Answer to Question #208271 in Accounting for cdba

Question

On January 1,2021, Jimar Co. acquired an equipment by issuing two-year, noninterest bearing note amounting to ₱1,000,000. The prevailing interest rate of the note is 12%.

Questions:

1.   Assuming the equipment has cash price equivalent of ₱800,000, how much is the cost of the equivalent?

2.   Assuming the equivalent has no cash price equivalent, how much is the cost of the equivalent?

Answer 1

Part a

Since the percentage holding in Jimar Co is more than 12%, Jimar Co is deemed to have significant influence over Jimar Co and the investment therein is accounted for in accordance with the equity method.

Cost of acquisition of Investment = ₱1,000,000

Cash price equivalent = ₱800,000

The cost of the equivalent = 1,800,000

Part b

Cost of acquisition of Investment = ₱1,000,000

The interest rate of the note is 12%. = s 12%*₱1,000,000= 120,000

The cost of the equivalent = 1,120,000