Quiz on Investment in Debt Securities

Name: Date:_______________
Schedule: Score:______________

I. Theory
1. TRUE or FALSE. PFRS 9 states that entities shall recognize a loss allowance for
expected credit losses on FAAC, FVTOCI, FVTPL, a contact asset, or a loan commitment.
2. In which classification of investment in debt security is impairment gain recognized
in Profit and Loss?
a. FVTPL d. FVTOCI and FAAC
b. FVTOCI e. FVTPL and FVTOCI
c. FAAC f. FVTPL and FAAC
3. A detailed review of the minutes of meetings ascertains what assertion. (One Answer)
4. What is the formula in the computation of the realized gain from financial assets at
FVTPL?
5. TRUE or FALSE. At a premium, the effective interest of a financial asset at amortized
cost is less than the nominal interest rate.

II. Problem

Problem 1. Unique Co. purchased a 3-year bonds with face value of 3,000,000 on
January 1, 2018 and with a stated interest of 11% per year payable every December 31.
The bonds were acquired for 103. Unique Co. intends to profit from the investment by
collecting the agreed upon cash on certain dates and by selling the investment at an
advantageous date. The commission paid on the acquisition amounted to 61,878.
Further, the effective interest rate of the bond on the initial recognition is 9%.
2018 101
2019 98
2020 105
On January 2, 2020, the bonds were sold for 104 during which, Unique Co. incurred
transaction cost of 55,000.
Given the following information,
1. Compute for the interest income for the year of 2019.
2. Compute for the unrealized gain or loss as part of OCI for the year of 2019.
3. Compute for the realized gain or loss to be presented in P&L.

Problem 2. Y’terllow Company purchased 4000, P1000 face value, 12% bonds on
January 1,2020 to yield 14% for P3,767,000 to held as financial asset at amortized cost.
The bonds mature on December 31, 2023. The interest is payable every December 31.
At the beginning of January 2021, the entity sold 2000 at 103.
1. How much is the carrying amount at the date of derecognition?
2. What amount of gain on sale or (loss) is to be recognized in the profit or loss?
 Quiz on Investment in Debt Securities

Problem 3. On June 30, 2020, Jielle Company purchase a 3-year, 8% bond with a face
amount of 3000,000 10% for P2850,756 to be held as financial asset at amortized cost.
The bonds mature on June 30, 2023 and pay interest semiannually every end of June
and December. Using the interest method, the entity recorded a discount amortization
of 22,538 for 6-months ended December 31, 2020.
1. How much is the interest income to be reported in 2020?

Problem 4. On January 1, 2021, STARLA Co. purchased ₱ 100,000 bonds at 98. The
bonds will mature on January 1, 2025 and pay 12% annual interest beginning January
1, 2022. Commission paid on the acquisition amounted to ₱10, 000. STARLA Co.
intends to dispose the investment when fluctuations in fair values is advantageous for
short-term profit-taking. On December 31, 2021, the bonds are quoted at 101. On
January 3, 2022 the bonds were sold at 110.

1. On December 31, 2021, how much is included as part of the Income Statement
as a result of the change in fair value.
2. On December 31, 2021, how much is the amount of Investment in bonds to be
presented as current asset in the statement of financial position.
3. What is the journal entry on January 3, 2022?

Problem 5. On January 1, 2017, JER Co. purchased P8,000,000 face value bonds at a
price of P8,311,172 which will yield an interest rate of 9%. The nominal interest rate on
the bonds is 10% payable annually every Dec.31. The company’s business model is to
collect contractual cash flows that are solely payments of principal and interest.
On Dec.31,2018, JER Co. changed the business model in managing the bonds
from collecting contractual cash flows that are solely payments of principal and interest
to realizing short term gains. The market value of the bonds on Jan.1,2019 is 105.

Requirement:
1. What is the carrying amount of the bonds on Dec.31, 2017?
2. What amount should be reported as interest income for 2017?
3. What amount should be reported as interest income for 2018?
4. What is the carrying amount of the bonds on Dec.31, 2018?
5. On reclassification date, what amount of gain on reclassification of financial asset
should be recognized by JER Co.?
6. What is the journal entry on the reclassification date?