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FAR OCAMPO/OCAMPO
FAR.3321-Investments in Equity Instruments –
Financial Assets at Fair Value OCTOBER 2022

DISCUSSION PROBLEMS
Use the following information for the next two questions. c. Contractual rights to receive cash or another
financial asset from another entity.
On Jan. 1, 2022, Totga Co. purchased 20,000 ordinary
d. Contractual rights to exchange financial assets or
shares of FZ Co. at P100 per share. At the time of the
financial liabilities with another entity under
purchase, FZ Co. had 100,000 ordinary shares
conditions that are potentially favorable to the
outstanding. For the year ended Dec. 31, 2022, FZ Co.
entity.
reported profit of P2,400,000 and paid cash dividends of
P600,000. The shares of FZ are selling at P110 per share
4. An investment in equity instrument may not be
on Dec. 31, 2022.
classified as a financial asset subsequently measured
at
Totga is entitled to appoint two directors to the board,
a. Fair value through profit or loss
which consists of eight members. The remaining of the
b. Fair value through other comprehensive income
voting rights are held by two other companies, each of
c. Amortized cost
which is entitled to appoint three directors. The board
d. None of the above
makes decisions on the basis of simple majority. Because
board meetings are often held at very short notice, Totga
5. At initial recognition, an entity may make an
does not always have representation on the board. Often
irrevocable election to present in other comprehensive
the suggestions of the representative of Totga are ignored,
income subsequent changes in the fair value of an
and the decisions of the board seem to take little notice of
investment in an equity instrument that is
any representations made by the director from Totga.
a. Acquired principally for the purpose of selling it in
the near term.
1. Significant influence is
b. On initial recognition is part of a portfolio of
a. The power to participate in the financial and
identified financial instruments that are managed
operating policy decisions of the investee but is not
together and for which there is evidence of a
control or joint control over those policies.
recent actual pattern of short-term profit-taking.
b. Deemed to exist when the investor is exposed, or
c. A derivative.
has rights, to variable returns from its involvement
d. None of these.
with the investee and has the ability to affect those
returns through its power over the investee. 6. All investments in equity instruments and contracts on
c. The contractually agreed sharing of control of an those instruments must be measured at fair value.
arrangement, which exists only when decisions Cost may be an appropriate estimate of fair value in
about the relevant activities require the unanimous which of the following?
consent of the parties sharing control. a. Insufficient more recent information is available to
d. The power to govern the financial and operating measure fair value.
policies of an entity so as to obtain benefits from b. There is a wide range of possible fair value
its activities. measurements and cost represents the best
estimate of fair value within that range.
2. The carrying amount of the investment in FZ Co. as of c. Investments in quoted equity instruments.
Dec. 31, 2022 should be d. Either a or b.
a. P2,200,000 c. P2,360,000
b. P2,000,000 d. P2,480,000 LECTURE NOTES:

LECTURE NOTES: Financial Assets Measurement Summary

Accounting for Investments in Ordinary Shares Classification Initial Subsequent Change in FV

Summary FA@FVTPL FV FV P/L
FA@FVTOCI FV + TC FV OCI (Equity)
Level of FA@AC FV + TC AC Ignore
Influence Investment Method Standard
Little or Financial Fair value PFRS 9
none asset PAS 32 7. An entity acquired an investment in equity instrument
PFRS 7 for P800,000 on Mar. 31, 2022. The direct acquisition
Significant Investment Equity PAS 28 costs incurred were P140,000.
in Associate
Control Investment Consolidation PFRS 10 On Dec. 31, 2022 the fair value of the instrument was
in Subsidiary P1,100,000 and the transaction costs that would be
Joint Investment Equity PAS 28 incurred on sale were estimated at P120,000.
control in Joint If the investment is designated as FA at FVTOCI, what
Venture amount of gain would be recognized in the financial
statements for the year ended Dec. 31, 2022?
3. Investments in equity instruments are financial assets a. Nil c. P420,000
because they are b. P40,000 d. P160,000
a. Cash equivalents.
b. Equity instruments of another entity.

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EXCEL PROFESSIONAL SERVICES, INC.

