ReSA - THE REVIEW SCHOOL OF ACCOUNTANCY FARAP-4516

CPA Review Batch 45  May 2023 CPA Licensure Examination

FINANCIAL ACCOUNTING AND REPORTING / AUDITING PROBLEMS S. IRENEO  G. MACARIOLA  C. ESPENILLA  J. BINALUYO

FINANCIAL STATEMENTS: STATEMENT OF FINANCIAL POSITION (SFP), STATEMENT

OF COMPREHENSIVE INCOME (SCI) & STATEMENT OF CHANGES IN EQUITY (SCE)

Purpose of financial statements:

Financial statements are a structured representation of the financial position and financial performance of an
entity. The objective of financial statements is to provide information about the financial position , financial
performance and cash flows of an entity that is useful to a wide range of users in making economic decisions.
Financial statements also show the results of the management stewardship of the resources entrusted to it. To
meet this objective, financial statements provide information about an entity's (a) assets (b) liabilities (c) equity
(d) income and expenses, including gains and losses (e) contributions by and distributions to owners in their
capacity as owners and (f) cash flows. This information, along with other information in the notes, assists users
of financial statements in predicting the entity's future cash flows and , in particular, their timing and certainty.
Complete set of financial statements:
A. A statement of financial position as at the end of the period
B. A statement of profit or loss and other comprehensive income for the period
C. A statement of changes in equity for the period
D. A statement of cash flows for the period
E. Notes, comprising significant accounting policies and other explanatory information
F. A statement financial position as at the beginning of the preceding period when an entity applies an
accounting policy retrospectively or makes a retrospective restatement of items in its financial statements,
or when it reclassifies items in its financial statements.
Statement of financial position (balance sheet) – is a statement of financial position that presents the
resources (assets), obligations (liabilities) and equity at a given point in time.
Elements of Statement of Financial Position
Assets – are resources controlled by the entity as a result of past events and from which future economic benefits
are expected to flow to the entity.

Liabilities – are present obligations of the entity arising from past events, the settlement of which are expected
to result in an outflow from the entity of resources embodying economic benefits.

Equity – is the owners’ residual interest in the assets of an entity that remains after deducting its liabilities.

Recognition of Assets and Liabilities:

Assets – are recognized in the balance sheet when it is probable that the future economic benefits will flow to
the entity and the asset has a cost or value that can be measured reliably.
Liabilities – are recognized in the balance sheet when it is probable that an outflow of resources embodying
economic benefits will result from the settlement of a present obligation and the amount at which the settlement
will take place can be measured reliably.

Current and Non-current Classification:

Assets and liabilities should be separately classified on the face of the balance sheet except in circumstances
when a liquidity-based presentation provides more reliable and relevant information.
Current asset-
IAS/PAS 1, paragraph 66: An entity shall classify an asset as current when:
a. It expects to realize the asset or intends to sell or consume it, in its normal operating cycle;
b. It holds the asset primarily for purpose of trading.
c. It expects to realize the asset within twelve months after the reporting period; or
d. The asset is cash or cash equivalent unless the asset is restricted from being exchanged or used to settle a
liability for at least twelve months after the reporting period.
An entity shall classify all other assets as non-current.
Current liabilities –
IAS/PAS 1, paragraph 69: An entity shall classify a liability as current when:
a) It expects to settle the liability in its normal operating cycle;
b) It holds the liability primarily for the purpose of trading;
c) The liability is due to be settled within twelve months after the reporting period; or
d) The entity does not have an unconditional right to defer settlement of the liability for at least twelve months
after the reporting period.
An entity shall classify all other liabilities as non-current.
Information to be presented in the statement of financial position:
As a minimum, the face of the balance sheet shall include line items that present the following amounts:
a. Property, plant and equipment
b. Investment property
c. Intangible assets
d. Financial assets (excluding amounts shown under e, h and i)
e. Investment accounted for using the equity method

