Investment in Associate Complex Problems: Problem 38-1 (AICPA Adapted)

PFA 1
CHAPTER 38
INVESTMENT IN ASSOCIATE
Complex problems
Sheena Joy R. Jebulan
Problem 38-1 (AICPA Adapted)
Blue Company purchased 10% of Tot Company’s 100,000 outstanding ordinary shares on
January 1, 2019 for P500,000.
On December 31, 2019, Blue Company purchased an additional 20,000 shares of Tot Company
for P1,500,000. Tot Company had not issued any additional shares during 2019.
The investee reported earnings of P3,000,000 for 2019.
The fair value of the 10% interest is P900,000 on December 31, 2019.
1. What is the carrying value amount of the investment in associate on December 31, 2019?
a. 2,300,000
b. 2,000,000
c. 2,400,000
d. 2,900,000
2. What total amount of income should be recognized for 2019?
a. 500,000
b. 400,000
c. 900,000
d. 0
Solution 38-1
Question 1 Answer c
Fair value of 10% interest 900,000

Cost on December 31, (20,000/100,000 shares = 20%) 1,500,000
Carrying amount – December 31, 2019 2,400,000
If the investment in associate is achieved in stages, the existing interest is remeasured at fair
value with any change in fair value included in profit or loss.
The fair value of the existing interest plus the cost of the new interest equals the total cost of
investment in the initial application of the quality method starting 2020.
Question 2 Answer b
Fair value of 10% interest 900,000

Acquisition cost of 10% interest 500,000
Gain on remeasurement to equity 400,000
The gain on remeasurement is recognized in profit or loss.
Since the investment in associate is achieved on December 31, 2019, the investor does not share
in the net income of the investee in 2019.
The equity method of accounting is fully applied starting 2020.
Problem 38-2 (IFRS)
On January 1, 2019, Forensic Company acquired a 10% interest in an investee for P3,000,000.
The investment was accounted for using the cost method.
On January 1, 2020, the entity acquired a further 15% interest in the investee for P6,750,000.
On such date, the carrying amount of the net assets of the investee was P36,000,000 and the fair
value of the 10% interest was P4,500,000.
The fair value of the net assets of the investee is equal to carrying amount except for an
equipment whose fair value exceeds carrying amount by P4,000,000. The equipment has a
remaining life of 5 years.
The investee reported net income of P8,000,000 for 2020 and paid cash dividend of P5,000,000
on December 31, 2020.
1. What amount gain on remeasurement to equity should be recognized for 2020?
a. 1,500,000
b. 4,500,000
c. 2,250,000
d. 0
2. What is the implied goodwill arising from the acquisition?
a. 2,250,000
b. 1,250,000
c. 1,350,000
d. 350,000
3. What is the carrying amount of the investment in association on December 31, 2020?
a. 11,250,000
b. 11,800,000
c. 12,000,000
d. 14,300,000
Solution 38-2
Question 1 Answer a
Fair value of 10% interest 4,500,000

Carrying amount of 10% interest 3,000,000
Gain on remeasurement to equity 1,500,000
If investment is achieved in stages, the existing interest is remeasured at fair value with any
change in fair value included in profit or loss.
Question 2 Answer b

Cost of additional 15% interest 6,750,000
Total cost of investment 11,250,000
Fair value of net assets acquired (25% x 36,000,000) 9,000,000
Excess of cost 2,250,000
Excess attributable to equipment (25% x 4,000,000) 1,000,000
Good will 1,250,000
The fair value of the existing interest plus the cost of the new interest equals to total cost of the
investment on the initial application of the equity method on January 1, 2020.
Question 3 Answer b
Total cost of investment – January 1, 2020 11,250,000

