4) Audit of Investments

Audit of Investments
L. R. Cabarles
Relevant Standards
Financial Instruments Standards
PAS 32 Presentation
PAS 39 Recognition and Measurement
PFRS 7 Disclosures
PFRS 9 Financial Instruments
Other Standard
PAS 28 Investments in Associates and
Joint Ventures
(Effective 01.01.13)
PAS 39: Classification of

financial assets
Financial assets at fair value
through profit or loss
(FA@FVTPL)
1) Held for trading
2) Designated
Held-to-maturity (HTM)
Loans and receivables (L&R)
Available-for-sale (AFS)
PAS 39: Classification Based on

Characteristics of Instrument
Type of
Category Derivative? Instrument
FA @
FVTPL
Quoted?
YES or NO
Debt or
equity
YES or NO
AFS
NO
Debt or
equity
YES or NO
HTM
NO
Debt
YES
L&R
NO
Debt
NO
PAS 39: Classification Based on

Intention
Intention (Purpose)
Classification
To be sold immediately
Held for Trading
To be held to maturity
HTM/L&R
To be held indefinitely
AFS
PAS 39: Financial Assets

Measurement Summary
Category
Initial
Subsequent
Change in
FV
FA @ FVTPL
FV
FV
P/L
AFS
FV + TC
FV/Cost/AC
HTM
FV + TC
AC
OCI
(Equity)
Ignore
L&R
FV + TC
AC
Ignore
PFRS 9: Classification of
financial assets
through profit or loss
(FA@FVTPL)
Financial assets at amortized
cost
through other comprehensive
income (FA@FVTOCI)
PFRS 9: Classification Based on

Characteristics of Instrument
Category
Derivative?
Type of
Instrument
FA @ FVTPL
YES or NO
Debt or equity
FA @ AC
NO
Debt
FA @
FVTOCI
NO
Equity
PFRS 9: Financial Assets

Measurement Summary
Category
Initial
Subsequent
Change in
FV
FA @ FVTPL
FV
FV
P/L
FA @ AC
FV + TC
AC
Ignore
FA @
FVTOCI
FV + TC
FV
OCI
(Equity)
PFRS 9:
Classification of
Financial Assets
Summary
Problem No. 1
Requirement A (1)
FA@FVTPL
FA@FVTPL
Commission expense
Cash
P874,164
50,000
Available-for-sale
AFS securities
Cash
P924,164
Held-to-maturity
HTM securities
Cash
P924,164
P924,164
P924,164
P924,164
Requirement A (2)
FA@FVTPL
Interest receivable (P1M x .08) P80,000
Interest income
P80,000
Available-for-sale
Same entry
Held-to-maturity
Same entry
Requirement A (3)
FA@FVTPL
No entry
Available-for-sale
AFS securities
Interest income
Held-to-maturity
HTM securities
Interest income
?
P
Effective interest rate (10%)

PV of Principal
(P1M x 0.6209)
PV of Interest
(P1M x .08 x 3.7908)
CA of financial asset
P620,900
303,264
P924,164
Original Amortization Schedule