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f. Biological assets within the scope of IAS 41 Agriculture

g. Inventories
h. Trade and other receivables
i. Cash and cash equivalents
j. The total assets classified as held for sale and assets included in disposal groups classified as held for sale in
accordance with IFRS 5
k. Trade and other payables
l. Provisions
m. Financial liabilities (excluding amounts shown in (K) and (L)
n. Liabilities and assets for current tax as defined in IAS 12 Income taxes
o. Deferred tax liabilities and deferred tax assets as defined in IAS 12 Income taxes
p. Liabilities included in the disposal groups classified as held for sale in accordance with IFRS 5
q. non.controlling interest, presented within equity
r. Issued capital and reserves attributable to equity holders of the parent
Additional line items, headings and subtotals shall be presented on the face of the balance sheet when such
presentation is relevant to an understanding of the entity’s position.
When an entity presents current and non-current assets and current and non-current liabilities as separate
classifications in its statement of financial position, it shall not classify deferred tax assets (liabilities) as current
assets (liabilities).
Information to be presented either in the statement of financial position or in the notes - an entity shall disclose,
either in the statement of financial position or in the notes further subclassifications of the line items presented,
classified in a manner appropriate to the entity. The disclosures vary each item, for example:
• Items of property, plant and equipment are disaggregated into classes in accordance with IAS 16
• Receivables are disaggregated into amounts receivable from trade customers, receivables from related parties
prepayments and other amounts;
• Inventories are sub-classified, in accordance with PAS 2, into classifications such as merchandise, production
supplies, materials, work in progress and finished goods;
• Provisions are disaggregated into provisions for employee benefits and other items; and
• Equity capital and reserves are disaggregated into various classes, such as paid-in capital, share premium
and reserves.

An entity shall disclose the following, either on the face of the balance sheet or in the notes:
• For each class of share capital;
• The number of shares authorized;
• The number of shares issued and fully paid, and issued but not fully paid;
• Par value per share, or the shares have no par value;
• A reconciliation of the number of share outstanding at the beginning and at the end of the period;
• The rights, preferences and restrictions attaching to the class including restrictions on the distribution of
dividends and the repayment of capital;
• Shares in the equity held by the entity or by its subsidiaries or associates; and
• Shares reserved for issue under options and contracts for the sale of shares, including the terms and amounts;
and
• A description of the nature and purpose of each reserve within equity.

Statement of profit or loss and other comprehensive income

The statement of profit or loss and other comprehensive income shall present, in addition to the profit or loss
and other comprehensive income sections:
a) profit or loss
b) Total comprehensive income
c) Comprehensive income for the period, being the total of profit or loss and other comprehensive income

If an entity presents a separate statement of profit or los it does not present the profit or loss section in the
statement presenting comprehensive income.

An entity shall present the following items, in addition to the profit or loss and other comprehensive income
sections, as allocation of profit or loss and other comprehensive income for the period;
(a) Profit or loss for the period attributable to
(1) non-controlling interests and
(2) owners of the parent
(b) comprehensive income for the period attributable to:
(1) non-controlling interest and
(2) Owners of the parent
In addition to items required by other IFRSs, the profit or loss section or the statement of profit or loss shall
include line items that present the following amounts for the period;
(a) revenue, presenting separately interest revenue calculated using the effective interest method
(b) Gains and losses arising from the derecognition of financial assets measured at amortized cost
(c) Finance costs
(d) Impairment losses (including reversals of impairment losses or impairment gains
(e) Share of profit or loss of associates and joint ventures accounted for using the equity method

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(f) If a financial asset is reclassified out of the amortized costs measurement category so that it is measured at
fair value through profit or loss, any gain or loss arising from the difference between the previous amortized
cost of the financial asset and its fair value at the reclassification date
(g) If a financial asset is reclassified out of the fair value through other comprehensive income measurement
category so that it is measured at fair value through profit or loss, any cumulative gain or loss previously
recognized in other comprehensive income that is reclassified to profit or loss
(h) Tax expense
(i) A single amount for the total of discontinued operation

Forms of Presenting the Statement of Profit or loss and other comprehensive income:
1. Functional presentation – also known as cost of sales method, this form classifies expenses according to
their function as part of cost of sales, selling activities, administrative activities and other activities. At a
minimum, an entity discloses its cost of sales under this method separately from other expenses.

Revenue P xxx
Cost of sales (xxx)
Gross profit xxx
Other income xxx
Distribution costs (xxx)
Administrative costs (xxx)
Other expenses (xxx)
Profit P xxx
Net income after tax P xxx
Other comprehensive income, net of tax:
Unrealized gains P xx
Unrealized losses (xx) xxx
Comprehensive net income P xxx
2. Natural presentation – also known as nature of expense method, this form, expenses are aggregated
according to their nature and not allocated among various functions within the entity. (for example,
depreciation, purchase of materials, transport costs, employee benefits, and advertising costs), and are not
reallocated among various functions within the entity.
Revenue P xxx
Other income xxx
Changes in inventory of finished goods and work in process xxx
Raw materials and consumables used xxx
Employee benefits costs xxx
Depreciation and amortization expense xxx
Other expenses xxx (xxx)
Profit P xxx
Income tax (xx)
Net income after tax P xxx
Other comprehensive income, net of tax:
Gains P xx
Losses ( xx) xxx
Comprehensive net income P xxx
An entity classifying expenses by function shall disclose additional information on the nature of expenses,
including depreciation and amortization expense and employee benefits expense.