Use the following information for the next two questions. 13. For the year ended Dec. 31, 2021, an entity reported
opening retained earnings of P1,850,000 and
On its Dec. 31, 2021, balance sheet, an entity
cumulative unrealized gains recorded as reserves of
appropriately reported a P4,000 credit balance in its
P25,000. These gains are from an investment with an
Market Adjustment-Trading Securities account. There was
original cost of P100,000 and a fair value of P125,000.
no change during 2022 in the composition of the entity’s
The entity’s policy is to value all investments at fair
portfolio of trading securities. Pertinent data are as
value with unrealized gains and losses included in
follows:
reserves. The entity’s accounting policy is that when
Fair Value an investment is sold, the reserve amount is
Security Cost 12/31/22 transferred to retained earnings. During 2022, one-half
A P120,000 P126,000 of the investment was sold. The remaining investment
B 90,000 80,000 increased in value to P70,000. A second investment
C 160,000 157,000 was bought for P150,000 and its fair value had
P370,000 P363,000 increased to P165,000 by the end of 2022. What is the
reserve balance at Dec. 31, 2022?
8. The credit balance in the account Market Adjustment--
a. P27,500 c. P45,000
Trading Securities at Dec. 31, 2021 should be
b. P35,000 d. P60,000
interpreted as
a. The net unrealized holding gain for 2021.
14. On June 1, 2022, Ping Corp. purchased 10,000 of
b. The net realized holding loss for 2021.
Pong’s 50,000 outstanding ordinary shares at a price
c. The net unrealized holding gain to date.
of P6.00 per share. Pong had earnings of P3,000 per
d. The net unrealized holding loss to date.
month during 2022 and paid dividends of P10,000 on
Mar. 1, 2022 and P12,500 on Dec. 1, 2022. The fair
9. What amount of loss on these securities should be
value of Pong’s shares was P6.50 per share on Dec.
included in the entity’s income statement for the year
31, 2022.
ended Dec. 31, 2022?
a. P11,000 c. P3,000 Which statement is correct?
b. P 7,000 d. P0 a. Assuming that the investment is FVTPL, the total
effect on Ping’s profit or loss for the year ended
Dec. 31, 2022 is P2,500.
Use the following information for the next two questions. b. Assuming that the investment is FVTOCI, the total
effect on Ping’s profit or loss for the year ended
Pompey Inc. carries the following marketable equity
Dec. 31, 2022 is P7,500.
securities on its books at Dec. 31, 2021 and 2022. All
c. Assuming that the investment is an associate, the
securities were purchased during 2021.
total effect on Ping’s profit or loss for the year
FA at FVTPL: ended Dec. 31, 2022 is P3,600.
Cost Fair value d. After all closing entries for 2022 are completed, the
12/31/21 12/31/22 effect of the increase in fair value on total
P Company P 500,000 P 260,000 P 400,000 shareholders' equity would be the same amount
R Company 260,000 400,000 400,000 under the FVTOCI and FVTPL approaches.
T Company 700,000 600,000 500,000
Total P1,460,000 P1,260,000 P1,300,000 15. On Jan. 1, 2021, Lallo Company purchased 15% of
Vintar Company’s ordinary shares for P20,000,000.
FA at FVTOCI: The following data concerning Vintar Company are
Cost Fair value available:
12/31/21 12/31/22 2021 2022
C Company P4,100,000 P3,600,000 P3,600,000 Net income P6,000,000 P7,000,000
I Company 1,000,000 1,200,000 1,400,000 Cash dividend paid None 15,000,000
Total P5,100,000 P4,800,000 P5,000,000
In its income statement for the year ended Dec. 31,
2022, how much should Lallo report as income from
10. The net amount to be recognized in 2022
this investment?
comprehensive income is
a. P2,250,000 c. P700,000
a. P240,000 gain c. P260,000 loss
b. P1,950,000 d. P600,000
b. P200,000 gain d. P 60,000 loss
16. Lasam Company received dividends from its
11. The net unrealized gain/loss at Dec. 31, 2022 in
investments in ordinary shares during the current
accumulated other comprehensive income in
period as follows:
shareholders' equity is
a. A share dividend of 20,000 shares from A
a. P260,000 loss c. P100,000 loss
Company when the market price of A’s shares was
b. P200,000 gain d. P 40,000 gain
P30 per share.
b. A cash dividend of P2,000,000 from B Company in
12. PFRS 9 permits an entity to make an irrevocable which Lasam owns a 20% interest.
election to present in other comprehensive income c. A cash dividend of P1,500,000 from C Company in
changes in the fair value of an investment in an equity which Lasam owns a 10% interest.
instrument. Amounts presented in other d. 10,000 ordinary shares of D Company in lieu of
comprehensive income cash dividend of P20 per share. The market price
a. May be subsequently transferred to profit or loss. of D Company’s shares was P180. Lasam holds
b. Shall be subsequently transferred to retained originally 100,000 ordinary shares of D Company.
earnings. Lasam owns 5% interest in D Company.
c. Either a or b. e. A liquidating dividend of P2,000,000 from E
d. Neither a nor b. Company. Lasam owns a 5% interest in E
Company.

