Professional Documents
Culture Documents
Applied Applied Auditing Auditing With C
Applied Applied Auditing Auditing With C
AUDITING
With Comprehensive
Review of Philippine Financial
Reporting Standards (PFRSs)
TEACHERS MANUAL
2017
Edition
By
Sincerely,
CHAPTER 27 LEASE...........................................................................245
CHAPTER 29 SHAREHOLDERS’ EQUITY...........................................271
CHAPTER 30 BOOK VALUE AND EARNINGS PER SHARE..............293
CHAPTER 32 STATEMENT OF FINANCIAL POSITION AND
COMPREHENSIVE INCOME............................................................... .305
CHAPTER 33 STATEMENT OF CASH FLOWS...................................324
Chapter 5: Cash to Accrual
Suggested answer: C
Suggested answer: A
4
Chapter 5: Cash to Accrual
Suggested answer: C
Question No. 1
Carrying amount of equipment sold 25,000
Add: Accumulated depreciation 15,000
Cost 40,000
Question No. 2
Equipment
Beg. Balance 100,000 120,000 Balance end
Cost of PPE acquired 60,000 40,000 Cost of PPE disposed
(squeeze)
Total 160,000 160,000
Accumulated depreciation
1. D 2. A
PROBLEM 5-8
Question No. 1
Prepaid Insurance
Beg. Balance 7,500 6,000 Balancee nd
Payments 41,500 43,000 Expenses (squeeze)
Total 49,000 49,000
Question No. 2
Interest Receivable
Beg. Balance 14,500 3,700 Balancee nd
Income (squeeze) 112,700 123,500 Collections
Total 127,200 127,200
6
Chapter 5: Cash to Accrual
Question No. 3
Salaries payable
Balancee nd 61,500 53,000 Beg. Balance
Payments 481,000 489,500 Expenses
Total 542,500 542,500
Question No. 4
1. C 2. B 3. C 4. A 5. A 6. B
PROBLEM 5-9
Question No. 1
Accounts/Notes receivable trade
Decrease in A/R 100,000 100,000 I ncrease in N/R
Sales on account 4,260,000 10,000 Write-off
(squeeze) 4,200,000 Collections
30,000 Sales discounts
20,000 Sales ret. and allow.
Total 4,360,000 4,360,000
7
Chapter 5: Cash to Accrual
Question No. 2
Accounts payable
Cash paid to creditors 2,800,000 200,000 Decrease in Accounts
payable
Purchase discounts 40,000 2,650,000Gross purchases
(squeeze)
Purchase returns 10,000
Total 2,850,000 2,850,000
Question No. 3 Merchandise inventory
Question No 5
1. D 2. D 3. A 4. A 5. D
8
Chapter 5: Cash to Accrual
PROBLEM 5-10
Question No. 1
Accounts Receivable/Notes receivable trade
Beg. Balance – A/R 200,000 250,000 Bal. end – A/R
Beg. Balance – N/R 300,000 100,000 Bal. end – N/R
Sales on account 1,000,000 20,000 Sales ret. and allow.
(squeeze) 10,000 Sales discount
1,120,000 Collections
Total 1,500,000 1,500,000
Question No. 2
Sales 1,000,000
Less:Salesret and allow 20,000
Salesdiscounts 10,000 30,000
NetSales 970,000
Less: Cost of Sales
Merchandise inventory beg. 200,000
Add: Net Purchases
Purchases 600,000
Add:Freight-in -
GrossPurchases 650,000
Less: Purch.R et and allow 40,000
Purchase discounts 10,000 6 00,000
Totalg oods available fors ale 800,000 700,000
Less: Merchandisei nventory,e nd 100,000
Gross Income / Gross Profit 270,000
9
Chapter 5: Cash to Accrual
Question No. 4
Prepaid/Accrued Salaries
Beg. Balance -Prepaid 100,000 125,000 Balance end - Pr epaid
Salaries Salaries
Balance end - Accrued 50,000 75,000 Beg. Balance - Accrued
Salaries Salaries
Payments 350,000 300,000Salaries expense
(squeeze)
Total 500,000 500,000
Question No. 5
1. A 2. B 3. C 4. B 5. B
PROBLEM 5-11
Purchases 1,170,000
Merchandise inventory
Beg. Balance 380,000 330,000 Balancee nd
Net Purchases 1,160,000 1,210,000 Cost of Sales (squeeze)
(1,170,000-10,000)
Total 1,540,000 1,540,000
Question No. 4
Rent Receivable
Beg. Balance 70,000 80,000 Balancee nd
Rent income (squeeze) 130,000 120,000 Collections
Total 200,000 200,000
Question No. 5
Allowance for Doubtful accounts
Accounts written off 50,000 20,000 Beg. Balance
Balancee nd 30,000 52,000Doubtful account
expense(squeeze)
8,000 Recoveries
Total 80,000 80,000
SUMMARY OF ANSWERS:
1. B 2. B 3. B 4. A 5. A
PROBLEM 5-12 Comprehensive
Question No. 1
Accounts receivable trade
Beg. Balance 500,000 750,000 Balance end
Professional fees 5,250,000 5,000,000 Collections
(squeeze)
Total 5,750,000 5,750,000
11
Chapter 5: Cash to Accrual
Question No. 2
ProfessionalFees(SeeN o.1) 5,250,000
Less: Rent expense (1.2M +100,000) 1,300,000
Supplies expense
(800,000+300,000-250,000) 850,000
Othero perating expense 750,000
Interest expense (1M x 12% x 9/12) 90,000
Depreciation expense (2,500,000/10) 250,000 3,240,000
Net income 2,010,000
Question No. 3 1,500,000
Cash
AccountsReceivable 750,000
Supplies 250,000
Total Current Assets 2,500,000
Question No. 4
NotesPayable 1,000,000
Accruedrent 100,000
Accrued interest on notes payable
(1,000,000 x1 2% x 9/12) 90,000
Total Current Liabilities 1,190,000
Question No. 7
1. B 2. B 3. A 4. A 5. A 6. C 7. B
12
Chapter 5: Cash to Accrual
PROBLEM 5-13
Question No. 1
Accounts receivable trade
Beg. Balance 124,000 146,000 Balancee nd
Sales onaccount 13,000 Sales discount
(squeeze) 1,535,000 1,500,000 Collections
Total 1,659,000 1,659,000
Salesonaccount 1,535,000
Add:Cashsales 160,000
Total sales 1,695,000
Question No. 2
Grosss ales (see No. 1) 1,695,000
Less:Sales discount 13,000
Net sales 1,682,000
Question No. 3
Accounts Payable
Payments 1,206,000 382,000 Beg. Balance
Balancee nd 410,000 1,234,000 Purchases (squeeze)
Total 1,616,000 1,616,000
Purchasesona ccount 1,234,000
Merchandise Inventory
Beg. Balance 186,000 190,000 Balance end
Net purchases 1,354,000 1,350,000 Cost of sales (squeeze)
Total 1,540,000 1,540,000
Question No. 5
Question No. 6
General and administrative expense (see No. 5) 207,200
Depreciationexpense 84,000
Warrantyexpense 6,400
Total operating expense 297,600
Question No. 7
SellingPrice 12,000
Less Book value
Cost 25,000
Less: Accumulated depreciation 16,000 9,000
Gain on sale of warehouse equipment 3,000
Question No. 9
SellingPrice 42,000
Less: Book value
Cost 48,000
Less: Accumulated depreciation 20,000 28,000
Gain on sale of boiler 14,000
Question No. 10
NetSales 1,682,000
Less:Cost ofSales 1,350,000
Gross Profit 332,000
Less:Operatingexpenses 297,600
Gain on sale (14,000+3,000+4,000) 21,000
Net income 55,400
SUMMARY OF ANSWERS:
1. B 2. C 3. D 4. A 5. B
6. A 7. A 8. C 9. B 10. A
PROBLEM 5-14 Comprehensive
Question No. 1
Accounts receivable trade
Beg. Balance 150,000 200,000 Balancee nd
Sales (squeeze) 800,000 10,000 Sales returns
740,000 Collections
Total 950,000 950,000
14
Chapter 5: Cash to Accrual
Question No. 2
Salesonaccount 800,000
Add:Cash sales 100,000
Totalsales 900,000
Less: Salesr eturns anda llowances 10,000
Netsales 890,000
Less:Costo fsales( squeeze) 390,000
Grossprofit(200,000/40%) 500,000
Merchandise inventory
1. A 2. A 3. B 4. A 5. C 6. A
PROBLEM 5-15
Question No. 1
Cash Receipts:
Fromcustomers 360,000
From issue of ordinary shares 100,000
Frombankloan 100,000 560,000
Cash disbursements:
Purchaseo fi nventory 300,000
Rent 15,000
Salaries 30,000
Utilities 5,000
Insurance 3,000
Purchase of equipment and furniture 40,000 393,000
Cash 167,000
Question Nos. 2 and 3
Current assets
Cash 167,000
Inventories 100,000
Prepaidrent(1,000x3) 3,000
Total current assets (No. 2) 270,000
Noncurrent assets
Property, plant and equipment 40,000
Less accumulated depreciation 4,000 36,000
Total assets (No. 3) 306,000
Question No. 4
Accountspayable 20,000
Utilitiespayable 1,000
Loanspayable 100,000
Interest on loans payable (100,000 x 12% x 9/12) 9,000
Total current liabilities 130,000
16
Chapter 5: Cash to Accrual
Question No. 5
Ordinary shares 100,000
Retained earnings (net income) 176,000
Shareholders’ equity 176,000
SUMMARY OF ANSWERS:
1. B 2. B 3. A 4. D 5. A
PROBLEM 5-16
Notesreceivable–December3 1
Accounts receivable– December 31 950,000
Collectiono fnotesandaccounts 2,950,000
Notereceivablediscounted 200,000
Total 4,310,000
Less: Notes receivable – January 1 200,000
Accounts receivable– January1 740,000 940,000
Sales on account 3,370,000
Question No. 2
Question No. 5
Volks Company
Income Statement
Year ended December 31, 2016
17
Chapter 5: Cash to Accrual
Sales 3,370,000
Cost of sales:
Inventory – January1 1,600,000
Purchases 1,780,000
Goods available for sale 3,380,000
Less: Inventory – December 31 1,500,000 1,880,000
Gross income 1,490,000
Expenses:
*Expenses 820,000
Depreciation 80,000
**Losso ns ale ofi nvestment 50,000
***Loss on note receivable discounted 10,000
Interestexpense 30,000 990,000
Netincome 500,000
*Expensespaid 790,000
OR
1. A 2. A 3. C 4. C 5. D
18
Chapter 6: Correction of Errors
Accountspayable 28,000
Assuming errors were discovered in 2017
2) Noentry
2) Noentry
SUMMARY OFANSWERS:
1. A 2. B 3. A 4. C 5. C 6. C
19
Chapter 6: Correction of Errors
Question No. 7
A. Errors were discovered in 2016
ADJUSTING ENTRIES Debit Credit
1) Interestexpense 15,000
Interestpayable 15,000
2) Interest receivable 20,000
Interestincome 20,000
3) Prepaidi nsurance 6,000
Insuranceexpense 6,000
4) Rentrevenue 7,500
Unearnedrentrevenue 7,500
Question No. 7
A. Errors were discovered in 2016
ADJUSTING ENTRIES Debit Credit
1) Purchases 60,000
Accountspayable 60,000
2) Accounts receivable 80,000
Sales 80,000
3) Cost of sales 20,000
Inventory 20,000
SUMMARY OFANSWERS:
1. C 2. B 3. C 4. B 5. C 6. B
21
Chapter 6: Correction of Errors
Question No. 7
A. Errors were discovered in 2016
ADJUSTING ENTRIES Debit Credit
1) Insurance expense 30,000
Prepaidinsurance 30,000
2) Unearned rent income 20,000
Rent income 20,000
3) Accumulated depreciation 12,000
Depreciationexpense 12,000
4) Building improvements 200,000
Repairsexpense 200,000
Depreciation expense 50,000
Accumulatedd epreciation 50,000
5) Other income 20,000
Accumulated depreciation 48,000
Gain on sale 8,000
Building 60,000
6) Repairsexpense 20,000
Building 20,000
Accumulated depreciation 5,000
Depreciationexpense 5,000
B. Errors were discovered in 2017
ADJUSTING ENTRIES Debit Credit
1) Retained earnings 30,000
Insuranceexpense 6,000
Prepaidinsurance 36,000
22
Chapter 6: Correction of Errors
2) Unearned rent income 30,000
Retainedearnings 20,000
Rent income 10,000
3) Accumulated depreciation 12,000
Retainedearnings 12,000
4) Building improvements 200,000
Retainedearnings 200,000
Depreciation expense 50,000
Retained earnings 50,000
Accumulatedd epreciation 100,000
5) Retained earnings 12,000
Accumulated depreciation 48,000
Building 60,000
6) Retained earnings 20,000
Building 20,000
Accumulated depreciation 10,000
Retainedearnings 5,000
Depreciationexpense 5,000
C. Errors were discovered in 2018
ADJUSTING ENTRIES Debit Credit
1) Retained earnings 36,000
Prepaidinsurance 36,000
2) Unearned rent income 30,000
Retainedearni gs 30,000
3) Accumulated depreciation 12,000
Retainedearnings 12,000
4) Building improvements 200,000
Retainedearnings 200,000
Depreciation expense 50,000
Retained earnings 100,000
Accumulatedd epreciation 150,000
5) Retained earnings 12,000
Accumulated depreciation 48,000
Building 60,000
6) Retained earnings 20,000
Building 20,000
Accumulated depreciation 10,000
Retainedearnings 10,000
23
Chapter 6: Correction of Errors
SUMMARY OFANSWERS:
1. D 2. A 3. D 4. A 5. A 6. D
PROBLEM 6-5 Comprehensive
SUMMARY OFANSWERS:
1. A 2. A 3. A 4. A 5. C
PROBLEM 6-6 Comprehensive
SUMMARY OF ANSWERS:
1. D 2. D 3. A 4. A 5. C
PROBLEM 6-7
Note to professor:
Item letter b - On December 31, “f” should be December 31, 2016.
Item letter e - Additional industrial robots were acquired at the beginning of
Itema 21,000
Itemb (25,000)
Itemc (15,500)
dItem -
Iteme 80,000
Net adjustment to retained e arnings (E) 60,500
SUMMARY OFANSWERS:
1. B 2. B 3. A 4. B 5. (E)
26
Chapter 6: Correction of Errors
PROBLEM 6-8
Net
Income CA NCA CL RE
Unadjusted
balances 200,000 1 ,570,400 1 ,365,600 636,000 300,000
1. Advtg exp
over, NI under 50,000
2. Advances
rec. as sales
2016 60,000
2017 (100,000) 100,000 (100,000)
3. Advances rec.
as purchases
2016 (50,000)
2017 80,000 80,000 80,000
4. Gain
understated 64,000 64,000
Cost under (336,000)
Accumulated
depreciation 400,000
Depr. Over, NI
under 13,600 13,600 13,600
5. Rent revenue
under 20,000 (60,000) 60,000
6. Bad debts
exp under
(5% x 480K)-
16,000) (8,000) (8,000) (8,000)
7. Purchases
under 20,000
EI under 20,000
8. Ins. Exp.
Under, NIover 15,000 15,000
Adjusted
balances 344,600 1 ,662,400 1 ,443,200 696,000 424,600
SUMMARY OFANSWERS:
1. C 2. C 3. D 4. A 5. D
27
Chapter 8: Cash and Cash Equivalents
Billsand coinsonhand
Checking Account Balance in Bank of Philippine Island 44,000
Moneyorder 1,600
Pettycash ( - 1,650) 2,350
Traveler’scheck 44,800
Total 198,310
Suggested answer: (E)
PROBLEM 8-4 Cash and Cash Equivalents
Suggested answer: A
PROBLEM 8-5 Cash and Cash Equivalents
Question No. 1
Let X = Principal amount of the loan
Principal X
Less: Compensating balance 5%X
Add: Current balance 50,000
Amountneeded P3,375,000
X-.05X+50,000 = 3,375,000
.95X = 3,375,000-50,000
.95X/.95 = 3,325,000/.95
X = 3,500,000
Question No. 2
1.C 2C.
29
Chapter 8: Cash and Cash Equivalents
Acknowledgment
I hereby acknowledge that the above petty cash fund items were counted
in my presence and the same were returned to me intact. I further
acknowledge a petty cash short of three thousand nine hundred seventy-five
( 3,975). I have no other fund accountabilities.
W. Ally
Petty Cash Custodian
Requirement No. 2
Requirement No 3
Billsand coins 6,258
Checksfordeposit 500
TotalPetty CashFund 6,758
PROBLEM 8-11 Bank Reconciliation
SUMMARY OF ANSWERS:
1. B 2. A 3. B 4. D 5. A
PROBLEM 8-12 Deposit in Transit
32
Chapter 8: Cash and Cash Equivalents
1. A 2. B 3. A 4. A 5. A
33
Chapter 8: Cash and Cash Equivalents
1. C 2. D 3. C 4. D 5. A 6. D
PROBLEM 8-16 Proof of Cash
Question No. 1
BegBal. .7/1, P128,384
Add:CashreceiptsforJuly 1,364,858
Cash receiptsfor Aug. 1,839,744
Total P3,332,986
Less: Cashd isbursementf or July 1,330,882
Cashd isbursement for Aug. 1,712,892
Bankreconciliationitem 750
Unadjusted balance P 288,462
Question No 2
Outstandingcheck,Aug.31 P 67,122
Add: Checks paid by the bank
Bank debits except serv. charge P1,702,830
Less: Erroneous bankc harge 1,166
DM on Interest on note 4,950 1,696,714
Total P1,763,836
Less: Checks issued by the company
thisAugust 1,712,892
Outstanding check, July 31 P 50,944
Questions No 3 to 5
Unadjustedrec.perbank
Deposit in transit:
November30 (11,000)
December 31 20,000
36
Chapter 8: Cash and Cash Equivalents
Error correction (500)
Question No 5
Zero, adjusted bank and book balance on December 31 is the same.
PROOF OF CASH
Nov.3 0 Receipts Disb. Dec. 31
Unadjusted bank balance 69,000 171,500 113,000 *127,500
Deposit in transit
November 30 11,000 (11,000)
December 31 *20,000 20,000
Outstanding checks
November30 (7,000) (7,000)
December 31 21,500 (21,500)
Error correction (500) (500)
NSF check, no entry on the
books on the return and
redeposit (40,000) (40,000)
Adjusted bal. 73,000 140,000 87,000 126,000
* (69,000+171,500-113,000)
** (18,000+2,000)
Nov.3 0 Receipts Disb. Dec. 31
Unadjusted book balance 66,000 113,800 85,000 94,800
Credit memo for note
collected
37
Chapter 8: Cash and Cash Equivalents
November30 8,800 (8,800)
1. A 2. A 3. B 4. B 5. A
PROBLEM 8-18 Proof of Cash
Question No. 1
Outstandingchecks,beg P 16,250
Add: Checks issued this month
Book disbursements (squeeze) P128,750
Less: DM recorded this month 2,500 126,250
Total 142,500
Less: Checks paid by the bank P 133,750
Erroneous bank charge 3,750 130,000
Outstandingchecks,end P 12,500
Question No. 2
Question No. 4
Bank service charges per
bankstatementi nD ecember P 3,250
Less: Bank service charge in December
recorded in December
Total BSC recorded in the books Dec P 2, 500
Less: BSC in Nov. recordedi nD ec. 1,500 1,000
Unrecorded BSC charge in December P 2,250
38
Chapter 8: Cash and Cash Equivalents
Question No. 5
Unadjusted cash in bank, November (squeeze) P 16,250
Add: BookR eceipts (152,500 - 2,500) 150,000
Total 166,250
Less:Bookdisbursements 128,750
Unadjusted cash in bank, December P 37,500
Unadjusted cash in bank, November (squeeze) P 16,250
Less:BSCinNovember 1,500
Adjusted cash in bank, December P 14,750
SUMMARY OF ANSWERS:
1. C 2. D 3. C 4. D 5. B
PROBLEM 8-19 Proof of Cash
Question No. 1
Outstanding checks, beg (squeeze) P 8,000
Add: Checks issued this month
Book disbursements P 148,000
Less: DM recorded this month 2,500 145,500
Total 153,500
Less:B ankd isbursements P1 50,000
Add: Paid out in currency 2,000
Less: NSF redeposited 3,000
DM for this month 1,500 147,500
Outstandingchecks, end P 6,000
Question Nos 2 to 5
BANK Sept.3 0 R eceipts Disb. Oct.3 1
Unadj. balance - bank 100,000 200,000 150,000 150,000
Undeposited collections:
September3 0 5,000 (5,000)
October 31 7,000 7,000
Outstanding checks:
September 30 (8,000) (8,000)
October 31 6,000 (6,000)
Paidoutincurrency 2,000 2,000
Adjusted balances 97,000 201,000 147,000 151,000
BOOK Sept.3 0 R eceipts Disb. Oct.3 1
SUMMARY OF ANSWERS:
1. B 2. A 3. A 4. A 5. A
PROBLEM 8-20 Proof of Cash
Question No. 1
Account No. 143: Bank Book
Unadjusted balances P1,000,000 P1,099,400
Depositin transit *80,000
Misplaced check ( 20,000)
Outstandingcheck (**60,000)
Undeliveredcheck 15,000
Note chargedbythebank - ( 74 400)
Adjusted balance P1,020,000 P1,020,000
*(100,000 - 20,000, Misplaced check)
**(75,000 - 15,000, Undelivered check)
Question No. 2
December
Unadjusted bank balance Nov.3 0 R eceipts Disb. Dec.3 1
2,200,000 1,000,000 2,000,000 1,200,000
Deposit in transit:
November 30 90,000 ( 90,000)
December 31 **240,00 240,000
40
Chapter 8: Cash and Cash Equivalents
0
Outstanding check:
November 30 (250,000) (250,000)
December 31 1,860,000 (1,860,000)
Erroneous bank charge -
November 20,000 (20,000)
Adjusted balances 2,060,000 1,130,000 3,610,000 (420,000)
Unadjusted book
Question No. 1
RCBC Account Book Bank
Unadjustedbalance P 165,000 P 125,000
41
Chapter 8: Cash and Cash Equivalents
Credit memof or notec ollected 6,000
Question No. 4
Outstanding checks:
RCBC Account (25,000+20,000) P 45,000
EquitablePCI Bank 28,000
Total outstanding checks P 73,000
Question No. 5
Fund transfer No. 1 is recorded in the disbursing book during December while it
42
Chapter 8: Cash and Cash Equivalents
The company issued a sto p - (1,200) (1,200) -
Question No. 1
Unadjustedbank bal. P 225,400
Less: Outstanding checks (8,434+4,300+
6,524+ 9,551.50+4,577+5,961) (39,347.50)
Add:Undepositedreceipts 35,000
Adjustedbankbalance P221,052.50
Question No. 2
Unadjustedbookbal. P242,310.50
Credit memof or notes collection 30,000
Creditmemo for int. 900
Balance( cash accountability) P273,210.50
43
Chapter 8: Cash and Cash Equivalents
Question No. 3
Adjusted bank bal. (Cash accounted) P221,052.50
Less: Cash in bank bal. (cash accountability) 273,210.50
Shortage (P52,158.00)
SUMMARY OF ANSWERS:
1. B 2. D 3. B
PROBLEM 8-24 Computation of Cash Shortage
Question No. 1
Unadjustedbank bal. P 42,400
Outstandingchecks ( 11,500)
Undeposited collections 5,000
Adjusted bank balance P 35,900
Question No. 2
Unadjustedbookbal. P 46,500
Creditmemop roceedscleandraft 900
Debit memo for bank servicec harge ( 100)
Balance (cash accountability) P 47,300
Question No. 3
44
Chapter 8: Cash and Cash Equivalents
1. C 2. D 3. B 4. D 5. D
Question No. 1
Deposit int ransit,u nadjustedb al. P 175,250
Less:C ustomer's Post-dated check 50,000
Adjusted Deposit in transit 125,250 P
Question No. 2
Unadjustedbal.perbank P350,000
Add: Deposit in transit( No. 1) 125,250
Less: Outstanding checks (No.2 ) (194,790)
Erroneousbankcredit ( 30,000)
Adjusted cash in bank bal. 250,460 P
Question No. 4
Unadjustedbal.perbooks P 293,500
Add: Credit memo for note coll. 15,000
Unreleasedcheck 14,750
Company'spost-dated check 37,210
Total 360P460
Less: Customer s post-dated check (50,000)
Cashi nb ankperbooksbal. P310,360
Less: Adjusted cash in bank balance 250,460
Cash shortage (P60,000)
Question No. 5
Unadjustedbal.perbooks P293,500
Less: Adjusted cash in bank balance 250,460
Net adjustments P 43,040
SUMMARY OF ANSWERS:
1. B 2. D 3. B 4. C 5. A
45
Chapter 10: Loans and Receivables
Question No. 1
FOB Destination, freight prepaid
Invoicepriceofmerchandisesold 300,000
Less: Invoicep rice of merchandise returned -
Netinvoiceprice 300,000
Less:Salesdiscount( 300,000x 2%) 6,000
Collectionbeforefreight 294,000
Less: Freight payment - FOB Destination, freight collect -
Add: Freight payment - FOB shipping point, freight prepaid -
Total Net Cash Collection(B) 294,000
Question No. 2
Question No. 3
FOB Shipping point, freight prepaid
Invoicepriceofmerchandisesold 300,000
Less: Invoicep rice ofm erchandise returned -
Netinvoiceprice 300,000
Less:Salesdiscount( 300,000x 2%) 6,000
NetReceiptbefore freight 294,000
Less: Freight payment - FOB Destination, freight collect -
Add: Freight payment - FOB shipping point, freight prepaid 5,000
Total Net Cash Collection(C) 299,000
Question No. 4
1. B 2. A 3. C 4. B
PROBLEM 10-3 Gross method and Net method
1. C 2. D
PROBLEM 10-4 Computation of Percentageof Bad Debts Expense
CASE 1
Credit Sales Accounts written off Recoveries
2013
2014 2,000,000 40,000 20,000
2015 3,500,000 270,000 15,000
7,000,000 330,000 50,000
47
Chapter 10: Loans and Receivables
2016 2,000,000 65,000 30,000
Question No. 3
Allowance for Bad debts
Writeoff 85,000 400,000 Beg.Balance
Balance end (squeeze) 445,000 90,000 Bad debts exp
40,000 Recovery
520,000 520,000
Question No.4 CASE 2
Question No. 6
Credit Sales BD exp Recoveries Write-off Net AB
2016 2,000,000 80,000 65,000 30,000 1 15,000
2017 3,000,000 1 20,000 85,000 40,000 165,000
Allowance for BD (D) 280,000
48
Chapter 10: Loans and Receivables
CASE 3
Question No. 7
Percentage of bad = Accounts written off minus Recoveries
debts to AR Total credit sales
Total years from 2013 to 2016:
Question No. 1
Categories Balance Uncollectible
(No. of Days) Percent Amount
0-30d ays 500,000 2% 10,000
31-60d ays 600,000 3% 18,000
61-90d ays 750,000 5% 37,500
over 91 days 300,000 10% 30,000
Totals 2,150,000 95,500
Allowance for Bad debts
1. A 2. A
PROBLEM 10-6 Aging Based On Days Past Due
Question No. 1
Overdue accounts % uncollectible Balance Allowance
Forl ess than 31 days 5.00% 300,000 15,000
From 31-60 days 6.00% 220,000 13,200
From 61-90 days 8.00% 150,000 12,000
From 91-120d ays 15.00% 60,000 9,000
For over121days 20.00% -
Required allowance for doubtful accounts 49,200
Question No. 2
1. A 2. A
PROBLEM 10-7 Interest-bearing Note with Realistic Interest Rate
Requirement No. 1
*Selling price P100,000
Less: Carrying amount of machinery
Cost 500,000
Less: Accumulated depreciation 350,000 150,000
Loss on sale 50,000) (P
The selling price is equal to the face amount, which is likewise equal to
*Note:
the present value of the note since the note bears an annual interest rate that is
similar with the market rate.