Date
EI
(10%)
NI
(8%)
Disc.
Amort.
1/1/12
A.C.
924,164
12/31/12
92,416
80,000
12,416
936,580
12/31/13
93,658
80,000
13,658
950,238
12/31/14
95,024
80,000
15,024
965,262
12/31/15
96,526
80,000
16,526
981,788
12/31/16
98,212
80,000
18,212
1,000,000
Requirement A (3)
FA@FVTPL
No entry
Available-for-sale
AFS securities
Interest income
P12,416
Held-to-maturity
HTM securities
Interest income
P12,416
P12,416
P12,416
Requirement A (4)
FA@FVTPL
FV adj. (P980,000 P874,164) = P105,836
FA@FVTPL
P105,836
FV adj. gainFA@FVTPL (P/L)
P105,836
Available-for-sale
FV adj. (P980,000 P936,580) = P43,420
AFS securities
P 43,420
FV adj. G/L AFS (OCI)
P 43,420
Held-to-maturity
No entry
Requirement B
Subsequent
Category
Measuremen
t
FA@FVTPL
FV
CA,
12/31/12
AFS
FV/Cost/AC
P980,000
HTM
AC
P936,580
P980,000
Problem No. 2
Requirement # 1-A
Sales proceeds
CA of investment
(P1.8M x 24/72)
Loss on sale
P540,000
( 600,000)
(P 60,000)
Requirement # 1-B
Gain (Loss) on sale, 8/15
Total proceeds
Dividends sold (4,800 x P30)
Net proceeds
CA of investment
(P1.32M x 48/66)
Gain (Loss)
onpaid
sale, 9/1
Total
amount
Sales
proceeds
Purchased
dividend
CA of
investment
(6,000
x P20)
(P1.32M x 12/66)
Initial CA of 4WARD
P1,176,000
(
144,000)
1,032,000
(
P
960,000)
72,000
P1,440,000
P 276,000
( 120,000)
(
240,000)
P1,320,000
P
36,000
Total gain
P
No. of shares held (6,000 x 1.1)
108,000
6,600
Requirement # 1-C
Declared, 1/2
Declared, 5/2
Declared, 8/1
(6,600 x P30)
Dividend income
198,000
P198,000
Requirement # 1-D
FV of 4WARD shares
[(6,000 x 1.1)-4,800-1,200]
= 600 x P210
FV of BACK shares
(7,200 2,400)
= 4,800 x P240
Total fair value
126,000
1,152,000
P1,278,000
Requirement # 2
1/10
Dividend income
P120,000
Trading securities (P20 x 6,000)
P120,000
2/20
No AJE
3/01
Loss on sale of TS
Trading securities
5/21
Retained earnings
Trading securities
P132,000
60,000
P
60,000
P132,000
Requirement # 2
8/15
Trading securities
Dividend income
Gain on sale of TS
9/01
Trading securities
Gain on sale of TS
12/31, FV Adj.
P216,000
P144,000
72,000
36,000
P
36,000
FV Adjustment, 12/31/12
Trading securities
1/10
Trading securities
1,320,000
1/10
Trading securities
1,320,000
2/20
1,800,000
1/10
Trading securities
1,320,000
600,000
2/20
1,800,000
3/1
1/10
Trading securities
1,320,000
600,000
2/20
1,800,000
960,000
3/1
8/15
1/10
Trading securities
1,320,000
600,000
2/20
1,800,000
960,000
240,000
3/1
8/15
9/1
1/10
Trading securities
1,320,000
600,000
2/20
1,800,000
960,000
240,000
3/1
8/15
9/1
1/10
Trading securities
1,320,000
600,000
2/20
1,800,000
Balance
1,320,000
960,000
240,000
3/1
8/15
9/1
1/10
Trading securities
1,320,000
600,000
2/20
1,800,000
Balance
1,320,000
FV
1,278,000
960,000
240,000
3/1
8/15
9/1
1/10
Trading securities
1,320,000
600,000
2/20
1,800,000
Balance
1,320,000
FV
1,278,000
960,000
240,000
?
3/1
8/15
9/1
FV adj.
1/10
Trading securities
1,320,000
600,000
2/20
1,800,000
Balance
1,320,000
FV
1,278,000
960,000
240,000
42,000
3/1
8/15
9/1
FV adj.
Requirement # 2
8/15
Trading securities
Dividend income
Gain on sale of TS
P216,000
P144,000
72,000
9/01
Trading securities
Gain on sale of TS
12/31, FV Adj.
FV adjustment loss (P/L)
Trading securities
36,000
P
36,000
42,000
P
42,000
Problem No. 3
Requirement # 1-A
Gain
(Loss)
on sale,
5/20
Dividend
income
2012:
Proceeds,
P125,000
Share div.,net
3/15
P
Cost of investment
Cash
div., 11/01
(10,000 x P5)
50,000
(P390,000
x 5/15)
( 130,000)
Cash div., 12/01 (10,000 x P50 x .2)
100,000
(
5,000)
Total
P150,000
Total
proceeds
P 120,000
Requirement
# 1B
Dividend sold (2,000 x P50 x 20%) ( 20,000)
CA, 12/31/12 (FV)
Proceeds, net
100,000
(8,000 x P13.75)
P110,000
Cost of investment
(P390,000 x 2/15)
( 52,000)
48,000
Dividend income
150,000
Net amount in P/L
P 193,000
Requirement # 2-A
Proceeds, net
Cost of investment
(P390,000 x 5/15)
P125,000
( 130,000)
(
5,000)

Total proceeds
P 120,000
Dividend sold (2,000 x P50 x 20%) ( 20,000)
Proceeds, net
100,000
Cost of investment
(P390,000 x 2/15)
( 52,000)
48,000
Dividend income
150,000
Net amount in P/L
P 193,000
Requirement # 2-A
Amount in P/L 2012:
Dividend income
Requirement # 2B
CA, 12/31/12 (FV)
(8,000 x P13.75)
P 150,000
P110,000
Problem No. 5
Date
Shares
1/2/10
30,000
@35
1,050,000
7/2/11
90,000
@60
5,400,000
AJE 1
Dividend income
Retained earnings
3/2/12
30,000
Unit Cost
Total cost
P120,000
P120,000
@70
2,100,000
Date
Shares
1/2/10
30,000
@35
1,050,000
7/2/11
90,000
@60
5,400,000
3/2/12
30,000
@70
2,100,000
P.D.
Unit Cost
Total cost
Date
Shares
1/2/10
30,000
@35
1,050,000
7/2/11
90,000
@60
5,400,000
3/2/12
30,000
@70
2,100,000
P.D.
Unit Cost
Total cost
30,000)
Date
Shares
Unit Cost
Total cost
1/2/10
30,000
@35
1,050,000
7/2/11
90,000
@60
5,400,000
AJE 2
Dividend income
P30,000
Investment in Silver Tab
P30,000
3/2/12
30,000
P.D.
@70
.
30,000
2,100,000
(
30,000)
2,070,000
Date
Shares
Unit Cost
Total cost
1/2/10
30,000
@35
1,050,000
7/2/11
90,000
@60
5,400,000
Computation of gain (loss):

Sales proceeds (50T x P40)
Less cost of investment sold
3/2/12
30,000
P.D.
@70
.
30,000
P2,000,000
?
2,100,000
(
@69
30,000)
2,070,000
Date
Shares
Unit Cost
1/2/10
30,000
7/15/12
(30,000)
7/2/11
3/2/12
Total cost
@35
1,050,000
90,000
@60
5,400,000
30,000
@70
2,100,000
P.D.
.
30,000
(
@69
30,000)
2,070,000
Date
Shares
1/2/10
30,000
@35
7/15/12
(30,000)
@35
7/2/11
90,000
@60
5,400,000
3/2/12
30,000
@70
2,100,000
P.D.
Unit Cost
.
30,000
Total cost
1,050,000
(
@69
30,000)
2,070,000
Date
Shares
1/2/10
30,000
@35
1,050,000
7/15/12
(30,000)
@35
(1,050,000)
7/2/11
90,000
@60
5,400,000
3/2/12
30,000
@70
2,100,000
P.D.
Unit Cost
.
30,000
Total cost
(
@69
30,000)
2,070,000
Date
Shares
1/2/10
30,000
@35
1,050,000
7/15/12
(30,000)
@35
(1,050,000)
7/2/11
90,000
@60
5,400,000
7/15/12
(20,000)
3/2/12
30,000
@70
2,100,000
P.D.
Unit Cost
.
30,000
Total cost
(
@69
30,000)
2,070,000
Date
Shares
1/2/10
30,000
@35
1,050,000
7/15/12
(30,000)
@35
(1,050,000)
7/2/11
90,000
@60
5,400,000
7/15/12
(20,000)
@60
3/2/12
30,000
@70
P.D.
Unit Cost
.
30,000
Total cost
2,100,000
(
@69
30,000)
2,070,000
Date
Shares
Unit Cost
Total cost
1/2/10
30,000
@35
1,050,000
AJE
3
7/15/12
(30,000)
@35
(1,050,000)
Loss on sale
P250,000
Investment
in Silver Tab
P250,000
7/2/11
90,000
@60
5,400,000
7/15/12
(20,000)
@60
(1,200,000)
Sales proceeds (50T x P40)