Investment income 1,800,000
Share in cash dividend (25% x 5,000,000) ( 1,250,000)
Share in net income (25% x 8,000,000) 2,000,000
Amortization of excess (1,000,000 / 5) ( 200,000)
Investment income 1,800,000
The excess of cost over carrying amount attributable to goodwill is not amortized.
Racielyn B. Lara
Problem 38-3 (AICPA Adapted)
On January 1, 2019, Mega Company acquired 10% of the outstanding ordinary shares of Penny
Company for P4,000,000. The investment was appropriately accounted for under cost method.
On January 1, 2020, Mega gained the ability to exercise significant influence over financial and
operating control of Penny by acquiring an additional 20% of Penny’s outstanding ordinary
shares for P10,000,000.
The fair value Penny’s net assets equaled carrying amount. The fair value of 10% interest on
January 1, 2020 was P6,000,000.
For the years ended December 31,2019 and 2020, the investee reported the following:
2019 2020
Dividend paid 2,000,000 3,000,000
Net income 6,000,000 6,500,000
1. What amount should be reported as investment income in 2019?

a. 200,000
b. 400,000
c. 600,000
d. 300,000
2. What amount should be reported as investment income in 2020?

a. 1,300,000
b. 1,950,000
c. 1,000,000
d. 1,900,000
3. What is the carrying amount of the investment in associate on December 31, 2020?
a. 16,000,000
b. 17,050,000
c. 15,050,000
d. 16,700,000
Solutions:
Question 1
Investment income for 2019 equal to the dividend

received in 2019 (10% x 2,000,000) 200,000
Question 2
Investment income for 2020 (30% x 6,500,000) 1,950,000
The investor shares in the income of the investee in 2020 because the quality method is applied
starting 2020.
Question 3

Cost of 20% new interest 10,000,000
Total cost of investment - January 1, 2020 16,000,000
Investment income for 2020 (30% x 6,500,000) 1,950,000
Share in cash dividend for 2020 (30% x 3,000,000) ( 900,000)
Note that there is no excess of cost over carrying amount because the fair value of the net assets
of the investee equaled carrying amount.
Problem 38-4 (IFRS)
Seiko Company had 100,000 ordinary shares outstanding. Globe Company acquired 30,000
shares of Seiko for P120 per share representing 30% interest.
Changes in retained earnings for Seiko since acquisition are:

Retained earnings (deficit), January 1, 2019 (500,000)
Net income for 2019 700,000
Retained earnings, December 31, 2019 200,000
Net income for 2020 800,000
Cash dividend paid on December 31, 2020 (400,000)
Retained earnings, December 31, 2020 600,000
What is the carrying amount of the investment in associate on December 31, 2020?
a. 3,600,000
b. 3,930,000
c. 3,780,000
d. 4,080,000
Solution:
Acquisition cost (30,000 x 120) 3,600,000

Deficit on January 1, 2019 (30% x 500,000) ( 150,000)
Carrying amount of investment – January 1, 2019 3,450,000
Net income for 2019 (30% x 700,000) 210,000
Net income for 2020 (30% X 800,000) 240,000
Cash dividend on 12/31/2020 (30% x 400,000) ( 120, 000)
Carrying amount of investment – December 31, 2020 3,780,000
Simple approach
Acquisition cost 3,600,000

Share in retained earnings – December 31, 2020
(30% x 600,000) 180,000
Problem 38-5 (IFRS)
Chur Company acquired a 40% interest in Flim Company for P1,700,000 on January 1, 2019.
The shareholder’s equity of Flim Company is presented below.
January 1 December 31
Share capital 3,000,000 3,000,000
Revaluation surplus 1,300,000
Retained earnings 1,000,000 1,500,000
On January 1, 2019, all the identifiable assets and liabilities of Flim Company were recorded at
fair value. Flim Company reported profit of P700,000, after income tax expense of P300,000 and
paid dividend of P200,000 to shareholders during the current year.
The revaluation surplus is the result of the revaluation of land recognized by Flim Company on
December 31, 2019. Additionally, depreciation is provided by Flim Company on the diminishing
balance method whereas Chur Company used the straight line. Had Flim Company used the
straight line, the accumulated depreciation would be increased by P200,000.
What is the carrying amount of the investment in associate on December 31, 2019?
a. 2,420,000
b. 1,700,000
c. 1,900,000
d. 2,320,000
Solutions:

Net assets acquired (40% x 4,000,000) (1,600,000)
Goodwill – not amortized 100,000
Net income (40% x 700,000) 280,000
Cash dividend (40% x 200,000) ( 80,000)
Revaluation surplus (40% x 1,300,000) 520,000
There is no need to adjust for the difference in depreciation method.

