Assignment 1.

2 Inventories
Hero Company reported inventory on December 31, 2019 at 6,000,000 based on the physical
count of goods priced at cost, and before any necessary year-end adjustment relating to the
following:
1. Included in the physical count were goods billed to customer FOB shipping point on
December 31, 2019. These goods had a cost of P125,000 and were picked up by
the carrier on January 10, 2020.
2. Goods shipped FOB shipping point on December 28, 2019, from a vendor to Hero
were received on January 4, 2020. The invoice cost was 300,000

What amount should be reported as inventory on December 31, 2019?

6,300,000

The related data of Finland Company:

Quantity Unit cost

January 1 800 P200

January 12 600 220

January 24 280 230

At month-end, the physical count show 350 units remained.

The entity rounds off the unit cost in 2 decimal places.

Under​ FIFO​, how much is the cost of ending inventory?

79,800

Under the​ Weighted average​, how much is the cost of sales?

282,146.2
Encantadia Company had the following inventories on January 1, 2020:
Inventory Cost
Amihan 725,200
Danaya 817,300
Pirena 500,000

The related data on December 31, 2020:

Inventory Estimated selling price Cost to complete Cost to sell

Amihan 592,500 15,000 25,000

Danaya 715,000 12,000 22,500

Pirena 565,000 14,000 21,000

The entity uses a single item method.

How much is the amount of loss on inventory writedown?
309,500

Namibia Company's related data:

Inventory, beginning P200,000
Purchases 2,520,000
Purchase return 15,000
Purchase allowance 5,000
Purchase discount 10,000
Freight in 50,000
Sales 3,420,000
Sales return 100,000
Sales allowance 20,000
Sales discount 150,000

The gross profit rate is 30% based on sales

How much is the cost of ending inventory?
416,000

Related data of India Company:

Cost Retail
Beginning inventory 420,000 900,000

Sales 6,800,000
Purchases 3,480,000 6,160,000
Freight in 75,000
Markup 500,000
Markup cancelation 60,000
Markdown 250,000
Markdown cancelation 50,000
Estimated normal shrinkage is 3% of sales
Determine the estimated cost of ending inventory under the Conservative approach.
156,880

The entity used 4 decimal places for the cost ratio.

Determine the estimated cost of ending inventory under the Average approach.
161,172

QUIZ 1
How should inventory be measured and presented in the financial statements?
At Lower of cost and net realizable value

When should product costs be reported at the Statement of financial position?

Only if goods are unsold at the end of a period.

Which of the following would not be reported as inventory?

Machinery acquired for use in the production process

Which of the following describes the flow of production costs through the inventory of a
manufacturer?
Raw materials, goods in process, finished goods

In a period of rising prices which method provides the highest amount of net income?
FIFO
COMPUTATIONS:
Related transactions of Danaya Company for September:
September 12, Purchase goods on account: Invoice price P220,000
Freight in (paid in cash) P8,000
Trade discounts are 5%
Terms include 2/10, n/30.
September 22, paid the purchases last September 12.
September 28, sold 70% of the inventories at a sales price of P250,000.
The entity uses the net method and a perpetual inventory system.
How much is the merchandise inventory at month- end?
63,846

Ecuador Company reported inventory on December 31, 2019, at P2,500,000.

The amount is based on physical count priced at cost and before any necessary adjustments:
1. Merchandise cos!ng P100,000 shipped FOB destination from a vendor on December 30,
2019, was received and recorded on January 5, 2020.
2. Goods in the shipping area were excluded from inventory although shipment was not made
until January 5. 2020. The goods billed to the customer FOB shipping point on December 30,
2019, had a cost of P400,000.
3. Goods consigned amounting to P250,000 are in the custody of the sales agent
4. Sold merchandise to customers FOB des!na!on is at the shipping area on December 31,
2019. The invoice price is P280,000 with a 40% mark- up based on cost.
What amount should be reported as inventory on December 31, 2019?
3,350,000

What is the cost of ending inventory under FIFO?

800,000
What is the cost of sales under the weighted average?
1,500,750

How much is the loss of inventory writedown?

8,000

Under the per total category approach, how much is the cost of inventory?
728,000
1,125,000

1,594,175
532,680
579,000

Assignment 2.1 Property, plant, and equipment

Jean Company acquired a machine with a cash price of P1,850,000

Down payment is P400,000

Notes payable in 3 equal annual instalments P2,000,000

Prior to use, installation cost of P300,000 was incurred. The machine has a residual
value of P100,000.

What is the initial measurement of the new machine?

2,150,000

On December 31, 2019, Scott Company purchased a machine in exchange for a

noninterest bearing note. The term is 8 payments of 200,000

The first payment was made on December 31, 2019 and the others are due annually on
December 31.

At date of issuance, the prevailing rate of interest for this type of note was 11%.

What amount should be recorded as the initial cost of the machine?

1,142,400

What is the cost of land?

1,895,000
What is the cost of building?

