Illustration 10-9

On September 1, 2023, an entity sold its building with a carrying amount of P5,000,000 for P6,000,000.

Q1 Q2 Q3 Q4
- - 1,000,000.00 -

Illustration 10-10

As of March 31, 2023, one of the entity’s land is deemed to be impaired since its carrying amount of P4,000,00

Q1 Q2 Q3 Q4
(1,000,000.00) - - 600,000.00

Illustration 10-11
As of June 30, 2023, an entity’s goodwill with carrying amount of P1,500,000 was written-off as a loss after the i
31, 2023, changes in outside factors indicated that the recoverable amount of the CGU has increased.

Q1 Q2 Q3 Q4
- (1,500,000.00) - -

Illustration 10-12

On January 15, 2023, as part of budgeting process for the succeeding quarters, an entity anticipated that the re
month of July 2023 at a budgeted amount of P500,000. Later on, repairs and maintenance costs of P550,000 we

Q1 Q2 Q3 Q4
- - (550,000.00) -
Illustration 10-13

An entity pays 5% of its net income as bonus to its employees. Quarterly net income amounts were determined

1st Qtr 2nd Qtr 3rd Qtr

Net income/(loss) 1,800,000.00 500,000.00 (400,000.00)

Qtrly Income Rate Bonus payable

Q1 1,800,000.00 5% 90,000.00
Q2 2,300,000.00 5% 115,000.00
Q3 1,900,000.00 5% 95,000.00
Q4 2,900,000.00 5% 145,000.00

Illustration 10-14

BSA Company reported the ff. amounts during the year:

1st Qtr 2nd Qtr 3rd Qtr

Sales 8,600,000.00 7,500,000.00 9,000,000.00

Operating expenses* 1,800,000.00 1,640,000.00 2,050,000.00

*excluding depreciation, insurance, advertising, repairs and maintenance.

The Company has consistently maintained gross profit rate based on sales of 40%. Additional information was a

a. Annual depreciation expense based on beginning PPE items amounted to P800,000. Additional PPE were acq

b. Two-year insurance premiums of P180,000 were paid on March 1, 2023.

c. Repairs and maintenance costs of P110,000 were incurred on April 1, 2023. These are expected to benefit th

d. The cost of inventory exceeded its NRV by P360,000 as of June 30, 2023. By December 31, 2023, the cost of

e. Advertising costs of P240,000 were incurred on September 1, 2023. These costs are expected to benefit the

f. An equipment was sold at a loss of P45,000 on February 1, 2023.

g. A land was sold at gain of P420,000 on October 10, 2023.

Q1 Q2 Q3
a. Depreciation expense (old PP (200,000.00) (200,000.00) (200,000.00)
Depreciation expense (new P - - (20,000.00)

b Insurance expense (7,500.00) (22,500.00) (22,500.00)

c RM - (110,000.00) -
d Inventory write-down - (360,000.00) -
e AE - - (240,000.00)
f Loss on disposal (45,000.00) - -
g Gain disposal - - -
Total Expenses (252,500.00) (692,500.00) (482,500.00)

Sales 8,600,000.00 7,500,000.00 9,000,000.00

COGs 5,160,000.00 4,500,000.00 5,400,000.00
GP 3,440,000.00 3,000,000.00 3,600,000.00
Opex (1,800,000.00) (1,640,000.00) (2,050,000.00)
Other exepnses/gain/income (252,500.00) (692,500.00) (482,500.00)
Net income 1,387,500.00 667,500.00 1,067,500.00

Illustration 10-8

On January 1, 2023, an entity’s investment in equity securities had carrying amount of P3,300,000. Its fair value

1st Qtr 2nd Qtr 3rd Qtr 4th Qtr

Fair value 3,500,000 3,400,000 3,250,000 3,620,000

The declines are considered temporary.

Q1 Q2 Q3 Q4
End 3,500,000.00 3,400,000.00 3,250,000.00 3,620,000.00
Beg 3,300,000.00 3,500,000.00 3,400,000.00 3,250,000.00
Change in FV 200,000.00 (100,000.00) (150,000.00) 370,000.00
or P6,000,000.

amount of P4,000,000 is higher than its recoverable amount of P3,000,000. As of December 31, 2023, its recoverable amo

3,600,000.00
3,000,000.00
600,000.00

off as a loss after the impairment assessment on a cash generating unit. As of December
s increased.

nticipated that the repairs and maintenance costs will be incurred during the
costs of P550,000 were actually incurred during August 2023.
unts were determined as follows:

4th Qtr

1,000,000.00

Bonus Expense
90,000.00
25,000.00
(20,000.00)
50,000.00
145,000.00 As of bonus expense

4th Qtr

###

2,800,000.00

onal information was also provided as follows:

dditional PPE were acquired on August 1, 2023. These items will contribute additional annual depreciation of P120,000.

expected to benefit the rest of the year.

