WorksheetsInvestment in Associate
Total questions: 37
Worksheet time: 27mins
Refers to a sales of assets from associate to the investor? (a)
What is the treatment of downstream transaction?
Eliminated
accounted for as sale of assets
same as upstream transaction
accounted for as held for sale
In discontinuance of equity method, the investor may account for the investment as
Financial Asset at fair value through profit or loss
Financial Asset at fair value through other comprehensive income
Investment in unquoted equity
all of the above
Equity method is not applicable when
the investor is wholly owned subsidiary
the investor's debt and equity instruments are not traded in public market
the investor did not file or in the process of filing financial statements with the SEC
all of the above
Investment in less than 20% may account for
Fair Value Method
Cost Method
Neither of the choices
Either of the choices
The investment in associate achieved in stages is covered by
PAS 28
PFRS 3
PAS 32
PFRS 9
Under the Fair value approach, the total cost of investment for initial application of the equity method is the fair value of the existing interest acquired
TRUE
FALSE
Under fair value approach, the existing interest in the associate is remeasured at fair value with any changes in fair value included in the profit or loss
TRUE
FALSE
Under the fair value and cost method, the investor does share in the profit and loss of the investee because of the legal relationship between the investor and investee
TRUE
FALSE
Associate held for sale is accounted for under
PAS 28
PFRS 3
PFRS 5
PFRS 32
If the cost method is used to account for a long-term investment in common stock, dividends received should be
credited to the Stock Investments account.
credited to the Dividend Revenue account.
debited to the Stock Investments account.
recorded only when 20% or more of the stock is owned.
When an investor owns between 20% and 50% of the common stock of a corporation, it is generally presumed that the investor
has insignificant influence on the investee and that the cost method should be used to account for the investment.
should apply the cost method in accounting for the investment.
will prepare consolidated financial statements.
has significant influence on the investee and that the equity method should be used to account for the investment.
If an investor owns less than 20% of the common stock of another corporation as a longterm investment
the equity method of accounting for the investment should be employed.
no dividends can be expected.
it is presumed that the investor has relatively little influence on the investee.
it is presumed that the investor has significant influence on the investee.
On January 1, 2021, Saxe Company purchased 20% of Lax Company’s ordinary shares outstanding for ₱6,000,000. The acquisition cost is equal to the book value of the net assets acquired. During 2021, Lax reported net income of ₱7,000,000 and paid cash dividend of ₱4,000,000. What is the balance in the investment in Lax Company on December 31, 2021?
₱5,200,000
₱6,600,000
₱6,000,000
₱7,400,000
On January 1, 2021, Well Company purchased 10% of Rea Company’s outstanding ordinary shares for ₱4,000,000. Well is the largest single shareholder in Rea and Well’s officers are a majority of Rea’s board of directors. Rea reported net income of ₱5,000,000 for 2021 and paid dividends of ₱1,500,000.
In its December 31, 2021 statement of financial position, what amount should Well report as investment in Rea?
₱4,500,000
₱4,000,000
₱4,350,000
₱3,850,000
On July 1, 2021, Denver Company purchased 30,000 shares of Eagle Company’s 100,000 outstanding ordinary shares for ₱200 per share. On December 15, 2021, Eagle paid ₱400,000 in dividends to its ordinary shareholders. Eagle’s net income for the year ended December 31, 2021 was ₱1,200,000, earned evenly throughout the year. In its 2021 income statement, what amount of income from the investment should Denver report?
₱360,000
₱120,000
₱180,000
₱60,000
It is an entity, including an unincorporated entity such as a partnership over which the investor has significant influence and that is neither a subsidiary nor an interest in joint venture.
Associate
Investee
Venture capital organization
Mutual fund
When an entity holds between 20% and 50% of the outstanding ordinary shares of an investee, which of the following statements is true?
The investor should always use the equity method
The investor should use the equity method unless circumstances indicate that it is unable to exercise significant influence over the investee
The investor must use the fair value method unless it can be clearly demonstrated that the investor has the ability to exercise significant influence over the investee
The investor should always use the fair value method
On January 1, 2008, Calis Corporation purchased 25% of the common stock outstanding of Lane Corporation for ₱700,000. During 2008, Lane Corporation reported net income of ₱200,000 and paid cash dividends of ₱100,000. The balance of the Stock Investments— Lane account on the books of Calis Corporation at December 31, 2008 is
₱700,000
₱725,000
₱750,000
₱675,000
Under the equity method, the Stock Investments account is increased when the
investee company reports net income.
investee company pays a dividend.
investee company reports a loss.
stock investment is sold at a gain.
Under the equity method, the investor records dividends received by crediting
Dividend Revenue.
Investment Income.
Revenue from Investment.