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EXCEL PROFESSIONAL SERVICES, INC.
f. A dividend in kind of one ordinary share of X
Company for every 5 ordinary shares of F
Company held. Lasam holds 200,000 F Company
shares which have a market price of P50 per share.
The market price of X Company’s ordinary share is
P30 per share.
What amount of dividend income should Lasam report
in its current period income statement?
a. P4,500,000 c. P6,300,000
b. P5,700,000 d. P5,900,000
17. Dividends are recognized in profit or loss only when:
a. The entity’s right to receive payment of the
dividend is established.
b. It is probable that the economic benefits
associated with the dividend will flow to the entity.
c. The amount of the dividend can be measured
reliably.
d. All of the above.
Use the following information for the next two questions.
Pamplona Corp. owns 1,000,000 shares of Penablanca
Corp.’s 5,000,000 shares of P50 par, 10% cumulative,
nonparticipating preference shares. During 2022
Penablanca declared and paid dividends of P40,000,000 on
preference shares. No dividends had been declared or paid
during 2021.
18. What amount should Pamplona report as dividend
income in its 2022 income statement?
a. P5,000,000 c. P10,000,000
b. P8,000,000 d. Nil
19. How should Pamplona report the 2021 dividend in
arrears that was received in 2022?
a. As a reduction in cumulative preferred dividends
receivable.
b. As a retroactive change of the prior period financial
statements.
c. Include, net of income taxes, after 2022 income
from continuing operations.
d. Include in 2022 income from continuing
operations.
20. On Jan. 2, 2022, Theodora Corp. purchased 40,000
shares of Byzantine, Inc. stock at P100 per share.
Brokerage fees amounted to P120,000. A P5 dividend
per share of Byzantine, Inc. shares had been declared
on Dec. 15, 2021, to be paid on Mar. 31, 2022 to
shareholders of record on Jan. 31, 2022. The shares
are designated as FVTOCI. On Dec. 31, 2022 the
investment has a fair value of P4,200,000. How much
should be recognized in the 2022 other comprehensive
income related to these securities?
a. P400,000 c. P200,000
b. P280,000 d. P 80,000
21. On Jan. 2, 2022, Gamu Corp. purchased as a long
term investment 10,000 ordinary shares of Ilagan
Corporation for P70 per share, which represents a 1%
interest. On July 1, Ilagan Corporation declared its
annual dividend on its ordinary shares of P5 per share
payable on Aug. 1 to shareholder’s of record at July
25, 2022. On July 20, 2022 Gamu needed additional
cash for operations and sold all 10,000 shares Ilagan
for P100 per share.
For the year ended Dec. 31, 2022, Gamu should report
on its income statement a gain on disposal of
a. P300,000 c. P175,000
b. P210,000 d. P250,000
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22. What is the principle for recognition of a financial asset
in PFRS 9?
a. A financial asset is recognized when, and only
when, it is probable that future economic benefits
will flow to the entity and the cost or value of the
instrument can be measured reliably.
b. A financial asset is recognized when, and only
when, the entity obtains control of the instrument
and has the ability to dispose of the financial asset
independent of the actions of others.
c. A financial asset is recognized when, and only
when, the entity obtains the risks and rewards of
ownership of the financial asset and has the ability
to dispose of the financial asset.
d. A financial asset is recognized when, and only
when, the entity becomes a party to the
contractual provisions of the instrument.
23. A regular way purchase or sale is a purchase or sale of
a financial asset under a contract whose terms require
delivery of the asset within the time frame established
generally by regulation or convention in the
marketplace concerned. Which statement is incorrect
regarding regular way purchase or sale of a financial
asset?
a. A regular way purchase or sale of financial assets
is recognized and derecognized using either trade
date or settlement date accounting. The choice of
method is an accounting policy.
b. Under trade date accounting, the financial asset is
recognized and derecognized on the date the entity
commits to the purchase or sale.
c. Under settlement date accounting, the financial
asset is recognized and derecognized on the date it
is delivered.
d. For purposes of regular way accounting, assets
held for trading and designated at fair value
through profit or loss form one category.
24. On June 29, 2022, an entity commits itself to purchase
investment in shares to be classified as FA at FVTPL for
P100,000, its fair value on commitment (trade) date.
This financial asset has a fair value of P101,000 and
P101,500 on June 30, 2022 (the entity’s financial year-
end), and July 2, 2022 (settlement date), respectively.
In the marketplace concerned, the time frame for
delivery of the asset or payment of liability is
transaction date plus 3 days (“T+3”).
Which statement is correct?
a. The transaction is not a regular way purchase.
b. If the entity applies the trade date accounting
method, the entity will recognize a gain of P1,500
on July 2, 2022.
c. If the entity applies the settlement date accounting
method, the entity will recognize the financial
asset at P100,000 on July 2, 2022.
d. If the entity applies the settlement date accounting
method, the entity will recognize a gain of P500 on
July 2, 2022.
FAR.3321
EXCEL PROFESSIONAL SERVICES, INC.