Statement of changes in equity.

Information to be presented in the statement of changes in equity:
(a) total comprehensive income for the period, showing separately the total amounts attributable to owners of
the parent and to non-controlling interests.
(b) For each component of equity, the effects of retrospective application or retrospective restatement recognized
in accordance with IAS 8
(c) For each component of equity, a reconciliation between the carrying amount at the beginning and the end of
the period, separately (as a minimum) disclosing changes resulting from (1) profit or loss (2) other
comprehensive income and (3) transactions with owners in their capacity as owners, showing separately
contributions by and distributions to owners and changes in ownership interest in subsidiaries that do not
result in a loss of control.

Statement of Cash Flows

Cash flow information provides users of financial statements with a basis to assess the ability of the entity to
generate cash and cash equivalents and the needs of the entity to utilize those cash flows. IAS 37 sets out
requirements for the presentation and disclosure of cash flow information.

FINANCIAL ACCOUNTING & REPORTING - THEORIES

1. Which financial statement would a potential investor primarily use to assess the company’s liquidity and
financial flexibility?
a. Balance sheet c. Statement of retained earnings
b. Income statement d. Cash flow statement

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2. Which of the following does not describe a current asset?

a. It is held primarily for the purpose of being traded
b. It is expected to be realized within twelve months after the balance sheet date
c. It is a cash or a cash equivalent restricted for more than 12 months from the balance sheet
date
d. It is expected to be realized, sold or consumed within the entity’s normal operating cycle
3. Which of the following does not describe a current liability?
a. It is expected to be settled within the entity’s normal operating cycle
b. It is held primarily for the purpose of being traded
c. It is due to be settled within twelve months after the balance sheet date
d. The entity has an unconditional right to defer settlement of the liability for at least twelve
months after the balance sheet date
4. The basis of classifying assets as current assets is
a. The accounting cycle or one year, whichever is longer
b. The accounting cycle or one year, whichever is shorter
c. The operating cycle or one year, whichever is longer
d. The operating cycle or one year, whichever is shorter
5. If the operating cycle of a business is fifteen months
a. Cash set aside for the purchase of an equipment will be shown as a current asset
b. Non-trade receivable that is due in one year and two months from the balance sheet date will be
shown as a current asset
c. Trade receivable that is due in 14 months from the balance sheet date will be shown as a current
asset
d. A note that is payable by the business two years from the balance sheet date will be shown as
current liability.
6. Which item below is not a current liability?
a. Unearned revenue
b. Share dividends distributable
c. Short-term bank loan
d. Accounts payable
7. An example of an item which is not an element of working capital is
a. Petty cash fund
b. Goodwill
c. Work in process
d. Short-term investments
8. Treasury shares should be reported as a(n)
a. Current asset c. Other asset
b. Investment d. Deduction from equity
9. Which one of the following is not required to be presented as minimum information on the face of the balance
sheet, according to PAS 1?
a. Biological assets c. Investment property
b. Contingent liability d. Investments accounted under equity method
10. Which of the following is NOT an acceptable presentation of the balance sheet?
a. Assets presented in the order of liquidity
b. Minority interest presented within equity
c. Deferred tax liabilities (assets), presented as part of current liabilities (current assets)
d. Provisions presented as part of the liability section
11. The income statement shows information about an entity’s
a. Liquidity c. Cash flow
b. Performance d. Financial structure
12. Increases in equity from peripheral or incidental transactions of an entity are called:
a. Revenues c. Comprehensive income
b. Losses d. Gains
13. Which of the following best describes a Revenue?
a. A decrease in an asset from primary operations
b. An increase in an asset from incidental transactions
c. An increase in a liability from incidental transactions
d. A decrease in a liability from primary operations
14. Which of the following is not a distribution cost?
a. Salesmen’s salaries c. Freight-out
b. Depreciation of delivery equipment d. Freight-in
15. Which of the following is not a general and administrative expense?
a. Depreciation of office building c. Insurance expense
b. Advertising d. Office salaries expense
16. Comprehensive income includes all changes in equity, except those resulting from distribution to and
contributions from owners. Which of the following is not a part of comprehensive income?
a. Share capital
b. Unrealized gains on FVPL
c. Unrealized gains on FVOCI
d. Loss on foreign exchange translation

