PRACTICAL FINANCIAL ACCOUNTING CONRADO T. VALIX Ue) etaitPRACTICAL | FINANCIAL ACCOUNTING |. VOLUME ONE CONRADO T. VALIX, BSC, LLB Certified Public Accountant and Lawyer President, Review Director and CPA Reviewer ‘CPA Review School ofthe Philippines CPAR ets Lifetime Member Integrated Bar ofthe Philippines CHRISTIAN ARIS M. VALIX, BSME, BSA : Certified Public Accountant ‘Ateneo Management Engineering Graduate Assistant Review Director and CPA Reviewer. CPA Review School of the Philippines CPAR 2021 Revised EditionISBN: 978-621-416-102-7 Published & Printed by: GIC ENTERPRISES & CO., INC. ‘National Book Development Board Registered 2017 CM. Recto Avenue, Sampaloc Manila, Philippines PREFACE This book is primarily intended asa Reviewer in Financial Accounting and Reporting in the Philippine CPA Licensure Examinations. _ Itis prepared in conformity with the new CPA syllabus approved by the Board of Accountancy and based on current PAS, PFRS, PIC, IAS, IFRS and IFRIC. The problems are lifted from the following sources: PHILCPA: Philippine CPALicensure Examinations given bytheBoard of Accountancy AICPA. Uniform CPAExaminations given by the American Institute of Certified Public Accountants JAA Adapted probleris from various intermediate abcounting, books IFRS _ Problems andillustrations from Application Guidance of Intemational Financial Reporting Standards Ace Author constructed problems to exemplify Philippine GAAP IAS, IFRS and IFRIC ; More often, the particular Philippine Accounting Standard, Philippine Financial Reporting Standard, IAS, Intemational Financial Reporting Standard and IFRIC are cited to authoritatively support the solution to aproblem. This CPA Examination textbook reviewer will definitely help the reviewees in large measure in preparing forthe Philippine CPA Licensure Examinations in Financial Accounting and Reporting. CONRADOT. VALIX CHRISTIAN ARIS M. VALIX, January 2021we CONTENTS CHAPTER 1 STATEMENT OF FINANCIALPOSITION . Basic problems 2. STATEMENT OF FINANCIAL POSITION. Comprehensive problems NOTES TO FINANCIAL STATEMENTS Events after reporting period = Cost of goods sold and operating expenses STATEMENT OF COMPREHENSIVE INCOME ‘Netincome and comprehensive income NONCURRENTASSET HELD FOR SALE DISCONTINUED OPERATION, ACCOUNTING CHANGES ‘Accounting policy and accounting estimate PRIOR PERIOD ERRORS 10 OPERATING SEGMENT wa we ae . 11_INTERIMREPORTING 12 CASHAND CASH EQUIVALENTS 13 BANK RECONCILIATION Basic problems 14. BANKRECONCILIATION ‘Comprehensive problems STATEMENT OF COMPREHENSIVE INCOME ~ 4 50 6 1 101 12 121 135 148 182PROOF OF CASH ACCOUNTS: RECEIVABLE ESTIMATION OF DOUBTF! [ASSIGNMENT AND FACTORING DISCOUNTING OFNOTERECEIVABLE NOTES RECEIVABLE LOAN RECEIVABLE IMPAIRMENT OF LOAN INVENTORY Basic problems INVENTORY INCLUSION SALES REVENUE INVENTORY COST FLOW FIFO and average method RELATIVE SALES PRICE METHOD LOWER OF COSTAND verneaLzantevaute GROSS PROFIT METHOD ‘ULACCOUNTS RETAILMETHOD BIOLOGICAL ASSETS FINANCIALASSETAT FAIR VALUE Measurement—FVPL and FVOCI INVESTMENT INEQUITY SECURITIES Dividend, share split and share right INVESTMENT INASSOCIATE Basic problems 193 205 220 244 268 282 290 307 319 329 342 357 379 395 422 435 446 35 INVESTMENTIN ASSOCIATE ‘Complex problems 36 FINANCIALASSET ATAMORTIZED COST investment and market price of bond 37 BOND INVESTMENT-FVOCI Fairvalue option 38 RECLASSIFICATION OF FINANCIALASSET 39. INVESTMENT PROPERTY ‘Fund and cash surrender value 40 DERIVATIVES Interest rate'swap 41 DERIVATIVES: Forward, futures, option, foreign currency 42 PROPERTY, PLANT AND EQUIPMENT Acquisition cost 43, GOVERNMENT.GRANT 44 LANDAND BUILDING Basie problems 45. LANDAND BUILDING ‘Comprehensive problems 46 MACHINERY AND CAPITAL EXPENDITURE 47 BORROWING COST 48 DEPRECIATION ‘Straight line and variable method 49 DEPRECIATION ‘Sum of years’ digits and double declining balance (Change in useful lifeand method 50° DEPLETION, Basic problems 467 489 499 Su 527 543 553 565 581 595 620 631 650 662 616St 52 & 37 9 "LETION DET oles anos IMPAIRMENT OF ASSET Individual asset IMPAIRMENT OF ASSET Cash generating unit REVERSALOF IMPAIRMED INTANGIBLE ASSETS GOODWILL LEASEHOLD IMPROVEMENT RESEARCH AND DEVELOPMENT COST COMPUTER SOFTWARE 695, 707 nT 740 756 768 719 793 799 8il CHAPTER 1 __ STATEMENT OF FINANCIAL POSITION Basic problems Problem 1-1 (IFRS) Darwin Company provided the following information at year-end: —_ Cash 1,500,000 ~ Accounts receivable — unassigned 2,000,000 Accounts receivable ~ assigned 1200.00 - Inventory, including inventory expected in the ordinary course of operations to be sold beyond 12 months ‘amounting to P700,000 1,000,000 Financial asset held for trading 300,000 Equity investment at FVOCI -<# 800,000 Investment in associate 11° 2,500,000 Equipment held for sale 2.000.000 Deferred tax asset 1° 150,000, ‘What amount should be reported as total current assets at year-end? a. 6,000.000 b. 8,000,000 c. 6.800.000 4. 8,800,000 Solution 1-1 Answer b Cash 1.500.000 Accounts receivable - unassigned Accounts receivable ~ assigned Inventory Financial asset held for trading Equipment held for sale Total current assets Inthe absence of statement tothe contrary. equity investment at fair value through other comprehensive income shall be classified as noncurrent asset. Under IFRS, deferred tax asset is a noncurrent asset. Under IFRS, noncurrent asset held for sale is a current asset.Problem 1-2 (AICPA Adapted) ‘ Petite Company reported the following current assets at year-en¢ Cash 5,000,000 Accounts receivable 2,000,000, Inventory, ihcliding goods received on E : 800,000 ~ consignment P200.000 Bond investment at FVPL 1,000,000 Prepaid expenses, including a deposit of P50,000 mad ‘on inventory to be delivered in 18 months 150,000 0 Total current assets Cash in general checking account 3,500,000 Cash fund to retire 5-year bonds payable 1,000,000 Cash held to pay value added taxes 500,000 8,000,000 Total cash ‘What total amount of current assets should be reported at year-end? a. 6,750,000 b. 6.700.000 7,700,000 d. "7.750.000 Solution 1-2 Answer ¢ Cash (3,500,000 + 500,000) 4,000,000 ‘Accounts receivable 2,000,000 Inventory ( 800,000 - 200.000) ‘600,000 Bond investment at FVPL 1,000,000 Prepaid expenses ( 150,000 - 50,000) 190,000 7,200,000 Total current assets The goads received on consignment should be excluded from inventory. “The cash find to be used to retire bonds payable should be classified as noncurrent because the bonds mature in more than one year. “The bond investment at FVPL isa current asset because it is held for trading. Problem 1-3(AICPA Adapted) 1, 2021 with Rice Company was incorporated on Januar 'P5,000,000 from the issuance of share capital and borrovied funds of 1,500,000. During the first year, net income was P2,500,000. ‘Qn December 15, the entity paid « P500,000 cash dividend. On December 31, 2031, the liabilities had increased to P1,800,000. a, 6,500,000 b. 9,300,000 c. 8,800,000 d. 6,800,000 Solution 1-3 Answer c : Liabilities 1,800,000 Share capital $,000,000 Retained earnings (P2,500,000 less dividend P500,000) 2,000,000 ilities and shareholders’ equity 8,800,000 Total Ths toal assets stb equal to het liabilities and shareholders’ equity. ‘ Problem 1-4 (AICPA Adapted) Mirr Company was incorporated on January 1,2021 with proceeds Momthe esuance of '7'500,000 18 share capital and borrowed funds of P1,100,000- During the first year, revenue from sales and consulting amounted to P8,200,000, and operating costs and expenses totaled P6,400,000.