INVESTMENTS, AGRICULTURE & BORROWING COST

PROBLEM SOLVING
MODULE 3

Financial assets at Fair Value Measurement –

FVPL and FVOCI The transaction cost incurred amounted to
1. On January 1, 2019, AIR Co. purchased 700,000.
marketable equity securities to be held as
“trading” for 5,000,0000. The entity also paid On December 31, 2019, the fair value of the
transaction cost amounting to 200,000. instrument was 5,500,000 and the
transaction cost that would be incurred on the
The securities had a market value of sale of the investment is estimated at
5,500,000 on December 31, 2019 and the 600,000.
transaction cost that would be incurred on
sale is estimated at 100,000. No securities What amount of gain should be recognized in
were sold during 2019. other comprehensive income for the year
ended December 31, 2019?
What amount of unrealized gain or loss on
these securities should be reported in the 6. On December 31, 2019, AIR FC
2019 income statement? appropriately reported a 100,000 unrealized
loss. There was no change during 2020 in the
2. At year-end, AIR Co. held several composition of the portfolio of marketable
investments with the intent of selling them in equity securities head as financial asset at
the near term. The investments consisted of fair value through other comprehensive
1,000,000 8% five-year bonds purchased for income.
920,000 and equity securities purchased for
350,000. At year-end, the bonds were selling Security Cost Market Value
on the open market for 1,050,000 and the A 1,200,000 1,300,000
equity securities had a market value of B 900,000 500,000
500,000. C 1,600,000 1,500,000
3,700,000 3,300,000
What amount should be reported as trading
securities at year-end? What amount of loss on these securities
should be included in the statement of
comprehensive income for the year ended
3. AIR DC reported on a calendar-year basis.
December 31, 2020 as a component of other
The December 31, 2019 financial statements
comprehensive income?
were issued on February 15, 2020. The
auditor’s report was dated January 31, 2020.
The following information pertains to 7. AIR IC had trading and non-trading equity
aggregate marketable equity securities investments held throughout 2019 and 2020.
portfolio held for trading: The non-trading investments are measured
at fair value through other comprehensive
Cost 5,000,000 income. The measured investments had a
Market Value 4,000,000 cost of 3,000,000 for trading and 3,000,000
December 31, 2019 for non-trading. The investments had the
Market Value January 3,500,000 following fair value at year-end.
31, 2020
Market Value February 3,000,000 12/31/2019 12/31/2020
15, 2020 Trading 4,000,000 3,800,000
Non-trading 3,200,000 3,700,000
What amount should be reported on
December 31, 2019 for trading securities? a. What amount of the unrealized gain or
loss should be reported in the income
4. During 2019, AIR GC purchase marketable statement for 2020?
equity securities as trading investment. For b. What amount of cumulative unrealized
the year ended December 31, 2019, the gain or loss should be reported as
entity recognized an unrealized loss of component of other comprehensive
230,000. income in the statement of changes in
equity on December 31, 2020?
There were no security transactions during
2020. The entity provided the following 8. AIR Company began operations on January
information on December 31, 2020: 1, 2019, the following information pertains to
the December 31, 2019 portfolio of equity
Security Cost Market Value securities:
A 2,450,000 2,300,000
B 1,800,000 1,820,000 Trading Non-Trading
4,250,000 4,120,000 Aggregate Cost 4,000,000 3,700,000
Aggregate MV 3,700,000 3,800,000
In the 2020, income statement, what amount Aggregate Lower 3,700,000 3,700,000
should be reported as unrealized gain or of Cost or MV
loss?
The market declines are judge to be “other
5. AIR CC acquired an equity instrument for than temporary” the non-trading securities
4,000,000 on Marche 31, 2019. The equity are designated at fair value through other
instrument is classified as financial asset at comprehensive income.
fair value through other comprehensive
income.
“AN ARROW CAN ONLY BE SHOT BY PULLING IT BACKWARD. IF LIFE IS DRAGGING YOU BACK WITH DIFFICULTIES, IT MEANS THAT IT’S GOING TO LAUNCH YOU INTO SOMETHING GREAT. SO JUST FOCUS AND KEEP ON AIMING”

ALBERT I. RIVERA, CPA, MBA, CRA 1

 INVESTMENTS, AGRICULTURE & BORROWING COST
PROBLEM SOLVING
MODULE 3

What amount should be reported a s total Security Cost Market Value

loss on these securities in the income X 2.000,000 2,400,000
statement for 2019? Y 3,000,000 3,500,000
Z 5,000,000 4,900,000
9. AIR JC acquired an equity investment a
number of years ago for 3,000,000 and On July 1, 2020, the entity sold Security X for
classified it as at fair value through other 2,500,0000.
comprehensive income.
What amount should be recognized directly
On December 31, 2019, the cumulative loss in retained earnings as a result of the sale of
recognized in other comprehensive income financial asset in 2020?
was 400,000 and the carrying amount of the
investment was 2,600,000. 13. On January 1, 2019, AIR CC purchased
equity securities to be held as financial
On December 31, 2020, the issuer of the assets measured at fair value through other
equity instrument was in sever financial comprehensive income
difficulty and the fair value of the equity
investment had fallen to 1, 200,000. Security Cost
MV MV
12/31/2019 12/31/2020
What cumulative amount of unrealized loss R 3,000,000 200,000 300,000
should be reported as component of other S 4,000,000 1,700,000 1,600,000
comprehensive income in the statement of T 5,000,000 3,100,000 2,900,000
changes in equity for the year ended
December 31, 2020? On January 31, 2020, the entity sold Security
R for 3,500,000.
10. AIR LC purchased the following trading
a. What amount should be recognized
equity securities during 2019:
directly in retained earnings as a result of
the sale of investment in 2020?
Market Value
Security Cost b. What cumulative unrealized gain or loss
12/31/2019
A 900,000 1,000,000 on the remaining financial assets should
B 1,000,000 1,600,000 be reported in the statement of change in
equity for 2020?
On July 31, 2020, the entity sold all of the
shares of Security B for a total of 1,100,000. 14. On January 1, 2019, AIR RC acquired
On December 31, 2020, the shares of 200,000 ordinary shares of UC for 9,000,000.
Security A had a market value of 1,200,000. At the time of purchased, UC had outstanding
No other activity occurred ring 2020 in 800,000 shares with a carrying amount of
relation to the trading security portfolio. 36,000,000.

