Summary of Classification of Financial Assets

Are cash flows solely payments Fair Value Profit or Loss (FVPL)
NO
for principal and interest (SPPI)?

YES

Is the business model “hold to Amortized Cost

collect”? (ex. Receivables, Debt Securities)
YES

NO

Is the business model “hold to Fair Value Other Comprehensive

collect and sell”? Income (FVOCI) -mandatory
YES
(mandatory
NO

Fair Value Profit or Loss (FVPL)

Problem 1. LITON Company buys and sells securities expecting to earn profits on short-term differences
in price. During 2018, Liton Company purchased the following trading securities:

Security Cost Fair Value December 31, 2018

A 195,000 225,000
B 300,000 162,000
C 660,000 678,000

Before any adjustments related to these trading securities, Liton Company had net income of 900,000.

1. What is Liton’s net income after making necessary trading security adjustments?
2. What would Liton’s net income be if the fair value of Security B were 285,000?
Problem 2. CANDABA Co.’s portfolio of trading securities includes the following on December 31, 2018:
Cost Fair Value
15,000 ordinary shares of Tomas Co. 477,000 417,000
30,000 ordinary shares of Gandara Co. 546,000 570,000
1,023,000 987,000
All of the above securities have been purchased in 2018. In 2019, Candaba Co. completed the following
securities transactions:
March 1 Sold 15,000 shares of Tomas Co., Ordinary shares at P31, less brokerage commission
of 4,500.
April 1 Bought 1,800 ordinary shares of Westin, Inc. at P45 plus commission, taxes, and other
transaction costs of 1,650.
The Candaba Co. portfolio of trading securities appeared as follows on December 31, 2019:
Cost Fair Value
30,000 ordinary shares of Gandara Co. 546,000 580,000 *
1,800 ordinary shares of Westin Inc. 82,650 75,000 **
628,650 655,000
* Net of 6,500 estimated transaction cost that would be incurred on the sale of the securities.
** Net of 1,500 estimated transaction cost that would be incurred on the sale of the securities.

1. What amount of unrealized gain on these securities should be reported in the 2019 income statement?
2. What is the gain or loss on the sale of Tomas Co. ordinary share on March 1, 2019?
3. What amount should be reported as trading securities in Candaba’s statement of financial position on
December 31, 2019?

Problem 3. Karen Co. purchased the following equity securities on January 1, 2017 for a total amount of
P360,000.
Cost
Alaska Co. preference shares P200,000
Valdez Co. ordinary shares 160,000
Totals P360,000

The shares did not qualify for recognition as held for trading, thus they were classified as investment in
equity securities measured at fair value through other comprehensive income.

On December 31, 2017, the portfolio of Karen Co. comprised the following.
Fair value – 12/31/2017
Alaska Co. preference shares P240,000
Valdez Co. ordinary shares 60,000
Total P300,000

On December 31, 2018, the portfolio of Karen Co. comprised the following:
Fair value – 12/31/2018
Alaska Co. preference shares P220,000
Valdez Co. ordinary shares 180,000
Total P400,000

On February 2, 2019, all of the Alaska Co. preference shares were sold for P160,000 net of transaction
costs.

1. How much is the unrealized gain (loss) recognized in other comprehensive income on December 31,
2017?

2. How much is the unrealized gain (loss) accumulated in equity as of December 31, 2018?