Professional Documents
Culture Documents
Chapter 18
Chapter 18
RULES
CHAPTER 18
INVESTMENT IN ASSOCIATE
THEORIES
Other Accounting Issues
PROBLEMS
MESSAGE
Prepared by: Group 8
PANGILINAN, PERINA,RAMIREZ,ROMAN,SALAZAR
Type here to search 8:30AM
DECODE ME
PROBLEMS
MESSAGE
PROBLEMS
MESSAGE
2
RULES
WHEN INVESTMENT CEASES TO BE AN ASSOCIATE
THEORIES
3 ON THE LOSS OF SIGNIFICANT INFLUENCE
MESSAGE
5 ACCOUNTING TREATMENT
MESSAGE
RULES
A_ _ _ _ _ _ _ _ _ _ _ _ _ A _
A _ _ _ _ _ A _ _ _ _ _ _ _ _ _A_ _ _ A_
THEORIES _________ _________ __
_ _ _ _ _ _ _ 20% A_ _ 50%.
PROBLEMS
MESSAGE
MESSAGE
PROBLEMS
MESSAGE
MESSAGE
RULES
A_ _ _ _E_T_E_ T _ _ A_
A _ _ _ _ _ ATE _ _ T _ _ _ _ A _ _ _ A_
THEORIES ___E_____ _ _ TER_ _ T __
_ ET _ EE_ 20% A _ _ 50%.
PROBLEMS
MESSAGE
MESSAGE
RULES
A_ _ _ _E_T_E_ T _ _ A_
A _ _ _ _ _ ATE _ _ T _ _ _ _ ALL _ A_
THEORIES ___E_____ _ _ TER_ _ T __
_ ET _ EE_ 20% A _ _ 50%.
PROBLEMS
MESSAGE
MESSAGE
RULES
A_ _ _ _ EST_E_ T _ _ A_
A S S _ _ _ ATE _ S T _ _ _ _ ALL _ A_
___E_S___ _ _ TER_ ST __
THEORIES
_ ET _ EE_ 20% A _ _ 50%.
PROBLEMS
MESSAGE
PROBLEM
RULES
THEORIES
PROBLEMS SOLVING
MESSAGE
DECODE ME
On January 1, 2020, Fame Company acquired a 10% interest in an investee for P5,000,000. The
investment was accounted for at fair value through other comprehensive income.
The fair value of the investment was P5,500,000 on December 31, 2020 and P6,000,000 on
RULES December 31, 2021.
On January 1, 2022, the entity acquired a further 20% interest in the investee for P11,000,000.
On such date, the carrying amount of the net assets of the investee was P40,000,000.
THEORIES The fair value of the net assets of the investee is equal to carrying amount, except for an
equipment whose fair value exceeds carrying amount by P5,000,000. The equipment has a
remaining life of 5 years.
The investee reported net income of P9,000,000 for 2022 and paid dividend of P4,000,000 on
PROBLEMS
December 31, 2022. No dividends were paid in 2020 and 2021 by the investee.
Required:
1. Compute the goodwill on January 1, 2022.
MESSAGE 2. Prepare journal entries for 2020, 2021 and 2022.
DECODE ME
Requirement 1
Fair value of existing interest 6,000,000
RULES Cost of new interest 11,000,000
Total cost of the investment 17,000,000
Carrying amount of net assets acquired (40,000,000x30%) (12,000,000)
THEORIES
Goodwill 3,500,000
MESSAGE
DECODE ME
Requirement 2
2019 Dr. Cr.
Jan. 1 Financial Asset at FVOCI 5,000,000
RULES
Cash 5,000,000
Dec. 31 Financial Asset at FVOCI 500,000
THEORIES
Unrealized Gain - OCI 500,000
PROBLEMS
2020 Dr. Cr.
Dec 31 Financial Asset at FVOCI 500,000
Unrealized Gain - OCI 500,000
MESSAGE
DECODE ME On January 1, 2020, Hazel Company acquired 30% of East Company's voting shares
for P8,000,000. During 2020, East earned P5,000,000 and paid dividends of
P2,000,000.