50
Chapter 10: Loans and Receivables
Requirement No. 2
Interest income = (100,000 x 10%) = P10,000
Requirement No. 3
Zero. The principal amount is collectible beyond one year from the reporting date
and thus, reported as non-cu rrent.
Requirement No. 4
P100,000. The entire principal amount of notes receivable is treated as noncurrent
asset since it is collectible beyond one year from the reporting date.
Amortization table
Date Interest Interest Discount Carrying
Collections Income Amortization amount
01/01/2016 1,903,960
12/31/2016 200,000 228,475 28,475 1,932,435
12/31/2017 200,000 231,892 31,892 1,964,327
12/31/2018 200,000 235,704 35,672 2,000,000
The total amount of 1,932,435 is reported as noncurrent receivable since it is
due to be collected beyond twelve months from the end of the reporting period.
SUMMARY OFANSWERS:
1. B 2. B 3. A 4. A 5. C
51
Chapter 10: Loans and Receivables
Question No. 2
Interest income up to 07/31/2016 114,104
Interest income up to 12/31/2016 114,950
Total interest income 229,054
Question No. 3
1,930,784. See amortization table above.
SUMMARY OFANSWERS:
1. B 2. B 3. B 4. A 5. D
PROBLEM 10-10 Interest-bearing Note with Unrealistic Interest Rate, Uniform Collection
of Principal
Question No. 1
52
Chapter 10: Loans and Receivables
Computation of present value of all payments:
Question N . 4
Principal collections – 2017 600,000
Less: Amortization – 2017 20,287
Current portion – 12/31/2016 579,713
Question No. 4
1. B 2. B 3. A 4. B 5. A
53
Chapter 10: Loans and Receivables
Total
Amortization table
Date Interest Amortizatio Principal Carrying
income n Collections amount
01/01/16 1,513,580
12/31/16 181,630 181,630 1,000,000 695,210
12/31/17 83,425 83,425 600,000 178,635
12/31/18 21,382 21,365 200,000 -
Question No. 2
181,630. See amortization table above.
Question No. 3
695,210. See amortization table above.
Question No. 4
Principal collections – 2017 600,000
Less: Amortization – 2017 83,425
Current portion – 12/31/2016 516,575
Question No. 5
1. B 2. B 3. A 4. B 5. D
Question No. 1
Total present value (1,800,000 x 0.7118) 1,281,240
54
Chapter 10: Loans and Receivables
Less: Carrying amount of machinery
Cost 1,000,000
Less: Accumulated depreciation 150,000 850,000
Gain on sale P431,240
Amortization table
Requirement No. 1
Annual collection = Present value of the notes
Present value of annuity due for 3 periods
Annual collection = 1,500,000
2. 6901
Annual collection = P557,600
55
Chapter 10: Loans and Receivables
Requirement No. 2
Interest income (1,500,000 – 557,600) x 12% = P113,088
PROBLEM 10-14
Accountsreceivable 250,000
Sales 250,000
Sales discount 250,000 x 3% x4 0%) 3,000
Allowanceforsalesdiscount 3,000
Cash( 250,000x 50%x97%) 121,250
Allowancef ors alesdiscount 3,000
Sales discount [ 250,000 x (50% - 40%) x 3%] 750
Accounts receivable ( 250,000x 50%) 125,000
Accountsreceivable 100,000
Refund liability 1,000
Sales [ 100,000 – ( 100,000x2 % x 50%) 99,000
Cash( 100,000x 60%x9 8%) 58,800
Sales discount [ 100,000 x (60% - 50%) x 2%] 200
Refundliability 1,000
Accounts receivable ( 100,000x 60%) 60,000
PROBLEM 10-15
SOLUTION:
Requirement No. 1 PAS 18
2017:
Dec.3 1 Accounts receivable 550,000
Sales 550,000
Cost of sales 300,000
Merchandiseinventory 300,000
Sales returns ( 550,000 x 30%) 165,000
56
Chapter 10: Loans and Receivables
CASE NO. 1
Question No. 1
Principal 16,000,000
Add: Accrued interest receivable 1,600,000 17,600,000
Less: *Present value of expected cash flows 7,705,280
Loan impairment (A) 9,894,720
CASE NO. 2
Question No. 4
Carrying value – 12/31/2015 (see table below) 15,458,634
Less: *Present value of expected cash flows 7,705,280
Loan impairment (B) 9,894,720
Amortization table
Interest
Received Interest Carrying
Date Or Accrued Income Amortization amount
01/01/2013 14,846,080
12/31/2013 1,600,000 1,781,530 181,530 15,027,610
12/31/2014 1,600,000 1,803,313 203,313 15,230,923
12/31/2015 1,600,000* 1,827,711 227,710 15,458,634
*Interest accrued.
58
Chapter 10: Loans and Receivables
12/31/2015 Accrued interest receivable 1,600,000
Interestincome 1,600,000
Unearned interest income 227,710
Interestincome 227,710
CASE NO. 3
Question No. 5
Carrying value – 12/31/2015 (see table below) 17,058,634
Less: *Present value of expected cash flows 7,705,280
Loan impairment (C) 9,353,354
Amortization table
Interest
Received Interest Carrying
Date Or Accrued Income Amortization amount
01/01/2013 14,846,080
12/31/2013 1,600,000 1,781,530 181,530 15,027,610
12/31/2014 1,600,000 1,803,313 203,313 15,230,923
12/31/2015 1,827,711 1 ,827,711 17,058,634
12/31/2015 Unearned interest income 1,827,711
Interestincome 1,827,711
CASE NO. 4
Question No. 6
Carrying value – 12/31/2015 (see table below) 15,458,634
Less: *Present value of expected cash flows 7,705,280
Loan impairment C) 9,894,720
Amortization table
Interest
Received Interest Carrying
Date Or Accrued Income Amortization amount
01/01/2013 14,846,080
12/31/2013 1,600,000 1,781,530 181,530 15,027,610
12/31/2014 1,600,000 1,803,313 203,313 15,230,923
12/31/2015 1,600,000 1,827,711 227,710 15,458,634
Interestincome
SUMMARY OFANSWERS:
59
Chapter 10: Loans and Receivables
1. A 2. B 3. B 4. B 5. C 6. C
Question No. 1
Present value of expected cash flows P6 54,552
vs. Would have been present value if there was no
impairment 600,000
Lower 600,000
Less:Actualamortizedcost 396,681
Gain on reversal of impairment loss (A) P 203,319
Question No. 2
Present value of expected cash flows P6 54,552
Less:Actuala mortizedc ost 396,681
Gain on reversal of impairment loss (D) P 257,871
Question No. 3
1. A 2. D 3. B 4. A
PROBLEM 10-18 Pledge of Receivable
Principalamountborrowed P900,000
Less: One year interest deducted in advance (900,000 x 10%) ( 90,000)
Cash received on December 1 (B) P810,000
PROBLEM 10-19 Assignment of Accounts Receivable
Question No. 1
Principalamountborrowed P150,000
Less: Finance fee (150,000 x 5%) ( 7 ,500)
Cash received on December (D1) P142,500
Question No. 2
Notespayable P150,000
Less: Princip al payment
Remittance 95,000
Less: Interest (150,000 x 12% x 3/12) ( 1,500) 93,500
Notes payable – December 31(C) P56,500
Question No. 3
60
Chapter 10: Loans and Receivables
Accounts receivable – assigned (200,000 – 100,000) P 100,000
Less:Notespayable ( 56,500)
Equity in assigned account (C) P 43,500
SUMMARY OFANSWERS:
1. D 2. C 3. C
PROBLEM 10-20 Factoring of Receivables
CASE NO. 3
Question No. 5
Interest expense of P3,524.50 . The amount of interest ex pense is compute d
in a similar way as to that of discounted note without recourse or conditional sale. (A)
Question No. 6
Maturityv alue oft he note P613,500
Add: Protest fee and other bank charges 5,000
Cash received on December 1 (C) P618,500
SUMMARY OFANSWERS:
1. C 2. A 3. A 4. C 5. A 6. C
PROBLEM 10-22 Discounting “Own” Note
Question No. 1
Notepayable P250,000
Less: Discount on note payable (250,000 x 12%) ( 30,000)
Carrying amount – Date ofi ssuance P2 20,000
Effective interest rate = Discount/Net proceeds
= 3 ,000/220,000
= 13.60%(D)
Question No. 2
Entry to record transaction
Cash 220,000
Discount on notes payable 30,000
Notespayable 250,000
SUMMARY OFANSWERS:
1. D 2. B
COMPREHENSIVE PROBLEMS
PROBLEM 10-23
Question No. 1
Credit Sales Accounts written off Recoveries
2013 2,220,000 52,000 4,300
2014 2,450,000 59,000 7,500
2015 2,930,000 60,000 7,200
62
Chapter 10: Loans and Receivables
7,600,000 171,000 19,000
1. A 2. A 3. B 4. B 5. A
PROBLEM 10-24
Question No. 1
Unadjusted accounts receivable, Dec. 1 (squeeze) 21,800P
Add:Adjustednet sales 255,000
Total 276,800
Less: Collections, net of discounts 156,800
63
Chapter 10: Loans and Receivables
Estimated uncollectible accounts charged to AR in Dec. 30,000
1. D 2. A 3. A 4. A 5. B
64
Chapter 10: Loans and Receivables
PROBLEM 10-25
Question No. 1
Balance Accounts
Dec. 31 Not due 1-60 days 61-120 days Over 120
1 12,000 3,000 8,000 1,000
2 22,000 22,000
4 20,000 10,000 10,000
5 55,000 2,220 52,780
6 7,500 7,500
116,500 27,220 68,280 11,000 10,000
Multiply by: 0.50% 2% 5% 50%
136.10 1,365.60 550 5,000.00
Question Nos. 2 and 3
1. D 2. C 3.
PROBLEM 10-26
Question No. 1
Principal 4,000,000
Originationf ees received (342,100)
Direct origination cost incurred 150,020
Initial Carrying amount of the loan 3,807,920
Question No. 2
By trial and error, 12% interest rate will have a present value equal to the
initial carrying amount of the loan.
Present value of Prin. (4,000,000 x .7118) 2,847,200
Present value of Int. (4M x 10% x 2.4018) 960,720
Present value of Loan Receivable 3,807,920
65
Chapter 10: Loans and Receivables
Question Nos. 3 and 4
Interest Carrying
Date Collections Income Amortization amount
01/01/2016 3,807,920
31/12/2016 400,000 456,950 56,950 3,864,870
31/12/2017 400,000 463,784 63,784 3,928,655
31/12/2018 400,000 471,439 71,346 4,000,000
Question No. 5
Zero, As of December 31, 2016, the entire loan proceeds will be collectible on
December 31, 2018, that is two years from the repor ting date.
SUMMARY OFANSWERS:
1. A 2. C 3. B 4. A 5. A
PROBLEM 10-27
Question No. 1
Annual Cash PV
Date flows factor Amount
Dec. 31, 2015 P1,750,000 0.9091 P 1,590,925
Dec. 31, 2016 2,000,000 0.8264 1,652,800
Dec. 31, 2017 1,750,000 0.7513 1,314,775
Total 4,558,500P
Question No. 2
1. C 2. A 3. B 4. A 5. C
66
Chapter 10: Loans and Receivables
PROBLEM 10-28
Question Nos. 1 to 4
Accounts Allow Mdse. Net Cost of
Receivable for DA Inventory Sales Sales
Unadjusted balances 300,000 3,000 400,000 1, 000,000 800,000
2)Salereturn (30,000) (30,000)
Cost of return
Merchandise
(30,000 x80%) 24,000 (24,000)
3)Sales FOB shipping
point
not recorded as 40,000 40,000
Sale
Cost of mdse sold
(40,000 x80%) (32,000) 32,000
4) Goods shipped
FOB
Destination recorded
assale (50,000) (50,000)
Cost of goods
(50,000 x 80%) 40,000 (40,000)
6)D oubtful accts exp (12,000)
Adjusted bal. 260,000 15,000 432,000 960,000 768,000
Question No. 5
Question No. 1
Classification Balance Estimated
Percentage Amount
1-60 days P1 ,000,000 1% P 10,000
61-120days 400,000 5% 20,000
121-180days 300,000 10% 30,000
181-360days 200,000 25% 50,000
More than oney ear 60,000 80% 48,000
Totals P1 ,960,000 P 158,000
Question No. 2 P 1,960,000
Question No. 3
Doubtful accounts per books (9,000,000 x 2%) P 180,000
Less: *Adjusted doubtful accounts expense 188,000
Understatement of doubtful accounts (P 8,000)
*Adjusted doubtful account expense
Question No. 4
Question No. 1
Accounts receivable, unadjusted balance
Per subsidiary ledger P1,660,000
Notereceivablei ncluded in theA R (200,000)
FactoredAccountsreceivable (160,000)
SalesFOBshipping point 100,000
Adjusted AR balance P1,400,000
68
Chapter 10: Loans and Receivables
Question No. 2
Allowancef ord oubtfula ccts,b eg. P 100,000
Add: Doubtful accounts (P15,000,000 + P100,000) x 1% 151,000
Total 251,000P
Less:Accountswrittenoff 28,000
Allowance for doubtful accts, end 223,000 P
Question No. 3
UnadjustedNetSales P15,000,000
Add:Sales,FOBshippingpoint 100,000
TotalSales P 15,100,000
Multiply by:rate 1%
Doubtful accounts P 151,000
Question No. 4
No effect . The audit adjustments did not result to any changes to inventory
account.
Question No. 5
Sales, FOB shipping point 100,000 P
SUMMARY OFANSWERS:
1. D 2. A 3. D 4. D 5. A
PROBLEM 10-31
Question No. 1
Accountsreceivablef actored P 400,000
Less: Service charge (400,000x 5%) 20,000
Receivable from factor (400,000 x 20%) 80,000 100,000
Customers’ credit balance P300,000
Question No. 2
Principal P 300,000
Add: Interest over full credit period (300,000 x 12% x 6/12) 18,000
Maturity value 318,000
Less:D iscount(318,000 x1 2% x3 /12) 11,925
Net proceeds from discounting 306,075 P
Question No. 3
Question No. 5
TotalCash paid(see No.3) 330,000
Add: Interest income (P330,000x 12% x2 /12) 6,600
Cash received 336,600 P
Question No. 6
Accounts receivable-unassigned
(2,000,000-3000,000-400,000-600,000) P 700,000
Add: Accounts receivableassigned 600,000
Total 1,300,000
Less: Less: Allowance for doubtful accounts (1,300,000 x 5%) 65,000
Net realizable value P1,235,000
SUMMARY OF ANSWERS:
1. B 2. C 3. A 4. B 5. D 6. D
PROBLEM 10-32
Question Nos. 1 to 3
60 days and 61 to 90 Over 90
Total below days days
Unadjusted Balance,
12/31/2016 1,900,000 1,000,000 5 00,000 400,000
Adjustments:
WriteOff (40,000) (40,000)
Unrecordedsale 50,000 50,000
NSFCheck shipment – 20,000 20,000
In transit
FOB Destination (45,000) (45,000)
Consignment (45,000) (45,000)
Erroneous unit price (7,500) (7,500)
Adjusted balance,
12/31/2016 1,832,500 930,000 492,500 410,000
PercentageofU ncollectibility 4% 5% 10%
Required allowance,
12/31/2016 108,825 37,200 24,625 41,000
Question No. 4
71
Chapter 10: Loans and Receivables
Total 4,250,000 4,250,000
30,000 Recoveries
120,000 Doubtful account expense
Total 170,000 170,000
Interest Carrying
Date Collections Income Amortization amount
01/01/2015 3,711,520
12/31/2015 400,000 445,382 45,382 3,756,902
12/31/2016 400,000 450,828 50,828 3,807,731
12/31/2017 400,000 456,928 56,928 3,864,658
12/31/2018 400,000 463,759 63,759 3,928,417
12/31/2019 400,000 471,410 71,583 4,000,000
SUMMARY OFANSWERS:
1. B 2. C 3. D 4. D 5. A
72
Chapter 10: Loans and Receivables
PROBLEM 10-34
Question No. 1
Unrecorded gain on sale of machinery – 2015 (see below) 90,183
Unrecorded interest income – receivable from sale of machinery
(240,183 x12%) 28,822
Unrecorded accrued interest – receivable from sale of plant
(1,500,000x 12%x9/12) 135,000
Net adjustment to R/E – 01/01/16 (B) 254,005
Cash consideration 200,000
Question No. 4
Non-current portion of note receivable from:
Saleofplant 500,000
Sale of equipment( 170,750 + 12,806) 183,556
Total non-current portion(D) 683,556
73
Chapter 10: Loans and Receivables
Question No. 5
Interest income froms ale of machine 20,281
Interest income from sale of plant (180,000 – 135,000) (45,000)
Interest income froms ale of equipment 12,806
Net overstatement of income(D) (11,912)
SUMMARY OFANSWERS:
1. B 2. C 3. B 4. D 5. D
74
Chapter 12: Inventories
Note that the trade discount was already deducted in arriving at the vendor’s
invoice.
Question No. 1
Invoice price ( o VAT is charged on these goods)
Less: Rebate offered to the entity by the supplier 10,000
Inventoriable cost (B)
Question No. 2
Question No. 1
Variable cost:
Direct labor (
Directmaterials( 200,000
Fixed Cost ( / 100,000 normal capacity) x 100,000 actual 100,000
Total cost (C)
Question No. 2
Variable cost:
Directlabor( 120,000units) 1,080,000
Direct materials ( 2 excluding VAT x 120,000 units) 200,000
Fixed Cost ( 100,000
Total cost (C) 420,000
Question No. 3
Variable cost:
Direct labor (
Directmaterials( 160,000
Fixed Cost( 80,000
Total cost (D) 960,000
PROBLEM 12-6 Items to be Included in the Inventory
Unadjustedbalance 1,800,000
Goods acquired in transit, FOB shipping point 100,000
Goodslost intransit 50,000
Adjusted Accounts Payable (A) P1,950,000
The journal entry on item 2 would include the following:
Purchases/Inventory 50,000
AccountsPayable 50,000
To record the purchase on December 20.
Query: For F/S presentation on December 31, is the goods lost in transit be
presented as part of inventory?
Answer: No, since the inventories were lost in transit and it is improper to report
inventories that is not existing (i.e. it violates the existence assertion). Thus the
journal entry at December 31 if no claim was filed and the common carrier has
yet to acknowledge the claim may include a:
Loss on goods lost in transit (preferably presented as 50,000
other expense and not as cost of goods sold)
Inventory /Purchases 50,000
And on the next year (January 5), when the claim was filed and
acknowledged by the common carrier, the journal entry will be:
Claimsfromc ommonc arrier 50,000
Gaino n reimbursement of lost inventory 50,000
To record the claim against common carrier on January 5.
77
Chapter 12: Inventories
PROBLEM 12-8 Consigned Goods
01/14Accountspayable 78,400
Purchased iscountlost 1,600
Cash 80,000
SUMMARY OF ANSWERS:
QuestionNos. 1and 2
Weighted average
Weighted average Total goods available for sale (in peso value)
=
unit cost Total goods available for sale (in units)
Weightedaverage = 1,105,000
78
Chapter 12: Inventories
unit cost 85,000
Moving average
Units Unit cost Total cost
April1 balance 20,000 10 200,000
Apr. 2 Purchase 30,000 12 360,000
Balance 50,000 11 560,000
Apr. 4 Sale (25,000) 11 (280,000)
Balance 25,000 11 280,000
Apr. 10 Purchase 15,000 14 210,000
Balance 40,000 12 490,000
Apr. 15 Sales (21,000) 12 (257,250)
Balance 19,000 12 232,750
Apr. 17 Salesreturn 1,000 12 12,250
Apr. 28 Balance 20,000 245,000
Apr.2 8 Purchase 20,000 16.75 335,000
Balance 40,000 15 580,000
Inventoryend = P580,000 (A)
QuestionNos. 5 and 6
FIFO Units Unit cost Total cost
79
Chapter 12: Inventories
SUMMARY OF ANSWERS:
1. C 2. C 3. A 4.A5. B 6.B 7. B 8. B
PROBLEM 12-11 Lower of Cost or Net Realizable Value
Incompletemotorbikes Write-down
Cost 30,000
More profitable (completed product) 25,000 5,000
Incomplete bicycles
Cost 50,000
Moreprofitable (asis) 60,000 -
Total write-down (D) 5,000
Question No. 3 Finished goods
CASE NO. 1
Date Accounts Debit Credit
80
Chapter 12: Inventories
11/15 No entry
3/31 No entry
12/31 Loss on purchase commitment (1,200,000-1,000,000) 200,000
Estimated liability for purchase commitment 200,000
04/30 Purchases 1,200,000
Estimated liability for purchase commitment 200,000
Accountspayable/Cash 1,200,000
Gainonpurchasec ommitment 200,000
SUMMARY OF ANSWERS:
1. B 2. A
PROBLEM 12-13 Inventory Estimation - Gross Profit Rate Method
Sales 3,400,000
Less: Salesreturns (30,000)
Net Sales excluding Sales discount 3,370,000
Multiplyb y:C ost ratio (1-30%) 70%
Cost of Goodssold 2,359,000
Inventory,January 1 650,000
PROBLEM 12-16
PROBLEM 12-17
Question No. 1
A EI over (P129-P119)x 4,000 40,000
B EI under (70,000)
C EI over 100,000
Overstatement of ending inventory 70,000 (C)
Question No. 2
2015 2016
Unadjusted balance 1,000,000 1,200,000
A. EI over, NI over (P129-P119) x 4,000 (40,000) 40,000
B. EI under,NIunder 70,000 (70,000)
C. EI over, NI over (100,000) 100,000
D. EI under,NIunder 140,000
Adjusted balances 930,000 1,410,000
(A) (C)
Question No. 5
SUMMARY OF ANSWERS:
1. C 2. B 3. A 4. C 5. D
PROBLEM 12-18
QuestionNos. 1and 2
Ledger Physical
Balance Count
Balances priort o adjustment P3 14,800 P293,600
Add: Goods in transit sold, FOB destination 3,200 3,200
Less:unrecorded sale ( 8,400) -
Less:unrecordedp urchasereturns ( 6,000) -
Less:goodsheldonc onsignment - ( 8,800)
Add:unrecordedpurchase 3,640- -
Add: Goods in transit purchased, FOB shipping point 1,600
Add:Goodsoutonconsignment - 14,800
Adjusted balances P 307,240 P 304,400
83
Chapter 12: Inventories
(A) (C)
Question No. 3
Adjusted balances, perl edger P 307,240
Adjusted balances, physical count 304,400
Inventory shortage P 2,840 (B)
SUMMARY OF ANSWERS:
1. A 2. C 3. B
PROBLEM 12-19
Note to the professor: Use the following guide questions in answering this
question:
SOLUTION:
Ending Net
Inventory Sales Purchases AP Income
679 Unadjusted balances 550,000 1,000,000 600,000 450,000 120,000
680
681
682 Purch over, COS over, NI
under (46,740) (46,740) (46,740)
EI over, COS under, NI
over (46,740) 46,740
683 EI ov er, COS un der, NI
over (4,500) (4,500)
684 Purchunder, NI over 1,060 1,060 (1,060)
685 No, No, No
686 No, No, No
310 Yes, Yes, Yes
311 Sales over, NI over (560) (560)
EI under, NI under (560 x
70%) 392 392
312 Sales over, NI over (31,940) (31,940)
EI under, NI under (31,940
x 70%) 22,358 22,358
313 Sales over, NI over (6,350) (6,350)
EI under, NI under (6,350
x 70%) 4,445 4,445
314 Sales over, NI over (1,930) (1,930)
315 No, No, No
316 No, No, No
84
Chapter 12: Inventories
317 No,No , No
318
Net adjustment (24,045) (40,780) (45,680) (45,680) (19,145)
Adjusted balances 525,955 959,220 554,320 404,320 100,855
(A) (A) (A) (A) (D)
SUMMARY OF ANSWERS:
1. A 2. A 3. A 4. A 5. D
PROBLEM 12-20
1. C 2. C 3. A 4. A 5. D 6. D
PROBLEM 12-22
Questions No. 1 to 5
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Chapter 12: Inventories
R/E Sales EI A/P CGS
Legend:
BI - Beginning inventory
EI - Ending inventory
NI - Net Income
CGS - Cost of goods sold
RE - Retained earnings – 12/31/2016 or 01/01/2017
4,000 – overstated
(4,000) – understated
Note: The effect of errors on December 2016 and January 2017 has no effect on
the ending balance of the accounts payable on December 31, 2017 since the
payable is expected to be settled before the end of the year.
SUMMARY OF ANSWERS: 4. 5.
