1.

Financial Assets @FV through Profit and Loss

2. Financial Assets @FV through Other Comprehensive Income
3. Financial Assets @ Amortized Cost
a. Acquisition of bonds on interest date using straight line method (at bond
premium)
b. Acquisition of bonds between interest dates using effective interest method (at
bond discount)

4. Investment in Associate
On January 1, 2016, Coach Company purchased 10% of Longchamp Companys
outstanding ordinary shares for P5,000,000.
Coach Company is the largest single shareholder in Longchamp and Coachs officers
are a majority of Longchamp board of directors.
The investee reported net income of P 6,000,000 for 2016 and paid dividends of
P1,500,000.00
1. Prepare all the solutions and corresponding journal entries.
2. On December 31, 2016, what amount should be reported as investment in
Longchamps Company?
ANSWERS:
1. SOLUTIONS and CORRESPONDING JOURNAL ENTRIES:
Acquisition, January 1
Add: Share in net income (10% X 6,000,000)
Total
Less: Share in cash dividends (10% X 1,500,000)
Carrying Amount of investment, December 31

5,000,000
600,000
5,600,000
150,000
5,450,000

2. On December 31, 2016, what amount should be reported as investment in

Longchamps Company? 5,450,000

5. Investment Property
Panda Company ventured into construction of a condominium in Taguig. The
board of directors decided to hold the property for the purposes of earning rentals letting
out space to the business executive in the area.
The construction of the condominium was completed and the property was
placed in service on January 1, 2016.
The cost of construction was P 60,000,000. The useful life of the condominium is
25 years and the residual value is P 5,000,000.
An independent valuation expert provided the following fair value of each
subsequent year-end:
December 31, 2016
December 31, 2017
December 31, 2018

65,000,000
63,000,000
70,000,000

1. Prepare all the solutions and journal entries.

2. Under the Cost Model, what amount should be reported as depreciation of
investment property for 2016?
3. Under the fair value model, what amount should be reported as gain from the
change in fair value in 2016?
ANSWERS:
1. SOLUTIONS and CORRESPONDING JOURNAL ENTRIES:
COST MODEL
Cost of investment property
Residual Value
Depreciable amount

60,000,000
(_5,000,000)
55,000,000

Annual Depreciation (55,000,000/25)

2,200,000

FAIR VALUE MODEL

Fair Value December 31, 2016
Cost January 1, 2016
Gain from change in fair value 2016

65,000,000
60,000,000
5,000,000

Journal entry on December 31, 2016

Investment property
Gain from change in fair value

5,000,000
5,000,000

Fair Value December 31, 2017

Carrying Amount December 31, 2016
Loss from change in fair value in 2017

63,000,000
65,000,000
(2,000,000)

Journal entry on Dec 31, 2017

Loss from change in fair value 2017
Investment property

2,000,000

Fair Value December 31, 2018

Carrying Amount December 31, 2017
Gain from change in fair value in 2018

70,000,000
63,000,000
7,000,000

2,000,000

Journal entry on Dec 31, 2018

Investment property
Gain from change in fair value 2018

7,000,000
7,000,000

2. Under the Cost Model, what amount should be reported as depreciation of

investment property for 2016? 2,200,000
3. Under the fair value model, what amount should be reported as gain from the
change in fair value in 2016? 5,000,000