Investments

INVESTMENTS
Instruction:
o Write your answer on a separate sheet of paper and show your solutions on the problems.
1. Transaction costs that are directly attributable to the acquisition of financial asset shall be
a. Capitalized as cost of the financial asset
b. Expensed when incurred
c. Charged to retained earnings
d. Included as a component of other comprehensive income.
2. At initial recognition, an entity may make an irrevocable election to present in other comprehensive
income subsequent changes in the fair value of an investment in an equity instrument within the scope
of PFRS 9 that is not held for trading. In accounting for such financial instruments, all of the following is
true, except
a. Amounts presented in other comprehensive income shall not be subsequently transferred to profit or
loss.
b. The entity may transfer any cumulative fair value gains or losses within equity.
c. Dividends on such investments are recognized in profit or loss unless the dividend clearly
represents a recovery of part of the cost of the investment.
d. Cumulative fair value gains or losses are transferred to profit or loss when the financial asset is
derecognized.
3. Which statement is correct concerning the subsequent measurement of financial asset at fair value?
I. The financial asset shall be measured at fair value if the business model is not to collect contractual
cash flows on specified dates and the contractual cash flows are not solely payments of interest and
principal.
II. An entity may designate a financial asset as measured at fair value through profit or loss even if the
financial asset satisfies the amortized cost measurement.
a. I only
b. II only
c. Both I and II
d. Neither I nor II
4. An entity did not amortize the discount on its amortized cost investment. What effect would this have on
the carrying amount of the investment and on net income, respectively?
a. Overstated, overstated
b. Understated, overstated
c. understated, understated
d. No effect, no effect
5. An entity sells its investment in FVPL during the year. The realized gain or loss on the sale is computed
as
a. the difference between the sale price and the carrying amount of the investment as at the date of sale
b. the difference between the sale price and the original acquisition cost of the investment.
c. the difference between the net proceeds received from the sale and the carrying amount of the
investment as at the date of sale
d. the difference between the net proceeds received from the sale and the carrying amount of the
investment as at the date of sale adjusted for any accumulated fair value gains or losses recognized
since the investment was acquired.
6. If the combined fair value of held for trading securities at the end of the year is less than the fair value of
the same portfolio of held for trading securities at the beginning of the year, the difference should be
accounted for by
a. reporting an unrealized loss in security investments in the stockholders' equity section of the
balance sheet.
b. reporting an unrealized loss in security investments in the income statement.
c. a footnote to the financial statements.
d. a debit to Investment in Held for Trading Securities.
7. According to PFRS 9 Financial Instruments, investments in debt securities that are classified at amortized
cost are generally recorded at
a. cost including accrued interest.
b. maturity value.
c. cost including brokerage and other fees.
d. fair value at initial recognition plus brokerage and other fees.
8. When an investment in equity securities irrevocably elected on initial recognition to be subsequently
measured at FVOCI is transferred to held for trading because the company anticipates selling the stock
in the near future, the carrying amount assigned to the investment upon entering it in the trading
portfolio should be
a. its original cost.
b. its fair value at the date of the transfer.
c. the higher of its original cost or its fair value at the date of the transfer.
d. None of the above
9. Which of the following is correct about the effective interest method of amortization?
a. The effective interest method applied to investments in debt securities is different from that applied to
bonds payable.
b. The amortization of a discount decreases from period to period.
c. The amortization of a premium decreases from period to period.
d. The amortization of discount and premium increases from period to period.
10. Solo Co. purchased ₱300,000 of bonds for ₱315,000. The securities are to be held until maturity to
collect the contractual cash flows. The entry to record the investment includes
a. a debit to Held-for-Trading Securities at ₱300,000.
b. a credit to Premium on Investments of ₱15,000.
c. a debit to Investment in bonds measured at amortized cost for ₱315,000.
d. none of these.

Investments

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INVESTMENTS

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