POLYTECHNIC UNIVERSITY OF THE PHILIPPINES

Sta. Mesa Manila

ACCO 20063 – Conceptual Framework and Accounting Standards
Statement of Financial Position (FS Preparation)

Name: _______________________________________________ Section: _______________ /jpb

Badyang Pogi Company is a retail business involved in manufacturing its own products mainly candy, pastries and beverages
that was established in 2015, the business is part of the retail industry that caters Luzon and Visayas regions.

During 2019, the following related transactions are the summary of the operations:

Cash and Cash equivalents

Petty cash fund has imprest balance of P10,000, which at year end is composed of the following:
Bills and coins P2,000
Advances to employee 1,500
Un-replenished vouchers:
12/29/19 Meals 1,300
12/30/19 Transportation 2,180
12/31/19 Advertisement 1,830
1/2/20 Supplies 1,190

Cash on hand of P250,000 which includes the following:

Check payable to Badyang Pogi dated 1/2/20 P10,000
Check payable to Badyang Pogi dated 12/27/19 22,000
Check payable to Badyang Pogi dated 6/7/19 35,000

Cash in bank includes the following:

Savings account in BDO, P320,000, after considering the following transactions:
a. Check recorded as disbursement in 12/30/19 payable to a supplier dated 1/4/20, P62,000.
b. Check received from a customer and recorded as receipt on 12/27/19 for P32,000, correct amount of check is P22,000.

Checking account at Binaluyo Bank of Asia, P450,000 before any adjustments:

a. The bank statement showed balance of P520,000.
b. Deposit in transit and receipts awaiting deposits totaled to P50,000 as of December 31.
c. Checks written and delivered to suppliers was not yet encash as of December 31, P153,200.
d. Interest earned by the deposits during the year, P12,500 (2% pa), P900 during the month of December.
e. The bank charge P2,000 for the services during the month.
f. Check returned by bank marked NSF totaled to P32,100, the checks were still unrecorded as of December 31.

Trade and other receivables

The company reported Accounts receivable balance of P400,000 as of December 31, 2019. The following transactions were
not yet effected on the reported balance.
a. P47,100 worth of receivables are definitely uncollectible.
b. A customer paid P7,000, this amount was written off in 2015 because the customer is cannot be found in that year.
c. The balance of allowance for uncollectible accounts at the beginning was at P26,700. The company’s policy is to
provided allowance as follows:
Days outstanding % of receivable % uncollectible
0 - 30 days 40% 2%
31- 60 days 30% 5%
61 - 90 days 20% 10%
over 90 days 10% 15%

On January 1, 2019, Badyang Pogi received from a customer, a 10%, P600,000, 3 year notes receivable in 3 equal annual
installments plus interest every December 31 starting 2019. The note was in exchange of equipment sold costing P700,000
and accumulated depreciation of P200,000. Interest effective on this date was at 12%.

Other receivable during the period:

Interest receivable P10,000
Commissions receivable 25,000
Advances to shareholders 210,000
Inventories
The company’s transaction of inventories during the period were summarized below:

Beginning balance P300,000

Purchases 450,000
Purchase discounts 30,000
Freight - in 15,000
Cost of sales 545,000

The remaining balance of inventory is expected to be sold at P230,000, with cost to be incurred to distribute of P20,000 and
commission of 5% is to be paid with the agents.

Investments in equity
The company purchased 30,000 shares of Binaluyo Corp ordinary shares at P10 per share. The par value of the shares is P5.
At December 31, 2019, the shares are selling at P15 per share. The shares are not for trading, but Badyang pogi designated
the share through profit or loss.

Prepaid expenses
The company during the year, purchased the following:
a. A fire insurance covering three-year period for P216,000. The insurance was purchase on March 1, 2019.
b. Office supplies were purchased at a gross invoice price of P80,000, terms 2/10. The invoice was paid after 10 days. One-
third were consumed during the financial year.
c. On January 1, Badyang Pogi prepaid rent for two years, based on the contract Badyang Pogi shall pay P50,000 monthly
rent to Jonathan Mayaman Inc., Jonathan Mayaman gave Badyang Pogi a two months of free rent. The agreement was
satisfied as an operating lease under PFRS 16 which is a low valued asset.

Non current assets held for sale and disposal group

The company in July 1, 2019, decided to sell its machinery costing P400,000 and accumulated depreciation of P100,000.
The sale is expected to occur in February next year and the company is committed to a plan to sell the asset. On July 1, the
selling price of the machinery was P320,000 with P30,000 cost to disposed the asset. As of December 31, 2019, the asset is
yet to be sold at P350,000 with disposal cost of P30,000.

