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    Cpa Review School of The Philippines Manila

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    Aljur Salameda
    This document provides information about an SME's investments in associates and its accounting for those investments under different models. It also includes questions about the SME's trademark, amortization, and impairment losses. Additional questions assess the SME's basic financial assets and liabilities. The document concludes with definitions of basic and non-basic financial instruments for SMEs.

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    © All Rights Reserved
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    Cpa Review School of The Philippines Manila

    Uploaded by

    Aljur Salameda
    1K views3 pages
    This document provides information about an SME's investments in associates and its accounting for those investments under different models. It also includes questions about the SME's trademark, amortization, and impairment losses. Additional questions assess the SME's basic financial assets and liabilities. The document concludes with definitions of basic and non-basic financial instruments for SMEs.

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    6940 - SME

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    This document provides information about an SME's investments in associates and its accounting for those investments under different models. It also includes questions about the SME's trademark, amortization, and impairment losses. Additional questions assess the SME's basic financial assets and liabilities. The document concludes with definitions of basic and non-basic financial instruments for SMEs.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    1K views3 pages

    Cpa Review School of The Philippines Manila

    Uploaded by

    Aljur Salameda
    This document provides information about an SME's investments in associates and its accounting for those investments under different models. It also includes questions about the SME's trademark, amortization, and impairment losses. Additional questions assess the SME's basic financial assets and liabilities. The document concludes with definitions of basic and non-basic financial instruments for SMEs.

    Copyright:

    © All Rights Reserved
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    of 3

    CPA REVIEW SCHOOL OF THE PHILIPPINES

    Manila

    FINANCIAL ACCOUNTING AND REPORTING VALIX/VALIX/ESCALA/SANTOS/DELA CRUZ

    SME

    1. At the beginning of current year, SME acquired 20% of the equity of A and B for P2,000,000 and
    P6,000,000 respectively. Transaction costs of 10% of the purchase price of the shares were incurred
    by SME. On January 15, entity A declared and paid dividend of P1,500,000. Entity A recognized net
    income of P2,500,000 and entity B recognized a net loss of P4,000,000 for that year. At year-end,
    SME determined the fair value of the investments in A and B at P3,000,000 and P4,000,000
    respectively. Costs of disposal are estimated at 10% of the fair value of the investments. Published
    price quotations do not exist for the shares of entities A and B.
    1. Under cost model, what is the total carrying amount of the investments in associates?
    a. 5,800,000
    b. 6,300,000
    c. 7,000,000
    d. 6,200,000
    2. What is the impairment loss under the cost model?
    a. 2,000,000
    b. 3,000,000
    c. 2,400,000
    d. 0
    3. Under equity method, what is the total carrying amount of the investments in associates?
    a. 8,200,000
    b. 6,000,000
    c. 8,800,000
    d. 8,500,000
    4. What is the impairment loss under the equity method?
    a. 2,200,000
    b. 1,800,000
    c. 1,900,000
    d. 0
    5. Under fair value model, what is the total carrying amount of the investments in associates?
    a. 8,000,000
    b. 6,300,000
    c. 7,000,000
    d. 6,000,000
    2. At the beginning of current year, SME acquired a 30% interest in the ordinary shares of another
    entity for P15,000,000. The carrying amount of the net assets acquired is P13,000,000. SME elected
    to use the equity method. The carrying amounts of the identifiable assets and liabilities of the investee
    equaled fair value. The investee reported net income of P20,000,000 for the current year and declared
    dividend of P7,500,000 at year-end. The fair value of the investment in associate is P20,000,000 at
    year-end.
    1. What is the investment income for the current year?
    a. 2,250,000
    b. 6,000,000
    c. 5,800,000
    d. 8,050,000
    2. What is the carrying amount of the investment at year-end?
    a. 18,550,000
    b. 16,550,000
    c. 21,000,000
    d. 18,750,000
    6940
    Page 2

