DECODE ME

RULES
CHAPTER 18
INVESTMENT IN ASSOCIATE
THEORIES
Other Accounting Issues
PROBLEMS

MESSAGE
Prepared by: Group 8
PANGILINAN, PERINA,RAMIREZ,ROMAN,SALAZAR
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DECODE ME

DEFINITION OF OUR TOPIC TODAY.

RULES
_ _  _ _ _ _ _ _ _ _ _ _  _ _ _ _
________ __ _________ __
THEORIES _________ _________ __
_ _ _ _ _ _ _ 20% _ _ _ 50%.

PROBLEMS

MESSAGE

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 RULES
DECODE ME
1. Upon answering theories, the first three who got the correct answer will gain a point.
2. Sending of responses will be after the go signal of the host/hostess.
3. To decode the message, you need to choose the correct letter in multiple-choice questions.
RULES 4. Every correct answer corresponds to a clue letter that will help complete the message.
5. In problem-solving, the first one who chats "ME" will get the chance to answer the problem and
gain 5 points.
6. Only the first three participants who got the highest points will win P20.00 via GCash.
THEORIES
7. Only the first one to decode the message will win a prize of P40.00 via GCash, strictly after the
go signal of the host.

PROBLEMS

MESSAGE

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 CONTENTS
DECODE ME

1 WHEN TO DISCONTINUE THE EQUITY METHOD

2
RULES
WHEN INVESTMENT CEASES TO BE AN ASSOCIATE

THEORIES
3 ON THE LOSS OF SIGNIFICANT INFLUENCE

PROBLEMS 4 EQUITY METHOD IS NOT APPLICABLE EXCEPT

MESSAGE
5 ACCOUNTING TREATMENT

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 Multiple choice (IFRS)
DECODE ME
1. An investor shall discontinue the use of the equity method when
a. The investor ceases to have significant influence over the
RULES associate.
b. The associate operates under severe long-term
restrictions.
THEORIES
c. The investor ceases to have control over the associate.
d. The business activities of the investor and associate are
PROBLEMS dissimilar.

MESSAGE

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 DECODE ME
DECODE ME

RULES

A_  _ _ _ _ _ _ _ _ _ _  _ _ A _
A _ _ _ _ _ A _ _ _ _ _ _ _ _ _A_ _ _ A_
THEORIES _________ _________ __
_ _ _ _ _ _ _ 20% A_ _ 50%.

PROBLEMS

MESSAGE

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 Multiple choice (IFRS)
DECODE ME
2. When an investment ceases to be an associate, the fair value of the investment at
the date when it ceases to be an associate
d. Is regarded as its cost on initial recognition as a financial asset.
RULES
e. Is regarded as its fair value on initial recognition as a financial
asset.
THEORIES
f. Is regarded as its fair value on initial recognition as a financial
liability.
g. Is regarded as its amortized cost on initial recognition as an
PROBLEMS
investment.

MESSAGE

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 DECODE ME
DECODE ME

RULES A_  _ _ _E_ _ _E_ _  _ _ A_

A _ _ _ _ _ A_E _ _ _ _ _ _ _ A _ _ _ A_
___E_____ _ _ _E_E_ _ __
THEORIES _ E _ _ EE_ 20% A _ _ 50%.

PROBLEMS

MESSAGE

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 MULTIPLE CHOICE(IFRS)
DECODE ME 3. On the loss of significant influence, the investor shall recognize in profit or loss any difference
between
q. The initial carrying amount of any retained investment, any proceeds from sale of the
part interest and the carrying amount of the investment at the date when
RULES
significant influence is lost.
r. The fair value of any retained investment and the carrying amount of the
investment at the date significant influence is lost.
THEORIES s. Any proceeds from sale of the part interest and the carrying amount of the investment
at the date significant influence is lost.
t. Any proceeds from sale of the part interest and the carrying amount of the investment
sold, and the difference between the fair value and carrying amount of the
PROBLEMS
retained investment.

MESSAGE

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 DECODE ME
DECODE ME

RULES
A_  _ _ _E_T_E_ T _ _ A_
A _ _ _ _ _ ATE _ _ T _ _ _ _ A _ _ _ A_
THEORIES ___E_____ _ _ TER_ _ T __
_ ET _ EE_ 20% A _ _ 50%.

