EXERCISE NUMBER 8 (E08): INVESTMENTS

Problem 1.
1 Prepare the required journal entries from 2020 to 2021. (One point per journal entry.)
.

Requirement 1:

January 1, 2020:
Equity securities–FVTPL P2,000,000
Cash P2,000,000

December 31, 2020:

Equity securities–FVTPL P 200,000

Unrealized gain–P/L P 200,000

December 31, 2021:

Equity Securities-FVTPL P 100,000

Unrealized gain-P/L P 100,000

2 Compute the balance of the equity securities on December 31, 2020.

.
Fair value, December 31, 2020 (P2,000,000 x 110%) P2,200,000
Balance of the equity securities on December 31, 2020 P2,200,000

3 Compute the amount to be presented in profit or loss statement on December 31, 2020.
.
Fair value, December 31, 2020 P2,200,000
Fair value, January 1, 2020 2,000,000
Unrealized gain in profit or loss statement, 2020 P 200,000
4 Compute the balance of the equity securities on December 31, 2021.
.

Fair value, December 31, 2021 (P2,000,000 x 115%) P2,300,000

Balance of the equity securities on December 31, 2021 P2,300,000

5 Compute the amount to be presented in profit or loss statement on December 31, 2021.
.

Fair value, December 31, 2021 P2,300,000

Fair value, January 1, 2021 2,200,000
Unrealized gain in profit or loss statement, 2020 P 100,000

Problem 2.

1. Prepare the required journal entries from 2020 – 2021.

January 1, 2020:

Equity securities–FVOCI P3,000,000

Cash P3,000,000

December 31, 2020:

Unrealized loss–FVOCI P 120,000

Equity Securities - FVOCI P 120,000

December 31, 2021:

Equity Securities-FVTPL P 600,000

Unrealized gain-P/L P 600,000
2. Compute the balance of the equity securities on December 31, 2020 and 2021

For 2020
Fair value, December 31, 2020 (P3,000,000 x 96%) P2,880,000
Balance of the equity securities on December 31, 2020 P2,880,000

For 2021
Fair value, December 31, 2020 (P3,000,000 x 116%) P3,480,000
Balance of the equity securities on December 31, 2021 P3,480,000

3. Compute the amount to be presented in profit or loss statement on December 31, 2020.

For 2020
Fair value, December 31, 2020 P2,880,000
Fair value, January 1, 2020 3,000,000
Unrealized loss in profit or loss statement, 2020 (P200,000)

For 2020
Fair value, December 31, 2021 P3,480,000
Fair value, January 1, 2021 2,880,000
Unrealized gain in profit or loss statement, 2021 P600,000
4. Compute the amount to be presented in the statement of financial position – equity section on
December 31, 2020 and 2022.

For 2020:

Fair value, December 31, 2020 P2,880,000

Fair value, January 1, 2020 3,000,000
Unrealized loss in statement of financial position–equity section, AOCI as of P 200,000
2020

For 2021:

Fair value, December 31, 2021 P3,840,000

Fair value, January 1, 2021 2,880,000
Unrealized gain in statement of financial position–equity section, AOCI as of P 600,000
2021

Alternatively:

Unrealized loss–OCI, 2020 P

200,000
Unrealized gain–OCI, 2021
600,000
Unrealized gain in statement of financial position–equity section, AOCI as of P
2021 400,000

Problem 3.

1. Compute the amount of interest income to be recognized in profit or loss statement for
2020

Investment in bonds–FVTPL P3,000,000

Cash P3,000,000
To record the purchase of bonds to be held as financial asset through profit or loss.

Face value of the bonds P3,000,000

Multiplied by: Stated interest rate
10%
Interest income to be recognized in profit or loss statement for 2020 P 300,000
2. Compute the carrying amount of the bonds to be presented in the statement of financial
position as of December 31, 2020.

Face value of the bonds P3,000,000

Multiplied by: Quoted price
112%
Carrying amount of the bonds as of December 31, 2020 P3,360,000

3. Compute the carrying amount to be presented in the financial statements in relation to

change in fair value on December 31, 2020.

Investment in bonds–FVTPL P 360,000

Unrealized gain–P/L P 360,000

Fair value of the bonds, December 31, 2020 P3,360,000

Face value of the bonds, January 1, 2020 3,000,000
Unrealized gain–P/L, 2020 P 360,000

4. Compute the carrying amount of the bonds to be presented in the statement of financial
position as of December 31,2021.

