FINANCIAL ACCOUNTING AND REPORTING

Assessment Examination on Financial Assets (Investments)

Name: ______________________ Section: ____ Score: ____ / 30

Instructions: Choose the letter that corresponds to your answer and write them on a ½ crosswise yellow
paper. Any form of tampering is considered wrong.
1. IFRS requires entities to measure financial assets based on all of the following, except
a. The entity’s business model for managing financial assets.
b. Whether the financial asset is a debt or equity investment
c. The contractual cash flow characteristics of the financial assets.
d. All of the choices are IFRS requirements.

2. Which of the following statements is not correct with regard to trading investment?
a. Trading investments are held with the intention of selling them in a short period of time.
b. Unrealized holding gains and losses are reported as part of net income
c. Any discount or premium is amortized
d. Fair value option is applicable to both equity and debt investment

3. A debt investment asset shall be measured subsequently at amortized cost

a. By irrevocable designation.
b. When the debt investment is managed and evaluated on a document risk-management
strategy
c. When the debt investment is held for trading
d. When the business model is to collect contractual cash flows that are solely payments of
principal and interest

4. When a debt investment at amortized cost is reclassified to FVPL, the difference between the
previous carrying amount and fair value at reclassification date is
a. Recognized in profit or loss
b. Not recognized
c. Recognized in other comprehensive income
d. Included in retained earnings

5. Under IFRS, the fair value option

a. Must be applied to all instruments the entity holds
b. May be selected as a valuation method at any time during the first two years of ownership
c. Report all gains and losses in income
d. All of the choices are correct

6. Accrued interest on bonds that are purchased between interest dates

a. Is ignored by both the seller and the buyer
b. Increases the amount a buyer must pay
c. Is recorded as a loss on the sale of the bonds
d. Decreases the amount a buyer must pay

7. The effective interest method of amortizing premium provides for

a. Increasing amortization and increasing interest income
b. Increasing amortization and decreasing interest income
c. Decreasing amortization and decreasing interest income
d. Decreasing amortization and increasing interest income

8. The effective interest method of amortizing bond premium or discount

a. Is too complicated for practical use
b. Uses a constant rate of interest
c. Is another name for the straight line method
d. Is needed for determine the amount of cash to be paid to bondholders at each interest date

9. On January 2, 2015, Currimao Company purchased 10% of Bacarra Company’s outstanding

common shares for P20,000,000. Currimao is the largest single shareholder in Bacarra and
Currimao’s officers are majority of Bacarra’s board of directors. Bacarra reported net income of

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 P10,000,000 and paid dividend of P4,000,000. In its December 31, 2015 balance sheet, what
amount should Currimao report as investment in Bacarra Company?
a. 20,000,000 b. 21,000,000 c. 20,600,000 d. 21,400,000

10. Culasi Company bought 20% of Bugasong Corporation’s common stock on January 1, 2005 for
P20,000,000. Carrying amount of Bugasong’s net assets at purchase date totaled P60,000,000.
Fair value and carrying amounts were the same for all items except for plant and inventory, for
which fair values exceed their carrying amounts by P15,000,000 and P5,000,000 respectively.
The plant has a 5-year life. All inventory was sold during 2005. Goodwill, if any, has an
indefinite life. During 2005, Bugasong reported net income of P40,000,000 and paid a
P15,000,000 cash dividend. What amount should Culasi report as investment income for 2005?
a. 6,200,000 b. 6,400,000 c, 3,000,000 d. 7,600,000

11. Pagudpud Company owns 50% of Sarrat Company’s preferred stock and 30% of its common
stock. Sarrat’s stock outstanding at December 31, 2005 includes P20,000,000 of 10% cumulative
preferred stock and P50,000,000 of common stock. Sarrat reported net income of P10,000,000
for the year 2005. What amount should Pagudpud report as investment income for the year
2005?
a. 3,000,000 b. 2,400,000 c. 3,400,000 d. 4,400,000

12. The following data pertain to Antique Company’s investments in debt securities:
Market value
Cost 12/31/2017 12/31/2016
Trading 5,000,000 5,200,000 4,500,000
Available for sale 5,000,000 4,800,000 4,700,000

What amount should Antique report as unrealized gain in its 2017 income statement?
a. 700,000 b. 200,000 c. 800,000 d. 100,000

