(Test Bank) INTERMEDIATE Financial Accounting Part 1B

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TEST BANK INTERMEDIATE Financial Accounting Part 1B 2015 ZEUS VERNON B. MILLANALL RIGHTS RESERVED 2015 No part of this work covered by the copyright hereon may be reproduced or used in any form or by any means - electronic or mechanical, including photocopying – without the written permission of the author. ISBN 978-621-95096-1-9 Published by: BANDOLIN ENTERPRISE No. 100 Montebello Village, Bakakeng Sur, Baguio City 2600, Philippines 2T ABLE OF CONTENTS CHAPTER 12 INVESTMENTS IN ASSOCIATES ............................................................. 1 CHAPTER 12: MUL TIPLE CHOICE – COMPUT ATIONAL (SET B) – (FOR CLASSROOM INSTRUCTION PURPOSES)............................................................................................ 1 CHAPTER 12: THEORY OF ACCOUNTS REVIEWER....................................... 6 CHAPTER 12 - SUGGESTED ANSWERS TO THEORY OF ACCOUNTS QUESTIONS23 CHAPTER 13 AGRICUL TURE...................................................................................... 24 CHAPTER 13: MUL TIPLE CHOICE – COMPUTATIONAL (FOR CLASSROOM INSTRUCTION PURPOSES)24 CHAPTER 13: THEORY OF ACCOUNTS REVIEWER..................................... 28 CHAPTER 13 - SUGGESTED ANSWERS TO REVIEW THEORY QUESTIONS........34 CHAPTER 14 PROPERTY, PLANT AND EQUIPMENT (PART 1) ................................. 35 CHAPTER 14: MUL TIPLE CHOICE – COMPUT ATIONAL (SET B) – (FOR CLASSROOM INSTRUCTION PURPOSES).......................................................................................... 35 CHAPTER 14: THEORY OF ACCOUNTS REVIEWER..................................... 40 CHAPTER 14 - SUGGESTED ANSWERS TO THEORY OF ACCOUNTS QUESTIONS50 CHAPTER 15 PROPERTY, PLANT AND EQUIPMENT (PART 2) ................................. 52 CHAPTER 15: MUL TIPLE CHOICE – COMPUT ATIONAL (SET B) – (FOR CLASSROOM INSTRUCTION PURPOSES).......................................................................................... 52 CHAPTER 15: THEORY OF ACCOUNTS REVIEWER..................................... 58 CHAPTER 15 - SUGGESTED ANSWERS TO THEORY OF ACCOUNTS QUESTIONS79 CHAPTER 16 DEPLETION OF MINERAL RESOURCES ............................................... 80 CHAPTER 16: MUL TIPLE CHOICE – COMPUT ATIONAL (SET B) – (FOR CLASSROOM INSTRUCTION PURPOSES).......................................................................................... 80 CHAPTER 16: THEORY OF ACCOUNTS REVIEWER..................................... 84 CHAPTER 16 – SUGGESTED ANSWERS TO THEORY OF ACCOUNTS QUESTIONS91 CHAPTER 17 GOVERNMENT GRANTS ....................................................................... 92 CHAPTER 17: MUL TIPLE CHOICE – COMPUTATIONAL (FOR CLASSROOM INSTRUCTION PURPOSES)92 CHAPTER 17: THEORY OF ACCOUNTS REVIEWER..................................... 94 CHAPTER 17 - SUGGESTED ANSWERS TO THEORY OF ACCOUNTS QUESTIONS102 CHAPTER 18 BORROWING COSTS ........................................................................... 103 CHAPTER 18: MUL TIPLE CHOICE – COMPUT ATIONAL (SET B) – (FOR CLASSROOM INSTRUCTION PURPOSES)........................................................................................ 103 CHAPTER 18: THEORY OF ACCOUNTS REVIEWER................................... 105 CHAPTER 18 - SUGGESTED ANSWERS TO THEORY OF ACCOUNTS QUESTIONS114 CHAPTER 19 INVESTMENT PROPERTY .................................................................. 115 CHAPTER 19: MUL TIPLE CHOICE – COMPUTATIONAL (FOR CLASSROOM INSTRUCTION PURPOSES)115 CHAPTER 19: THEORY OF ACCOUNTS REVIEWER................................... 120 3CHAPTER 19 - SUGGESTED ANSWERS TO THEORY OF ACCOUNTS QUESTIONS127 CHAPTER 20 INTANGIBLE ASSETS .......................................................................... 128 CHAPTER 20: MUL TIPLE CHOICE – COMPUT ATIONAL (SET B) – (FOR CLASSROOM INSTRUCTION PURPOSES)........................................................................................ 128 CHAPTER 20: THEORY OF ACCOUNTS REVIEWER................................... 134 CHAPTER 20 - SUGGESTED ANSWERS TO THEORY OF ACCOUNTS QUESTIONS155 CHAPTER 21 IMPAIRMENT OF ASSETS ................................................................... 156 CHAPTER 21: MUL TIPLE CHOICE – COMPUT ATIONAL (SET B) – (FOR CLASSROOM INSTRUCTION PURPOSES)........................................................................................ 156 CHAPTER 21: THEORY OF ACCOUNTS REVIEWER................................... 164 CHAPTER 21 - SUGGESTED ANSWERS TO THEORY OF ACCOUNTS QUESTIONS170 4Chapter 12 Investments in Associates Chapter 12: Multiple choice – Computational (SET B) – (For classroom instruction purposes) Equity method – Cost equal to fair value of interest acquired Use the following information for the next five questions: On January 1, 20x1, ABASE Co. purchased 20,000 shares of the 100,000 total outstanding shares of PRAISE, Inc. for 4,000,000. PRAISE’s assets and liabilities ₱ approximate their fair values. In 20x1, PRAISE, Inc. reported profit of ₱12,000,000 and declared and paid cash dividends of ₱800,000. In 20x2, PRAISE reported loss of ₱8,000,000, declared and issued 10% stock dividends, and reported gain on property revaluation of ₱2,000,000 and loss on exchange differences on translation of foreign operations of ₱400,000. 1.How much is the share in profit or loss of the associate in 20x1? a. 2,240,000 b. 2,400,000 c. 160,000 d. 0 2.How much is the carrying amount of the investment as of December 31, 20x1? a. 4,000,000 b. 6,240,000 c. 6,400,000 d. 6,560,000 3.How much is the investment income (loss on investment) to be recognized in profit or loss in 20x2? a. (1,280,000) b. 400,000 c. (1,600,000) d. 320,000 4.How much is the net share in the other comprehensive income of the associate in 20x2? a. 320,000 b. (1,280,000) c. (1,280,000) d. 0 5.How much is the carrying amount of the investment as of December 31, 20x2? a. 4,960,000 b. 4,640,000 c. 4,000,000 d. 0 Equity method – Cost exceeds fair value of interest acquired Use the following information for the next three questions: On January 1, 20x1, ABET Co. purchased 25% interest in the ordinary shares of ENCOURAGE, Inc. for 8,000,000. ENCOURAGE’s assets and liabilities ₱ approximate their fair values except for inventories with carrying amount of 2,000,000 and fair value of 400,000 and depreciable asset with carrying₱ ₱ amount of 12,000,000 and fair value of 20,000,000. The remaining useful life ₱ ₱ of the depreciable asset is 10 years. ENCOURAGE’s net assets has a book value of 20,000,000.₱ On December 31, 20x1, ENCOURAGE reported 4,800,000 profit and declared ₱ and paid dividends of 2,000,000. ₱ 6.How much is the goodwill that will be subsumed in the carrying amount of the investment? a. 1,400,000 b. 1,250,000 c. 1,100,000 d. 0 7.How much is the net share in the profit or loss of the associate (investment income) in 20x1? 1a. 1,400,000 b. 1,200,000 c. 1,000,000 d. 0 8.How much is the carrying amount of the investment as of December 31, 20x1? a. 8,000,000 b. 8,500,000 c. 8,700,000 d. 8,900,000 Equity method – Determining percentage of ownership 9.On January 1, 20x1, APPRISE Co. acquired 50,000 newly issued shares of INFORM, Inc. at 40 per share. Before ₱ the acquisition, INFORM had 100,000 ordinary shares outstanding. During the year, the associate reported profit of 900,000. How much is the share in the associate’s profit?