a. What amount of unrealized gain or loss The following events took place during the
should be reported on the income year:
statement for 2020?  UC reported net income of
b. What is the gain or loss on the transfer on 1,800,000 for 2019
the sale of Security July 31, 2020?  AIR RC received from UC a dividend
of 0.75 per ordinary share
11. During 2019, AIR LC purchased trading  The market value of UC share had
securities with the following cost and market temporarily declined to 40
value on December 31, 2019:
AIR RC has elected irrevocable to measure
Market the investment at fair value through other
Security Shares Cost comprehensive income.
Value
A 1,000 200,000 300,000
B 10,000 1,700,000 1,600,000 What is the carrying amount of the
C 20,000 3,100,000 2,900,000 investment on December 31, 2019?

The entity sold 10,000 shares of Security B 15. Neal Company held the following financial
on January 15, 2020 for P150 per share. assets as trading investments on December
31, 2019:
a. What amount of unrealized gain or loss
should be reported in the income Market
Particulars Cost
statement for 2019? Value
b. What amount should be reported as loss 100,000 shares of 775,000 825,000
on the sale of trading investments for Company A; non-
2020? redeemable preference
shares; par value P75
7,000 shares of 690,000 625,000
12. On January 1, 2019, AIR LC purchased Company B; preference
equity securities to be held at fair value shares; par value of 100
through other comprehensive income. On – subject to mandatory
December 31, 2019. The cost and market redemption by the
value were: issuer at par on 31
December 2020

“AN ARROW CAN ONLY BE SHOT BY PULLING IT BACKWARD. IF LIFE IS DRAGGING YOU BACK WITH DIFFICULTIES, IT MEANS THAT IT’S GOING TO LAUNCH YOU INTO SOMETHING GREAT. SO JUST FOCUS AND KEEP ON AIMING”

ALBERT I. RIVERA, CPA, MBA, CRA 2

 INVESTMENTS, AGRICULTURE & BORROWING COST
MODULE 3
On December 31, 2019, what is the total
carrying amount of the investments?
16. On January 1, 20x1, AIR Co. acquired 8%
P1,000,000 bonds for P936,603. The
principal is due on December 31, 20x4 but
interest is due annually at each year-end.
The yield rate on the bonds is 10%, the
investment will be subsequently measured at
amortized cost. How much is the carrying
amount of the investment on December 31,
20x2?
17. On January 1, 20x1, AIR Co. acquired 14%,
P1,000,000 bonds for 1,099,474. The
principal is due on December 31, 20x3 but
interest is due annually starting December
31, 20x1. The effective interest rate on the
bonds is 10%. The bonds are classified as
investment measured at amortized cost.
How much is the carrying of the investment
on December 31, 20x2?
18. Refer to No. 17, assume that half of the
investment was sold on January1, 20x2 for
480,000. Transaction costs incurred on the
sale amounted to 15,000. How much is the
gain (loss) on the sale?
19. On April 30, 20x1, AIR Co. acquired 10%,
P100,000 bonds dated January 1, 20x1 at
102. If the purchase price excludes interest,
how much is the initial carrying amount of the
investment?
20. Refer to No. 19, if the purchase includes
interest, how much is the initial carrying
amount of the investment?
21. On January 1, 20x1, AIR Co. acquired 12%
P1,000,000 bonds for P1,049, 737. The
principal is due on January 1, 20x4 but
interest is due annually starting December
31, 20x1. The bonds are classified as
investment measured at amortized cost. The
yield rates on the bonds is 10%. On
September 30, 20x2, the entire bonds were
sold at 110. Commission paid to the broker
amounted to P10,000. How much is the gain
(loss) on the sale?
22. AIR Co. is contemplating on investing on
12%, 3-year, P1,000,000 bonds. Principal is
due at maturity but interest is due annually at
each year-end. AIR Co. determines that the
current market rate on January 1, 20x1 is
14%. How much is the estimated purchase
price of the bonds on January 1, 20x1?
23. On January 1, 20x1, AIR Co. purchased
10%, P3,000,000 bonds for P3,105,726. The
bonds are classified as financial asset
measured at amortized cost. Principal on the
bonds mature as follows:
December 31, 20x1
December 31, 20x2
December 31, 20x3
Total
“AN ARROW CAN ONLY BE SHOT BY PULLING IT BACKWARD. IF LIFE IS DRAGGING YOU BACK WITH DIFFICULTIES, IT MEANS THAT IT’S GOING TO LAUNCH YOU INTO SOMETHING GREAT. SO JUST FOCUS AND KEEP ON AIMING”
ALBERT I. RIVERA, CPA, MBA, CRA
PROBLEM SOLVING
Interest is due annually at each year-end.
The effective interest rate on the bonds is 8%.
How much is the current portion of the
investment on January 1, 20x1?
24. Refer to No. 23, how much is the unamortized
bond premium on December 31, 20x1?
25. On January 1, 20x1, AIR Co. contemplates
on acquiring 10% P3,000,000 bonds as
investment. Principal on the bonds will
mature in four semi-annual installments as
follows:
July 1, 20x1 1,200,000
December 31, 20x1 800,000
July 1, 20x2 600,000
December 31, 20x2 400,000
Total 3,000,000
Interest on the outstanding principal balance
is also due semi-annually. The effective rate
as of January 1, 20x1 is 8%. How much is the
estimate purchase price of the bonds on
January 1, 20x1.
Dividend-On
26. On March 31, 20x1, LG Inc, declares cash
dividends of P40 per share to shareholders of
record on April 15, 20x1 to be distributed on
April 30, 20x1. On April 9, 20x1, CC
purchases 10,000 LG shares for P400 per
share. The investment is classified as
investment in equity securities measured at
FVOCI. How much is the initial amount of the
investment?
Ex-Dividend
27. On March 31, 20x1, CA, Inc. declares cash
dividends of P40 per share to shareholders of
record on April 15, 20x1 to be distributed on
April 30, 20x1. On April 26, 20x1, JC
purchases 10,000 CA shares for P400 per
share. The investment is classified as
investment in equity securities measured at
FVOCI. How much is the initial carrying
amount of the investment?
Cash Dividends
28. AC holds 10,000 shares of XZ, Inc. as
investment in equity securities. On April 1,
20x1, AC receives notice of declaration of
P10 per share cash dividends. On April 20,
20x1, AC collects the cash dividends. How
much is the dividend income?
Property Dividends
29. AE holds 10,000 shares of JE as an
investment in equity securities. On April 1,
20x1, AE receives inventory with cost of
P130,000 and fair value of P120,000 as
property dividend. How much is the dividend
income?
1,000,000.00
1,000,000.00 Share dividends on financial assets
measured at fair value
1,000,000.00 30. DN holds 10,000 shares of EA as an
3,000,000.00 investment in equity securities. On April 1,
20x1, DN receives shares with fair value of
P130,000 and aggregate par value of
3
 INVESTMENTS, AGRICULTURE & BORROWING COST
PROBLEM SOLVING
MODULE 3

