Intermediate Accoun ng 1

PRACTICE PROBLEMS: FINANCIAL ASSETS MEASURED AT FVPL & FVOCI

1. Held for trading securi es- Equity Securi es measured at FVPL

On January 1, 2023, Aliza Company purchased 10,000 shares of Crystal Company for P200,000. Taxes
and licenses incurred amounted to P 10,000. Aliza Company classified the investment as
subsequently measured at fair value through profit or loss.

Journal Entry:

Ini al Entry:
Jan. 1, 2023 Held for trading- FVPL 200,000
Taxes and Licenses 10,000
Cash 210,000
To record the purchase of investment

On December 31, 2023, it was found out that the shares quoted at P20 per share are now valued at
P24.50 per share.

Subsequent Measurement:
Dec.31,2023 Held for trading- FVPL 45,000
Unrealized Gain- P/L 45,000

To record the increase on the carrying amount of investment which is now Php 245,000.00

The change in fair value is computed as follows:

Fair Value- December 31, 2023 (10,000 * 24.50) 245,000

Unadjusted Carrying Amount (ini al cost) (200,000)
Increase in fair value- Unrealized gain 45,000

On January 1, 2024, half of investment was sold at P 30 per share. Transac on costs incurred on the
sale amounted to P 8,000

Derecogni on:
Jan. 1, 2024 Cash (5,000 x P30)- 8,000 142, 000
Held for trading- FVPL 122,500
Realized gain on sale (squeeze) 19,500

The gain or loss on sale may also be computed as follows:

Sale price (5,000 shares x P30) 150,000

Less: Transac on Costs ( 8,000)
 Net proceeds 142,000
Carrying Amount of Investment sold (245,000 x ½) 122,500
Realized gain (loss) on sale 19,500

The realized gain on sale or known as gain on sale is recognized in profit or loss.

2. Held for trading securi es- Debt Securi es measured at FVPL

On January 1, 2023, Gigi Company purchased P 200,000 bonds at 95 which will mature on January 1,
2028 and pay 12% annual interest beginning January 1, 2024. The company paid a commission expense
on the acquisi on amoun ng to P 15,000. The bonds are held for trading securi es.

Ini al Entry:
Jan. 1, 2023 Held for trading- FVPL 190,000
Taxes and Licenses 15,000
Cash 205,000
To record the purchase of investment (200,000 * 95% which means 95% of the face amount

On December 31, 2023, the bonds were quoted at 100.

Subsequent Measurement:
Dec. 31, 2023 Held for trading- FVPL 10,000
Unrealized Gain- P/L 10,000
To record the change in fair value:

Fair Value- December 31, 2023 (P 200,000 face amount x 100%) 200,000
Unadjusted carrying amount- December 31 (ini al cost) 190,000
Net increase in fair value- Unrealized gain 10,000

Dec. 31, 2023 Interest Receivable 24,000

Interest Income 24,000
To record accrued interest in 2023.

Dec. 31, 2023 Cash 24,000

Interest Receivable 24,000
To record the receipt of interest as follows:

On January 1, 2024, the bonds were sold at 120.

Derecogni on:
Jan. 1, 2024 Cash (200,000 * 120%) 240, 000
Held for trading- FVPL 200,000
Realized gain on sale (squeeze) 40,000
Another Illustra on: Held for trading securi es:

On January 1, 2023, an en ty acquired trading securi es with the following market value on December
31, 2022:

Cost Market Gain (Loss)

Ariel Preference Share 200,000 150,000 (50,000)
Elise Ordinary Share 800,000 950,000 150,000
Resty Ordinary Share 1,000,000 1,100,000 100,000
Mono bonds 3,000,000 2,500,000 (500,000)
5,000,000 4,700,000 (300,000)

The acquisi on on January 1, 2023 is recorded as:

Held for trading securi es 5,000,000

Cash 5,000,000

On December 31, 2023 the net decrease in market value is recorded.

Unrealized loss- Trading Securi es 300,000

Held for Trading Securi es 300,000

On December 31, 2023, the trading securi es shall be reported at fair value of P 4,700,000. However,
notes to financial statements shall disclose the individual securi es with their corresponding carrying
amount and market value.

On January 15, 2023, Ariel preference share is sold for P80,000. The journal entry to record the sale is:

Cash 80,000
Loss on sale of trading securi es 70,000
Held for Trading Securi es 150,000

The loss on sale shall be recognized in profit or loss. The carrying amount of Ariel preference share is
equal to the market value of P150,000 on December 31, 2023.

