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FAR OCAMPO/OCAMPO
FAR.3521-Investments in Equity Instruments –
Financial Assets at Fair Value OCTOBER 2023

DISCUSSION PROBLEMS
1. Significant influence is Use the following information for the next three questions.
a. The power to participate in the financial and
The following information pertains to investment in
operating policy decisions of the investee but is not
ordinary shares of Entity X:
control or joint control over those policies.
• Dec. 1, 2022 - acquired ordinary shares of Entity A for
b. Deemed to exist when the investor is exposed, or
P200,000. The transaction costs paid were P3,000.
has rights, to variable returns from its involvement
• Dec. 31, 2022 - the fair value of the investment was
with the investee and has the ability to affect those
P208,000 and the transaction costs that would be
returns through its power over the investee.
incurred on sale were estimated at P3,200.
c. The contractually agreed sharing of control of an • Mar. 31, 2023 - sold the investment for its fair value of
arrangement, which exists only when decisions P220,000. The transaction costs paid were P3,300.
about the relevant activities require the unanimous
consent of the parties sharing control. 4. Compute for the net amount to be recognized in 2022
d. The power to govern the financial and operating profit or loss.
policies of an entity so as to obtain benefits from a. P1,800 c. P5,000
its activities. b. P4,800 d. P8,000
LECTURE NOTES: 5. Compute for the gain on sale of investment on Mar.
Accounting for Investments in Ordinary Shares 31, 2023.
Summary a. P 8,700 c. P12,000
b. P11,900 d. P15,200
Level of
Influence Investment Method Standard 6. If the entity designated the investment as FVTOCI,
Little or Financial Fair value PFRS 9 compute for the net amount to be recognized in 2023
none asset PAS 32 profit or loss.
PFRS 7 a. Nil c. P 8,700
Significant Investment Equity PAS 28 b. P(3,300) d. P12,000
in Associate
Control Investment Consolidation PFRS 10
in Subsidiary Use the following information for the next two questions.
Joint Investment Equity PAS 28
control in Joint On its Dec. 31, 2022, balance sheet, an entity
Venture appropriately reported a P4,000 credit balance in its
Market Adjustment-Trading Securities account. There was
no change during 2023 in the composition of the entity’s
Financial Assets Measurement Summary
portfolio of trading securities. Pertinent data are as
Classification Initial Subsequent Change in FV follows:
FA at FVTPL FV FV P/L Fair Value
FA at FVTOCI FV + TC FV OCI (Equity) Security Cost 12/31/23
FA at AC FV + TC AC Ignore A P120,000 P126,000
B 90,000 80,000
2. An investment in equity instrument may not be C 160,000 157,000
classified as a financial asset subsequently measured P370,000 P363,000
at
a. Fair value through profit or loss 7. The credit balance in the account Market Adjustment--
b. Fair value through other comprehensive income Trading Securities at Dec. 31, 2022 should be
c. Amortized cost interpreted as
d. None of these a. The net unrealized holding gain for 2022.
b. The net realized holding loss for 2022.
3. At initial recognition, an entity may make an c. The net unrealized holding gain to date.
irrevocable election to present in other comprehensive d. The net unrealized holding loss to date.
income subsequent changes in the fair value of an
investment in an equity instrument that is 8. What amount of loss on these securities should be
a. Acquired principally for the purpose of selling it in included in the entity’s income statement for the year
the near term. ended Dec. 31, 2023?
b. On initial recognition is part of a portfolio of a. P11,000 c. P3,000
identified financial instruments that are managed b. P 7,000 d. P0
together and for which there is evidence of a
recent actual pattern of short-term profit-taking.
c. A derivative.
d. None of these.