Face value of the bonds P3,000,000

Multiplied by: Quoted price
115%
Carrying amount of the bonds as of December 31, 2021 P3,450,000

5. Compute the amount to be presented in the financial statements in relation to change in

the fair value on December 31, 2021.

Investment in bonds–FVTPL P 90,000

Unrealized gain–P/L P 90,000

Fair value of the bonds, December 31, 2021 P3,450,000

Fair value of the bonds, January 1, 2021 3,360,000
Unrealized gain–P/L, 2021 P 90,000
Problem 4.

1. Compute the amount of interest income to be recognized in profit or loss statement

for 2020.

Investment in bonds–FVTPL P4,000,000

Cash P4,000,000

Face value of the bonds P4,000,000

Multiplied by: Stated interest rate
10%
Interest income to be recognized in profit or loss statement for 2020 P 400,000

2. Compute the carrying amount of the bonds to be presented in the statement of

financial position as of the December 31, 2020.

Face value of the bonds P4,000,000

Multiplied by: Quoted price
112%
Carrying amount of the bonds as of December 31, 2020 P4,480,000

3. Compute the amount to be presented in the financial statements in relation to change in

fair value on December 31, 2020

Investment in bonds–FVTPL P 480,000

Unrealized gain–P/L P 480,000

Fair value of the bonds, December 31, 2020 P4,480,000

Face value of the bonds, January 1, 2020 4,000,000
Unrealized gain–P/L, 2020 P 480,000

4. Compute the carrying amount of the bonds to be presented in the statement of financial
position as of the December 31, 2021.

Face value of the bonds P4,000,000

Multiplied by: Quoted price
115%
Carrying amount of the bonds as of December 31, 2021 P4,600,000
 5. Compute the amount to be presented in the financial statements in relation to change in
fair value on December 31, 2021

Investment in bonds–FVTPL P 90,000

Unrealized gain–P/L P 90,000

Fair value of the bonds, December 31, 2021 P4,600,000

Fair value of the bonds, January 1, 2021 4,480,000
Unrealized gain–P/L, 2021 P
120,000

Problem 5.
Present value of the principal amount (P4,000,000 x 0.62) P2,480,000
Add: Present value of the interest [(P4,000,000 x 12%) x 3.79]
1,819,200
Total present value of the bonds issued P4,299,200
Less: Face value of the bonds 4,000,000
Discount on bonds payable P 299,200

(At 12%)
Interest (At 10%) Amortization Carrying value
Date received Interest income of discount of the bonds
01/01/2020 P4,299,200
12/31/2020 P 480,000 P 429,920 P 50,080 4,249,120
12/31/2021 480,000 424,912 55,088 4,199,032
12/31/2022 480,000 419,903.2 60,097 4,138,935
12/31/2023 480,000 413,894 66,106 4,072,829
12/31/2024 480,000 407,171 72,829 4,000,000

1. Compute the amount of interest income to be recognized in profit or loss statement for
2020.

Investment in bonds–FAAC P4,299,200

Cash P4,299,200
To record the purchase of bonds to be held as financial asset at amortized cost.

Cash P 480,000
Interest income P 480,000
To record the interest received for 2020.

Interest income P 50,080

Investment in bonds–FAAC P 50,080
To record the amortization of bond premium for 2020.

Interest income based on amortization table P 429,920

 2. Compute the carrying amount of the bonds to be presented in the statement of financial
position as of December 31, 2020

Carrying amount of the bonds as of December 31, 2020 (see amortization P4,249,120
table)

3. Compute the carrying amount of the bonds to be presented in the statement of

financial position as of the December 31, 2021.

Carrying amount of the bonds as of December 31, 2021 (see amortization P4,199,032
table)

4. Compute the carrying amount of the bonds to be presented in the statement of

financial position as of the December 31, 2022.

Carrying amount of the bonds as of December 31, 2022 (see amortization P4,138,935
table)

5. Compute the carrying amount of the bonds to be presented in the statement of

financial position as of the December 31, 2023.

Carrying amount of the bonds as of December 31, 2023 (see amortization P4,072,829
table)
Problem 6.