₱ a. 450,000b. 300,000c. 333,333d. 0 Potential voting shares Use the following for the next two questions: AFFICIONADO Co. owns 15,000 shares out of the 100,000 outstanding shares of FAN, Inc. As of year-end, AFFICIONADO holds 20,000 stock rights which enable AFFICIONADO to acquire additional shares from FAN on a “2 rights for 1 share” basis. The stock rights are exercisable immediately. However, management does not intend to exercise the stock rights. FAN does not have any other stock rights outstanding aside from those held by AFFICIONADO. FAN reports year-end profit of 4,000,000 and declares cash dividends of 400,000. The investment has a₱ ₱ carrying amount of 1,200,000 before any year-end adjustment. ₱ 10.How much is AFFICIONADO’s share in profit of associate for the year? a.0b. 60,000c. 600,000d. 909,200 11.How much is the carrying amount of the investment as of year-end? a. 1,200,000b. 1,800,000c. 1,740,000d. 1,849,200 Cumulative preference shares Use the following information for the next four questions: AUSTERE Co. owns 20% of SEVERE, Inc.’s ordinary shares. SEVERE also has an outstanding cumulative 6% preference shares of 8,000,000. None of those ₱ preference shares is held by AUSTERE. Cumulative preference share dividends are in arrears for 3 years. SEVERE reported year-end profit of 4,000,000 and ₱ declared no dividends. 12.How much is AUSTERE Co.’s share in profit or loss of associate? a. 704,000b. 800,000c. 512,000d. 770,000 13.What if SEVERE Co. declared dividends that pay all of the dividends in arrears on preference shares, how much is the share in profit or loss of associate? a. 704,000b. 800,000 c. 512,000d. 770,000 14.What if the preference shares are non-cumulative, how much is the share in profit or loss of associate? a. 704,000b. 800,000 c. 512,000d. 770,000 15.What if the shares are redeemable preference shares and SEVERE declared 150,000 cash dividends on the redeemable preference shares during the₱ year, how much is the share in profit or loss of associate? a. 704,000b. 800,000 c. 512,000d. 770,000 Loss of significant influence 16.On January 1, 20x1, ALLEVIATE Co. acquired 30,000 ordinary shares for 12,000,000 which represents 30% interest in LESSEN Co.’s net assets. At the₱ time of acquisition LESSEN’s net assets are fairly revalued at 40,000,000. ₱ 2Prior to revaluation, the net assets had a book value of 32,000,000. The ₱ difference between the revalued amount and carrying amount is attributable to a building which was credited to revaluation surplus. The building has a remaining useful life of 10 years with no residual value. It is LESSEN’s policy to depreciate all tangible depreciable assets using the straight-line method. At the end of 20x1, LESSEN reported a profit of 4,000,000 and paid cash ₱ dividends of 2,400,000. At December 31, 20x1, the shares are selling at 400 ₱ ₱ per share. On July 1, 20x2, ALLEVIATE sold 60% of its investment in LESSEN at the prevailing market price of 480 per share. LESSEN reported interim profit of ₱ 2,000,000 for the six months ended June 30, 20x2. On December 31, 20x2,₱ LESSEN reported total profit of 4,800,000 for the year and declared ₱ 4,000,000 cash dividend. The shares are quoted at 540 per share at year-₱ ₱ end. If the unsold shares were reclassified to investment in FVOCI, how much is the total income recognized on the investment in profit or loss in 20x2? a. 2,640,000 b. 1,632,000 c. 1,968,000 d. 2,160,000 Reclassification adjustment for other comprehensive income 17.AMBULATE Co. owns 30% of WALK, Inc.’s ordinary shares. On July 1, 20x2, AMBULATE Co. sold half of its investment for 1,600,000. The adjusted ₱ balances of the related accounts as of July 1, 20x2 immediately before the sale are: Investment in associate 4,800,000₱ Cumulative share in associate’s exchange differences on translation of a foreign operation 2,000,000 Cr The remaining ownership of 15% (30% x 1/2) does not give AMBULATE significant influence over WALK. How much is the reclassification gain (loss) on July 1, 20x2? a. 800,000b. (800,000)c. 2,000,000d. 1,000,000 Partial loss of significant influence – Reclassification of OCI 18.CHASTE Co. owns 40% of PURE, Inc.’s ordinary shares. On July 1, 20x2, CHASTE Co. sold half of its investment for 400,000. The adjusted balances of ₱ the related accounts as of July 1, 20x2 immediately before the sale are: Investment in associate 4,800,000₱ Cumulative share in associate’s exchange differences on translation of a foreign operation 2,000,000 Cr The remaining 20% ownership (40% x 1/2) still gives CHASTE significant influence over PURE. How much is the reclassification gain (loss) on July 1, 20x2? a. 800,000b. (800,000) c. 2,000,000 d. 1,000,000 Partial loss of significant influence – Reclassification of OCI 19.CIRCUMSPECT Co. owns 40% of CAUTIOUS, Inc.’s ordinary shares. On July 1, 20x2, CIRCUMSPECT Co. sold three-fourths of its investment for 1,000,000. ₱ The adjusted balances of the related accounts as of July 1, 20x2 immediately before the sale are as follows: Investment in associate 4,800,000₱ Cumulative share in associate’s exchange differences 3on translation of a foreign operation 2,000,000 Cr The remaining ownership interest of 10% (1/4 of 40%) still gives CIRCUMSPECT significant influence over CAUTIOUS. Many of CAUTIOUS’s board of directors are appointed by CIRCUMSPECT . How much is the reclassification gain (loss) on July 1, 20x2? a. 2,000,000 b. 1,500,000c. 1,000,000d. 0 Transfer of other comprehensive income directly in equity 20.SNITCH Co. owns 30% of PILFER, Inc.’s ordinary shares. On July 1, 20x2, SNITCH Co. sold half of its investment for 400,000. The adjusted balances of ₱ the related accounts as of July 1, 20x2 immediately before the sale are: Investment in associate 4,800,000₱ Cumulative share in associate’s unrealized gains and losses on investments in FVOCI 2,000,000 Cr The remaining ownership of 15% (30% x 1/2) does not give SNITCH significant influence over PILFER. How much is the reclassification gain (loss) recognized in profit or loss on July 1, 20x2? a. 2,000,000 b. 1,500,000c. 1,000,000d. 0 Change to equity method from FVPL – “STEP ACQUISITION” Use the following information for the next three questions: On January 1, 20x1, POSTULATE Co. acquired 10,000 shares representing a 10% interest in DEMAND, Inc.’s 100,000 outstanding shares for 3,200,000. In 20x1, ₱ DEMAND reported profit of 20,000,000 and declared and paid dividends of ₱ 4,000,000. The investment was initially classified as investment in held for₱ trading securities measured at FVPL. The fair value of the shares on December 31, 20x1 is 340 per share. As of December 31, 20x1, the investment in held for ₱ trading securities has a carrying amount of 3,400,000, equal to fair value. ₱ On July 1, 20x2, POSTULATE Co. acquired additional 15,000 shares at 280 per ₱ share resulting to an increase in ownership interest over DEMAND from the previous 10% to 25%. The transaction did not give rise to any goodwill or negative goodwill. In 20x2, DEMAND reported profit of 24,000,000, of which ₱ 16,000,000 were earned in the second half of the year. In addition, DEMAND₱ declared and paid dividends of 4,000,000 on December 31, 20x2. The DEMAND ₱ shares have quoted price of 360 per share on December 31, 20x2. ₱ 21.How much is the carrying amount of the investment in associate on July 1, 20x2? a. 7,000,000 b. 7,600,000c. 6,600,000d. 5,800,000 22.How much is the share in the profit of the associate in 20x2? a. 4,000,000 b. 4,800,000c. 3,200,000d. 3,000,000 23.How much is the carrying amount of the investment in associate on December 31, 20x2? a. 10,000,000b. 11,400,000c. 9,800,000d. 8,800,000 Downstream sale of inventory Use the following information for the next two questions: PERPETUAL Co. owns 20% of EVERLASTING, Inc. and uses the equity method because it has significant influence. In 20x1, PERPETUAL sells inventory to EVERLASTING for 400,000 with a 60% gross profit on the transaction. The ₱ inventory remains unsold during 20x1 and was sold by EVERLASTING to external parties only in 20x2. PERPETUAL ’s income tax rate is 30%. EVERLASTING reports 4profit of 4,000,000 and 4,800,000 on December 31, 20x1 and 20x2, ₱ ₱ respectively. 