SOLUTION GUIDE: c. The change in value is not recognized for

investments in equity instruments measured at fair
TRADE DATE ACCOUNTING value through other comprehensive income.
d. In the same way as it accounts for the acquired
June 29, 2022
asset.
Equity investment – FVTPL P100,000
Due to broker P100,000
June 30, 2022 Use the following information for the next two questions.
Equity investment - FVTPL P1,000
On Dec. 28, 2022 (trade date), Francis Corp. enters into a
FV adj. gain-P/L P1,000
contract to sell investment in shares classified as FA at
July 2, 2022 FVTOCI for its current fair value of P303,000. The asset
Equity investment - FVTPL P 500 was acquired a year ago and its cost was P300,000. On
Due to broker 100,000 Dec. 31, 2022 (financial year-end), the fair value of the
Cash P100,000 asset is P303,600. On Jan. 5, 2023 (settlement date), the
FV adj. gain-P/L 500 asset's fair value is P303,900.

SETTLEMENT DATE ACCOUNTING 26. If Francis uses the trade date method to account for
regular way sales of its securities, the net amount to
June 29, 2022 be recognized in 2022 comprehensive income is
Memo entry a. P3,900 c. P3,000
June 30, 2022 b. P3,600 d. P 0
Due from broker P1,000
FV adj. gain-P/L P1,000 SOLUTION GUIDE:

July 2, 2022 Dec. 28, 2022

Equity investment - FVTPL P101,500 Equity investment – FVTOCI P3,000
Cash P100,000 FV adj. gain – OCI P3,000
Due from broker 1,000 Due from broker P303,000
FV adj. gain-P/L 500 Equity investment - FVTOCI P303,000

Dec. 31, 2022

LECTURE NOTES: No entry
Summary of recognition and derecognition in a regular way Jan. 5, 2023
purchase and sale of financial assets: Cash P303,000
Trade Date Settlement Date Due from broker P303,000
Recognize Commitment Delivery date
date
Derecognize Commitment Delivery date 27. If Francis uses the settlement date method to account
date for regular way sales of its securities, the net amount
Change in FV from to be recognized in 2023 comprehensive income is
trade date to a. P3,900 c. P3,000
settlement date b. P3,600 d. P 0
(for FA measured
at FV): SOLUTION GUIDE:
Purchase Recognize Recognize Dec. 28, 2022
Sale Ignore Ignore Equity investment – FVTOCI P3,000
FV adj. gain – OCI P3,000
Regular way purchase - Initial measurement
Memo entry - sale
Dec. 31, 2022
No entry
Jan. 5, 2023
Cash P303,000
Equity investment - FVTOCI P303,000

28. If an entity derecognized investments in equity

25. When settlement date accounting is applied, how
should an entity account for any change in the fair
value of the asset to be received during the period
between the trade date and the settlement date?
a. The change in value is recognized for all financial
assets.
b. The change in value is not recognized for all
financial assets.
instruments measured at fair value through other
comprehensive income during the reporting period,
PFRS 7 requires disclosure of
a. The reasons for disposing of the investments.
b. The fair value of the investments at the date of
derecognition.
c. The cumulative gain or loss on disposal.
d. All of these.
J - end of FAR.3321 - J

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