DEPARTMENT OF ACCOUNTING EDUCATION
Pre-Rev(Financial Asset at Fair Value)
2nd Term, 1st Semester, SY: 2018-2019
August 29, 2018
Definition of investments
MCQ-Theory
Investments are assets held by an entity for the
1. It is any contract that gives rise to both a financial
accretion of wealth through distribution such as
asset of one entity and a financial liability or an equity
interest, royalties, dividends and rentals, for capital
instrument of another entity.
appreciation or for other benefits to the investing
a. Financial instrument
entity such as those obtained through trading
b. Equity instrument
relationships.
c. Debt instrument
d. Derivative instrument
Financial instruments
2. A financial asset is any asset that is (choose the
PAS 32 defines a financial instrument as any
incorrect one)
contract that gives rise to a financial asset of one
a. Cash
entity and a financial liability or an equity
b. A contractual right to receive cash or
instrument of another entity.
another financial asset from another entity
c. A contractual right to exchange financial
Financial assets at fair value
instruments with another entity under
1. Financial assets held for trading or popularly known
conditions that are potentially unfavorable.
as “trading securities”.
d. An equity instrument of another entity
2. Financial assets that are designated on initial
3. A financial liability is any liability that is a contractual
recognition as at fair value through profit or loss.
obligation
I.
To deliver cash or other financial asset to
3. All other investments in quoted equity instruments.
another entity.
Initial measurement of financial assets
II.
To exchange financial instruments with
An entity shall measure a financial asset at fair value plus in
another entity under conditions that are
the case of financial asset not at fair value through profit or
potentially unfavorable.
loss, transaction costs that are directly attributable to the
a. I only
acquisition of the financial asset. However if the F.A. is held
b. II only
for trading or if the FA-FVPL, transaction cost are expense
c. Both I and II
outright.
d. Neither I nor II
4. It is any contract that evidences residual interest in
Subsequent Measurement
the assets of an entity after deducting all of its
PFRS 9, paragraph 4.1 provides that after initial recognition,
liabilities.
an entity shall measure a financial asset either at fair value
a. Equity instrument
or amortized cost.
b. Debt instrument
c. Loan receivable
Category
Initial Subsequent
Changes in FV
d. Financial asset
FA@FVTPL
FV
FV
P/L
5. Financial assets include all of the following, except
FA@FVTOCI
FV+TC
FV
OCI (Equity)
a. Prepaid expenses
b. Cash in bank
The business model for managing financial assets may be:
c. Trade accounts receivable
1. To hold investments in order to realize fair value changes
d. Loans receivable
(FV)
6. Financial Liabilities include all of the following,
2. To hold investments in order to collect contractual cash
except
flows (AC)
a. Trade accounts payable
b. Notes payable
Reclassification
c. Bonds payable
 The entity shall reclassify financial assets only when
d. Income taxes payable
it changes its business model for managing the
7. Equity instruments include all of the following, except
financial assets.
a. Ordinary shares
 Apply prospectively.
b. Preference shares
c. Warrants or options that allow the holder to
Reclassification from fair value to amortized cost
purchase a fixed number of ordinary shares
 The fair value at the reclassification date
of the issuing entity in exchange for a fixed
becomes the new carrying amount of the financial
amount of cash or another financial asset.
asset at amortized cost.
d. Corporate bonds and other debt instruments
 Reclassification date will be the beginning of the next
issued by the entity
accounting period.
8. A preference share provides for mandatory
redemption on a specific date or at the option of the
Reclassification from amortized cost to fair value
holder is.
a. A financial asset
 When an entity reclassifies a financial asset at
b. A financial liability
amortized costs to financial asset at fair value,
c. An equity instrument
the fair value is determined at reclassification
d. Neither a financial liability nor an equity
date. The difference between the previous
instrument
carrying amount and fair value is recognized in
9. An entity has preference shares in issue. The
P/L as “Gain on reclassification of financial
preference shares are redeemable after 5 years.
asset”
How will the preference shares and the related
preference dividend be presented in the financial
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statements
of the current year?