P2,000,000
Less cost of investment sold:
From 201030,000 P1,050,000
3/2/12
@70
2,100,000
P.D. 2011
. 1,200,000
( 30,000)
From
2,250,000
30,000
Loss on sale of
investment@69
(P 2,070,000
250,000)
Date
Shares
Unit Cost
Total cost
1/2/10
30,000
@35
1,050,000
7/15/12
(30,000)
@35
(1,050,000)
7/2/11
90,000
@60
5,400,000
7/15/12
(20,000)
@60
(1,200,000)
4,200,000
3/2/12
30,000
P.D.
@70
.
30,000
2,100,000
(
@69
30,000)
2,070,000
Date
Shares
Unit Cost
1/2/10
30,000
@35
1,050,000
7/15/12
(30,000)
@35
(1,050,000)
7/2/11
90,000
@60
5,400,000
7/15/12
(20,000)
@60
(1,200,000)
70,000
3/2/12
4,200,000
30,000
P.D.
@70
.
30,000
Total cost
2,100,000
(
@69
30,000)
2,070,000
Date
Shares
Unit Cost
1/2/10
30,000
@35
1,050,000
7/15/12
(30,000)
@35
(1,050,000)
7/2/11
90,000
@60
5,400,000
7/15/12
(20,000)
@60
(1,200,000)
70,000
@60
4,200,000
AJE 4
Investment in Red Tab
Dividend income
3/2/12
30,000
P.D.
P20,000
P20,000
@70
.
30,000
Total cost
2,100,000
(
@69
30,000)
2,070,000
Date
Shares
Unit Cost
Total cost
1/2/10
30,000
@35
1,050,000
7/15/12
(30,000)
@35
(1,050,000)
7/2/11
90,000
@60
5,400,000
7/15/12
(20,000)
@60
(1,200,000)
70,000
@60
4,200,000
12/20/12
AJE 5
Dividend income
P100,000
Investment in Silver Tab
P100,000
3/2/12
30,000
P.D.
@70
.
30,000
2,100,000
(
@69
30,000)
2,070,000
Date
Shares
1/2/10
30,000
@35
1,050,000
7/15/12
(30,000)
@35
(1,050,000)
7/2/11
90,000
@60
5,400,000
7/15/12
(20,000)
@60
(1,200,000)
70,000
@60
4,200,000
12/20/12
3/2/12
Unit Cost
30,000
P.D.
@70
.
30,000
Total cost
70,000)
2,100,000
(
@69
30,000)
2,070,000
Date
Shares
1/2/10
30,000
@35
1,050,000
7/15/12
(30,000)
@35
(1,050,000)
7/2/11
90,000
@60
5,400,000
7/15/12
(20,000)
@60
(1,200,000)
70,000
@60
4,200,000
12/20/12
3/2/12
30,000
P.D.
Total cost
@70
.
30,000
12/20/12
Unit Cost
70,000)
2,100,000
(
@69
30,000)
2,070,000
Date
Shares
1/2/10
30,000
@35
1,050,000
7/15/12
(30,000)
@35
(1,050,000)
7/2/11
90,000
@60
5,400,000
7/15/12
(20,000)
@60
(1,200,000)
70,000
@60
4,200,000
12/20/12
3/2/12
Unit Cost
30,000
P.D.
12/20/12
@70
.
30,000
70,000)
2,100,000
(
@69
.
Total cost
30,000)
2,070,000
( 30,000)
Date
Shares
1/2/10
30,000
@35
1,050,000
7/15/12
(30,000)
@35
(1,050,000)
7/2/11
90,000
@60
5,400,000
7/15/12
(20,000)
@60
(1,200,000)
70,000
@60
4,200,000
12/20/12
Unit Cost
70,000
3/2/12
@70
.
30,000
12/20/12
70,000)
4,130,000
30,000
P.D.
Total cost
(
@69
2,100,000
30,000)
2,070,000
( 30,000)
Date
Shares
1/2/10
30,000
@35
1,050,000
7/15/12
(30,000)
@35
(1,050,000)
7/2/11
90,000
@60
5,400,000
7/15/12
(20,000)
@60
(1,200,000)
70,000
@60
4,200,000
12/20/12
3/2/12
Unit Cost
70,000)
70,000
@59
4,130,000
30,000
@70
2,100,000
P.D.
.
30,000
12/20/12
Total cost
(
@69
30,000)
2,070,000
( 30,000)
Date
Shares
1/2/10
30,000
@35
1,050,000
7/15/12
(30,000)
@35
(1,050,000)
7/2/11
90,000
@60
5,400,000
7/15/12
(20,000)
@60
(1,200,000)
70,000
@60
4,200,000
12/20/12
3/2/12
Unit Cost
Total cost
70,000)
70,000
@59
4,130,000
30,000
@70
2,100,000
P.D.
.
30,000
12/20/12
@69
.
30,000
30,000)
2,070,000
( 30,000)
2,040,000
Date
Shares
Unit Cost
Total cost
1/2/10
30,000
@35
1,050,000
AJE
6
7/15/12
(30,000)
@35
(1,050,000)
AR Non-trade
P900,000
Investment
in Silver Tab
P590,000
7/2/11
90,000
@60
5,400,000
7/15/12
(20,000)
@60
(1,200,000)
Gain on sale
of investment
310,000
70,000
12/20/12
@60
.
70,000
4,200,000
(
@59
70,000)
4,130,000