If both entities have chosen a method that best reflects the flow of benefits as the assets are
consumed, then there is no policy difference.
PFA 1
CHAPTER 38 – Investment Associate

James L. Macalalad
Problem 38 – 6 (IFRS)
Aye Company acquired 30% of the issued share capital of Bee Company for
P1,000,000 on January 1, 2019. The retained earnings of Bee Company on this
date amounted to P2,000,000. The entities prepared their financial statements on
December 31 of each year.
Bee Company showed the following abbreviation statement of financial position

on December 31, 2020:.
Sundry net assets 6,000,000
Share Capital, P10 par 1,000,000
Share premium 2,000,000
Retained earnings 3,000,000
The fair value of the net assets of Bee Company at the date of acquisition was
P5,000,000.
The recoverable amount of net assets of Bee Company is P7,000,000 on December

31,2020.
What is the carrying amount of the investment in associate on December 21,

2020?
a. 1,800,000.
b. 2,100,000
c. 1,500,000
d. 1,000,000
Solution 38-6 Answer a
Investment in associate (30% x 6,000,000) 1,800,000

Another approach
Postacquisition net income (3,000,000 – 2,000,000 x 30%) 300,000
Excess net fair value 500,000
Investment in associate 1,800,000
Excess net fair value – included in investment income 500,000
The investment in associate is not impaired because the carrying amount of

P1,800,000 is lower than the recoverable amount of P2,100,000 (30% x
7,000,000)
Problem 38 – 7 (AICPA Adapted)
Grant Company acquired 30% of South Company's voting share capital for
P2,000,000 on January 1, 2019. Grant’s 30% interest in South gave Grant the
ability to exercise significant influence.
During 2019, South earned P800,000 and paid dividend of P500,000.
South reported earnings of P1,000,000 for the 6 months ended June 30, 2020 and
P2,000,000 for the year ended December 31, 2020.
On July 1, 2020, Grant sold half of the investment in South for P1,500,000 cash.
South paid dividend of P1,000,000 on October 1, 2020.
The fair value of the retained investment is P1,600,000 on July 1, 2020 and
P2,000,000 on December 31, 2020.
The retained investment is to be held as financial asset at fair value through profit
or loss.
1. On December 31,2019, what is the carrying amount of the investment in

associate?
a. 2,000,000
b. 2,090,000.
c. 2,240,000
d. 2,300,000
2. What is the carrying amount of the investment in associate before disposal
on June 30, 2020?
a. 1,790,000
b. 2,390,000.
c. 1,195,000
d. 2,240,000
3. What total amount of income should be reported in 2020?
a. 1,560,000.
b. 1,410,000
c. 1,160,000
d. 1,260,000
Solution 38 – 7
Question 1 Answer b
Acquisition cost , January 1, 2019 2,000,000
Share in 2019 net income 240,000
Total 2,240,000
Share in 2019 dividend (30% x 500,000) ( 150,000)
Carrying amount of investment, December 31, 2019 2,090,000

Questions 2 Answer b
Carrying amount of investment, December 31, 2019 2,090,000
Share in net income from January 1
to June 30, 2020 (30% x 1,000,000) 300,000
Carrying amount of investment, June 30, 2020 2,390,000
Question 3 Answer a
Sale price 1,500,000
Cost of investment sold (2,390,000/2) (1,195,000)
Gain from sale of investment 305,000
Fair value - July 1, 2020 1,600,000
Carrying amount of retained investment 1,195,000
Gain from remeasurement 405,000
Fair value – December 31, 2020 2,000,000
Fair value – July 1, 2020 1,600,000
Unrealized gain on financial asset 400,000
The unrealized gain of P4,000,000 is reported in the income statement for 2020
because the retained investment is accounted for as financial asset at fair value
through profit or loss.
Gain from sale of investment 305,000

Gain from remeasurement 405,000
Unrealized gain on financial asset 400,000
Cash dividend on October 1, 2020 (15% x 1,000,000) 150,000
Share in net income up to June 30, 2020 300,000
Total income for 2020 1,560,000
PFA 1
Chapter 38 – Investment in Associate

