Pre-Test 3

Answer this test wisely. 5 Points

1. As Bank acquired the following portfolio of available-for-sale securities during 2010 and
reported the following balance:
Historical Market Value
Security Cost 2010 2011
A P600,000 P590,000 P620,000
B 380,000 380,000 370,000
C 450,000 470,000 460,000

No sales occurred during 2010 and 2011. all declines are considered to be temporary. What is the
carrying value of the securities in Asian’s December 31, 2010 and 2010 statement of financial position,
respectively?
a. P1,390,000 and P1,400,000
b. P1,400,000 and P1,400,000
c. P1,400,000 and P1,450,000
d. P1,440,000 and P1,450,000
Solution: D
Market Value
Security 2010 2011
A P 590,000 P 620,000
B 380,000 370,000
C 470,000 460,000
Total P1,440,000 P1,450,000

Note: PAS 39, paragraph 43 states that “when a financial asset is recognized initially, it shall be measured
at FMV plus transaction costs that are attributable to the acquisition except when the financial assets is
trading securities, the transaction cost is treated outright expenses.

2. Gerald Company acquired available for sale securities during the year 2010 to be as current
investment. An analysis of the current investments on December 31, 2010 showed the following.
Securities Cost Market
P P 1,500,000 P 1,400,000
I 2,200,000 2,300,000
C 3,000,000 2,900,000
U 3,800,000 4,000,000
Total P10,500,000 P10,600,000

In Gerald’s December 31, 2010 statement on financial position how much should be reported as the
carrying value of the securities?
a. P10,300,000 c. P10,400,000
b. P10,500,000 d. P10,600,000
Solution: D
Note: AFS securities are valued at FMV and the aggregate FMV is P10,600,000.

3. What amount of unrealized gain should be reported in Gerald’s December 31, 2010 in the profit
or loss?
a. None c. P200,000
b. P100,000 d. P300,000

Solution: A
Note: AFS securities are initially recorded at FMV. Any changes in the MV of the securities are to be
recognized as Unrealized Gain or Loss in the statement of comprehensive income and not at the profit or
loss.

4. Citibank purchased the following portfolio of available-for-sale securities during 2010 and
reported the following balance at December 31, 2010. No sales occurred during 2010. All
declines are considered to the temporary.
(12/31/10)
Securities Cost Market Value
X P 800,000 P 820,000
Y 1,400,000 1,320,000
Z 320,000 280,000
Total P2,520,000 P2,420,000

How much should Citibank report as unrealized loss related to the securities transactions in its 2010
statement of financial position?
a. None c. P20,000 unrealized loss
b. P100,000 unrealized loss d.P120,000unrealized loss
Solution: B
Aggregate FMV P2,420,000
Less: Aggregate Cost P2,520,000
Unrealized Loss P 100,000

5. On January 1, 2010, Maya Company appropriately reported a credit balance of P125,000 in the
fair value adjustment account in conformity with the valuation of available for sale securities.
There was no change during 2010 in the composition of portfolio of available for sale investment.
Pertinent data on December 31, 2010 are as follows:
Securities Cost Market
C P1,500,000 P1,625,000
P 1,250,000 1,000,000
A 2,250,000 1,750,000
Total P5,000,000 P4,375,000
What additional amount of unrealized loss on these securities should the company recognize during
2010?
 a. None c. P375,000
b. P500,000 d. P625,000
Solution: B
Aggregate FMV P4,375,000
Less: Aggregate Cost P5,000,000
Required FV adjustments P 625,000
Less: FV adjustment 1.1.10 (credit
Balance or unrealized loss) P 125,000
Increase in Unrealized loss P 500,000