Sales
proceeds
(10T x P90)
3/2/12
30,000
@70
Less
cost of investment
sold
P.D.
.
(10,000 x 30,000
P59)
@69
Gain
on sale of investment
12/20/12
.
P310,000 30,000
@68
P900,000
2,100,000
(
30,000)
590,000
2,070,000
( 30,000)
2,040,000
Date
Shares
1/2/10
30,000
@35
1,050,000
7/15/12
(30,000)
@35
(1,050,000)
7/2/11
90,000
@60
5,400,000
7/15/12
(20,000)
@60
(1,200,000)
70,000
@60
4,200,000
12/20/12
Unit Cost
Total cost
70,000)
70,000
@59
4,130,000
30,000
@70
2,100,000
12/28/12
3/2/12
P.D.
.
30,000
12/20/12
(
@69
.
30,000
30,000)
2,070,000
( 30,000)
@69
2,040,000
Date
Shares
1/2/10
30,000
@35
1,050,000
7/15/12
(30,000)
@35
(1,050,000)
7/2/11
90,000
@60
5,400,000
7/15/12
(20,000)
@60
(1,200,000)
70,000
@60
4,200,000
12/20/12
Unit Cost
.
70,000
12/28/12
(10,000)
3/2/12
30,000
P.D.
12/20/12
4,130,000
@70
2,100,000
(
@69
.
30,000
70,000)
@59
.
30,000
Total cost
30,000)
2,070,000
( 30,000)
@69
2,040,000
Date
Shares
1/2/10
30,000
@35
1,050,000
7/15/12
(30,000)
@35
(1,050,000)
7/2/11
90,000
@60
5,400,000
7/15/12
(20,000)
@60
(1,200,000)
70,000
@60
4,200,000
12/20/12
Unit Cost
70,000
@59
12/28/12
(10,000)
@59
3/2/12
30,000
@70
P.D.
.
30,000
12/20/12
70,000)
4,130,000
2,100,000
(
@69
.
30,000
Total cost
30,000)
2,070,000
( 30,000)
@69
2,040,000
Date
Shares
1/2/10
30,000
@35
1,050,000
7/15/12
(30,000)
@35
(1,050,000)
7/2/11
90,000
@60
5,400,000
7/15/12
(20,000)
@60
(1,200,000)
70,000
@60
4,200,000
12/20/12
Unit Cost
70,000
@59
12/28/12
(10,000)
@59
3/2/12
30,000
@70
P.D.
.
30,000
12/20/12
70,000)
4,130,000
590,000)
2,100,000
(
@69
.
30,000
Total cost
30,000)
2,070,000
( 30,000)
@69
2,040,000
Date
Shares
1/2/10
30,000
@35
1,050,000
7/15/12
(30,000)
@35
(1,050,000)
7/2/11
90,000
@60
5,400,000
7/15/12
(20,000)
@60
(1,200,000)
70,000
@60
4,200,000
12/20/12
12/28/12
Unit Cost
Total cost
70,000
@59
(10,000)
@59
70,000)
4,130,000
590,000)
60,000
3/2/12
30,000
P.D.
@70
.
30,000
12/20/12
(
@69
.
30,000
2,100,000
30,000)
2,070,000
( 30,000)
@69
2,040,000
Date
Shares
1/2/10
30,000
@35
1,050,000
7/15/12
(30,000)
@35
(1,050,000)
7/2/11
90,000
@60
5,400,000
7/15/12
(20,000)
@60
(1,200,000)
70,000
@60
4,200,000
12/20/12
12/28/12
3/2/12
Unit Cost
70,000
@59
(10,000)
@59
60,000
@59
30,000
@70
P.D.
.
30,000
12/20/12
70,000)
4,130,000
590,000)
2,100,000
(
@69
.
30,000
Total cost
30,000)
2,070,000
( 30,000)
@69
2,040,000
Date
Shares
1/2/10
30,000
@35
1,050,000
7/15/12
(30,000)
@35
(1,050,000)
7/2/11
90,000
@60
5,400,000
7/15/12
(20,000)
@60
(1,200,000)
70,000
@60
4,200,000
12/20/12
12/28/12
3/2/12
Unit Cost
Total cost
70,000)
70,000
@59
(10,000)
@59
60,000
@59
3,540,000
30,000
@70
2,100,000
P.D.
.
30,000
12/20/12
590,000)
(
@69
.
30,000
4,130,000
30,000)
2,070,000
( 30,000)
@69
2,040,000
Date
Shares
Unit Cost
Total cost
1/2/10 of Investment
30,000
Carrying
in@35
Silver Tab:1,050,000
7/15/12
(30,000)
From 2011
7/2/11
90,000
From 2012
7/15/12
(20,000)
Total
70,000
12/20/12
12/28/12
3/2/12
@35
@60
@60
@60
(1,050,000)
P3,540,000
5,400,000
2,040,000
(1,200,000)
P5,580,000
4,200,000
(
70,000)
70,000
@59
(10,000)
@59
60,000
@59
3,540,000
30,000
@70
2,100,000
P.D.
.
30,000
12/20/12
590,000)
(
@69
.
30,000
4,130,000
30,000)
2,070,000
( 30,000)
@69
2,040,000
Problem No. 6
Question # 1
Sale of Laoag, Inc. Shares (TS)
Proceeds, net
Less carrying amount
(P288,000 x 8/16)
Gain on sale
P152,000
144,000
P
8,000
Question # 2
Sale of Batac, Inc. Shares (AFS)
Proceeds, net
(3,200 x P15)
Less cost of investment
(P960,000 x 3.2/80)
Gain on sale
P48,000
38,400
P 9,600
Question # 3
Santiago bonds
(P200,000 x .1)
Ilocos bonds
(P1,926,000 x .14)
Total interest income
Effective interest rate computation:
CA, 12/31/11
Less initial CA
Discount amortization
Nominal interest (P2M x .12)
Effective int. inc. -2011
Divide by initial CA
P 20,000
269,640
P289,640
P1,926,000
1,900,000
26,000
240,000
266,000
1,900,000
.14
Question # 4
CA of trading securities:
Vigan, Inc. (9,600 x P22)
Laoag, Inc. (8,000 x P15)
Santiago bonds
CA of AFS:
Candon Products (32T x P42)
Pagudpud, Inc. (240T x P28)
Batac, Inc. (76,800 x P18)
Ilocos bonds (P2M x 1.01)
P211,200
120,000
151,200
P482,400
P 1,344,000
6,720,000
1,382,400
2,020,000
P11,466,400
Problem No. 8
Journal entries - 2010

