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FAR
FAR.3522-Investments in Associates
DISCUSSION PROBLEMS
1. PAS 28 defines an ‘associate’ as
a. An entity over which the investor has significant
influence.
b. An entity that controls one or more entities.
c. An entity that is controlled by another entity.
d. A joint arrangement whereby the parties that have
joint control of the arrangement have rights to the
net assets of the arrangement.
2. Which statement is incorrect regarding identification of
associates?
a. A holding of 20% or more of the voting power
(directly or through subsidiaries) will indicate
significant influence unless it can be clearly
demonstrated otherwise.
b. If the holding is less than 20%, the investor will be
presumed not to have significant influence unless
such influence can be clearly demonstrated.
c. Potential voting rights are a factor to be considered
in deciding whether significant influence exists.
d. A substantial or majority ownership by another
investor precludes an investor from having
significant influence.
3. The existence of significant influence by an investor is
usually evidenced in one or more of the following
ways:
I. Representation on the board of directors or
equivalent governing body of the investee.
II. Participation in the policy-making process.
III. Material transactions between the investor and
the investee.
IV. Interchange of managerial personnel.
V. Provision of essential technical information.
a. I, II, III, IV and V c. I, II and IV only
b. I, II, III and IV only d. I and II only
4. Which statement is incorrect regarding the equity
method of accounting for investment in associate?
a. The investment is initially recognized at cost.
b. The investor’s profit or loss includes its share of
the investee’s profit or loss and the investor’s
other comprehensive income includes its share of
the investee’s other comprehensive income.
c. Distributions received from the investee reduce the
carrying amount of the investment.
d. Change in fair value of the investment is
recognized in other comprehensive income.
LECTURE NOTES:
Equity method carrying amount computation
Cost P xx
Share of Profit of Ass. (SOPA) xx
Share of Loss of Ass. (SOLA) ( xx)
Share of OCI (SOCI) – Income xx
Share of OCI (SOCI) – Expense ( xx)
Distributions (Dividends) ( xx)
Additional investment xx
Disposal of investment ( xx)
Impairment ( xx)
Carrying amount P xx
Page 1 of 4 www.teamprtc.com.ph
OCAMPO/OCAMPO
OCTOBER 2023
5. On Jan. 2 of the current year, Tuao Corp. purchased
10% of Abulug Corp.’s outstanding ordinary shares for
P20,000,000. Tuao is the largest single shareholder in
Abulug and this gives Tuao the power to participate in
the financial and operating policy decisions of the
Abulug but is not control or joint control over those
policies. Abulug reported profit of P10,000,000 and
paid dividend of P4,000,000.
What should be the balance in Tuao’s investment in
Abulug Company at the end of the current year?
a. P20,000,000 c. P21,000,000
b. P20,600,000 d. P21,400,000
6. Kobe Corp. owns 50% of Lakers Corp.’s cumulative
preference shares and 30% of its ordinary shares.
Lakers’ shares outstanding at Dec. 31, 2023 include
P10,000,000 of 10% cumulative preference shares and
P40,000,000 of ordinary shares.
Lakers reported profit of P8,000,000 for the year
ended Dec. 31, 2023. Lakers declared and paid
P1,500,000 preference share dividends during 2023.
Lakers paid no preference share dividends during
2022.
How much is the total amount to be recognized by
Kobe Company in its 2023 profit or loss related to
these investments?
a. P2,450,000 c. P2,700,000
b. P2,600,000 d. P2,850,000
Use the following information for the next three questions.
Allapacan Company bought 20% of Amulung Corporation’s
ordinary shares on Jan. 1 of the current year for
P20,000,000. Carrying amount of Amulung’s net assets at
purchase date totaled P60,000,000. Fair value and
carrying amounts were the same for all items except for
plant and inventory, for which fair values exceed their
carrying amounts by P15,000,000 and P5,000,000
respectively. The plant has a 5-year life. All inventory was
sold during the current year. Goodwill, if any, has an
indefinite life. During the current year, Amulung reported
profit of P40,000,000 and paid P15,000,000 cash
dividends.
7. What amount should Allapacan report as investment
income for the current year?
a. P6,200,000 c. P6,400,000
b. P3,400,000 d. P7,600,000
8. Which statement is incorrect regarding goodwill and
negative goodwill arising on the acquisition of an
associate?
a. Goodwill is not recognized separately within the
carrying amount of the investment.
b. Negative goodwill should be included as income in
the determination of the investor’s share of the
associate’s profit or loss for the period.
c. Both a and b.
d. Neither a nor b.
