Question

On January 2, 2016, Lovely, Inc. acquired a 15% interest in CPS Corp. by paying P8,000,000 for 100,000 ordinary shares. On this date, the net assets of CPS Corp totaled P40,000,000. The fair values of CPS corp.'s identifiable assets and liabilities were equal to their book values. Lovely did not have the ability to exercise significant influence over the operating and financial policies of CPS. Lovely received dividends of P1.40 per share from CPS on October 1, 2016. CPS reported net income of P5,000,000 for the year ended December 31, 2016. Lovely classified the investment as at fair value through other comprehensive income. Market price for the 100,000 shares was P9,000,000 on December 31, 2016.
Lovely paid P30,000,000 on January 1, 2017 for 300,000 additional CPS ordinary shares, which represents a 25% interest in CPS. The fair value of CPS Corp.'s identifiable assets, net of liabilities, was equal to their book values of P92,000,000. As a result of this additional acquisition, Lovely has the ability to exercise significant influence over the operating and financial policies of CPS. Lovely received a dividend of P2.70 per share on October 5, 2017. CPS reported net income of P6,000,000 for the year ended December 31, 2017. The investment's fair value on December 31, 2017, is P45,000,000.
What is the total amount of investment-related income that should be reported in the 2016 income statement?

Select one:

a. P750,000

b. P1,140,000

c. P1,610,000

d. P140,000

What is the carrying amount of the investment in associate on December 31, 2017?

Select one:

a. P45,000,000

b. P38,120,000

c. P39,000,000

d. P40,320,000

What is the goodwill arising from the acquisition of additional 300,000 shares on January 1, 2017?

Select one:

a. 0

b. P7,000,000

c. P9,000,000

d. P2,200,000

In the December 31, 2016, statement of financial position, what is the carrying amount of the investment in equity securities?

Select one:

a. P8,750,000

b. P9,000,000

c. P8,000,000

d. P8,610,000

What amount of gain on remeasurement to equity should be reported in the 2017 income statement?

Select one:

a. P1,000,000

b. P1,320,000

c. P1,080,000

d. 0

Answer 1

1.)	Total amount of investment-related income that should be reported in the 2016 income statement:-
	Dividend Revenue = 100,000 x 1.40
	= P 140,000
	Correct answer is option d. (i.e. P 140,000 )
2.)	Carrying amount of the investment in associate on December 31, 2017
	Opening Investment at January 1,2017	9,000,000
	Add: Investment of 2017	30,000,000
	Add:Share of Income of 2017	2,400,000
	( 6,000,000 x 40% )
	Less: Dividend Received in 2017	1,080,000
	( 100,000 + 300,000 ) x 2.70
	Carrying amount of Investment on December 31,2017	40,320,000
	Correct answer is option d. (i.e. P 40,320,000 )
3.)	Goodwill arising from the acquisition of additional 300,000 shares on January 1, 2017
	Purchase consideration	30,000,000
	Less: Net asset acquired	23,000,000
	( 92,000,000 x 25% )
	Goodwill	7,000,000
	Correct answer is option b. (i.e. P 7,000,000 )
4.)	Carrying amount of the investment in equity securities in December 31,2016 statement of Financial Statement:-
	Cost of Investment	8,000,000
	Fair Value	9,000,000
	Carrying amount will be the fair value $ 9,000,000 on december 31,2016 under Fair value method of Investment.
	Correct answer is option b. (i.e. P 9,000,000 )
5.)	Gain on remeasurement to equity should be reported in the 2017 income statement
	Gain on remeasurement on 2017 income statement will be 0 , because Investment in associate do not revalue at fair value . They will be carried at Equity method Investment.
	Correct answer is option d. (i.e. 0 )