PSBA Refresher Course

Financial Accounting and Reporting CHRISTIAN ARIS VALIX

Review – Investments to Intangible Assets

1. At the beginning of current year, an entity acquired 200,000 ordinary shares of another entity for
P9,000,000. At the time of purchase, the investee had 800,000 shares outstanding with a carrying amount
of P36,000,000. The following events took place during the current year:

• The investee reported net income of P1,800,000 for the current year.
• The entity received a dividend of P3.00 per ordinary share.
• The market value of the investee’s share is P40.

The entity has elected irrevocably to measure the investment at FVOCI. What is the carrying amount of
the investment at year-end?

a. 9,000,000
b. 8,000,000
c. 9,300,000
d. 9,450,000

2. An entity held the following financial assets as trading investments on December 31, 2021:

Cost Market value

100,000 shares of Company A, nonredeemable

preference share capital, par value P75 775,000 825,000

7,000 shares of Company B, preference share

capital, par value P100, subject to mandatory
redemption by the issuer at par on December 31, 2022 690,000 625,000

On December 31, 2021, what is the total carrying amount of the investments?

a. 1,400,000
b. 1,450,000
c. 1,465,000
d. 1,450,000

3. At the beginning of the current year, an entity purchased 10% of another entity’s outstanding ordinary
shares for P4,000,000. The entity is the largest single shareholder in the investee and the entity’s officers
are a majority of the investee’s board of directors. The investee reported net income of P5,000,000 and
paid cash dividend of P1,500,000. What is the carrying amount of the investment at year-end?

a. 4,500,000
b. 4,350,000
c. 4,000,000
d. 3,850,000

4. On July 1, 2021, an entity purchased as a long-term investment P5,000,000 face amount, 8% bonds of
another entity for P4,615,000 to yield 10% per year. The bonds pay interest semiannually on January 1
and July 1. On December 31, 2021, what amount should be reported as interest receivable?

a. 184,600
b. 200,000
c. 230,750
d. 250,000
5. An entity incurred the following expenditures related to land and building.
Cash paid for land and dilapidated building 3,000,000
Removal of old building to make room for construction of new building 200,000
Payment to tenants for vacating old building 150,000
Architect fee for new building 200,000
Building permit for new construction 50,000
Fee for title search 50,000
New building constructed 7,000,000
Assessment by city for drainage project 100,000
Cost of grading, leveling and landfill 250,000
Driveway and walk to new building from street as part of building plan 400,000
Temporary quarters for construction crew 200,000
Temporary building to house tools and materials 150,000
Cost of changes during construction to make new building more energy efficient 350,000
Cost of windows broken by vandals 100,000
What is the cost of land and the new building respectively?
a. 3,300,000 and 8,800,000
b. 3,150,000 and 8,500,000
c. 3,050,000 and 8,300,000
d. 3,400,000 and 8,700,000

6. During 2021, an entity constructed asset costing P4,215,000. The weighted average expenditures during
the year amounted to P3,900,000. The entity borrowed P2,000,000 at 7.5% on January 1, 2021. Funds not
needed for construction were temporarily invested in short-term securities and earned P59,000 in interest
revenue. In addition to the construction loan, the entity had two other notes outstanding during the year, a
P1,500,000, 10-year, 10% note payable dated October 1, 2020 and a P1,000,000, 8% 5-year note payable
dated November 1, 2020. What amount of interest should be capitalized during 2021?

a. 324,800
b. 297,500
c. 273,000
d. 265,800

7. An entity spent P12,000,000 during the current year developing a new software package. Of this amount,
P4,000,000 was spent before it was at the application development stage and the package was only to be
used internally. The package was completed during the year and expected to have a four-year useful life.
The entity has a policy of taking a full year amortization in the first year. After the development stage, an
amount of P50,000 was spent on training employees to use the program. What total amount should be
reported as expense for the current year?

a. 6,012,500
b. 6,050,000
c. 1,600,000
d. 2,000,000

8. An entity has been working on creating a new tablet to compete with existing tablets. The entity is
confident it has the ability to sell the asset and show a profit. The entity spent P2,000,000 during the first
quarter of the current year studying alternatives. During the second quarter, the entity spent an additional
P250,000 improving one alternative at which point it became technologically and economically feasible.
During the third quarter, the entity spent another P750,000 on the tablet to make it ready for use and sale
by the end of the year. What amount should be capitalized as an asset?

a. 3,000,000
b. 1,000,000
c. 750,000
d. 0

END