Financial Accounting and Reporting (Accounting 15) Investments

PSBA
Financial Accounting and Reporting (Accounting 15)

INVESTMENTS
Investment in Equity Securities (Trading Securities or FA@FV Through P/L and Available for Sale Securities or FA@TV
Through OCI) (PAS 32, PAS 39, PFRS 7, PFRS 9)
Problem 1. As a newly promoted manager of Isla Lipana & Co., you are assigned to audit the Investment transactions of Meryl Lynch
Inc. which is an investment banker and broker-trader. During 2021 and 2022, the company has the following transactions:
2021
 On January 1,2021, Meryl Lynch acquired 20,000 Ordinary Shares of BPI Inc., a public entity, for P10 per share. Meryl Lynch
also paid broker fees and transfer taxes totaling P10,000 in relation to the purchase. The investment is acquired for the
purpose of selling in the short-term and for short-term profit taking.
 On February 1,2021, Meryl Lynch purchased 10,000 Preference Shares of BDO Inc., a public entity, for P14 per share. Meryl
Lynch also paid broker fees and transfer taxes totaling P20,000 in relation to the purchase. The investment is held for
undetermined purpose. Meryl Lynch irrevocably designated the Investment in Preference Shares of BDO Inc. at fair value
through other comprehensive income
 On September 1,2021, Meryl Lynch received P1 per share cash dividend from BPI Inc.
 On October 1,2021, Meryl Lynch received P2 per share cash dividend from BDO Inc.
 On December 31,2021, the quoted prices of the those shares are presented as follows:
Shares Bid Price Asking Price

BPI Ordinary Shares P12 P15
BDO Preference Shares 10 16
2012
 On July 1,2022, Merly Lynch sold 10,000 Ordinary Shares of BPI Inc. for P8 per share less disposal cost of P5,000.
 On August 1,2022, Meryl Lynch sold 5,000 Preference Shares of BDO Inc. for P12 per share less disposal cost of P3,000.
 On September 1,2022, Meryl Lynch received a 10% share dividend from BPI Inc.
 On October 1,2022, Meryl Lynch received a 20% share dividend from BDO Inc.
 On December 31,2022, the quoted prices of the those shares are presented as follows:
Shares Bid Price Asking Price

BPI Ordinary Shares P8 P12
BDO Preference Shares 20 10
Required: A. Prepare the Entry for the preceding transactions:

B. Based on the result of your audit, determine the following:
____________1. Initial Measurement of Investment in BPI Ordinary Shares