1. C 2. B 3. B D C
PROBLEM 12-23
Question No. 1
Sales (475,000/80%) P593,750 100%
Less:Cost ofsales 475,000 80%
Grossprofit 118,750 20%
Inventory (in units)
PROBLEM 12-24
Question No. 1
The cumulative effect on change in accounting policy on January 1, 2016 or
December 31, 2015 Retained Earnings is understatement of 100,000, which is
the understatement of Ending Inventory on December 31, 2015. (B)
Question No. 2
The 30,000 ending inventory comes from the last two purchases as follows:
Units Unit cost Total cost
From 4th quarterpurchases 10,000 68 680,000
From 3rd quarter purchases 20,000 66 1,320,000
Total 30,000 (B) 2,000,000
Question No. 4
Beginninginventory–FIFO
Add: Net Purchases (P6,480,000 – 980,000) 5,500,000
Totalgoodsavailablef ors ale 6,100,000
Less: Ending inventory at cost (see no. 3) 2,000,000
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Chapter 12: Inventories
Cost of goodssoldat cost 4,100,000
1. B 2. B 3. B 4. B 5. A
PROBLEM 12-25
Question No. 1
(10,500 - 1,000 + 3,000) = 12,000 units
No. of units Unit cost Total
3,000 14 P 42,000
2,000 13 26,000
4,000 15 60,000
3,000 16 48,000
12,000 P 176,000 (A)
Question No. 2
(4,500+700+600)=5,800 units
No. of units Unit cost Total
1,800 19 P 34,200
1,800 20 36,000
1,200 21 25,200
1,000 22 22,000 (A)
5,800 P 117,400
Question No. 3
T-shirts:
Net realizable value NRV Cost Lower
(12,000 x (P16-(10% x P16)) P172,800 P176,000 P 172,800
Jackets:
(5,800 x (P22-(10%xP22) 114,840 117,400 114,840
Lower of cost or NRV P287,640 P 293,400 P287,640
Question No. 4
Totalcost (seeno. 3) P 293,400
Less: Lower ofc ost or NRV( see no. 3) 287,640
Loss on inventory write-down (B) P 5,760
Question No. 5
Beginning inventories: P 99,000
T-shirts(9,000xP11)
Jackets(5,000xP15) 75,000 P 174,000
Add:*Total purchases (299,500 + 183,900) 483,400
Totalgoodsavailablef ors ale P 657,400
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Chapter 12: Inventories
Less: Merchandise inventory atc ost 293,400
1. A 2. A 3. A 4. B 5. B
PROBLEM 12-26
This T-Account of Raw Materials will be the same under the three different
cases:
Raw Materials
Beginning balance 600,000 1,200,000 Balance end
Net Purchases 2,200,000 1,600,000 Direct materials used
Total 2,800,000 2,800,000
CASE NO. 1
Question No. 1
GP Rate: 2013 2014 2015 2016
The trend of gross profit for the past three years increases by 5% each year;
thus, if the trend continues, the gross profit for 2016 will be 30%. The cost ratio
then would be 70% (100% - 30%). Therefore, the cost of goods sold is
computed as follows:
Sales 6,000,000
Multiplyb y:C ostRatio 0.70
Cost of goods sold 4,200,000 (B)
Question No. 2
Finished Goods
Beginning balance 2,800,000 2,000,000 Balance end
Cost of goods 4,200,000 Cost of goods sold
manufactured 3,400,000
Total 6,200,000 6,200,000
Work in Process
Directlaborcost 1,600,000
Multiply by: Predetermined rate 50%
Factory overhead 800,000
CASE NO. 2:
Question No. 3
GP Rate: 2013 2014 2015 2016
Gross Profit 340,000 630,000 1,000,000
Divide by: Sales 2,000,000 3,500,000 4,000,000
GrossProfit Rate 0.17 0.18 0.25 0.20
The cost ratio then would be 80% (100% - 20%). Therefore, the cost of
goods sold is computed as follows:
Sales 6,000,000
Multiplyb y:C ostRatio 0.80
Cost of goods sold 4,800,000 (B)
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Chapter 12: Inventories
Question No. 4
Finished Goods
Beginning balance 2,800,000 2,000,000 Balance end
Cost of goods 4,800,000 Cost of goods sold
manufactured 4,000,000
Total 6,800,000 6,800,000
Work in Process
CASE NO. 3:
Question No. 5
The gross profit for 2016 is computed based on the overall gross profit for
2014 and 2015:
Gross Profit Rate = 800,000 + 1,000,000
3,500,000 + 4,000,000
= 1,800,000
7,500,000
Gross Profit Rate = 24%
The cost ratio then would be 76% (100% - 24%). Therefore, the cost of goods sold is
computed as follows:
Sales 6,000,000
Multiplyb y:C ostRatio 0.76
Cost of goods sold 4,560,000 (A)
Question No. 6
Finished Goods
Beginning balance 2,800,000 2,000,000 Balance end
Cost of goods 4,560,000 Cost of goods sold
manufactured 3,760,000
Total 6,560,000 6,560,000
Work in Process
SUMMARY OF ANSWERS:
1. B 2. A 3. B 4. A 5. A 6. A
PROBLEM 12-27
Question No. 1
Accounts payable
Balancee nd 250,000 555,000 Beg. Balance
ret. and allow. 70,000 3,000,000 Purchases
Purchase discounts 80,000 100,000 Freight-in
Payments to supplier 3,255,000
(squeeze)
Total 3,655,000 3,655,000
Question No. 2
Add:Freight-in 100,000
Gross s 3,100,000
Less: Purchase returns and allow 70,000
Purchase discounts 80,000
NetPurchases 2,950,000
Question No. 3
Work in process
Beg. Balance 250,000 280,000 Balancee nd
Direct materials used 2,950,000 4,375,000 Cost of goods
Directlabor 900,000 manufactured
Factoryo verhead 675,000
Total 4,655,000 4,655,000
Question No. 4
Sales P5,100,000 120%
100%
Less: Cost of sales (5,000,000/120%) 4,250,000
Grossprofit 850,000 20%
Note: Do not deduct sales discount from the gross sales since sales discount
does not constitute actual return of merchandise.
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Chapter 12: Inventories
Question No. 5
Finished goods
Beg. Balance 400,000 525,000 Balancee nd
Cost of goods 4,375,000 4,250,000 Cost of goods sold
manufactured
Total 4,775,000 4,775,000
Estimated finished goods 525,000
SUMMARY OF ANSWERS:
1. A2.A3.A4.B5.B6.A7.A
PROBLEM 12-28
Question No. 1
Accountspayable, March3 1 2,370,000
Less:PaymentinApril 300,000
Total 2,070,000
Accounts payable for April Purchases
Totalpurchases 600,000
Less: Payment inA pril 200,000 400,000
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Chapter 12: Inventories
Total (B) 2,470,000
Question No. 2
Accounts receivable
Beg. Balance 2,700,000 3,000,000 Bal. end
Collections including
Sales on account 1,488,000 938,000 recoveries
Recoveries 0 250,000 Writeoff
0 Sales returns
4,188,000 4,188,000
Net Sales
SalesasofMarch3 1 9,040,000
AprilSales 1,488,000
Less: Sales return 100,000 1,388,000
Net Sales (C) 10,428,000
Question No. 4
NetSales 10,428,000
Multiply by:Costratio 60%
Cost of Sales (C) 6,256,800
Costo f Sales 9,000,000 10,500,000
1.B2.B3.C 4. C 5. C
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Chapter 12: Inventories
PROBLEM 12-29
Questions No. 1 and 2
Purchases ending
11m os 12m os
Unadjustedbalance 2,700,000 3,200,000
Shipment in Nov. included in December purchases 30,000 -
Unsalables hipments received (4,000) (6,000)
Deposits in October shipped February (8,000) (8,000)
Deposits madev endor inNovember (22,000) -
Adjustedbalance 2,696,000 2,186,000
1.( D) 2.( D)
Question No. 3
1. D 2. D 3. A 4. A 5. A
PROBLEM 12-30
Cost Retail
Inventory,Jan1 300,000 1,200,000
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Chapter 12: Inventories
Purchases 6,000,000 8,500,000
Conservative
Cost ratio = 5,760,000
9,216,000
Cost ratio = 62,50%
Average
SUMMARY OF ANSWERS:
1. A2.B3.B4.C5.C6.D
PROBLEM 12-31
Question No. 1
Subsidiary General
Ledger Ledger
Unadjustedbal. P 760,000 P 1,020,000
Undeliveredsales ( 100,000)
Valid Sales 60,000
SalesFOBdestination ( 100,000)
NSFcheck 50,000 50,000
Collectionbyt hebank ( 60,000) ( 60,000)
Sales in 2015 recorded in 2016 DR No. 38740 3,360 3,360
Receivable ins. Co DR No. 38741 ( 10,080) ( 10,080)
Sales in 2016 recorded in 2015 DR No. 38743 ( 19,200) ( 19,200)
Adjusted balance (D) P 784,080 P 784,080
Question No. 2
Current:
UnadjustedbeginningBalance 97,500
Add: ValidS ales in 2015 (60,000+ 3,360) 63,360
Total 160,860
Less:Receivablei ns Co (DR #3 8741) 10,080
Sales in 2016 recorded in 2015 (DR # 38743) 19,200
Current Accounts Receivable balance 131,580
Past Due:
Adjusted Accounts Receivable balance (see no. 1) 784,080
Less: Current Accounts Receivable balance 131,580
Past due Accounts Receivable *652,500
*or (662,500+50,000-60,000)
Age classification Amount Percentage Total
Current 131,580 6 7,894.80
Question No. 4
UnadjustedNetSalesbalance P3,000,000
Undeliveredsales ( 100,000)
SalesFOBdestination ( 100,000)
Sales in 2015 recorded in 2016D R No. 38740 ( 3,360
Sales in 2016 recorded in 2015 DR No. 38743 19,200)
Adjusted balance (B) P2 ,784,160
SUMMARY OF ANSWERS:
1. D2.A3.A4.B5.B PROBLEM 12-33
SUMMARY OF ANSWERS:
1. D2.B3.B4.B5.C PROBLEM 12-34
SUMMARY OF ANSWERS:
1. C2.A3.A4.A5. PROBLEM 12-
35
SUMMARY OF ANSWERS:
1. C2.D3.D4.D5.B PROBLEM 12-36
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Chapter 12: Inventories
SUMMARY OF ANSWERS:
1. A 2. A 3. C 4. C 5. B
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Chapter 14: Introduction to Financial Asset and Investment in Equity Securities
Unearned interest on
receivables 15,000
Unearnedrentincome 24,000
Utilitiespayable 750,000
Warrantyobligations 39,000
2,673 1,074 2,445 243
(E) (C) (E) (D)
Legend: FA – Financial Asset NFA – Non-Financial Asset
Dividendincome 20,000
Dividendincome 20,000
2/14/2017 Cash 20,000
Dividendreceivable 20,000
The difference between FVTPL and FVTOCI is the treatment of transaction cost.
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Chapter 14: Introduction to Financial Asset and Investment in Equity Securities
Dividendreceivable 20,000
12/31/2017 Unrealized Loss – P&L 30,000
FinancialAssetat FVTPL 30,000
12/31/2018 Financial Asset at FVTPL 250,000
Unrealizedgain–P&L 250,000
2) Fair Value through Other Comprehensive Income securities
Dividendreceivable 20,000
12/31/2017 Unrealized loss - OCI 30,000
Considerationreceived 750,000
Less: Brokerage andc ommission 20,000
NetSellingPrice 730,000
Less: Carrying value (1,600,000 x ½) 800,000
Realized loss on sale – P&L (B) (70,000)
Question No. 5
1. A 2. B 3. B 4. B
DividendReceivable 37,500
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Chapter 14: Introduction to Financial Asset and Investment in Equity Securities
Cash 300,000
Losso nl iquidation 110,000 440,000
Investment
SUMMARY OF ANSWERS:
1. D 2. D 3. B 4. C
107
Chapter 14: Introduction to Financial Asset and Investment in Equity Securities
Question No. 3
The cost of the investment will only include the subscription price of P400,000
(5,000 x P80). (B)
Question No. 4
The cost of the investment will include the subscription price of P400,000 and
cost of stock rights exercised of P200,000 = P600,000. (C)
The journal entries under the two classifications are as follows:
Fair Value through profit and loss securities
June 15 Memo entry (Received 10,000 stock
rights)
1. A 2. B 3. B 4. C
PROBLEM 14-13 Theoretical Value of Rights
Question No. 1
When the stock is selling right on
Value of one right = P320 – P200
5+1
= P20
Question No. 2
When the stock is selling ex-right
Value of one right = P320 – P100
5
= P24
SUMMARY OF ANSWERS:
1. B 2. C
PROBLEM 14-13 Dividend Income
Question No. 2
Not allowed (see discussion on no. 1). Therefore the securities remain as
FVTOCI. Since reclassification is not allowed, there is no reclassification gain or
loss. (A)
SUMMARY OF ANSWERS:
1.B 2.D
1. C 2. B
PROBLEM 14-20 Exchange of a PPE for Financial Asset
Question No. 1
Fair valueo f the financiala sset 820,000
Less: Carryingv alue oft hel and 600,000
Gain onexchange 220,000 (B)
Question No. 2
1. B 2. D
PROBLEM 14-21 Exchange of a Financial Asset for PPE
Question No. 1
Fair valueo f the financiala sset 650,000
Less: Carrying value of the financial asset 600 000
Gain onexchange 50,000 (B)
Question No. 2
1. B 2. B
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Chapter 14: Introduction to Financial Asset and Investment in Equity Securities
Sellingprice P50,000
Less:Commission andtaxes 5,000
Netsellingprice 45,000
Less: Carrying value [2,500x(P90,000/6,000)] 37,500
Gain on sale (C) P7,500
Question No. 4
SUMMARY OF ANSWERS:
1. A 2. A 3. C 4. B 5. A
PROBLEM 14-23 Fair Value through Other Comprehensive Income
Question No. 1
1/1/2016BookValue P 880,000
Brokeragefee 10,000
Commission 10,000
Dividendsreceivable ( 16,000)
Cost ofFVTOCI P 884,000 (C)
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Chapter 14: Introduction to Financial Asset and Investment in Equity Securities
Question No. 2
Dividend income (P2 x 6,000) = P12,000 (D)
Question No. 3
Proceeds(P35x 500) P 17,500
Carrying value (P500 x (P88,000/(2,000 x 110%)) ( 20,000)
Loss on sale P (2,500)
Net Proceeds (P40,000 – P5,000) P 35,000
1. C 2. D 3. D 4. A 5. D
PROBLEM 14-24
Question No. 1
Stockrights( 11,000x P6) P 66,000 (D)
Question No. 2
Question No. 4
Proceeds P 440,000
Cost of shares sold (P76 ** x 4,000) 304,000
Gain onsaleofstocks P 136,000 (D)
Question No. 5
1. D 2. B 3. C 4. D 5. D
PROBLEM 14-25
Question No. 1
Cashp aid (400K+20K) 420,000
Less:dividends 10,000
Correctcost 410,000 (D)
Question No. 2
Feb10. 30,000
Nov. 2
(10,000+(11,000/5) x 1 13,200
Totaldividendi ncome 43,200 (C)
Question No. 3
Carrying
Shares value
10000 451,000
10-Feb 1,000 -
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Chapter 14: Introduction to Financial Asset and Investment in Equity Securities
Note: Use bid price on asset held, asked price for asset to be purchased.
SUMMARY OF ANSWERS:
1.D 2.C 3.A 4.B 5. A
PROBLEM 14-26
Question No. 1
FVTOCI Portfolio – 12/31/2015
ColomaCompany 3,070,000
Soliman 2,737,500
VillanuevaCompany 1,871,000 7,678,500
Less: FVTOCI Portfolio – 01/01/2015
ColomaCompany 3,050,000
Soliman 2,725,000
VillanuevaCompany 1,875,000 7,650,000
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Chapter 14: Introduction to Financial Asset and Investment in Equity Securities
Note that the carrying amount is equal to the fair value previous remeasurement
date (12/31/2015).
Question No. 3
Proceeds from sale of Aquino shares 2,590,000
Less: Carrying amount of Aquino portfolio 2,600,000
Loss on sale (10,000) (B)
Question No. 4
1. C 2. B 3. B 4. C
PROBLEM 14-27
Question No. 1
Adjusted balance (5,000 – 4,000) x P50 = P200,000 (A)
Question No. 2
Question No. 3
Allocate part of the investment cost to the prefe rence shares.
Question No. 4
Proceeds(1,000xP17) P 17,000
Carrying amount [(P15,625/(10,000/5)) x 1,000)( 7,812.50)
Gain onsale P 9,187.50 (C)
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Chapter 14: Introduction to Financial Asset and Investment in Equity Securities
Question No. 5
Proceeds, exclusive of interest P 2 80,000
Carrying amount (250 x 1,000 x 110%) ( 275,000)
Gain onsale P 5,000 (A)
SUMMARY OF ANSWERS:
1. A 2. B 3. B 4. C 5. A
PROBLEM 14-28
Question No. 1
NetSellingprice 250,000
Less: Carrying value (740,000/40,000 x 5,000) 92,500
Gain on sale (D) 157,500
Question No. 2
Considerationreceived 270,000
Less:
Dividend income of the investment sold (6,000 x *P20 x 20%) 24,000
NetSellingprice 248,000
Less: Carrying value (740,000/40,000 x 6,000) 111,000
Gain on sale (D) 137,000
*The par value after 2 for 1 share split is equal to P40 x ½= P20
Question No. 3
6/1/2016(35,000x4) 140,000
12/1/2016(35,000x 20%xP20) 140,000
Total dividend income (A) 280,000
Question Nos. 4 and 5
1. D 2. D 3. A 4. D 5. D
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Chapter 15: Investment in Debt Securities
Amortization table:
Interest Interest Premium Present
Date Collection Income Amortization value
01/01/2015 1,127,076
12/31/2015 120,000 )(B135,249 5,2491 1,142,325
PROBLEM 15-2 Acquisition of FAAC Term Bonds in Between Interest Dates
Question No. 1
Present value oft hei nvestment bonds 1,878,460
Add: Discount amortization
Effectiveinterest 56,354
Nominalinterest 50,000 6,354
Present value of the investment bonds, April 1 1,884,814
AddAccruedinterest 50,000
Total Present value of the bonds (D) 1,934,814
Question No. 2
Amortization table:
Interest Interest Discount Present
Date Collection Income Amortization value
01/01/2015 1,878,460
12/31/2015 200,000 225,415 25,415 1,903,875
Total interest income (P225,425 x 9/12) = P169,061 (B)
Since there is transaction cost incurred, effective rate must be computed. The
effective rate therefore is computed at 11.5% (refer to page 530 and 531 of the
textbook for example of interpolation).
Interest income (11.5% x P1,144,752)=1 31,646 (B)
PROBLEM 15-4 Acquisition of FAAC - Serial Bonds
Question No. 1
Interest Total Present Total Present
Principal Collection Collection Value Factor Value
450,000 180,000 630,000 0.8929 562,527
450,000 135,000 585,000 0.7972 466,362
450,000 90,000 540,000 0.7118 384,372
450,000 45,000 495,000 0.6355 314,573
Total Present Value of the serial bonds (C) 1,727,834
Question No. 2
above, prepare the necessary entries on January 1, 2016 and December 31,
2018.”
Reclassificationgain
DecCash. 31, 0,000
2018Interestincome 0,000
To record the receipt of interest.
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Chapter 15: Investment in Debt Securities
Note that interest income is computed for the whole year even though the
business model was changed on July 1, 2016 since reclassification date will be on
the first day of the next repor ting period (January 1, 2017). The investment
therefore would be continued to be reported as held for trading on December 31, 2016.
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Chapter 15: Investment in Debt Securities
Question No. 5
Fair value of the bonds on the 2,600,000
reclassification date, 1/1/17 (2.5M X 104)
Less: Carrying value (2.5M X 1.02) 2,550,000
Unrealized gain (or loss)-P&L (C) 50,000
Question No. 6
1. C 2. B 3. B 4. B 5. C 6. A
CASE NO. 1
Question No. 1
Face value 5,379,079
Multiplyb y:N ominalr ate 10%
Multiply by: Months outstanding 12/12
Interest Income (B) 537,908
Question No. 2
Nil. No unrealized gain or loss is recognized if the financial asset is classified as
financial asset at amortized cost. (A)
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Chapter 15: Investment in Debt Securities
Question No. 3
Net Selling Price (5M x ½ x 105) 2,625,000
Less: Carrying value (see amort ization 2,658,494
table) (5,316,987 x ½)
Gain (or loss) on sale (C) (33,494)
Question No. 4
Note that interest income is computed for the whole year even though the
business model was changed on July 1, 2016 since reclassification date will be on
the first day of the next reporting period (January 1, 2017). The investment
therefore would be continued to be reported as Financial Assets at Amortized
Cost on December 31, 2016.
Question No. 5
Fair value of the bonds on the 2,600,000
reclassification date, 1/1/17 (2.5M X 104)
Less: Carrying value (2,658,494 X 1.10) - 2,624,343
300,000)
Reclassification loss- P&L (B) (24,343)
SUMMARY OF ANSWERS:
CASE NO. 2
Note to teacher: You may ignore this since there is incomplete information to answer
some of the questions under this case.
PROBLEM 15-8
Requirement No. 1
Annual expected loss
Multiply by: Present value of ordinary annuity for 5 years using
12% 3.6048 Lifetime expected credit losses
Requirement No. 2
Annual expected loss
Multiply by: Present value of 1 for 5 years using 12% .5674 12-month expected
credit losses
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Chapter 15: Investment in Debt Securities
Requirement No. 3
On initial recognition, Bank Company records the following journal entries:
January1 , LoanR eceivable 1,500,000
2017 Cash 1,500,000
To recognize loan asset at gross amount.
Impairment loss – P&L 11,348
Requirement No. 5
If, at the end of 2017, there is a significant deterioration of the credit quality, the
company should record lifetime expected credit loss. The amount to be
recognized is computed as follows:
Annual expected loss
Multiply by: Present value of ordinary annuity for 4 years using
12% 3.0373
Lifetime expected credit losses
Less: 12-m onth expect ed credit loss recognized January 1 11,348
Impairment loss – P&L
The journal entry therefore to record the increase in allowance is as follows:
Dec.3 1, Impairmentloss –P&L 49,398
2017 Loss allowance inSFP 49,398
To recognize lifetime expected credit losses
PROBLEM 15-9
Requirement No. 1
Since the expected probability of default is only 2%, this is not considered
significant. Therefore the Company will only recognize 12-month expected loss.
Requirement No. 2
12-month expected credi t loss is computed as follows :
= 2%x ,000
PROBLEM 15-10
Requirement No. 1
70%probability(4.8M–4.8M) 0
20%probability(4.8M–3.6M) 1,200,000
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Chapter 15: Investment in Debt Securities
10%probability(4.8M–3M) 1,800,000
70%probability(4.8M–4.8M)x 70% 0
20% probability(4.8M –3.6M)x2 0% 340,000
10%probability(4.8M–3M)x 10% 180,000
Probability weighted cash shortfall 420,000
Requirement No. 3
Requirement No. 1
Requirement No. 1
Cash
Lossa llowance– SFP 433,000
Investment in Bonds – FAAC ,000,000
Requirement No. 2
Cash 5,000,000
Cash ,500,000
Lossa llowance– SFP 433,000
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Chapter 15: Investment in Debt Securities
PROBLEM 15-15
Question No. 1
Cost of investment – Jan. 21(P2,000,000 x 102%) =P2,040,000 (A)
Question No. 2 P1,060,000
Proceeds
Less: Accrued interest (P1,000,000 x 9% x 3/12) 22,500
NetProceeds 1,037,500
Less: Carrying amount (P2,000,000 x 102%) 1,020,000
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Chapter 15: Investment in Debt Securities
Gain on sale (A) P 17,500
Question No. 3
Proceeds P419,000
Less: Accrued interest (P400,000 x 9% x 5/12) 15,000
Netproceeds 404,000
Carrying amount (P400,000 x 102%) 408,000
Loss on sale (A) ( 4,000)
Question No. 4
Question No. 1
Present value of Principal (5,000,000 x 0.6209 ) 3,104,607
Add: Present Value of interest payments (600,000 X 3.7908) 2,274,472
Present value oft hei nvestment bonds 5,379,079
(Please carry all the decimal places in the computation)
Question No. 2
Question No. 3
Carrying amount of the investment 12/31/2016 (see table above) 5,248,685
Less: Present value of expected cash flows 3.756,574
Impairmentloss 1,492,111
Present value of Principal (5,000,000 x 0.7513 ) 3,756,574
Question No. 4
Interest income (P3,756,574 x 10%) = 375,657
The interest income was computed using the srcinal effective rate and the
impaired value as of 12/31/2016.
Question No. 5
Present value expected cash flows, date of reversal 5,619,835
Would have been present value had there been no impairment 5,173,554
(see srcinal amortization table)
Lowerofthe two above 5,173,554
Less: Actual amortized cost (P3,756,574 x 1.10) 4,132,231
Gaino nreversalofi mpairment 1,041,322
Present value of Principal (5,000,000 x 0.8264 ) 4,132,231
Question No 1
Present value of Principal (5,000,000 x 0.6209 ) 3,104,607
Add: Present Value of interest payments (600,000 X 3.7908) 2,274,472
Present value oft hei nvestment bonds 5,379,079
(Please carry all the decimal places in the computation)
Question No. 2
Question No. 3
Carrying amount of the investment 12/31/2016 (see table above) 5,248,685
Less: Present value of expected cash flows 3.756,574
Impairmentloss 1,492,111
Present value of Principal (5,000,000 x 0.7513 ) 3,756,574
Question No. 4
Interest income (P3,756,574 x 10%) = 375,657
The interest income was computed using the srcinal effective rate and the
impaired value as of 12/31/2016.
Question No. 5
Present value expected cash flows, date of reversal 5,619,835
Less: Actual amortized cost (P3,756,574 x 1.10) 4,132,231
Gaino nreversalofi mpairment 1,487,604
Present value of Principal (5,000,000 x 0.8264 ) 4,132,231
PROBLEM 15-17
Question No. 1 P204,000
Proceeds
Less: Carrying amount [(P432,000/24,000) x 12,000) 216,000
Loss on sale (B) (12,000)
Question No. 2
Cost,1/1/2015 P5,311,400
Less: Amortized cost,1 2/31/2015 5,242,540
Premiumamortization 68,860
Less: Nominal interest( 5,000,000x 12%) 600,000
InterestIncome 531,140
Effective interest (P531,400/5,311,140) = 10%
Interest income (P5,242,540 x 10%) = P524,254 (B)
Question No. 3 P 22,500
2016 Interest Income = 12/31/2015 amortized cost x Effective inte rest rate
= P1,903,150 x 15% = P285,472.50 (C)
Question No. 4
Trading securities:
Panaghoy, Inc. (14,400 x P22) P 316,800
Lamentation, Inc. [(24,000 – 12,000) x P15] 180,000
Total P 496,800
FVTOCI:
132
Chapter 16: Investment in Associate
Question No. 1
Cost of Investment 30,000,000
Less: Book value of net asset acquired (P120M x 20%) 24,000,000
Excesso fc ostoverbookvalue 6,000,000
Less: Overvalued depreciable asset (P6M x 20%) 1,200,000
Goodwill (A) 4,800,000
Question No. 2
1. A 2. C 3. A 4. B 5. D
PROBLEM 16-2
Question No. 1
Cost of Investment 5,000,000
Less: Book value of net asset acquired (P10M x 30%) 3,000,000
Excesso fc ostoverbookvalue 2,000,000
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Chapter 16: Investment in Associate
Over or (under )valued asset:
Shareinnetincome(P2Mx30%) 600,000
Less: Amortization of undervalued valued asset (see below) 30,000
Add: amortization of overvalued asset 18,000
Adjusted net investment income (A) 588,000
Amortization of asset: 2016 2017
Inventory (30,000)
Machinery 90,000 90,000
Divideby:Remaininglife 5 5
Amortization of overvalued machinery 18,000 18,000
2016 2017
Cost of Investment
Add: Net investmenti ncome (see no. 2) 588,000
Less: Dividends received (P800,000x 30%) 240,000
Carrying value – 12/31/2016 (A) 5,348,000
Question No. 4
SUMMARY OF ANSWERS:
1. C 2. A 3. A 4. C 5. A
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Chapter 16: Investment in Associate
Inventory (10,000)
Machinery (100,000) (100,000)
Divideby:Remaininglife 10 10
Amortization of Under (over) valued asset (10,000) (10,000)
Land - 60,000
2016 2017
Question No. 5
CASE NO. 1
Question No. 1
Netincome P2,500,000
Less: Total preference dividends ( 3,000,000 x 10%) 300,000
Netincomet oordinaryshares P2,200,000
Multiplyb y:Percentageofownership 30%
Share in thenet income ofa ssociate 660,000
Less: Amortization of undervalued asset ( 1,000,000/8) 125,000
Net investment income (B) 535,000
Question No. 2
Question No. 1
Netincome P2,500,000
Less: Total actual preference dividends declared 450,000
Netincomet oordinaryshares P2,050,000
136
Chapter 16: Investment in Associate
Multiplyb y:Percentageofownership 30%
Question No. 1
Netincome P2,500,000
Multiplyb y:Percentageofownership 30%
Share in thenet income ofa ssociate 750,000
Less: Amortization of undervalued asset ( 1,000,000/8) 125,000
Net investment income (C) 625,000
Although the answe r shoul d be 400,000, the next best poss ible answer is
500,000.