13. On October 1, 2005, Bangued Company acquired P20,000,000 face value 12% bonds of Didigan
Company at 110 plus accrued interest. The bonds were dated July 1, 2004 and will mature on
June 30, 2009. Interest is payable June 30 and December 31. The commission to acquire the
bonds was P500,000. The total amount paid for the investment in bonds was
a. 23,100,000 b. 22,600,000 c. 22,500,000 d. 21,900,000

14. On July 1, 2005 Tagum Company purchased as a long-term investment in Langiden Company’s
10-year 12% bonds, with face value of P20,000,000, for P18,500,000. Interest is payable
semiannually on June 30 and December 31. The bonds mature on July 1, 2010. Tagum uses the
straight line amortization method. What is the amount of interest income that Tagum should
report in its 2005 income statement?
a. 1,350,000 b. 1,200,000 c. 1,500,000 d. 1,050,000

15. On October 1, 2005 Bucay Company purchased 20,000 of the P1,000 face value 12% bonds of
Manabo Company for P23,000,000 including accrued interest of P600,000. The bonds which
mature on January 1, 2012, pay interest semiannually on January 1 and July 1. Bucay used the
straight line method of amortization and appropriately recorded the bonds as a long-term
investment. On the December 31, 2006 balance sheet the bonds should be reported at
a. 22,304,000 b. 21,920,000 c. 22,880,000 d. 22,400,000

16. On April 1, 2005, Caluya Company purchased P5,000,000 face value 9%. Treasury notes for
P4,962,500 including accrued interest of P112,500. The notes mature on July 1, 2006 and pay
interest semiannually. Caluya intends to hold the notes to maturity. In its October 31, 2005
balance sheet, the carrying amount of this investment should be
a. 4,850,000 b. 4,920,000 c. 4,930,000 d. 4,975,000

17. Luba Company purchased bonds at a discount of P5,000,000. Subsequently, Luba sold these
bonds at a premium of P2,000,000. During the period that Luba held this investment,
amortization of the discount amounted to P1,500,000. What amount should Luba report as gain
on the sale of the bonds?
a. 2,000,000 b. 5,500,000 c. 3,500,000 d. 3,000,000

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 18. On January 1, 2005, Bucloc Company acquired for P6,500,000 the entire P8,000,000 issue 12%
serial bonds. Bonds of P2,000,000 mature at annual intervals beginning December 31, 2005.
Interest is payable semiannually on June 30 and December 31. What is the interest income for
2005 using the bond outstanding method of amortization?
a. 1,560,000 b. 1,380,000 c. 780,000 d. 960,000

19. On July 1, 2005, Boloc Company purchased P2,000,000 of East Company’s 8% bonds due on
July 1, 2015. Boloc expects to hold the bonds until maturity. The bonds pay interest
semiannually on January 1 and July. The bonds were purchased for P1,750,000 to yield 10%. In
its 2005 income statement, Boloc should report interest income at
a. 175,000 b. 160,000 c. 92,500 d. 87,500

20. On July 1, 2005, Cagayan Company paid P9,585,000 for 10% bonds with a face amount of
P8,000,000. Interest is paid on June 30 and December 31. The bonds were purchased to yield
8%. Cagayan uses the effective interest method to recognize interest income from this
investment. What should be reported as the carrying amount of the bonds in the December 31,
2005, balance sheet?
a. 9,568,400 b. 9,601,600 c. 9,551,800 d. 9,618,200

21. On July 1, 2005, Tuguegarao Company purchased as a long term investment P8,000,000 of
Candon Company’s 8% bonds for P7,570,000, including accrued interest of P320,000. The
bonds were purchased to yield 10% interest. The bonds pay interest annually on December 31.
Tuguegarao uses the interest method. In its December 31, 2005 balance sheet, what amount
should Tuguegarao report as investment in bonds?
a. 7,292,500 b. 7,207,500 c. 7,628,500 d. 7,335,000

22. On January 1, 2004, Sibalon Company purchased as a long-term investment P5,000,000 face
value of 8% bonds for P4,562,000. The bonds were purchased to yield 10% interest. The bonds
pay interest annually December 31. Sibalon uses the interest method of amortization. What
amount (rounded to the nearest P100) should Sibalon report on its December 31, 2005 balance
sheet for this long-term investment?
a. 4,680,000 b. 4,662,000 c. 4,618,000 d. 4,562,000