P100,000 as share dividend. How much is Investment in bonds with detachable

the dividend income? warrants
38. SY acquired investments in bonds with
Liquidating Dividends detachable warrants for P1,050,000. The
31. On April 1, 20x1, JN received P120,000 cash bonds have a face amount of P1,000,000.
dividends, 1/3 of which represents liquidating Without the detachable warrants, the bonds
dividends. How much is the dividend are selling at P950,000. The detachable
income? warrants have a fair value of P100,000. The
detachable warrants were subsequently sold
Shares in lieu of cash dividend at P120,000. How much is the gain (loss) on
32. AN holds 10,000 shares of ARO as the sale?
investment in equity securities. On April1,
20x1, AN received 1,000 shares in lieu of Significant Influence
cash dividends of P8 per share. 39. ABC Co. owns 30% of the voting shares of
Alpha Co. the other 60% is held by XYZ and
a. If the investment is measured at FVOCI all seats on the board of directors are
and the fair value of the shares received appointed by XYZ.
is P10 per share, how much is the
dividend income? 40. ABC Co. owns 15% of the voting shares of
b. If the investment is measured at cost, Alpha Co. all other shares are held in very
how much is the dividend income? small blocks and therefore ABC Co. has
many seats on the board of directors.
Cash in lieu of share dividend – Investment at
FVOCI Determining Percentage of Ownership
33. Aby holds 10,000 shares of Aly as investment 41. On January 1 20x1, Abet Co. acquired
in equity securities measured at FVOCI. On 30,000 shares of XYZ’s 100,000 outstanding
April 1, 20x1, Aby received P8,000 cash in shares at P10 per share. Compute for the
lieu of 1,000 share dividends. The fair value percentage of ownership acquired?
of the shares on April 1, 20x1 is P10 per
share. How much is the net effect of the 42. On January 1, 20x1, Abet Co acquired
dividends received on profit or loss? 30,000 newly issued shares of XYZ at P10
per share. Before the acquisition, XYZ had
Cash in lieu of share dividend – Investment at 100,000 ordinary shares outstanding.
cost Compute the percentage of ownership
34. NC holds 10,000 shares of SL as investment acquired?
in equity securities measured at cost. The
investment has a carrying amount of Purchase cost equal to fair value of interest
P110,000. On April 1, 20x1, NC received acquired
P12,000 in lieu of 1,000 share dividends. 43. On January 1, 20x1, Abet Co purchased
How much is the net effect of the dividends 20,000 shares of the 100,000 total
received on profit or loss? outstanding shares of XYZ for P1,000,000.
XYZ’s assets and liabilities approximate their
Accounting for stock rights fair values. In 20x1, XYZ reported profit of
35. ST holds 12,000 shares of JE as investment P3,000,000 and declared and paid cash
in equity securities measured at FVOCI. The dividends of P200,000.
carrying amount of the investment is
P100,000. On March 31, 20x1, ST received In 20x2, XYZ reported loss of P2,000,000,
12,000 stock rights to subscribe to new declared and issued 10% stock dividends,
shares at P6 per share for every 4 rights held. and reported gain on property revaluation of
On March 31, 20x1, the shares and the stock P500,000 and loss on exchange difference
rights have fair values of P10 and P2, on translation of foreign operations of
respectively. How much is the initial carrying P100,000.
amount of the stock rights?
a. Compute for the share in profit or loss of
Theoretical or parity value – Right on associate in 20x1 and 20x2.
36. On March 31, 20x1, Icy received 10,000 b. Compute for the carrying amount of
stock rights from the investment in equity investment on 31 December 20x1 &
securities to subscribe to new shares of P15 20x2.
per share for every 4 rights held. Prior to
issuance of stock rights, the shares were Purchase cost not equal to the fair value of
selling at P20 per share. How much is the interest acquired
initial carrying amount of the stock rights? 44. On January 1, 20x1, Abet Co purchased 25%
interest I the ordinary share of XYZ for
Ex-Right P2,000,000. XYZ’s assets and liabilities
37. On March 31, 20x1, BT received 10,000 approximate their fair values except for
stock rights from the investment in equity inventories with carrying amount of P500,000
securities to subscribe to new shares of P15 and fair value of P100,000 and depreciate
per share for every 4 rights held. Immediately asset with carrying amount of P3,000,000
after issuance of stock rights, the shares and fair value of P5,000,000. The remaining
were selling at P20 per share. How much is useful life of the depreciable asset is 10
the initial carrying amount of the stock rights? years. XYZ’s net assets has a book value of
P5,000,0000.
“AN ARROW CAN ONLY BE SHOT BY PULLING IT BACKWARD. IF LIFE IS DRAGGING YOU BACK WITH DIFFICULTIES, IT MEANS THAT IT’S GOING TO LAUNCH YOU INTO SOMETHING GREAT. SO JUST FOCUS AND KEEP ON AIMING”