Acquisition
AFS securities
Cash
P500,000
P500,000
Share of profit
No entry
Dividends
Cash
Dividend income
P15,000
FV adjustment
AFS securities
FV adj. gain - OCI
P70,000
P15,000
P70,000
Requirement # 1
Dividend income (P/L)
FV adjustment gain (OCI)

(P570T P500T)
Total amount in CI
P15,000
70,000
P85,000

Share of profit
No entry
Dividends
Cash
Dividend income
P20,000
FV adjustment
FV adj. gain - OCI
AFS securities
P45,000
P20,000
P45,000
Balances, 12/31/11
AFS = P525,000; FV adj. gain-OCI = P25,000
Requirement # 2
Dividend income (P/L)
P20,000
FV adjustment loss (OCI)

(P525T P570T)
(45,000)
Total amount in CI
(P25,000)
Investing in Stages
In a business combination achieved in

stages, the acquirer shall remeasure its
previously held equity interest in the
acquiree at its acquisition-date fair value
and recognize the resulting gain or loss, if
any, in profit or loss.
In prior reporting periods, the acquirer

may have recognized changes in the value
of its equity interest in the acquiree in
other comprehensive income (OCI).
If so, the amount that was recognized in

OCI shall be recognized on the same basis
as would be required if the acquirer had
disposed directly of the previously held
equity interest.

Acquisition
Investment in associate P2,100,000
FV adj. gain-AFS (OCI)
25,000
Cash
P1,575,000
AFS securities
525,000
Gain on derecognition-AFS(P/L)
25,000
Retrospective adjustment (Requirement # 3)
None

Share of profit
Share of profit (P550T x .4)
Excess amortization (P440,000/8)
Share of profit , net
Investment in associate
SOPA
P220,000
( 55,000)
P165,000
P165,000
P165,000
Dividends
Cash
P70,000
Investment in associate
P70,000
FV adjustment
No entry
Requirement # 4
Total purchase price
Share of profit, net
Dividends
CA, 12/31/12
P2,100,000
165,000
(
70,000)
P2,195,000
Problem No. 10
Question # 1
1.08^-5
1 1.08^-5
.08
PV of Principal
(P10M x 0.6806)
P 6,806,000
PV of Interest
(P10M x .1 x 3.9927)
3,992,700
PV, 1/1/09
10,798,700
Less prem. amort. 1/1 4/1:
NI (P10M x .1 x 3/12) P250,000
EI (PV x .08 x 3/12)
(215,974)
34,026
Purchase price, 4/1/09
10,764,674
Accrued interest
250,000
Total amount paid
P11,014,674
Question # 2
1.08^-4
PV of Principal
(P10M x 0.7350)
PV of Interest
(P10M x .1 x 3.3121)
AC, 12/31/09
1 1.08^-4
.08
P 7,350,000
3,312,100
P10,662,100

Measurement Summary
Category
Initial
Subsequent
Change in
FV
FA @ FVTPL
FV
FV
P/L
AFS
FV + TC
FV/Cost/AC
HTM
FV + TC
AC
OCI
(Equity)
Ignore
L&R
FV + TC
AC
Ignore

Impairment Summary
Measure
ment
Loss
computation
Reversal

Impairment Summary
Measure
ment
FVTPL
Loss
computation
Reversal

Impairment Summary
Measure
ment
FVTPL
Loss
computation
Reversal
n/a
n/a

Impairment Summary
Measure
ment
FVTPL
AC
Loss
computation
Reversal
n/a
n/a

Impairment Summary
Measure
ment
FVTPL
AC
Loss
computation
Reversal
n/a
n/a
CA PV of CF
(Use orig. EIR)

Impairment Summary
Measure
ment
FVTPL
AC
Loss
computation
Reversal
n/a
n/a
CA PV of CF
(Use orig. EIR)
P/L, subject to
limit

Impairment Summary
Measure
ment
FVTPL
AC
Cost
Loss
computation
Reversal
n/a
n/a
CA PV of CF
(Use orig. EIR)
P/L, subject to
limit

Impairment Summary
Measure
ment
Loss
computation
Reversal
n/a
n/a
AC
CA PV of CF
(Use orig. EIR)
P/L, subject to
limit
Cost
CA PV of CF
(Use prev. IR)
FVTPL

