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Since 1977

FAR OCAMPO/OCAMPO
FAR.3623-Other Investments MAY 2024

DISCUSSION PROBLEMS
1. Nueva Vizcaya Company has the following accounts 4. How should the sinking fund be reported in the
included in its December 31 trial balance: company’s balance sheet at December 31?
FA at FVTPL P1,000,000 a. The cash in the sinking fund should appear as a
FA at FVTOCI 2,000,000 current asset.
FA at AC 3,000,000 b. Only the accumulated deposits should appear as a
Investment in associate 4,000,000 noncurrent asset.
Interest rate swap receivable 100,000 c. The entire balance in the sinking fund account
Forward contract receivable 200,000 should appear as a current asset.
Futures contract receivable 250,000 d. The entire balance in the sinking fund account
Call option 150,000 should appear as a noncurrent asset.
Petty cash fund 50,000
Payroll cash fund 500,000 5. Following are selected transactions in chronological
Dividend cash fund 200,000 order of Bayombong Company and its trustee in
Interest fund 150,000 connection with a sinking fund.
Sinking fund 1,100,000 a. Cash contribution to the sinking fund, P1,000,000.
Plant expansion fund 2,000,000 b. Acquisition of securities at par by the trustee,
Stock redemption fund 1,800,000 P700,000.
Contingency fund 1,000,000 c. The trustee receives interest on the securities,
Insurance fund 1,000,000 P60,000.
Investment property 4,000,000 d. The trustee pays expenses of P30,000.
Prepaid rent 200,000 e. The trustee sells the securities for P800,000 plus
Cash surrender value of life insurance 100,000 accrued interest of P10,000.
f. The trustee pays bonds payable of P1,000,000 and
How much is the total amount normally considered as
interest of P100,000.
noncurrent investments?
g. The trustee remits the remaining cash to
a. P20,000,000 c. P17,900,000
Bayombong Company.
b. P18,000,000 d. P14,000,000
How much was remitted by the trustee to Bayombong
Company?
2. Which statement is incorrect regarding fund a. P150,000 c. P50,000
accounting? b. P140,000 d. P40,000
a. In essence, the fund is accounted for as an
individual set of books.
b. Fund refers to cash and other assets set aside to Use the following 8% interest factors for questions 6 to 13.
accomplish specific objectives.
FV of PV of
c. The purpose for which fund was established may
ordinary ordinary
be current or noncurrent.
annuity annuity
d. Funds that relate directly to current operations are
Periods FV of 1 PV of 1 of 1 of 1
ordinarily shown in the long-term investments
1 1.0800 0.9259 1.0000 0.9259
section of the statement of financial position or in a
2 1.1664 0.8573 2.0800 1.7833
separate section if relatively large in amount.
3 1.2597 0.7938 3.2464 2.5771
4 1.3605 0.7350 ? 3.3121
5 1.4693 0.6806 5.8666 3.9927
Use the following information for the next two questions.
7 1.7138 0.5835 8.9228 5.2064
The following information is available concerning the Mauro 8 1.8509 0.5403 10.6366 5.7466
Corporation's sinking fund transactions in the current 9 1.9990 0.5002 12.4876 6.2469
period. There is no trustee.
Jan. 1 Established a sinking fund to retire an 6. What amount should be deposited in a bank account
outstanding bond issue by contributing today to grow to P3,000,000 three years from today?
P425,000. a. P3,779,100 c. P9,739,200
Jan. 15 Purchased securities for P400,000. b. P2,381,400 d. P7,731,300
Jul. 30 Sold securities originally costing P48,000
for P45,000. 7. If P1,000,000 is put in a savings account today, what
Dec. 31 Collected dividends and interest on the amount will be available three years from today?
remaining securities in the amount of a. P1,259,700 c. P3,246,400
P49,000; the securities had a market b. P 793,800 d. P2,577,100
value of P360,000 at this time.
8. If P900,000 is put in a savings account today, what
3. The sinking fund balance at December 31 is amount will be available six years from now?
a. P479,000 c. P471,000 a. P900,000 x 0.6302
b. P474,000 d. P442,000 b. P900,000 x 1.08 x 1.4693
c. P900,000 x 0.6806 x 0.9259
d. P900,000 x (1.08 + 1.4693)

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9. What amount will be in a bank account three years c. In the future value of an ordinary annuity, the last
from now if P500,000 is invested each year for four cash payment will not earn any interest.
years with the first investment to be made today? d. Other things being equal, the present value of an
a. P1,656,050 c. P2,433,300 annuity due will be less than the present value of
b. P1,788,534 d. P2,253,050 an ordinary annuity.

