UNIT 4 ACCOUNTING FOR INVESTMENTS

Topic 4 – Investment in Associates

ASSESSMENT
PROBLEM 2: FOR CLASSROOM DISCUSSION
Problem 2:
1. A 6. A
2. D 7. C
3. B 8. D
4. D 9. C
5. A 10. C

Problem 3:
1. Ownership interest = 25% (15,000/60,000)
A.) Journal entries
Jan. 1, 20x1 Investment in associates 800,000
Cash 800,000
To record the purchase of investment.
Dec. 31, 20x1 Investment in associate 425,000
Share in profit associate 425,000
To record the shares in associate's profit
Dec. 31, 20x1 Cash 100,000
Investment in associate 100,000
To record dividend received from the associate.

Dec. 31, 20x1 Share in OCI of associate 20,000

Investment in associate 20,000
 To record the share in the translation loss of the
associate.
B.) Carrying amount =P1,105,000
Investment in associate
Jan. 1, 20x1 800,000 100,000 Cash dividend
Share in profit 20x1 425,000 20,000 Share in translation loss
1,105,000 Carrying am. 12-31-20x1

2.
A.) Goodwill(negative goodwill) =P700,000
Solution:
Purchase cost 4,000,000 Book value 10,000,000
Less: Fair value of net asset (3,300,000 Overvaluation of inventory (800,000)
acquired )
Goodwill 700,000 Undervaluation of depreciate 4,000,000
Fair value of net asset 13,200,000
Mul. By: Interest acquired 25%
Fair value of net asset acq. 3,300,000

B.)
Jan. 1, 20x1 Investment in associate 4,000,000
Cash 4,000,000
To record the purchase of investment.
Dec. 31, 20x1 Investment in associate 600,000
Share in profit of associate 600,000
To record share in associate's profit.
Cash 250,000
Investment in associate 250,000
 To record dividend received from associate.
Investment in associate 200,000
Share in profit associate 200,000
To accoun for the overvaluation of inventory.
Share in profit associate 100,000
Investment in associate 100,000
To depreciate the undervaluation of asset.
C.) =P700,000
Share in the associate's profit
Undervaluation of asset 100,000 600,000 Share in profit
200,000 Overvaluation of inventory
End. 700,000
D.) CA Investment on Dec. 31, 20x1 =P4,450,000
Investment in associate
1-1-20x1 4,000,000 250,000 Dividend received
Share in profit 600,000 100,000 Undervaluation of asset
Overvaluation of inventory 200,000
4,450,000 End.

3. Journal entries in 20x1 and 20x2

20x1
1-1-20x1 Investment in associate 6,000,000
Cash 6,000,000
12-31-20x1 Cash 360,000
Investment in associate 240,000
Share in associate's profit 600,000
12-31-20x1 Held for trading securities 6,000,000
Unrealized gain -P/L 6,000,000
 12-31-20x1 Share in associate's profit 120,000
Investment in associate 120,000
20x2
7-1-20x2 Investment in associate 300,000
Share in associate's profit 300,000
Share in associate's profit 60,000
Investment in associate 60,000
Cash 4,320,000
Investment in associate 3,528,000
Gain on sale of investment 792,000
Held for trading securities 2,880,000
Investment in associate 2,352,000
Gain on reclassification 520,000
12-31-20x1 Dividend receivable 240,000
Dividend income 240,000
Held for trading securities 360,000
Unrealized gain -P/L 360,000
B.) =P2,152,000

4. Journal entries in July 1, 20x2

Case 1:
7-1-20x2 Cash 800,000
Loss on sale investment 400,000
Investment in associate 1,200,000
To record sale

Translation of foreign operation 1,000,000

Gain on reclassification 1,000,000
Case 2:
 7-1-20x2 Cash 800,000
Loss on sale investment 400,000
Investment in associate 1,200,000
To record sale
Translation of foreign operation 500,000
Gain on reclassification 500,000
Case 3:
7-1-20x2 Cash 800,000
Loss on sale investment 400,000
Investment in associate 1,200,000
To record sale
Revaluation surplus 1,000,000
Retained earnings 1,000,000

5. Journal entries in 20x1 and 20x2

20x1
1-1-20x1 Held for trading securities 1,600,000
Cash 1,600,000
Dec. 31, 20x1 Cash 200,000
Dividend income 200,000
Held for trading securities 100,000
Unrealized gain -P/L 100,000
20x2
7-1-20x2 Investment in associate 2,100,000
 Cash 2,100,000
Unrealized loss -P/L 300,000
Held for trading securities 300,000
Investment in associate 1,400,000
Held for trading securities 1,400,000
12-1-20x2 Cash 500,000
Investment in associate 1,500,000
Share in associate's profit 2,000,000

6.) Journal entries in 20x1 to 20x4

20x1
12-31-20x1 Share in loss of associate 560,000
Investment in associate 400,000
Investment in preference share 160,000
20x2
12-31-20x2 Share in loss of associate 140,000
Investment in preference share 40,000
Advance to associate 100,000
20x3
12-31-20x2 Loss on associate 400,000
Liability incurred on behalf of 240,000
associate
Cash 160,000
20x4
Advance to associate 100,000
Investment in preference share 200,000
 Share in associate's profit 300,000
7.
Dec. 31, 20x1 Impairment loss 400,000
Investment in associate 400,000

Problem 4:
1. C 7. C 13. A
2. C 8. C 14. D
3. A 9. B 15. A
4. D 10. A 16. C
5. A 11. C
6. C 12. B

Problem 5:
A.) Journal entries
Jan. 1, 2012
Investment in associate 379,592,676
Cash 379,592,676
July 24, 2012
Investment in associate
Additional paid in capital
Dividend receivable 51,996,445
Dividend income 34,664,297
Retained earnings 17,332,148

B.) The balance if investment in associate to be presented in ABC Co.'s Dec. 31, 2012 financial
statements.
Common stock. 399,325,661
Additional paid-in capital. 293,525,037
Retained earnings. 1,233,432,997
Total. P1,926,283,695