31, 2023, the cost of inventory is now lower than its net realizable value.

xpected to benefit the current and succeeding five interim periods

Q4
 (200,000.00)
(30,000.00)
120,000.00
(22,500.00) 12.00
- 10,000.00
360,000.00
- 180,000.00
- 24.00
420,000.00 7,500.00
527,500.00 (900,000.00)

12,000,000.00
7,200,000.00
4,800,000.00
(2,800,000.00)
527,500.00
2,527,500.00 5,650,000.00

300,000. Its fair value at the end each of 2023 are the following:

320,000.00 As of 2023
023, its recoverable amount increased to P3,600,000.
ciation of P120,000.
Illustration
At the beginning and ending of 2024, CPAKaNa Company reported the following balances:

Accounts receivable
Allowance for bad debts
Advances from customers
Inventories
Accounts payable
Advances to suppliers
Notes payable – all credit purchases
Prepaid expenses
Accrued expenses
Property, plant and equipment, net

In addition, it also reported the ff. additional information:

Cash receipts from credit sales
Cash receipts from cash sales
Cash advances from customers
Sales discounts granted to customers
Credit memos given to customers for returns
Refunds given to customers for returns
Accounts written-off
Cash payments to credit purchases, including notes
Cash payments to cash purchases
Cash advances made to suppliers
Purchase discounts received
Credit memos received from suppliers for returns made
Refunds received from suppliers for returns made
Cash payments for operating expenses
Purchase price of acquired building
Selling price of sold equipment
Carrying amount of the sold equipment above

Requirements: Compute for net sales, cost of sales, operating expenses, other gains and losses, and net income

Difference of Cash basis and Accrual basis - Recognition ng income and expense
Income
Expenses
GAAP
Users

Sales

Purchases
Expenses other than depreciation expense and allowance for bad debts

Depreciation expense
wing balances:
Jan. 1, 2024 Dec. 31, 2024
2,500,000 1,750,000
180,000 190,000
385,000 420,000
1,550,000 1,720,000
1,890,000 2,170,000
780,000 925,000
480,000 250,000
650,000 845,000
565,000 390,000
8,500,000 8,980,000

9,000,000
2,600,000
800,000
45,000
140,000
60,000
80,000 Beginning AR and NR
4,600,000 Credit Sales (Squeeze)
1,000,000
600,000
30,000
100,000 Total
50,000
3,200,000
2,100,000
865,000
900,000 Ending AFC
Realization of Credit Sales (Squeeze)
her gains and losses, and net income. Total

Cash basis Accrual Basis

When cash is received When income is earned
When cash is paid When expense is incurred
Not accepted GAAP Accepted GAAP
Micro, Small and Medium Entities Large Entities

Cash sales Cash sales

Collection on credit sales Credit Sales
Receeipts to advances from customers Realization of advances from customers

Cash purchases Cash purchases

Payments of credit purchases Credit purchases
Payments to advances to supplier Realization advances to supplier

Written-off of AR/Sales Written-off of AR/Sales (direct method)

Provision for doubtful accounts (allowance method)

provided normally provided normally

Accounts receivable
Trade receivables
Notes receivable

Advances from customer

Trade receivable
DR CR
2,500,000.00 1,750,000 Ending AR and NR
8,515,000.00 9,000,000.00 Collection on credit sales
45,000 Sales discount
140,000 Sales return (Credit memo)
80,000 Accounts written-off
11,015,000 11,015,000

Advances from customer

DR CR
420,000.00 385,000 Beginning AFC
765,000.00 800,000.00 Receipt from advances from customers
1,185,000 1,185,000

DR CR
Cash XX
Sales XX

Cash XX
AFC XX

AFC XX
Sales/Service income XX
ce method)
 DR CR
AR XX
Sales XX

Sales discount XX
AR XX
XX
Cash XX
Sales

Cash
AR

ADA XX
AR XX

nces from customers

Cash Sales 2,600,000.00 (included recoveries from previo

Gross Credit Sales 9,280,000.00
Sales discounts (45,000.00)
Sales returns (refund + Credit memo) (200,000.00)
Total Net Sales 11,635,000.00
 Trade receivable
Beginning AR and NR 2,500,000.00
Credit sales (Squeeze) 8,515,000.00
Collection of credit sales (9,000,000.00)
Sales discounts (45,000.00)
Sales returns (Credit memo) (140,000.00)
Accounts written-off (80,000.00)
Ending AR and NR 1,750,000.00

Advances from customers

Beginning AFC 385,000.00
Realization of Credit sales (Squeeze) (765,000.00)
Receipts of advances from customer 800,000.00
Ending AFC 420,000.00

uded recoveries from previously accounts written-off and cash refund on purchases (should be excluded)

DR CR
AR XX
ADA XX

Cash XX
AR XX