— wa) On December 15, 2021, the entity declared a P300,000 dividend. payable to shareholders on January 15,2022. The liabilities increased to P2,000,000 by December 31,2021. ‘On December31,2021, what amount should be reported s total assets? a. 11,000,000 = b. 11,300,000 ¢: 10,100,000 d. 12,100,000 Solution 1-4 Answer a Liabilities : Share capital i 7s0000. Retained earnings (8,200,000 - 6,400,000 -300,000) 1.500.000 Total liabilities and shareholders’ equity u 3Problem 1-5 (AICPAAdapted) Statute coun rperedsflovng cat nses eT fees receivable OD preninioatbencoutsectlealte le Tae elec a) Cieim against shipper for goods lost in transit ing pri ‘out on consign sean Selig sf net iniued nendigierioy AEE ‘Total accounts receivable anaes at total amount shoul be eprtedas cunt ese at ea-=nd? a. 2,440,000 b. 2,210,000 c. 2,500,000 4. 2,240,000 Solution 1-5 Answer a ‘Cash ivable ‘Accounts reel ‘Allowance for doubtful accounts "faim receivable Seventy (600000 +200,00) Total current assets selling ignmentisexcluded ing price ofthe unsold goods out on consignment isexcl fomacroms rie tt cose pms bud bined ininventory. The cost of the goods out on consignments P260, divided by 130% or P200,000. Inventory perbook = Cost of goods out on consignment Adjusted inventory Problem 1-6 (AICPA Adapted) ‘Arabian Company reported the following current assets at year-end: Cash : 4,500,000 Accounts receivable 7,500,000 ‘Notes receivable, net of discounted note PS00.000 2'000.000 - Inventory 4,000,000.-— Deferred charges 1,000,000 Tetal current assets Accounts receivable comprised the following: Trade accounts receivable 19,000,000 5,000,000 Allowance for doubiful accounts =~ (300/000) » Selling price of Arabian Company's unsold goods sent 7 to Tar Company on consignment at 150% of cost and excluded from Arabian's ending inventory _3,000.000= 2 \'” ‘What amount shouldbe reported as total current assets at year-end? a. 16,000,000 17,000,000 Solution 1-6 Answer b Cash Accounts receivable Allowance for doubtful accounts ( Notes receivable 2,000.00, Inventory (4,000,000 + 2,000,000) 6,000.00 Total current assets 17,000,000 The selling price of the unsold goods out on consignment is excluded from accounts receivable but the cost ofthe goods should be included ininventory. The cost of goods outonconsignmentis P3.000,000 divided by 150% or P2.000.000. ‘The discounted note receivable is properly netted notes receivable. ‘ ae “The defered charges re noncurent because téhnically they expire in more than one year afte ie reporting pends none ne exPare inst the total 8Problem 1-7(AICPA Adapted) East Company reported the following current assets at year end: ‘Cash 3,500,000 Accounts receivable 3,000,000 Inventory 2,800,000" Prepaid insurance 200,000 Total current assets 9,500,000 The accounts receivable consisted of the following: Customers’ accounts + 1,400,000 Employees’ account collectible currently 200,000 Advances to subsidiary 500,000 Allowance for doubtful accounts’ €_ 100.000) Subscription receivable, not collectible currently 1,000,000 Total accounts receivable 3,000,000 ‘What total aniotint should be reported as current assets at year-end? a. 8.000.000 b. 9,500,000 ¢. 8,500,000 4. 9,000,000 Solution 1-7 Answer a Cash 3,500,000 ‘Accounts receivable 1,400,000 ‘Allowance for doubtful accounts (100,000) Receivable from employees 200,000 Inventory 2,800,000 Prepaid insurance 200,000 Total current assets 8,000.000 Jasnoncurrent.. The advances to subsidiary should be classifi jon receivable should be reported as a deduction from The subscripti 2 use itis not collectible currently. subscribed share capital becat Problem 1-8 (AICPA Adapted) vai Company showed the following current assets at year-end: Cash 3.200,000 ‘Accounts receivable 2,500,000 + Inventory 2,000.000~ Total current assets 7,700,009 Cash on hand, including customer postdated check 100,000 and employee IOU P50,000; Cash in bank per bank statement (outstanding, check at year-end P200,000) 500,000 ~/< GHD) 2,700,000-200 3,200,000 “-* Total cash What total amount should be reported as current asset3? 4. 7,700,000 b. 7,450,000 +e, 7,400,000 d. 7,500,000 ‘Solution 1-8 Answer d Cash on hand ($00,000 - 100,000~50,000) -, 350,000 Cash in bank 2,500,000 Accounts receivable 2{600,000 ‘Advances to employee 0,000 Inventory + 2,900,000 Total current assets 7,500,000 Cash in bank per bank statement s ‘Outstanding check YP ('Z00,000) ‘Adjusted cash in Bank C2,500,000 Accounts receivable Customer postdated check *foo.000 Adjusted balance 1 2,600,000 The customer postdated check should be revert Soe : reverted to accountsProblem 1-9 (AICPA Adapted) Gar Company reported the following liability account balances on December 31,2021: 000 Accounts payable Bie v4 Bonds payable, due December 31, 2023 so. Discount on bonds payable ae Deferred tax lability =e Dividends payable snot Income tax payable sn Note payable, due December 31, 2022 “On December 31, 2021, what total amount should be reported as current liabilities? ‘a. 7,100,000 b. 4,300,000 cc. 3,900,000 d. 3'300,000 Solution 1-9 Answer ¢ ‘Accounts payable ‘oom Dividends payable $20,000 Income tax payable en Note payable due December 31, 2022 x + 3,900,000 Total current liabi Under IFRS, a deferred tax liability is classified as noncurrent. “The bonds payable minus the discount on bonds payable should be classified as noncurrent because the bonds are due in more than one ‘year from the end of reporting period. ‘The dividends payable and income tax payable are normally classified as current. The note payable is classified as eurrent because it matures within cone year from the end of reporting period. Problem 1-10(AICPA, Adapted) Brite Company provided the following information on December 31, 2021: ‘Accounts payable 550.000 Note payable. 8% unsecured. due July 1, 2023 4,000,000 ~ ‘Accrued expenses = 350,000 ~ Contingent liability 4's : 450,000 Deferred tax liability 7! * 250,000, Bonds payable. 7%, due December 31, 2022 ,000,000 Premium on bonds payable '300,000 . ‘The contingent liability is an accrual for possible loss ona P1,000,000 lawsuit filed against the entity. . The legal counsel expects the suit to be settled in 2022 and has estimated that the entity will be liable for damages inthe range of P450,000 to P750,000. The deferred tax liability is not related to an asset for financial reporting and is expected to reverse in 2022. What total amount should be reported as current liabilities on December 31.2021? : ane a. 4,900,000 b. 5/350.000 c. 6,400,000 4. 