Property, Plant and equipment

The company’s property, plant and equipment is composed of the following balances at the beginning of the year:

Asset Cost Accumulated depreciation Method EUL

Building P5,000,000 P2,500,000 SL 20
Machinery 1,500,000 927,272.73 SYD 10
Equipment 2,000,000 1,367,188 200% DB 8
Furniture and fixtures 700,000 280,000 SL 5

During the year, additional furniture and fixtures were purchased at a gross invoice price of P100,000, cash discount of 5% if
paid after 30 days, Badyang Pogi paid the invoice after 35 days. Cost incurred directly attributable to the furniture and fixtures
totaled P20,000.

Intangible assets
The following patents were included in the company’s records.

Asset Cost Accumulated amortization Method EUL

Patent P500,000 P250,000 SL 20
Trademark 600,000 - - indefinite

Investment Property
Badyang Pogi has a building (other than in PPE) used for rental purposes only. This building had a cost of P600,000 and
estimated useful life of 20 years. Badyang Pogi uses cost model to account for this building which was purchased on July 1,
2017. At December 31, 2019, the fair value of the building was at P450,000 with estimated cost to disposed of P20,000.

Accounts payable
The accounts payable had an unadjusted balance of P350,000, the following transactions are not included:
Invoice # Invoice date Date of receipt Amount
010001 20-Dec 23-Dec P40,000 FOB Destination
289901 22-Dec 26-Dec 70,000 FOB Destination
320901 28-Dec 2-Jan 59,000 FOB shipping point
022800 29-Dec 3-Jan 81,000 FOB Destination
210021 30-Dec 4-Jan 92,000 FOB shipping point
Note: Inventories has been correctly reported at year end via physical count. (P190,000)
Notes payable
The company had an outstanding notes payable at year end of 10%, P800,000, the note is payable in installment which is due
every October 1 of each year. A total of P200,000 is due on October 1, 2020 to include payment to principal and interest for
one year.

Provision
Premium redemption
The company inaugurated a premiums promotional campaign plan at the beginning of 2018. Under the said promotional
program, customers are given calculator for every 50 product label that they may be able to present plus P7. The customers
may be able to redeem their premiums within two years from the date of purchase. In anticipation of the premiums
redemption, the company acquired 22,000 units of calculator at P12 per calculator in 2018 (3,900 of which remained on hand
at the end of 2018) and additional 25,000 units in 2019 (the ending inventory of premiums at the end of 2019 is 13,200 units).

Warranty cost
The company started its 2-year warranty program for merchandise sold starting 2018. The company estimates that it will incur
P500 in part and labor for repairing each unit of merchandise. The company further estimates that 60% of the units sold shall
be returned for repairs and that 80% of the warranty costs shall be incurred in the year of sale with 20% to be incurred in the
year following the year of sale. The following information is deemed relevant for your audit:
2017 2018
Number of units sold 2,200 2,700
Actual warranty costs 450,000 800,000

Bonus payable
The Board of Directors approved through a resolution, additional incentive to key officers in the form of a bonus which shall
be at 10% of the adjusted net income after 30% income tax and bonus. The net income of the company reported an adjusted
income before tax and bonus of P3,500,000. The bonus is to be paid in January of the following year to the employees.

Litigation case
A customer is suing the Company for P800,000 in damages because her child Chona was injured in November 2019 while
riding an escalator that stopped suddenly in one of its state of the art store in Makati. The child was hurt, feeling broken down,
and feeling the pain from the inside and out when he tripped and fell while walking down an escalator that was going up. Legal
counsel feels that the child is partially at fault, and so deserves all the pain, but that it is probable that the lawsuit will be settled
for between P150,000 and P200,000, with P170,000 being the most likely amount.

The Company has an incinerator behind of its state of the art facility in Makati which is used to burn cardboard boxes received
in shipments of inventory from suppliers. The environmental protection agency filed a suit against the company in February
2020 for air pollution. The company expects to stop using incinerator and began recycling. However, its lawyers believe that
is it probable that a fine of between P140,000 and P260,000 will be levied against the company, although they cannot predict
the exact amount.

Mortgage payable
The 10%, P600,000 mortgage note was issued October 1, 2016. With a term of 10 years. Terms of the note give the holder
the right to demand immediate payment of the company fails to make a monthly interest payment within 10 days after the
date the payment is due. As of December 31, 2019, the company is three months behind in paying its required interest
payment.

Another 12%, P800,000 mortgage was issued January 1, 2017, with a term of 20 years. Interest on this mortgage was paid on
December 31 of each year. The 2019 interest was paid on December 31, 2019.

Deferred taxes
The company at year end had a deferred tax liability of P180,000 arising from P600,000 of future taxable amount.