ALBERT I. RIVERA, CPA, MBA, CRA 4

 INVESTMENTS, AGRICULTURE & BORROWING COST
MODULE 3
a. Compute for the share in profit or loss/
investment income on 31 December
20x1
b. Compute for the carrying amount of
investment on 31 December 20x1
Potential voting rights
45. ABC Co owns 15,000 shares out of the
100,000 outstanding shares of XYZ, Inc. As
of year-end, ABC holds 20,000 stock rights
which enable ABC to acquire additional
shares from XYZ on a “2 rights for 1 share”
basis. The stock rights are exercisable
immediately. However, management does
not intend to exercise the stock rights. XYZ
does not have any other rights outstanding
aside from those held by ABC.
XYZ reports year-end profit of P1M and
declares cash dividends of P100,000. The
investment has a carrying amount of
P300.000 before any year-end adjustment.
a. How much is ABC’s share in profit of
associate for the year?
b. How much is the carrying amount of the
investment as of year-end?
Cumulative preference shares
46. ABC owns 20% of XYZ Inc.’s ordinary
shares. XYZ also has an outstanding
cumulative 6% preference shares of
P2,000,000. None of those preference
shares is held by ABC. Cumulative
preference share dividends are in arrears for
3 years. XYZ reported year-end profits of
P1,000,000 and declared no dividends.
a. How much is ABC’s Co share in profit or
loss of associate?
b. What if XYZ declared dividends that pay
all of the dividends in arrears on
preference shares, how much is the
share in profit or loss in prior years?
c. What if the preference shares are non-
cumulative, how much is the share in
profit or loss of associate?
d. What if the shares are redeemable
preference shares and XYZ declared
P150,000 cash dividends on the
redeemable preference shares during
the year, how much is the share in profit
or loss of associate?
Relationship between investment in associate
and associate’s equity
47. On January 1, 20x1, ABC Co acquired 20%
interest in XYZ for P1,000,000 at a price that
did not resulted to goodwill. The carrying
amounts of identifiable assets and liabilities
of XYZ approximate their fair values.
Information on XYZ’s financial position as of
January 1. 20x1 is shown below:
Asset
Liabilities
6% Cumulative PS
Ordinary Shares
Retained Earnings
Total Equity
“AN ARROW CAN ONLY BE SHOT BY PULLING IT BACKWARD. IF LIFE IS DRAGGING YOU BACK WITH DIFFICULTIES, IT MEANS THAT IT’S GOING TO LAUNCH YOU INTO SOMETHING GREAT. SO JUST FOCUS AND KEEP ON AIMING”
ALBERT I. RIVERA, CPA, MBA, CRA
PROBLEM SOLVING
ABC holds none of the cumulative preference
shares of XYZ. No dividends were in arrears
as of January 1, 20x1.
In 20x1, XYZ reported profit of P1,000,000
and paid no dividends. In 20x2, XYZ reported
profit of P1,000,000, paid 2-year dividends
on the cumulative preference shares and
paid P200,000 dividends on ordinary shares.
a. What is the carrying amount of
investment in associate on 01 January
20x1?
b. What is investor’s interest in residual
equity of associate on 01 January 20x1?
c. Compute for the share in associate’s
profit in 20x1
d. What is the carrying amount of
investment in associate on 31
December 20x1?
e. What is the investor’s interest in residual
equity of associate on 31 December
20x1?
f. What is the share in associate’s profit in
20x2?
g. What is the carrying amount of
investment on 31 December 20x2?
h. What is the investor’s interest in residual
equity of associate on 31 Dec 20x2?
Loss on significant influence
48. On January 1, 20x1, ABC Co. acquired
30,000 ordinary shares for P3,000,000 which
represents 30% interest in XYZ’s net assets.
At the time of acquisition, XYZ’s net assets
are fairly revalued at P10,000,000. Prior to
revaluation, the net assets had a book value
of P8,000,000. The difference between the
revalued amount and carrying amount is
attributable to a building which was credited
to revaluation surplus. The building has a
remaining useful life of 10 years with no
residual value. It is XYZ’s policy to depreciate
all tangible assets using the straight line
method.
At the end of 20x1, XYZ reported a profit of
P1,000,000 and paid cash dividends of
P600,000. At December 31, 20x1, the shares
are selling at P100 per share.
On July 1, 20x2, ABC sold 60% of its
investment in XYZ at the prevailing market
price of P120 per share. XYZ reported interim
profit of P500,000 for the six months ended
June 30, 20x2. On December 31, 20x2, XYZ
reported total profit of P1,200,000 for the year
and declared P1,000,000 cash dividend. The
shares are quoted at P135 per share at year-
end.
a. Compute for the carrying amount of
investment on July 1, 20x2?
b. How much is the gain on sale of
12,000,000 investment?
5,000,000 c. How much is the gain on remeasurement
2,000,000 or reclassification?
d. What is the total income to be recognized
4,000,000
in profit or loss in 20x2?
1,000,000
7,000,000
5
 INVESTMENTS, AGRICULTURE & BORROWING COST
PROBLEM SOLVING
MODULE 3

