Arjon T.

Fernandez
ACC 221 (7751)

Let’s Check:
ACTIVITY 1
1. NM
2. NM
3. NM
4. NM
5. M
6. M
7. NM
8. NM
9. M
10. M

ACTIVITY 2
1. D
2. C
3. A
4. B
5. D
6. D
7. A
8. A
9. B
10. A
11. C
12. A
13. A
14. A
15. A

Let’s Analyze
ACTIVITY 1 – CHERRY COMPANY
Monetary asset at historical cost 1,500,000
Monetary liabilities at historical cost 4,000,000
Net monetary liabilities at historical cost (2,500,000)
Monetary asset, restated 1,500,000x 300/120 3,750,000
Monetary liability, restated 4,000,000 x 300/120 10,000,000
Net monetary liabilities, restated (6,250,000)
Purchasing power gain 3,750,000

ACTIVITY 2 – GRACE COMPANY

Monetary asset at historical cost 10,000,000
Monetary liabilities at historical cost 6,000,000
Net monetary assets at historical cost 4,000,000

Net monetary assets, restated (4,000,000 x 280/125) 8,960,000

Purchasing power loss 4,960,000

ACTIVITY 3 – ALONA COMPANY

Acquired in December 2016 (4,800,000 x 350/120) 14,000,000
Acquired in December 2018 (1,600,000 x 350/125) 4,480,000
Carrying Amount of Machinery 18,480,000

ACTIVITY 4 – IRISH COMPANY

Net monetary assets-January 1 1,760,000
Add: net income/net increase in net assets 600,000
Decrease in net asset ( 400,000)
Net monetary asset, end (historical) 1,960,000
Net monetary asset, end (restated)
(1,760,000 x 140/110) 2,240,000
(600,000 x 140/125 ave.) 672,000
( 400,000) 2,512,000
Purchasing power loss 552,000
ACTIVITY 5
Emma Company acquired an equipment on January 1, 2018 for 10,000,000.
Depreciation is computed using the straight line method. The estimated useful life of
the equipment is 5 years with no residual value. A specific price index applicable to
the equipment was 150 on January 1, 2018 and 225 on December 31, 2018.
1. What amount of depreciation should be reported in the historical cost income
statement for 2018?
(10,000,000/5) = 2,000,000

2. What amount of depreciation should be reported in the current cost income

statement for 2018?
(10,000,000 X 225/150) = (15,000,000 + 10,000,000)/2
= 12,500,000 / 5
= 2,500,000 depreciation - average current cost

3. What is the realized holding gain on the equipment to be reported in 2018?

Depreciation based on average current cost 2,500,000
Depreciation based on historical cost 2,000,000
Realized holding gain 500,000

4. What is the unrealized holding gain on the equipment to be reported in 2018?

Current cost (10,000,000 x 225/150) 15,000,000
Less: Acc. Depreciation based on current cost
(15,000,000/5) 3,000,000
Carrying amount based on current cost 12,000,000
Carrying amount based on historical cost
(10,000,000 – 2,000,000) 8,000,000
Unrealized holding gain 4,000,000
ACTIVITY 6
Rome Company reported the following information with respect to cost of goods
sold for 2018:
Units Historical cost
Inventory-January 1 10,000 530,000
Purchases 45,000 2,790,000
Inventory, Dec. 31 15,000 945,000
The current cost per unit of inventory was P58 on January 1, 2018 and P72 on
December 31, 2018.
1. In the statement of financial position restated to current cost, what is the
inventory on December 31, 2018?
(15,000 x 72) = 1,080,000

2. What is the unrealized holding gain on inventory for 2018?

Inventory, end at current cost 1,080,000
Inventory, end at historical cost 945,000
Unrealized holding gain 135,000

3. In the income statement restated to current cost, what is the cost of goods
sold for 2018?
Cost of goods sold at current cost (ave.)
40,000 units sold x (72 +58)/2 = 2,600,000

4. In the income statement restated to current cost, what is the realized holding
gain from the inventory sold in 2018?
Cost of goods sold at current cost (ave)
(40,000 units sold x (72 +58)/2) = 2,600,000
Cost of goods sold at historical cost 2,375,000
Realized holding gain 225,000
ACTIVITY 7
At the beginning of current year, Georgia Company purchased 50,000 units at P100
per unit. During the year, the entity sold 40,000 units at P180 per unit. The entity
paid P700,000 for operating expenses. The current replacement cost of the
inventory at year-end is P150 per unit.
1. What is the realized holding gain on inventory for the current year?
Cost of sales at average current cost (40,000 x (150 + 100)/2) 5,000,000
Inventory, end at historical cost (40,000 x 100) 4,000,000
Realized holding gain 1,000,000

2. What is the unrealized holding gain on inventory for the current year?

Inventory, end at current cost (10,000 x 150) 1,500,000

Inventory, end at historical cost (10,000 x 100) 1,000,000
Unrealized holding gain 500,000

3. What is the net income under current cost accounting for the current year?
Sales (180 x 40,000) 7,200,000
Less: cost of sales as (150 + 100)/2 x 40,000 5,000,000
Gross profit at current cost 2,200,000
Less: operating expenses ( 700,000)
RHG 1,000,000
UHG 500,000
Net income under current cost 3,000,000

4. What is the net income under historical cost accounting for the current year?
Sales (40,000 x 180) 7,200,000
Less: Cost of sales (40,000 x 100) 4,000,000
Gross profit 3,200,000
Less: operating expenses 700,000
Net income 2,500,000