ACCOUNTING 400

6. On January 2, 2019, Sandy Company made a test of impairment on one of its building carried as plant asset.

The test on impairment revealed a recoverable value of P5,500,000 on that building. The carrying value of

this building as of January 2, 2019 is P8,000,000 with a remaining useful life of 10 years.

On January 2, 2021, Sandy Company decided to convert this building into an investment property that is to

be carried at fair value. The fair value of the building is P7,000,000 on the date of transfer.

What amount of gain or loss should Sandy Company recognize in its profit or loss on the date of transfer?

a. 0 c. 2,000,000

b. 600,000 d. 2,600,000

Fund Investment

A. Fund Investment:

When a Fund Investment is created for a specific purpose or purposes, the Investment account is debited

and credited to cash or non-cash asset or any other account being issued. Any income earned and realized

by the fund or investment should be recognized directly as debit to the investment and credit to the

corresponding income from investment account. Any cost or expenses necessary or related to the

investment is a direct charge against the income and investment accounts.

7. The following information relates to non-current investments placed in trust by Mrs. Puff Company as required

by underwriter of its bonds.

Bond sinking fund, January 1, 2021 P 2,250,000

Additional investments to the sinking fund during 2021 450,000

Dividend revenue on equity securities 75,000

Interest revenue on debt securities 150,000

Administration cost 25,000

Carrying value of bonds payable 3,000,000

What amount should be reported in its December 31, 2021 Statement of Financial Position related to its

non-current investments for bond sinking fund?

a. 2,925,000 c. 2,875,000

b. 2,900,000 d. 2,700,000

B. Investment in Life Insurance (Cash surrender Value)

Cash surrender value of life insurance - is the amount to be paid by the insurance company upon surrender

and cancellation of the life insurance policy. Insurance companies usually allow a portion of accumulated

premiums to build up as a savings plan, when the policy is cancelled; the savings plan or cash surrender

value is returned to the insured. The cash surrender value of life insurance increases from year to year and

is stated in the policy. Any increase in the cash surrender value account will be debited to this account with

a corresponding credit to the life insurance expense account. Any cash dividend that may be received from

the insurance company should be recognized as a reduction to the life insurance expense account.

8. On January 1, 2016, Plankton Company purchased a P4,000,000 ordinary life insurance policy on its

president. Additional data for the year 2019 are: Cash surrender value, January 1, P 200,000; Cash surrender

value, December 31, P220,000; Annual insurance premium paid on January 1, 2019, P80,000; Dividend

received on August 1, P 10,000. Plankton Company is the beneficiary under the life insurance policy.

What amount of life insurance expense should Plankton Company report in its December 31, 2019 Profit or

Loss statement?

a. 50,000 c. 70,000

b. 60,000 d. 80,000

9. Pearl Corporation insures the life of its president for P4,000,000, the corporation being the beneficiary of an

ordinary life policy. The monthly premium is P6,000 payable every first day of the month. The policy is dated

January 1, 2014, and carries the following cash surrender values:

End of Policy Year Cash Surrender Value

2014 -

2015 -

2016 25,200

2017 30,000

2018 39,600

2019 50,400

The corporation follows the calendar year as its fiscal period. The president dies on October 31, 2019 and the

policy is collected on December 1, 2019. What is the gain on life insurance settlement?

a. 3,913,600 c. 3,951,400

b. 3,939,400 d. 4,000,000