Reference no: EM132892431
On January 2, 2021, Crimson Company purchased 15% of the 100,000 outstanding ordinary shares of Creek Company for P300,000 when the market value of Creek's net assets was P2,000,000. Crimson Company classified this investment as at FVOCI. In 2021, Creek reported a net income of P900,000 and paid cash dividend of P300,000. As of December 31, 2021, Creek's ordinary shares are selling at P25 per share. On January 2, 2022, Creek repurchased and retired 25,000 outstanding ordinary shares from other investors. After the repurchased and retirement of shares, Creek's net assets are fairly valued at P1,950,000 on January 2, 2022. Crimson Company immediately reclassified its investment in Creek to investment in associate.
Problem 1: What should be the initial carrying value of the investment in associate account at the date of transfer?
a) P300,000 c) P375,000
b) P360,000 d) P390,000
Problem 2: What amount of unrealized gain on transfer Crimson Company should recognize in its statement of financial position immediately on the date of transfer?
a) none c) P 90,000
b) P75,000 d) P165,000
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