6.850.000 Solution 1-10 Answer ¢ Accounts payable ‘Accrued expenses Bonds payable due December 31: 2022 Premium on bonds payable Total current liabilities The contingent liability is only disclosed because it is a possible loss. ming Under IFRS. the deferred tax liability is classified as noncurrent regardless of the reversal period. The bonds payable plus the premium on bonds payable should be classified as current because the bonds are due within. ‘one year from the end of reporting period. 9Problem 1-11 (PHILCPA Adapted) Burma Company disclosed the following information: Accounts payable, after deducting debit balances in suppliers’ accounts amounting to P100,000 4,000,000 Accrued expenses 1,500,000 Credit balances of customers” accounts : ‘300,000 Share dividend payable 1,900,000 Claims for increase in wages and allowance by 400,000 employees of the entity. covered in a pending lawsuit Estimated expenses in redeeming prize coupons 600,000 What amount should be reported as total current liabilities? 6,700,000 6,600.00 7,100,000 7,700,000 Solution I-11 Answer a 4,100,000 ‘Accounts payable (4,000,000 + 100,000) Accrued expenses 1,500,000 Credit balances in customers’ accounts ‘300,000 Estimated liability for coupons £600,000 Total current liabilities 00,000 Accounts payable “4,000,000 Debit balances in suppliers’ accounts 100,000 4,100,000 Adjusted accounts payable The debit balances in suppliers’ accounts are not “netted” against accounts payable but should be reported as current asset. “The share dividend payableis non accounting ability burpresented as part of shareholders’ equity as an addition to share capital “The claims for inerease in wages and allowance should be disclosed as contingent lit 10: Problem 1-12 (AICPA Adapted) ‘Mazda Company reported the following lability balances on December 31,2021: 10% note payable issued on October 1, 2020, maturing October 1; 2022 8 2,000,000-/1C 12% note payable issued on March 1, 2020, maturing ‘on March 1, 2022 * 4,000,000 ‘The 2021 financial statements were issued on March 31,2022. Under the loan agreement, the entity has the right on December 31, 2021 to roll over the 10% note payable for at Jeast twelve months after December 31, 2021. : — ‘On March 1, 2022, the entire P4,000,000 balance of the 12% note” payable was refinanced through issuance ofa long-term obligation ‘payable lump sum. z ‘What amount ofthe notes payable should be classified as current on December 31,2021? a. 6,000,000, b. 4,000,000 c.' 2,000,000 a 0 Solution 1-12 Answer b ‘The 10% note payable is classified as noncurrent. “PAS 1, paragraph 73, as amended, provides that if an entity has the Fehtat the nd ofthe reporting pettd to rollover an obligation for at least 12 months after the reporting period under an existing loan facility, the obligation shall be‘classified as noncurrent, even if it would otherwise be due within shorter period.” - The 12% note payable is classified as current. PAS 1, paragraph 72, provides that an obligation that matures within ‘one year from the end of reporting period is classified as current even ifit is refinanced on a long-term basis after the reportitig period and before issuance of the financial statements. ‘The 12% note payable is refinanced on March 1, 2022 after the end of report iod esse eee on December 31, 2021 and therefore n> Problem 1-13 (AICPA Adapted) Willem Company reported he following ai ties on December 31, Accounts payable 2,000,000 Short-term borrowings 1,500,000 Bonds payable due December 31, 2023 3,000,000 Discount on bonds payable "300,000 Mortgage payable, current portion 500,000 3,500,000 1,000,000 Bank loan, due June 30, 2022 “TheP!,000,000 bank oan was refinanced witha $-yearloanon December 31,2021. The financial statements were issued March 1,2022- ‘What total amount shouldbe reported as current iblities on December 31, 20212 a. 7,500,000 b. 5,000,000 ¢. 8,500,000 d. 4,000,000 Solution 1-13 Answer d Accounts payable 2,000,000 Short-term borrowings 1,500,000 Mortgage payable — current portion ‘500,000 ‘Total current liabilities ‘ 4,000,000 ‘The bank loan is classified as noncurrent because itis refinanced on December 31, 2021, the end of reporting period. ‘Under IFRS, an obligation that matures in one year from the end of reporting period is classified as noncurrentifitis refinanced on Iong-term basis on or before the end of reporting period. “The bonds payable minus the discount on bonds payable should be classified as noncurrent because the bonds are due in more than one ‘year from the enid of reporting period. 2, Problem I-14 (AICPA Adapted) ' Ronna Company provided te followinginformation on December 31. 2021: Accouints payable. net of creditors’ debit balances P200.000 ie ‘Accrued expenses 800,000 Bonds payable due December 31. 2023 4,500,000 Premium on bonds payable ‘500,000 Deferred tax lability 500,000 / Income tax payable 1,100,000 Cash dividend payable 600,000 ~ Share dividend payable 400.900 Note payable - 6%, due March 1. 1,500,000 1,000,000 Note payable ~ 8%, due October 1, 2022 ‘The financial statements for 2021 were issued on March 31, 2022. On December 31, 2021, the 6% note payable was refinanced longterm basis. |) © So a ene Under the loan agreement. rhe entity has the right on December 31. 2021 to rall over the 8% note payable for at east twelve months after December 31.2021. 4) ra 7 1, What amount should be reported as total current liabilities’ 7,200,000 4.700.000 6.200,000 5.100.000 pege What amount should be reported as total noncurrent liabilities? ») a. 8.400.000 - b. 5.500.000 c. 8,000,000 ‘d. 7,500,000 13 2,000,000 72,"Solution 1-14 a . Problem 1-15 (IAA). chad [eon “page Qissticin 1 ZAaiwer’ Manchest Company prove te llowinginfrmaionon Dest s 31.2021: : Accounts payable 2.200.000 Employee income taxes withheld ‘900.000 ~~ Recaed expec '800.000 Cash balance at First State Bank 2,500,000” Income tax payable 1,100,000 Cash overdraft at Harbor Bank busiares owets sds (ecounts receivable with credit balance See 100008 Estimated amount of meeting warranties Total current liabil 4,100) Estimated damages as a result of unsatisfactory w on ss performance Gn a contract 1,500,000 ~~ ‘Accounts payabie 2,000,000 ‘Accounts payable 3,000,000 Debit balances of creditors 200,000 Deferred serial bonds, issued at par and ; | bearing interest at 12%, payable in semiannual : ‘Adjusted accounts payable 2,200,000 | installments of P500,000 due April 1 and | October | of each year, the last bond to be paid ‘The creditors’ debit balances are not netted against accounts payable ‘on October 1, 2027. Interest is, also paid semiannually. 