FAR.3522
TEAM PRTC

9. If the purchase price is P15 million instead of P20 • In Dec. 2022, Intee sold inventory to Intor for
million, what amount should Allapacan report as P1,800,000. This inventory had cost Intee
investment income for the current year? P1,200,000. At Dec. 31, 2022, this inventory
a. P6,200,000 c. P6,400,000 remained unsold by Intor. However, it was all sold
b. P3,400,000 d. P7,400,000 by Intor in 2023.
Ignoring income tax, Intor company shall report a
10. Chu Corp. acquired a 40% interest in Wawa Corp. for
"share of profit of associate" in 2023 at
P1,700,000 on Jan. 1, 2023. The shareholders' equity
a. P200,000 c. P160,000
of Wawa Corp. on Jan. 1 and Dec. 31, 2023 is
b. P190,000 d. P140,000
presented below:
Jan. 1 Dec. 31
Share capital 3,000,000 3,000,000 Use the following information for the next two questions.
Revaluation surplus - 1,300,000
Retained earnings 1,000,000 1,500,000 On July 1, 2019, Cleopatra Corporation acquired 25% of
the shares of Marcus, Inc. for P1,000,000. At that date,
On Jan. 1, 2023, all the identifiable assets and the equity of Marcus was P4,000,000, with all the
liabilities of Wawa Corp. were recorded at fair value. identifiable assets and liabilities being measured at
Wawa Corp. reported profit before income tax of amounts equal to fair value. The table below shows the
P1,000,000 and paid dividends of P150,000 to profits and losses made by Marcus during 2019 to 2023:
shareholders during the current year. Year Profit (Loss)
2019 P 200,000
The revaluation surplus is the result of the revaluation
2020 (2,000,000)
of land recognized by Wawa on Dec. 31, 2023. Wawa
2021 (2,500,000)
presents OCI net of applicable income tax.
2022 160,000
Additionally, depreciation is provided by Wawa on the
2023 300,000
diminishing balance method whereas Chu uses the
straight-line. Had Wawa used the straight line, the
13. How much ‘share of profit of associate’ should
accumulated depreciation would be increased by
Cleopatra report in its 2022 profit or loss?
P200,000. The tax rate is 35%. Chu should report its
a. Nil c. P 60,000
investment in associate on Dec. 31, 2023 at
b. P40,000 d. P100,000
a. P2,560,000 c. P2,290,000
b. P2,420,000 d. P2,238,000
14. How much ‘share of profit of associate’ should
Cleopatra report in its 2023 profit or loss?
11. Which statement is incorrect regarding the application
a. Nil c. P60,000
of the equity method of accounting for investments in
b. P15,000 d. P75,000
associates?
a. Many of the procedures that are appropriate for
the application of the equity method are similar to
Use the following information for the next five questions.
the consolidation procedures described in PFRS 10.
b. When the end of the reporting period of the entity An investor has the following accounts with an associate:
is different from that of the associate, the
Investment in ordinary shares P5,000,000
associate prepares, for the use of the entity,
Investment in preference shares 2,000,000
financial statements as of the same date as the
Accounts receivable 200,000
financial statements of the entity unless it is
Loans receivable - unsecured 1,000,000
impracticable to do so.
Loans receivable - secured 500,000
c. The entity’s financial statements shall be prepared
using uniform accounting policies for like
15. The investor’s interest in an associate for purposes of
transactions and events in similar circumstances.
recognizing its share of losses of an associate is
d. Gains and losses resulting from ‘upstream’ and
a. The carrying amount of the investment in the
‘downstream’ transactions, between an entity and
associate determined using the equity method.
its associate are not recognized in the entity’s
b. Any long-term interests that, in substance, form
financial statements.
part of the entity’s net investment in the associate.
c. Both a and b.
12. Intor Corp. acquired 20% of the ordinary shares of
d. Higher of a and b.
Intee Corp. on Jan. 1, 2022. At this date, all the
identifiable assets and liabilities of Intee were recorded
16. An item for which settlement is neither planned nor
at fair value. An analysis of the acquisition showed that
likely to occur in the foreseeable future is, in
P200,000 of goodwill was acquired. Intee recorded a
substance, an extension of the entity’s investment in
profit of P1,000,000 for 2023 and paid dividend of
that associate. Such items include
P700,000 during the same year.
a. Preference shares c. Secured loans
b. Trade receivables d. None of these
The following transactions have occurred between the
two entities.
17. The investor’s ‘interest in associate’ is
• In Dec. 2023, Intee sold inventory to Intor for
a. P5,000,000 c. P8,000,000
P1,500,000. This inventory had previously cost
b. P7,000,000 d. P8,500,000
Intee P1,000,000 and remains unsold by Intor on
Dec. 31, 2023.