Impairment Summary
Measure
ment
Loss
computation
Reversal
n/a
n/a
AC
CA PV of CF
(Use orig. EIR)
P/L, subject to
limit
Cost
CA PV of CF
(Use prev. IR)
Not allowed
FVTPL

Impairment Summary
Measure
ment
Loss
computation
Reversal
n/a
n/a
AC
CA PV of CF
(Use orig. EIR)
P/L, subject to
limit
Cost
CA PV of CF
(Use prev. IR)
Not allowed
FVTPL
AFS-Equity

Impairment Summary
Measure
ment
Loss
computation
Reversal
n/a
n/a
AC
CA PV of CF
(Use orig. EIR)
P/L, subject to
limit
Cost
CA PV of CF
(Use prev. IR)
Not allowed
FVTPL
AFS-Equity
Cost - FV

Impairment Summary
Measure
ment
Loss
computation
Reversal
n/a
n/a
AC
CA PV of CF
(Use orig. EIR)
P/L, subject to
limit
Cost
CA PV of CF
(Use prev. IR)
Not allowed
Cost - FV
OCI (Equity);
prohibited in P/L
FVTPL
AFS-Equity

Impairment Summary
Measure
ment
Loss
computation
Reversal
n/a
n/a
AC
CA PV of CF
(Use orig. EIR)
P/L, subject to
limit
Cost
CA PV of CF
(Use prev. IR)
Not allowed
Cost - FV
OCI (Equity);
prohibited in P/L
FVTPL
AFS-Equity
AFS-Debt

Impairment Summary
Measure
ment
Loss
computation
Reversal
n/a
n/a
AC
CA PV of CF
(Use orig. EIR)
P/L, subject to
limit
Cost
CA PV of CF
(Use prev. IR)
Not allowed
AFS-Equity
Cost - FV
OCI (Equity);
prohibited in P/L
AFS-Debt
AC - FV
FVTPL

Impairment Summary
Measure
ment
Loss
computation
Reversal
n/a
n/a
AC
CA PV of CF
(Use orig. EIR)
P/L, subject to
limit
Cost
CA PV of CF
(Use prev. IR)
Not allowed
Cost - FV
OCI (Equity);
prohibited in P/L
AC - FV
P/L (subject to
limit); excess OCI
(Equity)
FVTPL
AFS-Equity
AFS-Debt

Measurement Summary
Category
Initial
Subsequent
Change in
FV
FA @ FVTPL
FV
FV
P/L
FA @ AC
FV + TC
AC
Ignore
FA @
FVTOCI
FV + TC
FV
OCI
(Equity)

Impairment Summary
Measure
ment
FVTPL
FVTOCI
AC
Loss
computation
Reversal

Impairment Summary
Measure
ment
FVTPL
FVTOCI
AC
Loss
computation
n/a
Reversal

Impairment Summary
Measure
ment
FVTPL
FVTOCI
AC
Loss
computation
Reversal
n/a
n/a

Impairment Summary
Measure
ment
Loss
computation
Reversal
FVTPL
n/a
n/a
FVTOCI
n/a
AC

Impairment Summary
Measure
ment
Loss
computation
Reversal
FVTPL
n/a
n/a
FVTOCI
n/a
n/a
AC

Impairment Summary
Measure
ment
Loss
computation
Reversal
FVTPL
n/a
n/a
FVTOCI
n/a
n/a
AC
CA PV of CF
(Use orig. EIR)

Impairment Summary
Measure
ment
Loss
computation
Reversal
FVTPL
n/a
n/a
FVTOCI
n/a
n/a
CA PV of CF
(Use orig. EIR)
P/L, subject to
limit
AC
Question # 3
1 1.08^-2
.08
1.08^-2
PV of Principal
(P10M x 0.8573)
PV of Interest
(P10M x .1 x 1.7833)
AC, 12/31/11
PV of CF (P8M x .8573)
Impairment loss
Question # 4
Interest income - 2012
(P6,858,400 x .08)
P 8,573,000
1,783,300
10,356,300
6,858,400
P 3,497,900
P548,672
Question # 5
PV of expected CF, 12/31/12
(P13M x 0.9259)
-1
P12,036,700
AC w/o imp., 12/31/12

(P11M x 0.9259)
P10,184,900
1.08^
Carrying amount,12/31/12
CA, 12/31/11
Disc. Amort. 2012
Gain on reversal
6,858,400
548,672
7,407,072
P 2,777,828
Problem No. 11
Requirement # 1 CA,12/31
B
B
Purchase price
B
Purchase price
10,000
Purchase price
10,000
15,000
Purchase price
10,000
15,000
28,000
Purchase price
Transaction costs (1%)
10,000
15,000
28,000
Purchase price
10,000
15,000
28,000
100
Purchase price
10,000
15,000
28,000
100
150
Purchase price
10,000
15,000
28,000
100
150
280
Purchase price
Total cost
10,000
15,000
28,000
100
150
280
Purchase price
Total cost
10,000
15,000
28,000
100
150
280
10,100
Purchase price
Total cost
10,000
15,000
28,000
100
150
280
10,100
15,150
Purchase price
Total cost
10,000
15,000
28,000
100
150
280
10,100
15,150
28,280
Purchase price
Total cost
10,000
15,000
28,000
100
150
280
10,100
15,150
28,280
Impairment loss
FV CTS of Entity B (P13M x .95) = P12.35M
Purchase price
Total cost
Impairment loss
10,000
15,000
28,000
100
150
280
10,100
15,150
28,280
FV CTS of Entity C (P29M x .95) = P27.55M
Purchase price
Total cost
Impairment loss
10,000
15,000
28,000
100
150
280
10,100
15,150
28,280