PROBLEMS

MESSAGE

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 MULTIPLE CHOICE(IFRS)
DECODE ME
4. The equity method is not applicable under all of the following circumstances,
except
j. The investor is a wholly-owned subsidiary.
RULES
k. The investor's debt and equity instruments are not traded.
l. The investor is in the process of filing financial statements with a
THEORIES
regulatory body for the purpose of issuing debt and equity
instruments in a public market.
m. The ultimate parent of the investor produces consolidated financial
PROBLEMS
statements.

MESSAGE

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 DECODE ME
DECODE ME

RULES
A_  _ _ _E_T_E_ T _ _ A_
A _ _ _ _ _ ATE _ _ T _ _ _ _ ALL _ A_
THEORIES ___E_____ _ _ TER_ _ T __
_ ET _ EE_ 20% A _ _ 50%.

PROBLEMS

MESSAGE

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 MULTIPLE CHOICE (IFRS)
DECODE ME
5. What is the accounting treatment when the financial statements of an associate
are not prepared as of the same date as the financial statements of the investor?
s. The associate shall prepare financial statements at the same date
RULES
as that of the investor.
t. The financial statements of the associate prepared up to a different
THEORIES
date would be used.
u. Any major transactions during the time gap of the financial
statements shall be accounted for.
PROBLEMS
v. A long as the gap is not greater than three months, there is no problem.

MESSAGE

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 DECODE ME
DECODE ME

RULES
A_  _ _ _ EST_E_ T _ _ A_
A S S _ _ _ ATE _ S T _ _ _ _ ALL _ A_
___E_S___ _ _ TER_ ST __
THEORIES
_ ET _ EE_ 20% A _ _ 50%.

PROBLEMS

MESSAGE

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 CHAPTER 18
DECODE ME

PROBLEM
RULES

THEORIES

PROBLEMS SOLVING
MESSAGE

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 Problem 18-5 (IFRS)

DECODE ME
On January 1, 2020, Fame Company acquired a 10% interest in an investee for P5,000,000. The
investment was accounted for at fair value through other comprehensive income.
The fair value of the investment was P5,500,000 on December 31, 2020 and P6,000,000 on
RULES December 31, 2021.
On January 1, 2022, the entity acquired a further 20% interest in the investee for P11,000,000.
On such date, the carrying amount of the net assets of the investee was P40,000,000.
THEORIES The fair value of the net assets of the investee is equal to carrying amount, except for an
equipment whose fair value exceeds carrying amount by P5,000,000. The equipment has a
remaining life of 5 years.
The investee reported net income of P9,000,000 for 2022 and paid dividend of P4,000,000 on
PROBLEMS
December 31, 2022. No dividends were paid in 2020 and 2021 by the investee.
Required:
1. Compute the goodwill on January 1, 2022.
MESSAGE 2. Prepare journal entries for 2020, 2021 and 2022.

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 Problem 18-5 (IFRS)

DECODE ME
Requirement 1
Fair value of existing interest 6,000,000
RULES Cost of new interest 11,000,000
Total cost of the investment 17,000,000
Carrying amount of net assets acquired (40,000,000x30%) (12,000,000)
THEORIES

Excess of cost 5,000,000

Excess of cost attributable to equipment (5,000,000 x 30%) 1,500,000
PROBLEMS

Goodwill 3,500,000
MESSAGE

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 Problem 18-5 (IFRS)

DECODE ME
Requirement 2
2019   Dr. Cr.
Jan. 1 Financial Asset at FVOCI 5,000,000  
RULES
  Cash   5,000,000
       
Dec. 31 Financial Asset at FVOCI 500,000  
THEORIES
  Unrealized Gain - OCI   500,000

PROBLEMS
2020   Dr. Cr.
Dec 31 Financial Asset at FVOCI 500,000  
  Unrealized Gain - OCI   500,000

MESSAGE

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 Problem 18-5 (IFRS)
2021   Dr. Cr.
DECODE ME
Jan. 1 Unrealized Gain – OCI 1,000,000  
  Retained Earnings   1,000,000
       
Investment in Associate 11,000,000  
RULES
  Cash   11,000,000
       
  Investment in Associate 6,000,000  
THEORIES
  Financial Asset at FVOCI   6,000,000
       
Dec. 31 Investment in Associate 2,700,000  
  Investment Income   2,700,000
PROBLEMS        
  Cash 1,200,000  
  Investment in Associate   1,200,000
       
