Reference no: EM132891267

On January 2, 2020, Stream Company acquired 25% of the 100,000 ordinary shares of Scream Company at a cost of P1,044,400. The book value of Scream Company's net assets at the date of acquisition is P3,960,000. The fair market value of Scream's net assets and liabilities were approximately equal to the current carrying value except for depreciable plant and equipment. The fair value of the depreciable plant and equipment exceeded the carrying value by P320,000 and had a remaining life of four years.

During 2020, Scream Company reported net of tax income of P850,000 and paid cash dividend of P160,000. On January 1, 2021, Scream Company issued 56,250 additional ordinary shares in public offering when its share is traded at P60 per share. Stream Company did not acquire any of these shares but decided to reclassify its investment to FVPL category. Income tax rate is 32%.

Problem 1: What is the carrying value of Stream's investment as of December 31, 2021? (with solution pls)

a) P1,203,300 c) P1,282,500
b) P1,228,900 d) P1,302,500

Problem 2: What is the initial carrying amount of Stream's investment as of at the time it ceases to be an associate? (with solution pls)

a) P1,203,300 c) P1,500,000
b) P1,228,900 d) P1,625,000

Problem 3: What amount of unrealized gain should be reported as a result of the change in the accounting method assuming the shares are currently traded at P65 per share? (with solution pls)

a) none c) P396,100

b) P217,500 d) P421,700