FV CTS of Entity D (P15M x .95) = P14.25M
Purchase price
Total cost
Impairment loss
10,000
15,000
28,000
100
150
280
10,100
15,150
28,280
(14,030)

Purchase price
Total cost
Impairment loss
10,000
15,000
28,000
100
150
280
10,100
15,150
28,280
(14,030)
CA, 12/31/12

Purchase price
Total cost
Impairment loss
CA, 12/31/12
10,000
15,000
28,000
100
150
280
10,100
15,150
28,280
(14,030)
10,100

Purchase price
Total cost
Impairment loss
CA, 12/31/12
10,000
15,000
28,000
100
150
280
10,100
15,150
28,280
(14,030)
10,100
15,150

Purchase price
Total cost
Impairment loss
CA, 12/31/12
10,000
15,000
28,000
100
150
280
10,100
15,150
28,280
(14,030)
10,100
15,150
14,250
CA Entity B, 12/31/12
P10,100,000
CA Entity C, 12/31/12
15,150,000
CA Entity D, 12/31/12
14,250,000
Total
P39,500,000
Requirement # 1: P/L2012
Dividend income:
B (P1M x .25)
C (P8M x .25)
Impairment loss (D)
( 14,030,000)
Net amount in P/L
(P11,780,000)
250,000
2,000,000
Requirement # 2: CA
FV, 12/31/12
Entity B
Entity C
Entity D
Total
P13M
29M
15M
P57M
Requirement # 2 P/L
B
Requirement # 2 P/L
B
Requirement # 2 P/L
B
( 100)
Requirement # 2 P/L
B
( 100)
C
(
150)
Requirement # 2 P/L
B
( 100)
C
(
150)
D
(
280)
Requirement # 2 P/L
B
Dividend income
( 100)
C
(
150)
D
(
280)
Requirement # 2 P/L
B
Dividend income
( 100)
250
C
(
150)
D
(
280)
Requirement # 2 P/L
B
Dividend income
( 100)
250
C
(
150)
2,000
D
(
280)
Requirement # 2 P/L
B
Dividend income
( 100)
250
C
(
150)
2,000
D
(
280)
-
Requirement # 2 P/L
B
Dividend income
( 100)
250
C
(
150)
D
(
2,000
FV adjustment gain (loss)
FV adjustment of Entity B (P13M P10M) = P3M
280)
-
Requirement # 2 P/L
B
Dividend income
( 100)
250
C
(
150)
D
(
2,000
3,000

FV adjustment of Entity C (P29M P15M) = P14M
280)
-
Requirement # 2 P/L
B
Dividend income
( 100)
C
(
150)
250
2,000
3,000
14,000
D
(

FV adjustment of Entity D (P15M P28M) = (P13M)
280)
-
Requirement # 2 P/L
B
Dividend income
( 100)
C
(
150)
D
(
280)
250
2,000
3,000
14,000
(13,000)

Requirement # 2 P/L
B
Dividend income
( 100)
C
(
150)
D
(
280)
250
2,000
3,000
14,000
(13,000)
Net amount in P/L

Requirement # 2 P/L
B
Dividend income
( 100)
C
(
150)
D
(
280)
250
2,000
3,000
14,000
(13,000)
Net amount in P/L
3,150

Requirement # 2 P/L
B
Dividend income
( 100)
C
(
150)
D
(
280)
250
2,000
3,000
14,000
(13,000)
Net amount in P/L
3,150
15,850

Requirement # 2 P/L
B
Dividend income
( 100)
C
(
150)
D
(
280)
250
2,000
3,000
14,000
(13,000)
Net amount in P/L
3,150
15,850
(13,280)
P/L
FV adjustment
Entity B of Entity B (P13M
P 3,150,000
P10M) = P3M
P/L
FV adjustment
Entity C of Entity C (P29M 15,850,000
P15M) = P14M
P/L
FV adjustment
Entity B of Entity D (P15M
( 13,280,000)
P28M) = (P13M)
Total
P 5,720,000
Requirement # 3 CA
Purchase price
Total cost
10,000
15,000
28,000
100
150
280
10,100
15,150
28,280
Requirement # 3 CA
Purchase price
Total cost
SOPA (SOLA)
10,000
15,000
28,000
100
150
280
10,100
15,150
28,280
Requirement # 3 CA
Purchase price
Total cost
SOPA (SOLA)
10,000
15,000
28,000
100
150
280
10,100
15,150
28,280
1,250
Requirement # 3 CA
Purchase price
Total cost
SOPA (SOLA)
10,000
15,000
28,000
100
150
280
10,100
15,150
28,280
1,250
4,500
Requirement # 3 CA
Purchase price
Total cost
SOPA (SOLA)
10,000
15,000
28,000
100
150
280
10,100
15,150
28,280
1,250
4,500
( 5,000)
Requirement # 3 CA
Purchase price
Total cost
SOPA (SOLA)
Dividends
10,000
15,000
28,000
100
150
280
10,100
15,150
28,280
1,250
4,500
( 5,000)
Requirement # 3 CA
Purchase price
Total cost
SOPA (SOLA)
Dividends
10,000
15,000
28,000
100
150
280
10,100
15,150
28,280
1,250
4,500
( 5,000)
( 250)
Requirement # 3 CA
Purchase price
Total cost
SOPA (SOLA)
Dividends
10,000
15,000
28,000
100
150
280
10,100
15,150
28,280
1,250
4,500
( 5,000)
( 250)
(2,000)
Requirement # 3 CA
Purchase price
Total cost
SOPA (SOLA)
Dividends
10,000
15,000
28,000
100
150
280
10,100
15,150
28,280
1,250
4,500
( 5,000)
( 250)
(2,000)
Requirement # 3 CA
Purchase price
Total cost
SOPA (SOLA)
Dividends
CA, 12/31/12-before IL
10,000
15,000
28,000
100
150
280
10,100
15,150
28,280
1,250
4,500
( 5,000)
( 250)
(2,000)
Requirement # 3 CA
B
10,000
15,000
28,000
100
150
280
10,100
15,150
28,280
1,250
4,500
( 5,000)
Dividends
( 250)
(2,000)
11,100
Purchase price
Total cost
SOPA (SOLA)
Requirement # 3 CA
B
10,000
15,000
28,000
100
150
280
10,100
15,150
28,280
1,250
4,500
( 5,000)
Dividends
( 250)
(2,000)
11,100
17,650
Purchase price
Total cost
SOPA (SOLA)
Requirement # 3 CA
B
10,000
15,000
28,000
100
150
280
10,100
15,150
28,280
1,250
4,500
( 5,000)
Dividends
( 250)
(2,000)
11,100
17,650
23,280
Purchase price
Total cost
SOPA (SOLA)
Requirement # 3 CA
B
10,000
15,000
28,000
100
150
280
10,100
15,150
28,280
1,250
4,500
( 5,000)
Dividends
( 250)
(2,000)
11,100
17,650
23,280
Purchase price
Total cost
SOPA (SOLA)
Impairment loss