8,555,000

QUIZ 2.1 PPE

How should property, plant, and equipment be presented in the financial statement?
Either at cost less accumulated depreciation and accumulated impairment or fair value at
the date of revaluation less accumulated depreciation and accumulated impairment.

What is the best basis for determining the purchase price of an item of property, plant, and
equipment acquired by issuing the entity's ordinary share?
Equivalent cash price of the asset.

Which of the following is not a characteristic of property, plant, and equipment?

It is subject to depreciation.

An asset is being constructed for an enterprise’s own use. The asset has been financed with a
specific new borrowing. How should the interest cost incurred during the construction period be
treated?
Addition to the cost of the building to be written off over the estimated useful life of the
asset.

Which depreciation method ignores salvage value?

Double declining

COMPUTATION:
During the year, Ororo Company purchased a new machine.
A P200,000 down payment was made and three monthly installments of P300,000.
The cash price would have been P1,025,700
The entity paid no installation charges under the monthly payment plan but a P18,500
installation charge would have been incurred with a cash purchase.
The entity also paid a freight charge of P1,600.
What amount should be capitalized as the cost of the machine?
1,045,800

During the current year, Paraguay Company installed a production assembly line to
manufacture furniture. In the current year, the entity purchased a new machine and improved
the assembly line to install the machine. The improvement did not increase the estimated useful
life of the assembly line, but it did result in a significant increase in production.
The following expenditures were incurred in connection with the project:
Machine P925,000 Labor to install machine P160,000
Parts added in improving the assembly line to provide future benefits P420,000
Labor and overhead to improve the assembly line P180,000
What total amount should be capitalized?
1,685,000

At the beginning of the current year, Mexico Company purchased a parcel of land as a factory
site for P5,000,000. An old building on the property was demolished and construction began on
a new building which was completed at year-
end.
Demolition of old building P297,500 Architect fee P500,250
Legal fee for title investigation and purchase contract P30,000
Construction cost P3,450,500
Salvaged materials resulting from demolition P50,000
Unpaid realty taxes assumed P40,800
Insurance premium on constructing a building P20,000
Bills of unforeseen accidents on the construction site P25,000
What amount should be recorded as the cost of the building?
4,218,250

At the beginning of the current year, Mexico Company purchased a parcel of land as a factory
site for P5,000,000. An old building on the property was demolished and construction began on
a new building which was completed at year-
end.
Demolition of old building P297,500 Architect fee P500,250
Legal fee for title investigation and purchase contract P30,000
Construction cost P8,450,500
Salvaged materials resulting from demolition P50,000
Unpaid realty taxes assumed P40,800
Insurance premium on constructing a building P20,000
Bills of unforeseen accidents on the construction site P25,000
What amount should be recorded as the cost of land?
5,070,800

During the current year, Lithuania Company paid P100,000 and exchanged equipment which
has a carrying amount of P2,000,000 and a fair value of P2,100,000 for other equipment in the
same line of business with fair value of P2,200,000.
What is the gain / (loss) on exchange?
100,000

Germany Company borrowed P3,000,000 on a 12% note payable to finance a new warehouse
Germany is constructing for its own use. The only other debt on Germany's books is a
P2,500,000, 12% mortgage payable on an office building. The construction of the warehouse
was completed in 12 months and the average accumulated expenditures amounted to
P4,800,700.
How much is the capitalized interest?
576,084

Assuming the composite group method is used, what is the composite rate (round-off answer in
4 decimal places only)?
0.0605

Assuming the straight-line method is used, what is the carrying amount of machinery in the 3rd
year?
1,004,000

Assuming the sum-of-the-year-digits' method is used, what is the carrying amount of small tools
on year
3?
20,400
Assuming the double-declining method is used, what is the depreciation expense of small tools
in year 2?
19,680

Prelim exam
What valuation model should an entity use to measure property, plant, and equipment?
Revaluation model and Cost model

How can we capitalize on borrowing costs?

Interest incurred from specific borrowing and the interest resulted from the
difference in average expenditure to its general borrowings.

In a period of rising prices, which inventory cost formula tends to result in the highest
gross profit?
FIFO

How should the loss on inventory writedown be treated?

Added to Cost of goods sold

How should the cost of inventory be measured?

Either FIFO or Average
Under the net method of recording purchases, how do purchase discounts not taken be
treated?
Reported to Other expenses

As generally used in accounting, what is depreciation?

It is an accounting process that systematically allocates the cost of property,
plant, and equipment to accounting periods.

Which inventory system records the purchase of goods directly to the merchandise
inventory account?
Perpetual

What is the carrying amount of the property, plant, and equipment?

The amount at which an asset is recognized in the statement of financial position
after deducting any accumulated depreciation and accumulated impairment loss.

Which is not to be considered in determining the useful life of an asset?

Residual value
How should inventories be measured?
Lower of cost and estimated selling price less estimated cost to complete and
estimated cost of disposal.