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TEAM PRTC

Use the following information for the next two questions. Which statement is correct?
a. Assuming that the investment is FVTPL, the total
Pompey Inc. carries the following marketable equity
effect on Ping’s profit or loss for the year ended
securities on its books at Dec. 31, 2022 and 2023. All
Dec. 31, 2023 is P2,500.
securities were purchased during 2022.
b. Assuming that the investment is FVTOCI, the total
FA at FVTPL: effect on Ping’s profit or loss for the year ended
Cost Fair value Dec. 31, 2023 is P7,500.
12/31/22 12/31/23 c. Assuming that the investment is an associate, the
P Company P 500,000 P 260,000 P 400,000 total effect on Ping’s profit or loss for the year
R Company 260,000 400,000 400,000 ended Dec. 31, 2023 is P3,600.
T Company 700,000 600,000 500,000 d. After all closing entries for 2023 are completed, the
Total P1,460,000 P1,260,000 P1,300,000 effect of the increase in fair value on total
shareholders' equity would be the same amount
FA at FVTOCI: under the FVTOCI and FVTPL approaches.
Cost Fair value
12/31/22 12/31/23 14. On Jan. 1, 2022, Lallo Company purchased 15% of
C Company P4,100,000 P3,600,000 P3,600,000 Vintar Company’s ordinary shares for P20,000,000.
I Company 1,000,000 1,200,000 1,400,000 The following data concerning Vintar Company are
Total P5,100,000 P4,800,000 P5,000,000 available:
2022 2023
9. The net amount to be recognized in 2023 Net income P6,000,000 P7,000,000
comprehensive income is Cash dividend paid None 15,000,000
a. P240,000 gain c. P260,000 loss
In its income statement for the year ended Dec. 31,
b. P200,000 gain d. P 60,000 loss
2023, how much should Lallo report as income from
this investment?
10. The net unrealized gain/loss at Dec. 31, 2023 in
a. P2,250,000 c. P700,000
accumulated other comprehensive income in
b. P1,950,000 d. P600,000
shareholders' equity is
a. P260,000 loss c. P100,000 loss
15. Lasam Company received dividends from its
b. P200,000 gain d. P 40,000 gain
investments in ordinary shares during the current
period as follows:
11. PFRS 9 permits an entity to make an irrevocable a. A share dividend of 20,000 shares from A
election to present in other comprehensive income Company when the market price of A’s shares was
changes in the fair value of an investment in an equity P30 per share.
instrument. Amounts presented in other b. A cash dividend of P2,000,000 from B Company in
comprehensive income which Lasam owns a 20% interest.
a. May be subsequently transferred to profit or loss. c. A cash dividend of P1,500,000 from C Company in
b. Shall be subsequently transferred to retained which Lasam owns a 10% interest.
earnings. d. 10,000 ordinary shares of D Company in lieu of
c. Either a or b. cash dividend of P20 per share. The market price
d. Neither a nor b. of D Company’s shares was P180. Lasam holds
originally 100,000 ordinary shares of D Company.
12. For the year ended Dec. 31, 2022, an entity reported Lasam owns 5% interest in D Company.
opening retained earnings of P1,850,000 and e. A liquidating dividend of P2,000,000 from E
cumulative unrealized gains recorded as reserves of Company. Lasam owns a 5% interest in E
P25,000. These gains are from an investment with an Company.
original cost of P100,000 and a fair value of P125,000. f. A dividend in kind of one ordinary share of X
The entity’s policy is to value all investments at fair Company for every 5 ordinary shares of F
value with unrealized gains and losses included in Company held. Lasam holds 200,000 F Company
reserves. The entity’s accounting policy is that when shares which have a market price of P50 per share.
an investment is sold, the reserve amount is The market price of X Company’s ordinary share is
transferred to retained earnings. During 2023, one-half P30 per share.
of the investment was sold. The remaining investment What amount of dividend income should Lasam report
increased in value to P70,000. A second investment in its current period income statement?
was bought for P150,000 and its fair value had a. P4,500,000 c. P6,300,000
increased to P165,000 by the end of 2023. What is the b. P5,700,000 d. P5,900,000
reserve balance at Dec. 31, 2023?
a. P27,500 c. P45,000 16. Dividends are recognized in profit or loss only when:
b. P35,000 d. P60,000 a. The entity’s right to receive payment of the
dividend is established.
b. It is probable that the economic benefits
13. On June 1, 2023, Ping Corp. purchased 10,000 of associated with the dividend will flow to the entity.
Pong’s 50,000 outstanding ordinary shares at a price c. The amount of the dividend can be measured
of P6.00 per share. Pong had earnings of P3,000 per reliably.
month during 2023 and paid dividends of P10,000 on d. All of the above.
Mar. 1, 2023 and P12,500 on Dec. 1, 2023. The fair
value of Pong’s shares was P6.50 per share on Dec.
31, 2023.