24.How much is the share in the profit of associate in 20x1? a. 560,000 b. 632,000 c. 728,000 d. 800,000 25.How much is the share in the profit of associate in 20x2? a. 1,128,000 b. 1,200,000 c. 1,032,000 d. 960,000 Upstream sale of inventory Use the following information for the next two questions: LISTLESS Co. owns 20% of WEAK, Inc. and uses the equity method because it has significant influence. In 20x1, WEAK sells inventory to LISTLESS for 400,000 ₱ with a 60% gross profit on the transaction. The inventory remains unsold during 20x1 and was sold by LISTLESS to external parties only in 20x2. LISTLESS’s income tax rate is 30%. WEAK reports profit of 4,000,000 and 4,800,000 on ₱ ₱ December 31, 20x1 and 20x2, respectively. 26.How much is the share in the profit of associate in 20x1? a. 766,400 b. 752,000 c. 785,600 d. 800,000 27.How much is the share in the profit of associate in 20x2? a. 960,000b. 974,400c. 993,600 d. 1,008,000 Downstream sale of depreciable asset Use the following information for the next two questions: WOOZY Co. owns 20% of DIZZY , Inc.’s outstanding ordinary shares. On January 1, 20x1, WOOZY sold an equipment with a carrying amount of 400,000 and a ₱ remaining useful life of 10 years to DIZZY for 480,000. Gain of 80,000 was ₱ ₱ recorded by WOOZY . Both WOOZY and DIZZY use the straight line method of depreciation. DIZZY reports profit of 4,000,000 and 4,800,000 on December ₱ ₱ 31, 20x1 and 20x2, respectively. 28.How much is the share in the profit of associate in 20x1? a. 720,000 b. 728,000 c. 785,600 d. 800,000 29.Assuming the sale is an upstream sale, how much is the share in the profit of associate in 20x1? a. 968,000 b. 728,000 c. 785,600 d. 800,000 Downstream sale of non-depreciable asset Use the following information for the next two questions: LUCID Co. owns 20% of CLEAR, Inc.’s outstanding ordinary shares. On January 1, 20x1, LUCID sold land with a carrying amount of 400,000 to CLEAR for ₱ 480,000. Gain of 80,000 was recorded by LUCID. CLEAR reports profit of₱ ₱ 4,000,000 and 4,800,000 on December 31, 20x1 and 20x2, respectively.₱ ₱ 30.How much is the share in the profit of associate in 20x1? a. 720,000 b. 784,000 c. 728,000 d. 800,000 31.Assuming the sale is an upstream sale, how much is the share in the profit of associate in 20x1? a. 720,000 b. 784,000 c. 728,000 d. 800,000 5Share in losses of associate Use the following information for the next four questions: SKEPTICAL Co. owns 20% of the ordinary shares of QUESTIONING, Inc. The records of SKEPTICAL as of December 31, 20x1 show the following information before any necessary year-end adjustments. Investment in associate 800,000₱ Trade accounts receivable – QUESTIONING 1,200,000 Investment in preference shares – QUESTIONING 400,000 Advances to associate – QUESTIONING 200,000 Loans receivable, secured - QUESTIONING 480,000 QUESTIONING reported losses of 5,600,000, 2,000,000 and 400,000 in 20x1, ₱ ₱ ₱ 20x2 and 20x3, respectively. In 20x3, SKEPTICAL incurred constructive obligation in favor of QUESTIONING in the amount of 480,000 and made 320,000 ₱ ₱ payments on behalf of QUESTIONING. In 20x4, QUESTIONING reported profit of 4,000,000. ₱ 32.How much is the share in the loss of the associate in 20x1? a. 1,120,000 b. 320,000 c. 800,000d. 280,000 33.How much is the share in the loss of the associate in 20x2? a. 0b. 320,000c. 400,000d. 280,000 34.How much is the share in the loss of the associate in 20x3? a. 0b. 480,000c. 320,000d. 800,000 35.How much is the share in the profit of the associate in 20x4? a. 600,000b. 820,000c. 1,200,000d. 200,000 The answers and solutions to the computational problems above (Multiple choice – Computational (SET B) can be found in the accompanying Teacher’s Manual. Chapter 12: Theory of Accounts Reviewer Scope and applicability 1.PAS 28 applies to which of the following? a.investments in associates held by a venture capital organization or mutual fund measured at fair value through profit or loss b.a 20% investment in preference shares c.an interest in a partnership which gives the investor significant influence over the partnership d.a 60% investment in ordinary shares of another entity 2.An entity shall apply PAS 28 a.to investments which give the entity significant influence over the investee b.to account for investments in associates in the entity’s separate financial statements c.even when significant influence is lost d.any of these 3.When investments in equity securities represent 20% to 50% interest in the voting rights of the investee, which of the following standards most likely would be applied? 6a. PFRS 9b. PAS 31c. PFRS 3d. PAS 28 4.When equity investments results to joint control, which standard shall be applied? a. PFRS 9b. PAS 31c. PFRS 3d. PAS 28 5.When equity investments results to control, which standard shall be applied? a. PFRS 9b. PAS 31c. PFRS 3d. PAS 28 6.In the consolidated financial statements, to which of the following financial instruments is PFRS 9 Financial Instrument applicable? a.investment in ordinary shares representing 51% interest b.investment in ordinary shares representing 20% interest c.interest in a joint venture d.investment in preference shares representing 100% interest 7.Which of the following statements is correct? a.According to PAS 28 Investments in Associates, a partnership cannot be an associate. b.Goodwill included in the carrying amount of an investment in an associate is tested for impairment separately. c.Only investments in ordinary shares can be classified as Investment in Associate. d.Only investments which give the investor voting rights can be classified as Investment in Associate. 8.If ABC Corporation owns a controlling interest of 51% of the equity shares in XYZ Co., ABC Corporation is a a. Parent company to XYZ Co. c. Subsidiary company to XYZ Co. b. Associate company to XYZ Co. d. Fellow subsidiary to XYZ Co. 9.It is an entity, including an unincorporated entity such as a partnership, over which the investor has significant influence and that is neither a subsidiary nor an interest in a joint venture. a. association c. joint venture b. subsidiary d. associate 10.It is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies. a. significant influenza c. significant influence b. control d. joint control 11.It is an entity, including an unincorporated entity such as a partnership, that is controlled by another entity (known as the parent). a. subsidy b. associate c. joint venture d. subsidiary 12.It is the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. a. controlb. joint control c. significant influence d. telekineses 13.It is a contractual arrangement whereby two or more parties undertake an economic activity that is subject to joint control. a. partners b. joint control c. joint venture d. marriage 14.It is the contractually