CHAPTER 17:

INVESTMENT IN
ASSOCIATE
PROBLEM 10
Deemed Disposal
Israel Company held an interest in Batula
Company. On January 1, 2021, Batula issued
40,000 new shares for P8 each to IB Company.
Batula Company has the following data prior to
issuance of the new shares:
- Share capital before its increase was
P800,000 at P5 par.
- Net assets were P1,000,000.
CASE NO. 1: Israel has 20% interest in
Batula Company and the adjusted balances of
the related accounts before deemed disposal
are:
- Investment in associate account is
P200,000
- Cumulative share in the associate’s gain
on exchange difference on translation of
foreign operation is P100,000
1. How much is the gain or loss on deemed disposal
to be recognized in the 2021 profit or loss?
Outstanding shares of the investee
before deemed disposal (800,000/5) 160,000
Multiply by: Old interest held 20%
No. of share held before deemed disposal 32,000

No. of share held before deemed disposal 32,000

Divide by: Total new shares
Outstanding shares of the investee
before deemed disposal 160,000
Add: New shares issued 40,000 200,000
Share in the ownership interest
after deemed disposal 16%

Carrying amount of invetee’s net asset before issuance 1,000,000

Add: Issue price of new shares issued (40,000*8) 320,000
New carrying amount the investee’s net asset after 1,320,000
issuance
Multiply by: New percentage 16%
Carrying amount after deemed disposal 211,200
Less: Carrying amount before deemed disposal 200,000
Loss on deemed disposal - P&L (11,200)
2. How much is the amount of share in the other
comprehensive income to be recycled to profit or loss in 2021?

Translation gain of foreign operations 100,000

Gain on reclassification 100,000

• Note: The new interest of 16% no longer has significant influence.

Thus, the amount of cumulative translation gain to be recycled to
the profit or loss is the total cumulative translation gain of foreign
opertion P100,000 because the significant influence was lost.
3. Assume instead that the share in the other
comprehensive of P100,000 arises not from
translation gain of foreign operations but from the
share in the revaluation surplus of the associate, how
much is the amount of share in the other
comprehensive income to be recycled to profit or loss
in 2021?

Nil, since the share in the other comprehensive income of P100,000

arises not from the translation gain of foreign operations but from the
share in the revaluation surplus, the other comprehensive income will
not be reclassified to the profit or loss.
CASE NO. 2: Israel has 30% interest in
Batula Company and the adjusted balances of
the related accounts before deemed disposal
are:
- Investment in associate account is
P300,000 before deemed disposal
- Cumulative share in the associate’s gain
on exchange difference on translation of
foreign operation is P100,000
1. How much is the gain or loss on deemed disposal
to be recognized in the 2021 profit or loss?
Outstanding shares of the investee
before deemed disposal (800,000/5) 160,000
Multiply by: Old interest held 30%
No. of share held before deemed disposal 48,000

No. of share held before deemed disposal 48,000

Divide by: Total new shares
Outstanding shares of the investee
before deemed disposal 160,000
Add: New shares issued 40,000 200,000
Share in the ownership interest
after deemed disposal 24%

Carrying amount of invetee’s net asset before issuance 1,000,000

Add: Issue price of new shares issued (40,000*8) 320,000
New carrying amount the investee’s net asset after 1,320,000
issuance
Multiply by: New percentage 24%
Carrying amount after deemed disposal 316,800
Less: Carrying amount before deemed disposal 300,000
Loss on deemed disposal - P&L (16,800)
2. How much is the amount of share in the other
comprehensive income to be recycled to profit or loss in 2021?

Translation gain of foreign operations 20,000

Gain on reclassification 20,000
(100,000*6%/30%)

• Note: The new interest of 24% still give significant influence. Thus, the
amount of cumulative translation gain to be recycled to the profit or
loss is the proportionate decrease of 6% (30% less 24% equals 6%)
divided by 30% interest multiplied by the total cumulative translation
gain of P100,000)
3. Assume instead that the share in the other
comprehensive of P100,000 arises not from
translation gain of foreign operations but from the
share in the revaluation surplus of the associate, how
much is the amount of share in the other
comprehensive income to be recycled to profit or loss
in 2021?

Nil, since the share in the other comprehensive income of P100,000

arises not from the translation gain of foreign operations but from the
share in the revaluation surplus, the other comprehensive income will
not be reclassified to the profit or loss.