PROBLEM 1: On November 1, 2018, Dandelion Company purchased a debt security at face value of P1, 000,000

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PROBLEM 1: On November 1, 2018, Dandelion Company purchased a debt security at face value of P1, 000,000. This financial asset is to be measured at Fair Value Through Other Comprehensive Income (FvoCI). The contractual term is 10 years with an annual coupon of 6%. At December 31, 2018, the debt security's fair value has decreased to P950,000 due to increases in market interest rates. There has not been a significant increase in the credit risk of this debt investment. Hence, Dandelion decided to recognize a 12- month Expected Credit SS (ECL) of P30,000.

 

On December 31, 2019, the debt security's fair value has decreased further to P925,000 as a result of increases in market interest rates. There has not been a significant increase in the credit risk of the debt security since initial recognition; hence, Dandelion decided to recognize a 12-month ECL amounting to P40,000

 

On January 1, 2020, Dandelion sold the debt security for its fair value of P925,000.

 

a. The cumulative gain (loss) in OCI at December 31, 2018 is?

b. The cumulative loss in OCI at December 31, 2019 is?

c. What amount should be reported as loss on sale of the debt security on January 1, 2020? 

 

PROBLEM 2: CARNATION CORP. has a policy of investing idle cash in equity securities. It has made periodic investments in its principal supplier, Light Company. Carnation currently owns 12% of Light's outstanding ordinary shares.

 

Josephine Dubildo, Carnation's assistant controller, has gathered the following information about the company's investments in equity securities:

 

• Carnation has trading equity investments in Delta Corp. and Polygon Company. During 2019, Carnation purchased 100,000 shares of Delta Corp for P4, 200,000; these shares have a fair value of P4, 800,000 at December 31, 2019. The investment in Polygon 45 consists of 50,000 shares acquired in March 2019 at P60 per share and currently has a value of P2, 160,000

 

• Carnation's 12% ownership in Light Company has a fair value of P66,675,000 on December 31, 2019. On initial recognition, Carnation made an irrevocable election to present in other comprehensive income subsequent changes in fair value of this investment in equity securities. The securities were purchased prior to 2018 for P67,500,000 and was valued at P64,500,000 December 31, 2018. Carnation has not changed its holdings in the current year. 

 

a. What amount of unrealized loss should be reported as component of other comprehensive income on Carnation's December 31, 2018, statement of comprehensive income?

b. What is the cumulative unrealized gain/loss that should be shown on the statement of changes in equity for the year ended December 31, 2019? c. What amount of unrealized gain/loss should be reported or Carnation's income statement for the year ended December 31,2019?