COST ACCOUNTING AND CONTROL
1. Which of the following is incorrect under the equity method?
A. The investment is initially recorded at cost.
B. The investment balance is increased by the investor’s share in the investee’s profit.
C. The investor’s share in the investee’s profit is recognized as income of the investor.
D. Dividend received from the investee is recognized as dividend income
2. Losses recognized using the equity method in excess of the entity’s investment in ordinary shares are
applied first to which of the following?
A. Preference shares
B. Trade receivables
C. Secured loans
D. Long-term receivables
3. This distinguishes an investment in associate from other types of investment
A. Ownership interest of less than 20%
B. Ownership interest of 20% or more
C. Presence of significant influence
D. Representation in the board of directors
4. Significant influence
A. cannot be inferred from the presence of potential voting rights
B. is presumed to exist if ownership interest is at least 10%
C. cannot be obtained from ownership of preference shares
D. can only be obtained from ownership of shares in an incorporated entity
5. An FVPL security is
A. Security which has been purchased recently
B. Security held in the account of a brokerage firm
C. Security which is held for resale in the near future
D. Security which will be transferred in exchange
6. For investments in trading securities, which of the following market value changes are recognized in
earnings?
A. Realized gains only
B. Realized losses only
C. Unrealized losses only
D. Realized and unrealized gains and losses
7. The statement of financial position may include unrealized gains and losses from which type of
investment securities?
A. Trading securities only
B. Investment measured at FVTOCI
C. Investment in bonds measured at amortized cost
D. Trading and investment measured at FVTOCI
8. How would an increase in the fair value of the ordinary shares affect the investment account under each
of the following appropriate investment account under each of the following appropriate classification?
FVPL Securities FVOCI Securities
A. Increase Increase
B. Increase No effect
C. No effect No effect
D. No effect Increase
9. Investment is equity securities that provide neither control nor significant influence over the investee
are measured at the end of the reporting period at
A. Fair value
B. Cost
C. Carrying value
D. Net realizable value
10. Which of the following is not correct regarding FVPL securities?
A. They are classified as current assets
B. Unrealized holding gains or losses are reported in profit or loss
C. Cash dividend should be recognized as dividend income
D. Share in profit of the investee increases carrying amount of the investment.
11. The following statements are based on PAS 28 – Investment in Associates:
I. An investment in associate shall be accounted for using the equity method (benchmark) or cost
method (alternative).
II. An investor shall discontinue the use of equity method from the date when it ceases to have
significant influence over an associate and shall account for the investment in accordance with
PFRS 9.
III. On the loss of significant influence, the investor shall measure at historical cost any investment
the investor retains in the former associate.
A. Only statement I is false
B. Only statement II is true
C. Only statement III is true
D. All statements are false
12. Which of the following statements is proper accounting treatment and measurement of investments?
A. Investments at fair value shall be carried at fair value less cost to sell.
B. Investment in associate shall be carried using the equity method.
C. Dividends paid reduce the carrying amount of investment at fair value.
D. Share in profit of investee increases the investment at fair value.
13. Pocholo Corporation owns 30% of the voting stock of the Maxie, Inc. Maxi reports net income of P100,000
and declares and pays cash dividends of P40,000. Which method should Pocholo use to account for this
investment?
A. Cost
B. Market value
C. Equity
D. Consolidation
14. An investment in common stock of another company should be accounted for using the equity method
when the investment
A. Is obtained by an exchange of stock for stock.
B. Is composed of common stock and it is the investor’s intent to vote the common stock.
C. Enables the investor to exercise significant influence over the investee.
D. Ensures a source of supply such as raw materials.
15. The ability to exercise significant influence of an investor in common stock may be indicated in all of the
following ways, except
A. Representation in the board of directors.
B. Participation in policy-making processes.
C. Material inter-company transactions.
D. Control of financial and operating policy decisions.
16. These investments are known as “financial assets at fair value through profit or loss”.
A. Available for sale securities
B. Held to maturity securities
C. Nonmarketable equity securities
D. Trading securities
17. Financial assets at fair value through OCI securities are
A. Financial assets with fixed or determinable payments that are not quoted in an active market.
B. Debt and equity securities acquired by an enterprise principally with the intent of selling them in the
“near term” or very soon.
C. Debt and equity securities that are purchased and held indefinitely and will be available to be sold
in response to liquidity needs.