____________2. Initial Measurement of Investment in BDO Preference Shares
____________3. Total Dividend Income in 2021
____________4. Unrealized holding gain or (loss) in Profit or Loss in the Income Statement for 2021
____________5. Unrealized holding gain or (loss) in Other Comprehensive Income in the Statement of Comprehensive Income for
2021
____________6. Carrying value of Investment in BPI Ordinary Shares on December 31,2021
____________7. Carrying value of Investment in BDO Preference Shares on December 31,2021
____________8. Realized gain or (loss) on sale of BPI Ordinary Shares in 2022
____________9. Net debit or credit to Retained Earnings under PFRS 9 due to disposal of FAFVOCI in 2022
____________10. Total Dividend Income in 2022
____________11. Unrealized holding gain or (loss) in Profit or Loss in the Income Statement for 2022
____________12. Unrealized holding gain or (loss) in Other Comprehensive Income in the Statement of Comprehensive Income for
2022
____________13. Cumulative unrealized holding gain-credit or (loss-debit) in Statement of Financial Position (SHE) as of December
31, 2022
____________14. Carrying value of Investment in BPI Ordinary Shares on December 31,2022
____________15. Carrying value of Investment in BDO Preference Shares on December 31,2022
Accounting 15
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Investment in Equity Instruments (Cost Method) (PAS 28)
Problem 2. The following transactions occurred for the year ended December 31, 2015 concerning the Investment in Equity Securities
of IBM Inc.
 On January 1, 2015, IBM Inc. acquired 20,000 ordinary shares of PKI Inc., a non-public entity for P25 per share. IBM paid
transfer taxes and government levies totaling P100,000. PKI Inc. has 300,000 ordinary shares outstanding as of this date.
 On July 1, 2015, PKI Inc. declared a same share dividend of 10%.
 On August 1, 2015, PKI Inc. declared and distributed a cash dividend of P2 per share.
 On September 1, 2015, IBM received 1,000 ordinary shares of LIMA Inc. from PKI Inc. The par value of the ordinary share is
P10 per share and the fair value is P15 per share.
 On October 1, 2015, PKI Inc. declared a 1 is to 1 stock right to its shareholders. 4 stock rights are needed for the purchase of
one new ordinary share of PKI at P5 per share. As of this date, the most recent transaction price of PKI’s ordinary share is P20
right-on.
 On November 1, 2015, IBM exercised all the stock rights.
 On December 1, 2015, IBM sold 25,000 ordinary shares of PKI Inc. at 30 per share.
 On December 31, 2015, PKI Inc. declared a 3 for 1 share dividend to its ordinary shareholders in the form of Preference
shares. As of this date, the most recent transaction price of the Ordinary Share is P30 while the most recent transaction price
of Preference Share is P20.
Required: Based on the result of your audit, determine the following:
__________1. Total Dividend Income for the year ended December 31, 2015
__________2. Investment in stock rights if stock rights are accounted for separately on 10/1/2015
__________3. Amount debited to Investment in New Ordinary Shares of PKI if stock rights are accounted for separately
__________4. Amount debited to Investment in New Ordinary Shares of PKI if stock rights are not accounted for separately
__________5. Gain/(Loss) on disposal of 25,000 OS of PKI Inc. (assuming FIFO) and stock rights are accounted for separately
__________6. Gain/(Loss) on disposal of 25,000 OS of PKI Inc. (assuming Weighted Average) and stock rights are accounted for
separately
__________7. Gain/(Loss) on disposal of 25,000 OS of PKI Inc. (assuming FIFO) and stock rights are not accounted for separately
__________8. Gain/(Loss) on disposal of 25,000 OS of PKI Inc. (assuming Weighted Average) and stock rights are not accounted for
separately
__________9. Book value of Investment in preference shares of PKI Inc. on December 31, 2015 assuming FIFO and stock rights are
accounted for separately
__________10. Book value of Investment in ordinary shares of PKI Inc. on December 31, 2015 assuming FIFO and stock rights are
accounted for separately
__________11. Theoretical value of stock right if right-on
__________12. Theoretical value of stock right if ex-right
Investment in Equity Instruments (Equity Method) (PAS 28)
Problem 3. The following transactions occurred concerning the Investment in Associate of ABS Inc. for the years ended December 31,
2021 and 2022.