5,000,000 x '2 but should be reported as current asset. r ; pis : - ‘What amount shouldbe reported as total current ibis on Decembet The share. dividend payable is part of shareholders’ equity a8 an 31, 20217 3 f ‘addition to share capital. . z a. 8,100,000 Dele Pee- b. 7.950.000 = 100K ~ Question 2 Answer ¢ c. 9,100,000 onds payable 4,500,000 oe Premium on bonds payable - 300.000 Solution 2-15 Answer a ! Deferred tax liability 500,000 a Note payable - 6% 1.500.000 Bmpleyes income taxes withheld 900,000 ‘ ‘ash overdraft ¥ Note payable ~ 8% 1,000,000 Accounts receivable with credit balance "380,000 Total noncurrent liabilities 8,000,000 | Estimated warranty liability 500,000 | Estimated damages payable 1,500,000 ‘The 6% note payable is classified as noncurrent because itis refinanced Accounts payable 3,000,000 at the end of reporting period on December 31, 2021. Accrued interest on bonds payable from October I to ‘ December 31, 2021 (5.000,000 x 12% x 3/12) 150,000 ‘The 8% note payable is also classified as noncurrent because the rout So ban 150,000 entity has the right to roll over the note on December 31, 2021 irrent liabilities 8,100,000 for at least 12 months. ‘The bonds will be paid over 5 paid over 5 years because dani pant The bonds payable plus the premium on bonds payable should be 500,004, Since the last bond will be raidon October 2027 the classified as noncurrent because the bonds mature in more than one first bond will be paid on April 1, 2023. vaicad year from the end of reporting period. : i i . Accordingly, there isno currently maturing bond in 2021. 4 isProblem 1-16 (AICPA Adapted) Faces Senpeny: provided the following information on December * Accounts payable amounted to PS00,000 and acerued expenses totaled P300,000 on December 31.2021. * OnDecember 13,2021, the entity declared a cash dividend of P7 per share on 100,000 outstanding shares. payable on January )5,2022. * On July 1, 2021, the entity issued P5.000,000, 8% bonds for 4,400,000 to yield 10%. The bonds mature on June 30, 2026, and pay interesi annually every June 30. income was P8,500,000 and taxable income * The pretax financial was P6,000.000, The difference is due to P1,000.000 permanctt difference and P1.500,000 of taxable temporary difference to reverse in 2022, The income tax rate is 30%. The entity made estimated income 13x payments during the year of P1,000.000. ‘What amount should be reported as total current liabilities on Decernber 31,2021? : a. 3,500,000 b. 2'700,000 ¢. 2,300,000 4. .2'500,000 Solution 1-16 Answer d ‘Accounts payable ‘Accrued expenses Dividends payable (100,000 shares x 7) ‘Accrued interest payable (5,000.000 x 8% Income tax payable Total current liabilities x 6/12) Current tax expense (6,000,000 x 30%) 1.800.000 Estimated tax payment (1,000,000) 800,000 Income tax payable ‘The interest on the bonds payable is payable annually on June 30. Thus, there is an accrued interest payable from July 1 to December 31, 2021 or six months. 16. Problem 1-17(AICPA Adapted) led the following current assets and United Company pro' shareholders” equity at year-end: Cash : ‘600.000 Financial assets at fair value.through profit or loss. including cost of P300,000 of United Company shares ne Chaves 1,000,000 Accounts receivable - 3,500,000 Inventory 1,500,000 Total current assets 0,000 Share capital 5,000,000 Share pret a . 2,000,000) Retained earnings ‘500,000 ~ Total shareholders’ equity 7,500,000 ‘What amount shouldbe reported as ofl shareholders" equity? a. 7,200,000. b. 7/500.000 c. 7,800,000 4. 5,200,000 Solution 1-17 Answer a i al 5.000.000 “Share presnium 2,000,000 Retained earnings i '500.000 (300,000) ‘Treasury shares, at cost Total shareholders’ equity ee ae anata ‘excluded from financial assets at fair value ugh profit or loss but should be reported ion though proto: ported as a deduction trom Cash Financial at assets at fair value (1,000,000 - 300,000) Accounts receivable - Inventory Total current assets 7Problem 1-18{AICPA Adapted) Kalinga Company provided the following information at year-end: Share capit 15.000.000, Share premium 5,000,000 Treasury shares, at cost. 2,000,000 Actuarial loss on defined benefit plan 1,000,000 Retained earnings unappropriated 5 6,000,000 Retained earnings appropriated amo Revaluation surplu 000. oe 1,500,000 ‘Cumulative translation adjustment - credit ‘What amount should be reported as total shareholders’ equity? a. 31,500,000 b. 32;500,000 : c. 28,500,000 d. 25,500,000 Solution 1-18 Answera Share capital 15,000,000 Shage premium 5,000.00 Retained earnings unappropriated 6,000,000 Retained earnings appropriated 3,000,000 Revaluation surplus 4,000,000 ‘Cumulative translation adjustment — credit 1,500,000 Actuarial loss on defined benefit plan (.000,000) Treasury shares, al cost : (2.000.000) ‘Total shareholders” equity 31,500,000 The actuarial loss on defined benefit plan’ ix reported as component of other comprehensive income. ‘The eredit in the cumulative translation adjustment account is @ translation gain eportedas component of other comprehensive mcome. Ifthe cumulative translation adjustment account has debit balance, itis translation loss. 18, Problem 1-19 (IAA) + mae Nene Silver Company povided the following information at year-end: Share premium 1,000,000 ‘Accounts payable xy 100.000%% Preférence share capital, at par 2.000.000 - Ordinary share capital, at par 3.000.000 “~ Sales . 10,000,000 Total expenses . 7,800,000 — - Treasury shares at cost - ordi 500,000 Dividends declared 700,000 Retained earnings — beginning 1,000,000 ‘What amount should be reported as total shareholders’ equity at year-end? Petoled debore a. 8,000,000 font sheds b. 8,500,000 2. emperres cc. . $,800,000 5 . 8,700,000 ridtede Solution 1-19 Answer a = Sales “10,000.00 Total expenses * (_7,800.000) Net income . 2.200.000 Retained earnings — beginning 1,000,000 Dividends declared (700,000) Retained earnings - ending 2.500.000 Preference share capital. ~~ 2,000,000 Ordinary share capital + 3,000,000 Share premium "000, e 1,000. Retained earnings p2 sen Treasury shares, at cost (300,000) Total shareholders’ equity 8,000,000 | 19Problem 1-20(AICPA Adapted) Mont Com ' wich incladedthe bowing ‘assets totaling P8,750,000 at year-end Treasury shares of M Idle machinery lont Company, at cost 2soama Trademark ton008 200,000 Allowance for inventory writedown ‘What amount should be reported as net assets at year-end? “a. 8.500000 . 8,400,000 ¢. 8,300,000 4. 8,200,000 / Solution 1-20 Answer a Reported net assets 8,750,000 Treasury shares, at cost 250,000) Adjusted net assets 8,500,000 vot assets but should be deducted from total The treasury shares are n shareholders’ equi Problem 1-21 (PHILCPA Adapted) Peach Company reported total assets of P8,500,000 at year-end ‘which included te following: : Treasury shares of Peach ‘Company, at cost 500,000 Unamortized patent 300,000 Cash surrender value of life insurance 150,000 250,000 ‘Cumulative translation loss What amount should be reported as total assets at year-end? a. 8,000,000 : b. 7,750.00 cc. 8,500,000 d. 8,250,000 Solution 1-21 Answer b ‘Adjusted total assets (8,500,000 ~ $00,000 20,000) 2,750,000 ~~ Problem 1-22 (AICPA Adapted) the following information at year-end: 500,000 Puzzle Company provided Cash and cash equivalents Accounts receivable. net of allowance P 100,000 2,000,000 Inventory © 6,000,000 “ Property, plant, and equipment at carrying amount 12,000.000 Accounts payable 4,400,000 Wages payable 1,500,000 Share capital 6,000,000 Share premium 4,000,000 “The only asset not listed is short-term investment. Iiabilities not listed are a P3,000,000 note payable due in two ‘The only ‘accrued interest of P100,000 due in four months. years and related ‘The current ratio at year-end is 1.510 1.00. Whatis the amount of current liabilities? a. 5.900.000 b. 6,000,000 . 