D. Financial assets with fixed or determinable payments and fixed maturity that are acquired with
positive intent and ability of holding them until maturity
18. FVPL securities are investments that are, by their very nature
A. Readily marketable
B. Intended to be held for more than one year
C. Readily realizable and intended to be held for more than one year
D. Readily realizable and intended to be held for not more than one year
19. Transaction costs are incremental costs that are directly attributable to the acquisition of financial assets
and issue of financial liabilities, transaction costs include which of the following
A. Financing costs
B. Internal administrative costs
C. Debt premiums or discounts
D. Fees, commissions paid to agents, levies by regulatory authorities, and transfer taxes and duties.
20. Unrealized gains and losses on FVPL securities are
A. Disregarded
B. Included in shareholder’s equity
C. Included in the determination of income
D. Included in income for unrealized losses and included in equity for unrealized gains
21. On June 30, 2023, Sky Company, which uses PFRS 9, sold an investment in other comprehensive income
for P1,200,000. This investment was originally purchased at a cost of P800,000. At the time of disposal,
the carrying amount of the investment at fair value was P900,000. The investment has a related fair
value gain of P100,000 that was recognized in the fair value reserve. What amount of unrealized gain or
loss should be transferred to retained earnings immediately after the sale?
A. NONE
B. P200,000
C. P300,000
D. P400,000
22. On January 1, 2020, Sheena Company purchased nontrading equity investments which are irrevocably
designated at FVOCI:
Purchase Price Transaction Cost Market-12/31/2020
Security A 1,000,000 100,000 1,500,000
Security B 2,000,000 200,000 2,400,000
Security C 4,000,000 400,000 4,700,000
On July 1, 2021, the entity sold Security C for P5,200,000. What amount should be credited to retained
earnings as a result of the sale of the investment in 2021?
A. 800,000
B. 500,000
C. 300,000
D. -0-
23. Jonna Company received dividends from ordinary share investments during the current year:
• A stock dividend of 10,000shares from A Company when the market price of the share was P10.
• A cash dividend of P1,500,000 from B Company in which the entity owned a 15% interest.
• 5,000 shares of C Company in lieu of cash dividend of P20 per share. The market price of the share
was P150. The entity had 50,000 shares of C Company and owned 5% interest in C Company.
What amount of dividend revenue should be reported for the current year?
A. 2,500,000
B. 2,250,000
C. 1,500,000
D. 2,350,000
24. During 2022, the first year of its operations, Elijay Inc. purchased the following securities:
Fair Value
December 31, December 31,
Security Classification Cost
2022 2023
AAA FVTPL 220,000 140,000 90,000
BBB FVTPL 70,000 100,000 110,000
CCC FVTOCI 160,000 150,000 160,000
DDD FVTOCI 200,000 250,000 120,000
During 2023, Elijay sold one-half of security AAA for P100,000 and one-half of security DDD for P130,000.
The selling price represents the fair value of the securities at the time of sale. The company’s accounting
policy is that when an investment is sold, the reserve amount is transferred to retained earnings.
The total amount to be recognized in the 2023 profit or loss related to Elijay’s FVTPL securities is
A. 60,000
B. 50,000
C. 40,000
D. 30,000
25. On December 31, 2023, Calamities Company appropriately reported P80,000 unrealized loss in OCI for
equity securities measured irrevocably at FVOCI.
Security Cost Fair value, Dec. 31,
2024
XXX 1,250,000 1,600,000
YYY 1,000,000 950,000
ZZZ 1,750,000 1,250,000
What amount of unrealized loss is recognized in the 2024 statement of changes in equity?
A. 200,000
B. 120,000
C. 280,000
D. -0-
26. Fern company held 30,000 shares of King Company’s 100,000 outstanding shares and 6,000 shares of
Queen’s 300,000 outstanding shares. During the year, Fern received P300,000 cash dividend from King
Company, P15,000 cash dividend and 5% share dividend from Queen Company. The closing price of Queen
share is P150.
Fern also owned 300,000 preference shares of Princess Company’s 1,000,000 P50 par 10% cumulative,
nonparticipating preference shares and 200,000 ordinary shares representing 5% interest. During the
current year, Princess Company declared and paid preference dividends of P8,000,000. No dividends had
been declared or paid during the previous year. What total amount of dividend income should be reported
for the current year?
A. 2,415,000
B. 2,715,000
C. 3,342,000
D. 2,460,000
Cash dividend from Queen Company 15,000
Cash dividend from Princess – Preference (P8M x 30%) 2,400,000
TOTAL DIVIDEND INCOME 2,415,000
Cash dividend from Princess – Preference (300,000 x P50 x 10%) 1,500,000
27. C4 Company owns 8% of Isolate Inc., P100 par, 150,000 outstanding ordinary shares which was acquired
on November 20, 2022 for P1,320,000. C4 classified this as fair value through profit or loss.