Which of the following shall be classified as inventory rather than as property, plant, and
equipment?
Land acquired and put on the market for resale.

Germany Company has two products with cost and selling price as follows:

Product X Product Y

Selling price P2,025,800 P3,000,500

Estimated selling cost 584,920 700,000

Materials and conversion cost 1,490,520 1,726,415

General and administrative cost 300,000 800,000

At year-end, the manufacture of inventory has been completed but no selling cost has
yet been incurred.

Under LCNRV by the individual approach, how much is the inventory?

3,167,295

Botswana Company used the retail inventory method to account for its inventory.

Cost Retail

Beginning inventory P750,000 P1,000,000

Purchases 4,150,000 5,800,000

Mark-up 200,000

Markdown 100,000

Sales 6,000,000

Normal shrinkage 100,000

The entity used 2 decimal places for the cost ratio.

Under the FIFO approach, how much is the estimated cost of ending inventory?

560,000

Bahamas Company used the retail inventory method to account for its inventory.

Cost Retail

Beginning inventory P750,000 P1,000,000

Purchases 4,150,000 5,800,000

Mark-up 200,000

Markdown 100,000

Sales 6,000,000

Employee discount 100,000

Sales discounts 50,000

The entity used 2 decimal places for the cost ratio

Under the average cost approach, how much is the estimated cost of ending inventory?

568,000

On September 30, 2020, Lira Company purchased machinery under a contract that
required a down payment of P100,000 plus a monthly payment of P50,000 in 24 months
each for total cash payments of P1,300,000.

The cash equivalent price of machinery was P1,100,000.

The depreciation has an estimated useful life in years of 10 and a residual value of
P85,000. The installation cost is P120,000. The entity used straight-line depreciation.

What amount should be reported as the depreciation of machinery for the current year?

28,750
Norway Company used the composite method of depreciation based on a composite
rate of 15%. At the beginning of 2020, the total cost of equipment was P5,000,000 with
a total residual value of P600,000. The accumulated depreciation was P3,000,000 at
that time.

In January 2020, the entity purchased equipment for P2,500,000 with no residual value.
At the end of 2020, the entity sold equipment with an original cost of P1,000,000 and a
residual value of P200,000 for 350,000. This asset was acquired on January 1, 2017.

What is the depreciation for 2020?

975,000

Related annual depreciation of Chantal Company:

Year SL SYD DDB

1 P12,000 P20,000 P26,400

2 12,000 16,000 15,840

3 12,000 12,000 9,504

4 12,000 8,000 5,702

5 12,000 4,000 2,554

How much is the residual value of the machinery?

6,000

During the current year, the Dela Care Company had the following transactions about
the new office building:

Purchase price of land as a building site P2,820,500

Legal fees for the contract to purchase land 320,725

Architect fee 975,200

Demolition of old building 150,000

Sale of scrap from old building 32,800

The construction cost of a new building 3,750,300

Borrowed 12% notes payable amounting to P4,000,000 for general purpose

Borrowed 10% notes payable amounting to P2,000,000 specifically for building
construction

What amount should be reported as a building?

5,383,824

Argentina Company has a recent gross profit history of 42% based on sales.

Data available from the accounting records for the three months ended March 31:

Inventory - January 1 P650,200

Purchases 3,200,000

Sales 4,500,000

Purchase return 75,000

Freight in 50,750

Purchase discounts 8,600

Sales discounts 18,700

Sales return 15,900

Under the gross profit method, what is the estimated cost of inventory?

1,207,350

During the current year, the Delaware Company had the following transactions about
the new office building:

Purchase price of land as a building site P2,820,500

Legal fees for the contract to purchase land 320,725

Architect fee 975,200

Demolition of old building 150,000

Sale of scrap from old building 32,800

The construction cost of a new building 3,750,300

Borrowed 12% notes payable amounting to P4,000,000 for general purpose

Borrowed 10% notes payable amounting to P2,000,000 specifically for building
construction

What amount should be reported as land?

3,141,225

At the beginning of the current year, Hungary Company exchanged an old packaging
machine which cost P1,200,000 and was depreciated 60% for the used machine and
paid additional cash of P180,250.

The cash price of the new packaging machine was determined to be P850,000.

What is the gain on the exchange?

189,750

Haiti Company reported inventory on December 31, 2020, at P2,892,000.

based on the physical count of goods priced at cost, and before any necessary
year-end adjustment relating to the following:

1. Excluded in the physical count were goods billed to customer FOB

Destination on December 31, 2020. These goods had a cost of P230,600 and
were picked up by the carrier on January 10, 2021.
2. Goods shipped FOB Destination on December 28, 2020, from a vendor to
Haiti were received on January 4, 2021. The invoice cost was P305,500.

What amount should be reported as inventory on December 31, 2020?

3,122,600

The related data of Belarus Company:

Period Quantity Unit Cost

Week 1 8,200 P10.00

Week 2 8,000 11.25

Week 3 6,200 12.00

On week 4 the company made a sale of 28,500 units.