9,000,000 4. 8.900.000 i Lnty ‘What is the amount of short-term investment? a. 700.000 b. 400.000 c. 500.000 d. 0 aooe 2Solution 1-22 ~ Question 1 Answer B ‘Accounts payable amet Nase Beret payable ‘Total current lak 2 Answer © Question arent bites Maley by current ratio oral current assets Cash and cash equivalents ‘Accounts receivable Inventory ‘Short-term investment Question 3 Answer a Current assets Property plant and equipment Total assets Current liabilities Note payable ~ noncurrent Share capital Share premium Retained earnings 2 4.400.000 1,500,000 ~ 6-00.00 1.50 9,000,000 (500,000) (2,000,000) + (6,000,000) $00,000 9,000,000 12,000,000 21,000,000, (6.000.000) (3.000.000) (6.000.000) 4.000.000) 000.000 2 bh 20 CHAPTER 2 STATEMENT OF FINANCIAL POSITION Comprehensive problems Problem 2-1 (AICPA Adapted) a Company provided the following tial balance on December 31, Cash ‘overdraft — Accounts receivabl 350,000 Inventory 600.000 Prepaid expenses 100.000 Land held forsale © # 1,000,000 Property. plant and equipment. !.: * "950,000 Accounts payable coe rued expenses - - Ordinary share capil Share premium * Retained earnings : Fr 3,000,000, Checks amounting to P300000 were writen io vendors and recorded on December 29,2021 resulting inacash overdraf of P100.000. The = checks were mailed on January 15, 2022:Land held forsale was sold for cash on January 31,2022: The entity issued the financial statements on March 31, 2033.5) ie ee 1. “What total amount: should be reported as ciirent assets? 0007 © = 000 . 1.950,000 d._ 1/250,000 2." What total amount si a. 650.000 .,, i : ld be reported as current liabilities?» b. 500.000 ©” 7% ce. 350,000 d. 300.000 3. What otal amount shouldbe reported as stiirholdes’ equity? ‘a. 2550,000.9 b:..1.750,000 an ¢, 1500000 Gare d- 2/300,000 123 4Solution 1-22” Question [Answer b Accounts payable Wages payable . ‘Accrued interest payabl Total current liabilities Question 2 Answer ¢ Current liabilities Multiply by current ratio Total current assets Cash and cash equivalents ‘Accounts receivable Inventory Short-term investment Question 3 Answer Current assets Property. plant and equipment Total assets Current liabilities Note payable ~ noncurrent Share capital Share premium Retained earnings in 4.400.000 1.500.000 * 100.000 6,000.00) 6,000,000 1.50 9,000,000 (500,000) (2,000,000) = (6,000,000) 00,000 9,000,000 12,000,000 21,000,000, (6,000,000) ( 3.000.000) (6.000.000) (4.000.090) 100.000 CHAPTER 2 STATEMENT OF FINANCIAL POSITION Comprehensive Problems Problem2-1(AICPA Adapted) a Company provided the following tral balance on Decetnber3 i, Cash overdraft 1 Accounts receivable /: ogee Inventory Prepaid expenses * Land held ia sale Cf Property plant and equipment Accounts payable Ayemen 200,000 ‘Accrued expenses ¢ 150,000. Ordinary share capital 1,500,000 Share premium . 250,000 Retained earnings 800,000 . a 3,000,000 . .3,000.000 Checks amounting to P300,000 were written to vendors and resorded on December 29°94 >. 2021 resulting ina cash overdraft of P100,000. The « hecks were mailed op January 15. 2022-Land held forsale was seed forcash on January 31,2022: The entity issued the financial stones on March 31, 2023, Ke = 1. What total amount should bereported as ctirrent assets? a. 2,250,000 Cte b. 2.050.000 ©. 1.950,000 1,250,000 8 >, 2.” Whattotal amount should be reported as Current liabilities? S ‘a. 650.000 ,, 29° b. 500.000 7 7 +e. 350,000 d. 300.000 3, ‘What total amount should be reported as shieholdérs’ equity? ~ ‘a. 2.550000 |.sx1 b. 1750,000 2 ¢, 1°500,000 “d- 2300.00 23 -Solution 2-1 ~ Question | Answer a Cash Accounts receivable Inventory Prepaid expenses Land held for sale Total current assets ~The undelivered checks should be adjustedat yearend. Cash 300,000 ‘Accounts payable Cash (overdraft) - Debit adjustment ‘Adjusted cash balance Under PERS 5, the land held for sale should be reported as eurrent asset. Question 2 Answer a Accounts payable ‘Accrued expenses Total current liabilities Accounts payable Undelivered checks ‘Adjusted accounts payable Question 3 Answer a etinary share capital Share pres Retained earnings Total shareholders’ equity 24 200,000 350,000 600.000 100,000 1,000,000 2,250,000 300,000 (100,000) + 300,600 200,000 Problem 2-2 {AICPA Adapted) ‘Trey Company provided the following trial balance at year-end which had been adjusted exeept for income tax expense: Cash 1,250,000 Accounts receivable 1,650,000 Prepa ‘500,000 200,000 Share capital 1,000,000, Share premium 500,000 Retained earnings - beginning 1,500,000 Foreign currency translation adjustment Revenue 4,000,000 Expenses Ck OG Q 7,200,000 During the current year, estimated tax payments of P500. charged to prepaid taxes. The entity has not yet recorded income tax expense. There were no differences between financial and taxable income. The tax rate is 30%, Included in accounts receivable is P500. ‘000 due ‘from acustomer. Special terms granted to this-cusiomer require payment in equal ~ semiannual installments of P 125,000 every April F and October T. 1 What amount should be reported sol caren ase year-end? a. "2,850,000 b. 2,650.000 ¢. 2,900,000 3.100.000 pidMint Company provided the following account balances at year-end Question 1 Answer @ 1.250.000 cath 1,400,000 which had been adjusted except for income tax expense: ‘Accounts receivable 300,006 ag Prepaid t2x€5 2,850,000 ‘Accounts receivable vet s5518 Cost in‘excess of billings on long-term contracts Total cur ‘Bilings in excess of coston longterm contacts 1,650,000 Solution 2-2 ~ Problem 2-3 (AICPA Adapted) ite teetees Prepaid taxes ‘Accounts receivable 000 250,000 i i i Nonearrent portion (125,000 + 125,000) (250,000) Proper lant, de equipment a carrying mount : 1,400,000. Sheva Current portion Share premium Retained earings i vate pelea moeperind 500,000 Earnings from longterm contracts id taxes x Prepaii +” 500,000 | Costs and expenses Cem Tile! Allreceivables on long-term contracts are considered tobe collectible ll receivables on longs sare collect Adjusting entry .within 12 months. During the year, estimated tax payments of PB00,000> a were to prepaid taxes. The entity has not recorded. tax Income tax expense 300,000, expense, The tax rate is 30%. - Prepaid taxes 300,000 | At year-end, what amount should be reported as) Prepayment of income taxes. * $00,000 | 1. - Total retained earnings? i AW Income tax expense x 300,000 | a. 2,400,000 ¥ PL Prepaid taxes ~ year-end. : 200,000 | bh, 327.000 ~ Ouestion 2 Ansiver € | 2 Revenue 4.000000 =| 1,100,000 Expenses (3.000.000) |p &: 1300,000 Income before income tax 1,000,000 | x Income tax-expense (30% x 1,000,000) 300,000) ‘Net income. 