Erica P. Magundayao
PROBLEM 38-8 (IFRS)

On January 1, 2019, Haven Company acquired 20% of the ordinary shares of an associate for
P6,000,000. On this date, all the identifiable assets and liabilities of the associate were recorded
at fair value.
An analysis of the acquisition showed that goodwill of P300,000 was acquired. The associate
reported the following net income and dividend:
2019 2020
Net Income 3,000,000 4,000,000

Dividend paid 1,000,000 1,500,000
In December 2019, the associate sold inventory to Haven Company for P900,000. The cost of the
inventory was P600,000.
This inventory remained unsold by Haven Company on December 31, 2019. However, it was
sold by Haven Company in 2020.
This inventory remained unsold by Haven Company on December 31,2020.
1. What amount should be reported as an investment income for 2019?

a. 600,000
b. 540,000
c. 660,000
d. 648,000

a. 860,000
b. 800,000
c. 810,000
d. 750,000
a. 6,900,000
b. 6,000,000
c. 6,790,000
d. 6,850,000
Solution:
Question 1 Answer b
Net income for 2019 3,000,000

Unrealized profit on 12/31/2019 inventory of Haven Company
(900,000-600,000) (3,000,000)
2,700,000
Adjusted net income
540,000
Investment income for 2019 (20% x 2,700,000)
Question 2 Answer c

Realized profit on 12/31/2019 inventory on Haven Company 300,000
Unrealized profit on 12/31/2019 inventory of Haven Company (250,0
(750,000-500,000) 00)
4,050,000
Adjusted net income
Investment income for 2020 (20% x 4,050,000) 810,000
Question 3 Answer d

Investment income – 2019 540,000
Share in cash dividend – 2019 (20% x 1,000,000) (200,000)

Problem 38-9 (IFRS)

Glorious Company acquired 40% interest in an associate, Alta Company, for P5,000,000 on
January 1, 2019.
At the acquisition date, there were no differences between fair value and carrying amount of
identifiable assets and liabilities.
Alta Company reported the following net income and cash dividend for 2019 and 2020:
What pretax amount should be reported as prior period error in the financial statements for
2019?
2019 2020
Net Income 2,000,000 3,000,000

Dividend paid 800,000 1,000,000
The following transactions occurred between Glorious Company and Alta Company:
 On January 1, 2019, Alta Company sold an equipment costing P500,000 to Glorious

Company for P800,000.
Glorious Company Applied a 10% straight line depreciation.
 On July 1, 2020, Alta Company sold an equipment costing P500,000 to Glorious

Company.
The carrying amount of the equipment is P500,000 at the time of sale.
The remaining life of the equipment is 5 years and Glorious Company used the straight-
line depreciation.
 On December 1, 2020, Alta Company sold an inventory to Glorious Company for

P2,800,000.
The inventory had a cost of P2,000,000 and was still on hand on December 31,2020

a. 692,000
b. 800,000
c. 680,000
d. 920,000
a. 880,000
b. 748,000
c. 720,000
d. 732,000
a. 5,692,000
b. 5,000,000
c. 5,372,000
d. 5,360,000
a. 5,692,000
b. 5,704,000
c. 5,720,000
d. 6,120,000
Solution:
Question 1 Answer a

Unrealized profit on sale of equipment sold on
January 1, 2019 (800,000 – 500,000) ( 300,000)
Realized profit on equipment sold on
January 1, 2019 (10% x 300,000) 30,000
Adjusted net income 1,730,000
Question 2 Answer b

Realized profit on equipment sold on 1/1/2019
(10% x 300,000) 30,000)
Unrealized profit on sale of equipment sold on 7/1/2020
(900,000 – 500,000) ( 400,000)
(400,000 / 5 x 6 / 12) 40,000
Unrealized profit on ending inventory on 12/31/2020
(2,800,000 – 2,000,000) ( 800,000)
Question 3 Answer c

Cash dividend – 2019 (40% x 800,000) ( 320,000)
Question 4 Answer c
Carrying amount – January 1, 2020 5,372,000

Cash dividend – 2020 (40% x 1,000,000) ( 400,000)

