Statement of Changes in Comprehensive Income

CHAPTER 2 STATEMENT OF COMPREHENSIVE
INCOME
CHAPTER 2
PROBLEM 1: TRUE OF FALSE
1. All expenses of an entity are classified as either distribution costs (selling expenses) or
administrative expenses under the function of expense method.
False
2. The only difference between the function of expense and the nature of expense methods is
the presentation of ‘’cost of goods sold’’ under the function of expenses method.
False
3. The main difference between the function and the nature of expense methods is the
segregation of operating and non-operating items under the function of expense method.
True
4. Freight-in is presented as distribution cost under the function of expense method.
False
5. PAS1 requires an entity to provide additional disclosures when it uses the nature of expense
method.
False
PROBLEM 2: Multiple Choices
1. PAS 1 does not require the presentation of which of the following financial statements?
a. Balance sheet
b. Notes
c. Income statement
c. All of the above
2. Which of the following statements correctly relate to the provisions of PAS 1?
a. According to PAS 1, ‘’cash and cash equivalents’’ shall always be presented as the first line
in the balance sheet.
b. The term ‘’balance sheet’’ may be used in lieu of the ‘’statement of financial position’’ and the
term ‘’income statement’’ may be used in lieu of the ‘’statement of profit or loss and other
comprehensive income’’.
c. An entity is prohibited from presenting extraordinary items in the financial statements but may
disclose those items in the notes.
d. An entity may present its income and expenses in a single statement or in two statements.
3. Which of the following is not a component of other comprehensive income?
a. A revaluation increase in an item of property, plant and equipment during the period.
b. The difference between the return on plan assets and the interest on the plan assets.
c. A decrease in the fair value of investment in FVOCI securities.
d. The ineffective portion of a cash flow hedge.
4. In which of the following instances may an entity make a reclassification adjustment?
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a. A revalue property is sold at a sign.
b. The entity amends its retirement benefit plan resulting to a decrease in the present value of
defined benefit obligation.
c. An entity sells its investment in equity securities measured at FVOCI.
d. A hedging relationship ceases and the entity transfers the related cumulative fair value
changes accumulated in equity to profit or loss.
5. Total comprehensive income includes which of the following?
a. Unrealized loss on FVOCI securities
b. Unrealized loss on FVPL securities
c. Profit or loss during the period
d. All of these
6. An entity is required to present additional disclosures if the entity presents its expenses using
the
a. Nature of expense method
b. Function of expense method
c. Either a or b
d. Neither a nor b
7. The records of Lunch Co. on December 31,20x1 show the following information:
Debit Credits
Sales 22,000,000
Beginning inventory 1,700,000
Purchases 5,600,000
Purchase returns 500,000
Freight in 400,000
Salaries of sales personnel 670,000
Interest expense 340,000
Advertising expense 320,000
Research and development expense 180,000
Directors’ remuneration 2,000,000
Salaries off administrative personnel 520,000
Rent expense 280,000
Depreciation expense 160,000
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Commission expense 1,100,000
Impairment loss on financial assets 190,000
Insurance expense 50,000
Income tax expense 2,000,000
Unrealized gain on equity securities-FVOCI 200,000
Gain change in fair value-Cash flow hedge 30,000
Totals 15,510,000 22,730,000
Additional information:
 Ending inventory amounts to P 1,200,000.

 One-half of the rent expense pertains to the sales department.
 The impairment loss on financial assets pertains to impairment of receivables
recognized on contracts with customers.
 The items of other comprehensive income are net of tax.
 The gain on change in fair value on the cash flow hedge represents the effective portion
ANSWER:
Requirement (a):
Lunch Co.
Statement of profit or loss and other comprehensive income
For the year ended December 31, 20x1
Notes
Sales 22,000,000
Cost of goods sold 12 (6,000,000)
Gross profit 16,000,000
Distribution costs 13 (2,230,000)
Administrative expenses 14 (3,050,000)
Impairment loss on financial assets (190,000)
Finance costs (340,000)
Profit before tax 10,190,000
Income tax expense (2,000,000)
Profit for the year 8,190,000
Other comprehensive income
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Items that will not be reclassified subsequently:
Investments in equity instruments 200,000
Items that may be reclassified subsequently to profit or loss:
Cash hedges 30,000
Other comprehensive income for the year, net of year 230,000
Total Comprehensive Income for the year 8,420,000
Requirement (b):
Note 12: Cost of goods sold
This line item consists of the following:
Purchases 5,600,000
Purchase returns (500,000)
Freight in 400,000
Total goods available for sale 7,200,000
Ending inventory (1,200,000)
Cost of goods sold 6,000,000
Note 13: Distribution costs
Rent expense (280,000 x 1/2) 140,000
Commission expense 1,100,000
Distribution costs 2,230,000
Note 14: Administrative expense
Research and development expense 180,000
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Directors’ remuneration 2,000,000
Salaries of administrative personnel 520,000
Insurance expense 50,000
Administrative expenses 3,050,000
PROBLEM 3: EXERCISE
1. The records of Dinner Co. on December 31, 20x1 show the following information:
Debits Credits
Sales 16,800,000
Purchases 6,800,000
Purchases returns 480,000
Freight out 870,000
Freight in 350,000
Sales commissions 480,000
Marketing expense 320,000
Salaries of administrative personnel 2,520,000
Impairment of property, plant, and equipment 290,000
Revaluation decrease during the period 120,000
Translation gain on foreign operation 25,000