700.000 Retained earnings— beginning ~ 1,500,000 Retained earnings — ending 2.200.000 The debit balance inthe foreign currency translation adjustment isa component of other comprehensive income and a deduction from total shareholders’ equity because itisa translation loss. 26 ay aSolution 2-3” | Problem 2-4(AICPA Adapted) Question 1 Answer b ; Shaw Company provided the following trial balance on December 31. Earnings from long term contracts coy 2021 which had been adjusied except for income tax expense: Costs and expenses "00900 Cash 600,000 ~) c : , Accounts receivable 2.800.000 | Cf- ux | theome tncapense G0% x 4,000,000) (1,200,000) Inventory . 2,000,000 — 2,800,000 Property, plant and equipment, net 10,500,000 : Net income ey ‘Accounts payable and accrued liabilit 1,800,000 CL Retained earnings unappropriated 1,400,000 Inéome tax payable 11500,000 C1 Retained earnings restricted 1,900,000 Deferred tax lability "700,000 vet. i 5,200,000 Share pital 2,500,000, lea ed cae Share premiunt . 3,000,000 . Retained earnings, January 3,300,000 ~ Question 2 Answer a oe Net sales and other revenue ili Jf cost on long-term contracts 700, Costs and expenses See rare aes 400.000 =| ——_ Income tax expense Total curent liabilities 1,100,000 | Current tax expense 1,200,000 ‘The accounts receivable included P1,000.000 due from a customer Prepayment of taxes '300,000) apd pasate in quarry nstalimens ofP 125.00. Thelst payments jue December 30.2033. S,3y. ~ 000° + Income tax payable Sooo During the ear estimated ta payment ofpegngen was charged 10 : ; incom tax expense. The income tax rate iS80%," The taxes of P1,200,000 represent the actual income tax eiaxex 0 cocctorte Sse yan "The prepayment of taxes is PBOO,000. ‘On December 31.2021. what amount shouldbe reported as Thus, there isan income tax payable of P400,000. |. Total current assets?> a. 3.400.000 Question 3 Answer ¢ > b, 4.400.000 ¢. $.400.000 Cash 3,600,000 & 900-000 Accounts receivable 3,500,000 ines tata? Cost in excess of billings on long term contracts 1,500,000 2. Total current liabilities?» Total cument assets eon.o00 Dd & Monon © Question 4 Answer ‘Share capital 2,000,000 Share premium 0000 Retained earnings 5200000 | Total shareholders’ equity 3,000,000 |Solution 2-4 ~ Question | Answerd Cash : ‘Accounts receivable Inventory \ Total current assets Accounts receivable Noneurrent portion (125,000 x 4) Adjusted current portion Question 2 Answer a ‘Accounts payable and accrued liabilities Income tax payable (1,500.00 ~ 600,000) Total current Entries made Income tax expense Cash Income tax expense 1,500,000 Income tax payable Adjusting entry Income tax payable Income tax expense Question 3 Answer ¢ Net sales.and other revenue Costs and expenses Ancome before income tax Income tax expense (30% x 5,000,000) Net income Retained earnings - January 1 Retained earnings ~ December 31 30 5,000,000 (1.500.000). 3,500,000 3,500,000 7,000,000 | Problem 2-5 {AICPA Adapted) Kenya Company provided the following information on December 31, 2021: Cash in bank, net of bank overdraft PS00.000-—> Petty cash, unreplenished petty cash expenses P10,000 Notes receivable : Accounts receivable, net of customers’ accounts with credit balances P1.500,000 Inventory “Bond sinking fund / Total,current assets ‘Accounts payable, net of suppliers’ accounts with debit balances PI,000,0002-c 4, Notes payable! Bonds payable due June 30, 2022 Accrued expenses Total current liabilities. 5.000,000+s="« $0,000— 101 4,000,000. 6,000,000-1-5¥1 3,000,000 c 3,000,000 50,000 7:000.000 4,000,000 3,000,000 2,000,000 1. What amount should be reported as total current asseis"on December 31,2021? 5,51 Pa so: ae a. 2,100,000 » WK b. 2,300,000 sme Np ., 1,900,000 Zook undelirsrd d. 2,200,000 Joo advance 3sSolution 2-7 ~ Question 1 Answer a Cash 190.000 one, receivable 1,650,000 Prepaid expenses 250,000 Total current assets 3,800,000 300,000 Cash 5 Note payable deducted from cash in bank S800 Undelivered checks 1,000,000 Adjusted cash balance ‘The note payable due June 30, 2022 should be shown as current liability. ‘The undelivered checks should be adjusted by debiting cash and crediting accounts payable. Accounts receivable 800,000 Advance payment from customer erroneously deducted from accounts receivable 100,000 Adjusted carrying amount 900,000 Accounts receivable 100,000 100,000 ‘Advances from customer ‘The cash advance from the customer is shown as current liability. Question 2. Answer b ‘Accounts payable 1,450,000 ‘Accrued expenses 250,000 Note payable ~ bank 500,000 ‘Advances from customer 100,000 Total current liabilities 2,300,000 ‘Accounts payable 1,250,000 Undelivered checks . 200,000 ‘Adjusted balance 36 Problem 2-8 (AICPA Adapted) Daet Company provided the following account balances and related information at year-end: Cash 3,700,000. Accounts receivable 1,500,600 Allowance for doubtful accounts (200,000) Inventory 2,000,000 ~~ 300,000 Cash surrender value } ¢ Total current assets Analysis of cash 7 Cash in bank 1,300,000 « Bank overdraft in another bank (300,000) CL— Cash set aside for plant addition 2,000,000. Wo Petty cash fund 50,000.“ Cash withheld from wages 150,000, General cash 500,000 // Total cash 3,700,000 ‘The accounts receivable included past due. account in the amount of — P100,000. The account is deemed uncollectible and should be written off ,_ , 4 Theinventory included goods held on consignment amounting to dv|yP150,000 and goods of P200,000 purchased and received at yeat-end, Neither of these items have been recorded as a purchase. 1, What amount should be reported as adjusted cash balauce? ya 2,000,000... Cf 14M Pb. .1,700,000 \ fcr OK c. 4,000,000 | Gc oe ‘2,300,000 1st 2. What total amount should be reported as current _ year-end? ha. 5,150,000 b. 5,450,000 «.' 5,250,000 d. 5,300,000 37Solution 2-8 ~ ion | Answer a Question 1 a Cash in bank 50,000 Petty cash fund 150008 ‘Cash withheld from wages 500,000 General cash coies Total cash 2,000,000 “The bank overdraft isnot “netted” but reported as current liability. “The cash se aside for plant addition is shown as moneurrent asset, Question 2 Answer a ? 2,000,000 Cash 000, ‘Accounts receivable 1,400,000 ‘Allowance for doubtful accounts 100,000) Inventory 1,850,000 5,150,000 Total current assets ‘The cash surrender value is shown as noncurrent asset. Accounts receivable 1,500,000 ‘Account to be written off 100,000) Adjusted balance: 1,400,000 Allowance for doubtful accounts 200,000 ‘Account to be written off (100,000) ‘Adjusted allowance balance 00,000 Inventory 2,000,000 Goods held on consignment 150,000) Adjusted balance 50,000 ‘The goods of P200,000 purchased and received are properly included in inventory. 