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17. It is the total of income less expenses, including the components of other comprehensive income.
a. Total comprehensive income c. Profit or Loss
b. Other comprehensive income d. Retained earnings
18. Which method of income measurement is used in the preparation of the income statement?
a. Capital maintenance approach. c. cash flow approach
b. Transaction approach. d. income components approach
19. Which of the following requires an adjustment to the beginning balance of retained earnings in the earliest
period of the comparative financial statements presented?
a. A change in the estimated useful life of machinery
b. A change in the expected residual value of a property
c. A change from straight-line to declining balance depreciation
d. A change from First-In, First-Out (FIFO) to weighted average inventory cost flow
assumption
20. Prior period errors are
a. Errors committed and discovered in prior periods
b. Errors committed and discovered in the current period
c. Errors committed in prior periods but are discovered only in the current period
d. Errors committed only in the current period but are discovered in prior periods

FINANCIAL ACCOUNTING & REPORTING - PROBLEMS

PROBLEM 1: Aguinaldo Company provided you the following information for the year 2021:
Net purchases P200,000
Sales discounts 8,000
Income tax expense 24,000
Operating expenses 92,000
Sales revenue 400,000
Inventory, 1/1/21 100,000
Inventory, 12/31/21 60,000
In Aguinaldo’s Profit or Loss Statement for the year 2021 using the Functional presentation, the gross profit
a. should not be reported
b. should be reported at P36,000
c. should be reported at P152,000
d. should be reported at P160,000

PROBLEM 2: The following information pertains to Quezon Company during 2021:

January 1, 2021 inventory, P450,000; December 31, 2021 inventory, P480,000; Purchases during the year,
P1,800,000; Purchase returns and allowances, P105,000; Purchase discounts, P25,000; transportation in,
P10,000; Sales during the year, P3,850,000; Sales discounts, P70,000; Sales returns, P120,000; Selling
expenses, P990,000; Administrative expenses, P825,000; Rent income, P65,000; Dividend income, P150,000;
Income tax expense, P131,200; and Retained earnings, January 1, 2021, P1,200,000.
How much is the net income or profit for the year 2021?
a. 189,584 b. 278,800 c. 287,000 d. 410,000

PROBLEM 3: Laurel Company had the following account balances for the year ended 2021:
Sales revenue P 180,000
Cost of goods sold 90,000
Salaries expense 15,000
Depreciation expense 30,000
Dividend revenue 6,000
Utilities expense 12,000
Rent revenue 30,000
Interest expense 18,000
Sales returns 16,500
Advertising expense 19,500
How much is the income from operations for the year ended 2021?
a. 74,500 b. 45,000 c. 33,000 d. 15,000

PROBLEM 4: Osmeña Company provided the following information for the year 2021:
Income before income tax P 400,000
Revenues 1,440,000
Income from operations 440,000
Operating expenses 1,000,000
Income from continuing operations 280,000
Net income 300,000

How much did the company report as discontinued operations?

a. 40,000 b. (20,000) c. 20,000 d. 120,000

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PROBLEM 5: The adjusted trial balance of Roxas Company includes the following accounts on Dec. 31, 2021:
Sales revenue P 5,000,000
Commission income 28,000
Interest expense 180,000
Inventory, 12/31/21 520,000
Purchase, net of returns 2,800,000
Sales commission 500,000
Administrative salaries 720,000
Office supplies expense 110,000
Dividends declared 800,000
Dividend income 16,000
Gain on sale of equipment 100,000
Rent expense 400,000
Unrealized gain on investment at Fair Value through Profit or Loss 55,000
Unrealized gain on investment at Fair Value through Other
Comprehensive Income 88,000
Depreciation expense – store equipment 70,000
Depreciation expense – office equipment 50,000
Freight-in 80,000
Freight-out 120,000
Additional information:
• Merchandise inventory, January 1, 2021, P450,000
• Income tax rate, 30%
• Rent expense is allocated 60% selling, 40% administrative.

