FINANCIAL ASSET AT FAIR VALUE Star Company 400,000 280,000

Sun Company 600,000 650,000

Source: Intermediate Accounting 1 by Valix (2021 ed) December 31, 2021
Moon Company 200,000 220,000
PROBLEM 15-1 Star Company 400,000 300,000
Template Company provided the following with respect to marketable Sun Company 600,000 580,000
equity securities held as “trading”
The equity securities do not qualify as held for trading.
1. The entity carried the following securities on December 31, 2021:
The entity has elected irrevocably to present changes in fair value in
Cost Market other comprehensive income.
A ordinary – 4,000 shares 330,000 300,000
B ordinary – 1,000 shares 200,000 160,000 Required:
C preference – 2,000 shares 300,000 310,000
Prepare journal entries on December 31, 2021 and December 31,
830,000 770,000
2022.

PROBLEM 15-5
2. On June 30, 2022, the entity sold all the B ordinary shares for
P140,000. Aborigine Company reported the following accounts in the statement
3. On December 31, 2022, the securities are quoted as follows of financial position on January 1, 2021:
A ordinary 80 Noncurrent assets
C preference 180 Financial asset – FVOCI 4,000,000
Market adjustment for unrealized loss (500,000)
Required: Market value 3,500,000
Prepare journal entries to record the transactions. Other comprehensive income
Unrealized loss (500,000)
PROBLEM 15-2
An analysis of the investment portfolio revealed the following on
On January 1, 2022, Spark Company purchased the following trading
December 31, 2021.
securities:
Cost Market
Cost Fair value
Dec 31, 2021 XYZ ordinary share 1,000,000 1,200,000
Aura Company ordinary 600,000 650,000 ABC ordinary share 2,500,000 2,000,000
Bora Company preference 350,000 200,000 RST preference share 500,000 200,000
Cara Company bonds 500,000 400,000 4,000,000 3,400,000

On October 1, 2022, the entity sold one-half of Aura Company On July 1, 2022, the ABC ordinary share was sold for P2,100,000.
ordinary for P375,000.
On December 31, 2022, the remaining investments have the
On December 31, 2022, the fair value of the remaining securities was following market value:
P800,000.
XYZ ordinary share 1,000,000
Required: RST preference share 150,000

Prepare journal entries to record the transactions. Required:

PROBLEM 15-3 1. Prepare journal entry to recognize the decrease in value on
December 31, 2021.
Splendid Company purchased equity securities during 2021 to be
2. Prepare journal entry to record the sale of ABC ordinary share on
held as investments. The cost and market value of the investment
July 1, 2022.
are:
3. Prepare journal entry on December 31, 2022 to recognize the
December 31, 2020 Cost Market change in fair value.
Trading securities 2,000,000 2,500,000
PROBLEM 15-6
Securities not held for trading 3,000,000 2,900,000
December 31, 2021 During 2021, the first year of operations, Beneath Company
Trading securities 2,000,000 2,200,000 purchased the following equity securities:
Securities not held for trading 3,000,000 2,300,000
Cost Market Value Market Value
The securities not held for trading are measured at fair value through Dec 31, 2021 Dec 31, 2022
other comprehensive income by irrevocable election. Security One 2,200,000 1,400,000 900,000
Security Two 700,000 1,000,000 1,100,000
Required: Security Three 1,600,000 1,500,000 1,600,000
Security Four 2,000,000 2,500,000 1,200,000
Prepare the journal entries for 2021 and 2022.
Security One and Security Two are held for trading and Security
PROBLEM 15-4 Three and Security Four are measured as at fair value through other
Transitory Company acquired the following equity securities: comprehensive income by election.

December 31, 2020 Cost Market During 2022, the entity sold one-half of Security One for P1,000,000,
Moon Company 200,000 120,000 and one-half of Security Four for P1,300,000.
Required: There was no change during 2021 in the composition of the portfolio
of trading securities. Pertinent data on December 31, 2022 are:
Prepare journal entries for 2021 and 2022.
Security Cost Market value
PROBLEM 15-7 A 600,000 900,000
B 450,000 400,000
Chaplain Company was very active in acquiring and selling
C 800,000 1,200,000
investments in equity securities. Data regarding the securities are:

Cost Market value What amount of unrealized gain on these securities should be
December 31, 2021 included in the 2022 income statement?
Trading securities 5,000,000 4,600,000 A 400,000
Securities not held for trading 3,000,000 3,100,000 B 650,000
December 31, 2022 C 900,000
Trading securities 5,000,000 5,500,000 D 700,000
Securities not held for trading 3,000,000 3,300,000

The entity made an irrevocable election present changes in fair value PROBLEM 15-11
of the securities not held for trading in other comprehensive income: During 2021, Latvia Company purchased trading securities with the
Required: following cost and market value on December 31, 2021:

Prepare journal entries to recognize the changes in market value for Security Cost Market value
A - 1,000 shares 200,000 300,000
2021 and 2022.
B - 10,000 shares 1,700,000 1,600,000
PROBLEM 15-8 C - 20,000 shares 3,100,000 2,900,000
5,000,000 4,800,000
At the beginning of current year, Alexis Company purchased
marketable equity securities to be held as “trading” for P5,000,000. The entity sold 10,000 shares of Security B on January 15, 2022 for
The entity also paid transaction cost amounting to P200,000. P150 per share.
The securities had a market value of P5,500,000 at year-end and the What amount should be reported as loss on sale of trading
transaction cost that would be incurred on sale is estimated at investment in 2022?
P100,000. No securities were sold during the current year.
A 200,000 gain
What amount of unrealized gain or loss on these securities should be B 200,000 loss
reported in the income statement for the current year? C 100,000 gain
D 100,000 loss
A 500,000 gain
B 500,000 loss
C 300,000 gain PROBLEM 15-12
D 400,000 gain
At the beginning of current year, Carmela Company acquired
nontrading equity instrument for P4,000,000. The transaction cost
PROBLEM 15-9 incurred amounted to P700,000.
During 2021, Garr Company purchased marketable equity securities The equity instrument is irrevocably designated as financial asset at
as a trading investment. fair value through other comprehensive income.
For the year ended December 31, 2021, the entity recognized an The fair value of the instrument was P5,500,000 at year-end and the
unrealized loss of P200,000. transaction cost that would be incurred on the sale of the investment
is estimated at P600,000.
There were no security transactions during 2022. The entity provided
the following information on December 31, 2022: What amount of gain should be recognized in other comprehensive
income for the current year?
Security Cost Market value
A 2,450,000 2,300,000 A 200,000
B 1,800,000 2,700,000 B 900,000
4,250,000 5,000,000 C 800,000
D 0
In the 2022 income statement, what amount should be reported as
unrealized gain or loss?
PROBLEM 15-13
A Unrealized gain of P950,000
B Unrealized loss of P950,000 Judicious Company acquired an equity investment a number of years
C Unrealized loss of P750,000 ago for P3,000,000 and classified it as at fair value through other
D Unrealized gain of P750,000 comprehensive income.

On December 31, 2021, the cumulative loss recognized in other

PROBLEM 15-10
During 2021, Haggard Company purchased marketable equity
securities for P1,850,000 to be held as trading investments.
In 2021, the entity appropriately reported an unrealized loss of
P200,000 in the income statement.
comprehensive income was P400,000 and the carrying amount of
the investment was P2,600,000.
On December 31, 2022, the issuer of the equity instrument was in
severe financial difficulty and the fair value of the equity investment
had fallen to P1,200,000.
What cumulative amount of unrealized loss should be reported as At the beginning of current year, the entity reported an unrealized
component of other comprehensive income in the statement of loss of P15,000 to reduce investments to market on a portfolio basis.
changes in equity for the year ended December 31, 2022?
In the year-end statement of changes in equity, what amount of
A 1,400,000 unrealized loss should be reported?
B 1,800,000
C 1,000,000 A 260,000
D 0 B 220,000
C 205,000
D 0
PROBLEM 15-14

During 2021, Knickknack Company purchased marketable equity PROBLEM 15-17

securities to be measured at fair value through other comprehensive
income.
On December 31, 2021, the balance in the unrealized loss on these
securities was P100,000.
During 2020, Opulence Company purchased marketable equity
securities as short-term investment to be measured at fair value
through other comprehensive income. The cost and market value on
December 31, 2021 were:

There were no security transactions during 2022. Pertinent data on Security Cost Market value
December 31, 2022 are: A 1,000 shares 300,000 350,000
B 10,000 shares 1,700,000 1,550,000
Security Cost Market value C 20,000 shares 3,150,000 2,950,000
X 2,100,000 1,600,000
Y 1,850,000 2,000,000
Z 1,050,000 900,000 The entity sold 10,000 shares of B on January 5, 2022 for
P1,450,000.
In the statement of changes in equity for 2022, what amount should What total amount should be charged to retained earnings as a result
be included as cumulative unrealized loss as component of other of the sale of equity securities in 2022?
comprehensive income?
A 200,000
A 500,000 B 100,000
B 300,000 C 250,000
C 200,000 D 50,000
D 0

PROBLEM 15-18
PROBLEM 15-15
On January 1, 2021, Jerome Company purchased nontrading equity
At the beginning of current year, Manifold Company began investments which are irrevocably designated at FVOCI:
operations. The following information related to the portfolio of equity
securities held for trading at year-end: Purchase price Transaction Market value
cost Dec 31, 2021
Trading Nontradin Security A 1,000,000 100,000 1,500,000
g Security B 2,000,000 200,000 2,400,000
Aggregate cost 360,000 550,000 Security C 4,000,000 400,000 4,700,000
Aggregate fair value 320,000 450,000
Aggregate lower of cost or market value 304,000 420,000 On July 1, 2022, the entity sold Security C for P5,200,000.
applied to each security in the
portfolio. What amount of gain on sale should be recognized in the income
statement for 2021?
The nontrading investments are measured at fair value through other A 800,000
comprehensive income. B 500,000
C 300,000
What amount should be reported as unrealized loss in the income
D 100,000
statement for the current year?