Change from FVPL to equity method external parties only in 20x2. ABC’s income
49. On January 1, 20x1, ABC Co. acquired tax rate is 30%.
10,000 shares representing a 10% interest in
XYZ’s 100,000 outstanding shares for XYZ reported profit of P1,000,000 &
P800,000. In 20x1, XYZ reported profit of P1,200,000 on 31 December 20x1 and 31
P5,000,000 and declared and paid dividends December 20x2, respectively.
of P1,000,000. The investment was initially
classified as investment held for trading Compute for the share in profit or loss of
securities measured at FVPL. The fair value associate in 20x1 and 20x2.
of the shares on December 31, 20x1 is P85
per share. Upstream sale of inventory
52. ABC owns 20% of XYZ Inc. and uses the
As of December 31, 20x1, the investment equity method because it has significant
held for trading securities has a carrying influence. In 20x1, XYZ sells inventory to
mount of P850,000 equal to fair value. ABC for P100,000 with a 60% gross profit on
the transaction. The inventory remains
On July 1, 20x2, ABC Co. acquired additional unsold during 20x1 and was sold by XYZ to
15,000 shares at P70 per share resulting to external parties only in 20x2. ABC’s income
an increase in ownership interest over XYZ tax rate is 30%.
from the previous 10% to 25%. The
transaction did not give rise to goodwill. XYZ reported profit of P1,000,000 &
P1,200,000 on 31 December 20x1 and 31
In 20x2, XYZ reported profit of P6,000,000, of December 20x2, respectively.
which P4,000,000 were earned in the second
half of the year. In addition, XYZ declared and Compute for the share in profit or loss of
paid dividends of P1,000,000 on December associate in 20x1 and 20x2.
31, 20x2. The XYZ shares have quoted price
of P90 per share on December 31, 20x2. Downstream sale of depreciable asset
53. ABC Co. owns 20% of XYZ, Inc. outstanding
a. Compute of the carrying amount of shares. On January 1, 20x1, ABC sold
investment in July 1, 20x2? equipment with a carrying amount of
b. Compute for the carrying amount of P100,000 and a remaining useful life of 10
investment 31 Dec 20x2? years to XYZ for P120,000. Gain of P20,000
was recorded by ABC. Both ABC and XYZ
Change from FVOCI to equity mehod use the straight line method of depreciation.
50. On January 1, 20x1, ABC Co. acquired
10,000 shares representing a 10% interest in XYZ reported profit of P1,000,000 &
XYZ’s 100,000 outstanding shares for P1,200,000 on 31 December 20x1 and 31
P800,000. In 20x1, XYZ reported profit of December 20x2, respectively.
P5,000,000 and declared and paid dividends
of P1,000,000. The investment was initially Compute for the share in profit or loss of
classified as investment held for trading associate in 20x1 and 20x2.
securities measured at FVPL. The fair value
of the shares on December 31, 20x1 is P85 Upstream sale of depreciable asset
per share. 54. ABC Co. owns 20% of XYZ, Inc. outstanding
shares. On January 1, 20x1, XYZ sold
As of December 31, 20x1, the investment has equipment with a carrying amount of
a carrying mount of P850,000 equal to fair P100,000 and a remaining useful life of 10
value and the net cumulative unrealized years to ABC for P120,000. Gain of P20,000
gains recognized in equity amounted to was recorded by ABC. Both ABC and XYZ
P50,000. use the straight line method of depreciation.
On July 1, 20x2, ABC Co. acquired additional XYZ reported profit of P1,000,000 &
15,000 shares at P70 per share resulting to P1,200,000 on 31 December 20x1 and 31
an increase in ownership interest over XYZ December 20x2, respectively.
from the previous 10% to 25%. The fair value
of the net assets of XYZ as of July 1, 20x2 is Compute for the share in profit or loss of
P6,00,000. associate in 20x1 and 20x2.
a. How much is the total carrying amount of Downstream sale of non-depreciable asset
investment on July 1, 20x2? 55. ABC Co. owns 20% of XYZ, Inc. outstanding
b. How much is the goodwill arising from shares. On January 1, 20x1, ABC sold land
investment in associate on July 1, 20x2? with a carrying amount of P100,000. Gain of
P20,000 was recorded by XY.
Downstream sale of inventory
51. ABC owns 20% of XYZ Inc. and uses the XYZ reported profit of P1,000,000 &
equity method because it has significant P1,200,000 on 31 December 20x1 and 31
influence. In 20x1, ABC sells inventory to December 20x2, respectively.
XYZ for P100,000 with a 60% gross profit on
the transaction. The inventory remains Compute for the share in profit or loss of
unsold during 20x1 and was sold by XYZ to associate in 20x1 and 20x2.