Year 2021
 On January 1, 2021, ABS Inc. acquired 30,000 of the 100,000 outstanding ordinary shares of TV5 Inc. for P5,000,000. TV5
Inc. has 5% cumulative preference share with total par value of P10,000,000. The net assets of TV5 Inc. has a book value of
P21,000,000. The assets of TV5 are properly valued except the following assets:
Book value Fair value
Land P3,000,000 2,000,000
Building (10 years) P4,000,000 7,000,000
Equipment (5 years) P7,000,000 5,000,000
Inventory P4,000,000 8,000,000
 The land mentioned above was sold by TV5 Inc. during 2021 for P5,000,000.
 All of the inventory mentioned above was sold by TV5 Inc. during 2021.
 On October 1, 2021, TV5 Inc. declared and distributed P1,000,000 cash dividends to its ordinary shareholders.
 For the year ended December 31, 2021, TV5 Inc. reported a net profit of P10,000,000 and net debit to other comprehensive
income of P1,000,000.
Year 2022
 On January 1, 2022, the following upstream transactions occurred between ABS Inc. and TV5 Inc.:
o TV5 Inc. sold a land to ABS Inc. at a selling price of P2,000,000 with a book value of P1,500,000.
o TV5 Inc. sold a machine to ABS Inc. at a selling price of P3,000,000 with a historical cost of P5,000,000 and
accumulated depreciation of P1,000,000. The machine has a useful life of 4 years.
o TV5 Inc. sold an inventory to ABS Inc. with gross profit of P2,000,000.
 20% of the inventory above was sold by ABS Inc. to third persons but the land remained unsold.
 On July 1, 2022, TV5 Inc. declared and distributed P500,000 cash dividends to its ordinary shareholders.
 For the year ended December 31, 2021, TV5 Inc. reported a net profit of P5,000,000 and net credit to other comprehensive
income of P2,000,000.
__________1. (Gain on bargain purchase) or goodwill included in investment account
__________2. Investment Income for the year ended 12/31/2021
__________3. Book value of investment in associate on 12/31/2021
Accounting 15
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Problem 4. The following transactions occurred concerning the Investment in Associate of TNT Inc. for the years ended December 31,
2015 and 2016:
Year 2015
 On July 1, 2015, TNT Inc. acquired 20,000 of the 100,000 outstanding ordinary shares of ANC Inc. for P3,000,000. The net
assets of ANC Inc. has a book value of P24,000,000. The assets of ANC Inc. are properly valued. ANC Inc. has 10%
noncumulative preference share with total par value of P4,000,000.
 On October 1, 2015, ANC Inc. declared and paid cash dividends to its ordinary shareholders only for a total of P1,000,000.
 For the year ended December 31, 2015, ANC Inc. suffered financial losses and TNT Inc. made P100,000 cash advances to
ANC Inc. ANC Inc. reported P40,000,000 net loss for the year ended December 31, 2015.
Year 2016
 For the year ended December 31, 2016, ANC Inc. reported net income of P30,000,000.
 On December 31, 2016, ANC Inc. declared and paid the yearly cash dividends to its preference shareholders and distributed
P5,000,000 dividends to ordinary shareholders.
__________1. (Gain on bargain purchase)or goodwill included in investment account
__________2. Investment losses for the year ended 12/31/2015
Problem 5. The following transactions occurred concerning the Investment in Equity Securities of GE Inc. for the years ended
December 31, 2015, 2016 and 2017:
Year 2015
 On January 1, 2015, GE Inc. acquired 10,000 of the 100,000 outstanding shares of SM Inc. with the intention of holding it for
trading purposes. GE Inc. paid P2,000,000 as transaction price and P200,000 as broker fees and registration costs.
 On December 31, 2015, SM Inc. declared and paid P1,000,000 cash dividends and reported P2,000,000 net profit for year
2015.
 On December 31, 2015, the ordinary shares of SM Inc. are trading and listed at P230 per share.
Year 2016
 On January 1, 2016, GE Inc. acquired additional 15,000 of the ordinary shares of SM Inc. whose outstanding ordinary shares
remain at a total of 100,000 shares. The acquisition cost is P4,000,000. As of this date, the net assets of SM Inc. is
20,000,000. All assets of SM Inc. are properly valued. On the same date, the fair value of the ordinary shares of SM Inc. is
P240.
 On December 31, 2016, SM Inc. declared and paid P4,000,000 cash dividends and reported P6,000,000 net profit for year
2016.
Year 2017
 On July 1, 2017, SM Inc. sold 20,000 of the ordinary shares of SM at P250 per share. As of this date, the ordinary shares of