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Preference Shares
Preference dividend
a. Non Current liability Deducted from equity
b. Equity
Deducted from equity
value, the fair value is determined at the
reclassification date, and the difference
between the previous carrying amount and
the fair value is included in profit or loss.
a. I only
b. II only
c. Both I and II
d. Neither I or I
What is the “reclassification date” for the purpose of
reclassifying financial assets?
a. End of the current reporting period
b. First day of the next reporting period
following the change in business model.
c. Date when management decided to change
the business model for managing financial
assets.
d. No definition of reclassification date as this
would depend on the judgment of
management.
At the beginning of the current year, an entity
purchased equity shares of another entity not for the
purpose of selling and repurchasing but to held as
long-term investment. The most appropriate
classification of this equity investment is
a. Financial asset at fair value through profit or
loss
b. Financial asset held for trading
c. Financial asset at fair value through other
comprehensive income
d. Amortized cost
An entity acquired equity shares representing a
small percentage of the issued ordinary shares of
another entity. The investee’s shares are listed on a
stock exchange and are acquired principally for the
purpose of selling or repurchasing them in the near
term. Which of the following categories could this
investment in equity shares be classified
a. Financial assets at amortized cost
b. Financial assets at fair value through other
comprehensive income
c. Financial assets at fair value through profit
or loss
d. Financial assets held for trading
The entity purchased government bonds. The
entity’s business model in managing financial assets
is to collect contractual cash flows that are solely
payments of principal and interest on the principal
amount outstanding. Which of the following is the
most appropriate classification for the investment in
bonds?
a. Held for trading
b. At fair value though profit or loss
c. At amortized cost
d. At fair value though other comprehensive
income
c. Equity
Finance cost
d. Non Current liability Finance cost
10. Which of the following is not a financial instrument?
18.
a. Cash deposited in bank
b. Gold bullion deposited in bank
c. A perpetual debt instrument, meaning no
maturity date, that pays interest annually
extending into the indefinite future
d. Ordinary share capital issued by the entity
11. Under PFRS 9, which of the following is not a
category of financial assets?
a. Financial assets at fair value through profit
or loss
b. Financial assets at fair value through other
19.
comprehensive income
c. Financial assets at amortized cost
d. Financial assets held for sale
12. All of the following financial assets shall be
measured at fair value through profit or loss, except
a. Financial assets held for trading
b. Financial assets designated on initial
recognition as at fair value though profit or
loss
c. Investments in quoted equity instruments
d. Financial assets at amortized cost
20.
13. Transaction costs include
a. Fees and commission paid to agent, levies
by regulatory authorities, transfer taxes and
duties.
b. Debt premiums or discounts
c. Finance costs
d. Internal administrative costs
14. If the financial asset is held for trading or if the
financial asset is measured at fair value through
profit or loss, transaction costs directly attributable to
the acquisition shall be
a. Capitalized as cost of the financial asset
b. Expensed immediately when incurred
21.
c. Deferred and amortized over a reasonable
period
d. Included
as
component
of
other
comprehensive income
15. Depending on the business model for managing
financial assets, an entity shall classify financial
assets subsequent to initial recognition at
a. Fair value
b. Amortized cost
c. Either fair value or amortized cost
d. Neither fair value nor amortized cost
16. Under PFRS9, a financial asset shall be measured
subsequently at amortized cost when
MCQ – Problem Solving
I.
The business model of the entity is to hold
the financial asset in order to collect
1. Racer Company purchased marketable equity
contractual cash flows on specified dates.
securities during 2017 to be held as “trading”. An
II.
The contractual cash flows are solely
analysis of the current investments on December 31,
payments of principal and interest on the
2017 showed the following:
principal amount outstanding.
Cost
Market
a. I only
A Company ordinary share
1,000,000.00
800,000.00
b. II only
B Company ordinary share
1,500,000.00 1,800,000.00
c. Either I or II
C Company preference share
2,000,000.00 1.700,000.00
d. Neither I nor II
D Company preference share
2,500,000.00 2,600,000.00
17. Which
statement
is
correct
concerning
reclassification of financial assets?
What is the measurement of the financial assets held
I.
When an entity reclassifies a financial asset
for trading on December 31, 2017?
at fair value to financial asset at amortized
cost, the fair value at the reclassification
a. 6,900,000.00
date becomes the new carrying amount of
b. 6,800,000.00
the financial asset at amortized cost.
c. 00:57:28
7,000,000.00
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II.