Mark up base on cost is 50%.

Under the Weighted Average method, how much is the gross profit?

156,750

Assignment 3.2 Investment property

34,000,000

How much is the investment property at year-end using the Fair value model?

26,800,000

How much is the investment property at year end using Cost model?

24,500,000

Brazil Company purchased a machine on January 1, 2017. The related data are:
Cost P6,000,000

Useful life 6 years

Residual value P0

The entity uses straight line method.

On January 1, 2020, the entity determined the following:

Useful life 8 years

Residual value P0

What is the depreciation of the machine in 2020?

600,000

Quiz 3.1 Resource deposit and Investment property

Which statement best describes investment property?

Property held for capital appreciation

Which of the following is an investment property?

Property that is being constructed and developed as investment property

Which includes directly attributable expenditure related to investment property?

Professional fees for legal services

How should investment property be measured subsequent to initial recognition?

Fair value or cost model

Which of the following is a characteristic of a change in accounting estimate?

It does not affect the financial statements of prior period

What would prospective application mean?

Applying a new accounting policy to transactions occurring after the date of change

Which is a change in accounting estimate?

The entity shifted from straight line method to Sum of years digit method.

How do we treat depletion expense?

Included in the cost of goods sold

Which is the commonly used method of computing depletion?

Production Output method

COMPUTATION:
Belgium Company purchased a machine on January 1, 2018.
The related data are:
Cost P3,720,000
Useful life 8 years
Residual value P0
The entity uses the straight-line method.

On January 1, 2020, the entity determined the following:

Useful life 5 years
The residual value is 10% of the original cost.
What is the depreciation of the machine in 2020?
806,000

Brussels Company purchased a machine on March 1, 2017.

The related data is as follows:
Cost P3,000,000
Useful life is 5 years
Residual value P150,000
The entity uses the straight-line method.

On January 1, 2020, the entity determined the following:

Useful life is 10 years
Residual value P163,800
What is the carrying amount of the machine on December 31, 2020?
1,214,600

Norway Company three investment properties with the following details:

Cost, Jan. 1, 2020 FV at Dec. 31, 2020 FV at Dec. 31, 2021

Property 1 2,700,500 3,200,800 4,000,000
Property 2 3,450,000 3,000,000 2,100,000
Property 3 3,300,000 3,900,200 3,600,700
Each property was acquired in 2020 with a useful life of 10 years.
If the entity uses the fair value model, what is the -gain or loss recognized for 2021?
400,300

Norway Company three investment properties with the following details:

Cost, Jan. 1, 2020 FV at Dec. 31, 2020 FV at Dec. 31, 2021

Property 1 2,700,500 3,200,800 4,000,000

Property 2 3,450,000 3,000,000 2,100,000

Property 3 3,300,000 3,900,200 3,600,700

Each property was acquired in 2020 with a useful life of 10 years.
If the entity uses the cost model, what is the carrying amount for 2021?
7,560,400

Related data of Latvia Company:

Cost of a property with gold mine P12,000,000
Development cost related to the drilling of wells 3,800,000
Development cost related to the production equipment 3,700,000
Exploration costs 4,075,000
The entity is legally required to restore land at a discounted amount of P900,000.
Estimated golds to be extracted 1,500,000 tons
Estimated golds to be sold 1,000,000 tons
Actual extraction for the current year is 75,000 tons
What is the depletion for the year?
1,038,750

Related data of Czech Company:

Cost of property with Coal mine P20,000,000
Development cost (tangible portion is 60%) 8,000,500
Estimated fair value of obligation to restore property 3,000,000
Estimated resale value of property after restoration 8,500,000
Estimated coals to be extracted 500,000 tons
Actual extraction 90,000 tons
Actual sold 70,000 tons
What is the carrying amount?
23,014,164

Assignment 4.2 Intangible assets

On January 1, 2019, Bella Aldama purchased a franchise right from Sergio Company at
5,000,000 in a period in years of 10.
The term of payments includes a down payment in cash of 20% and the balance is
payable in 5 equal payments every end of the year, by issuing a noninterest bearing
note. The effective rate is 12%. Determine the franchise cost at January 1, 2019.
3,883,840

On January 1, 2019, Bella Aldama purchased a franchise right from Sergio Company at
5,000,000 in a period in years of 10.
The term of payments includes a down payment in cash of 20% and the balance is
payable in 5 equal payments every end of the year, by issuing a noninterest bearing
note. The effective rate is 12%. Determine the present value of the note payable at
December 31, 2019 (round off to nearest peso amount).
2,429,901
Related data:
Completion of detailed program design 1,300,000
Coding and testing costs to establish technological feasibility 1,000,000
Coding costs after establishment of technological feasibility 2,400,000
Testing costs after establishment of technological feasibility 2,000,000
Cost of producing product masters for training materials 1,500,000
Duplication of computer software and training materials 2,500,000
Packaging product 900,000
How much is the research and development cost?
2,300,000

Related data:
Completion of detailed program design 1,300,000
Coding and testing costs to establish technological feasibility 1,000,000
Coding costs after establishment of technological feasibility 2,400,000
Testing costs after establishment of technological feasibility 2,000,000
Cost of producing product masters for training materials 1,500,000
Duplication of computer software and training materials 2,500,000
Packaging product 900,000
How much is the computer software?
5,900,000

Thailand Company incurred 1,600,000 research and development costs to develop a

product for which a patent was granted at the beginning of the current year.

