INVESMENT IN ASSOCIATE

1. January 1, 2019, an entity purchased 40% of the outstanding ordinary shares of another entity for
P5,000,000 when the net assets of the investee amounted P10,000,000.

At acquisition date, the carrying amounts of the identifiable assets and liabilities of the investee where
equal to fair value, expect for land whose the fair value was P2,000,000 greater than carrying amount
and inventory whose fair was P1,500,00 greater than cost.

The land was sold 2019 and one-half of the inventory was sold during 2019.

During 2019, the investee reported net income of P8,000,000 issued 10% shared dividend and paid
cash dividend of P2,500,000.

1. What is the investment income for 2019?

2. What is the carrying amount of the investment on December 31, 2019?

2. On January 1, 2019, an entity acquired 10% of the ordinary shares of an associate. On such date ,
assets and liabilities of the investee when recorded at fair value and the acquisition showed that
goodwill of P1,000,000 was acquired. The investee reported net income of P8,000,000 for 2019.

In December 2019, the investee sold inventory costing P3,000,000 to investor for P5,000,000. The
inventory remained unsold by the investor on December 31, 2019.

On January 1, 2019, the investee sold an equipment to the investor with carrying amount of P2,500,00
for P4,00,000. The remaining life of equipment in 5 years.

What amount of investment income should be reported for 2019?

3. An entity owned 100% of another entity’s preference shares and 20% or ordinary shares. The
investee’s share capital outstanding on December 31,2019 included P5,000,000 of 10% cumulative
preference shares and P10,000,000 of ordinary shares.

The investee reported net income of P8,00,000 for 2019. No dividend was declared for both preference
and ordinary shares in 2019.

What amount should be reported as investment income for 2019?

 BOND INVESTMENT

1. On January 1, 2019, an entity purchased as a long-term investment P5,000,000 face value 8% bonds for
P4,530,000. The bonds were purchased to yield 10% interest. The bonds pay interest annually on
December 31, the effective interest method of amortization is used.

1. What is the interest income for 2020?

2. What is the carrying amount of the investment in bonds on December 31, 2020?

2. On January 1, 2019, an entity paid P5,990,000 for a 10% bond with face amount P5,000,00. Interest
payable semiannually on June 30 and December 31. The bond was purchased to yield 8%. The effective
the interest method is used.

1. What is the interest income for 2019?

2. What is the carrying amount of the bond investment on December 31, 2019.

3. On January 1, 2019, an entity purchased 12% bonds with face amount of P5,000,000 for P5,500,000
including transaction cost of P100,000.the bonds provide an effective yield of 10%. The bonds are
dated January 1, 2019 and pay interest annually on December 31 of each year. The bonds are quote at
115 on December 31, 2019. The entity has irrevocably elected to use the fair value option.

1. What is the carrying amount carrying of the bond investment on December 31, 2019?

2. What amount of gain from change in fair value should be reported for 2019?

3. What amount of interest income should be reported for 2019?

DERIVATIVES

1. On January 1, 2019, an entity borrowed P5,000,000 from a bank at a variable rate of interest for 2
years. Interest will be paid annually to the bank on December 31 and the principal is due on December
31, 2020.

Under the agreement, the market rate of interest every January 1 resets the variable rate for that
period and the amount of interest to be paid on December 31.

In conjunction with the loan, the entity entered into a “receive variable, pay fixed’ interest rate swap
agreement with another bank speculator as a cash flow hedge.

The market rates of interest are 10% on January 1, 2019 and 12% on January 1, 2020. The “underlying”
fixed interest rate is 10%. The PV of 1 at 10% for one period is 91 and the PV of 1 at 12% for one
period is 89.

1. What is the derivative asset or liability on December 31, 2019?

2. What amount should be reported as interest expense for 2019?
 2. On January 1, 2019, an entity received a four-year P5,000,000 loan with interest payments occurring
at the end of each year and the principal to be repaid on December 31, 2022. The interest for 2019 is
the prevailing market rate of 10% on January 1, 2019, and the market interest rate every January 1
resets the variable rate of interest for that year.

The ‘underlying’ fixed interest rate is 10%. In conjunction with the loan, the entity entered into a
“receive variable, pay fixed” interest rate swap agreement as cash flow hedge. The interest swap
payment will be made December 31 of each year.

The market rate of interest is 6% on January 1, 2020 and 8% on January 1, 2021. The PV of an ordinary
annuity of 1 at 6% three periods is 2.67 and the PV of an ordinary annuity of 1 at 8% for two periods is
1.78.

1. What is the derivative asset liability on December 31, 2019?

2. What is the derivative asset or liability on December 31, 2020?
3. What amount of interest expense should be reported for 2020?

INVESMENT PROPERTY AND OTHER INVESMENT

1. A parent and its subsidiaries provide the following properties owned by the group.
Land held for undetermined future use 1,000,000

Vacant building to be leased out under an operating lease 2,000,000

Property held for use in production 4,000,000

Property held by a subsidiary, a real estate firm, in the ordinary course of business 3,000,000
Building owned by subsidiary and the subsidiary provides security and
maintenance services to the lessees. 2,500.000
Land leased to a subsidiary under an operating lease 1,500,000

Equipment leased to an unrelated party under an operating lease 500,000

Building under construction for use as investment property 3,500,000

1. In the consolidate statement of financial position of the parent and its subsidiaries, what total
amount be reported as investment?
2. What total amount should be included in property, plant and equipment in the consolidate
statement of financial position and its subsidiaries?

2. An entity purchased an investment property on January 1, 2019 at a cost of P4, 000,000. The property
had a useful life of 20 years and on December 31, 2020 had a fair value of P4, 800,000.

On December 31, 2020 the property was sold for net proceeds of P4,5000,000. The entity used the cost model
to account for investment property. What is the gain to be recognized for 2020 regarding the disposal of the property?
 3. On January 1, 2019, an entity acquired three investment properties.

Fair value Fair value

Initial cost December 31, 2019 December 31, 2020

Property 1 2,7000,000 3,200,000 4,000,000

Property 2 3,450,000 3,000,000 2,100,000

Property 3 3,3000,000 3,900,000 3,600,000

Each property had an estimated useful life of 10 years. The accounting policy is to use the fair value model for
investment property. What is the gain or loss to be recognized for the year ended December 31, 2020?