3. Investment in Equity Securi es measured at FVOCI

On January 1, 2023, Aliza Company purchased 10,000 shares of Crystal Company for P200,000.
Commission paid to broker amounted to P 10,000. The shares do not meet the defini on held for
trading. Aliza Company made an irrevocable choice to subsequently measure the shares at FVOCI.

Journal Entry
Ini al Entry:
Jan. 1, 2023 Investment in equity securi es- FVOCI 210,000
Cash 210,000
To record the purchase of investment

Note: Transac on cost is capitalized. It is included in the carrying amount of the investment and not
expensed immediately. This differs from the treatment of transac on cost on FVPL.

On December 31, 2023, it was found out that the shares quoted at P20 per share are now valued at
P24.50 per share.

Subsequent Measurement:
Dec.31,2023 Investment in equity securi es- FVOCI 45,000
Unrealized Gain- OCI 45,000
To record the increase on the carrying amount of investment which is now Php 245,000.00

The change in fair value is computed as follows:

Fair Value- December 31, 2023 (10,000 * 24.50) 245,000

Unadjusted Carrying Amount (ini al cost) (210,000)
Increase in fair value- Unrealized gain 35,000

On January 1, 2024, all the shares were sold for P300,000

Derecogni on:
Jan. 1, 2024 Investment in Equity Securi es-FVOCI 55,000
Unrealized gain-OCI (300-245) 55,000
To recognize the change in fair value

Jan. 1, 2024 Cash 300,000

Investment in Equity Securi es-FVOCI 300,000
To derecognize the investment

Jan. 1, 2024 Unrealized gain- OCI (35k + 55k) 90,000

Retained Earnings 90,000
To derecognize the cumula ve fair value gains

Note: When an investment in equity securi es irrevocably measured at FVOCI is derecognized,

the cumula ve balance of gains or losses previously presented in equity is transferred directly to
retained earnings.
CLASS ACTIVITY (5 pts each)
Instruc on: On a clean 1 whole sheet of yellow paper, answer the following problems with complete
solu on

1. During 2023, Gary Company purchased marketable equity securi es as a trading investment. For the
year ended December 31, 2023, the en ty recognized an unrealized loss of P200,000.

There where no security transac ons during 2024. The en ty provided the following informa on on
December 31, 2024:
Security Cost Market Value
A 2,450,000 2,300,000
B 1,800,000 2,700,000
4,250,000 5,000,000
In the 2024 income statement, what amount should be reported as unrealized gain or loss?

2. Gumamela Company began opera ons at the beginning of current year. The following informa on
pertains to the por olio of equity securi es at year end:

Trading Nontrading
Aggregate Cost 4,000,000 6,000,000
Aggregate Market Value 3,700,000 5,500,000
Aggregate lower of cost or market
value applied to each security 3,500,000 5,300,000

The nontrading securi es are designated at fair value through other comprehensive income. The
market declines are judged t be other than temporary.

What amount should be reported as total loss on these securi es in the income statement for the
current year?

3. At the beginning of current year, Caramel Company acquired nontrading equity instrument for
P4,000,000. The transac on cost incurred amounted to P700,000.

The equity instrument is irrevocably designated as financial asset at fair value through other
comprehensive income.

The fair value of the instrument was P5,500,000 at year-end and the transac on cost that would be
incurred on the sale of the investment is es mated at P600,000.

What amount of gain should be recognized in the other comprehensive income for the current year?
4. On January 1, 2023, Milan Company purchased equity securi es to be held at fair value through
other comprehensive income. On December 31, 2023, the cost and market value were:

Security Cost Market Value

X 2,000,000 2,400,000
Y 3,000,000 3,500,000
Z 5,000,000 4,900,000

On July 1, 2024, the en ty sold Security X for P 2,500,000.

What amount should be recognized directly in retained earnings as a result of the sale of equity
investment in 2024?

5. Gillian Company provided the following informa on on December 31, 2023 regarding equity
investment:

Non-current assets:
Financial Asset- FVOCI 3,700,000

Shareholders’ equity
Unrealized loss-OCI ( 300,000)

The en ty paid transac on cost of P100,000 related to the acquisi on of the investment. The transac on
cost is capitalized as cost of the investment. The en ty elected to measure the equity investment at fair
value through other comprehensive income.

What was the historical cost of the equity investment?