PFA 1
Chapter 38 – Investment in Associate

Erica P. Magundayao
PROBLEM 38-8 (IFRS)

On January 1, 2019, Haven Company acquired 20% of the ordinary shares of an associate for
P6,000,000. On this date, all the identifiable assets and liabilities of the associate were recorded
at fair value.
An analysis of the acquisition showed that goodwill of P300,000 was acquired. The associate
reported the following net income and dividend:
2019 2020
Net Income 3,000,000 4,000,000

Dividend paid 1,000,000 1,500,000
This inventory remained unsold by Haven Company on December 31, 2019. However, it was
sold by Haven Company in 2020.
This inventory remained unsold by Haven Company on December 31,2020.

a. 600,000
b. 540,000
c. 660,000
d. 648,000

a. 860,000
b. 800,000
c. 810,000
d. 750,000
a. 6,900,000
b. 6,000,000
c. 6,790,000
d. 6,850,000
Solution:
Question 1 Answer b

Unrealized profit on 12/31/2019 inventory of Haven Company
(900,000-600,000) (3,000,000)
2,700,000
Adjusted net income
540,000
Investment income for 2019 (20% x 2,700,000)
Question 2 Answer c

Realized profit on 12/31/2019 inventory on Haven Company 300,000
Unrealized profit on 12/31/2019 inventory of Haven Company (250,0
(750,000-500,000) 00)
4,050,000
Adjusted net income
Question 3 Answer d


Problem 38-9 (IFRS)

Glorious Company acquired 40% interest in an associate, Alta Company, for P5,000,000 on
January 1, 2019.
At the acquisition date, there were no differences between fair value and carrying amount of
identifiable assets and liabilities.
Alta Company reported the following net income and cash dividend for 2019 and 2020:
What pretax amount should be reported as prior period error in the financial statements for
2019?
2019 2020
Net Income 2,000,000 3,000,000

Dividend paid 800,000 1,000,000
The following transactions occurred between Glorious Company and Alta Company:
 On January 1, 2019, Alta Company sold an equipment costing P500,000 to Glorious

Company for P800,000.
Glorious Company Applied a 10% straight line depreciation.
 On July 1, 2020, Alta Company sold an equipment costing P500,000 to Glorious

Company.
The carrying amount of the equipment is P500,000 at the time of sale.
The remaining life of the equipment is 5 years and Glorious Company used the straight-
line depreciation.
 On December 1, 2020, Alta Company sold an inventory to Glorious Company for

P2,800,000.
The inventory had a cost of P2,000,000 and was still on hand on December 31,2020

a. 692,000
b. 800,000
c. 680,000
d. 920,000
a. 880,000
b. 748,000
c. 720,000
d. 732,000
a. 5,692,000
b. 5,000,000
c. 5,372,000
d. 5,360,000
a. 5,692,000
b. 5,704,000
c. 5,720,000
d. 6,120,000
Solution:
Question 1 Answer a

Unrealized profit on sale of equipment sold on
January 1, 2019 (800,000 – 500,000) ( 300,000)
Realized profit on equipment sold on
January 1, 2019 (10% x 300,000) 30,000
Question 2 Answer b

(10% x 300,000) 30,000)
Unrealized profit on sale of equipment sold on 7/1/2020
(900,000 – 500,000) ( 400,000)
(400,000 / 5 x 6 / 12) 40,000
Unrealized profit on ending inventory on 12/31/2020
(2,800,000 – 2,000,000) ( 800,000)
Question 3 Answer c

Cash dividend – 2019 (40% x 800,000) ( 320,000)
Question 4 Answer c
Carrying amount – January 1, 2020 5,372,000

Cash dividend – 2020 (40% x 1,000,000) ( 400,000)

PFA 1
Chapter 38 – Investment in associate

Michael John Ritchelle J. Matala
Problem 38-10 (IFRS)