23. On July 1, 2005, Solana Company purchased Amulong Company’s 10-year, 8% bonds with face
amount of P8,000,000 for P6,720,000. The bonds mature on June 30, 2013 and pay interest
semiannually on June 30 and December 31. Using the interest method, Solana recorded bond
discount amortization of P28,800 for six months ended December 31, 2005. From this long-term
investment, Solana should report 2005 income of:
a. 348,800 b. 291,200 c. 320,000 d. 384,000

24. Which of the following statements best describes an Investment Property?

a. Property held for sale in the ordinary course of business
b. Property held for use in the production
c. Property held to earn rentals or for capital appreciation
d. Property held for capital appreciation

25. Subsequent to initial recognition, the investment property shall be measured at

a. Fair value
b. Cost less any accumulated depreciation and any accumulated impairment losses
c. Revalued amount
d. Either fair values or cost less any accumulated depreciation and any accumulated impairment
losses

For items 26 and 27, Galore Company ventured into construction of a condominium on Makati which is
rated as the largest state of the art structure. The entity board of directors decided that instead of selling
the condominium, the entity would hold this property for purposes of earning rentals by letting out space
to business executives in the area.

The construction of the condominium was completed and the property was placed in service on January 1,
2015. The cost of the construction was 50,000,000. The useful life of the condominium is 25 years and its
residual value is 5,000,000.

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An independent valuation expert provided the following fair value at each subsequent year-end:
December 31, 2015 55,000,000
December 31, 2016. 53,000,000
December 31, 2017 60,000,000

26. Under the cost model what amount should be reported as depreciation of investment property for
2015?
a. 1,800,000 b. 2,000,000 c. 2,220,000 d. 0

27. Under the fair value model, what amount should be recognized as gain from change in fair value
in 2015?
a. 5,000,000 b. 3,000,000 c. 7,000,000 d. 0

For items 28 and 29, Bona company purchased an investment property on January 1, 2013 for
P2,2000,000. The property had a useful life of 40, years and on December 31, 2015 had a fair value of
P3,000,000.

On December 31, 2015, the property was sold for net proceeds of P2,900,000. The entity used the cost
model to account for the Investment property. Bona company purchased an investment property on
January 1, 2013 for P2,2000,000. The property had a useful life of 40, years and on December 31, 2015
had a fair value of P3,000,000.

On December 31, 2015, the property was sold for net proceeds of P2,900,000. The entity used the cost
model to account for the Investment property.

28. What is the carrying amount of the investment property on December 31, 2015?
a. 2.200.000 b. 2.035.000 c. 2.145.000 d. 2.090.000

29. What is the gain or loss to be recognized for the year ended December 31, 2015 regarding the
disposal of property?
a. 865,000 gain b. 810,000 gain c. 100,000 loss d. 700,000 gain

30. The purpose of the mark-to-market adjustment for securities classified as "available-for-sale" is:
a. To adjust the valuation of a company's investment to current market value.
b. To recognize the proper amount of gain or loss on fluctuations in the market value of these
securities in the current period income statement.
c. To adjust a corporation's capital stock account to reflect the current market value of the
outstanding capital stock.
d. Both A and B are correct.

31. A Gain (or Loss) on Fair Value Changes on Investments classified as "available-for-sale"
securities:
a. Is reported in the asset section of the balance sheet, as an adjustment to the carrying value of
the investments in securities.
b. Is reported in the shareholders’ equity section of the balance sheet, as either an increase or
decrease in total shareholders’ equity.
c. Appears in the current period income statement, combined with gains and losses from sales of
securities.
d. Indicates the amount of cash a company would receive if the investments in securities were
sold as of the balance sheet date.

32. Fisher Corporation invested 320,000 cash in available-for-sale securities in early December. On
December 31, the quoted market price for these securities is 337,000. Which of the following
statements is correct?
a. Fisher's December income statement includes a 17,000 gain on investments.
b. If Fisher sells these investments on January 2 for 300,000, it will report a loss of 37,000.
c. Fisher's December 31 balance sheet reports investments in securities at 320,000 and a gain on
Fair Value Changes on investments of 17,000.
d. Fisher's December 31 balance sheet reports investments in securities at 337,000 and a gain on
Fair Value Changes on investments of 17,000.ance sheet date.

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