38. Problem 2-9 (AICPA Adapted) ‘Cara Company provided the following information for the current year: Current assets January 1 December 31 700,000 7, 4,000,000 300,000 ? ‘Net income for the current year was P400,000. No dividends were declared during the year and there were no other changes in shareholders’ equity. =e ‘What amount was reported as current assets at year-end? a. 900,000 b. 300,000 c. 600,000 d. 450,000 What amount as reported shareboldes” equity at yearend? SC eacly a. 3,000,000 hb Cassth Lal b. 2,600,000 c. 2,700,000 d. 3,700,000‘Solution 2-9 Question 1 Answer ® cmp i Come a ie 300,000 > Caet iites Dee 7 Working capital -Devember tion 2 Answer a on U 700,000 at assets— January mm SS ee January | 7004 Toa abies amuay 1 (a0 Sancurent abilities January 1 shareholders’ equity January 1 20 Net income for current year ‘ Shareholders’ equity ~ December 31 apne 700,000 ot assets ~ January 1 i caren ibis January | (SQUEEZE) eooo Working capital - Janiary 1 Question 3 Answer c Current assets ~ December 31 + 900,000 Property, plant and equipment ~ December 31 4,000,000, Total assets ~ December 31 4,900,000 Current liabilities ~ December 31 ¢ 300,000) ies December 31 (SQUEEZE) - (1,600,000) 3,000,000 Noncurrent lak Shareholders’ equity - December 31 ‘The amount of noncurrent liabilities on December 31 is simply “squeezed” by working back from the December 31 shareholders’ equity. 40 ~* Problem 2-10-(PHILCPA Adapted) Icarus Company provided the following data at year-end: Cash 2,300,000 ‘Accounts receivable 400,000 Inventory 1,900,000- F aid expenses 100,000 Accounts payable 2,500,000 Interest payable 150,000 Income tax payable 300,000 Money claim of the union pending final decision 500,000 Mortgage payable, due in four annual installments 2,000,000 Jef 2 SD Analysis of cash ¢ a * Cash in bank : 1,700,000 Customer check marked NSF ~ # /; 200,000 Employee IOU 50,000 Deposit with court for case under litigation hep 350,000 Total cash Analysis of accounts receivable Customers’ accounts with debit balances, 1,600,000, Advances to subsidiary 400,000 Advances to suppliers 200,000 ‘Advances to officers due currently 300,000 Allowance for doubtful accounts: 100,000) Total accounts receivable 2,400,000 1 ‘What amouint should be reported ss total curent assets? a. 5,900,000 Bb. 5/950,000 ¢. 6,350,000 4. 5,750,000 2, What amount should be reported as total current liabilities?) a. 3,450,000 asm dy b. 3,400,000 toy e. 3,950,000 She 4. 3,700,000 dhs coat 4rSolution 2-10° Question | Answer b aon ish in bank Losin toot eet imeem ‘towence for doubtful Lene 05.00 Joyee I graces goes de cent) am ‘advances to suppliers aun Inventory s 100,000 nse Prepaid expe! ioe ‘Total current assets 1,600,000 Accounts receivable a Customer check marked NSF eae ‘Adjusted balance aan ‘The customer check marked NSF should be reverted to accounts receivable. : ‘The cash deposit with court for case under litigation is classified as noneurrent. Question 2 Answer a Accounts payable 2,500,000 Interest payable 150,000 Income tax payable 300,000 Mortgage payable — current portion (2,000,000/4) _ $00,000 Total current liabilities 3,450,000 The money claim of the union pending final decision should be disclosed as contingent liability. a2 CHAPTER 3 NOTESTO FINANCIALSTATEMENTS- Events after reporting period Problem 3-1 (AICPA Adapted) Dean Company acquired 100% of Morey Company in the prior year. During the current year, the individual entities included in their, - financial statements the following: Dean "Morey Key officers’ salaries 750,000 $00,000 Officers’ expenses 200,000 100,000 Loans to officers 1,250,000 $00,000 Intercompany sales 1,500,000 ‘What total amount should be reported as related party disclosures in the notes to Dean Company's consolidated financial statements for the current year? : a. 1,500,000 b. 1,550,000 1,750,000 4. 3,000,000 Solution 3-1 Answer d Loans to officers: Dean 1,250,000 Morey . ‘$00,000 Key officers” salaries: Dean . 750,000 Morey, 500,000 Total : 3,000,000 Tntercompany sales are no longer disclosed ‘when consolidated financial statements are prepared, 43Solution 2-10- 4 Question 1 Answer b ‘noon Cash in bank ; (100,000) ts receivable 50,000 ‘Allowance for doubtful eon : 300,000 ‘Advances to employee I 200,000 ‘Advances to officers due CH sore ‘Advances to suppliers 100,000 Inventory — Prepaid expenses Total current assets 950,000 1,600,000 = Accounts, recivable Ae 200,000 Customer check marke = han 1,800,000 ‘Adjusted balance r “The customer check marked NSF should be reverted to accounts receivable. , ‘accounted fornoncurrent assets' a asieid On October 30,2021, the entity classified anoncurrent ase forsale. : on val Ath date, the eanying amour was PL S0,000 he Se ss estimated at P1,100,000 and the cost of dispo vie On December 31, 2021, the asset was sold for net proceeds of 800,000. r : 1. Whatamount should be reported a impairment loss for 2021? a. $50,000 He b. 400,000 ©. 700,000 a. 0 2. Whatamount should be recognized as loss on disposal for 2021? a. $50,000 b. 700,000 c. 150,000 a.) 0 Solution 6-2 Question I Answer a Carrying amount 1320000 Fair valueless cost of disposal (1,100,000 ~ 150,000) x $50,000 Impairment loss Question 2. Answer ¢ i 800,000 Sale price Carrying amount on December31, 2021, date of sale _950,000 Loss on disposal (150,000) 78. Problem 6-3 (IFRS) On January 1, 2021, 'Racelle Company purchased land at a cost of 6,000,000. The entity used the revaluation mode? for this asset. ‘The fair value of the land was P7,000,000 on December 31,2021'and” 8,500,000 on December 31, 2022. On July 1,2023, the entity decided to sell the land and classified the asset as held for sale. The fair value of the land on this daté is P7,600,000. The estimated cost of disposal is very minimal. a 7 ‘On December 31, 2023, the land was sold for P8,000,000. 1, What amount in OCI should be recognized in the statement of comprehensive income for the year ended December 31, 2022? a. 2,500,000 7 b. 1,500,000 c. 400,000 d. 900,000 2. What amount should be recognized as gain or loss on sale of land in2023? 2,000,000 gain 1,000,000 gain b, 400,000 gain 5 $00,000 loss aeoe 3. What amount of OCIis reeycled to retained earnings in 2023? 1,000,000 T 1,600,000 I 2,500,000. 2,000,000 poop 79Solution 6-3” Question | Answerb = Fair value— December 31, 2022 Fair value~ December 31, 2021 Revaluation surplus in 2022-OCI Question 2 Answere Sale price Carrying amount equal to fa i value on Suly 1.2023 Gain on sale of land Question 3 Answer b 2021 Jan. 1 Dec. 31 2022 Dee. 31 2023 July 1 Dec. 31 3 Land 6,000,000 Cash Land 1,000,000 Revaluation surplus Land 1,500,000 Revaluation surplus Revaluation surplus. 