“AN ARROW CAN ONLY BE SHOT BY PULLING IT BACKWARD. IF LIFE IS DRAGGING YOU BACK WITH DIFFICULTIES, IT MEANS THAT IT’S GOING TO LAUNCH YOU INTO SOMETHING GREAT. SO JUST FOCUS AND KEEP ON AIMING”

ALBERT I. RIVERA, CPA, MBA, CRA 6

 INVESTMENTS, AGRICULTURE & BORROWING COST
PROBLEM SOLVING
MODULE 3

Upstream sale of non-depreciable asset 60. How much is classified as an agricultural

56. ABC Co. owns 20% of XYZ, Inc. outstanding produce?
shares. On January 1, 20x1, XYZ sold land 61. How much is classified as inventory?
with a carrying amount of P100,000. Gain of
P20,000 was recorded by ABC. Measurement
Bibe Co. has the following information:
XYZ reported profit of P1,000,000 &
P1,200,000 on 31 December 20x1 and 31 Price in the principal market 80,000
December 20x2, respectively. Commission to brokers 4,000
Transport Cost 2,800
Compute for the share in profit or loss of Levies by commodity exchange 1,200
associate in 20x1 and 20x2. Transfer taxes and duties 2,000
Advertising cost 800
Share in losses of associate
57. On January 1, 2012, Bart Company acquired 62. How much is the fair value of the biological
as a long term investment for P7,000,000, a asset?
40% interest in Hall Company when the fair 63. How much is the cost to sell of the biological
value of Hall’s net assets was P17,500,000. asset?
Hall Company reported the following net 64. How much is the valuation of the biological
losses: asset to be presented in the statement of
financial position?
2012 5,000,000
2013 7,000,000 Access to different markets
2014 8,000,000 65. Information on a biological asset of Kaw Co.
2015 4,000,000 with a historical cost of P100 is shown below:

On January 1, 2014, Bart Company made Active Active

cash advances of P2,000,000 to Hall Market 1 Market 2
Company. On December 31, 2015, it is not Market Price 130 125
expected that Bart Company will provide Costs to sell 15 5
further financial support for Hall Company. Transport 10 10
Costs
What amount should be reported as loss from
investment for 2015? The contract price of the biological asset is
P90.
Distinction between Biological asset,
Agricultural produce and Inventory a. If “Active Market 1” is the principal market
for the asset, at what amount is the
The following information pertains to Biik Co. biological asset recognized in the year-
end financial statements?
Sheep 500,000 Wool 6,000 b. If neither market is the principal market
Rubber 10,000 Thread 3,000
Products for the asset, at what amount is the
Trees in Timber 95,000 Felled Trees 8,000 biological asset recognized in the year-
plantation end financial statements?
Maize plants 40,000 Clothing 150,000
Lumber 62,000 Milk 9,000
Pigs 200,000 Carcass 7,000
Loss on initial recognition of biological asset
Roasted 20,000 Sugar 67,000 66. On January 1, 20x1, Baboy Co. acquired a
peanuts biological asset at its fair value of P40,000.
Cotton plants 10,000 Harvested 13,000 Necessary costs incurred o the purchase
Cotton totaled P8,000. It was estimated that if the
Peanut plants 5,000 Harvested 140,000
Peanuts biological asset is to be sold currently, costs
Sugarcane 25,000 Harvested 22,000 to sell would amount to P2,000. How much is
Cane the loss recognized on January 1, 20x1?
Tobacco plants 45,000 Picked Leaves 3,000
Tea bushes 800,000 Oil palms 300,000
Dairy Cattle 1,000,000 Picked grapes 2,000
Gain on initial recognition of biological asset
Fruit Trees 600,000 Picked fruit 10,000 67. On August 1, 20x1, a dairy cattle of Caboy Co.
Tea 43,000 Grape vines 2,000,000 gave birth to a calf. The fair value less cost to
Rubber Trees 300,000 Harvested 10,000 sell of a newly born calf as of August 1 is
latex P20,000. Costs incurred to induce procreation
Yarn 22,000 Cured tobacco 320,000
Carpet 33,000 Wine 500,000
such as cost of artificial insemination, costs of
Logs 45,000 Processed fruit 20,000 labor and cesarean birth totaled P12,000. How
Wheat plants 60,000 Palm oil 50,000 much is gain recognized on August 1, 20x1?
Cheese 75,000 Bean plants 20,000
Sausage 88,000 Cured hams 92,000
Gain on initial recognition of agricultural
produce
58. How much is classified as biological assets 68. On April 1, 20x1, Pato Co. harvested ripe
that are accounted for under PAS 41 mangoes. The harvested mangoes have fair
Agriculture? value less costs to sell of P200,000 on April
59. How much is classified as property, plant and 1, 20x1. Labor costs incurred in the harvest
equipment that are accounted for under PAS totaled P20,000. The harvested mangoes are
16 PPE? initially recognized at?
“AN ARROW CAN ONLY BE SHOT BY PULLING IT BACKWARD. IF LIFE IS DRAGGING YOU BACK WITH DIFFICULTIES, IT MEANS THAT IT’S GOING TO LAUNCH YOU INTO SOMETHING GREAT. SO JUST FOCUS AND KEEP ON AIMING”