Present value of the principal amount (P4,000,000 x 0.57) P2,280,000

Add: Present value of the interest [(P4,000,000 x 10%) x 3.60]
1,440,000
Total present value of the bonds issued P3,720,000
Less: Face value of the bonds 4,000,000
Discount on bonds payable P 280,000

(At 10%)
Interest (At 12%) Amortization Carrying value
Date received Interest income of discount of the bonds
01/01/2020 P3,720,000
12/31/2020 P 400,000 P 446,400 P 46,400 3,766,400
12/31/2021 400,000 451,968 51,968 3,818,368
12/31/2022 400,000 458,204.2 58,204.2 3,876,572.2
12/31/2023 400,000 465,189 65,189 3,941,761.2
12/31/2024 400,000 458,239 58,239 4,000,000

1. Compute the amount of interest income to be recognized in profit or loss statement for
2020.

Investment in bonds–FAAC P3,720,000

Cash P3,720,000
To record the purchase of bonds to be held as financial asset at amortized cost.

Cash P 400,000
Interest income P 400,000
To record the interest received for 2020.

Investment in bonds–FAAC P 46,400

Interest income P 46,400
To record the amortization of bond discount for 2020.

Interest income based on amortization table P 446,400

2. Compute the carrying amount of the bonds to be presented in the statement of

financial position as of the December 31, 2020.

Carrying amount of the bonds as of December 31, 2020 (see amortization P3,766,400
table)
 3. Compute the carrying amount of the bonds to be presented in the statement of
financial position as of the December 31, 2021.

Carrying amount of the bonds as of December 31, 2021 (see amortization P3,818,368
table)

4. Compute the carrying amount of the bonds to be presented in the statement of

financial position as of the December 31, 2022.

Carrying amount of the bonds as of December 31, 2022 (see amortization P3,876,572.2
table)

5. Compute the carrying amount of the bonds to be presented in the statement of

financial position as of the December 31, 2023.

Carrying amount of the bonds as of December 31, 2023 (see amortization P3,941,761.2
table)

Problem 7.

1. Compute the amount of excess of acquisition cost over carrying amount of net
assets purchased at the date of acquisition January 1, 2020.

Acquisition costs P3,000,000

Less: Carrying value of the net assets acquired [(P8,000,000 – P2,000,000) x 1,800,000
30%]
Excess of acquisition costs over the carrying value of the net assets P1,200,000
acquired
 2. Compute the amount of goodwill or gain of purchase from associate interest/excess
of fair value of the net assets purchased at the date of acquisition January 1, 2020.

Acquisition costs P3,000,000

Less: Fair value of the net assets acquired [(P8,000,000 – P2,000,000) x 30%] 1,800,000
Goodwill (acquisition cost is higher that the fair value of net assets acquired) P1,200,000

3. Compute the carrying amount of KDRAMA Company’s investment in KPOP Company at

the end of 2020 under equity method.

Acquisition costs P3,000,000

Add: Share in net income (P5,000,000 x 30%) 1,500,000
Less: Share in dividends declared by associate (P1,500,000 x 30%)
450,000
Balance of the investment in associate as of 2020 P4,050,000

Investment in Associates–KPOP Company P 1,500,000

Investment income P 1,500,000

Cash P 450,000
Investment in Associates–KPOP Company P 450,000

4. Compute the carrying amount of KDRAMA Company’s investment in KPOP Company at

the end of 2021 under equity method.

Beginning balance P4,050,000

Less: Share in net loss (P2,000,000 x 30%) 600,000
Less: Share in dividends declared by associate (P1,000,000 x 30%)
300,000
Balance of the investment in associate as of 2021 P3,150,000

Investment loss/Loss on investment P 300,000

Investment in Associates–KPOP Company P 300,000

Cash P 200,000
Investment in Associates–KPOP Company P 200,000
 5. Compute the carrying amount of KDRAMA Company’s investment in KPOP Company at
the end of 2022 under equity method.

Acquisition costs P3,150,000

Add: Share in net income (P3,000,000 x 30%) 900,000
Less: Share in dividends declared by associate (P1,700,000 x 30%)
510,000
Balance of the investment in associate as of 2020 P3,540,000

Investment in Associates–KPOP Company P 900,000

Investment income P 900,000

Cash P 510,000
Investment in Associates–KPOP Company P 510,000