Legal fees and other costs associated with registration of the patent is 450,000.

The entity also paid 300,000 for legal fees in a successful defence of the patent.

Patent legal life in years is 9 & useful life in years is 10.

Assuming, at year-end, Thai Company expected that the patent annual net cash flows
of P60,000 with a present value of an ordinary annuity of 1 for 9 periods at 9% is
6.00. How much is the impairment loss?

40,000

Quiz 4.1 Intangible assets

Which is a characteristic of an intangible asset?

Held for sale

Which method of amortization is normally used for an intangible asset?

​Straight line

Which does not qualify as an intangible asset?

Computer notebook

When is an intangible asset identifiable?

It is either separable or it arises from contractual and other legal rights

How should research and development costs be accounted for?

Expenses in the period incurred unless it will have alternative future use or contractually
reimbursable

Which of the following costs should not be capitalized?

Cost incurred of testing prototype before economic feasibility is demonstrated

COMPUTATION:
Greece Company developed a new machine for manufacturing baseballs and is patented.
The related costs at the beginning of the year are:
Purchase of special equipment to be used solely for development of new machine P1,500,200
Research salaries and fringe benefits for engineers and scientists 300,500
Cost of testing prototype 280,000
Legal cost for filing a patent 230,900
Fees paid to government patent office 80,500
Drawings required by patent office to be filed with patent application 32,800
How much is the patent at year-end?
275,360

Haiti Company acquired a patent for a drug with a remaining legal and useful life of 5 years on
January 1, 2017, for P5,250,000. The entity used straight line amortization.
On January 1, 2020, a new patent is received for an improved version of the same drug. The
new patent has a legal and useful life of 12 years.
How much is the amortization expense for 2020?
175,000

On January 1, 2020, Danayara Company purchased the patent for a medicine.

Related data are:
Acquisition cost P5,200,000
Useful life 10 years
Patent life 8 years
On December 31, 2020, due to COVID-19 pandemic, it is estimated reliably that:
Patent's Annual cash inflow for 5 periods P856,300
Discount rate 12%
The entity used 2 decimal places for PV factor.
What is the amount of impairment loss?
1,467,320

On January 1, 2020, Marian Company purchased a franchise right of Dong's siomai.

Related data are:
Franchise right 8 years
Note payable in 6 equal annual payment beginning January 1, 2020, P300,000
Legal fees paid separately in cash P125,200
The effective rate of 12%
The entity used 2 decimal places for PV factor.
What is the franchise cost on December 31, 2020?
1,317,050
On January 1, 2020, Marian Company purchase a franchise right of Ding’s siomai
Related data are:
Franchise right 8 years
Note payable in 6 equal annual payment at the end of each year P300,000
Legal fees paid separately in cash P125,200
The effective rate of 12%
The entity used 2 decimal places for PV factor.
What is the interest expense on December 31, 2020?
147,960

Chile Company developed a trademark to distinguish its products from those of the competitors.
Through advertising and other means, the entity is seeking to establish significant product
identification to increase future sales. The similarity between the trademark costs and other
intangible and operating costs has caused some confusion over proper accounting.
The following items are being treated as part of the cost of the trademark:
Registration fee with Trademark office 60,700
Design costs of trademark 1,000,200
Legal fees of registering trademark 215,300
Advertising to establish recognition of trademark 250,000
Marketing research to study consumer tastes P380,500
What is the initial cost of the trademark?
1,276,200

Hungary Company purchased P100,000 ordinary shares outstanding of another entity for cash
at P105 per share. On the date of acquisition, the acquirer's net assets' carrying amount and fair
value are P9,000,000 except for the property, plant, and equipment which had an excess
amount over the carrying amount of P650,200.
How much is the goodwill at the date of purchase?
849,800

Venezuela Company incurred the following costs:

Legal costs to file a patent of Product Y P200,000
Special equipment to be used in developing various products P800,600
Labor and material costs incurred in producing a prototype model of Product Y P600,300
Cost of testing the prototype of Product Y P300,500
How much is the research and development expense of Product Y?
900,800
 Midterm exam

When should intangible assets be recognized?

Future economic benefit will probably arise from the use and the cost can be
measured reliably

What is the treatment of cost incurred internally to create goodwill?

Expensed when incurred

Which of the following is not included in the cost of an internally generated asset?
Expenditure on training staff to operate the asset​.

What is an owner-occupied property held by an owner?

For administrative purposes

Which of the following does not include research activities?

