BSA 8

1. How much discount amortization should be recognized in 2012?

a. P27,275
b. P 0
c. P120,000
d. P75,000

ANSWER: A (SEE AMORTIZATION TABLE)

SCHEDULE OF DISCOUNT AMORTIZATION

Year Interest Interest Discount Amortized
Received Income Amortization Cost
1,386,275
2008 120,000 138,628 18,628 1,404,903
2009 120,000 140,490 20,490 1,425,393
2010 120,000 142,539 22,539 1,447,932
2011 120,000 144,793 24,793 1,472,725
2012 120,000 147,272 27,275 1,500,00

Data for no. 37- 40

Kiwi Company invested in a debt instrument on July 1, 2008. At this date, the cost and
fair value of the instrument is P1,000,000. The company’s practice is to buy securities to
be available for sale when circumstances warrant, not to profit from short-term
differences in price and not to necessarily hold them to maturity. Hence, the debt
instrument acquired is classified as available-for-sale and measured at fair value, and
changes in fair value are classified as component of other comprehensive income.
The table sets out the changes in the fair value of the debt instrument, and the nature of
change in each year:

Year Fair Value Change Nature of Change

2009 (P100,000) No objective evidence of
impairment
2010 (P200,000) Objective evidence of
impairment
2011 P15,000 Objective evidence of
reversal of impairment
 2. The impairment loss to be recognized in 2009 is
a. P100,000
b. P900,000
c. P200,000
d. P 0

ANSWER: D
The decrease in fair value of the debt instrument classified as available-for-sale should
be recognized as unrealized loss and classified as component of other comprehensive
income.

3. The impairment loss to be recognized in 2010 is

a. P100,000
b. P200,000
c. P300,000
d. P 0

ANSWER: C
Decrease in fair value in 2010 P200,000
Unrealized loss recognized in 2009 100,000
Impairment loss P300,000
4. The amount of reversal of impairment loss to be recognized in profit and loss in
2011 is
a. P100,000
b. P200,000
c. P 15,000
d. P 0

ANSWER: C
PAS 39 permits recognition of reversal of impairment loss for available-for-sale debt
security.

5. At the end of 2011, the available-for-sale debt security should be stated at

a. P715,000
b. P700,000
c. P800,000
d. P1,000,000

ANSWER: A
At the end of 2011, available-for-sale debt security should be stated at its fair value of
P715,000 (P1,000,000 – P100,000 – P200,000 + P15,000).