On December 1, 2022, Isolate declared a P2 per share cash dividend to shareholders of record January
10, 2023, payable on January 31, 2023. On December 28, 2022, C4 sold all the shares to Xtend Company
at P115 per share.
By what amount shall Xtend record the investment acquired from C4 on December 28, 2022?
A. 1,380,000
B. 1,356,000
C. 1,320,000
D. 1,500,000
28. On January 1, 2017 Gem Company purchased “FVPL” equity securities. The cost and market value on
December 31, 2017 were:
Cost Market
Security A 1,000,000 1,200,000
Security B 2,000,000 1,500,000
Security C 3,000,000 3,100,000
On July 1, 2018, Gem Company sold Security A for P1,400,000, incurring P50,000 in brokerage
commission and taxes. What amount should be reported as gain on sale of FVPL securities in the 2018
income statement?
A. 100,000
B. 150,000
C. 250,000
D. 300,000
29. On July 1, 2020, Kim Company acquired 20% of the outstanding ordinary shares of another entity for
P5,000,000. The carrying amount of the acquired shares was P4,000,000. The excess of cost over carrying
amount was attributable to an identifiable intangible asset which was undervalued on the investee’s
statement of financial position and which had a remaining useful life of 5 years. The investee reported
net income of P6,000,000 for 2020, of which P4,000,000 was for the last six months of the year and paid
cash dividends of P1,000,000 on ordinary shares and issued 10% stock dividend on December 31,2020.
What is the carrying amount of the investment in associate on December 31,2020?
A. 5,500,000
B. 5,900,000
C. 5,300,000
D. 5,800,000
Investment, 7/1/20 5,000,000
Share in profit (4M x 20%) 800,000
Cash dividends received (1M x 20%) (200,000)
Share in amortization [(5M-4M)/5 x 6/12] (100,000)
Investment, 12/31/20 5,500,000
30. On January 1, 2020, Lucille Company acquired 40% of ordinary shares of an associate. On such date,
assets and liabilities of the investee were recorded at fair value and the acquisition showed that goodwill
of P1,000,000 was acquired. The investee reported net income of P8,000,000 for 2020.
In December 2020, the investee sold inventory costing P3,000,000 to Lucille Company for P5,000,000.
The inventory remained unsold by Lucille Company on December 31, 2020.
On January 1, 2020, the investee sold an equipment to Lucille Company with carrying amount of
P2,500,000 for P4,000,000. The remaining life of equipment is 5 years. What amount of investment
income should be reported by Lucille Company for 2020?
A. 1,920,000
B. 1,800,000
C. 3,200,000
D. 2,400,000
Associate’s unadjusted profit P 8,000,000
Intercompany gross profit – inventory (2,000,000)
Intercompany gain on sale of equipment (1,500,000)
Amortization of gain on sale of equipment (P1.5M / 5) 300,000
Associate’s adjusted profit P 4,800,000
X 40%
Share in adjusted profit P 1,920,000
31. Danielle Company owned 100% of another entity’s preference shares and 40% of ordinary shares. The
investee’s share capital outstanding on December 31, 2020 included P5,000,000 of 10% cumulative
preference shares and P10,000,000 of ordinary shares. The investee reported net income of P8,000,000
for 2020. No dividend was declared for both preference and ordinary shares in 2020. What amount should
be reported as investment income for 2020?
A. 3,200,000
B. 3,000,000
C. 3,500,000
D. 2,800,000
32. On January 1, 2020, Eloisa Company acquired 30% of the voting share capital of another entity for
P2,000,000 which was equal to the carrying amount of interest acquired. The investee reported net
income of P800,000 for 2020 and paid dividend of P500,000 on December 31, 2020. The investee reported
net income of P1,000,000 for the six months ended June 30,2021 and P2,500,000 for the year ended
December 31, 2021 but paid no dividend during 2021. On July 1, 2021, the investor sold half of the
investment for P1,500,000. The retained investment is to be measured at FVPL.
What is the carrying amount of the investment on December 31, 2020?
A. 2,090,000
B. 2,390,000
C. 2,240,000
D. 2,000,000
33. On April 1, 2023, Seen Co. purchased 25,000 ordinary shares of Zone Co. at P180 per share which reflected
book value as of that date. At the time of the purchase, Zone had 100,000 ordinary shares outstanding.