Totals 15,940,000 17,305,000
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 The cost of inventory on hand at year-end is P 380,000.

 One-half of the rented premises pertain to the administration office.
 Three-fourths of the depreciation pertain to depreciation of sales personnel
transportation vehicles.
 Income tax rate is 30%. There are no temporary differences.
 The items of other comprehensive income are already net of tax.
Requirements:
a. Prepare the statement of profit or loss and other comprehensive income of Dinner Co. using
the single statement presentation and the function of expense method. Make a proper
heading for the financial statement. Apply the general feature of ‘’materiality and aggregation’’.
b. Make the additional disclosures for the breakdown of line items in the financial statement.
Make proper cross-referencing of those notes, use ‘’Note 12’’ as your first cross-reference.
ANSWER:
Requirement (a):
Dinner Co.
Notes
Sales 16,800,000
Cost of goods sold 12 (8,90,000)
Administrative expenses 14 (2,910,000)
Impairment or proper, plant and equipment (2,90,000)
Income tax expense (552,000)
Profit for one year 1,288,000
Other comprehensive income
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Revaluation decrease during the period (120,000)
Items that may be reclassified subsequently to profit or loss:
Translation gain on foreign operation 25,000
Other comprehensive income for the yr., net of tax (95,000)
Total comprehensive income for the yr. 1,193,000
Requirement (b):
Note 12: Cost of goods sold
This line items consist of the following:
Purchases 6,800,000
Purchase returns (480,000)
Freight in 350,000
Total goods available for sale 8,770,000
Ending inventory (380,000)
Cost of goods sold 8,390,000
Freight in 870,000
Marketing expense 320,000
Note 14: Administrative expenses
The line item consists of the following:
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PROBLEM 4: CLASSROOM ACTIVITIES
ACTIVITY 1
INSTRUCTIONS:
1. Find a study partner.
2. Imagine that you and your partner are accountants.
3. Answer the requirements INDIVIDULLY FIRST. Next, compare your answers with your study
partner. Discuss any differences between your answers. Agree on your final answer. You will be
graded as a couple based on your final answer. Happy answering.
The unadjusted trial balance of Best Friends Co. on December 31, 20x1 is shown below:
Debits Credits
Sales 22,800,000
Purchases 7,400,000
Purchases returns 670,000
Freight in 320,000
Gain on impairment recovery of property,
plant and equipment 720,000
Revaluation increase during the period 130,000
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Totals 19,150,000 24,320,000
a. The year-inventory count sheets show a total cost of inventory on hand of P 370,000. This
amount is not yet adjusted for the freight-in. Freight-in incurred evenly on gross purchases
during the period. Best Friends Co. uses the FIFO flow formula.
b. The net realize value (NRV) of the ending inventory is P 270,000. The difference between the
cost and the NRV is material to Best Friend Co.
c. No bad debts expense has yet been recognize. Best Friend Co. estimates its bad debts
based on 5% of ending receivable. Account receivable has an ending balance of P
4,760,000. The balance of the allowance for bad debts account at the start of the year is P
280,000. Write-offs during the year totaled P 120,000 while recoveries totaled P 280,000. Best
Friend Co. presents bad debt expenses separately in the statement of profit or loss.
d. During the year, an investment in bonds previously classified as investment measured at

