Question - Exchange of a PPE for a Financial Asset

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Question 1 - Exchange of One Financial Asset into Another Financial Asset

Uranus Company owns 8,000 convertible preference shares of which was acquired in 2017 at a cost of P400,000. The investment was classified as trading securities. On December 31, 2017, the fair value of the preference shares was P425,000. On March 31, 2018, Uranus Company converted the 4,000 preference shares into 6,000 shares of ordinary shares, when the market price was P50 per share for the preference shares and P40 per share for the ordinary shares.

a. Compute for the gain on exchange to be recognized in 2018.

b. Give the journal entry on March 31, 2018.

Question 2 - Exchange of a PPE for a Financial Asset

On January 1, 2018, Neptune Company has a piece land acquired a year ago at a cost of P600,000. The land has a fair value of P700,000. On March 31, 2018, Neptune Company exchanged the land for a financial asset to be initially recognized at fair value through other comprehensive income. At the time of exchange, the shares, which was publicly listed, has a fair value of P820,000.

a. Compute for the gain on exchange to be recognized in 2018.

b. Provide the journal entry on March 31.

Reference no: EM132629879

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