Question No. 2
PROBLEM 16-6 Change From Fair Value through Profit or Loss to Equity Method
- Step Acquisition
Question No. 1
Fairvalue –12/31/2017 3,600,000
Less: Carrying value (Fair value – 12/31/2016) (3,900,000)
Unrealized loss – P&L (B) (300,000)
Question No. 2
Question No. 3
Nil. No catch-up adjustment on retained earn ings. (A)
Fair valueo f previously held interest 3,600,000
Acquisitioncost 3,600,000
Totalcost ofinvestment 7,200,000
Less: Book value of net asset acquired (12.5m x 30%) 3,750,000
Excesso fa ttributablet o machinery 3,450,000
Divideby:Remaininglife 10
Amortization ofU ndervaluedasset 345,000
Netincomeo ft hea ssociate - 2018 1,600,000
Shareinnetincome 480,000
Less: Amortization of Undervalued asset (see table above) 345,000
Adjusted net investment income (A) 135,000
Question No. 5
1. B 2. C 3. A 4. A 5. B
PROBLEM 16-7 Cost To Equity Method
Question No. 1
Consideration received (40,000 x 130) P5,200,000
Less:Dividend income(10x 40,000) 400,000
Netsellingprice 4,800,000
Less:Carryingv alue( 5,000,000) 5,000,000
Loss on sale (A) (P200,000)
(Assuming FIFO Method)
Question No. 2
Considerationreceived P5,200,000
Less:Dividend income(5x 40,000) 200,000
Netsellingprice 5,000,000
138
Chapter 16: Investment in Associate
Less: Carrying value [12M-(P5 x 100,000)/100,000] x 40,000) 4,600,000
Question No. 1
Cost of Investment 4,000,000
Add: Net investment income [(1.8M-840,000) x 20%] 192,000
Less: Dividends received (P100,000 + P100,000) 200,000
Carrying value – 12/31/2015 (B) 3,992,000
Note:
The dividend received on August 1, 2015 need not be prorated even though
the investment was acquired on July 1, 2015 since dividends is considered
when the investor has the right to receive payment (i.e. date of declaration).
The P1.8M net income was for a period of 12 months ending December 31.
139
Chapter 16: Investment in Associate
Question No. 2
Salesprice (P25x50,000) 1,250,000
Carrying value of shares (P3,992,000 x 50,000/200,000) 998,000
Gain on sale of inve stment (B) 252,000
Question No. 3
1. B 2. B 3. C 4. B 5. A
PROBLEM 16-9: Discontinuance of Equity Method
Question No. 1
Cost (300,000x100) 30,000,000
Add:Income(4,000,000x. 3) 1,200,000
Less:Dividends (2,500,000x 3) (750,000)
Carrying Amount - 2015 (C) 30,450,000
Question No. 2
Netproceeds(160,000x120) 19,200,000
Less: Carrying amount (30,450,000x(160,000/300,000)) (16,240,000)
Gain on Sale (C) 2,960,000
Question No. 3
140
Chapter 16: Investment in Associate
Question No. 5
Investment in FVTOCI (140,000x125) (B) 17,500,000
SUMMARY OF ANSWERS:
1. C 2. C 3.B 4.A 5. B
PROBLEM 16-10 Associate Having Heavy Losses
Originalcost 1,400,000
Cash advances 400,000
Totalinterest 1,800,000
Net loss from 2015 to 2017 (40% x 4,000,000) (1,600,000)
Carrying amount of investment – 12/31/2017 200,000
Share in net loss of 2018 (40% x 800,000) 320,000
Loss to be reported in 2018 should be equal to the investment
balance only (C) 200,000
PAS 28, paragraph 29, provides that if under equity method an investor’s share of
losses of an associate equals or exceeds the carrying amount of an investment,
the investor discontinues recognizing its share of further losses. The investment is
reported at NIL or zero value.
2015 2016
Netincome 1,000,000 1,500,000
Multiplyb y: Percentage of ownership 25% 25%
Share in the net income before adjustment 250,000 375,000
Less: Unrealized profit on upstream sale of
inventory (9,000) 9,000
Share in the net income after adjustment 241,000 384,000
(B) (D)
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Chapter 16: Investment in Associate
PROBLEM 16-13 Downstream Sale of Depreciable Asset
2015 2016
Netincome 1,000,000 1,500,000
Multiplyb y: Percentage of ownership 25% 25%
Share in the net income before adjustment 250,000 375,000
Less: Unrealized gain on downstream sale of PPE (160,000) 40,000
Share in the net income after adjustment 90,000 415,000
(B) (D)
2016
PROBLEM 16-14 Upstream Sale of Depreciable Asset 2015
COMPREHENSIVE PROBLEMS
PROBLEM 16-15
Question Nos. 1 and 2
2015 2016
Net incomeo ft hea ssociate 2,500,000 4,000,000
Multiplyb y: Percentage of ownership 30% 30%
ShareinNI 750,000 1,200,000
Less: Gaino sale of equipment (100,000)
Add:Depreciationo fExcess 20,000 20,000
Gain on sale of inventory (upstream) (50,000x .3) (15,000) 15,000
Less: Gain on sale of inventory (Downstream) (150,000)
NetshareinNI 655,000 1,085,000
1.( B) 2.( B)
Question No. 3
Cost 5,000,000
Add:Investment Income2015 655,000
Less:Dividends(900,000x.3) 270,000
Carrying amount 2015 (A) 5,385,000
Question No. 4
Carryingamount01/01/2016 5,385,000
Add:Income 1,085,000
Less:Dividends (2,000,000x.3) 600,000
Carrying Amount - 2015 (B) 5,870,000
142
Chapter 16: Investment in Associate
Question No. 5
Carryingamount01/01/2016 5,385,000
Add:Income 1,085,000
Less:Dividends(2,000,000x.3) 600,000
Less: Amortization of goodwill (400,000 x 2/10) 80,000
Carrying Amount - 2015 (A) 5,790,000
Note: Under PFRS for SMEs, Intangible Assets and Goodwill is amortized over their
useful life. If an entity canno t determine reliably the useful life, it is
assumed to be 10 yea rs.
SUMMARY OF ANSWERS:
1. B 2. B 3. A 4. B 5. A
PROBLEM 16-16
Question No. 1
Cost P1,700,000
Less:Equityinnetassets 1,400,000
Implied goodwill (D) 300,000
Question No. 2
Proceeds(2,500xP13) P 32,500
Less: Carrying amount [(P60,000/6,000) x 2,500] 25,000
Gain on sale (C) 7,500
Question No. 3
Question No. 6
1/2/2016 AcquisitionCost 1,700,000
Add: Share in net income of associate (P1,200,000 x 30%) 360,000
Less: Dividends (P.50 x 4 x 100,000) 200,000
12/31/2016 carrying amount (D) P1,860,000
Question No. 7
Roquepref.(1,000–500)xP56 28,000
Roqueordinary(1,500xP20) 30,000
Ocampo(6,000-2,500)xP11 38,500
Dagumboy Co.( 2,000 x 110% -500) x P22 (C) 37,400
12/31/2016 FVTOCI Balance 133,900
SUMMARY OF ANSWERS:
1.D 2. C 3. D 4. A 5. D 6.D7. C
PROBLEM 16-17
Question No. 1
1. C 2. A 3. C 4. D 5. C
144
Chapter 16: Investment in Associate
PROBLEM 16-18
Question No. 1
Consideration received (P230 x4 ,000) 920,000
Less: Dividend of the investment sold (P8 x 4,000) 32,000
NetSellingPrice 888,000
Less: Carrying value of the investment sold (*1,970,000/10,000
x 4,000) 788,000
Gain on sale (B) 100,000
The dividend that was paid and sold is not classified as dividend income since
the company did not ow n the shares when the dividend was declared.
Question No. 2
Net Selling Price( P450 x 50,000x 1/2) 11,250,000
Less: Carrying value of the investment sold (P20,800,000 x 1/2) 10,400,000
Gain on sale (C) 850,000
Beg. Balance of Investment in Associate 18,000,000
Add: Share in the net income of associate (25% x P20M) 5,000,000
Total 23,000,000
Less: Amortization (P2,000,000/10) 200,000
Dividends received( P40x 50,000) 2,000,000
Ending balance of investment in associate – 12/31/2016 20,800,000
Question N . 3
Nil. (A)
The dividend that was paid and sold in Boy-ot shares is not classified as
dividend income since the company did not own the shares when the
dividend was declared.
The dividend received in Cleo Shares is not regarded as income, but as a
deduction of the initial carryin g amount of the investment in associate.
SUMMARY OF ANSWERS:
1.B 2.C 3.A 4.C 5. C
Question No. 2
The carrying amount reflecting fair values made by Mark Co. after impairment:
CGU A
CGUB 100,000
CGUC 160,000
Netassets 380,000
Goodwill 40,000
Investment in associate (A)
146
Chapter 16: Investment in Associate
CASE NO. 2
Question No. 3 Fair value model
Fair value – December 31
Less:Acquisition cost 300,000
Gain on change in fair value – P&L to SCI
Add:Dividendincome( 45,000
Total to P&L (A)
Question No. 4 Fair value model
Acquisition cost
Add:Shareinnetincome 120,000
Less:Dividendsreceived (( 45,000
Carrying value – December 31 (B)
147
Chapter 18: Property, Plant and Equipment
Improvements
Question No. 1
Purchase Price 925,000
Title Insurance 7,500
Legal feestopurchaseland 5,000
Property taxes, January 1, 2016 -June 30, 2016 15,000
Costo fg rading and filling building site 45,000
Total Cost of the land (A) 997,500
Question No. 2
Principal 1,000,000
Multiply by:Presentvalueof1 0.7972
Cost of the equipment (B) 797,200
Question No 4
Zero, the transaction lacks c ommercial substance. (A)
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Chapter 18: Property, Plant and Equipment
Question No. 2
Zero, the difference between the fair value and its par value is recognized as
share premium in the equit y. (A)
Question No. 2
Zero, the difference between the fair value and its par value is recognized as
premium on bonds payable. (A)
PROBLEM 18-8 Acquisition by Donation
Question No. 1
Fairvalue 4,000,000
Add:Directcost 40,000
Total cost (B) 4,040,000
Question No. 2
Question No. 3
Beginningbalance –Jan 1 600,000
Add:Unloadingand set upcost 48,000
Total cost of precision machine (C) 648,000
Question No. 4
Question No. 1
Interest paid(2,000,000 x1 4% x1 2/12) 280,000
Less: Investment income
1,400,000x 10%x 6/12 70,000
200,000 x10%x 2/12 3,333
Capitalizable borrowingcost 206,667
Note that capitalization of borrowing costs does not cease during a temporary
de ay in construct on
Question No. 2
Interest paid (2,000,000 x 14% x 12/12) 280,000
Less:Capitalized borrowingcost 206,667
Interestexpense 73,333
Note that the interest paid and investment income is used to compute for the
capitalizable borrowing cost. However, the amount recognized as an interest
expense is the difference between the total interest paid and capitalizable
borrowing cost. Also, the amount recognized as interest income is 73,333.
Question No. 3
Totalprogresspayments 20,000,000
Add:Capitalizedborrowingcost 206,667
Totalcost ofthe stadium 20,206,667
151
Chapter 18: Property, Plant and Equipment
PROBLEM 18-11
Question No. 1
Interest expense under effective interest method (5,000,000 x 808,129
.176319 x 11/12)
Less: Investment income (250,000 x 11/12) 229,167
Capitalizable borrowingcost 578,962
Question No. 2
Totalexpenditures 2,700,000
Add:Capitalizedborrowingcost 578,962
Totalcost ofthebuilding 3,278,962
Question No. 3
PROBLEM 18-12
Question No. 1
Rate Principal Interest
15% 4,000,000 600,000
20% 2,000,000 400,000
Total 6,000,000 1,000,000
Capitalization Rate (P1,000,000 / P6,000,000) = 16.67%
Note that investment income is not considered since the two loans are considered
general borrowings.
Question No. 2
Totalinterestexpense 1,000,000
Less:Capitalized borrowingcost 553,334
Interestexpense 446,667
Question No. 3
Since the average accumulated expenditure did not exceed the principal of the
specific borrowing, the specific rate was used in determining the capitalizable
borrowing cost.
153
Chapter 18: Property, Plant and Equipment
Cost P3,300,000
Less:Residualvalue 300,000
Depreciable amount P3,000,000
Requirement No. 1 Straight Line
Sum-of-years-digits [5 x ((5+1)/2)] = 15
2016(P3,000,000x 5/15) 1,000,000
2017(P3,000,000x 4/15) 800,000
Sum-of-years-digits [5 x ((5+1)/2)] = 15
2016(P3,000,000x5 /15x 3/12) 250,000
154
Chapter 18: Property, Plant and Equipment
2017 (P3,000,000 x 5/15 x 9/12) + (P3,000,000 x 4/15 x 9/12) 950,000
Originalcost 5,000
Less:Salvage proceeds 600
Depreciation (B) 4,400
155
Chapter 18: Property, Plant and Equipment
Requirement No. 1
Carryingvalue– 12/31/2015 1,800,000
Less:Residualvalue 150,000
Depreciable amount 1,650,000
Dividedby:R emainingusefullife(8 –4) 4
Depreciation –2016 412,500
Requirement No 2
Carryingvalue– 12/31/2015 1,800,000
Less: Depreciation –2016 412,500
Carryingvalue– 12/31/2016 1,387,500
CASE NO. 3
Requirement No. 1
Carryingvalue– 12/31/2015 1,800,000
Less:Residualvalue 300,000
Depreciable amount 1,500,000
Multiply by: Fraction (SYD=10) 4/10
Depreciation –2016 600,000
Requirement No. 2 1,800,000
Carryingvalue– 12/31/2015
Less: Depreciation–2016 600,000
Carryingvalue– 12/31/2016 1,200,000
156
Chapter 18: Property, Plant and Equipment
COMPREHENSIVE PROBLEMS
PROBLEM 18-21
Question No. 1
Beg.Balanceofthe Land P 700,000
Cash paid 2,500,000
Mortgage assumed 4,000,000
Realtor'scommission 300,000
Legal fees, realty taxes and documentation expenses 50,000
Amount paid to rel cate persons squatting on the property 100,000
Total Cost of the Land (B) P7,650,000
Question No. 2
Question No. 4
Beg.BalanceoftheM achinery P 980,000
Invoicecostofmachinery 2,000,000
Freight,unloading 60,000
Customs duties 140,000
Allowancesduringinstallations 400,000
Total cost of machinery (B) P3,580,000
Question No. 5
SUMMARY OF ANSWERS:
1.B 2.A 3.A 4.B 5. A
General borrowings:
158
Chapter 18: Property, Plant and Equipment
Actualborrowing cost 200,000
Actualborrowingcost-2015 2,640,000
Less: Capitalizable borrowingc ost - 2015 858,000
Interest expense (C) 1,782,000
Question No. 4
Actualborrowingcost-2016 2,640,000
Less: Capitalizable borrowing cost - 2016 1,382,451
Interest expense (C) 1,257,550
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Chapter 18: Property, Plant and Equipment
Question No. 5
Totalcost,2015 16,858,000
Expendituresin2016 3,000,000
Add: Capitalizable borrowing cost - 2016 1,382,451
Total cost of the building (B) 21,240,451
SUMMARY OF ANSWERS:
PROBLEM 18-23
Question No. 1
The computation of the income from government grant is as follows:
Totalcashreceived 20,000,000
Divideby:Usefullifeof thebuilding 20
Incomef romgovernmentgrant 1,000,000
Question No. 2
Netcostofbuilding 4,000,000
Less:Depreciation–2016 200,000
Carrying amount–12/31/2016 3,800,000
Question No. 1
Cost( 800,000+45,000-5,000) 840,000
Less ResidualValue 40,000
Depreciable cost 800,000
Divideby 5
Depreciation (B) 160,000
Question No. 2
Question No. 3
Cost 270,000
Less Accumulated depreciation (270,000/4 x 8/12) 45,000
Total 225,000
Carrying amount of old tires (12,000-(12,000/4 x 8/12) (10,000)
Cost ofnewtires 24,000
Total 239,000
Depreciation
Motor vehicle:
Sept.1 -May 30, 2019( 270,000/4 x8 /12) 45,000
June 1-Sept. 30 (215,000/4 x 12 mos-8 mos x 4 mos) 21,500
Tyres from June 1- Sept 30 (24,000/24 mos x 4 mos) 4,000
Depreciation expense (D) 70,500
Question No. 4
Cost 280,000
Less ResidualValue 40,000
Depreciable cost 240,000
Divideby 3
Multiply by 8/12
Depreciation (B) 53,333
SUMMARY OF ANSWERS:
1. B 2. A 3. D 4.D 5. B
PROBLEM 18-26
Question No. 1
SellingPrice P52,000
Less Book value
162
Chapter 18: Property, Plant and Equipment
Cost P140,000
Question No. 2
Accumulatedd epreciation, R Jan1 P1 40,800
Add: Depreciation expense [(204,000-12,000)/15,000 x 2,100] 26,880
Accumulated depreciation, R Dec. 31 (B) 167,680P
Question No. 3
Question No. 1
Purchase of bottling plant P1,500,000
Delivery and installation (750,000x 1/3) 250,000
Testing (33,000/3) 11,000
Total cost of engine (C) P1,761,000
163
Chapter 18: Property, Plant and Equipment
Question No. 2
Purchase of bottling plant P2,000,000
Delivery and installation (750,000x 1/3) 250,000
Testing (33,000/3) 11,000
Total cost of conveyor belt and fittings (C) P2,261,000
Question No. 3
Question No. 4
Depreciation of component of plant:
Engine = (1,500,000 + 250,000 + 11,000 – 500,000) / 5 years x
11/12 231,183
Conveyor belt etc = (2,000,000 + 250,000 + 11,000 – 0) / 8
years 11/12x 259,073
Outer structure = (800,000 + 250,000 + 11,000 – 50,000) / 3
years 11/12x 308,917
Total depreciation of plant (A) P 799,173
Depreciation starts from the date that the asset was available for use: February
1, 2016.
Question No. 5
Depreciation of component of plant:
Engine = (1,500,000 + 250,000 + 11,000 – 500,000) / 5 years 252,200
Conveyor bel t etc = (2,0 00 000 + 250,000 + 11 000 – 0) / 8
years 282,625
Outer structure = (800,000 + 250,000 + 11,000 – 50,000) / 3
years 337,000
Total depreciation of plant (A) P 871,825
SUMMARY OF ANSWERS:
1.C 2.C 3.C 4.A 5. B
PROBLEM 18-28
Question No. 1
Fairvalue 1,400,000
Legal fees 50,000
Remodelingcost 100,000
Total cost of building (C) 1,550,000
164
Chapter 18: Property, Plant and Equipment
Question No. 2
Fairvalueo ftheassetreceived 1,200,000
Less:Cash paid 400,000
Fairvalue oftheassetgiven 800,000
Less: Book value of the asset given
Cost 1,000,000
Less: Accumulated depreciation (1M/10 x 3.5) 350,000 650000
Gain on exchange (A) 150,000
Question No. 3
Totaldepreciablecost
Less:Subsequentd epreciation 135,000
Book value (A) 810,000
SUMMARY OF ANSWERS:
Question No. 1
Months
Date Expenditures outstanding Average
January1 ,2 015 2,000,000 12 24,000,000
July1, 2015 4,000,000 6 24,000,000
November1 ,2015 3,000,000 2 6,000,000
Total 9,000,000 54,000,000
Divideby 8
Weighted averagec arryinga mount 4,500,000
165
Chapter 18: Property, Plant and Equipment
Weighted average borrowing cost:
Specific borrowings
Actual borrowing cost (2M x 10% x 12/12) 200,000
Less:Investmentincome - 200,000
General borrowings:
Weighted average carrying amount 4,500,000
Less: Principal amount of Specific borrowings 2,000,000
Weighted average related to General borrowings 2,500,000
Multiplyb y: Capitalizationrate 12%
Multiply by: Months/12 12/12 300,000
Weightedaverageb orrowingcost: 500,000
vs.Actual borrowingcost 2,000,000
Capitalizable borrowing cost (lower) (D) 500,000
Question No. 2
Totalexpenditures–2015 9,000,000
Totalexpenditures-2016 1,000,000
Capitalizedborrowingcost-2015 500,000
Capitalized borrowing cost – 2016 (see computation below) 1,160,000
Total cost of building (C) 11,660,000
Months
Question No. 3
Totalexpenditures–2015 9,000,000
Totalexpenditures-2016 1,000,000
Total cost of building (A) 10,000,000
Question No. 4
Costo fM achineryandEquipment 3,000,000
Multiply by: Fraction 3/15
Depreciation (A) 600,000
SYD is 15 yea rs and useful life is 5 years.
Question No. 5
Cost 1,152,000
Less:Accumulateddepreciation 432,000
Carryingvalue –12/31/2015 720,000
Less: Carryingv alue ofo verhauled truck 150,000
Balance 570,000
Divideby:Remainingusefullife(8-3) 5
Depreciation on remaining deliveryt ruck 114,000
Overhauled delivery truck:
Cost P240,000
Less: Accumulated depreciation (P240,000 / 8 x 3) 90,000
Carryingvalue –12/31/2015 150,000
Add:Overhaulingcost 60,000
Adjusted carrying value – 01/01/2016 210,000
Divide by: Revised remaining usefull ife( 5 +2 ) 7
Depreciation on overhauled delivery truck 30,000
New Delivery truck:
Invoicecost 400,000
Freight 20,800
Installation andtesting 40,000
Totalcosto fnewdeliverytruck 460,800
Divideby:Useful life 8
Annual depreciation 57,600
Multiply by: Number of months used (July 26 to December 31) 5/12
167
Chapter 18: Property, Plant and Equipment
Depreciation on remaining deliveryt ruck 24,000
Question No. 6
Beginningbalance 1,152,000
Add:Overhaulingcost 60,000
Add:Cost ofnewdelivery truck 460,800
Adjustedcostofdeliverytruck 1,672,800
Less: Accumulated depreciation (432,000 + 168,000) 600,000
Carrying value – 12/31/2016 (C) 1,072,800
SUMMARY OF ANSWERS:
1. D 2. C 3. A 4. A 5. B 6. C
PROBLEM 18-29
SUMMARY OF ANSWERS:
1. C 2. B 3. B 4. C 5. B
PROBLEM 18-31
Question No. 1
SYD =(5 (5+1)/2 = 15
Question No. 3
Directcost 2,220,000
Fixedc ost (15,000X 25) 375,000
Variable cost (15,000X 27) 405,000
Total Cost of bldg. 3,000,000
Question No. 5
Depreciation of machinery
Depreciation of the beg bal of machinery
OriginalCost P 3,000,000
Add:Major overhaul 600,000
Total 3,600,000
Accum. depreciation
(3,000,000/20*10) P1,500,000
Adjustedbookvalue P 2,100,000
Dividedby:r evisedremaininglife 15
Depreciation of the beg bal of machinery P 140,000
Depreciation on the new machinery
(400,000/20*6/12) 10,000
Depreciationofm achinery P 150,000
SUMMARY OF ANSWERS:
1.A 2.C 3. B 4. A 5. D 6. C 7. B
169
Chapter 18: Property, Plant and Equipment
PROBLEM 18-32
Question No. 1
Property-cost 3,400,000
Less: Accumulated depreciation (1,360,000)
Depreciation (3,400,000 x 4%) (136,000)
Carrying value of property (C) 1,904,000
Question No. 2 360,000
Cost at 30June2016
Less:Disposal1July2 016 32,000 3 28,000
Accumulatedd epreciation (126,000)
Constructioncosts 1,200,000
Professionalfees 7,800
Sitepreparationcosts (B) 90,000
Total cost of retail outlet 1,297,800
Question No. 4
Property-cost 3,400,000
Less: Accumulated depreciation (1,360,000)
Depreciation (3,400,000 x 4%) (136,000) 1,904,000
Constructions costs 1,297,800
Fixtures&fittings 257,655
Carryingvalue of PPE 4,959,455
170
Chapter 18: Property, Plant and Equipment
Question No. 5
Depreciation:
Property 136,000
Fixtures and fittings (32,220 + 2,925) 35,145 171,145
Amortization(29,000+4,000) 33,000
Total depreciation and amortization (D) 204,145
SUMMARY OF ANSWERS:
171
Chapter 19: Wasting Assets
Acquisitioncost P164,000
Less: Accumulated depletion – 12/31/2015 32,800
Carryingvalue –01/01/2016 131,200
Divide by: Tons estimatedt o be extracted 20,000
Depletion perunit P6.56
Multiplyb y:Tonsextracted–2016 8,000
Depletion – 2016 (C) P52,480
PROBLEM 19-2 Depletion with Change in Estimate
Acquisitioncost 20,000,000
Exploration cost. 15,000,000
Intangibledevelopmentcost 4,000,000
To al cos oft he naturalresources 390 00,000
lesse stimatedresidualvalue 1,000,000
Total depletable cost of the natural resources 38,000,000
divide by units est.t o be extracted 2,000,000
Depletion perunit 19.00
x unitsextracted 500,000
Depletion from2015to 2017 9,500,000
Question No. 1
Question No. 2
Cost ofnaturalresource 39,000,000
Accumulated depletion 23,950,000
Carrying amount, 12/31/2018 (D) 15,050,000
Question No. 2
costo ft hemovableequipment 4,000,000
dividebyunitsest. tobeextracted 20
Depreciation (A) 200,000
Question No. 3
Question No. 1
Acquisitioncost P9,075,000
Divide by: Tons estimated to be extracted 1,100,000
Depletion perton P8.25
Multiplyb y:A ctual tons extracted – 2016 100,000
Depletion - 2016 (D) 825,000
Question No. 2
Acquisitioncost P9,075,000
Less:Accumulated Depletion 825,000
Carryingvalue– 12/31/2016 P8,250,000
Add: Additionald evelopment cost - 2017 750,000
Remainingdepletable cost P9,000,000
Divide by: Estimatedt ons to be extracted 1,000,000
Depletion perton P 9
Multiplyb y:Tonsextracted –2017 150,000
Depletion - 2017 (C) P1,350,000
Question No. 5
1. D 2. B 3. A 4. C 5. C
175
Chapter 19: Wasting Assets
Question No. 1
Acquisition costo ft he wastinga ssets 150,000,000
Explorationa nd intangible devt.C ost 8,000,000
Estimated decommissioning and restoration costs-at PV 8,196,161
Initial cost (A) 166,196,162
Estimatedrestorationcost P12,000,000
Question No. 5
Date Interest expense Present value
01/01/2015 8,196,161
12/31/2015 819,612 (A) 9,015,777
SUMMARY OF ANSWERS:
Question No. 1
Acquisition costo ft he wastinga ssets 120,000,000
Explorationa nd intangible devt.C ost 6,000,000
Estimated decommissioning and restoration costs-at PV 6,355,181
Initial cost (A) 132,355,181
Estimatedrestorationcost P10,000,000
Question No. 5
Date Interest expense Present value
01/01/2016 6,355,181
12/31/2016 2,6227 (A) 7,117,803
SUMMARY OF ANSWERS:
177
Chapter 20: Investment Property
SUMMARY OF ANSWERS:
1. D 2. B 3. C 4. C 5. C
178
Chapter 20: Investment Property
Question No. 1 Separate if portions can be sold or leased out separately. (C)
QuestionNo. 2 (A)
QuestionNo. 3 (B)
QuestionNo. 4 (C)
SUMMARY OF ANSWERS:
1. D 2. D 3. D 4. D
The initial carrying amount under the new classification is the previous carrying
amount of
QuestionNo. 3 (D)
No gain or loss is recognized if the transfer is made at cost model.