ALBERT I. RIVERA, CPA, MBA, CRA 7

 INVESTMENTS, AGRICULTURE & BORROWING COST
MODULE 3
Gains or losses on changes in fair value less
cost to sell
On January 1, 20x1, the biological assets of
Daboy Co. consist of ten 2 year old animals with
fair value less cost to sell of P40,000 each for a
total of 400,000.
Transactions during the year include the
following:
a. One animal aged 2.5 years was purchased
on July 1, 20x1 for P43,200
b. One animal was born on July 1, 20x1
c. No animal were sold or disposed of during the
period
Per unit fair value less costs to sell are as
follows:
a. Newborn animal at July 1 – P28,000
b. 2.5 year old animal at July 1 – 43,200
c. Newborn animal at 31 December – 28,800
d. 0.5 year old animal at 31 December – 32,000
e. 2 year old animal at 31 December – 42,000
f. 2.5 year old animal at 31 December – 44,400
g. 3 year old animal at 31 December – 48,000
69. How much is the total gain from the change
in FVLCS during 20x1?
Biological assets attached to land
70. Caboy Co. has the following assets as of 31
December 20x1:
Land held as plantation
Trees (planted on the land
referred to above)
The combined market value of the assets is
P2,000,000 while the market value of the
land is P1,280,000, 10% of which is
attributable to improvements on the land.
How much is the valuation of the biological
assets?
Unconditional Government Grant
71. On January 1, 20x1, Daboy Co. was granted
by a local government a grant of P400,000 to
aid Daboy in financing the domestication of
ostriches. The ostriches are managed to
produce eggs that are sold to the community.
Daboy measures its biological assets at
FVLCS. No conditions are attached to the
grant. How much is the income from
government grant to be recognized in 20x1?
Conditional government grant
72. On December 31, 20x1, Faboy Co was
granted by a local government a grant of
P400,000 to aid Faboy in planting Philippine
evergreen trees. This certain tree has small
yellowish flowers followed by fleshy pods with
many seeds that bears cacao. Cacao beans
are dried, partly fermented, powdered ground
and roasted in order to produce a raw
material for the production of chocolates. The
grant becomes receivable when Faboy
acquires a suitable site to plant the trees. As
of December 31, 20x1, Faboy has yet to
comply with the condition. How much is the
income from government grant to be
recognized in 20x1?
“AN ARROW CAN ONLY BE SHOT BY PULLING IT BACKWARD. IF LIFE IS DRAGGING YOU BACK WITH DIFFICULTIES, IT MEANS THAT IT’S GOING TO LAUNCH YOU INTO SOMETHING GREAT. SO JUST FOCUS AND KEEP ON AIMING”
ALBERT I. RIVERA, CPA, MBA, CRA
PROBLEM SOLVING
Conditional government grant
In 20x1, Gaboy Co. was granted by a local
government a 3-hectare land to plant “camote”.
The land has a fair value of P2,000,000. The
grant requires Gaboy to farm only within the city
limits for 5 years. If any of the conditions is
breached, Gaboy is required to return the entire
grant.
73. How much income from government grant is
recognized in 20x1?
74. How much income from government grant is
recognized is 20x6, after the 5-year
restriction has lapsed?
Part of the government grant retained due to
passage of time
On January 1, 20x1, Haboy Co. was signed by a
local government a P2,000,000 grant to aid
Haboy Co. in planting “sayote”. The grant
requires Haboy to farm only within the city limits
for 5 years. If any of the conditions is breached.
Haboy must return the grant taking into
consideration the portion retained based on
passage of time.
75. Assuming no breach of condition, how much
income from government grant is recognized
in 20x1?
76. Assuming no breach of condition, how much
income from government grant is recognized
in 20x2?
1,200,000
480,000 Change in FVLCS attributable to price change
and physical change
On January 1, 20x1, the biological assets of
Jaboy Co. consist of ten 2 year old animals with
fair value less cost to sell of P40,000 each for a
total of 400,000.
Transactions during the year include the
following:
a. One animal aged 2.5 years was purchased
on July 1, 20x1 for P43,200
b. One animal was born on July 1, 20x1
c. No animal were sold or disposed of during the
period
Per unit fair value less costs to sell are as
follows:
a. Newborn animal at July 1 – P28,000
b. 2.5 year old animal at July 1 – 43,200
c. Newborn animal at 31 December – 28,800
d. 0.5 year old animal at 31 December – 32,000
e. 2 year old animal at 31 December – 42,000
f. 2.5 year old animal at 31 December – 44,400
g. 3 year old animal at 31 December – 48,000
77. How much is the total gain from the change
in FVLCS during 20x1?
78. How much is the gain on change in FVLCS
due to price change?
79. How much is the gain on change in FVLCS
due to physical change?
Change in FVLCS attributable to price change
and physical change
On January 1, 20x1, the biological assets of
Kaboy Co. consist of ten 2 year old animals with
8
 INVESTMENTS, AGRICULTURE & BORROWING COST
PROBLEM SOLVING
MODULE 3

