Illustration 1:

The following are taken from the records of ABC Company as of year-end
Cash & cash equivalent 13,000
Accounts receivable 15,000
Allowance for bad debts (2,000)
Note receivable 5,000
Interest receivable 2,000
Advances to suppliers 6,000
Cash surrender value 12,000
Sinking fund 20,000
Investment in bonds 12,000
Land 140,000
Building 260,000
Investment in Associate 20,000
Investment in Subsidiary 55,000
Investment in equity instruments 13,000
Shares of stocks of ABC Co. 56,000

Required: Compute the financial assets to be disclosed in the

notes to the financial statements

Illustration 2
The following are taken from the records of ABC Company as of year-end
Accounts payable 2,000
Utilities payable 7,000
Advances from customer 1,000
Interest payable 6,000
Unearned rent 9,000
Cash dividends payable 4,000
Lease Liability 35,000
Bonds payable 120,000
Discount on bonds payable (15,000)
 Security deposits 2,000
Income taxes payable 2,000

Required: Compute the financial liabilities to be disclosed in the notes

of year-end
13,000
15,000
(2,000)
5,000
2,000

12,000
20,000
12,000

20,000
55,000
13,000

165,000

of year-end
2,000
7,000

6,000

35,000
120,000
(15,000)
 2,000

157,000
the notes
Illustration 1: Held for trading securities - equity securities
On January 1, 2021, ABC Company purchased 12,000 shares of XYZ, Inc.
for P100,000. Taxes and licenses incurred amounted to P5,000. The
equity securities meet the definition of held for trading securities.
Accordingly, ABC Company classified the investment as subsequently
measured at fair value through profit or loss.

On December 31, 2021, the shares are quoted at P10 per share. If the
shares are sold on this date, the transaction cost would be P0.50 per share.

Required: Prepare the journal entries

Held for trading securities 100,000

Taxes & licenses 5,000
Cash

Held for trading securities (12,000 x P10) - 100,000 20,000

Unrealized gain - P & L

Illustration 2: Investment in equity securities measured at FVOCI

On January 1, 2021, ABC Company purchased 12,000 shares at XYZ, Inc.
for P100,000. Commission paid to broker amounted to P5,000. The
shares do not meet the definition of held for trading. Management an
irrevocable choice to subsequently measure the shares at fair value
through other comprehensive income.

On December 31, 2021, the shares are qoted at P10 per share.

Required: Prepare the journal entries

Transaction price
Transaction cost
Intial carrying amount

Investment in securities -FVOCI 105,000

Cash

Fair value, Dec. 31 (12,000 x P10)

Unadjusted carrying amount
Inrease in fair value

Investment in equity securities -FVOCI 15,000

Unrealifed gain - OCI

Illustration 3
An entity acquired a financial asset to be measure at FVPL for P1,000,000.
Required: Prepare the journal entry to record the acquisition under the following
scenarios:
a. Financial asset's fair value amounted to P1,100,000
b. Financial asset's fair value amounted to P985,000

Illustration
On January 1, 2023, ABC Company acquired from another investor ordinary shares
of AAA Company and ordinary share of BBB Company at a single price of P9,500,000
both to be accounted for at FVTPL. As of the same date, the acquired shares of
AAA Company had fair value of P4,000,000 while the acquired shares of BBB Company
had fair value of P6,000,000.

Required: Prepare journal entries using

a. Traditional approach
b. Contemporary approach
per share.

105,000

20,000

100,000
 5,000
105,000

105,000

120,000
(105,000)
15,000

15,000

000,000.
er the following

r ordinary shares
price of P9,500,000
ired shares of
ares of BBB Company
Illustration 1: Acquisition at a discount
On January 1, 2021, ABC Company acquired 10% P1,000,000 for P951,963.
The principal is due on January 1, 2024 but interest is due annually every
January 1. The effective interest rate on the bonds is 12%.

