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Accounting Standards and
Financial Reporting
Financial Accounting & Reporting
Income Measurement and Reporting
The method of income measurement used in the preparation of the statement of comprehensive income is the income components approach.
IFRS requires that a single amount be disclosed within the statement of comprehensive income for the post-tax profit/loss on discontinued operations and the post-tax gain/loss on the disposal of discontinued operational assets.
If a company prepares a consolidated statement of comprehensive income, IFRS requires that net income be reported for both the majority interest and the minority interest.
When a company discontinues an operation and disposes of the discontinued operation (component), the transaction should be included in the statement of comprehensive income as a gain or loss on disposal reported as an amount after continuing operations and before net income.
Using the provided information:
Gross profit: P3,900, Loss on sale of investments: P10, Interest expense: P7, Gain on sale of discontinued operations: P30, Income tax rate: 20%
The amount of income tax applicable to continuing operations is P776,.
For Lucky Spade Corporation: Discontinued loss: P(180,000)
Unusual gain: P126,
For Aztec Princess Inc.:
On January 1, 2020, the company had cash and share capital of P10,000,000 with no other asset, liability, or equity balances. On January 5, 2020, it purchased P6,000,000 of equity securities classified as non-trading. It received cash dividends of P800,000 during the year on these securities.
It has an unrealized loss on these securities of P600,000. The tax rate is 20%.
The amount of net income/(loss) is P640,.
For Jungle Flower Company: On January 1, 2020, the company had cash and share capital of P10,000,000 with no other asset, liability, or equity balances. On January 5, 2020, it purchased P6,000,000 of equity securities classified as non-trading. It received cash dividends of P800,000 during the year on these securities. It has an unrealized loss on these securities of P600,000. The tax rate is 20%.
The amount of comprehensive income is P640,.
Assets and Investments
The following is a current asset:
Trade installment receivables normally collectible in 18 months.
The amount of time that is expected to elapse until an asset is realized or otherwise converted into cash is referred to as liquidity.
Working capital is cash and receivables less current liabilities.
On the statement of financial position, the following is not reported as an investment:
Non-controlling interest.
The presentation of non-current liabilities in the statement of financial position should disclose maturity dates, interest rates, and conversion rights.
In compiling a complete set of financial statements under IFRS, the following components must be included:
A statement of financial position at the end of the period. A statement of comprehensive income for the period. Notes, including a summary of significant accounting policies.
The following is not a method of disclosing pertinent information:
All of these (supporting schedules, parenthetical explanations, cross reference and contra items) are methods of disclosing pertinent information.
On Royal Pulp Corporation's statement of financial position at December 31, 2020, the amount reported as intangible assets is P1,050,.
The account receivable of Starlet Company should be reduced by P767,000 with respect to the consigned goods.
The amount of expense recognized in profit or loss in the year ended December 31, 2020 for Cleopatra Company is an impairment loss of P700,000 and interest income of P24,.
On December 31, 2020, Snow Company disposed of its candle-making operation, realizing a gain of P200,000. As a result of the disposal, the company has an income tax payable of P60,000 related to the gain on disposal.
Discontinued Operations
Disclosure of Discontinued Operations
According to the information provided, the candle-making operation of Snow Company had a net loss before tax of P700,000 for the year ended December 31, 2020. In the statement of comprehensive income, the single amount that Snow Company should disclose related to the discontinued operation is (P630,000).
Shareholders' Equity
Coin Master Company's Shareholders' Equity
Coin Master Company provided the following account balances on December 31, 2020: - Accounts payable: P125,000 - Accrued taxes: P50,
- Holding loss on FVOCI investment: P30,000 - Ordinary share capital: P1,000,000 - Share Dividends payable–ordinary: P150,000 - Mortgage payable (P200,000 due in six months): P1,200,000 - Notes payable–20%, due on January 2, 2021: P1,500,000 - Shares premium-ordinary: P250,000 - Preference liability: P450,000 - Accumulated profits–December 31, 2020: P550,000 - Unearned rent income: P25,000 - Dividends payable–preference liability: P100,
Based on this information, the amount that Coin Master Company should report as Shareholders' equity on December 31, 2020 is P1,950,000.
Bank Reconciliation
Sherlock Company's Bank Reconciliation
Sherlock Company's bank statement for the month of October 31, 2020 had an ending balance of P7,470,000. The following information was gathered in the course of reconciling the bank balance: 1. The bank erroneously credited Sherlock Company for P42,000. 2. The bank charged Sherlock Company for NSF checks amounting to P46,000, of which P16,000 had been redeposited by October 28. 3. Collection for October totaling P206,000 was deposited the following month of December. 4. A note collected by the bank for
Sherlock Company was P160,000, and the corresponding bank charge was P10,000.
