question archive On January 1, 2010, Remington Company acquired P200, 000 ordinary shares of Universal Company for P 9, 000,000
On January 1, 2010, Remington Company acquired P200, 000 ordinary shares of Universal Company for P 9, 000,000
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On January 1, 2010, Remington Company acquired P200, 000 ordinary shares of Universal Company for P 9, 000,000. At the time of purchase, Universal Company had outstanding 800, 000 shares with the book value of P36, 000,000. On December 31, 2010, the following events took place: Universal Company reported net income of P1, 800,000 for the calendar year. Remington Company received from Universal Company a dividend of 0.75 per ordinary share. The market value of Universal Company share had temporarily declined to 40.
The investment in Universal Company is classified as financial asset at fair value through other comprehensive income.
What is the carrying amount of the investment on December 31, 2010?
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a. 9, 000,000 b. 8, 000,000 c. 9, 300,000 d. 9, 450,000 |
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Answer b |
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Market value – 12/31/2010 (200, 000 x 40) |
8, 000,000 |
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Acquisition cost |
9, 000,000 |
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Unrealized loss on financial asset |
(1, 000,000) |
Although the interest is 25%, 200, 000 shares divided by 800, 000 shares, the equity method is not applied because the investment is classified as financial asset at fair value tgrough other comprehensive income.
The unrealized loss of the financial asset of P1, 000,000 is shown in the statement of comprehensive income as component of other comprehensive income.
