303,000
(for FA measured Due from broker P303,000
at FV):
Purchase Recognize Recognize
Sale Ignore Ignore 27. If Francis uses the settlement date method to account
for regular way sales of its securities, the net amount
Regular way purchase - Initial measurement to be recognized in 2021 comprehensive income is
a. P3,900 c. P3,000
b. P3,600 d. P 0

SOLUTION GUIDE:
December 28, 2020
Equity investment – FVTOCI P3,000
FV adj. gain – OCI P3,000
Memo entry - sale
December 31, 2020
No entry
January 5, 2021
Cash P303,000
Equity investment - FVTOCI P303,000

- now do the DIY drill -

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EXCEL PROFESSIONAL SERVICES, INC.

DO-IT-YOURSELF (DIY) DRILL

1. Marcus Company made the following transactions in
the ordinary shares of Cato Company designated as a
financial asset at fair value through profit or loss:
July 16, 2018 - Purchased 10,000 shares at P45 per
share.
June 28, 2019 - Sold 2,000 shares for P51 per share.
May 18, 2020 - Sold 2,500 shares for P33 per share.
Use the following information for the next two questions.
On December 28, 2020, Anne Company commits itself to
purchase a financial asset to be classified as FVTPL for
P800,000, its fair value on commitment (trade) date. This
security has a fair value of P801,000 and P802,500 on
December 31, 2020 (Anne's financial year-end), and
January 5, 2021 (settlement date), respectively.

The end-of-year market prices for the shares were as 4. If Anne applies the trade date accounting method to
follows: account for regular way purchases of its securities,
December 31, 2018 - P47 per share how much gain should be recognized on January 5,
December 31, 2019 - P39 per share 2021?
December 31, 2020 - P31 per share a. P2,500 c. P1,000
b. P1,500 d. Nil
How much should be recognized in 2020 profit or loss
as a result of the fair value changes? 5. If Anne applies the settlement date accounting method
a. P77,000 c. P44,000 to account for regular way purchases of its securities,
b. P11,000 d. P 0 how much gain should be recognized on January 5,
2021?
a. P2,500 c. P1,000
2. On Feb. 2, 2019, I AM DETERMINED CO. purchased b. P1,500 d. Nil
10,000 shares of CPA CO. at P56 plus broker’s
commission of P4 per share. The investment is
FVTOCI. During 2018 and 2020, the following events 6. On December 28, 2020, Bakeks Company commits
occurred regarding the investment: itself to purchase equity securities to be classified as
12/15/19 CPA CO. declares and pays a P2.20 per held for trading for P1,000,000, its fair value on
share dividend commitment (trade) date. These securities have a fair
12/31/19 The market price of CPA CO. stock is value of P1,002,000 and P1,005,000 on December 31,
P52 per share at year-end 2020 (Bakeks' financial year-end), and January 5,
12/01/20 CPA CO. declares and pays a dividend 2021 (settlement date), respectively. If Bakeks
of P2 per share applies the settlement date accounting method to
12/31/20 The market price of CPA CO. stock is account for regular-way purchases, how much should
P55 per share at year-end be recognized in its 2020 profit or loss related to these
securities?
The net unrealized loss at December 31, 2020 in
a. P2,000 c. P3,000
accumulated OCI in shareholders' equity is
b. P4,000 d. P 0
a. P50,000 c. P80,000
b. P40,000 d. P60,000
7. On December 28, 2020 (trade date), Charming Corp.
enters into a contract to sell an equity security
3. On December 31, 2018, Zenobia Co. purchased equity
classified as FA@FVTOCI for its current fair value of
securities as classified as FVTOCI. Pertinent data are
P505,000. The asset was acquired a year ago and its
as follows:
cost was P500,000. On December 31, 2020 (financial
Fair value year-end), the fair value of the asset is P506,000. On
Cost 12/31/19 12/31/20 January 5, 2021 (settlement date), the asset's fair
C Company P 900,000 P 880,000 P780,000 value is P507,500. If Charming uses the trade date
P Company 1,100,000 1,120,000 1,240,000 method to account for regular-way sales of its
A Company 2,000,000 1,920,000 1,720,000 securities, how much should be reported as
reclassification adjustment in its 2020 financial
On December 31, 2020, Zenobia transferred its
statements?
investment in security P from FVTOCI to FVTPL. How
a. P7,500 c. P5,000
much should be recognized as component of equity as
b. P6,000 d. Nil
of December 31, 2020 related to these securities?
a. P300,000 c. P180,000
b. P260,000 d. P400,000
J - end of FAR.2922 - J

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