amortized cost was reclassified to held for trading securities. The carrying amount of the
investment on reclassified date is P 1,000,000 while the fair values are P 800,000 on
reclassified date and P 980,000 at year-end. The only entry relating to this investment is a debit
to ‘’Held for trading securities’’ for P 1,000,000 and a credit to ‘’investment in bonds at amortized
cost’’ for P 1,000,000.
e. Best Friend Co. is subject to an income tax rate of 30% (Assume there are no temporary
differences. Assume items of other comprehensive income are already stated net of tax.)
Requirements:
a. Prepare the year-end adjusting/correcting entries.
b. Prepare the statement of profit or loss and other comprehensive income of Best Friend CO.
using the single statement presentation and the function of expense method. Make a proper
heading for the financial statement. Apply the concepts of PAS 1 and other PFRS on the
separate presentation of items.
ANSWER:
Requirement (a):
(a) Inventory-end 386,000
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{370,000 + [30,000 x (370,000/7.4M)}
Income summary 386,000
(b) Loss on inventory write-down 116,000
(386,000 – 270,000)
Inventory-end 116,000
(c) Bad debts expense 50,000
Allowance for bad debts 50,000
Allowance for bad debts
280,000 beg.
Write-offs 120,000 28,000 Recoveries
50,000 Bad debts
End. (4.76Mx 5%) 238,000
(d) Loss on reclassification (1M-800,000) 200,000
Held for trading securities 200,000
(e) Held for trading securities 180,000
Unrealized gain (980,000- 800,000) 180,000
(f) Income tax expense 1,572,000
Income tax payable 1,572,000
Requirement (b):
Best Friends Co.
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INCOME
Sales 22,800,000
Cost of Sales (9,664,000)
Distribution costs (1,470,000)
Administrative expenses (6,400,000)
Gain on impairment recovery of property, plant and equipment 720,000
Loss on inventory write-on (116,000)
Bad debts expense (50,000)
Reclassification of financial assets (200,000)
Unrealized gains on financial assets 180,000
Profit of the year 3,668,000
Other comprehensive income:
Revaluation increase during the period 130,000
Items that may be reclassifies subsequently to profit or loss: -
Other comprehensive income for the year, net of tax 130,000
Total Comprehensive income for the year. 3,798,000
ACTIVITY 2
INSTRUCTIONS:
1. Find a study partner.
2. Imagine that you and your partner are accountants.
3. Answer the requirements INDIVIDULLY FIRST. Next, compare your answers with your study
partner. Discuss any differences between your answers. Agree on your final answer. You will be
graded as a couple based on your final answer. Enjoy.
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The unadjusted trial balance of Buddies Co. on December 31, 20x1 is shown below:
Debits Credits
Revenue from service fees 12,000,000
Contract costs 4,000,000
Salaries expense 3,000,000
Defined benefit cost 840,000
Dividend income from Hangout Co. 90,000
Totals 8,520,000 12,090,000
a. On July 28, 20x1, Buddies Co. sold its investment in bonds measured at amortized cost for P
1,000,000. Buddies incurred P 50,000 in broker’s commission on the sale. The carrying amount
of the investment as at the date of sale is P 800,000. Buddies inadvertently recorded the
transaction as a net debit to cash for P 950,000, and a credit to investment accounts for P
950,000.
b. The year-end carrying amount of Buddies’ biological asserts is P 2,800,000. The year-end fair
value of the biological assets is P 2,640,000. Costs to sell the biological assets as year-end are
estimated at P 140,000.
c. On September 1, 20x1, Buddies Co. acquired 30% interests in Hangout Co. for P 8,000,000.
The interest acquired gives Buddies significant influence over Hangout. Hangout reported profit
of P 1,000,000 and other comprehensive income of P 120,000 in 20x1. Hangout declared P
300,000 dividends at year-end. The profit was earned evenly throughout the year. Hangout‘s
other comprehensive income consists of revaluation increase recognized on November 1, 20x1.
d. The actuarial valuation report shows the following information:
Service 336,000
Net interest cost net in net defined benefit liability (asset) 252,000
Re measurements to the net defined benefit liability (asset) 252,000
e. Buddies Co. is subject to an income tax rate of 30% (Assume there are no temporary
differences. Assume items of other comprehensive income are already stated net of tax.)
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Requirements:
a. Prepare the year-end adjusting/correcting/reclassification entries.
b. Prepare the statement of profit or loss and other comprehensive income Buddies Co. using
the single statement presentation and the nature of expense method. Make a proper heading for
the financial statement. Apply the concepts of PAS 1 and other PFRS on the separate
presentation of items.
ANSWER:
Requirement (a):
(a) Investment in bonds (950,000-800,000) 150,000
Gain on derecognition of financial asset 150,000
(b) Unrealized loss [2,800,000-(2,640,000-140M)] 300,000
Biological assets 300,000
(c) Investment in associate 46,000
Dividend income 90,000
Sh. in the profit of associate (1M x 3% x 4/12) 100,000
Sh. in revaluation increase (120,000 x 3%) 36,000
(d) Retirement benefits expense (336,000+ 252,000) 588,000
Remeasurements to the net defined 252,000
benefit liability (asset)
(e) Income tax expense 1,104,600
Income tax payable 1,104,600
Requirement (b):
Buddies Co.
Revenue from service fees 12,000,000
Contract costs (4,000,000)
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Employee benefits (3,000,000)
Advertising expense (680,000)
Gain on derecognition of financial asset measured at cost 150,000
Unrealized losses on biological assets (300,000)
Share in profit associate 100,000
Retirement benefits expense (588,000)
Share in revaluation increase of associate 36,000
