Bonds of affiliate purchased from non-affiliate: When an affiliate of issuer later acquires bonds from unrelated party, the bonds are retired at the time of purchase. The bonds are not held outside the consolidated entity. Once another company within the consolidated entity purchases them, it must be treated as repurchase by debtor. Acquisition of an affiliate’s bonds by another company with in affiliated entities is referred as constructive retirement. Although bonds are not actually retired.
When constructive retirement occurs, the consolidated income statement reports gain or loss based on difference between carrying value and purchase price paid by affiliate to acquire it. And it is not reported in consolidated
To explain : The manner in which gain or loss on constructive retirement is computed using two companies
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ADVANCED FINANCIAL ACCOUNTING IA
- December 31, 2023. The effective interest rate is 8% considering the Interest is payable annually every December 31. The bonds mature on on January 1, 2021, Balibago Corporation purchased P1,000,000 10% bonds for P1,051,510 (including broker's commission of P20,000). Dorest is payable annually every December 31. The bonds mature on December 31, 2023. The effective interest rate is 8% considering the Dker's commission. On December 31, 2021, the fair value of bonds is P1,017,610. Question 1 If the bonds are classified as financial assets at fair value through profit or loss (FA at FVTPL), the amount to be recognized as fair value adjustment loss in the entity's 2021 profit or loss is O 33,900 O 18.021 O 13,900arrow_forwardHow do intra-entity profits present in any year affect the noncontrolling interest calculations?arrow_forwardWhat is the balance of Investment in Associate at the end of the current year?arrow_forward
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- Which of the following statements is true? a. If any portion of a non-current liability is to be paid in the next year, the entire debt should be classified as a current liability. b. "Current maturities of non-current debt” refers to the amount of interest on notes payable that must be paid in the current year. c. Even though current and non-current debt must be shown separately on the statement of financial position, it is not necessary to prepare a journal entry to recognize this. d. A non- current liability is an obligation that is expected to be paid within one year.arrow_forward1. Trade payables and other liabilities that are part of an entity'sworking capital may be presented as current liabilities even ifthey are expected to be settled beyond one year.2. According to PAS 1, a currently maturing debt that the entity'smanagement intends to refinance is presented as noncurrent.3. According to PFRS 15, if an entity expects that a portion of giftcertificates sold will not be redeemed, the entity recognizes theexpected breakage amount as revenue in proportion to the pattern of rights exercised by customers.4. Unearned revenue is revenue that is earned but not yet collectedarrow_forwardIn which of the following instances would a liability that would otherwise be presented as current is presented as noncurrent a. The liability is payable on demand but the lender promises the entity after the reporting period that the lender will not demand payment in the next 12 months b. The entity enters into a refinancing agreement after the reporting period but before the financial statements are authorized for issue c. The entity enters into a refinancing agreemerit and the agreement is completed by the balance sheet date d. The liability is payable on demand but the entity estimates that it is probable that the lender will not demand paymentarrow_forward
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