Investment in Equity Securities – Initial Recognition and subsequent recognition (Basic problems)

Problem 1: On January 1,2021, the Standing Ovation Company purchases 30,000 ordinary shares for
P7,000,000 with a transaction cost of 500,000. The shares have no determinable market value. Prepare
the journal entry under the following separate scenario.
a. The investee company has 180,000 outstanding ordinary shares.
b. The investee company has 150,000 outstanding ordinary shares.
1. Prepare the journal entry
2. Using scenario B, Standing Ovation purchased preference share instead of ordinary share, what is the
journal entry?
Investment in Equity Securities – Initial Recognition and subsequent recognition (Basic problems)

Problem 2: On January 31,2018 Bagsak Na Naman Company bought 30% ordinary shares for 2,000,000.
The following are the data regarding the investments.

February 2018 - The investee declared and paid a total of P400,000 cash dividends.
December 31,2018 - The investee reported Net Loss of 1,000,000
May 1, 2019 - The investor received dividends of 200,000
December 31,2019 - The investee reported net income of P700,000
Net income of 500,000 and
1. How much is the investment income for 2018?
2. How much is the carrying amount of the investment at the end of the year 2018?
3. How much is the investment income for 2019?
4. How much is the carrying amount of the investment at the end of the year 2019?
Investment in Equity Securities – Initial Recognition and subsequent recognition (Basic problems)

Problem 3: On January 1,2023, Bilibili Company purchased 15,000 ordinary shares for P1,000,000. The
investee has a total of 100,000 outstanding shares. As of the date, Bilibili company also has a debt
instrument that is convertible ordinary shares that will result to additional 5% ownership. The following
is the data regarding the investment.
March 1 – The investee declared and paid a total of P500,000 cash dividends.
December 31,2023 – The investee reported a net income of P800,000.
1. How much is the investment income for 2023?
2. How much is the carrying amount of the investment at the end of 2023?
3. If the debt instrument is convertible starting December 31,2024.
a. How much is the investment income in 2023?
b. How much is the carrying amount of the investment at the end of 2023?
Investment in Equity Securities – Initial Recognition and subsequent recognition (Basic problems)

Problem 4: On April 1,2023, the Ang Hirap Company purchased 30,000 ordinary shares of Madali Lang
Corporation for P2,000,000. The outstanding shares of Madaling Lang Corporation as of April 1,2023 is
200,000 shares. Ang Hirap Company was elected as one of the board of directors at the date of
purchase. The following are the transactions regarding the investment
November 1,2023 – Madali Lang Corporation declared and paid Ang Hirap Company dividends
amounting to P400,000
December 31,2023 – Madali Lang Corporation reported net income for the year 2023 amounting
to P1,000,000
December 31,2024 – Madali Lang Corporation reported net loss amounting to P10,000,000
December 31,2025 – Madali Lang Corporation reported net loss amounting to P5,000,000
December 31,2026 – Madali Lang Corporation reported net income amounting to P2,000,000
December 31,2027 – Madali Lang Corporation reported net income amounting to P4,000,000
1. How much is the carrying amount of the investment as of December 31,2023?
2. How much is the carrying amount of the investment as of December 31,2025?
3. How much is the investment income in 2026?
4. How much is the carrying amount of the investment as of December 31,2026?
5. How much is the investment income in 2027?
6. How much is the carrying amount of the investment as of December 31,2027?
Investment in Equity Securities – Initial Recognition and subsequent recognition (Basic problems)

Problem 5: On January 1,2023, Eto Mahirap Company purchased 25,000 shares out of 100,000 shares of
the investee for P8,000,000. The carrying amount of the net asset of the investee is P25,000,000. At the
date of purchase, the carrying amount of assets and liabilities of the investee is at fair value except for
the equipment whose fair value is P2,000,000 greater than the carrying amount. The said equipment has
a useful life of 5 years. The investee reported net income amounting to P2,000,000 on December
31,2023 and P5,000,000 on December 31,2024.
1. How much is the investment in associates at the date of purchase?
2. How much is the goodwill at the date of purchase?
3. How much is the investment income on December 31,2023?
4. How much is the carrying amount of the investment as of December 31,2023?
5. How much is the investment income on December 31,2024?
6. How much is the carrying amount of the investment as of December 31,2024?
Investment in Equity Securities – Initial Recognition and subsequent recognition (Basic problems)

Problem 6: On January 1,2023, Kaya Pa Ba Company purchased 30% shares of investee company for
P6,000,000. The carrying amount of net assets of the investee company is P20,000,000. All the assets
and liabilities are at fair value except for the inventory whose fair value is P4,000,000 greater than the
carrying amount. The investee reported net income amounting to P3,000,000 on 2023, and P4,000,000
on December 31,2024. The inventory was sold in 2023.
1. How much is the investment in associates at the date of purchase?
2. How much is the investment income in 2023?
3. How much is the carrying amount of investment as of December 31,2023?
4. How much is the investment income on December 31,2024?
5. How much is the carrying amount of the investment as of December 31,2024?
Investment in Equity Securities – Initial Recognition and subsequent recognition (Basic problems)

Problem 7: On January 1,2023, Di Na Kaya Company purchased 20% shares of investee company for
P5,000,000. The carrying amount of net assets of the investee company is P20,000,000. All the assets
and liabilities are at fair value except for the inventory and equipment. The inventory’s fair value was
2,000,000 greater than the carrying amount, while the equipment’s fair value was P3,000,000 less than
the carrying amount. The useful life of the equipment is 5 years. The inventory was sold in 2024.
The investee reported net income amounting to P5,000,000 in 2023, and P10,000,000 on December
31,2024
1. How much is the investment in associates at the date of purchase?
2. How much is the goodwill at the date of purchase?
3. How much is the investment income on December 31,2023?
4. How much is the carrying amount of the investment as of December 31,2023?
5. How much is the investment income on December 31,2024?
6. How much is the carrying amount of the investment as of December 31,2024?
Investment in Equity Securities – Initial Recognition and subsequent recognition (Basic problems)

Problem 8: On January 1,2023, Uwian Na Company purchased 20% shares of investee company for
P4,000,000. The carrying amount of net assets of the investee company is P25,000,000. All the assets
and liabilities are at fair value except for the inventory and land. The inventory’s fair value was 4,000,000
less than the carrying amount, while the land’s fair value was P5,000,000 greater than the carrying
amount. The inventory was sold in 2023, while the land was sold in 2024.
The investee reported net income amounting to P6,000,000 in 2023, and P8,000,000 on December
31,2024
1. How much is the investment in associates at the date of purchase?
2. How much is the goodwill at the date of purchase?
3. How much is the investment income on December 31,2023?
4. How much is the carrying amount of the investment as of December 31,2023?
5. How much is the investment income on December 31,2024?
6. How much is the carrying amount of the investment as of December 31,2024?