• In Nov. 2023, Intor sold inventory to Intee at a
before tax profit of P300,000. Half of this was sold
by Intee before Dec. 31, 2023.

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TEAM PRTC
18. How are losses recognized using the equity method in
excess of the entity’s investment in ordinary shares
applied to the other components of the entity’s interest
in an associate?
a. In the order of their seniority (ie priority in
liquidation).
b. In the reverse order of their seniority (ie priority in
liquidation).
c. Pro rata on the basis of their carrying amounts.
d. Pro rata on the basis of their fair values.
19. If the ‘share of loss of associate’ recognized is
P7,500,000, the amount to be credited to Investment
in preference shares is
a. P2,000,000 c. P1,666,667
b. P1,875,000 d. Nil
20. Which statement is incorrect regarding impairment of
investment in associate?
a. The net investment in an associate is impaired and
impairment losses are incurred if, and only if, there
is objective evidence of impairment.
b. Losses expected as a result of future events, no
matter how likely, are not recognized.
c. A significant or prolonged decline in the fair value
of an investment below its cost is objective
evidence of impairment.
d. If there is an indication that the investment is
impaired, full lifetime expected credit losses are
recognized in accordance with PFRS 9.
21. Which statement is incorrect regarding discontinuing
the use of equity method?
a. An entity shall discontinue the use of the equity
method from the date when its investment ceases
to be an associate.
b. If the retained interest in the former associate is a
financial asset, the entity shall measure the
retained interest at fair value.
c. The fair value of the retained interest shall be
regarded as its fair value on initial recognition as a
financial asset in accordance with PFRS 9.
d. If an investment in an associate becomes an
investment in a joint venture, the entity
discontinues to apply the equity method and
measures the retained interest at fair value.
Use the following information for the next four questions.
Santo, Inc. acquired 30% of Nino Corp.'s voting stock on
Jan. 1, 2022 for P360,000. During 2022, Nino earned
P150,000 and paid dividends of P90,000. Santo's 30%
interest in Nino gives Santo the ability to exercise
significant influence over Nino's operating and financial
policies. During 2023, Nino earned P180,000 and paid
dividends of P60,000 on Apr. 1 and P60,000 on Oct. 1.
On July 1, 2023, Santo sold half of its stock in Nino for its
fair value of P237,000. Thereafter, Santo, Inc. designated
the investment as FVTOCI. The remaining shares of Nino
Corp. held by Santo, Inc. have a fair value of P220,000 at
Dec. 31, 2023.
22. The gain on sale of investment is
a. P57,000 c. P43,500
b. P48,000 d. P39,000
23. The gain on remeasurement of the retained investment
is
a. P57,000 c. P43,500
b. P48,000 d. Nil
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24. How much is the total amount to be recognized in
Santo, Inc.’s 2023 profit or loss related to this
investment?
a. P 87,000 c. P123,000
b. P114,000 d. P158,500
25. Assume that 50% of the investment was classified as
held for sale in accordance with PFRS 5 on Dec. 31,
2022 and that the fair value of the investment was
P390,000 on that date while costs to sell are
immaterial. On Dec. 31, 2022, the portion of the
investment held for sale and the retained portion of
the investment should be measured at
Held for sale Retained
a. P180,000 P180,000
b. P189,000 P189,000
c. P189,000 P195,000
d. P195,000 P195,000
LECTURE NOTES:
Investment in associate classified as ‘held for sale’
Use the following information for the next two questions.
Entity A has a 10% interest in Entity B, which it acquired in
2020 for P300,000. This investment was a financial asset
measured at fair value in accordance with PFRS 9. In Mar.
2023, Entity A acquires a further 15% interest in Entity B
for P720,000 (its then fair value), giving Entity A
significant influence over Entity B. Transaction costs of
P50,000 were incurred for the 15% interest. The original
10% interest had a fair value of P480,000 at that date.
26. If the entity used the ‘fair value as deemed cost
approach’ in accordance with PIC Q&A No. 2019-06,
the ‘cost’ of the investment in associate is
a. P1,020,000 c. P1,200,000
b. P1,070,000 d. P1,250,000
27. If the entity used the ‘accumulated cost approach’ in
accordance with PIC Q&A No. 2019-06, the ‘cost’ of the
investment in associate is
a. P1,020,000 c. P1,200,000
b. P1,070,000 d. P1,250,000
Use the following information for the next three questions.
On Jan. 2, 2022, Maco, Inc. acquired a 15% interest in
Nacon Corp. by paying P2,000,000 for 10,000 ordinary
shares. On this date, the net assets of Nacon Corp. totaled
P12,000,000. The fair values of Nacon Corp.’s identifiable
assets and liabilities were equal to their book values. The
investment in Nacon Corp. is classified as FVTOCI.