10. What amount should an individual have in a bank

account today before withdrawal if P200,000 is needed 17. Cash surrender value normally arises under the
each year for four years with the first withdrawal to be following circumstances:
made today and each subsequent withdrawal at one- a. The policy is a life policy.
year intervals? (The balance in the bank account b. Premiums for three full years must have been paid.
should be zero after the fourth withdrawal.) c. The policy is surrendered at the end of the third
a. P613,140 c. P715,400 year or anytime thereafter.
b. P662,420 d. P901,220 d. All of the above.

11. What will be the balance on Oct. 1, Year 8 in a fund

which is accumulated by making P100,000 annual 18. Which statement is incorrect regarding cash surrender
deposits each Oct. 1 beginning in Year 1, with the last value of life insurance policy?
deposit being made on Oct. 1, Year 8? The fund pays a. It is the amount of a life insurance premium that
interest at 8% compounded annually. exceeds basic insurance charges and is returnable
a. P574,660 c. P1,063,660 in the event that the policy is surrendered or
b. P620,630 d. P1,148,750 canceled.
b. It is not recognized if the beneficiary is other than
12. If P10,000 is deposited annually starting on Jan. 1, the company and the premiums paid are treated as
Year 1 and it earns 8%, what will the balance be on an expense.
Dec. 31, Year 8? c. It is considered to be an investment if the
a. P57,466 c. P106,366 beneficiary is the company itself.
b. P62,063 d. P114,875 d. It is reported as a current asset on the statement
of financial position.
13. If an entity wishes to accumulate P20,000,000 by July
1, Year 9 by making 8 equal annual deposits beginning
July 1, Year 1, to a fund paying 8% interest 19. An entity purchased a P1,000,000 ordinary life
compounded annually. What is the required amount of insurance policy on its president. The policy year and
each deposit? the entity’s accounting year coincide. Additional data
a. P1,741,023 c. P3,222,532 are available for the current year:
b. P1,880,300 d. P3,480,319 Annual premium paid on 1/1 P20,000
Dividend received 7/1 3,000
14. On Jan. 1, Year 1, an entity created a special building Cash surrender value, 1/1 43,500
fund by depositing a single sum of P100,000 with an Cash surrender value, 12/31 54,000
independent trustee. The purpose of the fund is to
provide resources to build an addition to the older The entity is the beneficiary under the life insurance
office building during the latter part of Year 5. The policy. How much should the entity report as life
entity anticipates a total construction cost of P500,000 insurance expense for the year?
and completion by Jan. 1, Year 6. The entity plans to a. P6,500 c. P17,000
make equal annual deposit from Dec. 31, Year 1 b. P9,500 d. P20,000
through Year 5, to accumulate the P500,000. The
independent trustee will increase the fund each Dec.
31 at an interest rate of 10%. The accounting periods 20. An entity has life insurance policies on its officer's
of the entity and the fund end on Dec. 31. lives. Annual premiums amount to P5,000. At the end
of the year, cash surrender value of the policies totaled
How much is the fund balance as of Dec. 31, Year 1? P18,200. Dividends received by the entity from the
(Round off future value factors to five decimal places) insurance company amounted to P500. The insurance
a. P100,000 c. P155,519 expense recognized by the entity in the current year
b. P110,000 d. P165,519 was P3,500. What was the amount of cash surrender
value of these policies at the beginning of the year?
15. Which statement is correct regarding time value of a. P10,200 c. P16,200
money concepts? b. P14,200 d. P17,200
a. When interest is compounded, the stated rate of
interest exceeds the effective rate of interest.
b. The calculation of future value requires the 21. An entity insured the life of its president for
removal of interest. P8,000,000, the entity being the beneficiary of an
c. With an ordinary annuity, a payment is made or ordinary life policy. The premium is P200,000. The
received on the date the agreement begins. cash surrender value on Jan. 1 and Dec. 31 are
d. Compound interest includes interest earned on P60,000 and P80,000 respectively. The entity follows
interest. the calendar year as its fiscal period. The president
died on Oct. 1 and the policy was collected on Dec. 31.
16. Which statement is incorrect regarding time value of How much is the gain on life insurance settlement?
money concepts? a. P7,800,000 c. P7,875,000
a. The calculation of present value eliminates interest b. P7,870,000 d. P7,890,000
from future cash flows.
b. An annuity is a series of equal periodic payments. J - end of FAR.3623 - J

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