Remeasurements to net defined benefit liability (asset) (252,000)
Items that may be reclassified subsequently to profit or loss
Other comprehensive income for the year, net of tax (216,000)
Total Comprehensive income for the year 2,361,400
ACTIVITY 3
INSTRUCTIONS:
1. From a study group composed of three (3) members.
2. Hold hands together, close your eyes, take 5 deep breaths and imagine that you and your
group members are highly competent and very successful accountants.
3. Answer the requirements INDIVIDUALLY FIRST. Next, compare your answers with your
group members. Discuss any differences between your answers. Agree on your final answer.
You will be graded as a group based on your final answer.
PS: This activity uses the concept of ‘’Three heads are better than one’’. If one head in the
group is not working, please cut it off immediately before it affects the other heads….but do it
gently with mercy and compassion. Have fun.
The unadjusted trial balance of Colleagues Co. on December 31, 20x1 is shown below.
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Debits Credits
Cash on Hand 450,000
Cash on bank 4,800,000
Money market placements 1,700,000
Cash surrender value 860,000
Accounts receivable 3,900,000
Allowance for bad debts 920,000
Inventories 2,300,000
Bond sinking fund 800,000
Current tax asset 750,000
Investment in equity securities –FVOCI 1,600,000
Land and Building 2,800,000
Land 1,600,000
Building 4,500,000
Accumulated depreciation –Bldg. 450,000
Equipment 1,400,000
Accumulated depreciation - Equipt. 400,000
Patent 900,000
Accumulated amortization –
Accounts payable 890,000
Loans payable 2,000,000
Bonds payable 8,000,000
Interest payable 1,040,000
Accrued liabilities 360,000
Ordinary share capital 6,000,000
Retained earnings 4,544,000
Sales 16,800,000
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Cost of sales 7,200,000
Freight out 870,000
Interest expense 1,040,000
Unrealized gain on equity securities-FVOCI 260,000
Totals 41,664,000 41,664,000
a. The amount of cash in bank shown on the trial balance is the general ledger amount.
Deposits in transit and outstanding checks on December 31, 20x1 are P 1,000,000 and
P 800,000, respectively. The money market placements are acquired three months before their
scheduled maturity date.
b. The investments in equity securities measured at FVOCI are acquired during the year and
are stated at year-end fair value.
c. The amount of inventories shown on the trial balance is derived from the year-end physical
count. Not included in the count is an unrecorded in-transit shipment of inventories costing P
200,000 purchased FOB shipping point. The entity uses a perpetual inventory system.
d. The ‘’Land and building’’ account pertains to property being rented out to various tenants.
This property is measured at fair value. The fair value of this property at year-end is P
2,900,000.
e. The building, which is one year old at the start of the year, is being depreciated under the
double declining balance method. The building has a residual value of P 150,000.
f. The equipment, which is also one year old at the start of the year, has useful life of 5 years
and residual value of P 200,000. Depreciated for the current year is not yet recognized. All
depreciation expenses pertain to administration.
g. The patent is acquired on July 1, 20x1. The previous owner of the patent has held it for five
years prior to Colleagues’ acquisition. Colleague’s estimate of the useful life of the patent is 17
years from acquisition date. Assume patent amortization is charged to administrative expenses.
h. The loans payable account consists of a 12%, bank loan, taken on January 1, 20x1 to finance
the production of custom-built machinery that is held as inventory. It takes a substantial period
on time to get the inventory ready for its intended condition for sale and it is not routinely
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INCOME
manufactured or mass produced. The production started on January 1 and was substantially
completed on December 31, 20x1. The total production cost is P 1,800,000, incurred evenly
during the year. The loan matures 5 equal annual installments beginning January 1, 20x2.
Interests are also due every year. The inventory is on hand at year-end.
i. The bonds payable are issued on January 1, 20x1 at a yield to maturity interest of 14%.
Colleagues recorded the bond issue as debit to cash in bank and credit to bonds payable at
face amount. The face rate on the bonds is 10%. The bonds mature in lump sum on January 1,
20x5; however, interests are due annually every January 1.
j. Utility bills in December 20x1 amounting to P 360,000 were paid on January 20x2. This is not
reflected on the trial balance. One- half of the utilities pertain to the sales department; the other
half to administration.
k. The quarterly income taxes paid during the year are debited to the ‘’Current tax asset’’
account. The income tax rate is 30%. (Assume there are no temporary differences during year.)
Requirements:
a. Prepare the year-end adjusting/correcting/reclassification entries.
b. Prepare the statement of financial position.
c. Prepare the statement profit or loss and other comprehensive income of using the two-
statement presentation and the function of expense method. Make proper headings for the
financial statements. Apply the concepts of PAS 1 and other PFRSs on the separate
presentation of items.
d. Prepare notes showing the breakdown of line items in the financial statements. Make proper
cross-referencing of those notes; use ‘’Note 4’’ as your first cross-reference in the statement of
financial position.
ANSWER:
Requirement (a):
(a) No entry
(DIT and OC are bank reconciling item:
(The money market placements will be included
in ‘Cash and cash equivalents’)
(b) No Entry
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(c) Inventory 200,000