Based on this information, the unadjusted cash in bank balance (per book) on October 31, 2020 is P6,994,000.
Accounting for Government Grants
Rebel Ram Company's Government Grant
Rebel Ram Company received a P1,800,000 subsidy from the government to purchase manufacturing equipment on January 2, 2019. The equipment has a cost of P5,000,000, a useful life of ten years, and no salvage value. Rebel Ram Company depreciates the equipment on a double declining method and chooses to account for the grant as deferred revenue.
Impact of Deferred Grant Revenue Recognition and
Depreciation Expense
The combined impact of deferred grant revenue recognition and depreciation expense recorded for the year ended 2021 is a decrease in the net income by P640,000.
Repayment of the Government Grant
On January 2, 2022, the government asked for the repayment of the grant due to the noncompliance with attached condition of the grant. On January 3, 2022, Rebel Ram Company repaid the government in the amount of P1,100,000 as full settlement. The amount of gain or loss that Solar Company should recognize as a result of the repayment is P362,720.
Carrying Value of the Equipment after Repayment
Assuming that the grant received on January 2, 2019 was treated as a reduction in the gross carrying amount of the manufacturing equipment, the carrying value of the equipment after the repayment was made on January 3, 2022 is P2,560,000.
Inventory Valuation
Merry Matilda Company's Inventory Valuation
On December 31, 2019, Merry Matilda Company recognized a decline in its merchandise inventory. The cost of the inventory was P1,850,000, and its net realizable value was P1,425,000. The company has a policy to include all declines in the other expense and reversals in the other income and uses the allowance method.
During 2020, market conditions further declined, and Merry Matilda's inventory decreased to an NRV of P1,300,000. At the close of the business
Equity Investments
Magic Skull Company's Investment in Baba Yaga Company
Magic Skull Company held a 3% holding of the shares of Baba Yaga Company, a public limited company. The investment was classified as an investment in equity instruments, and at June 30, 2020, it had a carrying amount of P10,000,000 (brought forward from the previous period). The cumulative unrealized gain to June 30, 2020 relating to the investment was P800,000.
On July 31, 2020, the whole of the share capital of Baba Yaga Company was acquired by Rebel Ram Company, a public limited company, and, as a result, Magic Skull Company received shares of Rebel Ram Company in exchange for its shares in Baba Yaga Company. The fair value of the shares received is P11,000,000.
As a result of the exchange of shares, the amount of unrealized gain that should be transferred to retained earnings is P800,000.
Accounts Receivable
Ocean King, Inc.'s Accounts Receivable
Ocean King, Inc. had net sales in 2020 of P700,000. At December 31, 2020, before adjusting entries, the balances in selected accounts were: accounts receivable P125,000 debit, and allowance for doubtful accounts P1, credit. Ocean King estimates that 2% of its net sales will prove to be uncollectible.
The cash realizable value of the receivables reported on the statement of financial position at December 31, 2020 is P112,200.
Black Gold Inc.'s Factoring of Accounts Receivable
Black Gold Inc. factors P2,000,000 of its accounts receivables without guarantee (without recourse) for a finance charge of 3%. The finance company retains an amount equal to 10% of the accounts receivable for possible adjustments.
The amount of gain or loss that should be recorded in relation to the transfer of receivables is P0.
Investments in Associates
Loire Corporation's Investment in Comma Co.
Loire Corporation purchased 1,600 ordinary shares of Comma Co. for P528,000. During the year, Comma paid a cash dividend of P13 per share. At
year-end, Comma shares were selling for P38 per share. Loire Corporation purchased the shares to meet a non-trading regulatory requirement.
The amount of total income that Loire Corporation will report in its income statement for the year is P80,000.
Strickland Industries' Investment in Spartan, Inc.
Strickland Industries purchased a 30% interest in Spartan, Inc. for P600,000. Spartan, Inc. has 100,000 P10 par value ordinary shares outstanding. This investment enables Strickland to exert significant influence over Spartan.
During the year, Spartan earned net income of P360,000 and paid dividends of P120,000; Strickland earned net income of P48,000 and paid dividends of P160,000. At the end of the year, the shares of Spartan were trading on an organized exchange for P25 per share.