Design, construction, and testing of preproduction prototype and model

What is a change in measurement basis?

Change in accounting estimate

Which of the following does not include investment property?

Property held for sale in the ordinary course of business

Which of the following is true about development cost?

Development cost may be capitalized as an intangible asset in very restrictive
situations

Which statement best describes impairment loss?

The amount by which the carrying amount of an asset exceeds the recoverable
amount.

Which of the following is not part of the depletable amount?

Tangible development cost associated with equipment used to extract the mineral
resource

Which information is needed to compute a depletion charge per unit?

The Estimated total amount of resources available for removal.

What should be the treatment when an entity purchased a building and special
equipment with an undetermined purpose?
Only the building will be presented in the statement of financial position as an
investment property.

COMPUTATION:

At year-end, Jin Company reported assets of P8,002,500 and liabilities of P5,790,300

The carrying amounts of the assets approximate fair value, except for land which has a
fair value amounting to P316,900 greater than the carrying amount. On that same day,
a company acquired Jin for P2,000,000.

How much is the goodwill?

On January 1, 2017, J-Hope Company incurred a P1,800,500 cost to develop a product

design of the patent. During the year, Development costs incurred after technological
viability are P1,200,300 and additional legal fees and other costs associated with
registration of the patent are P385,800.

During 2019, the entity paid P1,000,000 for legal fees in a successful defense of the
patent.

The patent's legal life is 10 years and the useful life of 12 years.

How much is the carrying amount of the patent on December 31, 2020?

951,660

RM Company incurred the following costs:

Special equipment to be used in developing various products P1,000,000

Labor and material costs incurred in producing a prototype model of Product BTS
P715,200
Legal costs to file a patent of Product BTS P375,600

Cost of testing the prototype of Product BTS P200,600

How much is the research and development expense of Product BTS?

915,800

Jungkook Company has a single investment property that had an original cost of
P4,000,000 on January 1, 2019.

On December 31, 2019, the fair value was P4,120,500 and on December 31, 2020, the
fair value was P4,080,200. On acquisition, the property had a useful life of 10
years.

What is the loss reported in the income statement for 2020 under the fair value model?

40,300

On January 1, 2020, Rabiya Company signed an agreement to operate as a franchise.

Initial franchise fee P4,800,000

Direct cost incidental to the franchise 150,000

Annual payment at the beginning of each year for 6 periods 800,000

Effective rate 15%

Franchise term 6 years

Estimated useful life 8 years

The entity used 2 decimal places for the PV factor.

What is the franchise cost on December 31, 2021?

2,270,000

Panama Company purchased a machine on March 15, 2018.

The related data is as follows:

Cost P3,000,000

Estimated useful life 10 years

Estimated residual value 150,000

The entity uses the straight-line method.

On January 1, 2020, after a quality improvement review, the entity determined the
following:

New estimated useful life 12 years

New estimated residual value P100,012,50

What is the depreciation of the machine in 2020?

234,060

On January 1, 2020, Jimin Company acquired the following intangible assets:

A trademark for P250,000.

The trademark has a remaining legal life of 5 years. The trademark will be renewed in

the future indefinitely without a problem.

A patent for P3,020,800.

The patent has an economic life is 8 years.

On December 31, 2020, the intangible assets are tested for impairment.

The trademark is now expected to generate cash flows of just P28,000 per year.

The cash flows expected to be generated by the patent amount to P380,600 annually
for each of the next 5 years.

The appropriate discount rate for all intangible assets is 14%.

The entity used 2 decimal places for the PV factor.

How much is the total impairment loss for the period?

632,542

Peru Company purchased a machine on January 1, 2016.

The related data is as follows:

Cost 3,800,000
Estimated useful life 5 years

Estimated residual value 250,000

The entity uses the straight-line method.

On January 1, 2020, after a quality improvement review, the entity determined the
following:

New estimated useful life 8 years

New estimated residual value P80,000

What is the carrying amount of the machine in 2020?

740,000

On January 1, 2020, Lemonon Company acquired land held for investment.

In relation, the entity incurred and paid the following:

Acquisition cost P3,000,000

Transfer taxes 215,900

Other administration cost 102,700

Legal fees 175,300

At year-end, the fair value of the land held for investment is P3,650,000.

Under the fair value model, how much is the gain reported in the income statement?

258,800

At the beginning of the current year, Paraguay Company purchased a mineral oil
amounting to P10,000,000 with removable ore estimated at 800,000 tons.

After it has extracted all the ore, the entity will be required by law to restore the land to
the original condition at an estimated fair value of P3,000,500.

The entity believed it will be able to sell the property afterward for P895,000.

During the current year, the entity incurred P3,494,500 of development costs preparing
the mine for production and removed 120,000 tons, and sold 100,000 tons of ore.

What amount should be reported as depletion for the current year?

2,340,000

On January 1, 2020, Tekla Company signed an agreement to operate as a franchise.