900,000 Land (8,500,000—7,600,000) Land held for sale 7,600,000 Land Cash 8,000,000 Land held for sale Gain on sale of land Revaluation surplus 1,600,000 Retained earnings (2,500,000-900,000) 6,000,000 1,000,000 1,500,000 900,000 7,600,000 7,600,000 400,000 1,600,000 Problem 6-4 (IFRS) Surreal Company accounted for noncurrent assets using the evaluation) adel On October 1, 2021, the entity classified a land as held for le. At that date, the carrying amount of the land was P5,000,000 and the balance in the revaluation surplus was P1,S00,000. At same date, the fair value of the land was estimated at P5,500,000 and the cost of disposal at P100,000. ; J On December31, 2021, the fair value less cost of disposal of the land didnot change. The land was sold on January 31,2022 for P6,000,000. 1. What amount should be recognized as impairment loss in 2021? a. 100,000 45 b. 500,000 % c. 400,000 a. 0 2. Whatis the adjusted carrying amount of the land’on December 31,2010 5,000,000 5,500,000 5,400,000 3,500,000 ee oe 3. What amount should be reported 68 gain on disposal of land in 20227 — a. 1,000,000 a b. 2,600,000 b c. $00,000 te 4 600,000 i 4. What amount of OCIis rect a. 1,500,000 ». 2,000,000 500,000 0Solution 6-4 - Question J Answer a 5,500,000 Carrying amount equal to fair value Fair value loss cost of disposal (5,500,000- 1004 000) Inipairment loss for2021 Question 2 Answer e Adjusted carrying amount on December 31, 2021 Question 3 Answer d Sale price Carrying amount Gain on sale of land Question 4 Answer b 1,500,000 Revaluation surplus —Oetober 1,2021 500, Increase in fair value (5,500,000 ~ 5,000,000) 500,000 Revaluation surplus reclassified to retained earnings 2,000,000 2021 : Oct. 1 Land 500,000 Revaluation surplus 500,000 5,500,000 1 Land eld forsale 5 aera 1 Impairment loss 100,000 Land held for sale 100,000 The cost of disposal for revalued asset is recognized as impairment loss. 2022 Jan.31 Cash 6,000,000 Land held for sale 5,400,000 Gainon sale of land ‘600,000 31 Revaluation surplus 2,000,000 Retained earnings 2,000,000 a2 Problem 6-5 (IFRS) On April 1, 2021, Brandy Company had a miachine with a ost o: 5,000,000 and: panera eps eciation of P3,750,000. On April 1, 2021, the ey fed the machine as held for slé and decided to sell the machine within one year. - OnApiil 2021, the machine had an estimated sellin price of 500,000 andaremainingusefilieo2 years. : Nisestimatd a seling ox asia hedges he acine will be P50,000. 0 GSS On December31, 2021, the estimated selling price of the machine had inereased to P750,000 with estimated selling cost of P100,000.. 1, What amount of impairment loss should be recognized in 20217 "a a. 450,000 b. 800,000 2 c. 750,000 Ve 4. 0 L 2 cae a ra ee eters finest ‘on December 31, 2021? 468,750 368,750 300,000 200,000 epee 93Solution 6-5 Question 1 Answer b . cox $e 7: = Carrying amount Aprit 1, 2021 Fair value less cost of disposal - April 1, 2021 450,000 (500,000 - 50,000) ; 300,000 Impairment loss ~ April 1, 2021 — 800,000 500,000 Impairment loss Machine held for sale Question 2 Answer d ‘ Woes Fair value less cost of disposal - December:31202t <4 a9 ait abe tes peed posal ~— Aprit 1, 2021 450,000 Gain on reversal of impairment 200,000 Machine held for sale + 200,000 sa o99 ‘Gain on reversal of impairment x [Note that thee is no depreciation from Apri 1,2021 to December31, 2021. || not depreciate a PERS 5, paragraph 25, provides that an entity shall not d roncuront asset while itis classified asheld forsale or while disposal group classified as held forsale part of 84 Problem 6-6 (PHILCPA Adapted) ‘On July 1, 2021, Whisky Company had an equi 5,000,000 and accumulated depreciation of P3,000,0' date, the entity classified the equipment as held for sale. rat had an estimated selling price of st of P100,000 and remaining life of 4 pment with cost of 9,000,000. On that On same date, the equipme 1,300,000, estimated selling co: years. AT 62 ‘On December 31, 2021, the est had increased to P1,500,000 wit jimated sélling price of the equipment ith estimated selling cost of P50,000. | {What amount should be reported as gkin on reversal of impairment in 2021? ee a. 800,000 « yor b. 200,000 i c. 250,000 d. 300,000 Solution 6-6 Answer c Cost . 5,000,000 ‘Accumulated depreciation 3,000,000 Carrying amount —July 1,2021 2,000,000 Fair value less cost of disposal (1,300,000 minus 100,000) 1,200,000 Impairment loss July 1, 2021 800,000 Fair value less cost of disposal ~ December 31, 2021 (1,500,000 minus 50,000) 1,450,000 Carrying amount equal to fair value less cost of disposal onJuly 1, 2021 1,200,000 Gain on reversal of impairment Under IFRS, an asset classified as held forsale isno longer . Thus there sno depreciation from July 1, 2021 to December 31, asSolution 6-7” ,000 on January sO raided |, —_‘Duelon Aner Problem 6-7 (IFRS) ‘Affable Company purchased an equi ent 1,202. The equipment had a useful life of 5 Question 2 Answer c itasheld for Cost ~ January 1, 2021 a ity classified the equipment a oe a seis Compan broke ys ot disposal of te eam ‘Accumulated depreciation (5,000,000/5) was P3,500,000. : dis Be Canying arsunt before clasification - December 31,2021 On Devember 31, 2022, the entity belived that the ete Fair value less cost of disposal 4 de classification asheld forsale can no onger be met ass sinas Impairment loss for 2021 " rane ipment but to co Accordingly, the entity decided not to sel the equip Aecontin = taht” Question 3 Ariswer ‘. "the fair value less’ cost of disposal © Cost—January 1,202] > . 5,000, On December 31, 2022, the fair value ‘Accumulated depreciation (5,000,000/5x 2years)- (2,000,000) equipment was P2,700,000. eed ee 1, ‘Whatisthe cansingmaeuntot ite pment on Decent er 31, Carrying amount ~ no classification as held for sale 3,000,000 . aiastfieati Id for s = : Fair value less cost of disposal 2,700,000 202 before elassification as hel a. 5,000,000 ‘ b. 4,000,000 Measurement of equipment reclassified as PPE 2,700,000 ¢ EBS 4,500, cod i Under PFRS 5, pa h 27, itity shall measure a. it 9 Inder , paragraph 27, an entity sl jeasure a noncurrent 2. Whatamount ofimpairmentloss should be recognized in 20212 asset that ceaseS tobe classified as held forsale at tHe lower between: i 1 g0n,000 he . a, The carrying amount on the basis thit the asset had never been Aen classified as held for sale. "500,009 a b. Th 5 : ; 7 enue .._ The recoverable amount on the date of the decision not to sell 3, Whaiamoun sould included inprofitorloss in? A ‘The recoverable amount is the higher between fair value less cost ofthe reclassification ofthe equipm h of disposal and value in use. * a. 800,000 gai La Carrying amount per book i 3,500,000 b. 800,000 loss + “Oy Measurement of equipment reclassified as PPE 2,700,000 7 ome 7 i Loss on reclassification in 2022 800,000 4, What is the adjusted carrying amount of the equipment on Question 4 Answer b December 31, 2023? s oe her ‘fis leasurement of equipment ~ December 31, 2022 2,700,000 £ Pen Depreciation for 2023 (2,700,000 /3 years remaining) (900,000) g- 2.000.000 27 : Carrying amount ~ December 31, 2023 1,800,000 87° 86