INVESTMENTS:

THEORY
Financial Instrument
1. Which of the following is not a financial asset?
a. Cash
b. An equity instrument of another equity
c. A contract that may or will be settled in the entitys own instrument and is
not classified as an equity instrument of the entity
d. Prepaid expenses
ANSWER: D

2. The components of market risk are

a. Credit risk and liquidity risk
b. Currency risk and credit risk
c. Interest rate risk and currency risk
d. Liquidity risk and currency risk
ANSWER: C
Financial Assets @ FV
3. Which of the following is not a category of financial assets?
a. Financial assets at fair value through profit and loss
b. Financial assets at fair value through other comprehensive income
c. Financial assets at amortized cost
d. Financial assets held for sale
ANSWER: D
Investment in Equity Security
4. It is the date on which the stock and transfer book of the entity is closed for
registration. Only those shareholders registered as this date are entitled to
receive dividends.
a. Date of declaration
b. Date of record
c. Date of payment
d. Date of mailing the dividend check
ANSWER: B
PROBLEMS
Financial Assets @ FV
1. HALA Company acquired a financial instrument for P 4000000 on March 31,
2014. The financial instrument is classified as financial asset at fair value
through other comprehensive income. The direct acquisition costs incurred
amounted to P 700000. On December 31, 2014, the fair value of the
 instrument was P 5500000 and the transaction costs that would be incurred
on the sale of the investment are estimated at P 600000. What gain should
be recognized in other comprehensive income for the year ended December
31, 2014?
a. 200000
b. 900000
c. 0
d. 800000
ANSWER: D

2. During 2014, NAHULOG Company purchased marketable equity securities as

a trading investment. For the year ended December 31, 2014, the entity
recognized an unrealized loss of P 230000.

There were no security transactions during 2015. Pertinent information on

December 31, 2015 is as follows:

Security Cost Market Value

A 2450000 2300000
B 1800000 1820000
4250000 4120000

In the 2015 income statement, what should be the reported as unrealized

gain or loss?

a. Unrealized gain of P 130000

b. Unrealized loss of P 100000
c. Unrealized loss of P 130000
d. Unrealized gain of P 100000
ANSWER: D
Investment in Equity Security
3. On January 1, 2014, ONLY BINAY Company purchased 40000 shares of RST at
P 100 per share. The investment is measured at fair value through other
comprehensive income. Brokerage fees amounted to P 120000. A P 5
dividend per share RST had been declared on December 1, 2013, to be paid
on March 31, 2014 to shareholders of record on January 31, 2014. No other
transactions occurred in 2014 affecting the investment in RST shares. What is
the initial measurement of the investment?
a. 4000000
b. 4120000
c. 3800000
d. 3920000
ANSWER: D
4. On March 1, 2014, MAR Company purchased 10000 ordinary shares of
DUTERTE at P 80 per share. On September 30, 2014, MAR received 110000
stock rights to purchase an additional 10000 shares at P 90 per share. The
stock rights had an expiration date on February 1, 2015. On September 30,
2014, DUTERTEs share had a market value P 95 and the stock right had a
market value of P 5. What amount should right had a market value of P 5.
What amount should be reported on September30, 2014 for investment in
stock rights?
a. 150000
b. 100000
c. 60000
d. 50000
ANSWER: D