1.

At the beginning of current year, SME acquired 20% of the equity of A and B for P2,000,000 and P6,000,000
respectively. Transaction costs of 10% of the purchase price of the shares were incurred by SME. On January
15, entity A declared and paid dividend of P1,500,000. Entity A recognized net income of P2,500,000 and
entity B recognized a net loss of P4,000,000 for that year. At year-end, SME determined the fair value of the
investments in A and B at P3,000,000 and P4,000,000 respectively. Costs of disposal are estimated at 10% of
the fair value of the investments. Published price quotations do not exist for the shares of entities A and B.
1. Under cost model, what is the total carrying amount of the investments in associates?
a. 5,800,000
b. 6,300,000
c. 7,000,000
d. 6,200,000
2. What is the impairment loss under the cost model?
a. 2,000,000
b. 3,000,000
c. 2,400,000
d. 0
3. Under equity method, what is the total carrying amount of the investments in associates?
a. 8,200,000
b. 6,000,000
c. 8,800,000
d. 8,500,000
4. What is the impairment loss under the equity method?
a. 2,200,000
b. 1,800,000
c. 1,900,000
d. 0
5. Under fair value model, what is the total carrying amount of the investments in associates?
a. 8,000,000
b. 6,300,000
c. 7,000,000
d. 6,000,000
2. At the beginning of current year, SME acquired a 30% interest in the ordinary shares of another entity for
P15,000,000. The carrying amount of the net assets acquired is P13,000,000. SME elected to use the equity
method. The carrying amounts of the identifiable assets and liabilities of the investee equaled fair value. The
investee reported net income of P20,000,000 for the current year and declared dividend of P7,500,000 at year-
end. The fair value of the investment in associate is P20,000,000 at year-end.
1. What is the investment income for the current year?
a. 2,250,000
b. 6,000,000
c. 5,800,000
d. 8,050,000
2. What is the carrying amount of the investment at year-end?
a. 18,550,000
b. 16,550,000
c. 21,000,000
d. 18,750,000
3. On January 1, 2019, SME acquired trademark for P3,000,000. The SME expected to continue marketing the
line of products using the trademark indefinitely. Management is unable to estimate the useful life of the
trademark. In 2022, a competitor unexpectedly revealed a technological breakthrough that is expected to result
in a product, that when launched by the competitor, will extinguish demand for SME’s patented product line.
Demand for SME’s patented product line is expected to remain strong until December 2024, when the
competitor is expected to launch the new product. On December 31, 2022, SME assessed the recoverable
amount of the trademark at P500,000. SME intended to continue manufacturing the patented products until
December 31, 2024.
1. What amount should be reported as amortization of trademark for 2022?
a. 300,000
b. 600,000
c. 700,000
d. 0
2. What amount should be recognized as impairment loss for 2022?
a. 3,000,000
b. 2,500,000
c. 900,000
d. 0
4. At the beginning of current year, an SME acquired a building to be held as investment property in a remote
location for P5,000,000. After initial recognition, the entity concluded that the fair value of the investment
property cannot be measured reliably without undue cost or effort on an ongoing basis. At year-end,
management assessed the building’s useful life at 25 years from date of acquisition and presumed the residual
value to be nil because the fair value cannot be determined reliably. The entity declined an unsolicited offer
to purchase the building for P6,500,000. This is a one-time offer that is unlikely to be repeated in the
foreseeable future.
What is the carrying amount of the building at year-end?
a. 5,000,000
b. 6,500,000
c. 6,240,000
d. 4,800,000
5. An SME incurred and paid the following expenditures in 2022:
January 1 20% of the price is attributable to land 50,000,000
January 1 Nonrefundable transfer taxes not included in the P50,000,000 purchase price 5,000,000
January 1 Legal cost directly attributable to the acquisition 5,000,000
January 1 Reimbursing the previous owner for paying the nonrefundable property tax
for the six-month period ending June 30, 2022 2,000,000
June 30 Nonrefundable annual property tax for the year ending June 30, 2023 4,000,000
During 2022, Day-to-day repairs and maintenance 1,000,000
On December 31, 2022, SME assessed that the useful life of the building is 40 years with residual value of
P3,000,000.
1. What amount should be reported as initial cost of the land?
a. 12,000,000
b. 10,000,000
c. 11,000,000
d. 12,400,000
2. What amount should be reported as initial cost of the building?
a. 44,000,000
b. 48,000,000
c. 40,000,000
d. 49,600,000