Investment Exercise

MULTIPLE CHOICE

1. Changes in fair value of this type of securities are accumulated as a separate component in the
stockholders' equity section of the balance sheet.
a. Financial assets measured at amortized cost
b. FVOCI securities
c. Held for trading securities
d. Designated financial assets

2. Which category includes only debt securities?

a. Financial assets measured at amortized cost
b. FVPL assets
c. Held for trading securities
d. FVOCI (election)

3. A correct valuation is
a. investment in equity securities at amortized cost.
b. held for trading securities at amortized cost.
c. debt securities, to be held until maturity to collect cash flows from principal and interests, at
fair value.
d. none of these.

4. Securities which could be classified as financial assets measured at amortized cost are
a. investment in stocks.
b. warrants.
c. municipal bonds.
d. treasury stock.

5. Which of the following is not correct regarding held for trading securities?
a. They are held to be sold in a short period of time.
b. Unrealized holding gains and losses are reported as part of profit or loss.
c. Any discount or premium is not amortized.
d. All of these are correct.

6. A debit balance in the “Fair Value Adjustment - FVOCI Securities” account at the end of a year
should be interpreted as
a. the net unrealized holding gain for that year.
b. the net realized holding gain for that year.
c. the net unrealized holding gain to date.
d. the net realized holding gain to date.

7. Information regarding Stone Co.’s portfolio of FVOCI securities is as follows:

Aggregate cost as of 12/31/03 170,000
 Unrealized gains as of 12/31/03 4,000
Unrealized losses as of 12/31/03 26,000
Net realized gains during 2003 30,000

At December 31, 2002, Stone reported an unrealized loss of ₱1,500 in other comprehensive income to
reduce these securities to market. Under the accumulated other comprehensive income in
stockholders’ equity section of its December 31, 2003 balance sheet, what amount should Stone report?
a. 26,000 c. 20,500
b. 22,000 d. 0

8. Caloy Co. bought 1,000 shares from Bayan Co. The shares have no active market, but an identical
or similar asset has an active market. The identical asset, however, has multiple markets. Caloy
determines that the identical asset has the following market values:
Market A Market B
Quoted price 500 600
Related transaction cost 25 150

How much is fair valuation of the investment?

a. 500,000 c. 450,000
b. 475,000 d. b or c

9. On January 1, 20x1, Allan Co. purchased ₱400,000 bonds for ₱392,000. The bonds mature on
January 1, 20x5 and pay 12% annual interest beginning January 1, 20x2. Transaction costs are
negligible. The bonds were classified as held for trading securities. On December 31, 20x1, the
bonds are selling at a yield rate of 10%. How much is the unrealized gain (loss) recognized on
December 31, 20x1?
a. 27,986
b. 31,298
c. 28,964
d. 33,359

10. On January 1, 20x1, Rizzi Co. purchased 12,000 shares of Andre, Inc. for ₱400,000. Commission
paid to broker amounted to ₱20,000. Management made an irrevocable choice to subsequently
measure the shares at fair value through other comprehensive income. On December 31, 20x1, the
shares were quoted at ₱40 per share. On January 3, 20x2, all of the shares were sold at ₱60 per
share. Commission paid on the sale amounted to ₱24,000. How much is the unrealized gain (loss)
recognized in profit or loss on December 31, 20x1?
a. (60,000)
b. 60,000
c. (80,000)
d. 0
PROBLEM SOLVING

A. On January 1, 20X1 ABC Co. acquired 2,000 shares of XYZ Inc at P10 per share. ABC incurred
P1,000 brokerage commission on the acquisition. On Dec 31, 20x1 the quoted price was P6 per
share. On January 5, 20X2 half of the shares were sold for P4 per share. Commission paid was
P200.

Requirements:
1. Journal entries assuming that:
a. The investment is classified as held for trading.
b. The investment is classified as FVOCI.
2. Under held for trading model, how much is the carrying value of the investment account at
Dec 31, 20x1?
3. Under the FVOCI model, how much is the carrying value of the investment account at Dec.
31, 20X1?

B. On January 1, 20x2, DEF Co. acquired a 14% P1,000,000 bonds from XYZ Inc for P1,060,747.
The bonds are classified as amortized cost financial assets. Interest is due annually every Jan
1. The effective rate is 12%.

