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SMEs
SMEs
On January 1, 2017, SME acquired 25% of the equity of each of entities B, C and D for P1,000,000,
P1,500,000 and P2,800,000 respectively. Transaction costs of 1% of the purchase price were incurred by
SME.
On January 2, 2017 entity B declared and paid dividend of P100,000. On December 31, 2017 entity C
declared and paid dividend of P800,000.
For the year ended December 31, 2017, entities B and C recognized profit, respectively of P500,000 and
P1,800,000. However entity D recognized a loss of P2,000,000.
Published price quotations do not exist for the shares of entities B, C and D. Using appropriate valuations
techniques SME determined the fair value of the investments in entities B, C and D on December 31, 2017
at P1,300,000, P2,900,000 and P1,500,000, respectively.
1. Under the cost model, what is the total carrying amount of the investments in associates on
December 31, 2017?
a. 3,950,000
b. 5,353,000
c. 5,300,000
d. 3,925,000
2. Under the equity method, what is the total carrying amount of the investments in associates on
December 31, 2017?
a. 5,203,000
b. 5,928,000
c. 4,525,000
d. 4,300,000
3. Under the fair value model, what is the total carrying amount of the investments in associates on
December 31, 2017?
a. 5,647,000
b. 5,700,000
c. 5,573,000
d. 5,415,000
Problem 2:
On January 1, 2017, an SME acquired 30% ordinary shares of an investment for P1,000,000 plus transaction
cost of P10,000. The SME use the cost model to account for the investment in associates. The investee
recognize a net loss of P500,000 for 2017 and paid dividends of P200,000 on December 31, 2017. The fair
value of the Investment is P1,020,000 on December 31, 2017 and the cost of disposal is estimated at
P40,000. There is no publish price quotation for the investment in associate.
4. What is the carrying amount of the investment in associate on December 31, 2017?
a.1,020,000
b.1,010,000
c.950,000
d.980,000
5. What is the carrying amount of the investment in associate on December 31, 2017 assuming there
is publish price quotation?
a.1,020,000
b.1,010,000
c.1,000,000
d.980,000
Problem 3:
On January 1, 2017 An SME acquired a building for P50,000,000 on December 31, 2017, management asses
that the useful life of the building for 40 years from the date of acquisition with the residual value of
P10,000,000. The fair value of the Building on same date is P65,000,000. On December 31, 2019, SME
reassessed the useful life of the building is 50 years from January 1, 2015 with residual value of P5,000,000.
The fair value of the building on December 31, 2019 is P80,000,000.
Problem 4:
An SME incurred and paid the following expenditures in 2017:
On December 31, 2017, SME assessed that the useful life of the building is 40 years with residual value of
P2,000,000.