When an entity reclassifies a financial asset
d. 6,500,000.00
at amortized cost to financial asset at fair
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What gain should be recognized in other
comprehensive income for the year ended
December 31, 2017?
a. 200,000
b. 900,000
c. 800,000
d. 0
2. During 2017, Rock Company made various
investments in trading securities. In December 31,
2017, the investments had the following cost and
market value:
Man Company ordinary share
Kemo Company ordinary share
Penn Company preference share
Cost
1,000,000.00
900,000.00
1,100,000.00
Market
900,000.00
1,100,000.00
800,000.00
What amount should be included as unrealizable
loss in the income statement for 2011?
a.
b.
c.
d.
200,000.00
400,000.00
300,000.00
0
3. Raiza Company acquired a financial asset at its
market value of P3,200,000. Broker fees of
P200,000 were incurred in relation to the purchase.
At what amount should the financial asset initially be
recognized respectively if it is classified as at fair
value though profit or loss, or as at fair value through
other comprehensive income?
a. 3,400,000 and 3,200,000
b. 3,200,000 and 3,200,000
c. 3,200,000 and 3,400,000
d. 3,400,000 and 3,400,000
4. On January 1, 2017, Alexis Company purchased
marketable equity securities to be held as “trading”
for P5,000,000. The entity also paid commission,
taxes and other transaction costs amounting to
P200,000. The securities had a market value of
P5,500,000 on December 31, 2017. No securities
were sold during 2017.
What amount of unrealized gain or loss on these
securities should be reported in the 2017 income
statement?
a. 500,000 unrealized gain
b. 500,000 unrealized loss
c. 300,000 unrealized gain
d. 300,000 unrealized loss
5.
During 2016, Ray Company purchased marketable
equity securities for P1,850,000 to be held as trading
investments. In 2016, Ray Company appropriately
recorded an unrealized loss of P200,000 in its
income statement. There was no change during
2017 in the composition of the portfolio of trading
securities. Pertinent data on December 31, 2017 are
as follows:
Securities
Cost
Market
Value
A
600,000
700,000
B
450,000
400,000
C
800,000
900,000
What amount of unrealized gain on these securities
should be included in the 2011 income statement?
a. 350,000
b. 150,000
c. 550,000
d. 0
7. Priscila Company acquired an equity investment a
number of years ago for P3,000,000 and classified it
as at fair value through other comprehensive
income. In December 31, 2016, the cumulative loss
recognized in other comprehensive income was
P400,000 and the carrying amount of the investment
was P2,600,000.
On December 31, 2017, the issuer of the equity
instrument was in severe financial difficulty and the
fair value of the equity investment had fallen to
P1,200,000.
What amount should be recognized in profit or loss
for the year ended December 31, 2017?
a. 1,400,000
b. 1,800,000
c. 1,000,000
d. 0
8. On January 1, 2017, Remington Company acquired
200,000 ordinary shares of Universal Company for
P9,000,000. At the time of purchase, Universal
Company had outstanding 800,000 shares with a
book value of P36,000,000. On December 31, 2017,
the following events took place:
 Universal Company reported net income of
P1,800,000 for 2017
 Remington Company received from
Universal Company a dividend of P0.75 per
ordinary share.
 The market value of Universal Company
share had declined to P40.
The investment in Universal Company is classified
as at fair value through other comprehensive
income.
What is the carrying amount of the investment on
December 31, 2017.
a.
b.
c.
d.
9,000,000
8,000,000
9,300,000
9,450,000
9. Information on December 31, 2017 regarding Stone
Company’s portfolio of equity securities is as follows:
Aggregate cost
1,700,000
Unrealized gains
40,000
Unrealized losses
260,000
Net realized gains during 2017
300,000
6. Carmela Company acquired an equity instrument for
P4,000,000 on March 31, 2017 to be measured at
fair value though other comprehensive income. The
direct acquisition costs incurred amounted to
P700,000.
On December 31, 2017, the fair value of the
instrument was P5,500,000 and the transaction
costs that would be incurred on the sale of the
investment were estimated at P600,000.
The equity investments are measured at fair value
though other comprehensive income. On January 1,
2017, Stone Company reported an unrealized loss
of P15,000 to reduce investments to market on a
portfolio basis.
In the December 31, 2017 statement of changes in
equity, what amount of unrealized loss should be
reported?
a. 260,000
b. 220,000
c. 205,000
d. 0
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