Required: Prepare the journal entries

Interest Interest
Date Received Income Amortization
1/1/2021
1/1/2022 100,000 114,236 14,236
1/1/2023 100,000 115,944 15,944
1/1/2024 100,000 117,857 17,857

Journal entries:
1/1/21 Investment in bonds - amortized cost
Cash

12/31/21 Interest receivable

Investment in bonds - amortized cost
Interest income

Illustration 2: Acquisition at a premium

On Janaury 1, 2021, ABC Company acquired 12% P1,000,000 bonds for
P1,049,737. The principal is due on December 31, 2023 but interest is
due annually starting December 31, 2021. The effective interest rate
is 10%.

Requried: Prepare the journal entries

Interest Interest
Date Received Income Amortization
1/1/2021
 12/31/21 120,000 104,974 15,026
12/31/22 120,000 103,471 16,529
12/31/23 120,000 101,818 18,182

1'/1/21 Investment in bonds at amortized cost

Cash

12/31/21 Cash
Investment in bonds at amortized cost
Interest income

Illustration 3
On January 1, 2021, ABC Company acquired 14% 4-year, P1,000,000 bonds
from XYZ Inc. for P1,060,747. The bonds are classified as amortized cost
financial assets. Interest is due annually every January 1. The effective
interest rate is 12%.

Required: a. Prepare the amortization table

b. How much is the unamortized discount or premium on
December 31, 2022?
c. Prepare all journal entries
a.
Interest Interest
Date Received Income Amortization
1/1/21
1/1/22 140,000 127,290 12,710
1/1/23 140,000 125,764 14,236
1/1/24 140,000 124,056 15,944
1/1/25 140,000 122,143 17,857

Journal entries
1/1/21 Investment in bonds at amortized cost
 Cash

12/31/21 Interest receivable

Investment in bonds at amortized cost
Interest income

1/1/22 Cash
Interest receivable

12/31/22 Interest receivable

Investment in bonds at amortized cost
Interest income

1/1/23 Cash
Interest receivable

12/31/23 Interest receivable

Investment in bonds at amortized cost
Interest income

1/1/24 Cash
Interest receivable

12/31/24 Interest receivable

Investment in bonds at amortized cost
Interest income

1/1/25 Cash
Investment in bonds

b. Carrying amount 1,033,801

Face amount 1,000,000
 33,801
Illustration 4
On January 1, 2021, ABC Company acquires 100, 10%, 3-year, P5,000
bonds.

Required: Prepare the amortization table under each of the following

scenarios:
a. The bonds are acquired for P428,567. Transaction costs
are P25,000. The effective interest rate adjusted for the
transaction costs is 14%
b. The bonds are acquired for P487,656. Transaction costs
equals to 5% of the face amount are incurred. The
effective interest rate adjusted for the transaction costs is 9%
Interest Interest
Date Received Income Amortization
1/1/21
12/31/21 50,000 63,499 13,499
12/31/22 50,000 65,389 15,389
12/31/23 50,000 67,544 17,544

Interest Interest
Date Received Income Amortization
1/1/21
12/31/21 50,000 46,139 3,861
12/31/22 50,000 45,792 4,208
12/31/23 50,000 45,413 4,587
000 for P951,963.
e annually every

Present
Value
951,963
966,199
982,143
1,000,000

951,963
951,963

100,000
14,236
114,236

000 bonds for

but interest is
interest rate

Present
Value
1,049,737
 1,034,711
1,018,182
1,000,000

1,049,737
1,049,737

120,000
mortized cost 15,026
104,974

P1,000,000 bonds Acquisition cost

s amortized cost Face amount
. The effective

premium on

Present
Value
1,060,747
1,048,037
1,033,801
1,017,857
1,000,000

1,060,747
 1,060,747

140,000
mortized cost 12,710
127,290

140,000
140,000

140,000
mortized cost 14,236
125,764

140,000
140,000

140,000
mortized cost 15,944
124,056

140,000
140,000

140,000
mortized cost 17,857
122,143

1,000,000
1,000,000
year, P5,000

the following

nsaction costs
djusted for the

nsaction costs FA 500,000

red. The TC 25,000
nsaction costs is 9% PV 48765 +25,000 = 512656
Present
Value
453,567
467,066
482,455
499,999