Initial franchise fee P3,600,000

Annual payment at the end of each year for 5 periods 720,000

Effective rate 16%

Franchise term 5 years

Estimated useful life 10 years

The entity used 2 decimal places for the PV factor.

What is the interest expense incurred on December 31, 2021 (round off answer to the
nearest peso amount)?

321,777

V Company and its subsidiaries own the following properties:

1. A vacant building owned by the parent and to be leased out under an

operating lease of P1,800,900
2. Land held by the parent for undetermined use of P2,985,700
3. Land held for future factory site of P3,982,520
4. Land leased out to an unrelated party under an finance lease of P1,500,000
5. Machinery leased out by the parent to an unrelated party under an operating
lease of P1,000,000
6. Property held by subsidiary, a food processing firm, P2,000,000
7. Property held by the parent for use in the production of P4,000,000
8. Property leased in under finance lease P4,550,250
9. Property under construction for use as investment property of P2,000,500

How much is the investment property?

11,337,350

Quiz 5.1 Non Current asset held for sale and Biological assets
In order for a noncurrent asset to be classified as held for sale, the sale must be highly
probable. What is the meaning of highly probable?
The probability is higher than more likely than not

Noncurrent asset or disposal group classified as held for sale is valued at what amount?
Lower of carrying amount and fair value less cost of disposal

Which of the following is incorrect regarding highly probable noncurrent assets held for
sale?
The sale is expected to qualify for recognition as a completed sale within 2 years
from the date of classification of the asset as held for sale.

What is the treatment of any gain on a subsequent increase in the fair value less cost of
disposal of a noncurrent asset classified as held for sale?
The gain shall be recognized but not in excess of the cumulative impairment loss
previously recognized.

An entity classified a noncurrent asset accounted for under the cost model as held for
sale at the current year-end. Because no offers were received at an acceptable price,
the entity decided at the end of the next year not to sell the asset but to continue to use
it. The asset shall be measured at the end of the next year at what amount?
The lower of carrying amount on the basis that the asset had never been
classified as held for sale and recoverable amount.

An entity harvested a whool from a sheep, what would happen in the financial report?
Increase in gain from change in fair value

What is an agricultural produce?

The harvested product from biological asset

How would agricultural produce as it grows on bearer plant be measured at each

reporting period prior to harvest?
​ Fair value less cost of disposal

How should be bearer plants be accounted for?

Property, plant and equipment

On December 31, 2020, Jimin Company classified equipment as held for sale.
On that date, the equipment is expected to be sold for P3,100,500 with a disposal cost
of P120,000. The equipment was purchased last January 1, 2019, with an original cost
of P5,000,000, an estimated residual value is P120,000, and an estimated useful life is
5 years.

On December 31, 2021, the equipment had not been sold and management decided to
place back the equipment into operations.

On December 31, 2021, the entity estimated that the equipment is expected to be sold
at P2,000,000 with the disposal cost at P95,700.

How much is the impairment loss for 2020?

67,500

How much is the loss of reclassification in 2021?

1,076,200

JK Company accounts for noncurrent assets using the revaluation model.

On April 30, 2020, the entity classified land as held for sale.
At that date the revalued amount was P3,280,500.
On April 30, 2020, the fair value was estimated at P3,600,000 and the cost of disposal
at P187,300.
On December 31, 2020, the fair value was estimated at P3,790,200 and the cost of
disposal at P153,900.
How much is the gain on the recoverable amount for 2020?
187,300

On May 1, 2019, V Company had a machine.

Related data:
Acquisition cost P2,450,000
Installation cost 50,000
Estimated residual value 100,000
Estimated useful life 5 years
On September 1, 2020, the management decided to place the equipment held for sale.
On that date, the fair value less cost of disposal is P1,620,000
On December 31, 2020, the fair value less cost of disposal is P1,570,200.
How much is the impairment loss for 2020?
289,800

Related data of Jin Company:

Agricultural produce on bearer plants P600,700
Animals on recreational activities 2,000,500
Bearer animals on the farm 1,000,000
Bearer plants on the farm 1,500,000
Crops in the farm that will bear for only 1 year 385,800
Freestanding trees 920,700
Harvested Agricultural produce 2,006,000
Land under trees 900,000
Roads in forest 800,000
Trees with dual-purpose 1,000,300
How much are the biological assets?
3,907,500

The related data of J-Hope Company:

Acquired biological assets on January 1, 2020, amounting to P525,700.
Additional biological assets were acquired on March 31, 2020, amounting to P320,500.
At year-end, a change in fair value due to growth fluctuation amounted to P120,500 and
a change in fair value due to price fluctuation amounted to P75,900.
The total amount harvested for the year is P620,800
How much is the biological assets on December 31, 2020?
421,800

Assignment 6.2 Provision and estimated liability

On November 3, 2020, Minorka Bus Company had an accident. On January 12, 2021,
the entity received a notice of lawsuit for 7,000,000 damages for personal injuries
suffered by the passengers.
The entity's legal counsel believed it is probable that Minorka will pay the complainant
between 2,000,000 and 5,000,000. The possible outcomes are equally likely.