Compute the following for the year ended 2021:

1. Cost of sales
a. 2,950,000 b. 2,870,000 c. 2,810,000 d. 2,730,000
2. Total selling expense/distribution cost
a. 690,000 b. 730,000 c. 810,000 d. 930,000
3. Profit or Loss
a. 167,300 b. 228,900 c. 419,000 d. 239,000
4. Total comprehensive income
a. 167,300 b. 228,900 c. 255,300 d. 327,000

PROBLEM 6: The following information is for the Quirino Manufacturing Company for November. Raw Materials
Inventory consists of Direct Materials and Indirect Materials.
Inventories Beginning Ending
Raw Material P275,000 P234,000
Work in Process 320,000 288,000
Finished Goods 195,000 255,000
Additional information are as follows:
Cost of direct materials requisitioned for production 280,000
Prime cost incurred 420,000
Factory overhead cost (120% of direct labor cost) ?
Gross profit rate based on sales 20%
How much is the cost of goods sold?
a. 560,000 b. 588,000 c. 620,000 d. 815,000

PROBLEM 7: Presented below are year-end balances of the assets and liabilities pertaining to Magsaysay Co.
2021 2020
Cash P150,000 P120,000
Trading securities 260,000 230,000
Accounts receivable, net 360,000 400,000
Inventories. 705,000 635,000
Prepaid expenses 130,000 128,000
Non-current assets 1,500,000 1,650,000
Accounts payable 182,000 136,000
Other current liabilities 141,000 125,000
Bonds payable 200,000 300,000
Additional investment made by Ramon, an owner of Magsaysay Company, during 2021 was P150,000 and made
a withdrawal amounting to P200,000.
How much is Profit or Loss for the year 2021?
a. 70,000 Loss b. 70,000 Profit c. 30,000 Loss d. 30,000 Profit

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PROBLEM 8: Presented below are year-end balances of the assets and liabilities pertaining to Garcia Corporation
for the years 2020 and 2021:
2020 2021
Current assets P 4,000,000 P 5,800,000
Non-current assets 3,000,000 4,200,000
Current liabilities 2,500,000 2,700,000
Non-current liabilities 1,200,000 2,300,000
During 2021, Garcia Corporation issued additional shares for total proceeds of P1,500,000 of which P200,000 was
used to pay dividends accruing to last year that has been declared previously and a P700,000 current year
dividend. It was also noted that a piece of land was received as donation from one of the shareholders with a
fair market value of P1,400,000.
How much is the net income or net loss for the year ended 2021?
a. 500,000 net loss b. 500,000 net income c. 300,000 net loss d. 300,000 net income

PROBLEM 9: The accounts and balances shown below were gathered from Macapagal Co.’s adjusted trial balance:
Wages payable P 250,000
Cash 175,000
Bonds payable 600,000
Cash dividends payable 140,000
Prepaid expenses 136,000
Inventory 820,000
Long-term funds 525,000
Financial assets at Fair Value through Profit or Loss 153,000
Accumulated depreciation – PPE 400,000
Financial assets at Fair Value through Other Comprehensive Income 300,000
Discount on bonds payable 48,000
Investment in associates 1,020,000
Income tax payable 228,000
Accounts payable 248,000
Accounts receivable 366,000
Property, plant and equipment 1,200,000
Goodwill 450,000
Advances from affiliated companies 900,000
Determine the following:
1. Total current assets
a. 1,950,000 b. 1,650,000 c. 1,560,000 d. 830,000
2. Total current liabilities
a. 866,000 b. 726,000 c. 686,000 d. 638,000
3. Total non-current assets
a. 3,995,000 b. 3,950,000 c. 3,095,000 d. 2,795,000

PROBLEM 10: The following totals are taken from the December 31, 2021 balance sheet and income statement of
Marcos Company: Current Assets—P4,500,000; Noncurrent Assets—P10,000,000; Current liabilities—P2,000,000;
Noncurrent liabilities—P3,700,000; Revenues—P5,500,000; Costs and Expenses—P4,000,000. Additional
information:
• Accounts payable amounting to P540,000 was net of P122,000 suppliers’ debit balance
• Cash in bank amounting to P600,000 was net of P50,000 bank overdraft
• Accounts receivable amounting to P800,000 was net of P145,000 customers’ credit balance
• Checks totaling P100,000 payable to suppliers were written and recorded on December 29, 2021 but
were mailed on January 10, 2022.
Compute the following:
A B C D
1. Current assets 4,917,000 4,795,000 4,695,000 4,820,000
2. Current liabilities 2,272,000 2,417,000 2,317,000 2,367,000

