CPA REVIEW SCHOOL OF THE PHILIPPINES

Manila
FINANCIAL ACCOUNTING AND REPORTING VALIX/VALIX/ESCALA/SANTOS/DELA CRUZ
BATCH 92 OCTOBER 2022 CPALE

INVESTMENT IN ASSOCIATE

1. At the beginning of current the year, an entity purchased 40% of the outstanding ordinary shares of
another entity for P3,500,000 when the net assets of the investee amounted to P7,000,000. At acquisition
date, the carrying amounts of the identifiable assets and liabilities of the investee were equal to their fair
value, except for equipment whose fair value was P1,500,000 greater than carrying amount and inventory
whose fair value was P500,000 greater than cost. The equipment had a remaining life of 4 years and the
inventory was all sold during the current year. The investee reported net income of P4,000,000 and paid
P1,000,000 cash dividend during the current year.
1. What is the investment income for current year?
a. 1,350,000
b. 1,250,000
c. 1,600,000
d. 1,700,000
2. What is the carrying amount of the investment in associate at year-end?
a. 4,450,000
b. 4,350,000
c. 4,700,000
d. 4,850,000
2. At the beginning of current year, an entity acquired 40% of the outstanding ordinary shares of another
entity for P7,000,000 when the net assets of the investee amounted to P10,000,000. At acquisition date,
the carrying amounts of the identifiable assets and liabilities of the investee were equal to fair value,
except for land whose fair value was P2,000,000 greater than carrying amount and inventory whose fair
value was P1,500,000 greater than cost. The land was sold in the current year and the inventory was
unsold at year-end. During the current year, the investee reported net income P8,000,000, issued 10%
share dividend and paid cash dividend on P2,500,000.
1. What is the investment income for current year?
a. 3,200,000
b. 1,800,000
c. 1,000,000
d. 2,400,000
2. What is the carrying amount of the investment in associate at year-end?
a. 7,800,000
b. 7,000,000
c. 9,200,000
d. 8,400,000
3. At the beginning of current year, an entity acquired 40% of the ordinary shares of an associate for
P7,000,000. On such date, assets and liabilities of the investee were recorded at fair value and acquisition
showed that goodwill of P1,000,000 was acquired. The investee reported net income of P8,000,000 for
the current year. In December, the investee sold inventory costing P3,000,000 to the investor for
P5,000,000 and paid dividend of P2,000,000. The inventory remained unsold by the investor at year-end.
At the beginning of current year, the investee sold an equipment to the investor with carrying amount of
P2,500,000 for P4,000,000. The remaining life of the equipment is 5 years.
1. What amount of investment income should be reported for current year?
a. 1,920,000
b. 1,800,000
c. 3,200,000
d. 2,400,000
2. What amount should be reported as investment in associate at year-end?
a. 8,800,000
b. 8,120,000
c. 8,000,000
d. 7,120,000

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4. On January 1, 2022, an investor acquired 40% interest in the ordinary shares of an associate for
P6,000,000. No goodwill nor excess fair value resulted in the purchase. During 2022, the investor sold
inventory costing P1,500,000 to the associate for P2,000,000 cash. The inventory remained unsold by the
associate on December 31, 2022 but the inventory was sold during 2023. The investor used the perpetual
inventory system. The associate reported net income of P3,500,000 for 2022 and P5,000,000 for 2023.
No dividends were paid by the associate during 2022 and 2023.
1. What amount should be reported as investment income for 2022?
a. 1,400,000
b. 1,200,000
c. 1,600,000
d. 3,500,000
2. What is the carrying amount of the investment in associate on December 31, 2022?
a. 7,400,000
b. 7,200,000
c. 7,600,000
d. 6,000,000
3. What amount should be reported as investment income for 2023?
a. 2,000,000
b. 2,200,000
c. 1,800,000
d. 5,000,000
4. What is the carrying amount of the investment in associate on December 31, 2023?
a. 9,000,000
b. 9,400,000
c. 9,000,000
d. 8,000,000
5. An entity owned 100% of another entity’s preference shares and 20% of ordinary shares. The investee’s
share capital outstanding at year-end included P5,000,000 of 10% cumulative preference shares and
P10,000,000 of ordinary shares. The investee reported net income of P8,000,000 for the current year. No
dividend was declared for both preference and ordinary shares during the current year. What amount
should be reported as investment income for the current year?
a. 1,600,000
b. 1,500,000
c. 2,000,000
d. 1,000,000
6. On January 1, 2022, an entity acquired a 10% interest in an investee for P3,000,000. The investment was
accounted for under the cost method. During 2022, the investee reported net income of P4,000,000 and
paid dividend of P1,000,000.
On January 1, 2023, the entity acquired a further 15% interest in the investee for P8,500,000. On such
date, the carrying amount of the net assets of the investee was P36,000,000 and the fair value of the 10%
existing interest was P3,500,000. The fair value of the net assets of the investee is equal to carrying
amount. The investee reported net income of P8,000,000 for 2023 and paid dividend of P6,000,000 on
December 31, 2023.
1. What total amount of income should be recognized by the investor in 2023?
a. 2,000,000
b. 2,500,000
c. 1,500,000
d. 5,500,000
2. What is the carrying amount of the investment in associate on December 31, 2023?
a. 10,500,000
b. 12,500,000
c. 13,000,000
d. 10,000,000
End
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