How much is the provision on December 31, 2020?

3,500,000

In 2020, Sushmita Company was sued by a competitor.

The lawyer believes there is a chance of 75% that the court will not dismiss the case
and the entity will incur an outflow of benefits. If the court rule in favor of the
complainant, the lawyer believe that a 75% chance of paying P3,000,000
damages and a 25% chance of paying P1,500,000. Other amounts of damages are
unlikely.
There is no indication that the claimant will settle out of court.
A risk adjustment of 10% is considered to appropriately reflect uncertainties in the cash
flow estimates.
The court is expected to rule in late December 2021.
The discount rate is 12% and the PVF of 1 is 0.89
How much is the provision on December 31, 2020 (round-off answer to the nearest
peso value)
1,927,406

In 2020, Dublin Company began selling new line of products that carry a two year
warranty against defects.
Based upon past experience with other products, the entity estimated warranty costs as
a percentage of peso sales.
First year of warranty 2%
Second year of warranty 5%
2020 2021
Sales 5,000,000 7,000,000
Actual warranty cost 100,000 300,000

How much is the estimated warranty liability at December 31, 2020?

250,000
How much is the estimated warranty liability at December 31, 2021?
440,000

QUIZ 6 Provision, estimated liability and contingency

Which best describes a provision?

A liability of uncertain timing or uncertain amount

What best describes a provision liability?

The probability that the event will occur is greater than the probability that the
event will not occur.

What is the reason that an entity did not accrue a liability for a present obligation but
disclose the nature of the obligation and the range of the loss?
Possible occurrence

Which best describes a contingency?

The occurring of the event is probable, can be estimated reliably and is not
considered asset in the statement of financial position.

Which of the following is a characteristic of the accrual of warranty but not the sale of
warranty?
Warranty liability

What is the treatment of an extended warranty sold separately to customers?

Deferred revenue

When a department store received cash and issued a gift certificate that is redeemable
in merchandise, what would happen?
Deferred revenue account is increased
When an entity received an advance payment for special order goods that are to be
manufactured and delivered within three months. How should advance payment be
reported?
Current liability

COMPUTATIONS:

In 2020, ABS-CBN Company became involved in a tax dispute with BIR.

On December 31, 2020, the entity's legal and tax advisor believed that an unfavorable
outcome was probable and a reasonable estimate of additional taxes was ​P975,000 ​but
could be as much as P1,125,000.

After the 2020 financial statements were issued, ABS-CBN received and accepted a
BIR settlement offer of P920,000

What is the Provision for Liability on December 31, 2020?

P975,000

In 2020, Myanmar Company was sued by a competitor. The lawyer believes there is a
chance of 70% that the court will not dismiss the case and the entity will incur outflow of
benefits.

If the court rule in favor of the complainant, the lawyer believe that a 70% chance of
paying P2,000,000 damages and a 30% chance of paying P1,500,000. Other amounts
of damages are unlikely.

There is no indication that the claimant will settle out of court.

A risk adjustment of 10% is considered to appropriately reflect uncertainties in the cash

flow estimates.

The court is expected to rule in late December 2021. The discount rate is 15%. The
entity used PVF in 2 decimal places.

How much is the provision on December 31, 2020?

1,239,315
Wolverine Co. includes one coupon in each bag of dog food it sells.

The related data are:

5 coupons in exchange for 1 leash.

The leashes cost P125 each.

The estimated coupons to be redeemed is 38%

2020 2021

Bags of dog food sold 220,000 285,000

Leashes inventory purchased 26,500 29,300

Coupons redeemed 78,300 96,700

How much is the premium expense on December 31, 2020?

2,090,000

How much is the premium liability on December 31, 2021?

422,500
How much is the premium inventory (leashes) on December 31, 2021?
2,600,000

Jao Company operates a customer loyalty program. The entity grants loyalty points for
goods purchased.

The loyalty points can be used by the customers in exchange for the goods of the entity.
The points have no expiry date.

In 2020, the entity issued 100,000 award credits and expects that 93.75% of these
award credits shall be redeemed.

The total stand-alone selling price of the award credits granted is reliably measured at
P1,800,000.

In 2020, the entity sold goods to customers for a total consideration of P13,200,000
based on stand alone selling price.

The awards credits redeemed and total award credits expected to be redeemed each
year are as follows:

Redeemed Expected to be redeemed

2020 45,000 93.75%

How much is the unearned revenue - points for 2020?

823,680

Russia Company sells gift certificates, redeemable for store merchandise. The gift
certificate has no expiration date.

The entity has the following information pertaining to the gift certificate sales and
redemptions:

Unearned revenue, January 1, 2020 P375,100

2020 redemptions prior year sales 115,300

2020 redemptions of current year sales 1,250,000

2020 sales 1,600,500

How much is the unearned revenue at year-end?

610,300