Accounts payable 200,000
(d) Investment property (2.9M-2.8M) 100,000
Unrealized gain 100,000
(e) Depreciation expense 405,000(1)
Accumulated depreciation-Bldg. 405,000
(1)
Double declining balance rate = (450,000 + 4,500,000)10%
Depreciation, 20x1 = (4,500,000 - 450,000)x10% = 405,000
Unrealized gain 100,000
(f) Depreciation -Equipment 320,000(2)
Accumulated depreciation -Equipt. 320,000
Using trial and error, the depreciation method used for the equipment is the SYD method.
(2)
Proof:
SYD denominator = 5x [(5+) 2] = 15
Depreciation, 20x1 = (1,400,000- 200,000) x 5/15 = 400,000
Depreciation, 20x1= (1,400,000 – 200,000) x 4/15 = 320,000
(g) Amortization Expense 30,000(2)
Accumulated Amortization 30,000
(3)
Estimated useful life = 7 years
Remaining legal life = 20 years – 5 years = 15 years (shorter)
Amortization expense = 900,000 + 15 x 6/12 = 30,000
(h) Inventory 108,000(4)
(4)
The borrowing costs eligible for capitalization are computed as follows:
(1,800,000 + 2) x 12% = 108,000
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(i) Discount on bonds payable (8M- 7,067,608) 932,392
Cash 932,392
To correct the initial recording of the bond issue
(5)
The issue price of the bonds is computed as follows:
Cash Flows PVF PV
P: 8,000,000 PV of 1@ 14%, n=4 0.59208 4,736,640
I: 800,000 PV ord. annuity @ 14%, n=4 2.91371 2,330,968
7,076,608
(j) Interest expense 189,465
Discount on bonds payable 189,465
To amortize the discount on bonds payable
(6)
Partial amortization table:
Date Payments Interest Amortization Present
expense value
1/1/x1 7,067,608
12/31/x1 800,000 989,465 189,465 7,257,073
Face amount Norminal rate Interest payable
Note payable 2,000,000 12% 240,000
Bonds payable 8,000,000 10% 800,000
Required balance 1,040,000
Carrying amount 1,040,000
Adjustment -
The adjusted ‘’interest expense’’ is computed as follows:
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Present value Effective interest rate Interest rate
Notes payable 2,000,000 12% 240,000
Capitalized b. costs
(h) (108,000)
Total 132,000
Bonds payable 7,067,608 14% 989,465
Adj. interest expense 1,121,465
(j) Utilities expense 360,000
Accrued liabilities 360,000
(k) Income tax expense 719,861
Requirement (b):
Colleagues Co.
Statement of financial position
As of December 31, 20x1
Assets Note
Cash and cash equivalents 4 6,017,608
Trade and other receivables 5 2,980,000
Inventories 2,608,000
Total current asset 11, 635,748
Noncurrent assets:
Investment in FVOCI securities 1,600,000
Investment property 2,900,000
Property, plant and equipment 6 5,925,000
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Intangible asset 7 870,000
Other noncurrent asset 8 1,660,000
Total noncurrent asset 12,955,000
Total assets 24,590,748
Liabilities and equity
Current liabilities:
Trade and other payable 9 2,850,000
Current portion of loans payable -net 10 400,000
Total current liabilities 3,250,000
Noncurrent liabilities:
Noncurrent portion of loans payable -net 11 1,600,000
Bonds payable 12 7,257,073
Total noncurrent liabilities 8,857,073
Total liabilities 12,107,073
Equity:
Ordinary share capital 6,000,000
Retained earnings (1) 6,223,675
Other components of equity 260,000
Total equity 12,483,675
Total liabilities and equity 24,590,748
(1)
Retained earnings unadjusted bal. 4,544,000 + adjusted profit after tax 1,679,675 = 6,223,675
Requirement (c):
Colleagues Co.
Statement of profit or loss
Notes
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INCOME
Sales 16,800,000
Cost of sales (7,200,000)
Administrative expense 14 (3,755,000)
Finance costs (1,121,465)
Unrealized gain on investment property 100,000
Income tax expense (719,861)
Colleagues Co.
Statement of Comprehensive Income
Notes
Investment in equity securities 260,000
Items that may be reclassified subsequently to profit or loss: -
Other comprehensive income for the year 1,939,675
Requirement (d):
Note 4: Cash and cash equivalents
Cash on hand 450,000
Cash in bank 3,867,608
Money market placements 1,700,000
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Cash and cash equivalents 6,017,608
Note 5: Trade and other receivables
Accounts receivable 3,900,000
Allowance for bad debts (920,000)
Total trade and other receivables 2,980,000
Note 6: Property, plant and equipment
Land 1,600,000
Building 4,500,000
Accumulated depreciation-Bldg. (855,000)
Equipment 1,400,000
Accumulated depreciation – Equipt. (720,000)
Property, plant and equipment 5,925,000
Note 7: Intangible assets
Patent 900,000
Accumulated amortization (300,000)
Intangible assets 870,000
Note 8: Other noncurrent assets
Cash surrender value 860,000
Bond sinking fund 800,000
Other noncurrent assets 1,660,000
Note 9: Trade and other payables
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Accounts payable (890,000 + 200,000 adj.) 1,090,000
Interest payable 1,040,000
Accrued liabilities (360,000 + 360,000 adj.) 720,000
Trade and other payables 2,850,000
Note 10: Loans payable
Current portion (2,000,000 x 1/5) 400,000
Non-current portion (2,000,000 x 4/5) 1,600,000
Total loan payable 2,000,000
Note 11: Bonds payable-net
Bonds payable 8,000,000
Discount on bonds payable (742,927)
Bonds payable-net 7,257,073
Freight out 870,000
Utilities expense (360,000x 1/2) 180,000
Note 13: Administrative expenses
Depreciation expense-Bldg. 405,000
Depreciation expense-Equipt. 320,000
Amortization expense 30,000
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Utilities expense (360,000 x 1/2) 80,000
PROBLEM 5: MULTIPLE CHOICE- THEORY
1. Presenting a separate ‘statement of profit or loss’ or ‘income statement’ is
a. required under PAS 1 Presentation of Financial Statements
b. required under PAS 1 Presentation of Financial Statements to be presented together with the
statement of financial position.
c. permitted under PAS 1 as a substitute for a statement of comprehensive income is still