Requirements:
1. Amortization table.
2. ALL journal entries from 20x2-20x5.
3. How much is the carrying value of the investment account at December 31, 20X3?
Intangible Assets Exercises

MULTIPLE CHOICE

1. Which of the following statements is correct?

a. Some intangible assets have physical substance.
b. Intangible assets are always classified as noncurrent assets even in cases where they are part
of a disposal group.
c. The process of recording the expiration of the economic benefits of an intangible asset is called
depletion.
d. Intangible assets can be obtained in one of two ways – external acquisition or internal
development.

2. Which of the following statements is true?

a. The capitalizable costs of patents are legal fees and other registration costs.
b. An identifiable tangible asset developed internally is never recognized in the accounts as an
asset.
c. Intangible assets usually have a residual value that must be considered in the amortization of
cost.
d. An intangible asset is usually amortized by a credit to an income account.

3. Intangible assets have all of the following characteristics, except:

a. their ownership confers rights, but no physical substance.
b. they have no physical substance.
c. they are relatively long-lived.
d. they provide benefits to current operations only.

4. Which of the following is not a consideration in determining the useful life of an intangible asset?
a. Cost
b. Legal, regulatory, or contractual provisions
c. Provisions for renewal or extension
d. Expected actions of competitors

5. A change in the amortization rate for an intangible asset should be accounted for
a. by retrospective restatement.
b. by retrospective application.
c. on a prospective basis.
d. on a current basis.

6. Sponge Co. incurred research and development costs in 20x1 as follows:

• Equipment acquired for use in various research and development projects 975,000
• Depreciation on the above equipment 135,000
• Materials used 200,000
• Compensation costs of personnel 500,000
 • Outside consulting fees 150,000
• Indirect costs appropriately allocated 250,000

The total research and development costs charge in Sponge's 20x1 statement of profit or loss should
be:
a. 850,000
b. 1,085,000
c. 1,235,000
d. 1,825,000

7. On January 1, 20x1, Devjo Co. bought a franchise from McDo Co. The franchise requires an initial
fee of ₱15,000,000 payable as follows: ₱5,000,000 down payment on contract date and the balance
in five equal annual installments starting one year from contract date plus 4% interest on the
outstanding principal balance. The current market rate as of contract date is 12%. How much is
the initial measurement of the intangible asset?
a. 14,887,922
b. 15,234,090
c. 13,765,340
d. 13,139,702

8. Joshua Bank (a NON-VAT registered entity) purchased an intangible asset from Tristan Co. for
$590,000 when the exchange rate was ₱1: $.0204. A 5% discount was available on the purchase.
Non-transferrable taxes paid amounted to 20% of the invoice price, net of the discount. A 12%
VAT was also paid based on the amount that is gross of the non-transferrable taxes. Installation
and testing costs amounted to ₱40,000. How much will be recorded as intangible asset?
a. 36,976,059
b. 33,010,598
c. 33,050,589
d. 36,967,059

9. Chair Leader Co. purchased a patent on January 1, 20x3 for ₱120,000. The patent had a remaining
useful life of 10 years at that date. In January of 20x4, Chair incurred ₱54,000 in acquiring another
patent that clearly extended the existing patent’s life to 12/31/15. What amount of amortization
expense would Chair record in 20x4?
a. 12,000
b. 13,500
c. 14,500
d. 18,000

10. During 20x1, King Co. incurred the following costs:

• Testing in search for process alternatives 720,000
• Costs of testing prototype and design modifications 500,000
• Modification of the formulation of a process 1,220,000
• Research and development services performed by Queen Corp. for King 650,000
 In King's 20x1 statement of profit or loss, research and development expense should be
a. 1,220,000.
b. 1,870,000.
c. 2,590,000.
d. 3,090,000.

PROBLEM SOLVING
A. The records of ABC showed the following:
Mastheads, purchased from a competitor, P50,000
Cost of marketing research, P30,000
Web site costs, for external use, customers can place orders on the web site, P60,000
Web site costs, for external use, customers cannot place orders on the web site, P40,000
Excess of cost over fair value of identifiable asset of acquired associate, P100,000
Subsequent expenditures on a recognized trademark, P20,000

How much is the intangible assets?