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Use the following information for the next two questions. 22. A regular way purchase or sale is a purchase or sale of
a financial asset under a contract whose terms require
Pamplona Corp. owns 1,000,000 shares of Penablanca
delivery of the asset within the time frame established
Corp.’s 5,000,000 shares of P50 par, 10% cumulative,
generally by regulation or convention in the
nonparticipating preference shares. During 2023
marketplace concerned. Which statement is incorrect
Penablanca declared and paid dividends of P40,000,000 on
regarding regular way purchase or sale of a financial
preference shares. No dividends had been declared or paid
asset?
during 2022.
a. A regular way purchase or sale of financial assets
is recognized and derecognized using either trade
17. What amount should Pamplona report as dividend
date or settlement date accounting. The choice of
income in its 2023 income statement?
method is an accounting policy.
a. P5,000,000 c. P10,000,000
b. Under trade date accounting, the financial asset is
b. P8,000,000 d. Nil
recognized and derecognized on the date the entity
commits to the purchase or sale.
18. How should Pamplona report the 2022 dividend in
c. Under settlement date accounting, the financial
arrears that was received in 2023?
asset is recognized and derecognized on the date it
a. As a reduction in cumulative preferred dividends
is delivered.
receivable.
d. For purposes of regular way accounting, assets
b. As a retroactive change of the prior period financial
held for trading and designated at fair value
statements.
through profit or loss form one category.
c. Include, net of income taxes, after 2023 income
from continuing operations.
23. On June 29, 2023, an entity commits itself to purchase
d. Include in 2023 income from continuing
investment in shares to be classified as FA at FVTPL for
operations.
P100,000, its fair value on commitment (trade) date.
This financial asset has a fair value of P101,000 and
19. On Jan. 2, 2023, Theodora Corp. purchased 40,000
P101,500 on June 30, 2023 (the entity’s financial year-
shares of Byzantine, Inc. stock at P100 per share.
end), and July 2, 2023 (settlement date), respectively.
Brokerage fees amounted to P120,000. A P5 dividend
In the marketplace concerned, the time frame for
per share of Byzantine, Inc. shares had been declared
delivery of the asset or payment of liability is
on Dec. 15, 2022, to be paid on Mar. 31, 2023 to
transaction date plus 3 days (“T+3”).
shareholders of record on Jan. 31, 2023. The shares
are designated as FVTOCI. On Dec. 31, 2023 the Which statement is correct?
investment has a fair value of P4,200,000. How much a. The transaction is not a regular way purchase.
should be recognized in the 2023 other comprehensive b. If the entity applies the trade date accounting
income related to these securities? method, the entity will recognize a gain of P1,500
a. P400,000 c. P200,000 on July 2, 2023.
b. P280,000 d. P 80,000 c. If the entity applies the settlement date accounting
method, the entity will recognize the financial
20. On Jan. 2, 2023, Gamu Corp. purchased as a long- asset at P100,000 on July 2, 2023.
term investment 10,000 ordinary shares of Ilagan d. If the entity applies the settlement date accounting
Corporation for P70 per share, which represents a 1% method, the entity will recognize a gain of P500 on
interest. On July 1, Ilagan Corporation declared its July 2, 2023.
annual dividend on its ordinary shares of P5 per share
payable on Aug. 1 to shareholders of record at July 25, SOLUTION GUIDE:
2023. On July 20, 2023 Gamu needed additional cash
for operations and sold all 10,000 shares Ilagan for TRADE DATE ACCOUNTING
P100 per share.
June 29, 2023
Equity investment – FVTPL P100,000
For the year ended Dec. 31, 2023, Gamu should report
Due to broker P100,000
on its income statement a gain on disposal of
a. P300,000 c. P175,000 June 30, 2023
b. P210,000 d. P250,000 Equity investment - FVTPL P1,000
FV adj. gain-P/L P1,000
21. What is the principle for recognition of a financial asset
in PFRS 9? July 2, 2023
a. A financial asset is recognized when, and only Equity investment - FVTPL P 500
when, it is probable that future economic benefits Due to broker 100,000
will flow to the entity and the cost or value of the Cash P100,000
instrument can be measured reliably. FV adj. gain-P/L 500
b. A financial asset is recognized when, and only
when, the entity obtains control of the instrument SETTLEMENT DATE ACCOUNTING
and has the ability to dispose of the financial asset June 29, 2023
independent of the actions of others. Memo entry
c. A financial asset is recognized when, and only
when, the entity obtains the risks and rewards of June 30, 2023
ownership of the financial asset and has the ability Due from broker P1,000
to dispose of the financial asset. FV adj. gain-P/L P1,000
d. A financial asset is recognized when, and only July 2, 2023
when, the entity becomes a party to the Equity investment - FVTPL P101,500
contractual provisions of the instrument. Cash P100,000
Due from broker 1,000
FV adj. gain-P/L 500