Present
Value
512,656
508,795
504,587
500,000
 950,000
1,000,000
50,000
Illustration 1
On January 1, 2021, ABC Company acquired 10%, P1,000,000 bonds for
P951,963. The principal is due on January 1, 2024 but interest is due
annually every January 1. The effective interest rate is 12%. The bonds
are measured at fair value through other comprehensive income.
Information on fair values follows:
Dec. 31, 2021 98
Dec. 31, 2022 103
Jan. 1, 2023 104

Required: Prepare journal entries in Dec. 31, 2021 and Dec. 31, 2022.

Interest Interest Present

Date Received Income Amortization Value
1/1/21 951,963
1/1/22 100,000 114,236 14,236 966,199
1/1/23 100,000 115,944 15,944 982,143
1/1/24 100,000 117,857 17,857 1,000,000

Journal entries
1/1/21 Investment in bonds 951,963
Cash

12/31/21 Interest receivable 100,000

Investment in bonds - FVOIC 14,236
Interest income

Carrying value as 12/31/21

FV - 12/31/21 (1M x 98%)
Unrealized gain - OCI

12/31/21 Investment in bonds OCI 13,801

 Unrealized gain - OCI

1/1/22 Cash 100,000

Interest receivable

12/31/22 Interest receivable 100,000

Investment in bonds - FVOIC 15,944
Interest income

Carrying value
FV - 12/31/22 (1M x 103%)
Unrealized gain - OCI

Unrealized gain cumulative, Dec. 31, 2022

Unrealized gain cumulative, Dec. 31, 2021
Unrealized gain, 2022 OCI

12/31/22 Investment in bonds - FVOCI 34,056

Unrealized gain - OCI

FVOIC
On January 1, 2021, DEF Company acquired 10%, P1,000,000 bonds for
P827,135. The bonds mature on December 31, 2023 and pay annual
interest every December 31. DEF Company incurred transaction costs of
P80,000 on the acquisition. The effective interest rate adjusted for the
effect of the transaction costs is 14%.

The bonds are to be held under a "hold to collect and sell" business
model. Information on fair values is as follows:
Dec. 31, 2021
Dec. 31, 2022
Dec. 31, 2023
Required: Prepare all the jounal entries in 2021 and 2022.

Interest Interest Present

Date Received Income Amortization Value
1/1/21 907,135
12/31/21 100,000 126,999 26,999 934,134
12/31/22 100,000 130,779 30,779 964,913
12/31/23 100,000 135,088 35,088 1,000,000

Journal entries
1/1/21 Investment in bonds - FVOIC 907,135
Cash

12/31/21 Cash 100,000

Investment in bonds - FVOIC 26,999
Interest income

Carrying amount 12/31/21

FV 12/31/21
Unrealized gain - FVOCI

Investment in bonds - FVOIC 45,866

Unrealized - FVOIC

12/31/22 Cash 100,000

Investment in bonds - FVOIC 30,779
Interest income

Carrying amount 12/31/22

FV 12/31/22
Unrealized gain - FVOCI 12/31/22
Unrealized gain - FVOCI 12/31/21
Unrealized gain OCI 2022

Investment in bonds - FVOIC 9,221

Unrealized - FVOIC
951,963

114,236

966,199
980,000
13,801
 13,801

100,000

115,944

982,143
1,030,000
47,857

47,857
13,801
34,056

34,056

98
102
100
Dec. 31, 2021 98
Dec. 31, 2022 102
Dec. 31, 2023 100

907,135

126,999

934,134
980,000
45,866

45,866

130,779

964,913
1,020,000
55,087
45,866
9,221

9,221
Illustration
On January 1, 2023, ABC Company acquired from another investor ordinary shares
of AAA Company and ordinary share of BBB Company at a single price of P9,500,000
both to be accounted for at FVTPL. As of the same date, the acquired shares of
AAA Company had fair value of P4,000,000 while the acquired shares of BBB Company
had fair value of P6,000,000.