SM Inc. are trading and listed at P320 per share. GE Inc. irrevocably designated the remaining investment in ordinary shares
of SM Inc. at fair value through other comprehensive income.
 For the year ended December 31, 2017, SM Inc. did not declare cash dividends but it reported P1,000,000 for the year 2017.
 On December 31, 2017, the ordinary shares of SM Inc. are trading and listed at P290 per share.
__________1. Dividend income for year 2015
__________2. Unrealized holding gain/(loss) in P/L for year 2015
__________3. Book value of Investment in GE on 12/31/2015
__________4. Goodwill/(Gain on bargain purchase) as a result of step up acquisition on 1/1/2016
__________5. Initial measurement of investment in associate on 1/1/2016
__________6. Investment income for year 2016
__________8. Realized gain/(loss) on disposal of Investment on 7/1/2017
__________9. Initial measurement of investment at fair value through OCI on 7/1/2017
__________10. Gain/(Loss) on remeasurement to fair value of remaining investment on 7/1/2017
__________11. Investment income from investment in associate for year 2017
__________12. Unrealized holding gain/(loss) in OCI-SCI for the year ended 12/31/2017
Accounting 15
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Investment in Debt Securities (Trading or FA@FV Through P/L, Available for Sale or FA@FV Through OCI and Held to Maturity
Securities or FA@Amortized Cost) (PAS 32, PAS 39, PFRS 7, PFRS 9)
Problem 6. On January 1,2021, Smart Inc. invested in Bond Securities of Globe Inc. The face value of the bonds is P1,000,000 with a
term of 3 years. The nominal interest rate of the bonds is 10% and the interest is payable annually on December 31. The yield rate of
this bond is 12%. The fair values of the bonds are as follows:
December 31,2021 900,000
December 31,2022 1,100,000
December 31,2023 800,000
On January 1, 2013, Smart Inc. sold the Investment in Bond Securities at 105. Smart Inc. incurred P70,000 cost of disposal.
Assumption TS (FAFVP/L) AFS (FAFVOCI) HTM (FA@AC)
1. Initial Measurement
2. Interest Income in 2011
3. Interest Income in 2012
4. Book Value on 12/31/2011
5. Book Value on 12/31/2012
6. Unrealized Holding Gain (Loss) P/L 12/31/2011
7. Unrealized Holding Gain (Loss) P/L 12/31/2012
8. Unrealized Holding Gain (Loss) OCI 12/31/2011 (SCI)
9. Unrealized Holding Gain(Loss) OCI 12/31/2012(SCI)
10. Unrealized Holding Gain(Loss) OCI 12/31/2012(SFP)
11. Realized gain/(loss) on sale on 1/1/2013 __________________ __________________ __________________
Problem 7. Using the same data in preceding number, what is the journal entry in case of reclassification of Investment in Bonds from
one classification to another if the date of reclassification occurred on December 31, 2022?
a. From FAFVP/L to FAFVOCI
b. From FAFVP/L to FA@AC
c. From FAFVOCI to FAFVP/L
d. From FAFVOCI to FA@AC
e. From FA@AC to FAFVP/L
f. From FA@AC to FAFVOCI
Problem 8. Metrobank Inc. invested in different bonds securities from several companies during 2011. The business model of
Metrobank Inc. is to collect contractual cash flows from the principal and interest of the investments in bond securities.. The following
transactions occurred during 2011 – 2013 are provided by Metrobank concerning such investments:
 On January 1,2011, Metrobank acquired a serial bond from PAL Inc. The face value of the investment is P3,000,000 with
annual installment of P1,000,000 every December 31. The nominal interest rate of 10% is payable annually every December
31. The yield rate of this bond is 12%.
 On January 1,2011, Metrobank acquired a term bond from UCPB Inc. The face value of the investment is P2,000,000 and will
mature on December 31,2013. The nominal interest rate is 10% per annum. The interest is payable semi-annually on July 1
and December 31. The yield rate of this bond is 8%.
 On April 1,2011, Metrobank acquired a term bond dated January 1,2011 from RCBC Inc. The face value of the bond is
P4,000,000. The investment will mature on December 31,2014. The nominal interest rate is 10% per annum and the interest is
payable annually on December 31. The yield rate of this loan is 12%.
 On December 31,2012, Metrobank sold the serial bond of PAL for P1,200,000.
 On July 1,2012, Metrobank sold the term bond of UCPB for P1,800,000.
 On December 31,2013, Metrobank sold the term bond of RCBC for P3,900,000.
Required: A. Prepare the entry for the preceding transactions:

B. Based on the result of your audit, determine the following:
____________1. Initial Measurement of Investment in PAL Bond
____________2. Initial Measurement of Investment in UCPB Bond
____________3. Initial Measurement of Investment in RCBC Bond
____________4. Total Cash paid for acquisition of RCBC Bond
____________5. Interest Income from PAL Bond in 2011
____________6. Interest Income from UCPB Bond in 2011
____________7. Interest Income from RCBC Bond in 2011
____________8. Book value of PAL Bond on December 31,2011
____________9. Book value of UCPB Bond in December 31,2011
____________10. Book value of RCBC Bond in December 31,2011
____________11. Gain or (loss) on sale of PAL Bond
____________12. Gain or (loss) on sale of UCPB Bond
____________13. Gain or (loss) on sale of RCBC Bond
Accounting 15
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Fund and Other Investments
Problem 9. The following accounts appear on the adjusted trial balance of Apple company on December 31,2011:
Petty cash fund 10,000
Payroll fund 100,000
Interest fund 20,000
Sinking fund cash 500,000
Sinking fund securities 1,000,000
Accrued receivable – sinking fund security 50,000
Plant expansion fund 600,000
Cash surrender value 150,000
Investment property 3,000,000
Preference Redemption Fund 2,000,000
Advances to subsidiary 200,000
Dividend fund 30,000
Investment in joint venture 2,000,000
Required: What is the total non-current asset of Apple Company on December 31,2011?
Problem 10. On January 1, 2015 SM Inc. is establishing two types of sinking funds for its bonds payable and redeemable preference
shares as follows:
First Sinking Fund – The redemption of preference share will require P5,000,000 on January 1, 2019. SM Inc. will contribute to a
money market placement with return of investment of 12%.
Second Sinking Fund - On January 1,2015, SM Inc. established a bond sinking fund of P5,000,000 under a trustee BPI Bank for
payment of Bonds Payable which will mature on January 1,2017. On December 31,2015, the periodic trustee report shows that
P2,500,000 was invested in securities and P1,000,000 in money market placement. On December 31,2016, the periodic report from the
trustee shows that the securities were sold for P2,400,000 and interest received on money market placement was P300,000. The
trustee’s fees and administrative expenses during year 2016 are P30,000 and P20,000 respectively. On January 1,2017, SM Inc.
received a periodic report from the trustee that bonds payable of P5,000,000 and interest of P120,000 were paid.
__________1. Contribution to preference redemption fund on January 1, 2015 if lump sum contribution
__________2. Book value of preference redemption fund on 12/31/2016 if lump sum contribution
__________3. Equal annual contribution every December 31 to preference redemption fund
__________4. Book value of preference redemption fund on 12/31/2017 if equal annual contribution every December 31
__________5. Equal annual contribution every January 1 to preference redemption fund
__________6. Book value of preference redemption fund on 12/31/2016 if equal annual contribution every January 1
__________7. Book value of bond sinking fund on December 31, 2016
__________8. Cash remitted to SM Inc. On January 1, 2017 from the bond sinking fund
Cash Surrender Value of Life Insurance
Problem 11. On January 1,2015, SMART Inc. insures the life of its president for P5,000,000, the entity being the beneficiary of the
ordinary life policy. The annual premium is P80,000. The policy is dated January 1,2015 and carries the following cash surrender value
and dividend collections from the policy:
End of the policy year Cash surrender value Dividend collections
2015 - 10,000
2016 - 5,000
2017 60,000 15,000
2018 75,000 10,000
2019 95,000 -
The entity follows the calendar year as its fiscal period. Only the dividend from year 2018 is not collected but instead applied and added
to the cash surrender value for that year. The president dies on September 30, 2019 and the policy is collected on October 1, 2019.
____________1. Unadjusted Life insurance expense in 2015
____________2. Unadjusted Life insurance expense in 2016
____________3. Adjusted Life insurance expense in 2017
____________4. Cash surrender value in December 31,2017
____________5. Life insurance expense in 2018
____________6. Cash surrender value in December 31,2018
____________7. Life insurance expense in 2019
____________8. Gain on life insurance settlement in 2019
Accounting 15
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Investment Property (PAS 40)
Problem 12. The following items are included in the Investment Property Account of Ayala Land Inc.:
Land held for future plant site P 1,000,000
Land held for a currently undetermined use 2,000,000
Building held by entity under finance lease and leased out under operating lease 3,000,000
Property that is being constructed or developed on behalf of third parties 1,000,000
Building that is being developed for future use as administrative building 2,000,000
Property that is leased out to another entity under a finance lease 1,000,000
Machine leased to another entity under an operating lease 3,000,000
Equipment held for currently undetermined use 1,000,000
Car held for a long-term capital appreciation 2,000,000
Building occupied by employees paying rent at market rate 4,000,000
Land and building that is being developed for future operating lease 6,000,000
Property held for sale in the ordinary course of business 3,000,000
Land classified as held for sale 5,000,000
Land and building leased out to Avida Land Inc., its subsidiary, under operating
Lease 6,000,000
Required: What is the total amount of Investment Property that shall be presented by Ayala Land Inc. in its (1) Separate Statement of
Financial Position and (2) its Consolidated Statement of Financial Position?
Problem 13. On January 1, 2015, Ayala Land Inc. constructed a mall to be leased out under operating lease at a total cost of
P56,000,000 with a useful life of 6 years and residual value of P2,000,000. The fair values of the mall as of several dates are provided
by the appraiser of the company as follows. The cost to sell is 10% of the fair value for each year. The value in use is not available.
12/31/2015 P60,000,000
12/31/2016 40,000,000
12/31/2017 50,000,000
On January 1, 2018, Ayala Land Inc. sold the mall for P54,000,000 and incurred P1,000,000 as disposal cost.
__________1. Carrying amount of investment property on 12/31/2015 using cost model