MESSAGE   Investment Income 300,000  
  Investment in Associate   300,000
 

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 Problem 18-6 (AICPA ADAPTED)

DECODE ME On January 1, 2020, Hazel Company acquired 30% of East Company's voting shares
for P8,000,000. During 2020, East earned P5,000,000 and paid dividends of
P2,000,000.
RULES East reported earnings of P6,000,000 for the 6 months ended June 30, 2021, and
P8,000,000 for the year ended December 31, 2021.
On July 1, 2021, Hazel sold half of the investment in East for P6,000,000 cash
THEORIES
resulting to loss of significant influence. East paid dividends of P2,500,000 on
October 1, 2021.
On July 1, 2021, the investment is measured at fair value through other
PROBLEMS
comprehensive income. The fair value of the retained investment is P6,500,000 on
July 1, 2021 and P5,900,000 on December 31, 2021.
Required:
MESSAGE
Prepare journal entries for 2020 and 2021.

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 Problem 18-6 (AICPA ADAPTED)

DECODE ME

2020   Dr. Cr.

Jan. 1 Investment in Associate 8,000,000  
RULES   Cash   8,000,000
       
Dec. 31 Investment in Associate 1,500,000  
THEORIES   Investment Income   1,500,000
       
  Cash 600,000  
  Investment in Associate   600,000
PROBLEMS

MESSAGE

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 Problem 18-6 (AICPA ADAPTED)

2021   Dr. Cr.

DECODE ME
June 30 Investment in Associate 1,800,000  
  Investment Income   1,800,000
       
July 1 Cash 6,000,000  
RULES   Investment in Associate   5,350,000
  Gain on Sale of Investment   650,000
       
  Investment in Associate 1,150,000  
THEORIES   Gain from Remeasurement   1,150,000
       
  Financial Asset at FVOCI 6,500,000  
  Investment in Associate   6,500,000
       
PROBLEMS Oct. 1 Cash 375,000  
  Dividend Income   375,000
       
Dec. 31 Unrealized Loss – OCI 600,000  
MESSAGE   Financial Asset at FVOCI   600,000

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 Problem 18-7 (AICPA ADAPTED)

DECODE ME
On January 1, 2020, Mega Company acquired 10% of the P4,000,000. The
investment was appropriately accounted for under cost method.
On January 1, 2021, Mega gained the ability to exercise significant influence over
RULES
financial and operating control of Penny by acquiring an additional 20% of Penny's
outstanding ordinary shares for P10,000,000.
THEORIES
The fair value Penny's net assets equalled carrying amount. The fair value of the
10% interest on January 1, 2021 was P6,000,000.
For the years ended December 31, 2020 and 2021, the investee reported the
PROBLEMS following:
2020 2021
Dividend paid 2,000,000 3,000,000
MESSAGE Net income 6,000,000 6,500,000
 

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 Problem 18-7 (AICPA ADAPTED)

DECODE ME
1. What is the investment income in 2020 and 2021 respectively?
a. 200,000 and 1,950,000
b. 400,000 and 1,300,000
RULES
c. 600,000 and 1,000,000
d. 300,000 and 1,900,000
THEORIES
 
2. What is the carrying amount of the investment in associate on December 31,
2021?
PROBLEMS
a. 16,000,000
b. 17,050,000
c. 15,050,000
MESSAGE
d. 16,700,000

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 Problem 18-7 (AICPA ADAPTED)

DECODE ME
1. INVESTMENT INCOME IN 2020
2,000,000 X 10% = 200,000
INVESTMENT INCOME IN 2021
RULES 6,500,000 X 30% = 1,950,000
2.
Fair Value of 10% Interest 6,000,000
Cost of 20% New Interest 10,000,000
THEORIES
Total Cost of Investment – Jan. 1, 2021 16,000,000
Share in Net Income – 2021 (6,500,000 x 1,950,000
PROBLEMS 30%)
Share in Cash Dividend – 2021 (3,000,000 (900,000)
x 30%)
MESSAGE
Carrying Amount 17,050,000