On Jan. 1, 2023, Maco paid P4,500,000 for 30,000
additional ordinary shares of Nacon, which represents a
25% interest in Nacon. The fair value of Nacon’s
identifiable net assets, was equal to their book values of
P13,000,000.
FAR.3522
TEAM PRTC
During 2022 and 2023 the following occurred:
Nacon’s Profit Dividends Paid by Nacon
2022 P2,000,000 P1,000,000
2023 5,000,000 1,500,000
The fair value of Maco's investment in Nacon securities is
as follows: Dec. 31, 2022, P2,700,000; Dec. 31, 2023,
P8,700,000.
28. The amount to be recognized in Maco’s 2022 profit or
loss related to this investment is
a. P850,000 c. P300,000
b. P700,000 d. P150,000
29. If the entity used the ‘fair value as deemed cost
approach’ in accordance with PIC Q&A No. 2019-06,
the carrying amount of the investment in Nacon as of
Dec. 31, 2023 is
a. P8,600,000 c. P7,900,000
b. P8,050,000 d. P6,500,000
30. If the entity used the ‘accumulated cost approach’ in
accordance with PIC Q&A No. 2019-06, the carrying
amount of the investment in Nacon as of Dec. 31,
2023 is
a. P8,600,000 c. P7,900,000
b. P8,050,000 d. P6,500,000
31. An entity need not apply equity method to its
investment in associate under which of the following?
a. The entity is a parent that is exempted from
preparing consolidated financial statements.
b. When the investment is held by, or is held
indirectly through, an entity that is a venture
capital organization, or a mutual fund, unit trust
and similar entities including investment-linked
insurance funds.
c. When the investment meets the criteria to be
classified as held for sale.
d. In any of these.
32. Which of the following conditions need to be met for an
investor to be exempt from applying the equity
method to its investment in an associate?
I. The investor is itself a wholly-owned subsidiary, or
is a partially-owned subsidiary of another entity
and its other owners, including those not otherwise
entitled to vote, have been informed about, and do
not object to, the investor not applying the equity
method.
II. The investor's debt or equity instruments are not
traded in a public market.
III. The investor did not file, nor is it the process of
filing, its financial statements with a securities
commission for the purpose of issuing any class of
instruments in a public market.
IV. The ultimate or any intermediate parent of the
investor produces financial statements available for
public use that comply with PFRSs, in which
subsidiaries are consolidated or are measured at
FVTPL in accordance with PFRS 10.
a. I, II, III and IV c. I only
b. I, II and III only d. II and III only
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33. When an investment in an associate is held by, or is
held indirectly through, an entity that is a venture
capital organization, or a mutual fund, unit trust and
similar entities including investment-linked insurance
funds, the entity
a. Shall account for its investment in an associate
using equity method.
b. Shall measure investments in those associates at
fair value through profit or loss in accordance with
PFRS 9.
c. May elect to measure investments in those
associates at fair value through profit or loss in
accordance with PFRS 9.
d. May elect to measure investments in those
associates at fair value through OCI in accordance
with PFRS 9.
34. Investment entity is an entity that:
a. Obtains funds from one or more investors for the
purpose of providing those investor(s) with
investment management services.
b. Commits to its investor(s) that its business
purpose is to invest funds solely for returns from
capital appreciation, investment income, or both.
c. Measures and evaluates the performance of
substantially all of its investments on a fair value
basis.
d. All of the above.
35. When an entity prepares separate financial statements,
it shall account for investments in associates
a. At cost.
b. In accordance with PFRS 9.
c. Using the equity method as described in PAS 28.
d. Any of the above.
36. Which statement is incorrect regarding presentation of
investments in associates?
a. The investor's share of the profit or loss of equity
method investments must be separately disclosed.
b. The investor's share of changes in the associate's
OCI is recognized in the investor’s OCI.
c. Equity method investments are presented as a
separate line item in the statement of financial
position.
d. Equity method investments are presented in the
statement of financial position either as current or
noncurrent.
37. Which statement is incorrect regarding disclosure of
investments in associates?
a. PAS 28 outlines the disclosures required for
entities with joint control of, or significant influence
over, an investee.
b. An entity shall disclose information about
significant judgements and assumptions it has
made (and changes in those judgements and
assumptions) in determining that it has significant
influence over another entity
c. An entity shall disclose the nature and effects of its
contractual relationship with the other investors
with significant influence over associates.
d. An entity shall disclose the nature of, and changes
in, the risks associated with its interests in
associates.
J - end of FAR.3522 - J
FAR.3522