presented.
d. permitted under PAS 1 provided a statement of comprehensive income still presented.
2. According to PAS 1 Presentation of Financial Statements, an entity shall present all items of
income and expense recognized in period:
a. in a single statement of profit or loss and other comprehensive income
b. in two statements-an income statement and a statement of comprehensive income
c. in a single statement of changes in equity
d. a or b
3. Other comprehensive income comprises items of income and expense (including

reclassification adjustments) that are
a. not recognized in profit or loss as required or permitted by other PFRSs.
b. recognized in profit or loss as required or permitted by other PFRSs
c. a or b
d. none of these
4. Which of the following is not one of the components of other comprehensive income?
a. changes in revaluation surplus
b. remeasurements of the net defined benefit liability (asset) unrealized gains and losses on
FVPL
c. transaction gains and losses on foreign operation
d. effective portion of gains and losses on hedging instruments in a cash flow hedge.
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INCOME
5. According to PAS 1 Presentation of Financial Statements, reclassification adjustments are
a. assets and expenses reclassified to other asset accounts in the current period
b. amounts reclassified to other comprehensive income in the current period that were
recognized in the profit or loss in the current or previous periods
c. amounts reclassified to profit or loss in the current period that were recognized in other
comprehensive income in the current or previous periods
d. a and b
6. Other comprehensive income, including reclassification adjustments, are presented
a. net of related taxes
b. gross of related taxes
c. a or b
d. not affected by taxes
7. Total comprehensive income includes
a. all non-owner changes equity
b. all owner changes equity
c. some non-owner changes in equity
d. a or b
8. Comprehensive income comprises
a. revaluation surplus and remeasurements of the net defined benefit liability (asset) only
b. revaluation surplus, actuarial gains and some other items
c. both owner and non-owner changes in equity
d. profit or loss and other comprehensive income
9. Presenting extraordinary items in the financial statements
a. is prohibited on the face of the financial statements but is permitted in the notes
b. is prohibited on both the face of the financial statements and in the notes
c. is permitted in some rare cases
d. makes the financial statements total useless
10. Additional disclosure is required when expenses are presented under the
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INCOME
a. Nature of expense method
b. Function of expense method
c. a or b
d. Classified and Unclassified
PROBLEM 6: MULTIPLE –COMPUTATIONAL
1. During 20x3, ‘’other revenues and gains’’ section of Totman Company’s Statement of
Earnings and Comprehensive Income contains P 5,000 in interest revenue, P 15,000 equity in
Harpo Co. earnings, and P 60,000 total gain on sale of foreign operations. The total gain on sale
of foreign operations includes P 25,000 reclassification adjustment for cumulative translation
gain. Assuming the reclassification adjustment relating to the sale of the foreign operation
increased the current portion of income tax expense by P 10,000, determine the net of tax
amount of Totman’s reclassification adjustment to other comprehensive income.
a. 5,000
b. 2,500
c. 35,000
d. 15,000
(AICPA)
SOLUTION: 25,000 gross of tax - 10,000 tax effect = 15,000 net of tax reclassification
adjustment
2. A company buys ten shares of securities at ₱2,000 each in December 31, 20x1. The
securities are classified to be subsequently measured at fair value through other
comprehensive income (FVOCI). The fair value of the securities increases to ₱2,500 on
December 31, 20x2, and to ₱2,750 on December 31, 20x3. On December 31, 20x3, the
company sells the securities. Assume no dividends are paid and that the company has a tax
rate of 30%. What is the amount of the reclassification adjustment for other comprehensive
income on December 31, 20x3?
a. 0
b. (7,500)
c. 5,250
d. (5,250)
(Adapted
Page | 27
INCOME
*A- Reclassification adjustment of cumulative unrealized gains (losses) on FVOCI securities is
prohibited. The cumulative unrealized gains (losses) on FVOCI securities are transferred
directly in equity when the FVOCI securities are derecognized.
3. What amount of comprehensive income should HUBRIS ARROGANCE Corporation report on