    3. On January 1, 2018, SME acquired trademark for P3,000,000. The SME expected to continue
    marketing the line of products using the trademark indefinitely. Management is unable to estimate
    the useful life of the trademark. In 2021, a competitor unexpectedly revealed a technological
    breakthrough that is expected to result in a product, that when launched by the competitor, will
    extinguish demand for SME’s patented product line. Demand for SME’s patented product line is
    expected to remain strong until December 2023, when the competitor is expected to launch the new
    product. On December 31, 2021, SME assessed the recoverable amount of the trademark at
    P500,000. SME intended to continue manufacturing the patented products until December 31, 2023.
    1. What is the amortization of trademark for 2021?
    a. 300,000
    b. 600,000
    c. 700,000
    d. 0
    2. What amount should be recognized as impairment loss for 2021?
    a. 3,000,000
    b. 2,500,000
    c. 900,000
    d. 0

    4. An SME provided the following assets at year-end:


    Cash on hand and in bank 2,500,000
    Accounts receivable 2,400,000
    Notes receivable 1,000,000
    Loan receivable from employee – fixed term 200,000
    Loan receivable from associate – on demand 1,800,000
    Investment in nonputtable ordinary shares 400,000
    Investment in convertible preference shares 600,000
    Investment in bonds 1,200,000
    Investment in associate 1,400,000
    Property, plant and equipment 4,000,000
    Intangible assets 700,000
    Deferred tax asset 300,000
    What total amount should be reported as basic financial assets?
    a. 9,500,000
    b. 9,100,000
    c. 9,900,000
    d. 7,300,000

    5. An SME provided the following liabilities at year-end:


    Accounts payable 1,500,000
    Notes payable 1,000,000
    Bank loan payable 2,000,000
    Estimated warranty liability 200,000
    Accrued rent payable 300,000
    Accrued interest payable 100,000
    Income tax payable 400,000
    Bank overdraft 500,000
    Accrued benefit cost 1,200,000
    Finance lease liability 1,300,000
    What total amount should be reported as basic financial liabilities?
    a. 5,800,000
    b. 5,400,000
    c. 5,600,000
    d. 7,200,000

    6940
    Page 3

    Basic financial instruments of SMEs


    1. Cash, demand and fixed term deposits or bank accounts
    2. Trade accounts receivable
    3. Trade notes receivable
    4. Loans receivable
    5. Commercial papers or commercial bills – unsecured and short-term debt investment
    6. Investments in nonputtable ordinary shares
    7. Investments in nonconvertible and nonputtable preference shares
    8. Commitment to receive a loan if the commitment “cannot be net settled” in cash
    9. Accounts payable in local and foreign currency
    10. Notes payable
    11. Loans from bank and other third parties
    12. Bonds payable and similar debt instrument
    13. Loans to or from subsidiaries or associates that are due on demand
    A commitment to receive a loan is a firm commitment by the bank to provide credit to the entity.
    The entity has the option to borrow or the bank may require the entity to borrow.
    The investments in ordinary shares and nonconvertible preference shares are nonputtable:
    a. When the entity does not have an option to sell the shares back to the issuer for cash.
    b. When there is no arrangement that could result in the shares being automatically sold or returned
    to the issuer because of a future event.

    Nonbasic financial instruments of SMEs


    1. Asset-backed securities, such collateralized mortgage obligations, repurchase agreements and
    securitized packages or receivables.
    2. Derivative contracts
    3. Hedging instruments
    4. Commitment to receive a loan if the commitment can be net settled in cash
    5. Investments in subsidiaries
    6. Investments in associates
    7. Investments in joint ventures
    8. Financial instruments that meet the definition of an entity’s own equity
    9. Leases
    10. Employers’ right and obligation under employee benefit plan
    11. Insurance contract
    12. Share-based payment transaction
    13. Contract for contingent consideration in a business combination

    E N D
    6940

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