4-1

1.Blue Company acquired the following portfolio of equity instruments during 2012 andreported the following balances at December 31, 2012. No sales occurred during 2012.

All declines are considered to be temporary.

Security Cost 12/31/12 Market Value

ADBP 350,000P 360,000

PNB425,000400,000

LBP525,000640,000

What is the carrying value of the securities on December 31, 2012 on Blue's balance sheet?

2.City Company purchased the following portfolio of equity instruments during 2012 andreported the following balances at December 31, 2012. No sales occurred during 2012.

All declines are considered to be temporary.

Security Cost 12/31/12 Market Value

XP 800,000 P 820,000

Y1,400,000 1,320,000

Z 1,320,000 1,280,000

Question 1. If the securities were designated as investment to profit or loss, how muchshould City Company report as unrealized loss related to the securities in its 2012 profitof loss?

Question 2. If the securities were designated as investment to other comprehensiveincome, how much should City Company report as unrealized loss related to thesecurities in the statement of comprehensive income?

Question 3. If City Company is a medium-sized entity, what amount of unrealized gain orloss should be reported in the company's other comprehensive income?

3.Nation Company began business in November of 2011. During the year, Nation Companypurchased portfolio of equity securities listed below. In its December 31, 201 balancesheet, National Company appropriately reported a P160,000 debit balance in its "Fairvalue adjustment- Equity Security" account. The composition of the securities did notchange during 2012. Pertinent data are as follows:

Securities Cost Market Value, Dec. 31, 2012

AP 1,200,000 P1,260,000

B900,000 950,000

C1,600,000 1,620,000

P 3,700,000 P 3,830,000

What amount of unrealized gain or loss on these securities should be included in NationCompany's profit or loss for the year ended December 31, 2012 assuming the equitysecurities were designated as investment to profit or loss?

4.Morgan Company began business in October of 2011. During the year, Morganpurchased a portfolio of securities listed below. In its December 31, 2011 balance sheet,Morgan appropriately reported a P300,000 credit balance in its "Fair Value Adjustment-Equity Securities" account. The composition of the securities did not change during theyear 2012. Pertinent data are as follows:

Securities Cost Market Value, Dec. 31, 2012

PP2,400,000 P2,450,000

Q2,500,000 2,550,000

R1,900,000 2,000,000

P6,800,000 P7,000,000

Question 1. What amount of unrealized gain or loss on these securities should be includedin Morgan's profit or loss for the year ended December 31, 2012 assuming the securitieswere designated as investment to profit or loss?

Question 2. What amount of unrealized gain or loss on these securities should beincluded in Morgan's other comprehensive income for the year ended December 31, 2012assuming the securities were designated as investment in available for sale?

Question 3. What amount of unrealized gain or loss on these securities should beincluded in Morgan's shareholders' equity for the year ended December 31, 2012assuming the securities were designated as investment in available for sale?

5.On November 1, 2011, Ribbon Company invested in P600,000 in equity securitiesrepresenting 20,000 ordinary shares of Carbon Company. Ribbon Company incurredtransaction cost of P5,000 related to the acquisition of the security. On December 31,

2011, this investment has a market value of P580,000. On April 15, 2012, RibbonCompany sold the investment for P630,000.

Question 1. What amount of realized gain should Ribbon Company recognized on thedisposal of the security assuming the security was classified as investment in profit orloss?

Question 2. What amount of realized gain should Ribbon Company recognized on thedisposal of the security assuming the security was classified as investment at fair value toother comprehensive income under PAS 39?

Question 3. What amount of realized gain should Ribbon Company recognized on thedisposal of the security assuming the security was classified as investment at fair value toother comprehensive income under PFRS 9?

6.On October 1, 2010, Graham Company purchased a P2,000,000 face value 9% debtinstruments for P1,860,000 and designated as investment to profit or loss. The debtinstruments mature on January 1, 2011, and pay interest semi-annually on January 1and July 1. On December 31, the fair market value of the instruments is P1, 960,000. OnFebruary 2, 2011, Graham Company sold the debt security for P1,970,000. What amountof unrealized gain or loss should Graham Company report in its December 31, 2010 profitor loss?

7.On May 1, 2014, Golden Company purchased a short-term P4,000,000 face value 9%debt instruments for P3,720,000 excluding the accrued interest and classified it as aninvestment to profit or loss which is based on the business model of the entity to buy andsell portfolio of securities and to make profit for short-term movements in the market rateof interest. Golden Company incurred and paid P20,000 transaction cost related to theacquisition of the instrument. The debt instruments mature on January 1, 2017, and payinterest semi-annually on January 1 and July 1. On December 31, the fair market value ofthe instruments is P3,880,000. On February 2. 2015, Graham Company sold the debtsecurity for P3,960,000. At what amount should the investment be initially recorded?

8.On January 1, 2014, Sun Company purchased the debt instruments of Silk Company witha face value of P5,000,000 bearing interest rate of 8% forP4,621,006 to yield 10%interest peryear. The bonds mature on January 1, 2019 and pay interest annually onDecember 30. On December 31, 2014 the fair value of the investment is P4,838,014which is based on the prevailing market rate of 9%.

Question 1. If the company's business model has the objective of trading and making aprofit from changes in the fair value of the securities, what amount of unrealized gain orloss should the company disclose in their December 31, 2014 profit or loss?

Question 2. If the company's business model has the objective of collecting all thecontractual cash flows including interest and principal, at what amount should theinvestment be reported in the company's statement of financial position for the yearended December 31, 2014?

9.On January 2, 2013 Saint Company invested in a 4-year 10% bond with a face value ofP6,000,000 in which interest is to be paid every December 31. The bonds has aneffective interest rate of 9% and was acquired for P6,194,383. Saint Company has aportfolio of commercial loans that it holds to sell in the short term. On December 31, 2013,the security has a fair value of P6,229,862 which is based on the prevailing market rate of

8.5%.

On December 31, 2013, Saint Company acquires Joseph Company that managescommercial loans and has a business model that holds the loan in order to collect thecontractual cash flows. Saint Company original portfolio of commercial loans is no longerfor sale, and the portfolio is now managed together with the acquired commercial loansand all are held to collect the contractual cash flows. On December 31, 2014, the debtinvestment has a fair value of P6,550,000. What amount should the debt investment bereported in the December 31, 2014 statement of financial position?

10.On January 2, 2013 Saint Company invested in a 4-year 10% bond with a face value ofP6,000,000 in which interest is to be paid every December 31.The bonds has aneffective interest rate of 9% and was acquired for P6,194,383. On December 31, 2014,the management of Saint Company decided to dispose P4,000,000 face value debtinstrumentswhichwillbeusedto settleanobligation and to finance some of itsoperating costs. The company has a business model of collecting the contractual cashflows for all their debt security investments, however due to frequent sale and disposalof investments the management has decided that the business model is no longerappropriate. On December 31, 2014, the four million face value debt instrument wasdisposed of when the market rate of similar instrument was 11%.

PV factor of 11% after 2 years0.8116PV factor of annuity of 11% after 2 years 1.7125

Question 1. What is the amortized cost of the debt instrument on December 31, 2014?

Question 2. If the remaining debt securities were redesignated on January 1, 2015 whenthe market rate of interest has yet to change, what is the amount of gain or loss shouldthe company recognize in its 2015 profit or loss as a result of the redesignation?