PROBLEM 11: The accounts below were taken from the unadjusted trial balance of C.Aquino Company at
December 31, 2021:
Cash P124,000
Trading securities (cost) 87,000
Trade notes receivable 92,000
Accounts receivable 122,000
Allowance for uncollectible accounts 6,000
Trade notes payable 154,000
Accounts payable 75,000
Merchandise inventory 136,000
Bonds payable 250,000
Share dividends distributable 15,000
Income tax payable 28,000

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An analysis of the above accounts disclosed the following:

a. Bank overdraft of P13,000 was deducted from cash balance.
b. Trade accounts receivable was net of customer’s deposit of P7,000.
c. Merchandise purchased on account worth P15,000 received December 30, 2021 was included in the
inventory but was not recorded as a purchase.
d. Accounts payable was net of suppliers’ debit balance of P12,000.
e. A bank loan of P30,000 due December 31, 2024 was included in the trade notes payable balance.
f. Bonds payable that was issued in 2021 will mature in five equal annual instalments beginning June 1,
2022.
g. The fair value of the equity investments at December 31, 2021 was P90,000.

Determine the following on December 31, 2021:

1. Total current assets
a. 572,000 b. 587,000 c. 590,000 d. 602,000
2. Total current liabilities
a. 339,000 b. 324,000 c. 304,000 d. 234,000

PROBLEM 12: The accounts from the Shareholders’ Equity section of the balance sheet of Ramos Company
showed the following at December 31, 2020:
Ordinary share capital (P10 par) P475,000
Share premium 6,650,000
Retained earnings 780,000
During 2021, Ramos Company had the following transactions:
• Issued an additional 90,000 ordinary shares at P17 per share.
• Purchased 10,000 ordinary shares at P20 per share.
• Sold 6,000 treasury shares P25 per share.
• Declared total cash dividends amounting to P200,000.
• Net income for the year P350,000.
How much is the total shareholders’ equity on December 31, 2021?
a. 9,535,000 b. 9,553,000 c. 9,735,000 d. None of these

PROBLEM 13: At the beginning of the year, Estrada Company had total assets of P4,500,000, total liabilities of
P2,000,000 and total share capital of P800,000. During the year, the company earned Profit of P525,000, declared
cash dividends of P400,000 and issued additional shares for a total consideration of P300,000. At the end of the
year, the company had total assets of P6,700,000.

How much is the total liabilities at the end of the year?

a. 1,825,000 b. 2,925,000 c. 3,775,000 d. 4,875,000

AUDITING PRACTICE

PROBLEM 1: FINANCIAL STATEMENTS PRESENTATION

The accountant of Pakistan Corporation provided you the following post-closing trial balance as part of your
audit of its 2020 financial statements:

Cash P800,000
Accounts receivable 750,000
Allowance for doubtful accounts 50,000
Prepaid expenses 160,000
Inventory 1,000,000
Financial assets at fair value 690,000
Building in process 5,500,000
Patent 200,000
Machinery and equipment 1,500,000
Accumulated depreciation 300,000
Discount on bonds payable 200,000
Accounts payable 900,000
Accrued expenses 150,000
Note payable, 10% 250,000
Bonds payable 2,000,000
Share capital 3,000,000
Accumulated profits 4,150,000

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Audit notes:
a. The financial assets at fair value include:
Brazil Company (1,000 shares) P400,000
Pakistan Corporation (2,000 shares) 250,000
Dividend receivable on Brazil Company 40,000
b. The balance of building in process account represents the cost expended to date on a building in the
process of construction. The entity currently rents its factory space. The amount includes P500,000
which is the acquisition price of the land on which the building is being constructed. Also included in the
Building in process amount is P50,000 which was for the property tax on the land half of which was for
property taxes prior to the acquisition with the balance applicable for the current year.

c. The 10% notes payable represents bank loan made on January 1, 2019 with the principal and interest
(compounded annually) being due December 31, 2021. Interest is yet to be accrued on the loan.
d. The bonds pay 12% interest semi-annually on April 1 and October 1 and mature on April 1, 2023.
Interest is yet to be accrued on the bonds.
e. Forty-thousand shares, P100 par, are authorized, of which 30,000 issued.