__________4. Depreciation expense for year 2015 using cost model
__________7. Impairment loss for year 2015 using cost model
__________8. Impairment loss for year 2016 using cost model
__________9. Gain on reversal of impairment loss for year 2017 using cost model
__________10. Carrying amount of investment property on 12/31/2015 using fair value model
__________13. Gain/(Loss) on changes in fair value using fair value model for year 2015
__________14. Gain/(Loss) on change in fair value using fair value model for year 2016
__________15. Gain/(Loss) on change in fair value using fair value model for year 2017
__________16. Gain/(Loss) on disposal of investment property using fair value model on 1/1/2018
__________17. Gain/(Loss) on disposal of investment property using cost model on 1/1/2018
Accounting 15
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Derivatives
Interest Rate Swap
Problem 14. On January 1, 2014, AIR Inc. borrowed P10,000,000 from BDO Bank at a variable rate of interest for two years with the
principal loan payable on December 31, 2016 and the interest is payable on every December 31 of each year based on the prevailing
interest rate at the beginning of the year. To protect itself from fluctuation in interest rate, AIR Inc. entered into an agreement with BPI
Bank to pay a fixed interest based on an underlying interest rate of 10% and notional amount of P10,000,000. The interest rate swap
agreement is designated as a cash flow hedge against a variable interest rate which may be increasing over the term of the loan. The
interest rates on the loan are:
January 1, 2014 10%
January 1, 2015 12% or 7%
__________1. Interest expense for year 2014
__________2. Interest expense for year 2015
__________3. Book value of interest rate swap derivative on 12/31/2014 (Indicate whether asset or liability)
__________4. Book value of interest rate swap derivative on 12/31/2015 before settlement from BPI Bank
__________4. Interest expense for year 2014 assuming the interest rate on 1/1/2015 is 7%
__________5. Interest expense for year 2015 assuming the interest rate on 1/1/2015 is 7%
__________6. Book value of interest rate swap derivative on 12/31/2015 before settlement from BPI Bank
Problem 15. On January 1, 2016, NIKE Inc. borrowed P20,000,000 from BPI Bank at a variable rate of interest for two years with the
principal loan payable on December 31, 2017 and the interest is payable on every December 31 of each year based on the prevailing
interest rate at the beginning of the year. To protect itself from fluctuation in interest rate, NIKE Inc. entered into an agreement with BDO
Bank to pay a fixed interest based on an underlying interest rate of 20% and notional amount of P20,000,000. The interest rate swap
agreement is designated as a cash flow hedge against a variable interest rate which may be increasing over the term of the loan. The
interest rates on the loan are:
January 1, 2016 20%
January 1, 2017 25% or 18%
__________1. Interest expense for year 2017 if variable interest rate on 1/1/2017 is 25%
__________2. Interest expense for year 2017 if variable interest rate on 1/1/2017 is 18%
__________3. Book value of Derivative asset/(liability) on 12/31/2016 if variable interest rate on 1/1/2017 is 25%
__________4. Book value of Derivative asset/(liability) on 12/31/2016 if variable interest rate on 1/1/2017 is 18%
Forward Contract/Futures Contract