RULES East reported earnings of P6,000,000 for the 6 months ended June 30, 2021, and
P8,000,000 for the year ended December 31, 2021.
On July 1, 2021, Hazel sold half of the investment in East for P6,000,000 cash
THEORIES
resulting to loss of significant influence. East paid dividends of P2,500,000 on
October 1, 2021.
On July 1, 2021, the investment is measured at fair value through other
PROBLEMS
comprehensive income. The fair value of the retained investment is P6,500,000 on
July 1, 2021 and P5,900,000 on December 31, 2021.
Required:
MESSAGE
Prepare journal entries for 2020 and 2021.
DECODE ME
MESSAGE
DECODE ME
On January 1, 2020, Mega Company acquired 10% of the P4,000,000. The
investment was appropriately accounted for under cost method.
On January 1, 2021, Mega gained the ability to exercise significant influence over
RULES
financial and operating control of Penny by acquiring an additional 20% of Penny's
outstanding ordinary shares for P10,000,000.
THEORIES
The fair value Penny's net assets equalled carrying amount. The fair value of the
10% interest on January 1, 2021 was P6,000,000.
For the years ended December 31, 2020 and 2021, the investee reported the
PROBLEMS following:
2020 2021
Dividend paid 2,000,000 3,000,000
MESSAGE Net income 6,000,000 6,500,000
DECODE ME
1. What is the investment income in 2020 and 2021 respectively?
a. 200,000 and 1,950,000
b. 400,000 and 1,300,000
RULES
c. 600,000 and 1,000,000
d. 300,000 and 1,900,000
THEORIES
2. What is the carrying amount of the investment in associate on December 31,
2021?
PROBLEMS
a. 16,000,000
b. 17,050,000
c. 15,050,000
MESSAGE
d. 16,700,000
DECODE ME
1. INVESTMENT INCOME IN 2020
2,000,000 X 10% = 200,000
INVESTMENT INCOME IN 2021
RULES 6,500,000 X 30% = 1,950,000
2.
Fair Value of 10% Interest 6,000,000
Cost of 20% New Interest 10,000,000
THEORIES
Total Cost of Investment – Jan. 1, 2021 16,000,000
Share in Net Income – 2021 (6,500,000 x 1,950,000
PROBLEMS 30%)
Share in Cash Dividend – 2021 (3,000,000 (900,000)
x 30%)
MESSAGE
Carrying Amount 17,050,000
MESSAGE
DECODE ME
Grant Company acquired 30% of South Company's voting share capital for
P2,000,000 on January 1, 2020.
Grant's 30% interest in South gave Grant the ability to exercise significant influence
RULES
over South's operating and financial policies.
During 2020, South earned P1,500,000 and paid dividends of P500,000.
THEORIES
South reported earnings of P1,000,000 for the six months ended June 30, 2021,
and P2,500,000 for the year ended December 31, 2021 but paid dividend of
P1,000,000 on October 1, 2021.
PROBLEMS
On July 1, 2021, Grant sold half of the investment in South for P2,000,000 cash.
On such date, the investment is measured at fair value through profit or loss.
The fair value of the retained investment is P2,200,000 on July 1, 2021 and
MESSAGE
P2,400,000 on December 31, 2021.
DECODE ME 1. What amount should be recognized as investment income for 2020 as a result of the
investment?
a. 150,000
b. 450,000
RULES
c. 500,000
d. 750,000
2. What is the carrying amount of the investment on December 31, 2020?
THEORIES a. 2,000,000
b. 2,450,000
c. 2,600,000
d. 2,300,000
PROBLEMS
3. What total amount of income should be reported for 2021?
a. 2,250,000
b. 2,100,000
MESSAGE c. 1,950,000
d. 2,050,000
DECODE ME
MESSAGE
An investment in an associate is
RULES
THEORIES
typically an ownership interest of
PROBLEMS
between 20% and 50%.
MESSAGE