Required: Prepare journal entries using

a. Traditional approach
b. Contemporary approach

a. Traditional approach
Securities FV Tran Price Allocation
AAA Co. 4,000,000 4/10 9,500,000 3,800,000
BBB Co. 6,000,000 6/10 9,500,000 5,700,000
10,000,000 9,500,000

Fin'l. asset at FVPL - AAA Co. 3,800,000

Fin'l. asset at FVPL - BBB Co. 5,700,000
Cash 9,500,000

b. Contemporary approach
Fin'l. asset at FVPL - AAA Co. 4,000,000
Fin'l. asset at FVPL - BBB Co. 6,000,000
Cash 9,500,000
Unrealized gain - P/L 500,000
ordinary shares
ce of P9,500,000
ed shares of
es of BBB Company
Illustration 1
On January 2, 2021, ABC Company insures the life of its president for P1,000,000
ABC Company is the beneficiary. Annual insurance premium of P20,000 is payable
at the beginning of each year. Information on the cash surrender value from the
insurance policy is shown below:

Cash surrender
Policy year Value
Dec. 31, 2021 -
Dec. 31, 2022 -
Dec. 31, 2023 21,000
Dec. 31, 2024 28,000
Dec. 31, 2025 40,000

On September 1, 2024, ABC Company receives P1,000 cash dividend from life
insurance.

On April 1 ,2025, the key employee dies. ABC Company collects the
policy on May 2025.

Required: Prepare the journal entries

Journal entries
To record annual premiums for the first three years
Jan. 1, 2021 Life insurance expense
Cash

Jan. 1, 2022 Life insurance expense

Cash

Jan. 1, 2023 Life insurance expense

Cash
To record receipt of cash surrender value
Dec. 31, 2023 Cash surrender value
Life insurance expense
Retained earnings

To record annual premium for 2024

Jan. 1, 2024 Life insurance expense
Cash

To record cash dividend received

Sept. 1, 2024 Cash
Life insurance expense

To record increase in cash surrender value

Dec. 31, 2024 Cash surrender value
Life insurance expense

To record annual premium for 2025

Jan. 1, 2025 Life insurance expense
Cash

To record collection of life insurance policy

May 1, 2025 Cash
Cash surrender value
Life insurance expense/Prepaid insurance
Gain on life insurance

Cash surrender value - December 31 2025

Cash surrender value - December 31 2024
Tota increase in cash surrender value in 2025
Multiply by
Increase in cash surrender value up to April 1, 2025
 Add back: Cash surrender value - December 31, 2024
Adjusted cash surrender value - April 1, 2025

Annual premium paid for 2015

Unexpired portion (April 1 to December 31, 2025)
Unexpired portion of insurance premium paid

Illustration 2
On January 1, 2021, DEF Company insured the life of one of its key management person
for P5,000,000. DEF Company is the beneficiary. The insurance policy requires annual
payments of P50,000 at the start of each year. Information on cash surrender value is
below:
Cash surrender
Policy year Value
Dec. 31, 2021 -
Dec. 31, 2022 -
Dec. 31, 2023 90,000
Dec. 31, 2024 110,000
Dec. 31, 2025 130,000

Additional information:
- DEF Company received P3,000 cash dividend from the life insurance on Septem
2024
- The key employee died on July 1, 2025