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LECTURE NOTES: SOLUTION GUIDE:

Summary of recognition and derecognition in a regular way
TRADE DATE ACCOUNTING
purchase and sale of financial assets:
Dec. 28, 2023
Trade Date Settlement Date
Equity investment – FVTOCI P3,000
Recognize Commitment Delivery date
FV adj. gain – OCI P3,000
date
Derecognize Commitment Delivery date Due from broker P303,000
date Equity investment - FVTOCI P303,000
Change in FV from
trade date to Dec. 31, 2023
settlement date No entry
(for FA measured
Jan. 5, 2024
at FV):
Cash P303,000
Purchase Recognize Recognize
Due from broker P303,000
Sale Ignore Ignore

Regular way purchase - Initial measurement

26. If Francis uses the settlement date method to account
for regular way sales of its securities, the net amount
to be recognized in 2024 comprehensive income is
a. P3,900 c. P3,000
b. P3,600 d. P 0

SOLUTION GUIDE:

SETTLEMENT DATE ACCOUNTING

Dec. 28, 2023
Equity investment – FVTOCI P3,000
FV adj. gain – OCI P3,000
24. When settlement date accounting is applied, how
should an entity account for any change in the fair Memo entry - sale
value of the asset to be received during the period Dec. 31, 2023
between the trade date and the settlement date? No entry
a. The change in value is recognized for all financial
assets. Jan. 5, 2024
b. The change in value is not recognized for all Cash P303,000
financial assets. Equity investment - FVTOCI P303,000
c. The change in value is not recognized for
investments in equity instruments measured at fair
value through other comprehensive income. 27. If an entity derecognized investments in equity
d. In the same way as it accounts for the acquired instruments measured at fair value through other
asset. comprehensive income during the reporting period,
PFRS 7 requires disclosure of
a. The reasons for disposing of the investments.
Use the following information for the next two questions. b. The fair value of the investments at the date of
derecognition.
On Dec. 28, 2023 (trade date), Francis Corp. enters into a c. The cumulative gain or loss on disposal.
contract to sell investment in shares classified as FA at d. All of these.
FVTOCI for its current fair value of P303,000. The asset
was acquired a year ago and its cost was P300,000. On J - end of FAR.3521 - J
Dec. 31, 2023 (financial year-end), the fair value of the
asset is P303,600. On Jan. 5, 2024 (settlement date), the
asset's fair value is P303,900.

25. If Francis uses the trade date method to account for

regular way sales of its securities, the net amount to
be recognized in 2023 comprehensive income is
a. P3,900 c. P3,000
b. P3,600 d. P 0

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