QuestionNo. 4 (A)
2,880,000. Fair value at the date of transfe r. Don’t deduc t cost to sell.
QuestionNo. 5 (A)
Fair value at the date of transfer
Less:Carrying value 2,600,000
Gain on transfer
PROBLEM 20-10
Question No. 1
Cost
Less:Residualvalue 1,000,000
Depreciable cost 13,000,000
Dividedby: Usefulife 10 years
Annual depreciation 1,300,000
Multiply by: Monthsoutstanding 8/12
Depreciation – 2010 (D)
Question No. 2
Depreciation [( –
Impairmentloss 480,000
Total amount to SCI (A)
Question No. 3
Cost
Accumulated depreciation 3,466,667
Carrying value, beforei mpairment 10,533,333
Impairmentloss 480,000
Carrying value, after impairment - 12/31/2012 10,053,333
Less:Residualvalue 1,000,000
Depreciable amount 9,053,333
Divide by: Remaining useful life (120 – 32) 88 months
Multiply by: Numberof months 12
Depreciation – 2013 (to SCI) (B) 1,234,545
Question No. 4
Cost
Accumulated depreciation 3,466,667
Carrying value, beforei mpairment 10,533,333
Impairmentloss 480,000
Carrying value, after impairment - 12/31/2012 10,053,333
Depreciation -2013[( - 1,234,545
Depreciation –2014 [( - 1,028,788
Carrying value, 10/31/2014
Depreciation –2014 [( - 1,028,788
181
Chapter 20: Investment Property
Question No. 5
Fair value - 12/31/2015
Fairvalue -12/31/2014 11,000,000
Gain on change in fair value (B) 450,000
Question No. 6
Reclassification loss:
Fairvalue- 05/01/2016 9,500,000
Carrying value, 05/01/2016 11,450,000
Depreciation -2016 [( - 2,322,222
Total (A)
PROBLEM 20-11 Various investments
Fairvalue ( 375,000
Less:Carrying value 250,000
Unrealized gain-OCI (D) 125,000
Question No. 2
182
Chapter 20: Investment Property
Question No. 4
Costo fI nvestment –01/01/2016 4,000,000
Add: Net investment income - 2016 (see No. 3) 550,000
Less: Dividends received -2016 (30% x 800,000) 240,000
Add: Share in the translation gain (30% x 1,000,000) 300,000
Carrying value – 12/31/2016 (B) 4,610,000
Question No. 5
Note: Under PFRS for SMEs, Intangible Assets and Goodwill is amortized over their
useful life. If an entity canno t determine reliably the useful life, it is assumed to be 10
yea rs.
Question No. 6
Fairvalue ofbuildingA 1,500,000
Less:Carrying value 1,000,000
Unrealized gain - P&L (B) 500,000
SUMMARY OF ANSWERS:
183
Chapter 22: Intangible Assets
Question No. 2
Acquisition cost of research and develop ment
Development expenditures qualifying for recognition
( 280,000
Intangible Asset under Development (A)
Question No. 1
Zero. All costs are charged to expense. (A)
Question No. 2
Obtainingadomainname 32,000
Installing developed applications on the web server 80,000
Stress testing 12,000
Designing the appearance (e.g. layout and color) of web pages 160,000
Creating, purchasing, preparing (e.g. creating links and
identifying tags), and uploading information 60,000
Updating graphics and revisingc ontent 32,000
Adding new functions, features and content 12,000
Reviewing securityaccess 36,000
Total intangible asset (B) 424,000
185
Chapter 22: Intangible Assets
Question No. 2
As the costs associated with the renewal are significant, and almost equaling the initial cost of the
license, the asset must be amortized over the 5 year useful life.
Although the entity intends to renew the license, the renewed license, when it is
acquired, must be treated a separate asset and amortiz ed over a useful life of 5
years.
Amortization ( (C)
COMPREHENSIVE PROBLEMS
Averageearnings 2,375,000
Less:Normal earning 1,765,000
Averageexcessearnings 610,000
Multiply by: Capitalization period 4
Goodwill (A) 2,440,000
Add: Fair value ofn eta sseta cquired 17,650,000
Purchase price (A) 20,090,000
186
Chapter 22: Intangible Assets
Question No. 2
Averageearnings 2,375,000
Less:Normal earning 1,765,000
Averageexcessearnings 610,000
Divideby:Capitalizationrate 10%
Goodwill (B) 6,100,000
Add: Fair value of net asseta cquired 17,650,000
Purchase price (B) 23,750,000
Question No. 3 2,375,000
Averageearnings
Divideby:Capitalizationrate 8%
Purchase price (B) 29,687,500
Less:Fairvalueo f netasset 17,650,000
Goodwill (B) 12,037,500
Question No. 4
Averageearnings 2,375,000
Less:Normal earning 1,765,000
Averageexcessearnings 610,000
Multiply by: Present value of ordinary annuity 3.0373
Goodwill (C) 1,852,753
Add: Fair value of net asset acquired 17,650,000
Purchase price (C) 19,502,753
SUMMARY OF ANSWERS:
1 A 2. B 3. B 4. C
PROBLEM 22-7
Question No. 1
NetPatent,January1 336,000
Divide by: Remaining life (8years -2y ears) 6
Amortization (A) 56,000
Question No. 2
Question No. 4
Purchase price 2,400,000
Less: Fair valueo fn et assets acquired 1,600,000
Goodwill (carrying amount) (A) 800,000
The goodwill shall not be amortized because its useful life is indefinite. However,
goodwill shall be tested for impairment at least annually, or more frequently if
events or changes in circumstances indicate a possible impairment.
Question No. 5
Cost-Patent 384,000
Less: Accumulated Amortization (48,000 + 56,000) 104,000 280,000
Cost - Trademark (no amortization) (1.6M x 3/4) 1,200,000
Cost- Noncompetition agreement 400,000
Less: Accumulated Amortization (see no. 3) 80,000 320,000
Total carrying amount of the Intangible assets (B) 1,800,000
Note: Goodwill should not be reported as part of intangible asset since it is not
identifiable.
SUMMARY OF ANSWERS:
1. A 2. B 3. A 4. A 5. B
PROBLEM 22-8
Question No. 1
Legal cost 7,000
Payment of licenses to author excluding refund able purchase
taxes (100,000-10,000) 90,000
Total cost of intangible assets (D) 97,000
QuestionNo’s 2, 3 and 5
Cost 97,000
Less: Amortization in 2016 (97,000/5 x 6/12) 9,700 No. 2 (C)
Carrying value, 12/31/2 016 87,300 No. 3 (C)
Less: Amortization in 2017 (97,000/5 ) 19,400
Carrying value, 12/31/2 017 67,900 No. 5 (D)
Question No. 4
Generalstart-upcost 1,500
Amortization 9,700
Cost ofprinting 100
Advertising expense (20,000 x6 /12) 10,000
Total Expense (B) 21,300
SUMMARY OF ANSWERS:
1. D 2. C 3. C 4. B 5. D
188
Chapter 22: Intangible Assets
1. C 2. D 3. D 4. A 5. A
PROBLEM 22-10 Comprehensive
Question No. 1
Acquisitioncost 600,000
Costs of employee benefit s arising directl y from bringing the
assettoi tsi ntendedcondition 60,000
Professional fees arising directly from bringing the asset to its
intended condition 13,000
Total cost of the trademark (C) 673,000
Question No. 2
None, the trademark has an indefinite life and is not subject to amortization.
(A)
189
Chapter 22: Intangible Assets
Question No. 3
Amortization-Trademark -
Amortization-Customerlist 60,000
Total a mortization (B) 60,000
Question No. 4
Amortization-Trademark -
Amortization-Customerlist 60,000
Amortization-Franchise 165,416
Total a mortization (A) 225,416
Downpayment 400,000
PROBLEM 22-11
Question No. 1
Zero, organization cost is treated as outright expense .(A)
Question No. 2
Designcosts 3,000,000
Add:Legalfees 300,000
Registration fee with Patent office 100,000
Total cost of trademark (B) 3,400,000
Question No. 3
Cash 400,000
Add Present value of the note (200,000 x 2.91) (B) 582,000
Cost of Franchise 982,000
Question No. 4
Question No. 5
SUMMARY OF ANSWERS:
1. A 2. B 3. B 4. A 5. D
PROBLEM 22-12
Question No. 1
Cost-Patent 136,000
Less: Amortization for the year (136,000/20) 6,800
Carrying value of the Patent (C) 129,200
Question No. 2
Unadjustedbalance 118,000
Add: Amount creditedf ora dvancec ollection 2,000
Totalcost 120,000
Less:Amortization(120,000/10) 12,000
Carrying value - Licensing agreement No. 2 (C) 108,000
Question No. 4
Carrying values:
Patent(seeno1). 129,200
LicensingAgreementNo.1(No.2) 36,000
LicensingAgreement No.2 (No. 3) 108,000
Total carrying value (C) 273,200
The P16,000 cost incurred for advertising and the P32,000 legal expenses for
incorporation should be charged to expense when it were incurred.
Question No. 5
Nonamortization of Licensing Agreement No 1 (100,000/20 x 1) 5,000
Expenses capitalized:
191
Chapter 22: Intangible Assets
Goodwill(16,000+32,000) 48,000
All the expenses above were understated thereby overstating the net income
and retained ea rnings.
SUMMARY OF ANSWERS:
1. C 2. B 3. C 4. C 5. A
PROBLEM 22-13
Question No. 1
Unadjustedbalance 550,000
Less: Unamortized portion of improvements debited
Cost P75,000
Less: Amortization (P75,000 / 10 x 3) 22,500 52,500
Adjustedbalance–01/01/2016 497,500
Less: Amortization 2016 (P52,500 + P56,071) – see below 108,571
Carrying value – 12/31/2016 (A) 388,929
Computation of amortization:
Adjustedbalance–01/01/2016 497,500
Less: CV of Patent with remaining UL of 2 years – 01/ 01/2016
Cost 210,000
Less: Accumulated amortization 01/01/2016
(P210,000/14x7 ) 105,000 105,000
CV of Patent with remaining UL of 7 years – 01/01/2016 392,500
Amortization of:
Question No. 3
The amount to be reported as goodwill is the excess of cost over the fair value of
net asset acquired. Goodwill is not amortized but only subject to impairment
testing. Therefore, the amount to be repor ted is P200,000. (A)
Question No. 4
Other coding costs after establishment of technological
feasibility 240,000
192
Chapter 22: Intangible Assets
Other testing costs after establishment of technological
feasibility 200,000
Costs of producing master for training materials 150,000
Total Software Cost (A) 590,000
Question No. 5
Amortization:
Patent(seeNo. 1) 108,571
Franchise(see No2). 10,000
Software cost–noneyet -
Total Cost charged to Expense (C) 118,571
SUMMARY OF ANSWERS:
1.A 2.A 3.A 4.A 5. A 6. C
Totalacquisitioncost 4,000,000
Add:Mortgageassumed 800,000
Totalcosto flandandb uilding 4,800,000
Multiplyb y: Percentage allocated to building 80%
Total Purchase Price allocated to Building 3,840,000
Add: Remodeling Cost( 300,000 – 20,000) 280,000
Total Cost of Building (A) 4,120,000
Question No. 3
Question No. 5
1. B 2. A 3. B 4. C 5. A
194
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
DepreciatedReplacementcost 11,250,000
Divide by: Remaining useful life(20 – 5) 15
Depreciation Expense – 2017 (C) 750,000
Question No. 3
Question No. 4
NetSellingPrice 10,000,000
Less: Carrying amount – 01/02/2018
Depreciated Replacement Cost, date of revaluation 11,250,000
Less: Subsequent depreciation (P750,000 x 2 years) 1,500,000 9,750,000
Question No. 5
Revaluationsurplus,b eginning 5,250,000
Less: Piecemeal realization for two years (5,250,000/ 15 x 2) 700,000
Remaining revaluation surplus to R/E (B) 4,550,000
SUMMARY OF ANSWERS:
195
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
NetSellingPrice 10,000,000
Less: Carrying amount – 01/02/2017
Depreciated Replacement Cost, date of revaluation 11,200,000
Less: Subsequent depreciation (P11.2M / 25 x 2) 896,000 10,304,000
Gain on sale (A) (304,000)
Question No. 5
1. B 2. B 3. C 4. A 5. B
PROBLEM 23-3 Revaluation, With Change in Useful Life and Residual Value
Replacement
Question No. 2
DepreciatedR eplacementcost 6,850,000
Less:Revised residualvalue 100,000
Depreciable amount 6,7500,000
Divideby:Remainingusefullife 25
Depreciation Expense – 2016 (B) 270,000
Question No. 3
NetSellingPrice 7,000,000
Less: Carrying amount – 01/02/2018
Depreciated Replacement Cost, date of revaluation 6,850,000
Less: Subsequent depreciation (P540,000 x 2) 540,000 6,310,000
Gain on sale (C) 690,000
Question No.
Revaluationsurplus,b eginning 3,425,000
Less: Piecemeal realization for two years (P274,000 x 2) 274,000
Remaining revaluation surplus to R/E (B) 3,151,000
SUMMARY OF ANSWERS:
1. C 2. B 3. B 4. C 5. B
PROBLEM 23-4 Impairment and Revaluation of PPE
Question No. 1
Cost 2,200,000
Less:Residualvalue 200,000
Depreciable amount 2,000,000
Divideby:Estimated usefullife 10
Depreciation - 2016 (B) 200,000
197
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
Question No. 2
Zero. The company is using the cost model . (A)
Question No. 3
Cost 2,200,000
Less:Accumulatedd epreciation 200,000
Carryingamount 2,000,000
Less:Revised residualvalue 290,000
Depreciable amount 1,710,000
Divideby:Remainingusefullife (D) 9
Depreciation - 2017 190,000
Question No. 4
Cost 2,200,000
Less: Accumulated Depreciation (200,000 + 190,000 + 190,000) 1,620,000
Carryingamount–12/31/2019 1,620,000
Less: Recoverable amount, date of impairment 939,500
Impairment loss (C) 680,500
Question No. 5
SUMMARY OF ANSWERS:
1. B 2. A 3. D 4. C 5. B
CASE NO.2 REVALUATIONMODEL
Question No. 1
Cost 2,200,000
Less:Residualvalue 200,000
Depreciable amount 2,000,000
Divideby:Estimated usefullife 10
Depreciation - 2016 (B) 200,000
Question No. 2
Question No. 3
Recoverablea mount/fairv alue 2,990,000
Less:Revised residualvalue 290,000
Depreciable amount 2,700,000
Divideby:Remainingusefullife 9
Depreciation (C) 300,000
Question No. 4
Cost 2,300,000
Less:AccumulatedD epreciation 210,000
Carryingamount–12/31/2017 2,090,000
Less: Recoverable amount, date of impairment (C) 1,850,000
Impairment loss 240,000
199
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
Question No. 3
Recoverable amount 1,850,000
Less:Revised residualvalue 50,000
Depreciable amount 1,800,000
Divideby:Remainingusefullife 9
Depreciation (B) 200,000
Question No. 4
2016 210,000
2017 210,000
2018 210,000
Would have been carrying value – 12/31/2018 1,670,000
Question No. 5
Lower between Recoverable amount and would have been book 1,499,400
value – 01/01/2019
Less:Newresidual value 0
Depreciable amount 1,499,400
Divideby:Remainingusefullife( 10–3) 7
Depreciation (D) 214,200
SUMMARY OF ANSWERS:
1. C 2. C 3.B 4.A 5. D
CASE NO.2 REVALUATIONMODEL
Question No. 1
Cost 2,300,000
Less:Residualvalue 200,000
Depreciable amount 2,100,000
Divideby:Estimated usefullife 10
Depreciation - 2016 (C) 210,000
200
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
Question No. 2
Cost 2,300,000
Less:AccumulatedD epreciation 210,000
Carryingamount–12/31/2017 2,090,000
Less: Recoverable amount, date of impairment 1,850,000
Impairment loss (C) 240,000
Question No. 3
Zero, since recoverable amount is lower than the would have been book
value if there is no impairment loss.
Question No. 5
Recoverablea mount – 01/01/2019 1,499,400
Less:Revised residualvalue -
Depreciable amount 1,499,400
Divideby:Remainingusefullife( 10–3) 7
Depreciation (D) 214,200
SUMMARY OF ANSWERS:
The copyright and tradename is not amortized because they have indefinite
useful life.
Question No. 2
Copyright:
Carryingvalue 400,000
Less: Recoverable amount (80,000 / .05) 160,000 240,000
Tradename:
Carryingvalue 350,000
Less: Recoverable amount (15,000 / .05) 300,000 50,000
Goodwill:
Carrying value of reporting unit 3,000,000
Less: Recoverable amount (200,000 x 14.0939) 2,818,780 181,220
Total impairment loss (C) 471,220
Question No. 3
Patent(P200,000–P20,000) 180,000
Copyright(recoverableamount) 160,000
Tradename(recoverableamount) 300,000
Computer software (100,000 – 50,000) 50,000
Carrying value of intangible assets – 12/31/2016 (A) 690,000
SUMMARY OF ANSWERS:
1. A 2. C 3. B 4. A
202
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
Questions 1 and 2
Trademark-Unadjusted balance 1,430,000
Less: Unamortized cost of improvement
that should have been expensed
Cost 150,000
Less: Accum. amortization (150,000/10 x 2) 30,000 120,000
Total 1,310,000
Add: Competitive patent debited to expense
Cost 135,000 120,000
Less: Accum. amortization (135,000/9 x 1) 15,000
Adjusted balance, January 1. 2016 1,430,000
Less: Amortization during the year
Patent with remaining life of 4 years *(160,000/4) 40,000 1)( A
Remaining patent (1,430,000-160,000)/15-7) 158,750 198,750
Carrying value of the Patent, 12/31/2016 2)A ( 1,231,250
Computation of the P160,000:
Originalcost 300,000
Less: Accumulated amortization (300,000/15) x 7 years)) 140,000
Remainingc arryingv alue, 1/1/2016 160,000
Questions 3
Carrying value of the trademark (no amortization) 800,000
Less: Recoverable amount (P75,000/10%) 750,000
Impairment loss (B) 50,000
Questions 4
Adjusted carrying value of the trademark is equal to its recoverable amount of
P750,000. (See no. 3) (B)
Questions 5
Downpayment 500,000
Add:Presentvalue ofthenote 874,000
Totalcost ofthe franchise 1,374,000
Divideby:Useful life 10
Amortization expense (D) 137,400
SUMMARY OF ANSWERS:
Generating Unit
Cash 100,000
Inventory 800,000
Accountsreceivable 1,200,000
Plant andequipment 24,000,000
Less:Accumulated depreciation 10,400,000
Trademark 2,550,000
Patent 850,000
Goodwill 400,000
TotalCarryingamountof CGU 19,500,000
Less:Value inuse 16,300,000
Impairmentloss 3,200,000
Less: Impairment allocated to goodwill 400,000
Impairment loss allocatedt o othera sset 2,800,000
204
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
Balance Balance
before Impairment after
Impairment Fraction Loss Impairment
Plant and equipment 13,600,000 13.6/17 (2,240,000) 11,360,000
Trademark 2,550,000 2.55/17 (420,000) 2,130,000
Patent 850,000 .85/17 (140,000) 710,000
Total 17,000,000 2,800,000 14,200,000
Balance Balance
after after
Impairment Reallocation Reallocation
Plant and equipment 11,360,000 (40,000) 11,320,000 1(B).
Trademark 2,130,000 (7,500) 2,122,500 2(B).
Patent 710,000 47,500 757,500 3(B).
Total 14,200,000 - 3,520,000
Plant and Equipment:
Impairedvalue 11,320,000
Less: Subsequent depreciation 1,000,000 10,320,000
Maximumg aino n reversal ofi mpairment 2,080,000
Trademark:
Impairedvalue 2,122,500
Less: Subsequent depreciation 112,000 2,010,500
Maximumg aino n reversal ofi mpairment 419,500
Patent:
Impairedvalue
Less: Subsequent depreciation 60,000 697,500
Maximumg aino n reversal ofi mpairment 72,500
205
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
Balance
before Allocated
Reversal Fraction Gain Max gain
Plant and equipment 10,320,000 10320/13028 1,901,136 1,901,136
Trademark 2,010,500 2010.5/13028 370,372 370,372
Patent 697,500 697.5/13028 1 28,492 72,500
Total 13,028,000 2,400,000 2,344,008
Balance
Balance after
Plant and equipment Max gain bef. Reall Reallocation reallocation
1,901,136 12,221,136 46,863 12,267,999
Trademark 370,372 2 ,380,872 9,130 2,390,001
Patent 72,500 825,992 (55,992) 770,000
Total 2,344,008 15,428,000 - 15,428,000
SUMMARY OF ANSWERS:
1. B 2. B 3. B 4. C 5. C 6. A
PROBLEM 23-10 Noncurrent Assets Held for Sale -Single Asset
Question No. 1
Cost 1,200,000
Less:Accumulatedd epreciation 480,000
Carryingamount 720,000
Less: Initial amount recognized– lower of:
Carryingamount 720,000
Fair value less cost to sell 600,000 600,000
Impairment loss (C) 120,000
Question No. 2
Zero. Non-current asset hel d for sale should not be depreciated. (A)
Question No. 3
Lower of:
Carryingamount 720,000
FVLCTS 790,000 720,000
Less: Carrying amount at initial recognition 600,000
Gain on reversal – P&L (C) 120,000
Question No. 4
Question No. 5
Cost 1,200,000
Accumulated depreciation 480,000
Carryingamount 720,000
Less: Initial amount recognized– lower of:
Carryingamount 720,000
Fair value less cost to sell 800,000 720,000
Impairment loss (A) -
SUMMARY OF ANSWERS:
Question No. 2
(C) P6,000,000.
Question No. 3
Total carrying amount before impairment 59,600,000
Less:Fairv aluel ess costs to sell 52,000,000
Impairmentloss 7,600,000
Less: Impairment loss allocated to Goodwill (B) 6,000,000
Impairment loss allocated to othera ssets 1,600,000
Questions No. 4 & 5
Carrying
amount as Allocated Revaluation
remeasured Decrease surplus
PPE (atc ost model) 22,800,000 0.59 940,206 -
PPE (at revaluation model) 16,000,000 0.41 659,794 400,000
Total 38,800,000 1,600,000 1,000,000
Revaluation Carrying
surplus amount
Impairment after
loss impairment
PPE (atc ostmodel) - 940,206 21,859,794
PPE (at revaluation model) 400,000 259,794 15,340,206
Total 400,000 1,200,000 37,200,000
Remaining revaluation surplus is
SUMMARY OF ANSWERS:
1.C 2.E 3.D 4.B 5. A
Question No. 1
Share in net income (900,000x 30%) 270,000
Less: Amortization of undervalued 10,000
asset Net investment income (B) 260,000
Question No. 2
Beginning balance– 01/01/2016 Add: Net 5,000,000
investment income (see No.1 ) Less: 260,000
Dividends received( 150,000 x 30%) 45,000
Carrying amount – 12/31/2016 (A) 5,215,000
Question No. 3
Carryingamount–12/31/2016 5,215,000
Less: Initial amount recognized– lower of:
Carryingamount 5,215,000
Fair value less cost to sell 4,900,000 4,900,000
Impairment loss (B) 315,000
Question No. 4
Zero. No Share in the profit or loss and amortization shall be recognized when
the investment in associate is classified as noncurrent held for sale. The cash
dividend shall be recognized as income. (A)
Question No. 5
208
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
PROBLEM 23-13
Question No. 1
Irrigation Equipment P 740,000
Freightin 10,000
Installation cost 192,000
Total Machinery and Equipment, end (A) P 942,000
Question No. 2
Tradeinallowance 400,000
Book Value:
Cost 1,300,000
Less: Accum. Depreciation (P660,000+ P165,000) 825,000 475,000
Loss on trade in (B) 75,000
Question No. 3
Question No. 4
SUMMARY OF ANSWERS:
1. A 2. B 3. B 4. B 5. A
PROBLEM 23-14
Carryingamountat1Oct2015 372,000
Lessvaluationa t1 October2015 449,500
Revaluationsurplus 77,500
Valuation at1October2015 449,500
Carryingamountat1Oct2015 1,080,000
Lessvaluationa t1 October2015 600,000
Decreaseinvalue 480,000
Valuation at1October2015 600,000
Carryingamountat1Oct2015 1,080,000
Lessvaluationa t1 October2015 600,000
Decreaseinvalue 480,000
Less remaining revaluations urplus 456,000
Impairmentloss-PropertyB 24,000
Impairment loss-held for sale
(8,200-820)-6,500 880
210
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
1. A 2. A 3. B 4. B 5. C 6. D
211
Chapter 25: Introduction to Liabilities
The bank overdraft, which is part of cash management, is offset to any bank
balance with positive balance as provided under PAS 7.
Accruedexpenses 150,000
Total current liabilities (A) P5 ,400,000
Below items shall be presented as part of entity’s non-current liabilities:
Stockdividendspayable 750,000
PROBLEM 25-3 Refinancing
Current liabilities
10% note payable, maturing 03/3 1/2015 P10,000,000
Annuals inking fund requirement 500,000
Total current liabilities (C) 10,500,000
Below items shall be presented as part of entity’s non-current liabilities:
213
Chapter 25: Introduction to Liabilities
discount. The liability as of March 15, 2015 has been outstanding for more than
10 days.
Amount of bonus
Net income before bonus and income tax P 1,600,000
Less: Required income to earn bonus 1,000,000
Amount of income subject to bonus (125%) P 600,000
Less: Bonus (25%)(squeeze) (D) 120,000
Basis of bonus (100%) (P600,000/125%) P 480,000
PROBLEM 25-10 Unearned Revenue
214
Chapter 25: Introduction to Liabilities
Wagesofretrenchedemployees 1,000,000
Salary ( 50,000x 60%) 30,000
Retrenchmentpackage 150,000
Restructuring provision (D) 1,180,000
Note that 60% (administering the closure and transfer of employees of Factory
A) is only included in computing the restructuring provision since it is directly
related to the restructuring.
PROBLEM 25 18 Contingencies
(C) Since the outcome of the lawsuit remains uncertain, disclosure of the
contingency in the notes to financial statements would be the necessary.
50,000 80,000
Balance, End (D) 30,000
216
Chapter 25: Introduction to Liabilities
80,000 80,000
*(20,000 x 80%)/5 x (P30 + P5 - P1 0)
**(10,000/5) x (P30 + P5 - P10)
Warranties liability
- Balance, Beg.
Actual expenditures 140,000 480,000 Warranties expense
140,000 480,000
Balance, End (C) 340,000
480,000 480,000
PROBLEM 25-24 Warranty - Sales are Made Evenly
Notes:
The 38% repre sents the realized revenue in 2016 from 2015 Sales.
The 20% repre sents the realized revenue in 2016 from 2016 Sales.
Notes:
218
Chapter 25: Introduction to Liabilities
The 30% and 12% repr esent the unrealized revenues in 2016 from 2015
Sales.