Required: Prepare the journal on the following dates (use the "Asset Method" of
recording disbursements)
a. Jan. 1, 2021 nd Dec. 31, 2021 (adjusting entry)
b. Dec. 31, 2023 (cash surrender value)
c. Sept. 1, 2024 (dividends)
d. Dec. 31, 2024 (cash surrender value)
e. Jan. 1, 2025 (payment of insurance premium)
f. July 1, 2025 (assume the policy is also collected on this date)
nt for P1,000,000
P20,000 is payable
er value from the

dend from life

20,000
20,000

20,000
20,000

20,000
20,000
 21,000
7,000
14,000

20,000
20,000

1,000
1,000

7,000
7,000

20,000
20,000

1,000,000
31,000
repaid insurance 15,000
954,000

40,000
(28,000)
12,000
3/12
3,000
 28,000
31,000

20,000
9/12
15,000

key management personnel

policy requires annual
cash surrender value is shown

fe insurance on September 1,

the "Asset Method" of

ed on this date)
Illustration 1: Sinking fund administered by the entity
On January 1, 2021, ABC Company established a P1,000,000 sinking fund
in connection with the issuance of bonds payable. Retained earnings is
appropriated by virtue of a borad resolution, ABC Company will administer
the fund

Journal entries:
Establishment of sinking fund
2021 Jan. 1 Sinking fund - cash 1,000,000
Cash

Retained earnings 1,000,000

Approriated retained earnings

On Feb. 1, 2021, ABC Company acquires investment in equity securities for

P300,000 using the sinking fund cash
2021 Feb. 1 Sinking fund - equity securities 300,000
Sinking fund - cash

On April 1, 2021, ABC Company acquires investment in bonds at face amount

of P500,000 using the sinking fund cash
2021 Apr. 1 Sinking fund - debt securities 500,000
Sinking fund - cash

Interest income earned on the investment in bonds for the year is P12,500.
The fair value of the equity securities increased by P50,000.
2021 Dec. 31 Sinking fund - cash 12,500
Investment income

Sinking fund - equity securities 50,000

Unrealized gain - P/L
 Retained earnings 62,500
Appropriated retained earnings

On March 1, 2022, the investment in equity securities is sold for P500,000.

Transaction costs amount to P100,000
2022 Mar. 1 Sinking fund - cash 400,000
Sinking fund - equity securities
Gain on sale

Retained earnings 50,000

Appropriated retained earnings

On December 31,2022, investment in bond matures.

2022 Sinking fund - cash 500,000
Sinking fund - debt securities

On January 1, 2023, the sinking fund is used to retire the related bonds
payable with the face amount of P1,000,000 and accrued interest of P120,000.
2023 Jan. 1 Bonds payable 1,000,000
Interest payable 120,000
Sinking fund - cash

Cash (1,162,500 - 1,120,000) 42,500

Sinking fund - cash

Appropriated retained earnings 1,162,500

Retained earnings

Illustration 2: Sinking fund administered by a trustee

On January 1, 2021, ABC Company established a P1,000,000 sinking fund in
connection with issuance of bonds payable.
Established of sinking fund
2021 Jan. 1 Sinking fund - trustee 1,000,000
Cash

On Dec. 31, 2021, ABC Company receives a statement of fund balance from
the trusteee. The balance of the fund is P1,062,500.
2021 Dec. 31 Sinking fund - trustee 62,500
Investment income

On Dec. 31, 2022, ABC Company received a statement of fund balance from
trustee. The balance of fund is P1,162,500.
2022 Sinking fund - trustee (1,162,500 - 1,062,500) 100,000
Investment income

On Jan. 1, 2023, ABC receives a notice of settlement of the related bonds with
face amount of P1,000,000 and accrues interest of P120,000.
2023 Jan. 1 Bonds payable 1,000,000
Interest repayable 120,000
Sinking fund - trustee

Cash 42,500
Sinking fund - trustee
nking fund
arnings is
ll administer

1,000,000

1,000,000

securities for

300,000

at face amount

500,000

ar is P12,500.

12,500

50,000
 62,500

or P500,000.

350,000
50,000

50,000

500,000

ed bonds
est of P120,000.

1,120,000

42,500

1,162,500

nking fund in
 1,000,000

balance from

62,500

balance from

100,000

ated bonds with

1,120,000

42,500