INVESTMENTS

ILLUSTRATIVE EXAMPLES:

FAIR VALUE THROUGH PROFIT OR LOSS (FVPL)

1. On January 1, 2022, Hulk Company purchased 2,500 ordinary shares of Hogan Corporation at P210 per share
plus transaction costs of P5,250. These shares are acquired for trading purposes. On December 31, 2022, the
ordinary shares of Hogan Corporation are quoted at P244 per share.
On February 14, 2023, Hulk Company sold 750 shares of the Hogan Corporation ordinary shares at P252 per
share. Hulk Company incurred transaction costs amounting to P2,840 in relation to the sale. On December 31,
2023, the ordinary shares of Hogan Corporation are quoted at P274 per share.

Requirements:

● Prepare the journal entries on date of purchase, year-end, and sale.

2. On January 1, 2023, Carver Company purchased 62,500 bonds with face amount of P100 per bond at 95.2.
Carver paid a commission amounting to P200,000, to a broker, to acquire these bonds. The objective of Carver’s
business model is to sell investments in the near term to take advantage of fluctuations in fair values for short-
term profit taking. Accordingly, the bonds were classified as held for trading securities.
The bonds mature on December 31, 2025, and pays 10% interest annually on December 31 with an effective
yield of 12%.
The bonds are quoted at 102 on December 31, 2023, and 105 on December 31, 2024.

Requirements:

● Prepare the journal entries on date of purchase, year-end, and sale.

FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME (FVOCI)

3. January 1, 2022, Hulk Company purchased 2,500 ordinary shares of Hogan Corporation at P210 per share plus
transaction costs of P5,250. These shares represent a nominal ownership interests and are not intended for
trading purposes. The company made an irrevocable decision to designate these non-trading securities at fair
value through other comprehensive income.
On December 31, 2022, the ordinary shares of Hogan Corporation are quoted at P244 per share.
On February 14, 2023, Hulk Company sold 750 shares of the Hogan Corporation ordinary shares at P252 per
share. Hulk Company incurred transaction costs amounting to P2,840 in relation to the sale. On December 31,
2023, the ordinary shares of Hogan Corporation are quoted at P274 per share.

Requirements:
INVESTMENTS
● Prepare the journal entries on date of purchase, year-end, and sale.

4. On January 1, 2023, Hoffman company purchased bonds with face amount of P6,250,000 for P5,950,000
including transaction costs of P200,000.
The business model is to collect contractual cash flows and to sell the financial assets.
The bonds mature on December 31, 2025, and pay 10% interest annually on December 31 with a 12% effective
yield.
The bonds are quoted at 102 on December 31, 2023, and 105 on December 31 2024.

Requirements:

● The investment shall be initially recognized at what amount on January 1, 2023?

● How much is the interest income for the year 2023?

● What amount of unrealized gain should be reported as component of other comprehensive income for
2023?
● What amount of unrealized gain should be reported as component of other comprehensive income for
2024?
● What cumulative amount of unrealized gain should be reported as component of other comprehensive
income in the statement of changes in equity on December 31, 2024?

5. On January 1, 2022, Roderick company purchased four year, P4,000,000, 10% percent bonds at fair value. The
prevailing market rate of interest on this date was 8%. Interest is payable annually every December 31. The
company's business model is to collect contractual cash flows and to sell the asset.
The prevailing market rate of interest on December 31, 2022, 2023, and 2024 are provided below:
December 31, 2022 9.0%
December 31, 2023 10.0%
December 31, 2024 7.0%
The bonds were sold on December 31, 2024 at fair value.
Round off present value factors to four decimal places.

Requirements:

● At what amount shall the investment be initially recognized on January 1, 2022?

● How much is the interest income for the year 2022?

● At what amount should the investment be presented on December 31, 2022?

● How much shall be reported in the OCI section of the statement of comprehensive income for the year
2022?
INVESTMENTS
● How much is the interest income for the year 2023?

● At what amount shall the investment be presented on December 31, 2023?

● How much shall be reported in the OC section of the statement of comprehensive income for the year
2023?
● What cumulative amount of unrealized gain or loss should be reported as a component of other
comprehensive income in the state of changes in equity on December 31, 2023?
● How much is the gain or loss on sale to be recognized in profit or loss on December 31, 2024?

DEBT SECURITIES

6. On January 2, 2022, Al Company purchased a five year, 8% bonds with face amount of P1,000,000 for P922,768.
The bonds were purchased to yield 10%. Interest is payable semiannually every June 30 and December 31.
The following are the quoted price of the bonds as of December 31, 2022, and 2023:
December 31, 2022 99.0
December 31, 2023 102.0

All the bonds were sold on April 30, 2024 at P980,000 plus accrued interest.

Case 1: The objective of the company's business model is to sell such bonds in the near term to take advantage
of fluctuations in fair value for short-term profit taking.

Case 2: The business model for this investment is to collect contractual cash flows that are solely payments of
interest and principal and to sell the bonds in the open market.

Case 3: The business model for this investment is to hold and collect contractual cash flows that are solely
payments of interest and principal.

Requirements:

● based on the company's business model, what would be the appropriate classification of the debt
security?
● How much is the interest income for the year 2022?

● At what amount shall the investment be presented on December 31, 2022?

● How much should be reported as unrealized gain on fair value changes in profit or loss, if any, for 2022?

● How much shall be reported as unrealized gain on fair value changes in other comprehensive income as
a component of comprehensive income, if any, for 2022?
● How much is the interest income for the year 2023?

● At what amount shall the investment be presented on December 31, 2023?

● How much should be reported as unrealized gain on fair value changes in profit or loss, if any, for 2023?

● How much shall be reported as unrealized gain on fair value changes in other comprehensive income as
a component of comprehensive income, if any, for 2023?
● How much shall be reported as cumulative unrealized gain on fair value on December 31, 2023?
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● How much is the gain or loss on sale of investment to be reported in profit or loss on April 30, 2024?