question archive Carmela Company acquired a financial instrument for P4, 000,000 on March 31, 2010
Carmela Company acquired a financial instrument for P4, 000,000 on March 31, 2010
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Carmela Company acquired a financial instrument for P4, 000,000 on March 31, 2010. The financial instrument is classified as financial asset at fair value through other comprehensive income. The direct acquisition cost incurred amounted to P700, 000. On December 31, 2010, the fair value of the instrument was P5, 500,000 and transaction costs that would be incurred on the sale of the investment are estimated at P600, 000. What gain or loss would be recognized in other comprehensive income for the year ended December 31, 2010?
a. 200, 000
b. 900, 000
c. 800, 000
d. 0
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Answer c |
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Fair value – December 31, 2010 |
5, 000,000 |
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Acquisition cost (4, 000,000+700, 000) |
4, 700,000 |
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Unrealized gain – other comprehensive income |
800, 000 |
The transaction costs of P600, 000 that would be incurred on the sale of the investment are ignored because the financial asset is measured at the fair value and not at fair value less cost to sell.