Problem 16. On December 1, 2014, ART Inc. expects to purchase 10,000 kilos of sugar from a supplier on February 1, 2015 at the
prevailing market price on such date. Recent market factors indicate that the market price of sugar is within the vicinity of P150. To
protect itself from the variability of the market price of sugar, ART entered into a forward/futures contract with speculator RCBC Bank.
The market price of sugar is P170/P120 on December 31, 2014 and P175/P100 on February 1, 2015. All 10,000 kilos of sugar are sold
on year 2015.
__________1. Forward contract receivable/(payable) on 12/31/2014
__________2. Forward contract receivable/(payable) on 2/1/2015 before cash settlement to RCBC
__________3. Cost of goods sold on year 2015
__________4. Forward contract receivable/(payable) on 12/31/2014 if the market price of sugar is P120 on 12/31/2014
__________5. Forward contract receivable/(payable) on 2/1/2015 before cash settlement to RCBC if market price is P100 on 2/1/2015
__________6. Cost of goods sold on year 2015
Accounting 15
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Problem 17. On November 1, 2016, ADD Inc. expects to purchase 5,000 kilos of textile from a supplier on March 1, 2017 at the
prevailing market price on such date. Recent market factors indicate that the market price of textile is within the vicinity of P20 per kilo
on November 1, 2016. On the same date, to protect itself from the variability of the market price of textile, ADD Inc. entered into a
forward contract with speculator China Bank. The market price of textile is P24/kg on December 31, 2016 and P19/kg on March 1,
2017. All 5,000 kilos of textile are sold on year 2017.
__________2. Unrealized holding gain/(loss) from cash flow hedge in OCI-SCI for the year ended 12/31/2016
__________3. Forward contract receivable/(payable) on 3/1/2017 before cash settlement with China Bank on March 1, 2017
__________5. Cost of goods sold/Purchase for the year ended 12/31/2017
Problem 18. On December 1, 2016, UMBRO Inc. expects to purchase 1,000 kilos of goods from a supplier on February 1, 2017 at the
prevailing market price on such date. Recent market factors indicate that the market price of goods is within the vicinity of P10 per kilo
on December 1, 2016. On the same date, to protect itself from the variability of the market price of goods, UMBRO Inc. entered into a
future contract with speculator PNB Bank. The market price of goods is P8/kg on December 31, 2016 and P13/kg on February 1, 2017.
All 1,000 kilos of goods are sold on year 2017.
__________3. Forward contract receivable/(payable) on 3/1/2017 before cash settlement with PNB Bank on March 1, 2017
__________5. Cost of goods sold/Purchase for the year ended 12/31/2017
Problem 19. On December 1, 2016, BRO Inc. expects to sell 1,000 kilos of goods to a customer on February 1, 2017 at the prevailing
market price on such date. Recent market factors indicate that the market price of goods is within the vicinity of P20 per kilo on
December 1, 2016. On the same date, to protect itself from the variability of the market price of goods, BRO Inc. entered into a future
contract with speculator PNB Bank. The market price of textile is P8/kg on December 31, 2016 and P23/kg on February 1, 2017. All
1,000 kilos of goods are sold on year 2017.
__________3. Forward contract receivable/(payable) on 3/1/2017 before cash settlement with PNB Bank on March 1, 2017
__________5. Sales for the year ended 12/31/2017
Accounting 15
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Call Option/Put Option
Problem 20. On December 1, 2014 ALT Inc. projects a need for 20,000 units of a raw material to be purchased at the middle of 2015.
The raw material is selling at P20 per unit on December 1, 2014. The entity is concerned with the movement of prices of the raw
material between December 1, 2014 and July 1, 2015. As a protection against the increase in price of the raw material, ALT Inc. entered
into a call option contract with UCPB bank speculator by paying P5,000 for the option on December 1, 2014. The market price of the
