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PFRS 9, Paragraph 4.1.2, Provides That A Financial Asset Shall Measured

The question asks for the carrying amount of a bond investment purchased at a discount and measured at amortized cost as of December 31, 2020. The bond was purchased on July 1, 2020 for P946,000 including accrued interest of P40,000, to yield 10% interest and mature on January 1, 2026. Interest is paid annually on January 1. For the period of July 1 to December 31, 2020: - Interest accrued is P40,000 - Interest income earned is P45,300 - Discount amortized is P5,300 The carrying amount as of December 31, 2020 is P911,300, which is the acquisition cost (P906

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2K views3 pages

PFRS 9, Paragraph 4.1.2, Provides That A Financial Asset Shall Measured

The question asks for the carrying amount of a bond investment purchased at a discount and measured at amortized cost as of December 31, 2020. The bond was purchased on July 1, 2020 for P946,000 including accrued interest of P40,000, to yield 10% interest and mature on January 1, 2026. Interest is paid annually on January 1. For the period of July 1 to December 31, 2020: - Interest accrued is P40,000 - Interest income earned is P45,300 - Discount amortized is P5,300 The carrying amount as of December 31, 2020 is P911,300, which is the acquisition cost (P906

Uploaded by

Swai Rosende
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Multiple choice (IAA)

1. Under IFRS, the presumption is that equity  investments are


a. Held for trading
b. Held to profit from price changes
c. Held for trading and held to profit from price changes
d. Held as financial assets at fair value through other comprehensive income
 

 Under IFRS, the presumption is that equity investments are held


for trading and held to profit from price changes because an
equity investment is  a money that is invested in a company by
purchasing shares of that company in the stock market and these
shares are typically traded on a stock exchange. Then, the main
benefit from an equity investment is the possibility to increase
the value of the principal amount invested which comes in the
form of capital gains and dividends.

 
 
2. Entities are required to measure financial asset based on all of the
following, except
a. The business model for managing financial asset
b. Whether the financial asset is a debt or an equity investment.
c. The contractual cash flow characteristics of the financial asset.
d. All of the choices are correct.

 When IFRS 9 is adopted, classification of financial assets will be


based on the characteristics of the financial asset and the
business model under which the financial asset is held. 

 
3. Debt investments that meet the business model and contractual cash flow
tests are reported at
a. Net realizable value
b. Fair value
c. Amortized cost
d. The lower of amortized cost and fair value

 PFRS 9, paragraph 4.1.2, provides that a financial asset shall measured


at amortized cost if the business model is to hold the financial asset in
order to collect contractual cash flows on specified date and if the
contractual cash flows are solely payments of principal and interest on
the principal amount outstanding.
 
 
4. Debt investments not held for collection are reported at
a. Amortized cost
b. Fair value
c. The lower of amortized cost and fair value
 d. Net realizable value
·        .
 

 Measurement of debt investments

1. Held for trading - at fair value through profit or loss


2.    Held for collection of contractual cash flows - at amortized cost
3.   Held for collection of contractual cash flows - at value through profit or loss by
irrevocable designation or fair value option
4.    Held for collection of contractual cash flows and for sale of the financial asset - at
fair value through other comprehensive income
5.     Held for collection of contractual cash flows and for sale of the financial asset - at
fair value through profit or loss by irrevocable designation or fair value option
 > Therefore, if debt investments  are only held for trading and not held for
collection, it will be measured and reported  at fair value.
 
5. Debt investments at amortized cost are
a. Managed and evaluated based on a documented risk management strategy
 b. Trading debt investments
c. Held for collection debt investments
d. All of these are correct

 The business model is to collect contractual cash flows if the


contractual cash flows are solely payments of principal and interest. In
such a case, the financial asset shall be measured at amortized cost.

9 ROSENDE, SHARMAINE SWAI


Explain the accounting procedure if an associate has cumulative and
noncumulative preference shares.
When an associate has outstanding cumulative preference shares, the investor shall
compute its share of earnings or losses after deducting the preference dividends,
whether or not such dividends are declared. On the other hand,  when an associate has
outstanding noncumulative preference shares, the investor shall compute its share of
earnings deducting the preference dividends only when declared.
In the case of cumulative preferred shares, the issuing company has to keep track of
and pay out dividends first to preferred shareholders in the event dividends were not
paid for previous years. If the company later begins to pay dividends again,
shareholders with cumulative preferred shares will receive all prior missed dividend
payments before common shareholders can receive theirs. Holders of non-cumulative
preferred shares, on the other hand, have no right to receive past dividends should the
company begin to issue dividends again. The company can also begin paying common
stock dividends if it so chooses – as long as it is current with its cumulative preferred
shareholders.

3 ROSENDE, SHARMAINE SWAI


Explain the initial and subsequent measurement of bond investments.
In accordance with PFRS 9, paragraph 5.1.1 that bond investments are recognized
initially at fair value plus transaction costs that are directly attributable to the
acquisition. However, transaction costs attributable to the acquisition of bond
investments held for trading or at fair value through or loss are expensed immediately.
And in subsequent to the initial recognition, bond investments are measured either at
fair value through profit or loss, at amortized cost or at fair value through other
comprehensive income.

20-19 ROSENDE, SHARMAINE SWAI


 
On July 1, 2020, Vicar Company purchased P1,000,000 of 8% bonds for
P946.000, including accrued interest of P40,000. The bonds were purchased
to yield 10% interest. The bonds  mature on January 1, 2026, and pay
interest annually on January 1. The bonds are measured at amortized cost.
 On December 31, 2020, what is the carrying amount of the bond
investment?
a. 911,300
b. 916,600
c. 953,300
d. 960,600
 
Interest accrued (1,000,000 x 8% x 6/12)                                     40,000
Interest income (906,000 x 10% x 6/12)                                       45,300
Discount amortization                                                                                 5,300
 
Acquisition cost - July 1, 2019 (946,000 - 40,000)                             906,000
Discount amortization                                                                      5,300
Carrying amount - December 31, 2019                                        911,300

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