its statement of comprehensive income given the following net of tax figures that represent
changes during a period?
Actuarial gain or loss on defines benefit plan (6,000)
Unrealized gain on FVOCI securities 30,000
Reclassification adjustment for cumulative gain on translation
of foreign operation included in profit or loss (5,000)
Stock warrants outstanding 13,000
Profit for the year 154,000
a. 173,000
b. 178,000
c. 179,000
d. 181,000
(Adapted
SOLUTION:
Actuarial gain or loss on defines benefit plan (6,000)
Unrealized gain on FVOCI securities 30,000
Reclassification adjustment for cumulative gain on translation
of foreign operation included in profit or loss (5,000)
Stock warrants outstanding 13,000
Profit for the year 154,000
Total comprehensive income 173,000
4. Clark Co.'s advertising expense account had a balance of ₱146,000 at December 31, 20x3,
before any necessary year-end adjustment relating to the following:
 Included in the ₱146,000 is the ₱15,000 cost of printing catalogs for a sales
promotional campaign in January 20x4.
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INCOME
 Radio advertisements broadcast during December 20x3 were billed to Clark on
January 2, 20x4. Clark paid the ₱9,000 invoice on January 11, 20x4.
What amount should Clark report as advertising expense in its income statement for the year
ended December 31, 20x3?
a. 122,000
b. 131,000
c. 140,000
d. 155,000
SOLUTION:
Unadjusted bal. of advertising expense 146,000
Prepaid advertising (15,000)
Accrued advertising 9,000
Adjusted advertising expense 140,000
5. In Yew Co.'s 20x5 annual report, Yew described its social awareness expenditures during the
year as follows:
"The Company contributed ₱250,000 in cash to youth and educational programs. The Company
also gave ₱140,000 to health and human-services organizations, of which ₱80,000 was
contributed by employees through payroll deductions. In environment, the Company spends
₱100,000 to redesign product packaging."
What amount of the above should be included in Yew's income statement as charitable
contributions expense?
a. 310,000
b. 390,000
c. 410,000
d. 490,000
(AICPA)
The next two items are based on the following:
Vane Co.'s trial balance of income statement accounts for the year ended December 31, 20x1,
included the following:
Debit Credit
Page | 29
INCOME
Sales 575,000
Cost of sales 240,000
Administrative expenses 70,000
Loss on sale of equipment 10,000
Sales commission 50,000
Interest revenue 25,000
Freight out 15,000
Loss in early retirement of long-term debt 20,000
Uncollectible accounts expense 15,000
Totals 420,000 600,000
Other information:
Finished goods inventory:
January 1, 20x1.........................................₱400,000
December 31, 20x1.......................................360,000
Vane's income tax rate is 30%. In Vane's 20x1 multiple step income statement,
SOLUTION:
Contribution to youth and educational programs 250,000
Contribution to health and human-service organizations 140,000
Contribution shouldered by employees (80,000)
Charitable contribution expense 310,000
6. What amount should Vane report as the cost of goods manufactured?
a. 200,000
b. 215,000
c. 280,000
d. 295,000
(AICPA)
SOLUTION:
Finished goods
Jan. 1 400,000
Page | 30
INCOME
COGM (squeeze) 200,000 240,000 Cost of sales
360,000 Dec, 31
7. What amount should Vane report as income after income taxes from continuing operations?
a.126,000
b. 129,500
c. 140,000
d. 147,000
(AICPA)
SOLUTION: 600,000 total credit in trial balance -420,000 total debit= 180,000 profit before tax x
70% net of income tax rate = 126,000 profit after tax
8. Brock Corp. reports operating expenses in two categories: (1) selling, and (2) general and
administrative. The adjusted trial balance at December 31, 20x1, included the following expense
and loss accounts:
Accounting and legal fees 120,000
Advertising 150,000
Freight-out 80,000
Interest 70,000
Loss on sale of long-term investment 30,000
Officer's salaries 225,000
Rent for office space 220,000
Sales salaries and commissions 140,000
One-half of the rented premises is occupied by the sales department.
Brock's total selling expenses for 20x1 are
a. 480,000
b. 400,000
c. 370,000
d. 360,000
(AICPA)
Page | 31
INCOME
SOLUTION:
Advertising 150,000
Freight-in 80,000
Rent for office space (220,000x 1/2) 110,000
Sales salaries and commission 140,000
Total selling expense 480,000
9. The following costs were incurred by Griff Co., a manufacturer, during 20x1:
Freight-in 175,000
Freight -out 160,000
Officer's salaries 150,000
Insurance 85,000
Sale's representatives salaries 215,000
What amount of these costs should be reported as general and administrative expenses for
20x1?
a. 260,000
b. 550,000
c. 635,000
d. 810,000
(AICPA)
SOLUTION:
Officer’s salaries 150,000
Insurance 85,000
Total general and administrative expenses 260,000
Page | 32
INCOME
Page | 33

