Investment in Associates – Comprehensive Problem

Problem 1: On January 1,2023, Kratos Company acquired 30% of Zues Company for P5,000,000. An
analysis of the acquisition showed that there is an implied goodwill amounting to P500,000 were
recorded at the date of purchase.
In October 2023, Zues Company sold inventory to Kratos for P500,000. The cost of the inventory sold was
P300,000. The inventory was sold by Kratos in 2024.
In April 2024, the associates sold inventory to Kratos for P800,000. The cost of the inventory sold was
P700,000. The inventory was sold by Kratos in 2024
The following are the data regarding net income and dividends of Zues Company
2023 2024
Net income 1,000,000 300,000
Dividends 1,500,000 700,000
1. How much is the investment in associates on January 1,2023?
2. How much is the fair value of equity that was purchased by Kratos Company on January 1,2023?
3. How much is the investment income in 2023?
4. How much is the investment in associates on December 31,2023?
5. How much is the investment income in 2024?
6. How much is the investment in associates on December 31,2024?
Investment in Associates – Comprehensive Problem

Problem 2: On January 1,2023, Shadow Company acquired 20% interest of Fiend Company for
P2,000,000. The carrying amount of the net asset of Fiend at the same date is P15,000,000. The
inventory and equipment were not recorded at fair value during that date. The market value of inventory
is P1,000,000 greater than the cost while the market value of equipment is P1,500,000 less than the
cost. The inventory was sold on 2024. The useful life of the equipment is 3 years.
On January 1,2023, Shadow sold machine to Fiend for P3,000,000. The cost of the machine is
P2,000,000. The machine has a useful life of 5 years.
On April 1,2023, Shadow sold building to Fiend for P2,000,000. The cost of the building is P800,000.
Fiend applied 10% depreciation to the building per year on a straight-line basis.
On July 1,2023, Shadow sold inventory to Fiend for P3,000,000. The cost of the inventory was
P3,500,000. The inventory was still on hand of Fiend as of December 31,2023
1. How much is the initial recognition of the investment?
2. How much is the excess of cost over the acquisition cost?
3. How much is the excess of fair value over acquisition cost?
4. How much is the goodwill?
5. How much is the “Equity in earnings of the investee” for the year 2023?
6. How much is the carrying amount on December 31,2023?
7. How much is the “Equity in earnings of the investee” for the year 2024?
8. How much is the carrying amount on December 31,2024?
Investment in Associates – Comprehensive Problem

Problem 3: Long Problem Company purchased 10% equity instrument of Ocakes Company for
P1,000,000 on January 1,2023. The investee declared and paid a total of 300,000 dividends on March
1,2023. Long Problem purchased additional 5% for P600,000 on April 1,2023. The market value of the old
investment as of that date is P1,100,000. Ocakes reported net income amounting to P1,000,000 in 2023.
The market value of the investment at December 31,2023 is P1,700,000
On February 1,2024, Long Problem purchased additional shares that resulted to a total of 25%
ownership for P2,000,000. The market value of the old investment at January 1,2024 is P1,500,000 and
P1,800,000 on February 1,2024.
The carrying amount of the net asset of Ocakes at the date of purchase is P20,000,000. The fair market
value of inventory is P2,000,000 greater than the cost at the date of purchase, the land is also
overvalued amounting to P3,000,000. The inventory was sold in 2025, while the land was sold in 2024.
In 2024, Long Problem sold inventory to Ocakes for P3,000,000, the cost of the inventory is P2,000,000.
The inventory was sold by investee in 2025.
Ocakes declared P4,000,000 net income and P1,200,000 dividends in 2024.
On March 1,2025, Long Problem sold half of the investment for P3,200,000. The remaining investment
was recorded as financial at fair value through profit or loss. The market value of the remaining
investment is P3,500,000.
Ocakes reported net income amounting to P3,400,000 during 2025 and declared dividends on May
1,2025 amounting to P500,000.
The market value of the remaining investment as of December 31,2025 is P3,600,000.
1. How much is the investment income on December 31,2023? P30,000
2. How much is the carrying amount on December 31,2023? P1,600,000
3. How much is the initial recognition of the investment in associates on February 1,2024?
P4,750,000
4. How much is the goodwill or the excess in fair value over the acquisition cost on February
1,2024? P950,000
5. How much is the investment income on December 31,2024? P2,525,000
6. How much is the carrying amount on December 31,2024? P5,825,000
7. How much is the cost of the investment before the disposal on March 1,2025? P5,925,000
8. How much is the income to be reported on 2025? P1,037,500
9. How much is the investment on December 31,2025? P3,600,000
Investment in Associates – Comprehensive Problem

Problem 4: Stop Company had 200,000 outstanding shares. Go Company purchased 50,000 shares for
P30 per share. Changes in retained earnings for Stop Company since the acquisition of Go Company are
as follows:

Retained Earnings(Deficit),January 1,2023 (400,000)

Net loss for 2023 (200,000)
Retained earnings(Deficit),December 31,2023 (600,000)
Net income for 2024 800,000
Cash dividend paid, 2024 (100,000)
Retained Earnings, December 31,2024 100,000
The market value of the equity as of December 31,2024 is P6,800,000
1. How much is the carrying amount of the investment in associates as of December 31,2024?
1,525,000
2. How much is the carrying amount of the investment as of December 31,2024, if Go Company
was not able to affect the policy making process of Stop Company? P1,500,000
Investment in Associates – Comprehensive Problem

Problem 5: On January 1,2023, Kaido Company purchased 20% of Shanks Company for P2,000,000. The
retained earnings of Shanks as of that date is P5,000,000. The following are the data of the shareholder’s
equity of Shanks at December 31,2023.
Share capital, P20 par value 6,000,000
Share Premium 3,000,000
Retained Earnings 7,000,000
There are no changes in the share capital and share premium during the year.
The market value of the net asset at December 31,2023 is P18,000,000.
1. How much is the Investment on January 1,2023? P2,800,000
2. How much is the investment on December 31,2023? P3,200,000
3. If the market value of the Net asset at December 31,2023 is P15,000,000. How much is the
investment on December 31,2023? P3,000,000
Investment in Associates – Comprehensive Problem

Problem 6: Last Problem Company purchased 30% of the shares of We Last Na Company for P2,000,000
on January 1,2023. The following are the information regarding the equity of the We Last Na Company
during the year
January 1 December 31
Share Capital 4,000,000 4,000,000
Revaluation Surplus 2,000,000
Loss on foreign currency adjustment (1,000,000)
Unrealized gain on OCI items 500,000
Retained earnings 1,000,000 3,000,000
The investee declared P500,000 dividends during the year.
1. How much is the Investment in associates on January 1,2023? P2,000,000
2. How much is the investment in associates on December 31,2023? P3,050,000