raw material is P25/P23 on December 31, 2014 and P32/P15 on July 1, 2015. All the raw materials are transformed to finished goods
and sold on year 2015.
__________1. Call option on 12/31/2014
__________2. Call option on July 1, 2015 before the settlement
__________3. Cost of goods sold for year 2015 for the raw materials/Purchases for year 2015
__________4. Call option on 12/31/2014 if market price of raw material is P23 on 12/31/2014 and P15 on 7/1/2015
__________5. Purchases for year 2015 if market price of raw material is P23 on 12/31/2014 and P15 on 7/1/2015
__________6. Loss on call option if market price of raw material is P23 on 12/31/2014 and P15 on 7/1/2015
Problem 21. On December 1, 2018 NON Inc. projects a need for 5,000 units of merchandise to be purchased at the middle of 2019.
The merchandise is selling at P8 per unit on December 1, 2018. The entity is concerned with the movement of prices of the
merchandise between December 1, 2018 and July 1, 2019. As a protection against the increase in price of the merchandise, NON Inc.
entered into a call option contract with CITI bank speculator by paying P1,000 for the option on December 1, 2018. The market price of
the merchandise is P15 on December 31, 2019 and P12 on July 1, 2019. All the merchandises are sold on year 2019.
__________1. Call option on 12/31/2018
__________3. Call option on July 1, 2019 before the settlement with CITI Bank
__________6. Call option on 12/31/2018 if market price of merchandise is P11 on 12/31/2018 and P5 on 7/1/2019
__________7. Unrealized holding gain/(loss) from cash flow hedge in OCI-SCI for the year ended 12/31/2018 is P11 on 12/31/2018
and P5 on 7/1/2019
__________8. Cost of goods sold for year 2019Loss on call option if market price of merchandise is P11 on 12/31/2018 and P5 on
7/1/2019
__________9. Loss on call option if market price of merchandise is P11 on 12/31/2018 and P5 on 7/1/2019
Problem 22. On December 1, 2020 ION Inc. forecasted that it will sell 2,000 units of merchandise to a customer on May 1, 2020. The
merchandise is selling at P100 per unit on December 1, 2020. The entity is concerned with the movement of prices of the merchandise
between December 1, 2020 and May 1, 2021. As a protection against the increase in price of the merchandise, ION Inc. entered into a
put option contract with AIG bank speculator by paying P3,000 for the option on December 1, 2020. The market price of the
merchandise is P85 on December 31, 2020 and P60 on May 1, 2021. All the merchandise are sold on year 2021.
__________1. Put option on 12/31/2020
__________3. Put option on July 1, 2021 before the settlement with AIG Bank
__________6. Put option on 12/31/2020 if market price of merchandise is P75 on 12/31/2020 and P130 on 5/1/2021
__________7. Unrealized holding gain/(loss) from cash flow hedge in OCI-SCI for the year ended 12/31/2020 if market price of
merchandise is P75 on 12/31/2020 and P130 on 7/1/2021
__________8. Sales for the year ended 12/31/2021 if market price of merchandise is P75 on 12/31/2020 and P130 on 7/1/2021
__________9. Loss on put option if market price of merchandise is P75 on 12/31/2020 and P130 on 7/1/2021
Accounting 15
Page 9 of 9
Accounting 15
Page 10 of 9

Financial Accounting and Reporting (Accounting 15) Investments

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Financial Accounting and Reporting (Accounting 15) Investments

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PSBA

Financial Accounting and Reporting (Accounting 15)

Shares Bid Price Asking Price

Shares Bid Price Asking Price

Required: A. Prepare the Entry for the preceding transactions:

____________1. Initial Measurement of Investment in BPI Ordinary Shares

Investment in Equity Instruments (Equity Method) (PAS 28)

a. From FAFVP/L to FAFVOCI

b. From FAFVP/L to FA@AC

c. From FAFVOCI to FAFVP/L

d. From FAFVOCI to FA@AC

e. From FA@AC to FAFVP/L

f. From FA@AC to FAFVOCI

Required: A. Prepare the entry for the preceding transactions:

Cash Surrender Value of Life Insurance

__________1. Carrying amount of investment property on 12/31/2015 using cost model

Forward Contract/Futures Contract

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