Requirement # 3 CA
B
10,000
15,000
28,000
100
150
280
10,100
15,150
28,280
1,250
4,500
( 5,000)
Dividends
( 250)
(2,000)
11,100
17,650
23,280
( 9,030)
Purchase price
Total cost
SOPA (SOLA)
Impairment loss

Requirement # 3 CA
B
10,000
15,000
28,000
100
150
280
10,100
15,150
28,280
1,250
4,500
( 5,000)
Dividends
( 250)
(2,000)
11,100
17,650
23,280
( 9,030)
Purchase price
Total cost
SOPA (SOLA)
Impairment loss
CA, 12/31/11
Requirement # 3 CA
B
10,000
15,000
28,000
100
150
280
10,100
15,150
28,280
1,250
4,500
( 5,000)
Dividends
( 250)
(2,000)
11,100
17,650
23,280
( 9,030)
Purchase price
Total cost
SOPA (SOLA)
Impairment loss
CA, 12/31/11
11,100
Requirement # 3 CA
B
10,000
15,000
28,000
100
150
280
10,100
15,150
28,280
1,250
4,500
( 5,000)
Dividends
( 250)
(2,000)
11,100
17,650
23,280
( 9,030)
11,100
17,650
Purchase price
Total cost
SOPA (SOLA)
Impairment loss
CA, 12/31/11
Requirement # 3 CA
B
Purchase
price
CA Entity
B, 12/31/12
10,000
15,000
28,000
P11,100,000
Transaction
(1%)
CA Entity costs
C, 12/31/12
Total cost
CA Entity D, 12/31/12
SOPA (SOLA)
Total
Dividends
100
150
280
17,650,000
15,150
28,280
14,250,000
4,500
( 5,000)
P43,000,000
(2,000)
-
10,100
1,250
( 250)
11,100
17,650
23,280
( 9,030)
11,100
17,650
14,250
Impairment loss
CA, 12/31/11
Requirement # 2 P/L, 2012
(P 8,280,000)
End

4) Audit of Investments

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4) Audit of Investments

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Audit of Investments

PAS 39: Classification of

PAS 39: Classification Based on

PAS 39: Classification Based on

Held for Trading

PAS 39: Financial Assets

PFRS 9: Classification Based on

PFRS 9: Financial Assets

Effective interest rate (10%)

Original Amortization Schedule

Gain (Loss) on sale, 12/10

Computation of gain (loss):

Computation of gain (loss):

Sales proceeds (50T x P40)

Computation of gain (loss):

Journal entries - 2010

FV adjustment gain (OCI)

Journal entries - 2011

FV adjustment loss (OCI)

In a business combination achieved in

In prior reporting periods, the acquirer

If so, the amount that was recognized in

Journal entries - 2012

Journal entries - 2012

PAS 39: Financial Assets

PAS 39: Financial Assets

PAS 39: Financial Assets

PAS 39: Financial Assets

PAS 39: Financial Assets

PAS 39: Financial Assets

PAS 39: Financial Assets

PAS 39: Financial Assets

PAS 39: Financial Assets

PAS 39: Financial Assets

PAS 39: Financial Assets

PAS 39: Financial Assets

PAS 39: Financial Assets

PAS 39: Financial Assets

PAS 39: Financial Assets

PAS 39: Financial Assets

PFRS 9: Financial Assets

PFRS 9: Financial Assets

PFRS 9: Financial Assets

PFRS 9: Financial Assets

PFRS 9: Financial Assets

PFRS 9: Financial Assets

PFRS 9: Financial Assets

PFRS 9: Financial Assets

AC w/o imp., 12/31/12

FV CTS of Entity B (P13M x .95) = P12.35M

FV CTS of Entity B (P13M x .95) = P12.35M

FV CTS of Entity C (P29M x .95) = P27.55M

FV CTS of Entity B (P13M x .95) = P12.35M

FV CTS of Entity C (P29M x .95) = P27.55M

FV CTS of Entity B (P13M x .95) = P12.35M

FV CTS of Entity C (P29M x .95) = P27.55M

FV CTS of Entity C (P29M x .95) = P27.55M

FV CTS of Entity B (P13M x .95) = P12.35M

FV CTS of Entity C (P29M x .95) = P27.55M

FV CTS of Entity B (P13M x .95) = P12.35M

FV CTS of Entity C (P29M x .95) = P27.55M

Impairment loss (D)

Net amount in P/L

FV adjustment gain (loss)