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Patrick T. Barena: Chapter 32 - Investment in Associate
Patrick T. Barena: Chapter 32 - Investment in Associate
7. If an associate has outstanding cumulative preference shares held by outside interests, the
investor computes share of profit or loss
a. After adjusting for preference dividends which were actually paid during the year.
b. Without regard from preference dividends.
c. After adjusting for the preference dividends only when declared.
d. After adjusting for the preference dividends, whether or not the dividends have been
declared.
9. How is goodwill arising on the acquisition of an associate dealt with in the financial statements?
a. It is amortized.
b. It is impairment tested individually.
c. It is written off as loss.
d. Goodwill is not recognized separately within the carrying amount of the investment.
PROBLEM 32 - 14 (IFRS)
3. On the loss of significant influence, the investor shall recognize in profit or loss any
difference between
a. The initial carrying amount of any retained investment, any proceeds from disposing
of the part interest and the carrying amount of the investment at the date when
significant influence is lost.
b. The fair value of any retained investment and the carrying amount of the investment
at the date significant influence is lost.
c. Any proceeds from disposing of the part interest and the carrying amount of the
investment at the date significant influence is lost.
d. The fair value of any retained investment, any proceeds from disposing of the part
interest and the carrying amount of the investment at the date significant influence is
lost.
4. The equity method is not applicable under all of the following circumstances, except
a. The investor is a wholly-owned subsidiary
b. The investor’s debt and equity instruments are not traded.
c. The investor is in the process of filing financial statements with a regulatory body
for the purpose of issuing debt and equity instruments in a public market.
d. The ultimate parent of the investor produces consolidated financial statements.
5. What is the accounting treatment when the financial statements of an associate are not
prepared as of the same date as the financial statements of the investor?
a. The associate shall prepare financial statements as the same date as that of the
investor.
b. The financial statements of the associate prepared up to a different date would be
used.
c. Any major transactions during the time gap of the financial statements shall be
accounted for.
d. As long as the gap is not greater than three months, there is no problem.
TFA 1
1. After the date of acquisition, the investment account using the equity method would
2. Under the equity method of accounting for investments, an investor recognizes its share of the
earnings in the period in which the
3. When an investor uses the equity method to account for investment in ordinary shares, the
investment account is increased when the investor recognizes
4. When an investor uses the equity method to account for investment in ordinary shares, cash
dividends received by the investor from the investee shall be recorded as
a. Dividend income
b. A deduction from investor’s share of the investee’s profit
c. A deduction from investment account
d. A deduction from shareholder’s equity
5. An investor uses the equity method to account for investment in ordinary shares. The purchase
price implies a fair value of the investee’s depreciable asset in excess of the investee’s net asset
carrying amount. The investor’s amortization of the excess.
a. Decreases the investment account
b. Decreases the goodwill account
c. Increases the investment revenue account
d. Does not affect the investment account
6. An investor uses the equity method to account for the purchase of another entity’s ordinary
shares. On the date of acquisition, the fair value of the investee’s inventory and land exceeded
their carrying amount. How would investor excess and land excess affect respectively the
investor’s equity earnings of the investee for the current year?
a. Decrease Decrease
b. Decrease No effect
c. Increase Increase
d. Increase No effect
7. The excess of investor’s share of the net fair value of the associate’s net assets over the cost
investment is
a. Included in the determination of the investor’s share of the associate’s profit or loss in
the period in which the investment is acquired.
b. Credited to retained earnings directly.
c. Included in other comprehensive income.
d. A deferred gain.
8. An investor uses the equity method to account for 30% investment. Amortization of the
investor’s share of the excess of fair value over carrying amount of depreciable asset at the date
of the purchase shall be reported in the investor’s income statement as part of
a. Other expense
b. Depreciation expense
c. Equity in earnings investee
d. Amortization of goodwill
9. When an investor purchases sufficient ordinary shares to gain significant influence over the
investee, what is the proper accounting treatment of any excess of cost over the carrying amount
of the net assets acquired?
10. An investor uses the equity method of accounting for a 30% ownership in an investee. At
year-end, the investor has a receivable from the investee. How should the receivable be reported
in the investor’s financial statements for the current year?
a. None of the receivable should be reported but the entire receivable should be offset against
investee’s payable to investor.
b. Seventy percent of the receivable should be separately reported with the balance offset against
30% of investee’s payable to investor.
c. The total receivable should be disclosed separately.
d. The total receivable should be included as part of the investment in associate, without separate
disclosure.
TFA 1
2. An investor uses the fair value method to account for an investment in ordinary shares. A
portion of the dividends received this year were in excess of the investor’s share of investee’s
earnings subsequent to the date of investment. The amount of dividend revenue that should be
reported in the investor’s income statement for this year would be
a. Zero
b. The total amount of dividends received this year
c. The portion of the dividends received this year that were in excess of the investor’s share of
investee’s earnings subsequent to the date of investment
d. The portion of the dividends received this year that were not in excess of the investor’s share
of investee’s earnings subsequent to the date of investment
3. An investor uses the fair value method to account for investment in ordinary shares. Dividends
received in excess of the investor’s share of investee’s earnings subsequent to the date of
investment
a. Increase other comprehensive income
b. Decrease the investment account
c. Increase the investment account
d. Increase dividend revenue
4. An investor uses the fair value method to account for a 15% ownership in an investee. At year-
end, the investor has a receivable from the investee.
How much income from the investment should be reported for the current year?
a. 10% of investee’s income from January 1 to July 31, plus 40% of investee’s income from
August 1 to December 31
b. 40% of investee’s income from August 1 to December 31 only
c. 40% of investee’s income for the current year
d. Amount equal to dividends received from the investee