Answer to Question #202591 in Accounting for Ggg

Question

On January 1, 2021, Pluto Company has investment in equity designated as at Fair value through Other Comprehensive Income with a fair value of P 600,000. These securities were acquired a year ago at a cost of P 625,000. On March 31 2021. Pluto Company exchanged these securities for a piece of land from Mars Company. The carrying amount of the land in books Marks Company was P480,000 and has a zonal value of P 800,000. At the time of exchange , the shares which was publicly listed, has a fair value of P 650,000

Based on the above data, answer the following:

1. Compute for the gain on exchanges to be recognized in 2021 equity

a. Nil c. P 25,000

b. P50,000 d. P 175,000

2. The necessary journal entry on March 31, will include a debit to financial at FVTOC, P 600,000

a. Debit to financial asset at FVTOCI, P 600,000

b. Debit to land P 650,000

c. Credit gain on exchange, P 25,000

d. Debit to loss on exchange, P 25,000

Answer 1

Solution:

1.). The correct answer is b. P50,000.

Gain on exchange in 2021 equity = Fair value of the financial assets – Cost of equity investments

= 650,000 – 600,000 = 50,000

Gain on exchange in 2021 equity = P 50,000

 

2.). The correct answer is d. Debit to loss on exchange, P 25,000.

Gain or loss on exchange on March 31^st = Fair value through other comprehensive income – Cost of assets

= 600,000 – 625,000 = (25,000)

Loss on exchange = (25,000), which will be debited.