Investment in Associate
Blue Company purchased 10% of Tot Company’s 100,000 outstanding ordinary shares on January 1, 2019 for P500,000. On December 31, 2019, Blue Company purchased an additional 20,000 shares of Tot Company for P1,500,000. Tot Company had not issued any additional shares during 2019. The investee reported earnings of P3,000,000 for 2019. The fair value of the 10% interest is P900,000 on December 31, 2019. What is the carrying value amount of the investment in associate on December 31, 2019?
2,300,000
2,000,000
2,400,000
2,900,000
On January 1, 2019, Forensic Company acquired a 10% interest in an investee for P3,000,000. The investment was accounted for using the cost method. On January 1, 2020, the entity acquired a further 15% interest in the investee for P6,750,000. On such date, the carrying amount of the net assets of the investee was P36,000,000 and the fair value of the 10% interest was P4,500,000. The fair value of the net assets of the investee is equal to carrying amount except for an equipment whose fair value exceeds carrying amount by P4,000,000. The equipment has a remaining life of 5 years. The investee reported net income of P8,000,000 for 2020 and paid cash dividend of P5,000,000 on December 31, 2020. What amount gain on remeasurement to equity should be recognized for 2020?
1,500,000
4,500,000
2,250,000
0
On January 1, 2019, Forensic Company acquired a 10% interest in an investee for P3,000,000. The investment was accounted for using the cost method. On January 1, 2020, the entity acquired a further 15% interest in the investee for P6,750,000. On such date, the carrying amount of the net assets of the investee was P36,000,000 and the fair value of the 10% interest was P4,500,000. The fair value of the net assets of the investee is equal to carrying amount except for an equipment whose fair value exceeds carrying amount by P4,000,000. The equipment has a remaining life of 5 years. The investee reported net income of P8,000,000 for 2020 and paid cash dividend of P5,000,000 on December 31, 2020. What is the implied goodwill arising from the acquisition?
2,250,000
1,250,000
1,350,000
350,000
On January 1, 2019, Forensic Company acquired a 10% interest in an investee for P3,000,000. The investment was accounted for using the cost method. On January 1, 2020, the entity acquired a further 15% interest in the investee for P6,750,000. On such date, the carrying amount of the net assets of the investee was P36,000,000 and the fair value of the 10% interest was P4,500,000. The fair value of the net assets of the investee is equal to carrying amount except for an equipment whose fair value exceeds carrying amount by P4,000,000. The equipment has a remaining life of 5 years. The investee reported net income of P8,000,000 for 2020 and paid cash dividend of P5,000,000 on December 31, 2020. What is the carrying amount of the investment in associate on December 31, 2020?
11,250,000
11,800,000
12,000,000
14,300,000
If an associate has outstanding cumulative preference shares, the investor computes share of profit or loss
After adjusting for preference dividends, whether or not the dividends have been declared.
After adjusting for preference dividends which were actually paid during the year.
Without regard for preference dividends.
After adjusting for the preference dividends only when declared.
An investor shall discontinue the equity method when
The associate operates under severe long-term restrictions
The investor ceases to have control over the associate.
The business activities of the investor and associate or dissimilar.
The investor ceases to have significant influence over the associate.
It is an entity over which the investor has significant influence.
Investee
Associate
Venture capital organization
Mutual fund
When an investor uses the equity method to account for investment in ordinary shares, the investment account will be increased when the investor recognizes
A proportionate interest in the net income of the investee
A cash dividend received from the investee
Periodic amortization of the goodwill
A share dividend received from the investee
After the date of acquisition, the investment account using the equity method would
Not be affected by its share of the earnings or losses of the investee
Be increased by its share of the earnings of the investee, and decreased by its share of the losses of the investee.
Be increased by its share of the earnings of the investee, but not be affected by its share of the losses of the investee.
Be increased by its share of the earnings of the investee, but not be affected by its share of the losses of the investee
The equity method is not applicable under all of the following circumstances, except
The investor as a wholly-owned subsidiary.
The investor is in the process of filing financial statement with SEC for the purpose of issuing debt and equity instruments in a public market.
The investor's debt and equity instruments are not traded.
The ultimate parent of the investor produces consolidated financial statements.
Goodwill arising from an investment in associate is
Included in the carrying amount of the investment and not amortized.
Included in the carrying amount of the investment and amortized over the useful life.
Charged to retained earnings.
Charged to expense immediately.
The investor has significant influence when the investor holds (direct or indirect) through subsidiaries (a) of the voting power (ordinary shares) of the investee.
The investment in associate shall be classified as (a)
The (a) is included as income in the determination of the investor’s share of the associate’s profit or loss in the period in which the investment is acquired.
The (b) of interest acquired is attributable to undervaluation of the investee’s depreciable assets and goodwill.
If the preference share is (a) , preference dividends is deducted from share of profit or loss (whether declared or not).
If the preference share is (b) , preference dividends is deducted from share of profit or loss (only when declared)
Amortization of excess attributable to investee’s depreciable assets (a) the investment and share of income.