agreed sharing of control over an economic activity, and exists only when the strategic financial and operating decisions relating to the 7activity require the unanimous consent of the parties sharing control (venturers). a. control b. joint venture c. joint control d. wedding vow 15.A controlling company having subsidiaries which activities were confined primarily to their management is: a. an affiliate c. a majority interest b. subsidiary d. a holding company (Adapted) 16.PAS 28 does not require the equity method to be applied to which of the following instance(s)? I.When an associate is acquired and held with a view to its disposal within twelve months of acquisition. There must be evidence that the investment is acquired with the intention to dispose of it and that management is actively seeking a buyer. The words ‘in the near future’ were replaced with the words ‘within twelve months’ . When such an associate is not disposed of within twelve months it must be accounted for using the equity method as from the date of acquisition, except in narrowly specified circumstances under PFRS 5. II.An investor continues to have significant influence over an associate; however, the associate is operating under severe long-term restrictions that significantly impair its ability to transfer funds to the investor. III.An investor holds 10% interest in an investee; however, the interest held gives the investor significant influence over the investee. IV .An investor presents separate financial statement in accordance with PAS 27. a. I and IVb. I, III, IVc. I, II, III, IVd. none Significant influence 17.According to PAS 28 Investments in associates , which of the following statements best describes the term 'significant influence'? a.The holding of a significant proportion of the share capital in another entity b.The contractually agreed sharing of control over an economic entity c.The power to participate in the financial and operating policy decisions of an entity d.The mutual sharing in the risks and benefits of a combined entity (ACCA) 18.Significant influence is presumed to exist a.if an investor holds, directly or indirectly (e.g. through subsidiaries), 25% or more of the voting power of the investee. b.if an investor holds, directly or indirectly (e.g. through subsidiaries), 51% or more of the voting power of the investee. c.if an investor holds, directly or indirectly (e.g. through subsidiaries), 100% or more of the voting power of the investee. d.if an investor holds, directly or indirectly (e.g. through subsidiaries), 20% or more of the voting power of the investee. 19.Which of the following may provide evidence of significant influence even if the percentage of ownership interest is less than 20%? I.Representation on the board of directors or equivalent governing body of the investee. II.Participation in policy-making processes, including participation in decisions about dividends or other distributions. 8III.Material transactions between the investor and the investee IV.Interchange of managerial personnel. V.Provision of essential technical information. a. I, II b. I, II, III c. I, II, IV d. any of these 20.In which of the following does X have significant influence? a.X owns 30% of the voting shares of ABC Co., the other 60% is held by Y and all seats on the board of directors are appointed by Y . b.X owns 30% of the preference shares of Z Co. c.X owns 15% of the voting shares of ABC Co., all other shares are held in very small blocks and therefore X has representatives in the board of directors. d.X owns 80% of Y , and Y owns 40% of Z. In Y’s separate financial statements, the investment in Z is classified as “held for sale” in accordance with PFRS 5. 21.In assessing whether significant influence exists, an investor shall consider any potential voting rights held only if a.it intends to exercise the potential voting rights b.the potential voting rights are currently exercisable c.a and b d.they are not considered 22.When computing for its share in the associate’s profit or loss, an investor shall use a.its present ownership interest b.its present ownership interest adjusted for the effect of any potential voting rights c.the potential voting rights percentage d.the effective interest rate 23.According to PAS 28, significant influence is the investor’s participation in the financial and operating policy decisions of the investee but not control of these decisions. Which of the following may an investor be unable to exercise significant influence? a.participation in policy making process b.material intercompany transactions c.majority ownership of the investee concentrated among a small group of shareholders who operate the investee without regard to the views of the investor d.technological dependency (Adapted) 24.Under PAS 28, these refer to instruments, which if exercised, give the entity additional voting power or reduce another party’s voting power over the financial and operating policies of another entity. a. share rights c. convertible securities b. share options d. potential voting rights 25.When assessing the existence of significant influence, which of the following shall be considered by the investor? a.potential voting rights that are not exercisable immediately b.share options giving the investor the right to purchase preference shares of the investee c.stock rights which are exercisable immediately but the entity’s management does not intend to exercise. 9d.potential voting rights that will be received in the following accounting period 26.Potential voting rights include all of the following except a. share warrants and share options c. convertible preference shares b. redeemable preference shares d. convertible bonds Equity method 27.Investments accounted for under the equity method are initially recognized at a.cost b.fair value c.fair value plus direct acquisition cost d.cost plus or minus share in profit or loss of associate 28.Which of the following does not correctly relate to the application of the equity method? a.the investor recognizes its proportionate share in the profit or loss, other comprehensive income, and discontinued operations of the associate b.dividends received are accounted for as reduction in the investment balance c.share dividends are not accounted for d.the investor accounts only its proportionate share in the profit or loss of the associate but not in other comprehensive income and discontinued operations. 