Investment in Associate

February 28, 2022

Problem 1

Sariaya Company acquired 40% interest in Candelaria Company for 6,000,000 on January 1, 2019. This cost exceeds the
underlying net assets of the investee by 500,000 which is attributed to an undervalued office equipment by the investee with
useful life of ten years and 200,000 which is attributable to undervalued delivery vehicle with a useful life of four years.

Candelaria Company reported the following for 2019 and 2020.

Journalized the above transactions (2019-2020)

Problem 2

On March 1, 2018 Pagbilao Company acquired 25% of Atimonan Company’s voting shares for 6,000,000. Pagbilao’s 25%
interest in Atimonan gave Pagbilao significant influence over Atimonan’s operating and financial policies. During 2018,
Atimonan earned 7,000,000 and paid dividends of 5,000,000. During 2019, Atimonan reported 8,000,000 net income which is
earned evenly throughout the year and declare and distribute 10% share dividends on April 15, 2019.

On September 30, 2019, Pagbilao sold half of its investment in Atimonan Company for 5,000,000 cash resulting to loss of
significant influence. The company paid 2,000,000 cash dividend on December 15, 2019.

On September 30, 2019 the investment is measured at fair value through other comprehensive income. The fair market
value of the investment is 5,500,000 on September 30, 2019 and 6,000,000 during December 31, 2019.

During 2020, Atimonan earned 5,000,000 and paid dividends of 3,000,000. The fair market value of the investment is
5,800,000.

Journalized the above transactions (2018-2020)

Problem 3

On January 2, 2019 ALabat Company acquired 15% interest in Perez Co. by paying 1,400,000 for 7,500 ordinary shares. On
this date, the net assets of Perez Co. totalled 8,000,000. The fair values of Perez Co.’s identifiable assets and liabilities
approximate their book values. Alabat Co. had no ability to exercise significant influence over the operating and financial
policies of Perez Co. Alabat received dividends of P3.50 per share from Perez Co. on August 1, 2019. Perez reported net
income of 1,250,000 for the year ended December 31, 2019. The shares which were selling on December 31, 2019 at P190
were classified as investment measured at fair value through other comprehensive income.

Alabat Co. paid 1,000,000 on July 1, 2020 5,000 additional shares of Perez Co.’s ordinary shares from another shareholder.
The fair value of Perez Co.’s identifiable assets approximates their book values. As a result of this additional acquisition,
Alabat has the ability to exercise significant influence over the operating and financial policies of Perez Co. Alabat received a
dividend of P4.50 per share from Perez Co. on April 5, 2020 and 5.50 per share on October 1, 2020. Perez reported net
income 1,500,000 for the year ended December 31, 2020, 800,000 of which earned for the six months ended December 31,
2020.

Journalized the above transactions (2019-2020). Show all relevant computations

On June 30, 2019, Calauag Company purchased 25% of the outstanding ordinary shares of Plaridel Co. at a total cost of
2,100,000. The book value of Plaridel Co.’s net assets on acquisition date was 7,200,000. For the following reasons, Calauag
was willing to pay more than the book value for the Plaridel Co. shares:
 Plaridel Co. has depreciable assets with a current fair value of 180,000 more than their book value. These assets have
a remaining useful life of 10 years.
 Plaridel Co. owns a tract of land with a current fair value of 900,000 more than its carrying amount.
 All other identifiable tangible and intangible assets of Plaridel Co. have current fair values that are equal to their
carrying amounts.
Plaridel Co. reported net income of 1,620,000, earned evenly during the current year ended December 31, 2019. Also in the
current year, it declared and paid cash dividends of 315,000 to its ordinary shareholders. Market value of Plaridel Co.’s
ordinary shares at December 31, 2019 is 9,000,000. Calauag Company’s financial year-end is December 31.

1. What is the total amount of goodwill of Plaridel Co. based on the price paid by Calauag Company?
a. 300,000 b. 1,080,000 c. 120,000 d. 30,000
2. What amount of investment revenue should Calauag report on its income statement for the year ended December
31, 2019, under the cost method?
a. 78,750 b. 202,500 c. 228,750 d. 71,250
3. What amount of investment revenue should Calauag report on its income statement for the year ended December
31, 2019, under the equity method?
a. 202,500 b. 200,250 c. 78,750 d. 123,750
4. Under the equity method, the carrying value of Calauag Company’s investment in ordinary share of Plaridel Co. on
December 31, 2019, should be
a. 2,221,500 b. 2,100,000 c. 2,070,000 d. 2,250,000
5. What amount should Calauag Company report in its December 31, 2019 balance sheet as its investment in Plaridel
Co. under the cost method?
a. 2,250,000 b. 2,070,000 c. 2,221,500 d. 2,100,000

Problem 5

Panukulan Company acquired 40% interest in an associate, San Andres Company, for 5,000,000 on January 1, 2017. At the
acquisition date, there were no differences between fair value and carrying amount of identifiable assets and liabilities.

San Andres Company reported the following net income and cash dividends for 2017 and 2018:
2017 2018
Net income 2,000,000 3,000,000
Dividends paid 800,000 1,000,000
The following transactions occurred between Panukulan Company and San Andres Company:
 On January 1, 2017, San Andres sold equipment costing 500,000 to Panukulan Company for 800,000. Panukulan
Company applied a 10% straight line depreciation
 On July 1, 2018, San Andres Company sold an equipment for 900,000 to Panukulan Company. The carrying amount of
the equipment is 500,000 at the time of sale. The remaining life of the equipment is 5 years and Panukulan Company
uses straight line depreciation
 On December 31, 2018, San Andres Company sold an inventory to Panukulan Company for 2,800,000. The inventory
had a cost of 2,000,000 and was still on hand on December 31, 2018

Journal entries for 2017 – 2018 on the books of Panukulan Company.

On January 1, 2014, Unisan Company acquired as long term investment for 7,000,000, 40% interest in Pitogo Company when
the fair value of Pitogo’s net assets was 17,500,000. Pitogo Company reported the following net (losses)/income:
2014 (5,000,000) 2017 (4,000,000)
2015 (7,000,000) 2018 5,000,000
2016 (8,000,000) 2019 3,000,000

Journal entries for 2014 – 2019

“Believe in better days.”