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The document discusses financial accounting and reporting related to investments in equity securities, detailing various scenarios involving the purchase, valuation, and sale of shares by different companies. It includes calculations for unrealized gains and losses, as well as classifications under different financial reporting standards. Additionally, it outlines the implications of ownership levels on investment accounting methods.

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Rosalie Milanes
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26 views4 pages

Far 4

The document discusses financial accounting and reporting related to investments in equity securities, detailing various scenarios involving the purchase, valuation, and sale of shares by different companies. It includes calculations for unrealized gains and losses, as well as classifications under different financial reporting standards. Additionally, it outlines the implications of ownership levels on investment accounting methods.

Uploaded by

Rosalie Milanes
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 PDF, TXT or read online on Scribd
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FINANCIAL ACCOUNTING and REPORTING (FAR)

HANDOUT #4: FAR-04


TOPIC: INVESTMENT IN EQUITY SECURITIES

1. On January 1, 2023, KLM Co. purchased 15,000 shares of HIJ Inc. for P600,000. Commission paid to the
broker is 5% of the total purchase price. On December 31, 2023 and December 31, 2024, the shares were
quoted at P50 and P52 per share, respectively. On January 3, 2025, all of the 15,000 shares were sold at
P62 per share. Commission paid for the sale amounted to P50,000.

CLASSIFICATION FVPL FVOCI


1. At what amount should the equity investment be initially recorded?
2. How much is the unrealized gain (loss) recognized in the 2023 P&L?
3. How much is the unrealized gain (loss) recognized in the 2023 OCI?
4. How much is the cumulative unrealized gain (loss) recognized in 2023 OCI?
5. How much is the cumulative unrealized gain (loss) recognized in OCI as of Dec. 31,
2024?
6. How much is the realized gain (loss) recognized in P&L as a result of the sale of the
investments on January 3, 2025?
7. How much is the cumulative unrealized gain (loss) in OCI as of December 31, 2025?
*Assume that KLM Co. elect to transfer any cumulative balance on OCI when the investment is disposed.

2. Hey Stephen Company began business operations in January of 2023. During the year, the entity
purchased a portfolio of securities listed below. In its December 31, 2023 balance sheet, the company
appropriately reported a P300,000 debit balance in its "Unrealized gain/loss" account. The composition of
the securities did not change during the year 2024. Pertinent data are as follows:
Security Cost Market Value, December 31, 2024
A(FVPL) P2,000,000 P2,750,000
B(FVOCI) P3,600,000 3,250,000
C(FVOCI) P3,900,000 4,000,000
9,500,000 10,000,000

I. The carrying value of investment on December 31, 2023 is 9,800,000.


II. The unrealized gain that should presented in the Equity section of the Balance Sheet on December 31,
2024 is 250,000.
III. The unrealized loss that should presented in the Profit or Loss Statement on December 31, 2024 is
750,000.
IV. Securities purchased with the intention of selling them in the near future is classified as Equity
Investment at Fair Value thru P&L.

Which of the following are incorrect?


A. II, III, and IV only B. I, II, and III only
C. I, II, III, and IV D. I, II, and IV only
3. Rey Corporation acquired 10,000 Beng Company shares on February 5, 2023 at P50 which includes a
P10 per share broker's fees and commissions. A P50,000 cash dividends were received from Beng
Company on March 20, 2023. These dividends were declared on January 5 payable to shareholders as of
February 10. Beng shares were split 2 for 1 on November 1. The shares were selling at P32 per share on
December 31, 2023. The investments were designated as FVPL.

I. The initial carrying value of investment at date of acquisition amounted to 400,000.


II. The amount should be recognized as dividend income is 50,000.
III. The carrying value of the investment as of December 31, 2023 is 640,000.
IV. The amount of unrealized gain or loss to be taken in P&L for the year is zero.

Which of the following is/are not incorrect?


A. III only B. I and II only
C. II, III, and IV only D. I and IV only

4. On January 2, 2024, Bani Co. purchased 25,000 shares (30%) of Kae Company's ordinary shares for P220
per share. Bani also paid transaction cost of P100,000. The book value of Kae Company's net assets was
at P15M. On the same date, a depreciable asset with a remaining useful life of 10 years was understated
by 1.5M and an intangible without definite useful life was understated by P300,000. During 2024, Kae
reported the following in its Statement of Comprehensive Income: a P4,500,000 net income and a
P500,000 revaluation surplus at the end of the year. Bani Company received cash dividends of P1,250,000
on December 31, 2024.

I. The carrying value of the Investment on December 31, 2024 amounted to P5,805,000.
II. The investment income to be reported in the profit or loss for 2024 amounted to P1,305,000.
III. Assuming that Bani Company purchased the 25,000 shares at P190 per share, the carrying value
investment on December 31, 2024 amounted to P5,345,000.
IV. Following the scenario in the previous statement, the investment income to be reported in the profit or
loss for 2024 amounted to 1,595,000.

Which of the following is/are not incorrect?


A. II and III only B.I, II and II only
C. I, II, III, and IV D. I, III and IV only
Summary Notes (1):

Summary Notes (2):

Level of Influence Investment Method Standard


PFRS 9
Little or None Financial Asset Fair Value PAS 32
PFRS 7
Significant Investment in Associate Equity PAS 28
Joint Control Investment in Joint Venture Equity PAS 28
Control Investment in Subsidiary Consolidation PFRS 10
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