Requirements:
1. How much is the correct total current assets to be reported in the 2020 SFP?
2. How much is the correct total non-current assets to be reported in the SFP?
3. How much is the correct total current liabilities to be reported in the SFP?
4. How much is the correct balance of the total stockholders’ equity in the 2020 SFP?

PROBLEM 2: FINANCIAL STATEMENTS PRESENTATION

The following information were made available to you by Nigeria Corp. in relation to your audit of its financial
statements as of and for the period ended December 31, 2020:
Cash P400,000
Accounts receivable 800,000
Allowance for doubtful accounts 50,000
Inventories at cost (Net realizable value is P900,000) 1,000,000
Land, plant site 500,000
Land, for speculation purposes at fair value (Note a) 1,200,000
Building 3,800,000
Accumulated depreciation – building 2,000,000
Equipment 3,400,000
Accumulated depreciation – equipment 1,300,000
Investment in associate 1,300,000
Prepaid expenses 100,000
Notes payable 750,000
Accounts payable 350,000
Income tax payable 50,000
Accrued expenses 60,000
Mortgage payable in quarterly installments of P100,000 2,000,000
Estimated liability for damages 140,000
Retained earnings appropriated for plant expansion 1,000,000
Retained earnings appropriated for contingencies 100,000
Share capital 3,000,000
Share premium 300,000
Retained earnings, unappropriated 1,350,000
Trademark 150,000
Secret processes and formulas 200,000
Bank loan payable – due June 30, 2021 (Note b) 500,000
Deferred tax asset, net of deferred tax liability at P50,000 100,000
Audit Notes:
a. The land held for speculation purposes was acquired in 2019 at a cost of P1,000,000. The company
elected to use the fair value valuation approach in measuring investment properties.
b. On December 31, 2020, the company entered into an agreement with the bank to extend the maturity
of the loan for another year from the original maturity date, that is upto June 30, 2022.
Requirements:
1. What is the total current assets to be reported in the 2020 statement of financial position?
2. What is the total non-current assets to be reported in the 2020 statement of financial position?
3. What is the total current liabilities to be reported in the 2020 statement of financial position?
4. What is the total non-current liabilities to be reported in the 2020 statement of financial position?
5. What is the total stockholders’ equity to be reported in the 2020 statement of financial position ?

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ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY FARAP-4516
FINANCIAL STATEMENTS: SFP, SCI & SCE

PROBLEM 3: FINANCIAL STATEMENTS PRESENTATION

The adjusted account balances of Russia Corp. for the year ended December 31, 2020 are as follows:

Cash and cash equivalents P400,000

Bank overdraft 100,000
Accounts receivable 900,000
Allowance for doubtful accounts 40,000
Raw materials 560,000
Goods in process 600,000
Finished goods 1,400,000
Financial assets at fair value through OCI 2,500,000
Land 1,000,000
Building 6,000,000
Accumulated depreciation – building 1,600,000
Plant and equipment 2,400,000
Accumulated depreciation – plant and equipment 400,000
Patent 800,000
Goodwill, recognized in Jan. 2017 thru a business combination 1,400,000
Note payable, bank – due June 30, 2021 1,300,000
Note payable, bank – due June 30, 2022 2,100,000
Accounts payable 1,000,000
Employee benefit provisions 180,000
Warranty liabilities 80,000
Income tax payable 120,000
Deferred tax liability 280,000
Retained earnings, January 1, 2020 3,600,000
Revaluation surplus on Land, January 1, 2020 360,000
Unrealized gain on financial assets, January 1, 2020 280,000
Share capital 6,000,000
Sales 10,000,000
Unrealized gain on financial asset during the year 100,000
Revaluation surplus on Land during the year 140,000
Cost of sales 6,000,000
Selling expenses 1,960,000
Administrative expenses 500,000
Finance cost 100,000
Income tax expense 160,000

Note: The company declared and paid cash dividends totaling to P1,000,000 during the year.

Requirements:
1. What is the total current assets to be reported in the 2020 statement of financial position?
2. What is the total non-current assets to be reported in the 2020 statement of financial position?
3. What is the total current liabilities to be reported in the 2020 statement of financial position?
4. What is the total non-current liabilities to be reported in the 2020 statement of financial position?
5. What is the total net income after tax to be reported in the 2020 statement of comprehensive income?
6. What is the total comprehensive income to be reported in the 2020 statement of comprehensive
income?
7. What is the total stockholders’ equity to be reported in the 2020 statement of financial position ?

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