29.Under the equity method, which of the following does not decrease the investment account? a.share in associate’s loss b.amortization of undervaluation of asset c.amortization of overvaluation of asset d.share in dividends declared by the associate 30.For investments in associates, the investor shall not a.recognize a share in the associate’s other comprehensive income b.recognize a share in the associate’s discontinued operations c.recognize a share in the associate’s profit or loss d.recognize a share in the associate’s revenue, expenses and profit before tax 31.When computing for its share in the associate’s profit or loss, the investor should I.deduct one year dividends on cumulative preference shares of the associate held by other parties and classified as equity, whether declared or not. II.deduct one year dividends on noncumulative preference shares of the associate held by other parties and classified as equity, whether declared or not. III.deduct all dividends in arrears on cumulative preference shares of the associate held by other parties and classified as equity, whether declared or not. IV .deduct dividends on noncumulative preference shares of the associate held by other parties and classified as equity only when declared. V.not deduct from profit or loss any dividends on ordinary shares before computing for the share in the associate’s profit or loss. a. I, IV , Vb. I, IVc. II, III, Vd. II, III 1032.The equity method causes the balance in the investment account to approximate: a.original cost of the investment b.market value of the investment c.original cost of the investment minus any dividends declared and paid by the other company d.original cost of the investment plus a proportionate share of subsequent undistributed earnings of the investee company. (Adapted) 33.How is goodwill arising on the acquisition of an associate dealt with in the financial statements? a.It is amortized. b.It is impairment tested individually. c.It is written off against profit or loss. d.Goodwill is not recognized separately within the carrying amount of the investment. (Adapted) 34.If the excess of the acquisition cost of an investment accounted for under equity method over the book value of net assets acquired is attributable to an undervalued depreciable asset and an unidentifiable asset, which of the following statements is correct a.The carrying amount of the investment is increased by the proportionate share in the profits earned by the investee and decreased by the depreciation of the interest in the undervaluation and unaffected by the separate impairment of the unidentifiable asset b.The carrying amount of the investment is increased by the depreciation of the interest in the undervaluation and amortization of the unidentifiable asset c.The carrying amount of the investment is decreased by the depreciation of the interest in the undervaluation and decreased by the separate impairment on the unidentifiable asset. d.Investment income is decreased by the depreciation of the interest in the undervaluation and amortization of the unidentifiable asset 35.The equity method is most likely not applicable to which of the following? a.ownership interest of 2%, 2 out of 7 of the BOD of the associate is appointed by the investor b.ownership interest of 40% c.ownership interest of 20% but the associate is operating under severe long-term restrictions that significantly impair its ability to transfer funds to the investor d.ownership interest of 25% acquired with an exclusive view of subsequent disposal within 12months and accounted for under PFRS 5 36.The equity method should be applied in which of the following? a.The investment is classified as held for sale under PFRS 5 b.The parent is exempted from presenting consolidated financial statements. c.The investor is an unlisted subsidiary whose parent allows it not to apply equity method d.The investor previously held only 10% interest but subsequently acquires additional 10% interest in the associate. 37.Which of the following computations may properly result to the correct balance of an investment in associate account at year-end? 11a.Beginning balance of investment plus share in associate’s profit minus share in dividends declared by associate, and minus amortization of share in undervaluation of associate’s asset b.Beginning balance of investment plus share in associate’s profit minus share in dividends declared by associate, and plus amortization of share in undervaluation of associate’s asset c.Beginning balance of investment plus share in associate’s profit plus share in dividends declared by associate, and minus amortization of share in undervaluation of associate’s asset d.Beginning balance of investment plus share in associate’s profit minus share in dividends declared by associate, minus amortization of share in undervaluation of associate’s asset, and minus separate impairment loss on goodwill included in the carrying amount of the investment 38.Which of the following computations may properly result to the correct amount of share in associate’s profit or loss for the period? a.Share in profit of associate minus amortization of share in the overvaluation of associate’s asset b.Share in profit of associate minus amortization of share in the undervaluation of associate’s asset c.Share in profit of associate minus amortization of share in the undervaluation of associate’s asset minus share in dividends declared by associate d.Share in profit of associate minus amortization of share in the undervaluation of associate’s asset minus separate impairment loss on goodwill included in the carrying amount of the investment 39.Which of the following may represent the net change in the investment in associate account during a period? a.Share in profit of associate minus share in dividends plus increase in the investment in associate account b.Share in profit of associate minus share in dividends minus increase in the investment in associate account c.Share in profit of associate minus share in dividends d.Share in profit of associate plus share in dividends 40.Dividends received from an investment in an associate, a.if in the form of cash dividends, is credited to investment income b.if in the form of share dividends, is debited to investment income c.if in the form of cash dividends, is credited to investment account only if the cash dividends are declared from pre-acquisition retained earnings. d.if in the form of share dividends, is recorded through memo entry only 41.The excess of purchase cost of an investment in associate over the fair value of the interest acquired represents a.goodwill that should not be amortized but tested for impairment at least annually b.negative goodwill that should be recognized in the investor’s profit or loss in the year of acquisition. c.negative goodwill that should be deferred and amortized d.goodwill that is not required to be accounted for separately 42.The excess of the fair value of the interest acquired over the purchase cost of an investment in associate represents a.goodwill that should not be amortized but tested for impairment at least annually 12b.negative goodwill that should be recognized in the investor’s profit or loss in the year of acquisition. c.negative goodwill that should be deferred and amortized d.goodwill that is not required to be accounted for separately 43.Equity method shall cease to be applied only when the investor loses significant influence over the associate. Which of the following is not true? a.The loss of significant influence can occur with or without a change in the percentage of ownership. b.An entity loses significant influence over an investee when it loses the power to participate in the financial and operating policy decisions of that investee. c.There is a presumption of loss of significant influence if the ownership interest falls below 20%. d.There is a presumption of loss of significant influence when the associate is operating under severe long-term restrictions that significantly impair its ability to transfer funds to the investor. 