At the beginning of the current year, Interclude Company acquired a 30% interest in an investee at a cost
of ₱3,200,000.
The equity of the investee on the date of acquisition was ₱6,000,000 consisting of ₱4,000,000 share
capital and ₱2,000,000 retained earnings.
All the identifiable assets and liabilities of the investee were recorded at fair value except for an
equipment with a fair value of ₱3,000,000 greater than carrying amount. The remaining useful life of the
equipment is 5 years.
At year end, Interclude Company had inventory costing ₱2,000,000 on hand which had been purchased
from the investee. A profit of ₱600,000 has been made on the sale
During the current year, the investee reported net income of ₱4,000,000 and paid a dividend of
₱1,500,000.
The equity of the investee at year-end show the following:
Share capital 4,000,000
Retained earnings 3500,000
Retained earnings appropriated 1,000,000
Valuation surplus 2,000,000
The revaluation surplus arose from a revaluation of land made at the end of the current year.
Retained earnings appropriated arose from a transfer of unappropriated retained to retained earnings
appropriated for contingencies.
1. What is the implied goodwill from acquisition of investment?
a. 1,400,000
b. 700,000
c. 500,000
d. 0
2. What amount should be reported as investment income for the current year?
a. 1,200,000
b. 1,020,000
c. 840,000
d. 750,000
3. What is the carrying amount of the investment in associates at year end?
a. 3,200,000
b. 3,690,000
c. 4,190,000
d. 3,590,000
Solutions:38-10
Question I Answer c
Net assets acquired (30% times 6,000,000) (1,800,000)
Excess cost 1,400,000
Excess attributable to equipment (30% x 3,000,000) (900,000)

Goodwill 500,000
Question 2 Answer c
Net income for current year 4,000,000
Unrealized profit on ending inventory (600,000)
Investor’s share (30% x 3,400,000) 1,020,000
Amortization of excess of cost attributable to
equipment (900,000 / 5) ( 180,000)
Investment income for current year 840,000
Question 3 Answer c
Investment income for current year 840,000
Cash dividend (30% x 1,500,000) ( 450,000)
Revaluation surplus (30% x 2,000,000) 600,000
Carrying amount of investment in associate 4,190,000

Problem 38-11 (IAA)
Alpha company acquired 20,000 shares of beta company on January 1, 2019 at ₱120 per share. Beta
company had 80,000 outstanding with a carrying amount of ₱8,000,000.
The difference between the carrying amount and fair value of beta company on January 1, 2019 is
attributed to a broadcast license which is an intangible asset.
Beta company recorded earnings of ₱3,600,000 and ₱3,900,000 for 2019 and 2020, respectively, and paid
per-share dividend of ₱16 in 2019 and ₱20 in 2020.
Alpha company has a 20-year straight line amortization policy for the broadcast license.
1. What amount should be reported as investment income for 2019?
a. 900000
b. 880,000
c. 320,000
d. 920,000
2. What is the carrying amount of the investment in associate on December 31 2019?
a. 2,980,000
b. 2,960,000
c. 3.300,000
d. 2,060,000
3. What amount should be reported as investment income for 2020?
a. 975,000
b. 995,000
c. 955,000
d. 935,000
4. What is the carrying amount of the investment in associate on December 31 2020?
a. 3,515,000
b. 2,400,000
c. 3,555,000
d. 4,275,000
Solution: 38-11
Question I Answer b
Acquisition cost (20,000 x 120) 2,400,000
Excess of cost over carrying amount 400,000
Share in net income for 2019 (25% x 3,600,000) 900,000
Amortization of excess for 2019 (400,000 / 20) (20,000)
Investment income 4 2019 880,000
Interest acquired (20,000 shares / 80,000 shares) 25%
Question 2 Answer b
Investment income for 2019 880,000
Share in cash dividend 2019 (20,000 x 16) ( 320,000)
Carrying amount of investment -- December 31 2019 2,960,000
Question 3 Answers c
Share in net income for 2020 (25% x 3,900,000) 975,000
Amortization Affixes for 2020 ( 20,000)
Question 4 Answer a
Carrying amount -- December 31 2019 2,960,000
Share in cash dividend 2020 (20,000 x 20) ( 400,000)
Carrying amount -- December 31 2020 3,515,000