Statement of Changes in Comprehensive Income

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Statement of Changes in Comprehensive Income

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CHAPTER 2 STATEMENT OF COMPREHENSIVE

PROBLEM 1: TRUE OF FALSE

4. Freight-in is presented as distribution cost under the function of expense method.

PROBLEM 2: Multiple Choices

c. All of the above

2. Which of the following statements correctly relate to the provisions of PAS 1?

3. Which of the following is not a component of other comprehensive income?

c. A decrease in the fair value of investment in FVOCI securities.

d. The ineffective portion of a cash flow hedge.

4. In which of the following instances may an entity make a reclassification adjustment?

c. An entity sells its investment in equity securities measured at FVOCI.

5. Total comprehensive income includes which of the following?

a. Unrealized loss on FVOCI securities

b. Unrealized loss on FVPL securities

c. Profit or loss during the period

a. Nature of expense method

b. Function of expense method

Beginning inventory 1,700,000

Purchase returns 500,000

Salaries of sales personnel 670,000

Interest expense 340,000

Advertising expense 320,000

Research and development expense 180,000

Directors’ remuneration 2,000,000

Salaries off administrative personnel 520,000

Rent expense 280,000

Depreciation expense 160,000

Impairment loss on financial assets 190,000

Insurance expense 50,000

Income tax expense 2,000,000

Unrealized gain on equity securities-FVOCI 200,000

Gain change in fair value-Cash flow hedge 30,000

Totals 15,510,000 22,730,000

 Ending inventory amounts to P 1,200,000.

Statement of profit or loss and other comprehensive income

For the year ended December 31, 20x1

Cost of goods sold 12 (6,000,000)

Gross profit 16,000,000

Distribution costs 13 (2,230,000)

Administrative expenses 14 (3,050,000)

Impairment loss on financial assets (190,000)

Finance costs (340,000)

Profit before tax 10,190,000

Income tax expense (2,000,000)

Profit for the year 8,190,000

Other comprehensive income

Investments in equity instruments 200,000

Items that may be reclassified subsequently to profit or loss:

Cash hedges 30,000

Other comprehensive income for the year, net of year 230,000

Total Comprehensive Income for the year 8,420,000

Note 12: Cost of goods sold

This line item consists of the following:

Beginning inventory 1,700,000

Purchase returns (500,000)

Total goods available for sale 7,200,000

Ending inventory (1,200,000)

Cost of goods sold 6,000,000

Note 13: Distribution costs

This line item consists of the following:

Salaries of sales personnel 670,000

Advertising expense 320,000