On Strickland's year-end statement of financial position, its investment in Spartan, Inc. will be valued at P660,000.
Inventory Accounting
Goods in Transit
Goods in transit that were recently purchased f.o.b. destination should be included in the inventory of the buyer on the statement of financial position.
Goods in transit which are shipped f.o.b. shipping point should be included in the inventory of the seller.
Risers Inc.'s Corrected Financial Statements
Risers Inc. reported total assets of P1,600,000 and net income of P85, for the current year. Risers determined that inventory was understated by P23,000 at the beginning of the year and P10,000 at the end of the year.
The corrected amount for total assets and net income for the year is P1,610,000 and P95,000, respectively.
Derecognition of Financial Assets
Space Mechanic Company's Transfer of Receivables
Space Mechanic Company transfers a proportion of its receivables (balance due from customers) to Jelly John Company for P800,000. The receivables transferred have a net carrying amount of P750,000, made up of gross receivables P800,000 and an allowance for doubtful debts P50,000. Space Mechanic Company guarantees Jelly John Company for default losses on
Assuming the following information: - Beginning inventory at cost (retail): P260,000 (P396,000) - Purchases during the current year at cost (retail): P1,379,280 (P2,200,000) - Freight-in on these purchases: P43,000 - Sales during the current year: P2,100,000 - Net markups (markdowns): P48, (P72,000)
The ending inventory value at cost using the FIFO retail method is P308,509, the conventional retail method is P308,509, and the average retail method is P308,509.
Accounting for Commodity A Purchases and
Inventory Valuation
Commodity A Purchases
White Farm Supply's records for the first 3 months of its existence show the following purchases of Commodity A:
| Month | No. of Units | Cost | |----------|--------------|-------------| | August | 5,500 | P280,500 | | September| 8,000 | P416,000 | | October | 5,100 | P270,300 | | Total | 18,600 | P966,800 |
Inventory Valuation using FIFO
Assuming that none of Commodity A was sold during August and September, the inventory of Commodity A at the end of October using the FIFO method is valued at P363,900.
Inventory Valuation using Average Cost
If the average cost method was assumed, the value of the inventory of Commodity A at the end of October would be:
a. P365,700 b. P353,300 c. P358,662 d. P363,
Accounting for Emission Rights
Allocation of Emission Allowances
Marxian Company was allocated 10,000 tonnes of carbon dioxide emission allowances free of charge on January 2, 2019. The market price of an allowance (equivalent to one tonne of carbon dioxide) on that date was P20, giving a fair value of P200,000.
Emission of Carbon Dioxide
On June 30, 2019, the company had emitted 6,000 tonnes of carbon dioxide and expected its emissions for the full year to be 12,500 tonnes. The market price for allowances had risen to P22 per tonne.
On December 31, 2019, the company had emitted 12,500 tonnes and the market price of allowances was P24 per tonne.
Accounting Treatment
The company uses the fair value model to account for the allowances.
Accounting for a Manufacturing Facility Held
for Disposal
Facility Details
On January 2, 2020, Chronic Company is committed to a plan to sell a manufacturing facility and has initiated actions to locate a buyer. The facility was constructed for a total cost of P6,300,000 and had an estimated useful life of 30 years with a salvage value of P300,000.
Carrying Value and Recoverable Amount
As of January 2, 2020, the carrying value of the facility is P4,300,000 and the recoverable value is P4,500,000.
As of December 31, 2020, Chronic Company has yet to complete the customers' orders and the facility has a recoverable amount of P4,275,000.
Classification of the Facility
On December 31, 2020, Chronic Company should classify the facility as:
a. Property, plant & equipment valued at P4,300,000 b. Property, plant and equipment at P4,100,000 c. Non-current asset held for sale and valued at P4,500,000 d. Non-current asset held for disposal and valued at P4,275,
Accounting for Investments in Equity
Securities
Bailey, Inc.'s Investment in Miller Manufacturing
Bailey, Inc. purchased 40,000 ordinary shares of Miller Manufacturing as a trading investment for P2,640,000. During the year, Miller Manufacturing paid a cash dividend of P6.50 per share. At year-end, Miller Manufacturing shares were selling for P69 per share.