The 20% rep resents the realized revenue in 2016 from 2016 Sales. So
100% minus 20% realized is equal to 80% unrealized revenue in 2016 from
2016 Sales.
SUMMARY OF ANSWERS:
1.A 2. B3.A
219
Chapter 25: Introduction to Liabilities
T = 30% X (3,090,000 – B)
= 927,000-.3B
OR
B = BR x [NY x (1-TR)]
1 + [BR x (1-TR)]
220
Chapter 25: Introduction to Liabilities
Where:
NY = Net income before bonus and tax
B = Bonus
BR = Bonus Rate
T =T ax
TR = Tax Rate
SUMMARY OF ANSWERS:
1.D 2. B3.C
PROBLEM 25-30
Question Nos. 1 and 2
Estimated liability from Warranties
Disbursement for 44,800 Beginning balance
warranties 164,000
Balance end 212,000 240,000 Warranty expense.
Total 376,000
Warrantyexpense 240,000
Divideby% ageofwarranty 4%
Sales from musical instruments and sound
reproduction equipment (Question No. 1) 6,000,000
Question No. 3
Premium
expense
= P2,000,000 X 1c oupon x 9 0% P34-P20
P2
200 coupons
= P63,000
221
Chapter 25: Introduction to Liabilities
Question No. 4
Inventory of Premium
Beg.Balance 39,950 56,950 Balance end
Net Purchases (6,500 x 221,000 Cost of issued premium
P34)
204,000 (1.2M coupons.200 coupons
x P34
Total 260,950
Question No. 5
1. A 2.A3. C4.D 5. D
QuestionNo. 1 (A)
Periodic payment-NP Delivery equipment
(P2M/4) 500,000
Multiplyb y PV of ordinarya nnuity 3.0373
Present value of NP-delivery equipment 1,518,650
Amortization table:
Noncurrent Current
12% Note payable 1,400,000 700,000
10% note payable 2,000,000
Note payable-del. 844,995 355,893
222
Chapter 25: Introduction to Liabilities
Equipment
Total 4,244,995 1,055,893
Question No. 4
Accrued interest payable-12% Note payable
=P2,100,000 x 12% x 8/12
=P168,000
Question No. 5
Interest expense:
12% Note payable
1/1-5/1 (2.8M x 12% x 4/12) 112,000
5/1-12/31 (2.1M x 12% x 8/12) 168,000
10% Note payable (2M x 10%) 200,000
Note payable - Delivery. Equipment
(seea mortization table) 182,238
Total 662,238
SUMMARY OF ANSWERS:
1. A 2. B 3. B 4 . B 5. C
PROBLEM 25-32 Warranty, Premiums and Bonus
Question No. 1
Warrantyexpense(P150 x1,200) 180,000
Less:Warrantypaid 85,000
Estimated Premiums payable (A) 95,000
Question No 2
Premium expense
(P1,200,000 x 1 coupon/P1)/400 x 60% x (P45-P20) 45,000
Less: Net cost of redeemed coup ons
(500,000/400)x(P45-P20) 31,250
Estimated Premiums payable (C) 13,750
Question No. 3
Unadjustednetincome 1,935,000
Warranty expense under, Net income over (P180,000-P85,000) (95,000)
Premium expense over, Net income under (P270,000-P45,000) 225,000
Adjusted Net income (C) 2,065,000
Question No. 4
Question No. 5
OR
B = BR x [NY x (1-TR)]
1 + [BR x (1-TR)]
Net income after bonus and tax
B = BR X (NY–B–T)
B = 20% x (2,065,000-B-(9619,500-3.B)
B = 20% x (2,065,000-B-619,500+.3B)
B = 413,000-.2B-123,900+.06B
1B+.2B-.06B = 413,000-123,900
1.14B = 289,100
1.14 1.14
B = 253,596 (C)
T = 30% X (2,065,000 – B)
= 619,500-.3B
OR
BR x [NY x (1-TR)]
Where:
NY = Net income before bonus and tax
B = Bonus
T =T ax
TR = Tax Rate
SUMMARY OF ANSWERS:
1.A 2. C 3.C4.B 5. C
224
Chapter 25: Introduction to Liabilities
Deferredtaxliability 40,000
Notes payable
Arsingfrom 4-year bankloan 400,000
Arising from advances by officers, dune in 3 years 300,000
Serial bonds payable (800,000 minus (40,000 x 2) 720,000
Security deposit received froml essee 89,000
Loanspayable-10% 150,000
Total noncurrent liabilities (A) 1,699,000
Question No. 3
Total liabilities
Currentliabilities 2,727,500
Totalnoncurrentl iabilities 1,699,000
Total liabilities (B) 4,426,500
SUMMARY OF ANSWERS:
1.B 2. A3.B
225
Chapter 26: Financial Liabilities and Debt Restructuring
BONDS PAYABLE
PROBLEM 26-1 Financial Liabilities at FVTPL (Interest Expense and
Unrealized gains or losses)
Question No. 1
Face value 3,000,000
Multiply by:nominal rate 8%
Multiplyb y: months outstanding/12 12/12
Interest expense (A) P240,000
Question No. 2
SUMMARY OF ANSWERS:
1.A 2. B3.D
Add:Instrumentspecific-IRR 1%
Discountrate 9%
226
Chapter 26: Financial Liabilities and Debt Restructuring
Amortization Table
Interest Interest Premium Present
Date payment expense Amortization value
01/01/2016 1,140,302
227
Chapter 26: Financial Liabilities and Debt Restructuring
12/31/2016 96,000 114,030 (B) 18,030 1,158,333
SUMMARY OF ANSWERS:
1.C 2. B
SUMMARY OF ANSWERS:
1.A 2. A
Nominalinterest(5Mx8 %) 400,000
Effective interest (5,420,000 x 6%) 325,200 74,800
Carrying value – 12/31/2016 (B) 5,345,200
PROBLEM 26-7 Bonds payable with warrants
Question No. 1
TotalProceeds( P1,000x1,000) 1,000,000
Less: Fair value of the bonds without conversion privilege 900,000
Total Share Premium (A) 100,000
Using 7.48%
Amortization Table
Interest Interest Discount Present
Date Payment Expense Amortization value
01/01/2016 900,000
12/31/2016 500 00 67,320 173 20 917,320
SUMMARY OF ANSWERS:
1.A2.B
PROBLEM 26-9 Retirement of Bonds Payable
229
Chapter 26: Financial Liabilities and Debt Restructuring
Share premium-conversion option 60,000
Premiumonbondspayable 52,049
Ordinarys hares(20000X50) 1,000,000
SharePremium 612,049
Question No. 2 - Case No. 2
Principal 2,000,000
Less: Discount on notes payable 216,000
(2M x 10.8% x 12/12)
Amortization (216,000/12x 5) (90,000) 126,000
Carrying amount of the note payable (B) 1,874,000
PROBLEM 26-14 Interest-Bearing Note
Principal 1,500,000
Less: Directo riginationf ees paid (1.5M x4 %) 60,000
Initial carrying amount of the loans payable (D) 1,440,000
PROBLEM 26-16 Debt Restructuring
Question No. 1
Present value of Principal ( 4,000,000 x 0.75) 3,000,000
231
Chapter 26: Financial Liabilities and Debt Restructuring
Add: Present value of interest payments (320,000 x 2.49) 796,800
Question No. 2
Interest expense (3,796,800 x 10%) (B) 379,680
SUMMARY OF ANSWERS:
1.B2.B
PROBLEM 26-19 Debt Restructuring
Principal P6,000,000
Add: Accrued interest – January 1,2 015 600,000
Accruedinterest–2015 600,000
Carryingamountofo ldl iability 7,200,000
Less: Present value of new liability
Present value of principal (P5M x .6209) 3,104,500
Present value of interest (P5M x .08 x 3.7908) 1,516,320 4,620,820
Gain on extinguishment of liability (A) 2,579,180
COMPREHENSIVE PROBLEMS
Question No. 4
Nil. (A) The entire note payab le is noncurr ent liability.
Question No. 5
P4,497,370. (D) The entir e note payable is current liability.
SUMMARY OF ANSWERS:
1.D 2. C 3.C4.A 5. D
SUMMARY OF ANSWERS:
233
Chapter 26: Financial Liabilities and Debt Restructuring
1.D 2. D3.C4.C 5. C
Question No. 2
Interest expense (4,415,066 x .10) P441,507 (B)
Question No. 3
SUMMARY OF ANSWERS:
1.C 2. B3.B 4.C 5. D
234
Chapter 26: Financial Liabilities and Debt Restructuring
The carrying amount of the note on initial recognition is equal to its cash price
equivalent of P994,760 . (C)
Coincidentally, the effective rate using the cash price equivalent is 12% and the
amortization table is as follows:
1.C 2. A 3.A 4. B 5. C
PROBLEM 26-24 Noninterest-Bearing Note – Lump Sum
Question No. 1
Present value of Principal (1,200,000 x 0.7118 ) (B) 854,160
Amortization Table
Question No. 2
Interest expense (854,160 x .12) P102,499 (B)
Question No. 3
Question No. 4
Nil. The entire note payable is noncurrent liability since it is due beyond 12
months from the reporting date. (B)
Question No. 5
The total entire carrying amount of note payable is presented as noncurrent
liability. See Question No. 4. (A)
SUMMARY OF ANSWERS:
1.B 2. B3.A4.B 5. A
Question No. 1
Present value of Principal (400,000 X 2.4018 ) (D) 960,720
Amortization Table
Question No. 2
P115,286. See amortization table above. (A)
Question No. 3
P676,006. See amortization table above. (A)
Question No. 4
Principal (payableD ec.3 1,2 017 P400,000
Less: Discount on notes payable 81,121
Carrying amount-current liability (B) P318,879
Question No. 5
SUMMARY OF ANSWERS:
1.D 2. A3.A4.B 5. C
RetirementPrice 1,900,000
Less: Carrying amount (3,227,816 x 1/2) 1,613,908
Loss on retirement (B) 286,092
QuestionNo. 3 (B)
Amortization table:
Interest Interest Present
Date payment expense Amortization value
12/31/2015 1,613,908
12/31/2016 180,000 145,252 4,7483 1,579,160
Question No. 4
Question No. 5
Question No. 1
TotalProceeds P3,000,000
Less: Present value of the bonds without the
conversion option
Present value of Principal (3,000,000 x 0.5674 ) 1,702,281
Present value of interest payments (300,000 x 1,081,433
3.6048 ) 2,783,713
Residual amount to equity (B) 216,287
Amortization Table
Date Interest Interest Discount Present
payment expense Amortization value
01/01/2015 2,783,713
12/31/2015 300,000 334,046 (34,046) 2,817,759
12/31/2016 300,000 338,131 (38,131) 2,855,890
Question No. 2
Interest expense is P338,131 based on the amor tization table above. (D)
Question No. 5
1.B2. B 3. C4.D 5. C
238
Chapter 26: Financial Liabilities and Debt Restructuring
Question No. 1
P1,723. See amortization table above. (B)
Question No. 2
1.B 2. C 3.D 4. B 5. B
239
Chapter 26: Financial Liabilities and Debt Restructuring
PROBLEM 26-29
Question No. 1
Accounts payable, unadjusted P1,350,000
Good in transitF OB shippingp oint 75,000
Undeliveredcheck 60,000
Accounts payable, adjusted (D) P1,485,000
Question No. 2
Current Noncurrent
Accountspayable 1,485,000
14%Notepayable 1,250,000
16%Notepayable 3,000,000
10%Notepayable 2,000,000
Accrued interestpayable 503,750
Total P3 238,750 P5,000,000
(C) (C)
SUMMARY OF ANSWERS:
1.D2.D3.C4.C 5. C
PROBLEM 26-30 (Comprehensive)
Question No. 1
Present value of Principal (10,000,000 X 0.3118 ) 3,118,000
Add: Present value of interest payments (500,000 X 11.46992 ) 5,734,960
Present value of the bonds payable (A) 8,852,960
Question No. 2
April1,2016 P400,000
July1, 2016 600,000
October1,2016 300,000
January 1, 2017 300,000
Notes payable-current liability (B) P1,600,000
240
Chapter 26: Financial Liabilities and Debt Restructuring
QuestionNos. 3 and 4
Estimated liability from Warranties
Disbursement for 180,000 Beginning balance
warranties 358,000
Balance end(A) 342,000 520,000 Warranty expense (C)
Total 700,000
Question No. 5
Current Noncurrent
Int. payable - Bonds (10M x 10% x 3/12) 250,000
Int. payable - Note payable 600,000
Notespayable 1,600,000 5,400,000*
Estimated warranties payable 342,000
Tradepayable 740,000
Salescommissions payable 28,000
Cash dividends payable (6M x P.2) 1,200,000
Bonds payable 8,970,751
Total P4,760,000 P14,370,751**
(B) (C)
*(P7M-1.6M)
* or P14,370,783 which is the same as P8,952,185 x 100% +(Effective rate x
months outstanding/12) minus payment
Amortization Table
Interest Interest Present
Date Payment Expense Amortization value
07/01/2014 500,000 531,178 31,178 8,852,960
01/01/2015 8,884,138
07/01/2015 500,000 533,048 33,048 8,917,186
01/01/2016 500,000 535,031 34,999 8,952,185
03/31/2016 250,000 268,566 18,566 8,970,751
241
Chapter 26: Financial Liabilities and Debt Restructuring
SUMMARY OF ANSWERS:
1.A 2.B3.A4.C 5. C 6 B 7 C
Question No. 2
Present value of convertible debt without conversion option at 11.81%
Present value of Principal (200M x .7154) 143,080,000
Add: Present value of interest payments (200M x .08 x 2.4097) 38,555,200
Present value of the convertible debt (B) 181,635,200
Question No. 3
Netassetof GL 380,000,000
Less:Recoverableamount 370,000,000
ImpairmentlossofGL 10,000,000
Multiply by:Percentageshare 20%
Impairment loss (C) 2,000,000
Question No. 5
Question No. 6
2. Productsdesigning 1,500,000
3. Laborc osts in refinement of products
4. Development work undertaken to finalize the 950,000
productdesign 11,000,000
Total Development cost capitalized (C) 13,450,000
242
Chapter 26: Financial Liabilities and Debt Restructuring
SUMMARY OF ANSWERS:
1.C 2. B3.D 4.C 5. B 6 C
CASE NO. 1
Question No. 1
Initial carrying amount is fair value or issuance price of 1,898,205.
Transaction cost is expensed outright. (D)
Question No. 2
Interest expense ( 2,000,000 x 8%)= 160,000 (A)
Question No. 3
1.D 2. A3.C 4. C 5. D 6. A
CASE NO. 2
Question No. 7
Question No. 8
Effective interest rate = 10% (B)
Please refer to discussion on interp olation.
Question No. 9
Interest expense ( x 10%)= 187,321 (B)
Question No. 10
No gain or loss due to change in fair value is not recognized . (D)
Question No. 11
Carrying value 12/31/2016 (A) 1,930,579
Question No. 12
7.C8.B9.B10.D11.A 12. B
244
Chapter 27 – Lease
245
Chapter 27 – Lease
Question No. 4
Total payments to date, 2016 (6 x 25,000 ) 150,000
Less: Total expenset o date, 2016 250,000
Accrued rent payable (D) 100,000
CASE NO. 4
Question No. 5
Total lease payments
(25,000x 2x 12) 600,000
(30,000x1x12) 360,000 960,000
Divideby:Leaseterm 3
Rent expense per year (A) 320,000
Question No. 6
Question No. 8
Periodrentforoneyear 300,000
Add: Contingent rent
1st [(2,500,000 – 1,500,000) x 10%] 100,000
2nd [(6,000,000 – 2,500,000) x 8%] 280,000 380,000
Total rent expense (A) 680,000
SUMMARY OFANSWERS:
1. B 2. C 3. D 4. (D)5. A
6. D 7. A 8. A
246
Chapter 27 – Lease
PROBLEM 27-5 Finance Lease with Bargain Purchase Option
QuestionNo. 1 (A)
Present value of periodic payment (120,000 x 3.4018) 408,220
Add: Present value of bargain purchase option (20,000 x 0.6355) 12,710
Present value ofm inimuml ease payments 420,926
Amortization Table
Annual Interest Present
Date payment expense Amortization value
12/31/2016 420,926
12/31/2016 120,000 36,111 - 120,000 300,926
12/31/2017 120,000 83,889 217,037
12/31/2018 120,000 26,044 93,956 123,082
12/31/2019 120,000 14,770 105,230 17,851
12/31/2020 20,000 2,142 17,858 (6)
QuestionNo. 2 (B)
P36,111. See amortization table above.
QuestionNo. 3 (C)
P83,889. See amortization table above.
QuestionNo. 4 (B)
P217,037. See amortization table above.
SUMMARY OFANSWERS:
1.A 2.B 3. C 4.B
PROBLEM 27-6 With Guaranteed Residual Value And Initial Direct Cost
CASE NO. 1
Question No. 1
Present value of periodic payment (130,000 x 3.4869) 453,297
Add: Present value of guaranteed residual value (50,000 x 0.683) 34,150
Present value ofm inimuml ease payments 487,447
Add:Initialdirect cost 40,000
Cost of the Machinery (C) 527,447
Amortization Table
Annual Interest Present
Date payment expense Amortization value
12/31/2016 487,447
12/31/2016 130,000 - 130,000 357,447
12/31/2017 130,000 35,745 94,255 263,192
12/31/2018 130,000 26,319 103,681 159,511
12/31/2019 130,000 15,951 114,049 45,462
12/31/2020 50,000 4,538 45,462 0
247
Chapter 27 – Lease
QuestionNo. 2 (B)
P35,745. See amortization table above.
QuestionNo. 3 (C)
P94,255. See amortization table above.
QuestionNo. 4 (B)
P263,192. See amortization table above.
248
Chapter 27 – Lease
Fairvalue 800,000
Less: Present Value of Guaranteed Residual Value 59,630
Total 740,370
Divide by: Present valueo f Annuity Due 4.8897
Periodic lease payments (B) 151,414
PROBLEM 27-9 Direct Financing Lease - Lessor
Question No. 1
Gross Investment:
Total Periodic Lease Payment (261,692 x 4) *1,046,775
Add: Unguaranteed Residual value (URV) 150,000 1,196,775
Less:Cost oftheequipment 1,000,000
Unearned interest income (C) 196,775
*1,046,770 OR 1,046,775
Amortization Table
Annual Interest Present
Date Collection Income Amortization value
12/31/2016 1,000,000
12/31/2016 261,692 - 261,692 738,308
12/31/2017 261,692 81,214 180,479 557,829
12/31/2018 261,692 61,361 200,331 357,498
12/31/2019 261,692 39,325 222,368 135,130
12/31/2020 150,000 14,864 135,136 (6)
249
Chapter 27 – Lease
QuestionNo. 2 (C)
P81,214. See amortization table above.
QuestionNo. 3 (A)
P180,479. See amortization table above.
SUMMARY OFANSWERS:
1. C 2. C 3. A
PROBLEM 27-10 Direct Financing Lease - With Initial Direct Cost
Question No. 1
Gross Investment:
Total Periodic Lease Payment (251,600 X 4) *1,006,402
Add Unguaranteed Residual value (URV) - 1,006,402
Less:Cost oftheequipment 924,128
Unearned interest income (A) 82,273
*4,796,278 OR *4,796,280
Costo ft he equipment 900,000
Add: Initial directc ost 24,128
Net cost ofi nvestment 924,128
Amortization Table
QuestionNo. 2 (A)
P51,872. See amortization table above.
QuestionNo. 3 (B)
P199,728. See amortization table above.
SUMMARY OFANSWERS:
1. A 2. A 3. B
250
Chapter 27 – Lease
Sales 1,030,380
Less: Costo f goods sold 900,000
Initial direct cost 10,000
Dealer's profit (B) 120,380
Question No. 4
Nil. (A)
The journal entry is:
Inventory 44,000
Cash 6,000
Leasereceivable 50,000
SUMMARY OFANSWERS:
1. A 2. B 3.B 4.A
251
Chapter 27 – Lease
CASE NO. 2
Question No. 1
Gross Investment:
Total periodic lease payments (300,000 x 4) 1,200,000
Add:ResidualValue 50,000 1,250,000
Present value of the leased asset
Present value of minimum lease payments
(300,000 x3.3121) 993,630
Add: Present value of residual value (50,000 x
.735) 36,750 1,030,380
Unearned interest income(A) 219,620
QuestionNo. 2 (B)
Amortization Table
Annual Interest Present
Date Collection Income Amortization value
01/01/2016 1,030,380
12/31/2016 300,000 82,430 217,570 812,810
12/31/2017 300,000 65,025 234,975 577,835
12/31/2018 300,000 46,227 253,773 324,062
12/31/2019 350,000 25,906 324,094 (32)
Question No. 3: Unguaranteed
Sales 993,630
Less: Net cost
Costo fgoodssold 900,000
Less: Present value of URV 36,750 863,250
Initialdirectcost 10,000
Dealer's profit (B) 120,380
QuestionNo. 4 (B)
P6,000.
The journal entry is:
Inventory 44,000
Loss ons ales type 6,000
Leasereceivable 50,000
SUMMARY OFANSWERS:
1. A 2. B 3.B 4.B
PROBLEM 27-12 Sales-Type Lease
NetSellingPrice 400,000
Less: Present value of lease receivable 150,000
Gain on sale (D) 250,000
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Chapter 27 – Lease
SalesPrice 993,630
Less:Carrying amount 900,000
Deferred gain on sale and leaseback 93,630
Divideby:Leaseterm 4
Gain on sale and leaseback (D) 23,408
QuestionNo. 2 (B)
Salesprice 800,000
Less:Carryinga mount 1,000,000
Loss on sale - recognize immediately (200,000)
Question No.
Salesprice 800,000
Less:Fair value 600,000
DeferredGain 200,000
Fairvalue 600,000
Question No. 6
Nil. The loss is compensate d by future lease rental below the market r ate.
SUMMARY OFANSWERS:
1. B 2.D 3.D 4.B5.B6.A
COMPREHENSIVE PROBLEMS
PROBLEM 27-16
QuestionNo. 1 CASE NO. 1
(A)
“Substantially all” test
Present value of Periodic Payment (200,000 x 6.75902) 1,351,805
% age 1,351,805 =68%
2,000,000
Not substantially all.
Major part test
%age 10 =50%
20
The lease term does not amount to major part of the economic life of the asset.
Answer: Nil. The lease do not classify as finance lease.
QuestionNo. 2 (B)
Rente xpense P200,000
QuestionNo. 3 (A)
Nil.
QuestionNo. 4 (A)
Nil.
QuestionNo. 5 (D)
QuestionNo. 1 (B)
“Substantially all” test
254
Chapter 27 – Lease
Amortization Table
Annual Interest Present
Date Payment Expense Amortization value
01/01/2015 1,351,805
12/31/2015 200,000 - 200,000 1,151,805
12/31/2016 200,000 115,181 84,819 1,066,986
12/31/2017 200,000 106,699 93,301 973,684
12/31/2018 200,000 97,368 102,632 871,052
QuestionNo. 2 (D)
Depreciation expense (1,351,805/10) 135,181
Interestexpense 115,181
Total lease- related expenses 250,362
QuestionNo. 3 (C)
P93,301. See amortization table above.
QuestionNo. 4 (B)
P1,066,986. See amortization table above.
QuestionNo. 5 (A)
Nil. The company did not commit any error.
SUMMARY OF ANSWERS – CASE NO. 2:
1.B 2.D 3.C 4.B 5. A
PROBLEM 27-17
QuestionNo. 1 (B)
Lease is a finance lease thus any gain should be deferred and amortize over the
lease term.
SellingPrice 379,695
Less:Carrying amount 350,000
Deferred gain on sale and leaseback 29,695
Less: Amortization in 2014 (29,695/10) 2,970
Deferred gain on sale and leaseback, end 26,725
QuestionNo. 2 (D)
Interestexpense 38,363
Depreciation expense (379,695/10) 37,970
Rentexpense(5,000x1 2) 60,000
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Chapter 27 – Lease
Total lease related expenses 136,333
Amortization Table
QuestionNo. 5 (B)
The deferred gain on sale and leaseback should be recognized immediately.
SUMMARY OFANSWERS:
1.B 2.D 3.C 4.B 5. B
PROBLEM 27-18
QuestionNo. 1 (C)
Present value of Periodic Payment (50,000 x 4.0373) - LOWER 201,865
FairValue ofthe leasedasset P213,213
PAR. 20 OF PAS 17 States that: At the commen cement of the lease term,
lessees shall recognise finance leases as assets and liabilities in their balance
sheets at amounts equal to the fair value of the leased property or, if lower, the
present value of the minimum lease payments, each determined at the inception
of the lease. The discount rate to be used in calculating the present value of the
minimum lease payments is the interest rate implicit in the lease, if this is
practicable to determine; if not, the lessee’s incremental borrowing rate shall be
used. Any initial direct costs of the lessee are added to the amount recognized as
an asset.
Question Nos. 2-4
Amortization Table
Annual Interest Present
Date Payment Expense Amortization value
256
Chapter 27 – Lease
12/31/2015 201,865
1. C 2. D 3. C 4. C 5. A
PROBLEM 27-19
QuestionNo. 1 (A)
Fair market value – Present value of
257
Chapter 27 – Lease
QuestionNo. 3 (A)
Amortization Table
Annual Interest Present
Date Collection Income Amortization value
01/01/2016 286,420
01/01/2016 6 0,000 60,000 2 26,420
12/31/2016 60,000 27,170 32,830 193,590
QuestionNo. 4 (C)
QuestionNo. 5 (C)
P182,243. See amortization table in No. 4.
SUMMARY OFANSWERS:
1.A 2.C 3.A 4.C 5. C
PROBLEM 27-20
QuestionNo. 1 (B)
Periodic rent (12,000x 12) 144,000
Amortization of lease bonus (300,000/6) 50,000
Rentexpense 194,000
QuestionNo. 2 (C)
Periodicrent 480,000
Contingent rent:
1st(4Mx4%) 160,000
2nd( 6M-4M)x 5%) 100,000 260,000
Amortization of lease bonus (500,000/5) 100,000
Totalrentexpense 840,000
258
Chapter 27 – Lease
QuestionNo. 3 (B)
PROBLEM 27-21
QuestionNo. 1 (B)
The present value of annuity due of 12% for 10 periods can be computed as:
[1 – (1+12%) -9] + 1 = 6.33
12%
Annual rentals P1,440,000
Executory costs (49,410)
Minimumlease payment P1,390,590
Multiply by: Present value of annuity due 6.33
Present value of minimum lease payments P8,802,438
Fair valueo f the property P8,800,000
QuestionNo. 2 (D)
QuestionNo. 3 (B)
12/31/2016 balance – current portion(no.2) = Non-current portion =
P6,907,9 49 - P561,636 = P6,346,313
QuestionNo. 4 (A)
P8,800,000/10 = P880,000
QuestionNo. 5 (A)
Depreciationexpense P 880,000
Interest expense (P8,800,000 – P1,390,590) x 12 889,129
Executory costs 49,410
Total lease-related expenses P1,818,539
SUMMARY OFANSWERS:
1.B 2.D 3.B 4.B 5. A
PROBLEM 27-22
QuestionNo. 1 (B)
07/01/2015 to 06/30/2016 60,000
07/01/2016 to 06/30/2017 90,000
07/01/2017 to 06/30/2018 210,000
Total 360,000
Divide by: Numberofyears 3
Rent expense per year 120,000
Rent expense to date (120,000 x 1) 120,000
Less:Payment odate 60,000
Accrued rent payable 60,000
QuestionNo. 2 (B)
Cost is equal to P2,380,000 (Fair value which is the same as the Present value
of minimum lease payments .)