fair value less cost to sell of P40,000 each for a General Borrowing (expenditures incurred
total of 400,000. evenly)
85. On January 1, 20x1, CLSU Co. had the
Transactions during the year include the following borrowings made for general
following: purposes and a part of the proceeds was
a. One animal aged 2.5 years was purchased used to finance the construction of a
on July 1, 20x1 for P43,200 qualifying asset:
b. One animal was born on July 1, 20x1
c. Two animals from the January 1, 20x1 Principal
biological assets were sold for P48,000 each 12% short-term note 40,000,000
on September 1, 20x1 14% bank loan (3-year) 72,000,000
d. One animal from the January 1, 20x1 16% note payable (5-year) 88,000,000
biological assets died of “mad cow” disease
on November 1, 20x1 The construction started on January 1 and
was completed on December 20x1. The total
Per unit fair value less costs to sell are as cost of construction was P72M which was
follows: incurred evenly during the year. How much is
a. Newborn animal at July 1 – P28,000 the capitalizable borrowing cost?
b. 2.5 year old animal at July 1 – 43,200
c. Newborn animal at 31 December – 28,800
Specific and General Borrowing
d. 0.5 year old animal at 31 December – 32,000
86. On January 1, 20x1, DLSU Co. contracted for
e. 2 year old animal at 31 December – 42,000
the construction of a building for P80M on a
f. 2.5 year old animal at 31 December – 44,400
land that it had previously purchased. The
g. 3 year old animal at 31 December – 48,000
building was completed on December 20x1.
The following payments were made to the
80. How much is the total gain from the change
contractor:
in FVLCS during 20x1?
81. How much is the gain on change in FVLCS
Payment Date Amount
due to price change?
82. How much is the gain on change in FVLCS January 1, 20x1 8,000,000
due to physical change? March 31, 20x1 24,000,000
September 30, 20x1 40,000,000
Specific Borrowing December 31, 20x1 8,000,000
83. On January 1, 20x1, ALSU Co. borrowed
P20M to finance the construction of a new The following represents the borrowings of
building. Interest is payable on the loan at DLSU Co. as of December 31, 20x1:
8%. Stage payments wre dure throughout the a. 10%, P28M, 4-year note dated January
construction period and therefore excess 1, 20x1 with simple interest payable
funds were invested during that period. By annually, specifically borrowed to finance
the end of the project on December 31, 20x1, the construction project. Interest income
investment income of P600,000 had been earned on the temporary investment of
earned. How much is the capitalized the proceeds is P480,000
borrowing cost? b. 12.5%, P40M, 10-year note dated
January 1, 20x1 with interest payable
annually
General Borrowing
c. 10%, P60M, 10-year note dated
84. On January 1, 20x1, BLSU Co. had the
December 31, 19x9 with interest payable
following borrowings made for general
annually
purposes and a part of the proceeds was
used to finance the construction of a
How much is the capitalizable borrowing
qualifying asset:
cost?
Principal
Limit on average expenditures
12% short-term note 40,000,000
87. FLSU Co. started construction of a qualifying
14% bank loan (3-year) 72,000,000
asset for GLSU Co. on January 1 20x1. The
16% note payable (5-year) 88,000,000 following were expenditures incurred on the
construction.
The construction of the qualifying asset was
started on immediately and expenditures Date Expenditures
incurred on the qualifying asset were as
January 1, 20x1 4,000,000
follows:
May 1, 20x1 1,800,000
December 1, 20x1 2,880,000
Jan 1 19,200,000
March 31 8,800,000
a. Included in the January 1, 20x1,
July 30 14,000,000
expenditures is cost of materials
October 1 21,600,000 purchased on account for P400,000. The
December 31 1,200,000 account was settled on July 1, 20x1.
b. Included in May 1, 20x1, expenditures is
How much is the capitalizable borrowing P40,000 cost of materials obtained in
cost? exchange for old equipment.

Progress billings during the year are as follows:

“AN ARROW CAN ONLY BE SHOT BY PULLING IT BACKWARD. IF LIFE IS DRAGGING YOU BACK WITH DIFFICULTIES, IT MEANS THAT IT’S GOING TO LAUNCH YOU INTO SOMETHING GREAT. SO JUST FOCUS AND KEEP ON AIMING”

ALBERT I. RIVERA, CPA, MBA, CRA 9

 INVESTMENTS, AGRICULTURE & BORROWING COST
PROBLEM SOLVING
MODULE 3

Date of Amount Date billings

Billing Billed were collected
April 1, 20x1 800,000 June 1, 20x1
September 1, 2,400,000 November 1,
20x1 20x1

a. Payments on billings are subject to 10%

withholding by GLSU Co.
b. FLSU Co. determined the capitalization
rate to be 10%

How much is the capitalizable borrowing cost?

Extended period of construction

HLSU Co. started construction of a qualifying
asset for ILSU Co. on January 1, 20x1. The
following were expenditures incurred on
construction.

20x1 Expenditures
January 1, 20x1 4,000,000
May 1, 20x1 1,800,000
December 1, 20x1 2,880,000

20x2 Expenditures
January 1, 20x2 3,600,000
August 31, 20x2 1,200,000
20x3 Expenditures
July 1, 20x3 2,400,000

HLSU Co. determined the capitalization rate to be

10%. The construction of the qualifying asset was
substantially completed on September 30, 20x3.

88. How much is the capitalizable borrowing cost

in 20x1?
89. How much is the capitalizable borrowing cost
in 20x2?
90. How much is the capitalizable borrowing cost
in 20x3?
91. How much is the total cost of the constructed
qualifying asset on September 30, 20x3?

“AN ARROW CAN ONLY BE SHOT BY PULLING IT BACKWARD. IF LIFE IS DRAGGING YOU BACK WITH DIFFICULTIES, IT MEANS THAT IT’S GOING TO LAUNCH YOU INTO SOMETHING GREAT. SO JUST FOCUS AND KEEP ON AIMING”

ALBERT I. RIVERA, CPA, MBA, CRA 10