A 140,000 PROBLEM 15-19

B 186,000
C 40,000 Lagoon Company purchased the following investments during 2021:
D 56,000
Market value
Classification Cost Dec 31, 2021
PROBLEM 15-16 Security A Trading 900,000 1,000,000
Security B Trading 1,000,000 1,600,000
Nightmare Company provided the following information at year-end
regarding the portfolio of equity securities: On July 31, 2022, the entity sold all of the shares of Security B for
P1,100,000.
Aggregate cost 1,700,000
Unrealized gains 40,000 On December 31, 2022, the shares of Security A had a market value
Unrealized losses 260,000 of P600,000.
Net realized gains during the current year 300,000
No other activity occurred during 2022 in relation to the trading
The equity investments are measured at fair value through other security portfolio.
comprehensive income.
What total loss on the trading securities should be reported in the A Amortized cost
income statement for 2022? B Fair value
C The lower of amortized cost and fair value
A 500,000 D Net realizable value
B 400,000 5. Debt investments at amortized cost are
C 900,000
D 100,000 A Managed and evaluated based on a documented risk
management strategy
B Trading debt investments
PROBLEM 15-20 C Held for collection debt investments
D All of these are correct
1. Depending on the business model for managing financial assets,
an entity shall classify financial assets subsequent to initial
recognition at PROBLEM 15-22

A Fair value through profit or loss
B Amortized cost
C Fair value through other comprehensive income
D All of these are used in measuring financial assets
2. A debt investment is measured at amortized cost
A By irrevocable election
B When the debt investment is managed and evaluated on a
document risk-management strategy.
C When the debt investment is held for trading
D When the business model is to collect contractual cash flows
that are solely payments of principal and interest
3. The irrevocable election to present changes in fair value in other
comprehensive income is applicable only to
1. Equity investments irrevocably accounted for at FVOCI are
A Nontrading investments of less than 20%
B Trading investments of less than 20%
C Investments of between 20% and 50%
D Investments of more than 50%
2. What financial assets are assessed for impairment?
A Equity investments at FVPL
B Equity investments at FVOCI
C Debt investments at FVPL
D Debt investments at amortized cost and debt investments at
FVOCI
3. Impairments of debt investments at amortized cost are

A Investment in equity instrument not held for trading
B Investment in equity instrument held for trading
C Financial asset measured at amortized cost
D Financial asset measured at fair value.
4. A debt investment shall be measured at fair value through other
comprehensive income
A Based on discounted contractual cash flows
B Recognized as component of OCI
C Based on fair value for nontrading investments
D Evaluated at each reporting date
4. An impairment loss is the excess of the carrying amount of the
debt investment over

A When the debt investment is held for trading
B When the debt investment is not held for trading
C By irrevocable designation
D When the business model is to collect contractual cash flows
and also to sell the financial asset
5. Which is not a category of financial assets?
A Financial assets at fair value through profit or loss
B Financial assets at fair value through other comprehensive
income
C Financial assets at amortized cost
D Financial assets held for sale
A Expected cash flows
B Present value of the expected cash flows
C Contractual cash flows
D Present value of the contractual cash flows
5. Under IFRS, an entity
A Should evaluate every investment for impairment
B Accounts for an impairment as component of OCI
C Calculates the impairment loss on debt investment as the
excess of carrying amount over the expected discounted
future cash flows
D Should not recognize impairment loss on all financial assets

PROBLEM 15-21

1. Under IFRS, the presumption is that equity investments are

A Held for trading

B Held to profit from price changes
C Held for trading and held to profit from price changes
D Held as financial assets at fair value through other
comprehensive income
2. Entities are required to measure financial asset based on all of the
following, except

A The business model for managing financial asset.

B Whether the financial asset is a debt or an equity investment
C The contractual cash flow characteristics of the financial
asset.
D All of the choices are correct
3. Debt investments that meet the business model and contractual
cash flow tests are reported at

A Net realizable value

B Fair value
C Amortized cost
D The lower of amortized cost and fair value
4. Debt investments not held for collection are reported at