44.Significant influence may be lost in any of the following, except a.When an associate becomes subject to the control of a government, court, administrator or regulator. b.The investor is precluded, as a result of a contractual agreement, from participating in the financial and operating policy decisions of the investee. c.The investor sells half of its 30% interest in an associate d.The investor sells half of its 20% interest in an associate but retains the voting rights on the investment sold through proxy agreement 45.Significant influence may be lost in any of the following, except a.The investor loses its right to appoint board of directors in the associate b.The investor purchases additional 31% interest in the associate c.The associate is operating under severe long-term restrictions that significantly impair its ability to transfer funds to the investor. d.The investor retains its 20% interest in the associate but grants its voting rights to an unrelated party. 46.On the loss of significant influence, the investor shall do any of the following, except a.measure at fair value any investment retained in the former associate. b.recognize gain or loss for the difference between the net disposal proceeds received and the carrying amount of the investment sold c.recognize gain or loss for the difference between the fair value of the interest retained and the carrying amount of the previous interest held d.account for the discontinuance of equity method retrospectively. 47.If an investor loses significant influence over an associate, a.all cumulative gain or loss previously recognized in other comprehensive income is reclassified to profit or loss. b.any cumulative gain or loss previously recognized in other comprehensive income is reclassified directly in equity or to profit or loss, subject to the requirements of PAS 1. c.no adjustment to the investment account is necessary d.the investment should be reclassified and any gain or loss on reclassification is recognized in equity. 1348.If an investor’s ownership interest in an associate is reduced but significant influence is not lost, a.the investor should cease applying the equity method and use PFRS 9 if ownership interest is reduced below 20% or PFRS 3 and PAS 27 if ownership interest is increased above 50%. b.the investor shall reclassify to profit or loss or directly in equity only a proportionate amount of the gain or loss previously recognized in other comprehensive income. c.the investor continues to use the equity method and since significant influence is not lost, no adjustment is needed d.do nothing 49.If there is any excess of the investor’s share of the net fair value of the associate’s identifiable assets and contingent liabilities over the cost of the investment, that is, negative goodwill, how should that excess be treated? a.It should be included in the carrying amount of the investment. b.It should be written off against retained earnings. c.It should be included as income in the determination of the investor’s share of the associate’s profit or loss for the period. d.It should be disclosed separately as part of the investor’s equity. (Adapted) 50.The investor’s interest on the undervaluation of depreciable assets of the associate is a.amortized using the effective rate and deducted to investment income recognized for the period b.depreciated and deducted from the carrying amount of the investment c.amortized using the effective rate and added to the carrying amount of the investment and deducted to investment income d.depreciated and deducted from the carrying amount of the investment and investment income recognized for the period 51.When the equity method is used to account for the investment in an associate, the recording of the receipt of a cash distribution from the investee will result in a.The recognition of investment income. b.A reduction in the investment balance. c.An Increase in a liability account. d.An increase in special equity account. 52.Stock dividends on common stock should be recorded at their fair market value by the investor when the related investment is accounted for under which of the following methods? Cost Equity a. Yes Yes b. Yes No c. No Yes d. No No (AICPA) 53.Which of the following statements is in accordance with the provisions of PAS 28? I.The income or loss on the investment in associate is computed on the net income after tax of the associate. 14II.The income or loss on the investment in associate is presented in the statement of profit or loss and other comprehensive income after the line item “Income Tax Expense” but before discontinued operations. a. Ib. IIc. I and IId. Neither I nor II 54.On January 1, 20x1, Adjacent Inc. purchased 10% of Juxtaposition Co.’s common stock. Adjacent purchased additional shares bringing its ownership up to 40% of Juxtaposition’s common stock outstanding on August 1, 20x1. During October 20x1, Juxtaposition declared and paid a cash dividend on all of its outstanding common stock. Under PAS 28, how much income from the Juxtaposition investment should Adjacent’s 20x1 income statement report? a.10% of Juxtaposition’s income for January 1 to July 31, 20x1, plus 40% of Juxtaposition’s income for August 1 to December 31, 20x1. b.40% of Juxtaposition’s income for August 1 to December 31, 20x1 only. c.40% of Juxtaposition’s 20x1 income. d.Amount equal to dividends received from Juxtaposition. (AICPA) 55.Which of the following statements are in accordance with PAS 28? I.When the associate has cumulative preference shares, the investor computes its share in the profit or loss of the investee after deducting the preferred dividends, only when such dividends are declared. II.When the associate has non-cumulative preference shares, the investor computes its share in the profit or loss of the investee after deducting the preferred dividends, whether or not such dividends are declared a. true, true b. true, false c. false, true d. false, false 56.Bell owns 10% of the common stock of War Co. throughout the year. War Co. has no preferred stock outstanding. Bella’s stock gives him the right to a.be paid 10% of the firm’s profits in cash each year b.receive dividends equal to 10% of the par value each year c.receive dividends equal to 10% of the total dividends paid by the corporation for the year to common stockholders d.keep the corporation from issuing any additional stock unless he is willing to buy 10% of the newly issued shares (AICPA) 57.Adjustments to the carrying amount of the investment in associate may be necessary for changes in the investor’s proportionate interest in the investee arising from changes in the investee’s equity that have not been recognized in the investee’s profit or loss. Which of the following may not necessitate an adjustment to the investment in associate account? a.Changes in revaluation surplus of associate b.Changes in valuation of the associate’s FVOCI securities c.Changes in the actuarial gains and losses of the associate not amortized through the corridor approach d.Changes in the Allowance for doubtful accounts of the associate 58.Which of the following is correct in relation to accounting for investments in associates? I.Theoretically, the total market value of shares held as investment in associate which have been subjected to a share dividend should be the same as it was before the dividend. II.Share dividends received on an investment in associate is accounted for as deduction from the investment account. 