The shares are intended as a long-term investment. The first quarter statement ending March 31, 2023
of Zone recorded profit of P480,000. For the year ended December 31, 2023, Zone reported profit of
P2,400,000. Zone paid Seen dividends of P60,000 on June 1, 2023 and again P60,000 on December 31,
2023. The shares of Zone are selling at P190 per share on December 31, 2023. The carrying amount of
the investment in Zone Co. as of December 31, 2023 should be
A. 4,750,000
B. 4,860,000
C. 4,950,000
D. 5,070,000
Investment, 4/1/23 (25,000 x P180) P 4,500,000
Share in profit, 4/1/23-12/31/23 (P1,920,000 x 25%) 480,000
Dividends received (P60,000 + P60,000) (120,000)
Investment, 12/31/23 P 4,860,000
34. Jay-Jay Company purchased 10% of another entity’s 500,000 outstanding shares on January 1, 2016 for
P1,000,000. On December 31, 2016, the entity purchased additional 100,000 shares of the entity for
P3,000,000. There was no goodwill or excess fair value as a result of either acquisition. The fair value of
the 10% interest was P1,800,000 on December 31, 2016. The investee reported earnings of P6,000,000
for 2016. What amount should be reported as investment in associate on December 31, 2016?
A. 4,000,000
B. 4,800,000
C. 6,600,000
D. 5,800,000
35. Bruno Company purchased 20,000 ordinary shares of Harper Company P100 par value shares for
P3,000,000 to be held as FVOVI securities. On March 1, 2008, Bruno received a 20% stock dividend. On
June 1, 2008, Bruno sold all the stock dividends that were received on March 1 at P200 per share. The
gain or (loss) on sale of investment be recorded by Bruno is
ANSWER: 300,000
36. Jocelyn Company received dividends from its ordinary share investments during the year 2018 as follows:
• A stock dividend of 10,000 shares from Volvo Company when the market price of Volvo’s shares
was P10 per share.
• A cash dividend of P1,500,000 from Opel Company in which Jocelyn owns a 20% interest.
• 5,000 shares of ordinary shares of Astra Company in lieu of cash dividend of P20 per share. The
market price of Astra Company’s shares was P150. Jocelyn holds originally 50,000 shares of Astra
Company ordinary shares. Jocelyn owns 5% interest in Astra Company.
What amount of dividend revenue should Jocelyn report in its 2018 income statement?
ANSWER: 750,000
37. Data pertaining to dividends from Jenny Company’s ordinary shares investments for the year 2018
follow:
• On October 1, 2018, Jenny received P500,000 liquidating dividend from A Company. Jenny owns a
10% interest in A Company.
• Jenny owns a 5% interest in B Company which declared a P5,000,000 cash dividend on November
15, 2018 to stockholders of record on December 15, 2018 payable on January 15, 2018. Jenny does
not have ability to exercise significant influence over B Company.
• On December 1, 2018, Jenny received from C Company a dividend in kind of one share D Company
ordinary shares for every 4 C Company common shares held. Jenny holds 100,000 C Company
shares, which have a market price of P50 per share on December 1, 2018. The market price of D
Company common is P30 per share.
What amount should Jenny report as dividend income in its 2018 income statement?
ANSWER: 1,000,000
38. The following in was extracted from the December 31, 2019 balance sheet of Gail Company:
Noncurrent assets:
FVOCI securities 2,000,000
OCI-Statement of comprehensive income:
Unrealized loss on available for sale securities (200,000)
The FVOCI securities were acquired in 2019 while incurring direct transaction cost of P100,000. What
was the historical cost of the securities?
ANSWER: 2,200,000
39. Man company purchased 10% of Kind Corporation’s 200,000 outstanding shares of ordinary shares on
January 2, 2024 for P2,500,000. On January 2, 2024, Man Company purchased another 40,000 shares of
Kind for P6,000,000. There was no goodwill as a result of either acquisition. Kind reported earnings of
P6,000,000 and P7,000,000 for the year ended December 31, 2024 and December 31, 2025, respectively.
No dividends were declared in years 2024 and 2025, respectively by Kind Company. What amount of
income should Man Company report in its statement of comprehensive income related to its investment
for the year ended December 31, 2025?
ANSWER: 2,100,000
40. Mongolia, Inc. bought 40% of Oman’s outstanding ordinary shares on January 2, 2025 for P4,000,000. The
carrying amount of Oman net assets at the purchase date totaled P9,000,000. Fair values and carrying
amounts were the same for all items except for plant and inventories, for which fair values exceeded
their carrying amounts by P900,000 and P100,000, respectively. The plant has an 18-year life. Half of the
inventories were sold during 2025. During 2025, Oman reported net income of P1,200,000 and paid a
P200,000 cash dividend. What amount should Mongolia report in its income statement from its investment
in Oman for the year ended December 31, 2025?
ANSWER: 440,000