Amortization Table
Annual Interest Present
Date Payment Expense Amortization value
06/30/2016 2,380,000
06/30/2016 400,000 - 400,000 1,980,000
06/30/2017 400,000 277,200 122,800 1,857,200
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Chapter 27 – Lease
QuestionNo. 3 (A)
QuestionNo. 1 (C)
Present value of periodic payment (120,000 x 3.4437) 413,244
Add: Present value of bargain purchase option (30,000 x 0.6587) 19,761
Present value ofm inimuml ease payments 433,005
Add:Initialdirect cost 20,000
Cost of the Machinery 453,005
QuestionNo. 2 (B)
Interestexpense 34,431
Executory cost 20,000
Depreciation 105,751
Total lease related expenses 160,182
Question Nos. 3 to 4
Amortization Table
Annual Interest Present
Date Payment Expense Amortization value
12/31/2016 433,005
12/31/2016 120,000 - 120,000 313,005
12/31/2017 120,000 34,431 85,569 227,436
12/31/2018 120,000 25,018 94,982 132,453
12/31/2019 120,000 14,570 105,430 27,023
12/31/2020 30,000 2,977 27,023 (0)
QuestionNo. 3 (C)
P85,569. See amortization table above.
QuestionNo. 4 (B)
P227,436. See amortization table above.
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Chapter 27 – Lease
QuestionNo. 5 (B)
QuestionNo. 6 (A)
Zero
QuestionNo. 7 (C)
QuestionNo. 3 (A)
The PV annuity due of 12% over 8 years can be com puted as:
[1 – (1+12%) -7] + 1= 5.5638
12%
The present value of 12% for 8 years can also be computed as:
(1+12%)-8 = 0.4039
The total interest revenue is the difference the lease receivable and the present
value of the minimum lease payments.
Lease receivable (P959,500 x 8 + P400,000) P 8,076,000
Present value of the lease
Unguaranteed residual value
(P400,000 x 0.4039) P 161,560
Present value of lease payments
(P959,500 x5 .5638) 5,338,466 5,499,966
Total interest over the lease term P2,576,034*
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Chapter 27 – Lease
Since the lease is a direct financing lease (meaning, present value of the minimum
lease payments approximates the value of the property upon the commencement
of the lease), this can be solved alternatively as: [(P959,500 x 8 + P400,000) –
P5,500,000)] = P2,576,000
QuestionNo. 4 (B)
(P5,500,000 – P959,500) x 12% = P544,860
SUMMARY OFANSWERS:
1. C 2. B 3. A 4. B
PROBLEM 27-25 Sales-Type Lease
QuestionNo. 1 (A)
Lease receivable (P3,000,000 x 5 + P1,000,000) P16,000,000
Present value of minimum lease payments:
Rental (3.60 x P3,000,000) P10,800,000
Unguaranteed residual value
(0.57 x P1,000,000) 570,000 (11,370,000)
Total unearned interest income P4,630,000
QuestionNo. 2 (B)
1. A 2. B 3. A 4.B 5. B
263
Chapter 27 – Lease
QuestionNo. 1 (B)
Interestcostpaid(50Mx1 2%) 6,000,000
Less: Interest expense for the year (47,078,000 x 14%) 6,590,920
Understatedfinancecost (590,920)
Rounded off to P591,000
QuestionNo. 3 (C)
Depreciationperbook(30M/15) 2,000,000
Depreciation to be booked Apr. 1, 2015 to Sept. 30,
2015(30M/15X.5) 1,000,000
Depreciation to be boo ked Oct . 1, 2015 to March 31, 2016
(16M/5 X.5) 1,600,000 2,600,000
Understateddepreciation (600,000)
QuestionNo. 4 (C)
Carrying value as of October 1, 2015 (30M/15 X 10.5) 21,000,000
Recoverable amount 16,000,000
Impairmentloss 5,000,000
QuestionNo. 5 (C)
Acquisitioncost 6,000,000
Dividend income( P20 x 50,000) (1,000,000)
Share in the net income( P10M x2 5%) 2,500,000
Share in the comprehensive income (P2M x 25%) 500,000
Investmentinassociate 8,000,000
SUMMARY OFANSWERS:
264
Chapter 27 – Lease
QuestionNo. 2 (C)
P317,400. See amortization table above.
QuestionNo. 3 (C)
P204,512. See amortization table above.
QuestionNo. 4 (C)
P2,257,888. See amortization table above.
QuestionNo. 1 (D)
(900,000+50,000+25,000) P 975,000
QuestionNo. 2 (D)
QuestionNo. 1 (C)
Unadjusted balance – Accounts Payable 450,000
2 60,000
3 45,000
Adjustedbalance 555,000
QuestionNo. 2 (A)
Units sold:
October 32,000
November 28,000
December 40,000
Total 100,000
Multiply by 2%
Totalfailuresexpected 2,000
266
Chapter 27 – Lease
Less: Failures already recorded:
267
Chapter 27 – Lease
PROBLEM 27-30
QuestionNo. 1 (D)
Zero, the two notes payable should be presented as noncurrent liabi lities.
QuestionNo. 2 (D)
FINANCE LEASE: Amortization Table
Annual Interest Present
Date Payment Expense Amortization value
12/31/2015 379,692
12/31/2015 60,000 - 60,000 319,692
12/31/2016 60,000 38,363 21,637 298,055
12/31/2017 60,000 35,767 24,233 273,822
Answer: P273,822. Refer to amortization table above.
QuestionNo. 3 (B)
Answer: P38,363. Refer to amortization table above.
QuestionNo. 4 (D)
Annual rent expense = P720,000/3=P240,000
Operating lease
Date Expense Expense Payment Accrued rent
To date to date (Prepaid)
1/1-12/31/16 240,000 240,000 120,000 120,000
1/1-12/31/17 240,000 480,000 300,000 180,000
1/1-12/31/18 2 40,000 720,000 720,000 -
QuestionNo 5 (C)
CONTINGENCIES
Answer: P400,000 (P200,000+P200,000)
1. Only a disclosure is necessary because it is not p robable that the company
will be liable, although the amount can be measured reliably.
2. Retainedearnings 200,000
Estimated liability for income tax 200,000
3. Accounts receivable – Innova 120,000
Lossonguaranty 80,000
Notepayable –bank 200,000
SUMMARY OFANSWERS:
1. D 2. D 3. B 4. (D)5. C
268
Chapter 27 – Lease
PROBLEM 27-31
Question No. 1
Date Finance cost Present Value
04/01/2011 19,000,000
03/31/2012 1,900,000 20,900,000
03/31/2013 2,090,000 22,990,000
03/31/2014 2,299,000 25,289,000
03/31/2015 2,528,900 27,817,900
03/31/2016 2,781,790 30,599,690
Revised
2016 6,000,000
2017 6,300,000
2018 6,615,000
Total 18,915,000
Divideby:Totalsemi-annualpayments 6
Semi-annual income (B) 3,152,500
269
Chapter 27 – Lease
Question No. 5
Totalincometodate 3,152,500
Less:Totalcollectiontodate 3,000,000
Rent receivable (B) 152,500
SUMMARY OFANSWERS:
270
Chapter 29 – Shareholders’ Equity
QuestionNo.3 (D)
Share Premium on ordinary shares 300,000
Share Premium conversion option-bonds payable 40,000
Share premium on preference shares 150,000
Gaino n sale of treasury shares 60,000
Ordinary share warrants outstanding 35,000
Donatedcapital 40,000
Ordinary shares options outstanding 25,000
TotalShare Premium 650,000
QuestionNo.4 (D)
OrdinarySharesissued 550,000
PreferenceSharesi ssued 650,000
SubscribedO rdinarys hares 200,000
Subscription receivable – ordinary shares (20,000)
SubscribedP reference shares 50,000
Subscription receivable – preference (15,000)
TotalShare Premium 650,000
ContributedCapital 2,075,000
QuestionNo.5 (C)
271
Chapter 29 – Shareholders’ Equity
QuestionNo.6 (D)
ContributedCapital 2,075,000
Accumulated profits – unappropriated 500,000
Unrealized increase in value of FVTOCI securities 10,000
Reserve for bond sinking fund 320,000
Revaluationsurplus 130,000
Total Shareholders' Equity 3,035,000
SUMMARY OFANSWERS:
1. A 2. B 3. D 4.D5.C6.D
PROBLEM 29-2
1. Machinery 180,000
Share capital (2,500 x P50) 125,000
Share premium 55,000
To record share issuance for machinery
2. Patent(1,000x P65) 65,000
Share capital (1,000 x 50) 50,000
Share premium 15,000
To record share issuance for patent
272
Chapter 29 – Shareholders’ Equity
PROBLEM 29-4
Loanspayable-bank 150,000
Share capital 100,000
Share premium** 40,000
Gain on settlement on liability 10,000
To record issuance of shares for liability
*Computation of loss on extinguishment of liability
Fair value of equity instruments issued (or if not reliably determinable, use 140,000
the fair value of liability) (2,000 x P70)
Less:Carryinga mountofliability 150,000
Gainonsettlementof liability 10,000
**Computation of increase in share premium
Fair value of equity instruments issued (or if not reliably determinable, use 140,000
the fair value of liability) (2,000 x P70)
Less: Total par or stated value of equity issued (2,000 x P50) 100,000
Share premium(or Discount) 40,000
PROBLEM 29-5
Allocated
Allocation of the lump-sum price: Total Fair value Fraction proceeds
Preferences hares( 2,500x P216) 540,000 54/60 810,000
Ordinarys hares( 500x1 20) 60,000 6/60 90,000
Total 600,000 900,000
The transaction will then be recorded as follows:
Cash 900,000
Preferenceshares (2,500 x P200) 500,000
Share premium-preference share (810,000-500,000) 310,000
Ordinary shares (500x 100) 50,000
Sharepr emium - ordinary share (90,000-50,000) 40,000
PROBLEM 29-7
Totalproceeds 900,000
Less: Total fair value of preference shares (2,500 x P216) 540,000
273
Chapter 29 – Shareholders’ Equity
Amounta llocated to theordinaryshares 360,000
276
Chapter 29 – Shareholders’ Equity
PROBLEM 29-16
CASE NO. 1
Totalproceeds 400,000
Less: Total fair value of the preference shares (2,000 x P80) 160,000
Valueofthewarrants 240,000
Cash 400,000
PreferenceSharecapital( 2,000xP 50) 100,000
Share Premium(160,000-100,000) 60,000
Ordinarys harewarrantsoutstanding 240,000
CASE NO. 3
Marketvalueofordinary shares P 50
Less:Option price/exercise price 40
Intrinsic valueof warrant 10
Multiply: # of ordinary shares claimable under warrants 1,000
Marketvalueofshare warrants P 1 0,000
Totalproceeds 400,000
Less:ValueofSharewarrants 10,000
Valueassignedt oPreferenceS hare 390,000
Cash 400,000
PreferenceSharecapital( 2,000xP 50) 100,000
Share Premium(390,000-100,000) 290,000
Ordinarys harewarrantsoutstanding 10,000
PROBLEM 29-17
Equipment 500,000
Dec. 31, Retained earnings 150,000
2017 Dividends payable 150,000
Fair value,Dec.31 600,000
Less:PreviousF airv alue 450,000
Increase ind ividendsp ayable 150,000
Equipment-noncurrent asset for distribution** 50,000
Gain on recoveryo fi mpairmentl oss 50,000
Feb.15, Dividends payable 60,000
2018 Retainedearnings 60,000
Fair value,Feb. `5 540,000
Less:PreviousF airv alue 600,000
Decrease ind ividendsp ayable (60,000)
Dividends payable 540,000
Equipment-noncurrent asset for distribution 500,000
Gain on distribution of prop.D ividends 40,000
Carrying amount of dividend payable = Fair value 540,000
Less: Carrying amount of noncash assets 500,000
Gain on distribution of prop. Dividends 40,000
*(Lower between P500,000 and P450,000)
**(P800,000 minus P600,000) but the gain shall not exceed the amount of impairment
loss of P100,000.
Alternative Computation:
*Computation of the impairment loss is as follows:
Original carryingamount 500,000
Less: Lower between these two amounts
FV LessC ost To Distribute (FVLCTD) 450,000
Originalc arryinga mount 500,000 450,000
Impairment loss 50,000
**Computation of the gain on reversal of the impairment loss is as follows:
Lower between subsequent FVLTCD and srcinal carrying amount
Original carrying amount 500,000
FVLCTD, Dec. 31 600,000 500,000
Carryingamounta ti nitial recognition 450,000
Gainonreversal 50,000
Date of payment:
If the shareholders opted to receive cash, the journal entry is:
a. Dividends payable 84,000
Cash (10 X 8,000) 80,000
Retainede arnings(balancingf igure) 4,000
If the shareholders opted to receive noncash, the journal entry is:
b. Dividends payable 84,000
Loss on distribution of dividends (balancing figure) 6,000
Noncash(10x 9,000) 90,000
280
Chapter 29 – Shareholders’ Equity
PROBLEM 29-24 Comprehensive Problem
Questions 1 to 3
Questions 1 to 3
Total Subs.
Pref. Ord. Share Retained Treasury Ord. Subs.
*in ‘000s shares shares Premium earnings shares share Receivable
Beginning 1,400 3,500 1,925 4,500
Jan5. 600 60 (20)
(60)
Jan28. 1,000
Feb. 2 Memo
Feb14. 50 (500)
880
Jul. 15 800 100 200 1,500 3,750
Oct15. 2,250
Nov. 15 (1,500)
Nov. 27 1,000 (1,000) (1,500)
Dec. 31 1,000
Total 2,200 5,200 5,305 5,480 500 500 750
281
Chapter 29 – Shareholders’ Equity
1.( B) 2.( C) 3.( C)
QuestionNo.4 (C)
Preferenceshares P 2,200,000
Ordinary shares 5,200,000
Subscribedo rdinarys hares 500,000
Subscriptionsr eceivable (750,000)
Sharepremium 5,305,000
Retained Earnings 5,480,000
Treasurystocks ( 500,000)
Total P17,435,000
SUMMARY OFANSWERS:
1. B 2. C 3. C 4. C 5. B
PROBLEM 29-26
Ordinary Preference
Beginningbalance 40,000 4,000
2.T reasury shares (5,000)
3. Reissuance of treasury shares 2,000
4. Issuance of P/S 4,000
5.E xercise of warrants 1,200
6.S hared ividends 7,640
282
Chapter 29 – Shareholders’ Equity
Balance 45,840 8,000
Dividendpershare x2 x 10
Dividends 91,680 80,000
QuestionNo.3 (D)
Preferenceshares P 800,000
Ordinary shares 244,200
Sharepremium 380,000
Retainedearnings-total 3,090,120
Treasuryshares (120,000)
Totalshareholder’sequity P 4,394,320
SUMMARY OFANSWERS:
1. C 2. D 3.D 4.D 5. A
PROBLEM 29-27
Preference
Shares
Beginning balance– issued ando utstanding 40,000
2.) March 1, 2016 Conversion into ordinary shares (2,000)
Balance –April30&October 31 38,000
Computation of dividends:
Ordinary shares:
April30 (227,000x P1) 227,000
October31(230,000 xP1) 230,000
Preference shares:
April30 (38,000xP100x10%) 380,000
October31(38,000xP100 x10%) 380,000
Totaldividends 1,217,000
QuestionNo. 4 (B)
SUMMARY OFANSWERS:
1. D 2. C 3. C 4. (B)5. (B)
PROBLEM 29-28
Total
Preference Ordinary Share Retained Treasury
Shares Shares Premium Earnings Shares
Beginning 840,000 4 20,000 15,000,000 44,000
A.) 13,500 (16,500)
B.) SPLIT2 for1 (650,000)
C.)
D.) 200,000 340,000
60,000
E.) 8,000 16,000
284
Chapter 29 – Shareholders’ Equity
F.) (10,000) (5,000) (25,000)
G.) (650,400)
H.) 2,400,000
Total 200,000 838,000 844,500 16,074,600 27,500
1.( C) 2. (D) 3.( C)
Computationo fc ashdividends: Ordinary
Shares
Beginningbalance -issued 84,000
Beginningbalance -treasury (4,000)
a.J an1 5R eissuanceo ft reasury shares 1,500
Balance 81,500
b. March 12for1sharesplit 81,500
e. October 1 Exercise of warrants (80% x 2,000) 1,600
f.N ovember2Retirementofshares (2,000)
Balance –December 31 162,600
Multiply: Dividendpershare P4
Totaldividends 650,400
QuestionNo. 4 (A)
Preferenceshares 200,000
OrdinaryShares 838,000
SharePremium 844,500
Retained earnings unappropriated 16,047,100
Retained earnings - appropriated 27,500
Less: Treasury Shares 27,500
Shareholders’E quity 17,929,600
SUMMARY OF ANSWERS:
1. C 2.D 3.C 4. A 5. A
PROBLEM 29-29
Total
Preferenc Ordinary Share Retained Treasury
e Shares Shares Premium Earnings OCI Shares
Beg. 1,200,000 1,800,000 4,116,000 2,300,000 61,740 420,000
Jan.4 400,000 300,000 750,000
Mar. 2 500,000
May7 18,000 (126,000)
2-for-1
Jun. 15 split
Jul.2 98,000 274,400 (274,400)
285
Chapter 29 – Shareholders’ Equity
Oct1. 61,740 (61,740)
Oct1. (329,280)
Oct. 15 400,000 5,000 800,000
Nov. 1 (82,320)
Dec. 31 (825,200)
(224,000)
2,250,000
Total 2,000,000 2,203,000 6,458,400 2,876,540 0 294,000
1.( D) 2.( C) 3.( B)
Ordinary
Shares
Beginning balance– issued ando utstanding 12,000
Mar2. Issuanceof shares 4,000
October15 Iss ance ofshares 4,000
Balance –December 31 20,000
Computation of cash dividends:
Ordinary shares:
Dec31(P2x412,600) 825,200
Preference shares:
Dec31 (8%xP2,800,000) 224,000
Totaldividends 1,049,200
Question No. 4 (E)
Preferenceshare 2,000,000
Ordinary share 2,203,000
286
Chapter 29 – Shareholders’ Equity
Totalsharepremium 6,458,400
Note:
Sec. 43 of the Corporation Code of the Philippines states that “ The board of
directors of a stock corporation may declare dividends out of the unrestricted retained
earnings which shall be payable in cash, in property, or in stock to all stockholders on the
basis of outstanding stock held by them: Provided, That any cash dividends due on
delinquent stock shall first be applied to the unpaid balance on the subscription plus
costs and expenses, while stock dividends shall be withheld from the delinquent
stockholder until his unpaid subscription is fully paid”
288
Chapter 29 – Shareholders’ Equity
Thus, the dividend on the subscribed share capital is paid to that shareholder because
he was not yet declared delinquent by corporation.
SUMMARY OFANSWERS:
1.B 2.C 3.C 4.C 5. B 6. C
PROBLEM 29-31
QuestionNo.1 (C)
Preferenceshares,beg. P 800,000
Additionali ssue (20,000x P10) 200,000
Total P1,000,000
QuestionNo.2 (A)
Sharepremium,beg. P 384,000
Premium on treasury share re-issue (100,000 – (2,800 x P20) 44,000
Premium on preference share ssue (P15 – P10) x 20,000 shares 100,000
Premium on stock dividends (P12 – P5) x 3,480 shares 24,360
Totalsharepremium,end P 552,360
QuestionNo.4 (D)
Retainedearnings,beg. P 2,400,000
Add: Net Income
UnadjustedN et Income P 1,780,000
Overstatement in operating expenses 100,000 1,880,000
Less: Dividends
Stock dividends (3,480 x P12) P 41,760
Cash dividends* 119,140 (160,900)
Retainedearnings,adjusted P 4,119,100
Retained earnings, appropriated for treasury shares (104,000)
Retained earnings, appropriated for plant expansion (1,200,000)
Retained earnings, unappropriated P 2,815,100
* Cash dividends
Preferred stock dividends (80,000 + 20,000) x P1 P 100,000
289
Chapter 29 – Shareholders’ Equity
Ordinarys hares (34,800+ 3,480) x P.50 19,140
Totalcashdividends P 119,140
QuestionNo.5 (B)
1. C 2. A 3. A 4. D 5. B
ADJUSTING JOURNAL ENTRIES:
Net Income
UnadjustedN et Income P 1,780,000
Overstatement in
291
Chapter 29 – Shareholders’ Equity
operatingexpenses 100,000
292
Chapter 30 – Book Value and Earnings Per Share
Total
Preference shares: Shares par value
Preference share capital issued 12,500 P5,000,000
Add:Subscribedpreferenceshares - -
Total 12,500 P5,000,000
Less:Treasurysharesatpar - -
Shares outstanding and total par value 12,500 P5,000,000
Total
Total
Preference shares: Shares par value
Preference share capital issued 40,000 P4,000,000
Add:Subscribedpreferenceshares - -
Total 40,000 P4,000,000
Less:Treasury sharesatpar - -
Shares outstanding and total par value 40,000 P4,000,000
Total
CASE NO. 4
Question No. 7 & 8
Excess Preference Ordinary
over par shares shares
Balances P6,970,000 P4,000,000 P1,000,000
Preference dividend
(4,000,000x 8% x 1) (320,000) 320,000
Balancet o ordinarys hares 6,650,000 6,650,000
Total shareholders’ equity 4,320,000 7,650,000
Divide by: Outstanding shares 40,000 25,000
Book value per share P108.00 P306.00
Excess Preference Ordinary
over par shares shares
Balances P6,970,000 P4,000,000 P1,000,000
Preference dividend
(4,000,000x 8% x 1) (320,000) 320,000
Ordinary dividend
(1,000,000 x8%x 1) (80,000) 80,000
Balance for participation 6,570,000
Preference (4/5 x 6,570,000) (5,256,000) 5,256,000
Balancet o ordinarys hares 1,314,000 1,314,000
Total shareholders’ equity 9,576,000 2,394,000
Divide by: Outstanding shares 40,000 25,000
Book value per share P239.40 P95.76
SUMMARY OF ANSWERS:
296
Chapter 30 – Book Value and Earnings Per Share
PROBLEM 30-4 Weighted Average with Bonus Issue
Outstanding
Date Shares Fraction Average
01/01/2015 200,000 x 120% 240,000 12/12 240,000
03/01/2015 15,000x 120% 18,000 10/12 15,000
07/01/2015 (10,000) (10,000) 6/12 (5,000)
10/01/2015 4,000 4,000 3/12 1,000
Weighted average outstanding shares (A) 251,000
PROBLEM 30-5 Weighted Average with Share Split
Outstanding
Date Shares Fraction Average
01/01/2015 220,000 x 4/1 880,000 12/12 880,000
03/01/2015 12,000 x 4/1 48,000 10/12 40,000
04/01/2015 9,000 9,000 9/12 6,750
10/01/2015 6,000 6,000 3/12 1,500
Weighted average outstanding shares (A) 928,250
PROBLEM 30-6 Basic Earnings per Share
QuestionNo. 1 (B)
Basic EPS = [P3,000,000 / 40,000] = P75 per share
QuestionNo. 2 (C)
Basic EPS = [P3,000,000 - (10,000 x 10% x P50)]/40,000= P73.75 per share
QuestionN . 3 (C)
Basic EPS = [P3,000,000 - (10,000 x 10% x P50)]/40,000= P73.75 per share
PROBLEM 30-8 Basic and Diluted EPS with Convertible Bonds Payable
Question No. 1
Basic EPS = P3,000,000 / 120,000 = P25 per share
297
Chapter 30 – Book Value and Earnings Per Share
Question No. 2
Diluted EPS =
P3,000,000 + [(P1,800,000 x 10% x 7/12) x (1 – 30%)]
129,000 shares *
Diluted EPS = P23.83 per share
SUMMARY OF ANSWERS:
1.A 2.D 3. B 4.D 5. B
PROBLEM 30-9 Basic and Diluted EPS with Convertible Bonds Payable
Question No. 1
Basic EPS = P4,000,000 / 200,000 = P20 per share
298
Chapter 30 – Book Value and Earnings Per Share
Question No. 2
Question No. 5
PROBLEM 30-11 Basic and Diluted EPS with Warrants and Options
Question No. 1
Basic EPS = P4,000,000 / 100,000 = P40 per share
Question No. 2
Diluted EPS = P4,000,000
101,200 shares *
Diluted EPS = P39.53 per share
Weighted averageo f actual ordinary shares 100,000
Add: Weighted average of incremental shares
from assumed exercise of options (1,200 x 12/12) 1,200
Total weighted averageo f ordinary shares 101,200
QuestionNo. 1 (A)
Basic EPS = P2,360,000 – (60,000 x P100 x 6%)
200,000
Basic EPS = P10 per share
Question No. 2
1) Check for initial test of dilution
a. Options
Dilutive. The exercise price (P50) is less than the average market price
(P100).
2) Rank the dilutive potential diluters from the most dilutive to the leas t dilutive.
1st Options
2nd Convertible bonds (incremental EPS of P.84 per share)
3rd Convertible preference share (incremental EPS of P1.2 per share)
3) Include potentially dilutive convertible securities one by one. Every time an
item is included, calculate new earnings per share or new loss per share
amount as follows:
301
Chapter 30 – Book Value and Earnings Per Share
Ordinary
Answer: The final diluted EPS would be P3.56 per share. (D)
QuestionNo. 3 (B)
BasicE PS = P500,000
200,000
BasicE PS = P2.5 per share
Question No. 4 (C)
Diluted EPS = P500,000
710,000
Diluted EPS = P.70 per share
SUMMARY OF ANSWERS:
2014:
Weighted average outstanding shares (40,000 x 1.17 x 12/12) 46,800
Basic EPS (P562,500 /46,800) (D) P12.02 /share
302
Chapter 30 – Book Value and Earnings Per Share
Question No. 2
2015:
Weighted average outstanding shares
(40,000x1.17x3 /12) 11,700
[(40,000+ 10,000) x 9/12] 37,500 49,200
Basic EPS (P800,000/49,200) (B) P16.26 /share
Question No. 3
2016:
Weighted average outstanding shares[(40,000 + 10,000) x 12/12] 50,000
Basic EPS (P1,000,000 /50,000) (A) P20p ers hare
PROBLEM 30-14 Written Put Options (C)
P280
PROBLEM 30-15 Comprehensive Problem
Retained
Item NetI ncome Earnings
2015 2016 12/31/16
Unadjusted **1,300,000 *500,000 1,800,000
1) (50,000) 50,000 -
2) - (30,000) (30,000)
3) 45,000 (45 000) -
4) ***28,000 (28,000) -
5) 5,000 (5,000) -
6) (20,000) (20,000)
7) - - -
8) - - -
9) - - -
Adjusted 1,328,000 422,000 1,750,000
QuestionNo. 1 (D)
Refer to table above. Adjusted Net Income in 2016 is P422,000.
QuestionNo. 2 (C)
Refer to table above.
