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a. Investment in subsidiary. b. Investment in held for trading securities. c. Investment in associate. d. Any of these 5. Which of the following best depicts the computation for the carrying amount of an investment in associate account? a. Purchase price + Share in the associate's profit - Dividends received - Amortization/Depreciation of undervaluation of assets b. Purchase price + Share in the associate's profit - Dividends received + Amortization/Depreciation of undervaluation of assets c. Purchase price + Share in the associate's total comprehensive income - Dividends received Amortization/Depreciation of undervaluation of assets d. Number of shares held x Fair value per share 6. Potential voting rights that are currently exercisable a. are considered when determining the existence of significant influence. b. are ignored when making mathematical calculations in the application of the equity method. c. may result to a change in the measurement basis for an investment. d. all of these 7. Which of the following is correct when an associate has outstanding preference shares that are held by parties other than the investor? a. If the preference shares are noncumulative, the investor deducts one-year dividend, whether declared or not, before computing for its share in the associate's profit. b. If the preference shares are cumulative, the investor deducts all dividends in arrears before computing for its share in the associate's profit for the year.C. If the preference shares are cumulative, the investor deducts one-year dividend, whether declared or not before computing for its share in the associate's profit. d. If the preference shares are classified as debt, the investor deducts only the dividend declared, if any, before computing for its share in the associate's profit. 8. Gains and losses resulting from intercompany transactions between an investor and an associate are a. eliminated in the investor's financial statements to the extent of the investor's share. b. eliminated in full in the investor's financial statements. c. recognized in the investor's financial statements only to the extent of the investor's interest in the associate. d. not given special accounting. 9. An investor shares in the losses of the associate a. only up to the extent of the investor's interest in the associate. b. only up to the carrying amount of the investment in the associate. c. Choice (a); however, additional losses are recognized for associate. liabilities incurred and payments made on behalf of the d. without limit. 10. According to PAS 28, the implied goodwill in an investment in associate is a. amortized over a period not exceeding ten (10) years. b. not amortized but tested for impairment at least annually. c. included in the carrying amount of the investment. d. recognized as income in the year of acquisition.Case 2: The accumulated OCI represents exchange differences on translation of a foreign operation. The retained ownership interest gives Brownout significant influence over Veneco. Requirement: Provide the journal entries on July 1, 20x2. Case 3: The accumulated OCI represents revaluation surplus. The retained ownership interest gives Brownout significant influence over Veneco. Requirement: Provide the journal entries on July 1, 20x2. 5. On January 1, 20x1, V-Cull Co. acquired 10% of Pinikpikan, Inc.'s 100,000 outstanding shares for P1,600,000. V-Cull classified the investment as held for trading securities. In 20x1, Pinikpikan reported profit of P10,000,000 and declared and paid cash dividends of P2,000,000. The shares were quoted at P170 per share on December 31, 20x1. On July 1, 20x2, V-Cull acquired additional 15,000 shares at P140 per share (the fair value on this date). The acquisition resulted to an increase in V-Cull's ownership interest over Pinikpikan but did not give rise to any goodwill or negative goodwill. In 20x2, Pinikpikan reported profit of P12,000,000 (of which P8,000,000 were earned in the second half of the year) and declared and paid cash dividends of P2,000,000 at year-end. The shares were quoted at P180 per share on December 31, 20x2. Requirement: Provide the journal entries in 20x1 and 20x2. 6. Wat Co. owns 20% of the voting shares of Del, Inc. Wat's account balances on Dec. 31, 20x1, before any necessary year- end adjustment, include the following: Investment in associate 400,000 Trade accounts receivable - Del, Inc. 600,000 Investment in preference shares - Del, Inc. 200,000The difference was attributed to a building which has a remaining useful life of 10 years. In 20x1, Cam Co. reported profit of P2,000,000 and paid cash dividends of P1,200,000. Cam Co.'s shares were quoted at P200 per share on December 31 20x1. On July 1, 20x2, Melo Co. sold 60% of its investment in Cam shares at the prevailing market price of P240 per share. The retained interest does not give Melo significant influence over Cam; and thus, was reclassified as held for trading securities. Cam Co. reported interim profit of P1,000,000 for the six months ended June 30, 20x2. Cam Co. reported total profit of P2,400,000 in 20x2 and declared cash dividends P2,000,000 on December 31, 20x2. Cam Co.'s shares were quoted at P270 per share on December 31, 20x2. Requirement: a. Provide the journal entries in 20x1 and 20x2. b. Compute for the total effect of the investment in Cam shares in Melo Co.'s 20x2 profit or loss. 4. Brownout Co. owns 30% of Veneco, Inc.'s ordinary shares. On July 1, 20x2, Brownout Co. sold half of the investment for P800,000. The adjusted balances of the related accounts as of July 1, 20x2 immediately before the sale are as follows: Investment in associate 2,400,000 . Cumulative share in associate's other comprehensive income (OCI) 1,000,000 Cr. Case 1: The accumulated OCI represents exchange differences on translation of a foreign operation. The retained ownership interest does not give Brownout significant influence over Veneco. Requirement: Provide the journal entries on July 1, 20x2.PROBLEM 3: EXERCISES 1. On Jan. 1, 20x1, Potato Co. acquired 15,000 out of the 60,000 total outstanding shares of Chips Co. for P800,000. Chips Co.'s net identifiable assets on this date are fairly valued. In 20x1, Chips Co. reported profit of P1,700,000, declared and paid cash dividends of P400,000, and reported loss on exchange difference on translation of foreign operation of P80,000 in other comprehensive income. Requirements: a. Provide the journal entries in Potato Co.'s books. b. Compute for the carrying amount of the investment in associate on Dec. 31, 20x1 using T-account. 2. On January 1, 20x1, Wer Co. purchased 25% interest in the ordinary shares of Pak, Inc. for P4,000,000. Pak's assets and liabilities approximate their fair values except for inventories with carrying amount of P1,000,000 and fair value of P200,000 and depreciable asset with carrying amount of P6,000,000 and fair value of P10,000,000. The remaining useful life of the depreciable asset is 10 years. Pak's net identifiable assets have a book value (carrying amount) of P10,000,000 on January 1, 20x1. Pak reported P2,400,000 profit and declared and paid cash dividends of P1,000,000 in 20x1. Requirements: a. Compute for the goodwill (negative goodwill). b. Provide the entries in the books of Wer Co. c. Compute for the share in the associate's profit in 20x1. d. Compute for the carrying amount of the investment on Dec. 31, 20x1. 3. On January 1, 20x1, Melo Co. acquired 30,000 ordinary shares, representing 30% interest in Cam Co's net assets, for P6,000,000. At the time of acquisition, Cam Co.'s net assets had a book value of P16,000,000 and a fair value of P20,000,000