Problem 38-12 (ACP)
On January 21 2016, part company acquired as a long-term investment for ₱7,000,000, a 40%
interest in Hall Company when the fair value of Hall’s net assets was 1₱7,500,000. Hall company
reported the following net losses:
2016 5,000,000
2017 7,000,000
2018 8,000,000
2019 4,000,000
On January 1 2018, Bart Company made cash advances of 2,000,000 to Hall Company. On
December 31,2019, it is not expected that Bart Company will provide further financial support
for Hall Company.
What amount should be reported as loss from investment for 2019?
a. 1,600,000
b. 4,000,000
c. 1,000,000
d. 600,000
Solution:38-12
Question 1 Answer c
Original cost 7,000,000

Cash advances 2,000,000
Total investment 9,000,000
Net loss from 2016 to 2018 (40% x 20,000,000) (8,000,000)
Carrying amount of investment 1,000,000
Share in net loss of 2019 (40% x 4,000,000) 1,600,000
Loss to be reported in 2019 should be equal to the
Investment balance only 1,000,000
PAS 28, paragraph 38, provides that if under equity method an investor’s share of losses of an
associate equals or exceeds the carrying amount of an investment, the investor discontinues
recognizing its share of further losses.
The investment is reported at NIL or zero value.

Investment in Associate Complex Problems: Problem 38-1 (AICPA Adapted)

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PFA 1

Problem 38-1 (AICPA Adapted)

Fair value of 10% interest 900,000

Fair value of 10% interest 900,000

Fair value of 10% interest 4,500,000

Fair value of 10% interest 4,500,000

Total cost of investment – January 1, 2020 11,250,000

Problem 38-3 (AICPA Adapted)

1. What amount should be reported as investment income in 2019?

2. What amount should be reported as investment income in 2020?

Investment income for 2019 equal to the dividend

Investment income for 2020 (30% x 6,500,000) 1,950,000

Fair value of 10% interest 6,000,000

Problem 38-4 (IFRS)

Changes in retained earnings for Seiko since acquisition are:

Acquisition cost (30,000 x 120) 3,600,000

Acquisition cost 3,600,000

Problem 38-5 (IFRS)

Acquisition cost 1,700,000

There is no need to adjust for the difference in depreciation method.

CHAPTER 38 – Investment Associate

Bee Company showed the following abbreviation statement of financial position

Sundry net assets 6,000,000

Share Capital, P10 par 1,000,000

Share premium 2,000,000

Retained earnings 3,000,000

The recoverable amount of net assets of Bee Company is P7,000,000 on December

What is the carrying amount of the investment in associate on December 21,

Investment in associate (30% x 6,000,000) 1,800,000

Acquisition cost 1,000,000

Postacquisition net income (3,000,000 – 2,000,000 x 30%) 300,000

Excess net fair value 500,000

Investment in associate 1,800,000

Acquisition cost 1,000,000

Net assets acquired (30% x 5,000,00) (1,500,000)

Excess net fair value – included in investment income 500,000

The investment in associate is not impaired because the carrying amount of

Problem 38 – 7 (AICPA Adapted)

During 2019, South earned P800,000 and paid dividend of P500,000.

1. On December 31,2019, what is the carrying amount of the investment in

Acquisition cost , January 1, 2019 2,000,000

Share in 2019 net income 240,000

Share in 2019 dividend (30% x 500,000) ( 150,000)

Carrying amount of investment, December 31, 2019 2,090,000

Carrying amount of investment, December 31, 2019 2,090,000

Share in net income from January 1

to June 30, 2020 (30% x 1,000,000) 300,000

Carrying amount of investment, June 30, 2020 2,390,000

Sale price 1,500,000

Cost of investment sold (2,390,000/2) (1,195,000)

Gain from sale of investment 305,000

Fair value - July 1, 2020 1,600,000

Carrying amount of retained investment 1,195,000

Gain from remeasurement 405,000

Fair value – December 31, 2020 2,000,000

Fair value – July 1, 2020 1,600,000

Unrealized gain on financial asset 400,000

Gain from sale of investment 305,000

Chapter 38 – Investment in Associate

PROBLEM 38-8 (IFRS)

Net Income 3,000,000 4,000,000

This inventory remained unsold by Haven Company on December 31,2020.

1. What amount should be reported as an investment income for 2019?