15III.Share dividends received on an investment in associate is generally not accounted for. a. Ib. IIc. I and IIId. I, II and III 59.Which of the following statements correctly refers to the provisions of PAS 28 Investments in Associates? I.If an investor acquires additional shares sufficient to give him significant influence, a retrospective adjustment should be made on the financial statements to recognize share in profits and losses of the investee not previously recognized. II.No adjustment to the investment account is made when changing from the fair value method to the equity method. a. Ib. IIc. I and IId. Neither I nor II 60.An investor in equity securities received cash dividends in excess of the investor’s share of investee’s earnings subsequent to the date of the investment. How will the investor’s investment account be affected by those dividends for each of the following investments? FVOCI securities Equity method investment a. No effect No effect b. Decrease No effect c. No effect Decrease d. Decrease Decrease (AICPA) 61.The investment in associate is reduced to zero when a.the investment in associate is partly reclassified to FVPL b.the share in the losses of the associate exceeds the share in the profits c.at no instance should the investment be reduced to zero unless the investment is derecognized through sale or other forms of disposal d.the share in the losses of the associate exceeds the investor’s interest in the associate 62.Consider the following statements. I.In applying Equity Method of accounting for investments in associates, dividends received from the investee are considered a return of capital and should be credited to stockholders’ equity of the investor. II.A subsidiary is an affiliate that is not controlled by an enterprise directly, or indirectly, through one or more intermediaries. State whether the foregoing statements are correct. a. Only I is correct c. Only II is correct b. I and II are correct d. Neither I nor II is correct (RPCPA) 63.The following statements relate to equity method. Choose the incorrect statement. a.In accounting for investments in common stock under the equity method, sales of stock of an investee by an investor, should be accounted for as gains or losses equal to the difference at the time of sales between selling price and carrying amount of the stock sold. b.The general rule is that an investor owning 20% or more of the voting stock of an investee is presumed to have the ability to exercise significant interest over the investee. c.Under the equity method of accounting, the investments in common stock should be shown as a single amount, and the investor’s share of earnings 16or losses from its investment should ordinarily be shown in its income statement as a single amount including the results of discontinued operations. d.The equity method of recording security transactions assumes a close economic relationship between the investor and the investee. It is used, when influential interest exists. (RPCPA) 64.Wrath Co. uses the equity method to account for its January 1, 2003 purchase of Anger Inc.’s common stock. On January 1, 2003, the fair values of Anger’s FIFO inventory and land exceeded their carrying amounts. How do these excesses of fair values over carrying amounts affect Wrath’s reported equity in Anger’s 2003 earnings? Inventory excess Land excess a. Decrease Decrease b. Decrease No effect c. Increase Increase d. Increase No effect (AICPA) 65.On May 1, 20x1, Upbeat Company acquired 30% of the voting stock of Reggae Corp. In 20x1, Reggae had net earnings of 100,000 and paid dividends of ₱ 10,000. Upbeat mistakenly measured these transactions using the cost₱ instead of the equity method of accounting. What effect would this have on working capital, dividend income, and net earnings, respectively? a.overstate, overstate, overstate b.no effect, understate, understate c.no effect, overstate, understate d.understate, understate, understate (RPCPA) 66.Select the incorrect statement. a.The cost method of accounting for an investment in a subsidiary recognizes the legal fact that the parent and subsidiary are one economic unit. b.The net cumulative unrealized gains and losses on investments in equity securities classified as FVOCI and are accounted for under the cost method are usually measured by the difference between cost and current selling price. c.Under the equity method of accounting for long-term investments in equity securities, the investor's investment account is decreased by all cash dividends received from the investee. d.The equity method of accounting for long-term investments in equity securities is based on the presumption that the investor owns a sufficient number of the outstanding voting shares of another company to exercise significant influence over the operating and financial policies of the other company. 67.Which of the following statement is the correct statement? a.At the acquisition date of a long-term investment, the entry would be the same whether the investor uses PFRS 9 or the equity method under PAS 28. b.Under PAS 27, an investment in a subsidiary is shown as an asset, while under the equity method, it is shown as part of equity. c.Long-term investments are classified as long-term only because they are not readily marketable. 17d.Long-term investments in equity securities are written down only when there has been a material and apparently permanent decline in the market value of the investment below its cost. e.Impairment losses on investments in associates are not accounted for under PAS 28. 68.The following statements relate to the accounting for investments in equity instruments. I.Whenever an investment in marketable equity securities does not qualify for accounting using the equity method, the investor is required to recognize as dividend income cash dividends received from the investee. II.The cost measurement for equity investments is permitted in separate financial statements. III.An investor may still be able to exercise significant influence over an investee, even if the investment is less than 20% of the voting stock of the investee. IV .No adjustment to the investment account is made when changing from the equity to the fair value measurement, or vice versa. a. I, II b. I, II, III c. I, IIId. I, II, IV 69.In its financial statements, Musang, Inc. uses the cost measurement of accounting for its 15% ownership of Kalinga Coffee Co. At December 31, 20x1, Musang has a receivable from Kalinga Coffee. How should the receivable be reported in Musang’s December 31, 20x1 statement of financial position? a.The total receivable should be reported separately. b.The total receivable should be included as part of the investment in Kalinga Coffee, without separate disclosure. c.85% of the receivable should be reported separately, with the balance offset against Kalinga Coffee’s payable to Musang. d.The total receivable should be offset against Kalinga Coffee’s payable to Musang, without separate disclosure. (AICPA) 70.When the equity method is used to account for investments in common stock, which of the following affects the investor’s reported investment income? Equipment amortization related to purchase Cash dividends from investee a. Yes Yes b. No Yes c. No No d. Yes No (AICPA) 71.Google Co. received a cash dividend from a common stock investment. Should Google report an increase in the investment account if it has classified the stock as FVOCI or uses the equity method of accounting? FVOCI Equity a. No No b. Yes Yes c. Yes No d. No Yes (AICPA) 72.Bliss Co. uses the equity method to account for its investment in Nirvana, Inc. common stock. How should Bliss record a 2% stock dividend received from Nirvana? a.As dividend revenue at Nirvana's carrying value of the stock. 