303
Chapter 30 – Book Value and Earnings Per Share
QuestionNo. 3 (C)
EPS 2016 (P422,000 / 100,000 shares) = P4.22
QuestionNo. 4 (B)
Ordinarys harec apital,P10par 1,000,000
Sharepremium 500,000
Retained earnings, 12/31/2016 (as adjusted) 1,750,000
Totalshareholders'equity 3,250,000
QuestionNo. 5 (B)
304
Chapter 32 – Statement of Financial Position and Comprehensive Income
Question No 1
Cash (1M+300,000+100,000-50,000-280,000) 1,070,000
Accounts receivable (3M-200,000+50,000) 2,850,000
Investments securities held for trading (1.8M-500,000) 1,300,000
Inventories (800,000-200,000+(450,000/125%) 960,000
Prepaid Expenses (only the prepaid insurance) 48,000
Total Current Assets (A) 6,228,000
Question No. 2
305
Chapter 32 – Statement of Financial Position and Comprehensive Income
Bondspayable 3,400,000
Premiumonbondspayable 200,000
Deferredtaxliability 400,000
Mortgage payable 1,000,000
Loanspayable-noncurrent 400,000
Total noncurrent liabilities (C) 5,400,000
PROBLEM 32-4 Shareholders’ Equity
Sharepremium 1,000,000
Subscribed ordinary share 100,000
Subscriptionsreceivable (120,000)
Retained earnings unappropriated (6M-2M cost of treasury) 4,000,000
Reserves:
Retained earnings appropriated for treasury shares 2,000,000
Reserveforcontingencies 3,000,000
Unrealizedgain onFVTOCI 1,000,000
Revaluationsurplus 4,000,000
Cumulative translation adjustment – debit (1,500,000)
Total 23,480,000
Less:Treasuryshares 2,000,000
Total Shareholders' Equity (C) 21,480,000
306
Chapter 32 – Statement of Financial Position and Comprehensive Income
Requirement No. 2
Regardless of whether there have been transactions between a parent and a
subsidiary, an entity must disclose the name of its parent and, if different, the
ultimate controlling party. Therefore, Frozen Throne Company should disclose
Jakiro Co., its ultima te parent or controlling party.
Question No. 1
Advertising 500,000
Deliveryexpense 300,000
Rent foro ffices pace (500,000 X1 /2) 250,000
Salescommissions 1,075,000
Depreciationondeliverytruck 14,000
Total distribution costs (B) 2,139,000
307
Chapter 32 – Statement of Financial Position and Comprehensive Income
Question No. 2
AuditingandAccounting fees 300,000
Officers’salaries 625,000
Rent foro ffices pace (500,000 X1 /2) 250,000
Insurance 200,000
Depreciationonofficeequipment 15,000
Total general and administrative expenses (D) 1,390,000
PROBLEM 32-8 Comprehensive Income
NetSales 4,000,000
Cost of goodssold 2,500,000
Grossincome 1,500,000
Other income 30,000
Shareofprofitof associate 125,000
Totalincome 1,655,000
Expenses:
Distribution costs 60,000
Administrative expenses 120,000
Financecost 35,000
Otherexpense 50,000 265,000
Income beforeincome tax 1,390,000
Income taxexpense 408,000
Incomef romc ontinuingo perations 982,000
Incomef rom discontinued operations 100,000
NetIncome 1,082,000
Other comprehensive income:
Revaluationsurpus 300,000
Translationgain 50,000
Unrealized gain on FVTOCI securities 200,000 550,000
Comprehensive income (C) 1,632,000
Other income:
Interestincome 30,000
Other expense:
Lossonsaleofequipment 50,000
308
Chapter 32 – Statement of Financial Position and Comprehensive Income
COMPREHENSIVE PROBLEMS
PROBLEM 32-9
Non-
Current current
Asset asset Total Asset
Unadjusted balance 44,300 158,400 202,700
1. Notes receivable – maturity (10,000) 10,000 -
date July 1, 2018
Land (12,000) 12,000 -
2. FVTOCI 4,600 (4,600) -
3. Inventory 30,500 (30,500) -
4. Treasuryshares (1,800) (1,800)
5. Prepaid insurance 2,900 (2,900) -
10. Accumulated depreciation (21,000) (21,000)
– Building
Accumulated depreciation (13,000) (13,000)
– Equipment
Allowance for baddebts (700) (700)
Adjusted balance 59,600 106,600 166,200
1. (B) 2. (A)
Non-
Current current
Liabilities liabilities Equity
Unadjusted balance 66,600 24,100 112,000
4. Treasuryshares (1,800)
6 Bondspayable (40,000) 40 000
7. Accruedwages 4,100 (4,100)
8. Mortgage – current portion 4,000 (4,000)
9. P remiumonbonds payable 4,300 (4,300)
10. Allowance for baddebts (700)
Accumulated depreciation (21,000) (21,000)
– Building
Accumulated depreciation (13,000) (13,000)
– Equipment
Adjustedbalance 34,700 60,300 71,200
3. (A) 4. (B) 5. (A)
SUMMARY OF ANSWERS:
1. B 2. A 3. A 4. B 5. A
309
Chapter 32 – Statement of Financial Position and Comprehensive Income
PROBLEM 32-10
Cash in Accts. Accum. Depre-
bank Inventory Receivable PPE Depr ciation
Unadjusted 100 1,800 2,500 1,000 400 -
balances
1 - 4- - - -
2 - (15) - - - -
3 (14) - - - - -
4 20 - - - - -
5 (5) - 5 - - -
6 - -- - - -
7 - - - 500 112.5 112.5
8 - -- - - -
9 - 60 - - - -
10 - - - (20) (4) (4)
11 -- - - - -
Adjusted 101 1,849 2,505 1,480 508.5 108.5
balances 1. (B)
Continuation…
Advances
from Accounts Interest Bonds Amorti-
customers payable payable payable Discount zation
Unadjusted - 320 1,924,144 - -
balances
1 - 4 - - - -
2 - - - - - -
3 - 14 - - - -
4 - 20 - - - -
5 - - - - - -
6 - - - - - -
7 - - - - - -
8 5 (5) - - - -
9 - 60 - - - -
10 - - - - - -
11 - - 180 75,856 63.442 12.414
Adjusted 5 413 180 1, 936,558 63.442 12,414
balances 2. (B)
*000
Current Assets:
Cash inbank 101,000
Inventory 1,849,000
Accounts Receivable 2,505,000 4,455,000 3.(A)
Noncurrent assets:
PPE 1,480,000
Less: Accumulated Depreciation 508,500 971,500 4.(B)
Totalassets 5,426,500
310
Chapter 32 – Statement of Financial Position and Comprehensive Income
Current liabilities:
Advances from customers 5,000
Accounts payable 413,000
Interest payable 180,000 598,000 5.(B)
Noncurrent liabilities:
Bondspayable 2,000,000
Discount on bonds payable 63,442 1,936,558 6.(C)
Totalliabilities 2,534,558
SUMMARY OF ANSWERS: 5. B 6. C
2015
2016
Sales COS EI OPEX
1. EI over, COS under 420,000 203,800 164,900 76,700
2015 (6,200)
2016 8,500 (8,500)
2. Salaries expense under
2015 (14,600)
2016 17,300
3. Sales overstated
2015 1,700
2016 (800)
4. Expense overstated
2015 180
2016 (200)
5. Purch. Over, CO S over
2015 3,200
2016 (4,600)
6. Sales under
2015 (2,500)
2016 4,000
7. Bad debt under
2015 (32.4+2.5) x 2%
2016(66.1+4) x2%-698 704
8. Dep. Expense under
2015
2016 14,500
Adjusted bal. 422,400 204,700 156,400 94,584
QuestionNo. 6 (A)
Sales 385,800
LessCost ofsales 160,600
GrossProfit 225,200
LessOperatingexpenses 98,918
AddOther income 2,100
Netprofit 128,382
Add: Retained earnings, beginning 23,400
Retained earnings, December 31, 2015 ) 151,782
QuestionNo. 7 (C)
Cost 145,000
Less Accumulated depreciation (14,500 x 2) 29,000
Book value of machinery, December 31, 2016 116,000
312
Chapter 32 – Statement of Financial Position and Comprehensive Income
QuestionNo. 9 (B)
Accounts receivable, 2015 (32,400+2,500) 34,900
Less: Allowance for bad debts (32,400+2,500) * 2% 698
Netrealizablevalue 34,202
QuestionNo. 10 (B)
Sales2016 422,400
Less:Cost ofsales 204,700
GrossProfit 217,700
Less:Operatingexpenses 94,584
Add:Otherincome 1100
Netincome 124,216
SUMMARY OF ANSWERS:
1. C 2. C 3. D 4. A 5. C
6. A 7. C 8. B 9. B 10. B
PROBLEM 32-12
Question No. 1
Unadjustedsales 4,323,600
Less:Advances 132,000
Adjusted Sales (A) 4,191,600
Question No. 2
Sales 4,191,600
Add: Increase in raw materials (75,800 – 56,800) 19,000
Increase in finished goods (130,700 – 105,800) 24,900
Less: Purchaseo fr awm aterials (2,056,500)
Othere xpenses(seebelow) (522,100)
Wages and salaries (890,400 + 33,000) (923,400)
Amortization of development cost (648,000 / 3 x 4/12) (72,000)
Impairmentloss (1,010)
Depreciation [(567,000 – 402,000) x 30%] (49,500)
Tax expense (52,000 + 35,000 – 30,000) (57,000)
Net income (A) 553,990
313
Chapter 32 – Statement of Financial Position and Comprehensive Income
Tradeandotherpayables 156,700
Incometax payable 52,000
Advancesfromc ustomers 132,000
A cruedpurchases 26,700 367,400
6. (C)
Non-current liabilities:
None - -
Totaliabilities 367,400
Equity:
314
Chapter 32 – Statement of Financial Position and Comprehensive Income
PROBLEM 32-13
Question Nos. 1 and 2
2015 2016
Unadjustednetincome 195,000 220,000
1) BD expense under, NI over (392,000 x 10% )-
37,000 (2,200)
2) Unreal. Gain (Loss) (81,000-78,000) and
(62,000-81,000) 3,000 (19,000)
3) EI overstated, NI over (4,000) 4,000
EI overstated, NIover (6,100)
4) *Expenseo ver,NIunder 10,900
Depreciation expense under, NI over (1,100)
5) **Gainon saleunder, NIunder 2,500
6) ExpOver. 1,800 (900)
Adjustednet income 206,700 197,200
1.( B) 2.( B)
*(Expenses recorded P12,000 should be (12,000-1,000)/10= 12,000-1,000)
**NetSellingPrice 2,500
Less carrying amount
Cost 17,500
Less Accumulated depreciation 17,500 0
Gain onsale 2,500
Question No. 3
Cash 82,000
Accounts receivable (296,000-18,000) 278,000
Tradings ecurities at Fairv alue 81,000
Merchandise inventory (202,000-4,000) 198,000
Prepaidi nsurance( 2,700 -900) 1,800
Total current assets (D) 640,800
Question No. 4
Cash 163,000
Accounts receivable (392,000 x 90%) 352,800
Tradings ecurities at Fairv alue 62,000
Merchandise inventory (207,000-6,100) 200,900
Prepaid insurance 900
Totalcurrentassets 779,600
Property, plant and equipment
(169,500+12,000-17,500) 164,000
Less: Accumulated. Depreciation
(121,600+1,100+1,100-17,500) 106,300
NetBook value 57,700
Total Assets (B) 837,300
315
Chapter 32 – Statement of Financial Position and Comprehensive Income
Question No. 5
Sharec apital (20,000 x P10) 200,000
Sharepremium 60,000
Retained earnings (206,700+197,200+*52,000) 455,900
Adjusted Shareholders' equity (A) 715,900
*(247,000-195,000)
SUMMARY OF ANSWERS:
1.B 2.B 3.C 4. B 5. A
PROBLEM 32-14
Question No. 1
Unadjustedsales 550,000
Less: Sale with a repurchase agreement (selling price) (10,000)
Adjusted Sales (B) 540,000
Question No. 2
Unadjustedcost ofsales 411,500
Less: Sale with a repurchase agreement (cost) (7,000)
Add: Depreciation on Plant (see below) 13,600
Depreciation onB uilding (35,000/ 14) 2,500
Adjusted cost of sales (D) 420,600
Depreciation of plant asset iscomputed as follows:
Sales 540,000
Less:Cost ofsales 420,600
Grossprofit 119,400
Less: Distribution cost (21,500)
Administrativeexpenses (30,900)
Interest [(700 + (10,000 x 10% x6 /12*)] (1,200)
316
Chapter 32 – Statement of Financial Position and Comprehensive Income
Netincome 31,200
Add: Revaluation surplus (see computation below) 7,000
Total comprehensive income (B) 38,200
Land:
Appraisedvalue 12,000
Carryingamount 10,000 2,000
Building:
Appraisedvalue 35,000
Less: Carrying amount (50,000 – 20,000) 30,000 5,000
Totalrevaluation surplus 7,000
Questions No. 4to No. 9
Current assets:
Tradereceivables 42,200
Inventory(43,700+ 7,000) 50,700
Non-current asset held for sale 3,600 96,500
5. (D)
Non-current assets: 12,000
Land
Building( 35,000–2,500) 32,500 (C6. )
Plant (66,000–13,200) 52,800 97,300
Totalassets 193,800
Current liabilities:
Tradepayables 35,100
Bank overdraft 6,800
Currenttaxliability 27,200
Provision –bonus 5,400 74,500
7. (C)
Non-current liabilities:
Deferredtax liability 9,400 -
Bank loan 10,000 (D)8.
Interestpayable 500 19,900
Totaliabilities 94,400
Equity:
Equityshares 50,000
Sharepremium 20,000
Revaluationsurplus 7,000
317
Chapter 32 – Statement of Financial Position and Comprehensive Income
9. (B)
Retained earnings (11,200 + 31,200 – 20,000) 22,400 99,400
Total liabilities and shareholders’ equity 1,199,640
Question No. 10
Netincome 31,200
Divided by: Weighted average shares (see below) 96,739
Earnings per share (A) 3225
April 1 to July 1 (80,000* x 2 / 1.84** x3/12) 21,739
*The number of shares before the exercise of the rights may be computed
by dividing the ( ¼rights).
**Adjustment factor.
Value of one right = Fair value per share – right on minus exercise price
Number of rights to purchase one share plus 1
Value of one right = -
4+1
=
Fair value per share – rig ht on
1. B 2. D 3. A 4. B 5. D
6. C 7. C 8. D 9. B 10. A
PROBLEM 32-15
Question No. 1
Inventoriesat30September2015 31,800
Add:Purchases 344,000
Less: Inventories at 30 September 2016 27,300
Add: Depreciation – plant and machinery (see below) 46,485
Add: Depreciation – machine classified as held for sale (8,200 x
20%6/12)x 820
Add: Impairment loss – noncurrent asset held for sale [(8,200 –
820)6,500]– 880
Adjusted Cost of Sales (B) 396,685
Plant and Machinery
Cost –balanceforward 385,000
Less: Accumulated depreciation – balance forward 144,375
318
Chapter 32 – Statement of Financial Position and Comprehensive Income
Property A Property B
Carrying amount – October 1, 2015 372,000 1,080,000
Valuation– October 1,2 015 (449,500) (600,000)
Revaluation(gain)/loss (77,500) 480,000
Valuation– October 1,2 015 449,500 600,000
Revenue 1,057,000
Less:Cost ofsales 396,685
Grossprofit 660,315
Less: Administrative expenses ( see No. 2) 274,700
Other operating costs (see No. 3) 148,100
Profitbefore tax 237,515
Less:Tax 56,000
319
Chapter 32 – Statement of Financial Position and Comprehensive Income
Current assets:
Inventories 27,300
Trade and otherreceivables 61,500
Cash inbank 5,100
93,900
Non-current asset heldf ors ale 6,500 100,400
5. (D)
Non-current assets:
PPE (185,940 + 400,000 + 435,000 + 580,000) 1,600,940 1,600,940
Total assets (D) 6. 1,701,340
Current liabilities:
Earnings Surplus
Beginningbalance 576,875 518,000
Total comprehensive income for the year 181,515 (378,500)
(77,500 – 456,000)
Dividend on ordinary shares (168,150)
Piecemeal realization of revaluation surplus 4,500 (4,500)
Ending balance 594,740 135,000
SUMMARY OF ANSWERS:
320
Chapter 32 – Statement of Financial Position and Comprehensive Income
PROBLEM 32-16
SUPPORTING COMPUTATIONS:
Cost of Sales:
Unadjustedbalance 298,700
Add: Amortization of leased property [36,000 / (12 – 4)] 4,500
Add: Amortization of leased plant (25,000 / 5) 5,000
Add: Depreciation of other plant and equipment [(47,500 –
33,500) 20%]x 2,800
AdjustedCostof Sales 311,000
Leased Property: 32,000
Amortization Table:
Principal Interest Present
Date Payment Expense Amortization value
April1,2015 25,000
April1,2015 2,000 - 2,000 23,000
March3 1,2 016 6,000 2,300 3,700 19,300
March3 1,2 017 6,000 1,930 4,070 15,230
Leased Plant: 25,000
Revenue 350,000
Less:Cost ofsales 311,000
Grossprofit 39,000
Less: Distribution costs 16,100
Administrative expense (26,900 + 3,000 fraud) 29,900
Finance cost (300 + 2,300 interest in the lease) 2,600
Lossbeforetax (9,600)
Incomet ax benefit [(9,600 x 25%) + 200 – 800] 1,800
Loss after tax (D) (7,800)
321
Chapter 32 – Statement of Financial Position and Comprehensive Income
Questions No. 2 to 5
Current assets:
Inventory 25,200
Trade receivables (28,500 – 4,000) 24,500
Current tax refund (9,600x 25%) 2,400 52,100
Non-current assets:
Leasedproperty 31,500
Leased plant (25,000 – 5,000) 20,000
Owned plant (47,500 – 33,500 – 2,800) 11,200 62,700
Totalassets 114,800
Current liabilities:
Tradepayables 27,300
Bank overdraft 1,400
Financel ease liability – current 4,070 32,770
Non-current liabilities:
Finance lease liability – noncurrent 15,230
Deferredtax liability 3,000 18,230
Totaliabilities 51,000
Equity:
Sharecapital 54,000
Reserves:
Sharepremium 9,500
Revaluationsurplus 3,500
Retainedearnings (3,200) 9,800
Totalshareholders’ equity 63,800
Statement of Changes in Equity:
The rights issue was 18 million shares (45,000/50 cents each x 1/5) at 75 cents
= 13·5 million. This equates to the balance on the susp ense account. This
should be recorded as 9 million equity shares (18,000 x 50 cen ts) and 4.5 million
share premium (18,000 x (75 cents – 50 cents)).
322
Chapter 32 – Statement of Financial Position and Comprehensive Income
The discovery of the fraud represents an error part of which is a prior period
adjustment ( 1 million) in accordance with PAS 8 Accounti ng policies, changes in
accounting estimates and errors.
Question No. 6
Lossafter tax 7,800
Divided by: Weighted average shares (see below) 99,000
Loss per share (B)
April 1 to December 31 (90,000 x 1.20 / 1.125* x 9/12) 72,000
*Adjustment factor.
Value of one right = Fair value per share – right on minus exercise price
Number of rights to purchase one share plus 1
-.
Value of one right =
5+1
=
323
Chapter 33 – Statement of Cash Flows
324
Chapter 33 – Statement of Cash Flows
result in a loss of control shall be classified as cash flows from financing activities.
Netincome 292,000
Increaseinaccountsreceivable (40,000)
Decreaseinprepaidexpenses 12,000
Increase in accumulated depreciation-depreciation expense 64,000
Decreaseinaccountspayable (16,000)
Net cash provided by operating activities (A) 312,000
PROBLEM 33-4 Investing Activities
Question No. 1
Cash receipts from receivable (216 + 800 – 324) 692
Cash payment for purchases [(321 + 300 – 425) + 117 – 210] (103)
Cashd isbursement – insurance (66 +4 0 – 88) (18)
Cash disbursement – salaries (93 + 120 – 102) (111)
Cashd isbursement–interest( 50–10) (40)
Cashd isbursement–tax(78+5 2– 60) (70)
Net cash provided by operating activities (D) 350
325
Chapter 33 – Statement of Cash Flows
Question No. 2
NetIncome 88
Depreciation 123
Gain onsaleofbuilding (11)
Losson saleof machinery 12
IncreaseinA/R (108)
DecreaseinInventory 104
Decreaseinprepaidinsurance 22
IncreaseinAccountsPayable 93
Increaseinsalariespayable 8 9
IncreaseinDTL
Bonddiscountamortization 10
Net cash provided by operating activities (D) 350
Note that cash flows for operating activities using direct or indirect method
is the same.
COMPREHENSIVE PROBLEMS
PROBLEM 33-7
QuestionNo. 1 (B)
Accounts receivable
Beg. balance – AR 125,0000 135,000 Balance end - AR
Sales on account 1,000,000 - Sales returns and
allowance*
Recoveries - - Salesdiscounts
990,000 Collections (squeeze)
- W ite-off
Total 1,125,000 1,125,000
QuestionNo. 2 (C)
QuestionNo. 3 (D)
Deferred income taxes
Payments (squeezed) 190,000 175,000 Beg. balance
100,000 Income tax expense
Balance end 85,000
Total 275,000
QuestionNo. 4 (D)
=95,000
Question No. 5
SUMMARY OF ANSWERS:
1.B 2.C 3. D 4.D 5. A 6. B
327
Chapter 33 – Statement of Cash Flows
PROBLEM 33-8
QuestionNo. 1 (A)
Accounts receivable
Beg. Balance 600,000 1,250,000 Bal. end
Sales on account 5,000,000 4,330,000 Collections
20,000 Write-off
5,600,000 5,600,000
QuestionNo. 2 (B)
Accounts payable
Bal. end 4,800,000 4,500,000 Beg. Balance
Payment 1,900,000 2,200,000 Net purchases
6,700,000 6,700,000
Merchandise inventory
Netincome 700,000
Amortization of premium of Investment in Bonds 60,109
Depreciation 900,000
Gain onsaleofequipment (220,000)
Amortizationof franchise 100,000
Decrease (or increase) in Trading securities (450,000)
De rease(ori ncrease)inNetAR (530,000)
Decrease (ori ncrease) in Inventories (200,000)
Increase(ordecrease)inAP 300,000
Increase(ordecrease) in DTL 200,000
Net cash prov ided by (or used in) Operating activities 860,109
Computation of accumulated depreciation:
BegBalance. 3,200,000
Add: Depreciationexpense 900,000
Less: Accumulated depreciation of asset sold 200,000
Balance end 3,900,000
Gain or (loss) on sale
NetSellingPrice 500,000
Less: Carry ing amount
Cost 480,000
Less: Accumulated Depreciation 200,000 280,000
Gain onsale 220,000
328
Chapter 33 – Statement of Cash Flows
Amortization table:
AcquisitionofPPE (1,000,000)
SaleofPPE 500,000
Net cash provided by (or used in) investing activities (500,000)
QuestionNo. 5 (D)
Dividendspaid (300,000)
Cash receipts-issuance of OS (10,000 x 120) 1,200,000
Cashp aidforT reasuryshares (500,000)
Net cash provided by (or used in) Financing activities 400,000
SUMMARY OF ANSWERS:
QuestionNo. 1 (D)
Accounts payable
Bal. end 3,400,000 3,500,000 Beg. Balance
Payment 1,900,000 1,800,000 Net purchases
5,300,000 5,300,000
Merchandise inventory
Netincome 700,000
Share in the net income ofa ssociate (1,024,000)
Cash dividendsfromassociate 280,000
329
Chapter 33 – Statement of Cash Flows
Depreciation 200,000
Investment in Associate
330
Chapter 33 – Statement of Cash Flows
BegBalance. 4,584,000
Add:Netinvestmentincome 1,024,000
Less:Dividendsreceived 280,000
Balance end 5,328,000
QuestionNo. 4 (B)
Dividendspaid (350,000)
Cash receipts-issuance ofO rdinary shares 1,120,000
Cash receipts-reissuance of Treasury shares 105,000
Net cash provided by (or used in) Financing activities 875,000
SUMMARY OF ANSWERS:
1.D 2.B 3.A 4.B 5. D
PROBLEM 33-10
QuestionNo. 1 (D)
Accounts payable
Bal. end 4,000,000 3,500,000 Beg. Balance
Payment 1,700,000 2,200,000 Net purchases
5,700,000 5,700,000
Merchandise inventory
Netincome
Share in the net income ofa ssociate (630,000)
Cashd ividendsfromassociate 225,000
Depreciation 200,000
331
Chapter 33 – Statement of Cash Flows
Losson saleofequipment 150,000
332
Chapter 33 – Statement of Cash Flows
ShareintheNetIncome 500,000
ShareintheNetIncome
Add: Amortization ofo vervalued machinery 30,000
Netinvestmentincome-2016 630,000
Investment in Associate
Beginning balance,01/01/2016 3,780,000
Add:Netinvestmentincome 630,000
Less:Dividendsreceived 225,000
Balance end, 12/31/2016 4,185,000
Property, Plant and Equipment
Amortization table:
Question No. 1
Collection from customers (202M + 410M – 200M – 6M) 406M
Proceeds from investment income (4M + 5M – 6M) 3M
Proceedsfroms aleofc ash equivalent 2M
Payment of purchases [(205M + 180M -200M) + 65M – 50M] (200M)
Paymentofi nsurance(4M+7M-8M) (3M)
Paymentofs alaries(11M+65M–6M) (70M)
Paymentofi nterest( 4M+25M–8M) (21M)
Payment oft ax( 14M + 8M + 36M – 12M – 11M) (35M)
334
Chapter 33 – Statement of Cash Flows
Net cash provided from operating activities (C) 82M
Question No. 2
Less: Stock dividends – small (4M shares x 7.50 fair value) 30M
Cash dividendspaid 22M
SUMMARY OF ANSWERS:
1.C 2.C 3. A
PROBLEM 33-11
Question No. 1
Overdraftend– 110
Add:Bank,beginning 120
Netc asho utflow (A) (230)
Question No. 2
Amortization 25
Increaseininventory( 200–110) (90)
Increase in trade receivable (195 – 75) (120)
Increaseintrade payable (210 –160) 50
Decrease in current tax payable( 80 – 110) (30)
Net cash from operating activities (D) 85
Question No. 3
10%securedloannotes 300
Issuanceofshares 100
Dividends paid (seec omputation below) (55)
Net cash from financing activities (C) 345
Retained Earnings
SUMMARY OF ANSWERS:
1. A 2. D 3. A 4. C
336
Chapter 33 – Statement of Cash Flows
PROBLEM 33-13
Question No. 1
Cash 5,639,900
Accountsreceivable 1,000,000
Allowancef ord oubtfula ccounts (180,000)
Inventories 2,200,000
Total current assets (A) 8,659,900
Question No. 2
Merchandise inventory
Beg. Balance 2,000,000 2,200,000 Bal. end
Net purchases 2,200,000 2,000,000 Cost of goods sold
4,200,000 4,200,000
Accounts payable
Retained Earnings
Beginningbalance 461,005
Add:Netincome 980,000
Less:Dividendsdeclared-cash 400,000
Balance end 1,041,005
SUMMARY OF ANSWERS:
1.A 2.A 3.A 4. C 5. C
PROBLEM 33-14
QuestionNo. 1 (C)
PPE, net
Balance beginning 791,500 805,300 Ending balance
Acquired – cash 50,000 - Disposal
Acquired – lease 12,130 153,330 Depreciation
Acquired – business
combination 105,000 958,630
Total 958,630
QuestionNo. 3 (A)
PROBLEM 33-15
QuestionNo. 1 (A)
Depreciation 560,000
Gaino nsale(450,000–324,500) (125,500)
Interest income – investing activities (52,000)
Decreaseininventory 56,400
Decrease in trade and other r eceivables (excluding interest 79,500
related to investing) – (495,100 – 415,600)
Decrease in trade and other payables (122,600)
Decreaseinwarranty (30,000)
340
Chapter 33 – Statement of Cash Flows
Increaseinincome taxpayable 40,000
341