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 Problem 18-8 (IFRS)
DECODE ME
On January 1, 2020, Forensic Company acquired a 10% interest in an investee for
P3,000,000. The investment was accounted for using the cost method.
On January 1, 2021, the entity acquired a further 15% interest in the investee for
RULES
P6,750,000.
On such date, the carrying amount of the net assets of the investee was
THEORIES
P36,000,000 and the fair value of the 10% interest was P4,500,000.
The fair value of the net assets of the investee is equal to carrying amount except
for an equipment whose fair value exceeds carrying amount by P4,000,000. The
PROBLEMS
equipment has a remaining life of 5 years.
The investee reported net income of P8,000,000 for 2021 and paid dividend of
P5,000,000 on December 31, 2021.
MESSAGE

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 Problem 18-8 (IFRS)
DECODE ME
1. What is the gain on remeasurement to equity to be recognized for 2021?
a. 1,500,000
b. 4,500,000
RULES
c. 2,250,000
d. 0
THEORIES
 
2. What is the goodwill arising from the acquisition on January 1, 2021?
a. 2,250,000
PROBLEMS
b. 1,250,000
c. 1,350,000
d. 350,000
MESSAGE

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 Problem 18-8 (IFRS)
DECODE ME

1.A. (4,500,000 – 3,000,000) = 1,500,000

RULES 2.B.
Fair value of existing interest 4,500,000
Cost of new interest 6,750,000
THEORIES
Total cost of the investment 11,250,000
Carrying amount of net assets acquired (36,000,000 x 25%) (9,000,000)
Excess of cost 2,250,000
Excess of cost attributable to equipment (4,000,000 x 25%) 1,000,000
PROBLEMS
Goodwill 1,250,000

MESSAGE

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 Problem 18-9 (AICPA ADAPTED)

DECODE ME
Grant Company acquired 30% of South Company's voting share capital for
P2,000,000 on January 1, 2020.
Grant's 30% interest in South gave Grant the ability to exercise significant influence
RULES
over South's operating and financial policies.
During 2020, South earned P1,500,000 and paid dividends of P500,000.
THEORIES
South reported earnings of P1,000,000 for the six months ended June 30, 2021,
and P2,500,000 for the year ended December 31, 2021 but paid dividend of
P1,000,000 on October 1, 2021.
PROBLEMS
On July 1, 2021, Grant sold half of the investment in South for P2,000,000 cash.
On such date, the investment is measured at fair value through profit or loss.
The fair value of the retained investment is P2,200,000 on July 1, 2021 and
MESSAGE
P2,400,000 on December 31, 2021.

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 Problem 18-9 (AICPA ADAPTED

DECODE ME 1. What amount should be recognized as investment income for 2020 as a result of the
investment?
a. 150,000
b. 450,000
RULES
c. 500,000
d. 750,000
2. What is the carrying amount of the investment on December 31, 2020?
THEORIES a. 2,000,000
b. 2,450,000
c. 2,600,000
d. 2,300,000
PROBLEMS
3. What total amount of income should be reported for 2021?
a. 2,250,000
b. 2,100,000
MESSAGE c. 1,950,000
d. 2,050,000

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 Problem 18-9 (AICPA ADAPTED

DECODE ME

RULES 1.B. 1,500,000 x 30% = 450,000

2.D.

THEORIES Acquisition Cost 2,000,000

Share in Net Income – 2020 450,000
Cash Dividends – 2020 (500,000 x (150,000)
30%)
PROBLEMS Carrying Amount – Dec. 31, 2020 2,300,000

MESSAGE

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 SUBTOPIC
Carrying Amount – Dec. 31, 2020 2,300,000
DECODE ME Share in Net Income – June 30, 2021 (1,000,000 x 30%) 300,000

Carrying Amount – June 30, 2021 2,600,000

   
Sales Price 2,000,000
RULES Carrying Amount Sold (2,600,000 x ½) (1,300,000)

Gain on Sale 700,000

   
Fair Value of Retained Investment 2,200,000
THEORIES Carrying Amount of Retained Investment (1,300,000)

Gain from Remeasurement 900,000

   
Gain on Sale 700,000
PROBLEMS Gain on Remeasurement 900,000
Share in Net Income – Jan 1-June 30, 2021 (1,000,000 x 300,000
30%)
Dividend Income – Oct. 1, 2021 (1,000,000 x 15%) 150,000

MESSAGE Increase on Fair Value – Dec. 31, 2021 200,000

Total Income 2,250,000

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 MESSAGE
DECODE ME

An investment in an associate is
RULES

THEORIES
typically an ownership interest of
PROBLEMS
between 20% and 50%.
MESSAGE

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 THAT’S ALL! THANK YOU!
-GROUP 8

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