B. In January 2, 20X1, DEF Co applied for a patent incurring legal cost of P30,000. On January 1,
20X2 DEF incurred P9,000 of legal fees in the successful defense of its patent.

Journal entries for 20X1 and 20X2.

C. On January 1, 20X1 GHI Corp was granted a patent appropriately recognized at P800,000.
Estimated useful life is 10 years. In 20x3 GHI incurred P100,000 in successfully defending the
patent in a lawsuit. However, two months after the lawsuit, GHI sold the patent for P600,000. The
company’s policy is to recognize full years amortization in the year of acquisition and none in the
year of derecognition.

Journal entries for 20X1, 20X2 and 20X3.

 Mineral Resources

MULTIPLE CHOICE

1. Exploration and evaluation assets are initially measured at

a. cost.
b. revalued amount.
c. fair value.
d. a or b

2. Exploration and evaluation assets are exploration and evaluation expenditures recognized as
a. assets in accordance with the entity’s accounting policy.
b. expenses in accordance with applicable PFRSs.
c. assets in accordance with (a) above, subject to the limitations provided under PAS 8 Accounting
Policies, Changes in Accounting Estimates and Errors.
d. any of these

Use the following information for the next two questions:

In 20x1, OBSTREPEROUS NOISY Mining Corp. acquired the right to use 1,000 acres of land to mine
for gold. The lease cost is ₱200,000,000, and the related exploration costs on the property amounted to
₱40,000,000. It is the policy of OBSTREPEROUS Mining Corp. to capitalize all costs of exploration and
evaluation of mineral resources. Intangible development costs of drilling, tunnels, shafts, and wells
incurred before opening the mine amounted to ₱340,00,000. At the end of the mine’s economic useful
life, OBSTREPEROUS Mining Corp. is required by legislation to restore the site. Estimated restoration
costs have a fair value of ₱20,000,000. OBSTREPEROUS Mining Corp. estimates that the mine will
provide approximately 100,000,000 ounces of gold. Actual ounce of gold mined in 20x2 totaled 300,000
ounces.

3. How much is the depletion charge in 20x2?

a. 1,740,000 b. 1,800,000 c. 165,000 d. 150,000

4. Assuming that of the 300,000 ounces of gold extracted in 20x2, 280,000 ounces were sold and 20,000
ounces remain in inventory. How much depletion is recognized in the 20x2 (a) statement of
financial position and (b) statement of profit or loss and other comprehensive income,
respectively?
Statement of financial position Statement of profit or loss
a. 1,680,000 120,000
b. 116,000 1,624,000
c. 11,000 154,000
d. 120,000 1,680,000
Use the following information for the next two questions:
In 20x1, BUCOLIC RURAL Co. acquired land for a total cost of ₱40,000,000 to be used to quarry
marble, limestone, and construction aggregates. Costs incurred to obtain legal right to explore the
property amounted to ₱8,000,000. Expenditures incurred in the exploration for and evaluation of
mineral resources before technical feasibility and commercial viability of extracting a mineral resource
are demonstrable totaled ₱12,000,000. Intangible development costs of drilling, tunnels, shafts, and
wells before the actual production totaled ₱20,000,000. BUCOLIC Co. estimates that total recoverable
reserves are 100,000,000 units. Furthermore, BUCOLIC Co. expects to sell the land for ₱4,800,000 after
resource is depleted. However, no buyer will pay this price unless the mine is drained, filled and
leveled, a process that will cost ₱800,000. It is BUCOLIC’s policy to capitalize all exploration costs.

Actual units quarried in 20x1 through 20x4 totaled 30,000,000 units. On January 1, 20x5, BUCOLIC
Co. estimated that the remaining recoverable reserves are only 25,000,000 units and after the reserves
are exhausted, the land will be sold for ₱3,200,000. Costs of disposal are estimated at ₱1,200,000. Actual
units quarried in 20x5 totaled 6,000,000 units.

5. How much is the depletion charge in 20x5?

a. 13,284,000 b. 13,480,000 c. 13,280,000 d. 13,248,000

6. What is the carrying amount of the wasting asset on December 31, 20x5?
a. 43,852,000 b. 44,272,000 c. 42,720,00 d. 43,952,000