18b.As dividend revenue at the market value of the stock. c.As a reduction in the total cost of Nirvana stock owned. d.As a memorandum entry reducing the unit cost of all Nirvana stock owned. (AICPA) 73.Which of the following investments in an associate is not within the scope of PAS 28 Investments in associates ? a.An associate held by a subsidiary and measured at cost b.An associate held by a venture capital organization and measured at cost c.An associate held by a venture capital organization and measured at fair value with changes in fair value recognized in profit or loss d.An associate held by a subsidiary and measured at fair value with changes in fair value recognized in profit or loss (ACCA) 74.Fretboard Company equity accounts for its 40% interest in Fingerboard Company. Fingerboard's financial statements include the following: Revenue 600,000 ₱ Cost of sales (250,000) 350,000 Operating expenses (285,000) 65,000 Tax ( 20,000) 45,000₱ Are the following statements true or false, according to PAS 28 Investments in associates? 1)Fretboard's consolidated revenue should include 240,000 in respect of ₱ Fingerboard. 2)Fretboard's consolidated profit before tax should include 26,000 in respect ₱ of Fingerboard. Statement (1) Statement (2) a. False False b. False True c. True False d. True True (ACCA) 75.An investor must apply the requirements of PAS 36 in determining whether it is necessary to recognize any impairment loss in the investment in an associate. How is the impairment test carried out? a.The goodwill is separated from the rest of the investment and is impairment tested individually. b.The entire carrying amount of the investment is tested for impairment under PAS 36 by comparing its recoverable amount with its carrying amount. c.The carrying value of the investment should be compared with its market value. d.The recoverable amounts of all investments in associates should be assessed together to determine whether there has been an impairment on all investments. (Adapted) 76.What accounting method should be used for an investment in an associate where it is operating under severe long-term restrictions - for example where the government of a company has temporary control over the associate? 19a.PFRS 9 should be applied. b.The equity method should be applied if significant influence can be exerted. c.The associate should be shown at cost. d.Proportionate consolidation should be used. (Adapted) 77.If the investor ceases to have significant influence over an associate, how should the investment be treated? a.It should still be treated using equity accounting. b.It should be treated in accordance with PFRS 9. c.The investment should be frozen at the date at which the investor ceases to have significant influence. d.The investment should be treated at cost. (Adapted) 78.When significant influence is achieved from additional purchase of shares resulting to an increase in ownership interest, a.the change to equity method is treated retrospectively, “catch up” adjustments shall be made in order to restate the accounts to what their balances should be had equity method been used all along. b.the previous investment is measured at acquisition-date fair value and any difference between this amount and the previous carrying amount is recognized immediately in profit or loss. c.PAS 28 and PFRS 3 requires that the investment account be adjusted for any share in cash dividends declared by the investee in previous periods that were recognized as income. d.the previous investment is measured at acquisition-date fair value and any difference between this amount and the previous carrying amount is recognized immediately in profit or loss or other comprehensive income, as appropriate. 79.Profits and losses resulting from “upstream” and “downstream” transactions between an investor and an associate are a.recognized in the investor’s financial statements through proportionate consolidation, meaning the investor recognizes its share in the sale and cost of sales recorded by the associate b.recognized in the investor’s financial statements only to the extent of unrelated investors’ interests in the associate. c.recognized in the investor’s financial statements only to the extent of related investors’ interests in the associate. d.not recognized in the investor’s financial statements 80.Under PAS 28, profits and losses resulting from ‘upstream’ and ‘downstream’ transactions between an investor and an associate a.must be eliminated to the extent of the investor’s interest in the associate. b.must be eliminated to the extent of the unrelated interest over the associate c.must be recognized in full after adjustment for the increases or decreases in beginning inventory d.not recognized 81.Under PAS 28, adjustments to share in profit or loss of an associate may differ if the transaction is “downstream” or “upstream.” Which of the following statements is true? 20I.Jack Co. owns 20% interest in Old Man, Inc. During the year Old Man sold magic beans to Jack. This is an upstream transaction. II.Goldilocks Co. owns 20% interest in Papa Bear, Inc. During the year Goldilocks purchased porridge from Papa Bear. This is a downstream transaction. a. true, true b. true false c. false, true d. false, false 82.Daddeh Co. owns 20% interest in Bebeh Co. During the year, Daddeh sold inventory to Bebeh at 20% gross profit. As of year-end Bebeh still holds 100% of the inventory. How much share in the profit from the transaction will Daddeh recognize for the year? Assume income tax rate of 30%. a. 14% b. 80% c. 2.8% d. none 83.Under PAS 28, it refers to the carrying amount of the investment in the associate under the equity method together with any long-term interests that in substance, form part of the investor’s net investment in the associates. a. investment in associate c. interest in ownership b. interest in the associate d. none 84.Which of the following may not be included in interest in associate when determining the threshold in recognizing share in losses of associate? a.investment in preference shares of associate b.long-term, unsecured, advances to the associate c.trade receivables from the associate d.investment in associate 85.Losses recognized under the equity method in excess of the investor’s investment in ordinary shares are applied to the other components of the investor’s interest in the associate a.in the order of their seniority b.in the reverse order of their seniority c.in the order of priority in liquidation d.in no particular order 86.After the investor’s interest in the associate is reduced to zero, additional losses are provided for, and a liability is recognized, only to the extent that the investor has incurred a.legal or constructive obligations b.made payments on behalf of the associate c.a or b d.further losses are not recognized 87.If the associate subsequently reports profits, the investor resumes recognizing its share of those profits a.only after its share of the profits equals the share of losses not recognized b.only after its share of the profits equals the share of losses previously recognized c.only if there are no outstanding legal or constructive obligation incurred on behalf of the associate d.a or b 88.How is goodwill arising from investments in associates accounted for? a.Included in the carrying amount of the investment and not amortized but tested separately for impairment at least annually. b.Not accounted for separately; however, presented as a separate asset in the investor’s separate financial statements. 21