Income Statement Reporting
On the income statement for the year ended December 31, the total amount of unrealized gain/loss and dividend revenue reported by Bailey, Inc. would be:
Reporting in the Statement of Financial Position
The amount that should be reported in the statement of financial position as of December 31, 2020 in relation to the biological assets is:
a. P3,000,000 b. P3,475,000 c. P3,575,000 d. P4,000,
Accounting for Land Held for Future
Development
Company C's Land Purchase
In 2015, Company C purchased a plot of land on the outskirts of a major city at a cost of P15,000,000. The national government has plans to develop the area as an industrial park in five years, and the land is expected to greatly appreciate in value.
Reporting in the Statement of Financial Position
As of December 31, 2020, the property has a current fair value of P15,400,000. How should the company classify the property in its December 31, 2020 statement of financial position?
a. as land at its historical cost of P15,000,000 b. as land at its current fair value of P15,400,000 c. as investment property at its current fair value of P15,400,000 d. as inventory at the lower of cost of P15,000,000 or current fair value of P15,400,
Measurement Basis for Property
Magical Lamp Company's Property
Magical Lamp Company owns a property that is let out to tenants under operating leases. The property cost P5,000,000 on January 1, 2020 and was assessed to have a 50-year useful life on that date. On December 31, 2020, its fair market value is P6,300,000.
Accounting Treatment
At acquisition, Magical Lamp Company decided to adopt the measurement basis for the property that best reflects the qualitative characteristics of faithful representation and verifiability.
The amounts recognized in the financial statements for the year ended December 31, 2020 are:
a. Carrying amount of property: P4,900,000, Profit or loss: (P100,000), Other comprehensive income: Nil b. Carrying amount of property: P5,000,000, Profit or loss: Nil, Other comprehensive income: Nil c. Carrying amount of property: P6,300,000, Profit or loss: P1,300,000, Other comprehensive
income: Nil d. Carrying amount of property: P6,300,000, Profit or loss: (P100,000), Other comprehensive income: P1,400,
Accounting for Investment Properties and
Property, Plant and Equipment
Greedy Dragon Company's Tower A
Greedy Dragon Company adopts the fair value model for its investment properties and the revaluation model for its property, plant and equipment. Tower A, which is being developed for use as an investment property, had a carrying amount at July 1, 2020 of P120,000,000 and a remaining useful life of 40 years.
In June 30, 2021, Greedy Dragon Company was offered P144,000,000 for the property by an interested party. If Greedy Dragon Company sold the property, it could buy a similar sized property elsewhere for P141,000,000.
The correct accounting treatment of Tower A in the year ended June 30, 2021 is:
a. Increase the carrying amount to P141 million and recognize P21 million in profit or loss b. Increase the carrying amount to P144 million and recognize P24 million in profit or loss c. Increase the carrying amount to P141 million and recognize P24 million in other comprehensive income d. Increase the carrying amount to P144 million and recognize P27 million in other comprehensive income
Presentation of Financial Statements
Circumstances Requiring a Third Statement of Financial
Position
A complete set of financial statements includes a third statement of financial position as at the start of the earliest period presented in which of the following circumstances?
a. The year-end date has changed b. The correction of errors and changes in accounting estimates c. Changes in accounting policy and changes in accounting estimates d. Changes in accounting policy and the correction of material errors
Downloaded by Felicity Odiamar (fodiamar@gbox.ncf.edu.ph) lOMoARcPSD| 15078776
The cost ratio using the conventional method is 0.6362632. The inventory ending at cost is P300,316.
FIFO and Average Cost Inventory Valuation
The inventory ending at retail is P472,000. The cost ratio using the conventional method is 0.6540746. The inventory ending at cost is P308,723. The goods available for sale at cost are P1,682,280. The goods available for sale at retail are P2,572,000. The cost ratio using the average method is 0.6540746.
FIFO Inventory Valuation
The inventory ending at FIFO is P363,900. The units in the inventory ending are unknown. The unit cost from the October purchase is P53. The unit cost from the September purchases is P52. The average unit cost is P51.98. The inventory ending in units is 6,900. The inventory ending at average cost is P358,662.
Investment Accounting
The carrying value of the investment at December 31, 2020 is P640,000. The share in the income reported is P840,000 x 25% = P210,000. The dividend received is P360,000 x 25% = P90,000. The acquisition cost of the investment is P520,000.
Biological Asset Accounting
The carrying amount as of January 1, 2020 is P2,500,000. The increase due to acquisition by purchase is P1,000,000. The gain arising from change in fair value less cost to sell attributable to price change is P300,000. The gain arising from change in fair value less cost to sell attributable to physical transformation is P200,000. The decrease due to harvest is P100,000. The decrease due to sales is P425,000. The total carrying amount is P3,745,000.
